The aging water infrastructure has been saved
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Water pipes in most US cities are more than 50 years old, and some even double that age—leading to major health concerns and enormous costs from main breaks. Tanya Ott spoke with Patricia Buckley about the water infrastructure’s “hidden crisis,” and from where the money to prevent it will come.
The longer you wait, the harder it is going to be to fix, because the optimal way to do it is to continue doing a little over time. When you reach a crisis stage, you need to do a lot all at once. That’s the most disruptive way to do it. But it’s what I fear will be the result here.
TANYA OTT: You may have a threat looming under your home or your business. It could cost you a lot of money—and possibly your health.
I’m Tanya Ott, and this is the Press Room, Deloitte University Press’s podcast on the issues and ideas that matter to your business today.
Water: We take it for granted. As long as it’s coming out of our pipes and our bills aren’t too high, most of us just don’t think about it much.
Of course, recently news headlines have been full of stories about water quality and water shortages. It’s a topic Patricia Buckley has been thinking about for quite a while. She’s director for economic policy and analysis at Deloitte LLP.
PATRICIA BUCKLEY: A lot has been written on ports and roads and bridges. But less has been brought to the attention of the American people of the other issues, and drinking water came directly to mind. But it’s another one of those issues where we’re very good at investing in new things, but we’re less good at going back and doing the less exciting stuff, which is the repair that’s needed.
Going back it’s not hard to find many communities where we’ve had this issue. In 2001, for instance, in Washington, DC, there was a major lead contamination. It was one of these things where years go by before they get the problem sorted out. In the DC case, they changed the chemical they were using for water purification and didn’t realize it was going to cause the lead problem.
TANYA OTT: I’d like to get a picture of the scope of this problem. How old is most of the underground pipe that you’re talking about?
PATRICIA BUCKLEY: Overall in the country, the majority is over 50 years old, but there are huge differences depending on location. So older cities—think the East Coast, the Upper Midwest in Chicago. In Philadelphia and Baltimore, half the water mains were installed over 90 years ago. In Philadelphia specifically, almost 30 percent were installed prior to 1900.
TANYA OTT: Wow, that’s really old.
PATRICIA BUCKLEY: Yeah! The fact that they’re having problems is a big issue. But in other areas, in San Antonio, for instance, where more of the population growth has been recent, over half their pipes were installed after 1985. And other cities like Phoenix, who made major investments not only in new pipes but in repairing their old pipes, they’ve had significant improvement in the number of water main breaks they’ve had.
TANYA OTT: How much pipe are we talking about? I mean, we’re talking about a whole lot of pipe.
PATRICIA BUCKLEY: Over a million miles of pipe for water. When you add to that the sewage pipe, that’s another 700,000–800,000 miles of public sewer mains.
TANYA OTT: We talked a little bit about the health concerns, but you mentioned water main breaks. Those are a major economic consideration with this aging infrastructure.
PATRICIA BUCKLEY: Oh, absolutely. They estimate that there are over 240,000 water main breaks each year, and the cost of that is $2.6 billion dollars.
TANYA OTT: That’s billion with a b. That’s a lot of money.
Is that the total cost, or is there [more] to that cost? Is there a trickle-down effect in industry when we have water main breaks and things like that?
PATRICIA BUCKLEY: No, that’s just the straight-on cost of the water main breaks. The American Society of Civil Engineers estimates that there’s a cumulative cost to households above the break, and they estimate, actually over the next seven years or so, that’s going to be an additional $59 billion.
TANYA OTT: That’s for families? For households? What’s the cost there? Is it simply because they don’t have access to water, so they’re having to go out and compensate?
PATRICIA BUCKLEY: Right. They’re having to go out and buy water. Plants dying . . . all sorts of things going on. But the major cost would be in coming up with alternative forms of drinking water and water to use on everything. If you don’t have water coming into your house, you can’t wash your clothes, wash your dishes, brush your teeth, take a shower, flush your toilet. There’s a lot of water use going on in households.
TANYA OTT: Of course, households are one thing, but commercial applications and industrials applications are quite another thing, if they don’t have water.
PATRICIA BUCKLEY: Absolutely. Everything from hospitals to schools, factories to farms, need water. And the cost to businesses and nonprofits is estimated to be three times the cost to households. There you’re talking about an additional $147 billion. So the direct cost of $2.6 billion is dwarfed by loss to the economy through the loss to businesses and households.
TANYA OTT: So clearly, this is a major problem, and I want to talk about the way forward, but, first of all, I’d like to go back in history and talk about how we got to this situation. When did what we consider to be the modern water system first come about?
PATRICIA BUCKLEY: I define the modern water system as when we actually started doing better water purification and started installing separate sewer systems, and that happened in the late 19th century.
TANYA OTT: And what was driving that development of that water system?
PATRICIA BUCKLEY: Waterborne diseases were so prevalent. We had huge cholera outbreaks, and then there were some major fires, which got cities like New York and Chicago, in particular, to install public aqueducts so they could get water to the cities fast enough to keep fires under control. Around the same point in time, this was the mid-1800s, you also had water systems popping up in Washington, DC, and Boston, in addition to Chicago and New York.
TANYA OTT: Around the same time, there were technological advances. You mentioned, for instance, water purification systems started being used. Tell me a little bit about that.
PATRICIA BUCKLEY: They had some new types of purification, including slow sand filtration, and then they started using some chemical coagulation, so that was a major improvement. But the primary improvement was the institution of a separate sewer system. Prior to that time, all waste water—sewage, drains, storm runoff—all went to the same pipe and was directly emptied into the waterways.
TANYA OTT: Which, of course, raised environmental concerns, I would imagine.
