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Analyzing Market Trends and Innovations In the Water and Wastewater Sector

America’s buried infrastructure problems are beginning to bubble up to the surface. Yet, in the face of a national crisis, U.S. spending on water-related construction has experienced a significant decrease during the past few months. Looking at August U.S. Census data, water supply spending is down 8.6 percentage points, sewage and waste disposal has dropped 9.7 percentage points, and conservation and development has dropped 13.8 points. According to Associated Builders and Contractors Chief Economist Anirban Basu, this drop follows a decrease in public spending, as policymakers look at other pressing needs such as Medicare, lowering public debt and paying pensions.

After years without the ability to pour clean water from a faucet in Flint, Mich., the U.S. Senate has finally allocated $220 million to the Environmental Protection Agency (EPA) to help solve this emergency. And on Sept. 28, the U.S. House of Representatives approved the Water Resources Development Act of 2016 (H.R. 5303), authorizing $9 billion for 31 U.S. Army Corps of Engineers (USACE) projects to address flood protection, harbor dredging, environmental restoration and other projects. It also includes a provision of $170 million in direct federal aid to address lead contamination problems in Flint and other communities nationwide.

While not every municipality faces a drinking water crisis like Flint’s, the EPA’s evolving clean water standards on issues such as chromium-6 contamination or controlling combined sewer overflows means even newer systems must be updated.

Despite these pressing needs, financial resources are limited, and the country has yet to highlight its aging water infrastructure as a national issue. Beyond basic water and wastewater construction needs due to regional population growth, many specific water sectors must be addressed. These include drought-stricken areas in the West, especially California, and the ever-shrinking and flood-prone Louisiana coastline.

An Opportunity to Build
A 2012 report by the American Water Works Association (AWWA) refers to the current decade as “the era of infrastructure replacement.” In the report, the AWWA finds much of the nation’s pipe networks are older than half a century. The AWWA expects the United States to spend more than $1 trillion updating its drinking water infrastructure nationwide during the next 25 years. In the next 50 years, this number will exceed $1.7 trillion. AWWA’s 2016 report on the state of the water industry echoes these concerns, citing “renewal and replacement of aging water and wastewater infrastructure” to be the biggest issue facing the sector.

While many might find these pressing problems concerning, investors at Underground Construction are confident that “capital expenditures—including spending on pipes, plants and pumps—are expected to exceed $532 billion between 2016 and 2025.” However, this forecast hinges on the expectation that decision-makers “will adopt new, advanced and cost-effective approaches” to the water industry’s infrastructure expansion.

Contractors are doing their part in upgrading the water and wastewater sectors. Brad Miller, vice president of Midwest Operations at Building Crafts, Inc., Wilder, Ky., reports steady growth in the Midwest. In May, Building Crafts, Inc. secured a $10 million contract to construct a water softening treatment facility in Miamisburg, Ohio.

According to Mike McKinney, district manager for PCL Construction in Phoenix, Ariz., and Corona, Calif., the water market is growing across the country. Specifically, growth in Colorado has placed water and wastewater construction in high demand. To help meet this demand, PCL Construction recently teamed up with the Carollo Design-Build Group to build a microfiltration and ultrafiltration system in a water treatment plant in Clifton, Colo., using an “open-platform” design to reduce costs and increase flexibility. The Design-Build Institute of America selected the team as a winner in its water and wastewater building category.

In Arizona, McKinney explains that the water and wastewater construction market remains level due to a large investment in the sector in the early 2000s, prior to the recession.  

In northern California, the San Francisco Public Utilities Commission contracted PCL Construction to create its new Tesla Treatment Facility in Tracy, Calif. The $86 million project, completed in 2012, is capable of supplying San Francisco with 315 million gallons of water using ultraviolet and chemical treatments. Throughout the state, especially in drought-stricken southern California, innovative technologies also are being pursued, such as desalination plants, water transfers, water reclamation plants and aquifer recharge facilities. For some of these facilities, California will need to provide new types of permitting.

