From POTUS

Notes on America’s Water Infrastructure Act of 2018

Some observations about the new law & what it tells us about the politics of water infrastructure in America

Here’s to you, America

The Senate recently passed the America’s Water Infrastructure Act (AWIA) by a 99-1 vote; today President Trump signed it into law. AWIA is pretty slender as federal infrastructure bills go, weighing in at 332 pages and 70,000 words.

What follows are some thoughts about AWIA’s main water infrastructure provisions and what they tell us about the state of water policy and politics in America. This isn’t really a coherent essay or an exhaustive commentary; it’s a series of cursory observations on the bits that strike me as interesting.

What’s new in Title II

Titles I, III, and IV include some important provisions, but much of it is garden-variety authorizations for sundry projects and studies, along with some light regulatory housekeeping. As a careful observer of water policy, the most interesting parts to me come in Title II—Drinking Water System Improvement.

Sections 2014-2015 have received the most public attention, as they include increases in federal grants along with changes to the State Drinking Water Revolving Fund program. Those funds will help with infrastructure investment, but is really a drop in the trillion-dollar bucket of America’s water infrastructure needs. That money will make a splash ahead of the midterm elections (more on that later), but isn’t all that interesting from a policy perspective.

Here’s what I find most intriguing in Title II:

  • Sec. 2001: Indian Reservation Drinking Water. Literally the first section of Title II is a marked expansion of grant programs for tribal drinking water infrastructure—$20 million annually for the next four years.

    Indian Country needs a lot more of this

    That isn’t much in the grand scheme of American infrastructure, but it’s potentially huge for some tribal systems. My research with Mellie Haider & David Switzer has found that tribal facilities lag far behind non-tribal facilities in regulatory compliance, in part because tribes weren’t eligible for the vast federal grants available in the 1970s and 1980s. Sec. 2001 is a step toward correcting that. More generally, it’s fascinating that this program is the very first thing in Title II.* Hopefully this prominent spot in the AWIA presages greater efforts to build tribal drinking water capacity. 

 

  • Sec. 2002: Intractable Water Systems. In substance, Sec. 2002 isn’t terribly exciting—it just funds a study on water systems that consistently fail to meet regulatory requirements. But this section (along with Sec. 2010, discussed below) signals that Uncle Sam is interested in doing something about perennially poor water systems. Of particular interest are the tens of thousands of small utilities that serve fewer than a thousand customers, many of which lack the financial, physical, and human capacity to operate modern drinking water systems.*

 

  • Sec. 2006-7: School lead testing & drinking fountain replacement. Section 2006 authorizes $75 million over three years to support lead testing in school drinking water lines. Sec. 2007 provides $15 million for school drinking fountain replacement. These programs remain voluntary, however, so its effectiveness will depend on local officials participating proactively. Federalism! As with most aspects of national drinking water policy, this only works insofar as local governments make it work.

 

  • Sec. 2010: Ownership provisions. Innocuously named “Additional Considerations for Compliance,” this section empowers state regulators to “require the owner or operator of a public water system to assess consolidation or transfer of ownership… to achieve compliance with national primary drinking water regulations.” This section is aimed at repeat violators of the Safe Drinking Water Act, and although it’s weak in substance—it doesn’t actually require consolidation or change in ownership—it signals something about the potential direction of future water regulation. More frequent consolidation, privatization, and/or public condemnation of failing water systems may be on the horizon.*

What AWIA tells us about the politics of water infrastructure

AWIA provides more evidence that water infrastructure remains an very hot issue at the moment. A 115th Congress that has been historically contentious—it might struggle to pass a resolution that puppies are cute—just passed an infrastructure law with near consensus. The timing is noteworthy, as well: AWIA arrives just in time for midterm elections. Credit-claiming opportunities abound!

Crucially, none of the funding authorized in AWIA will turn into actual water infrastructure until Congress appropriates funds for it. Conveniently for the 115th Congress, the task of appropriating money for all of that water infrastructure will fall to the 116th.

 

 

*Has somebody in Congress been reading my research on tribal facilities, small system human capital, and water utility ownership?

Human Capital as Infrastructure

This is the fourth in my series of posts on the recently released White House infrastructure plan.

Release of the White House infrastructure plan triggered a flurry of news about the nation’s ports, dams, water works, sewer systems, rails, and rosenbridges. Little noted in all that coverage was the fourth part of the president’s four-part plan: workforce development.

Human capital shortfall

The human capital—the educated, qualified, and experienced workers who build and maintain the nation’s infrastructure—is suffering from the same kind of shortages that plague physical infrastructure. Infrastructure work is skilled work, and skilled workers are aging out of the labor market faster than they’re being replaced. The return on infrastructure investment will be poor if workers aren’t available to operate and maintain what’s built. The availability of qualified workers has real consequences for utilities. A study I published with David Switzer linked labor market human capital to drinking water safety, for example. The challenge is particularly acute for small utility systems, which often struggle to attract and retain talent. Organizations like AWWA  and Baywork have invested heavily in workforce development initiatives in an attempt to address the shortfall.

