Build Business Infrastructure Client Panel Funding in Shackles: How America’s Infrastructure Is Impaired by a Challenged Economy INTERVIEWED BY LINDA MASTAGLIO, ABC
During the Infrastructure Client Panel discussion on August 25 in Chicago during Build Business, attendees will hear first-hand from leaders who face the daily challenges of maintaining critical infrastructure on behalf of the American public. Their insights into water and wastewater systems, transportation systems, and electric utilities will give the audience new research and commentary to help A/E/C firms enhance and improve services to their infrastructure clients. In recent interviews with panel members, they revealed some of the pressing issues they face and offered their candid opinions on current funding and technology issues. The insights expressed below will be expanded upon and discussed in the conference session; if you are attending the SMPS National Conference, use the following information to prepare your own questions for the panelists.
William Nabak, P.E. General Manager, Green Bay Water Utility Green Bay, WI On the challenge of maintaining infrastructure “Resources are where it all starts, and infrastructure is our industry’s biggest issue. New water quality developments come along regularly, and we have to fund the massive capital costs to upgrade our infrastructure to meet the new regulations. While we are looking for grant dollars and low-interest loans, these tools are stop-gap measures to deal with problems that have been created by years of neglect. This practice is not sustainable, however. True cost-ofservice rates are what is needed if our systems are going to flourish over the long haul.”
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On the daily struggles “Barely a month goes by when we don’t hear of some 42-inch water main breaking in the middle of a highway. Pipelines have lost their integrity. In Green Bay, for example, we have pipes that are close to 100 years old. The water system suppliers on the East Coast have even more challenge with this issue. A systematic basic overhaul of systems is needed. My opinion is that, if a water district takes a 50th of their system and, based on risk/consequence analysis, replaces pipe each year, the worst pipes are dealt with first, averting disaster.”
On help needed from industry firms “Engineers and others in the architecture, engineering, and construction industries can help us by becoming our allies as we approach lawmakers. Political leaders need to understand that low bid is not always the best option. The public must be protected, but the bidding process is not the only way or necessarily the best way to do so. A partnership between design engineers, financial consultants, and a utility could be a marvelous development. “When I look for consultants, I look for people I feel comfortable with. You have got to trust your consultants; they are making decisions in the field; they have to know the project upside down. Knowing that people in the field have your best interests at heart gives us peace of mind and makes our jobs easier.”
On a breach of confidence “There is a breach of confidence between scientists and politicians. Too often, we end up making political decisions void of cost/ benefit analysis. Too often, we must invest in items that produce minimal returns and neglect things where we could make a real contribution because we do not have enough resources. There are tools out there to assist managers in getting the best use of the public’s money and maintaining and upgrading the integrity of water systems. We are starting to refine the tools to run systems more effectively; but without proper funding, we must make do, and that means deferring many infrastructure improvements.”
On the funding imperative
President/Executive Director, Dallas Area Rapid Transit
“The recession in 2009 and 2010 had a big impact on funding for DART. Seventy-five percent of our revenue comes from sales taxes. Consequently, we can only do so much to impact our bottom line. We must live within our means yet provide quality service to as many customers as possible while maintaining our infrastructure. Capital expansion is on the end of that food chain, which is the frustrating part.
Dallas, TX On transportation choice: an emerging theme “America continues to see solid growth in rail programs—regional rail, commuter rail, and the re-emergence of streetcar systems as local circulators. What’s fascinating is that we’re going back to the first half of the 20th century. From 1900 to 1950, America had robust streetcar and interurban systems that went away. Now, many communities are trying to recreate them. As cars and fuel become more and more expensive, people need choices.”
“The bad news is that the economic downturn continues. The good news is that we saw this coming at least a year ago and began adjusting. Now, we are focused on our long-range, 20-year financial plan, which is updated every year. It has been a critical component of our planning. For example, last year we had three independent economists comment on sales-tax expectations. All three said to assume 3.75% growth, which meant we had to take $3 billion out of our long-range expansion plan.”
On transportation cost: who will pay the bill?
On essential growth
“From a funding standpoint, we need to look at non-traditional alternatives for rail and transit funding. In the past, there was an 80/20 split with the federal government, but times are changing. Now, for example, highways have gone to a 50/50 split. In transit, our challenge is how to capture some of that added value that comes in response to built infrastructure—the growth that comes from development around stations. Tax Increment Finance districts have helped build infrastructure in some areas but haven’t been used with rail and highways because other funding sources have been available. Now is the time to look at alternatives.”
