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    Home»Stock Market»How Water Utilities Could Save Billions and Strengthen Resilience
    Stock Market

    How Water Utilities Could Save Billions and Strengthen Resilience

    April 27, 20254 Mins Read


    Turning on the tap for a gush of clean water is something most Americans take for granted. Getting that water into homes and businesses, though, is a logistical miracle. Doing so requires more than 2 million miles of underground pipes, 65,000 different community drinking water and treatment systems — and lots of money to keep it all going.

    And that presents a challenge: In an analysis conducted in the first half of 2024, McKinsey estimated that in 2030 the funding gap for the U.S. water sector could reach $194 billion, up from $110 billion in 2024. Much of the nation’s water infrastructure was built in the 1970s and 1980s, and it is not unknown for cast-iron pipes more than a century old to still be in service.

    Closing the funding gap will likely require additional investment from the federal government. But relying solely on new funding is not much of a plan. State and local leaders can do things right now that could strengthen resilience and narrow the funding gap by 25 to 45 percent.


    Maximize existing funding sources: State revolving funds (SRFs) provide low-interest loans or grants to utilities for water infrastructure projects. Federal funding for SRFs has doubled since 2018, to $2.2 billion, but the number of projects has risen only by half (from 804 to 1,195). The implication is that state agencies that administer these funds may be able to get more for their money, for example by helping utilities to build predictive cash flow models and issuing bonds against SRFs to leverage additional funding. Improving accessibility through greater technical assistance to smaller utilities could also help scale the number of projects funded under an SRF.

    One possibility is to use more flexible pricing structures, such as seasonal and peak charges. Another is to allow utilities to explore ways to raise additional revenues while minimizing impact to the consumer, for example by selling treated water and recovering biogas. Finally, there may be ways to tap into non-SRF sources, including green bonds and programs that disburse funds to related categories, such as transportation or agriculture.

    Prioritize resilience: The case for greater resilience is strong: Building for resilience is simply building better, to higher standards. As with any kind of investment, the place to start is with information, including standardized performance benchmarks, followed by setting targets in areas such as reducing water consumption or increasing water reuse, and then forming a plan to reach them. Naming a chief resilience officer (CRO) can help create a sense of urgency; the CRO can be tasked with creating a repository of resilience plans that have worked at other utilities.

    At the state level, environmental agencies might consider creating specialized teams to help utilities develop long-term resilience plans. In addition, there is little downside to exploring how to use the permitting process to promote resilience and to facilitate infrastructure development. Some states, for example, give credit in evaluations to applications that incorporate resilience into new investment. New Mexico worked closely with local utilities to reduce per capita water consumption; now the aquifer level, a critical factor in resiliency, is rising. These kinds of initiatives will be key to enabling long-term growth in communities where water is a scarce resource.

    Optimize operational efficiency: When operating costs are high, utilities have less money to spend on maintenance and new projects. As always, technology is critical. Incorporating smart metering, intelligent asset management, digital twins and predictive maintenance can all help reduce energy use and pipe leakages, among other things. That frees up assets to fund capital projects.

    For smaller utilities wary of making such investments, state agencies could encourage such efforts by showing them how to pilot and deploy new technology. Sponsoring water-related startup incubators can accelerate and scale up innovation; Nevada’s effort has helped the state make the efficiency improvements that reduced per-capita water consumption in Las Vegas by 58 percent between 2002 and 2023. State agencies can also encourage greater cooperation between utilities to encourage economies of scale — something that can benefit the highly fragmented water industry.

    Upgrading America’s water infrastructure and making it more resilient will not come cheap. Done right, though, it could pay off, with substantial savings in future costs related to extreme climate events. Getting clean water at the flick of the faucet is essential in modern life. The challenge — and the opportunity — is clear.

    Sarah Brody is a partner in McKinsey & Co.’s Carolinas office.


    Governing’s opinion columns reflect the views of their authors and not necessarily those of Governing’s editors or management.





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