Risk and Economic Development in the Provision of Public Infrastructure

Abstract

A public water and sewer utility is created to develop safe, reliable and financially self-supporting potable water and sanitary sewage systems which will meet the water and sewerage needs of the areas served by the utility; to ensure that existing and future utility facilities are constructed, operated and managed at the least possible cost to the users without outside subsidies; and to develop a system that is compatible with the area’s future growth. To gain efficiencies in operation, these new facilities must be developed in accordance with the latest technical and professional standards to protect the health, safety, and welfare of the citizens served now or in the future. Hence a utility must construct new pipelines, pump stations and other infrastructure, whether that infrastructure is for growth, to improve existing service, or to replace infrastructure that has reached the end of its useful, economic, and/or physical life. In established or stable communities, the replacement of existing infrastructure, where it is no longer economical to operate, is deteriorated to a point where replacement is more cost effective than repairs due to wear, neglect or environmental conditions, or where the infrastructure no longer serves its intended purpose or meets regulatory standards, must be pursued. As a result, many established utilities have capital plans that contain many such replacement projects. The question is how much investment should be made. The intent of this paper is to evaluate investment in infrastructure made by public water and sewer utility systems. What was found among the utilities in Florida that were evaluated was that more than half are underinvesting in their infrastructure. Some are not investing at all although more research is needed because it appears that many utilities make large investments periodically as opposed to using pay-as-you-go methods. Large scale investments like bond issues impact rates. Economies-of-scale remain for large utilities. Smaller utilities compete with larger ones to control rates. The data gathered indicates that utilities are underfunded, and under-invested. To reduce potential health risks, this needs to change. At the same time, trends appear to be a key to assess the potential for at risk utilities. Hence a future project would review data for the past 15 - 20 years for trends, identify patterns of altered investments and denote how the 2008 financial crisis changed the utility finances. A road to recapture lost revenues and make the infrastructure more resilient can then be accomplished.