Recent years have seen the publication of a number of reports about how water and wastewater utilities in the United States can become more resilient, particularly when it comes to addressing rapidly aging infrastructure, optimizing operational efficiencies, and contending with increasing water demand.

There has been significantly less discussion about how state and local leaders (including mayors and county offices) can help water utilities invest in resilience. We believe that this is the missing link in preparing the water sector for the years to come—and that state and local leaders can take critical actions today to strengthen water resilience.

Across the United States, private and public water and wastewater utilities are underfunded. As critical water infrastructure ages, maintenance expenditures go up. Rising user costs (including for citizens) have been unable to close the funding gap. Although the Bipartisan Infrastructure Law (BIL) and other legislation provide funding to address this issue, our research shows the US water utility sector faced an estimated $110 billion funding gap in 2024 (nearly 60 percent of utilities’ overall spending), primarily driven by significant investments in aging infrastructure, operating expenses, and water-quality regulations (exhibit). By 2030, this gap could increase to approximately $194 billion.

The growing gap in funding is created in part by the need for utilities to manage increasingly complex climate hazards, particularly regarding water stress and flooding. Water stress is driven by both supply and demand and refers to a combination of agricultural and industrial water use, policy changes, and climate change, while flooding includes pluvial (rainfall), fluvial (rivers), and coastal flooding. Both types of hazards could increase in the United States and globally, and although water utilities did not create these challenges, they must not fail to provide solutions as well as drinking water and wastewater services. If they do, the consequences for communities could be catastrophic.

Our analysis suggests that state and local leaders can provide the operational, technical, and financial assistance that the highly fragmented utilities landscape needs to solve these challenges. This report identifies ten key actions state and local leaders can explore to help utilities close 25 to 45 percent of the nearly $110 billion annual funding gap. These actions all use existing funding sources and fall into the following three categories:

1. optimizing existing funding sources (approximately 5 to 10 percent of the funding gap), including innovating on existing rate structures, finding revenue opportunities, and maximizing existing state revolving funds and other programs
2. prioritizing resilience outcomes (approximately 5 to 10 percent of the funding gap) by developing long-term resilience planning
3. enabling operational efficiencies (approximately 15 to 25 percent of the funding gap) by supporting technology adoption, regionalization of the sector, and consolidated capital expenditures

While fully closing the gap will require rethinking how water systems are funded across the country, state and local leaders can play key roles in making existing funding go much further, thus boosting resilience for water and wastewater utilities. In the long term, working to close the funding gap could have positive economic as well as environmental effects. And for state and local leaders, working to solve challenges in the water and wastewater sector in their communities can put them at the cutting edge of innovation.

The post "Water resilience: Closing the funding gap for utilities" appeared first on McKinsey Insights