DALLAS -- A bipartisan Senate bill that would exempt water infrastructure-related debt from state volume caps on private-activity bonds would attract the private capital needed to repair the nation's aging water and sewer systems, said sponsors of the measure.
Sen. Robert Menendez, D-N.J., and co-sponsor Sen. Mike Crapo, R-Idaho, said the Sustainable Water Infrastructure Act (S. 2606) that they introduced on Monday would stimulate billions of dollars in private sector investments to finance expensive, large-scale repairs and upgrades to drinking water and wastewater pipes and treatment plants.
The Senate bill, which was referred to the Senate Finance Committee, is almost identical to a measure (H.R. 499) introduced in the House by Rep. John Duncan, R-Tenn., in January 2015. Duncan's bill was referred to the House Ways and Means Committee. No hearings have been held on it.
The PAB cap bill may be included as a floor amendment to the Federal Aviation Administration reauthorization bill (H.R. 4441) passed last month by the House Transportation and Infrastructure Committee, Crapo said. However, the bill has stalled over a provision that would transfer the FAA's air traffic control system to a new nonprofit corporation.
About 1,314 issues of water and sewer bonds totaling nearly $37.60 billion were sold last year, according to data from Thomson Reuters.
The total PAB volume cap for the 50 states, the District of Columbia and Puerto Rico this year is nearly $32.5 billion, up $245 million of 0.76% from the 2015 limit. The volume caps are based on population figures from the U.S. Census Bureau and an Internal Revenue Service formula under which the state caps are either $100 per capita or $302.88 million, whichever is higher. Water and sewer bonds fall into the exempt facility PAB category and can be financed with tax-exempts. The financing of infrastructure projects for airports, seaports, and certain intercity rail projects are not subject to the state cap.
Removal of the state cap for water projects would help prevent water crises like the one in Flint, Mich., Menendez said.
"Flint has taught us all that ignoring our aging water infrastructure has dire consequences," said Menendez. "We've under-invested in our infrastructure, certainly we've under-invested in water systems, and now we're paying the price."
Local utilities operate miles of pipes that date back to the 19th century, Menendez said, and much of the existing infrastructure is badly degraded and must be replaced.
"Many of them are waiting to fail, and they need to be fixed," Menendez said. "We can't sit back, do nothing, and fail to address the public health dangers of an aging infrastructure."
Private investors are needed because state and local governments don't have the resources needed to resolve the water infrastructure problem, he said.
"We have a huge water infrastructure problem in the nation," Menendez said. "I would rather see the private sector, rather than the government, invest its money in dealing with this problem,"
The Sustainable Water Infrastructure Coalition, a water infrastructure advocacy group, said removing the state PAB cap would open the door for up to $5 billion per year of private investment in water and wastewater infrastructure projects.
Robert Iacullo, senior vice president of the utility firm Suez North America, said removing the water PAB cap would be "a step in the right direction." The company operates 90 municipal water and wastewater systems through public-private partnership contracts.
"Lifting the state volume cap on PABs that fund water and wastewater projects would open the door for more P3s and inject significant private capital in infrastructure markets across the country," he said.
The Environmental Protection Agency said in 2013 that it would take $384 billion through 2030 to maintain a safe drinking water supply in the U.S. The total includes $247.5 billion to replace water pipes that are between 50 and 100 years old, with another $72.5 billion needed to prevent contamination of drinking water supplies.
