New Report Highlights Staggering Costs Ahead for Water Infrastructure

The American Water Works Association (AWWA) has warned that the cost of repairing and expanding U.S. drinking water infrastructure will top $1 trillion in the next 25 years, an expense that likely will be met primarily through higher water bills and local fees.

Apr 1st, 2012

By Patrick Crow, Washington Correspondent

The American Water Works Association (AWWA) has warned that the cost of repairing and expanding U.S. drinking water infrastructure will top $1 trillion in the next 25 years, an expense that likely will be met primarily through higher water bills and local fees.

The AWWA examined the timing of water main installation and life expectancy, materials used, replacement costs and shifting demographics. It said nationally, the infrastructure needs are almost evenly divided between the needs to replace and expand infrastructure.

"Because pipe assets last a long time, water systems that were built in the latter part of the 19th Century and throughout much of the 20th Century have, for the most part, never experienced the need for pipe replacement on a large scale," the report said. "The dawn of an era in which the assets will need to be replaced puts a growing stress on communities that will continue to increase for decades to come."

AWWA's $1 trillion estimate covered work until 2035, if pipes are replaced at the end of their useful lives. Over a 40-year period, through 2050, the needs exceed $1.7 trillion. Replacement needs account for about 54% of the national total, with the balance (about 46%) attributable to population changes over that period.

It said pipe replacement expenses account for more than 84% of the $278 billion needed in the Northeast and Midwest through 2035. In the rapidly growing South and West, expansions to meet a growing population amount to about 62% of the projected need of $277 billion in that same time period.

The AWWA study said that required national-level investment will double from roughly $13 billion a year now to almost $30 billion annually by the 2040s (in 2010 dollars) and that level of investment must be sustained for years if current levels of water system performance and service are to be maintained.

It said increases in household water bills will vary, but in some communities the infrastructure costs alone could triple the size of a typical family's bill. It said rural communities may face the biggest challenge because their scattered populations require more pipe miles per customer.

The study said that the most impacted households could see their drinking water bills increase between $300 and $550 per year above current levels to address infrastructure needs.

AWWA said postponing infrastructure investment in the near-term raises the overall cost and increases the likelihood of water main breaks and other infrastructure failures. It added that the $1 trillion investment does not have to be made all at once: there is time to implement asset management plans and set rates that more closely reflect the cost of water service.

The AWWA report was issued before a House of Representatives panel explored potential financing tools to help communities to finance wastewater and drinking water facilities mandated by environmental laws and regulations.

Rep. Bob Gibbs (R-Ohio) chaired the hearing by the Committee on Transportation and Infrastructure's Subcommittee on Water Resources and Environment. He said municipalities face unfunded federal mandates at a time of dwindling revenues due to the economic downturn.

Gibbs was working on a bill to provide direct low-interest loans to drinking water and wastewater systems that are planning or constructing "significant" infrastructure projects.

His Water Infrastructure Finance and Innovation Act (WIFIA) is similar to a proposal by water groups, including AWWA, the Association of Metropolitan Water Agencies (AMWA) and the Water Environment Federation (WEF).

Under WIFA, EPA would give direct federal credit assistance to drinking water and wastewater infrastructure projects seeking loans larger than $20 million. The program would complement, not replace, the existing state revolving fund (SRF) programs. It would focus on projects that may not benefit from SRF assistance due to their large price tag or their low placement on state priority lists.

Drinking water and wastewater projects eligible for loan assistance through WIFIA would include a variety of construction, replacement, and rehabilitation projects, security enhancements, energy efficiency improvements, water reuse projects and efforts to increase water efficiency or reduce demand for water system capacity.

At the hearing, M3 Capital Partners Vice President Thaddeus Wilson said his firm is forming a North American water infrastructure fund that will be initially capitalized by a U.S. public pension plan as the "cornerstone" sponsor.

"It is expected that the fund will focus primarily on offering an innovative Design-Build-Operate-Finance approach to municipal water infrastructure project delivery. We believe this approach offers a robust form of public-private partnership to municipalities to capitalize their water infrastructure improvements, which may include the repair, upgrade or replacement of drinking water and wastewater treatment facilities and, in some cases, their related distribution and collection systems," he said.

Also at the hearing, Aurel Arndt, general manager of Lehigh County Authority in Allentown, PA, testified for AWWA. He said WIFIA "would fill a significant gap between what current water infrastructure tools can do and what needs to be done."

He said WIFIA would lower the cost of local water infrastructure projects at little or no long-term cost to the federal taxpayer. The mechanism would borrow U.S. Treasury funds to provide low-interest loans, loan guarantees, or other credit support to local communities. Loan repayments, with interest, and guarantee fees would flow back to WIFIA and into the U.S. Treasury, with interest. Eligible water infrastructure projects would include water, wastewater, and wet weather related projects.

