Can Land Sales Fund Water Infrastructure Repair?

In an era when government cost cutting coincides with infrastructure disrepair, will land sales become the way water utilities unlock cash to upgrade equipment, fix water mains, and build new facilities?

The merits of this solution are already well documented in the developing world. "Land sales, betterment fees, and developer charges can provide part of the solution to urban infrastructure finance," according to a report published by the Public­Private Infrastructure Advisory Facility.

"Many [cases] involve upfront revenues in the range of US$1 billion to US$3 billion, figures that are very large compared with total investment budgets and other sources of urban capital finance, such as borrowing," the report said.

Officials from Paris to New York City have used this strategy in the past. "Tapping land values was a large part of the investment strategy of Western countries in financing urban infrastructure during the 19th century, when cities were growing most rapidly," the report said.

When Baron Haussmann rebuilt Paris, "he used public powers to condemn and then acquire the land that was converted into grand avenues as well as the excess land that lay along the path of reconstruction. The excess land served as collateral for borrowing that financed new roadways, water, natural gas, and sewer lines. Land­value gains on city acquired property were used to repay the public debt," the report said.

Will this funding strategy return in an era where infrastructure funding is sorely needed? Some utilities are exploring the option, but sometimes regulatory barriers stand in the way. For instance, a utility in Pennsylvania was almost sold land to the Pennsylvania Game Commission this year, but the utility board rejected the proposal.

"Capital Region Water was considering sale of the land for $1,055,000," according to Penn Live. The utility stood to gain about $950,000 from the proposed sale of 384 acres of land, according to a previous Penn Live piece. 

The sale would have provided an influx of cash for the utility to spend on infrastructure.

"Proceeds of the sale would be used for water system improvements and a comprehensive plan for the entire 8,200 acres on the reservoir property," the report said.

As U.S. cities face huge costs for water infrastructure upgrades, it remains unclear where the money will come from to adequately address the problem.

"Assuming every pipe would need to be replaced, the cost over the coming decades could reach more than $1 trillion," the American Society of Civil Engineers reported, citing the American Water Works Association (AWWA).

It's not an easy time for utilities. Between regulatory compliance, aging infrastructure, and reduced revenue due to conservation, "you have a cesspool of financial worries," The Kansas City Star reported, citing a research paper by the consulting firm Black & Veatch.