Source water protection plans, SRFs, WIFIA, municipal bond tax exemptions, “waters of the U.S.,” Lead and Copper Rule, perchlorate – all important issues to drinking water utilities – were among the top topics at AMWA’s 2014 Water Policy Conference, held in April in Washington, D.C.
Members of EPA’s leadership team addressed the agency’s priorities. EPA Deputy Administrator Robert Perciasepe, Acting Assistant Administrator for Water Nancy Stonerand Office of Ground Water and Drinking Water Director Peter Grevatt each mentioned source water protection as an issue that will receive particular support as regulators look “upstream” to address pollution before it enters the environment and drinking water sources. Each also discussed the recently released proposal to clarify Clean Water Act jurisdiction over “waters of the U.S.,” promising to work closely with stakeholders to further evaluate issues brought forth during the proposal’s public comment period.
Perciasepe said that in light of the January chemical spill in West Virginia, drinking water utilities should take their source water protection plans “off the shelf” and begin updating them. He noted that federal spending constraints were resulting in a reduced workforce at EPA that will affect the level of grants and technical assistance the agency can provide to states and localities.
Stoner said EPA’s SRF priorities include promoting timely and effective use of capitalization grants and working with states to spend down “unliquidated obligations.” She also described EPA’s work on planning the observance of this year’s 40th anniversary of the Safe Drinking Water Act, upgrades to the Safe Drinking Water Information System (SDWIS Prime) and EPA’s Climate Evaluation and Awareness Tool (CREAT), which she urged utilities to look into and use.
Grevatt said Legionella has been identified as a significant public health threat requiring further EPA action and added that the agency hopes to tap utility expertise to develop guidance and other resources to help address the problem. He also said EPA is partnering with the Food and Drug Administration to update a model for use in developing a proposed MCLG for perchlorate, a process he predicts will take a year and a half to complete. EPA plans to propose revisions to the Lead and Copper Rule after an agency working group completes its deliberations, which should take about a year, Grevatt added.
Several speakers from Capitol Hill raised expectations that a version of the WIFIA (“Water Infrastructure Finance and Innovation Act”) program will win a place in larger water resources legislation Congress is expected to complete in coming months. Rep. Tim Bishop(D-N.Y.) said WIFIA has a “fair shot” at finding a place in the legislation. Rep. John Shimkus(R-Ill.) warned, however, that with growing legacy costs such as Medicaid and federal debt payments, discretionary funds for things like SRFs and WIFIA grow smaller and smaller.
Congressional speakers also pushed back against the Obama Administration’s request to cut $581 million from the Drinking Water and Clean Water SRFs in the next fiscal year. Rep. Bob Gibbs (R-Ohio) explained that while reducing spending is important, “cutting the SRFs is not the way to go.” Rep. Paul Tonko (D-N.Y.) observed that although the economy has not recovered from the downturn, “we are still a wealthy nation,” and he urged conference participants to continue to advocate for funding water infrastructure.
Preserving tax-exempt municipal bond interest was a popular position among lawmakers including Rep. Randy Hultgren (R-Ill.), who said “protecting municipal bonds is a Main Street issue.” Reacting to the various proposals to scale back the exemption for high-income earners – a policy that would likely raise borrowing costs for municipalities – Sen. John Boozman (R-Ark.) said there was not much support for these proposals on Capitol Hill, but recommended utilities continue their efforts to raise awareness among other members of Congress of the value of municipal bonds.
Caitlin Durkovich, Assistant Secretary for Infrastructure Protection at the Department of Homeland Security (DHS), said water is one of four sectors the department considers “lifeline sectors,” and DHS is working in partnerships with owner-operators to promote innovative security approaches and to focus on outcomes. The physical and cyber protection offices at DHS work together on risk management strategies, she said, and more is being done at unclassified levels to improve infrastructure and cyber defenses.
Michael Connor, newly installed Deputy Secretary of the Interior and former Commissioner of the Bureau of Reclamation, said water is still in his portfolio and he will continue to be active on water issues. The drought impacting many areas of the country is not caused by climate change but is exacerbated by it, he said, so the department’s climate resiliency fund targets both water resources and hydrology research. Reclamation’s other water projects include the WaterSmart program, the U.S. Water Census, Western watershed enhancement, the Urban Waters Initiative and basin-specific big-picture solutions, Connor added.
