Pumps & Systems, January 2008
Critical Issues Facing Businesses That Cater to Municipal Needs
Municipal revenue and budgets have fluctuated over the past year due to changes in the housing market. Housing prices in most high growth states increased rapidly in the first half of this decade. Rising housing prices resulted in a rapidly increased real estate tax base and significant increase in municipal revenue and budgets. These same states are now experiencing sharp declines in housing prices, exacerbated by the well-publicized crisis in subprime mortgages.
Inevitably, the housing price declines will result in a reduction in the real estate tax base, with a corresponding decrease in municipal income and budgets. While this drop will be most pronounced in states like Florida, California and Arizona, the decline in the value of existing homes will by no means be limited to only these states. This certainly suggests a need by municipalities to stress getting the most from every dollar spent.
Current Trends
As municipalities adjust to reduced real estate tax revenues, municipal purchases will trend towards minimizing pump life cycle costs. Pump Life Cycle Cost studies consistently show that energy cost is more than 50 percent of the total cost of pump ownership, with pump repair costs typically also greater than the initial outlay. This implies that the best prospect for getting a better return on every pump dollar spent is to select pumps based on the present value of their total life cycle cost. While this may seem complicated, it is the generally accepted method in industry of evaluating capital expenditures with well-documented procedures.
Fortunately for pump manufacturers, there will always be a need for municipal pumping. To continue our competitive advantage, our dewatering and rotary lobe pump manufacturing divisions continue to focus on providing the best quality products to meet our customer's needs for long term dependability and lower life cycle costs.
Although the real estate tax base may be temporarily declining, the population of the United States continues to grow. Increasing water consumption will increase the need for infrastructure and facilities to manage the water and waste requirements.
Additional Insights
Innovative conservation will become an ever increasing necessity. As the population of the United States grows, there will be an increasing demand on our natural resources. Pure water is a scarce commodity in many countries including parts of the USA. I believe this will lead to storm water being recycled as drinking water in some areas in the years to come. This will require technological innovation. Additionally, with this diversion of relatively clean storm water from the wastewater stream, the remaining wastewater will be thicker and heavier, which will also create new challenges and opportunities.