[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
DRINKING WATER NEEDS AND INFRASTRUCTURE
=======================================================================
HEARING
before the
SUBCOMMITTEE ON ENVIRONMENT AND HAZARDOUS MATERIALS
of the
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
__________
APRIL 11, 2002
__________
Serial No. 107-107
__________
Printed for the use of the Committee on Energy and Commerce
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
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___________________________________________________________________________
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__________
COMMITTEE ON ENERGY AND COMMERCE
W.J. ``BILLY'' TAUZIN, Louisiana, Chairman
MICHAEL BILIRAKIS, Florida JOHN D. DINGELL, Michigan
JOE BARTON, Texas HENRY A. WAXMAN, California
FRED UPTON, Michigan EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida RALPH M. HALL, Texas
PAUL E. GILLMOR, Ohio RICK BOUCHER, Virginia
JAMES C. GREENWOOD, Pennsylvania EDOLPHUS TOWNS, New York
CHRISTOPHER COX, California FRANK PALLONE, Jr., New Jersey
NATHAN DEAL, Georgia SHERROD BROWN, Ohio
RICHARD BURR, North Carolina BART GORDON, Tennessee
ED WHITFIELD, Kentucky PETER DEUTSCH, Florida
GREG GANSKE, Iowa BOBBY L. RUSH, Illinois
CHARLIE NORWOOD, Georgia ANNA G. ESHOO, California
BARBARA CUBIN, Wyoming BART STUPAK, Michigan
JOHN SHIMKUS, Illinois ELIOT L. ENGEL, New York
HEATHER WILSON, New Mexico TOM SAWYER, Ohio
JOHN B. SHADEGG, Arizona ALBERT R. WYNN, Maryland
CHARLES ``CHIP'' PICKERING, GENE GREEN, Texas
Mississippi KAREN McCARTHY, Missouri
VITO FOSSELLA, New York TED STRICKLAND, Ohio
ROY BLUNT, Missouri DIANA DeGETTE, Colorado
TOM DAVIS, Virginia THOMAS M. BARRETT, Wisconsin
ED BRYANT, Tennessee BILL LUTHER, Minnesota
ROBERT L. EHRLICH, Jr., Maryland LOIS CAPPS, California
STEVE BUYER, Indiana MICHAEL F. DOYLE, Pennsylvania
GEORGE RADANOVICH, California CHRISTOPHER JOHN, Louisiana
CHARLES F. BASS, New Hampshire JANE HARMAN, California
JOSEPH R. PITTS, Pennsylvania
MARY BONO, California
GREG WALDEN, Oregon
LEE TERRY, Nebraska
ERNIE FLETCHER, Kentucky
David V. Marventano, Staff Director
James D. Barnette, General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
______
Subcommittee on Environment and Hazardous Materials
PAUL E. GILLMOR, Ohio, Chairman
JAMES C. GREENWOOD, Pennsylvania FRANK PALLONE, Jr., New Jersey
GREG GANSKE, Iowa EDOLPHUS TOWNS, New York
JOHN SHIMKUS, Illinois SHERROD BROWN, Ohio
HEATHER WILSON, New Mexico GENE GREEN, Texas
VITO FOSSELLA, New York KAREN McCARTHY, Missouri
(Vice Chairman) THOMAS M. BARRETT, Wisconsin
ROBERT L. EHRLICH, Jr., Maryland BILL LUTHER, Minnesota
STEVE BUYER, Indiana LOIS CAPPS, California
GEORGE RADANOVICH, California MICHAEL F. DOYLE, Pennsylvania
CHARLES F. BASS, New Hampshire JANE HARMAN, California
JOSEPH R. PITTS, Pennsylvania HENRY A. WAXMAN, California
MARY BONO, California PETER DEUTSCH, Florida
GREG WALDEN, Oregon JOHN D. DINGELL, Michigan,
LEE TERRY, Nebraska (Ex Officio)
ERNIE FLETCHER, Kentucky
W.J. ``BILLY'' TAUZIN, Louisiana
(Ex Officio)
(ii)
C O N T E N T S
__________
Page
Testimony of:
Beider, Perry C., Principal Analyst, Congressional Budget
Office..................................................... 24
Bella, Joseph A., Executive Director, Passaic Valley Water
Commission, on behalf of the Association of Metropolitan
Water Agencies............................................. 61
Gloriod, Terry L., President, Illinois-American Water
Company, on behalf of the National Association of Water
Companies.................................................. 86
Grumbles, Benjamin H., Deputy Assistant Administrator, Office
of Water, U.S. Environmental Protection Agency............. 14
Moore, Joseph A., Alderman, on behalf of the National League
of Cities.................................................. 67
Neukrug, Howard, Director, Office of Watersheds, on behalf of
American Water Works Association........................... 73
Ronnebaum, Elmer, General Manager, Kansas Rural Water
Association, on behalf of National Rural Water Association. 80
Rutherford, Jay L., Director, Water Supply Division, Vermont
Department of Environmental Conservation, on behalf of the
Association for State Drinking Water Administrators........ 55
Schwartz, Paul D., President, Clean Water Action............. 93
Wood, David G., Director, Natural Resources and Environmental
Issues, General Accounting Office.......................... 31
Material submitted for the record by:
Grumbles, Benjamin H., Deputy Assistant Administrator, Office
of Water, U.S. Environmental Protection Agency, responses
for the record............................................. 103
Muller, Clair, Atlanta City Councilmember, letter dated April
9, 2002, to Hon. Paul E. Gillmor........................... 102
(iii)
DRINKING WATER NEEDS AND INFRASTRUCTURE
----------
THURSDAY, APRIL 11, 2002
House of Representatives,
Committee on Energy and Commerce,
Subcommittee on Environment
and Hazardous Materials,
Washington, DC.
The subcommittee met, pursuant to notice, at 9:30 a.m., in
room 2123, Rayburn House Office Building, Hon. Paul E. Gillmor
(chairman) presiding.
Members present: Representatives Gillmor, Shimkus, Wilson,
Bass, Pitts, Walden, Terry, Fletcher, Tauzin (ex officio),
Pallone, Brown, Green, McCarthy, Barrett, Luther, and Harman.
Staff present: Bob Meyers, counsel; Jerry Couri, policy
coordinator; Hollyn Kidd, legislative clerk; and Dick Frandsen,
minority counsel.
Mr. Gillmor. The committee will come to order, and the
Chair recognizes himself for the purpose of an opening
statement.
Today's hearing focuses on the pressing needs of drinking
water systems across our country. The provision of safe
drinking water is one of the most important public health and
environmental duties that Congress addresses.
Water quality directly relates to the future health and
well-being of our population and its economy. One of the
benefits of living in this country is that over 76,000 water
systems have taken great pains to construct networks that
deliver safe and affordable water.
This luxury, which we largely take for granted, is not
available in every place throughout the world as the Health and
Environment Subcommittee has previously examined. We must
ensure that a solid drinking water delivery system is in place
to guarantee safe drinking water to all Americans.
Today, while the Senate is preparing to move a water
infrastructure bill through its committee, and the House
Transportation and Infrastructure Committee recently passed a
waste water funding bill out of their committee, as this
committee is the committee solely responsible for drinking
water programs, I believe that we need to work more diligently
and in a bipartisan fashion to understand the scope of any
problems to the system, and ensure that a high standard of
public health protection is achieved.
Providing clean drinking water is more than just pumping
water to a certain location. Providing good drinking water
embraces the root goals of the Safe Drinking Water Act to help
guide communities in a way that will protect their citizen's
drinking water from contaminants through a network of lines,
pipes, and direct disinfection efforts.
The Safe Drinking Water Act of 1996 required the EPA to
survey the needs of water systems every 4 years. I believe
anyone who has taken time to carefully look at this matter
understands that the pursuit of cleaner drinking water in local
communities can become quite pricey, and demands additional
resources.
While local and State taxes can be raised to meet these
obligations, it is really the revolving loan fund, under the
Safe Drinking Water Act, that helps localities afford safe
drinking water.
As someone who has been a long supporter of funding Federal
mandates on local governments and State governments, I believe
the SRF is crucial to providing Federal resources to entities
trying to simultaneously comply with Federal standards and also
protect public health.
Today's witnesses will help us better understand the
drinking water needs of our communities across the country. Our
first panel brings the perspectives of EPA, who last year
released their findings on drinking water needs assessment.
We will also have GAO provide testimony on EPA's funding
and comments on their own reviews of the drinking water
revolving loan fund.
Finally, we will have the Congressional Budget Office
testify to their preliminary findings on the actual needs of
drinking water systems and the EPA's work in this area. I am
particularly interested in the comments of CBO as this will be
their first public airing of one of the more unbiased analyses.
Our second panel will also provide important insight into
the drinking water needs of local government, large and small
water systems, State drinking water administrators, and
environmental groups, including their past work and future
financial requirements.
I recognize that many of the members of our panel have
various concerns about the Safe Drinking Water Act, and I share
many of those concerns that our Nation has drinking water
standards that are protective of human health and the
environment.
Our hearing today has been set up under bipartisan
agreement of the staff to focus solely on drinking water needs.
As this year progresses, I intend to exercise our committee's
jurisdiction and authority to review EPA's implementation of
the Safe Drinking Water Act and its work on contaminant levels
and standards setting.
So I want to thank the witnesses for coming, and I want to
thank Mr. Pallone for his staff's cooperation in setting up
this hearing. It is vital that we assess where drinking water
system needs lie.
The EPA currently believes that $102 billion is immediately
needed by all sizes and forms of systems, and that another $50
billion will be required over the next 20 years to guarantee
that safe drinking water reaches those who need it.
Certainly just putting pipes into the ground to deliver
water is not enough. The emphasis on this extra funding needs
to be on a comprehensive public health campaign that seeks to
mobilize public and private resources to purify water from its
initial source through its distribution channels, and finally
out of the tap.
I look forward to hearing from our panels, and I am pleased
to recognize the ranking member of our panel, the distinguished
gentleman from New Jersey, for the purpose of an opening
statement.
Mr. Pallone. Thank you, Mr. Chairman. I want to thank you
for holding today's hearing on drinking water needs and
infrastructure. I have to say that when I walked into the room
today that I was about as shocked to see that as I look out on
the audience that I am able to see myself three times here
across the room.
And a lot of times in the morning, I don't even want to
look at myself in the mirror, but I don't have any choice now
when I get in here. It is a little weird.
But in any case, I am pleased that we are finally moving
forward ont his important issue, and I would hope that this
hearing would serve as a conduit for a legislative proposal
from our subcommittee, and that we might work together to
alleviate our country's problems with adequate funding.
So hopefully we can put something together. As a general
matter, large water systems also possess much better economies
of scale than small systems, and are able to spread capital and
operation costs across a broader base of rate payers.
At the same time, however, I recognize that small systems
often have to serve customers spread out in low densities and
in small towns, and in rural communities, driving their costs
up.
To put things in perspective the EPA has estimated that the
typical cost to install a new drinking water treatment plant
may be 88 percent higher per household than a system serving a
thousand residents, versus a hundred-thousand people.
Clearly, this is one of many issues that must be taken into
consideration before we can begin to assess the funding
problem, which as you mentioned, Mr. Chairman, is a huge
problem here.
It is no secret that there are ongoing concerns over the
available funds for ensuring the quality of our Nation's
drinking water. According to the February 2001 needs survey,
the EPA has estimated that $150.9 billion will be needed during
the next 20 years to repair, replace, and upgrade the Nation's
55,000 community water systems.
The water infrastructure network has said that drinking
water utilities across the Nation collectively need to spend
about $24 billion per year for the next 20 years on
infrastructure, for a total of $480 billion.
Other estimates show large long term needs as well, and I
don't think that anyone in this room would argue that a
significant need exists.
In recognition of the large current and future
infrastructure needs of drinking water systems, Congress
approved authorization of the Drinking Water State Revolving
Fund in 1996.
And this fund was authorized at a level of $1 billion per
year through 2003, including another $600 million in prior year
authorizations.
In general, the DWSRF is designed to provide low cost loans
to drinking water systems in order to fund infrastructure
projects which are needed to ensure the provision of safe
drinking water.
As these loans are gradually repaid by drinking water
systems, new loans can be issued to other systems in excess of
the amount which would have otherwise been provided directly
through the initial Federal grants.
Now, current estimates show that DWSRF will ultimately be
able to revolve $500 million per year at a sustainable level. I
find it interesting, Mr. Chairman, that although the
administration has recognized significant needs for our
Nation's water infrastructure, they haven't even put the
authorized $1 billion in the Drinking Water SRF.
And it just does not add up. The EPA survey stated that our
needs are over $100 billion now, but the budget doesn't even
have $1 billion. I don't really understand what the message is
that the President is trying to say.
If he is saying that the drinking water doesn't matter,
obviously we are not going to agree with that. But I am hoping
today in this hearing that we might be able to understand a bit
better when the administration and the EPA are coming from, and
gain a more clear understanding of the need.
It seems that everyone is saying, including the
administration, that we need a lot more money, and yet the
money isn't being provided in the budget, and what the
President and the administration are recommending. So obviously
there is a problem there, and I don't know exactly how we are
going to solve it.
But I do hope that we can put a legislative initiative
together on a bipartisan basis, and I know that you and I have
worked together, Mr. Chairman, so far in this session on a
couple of things in that regard, and hopefully we can do it
again. Thank you.
Mr. Gillmor. Thank you, Mr. Pallone.
The gentleman from Illinois, Mr. Shimkus.
Mr. Shimkus. Thank you, Mr. Chairman. I appreciate this
hearing today. As you know, we have one of the best supplies of
drinking water in the world, and this is largely due to the
commitment by States; Federal, State, and local agencies, and
local--either co-op water systems, and municipal water systems,
or privately owned waters systems.
As part of this commitment, we must continually review the
needs and effectiveness of this water delivery system. This
allows us to plan for future needs, and identify problems in
the system before they occur.
The Drinking Water State Revolving Fund has been a great
asset to our Nation's water systems. As this subcommittee
drafts legislation to reauthorize the program, I would like to
emphasize a need to help rural and other disadvantaged
communities.
Not only do the people in these communities have less
financial resources, but they often are served by small water
systems which tend to lack the economy of scale, and that make
infrastructure projects more affordable in larger systems.
Of course, at the Federal level, we keep increasing the
standards tremendously which stress these very systems that we
are trying to help, and many of them are in crisis situations
because of increased standards.
There always has to be a debate on the cost benefit
analysis based upon sound science, and that should always be
part of the debate and how we are trying to deploy safe water
to our residents.
I look forward to hearing from our distinguished panel
today on the needs of our drinking water system. I still want
to continue to focus on the fact that as we debate on standards
that there is always costs, and there is a time when the costs
outweigh the benefits that we receive.
And in small rural districts the new standards make it
prohibitive to even provide safe drinking water. So let's bring
some common sense to this debate. There is no one on earth that
is going to promote a policy of providing unsafe drinking
water.
That is a cry of the left, while the cry in rural America
goes unheard, and with that, Mr. Chairman, I yield back my
time.
Mr. Gillmor. I thank the gentleman.
The gentleman from Ohio, Mr. Brown.
Mr. Brown. Thank you, Mr. Chairman. I look around as Frank
Pallone does at these Big Brother screens and I am a little
perplexed. While the majority says we can't afford to fund
prescription drugs, we certainly can fund tax cuts, and hi-
technology, big expensive technology in our committee rooms,
and that's nice to know.
Mr. Chairman, thanks for calling the hearing and it is an
important issue. Thank you, Mr. Chairman, for your good work to
improve the quality of our Nation's drinking water. As my
colleagues have already stated, it is clear that our Nation
faces a considerable gap in funding for infrastructure to treat
drinking water over the next 20 years.
And in northeast Ohio, a region that Chairman Gillmor and I
have the privilege to represent here in Congress, there are
many communities where underground pipes that deliver drinking
water are 50, and in some cases, 100 years old.
Over the next 2 decades, there will be an enormous need to
update water distribution systems in communities like these,
and there will also be a substantial need to bring the water
systems in more newly established communities into compliance
with the Safe Drinking Water Act.
The program was authorized at $1 billion annually, and this
figure was recognized as too small, but in fiscal year 2002 and
2003, the Bush administration has only requested appropriations
of $150 million.
This simply is not enough to ensure safe drinking water for
all Americans in the future. Unfortunately, Mr. Chairman,
drinking water infrastructure and numerous other needed
investments have been under-funded in the administrations'
budget to make way for the President's politically attractive,
at least to his richest contributors, his politically
attractive tax cuts, but unaffordable tax cuts.
The tax cuts will result in budget deficits and
infrastructure deficit as far as the eye can see. These
deficits will leave a gaping hole, just not in our fiscal
infrastructure, but in our human infrastructure as well.
These tax cuts have already meant that we are not fully
funding health care, and we are not fully funding the
President's own education plan. Yesterday in committee, it was
shown that there is a $7 billion deficit already in his new
education bill.
And we have not yet fully funded the Brownfields program,
to which the chairman gets great credit for getting it out of
this subcommittee last year. Are these the legacies--a budget
deficit and infrastructure deficit--that we want to leave for
our children and our grandchildren.
As a founding member of the House Water Infrastructure
Caucus, I join Representatives Bilirakis, the Chair of the
Health Subcommittee, and Representatives Boehlert and Borski in
December of 2000, to ask CBO to prepare a comprehensive report
of the needs gap.
I hope the President's budget allows us to fill that gap. I
thank the Chairman.
Mr. Chairman, I would ask for unanimous consent to include
in the record a report from Public Citizen, and their testimony
if I could.
Mr. Gillmor. Without objection that will be done.
Mr. Brown. Thank you.
[The information referred to follows:]
Prepared Statement of Public Citizen
Public Citizen, a consumer advocacy organization with over 150,000
members nationwide, is pleased that the House Committee on Energy and
Commerce is taking affirmative steps to address the water
infrastructure needs of many communities across the United States. As
an increasingly larger share of water infrastructure approaches the
point of replacement and as the water quality standards become more
stringent, the local communities are struggling to find viable means of
financing the necessary capital projects.
The Water Infrastructure Network (WIN), a broad-based coalition of
local elected officials, drinking water and wastewater service
providers, state environmental and health program administrators,
engineers and environmentalists, estimate that upgrading the nation's
infrastructure will cost $23 billion a year. Financing this need with
rates alone would double the rates on average in the United States,
resulting in an economic hardship for at least a third of the U.S.
population using the EPA affordability guidelines. That is why adequate
federal assistance is imperative to ensuring that citizens have access
to safe and affordable drinking water.
The private water companies are proposing privatization of the
country's water system as a way of meeting the infrastructure needs.
The initial text of the companion bill introduced in the U.S. Senate by
Senators Bob Graham (D-Fla.), James Jeffords (I-Vt.), Michael Crapo (R-
Idaho) and Robert Smith (R-N.H.), S.1961, contained provisions that
both encouraged the transfer of public water system operations and
ownership to private companies and made it easier for private utilities
to gain access to federal funds for improving infrastructure. Many
groups, including the National League of Cities, Association of
Metropolitan Sewer Agencies, and Public Citizen have expressed
opposition to these provisions. We believe that the managers' amendment
will strike out this language.
It is important that the Sponsor(s) of the House water
infrastructure bill refrain from including similar language in the
legislation. Public Citizen respectfully submits this statement to
better illustrate the risks associated with privatization of water
services.
While governments may expect to lower debt and transfer the costs
of infrastructure repair and maintenance via privatization, the
willingness of private companies to make such investments depends on
the profit stream. In fact, debt reduction, increased spending for
upgrades and the companies' guaranteed profit margins will ultimately
be borne by citizens through higher bills. Privatization saddles
consumers with the dual responsibilities of public debt reduction and
corporate profitability, usually guaranteed by government contracts.
The National Association of Water Companies (NAWC), which
represents the private water utilities, is intensively lobbying
Congress and the Environmental Protection Agency to encourage water
privatization and give private companies access to the same low-
interest financing that public agencies can obtain. NAWC also lobbies
to block higher water quality standards.
Keeping this lobbying effort in mind, we are disappointed to see
important policy decision--such as the privatization of our nation's
municipal water systems--dealt with in a stealthy manner by the
legislature, regulatory agencies and the Internal Revenue Service. Most
citizens are completely unaware that there is growing pressure from
transnational water companies to privatize water systems in the U.S.
The move towards privatization is taking place behind closed doors and
without the input or knowledge of the majority of people.
The companion legislation, S. 1961 initially tried to tie federal
assistance to municipal water systems to the recipient's consideration
of privatization. The House Committee on Energy and Commerce should
avoid making a similar mistake. Any move here in the United States
towards privatizing water should be subject to a vigorous public
debate, not forced on communities as a result of special interest
influence in Washington, D.C. Any language promoting privatization
would not only jeopardize public access to safe and affordable drinking
water, but would force a major policy change without adequate public
notice or discussion.
We would like to address specific concerns with regard to public-
private partnerships and regulatory structure that makes it easier for
private companies to gain access to federal funds. We would also like
to comment on proposals to recover all operation, maintenance, and
capital costs through user rates.
1. public-private partnerships
To this day, the federal government has not made a systematic
assessment of water privatization's benefits and liabilities.
Privatization of water and wastewater services is a relatively new
phenomenon in the United States. Since the early 1900s, water service
generally has been regarded as a public responsibility, and public
providers have served most of the United States. Today, public
utilities provide reliable water service to 85 percent of the country's
population. But a 1997 change in law opened the door for long-term
privatization contracts. Consequently, some communities have entered
into 10- and 20-year privatization contracts.
Privatization advocates are quick to argue--usually without any
supporting evidence--that switching from publicly owned enterprises to
privately owned firms will lead to greater economic efficiency, and
that the positive effects will permeate through the economy by way of
stabilized rates, reduced public debt and improved budgetary
management. Privatization proponents argue that public-private
partnerships, a euphemism for privatization, can foster savings and
improve service. However, because not one of these long-term contracts
has been in place for more than five years, it is impossible to
determine whether these claims are sound.
In reality, privatization more often than not fulfills none of
these promises, and instead creates problems that did not exist before.
Vulnerable to corruption and operating according to a profit-driven
corporate agenda fundamentally incompatible with delivering an
essential human need, water companies are failing citizens in both
developed and developing countries.
Privatization involves many risks. The promised cost savings could
be neutralized by change orders--reimbursement requests for services
not enumerated in the contract. For example, the private company
promised the City of Atlanta at least $400 million in savings over 20
years. However, the company soon requested to increase the contract by
$80 million. Additionally, an audit of the contract showed that the
company requested almost $38 million in change orders between January
2000 and May 2001. Public utilities, on the other hand, often absorb
these additional costs without asking for a budget increase or a rate
hike.
And the pursuit of lower operational costs and higher profits,
private companies could neglect maintenance, especially if a contract
is close to expiration. After assuming operations in Atlanta, the
private company cut the workforce in half. Today, three years into the
contract, the maintenance backlog is growing and meter installation
takes twice as long as required under the contract.
Financial stability of the private water companies is also of
concern. The case of Enron has taught us that the company's filings may
not reflect its financial situation and its debt-to-equity ratio. An
incredible pace of consolidation in the water industry over the last
five years makes one question whether the water companies have the
means to satisfy all terms of their contracts over the long term. If
the company becomes insolvent, who will ensure that the users have
access to adequate water service? Will the city have to pick up the tab
at the expense of the taxpayer? These are among many questions that
water privatization raises.
Further, when the city officials who were closely involved in the
original contract negotiations are no longer in office, disputes over
contract language could end up in court. In the end, the city may not
receive what it paid for. Even industry consultants agree that this
could prove problematic.
It is true that some communities have had positive experiences with
public-private partnerships. Not every private company provides poor
service and not every operation and maintenance contract is a failure.
However, it is important to recognize that privatization involves
significant risks. For example:
In Lee County, Fla., county officials in October 2000 chose to
return the water and sewer systems to public control after an
audit revealed serious problems with the private contractor.
Equipment was not maintained in acceptable working condition.
Hazardous waste was poorly handled and reported. Preventive
maintenance was performed late and some work was not done at
all. After public control was restored, the county's utility
director estimated the company's failure to properly maintain
infrastructure would cost citizens more than $8 million.
In Atlanta, which contracted out the operation and maintenance
of its water system in 1998, the city soon began receiving
complaints of slow service, broken fire hydrants and brown
drinking water flecked with debris. A recent audit of a the
contract reported a growing maintenance backlog, the company's
failure to meet its financial obligations, and significantly
lower training hours than required by the contract. The company
also experienced difficulties meeting performance targets for
pH, turbidity, and phosphate at one of its plants and took
longer than required by the contract to install meters and
respond to meter leaks. At the same time, the company asked for
almost $38 million of additional payments through change orders
and sought to increase the contract by $80.
In Peoria, Ill., a process is underway to buy back the city's
water system. The city feels that public ownership would reduce
the operating costs and cut the rates by 30 percent in the
first ten years of public ownership (the company's rates are
among the highest in the country). A financial analysis
prepared by a leading consultant showed that the city would
have $6 million a year in excess revenues if it owned the water
system itself. However, money is not the only driver. In 2001,
the U.S. Environmental Protection Agency fined the company
$168,488 for failing to promptly report a release of vapors in
1998. A Peoria firefighter was hospitalized after breathing the
fumes.
In Tampa, Fla., Tampa Bay Water, a public agency that provides
water to customers in Tampa, Fla., is being forced to buy the
desalination plant currently under construction from Covanta
Energy to assure its timely completion and to avoid fines from
the Southwest Florida Water Management District. Stone &
Webster, engineering firm originally hired to design and build
the plant went bankrupt, and on April 1, 2002, Covanta Energy,
which replaced it, filed for Chapter 11 bankruptcy protection.
Earlier, the company failed to put up a performance bond as
required under the contract, jeopardizing Tampa Bay Water's
efforts to obtain financing for the plant. Covanta was to
operate the plant for several years after the completion.
In Pekin, Ill., private operations brought a 204 percent water
rate increase over 18 years--significantly higher than
increases in Illinois cities with public water systems.
Infrastructure repairs were not performed on a timely basis.
During the 1998-1999 school year, service to two schools was
cut off for a week, with teachers being notified by a note
taped to the door just before students arrived. In response,
city officials began to advocate reclaiming public control. The
company responded with an estimated $1 million public relations
campaign, which succeeded in halting the initiative, at least
temporarily.
It is important to reemphasize that the long-term operations and
maintenance contracts do not yet have a solid case history of success.
Privatized water systems could lead to many problems in the future,
including higher rates and water quality problems. Many issues have not
even been considered. For instance, a community's growth and economic
development could potentially be paralyzed because the private water
company refused to extend water lines or provide adequate and
reasonably-priced services to the new businesses, the legislature will
be held responsible.
Although in theory privatization is presumed to introduce
competition to water services, it often does exactly the opposite by,
in effect, sanctioning a private monopoly. And just as government is
responsible to the public, private company is responsible to its
shareholders. Because of this, public interest may clash with the
company's objectives. Entrepreneurship and profit motive are certainly
not objectionable qualities. However, in this case they may not reflect
public interest.
Another concern is the municipality's ability to assume the
operation and maintenance task after the privatization contract
expires. After several years of private operations, the municipality
would lose both the expertise and the workforce required to run the
increasingly complex water and wastewater systems. This would limit the
options available to the local government in choosing the best
alternative for its constituents and would force the community into
another contract.
Additionally, as the private share in the water services grows,
water companies would have an incentive to pressure policymakers to
amend environmental and water quality regulations that cut into their
profits, thereby promoting an agenda that counters the interests of
public health and environment. Some trade groups in the water sector
are already lobbying to prevent higher water quality standards from
being adopted.
Finally, all major water companies operating in the United States
today are foreign-based. The security of sensitive information about
water systems is in question because these companies do not disclose
facts about security of their data transmission lines and the level of
access its employees overseas have to sensitive data.
Foreign ownership is also an issue in light of the continuing
negotiations on the General Agreement on Trade in Services (GATS). If
water services are listed under GATS, the agreement's language working
together with national legislation favoring privatization could
effectively limit the options available to local governments in
deciding how water services should be provided.
If the local government and its citizens become displeased with the
delivery of water services, it is possible that an international trade
agreement could limit the communities ability to withdraw from the
contract, under the threat of an international trade tribunal. While
this is fairly new territory, investment treaties have become invoked
on several occasions already to challenge government actions concerning
water.
We strongly urge the House Committee on Energy and Commerce not to
include pro-privatization language in its water infrastructure
financing legislation.
2. private utilities
The eligibility for state revolving funds should not be extended to
private water companies. Private water systems are businesses that
should be responsible for keeping their assets in adequate condition
without public subsidies. Federal regulations do not justify their
eligibility for taxpayer bailouts. The U.S. government does not
subsidize automakers to help them comply with federal auto-safety and
fuel-emission standards. Neither should water companies expect federal
assistance. Most businesses in the United States have to comply with
federal or state regulations and few of them expect the government to
reimburse the cost of these regulations. Moreover, while arguing for
public subsidies, private water utilities continue to pay unreasonably
high salaries to their executives.
We urge you to change the eligibility requirements to reflect the
aforementioned principles.
3. full cost recovery
The Senate companion bill mandates that the recipients of federal
assistance achieve a rate structure that to the maximum extent possible
reflects the actual cost of service and capital improvements (S.1961,
Section 103 (j)(2)(A). The House water infrastructure bill should not
contain similar provisions. The majority of the utilities today already
charge rates that reflect the cost of service and capital improvements.
At the same time, their rate-setting autonomy provides room for
flexibility, essential to better calibrate rates in response to local
priorities.
Any full cost recovery requirement would add yet another layer of
bureaucratic constraints to the SRF application process. This will be
costly and burdensome for the states and is not prudent expenditure of
the taxpayers' money. And the full cost recovery provisions would
discourage the most vulnerable communities from participating in the
state revolving fund programs.
Finally, if sufficient federal appropriations for water
infrastructure are not made, the rates will double, on average across
the nation, according to WIN, resulting in a third of the country's
population experiencing economic hardship using the EPA's conventional
affordability criteria. These hardships would be significantly more
acute in small, rural, low-income, or older shrinking urban
communities, according to WIN. In such case, the full cost recovery
principles could be devastating to the population. For example, many
residents of New Orleans, a city with some of the highest poverty rates
in the nation, will find it increasingly difficult to pay for water
service as the rates double over the next five years.
Again, thank you for the opportunity to comment on the upcoming
water infrastructure legislation. This legislation is an important step
in assuring that communities across the United States have the means to
implement capital improvement programs essential to their ability to
provide water service in compliance with all federal and state
standards. But it should not be used as a surreptitious vehicle for
privatizing our nation's public water systems. Public utilities are
already taking affirmative steps to reduce cost of service through
restructuring and improving efficiency, often achieving results that
exceed those of private companies. Still, the savings will not be
sufficient to meet the financing shortfall. It is essential that the
Congress authorizes and appropriates sufficient funding, at levels
proposed by WIN, to keep public water utilities capable of providing
adequate and affordable water service.
Mr. Gillmor. Mr. Pallone.
Mr. Pallone. I also wanted to ask for unanimous consent to
enter the statement of our ranking member, Mr. Dingell, into
the record.
Mr. Gillmor. Without objection, so ordered.
[The prepared statement of Hon. John D. Dingell follows:]
Prepared Statement of Hon. John D. Dingell, a Representative in
Congress from the State of Michigan
Mr. Chairman, over one year ago the Subcommittee held its first
hearing on the financial needs facing large and small cities across the
country of rehabilitating and replacing aging drinking water
infrastructure. This is a critical issue for cities like Detroit where
pipes first installed in 1887, over 100 years ago, are still being
used. The infrastructures of our public water systems are vital to
protect the public health and provide safe drinking water for our
citizens.
Today, at the Subcommittee's second hearing we will hear from many
of the same organizations representing cities and drinking water
utilities of all sizes that the needs are just as great as they were
one year ago. We will hear from the Congressional Budget Office that if
we take the midpoint between their high and low estimate of the gap
between what public water systems are now spending and what needs to be
spent annually over the next 20 years, we are looking at an additional
four billion dollars a year for twenty years or twenty billion dollars
over the next five years.
Other witnesses have higher estimates of financial needs. The
Environmental Protection Agency has reported that the current needs to
ensure provision of safe drinking water to our people are $102.5
billion and growing, a huge sum of money. Billions more were documented
as necessary for future years.
Against the well-documented financial needs for replacement and
rehabilitation of aging drinking water infrastructure, I must note that
the President's budget for FY 2003 contains a $150 million shortfall in
fully funding the drinking water State Revolving Loan Fund which this
Committee created in 1996. This budget level ignores the needs of our
cities and public water systems. On top of the budget inadequacy, the
Administration recently testified that the increased spending
authorized for waste water and drinking water infrastructure needs in
the bipartisan Senate bill (S. 1961) was quote ``not consistent'' with
Administration priorities. This is most disappointing.
I suggest that this Subcommittee go forward on a bipartisan basis
to be clear that providing safe drinking water is consistent with our
priorities. Readily accessible and safe drinking water is critical to
the health, livability, and well being of our communities. Thank you,
Mr. Chairman, for calling this hearing. I look forward to Subcommittee
action on this vital issue.
Mr. Gillmor. The gentlelady from New Mexico, Mrs. Wilson.
Mrs. Wilson. Thank you, Mr. Chairman. I also appreciate
your willingness to hold this hearing today. I think these are
important issues to look at how we are going to finance our
public water systems.
I also am going to have some questions about recent EPA
regulations and their impact on the State of New Mexico. The
decision to move the arsenic standard down to 10 parts per
billion, which is a dramatic reduction from the current 50
parts per billion, places an enormous financial strain on rural
water systems that cannot pay for those improvements.
To my knowledge there has been no progress in developing
low-cost treatment for water systems, and in the State of New
Mexico alone, 25 percent of our water systems are going to be
impacted by these new rules; one out of every four water
systems in the State of New Mexico.
And for those who are concerned about the environment, this
is naturally occurring arsenic, where you have volcanic soil
that has arsenic in it, and the water flows over it, and so
people have been drinking it for thousands of years in the
State of New Mexico.
I would also note that the health effects that are
supposedly associated with arsenic are unusually low in New
Mexico. We are at the bottom of the scale nationally, which as
I have said before probably proves that green chili is the
natural antidote.
The real impact though is going to be on the availability
of treated water for people in the State of New Mexico. It is
between $400 million, and $500 million in capital expense
alone, spread among 2 million people across the State.
The annual operating costs will go up between $16 and $21
million. What does that mean for a family in a large water
system in Albuquerque? Our water bills are going to go up
between $38 and $42 a month per household.
In smaller water systems, like Bernleo, New Mexico, with a
population of 6,700 people, their water bills are going to go
up $91 a month because of EPA's new rules. That is over $1,000
a year more for water.
The median household income in Bernleo, New Mexico, is
about $24,000 a year. I am going to have some serious questions
for the EPA on how the Federal Government is going to help
States like New Mexico meet this standard, because we are going
to be drilling wells again in backyards because we can't afford
your standards.
I think that this is an important issue for about three
States in this country, who don't have a lot of people, but
have a lot of naturally occurring arsenic, and this rule is the
responsibility and the obligation of the Federal Government to
pay for.
Thank you, Mr. Chairman, and I would also like to enter
into the record with unanimous consent a statement of Pete
Maggiore, the Secretary of the New Mexico Environment
Department, into the record.
Mr. Gillmor. Without objection, it is so ordered.
[The prepared statement of Peter Maggiore follows:]
Prepared Statement of Peter Maggiore, Secretary, New Mexico Environment
Department
Thank you for the opportunity to provide testimony today on behalf
of the New Mexico Environment Department regarding the new drinking
water standard for arsenic.
Governor Whitman's announcement of the 10 parts per billion arsenic
drinking water standard on October 31, 2001, while protective of public
health, create a significant financial and logistical burden on states
and municipalities which may not have been anticipated or intended by
the USEPA. These impacts are so large that the State of New Mexico and
the City of Albuquerque filed suit against the USEPA last year.
Ironically, and unlike many contaminants that the USEPA regulates,
arsenic that exists in the groundwater in New Mexico is naturally
occurring. Although I am pleased to report that settlement discussions
related to this litigation are on-going, there remains a tremendous
amount of work to be done in the areas of developing funding sources,
technology development and infrastructure improvement before this new
standard can be effectively implemented.
It appears that one strategy underlying the multi-year
implementation schedule for the new standard was to allow sufficient
time for cost-effective treatment technologies to be developed. At
present, there does not appear to be a cost-effective technology for
arsenic removal for either large or small water systems. Although the
EPA plans to allocate $20 million over the next two years in this area,
the fact remains that where arsenic levels exceed this new standard,
local governments cannot secure bond funding to finance treatment
systems. This inability to secure funding is associated with a
necessary prerequisite for securing bonds which requires a
demonstration that the technology being purchased has been proven.
While it may be true that significant advancements in treatment
technologies can be achieved over the next few years, there is no
guarantee that these technologies will be affordable for
municipalities. The EPA should extend the implementation schedule until
cost-effective technologies can be demonstrated.
The decision to lower this drinking water standard marks the first
time the arsenic standard has been changed in over 50 years. The 50
part per billion standard was established by the USEPA in 1975; and
that standard was based on a Public Health Service standard originally
established in 1942. Given the significant financial stress placed upon
municipalities and water system owners, it appears prudent to maximize
the flexibility granted to impacted municipalities and water system
owners implementing this standard. In addition, Congress and the EPA
must adequately fund the implementation of this standard through a
robust grant (not loan) process. The absence of a robust grant process
could cause widespread non-compliance with this new standard, or
alternatively, the substitution of unsanitary water supplies for
sanitary ones.
Thank you for your consideration of my testimony and these
concerns.
Mr. Gillmor. And the Chair recognizes the gentlelady from
Missouri, Ms. McCarthy.
Ms. McCarthy. Thank you, Mr. Chairman. I thank you for this
hearing, and for the study we are about to undertake. I think
it is critical to the future of our country, and also the
economic future of our communities, and particularly our
States.
I am just going to submit my remarks for the record, Mr.
Chairman, so that we can get on with the important testimony
that we have before us today. But again I thank you, and I
think this is going to be very important for this subcommittee.
Mr. Gillmor. Thank you. The gentleman from New Hampshire,
Mr. Bass.
Mr. Bass. Thank you, Mr. Chairman. I have no opening
statement.
Mr. Gillmor. Are there other members having an opening
statement? If there are none----
Mr. Terry. Mr. Chairman.
Mr. Gillmor. Oh, I'm sorry. The gentleman from Nebraska,
Mr. Terry.
Mr. Terry. The forgettable gentleman from Nebraska.
Mr. Gillmor. The best for last.
Mr. Terry. I appreciate that, Mr. Chairman. Before my
statement or opening remarks, I would say that one of the
differences between the sides of the kiosk here, Mr. Brown, you
thought that was Big Brother. I just thought--I am trying to
figure out a way to get that into my living room.
I want to share the concerns that are brought up,
especially from Heather in New Mexico; we have similar issues
in the State of Nebraska. Our community systems are aging, and
as I understand there are about 55,000 community water systems,
and a need of at least a $151 billion for upgrade.
Certainly as I have heard from our community water officers
in our towns throughout Nebraska, that the Drinking Water State
Revolving Fund is an important tool for them, but their
frustration has been with the moving target placed on them by
the EPA.
Now, whether it is copper and an inflexibility on how to
deal with that issue, and with the water that is slightly above
the acidic levels that causes leaching in the piping, EPA's
only solution mandate is to change the water systems.
