Water Affordability | Part 2

You can lead a horse to water, but how is he going to pay for it?

In the first installment of our blog series on water affordability, we talked about the financial challenges many utilities across the country are facing: soaring water rates, increasing operating and capital improvement costs, and insufficient funding to keep up with the demands of a deteriorating infrastructure system. Meeting these needs without exacerbating ratepayers’ ability to afford this vital service requires deliberative, proactive financial planning by water utilities. In Part 2 of our three-part series, we will take a closer look at strategies utilities are employing to secure greater financial stability necessary for tackling these challenges. These include financial solutions to help spread capital costs over time, opportunities to reduce operational costs, and tools to target and prioritize capital improvement planning.

Explore Capital Financing Tools

Source: UNC Environmental Finance Center

Since the 1980's, federal spending on water and wastewater infrastructure has steadily declined while state and local government spending has rapidly increased. As federal spending has decreased, tremendous pressure has shifted onto local governments, and their ratepayers, to foot the bill of necessary infrastructure improvements and supply expansions. To pay for these capital projects, localities have two options: pay-as-you-go and debt financing. In the pay-as-you-go model, utilities save up money from existing sources of revenue until they have enough to pay for a capital improvement project, or match annual capital spending to annual revenue capacity. In the debt financing model, utilities secure funding for capital projects through various financing mechanisms, such as more traditional sources (e.g., general obligation bonds, state revolving loan funds) and more innovate types (e.g., public-private partnerships). Due to the significant capital investment required by water and wastewater infrastructure projects, utilities often look to debt financing to fund system upgrades.