February 2015, Vol. 70, No. 2
Features
A Year Of Challenges, A Year Of Possibilities (18th Annual Municipal Survey)
Is this the year?
Could this be the year when the abysmal cycle of budget cuts and stalled construction and rehabilitation programs finally ends? Has the sewer/water/storm sewer infrastructure industry finally turned the corner and leaves behind years of inadequate funding and begins a cycle of major investment in America’s failing infrastructure? Early reports from cities across the country seem to indicate a substantial positive change in direction is indeed beginning to materialize.
Results from the 18th Annual Underground Construction Municipal Sewer and Water Survey revealed that for the first time in many years, municipal sewer and water personnel are somewhat optimistic about spending plans for 2015 and beyond – at least at this early stage of the year. The survey presents a detailed look at the 2015 spending plans for America’s cities along with insights and perspectives on industry topics and technology.
Municipal authorities report spending plans for sewer/water/storm sewer piping systems of $10.3 billion in new construction and $7.8 billion for rehabilitation, an increase of 6.1 percent over actual 2014 spending.
Despite the rosier outlook for 2015, funding woes remain by far the largest concern by the municipal survey respondents. As a representative from a small Southeast city summed up, “the biggest issue we face is financial management in an uncertain financial and regulatory climate.” Another municipal manager from the Midwest observed “we’ve seen our share of inadequate budgets – sometimes no budget – and our infrastructure has paid the price. Finally, it looks like we’ll be able to at least get back in the game this year.” Said this respondent from the Mid-Atlantic region, “Our major issue is getting the work done within budget and with quality – warranty issues are a concern.”
Still, a respondent from the Pacific Northwest reflected most municipalities’ long-term concerns when he said the biggest challenge facing cities is “sustainable growth in the local, regional and national economy.”
Of course, obtaining funding remains the Holy Grail for most municipalities, large and small. This municipal respondent from the Northeast pointed out that the challenge for their city was in “seeking additional funding without raising taxes.”
Besides taxes, typically the principal method of funding for sewer and water entities are user fees. But as has been chronicled by Underground Construction in the past, mustering up the political courage to raise sewer/water/storm water fees by public governing bodies is very difficult and historically rare. However, years of desperate financial times are beginning to yield desperate measures. Increasingly, city councils are willing to invoke their constituent’s ire and recognize that raising rates, even to just keep up with inflation let alone gain additional revenue, is a necessary evil. Subsequently, it was no surprise that this year’s survey reflects the narrowing time gap between rate hikes for many cities. For sewer rates, the average time between increases was 3.1 years, down from 3.4 years in 2014. For water, that time span fell from 3.2 to 2.8.
Another type of funding concern was voiced by this respondent: “The economy hasn’t rebounded in Southern California yet and many of our customers have filed bankruptcy and that in itself affects our bottom line. But being a CPUC regulated water utility, the work must go on!” One municipal respondent expressed this budget concern: “Due to the increase regulations for CSOs [combined sewer overflows], funding is being diverted from maintenance and repair.”
Conducted in October and November of 2014, the survey polled U.S. municipalities about their 2015 infrastructure funding plans along with perspectives on technologies, trends, industry issues and working relationships with consulting engineers and contractors. The survey results came from all 50 states and were weighted for regional population density and city sizes to develop a nationwide benchmark that would allow for extrapolated projections.
Responding cities represented all parts of Americana, from coastal communities to mountain tourism locations to the plains of the Midwest and the forests of the Southeast. While large cities were included in the statistics such as Dallas, Los Angeles, Seattle, Tampa, Houston, Atlanta, New York, Boston, Pittsburg, Philadelphia, Baltimore, Minneapolis and Chicago, mid-sized communities were well-represented as well. Even tiny hamlets responded with their perspectives giving the survey accurately weighted results. Billingsley, AL, population 120 was the smallest municipal participant. Other small cities were Watsonville, CA, 330; Cochrane, WI, population 430; Carthage, MS, 700; Viola, WI, 701; and Grandview, IN, 831.
Pain and gain
There’s an old adage that essentially says “one man’s pain is another man’s gain.” For the water, sewer and storm sewer industry, “pain” has been a way of life for several years.