Astonishing Part 4

Just as Parts 1-3 of the White House plan are meant to incentivize communities and corporations to invest in physical capital, Part 4 would change federal rules to incentivize individual workers’ investments in human capital.

The White House plan would revise Pell Grant eligibility to cover operator training, reform the Perkins CTE program to facilitate infrastructure-focused training, and expand federal Work Study to include trade apprenticeships. Perhaps just as importantly, the White House plan would push states to harmonize their operator licensing requirements. This last move would liberalize the labor market, which would open up opportunities for infrastructure workers and employers.

Taken together, these changes help make infrastructure careers more attractive. As Joe Kane at Brookings has observed, infrastructure jobs are good for the economy, too—they offer good pay, foster transferable skills, and aren’t easily outsourced to foreign workers. Unlike the plan’s provisions for physical capital, Part 4 is aimed squarely at the American working class.

The prominence of workforce development in the White House plan is extraordinary.

Federal investment in infrastructure is nothing new, and federal investments in human capital have been around for decades. But the White House plan’s Part 4 makes workforce an integral part of its vision for infrastructure. That’s important, and hopefully it marks a deep change in the way we think about infrastructure policy in America.

Private dollars for public works

This is the second in my series of posts on the recently released White House infrastructure plan.

We’re at a strange point in America’s fiscal history.

Cash on corporate ledgers is high, bond rates remain at historic lows, and investors at home and abroad continue to see the United States as an attractive place to invest. Yet public infrastructure crumbles for want of capital reinvestment. What’s needed is a way to channel all that idle financial capital into public infrastructure. There are basically three ways for the federal government to do that:

(a) tax capital accumulation and spend the tax revenue on infrastructure;

(b) incentivize local/state governments to tap private capital through the bond market; or

(c) encourage direct private investment in public infrastructure.

As noted in my earlier post, option (a) is probably unrealistic without seismic shifts in national politics. Such shifts happen on occasion, but they’re uncommon and unpredictable. The White House plan basically lays a course for a combination of options (b) and (c).

Privatization provisions

Understanding the ways in which the White House plan seeks to expand private investment in public infrastructure requires getting down in the weeds a bit. First, although the infrastructure matching grant programs in Sections I and II are aimed at state and local governments, those governments are invited to engage private capital in crafting their proposals. Second, it appears that private corporations would be eligible for the $20 billion Section III “Transformative Projects Program.”

The real eyebrow-raising provisions come in Section IV. The federal government already runs a series of programs to support public infrastructure investment, either through direct financial support (e.g., subsidized/simplified loans) or through the tax code (e.g., tax exempt municipal bonds). The White House proposal would relax eligibility for several of these programs so that privately-financed projects (or joint public-private projects) could qualify.

Finally, the White House plan would tweak the tax code to encourage expanded use of Private Activity Bonds (PABs). Without getting into the gory details, these changes would extend many of the tax advantages of municipal bonds to private infrastructure investment. Moreover, public debt assumed by private firms when they purchase public facilities would retain tax exempt. That provision would be most meaningful for large firms seeking to acquire public facilities, and so would make full privatization a more attractive alternative for many governments.

Corporate takeover?

The expanded role for private capital in American infrastructure is perhaps the most controversial element of the president’s proposal. The White House infrastructure plan unabashedly seeks to expand private investment in public works; in response, critics have charged that the plan is a giveaway to corporations.

That critique is accurate but a bit misleading. Privately-owned infrastructure is already common in the United States (especially in energy and telecommunications), and an elaborate regulatory regime already governs pricing, profit, service, safety, and environmental protection for those firms. The shift of infrastructure ownership from public to private sector does not eliminate public governance; indeed, my recent research with David Konisky suggests that regulations are more effective with private than public utilities. Rather, increasing privatization of public works changes the venue of governance from state legislatures, city councils and special district boards to legalistic, technocratic regulatory authorities. The real concern with infrastructure privatization is not so much for rapacious corporations, but rather a loss of local democratic influence over critical infrastructure–David Switzer’s excellent dissertation advanced this idea.

The distributional impacts of infrastructure privatization are worth noting. That means some portion of toll, fee, and rate revenue from infrastructure investment flows to investors. Those investors tend to be relatively wealthy; poor and working-class Americans do not, by and large, own significant shares in utility corporations. Publicly-owned, democratically-governed facilities do not have this distributional effect.

Channeling capital

The trouble is that, in too many cases, local democratic governance is a big part of why America faces an infrastructure funding crisis. State and local politicians have been too often unwilling to raise the taxes and fees necessary to maintain infrastructure adequately—even with municipal bond rates at historic lows. National political dynamics make it unlikely that Congress will produce a multi-trillion-dollar infrastructure bailout. Long-term shifts in national politics might eventually change that picture, but the roads, dams, plants, pipes, and ports don’t care. They’ll continue to degrade without reinvestment.

Private ownership of public works strikes many as counterintuitive, maybe even inherently wrong. But the investment capital available in the American economy today is in private coffers. For fans of public infrastructure, channeling that capital into public works through direct investment might be the best available route.