Feb. 13 (Bloomberg) -- President Barack Obama’s call for more public-private partnerships to fix infrastructure that’s breaking down is a signal for companies to invest in upgrades to U.S. water and sewage systems, executives said today.
Obama in his State of the Union speech last night spoke of “an aging infrastructure badly in need of repair” and said companies will create jobs should the U.S. improve ports, pipelines, roads and schools. He proposed a “Fix-It-First” program for the most urgent repairs and a “Partnership to Rebuild America” to attract capital to improve infrastructure.
Water wasn’t mentioned explicitly in the speech though Obama “did say infrastructure and he very clearly said public-private partnerships,” said Michael Deane, executive director of the National Association of Water Companies, a Washington-based lobbying group. About 85 percent of U.S. residents get water from companies owned or managed by government and public entities, with most lacking the cash to repair and replace water and sewage systems, he said.
The U.S. needs to invest at least $1 trillion in water infrastructure by 2035, according to a study, and that’s money most utilities don’t have, said Su Gao, a water analyst with Bloomberg New Energy Finance in New York.
“Many of the U.S. water systems are already at the end of their planned lifetime,” she said. “You have a lot of older pipes and deferred investment -- it’s underground, out of sight, out of mind. Public-private partnerships are very important because the municipalities don’t have the means to fix their infrastructure.”
Buried mains and pipes, some over a century old and made of wood and ceramic, are the most pressing concern, said Cindy Wallis-Lage, president of the water division of Black & Veatch Corp., an engineering firm based in Overland Park, Kansas.
“Think of the ramifications of a pipeline break and what that means to a community. It impacts businesses, residents, traffic -- impacts far beyond the cost of that immediate repair,” Wallis-Lage said.
Xylem Inc. saw the speech as “very positive” to bring infrastructure as a topic to the fore for economic health and job creation, said Colin Sabol, chief strategy officer for the water company spun off from ITT Corp. Xylem cited estimates from the Water Environment Federation that 28,500 jobs are created for every $1 billion invested in water infrastructure.
“The president raised infrastructure investing as an important topic,” Sabol said in a phone interview. Xylem, whose pumps helped clear floodwaters during Hurricane Sandy, doesn’t expect direct business though water infrastructure investments may yield related benefits for it, he said.
“From our perspective, water has always been on the outside of the conversation around infrastructure than more visible forms like bridges and roads and now ports,” he said.
Congress’s first priority should be to pass a law raising the cap on Private Activity Bonds, a way for state and local governments to use tax-exempt financing for public works projects, the NAWC’s Deane said. Representative Bill Pascrell, a New Jersey Democrat and member of the House Ways and Means Committee, said he plans to re-introduce such a bill in Congress this session.
“We were very encouraged” by Obama’s speech, said Mark Strauss, senior vice president of corporate strategy and business development at Voorhees, New Jersey-based American Water Works Co., the largest publicly traded U.S. water utility.
“There’s a lot of private capital that would be willing to go to work in this sector,” Strauss said. U.S. tax authorities need to remove some rules that make public-private partnerships more difficult, and the federal government should explain to consumers and voters that private investment in utilities is “a legitimate model to be followed.”
“We have got to figure something out here because the nation’s public balance sheet is challenged with all the other demands on it,” he said. “Investment in water infrastructure is something that private capital is interested in.”
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