Designing the Financial Bridge for Funding Water Infrastructure: The Legislative Section
Everybody knows that water is essential to life. Not just “water” in and of itself, but affordable access to clean drinking water and safe wastewater systems is needed to keep the public healthy, the economy thriving, and our communities safe and whole. However, there is a funding gap for the infrastructure needed to deliver clean drinking water to small, medium, and rural communities in America. There is enough money available for every water infrastructure project, but we have a system of barriers that prevent these crucial projects from getting the funding they need. What we need is a “financial bridge” made up of the processes, frameworks, and mindsets needed to overcome these barriers and bring us over the funding gap. We’ve already talked about how to design the financial bridge, and where the money is going to come from. Now we’re going to talk about the legislative barriers that need to be overcome.
There are a few different legislative barriers at play that are keeping projects from getting the necessary funding for water infrastructure. Since the Federal and State governments are the primary funding sources for water infrastructure, their ability to release funds needs to be an act of legislation – law. These laws represent Congressional priorities, which create rules with unintended consequences that delay or impede the access and use of funds needed to rebuild our water systems.
Oversight, Accountability, and Unintended Consequences
There are three ways Congress can improve legislation that will accelerate and amplify the access to government money. First, EPA and USDA funds appropriated by Congress can only be used for activities to construct the asset. This means that they are specifically excluded from being used to operate or maintain that asset. Many communities are challenged with both the former and especially the latter. Second, government sponsored programs have cross-cutters, which mandate the use of certain types of components. For the water industry, these components are often outdated, the most expensive, and are not the best-of-breed technology. Third, remove the volume cap on the amount to limit the amount of tax-exempt bond financing with Private Activity Bonds. With government appropriations in decline, there is a need for the private sector to pick up the slack. Private Activity Bonds enable affordable private investments into infrastructure. Despite lobbying efforts from water utility associations to expand this program, the current version of the 115th Congress’ Tax Cuts and Jobs Act threatens to eliminate Public Activity Bonds. While the House version removes PAB, the Senate version retains them.
Fees, Budgets, and Spending Rules
For many communities, the payments received for water and wastewater services are not retained in the utility, but rather are considered part of the general fund. The operating budget for the utility is then set by the City Council and often does not represent what is needed to operate, maintain, and improve the system. This contributes to persistent underinvestment in water assets because we are not prioritizing the operations and maintenance needed to continue providing clean, safe water.
Many communities also have strict Low Bid and Design-Bid-Build procurement guidelines. This approach is unsustainable for procuring infrastructure because, in practice, these projects do not take advantage of scale economies among the various service providers and lead to costly change orders and extended completion timelines.
Enabling Legislation is Needed
Design-Build Delivery is a project delivery framework wherein the design and construction services are contracted by a single entity. This approach saves time and money over the entire process. Design-Build Delivery has had slow uptake with water utilities because of mandated Low Bid/ Design-Bid-Build rules, and because many states have not passed legislation that enables Design-Build Delivery. According to the Design-Build Institute of America (DBIA), only 27 states have design-build enabling legislation for all types of construction.
Public-Private Partnerships (P3) is another expansive approach to delivering an infrastructure project that involves private capital and includes operations and maintenance. This shared risk approach accelerates the construction of an asset with the best quality components and ensures that it will be maintained. However, this framework has limited uptake with water utilities. P3s are also in need of enabling legislation. According to DBIA, only 13 states have wide authorization for P3s and only 20 more have authorized P3s for one primary sector - most often transportation.
Access, Affordability, and Social Justice
Water is not like other utilities - it is needed to live, and therefore, it should be guaranteed as a human right. In a 2007 Commission, the United States recognized the importance of meeting basic water needs to support human health, economic development, and peace and security. This statement did not create a legally binding duty on the states to ensure access to adequate supplies of clean drinking water for its citizens. In 2012, California was the first state to legislatively recognize the human right to water. California committed to work with stakeholders to track communities that do not have access to or are at risk of losing access to clean drinking water, and to work towards legally establishing the human right to water.
Sadly, small, medium and rural communities are most likely to not have access to affordable and safe drinking water. Many are disenfranchised and need to be supported with legislation enabling investment in crucial water infrastructure.
In the next article, we will take a closer look at affordability and the real challenge American communities face in order to provide clean drinking water and the dignity of a working toilet.
Let’s continue the conversation to explore those solutions.
Designing the Financial Bridge for Water Infrastructure: Affordability Section
Designing the Financial Bridge for Water Infrastructure: Perception Section
Designing the Financial Bridge for Water Infrastructure: Knowledge Section
Designing the Financial Bridge for Water Infrastructure: Communication Section
Views of the United States of America on Human Rights and Access to Water:
California Human Right to Water Portal:
DBIA Legislative Authority Map:
P3 Legislative Authority Map:
AWWA Study on Private Activity Bonds and Water Utilities:
Senate Considers Bill to Remove Cap on Private Activity Bonds:
Current Tax Reform (Includes Discussion on Private Activity Bonds):
ASCE Recommendations for Funding Water Infrastructure:
About WaterFunder LLC
WaterFunder (www.waterfunder.com) is an advisory and professional services consultancy that addresses the gap in water infrastructure funding by connecting private capital to broadly defined water projects though direct investment. The organization builds alliances with investors and works with stakeholders to accelerate the development process and find the right balance of debt