‘Who will build our next reservoir?’

While the rains have started to fall again in the south-western state of Texas, the moisture will do little good if there is not enough capacity to store it. Indeed, budget constraints and deferred maintenance have prevented the state from constructing any new reservoirs over nearly three decades.

Now, with the population bursting at the seams, a new law outlining the parameters for public-private partnerships (PPPs) dubbed Senate Bill 1048, which was enacted on September 1, 2011, may have arrived just on time.

“We have not built a water reservoir in 25 years,” says Texas State Representative Jim Murphy, who in addition to serving in the state’s House of Representatives, also serves as a consultant to the Westchase District, a municipal management district. “We need more capacity. What I’m thinking about is: who will build the next 10,000-acre reservoir?”

Liquidity-constrained

Such an endeavour would fall under the jurisdiction of the state, and SB 1048 instead targets local entities and state agencies, giving them the option to pursue PPPs. After all, county governments earn much of their revenue in property taxes, and with home values depressed, local agencies in particular have become especially liquidity-constrained.

The need for storage capacity does, however, bring water projects to the forefront.

It is unclear whether a reservoir undertaking would necessarily materialise as a PPP, although it feasibly could. With a ballooning budget and shrinking revenues exacerbated by an escalating population, Texas – like many states across the US – could use all the help from the private sector it can get.

“The private sector is more nimble and research-oriented than the public sector,” comments Murphy. “The impetus for this project is more likely to come from them than the average city manager.”

Before private investors begin piling in, however, a propensity for deferred maintenance – which is pervasive around the US – has to be acknowledged. Deferred maintenance generally involves postponing maintenance activities such as repairs in order to meet budget funding levels. Eventually this can lead to asset deterioration and impairment. 

“We’ve all done it,” recalls Phillip Russell, senior vice president and director of P3 delivery at engineering firm Lochner in Chicago, Illinois. “It’s exciting to cut the ribbon on a brand new facility. Everyone worked very hard on putting together the financing, cobbling together the dollars. Build it – but know you must also maintain it. Investors want to know their assets are going to be protected.”

Russell spent nearly three decades at the Texas Department of Transportation (TxDOT). “For years, my friends on the private side were saying ‘trust us, we can do it,’ in relation to PPPs,” he tells Infrastructure Investor. Since retiring from the TxDOT and joining Lochner, Russell has witnessed dinner chats evolve into something tangible – namely, SB 1048.

Over the next decade, 20 percent of the state’s infrastructure needs to be replaced, sources say. Fuelling the urgency is a population boom that is straining infrastructure. Across Corpus Christi and Midland, for instance, Texas is adding some 400,000 residents annually, observers say.

“That’s where the rub is,” says Russell. “There is not enough funding to take care of existing systems while at the same time handle all of the growth that is occurring.”  Russell exhibits pride in the way that the TxDOT handled deferred maintenance during his tenure. “We did a pretty good job of maintaining facilities,” he recalls.

Nonetheless, deferred maintenance is the single biggest problem facing the infrastructure industry, according to Rick Norment, chief of staff at the National Council for Public-Private Partnerships (NCPPP), speaking at an industry event in Austin, Texas in January.  He told Infrastructure Investor:  “This, paired with the budget challenges facing state and local governments, has been a major driving force behind the increasing interest in PPPs.”

And it’s not just water that’s the current preoccupation. Texas highways – many of which were constructed during an infrastructure revolution in the last century when the state “exploded in growth” – are aging, says Murphy. “The problem is that it’s very unsexy to rebuild a road that’s already there. There’s no magic in that,” he says.

Texas has a lot riding on SB 1048. Murphy urges the private infrastructure industry:  “Please make sure we record some victories as we start out of the gate. If the first one goes south, that just might end it.”