After experiencing strong growth in 2007, water supply and sewer/wastewater construction are anticipated to remain somewhat flat for the next several years. In its “2007 U.S. Markets Construction Overview,” FMI Corp., a management consulting and investment banking firm headquartered in Raleigh, N.C., estimates that water supply construction will decline from 7% to 5% between 2008 and 2010. The industry is expected to reach just more than $17.6 billion in 2010.
With regard to sewer and wastewater facilities, New York-based McGraw-Hill Construction forecasts a restrained 2% growth for 2008. Challenges facing the sewer and wastewater segment include aging infrastructure, diminished federal funding, and tighter government regulations.
According to the study, “What's On Tap? Grading Drinking Water in U.S. Cities,” by the Natural Resources Defense Council (NRDC), New York, the water systems in many cities were built toward the end of the 19th century. Moreover, the U.S. Environmental Protection Agency (EPA) estimates it will cost more than $390 billion over the next 20 years to replace existing systems and build new ones to keep pace with growing demand. Despite this data, government cuts to wastewater funding have persisted, resulting in a $21 billion funding gap (need vs. available funds) for clean water projects, as reported by the EPA.
“Like all facilities that don't turn a profit, the demand is always infinite,” says Jim Haughey, chief economist for Norcross, Ga.-based Reed Construction Data. “However, these systems don't get built until somebody supplies the money.”
Haughey points out that the depressed housing market is also impacting sewer and wastewater construction. “When the housing expansion was mostly single-family homes on big plots of empty land, a large number of new lines had to be built,” he says. “Now that development is mostly non-residential — and much of this is renovations — new lines aren't needed.”
What is needed, however, are improvements to water supply systems — particularly the procurement of additional water supplies. “This type of construction isn't like the neighborhood ice cream shop that's based on prospective profits of the next few months,” says Haughey. “The water plant is many years in the design and permitting stage. The new projects you see starting now actually are a result of development and taxes from a couple of years ago.”
In spite of several major water supply projects started in 2007, including a $1.3 billion water filtration treatment plant in New York, a $190 million reservoir purification facility in Colorado, and a $121 million water intake facility in California, large portions of the United States are suffering from unprecedented water shortages. Year-round water restrictions are common in many states, and a number of major cities in the Southeast, such as Atlanta, are facing the very real possibility of running out of water within a few months.
Exacerbating the water supply deficit are rapid population increases and deteriorating infrastructure — much of which dates back to pre-World War I. Of the more than 160,000 public drinking systems that service the United States, the majority are fed by ground water as opposed to surface water. In its 2002 report, “Assessment of Drinking Water Needs,” the EPA estimated total capital spending for the 20-year period through 2023 at $276.8 billion.
“Many of the contractors who do this type of construction are also dealing with some very stiff cost increases,” adds Haughey. “The materials needed to complete these jobs — concrete, steel, and plastic piping — are going up in price because they are valued in a global market these days. The heavy equipment they use has also increased in price. I've heard reports here and there of some out-of-the-way locations for heavy construction projects of this sort not getting any bids at all.”
Electrical contractors can take heart, however. On November 6, the U.S. Senate overrode President Bush's veto of the Water Resources and Development Act of 2007, authorizing $23 billion in new water projects. In addition, Haughey reports that construction starts for the sewer and water supply sectors nearly doubled in September. He also states that from January to September of this year, starts are up 52% compared to the same period a year ago. “You don't see that reflected in spending because it takes so long to build one of these facilities,” Haughey says.