Kentucky water utilities struggle with aging infrastructure, debt and more

Hyden-Leslie County Water District’s water supply tank was built top of underground coal mines, which the utility says threatens the stability of the site. (Kentucky Lantern photo by Liam Niemeyer)

When Caney Creek rose during deadly flooding in 2022, Alice Lloyd College in Knott County was largely spared from significant damage. But further downstream, an aging wastewater treatment plant that services the campus was inundated. 

Motors burned out, electrical panels were damaged and silt clogged the treatment basin. After using a $2 million loan from a local bank, federal relief funding and money the utility set aside for repairs to get it operational, Knott County Water and Sewer District CEO Jared Salmons still worries about how long the 1960s-era plant can last. It can’t handle more sewage, a limitation for Alice Lloyd College, which Salmons sees as an economic “bright spot” for the Eastern Kentucky county.

“We just got Band-Aids on it,” Salmons said. “I feel like we’re kind of skating on thin ice.” 

They’re not alone. Recognizing widespread need, lawmakers last year created a program to help  struggling water and sewer districts and backed it with $150 million. So far, requests for aid exceed the available funding by more than a half-billion dollars. 

The program received 150 applications totaling $657,394,094, according to the Kentucky Infrastructure Authority, as utilities across the state seek help with aging treatment plants, leaky water lines, inoperable water meters and other failing infrastructure.

The new program, called the Kentucky Water and Wastewater Assistance for Troubled or Economically Restrained Systems Fund (WWATERS), provides funding not only for infrastructure but also debt and required financial audits.

The large majority of the 150 applicants are small water districts serving unincorporated areas or small cities with their own water system. 

The detailed applications, which the Lantern obtained through the Kentucky Open Records Act, provide a window into the serious challenges facing many of Kentucky’s 432 public water utilities. 

Untreated or poorly treated sewage is spilling into streams, some Kentuckians are unsure if they’ll have water or that their well water is safe to drink and some small utilities appear at risk of going under, according to the applications.

The uncertainty and infrastructure inadequacies hamper efforts to create jobs in rural areas where poverty and unemployment are high, says Jennifer McIntosh, an associate director of community and economic development at the Kentucky River Area Development District in Eastern Kentucky. In areas where there is growth, such as around the Red River Gorge, outdated infrastructure can’t meet new demand.

Salmons’ water district is asking for about $5.1 million to replace the aging wastewater treatment plant with a bigger one out of the floodplain. That comes after the district received a direct line-item grant from the legislature’s last two-year state budget that only funded part of the project’s costs, he said, which have risen due to inflation. 

Salmons knows competition comes with the territory. Some applicants for the WWATERS program include larger cities such as Louisville and Owensboro. 

Those utilities, Salmons said, tend to have more resources available and do not have to deal with sprawling water infrastructure that spans hundreds of miles in Eastern Kentucky. 

“There’s parts of our system that takes an hour for, say, somebody doing a work order to drive,” Salmons said. “That’s who we’re competing with though in some of this funding. It’s not just rural [water] districts, it’s every district.” 

The legislature next year will also have final say over which WWATERS applications are funded, in a departure from the usual process. The Kentucky Infrastructure Authority through a governor-appointed board usually makes final decisions about revolving loan funds for water infrastructure. 

Through the WWATERS program, lawmakers will choose from the list of projects to approve for funding that are ranked by the infrastructure authority based on certain criteria, including the amount of a utility’s debt, the income of its customers and if a given project would regionalize and consolidate water systems, an ongoing goal of utility regulators. 

Meager resources collide with failing infrastructure

Scott Young, executive director of the Kentucky Rural Water Association, told state lawmakers last year that a J.D. Power study that found Kentucky’s tap water to be the best in the country might give a deceptive picture about how Kentucky’s more than over 400 public water utilities are faring.

Decades-old treatment plants, pump stations, pipelines and water storage tanks have exceeded their lifespans, Young said, leading to leaks, service interruptions and creating a public health risk in the case of failing wastewater treatment infrastructure. 

Among the WWATERS applications and detailed funding requests from utilities are what appear to be widespread and urgent problems, some from failing infrastructure and others spurred by litigation:

• In Martin County, there are “constant” sewage overflows into the Preston Branch waterway because a wastewater lift station installed in the 1990s serving a Save A Lot grocery store and nearby office space in Inez isn’t operational anymore and needs to be replaced. “Failure to properly maintain this lift station in the past has caused raw sewage to overflow causing public health and safety issues,” the Martin County Sanitation District wrote.

