by Matt Williams
In conjunction with the 11/13/2012 introduction of S. 3626: Water Infrastructure Finance and Innovation Act of 2012 by Oregon Senator Jeff Merkley of Oregon, the National League of Cities has published the following report on their website that puts many of the questions about the Davis Woodland Surface Water Project into a broader context. Rather than providing any editorial comment on the report, I publish it here for your reading and commenting pleasure.
Infrastructure Financing
OVERVIEW OF WATER INFRASTRUCTURE NEEDS
Local governments construct, operate, and maintain the vast amount-95 to 98 percent-of the country’s water infrastructure networks, which are essential for economic development and quality of life in our communities. But, cities and counties face a backlog of projects and are finding challenges in funding much needed water infrastructure improvements. Federal mandates, along with aging infrastructure, are straining local budgets. Meanwhile, federal options for grants and loans are dwindling.
According to the U.S. Environmental Protection Agency’s (EPA) most recent Clean Watershed Needs Survey, the 20-year investment needed to upgrade our nation’s wastewater and stormwater management infrastructure to meet the water quality goals set in the Clean Water Act is $298.1 billion.
Likewise, the most recent EPA Drinking Water Infrastructure Needs Survey and Assessment estimates the cost of drinking water infrastructure upgrades over a 20-year period to be $334.8 billion. The American Water Works Association (AWWA) puts that number higher; according to an AWWA report, “Buried No Longer: Confronting America’s Water Infrastructure Challenge,” the true cost of replacing drinking water pipes at the end of their useful life will be more than $1 trillion dollars nationwide over two decades.
The AWWA report also notes that delaying investment only makes the problem worse, raising the overall costs and increasing the likelihood of major water breaks and other infrastructure fails.
EXISTING FINANCING MECHANISMS
A report by the Congressional Research Service, “Water Infrastructure Financing: History of EPA Appropriations,” provides a review of the federal commitment to funding local water infrastructure projects. Prior to the 1987 amendments to the Clean Water Act, wastewater treatment assistance was provided in the form of grants made to municipalities. The federal share of project costs was generally 55 percent; state and local governments were responsible for the remaining 45 percent.
The 1987 amendments altered this arrangement by replacing the traditional grant program with one that provides federal grants to capitalize state clean water loan programs, or state revolving funds (SRFs). This change has meant that local communities now are responsible for 100 percent of projects costs, rather than 45 percent, because they are required to repay loans to states.
The clean water and drinking water SRFs help local governments finance upgrades to wastewater and drinking water systems.
While appropriations for the clean water and drinking water SRF programs through FY2012 have totaled over $69 billion, including $6 billion that was appropriated through the American Recovery and Reinvestment Act, federal assistance has not kept pace with the needs. In the appropriations bill for FY2013, the news is not any different; the House Appropriations Committee has approved a bill that drastically cuts the Clean Water and Drinking Water SRFs.
The Congressional Budget Office concluded in 2003 that “current funding from all levels of government and current revenues generated from ratepayers will not be sufficient to meet the nation’s future demand for water infrastructure.”
BOTTOM LINE
The bottom line is that there is not enough funding to go around. Because annual appropriations to the SRF are likely to continue to decline and the needs of our communities continue to increase, many organizations and members of Congress are seeking new ways to increase funding for water infrastructure.
NLC supports a substantial and a reliable long-term source of capital to accommodate the gap between current expenditures and anticipated need to enhance and maintain critical water infrastructure.
NLC callson Congress to reauthorize and fully fund both the Drinking Water State Revolving Loan Fund and the Clean Water State Revolving Loan Fund to ensure adequate resources for drinking water and wastewater treatment facilities.
Interesting article that strongly suggests that political realities will put instituting stringent penalties for not meeting water quality standards on hold given the current stagnant,albeit slowly improving economic conditions. The article clearly calls for increased federal funds directed towards local water infrastructure and these could very well be in a second stimulus package that is part of Obama’s economic plan to get our economy really moving. Davis does not have to build a surface water project NOW and committing the Davis taxpayer to pay off the necessary loan NOW with Woodland rather than waiting to see what is available in this second stimulus plan is not a fiscally prudent plan.
Davisite, well said. That’s what many have been saying all along and locking ourselves into an expensive plan at this time might very well be jumping the gun. How are we going to feel if we’re committed to huge rates just to later see other cities get government grants or have the standards put on hold for who knows how long? I agree with Mike Harrington, what’s the rush?
The staff answer to that is that even without the surface water rpoject, rates would be going up way up.
