13 September 2018

Where is the money for water/wastewater growth coming from?

For the last few years, I’ve sat in meetings with analysts that keep telling me the water market is going to grow. Global Water Intel projects 4% compound annual growth in the water/wastewater between 2018 and 2020. My response is probably similar to those of you operating water/wastewater facilities: great!

But where is the money coming from?

This is the point in the conversation that I tend to get a response that only works when talking to children, “because I said so” or more frequently “because it has to.” I don’t know about you, but that’s not something I can take to the bank. And “because it has to” definitely won’t finance projects. Yes, we know the water/wastewater infrastructure in the United States is in dire condition and in desperate need of an upgrade, but just because it’s needed doesn’t mean there are enough funds to support it.

Who has the money?

State funding for water/wastewater projects has been on the rise since the last significant cuts in 2013. In 2017, the Clean Water (Wastewater) State Revolving Fund (CWSRF) Budget topped $7.4 billion, up from nearly $5 billion in 2013. From 2013 to 2017, the Drinking Water State Revolving Budget increased from $1.4 billion to $1.7 billion.

Despite an increasing amount of money going into water and wastewater infrastructure development in the US, there still is a large gap in financial resources needed. According to the American Society of Engineers, total funding for water and wastewater infrastructure is at approximately $45 billion, and the total need is at an estimated $150 billion, leaving a $105 billion dollar gap.

Although government spending on water/wastewater infrastructure has been on the rise recently, the gap in the amount needed for improvements and what is funded continues to widen. The logical question becomes, “Where is the money going to come from to close the funding gap?” Or frankly, “Who has the money?” Well, I’ll give you a hint; it’s not the government or municipalities.

How do I get my hands on the money?

One answer is private companies. Now before you send in the townspeople with pitchforks, hear me out. Private financing does not necessarily mean that all of our municipal water/wastewater facilities are going to be purchased by ACME Inc. It may mean that we see an increase of public-private partnerships that allow the municipality to maintain the title but authorize private companies to come in and optimize processes through pay for performance or design/build/operate types of contracts. According to Bluefield Research Capital, there is an estimated $200 billion of private capital available to go towards the $532 billion needed between 2016 and 2025. This would go a long way in reducing the funding gap, especially if legislation supports more private investment.

Could it really work?

Could public-private partnerships really work? That’s an even tougher question to answer. Although there continues to be public stigma toward the use of private funds in public industries, there has been some activity in recent years to pave the way for public-private partnerships. Water Resources Reform and Development Act (WRRDA) establishes a path for more public-private partnerships (P3s) with a provision establishing a Water Infrastructure Public-Private Partnership Program, authorizing the Army Corps of Engineers to enter into agreements with municipal and private entities to finance the restoration and construction of water infrastructure recommended by the Chief of the Army. The Trump administration’s infrastructure plan proposes opening the Clean Water State Revolving Fund to privately owned public-purpose wastewater plants, thus expanding private activity bond (PAB) financing and removing state volume caps on PABs. Funding resources may still be lacking to meet water and wastewater infrastructure needs, but we are moving in the right direction. The government is beginning to show more acceptance of private investment in water despite the public skepticism probably because they realize this is the only way to close the gap in funding for our infrastructure.

Related Tags