From SDWA

Golden Opportunity

What the Cuyahoga River Fire says about the past, and maybe the future

Cleveland, 1969

Fifty years ago this week the Cuyahoga River caught fire in downtown Cleveland.

Observers of U.S. water policy and environmentalism more generally have been celebrating the fire’s golden anniversary all year, because three years after the Cuyahoga River burned, Congress passed the Clean Water Act. The Safe Drinking Water Act followed two years later. The Cuyahoga River Fire is a textbook example of what political scientists call focusing events: high-profile occurrences that suddenly put previously obscure issues onto the public policy agenda.

The 1969 fire is rightly iconic today, but many forget that it was the twelfth time that the river burned. Why did the 1969 fire catch the public imagination? The truth is that nobody knows. But it did, and it changed the way Americans think about water pollution. The fire presaged a series of laws that fundamentally changed the regulation of water pollution in the United States, invested hundreds of billions in infrastructure, catalyzed new technology, and built a generation of professionals dedicated to protection of the nation’s waters.

A new focus

A year ago I called the Flint Water Crisis the Cuyahoga River Fire of our generation. Flint has changed the way that Americans everywhere think about water infrastructure. As with the 1969 Cuyahoga River Fire, Flint wasn’t the first, wasn’t the worst, and wasn’t the biggest drinking water disaster in recent U.S. history, but it’s the one that caught the public imagination.

The Flint story wasn’t just about water chemistry and failing infrastructure—it was also about bureaucratic organizations and partisan politics. And it was about poverty and race: Flint showed America that water infrastructure is an environmental justice issue. That’s expanded the political coalition focused on water infrastructure. There’s a growing consensus that existing infrastructure funding arrangements are failing.

I’ve worked on water system management, regulation, and finance for more than 20 years and have never seen this kind of public attention to the issue. As recently as two years ago I dismissed the idea of a trillion-dollar federal program for water infrastructure as politically unviable. But something has shifted. Last month Congressional leaders and the president began sketching out a $2 trillion infrastructure package—with potentially hundreds of billions for water, sewer, and stormwater systems.

Those talks have broken down, but the fact that they were even happening suggest that we may be an election away from a major federal investment in infrastructure. Whether it’s next year or two years from now, it looks like Washington may soon be raining infrastructure money. That’s music to the ears of lots of activists who cry out that an injection of federal money is needed to fix America’s water systems.

Recovery & reform

Today people paddle their kayaks on the Cleveland riverfront and safely eat the fish they catch there. If the problems weren’t too big then, they surely aren’t too big today.

River paddling in Cleveland has gained popularity with the decline in fires and toxic waste (Jim Ridge, Share the River)

To be honest, I was a little relieved when negotiations between the White House and Congress faltered last month, because the breakdown gives us a chance to pause, take a deep breath, and think systemically. Today, the principal barriers to progress in the water sector are not environmental or technological—they are political, social, and economic. Accordingly, a big federal funding package can and should be used as leverage to reform the institutions that govern water in the United States.

Recently I was asked to speak about water infrastructure at the University of Rhode Island’s Metcalf Institute. With the Cuyahoga River Fire’s golden anniversary on my mind, I proposed five broad reforms to the U.S. water sector that ought to accompany any big federal program. They are:

  1. Consolidation / Regionalization
  2. Regulatory Equality & Transparency
  3. Technological Investment
  4. Human Capital
  5. Water Equity

Later this week I’ll start a series of posts elaborating on these to help get a deeper conversation going. Since this is a blog, I’m going to breeze by a great deal of detail and keep things at a 30,000-foot level. But each proposal is rooted in empirical research, each part is ambitious, but also technically and politically feasible. Over the next 2-3 years we have a once-in-a-generation opportunity to rebuild and reform water governance. Let’s make the most of it.

