Water Infrastructure, Yes! New EPA Water Finance Center, No!

By Michael Curley, Guest Contributor

MC Book PicLast Friday, the White House made a dramatic announcement about clean water on the banks of the sad, neglected little Anacostia River, which is filthy because it runs through a part of DC that the rich and the politicians don’t ever visit and wish would just go away.

The announcement was that the Environmental Protection Agency would create a new “Water Finance Center.” EPA actually calls it the “Water Infrastructure and Resiliency Finance Center.” They said the Center would “help address more than $600 billion of needs for drinking water and wastewater management over the next 20 years.”

Let’s begin deconstructing this announcement by noting that EPA has operated the Clean Water State Revolving Fund (CWSRF) since 1987. This program is the single most successful environmental finance program on the planet Earth. In an age of dysfunctional government, the CWSRF is a shining city on a hill. It has made over 30,000 loans totaling over $100 billion. Furthermore, it has – conservatively – more than $1 trillion of additional financial capacity. It could finance all $600 billion of the White House’s “need” today! The only thing holding it back is a series of crippling strings that Congress attached– called cross-cutters. They make the CWSRF more expensive and more bureaucratic. Unfortunately, there is nothing the White House nor a new EPA Water Finance Center can do about them.

Next, we need to put this $600 billion of “need” into perspective. It looks massive but, on the other hand, over the next 20 years it is really only $30 billion a year. Only $30 billion? Perspective! Most municipal infrastructure in the US is financed with municipal bonds. The municipal bond market in the US is over $3.6 trillion. Even in these depressed times of local government borrowing, a little less than $350 billion of municipal bonds were issued last year and a little more than $350 billion is expected to be issued in 2015. Because of the cost and complexity of the CWSRF most major water utilities with good credit ratings go directly to the bond market. The market has never had a problem absorbing this supply, which is less than 9% of its annual volume. So, will the $600 materialize when we need it? Not to worry. Between the bond market and the CWSRF it’s already covered. And the role of the new Water Finance Center in all this? Go, figure.

A final note about “need” numbers. If a water system buys, say, a filter with a 10-year warranty, government economists will take the price the utility paid for it today, add 10 years of projected inflation to the price, and then put it down in Year 11 as a “need.” When you buy a car, do you estimate its replacement cost in X years, and then count it as a “need”? Remember what Mark Twain said about lies and statistics? The statement “$600 billion of need” is both!

About the Author: Michael, currently a Visiting Scholar with ELI, is one of the foremost experts in the U.S. on water financing. He is lawyer who has spent the majority of his career in project finance and the last 25 years in environmental project finance. He is the author of The Handbook of Project Finance for Water and Wastewater Systems, published by Times/Mirror and Finance Policy for Renewable Energy and a Sustainable Environment, which will be published by Taylor & Francis on March 27, 2014. He has also published over 40 articles, is a regulator contributor to the Huffington Post, and is a member of the American Society of Journalists and Authors and the National Press Club, where his sits on the Book & Author Committee.

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