The infrastructure needed to provide wastewater disposal and safe drinking water (treatment plants, pipelines, pump stations and intakes) may not be glamorous, but it is critical to public health, environmental protection and economic development. Since 2008-2009, state grants to help local governments pay for environmental infrastructure have fallen off a cliff. In Governor McCrory’s proposed budget, infrastructure grant funding hits bottom.
In 2008, the N.C. Rural Economic Development Center and the Clean Water Management Trust Fund (CWMTF) issued a total of approximately $160 million in grants to rural and economically distressed communities for water and sewer infrastructure. In the 2011-2012 fiscal year (July 1-2011-June 30 2012), state budget cuts had reduced the amount granted by the two programs to just over $20 million. (Note: Most CWMTF grant awards go to stream/wetland restoration, stormwater management and riparian buffer protection. The state law creating the CWMTF only allows grants for wastewater infrastructure needed to address a specific water quality problem.)
It isn’t clear that the two programs will have any water and wastewater infrastructure grants to give in FY 2013-2014. Governor Pat McCrory’s proposed budget makes significant cuts to both agencies — reducing total appropriations for the CWMTF to $6.75 million in the first year of the biennium ($0 in the second year) and cutting the total Rural Center Budget from $16.6 million to $6 million. Given the other demands on those agencies, the budgeted amounts do not allow for much — if any — future infrastructure funding.
The state has not issued bonds for water and sewer infrastructure since an $800 million bond issue in 1999; all of those funds had been committed by 2004. Once the bond funds had been exhausted, direct appropriations to CWMTF and the Rural Center became the only source of state grant funding for water and wastewater system improvements. The other major sources of infrastructure funding have been the Drinking Water and Clean Water revolving loan funds managed by the Department of Environment and Natural Resources (DENR). A much smaller amount of federal funding for infrastructure comes through community development programs in the Department of Commerce.
Grants provided through the Rural Center and CWMTF have filled needs that cannot be met by the DENR revolving loan funds alone. Congress created the state revolving funds (SRFs) to help local governments meet the cost of complying with Clean Water Act and Safe Drinking Water Act requirements — not to meet all local infrastructure needs. Both the Drinking Water SRF and the Clean Water SRF (which funds wastewater projects) are largely capitalized by federal grants to the state. ( Each federal grant requires a 20% state match.) There are at least two major gaps in SRF funding:
1. Under federal rules, the SRFs must be used to meet drinking water and water quality standards; generally, SRF loans cannot be used for projects (such as water and sewer line extensions) to serve new development projects.
2. All of the SRF awards are made in the form of loans and some low income communities have a very limited ability to take on more debt. In the last few years (starting with federal stimulus funding for water and sewer projects in 2009), many SRF loans have included some amount of principal forgiveness — but the local government still has to qualify for the loan.
Grant funds provided through the CWMTF and the Rural Center fill those gaps. Rural and economically distressed communities can reduce their debt burden by using a grant as part of a larger project funding package that also includes loan funds. There has been debate in recent years about how much state infrastructure funding should be made available as grants versus loans, but the mix needs to include some amount of grant funding for economically distressed communities and emergency projects.
The CWMTF and Rural Center grant programs also make funds available for infrastructure projects that are not eligible for SRF loans. The Rural Center’s Economic Infrastructure Program funds infrastructure needed to serve new economic development projects — such as extension of water and sewer lines to an industrial park. Many of those projects would not qualify for an SRF loan. The Rural Center has also provided grants for extension of water lines to homes with contaminated drinking water wells. Making those projects happen can be very difficult since a water line extension to serve a small number of homes far from an existing line can be prohibitively expensive to the local government. In several cases, grant funds from the Rural Center helped make those projects possible.
The state’s population continues to grow. Existing water and sewer infrastructure continues to age. Water and sewer service continues to be a necessary condition for much economic development. A 2004 report issued as part of the Rural Center’s Water 2030 Initiative estimated that North Carolina communities would need $15 billion to cover water and wastewater infrastructure needs between 2005 and 2030. The most recent needs survey of North Carolina water and wastewater systems (used by Congress to predict demand on the state revolving loan funds) reached a similar estimate — $16 billion over the next 20 years. Although 70% of the water and sewer projects in the state are funded by private borrowing, a significant number of communities rely on a combination of low interest loans and state grants to upgrade aging infrastructure and plan for growth.
The Governor’s budget provides state match money needed for the next round of federal SRF awards, but eliminating funding for state water and sewer infrastructure grants should not be an unintended casualty of the budget process.