FINANCING WATER INFRASTRUCTURE

In early September, 2014, a bill was introduced in the House of Representatives of Congress called the "Water Supply Cost Savings Act" (HR 5659) The title of the bill may remind one of the dog whose bark is worse that its bite. The bill makes findings of the need for financing new water infrastructure, especially for small water systems. For example, it states that, according to EPA, the shortfall in drinking water infrastructure funding for small utilities is $64 billion, and "small communities often cannot finance the construction and maintenance of drinking water systems because the cost per resident for this investment would be prohibitively expensive."

However, the bill offers no financing plans or programs to alleviate the acknowledged funding shortfall. Instead, it orders EPA and the Secretary of Agriculture "to provide drinking water technical assistance to include information on cost-effective, innovative, and alternative drinking water systems"; requires small systems applying for grants and loans to consider alternative sources of supply; and requires EPA and the Secretary to report to Congress on the use of innovative and alternative water systems.

Earlier in 2014, the federal "Water Resources Reform and Development Act" became law. (HR 3080) The Act includes the "Water Infrastructure Finance and Innovation Act" (WIFIA). This provision is a pilot federal loan program for large water and wastewater infrastructure projects. WIFIA loans, however, will not cover the entire cost of a project, and the borrower is prohibited from financing the balance of the cost by issuing tax-exempt municipal bonds. Therefore, this financing arrangement may have a tendency to encourage privatizations or public-private partnerships.

Perhaps' if Congress is seriously concerned about the infrastructure funding needs of small water and wastewater systems, it could consider creating a national "Water Infrastructure Financing Bank" for the benefit of small systems which may not have cost-effective access to credit markets. Initially funded by Congress, the Bank would make loan interest loans to qualified small utilities for needed infrastructure improvements. The loans would be repaid from system revenues much like the protocol for payment of municipal bond debt service. The Bank and its loans would be independent from USEPA and state environmental agencies, whose regulatory demands may have created the need for many of the infrastructure improvements in the first place. Thus, separation of financing functions from the regulatory functions may provide more effective opportunities for small systems.