Water infrastructure spending lags in North Carolina
By Lydia Coutré StarNews Staff
Published: Monday, September 28, 2015 at 3:54 p.m. Last Modified: Monday, September 28, 2015 at 3:54 p.m.
The largest federal aid program for improving the nation's drinking water systems has struggled to spend money in a timely fashion despite demand for assistance that far exceeds the amount available, a review by The Associated Press shows.
Nearly $1.1 billion in congressional appropriations sit unspent in Drinking Water State Revolving Fund accounts as of Aug. 1. The backlog is smaller than it once was, but federal data show that many states are not on track to meet a goal set by the U.S. Environmental Protection Agency, which wants any money dating back to 2013 to be spent by next year.
In North Carolina, state officials have been working to increase the pace of the revolving fund, a pool of money at the state level that is then loaned out to local governments for water infrastructure projects. The pool is added to annually by repayments, some interest funds and federal grants with a 5-to-1 state match.
"Over time, say a 20 year period, the faster we're revolving, the more assistance we're able to provide," said Kim Colson, director of the Division of Water Infrastructure, part of the N.C. Department of Environmental Quality (formerly the Department of Environment and Natural Resources).
Congress established the revolving fund in 1996 as a way to provide low-interest loans to cities, counties and utilities to help pay for maintaining aging water systems. In recent years, lawmakers have approved $900 million annually for the program, but they are considering a deep cut for next year.
In fiscal year 2015, $41 million, or about 9 percent of the grants, was unspent, but Colson said all of that money has been allocated to projects. It's just a matter of waiting for those projects to start. That's the lowest percentage rate of unspent funds in the past five years, which peaked in fiscal year 2012, when 22.5 percent wasn't spent by the end of the year.
"Our pace impacts that number directly," he said. The state started making adjustments to increase the pace in 2013, applying strategies used to increase the pace of the Clean Water State Revolving Fund, a sister program of the DWSRF that supports wastewater infrastructure. "We're starting to see substantial improvement. We still have a ways to go."
The more assistance that fund can offer, the better, considering a 2011 Needs Survey estimated the state has more than $10 billion of infrastructure needs projected in a 20-year time frame. That puts North Carolina in the top 10 states with the greatest amount of funding needed, alongside states such as California, Texas and New York.
This is in part due to the state population, but Colson said North Carolina probably does have a little bit higher need even when factoring in populations.
"We have some substantial need," he said. "In North Carolina, we have a lot of smaller systems across the state."
A "good portion" of that need comes from larger cities like Raleigh, Charlotte, Greensboro and Winston-Salem, all of which often find their own funding sources, such as the bond market or capital reserves built into their rate structure, Colson said.
Cape Fear Public Utility Authority hasn't yet tapped into the DWSRF, but is considering pursuing those funds.
CFPUA estimates needing $91 million in the next decade for 27 water treatment and distribution projects.
There are other funding programs, but the DWSRF accounts for millions in North Carolina.
The cumulative amount awarded to North Carolina in recent fiscal years was more than $450 million.
States are using an increasing share of money on other drinking water services instead of investing in infrastructure. About 1 in 5 dollars in recent years has gone to purposes such as paying the salaries of state employees and contractors. Those expenses are allowable but leave less for the repair and replacement of leaky pipes, deteriorating treatment plants and century-old storage tanks.
In fiscal year 2015 in North Carolina, 20 percent of the funds were set aside. Colson said about 10 percent goes to the public water supply section in the division of water resources and there are other pieces set aside for technical assistance.
The law requires that every state receive at least 1 percent of the appropriation, which means small, largely rural states have enjoyed a disproportionate share. A dozen states with populations of less than 2 million have received the highest per-capita funding levels, while large states such as California, Texas and Florida are near the bottom, the AP analysis shows.
But actually spending the money has been a challenge for states big and small.
"It's not a bad problem to have — too much money," said Danielle Shuryn, who helps run New Mexico's program, which recently increased its hiring of employees and contractors as it tries to reduce its backlog of unspent money.
Acknowledging past shortcomings, states such as California and Texas have overhauled their programs to better move projects to completion and spend their appropriations faster. The amount of unspent money has been cut in half nationally in the past four years after reaching $2.2 billion in 2011. Still, it remains an EPA concern.
Peter Grevatt, director of the EPA's office of groundwater and drinking water, said states have made "a very significant improvement" in reducing their unspent money and would continue making strides. He said the goal is to spend all money that comes in within two years — faster than federal regulations require.
