The Environmental Protection Agency (EPA) estimate of $334.8 billion needed to fix the nation’s public water systems is just a number, unless you have to deal with the consequences, such as the 850 billion gallons of combined sewer overflows that are discharged every year, or the water mains that break every day in cities and counties across America. Those are statistics that resonate throughout local governments.
Despite the extreme need for attention, some stakeholders caution against crying “crisis” to attract funding. “That approach doesn’t work as well when you look like everyone else with a crisis that needs money,” says John Cromwell, managing economist for Boulder, Colo.-based Stratus Consulting. “The typical response is, ‘The line forms to the right with the police and fire and school district.’ That’s not a sustainable approach to infrastructure financing.”
So, despite the flush of stimulus package funds designated for water infrastructure repair, local utilities know they must explore other money-saving methods with long-term viability like design-build, asset management, public-private partnerships and regionalization. In addition, many are looking to the federal government for a national financing system to supplement their efforts.
BEYOND THE STIMULUS
The American Recovery and Reinvestment Act (ARRA) set aside more than $7 billion for drinking water and wastewater projects. Of that amount, $6 billion will be disbursed through the EPA clean water and drinking water state revolving fund (SRF) programs, with $4 billion dedicated to clean water and $2 billion to drinking water. The USDA Rural Water and Waste Disposal program is receiving $1.38 billion for loans and grants.
The funding is a major boost to the $695 million that Congress allocated for clean water projects in 2008, and it will fund about 400 water and wastewater projects, according to Peter Tunnicliffe, president of the Washington-based Water Design Build Council. “We’re grateful for every dollar,” says Tom Curtis, deputy executive director of the Denver-based American Water Works Association (AWWA). “But the amount is miniscule compared to the need; it’s a tiny fraction.”
Looking for a long-term federal funding program, AWWA leaders visited Capitol Hill in March to push for a federal water infrastructure bank that would offer direct low-interest loans and loan guarantees for water and wastewater infrastructure projects. The bank could be used by utilities to fill funding gaps left by SRFs, which are targeted to small and midsize communities, and municipal bonds, which are not a viable option for many utilities. The national water infrastructure bank would be available for projects larger than $75 million and would purchase SRF-leveraged bonds at below-market rates, which would allow the SRFs to make more loans. One suggestion is for the bank also to guarantee loans for projects and SRF programs, which would help lower the interest rate the borrower would pay.
For direct loans, the bank would borrow from the federal government banking system. Potential challenges include a lengthy application process and potential borrowing limits. Also, offering tax-exempt bonds that are guaranteed by the federal government to make them even more attractive would require a change to the Internal Revenue Code, which is highly unlikely, according to AWWA.
According to the 2008 Washington-based National Association of Clean Water Agencies (NACWA) Financial Survey, 28 percent of wastewater utilities’ budgets are used for debt service. The rest of their income is used for operation and maintenance (41 percent) and capital improvements (28 percent). The results were based on responses from 101 utilities representing 67 million centralized sewer customers. Because servicing debt can constitute such a considerable part of budgets, reducing interest rates through an infrastructure bank could free up money for additional projects. Compared to municipal bond market rates, a borrower under the infrastructure bank could save 26.3 to 34.1 percent on the total cost of the loan, according to AWWA’s Financing Water Infrastructure report.
In 2007, the Dodd-Hagel National Infrastructure Bank Act legislation was introduced, and President Barack Obama proposed the National Infrastructure Reinvestment Bank when he was a senator. Obama also has included a proposal for an infrastructure bank in the federal budget’s five-year outlook. Both of the bills, neither of which made it through the legislative process last year, were more focused on transportation infrastructure and overlooked water and wastewater, but AWWA is pushing for any federal bank to set aside money specifically for water and wastewater infrastructure. Curtis says that legislators have been receptive to the plan. “The key is presenting to a broader group of industry participants,” says Aurel Arndt, general manager for the Lehigh County Authority in Pennsylvania.
An alternative to the water infrastructure bank would be a water infrastructure trust fund, which would be funded by taxes on industry, such as manufacturers of flushable products, and would distribute loans and grants. The idea is supported by the Reston, Va.-based American Society of Civil Engineers and NACWA. The structure would be similar to other federal trusts, like the Highway Trust Fund. Legislation proposed in 2005, H.R. 4560, specified that such a fund would raise $7.5 billion annually for water infrastructure funding, but it never moved forward.
PURSUING OTHER STREAMS
Aside from federal funding help, utilities are looking at other ways to make infrastructure improvements. To lower project costs, utilities increasingly are turning to design-build and other alternatives to the design-bid-build approach. They can save money by having one firm or team bid on the entire project, rather than just the design or the construction.
