The small town of Sanford, NC, bucked the trend when it issued the first tranche of $71 million in municipal bonds to upgrade and expand its wastewater treatment infrastructure this month.
Water upgrades are badly needed across the country to remove lead pipes, improve wastewater treatment, filter contaminants and guard against increasingly frequent floods and droughts. Bigger cities with strong credit ratings are readily able to issue bonds and access capital markets to pay for such upgrades.
Smaller towns like Sanford, a majority-minority town of 31,000 people, have often struggled. That’s especially true for communities of color that are often penalized by higher perceived risk — and rates.
“Many small, disadvantaged, and often rural communities are not able to use these financing arrangements because they have low credit ratings or are not rated at all,” said Rogelio Rodriguez with Water Finance Exchange, a nonprofit that works with communities to finance their water infrastructure needs.
Smaller cities and towns are getting creative to support their critical water infrastructure, by banding together, piggybacking on the ratings of better-resourced bond issuers, and tapping other credit enhancements.
Next week’s Agents of Impact Call will explore the role of private investors in upgrading water infrastructure for community health and climate resilience (RSVP now).
In North Carolina, Sanford teamed with the neighboring towns of Holly Springs, Fuquay-Varina, and Pittsboro to share the cost of upgrading its water and wastewater treatment system, which will serve all four towns. Sanford and Pittsboro are finalizing a merger of their water utilities; Sanford will become the utility provider for Pittsboro and gain access to its water interconnections.
“It’s a costly endeavor,” Victor Czar, Sanford’s public works director, told a town hall meeting in July. “We understood the value of having partners, because you get to spread capital costs. You get some real economies of scale and it’s a real benefit to all parties.”
The upgrades will more than double the facility’s capacity from 12 million gallons per day to 30 million gallons per day. The city will also integrate new advanced treatment technologies designed to remove unregulated contaminants such as “forever” chemicals from the water supply and improve water quality.
Water Finance Exchange, known as WaterFX, works with communities on regional strategies, typically around a shared watershed, to pool resources and share costs for mutual benefit.
The Washington, DC-based nonprofit is exploring a philanthropic fund to provide bond insurance for small and disadvantaged communities to boost their access to capital markets.
“We think this will allow access to communities that have typically been disenfranchised by the capital markets,” said Rodriguez. WaterFX plans to begin pilot tests with three or four communities this fall.
Climate concerns
It’s not just small towns that need credit enhancement. Facing a government mandate to get rid of its lead pipes, the city of Newark, NJ, replaced 23,000 lead service lines with copper lines in just two years.
The unlikely success story was enabled by a $120 million bond floated in 2019 — not by Newark, but by Essex County, of which Newark is the county seat. The county had a sterling AAA rating, saving Newark an estimated $15 million to $20 million in interest payments. The plan also meant that Newark would not have to charge homeowners a fee to pay for the upgrade.
Across the country, some 9 million lead water lines still carry drinking water to homes and businesses across the US.
The 2022 bipartisan infrastructure law earmarked $50 billion for water infrastructure, the largest such investment ever. That includes $15 billion for lead pipe removal.
That is still not enough to address long-delayed improvements. The Environmental Protection Agency projects some $630 billion is needed over the next two decades to repair and replace clean water and wastewater infrastructure nationwide.
More frequent and intense storms, floods and droughts driven by global warming are exacerbating the need — and the risks.
This month, Clyde, Texas, a city of 4,000 that lies three hours west of Dallas, defaulted on a bond that had been issued to improve the city’s water systems. The culprit: lower water revenues due to rationing amid a prolonged drought.
