Financing Your Water System: How Cities are Cracking the Mold

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Cities across the country are struggling to maintain and update infrastructure while keeping water affordable, particularly for their most vulnerable households. Thanks in part to our Water Affordability program—co-hosted by the Water Center at Penn—utilities are leading the way and offering a critical template that other cities/utilities can replicate. 

New to this issue? Check out our report on Paying for Water Systems. This report provides mayors with a primer on getting started.

The Most Daunting Issue Utilities Face

We were honored to work with Lancaster and Buffalo Utility leaders at the Spring 2021 Water Affordability Academy and have been providing ongoing technical assistance since then. Months later these cities have tackled one of the most daunting challenges that utilities face: funding. Read on for their most important learning lessons that can help your city’s/utility’s program. 

Water service providers across the nation are tasked with delivering clean, potable drinking water to their customers. Although undoubtedly a human right, this service comes at a cost. 

For most public utilities, infrastructure and maintenance projects are funded via rate revenues. Although it is wise for utilities to slightly increase rates annually to not overburden customers in the future, rate increases are often controlled by public officials. 

Because they are politically tied, rates are often not increased annually, limiting the utility’s capacity to rely solely on these revenues to tackle aging infrastructure and other expensive challenges. 

So, over the years, utilities have been forced to get creative. In Lancaster, PA, for example, they are taking advantage of the State Revolving Fund (SRF), PENNVEST.

Lancaster’s Dilemma: Aging Infrastructure

A huge percentage of Lancaster’s water infrastructure is over 75 years old! With continuous use over time, infrastructure becomes less functional and reliable. Thus, Lancaster recognized the need to develop and maintain a sustainable economic way forward. In recognition of this, Lancaster applied for SRF funds to pay for both drinking water and wastewater related projects:

  • $11.5 million for a low interest sewer loan for project improvements
  • $8.5 – 9 million low interest drinking water loan(s)

Founded in March 1988, PENNVEST is an independent state entity that provides grants and loans to support infrastructure projects, including drinking water, wastewater, and stormwater projects. Most resources are provided through low interest loans (under 2%) mainly for municipalities or local authorities. Find information about YOUR state’s revolving fund here

Another example of public utilities implementing innovative financing methods is Buffalo, NY.

Buffalo Issues Largest-ever US Environmental Impact Bond

Buffalo has issued  a $54 million bond to accelerate improvements to water quality, job creation, and environmental justice. The money will be used to finance green infrastructure projects and stormwater mitigation projects as part of the City’s existing program – Rain Check 2.0.  This opportunity is so valuable because it will help to manage the City’s combined sewer overflow challenges without having to build a massive new tunnel and dig up the streets. Buffalo plans for this initiative to intentionally manage at least 200 acres of impervious surface. As Buffalo invests in green infrastructure to manage stormwater that would otherwise go directly into the combined sewer system (and cause overflows), the City is holistically investing in prolonged health of their existing infrastructure while providing a series of co-benefits, like improving the environment and providing jobs.  

In addition to taking advantage of SRFs and EIBs, other innovating financing options to consider with an emphasis on equity may include: