Editor's Note: The information presented here is based on reliable insight from experts within the pump industry and relevant association leaders. At press time, details on the new U.S. presidential administration's stimulus package had not been finalized. However, we asked valid sources to speculate on the impact of the package. The Pumps & Systems editorial staff offers no opinions on the matter. We only report forecasts from these reliable sources. This will be an ongoing story that Pumps & Systems will follow throughout the year.
Facing perhaps the most desolate financial outlook since World War II, U.S. President Barack Obama is expected to unveil an economic-recovery package that could include large investments in energy, education, infrastructure and health care. The amount of stimulus and how it affects the pump industry is yet to be determined.
"As of this time, it is anyone's guess how big the stimulus package will be, but it will likely be of historic proportion from all the chatter we are hearing on Capitol Hill and in the press-anywhere in the range of $500 billion up to a trillion," says Dawn Kristof Champney, president of the Water & Wastewater Equipment Manufacturers Association, Inc. (WWEMA). "The only real number I have heard to date is from Congressman James Oberstar who heads the House Transportation and Infrastructure Committee. He is recommending that $9 to $12 billion be included for water and wastewater infrastructure projects."
Some sources report the package could be upward of $775 billion.
The amount considered for water and wastewater infrastructure projects is a large sum by comparison for the industry, but a mere pittance that may be included for financing of all infrastructure projects recommended in the final package, Champney explains. "Obviously, pump manufacturers would be among the beneficiaries of any additional investments being made to rebuild our nation's water and wastewater infrastructure."
The funds will likely be distributed to various community projects through the existing Clean Water and Drinking Water State Revolving Fund programs in the form of loans and grants and will target those "ready-to-go" projects that can begin construction within 120 days of receipt of funds. Tim Williams, managing director for government affairs for the Water Environment Federation (WEF), says there is some discussion that this mentality will change and Obama's forces may break away from the "shovel ready" projects and include some money that can be spent within two years.
"This would change things dramatically," Williams explains. "For example, the drinking water folks presented about $10 billion in ‘shovel ready' projects. If the criteria are changed from 12 to 24 months, the projects included could be three to five times that amount."
Champney suspects most of the funds would more than likely be earmarked for collection and distribution systems (underground pipes) instead of treatment systems, simply because they would require less design and engineering work upfront and would be the easiest projects to move forward most expeditiously. "Certainly there will be other aspects of the infrastructure investment package that will look toward more long-term investments, but they will likely focus more on alternative energy related projects than conventional water related projects," she says.
Williams says a big issue looming is whether the money will be given as grants or loans. "Some city and municipal advocates are concerned that the states will not be able to spend the money fast enough and are hoping for direct grants," he explains. "There is also a concern that the Drinking Water Revolving Fund program is primarily designed to benefit smaller communities, and they may have trouble meeting the compliance requirements."
Regardless of how funds are dispersed and the amount, Williams says one thing is clear. "Everyone agrees that it is a certainty that money will be given for water and wastewater infrastructure," he says. "The amount will be truly historic. At the height of the Clean Water Act in the 1970s, $5 to $6 billion per year was granted and the numbers that are being discussed here are gigantic by comparison. This is great news for municipalities and equipment manufacturers who support the municipal water sector. It is also great news for those involved with clean water. There are multiple economic benefits in terms of the jobs created and spending on pumps."
Williams adds there are also many environmental benefits since a large portion of the stimulus should go toward improving wastewater treatment facilities.
As for the timing, Congress's stimulus package is not expected be delivered to the President until mid-February, and discussion continues about the size of the infrastructure-based portion of the bill and the degree to which it will include water and wastewater infrastructure, says Ken Kirk, executive director of the National Association of Clean Water Agencies (NACWA), the leading organization advocating on behalf of the nation's public wastewater treatment agencies.
"There is a document gap of approximately $500 billion for water and wastewater infrastructure over the next 20 years," Kirk says. "It is a testament to the work of key organizations, such as NACWA, that water and wastewater infrastructure is being discussed as a key component of the stimulus package. That being said, there is work that must continue to be done to ensure that there is a significant portion of funds devoted to water infrastructure in the stimulus package and NACWA will continue to use the coming weeks to make it clear that a $10 to $20 billion program for wastewater infrastructure in the stimulus bill can be spent efficiently and quickly on documented, ready-to-go wastewater projects that will create solid jobs in the near-term."
