Abstract
Introduction
That the nation’s water infrastructure is in dire straits is neither newsworthy nor surprising. Decades of underinvestment, neglect, and political stalemate has left much of the nation’s infrastructure dangerously weak. Public drinking water systems are blamed for poisoning children; wastewater systems have outgrown their design capacity causing raw sewage to be spilled after rainstorms; years of drought in the American West have led to unprecedented water shortages; and a failure of water control systems led to the tragic flooding of a major American city in 2005.
Perhaps no situation better illustrates the looming crisis than the recent events in Flint, Michigan. Following a change in water supply as a cost-savings measure, residents of Flint began to complain of foul-tasting and smelling drinking water. Independent testing confirmed dangerously high levels of lead in the water. After months of denial, city and state officials finally admitted a problem. The degradation of the quality of the drinking water was caused by advanced corrosion in the pipes installed throughout the city to carry the drinking water. The pipes contained a high percentage of lead; the change in water chemistry, coupled with higher levels of chlorine used to treat the water, allowed the corrosion to allow lead to leach from the metal and suspend in the water (National Public Radio [NPR], 2016). The pipes in Flint had been installed decades before it was widely understood that lead has deleterious effects in humans, and particularly in children. As long as the water chemistry did not accelerate the corrosion problem, the lead levels remained within regulated levels. Even so, many of the pipes had reached, or surpassed, their design life, and were due for replacement. The crisis, however, brought sharply into focus the underlying issue: The infrastructure was weak, and there was no money to undertake the needed upgrades.
Although the crisis in Flint captured headlines for months, the problem in Flint is simply an indicator of a much deeper and vexing problem: The nation’s infrastructure is in crisis, and there is little political will (or monetary resources) to address the crisis. The crisis is not limited to drinking water; it is also present in wastewater treatment, transportation systems, port facilities, and other arenas as well. The purpose of this article is to discuss options for funding water infrastructure (both drinking water and wastewater), although many of the principles and models may be equally applicable to other areas of infrastructure. We will examine, in turn, previous policy instruments, current policy choices, and future options for investment, and suggest issues for further policy discussion.
A Brief History of Water Policy and Infrastructure
Prior to the turn of the 20th century, the nations’ drinking water supply was a patchwork of solutions. While water systems could be found in larger cities, small towns and rural areas relied on wells, lakes, rivers, and streams for drinking water. Wastewater was generally not treated at all. As science began to understand more about the links between waterborne organisms and human pathology, more municipalities began to design and build systems to treat and transport clean drinking water directly to consumers. In places like Denver, Colorado, a network of private water systems in the city were consolidated and placed under the ownership of a public authority (Leavitt & Morris, 2004). Public wastewater systems became more prevalent following World War II, and major investment in wastewater treatment occurred in the 1960s. The Clean Water Act of 1972 generated billions of dollars of new public investment in the form of construction grants (see Heilman & Johnson, 1992); in addition to providing new primary treatment facilities and improved collection systems, the funds also allowed for system expansion and the inclusion of secondary and tertiary treatment of wastewater.
The Water Quality act of 1987 fundamentally changed the role of the national government in wastewater funding (Morris, 1996, 1999). The previous construction grants program was replaced with a federally funded, state-run loan program. Administered by states, and including a 10% state match, these funds were used to make loans to communities for wastewater infrastructure needs. Consistent with Reagan’s “New Federalism” (see Morris, 1999), the revolving loan fund model was later adopted to provide federal funding for drinking water infrastructure as a feature of the amendments to the Safe Drinking Water Act in 1996.
Policy Choices for Funding Infrastructure
In little more than a century, the United States has adopted three different mechanisms to meet public water infrastructure needs. From a period of self-funding, through federal grants, to the current system of state-administered loans, these models represent very different choices regarding questions of the proper role of government in the provision of infrastructure. Distilled to their essence, these choices may be considered as follows:
Self-Funding. The original policy option, self-funding places responsibility for both drinking water and wastewater in the hands of citizens, either at an individual level, or collectively at the local level of government. When pursued collectively, the system is created and supported through the assessment of user fees. Many private water systems in the United States use this model today. This option ensures that the people benefiting from the infrastructure are the same ones paying for the infrastructure, and no one is forced to pay but not benefit directly from the service. However, initial investment costs can be high, as can operating costs, and user fees may be too high to be affordable by all but the very wealthy.
