Water and wastewater markets have grown nicely over the past decade but funding issues may create a clog in the works in coming years. Declining revenue at state and local levels as well as the tight credit market are almost certain to curtail gains built up over the past 10 years, say industry analysts.
Between 1997 and 2007, water and wastewater agencies around the country faced capacity issues, overdue capital upgrades and federal mandates for improvements, and spending nearly doubled, according to McGraw-Hill Construction Analytics, like ENR, a unit of the McGraw-Hill Cos. However, construction starts in the environmental public works sector will end up flat for 2008 at $36.8 billion, with a 5% drop to $35.2 billion forecasted for 2009, according to the group.
“Certainly the need for this type of construction is pressing,” says Robert Murray, vice president of economic affairs at McGraw-Hill Construction. “We just don’t think it’s going to be able to show an increase until another two or three years down the road.”
Alan Roberson, director of security and regulatory affairs at the American Water Works Association, Denver, says water infrastructure projects are likely to feel the pinch under current financial pressures. Nearly one-third of AWWA members who responded to a recent poll indicated they are delaying or stopping capital projects.
A recent National Association of Clean Water Agencies survey also suggests there are at least $10 billion in unfunded “ready-to-go” water and wastewater projects. Both AWWA and NACWA are lobbying Congress for water infrastructure projects to be included in any future stimulus packages.
In some cases, the credit markets are causing water authorities to pause. An uncertain financial environment has forced the Pima County (Ariz.) Wastewater Reclamation Dept. to prioritize its needs with greater scrutiny. The agency is in the early stages of a $1-billion upgrade called the Regional Optimization Master Plan, which includes meeting a state mandate to reduce nitrogen and ammonia in its effluent at its two major treatment plants. Under ROMP, its 37.5-million-gallon-per-day Ina Road plant will be expanded to 50 mgd. Its 41-mgd Roger Road plant will be replaced by a new 32-mgd plant and a 72-million-gallon connector will connect the two plants to handle overflow. The plants are scheduled to open in 2014 and 2015, respectively.
But the fragile state of the economy has caused the department to rework its financial plan, says Michael Gritzuk, PCWRD director. Its original plan was predicated on a new bond initiative being approved on this year’s November ballot. But Gritzuk says a citizen’s bond advisory board decided to push the initiative to the November 2009 ballot.
That leaves the department with nearly $75 million in funds left from a 2004 bond issue to help with design and engineering and it may have to go to other measures. “We anticipated having this bond issue passed and using those bonds to continue,” Gritzuk says. “Now we’ll have to do some stop-gapping. We'll use more cash and also use things like certificates of participation to get by. The drawback is you pay a high interest rate on that, but these are the mechanisms we have to use.”
Gritzuk says the agency is already shelving numerous multimillion-dollar projects that aren’t part of ROMP. If the bond initiative does not pass in 2009, Gritzuk says the department may have to go to the private sector. “If our financing goes critical and we don’t have the funding, we’ll go back and look at that option,” he says. “There is an awful lot of private money out there waiting to finance critical infrastructure.”
The City of Akron, Ohio, has been looking at private investment to save its sewer system, but citizens are wary. Voters rejected a Nov. 4 ballot initiative to lease the city’s sewer system for up to 99 years. Akron Mayor Don Plusquellic first floated the idea as a way to create scholarship funds for local schools while meeting pressing demands for infrastructure improvements. The city’s proposed long-term control plan calls for more than $400 million in improvements to bring the system into compliance with U.S. Environmental Protection Agency mandates.
Regulatory mandates also are compressing the schedules of many agencies within the Chesapeake Bay watershed. Dozens of agencies are facing requirements to reduce the nutrient levels of water that feeds into the bay.
Pennsylvania’s budget called for $1.2 billion in water infrastructure funding in July, which led the state’s Dept. of Environmental Protection to require 63 plants to begin work to meet nutrient-reduction requirements. Nearly $800 million would come from bonds issued through the state’s Commonwealth Financing Authority and repaid with revenue from state gaming operations. The remaining $400 million was approved by voters in a Nov. 4 ballot initiative.
But the uncertain credit market is causing delays in floating the bonds, says John Brosious, deputy director of the Pennsylvania Authorities Association. “The CFA has indicated it wants to wait until next year to float the bonds because the market is so bad,” he says. “We don’t have time to wait here. We don’t have wiggle room on our Chesapeake Bay projects. There are five-year timeframes in these permits.”
Walt Nicholson, director of operations at Williamsport (Pa.) Sanitary Authority, says his agency is planning nearly $100 million in wastewater-treatment work, including meeting the looming nutrient requirements by 2012. He isn’t panicking about the financing, but with many state authorities eyeing compressed schedules, he is concerned about the industry’s capacity to build these projects during that timeframe.
“Who can do all of this work [statewide]?” he says. “What will it mean for the kind of bids we get? We just don’t know.”
Meeting Chesapeake Bay-related regulations also is a significant portion of the major work planned by the District of Columbia Water and Sewer Authority. Its current $3.1-billion, 10-year capital improvement plan includes $950 million for its Total Nitrogen Program, which goes into design in 2009. Detailed design on its $2-billion long-term combined-sewer overflow plan also will start next year, with completion scheduled for 2025. Although it is not mandated, program management and design for a $400-million biosolids program also is scheduled for next year.
In gearing up to execute the work, DCWASA has worked to clean up its books. The authority moved to eliminate $354 million in variable-rate securities and moved $44 million to a short-term commercial paper financing program. But it needs more money to move forward and plans to go out for an additional $300 million in long-term financing in January. The immediate future of the program now hinges on the market, says Olu Adebo, the agency’s acting CFO.
The City of Dallas Water Utilities Dept. typically uses commercial paper for short-term funding needs, eventually retiring them with an annual bond sale, according to Vickie Reed, DWU assistant director of business. In August, however, the department was unable to remarket $67 million in outstanding debt, the first time that has happened in its history. Within three weeks, the city was able to remarket it again, but DWU is now taking a fresh look at its funding options.
The agency still is letting contracts, partly to meet looming regulations for copper and lead, as well as dealing with disinfection byproducts, says Charles Stringer, DWU assistant director of water operations. He says he remains cautious about the future.“If the market doesn’t free up, there’s a distinct possibility that we may have to back off on projects,” he says. “We’ve been lucky not to have quite the extent of problems that others have. Nonetheless, it's a growing concern for us.”