Engineering Inc - May/June 2017 - 6

MARKETWATCH

Investment in Wastewater
Infrastructure Riddled With Uncertainty

U

pgrading and expanding the nation's wastewater infrastructure could cost at least $1
trillion over the next 25 years, according to
estimates.
Each year the nation's 16,000 wastewater
systems discharge more than 850 billion gallons of untreated sewage into rivers, lakes and
streams. Nearly 1,000 of those systems have
combined sewer overflows (CSOs) that merge stormwater and
raw sewage. Replacing CSO systems is expensive; the U.S. Environmental Protection Agency is currently working on 38 CSO
projects and estimates that the construction costs to bring the
systems into compliance will be more than $31 billion, or $840
million per system.
Unfortunately, even as the need has grown, construction
spending on wastewater and sewage has fallen. According to the
U.S. Census Bureau, wastewater construction spending topped
out at $26 billion in 2010. Since then, it has fallen gradually,
dropping to $22.1 billion in 2016, the lowest level since 2005.
Three factors magnify the impact of that decline. First,
according to a recent report by the Congressional Budget Office,
"prices of materials and other inputs to build infrastructure
have grown much more rapidly than prices in the economy as a
whole."
Second, operations and management (O&M) expenses in
wastewater systems have continued to climb, even as construction spending has fallen. Currently, O&M costs are twice that of
capital expenditure.
The third factor is the long list of unfunded mandates-such
as CSO consent orders-that the federal government imposes
on municipalities and utilities to improve water quality.
"It's very costly to address these mandates in the way the EPA
wants cities to address them," says Rich Anderson, senior advisor
at the U.S. Conference of Mayors. "The EPA is making all of us
have first-class wastewater plants. We have no objection to that,
but they're not providing the financial assistance to get there.
When it comes to wastewater, it almost doesn't matter what we
need," he adds. "It's a question of what we can afford."
FINDING THE FUNDING

Direct federal funding of wastewater infrastructure actually only
accounts for about 2 percent of annual spending, says Anderson.
Municipalities and utilities pay for the rest, primarily through
rates but also through a variety of federal loan programs.
6

ENGINEERING INC.

MAY / JUNE 2017

Municipalities have access to about $5 billion in low-interest
loans annually through the Clean Water State Revolving Fund.
Given the huge need, says Anderson, that level of funding is
"anemic." Additionally, he says, many cities can't afford to take
on more debt.
"The long-term debt of cities in 2014 was $1.9 trillion," says
Anderson. "We can't keep forcing more long-term debt onto the
cities, or we're going to have a municipal credit bubble."
For cities that have pressing
wastewater problems that must be
solved, Anderson says the federal
government should provide grants
and technical assistance. For
municipalities with fewer pressing
needs, he sees two potential funding alternatives.
One would be to combine
private funding and tax-exempt
municipal bonds through publicprivate partnerships. "In order to
do that, though," he says, "the tax
code would need to be changed
because private equity and tax exempt bonds cannot always or
easily be in the same project."
The other option would be to change the rules for Private
Activity Bonds, which are issued by local or state governments to
finance projects by private entities. Currently there are caps on

The wastewater
market is
projected to
grow between
2 and 4
percent
annually over
the next four
years

Sewage and Wastewater Disposal Construction Put in Place
$ in Billions
$30

25
$23.4

$24.2

$25.5

$26.6

20

15

10

5

0

2017
Source: FMI

2018

2019

2020
Table of Contents for the Digital Edition of Engineering Inc - May/June 2017
