One of the great ironies in the water sector is that while many cities are starved for funding, billions of dollars in capital raised by private infrastructure funds continues to sit on the sidelines untapped and looking for deals.
Much of the US water and wastewater infrastructure was constructed generations ago and is nearing or at the end of its useful life, as evidenced by the 650 water main breaks every day and two trillion gallons of treated water lost every year at an estimated cost of $2.6 billion. The United States Conference of Mayors forecasts water and wastewater investment needs of up to $4.8 trillion over the next 20 years. The US Environmental Protection Agency (EPA) and the Government Accountability Office (GAO) estimate the current water infrastructure funding gap to be between $500 billion and $1 trillion.
And in addition to the EPA’s and GAO’s dire assessments, the American Society of Civil Engineers (ASCE) recently graded U.S. wastewater infrastructure a “D-.” According to the ASCE, communities in the U.S. experienced more than 240,000 water main breaks and saw billions of gallons of overflowing combined sewer systems causing contamination, property damage and disruptions in water supply. The ASCE warns that if left unchecked, these conditions could cost businesses $147 billion and households $59 billion.
Confronted with budget deficits and scarce funding resources, federal, state and local governments are hard-pressed to help cover the costs of replacing crumbling and leaking water infrastructure. But there must be a way to increase investment in water and wastewater infrastructure or the impact will be disastrous. I believe the private sector can help close the funding gap, with the help from three specific legislative initiatives.
The Private Activity Bond Initiative
A Private Activity Bond initiative would lift the cap on private activity bonds (PABs) for water and wastewater projects. PABs are a form of financing that allows private capital investment in public projects – the benefits of which are interest rates lower than conventional taxable financing, a lower delivered cost of service, and a readily available funding supply. Local governments commonly use PABs for a variety of public purposes: public housing, school loans, airports, recreation and cultural facilities and solid waste disposal sites and ports.
Historically, PABs have been used to solve critical infrastructure problems including the solid waste disposal crisis in the 1980s, where the private sector invested over $20 billion in new waste-to-energy facilities to avoid massive groundwater pollution and reduce the growing number of hazardous waste sites. However, under federal rules governing PABs, there is a limited total dollar amount issued by any given state. This limitation or “cap” is based on the state’s population. Twenty-one different kinds of projects are subject to the same PABs cap. Thus, water projects must compete for the same limited “cap” with housing, education or electric generation projects, for example.