Connecting state and local government leaders

Talk About Private Investment in Water Systems Percolates on Capitol Hill

Part of the vast Southeast Treatment Plant complex in San Francisco.

Part of the vast Southeast Treatment Plant complex in San Francisco. Michael Grass / Route Fifty


Connecting state and local government leaders

“Look, a trillion dollars is not going to come from the federal government,” said U.S. Rep. Bill Shuster, who chairs the House Transportation and Infrastructure Committee.

WASHINGTON — Private investment in drinking water and wastewater systems was among the issues that drew attention as a U.S. House infrastructure panel convened Thursday.

Lawmakers on the House Transportation and Infrastructure subcommittee on Water Resources and Environment also showed interest in how federal regulations and permitting processes surrounding infrastructure could be eased to speed up projects.

President Trump has identified this area as a priority for his administration.

The subcommittee’s top Democrat, meanwhile, raised concerns about how cuts to the Environmental Protection Agency expected in Trump’s budget could adversely affect states.

Thursday’s hearing was among the latest to take place on Capitol Hill about infrastructure amid Trump’s calls for a $1 trillion package to upgrade roads, railways, airports and other public works. Trump has indicated that his plan will rely on government and private capital.

“Look, a trillion dollars is not going to come from the federal government,” U.S. Rep. Bill Shuster, a Pennsylvania Republican who chairs the full Transportation and Infrastructure Committee, said during Thursday’s hearing.

Shuster said in his view there has to be a federal component to help pay for projects. “We’ve got to figure out how to get the federal revenue up," he said. He went on to call public-private partnerships a “tool in the tool box.”

“There’s a lot of private money and local money out there,” Shuster added. “There’s billions of dollars across this country that are stuck in the mud so to speak with these government agencies and most of them, many times, it’s the federal agencies…reform has to be a huge part of this effort.”

Among the witnesses who testified Thursday was Kathy Pape, senior vice president of regulatory policy and business development for American Water, an investor-owned water and wastewater utility that provides service to an estimated 15 million people in 47 states.

She described how privatizing water systems can offer local governments a chance to get rid of debt, cut taxes and reduce fees.

Shuster later remarked that when it comes to private sector investment in infrastructure, “water systems, wastewater, clean water, this is an option for us.” But he also noted concerns people have about rate hikes and loss of control over water when utilities are privatized. 

He asked Pape if she’d noticed growing interest in privatizing water systems.

“We’ve certainly seen it more and more as municipal governments, especially, have dealt primarily with underfunded pension issues,” she said. “They’ve looked around to try to decide ‘what assets can we sell.’”

Schenectady, New York, Mayor Gary McCarthy also gave testimony to the panel, describing the large sums the upstate city of around 65,000 residents has put toward upgrading sewer and water systems, which has involved about $52.8 million of borrowing in the last seven years.

Route Fifty asked McCarthy after the hearing if private investment could have helped the city address these costs.

“I don’t see it,” he replied. “In fact, when I came in as mayor, we had our waste water treatment plant managed by an outside company, private sector, I brought that back in-house and we’re saving about $600,000 a year over what their final, best offer was.”

U.S. Rep. Grace Napolitano, a California Democrat who is the subcommittee’s ranking member, brought up the looming possibility of proposals for EPA cuts from the White House.

There have been reports the Trump administration is contemplating chopping the agency’s budget by a quarter. Napolitano asked at the hearing about the effect reductions on this scale would have.

John Linc Stine, commissioner of the Minnesota Pollution Control Agency, said on behalf of the Environmental Council of the States, that states had been working with EPA and the White House Office of Management and Budget in the last three weeks to understand the magnitude of the possible cuts, but had not yet seen line item proposals for reductions.

But he said a sizable drop in state and tribal assistance grants would affect a range of state activities involving water and air protection, environmental cleanup projects, and the redevelopment of “brownfield” sites—typically properties once used by industry.

“We need EPA’s budget up, not down,” Napolitano said after the hearing.

U.S. Rep. Garret Graves, a Louisiana Republican who chairs the subcommittee on Water Resources and Environment, was among the lawmakers who brought up regulatory burdens.

Graves said he’d heard from representatives of local governments, states and other groups “raising strong concerns” about regulations and permitting processes that “simply do not provide value.”

After the hearing, Graves acknowledged to reporters that coming up with $1 trillion would be an “extraordinary challenge” even with private investment. In his view, he said, the tax code would play “a critical role” in terms of “incentivizing or loosening private dollars.”

Graves said he expected Congress would take up infrastructure after they’ve dealt with the GOP-led effort to repeal and replace the Affordable Care Act, and anticipated efforts around tax reform.

He also said work around tax reform could help “set the table” for infrastructure.

Tax credits to help incentivize private infrastructure investment are seen as a possible component in Trump’s proposal.

Kevin DeGood, director of infrastructure policy with the Center for American Progress, was one of the other witnesses. He said even with tax credits to incentivize investment in infrastructure, private equity would have limited value for many places.

“If you are already struggling to find the financial resources to repay municipal bonds,” which tend to have low interest rates, he said, “it’s unlikely that you’re going to magically have the resources to be able to cover the return on private equity.”

Bill Lucia is a Senior Reporter for Government Executive’s Route Fifty and is based in Washington, D.C.

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