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Photo: @iStockphoto.com/Kativ

Just when water agencies were getting used to rainfall droughts, comes a financial one. In the wake of the housing market collapse, towns and cities have seen revenues plummet for over a year. A recent survey by the National League of Cities found that falling property and other tax revenues were impacting nearly 80% of the communities polled, and shortfalls were anticipated to continue at least two more years. Many state governments are now also running in the red or facing deficits. Departments and agencies must wrangle over what dwindling income remains. The federal deficit continues to explode beyond control.

Water agencies—which in sunnier times have enjoyed relatively easy access to funding—also are finding that times have changed. As a fact sheet from the Missouri Department of Natural Resources (MoDNR) put it to its state water agencies in mid-2008: “The days of 100% construction grants are long gone, and the reality is that all communities will have to borrow money for water and wastewater infrastructure at some point.”

Borrowing for water projects has long been routine in most places, of course, but here too, the late-2008 capital crisis applied unprecedented pressure on bond markets, adversely impacting interest rates and affordability.

Taking stock of this drastically altered funding landscape, the same MoDNR fact sheet noted that water agencies (even during a relatively easier bond market) have sometimes unwisely balked at drawing upon subsidized state-revolving funds to pay for projects, protesting the many attached strings (e.g., meeting state wage rates). Impatient with such requirements, agencies are thus tempted to explore independent financing and, in an almost eerie parallel to bad subprime mortgage deals, have sometimes been lured into debt financing, such as lease-purchase arrangements or issuing their own bonds. As the fact sheet cautioned, these have sometimes resulted in doubling, and even tripling, a project’s total cost.

Also, in last November’s elections, a rather extreme measure was placed on Missouri’s ballot—amending the state constitution to: limit future bond funding to only public water and sewer districts, remove any restrictions on the amount of funds that can be raised for them, and, thirdly, remove restrictions on disbursing funds—all while simultaneously requiring that this should have “no impact on taxes.”

Voter, Can You Spare $10 Million?
Actually, agencies having any experience in ballot referendums undoubtedly know already, that water project bonds almost invariably succeed: Who in their right mind ever votes against water? Approval is so assured, in fact, that legislatures are generally happy to put water issues up for vote. In last November’s elections nationwide, all water-related proposals passed easily, the larger ones being Arkansas ($300 million), Maine (“clean water” bonds), Minnesota  (“clean water”), and Pennsylvania ($400 million for water and sewer). Putting “apple pie” up for a public vote enables legislatures to obscure from view other pork-barrel, corporate welfare, or self-dealing appropriations, as Pennsylvania’s Commonwealth Foundation observed in a white paper dissecting the state’s serious budget challenges. Besides this, as the Commonwealth Foundation noted: “Functionally, there is little difference between legislators approving new bonded debt and putting debt questions before the public. Indeed, legislators could have just as easily approved the $400 million in new debt [in November 2008] without voter approval. However, forcing voters to decide the fate of their water and sewer systems allows them to shift responsibility and take political cover.”

Raising Billions, Jacking Up Rates
Pennsylvania is perhaps typical of an increasing number of states now confronting the current economic crisis, coinciding with a dire need for repairs of a crumbling water infrastructure. The untimely combination means the State must not only borrow billions of dollars for still more capital projects in tough markets, but must raise water rates higher than ever before—during serious recessionary times—to pay for them.

In Pennsylvania’s case, more specifically, a recent federal EPA Clean Water Needs Survey concluded more than a year ago, that the State urgently needed nearly $11 billion in drinking water infrastructure improvements, along with at least $7.2 billion in unmet wastewater infrastructure work. With a population of about 12.5 million, this cost works out to nearly $1,500 per capita. 

And in a larger perspective, Pennsylvanian’s current cumulative indebtedness of all kinds (i.e., state, local, county, school bonds, etc.) comes to $110.6 billion—or nearly $9,000 per person. Thus, for a tax-paying household of four, paying the interest cost alone is already a strain. It’s perhaps another eerie parallel with recent housing lending—not unlike giving people interest-only mortgages for which the principle is almost impossible to retire. And again, all of this is facing Pennsylvania precisely as times are at their leanest: The State’s fiscal year 2008 revenues were projected to fall short by $2 billion.

