Identifying funding mechanisms & ways to address financial struggles throughout the industry
Despite an infrastructure bill lacking for most of 2018, manufacturers seem to have had a good few years. Projects are still being commissioned and updates to outdated technology, aging equipment and failing infrastructure have kept demand high for many OEMs in the industry.
At the end of October, President Donald J. Trump signed the America’s Water Infrastructure Act of 2018 (AWIA), which injected some money into water infrastructure funding mechanisms, most notably for grants and for state revolving funds (SRF).
Vanessa Leiby, executive director for Water & Wastewater Equipment Manufacturers Assn. (WWEMA), said that with the election behind Congress, pushing a more fully featured infrastructure bill through Congress before 2020 seems like it would be a win for both Republicans and Democrats. Seeing that nothing was passed in full with Republicans occupying the Senate, House and presidency, she said, indicates that there is division within the Republican party on the issue.
With a more split Congress after the election, there is opportunity ahead of the 2020 election to show bipartisan work that could benefit each party’s future campaigns.
“There’s going to be more opportunity to find that bipartisan platform that both parties can agree to and work together on to get the win-win, because frankly, going into the next election, both parties need wins,” Leiby said. “If they can do an infrastructure bill and claim they are putting America back to work and bolstering all of our infrastructure, that’s a huge victory. I think there is great incentive for both the Senate and the House to work together to make that happen.”
Clogged in Washington
Despite the initial excitement of the Trump administration’s ambitions and goals, the election and other political issues have bogged down its plans. How to address the border in Mexico; enacting tariffs on steel, aluminum and other goods; constant media attention on the Mueller investigation and a host of other political dramatics have made it difficult for Congress to focus on legislation.
Leiby said AWIA—while primarily weighted on drinking water funding rather than clean water or wastewater—is a good first step at framing an infrastructure bill for the water and wastewater industry.
“I think AWIA is a big clue to where the water industry and the leadership is pointing their direction for anything for water infrastructure,” Leiby said. “The bigger challenge all of us have is we always want to say ‘water infrastructure,’ but if an infrastructure
package moves, you know it’s going to be the roads, bridges, hospitals, broadband, [etc.]. It’s going to be incumbent upon us to make sure our voice is heard.”
Kristie Anderson, marketing manager for Badger Meter, said the voice of the industry is louder than it ever has been. From the lead issues in Flint, Mich., to Ohio’s harmful algal blooms to Florida’s red tide, concerns about water safety are more apparent than ever before. Because of that, she believes the industry is in a good place to leverage an infrastructure bill.
“I think of it as different siblings all vying for attention,” Anderson said. “I am grateful—and I’m a broken record on this—but there is a lot of focus and attention right now on healthy water distribution. Worst case scenario, we are an equal sibling vying for attention.”
New Financial Strategies from OEMs
Many equipment manufacturers have increased the prices of their products due to steel and aluminum tariffs making material sourcing more expensive. In understanding that, some have started seeking new financial strategies to help municipalities afford bigger expenditures to upgrade or replace their water and wastewater equipment.
Anderson said that while interest rates have increased, lenders are willing to offer loans and municipalities have not been closed off to seeking them.
“Utilities have been—in the past few months, maybe years—increasingly open to consider borrowing as they realized the need to look more holistically at their system rather than trying to approach things piecemeal,” Anderson said. “I think they’re understanding that they want to look at their whole system end-to-end.”
She said this approach also comes from a growing understanding of how one element in a water treatment plant that begins to age or fail can impact the rest of the treatment train. If, for instance, a membrane begins to foul, it can put undue stress on other equipment that can create a cascading effect on the plant at large.
Another trending financial model, Anderson said, is the pay-as-you-go model. This is an alternative to large, one-time, up-front investments normally associated with municipal water treatment projects.
“They’re also tending to pay for the results,” Anderson said, noting that utilities will outline the results they require over time. “That tends to minimize the prices compared to the traditional approach where the utilities are purchasing and managing their own equipment. I feel we see a lot of that where utilities say, ‘Here’s the performance I require,’ rather than, ‘Here’s the device I want.’”
She said Badger Meter is adapting to those needs by eliminating the need for proprietary infrastructure such as cellular endpoints and by creating financial models for the products that fit the pay-as-you-go model. She said the aim of these adaptations to their business is to provide more flexibility for utilities to engage with and install their equipment.
State Revolving Fund Emphasis
In the WWD 2018 State of the Industry report, the growing importance and use of SRF was a common theme among experts. Utilities or municipalities seeking these funds can apply to their respective state offices with the goal of receiving a low-interest loan from the state.
As the money is paid back, the funds are filed back into the revolving fund to go to other projects. Leiby said the aim is for these coffers to be self-sustainable, but also said the demand for SRF often outweighs the funding available.
That said, they are an effective tool to obtain the money needed to complete a project.
“I think the default rate on these loans have been next to nothing, so they do work with the systems to ensure that they’re able to pay back the loans. They can also bundle other loans and grants with the SRF funding, so if they have rural development money, they can combine some grants with the loans,” Leiby said.
Putting the funding power in the hands of the states also makes more sense due to the regional differences in water treatment, Anderson said. A system in Florida designed to handle that state’s water table and saline intrusion is not necessarily the same solution needed in the Northeast U.S., where per- and polyfluoroalkyl substances are contaminants of great concern.
“Nobody is better able to prioritize the needs and the requirements, and I think [SRF offices] are very good on their implementation,” Anderson said. “I think that’s a really positive trend.”
Creating the Pathway for Innovation
Emphasizing research, development and innovation in water and wastewater treatment systems and technologies is another aspect of funding, Leiby said. Without investment from outside, it can be difficult for a manufacturer to take on the risk to develop a product that may not sell.
“You look at Canada and some of the EU countries, the government is very supportive in backing innovation and competition and ensuring they have the best technology that they can get,” Leiby said. “The challenge for us and the manufacturers in the industry always is [that] there’s always lots of good ideas out there, but if there is not market, there is no reason to invest millions in [research and development].”
There are tons of great ideas and new products waiting to be developed, she said, but until there is a reason to invest in further development of them, those products will continue to collect dust on shelves. Even if the funding for their development is available, finding municipalities willing to take the risk of using a brand new innovation or product becomes another area of concern. Developing strategies for these issues, Leiby said, is a part of WWEMA’s discussions in Washington, D.C.
And with WWEMA, the Water Environment Federation, the American Water Works Assn. and several other major associations and organizations working together on a road map for repairing and replacing aging U.S. infrastructure, the voice of the industry is becoming louder and, more importantly, unified.
“To the extent that we have all created a platform we can all get around, then we have multiple voices going up with a united message,” Leiby said. “And we’re actually just now starting conversations about the upcoming Water Week, which will be in April this year, and what the messaging will be.”
Leiby encouraged members of those associations to voice their concerns so the comments can be used for the messaging come April.