Water utilities pin hopes on WRDA bill during coronavirus pandemic

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The Senate and House will negotiate soon on robust legislation for water infrastructure projects, which is especially critical for water and wastewater facilities during the coronavirus pandemic.

In a letter sent to Republican and Democratic congressional infrastructure leadership on Monday, the National Association of Clean Water Agencies urged that the Water Resources Development Act of 2020 authorize strong funding for the public water sector.

“The ongoing COVID-19 pandemic is having major economic ramifications on publicly owned treatment works and public clean water utilities,” they wrote. “NACWA estimates that the financial impacts to the clean water sector will reach $16.8 billion on an annual basis.”

The letter was sent to key committee leaders and ranking minority members including Sens. John Barrasso, R-Wyo., Tom Carper, D- W.Va., and Reps. Peter DeFazio, D-Ore., and Sam Graves, R-Mo. NACWA expects Congress to conference on a WRDA bill after the August recess or after the elections in November. WRDA is passed every two years, the last time being in 2018.

NACWA estimates a 20% loss in revenue for utilities as water usage declines, factoring in customers unable to pay amid financial strain during the pandemic. The costs of continuing service to delinquent accounts is estimated to reach $4.3 billion in clean water, NACWA said.

Barrasso, chairman of the Senate Committee on Environment and Public Works, passed his bipartisan America’s Water Infrastructure Act of 2020 and Drinking Water Infrastructure Act of 2020 in May.

AWIA, which is essentially WRDA, authorizes $17 billion in new federal spending to invest in water infrastructure. AWIA also included reauthorization of the Clean Water State Revolving Fund at increased levels for the first time in 30 years.

SRFs act as infrastructure banks by providing low-interest loans for drinking water infrastructure projects. As money is paid back into the state’s revolving loan fund, the state makes new loans for other projects. These recycled repayments of loan principal and interest earnings allow the state’s fund to “revolve” over time.

Both the Senate’s bills reauthorize the Water Infrastructure Finance and Innovation Act to finance “shovel ready” water infrastructure projects and streamline the WIFIA application process by requiring only one final rating opinion as opposed to two.

The WRDA Act of 2020 has passed the House, though it does not include SRF or WIFIA provisions.

WIFIA provides low-cost loans and loan guarantees to eligible borrowers for water and wastewater projects. It is designed to work with bonds and other funding sources.

NACWA is also asking Congress to pass the House Committee on Transportation and Infrastructure’s Water Quality Protection and Job Creation Act of 2019 in the next WRDA bill, which would authorize $20 billion in five years in wastewater infrastructure through the CWSRF.

Water utilities have been largely left out of COVID-19 related federal funding.

Whether it’s stimulus or another source of funding from the federal government, that would be helpful for water utilities, said Randall Gerardes, head of municipal strategies at Wells Fargo.

“State revolving funds are helpful and are more financing than funding because it’s a loan from an entity that still needs to be repaid,” said Gerardes. “That repayment still comes from rates. The problem for water utilities is that it’s seen that it needs to be kept affordable, but it needs to be paid for by ratepayers, so balancing that has been a challenge for water utilities.”

Randall Gerardes, head of municipal strategies at Wells Fargo, is still recommending investing in water utilities since they are seen as a needed resource.

Gerardes expects water utilities to not proceed with capital projects, an ongoing trend for other issuers.

Issuers have been largely left out of stimulus funding such as the CARES Act, said Lisa Harris, finance director of the San Diego County Water Authority.

Harris said her agency is an essential service, and needs relief. The authority has 24 member agencies, which so far have paid the authority on time, but have had to dig significantly into their reserves, Harris said. Those agencies have absorbed rate increases to limit raising rates for customers.

"Reserves do deplete over time,” Harris said. “If this continues, it would be advantageous if Congress could consider utilities as a place of support financially.”

The Senate’s legislation, in including SRF funding, is beneficial to having low-cost financing for water utilities, said Marion Gee, finance director at the Metropolitan St. Louis Sewer District and Government Finance Officers Association president.

In his district, Gee has not seen increases in customers not paying their water bills, but has seen declines in consumption, impacting revenue.

Michael Wertz, a Moody’s Investors Service vice president, said water utilities are offsetting revenue losses through rate increases, deferring capital projects, restructuring debt and furloughing staff.

“Anything that will provide more money to water utilities lessens their usage of their own local resources is generally a positive thing,” Wertz said.

However, most water utilities have come into the pandemic from a position of strength. The last several years have allowed water utilities to build up stronger liquidity and debt service coverage, Wertz said.

“From entering into this period of relative strength, it gives them the operating margin to deal with still developing contingencies around revenue pressure,” Wertz said.

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