• In Green County, the Green-Taylor Water District is asking for money to build thousands of feet of new water lines to connect 30 new households. “The existing residents are in need of a safe and reliable portable water source,” the utility wrote. “Some residents are currently experiencing failures with their water supply wells or springs and are in desperate need of a new potable water source.”

• In Powell County, the Powell’s Valley Water District wants money to relocate a pump station that supplies drinking water to roughly half of the water district’s customers, including to Natural Bridge State Park. A past landslide above the pump station cut off power. Even though service was restored, the utility considers the slide to pose a “serious threat” to the station and a safety risk to employees.

• The WWATERS program also offers emergency funding to utilities for “restoring or avoiding imminent interruption of utility service.” In Greenup County, a joint sewer agency is seeking funding for stopgap repairs to existing wastewater treatment plants until a new, regional wastewater plant can be built years down the line. “The motor controls throughout the plant are failing,” the sewer agency wrote about one of the plants in their application for funding.

• A Harlan County utility is asking for new water lines, pump stations and water meters as it deals with the fallout of its utility board and general manager resigning in 2020. The Black Mountain Utility has repeatedly been under investigation by the Kentucky Public Service Commission for alleged financial mismanagement, including the utility appearing to use portions of federal grant money “to pay delinquent bills for daily operating expenses” and using a surcharge on electricity bills meant to pay down debt to instead pay for garbage bills.

• The Livingston County seat of Smithland in West Kentucky is applying for WWATERS funding hoping to add a new package wastewater treatment plant to replace a more than 50-year-old “waste stabilization lagoon” that the Kentucky Energy and Environment Cabinet sued the city over in 2021, litigation that is still ongoing. State officials said in their 2021 lawsuit the lagoon was “overtopping, has multiple seeps in its earth embankment” and was “likely to fail in the near future.” State officials also said the disinfection unit at the lagoon was not operational, releasing untreated wastewater into the Cumberland River. 

In one Eastern Kentucky community, the Hyden-Leslie County Water District needs to relocate its 1 million gallon drinking water storage tank that supplies drinking water to the Leslie County seat of Hyden. 

McIntosh, of the Kentucky River Area Development District, told the Lantern a previous engineer didn’t do a geotechnical analysis when locating the water tank on a hill above Hyden, and the tank was placed on abandoned mine land. 

“Basically, there is a sinkhole kind of underneath of it,” she said. “It does need to be relocated to an area where, you know, it can be more safe and secure.” 

McIntosh worked with Hyden-Leslie County and other districts and agencies on WWATERS applications. The aging tank needs “constant maintenance and labor to stymie its chronic water leaks,” according to the application; also, its location atop underground coal mines has compromised a concrete foundation that is “deteriorating past repair.” The utility estimates a larger tank in a new location would cost $3 million. 

McIntosh said she works to get funding from multiple programs beyond WWATERS because smaller utilities often don’t have the financial resources to make infrastructure upgrades themselves. 

In Breathitt County, for example, improperly treated sewage is going into the Kentucky River when there’s a high flow of wastewater because of failing equipment, according to an application from the county seat of Jackson. The city in its funding application says it needs a new wastewater treatment plant out of the floodplain after the existing plant took on flood damage in 2021 and 2022.

The Wolfe County seat of Campton needs wastewater treatment plant upgrades to meet “exploding” demand from population growth in the Red River Gorge area. The Letcher County city of Fleming-Neon is asking for tens of thousands of feet of new water lines to deal with ongoing high water loss from leaking lines. 

And it can sometimes take a long time to get those projects funded. McIntosh said a project to extend drinking water lines out to fewer than 200 people in Letcher County took 26 years to get funded. She said she was the fifth person at her area development district to work on the project. 

Those working at small water and sewer systems, which can often have a dozen or fewer employees total, have to manage the infrastructure they have until that funding comes. 

“They’re really unsung heroes,” McIntosh said. “People have no idea what they deal with in order to make [sure] that we have water and sewer service every single day.” 