Already inadequate funding levels essentially dried up during the Great Recession and have yet to rebound fully. Additional detailed reports and studies have further revealed the full extent of America’s underground piping infrastructure decay, yet a struggling economy and gridlocked state and federal governments have been able to supply little if any relief. Retiring Baby Boomers combined with a general lack of interest and enthusiasm by the nation’s workforce have led to severe skilled labor shortages in many parts of the country for virtually all vocational areas for contractors, engineering firms and municipal organizations. When all components are added together, truly a crisis situation exists.
Contrast the sewer/water infrastructure market with that of the energy industry. While the nation and much of the world suffered through a recession, economic and political conditions aligned creating a significant boom in oil and gas production, primarily through the successful exploitation of shale resources. For underground work, that meant a major boom in pipeline construction. The energy industry actually steered investment and Wall Street through the troubling waters of our most recent economic downturn.
But escalating energy prices – no matter how much it was justified – contributed not only to increasing operational and construction costs for the municipal market, but the labor market as well. Ready employment opportunities in the oil patch enticed potential job candidates with higher wages. For cities, contractors and even engineers in energy producing regions, it is very difficult to compete with the energy markets.
The plight of underground sewer and water systems has been well-documented yet the ability and commitment to fully address the issue has been elusive. The climb back to health for the municipal infrastructure has been a well-chronicled, slow crawl up a monumental mountain to obtain reasonable funding and work levels. Thankfully, the past year has shown some resiliency as the overall national economy has shown steady – albeit slow – improvement. Spending levels have rebounded somewhat as well though still far below needed levels. Still, for many segments in the underground sewer and water infrastructure market, 2014 represented a step in the right direction with hopes that 2015 will continue that positive trend.
Lending further hopes to a strong rebound in 2015 is the recent “pain” of the oil and gas industry. The abrupt collapse of energy prices has, at least in the short-term, lent a strong shot-in-the-arm for the overall American economy. Reduced operational costs combined with stronger local, state and national economies mean an increase in tax dollars and opportunities for local government entities to replenish depleted coffers. Some estimates put the freefall of oil as the immediate equivalent of a $1 billion tax impact for U.S. consumers – and perhaps longer depending on a variety of other economic factors. The exodus of many valued employees to energy has slowed and may even stop.
While the journey back to health is just beginning for the sewer/water/storm water construction and rehabilitation markets, all-in-all, 2015 is looking like it will be the strongest budget year in some time. Subsequently, municipal managers across the country are expressing cautious optimism in their near-term outlooks.
When asked how their 2015 budgets will compare to 2014, 47.9 percent indicated that their budgets were indeed rising – many for the first time in five or more years. About 47.7 percent said their budgets would be essential stable and only 4.4 percent said their budgets were being cut. Again, the budgeting cutting mode was much higher in past years, as much as 50 percent.
For 87.7 percent of cities with higher budgets, most are in the 5-10 percent range. For 7.8 percent of respondents, they anticipate funding increases in the 11-15 percent range; 3.4 percent of respondents will see boosted funding from 26-50 percent; and 1 percent of the survey participants are expecting a huge spending jump of over 50 percent.
Respondents were also asked how much additional funding would be needed if, in a perfect world, finances were available immediately to meet all their reasonable infrastructure spending needs. For sewer, cities believe they need $128 billion; water authorities would require $91 billion; and storm water agencies need $65 billion. What is striking about this $284 billion estimate of needs is that it is only for the short-term. Clearly, the neglect of the underground infrastructure is coming back to haunt our pocketbooks.
More issues
In addition to the predictable funding and budget issues cities face in 2015, the continued aggressive action of the Environmental Protection Agency (EPA) has many cities operating in fear. It’s been no secret that under the current President Obama administration, enforcement of the Clean Water Act and other related rules and regulations have been a priority and procedures dramatically accelerated. Subsequently, negotiated consent decrees between cities and the EPA have become commonplace the last six years. Several cities cited having to create programs – and find the funding – to comply with consent decrees as a major challenge. Simply dealing with the EPA and other federal and state regulations continues to be a major albatross for many cities as well.
