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C A P I T A L M A R K E T S R E S E A R C H

I n n o v a t i o n & Reallocation for Economic Growth

STIMULUS PACKAGE

FOR THE NATION’S AILING
WATER SUPPLY INFRASTRUCTURE
TECHNOLOGICAL INNOVATION & CAPITAL REALLOCATION FOR ECONOMIC GROWTH

LYLE BRECHT
JANUARY 9, 2009

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C A P I T A L M A R K E T S R E S E A R C H

Stimulus Package
For the Nation’s Ailing Water Supply Infrastructure
Today’s U.S. national water supply infrastructure is in need of repair
About 12.5% of the freshwater we use each year is for public water supply.1 In 1950, about 60% of
U.S. population obtained its freshwater from public supply; today about 85%. Between 1950-2000
public water consumption tripled. There are 74,400 water systems in the U.S.2 For some water
systems, only about 60%-70% of the treated water reaches the customer.3 Real losses occur from
leaks and line breaks. Also, not all the water that reaches the customer is properly measured or
paid for as revenue losses occur from old, inaccurate meters. Water systems are under increasing
pressure to improve aging treatment technology to deliver safe water to the public. Community and
non-community water systems will need to invest $276.8 billion over the next 20 years to meet de-
ferred maintenance on aging water distribution systems and water treatment plants, and for supply
augmentation.4

TVA Kingston plant coal ash spill - Dec. 22, 2008 Atlanta reservoir - 2007 100-year drought Dec 23, 2008 water main break, Bethesda, MD

1U.S. annual freshwater use in 2000: 39.7% irrigation; 39.4% thermoelectric power; 12.5% public supply;
5.4% industrial; 3.0% self-supplied domestic, livestock, aquaculture, mining. “Estimated Use of Water in the
United States in 2000,” USGS (rev. February 2005).
2For example, there are 484 active community pubic water systems and approximately 500 non-community
public water systems in Tennessee. Approximately 133 of the community systems buy their water from an-
other water system. Of the 351 community water systems with their own water supply, 148 use surface wa-
ter, 158 use underground aquifers and 45 use ground water that is influenced by surface water.
3 AWWA Water Loss Control Committee, “Applying Worldwide BMPs in Water Loss Control,” AWWA Journal
95:8 (August 2003), 65-79.
4 ‘2003 Drinking Water Infrastructure Needs Survey and Assessment,” USEPA, released in 2005, is based
on data collected from utilities in 2003. EPA found that the nation's 53,000 community water systems and
21,400 not-for-profit non-community water systems will need to invest an estimated $276.8 billion between
2003 and 2023.
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Sufficient potable freshwater is a basic requirement for economic growth. Today, the nation’s water
supply is in distress because: (1) climate change alters rainfall patterns and sometimes makes
droughts more frequent, more intense, and longer-lasting; (2) pollution reduces clean water from
aquifers and surface waters; and (3) efforts to privatize and commodify water sometimes reduces
supplies available for the public good. New supplies of freshwater are becoming more scare and
more expensive and some watersheds’ have a reduced ability to supply freshwater due to devel-
opment pressures. Industrial farming practices may result in depletion of the many of the nation’s
aquifers. Many of the nation’s rivers, streams, and lakes remain polluted from industrial wastes,
runoff from urban areas, and the dumping of raw sewage into these freshwater sources.

Many aquifers are being depleted faster than they are being recharged. Pollution from min-
ing, agricultural chemicals, and industrial wastes and saltwater intrusion can remain for
generations in groundwater Some streams are still polluted by agricultural fertilizers, pesti-
cides, and industrial and municipal wastes. Sometimes one drop of a hazardous substance
can pollute thousands of liters of water. Increasing demand and more persistent drought
due to climate change are drying up many lakes. Freshwater demand for all uses increases
each year. Results: four of five fastest growing metro areas in U.S. have experienced water
shortages in past few years: Atlanta-Sandy Springs-Marietta, GA; Phoenix-Mesa-
Scottsdale, AZ; Dallas-Fort Worth-Arlington, TX; and Riverside-San Bernardino-Ontario,
CA.

