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Small Waterworks Navigate ‘Once in a Generation’ Flood of Money

April 28, 2022, 9:30 AM

One of three drinking water wells for Llano Quemado, N.M, began pumping sand instead of water a few years ago.

Normally the $350,000 repair on top of other needed upgrades would be a fortune in the rural, largely Hispanic part of Taos County, a community of 800 people tucked between the Sangre de Cristo Mountains and the Rio Grande River gorge.

But the federal government is handing out $11.7 billion earmarked for drinking water system improvements under the new infrastructure law, and it’s prioritizing such underserved, drought-stricken areas.

It’s a “once in a generation” opportunity to “cure nagging problems that many of our rural water systems are trying to address,” said Mike Hamman, former water adviser to New Mexico Gov. Michelle Lujan Grisham (D).

Still, Llano Quemado may not see a penny; in fact, it may not even ask for help.

“We’re [already] mortgaged up to our ears,” says Andrew Chavez, administrator of Llano Quemado’s water association.

The association has a $60,000 annual payment on existing loans, hundreds of thousands of dollars in other needs, can’t take on more federal debt, and the state hasn’t explained how else it might access the infrastructure bounty, Chavez says.

Andrew Chavez, administrator of the Llano Quemado water system in northern New Mexico, holds a screen that held back sand at the bottom of a collapsed water well.
Photographer: Bobby Magill/Bloomberg Law

While nearly half of the federal money from the new infrastructure law will be available as grants or principal-forgiveness loans, some systems may sit out applying if there’s any chance they’d end up with repayable loans, small-water system administrators in northern New Mexico told Bloomberg Law during a recent reporting trip across the region.

The Agua Sana water system about 30 miles north of Santa Fe, for example, wants grants to repair its leaking water system—"something we can easily apply for,” said Gloria Gonzales, operator for both the Agua Sana and neighboring Chamita water systems. But it’s not interested in a loan.

“A lot of the people that we serve are on Social Security,” said Miguel Vigil, board member of the Agua Sana water system. “If we raise the water rates, these people can’t afford to pay, and you don’t want to turn them off.”

Nationwide Hurdles

Nationally, disadvantaged rural communities face big hurdles to getting their slice of the infrastructure funds for water, most of which will be distributed through the Environmental Protection Agency’s State Revolving Fund (SRF). Application processes are daunting, technical assistance is scarce, and many small water systems don’t have the money or staff to design shovel-ready projects needed to apply.

More than 46,000 public drinking water systems across the U.S. serve populations of fewer than 10,000 people, according to the American Society of Civil Engineers. It found that between 2004 and 2017, there were up to 37 leaks and breaks per 100 miles of drinking water pipes.

“I’m concerned that communities that are more experienced with pulling proposals together and communities that have access to matching funds might get a disproportionate share of the resources,” said West Virginia state Rep. Evan Hansen (D). “Water infrastructure is among the most basic infrastructure that’s holding communities back.”

Many local water authorities are totally unaware the funding is there to help them, said Bruno Pigott, deputy assistant administrator of the EPA’s office of water and former Indiana water regulator.

“Small towns in rural Indiana had no idea that the SRF program even existed,” Pigott said, speaking this month at a summit of state water infrastructure finance authorities in Washington.

Small-Town Woes

Every state has its own strategy for fixing problems, but small water systems often have unique challenges to overcome.

In West Virginia, where the population is shrinking and the coal industry is steeply declining, half the state’s population consumes water from systems that are out of compliance with the Safe Drinking Water Act, according to a 2021 report from the American Society of Civil Engineers (ASCE), which said upgrades would cost more than $300 million.

West Virginia passed a law in March forming a commission to provide infrastructure assistance, including drinking water, to communities hardest hit by the decline of the coal industry. Another new law aims to provide state grants for water system upgrades and expansions across the state.

“The first challenge is for small water systems to even know that the funding is available,” said Hansen, a member of the EPA’s Local Government Advisory Committee, which in February urged the agency to focus on equity in its guidance for how states should spend the infrastructure money.

The next challenge is to ensure rural water systems get the help they need to write up project proposals to apply for the money, he said.

New Mexico’s Equity Challenge

The stakes are particularly high in New Mexico, where 63% of the state’s 2.1 million residents are people of color, mostly Hispanic and Native American.

Chamita, N.M.
Photographer: Bobby Magill/Bloomberg Law

The ASCE estimated drinking water infrastructure needs add up to $1.4 billion in New Mexico, where more than half the state’s population is served by about 480 rural water systems.

Many of those water systems are in disrepair and face uncertain water supplies because of climate change and the state’s decades-long drought, said Hamman, who in February became the state engineer overseeing all of New Mexico’s water resources.

“By and large, small to medium systems are 40 to 80 years old, and some of them haven’t been very well maintained,” he said.

Water systems most likely to receive the newfound federal funds are those already flush with cash, said Benjamin Warner, an assistant professor of geography and environmental studies at the University of New Mexico.

