Planning for Major Capital Improvements at Your Water and Wastewater Facilities

By:   Brent Hinson, City Administrator, City of Washington, Iowa and Steve Troyer, P.E., BCEE, FOX Engineering

We’ve all heard the warnings about America’s aging infrastructure.  Trillions of dollars will be required to keep pace with needs.  The American Society of Civil Engineers estimates that $1 trillion will be needed for drinking water systems and $271 billion for wastewater over the next 20 – 25 years.  Iowa’s infrastructure water and wastewater needs alone are estimated at nearly $9 billion.  Many communities are faced with having to upgrade their systems.

Why is planning for water and wastewater improvements so important?

City officials often find themselves thrust into having to plan for needs rather than taking the process on gladly.  Every community has many needs other than water and wastewater services, and it seems nearly universal that the public is at least initially skeptical of the need for the investment.  However, given the inevitable costs of someday replacing your very expensive facilities, perhaps the question to ask is: “If we don’t plan and invest over time, what will the public reaction be when the other shoe drops, a massive investment is needed all at one time, and our rate structure does not support it?”  Or even, “What if our drinking water system fails due to lack of investment and we can’t reliably provide water to the community?”  While an unexpected breakdown or regulatory change could still happen at any time, we can somewhat insulate ourselves from these shocks (and the resulting public uproar) by proper facility planning.

Marshalltown Wastewater Treatment Plant

What is the role of the facility plan and what is involved?

One of the first steps in developing a long-term strategy is to have your engineer prepare a facility plan, which looks at the facility needs over the next 20 years. The engineer will meet with you and your staff to get a good understanding of the issues facing the water or wastewater facility.  These could range from treatment performance, capacity, maintenance issues, and physical conditions.  He or she can help you determine future needs in terms of capacity and treatment requirements and evaluate options to determine the most economical and beneficial one.  To best help you, your engineer will need as much information as possible about current facilities.  This will include drawings and specification from past projects, monthly operating reports, water quality test results, IDNR inspection reports or other correspondence, growth projections or comprehensive plans, and information on maintenance and operational issues.   The engineer should work closely with city staff to make sure that all the known issues and needs are identified and addressed.  A facility plan will be necessary for seeking most types of grant funding.

A facility plan by itself is not sufficient- you also need a financial plan that is realistic, well thought out, and supported by your rate structure.  Unless your existing rate structure already includes a generous allowance for capital needs or you will be retiring significant debt in the near future, thus freeing up unprogrammed money, this financial plan will often involve rate increases spread over time.  How modest or how aggressive these rate increases will need to be will depend on your individual situation and facility needs.  You should seek the assistance of a registered municipal financial advisor (especially if you plan to utilize State Revolving Fund financing) to help examine your rate and debt structuring, and work to keep these “cash flow” documents updated over time.  This can help you cope with unexpected changes that may occur over time, and to quickly understand the effects of shuffling projects forward or backwards in the plan as relative priorities change.

Ames Water Treatment Plant

How will the engineer help us make choices? What is a life-cycle cost analysis?

Your engineer will work with you to identify several options that best meet your needs, then develop each in enough detail to do a cost comparison. This includes both capital cost and operating/maintenance costs. A life-cycle cost analysis should be completed, which evaluates the total cost to own and operate the facility over the planning period (typically 20 years).  This is typically expressed in terms of present worth cost or equivalent annual cost.  In addition to cost, other non-economic factors should be considered, including such things as reliability, flexibility, and ease of operation.

What will happen after a decision is made to proceed with a project?

While it has become more difficult over the years to obtain grants to fund a large share of water and wastewater projects, grant writers can still assist with accessing funding sources such as CDBG.  You will also need to determine what form of long-term debt, if any, that you plan to access, and contact a bonding attorney, who will have specialized knowledge in the complicated rules and laws surrounding long-term debt issuance if that is needed.  Preliminary work on grant writing and securing of financing can occur in the same time period as project planning and design.

Applying for a State Revolving Fund (SRF) planning and design loan, with 0% interest for up to three years, is a great way to help finance the costs of planning and designing a facility.   You would then negotiate a design contract with your engineer to begin the design process.  Depending on the size of the project, design could take from a few months up to a year.  Bidding and construction could take up to two years.

Brent Hinson, City Administrator for Washington, Iowa, and Steve Troyer with FOX Engineering will present this topic at the League’s annual conference in Council Bluffs. Please join them September 13 at 3:30 in Room F.

FOX Engineering is an environmental engineering firm based in Ames, Iowa. We specialize in water and wastewater solutions for our diverse municipal and industrial clients. Our work varies in size and scope and can be found throughout the Midwest and beyond.