Capital Gains: 3 Takeaways From WWEMA's Washington Forum
By Kevin Westerling,
@KevinOnWater
Talk of growth and expansion is rare in the current economic climate, but sitting tight is not an option for the water and wastewater industry. Challenged by increasing demand and outdated modes of treatment and distribution, the water community has no choice but to evolve. That is why the Water & Wastewater Equipment Manufacturers Association (WWEMA) chose Understanding Our Future And Expectations Of Growth as the theme for its 39th Washington Forum, held April 24 to 26 in Washington, DC.
I had the privilege of joining the industry leaders, policy makers, and economic experts in attendance for the annual event, all gathered in an effort to better understand and confront today’s pertinent water issues. From my perspective, there were three dominant focal points throughout the forum: public-private partnerships, government regulations, and economic/business trends.
Public-Private Partnerships
Jennifer Hosterman, mayor of the City of Pleasanton, CA, and co-chair of the U.S. Conference of Mayors, was first among the presenters. As an outspoken advocate for water utilities, she recognized the most significant hurdle for municipalities — financing — and offered up public-private partnerships (PPPs) as a solution. PPPs, she stated, can ease the financial burden on taxpayers and municipalities by involving the private sector. To encourage their proliferation, Hosterman supports the elimination of the volume cap on private activity bonds — an issue that has been brought to Congress — as well as a public education campaign on how PPPs work.
“We don’t get it in this country,” she said. “We are rather fearful of packaging a public project and privatizing it. I think we're afraid of what our constituents might think, and I think people just need to be educated.”
Rick Norment, executive director of the National Council for Public-Private Partnerships (NCPPP), also lamented the common misgivings regarding private investment in a public trust. He stressed that PPPS are not privatization, but rather partnerships that maximize the use of each sector’s strengths. “There is a requirement to be collaborative,” said Norment. “Everyone has budgets and debts, and PPPs can be part of the answer.”
In fact, the NCPPP reports that governments traditionally realize a savings of 20-50% when involving the private sector in delivery of services.
For more on PPPs, see our Q&A with Brian Cullen, president of PERC Water, which was praised by Mayor Hosterman for its successes in California.
Government Regulations
While the aforementioned proponents of PPPs were critical of U.S. Environmental Protection Agency regulations and their economic impact on municipalities (“We offer solutions for cities, not just fines,” said Norment), EPA officials were on hand as well, stating their case.
“We have to think about sustainability — the notion that we can meet our needs today without corrupting the needs and ability of future generations,” said Jeff Lape, deputy director of the U.S. EPA’s Office of Science and Technology. He also noted that 2012 marks the 40th anniversary of the Clean Water Act (CWA), and although some take issue with the heavy-handedness of the CWA and its enforcement, Lape and others contend that strict regulations are important to ensure public safety and promote much-needed innovation.
As a potential solution for struggling municipalities looking to avoid federal fines, Mark Pollins, director of the Water Enforcement Division in the U.S. EPA Office of Civil Enforcement, presented the EPA’s Integrated Municipal Planning Approach. Working in concert with the EPA, municipalities are given a framework and schedule of compliance that allows them to balance CWA requirements and prioritize projects according to the most pressing public needs.
Economic/Business Trends
Various economic reports offered many numbers, charts, and graphs, but even the experts conceded that interpretation and predictions for the overall economy are unreliable. However, there are certain trends afoot that point very clearly to opportunities for growth within the water/wastewater industry.
One such trend is the move toward efficiency. The confluence of tight budgets, government regulations, and dwindling natural resources has become a catalyst for doing more with less, thus spawning new, energy-efficient technology.
NGP Global Adaptation Partners, represented at the forum by its managing director, Jud Hill, is one company investing in efficiency. A self-described environmentalist and capitalist, he pointed out that “you can do well by doing good” — technologies that efficiently use water are not only sustainable, they can be income generators for both investors and municipalities. The necessity and relative scarcity of water suggests that it is a grossly undervalued commodity. As such, agriculture and energy are key areas of interest for NGP, because these industries are so water-intensive (agriculture consumes 70% of the world’s freshwater supply). According to Hill, this application of supply and demand dictates that “there is a lot of headroom for water pricing.”
While increasing the price to consumers may be complicated and subject to local politics, there is no avoiding the fact that municipalities must generate more income to fund the necessary improvements to our nation’s aging infrastructure. According to the American Society of Civil Engineers, the gap between what is being spent on water/wastewater infrastructure and what is needed will reach $84 billion by 2020 unless new investments are made.
That money apparently will not come from the federal government, suggested Ken Simonson, chief economist for the Associated General Contractors of America. In his presentation, Simonson reported that although there has been better than 3% growth in the overall U.S. construction market from the end of last year through Q1 of this year, there has been a downturn on the public side with regard to federal spending. “We are well past the peak on stimulus spending,” he said.
One way to help cover costs, supported by multiple speakers at the forum, is a tax on bottled water. William Howard, executive VP and chief quality management officer at CDM Smith, noted that that in 2009 the U.S. bottled water industry produced 8.5 billion gallons of water — 27 gallons per person — and generated revenues of $10.6 billion. Even a nominal tax, then, could provide substantial help toward infrastructure improvements. In the opinion of many, it would be just compensation for the negative impact bottled water has had on the municipal water industry. As Mayor Hosterman put it, “bottled water is our new worst habit.”
Understanding Our Future And Expectations Of Growth
In the course of his speech, Howard provided an excellent overview of the state of the water/wastewater industry that also served to encapsulate the forum on the whole. Equipped with more than 40 years in the consulting business, he was certainly well qualified to do so. He acknowledged that the challenges we face are serious and unprecedented, yet he remained optimistic about our future based on one virtue… innovation.
Highlighting the themes of the week, Howard expressed the need for innovative financing such as PPPs and the bottled water tax, innovative technology to overcome regulatory and energy challenges, and innovative thinking to surmount institutional inertia and discover new solutions.
Like many of the qualified and knowledgeable speakers throughout the forum, Howard displayed a keen understanding of our future needs. Expectations, however, were given much more caution. Born out of our recent economic hardships, his final bit of advice should serve us all moving forward:
“Be flexible and prepare for the unexpected.”