It has been the driest in almost 500 years in the U.S. southwest. The West’s biggest river,
the Colorado, with an average flow of 13 million acre-feet a year in 1950, from 1999-2003
averaged 7 million acre-feet, lower than the 1930s dust-bowl years. In 2002 the flow was 3
million acre-feet. This flow is consumed and oversubscribed as withdrawal permits were
issued during the time of the Colorado’s maximum historical flow. Humankind’s three fixes
to freshwater scarcity: impoundments, diversions, and desalination are frequently no longer
an affordable sole solution. Conservation, pollution control, and watershed protection
should also be considered to keep costs of water supply infrastructure affordable.

Bringing the nation’s aging water treatment infrastructure up to present environmental stan-
dards of the EU and other industrialized countries is important for the health of the nation’s
communities. Chlorine alone sometimes does not kill all waterborne protozoa, such as
cryptosporidium oocysts that sickened 400,000 people in Milwaukee in April 1993; 4,000
were hospitalized, 100 people died. Another issue is attending to aging water distribution
systems to avoid the possibility of untreated or contaminated water entering the system.

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Many utilities still use distribution pipes that leak badly and are 50-100 years old. Some
public health experts believe between 4 and 16 million cases of acute gastrointestinal ill-
ness (AGI) per year result from drinking inadequately treated water.5

Assessment: Addressing the infrastructure needs of the nation’s water systems may require,
in tandem, legislation that:

• Restores the people’s trust in community water supplies through increased regulatory
oversight of the waters of the nation and the imposition and enforcement of regulations that
require the protection of headwaters and watersheds from degradation due to
development, and industrial and farming activities.

• Restructures clean water policy to add a small surcharge on freshwater withdrawals and
waste stream producers as a means to correct market mispricing of potential threats to the
nation’s water supply;

• Provides economic stimulus that encourages innovation and reallocation of skilled labor
and capital towards strategic water supply infrastructure projects as a means of creating
millions of new, longer-lasting jobs.

Stimulus Package Recommendations

Regulatory Reform
(1) Establish a fusion center within the Office of Information & Regulatory Affairs, the
Regulatory Information Center, whose mission is to: (a) analyze economic conditions for
various water-use markets; and (b) to proactively recommend changes to policy, regulatory
oversight, and enforcement for regulatory agencies overseeing the protection of the nation’s
waters and Congress. The objective of this fusion center is to gather and analyze market
information related to water-use to develop proactive measures important for economic
growth.

(2) Implement Cost Adjustment Surcharges on the withdrawal of freshwater from surface
waters and ground water for residential, electricity production, industrial, commercial, and
irrigation purposes. The objective of Cost Adjustment Surcharges is to encourage
conservation and efficient use. Offer refunds of this surcharge for each kgal (1,000 gallons)

5Journal of Water and Health (July/August 2006) available at http://www.epa.gov/NHEERL/articles/2006/
waterborne_disease.html.

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of water returned to the same source in substantively the same or better quality than what
was withdrawn.6

(3) Implement Waste Stream Escrow Fees for waste stream producers. Offer return of this
escrow fee when waste stream producers eliminate the volume and toxicity of their waste
stream and/or storage.7

Strategic Infrastructure Investments
(1) Invest economic stimulus funds in conservation and supply augmentation projects.
Conservation initiatives can be undertaken before or concurrently with stimulus funding for
water supply augmentation projects:

• Provide $50 billion in Water Conservation Incentives for water systems to implement
demand management programs (plugging distribution leaks, metering water use),
implementing conservation pricing (increasing block rates that charge the full cost of
providing water), and establishing water conservation education programs.8

• Provide Energy Conservation Incentives for electric utilities of one billion dollars per new
1000-MW (megawatt) of energy produced through residential, commercial, institutional,