Yet, given the severity and urgency of the EPA’s water-quality estimate, in 2008 Governor Edward G. Rendell had no choice but to empanel a task force to come up with a comprehensive solution for the daunting challenge funding water and wastewater infrastructure. This report emerged just before the elections.

In it, the panel drastically revised the EPA’s estimate upward; instead of a combined $18.2 billion in urgently needed work, they calculated the more realistic tab at $36.5 billion.

In addition, for a truer picture, the panel decided to include the annual expense for operation and maintenance, ongoing replacement, repair, and debt retirement over the next 20 years; this produces an additional $77.1 billion. The two figures total $113.6 billion.

To pay for this enormous sum, the projected income from water and sewer billings for the next 20 years come to an estimated $69.8 billion, leaving an unfunded gap of $43.8 billion—about $3,500 for every citizen. For a household of four, that’s about $14,000 over 20 years.

The only way to cover this, the panel concluded, will be to raise water and sewer rates many hundreds of dollars annually—specifically, a total of about $1,455 per year per household (half-and-half for water and wastewater). This increase comes to about 1.5% of the current total median household income there. The blue-ribbon panel noted: “Many customers in Pennsylvania are currently paying substantially less [than this].”

As a way to ease at least some of the hardship, the panel also recommended that Pennsylvania should launch an immediate all-out campaign for water efficiency—a concept quite ironic—for enjoying copious rainfall and countless rivers, streams and lakes, and with hundreds of dams (albeit, in sore need of repair), compared to Western states facing the opposite problem hydrologically. The panel strongly recommended better planning and operational efficiency; reorganizing and “regionalizing,” or re-sizing, water districts; embarking on conservation—not because water itself is scarce, but to relieve burden it places on the inadequate, leaky infrastructure; a program to raise public awareness through education; administrative cost-saving measures; improved management of assets; and a host of wastewater and stormwater efficiency investments.

California: “Just Build the Dam Yourself”
As noted earlier, water bonds generally win “reelection” handily, but an understandably complex exception to this rule occurred in California, which actually failed to enjoy water referendum success—despite spending more than a year debating the relative virtues of three proposals: a $9 billion Comprehensive Safe Drinking Water bond versus a $11.69 billion Water Storage and Reliability bond, and a $6.835 billion Drinking Water Act. 

“We’ll try again next year,” says Paul Dabbs, chief of the Water Resources Evaluation Section of the California Department of Water Resources. What more-or-less prevented any water bond from getting on the ballot was that the keen competition between proposals forced a postponement.

Photo: Bell Canyon Irrigation Company Control structures for water-saving project in the Salt Lake Valley, UT, area

Despite being left in a temporary state of limbo regarding water bonds, California already has billions of dollars available from prior public authorizations for water resource projects, approved under Prop. 84 (The Safe Drinking Water as of 2006), and even fewer than two other previously approved bonds (50 and 1E). Also, Dabbs points out, notwithstanding the lack of new appropriations in 2008, Governor Arnold Schwarzenegger issued an executive order to water agencies to undertake drought contingency planning and to achieve a 20% cutback in urban water usage by 2020.

As was pointed out above in connection with Missouri—local agencies in California also chafe at the complexity and long delays incurred when seeking public funds, leading some to break away to find alternatives. Whenever agencies seek state or, often, federal dollars, he notes, “a lot of feasibility studies and planning must be done before you can actually get money.”

Impatient agencies, increasingly, “have tended to do things with their own money, just because they can do things faster,” he adds. “We are seeing a trend now. Looking at surface storage projects in California, the last three or four have been planned and built by local agencies without any federal or state money—because the ability to get money approved … is so cumbersome and difficult.” An agency with good financial resources “can sell bonds on their own or do other funding.”

Another recent trend, which has helped to lighten the paperwork, is an initiative towards doing what is called “Integrated Regional Water Management Planning” (IRWMP). Mandated in 2006 by Prop. 84, IRWMP requires that at least three regional agencies should “come together to develop and integrate plans, and to work to solve their water problems,” he says, and, thereby, “get money for projects to improve water efficiency.” By joining forces, the three or more agencies’ application workload is shared.