Arndt said AWWA believes the local rates and charges should remain the cornerstone of water infrastructure financing, but there are times when large infusions of capital are needed for major projects.

"WIFIA will allow our nation to build more water infrastructure at less cost," Arndt said. "A number of water infrastructure tools have been sincerely proposed over the years, but WIFIA is the one that best targets the real needs of communities, makes the most fiscal sense, and that will have the most impact on our nation's water infrastructure."

WEF Executive Director Jeff Eger also endorsed the WIFIA approach. "Local governments are facing the worst financial circumstances in more than a generation. If we are going to continue to provide essential services and make progress in water quality, we need to re-imagine the way we provide local water services. We need to encourage innovation innovative technologies, innovative management approaches, and innovative financing."

The National Association of Water Companies (NAWC) also testified about financing solutions for the nation's investment in water and wastewater infrastructure. Jeffry Sterba, president and CEO of American Water Works Co., NAWC's largest member, said substantial private capital already is at work in the water industry.

He said NAWC has estimated that its six largest members together are investing around $2 billion each year in their systems, compared to the $2.4 billion total federal appropriation for the Clean Water and Drinking Water state revolving fund (SRF) programs this fiscal year.

In other Washington news:

WEF has announced a new strategic direction to champion sector-wide initiatives that improve water services through innovative practices and holistic water management approaches.

EPA said it will provide up to $15 million in funding for training and technical assistance to small drinking and wastewater systems, those that serve less than 10,000 people, and private well owners. It said 97% of the nation's 157,000 public water systems serve less than 10,000 people and more than 80% of those serve less than 500 people.

The Obama Administration's proposed fiscal 2013 budget proposal would cut EPA spending and SRF funding for the third year in a row. EPA's funding would drop $105 million to $3.8 trillion. The Drinking Water SRF would fall $69 million to $850 million and the Clean Water SRF would decline $325 million to $1.175 billion.

EPA has awarded $388,000 to Andrews, TX, to install a filtration and reverse osmosis system to reduce arsenic and fluoride levels in drinking water.

The Water Environment Research Foundation is seeking proposals for technologies and processes to support the transition from a treatment-based water quality industry to a resource recovery and reclamation industry. The first target will be to develop phosphorus recovery technologies for different sized wastewater plants.

The Water Research Foundation is seeking proposals to improve and/or evaluate technologies and techniques for deteriorating water infrastructure. It and WERF plan to issue $500,000 in grants in 2012 in the third year of a four-year research program funded by EPA.

In a settlement with EPA, Welch, WV, has agreed to begin a $16 to $23 million program to end combined sewer overflows. Also, Welch will separate its sanitary wastewater and storm sewers and pay a $5,000 penalty for past violations.

The agency said Armstrong Environmental Services of Lancaster, PA, will pay a $35,000 penalty for allegedly exceeding industrial wastewater discharge permits into the city's wastewater treatment plant.

EPA has granted Plattsburg, MO, $364,000 toward a $661,800 to expand its drinking water main. The work includes 9,200 feet of 16-inch iron pipe, water valves and fire hydrants.

It has awarded $6.7 million to the Guam Waterworks Authority to improve drinking water and wastewater systems and meet groundwater monitoring requirements.

WEF Executive Director Jeff Eger also endorsed the WIFIA approach. "Local governments are facing the worst financial circumstances in more than a generation. If we are going to continue to provide essential services and make progress in water quality, we need to re-imagine the way we provide local water services. We need to encourage innovation innovative technologies, innovative management approaches, and innovative financing."

The National Association of Water Companies (NAWC) also testified about financing solutions for the nation's investment in water and wastewater infrastructure. Jeffry Sterba, president and CEO of American Water Works Co., NAWC's largest member, said substantial private capital already is at work in the water industry.

He said NAWC has estimated that its six largest members together are investing around $2 billion each year in their systems, compared to the $2.4 billion total federal appropriation for the Clean Water and Drinking Water state revolving fund (SRF) programs this fiscal year.

In other Washington news:

--WEF has announced a new strategic direction to champion sector-wide initiatives that improve water services through innovative practices and holistic water management approaches.

--EPA said it will provide up to $15 million in funding for training and technical assistance to small drinking and wastewater systems, those that serve less than 10,000 people, and private well owners. It said 97% of the nation's 157,000 public water systems serve less than 10,000 people and more than 80% of those serve less than 500 people.

--The Obama Administration's proposed fiscal 2013 budget proposal would cut EPA spending and SRF funding for the third year in a row. EPA's funding would drop $105 million to $3.8 trillion. The Drinking Water SRF would fall $69 million to $850 million and the Clean Water SRF would decline $325 million to $1.175 billion.

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