Federal Grants. Federal grants can be used to supplement state, local, and user fee-based funding. Construction grants lower the costs to users, and make the initial and ongoing costs of the service more affordable. Construction grants were criticized as too political (they were categorical grants distributed by Congress), and the use of general revenues means that people are paying services used by others. States’ rights advocates also object to construction grants because they usurp decision power from the states and leave the national government with responsibility and control over the distribution of resources.
Federally Funded State-Administered Loans. The revolving loan fund model popularized by the Water Quality Act of 1987 provides federal funds in the form of a block grant, coupled with a 10% state match, to capitalize state-administered infrastructure banks. Communities apply for loans from the bank, and they pay back the loans (with interest). The interest payments are designed, in theory, to ensure that the value of the funds grows over time, thus ensuring a source of funding for new projects in perpetuity. Loan funds are popular because they provide a great deal of control to states to make allocation decisions, thus removing the national government from the policy arena. Coupled with state primacy for enforcement, the national government is effectively removed as a major actor in water policy. However, previous work has shown that states vary widely in their loan distribution patterns (Morris, 1997), and states must charge a competitive interest rate to ensure the real value of the fund continues to grow. These higher rates not only reduce the economic value of the loan; they also limit the utility of the loans to small or financially at-risk communities (see Morris, 1997; Travis, Morris, & Morris, 2004). The pressures to lower interest rates on loans also raises significant questions about the long-term viability of the State Revolving Fund (SRF) model (Holcombe, 1992); it is important to note that while the Water Quality Act authorized capitalization payments for a period of about 7 years, pressure from states and environmental groups has led to many more years of capitalization funding than originally planned.
Privatization as a Policy Choice
There is an additional choice that may also be considered as a potential funding mechanism. For a brief time in the early 1980s, the federal tax code was amended to encourage private-sector investment public infrastructure. Under the Economic Recovery Act of 1981 and the Tax Equity and Fiscal Responsibility Act of 1982, a range of incentives were made available to private companies to support public investment. These inducements included tax investment credits of up to 10%, arbitrage, accelerated depreciation schedules, and tax-exempt municipal bonds (Heilman & Johnson, 1992). Although these inducements were largely removed from the tax code by the Tax Reform Act of 1986, several wastewater projects were undertaken during this period, with varying degrees of success.
While privatization of infrastructure remains the subject of much debate, it is clear that efforts to attract private investment to public infrastructure remain an attractive policy option for many. Such investment has been employed for years in bridges and highways, as well as more mundane infrastructure such as private prisons (see Morris, 2007; Price, 2006) and public schools (Elmore, 1991). While the private sector may serve as a virtually limitless source of funds for capital investment, both the academic literature and real-world practice are rife with examples of poorly designed or executed public–private partnerships—the model is not without its own challenges. However, before any significant private investment can flow to water infrastructure needs, new incentive structures must be enacted to serve as inducement to private investment. In addition, legal and regulatory frameworks must be updated or created to protect both the private investment and the larger public good. Safe drinking water and treated wastewater have both been defined as “worthy goods” (Savas, 1987); as such, government has a critical role to play in the provision, production, and delivery of these goods. However, a carefully considered role for the private sector in this arena is not inconsistent with a “worthy goods” status, and the value of worthy goods can be enhanced by careful consideration of the larger public good and public values (Kettl, 1993).