Here’s what Niederberger said a few weeks ago:
[quote]Even if the City does not participate in the surface water project, the WAC was informed that rates could still increase from approximately from $34 to $55/month by 2018( 62% increase). The water utility is currently running at a deficit due to the deferral of rate increases scheduled for 2011. In addition, with the loss of a viable surface water supply, the City will still be obligated to invest in additional groundwater production facilities and infrastructure as well as demand side management tools to meet consumer demands.
[/quote]
Just throwing out more food for thought.
Davisite2
I see this from an entirely different perspective. To me, what you are suggesting is the antithesis of individual responsibility. I may be misinterpreting, but what I hear you saying is “Let’s wait and see what the federal government can do for us.” I find agreement with this coming from rusty49 particularly interesting since he usually disparages a “tax and spend” point of view, but now seems to be advocating for taking the
Federal funds ( aka our tax dollars) for what he would likely be calling “pork barrel spending” if he were not eager to ensure that we also get “our share”.
We want the benefits of the water for our community. We should be willing to pay for those benefits. And that is coming from a “tax and spend”
Liberal.
“$34 to $55/month by 2018( 62% increase)”
62% is not 300%. Given staff’s history of worst-case analysis of arguments opposing the project NOW, it is safe to assume that the 62% is on the high side.
There is no proposed 300%.
As for whether the 62% figure is accurate – I don’t know if it is or isn’t. Just throwing it out there as part of the of the conversation.
“There is no 300%”
Not initially but my recollection is that tripling of rates within 6 years was what was postulated and that you(DG) concurred.
“I find agreement with this coming from rusty49 particularly interesting since he usually disparages a “tax and spend” point of view, but now seems to be advocating for taking the
Federal funds ( aka our tax dollars) for what he would likely be calling “pork barrel spending” if he were not eager to ensure that we also get “our share”.”
If they are giving it out, we might as well take it, we’d be stupid not to. Then again, maybe I’m signing onto the “if you can’t beat them join them club”. If our country is going down the fiscal drain anyway I might as well get all I can get, I’ll be one of the “moochers” as Jeff puts it. Let’s all get all the freebies we can get, I mean after all if it’s being passed out I might as well get my “fair share”.
300% is not tripling, I think it’s quadrupling.
Second, with the new rate structure, I think the increase is significantly lower and over a longer period of time. It’s still significant. But nowhere near 300%.
300% of 34 is 102. Are you saying you don’t want to pay or can’t pay? How much does your cell phone cost each month? Our phone bill and gas bill is more than our water bill.
“300% of 34 is 102.”
I think that’s 200% of 34 and that would be a great hardship to me.
Davisite2: I am curious about how you came to the conclusion in your first sentence (“…political realities will put instituting stringent penalties for not meeting water quality standards…”) from the article that Matt posted? It doesn’t appear to mention anything about penalties for not meeting water quality standards, rather focuses on funding for water delivery and wastewater treatment infrastructure. Thanks in advance for the help.
Rusty49
Well, I certainly applaud your honesty, while vehemently disagreeing with the sentiment.
“300% is not tripling, I think it’s quadrupling, because 100% is doubling.”
What I thought was correct(and still do) is taking the original number as 100% and 3x that number as 300%”
“Second, with the new rate structure…”
Where is this new rate structure and if it exists, why is it not public knowledge”?
It’s all semantics, a 300% increase vrs. 300% of what it is now.
“…. antithesis of individual responsibility. I may be misinterpreting, but what I hear you saying is “Let’s wait and see what the federal government can do for us.”
It has nothing to do with “individual responsibility” which has become the rallying cry of the far-right. I support fair progressive taxation and “big” government using tax dollars to build a strong country and national community. These are basic Liberal tenets.
Rusty: no it’s important because he’s comparing a 62% increase not to a 300% increase but to a 200% increase. It’s not semantics, it’s getting the mathematics and more importantly the comparison correct.
David, take $100, a 300% increase would be $400, as you rightfully stated.
Now take $100, 300% of what that is now makes it $300.
I am curious about how you came to the conclusion in your first sentence (“…political realities will put instituting stringent penalties for not meeting water quality standards…
The article recognizes the inadequacy of local governments to pay for the necessary infrastructures needed. I agree that there is no mention of the “political realities” but this was an article by a Democratic elected senator. I know some about State regulatory agencies and while one can get opinions from mid-level people, the directors of these agencies are the ones who set policy and they are very much responsive to the political environment in which they must operate. Trying to “Squeeze blood from a stone” by imposing harsh penalties on local governments stuggling to just pay their ordinary bills is not politically a good move.
