According to Bluefield Research, a dearth of public funding coupled with municipalities’ growing needs to repair or replace aging water and wastewater systems militates in favor of substantial private investment.
Although an investment of more than $532 billion will be needed over the next decade to meet the nation’s water infrastructure needs, federal funding for municipal water projects has dwindled steadily over the past four decades forcing municipalities to foot the bill to an increasing extent.(See: Bluefield Research) . For example, the Congressional Budget Office estimates federal spending on water utilities has dropped by 75 percent since 1977, reported Politico.
Only 15 percent of the 49,000 water systems in the United States are privately owned. Most P3s in the sector have involved operation and management agreements. However, recent merger and acquisitions (M&A) activity presages a growing role for private ownership. More than 19 pending or finalized deals worth $384 million were recorded during the first half of 2016, and, the number of water system M&As in Illinois, North Carolina and Virginia are increasing as well.
Pending projects in California, Florida, Indiana and Texas involving desalination, water treatment and wastewater plants also reveal growing public interest in these types of agreements. Meanwhile, the highest level of growth in this area is likely to occur in New Jersey, California and Pennsylvania, predicted Bluefield.
Despite these promising developments, obstacles to increased private investment in the sector, “including public pushback, asset bankability and debt financing remain, however, the broader, national focus on infrastructure upgrades is opening the door to more private participation,” said Keith Hays, Bluefield Research’s vice president. “There is no silver bullet to solving the infrastructure challenge. Stakeholders must deploy a range of solutions including alternative financing, operations management and innovative technologies,” he added.