Now, with the new arsenic level changes, similar to the
drinking water in New Mexico, Omaha, Nebraska, uses ground
water that has typically more than 10 parts per billion level
of arsenic.
But yet we in Nebraska have been drinking this water for
hundreds of--at least 100 years, and then of course those
people that had the land before then for time and beyond--
without the type of safety and health risks that we are being
told about.
So something just isn't jibing here between the science the
EPA is relying on, but yet hundreds of years history of actual
case studies.
Now, the frustration that faces our municipal, small
municipal water systems, especially in our smaller towns in
Nebraska, as Mr. Pallone pointed out, we don't have the economy
of scale. In a town of 500 or a thousand people, they don't--
they are faced with rather dramatic draconian choices.
And they have communicated to me the same thing that they
are communicating to Ms. Wilson in New Mexico, that they will
just abandon a community water system, and in essence tell each
one of the residents put in your own well.
So perhaps the more draconian efforts to clean up our water
beyond what we will be proud of in this country for our safe
drinking water is now forcing communities to go the opposite
direction of what we actually intend.
So I am interested in hearing the testimony of our
witnesses to see how we strike the balance to make sure that we
continue to be able to take pride in the cleanest drinking
water in America, but yet not go to such an extreme that we
make it unaffordable and inaccessible to the people in our
rural areas. Thank you.
Thank you, Mr. Terry. If there are no further opening
statements, the Chair will call up the first panel, and also
announce that we will permit any members to submit their
statements in writing.
[Additional statements submitted for the record follow:]
Prepared Statement of Hon. George Radanovich, a Representative in
Congress from the State of California
Mr. Chairman, today's hearing is a vital step in protecting and
preparing our Nation's drinking water supply against possible
disruption of water service and the biological, chemical or
radiological contamination of drinking water supplies.
With the threat of terrorism, it is imperative we constantly
conduct vulnerability tests on our Nation's water supply system and
formulate the safest emergency response plan. We can achieve these
goals by using the most recent physical and cyber vulnerability tools
to perform new assessments. It is crucial that we immediately implement
improved methods to protect water supply systems after the tragic
events of September 11th.
In the end, I hope we can work together to protect the drinking
water that our citizens depend on each and every day and build on our
Committees' recent progress and result in continued improvements in our
Nation's water supply system.
Thank you, Mr. Chairman, for holding this hearing today. I look
forward to the witnesses' testimony.
______
Prepared Statement of Hon. Gene Green, a Representative in Congress
from the State of Texas
I'd like to thank the Chairman of the Subcommittee for holding this
important hearing. I look forward to hearing the testimony of the
witnesses on how we can address the crucial drinking water
infrastructure needs facing our nation.
Hopefully, this hearing will clarify how large a problem we face in
funding the infrastructure necessary for safe drinking water. That
``problem'' ranges in size from the $105.9 billion estimate of the EPA
over the next 20 years, to the $220 billion 20-year estimate of the
Water Infrastructure Network.
Today, one of the ways that states are addressing these needs is
through the Drinking Water State Revolving Fund (DWSRF). Since its
authorization as part of the 1996 Amendments to the Safe Drinking Water
Act (SDWA), it has received approximately $5.25 billion. Of that
amount, the EPA has provided grants totaling $4 billion.
While that may seem like a large amount of money, when compared to
the estimate of the needs it is just a drop in the bucket. In FY 2002,
Texas received approximately 7.7% of the more than $775 million
available in the DWSRF, for a total of more than $62 million.
The Texas Water Development Board, however, received proposals for
more than $600 million for improvements to existing water
infrastructure. Even when you add in the state match of more than $12
million, that is a shortfall of approximately $525 million.
These are real systems in need of equipment or improvement to meet
federal drinking water standards.
And the situation long-term in Texas isn't any better than the
national picture. The EPA estimates our infrastructure investment needs
over the next 20 years to be in the $12 billion range.
That's a lot of money, and it's money that our states and
localities can't afford. While I am fortunate enough to come from an
urban area that can bear more of the investment burden, many members
don't represent a large city like Houston, and their communities can't
afford to get this bill.
I hope that this hearing leads to further action by this Committee
on the pressing needs of our drinking water infrastructure. Again, I
thank the Chairman for this hearing, and I yield back.
Mr. Gillmor. On this panel, we have Mr. Perry Beider, who
is the principal analyst at the Congressional Budget Office;
Dave Wood, Director of Environment and Natural Resources Issues
at the General Accounting Office; and Ben Grumbles, who is the
Deputy Assistant Administrator for the Office of Water at the
United States EPA.
Gentleman, thank you for coming today. We have your written
statements, and I will provide each of you 5 minutes to
summarize your statements before the members of the panel get a
chance to ask you questions. And you may begin when you are
ready.
Mr. Grumbles.
STATEMENTS OF BENJAMIN H. GRUMBLES, DEPUTY ASSISTANT
ADMINISTRATOR, OFFICE OF WATER, U.S ENVIRONMENTAL PROTECTION
AGENCY; PERRY C. BEIDER, PRINCIPAL ANALYST, CONGRESSIONAL
BUDGET OFFICE; AND DAVID G. WOOD, DIRECTOR, NATURAL RESOURCES
AND ENVIRONMENTAL ISSUES, GENERAL ACCOUNTING OFFICE
Mr. Grumbles. Thank you very much, Mr. Chairman. It is an
honor to be here and to appear before the subcommittee. First,
let me convey Tracy Mehan's regrets for not being able to be
here to testify. We are hopeful that his health will continue
to improve, allowing him to be back in the office in the coming
weeks.
I welcome the opportunity to come and to talk about a very
important subject, and that is the Drinking Water
Infrastructure needs and the challenges that lie ahead. And
what I would like to do in my amount of time is just briefly to
summarize the written testimony and focus on some of the key
areas.
First of all, as all of you know on this subcommittee the
accomplishments that have been realized under the Safe Drinking
Water Act, more than 265 million Americans rely on public water
systems, and they enjoy one of the safest supplies of drinking
water in the world.
But obviously there are some major challenges ahead, and
water infrastructure, and its current and future needs, is
certainly one of those challenges. The Safe Drinking Water Act
requires that EPA develop every 4 years a survey to assess the
drinking water investment needs.
Last year, as has been mentioned we published the second
infrastructure survey report, and that showed that $150.9
billion is needed over the next 20 years to ensure the
continued provision of safety drinking water.
Transmission and distribution projects; that is, the pipes,
the pipes that convey the source of water to the treatment
facility, and then to the consumers represents the largest
category of need, 56 percent.
Treatment projects directed at protecting public health
make up the second largest category of need at 25 percent. And
here is another important point. About $103 billion, or 68
percent of the total needs, is needed now to protect public
health and repair or replace existing pipes.
This current need reflects the age and the deteriorated
condition of water infrastructure, but it also simply reflects
the continuing costs of operating, replacing, and improving
water systems. Most systems with current needs, therefore, are
not in violation of any health based drinking water standard.
Future needs. These are projects to be undertaken over the
next 20 years as part of routine replacement. The costs there
account for about $48 billion, the remaining amount of $150
billion.
Although all of the 74,000 State Revolving Fund eligible
projects in our survey would protect public health, about 21
percent of the total need, that is, $31.2 billion, is for
compliance with current and proposed regulations under the Safe
Drinking Water Act.
Thus, of the total need, nearly $4 out of every $5 derives
from the inherent costs of being a water system, and that is
independent of any Safe Drinking Water Act regulation.
The survey also found that systems serving fewer than 3,300
people comprise more than 80 percent of the Nation's community
water systems, but account for only 22 percent of the total
national need.
For systems serving more than 50,000, they constitute just
2 percent of the Nation's water systems, but yet account for
more than 44 percent of the national need. Nonetheless, because
small systems lack economies of scale, the costs they bear on a
per household basis are almost fourfold higher than those of
large systems.
The daunting economics of small systems is one of the
reasons that Congress, and in particular this committee,
created the Drinking Water State Revolving Fund. Let me just
talk briefly about the broader context of investment and
infrastructure needs.
Various recent studies and reports by various groups,
including EPA's GAP analysis, which is undergoing final
administration review, present varied estimates of future
needs.
But a few key points need to be kept in mind. One is that a
funding gap will result if the challenge posed by an aging
infrastructure network, significant parts of which are
approaching the end of their useful life, is ignored.
Second, the Nation, through our partnership, needs to put
more resources into water infrastructure in the future than we
have been doing.
At the same time, we need to reduce the costs, and we do
that by ensuring a more efficient and productive use of such
resources through an approach that emphasizes the development
of a system's self-sustaining capacity to operate, manage, and
fund its infrastructure.
Just a few words, Mr. Chairman, about infrastructure
investment and fiscal sustainability. Looking forward to the
President's fiscal year 2003 budget, that continues Federal
support for drinking water infrastructure, and it requests $850
million for the Drinking Water State Revolving Fund.
As your committee continues to study the drinking water
infrastructure needs, the administration would like to
encourage a constructive dialog on the appropriate role of the
Federal Government in addressing these needs.
The touchstone of our strategy, Mr. Chairman, is building
fiscal sustainability. That requires work on both the fiscal
demand side, that is, how to define and manage infrastructure
needs, and the supply side, how to pay for those managed needs.
There are several basic principles that should guide us,
and I will just mention these briefly, and then I will
conclude. One of them is to foster greater private sector
involvement and encourage an integrated use of all local,
State, and Federal sources of infrastructure financing.
Another key component of the strategy is to promote
sustainable systems by ensuring the capacity of water systems
and creating incentives to adopt best management practices, to
improve efficiency, economies of scale, and reduce the average
cost of service.
Also, encouraging cost-based in affordable rates is a key
component. Creating incentives to support research and
development of innovative and alternative technologies to help
reduce the costs, and provide improved services.
Promoting smarter water use by encouraging water
conservation and reuse, and finally promoting a watershed base
decisionmaking process that includes directing funds to the
highest priority projects.
And in conclusion, Mr. Chairman, I just would like to say
that the administration recognizes that this is a serious
challenge and that infrastructure is very important, and this
dialog that you are having and that the committee has convened
is absolutely integral to coming up with innovative solutions
to help meet the infrastructure challenges.
And I would be happy to respond to questions and answer
them at the appropriate time. Thank you, Mr. Chairman.
[The prepared statement of Benjamin H. Grumbles follows:]
Prepared Statement of Benjamin H. Grumbles, Deputy Assistant
Administrator for Water, U.S. Environmental Protection Agency
Good morning, Mr. Chairman and Members of the Subcommittee. I am
Ben Grumbles, Deputy Assistant Administrator for Water at the U.S.
Environmental Protection Agency (EPA). First, please let me convey
Tracy Mehan's regrets for being unable to attend today's hearing.
I welcome your invitation to discuss the Nation's investment needs
for drinking water infrastructure--the pipes, treatment plants and
other critical components that deliver safe drinking water to our taps.
The challenge of preserving the integrity of this infrastructure--so
that public health can continue to be protected--will form the basis of
my comments.
As a Nation, we have made great progress over the past quarter
century in ensuring the safety of drinking water. Our success in
improving drinking water quality is the result of many programs and
projects by local, State and federal governments in partnership with
the private sector. More than any single effort, however, it is the
cooperative, intergovernmental investment in drinking water and
wastewater infrastructure facilities that has paid dramatic dividends
for public health.
Today, I will summarize what EPA knows about the need for future
investment in drinking water and identify the key challenges I see in
meeting this need. I will conclude with some thoughts about how
Congress and others could proceed when addressing the problems of
financing drinking water infrastructure.
Safe Water--Accomplishments and Challenges
Most Americans would agree that the quality of drinking water has
improved dramatically over the past quarter century.
We have made significant progress in improving the safety of our
Nation's drinking water. Disinfection of drinking water is one of the
major public health advances in the 20th century. In the early 1970's,
however, growing concern for the presence of contaminants in drinking
water around the country prompted Congress to pass the Safe Drinking
Water Act--which now forms the cornerstone of a solid foundation that
ensures that all Americans can continue to enjoy safe drinking water.
Today, the more than 265 million Americans who rely on public water
systems enjoy one of the safest supplies of drinking water in the
world.
Under the Safe Drinking Water Act, EPA has established standards
for 90 drinking water contaminants. Public water systems have an
excellent compliance record--more than 90 percent of the population
served by community water systems receive water from systems with no
reported violations of health based standards.
In the past decade, the number of people served by public water
systems meeting federal health standards has increased by more than 23
million. Although compliance with drinking water contaminant standards
is good, a substantial investment is needed to ensure the safety and
security of our drinking water.
Water Infrastructure--Future Needs
The Safe Drinking Water Act requires that EPA develop--every four
years--a survey to assess the Nation's drinking water investment needs.
The first survey report was released to Congress in 1997.
Last year, we published the second infrastructure survey report.
The new survey showed that $150.9 billion is needed over the next 20
years to ensure the continued provision of safe drinking water to
consumers.
The survey includes needs that are required to protect public
health, such as projects to preserve the physical integrity of the
water system, convey treated water to homes, and to ensure continued
compliance with specific Safe Drinking Water Act regulations.
Transmission and distribution projects--that is, the pipes that
convey water from a source to a treatment facility and then to
consumers--represented the largest category of need (56%), with $83
billion needed over the next 20 years. This result is not surprising
given that, for most water systems, the majority of their capital value
exists in the form of transmission and distribution lines. Treatment
projects, which have a significant benefit for public health, make up
the second largest category of needs at 25%.
The survey also distinguished between ``current needs'' and
``future needs.'' About $103 billion, or 68% of the total need, is
needed now to protect the public health and maintain existing
distribution and transmission systems. That systems require such a
large investment to meet the current need reflects the age and
deteriorated condition of their infrastructure. However, it is
important to note that in most cases, current needs would involve
installing, upgrading or replacing infrastructure that would enable
water systems to continue to deliver safe drinking water. A system with
a current need, therefore, usually is not in violation of any health-
based drinking water standard. For example, a surface water treatment
plant may currently produce safe drinking water, but its filters may
require replacement due to age and declining effectiveness to ensure
the continued provision of safe water.
Future needs account for the remaining $48.4 billion in needs.
Future needs generally include projects that systems would undertake
over the next 20 years as part of routine replacement such as reaching
the end of a facility's service life.
Although all of the 74,000 projects in the survey would promote
public health protection, water systems also identified capital needs
directly related to specific regulations under the Safe Drinking Water
Act. Approximately 21% of the total need, or $31.2 billion, is needed
for compliance with current and proposed regulations under the Act.
Therefore, most of the investment needs documented in the survey (i.e.,
approximately 79%) stem from the costs of installing, upgrading and
replacing the basic infrastructure that is required to deliver drinking
water to consumers--costs that water systems would face independent of
any Safe Drinking Water Act regulations. These findings indicate that
most of the total need derives from the inherent costs of being a water
system, which involves the almost continual need to install, upgrade,
and replace the basic infrastructure that is required to provide safe
drinking water.
The survey also examined investment need by system size. The survey
found that small systems (serving fewer than 3,300 people) comprise
more than 80% of the nation's community water systems, but they account
for only 22% of the total national need. By contrast, large systems
(serving more than 50,000) constitute just 2 percent of the nation's
water systems, yet account for more than 44% of the national need. This
finding reflects the fact that small systems collectively serve far
fewer people--about 26 million--than large systems, which serve about
138 million people.
Although the total small system need is modest compared to the
needs of larger systems, the costs borne on a per household basis by
small systems are almost 4-fold higher than those of large systems.
Small systems often face challenges in obtaining financial assistance
to address these costs--which is one of the reasons Congress created
the drinking water State Revolving Fund.
Other Estimates of Investment Needs
Several groups, including the Water Infrastructure Network and the
American Water Works Association, have also issued reports estimating
water infrastructure needs. These estimates were all substantially
above those of EPA's assessment. The difference owes to the dissimilar
methods used to calculate the needs. The other studies used models to
estimate needs, whereas EPA's estimate is derived from projects that
systems themselves identified and documented on a questionnaire.
However, regardless of which number is used to characterize the
magnitude of investment needs, all of these estimates are significant--
as are the challenges faced by the Nation's water systems in meeting
these needs.
Broader Context of Investment Needs
EPA believes the key to understanding the water infrastructure
financing challenge is to consider a broad context of factors,
including: aging infrastructure, population growth, increasing
operations and maintenance costs, and affordability--especially for
low-income households and communities.
To better understand the issues related to water infrastructure
investments and financing, the Agency is reviewing issues related to
long-term needs, assessing different analytical approaches to
estimating those needs, and estimating the gap between needs and
spending. Last summer, EPA presented a portion of this analysis--known
as the Gap Analysis--to a diverse panel of experts drawn from academia,
industry, think tanks, and consulting firms. Overall, the reviewers
commended the report as a credible effort to quantify the gap. We have
made revisions to the analysis based on the peer review and we expect
to release the Gap Analysis shortly.
In considering these studies and analyses, it is important to keep
in mind a few points. First, there is no single ``correct'' number to
describe the gap. Any gap study must be built using methods and
definitions of need, which in turn rest on varying assumptions about
present conditions nationwide, and desirable or appropriate policies to
follow in the future. The second point is that these gap studies are
limited to quantifying the investment gap, and therefore they cannot
themselves be a clear guide to policy; for example, they do not
consider how the various roles of federal, State and local governments
should be balanced. Third, under any of these studies, funding gaps are
not inevitable. They occur only in the unlikely event that capital
spending remains--for the next 20 years--unchanged from present levels.
An honest evaluation would conclude that a funding gap will result only
if the challenge posed by an aging infrastructure network--a
significant portion of which is beginning to reach the end of its
useful life--is ignored.
I believe that most decision makers at the federal, State and local
levels would agree that, through our partnership, the Nation needs to
put more resources into water infrastructure in the future than we have
been doing. At the same time, we need to reduce costs by ensuring a
more efficient and productive use of such resources through an approach
that emphasizes the development of a system's self-sustaining capacity
to operate, manage, and fund its infrastructure.
Drinking Water State Revolving Loan Fund
The primary mechanism that EPA uses to help local communities
finance drinking water infrastructure projects is the State Revolving
Loan Fund (SRF) established in the 1996 Safe Drinking Water Act
amendments. The SRF was designed to provide a national financial
resource for clean and safe water that would be managed by States and
would provide a funding resource ``in perpetuity.'' These important
goals are being achieved. Other federal, State, and private sector
funding sources are also available for community water infrastructure
investments.
Under the SRF program, EPA makes grants to each State to capitalize
its SRF. States provide a 20% match to the federal capitalization
payment. Local governments get loans for up to 100% of the project
costs at below market interest rates. After completion of the project,
the community repays the loan and these loan repayments are used to
make new loans on a perpetual basis. Because of the revolving nature of
the funds, the dollars invested in the SRF provide about four times the
purchasing power over twenty years compared to what would occur if the
funds were distributed as grants.
In addition, low interest SRF loans provide local communities with
dramatic savings compared to loans with higher, market interest rates.
An SRF loan at the interest rate of 2.4% (the average rate during the
year 2001) saves communities approximately 23% compared to using
commercial financing at an average of 5.3%.
The drinking water SRFs, which this Committee created as part of
the 1996 amendments to the Safe Drinking Water Act, were modeled after
the clean water SRFs, but included a few differences.
States were given broader authority to use drinking water SRFs to
help disadvantaged communities, and to provide technical assistance for
management and operations of drinking water systems.
In addition, the law provided each State the flexibility to
transfer funds between its clean water and drinking water SRFs. The
Administration supports continuing this mechanism to help States fund
their priority needs.
Through fiscal year 2002, Congress has appropriated $5.3 billion
for the drinking water SRF program. Through June 30, 2001 States had
received $3.6 billion in capitalization grants, which when combined
with State match, bond proceeds and other funds provided $5.2 billion
in total cumulative funds available for loans. Through June 30, 2001,
States had made close to 1,800 loans totaling $3.8 billion, with
another $1.4 unallocated or available for loans. Approximately 75% of
the agreements (41% of dollars) were provided to small water systems
that frequently have a more difficult time obtaining affordable
financing. States also reserved a total of approximately $576 million
of SRF capitalization grants for other activities that support the
drinking water program, such as protecting sources of drinking water
and providing technical assistance to small systems.
Infrastructure Investments and Fiscal Sustainability
The President's FY 2003 budget continues to maintain federal
support for drinking water infrastructure and requests $850 million for
the drinking water SRF. By the end of FY 2002, we expect loans issued
by State drinking water SRFs to reach 2,400, with about 850 SRF funded
projects having initiated operations by that date.
This proposed FY 2003 funding will help communities across the
country finance important drinking water projects. As your Committee
continues to study the drinking water infrastructure needs, the
Administration would like to encourage a constructive dialogue on the
appropriate role of the federal government in addressing these needs.
Ensuring that our drinking water infrastructure needs are addressed
will require a shared commitment on the part of the federal, State and
local governments, private business, and consumers.
To meet these future challenges, the Administration believes that
the touchstone of our strategy should be building fiscal
sustainability. In particular, several basic principles should guide
our pursuit of safe drinking water:
Utilizing the private sector and existing programs: Fostering
greater private sector involvement and encouraging integrated
use of all local, State, and federal sources for infrastructure
financing.
Promoting sustainable systems: Ensuring the technical,
financial, and managerial capacity of water systems, and
creating incentives for service providers to avoid future gaps
by adopting best management practices to improve efficiency and
economies of scale, and reducing the average cost of service
for providers.
Encouraging cost-based and affordable rates: Encouraging rate
structures that cover costs and more fully reflect the cost of
service, while fostering affordable water service for low-
income families.
Promoting technology innovation: Creating incentives to
support research, development, and the use of innovative
technologies for improved services at lower life-cycle costs.
Promoting smart water use: Encouraging States and service
providers to adopt holistic strategies to manage water on a
sustainable basis, including a greater emphasis on options for
reuse and conservation, efficient nonstructural approaches, and
coordination with State, regional, and local planning.
Promoting watershed-based decision-making: Encouraging States
and local communities to look at drinking water source water
protection on a watershed scale and to direct funding to the
highest priority projects needed to protect public health and
the environment.
Conclusion
This is an important and serious challenge, and I commend your
Subcommittee for holding this hearing and gathering such experts,
advocates, and colleagues. Already, we see the means to realize these
principles in practice, taking shape all across the country. Many
States and local governments have been changing the way they do
business. As a result, they've successfully managed many of these
infrastructure needs, using creative, individualized approaches that
are cost-effective, environmentally protective, and socially
equitable--efficient, clean, and fair.
Thank you, Mr. Chairman, for this opportunity to discuss EPA's view
of the drinking water infrastructure challenges that the Nation is
facing. I pledge that EPA will continue to work in partnership with
Congress, States, local governments, the private sector and others to
better understand the drinking water infrastructure needs we face and
to play a constructive role in helping to define an effective approach
to meeting these needs in the future.
I will be happy to answer any questions.
Mr. Gillmor. Thank you, Mr. Grumbles. I would like to ask
for unanimous consent that we recognize the chairman of the
full committee for an opening statement? Is there an objection.
Hearing none, the chairman is recognized.
Chairman Tauzin. Thank you, Mr. Chairman. I apologize for
being late. I had a leadership meeting this morning discussing
important new business before the Congress in welfare reform,
and so I apologize for being a little later for you.
But I wanted to thank you for scheduling today's hearing,
and apologize for interrupting our witnesses today. But I want
to note that this is the second hearing that this subcommittee
has held on this important subject, and I think that indicates
the gravity and the enormity of the issue, because at stake is
both the protection of the public health, and the possible
expenditure of billions upon billions of Federal and State, and
local dollars here.
Now, this is no small hearing, no small process, and no
small concern of this committee. In reviewing the testimony
today, I know that the Deputy Assistant Administrator for the
Office of Water, Ben Grumbles, has indicated that the
administration, ``would like to encourage a constructive dialog
on the appropriate role of the Federal Government in addressing
the drinking water needs of our country.''
I would say at the outset that I welcome and encourage this
dialog, and we are absolutely determined to work with you in,
hopefully, a productive fashion to see if we can't come to some
conclusions about what should be that role, and what should be
the level of Federal support.
On a broader level, and as Mr. Grumbles and others will
point out in their testimony, the issue of drinking water need
is far from a static concept. Future need may be influenced by
many factors, including changes in technology and efficiency,
and need may vary greatly from region to region and locality to
locality.
And it is influenced heavily by such uncontrollable factors
such as the type of soil which surrounds the underground pipes,
and its proclivity to erode concrete. A need also has to be
built up over time, including some communities having inherited
the unwanted legacy of old and leaking systems, and huge
amounts of drinking water lost in those systems.
We also know obviously that weather systems are changing,
and the availability of clean water, and rainfall, and weather
conditions dramatically affect the availability of those
supplies.
And while there are certainly immediate needs, and perhaps
even more urgent needs, the need only exists over the long term
that proper resources are not devoted to drinking water systems
repair and replacement.
And we know robbing Peter to pay Paul is not a new concept,
and this is deferral of maintenance in order to address short
term budgetary considerations, a new concept. We know that
everybody does it.
So we have to strive to create and encourage an intelligent
system of financing for our drinking water systems, while being
careful to maintain proper incentives at all levels of
government and the private sector.
So whatever size the need gap is, or the timing of its
occurrence, we risk disinvesting our limited public resources
if we don't design a financing system that will meet the twin
tests of time and human economic behavior.
In short, it is clear that we are going to have to solve
the drinking water needs gap, and it has to do with one
sentence, piece legislation, indicating that X-amount of
dollars is authorized over the next 20 years.
The world is a little too complex for that. So this hearing
will help give us I think a sense of how we deal with some of
these complexities, and daunting as the task may be, I want to
congratulate the chairman.
And I know that this committee in the past has taken on
these kind of challenges, and dealt with them, and since 1996,
with the amendments to the Safe Drinking Water Act, the
committee has reviewed on a regular basis the implementation of
the law.
We have worked with the GAO specifically to analyze the
operation of the State Revolving Funds that were created by the
legislation. And, most recently, the committee acted in a
bipartisan fashion to craft legislation to address threats to
drinking water systems imposed by the intentional acts of
terrorism.
And that legislation requires vulnerability assessments of
drinking water systems, emergency response plans that were
built on those assessments. That legislation also authorizes
funds to help drinking water systems conduct those assessments.
And to take steps that address basic security enhancements, as
well as efforts to detect attacks and to provide protection to
the supplies of safe drinking water.
So I commend these measures as you know now being
considered in a conference with the Senate, and we are trying
to resolve that conference as we speak.
Chairman Gillmor and I look forward to the challenge ahead,
and as the CBO witness quite accurately states, I quote,
Society as a whole pays 100 percent of the costs of water
systems, either through rate payer bills or indirectly through
taxes. That is the bottom line, like so many things in our
country that we fail to recognize.
The consumer ends up paying a hundred percent of the bill,
and what we have to do is come up with a rational way of
dividing the responsibility between the general taxes collected
and the rate payer assessments that are on rate payer bills.
So the journey before us requires not only an unwavering
attention to public health goals, but a recognition that there
is no free lunch, and that somebody is going to have to pay for
all these improvements, and that somebody we know is the
consumers of America, whom we call constituents. And so we have
to do a very rational and sensible, common sense job of this.
That is going to take all of us working together. So, Mr.
Chairman, again, thank you for allowing me to interrupt the
schedule to encourage our witnesses in this hearing, and also
to thank you and encourage this subcommittee in its work.
Again, I want to stress this. There are some things in the
new polls that are taking what people list as necessities in
life, and they include VCRs, and personal computers, and now
DVDs, and all sorts of other devices that are necessities of
life.
But when I grew up, we knew what the real necessities were,
and we still do I think, and they include good, clean, safe,
drinking water, one of the most critical components of a good
society.
And, Mr. Chairman, you are on this one, and stay on it, and
together we will find some good answers I think, and the
country will be better for it. Thank you, Mr. Chairman.
[The prepared statement of Hon. W.J. ``Billy'' Tauzin
follows:]
Prepared Statement of Hon. W.J. ``Billy'' Tauzin, Chairman, Committee
on Energy and Commerce
First, I want to thank Subcommittee Chairman Gillmor for scheduling
today's hearing on drinking water needs and infrastructure. I would
note that this is the second hearing that this Subcommittee has held on
this important subject. The gravity and enormity of this issue is
clear--at stake is both protection of the public health and the
possible expenditure of billions upon billions of federal, state and
local tax dollars.
In reviewing the testimony for today's hearing, I noted that Deputy
Assistant Administrator for Water, Ben Grumbles, indicated that the
Administration ``would like to encourage a constructive dialogue on the
appropriate role of the federal government in addressing (drinking
water) needs.'' I would say at the outset that I welcome and encourage
this dialogue and would be happy to work with the Administration in a
productive fashion.
On a broad level--and as Mr. Grumbles and others will note in their
testimony--the issue of drinking water ``need'' is far from a static
concept. Future need may be influenced by many factors, including
changes in technology and efficiency. Need may vary greatly from region
to region or locality to locality, influenced heavily by such
uncontrollable factors as the type of soil which surrounds underground
pipes and its proclivity to erode concrete. Need has also built up over
time, with the some communities having inherited an unwanted legacy of
old and leaking systems which can waste huge amounts of treated
drinking water.
While there are certainly immediate needs, perhaps even urgent
needs, need only exists over the long term if proper resources are not
devoted to drinking water system repair and replacement. Robbing Peter
to pay Paul is not a new concept, nor is the deferral of maintenance in
order to address short-term budgetary considerations. Therefore, we
must strive to create and encourage an intelligent system of financing
drinking water systems while being careful to maintain the proper
incentives at all levels of government and the private sector. Whatever
the size of any ``needs gap'' or the timing of its occurrence, we risk
disinvesting our limited public resources if we do not design a
financing system which will meet the twin tests of time and human
economic behavior.
In short, it is clear that we are not going to solve any drinking
water ``needs gap'' with a one sentence piece of legislation indicating
that X amount of dollars is authorized over the next 20 years.
Unfortunately, our world is far too complex for such a straightforward
solution, as well-intentioned as the object of the spending might be.
Instead, we will need an intensive examination of complex public policy
issues, a review of various options, and a thorough vetting of
legislative alternatives. I believe today's hearing moves us further
along in that direction
Daunting as this task may seem, I would note that this Committee
has been successful in our previous efforts to tackle the many
difficult issues surrounding the basic human necessity of providing
safe drinking water. The Committee made substantial alterations to the
standard-setting provisions of the Safe Drinking Water Act and various
enhancements to the underlying statute through the 1996 Amendments. In
the years since the 1996 Amendments, the Committee has reviewed, on a
regular basis, the implementation of this law and worked with the
General Accounting Office to specifically analyze the operation of the
State Revolving Fund created by that legislation.
Most recently, this Committee acted in a bipartisan fashion to
craft legislation to address threats to drinking water systems that may
be posed by intentional acts of terrorism. This legislation requires
vulnerability assessments of drinking water systems and emergency
response plans based on these assessments. The legislation also
authorizes funds to help drinking water systems conduct assessments and
to take steps that address basic security enhancements as well as
efforts to detect attacks and protect supplies of safe drinking water.
Our committee's measure is now being considered in conference with the
Senate.
Chairman Gillmor and I therefore look forward to the challenge
ahead. As our CBO witness quite accurately states, ``society as a whole
pays 100 percent of the costs of water systems, either through
ratepayer's bills or taxes.'' The journey before us then, requires not
only an unwavering attention to the public health goals which underpin
the Safe Drinking Water Act, but a recognition that there is no free
lunch. Altogether, we will need to strike a delicate balance between
public and private expenditures while seeking to preserve a drinking
water system which has been a major success in preserving the health of
American citizens during the 20th century.
Mr. Gillmor. I thank Chairman Tauzin for his remarks. The
gentleman from Wisconsin has asked to be recognized.
Mr. Barrett. Thank you very much, Mr. Chairman. I will be
brief. Mr. Chairman, as a person who represents Wisconsin and
whose district lies on the shores of Lake Michigan, I recognize
the importance of clean water and fresh water.
The Great Lakes provide 20 percent of the world's known
fresh water supply, and they supply the drinking water for 34
million Americans. So even though I am on the shores of this
great supply of fresh water, there is still concerns in my
State and in my community.
My community was hit several years ago very hard by a
breakout of cryptosperdium, which threatened the water supply
probably in the most dramatic way that we have seen in this
country in the last generation.
And now we are faced with issues of sewerage overflow,
where sewerage is pumped right into Lake Michigan, which has
raised concerns among many throughout the State of Wisconsin.
So I applaud you for holding this hearing.
I think that this is a very, very important issue. As the
Chairman said, there is nothing more important than our
drinking water supply. And I think that working together on a
bipartisan basis, we can ensure that millions of Americans for
years to come will have a fresh drinking water supply. Thank
you.
Mr. Gillmor. Thank you.
Mr. Perry Beider.
STATEMENT OF PERRY C. BEIDER
Mr. Beider. Mr. Chairman, and members of the subcommittee,
I am pleased to be here today to discuss future investment in
drinking water infrastructure. My testimony draws on an
analysis done by me and Dr. Natalie Tawil of the Congressional
Budget Office, in response to a request from this subcommittee
and your colleagues on the Transportation and Infrastructure
Committee.
Last year, CBO testified that estimates of future
investment spending are very uncertain and that existing
estimates may be too large. Today, I can make those points more
concretely by presenting CBO's estimates of a low-cost and a
high-cost case, which are intended to span the most likely
outcomes within the full set of possibilities.
Specifically, CBO estimates that annual capital costs for
drinking water infrastructure will average $11.6 billion from
2000 to 2019 under the low-cost case and $20.1 billion under
the high-cost case.
All costs here are in 2001 dollars. Data on actual
investment spending in 2000 and 2001 are not yet available. The
estimates measure costs as financed: that approach takes
account of the use of borrowing to spread out the investment's
financial burden and thus reflects the impact on water systems
and ratepayers at a given point in time.
Specifically, for each year in the 20-year period, CBO's
estimate covers the cost of new investments made on a pay-as-
you-go basis out of funds onhand, and the debt service--
principal and interest--paid that year on previous investments
financed through loans and bonds.
CBO's low-cost and high-cost cases draw on the same primary
sources used by the Water Infrastructure Network, or WIN, but
differ from each other and from WIN's scenario in the values
assumed for six factors.
The most important factor is the rate at which drinking
water pipes will be replaced over the 20-year period. The other
five are the savings from efficiency gains, the costs
associated with future drinking water rules, the share of
investments that will be financed through borrowing, the
average borrowing term, and the average interest rate.
For a comparison, CBO estimates that drinking water
investment in 1999, the latest year for which information is
available, was $11.8 billion--again, measured in terms of costs
as financed.
That is an estimate, because calculating 1999 debt service
payments required many assumptions--for example, about the
extent to which water systems borrowed to finance investments
over the previous 20 years.
The difference between that 1999 baseline and estimated
average investment costs from 2000 through 2019, sometimes
dubbed the funding gap, is essentially zero in the low-cost
case and $8.3 billion per year in the high-cost case.
The low-cost case result contradicts conventional wisdom,
but CBO considers it reasonable given the uncertainty about how
soon pipes will need to be replaced, the prospects for
increased efficiency, and the potential for water systems to
borrow more and to do so at longer terms. In contrast, the
high-cost case would imply an increase of about 70 percent over
1999 investment costs.
WIN's estimate of needs over the 2000-2019 period does not
measure investment in terms of costs as financed. In
particular, it includes all debt service paid on investments
financed during the period, even though much of that debt
service will be paid after 2019.
When expressed in costs as financed, WIN's estimate is
roughly $10 billion per year higher than CBO's low-cost
estimate but only about $1 billion more than the high-cost
figure.
It is not surprising that CBO's high-cost estimate is close
to WIN's, since we used the same basic modeling approach and
the specific assumptions in the high-cost scenario are broadly
similar to WIN's.
The lesson that CBO draws from comparing the low case, high
case, and WIN projections is that given the basic approach,
fairly pessimistic assumptions are required to obtain estimates
as high as WIN's.
At the household level, CBO estimates that average bills
for drinking water and wastewater services combined represented
0.5 percent of average income in the late 1990's. In the
absence of increased taxpayer support, we project that by the
year 2019, that share will rise to 0.6 percent and 0.9 percent
in the low-cost and high-cost scenarios, respectively. Of
course, those figures are averages, and households with low
incomes or those served by high-cost systems would tend to pay
larger shares.
In conclusion, CBO agrees with the consensus of industry
experts that the Nation's drinking water systems will require
additional investment in the decades to come. But our estimates
illustrate that the timing of the increase is not at all clear,
nor is its ultimate size once savings from improved management
and new technology are taken into account.
Of course, society as a whole pays 100 percent of the cost
of water systems either through ratepayers' bills or taxes. And
so in an aggregate sense, the only way to make water services
more affordable is to reduce the total costs of providing them.
I will be happy to try to answer any questions.
[The prepared statement of Perry C. Beider follows:]
Prepared Statement of Perry C. Beider, Principal Analyst, Congressional
Budget Office
Mr. Chairman and Members of the Subcommittee, I am pleased to be
here today to discuss future investment in drinking water
infrastructure. My testimony draws on findings from a forthcoming
Congressional Budget Office (CBO) study that was requested by this
Subcommittee and by your colleagues on the Transportation and
Infrastructure Committee.
CBO's testimony before the Subcommittee last year emphasized that
estimates of investment spending through 2019 are very uncertain--in
part because many important data are not readily available--and
existing estimates may be too large. Today, I can make those points
more concretely by presenting CBO's estimates of a low-cost and a high-
cost case, which are intended to span the most likely outcomes within
the full set of possibilities.
I will begin by presenting estimates of average annual investment
costs under the two cases and then discuss how CBO derived the
estimates and how they differ. I will also compare those projections
with an estimate of the current burden of investment in drinking water
infrastructure and examine how future investment might affect household
budgets. Finally, I will compare CBO's estimates with the much-
publicized figures from the Water Infrastructure Network (the WIN
coalition). My testimony focuses on capital investment in drinking
water systems, but it also presents estimates of future operations and
maintenance (O&M) costs under both a low-cost and high-cost scenario.
Before discussing specific dollar figures, I would like to
emphasize that society as a whole pays 100 percent of the costs of
water systems, either through ratepayers' bills or taxes. Thus, the
goal of many water-industry advocates to make water services more
``affordable'' can be met only by reducing the total costs of providing
such services or by using taxes and government subsidies to
redistribute their costs from some people to others. Depending on the
method used, the net effect of such redistributive efforts may be to
shift costs from low-income to high-income households, from large to
small users of water, or from ratepayers served by high-cost systems to
those served by low-cost systems. Taxes and subsidies may also distort
prices and reduce the incentives for efficient choices by system
managers and consumers, resulting in the unwanted side effect of higher
total national costs for water services.
cbo's 20-year estimates
CBO projects that annual capital costs for drinking water
infrastructure will average $11.6 billion from 2000 to 2019 under the
low-cost case and $20.1 billion under the high-cost case. (Unless
otherwise specified, all costs are in 2001 dollars.) Annual O&M costs
over the same period are projected to average $25.7 billion under the
low-cost case and $31.8 billion under the high-cost case. CBO chose the
2000-2019 period for its analysis to make it easier to compare its
estimates with those of the WIN coalition. Data on actual investment
spending in 2000 and 2001, which are provided by the Census Bureau's
Survey of State and Local Government Finances, are not yet available.
Three more points will help clarify the nature of CBO's estimates.
