New Hampshire’s Water Assets Under Pressure: Public Drinking Water Systems

Timothy W. Fortier

This is the first of a four-part series focusing on the State's water infrastructure: public drinking water, wastewater, storm water and dams. Each article will spotlight a municipal system; address critical needs of that infrastructure system; and outline funding sources available to municipalities today that may be used to maintain and sustain these critically important infrastructure systems.

Our water infrastructure systems are essential to public health and safety, economic growth, and quality of life in New Hampshire. We have basic water infrastructure systems that go generally unnoticed by us—the consumers. We pour tap water into our glass and drink reassured that it is safe to drink. We flush our toilets and the waste simply vanishes. When it rains, contaminants are washed off rooftops, parking lots and streets, and this runoff is channeled through a series of catch basins, drains and underground pipes to places unknown. New Hampshire municipalities own nearly 400 dams statewide that provide recreational lakes, fire ponds, flood control and water supply storage. Yet the public pays very little attention to these basic water systems, that is, until a pipe bursts, the toilet clogs, the streets flood or, more tragically, a dam fails.

We hope by highlighting these important water assets, ordinary citizens and policymakers alike will better understand the value these assets provide for the protection of public health and safety and in supporting economic growth and development in all of our 234 communities.

We also want to highlight the many challenges facing municipalities in maintaining the quality of these basic water infrastructure systems. Whatever infrastructure a municipality owns, the challenges are generally the same: (1) aging infrastructure systems that have not been consistently maintained due to funding shortfalls; (2) a continually evolving regulatory environment; and (3) declining state and federal funds that municipalities have historically depended upon to finance these capital improvements. A growing population and increasing demand has also put mounting stress on these water systems.

The first article in our series will focus on public drinking water systems.

Background: Public Drinking Water Resources
New Hampshire lays claim to one of the earliest underground water systems in America. In 1797, a private company called the Portsmouth Aqueduct Company brought water some 2.5 miles within the city compact through a system of wooden pipes. The City of Portsmouth ultimately purchased the system in 1892.

Federal and state law defines a public water system (PWS) as a system that provides water via piping or other constructed conveyances for human consumption to at least 15 service connections or designed to serve an average of at least 25 people for at least 60 days each year.

Today there are 122 municipal PWS, which serve approximately 755,611 people (56 percent of the state's population). Most (103) of these systems are small in size, serving a population of less than 10,000 (see table: NH Municipal Public Water Systems by Population Served, 2011). These 122 systems are the focus of this article, although it should be noted they are a subset of more than 2,300, mostly privately-owned, community water systems with similar infrastructure challenges.

Municipally-delivered drinking water is derived from two primary sources—surface water and ground water. According to the New Hampshire Water Resources Primer, about 39 percent of the State's population is served by community systems using only surface water (lakes and rivers) and 38 percent by systems using only groundwater. Another 23 percent is served by systems using both surface and groundwater sources.

Regardless of the source, municipal drinking water is typically treated, filtered and disinfected, and then pumped or gravity fed through a distribution system to residential and business customers. (See diagram: Public Drinking Water Flow System.) It all sounds so simple, but the true cost to deliver this essential service to the public is not cheap, and these true costs are rarely reflected in rates to consumers. In fact, water is priced well below the full cost of providing this critical service, with the statewide average annual cost to a household ($503) less than what is typically spent yearly for cable television.

New Hampshire's Aging Infrastructure and Deferred Maintenance
New Hampshire's drinking water infrastructure is generally old-much of it between 50 to 100 years old. This infrastructure is more than just underground pipes and pump stations, but it also includes wells, treatment facilities, water storage tanks or dams, meters, computers and other electronic monitoring systems.

"A hundred years is generally used as the useful life of a large municipal water system, however, this really only refers to the distribution system and structural components of plants," according to Sarah Pillsbury, administrator of the Drinking and Groundwater Bureau at the Department of Environmental Services (DES). "What it fails to account for is the useful life of treatment, mechanical, architectural and electrical components or the need for additional or replacement sources of supply. The useful life of these components is shorter, ranging from 10 to 75 years."

