Overcoming Barriers to Paying for Distributed Infrastructure

We often hear that utility managers would like to upscale their green stormwater infrastructure, water conservation, lead service line replacement, or other distributed infrastructure programs—but have been told they can’t access the capital that could be provided by State Revolving Funds or bond proceeds.  

One reason often given is that the rules set by the Governmental Accounting Standards Board (GASB) only permit public entities to use debt financing to pay for a tangible asset that they own or control. 

However, as indicated in a 2025 EPA publication, GASB has recognized that public entities often need to make long term investments that don’t produce conventional tangible assets, but that are also not properly characterized as “annual expenses” for accounting purposes.   

To address this, GASB developed Statement 62 which allows public entities to book debt for investments that do not produce tangible assets within their ownership or control. Under this approach, known as Regulated Operations, the “asset” is not the physical thing being capitalized (e.g., water efficient appliances, turf changeouts, GSI installations). The asset is instead the guaranteed promise of repayment through future rate revenues. GASB 62 is thus a complete alternative to traditional capital asset accounting.  

Regulated Operations accounting is available to any governmental entity with a governing board legally authorized to: 

• Set rates 

• Set those rates at levels to cover the cost of the program being financed 

• Commit to setting rates in the future to repay the debt. 

Virtually all public water providers are positioned to meet these criteria.  

While well known in the energy sector, GASB 62 is not commonly used in in water utility accounting. For this reason, WaterNow spearheaded an initiative to persuade GASB to issue technical guidance, which they did in May 2018, clarifying that public entities are authorized to use Statement 62 accounting to book debt for distributed water system installations, whether in the form of consumer incentives or direct installations. As a result, Denver Water has been financing its private property lead service line replacement program since 2021 using GASB 62 accounting.  

The 2018 GASB 62 guidance is a game changer. If even a tiny percent of the billions in annual capital spending for local water infrastructure nationwide is redeployed to distributed solutions, it would represent vast new investment capacity and a major expansion in the adoption of distributed technologies and programs.  

Booking Debt for DI Using Conventional Accounting 

GASB 62 may not be available to all communities; for example, if a utility does not have rate setting authority or where utility-specific rules require control over an asset. In those cases, it may still be possible to upscale distributed water infrastructure using debt under conventional accounting rules. 

“Asset” status may be achieved under conventional accounting if the distributed infrastructure is structured to provide the utility sufficient “control” over the property in question. Control results from the utility’s ability to “determine the nature and manner of use” of the capacity of a resource. This may consist of a right on the part of the utility to: 

• Directly use the capacity to provide service 
• Exchange the capacity for another asset or for cash or 
• Employ the capacity in other ways that provide benefit

Control may be retained through an easement or established by contract. Two well-known examples are the Southern Nevada Water Authority which has bond financed its “cash for grass” program for over 20 years, and the Milwaukee Sewerage District which has been debt financing much of its green infrastructure program since 2020. Both agencies are using standard accounting to book their debt by establishing legal control over the assets being financed even though they are on private properties distributed widely across their communities.