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Aging Infrastructure and Finances

May 29, 2020

It is no surprise to local leaders that federal and state aging infrastructure spending has been dropping for years. However, communities are still faced with the issue of funding maintenance and rehabilitation – and sometimes expansion – of important infrastructure.

 

As our aging infrastructure reaches the end of its usable lifespan and the responsibility for financing the future of America falls on our communities, many leaders are looking for new, alternative funding sources.

 

One such source is the result of the federal government’s Water Infrastructure Finance and Innovation Act, or WIFIA. WIFIA provides long-term, low-cost loans for improving energy efficiency at water treatment and wastewater plants; desalination, aquifer recharge, alternative water supplies and recycling water; and drought prevention, reduction and mitigation.

 

At the state level, states have, for many years, matched federal funding through the Clean Water and Drinking Water State Revolving Funds. However, these funds are limited, often requiring large matches that communities don’t have and leaders are learning to get creative by looking at all available sources of funds, from the traditional to the alternative.

 

At the local level, there are the always reliable general obligation or revenue bonds, which can be paid off through collected taxes or fees added to ratepayers’ bills. Infrastructure debt also can be remediated through taxation, through a local option sales tax, a special purpose tax that isn’t limited to residents, but those who work or vacation in your community. However, this may be accompanied by a cut in state aid or competition from nearby communities which may lower their taxes to lure shoppers.

 

One problem many communities are trying to tackle is stormwater, as their combined stormwater/sewage systems overflow following heavy rain, dumping untreated wastewater into streams and rivers. Eliminating combined sewer overflows is an unfunded mandate, as stormwater runoff from a combined sewer system often picks up pollutants. Many communities are encouraging residents to consider green infrastructure, such as porous sidewalks and driveways, rain barrels and rain gardens to mitigate the overflow. Managing stormwater requires infrastructure, and giving residents retention credits against those fees for installing green infrastructure reduces the strain on the system. Additionally, some communities are implementing stormwater utility fees, local development fees and special taxes to fund sewer separation.

 

While that may help with stormwater systems, other approaches are needed for sewer and potable water systems, many which are either plagued by inflow and infiltration or undetected leaks. Utility managers may want to take a page out of the energy playbook and institute a public benefit fee – such fees can be used for maintenance or small projects and constitute a steady stream of revenue.

 

In addition, public-private partnerships are available – in return for taking a portion of the risk by providing upfront funding, a private entity would be given a later consideration, such as tolls or collecting fees from ratepayers. P3s allow communities to stretch their budgets with private dollars while considering the entire cost of a project, including maintenance. They also can help projects cut through red tape and increase the likelihood it is on-budget and on-time. Some entities are considering “P4s,” or public-public-private partnerships, in which multiple agencies work with a private partner, leveraging existing partnerships.

 

Infrastructure funding tools may not be available to everyone – only a little more than half of the states, 27, have infrastructure banks; only 32 authorize public-private partnerships; and 29 authorize local option sales taxes.

 

To truly have effective strategies, communities need to be given more flexibility in how they raise funds, sources of capital such as private activity bonds should be expanded and obstacles to advancing the progress of necessary projects must be reduced.

 

The federal government may want to take a page out of Indonesia’s book, where $400 billion was spent on infrastructure development over five years. By identifying those projects that could help boost Indonesia’s economy, the government was able to prioritize projects and walk them through the process with the assistance of the Committee for Acceleration of Priority Infrastructure Delivery.

 

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Insurance for the ServLine program is issued to utilities and placed through HomeServe USA Repair Management Corp. (HSRM), a licensed insurance agency.  In California, HSRM does business as HomeServe NA Insurance Services (California License # 0F79326). ServLine is a registered trademark.