Clean Water Advocacy - Newsroom - AMSA in the News
Associations Look to Future of Industry
By James Laughlin, Editor, WaterWorld
Much of the drinking water and wastewater infrastructure in the United States
must be replaced in the next three decades. While industry associations are
working to generate increased federal funding, ultimately the rate-paying public
will have to finance the bulk of the replacement costs.
This will be especially challenging for water utilities who must educate their
customers about the true value of water while at the same time raising rates
dramatically.
WaterWorld recently talked with the major associations serving the drinking
water and wastewater markets in the US to get their impressions on the state of
the industry and where the market is headed in terms of
construction/rehabilitation.
They all agreed the industry faces a looming infrastructure funding crisis.
"In terms of construction and rehabilitation over the next few years, AWWA
forecasts investment needs that will rise steadily," said Jack Hoffbuhr, P.E.,
DEE, Executive Director of the American Water Works Association.
"Considering the huge wave of aging pipe infrastructure created in the last
century, we can expect to see significant increases in break rates and therefore
repair costs over the coming decades. This will occur even when utilities are
making efficient levels of investment in replacement that may be several times
today's levels," Hoffbuhr said.
"Replacement of water treatment assets presents a different picture from that of
the pipes, but greatly complicates infrastructure funding for utilities. Many
treatment plants built or overhauled to meet EPA standards over the last 25
years will be due for their first replacement in the next decade or so. Spending
for treatment plant replacement will occur at intervals causing 'humps' in
capital needs on top of the infrastructure replacement capital needs," he said.
Any discussion about water infrastructure management also must include a growing
list of other expenses, including the expansion of water systems to handle
population growth, Hoffbuhr said.
New security needs also have affected the infrastructure funding landscape.
Utilities have spent approximately $2 billion since 2002 to improve physical
security with more fences, locks, cameras, guards and other protections.
Another very significant expense for water utilities is the cost of compliance
with new federal mandates. Investments in treatment present a more concentrated
financing demand than investments in pipes, and these investments will continue
as regulations continue to evolve, Hoffbuhr said.
"There is a serious gap between current investment and the levels of investment
required to sustain adequate drinking water service over the long run," he said.
"And in addition to the above competing interests, the general public
undervalues water to the point that utilities nationwide face major challenges
in setting responsible rates."
The wastewater side of the market faces the same basic problem - how to pay for
the needed construction and rehabilitation, said Ken Kirk, Executive Director of
the Association of Metropolitan Sewerage Agencies.
"The major challenge at the local level is how to pay for these projects. They
are going to do them, but the question remains where the money is going to come
from," Kirk said.
The only real answer is increased federal funding, despite the current climate
of reduced federal spending, he said.
"If you have attitude that federal funding is not likely to materialize, then it
will not. Our view is that it must materialize. We are doing everything in our
power to insure that it does materialize," Kirk said.
AMSA is working with other water industry organizations to develop draft
legislation to establish a national trust fund to help finance water
infrastructure. Kirk said he hopes to have details of the legislation worked out
in time to be introduced when the new Congress convenes in early 2005.
"We hope this legislation would result in an injection of significant additional
funds to support the SRF and highlight high priority projects in the wastewater
and drinking water arena," Kirk said.
However, members of the Water Environment Federation's Utility Management
Committee don't expect a significant increase in federal funding, said Lynn
Orphan, the 2004-2005 President of the Water Environment Federation (WEF). Based
in Reno, NV, Orphan is senior engineer and regional manager of business
development at Kennedy/Jenks Consultants.
"They don't expect to see major federal funding outside of the State Revolving
Fund," Orphan said. "They recognize that Congress does not see water
infrastructure as a crisis that needs to be funded by a federal program -- not
like the Clean Water Grants program days when water was seen as a crisis in the
public's eyes."
While that's a concern for economically depressed communities, utilities with
economically stable or growing communities should be able to meet their funding
needs, she said.
"We can raise enough money to pay for our infrastructure, and will do so. And,
frankly, many utilities would rather raise their own money than have some kind
of federal tax or program where the administration in Washington takes some off
the top before they send the money back to the states," Orphan said.
"There is a need to provide funding for rural communities and for cities that
are economically depressed, but more based on need then than a general program
available to all cities," she said. "The USDA rural development funding program
offers a combination of grants and low interest loans, and is based on the
economic need of the community. That's been very successful."
Orphan said she supports increased funding for existing programs, rather than
establishment of any new federal programs.
While drinking water groups have been cool to a Federal trust fund for water,
the federal government must play a role in funding water infrastructure,
Hoffbuhr said.