Davisite2
Sorry for the confusion.
I realize that I used a phrase that has been coopted by the extreme right. What had actually come to mind for me were JFK’s comments about not asking what the country can do for me, but rather what can I do for my country. This seems to me to once again be a central issue for our time. It is very easy to be a responsible citizen when financial times are good, much tougher when people are in real economic pain, or even when one fears one might be in real economic pain.
I now understand your point, which I was somewhat misinterpreting.And I would like to expand upon it. I feel that “the extreme right” is actually correct about the importance of “individual responsibility”. I just feel that they stop way too soon by failing to recognize that in a democracy, it is the sum of all our individual actions and choices that build a strong government and nation. We are our government, and the strength or weakness of that system depends on our willingness to act as individuals, not only for our own individual good, but also what is good for our neighbors, community, state and nation. This was the sense in which I was using “individual responsibility.
Okay David it is for you although someone who tracks this stuff as closely as you should perhaps not be making large expenditures or encumbering indebtedness if you can’t afford a completely forseeable and widely telegraphed increase in utility rates.
Still my question was not directed to you it was directed to d2 who, through anonymity can answer anyway they choose. My point is that I think d2, a staunch opponent of any growth or development, is using the rate increase as a way to manipulate the debate, not because its a burden but because its a club.
All, since I have had to be very close to the numbers in order to do a thorough due diligence re: developing the L-W rate structure, let me weigh in on some of the points made in the comments above.
First, Bartle Wells has calculated a $29,902,000 per year revenue requirement when the full debt service (at a 4.5%-5.5% interest rate) hits the City’s books in the 2019-2020 Fiscal Year. The 2011-2012 Fiscal Year Budget shows $9,978,473 in revenue and $12,927,024 in expenses. So depending on whether you use the revenue as a base or the expenses as a base, $29,902,000 is 300% or 235% of current, which translates to either a 200% increase or a 134% increase between now and FY 2019-2020
Second, the $29,902,000 revenue requirement does not include the most recent cost allocation changes.
Third, the 4.5%-5.5% interest rate is extremely conservative. Qualification for State Revolving Funds (SRF) at 2.2% interest rate will cut the total debt service substantially, although the term on SRF loans is 20 years as opposed to 30 years in the financing Bartle Wells has included in the $29,902,000.
Fourth, Herb Niederberger is hot on the trail of some very interesting 0% interest rate financing that could bring the revenue requirement down even further
Hope that helps.
Davisite2: My apologies – I inadvertently left off two words from your statement: “…on hold…” which were what I was really curious about. I think it is a big (and possibly misdirected) leap from Matt’s post to the notion that penalties will somehow be put on hold. Methinks that you might be assuming too much based on your oft-stated desire to delay the water project.
It has been a basic premise of water project opponents that Davis will get a series of variances — first for salinity, then for selenium.
That state regulators won’t levy substantive fines for political reasons.
That somehow funding will come at some future time from the federal government.
That it is ok to continue pumping from the shallower aquifers, and to increase our pumping from the deep aquifers, until such funding appears.
And more recently, that we can buy water from West Sacramento or (remarkably in a recent Harrington post) from Woodland at some undetermined date down the road.
That is the foundation of the opposition to the WDCWA JPA project.
Implicit in this is that it is ok to continue polluting the delta for absolutely as long as possible to avoid paying more for water.
Don – Thanks for listing the “basic premises” of the water project opponents. I started a mental list myself a couple of days ago so this saves me some time. I would really like to hear some reaction from said opponents. Do they acknowledge these points or feel they are wrong? If so, which ones?
To me there has been a lot of hand waving suggesting unethical or even illegal behavior by the Davis CC, how this project is a Trojan horse of the “developers” and how everything is being carried out in a non-transparent way. I have not found this helpful and feel it is not supported by the evidence.
I understand that water is going to cost us a whole lot more in the future no matter what happens (and arguably it should–we have lived with an unsustainable system for too long). But the bottom line to me is that we have legal and ethical responsibility to develop a compliant and sustainable water system that incentivizes the rational use of this precious resource. We have other ways to deal with sprawl (and we must use them).
So, thanks for cutting through a lot of useless rhetoric to attempt to lay out the logic of what opponents are really saying. I appreciate it.
And thanks Don, for mentioning that Davis’ water issues are not just about Davis but part of a larger regional perspective that rarely gets mentioned amid all the hysteria about development, etc.