First, they are intended to represent the minimum amount required to
achieve the goals of maintaining desired levels of service to water
customers, meeting federal standards for drinking water quality, and
maintaining and replacing assets cost-effectively.1 They
exclude investments whose sole purpose is to serve future growth; that
is because much of the data underlying them come from the Environmental
Protection Agency's (EPA's) Drinking Water Infrastructure Needs Survey,
which focuses only on investments eligible for assistance from the
state revolving funds, or SRFs.2 Because of a lack of data,
CBO's estimates also exclude investments to increase the security of
drinking water systems. Preliminary indications suggest, however, that
security costs will be small relative to the estimates presented here.
---------------------------------------------------------------------------
\1\ That scope is similar to the one used in the needs survey of
the Environmental Protection Agency (see text). Al though the survey is
restricted to investments ``required to protect the public health,''
most of those public health needs simply reflect ``the inherent costs
of being a water system which involves the nearly continual need to
install, upgrade, and replace the basic infrastructure that is required
to deliver safe drinking water to customers'' (Environmental Protection
Agency, Drinking Water Infrastructure Needs Survey: Second Report to
Congress, February 2001, p. 12). CBO's formulation explicitly
recognizes that a water system's investment requirements depend on the
standards of service that it chooses. The formulation also targets the
minimum amount of spending necessary to achieve the identified goals.
\2\ Investments to serve new or future customers are eligible for
SRF assistance only if they respond to a public health problem (for
example, a project to hook up users of contaminated wells) or are
components of projects triggered by the needs of existing customers
(for example, replacing a deteriorated water main with a larger-sized
one to allow for expected growth). As discussed later, the other source
of data underlying CBO's estimates is an analysis by Stratus Consulting
that focused on the costs of replacing existing water pipes and thus
also excludes investments relating to future growth.
---------------------------------------------------------------------------
Second, the estimates measure costs ``as financed'' and thus take
into account the use of borrowing to spread the investments' financial
burden over time. In particular, for each year of the 20-year period,
CBO's estimate includes two things: the costs of that year's new
investments that are paid for out of funds on hand--that is, on a pay-
as-you-go basis; and the debt service (principal and interest) paid
that year on previous investments financed through loans and bonds.
Economists usually measure investments in terms of their current
resource cost--which covers the capital cost of all current
investments, regardless of how they are paid for, and excludes payments
on past investments. The current resource cost is preferred over other
measures of investment volume for analyzing the efficient use of
society's resources, such as the costs and benefits of water-quality
regulations. But CBO's present analysis takes the water-quality and
service goals as a given and focuses on the costs of meeting those
goals. For that purpose, measuring costs as financed is more useful
because it better indicates the burden facing water systems and their
ratepayers at a given point in time.3
---------------------------------------------------------------------------
\3\ Because O&M costs are generally paid for without borrowing,
resource costs and costs as financed are the same in that case.
---------------------------------------------------------------------------
Third, the relatively large difference between CBO's estimates of
20-year investment requirements under the low-cost and high-cost
cases--the former is 42 percent below the latter--reflects the
limitations of the available data. Indeed, although the two cases are
intended to bracket the most likely outcomes, CBO does not rule out the
possibility that the actual level of investment needed could lie
outside that range.
how cbo derived its estimates
As CBO's previous testimony emphasized, some key data for
estimating future investment, such as the average age and condition of
the nation's existing water infrastructure, are not readily available.
Since CBO could not fill that gap by collecting new data from the
nation's 45,000 community water systems, its strategy in developing its
low-cost and high-cost cases was to take maximum advantage of existing
data and analyses.
In particular, CBO analysts used the basic approach developed by
the WIN coalition, working from a study of pipe replacement needs by
Stratus Consulting for the American Water Works Association and from
estimated requirements for other investment categories derived from
EPA's Needs Survey. CBO chose not to rely on the Needs Survey alone;
even though the survey strives to include all relevant investments over
a 20-year period for drinking water systems nationwide, EPA reports
that its results do not fully cover the whole period. (According to
EPA, planning documents used by many systems as the basis for their
responses to the survey often cover just one to five years.) The
Stratus study used a different approach than the survey uses to
estimate pipe replacement needs: it combined some national-level data
and various assumptions to estimate the number of drinking water
systems nationwide (classified by size and region), the miles of pipe
per system, the distribution of pipe mileage by pipe size, the
replacement cost of pipes of each size, and the rate of pipe
replacement.
Although CBO's low-cost and high-cost cases draw on the same
sources of data, they differ in the assumptions for six factors: three
concern the capital costs estimated by Stratus and EPA, and three
involve the costs of financing the investments (see Table 1). The most
critical assumption is the rate at which drinking water pipes will be
replaced over the 20-year period: the low-cost case assumes an average
annual rate of 0.6 percent, and the high-cost case assumes a rate of 1
percent. That factor alone accounts for most of the difference--$8.5
billion annually--between the two sets of estimates. Using a rate of
0.6 percent in the high-cost scenario would narrow the difference to
$3.4 billion, a reduction of 60 percent.
The lack of data on the condition of existing water pipes is the
basis for CBO's view that plausible estimates of the annual replacement
rate could be as far apart as 0.6 percent and 1 percent. Both rates
have their genesis in the Stratus study. The study's primary analysis
assumed an average annual replacement rate of 1 percent, apparently as
a compromise between the rates implied by standard rules of thumb about
pipe service lifetimes and the rates actually reported in studies from
the mid-1990s. However, the Stratus study also presented another
approach: analysts estimated when pipes would reach the end of their
useful lifetimes on the basis of the assumption that the rate at which
pipe miles were installed over time was proportional to the rate of
population growth. According to that analysis, the bulk of the
replacement cost will not occur until some time after 2020, and the
average replacement rate required from 2000 through 2019 will be on the
order of 0.6 percent.4
---------------------------------------------------------------------------
\4\ More precisely, the study reported separate average annual
replacement rates for three pipe lifetimes (50 years, 75 years, and 100
years) and two decades (2000 to 2009 and 2010 to 2019). The average of
the six individual rates was 0.58 percent. In contrast, the implied
long-run rates for the three lifetimes are 2.0 percent, 1.33 percent,
and 1.0 percent, respectively, for an average of 1.44 percent.
TABLE 1. FACTORS DISTINGUISHING CBO'S LOW-COST AND HIGH-COST CASES
------------------------------------------------------------------------
Low-Cost High-Cost
Case Case
------------------------------------------------------------------------
Capital Factors
Annual Rate of Pipe Replacement (Percent)....... 0.6 1.0
Savings from Improved Efficiency (Percent)...... 15 5
Annual Costs for Regulations Not Yet Proposed 0 0.53
(Billions of 2001 dollars).....................
Financing Factors
Real (Inflation-Adjusted) Interest Rate 3.0 4.0
(Percent)......................................
Borrowing Term (Years).......................... 30 25
Pay-as-You-Go Share (Percent)................... 15 30
------------------------------------------------------------------------
SOURCE: Congressional Budget Office.
Similar uncertainties underlie the rest of the differing
assumptions that CBO used in the low-cost and high-cost cases. Examples
of improved management methods and new technologies here and abroad,
plus conversations with industry experts, lead CBO to believe that
efficiency gains will reduce future investment needs--but whether the
savings will be on the order of 5 percent or 15 percent is hard to
predict with any confidence. CBO also cannot precisely determine the
costs associated with future drinking water rules, the share of
investments that will be financed through borrowing, the average
borrowing term, or the real (inflation-adjusted) interest rate.
CBO's analysis of future O&M spending used simpler methods, and
only one factor distinguishes the estimates under the two cost
scenarios. For the high-cost case, CBO merely extrapolated a linear
trend from real 1980-1998 spending on O&M; for the low-cost case, CBO
started with the same linear trend but phased in savings of 20 percent,
resulting from improved efficiency, over the period from 1995 through
2004.5 Those simpler methods probably do not capture as much
of the true uncertainty surrounding future O&M costs as do CBO's more-
detailed models of capital investment, but again, O&M was less central
to the analysis--in part because it is not eligible for aid under
current federal programs.
---------------------------------------------------------------------------
\5\ The WIN coalition's analysis also assumed savings of 20
percent.
---------------------------------------------------------------------------
comparing future costs and current spending
One useful way to view estimates of future investment costs is by
comparing them with a baseline of current spending. For the present
purpose, however, the available data on current spending are inadequate
because they do not measure spending in terms of costs as financed.
Specifically, the data include the capital costs of all investments
made in a given year--whether the burden of those projects falls on
ratepayers in that year or is being deferred through borrowing--and
exclude the principal being repaid on previous borrowing.
For 1999, the latest year for which the necessary information is
available, CBO's best estimate of investment spending is $11.8 billion,
measured in terms of costs as financed. However, developing that
baseline required CBO to make many assumptions--for example, about the
extent to which drinking water systems borrowed to finance investments
over the previous 20 years. Alternative assumptions could have changed
the result, perhaps by 20 percent.
The difference between that estimate of 1999 investment spending
(as financed) and CBO's estimates of average annual investment from
2000 through 2019--sometimes dubbed the funding gap--is essentially
zero in the low-cost case and $8.3 billion in the high-cost case. The
possibility reflected in CBO's low-cost scenario--that the average
yearly burden of investment in drinking water infrastructure through
2019 might not exceed the 1999 level--contradicts conventional wisdom;
however, CBO considers that scenario reasonable, given the uncertainty
about how soon pipes will need to be replaced, the prospects for
increased efficiency, and the potential for water systems to fund more
of their investments through borrowing and to borrow for longer terms.
Of course, the estimate of future needs under the high-cost case'
representing an increase of about 70 percent over estimated spending in
1999--is also considered reasonable, if less optimistic.
the potential impact of higher costs on household ratepayers
Supporters of increased federal aid for investment in water
infrastructure often argue that rising costs will make households'
water bills ``unaffordable.'' Under CBO's high-cost case, bills for
drinking water and wastewater combined would still represent less than
1 percent of income for the average household, although that share
would be larger for many households that have low income or that are
served by high-cost systems.
CBO estimates that in the late 1990s, average bills for drinking
water and wastewater services combined represented 0.5 percent of
average household income. To derive that estimate, CBO used data from
the Consumer Expenditure Interview Survey (conducted by the Census
Bureau under contract with the Bureau of Labor Statistics), which
analysts supplemented by imputing bills for the 39 percent of survey
respondents who did not report their own. That imputation, which was
based on the water bills of respondents with comparable income, may
bias the estimate upward, because many respondents without separate
water bills are apartment-dwellers, who use less water for lawns and
gardens than do residents of single-family homes.6
---------------------------------------------------------------------------
\6\ CBO's estimate may also overstate the percentage of income
devoted to water bills by accepting at face value all incomes reported
in the survey. (Some analysts believe that many incomes at the very low
end of the distribution are understated.)
---------------------------------------------------------------------------
To analyze the impact on households of future investment and O&M
spending by drinking water and wastewater systems, CBO first estimated
the rates that would be required by 2019 to pay for that spending,
holding support from all levels of government constant. It then
compared the result with incomes in that year, taking into account
projections of real income growth. The share of average household
income going to water bills in 2019, CBO estimates, would be 0.6
percent and 0.9 percent under the low- and high-cost scenarios,
respectively.
Of course, averages can mask important differences in individual
cases (see Figure 1). For example, half of all households spent 1
percent or less of their income on water bills in the late 1990s while
others spent significantly more.
comparing cbo's and win's estimates
The WIN coalition's estimates of future investments in drinking
water and wastewater infrastructure do not measure costs either as
financed or in terms of resource costs. When its estimates for the
2000-2019 period are expressed in terms of costs as financed, they are
close to CBO's for the high-cost case.
For each year of the period, WIN's estimates add the cost of that
year's pay-as-you-go investments to the total debt service (principal
plus interest, in constant dollars) to be paid in later years for newly
financed investment.7 Thus, where a costs-as-financed
estimate includes the current debt service paid on past investment,
WIN's estimates include future debt service on current investment--much
of which will be paid after 2019.
---------------------------------------------------------------------------
\7\ Equivalently, WIN's annual estimate combines the current
resource costs for all of that year's investments and the sum (in real
dollars) of all future interest costs for the portion of the
investments financed by borrowing.
---------------------------------------------------------------------------
The impact of that difference is substantial (see Table 2). WIN's
published estimate of average annual drinking water investment needs
from 2000 to 2019 is $26 billion (in 2001 dollars); using costs as
financed reduces the estimate by about 18 percent, to $21.4
billion.8 The reason for the decrease is that the cohorts of
investment financed yearly from 1980 through 1999, and still being paid
off from 2000 through 2019, are smaller than the new cohorts that are
projected to be financed during the latter period. When expressed in
comparable terms, WIN's estimate is roughly 6 percent and 84 percent
higher, respectively, than the estimates for CBO's high- and low-cost
cases.
---------------------------------------------------------------------------
\8\ As originally published, WIN's estimate was expressed in 1997
dollars and was $24 billion. Note that the revised costs-as-financed
estimate of future investment needs merely reframes results from WIN's
own analysis and does not change any modeling assumptions.
TABLE 2. CBO'S AND WIN'S ESTIMATES OF INVESTMENT NEEDS FOR DRINKING WATER, 2000-2019
(In billions of 2001 dollars)
----------------------------------------------------------------------------------------------------------------
CBO Water Infrastructure
---------------------------- Network
---------------------------
Low-Cost High-Cost Costs-as-
Case Case Published Financed
Estimate Estimate
----------------------------------------------------------------------------------------------------------------
Average Annual Investment Need.......................... 11.6 20.1 26 21.4
Increase Above Recent ``Baseline'' Investment........... -0.2 \1\ 8.3 \1\ 13 \2\ 9.4 \1\,\3\
----------------------------------------------------------------------------------------------------------------
SOURCES: Congressional Budget Office; Water Infrastructure Network.
\1\ Relative to a 1999 baseline.
\2\ Relative to a 1996 baseline.
\3\ CBO's approximation of WIN's results.
Similar contrasts emerge in comparing average future investment
with baseline spending. Again, WIN's estimate of the difference between
the two levels of investment drops significantly--from $13 billion per
year to $9.4 billion--when it is expressed in terms of costs as
financed. And again, the latter figure is roughly $1 billion higher
than the estimate for CBO's high-cost case and $10 billion above the
estimate for its low-cost scenario.9
---------------------------------------------------------------------------
\9\ CBO did not have enough information to directly calculate WIN's
own estimate of 1999 debt service, a key component of baseline spending
in costs-as-financed terms. Instead, CBO approximated it by multiplying
WIN's estimate of average 2000-2019 costs for annual debt service on
pre-2000 investments by a scaling factor that it obtained from a mock
re-creation of WIN's model. The resulting estimate of baseline spending
as it would have been calculated in WIN's analysis is $12.0 billion,
which is very close to the estimate of $11.8 billion used in CBO's
scenarios.
---------------------------------------------------------------------------
The fact that WIN's estimates are close to those of CBO's high-cost
case when both are expressed in comparable terms should not be
interpreted as independent support for estimates of that magnitude. CBO
and WIN used the same modeling approach, and CBO's high-cost scenario
used specific assumptions that are broadly similar to
WIN's.10 Thus, it is not surprising that the resulting
estimates are also similar. The lesson that CBO draws from comparing
the three estimates is that under the basic framework of the modeling
approach, fairly pessimistic assumptions are required to obtain
estimates as high as WIN's.
---------------------------------------------------------------------------
\10\ CBO's high-cost case differs from WIN's scenario not only in
its easier borrowing terms and savings from increased efficiency but
also in its higher costs for complying with federal standards for
drinking water quality and somewhat greater reliance on pay-as-you-go
funding.
---------------------------------------------------------------------------
Given WIN's estimates, it is also not surprising that the coalition
sees water bills as accounting for a larger share of future household
budgets than CBO does. In particular, WIN projects that 22 percent of
households will be paying more than 4 percent of their income for water
services by 2009 (halfway through the study period) and talks more
generally about ``a third or more of the population'' reaching that
level as rates continue to adjust. (The fraction of households paying
more than 4 percent of their income is simply one of many summary
measures that can be derived from the distribution of water bills.
There is no economic or scientific significance to 4 percent as the
threshold at which water bills become ``unaffordable.'') 11
In contrast, CBO's estimates for the end of the study period in 2019
show 11 percent of households paying above 4 percent in the low-cost
case and 21 percent doing so in the high-cost case.
---------------------------------------------------------------------------
\11\ WIN chose 4 percent on the basis that EPA has, at various
times, used 2 percent of median household income as a benchmark in
evaluating the ``affordability'' of average rates charged by both
drinking water and wastewater systems. But in a community whose water
systems charged rates that together collected 4 percent of median
household income, many households with income below the median would
probably be paying more than 4 percent. Thus, there is no logical
connection between the EPA and WIN benchmarks.
---------------------------------------------------------------------------
Part of the difference between CBO's and WIN's projections lies not
in the different estimates of future levels of investment but simply in
different conclusions about current spending. CBO estimates that 7
percent of households paid more than 4 percent of their income for
water services in the late 1990s; using other data sources, WIN
estimates that 18 percent paid that much. WIN's approach is more
limited, in two respects. First, the approach uses data only from the
state of Ohio, which WIN finds to be representative of the nation as a
whole in its costs for drinking water relative to household income.
Second, the approach relies on system-level data (specifically, data
from 1997 on drinking water and wastewater charges for using the
equivalent of 250 gallons per day) rather than on the actual bills paid
by individual households based on their own use. WIN's method may bias
its results if low-income households tend to use less than 250 gallons
of water per day.
In conclusion, CBO agrees with the consensus of industry experts
that the nation's drinking water systems will require additional
investment in the decades to come. But CBO's estimates make clear that
the timing of the increase is not at all certain, nor is its ultimate
size predictable, once savings from improved management and new
technology are taken into account. Similarly, CBO agrees that higher
rates for drinking water and wastewater services over the next 20 years
may lead households to pay a larger share of their income for them.
However, CBO's estimates of the potential impact higher rates would
have on households are much smaller than those reported by the WIN
coalition. Moreover, economists would argue that such considerations
should be addressed through policies that redistribute income--not
those that manipulate the price of water.
[GRAPHIC] [TIFF OMITTED] 79463.001
Mr. Gillmor. Thank you very much, Mr. Beider.
Mr. Dave Wood of the General Accounting Office.
STATEMENT OF DAVID G. WOOD
Mr. Wood. Thank you, Mr. Chairman. I am pleased to be
here.Over the past few years, GAO has done a body of work
related tothe Safe Drinking Water Act, designed to help provide
the Con-
gress with information on the nature of problems faced by
waterutilities, and how well existing programs are working.
In addition to reviewing EPA's activities, on several
occasions wehave used nationwide surveys to obtain information
about how theAct is being implemented on the ground.
My testimony today is based primarily on two recent
reports, and discusses three issues pertinent to assessing the
Nation's drinking water infrastructure needs. First, the
precision of EPA's most recent estimates of national and State
level needs.
Second, the States' use of their drinking water State
Revolving Loan Funds to assist communities that the States
define as disadvantaged. And, third, the amounts of assistance
that other Federal agencies and States provide for water
infrastructure.
On the first matter, we found that EPA took a number of
steps to ensure that it gathered valid data with which to
estimate the infrastructure needs of drinking water systems.
However, we also observed that EPA may not have achieved its
target level of precision for those estimates, which was
generally to come within 10 percent of the actual need for
reasons associated with some of its sampling methods.
Because of its importance to the allocation of funds to
States under the Revolving Loan Program, we recommended that
EPA calculate the precision of its estimates, and determine
whether it should revise its methods for the next drinking
water needs survey in 2003.
EPA concurred that such calculations would be helpful and
indicated that it would take this into account when designing
the 2003 survey. Regarding the second issue, we found that the
States have made limited use of their options to use loan
subsidies under their drinking water revolving funds to help
disadvantaged communities.
Specifically, we found that as of December 2000, 21 States
offer additional loan subsidies, such as forgiving a portion of
the loans. But only 14 States have actually provided loan
subsidies for disadvantaged communities.
Another 10 States offered longer repayment terms for
disadvantaged communities. The 19 States that had not
established such programs cited reasons such as concerns about
depleting the revolving funds, the availability of below market
rate loans to all fund borrowers, and the availability of other
Federal or State assistance for disadvantaged communities.
This brings me to the third and final issue discussed in my
testimony. In November, we reported on the financial aid made
available for both drinking water and waste water
infrastructure by EPA, other Federal agencies, and State
programs.
We gathered this information for a 10 year period, fiscal
years 1991 through 2000. Our State data do not include four
States that did not respond to our survey. We found that EPA
was the main provider of Federal assistance, contributing about
$3.7 billion in drinking water State revolving fund grants, and
about $16.6 billion for the similar Clean Water Act program.
The States had contributed about $10.1 billion to match
those funds. However, other Federal agencies also provided
significant amounts of financial aid. The Departments of
Agriculture, Housing and Urban Development, and Commerce, as
well as a few other agencies, made about $19 billion available
for water infrastructure in the form of grants, direct loans,
or guaranteed loans.
About 11 percent of this assistance was specifically for
drinking water facilities. Another 40 percent was available for
either drinking water or waste water facilities. Some of this
assistance was directed primarily to distressed or lower income
communities.
Finally, the States had collectively made about $9.1
billion in grants and loans under State sponsored programs, and
another $4.4 billion in loans backed by State bond issues.
Excluding the required matching contributions for the State
revolving loan fund programs, about 30 percent of the State
assistance was specifically for drinking water facilities, and
another 26 percent was available for either drinking water or
waste water facilities.
In closing, Mr. Chairman, I would like to mention that we
have work underway in which we have sent surveys to several
thousand drinking water and waste water utilities to obtain
information on their funding sources and their financial
planning practices.
We anticipate reporting on that work later this summer.
That concludes my prepared remarks. I will be happy to respond
to any questions that you may have.
[The prepared statement of Dave Wood follows:]
Prepared Statement of David G. Wood, Director, Natural Resources and
Environment, United States General Accounting Office
Mr. Chairman and Members of the Subcommittee: I am pleased to be
testifying before you today as you consider the infrastructure needs
facing the nation's drinking water systems. As you know, the U.S.
Environmental Protection Agency (EPA) is required to conduct an
infrastructure needs assessment every 4 years to estimate the future
capital investment needs of local drinking water systems. In its most
recent national survey, EPA estimated that nearly $151 billion will be
needed over the next 20 years to repair, replace, and upgrade the
nation's 55,000 community water systems. The needs assessment survey,
which EPA uses to estimate infrastructure needs for each state, serves
as the basis for EPA's grants to the states under the Drinking Water
State Revolving Fund (DWSRF) program. This program helps communities
finance the infrastructure projects needed to comply with federal
drinking water regulations and protect public health. EPA requests
annual appropriations to capitalize the states' revolving loan funds
and then makes specific allotments to each state. The states, which are
required to match a portion of the grants, use the funds to make low-
interest loans to their local water systems; as the loans are repaid,
the states' funds are replenished, enabling them to make loans to other
eligible drinking water projects. For projects located in communities
that qualify as ``disadvantaged,'' the states may extend loan repayment
periods or use a portion of their grants to provide additional
subsidies.
In addition to EPA, a number of federal agencies provide financial
assistance for drinking water facilities through a variety of grant and
loan programs, some of which also may be used for wastewater
facilities. Further, some states sponsor their own financial assistance
programs for local drinking water and wastewater facilities.
My testimony today discusses several issues critical to assessing
the nation's drinking water infrastructure needs: (1) the precision of
EPA's most recent estimate of drinking water infrastructure needs, (2)
states' use of EPA's drinking water state revolving funds to aid
disadvantaged communities, and (3) the amounts and types of drinking
water infrastructure funding EPA, other federal agencies, and the
states have made available. The information provided in this testimony
is based on two recently-issued reports: our January report for this
subcommittee and committee 1 and our November 2001 report on
federal and state financial assistance for water
infrastructure.2 We focused on certain aspects of EPA's
methodology in reviewing the agency's needs assessment, specifically
the impact of sampling on the estimate's precision. In addition, we
surveyed all 50 states to determine how they use their drinking water
state revolving loan funds to assist disadvantaged communities.
Finally, we obtained information on federal and state drinking water
and wastewater infrastructure funding over a 10-year period (fiscal
years 1991 through 2000) by collecting data from the nine federal
agencies responsible for the majority of the federal assistance and,
using a detailed questionnaire, surveying the states to collect
information on state-sponsored programs. Forty-six states responded to
our funding survey. We converted the annual amounts reported by the
federal agencies and the states to constant year 2000 dollars.
---------------------------------------------------------------------------
\1\ U.S. General Accounting Office, Drinking Water: Key Aspects of
EPA's Revolving Fund Program Need to Be Strengthened GAO-02-135
(Washington, D.C.: Jan. 24, 2002)
\2\ U.S. General Accounting Office, Water Infrastructure:
Information on Federal and State Financial Assistance GAO-02-134
(Washington, D.C.: Nov. 30, 2001)
---------------------------------------------------------------------------
In summary, our work has shown the following:
EPA took a number of steps to help ensure that it collected
valid data to estimate drinking water infrastructure needs,
such as conducting site visits to selected systems and asking
states to review supporting documentation. However, EPA and
other users of the needs assessment cannot tell how closely the
estimates reflect actual state-by-state needs because EPA did
not calculate the precision of the estimates. EPA set a target
level of precision--generally, the agency wanted to be 95
percent certain that its estimates were within 10 percent of
the ``true'' needs. We found indications that the level of
uncertainty was higher than EPA's target level of precision,
possibly by a considerable amount, for reasons associated with
some of EPA's sampling methods. Because the results of the
survey are used to estimate both national and state-level
needs, they can influence the level of congressional
appropriations for the drinking water state revolving fund
program, and they form the basis for EPA's allotment of these
funds to the states. Accordingly, we recommended that EPA
calculate and report the level of precision actually achieved
in its recent needs assessment, and determine what
implications, if any, its findings have on the methodology to
be used to conduct future needs assessment surveys. EPA
concurred that such a calculation would confirm whether the
survey met its precision targets and stated that it would
revisit the issue in the design of the 2003 survey.
Thirty-one states have established programs under their
revolving loan funds to assist disadvantaged communities,
according to the results of our 50-state survey. Of the states
with programs, 21 provided about $94 million in special
subsidies--mainly loan principal forgiveness--and 23 offered
extended loan terms. While criteria for defining disadvantaged
communities vary, states typically use some measure of
household water rates relative to a community's median
household income. In addition, states reported that other
factors, such as concerns about depleting the fund and the
availability of assistance from other federal and state
sources, influenced their decisions to offer assistance to
disadvantaged communities under the revolving fund program.
Because providing additional loan subsidies can affect the
extent to which states' revolving loan funds are replenished--
and therefore potentially the extent to which future federal
funds will be requested--we attempted to estimate of the number
of systems potentially eligible for such assistance. On the
basis of limited information provided by the states, we
estimate that about 28 percent of the nation's smallest water
systems could qualify for additional subsidies.
In fiscal years 1991 through 2000, nine federal agencies made
available about $44.0 billion in grants, loans, and loan
guarantees for drinking water and wastewater capital
improvements. Of this amount, EPA provided about $3.7 billion
in drinking water state revolving loan fund grants and about
$16.6 billion under a similar program for wastewater
facilities. EPA's assistance, combined with that of three other
agencies--the Departments of Agriculture, Housing and Urban
Development, and Commerce--accounted for about 98 percent of
the total federal assistance. About 11 percent of the federal
aid was specifically for drinking water facilities and another
40 percent was for either drinking water or wastewater
facilities. Also, according to responses to our survey, state
governments made a total of about $25 billion in state funds
available for water infrastructure programs over the 10-year
period, including over $10 billion to match EPA's
capitalization grants. State-sponsored grant and loan programs
accounted for about $9.1 billion of the states' contributions,
including $800 million specifically designated for drinking
water facilities and $6.3 billion that could be used for either
drinking water or wastewater facilities (and in some cases for
other types of infrastructure projects). In addition, states
reported that they made another $4.4 billion available for
loans by selling general obligation and revenue bonds, and
contributed about $1.4 billion from other state sources for
purposes such as matching non-EPA federal funds and financing
state-designated specific drinking water or wastewater
projects.
Background
Under the 1996 amendments to the Safe Drinking Water Act, EPA is
required to conduct an infrastructure needs assessment every 4 years to
estimate the future capital investment needs of water systems eligible
for assistance through the DWSRF program.3 Of the estimated
$150.9 billion capital investment needed according to EPA's most recent
survey, 80 percent ($119.7 billion) is linked to projects involving the
installation, upgrade, and replacement of the basic infrastructure
needed to deliver safe drinking water to the public. The remainder of
the estimated needed investment--$31.2 billion, or about 20 percent--
will go to projects directly associated with existing, proposed, or
recently issued regulations.
---------------------------------------------------------------------------
\3\ Eligible systems include community water systems and not-for-
profit noncommunity water systems. Community systems serve at least 25
people or 15 connections year-round. Noncommunity systems serve at
least 25 people for more than 60 days but less than year-round.
---------------------------------------------------------------------------
Water systems vary in size, which is often measured by the number
of customers they serve. In its most recent survey, EPA obtained
information from 100 percent of the largest 1,111 community water
systems (those serving more than 40,000 people) and samples of the
remaining 7,534 medium systems (those serving from 3,301 to 40,000
people) and 44,373 small systems (those serving 3,300 or fewer people).
Small water systems represent over 80 percent of all community water
systems, but they only account for about 22 percent of the estimated
infrastructure needs. In contrast, the largest water systems represent
about 2 percent of the community systems and account for nearly 44
percent of the needs.4
---------------------------------------------------------------------------
\4\ For both large and small systems, these percentages are
calculated excluding the estimated $9.3 billion in needs associated
with proposed or recently promulgated regulations.
---------------------------------------------------------------------------
Subsidized loan assistance is an integral part of the DWSRF program
in that the interest rates that states offer to local water systems
must be at or below the current market rate.5 In addition,
the Congress has authorized states to use an amount equal to up to 30
percent of their DWSRF capitalization grants to provide additional
subsidies to communities that qualify as ``disadvantaged'' under state-
defined affordability criteria. States with disadvantaged community
programs may opt to forgive a portion of the loan principal or issue a
loan at a negative interest rate. States also have the option of
extending the loan repayment period from the standard 20 years to up to
30 years, provided that the repayment period does not exceed the
expected design life of the project.
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\5\ According to EPA, the weighted average interest rate of DWSRF
loans in 2001 was 2.4 percent, or about 3 percent lower than the market
rates reported by the states.
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U.S. drinking water and wastewater systems encompass thousands of
treatment facilities, collection facilities, and related works and well
over a million miles of pipes and conduits. While the investment, made
over decades, in these facilities is enormous, even more funds will be
needed in the future to support efforts to maintain clean and safe
water. The Water Infrastructure Network--a consortium of industry,
municipal, and nonprofit associations--recently estimated needs of up
to $1 trillion over the next 20 years for drinking water and wastewater
systems combined, when both the capital investment needs and the cost
of financing are considered. User rates serve as the major source of
facilities' financing, but both federal and state government agencies
offer financial support as well. In the 107th Congress, legislation has
been introduced in both the House and the Senate that would increase
the amount of federal assistance available through EPA's revolving loan
fund programs.
EPA Took Steps to Validate Needs Data, But Did Not Calculate the
Precision of Its Estimates
The 1996 amendments to the Safe Drinking Water Act require EPA to
use the results of its most recent needs assessment survey to allocate
the amount of each state's annual DWSRF allotment. EPA allocates the
DWSRF funds on the basis of each state's share of the total estimated
national need, except that each state receives a minimum share of 1
percent. According to EPA, its periodic surveys are therefore intended
to provide ``statistically precise'' estimates of the needed capital
investments, not just in total for the nation, but within each state.
EPA took a number of steps to ensure that it collected valid
information about infrastructure needs at local water systems, and the
cost of addressing those needs. For example, EPA took the following
measures:
For large and medium-sized systems, EPA used a questionnaire
to collect information on capital projects needed to protect
the public health. According to EPA's report to the Congress,
6 the agency asked the surveyed water systems to
provide detailed information on each project including
documentation explaining (1) why it is needed, (2) the basis
for the project (e.g., whether it addressed a current or future
need), and (3) the project's estimated cost (or enough
information on the design capacities so that EPA could use a
model to estimate the cost.)
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\6\ U.S. Environmental Protection Agency, Drinking Water
Infrastructure Needs Survey Second Report to Congress EPA 816-R-01-004
(Washington, D.C.: February 2001), p. 58.
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For the smallest water systems, EPA sent trained water system
specialists on site visits to collect data after deciding that
specialists would provide better information than a
questionnaire because small systems generally have neither the
data nor personnel to complete a questionnaire of this type.
In the case of the large and medium-sized systems, EPA obtained
information from a sufficient number of systems to estimate
infrastructure needs on a state-by-state basis. (EPA surveyed 100
percent of the largest water systems--those serving populations of more
than 40,000--and a statistical sample of medium-sized systems, which
amounted to about one-third of the systems serving populations from
3,301 to 40,000.) For these systems, which typically comprise the
majority of a state's needs, EPA set a precision target of plus or
minus 10 percent, at the 95 percent confidence level. This means that
EPA wanted a 95 percent likelihood that its estimate of the needed
capital investment in a particular state would fall within 10 percent
of the actual or ``true'' need for that state.
For the small systems, the agency's precision target for the
national-level estimate was similarly set at plus or minus 10 percent
at the 95 percent confidence level. EPA officials explained that the
agency did not have the resources to send specialists to enough small
systems to get an accurate picture of small-system needs on a state-
level basis. (Specifically, EPA estimated that it would have to conduct
site visits at approximately 22,000 small water systems to collect
enough data to estimate needs on a state-by-state basis.) Instead, EPA
selected a sample of about 600 small water systems for these site
visits. EPA used the results of these visits to calculate a national-
level estimate of small system infrastructure investment needs. EPA
then apportioned this estimated total among the states on the basis of
the number of each state's small systems, categorized by population
served and type of water source.
In an effort to assess the precision of EPA's needs estimates, we
performed a limited review of EPA's methodology, focusing on the impact
of sampling on the estimate's precision. We concluded that EPA probably
did not achieve its intended level of precision. More specifically, we
found indications that the level of uncertainty, or sampling error,
7 was higher than EPA's target level of precision, possibly
by a considerable amount. For example, we found that:
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\7\ Sampling error is a measure of the amount of uncertainty that
exists about the true cost when costs are estimated from a sample of
systems rather than from data collected from all systems.
The agency's approach did not account for the fact that it
extensively used average costs estimated from models when
calculating its sample size.8 Thus, EPA's sample
sizes were probably too small, and it is likely that EPA did
not collect data from enough systems to achieve its precision
target.
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\8\ For example, in its current needs assessment, EPA had to rely
on modeling--and substituted the average costs generated by the
models--for 67 percent of the capital projects identified in its needs
survey, including over 80 percent of the projects associated with small
water systems. Modeling was necessary because project-specific
documentation was not available in many instances.
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Even though EPA's technical experts believed that a simple
random sample 9 would be required to achieve the
target level of precision for small-system needs, EPA deviated
from this sampling methodology in two important ways. First, to
avoid the travel costs associated with visiting about 600
randomly selected systems located throughout the country, EPA
used statistical sampling to select 100 geographical areas and
then chose six systems within each area. Although an acceptable
approach, such a statistical sampling technique can require a
considerably larger sample size than when simple random
sampling is used to achieve the desired level of precision. EPA
did not increase its sample size to account for the change in
technique. Second, based on recommendations from an advisory
workgroup,10 EPA intentionally selected at least one
area in each of the 50 states, Puerto Rico, and the U.S. Virgin
Islands. Such geographical constraints had the potential of
increasing the sampling error, thereby reducing the level of
precision of EPA's estimate.
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\9\ In a simple random sample, each system has an equal chance of
being included in the sample.
\10\ The workgroup consisted of state, American Indian, Alaskan
Native Village, Indian Health Service, and EPA representatives.
---------------------------------------------------------------------------
Although EPA has calculated and reported the actual precision
levels for other surveys, EPA officials told us that doing so for the
most recent drinking water needs assessment would not be worthwhile,
because it would not affect the allocation of DWSRF funds to the
states. In addition, according to an EPA official responsible for
managing the periodic needs surveys, EPA has already invested
approximately 4 years and $3.6 million to implement its most recent
assessment and summarize the results. The official said that
calculating the actual precision of the cost estimates would cost at
least an additional $30,000 to $40,000. Moreover, actually achieving
the precision target could cause the agency to incur further costs,
depending on how many additional site visits were needed.
On the other hand, there are arguments in favor of calculating the
precision of EPA's estimates. A number of leading survey research
associations advocate for the calculation and reporting of the
precision level to fully inform users of a sample's
limitations.11 More importantly, determining the precision
level of its estimates could help EPA identify any needed changes in
its survey methodology--for example, larger or differently selected
samples designed to minimize sampling error--to improve the future
surveys required by the Safe Drinking Water Act. In commenting on a
draft of our January report, EPA agreed that the calculation of
confidence limits would confirm whether the survey met its precision
targets. EPA also stated that it would fully consider our
recommendation and that it would revisit the issue in the design of the
2003 survey.
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\11\ The American Association for Public Opinion Research, ``in the
spirit of upgrading current survey practice,'' has promulgated a list
of best practices that includes reporting a measure of each estimate's
precision along with the estimate, rather than reporting only the
statistic itself. In addition, the Council of American Survey Research
Organizations' code of standards and ethics requires that estimates of
sampling error be calculated and ``available.''
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States Have Made Limited Use of the Optional DWSRF Provision to Assist
Disadvantaged Communities
Under the 1996 amendments to the Safe Drinking Water Act, the
Congress authorized states to use an amount equal to up to 30 percent
of their DWSRF capitalization grants to provide additional subsidies to
communities that qualify as ``disadvantaged.'' The subsidies may take
the form of forgiving a portion of the loan principal or issuing a loan
at a negative interest rate.12 States have the flexibility
to develop their own criteria to define a disadvantaged community.
States with disadvantaged community programs typically use some measure
of household water rates relative to the community's median household
income, allowing the states to assess the impact of capital project
debt on the community's water rates and measure the project's
affordability.
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\12\ States may also extend the loan repayment period from the
standard 20 years to up to 30 years, provided that the repayment period
does not exceed the expected design life of the project. While an
extended loan term makes financing a project more affordable to a
community by reducing the amount of monthly payments, it is not
considered a loan subsidy.
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According to our state survey:
Thirty-one states have adopted a disadvantaged community
program and offer assistance in the form of loan subsidies or
extended loan terms. Three more states reported plans to offer
such assistance as part of their DWSRF programs within the next
3 years. As of December 31, 2000, 25 of the 31 states had
provided assistance to qualified communities.
Of the 31 states with a disadvantaged community program, 27
have adopted criteria that consider local water rates, often in
conjunction with a community's median household income. In
total, 21 states use median household income as a criterion in
determining whether communities qualify as
disadvantaged.13
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\13\ The state of Utah also reported an income-based criterion, but
the state uses the median adjusted gross income rather than household
income.
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Most states that have a disadvantaged community program offer
principal forgiveness or extended loan terms for capital
improvement projects. States rarely offer negative interest
rate loans to disadvantaged communities. (According to state
DWSRF officials, they find this option difficult to explain to
local communities and difficult to administer.)
Of the 14 states that had provided loan subsidies,
14 only Maine, which had used 23 percent of its
grants for assistance to disadvantaged communities, came close
to reaching the 30 percent cap.
