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GROWTH CORRIDORS MISSING THE WATER COMPONENT?

June 30, 2013
Development loans, Environment, funding, Holistic Water Planning, infrastructure, innovation, management, planning, Risk, water sewer management
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A recent Manhatten Institute for Policy Research report titled “America’s Growth Corridor: The Key to National Revisal” noted that the future economy in the US will tend to growth in certain corridors, which echos a prior report that identified “super-regions” where population, manufacturing, education and economic growth were likely to be concentrated. Both reports suggest that the super-regions will prosper, with the rest of the country lagging behind. The seven high growth areas in the Mnahatten Institute report are the Pacific Coast, the Northeast, the Front Range, Great Lakes, the southeast/piedmont, Florida/Gulf Coast, and Texas/southern plains. This new report focuses more on the politics of the region, noting that each region is politically fairly consistent internally, indicating there is more than one way to do business. The current business climate, driven primarily by energy favors the Plains, with the southeast starting to import jobs from Japan and Korean as a result of low wage rates. The report goes on to draw a series of political conclusions about business climates and the politics of why growth is occurring in certain areas. But let’s look at a different view of the report. Each of these regions has had “ it’s day in the sun” so to speak, and some a couple of days, like California. Business cycles are cyclical so shifts in growth corridors is not unexpected. However there are some potential limiting issues that are not addressed in the report that are of significant interest or concern.

First, where is the water? Texas and the Plains have significant water limitations, as does much of the southeast. Trying to build an economy when you lack a major resource becomes difficult. That is why the Northeast, Great Lakes and later the Pacific grew earlier than the south, mountain and Gulf states. The Northeast and Great Lakes had water for industrial use and transport of goods, a real key historically for industry. Those regions also had (and still have) better embedded transportation facilities (rail, roads, airports).

The next question is where is the power coming from? The answer that will be given is that the Plains states and Texas have created 40 % of the jobs in the energy sector in the past 4 years so that is where the energy comes from, but having energy and being able to convert it efficiently to power that is useful to people or industry is a different issue. You need water to cool natural gas plants, unless you want to sacrifice a lot of efficiency. Back to water again. Moving the gas to other parts of the country to convert coal or oil plants to natural gas would work, but getting the electricity back does not come without 6% losses and a real need to make major improvements to the electrical grid. Not a small job.

So while the Manhatten Institute reprort suggest that all seven corridors will grow, but that the southern corridors are growing faster, the sustainability of this growth is at question. I recall a similar prediction when I graduated from college in the early 1980s, when the jobs for engineers were limited to the energy fields in Texas and Louisiana and the prediction was that al the industrial growth would be in the south. And then Silicon Valley happened, and then the housing boom in California, Nevada and Florida happened, and a few things in between. Oh and that energy economy collapsed in the late 1980s …. You get the picture. This is not to say that some marketing the power, water and transportation benefits of the historical industrial areas of the north are not needed – they are, but the fact is that there is significant available water, power, transportation and people capacity that is unused. If I am an industry, I may want to look at the power/water issue a little more closely.

Sustainability and Risk Managers as Future Water Manager Obligations?

June 27, 2013
Climate, communciations, Environment, finance, funding, groundwater, Holistic Water Planning, infrastructure, innovation, Leadership, management, Marketing water, planning, Risk, Risk Management, sustainability, water sewer management
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In the past week I have had the opportunity to experience the extremes with water – heavy rains/tropical weather in SE Florida, and dry weather in Denver at America Water Works Association’s Annual Conferences and Exposition. Two months ago with was snowing in Denver and there had been limited rain in SE Florida. Six months ago we were both dry and there was significant concern about drought in both places. How quickly fortunes change and the associated attitudes as well. It is part of a perception problem – looking at the near term – instant gratification, as opposed the long-term consequences. In truth neither set of conditions is historically different or should have created major panic or much shift in attitudes, but it is the potential to predict conditions that require the water manager’s scrutiny. We have all become risk managers.

Managing risk is not in the job description of most water and sewer personnel (risk managers aside, and they are focused on liability risks from incidents caused by or incurred by the utility like accidents, not water supply risks). We spend a lot of effort on the engineering, operation and business side, but less on planning or risk/vulnerability assessments. EPA has required vulnerability assessments in the past, but having seen some of those exercises, most are fairly superficial and many put on a shelf and forgotten. I have had clients ask me if I still had copies because they did not. Clearly we need a renewed commitment to vulnerability assessment.

