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Christine E. Boyle, PhD is a Post-doctoral Fellow at the Environmental Finance Center

The large amount of capital needed to fund municipal water utilities’ aging infrastructure has risen to the forefront of local and national policy discussions over the last five years.  The capital needs are significant and no silver bullet solutions exist for the problems utilities face in generating capital sufficient to rehabilitate water systems while also coping with water shortages.

Among the challenges facing the US municipal water sector, here are a few of the most significant:

  • Large capital needs. In 2007, the US EPA estimated approximately $334 billion in infrastructure investment would be needed to simply maintain U.S. water utilities’ existing infrastructure.   A 2012 report by American Water Works Association estimates that projected costs for the sector could exceed $1trillion by 2035.
  • A Weak economy. In a stagnant economic climate utilities’ previous cash-cow revenue streams (impact and connection fee revenue) have largely dried up and credit access remains constrained. In some areas, large water customers have gone out of business.
  • The Conservation conundrum. Water shortages and conservation mandates nationwide have resulted in declining demand for water, with utilities facing a new reality of revenue shortages due to conservation.

This early 21st century crossroads of public finance woes, sustainability mandates, and aging infrastructure creates a harrowing reality check for a nation that has long prided itself on exemplary public services and infrastructure.  A dire, gloomy perspective has the potential to pervade national thought; however, many insiders in the world of water utility finance have noted many glimmers of hope for the future prospects of the US’s seemingly fragile water utility sector.  This article will highlight a few key areas that demonstrate the sector’s capacity to overcome many of the challenges listed above.  The sector is much larger than municipal utilities alone, also including the private sector, academia, credit markets, and state and federal governments.

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