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\14\ Although 21 states offer subsidy assistance in their
disadvantaged community programs, only 14 states have actually forgiven
a portion of the loan principal or reduced the loan interest rate below
zero percent.
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In our survey, we asked the states that had not adopted a DWSRF
program for disadvantaged communities to report the reasons why. Of the
19 states without disadvantaged community programs,
16 states cited concerns about maintaining the body of the
fund or the long-term viability of the fund as a major (12) or
moderate (4) reason for not establishing a disadvantaged
community program;
14 states cited the fact that their DWSRF program already
offers loans at below-market interest rates as a major (9
states) or moderate (5 states) reason for not offering
additional assistance to disadvantaged communities; and
12 states cited the availability of other federal or state
programs to address the needs of disadvantaged communities as a
major (5 states) or moderate (9 states) reason for not
providing assistance through the DWSRF.15
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\15\ Our responses do not add to 12 because some states cited the
availability of both federal and state funding as reasons for not using
their DWSRF to assist disadvantaged communities.
---------------------------------------------------------------------------
Non-DWSRF financing from other federal and state sources is
available to help disadvantaged communities, and many states coordinate
with these sources to help disadvantaged communities secure the funding
they need. According to the state drinking water officials we
interviewed, disadvantaged communities often receive a combination of
DWSRF and non-DWSRF funding to finance their drinking water projects. A
significant amount of funding is available for local drinking water
projects from other federal agencies and through state-sponsored grant
and loan programs. In our survey on assistance to disadvantaged
communities, more than half the states indicated that they provided
some type of financial assistance for drinking water projects. Six of
the 19 states without DWSRF-related disadvantaged community programs
had state grant or loan programs intended specifically to help
economically distressed communities to finance drinking water
improvement projects.
Because providing additional loan subsidies to disadvantaged
communities can affect the rate at which states' revolving funds are
replenished--and therefore potentially the extent to which future
federal funds will be requested--we attempted to determine the
proportion of the nation's community water systems that might qualify
as ``disadvantaged'' and thus be eligible to receive special
assistance. According to EPA officials, the vast majority of systems
serving disadvantaged communities are likely to be small
systems.16 Therefore, we used the same statistical sample of
small water systems that EPA had selected for its infrastructure needs
assessment. (A statistical sample allows generalizing the results to
the universe of small systems, thereby obtaining a national estimate.)
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\16\ Among other problems, small water systems often lack the
economies of scale that make infrastructure projects more affordable at
larger systems.
---------------------------------------------------------------------------
We identified the specific systems included in EPA's sample--from 5
to 34 systems in each state--and as part of our survey asked the states
to determine which of those systems they would consider to be
disadvantaged. We asked states that were able to apply their own
criteria to determine whether each system initially qualified as
disadvantaged or qualified as a result of the additional costs needed
to improve it. Other states were asked to use GAO surrogate criteria
(i.e., to qualify as ``disadvantaged,'' a community's water rates would
have to exceed 1.4 percent of its median household income).
Our effort met with limited success for several reasons. The
primary reasons were that some states did not have the information
necessary to readily make a determination about a system's
disadvantaged status or they lacked the time and resources to collect
the information for us.17 In total, we obtained information
on a portion of EPA's sample representing 24,334 systems, or nearly 55
percent of the 44,373 small community water systems in the United
States. On the basis of EPA's sample and the states' determinations, we
estimated that 6,925 systems, or about 28 percent of the 24,334 small
systems reflected in the results of our survey, qualified as
``disadvantaged.'' 18 However, the high non-response rate
associated with this analysis left us without information on the
systems representing the remaining 45 percent of the universe. As a
result, we could not determine whether our findings matched the actual
percentage of systems that would qualify as disadvantaged.
Specifically, we had no way of determining whether the systems for
which we had information were systematically different from those
systems for which we lacked information in a way that would make the
estimated percentage of disadvantaged communities higher or lower.
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\17\ Determining which systems might fall into the disadvantaged
category because of the high cost of a project, for example, would
require a case-by-case analysis.
\18\ Another way of looking at this is to compare the number of
systems estimated to be disadvantaged (6,925) with the total number of
small systems (44,373). Using this approach, we could conclude that
``disadvantaged'' systems comprised a minimum of about 16 percent of
small systems.
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Federal Agencies Made About $44 Billion Available for Drinking Water
and Wastewater Infrastructure, While States Provided About $25
Billion
From fiscal years 1991 through 2000, nine federal agencies made
about $44 billion in financial assistance available for drinking water
and wastewater infrastructure projects. Of this amount, EPA provided
about $3.7 billion in drinking water state revolving loan fund grants
and about $16.6 billion under a similar program for wastewater
facilities. EPA's assistance, combined with that of three other
agencies--the Departments of Agriculture, Housing and Urban
Development, and Commerce--accounted for about 98 percent of the total
federal assistance. About 11 percent of the federal aid was
specifically for drinking water facilities and another 40 percent was
for either drinking water or wastewater facilities. Over 82 percent of
the total assistance was provided in the form of grants; the remainder
consisted of loans and loan guarantees. Although the programs differed
in terms of eligibility criteria, allowable uses, and funding
priorities, for the most part, the financial assistance was available
to a broad range of entities.
We use the term ``made available'' to encompass several forms of
federal funding. Because of differences in the programs and in the ways
that federal agencies account for their financial assistance, the
information that best reflected the amounts made available for drinking
water and wastewater facilities came from data on appropriations,
obligations, or expenditures, depending on the agency and the specific
program in question. For example, EPA's data include appropriated
amounts for the revolving loan fund capitalization grants to the states
for each year; the states may not have loaned the funds (i.e., actually
made them available) to local water systems until after the end of the
fiscal year in which they were appropriated. In contrast, the data for
HUD and Commerce consist of obligated amounts--that is, the amounts of
funds allocated by the agencies to drinking water and wastewater
infrastructure projects during the fiscal year. For the loan programs
of the Small Business Administration and USDA's Rural Utilities
Service, the amounts represent the face value of the loans or loan
guarantees that were available to be made for the fiscal year; however,
because most of these loans are repaid, the ultimate cost to the
federal government is significantly less than the face value.
More specifically:
EPA's financial assistance came primarily in the form of
grants to the states to capitalize the Drinking Water and Clean
Water State Revolving Funds. In addition, EPA provided $4.5
billion in grants for drinking water and wastewater projects
specifically designated in the appropriations process.
USDA provided local communities $4.5 billion in grants, $7.1
billion in loans, and $550 million in loan guarantees. USDA
also provided $376 million in grants for water and wastewater
projects specifically designated in the appropriations process.
HUD provided $4.4 billion in block grants--some directly to
large communities and others to states for distribution to
smaller communities--to be used for water and wastewater
projects. HUD provided another $39.9 million for specific
projects designated in the appropriations process.
Commerce's Economic Development Administration provided $1.1
billion in grants to local communities for water and wastewater
infrastructure.
The remaining federal assistance, which totaled about $1.1 billion
over the 10 years, was provided by the Appalachian Regional Commission,
the Federal Emergency Management Agency, the Department of the
Interior's Bureau of Reclamation, the Small Business Administration,
and the U.S. Army Corps of Engineers.
In addition to the assistance available to disadvantaged
communities under EPA's DWSRF program, other federal programs give
priority to projects in economically distressed areas. For example, to
be eligible for USDA assistance, facilities generally must serve rural
areas with populations of 10,000 or less and must be unable to finance
their needs from their own resources or obtain credit at reasonable
rates and terms. Proposed projects must be located in economically
distressed areas to obtain funding under Commerce's program, and
projects in severely distressed areas are eligible for higher funding
levels.
According to our state funding survey responses, state governments
made a total of about $25 billion in state funds available for water
infrastructure programs from fiscal years 1991 through 2000.
Specifically, the states reported that they collectively:
Contributed about $10.1 billion to match EPA's capitalization
grants for the drinking water and wastewater state revolving
funds. This amount consisted of about $3.3 billion from state
appropriations or other state sources, and about $6.8 billion
that the states leveraged--that is, raised through the sale of
state-issued bonds backed by the funds.
Made about $9.1 billion in grants and loan commitments under
state-sponsored programs, including $3.4 billion through a
variety of grant programs and $5.7 billion in
loans.19 The states reported having a total of 56
state-sponsored grant programs, 29 state-sponsored loan
programs, and 35 state-sponsored programs that include grants
and/or loans. Of this funding, $800 million was specifically
designated for drinking water facilities while $6.3 billion
could be used for either drinking water or wastewater
facilities or for other types of infrastructure projects.
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\19\ Approximately $1.8 billion of the state-sponsored loan
programs were available for other local projects, such as solid waste
disposal facilities, in addition to drinking water and wastewater
infrastructure.
---------------------------------------------------------------------------
Made another $4.4 billion available for loans by selling
general obligation and revenue bonds (15 states).
In addition, the states reported that they contributed about $1.4
billion from state appropriations, interest earnings, and other state
sources for purposes, such as matching non-EPA federal funds and
financing state-designated specific drinking water or wastewater
projects.
Mr. Chairman, this concludes my prepared statement. I would be
happy to respond to any questions that you or other Members of the
Subcommittee may have at this time.
Mr. Gillmor. Thank you very much. Let me also apologize to
the panel. I have had to leave a couple of times. I am also on
the Financial Services Committee, which is holding a major
mark-up right across the hall on the corporate responsibility
bill, and so they come over here and grab me for a vote once in
a while.
Let me start with Mr. Grumbles. Yesterday, the New York
Times published a story on a new assessment of drinking water
and waste water needs. And, I understand that this assessment
is now at OMB. And, recognizing that you don't work for OMB,
can you assure me that EPA will work expeditiously within the
administration to issue a final report on this matter?
Mr. Grumbles. That's correct, Mr. Chairman. Our staff are
in a very constructive and constant discussion and dialog with
OMB on the GAP analysis report.
Mr. Gillmor. Thank you very much. And, Mr. Beider, your
report says that it is reasonable to assume that a large
drinking water investment gap doesn't exist. Everybody else has
been saying for some time that it does exist.
Now, recognizing that you also provide a high case
estimate, could you defend for a moment your low case estimate?
And I guess some people would be wondering how you can be right
on this, and everybody else can be wrong.
Mr. Beider. I believe what we have done is provide a
clearer picture of the range of uncertainty that surrounds
attempts to estimate 20-year needs. The fact is, as we said
last year in our testimony, that there is much that we don't
know about the true state of the Nation's drinking water
infrastructure.
The estimates that have been done so far rely on simple
national-level assumptions to try to make up for the lack of
specific ground-level, system-by-system data. And when you look
at the results that are generated by studies from the ground
up, from system-by-system data, such as EPA's needs survey and
the 20-system survey done by the American Water Works
Association, those results are fully consistent with, if not
even below, the low-cost scenario that CBO laid out in our
testimony today.
In terms of the national-level assumptions that have been
made by people like the WIN coalition and that we also make in
our scenarios, the key issue is the rate at which pipes will
need to be replaced.
The WIN assessment used an assumption of 1 percent per
year, but that was drawn from a previous report done by Stratus
Consulting for the American Water Works Association, which
presented that figure as an assumption and also outlined a
rationale for a completely different assumption of 0.6 percent
per year. And that latter figure was the assumption that we
used in our low case. When you put that in and some other
reasonable assumptions about savings for efficiency
improvements, and some of the assumptions about financing
costs, the result is that the burden of investment costs may
not increase on average over the next 20 years relative to what
we are already used to spending.
Again, that is only one possible outcome. We provide a low
case and a high case to indicate what we think is the range
bounding most of the likely possibilities.
Mr. Gillmor. Let me follow up quickly, and this is maybe a
broad question, but how do you think CBO's report can help
guide the debate in this committee over drinking water
infrastructure?
In other words, if you were sitting in our place, what
other data do you believe might be helpful to have?
Mr. Beider. Well, I can think of a lot of data that would
be helpful. It is harder to know what data you can actually
expect to get your hands on soon. I would have to defer to my
colleagues here on the panel and specifically at EPA, I think,
to suggest what other information could be provided by the
Nation's drinking water systems.
Certainly, I think the study done by the American Water
Works Association looking at 20 systems was a thorough job of
analysis on a limited base of systems, and, again, I found the
results from that study very interesting in coming up with much
lower annual costs than had been provided from some of the
previous analyses.
Mr. Gillmor. Thank you very much. My time has expired, and
the gentleman from New Jersey.
Mr. Pallone. Thank you, Mr. Chairman. Mr. Grumbles, over 40
days ago, every member on the Democratic side of the aisle sent
Administrator Whitman a letter asking for answers to seven
important questions relating to your office's role in ensuring
the security of public water systems in the surrounding
communities.
And the response was due 1 month ago, but we have not
received anything. So I just wanted to ask you why the EPA is
stalling and failing to answer our questions, and try to get an
answer of when you are going to get back to us.
Mr. Grumbles. Congressman, I wouldn't say that the EPA is
stalling. I would say that we are taking very seriously the
thoroughness and the importance of the issues that are raised
in that letter, and these are not routine, simple, questions
that can be answered pretty quickly.
So I apologize that the letter has not gotten back to you,
but I can say that it is going through a thorough review, a
policy review, and----
Mr. Pallone. How about a date when you are going to get
back to me? I was going to suggest tomorrow, but I am sure you
will say that is not happening. So why don't you give me a date
approximately?
Mr. Grumbles. I know that it is kind of out of my hands, in
terms of the pecking order as to who sends and signs the
letter.
Mr. Pallone. Why don't I suggest that you get back to us
within the next 2 weeks.
Mr. Grumbles. That is certainly understandable, and I will
do whatever I can to make sure that we follow that.
Mr. Pallone. All right. I appreciate it. Mr. Grumbles, in
1999 the EPA released its drinking water infrastructure needs
survey and found that $102.5 billion was needed now, and a
total of $150 billion was needed over the next 20 years. You
have stated that.
Mr. Grumbles. Yes.
Mr. Pallone. But how do you reconcile the huge need of more
than $100 billion with the fact that the President's fiscal
year 2003 budget only asks for $850 million, and that is less
than 1 percent of the unmet needs.
And also a shortfall of $150 million from the billion
authorized by this committee for the State revolving loan fund.
I mean, where are we going? It just seems that the needs are so
out of proportion to what the administration is proposing in
its budget.
Mr. Grumbles. Congressman, a couple of things. One, in
terms of the level of funding for the SRF that is in the fiscal
year 2003 budget. As you know, that level is $850 million and
its highest level that has been in requests from this or
previous administrations for the Safe Drinking Water Act SRF.
I think the administration is proud of the fact that this
fiscal year budget that the drinking water and clean water SRFs
combined is the highest request----
Mr. Pallone. I am not arguing that, and I am not trying to
be difficult. I guess I just feel like we keep talking about
these huge amounts, and I am assuming that if we don't at least
bump this up in terms of a higher authorization and higher
budget that that means that either drinking water isn't going
to be safe because the infrastructure needs won't be met.
Or alternatively that the cost to rate payers will be
incredibly increased, and I guess I am afraid of both. So
comment on that. What is it going to mean if we don't
increase----
Mr. Grumbles. Well, you make some good points, and I think
one of the important points that I would like to make is that
we very much welcome constructive dialog with the authorizing
committee, in terms of the authorization levels for the
drinking water, as well as the Clean Water State Revolving
Funds.
In terms of trying to reconcile the fact that we say that
$150 billion needs, and that we are also working on a gap
analysis report, which has very large numbers in it, in terms
of the gap, I think that really the important message is to
keep in mind that we recognize that there is a Federal funding
role and involvement.
And we certainly are proud of the success and the track
record of the State Revolving Fund that this committee
established in the 1996 amendments. But one of the other things
that we are trying to convey is, and I think most stakeholders
will acknowledge this, we are missing the picture if we focus
unduly on the level of Federal funding to address this issue.
This is such a huge issue, and involves so many players,
and it did not occur overnight. It has taken decades, a
century, to get to this point.
Mr. Pallone. Well, I understand all of that, but I guess
what I would like--I guess you are pretty much saying that you
think you are suggesting that is the most money that we are
going to get out of the administration. I think that is what
you are saying.
But then what is the response as to whether or not the
utilities are going to be able to meet the infrastructure needs
with that level of Federal funding. Are they going to be able
to do it? What is going to be the consequence, in terms of the
safety of the drinking water?
Mr. Grumbles. I think the response is going to be a couple
of things. One is as people increasingly recognize of let's
focus on the costs and not just the supply side, in terms of
new infusions of Federal, State, or local dollars, but look at
the costs.
How can we enter into asset management structures or
encourage more cost effective public-private partnerships. I
think one of the important things that we want to emphasize is
that in this opportunity, in terms of reauthorizing the
infrastructure laws, the more we can promote fiscal
sustainability, where those who are running the system actually
look and manage their assets, look at more cost-based rates,
and look at a water-shed approach that takes into account
source water protection to try to reduce the costs at the end
of the pipe in order to get the water clean.
There are a variety of mechanisms in addition to just the
new money from the Federal, State, or local sources. Mechanisms
such as encouraging and really getting aggressive about
research and development of technologies, improved and more
cost effective technologies, asset management, more effective
structuring of systems small and large, public and private.
Essentially to get more bang for their buck. So that is
part of the dialog that we are very enthusiastic about engaging
in with this committee to try to whittle away at that gap,
however large that gap actually is.
But to make progress without reducing the standards that
are required and that the American public wants, in terms of
the Safe Drinking Water Act.
Mr. Pallone. Thank you.
Mr. Gillmor. The gentleman, Mr. Shimkus, for questions.
Mr. Shimkus. Thank you, Mr. Chairman. Mr. Grumbles, I would
like to put some positive aspects on the request by this
administration for $850 million. Isn't it true that this
exceeds the average amount authorized for the entire 8 years of
the previous administration? If you take an average request,
isn't $850 million more?
Mr. Grumbles. I believe it is. As we were discussing, the
level of the request is the highest level as well from this
administration.
Mr. Shimkus. And I would like just for my colleagues'
benefit, I stumbled upon this. We did ask for a GAO report on
water infrastructure, and that is dated November of 2001. And
it is really amazing.
From fiscal year 1991 to fiscal year 2000, nine Federal
agencies made available about $44 billion in a variety of forms
for drinking water and waste water capital improvements. The
EPA provided $20 billion. The USDA provided local communities
$4.5 billion in grants; and $10.1 billion in loans, and $550
million in loan guarantees.
HUD, $4.4 billion. Commerce and Economic Development, $1.1
billion. The remaining Federal agencies, which total about $1.1
billion over 10 years, was provided by the Appalachian Regional
Commission, the Federal Emergency Management Agency, the
Department of Interior's Bureau of Reclamation, the Small
Business Administration, and the Army Corps of Engineers.
So my question is, and this whole debate on the States'
revolving fund, are we leaving some partners out?
Mr. Grumbles. Well, I would feel a bit nervous about
talking about other partners, in terms of Federal agencies. I
try to keep myself limited to the EPA.
Mr. Shimkus. But if we are talking about safe drinking
water for the country, and you have nine partners, and we are
talking about infrastructure, I don't think we are--the
infrastructure needs are national, correct?
Mr. Grumbles. Yes, sir.
Mr. Shimkus. So we have a national need, and we are talking
about one fund where there are nine other partners that are
trying to meet these similar needs. There seems to be a
disconnect for me.
I think you would conclude--if you have national needs,
then why aren't we including all nine partners in the
assessment of what steps we are doing to meet those needs?
Mr. Grumbles. Well, we take very seriously the partnership
that we have with some of those other agencies, like the Rural
Utility Service, particularly when it comes to rural and small
town drinking water needs. We are partnering with them and
other agencies as well.
Mr. Shimkus. But let me interrupt, but I think the point is
valid. If this is a need assessment for the Nation, and trying
to indicate that this one fund is not meeting all the needs,
and we have eight different additional agencies that are trying
to do that, we are missing part of the equation.
Would everyone--and not only you, but what about your
colleagues on the panel? Do you agree with that?
Mr. Beider. I would certainly say that, yes, if you are
looking at the Federal policy context, you want to take account
of all of the existing programs.
Mr. Grumbles. And if I could just elaborate, Congressman. I
think the response that I was giving as well to Congressman
Pallone is that when we have $150 billion needs assessment,
that is national, and it is not--our intent is certainly not to
say that this is the dollar amount that should be the
authorization level for the Safe Drinking Water Act SRF.
It is more of a national assessment, and a separate
question is how to go about at the Federal, State, and local,
public and private sectors, how to respond to that need.
Mr. Shimkus. And, Mr. Wood, would you like to respond?>
Mr. Wood. Yes, I would just concur with my colleagues and
say that you all are faced with a difficult task in trying to
figure out how much to put into this SRF each year. But I would
certainly want to take into account, if I were you, the streams
of funding that are available from the other agencies.
Mr. Shimkus. Let me--and I am treading in other
jurisdictional areas, but do you think there is some
inefficiencies and loss of buying power, and loss of focus
because we have in essence nine different agencies involved in
this issue?
Mr. Wood. We have not done any work specifically directed
to that issue, comparing one to another. What I can say is that
a lot of those programs have somewhat different parameters.
In other words, obviously the assistance provided by FEMA
would be only to communities that have been hit by disaster.
The USDA's programs are directed strictly at rural areas, and
some of the Department of Interior's money is strictly for
Indian water systems.
So it is sort of compartmented, but again I would encourage
looking at the whole picture as you are going about your work.
Mr. Shimkus. And my final question would be, first, Mr.
Grumbles, tell me the benefits or disadvantages of the direct
grants versus the loan issue on the State Revolving Fund?
I have actually dealt with it on the USDA rural development
safe water rural water issues. I believe that they bring
partnership. You do some granting and you do some loaning. What
is your analysis of the percentage of both, and the benefits or
the disadvantages?
Mr. Grumbles. Well, that is a fundamentally important
question to the whole debate, and I think where the
administration is, is essentially where this committee ended up
in 1996, and that was that rather than authorize a national
grant program, or site specific grant programs, that there
would be a drinking water State revolving fund modeled on the
Clean Water Act State Revolving Fund.
And then this committee and the Congress went even a step
further and said we acknowledge, we recognize that there are
specific situations, particularly disadvantages communities,
where without undermining the corpus of the fund, the SRF,
there should be the opportunity for States to exercise the
flexibility to provide negative interest loans or principal
forgiveness, mirroring in essence a grant in those specific
situations where disadvantaged communities would not be able to
avail themselves or get any use out of the loan.
Mr. Shimkus. Thank you, Mr. Chairman. I will just say that
those numbers that I gave didn't include the billions of
dollars that the States had done themselves to address this
problem also, and thank you, Mr. Chairman, and I yield back.
Mr. Gillmor. Thank you.
And does the gentleman from Texas have questions?
Mr. Green. Yes, sir, Mr. Chairman. I appreciate the
opportunity. I want to follow up my colleague with the
information that $44 billion from these nine funds were spent,
and the estimated need is $150 billion, does EPA coordinate
with these other Federal funds, these other funds that
provided, whether it be the Department of Agriculture, or
whether it be HUD, or anyone else?
And I know, for example, that we have cases where agencies
say that we don't have the funding available, but you could
apply over here, because maybe you fit in the Agriculture. Do
you know if there is coordination between the EPA and these
other funds?
Mr. Grumbles. Congressman, it certainly is our intent to
coordinate with the other agencies, and I know that we do
coordinate with them, and in instances where we don't, I think
OMB steps in to help us coordinate with the other Federal
agencies.
I know in particular with respect to affordability concerns
that the EPA is in the process of entering into a memorandum of
understanding with the rural utility service on being able to
more effectively target financial assistance under the two
programs toward small areas and adding compliance costs,
particularly with arsenic.
Mr. Green. Mr. Chairman, I think that our colleague brings
up a food point that if there is a way that we can get
information, and again it may not be in the purview of our
jurisdiction, but to see if the coordination from the
agencies--and maybe the CRS or GAO.
I know that we always get the CBO from our committee, but
maybe we could see if there is some coordination between these
agencies. I hope that just common sense does it, but again I am
glad that it was brought up in our committee.
I was looking at what the State of Texas, the Water
Development Board, and I come from a very urban area. So if we
can't find it in one pot, we will try and find it somewhere
else, whether it is the EPA, or HUD, or somewhere else.
But I was looking at the list for my revolving fund in
Texas, and we have $70 million available, but the requests are
$606 million for the revolving loan fund. Is that pretty
typical of urban States? Because I know that Texas and
California, and New York, are high usage States, and might they
have that much shortfall?
And again these requests are from cities, water districts,
throughout the State of Texas, and this is for the Revolving
Loan Fund. This is not for grants.
Mr. Grumbles. Two things. One, I would be most comfortable
in saying that we would provide for the record and to your
office a more specific, detailed response, because I certainly
don't know off the top of my head as to what the levels or the
percentages are, and how frequent they are.
The second thing that I can say with confidence is that the
States take very serious their responsibility to come up with
their priorities and their lists of projects to receive
assistance under the State Revolving Funds and they would
certainly want to have more--I mean, they never have a problem
coming up with needy and necessary important projects to
receive funding.
Mr. Green. Well, we can always come up with projects. It is
funding them that is the frustration, because I know from my
years in the State Legislature, we worked to provide the State
matching for them, whether it be an urban area like Houston, or
with some of our rural water systems, who provide it.
And again in light of the big picture, where we are having
drought in so much of the Western United States, and maybe even
up in this area from what I understand, our Safe Drinking Water
is even more important.
And I want to make sure that we get a number for
authorization that fits in with whether these other funds are
available, but also that we are not seeing such a substantial
shortfall in projects, as compared to what can actually be
funded through the revolving fund on the State level.
But let me in my time, Mr. Chairman, ask a question that I
haven't heard, but one of the other issues that have come up
since September 11 is our--like my colleague from New Jersey
mentioned, the response to terrorism against our water supply.
And I know again from our local experiences in the Houston
area that we have redoubled efforts to make sure that our
surface water supply has more security, and that there has been
more vigilance.
But I would just be interested whether it is in response to
the letter, and anything that you can share with us today on
what impact that may have on our need for additional funding,
or additional authorization for safe drinking water.
Is that something that we can build into it, and would that
increase the authorization need?
Mr. Grumbles. Well, in response to that, I know that some
of the measures through enhanced security of drinking water
facilities, a great number of the measures are currently
eligible under the drinking water State revolving funds.
And I could only assume that for each State, in terms of
their needs when they are looking at implementing their plans
as a result of their vulnerability assessments, that could lead
to increased costs and a greater need within that State.
That certainly is one of the issues, and one of the
measures that EPA is taking very seriously, is using the funds
that the Congress has appropriated to get the vulnerability
assessments done, and also engage aggressively in training
sessions, and work shops, disseminating information in a secure
way to those who need the information to take measures to
strengthen security at their facilities.
Mr. Green. And our concern is making sure that we have a
number for the authorization, and we will go back and see if we
can find the money every year like we do.
But just so we have all of this included in the need for
authorization, and particularly including the other available
funds that these nine agencies have so we can get a somewhat
reasonable picture for an accurate authorization. Thank you,
Mr. Chairman.
Mr. Gillmor. Thank you. The gentlelady from New Mexico,
Mrs. Wilson.
Mrs. Wilson. Thank you, Mr. Chairman. Mr. Grumbles, I have
several questions relating to the arsenic standard and its
impact on our availability of safe drinking water, and I am
sure that this is something that you expected and are prepared
for.
If not, I am going to ask that you get me answers to these
questions in writing. The State of New Mexico has 2 million
people, and the implementation of this standard with using
current technologies is going to be between $400 million and
$500 million in capital costs alone.
So set aside the operating costs. That is just the up front
costs. What kinds of reductions in depth does the EPA predict
in New Mexico with the implementation of this standard? How
many lives are you going to save?
Mr. Grumbles. I am going to have to defer and provide that
in writing to you, Congresswoman. I don't know the numbers for
that.
Mrs. Wilson. That is interesting that you don't. That is a
pretty big chunk of change to be asking New Mexico to pay
without knowing the answer. I have actually figured it out
based on your own reports to us, and it has received very wide
publication in New Mexico.
The answer is two deaths over a period of 7 years, and you
are asking us to raise our water bills $90 a month in small
towns, and about $40 a month in Albuquerque, in larger towns.
Two deaths over 7 years, $500 million.
If you were a county commissioner in Bermiel County, New
Mexico, and I said you have $500 million to spend to improve
public health in New Mexico, would that be your priority?
Mr. Grumbles. Well, I understand the question, but I don't
know what my priorities would be if I were in that position,
but clearly your point about cost effectiveness, I understand
the point.
Mrs. Wilson. The University of New Mexico just completed a
study that looks at, and it will be published in Risk Analysis,
which is an epidemiological journal, this month, and the EPA
has been asked to comment on it and so far has declined to do
so.
If you would look at risk factors and epidemiology because
of the increased trucks that are going to have to be trucking
chemicals around and removing arsenic and so forth, the
estimate is that we are going to actually lose more people from
traffic accidents than we will gain from reductions in bladder
cancer over the same period.
So in fact you are going to have a net increase in depths
because the public health impact is so small. Doesn't the EPA
believe that all the water systems impacted by this rule will
be able to meet the standard by the current compliance date of
2006?
Mr. Grumbles. Congresswoman, I think what the EPA believes,
and we have heard very clearly from you and from other members
who are taking a leadership role on this issue of affordability
and balancing risk, while maintaining a national standard of
protectiveness under the Safe Drinking Water Act, I think that
the course that we have charted out has several components to
it.
One of them is to aggressively pursue the statute's
provisions with respect to affordability and variance
technologies.
And on that front, what we are doing is that we are
actively engaged in discussions with OMB and hopefully with SAB
to get the Science Advisory Board working on flushing out
exactly what criteria should be used for the affordability
determination, which is integral to the opportunity for
variances and variance technologies.
And on the exemptions or extensions of time, I think our
belief is that using the existing regulations, and also having
workshops with rural and small communities that are adversely
impacted, they feel very concerned about the arsenic standard,
is walking through with them the procedures and streamlining
the procedures so that if extensions or exemptions, or
variances, are applicable, they will be able to avail
themselves of those.
Mrs. Wilson. With respect to treatment technologies, have
there been any large scale demonstrations of the treatment
technologies that the EPA currently--that are currently
available, and what large scale demonstration projects do you
have for innovative new technologies on your R&D plan?
Mr. Grumbles. I want to be able to respond to you, and I
also want to say at the outset that I am not really sure how
you define large scale, and so what I would welcome is the
opportunity to work with you, and to provide to the committee
some more specific details where we have various assumptions as
to how you define large scale.
I do know that one of the specific components of the plan
that we are pursuing on R&D affordable technologies is to have
$8 million specifically devoted to demonstration projects so
that it is not just something left to discussions or paper
research, and that we are actually out there funding
demonstrations as quickly as we can, cost effective and
affordable technologies.
Mrs. Wilson. Does the EPA have an R&D road map for what are
the most promising technologies for reducing the costs of
arsenic removal?
Mr. Grumbles. After this hearing, I certainly will contact
the Office of Research and Development, which is not within the
Office of Water that I am in. But we are both working on this
overall important issue of research and technologies.
But I believe they have a road map but I need to confirm
that with them, and I guess they definitely have a plan, but I
just don't know how detailed it is in terms of constituting
your definition of road map.
But I do know that it is a high priority that the
administrator has, and not just those within the Office of
Research and Development, and the Office of Water, is using the
$20 million for the R&D Program over this year and next year,
is to come up with specific technologies, and to also
disseminate the more research so that these technologies can be
applied.
I mean, I guess that constitutes a road map, but it is one
aspect of the arsenic debate that we are taking very seriously.
And I would welcome the opportunity to provide more detailed
information, step-by-step, as to where we go from here on the
technologies.
Mrs. Wilson. I would welcome the information. Thank you,
Mr. Chairman.
Mr. Gillmor. The gentlelady from Missouri.
Ms. McCarthy. Thank you, Mr. Chairman. Gentlemen, in my
district in Kansas City, Missouri, the water services there,
they received a 2001 gold award for competitiveness achievement
from the Association of Metropolitan Water Agencies.
They won this because of their exceptional management
practices and their high performance. They don't qualify, my
community of Kansas City, they don't qualify for any of the
funds at the State level to help them.
So the message that I think that is being sent is that
there is no reward for being good, and I wonder as you
restructure and think about ways in which we need to change
these revolving funds, and how we get the money out to the
States to help communities, if in fact you are giving
consideration to communities that have done a good job, and are
models for the Nation.
And how to help them, because there are still many unmet
needs. The State of Missouri years ago, the citizens actually
passed a tax on themselves to improve the storm water systems.
So once again we are out there ahead of the curve and we
still have a lot of unmet needs, but we are not getting all the
assistance that we should, and that is just one thought. I just
would like some reaction on what your thinking is for the
future of this program.
And my other thought is that people are buying more and
more water in bottles these days, and I am one of them, and I
think it speaks two things. One, that they don't have a lot of
faith in the system, and so they are going about with the
bottled water syndrome.
And they are willing to pay $2 or even more at an airport
for that. But they do complain about their sewer fees and their
water fees on their monthly bill, even though I think if you
did the math, it is hard to understand that.
So I would like your thoughts on restoring confidence in
the public on the water systems, but also this question of just
how do you get acceptance for the truth cost of water delivery
is.
I think for a long time, because of the way that it was
subsidized or otherwise, in budgets that people weren't really
paying the true costs of water. Now we have some very
legitimate needs to meet that are quite understandable, but
there is a resistance to pay for those. So I would love your
thoughts on that as well.
Mr. Grumbles. I can start and then the other panelists may
have some ideas or comments as well. First, on the
eligibilities and the first aspect of your question. Do you
know why in that particular instance why that community was not
eligible?
Ms. McCarthy. No, I don't, and I am curious about that
myself. I am going to look into that.
Mr. Grumbles. And as you point out, that is a threshold
issue obviously, and how we determine the eligibilities.
Basically, the EPA is in the role of implementing what Congress
spelled out, and they spelled out some pretty specific
requirements and details on eligibility for the State Revolving
Fund, and then EPA subsequently issued regulations to further
implement the eligibility provisions of the State Revolving
Fund.
And I think one of the key components of our regulations,
and certainly our current philosophy is,to provide deference to
the States. They are the managers of the State revolving funds,
and so as long as there is some basic net that were spelled out
in the statute, a lot of it is left up to the States to
determine how they channel their funding and determine their
eligibility question.
On the second one, and a very important one that you raised
about confidence in the water systems, the public water
systems, and not simply just increasing reliance on bottled
water, I think there are a lot of measures that can be taken.
It is really not a leading role for the Federal
Environmental Protection Agency, as much as it is for those
that are in the firing line or in the battle lines, however you
want to use the metaphor, but the ones who are actually the
utilities who are on a daily basis proving the value of their
product.
And how they take their job seriously, and provide that
water, and in terms of the EPA, we are committed to the
principle of the importance of having community water systems.
That is, it is cost effective, and it is also
environmentally protective to rely on community water systems,
and so in some small way perhaps, but in an important way, part
of our job is to remind the American public of what the figures
are, the facts and figures about the continued safety of their
drinking water supplies, but it is really--a lot of the burden
or opportunity falls on the shoulders of those at the
utilities, who are the ones who are actually there in their
communities providing the product.
Ms. McCarthy. Anyone else want to talk about that or the
true cost of water?
Mr. Beider. I certainly agree in general that in many
systems across the country, ratepayers are unaccustomed to
paying the full cost of the water that is delivered to them. I
am not an educational psychologist or a sociologist, and so I
am not going to hazard an expert opinion as to how we can get
people used to it.
But I will say that in general, it sounds like an education
problem, and it is probably an adjustment problem. The first
time you see a water bill that is 20 percent higher, that is
probably a shock. But if the utility adequately prepares people
for why it is necessary, that 20 percent, if it is off a small
enough base, may not be a real problem other than just an
adjustment problem.
Ms. McCarthy. Thank you, Mr. Chairman.
Mr. Gillmor. The gentleman from Kentucky, Mr. Fletcher.
Mr. Fletcher. Thank you, Mr. Chairman, and certainly it is
a pleasure to serve on your committee as the newest member, and
thank you very much for the opportunity. Let me just say as we
start, that in a former life just a few weeks ago, we served on
the budget committee, and I want to thank the administration
for the commitment they have had in certainly supporting the
Clean Water Act.
When we look, as the ranking member mentioned, certainly a
greater commitment could be made there. But when we look at the
options, it was either a tax increase, increasing the debt,
taking the money from national or homeland security, or
education.
There really were not a lot of other areas that the money
could come from unless we increased our debt or increased
taxes. So I think we have made a very appropriate commitment
here. Maybe not as much as a lot of us would like, but given
the financial circumstances of the country, I think it is a
very appropriate commitment.
Let me ask you. Some people feel there is a gap, and Mr.
Grumbles is from the EPA, but in our district, or in my
district, we have a lot of multiple systems, and as they are
trying to upgrade to meet the new standards, it becomes very
costly.
So we have encouraged and actually are getting funding for
a regional study to try to do substantial consolidations. What
kind of efforts has EPA made in encouraging the consolidations
to make sure that we don't have duplicated systems that may be
inefficient because of the duplication?
And also the other question I have is concerning that we
also have concerns about testing that is both done on the State
and Federal levels that requires duplicate testing and
increased operating costs.
And if you could comment on that, Mr. Grumbles, and maybe
the GAO and CBO could talk about their estimates, and do they
take into account or how much consolidation do they take into
account in their estimates? Thank you.
Mr. Grumbles. Congressman, in terms of the consolidation
issue, it is one of the--it is embedded in one of the
fundamental principles that we have in the testimony on fiscal
sustainability.
And I think we agree with the vision of this committee, and
the Congress in 1996, when unlike the Clean Water SRF language
with the new drinking water SRF, the authorization language
specifically includes an explicit contemplation of
opportunities for consolidation, as well as looking in general
at the fiscal, managerial, and capacity of these systems as
they get financial assistance.
So we encourage a very thorough analysis and review by the
State and local entities about opportunities for consolidating
systems, regionalization, to me the economies of scale, and to
have them more cost effect and a more environmentally
protective approach.
And I am sure that without having any direct knowledge of
it that over the years, in terms of EPA efforts to implement
the Act, I am quite confident that we have helped in terms of
having workshops, and discussions with those who implemented
the Safe Drinking Water Act to take advantage of, and to
fully--at least to try to fully utilize that new concept in the
1996 Act about encouraging regionalization and consolidation of
facilities.
In terms of avoiding duplication of testing, I don't know.
I would ask for your permission to provide you something more
explicit and detailed for the record. I know that our
objectives are to minimize and avoid the duplication costs, and
the testing costs.
And we recognize that when it comes to the Safe Drinking
Water Act implementation costs, often times the infrastructure
is a huge cost, but there is also the very substantial costs of
monitoring and also testing.
And we recognize the need to minimize the duplication and
avoid those costs. But if I could, I would like to provide a
more direct and detailed response to your question for the
record.
Mr. Fletcher. Thank you. We appreciate that. And I didn't
know if the other two gentlemen had comments on their estimates
and some of the differences in the gap and consolidation
considerations of their estimates.
Mr. Beider. In our estimates of future investment costs for
drinking water systems, we assumed in our low-cost case that
investment costs could be reduced 15 percent by various forms
of improved efficiency; in our high-cost case, we assumed a 5
percent savings. The WIN analysis that has received so much
publicity did not make a comparable assumption.
