Debt funding for water conservation programs.

• Author: Harrington, Ed

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Large-scale conservation programs should be considered --and funded--like any other major asset that provides long-term benefits. This article explains how Governmental Accounting Standards Board (GASB) standards allow water agencies to debt fund these programs.

Drought, aging infrastructure, growth, changing standards --these are the issues local water and wastewater agencies deal with all the time. In the past, the response was to sink deeper wells, build dams, or increase the size of pumps and pipes. Those solutions don't always work anymore, however; our groundwater is overdrafted and the best dam sites were developed long ago. Even if such solutions were viable, they are no longer the most efficient way to get the job done.

The cheapest and quickest way to provide water security for cities and towns is to use less "grey" infrastructure and concentrate on conservation, efficiency, and green infrastructure. But those solutions can be hard to implement on a large scale. Sometimes it is because engineers are more comfortable knowing what will happen with pumps and pipes. But often it is because we can't figure out ways to fund large investments in things that don't look like the assets we used to build.

Many water agencies are effectively dealing with water shortages or growth in their service areas by creating "new" water out of already-developed supplies. (1) For example, a number of agencies have "turf buy-back" programs that will pay customers to replace their lawns with low-water-use landscaping. Others are starting major programs to provide efficient washing machine, toilet, and greywater reuse system rebates. Others are providing property owners and developers with incentives to install stormwater capture systems. Each of these actions creates mini-reservoirs that collectively provide substantial public benefits to local water utilities and their ratepayers.

To really make a difference, these programs need to be larger than what can usually be funded through an agency's operating budget without an unwelcome large increase in rates. That is why it is so important to consider how to use debt funding as part of the capital program, allowing the costs to be spread over the life of the benefits.

Some might question whether encouraging citizens not to have lawns or to buy efficient washing machines creates the types of assets that can be recorded and acquired using bond funds. However, GASB rules allow for more than one way to make this happen. This article will explain the issues and offer solutions.

LOOKING AT WATER SYSTEMS

Local municipal water utilities account for approximately 85 percent of urban water infrastructure spending. (2) California's drought and water issues have put enormous pressure on public agencies to find water savings, and studies point to tremendous opportunities for providing increased water security and resilience through unconventional water solutions. These new water supplies are often derived from localized rather than centralized sources, and they are often "distributed" across many properties, unlike conventional water infrastructure that is typically owned by the utility. (3)

"In the aggregate, this distributed infrastructure serves the same purposes as conventional infrastructure: extending the life of water supplies and preventing pollutants from entering waterways." (4) Put differently, other than scale, there is no meaningful difference between a turf replacement program and a reservoir; both serve to increase the community's water supply reliability. (5) (See Exhibit 1.)

Emphasizing Conservation. There are many environmental reasons to prioritize...