By Patrick Crow
As Congress explores options to bolster the nation’s infrastructure, including the water and wastewater sectors, a report written for the National Association of Water Companies (NAWC) said more than $60 billion could be generated simply through regulatory reform.
President Donald Trump has promised a trillion-dollar transfusion for infrastructure projects (see Washington Update, WW, July 2017). The plan has been delayed, largely because it is due to follow congressional action on a tax reform bill, which also is stalled.
The infrastructure proposal would have relied heavily on using federal funds to leverage even larger private investments through programs like the new Water Infrastructure Finance Innovation Act (WIFIA).
Now the administration may be having second thoughts. The White House recently said there are “legitimate questions” concerning how public-private partnerships could be incorporated into an infrastructure package.
NAWC’s study, prepared by PricewaterhouseCoopers (PwC), said key changes to the water regulatory framework could generate $43 billion in incremental drinking water investments over 10 years, another $15-25 billion in private wastewater infrastructure investments, and a potential $20 billion from public-private partnerships.
The report explained that the current state and local regulatory framework often fails to create the economic incentives necessary to drive the partnerships that could optimize public resources and private sector expertise.
PwC said the State Revolving Fund (SRF) programs could be used to encourage regionalization in the water sector. “Incentives to award utility owners who choose to partner with another utility (public or private) should be strongly considered.”
It said another solution would be to lift the cap on private activity bonds, or exempt facility bonds. “These bonds are a form of tax-exempt financing for state and municipal governments that engage the private sector to make infrastructure repair and construction more affordable.”
PwC said the federal government could eliminate the need to “defease” public bonds alongside an asset purchase. “With a simple IRS interpretation change, municipal system acquisitions would improve the net proceeds that municipalities receive when their systems are purchased or consolidated at their option.”
It said Congress could ensure private water companies are eligible for Clean Water SRF funding in the 12 states they are not. They are eligible for Drinking Water SRF funds in all states.
And PwC said low-income water utility assistance programs could be incentivized. States could enact laws to allow for tiered pricing structures.
Christopher Franklin, NAWC president-elect, testified at a recent House Water Resources and the Environment Subcommittee hearing. Franklin, who is CEO and president of Aqua America Inc., recommended that Congress encourage partnerships and consolidation in the water sector, lower the barriers to regulated water company investments, and promote utility management practices that stress financial viability and performance accountability.
He noted that the 50,000 drinking water systems and nearly 15,000 wastewater utilities are highly fragmented. They face challenges such as limited access to capital, operational inefficiencies, Environmental Protection Agency regulations, and reduced purchasing power.
Franklin said EPA’s compliance database shows thousands of wastewater systems are in significant noncompliance — and Congress should require them to meet financial viability, infrastructure stability, and operational resiliency standards.
The water industry recently received some good news regarding project financing: Republican congressional leaders indicated that interest on municipal bonds would continue to be tax exempt under the pending tax reform bill.
Earlier this year, the Association of Metropolitan Water Agencies and the National Association of Clean Water Agencies estimated that tax exemption had saved local water and wastewater systems $16 billion worth of financing costs for projects undertaken in 2016 alone. WW
About the Author: Patrick Crow covered the U.S. Congress and federal agencies for 21 years as a reporter for industry magazines. He has reported on water issues for the past 15 years. Crow is now an Austin, Texas-based freelance writer.