The National Oceanic and Atmospheric Administration (NOAA) is engaged nationally and internationally on a range of products to help water utilities with local and regional adaptation strategies to address changes in weather and climate, according to NOAA Climate Office Director Wayne Higgins. He described how NOAA is working with AMWA and other water associations to find better ways of transmitting climate forecasts, information, tools and practices to the water and urban planning communities for enhanced decision making, including dashboards with tailored information to plan for extreme events.
U.S. Army Corps of Engineers Director of Civil Works Steven Stockton described the challenges of working as one of 24 federal agencies addressing national water resources issues. Noting climate change is a threat multiplier for instability, Stockton said the Corps takes a risk-informed view of infrastructure safety. Transforming civil works involves tightening the rigor of the funding process in a post-earmark era, and infrastructure strategy involves making the best use of federal dollars and considering alternative financing, he said.
Two speakers from the financial sector – Alan Schankel, Managing Director, Municipal Strategy at Janney Montgomery Scott, and Eric Hoffman, Senior Vice President of Moody’s Investors Services – addressed water utility funding in the current capital market.
In his economic overview, Schankel said inflationary expectations, the primary driver of long-term interest rates, “are benign” with the potential for disinflation looming, despite five years of monetary expansion. The lack of real economic innovation is troubling, he said, and will serve to constrain economic growth as well as inflation and interest rates. Janney believes municipal bonds should outperform Treasury bonds in 2014 and muni-to-Treasury ratios will decline.
Hoffman observed that municipal bond ratings overall are relatively high compared to corporate ratings and slightly better than general obligation bonds. While municipal default rates have been extremely low in past decades, he observed that they have been rising and post-default recoveries have been trending lower, which is a concern.
Hoffman noted that credit risk is primarily made up of two components – the likeliness of default and the severity of a default if it were to occur, that is, how many cents on the dollar investors might expect to recover. In developing credit ratings, agencies generally focus on what can be measured, which is primarily financial information, he explained.
With regard to climate change, Hoffmann said Moody’s observes that most metropolitan water agencies are considering climate change in long-term capital planning. He added that currently there is not enough “granularity” in climate projections to tie climate change impacts to local agencies in a way that would affect credit ratings.
Moody’s rating assignments are guided by its “Water and Sewer System Rating Methodology,” which is publicly accessible on Moodys.com. The methodology is currently being updated and will be available for public comment via the Moody’s website in the near future. Also on the website is a “New Issuer Guide to US Municipal Ratings and Ratings Process,” which was published in February 2014.
Kevin McCarty, Assistant Executive Director of the U.S. Conference of Mayors, said the Mayor’s Climate Center grew out of a 2005 Mayor’s Climate Protection Agreement. The center started with 141 mayors and has grown to include 1,060 mayors. While it initially focused on mitigation and controlling greenhouse gas emissions, there has been a shift to adaptation. Since water utilities are the largest energy users in most cities, the mayors believe water systems are among their most important partners and are key to addressing local problems related to climate change, McCarty said.
A panel of association executives from D.C.-based stakeholder groups addressed “Working Together for Water,” highlighting shared water policy interests and opportunities for collaboration. Jim Taft, Executive Director of the Association of State Drinking Water Administrators, noted that states are at the table with EPA to ensure drinking water regulations are implementable. His members are active in source water protection, emergency preparedness and resilience, and are aligned with AMWA in opposition to proposed cuts to the SRFs.
Lynn Thorp, National Campaigns Director for Clean Water Action, focused on the recent “waters of the U.S.” proposal, saying it would close gaps in the Clean Water Act and represents a real victory for clean water. She hopes AMWA members will speak out in its favor. Thorp also looks forward to spotlighting the Safe Drinking Water Act on its 40th anniversary. Alexandra Dunn, Executive Director of the Environmental Council of the States, said the organization has reaffirmed its support for the SRFs and sees areas of collaboration on EPA’s “waters of the U.S.” proposal and source water vs. land use decisions.
In remarks at the opening of the conference, political analyst Charlie Cook predicted that the House of Representatives will remain in Republican hands until after the 2020 Census when Congressional district lines are redrawn, but control of the Senate would likely change hands repeatedly as both parties are expected to have difficulty building a substantial and defendable majority. He expects President Obama’s approval rating to remain in the 38-46 percent range for the remainder of his presidency, suggested a 70 percent chance Hillary Clinton will run for president in 2016 and recommended looking at Republican governors for a possible GOP presidential contender.
PowerPoint presentations from AMWA’s 2014 Water Policy Conference are online at/presentations.