Local governments invest significantly in projects that build and maintain our water system infrastructure, but not at a rate to ensure system adequacy for the future. In a perfect world, municipalities would be charging the full cost of delivering safe tap water and would have fully-funded asset renewal accounts and very little deferred maintenance. In the real world, however, there is only one municipal checkbook with many competing needs that have resulted in limited investment in water systems at all levels of government. The water system investments that are occurring are made with annual operating funds raised through low user charges, municipal bond issuance, plus federal and state loan and grant programs such as the State Revolving Funds, which are declining. Few municipalities have the ability to fully fund asset replacement accounts or maintain their systems to industry-specified standards.

In 2011, a DES study concluded that the gap between the capital investment needs and current funding levels for drinking water infrastructure was $1.173 billion over 20 years (the period covering 2010-2030), and this does not take into account other costs driven by population growth, increased demand, emerging technologies or regulatory changes. (See table: 20-Year Funding Need by Infrastructure Type.)

This underfunding has resulted in deferred maintenance and underfunded asset renewal accounts, and this is the primary reason why our State's water infrastructure has been in decline.

State legislative and executive branch leaders are aware of the problem with our aging water infrastructure and the significant challenges surrounding it.

In April 2011, Governor Lynch commissioned a high-level panel of stakeholders to develop a plan and make recommendations for the long-term sustainability of the State's water resources, including infrastructure. The Water Sustainability Commission has met several times and is on course to issue a final report by June 2012. Municipal representatives on the Commission include Dave Allen, Deputy Director of the Portsmouth Public Works Department, and Robert Beaurivage, Assistant Director of the Manchester Water Works.

In 2009, the State legislature formed a similar commission to specifically study water infrastructure sustainability funding. The SB 60 Commission issued its interim report in December 2010 and its conclusions are very compelling. The report describes four "drivers" or obstacles that have led to a significant need for infrastructure investment: (1) current age and deterioration of existing systems; (2) ever-changing regulatory requirements; (3) population growth; and (4) issues related to climate change. The interim report also identified "the lack of understanding of the value of infrastructure by the ordinary citizen" as a key issue requiring significant outreach and education. The SB 60 Commission was recently given an extension for another year so it can complete its research and prioritize what actions should be taken to address these funding issues. In addition to the funding gap, the Commission hopes to identify potential new funding sources. All of these findings will be provided to the broader water commission established by the Governor.

According to Bill Brown, CEO and President of Wright-Pierce and a member of the SB 60 Commission, "It is important to understand that municipal officials and utility managers are the ultimate stewards of these important municipal assets and that their leadership is critically important to establishing a sustainable path forward." Brown added, "These infrastructure challenges were not created overnight and they won't be solved overnight. It will take a disciplined long-term view to work out of the 'hole' we are in. This will require political courage to transcend the more typical short-term thinking that dominates today's political decision-making process."

Another recommendation of the SB 60 Commission was a call for reinstating, in a limited way, the state aid grant program established under RSA 486 and 486-A, respectively. Payments for new projects under both these programs were deferred in 2009 due to state budget constraints. For drinking water, the deferred aid would have assisted up to 10 municipalities by contributing a share of their annual debt payments (typically 25 percent). It is uncertain if the State will ever honor these loan obligations.

Continually Evolving Regulatory Environment
In 1974, Congress adopted the Safe Drinking Water Act (SDWA), which sets the basic framework for protecting the drinking water used by public water systems in the United States. In turn, the Environmental Protection Agency (EPA) sets national health-based standards to protect against both naturally-occurring and man-made contaminants that may be found in water. These standards set enforceable maximum contaminant levels for contaminants in drinking water and regulates the treatment of water to remove these contaminants.

The number of contaminants regulated under the SDWA has increased substantially over several decades. Compliance with these regulations creates many challenges for public water systems of all sizes, but the burden falls disproportionately hard on smaller municipal systems. Steve Del Deo, Executive Director of the New Hampshire Water Works Association, an association dedicated to "improving municipal water supply in the state of New Hampshire," agreed. "Although we believe that the cost of public drinking water is still a bargain for many municipal customers, the cost of compliance with regulations is often viewed by operators, superintendents, water commissioners and others as being disproportionate to all the other costs necessary in operating a small water system."

