Notes on the 2021 Bipartisan Infrastructure Law, Part I
No need for air conditioning
In November President Biden signed the long-awaited $1.2 trillion Infrastructure Investment and Jobs Act (IIJA) better known as the Bipartisan Infrastructure Act. The law extends several existing funding programs and provides for $550 billion in new federal spending for the transportation, energy, telecommunications, and—of particular interest to readers of this blog—water sectors. The congressional drama and hot takes about the IIJA are now several weeks in the rearview mirror, and I’ve finally had a chance to look at its water provisions in some detail. What follows is the first of three posts with thoughts about the IIJA and its significance for the American water sector.
Big Money…
The $63.3 billion in new funding that the IIJA directs to America’s water sector is a lot of money. In sheer dollars, the IIJA’s $40 billion for water and sewer capital is the second-largest ever federal investment in local water infrastructure, trailing only the 1972 Clean Water Act in total value.* In nominal dollars it is easily the largest-ever federal investment in drinking water infrastructure. That money will help many communities make badly needed repairs, replacements, expansions, and upgrades to their drinking water systems.**
What’s more, the IIJA calls for a significant share of these funds to go to “small and disadvantaged communities.” In principle, that means more federal dollars to communities where they will do the most immediate good. The $15 billion for lead service line replacement has generated the most attention, likely because it comes in the wake of high-profile lead contamination events in big cities like Flint, Newark and Chicago. That money will cover around a third of the total cost of lead service line replacement nationwide. But probably the most important direct spending provision is the IIJA’s $6 billion for tribal water and sewer systems. These funds can be a game-changer for tribal water systems that did not benefit from the 1972 Clean Water Act and have suffered from decades of federal neglect.
The IIJA also allots $8.3 billion for water infrastructure in the Western U.S. to help secure long-term supply and build resilience against drought.
…Small share
At the same time, the $63.3 billion allotted to water represents less than 12 percent of the new funding under the IIJA. Energy and broadband got bigger shares, getting $73 billion and $65 billion, respectively. Unsurprisingly, transportation got the lion’s share of the Congressional cookie. Perennially popular with politicians, roads and bridges (rosenbridgez) made up the biggest chunk of transportation spending, with railroads, public transit, airports, waterways, safety programs, and electric vehicle charging stations getting smaller shares.
Here’s how it the $550 billion breaks down by function:
Values may not total to 100% due to rounding. Click to embiggen.
In this context, IIJA’s spending on water seems…. underwhelming. Water, sewer, and stormwater systems are literally essential, serve more than 90% of the U.S. population, and face perhaps a trillion dollars in investment needs. Nonetheless, Congress saw fit to allot more to every other infrastructure sector. For some perspective: Congress spent more on charging stations for America’s 2 million electric vehicles than it spent on water infrastructure for the million Americans in tribal communities. The federal government could replace every lead service line in America for less than what it spent on Amtrak.
I guess we know where we stand
Fragmentation & punching power
None of this is to say that Amtrak or broadband or electricity or bridges aren’t important, or that Uncle Sam ought to spend more on water and sewer systems.† The point here is that budgetary politics is a zero-sum game, and the water sector isn’t very good at it. The policies that congressional and White House leaders hammer out aren’t necessarily the most efficient, most effective, or most important, they’re the ones that are effectively championed by politicians and lobbyists.
Effective lobbying for infrastructure requires collective action. Political scientists have long recognized that coordinating that action is easiest for a small, homogeneous, resource-rich group. As groups get larger and more diverse, their interests become more divergent. The costs of coordinating lobbying also get exponentially larger, and individual members have greater incentive to “free ride” on others’ efforts.
Water sector lobbyist at work [illustration by Bryan M. Richter]
The water sector’s extreme fragmentation hamstrings its lobbying efforts. There are tens of thousands of water/sewer utilities across the country—nearly an order of magnitude more than transportation, energy, and telecom sectors combined.
These utilities can have widely divergent preferences on federal policy, and it’s hard to coordinate lobbying efforts with such disparate interests—much harder than for transportation, energy, or telecom. Is it any wonder that the water sector punches far below its weight in the legislative arena?
The surprising thing here isn’t that water got just 11% of the IIJA—it’s that the water sector got anything at all. It’s a testimony to a great deal of hard work by water sector leaders and lobbyists.
Half a Cadillac‡
From a capital funding perspective, then, the IIJA is an important but very limited victory for the water sector. The money will certainly help, especially in Indian country and communities where the funds can help speed up lead service line replacements. But those funds are a tiny fraction of the sector’s needs, and does not offer systemic fixes for the water sector’s woes.
The IIJA’s more important lasting significance may be in some of its subtler, less noticeable provisions and in what it reveals about the limits of legislative largesse for the nation’s water systems. I’ll take up those aspects of the IIJA in the next couple of posts.
*Uncle Sam spent an inflation-adjusted $164 billion on wastewater infrastructure under the 1972 Clean Water Act.
**Notably, much of the water/sewer funding takes the form of state revolving loan funds, so utilities are going to have to pay at least some of it back.
†Indeed, there’s a good argument that, apart from military bases and Indian reservations, Uncle Sam ought to stay out of the water and sewer finance business.
‡Hat tip to John Foley for this magnificent metaphor.
This is very nice. There is rarely enough sustained funding for worthy causes, but well-run infrastructure systems also require overall require accountability for service and costs.
Many infrastructure sectors overall are among the best-financed parts of government and society because they have steady utility revenues (for inelastic goods) and fuel taxes. These are also expensive sectors where devoting general funds to them reliably would divert scarce funds from other worthy governmental expenditures (such as education and health care – our students' tuition, for example). Federal and state budget largess in infrastructure thus brings a moral hazard to the utility industry, where it is sometimes easier to ask for federal and state money than to improve management or raise water rates (or fuel taxes).
There are disadvantaged communities and groups for which federal and state aid is wholly appropriate and needed. Many of these are in the infrastructure bill. But we have seen, at least in California, where billions in state general revenue bond funds go to support activities by major urban water agencies, subsidizing water users and reducing state funds for education, health care, and ecosystems. In flood management, we have seen communities remain excessively vulnerable to flooding for decades while they petitioned the federal government for levee funding, only to give up in the end and use state and local funds for most of these projects.
The long-term health of the water sector does require some outside funds for special purposes, but to keep focus on service and cost-effectiveness, the predominant source of funding should remain from service sales and service-tied excise taxes. Indeed, the telecommunications and electricity sectors, also industries with inelastic demands, have benefited from raising funds for the underserved with additional use fees – a form of Ramsey pricing. A 5% additional fee on water use nationally or by state, returned locally for special needs, would provide sustainable funding less dependent on fits of political fortune.
Great points that anticipate the third post in the series. Stay tuned!