One of the many forms of improved efficiency that we had in
mind in picking those numbers was, indeed, consolidation of
systems, and the others included things like asset management,
which Mr. Grumbles has talked about; demand management, meaning
pricing closer to actual costs to reduce inefficient use;
innovative contracting; and, of course, better materials and
technologies. We don't have a breakout of how much of the 5
percent or the 15 percent we could attribute to each one of
those factors, but we think those are certainly reasonable
ballpark estimates.
Mr. Wood. I would just add that GAO has not done its own
estimate of needs out there, but I think--and Ben can correct
me if I am wrong--it is important to put into context. You
raised the issue, and CBO also alluded to this, that needs are
not really static. They are constantly changing.
And the EPA's needs assessment was simply or essentially a
snapshot in time of the needs of systems as they exist now, and
to the extent that there is consolidation, or mergers, and so
forth in the future, obviously that is going to affect how much
is needed, in terms of construction investment. So it puts that
into context.
Mr. Fletcher. Thank you, Mr. Chairman.
Mr. Gillmor. Thank you. That concludes our questions, with
one exception. Mr. Pallone, our ranking member, does have
another question.
Mr. Pallone. Thank you, Mr. Chairman. I just wanted to ask
Mr. Beider. Obviously I favor a higher authorization level than
what we currently have at the $1 billion level, and if you take
the midpoint of the CBO analysis, which is $4 billion per year
of additional spending to address infrastructure needs, it
comes to $20 billion over 5 years.
I just wanted to ask you, and if Mr. Grumbles and the
others want to say--you could just say yes or no very briefly,
whether you would support a $20 billion increase in the
drinking water State revolving loan fund authorization over 5
years.
Or what kind of increase you would support over what we
have?
Mr. Beider. That is an easy question for me. CBO doesn't
make policy recommendations.
Mr. Pallone. Okay. Mr. Grumbles and Mr. Wood, would you
like to take a quick answer?
Mr. Wood. I would concur and say that GAO doesn't make
those kind of recommendations either.
Mr. Pallone. Okay. And EPA?
Mr. Grumbles. Do you catch the trend that----
Mr. Pallone. But you are a policy guy.
Mr. Grumbles. I am, but I certainly am not able to
pontificate on my own. That is something that the
administration is working on that would be part of an
administration position.
Mr. Pallone. Okay. Thank you. Thank you, Mr. Chairman.
Mr. Gillmor. Thank you, and I want to thank our panelists
again for your time, and also for your expert testimony. And,
gentlemen, if it is okay with you, I would like to ask your
availability to respond in writing to any further questions
from the members.
And with that, I would dismiss panel one, and call up panel
two.
Mr. Shimkus [presiding]. We would like to welcome the
second panel, and we look forward to hearing your testimony
before we go to you, I want to make a special welcome to Mr.
Terry Gloriod, who is from Illinois, and that's why I got the
benefit of getting into the big chair as you noticed.
Terry is the President of the Illinois-American, Iowa-
American Water Companies, and Illinois-American is located in
Belleville, Illinois, and serves Clinton and Bond Counties,
which are in my Congressional District.
Prior to joining the American system, Mr. Gloriod was vice
president of operations for Continental Water Companies, with
responsibilities for the St. Louis County Water, Northern
Illinois, Northwest Indiana, and Long Island Water Companies.
Mr. Gloriod has over 30 years of experience in the water
industry. Terry has been active in the water associations,
including the American Water Works Association, and the
National Association of Water Companies.
He is currently on the Water Utility Council and the
American Water Works Association Research Foundation Board, and
he chairs the government relations committee. Mr. Gloriod is a
licensed water operator and professional engineer, and a
diplomate in the Academy of Environmental Engineers.
Terry holds a B.S. in civil engineering from Washington
University, a renowned university in St. Louis, Missouri, and
we are glad to have you here, and thanks for coming all this
way.
We want to welcome the rest of you, too, but not as
flowery, and I apologize, but here in order we have Mr. Jay
Rutherford, Director, Water Supply Division, of the Vermont
Department of Environmental Conservation. Welcome.
We go to Mr. Joseph Bella, Executive Director of the
Passaic Valley Water Commission; Mr. Elmer Ronnebaum, General
Manager of the Kansas Rural Water Association; and I will be
interested in your comments.
Mr. Paul Schwartz, President of the Clean Water Action; and
Mr. Howard Neukrug, Director, Office of Watersheds,
Philadelphia Water Department, and then of course, Mr. Terry L.
Gloriod. Oh, and I missed Mr. Joseph A. Moore, who is an
Alderman on behalf of The National League of Cities.
I know that you were all in attendance for the first panel,
and I am sure that you have got a lot of things turning around
in your minds, and so we will recognize you for 5 minutes for
your opening statements, and we will be a little bit generous,
but we have got a large panel, and some of you probably have
flights or trains to catch to get back.
And with that I would like to recognize Mr. Rutherford for
5 minutes. And your whole statement is already submitted into
the record, and so if you can summarize, that would be helpful.
STATEMENTS OF JAY L. RUTHERFORD, DIRECTOR, WATER SUPPLY
DIVISION, VERMONT DEPARTMENT OF ENVIRONMENTAL CONSERVATION, ON
BEHALF OF THE ASSOCIATION FOR STATE DRINKING WATER
ADMINISTRATORS; JOSEPH A. BELLA, EXECUTIVE DIRECTOR, PASSAIC
VALLEY WATER COMMISSION, ON BEHALF OF THE ASSOCIATION OF
METROPOLITAN WATER AGENCIES; JOSEPH A. MOORE, ALDERMAN, ON
BEHALF OF THE NATIONAL LEAGUE OF CITIES; HOWARD NEUKRUG,
DIRECTOR, OFFICE OF WATERSHEDS, ON BEHALF OF AMERICAN WATER
WORKS ASSOCIATION; ELMER RONNEBAUM, GENERAL MANAGER, KANSAS
RURAL WATER ASSOCIATION, ON BEHALF OF NATIONAL RURAL WATER
ASSOCIATION; TERRY L. GLORIOD, PRESIDENT, ILLINOIS-AMERICAN
WATER COMPANY, ON BEHALF OF THE NATIONAL ASSOCIATION OF WATER
COMPANIES; PAUL D. SCHWARTZ, PRESIDENT, CLEAN WATER ACTION
Mr. Rutherford. Mr. Chairman and committee members, good
morning. My name is Jay Rutherford, and I am the drinking water
administrator for Vermont. I am speaking to you today on behalf
of the Association of State Drinking Water Administrators,
which represents the States, the territories, and the District
of Columbia, in their efforts to provide safe drinking water to
over 250 million consumers.
Today I am going to focus on two related needs. First, for
those in our communities for help in maintaining safe drinking
water, and also on the challenges that the States are facing in
an increasing complex program.
As you heard from Mr. Grumbles earlier, EPA has identified
drinking water infrastructure needs of $150.9 billion over the
next 20 years, with $1.2 billion of that needed immediately.
The majority of this need is for transmission and
distribution replacements, but many small systems also have
regulation driven needs that are simply overwhelming on a per
household cost basis.
In addition to decaying infrastructure, the Nation's water
systems are also facing a juggernaut of at least 11 new Federal
drinking water regulations from the 1996 amendments to the Safe
Drinking Water Act.
Each of these regulations--arsenic, for example, can
involve substantial capital needs as you have heard for systems
to remain in compliance. The 1996 amendments also provided for
the drinking water State revolving fund, or DWSRF, a
partnership of Federal and State government funding.
Funding was authorized for 2003 at approximately $1 billion
per year, but appropriations thus far have been only 61 percent
of the authorized amounts. In spite of the funding gaps, the
DWF program has been highly successful to date.
Through last July the States have provided over $3.7
billion in assistance for nearly eighteen hundred drinking
water projects in the country. This program has been well
received and well used by our public water systems.
To begin to address these gaps, we recommend that Congress
appropriate the amounts that were not done in the earlier years
to meet the full authorization. Second, we request that the
current SRF funding be extended through 2010, to appropriate at
least $3 billion annually to meet the need.
Third, is to extend the ability of States to transfer funds
between the Clean Water and Drinking Water SRFs. And, fourth,
to authorize specifically the use of the fund for needed
security enhancements.
On the State implementation side, the acting vision was
that States would implement Federal drinking water regulations,
and 49 of the 50 States do just that. We regulate 169,000
public water systems nationwide, and a huge majority of these
are small and require substantial technical assistance,
training, compliance assistance, and oversight.
The 1996 amendments have dramatically changed the world of
small water systems and the oversight programs. New, highly
complex, regulations are coming out at a pace that has
staggered the States' abilities to provide the assistance and
oversight that these small systems need.
These new regulations include arsenic, radionuclides,
microbial disinfection byproducts, unregulated contaminants,
consumer confidence reports, capacity development, operator
certification, source water assessments and delineations, and
the Drinking Water State Revolving Fund.
In addition to all of this, the States are also maintaining
core program activities, such as compliance monitoring,
training, and enforcement, for the currently regulated
contaminants.
And most recently States are also finding themselves deeply
involved in water system security issues, as well as the
drought. The Act authorizes the EPA to provide 75 percent of
the States' program costs, but historically we have only
received 35 percent of the costs.
In spite of the new workloads, Congress has not increased
the State implementation grant since fiscal year 1997. The
drinking water loan fund did authorize a 10 percent set aside
from each capitalization grant to help States with the new
programs.
But as the GAO noted in their 2000 report on the subject,
many States have major impediments to using this set aside,
thus limiting its usefulness. For example, this set aside
requires a 100 percent State match to use it.
This winter, EPA and my association sponsored a national
gap analysis, which showed that the gap this year is $220
million, with a staffing shortfall of nearly 2,500 full-time
equivalents.
In just 3 years, this gap will grow to $300 million and
3,500 FTEs. This is a blue print for a public health crisis.
the goal of both the Federal and the State programs is to
protect public health.
On a more personal level, it is about knowing that whenever
you brush your teeth, bathe your child, or have a glass of
water, that that water has been monitored and treated as
needed, and that the operator has been properly trained and
certified, and that the water system itself has the
capabilities to reliably provide that water.
With these goals in mind, we recommend the following.
First, that Congress extend the safe implementation grant to
2010 and appropriate $250 million per year for State
activities.
And, second, that Congress should significantly reduce or
delete the 100 percent match required for States to access the
program management set aside. Mr. Chairman, thank you for
inviting me to testify and I would be pleased to answer any
questions that you or the committee members may have.
[The prepared statement of Jay L. Rutherford follows:]
Prepared Statement of Jay L. Rutherford, Director, Water Supply
Division, Vermont Department of Environmental Conservation on Behalf of
The Association of State Drinking Water Administrators
introduction
The Association of State Drinking Water Administrators (ASDWA) is
pleased to provide testimony before the House Committee on Energy and
Commerce Subcommittee on Environment and Hazardous Materials regarding
drinking water needs and infrastructure. ASDWA represents the drinking
water programs in each of the fifty states, territories, and the
District of Columbia in their efforts to ensure the provision of safe,
potable drinking water to over 250 million consumers nationwide.
ASDWA's primary mission is the protection of public health through the
effective management of state drinking water programs that implement
the Safe Drinking Water Act (SDWA).
water infrastructure
Water Infrastructure Needs
Providing a supply of safe, potable drinking water is critical to
protecting public health and ensuring current as well as long-term
economic growth of this Nation. In February 2001 the United States
Environmental Protection Agency (EPA) released a report entitled 1999
Drinking Water Infrastructure Needs Survey that indicated that drinking
water systems infrastructure needs totaled $150.9 billion over the next
20 years and that $102.5 billion was needed immediately to ensure the
provision of safe drinking water. The bulk of this need, $83.2 billion,
is for transmission and distribution projects followed by treatment
($38.0 billion), storage ($18.4 billion), source ($9.6 billion), and
other needs ($1.9 billion). These needs are documented for the 54,000
community water systems and 21,400 not-for-profit noncommunity water
systems nationwide. These estimates, however, do not include funds
needed for compliance with the new arsenic rule or security upgrades
for water system protection.
Why is there an Infrastructure Need?
Water utilities must continue to upgrade and improve their
infrastructure to meet new SDWA regulatory mandates and to replace
aging and failing distribution system pipes and appurtenances. Much has
been learned over the last decade about specific health problems
associated with distribution system problems such as leaking pipes,
cross connections, and backflow. Many of these concerns are likely to
be addressed specifically in the future as EPA proposes developing a
distribution system rule. Since September 11, this need has expanded to
include security-related upgrades for treatment plants as well as
distribution systems.
The 1996 Amendments to the SDWA require that EPA develop
regulations to address microbial contamination, disinfection by-
products, radon, radionuclides, arsenic, ground water protection, and
filter backwash. EPA must also continue to evaluate potential
contaminants for regulation well into the future. As a result,
infrastructure funding needs will continue to escalate as more
contaminants are promulgated that address new contaminants in drinking
water, and as current regulatory levels are driven lower to meet
improved analytical methods to bring standards closer to the maximum
contaminant level goal. In addition, new treatment technologies such as
membranes, ozone, and UV irradiation will become more commonplace in
water treatment. Some of these technologies are capital intensive to
install and operate, while others will require significant retrofitting
of current treatment plants and upgrades to distribution systems. Many
drinking water systems will also be required to comply with the new
arsenic standard over the next several years. In many small systems,
the installation of treatment for arsenic will likely result in the
need for additional system upgrades.
In addition to meeting infrastructure needs associated with
compliance with the SDWA, water systems also face the challenge of
replacing miles of distribution pipes as materials age and begin to
fail. The demographics of distribution pipe installation indicate that
over the course of the next 20 years, many of the miles of pipes that
have been put in the ground over the last 100 years will reach the end
of their useful life and need replacement. Additional security upgrades
will also be needed at water systems.
Current Funding Availability
Funding of water system infrastructure needs involves a partnership
at the Federal, state, and local level. At the Federal level, funding
is available through the Drinking Water State Revolving Loan Fund
(DWSRF) that was established under the 1996 SDWA Amendments. In the
SDWA, Congress authorized $9.6 billion between FY-94 and FY-03 for
states to provide loans and ``grant equivalents'' to water systems in
need. An important note is that although $8.6 billion was authorized
through FY-02, only $5.27 billion has been appropriated leaving a
funding gap of $3.33 billion that the states and water systems were
expecting to be available to meet infrastructure needs and compliance
requirements of the SDWA.
States also must match the DWSRF with 20 percent state funding as a
way to further capitalize this program. Through June 30, 2001 states
had contributed over $773 million additional funds for the program. To
the extent that the full Federal amount has not been appropriated;
however, revenue is also lost due to the loss of state matching funds.
A number of states also leverage the funds to create additional dollars
for infrastructure improvements. Through June 30, 2001, states had
leveraged almost $1.5 billion in bonds to provide additional project
funding. A number of states have also established their own grant and
loan programs that are used to supplement DWSRF funding.
The DWSRF has proven to be very successful. Through July 2001,
states have provided over $3.7 billion in SRF assistance for 1,776
drinking water projects. Twenty percent of the funds have gone to
systems serving over 100,000 people, 40 percent have gone to systems
serving between 10,000 and 100,000 people, and 40 percent have gone to
systems serving fewer than 10,000 people.
Additional Federal funding also comes through the Rural Utility
Service Water and Waste Loan and Grant Program under the U.S.
Department of Agriculture's Rural Development office. These funds
assist eligible applicants in rural areas and cities and towns serving
up to 10,000 people. The Federal Housing and Urban Development (HUD)
Agency also provides block grants to states under its Community
Development Block Grant (CDBG) program to provide assistance to small
local governments that generally serve less than 50,000 people and
counties with a population of less than 200,000 people. Water and
wastewater projects are eligible activities under the CDBG program.
Many states use these funds along with USDA and DWSRF funding to
package the appropriate mix of grants and/or loans to meet a
community's specific financing needs.
At the local level, a primary source of funding for infrastructure
improvements comes through rates charged by utilities to consumers for
water use. In many cases, however, rates have been kept artificially
low and long-term maintenance costs deferred. This has the potential to
contribute to ``rate shock'' should customers have to bear the full
cost of projected infrastructure replacement needs. Municipalities can
also borrow money from the private sector such as banks or go to the
bond market although many smaller water systems and non-municipal
systems find it more difficult to access these types of funding.
Is There a Funding Gap?
While it is possible, through instruments such as EPA's drinking
water needs survey, to project drinking water infrastructure needs over
the next 20 years, it is much more problematic to define how large an
infrastructure funding gap exits. To calculate this accurately, one
needs to have a solid understanding of the current and long term
funding needs and then have a fairly accurate assessment of the total
sources of revenue at the Federal, state, and local level that can be
brought together to meet these infrastructure funding needs. The delta
(or difference) between these two numbers represents the funding gap or
need but only at the gross national level. The ``gap'' can vary
significantly on a water system-by-water system basis depending on
system size, contaminants of concern, the system's current rate
structure, access to available capital, and the age of the system,
among many factors.
Conclusion
Drinking water system infrastructure needs will continue to
increase due to new SDWA regulatory requirements as well as the need to
replace aging and failing pipes in distribution systems, and implement
new security upgrades. A continued partnership among Federal, state,
and local funding sources will be essential to ensure the long-term
provision of safe, potable drinking water to consumers nationwide.
Numerous needs surveys, including EPA's recent analysis, have concluded
that nationally, water systems face a daunting task in continuing to
ensure safe drinking water. The highly successful DWSRF should be
continued as a viable mechanism for meeting current and future water
system funding needs.
Recommendations
Congress should reduce the current drinking water funding gap
by appropriating the full authorization of the DWSRF and the
backlog of unappropriated funds.
Congress should extend the current DWSRF authorization through
FY 2010.
Congress should appropriate at least $3 billion each year for
FY 2003-2010.
Congress should extend the ability to transfer funds between
the DWSRF and CWSF.
Congress should include security upgrades as eligible projects
under the DWSRF.
state infrastructure
State Implementation Responsibilities
State drinking water programs also need adequate funding to ensure
the effectiveness of their own ``infrastructure'' to carry out the
myriad responsibilities of the SDWA. Since the SDWA Amendments of 1996,
state program responsibilities have dramatically expanded to move
beyond compliance at the tap to delineating and assessing the sources
of all waters used for public water supplies, ensuring qualified
operators at all water systems, defining and implementing water system
capacity programs, creating a new DWSRF funding mechanism, and
providing significantly more information and outreach to the public.
These efforts are in addition to implementing Federal as well as state-
specific drinking water regulations addressing specific contaminants.
Since September 11th, significant new security responsibilities have
fallen to states for training, communication, and in some instances
conducting vulnerability assessments for water systems. In addition,
almost half the states are currently experiencing drought conditions
that are significantly taxing state staff and resources.
Forty-nine of the 50 states currently have ``primacy'' or
enforcement authority for the Federal SDWA. To achieve and maintain
primacy, states must adopt rules that are no less stringent than the
Federal requirements and have the ability to enforce these regulations.
Although some states have requirements that are more stringent; for the
most part, state drinking water programs are implementing and enforcing
Federal requirements.
Collectively, state programs provide oversight, implementation
assistance, and enforcement for approximately 169,000 public water
systems nationwide. These systems range from large metropolitan
municipalities to mobile home parks and schools. The vast majority
(over 95 percent) of these systems are small, serving less than 3,300
people. Many of these systems require extensive technical assistance,
training, and oversight.
Today, the regulatory landscape is significantly more complex than
ever before. Since FY-97, state Public Water Supply Supervision (PWSS)
dollars have had to stretch to cover development, implementation, and
enforcement of numerous new regulations and programs such as those to
address arsenic, radionuclides, the microbial/disinfection byproducts
rule cluster, unregulated contaminant monitoring, consumer confidence
reports, capacity development, expanded operator certification
requirements, source water assessment and delineation, and the DWSRF.
States anticipate new regulations to be put in place this year to
address radon and groundwater. States are also expected to implement
revisions to the surface water treatment and lead and copper rules,
public notification, and variance and exemption requirements. These
requirements are in addition to the state program responsibilities for
core activities such as compliance monitoring, data management,
training, and enforcement for 88 currently regulated contaminants.
States also are responsible for ensuring that public health is
protected through preventive measures such as disease surveillance,
risk communication, sanitary surveys, laboratory certification,
permitting, and emergency response. States expect that their
responsibilities will continue to expand as EPA promulgates additional
regulations and reviews current regulations for modification. This
overwhelming new workload has added to the historical strain on state
program resources and staff.
State Funding
The SDWA authorizes EPA to fund up to 75 percent of the costs to
states to implement the drinking water program. Historically, however,
states have contributed 65 percent of the funding while EPA has only
contributed 35 percent. While this gap has closed in recent years due
to the advent of set-asides from the DWSRF, many states still
substantially over match the Federal contribution. Given current state
fiscal constraints, it is questionable whether states will be able to
keep pace with these funding levels in the future.
The current Federal PWSS grant provides $87.3 million for states to
implement their programs (the remainder of the $93 million currently
appropriated by Congress is directed to Indian Tribes). This level has
not increased for states over the last five years (since FY-97), even
though many of the new initiatives under the 1996 Amendments became
effective almost immediately. The level funding of $87.3 million
actually means that states have lost funding due to inflation and
rising personnel costs. A recent state survey, conducted by ASDWA and
EPA, indicates that the current state funding gap is $220 million
climbing to $300 million by FY-05.
Congress recognized the need to fund state program activities and
in the 1996 Amendments allowed states to take up to a 10 percent set-
aside from the drinking water SRF for program implementation. EPA,
however, has never requested the full $1 billion per year authorization
and states have only been able to access 4 percent of the set-aside
funds. To the extent that SRF funds are also used to provide resources
for new programs such as operator certification training reimbursement
and unregulated contaminant monitoring the corpus of the funds
available for state use is further reduced. Many states have also
encountered significant barriers to fully accessing these funds
including:
the inability to obtain the needed one-to-one state match with
new state revenue (for program implementation activities)
the inability to shift resources directed to water system
infrastructure improvements to state program implementation
the unstable nature of the annual SRF funding allocation which
is based on water system needs and is affected by the states'
annual intended use plan for projects and set-asides
the threat of up to 40 percent withholding for failure to
implement certain program requirements such as capacity
development and operator certification
the unwillingness of state legislatures to approve new hires
using ``temporary'' funding (the drinking water SRF is only
authorized until 2003)
To supplement insufficient Federal funding, many states have turned
to state general revenues and fees to maintain an adequate core
program. These additional funds; however, have not be adequate to fully
meet state program implementation costs.
ASDWA and EPA conducted a national resource gap analysis in 2001 to
estimate state resources needed to implement the drinking water program
between 1999 and 2010. The analysis showed that in FY-02, the funding
gap for states to implement the SDWA equaled $220 million and staffing
needs fell short by 2,478 full time equivalents (FTEs). By FY-05, the
gap will widen to $300 million and 3,533 FTEs.
Even the U.S. General Accounting Office (GAO) has raised state
funding concerns. In August 2000, GAO released a report to Congress
entitled, Drinking Water: Spending Constraints Could Affect States'
Ability to Implement Increasing Program Requirements. An extrapolation
of their findings indicate that even if all states had been able to
access the maximum 31 percent of DWSRF set-asides for program
implementation and related activities, there would still be a funding
gap beginning in FY-02. Since few states are able to access the full
set-aside amounts, the funding gap is much greater than GAO's
``optimum'' estimate, and in fact, a gap already exists. The Report
further notes that even those states that felt they were managing to
keep up with the pace of implementing and enforcing the new statutory
program requirements, at least for the short term, were only able to do
so by ``. . . scaling back their drinking water programs, doing the
minimum necessary to meet requirements, and setting formal or informal
priorities among their responsibilities.'' This is a blueprint for a
public health crisis.
Conclusion
Adequate infrastructure funding needs for state SDWA program
implementation is just as critical as adequate funding for water system
infrastructure improvements. States are responsible for ensuring water
system security and compliance and providing ``infrastructure'' for
source water assessments, certified and trained water system operators,
water system financial, technical, and managerial competency, public
outreach and communication, and working directly with water systems to
obtain and maintain compliance. As Congress moves forward to evaluate
and find solutions for the water infrastructure funding gap attention
must also be directed to the state program funding gap.
The goal of both of these efforts is protecting public health. It
is about knowing that whenever you brush your teeth, bathe your child,
or prepare your food, the water has been monitored and tested for
contaminants; that the responsible operator has been trained and
certified; and that the drinking water system has demonstrated that it
is technically, financially, and managerially capable of providing safe
drinking water. In order to meet Congressional expectations and Federal
regulations to successfully implement the SDWA, states and water
systems both need increased funding to ensure a safe and dependable
supply of drinking water today and for future generations.
Recommendations
Congress should extend the PWSS authorization through 2010 and
authorize and appropriate $250 million per year for state
drinking water implementation activities.
Congress should significantly reduce or delete the one-to-one
DWSRF match required by states to access DWSRF funds for
program implementation.
Mr. Shimkus. Thank you very much. We have been called for
votes, and we are going to try to get to two more opening
testimonies, and then we will have to break.
And so I would like to recognize Mr. Bella for 5 minutes.
STATEMENT OF JOSEPH A. BELLA
Mr. Bella. Good morning, Mr. Chairman, Congressman Pallone,
and members of the subcommittee. My name is Joseph Bella, and I
am the executive director of the Passaic Valley Water
Commission in New Jersey.
I am testifying on behalf of the Association of
Metropolitan Water Agencies, which is an organization of the
largest publicly owned drinking water suppliers. The Passaic
Valley Water Commission serves drinking water to 750,000 people
in Passaic, Bergen, Nudson, Essex and Morris Counties, in
Northeastern New Jersey.
The commission also provides water on a wholesale basis to
municipal water agencies and private companies, including the
New Jersey-American Water Company and United Water-New Jersey
Water Company.
AMWA is a founding member of the Water Infrastructure
Network, or WIN, which consists of 46 organizations, many of
which you know, representing publicly and privately owned water
systems, urban and rural water systems, mayors, city council
members, county officials, labor, environmentalists, consumers,
engineers, manufacturers, and builders.
WIN has estimated that drinking water utilities across the
Nation collectively need to spend about $24 billion per year
for the next 20 years on infrastructure, for a total of $480
billion.
Other estimates by the American Water Works Association and
the EPA show significant needs as well. All these estimates
demonstrate that safe investments or investments for safe clean
water and fire protection will be massive.
According to a recent survey, just 32 metropolitan water
systems reported that they must spend $27 billion over the next
5 years on drinking water and waste water infrastructures.
At the Passaic Valley Water Commission, we anticipate
spending $160 million over the next 10 years on capital
improvements. Compounding these financial burdens are security
related costs. Our utility anticipates spending as much as $2
million over the next 2 years.
Water infrastructure in many American cities is 80 to 100
years old, and the cities that are served by metropolitan water
utilities are economic engines of their State and of the
Nation.
A significant Federal investment in these large publicly
owned agencies will translate into stronger water systems,
better fire protection, and thousands of new jobs. Yet, 31
States provide no assistance to metropolitan water agencies in
fiscal year 2001.
What is needed is to help close the drinking water
infrastructure gap is an investment program that helps both
large and small water suppliers, and a strong grants component
with a 15 percent set aside for metropolitan drinking water
agencies to make certain that the States address their needs.
Recently introduced legislation proposes to invest more
funds in water infrastructure and establish new procedures and
requirements to apply for and receive SRF assistance. These
bills also address water rates, asset management programs or
plans, community planning, and contracting.
These practices embody those commonly used in metropolitan
water agencies today. For instance, the Passaic Valley Water
Commission has raised rates on average of 3 percent per year,
but had the commission not received SRF assistance, we would
have had to raise rates an additional 3 percent per year to
cover over $14 million in additional debt that would have
accompanied private capital.
What we are concerned about is that States and the EPA
might be authorized to develop new and cumbersome requirements
for water systems applying for funds, even though many State,
city, and county governments and some State agencies have
already addressed these issues adequately.
That is not to discard what responsible water agencies have
already accomplished and create new layers of bureaucracy. The
bill also requires SRF fund applicants to consider public-
private partnerships, a form of privatization.
And whether a water agency considers a public-private
partnership, it should remain at the discretion of local
government, because local factors will dictate whether their
partnership is in the best interests of the consumers.
Privatization often sells itself as faster, better, and
cheaper than public operation, but what the water industry has
learned in the last several years is that public water
utilities can operate just as efficiently as private water
companies.
At the Passaic Valley Water Commission, by analyzing our
competitiveness and reengineering our operations, we have been
able to save nearly $7 million per year and increase revenues
by $33 million.
Dozens of other public systems have produced similar
results, upending the faster, better, cheaper method.
Therefore, if it makes sense to require public recipients to
consider privatization, then it makes sense to require private
SRF recipients to consider becoming public entities.
AMWA appreciates this opportunity to discuss the
infrastructure needs of drinking water agencies, particularly
those serving metropolitan areas. We look forward to working
with the subcommittee on proposals to help large and small
water agencies continue to provide safe and affordable drinking
water. Thank you very much.
[The prepared statement of Joseph A. Bella follows:]
Prepared Statement of Joseph A. Bella, Executive Director, Passaic
Valley Water Commission on Behalf of the Association of Metropolitan
Water Agencies
introduction
Good morning, Mr. Chairman. My name is Joseph Bella. I'm the
Executive Director of the Passaic Valley Water Commission,
headquartered in Clifton, New Jersey.
I'm testifying on behalf of the Association of Metropolitan Water
Agencies, which is an organization of the nation's largest publicly
owned water agencies. Together, AMWA members serve clean, safe drinking
water to over 110 million Americans.
The Passaic Valley Water Commission was established in 1927 and
serves drinking water to 750,000 people in Passaic, Bergen, Hudson,
Essex and Morris Counties in northeast New Jersey. The commission also
provides water on a wholesale basis to municipal water agencies and
private companies, including the New Jersey-American Water Company and
United Water-New Jersey.
AMWA is a founding member of the Water Infrastructure Network
(WIN), which consists of 46 organizations representing publicly and
privately owned water systems, urban and rural water systems, mayors,
city council members, county officials, labor, environmentalists,
consumers, engineers, manufacturers and builders.
Here is a list of WIN members. Committee members are probably
familiar with many of them. American Coal Ash Association (ACAA);
American Concrete Pipe Association (ACPA); American Concrete Pressure
Pipe Association (ACPPA); American Council of Engineering Companies
(ACEC); American Public Works Association (APWA); American Society of
Civil Engineers (ASCE); American Water Works Association (AWWA);
Associated General Contractors of America (AGC); Associated Equipment
Distributors (AED); Association of California Water Agencies (ACWA);
Association of Metropolitan Sewerage Agencies (AMSA); Association of
Metropolitan Water Agencies (AMWA); American Portland Cement Alliance
(APCA); Construction Management Association of America (CMAA);
California Rebuild America Coalition (CalRAC); Clean Water Action
(CWA); Construction Industry Manufacturers Association (CIMA); Design-
Build Institute of America (DBIA); Environmental and Energy Study
Institute (EESI); Laborers' International Union of North America
(LIUNA); International Association of Bridge, Structural, Ornamental
and Reinforcing Iron Workers; International Union of Bricklayers and
Allied Craftworkers (BAC); International Union of Operating Engineers,
AFL-CIO (IUOE); National Association of Counties (NACO); National
Association of Flood and Stormwater Management Agencies (NAFSMA);
National Association of Regional Councils (NARC); National Association
of Sewer Service Companies (NAASCO); National Association of Towns and
Townships (NATAT); National Heavy & Highway Alliance; National League
of Cities (NLC); National Ready Mixed Concrete Association (NRMCA);
National Rural Water Association (NRWA); National Society of
Professional Engineers (NSPE); National Urban Agriculture Council
(NUAC); Operative Plasters' and Cement Masons' International
Association of the United States and Canada (O&CMIA); Pipe
Rehabilitation Council (PRC); Plastics Pipe Institute, Inc. (PPI);
Prestressed/Precast Concrete Institute (PCI); Rural Community
Assistance Program, Inc. (RCAP); Uni-Bell PVC Pipe Association (Uni-
Bell); The Vinyl Institute ; United Brotherhood of Carpenters and
Joiners of America (UBC); Water Environment Federation (WEF); WateReuse
Association (WateReuse); and Western Coalition of Arid States
(WESTCAS).
infrastructure funding need and gap
The Water Infrastructure Network's (WIN) report Clean & Safe Water
for the 21st Century and its follow up, Water Infrastructure Now:
Recommendations for Clean and Safe Water in the 21st Century, estimate
that drinking water utilities across the nation collectively need to
spend about $24 billion per year for the next 20 years on
infrastructure, for a total of $480 billion. WIN's analysis also
concluded that drinking water systems currently spend $13 billion per
year on infrastructure, leaving an $11 billion annual gap between
current spending and overall need. There are similar figures for
wastewater systems.
[GRAPHIC] [TIFF OMITTED] 79463.002
Other estimates show large long term needs as well. The American
Water Works Association's Dawn of the Replacement Era estimates a $250
billion need over the next 30 years, based on a survey of 20 utilities.
And EPA's drinking water needs survey indicates a $150.9 billion need
for the next 20 years, although it only focuses on needs related to
compliance with the Safe Drinking Water Act.
WIN's estimate was developed by expert economists who are familiar
with the water industry, its resources and how it manages and builds
infrastructure. We be- lieve it is comprehensive and accurate.
Nevertheless, all of the estimates dem- onstrate that investments for
safe, clean water and fire protection will be massive.
According to a recent survey, just 32 metropolitan systems reported
that they must spend $27 billion over the next five years on drinking
water and wastewater infrastructure 1. For instance,
Cleveland, Ohio must spend up to $700 million over the next five years;
Columbus, Ohio, $253 million; New Orleans, $1.2 billion; Kan- sas City,
Mo., over $500 million; Denver, $363 million; Chicago, $600 million;
Aus- tin, $568 million; Phoenix, $1.28 billion; Omaha, Nebraska, $355
million. In Detroit, ongoing and new capital expenditures for drinking
water projects are $1.4 billion over the next five years and $2.9
billion for wastewater projects.
---------------------------------------------------------------------------
\1\ Waterworld, December 2001
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At the Passaic Valley Water Commission, we anticipate spending $160
million over the next ten years on capital improvements.
increased security costs
Compounding these financial burdens are the looming investments
local drinking water agencies will be forced to make to help protect
their facil- ities and consumers from potential terrorist attacks. The
Passaic Valley Water Commission anticipates spending as much as $2
million over the next two years.
Near-term security improvements at water systems include fencing
around facilities and reservoirs, security doors and locks, intruder
alert systems, better lighting, surveillance cameras to monitor entry
ways and sensitive facilities, access control and barricades around key
facilities. Some systems already have some or all of these measures in
place, while others are in the process of installing them. The American
Water Works Association estimates that these costs could total $1.6
billion for the 54,000 public drinking water systems in the U.S. The
average cost per utility ranges from $8,000 for water systems serving
only a few thousand people to $700,000 for systems serving more than
100,000 people. Those serving more than one million people expect to
spend much more.
Capital projects may be needed to. Water systems are now in the
process of as- sessing their vulnerabilities to terrorism. When these
assessments are complete, water systems will know what they need to
accomplish to become more safe and secure. Only then will we know
accurately what capital construction projects are going to be needed.
past and present federal funding
The needs of small water systems are substantial, and the lack of
infrastructure dollars available to them could have public health
impacts. However, metropolitan water agencies--those serving 100,000 or
more people--are facing monumental in- frastructure replacement costs.
AMWA urges the committee to consider mechanisms to address the needs of
both small and large systems.
Historically, the federal government has invested billions of
dollars in smaller drinking water systems. Over a 12 year period, the
Rural Utility Service (RUS) and
EPA have poured over $8 billion in loans and grants into small systems
and $932 million into systems serving between 10,000 and 100,000
people. During this same time period, metropolitan water systems have
received drinking water SRF loans amounting to only $547 million.
This difference of nearly $8.5 billion illustrates the need for
state and federal policy makers to consider the problems of the
nation's urban areas and the critical nature of these systems to the
economic wellbeing of the country.
The water infrastructure in many American cities is 80 to 100 years
old. Although some states make loans to large water systems to ensure
the funds revolve, especially where small systems are not prepared to
apply for assistance, most states do not help large systems. In fact,
31 states provided no assistance to metropolitan water agencies in
fiscal year 2001. Yet the cities that are served by metropolitan water
utilities are the economic engines of their states and the nation, and
a significant federal investment in these large publicly owned agencies
will translate into stronger water delivery systems, better fire
protection and thousands of new jobs. Along with banking and finance,
telecommunications, transportation and oil and gas production, water
infrastructure is among the nation's most critical infrastructures.
Uninterrupted water service is necessary to local, state and national
economies; strong infrastructure provides fire protection; and safe
drinking water protects our families and consumers from water-borne
diseases and pollution from farm and urban runoff and other types of
contamination.
water rates
WIN estimates that household water bills must double or triple in
most communities, on average, if utilities are forced to absorb the
entire infrastructure bill. This scenario is complicated by rate
inelasticity. A household's water bill often covers drinking water
supply, sewer and storm-water control. Raising rates to cover one,
diminishes the ability to pay for the other two. Unfortunately, all
three sectors are facing massive infrastructure challenges. The impact
on American families is even harsher when you consider the other
utility expenses, such as phone, gas and electricity.
Members of Congress who served at the local level know this debate
all too well. In communities large and small across the nation, utility
managers face rate inelasticity each time they propose a rate increase
to cover infrastructure costs.
demographics
Further compounding this issue is demographics. Large investments
are a major source of financial vulnerability for water utilities due
to the very fixed nature of the pipes and plants and the very mobile
nature of the customers. When populations grow, the infrastructure is
expanded, but when people move away, the pipe and the liability for
repair and replacement remain behind, creating a financial burden on
the remaining customers. This is true in small towns facing economic
hardship, as well as cities, where the more affluent leave the less
affluent to cover the water infrastructure maintenance and replacement
costs. This problem, known as ``stranded capacity,'' adds considerably
to the challenge of funding infrastructure replacement in our
communities.
legislative approaches
What is needed to help close the drinking water infrastructure gap
is an investment program that not only helps small systems achieve and
ensure regulatory compliance, but also recognizes the challenges facing
large water systems. AMWA and our WIN partners have asked Congress to
authorize and appropriate $57 billion over a five year period for both
drinking water and wastewater infrastructure ($28.5 billion for
drinking water). This amount is only half of the infrastructure funding
gap for those years. This investment program should include a strong
grants component to help systems that are disadvantaged, yet have the
capacity to return to self-sustainability. We recommend it also include
a 15-percent set-aside for metropolitan drinking water agencies, to
make certain that states address their needs. Under this proposal,
small systems would continue to get the help they need to comply with
the Safe Drinking Water Act, and metropolitan water agencies could
invest in replacing aging infrastructure. In states where there are few
metropolitan systems or where the systems do not need assistance, the
funds set aside could be used for small systems.
Legislation was recently introduced by leaders of the Senate
Environment and Public Works Committee and the House Transportation and
Infrastructure Committee to invest more funds in water infrastructure
and to establish new procedures and requirements to apply for and
receive SRF assistance.
Although the needs of drinking water agencies over the next five
years are nearly $60 billion, the Senate bill, if enacted, would
authorizes $15 billion over five years and fund hundreds of projects to
ensure safe drinking water for many years to come.