Vulnerability starts with water supplies. Groundwater is particularly tricky. A new USGS study reports significant decreases in water levels in many aquifers across the US, especially confined aquifers in the west. That situation is not improving, and the situation will not correct itself. Loss of your water supply is a huge vulnerability for a community. Finding a new supply is not nearly as simple as it sounds or as many are led to believe. Confined aquifers do not recharge quickly and therefore have finite amounts of water in them. Remove too much water and all too often land subsidence occurs, which means the aquifer collapses and will never hold the same amount of water. USGS has mapped this and it matches up well with the drawn down aquifers. More data needs to be collected, but Congress is looking to cut USGS funds for such purposes, just when conditions suggest the data is needed most.

Many watershed basins and many aquifers are over allocated and overdrawn, and not just in the west. New England and the Carolinas have examples. Overallocation means competition for water will increase with time and it will be utilities that everyone will look at to solve the problem. Afterall the utilities have money as opposed to agriculture and other users, right? To protect themselves, water utility managers will need to look beyond their “slice of the pie” to start discussions on the holistic benefits to water users throughout the watershed, which will extend to understanding economic and social impacts of water use decisions. It is not just about us, and paradigm shift that is coming and one that we as an industry need to be the leading edge for. Our use impacts others and vice versa. Every basin wants to grow and prosper, but decisions today may reduce our future potential. Klamath River is a great example of misallocated water priorities. The biggest potential economy in the basin is Salmon ($5B/yr), followed by tourism ($750 M and growing), which relies on fishing and hiking. But agriculture ($0.2 B/yr) get the water first. Then power, which warms the water (salmon like cold water). Then a few people (a few 100,000 at the most in the basin). The result, the salmon industry gets reduced to $50 M/yr. Now how could we create more jobs, which would result in more income and a bigger economy? The easy answer is encourage the salmon industry, but that doesn’t sit well with the other, smaller users that will become more vulnerable to losses.

I suggest that to harden our water future in any given basin, we need to start looking a little more holistically at the future. This type of analysis is clearly not in the job description of the utility or its managers, utility managers may have the best access to technical expertise and information. As a result to protect their interests and manage risk, we may need to shift that paradigm and become holistic water managers.

PAY YOUR BILL

June 24, 2013
communciations, Development loans, economy, finance, funding, Leadership, management, Marketing water, sustainability
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A recent Wall Street Journal article noted that 50 % or people have paid their utility (water, sewer, electric) bills late, but only 24.8% have paid the internet late, 39.5% the cable late and 44% the phone bill. Really? We are willing to pay water, sewer and electric late, but not the internet bill? This should be a wake-up call to water and sewer utility leaders nation-wide that we have a problem. Combined water and sewer bills across the United States average something around $50. True they are often higher in California, SE Florida, and some other areas, but they are also lower in many areas. Most of the time even in those high cost areas, the bill is under $100.

I have done a number of rate studies and I find that the cable bill, and the cell phone bills are almost always higher than the water+sewer bill locally, so why are people willing to pay our bill late, but not the others? Is it the perceived benevolence of local utilities, most of which are public entities? Is it a perception that water should be free so it is not important to pay the bill? Or is it the lack of marketing of an essential product by waterutilities? I have heard all these arguments, but I am thinking the latter may be more important. Most people know they need to pay the bill, and I don’t really know anyone who thinks water should be free in the US. People are used to cheap water, and costs are going up. Complaining to local elected officials often keeps rates artificially low, which means maintenance and replacement programs get deferred. That makes the utility more at risk to failure. EPA, GAO and others report regularly that we have been keeping rates low and deferring capital and maintenance for years to the tune of hundreds of billions of dollars. So what is wrong?

I suggest that as an industry, we have failed in marketing water. Treatment plants, piping and pump stations are out of the way, pipes are buried. No one sees them and people assume these faciliaites will work, but rarely ask how they work or how long they will work. They do not understand the complexity or the regulatory stringency of operating a utility. They do not understand that the number one priority is public health, and protecting the public health costs money. We have not made people understand this because we do not market our product. I have taught elected official classes where the elected officials tell me public dollars should not be spent on marketing, but they never say why when pressed. Rarely is marketing included in a budget. But if water and sewer is a business, isn’t marketing an important strategy to maintain that business?

Meanwhile we have a host of celebrities marketing cellphones, which are not required to survive. We have a host of glitzy cool advertisements for cable service options, but we don’t need cable to survive. The power companies send out glitzy stuffers in their bills that no one reads, but they do end up in the papers regularly. And power really helps us survive, but we could do without it (although it would be unpleasant). Our forefathers did. But no one ever survived without water. Maybe it is just too obvious. But maybe because it is so obvious, people are less conscious of it. We need to market better. As a private sector marketing manager would say – we have lost our market share!! We need to get it back.