PATRICIA BUCKLEY: Environmental and additional health concerns, because you’ve got raw sewage in water that’s now being recirculated—and being purified, but the level of contaminants in the water was huge.
TANYA OTT: What happened next?
PATRICIA BUCKLEY: In 1914, the US Public Health Service finally adopted and started enforcing some drinking water standards. Then we had the institution of chlorine to treat water, which caused a huge drop in waterborne diseases. But it wasn’t until 1948 that the federal government actually got involved for the first time, because this was traditionally an area regulated by states and localities.
TANYA OTT: So the federal government didn’t get involved until the late ’40s, and then it wasn’t until the early ’70s that we have the Clean Water Act passing.
PATRICIA BUCKLEY: Right. In 1970, US EPA was established: the Environmental Protection Agency. That was a huge milestone. Part of the reason for establishing the EPA was to work on clean water legislation and the Safe Drinking Water Act in 1974.
TANYA OTT: What was the effect of that, and was it immediate or was it gradual over time?
PATRICIA BUCKLEY: Well, they allowed some time for implementation, but think of what the Clean Water Act did. Sewer systems and factories and everyone else that were just dumping things directly into the water had to have a permit that detailed what they were doing, and the EPA could set limits telling them what type of cleanup they needed to do.
TANYA OTT: What I find interesting, though, is that the rules were set at the national level, but monitoring typically takes place at a lower level. Who does the monitoring, and how effective is that, or what concerns might it raise?
PATRICIA BUCKLEY: This is one of the major issues. I mean, monitoring is a very expensive process. For the Clean Water Act, the federal government has allowed all but four states to do their own compliance monitoring. And for drinking water, the EPA and the states depend on analysis done by the water systems themselves.
TANYA OTT: What are the concerns there?
PATRICIA BUCKLEY: If you’re the water company—and a lot of them, I’m sure, are doing a very fine job on this—but the lower level you get, the less certainty you get that the monitoring is being done correctly.
TANYA OTT: I find all of this very interesting. I used to live in Birmingham, Alabama, where the county that I lived in, Jefferson County, faced the—at that time—largest municipal bankruptcy in US history because of problems with the sewer system and sewer system upgrades that were conducted with money through very risky bond swaps and things like that. But it is amazing how people cannot pay attention to water issues until crisis hits, and then chaos ensues in some settings.
PATRICIA BUCKLEY: Oh, absolutely. That’s why it’s called the hidden problem. The pipes are underground. You only think of them when they don’t work. You don’t give a lot of thought to it as long as you turn on the tap, the water comes out, you drink it, and it’s fine.
TANYA OTT: We talked about the billions and billions of dollars lost to this water crisis—this hidden crisis. What are the possible ways that it could be addressed? Because you’re talking about so many miles of pipe that need to be upgraded and infrastructure that needs addressed, and that’s very expensive.
PATRICIA BUCKLEY: Yeah, I mean, there’s no simple solution. It’s going to require investment. It’s going to require money. The American Waterworks Association estimates the cost of restoring the underground pipes will total at least $1 trillion over the next five years. And that’s without including the cost of constructing new infrastructure.
TANYA OTT: So where does that possibly come from?
PATRICIA BUCKLEY: We’re going to have to have some innovation here. Part of what’s happening is a lot of the water utilities are under extreme cost pressures right now. And a lot of these are very, very small. There are approximately 28,000 community water systems that serve populations of 500 people or fewer. So they don’t have the bandwidth to be raising prices sufficiently to cover the cost of repairs. Water usage fees and local taxes support needed capital and operational costs, providing safe drinking water using the infrastructure already in place. However, the primary concern is that the current fee rates don’t cover water utilities renewal and replacement cost for their infrastructure. It’s estimated that little more than one-third of utilities earn enough revenues to cover all of their cost.
TANYA OTT: So what you’re saying is that even though I think my water bill is pretty significant—it has gone up dramatically in the last five to eight years—what I pay and what other people pay for water generally is not covering the costs—the existing costs—let alone retrofitting and upgrading aging infrastructure.
PATRICIA BUCKLEY: Right. It’s only covering the current cost, not any of the investment cost. So what happens if you’ve got: They’re going to raise the prices. People react by being more conservative, which decreases revenue to the utility—which causes them to raise prices further—which causes consumers to consume less of it. One of the solutions is going to lie in moving away from usage, which is how the majority of your billing comes to you, based on how much water you’re actually consuming, to more a fixed fee—because the fixed fees need to be [sufficient] to provide for the infrastructure.
TANYA OTT: And would those fixed fees be sensitive to household income, or would they just be across the board? How would we implement something like that?
PATRICIA BUCKLEY: That’s up the localities. There are obviously many different ways of doing this, but the bottom line is more water is needed. There’s some pretty good innovation in some of the pricing structures going on. We’ve seen the emergence of Green Bonds, which are 100-year bonds, being used by DC Water. We’ve also started seeing an increase in public-private partnership.
TANYA OTT: What happens if communities, if society, waits to fix this problem?
PATRICIA BUCKLEY: Like most infrastructure projects, the longer you wait, the harder it is going to be to fix, because the optimal way to do it is to continue doing a little over time. When you reach a crisis stage, you need to do a lot all at once. That’s the most disruptive way to do it. But it’s what I fear will be the result here
TANYA OTT: Patricia Buckley is director for economic policy and analysis at Deloitte LLP. Before that, she was senior economic policy advisor to four secretaries of commerce. She just published an article called The aging infrastructure: Out of sight, out of mind? In it, she details some of the potential ways to address the problem. Check it out at dupress.com.
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