Water Privatization: Coming to a Century Old System Near You?

The good news is that our more than a century old, dangerously deteriorating water and wastewater systems are about to get long overdue attention. Not only did Congress give the Water Resources Reform and Development Act of 2014 (WRRDA) a landslide vote – House (412-4) and Senate (91-7) – but on June 10, President Obama signed on.

WRRDA is bringing joy to the financial industry, construction unions, environmentalists, legislators, the transportation industry and almost anyone or thing connected with water. The only thing that seems to be missing is holding hands and singing “Kumbaya.” But, while WRRDA has many long-needed features, the reality is that some parts of the law are seriously problematic.

The Word on WRRDA

If you haven’t heard of WRRDA, that doesn’t mean it is not a big deal. The law’s Title I reforms existing problematic water programs. Title II covers navigation and navigable waters. Title III concerns programs related to extreme weather events. Title IV addresses navigable rivers, rural western water and coastal areas. And Title V, which provides public financing for privatized water projects, is likely to be the most controversial of all these provisions.

Among the projects that WRRDA’s co-sponsors, Sen. Barbara Boxer (D-California) and Sen. David Vitter (R-Lousiana), are targeting include infrastructure that is often described as “crumbling” or “past their useful life,” including bridges, canals, harbors and rivers. Their goals include creating modern water transportation that will lessen the need for ground transportation and the problems of congestion and pollution. WRRDA also paves the way for the creation of infrastructure that is more resilient in the face of extreme weather and natural disasters, such as floods and droughts.

WRRDA is essentially an omnibus law with many components. Each of those components, which are in themselves quite long, is set out in a title and addresses a specific issue, navigable waterways, for example. One such component addresses water and wastewater infrastructure: the Water Infrastructure Finance and Innovation Act (WIFIA), which, in Senator Boxer’s words, is a “new initiative to assist localities in need of loans for flood control or wastewater and drinking water infrastructure to receive those loans from a new funding mechanism.”

Finally, WRRDA updates the Clean Water State Revolving Fund, which provides financing for water infrastructure needs as loans are repaid.

The House description of WRRDA (p. 5) draws on historical, economic and patriotic tropes: “From the earliest days of our Nation, our history has included a strong role in transportation.” It then refers to Adam Smith, “author of the Wealth of Nations,” the “Framers of our Constitution” and the Articles of Confederation – which failed to resolve a dispute between Maryland and Virginia concerning navigation rights on the Potomac River, which led to the Constitutional Convention and a constitution that gave the federal government power to build roads and regulate interstate commerce. The description concludes, “Congress must continue to uphold the federal commitment to provide a robust and unifying physical platform upon which the American people and businesses can compete and prosper.”

So much for conservatives, limited government and states’ rights.

However, page 6 balances out page 5 with an attack on the “federal bureaucracy [which] continues unchecked and unreformed.” It praises “flexibility for state and local governments and opportunities for private sector involvement,” and it chides those who have limited the involvement of the private sector “job creators.”

WIFIA and Privatization

Over time, we may find many controversial aspects to WRRDA, but, for now, Title V and WIFIA – the Water Infrastructure Finance and Innovation Act – seem most likely to be the most controversial because of WIFIA’s connection with privatization.

WIFIA borrows the structure and role of TIFIA – the Transportation Infrastructure Finance and Innovation Act – in financing water infrastructure. TIFIA has been a controversial form of infrastructure funding in large part because of privatization provisions. As a result, for now, WIFIA will provide limited funding for water infrastructure projects. WIFIA money will be provided through a revolving fund. As WIFIA loans are paid back, the funds will be lent to provide funding for other projects.

Both TIFIA and WIFIA are part of a privatization structure. According to the Associated Builders and Contractors Association, “WRRDA would create a Water Infrastructure Public Private Partnership (P3) program that expands the use of P3s and allows the private sector to fund portions of public projects to ease the financial burden of taxpayers.”

Water – Out of Sight, Out of Mind?

What most of us want is clean and abundant water. Meanwhile, what financiers and their law firms, such as the Mayer Brown’s of the world, want – and get – is WIFIA, which “is designed to leverage federal funds by attracting substantial private or other non-federal investments to promote increased development of critical water infrastructure and to help speed construction of local projects.”

Behind that description of TIFIA – and most likely, in the cards for WIFIA – is a financing scheme that has allowed the private “partner” to put in as little as 3 percent or as much as 10 to 20 percent of the investment. In other words, rather than the private partner coming to the rescue of cash-strapped governments, it is the public that must subsidize private contractors.

The Buddy System of Privatization

The public is at a real disadvantage when it comes to understanding something as simple as getting a drink of water. It takes time, access to understandable information and motivation to learn the basics of water infrastructure and water privatization.

Meanwhile, the infrastructure finance industry has a friend in industry groups such as the American Water Works Association, Water Environment Federation, and Association of Metropolitan Water Agencies, who lobbied for WIFIA in their A Cost Effective Approach to Increasing Investment in Water Infrastructure – The Water Infrastructure Finance and Innovation Authority (WIFIA).

The American Water Works Association’s government affairs office in Washington, DC ensures that the “‘voice of water,’ is heard in the regulatory process by participating in meetings, workgroups and advisory committees and through official letters and comments.” In addition, the “AWWA’s Technical Advisory Workgroups can bring the world’s foremost experts to lend perspective and understanding to even the most arcane subjects.”

The Water Environment Federation lobbies through its partner, the Water for Jobs initiative. Its motto, “Make Water Your Business,” follows up by urging the public to lobby by providing sample letters to the editor and through its own LinkedIn page.

Another WIFIA advocate, the National Association of Water Companies (NAWC), and the US Chamber of Commerce, campaign with the slogan, “Water is Your Business.” The NAWC is “the public voice for more than one hundred private water companies, ranging from large investor-owned utilities to small, community-based providers. Seventy-three million Americans – nearly one in four – receive service from a private water service provider.”

Finally, the Association of Metropolitan Water Agencies and others argue that WIFIA should be amended to provide more financial support for water projects. In addition, the private sector is lobbying for “a new federal loan program that will offer low-cost financing for major water infrastructure projects costing more than $20 million” and even creating tax-exempt bonds to fund infrastructure.

These and related issues will be taken up in the next part of this story.