NCPA - National Center for Policy Analysis


March 26, 2008

It is no accident that the water sector, which is dominated by government control, is suffering from a severe lack of investment and deteriorating infrastructure, says G. Tracy Mehan, an adjunct professor at George Mason University School of Law.

For example:

  • The Environmental Protection Agency (EPA) estimates an investment "gap" over 20 years of more than $220 billion dollars for capital needs alone, assuming rates remained steady.
  • A study by the U.S. General Accountability Office indicates that 29 percent of water and 41 percent of wastewater were not generating enough revenue from user rates and other local revenue sources to cover their full cost of service.
  • Roughly one third of water and waste water utilities deferred maintenance because of insufficient funding, had 20 percent or more of their pipelines nearing the end of their useful life, and lacked the basic plan for managing their capital assets.

According to Mehan, we should raise the state cap on private activity bonds (PABs), to encourage more public-private partnerships (PPP) in the water sector.   This would be a small blow on behalf of making more private equity available for drinking water and waste water needs.  It would level the plating field for financing critical water infrastructure based on the public purpose intended, not a particular ownership or management structure.

Based on the outcome of removing solid waste facilities for the volume cap in 1986, removing PABs for public purpose drinking water and wastewater facilities from the state volume cap would produce an additional $1 to $2 billion in water infrastructure annually at first, potentially increasing to $5 to $6 billion as the PPP industry matures.

Source: G. Tracy Mehan, "Let's Drink To Private Water," PERC Reports, Spring 2008.

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