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Many utilities deferring maintenance due to funding crunch --
GAO
CLEAN WATER
Greenwire
09/19/2002
Tim Breen, Greenwire associate editor
Nearly one-third of U.S. water utilities are not able to fully fund their
operating and capital costs through local charges as called for by trade
organizations and are deferring important maintenance work, the General
Accounting Office has found. GAO -- the federal government's auditing arm -- was
called in on the matter by members of the Senate Environment and Public Works
Committee as Congress considers several legislative plans to address hundreds of
billions of dollars in funding shortfalls for the nation's water infrastructure.
Operating principles set by the trade groups state that wastewater and drinking
water utilities should cover the full cost of providing service -- including
operation and maintenance, debt service, depreciation and taxes -- through user
charges and other local revenue, GAO noted. The trade groups -- such as the
Association of Metropolitan Sewerage Agencies, Association of Metropolitan Water
Agencies, American Water Works Association and Water Environment Federation --
also have policies for managing utilities' assets and planning for future
capital needs.
But in a report made public yesterday, GAO said its sampling of utilities across
the country found more than 25 percent of drinking water facilities and more
than 40 percent of wastewater facilities could not cover the full cost of their
services through local revenue in their most recent fiscal year. The revenue was
enough for nearly every utility to at least cover operation and maintenance
costs, but 29 percent of utilities deferred maintenance because of insufficient
funding, GAO said.
The agency further found that more than one-quarter of utilities lacked plans
recommended by the trade groups for managing existing capital assets, but nearly
all had plans identifying future capital improvement needs. Of the utilities
that did have plans for existing assets, more than half did not cover all their
assets or omitted key plan elements. Furthermore, while most utilities had
preventive rehabilitation and replacement programs for their pipelines, 60
percent of drinking water and 65 percent of wastewater facilities were not
pursuing such work at "desired levels," and many had deferred maintenance or
capital expenditures, or both, according to GAO. When looking at their future
capital needs, nearly half of utilities said they would not have enough money to
finance them, the agency said.
Finally, GAO also looked at factors affecting decisions by private companies to
take over utilities from government or other public ownership, finding not
surprisingly the profit motive to be most influential. Companies tend to use
similar criteria when considering ownership: opportunities to enhance operating
efficiency, a utility's proximity to a firm's existing operations, potential for
system growth, and likely need for capital investment. But state policies also
influence privatization agreements, from incentives to take over financially
troubled utilities to restricting the use of design-build-operate contracts, GAO
said.
Utilities have said for years that they will need hundreds of billions of
dollars over the next 20 years to replace aging infrastructure, accommodate a
growing population and meet new water quality regulations. Even the U.S. EPA has
estimated the need at $200 billion to $300 billion, while trade group estimates
now run to even $1 trillion.