Also, the new application itself has been conceptually rewritten, so that it now focuses primarily on the three agencies’ drafting “a written and approved water plan, which spells out specific projects that they’re going to do on a regional basis,” says Dabbs.

This yields a much more utilitarian kind of application, in that the writing of a long-term water strategy is valuable and necessary in its own right (and in many cases, one already exists)—with or without a funding objective in view. The multi-agency, integrated water plan also doubles as the core text of any future grant applications.

Photo: Bell Canyon Irrigation Company The project was jointly funded by a combination of multiple federal grants, state loans, sales of water company stock, and municipal funds.

In any case, by teaming up on the planning enterprise, multiple agencies and districts reduce their staff time and cost burdens.

Grants and loan are then more swiftly distributed, drawing from three currently approved funding propositions (again, 50, 1E, and 84). So far, he notes, in just over a two years’ time since IRWMP was initiated, already 40 or 50 integrated agencies have formed and have drafted these plans statewide, he says. 

Another improvement in water funding is the practice of earmarking allocations to regions on a more hydrologic basis, “so the money doesn’t always go to the big urban centers.”

Allocations are thus rationalized not only by population served, but also by the respective, and often diverse, rainfall and watershed characteristics. This way, he says, “Everybody has access to part of funding in this program.”

He adds that, even though state water budgets are probably being better spent these days, “We need it to rain.”

Water—and Funding—“for America”
On a much smaller scale, water suppliers in Utah’s Salt Lake Valley are also finding that single source funding has tended to dry up, thereby necessitating some piecing-together of multiple funding sources. In the case of an ongoing $2.4-million water efficiency project there, money has been pitched in by a combination of multiple grants from the US Bureau of Reclamation, loans from the Utah State Board of Water Resources, and even private sales of stock in a new water company. To date, the three-year project near Sandy City, UT, has already netted hundreds of acre-feet of water savings.

Sandy City was cited as a standout in the Bureau of Reclamation’s funding program known as “Water 2025.” This is being revamped and rechristened in 2009 as “Water for America [WFA],” explains Miguel Rocha, WFA’s grant funding manager.

Money from WFA is now being made available, in particular, to enable projects in the Western states to set up water banking, water marketing, or other multi-party collaboration. These are the sorts of projects that promote the Bureau’s prime strategic goal, says Rocha, of “reducing water conflicts.”

Water markets—“Setting up a way for willing sellers to come together with willing buyers to exchange money for water”—are increasingly effective at this and get funding priority, he adds.

Likewise, water-banking initiatives can get money to build water storage, enlarge a reservoir, or enhance the aquifer.

Projects seeking to apply water efficient technology upgrades, such as automation systems, telemetry, data logging, flow controls, gates, storage, SCADA components, or transducers, should also do well in the competitive challenge grant ranking, Rocha says.

Typical of recent tech grant recipients are: the Fresno, CA, Irrigation District, which installed a new control structure, automated gates, and telemetry to replace a siphon structure; another California urban district, which got 600 evapotranspiration irrigation controllers to reduce excess water runoff by up to 70% and save 340 acre-feet of water per year; and the Navajo tribes of New Mexico, who will install upstream data loggers to help automatically control gates downstream, saving thousands of acre-feet of water per year.

Grants Protecting Species, Advancing Treatment
Two other important new grant opportunities from WFA in 2009 cover “Species of Concern” and money to pay for advanced water treatment (AWT). Due to growing threats to aquatic and riparian species habitats, WFA anticipates setting aside $8.9 million in fiscal year 2009 to help pay for planning, designing, and implementing programs to benefit species listed under the Endangered Species Act (ESA), when affected by Bureau of Reclamation facilities or activities, or if the work would benefit federally recognized candidate species.

