Ensuring resilient water infrastructure requires creative financing

Meeting the water challenges of today and the future will require federal spending as well as new financial models and revenue streams to ensure equity, climate change adaptation and sustainability.

Lawmakers in Congress are currently negotiating spending levels on water systems, and some proposals would include significant cuts. As communities around the U.S. confront aging drinking water infrastructure often unprepared for climate change and population growth, federal sources of financing are more critical than ever. 

Building and maintaining water infrastructure, including pipelines, treatment plants, and stormwater and wastewater systems, require substantial financial outlays. Emerging contaminants like per- and polyfluoroalkyl substances, also known as forever chemicals, present additional burdens. Addressing these pollutants requires advanced treatment technologies and comprehensive monitoring, which are expensive to implement and maintain. 

But while the government historically provided significant funding for water systems through initiatives like the Clean Water Act and Safe Drinking Water Act, resources have dwindled in recent years. 

The 2022 bipartisan infrastructure law provided a boost in investment, allocating over $50 billion for water infrastructure. Nonetheless, this funding is insufficient to cover the considerable need. Low-income and rural communities suffer from underfunded and inadequate water systems and lack the resources and access to low-interest loan programs to address these challenges at affordable rates. Without necessary upgrades, these communities see persistent public health risks and service inequities in already disadvantaged communities. 

To achieve sustainable improvements, state and local governments must leverage innovative financing strategies alongside federal support.

Solving the Financial Challenge

One immediate step could be to push for updates to key Environmental Protection Agency and Department of Agriculture policies that allow for more flexible and creative uses of federal funding including for technical assistance and additional subsidies for small systems.

There is also an opportunity to explore public-private partnerships. For example, private utilities can leverage private investment streams to purchase and invest in public water services in cities of all sizes. Frequently, these privatized water systems were originally public assets that were sold and rehabilitated using at least some private funds. 

Partnerships with private companies can also help with demand-side management. For example, Amazon Web Services has worked with local water utilities to reduce the water demands of their data centers and fulfillment centers.

PPPs can also be leveraged for collaboration between private industry, academia and public sector stakeholders. These collaborations balance the need for technological innovation and environmental stewardship. One example is The Water Council in Milwaukee, Wisconsin, which serves as a hub and catalyst for water-related innovation. The Water Council provides business development services and networking opportunities for companies, driving innovation for the sector globally and economic development for the city. 

While PPPs can provide new opportunities and resources for water systems, monitoring and evaluation is needed to ensure that PPPs maintain public accountability and do not exacerbate service inequities, particularly in underserved communities. 

Many communities are experimenting with financing strategies like new bond offerings. For example, DC Water has implemented a green infrastructure program in Washington funded by an innovative environmental impact bond, which engages private investors in financing sustainable water projects. This model not only addresses funding gaps, but also integrates climate resilience and other environmental benefits. 

Another example of alternative financing mechanisms include the use of revenue bonds and federal partnerships to finance large-scale infrastructure projects aimed at enhancing climate resilience. Miami-Dade County issued revenue bonds backed by utility rates and fees, ensuring a steady stream of funding for ongoing infrastructure improvements, paired with federal grants and loans such as the Hazard Mitigation Grant Program under the Federal Emergency Management Agency and the Environmental Protection Agency’s Water Infrastructure Finance and Innovation Act. Successful models such as this can help identify key factors for replication and scalability.

Beyond Financial Strategies

Technology plays a crucial role in offsetting financial challenges for water infrastructure as well. 

As treatment technologies have advanced and automation capabilities have improved, the opportunities to operate smaller treatment systems remotely have become feasible. Research by the EPA and the Department of Energy’s Oak Ridge National Laboratory is underway to develop and field-test real-time sensing capabilities that further the potential for unmanned treatment systems, which could reduce long-term costs.

These advanced monitoring and treatment technologies can utilize networked devices to optimize water distribution, detect leaks and manage consumption patterns in real time. Yet policies must keep pace by updating minimum onsite time requirements for operations staff to reflect these technological advances, and data privacy concerns must be considered. 

Governance reforms also show promise in supporting adaptable operating and management approaches. Many states and communities are exploring opportunities for consolidating or regionalizing drinking water systems, which can range from collaboration to full physical interconnection. Current water systems provide clean drinking water to communities that serve a few dozen to a few million people, yet each system requires the same general management, treatment and distribution capacities. This range in scale can result in widely varying cost burdens for ratepayers. Smaller systems tend to place a higher cost burden on ratepayers because capital and fixed operating costs are spread across fewer people. Opportunities to collaborate, consolidate, and generally leverage economies of scale can open new resources and capacities, especially for smaller systems.

Management challenges also differ. Smaller systems are often simpler to operate or automate, but staffing remains a consistently reported challenge. In contrast, larger systems are more complex, but draw on a larger talent pool. California has been actively promoting and pursuing opportunities for small system consolidation and has developed resources for managers interested in exploring a range of opportunities for collaboration and consolidation.  

Overall, federal funding is critical to the sustainability and resiliency of America’s water systems and needs to be complemented by alternative financial and governance mechanisms to overcome myriad challenges. Examining successful models, addressing trade-offs and synergies in investment priorities, and leveraging technologies are critical components of a multifaceted approach to ensure sustainable, equitable and resilient water infrastructure.  

Chelsea Kolb is an engineer, Sara Stullken is an engineer, and Sara Hughes is a senior policy researcher at RAND, a nonpartisan, nonprofit research institution.