The EPA prioritizes contaminants for potential regulation based on risk and how often they occur in water supplies. The EPA is currently evaluating and addressing the risks from several specific health concerns, including microbial contaminants, the byproducts of drinking water disinfection, radon and arsenic.

Naturally occurring contaminants, such as radon and arsenic, are contaminants frequently found in New Hampshire's water. Both occur because of New Hampshire's geology and both are known to cause cancer. Arsenic above the standard that is safe to drink is estimated to occur in 20 percent of wells in New Hampshire. This standard was lowered in the 1990s and compliance was very costly for many of the state's public water systems. Radon is even more prevalent and is currently on the slate for regulation by EPA. Because of its prevalence and the need to also consider air exposure, the rule has been delayed for decades. Voluntary or mandatory treatment of water to remove radon will be very costly for water systems.

Another recent regulatory driver is lowering disinfection by-products that cause reproduction-related health effects. This rule, which has yet to be fully implemented, has already caused significant investments at many of New Hampshire's surface water-based systems.

Although there are no other new standards or rules that will require investments, the EPA is charged with identifying and eliminating contaminants that jeopardize the safety of drinking water, and both the ability to detect contaminants and the continuing research of health effects makes future regulatory change likely to occur.

Del Deo added, "Sampling and analysis costs alone, for example, although necessary in providing safe drinking water and protecting public health in general, are expensive on a cost-per-customer basis for smaller public water systems."

Declining State and Federal Funding Support
The ability for municipalities to fund future investments in water systems and comply with new regulations is reliant upon adequate funding. Clearly, municipal funding is limited and competes with many other compelling needs while, at the same time, the federal and state resources available to assist cities and towns in maintaining these water systems are shrinking fast.

Like most other states, New Hampshire's water infrastructure was built over the past century with significant grant and loan funding. With the passage of the SDWA in 1974, significant investments were made by the federal, state and municipal governments in New Hampshire's public water systems. "Most of these past grant programs were designed to be 'one-shot deals' with the concept that the local utility would build asset renewal or replacement costs into their rate structure so the utility could operate sustainably without additional subsidies," said Brown. "Unfortunately, this did not happen in many cases and we now need creative thinking as to how we will accomplish the backlog of infrastructure work."

Another member of the Governor's Commission, Robert Beaurivage, agreed. "One major problem is the lack of adequate financial resources to rehabilitate piping systems, treatment plants and storage reservoirs. The decline in state and federal funding simply aggravates the problem," said Beaurivage. "And the concept of raising water rates is challenging particularly during the current economic downturn."

The EPA provides annual capitalization grants to each state Drinking Water State Revolving Fund (DWSRF) program to promote safe and affordable drinking water as authorized by the SDWA. These grants are available for existing system improvements and, on average, provide New Hampshire's water systems with about $8 million annually.

In 2011, the DWSRF allotment to New Hampshire (referred to as the capitalization grant) was $8,248,520 (including 20 percent state match) for infrastructure projects. In addition, another $7.4 million in repayment funds collected over four years is also available for water infrastructure projects. Many New Hampshire municipalities fund the planning, design and construction of these projects through this fund. The DWSRF has provided public water systems funding for various projects such as the development of new wells, upgrade or installment of treatment facilities, replacement of water mains and the installation of new storage tanks.

Historically, municipal demand for these funds has far outpaced available funding. The current demand for DWSRF funding (based upon 41 new applications) is nearly $58 million, which far exceeds the available loan funds. For municipalities, utilization of state and federal loan and grant programs helps keep the local user fees low. When these funds, grants and loan programs dry up, however, most municipalities will be forced to borrow from other sources with higher borrowing costs to complete these projects with resulting impacts on user rates. (See below: Grant and Loan Sources.)

To worsen matters, the recent debt ceiling deal signed into to law by President Obama will set into motion years of spending cuts, at least $1.5 trillion in deficit reduction starting in 2013, and will likely impact many federal grants that go out to drinking water programs. Unfortunately, the EPA's Clean Water State Revolving Loan Fund, which currently hovers around $800 million a year, is a vulnerable target for Congress. As such, the real implications of future budget cuts are not fully understood at this time, but it certainly does not bode well for future federal investments in our nation's water infrastructure systems.