String Theory

A trillion-dollar federal infrastructure package and a chance to reform the water sector

This post is not about theoretical physics

– Warning: mixed metaphors ahead –

Observers of America’s water, sewer, and stormwater systems have known for years that the nation faces a trillion-plus-dollar bill for repairs, replacements, and upgrades. I’ve long been skeptical about the prospect of federal funding alleviating that burden in any significant way. With Congress ideologically divided and its chambers split across parties, the idea of a major infrastructure program coming out of Washington would seem unlikely on its face.

But rumblings over the past eighteen months have made me reconsider. Last spring the White House released an infrastructure plan that called for significant investments in water.*

All smiles for Nancy & Chuck after the White House infrastructure meeting last week.

Just before the 2018 mid-term elections, Congress passed the bipartisan America’s Water Infrastructure Act, which signaled federal priorities for the water sector but stopped short of sending tens of billions into the nation’s pipes and canals. Then last week President Trump met with House Speaker Pelosi and Senate Minority Leader Schumer and apparently agreed in principle on a $1-2 trillion federal infrastructure program.

Little is known about the dimensions of the program, beyond the eye-popping figures. What might a huge federal infrastructure package mean for the water sector?

Back to an afterthought?

Transportation is the politician’s perennial infrastructure darling, as “roads and bridges” (Rosenbrigez) offer excellent credit-claiming opportunities for politicians who like to associate themselves with gleaming, highly visible projects. President Trump has made a career of putting his name on buildings, so we shouldn’t be surprised that he’d like to put his name on some Rosenbrigez, too. Although Pelosi and Schumer’s letter on infrastructure to the White House last week mentions “broadband, water, energy, schools, [and] housing,” transportation continues to grab the headlines: Time’s glibly declared that all $2 trillion was for Rosenbridgez.

Although water, sewer, and flood control systems are arguably more vital, much of that infrastructure is literally buried. Politicians aren’t clamoring to put their names on sewage treatment plants. Creating credit-claiming opportunities for water infrastructure is an ongoing challenge. If Washington is really going to pour hundreds of billions of dollars into infrastructure, water sector leaders will need to work hard to make sure their systems aren’t forsaken in favor of sexier transportation projects.

The promise & perils of fiscal federalism

Let’s assume for blogging’s sake that the water sector gets some major love (say, >$300 billion) in a trillion-dollar infrastructure bill. When contemplating such a massive federal capital infusion, it’s worth considering the last time Uncle Sam poured hundreds of billions into the water sector. The 1972 Clean Water Act and 1974 Safe Drinking Water Act included grants that provided as much as 90% matches for local investments in water and sewer infrastructure. The political genius behind the CWA and SDWA was that sweeping new environmental mandates came with considerable sweeteners in the form of federally-funded jobs in construction and environmental engineering. The federal funding made the new regulations politically palatable. From a policy perspective, the idea was for the federal funding to help create systems that local governments would operate, maintain, and upgrade in perpetuity.

Unfortunately, it hasn’t worked that way. One of the main reasons so much of America’s water infrastructure is in trouble is that there are strong structural disincentives for local leaders to invest adequately in water systems, as I’ve observed before. Maintaining water infrastructure doesn’t offer much of a credit-claiming opportunity, and local officials worry a great deal about being blamed for rate increases. Many of the organizations that operate water systems are ill-suited to the task; the institutions that govern and regulate water infrastructure are badly fragmented and often ineffective.

Attaching some strings

A federal water infrastructure funding package that fails to address the systemic factors that got us into this mess would be a wasted opportunity. Hundreds of billions of dollars might help shore up failing systems today, but would simply kick the problem down a generation: our children and grandchildren would face a similar infrastructure crisis in 2070, and justifiably curse their forebearers.

Rather than simply firing a money cannon at local water systems, federal leaders should use a massive funding package as leverage to reform the institutions that govern, regulate, and finance water infrastructure in America. In future posts I’ll explore some of the strings that Congress might consider attaching to their water infrastructure dollars.

 

*President Trump has since disowned his own plan. 🙄

Still unclear is the small matter of how to raise a couple trillion dollars. Donald, Nancy, and Chuck are supposed to meet about that soon.

