WASHINGTON — The nation’s drinking and wastewater systems are extremely underfunded and in need of billions of dollars of additional bond financing, according to a new study from the Center for American Progress.

“In order to bring America’s water infrastructure up to date with modern safety and efficiency standards, significant changes will have to be made both to the levels of funding being provided and to the way these funds are invested,” the report states.

The most recent Environmental Protection Agency estimates, made in 2009 and 2010, projected that U.S. water infrastructure would require $635 billion of investment over 20 years, just under $32 billion annually, an estimate the report said was way too low.

Although 2007 data suggests that annual spending on wastewater and drinking water systems actually approaches $39 billion each year, the report concludes that funding must rise significantly above that and must surpass the EPA estimates to allow aging pipes and sewage treatment facilities to be upgraded and maintained properly.

“First, by its own admission, the agency’s needs estimates are generally conservatively biased and do not truly reflect the sum of all required investments,” the report states. “This is because the surveys do not account for infrastructure needs that are not eligible for funding via the drinking-water and clean-water state revolving loan fund grant programs but are nevertheless essential for protecting America’s water resources.”

The EPA estimates also do not consider the cost of borrowing, the authors write, and ignore the needs of federal facilities.

“Total drinking-water and wastewater capital needs are therefore almost certainly significantly higher than $31.6 billion per year, as this figure portrays only a portion America’s greater water infrastructure needs,” the report says.

The think tank recommends $2 billion of additional annual spending for the state revolving loan fund programs, and urges grant recipients to stop utilizing those funds directly and start leveraging them with tax-exempt bond financing.

“Without additional funding, there is little that can be done to address America’s pressing water infrastructure needs,” according to the report. “Increasing annual appropriations to these two state revolving loan funds by $2 billion will allow states to finance thousands of repair and renovation projects that have been delayed for far too long.”

Too few states are using bond financing effectively for water infrastructure, the authors charge, though making the transition to a leveraged approach would generate much more available funding.

“While this does mean that states have to charge high-enough interest rates on the loans they issue to recoup the interest they must subsequently pay back to bond buyers, these rates are still market-level,” the report states. “Yet despite the advantages of utilizing leveraging, as of 2011 some 27 clean water state revolving loan funds and 20 drinking water state revolving loan funds only employed direct-loan models and issued no debt instruments to raise additional funds.”

The authors said leveraging results in a two-to-fourfold increase in funding capacity.

While the 2009 American Reinvestment and Recovery Act allotted some $4 billion to the clean water state revolving fund, a Republican-controlled House of Representatives is less likely to support billions of new appropriations to the EPA. The CAP report suggests other changes designed to help achieve more with less, such as investing non-leveraged funds instead of sitting on them and utilizing renewable energy and lower-cost solutions wherever possible.

“These are commonsense reforms,” the report concludes, “that will enable states and localities to continue the critical tasks of repairing and modernizing the drinking-water and wastewater systems upon which their economies and public health totally rely.”

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