"The critical federal role should include significantly increasing low-interest,
long-term loan funding for projects to repair, replace, or rehabilitate drinking
water infrastructure, and increasing funding for research on infrastructure
management, repair and replacement technologies," he said.
However, ultimately, the rate-paying public will have to finance the replacement
of the nation's drinking water infrastructure, Hoffbuhr said.
"AWWA advocates for local financing to meet the great majority of the nation's
water infrastructure needs and remains committed to the principle of full-cost
recovery through rates," he said.
AWWA recently released a new report, Avoiding Rate Shock: Making the Case for
Water Rates. It provides utilities with insights into gaining community support
for necessary improvements to drinking water infrastructure and successfully
communicating their needs to elected leaders and consumers.
"It's time we moved the dialogue about the value of our drinking water
infrastructure above ground," Hoffbuhr said.
The Water Environment Federation, along with the other associations, is working
to keep the State Revolving Loan Fund at it's current $1.35 billion annual
level. Congress is currently considering a bill that could cut funding by some
$500 billion in 2005.
Utilities looking for funding can still take advantage of the SRF. Other sources
include raising funds locally through higher user fees or bond sales, or
obtaining other funding in the private financial market, said Tim Williams,
WEF's Managing Director of Government Affairs.
"Most projects will likely be funded through a combination of all these
sources," Williams said. "All of these funding scenarios will require enhanced
efforts to educate the public and local ratepayers about the public health,
economic, and environmental benefits of clean water - something the water
profession has not done a good job of in the past. WEF hopes to help change this
with our new water infrastructure education campaign."
Of course, funding is not the only challenge faced by the industry. AWWA
launched a comprehensive survey this year that identifies trends and issues in
the water industry. The survey will be conducted annually as an industry
"check-up". A full State of the Industry Report was to be published in the
December 2004 Journal of the AWWA. A synopsis of the report can be found on the
Internet at http://www.awwa.org/communications/journal/2004/October/News/1004persp.pdf
The report will show that the water industry is in reasonably good shape, but
serious short- and long-term challenges exist. Chief among them are: Increased
regulation and security requirements are draining financial and personnel
resources; the industry's aging infrastructure demands considerable investment;
and future water source concerns are intensifying as populations grow and source
water protection becomes more arduous.
"Funding these capital-intensive needs is clearly a daunting task for today's
water utilities," Hoffbuhr said.
The drinking water community faces a complex array of expensive new federal
requirements and new standards, including standards for arsenic, radon,
disinfection byproducts, enhanced surface water treatment and others. Wastewater
utilities also face enormously expensive federal mandates, such as those
relating to Combined Sewer Overflows (CSO) and Sanitary Sewer Overflows (SSO),
Hoffbuhr said.
"For both water and wastewater utilities, these needs significantly skew
financing for other investments, including the replacement of aging pipes and
other infrastructure. Many local ratepayers may be seriously challenged to pay
for these mandates. In many cases, it appears that spending for clean water
mandates has limited a community's ability to raise rates for drinking water
needs.
"Because federal mandates have consumed the ratepayer's budget, more routine
repair and replacement of drinking water infrastructure has been deferred in
many cases," he said.
Other challenges for the industry are an aging work force and related knowledge
management issues; the need to integrate data management systems; wet weather
management issues, and the need for some utilities to develop rate strategies,
Williams said.
Another for wastewater utilities is the movement in this country to deal with
water quality issues on a watershed basis, Orphan said.
"The challenge comes in trying to manage all of the loads in a watershed.
Conceptually that sounds easy, but the real challenge is to figure out where you
get the biggest benefit for your dollar," Orphan said. "Do you spend $150
million on a municipal wastewater plant, or do you change farming practices or
improve erosion control? Where do we need to focus our energies? There is a real
need to balance the environmental benefits with the costs."
Despite the challenges, the municipal water industry continues to do a good job
of serving its customers.
"I would characterize the water industry as strong, vibrant and moving forward,
but at the same time moving forward with a number of constraints that are going
to push out schedules to address limited availability of funding," Kirk said.
"To the extent that more money is coming down the pipeline from all sources,
then we will see a vibrant industry. To the extent that doesn't happen, we will
see a less vibrant market."
Orphan also feels the industry is strong right now. Especially from her view as
a consulting engineer, construction and rehab projects are moving forward and
the market is brisk.
"Rehabilitation of collection systems is one hot market. Every community that we
deal with is putting more and more of their council budget into rehab of their
collection systems," she said. "For treatment plants, we are seeing more and
more activity ... contractors are so busy that sometimes we only see one or two
bidders. Contractors just aren't as hungry."
WaterWorld December, 2004