Social Security Not Nearly So Bad…

June 11, 2013
economy, finance, funding, management
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Previously I blogged about retirement systems since they were getting a lot of negative attention in the Florida Legislature and in Congress. One of my tenets was that the economy is more of an issue in dealing with the sustainability of retirement systems than most other factors. Specifically I outlined the current Social Security issues, noting that the long-term borrowing rate and number of people paying into the system affected the apparent long-term viability at any given point in time. I also suggested that as a result, trying to opine about the viability of any retirement system at a specific point in time is a futile exercise, unless there is some underlying political agenda. The economics changes constantly, so the long-term trends are far better means to view the viability of pension programs. After the 2008 economic collapse, few retirement systems looked like they were in good shape, yet a few years earlier, they appeared much better, much like Florida’s did..

Fast forward to 2013. After all the hoopla in Congress about the fate of Social Security and scary Congressional statements that Social Security will not be remain for future retirees unless drastic changes are made, guess what? The annual trustees’s report on Social Security (and you though Congress managed it!) reported that as a result of the economic uptick in the past couple years, the outlook for Social Security in the short term is good, and the long-term is far better than it has been in years. Surprised? Only if you don’t understand how pension systems work. The economy has improved, so the investments made by Social Security likely are getting a better return. The jobless rate has dropped, and more people are paying into the system, precisely the two things that improve the long-term sustainability of any pension system. But we don’t hear Congress talking about that because that doesn’t address the political agenda.

Worse for certain Congressional leaders, the report suggests that Social Security is positioned better than many 401K programs, the type of system some in Congress suggest should be the future of Social Security, because the risk are far lower with Social Security’s investment strategy than any 401k invested in the marketplace. They noted that most 401k programs lost half their value in the 2008 financial collapse, while Social Security’s portfolio, invested in far more conservatively, did not see near the same type of drop in investment value. The report outlined that the lower and middle class retirees were hit less severely buy the 2008 downturn than upper middle class pensioners who relied more on 401K returns. That should be no surprise either.

The findings are particularly important for lower and middle class families that receive 2/3 of their retirement income from Social Security as private pension systems become a thing of the past. Those private pension programs suffered from investments in private companies that can have shifting stock values and outsourcing of jobs to other countries – more risk and fewer payees equals unsustainable pension program. No surprise the private sector has shed many of those programs, but precisely why Social Security becomes more relevant for most Americans. The private pension systems are precisely the opposite of the Social Security model.

So why the push to try to change retirement programs? Some are in difficulty, especially where there are generous benefits, and fewer people paying in due to cuts in government employees, and at risk investments strategies that have performed poorly. All three are management issues, and the second is a political issue. Bash public employee pensioners, because fewer private entities offer them, seems to be politically popular, but it is a political means to pit people with pensions against those who do not to hide the real issue which is simply money. The investment value of Social Security’s portfolio is huge. Wall Street would love to see that portfolio in the stock market. More investment dollars will drive up stock prices. That seems good, but recall that the repeal of the 1930s vintage banking rules that prohibited banks from investing YOUR savings in the stock market, drove stock prices up fast in the 1990s, but it didn’t turn out so well in 2008. Investing Social Security’s portfolio similarly can be expected to have a similar result. And then, Social Security will really be in trouble and someone in Congress will tell you – I told you so. Maybe the better argument is that all these politicians should keep their fingers out of pension plans.

Radio Program last week

June 5, 2013
Environment, funding, groundwater, infiltration gallery, infrastructure, innovation, Leadership, management, planning, sustainability, water sewer management, water supplies
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Radio Program last week

Hi all.  Here is another radio show I did last week talking about  my company Public Utility Management and Planning Services Inc. and water sustainability. Take a listen. Let me know what you think.  Thanks

Fred

Infiltration Trenches for Storm water and Water Supply? 2 for 1?

June 2, 2013
Climate, economy, Environment, groundwater, infiltration, infiltration gallery, infrastructure, innovation, management, riverbank filtrations, Tidal flooding, Uncategorized, water sewer management, water supplies
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The concept of horizontal wells arises from riverbank filtration concepts.  Riverbank filtration has been practiced for nearly 200 year in Europe, where the concept was to remove debris form polluted waters by drawing through the banks of rivers.  Much of the concepts for groundwater flow are related to the filtration ability of water to move through a porous media.  The concept was to dig trenches along the river and draw water from the trenches as opposed to the polluted rivers.  The concept worked relatively well.  The result is an abundant, dependable supply of high-quality water with a constant temperature, low turbidity, and low levels of undesirable constituents such as viruses and bacteria. Riverbank filtration also provides an additional barrier to reduce precursors that might form disinfection byproducts during treatment.