These bills also attempt to address the areas of water rates, asset
management plans, community planning and contracting. These practices
embody those commonly used in metropolitan water agencies today. For
instance, the Passaic Valley Water Commission has raised rates on
average three percent per year. This allows us to keep up with
inflation, invest roughly $3 million to $4 million in infrastructure
placement annually and cover other expenditures. But had the commission
not received SRF assistance, we would have had to raise rates an
additional three percent to cover the $14 million in debt service that
would have accompanied the private capital. What we are concerned about
is that states and the EPA might be authorized or even directed to
develop new and cumbersome requirements for water systems applying for
funds, even though many city and county governments and some state
agencies already address these issues adequately.
AMWA encourages the subcommittee to maintain these practices as
ideals and provide the opportunity for utilities that have not yet
adopted them to do so. The subcommittee should avoid a situation in
which the states or EPA enter the domain of local government and
attempt to reinvent the wheel. Instead, industry organizations have
many years of experience in this area and could be relied upon to
provide technical and educational service to those utilities that have
not adopted the practices.
Let's not discard what responsible water agencies have already
accomplished and create a layer of bureaucracy that could make applying
for SRF assistance too cumbersome. This would reduce access to the
program, potentially leaving many water systems with compounding needs
and unresolved compliance problems.
The bills also emphasize the importance of creative approaches to
managing a water utility by encouraging consolidation, partnerships,
and adoption of nonstructural alternatives. Many water systems are
already considering various approaches to regional water management and
it is important that these types of arrangements be evaluated and
supported. For instance, the Passaic Valley Water Commission has
partnered with private water companies to buy and sell water to satisfy
local supply demands, and we have absorbed water systems around us,
improving water service to consumers. Under one partnership
arrangement, the Passaic Valley Water Commission, the city of Newark
and other communities partnered to form the North Jersey District Water
Supply Commission, to share the costs of developing new sources of
water. Other utilities are engaged in a variety of voluntary
cooperative partnerships, ranging from providing less costly water
supplies to cooperation in obtaining new supplies and developing needed
infrastructure.
Rather than require consideration of alternative approaches as part
of a loan application process, the SRF should provide financial
incentives in the form of grants, loan forgiveness or lower interest
rates for those drinking water systems that develop alternative
arrangements that provide more effective and efficient management of
local resources. In particular, financial incentives should be provided
to those drinking water systems that agree to partner with small
systems facing compliance problems.
Among the partnerships water systems would be required to consider
under the Senate bill are public-private partnerships, a form of
privatization. AMWA is not here today to oppose private-public
partnerships, but whether a water agency considers a public-private
partnership should remain at the discretion of local government,
because local factors will dictate whether the partnership is in the
interest of the consumers. Therefore, the association urges the
subcommittee to avoid endorsing public-private partnerships.
Privatization is a very contentious issue in most communities.
Privatization often sells itself as ``faster, better, cheaper''
than public operation. But what the water industry has learned in the
last several years is that public water utilities can operate just as
efficiently as private water companies, or more so. In New Orleans, the
public employees participated in a competitive bid process against two
international private contractors, and the public employees
demonstrated they could operate the city's water systems even more
efficiently than the private firms. At the Passaic Valley Water
Commission, by analyzing our competitiveness and reengineering our
operations, we have been able to save nearly $7 million per year and
increase revenues by $3 million. Dozens of other public systems have
produced similar results, upending the ``faster, better, cheaper''
myth.
Privatization experts have identified some of the issues that need
further exploration. Among them are those surrounding accountability
and the blurring of roles and responsibilities. For example, who is
responsible for complying with environmental regulations, resolving
service complaints and planning to meet future needs? 2 Who
pays if the private partner fails? If the private partner takes on more
liability than it can afford, who's responsible when something goes
wrong?
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\2\ Dr. Janice Beecher, Beecher Policy Research, Public Works
Financing, November 2000.
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Another issue that has recently emerged is a concern about the
implications of international trade agreements on domestic
privatization since four of the major companies involved in the U.S.
water market are located in other countries. For example, once a
municipality contracts with a foreign provider, can that municipality
withdraw from the agreement? What impact could the General Agreement on
Trade in Services (GATS) and the authority of the World Trade
Organization (WTO) have on future contracts? Will GATS or WTO prevent
publicly owned U.S. water systems from providing water or services to
neighboring water agencies.
The Senate bill also proposes procurement provisions that were
abandoned in the Clean Water Act when the Clean Water SRF program was
adopted. The requirements were abandoned because they encumbered both
state agencies and local government, overrode state and local
procurement laws and created many disputes. The same would hold true
today, and AMWA urges the subcommittee to avoid such provisions in its
own legislation.
conclusion
AMWA appreciates this opportunity to discuss the infrastructure
needs of drinking water agencies, particularly those serving
metropolitan areas. We look forward to working with the subcommittee on
proposals to help large and small water agencies continue to provide
safe and affordable drinking water.
Mr. Shimkus. Thank you. You did a great job. Welcome. Mr.
Moore, and from the great city of Chicago, Illinois, I should
have given you due recognition in my opening comments. I do so
now, thank you, and you are recognized for 5 minutes, after
which we will then recess the committee and then go to the
floor for a vote.
STATEMENT OF JOSEPH A. MOORE
Mr. Moore. Thank you very much, Mr. Chairman. I do bring
you greetings from that part of Illinois north of I-80. I am an
Alderman as you indicated from the city of Chicago, and I am
also chair of the National League of Cities Energy, Environment
and Natural Resources Committee.
I am here to testify on behalf of the National League of
Cities, and the 18,000 cities we represent across the United
States on the need for an expanded Federal investment in the
Nation's drinking water and waste water infrastructure.
And I think what we have heard today for the most part is a
consensus that we face an unprecedented financial problem.
There is a huge financial gap between what cities are able to
invest and what is actually needed to protect the public
health, the environment, and our economy.
Now, we can differ over exactly how much that gap is, but
there is no question that the gap is very, very significant.
What I would like to do just very briefly is address four
matters.
First of all, why we have this funding gap, and second,
what local governments have been doing to address this issue.
Third, why the Federal Government should help us out; and
finally, how the Federal Government should help.
First of all, why the funding gap. Well, our infrastructure
is crumbling all at once. Different materials, with
increasingly shorter shelf lives, are used over the years,
leaving us with where we have got a hundred years worth of
infrastructure being exhausted all at once.
So that the iron pipes that were made and installed back a
hundred years ago, and the concrete pipes that were installed
in World War I, and the plastic pipes that have been installed
since World War II, are essentially all falling apart at the
same time.
Furthermore, we have had a great amount of population
growth in our urban areas, and as the infrastructure aged, our
population grew, and so we have a situation now where systems
that were designed and built for a population at the time of
construction are now serving 2 to 3 times as many people as
their designed capacity.
Finally, cities have been faced by Federal mandates under
the Clean Water Act and the Safe Drinking Water Act, and those
mandates have drove up the costs, and have depleted local
resources dedicated to infrastructure repair.
And until the 1996 amendments to the Safe Drinking Water
Act, there was absolutely no Federal commitment at all, and
local rate payers bear the entire costs. And I would argue that
even with those amendments, cities like Chicago, like Kansas
City, and others, have not really been able to benefit from any
or have benefited only very minimally from any Federal
assistance.
So what are our local governments doing to address the
issue? We are investing $60 billion annually, and Chicago alone
is planning to spend over a $100 million a year over the next 5
years on water infrastructure.
We have the world's two largest water treatment plants, two
Quib complexes, 12 pumping stations, and hundreds of miles of
pipe, and they all require large capital investment.
This amount does not include security related
infrastructure improvements, which have become a much more
pressing issue following September 11.
And we currently in Chicago estimate that the cost of these
security related infrastructure improvements will be at least
$14 million, and that estimate is actually likely to increase
as our vulnerability assessment nears completion.
Local systems are raising water and sewer rates to cover
the additional costs. We are raising our water and sewer rates
at the rate of 4 percent a year over the next 4 years. Some
cities are raising their rates even higher.
So local governments are doing their part, and they are
managing their assets in a more of a business-like manner, and
Chicago has worked hard to achieve cost efficiencies, and we
have outsourced our engineering program management functions,
and portions of our billing and collection systems.
And we outsourced a portion of our water pipe construction
program, and so the fact of the matter is that we don't need
the Federal Government to encourage us to institute--as we are
doping that already.
Finally, why should the Federal Government help? Well, a
sound water and sewer infrastructure is the basis of a sound
economy. A sound infrastructure is essential to the protection
of public health.
Federal assistance as demonstrated by the Clean Water Act
is a catalyst that ensures public health protection and
environmental progress, and it is needed to enhance the
security of our drinking and waste water systems, systems that
were designed with little thought given to the kind of
terrorist activities that we witnessed on September 11, need to
be upgraded.
The bottom line is that clean and safe water is no less a
national priority than national defense, or the interstate
highway system, or aviation systems, and all of those enjoy
significant, long term, Federal assistance and Federal grant
programs.
And water and waste water infrastructure deserve no less.
How can the Federal Government help? We need to have a
financial partnership for water infrastructure. We need to have
a system that provides more flexibility versus grants, as
opposed to loans.
And we need to have a standard funding for research and
technology to assist local governments in providing clean and
safe water more efficiently and effectively. And we need to
establish a mechanism to develop a long term and secure
financial partnership for water infrastructure needs, and
provide assistance as I said to enhance security of water
systems.
And finally as you work on new proposals, I would just
caution you to not put into place new Federal requirements,
particularly Federal requirements for establishing public-
private partnerships.
The fact of the matter is that these decisions should be
made at the local level. I do have and I would like to include
in the record a letter from my colleague in Atlanta, who has
outlined some of the serious problems that they face when they
privatize their system.
All I ask is that you give our local entities the
flexibility to address the privatization issue on a case-by-
case basis, and I appreciate your attention.
[The prepared statement of Joseph A. Moore follows:]
Prepared Statement of Joseph A. Moore, Alderman, Chicago, Illinois on
Behalf of The National League of Cities
Mr. Chairman, members of the Committee: I am Joseph Moore, Alderman
from the city of Chicago, and chair of the National League of Cities'
Energy, Environment and Natural Resources Committee. I am here today to
testify on behalf of NLC and the 18,000 cities we represent across the
United States on the need for an expanded federal investment in the
nation's drinking water infrastructure. We appreciate the opportunity
to present the views of our members as well as those of the Water
Infrastructure Network 1.
---------------------------------------------------------------------------
\1\ The Water Infrastructure Network is a coalition of state,
local, environmental, professional, and labor organizations comprised
of 29 diverse groups including: American Coal Ash Association; American
Concrete Pressure Pipe Association; American Consulting Engineers
Council; American Public Works Association; American Society of Civil
Engineers; American Water Works Association; Associated General
Contractors; Association of California Water Agencies; Association of
Metropolitan Sewerage Agencies; Association of Metropolitan Water
Agencies; California Rebuild America Coalition; Clean Water Action;
Environmental and Energy Study Institute; Environmental Business Action
Coalition; International Union of Operating Engineers, AFL-CIO;
National Association of Counties; National Association of Flood and
Stormwater Management Agencies; National Association of Towns and
Townships; National League of Cities; National Rural Water Association;
National Society of Professional Engineers; National Urban Agriculture
Council; Prestressed/Precast Concrete Institute; Rural Community
Assistance Program, Inc.; Water Environment Federation; WateReuse
Association; and Western Coalition of Arid States.
---------------------------------------------------------------------------
I would like to discuss the Water Infrastructure Network (WIN)
Report--Water Infrastructure NOW--which recommends a major new and
revitalized federal commitment to the nation's drinking water and
wastewater infrastructure. It outlines the parameters of a potential
federal response to the $1 trillion funding gap between the amount
cities are currently investing in our drinking water and wastewater
infrastructure and the additional dollars needed to assure protection
of public health, the environment and our economy over the next
generation.
Before examining the details of the Report, however, it is
necessary to address some fundamental questions:
(1) Why do we have a funding gap of such enormous magnitude?
(2) What have local governments been doing to address the issue?
(3) Why should the federal government help? and,
(4) How should the federal government help?
1. why is there a water infrastructure funding gap?
A number of factors contribute to the water infrastructure funding
gap facing municipalities:
the simultaneous expiration of the useful life of water
infrastructure installed at different times;
population growth; and
implementation of new, more costly, and more complex federal
mandates which, in effect, substitute federal priorities for
local priorities.
The nation's drinking water infrastructure represents more than a
century of investment, funded almost entirely by local ratepayers. A
significant part of the nation's water infrastructure dates from the
late 19th century. More recent expansions of these systems took place
following the two world wars. All of which means the newest systems are
over 50 years old. What is more, the newer the infrastructure, the more
likely it is to be deteriorating. Different materials, with
increasingly shorter useful lives, were used over time, thus leaving us
in the position where 100 year's worth of infrastructure is being
exhausted all at once. As a consequence, municipalities now face a
confluence of deterioration of their underground pipes, and, in some
cases, their treatment facilities, that process the nation's drinking
water and sewerage.
Until passage of the 1996 Safe Drinking Water Act Amendments, the
federal government made no financial commitment to the nation's
drinking water systems. The fact that drinking water in the United
States is among the safest in the world is a significant tribute to the
local ratepayers and their leadership that have financed these
treatment facilities.
Another factor contributing to the current funding gap is that
urban populations grew significantly as local water infrastructure
aged. Systems designed and built for the population at the time of
their construction are now serving two to three times as many people as
their design capacity.
While Congress recognized the need to provide financial assistance
to municipal drinking water utilities when it passed the Safe Drinking
Water Act Amendments of 1996, this funding is limited in its use for
infrastructure repair. For the most part, it is available only as
loans, and is substantially targeted to addressing the non-compliance
problems of the nation's smaller drinking water systems.
Finally, federal mandates have also played a role in diverting
local resources away from local needs and priorities and retargeting
them to federal priorities. When cities do manage to set aside funds to
address a critical local water infrastructure need, more often than
not, a new unfunded--and usually costly--federal mandate depletes local
resources that would have been dedicated to infrastructure replacement.
2. what have local governments been doing to help themselves?
local governments--or rather local tax and ratepayers--invest
$60 billion annually in our drinking water and wastewater
systems. A recent asset management study in 20 cities estimated
the average per capita replacement value of their systems to be
$2,400 per person.
local systems are raising water and sewer rates to accommodate
the increasing costs (which EPA indicates are 6 percent a year
above the inflation rate) of operating and maintaining their
systems.
local governments are managing their infrastructure assets in
a more businesslike manner, spurred in part by new federal
requirements developed by the Government Accounting Standards
Board--on which local government bond ratings are based.
local governments are applying new management tools to assess
and operate their systems more effectively and efficiently.
Until recently, our drinking water infrastructure was funded
entirely by local ratepayers. And the deteriorating water
infrastructure that must be replaced because it has maximized its
useful life over the past 50 to 100 years was constructed entirely at
local expense.
In addition, municipal local rate structures generate the $60
billion annually we invest in maintaining and operating our drinking
water and wastewater systems and cover 90 percent of all costs,
including construction costs. In meeting the enormous needs of the
future, cities also expect to finance--again through local ratepayers--
$1 trillion of the needs for repair, rehabilitation and replacement of
the aging and crumbling water infrastructure over the next 20 years.
Municipalities have also been raising their water and sewer rates
to accommodate increases in their operating and maintenance costs,
which, according to EPA, are rising at six percent above inflation
annually. Many cities require developers, and subsequently homeowners,
to finance the cost of new connections to municipal systems.
In addition, cities are improving their management practices. Local
governments will soon be required to comply with new rules promulgated
by the Government Accounting Standards Board in Statement 34 (GASB 34).
These rules will require municipalities to report their long-term
financial position, quantifying resources and obligations more
comprehensively. The information cities will be required to provide
will include an evaluation of the condition of local infrastructure.
Bond rating services and others will be able to evaluate whether cities
are ``acquiring assets to benefit future fiscal years or if these
assets are being used but not replaced.'' 2 The GASB 34 rule
will, at a minimum, encourage local governments, who have not done so
already, to evaluate their infrastructure in a more systematic manner.
---------------------------------------------------------------------------
\2\ ``GASB 34: What Implementation Means to the Rating Process,''
Hyman C. Grossman and LaVerne Thomas, Public Finance, p. 2, Sept. 20,
1999, Standard and Poor's.
---------------------------------------------------------------------------
Other asset management tools, such as the ``Nessie Study'' are also
being implemented by cities to help identify when pipes and treatment
plants were built, how long they can be expected to last, when they
will need to be replaced, and the likely cost for such replacement.
More efficient operations are also among the tools used to provide more
cost effective operations at the municipal level. And some local
governments are subjecting their system operations to competitive
bidding to affect cost savings and generate new and better
efficiencies.
3. why should the federal government help?
a sound infrastructure is the foundation of a sound economy;
a sound infrastructure is essential to the protection of
public health;
federal assistance, as demonstrated by the success of the
Clean Water Act, is the catalyst that ensures public health
protection and environmental progress; and,
federal assistance is essential to enhance the security of our
drinking water systems.
The Water Infrastructure NOW report makes an eloquent case for a
renewed federal financial partnership in water infrastructure. It says:
The case for federal investment is compelling. Needs are large
and unprecedented; in many locations, local sources cannot be
expected to meet this challenge alone; and because waters are
shared across local and state boundaries, the benefits of
federal help will accrue to the entire nation. Clean and safe
water is no less a national priority than are national defense,
an adequate system of interstate highways, or a safe and
efficient aviation system. These latter infrastructure programs
enjoy sustainable, long-term federal grant programs; under
current policy, water and wastewater infrastructure do not.
With respect to the need for enhanced security, it should be
remembered that our drinking water facilities were constructed with
little, if any thought given to the potential for the unprecedented
terrorist activities of the type witnessed on September 11th. The
security mechanisms built into these systems were not designed for
anything of that magnitude. We believe federal assistance to enhance
drinking water security needs--especially those involving capital
investments--is both necessary and a legitimate use of these funds.
In light of the staggering costs of maintaining, operating,
rehabilitating, and replacing our drinking water system infrastructure
to serve our citizens, a partnership similar to that in the Clean Water
Act of the 1970-80's must be established. Since virtually all of us
live downstream from someone else, it is in the national interest for
all levels of government to participate in assuring that our drinking
water infrastructure is sound, reliable, protective of human health,
and affordable.
4. how can the federal government help?
establish a financial partnership for drinking water
infrastructure;
provide more flexibility in the types of assistance available
to municipalities to include grants as well as loans;
expand investments in research and technology development;
establish a mechanism to develop a long-term and secure
financial partnership for water infrastructure needs; and
provide assistance to ensure implementation of new and
heightened security needs of drinking water systems.
The Water Infrastructure Network has developed and agreed on the
outlines of a legislative proposal to enhance the federal financial
commitment to drinking water infrastructure needs. The proposal
recommends a five-year, $57 billion authorization beginning in fiscal
2003 for loans, grants, loan subsidies and credit assistance for basic
drinking water and wastewater infrastructure needs. These funds would
be allocated to states to capitalize state-administered grant and loan
programs.
Half the funds would be targeted to wastewater and half to drinking
water needs, States would have the flexibility, however, to shift up to
an additional 15 percent from one purpose to the other, an innovation
incorporated in the 1996 amendments to the SDWA. This flexibility would
be available so long as such a transfer did not adversely affect any
project on the state's priority list that was ``ready to go.''
WIN recommends, and NLC supports, that Congress require the States
to provide 25 to 50 percent of each year's allocation as grants that
would fund up to 55 percent of project costs. Up to 75 percent of
project costs would be eligible for grant funding in economically
distressed communities. Loans and loan subsidies would include interest
rate discounts, zero interest rate loans, principal forgiveness and
negative interest rate loans.
The report proposes an additional $4 billion in resources for State
governments to help them meet their drinking water and wastewater
responsibilities. WIN also recommends funding for development of
innovative technology and management techniques to assist local
governments in providing clean and safe water more effectively and
efficiently in the future.
And finally, the WIN report recommends that Congress ``establish a
formal process to evaluate alternatives for, and recommend the
structure of, a longer-term and sustainable financing approach to meet
America's water and wastewater infrastructure needs.''
As the committee is well aware, both the House Transportation and
Infrastructure Committee and the Senate Environment and Public Works
Committee are moving forward with legislation that would significantly
enhance resources available to the Clean Water and--in the case of the
Senate--the Drinking Water SRFs. As these proposals have moved through
the legislative process, NLC and others have raised concerns about
potential new federal requirements to establish public/private
partnerships in providing drinking water and wastewater services. We
consider such recommendations sufficiently important, to raise the
issue before you develop legislation.
First, NLC believes such relationships are solely the province of
local governments. There are many examples at the local level where
public/private partnerships--particularly in drinking water--are
working well and redound to the benefit of local ratepayers, the
municipality and the private entity operating the local system.
Simultaneously, other examples indicate such relationships can leave
much to be desired.
Second, while not claiming expertise in this area, NLC also has
concerns about the impact of international trade agreements on the
privatization of local services and the relationship of such agreements
to the maintenance of local control and autonomy. As the committee
undoubtedly knows, the majority of the large private water companies
operating in the United States are foreign owned. At the local level,
we have concerns that contracting with these foreign-owned companies
may--because of the terms and conditions of international agreements--
adversely affect the ability of a local government to make many
critical determinations about the utility once it is under contract
with such a private partner. We would be happy to provide expert
resources and additional information to the committee on this issue and
ask only that there be a full understanding of the ramifications of
public/private partnerships in the water business before requiring or
encouraging such activities in federal law.
Mr. Chairman, members of the Committee, thank you for the
opportunity to testify for the 158,000 local elected officials who
comprise the National League of Cities on the critical needs facing
local governments in financing drinking water infrastructure needs over
the next generation.
Mr. Shimkus. Thank you very much. In this report that I
talked about in my opening statement, you left out the State's
contribution in your list, which was over this same report
period, $1.4 billion. And I ask for unanimous consent, and of
course I agree and you can submit that letter.
And I am going to run and vote, and we will recess until
12:15.
[Brief recess.]
Mr. Shimkus. I would like to call the hearing back to
order, and I want to make an announcement. There is another
committee that has the room at 1, and so we are going to try
and finish up our opening statements and then open ourselves up
for questions and additional comments.
So I would like to thank you all for you all being very
punctual, and I would like to thank my ranking member for
getting back here rapidly also. And now we will go to Mr.
Neukrug, Director of Office of Watersheds of the Philadelphia
Water Department. Welcome and your full statement is into the
record, and if you can summarize for 5 minutes.
Mr. Neukrug. Thank you, Mr. Chairman, and you did much
better with my name the first time.
Mr. Shimkus. All right. I will take that back.
STATEMENT OF HOWARD NEUKRUG
Mr. Neukrug. Good morning, Mr. Chair, and Mr. Pallone. I am
Howard Neukrug and I am the Director of the Office of
Watersheds for the city of Philadelphia Water Department, and I
am really honored by this opportunity to express the views of
the American Water Works Association on these critical
infrastructure issues.
AWWA is the world's largest association for the drinking
water profession. Our 57,000 members include over 4,300
utilities, which represent 80 percent of the drinking water
supplied to our Nation.
We thank you for holding this hearing, and look forward to
continuing to work with you and your offices, and your staffs,
as we move forward with the bill. I took the last half-hour
break to get rid of most of my notes and just give you my key
points.
And we have three key points for you. Number 1, there are
significant capital needs for water and waste water
infrastructure needs in the United States today, and it will
continue at least through the next 20 years, if not longer.
The second point is that the Drinking Water State Revolving
Fund has been a very valuable tool to the industry, and we
consider it to be one of the tools, one of the financing tools,
that we hope will remain into the future.
The third point is that to survive as a viable tool in the
21st Century, some changes are going to need to be made, and
this State Revolving Fund really needs to be reinvigorated. It
needs to be reinvigorated with dollars, and it needs to be
flexible, and as uncumbersome as possible for utilities to go
out and seek that money as part of the solution to their
infrastructure needs.
In the written testimony, we quote a number of $28.5
billion over 5 years, and we hope that you would consider that
number. I just would like to bring up from the earlier
testimony from Mr. Beider, who complimented the 20 city study
that was done by the American Water Works Association, called
the Dawn of the Replacement Era.
I think there is one key point here that needs to be made
to clear the record a little bit, and that is that was really
done with a broad brush approach, looking over the entire
Nation, and the infrastructure needs of the entire Nation.
The reality, and one of the benefits of an SRF, is its
flexibility and its ability to use and to go site specific
locations. And what our 20 city survey found was that there are
humps, because development didn't occur gradually over time.
It occurred in the 1890's, and it occurred in the 1920's,
and again in the 1950's. And it just so happens that because of
the type of pipe that was used at that time, we are now coming
to a critical point in time where all those pipes for many
utilities are coming due for replacement at the same time.
So when you look at it broadly, and you look at it
nationwide, you may not be able to accept the numbers that Mr.
Beider presented. But when you look at it on a city by city
basis throughout the country, you are going to find that there
are real financial needs coming up for many utilities over the
next 20 years.
And in conclusion, and going back to my written statement
here, while various studies and analyses have arrived at very
different figures for the magnitude of the drinking water
infrastructure replacement need, AWWA does not believe that
these differences are a major issue.
All of the conclusions, regardless of the methodologies and
assumptions used, points to a very large infrastructure funding
need over the next 20 or 30 years, and a viable State revolving
fund is a critical component to the solution.
And we call upon Congress for a new partnership for
investing in drinking water infrastructure, in which utilities,
States, and the Federal Government all have important roles.
We urge the subcommittee to introduce a bill as quickly as
possible, and we pledge to work with Congress to develop a
responsible and fair solution to our Nation's drinking water
infrastructure challenge, and I thank you for your time and
your consideration of our views. Thank you.
[The prepared statement of Howard Neukrug follows:]
Prepared Statement of Howard Neukrug, Director, Office of Watersheds,
Philadelphia Water Department on Behalf of the American Water Works
Association
introduction
Good morning Mr. Chairman. I am Howard Neukrug, Director of the
Office of Watersheds for the Philadelphia Water Department in
Pennsylvania. The Philadelphia Water Department is a municipal water,
wastewater and storm water utility serving over two million people in
the Philadelphia metropolitan area. I serve as the Chair of the
American Water Works Association (AWWA) Water Utility Council and am
here today on behalf of AWWA. AWWA appreciates the opportunity to
present its views on drinking water needs and infrastructure.
Founded in 1881, AWWA is the world's largest and oldest scientific
and educational association representing drinking water supply
professionals. The association's 57,000 members are comprised of
administrators, utility operators, professional engineers, contractors,
manufacturers, scientists, professors and health professionals. The
association's membership includes over 4,3000 utilities that provide
over 80 percent of the nation's drinking water. AWWA and its members
are dedicated to providing safe, reliable drinking water to the
American people.
AWWA utility members are regulated under the Safe Drinking Water
Act (SDWA) and other statutes. AWWA believes few environmental
activities are more important to the health of this country than
assuring the protection of water supply sources, and the treatment,
distribution and consumption of a safe, healthful and adequate supply
of drinking water.
AWWA is also a member of the Water Infrastructure Network (WIN)--a
broad-based coalition of drinking water, wastewater, municipal and
state government, engineering and environmental groups, dedicated to
preserving and protecting the hard-won public health, environmental and
economic gains that America's water and wastewater infrastructure
provides.
AWWA and its members commend you for holding this hearing
concerning the infrastructure needs of the Nation's public water
systems. AWWA looks forward to working with the subcommittee in its
efforts to address the growing infrastructure costs facing public water
systems and consumers.
federal mandates and the context for water and wastewater funding
issues
Both drinking water and wastewater utilities face enormously
expensive federal mandates that set the context for all other funding
issues. Although, the jurisdiction of this Subcommittee does not
include wastewater, the funding issues of drinking water and wastewater
utilities are inextricably intertwined. The drinking water community
faces a complex array of expensive new federal requirements and new
standards, including standards for arsenic, radon, disinfection
byproducts, enhanced surface water treatment, and others. Wastewater
utilities also face enormously expensive federal mandates, such as
those relating to Combined Sewer Overflows (CSO) and Sanitary Sewer
Overflows (SSO). For both water and wastewater utilities, these needs
significantly skew financing for other investments, including the
replacement of aging pipes, appurtenances, and other infrastructure.
Local ratepayers are often seriously challenged to pay for these
mandates, and little, if any, room is left in the ratepayer's budget
for other vital spending. In many cases, it appears that mandatory
spending for clean water mandates has ``driven out'' the ability to
raise rates for drinking water services.
We believe that significant federal assistance, including grants,
is necessary and justified to help meet the cost of these very
expensive federal mandates on water and wastewater utilities, and to
meet these costs of repair and replacement of aging pipes,
appurtenances, and other infrastructure that have been, in many cases,
deferred because federal mandates have consumed the ratepayer's budget.
We would point out that, in the case of CSO and SSO mandates,
federal support for the cost of those requirements is not only
justified in the community receiving federal support, it also lowers
costs for drinking water utilities downstream in the form of improved
water quality. This is especially true in critical source water
protection areas.
the drinking water infrastructure need
The importance of safe drinking water to public health and the
nation's economic welfare is undisputed. However, as we enter the 21st
Century, water utilities face significant economic challenges. For the
first time, in many of these utilities a significant amount of buried
infrastructure--the underground pipes that make safe water available at
the turn of a tap--is at or very near the end of its expected life
span. The pipes laid down at different times in our history have
different life expectancies, and thousands of miles of pipes that were
buried over a 100 or more years ago will need to be replaced in the
next 30 years. Most utilities have not faced the need to replace huge
amounts of this infrastructure because it was too young. Today a new
age has arrived. We stand at the dawn of the replacement era.
Recognizing that we are at the doorstep of a new era in the
economics of water supply, the replacement era, AWWA has undertaken an
analysis of 20 utilities throughout the nation to understand the nature
and scope of the emerging infrastructure challenge. The project
involved correlating the estimated life of pipes with actual operations
experience in the sample of 20 utilities. Projecting future investment
needs for pipe replacement in those utilities yields a forecast of the
annual replacement needs for a particular utility, based on the age of
the pipes and how long they are expected to last in that utility. By
modeling the demographic pattern of installation and knowing the life
expectancy of the pipes, we can estimate the timing and magnitude of
that obligation. This analysis graphically portrays the nature of the
challenge ahead of us. In the AWWA statement submitted to the
Subcommittee for the hearing on Drinking Water and Infrastructure,
March 28, 2001, we summarized the highlights of the analysis and
subsequently provided a copy of our report entitled, Dawn of the
Replacement Era: Reinvesting in Drinking Water Infrastructure, to all
members of the Subcommittee.
Extrapolating from our analysis of 20 utilities, we project that
expenditures on the order of $250 billion over 30 years might be
required nationwide for the replacement of worn out drinking water
pipes and associated structures (valves, fittings, etc). This figure
does not include wastewater infrastructure or the cost of new drinking
water standards. Moreover, the requirement hits different utilities at
different times and many utilities will need to accelerate their
investment. Some will see rapidly escalating infrastructure expenditure
needs in the next 10-20 years. Others will find their investment
decisions subject to a variety of factors that cause replacement to
occur sooner or at greater expense, such as urban redevelopment,
modernization, coordination with other city construction, increasing
pipe size, and other factors.
Overall, the findings confirm that replacement needs are large and
on the way. There will be a growing conflict between the need to
replace worn-out infrastructure and the need to invest in compliance
with new regulatory standards under the Safe Drinking Water Act. In
addition, as pointed out earlier, the concurrent demands for investment
in wastewater infrastructure and compliance with new Clean Water Act
regulations, including huge needs for meeting combined sewer overflow
(CSO) and storm water requirements, will compete for revenue on the
same household bill.
Ultimately, the rate-paying public will have to finance the
replacement of the nation's drinking water infrastructure either
through rates or taxes. AWWA expects local funds to cover the great
majority of the nation's water infrastructure needs, and remains
committed to the principle of full cost recovery through rates.
However, many utilities may face needs that are large and unevenly
distributed over time. They must manage a difficult transition between
today's level of investment and the higher level of investment that is
required over the long term. Facing an inexorable rise in
infrastructure replacement needs driven by demographic forces that were
at work as much as a 100 years ago, compounded by the negative effects
of changing demographics on per-capita costs in center cities, many
utilities face a significant challenge in keeping water affordable for
all the people they serve.
Affordability, poverty and infrastructure abandonment seem to go
hand-in-hand. In Philadelphia, where 40 percent of the population lives
in poverty, a rise in water bills will remain a significant socio-
economic issue well into the foreseeable future. In the March 27, 2001,
issue of the Philadelphia Inquirer, it was reported that almost one-
third of the 28,000 residential blocks in Philadelphia have abandoned
homes. We estimate that there are three or more abandoned houses on
each of 4,600 residential blocks in our city. At ten city blocks per
mile, these inner-city neighborhoods contain a total of 460 miles each
of water and sewerage pipes. At a replacement cost of $1 million per
mile for water pipe and $1.5 million per mile for sewer pipe, these
4,600 blocks represents over $1 billion in pipe infrastructure
replacement costs--the burden of which is falling on fewer and fewer
households and, typically, poorer and poorer families. An analysis of
U.S. Census data shows that for over the hundred years from 1850 to
1950, the population of Philadelphia grew from 100.000 to 2 million
people. But from 1950 to the end of the century, Philadelphia lost 25
percent of its population, dropping to 1,500,000 people. In the
forthcoming AWWA report, the average per-capita value of water main
assets in place today across the sample of 20 utilities is estimated to
be three times the amount that was present in 1930. In Philadelphia,
however, that ratio is almost eight times the value in 1930 due to
population declines since about 1950. Demographic change, then, places
financial strain on all public water systems and has a direct impact on
affordability of the investment required.
While various studies and analysis have arrived at differing
figures for the magnitude of the drinking water infrastructure
replacement need, AWWA does not believe that differences in the figures
should be the major issue. All of the conclusions, regardless of the
methodologies and assumptions used, point to a very large
infrastructure funding need over the next twenty to thirty years. To
meet this challenge, AWWA has called for a new partnership for
investing in drinking water infrastructure in which utilities, states,
and the federal government all have important roles.
public water system security needs
The events of September 11, 2001, have added a new dimension to the
protection of drinking water and drinking water infrastructure needs.
In addition to protecting drinking water from contamination, America's
homeland security requires a secure water supply. Public health, fire
protection, and sanitation depend on it. The role of public water
systems for first responders is a critical, and is often overlooked in
discussions concerning homeland security funding priorities. The al
Qaeda terrorist network and others are known to have conducted research
on public water systems in the United States. If the intent is to
create terror in our society, water systems are targets of opportunity
for terrorists, not only to contaminate the water supply, but also to
deny first responders water for fire protection in a coordinated
terrorist attack.
Drinking water suppliers have a long history of security
preparedness prior to September 11, 2001. However, the post-September
11 world has added a new understanding of security and has added an
unprecedented financial burden on public water systems for immediate
steps needed to protect the people of the United States. AWWA research
has estimated the cost of immediate capital improvements to ensure
security of access to critical public water system assets through
barriers, detection devices and cyber security systems to be
approximately $1.6 billion. This cost will provide initial security
improvements for about 53,000 water systems serving more than 264
million people. It does not include future capital costs of upgrades to
address vulnerabilities identified in vulnerability assessments such as
hardening pumping stations, chemical storage buildings, transmission
mains, add redundant infrastructure or relocate facilities and
pipelines. These new security concerns added to the cost of replacing
aging drinking water infrastructure and the capital cost of compliance
with federally mandated regulations, drives the need to greatly
increase the level of federal investment in drinking water
infrastructure now.
the drinking water state revolving fund
In our report entitled Dawn of the Replacement Era: Reinvesting in
Drinking Water Infrastructure, AWWA recommended changing and expanding
the existing Drinking Water State Revolving Fund (DWSRF) to
significantly increase federal funding for projects to repair, replace,
or rehabilitate drinking water infrastructure to include the aging
distribution pipes. Subsequent to September 11, AWWA has further
recommended that drinking water capital security upgrades should
specifically be identified in the SDWA as eligible projects.
In many ways, the DWSRF program has been very successful. Loans are
reaching communities of all sizes and income levels, average costs of
capital are well below market rates, many states have been highly
creative in leveraging their original federal capitalization grants,
and funds are generally in demand among local borrowers. Yet, clearly,
these programs can be improved to address a range of remaining problems
that impede enhanced equity, efficiency, and effectiveness.
AWWA believes that the DWSRF could serve as a model for funding
drinking water infrastructure with the following changes:
Significantly increased federal funding.
Clear eligibility of projects to repair, replace, or
rehabilitate drinking water infrastructure.
Clear eligibility for capital security upgrades.
Universal eligibility of all water systems, both public and
investor owned, regardless of size.
Ability to make grants or loans in any combination and to use
other financing tools to leverage public and private capital.
Reasonable terms and conditions such as demonstration of
system viability and ability to repay a loan.
Streamlined procedures for those accessing the funds.
AWWA urges the Subcommittee to introduce a bill as quickly as
possible to amend the SDWA to address drinking water infrastructure
needs in the DWSRF so that a bill can be enacted before the end of this
Congress. In the remainder of this statement, we will summarize
suggested improvements to the DWSRF to address the growing drinking
water infrastructure and security needs.
dwsrf authorizations
AWWA recommends that the DWSRF authorization should be
significantly increased to provide at least half of the $57 billion
($28.5 billion) recommended by WIN over the next five years drinking
water. We believe that this authorization would mark a significant step
by Congress towards assisting in the enormous challenge public water
systems and their customers face in meeting federal mandates and at the
same time replacing aging distribution pipes in the coming years. As
illustrated in AWWA's report entitled Dawn of the Replacement Era:
Reinvesting in Drinking Water Infrastructure, the ``demographics'' of
pipe replacement is real, it is big, and the bill is coming due soon.
This challenge is exacerbated by population shifts and growth patterns
over the years, economic conditions and the changed demographics of
urban populations.
We must note that the recommended authorization level is a very
small fraction of the $250 billion in infrastructure replacement needs
over the next thirty years identified by AWWA. AWWA does not expect
that federal funds will be available for 100 percent of the increase in
infrastructure needs facing the nation's water utilities. AWWA remains
committed to the principle that utility operations should be fully
supported by rates. In the long run, the objectives must be to manage
the costs of replacing pipes and treatment plants and ensure financial
sustainability through local rate structures. However, many utilities
are going to face a period of adjustment in adapting to the new reality
of the replacement era described in the AWWA report. Many utilities and
their customers will need additional assistance in working through
extraordinary replacement needs in the next 20 years in the form of
principal forgiveness or other direct financial assistance measures.
The difference between drinking water utilities' current
expenditures for infrastructure replacement and the needed level of
expenditure is estimated by WIN to be about $11 billion per year over
the next 20 years. If the federal government were to provide half the
cost of this gap, the federal share of total utility spending would
still amount to under 12 percent of total utility spending for twenty
years. For comparison, the federal share of investment in roads,
bridges, and airports is 80 percent.
It is clear that, even with federal assistance, the burden of
paying for public water system improvements will remain overwhelmingly
with utilities and their rate-paying customers. In recognition of this,
we believe that, if the needs of older cities with large economically
disadvantaged populations are to be met, an increase in the
authorization is warranted. We look forward to working with the
Subcommittee to ensure that authorization levels will be adequate to
address the needs of older cities with economically disadvantaged
populations and meet the security needs of public water systems.
eligible projects
Aging Infrastructure.