Policy Recommendations
In an era of increasing demands for services and declining resources with which to meet those demands, policy makers must develop creative solutions to allow available resources to be more effectively employed. Against the current backdrop of hyper-partisanship and its resulting political gridlock, there is a need for policy solutions that will appeal to both policy makers and voters across the political spectrum. In the water quality arena, a return to the days of construction grants is not a viable choice given its heavy bias toward federal control of resources. At the same time, the current tax code does not sufficiently incent private companies to enter into design-build-operate arrangements for water quality, as the initial costs are high and the returns on investment too limited. The revolving loan fund model has not been sufficiently capitalized by either states or the federal government, leaving that option ineffective.
An alternative approach is to combine different policy tools into a single effort. The Clean Water State Revolving Fund (CWSRF) has been funded well beyond its initial authorization, but at levels incapable of meeting state needs. A revised revolving fund model that would place a greater share of federal funds at state disposal, perhaps coupled with enhanced state contributions (perhaps in the form of in-kind matches), would provide greater resources for states to meet water quality needs. The higher capitalization would also allow states to make loans at or below the prevailing loan rate (currently still hovering near historic lows); the continued investment of new funds obviates the need to make loans above the prevailing interest rate. Congress could further incent efforts of states to fund small communities and financially at-risk communities (see Morris, 1997) by offering additional funds to states that make exceptional efforts to meet the needs of these communities.
However, this solution alone would not provide enough capital to meet all the water quality needs of states. Congress should consider revising the tax code to incent greater private investment through the use of accelerated depreciation schedules, access to tax-free bonds to capitalize new projects, and similar tools. Coupled with low-cost loans from SRFs, new resources would flow toward water quality projects.
Finally, there is a need for a new Clean Water Act. Forty-five years have elapsed since the last major national statement on water quality policy was enacted, and nearly 30 years have passed since the last significant revision of the original Clean Water Act. Needs and technology have both changed considerably since 1972 and 1987, respectively, and the United States is in need of an updated, effective, and relevant policy to address water quality needs. Such an effort would also allow a fresh look at issues such as the efforts to address water quality issues in bodies of water in the Chesapeake Bay, the Mississippi River, and other impaired bodies of water.
Consideration of a new Clean Water Act offers a wonderful opportunity to not only address a policy area of considerable importance but also explore and enact bipartisan solutions to a problem that affects all Americans, regardless of political affiliation or ideology. Clean water meets a basic human need, and is a fundamental component of the general health and welfare of citizens.
Conclusion
Decades of political gridlock, hyper-partisanship, policy stalemate, and competition for ever-more scarce public resources have led us to the brink of an infrastructure crisis in the United States. This crisis is not “new news”; nearly 40 years ago, Choate and Walter (1981) warned of an impending infrastructure crisis due to underinvestment. Water infrastructure is particularly vulnerable to neglect; much of the infrastructure is buried underground or removed from the public view, and is thus easily ignored. Americans expect the water flowing from their kitchen faucets to be clean and safe, and they expect their wastewater to not pollute the nation’s waterways. It is only when these expectations fail to be met that the issues become apparent.
Water infrastructure is critical to a modern society. Questions of “who pays” are not unimportant; the same is true for questions about the proper role and scope of government in society. However, the role of government in the promotion of the health and general welfare of its citizens is a foundational element of American political philosophy (such language appears in the first sentence of the Constitution, and the second paragraph of the Declaration of Independence, for example), and clean water is itself a fundamental element of public health. Its provision cannot be taken for granted, nor can we continue to ignore the growing crisis decades of neglect has created. To ignore this problem is to ignore the most basic role of government in society.
The 115th Congress has not only an opportunity to address this crisis; it has a critical responsibility to do so. As of this writing, it is unclear who the next president will be, or which party will constitute a majority in Congress. What is clear, however, is that Americans want change in the way their government works. Unless we are committed to addressing this infrastructure crisis, events such as those in Flint, Michigan (drinking water); Chesapeake, Virginia (wastewater); New York, New York (steam pipes); or San Bruno, California (gas lines) will become commonplace—not a strategy conducive to winning the support and approval of American citizens.
Footnotes
Declaration of Conflicting Interests
The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The author(s) received no financial support for the research, authorship, and/or publication of this article.