Unfunded Mandates, Economy Weigh on Municipal Water Market

Mayors, public works officials and water district managers are struggling to maintain their systems in tough economic times, while also meeting increasingly challenging state and federal regulations. Water and sewer rates are going up across the country and the total number of dollars being invested is also rising. But the perception remains that water infrastructure needs are rising faster than the industry’s ability to fund them.

Dec 1st, 2012
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By James Laughlin, WaterWorld Editor

Mayors, public works officials and water district managers are struggling to maintain their systems in tough economic times, while also meeting increasingly challenging state and federal regulations. Water and sewer rates are going up across the country and the total number of dollars being invested is also rising. But the perception remains that water infrastructure needs are rising faster than the industry's ability to fund them.

According to the US Conference of Mayors, investment in water infrastructure has risen by 7.6 percent annually since about 1972. While investment growth dipped below that average after the most recent economic downturn, it is on pace to top that average this year. In nominal dollars, expenditures have risen since 2000 without any break for both water and sewer.

The struggle for many city and utility leaders in recent years has been the growing regulatory burden and what is seen as unfunded mandates from the federal government.

In June, the Conference of Mayors adopted a resolution entitled "Water, Wastewater Investment Priorities for Cities." It states that the first and highest priority is to invest in current systems to avoid disruption of service and prevent an increase in waterborne diseases. The second highest priority is to ensure future water supplies for their cities.

In some cases, cities are diverting money that should go for existing system maintenance to pay for expanded federal mandates. One obvious example is the push to control sewer overflows. In some cases consent decrees have totaled into the billions of dollars for individual communities.

To gain a better feel for how cities view the current state of affairs, WaterWorld talked with two mayors and a water system manager to learn about the struggles they face maintaining their systems in this era of tight budgets. The following are their thoughts, in their own words, with minor editing for clarity.

Lima, OH

David Berger is Mayor of Lima, OH. The city has a combined drinking water and wastewater department that serves about 50,000 customers, plus a public works department that oversees stormwater infrastructure.
David Berger, Mayor of Lima, OH.

"Federal mandates are driving most of our decision making, and we are having to fight for the opportunity to address the maintenance requirements of the existing system," Berger said. "It's a huge problem for us. We've been locked in a conflict with USEPA for about eight years on combined sewer and sanitary sewer overflow issues.

"We've got some sewers collapsing and we can't get the go-ahead to actually take care of those while we are continuing to debate the larger question of exactly how much will be expected of us in our CSO long term control plan.

"The dynamics around the whole issue are additional unfunded mandates versus the requirements for maintaining and upgrading our existing systems. They are very real and very difficult," Berger said.

The economy in Lima remains soft and that has had an impact on the local customer base. The city has lost some customers and others have cut back on their use of water. As a result, the city has had to redistribute costs to the remaining customers.

"We've been increasing both our water rates and our wastewater rates, and the forecast is that we will continue to do that," Berger said. "In fact, wastewater rates in particular, driven by CSOs, will continue to be very challenging for the next decade as we look at annual increases of 8 to 9 percent in order to get to the level we need to finance the unfunded mandates that are being levied."

Lima originally had an agreement with the Ohio EPA back in 1999 for a long-term control plan and that carried a price tag of $60 million. That was pre-empted five years later by USEPA, which has called for expenditures that have risen to nearly $200 million. Lima officials are negotiating for a lower price point in the range of $140 million.

"There's a real difference in what we had originally approved, what we are trying to keep it corralled at, and the expectations of the regional office of USEPA," Berger said.

There are some 770 cities around the country dealing with CSO issues. Projects range in cost from a few million to billions. St. Louis last year agreed to a consent decree with an estimated price tag of $4.7 billion spread over 23 years.

"As mayors we fight year in and year out to keep the Community Development Block Grants intact with the federal government. For the entire country, the Community Development Block Grant that was allocated (in 2010) was $4 billion. Here you have a single city forced into a consent decree at $4.7 billion. It's insane what's happening."

Berger said he was committed to doing what needs to be done to comply with the Clean Water Act. He said most mayors he has talked with agree that more needs to be done. However, funding remains a major concern

"I am very focused on making sure what we sign up for is in fact something my community can afford. The idea that we are going to be forced into a court decree that requires us to do something that we cannot accomplish, and that is not reasonable to accomplish in the short and the long term, is just not something I'm going to sign up for.

"The message that we've been trying to tell Congress is, 'these are orders that you and your organization have created for us. Either give us money to assist in meeting these objectives, or give us relief.' That relief has to recognize the affordability of fixed income households, the poor households of the community — not just what may be affordable to a regulator that may be making $100,000 a year.

"They have to take themselves out of the mindset of 'we give orders and you comply regardless of costs,' and adopt the mindset that actually focuses on what's happening to customers in these communities and how they afford this going forward."

Sacramento, CA

Robert Roscoe is general manager of Sacramento Suburban Water District, and a member of American Society of Civil Engineers Region 9 Water & Environment Committee. He also served on the ASCE's National Infrastructure Committee when it was compiling its Report Card for America's Infrastructure, which gave the country's drinking water and wastewater infrastructure a D-.
Robert Roscoe is general manager of Sacramento Suburban Water District

"The longer we put off dealing with our aging infrastructure problems, the less chance our children and grandchildren have of enjoying the same public health and public safety benefits of a well maintained public water system that has been a hallmark of modern American society," Roscoe said. "We are basically running the nation's infrastructure into the ground, deferring maintenance and replacements that shouldn't be deferred.

