By James Laughlin
The money generated by user charges and other local sources of revenue was less than the full cost of providing service for over a quarter of drinking water utilities and more than 4 out of 10 wastewater utilities in their most recent fiscal year, according to a report from the General Accounting Office.
In the last two months GAO and EPA have released reports on the health of the municipal water and wastewater industry as it relates to infrastructure funding (See related article on page 1). The reports provide an interesting array of statistics and information about the financial state of the water industry.
Unfortunately for municipalities across the country, I believe the message they're sending to Congress won't do much to stimulate federal funding and could lead to inaction.
As our cover article discusses, EPA examined the "Gap" that might exist between current funding levels and the required infrastructure funding over the next 20 years. The GAO report, Water Infrastructure: Information on Financing, Capital Planning, and Privatization, examines how the funds obtained by large drinking water and wastewater utilities through user charges and other local funding sources compare with the cost of providing service. It also discusses how utilities manage existing capital assets and plan for needed capital improvements.
According to GAO, more than a quarter of utilities lacked adequate plans for managing their existing capital assets. Among those that did have asset management plans, more than half did not cover all their assets or omitted key plan elements, such as an assessment of the assets' physical condition.
While most utilities had a preventive rehabilitation and replacement program for their pipelines, the actual rate of rehabilitation and replacement in recent years was less than their desired levels, and many had deferred maintenance, capital expenditures, or both.
Among those utilities who weren't covering their cost of service, more than half had raised their rates two times or less during the 10-year period from 1992 to 2001. However, GAO found no statistically significant difference in the frequency of rate increases between utilities that did not cover their costs and those that did.
I believe these reports, requested by Congress to help with budgeting considerations, send the message that the looming infrastructure funding crisis is more a matter of inadequate management and planning and not primarily a funding issue.
According to EPA's report, the municipal industry as a whole could overcome the funding gap by increasing rates by 3 percent a year over inflation. Implementing asset management programs and sound business practices would also work together to limit the need, according to both reports.
If I were a member of Congress struggling with a tight national budget, the war on terrorism and a declining economy, I might be inclined to use these reports as an excuse to shelve or reduce federal funding for water.
The State Revolving Loan Fund monies included in next year's EPA budget have a fair chance of surviving the cost-cutting axe, but any other significant water funding has no chance this year. Two water funding bills made it out of committee this year, S. 1961 – the Water Investment Act of 2002 and H.R. 3930 – the Water Quality Financing Act of 2002.
The bills would provide a substantial increase in funding for the municipal water industry. Both advocate principles of asset management, system sustainability, and greater private sector involvement.
Despite high hopes and significant effort by water industry supporters, neither bill made it to the floor this session. Although the groundwork has been laid for next year, both bills face an uncertain future.
James Laughlin, Editor
