Restoring Prosperity
The Greater Ohio Policy Center Blog
Earlier this month, GOPC was a table sponsor at the Gubernatorial Forum hosted by the The Ohio Association of Regional Councils (OARC). Speaking to a roomful of the state’s top political, business, and civic leaders, Ohio Attorney General Mike DeWine and former Consumer Financial Protection Bureau Director Richard Cordray shared their campaign platforms related to transportation, infrastructure, job creation, and economic development.
The Ohio Environmental Protection Agency (OEPA) has released its Draft Program Management Plan for the Water Pollution Control Loan Fund (WPCLF) for program year 2018. The WPCLF is the main source of funding for the design and construction of publicly-owned wastewater and stormwater control projects in Ohio. The WPCLF is a “revolving” loan fund that allows repaid funds to be loaned out again to new borrowers. The plan calls for the Fund to make a total of $520 million in loans in 2018, a level below that of recent years.
The US EPA provides annual funding to support states water infrastructure revolving loan funds. The subsidy allows the WPCLF to lend at below-market interest rates and to provide a limited number of projects with principal forgiveness. For example, the October 2017, standard discount rate on a twenty-year loan is 1.81%. Small communities with populations below 10,000 that also meet economic hardship criteria can receive interest rates of 1% or less. The plan reserves up to $29.9 million for principal forgiveness to address critical needs of economic hardship areas with combined sewer overflow needs or failing home sewage treatment systems.
OEPA extends a zero percent interest rate to borrowers with regionalization projects that connect communities that are served by failing septic systems or wastewater treatment facilities that are otherwise incapable of meeting Clean Water Act requirements. Regionalization of smaller water systems is a crucial way to meet regulatory requirements and control costs.
Greater Ohio Policy Center is working with the Ohio Water Development Authority, Ohio EPA, and other water infrastructure stakeholders in the Small Communities Environmental Infrastructure Group (SCEIG) to find ways to promote shared services and partnering among small communities.
A ranked list of priority projects is published along with the plan. Interested parties can comment on the WPCLF plan at a public hearing on November 20, 2017. For more information, please see the Ohio EPA website.
Providing the infrastructure for safe drinking water is one of the basic functions of local government in Ohio. Ohio has over 4,000 public water systems, ranging from large systems in major cities that serve thousands of customers, to village systems, schools, and mobile home parks that serve less than a hundred customers.
By John Collier, GOPC InternThe Value of Water Campaign recently released theEconomic Impact of Investing in Water Infrastructure– a report aimed at quantifying the economic impact water infrastructure has on the US economy. The campaign brings together leading water industry experts to better understand the economic benefits associated with closing the funding gap for water infrastructure spending, as well as the potential costs of failing to do so.
The US is at a tipping point when it comes to its water infrastructure. The infrastructure built in the last century, with a lifespan of 75 to 100 years, is coming to the end of its lifespan. Estimates from the American Society of Civil Engineers suggest the US will need to spend a minimum of $123 billion per year on capital improvements over the next 10 years to maintain a good state of repair. To put the scale of this infrastructure improvement into perspective, the report states that one-third of US water mains will need replaced by 2040. Current funding levels at all levels of government are not sufficient, and leave a sizeable funding gap. The report notes that aggregate capital spending across the local, state, and federal levels is only $41 billion per year, leaving an $82 billion annual funding gap. If current needs are left unmet, the report warns this funding gap will increase to $109 billion per year by the year 2026.
The benefits of meeting the funding gap are bigger than simply avoiding service disruptions, and would ripple to the farthest reaches of the economy. The US stands to gain $220 billion dollars in annual economic activity and would create 1.3 million jobs nationwide over ten years, should the water infrastructure funding gap be closed. Many of these jobs that are involved in the design and construction of improved water infrastructure are well paying and are attainable with a high school diploma. Moreover, indirect effects of investing in construction would create positive indirect effects on the economy, such as the purchase of working supplies in interrelated industries. An added benefit to the investment is the $94 billion businesses would save each year due to no longer needing to fund their own water supplies.
Water Treatment Plant. Photo credit: Wikicommons
The campaign asserts that as the nation moves to assess and repair its aging infrastructure, there is need for significant federal investment. From 1977 to 2014, federal contributions have fallen from 63 percent of total spending to 9 percent of total capital spending on water infrastructure. Much of the burden has been picked up at the local level – per capita spending by local communities has risen from $45 in 1977 to upwards of $100 in 2014.
Greater Ohio Policy Center (GOPC) recently releasedStrengthening Ohio’s Water Infrastructure, a report exploring the opportunities at the state level to ensure long-term financial stability of Ohio’s water infrastructure. The use of asset-management, regionalization, and private-public partnerships may be the key for the financial stability of Ohio’s water systems and adequately funding capital improvements. Affordability is becoming more of a strain for some communities as user charges continue to increase in parallel with national trends.
Modernizing the water system for the 21st century remains one of GOPC’s main policy objectives. GOPC is in the midst of a multi-year project on Ohio’s water and sewer infrastructure – and is currently identifying the best practices from around the nation.