Now let’s look at this from another perspective, and we’ll pick on southeast Florida as is provides a great case study.  Sea level rise will inundate coastal property, both via coastal flooding and from a rise in groundwater. Since most stormwater drainage depends on gravity flow, drainage capacity will suffer as sea level rises reducing the head differential between interior surface waters and tide. Saltwater intrusion will be exacerbated. Furthermore, reduced soil storage capacity, groundwater flow and stormwater drainage capacity will contribute to increased flooding during heavy rain events in low-lying areas.  In low lying areas, current practices like exfiltration trenches will become impractical, as will dry retention will become wet retention.

Stormwater utilities will be faced with dramatic, currently unanticipated increases in capital expenditures and operating costs, and time will be needed for planning, design, securing permits and compliance. Additional local pumping stations on secondary canals will be needed to supplant the storm drainage system in order to prevent unacceptable ponding. Design capacities of these stations will depend on local rain patterns, drainage basin size and secondary canal system design.  Many will operate continuously, which means ongoing operations will increase substantially. Hundreds of pumping stations may be needed in some communities.

Permits will be a major challenge due to contaminants in the runoff as regulated by MS 4 Stormwater permits, and the inability to treat this water under the current structure. The cost and energy required for stormwater treatment would be a major concern going forward. But what if we sent this continuous flow to water plants as raw water?  All of a sudden we have a solution to two problems – stormwater and raw water supplies.  How often do you see a 2 for 1 solution?

Are Pensions Really Broke?

May 28, 2013
funding, Leadership, management, Uncategorized
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Are Pensions Really Broke?

Nearly 10 years ago it was predicted that the water industry would experience a large exodus of experienced workers.  It did not happen; likely it was only delayed by the 2008 financial crisis.  If that is the case, will there be an acceleration of retirements in the next few years?  If so, what are the plans the plans for knowledge capture? GIS, work orders, MMIS, and other programs will help, but capture is important as the next “generation” of employees will not have the advantage of years of experience in finding valves, and pipes, etc.  We need to plan ahead for the knowledge capture issue, develop training for newer employees and figure a means to access lost knowledge in the future.  Capture is a big issue, but what we hear more of is the potential for a drain on our resources for funding these retirements?  The news is full of stories of dire consequences of retirement defaults coming for the public sector.  Keep in mind many utilities are publically owned and these employees are part of the public retirement systems.  Is this real or a political position for another agenda?  Do we need to be worried?

Interestingly it depends on whether you were looking before 2008 or after.  This picture was very different.  Even in my state of Florida, the pension system was fully funded before 2008, dropped just after, but has returned to near full funding as a result of the improvement in investment returns.  Most of these systems rely on investment returns so changes can cause the system solvency to change rapidly over short periods of time.  Looking only at a short instant in time belies the long-term truth and  it is the longer view we need to look at.  Good thing Wall Street normally goes up, but the impact of poor investment strategies by a limited few (2008) has significant impacts across society in everyone’s pension programs.  Look at all the 401k programs – those incurred crushing blows just as pension programs did.  So yes there may be problems, but many of these pension systems are not nearly as strapped as you would be led to believe in part because they have always relied on people continuing to pay into the system.  Hence they always have cash flow, unlike personal accounts.

The long-term view or the impact on personal accounts doesn’t faze the “fixers” who have many ideas to “fix” the pension problem.  One of the concepts championed is to change enrollment to a 401k vs a fixed benefit system.  Another camp suggests privatizing.  But both radically change the long-term solvency of vested employees and here’s why.  Under the current concept for public retirement systems, your employer and often you, pay matching amounts into the system.  According to a study done some years back in Florida, over 80% of people who get public sector jobs do not stay long enough to become vested in the system.  That means that while they get their contributions back, the retirement system keeps the match, reducing long term costs to the public.  All full time employees pay into the system. Retirement systems rely on cash flow from current employees for payouts to retirees, thereby protecting the invested funds and allowing the system to “weather” periodic financial difficulties.  That’s why the system solvency will based on what is happening on the stock market.  The system is designed to grow at a given rate, so if you reduce the people paying in, you accelerate the use of invested dollars because the cash flow diminishes.  In many respects that is what happened to some of the industrial pension systems –automation and outsourcing jobs overseas cut down the payees so much that the pension system could not sustain itself.  So it’s relatively easy to demonstrate that both cutting jobs through privatizing and 401k type programs accelerate the crisis and will create future burdens on the taxpaying public.  These two solutions sound great, but are simply unsound.

