EXCLUSIVE: Underground Construction’s 12th Annual Municipal Survey: Year of Hope and Caution

Recession Causes Budget Concerns While Stimulus Stirs Excitement, Potential Windfalls
February 2009 Vol. 64 No.2

Sewer and water systems have an independent revenue stream through user fees. However, that revenue is often inadequate to fund annual operations, let alone much needed improvements or maintenance to aging systems. Many elected city officials can’t resist the temptation of “holding the line” against rate increases – a popular political ploy – even when their underground infrastructure in crumbling. Too many times, its takes intervention by state departments of environmental quality or the federal Environmental Protection Agency to force cities to react. The result is that sewer/water departments are often under-funded and annually struggle to gain additional funding from city coffers just to cover operating costs. The current recession is limiting overall funding for municipalities as tax revenues slow, meaning sewer/water departments may ultimately have to start scaling back spending to their core user-fee funded levels.

A survey respondent from Minnesota observed that they are already experiencing “declining activity in tax levies,” and an official from Wisconsin echoed that “we’re having a funding shortage caused by levy limits.” A New York muni respondent added that they “are reducing budgets” in anticipation of reduced city income.

Tight budgets are definitely raising concerns, according to the survey results. A city employee from Michigan said his major concern for 2009 was simply getting the “budget to do needed repair work.” Added a state of Washington respondent, “our biggest concern is being able to maintain high quality installations/repairs at reasonable costs.”

But for most survey respondents, such comments represent a worse case scenario. The short term spending outlook for sewer and water infrastructure boils down to three unknowns: just how long will the recession last; how much more will be allocated to sewer/water with the stimulus package; and when will stimulus monies actually be distributed into the hands of cities? As 2009 moves forward, municipal managers are proceeding with cautious optimism until these questions are answered.

Spending plans

Survey respondents expect overall funding for their sewer and water departments to fall an estimated 4.1 percent, from $12.2 billion actual in 2008 to projected spending levels of $11.7 billion in 2009. It should come as no surprise that the most of the reduced spending is coming in new construction, primarily due to the fact that housing construction has slowed to a crawl in most regions of the country (with a few notable exceptions such as Texas and Oklahoma).