Seattle, which has been a leader in the area, pursued design-build-operate with its Tolt Treatment Facility in the mid-1990s. The city started with a traditional design-bid-build process and planned to operate the plant once it was completed. Later, planners realized it would be more cost-effective to have one team design, build and operate the plant. Seattle was able to take that approach because of Washington state legislation in 1994 that made it legal, as well as the city council’s approval.
Design-build is the most common model for most projects worldwide but is only recently gaining traction in the U.S., Tunnicliffe says. An estimated 20 to 30 percent of all U.S. water and wastewater projects are using the method. In September 2008, Gov. Arnold Schwarzenegger signed a bill allowing design-build in California. But, because the method is still seen as non-traditional, funding projects sometimes can be more difficult.
Santa Fe officials are running into that obstacle in trying to fund the Buckman Direct Diversion Project, which diverts water from the Rio Grande River, supplying the area with a much-needed additional water source. “Coming up with $216 million is probably the hardest part of this project,” says Rick Carpenter, Santa Fe’s manager for the Buckman project.
One challenge was attracting competitive bids. Not only is the Buckman Direct Diversion the largest New Mexico water project north of Albuquerque, planners are using design-build. “It’s a better way to go, but it’s more complicated on your first try,” Carpenter says. “The bidding community wasn’t even sure about it, and then doing design-build made it hard to make ourselves attractive and get bids.”
ARRA is a golden opportunity for growth of the design-build delivery approach, because municipalities can start projects before all of the design is complete, Tunnicliffe says. That means projects could start in as soon as 120 days.
Implementing asset management to closely track assets, focus on sustainability and coordinate across different departments also can help save utilities money over the long term and make a better case to customers and funding entities. Cromwell points to Philadelphia, which is coordinating wastewater pipe replacements with road repaving to bundle construction and reduce costs.
Sometimes looking beyond the city or county to other partners is necessary. For example, some communities are too small to fund their own water and wastewater systems, so they are consolidating or working with other areas to pool resources. When the Lehigh County Authority was looking for an additional water source, it turned to nearby Allentown, Pa., which has excess capacity and a declining customer base within the city. The two jurisdictions arranged a buy-sell agreement in January, which eventually will transfer 7 million gallons of water per day from Allentown to Lehigh County.
Other jurisdictions simply need to find alternative sources of revenue. Contra Costa Water District in California has consolidated two small, nearby water systems that now pay into the utility. General Manager Wally Bishop recommends that local governments try bidding on contracts for military bases or private entities as an additional source of revenue if they have the capacity. For areas where drought and subsequent rationing occur, diversification of revenue streams can help soften the blow during those times.
Whether looking at the local, state or federal level, one solution is not going to solve the nation’s water and wastewater infrastructure funding problems. As local utilities work toward more creative approaches to tracking their assets, undertaking projects, pursuing new sources of revenue and securing funding, a sustainable federal solution could help supplement those advancements.
“There definitely are certain circumstances where state or federal assistance is needed,” Arndt says. “The federal government should play a role in those hardships, but it also should work to support best practices in water management and asset management.” Bishop argues that any federal funds should focus on research and development, new techniques, unique situations and small community regionalization.
Stakeholders will continue to disagree about the exact severity of the problem and the specifics of what a long-term, federal funding solution in particular would look like. But few would disagree that more investments must be made. “We have to begin now in the repair and investment,” Curtis says. “There’s no doubt from the data and studies from different groups: We have to invest more in this problem or [we will] create a bigger problem.”
- Brightwater Wastewater Treatment System — King County, Wash.
- Buckman Direct Diversion — Santa Fe, N.M.
- Infrastructure for water-sharing — Lehigh County and Allentown, Pa.
Jennifer Grzeskowiak is a Laguna Beach, Calif.-based freelance writer.
Project: Brightwater Wastewater Treatment System
Jurisdiction: King County, Wash.
Cost: $1.8 billion
Financing: Primarily capacity charges
Currently under construction, King County, Wash.’s Brightwater Wastewater Treatment System will be the largest expansion of a system in the region in about 40 years. Intended to meet the area’s growth-related needs, Brightwater will be comprised of a treatment plant, conveyance facilities — including 14 miles of pipeline — and a marine outfall that will discharge the treated wastewater into Puget Sound. When the plant goes online in 2011, it will treat an average of 36 million gallons of wastewater daily using membrane bioreactor (MBR) technology for secondary treatment instead of the more standard conventional activated sludge, which will make the water seven to 10 times cleaner than required. Decision-makers chose MBR to meet potentially more stringent environmental regulations for water quality in the future. Eventually, the county could incorporate tunnels in the infrastructure to distribute the treated water to customers, which would help reduce river water withdrawals. When completed, it will be the largest MBR treatment plant in the world.
