Finance

Financing Water Infrastructure Like Transportation

One idea floating around on how to help cities pay for water infrastructure has already helped finance big transportation projects with large, low-interest loans directly from the feds.
by | May 2012

In Napoleon, Ohio -- a city of fewer than 10,000 -- water and sewer rates have doubled since 2003. If the trend continues, Mayor Ronald Behm fears that residents and businesses alike will simply move away. The problem is the city’s water and wastewater system. Upgrades to it, ordered in part by the U.S. Environmental Protection Agency, could cost the city nearly $115 million, according to Behm.

Across the country, cities large and small are struggling to figure out how to pay for aging water infrastructure. The challenge is that traditional funding sources are drying up. In the 1970s and 1980s, the federal government provided generous grants to localities to improve their water and wastewater systems. Today, the federal government’s primary role is to capitalize state revolving loan funds, which states, in turn, can loan out to local projects or to help refinance local debt. But there is a greater need than there is money to loan out, says Gregory DiLoreto, president-elect of the American Society of Civil Engineers. Plus, President Obama’s proposed budget would reduce the amount the feds are currently giving out to states. But local water officials think they have a solution. They are hoping to convince Washington to borrow a page from the transportation community.

Public works managers are floating a proposal dubbed the Water Infrastructure Financing and Innovation Act (WIFIA) that would provide large, low-interest loans for major water and wastewater projects directly from the feds. It’s based on the popular TIFIA program, which finances major transportation projects. In recent months, federal legislators have been exploring the concept, saying it could be an effective tool in addressing water and wastewater costs. WIFIA would help fill the gaps in the state revolving loan programs, which often don’t have the capacity to finance the biggest projects. Because water and wastewater systems historically have a minuscule default rate, the cost to the feds would be low.

Still, some are skeptical. Jeffry Sterba, president and CEO of American Water, which manages municipal water systems across the country, noted that WIFIA is not a cure-all since it doesn’t provide extra capital for the projects -- it just helps with the financing. That’s also true of other water financing proposals gaining attention, like the creation of a national infrastructure bank and the elimination of caps on tax-exempt bonds for water projects. One idea that does address capital -- a water trust fund -- has gotten some attention, but any proposal that generates revenue would likely meet resistance from the current Congress. Local leaders, on the other hand, will welcome any help they can get. “We just need a little bit of a break on this stuff,” says Indianapolis Mayor Greg Ballard. “It’s difficult.”

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