Trenchless Technology held its annual editorial roundtable discussion in Washington, D.C., on April 11, concurrent with the NASTT No-Dig Show.
The idea behind this year’s discussion – titled “Navigating an Uncertain Future” – was to explore how the water and wastewater markets at large and the trenchless market specifically will be affected by the change in U.S. administration and Congress. We invited representatives from associations that serve the water and sewer industries across the United States to discuss the outlook of the market.
Frank Firsching, President-Infrastructure Solutions, Aegion/Chair, NASTT
Ted DeBoda, Executive Director, NASSCO
Peter Kurz, Sales Manager, Virginia Public Works Equipment/President NASSCO
Emily Remmel, Director-Regulatory Affairs, NACWA
Bill Hillman, CEO, NUCA
J. Alan Roberson, Executive Director, Association of State Drinking Water Administrators
Jim Rush (Moderator), Editor, Trenchless Technology
President Trump has promised to spend $1 trillion on infrastructure. How much of an impact will that have on the water and sewer markets? Which trenchless segments stand to gain the most?
Roberson – Out of that money, clearly water and sewer will be competing with roads, bridges, airports, ports, the power grid. It is going to get split up in a lot of ways. I think you will see some money going toward water and sewer, somewhere between 0 and 30 percent of the total.
The issue I see is that there is not political backing for direct investment from the federal government. I am hearing more about tax credits and PPPs as part of the infrastructure investment, which makes the overall situation pretty unclear at this point.
Remmel – Right now the new administration does not have an actual infrastructure package in place. President Trump has suggested using an offshore tax amnesty program that could net about $50 billion in addition to a tax credit that could net $1 trillion unfolded over 10 years. From NACWA’s perspective, it has to be a bipartisan situation because we have seen from what is happening in health care, one side can sabotage the other. It is NACWA’s view that tax credit approach for $1 trillion implemented over 10 years would be the best way to get an infrastructure package delivered.
Kurz – I think a bigger concern to us is the cuts that are proposed to EPA – a 30 percent cut. That is a huge concern because our industry is based on the Clean Water Act and compliance. When you start pulling away regulation, the existing funding and policing of Consent Decrees starts going away, and support for the state revolving funds (SRFs) starts going away. That is a huge concern. But, it is too early to tell exactly what President Trump is going to do. People on Capitol Hill are saying the same thing.
Roberson – We’re concerned about the EPA budget cuts, too. The state agencies get a portion of their funding from EPA. The funding level has been held flat for years, but if the funding is cut, it is really going to affect the agencies that are already cash-strapped.
We have the same concern over water and sewer being buried vs. roads and bridges, which are more visible. Maybe one way we could better address the issue would be to develop a broad coalition. There is a large number of groups involved in the water and wastewater business. We all know each other, but we don’t necessarily reach across the table. And each association or group has its own strengths and weaknesses. For instance, our members work for state agencies, so we don’t necessarily have a lot of money. We also can’t lobby. We can inform on Capitol Hill, but we need to be careful. The bigger associations and companies have different skillsets and political muscle that our members don’t.
DeBoda – We would be thrilled if 20 percent of any infrastructure spending package would go toward water and wastewater, but I think 10 percent may be more realistic. Again, water and sewer pipes are out of sight, out of mind – we fight that all of the time. It is not until one of your pipes burst that we end up getting money. The bigger concern, we agree, are the proposed cuts to EPA. The EPA budget for 2017 budget was $8.3 billion, and Trump proposed $5.7 billion. The concern from the wastewater side of the industry is the potential impact of those cuts in the enforcement branch, which oversees the consent orders that require system owners to increase user fees to meet minimum requirements of the Clean Water Act and drive a large part of our business.
The Republican-led government wants to push everything down to the state level, which is not necessarily a bad thing, but the issue then becomes whether the states will be able to maintain steady increases in service fees charged by system owners to meet minimum levels of service. We know historically there is a reluctance to increase fees, especially from officials up for re-election.
The Trump administration is also reviewing regulatory documents, notably the “Waters of the United States” rule. Reviewing regulatory documents could also include Consent Decrees, among others, with the purpose of potentially rescinding them – that would be a huge hit to our industry.
Remmel – It is worth mentioning the preservation of the SRF funding. That’s a piece of the Clean Water Act compliance effort that we deal with on a day-to-day business. That was good news to our membership that that wasn’t touched. On the downside, there is more competition for those funds now.
