How Does a Town of 312 People Afford a $3.6 Million Water System Upgrade?


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U.S. Department of Agriculture loans and grants have helped fund water infrastructure in rural localities like Hysham, Montana. The Trump administration’s proposed budget would nix funding for the program that provided this assistance.

The storage tank that held tap water for Hysham, Montana, had been in service for about five decades when the town finally decided it would need to be replaced.

With roughly 300 residents, Hysham is located 70 miles northeast of Billings, along Interstate 94. It was back around 1958 when the town upgraded a wooden water tank with a new metal one that stood about 125 feet tall and could hold 100,000 gallons of water.

A routine inspection in early 2012 found the interior of the tank had become badly corroded. In the months that followed the inspection, it sprang leaks. The aging tank had been patched up previously and structural engineers determined that this time it would be unrepairable.

So Hysham was confronted with a tough financial hurdle: an infrastructure project with a roughly $3.68 million price tag.

Along with replacing the tank, the town decided to make other upgrades, like swapping in new water lines for old ones—some of which were cast iron, others made from concrete with asbestos embedded in it.

“For a town of 312 people, that’s a pretty healthy undertaking,” Bob Keele, Hysham’s director of public works, said of the project.

Operations and maintenance expenses for the town’s water system are approximately $237,000 annually, according to Keele. And user rates to support those costs are not cheap.

The base rate for residential customers is roughly $80 per month—that’s the charge for up to 2,000 gallons of water, whether or not any water is actually used. Tack on sewer and solid waste and a typical household is looking at a monthly bill that can be upwards of $114, Keele said.

“The community, they pay a much higher rate for water here than you would see in larger communities, largely because you have less people taking a bite out of the pie,” he explained.

Keele added: “We just simply didn't have the funds to put in a new water tank and take care of the other infrastructure needs at the same time.”

So to pay for the tank replacement, Hysham turned to federal and state programs.

The primary chunk of funding and financing the town would eventually secure was through a water and wastewater grant and loan program overseen by U.S. Department of Agriculture’s Rural Development division. All told, Keele said the town was able to get about $1.6 million in grant funding and roughly $1.2 million in loans through USDA.

“Without those USDA Rural Development dollars,” Keele said, “there’s no way we could have done that project.”

On the Chopping Block

Those dollars, however, would be cut under a budget plan President Trump delivered to Congress last month. The president’s spending blueprint calls for eliminating the USDA water and wastewater loan and grant program in fiscal year 2018.

The White House proposal calls the program “duplicative” and says getting rid of it would save $498 million.

That amount is less than one-quarter of the $2.6 billion Trump proposed in the upcoming fiscal year for a wall and other “tactical infrastructure” along the nation’s southern border.

And it is just shy of 1 percent of the $54 billion increase in defense spending the president is calling for.

"We were surprised,” said Mike Keegan, a policy analyst with the National Rural Water Association, as he described the group’s reaction to the degree of the proposed cut.

Keegan said the loan and grant program has been “foundational” in terms of modernizing water systems in rural America.

Trump’s budget blueprint suggests the program’s users can turn elsewhere.

Possibilities noted in the document include private sector financing and state revolving fund programs, which involve states and the U.S. Environmental Protection Agency and help to support water infrastructure investments.

But Keegan voiced skepticism that state revolving funds or private investment could achieve the same results as the USDA program.

He pointed out that USDA Rural Development water and wastewater loans and grants are designed specifically to target places that can least afford to upgrade water systems—small and rural communities that tend to have low household incomes and high poverty rates.

“That’s not the same in SRF,” he said, referring to the state revolving funds.

Within the state revolving funds, he said, money tends to go toward larger communities that usually have broader financing options available than places with fewer people. Even if the criteria were adjusted so small, rural water agencies could be more competitive, he noted, “you're still loading more demand” onto the revolving funds.

Trump’s budget proposal includes $2.3 billion for the state revolving funds, a $4 million increase over 2017 levels.

As for private financing options, Keegan said there is already private investment flowing toward small and rural water systems. But he said the USDA loans and grants fill a gap, covering projects that would be unattractive for private sector investors because of high risks and slim returns.

Asked if he thought there was an unrealistic narrative taking shape in the nation’s capital about what private sector investment might accomplish when it comes to addressing shortfalls with American water infrastructure, Keegan replied: “Yeah, completely.”

“I don't think it's credible,” he said.

Trump has said he wants to move forward with a $1 trillion infrastructure package that would rely on both public and private capital. Tax credits designed to spur private investment toward public works are seen as a likely element in his administration’s plans.

Tax breaks, in Keegan’s view, would likely lead to more water infrastructure investment.

“But you’d just be taking the federal subsidy and transferring it from the public sector to the private sector,” he said. “And same with private water companies,” Keegan added. “By giving them subsidies, you’ve just taken a public subsidy and given it to a for-profit corporation.”

Preserving funding for USDA Rural Development water and wastewater loans and grants will be the National Rural Water Association’s top priority as Congress works through the budgeting process. Keegan said he was “optimistic” the funding would be maintained.

‘It’s a Good Investment’

Hysham is just one of dozens of communities that have accessed water and wastewater grants and loans through USDA Rural Development. The Department of Agriculture, in last September alone, announced $283 million in loans and grants for 168 projects.

Livermore, Iowa, located about 90 miles northwest of Des Moines was among the jurisdictions that received awards at that time—$960,000 in loans and $840,000 in grants. Some of the work the city plans to undertake includes upsizing and extending water mains.

“Nothing in our water plant has been updated since it was built in the 1980s,” said Nathan Hosford, the water supervisor there. “A lot of the parts are obsolete,” he added. “So if something breaks we can’t get new parts to replace it.”

Hosford said that with the way the city’s water system is now, water can sit in certain parts of it during the day when people are at work and during that time “it builds up and gets gunky.”

“It ain’t the freshest of water,” he added, referring to the built-up water. He noted that while the water is safe to drink it can appear rusty. Along with addressing that issue, the planned upgrades will also include new fire hydrants.

Livermore has about 250 water connections and imposed a rate increase to help raise money for the work that the grants and loans from USDA will help pay for.

Asked if it was fair to say that there were not a lot of options for Livermore to fund and finance the project outside of the Rural Development program, Hosford responded: “Yeah.”

Why not issue bonds, or turn to some other federal program? “Because we are a town of 380 people.”

Trump carried about 70 percent of the vote in last year’s election in Humboldt County, Iowa, where Livermore is located. In Treasure County, Montana, where Hysham is the county seat, 79 percent of the electorate voted in favor of Trump.

While discussions play out in Washington over the future of the Rural Development grant and loan program in the coming weeks and months, 1,600 miles away, in Hysham, a new water tank now stands near the town office and town shop, off a highway known locally as Pioneer Road.

The tank is about 131-feet tall and looks a little like a golf ball on a tee. It can hold around 250,000 gallons of water, which the town sources from the nearby Yellowstone River, and it is visible from the Interstate.

“Let’s people know that there’s a Hysham and it does exist,” Keele said.

“It's a thing that's going to last many, many more years than I will,” he added. “It’s a good investment. People will be drinking good, safe water from that tank for a number of years.”

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

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