The condition of infrastructure projects should be priced into municipal bond offerings, as many infrastructure assets around the country have turned into liabilities due to a lack of investment over the years.

That’s according to Rich Ciccarone, president and chief executive officer of Merritt Research Services, speaking on a National Academies of Sciences, Engineering and Medicine panel on Wednesday.

“Just like municipal bond market participants, they evaluate and price a bond issue, determine the borrowing rate based upon debt levels and pension levels,” Ciccarone said. “We want to do the same thing for infrastructure.”

“It’s not just an asset, we get a liability out of this when we do not fund our infrastructure properly,” Ciccarone said. 

Ciccarone compared the current state of infrastructure in the U.S. to the decline of the aqueducts in ancient Rome and its hand in bringing about the fall of the empire. 

But as many states are in strong positions to invest in their own infrastructure, maintenance on existing projects should remain a large priority, even as state officials begin to focus more on environmental, social and governance considerations.

“Sooner or later when it breaks, you’re going to have to pay for it, probably at a much higher expense,” Ciccarone said. “It gets very difficult to do new sustainable projects when you’re competing with what you didn’t fix in the past.”

The Pittsburgh Water and Sewer Authority is an example of an organization that deferred maintenance for many years and is now working to catch up. Its water systems were designed over a hundred years ago for a city with many more residents and significantly more industry, as the city is one of a number of industry centers that has experienced population decline since the middle of the 20th century.

“We are emblematic of a lot of those liabilities that can build up when proper investments aren’t made,” said Will Pickering, executive director of the Pittsburgh Water and Sewer Authority. In 2020, the authority launched an investor-relations site in a bid to improve the transparency of the organization and attract investors to its bond program.

In 2016, the organization knew it had to replace a number of its lead pipes after they fell out of compliance with the EPA by exceeding its lead action level. But in its vast system, the organization didn’t know exactly where these hazardous pipes were located, forcing the organization to collect much more data than it ever had before.

“In 2016, we really had no data as to exactly where these lead lines were located and we didn’t have them in any sort of format that was beneficial for our project management team,” Pickering said. “This has been a data intensive exercise but we now have data to help us determine where the lead lines are replaced first.”

In collaboration with its advisory committee, the authority used external and internal data sources to develop a prioritization model and begin the long journey to get this system up to date. But issuers often face other pressures that can delay such a lengthy project.

“Why are we not doing more than we are?” said Ciccarone. “A big part of that is the growing pressures in municipal finance to fund things like pensions and post-retirement obligations, which since I’ve been in the business, was often neglected, like infrastructure, because it could be.”

There’s been a tendency by elected officials to put off spending on infrastructure maintenance, just as there has been as they did for pensions into the future, Ciccarone said. But now there is big demand for both with not enough money to go around.

“That makes it a challenge for political officials and for taxpayers,” Ciccarone said. “We’re not innocent in this situation, we don’t always want our taxes to go up and therefore, what’s happened is, that holds back the ability to do capital financing, either out of current monies or from the bond market to make this more plentiful.”