Brightwater also was designed with the surrounding community in mind. Because odor was residents’ biggest concern, the treatment plant will include $65 million in odor control. The plant site also incorporates architectural finishes on the buildings and berms that will be landscaped so that the plant is hidden from the road. To contribute to the county’s existing education program that guides 3,000 people per year through treatment plants, the site will house an education and community center. Of the site’s 114 acres, 43 will be dedicated to community use, including hiking trails and streams.
Ninety to 95 percent of the project costs will be funded through a capacity charge and defrayed by new connections over the next 30 years. For water infrastructure projects in general, the county uses debt financing, and it recently issued bonds to fund its capital improvement program. King County also has applied for $26.5 million in stimulus funding. Some may go to Brightwater, but could go toward any shovel-ready projects.
Project: Buckman Direct Diversion
Jurisdiction: Santa Fe, N.M. (with Santa Fe County and Las Campanas, a residential golf course)
Cost: $216 million
Financing: Capital funds, gross tax receipts, bonds, grants, low-interest loans
When Santa Fe and the surrounding area experienced a significant drought in 2002 and came within a few gallons per minute of meeting flow, the city knew it needed a sustainable source of water. Santa Fe currently draws from groundwater wells and reservoirs on the Santa Fe River, yet the aquifer is in decline and well levels are falling rapidly. When completed, the $216 million Buckman Direct Diversion Project (BDD) will divert water from the Rio Grande River and transfer that water to a plant for treatment and then to customers, providing an additional 8,730 acre-feet of surface water per year.
The infrastructure will include a diversion structure on the Rio Grande River, two pumping stations, pipelines and a water treatment plant. Santa Fe is using a design-build approach being handled by Englewood, Colo.-based CH2M HILL and Denver-based Western Summit Constructors. They broke ground last September and expect to complete the project by March 2011, so far spending $56 million.
The project is being funded by the three partners. Las Campanas is providing 7 percent in cash. The city had to implement a water rate increase of 8.9 percent for five years that Project Manager Rick Carpenter calls “politically painful.” The city and county both have enacted a gross receipts tax dedicated to the project, which will generate $4 million per year from the county and $3 million from the city. Both are using revenue obligation bonds and general obligation bonds. Santa Fe also has received about $17 million in grant funding from the state and $17 million in low-interest loans and will be receiving up to $9 million in stimulus funds. Carpenter now is looking for a CPA that specializes in large-scale, public infrastructure projects.
Much easier than putting together financing was getting the support of the community. “In the water division, we are fortunate because the elected officials are very sensitive to water and have made it their highest priority to have a reliable source of water,” Carpenter says.
Project: Infrastructure for water-sharing
Jurisdiction: Lehigh County and Allentown, Pa.
Cost: Approximately $12 million
Financing: Capital funds, municipal bonds, potential stimulus funds
Lehigh County Authority (LCA) provides water service to 18,000 residential and commercial locations in Lehigh and Northampton counties, as well as sewer service to parts of Lehigh County. Driving the need to find additional water sources are the water demands in growing suburban areas. After reaching an agreement with Allentown, Pa., LCA soon will begin construction on infrastructure that eventually will transfer up to 7 million gallons of water per day from the city.
Historically, LCA has supplied water from wells through a groundwater system. Nearly three years ago, with a focus on growth, LCA began negotiating a buy-sell agreement with Allentown, which has excess capacity and a declining customer base. The agreement finally was reached in January. “The agreement meets expansion needs going forward and achieves a regional approach,” says Aurel Arndt, LCA general manager. “Also, Allentown will be able to derive revenue from its infrastructure and plant.”
The project involves constructing two large pipelines to connect LCA’s system with Allentown’s. The first phase will be a pipeline from one of the city’s existing spring sources to where LCA’s existing main now terminates about a mile away. A pump station will pump water from the city system to meet the pressure in LCA’s system. And, a second transmission main will connect the pump station to a main in the city’s system so even larger quantities of water than what the spring can provide will be transferred. LCA has hired consultants and engineers, but has not yet bid out the construction.
LCA has $150 million in infrastructure planned in the next decade and will be spending about $40 million of that in the next couple of years. To fund the Allentown water-sharing infrastructure and capital improvements, LCA charges capital recovery fees to new users for water and wastewater. LCA also generates excess revenue for working capital from charges to customers, with leftover money going to capital improvements. Any additional funds are borrowed from state revolving loan funds, the municipal bond market or local banks. Last June LCA undertook a $10 million financing for water projects and has put in six applications for a total of $40 million in stimulus or state funding.