Engineering Inc - May/June 2018 - 6

MARKETWATCH

More Than Water Infrastructure Design
By Gerry Donohue

T

he water utility market is remarkably bifurcated. Of
the more than 51,000 community water
systems in the United States, 17 percent serve 92
percent of the population, according to industry
data. These systems are in urban and suburban
areas, boast diverse and growing rate-paying bases
and have the size and expertise to access both public
and private funds to invest in their infrastructure.
The remaining 43,000 systems sit at the opposite end of the
spectrum. They tend to serve small communities-fewer than
10,000 customers-face a shrinking rate structure, struggle to
comply with myriad federal regulations and have difficulty pursuing outside funding opportunities.
"When I meet with the utility general managers, I ask what
keeps them up at night," says Craig Close, national director of
HDR's Utility Management
Services Business Unit. "The
bottom line is they have
so many needs. They don't
know what to prioritize."
The challenges the utilities
face are an opportunity for
engineering firms. In addition to providing traditional
design services, Close believes
engineering firms can act as a
public works department of
sorts, providing a broad spectrum of services to the small
community water systems.
"We wear many different
hats," says John McCarthy, president of water for Arcadis North America. "We provide
financial consulting services, long-range planning, bond finance
strategies, rate hike planning, regulatory compliance and asset
management."

Of the more
than 51,000
community
water
systems
in the United
States, 17
percent serve
92 percent of
the population

water still does not resonate with most citizens and stakeholders,"
says McCarthy. "They see water as a product, rather than an asset
that underpins the social, environmental and economic pillars of
society."
Second, America's smaller cities, towns and rural areas have
been losing population for decades, so they have fewer customers
to cover the cost of their existing infrastructure, let alone make
new investments.
Third, while urban systems tend to be densely packed, small
town and rural systems have far fewer customers per mile of pipe,
making maintenance and repairs more expensive.
Finally, the 2008 economic crisis hit municipal water systems
hard. Between 2009 and 2014, capital spending fell by 22 percent, statistics show. It has since rebounded-in fact, municipal
bond offerings are at an all-time high-but they dug themselves a
deep hole.
BRIDGING THE FUNDING GAP

Municipal water systems face a lot of rate-rise resistance-going
back to the failure to articulate the value of water-but Close says
they have no option. "Rates will have to go up to afford what they
Estimated Construction Put in Place
1st Quarter 2018 Forecast
Change from prior year-current dollar basis
Water Supply

6

ENGINEERING INC.

MAY / JUNE 2018

3%
-2%

2015

-2%

2016

-5%

2017

-9%

2018

-3%

2019

2%

2020

3%

2021

3%

2022

2%

Sewage and Waste Disposal

ROCK AND A HARD PLACE

According to a recent Rand Corp. report, local utilities fund the
design and construction of more than 95 percent of the nation's
water infrastructure, primarily through municipal bonds. State
governments pick up most of the rest. To cover the maintenance
and operations costs, as well as to service the debt, the systems rely
on customers.
For many small community utilities, however, the numbers
don't add up.
First, rates in the vast majority of systems don't cover the maintenance and operations and debt costs, and there appears to be
no path to reach that equilibrium. "Unfortunately, the value of

2013
2014

2013

Source: FMI

1%

2014

3%

2015

5%

2016

-7%

2017

-13%

2018

-1%

2019

2%

2020

3%

2021

3%

2022

4%
Table of Contents for the Digital Edition of Engineering Inc - May/June 2018