For further resources and reports, please visit GOPC’sSewer and Water Infrastructure Resource Page
By Jon Honeck, GOPC Senior Policy FellowIn March 2017, the Trump Administration released itssummary budget blueprintfor Federal Fiscal Year (FFY) 2018, which begins October 1, 2017. The plan signals the administration’s overall intention to cut non-defense domestic programs in order to free up funds for increased military spending. There is a long road to travel before any parts of the plan are enacted, and many members of Congress have already gone on record expressing reservations about specific elements of the proposal. Nonetheless, the blueprint creates a starting point for agency budget plans that will be presented to Congress in the coming months.
This blog discusses the administration’s proposed changes to how the federal government will support investments in water infrastructure. The Trump Administration’s budget blueprint would eliminate the USDA Rural Development water and wastewater loan program, the Appalachian Regional Commission (ARC), the Community Development Block Grant (CDBG), and the U.S. Department of Commerce – Economic Development Administration (EDA). The plan would preserve funding for the U.S. Environmental Protection Agency (USEPA) water and wastewater revolving loan funds, although the agency as a whole would face a 31 percent budget reduction, resulting in the elimination of 3,200 agency staff positions and a 45 percent reduction in categorical grant programs. One of these categorical grant programs provides states with funding for the oversight of local drinking water systems. It helps pay for the Ohio EPA to monitor local compliance with protocols for the control of lead and other contaminants.
The budget proposal should be analyzed in the context of the nation’s critical need to modernize drinking water, wastewater, and stormwater infrastructure. This issue is a high priority for Greater Ohio Policy Center (GOPC) because of its links to economic development, land use planning, and the potential for financial strain on Ohio families and communities (see our recentWater Infrastructurereports). According to EPA estimates, Ohio water utilities (typically local governments) will need to make capital investments of $26 billion in drinking water and wastewater infrastructure to meet identified needs over the next 20 years. User charges have been rising steadily, faster than the rate of general consumer inflation.
Photo courtesy of Wikicommons
The federal government plays a major role in financing water infrastructure investments, although the approach has changed significantly over the decades. With the passage of the federal Clean Water Act in the early 1970s, Congress created a large grant program to assist local governments with the modernization of wastewater treatment plants and related infrastructure. The federal government paid 75 percent of project costs in the initial program, which was changed to 55 percent in the 1980s. This was one of largest federal infrastructure programs since the interstate highway program of the 1950s and 1960s.
In the late 1980s, Congress phased out the wastewater grant program in favor of a revolving loan approach. A revolving loan for drinking water infrastructure was added in the late 1990s. Under the current policy, each year the U.S. EPA provides a capitalization grant to state revolving loan funds which lend directly to local governments at subsidized interest rates. The state must provide a 20 percent match for the grant. In FFY 2016, the Ohio EPA received a $75.2 million capitalization grant for its Water Pollution Control Loan Fund, and $23.1 million for the Drinking Water Assistance Fund. Communities that want a market-rate loan with fewer administrative hurdles can approach the Ohio Water Development Authority, which runs a state-supported revolving loan fund.
The result of this change in federal strategy is that local communities bear the largest responsibility for financing water infrastructure. Communities that need a grant to complete their capital project must rely on other sources, which are extremely limited and competitive. At the federal level, these sources include the USDA Rural Development – Water and Wastewater Loan program, the Appalachian Regional Commission (ARC), the Community Development Block Grant, and the Economic Development Administration. The USDA and ARC programs are targeted at smaller, low income communities in rural counties that need them the most. In FFY 2016, USDA Rural Development made 17 grants for a total of $14 million to Ohio communities, and an additional 16 loans for $44.6 million. The ARC, a smaller agency, made 12 water infrastructure grants for a total of $2.7 million in Ohio. The CDBG provides several million dollars in Ohio each year for water and infrastructure through its Critical Infrastructure Program. (For more information on the challenges of water infrastructure in Ohio, seepanelist presentationsfrom GOPC’s Investing in Ohio’s Future 2017 Summit and our reportStrengthening Ohio’s Water Infrastructure).
The Budget Blueprint asserts that the USDA and EDA programs are duplicative of the state revolving funds and other programs, and that the CDBG is “not well-targeted to the poorest populations and has not demonstrated results.” The ARC is part of a long list of small, independent agencies slated for elimination. The administration’s claims deserve close scrutiny from Congress, however. The underlying issue is whether the federal government has any responsibility to provide grants, and the importance of grants in sustaining investments by small communities. For small towns, grant funding can provide the missing piece of capital that makes a project affordable. In Ohio, state and federal agencies have worked together for decades and often find ways to share responsibility for financing projects in small communities. An interagency Small Communities Environmental Infrastructure Working Group (SCEIG), meets regularly throughout the year to provide advice to local governments seeking financing, and coordinates technical assistance programs.
The elimination of these three federal programs would make the Ohio Public Works Commission (OPWC) the only significant remaining source of grant funding for water infrastructure in the Buckeye state. (The EPA revolving loan funds have a limited number of loans that allow partial principal forgiveness.) Most OPWC projects are prioritized at the local district level, and must compete with transportation projects. In the context of rising concerns in Ohio and nationally about the affordability of infrastructure, a “one size fits all” approach to financing may backfire.
