While COVID-19 has forced many people and businesses to take a timeout from their everyday activities, the critical infrastructure upon which their existence depends did not get a leave of absence. Water and wastewater utilities, for instance, must be operated, repaired, replaced and upgraded, and that costs money. Even before the pandemic, many cities, counties and water districts were struggling to finance needed utility capital improvements.
Now, with many residents and businesses unable to pay their bills on time (or pay them at all), with governmental revenue sources under extreme pressure, including reduced income taxes, sales taxes and property taxes, and with the prospect of substantial federal or state financial help uncertain, it may be time to reconsider the use of public-private partnerships (P3s).
In this series of articles, we explore P3s and the other water/wastewater infrastructure financing options available to communities. This article provides a bird’s eye view. Subsequent pieces will present more detailed analyses.
Usually, the most financially attractive financing is a government-issued grant or low-interest loan. However, because the competition for them is so fierce and government resources are limited—particularly now and for the foreseeable future—they are frequently unavailable or insufficient to cover the entire cost of a project.
Municipal bonds are the primary source of funding for water and wastewater infrastructure undertaken by local governments, but these are complicated transactions and require the public entity to have the legal authority to issue them and the underlying financial strength to induce people to buy them.
Many larger cities may be able to utilize tax increment financing (TIF) or special assessments as a financial vehicle, which can be a viable alternative under the right circumstances, but these come with their own set of limitations and financial and political risks.