From Finance

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.

 

California’s bold proposal for statewide water bill assistance

Devils (and angels) in the details, Part 1

Governor Newsom (nice haircut in the black jacket, back to the camera) dragged his cabinet down the Central Valley to hear what folks had to say about drinking water.

In 2012, to great fanfare, California governor Jerry Brown signed into law AB 685, which declared a “right to safe, clean, affordable, and accessible water adequate for human consumption, cooking, and sanitary purposes.” Last spring I observed that the crucial but unglamorous task of turning the lofty rhetoric of rights into a pragmatic program fell to the California Water Board staff under AB401.

Fast forward seven years: the Golden State now has a new governor, and he’s eagerly established himself as a champion for water access and affordability. Earlier this month the Water Board published its draft proposal for a statewide low-income water rate assistance program with an estimated annual price tag of $606 million. As with so many other areas of public policy, California is blazing a trail that other states and communities could follow. There are lots of interesting things about the proposal. Mostly, though, it’s big and it’s bold.

The proposal

The proposal is complicated. At its heart is a three-tiered assistance program that would provide different discount of 20%, 35%, or 50%, depending on the combination of household income and monthly water prices at 12 ccf (about 9,000 gallons). Customers could qualify if their household income is less than 200% of the Federal Poverty Level (FPL).

The proposal is vague about how customers would enroll in the program, how often renewals would be required, who would make eligibility determinations, and who would be responsible for collecting and distributing benefits. The proposal smartly lays out several options for how the program would deliver benefits to participants. Eligible customers could get a water bill credit, an energy bill credit, a tax credit, or a direct payment via Electronic Benefits Transfer (EBT).

To pay for these benefits, the proposal calls for “progressive revenue sources,” including an increased tax on income over $1 million a year and sales taxes on bottled water. Under California law, these would require a supermajority vote in the legislature and a ballot referendum, respectively.

Go big or go home

The Water Board’s proposed program is remarkable in its breadth and boldness. The federal government’s LIHEAP has provided home energy bill assistance for decades, but the proposed California plan would be the country’s first statewide water bill assistance program, promising benefits targeted at low-income water utility customers (as opposed to subsidies for the utilities that serve them). The proposal envisions reaching as many as 4.3 million households. The three-tier eligibility and benefit framework is an admirable effort to match benefit levels to customers’ needs.

The proposal is also unabashedly redistributive in its aims, using tax revenue to subsidize low-income households’ water bills. This sort of redistributive approach is important for an assistance program in a state as large and economically diverse as California. The benefit levels are modest but significant, and although they provide percentage discounts, the three tiers smartly designed with absolute cost burdens in mind.

On the other hand…

Some aspects of the proposal are worrisome. Some bits are merely (and probably intentionally) vague, others could be addressed with some minor tweaks; but others are more fundamental. In the next few posts I’ll look at that other hand.

Movement on Measurement

Sometimes progress is visible in what you don’t see

Earlier this week I had the pleasure of speaking to the annual conference of the California Water Association, an organization of that state’s investor-owned water utility companies. The theme of the day was affordability. The California Public Utilities Commission and State Water Resources Control Board are working hard to craft rules and guidelines for affordability in the Golden State, with clear implications for the state’s utilities.

During the conference several speakers took to the stage to talk about efforts underway in California to ensure affordability as communities grapple with water infrastructure and supply costs. We heard from utility managers, state agency bureaucrats, and state legislators. These were not dilettantes or casual observers; these were experienced people well-versed in water policy, and I heard lots of exciting things about steps and directions the state and its utilities are taking.

But one of the most exciting things about the conference was something I didn’t hear and didn’t see. In an all-day meeting on the subject of water affordability, nobody mentioned average-bill-as-percent-of-median-household-income.

Indeed, I’m a bit embarrassed to admit that I was the first to mention the %MHI standard when I launched into my familiar attack on that miserable metric. I’ve been excoriating that metric in rooms full of water folks since 2006.

I’ve had it up to here with %MHI

I can do it in my sleep. But the attack wasn’t necessary in that room on that day. The audience was receptive to more careful measurement and analysis—even if the results weren’t pretty or comfortable.

Good policy requires good measurement. In the case of water affordability, good measurement begins with abandoning bad measurement. The California water community has apparently taken that first step; maybe it’s a sign that the rest of the nation is ready to follow. The quiet disappearance of a number from conversation might seem like the smallest of small victories, but policy revolutions begin with such changes in analytical frameworks.