From The Editor | November 28, 2016

Trump On Water Infrastructure: Fantasy Or Reality?

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By Kevin Westerling
@KevinOnWater

DonaldTrump

President-elect Donald Trump is a man big on promises, a fact that has propelled him to the unofficial title of "most powerful person in the free world." Come January, it will be time to start delivering on those promises. For all the rancor of the election campaign and today's polarized political landscape, there is good news as it pertains to the water industry: The rebuilding of our nation's crumbling infrastructure has bipartisan support in Congress and is considered an issue that Republicans and Democrats can and should coalesce on — as much to prove that the parties can indeed work together as for the sake of the cause itself.

Timing and ulterior motives aside, the state of U.S. infrastructure is a genuine concern for politicians on both side of the aisle, largely due to the lead crisis in Flint, MI, and its fallout. The need to update our water systems and to ensure clean water for citizens became glaringly apparent, but how improvements will be funded remains (of course) a matter of debate.

This brings us back to Trump and his promises — a fair word to use in that his ideas on how to restore infrastructure were included in his Contract with the American Voter and various stump speeches which carried him to office. With his election on Nov. 8, the contract and its inherent promises can now be fulfilled ...or can they?

It only took until Nov. 11 for Bluefield Research to publish a report analyzing the feasibility of Trump's plan. In short, the firm was unconvinced. For those wondering about the source (perhaps necessary for politically-tinged discussion), Bluefield is an independent insight firm focused exclusively on water markets, as well as a frequent, trusted contributor to Water Online. Summarized below is their take on four pledges of Trump’s overall agenda — two tied directly to infrastructure, followed by two with tangential impact. These are areas where Bluefield believes Trump’s proposals are misaligned with the objective, as evident in the report’s title, “Trump Contract Clashes with Water Infrastructure Reality.”

American Energy and Infrastructure Act

Trump’s proposed American Energy and Infrastructure Act, included in the Contract with the American Voter, “leverages public-private partnerships, and private investments through tax incentives, to spur $1 trillion in infrastructure investment over 10 years.” He also adds that “It is revenue neutral.”

According to Bluefield, tax incentives “will be welcomed by established investor-owned utilities … as they look to consolidate more utility assets” and federal support for public-private partnerships (P3s) could do well to increase P3 value beyond simple O&M contracts.  However, the firm notes, “Trump appears to be overly optimistic about his prospects for change. The biggest challenge … will be overcoming local concerns about third-party control over the local water utilities.” Bluefield also cites sector fragmentation — about 65,000 unique water and wastewater systems — in contending that there is “limited federal influence on municipal decisions.” While a Trump administration can provide the means to increase private investment, the impact is capped by barriers he likely cannot remove.

“Cancel billions in payments to UN climate change programs and use the money to fix America’s water and environmental infrastructure” [from the Contract with the American Voter]

In 2014, The White House announced a $3-billion commitment to the United Nations’ Green Climate Fund, of which 20 percent has already been contributed. The president-elect, who has called global warming a “hoax,” wants to cancel the remaining funds earmarked for the UN and redirect them toward U.S. infrastructure projects.

Irrespective of where the money is pulled from or Trump’s views on climate change, the problem as Bluefield sees it from an infrastructure funding standpoint is that the dollar amount is paltry compared to needs. “Looking forward, any additional funding to water infrastructure is a benefit, but the investments needed to keep pace [with demand] will require more than US$2.5 billion of redirected funds,” the report states in reference to the remaining funds originally earmarked for the UN. In fact, the American Society of Civil Engineers estimates the additional funding necessary to close the water and wastewater infrastructure funding gap by 2020 to be $84.4 billion.

Whether or not Trump ultimately decides to roll back the UN deal or other climate pacts, including the more recent Paris climate agreement (his stance is softening, according to The Hill), savings earned from nonparticipation will be, at best, a small piece of the infrastructure funding puzzle.

Cut The U.S. EPA

During a FOX News Sunday interview in 2015, anchor Chris Wallace asked presidential-hopeful Trump if he would “cut departments,” to which Trump responded: “Environmental Protection. What they do is a disgrace. Every week they come out with new regulations.”

Bluefield Research argues that Trump’s political rhetoric favoring a diminished EPA role would be incongruous with infrastructure renewal.

“President-elect Trump’s proclamations to go so far as abolishing, or restructuring, the Environmental Protection Agency (EPA) runs counter to improving the region’s water infrastructure. Further, it ignores the infrastructure funding and job benefits available to municipalities,” the report states.

The following stats are presented:

  • Since 2010, the EPA’s Clean Water State Revolving Fund (CWSRF) program has supported 26,518 water infrastructure projects through more than 14,000 loans.
  • EPA consent orders now compel $50 billion of municipal investment over the next 20 years, resulting in construction, jobs, and improved water quality for the communities targeted.
  • In total, “billions of dollars are currently funneled through state revolving funds, municipal and industrial consent orders, and the newly signed Water Infrastructure Finance and Innovation Act.”
  • Approximately 2,000 water systems in the U.S. have tested positive for excessive lead levels in drinking water, including 350 systems that supply schools and daycare facilities.

Bluefield states that changes to regulations that threaten these benefits would be “unpalatable” politically, and that “pronouncements to undermine the EPA’s authority in water and wastewater are likely to fall on deaf ears once the financial and environmental benefits are paired with the agencies perceived shortcomings.”

‘America First’

Implying that entry into the American water market by entities such as “Japanese trading houses and more ambitious European companies” would be a boon to infrastructure, Bluefield notes that Trump’s ‘America First’ prioritization of U.S. business may delay such entry “until the dust settles.” Keeping such players at bay may result in more ‘business as usual’ in water/wastewater, as the market is already highly U.S.-centric in terms of engineering firms, investor-owned utilities, and foreign firms (e.g., Veolia, Suez, and Severn Trent) which have long established themselves stateside.

In addition to reducing foreign investment in U.S. infrastructure, Trump’s positions on international trade and focus on domestic manufacturing may stunt innovation and the implementation of leading-edge solutions.

The above-stated conclusions by Bluefield Research are not fated, however, since we don’t know what the future will actually hold when it comes to President Trump, regardless of on-the-record proclamations. If he has proven anything thus far, it is that he is full of surprises.

Image credit: "Donald Trump raising arm," Marc Nozell © 2015, used under an Attribution 2.0 Generic license: https://creativecommons.org/licenses/by/2.0/