"Our district is probably spending around 80 percent of our overall capital budget replacing old infrastructure and we are still falling further behind. And we still have other issues such as new contaminant concerns and evolving regulations," he said.

"In 2007, '08 and '09, we had 13 percent rate increases in each of those years. That was largely to build into a pay-as-you-go main replacement program. Aging water mains continue to be our highest risk," he said. "We have many small, undersize backyard mains. Fire flow standards have changed significantly since the '40s and '50s. They were put in as bare steel pipe right after World War II and they are rusting through.

"We've made noteworthy progress with asset management and prioritizing repairs. The next issue is how much can you raise rates for the other critical assets such as wells, reservoirs and booster pump stations. That's a significant issue. The public is accustomed to a safe, reliable water supply that is also inexpensive," he said. "But putting your head in the sand and ignoring the fact that the system is aging and is in dire need of maintenance and replacement isn't being a good steward for the future."

Roscoe and other municipal leaders from around Sacramento participate in a lobbying trip to Washington each year. He said the last few trips have been frustrating at best.

"Three years ago, right after Obama was elected, the message was 'sorry, the country is broke and we have no money.' But the last couple of years have been even worse. The 112th Congress may have set the all-time record for lack of productive activity. Everyone knows that legislation from the House is dead on arrival in the Senate and vice versa.

"The gridlock currently in Congress has not been a friend to the development and maintenance of water projects," Roscoe said. "If Congress will work together, that will bode better for the future of America's infrastructure. The investment that's needed is staggering and growing.

"Americans generally respond to emergencies. After a big flood there is all kinds of attention for flood control. After a hurricane there is a lot more attention to NOAA predictive capabilities and emergency response. Water and wastewater system operators are very ingenious about holding things together but there will come a break point where repair clamps won't get the job done. I hope we find a way to address our infrastructure needs before we have catastrophic failures that threaten public health and safety," Roscoe said.

Omaha, NE

Jim Suttle is the Mayor of Omaha, NE. The city operates a regional sewer system that serves three counties and a population of about 700,000 customers. Local drinking water is supplied by a combined utility providing water and natural gas service.
Jim Suttle, Mayor of Omaha, NE.

Suttle said the biggest challenge for his city is unfunded federal mandates, primarily focused on combined sewer overflows.

"We have this unfunded federal mandate to separate the combined sewers into separate sanitary and storm," Suttle said. "This is a $1.7 billion cost that is coming at a very bad time. It's strictly an overhead cost, a burden on top of our residents and our industries that is not affordable."

The federal government "needs to be a financial partner. And we need to use technology and green solutions to come up with a better way to meet the clean water mandates."

Currently, there is a "partnership of words, a partnership of demands. They are making demands on the backs of the citizens and the industries here to pay for something that we are not able to afford," Suttle said.

EPA's proposed Integrated Municipal Stormwater and Wastewater Planning Approach Framework, released earlier this year, is a good first step but doesn't really solve the problem of unfunded mandates, he said.

"When you read their material, it says you can rearrange things and put the higher priorities first. But at the end of the day, you still have to fund 100 percent of the clean water requirements on your own. All they are doing is rearranging the chairs on the financial Titanic," Suttle said.

"That's the burden for me as a city leader. How do we go into horrific debt to meet this mandate coming from EPA?" he said.

"It seems like we are pretty much on our own to figure out what to do, how to do it and how to pay for it. We are getting less and less assistance from the federal government because Congress is not setting a transportation policy nor an infrastructure policy for the future. And we are getting less and less help from the state of Nebraska as the focus of the governor and the legislature are more on the rural areas of the state, and the urban areas are left to be on their own."

For the past two years, city leadership in Omaha has been struggling with a "revolt" by 19 industries that were outraged by proposed water rate increases that ranged from 200 to 600 percent. The industries included meat packing, food processing and baking — all large water users and major employers. The industries said they were not willing to pay for the price increases and even threatened to leave the city.

"I can't afford to have a single industry leave the city," Suttle said. "The cost is still $1.7 billion. I either spread it over the 19 industries or something less. We can't have less. We need the same and more.

"We're going to get that solved with a restructuring of how the cost will be distributed back over 13,000 commercial users to soften the blow on the 19 industries. But all we are doing is rearranging the cost recovery model. We are still faced with this unaffordable $1.7 billion federal mandate."

Suttle said Congress needs to devote money to a research effort to find better, cheaper was to deal with combined sewer overflows. He noted that when the military is developing a new tank or missile system, Congress funds a research effort to produce that particular piece of technology.

"We've had nothing like that in the field of sanitary engineering," he said. "I am pushing for the administration to support a mammoth research initiative to find better ways to zap the bacteria and other problems with wastewater which will help us have a cheaper solution than this sewer separation."

"Secondly, I think the Congress and Administration should come up with a way to fund these unfunded mandates. We need 50/50 federal funding to help the 772 jurisdictions [with combined sewers]. We cannot continue on the course of zero federal funding with 100 percent of the burden, as debt, on the shoulders of so many citizens and industries across the nation. It doesn't work."

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