“Navigating this rough economy hasn’t been easy and has affected our agency, but at the end of the day, we are minimizing the impact on our cities, stakeholders, and users. With gas prices going up, ridership is quickly picking up. We are running more trains morning and evening to manage loads comfortably. Over the next 20 years, we will not only add more 30- to 40-foot busses but also bring in smaller ones with 16 to 19 seats. They offer lower initial cost and operational expenses, translating into a savings of millions of dollars.”
On changing directions in project delivery “At DART, we’ve made a big move from design/bid/build (DBB) to a construction manager/general contractor (CM/GC) or a modified construction manager-at-risk approach. We’ve branched out to look at best-value solicitation. Some scenarios are appropriate for low bid, but others are better served with a best-value approach. Denver is moving forward with a public/ private partnership (PPP) approach. Funding issues cause agencies to be creative. The important questions are: What are you trying to accomplish, what tools are available to you, and how do the two match up?”
“We need to look at non-traditional alternatives for rail and transit funding.” —Gary Thomas, Dallas Area Rapid Transit
28 About the Panelists* Moderator: Jesse Oliver, Director of Business and Community Relations Rail and Transit Systems, Lockwood, Andrews & Newnam William Herdegen, Vice President, Kansas City Power & Light William Herdegen joined KCP&L in 2001 after 25 years in the electric utility business. Prior to joining the company, he served as chief operating officer for Laramore, Douglass and Popham, a consulting firm providing engineering services to the electric utility industry. Additionally, he was vice president of utility practice at System Development Integration, an IT consulting firm focused on development and implementation of technology systems. He began his utility career at Commonwealth Edison where he held various positions, including field engineer, district manager, business unit supply manager, operations manager, and vice president, engineering and construction and maintenance. He is a registered Professional Engineer–Illinois. Ken Kirk, Executive Director, National Association of Clean Water Agencies Ken Kirk is executive director of the National Association of Clean Water Agencies (NACWA). Previously, he worked with a consulting firm, where he had responsibility for the management of several associations; worked in the Environmental Protection Agency’s Office of Legislation; and served as public affairs manager at the Water Environment Federation. He has degrees from New York University, Georgetown University Law Center, and George Washington University Law Center, where his specialty was environmental law. He also serves as chair of the Water Infrastructure Network, a coalition dedicated to preserving and protecting the health, environmental, and economic gains that America’s drinking water and wastewater infrastructure provide. Most recently, he helped found and served as president of the Clean Water America Alliance, a nonprofit organization established to explore the complex issue of water sustainability and plan for the future.
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William Nabak, P.E., General Manager, Green Bay Water Utility William Nabak has been general manager of the Green Bay Water Utility for the last 30 years. A P.E. with a degree in chemical engineering, he received an associate’s degree in supervisory management and a master’s degree in administrative science. He served as president of the Wisconsin Water Association and was vice president of the American Water Works Association. Gary C. Thomas, President and Executive Director, Dallas Area Rapid Transit Gary Thomas is president and executive director of Dallas Area Rapid Transit (DART). Thomas is responsible for a 13-city, multi-modal transit system over a 700-square-mile area. He directs the agency’s top managers and 3,400 employees, emphasizing a strong customer focus to ensure that transit riders and taxpayers receive the best transit service available. He works closely with member city governments and the public in developing short- and long-term transportation and mobility goals. *Confirmed as of press time. Subject to change.
Infrastructure Client Panel August 25, 1:30 – 2:45 pm Build Business: The Bottom Line Sheraton Chicago Hotel & Towers www.buildbusiness.org
29 Ken Kirk
On defining a more rational system
Executive Director, National Association of Clean Water Agencies
“We need to put in place a more rational system to make significant progress over time. Affordability needs to be taken into account. Local municipalities can’t raise rates every year and expect rate payers to pay without verifiable and significant enhancements and improvements to local water quality. The water sector as a whole needs to do things differently. We must focus attention on affordable green infrastructure. We must invest more in innovation and technology to make bigger and better strides in the future. The CWA needs to be modified to meet 21st century needs. We need to explore ways to reduce costs and spend less, yet maintain high water quality.
