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U.S. Water Systems Face Credit Stress on Repair Needs, Supply, S&P Says

U.S. public-water systems, about 85 percent-owned by municipalities, face credit risks as costs rise from a failure to invest in infrastructure and as demand outpaces supply, Standard & Poor’s said.

Water systems will need to spend about $335 billion over the next two decades to comply with regulations, more than double a 2002 estimate, according to the U.S. Environmental Protection Agency, S&P said in a report released today. The U.S. has 52,873 community systems, according to the EPA, S&P said.

“Many municipalities have not initiated financing for the upkeep of their facilities because of deteriorating balance sheets and burgeoning deficits,” Aneesh Prabhu and Manish Consul, New York-based S&P analysts, said in the report.

“Given the currently low interest rates, we think deferring such spending is a lost opportunity,” said the analysts, who characterized water systems as “cash cows” for municipalities.

Yields on 20-year general-obligation municipal bonds touched 3.6 percent the week ended Jan. 19, according to a Bond Buyer index, the lowest since 1967.

Water systems facing the most imbalance between supply and demand are in the Colorado River region, California, Nevada and Texas (STOTX1), which had a record drought last year, S&P said.

Scarcity forces utilities to seek more expensive sources, such as desalination and wastewater reuse, the analysts said. That means higher prices so revenue covers costs, they said.

“Evidence is mounting that water stress is increasing,” the analysts wrote. “Water prices in the U.S. will inevitably have to rise.”

To contact the reporters on this story: Brian Chappatta in New York at bchappatta1@bloomberg.net;

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

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