Applying for the money requires detailed technical reports, a plan for how the funds will be used, and an engineering report on how the infrastructure upgrade will solve a water supply issue.

Large water utilities more often have money to hire staff dedicated to seeking out and applying for infrastructure funding, said Bill Conner, executive director of the New Mexico Rural Water Association.

“Historically, it’s been more difficult for small systems to compete with that,” he said.

Drinking water equity challenges are complicated further because each state has its own priorities for how to dole out infrastructure funding and its own system to help out struggling small water utilities.

‘Really State Run’

Congress is sending states more than $50 billion over the next five years for water infrastructure needs. That includes $11.7 billion for drinking water systems, an additional $11.7 billion for wastewater systems, $15 billion for lead pipe replacement, and $10 billion for cleanup of emerging contaminants such as PFAS, half of which is dedicated to disadvantaged communities.

Starting in September, the federal infrastructure money for water systems will be disbursed through the EPA’s SRF, which relies on the states themselves to know which water systems need upgrades the most, and which ones are the most disadvantaged.

Each state writes its own definition of “disadvantaged” communities and criteria for which ones are eligible for loans, forgivable loans, or grants, so long as it complies with the Safe Drinking Water Act and the Clean Water Act.

The law requires that disadvantaged communities get at least 49% of the funding in the form of grants or forgivable loans, with 25% going to small water systems serving fewer than 25,000 people.

New Mexico, the District of Columbia, and many of the least populous states will receive $63 million from the law this year, according to the EPA. West Virginia is set to receive $83 million this year, and California will receive $609 million, more than any other state. The rest of the money will flow over the following four years.

New Mexico will determine water system funding eligibility based on the vulnerability of the system’s water source; compliance with the law; efficiency of water use; and the level to which the system has combined with other nearby water systems to pool resources, a process called “regionalization,” said Matthew Maez, communications director for the New Mexico Environment Department.

But as of early April, New Mexico hadn’t settled on its final criteria for which communities qualify as disadvantaged, he said.

The Sandia Mountains loom over Albuquerque, N.M., and Petroglyph National Monument.
Photographer: Bobby Magill/Bloomberg Law

Other states say they’ve made it easier for small water systems to get the infrastructure dollars.

California has simplified its funding application for small water systems unsure what their needs are, and the state can easily step in to help them with multiple technical assistance providers on hand, said Joe Karkoski, deputy director of the California State Water Resources Control Board’s division of financial assistance.

Systems that know what they need “don’t need to wait for anything,” he said. “We’ve already got plenty of funding. They can apply now.”

But that’s not the case in many states.

“The money gets funneled to the communities that can spend, for example, $100k to obtain an engineering report that justifies spending millions of dollars of federal money to upgrade infrastructure,” Warner, the New Mexico educator, said in an email. “Most of the communities that need it the most don’t have the capacity to do the legwork.”

That’s one of the biggest challenges facing Gonzales, the administrator of the Chamita and Agua Sana water systems, which together serve 2,500 people in two rural low-income Hispanic communities.

The high desert around the Rio Grande River gorge in Taos County, N.M., is experiencing a decades long extreme drought.
Photographer: Bobby Magill/Bloomberg Law

New Mexico officials have urged Gonzales to connect the two systems to pool resources, but Gonzales said she doesn’t have the money, time, or resources to start that process.

“They are constantly after us, and I don’t have staff. I don’t have anybody to help me,” she said. “I have an office manager in Chamita. We’re both retired.”

‘Spread Extremely Thin’

Over the last 30 years, each state has developed its own process to funnel federal funding to local water systems through the State Revolving Funds, which are still among the best ways to pay for water system upgrades.

The SRF are set to receive about three times their typical annual cash infusion, said Mike Keegan, an analyst for the National Rural Water Association.

“I think the biggest challenge of implementing the Bipartisan Infrastructure Law in small communities is the volume of funding that is rapidly provided to states,” he said.

There may not be enough engineers cover all the projects that would be funded by the infrastructure law in the coming years, said Conner of the New Mexico Rural Water Association. “Engineers in general are going to be spread extremely thin with this,” he said.

Management challenges within state governments may also choke the flow of funding to disadvantaged communities.

Gloria Gonzales, administrator of the Chamita and Agua Sana water systems in Rio Arriba County, N.M.
Photographer: Bobby Magill/Bloomberg Law

The EPA’s Local Government Advisory Committee warned the agency in February that SRFs are a “barrier” to needed drinking water infrastructure improvements in disadvantaged communities, noting that funds are often managed by state finance agencies that don’t have the technical expertise to fully understand water system needs. And states don’t always distribute all the federal money they receive.

The committee recommended that the EPA conduct direct outreach to local governments.

A Helping Hand

The EPA, which has issued guidance to states for distributing the funding, plans to help disadvantaged communities apply for the money by launching a $50 million technical assistance program in collaboration with the states and nonprofit organizations, the EPA’s Pigott said.

The agency recommends that states use 2% of their SRF funds to help pay for technical assistance, he said.