Hillman – The 2016 election kind of changed the world, at least philosophically, in a lot of our members. In particular, a lot of our small business owners tend to think of themselves as anti-regulatory. But when you start looking at regulations, particularly the consent decrees and other requirements of the Clean Water Act, you start to realize the impact that it has on our business. Regulations are kind of mixed bag, some are horrible but some play a big part in driving our business.
When the election first happened, we thought we got lucky. Our lobbyist, Will Brown, used to work for Vice President Mike Pence, and Chief of Staff Reince Priebus is a former NUCA member, so we thought we had a great foot in the door. But, at this point, nobody really knows what is going on behind the scenes.
Overall, the budget is not that favorable, so that means that we need to start the fight on Capitol Hill again. To do so, I think we need to build a bigger coalition. We have a small coalition called the Clean Water Council, which is comprised mainly of construction and construction materials groups, with a few unions, too. But we need a bigger group. Any time there is a pot of money in D.C., everyone wants to protect what they have. Just to protect what you have is difficult, to try to add to it is even more difficult.
Another issue we are watching is tax reform. The tax advantages of municipal bonds are critical for water and sewer. Last year, there were $38 billion in bonds issued just for water and sewer. Now there is talk about lowering corporate rates and doing away with special exemptions. I think the chances of that happening are small, but we need to keep an eye on it.
Firsching – For infrastructure spending, 20 percent would be great but 12 percent may be more realistic number. Whatever amount ends up being allocated for underground infrastructure, it is incumbent on the trenchless technology market to advocate for trenchless. We have to show why trenchless is a better way to accomplish those projects and get the pipe into the ground. That is NASTT’s mission: to train and educate. Project by project, you have to go out and make the case for why trenchless is a better way vs. traditional open-cut methods.
Assuming there is an injection of funding available for water and sewer infrastructure, what impact will it have? What are some potential issues?
Hillman – The first question that comes up is where are you going to find qualified contractors? It’s hard now … Just imagine if you throw another $1 trillion of construction spending into the mix. We are involved in a workforce development initiative to get people aware early of construction trades. We are targeting younger people – like grammar school age – because the construction industry isn’t a sought-after profession, and it’s a shame, because it is a great professional with a lot of cool technology.
Kurz – That goes beyond just the construction jobs. In the equipment manufacturing business, we are building vehicles that can be driven by non-CDL drivers because CDL drivers can be so hard to find. Finding skilled labor like CDL drivers is a roadblock for a lot of people.
Firsching – And it is interesting that the lack of skilled labor is not part of our national narrative. We are talking about some of the issues that got Trump elected, like putting America first, but people don’t understand how tight the labor market is. For anything to change, we have to commit to investing in training, and people are going to have to move to where the jobs are.
What type of impact on infrastructure spending do you see from a Republican-led House and Senate in conjunction with a Republican Administration in the light of the Republicans nearly unanimous opposition to the ARRA package in 2009? How have things changed that may lead to a more favorable stance toward infrastructure investment?
Roberson – It is hard to predict. We are hearing a lot about tax reform being the next point of emphasis, maybe with infrastructure following behind that – or maybe the two will be linked together. I see infrastructure spending related to tax reform or tax credits vs. increases to the SRFs or in the form of grants. I don’t think Republicans are going to favor authorizing large amounts of money coming out of federal coffers.
Remmel – NACWA asked for increases to the SRFs, thinking it was better to ask than not to ask. If the infrastructure investment is considered together with tax credits and tax reform, it can be unveiled over a period of time, like $100 billion per year over 10 years. With that approach, you don’t have the issue related to a one-time, all-in “shovel ready” package and you’re not carving into the actual budget. What is clear is that we need investment in water and wastewater, as evidenced by ASCE’s recent Report Card that gave Water a “D” and wastewater a “D+.”
Firsching – The big difference between ARRA and infrastructure investment that is being discussed by the new administration is that in 2009, it was economic stimulus package, while today it is more about the need to invest in infrastructure as a matter of sustaining the nation’s competitiveness. Hopefully, the new investment will be sustained over time and not just a lump sum to get political points because, unlike in 2009, we don’t need to stimulate the economy. We need to invest in infrastructure. Whatever amount of money it is, let’s hope it is spaced out over 10 years so it is spent wisely, as opposed to just inject a shot of adrenalin.
