Opinion: Shifting the funding mix: Protecting, improving and growing rural water Systems

By Guest Author

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By Nivin Elgohary, senior vice president, Electric Distribution, Water & Community Facilities for CoBank

We all know that access to clean water is critical for personal health. What is not as immediately apparent is how essential access to a consistent supply of water is to the economic vitality of our rural communities. America's more than 50,000 U.S. rural water systems are working diligently to meet both of these important needs. They also face formidable challenges.

Across the nation, rural water utilities are spending more time and resources to comply with tightening regulations. They are weighing the cost of investment in technology against the prospect that a newer advancement could quickly make their investment obsolete. Growing populations and customer bases are spurring some rural water businesses to expand rapidly, while others are grappling with population loss and a shrinking customer base.

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Furthermore, rural water systems across the country are preparing for an unprecedented wave of retiring workers while struggling to attract members of the Gen X and Millennial generations to fill these skilled positions.

And at the same time the water and wastewater industry is under pressure to maintain, upgrade and modernize their systems without raising rates. Earlier this year, the Environmental Protection Agency restated its projection from recent years that the demand for funding for drinking water and wastewater infrastructure projects will exceed $600 billion in the coming decades.

For most water and wastewater service providers, the reality of aging infrastructure is an exponentially increasing and ongoing challenge. In some regions of the country, it is not uncommon to have pipes more than 75 years old pumping water to homes and businesses. Keeping those water systems up to the highest standards requires ongoing capital investment-which surfaces another important challenge-how to pay to replace aging infrastructure while still managing operational expenses.

The cost to replace a 4-inch rural water main often reaches $25,000 to $30,000 per mile. In 2016 alone, EJ Water Cooperative in Dieterich, Illinois, will put in 60 miles of new water mains to serve new customers. Similarly, Texas-based Aqua Water Supply Corporation (WSC) is constructing a new transmission main and completing a new wellhead, at a cost of nearly $1.5 million. Drilling a new 16-inch, 700-foot-deep well recently cost Consolidated Water Supply Corporation in Crockett, Texas, a hefty $500,000.

That's not cheap.

While many if not all of the challenges of aging infrastructure and other concerns are similar to those facing cities, the tax base normally tasked with paying for at least a portion of the rural projects is smaller and therefore a bigger challenge when it comes to funding.

To keep water rates affordable while providing needed improvements and minimizing service losses, most rural water systems have had to seek outside funding and become more comfortable with carrying more debt than they traditionally have done in the past.

For example, EJ Water normally finances its capital outlays with 40 percent loans and 60 percent grant funds. However, the state in which EJ Water operates, Illinois, offers only $12 million in grants for public facilities, whether they are rural or municipal systems, which does not leave the funds necessary to make all the required upgrades and results in only one in four projects receiving grants. Shifting the funding mix will be critical to meet the cooperative's growth needs.

Though the need for funding is immediate and substantial, it is not insurmountable. Fortunately, rural water systems generally have a very strong credit profile and are able to take advantage of the current extraordinarily low interest rate environment when using private funding. Another fact in their favor is the current low interest rate environment, which most expect to persist for the foreseeable future.

In addition, United States Department of Agriculture, EPA and Department of the Interior are working together with partners such as CoBank to help find solutions to the growing need for funding. This belief in diversified financing options from partners committed to rural communities drives CoBank to offer a variety of loan products for water systems that compliment EPA and USDA financing, such as construction financing and long-term loans.

Each system has unique needs, but one thing we have learned at CoBank during nearly three decades of helping to facilitate the upgrading and replacing of rural water systems - a collaborative approach and strong partnership between public organizations and private companies is essential to success, especially given the $600 billion needed to upgrade and maintain water infrastructure. The rural water systems that maintain strong relationships with both government and private financial partners will be best positioned for continued success.

Nivin Elgohary is Senior Vice President, Electric Distribution, Water & Community Facilities for CoBank, a national cooperative bank that provides loans, leases, export financing and other financial services to agribusinesses and rural power, water and communications providers in all 50 states. CoBank has managed the financing for more than $1.7 billion in rural infrastructure improvement during the past 30 years.



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