California isn’t the only region with unique opportunities for water infrastructure construction and implementation. Mar Grayson, director of project development for Cycle Construction Company, LLC, Kenner, La., performs heavy civil, underground water utilities, pile-driving and marine water construction in Louisiana. In the years following Hurricane Katrina, Cycle Construction has helped reclaim coastline, upgrade drainage pumps, raise levees and create flood barriers. One notable project completed in the wake of the Hurricane Katrina crisis required Cycle Construction to create five safe rooms where staff could operate fully automated drainage pump stations in case of serious flooding and other weather-related events.

Cycle Construction recently joined in the Coastal Protection and Restoration Authority’s multi-billion-dollar investment to restore the habitat and demonstrate the efficacy of new coastal protection technologies. As part of the overall project, Cycle Construction will install 9,000 manmade structures of several different designs along 3.1 miles of shoreline to measure which structure best serves to protect the land, and also induce oyster and marine life growth. “One of the biggest rewards is the ability to protect Louisiana’s coastline,” Grayson says.

Water Infrastructure Funding Woes and New Opportunities
According to the 2016 AWWA document on the state of the water industry, the second largest issue facing the sector is financing capital improvements for water and wastewater utilities.

Ed Crooks, managing director for infrastructure advisory at KPMG, helps illuminate reasons for the slowdown in the water sector’s construction spending. “Most of the cost of delivering water and wastewater services is tied to fixed costs—the cost of building and financing pipe networks and treatment plants—but we tend to charge customers based on how much water they use,” Crooks says. “As such, our cost recovery system doesn’t match the true cost of delivering services.”  

Circle of Blue, a conservation advocacy group, estimates the average American in 2015 paid about $1.50 per 100 gallons of water in utilities. No other resource is so readily available at so little cost. Without money being made on water utilities, there is no source of revenue to invest in new construction. Crooks notes that slowdowns in the commercial sector also have reduced the demand for commercial water and wastewater construction, especially in the fracking and oil markets.

Looking at the federal level, Crooks points at reduced federal funding available through both the Clean Water State Revolving Fund (CWSRF) and the Drinking Water State Revolving Fund (DWSRF). The CWSRF was established in 1987 as an amendment to the Clean Water Act. According to the EPA, this combined fund focuses on “constructing municipal wastewater facilities, controlling sources of pollution, building decentralized wastewater treatment systems, creating green projects and protecting waterways.” The DWSRF looks at “improving drinking water treatment, fixing leaky or old pipes, improving sources of water, replacing and replacing water storage tanks.” Both funds continue to serve as a loan partnership program between the EPA and all 50 states and Puerto Rico. Money allocated by Congress for these two funds has decreased since the funds’ creation in 1996.

So how will future projects be funded? Lacking outside support, municipalities are finding it harder to fund water infrastructure projects on their own, especially as these entities approach the debt ceiling limits on funding new projects. Expert sources agree the easiest answer is to increase or include more fixed fees in household water bills. While many revenue delivery vehicles may be considered, a revised and updated cost schedule on water utilities is needed to implement, maintain and upgrade this infrastructure. AWWA reports that for some communities, “a typical three-person household could see its drinking water bill increase by as much as $550 per year above current levels.”

Expanding beyond the CWSRF and DWSRF programs, Congress fostered a new initiative in 2014 focused on high-priority regulatory compliance for water infrastructure programs seeking to address immediate threats to public health. Modeled after a similar transportation program, the Water Infrastructure Finance and Innovation Act (WIFIA) expands on the state revolving funds and supports new technologies looking at energy efficiency at water facilities, innovative water reclamation projects such as desalination and aquifer recharging, and acquiring new property.

Congress has begun to acknowledge that aging water and water utilities are a pressing issue in America. The Senate approved the Water Resources Development Act (WRDA) on Sept. 15, allocating more than $10 billion in funding to the USACE and the EPA. Aimed primarily at supporting the USACE, the bill authorizes $10.6 billion to address flood protection, environmental and ecosystem improvement, and navigation among America’s waterways. Another $125 million is allocated to fund construction on rapidly deteriorating levees and waste cleanup. The final $220 will be put toward upgrading Flint’s water supply.  

Beyond financial allocations, the WRDA looks to streamline federal funding to implementation through both the revolving door funds and WIFIA.

Joseph Conran is a contributing writer to Construction Executive. For more information, email jconran@adnumerant.com.

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