The U.S. Conference of Mayors released a report on December 8 listing 11,391 "ready-to-go" infrastructure projects in 427 cities in search of economic stimulus funding. "Ready-to-go" in this report means implementing the projects quickly in 2009 with a goal of completing them in 2010. This 803-page report* documents 2,536 water and wastewater projects valued at $15.4 billion for a total of 133,193 jobs.
The Conference asked U.S. House of Representatives Speaker Nancy Pelosi and Obama for $38 billion in grants to cities throughout two years for water and sewer infrastructure. The Conference also asked that some portion of that money be oriented toward green infrastructure, not just traditional bricks and mortar. However, if the money is given to the cities there will be an enormous increase in capital spending on new and replacement equipment and also on pipes, Conference sources speculate.
What Congress will decide remains unknown, Conference sources speculate, but some House leaders have indicated that there will be stimulus or economic recovery money for water and sewer infrastructure. Many speculate it will be less than $38 billion, but more than the traditional (just under) $2 billion State Revolving Fund (SRF) recapitalization amount. It is unknown whether Congress will approve direct grants to cities or if any financial assistance will be disbursed through the SRF or through the States.
Eben Wyman, vice president of government relations for the National Utility Contractors Association (NUCA) says the National Governors Association (NGA) is also calling for infrastructure investment and cites the American Association of State Highway Transportation Association (AASHTO) with 5,000-plus ready-to-go transportation projects valued at $64 billion. NGA also cites $9 billion in ready-to-go wastewater projects and $6 billion in drinking water projects. Several of the nation's governors have publicly said there is at least $136 billion in ready-to-go projects currently pending.
"The economic recovery legislation will probably extend the capital investment incentives contained in last year's Economic Stimulus Act (ESA)," Wyman explains. "These tax incentives expedite depreciation of equipment and increase expensing provisions for new purchases. Essentially, this will allow businesses to write off certain equipment that is purchased and put in use in a given year."
How does this affect the pump industry? "If infrastructure investment is included in the next stimulus bill, there will inevitably be a higher demand for pumps because of the increase in work," Wyman says. "If the ESA bonus depreciation/expensing components are included along with significant infrastructure funding, construction contractors will be encouraged to buy more pumps if they can write them off."
The expediency with which the pump industry feels the effects of any stimulus will depend on several variables, Wyman says. "Obama is looking for ready-to-go projects. Depending on what the final determination of 'ready-to-go' is, how much infrastructure funding is included in a stimulus bill, and how quickly legislation passes the House and Senate and is signed by the president, it is possible that we will see an increase in the underground water/wastewater infrastructure market by this spring or summer.
"Based on several of these ready-to-go surveys and studies, the Clean Water Council (a coalition of 34 national and international construction associations and unions working together to increase water infrastructure funding) is sending a letter in support of economic stimulus legislation that includes $15 billion and $10 billion for wastewater and drinking water investment, respectively."
As industry leaders await answers, the response to the possibilities is mixed.
"The problem as I see it is how the stimulus package will be applied," says Thomas Brown, president of Advanced Sealing International. "Building infrastructure and improving technology are all fine and good, but just how that will be accomplished is very nebulous. Roads, bridges, interstate highways, etc., will not necessarily impact the pump and seal industry. Water treatment and wastewater facilities are generally local issues and not on the radar for government stimulus, although large power generation stuff may come into play.
"Expanding research into green objectives in the energy sector may have a positive effect, but that technology is still mostly experimental and in development. It may be some time before anything becomes viable-at least on a scale suitable to have an impact. The financial, insurance, housing and construction markets can and will be aided by financial stimulus. Pumps and seals are not part of those industries. We will see some ancillary and minimal benefit at best
"But a rising tide does lift all boats."
Kerry Baskins, vice president of sales and marketing/industry for Grundfos Pumps Corporation, says recipients of any government stimulus should be made accountable to use the funds judiciously. "The very fact that a crucial stimulus package is necessary and the circumstances that have made it necessary should be an alarm to any business leader in the pump industry that things are changing," Baskins says. "For companies in the pump industry to survive and grow, leadership is going to need to spend more time and resources on ‘lighthouse studies' that are aligned with the voice of the customer to try to understand what pump users will face in the future and how their own corporate competencies can contribute sustainable solutions that will be in demand given a very dynamic landscape.
"If the Obama stimulus package does, in fact, focus on infrastructure investment, pump companies that wish to profitably participate had better be prepared to deliver sustainable solutions that will bring long-term value and it should be in alignment with society's longer term needs. I think that businesses of the future are going to be much more carefully scrutinized in the public eye relative to the concept of ‘corporate responsibility' and the value they truly deliver."