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.
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.
#30
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