Policy Options for Financing Drinking Water Infrastructure in the United States

Abstract

Aging drinking water infrastructure in the United States is due to be replaced, with cost estimates ranging from $335 billion to more than $1 trillion over the next twenty years. Most of the financial capital will likely come from drinking water utility revenues, but there may be a role for the federal government to support infrastructure projects. Currently, the Drinking Water State Revolving Fund serves this purpose through state grants. This paper examines the current program using a regression analysis to determine which factors dictate a successful reduction in the needs of states for drinking water infrastructure. Results indicate that government funding is useful, but needs are influenced by many other demographic variables as well. A policy analysis, incorporating both quantitative and qualitative measures, compares the status quo option with two other federal policy alternatives: expanding the current program and adopting a proposed Water Infrastructure Finance and Innovation Act that would provide Treasury-backed loans directly to water utilities. Based on the policy analysis, the WIFIA proposal is the most favorable approach for the federal government. However, utility revenue will still play a large role, so water bills will assuredly increase over the coming years. The recommendation from this paper is a mix of adopting WIFIA along with other measures to soften the blow of higher water bills across the U.S., as well as further research that could examine specific case studies at the utility level.