For the past few surveys, finding and retaining quality employees has been cited. That concerned was voiced repeatedly in the 2015 survey. “Backfilling positions as engineers retire” is very difficult complained a Northeast respondent. Another municipal manager pointed out that they have problems due to a “lack of personnel to manage projects.” Said this city manager from the Southwest, “we’re tired of training engineers and other key personnel only to have consulting engineering firms steal them away.”
The term asset management has been tossed around frequently for over a decade. The significance and subsequent benefits of such programs has become ingrained for most cities and steps are being taken to implement asset management programs. In fact, 24.4 percent of cities report that they have a fully operational program in place, 44.9 percent says they are currently developing an asset management program while 30.7 percent of cities say they have no plans for asset management programs at this time. It was only a few years ago that as many as 70 percent of municipalities did not have asset management programs.
Trenchless
The survey measured the impact of trenchless construction and rehabilitation methods. Approximately 51.6 percent of the survey participants prefer to use trenchless methods in lieu of open-cut techniques. That favorable response is predicated on comparable costs and other related logistics. However, 21.5 percent do not like using trenchless and for 26.9 percent of respondents, they don’t have a preference. A muni manger from the Pacific Northwest explained that “we generally end up using both trenchless and open-cut on major jobs. It all boils down to what’s the most cost-effective and efficient at the time.” Echoed a respondent from the Midwest, “Trenchless methods are evaluated on a case-by-case basis.”
Cities report that for rehabilitation projects, trenchless methods are used 33 percent of the time in lieu of dig and replace. For new construction, municipal respondents report using trenchless on about 21 percent of the jobs.
Cured-in-place-pipe is by far the most preferred trenchless method, cited by 52 percent of respondents, followed by point repairs at 41 percent, spray-on coatings at 34 percent, directional drilling at 30 percent, chemical root control at 28 percent, sliplining at 26 percent and pipe bursting at 22 percent.
Rating engineers, contractors
As always, the municipal survey asks city personnel their impressions of consulting engineers and contractors. Unfortunately, for both groups, those approval ratings dropped significantly in the past year.
The ratings are based on a scale of 1 to 5, with 5 being the highest mark. Consulting engineers saw their approval rating fall from 3.47 to 3.14. That’s down from a high mark of 3.75 in 2012.
The biggest complaint against consulting engineers was simply that they don’t listen to their clients. “”They should listen to our requests and work with us!” exclaimed a respondent from the Northeast. Pointed out another muni manager, “they should trust their certified public works managers a little more – we know what we are doing.”
Similar comments were many: “Listen to our operations staff,” “Listen to our employees in the field,” “Communicate with the water/sewer agency better.” “Listen to older employees that know each system.” “Maintain good communications and accessibility to clients.” “Stay in touch with all our needs rather than just do the project.” “Pay attention to what we think.” Suffice it to say, the message to consulting engineers by muni survey respondents was clear: remember you work for us.
Other comments from municipalities varied over a variety of topics. “We need our engineers to do a better job of staying current with technology options,” said a muni manager from the Rocky Mountain states. “Providing the latest technology and guidance that results in project delivery at the most overall value,” was a recommendation from this Midwest respondent. Suggested a Pacific Coast city representative “we need upfront communication. Engineers should completely understand their customer’s desired outcome and educate customers on available options.” Added this Midwest respondent, “Inspectors need to be on site all the time.”
For contractors, there was better news for the approval rating as it dipped only slightly from 3.61 to 3.58. However, just two years ago the contractor rating was approaching 4.0. City representative also shared insight into their needs and relationships with contractors.
Quality was a common theme. “Quality of work is paramount to successful projects,” stressed this Midwest respondent. Communication was another frequently cited area of emphasis. “Communicate all activity with the owner during construction. Do not gouge the owner for change orders,” stated this municipal manager from the Southeast. Another city representative from the Pacific Coast added “focus more on project outcomes and customer satisfaction.”
Several respondents also cited the need for contractors to stay current with technology and the latest construction/rehabilitation methods. Said this municipal manager from the Mid-Atlantic region, “We need contractors to fully explore technology options and learn what goes on with other jobs – that can make the difference for a successful project and allow us to hit budget. I went to the UCT Show (Underground Construction Technology Conference) last year and found out about all sorts of options. Wish I’d seen more of our contractors there!”
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