What role can associations play in helping raise awareness, as well as including water and sewer in infrastructure investment?
Hillman – One of things we’ve discussed is that we are way too nice as an industry when it comes to how we approach this with the government. They know that there is no accountability if they don’t take us seriously. Take the NRA, for example. When they walk into a government office there is a different aura. We have to find a way to be more forthright and really stick with it. We produce lots of studies and the Report Card and white papers … it is great information but it hasn’t had an impact. It is frustrating.
DeBoda – When you do an assessment project for a municipality, you give them a pile of reports that document the conditions and what steps they need to take and it kind of gets glossed over. But when you show them a video of what their sewer looks like in front of their house, that really has an impact. You have to make it personal for them.
Our message is being diluted. We need to have a common message and our job is to educate the people in office. When I hear about $1 trillion being spent, the concern I have is whether we will be able to sustain what we build. It is not going to be federal dollars that will sustain water and sewer infrastructure, it is going to be user fees. We need to make sure that customers are paying what they need to pay in order to maintain their infrastructure. That is an area we need to focus on. Federal dollars are good and SRF will always be helpful, but we need to focus on making sure user fees are continually increased just as the cost of of paying staff (and everything else for that matter) constantly increases. It also needs to be understood that we are generally sking for increases amounting to the cost of a Big Mac every month and overall a fraction of a family’s cable bill.
Hillman – As associations, we can do a better job coordinating our activities. For example, we have a Washington fly-in where our members come to meet their representatives. If we can get 1,000 people instead of 100 walking around with a uniform message, that would have a much greater impact.
Remmel – This is actually the first year NACWA, along with other partnering organizations, held a Rally for Water on the U.S. Capitol grounds. The public was invited and I think it really paid off. A lot of people showed up – we had DC Water present in their hard hats – and it really got people energized and hopefully Congress listening.
With ARRA, there were hiccups related to “shovel ready” and the “Buy American” provision. What challenges may lie ahead even if more funding becomes available?
Roberson – Shovel ready is still a potential issue. The question is how it is defined. I heard that it could mean that a project is ready to go in 120 days. In order to break ground in 120 days, a project has to be just on the cusp of bidding. To get to that point, you have to have financing in place already – it is not responsible to put a project out for bid without knowing how you are going to be able to pay for it, although you may be able to substitute money at some point. It will be interesting to see how shovel ready is defined.
Firsching – Buy American is an easy slogan, but it is really complicated. There are blurred definitional lines about what is American because we are in a global economy and the supply chain reaches all over the work. Buy American doesn’t always mean what people think.
Hillman – One thing that would be helpful would be if we could find a way to expedite the environmental impact process. The process tends to get dragged out over a long period of time. If it could be streamlined in a responsible way that would help get things shovel ready more quickly.
DeBoda – To me, the ARRA program never made sense because it wasn’t sustainable. If you look at other places, like in Canada, they require asset management plans in order to get government funding. To me that makes sense. Utilities need to show that they have thought about how you are going to spend your money and that are managing your system in a sustainable manner. Sustainability should be a more important consideration that whether a project is shovel ready.
There has been some talk about changing some of the regulations that clear the way for construction and development. How might these changes impact the trenchless construction and rehabilitation market?
Firsching – Not all regulations are created equal. Some are tailwinds, some are headwinds. There is regulation that stipulates what gets done, and that can be good for the industry. And there is regulation that stipulates how things get done, and that is when things can start to get bogged down.
Remmel – From a public utility or municipal standpoint, some people dislike regulations, but some folks appreciate regulations. The problem we’re seeing with regulation reform is that it creates an uneasy situation; no one knows what is going to happen next. From our perspective, everything comes down to a lack of money to do the work. So the question is: What can we do to change regulations to provide the financial means in order to clear the way for construction projects that benefit water and wastewater infrastructure?
Hillman – Regulation reform is great, but if you don’t have the funding, it doesn’t matter.
Even before the election, there was focus on the drinking water sector due to the Flint, Michigan, crisis. What developments have you seen in the aftermath of Flint?