Debt and litigation

Infrastructure challenges are also exacerbating utilities’ legal troubles and financial hardships; some are asking for help getting out from under debt while others are asking for infrastructure upgrades to satisfy violations of government regulations or even litigation. 

Other utilities are dealing with the fallout of financial mismanagement and poor internal controls over record keeping, becoming the target of scrutiny from the state utility regulator, the Kentucky Public Service Commission, and other agencies. 

The city of Livingston in Rockcastle County is asking for about $220,000 to help conduct and file past financial audits that previous city leadership hasn’t done, thereby disqualifying them for some types of financial support. The city’s WWATERS application states the only audit conducted since 2009 was in fiscal year 2021 in part because of “[f]inancial strains and limited funds.” 

“Investigations are being conducted by Rockcastle County Sheriff’s Office and in conjunction with Kentucky State Police,” wrote Livingston city clerk Samantha Smoker in the application. “It is unknown to me whether the documents were not properly recorded, destroyed or lost.” 

Livingston is also asking for help with over $100,000 of debt it owes to the nearby Woods Creek Water District, which sells the city drinking water. That reportedly led to the city’s water service being cut off earlier this year, prompting the Kentucky Public Service Commission to launch an investigation. 

Woods Creek Water District in a filing on Dec. 2 before the commission said the Kentucky Infrastructure Authority is planning on giving Livingston $57,000 to pay off some of the city’s debt, adding that the district wouldn’t cut off Livingston’s water service as long as it received that $57,000 and regular payments from the city. 

“[Livingston] Mayor [Sandi] Singleton expressed significant concerns, as did others attending the meeting about the poor physical condition of the both the water and sewer systems and indicated that Livingston does not have the expertise to operate the systems or bring them into a state of repair to prevent the enormous amount of water that is being lost,” the filing from the Woods Creek Water District states. 

In West Kentucky, the city of Smithland in its WWATERS application says a new $5,630,000 wastewater treatment plant would take the treatment lagoon out of service — the subject of an ongoing lawsuit with state officials who say the lagoon is a public safety and public health hazard. In an October court filing, the Energy and Environment Cabinet stated there was no guarantee the city would receive grant funding for a new plant.

A difficult option: raising rates

The financial crunch faced by small utilities and the amount of dilapidated infrastructure is a predicament that’s been on the radar of regulators for years. The Kentucky Public Service Commission in 2019 issued a report investigating why a number of drinking water utilities in the state were failing to reduce high water loss. Water lost through leaky lines drains drinking water utilities’ finances because they are paying to treat water that never reaches consumers. 

The report concluded that poorly trained water utility board members facing local political pressure not to raise rates were an obstacle to the long-term sustainability of these utilities. For city-owned utilities, local city councils raise those rates. For water districts, those rate increases are sought before the Kentucky Public Service Commission. 

Young, the leader of the state rural water association, told the Lantern he’s seen “countless examples” of city councils reluctant to raise rates because of the burden on customers.

“As a direct result of that, utilities just often don’t have the funds available to go out and make the necessary repairs and capital improvement projects and sometimes just generate enough revenue to operate,” Young said. 

But he also said those smaller utilities have the difficult prospect of raising rates across a smaller customer base and don’t have as much ability as larger utilities to get loans. Young hopes the WWATERS program “bridges the gap” for those smaller utilities, even if the need for new infrastructure is enormous. The latest federal estimate of infrastructure needs for drinking water in Kentucky over the next 20 years  — not including wastewater infrastructure — was more than $7.8 billion. 

For one water district, the need for new infrastructure is existential. The McKinney Water District in Lincoln County, serving about 1,800 residential customers, is asking for WWATERS funding for new water meters and to repair leaky water lines that haven’t been replaced since the utility was founded in 1969. The utility writes it can’t continue operating without major changes to its deteriorating infrastructure. 

Matt Rankin, the chairman of the water district’s board, told the Lantern the utility at times doesn’t know where leaking water lines are because “nobody’s still alive that would even know where the lines are.” Those lines are often the culprit behind the frequent boil orders the utility issues. 

The utility also serves a poorer part of Lincoln County, he said, making it difficult to raise rates. Funding opportunities like WWATERS are the best option, he said.

“It’s kind of like everybody else right now. We’ll take all the help we can get if we can find it,” Rankin said. “Times are tough. It’s never easy.”