By Dawn Kristof Champney, WWEMA President
WWEMA just concluded its 38th Washington Forum with the theme Political Pendulum: Impact on Business in the Water Sector. Pressing on the minds of those in attendance was the question “Where is the water and wastewater market headed given the economic uncertainty facing the nation and the political turmoil in Washington?”
We invited representatives from Congress and the Administration to give us their take on what to expect by way of new laws and regulations governing the industry and driving the demand for water and wastewater products and services. Also on the program were municipal officials, state representatives, financial analysts, and international trade consultants – a broad cross section of specialists offering unique perspectives and great insights into the forces driving the marketplace.
Overall, the general feeling was that all the basic fundamentals were in place to give cause for optimism about the outlook for companies serving this industry sector. From a regulatory perspective, despite efforts in Congress to rein in EPA’s authority, there are a number of significant new regulations coming down the pipe (pardon the pun) that will keep manufacturers of water and wastewater equipment in business for many years to come, from new stormwater and sanitary sewer overflow regulations, to standards governing ballast water discharges and cooling water intake structures. There appears to be no slowing down on the drinking water front either with EPA’s decision to regulate perchlorate and a group of carcinogenic volatile organic compounds, among other regulatory proposals being pursued to further protect public water supplies.
The aging of the infrastructure is going to necessitate significant capital investments for years ahead, which will continue to drive the need to charge full-cost pricing of water and wastewater services. George Hawkins, general manager of D.C. Water (and home to the world’s largest advanced wastewater treatment plant) described the pre-Civil war pipes that serve the White House and the need to raise rates by 135% over the next 10 years to replace water mains and sewer lines, install enhanced nitrogen technology, and prevent sewer overflows.
Availability of funding, always a critical factor in our industry’s ability to meet its massive capital investment needs, appears to be loosening up, according to Kimberly Welsh, managing director of municipal capital markets at Janney Montgomery Scott. She reported that Fitch and Standards & Poor recently affirmed the stable outlook for municipal credit. State and local tax receipts also continue to rebound from their 2009 trough, which reflects positively on the health of municipal and state governments, and the recovering labor market should provide a stable tax base going forward.
The fact that 68% of U.S. municipal water systems are ‘enterprise funds’ shelters them from being raided by local governments with budget shortfalls, according to Welsh, making them less vulnerable to the impact of the recession.
Phil Sudol, vice president of AECOM, predicted positive growth for the industry beginning later this year, especially in the distribution side to manage water loss and in the collection side to handle infiltration and inflow. He is especially excited about the possibility of legislation passing during this session of Congress to remove water and wastewater projects from under the state cap for tax-exempt private activity bonds, which could generate billions in private capital being injected in the industry.
Though acknowledging that the industry was experiencing a temporary slowdown in 2011, with projects having been fast-tracked to take advantage of the stimulus funds offered during 2009-2010, Sudol predicted that engineering firms will see business pick up in the fourth quarter of 2011, with equipment manufacturers to feel an uptick on their end a year later.
Looking five years out, the water market is expected to grow from $12.5 billion in 2011 to nearly $18 billion in 2016, according to Sudol. Similarly, the wastewater market will grow from approximately $14 billion in 2011 to $22.5 billion in 2016.
Ken Simonson, chief economist for the Associated General Contractors of America, confirmed the resiliency of the water and wastewater market, noting that among some 16 categories he tracks within the non-residential construction sector, only four saw positive growth in spending over the last 12-month period, including highway and street (11%), water supply (7%), power (5%) and sewage and waste disposal (1%). He, too, alluded to a temporary slowdown in public works construction now that the stimulus funds have been spent, but remains positive about the outlook.
WWEMA released the results of its bi-annual Market Indicators Survey at the Washington Forum. This survey, taken of its members, offers a glimpse into how the industry has fared over the prior 12-month period and how it looks going forward, tracking such indices as industry growth, domestic and international sales, design work, quotations, bookings, material costs and employment. Overall, the members of the association remain optimistic with 53% anticipating growth in the next year compared to only 42% the prior year. Let us hope their predictions come true.
WW
About the author: Dawn Kristof Champney is President of the Water and Wastewater Equipment Manufacturers Association. WWEMA was founded as a national, non-profit trade organization in 1908 to represent the interests of its members, which supply the most sophisticated leading products and technologies, offering solutions to every water-related environmental problem and need facing today’s society.
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