Flint, Michigan, is not alone when it comes to problems with old water systems. Cities across the nation are faced with aging pipes and a lack of funding to fix them.
The water issue has gotten a lot of press lately because of the Flint lead contamination crisis. In an effort to save money, the city had stopped getting its water from Lake Huron and the Detroit water system, and began pumping it from the Flint River.
Unfortunately for many people who drank the water, the river water was not treated properly to prevent the leaching of lead from old pipes. As a result, thousands of children and adults were exposed to drinking water with high levels of lead. The city has switched back to the Lake Huron water and is currently working on a pipeline upgrade.
And Flint isn’t the only city with old pipes. The Brookings Institute issued a new policy brief on the nation’s aging water infrastructure. It estimates that more than $1 trillion in upgrades are needed across some 52,000 public water systems and 700,000 miles of pipes.
But it says utilities responsible for doing all those repairs are struggling with a huge funding gap. By some estimates, that gap is about $655 billion dollars over the next two decades.
What most agencies are worried about are aging distribution and transmission systems — especially all those very old underground water mains and pipes. Many are more than a hundred years old.
The new report looks what utility districts are up against in identifying priorities, getting the funding they need, and making and paying for repairs and upgrades. Water utilities have an obligation to provide clean drinking water for 320 million people across the U.S., but many fall seriously short on funding.
The report indicates that at present 75 percent of utilities are able to cover their basic costs. That leaves 25 percent that are struggling with a funding gap. That could force some districts to resort to a back-up plan for funding.
That could be for operational costs in some cases or for upgrades. To do that, some may turn to loans. Others may raise rates. Or both. Many end up saddled with debt.
The Brookings Institute says that local governments now have more than $1.7 trillion dollars in long-term debt. For many larger utilities, 96 percent of their value is wrapped up in long-term debt. That leaves little room for new capital investment.
Some districts actually have only a small amount of debt compared to their assets. Salt Lake City is one of those cities. Brookings says it has more than $363 million in assets and just a little more than $14 million in debt. But that appears to be the exception, and not the rule.
Of the thousands of water districts in the country, each will have a different set of financial and economic circumstances and needs. The Brookings analysis looked at three financial factors including operating ratios, debt-to-asset ratios, and water rates, and three economic variables. Those are changes in population, changes in median household income, and the share of lower-income households.
Of the 97 cities studied, the top ten cities that ranked well for water investment performance include:
Washington, D.C.; Charleston, South Carolina; North Las Vegas, Nevada; Denton, Texas; Denver, Colorado; Ontario, California; Forth Worth, Texas; San Francisco, California; Salt Lake City, Utah; Seattle, Washington.
The cities with the lowest score, starting at the very bottom, include:
Detroit, Michigan. That’s where Flint is getting its “better” water from. Birmingham, Alabama; Cleveland, Ohio; Buffalo, New York; Indianapolis, Indiana; New Orleans, Louisiana; San Bernardino, California; Richmond, Virginia; Newport News, Virginia; and Las Vegas, Nevada are all on the bottom of the spectrum.
When funding dries up, districts often raise rates. That happened in California during the drought. As fewer people used water to comply with conservation mandates, revenues fell and water districts needed to raise rates to cover costs. But other factors that affect revenue include demographic shifts. Population growth will help bring revenue to a water agency while an exodus would hurt revenue. If people are struggling financially they may use less water to save money.
Experts concerned about the nation’s water delivery systems say all those problems need attention now. The American Society of Civil Engineers said in 2013 that the drinking water infrastructure is approaching the end of its useful lifespan. The President and CEO of American Water Works, Susan Story says: “In this country, 44% of America’s water infrastructure will be considered poor, very poor, or life elapsed.”
Although most of the water infrastructure funding comes from state and local governments, the federal government provides some funding through the Departments of Agriculture, the Department of Housing and Urban Development, and the EPA.
President Trump is well aware of the feeble state of America’s infrastructure. He has stated plans to spend 1 billion dollars per year on improvements, which would also help create jobs.
The EPA typically hands out more than 4 billion dollars a year for many kinds of projects. Some of those funds have gone to research on climate change and to improvement to air and water quality.
The Trump administration issued a temporary freeze on all contracts and grant awards on January 20th. It’s not unusual for an incoming administration to issue a funding suspension, but the Trump transition team has made no secret of its desire to reduce the size and reach of the EPA.
My guess is that more of those funds will go to improving infrastructure than on climate change, since the administration also ordered a media blackout for the EPA and also removed all references to “climate change” on the White House website. Grants and contracts that were suspended are currently “under review”.
We all want clean water coming out of our taps, so hopefully clean water will part of the new infrastructure redevelopment. The question is, where? Will the administration choose to invest in the nation’s worst areas – and if so, that would be Cleveland, Pittsburgh and Detroit.
That would be good for real estate investors in those areas. Currently all three of those cities have already been re-investing billions of dollars in their infrastructure.
We will certainly keep you posted on any water contracts and infrastructure development plans that come out the White House, because it will have a positive affect on the metro areas where those dollars are targeted.
Meanwhile, I highly recommend getting a water filter in your home no matter where you live, and as a bonus, you may want to consider installing one for your tenants. They are only a couple hundred dollars.
Also, because water bills might increase in some metros, it’s a good idea to be listed with the water company on all bills your tenant is supposed to pay. In some districts, if the tenant doesn’t pay, the landlord has to. And if there’s a water leak, that can be a pretty pricey and unexpected bill.
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