“Communities aren’t going to be just ready for an SRF dollar,” and they need state and federal governments to “hold their hand” to get through the application process, Pigot told state water finance authorities at the summit. It’s “going to be a heavy lift.”

The EPA expects to have its technical assistance program ready to go by “early summer,” Radhika Fox, assistant EPA administrator for the Office of Water, told Bloomberg Law.

New Mexico will ramp up its technical assistance as more money flows into the state from the infrastructure law and partner with universities and nonprofits to get communities the help they need, Maez said.

Even so, “the small underserved communities are going to need some help with grant writing, applying for the funding,” Conner said. “That’s going to take a lot of time, a lot of people.”

Better Together

Some disadvantaged water systems are less disadvantaged than others: For the largely-Hispanic community of Carnuel, N.M., it pays to be close to Albuquerque, the state’s largest city, which helped the community apply for grants to connect residents reliant on water wells to a community water system.

In 2008, Carnuel’s wells were contaminated and going dry, and the high cost of bringing in outside engineers to solve the problem proved unfeasible, said Mark Sanchez, the Albuquerque Bernalillo County Water Utility Authority’s executive director. So Carnuel and the county water authority teamed up.

“We can apply for grants, manage contracts free of charge—no administrative overhead,” Sanchez said.

Carnuel will leverage the partnership to apply for funding from the infrastructure law to finish connecting its residents to the water system, said Moises Gonzales, president of the Cañon de Carnué Land Grant, which governs Carnuel’s water system.

“We’re in dire need of sewer as well because we’re a community that’s dense because of it’s historical nature,” said Gonzales, an urban design professor at the University of New Mexico. “We have a bunch of failing septic systems. Ultimately, we need a central collective wastewater sewer system.”

Carnuel has partnered with the Albuquerque utility authority to serve as the water system’s fiscal agent and tap into its resources to apply for federal funding. With Albuquerque’s help, the EPA and state officials last year awarded $5 million to Carnuel to complete the first phase of construction on a community water system.

Carnuel—which dates from 1763 and is part of one of New Mexico’s remaining Spanish land grants—is building the project in phases. Many of the mostly adobe homes are already connected to the system, but those south of Interstate 40 bisecting Carnuel still rely on well water that is quickly being depleted by drought and a new housing development inside Albuquerque city limits.

It will take “millions and millions of dollars” to complete the project, Gonzales said.

“I feel more sorry for the water associations that are in rural communities in New Mexico made up of, like us, volunteer boards,” Gonzales said. “We’re potentially a successful story because we partner with the city of Albuquerque.”

Making a Case

Rural water systems reluctant to apply for infrastructure funding should contact state officials now about the kind of projects they need to complete, the EPA’s Fox said.

“Make a case for why a community needs a grant or principal forgiveness loan and have that conversation early,” Fox said. “Try to engage the mayor on that sort of thing.”

But El Rito, Llano Quemado, and many other small water systems throughout the country don’t have mayors because they serve unincorporated communities. They answer only to state agencies, which have done very little outreach about funding possibilities, water system administrators say.

Rural communities in New Mexico are asking the state to be aggressive spreading the word about how they can tap into federal grants and getting the technical assistance they need to apply.

“From the state, there is no outreach to say there is funding available,” Chavez said. “Infrastructure money demands that the state be proactive.”

The Rio Chama separates the Agua Sana and Chamita rural water systems in Rio Arriba County, N.M.
Photographer: Bobby Magill/Bloomberg Law

Gloria Gonzales, the administrator of the Chamita and Agua Sana systems, said she heard about the infrastructure law but doesn’t think her systems will be able to get much, if any, of the money.

“I haven’t heard where that is specifically for us,” she said.

State officials say they plan to reach out to water systems later this year after the New Mexico Environment Department expands its capacity to manage programs seeing a flood of money from the infrastructure law.

New Mexico’s Environment Department “will target broad public outreach to inform and assist communities seeking to finance infrastructure projects,” Maez said, adding that the state will update its website and make its pre-application for state revolving funds more user friendly.

‘We Cannot Pay It Back’

Many small water system administrators in New Mexico told Bloomberg Law they’re unsure if they’ll apply for the funding.

“You need to be able to be financially viable to get the funding,” Conner said. “Most of the funding is going to come with some debt, some loan piece to it, so you’ve got to be able to service that debt.”

Juan Garcia, administrator of the El Rito Water and Waste Association, which serves 1,200 people about 55 miles northwest of Santa Fe, said he’s reluctant to apply for infrastructure funding because state officials have told him he’s only eligible for federal loans.

“I’ve already mortgaged all of my people in El Rito with $800,000 in loan debt” for earlier water system upgrades, Garcia said. “At some point, we cannot pay it back.”

To contact the reporter on this story: Bobby Magill at bmagill@bloombergindustry.com

To contact the editors responsible for this story: Chuck McCutcheon at cmccutcheon@bloombergindustry.com; Gregory Henderson at ghenderson@bloombergindustry.com