It is important to note that support of drinking water
infrastructure is not the primary purpose of the Environmental
Protection Agency (EPA) programs. The eligibility requirements of the
DWSRF created by the SDWA Amendments of 1996 address the compliance
needs of public water systems. The very large and growing need to
replace aging drinking water infrastructure is a challenge that is not
specifically addressed by the DWSRF as currently structured and funded.
AWWA recommends that the DWSRF eligibility of projects for the
replacement and rehabilitation of aging distribution system pipes and
appurtenances be made explicit in the statute. This, we believe should
be the major purpose of the increased DWSRF authorizations. EPA has
interpreted the current provisions of the SDWA to authorize the use of
DWSRF funding for the replacement and rehabilitation of aging
distribution pipes as furthering the health protection objectives of
the SDWA as authorized in Section 1452 of the Act. While this
interpretation of the SDWA is welcome, it is not universally accepted.
That statute should make Congress's intent clear that repair and
replacement of aging infrastructure is an important priority and not
rely on an EPA or State interpretation that is subject to change.
Security Upgrades.
Since September 11, 2001, AWWA has been advocating for federal
assistance for public water systems to help pay for security upgrades
to protect public water systems from terrorist attack. Since that time
events have validated this concern, and water utilities are undertaking
comprehensive vulnerability assessments and emergency planning to
protect both water quality (for health protection) and water supply
(for fire suppression and sanitation). Of note are documents found in
the possession of al Queda terrorists in Afghanistan that could be used
to help plan an attack on a drinking water utility. Security concerns
thus represent a large, immediate, and unprecedented cost for public
water systems concerns.
EPA has interpreted the current provisions of the SDWA to authorize
the use of DWSRF funding for capital security upgrades as furthering
the health protection objectives of the SDWA as authorized in Section
1452 of the SDWA. While this interpretation of the SDWA is welcome, it
rests on interpretation and is subject to change. Moreover, it does not
state Congress's intent that capital projects to address security
concerns should be priority projects for DWSRF funding. AWWA strongly
recommends that bill make explicit the DWSRF eligibility of capital
projects to address security
large public water systems
AWWA does not believe that the DWSRF adequately addresses the
infrastructure challenges presented by large urban public water systems
and particularly those with declining and economically disadvantaged
populations. During the short history of the DWSRF, large public water
systems have not been receiving a fair share of SRF loans. According to
EPA, states have made approximately seventy-five percent of all SRF
loans to small communities. In per capita terms, assistance to very
small communities has averaged over $400, while loans to large
communities (with over 100,000 people) have averaged a little over $50
per capita.
Current law mandates that fifteen percent of a state capitalization
grant shall be reserved for small systems serving populations under
10,000 to the extent that such funds can be obligated for eligible
projects. AWWA supported that set-aside in 1996, to ensure that small
systems could participate in the loan program. We did not anticipate
that large systems would be left out of the program, relatively
speaking, and there is no corresponding set-aside for large public
water systems serving populations over 100,000. As noted, the bulk of
DWSRF funding is going to small systems.
AWWA is not convinced that an overall increased authorization for
the DWSRF alone will provide states the ability to provide more
assistance to large public water systems than was possible previously
as some believe. To assure that systems of all sizes can participate in
the SRF program, AWWA believes that a corresponding set-aside of
fifteen percent of a state capitalization grant should be reserved for
public water systems serving a population of 100,000 or more, assuming
there are eligible project applications. This will ensure that large
public water systems with major infrastructure replacement needs and
disadvantaged consumers can participate in the DWSRF program in all
States.
dwsrf loan requirements and restrictions
AWWA has recommended streamlining many of the requirements and
procedures for obtaining loans from the DWRSF. We believe careful
attention is required to strike an appropriate balance between
Congress's desire to encourage certain behaviors at utilities, and the
need to keep the DWSRF as unencumbered as possible by unproductive red
tape. Congress or EPA should exempt certain types of projects or
projects below a certain size threshold from DWSRF red tape
requirements that don't make sense. Similarly, capital investments to
improve the security of the Nation's drinking water should be exempt
from red tape to the maximum extent possible. We urge the Congress to
resist adding requirements for DWSRF loans that can lead to an
inappropriate federal micro-management of drinking water rate
structures, assessment management, utility ownership and management
options or local planning decisions. If a public water system is
otherwise financially sound, can repay the loan, and can comply with
applicable drinking water regulations, the addition of irrelevant
requirements creates a burden to obtaining a loan.
Congress also needs to provide incentives for States to reform
their existing programs to make them more effective. For example, some
states have not allowed larger systems to access the existing state
revolving fund, or have excluded investor owned systems. Some states
encumber their revolving funds with nonproductive red tape, charge high
loan origination and other fees, or charge loan rates that are
equivalent to market rates. Some states preclude the use of alternate
procurement methods that minimize infrastructure procurement costs. For
example, the ``design/build'' process for infrastructure procurement
has been documented to save 20-40% of construction costs for new
treatment plants in some cases. Public procurement laws in many states,
while not explicitly banning design/build, mandate a process that
prevents its use where local authorities have determined it would be
advantageous. The result is that, in many states, revolving loan funds
have not proved to be useful or attractive even to drinking water
utilities desperately in need of capital.
To improve the efficiency, effectiveness and flexibility of the
DWSRF, Congress should authorize the use of DWSRF funds to purchase or
refinance outstanding debt obligations of a drinking water system;
guarantee, or purchase of insurance for, and obligation of a drinking
water system; secure the payment or directly repay principal or
interest on general obligation bonds issued by the State if proceeds of
the bonds will be deposited in the DWSRF; and deposit into a capital
reserve for a debt instrument of a drinking water system. Since
drinking water infrastructure projects have a design-life much longer
than twenty years, AWWA recommends that the DWSRF loan repayment period
by extended to thirty years for all utilities. This is an accepted loan
repayment period in the financial market. These measures will greatly
reduce the cost of financing drinking water infrastructure and allow
communities increased flexibility.
conclusion
How we address our emerging drinking water infrastructure needs is
a critical question facing the Nation and this Congress. America needs
a new partnership for reinvesting in drinking water infrastructure.
There are important roles at all levels of government.
AWWA does not expect that federal funds will be available for 100
percent of the infrastructure needs facing the nation's water
utilities. However, AWWA does believe that due to concurrent needs for
investment in water and wastewater infrastructure, security projects,
replacement of treatment plants, new drinking water standards, and
demographics, many utilities will be very hard pressed to meet their
capital needs without some form of federal assistance. Over the next
twenty years, it is clear that SDWA and CWA compliance requirements and
infrastructure needs will compete for limited capital resources.
Customers are likely to be very hard pressed in many areas of the
country. Compliance and infrastructure needs under the SDWA and CWA can
no longer be approached as separate issues. Solutions need to be
developed in the context of the total drinking water and wastewater
compliance and infrastructure needs.
In our testimony we have made recommendations that we believe will
improve the DWSRF to address the increasing drinking water
infrastructure financing needs. We believe that increasing the DWSRF
authorization to at least $28.5 billion over the next five years is
critical. AWWA urges the Subcommittee to introduce a bill as quickly as
possible to amend the SDWA to address drinking water infrastructure
needs in the DWSRF so that a bill can be enacted before the end of this
Congress. AWWA pledges to work with Congress to develop a responsible
and fair solution to Nation's drinking water infrastructure challenge.
We thank you for your consideration of our views.
This concludes the AWWA statement on drinking water needs and
infrastructure. I would be pleased to answer any questions or provide
additional material for the committee.
Mr. Shimkus. Thank you very much.
And now Mr. Elmer Ronnebaum, the General Manager of Kansas
Rural Water Association, and again your full statement is into
the record, and you have 5 minutes, and welcome.
STATEMENT OF ELMER RONNEBAUM
Mr. Ronnebaum. Thank you, Mr. Chairman, and Mr. Pallone. My
name is Elmer Ronnebaum, and I am from the Kansas Rural Water
Association, and I am the General Manager. We have about 750
member, small community and medium-sized community members.
We are an affiliate of the National Rural Water
Association, which represents some 22,000 small water and waste
water systems nationally, and it is my honor to speak on their
behalf today.
As we have heard this morning, we agree that the principal
dynamics of small communities need to be recognized in
discussing funding issues. They are that small communities make
up the largest percentage of drinking water systems, over 90
percent.
Two, that due to a lack of economies of scale, costs, where
small consumers often pay a higher water and sewer bill, and
water rates of $75 are not uncommon in rural areas where I am
from.
Three, small systems have limited technical and
administrative abilities, and any increase in compliance or
additional burdens on the revolving loan fund that cause them
to further difficulty to navigate through the funding program
will make that less attractive to them.
Four, there are suggestions that consolidation and
privatization are solutions to problems of small systems.
Consolidation can work in some cases and in many cases it
can't because of geography and a number of other aspects.
Consolidation should be a local decision. The 1996
amendments to the Safe Drinking Water Act provided all sorts of
discretion and funding to States to meet local priorities.
Rural water's message here today is that the Drinking Water
State Revolving Loan, and the flexibility that came with it
were a monumental decision, and it was a step in the right
direction.
The flexibility has made the State SRFs responsible to
nearly every stakeholder. In Kansas, the Drinking Water State
Revolving Loan Fund has received approximately $50 million in
EPA cap grants, and it is the most highly leveraged program in
the United States, at 1 to 4.
They have turned that loan program into $210 million in
loans. They have made 75 loans for $150 million, and 52 of
those went to small communities for $67 million. So the point
is that Congress has made the resources and the flexibility
available to the States, and it is up to the States to make
sure that that happens.
But even with their successful implementation in Kansas,
the loan demands through applications received exceeds the
funding availability by 100 percent. Why such demand for
funding? New regulations drive demand.
For example, the city of Atwood, and we heard about arsenic
this morning, Atwood, Kansas, is looking at 12 parts per
billion. They are looking at a treatment plant improvement
between $1.3 and $2 million to remove two-parts per billion.
That translates to a $30 per month increase per customer
for Atwood's 700 connections; a $30 per month increase, in
addition to which Atwood has just finished a new sewer
treatment process and needs basic infrastructure improvement.
Infrastructure improvements are needed because they are
obsolete and some are in a deteriorated state as previous
panelists have commented that technology has improved the
components that go into those systems.
There are three key concerns that Rural Water has in the
drinking water SRF. First, ensure that communities with the
greatest need in the area of public health and economic need
receive prioritization in the funding programs.
Provide for both loans and grants, and also make sure that
a minimum of those funds go to small communities. What is not
needed are new funding priorities, set asides for various-sized
systems, or changes in the disadvantaged community
determination.
We do not believe that corporate water supply systems
should receive or be eligible for State Revolved Funding.
Taxpayer subsidies should be prohibited from profit generating
companies, or companies paying profits for shareholders and
investors.
Do not add new requirements for environmental or land use
planning, the actual cost of water, common industry practices.
Again, if Congress increases the demands on the applicants,
most systems will find the program less attractive.
We believe also that guidance should be given to ensure
that all purchases, including professional services, are
competitive. Rural Water supports those provisions similar to
USDA's programs. Thank you, Mr. Chairman, for the opportunity
to speak as you evaluate this funding program.
[The prepared statement of Elmer Ronnebaum follows:]
Prepared Statement of Elmer Ronnebaum, General Manager, Kansas Rural
Water Association, on Behalf of the National Rural Water Association
Mr. Chairman and Members of the Subcommittee, thank you for the
opportunity to be here today to discuss small communities and their
water funding concerns.
My name is Elmer Ronnebaum. I am General Manager of the Kansas
Rural Water Association. Kansas Rural Water has more than 750 small
community members that operate water utilities and most operate
wastewater utilities. The Association is governed by the local
communities. The mission of the Association is to improve and protect
water quality through grassroots technical assistance of utility
operation and maintenance and training. Kansas Rural Water Association
is an affiliate of the National Rural Water Association which
represents over 22,000 small and medium sized community water and
wastewater utilities. Every community wants to provide the best
possible water quality to their consumers. Rural Water provides the
resources and training to achieve this objective in a common sense,
hands-on manner systems can utilize. I am honored to speak on their
behalf today.
On behalf of all small and rural communities, I would like to thank
the Committee for your efforts to assist small communities with
compliance with the federal Safe Drinking Water Act. Rural Water looks
forward to working with you as you consider the Safe Drinking Water Act
and the State Revolving Loan Funds.
Recently, EPA announced they would provide direct grants to large
communities to conduct vulnerability assessment for security. EPA has
not provide any of the over $90 million appropriated by Congress for
small communities. However, small communities are just as, if not more
so, as risk than large communities. Also, the cost of security plans in
small communities will be greater per household than in large
communities. Many small communities believe that they need to make
security improvements immediately. This is another concern of small
communities that is not being addressed in federal funding programs.
This hearing is considering funding needs of water supply systems
and how to improve the State Revolving Loan Fund. What water suppliers
think their ``needs'' are, is different than what the EPA or state
regulators might think the ``needs'' of the water suppliers are. If
water suppliers are to include, in their ``needs'', compliance costs
with all the existing regulations and upcoming regulations, then the
water suppliers ``needs'' must include more grant funds and loan funds
to comply with EPA regulations. Compliance with EPA regulations is much
more expensive (as measured as price per gallon or cost per meter) for
small suppliers due to the small suppliers' lack of ``economy-of-
scale''
The compliance with upcoming Maximum Contaminant Levels (MCL's) of
total trihalomethanes (TTHMs) and haloacetic acids for surface water
treatment systems serving less that 10,000 persons is an example of
small systems' compliance costs. The ``cost of compliance'' includes
monitoring costs, recordkeeping costs, reporting costs, engineering
costs, capital improvements costs, and operation and maintenance costs.
This is shown by the fact that there have been regulations for
trihalomethanes on systems serving more that 10,000 persons--but not
for the systems serving less than 10,000, for more than 15 years. Why
did EPA not have the same TTHM regulations on small systems? It might
be that it is due to the high unit cost that was judged to be
``politically'' unacceptable. Otherwise, why should citizens served by
systems serving populations greater than 10,000 receive drinking water
with much lower risks? Aren't people in small towns just as important?
The actual costs on any one supplier are not yet known. But when
those costs are known, that water utility will surely note that the
costs are considerable. What benefits and costs are realized by
compliance with each regulation are unknown and debatable. The nation
has said through the EPA regulations that the nation wants a much, much
lower risk level from drinking water than many, many other things in
our society. And as with many things, the costs of the ever-reducing
the risks in drinking water results in ever-increasing costs,
especially to the small systems.
The five principle dynamics of small communities that we believe
need to be recognized in discussing funding policies are:
One, that small communities make up the overwhelming
percentage of water and wastewater utilities--over ninety
percent of regulated communities.
Two, that due to a lack of economies of scale, small town
consumers often pay high water and sewer rates. Water bills of
more than $50 for 5000 gallons of water are not uncommon in
rural areas. This dynamic often results in very high compliance
costs per household in rural systems. Simultaneously, the rural
areas have a greater percentage of the poor households and a
lower median household income. This results in very high
compliance cost per household in rural systems coupled with a
lesser ability to pay.
Three, small systems often have limited technical and
administrative resources to deal with compliance and navigate
through funding programs. In the smallest systems, one person
may run both the water and sewer system and in some cases
communities can only afford a part-time or volunteer operator.
The more complicated we make funding programs the more likely
the small communities will not be able to participate. This
dynamic is counter productive the objective of the SRF because
small communities are usually the entities which most need the
funds. The lack of resources also makes small systems a
challenge for state agencies--it takes less state agency
resources to deal with large town versus a smaller one who
needs more ``help'' getting through the process.
Four, small community water systems have been the historical
solution to rural families living without water. Small water
systems were ONLY started to improve the public health. The
result is dramatic improvements in public health by providing
an alternative for families from gathering their drinking water
from untreated streams, shallow and contaminated wells, roof
collection and cisterns. In 2001, there are hundreds of
thousands of rural families that still don't have piped water
in their homes. Millions of rural families still have water
delivered to their homes. According to the USDA at least 2.2
million rural Americans live with critical quality and
accessibility problems with their drinking water, including an
estimated 730,000 people who have no running water in their
homes. About five million more rural residents are affected by
less critical, but still significant, water problems.
Five, consolidation and privatization are limited solutions
for small systems. Consolidation can work in some situations,
but only for a small portion of small systems and only when the
systems are in close proximity and the economics make sense.
Rural Water is the lead proponent of consolidation when it
makes sense (when it results in better service for the
consumer) and we have consolidated numerous communities in all
the states. Consolidation and regionalization that is in the
consumers' best interest will happen naturally at the local
level regardless of federal policy on issue. Federal policy
that favors consolidation over the locally preferred solution
is a step in the wrong direction for consumers (i.e. 42 U.S.C.
Sec. 300g-3(h) Consolidation Incentive). Privatization is
rarely a less costly solution for very small communities. In
the very small communities it is, perhaps, more common to see
private systems being transferred to public bodies so they can
obtain better financing and local governmental control. The
missions of private water and rural water systems are
fundamentally different, the reason being the lack of
profitability in sparse rural populations.
In 1996, this Committee lead by Congressmen Bliley and Dingell,
made a significant policy change in the Safe Drinking Water Act. At
every opportunity, they ameliorated the Act by including as much
flexibility as possible. Nowhere is this more apparent than in the
state revolving fund section. Under this approach states were given all
sorts of discretion on how to spend the money to meet their local
priorities. For example, a state can make grants, can fund set-asides,
expand technical assistance efforts, create new prevention programs,
increase state staff, or choose to do none of these and retain the
traditional low interest loan focus.
Small communities' message here today is that this was a monumental
step in the right direction. This flexibility has made state SRFs
better and more responsive to nearly every stakeholder. Small systems
have seen a level of inclusion and benefits from the drinking water SRF
that we could not imagine based on our experience with the wastewater
SRF that does not include these flexible provisions.
Some state rural water associations have not been impressed with
the way their state has chosen to utilize their discretion. Some states
have steered funds to larger systems with less urgent needs, in their
opinion, to make fund administration easy and keep bond ratings high.
However, this is not a complaint that is appropriate for this
committee. Those concerns are best handled in the states and each year
locals have a better chance to improve their own state's program.
Kansas is an exemplary case for success in Drinking Water SRF
implementation. Many of our small systems are receiving large funding
packages from the Drinking Water Loan Fund. The state has made small
system funding a priority in Kansas and Kansas has expanded technical
assistance to small systems. Assistance is also provided to help small
systems through the funding process. The Kansas application for
drinking water funding is streamlined and simple enough for a small
system operator (with too little time and too much to do) to complete.
Kansas has received $50 million in EPA capitalization grants from 1997
to 2001. Rural Water in Kansas worked for legislative support to add $5
million in state funds to the new program. Kansas has the highest
leveraged program in the nation at 1:4 thereby creating a loan fund of
nearly $212 million. The technical assistance set-aside of 2% have
provided $1,129,000 towards small system technical assistance of which
about $500,000 has been utilized. The EPA grants have also provided
approximately $2.4 million towards Capacity Development which is now
beginning to be implemented. The EPA grant has also provided $2.6
million in state program administration. From 1997 to the present time,
the Kansas Dept. of Health & Environment has made a total of 75 loans
totaling $150,131,845. Fifty-one of these loans, or $67,252,924, were
made to systems serving less than 5000 population. The interest rate
for the Kansas Drinking Water Loan Fund is set at 80% of the 3 month
average of the 20 Bond Buyer for both large, taxing entities and the
non-rated rural water district participants. Loan demand through
applications received, exceeds available funding by 100%. Why such
demand for funding? First, new regulations drive demand for funding and
second, infrastructure of the systems in many cases is obsolete and in
a deteriorated state because the materials used 40, 50 or 80 years ago
did not have the life expectancy of materials often used today. There
is also demand for additional capacity. Again though, while bricks and
mortar, pumps and pipes are important, the set-asides are also there to
provide assistance, particularly to small systems. The Kansas drinking
water administration has exploited the provisions in the SRF to invent
one of the best local-state partnerships in government.
In Kansas, our state's drinking water administration has exploited
the provisions in the SRF to invent one of the best local-state
partnerships in all of government. As any new legislation may be
considered, small and rural communities urge you to include a few key
provisions dealing with flexibility and targeting of funding that have
made the drinking water program more responsive to small systems. The
Kansas application for drinking water funding is streamlined and simple
enough for a small system operator (with too little time and too much
to do) to complete.
Mr. Chairman, I would like to summarize the key elements for small
and rural communities in considering any modifications to the drinking
water SRFs as follows:
We urge you to retain the three legislative provisions that
ensure communities in the greatest public health and economic
need receive prioritization in funding programs. One, the
communities exhibiting the greatest need should receive funding
first. Second, programs should not be limited to making loans
because in many situations, small communities will not have the
ability to pay back a loan--even with very low interest rates.
Third, a minimum portion of the funds should be set-aside for
small systems. This ensures that a state must set up a process
for dealing with small communities. Once established, local
pressures and priorities will determine the actual portion
directed to small systems, which we expect will often be
greater than the minimum prescribed. All of these provisions
were included in some manner in the drinking water SRF--
balancing the federal priorities with the state's flexibility
to tailor individual programs and discretion on implementation
of each these programs.
We urge you to review proposals for changes in the SRF with
caution. There has been no credible finding that the current
SRF is not meeting its mission of efficiently providing
resources to the communities with the greatest public health
and economic needs. Why would we entertain changes to the SRF
when it is not broken?
We have been told that large system groups believe too high a
percentage of the present drinking water SRF funding is going
to small communities. However, a significant portion of the
funding should flow toward small systems because, generally,
they need it more. Rates are often much higher per household in
small communities--often from compliance requirements. EPA
rules on the horizon will likely triple water rates in rural
systems. Also, rural communities often have lower median
household incomes. The SDWA axiom in rural areas is: much
higher cost per household with much lower income. No large
system is facing cost increases on a per household basis
comparable to what is facing small systems. It only makes sense
that federally subsidized funding would flow toward the
communities with the greatest need--that is to small systems.
There is no need to include additional requirements for
applicants including: environmental, land use planning,
capacity, actual cost of water, common industry practices, etc.
We urge you to exercise caution for increasing demands on
applicants as each new demand makes the process too complicated
for small systems and therefore less attractive. We believe
that the current review process is fully adequate to ensure
repayment of loans, progressive environmental planning, and
long-term capacity of applicants. Nationalizing policy industry
practices and determining actual cost of water could lead to
gold plating of water utility practices which is not in the
best interests of consumers.
We urge the Committee to limit the ability of any portion of a
water system to be eligible for disadvantage type subsidies or
other special treatment. To assist any portion of a system
moves the effort from an environmental-public health program to
a social program. If particular low-income consumers are having
problems paying their water bills, we don't think the SRF
should be used as the solution. That may be an issue for
agencies other than the EPA. It is important to note that a
state can determine a large system disadvantaged as well as a
small system. Funding a portion of a system seems to be a way
to skirt the current process which is working so well at
prioritizing systems most in need. Also, this moves the SRF in
a direction contrary to the SDWA's regulatory structure which
only applies on a system-by-system scope.
We urge the Committee to consider including provisions guiding
the percent of a project that can be used for engineering/
consulting services on projects. USDA has such a provision
[PART 1780--WATER AND WASTE LOANS AND GRANTS, Sec. 1780.39(b)
Professional services and contracts related to the facility].
In Kansas, our research shows that engineering fees are
sometimes charged at twice as much in programs that don't have
such guidance on engineering fees.
We urge the Committee to consider allowing states the
discretion to extend loan durations to 40 years loans to small
communities or regional systems. Due to scarcity of population
in regional systems this additional loan time can be the
determining factoring in making water affordable in regional
projects. Also, this will make the fund consistent with the
USDA grant and loan program which includes such authority.
A change that may improve the SRF ability to meet its mission
would be to limit corporate water systems' eligibility for
state revolving funding. Taxpayer subsidies should be
prohibited from profit generating companies or companies paying
profits for shareholders/investors. Private companies argue
that they have to comply with the same regulations. However,
they voluntarily chose to get into this ``business'' and
compliance is not the over-riding principle that should be
considered in this discussion. We believe that the distinction
in mission between public and private is the core principal
that should be considered. Private systems are in the business
to maximize profit. Public water utilities were and are created
to provide for public welfare (the reason why public water
continues to expand to underserved and non-profitable
populations). This is a significant difference. And while we
believe that maximizing profit is a noble virtue and as
American as safe water, we do not think that taxpayers should
help the cause of privately owned systems. In addition, the
needs of less affluent public water systems and families with
no piped water dwarf the current SRF allocations. The state of
Florida has a novel compromise to this issue. Florida limits
SRF funds to private water systems less than 1,500 people--
ensuring funds are limited to the class of private water
systems that did not get into the business as a corporate
enterprise. Also, this group of private systems could be
included in the state's needs assessment which determines
allocations under the bill.
How much money is needed? That is completely dependent to Congress'
answer to the question: What are the new EPA rules and what are the
standards going to be? For example, the coming arsenic rule will
increase the number of small systems facing funding challenges. Dozens
of small systems in Kansas (thousands across all the states) will need
funding to comply with the arsenic regulation.
One municipality in Kansas that will be greatly affected by Arsenic
Rule, established at 10 ppb, is the City of Atwood (population of
1,300) surrounded by farmland and an agricultural economy.
Past arsenic water quality results for the City of Atwood has shown
a range of 12 to 18 ppb in the three currently used municipal wells.
The proposed arsenic MCL of 10 ppb allows the City two general feasible
options to attain the MCL. The community has an option to develop new
well fields in the Ogallala formation located several miles from the
community. However, while Ogallala formation generally provides better
water quality and perhaps an arsenic concentration below the 10 ppb, it
is a much more cemented and finer formation. This fine formation
decreases production of wells. Thus to develop a sufficient municipal
water supply, more area for wells is required since they must be a
greater distance apart. The estimated cost of this option would be
$2,200,000 based on a five-mile transmission main with four wells to
meet daily water demand. A second option available is treatment of the
existing water supply sources.
The city presently does not have a single point of entry into the
distribution system. Each well is directly connected into the
distribution system. All wells are located in separate areas of the
existing system. Over 3,000 feet of distance exist between the two
farthest wells. In order to implement a point of use treatment plant, a
new dedicated transmission main would have to be constructed between
the wells. Land and easements would have to be procured to build a
treatment facility. Atwood's sulfate concentrations in the range of 90
to 309 mg/L will affect treatment efficiencies in an ion exchange
process requiring frequent regeneration. This creates higher operation
and maintenance cost (O&M). The estimated treatment facility cost would
range from $1,300,000 to $2,100,000 depending on the Best Available
Technologies (BAT) selected. Atwood could experience a budget increase
of $50,000 to $75,000 per year with the incorporation of a treatment
plant. These budget increases are due to operation and personnel
requirements. Special by-product disposal requirements could require
more operation costs.
In order to provide funding for capital construction and O&M
assuming a 5% interest rate and 20-year loan period that corresponds
with the life of a treatment facility with 700 connections, the monthly
water rate would have to increase by $18 to $29 per connection. Again,
please keep in mind this does not include the current water rate and
upgrades currently necessary to keep the system in compliance. This
analysis has been made by the city's consultant, Miller & Associates
Consulting Engineers, P.C., McCook , NE.
This is a conservative estimate and does factor in all the costs
for compliance. Rate increases on this type of a community could be
devastating.
However, Mr. Chairman, while no system will be in greater need for
federal assistance than Atwood, KS the challenge is how to craft a
funding program that will work for those most in need. Cost estimates
of the funding needed to sustain a healthy U.S. water supply are
staggering. The Water Infrastructure Network, of which Rural Water is a
member, estimates an $11 billion annual funding gap over the next 20
years. This estimate is over 4 times the current combined federal
contribution in the USDA, EPA Drinking Water, and EPA Wastewater
programs. While it is not essential for all systems to obtain financing
through a federal or state program, the fact is that much of the
funding needs are caused by ever stringent regulations. The question
for Atwood, KS is what is the benefit of reducing naturally occurring
arsenic by 2 parts per billion?
Rural Water is not the type of organization that can present an
accurate cost figure on the future need for funding. However, we can
acknowledge the extreme shortfall in both EPA SRF and the USDA water
programs, as indicators that the current needs are not being met. The
USDA program, which is the core-funding program for small water and
wastewater projects, is currently experiencing a $3.2 billion backlog.
We believe this is the most accurate indicator of need because all of
the systems in USDA's backlog have applied for funding. They have met
the requirements of USDA's strict needs requirement (including lack of
commercial funding availability and high ratios of median household
income to water rates).
As stated earlier, in addition to this current need, EPA is
proposing more regulations. Many of the regulations will force small
towns to come up with millions in financing--many systems will be
stressed to comply. I think it is significant to observe a new dynamic
in EPA regulations: the regulation of naturally occurring contaminants
and the regulations of operations and maintenance in utilities. The
result of this new effort by EPA will be to greatly expand the number
of systems forced into costly compliance with EPA rules. For example,
very few systems were required to treat for EPA's previous rules on
organic contaminants, many with anthropogenic origins. However, the
forthcoming arsenic rule could capture as many as 4,000 communities;
this will greatly drive the demand for additional funding resources.
Upcoming EPA rules that may be expensive in thousands of rural
communities include: standards for certification of operators, filter
backwash, radon, surface water treatment rules, arsenic, disinfection
byproducts, ground water disinfection, and others.
The State Revolving Loan Funds are working. Rural Water encourages
Congress to consider that whatever changes are considered, please make
sure, first, that these Loan Funds target those most in need; second,
that the SRFs do not provide tax-payer supported loans to large
corporate systems; third, encourage guidelines to keep professional
services competitive as in other federal funding programs and last and
possibly most important, recognize that new regulations will place more
and more demand for further funding just for systems to maintain
compliance.
Mr. Shimkus. Thank you. I think we are finding the hearing
very beneficial, and you are all bringing up a lot of important
points.
Now I would like to recognize again Mr. Terry Gloriod.
Again, your full statement is in the record, and you have 5
minutes to summarize.
STATEMENT OF TERRY L. GLORIOD
Mr. Gloriod. Thank you, Mr. Chairman, and thank you for
your kind introduction earlier. I am here today representing
the National Association of Water Companies, NAWC. NAWC's 200
member private and investor-owned companies in 39 States
provide water service to more than 20 million Americans.
Let me begin by commending this subcommittee for conducting
this hearing on the important topic of infrastructure. My
general purpose is to comment on the needs posed by
infrastructure replacement, and highlight the solutions to that
funding that are favored by NAWC and its partners in the H2O
Coalition.
NAWC has much in common with our sister water
organizations, including the AWWA, and we share the goal of
safe, sufficient, and affordable water for all Americans. NAWC,
however, does not believe that the primary funding solution
should be Federal grants.
We believe that the only permanent solution to the ongoing
costs of infrastructure replacement is self-sufficient water
utilities, with appropriate subsidies available for systems in
economically disadvantaged communities, and direct assistance
to needy customers.
Various reports have attempted to estimate the
infrastructure replacement needs, in terms of total investment
over the next 20 years. The estimates vary and some reach as
high as a trillion dollars.
The need is referred to as a gap because existing water
service revenues do not support this level of investment. As
others have said the basic reason for the gap is the long life
nature of underground iron pipes.
Today, we still receive service from pipes that were
installed decades ago, at a fraction of the costs that would be
required to replace those same pipes; the original costs of a
dollar per foot, compared to replacement costs approaching a
hundred dollars per foot, for essentially the same service.
The prospect of wholesale replacement of this first
generation of pipes yields the funding gap. We look first at
private sector solutions, primarily because in our business
investment has always been supported by water rates.
The private sector can help to offset the magnitude of the
gap by working toward increased efficiencies, and improved
asset management practice, technological innovations, and
industry consolidation.
Similarly, public/private partnerships can bring about
efficiencies that reduce costs. Today, water rates comprise
less than eight-tenths percent of household income, compared to
electricity of 2.4 percent, and telecommunications of 2.1
percent.
We believe that water is affordable for the vast majority
of Americans, and that current rates lag behind the true value
of water. There is a role for the Federal Government.
The establishment of uniform standards of water quality is
one example. Another is the ability of the Federal Government
to sponsor water research, including research that would help
support the use of innovative practices in infrastructure
replacement.
So while we ultimately rely on the ability of water rates
to support investment needs, including infrastructure
replacement, we ask you to consider the following
recommendations.
First, improve the Drinking Water Revolving Loan Fund.
Within the Drinking Water SRF, Congress should support creative
non-governmental solutions to the infrastructure financing
challenge by explicitly tieing Drinking Water SRF assistance to
the utility consideration of consolidating ownership and/or
management functions with other facilities, and forming public-
private partnerships, or other cooperative partnerships.
Also, Congress should require utilities receiving drinking
water SRF assistance to have in place or have plans for a rate
structure that reflects the actual cost of service, taking into
account capital replacement funds, and a sound asset management
plan conforming to generally accepted industry practices, and
including a schedule of investments to meet and sustain
performance objectives.
Second, a removal of the cap on private activity bonds. The
volume cap on tax exempt debt is arbitrary. Removal of the cap
for water and waste water infrastructure projects may be one of
the most important modifications that Congress can make to give
water suppliers the tools they need to meet the investment
requirements posed by infrastructure replacement.
We would seek the endorsement of this committee for that
concept. And, third, provide Federal assistance to the needy.
While we are opposed to wholesale direct Federal grants to
water utilities, we support programs that would give a helping
hand to economically challenged communities that simply cannot
afford a hike in water rates that might be needed to cover the
costs of infrastructure replacement.
In addition, the Low Income Home Energy Assistance Program
that provides assistance to disadvantaged Americans in paying
utility bills may serve as a model for similar water bill
assistance programs.
In conclusion, let me again commend you for the hearing and
restate our basic premise that we favor sustainable rates, and
I encourage you to review the details contained in our written
testimony and we are available for questions. Thank you very
much.
[The prepared statement of Terry L. Gloriod follows:]
Prepared Statement of Terry Gloriod, President, Illinois-American Water
Company, on Behalf of The National Association of Water Companies
Good Morning Mr. Chairman and Members of the Subcommittee, my name
is Terry Gloriod and I am the President of the Illinois-American Water
Company. Illinois American serves nearly a million people in 124
communities in Illinois.
I am also the Chairman of the National Association of Water
Companies' Government Relations Committee. NAWC is a non-profit trade
association that exclusively represents private and investor-owned
drinking water utilities. I am offering this testimony on behalf of
NAWC's membership--the 200 member companies in 39 States--which provide
safe reliable drinking water to more than 20 million Americans
everyday.
Privately owned water companies, like all other public water
systems, comply with all EPA regulations. However, privately owned
utilities also comply with the orders of State Public Utility
Commissions, which include setting rates. In addition, our companies
pay taxes--not just income taxes, but state and local property taxes--
thus contributing to the welfare of the country and their communities
in more ways than one.
Mr. Chairman, NAWC commends you and this Subcommittee for
conducting this hearing on drinking water infrastructure financing. Due
to our concern about this issue and our commitment to finding sound
solutions, last year NAWC joined with other organizations to form the
H2O Coalition 1. This coalition was formed solely
to work on the infrastructure replacement challenge facing the water
industry. It is a group of organizations committed to the long-term
self-sustainability of our nation's water utilities and to addressing
our nation's looming water infrastructure challenge through a
combination of creative asset management, local responsibility and
decision making, and limited, targeted federal government involvement.
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\1\ The H2O Coalition is made up of the National
Association of Water Companies, the Water and Wastewater Equipment
Manufacturers Association, and the National Council on Public-Private
Partnerships.
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general comments
In the last two years or so there has been a great deal of
discussion regarding the water infrastructure financing gap. This
``gap'' is simply the difference between the estimated dollars needed
to replace failing water infrastructure and the dollars currently being
spent. There are many estimates of the total need, and some of those
are as high as a staggering trillion dollars. The ``gap'' some have
said is perhaps half a trillion dollars. It has been argued that this
constitutes a crisis, which the federal government and the federal
government alone must address today.
We have several problems with this argument. First, any 20-year
needs estimate is at best imperfect. The detailed data on our nation's
water and wastewater industry required to make reliable, long range
estimates simply don't exist. The $1 trillion number is likely a worst
case high-end estimate. Other estimates, made by credible sources, have
put the number much lower. For example, the American Water Works
Association has estimated the drinking water needs at $250 billion.
Second, the advertised ``gap'' of one-half trillion dollars is also
a worst-case scenario. It assumes that utilities do nothing on their
own to fill it, which of course is a difficult assumption to justify.
There are many things utilities can, should, and are doing on their own
to close the investment gap, including reducing costs through increased
efficiencies, improved asset management practices, innovative rate
structures, technological innovation, industry restructuring including
consolidation, and various revenue enhancement strategies.
Third, the cost of water service in this country is very small in
relation to the typical household income. Water and sewer services
account for a relatively small share of the average household utility
budget (less than 0.8%), particularly in comparison to electricity
(2.4%) and telecommunications (2.1%). In many respects, water services
are a bargain to average households. As such, one of our most precious
resources remains very affordable for almost all of the nation's
citizens. Therefore, before Congress considers a massive infusion of
cash for the water industry, it should consider that the cost of
providing this needed service is not a burden on most households, and
that in most cases users, not taxpayers, can and should pay for
infrastructure maintenance and improvements.
Fourth, options and solutions provided by partnerships with the
private sector can and should be explored to a greater degree by
municipalities. While such partnerships are not right for everyone,
there is ample evidence that such arrangements can be hugely beneficial
for all involved. Furthermore, they can be sized and formatted to meet
specific needs, addressing only those areas municipalities need or wish
to be addressed. The most obvious benefit to the customer is cost
savings, which range up to 40%. At least part of the water
infrastructure replacement challenge we are facing can and should be
addressed not by the government, but instead by the private sector.
Fifth, consolidation where possible must be a focus for our
industry. There are currently about 55,000 separate drinking water
systems in the U.S., some serving millions, but most serving few.
According to the EPA fully 85% of all water systems serve less than
3,300 people, and a mere 2% of systems serve more than 50,000. Where
possible, consolidation of these many small systems could result in
significant savings to the customers. Therefore, for those systems
experiencing infrastructure replacement, financial and/or compliance
problems, consolidation should be considered before any public monies
are sought.
Finally, it is worth considering exactly what the appropriate
federal government role is. Water infrastructure has traditionally been
a local or regional function. Geography and different treatment needs
dictate this. There is no national water ``grid''. The federal
government, on the other hand, has stepped in where there is a national
interest in a national infrastructure. To think of water infrastructure
as integrated on a national level is simply inaccurate. It is in fact
many thousands of separate infrastructures across the country, with
vastly different histories and needs.
This is not to say that the federal government does not have a role
at all. There are areas in which federal activity is necessary and
appropriate. Clearly, federal water quality regulations as promulgated
under the Safe Drinking Water Act are a proper and necessary federal
government activity. Research funding is also a role for the federal
government. There are emerging technologies that if proven effective,
could reduce the price tag of infrastructure replacement for all water
utilities. Without such field research to prove the viability of
innovation, utilities may be unwilling to ``gamble'' capital on new
techniques.
recommendations
The Drinking Water State Revolving Loan Fund (DW-SRF) is a
successful government program and it should remain the conduit for
government assistance to utilities. Projects have been prioritized for
funding based largely on public health-related criteria and funding has
been provided predominantly in the form of low interest loans. We
believe that with relatively minor reforms, the SRF process will remain
the best mechanism for assisting water systems in financing capital
improvements related to regulatory compliance and infrastructure
replacement.
