Most Americans, particularly those from younger generations, take the availability of clean water for granted. But as many contractors know, providing water to a population now exceeding 300 million—and treating that water after its use—is complicated and expensive. If oil is the world’s liquid gold, water reasonably can be labeled the world’s emerging liquid silver.
Capacity Demand Continues to Exceed Supply
In April, roughly $25.3 billion worth of construction related to sewage and waste disposal was spent in America on an annualized basis, according to the U.S. Census Bureau. Another $15 billion (annualized) was spent on water supply.
During the past year, relatively greater emphasis has been placed on spending related to sewage and waste disposal. Between April 2007 and April 2008, the value of sewage and waste disposal construction put in place rose 6.1 percent.
During that same period, water supply-related construction put in place was down 7.3 percent. Overall spending between the two categories was up roughly 1 percent. The lack of spending growth is related to an inability to finance capacity, not a lack of demand.
Wastewater treatment generates business directly for nonresidential contractors, but follow-on construction activity can be significantly more important. Growing communities need to provide adequate wastewater treatment services in order to accommodate new development.
Residential, industrial, commercial and recreational construction on non-sewered land often raises significant questions from impacted communities regarding the most reliable and cost-effective strategies to manage future wastewater streams. Projects can be delayed for years or even canceled if a community cannot find a way to link new development to a central wastewater treatment plant or to expand an existing plant to accommodate the new, projected flow.
As effluent requirements become increasingly stringent, in terms of both nitrogen and phosphorous content, many communities are considering advanced wastewater treatment technologies to ensure federal regulatory compliance.
The U.S. Environmental Protection Agency estimates the United States must invest $390 billion during the next 20 years to replace existing wastewater systems and build new ones. But in 2005, Congress cut funding for wastewater management for the first time in eight years. Funding increases have remained elusive. For example, financial allocations in the fiscal year 2007 Drinking Water State Revolving Fund totaled $837,495,000. In fiscal year 2008, funding declined almost 1 percent to $829,029,000.
Not surprisingly, a growing gap exists between demand and supply of wastewater treatment capacity, which should be of major concern to contractors given the impact inadequacy of supply has on development potential.
In September 2002, the EPA released a detailed gap analysis that assessed the difference between spending levels for wastewater infrastructure and total funding needs. According to the analysis, in the absence of increased investment, there will be a roughly $6 billion annual gap between present annual capital expenditures for wastewater treatment and projected spending needs. The nonpartisan Congressional Budget Office released its own analysis in 2002 and determined the gap in wastewater is even higher: from $23 billion to $37 billion annually.
Gap Set to Widen
If anything, the wastewater treatment capacity gap is set to widen. Based on a recent survey of several thousand drinking water and wastewater utilities, the General Accounting Office (GAO) reported a significant percentage of utilities (29 percent drinking water; 41 percent wastewater) were not generating sufficient revenue from user rates and other local sources to cover the full cost of service.
Additionally, the GAO determined that roughly one-third of the utilities deferred maintenance because of funding inadequacies, had 20 percent or more of their pipelines approaching the end of their useful life, and lacked basic plans for managing their capital assets. The implication is that not enough cash flow will exist for many of these utilities to leverage into expanded capacity.
Private Sector Must Step Forward
Developers, contractors, financiers and other private sector entities must step forward to help close the wastewater infrastructure gap. Many infrastructure experts have concluded that only a greater use of public-private partnerships can reverse the trend and create circumstances in which new development can advance.
These partnerships can differ in the amount of risk assumed by participating private entities. For instance, private entities bidding on long-term contracts to supply services, including to maintain public roads or to operate water supply facilities, often face relatively modest risks regarding their ability to deliver services at an agreed-upon price for the length of a contract. But in other cases, private entities may have complete responsibility for a project and be required to accommodate a variety of risks, including construction-related uncertainties and the cost of financing on top of operational risk.
Indeed, for the nation to construct 21st century infrastructure to support its 21st century economy, the infrastructure paradigm increasingly will require the private sector to take on considerable risk to construct and manage projects. Given the massive gaps that exist now and prospectively, developers and contractors that invent ways to provide the next generation of wastewater treatment capacity will be positioned to mine the equivalent of liquid silver.
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Friday, September 3, 2010