6 For example, adding a $0.10/kgal (per 1,000 gallons) surcharge for freshwater withdrawn and offering a
refund of this surcharge for each kgal of water returned to the source in substantively the same or better
quality of water than what was withdrawn. Because of the pollution problems created by the extraction of
freshwater from sea water, the surcharge for withdrawals from sea water might be priced at a multiple of
freshwater extractions, say $0.20/kgl. Unfortunately under present processes of desalination, the water re-
turned to the sea would not qualify for a rebate.
7 An example is the December 22, 2008 spill of 5.4 billion cubic yards of coal ash from the TVA Kingston coal
electricity plant into the Emory River and across 300 acres in Roane County, Tennessee. One means of pay-
ing for such spills would be to impose a $0.05/gallon ($10.09/cubic yard) escrow fee on all coal ash storage
and ongoing waste streams, as a fee for remediation, restitution, and waste stream reduction. Lawsuits often
tie up final clean up efforts for years as cleanup costs mount and capital is diverted for lawyer fees (e.g. the
Inez, KY coal ash sludge spill in 2000 or the 1972 spill in Logan County, WV that killed 125 people, injured
1,000 others, and left 4,000 people homeless). The Waste Stream Escrow Fee intent is to provide incentives
for producers of waste streams to reduce or eliminate such waste streams and to provide safe storage.
8One measurement metric might be the reduction in ADD (Average Day Demand) per ERU (Equivalent Resi-
dential Unit). Conservation could result in producing an increase in the nation’s water supply for less than
relying solely on supply augmentation (impoundments, diversions by way of pipelines and desalination) to
produce new supply.
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and industrial conservation measures and electricity generation from renewables (e.g.
wind, solar, geothermal, algal and nonfood biomass).9

(2) Issue Climate Change Preparedness Bonds to fund State water augmentation
infrastructure and other water infrastructure projects with half of the money coming from
the Federal government, half the money from pension funds and other longer-term
investors:10

• Criteria for project funding include: (a) does this project encourage technological
innovation and reallocation of capital and labor for producing economic growth; (b) will
it produce net new, longer-term jobs; (c) is there a sufficient business case to expect
that these funds can be paid back to the U.S. Treasury over a sufficient period?

• To pay for water infrastructure projects, issue 250 billion dollars of non-callable bonds
at a nominal 3.45% interest rate in 10, 20, 30, and 40-year tranches, principle and
interest guaranteed, triple tax-free, with a one percent (1%) guarantied real return over
the term of the bond.

Author Lyle Brecht: I served as an elected Water Commissioner for the Sewanee, TN Utility District for two years (2007-2009).
I produced two films on national water management issues for the USEPA and wrote a regional Water Quality Management Plan
for Martha’s Vineyard, MA. My expertise is sustainable business development and environmental systems dynamics, as applied
to capital decision making. I developed and published AmericaReport in 1994, a business-style annual report of the Federal
budget. Report users: Executive Branch offices of federal government (e.g. Treasury, GAO, etc.); House and Senate Budget
Committees; economic think tanks; multinational corporations; Financial Executives Institute (14,000 chief financial officers,
treasurers, controllers).

9Water systems are the largest single category user of electricity in the world, accounting for between two
and ten percent of electricity use in a country. In the U.S., water systems account for about three percent of
electricity consumed annually (about 75 billion kWh). About 39% of freshwater use in the U.S. is used for
thermal electric energy production. See AWWA Water Loss Control Committee, “Applying Worldwide BMPs
in Water Loss Control,” AWWA Journal 95:8 (August 2003), 75 and U.S. Department of the Interior, U.S.
Geological Survey, http://ga.water.usgs.gov/edu /wupt.html (accessed 5/1/08).
10 The moral hazard of free money from the Feds is large as it sometimes discourages accountability and the
proper vetting of potential infrastructure projects and their potential long-term costs to the community.

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