water infrastructure

A way to finance our the finance aging water infrastructure

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Aging Water Infrastructure

A good amount of America’s aging water infrastructure needs to be replaced. The New York Times recently cited about $600 billion dollars will be needed over the next 20 years to replace our aging water piping. The problem is water is perceived to have little value and most people expect clean water for free. In fact, we do not “pay” for the water we drink. We pay only for the resources needed to supply it. Therefore, allocating money became a challenge therefore federal spending on water utilities has declined steadily over the years.  The aging condition of our water infrastructure is not going repair itself. The 10,000-dollar question is; where the money going to come from?

A suggestion

One suggestion which I think warrants serious consideration is using public-private partnerships to finance water improvements.   In other words, officials would seek private investors to upgrade ageing infrastructure. A public-private partnership is a contractual arrangement between a public agency and a private sector entity, through which the assets of each party are shared to provide a service for the public.

One reason cited was utilities generate a steady and dedicated stream of revenue that can be used to pay back the investment. The strong proponent against the idea is the loss of control a public utility experiences.   Several water utilities who had agreed to finance their repair their water pipes in this fashion later renegotiated with the private investors to regain control of their water systems. The financial trade-offs from these water deals can be significant and are typically in the form of rate hikes. In Santa Paula, California, for example, where private equity managed the sewer plant, the utility had doubled its rates before the city negotiated a buy back of their water systems.

Not the only option

The privatization of public works is a pivotal component of the incoming Trump administration’s strategy to rebuild America’s water supply systems. Perhaps this idea should explored further without delay.  Our water infrastructure will degrade even further while we wait.

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