‘Triple’ the sewer bill? Why Idaho cities can’t fund water projects, used ARPA

For the last three months, residents of White Bird, a North Idaho town with fewer than 100 people, have been shipping in drinking water, purchased with federal aid from the nearby city of Grangeville. One of White Bird’s two water wells had begun to dry up in June. The city’s volunteer mayor, who leads rafting and fishing excursions along the Salmon River during the summer, had declared an emergency and asked state and federal officials for help.

Idaho cities, counties and other local taxing districts manage water infrastructure such as wells, reservoirs and wastewater treatment and sewer systems. Across Idaho, small cities like White Bird, with little local tax revenue, rely on state and federal government assistance to finance urgent repairs to those systems. White Bird received about $400,000 in federal aid to pay for shipping water and finding a new well, according to the state.

Idaho officials, for the past two years, have directed COVID-19 stimulus money to help local governments supplement construction and engineering costs. But the $415 million didn’t come close to meeting the demand.

The available funds revealed an enormous demand for costly projects from local governments that applied. Upgrading a wastewater treatment system in Preston: $30 million. Installing a new well, water meter and control system in American Falls: $25.1 million. Replacing a wastewater treatment lift station and collection system in Gooding: $23 million. Water utilities in Idaho, and across the country, are aging, straining to keep up with population growth or falling out of compliance with environmental regulations, and upgrades have become increasingly expensive.

“We’ve hit a time frame now where there’s a lot of systems needing a lot of help, needing upgrades for a variety of reasons,” said MaryAnna Peavey, Grants and Loans Bureau chief for the Idaho Department of Environmental Quality (DEQ), the environmental health agency that directs federal water funds to municipalities. “The demand has increased faster than our funding.”

Elected state and federal leaders are at odds over how to address the problem. Though Gov. Brad Little dedicated some state money to cities’ water systems this year, still many of the projects remain unfunded. The state traditionally isn’t responsible for local governments’ infrastructure needs, said Madison Hardy, Little’s spokesperson. Other Republican state lawmakers, including some with pressing water needs in their home districts, remain opposed to spending federal funds, the primary source of financing for water utility projects.

“We have the money, so why do we have to use federal money?” Rep. Mike Kingsley, R-Lewiston, told the Idaho Statesman by phone. “I believe in Idaho’s independence and that we should be fiscally responsible and not dependent on the federal government.”

Meanwhile, members of Congress are redirecting states’ regular clean water financing to personal projects in their home districts, a process known as earmarking. States’ revolving loan funds are a source of low-interest loans that are recycled within each state, and Idaho has lost about half its annual revolving loan allocation to earmarks.

State officials across the country are raising alarms that the trend could destabilize long-term funding for water projects.

Cities use federal grants to ease tax burden

The city of Grand View, a small town along the Snake River about 50 miles southeast of Boise, has fewer than 500 residents. Many are seniors or farmworkers on fixed incomes.

When state environmental regulators told city officials it was time to upgrade their aging wastewater evaporation ponds to avoid leakage into groundwater and the river, the $3.3 million price tag was daunting.

“There’s not a lot of revenue to pull from the city at all,” Grand View City Clerk Kathy Brown told the Statesman by phone. “You can’t get blood out of a turnip.”

Last year, Little and state lawmakers opened up $300 million from the American Rescue Plan Act (ARPA) for water projects. ARPA is a $1.9 trillion stimulus package that Congress approved during the COVID-19 pandemic. That money funded roughly three-quarters of Grand View’s upgrade.

“I can’t even begin to describe how important the grant money was,” Brown said.

Similarly, New Meadows Mayor Julie Good said the cost to build a new city drinking water well and replace a water tank, which had a vintage fire pump that raised safety concerns, was “way more” than local taxpayers could handle. A $1.9 million ARPA grant nearly cut in half the rate increases for New Meadows residents had they funded the project locally, Good said by phone.

Officials from three small communities told the Statesman that they don’t have the capital to fund large-scale water and sewer projects, and the federal assistance has helped keep property tax and rate increases manageable.

“They have enough trouble paying their bills as it is,” said Larry Bybee, public works director for Gooding, a southern Idaho city near Twin Falls that received a $13.6 million grant to help rehabilitate its aging wastewater system. “In order to find another $13 million, we would probably triple their sewer bill.”