For further resources and reports, please visit GOPC’s Sewer and Water Infrastructure Resource Page
By Nick Livingston, GOPC High School Intern Pipeline H2O, a water-based startup technology program located in Hamilton, Ohio, has just announced its first class of companies that are working on water infrastructure challenges. Pipeline H2O’s main objective is to acknowledge and advance the work of water technology companies improve water services and seek innovative strategies for reusing water, upgrading infrastructure, treating wastewater, and monitoring water quality. This timely news coincides with GOPC recently beginning the Implementation Phase of its Water Financing Project, providing recommendations on strengthening the long-term sustainability of water infrastructure in Ohio.
At the end of the selection process, Pipeline H2O chose eight startup companies to begin the program, including two companies from Ohio: kW river Hydroelctric from Hamilton, and Searen from Cincinnati. Companies that have been selected to participate in the Pipeline H2O program exhibit through their work many of the strategies that GOPC recommends in its recent report, Strengthening Ohio’s Water Infrastructure: Financing and Policy. For instance, WEL Enterprise’s system that treats and reclaims wastewater on one platform is a strong example of developing new technologies in order to save energy costs, which is a strategy GOPC recommends in its report.
GOPC‘s report also emphasizes the importance of asset management, which is the process of cost-effectively upgrading and maintaining assets. The companies selected for the Pipeline H20 program are efficient in maintaining resources and saving money while upgrading water quality, demonstrating sound asset management techniques. For instance, the Aquatech startup Searen has created a Vacuum Airlift, which replaces legacy hardware and consolidates pieces of equipment. In addition, GOPC’s call for public-private partnership to make projects more flexible and timely can be seen through Pipeline H2O’s partnership with government agencies such as the United States Environmental Protection Agency, the City of Hamilton, and the City of Cincinnati.
Go Here to access GOPC’s latest report Strengthening Ohio’s Water Infrastructure: Financing and Policy and Here for more on Pipeline H20’s inaugural class of water technology companies
Pipeline H20’s assessment was handled by a committee composed of water experts, including Greater Cincinnati Water Works, the Metropolitan Sewer District of Greater Cincinnati, City of Hamilton Water, Confluence, Butler County Groundwater Consortium, U.S. EPA, Hamilton Mill, Cintrifuse, Village Capital, and Queen City Angels. New and innovative ideas concerning water development will be introduced throughout the region from the selected companies, and the Pipeline H2O program will be set in action from February 2017 through May 2017.
By John Collier, GOPC Research & Conference Support Intern, and Jon Honeck, GOPC Senior Policy Fellow The United States Government Accountability Office recently released a report on the water infrastructure dilemma occurring in the United States’ mid-sized and large cities with declining population. GAO’s analysis was requested by Congressman Paul Tonko (D-NY), to understand the unique challenges these cities face in repairing and replacing water and sewer infrastructure. The GAO noted that U.S. Environmental Protection Agency (EPA) surveys of water utilities estimate that over 20 years, $655 billion will have to be spent to maintain, replace, or upgrade the country’s water infrastructure.
GAO interviewed water and wastewater utility officials in 10 cities in the Midwest and Northeast, including Youngstown, Ohio, that experienced large population declines between 1980 and 2010. Youngstown lost 42% of its population over this time frame. GAO acknowledged that mid-sized to larger cities with declining populations are generally more economically distressed, and suffer from higher unemployment, higher poverty rates, and lower median incomes. These cities, whose peak population typically was in the 1950s and 1960s, suffer from decreased revenue and increased costs. The characteristics of these legacy cities put them in a unique financial bind.
Nearly all the cities in the report expressed concerns over their ability to control combined sewer overflows. Outdated infrastructure in these legacy cities needs updated, but their financial situation makes this difficult. All the selected cities in the report have raised utility rates in an effort to raise more revenue, but this results in affordability problems for low-income households. Low-income households in Youngstown now pay over 8% of their median income for their water and sewer bills on a combined basis, well above EPA guidelines for affordability of 3%. Although Youngstown and other cities have established payment plans to make utility access affordable for lower-income households, it does not discount bills for low-income households, and the prospect of future rate increases will continue to make affordability difficult.
One of the interesting findings from the report was that the utilities in the study are adopting asset management plans, but it is very difficult to downsize or “rightsize” their infrastructure despite large areas of vacant housing or vacant land. Asset management refers to creating a comprehensive inventory of the utility assets and their condition, and integrating this data with maintenance and capital planning. The utilities noted that downsizing was difficult because they still had to service a few houses in each block, or maintain lines through vacant areas in order to reach neighborhoods farther away. This response illustrates how difficult it is to separate infrastructure planning from overall land use planning.
Greater Ohio Policy Center considers the modernization of Ohio’s water infrastructure a critical issue. GOPC has conducted an assessment of the issues Ohio’s legacy cities face, and the need for additional mechanisms, such as green infrastructure as an alternative stormwater management tool. We believe that asset management and regional consolidation are key outcomes that could be accelerated with additional state incentives.
More information about water infrastructure and links to GOPC’s reports can be found Here.