Potentially fundable work might include fish screen projects, doing studies, monitoring, fish bypass systems, habitat restoration, and vegetation management, the grant announcement notes. Collaborative actions to improve the status of a species before a water supply is threatened, is especially prioritized. Applications are also weighted in proportion to the potential improvement of an ESA species’ status; prevention of species becoming listed; impact on water supply; and help in resolving litigation or political conflict. Of particular interest are small fish in the Middle Rio Grande, and salmon recovery in the Columbia/Snake River habitats. (www.usbr.gov/wfa)

Photo: Bell Canyon Irrigation Company Despite the huge dollar availability, only a handful of recent USDA-funded projects involve water efficiency.

Potentially supportable AWT projects might include methods for taking out difficult-to-remove dissolved and suspended matter—like salts, viruses, and bacteria—which can’t be readily treated otherwise. Projects or studies might then be funded to validate, say, the technical or economic viability of a particular reverse osmosis membrane, pretreatment system, or method for disposal of concentrates, at a specific locale or involving a given impaired water source. “For example,” says Rocha, “if you used advanced technology, microfiltration, or a membrane bioreactor … you could apply for grant for a demo or pilot to see how it will perform.”

Also, new technologies and methods that are most likely to mature into full-scale plants are favored. Those holding the greatest potential for producing “new” water—i.e., converting currently unusable sources like brackish, waste- or seawater—are also on the short list, if the result of the trial could be implemented full-scale. 

To conclude, here’s the complete list of federal grant- and loan-making agencies and status, as of early 2009:

• The Bureau of Reclamation will offer, besides the above WFA grants, another  $4 million (anticipated) through its Water Conservation Field Services Program, a program that has been going since 1997 to fund water conservation-related planning, improvements, demonstration projects, education, training, and technical assistance, costing less than $100,000—most are under $50,000. Typical awards cover creating and updating water conservation plans or completing small efficiency projects (www.usbr.gov/wfa).
• Under the US Geological Survey is a newly announced Water Availability Research grant to focus on “water problems and issues of a regional or interstate nature…” of interest to the US Department of Interior. Six matching grants, capped at $250,000 each (total: $900,000) are offered to non-profit research organizations (i.e. universities) to cover research on water supply and availability; investigation of possible new water sources; improvement of impaired waters up to usable quality; conservation of existing sources; and limiting growth in demand (www.Grants.gov).
• US Department of Agriculture (USDA): The 2008 Farm Bill earmarked $200 million to address the often inter-connected natural resource issues of water, air quality, soil erosion, and species preservation. These latest Conservation Innovation Grants Awards grants are administered through the Environmental Quality Incentives Program (EQIP), currently funded in total at $1.2 billion. Despite the huge dollar availability, only a handful of recent USDA-funded projects involve water efficiency: For example, the Minnesota River Basin Joint Powers Board is establishing a water markets infrastructure for trading water quality credits in the Upper Mississippi River Basin, a second water-quality trading pilot is being set up by Tarleton State University in Maryland, and the University of California system is using a grant to establishment an advisory service for optimum irrigation scheduling. EQIP can pay up to 75% in cost-shared structural and management practices on private agricultural land, and in some cases, as high as 90% (www.nrcs.usda.gov/programs/eqip and www.nrcs.usda.gov/programs/ama).
• A Rural Development Revolving Fund under USDA’s Water and Environmental Program (WEP) also provides annual financial and technical help to non-profit organizations seeking to bring safe drinking water (and wastewater disposal) to rural America. The fund finances predevelopment or short-term small capital costs, capped at $100,000, repayable within 10 years. Typically, reports WEP loan specialist Anita O’Brien, the Revolving Fund Program receives just a few applications “and we only fund one.” Her office also manages a much larger solid waste management grant program and other grants for technical training and assistance (www.usda.gov/rus/water).
• The US Environmental Protection Agency, of course, runs the largest federal water and wastewater infrastructure financing under the Clean Water and Drinking Water State Revolving Fund programs. Billions of dollars in infrastructure construction grants and loans are offered annually, with special set-asides for Indian sites, Alaska Native Villages programs, and assistance to colonias. (See EPA’s Catalog of Federal Funding Sources for Watershed Protection, and
  www.Grants.gov.)