Roberson – On the drinking water side there doesn’t appear to be any sustaining effect from Flint. We are seeing a continuing interest in lead in school drinking water systems, but even that is starting to taper off. Flint was a crisis in the way the cryptosporidium crisis was an issue in Milwaukee in the 1990s. That drove a lot of investment in things like turbidimeters and membranes. So while Flint was a really bad situation, the bright side is that it could drive some investment and innovation. It seems like there should be a way to do this without having a crisis.
Remmel – Perhaps because of Flint, American’s concern over clean drinking water reached a 16-year high according to a Huffington Post article. People are concerned whether their water is safe to drink and have a strong mistrust with government. We need to rebuild this trust.
Roberson – What I struggle with is how to translate that concern into the rates that would then drive more investment into the system. In some of the large metropolitan areas there are utilities that are sustainable and which have an affluent rate-payer base, but that may not be the case for all areas. How do you rebuild those economic engines so that rate-payers are able to find the system in a sustainable way?
Many utilities are taking a much more proactive role in educating rate-payers on the need to invest and in promoting the value of their infrastructure. Do you see this as having an impact?
Firsching – A lot of what we have to do collectively is learn how to market to the public better. As an example, in San Diego, the construction of the Carlsbad desalination plant got bogged down for years trying to get the necessary approvals. Ultimately, it was the realization that 80 percent of the region’s water was imported that that caught people’s attention. What if there was an earthquake and those lines got severed? That inconvenient truth provided the impetus for the project to move forward. On the drinking water side, if people saw the inside of the pipes that their drinking water comes through, they would be shocked.
Hillman – Water and sewer infrastructure really is out of sight, out of mind. The deterioration is there but nobody pays attention unless there is a catastrophic break. There are hundreds of water main breaks every day, but they are just little pinpricks that don’t capture people’s attention.
DeBoda – We need to do a better job at educating rate-payerse. On the sewer side, we have SSOs and sinkholes. We talk about watermain breaks a lot of times because they close businesses, but SSOs generally don’t garner the same attention. Plus, I think that utilities are reluctant to share when they have SSOs.
Hillman – That reluctance comes down to a cultural issue. Highway administrators don’t shy away from showing their problems, like rusted rebar or other issues. They are not ashamed to ask for help.
DeBoda – You often hear a politician brag about how many police officers he/she has put in the city, but you never hear them brag about how many public works employees were added or how many SSOs were eliminated. And that is why some of these utilities have created these public relations campaigns, to help spread the word.
Hillman – And some of them are effective. They explain the need and what they are planning to do. It is persuasive and it is transparent: we are going to raise your rates and here is what we are going to do.
In conclusion, are you optimistic about the market heading forward?
Roberson – I am optimistic that the SRFs will stay constant and that we will see some form of infrastructure spending package. I am a little pessimistic on the cuts to the states and how that will challenge what they need to do with regard to enforcement issues, inspections and even managing the SRFs.
Remmel – I am optimistic. I think it is important to continue our advocacy and education outreach to preserve the SRF and to keep the tax exempt municipal bonds in addition to pushing for WIFIA and other packages. We need to keep reminding our national Congressional representatives about water issues because they have other priorities, too.
Kurz – I think the fact that some Congressional representatives have made water and environmental program an issue that is near and dear to their hearts. I believe that they are going to continue to fight for those issues. I think we need to have a little faith in the system and how it works. That being said, we are not doing a service as a trade association unless we go to our representatives and make ourselves heard.
DeBoda – I am cautiously optimistic. I read the budget cover to cover. It is not going to pass as is, but it is important to look at the intent. There are a lot of proposed cuts that make sense with regard to eliminating redundancy, but we need to explain the problems with cutting out enforcement. We need to explain that historically we cannot count on the states or municipalities to keep rates at a level to sustain infrastructure. The consent orders play a large role in that while also helping drive the economy. We need to get that message through.
Hillman – I am also optimistic, although I don’t foresee a lot of profitability for our members until 2019 or 2020.
Firsching – I am going to join the cautiously optimistic crowd … certainly the federal government can help or hinder the industry, but the water and sewer business is an inherently local utility business and we are starting to see utilities finally facing up to the fact that they have to start raising rates. It is happening. It is not happening as fast as we like, but you do see rates starting to go up. These utilities are starting to figure out how to market and make the argument to their rate-payers as to why this has to happen. I am always a believer that things always end up getting done at the local level because they have to get done. What the feds do or don’t do will help at the margins, but things are going to get done locally.