A featured topic of discussion at the recent August ACEC Environment & Energy Committee meeting was Identifying Financial Trends from Federal, State, and Private/Public Partnership (P3) sources. Committee members sought to gain insight and perspective from other groups and organizations also in attendance (Council of Mayors, WDBC, engineering and financial firms).
Specifically, ACEC wanted to know whether current frameworks for investing in water and sewer projects are working. Drilling even deeper, they questioned what financing trends these groups are noticing, and how to address the barriers to getting municipal stakeholders interested in public/private partnerships.
Financing Aging Municipal Water and Sewer Infrastructures: Why Is It Not Happening?
There is no disagreement that a lot of money is needed to replace and repair aging water and sewer infrastructures in many cities. The question remains why, if multiple sources of reliable research, tested solutions and financing exist, is there such a significant gap in getting this much-needed work accomplished? What is the real story? And how do we find the answers?
As an example, every four years, member in the American Society of Consulting Engineers produce a “report card” on the replacement and construction needs of the nation’s infrastructure including the water and wastewater industry.
The most recent report, published in 2013, gave the national state of the water and wastewater infrastructure an overall grade of “D+”; noting that the drinking water infrastructure has financial needs of close to $1 trillion. And,“of the $298 billion in investment needs reported in the 2008 EPA CWNS, $188 billion was needed for wastewater treatment, pipe repairs, and new pipes; $64 billion to correct combined sewer overflows (CSOs); and $42 billion for storm water management.”
ACEC Environment and Energy Committee members wanted to know what municipal and private funding sources are currently available to take care of these needs; and why this staggering amount of money that is required to take care of our aging infrastructure is so difficult to source and distribute? Here are some of perspectives.
- First, traditional infrastructure funding for most water and wastewater agencies relies on selling municipal bonds to raise cash. The sale of municipal bonds is an inexpensive and effective way of completing much-needed replacement and repairs and comply with EPA regulatory mandates, while not raising customer rates. The unanswered conundrum is how municipalities plan to accomplish this goal, deal with inflation, and still have a nest egg in place to fund future needs.
- Second, another financing option available to owners are federal government loans that guarantee low interest rates. Remember though, the Construction Grants program so many owners relied on in the past no longer exists. Even this funding source presents the unanswered question as how cities will be able to afford government backed loans, keeping in mind that they will eventually have to be paid back, with interest.
- The third source, private industry funds are an emerging financial source from a investors highly eager to be of service. Panel experts reported that more than ever, private industry and P3 funding strategies are often viable to other finance streams.What we learned is that none of the financing sources is free – they all must be paid back.
Private and P3 Funding: Why Not Make the Investment?
The panel further sought to identify the reasons stakeholders are reluctant to use funding from private investors since all other financing options require repayment.. Responses from the municipal and financial experts in attendance reveal that the barriers to funding and distributing payment for repairs and maintenance are not new news and are usually involve the decision-making processes of government agencies. The panel discussion did not arrive at any innovative ideas or revelations as to how to overcome these barriers to getting work done.
The new Handbook on Design-Build for Water and Wastewater Projects published in Spring 2016 includes an entire chapter on P3 Financing. The grounds for including this chapter align with the reasons we made attending the committee panel discussion a top priority: Education. Understanding the nuances of Private/Public Partnership (P3) financing is often challenging. Depending on who is presenting the idea of P3, facts and summaries can be confusing or misleading.
Water and wastewater projects are very different from transportation and community projects. The Handbook chapter dedicated to explaining P3 options and solutions solely relates to water and wastewater projects and does not advocate that P3 is a panacea for the conundrum of affordability, efficiency or distribution. The chapter is a strong starting point for a facts-based discussion that can support and help municipalities address financial topics as they relate to water and wastewater.
Why Did Water Design-Build Council Attend a Panel?
Quite simply, WDBC participated so we could learn more. We wanted to establish an understanding that regardless of which funding source is used to replace or repair water and wastewater infrastructure, stakeholders should prioritize the implementation of the best practices in collaborative delivery.
We share a common concern with federal, state and municipal government agencies over how to get the issue of financing off the table so we can all move forward to infrastructure repair and innovative planning for the future.
Of course WDBC believes that collaborative delivery methods provide owners and municipalities with the best options to pursue to accomplish expensive repair and maintenance projects. WBDC offers an education program focusing on the best practices to discover and achieve project priorities and drivers.
There is no disagreement that water and wastewater systems throughout North America are in desperate need of attention. And there is no argument that funding sources are required—and already available-- to accomplish this work. Again, we wonder why current ideas and well-researched financial solutions aren’t working. We look forward to opening a dialogue about this important topic with our members on WDBC’s community forum.