Pennsylvania officials last week released a study that assesses unfunded water and sewer infrastructure needs at $36.5 billion over the next 20 years.

The report came out just days before today's general election, in which Pennsylvania residents will vote on a $400 million general obligation bond bill to help support clean water and sewer projects throughout the state.

Those who worked on the Sustainable Infrastructure Task Force Report, and others familiar with the state's clean water and sewer capital projects, said the funding deficit is due in part to aging pipes and older plants, deferred maintenance programs, and utility rates that do not meet operating and maintenance needs.

Officials said that to bring water and sewer systems up to date, additional funding will need to come from all levels of government. And while state GO bonds and municipal and local authority borrowing will probably help fill the funding shortfall, officials mentioned that volatility in the municipal bond market and an overall softening economy are obstacles that issuers must face.

Many wastewater plants and treatment facilities must meet federal mandates within a set period of time issued through the U.S. Environmental Protection Agency.

For example, combined sewer overflow upgrades in southeastern Pennsylvania could reach $5 billion by 2026, the EPA deadline for those improvements, and 184 treatment plants in the center of the state must reduce nutrient deposits by 30% by 2010, part of a 2000 multi-state agreement to improve water conditions in the Chesapeake Bay. That initiative will cost more than $1 billion, according to John Brosious, deputy director at the Pennsylvania Municipal Authorities Association.

Those consent decrees and mandates will benefit the environment, but will be difficult to finance under current market conditions if cities, towns, and local water authorities need to issue bonds to help meet the guidelines.

"What's hurting under that scenario is [authorities] that have to move forward because of permit limits and deadlines, they now are going to be forced to take money any way they can get it, because we're not seeing leniency now on the back end as far as extending your timelines because you're under financial problems to actually do the bonding," Brosious said. "And that's not a good position to be in."

Yet the report suggested that funding should come from different revenue streams and from different levels of government to help diversify the $36.5 billion funding shortfall. While federal and state subsidies will still be necessary to help finance water and sewer upgrades, state-level GO borrowing and local-level bonding will need to support capital projects, although the study did not identify a recommended amount.

"There are few limitations to the amount of funds that could be raised by water facilities on the bond markets for infrastructure financing," according to the report. "Admittedly, some potential borrowers may not be considered to be investment grade or may face other borrowing limitations, but on the whole, bond financing has the potential to account for a significant portion of our water-related funding needs."

One funding plan that could help secure additional state borrowing involves the state implementing a flat, monthly "flush tax" similar to one used in Maryland, which brings in $72 million for the state in total. Officials expect those revenues would double in Pennsylvania, based on population alone, according to the report. In addition, the study shows that current water and sewer rates do not meet system demands and that drinking water and wastewater facility fees must increase.

While officials expect utilities to boost their rates, the report indicates that many communities will still need state and federal assistance, according to Paul Marchetti, executive director of the Pennsylvania Infrastructure Investment Authority and chairman of the task force's financial resources work group. The PIIA issues water and sewer bonds on behalf of the state.

"The picture we sort of came out with is some sort of combination of local, state, and federal funds," Marchetti said. "Local really being in the form of full-cost pricing and more adequate user fees. But then to the extent that subsidies are still needed to make these projects affordable, we'd be looking at state and federal assistance for that, and I think that's a fair statement - sort of a shared burden, as it were."

Gov. Edward Rendell formed the 30-member task force in late April to evaluate the state's water and sewer infrastructure needs and to recommend funding alternatives.

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