The other significant funding issue for interconnection projects is the deferment of the state aid grant program described earlier.

"The State and local government partnership is unpredictable," said David Bernier, Superintendent of the North Conway Water Precinct and a member of the Governor's Water Commission. "As a public water system, we must first gain public trust and support, second procure affordable funding, and lastly engineer and construct. All this takes years to accomplish, but this relationship is in jeopardy and is now compounded by the State's default on paying their fair share of these projects." (See System Spotlight for related story.)

Recently, the New Hampshire chapter of the American Society of Civil Engineers (ASCE) gave New Hampshire's water infrastructure a C- grade, better than the national grade of D but still less than desired. In issuing its report card, the ASCE commented that the lack of a national funding source and aging infrastructure continue to lower the State's grade.

As we move forward, municipalities must assume the leadership role of sheparding these important assets onto a sustainable path forward. This will require, among other things, educating the public about the true cost of water service and involving them in tradeoff decisions concerning level of service and cost of service. Because of declining state and federal funds, municipalities need to charge customers the true cost of water up to some affordable threshold. Advocating for continued state and federal support is also part of the solution, as is exploring new ways to pay for these water infrastructure improvements. These investments are necessary to address both increasing infrastructure asset renewal demands to comply with new regulations and to accommodate increased growth and demand.

"Failure to reverse the trend of declining infrastructure will have many undesirable consequences and will place an unfair burden on future generations," said Brown. "The only responsible path forward is to reverse this trend and support municipal efforts to restore sustainable stewardship of these assets now."

By all accounts, the current rate of investment is grossly insufficient to fund the infrastructure that will be required to assure continued safe and reliable water service across New Hampshire. However, some State legislators, municipal leaders and water utility experts are increasingly worried that the traditional funding sources will not be sufficient to address future anticipated costs. Now is the time for State leaders to collaboratively forge a path toward a sustainable water infrastructure for all of New Hampshire.

Tim Fortier is Government Affairs Advocate for the New Hampshire Municipal Association. Contact Tim at 800.852.3358, ext. 384, or by email.

Grant and Loan Sources

Community Development Block Grants (Public Facilities Grants)
NH Community Development Finance Authority
100% grant up to $500,000 for planning and construction; 1-to-1 match
Deadline: January and July for construction grants; April and October for planning grant

Drinking Water State Revolving Fund (SRF) Loans
NH Department of Environmental Services
0.895% to 2.864% interest; 5 to 20 years; capital improvements, design and construction
Deadline: July 1 for pre-applications; August and after for final applications

USDA Rural Development Water & Wastewater Loan/Grant
US Department of Agriculture, Rural Development
Direct and guaranteed loans and grants; 2.5% to 4.25% interest (rates change quarterly); 30 years; grant amounts are a function of program funding and project-specific factors
Deadline: Rolling application

View more details and additional funding sources.

Sources and Author Acknowledgements

Special credit and recognition to New Hampshire Department of Environmental Services' (DES) Administrator, Drinking Water and Groundwater Bureau, Sarah Pillsbury, and Wright-Pierce's CEO and President, Bill Brown, who spent much time and energy peer reviewing this article and providing their expertise on the subject matter.

Valuable input and contributions also from: North Conway Water Precinct Superintendent David Bernier; Camp, Dresser & McKee consultant Bill Hounsell; City of Manchester Water Works's Bob Beaurivage; and New Hampshire Water Works Association's Steve Del Deo.

This article cites extensively from the 2008 New Hampshire Water Resources Primer (prepared by DES); Drinking Water Infrastructure in New Hampshire: A Capital Investment Needs Analysis (prepared by Wright-Pierce); the 2011 Drinking Water State Revolving Fund: Intended Use Plan (submitted by DES to EPA dated August 2, 2011); and the Town of Conway's Master Plan (adopted May 29, 2003). Additional information for this article also gleaned from DES' website, including fact sheets and other educational materials on the topic.