Public Policy Forum Blog

As Water and Sewer Costs Grow

While many activities of local government go unnoticed by most citizens, in no area is that more the case than sewer and water services, which are literally out of sight. Thousands of miles of pipes run beneath our streets and under our homes, moving drinking water and wastewater from Lake Michigan and back. We utilize these services for drinking, kitchen, and bathroom needs, but we often don’t think about where the water comes from or where it’s going.

In our latest report, Beneath the Streets: The Outlook for Metro Milwaukee's Largest Water and Sewer Infrastructure Assets, we find that there are growing needs within the many capital assets that compose our water and sewer infrastructure. Although not a cause for immediate alarm, we do find that the governments that own these assets - Milwaukee Metropolitan Sewerage District (MMSD), Milwaukee Water Works (MWW), and the City of Milwaukee’s Department of Public Works (DPW) - will need to seek increased support from property taxpayers and ratepayers to finance capital expenditures.

We consider MMSD to be in the strongest financial position to address these future challenges, though the District does anticipate a surge in capital spending for its two water reclamation facilities, where a large number of critical assets have surpassed their replacement dates. Understanding this, MMSD has been preparing a fiscal map to navigate through the near term and the long term. In the next five years, the District anticipates a need to raise property taxes by 4% annually to finance needed capital expenditures.

DPW hopes to reduce capital spending on Milwaukee sewers in 2018 and maintain it at a level of about $35 million per year for the following four years. The reduction in spending – from about $44 million in 2016, follows a surge in investment after severe rainfalls exposed deficiencies in the previous decade. Still the increase in borrowing to pay for that surge necessitates higher debt service payments, which will create pressure to raise sewer and stormwater fees.

The most formidable set of challenges is faced by MWW, which is a public utility owned by the City of Milwaukee that is overseen by both the Public Service Commission (PSC) and the Wisconsin Department of Natural Resources. Two recent events have placed MWW in a fiscally precarious position. The first is the PSC’s mandate that water main replacements increase to 20 miles annually by 2020, and the second is the need to address its lead service lines.

About 45% of MWW’s 169,000 service lines are composed of lead, and replacing those service lines is now considered a public health priority in the aftermath of a public health crisis in Flint, Michigan. In that city, improperly treated water caused lead from service lines to leach into drinking water. While MWW has been treating its water in a manner that should prevent such leaching here, there is sufficient concern to cause the City to call for a more aggressive schedule to replace lead service lines with copper lines. This added cost, along with the increased cost of water main replacements, will increase MWW’s capital costs by nearly 50% between now and 2020, which likely will require sizable increases in water rates.

Overall, we find that all three governments have challenges, some more immediate than others. These challenges will affect tax and ratepayers for decades to come, as increases in capital spending will produce increased borrowing and increased levels of debt, which must be serviced through property taxes (in the case of MMSD) or user fees.

This report is the second in a multi-part series that will consider the vast array of infrastructure needs facing our major local governments in Greater Milwaukee and the financial capacity of those governments to address those needs. Our first report in the series – A Fork in the Road? – covered local transportation infrastructure and was released last September. Additional reports will consider buildings and structures and parks, recreation, and cultural facilities.

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Author: 
Ben Juarez