 

Life Support

Devils (and angels) in the details, Part 3

Small, rural water systems often struggle with both quality and affordability. (Photo: Tara Lohan, NewsDeeply)

In early January the California Water Board released its draft proposal for a statewide low-income water bill assistance program. My last couple posts summarized the proposal and discussed the perverse incentives for rate design that the subsidy might create. Continuing the theme of unintended consequences, this one looks at what the statewide assistance program might mean for poor-performing small water systems.

Size matters

All else equal, when it comes to water systems, bigger is better. Water and sewer systems require big infrastructure investments and lots of operating costs to work. When those costs can be spread across large numbers of people and businesses, the average price of water is lower. That makes utilities textbook examples of economies of scale.

Less obviously, the organizations that operate utilities also are subject to economies of scale. Larger organizations can hire and retain higher-quality employees and maintain specialized personnel. As my past research work with David Switzer has shown, these advantages help larger water systems take advantage of human capital in ways that smaller systems can’t.

Larger systems also enjoy significant financial advantages. Larger customer bases tend to be more economically diverse, providing a degree of financial stability to a utility. Financial markets favor large utilities, too, allowing them access to finance capital at lower interest rates than their smaller cousins.

Thing is, just as in the rest of the United States, most of California’s water utilities are really, really small. More than three quarters of California’s 2,800 water systems serve fewer than 3,300 people, but collectively serve just 2% of the state’s population. Meanwhile, the 183 largest systems serve 80% of the state’s population.

Small system struggles

Unfortunately, small systems tend to suffer disproportionately from poor water quality. Here’s the correlation* between annual Safe Drinking Water Act health violations and utility size in California, based on EPA data from 2010-2018:

Study after study after study after study confirms the relationship between system size and drinking water quality.

Affordability also correlates with system size. So do poverty, income, and unemployment. My recent analysis of water and sewer rates nationwide shows that, all else equal, both AR20 and HM decline as utilities increase in size—that is, on average, water and sewer affordability gets better as utilities get bigger.

Analysis based on nationally representative data, 2017. Spikes show 95% confidence intervals.

That small systems struggle is no secret, and California has in recent years sought to encourage system consolidation through a variety of carrots and sticks. The process is slow, however, and fraught with political conflict. Consolidation is not a panacea, and there are plenty of struggling large and medium-sized systems. But the data are clear on this point: on average, with water utilities, bigger is better.

Props and levers

What does all this have to do with low-income assistance? The proposed program would transfer significant resources from relatively affluent to relatively poor communities. In many cases, those communities are served by the small, perennially underperforming utilities that too often provide lousy water quality at very high prices. Financial pressures from ratepayers are among the strongest incentives for small utilities to consolidate. A low-income assistance program will disproportionately benefit customers of those systems (which is good), but could inadvertently prop up systems that would otherwise move toward consolidation due to financial pressures (which is bad). To some failing small systems, low-income assistance could be financial life support system.

I’m not an engineer, but this seems bad.

But if structured correctly and implemented carefully, low-income water assistance could help drive small system consolidation. Financial assistance for low-income customers could make consolidation more attractive for the larger utilities and private firms that might otherwise be reluctant to take on the responsibility for troubled small systems with less affluent customers. More directly, the state could make assistance funds contingent on consolidation or compliance with SDWA management requirements. Statewide assistance might be a potent lever to push recalcitrant small systems toward consolidation and its blessings.

That’s why statewide low-income water bill assistance should not be considered in isolation, but rather as part of a comprehensive strategy to improve water systems. The same applies to any plan for a national water affordability assistance program.

Whether a statewide assistance program would prop up failing small systems or lever them into consolidation and sustainability will depend in large part on the administrative structures and processes used to implement the program. I’ll take up those administrative angels and devils in my next post.

 

 

*Fitted with a negative binomial regression.

There are probably another dozen or so studies that I could link here.