Surviving An Exceptional Funding Drought

As last summer’s drought conditions wore on, I learned that there is a condition even worse than “extreme.” There is an “exceptional” drought category, which essentially means “pending devastation if you don’t get rain fast.” The impact of this drought, when finally broken, will be felt for years.

As I was sifting through the many comments and mounds of data from Underground Construction’s industry-exclusive Municipal Sewer and Water Survey, the parallel became obvious and unmistakable. Our nation’s prolonged Great Recession had pushed the underground sewer/water infrastructure into the “exceptional” crisis mode.

A large number of municipalities, counties and other public works agencies have been facing unprecedented cash flow issues the past several years. That has precipitated an alarming slowdown of desperately needed maintenance and rehabilitation of our vital infrastructure.

Even before the Great Recession hit, cities and counties were struggling to find the funds necessary just to maintain their sewer/water piping systems, let alone address the decaying, failing pipes populating much of those systems. As we continue to experience budget cuts and general lack of available funds, prospects of relief from government funding programs such as the Clean Water Act or State Revolving Loan funds are essentially nonexistent. That leaves local governments struggling to find funding sources through user fee increases and/or other enhanced revenue streams. However, this can make elected officials very unpopular with their constituents, thus their reluctance to act – even when absolutely necessary.

When money is tight, sewer/water infrastructure is last in line and often not funded. It seems like sewer/water only gets attention when there is an emergency such as a major failure of a line, or the EPA comes calling. But that mindset is dangerous on two levels. First of all, leaking water pipes cost money – far more than people realize. That water is treated and transported at a price and when much of that product is lost before delivery, more water has to be acquired, treated and transported to make up for the loss at an additional expense. It becomes a relentless cycle of expensive waste. Further, failing sewer pipes and leaking water lines become a major health issue and the potential for disease increases exponentially.

Despite recession and a funding crisis, the EPA has ramped up its enforcement procedures the past three years, forcing local governments to agree to official Consent Decrees. In many cases, those agreements are reached without the city having access to funding sources to deal with the necessary spending to achieve compliance.

Potable water across the world is rapidly becoming more valuable than oil. It is a precious commodity, even in the U.S. Many local governments have already been faced with finding new sources of water for their current needs. Lack of water access severely inhibits economic growth and development. Many of the additional water sources come at an increased cost. Several states have already instituted phased-in mandates to switch from well water (overuse is causing subsidence issues) to more costly surface water. The intricate web of water agencies across states is creating an entirely new level of politics.

Other market outlooks
The telecom industry will find out later in 2012 what life is like without stimulus as those projects begin to wrap up by mid-year. The thinking is that the economy will have recovered enough to keep the industry at least moderately healthy. That was the case before the oft-delayed stimulus dollars hit and the market is hoping the public’s appetite for telecom technology has not abated.

Alternative energy, primarily wind power and geothermal, could also develop into strong markets for underground utility contractors. But both of those fields are not yet self-sustaining, requiring tax breaks and subsidies for growth. It remains to be seen if substantial subsidies can be obtained in this year of continued budget cutting.

Life without Keystone XL
At press time, we just heard that President Obama was officially going to kill the Keystone XL Pipeline project. What a disaster for the American economy, yet a calculated political risk for Obama. He’s wagering that appeasing his “hope and change” supporters and the environmental lobby will reinvigorate those groups and brings them solidly back into the fold of his reelection campaign. But rest assured, the Keystone XL debate will rage on for months and is not dead yet.

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