From perennially poor grades by engineers, to high-profile failures like last summer’s water main break in Los Angeles, to funding needs that exceed public sources by billions of dollars, the discussion around the state of America’s water infrastructure is largely bleak.
But hidden in the Obama administration’s recent calls for fixing roads, rails, and bridges was the announcement of the creation of a new Water Infrastructure and Resiliency Finance Center (WIRFC). This new center, to be housed at the U.S. Environmental Protection Agency, has great potential.
For one, it will identify methods and opportunities for the private sector to help finance water sector infrastructure that remains in public ownership. Today, there are tens of thousands of drinking and wastewater districts in the United States, many of which are unable to use the most common infrastructure financing mechanism: tax-free municipal debt. The reasons vary—high transaction costs relative to a project’s size, weak credit ratings, insufficient bonding capacity—but the resulting financing impediments and lack of investment are the same.
The WIRFC could help respond to this challenge by linking up private sector resources with these capital-intensive projects. In so doing, the center could help usher in a new more effective approach to infrastructure investment. Traditional infrastructure procurement—also known as design, bid, build—involves the private sector in a project’s design and construction, but not its maintenance or financing. It leaves the risks of construction delays and cost overruns with the public. This approach often leads to deferred maintenance because the asset does not perform as efficiently as initially expected and/or insufficient funds have been budgeted for maintenance.
More innovative approaches such as design-build-finance-maintain (DBFM) or performance-based infrastructure (PBI) contractually require the private sector to guarantee construction and operational costs. Such approaches leave assets in public ownership and leverage private sector technical, construction, and operational expertise to the fullest capacity. Compared to traditional procurement methods, they foster design and technological innovation and shift the frame of analysis from lowest first costs (i.e. construction) to lowest full life cycle costs (i.e. construction, operations and maintenance). The end result can be a better overall value for the public.
The hope, then, is for the WIRFC to become a trusted, national clearinghouse of case studies and best practices that enable drinking and wastewater utilities learn from each other’s experiences. It could spur a new wave of innovative investment that leverages private sector capital and expertise, provides additional value to the public, and effectively anticipates and mitigates the effects of climate change.
Our nation’s water infrastructure is delivered by local and regional organizations outside of Washington. The new federalist approach proposed by the WIRFC to assist municipal and state governments and utilities and private sector partners with our water challenges in the face of an uncertain future is a welcome initiative.