The recession that began in 2008 had multiple ramifications for municipalities, many seeing enormous deficits that resulted in “fire sales” of many public assets including roads and water systems. While the short term solution of selling assets puts money into the public coffers, the sale of water systems to private entities focused on profits raises, for many, the specter of rate increases and less concern for sustainability and environmental issues.
While the discussion of the pros and cons of water privatization are beyond the scope of the VMA, there are issues connected to it that could have repercussions for municipalities and industries, including valve manufacturing, petrochemical, oil and gas and power generation.
Valve Magazine contacted manufacturers in Canada and the U.S. to get their insight into the current state of water infrastructure in North America, a system which in the U.S. was recently given a D- rating by the American Society of Civil Engineers (ASCE).
John Pensec, Director of Communications and Public Affairs for Mueller Water Products offered his insight into the problem. “Our deteriorating wastewater and drinking water infrastructure has an impact on businesses, individuals and entire sectors of the economy. But financing is very tight, and when repairs or expansions must be made, cost is definitely a factor.
“The stuff that needs to be replaced now has been under ground a long time. As a manufacturer, we must help the municipality make an educated decision.” He continued, “You need to look at the lifetime cost of a product. You have to see how it is going to save money, but not just on the front end. When that valve is in the ground, as a municipality, you have to know it’s going to work, to make sure the constituents have reliable access to good quality water.”
Steven Dolejsi, Applications engineer Valves and Actuators, IPEX America, is based in Canada, where infrastructure is also crumbling. He offered his perspective. “The challenges for valve manufacturers reflect back to budgets or available funds for projects, especially those funded by the government, and especially municipal governments. Many projects were put on hold since 2008. Then when they came back, it was with a smaller budget. That has led to value engineered projects, which is not necessarily negative. It can be a good thing, especially when applied correctly.
“But,” he said, “often these days it has gone beyond value engineering to bottom dollar, minimizing upfront costs, and that can mean inferior products become accepted. End users need to know that paying a premium upfront may be a savings on installation or maintenance costs or replacement.”
Valve Magazine wondered about the stimulus funds that were set aside for water infrastructure improvements. Surely they would help alleviate the problem, but Pensec put the amount of the funds into perspective. “The entire amount of money that was put into the stimulus bill for water infrastructure was $6 billion. Four billion was for clean water, two billion was for drinking water. Compare that to the amount it cost Atlanta, which was under two federal consent decrees to repair its sewer system. It cost $4 billion just for Atlanta to do that.”
The findings of the ASCE report were a real eye-opener. According to it, by 2020, the U.S. will have fallen $84 billion short of the investments needed for critical water systems. Even with the increased use of sustainable practices and cost-effective development of other efficiency methods, the growing gap between capital needs to maintain drinking water and wastewater treatment infrastructure and investments to meet those needs will likely result in unreliable water service and inadequate wastewater treatment. So the question arises, how can municipalities fund what are essential services?
According to Pensec, there is some encouraging movement toward private funding. He said that the entire industry, contractors, manufacturers and engineers, 84 different companies, have come together in a water infrastructure coalition to start talking about how to lift the cap on private activity bonds because studies have shown that as you lift the cap on private activity bonds, the amount of money that is freed up increases, and the amount of money needed from government decreases. He said, “This became part of the Senate Highway Bill, and we’re very appreciative of the senators who supported it. Now it’s on the House side, and we’re hopeful that it will be supported by the House which is going through its transportation bill right now.
“One of the things that Mueller and others point to and we show to different agencies: when you invest $1 in water infrastructure, that equates to $8 in GNP. If we spend this on infrastructure, that’s a good investment. And some cities are looking at how to address this issue because they realize that they have to invest in water infrastructure. It is essential to the physical well-being of any city.”
In addition to private financing, there has also been a move in some municipalities to outsource the management of the water systems. We wondered what effect that would have on the decisions made for the purchase of valves and related products, and the quality of water. Pensec answered. “There are a number of companies in North America that will go in and build and manage water systems for a municipality. United Water, American Water is another. As far as quality issues, you go back to the same discussion. You must look at the life of the product and demonstrate that yes, cost is a factor but all costs are included – maintenance, service, longevity. Whether it’s a public entity or a private company managing the water system, the bottom line is still the lifetime costs.”
Dolejsi added, “If you outsource based on cost, you might actually end up with higher costs because if there is a problem in the future, you might not be able to get the same products. The company may not be around any longer. Support is a big issue, so it is very important to go with a quality manufacturer who has been around, through the tough times.
“Beyond that, especially with valves because they are mechanical in nature and will fail before a static component, when you get into lower quality products, you lose things like tight tolerances, machined components. For example, with a ball valve. Quality manufacturers will machine the ball and the stem so that it’s smooth and with a tight tolerance to make them last as long as possible. A lot of times people will get the simpler or lower quality products, but they might not last as long, they will wear and will have to be replaced. So then you’re getting into labor costs plus the cost of the unit and you also have to consider protecting personnel. In water systems there are a lot of corrosive chemicals. You can have personnel injuries.”
With the economic recovery taking longer than anticipated, and funds still in short supply, we wondered what could be expected in the near term.
Pensec offered his commentary. “All around the country people are seeing the very real results of infrastructure breakdown. Broken water mains really highlight the issue, and awareness has been raised and the general public is concerned with it. In California, Pennsylvania, Texas and many other places, referendums are being put forward to figure out how to finance these systems. We’re hopeful that, with the movement toward lifting the cap on private activity bonds, financing will be available sooner rather than later. That is good for all industries.”