1

Watership Down? (For the Time Being Anyway...)

VMA Market Outlook Workshop

August 2014

2 2

3

A Message From Decker

Local and Regional Drivers

Forces and Trends

Market Performance

Potpourri

Regs and Legs

Fiscal Factors

Prognostication

4

Market Performance Who Moved My Cheese?

16

14

12

10

8

6

4

2

2005 2006 2007 2008 2009 2010

% M

ark

et

Gro

wth

2011 2012

2013

The Glory Years

Bad Moon A Risin’ Stimulated

Lag and Slow

Recovery Flat

5

Flat +/- for

2013

August 2013

Second half more

robust than first

Some

improvement

in 2014

6

2014 The Hunger Games

Water Construction

Wastewater Construction

2nd Quarter Trending

9%

3%

7

2014 Chicken Soup for the Soul

The Sages

*McGraw Hill -6%

*PCA +6%

*FMI +2.5%

ENR CICI at 60 for water

and wastewater

CFMA Confindex at 129

Overall

BC Sales and

Opportunity Funnel Up

8

Forces and Trends Catch 22

Rate Increases

Public Support

Surveys

Ballot Box

Conservation

Slow Population and

Housing Growth

Loss of Industrial/

Commercial Demand NEED: $Trillion+

9

Forces and Trends And Then There Were None

Impacting, Comprehensive

National Regulation

CWA - 1972

SDWA - 1986

CWA - 1987

__________ ???

__________ ???

__________ ???

10

Local and Regional Drivers A Tale of Two Cities

Infrastructure

Consent Orders

Supply and Drought

Initiatives

11

Infrastructure Things Fall Apart

UCLA

Nationwide - pipe breaks, on

average, every two minutes

14% - 20% non-revenue water

Not just pipes

R&R spend proportionately

increasing

Not yet a CRISIS

12

Consent Orders The Litigators

Overflows = Trigger

10 New Consent Orders

Since Last June

EPA Enforcement is

Highly Active

Plenty More to Go

13

Supply and Drought The Late, Great Planet Earth

2013 was driest year

on record

Using groundwater at

7X replenishment rate

Worst drought

conditions in 110

years of record

It’s not just

out west

Second worst

drought on record

14

Supply and Drought Meat Makes the Planet Thirsty

Used as feed supplement for grass-fed beef

“Exporting” 100 billion gallons per year

from a drought-ridden area

More profitable to send to Asia

Uses more water than other

California crops

15

Initiatives The Stand

Chesapeake Bay

Cleanup

Florida

Numeric

Nutrient

Limits

Texas Water Plan

California Bay

Delta Plan

16

Fiscal Factors Think and Grow Rich

Muni Bonds

- Good ratings

- Low default

60% > 5% for next 10 years

20% > 10% for next 10 years

Rate Increases

Averaging 5% - 6% Moderate Inflation

- Construction 3.0%

- Labor 3.6%

- Materials 0.3%

States Showing Surplus

$1B 28K jobs

Institutional

- $200B

- Return?

17

SRFs

- $1.8 B – House and White House

- CR?

WRRDA /WIFIA

- $175M to EPA

- $1 $10

- 49%

- No tax exempt bonds

HR 4237

- Lift cap on PABs

- $5B/year

Blending

- Iowa won

- Only applies to 8th Circuit

Waters of the US

Regs and Legs Divine Comedy

$10B for Rural Infrastructure

18

Potpourri The Joy Luck Club

Stormwater

Desalination

Fracking

DB

World Markets

Infrastructure

Spending

19

A Message From Decker

Local and Regional Drivers

Forces and Trends

Market Performance

Potpourri

Regs and Legs

Fiscal Factors

Prognostication

20

2014

Claw back to flat; maybe a slight uptick

Prognostication What Color is Your Parachute?

2015

Should see (very) modest growth for

first time in four years

But Remember…

Dependable market; essential to life

Rare booms; won’t tank

Good business to be in

21

Watership Down? (For the Time Being Anyway...)

VMA Market Outlook Workshop

August 2014