Some organizations have called on Congress to establish new
financing authorities to take the place of the SRFs as a means to
address the infrastructure financing challenge. NAWC does not support
such proposals. Though there are some improvements that Congress can
make to the DW-SRF such as including incentives to move utilities
toward self-sustainability, the DW-SRF has proven its ability to help
meet our infrastructure financing challenges in an efficient and
sustainable manner.
reforms to the dw-srf
Within the DW-SRF Congress should support creative non-governmental
solutions to the infrastructure financing challenge by explicitly tying
DW-SRF assistance to utility consideration of:
Consolidating ownership and/or management functions with other
facilities.--There are over 50,000 community water systems in
the United States many of which are very small. In many, but
not all, cases the financial challenges facing these utilities
can be addressed by achieving economies of scale through
consolidation. By tying consideration of consolidation with SRF
assistance, Congress will encourage localities to put aside
parochial interests, expand their vision and do what is right
for the customer.
Forming public-private partnerships or other cooperative
partnerships--Municipalities large and small all over the
country have realized great savings and success through
partnerships with private firms. These partnerships take many
forms, from contracting out small portions of a utility's
operations, such as billing or meter reading, to multi-year all
inclusive management contracts wherein a private firm runs and
manages all aspects of a municipally owned utility, to the
transfer of assets to a private company. Cost savings that
localities have realized over the years from such arrangements
range up to 40%, freeing up much needed capital for
infrastructure replacement, without burdening either the
customers or the American taxpayer.
Congress should avoid some past mistakes of government assistance
programs by requiring utilities receiving DW-SRF assistance to have in
place, or have a plan to achieve within a reasonable period of time:
A rate structure that reflects the actual cost of service,
taking into account capital replacement funds 2, and
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\2\ NAWC agrees with the long-standing policy of the American Water
Works Association that ``Water utilities should receive sufficient
revenues from water service, user charges, and capital charges, such as
water development charges, to enable them to finance all operating, and
maintenance expenses and all capital costs (i.e. debt service
payments).''
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A sound asset management plan conforming to generally accepted
industry practices and including a schedule of investments to
meet and sustain performance objectives.
These provisions require managers to take an enterprise approach to
utility management and move all systems toward self-sustainability.
These provisions will force utilities to solve their infrastructure
problems in ways that are the least onerous to the American taxpayer,
yet are responsible, efficient and effective.
Absent these important safeguards we could relive many of the
problems of past government subsidy programs wherein:
1. Small or inefficient utilities were artificially propped up,
discouraging consolidation and regionalization;
2. Utilities became dependent on the government funds and needed
regular infusions creating greater reliance on government
money;
3. Because of the subsidy, the American people got a false impression
of the true cost of water, discouraging conservation; and
4. The private sector was effectively barred from participation in the
industry, thus denying utilities the benefits of the free
marketplace and its associated innovations and economies.
Some will argue that these provisions represent a too heavy-handed
government approach to legislating, and are thus a step backward. We
disagree. While the DW-SRF is administered through the States and
includes some state matching money, the vast majority of the DW-SRF
corpus is made up of federal money coming from the American taxpayer.
Therefore, the federal government has a responsibility to American
taxpayers to be sure their money is distributed and used in an
efficient and accountable manner.
To address affordability issues, we encourage Congress to consider
assistance directed to individual ratepayers rather than just to
utilities. A federal water bill assistance program for low-income
families would use federal dollars very efficiently, because assistance
would be targeted only to the needy. We believe a water bill assistance
program is an appropriate form of long-term assistance, especially to
larger utilities, where only some of its customers are likely to be
impoverished.
There is some precedence for such a program. The Low Income Home
Energy Assistance Program (LIHEAP) provides assistance disadvantaged
Americans in paying the heating bills. Such a disadvantaged customer
assistance program could be fashioned to work as part of the DW-SRF. A
new federal program and new federal funding need not be created.
private utility access to the dw-srf
Though we support the DW-SRF as indicated above, we are concerned
that treatment of private utilities on the State level has been uneven
and often disappointing. This is a problem that Congress should
revisit.
First, currently 13 States have declared privately owned drinking
water systems to be ineligible for DW-SRF assistance. This unfortunate
consequence is a clear, and in many cases deliberate, violation of
Congressional intent that SRF loans should benefit customers of all
public water systems, regardless of ownership.
There is a simple way Congress can encourage States to implement
the DW-SRF as this Committee intended when it authorized the DW-SRF.
Congress should require states that include private company needs in
their needs survey to ensure that private companies are eligible for
SRF funding. This would be a fair solution for all systems and their
customers and would avoid rewarding those state that have ignored
Congressional intent.
Another disappointing reality of the DW-SRF is that many states
(other than the 13 discussed above) are not making loans to private
utilities even though such loans are lawful and allowed in those
States. In fact, as of December 2000, in 20 States where private
utilities are eligible for assistance no such assistance has been
extended to private utilities since the DW-SRF was created. To be fair,
some of these states have made few loans to any systems, and/or have
few private utilities. Also, generally, privately owned utilities are
well managed and maintained and thus are often not the most needy under
the current criteria. However, when private utilities comprise about
30% of all community water systems nationwide and serve about 15% of
Americans, but receive a mere 3.5% of all DW-SRF assistance, it is
clear that some states need to reassess their programs.
Some have argued that privately owned companies, even those serving
the public, should not receive federal assistance--not even loans.
Congress and this Committee considered that argument in 1996, and
concluded that regulation by state public utility commissions would
assure that the interest savings from SRF loans would benefit
customers--not company shareholders. In fact the National Association
of Regulatory Utility Commissioners (NARUC) has joined us in
criticizing the failure of some states to comply with Congressional
intent.
remove private activity bond cap
One of the easiest and cheapest incentives Congress can provide to
address the infrastructure issue in a sound and efficient manner is to
remove the existing volume caps on Private Activity Bonds for water and
wastewater infrastructure improvement. This simple change will make
capital both easier to obtain and less expensive for partnerships
between the public and private sector, thus making such partnerships
much more economically attractive to all concerned.
We understand that this, being a tax issue, is outside of the
jurisdiction of this committee. It is, however, one of the most
important modifications Congress can make to give municipalities the
tools they need to meet this coming infrastructure challenge.
Since 1986 Congress has limited, under arbitrary state volume caps,
the use of tax-exempt financing by private entities working for the
public good. The cap has the unfortunate effect of limiting the use of
private sector approaches for providing vital services, such as water
services. Preliminary modeling indicates that this minor alteration in
the tax code would cost the federal government very little, yet
leverage huge sums of private capital.
We believe this proposal is far superior to federal grants because
it:
(1) Is far cheaper for the federal government;
(2) Increases capital available to address infrastructure;
(3) Does not require massive reliance on scarce federal funds;
(4) Doesn't subsidize utilities but instead gives them the tools to
handle their problems themselves;
(5) Will not subject long term projects to the uncertainties of the
annual appropriations process;
(6) Is a far more efficient use of resources which will result in fewer
dollars coming from the ratepayer and/or taxpayer;
(7) Is far less likely to lead to over-built and wasteful projects
often seen in projects heavily reliant on government grants.
This proposal has precedent. Congress has exempted other
environmental facilities (certain waste disposal facilities) from the
state volume caps because of a perceived public need. This proposal
also has far ranging support. Bi-partisan legislation in the House has
been introduced which would make these changes. Also, the U.S.
Conference of Mayors, National Association of Counties, and the Water
Infrastructure Network (WIN) have endorsed this proposal.
limit direct federal grants
As I've said, there have been calls to establish a new large
federal grant program like the old Construction Grants Program of 1970s
and 1980s to address our nation's looming infrastructure financing
challenge. NAWC and our partners in the H2O Coalition oppose
this plan and urge Congress to work within the existing DW-SRF
mechanisms, including the current 30% limit on grants and grant-like
assistance.
Experience teaches us that grants are a very inefficient method of
providing assistance to utilities. They send the wrong economic and
conservation signals to consumers, encourage--even reward--bad
management practices, choke-off innovation, discourage public-private
partnerships and other creative business models, send American dollars
and business overseas, and ultimately cost the public more than other
more creative solutions. In Congressional testimony last year, the
Congressional Budget Office said ``if the federal government issued
blank checks for infrastructure, local drinking water and wastewater
systems would lose any incentive to keep capital costs down.'' CBO also
said ``high federal cost shares in the original construction grants
program--raised capital costs by more than 30 percent.'' 3
The following specific problems hobbled the old Construction Grants
Program and would likely plague any revival of such programs:
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\3\ Congressional Budget Office Testimony before the House
Committee on Transportation and Infrastructure, Subcommittee on Water
Resources and Environment, March 28, 2001
Procurement regulations discounted quality for the sake of
lowest price. Owners were forced to purchase and install
equipment that fell short of desirable standards for
performance, reliability and overall costs of operations. The
objective was not value, merely price.
The unpredictable nature of the annual appropriations process
resulted in an artificial rapid ramping up of business activity
when grants were available, followed by a rapid downturn in
activity in lean appropriating years. These surges and declines
forced out of business many American companies long in the
construction and/or manufacturing business.
Sudden infusions of cash in the form of federal grants, rather
than the usual steady and predictable ramping observed in a
``normal'' economy and market, forced customers to go offshore
for materials and services, harming the U.S. industry.
The EPA construction grants program did not adequately require
recipients to establish a capital replacement account to ensure
that funds existed to replace the plant when it exceeds its
life cycle (which could be contributing to the current funding
problem).
Grant recipients had little ``ownership'' of their projects
resulting in overbuilt systems and wasted tax dollars.
Due to the federal procurement regulations accompanying
grants, innovation nearly came to a halt in the U.S. Much of
the innovation the industry has seen over the last 20 years has
come from offshore. This phenomenon is directly attributable to
the construction grant program.
NAWC acknowledges that in some cases grants are the only viable
option or at least the option that makes the most sense. For example
grants, or forgiveness of loans, may be appropriate for systems in
economically disadvantaged communities. NAWC also supports targeted
assistance for individuals based on economic need. However, we oppose
subsides for entire systems that benefit customers who can afford
higher rates in addition to the needy who cannot.
conclusion
Mr. Chairman, we appreciate the leadership role that you and this
Subcommittee have taken to address drinking water infrastructure
problems. These are long-term challenges, and we look forward to
working with this Committee to achieve long-term solutions that will
allow the drinking water industry to stand on its own two feet.
In conclusion, Mr. Chairman, thank you very much for the
opportunity to present our views, and I would be happy to respond to
any questions.
Mr. Shimkus. Thank you.
And then last, but definitely not least, Mr. Paul Schwartz,
President of the Clean Water Action. Welcome, and you are
recognized for 5 minutes.
STATEMENT OF PAUL D. SCHWARTZ
Mr. Schwartz. Good afternoon, Mr. Chairman, and ranking
member Pallone. I really appreciate the opportunity to be here
and if I am not going to be fast, I hope I can be provocative.
Clean Water Action, who I work for--I have been given a
promotion. I am actually the National Policy Coordinator, and
not the President--is in 15 States, including in New Jersey as
the New Jersey Environmental Federation. And we have 700,000
members.
I also come here today as the co-chair of the thousand
member Clean Water Network, and I am on the Steering Committee
of the Campaign for Safe and Affordable Drinking Water
Coalition, and that includes consumer-vulnerable population
groups, public health providers, and traditional environmental
and conservation organizations.
I just have a few additional comments. First of all, my
members are all rate payers of these gentlemen's fine
organizations, and associations, and they drink the water, and
pay the public health consequences, and pay the rate bills and
the local, State, and Federal taxes that come back to deal with
issues that are caused by pollution that they don't create in
the first place.
We would like this committee to produce a bill that
significantly increases the Federal share going to our
communities, and we put a price tag of $25 billion over 5
years.
We would like to see that money focused not only on core
infrastructure needs that we traditionally think about, but
also on cost effective and integrated pollution prevention,
non-structural, and green infrastructure approaches that will
over the long run reduce the costs of our infrastructure needs,
and provide quality of life improvements in our communities and
neighborhoods.
In 1996, the Safe Drinking Water Act amendments gave the
States the right to take 15 percent of their funding and set it
aside for drinking water source protection. When we think about
protection from water, we often think about the Clean Water Act
in that other committee.
But the States are given that choice to do that, and what
we found is that over the years EPA data shows that the States
have spent only 2 percent of their funds on these source water
protection activities.
That type of short-sightedness on the part of our States in
figuring out how to work with our communities and to give them
the flexibility to put in these cost-effective approaches needs
to change.
And we would like to work with the committee to figure out
how we can help move from a voluntary perspective to mandating
some changes that will extend the scarce SRF dollars to create
the most public health protections in water quality
improvements.
In addition, we would like to see, in addition to seeing
the funds increased to the $5 billion per year mark, we would
note that in conversations across the House and the Senate that
there is an almost unwritten assumption that the funding will
stop after 5 years.
We would like to see this committee take an approach that
commits money for 10 years, and we would like to see this
committee look at an approach that would establish a national
clean and safe water trust fund.
And that that trust fund would get money from a number of
sources, including on the clean water side taking settlements
that the government makes that goes to the Treasury and putting
them into that fund, and looking at polluter pay solutions that
get polluters who are creating the monitoring and the treatment
infiltration needs in the first place to put some money into
long term solutions so that these gentlemen can mitigate the
problems and stop the pollutants from getting to our
population.
Security and terrorism was mentioned, and we want to talk a
little bit about maintaining the integrity of the SRF fund in
relation to security. We think that there is an appropriate
role as EPA has acknowledged in their guidance for SRF money to
be used for security purposes.
But we think that those SRF dollars take a long time to
trickle down into the systems, and that the need that we are
looking at, in terms of securing the water supply, is a more
immediate need, and that the money from the SRF is not
sufficient.
That we need to take a look at things like Title IV in the
bioterrorism bill and other appropriations to fit the bill.
And last, there is concerns that we have that the dollars
that we are using are not neutral dollars. Just as in the Clean
Water SRF, the new pots of money that are being brought to bear
on drinking water can go either to do good or ill for the
environment.
One of the areas that we would like to see closed, or a
loophole that we would like to see tightened by this committee
is that currently the drinking water SRF directs dollars to go
toward existing ends, which is important.
But EPA allows the States to determine their own definition
for reasonable growth, and there is a very wide spectrum of
definitions, and so what we see is that in a number of States
dollars that should be going into existing public health and
environmental needs are going to make sprawl happen.
And so we would like to work with the committee to look at
the guidance that EPA has prepared and to look at the statutory
language around growth to make sure that these scarce dollars
aren't going to fuel something that will be causing more water
quality problems.
I thank you for the invitation to speak with you today, and
I look forward to working through the myriad of opinions and
perspectives that you have in front of you to come up with a
workable bill that will put an injection of badly needed
dollars into our communities. Thank you.
[The prepared statement of Paul D. Schwartz follows:]
Prepared Statement of Paul D. Schwartz, National Policy Coordinator,
Clean Water Action
Good day, Mr. Chairman and other distinguished members of the
Committee. I am Paul Schwartz, National Policy Coordinator of Clean
Water Action, a national environmental organization working for clean,
safe and affordable water; prevention of health-threatening pollution;
creation of environmentally-safe jobs and businesses; and empowerment
of people to make democracy work. Clean Water Action works in 15 states
and has 700,000 members across the nation. Additionally, I serve as co-
chair of the Clean Water Network's Wet Weather and Funding Workgroup
and am on the Steering Committee of the Campaign for Safe and
Affordable Drinking Water.
Mr. Chairman, thank you for holding this hearing today on
``Drinking Water Needs and Infrastructure.'' The Committee's sustained
focus on drinking water needs and infrastructure is timely and of vital
importance to the nation's environment, economy and public health. This
hearing is a crucial next step toward strengthening drinking water
protections. Clean Water Action believes that the public's health and
welfare will best be served if this Committee chooses to:
Reinvest in American Communities--Dramatically increase the
federal dollars going to the Drinking Water State Revolving
Fund (DWSRF) available for our aging and inadequate core
drinking water infrastructure;
Integrate traditional core drinking water infrastructure
approaches with drinking water source protection strategies;
Protect our drinking water sources and infrastructure from
potential security breaches;
Create a new source of available federal funds outside of the
DWSRF by setting up a ``National Clean and Safe Water Trust
Fund'' that is funded at least in part by a polluter pays
component;
Require meaningful accountability, transparency and public
participation.
reinvest in american communities--dramatically increase the dollars
available for our aging and inadequate core drinking water
infrastructure
The creation in 1996 of the Drinking Water State Revolving Loan
Fund (DWSRF) was a necessary first step in moving our nation's old and
outdated drinking water infrastructure into this century. Modeled on
the successful Clean Water State Revolving Loan Fund (CWSRF), the DWSRF
has already made billions of dollars available to communities across
the U.S. to protect the public health. We note, however, despite this
increased flow of federal dollars over the past six years, that many
drinking water providers do not have the necessary resources to take
care of critical drinking water infrastructure needs.
A large chuck of our nation's drinking water treatment works and
distribution systems are old and near or past the end of their useful
life. This physical deterioration of the nation's drinking water
infrastructure imposes an increasing cost burden every year fixes and
replacement is delayed.
Our treatment techniques are, for the most part, old and inadequate
to meet the requirements of the job in the 21st century. Sand
filtration and chlorination were at one time state of the art, but not
any more. USGS has recently documented all manner of once exotic
contaminants such as pharmaceuticals in our nation's drinking water
sources. New and emerging microbes, such as cryptosporidium and giardia
are slipping through sand filtration and getting past chlorine
disinfection into our finished water supply.
Polluted rivers, lakes, streams, and aquifers (underground water
sources) carry fifty years of chemicals such as pesticides that are not
even regulated under the Safe Drinking Water Act (SDWA). Not one of the
top ten pesticides used (by volume) on New Jersey lawns, golf courses,
and farms are regulated under SDWA. Yet these chemicals are combining
with chlorine used for disinfection to create even more potent
carcinogens and may be one of the largest contributors to birth defects
and stillborn births in the nation.
Out of control sprawl development, large animal feeding operations,
naturally occurring contaminants such as arsenic, nuclear weapons
production and storage facilities, the list of sources of drinking
water contamination goes on and on. Yet our commitment to funding the
prevention and cleanup of these problems is going backwards in real
terms and the gap between what is needed and what we are raising and
spending at all levels of government is growing wider and wider.
It has been well established by the USEPA, the Water Infrastructure
Network (WIN) and others that there is a gap between all available
sources of revenue and the water infrastructure needs in our
communities. WIN estimates that we have needs of $1 trillion dollars
and projects that $23 billion must be invested annually over the next
20 years to begin to close the gap.
Clean Water Action calls on Congress to authorize and appropriate a
much-needed immediate injection of $57 billion spread over the next
five fiscal years. This is a small price to pay to live up to the
promise of clean, safe and affordable water. The Energy and Commerce
Committee should produce a bill that significantly increases the
federal share going to the DWSRF to $25 billion over five years.
The $25 billion should be used primarily to address core drinking
water quality problems by being targeted: (1) to fix, modernize and
maintain our antiquated and dilapidated drinking water treatment and
distribution systems and (2) to assist in prevention of pollution of
the sources of our drinking water.
integrate traditional core drinking water infrastructure approaches
with drinking water source protection strategies
Drinking water spending cannot just be targeted to the traditional
modes and methods of end-of-the-pipe engineering solutions. Though the
1996 Amendments to the Safe Drinking Water Act (SDWA) acknowledged this
by creating a voluntary set-aside for drinking water source protection,
this program has not been well used.
In 1996 Amendments to SDWA gave states the option to use up to 15%
their DWSRF funds for source water protection projects. This was based
on the widespread understanding that source water protection was
substantially cheaper and more reliable than the dominant end-of-the-
pipe solution once water quality has been degraded. And yet, recent EPA
data show that states have only spent 2% of funds on source water
protection activities.
According to EPA, some states have attempted to direct more funds
to source water protection--but have been stymied by the requirement
that the funds had to go through ``public water supply systems.''
Though EPA has issued guidance that three-party partnerships are
acceptable, i.e., a landowner, a public water supply system, and a
group such as the Clean Water Action, American Rivers or the Nature
Conservancy. Nevertheless, there have been few applicants for the
source water protection dollars.
This suggests that the ``voluntary'', ``statement of intent'' of
the Congress to shift resources away from treatment and toward
pollution prevention has been a major failure. Clean Water Action calls
on Congress to make two corrections. First, the eligibility for source
water protection projects needs to be greatly expanded--to include
funding of nonprofit entities directly, and through such programs as
linked deposit bank programs or loans to county health departments.
Loans could be provided to homeowners and farmers, without the direct
involvement of the local municipal water supply system. The reason is
that most homeowners are resistant to the involvement of the local
utility in their backyard. Most farmers will not turn over ownership of
a stream buffer to the local utility, or allow that utility to attach
an easement to their deed.
Second, history shows that mandatory (vs. voluntary) financial
incentives are required. Congress said in 1996 that it wanted funds
spent on source water protection--and that has not happened. If
Congress is serious, then ``may'' should be changed to ``must.''
Congress should create a separate pool of funds that states may apply
for, but take the money back (to be reallocated to states that wish to
do more source water protection) after a couple of years if they have
not spent it on source water protection. This approach would
necessitate States needing to change their own eligibility requirements
(sometimes through the legislature), but a ``must'' approach appears to
be necessary to get them to do that.
Clean Water Action is concerned that many DWSRF dollars are going
towards promotion of sprawl development. While sprawl may be
inevitable, scarce DWSRF dollars should not be going to promote this
water polluting use. Core water infrastructure systems, most of which
were built using taxpayer funds, are now in need of rehabilitation,
replacement and repair. Though the 1996 Amendments to SDWA restrict SRF
dollars to be used for existing needs, EPA has left it up to the States
to determine what constitutes ``reasonable growth.'' We would be happy
to work with the Committee to suggest changes to this provision that
will keep DWSRF dollars focused on solving water quality problems not
creating them.
protect our drinking water sources and infrastructure from potential
security breaches
After September 11th security issues around drinking water
protection understandably moved to the fore. Concerned about potential
breaches of our drinking water system, EPA, drinking water providers,
Congress and environmental, consumer and public health groups all got
behind efforts to assess vulnerabilities and to eliminate and reduce
threats and risks of all types.
EPA recognized in guidance to the states that DWSRF dollars could
be used in some limited ways to address security issues. EPA carefully
laid out the ground rules for whether individual security fixes could
take advantage of core DWSRF dollars and/or dollars from the State SRF
set-aside accounts. Though Clean Water Action supports the use of SRF
dollars in this manner we would note that the dollar flow to correct
real and present dangers would be at a very slow pace if we just rely
on the current SRF accounts. Also, we note that the costs for securing
our drinking water infrastructure far outstrip the capacity of our
current DWSRF structure. If the DWSRF dollars will help our utilities
eliminate hazards, or reduce them then these dollars certainly should
be eligible. If these dollars help our drinking water providers meet
other public health protection needs or help them come into compliance
in other ways or anticipate future rulemakings that are far along in
the pipeline then we see little problem in the dollars being spent for
these purposes.
However, the DWSRF is not sufficient to meet the needs of securing
our drinking water supply, and it should not be used in such a way that
would funnel scarce dollars away from existing public health needs
thereby exacerbating them. Congress in passing Title IV of the Bio-
terrorism bill saw the wisdom of creating an additional pot of money
that should be the primary source of revenue for securing the nation's
water supply. If Title IV is insufficient, Congress should come up with
additional appropriations not raid the under funded DWSRF to meet this
critical need.
establish a national clean and safe water trust fund
The two bills drafted by the Senate Environment and Public Works
Committee, S. 1961 and the House Transportation and Infrastructure
Committee, H.R. 3930 reauthorize the Drinking Water and Clean Water SRF
accounts for a five-year period, but are silent about the long-term
federal interest in funding clean and safe water. Water infrastructure
issues, just as our airport and highway infrastructure needs are
continuous. Any final bill must provide an ongoing, dedicated revenue
stream from sources other than the ratepayers and taxpayers. The
Commerce Committee has an opportunity to play a leadership role in
establishing the longer term nature of the federal interest by
reauthorizing the DWSRF for a ten year period and by establishing a
long-term stable funding source--The National Clean And Safe Water
Trust Fund.
Clean Water Action believes that a National Clean And Safe Water
Trust Fund will help needy communities meet critical water
infrastructure needs. The National Clean and Safe Water Trust Fund
should in part be funded by a polluter pays mechanism that imposes a
small fee on those vested interests whose polluting behavior creates
the need for water clean up and public health protection in the first
place. In addition Clean Water Action supports turning over Clean Water
Act enforcement settlements that currently go to the general treasury,
to the National Clean And Safe Water Trust Fund.
Increased water infrastructure funding is essential if we are to
curb a trend toward a two-tiered water infrastructure. Many cities have
lost much of their rate base while their infrastructure deteriorates.
Small water systems lack the scale to spread out costs of installing or
maintaining new technologies. Not only are millions of people's health
on the line, but the basic economies of many cities and whole regions
of the country are put at risk.
require meaningful accountability, transparency, and public
participation
Congress needs to require more accountability as it invests in SRF
programs. Any reauthorization of the Drinking Water SRF must
incorporate mechanisms that ensure open information and public
involvement. Many small and medium sized communities don't know how to
access the SRF accounts; all too often it is the politically connected
that are able to get funding, not those with the most pressing needs.
Meaningful public participation in the decision making process about
which projects get funded is usually absent.
Currently there is little meaningful oversight by EPA and little to
no real public involvement in the creation of intended use plans
(IUP's) and the identification of priorities. Even if no new dollars
were appropriated, the States will be spending over $200 billion over
the next twenty years in their combined infrastructure accounts with
very little independent verification of whether or not those dollars
are going for environmental and public health good or harm and whether
or not these scarce dollars are going to meet our most pressing needs.
In addition environmentally sound principles for project design and
siting should be observed. In many cases state NEPA (National
Environmental Policy Act)--like procedures are not followed or do not
include any real review by the public. With little oversight by EPA and
almost no public involvement in the intended use plans (IUPs), there is
little indication whether or not federal dollars are supporting real
public health, compliance or environmental needs. Effective public
participation is the best way to ensure that environmental and fiscally
sound choices are made. Ensuring such participation is the best way for
Congress to protect and build support for its water investment.
conclusion
Congress needs to use investment in drinking water infrastructure
to insure water infrastructure equity, affordability and sustainability
while meeting the goals of preserving the environment, enhancing the
public's health and helping to lay a new foundation for broad economic
prosperity. This process should not be used as a way to revisit
important but contentious Safe Drinking Water Act reauthorization
issues. Clean Water Action's approach, and we hope your approach, is to
stick to the issues before us--to identify needs and to decide how best
to structure a new water infrastructure funding program.
The Clean Water Network and the Campaign for Safe and Affordable
Drinking Water are united in demanding that any final water
infrastructure legislation:
1. Substantially increases funding for state clean and safe drinking
water funding projects.
2. Provides significant incentives to states to direct more Clean Water
SRF funds to nonpoint pollution, drinking water source
protection and non-structural approaches, ensuring that (1)
today's greatest source of water pollution (nonpoint runoff) is
addressed; and (2) that cost-effective ``green infrastructure''
solutions are used to repair and improve existing wastewater
and drinking water systems.
3. Ensures that SRF funds are not used to subsidize new sprawl
development, but instead are used to repair and improve
existing wastewater and drinking water systems.
4. Funds SRF projects based on the states' priority system ranking
after meaningful public input, by closing the loophole (in the
Clean Water SRF) that allows states to fund projects not on
their own priority list. Also, tighten-up and make consistent
the ``reasonable growth'' loophole in the Drinking Water SRF.
Thank you for the opportunity to comment. I look forward to working
with the Committee in developing any new proposals to address drinking
water needs and infrastructure. I would be happy to entertain any
questions. My phone number is (202) 895-0420 ex 105 and my e-mail is
[email protected]
Mr. Shimkus. Thank you, Mr. Schwartz. I will recognize
myself for 5 minutes, and I will take the prerogative of the
Chair, like Chairman Tauzin and Chairman Barton of other
committees, will always recognize people from his district who
happen to ramble into the hearing.
And I would like to recognize back in the corner the
Professional Insurance Agents of Illinois. We are supposed to
be meeting right now, but of course you can see all the support
I have on the Republican side, and all the support that Frank
has on the Democratic side.
So, we are it, and thank you for coming, and hopefully my
staff is attending to all of your needs. We appreciate you
coming.
And I have great respect for my colleague from Missouri,
Karen McCarthy, but as you can see, we have got tap water
poured all around here, and I think the whole bottle of water
versus tap water is one about convenience and another one about
marketing.
And that is an issue that we also need to remember. That it
is not always as simple as it seems, and that I think that the
bottled water industry is just very good at marketing something
to make a point.
Who here as a provider of water, either to rural areas or
to municipalities, is providing unsafe drinking water to their
constituents at this time?
Mr. Shimkus. No one is volunteering. So you all think that
you are providing safe drinking water to our consumers?
Mr. Neukrug. It is the safest in the world at any time in
history.
Mr. Shimkus. Great. It is always an important point to make
though. I mean, we all want to get better, and we all want to
improve. But the sky is not falling, and the water is safe for
drinking and use, and a simplistic point to be made, but I
think an important one.
You all are meeting great standards right now, and we can
provide partnerships to help, but I just throw that on the
table for discussion. And I have one question, and then I will
turn the seat back over to the full committee chairman.
Mr. Bella, in your testimony, you state that your
organization is committed to the principle of full cost
recovery through rates; is that correct?
Mr. Bella. That's correct.
Mr. Shimkus. Would you then be opposed to having water
companies commit to this principle in the long run before
receiving loans through the SRF?
Mr. Bella. I think there is a combination here. The problem
didn't develop by future rate payers. It was developed by past
or shouldered, or passed on by past generations.
That is where the SRF would come in here to help the future
rate payers pay something that they really did not cause to
happen. So the answer is yes, and it is no also.
Mr. Shimkus. And that is why we asked the question. There
is going to be a transition, I believe, in the local providers,
as I talked to you before the hearing, and you all are doing a
great job, and we need to be partners.
There is a State role to refining that and working through
this authorization is going to be important, and we need all
your inputs, and we appreciate your testimony. And now I will
yield to the ranking member for 5 minutes.
Mr. Pallone. Thank you. I asked the same question of the
last panel, but I didn't get a response. So hopefully I will
get a response from some of you. If you look at the CBO
analysis that was done that was mentioned earlier, and you take
the mid-point, which is $4 billion per year of additional
spending to address infrastructure needs, it comes to $20
billion over 5 years.
And I know that we have heard different things. Mr.
Schwartz said 25 and others said different, but I just want
each of the panelists to indicate whether they would support a
$20 billion increase in the Drinking Water State Revolving Loan
Fund authorization.
In other words, if it was $20 billion over 5 years, would
you support that, and I will start from the left. You can just
say yes or no, or maybe.
Mr. Rutherford. Yes, I would support that. We suggested $3
billion, and we would be very happy with four.
Mr. Pallone. Thank you.
Mr. Bella. I would also support that.
Mr. Pallone. Thank you.
Mr. Moore. That would be the bare minimum that I think is
necessary. Actually, I think the water systems need more than
that.
Mr. Pallone. Thank you.
Mr. Neukrug. We have done a very detailed analysis and came
to a need of $28.5 billion, and so we are a little bit on the
low side and would be looking more at the $5 billion per year,
and we would appreciate any support you could give us.
Mr. Pallone. Thank you.
Mr. Ronnebaum. I am not sure that Rural Water has done an
analysis other than in Kansas, and the need is being met and we
have a hundred percent excess of applications to the fund from
what is presently available.
What is going to drive the need is continuing reduced
standards on regulations.
Mr. Pallone. Do you want to express an opinion on the
figure that I gave though, the $20 billion over 5 years?
Mr. Ronnebaum. I think Rural Water would support that, but
I am not qualified to make that--we have not done any studies
to know that.
Mr. Pallone. That's all right. We don't require
qualifications. You essentially said yes. Thank you. Mr.
Gloriod.
Mr. Gloriod. I think the difficulty that I have is that all
the numbers that are out there have resulted from sort of macro
kinds of studies, looking at a broad brush type approach, and I
think we all realize that you don't really know what the need
is until you start to investigate individual systems and sort
of build that up from the bottom.
And I guess as a basic principle, where that kind of a need
assessment lands will dictate what kind of funding gap really
is there, and I guess I just am not ready to just take an easy
way out and strike an average.
Mr. Pallone. So what do you think though? Do you think it
is in the ball park, the figure that I gave?
Mr. Gloriod. I think the number is probably higher than the
$1 billion funding level now, but whether it is four times
higher, I don't know. It may be twice as high, but I don't know
that it goes four times as high.
Mr. Pallone. All right. Thank you. Mr. Schwartz. Well, you
gave us a higher figure.
Mr. Schwartz. I just want to note that on some level people
at the table have been accused of looking for money in search
of a problem, and I think that when you look at New Jersey, the
top 10 pesticides used by volume on our lawns, which is our
biggest crop, golf courses, and farms, are not regulated under
the Safe Drinking Water Act.
And when you think about out of control sprawl development,
large animal feeding operations, and we heard a lot about
arsenic today, and nuclear weapons production and storage, and
on, and on, and on, there are large numbers of contaminants
that are prevalent in our sources of drinking water that we are
not even talking about under the Safe Drinking Water Act.
Mr. Pallone. So you definitely would support the $20
billion because you indicated that you would like a larger
amount?
Mr. Schwartz. Yes, and the needs that we are talking about,
the type of need surveys that are done by the EPA, are not
looking at things like pollution prevention, and really
factoring those in.
So we think that there is a real problem and that we really
need to begin to address the problem or what we are going to
hear is unfunded mandates and flexibility to the cows come
home. We need accountability and water quality, and we need the
money by the Federal Government to back that up.
Mr. Pallone. All right. I appreciate that, but the answer
is yes to the $20 billion?
Mr. Schwartz. Yes.
Mr. Pallone. And let me just ask this, and again I don't
know that we can get through everybody in 5 minutes, but I had
said to the first panel my concern that if we don't have a
significant increase in the level of authorization, as well as
appropriations, what is that going to mean in terms of safe
drinking water.
Will it be safe and whether or not companies, utilities,
will be able to meet these infrastructure needs. Some of them
may be able to raise rates significantly, and others may not.
So I don't know if anybody would like to express whether it
is going--because, you know, it kind of goes to the suggestion
that right now that drinking water is safe, but can we be sure
that it isn't if we don't have a significant increase.
Can these utilities afford to impose the extra burden on
the rate payers? You are a city councilman, and so you are
probably in the best position. Go ahead.
Mr. Moore. Well, Congressman, your colleague, Congressman
Shimkus, asked us if we were providing safe water, and of
course all of us responded that indeed we were.
The reason that we are here today is that we would like to
continue to provide safe drinking water in the years to come,
and we see a scenario where because of these pressing
infrastructure needs that down the road that might become much
more difficult for us to do. So we are trying to head off a
crisis and we are trying to plan ahead, and we are here to ask
for your help.
Mr. Pallone. Mr. Bella.
Mr. Bella. One of the--we provide basically two products.
One is the physical water, and the second product is the
reliability of the supply of that water. That is the way that
we look at that.
And the reliability is another aspect that will be--that
SRF and this kind of funding addresses. Whereas, the water and
the quality of the water, now we have been doing that pretty
much on our own, but the reliability going forward is going to
be the most important thing that we do, the reliability of
bringing that product to the consumer is what this is really
all about in my estimation.
And until you have stood out by a ditch on December 24th,
and it is 10 degrees out, and there is two men in a hole and
the bonnet of a 110 year old valve blows off, and they are in
freezing water, and all the models and everything just go away.
And that is what we have to deal with and that's why I
appreciate your offer to express that here.
Mr. Pallone. Not everybody has to respond, but is there
anybody--well, you want to, I guess.
Mr. Neukrug. Yes. I think the drinking water industry is
made up of real professionals, and I think the safety and
reliability of drinking water in the United States will remain,
irrespective of what Congress does.
The issue though is competitiveness, and when I am talking
about this, I am talking about competing needs for funds.
Obviously the reliability and safety of drinking water is the
utmost need for reliability.
What do you lose? Increased deferment of infrastructure
replacement, and perhaps a delay in CSO programs, and perhaps
you don't get the environmental benefits that Paul Schwartz is
looking for.
There is something within the municipality and utility that
we will have to give up, and I pray for all of us that it is
not the quality or reliability of the drinking water.
Mr. Pallone. Thank you.
Mr. Gillmor. Thank you. I want to thank John Shimkus for
all of his help today, and Mr. Pallone as well, and
particularly I appreciate the witnesses today, your help and
your testimony, and your expertise.
We are going to have to adjourn now so that the Oversight
and Investigations Subcommittee can learn about nuclear safety,
and we will have I think, however, some questions that we may
submit to you and hopefully you can send us your answers in
writing. So thank you very much and we stand adjourned.
[Whereupon, at 12:52 p.m., the subcommittee was adjourned.]
[Additional material submitted for the record follows:]
Atlanta City Council
Atlanta, Georgia
April 9, 2002
The Honorable Paul E. Gillmor, Chair
The Honorable Frank Pallone, Jr. Ranking Member
Environment and Hazardous Materials Subcommittee
Energy and Commerce Committee
U.S. House of Representatives
Washington. D.C. 20015
Dear Representatives Gillmor and Pallone: I am Clair Muller, a
Councilmember from Atlanta, Georgia and a member of the Energy,
Environment and Natural Resources (EENR) Steering Committee of the
National League of Cities (NLC) for many years.
I have concerns about language in S. 1961, the Water Investment Act
of 2002, a proposal being considered in the Senate, which states, that
in order to access new money local governments should bill for the full
cost of service, certify that our assets are managed, consider
consolidation of services and explore public/private partnerships. I
would strongly urge you not to include similar language in any proposal
you develop to provide enhanced federal financial assistance for
municipal drinking water infrastructure repair, rehabilitation and
replacement.
While I am sure other cities have varied experiences, I must speak
today for Atlanta.
In 1995 Atlanta was sued for violation of the Clean Water Act and
we are currently under a strict Consent Decree with EPA and our state
EPD with deadlines set at 2003, 2005, 2007 and beyond at an estimated
cost of $4 billion.
We have raised our water/sewer rates every year for the past 6
years to the point that we now have an ``affordability'' issue with
EPA.
We are complying with a City asset review now.
As City Utilities Chair for the City of Atlanta, I have advocated
for many years consolidating our drinking water system with our
county--which owns, with Atlanta, half of a much smaller system than
Atlanta's system. That city/county system is totally privatized and
very successful. The contracts are short (3-4 years) to maximize the
benefits to the governments and the ratepayers Every time a contract is
re-negotiated, savings are found for the utility and the ratepayers
By contrast, the City of Atlanta (under a former Administration)
privatized the operation and management of our water system, a system
serving a population of 800,000, for 20 years. The customer service has
been a disaster and the requests for more dollars due to extra projects
are constants
Please do not assume that privatization is a silver bullet. If a
city is operating appropriately, there is no way a private for-profit
company can do a better job than a municipality. Yes, privatization can
work, as it does with our city/county system, but local governments
must have the flexibility to make these good moves or bad mistakes on
their own. Do not impose upon us day-to-day operations.
Sincerely,
Clair Muller, Atlanta City Councilmember,
City Utilities Committee Chair,
NLC EENR Steering Committee Member,
Georgia Municipal Association Boardmember,
Atlanta Regional Commission Boardmember,
Atlanta/Fulton Water Resources Commission Vice Chair
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