State managers said some spending delays are unavoidable, given the complexity of water projects, which can take years to complete. The program's careful approach, they said, ensures money goes to worthy projects and to systems that can repay loans. Cities sometimes reject rate increases and cancel their plans, and projects get bogged down during environmental studies or in design and bidding stages.
"It's not as if the funds are being bungled or poorly spent. It's a question of delays," said Jim Taft, executive director of the Association of State Drinking Water Administrators.
The program's focus on providing loans rather than grants makes it financially sustainable as money gets repaid through water system revenues over time. But it also discourages projects in some small towns, where officials say they cannot afford to repay loans without raising water bills to unaffordable levels.
"The people who have the biggest need are the people who have the worst compliance. They can't afford to fix it," said Jeff Walker, an administrator with the Texas Water Control Board.
In Tennessee, for example, the state's top-ranked project this year is a $684,000 plan to replace leaking water lines in Gainesboro, population 1,500. The state's plan calls for the project to receive a 20-year loan in December, but Town Clerk Lisa Dodson said the only way the community would carry out the work is with a grant.
North Carolina officials continue to refine the process to help dollars revolve through faster, Colson said.
The assistance provided increases annually as the state gets new grants, repayments and a little bit of interest coming back in to go into the revolving pot, he said.
Although federal requirements added to the funds over the years have made the money “a little less attractive today,” Colson said, “it's still a very competitive program.
“It's not just a one-time expenditure of money. We get to reloan that money out over and over and over again, and it becomes really a permanent source of funding for a lot of our small and medium-sized local government units.”
WRRDA: Impacts on North Carolina
The Water Resources Reform and Development Act (WRRDA) of 2014 authorizes funding for existing and new water, wastewater, and stormwater infrastructure finance programs, as well as waterway and port projects. The has significant impacts for North Carolina. In the late 1980s, the Clean Water State Revolving Fund (CWSRF) program replaced construction grants in order to provide low-interest loans for water projects and establish a sustainable financing program. Since CWSRF’s inception, North Carolina has received 1.8% of the national appropriation for the program based on population and demographic trends from the 1980s and earlier. This allocation has granted over $725 million to North Carolina, which the state has used to fund nearly $1.3 billion in projects, according to DENR’s 2012 Clean Water State Revolving Fund Annual Report. WRRDA requires that, for the first time, the Environmental Protection Agency conduct a review of the current allotment formula and make recommendations for updates. The law also extends the loan payback period from 20 to 30 years and broadens the eligibility of funds into areas involving land acquisition, water reuse, ‘green infrastructure,’ and utility resilience.
However, the CWSRF is primarily designed to provide low-interest loans to underserved local governments; large water infrastructure projects typically find it difficult to access SRF funds. In addition to the re-authorization and reform of the SRF, WRRDA also establishes the Water Infrastructure Finance Innovations Authority (WIFIA), in part to fund larger water infrastructure projects. As proposed in the legislation, WIFIA will launch as a pilot program, with $125 million in funding over five years, modeled after the Transportation Infrastructure Finance and Innovations Authority. Much of this funding will be used to help secure larger projects of national significance (costing at least $20 million), although at least 15% of the amounts made available must be used for communities that serve 25,000 or fewer people. For these communities, the minimum project amount will be lowered to $5 million.
WIFIA will work through the Army Corps of Engineers and the Environmental Protection Agency. Flood damage reduction, environmental restoration, and waterway navigation projects will be carried out via the Army Corps of Engineers, while water and wastewater projects (including energy efficiency projects for water and wastewater utilities, repair/rehabilitation/replacement of existing systems, and desalination projects) will be funded via the Environmental Protection Agency. There is also a provision for land acquisition projects through both Agencies. WIFIA is designed to leverage federal funds by attracting private or other non-federal investments to promote increased development of water infrastructure.
In addition to the legislation’s impact on water, wastewater, and stormwater projects, WRRDA authorizes many other projects that will impact North Carolina, including watershed partnerships, waterway dredging, beach nourishment, harbor maintenance, and ecosystem restoration projects. The legislation authorizes $305 million for hurricane and storm damage risk reduction projects in West Onslow Beach, New River Inlet, Surf City, and North Topsail Beach, as well as $24 million for environmental restoration in the Neuse River Basin.