Washington, DC On do-more-with-less can’t last forever “The ongoing economic downturn caused by the recession in the US created havoc for the water/ wastewater industry—not only interfering with traditional funding through its impact on the municipal bond market but also because of heightened scrutiny of any increases in rates and fees from both household and industrial rate payers. The federal government is investing less, the states are cash strapped, and local governments have fewer available dollars. We face a serious and disturbing trend of decreased funding. When you compare America’s infrastructure spending to the budgets in many other developed and developing countries, our comparative investment is surprisingly low. In spite of difficult financial constraints, the US Environmental Protection Agency (EPA) continues to impose increasingly stringent and costly requirements under the Clean Water Act (CWA) that often don’t provide substantial or justifiable water quality improvement or environmental/public health benefits. “According to the US Census Bureau, spending on water/wastewater systems is second only to education on the municipal level and competition within municipal budgets is increasingly fierce.”
On two sides of the same coin “Shrinking budgets and increasing regulations hurt water systems on two sides of the ledger: capital projects and operations and maintenance (O&M). Most of the money gained from rate payers goes to O&M. Replacement of aging infrastructure isn’t getting the budgetary attention it needs, while O&M is growing because of regulatory mandates and material, energy, and staff-related costs. “The future holds a lot more of the same: significantly more projects and requirements at very high associated costs and with unrealistic deadlines to develop those projects to accommodate CWA. In short, the CWA is no longer driving meaningful water-quality improvement as it once did.”
“A recent report released by our association states that achieving water quality gains for the future will require finding ways to do more with less. The report suggests three key approaches: 1) Maximize water quality returns for every dollar invested by making science-based water quality decisions on a watershed basis, 2) reduce unit costs through rapid introduction of new technology and innovative management practices, and 3) allow flexibility in local decisions including regulatory processes and timelines, which would enable wastewater utilities to effectively explore and implement the first two approaches. “Every dollar invested in infrastructure puts people to work and provides our citizens with jobs and economic well-being. We as a nation must set better priorities and improve water quality, thereby enhancing our economy, our environment, and our overall quality of life.”
William Herdegen Vice President, Kansas City Power & Light Kansas City, MO On a game-changer unfolding “Smart grid technology is changing the future of electric power service. For example, in Kansas City, we’re investing more than $48 million in a SmartGrid project that will impact a number of neighborhoods. It will incorporate advanced meters that deliver real-time electric use and price information to customers, solar panels at select commercial and office buildings, efficient home appliances, and ultimately electric vehicle charging stations.
“Infrastructure is our industry’s biggest issue.” —Bill Nabak, Green Bay Water Utility Marketer/June 2011
30 “We are finding ways to tie into smart homes and businesses in order to shape the demand curve. This will allow us to reduce energy use and create a much more economic future. By building partnerships with customers and using demand-side management, we will inevitably control the impact of growth, postpone investment, and level costs over the next 10 to 20 years. “Another change is the influence of renewables… solar and wind… and how we connect those resources to the grid and use them on a real-time basis to manage the overall cost of electricity. We are funding a lot of advances in technology, equipment, and processes so that we can replace things faster, cheaper, and better than before. These are exciting times in the electric utility industry because of such changes in alternatives and automation.”
On partners in design “One key area we are focused on is the need to develop strong working relationships with builders and architects and engineers. By working collaboratively in the earliest stages of design, we can help meet their needs by defining electrical infrastructure requirements, particularly for long-lead-time items such as transformers. We are also working with them on energy efficiency and demand-side management opportunities, both for new construction and for expansions and retrofit. Our goal is for design and construction teams to engage with us early in the process. We know this collaboration can reduce first costs during construction as well as reducing overall operating costs on an annual basis. In addition, these partnerships allow us help them to control electric usage during times of the day when demand cost is lower which helps the utility and all customers.”
On time taking its toll
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“Our physical infrastructure is experiencing the impacts of age and time. Most electrical systems in the US were put in after World War II and are now reaching the end of their useful life. Historical growth rates of two to three percent are now flat in many parts of the country where the economy has caused very few new homes and businesses to be built. With little to no revenue growth, utilities must balance the need to keep costs of electricity as affordable as possible with the need to extend the life of existing assets or replace them. However, through our partnerships with designers, businesses, and homeowners, we can optimize the loads in buildings and mitigate demand on circuits, leading to a higher utilization of existing assets and allowing utilities to divert the limited investment money to aging infrastructure and continue to meet the reliability needs of our customers.”
About the Interviewer Contributing Editor Linda Mastaglio, ABC, wrote the “Reality Checks” cover story in the February 2011 issue. She has helped many engineering, architecture, and construction firms and related associations use public relations and marketing to improve their businesses, their reputations, and their bottom lines. She can be reached at 903.963.8923 or Linda@twi-pr.com.