A recent public policy survey by Boise State University’s Idaho Policy Institute found that 56% of Idaho residents are concerned about climbing property taxes, a 10% increase from the previous year.

Some local taxpayers have shown they’re willing to pay extra to address water needs. In 2021, Boise voters approved a $570 million bond to fund a decade’s worth of sewer improvements that will add capacity and water recycling facilities. More than 80% of voters supported the city’s plan that will raise sewer rates about 10% annually over two decades.

Larger cities have more resources to secure financing, from a larger pool of ratepayers to additional staff that seek out funding opportunities. But many smaller Idaho communities are in “maintenance mode,” said Cameron Arial, former community development director in Meridian and the president and CEO of Clearwater Financial, which helps local governments find financing money for infrastructure projects.

Inflation combined with rising interest rates and construction costs have made large-scale infrastructure projects — whether for clean water or other local needs, like schools — “unattainable,” Arial said by phone.

“What was a $10 million project is now a $14 million project,” he said. “That’s significant.”

The Association of Idaho Cities and Clearwater Financial in recent months have surveyed officials from 149 Idaho cities on their infrastructure needs. While the survey isn’t complete, the results so far have been “pretty breathtaking,” Arial said. Demand for water and sewer needs currently total upward of $2.4 billion for cities alone, according to preliminary survey data, which was released to the Statesman in September.

Total infrastructure needs from the cities surveyed — including roads, bridges, drinking water and wastewater facilities — is about $4.8 billion. Fifty cities have yet to respond to the survey, including some of Idaho’s largest, Arial said. And the survey didn’t include county governments and other agencies that manage water systems.

The ARPA funds, while appreciated by local officials, are a “drop in the bucket” for what’s required to rehabilitate water systems across the state, said Kelley Packer, executive director of the Association of Idaho Cities.

Officials of small cities are “at a loss for being able to upgrade their aging infrastructure and provide their residents with the needs that are existing,” Packer said by phone. “That’s a story that is told over and over throughout the state.”

Idaho Republicans clash over ARPA spending

Despite the overwhelming demand, a bloc of Republican lawmakers remain resistant to accepting any federal aid. While the Legislature approved $323 million in ARPA spending on water projects with majority GOP support, 27 Republicans each of the last two years opposed using the COVID-19 stimulus.

All three lawmakers from Legislative District 7, which encompasses White Bird and New Meadows, this year voted against an additional $115 million for local water systems that included $23 million from ARPA. The district is represented by Kingsley, along with Rep. Charlie Shepherd, R-Pollock, and Sen. Cindy Carleson, R-Riggins. Carleson did not respond to a request for comment from the Statesman.

Kingsley argued state surplus tax revenue — which has surpassed $900 million two of the last three fiscal years — should be used for urgent water needs like White Bird’s. Shepherd said he feared using ARPA funds would come with strings attached.

“They dangle it in front of you, like they’re really going to help you out, do you a favor, until you start reading the fine print,” Shepherd said. “It ends up being just a big disaster for the state, which, in the long run, costs everybody that uses that money time and effort.”

Projects that cost $10 million or more were obligated to certify that contractors were paid Davis-Bacon wages, or face reporting requirements. The Davis-Bacon Act is a 1931 law that public works laborers be paid prevailing wages, or compensation similar to the majority of laborers in the area.

ARPA recipients also had obligations they already faced, such as ensuring discharged wastewater is clean, Bybee, the Gooding public works director, said by phone.

“We’re extremely grateful to the Legislature for making the money available and we’re making good use of it,” he said.

Much of the state’s surplus has gone to ongoing income tax cuts, one-time rebates and increased spending on public education, which Hardy told the Statesman was the governor’s top priority. The state last year directed $200 million to local road and bridge maintenance using surplus funds, and this year’s one-time local water system boost used $92 million from the state’s general fund — an “unprecedented investment,” Hardy said by email.

Little defended using COVID-19 stimulus by arguing that larger states, like New York and California, would use Idaho’s share of the federal aid if it was returned. And he’s touted state spending on local infrastructure needs as a form of property tax relief.

“The governor sees investments in drinking and wastewater systems as beneficial to improving rural community development, allowing communities to attract and retain businesses, and importantly, lowering the property tax bills and user fees that rural Idahoans would otherwise face,” Hardy said.

