Funding is tougher, trickier, and leaner, but ultimately available.
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 |
Underlying the rivalry, Dabbs
explains, is a fundamental philosophical difference “between building dams and
conserving water.” One contingent insists that “funding for reservoirs and
storage has to be in the bond,” while the other side argues that “the state can
better meet its needs through recycling, water efficiency, reclamation, and
conjunctive use.” For assorted reasons, those in the latter group “don’t want to
see any new storage.”
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. |
As for the integrated plan content
itself, he continues by noting that: “Water use, efficiency, water quality
projects, groundwater, conjunctive use projects—there’s a wide range of things
that can be put in there, including removing bottlenecks in the conveyance
system, so water can be move around in a network better.” Thus, by being
required to think and write about these elements, agencies are naturally spurred
to devising operational improvements.
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. |
Also new under the WFA will be
money to pay for AWT testing and trial. Rocha notes: “We’re only funding pilot
and demonstration projects, not the full construction.”
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.)
Note: Announcement from the Bureau
of Reclamation