There are other ways to mess up retirement systems.  The federal workforce has decreased from 6.6 million in the late 1960s to 4.5 million today.  Clearly the reduction in employees contributing will have an impact on significant federal pensions.  Florida and many other states, with the windfalls on the late 1990s, reduced vesting from 10 years to 5 or 6.  That means that a greater percent of people will become vested, which means more future obligations.  That’s not a solution for solvency.  Florida’s legislature changed the contributions from only the government entity paying (a total of 10.4%) and required employees to contribute.  The employee match is their money and they get it back with interest, meaning only 7./4% remains in the system.  If experience with social security and other states is an indication, both shares will have to increase so that their combined total will be in the 13-14% range.  How did hat save anyone money?

So what’s the solution?  Two things.  First, the initial way these pension plans were set up were actuarially sound.  They should be revisited for contribution amounts, vesting period and expected return rates on investments (one of social security’s issues is that they own so many Treasury bonds that pay under 2% that it is hard to get a valuable rate of return).  This is a project for experts, not policians to consider and evaluate.  The big issue though is age for retirement. I know this is not popular, but let’s talk social security here as an example.   The text of the 1935 Social Security Act says that benefits were to be granted at age 65 (Section 202).  However the average age that people live to was 60 for men and 64 for women, meaning the average person NEVER collected social security.  Now it is 76 and 81, which means they collect for 12 to 15 years, tremendous difference in the obligations.  We all appreciate good medicine and most look forward to retirement, but keep in mind it comes with a price.  Since 50 is the new 30, we probably will all probably can be working longer.

Water and sewer workers like police and fire, are vital to thriving communities. So, let’s act with caution when looking at fiscal impacts that may come to utilities in the future. Since many of these folks have, and have worked hard to secure a retirement package, it will need to be funded.  But we must act judiciously when making changes to the current program.  Cut off payees – and ratepayers will make up the difference.  Change the type of program, and the potential for major losses occurs.

Does Delaying Decisions on Infrastructure Help Us?

May 21, 2013
Development loans, economy, Environment, funding, infrastructure, innovation, Insurance, Leadership, management, sea level rise, stormwater, sustainability, Tidal flooding, Uncategorized
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If you live on an island, and your groundwater table is tidal, what should your datum be for storm water planning purposes?  Average tide?  High tide?  Seasonal high tide?  If you are the local official with this problem, what do you do, realizing that the difference from mean tide and seasonal high tide (when most flooding occurs) is 1.5 feet?  Realizing that property and infrastructure is at much higher risk for periodic inundation, does the failure to address the problem indicate a lack of willingness, understanding, hope or leadership?  We see all four responses among local officials, but the “head in the sand” mode is the most curious.  It’s tough challenges that often define leaders.  With sea level rise, there is time to plan, construct infrastructure in stages, arrange funding, and lengthen the life of infrastructure and property.  Meanwhile, those insurers, banks and the public we talked about in a prior blog wait and watch.

Talk Radio discussion

May 18, 2013
Climate, communciations, economy, Environment, funding, groundwater, infiltration, infiltration gallery, infrastructure, innovation, Leadership, management, sea level rise, stormwater, sustainability, Tidal flooding, Uncategorized
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Talk Radio discussion

Hi All.

This is a radio show I did this week.  One of 4 I have scheduled.  It talks about me and my company, outlook, thoughts.  Take a listen.  Let me know what you think!

Fred

Congratulations Graduates

May 15, 2013
communciations, economy, graduation, Uncategorized
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The first of May is traditionally been graduation month for college students.  We went through our 6 ceremonies 10 days ago at FAU.  It is and should be a day of celebration for the students and their families.  It’s there day.  Congratulations to all graduates!!  Best of luck to all!   The good news is that the economy is picking up.  Pretty much all of our student have jobs in engineering, and employers are calling, looking for engineering interns and graduates.  Good news because clearly the business community sees a growth period ahead.  They are planning for construction.  Governments may be planning capital projects.  The stock market is up, so maybe those 401k plans have finally come back up north.  Housing values are improving in some areas, so maybe we will see that sea of retirements that’s been expected for a number of years.  With an economy based on attracting retirees, it’s been a while coming.