But why not more assistance for local water systems considering the demand? The $415 million investment was meant to address an estimate of “shovel-ready projects,” and tackling the backlog of maintenance needs won’t happen overnight, Hardy said.

“While there are many pressing needs in the state, Gov. Little’s top priority has always been education,” she said. “The state of Idaho has a constitutional obligation to fund a system of public schools in Idaho.”

Congress makes way for ‘pet projects’

Meanwhile, Congress has slashed longstanding funding that finances water utility upgrades, casting doubt on whether local governments will be able to fund large-scale projects when the federal stimulus runs out.

For nearly three decades, Idaho has participated in drinking water and wastewater revolving loan funds, which provide low-interest financing from the Environmental Protection Agency for municipal infrastructure projects.

The state Department of Environmental Quality has directed about $1.1 billion to local governments since 2000. Interest rates on the loans are 2.5% or lower, and the state matches 20% of the federal funding. Often, communities considered “disadvantaged” are forgiven the principal on their loans.

“We really make this a low-cost way for communities to finance their upgrades,” Peavey said. “There are other funding agencies, but we’re a major player in funding these projects.”

The state gets about $19 million on average for the water and sewer revolving loan funds, but that’s been cut in half over the last two years. The regular funding isn’t one-time, like the stimulus money, because the money is recycled in Idaho, creating a stable source of federal assistance, Peavey said.

“When we get $20 million, we lend that money out and then it stays within the fund for years,” she said of the mechanism, known as capitalization grants. “This is how we’re going to fund projects in Idaho for years.”

Congress has redirected about $2.3 billion in revolving loan funds to earmarks, or “political pet projects,” according to a Washington Post analysis. Instead of giving the money to states to use as they see fit, Democrats and Republicans in Congress have used the funding for their own preferred projects, the Post reported.

Republican U.S. Rep. Mike Simpson is the only federal lawmaker from Idaho to use the earmark process. The practice is often derided by GOP lawmakers, including Simpson’s colleagues in Idaho’s congressional delegation. But Simpson has repeatedly defended earmarks as a method for Congress, rather than the federal bureaucracy, to determine spending on local needs.

“I think Congress has both a responsibility and an obligation to determine how funds are going to be spent,” Simpson told the Statesman by phone. “I will guarantee you that I know my district better than any bureaucrat in Washington, D.C.”

Simpson has secured more than $100 million for earmarked Idaho projects for the upcoming fiscal year. Roughly a quarter of the funding will go to drinking water and sewer projects, including financing for a wastewater system overhaul in Rexburg and a new water storage tank in Preston.

This month, governors from Kentucky and South Carolina, co-chairs of the National Governors Association’s bipartisan Economic Development and Revitalization Task Force, urged Congress to reverse cuts to state revolving loan funds.

“Over time, capitalization grants allow (state revolving loan funds) to build a permanent source of recurring revenue to meet the ongoing needs of rehabilitating, replacing and rebuilding resilient water infrastructure,” the governors said in a news release.

But earmarks provide grants, rather than loans, which means expenses can’t be “recaptured for future use,” the governors said.

Simpson said with the earmarks and another $43 billion going to states through President Joe Biden’s Infrastructure Investment and Jobs Act, which Congress passed in 2021, water systems are “probably are going to have more money than they think they are.” Simpson voted against the infrastructure bill.

U.S. Sen. Mike Crapo, on the other hand, believes earmarks “encourage wasteful spending,” said Marissa Morrison, Crapo’s spokesperson. Crapo has encouraged investing in state revolving loan funds and has supported legislation to expand funding eligibility for water projects, Morrison said by email. He also supported the infrastructure bill, she said.

Representatives for Sen. Jim Risch and Rep. Russ Fulcher did not respond to requests for comment.

Idaho has fared better than other states and territories that typically receive revolving loan funds. Puerto Rico, for example, has received nearly $27 million less as the territory recovers from a destructive hurricane last year, the Post reported.

But the Idaho demand isn’t going away, and new needs will arise, Arial said.

“It’s a challenge, and, in our view, it’s not political,” he said. “It needs to be a top-of-mind discussion for any policymaker. How do we provide basic government services that are the essence of government, like roads, water, wastewater? These aren’t things that are controversial or nice to have. It’s the reason why governments exist.”