By Gerry Donohue
In the face of the huge economic impact of the COVID-19 pandemic, the water sector has come through relatively unscathed. And despite the likelihood of a deep and extended recession along with the gaping chasm between desperately needed water infrastructure improvements and the resolve to fund them, there are reasons to be optimistic.
“Water and wastewater utilities are essential services, and our work for them is an essential service, so the market has been minimally impacted,” says Rich D’Amato, CEO of Brown and Caldwell, a nationwide environmental engineering and construction firm. “The vast majority of projects are continuing because they were already budgeted for. In fact, many of our clients accelerated projects to prepare for anticipated stimulus.”
“We’ve probably had as much proposal work as we’ve ever had,” says Cindy Wallis-Lage, president of Black & Veatch’s water business. “These are projects that are already in the queue, and the clients are pushing them ahead to get them moving while they have funding.”
Not only does accelerating these projects pump up the local economy and create jobs, which are desperately needed in this time of high unemployment, many of these organizations learned a lesson from the 2008–2009 economic meltdown, according to Wallis-Lage. “If the federal government goes big, and we get additional stimulus money focused on infrastructure,” she says, “they want to have projects that are shovel-ready.”
Even if the federal government comes through with a substantial stimulus package, states and municipalities will still face daunting financial challenges because they account for 96 percent of the funding. According to the most recent report from the Congressional Budget Office, of the $113 billion in public spending on water and wastewater in 2017, the federal government contributed only $4 billion (less than 4 percent). And even if all of that federal share went to capital improvements, it still amounted to less than 14 percent of the $31 billion spent on water infrastructure in 2017.
“A major consequence of the pandemic has been the destabilization of our economy,” says Chance Lauderdale, drinking water market sector director at HDR. “Traditionally, utility revenues and demand projections were relatively stable and allowed for reliable planning. Capital projects could be identified and prioritized across a decade or more without major concern for uncertainty.”
“Now, however,” he adds, “we have observed cases of significant revenue loss related to water demand, bill nonpayment, and decreased new connection fees.”
Financial implication to utilities “largely depends on how they are funded,” says D’Amato. “If it is through the general fund, with the community collecting taxes and allocating them to different needs, utilities may experience shortfalls through reduced tax incomes. If, on the other hand, they are special districts that collect revenues directly allocated to the water utility, they are more likely to see less of an impact.”
U.S. water systems allocate most of their revenue toward meeting the day-to-day needs of their customers. Of the $113 billion in water and wastewater spending in 2017, $82 billion (73 percent) went to maintenance and operations.
“Most systems are funded adequately for day-to-day operations, but that is different than long-term sustainability,” says Lauderdale. “Much of our critical water infrastructure is due for significant repair or replacement.”
Estimates for what it will cost to rebuild America’s water and wastewater infrastructure range from several hundred billion dollars to $3 trillion. And it gets more expensive with each passing year.
A primary reason behind this shortfall is that since 1977, federal funding for water systems has fallen by 77 percent in real terms. At the same time, utilities have had to fund numerous infrastructure upgrades to comply with federal regulations and consent decrees.
Just raising rates to bridge the gap is not a viable option because there is an upper limit to how much utilities can charge for water. In May, The Guardian newspaper reported that in 12 U.S. cities, the combined price of water and sewage increased by an average of 80 percent between 2010 and 2018. As a result, more than two-fifths of residents in some cities faced “unaffordable” bills, which the newspaper considered as average annual cost exceeding 4 percent of annual household income.
Water system operators have long complained that they suffer from an out of sight, out of mind problem. People can see a pothole in the street and want it filled; they cannot relate to a pipe leaking underground.
Ironically, the COVID-19 pandemic—as well as the highly publicized incidents of lead in the water in Flint, Mich.; Newark, N.J.; and other cities—may lead to an increased public willingness to fund water infrastructure. “If there ever was a time when the importance of water to the safety of the community has been highlighted, it’s now,” says Wallis-Lage. “Clean water and sanitation are critical to controlling this disease and safeguarding public health.”
“We now have increased public awareness on this industry and the role it serves,” says Lauderdale. “My hope is that we leverage these concerns into an opportunity to advocate for additional water sector investment at the state and federal level.”
In looking at the longer-term future of the water sector, these experts agree that substantial changes must take place.
“Every crisis has risk and opportunity, and we have to choose what to do with that,” says Wallis-Lage. “We have an opportunity to deal with infrastructure differently and not just do what we did in the past. We can design systems that are more resilient to the many challenges we face, such as weather, financing, and health.”
One change that is already occurring is a new way of looking at how we utilize water. “The One Water paradigm recognizes water as a resource across the hydrologic and urban water cycles,” says Lauderdale. “It takes a holistic view of drinking water, wastewater, stormwater, and other water resources to prioritize projects that provide multiple benefits.”
D’Amato believes consolidation would help the industry. “We have approximately 3,300 electric utilities in the U.S., yet there are more than 50,000 water utilities. I understand that communities want to control their water supply,” he says, “but it would make a lot more sense to reduce that number to take advantage of economies of scale and share costs across a larger customer base.”
Gerry Donohue is ACEC’s senior communications writer. He can be reached at gdonohue@acec.org.