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CBO
STUDY

Future Investment in
Drinking Water and
Wastewater Infrastructure
November 2002


Notes

Numbers in the text and tables may not add up to totals because of rounding.

Unless otherwise indicated, all costs referred to are in 2001 dollars.

Cover photo shows chlorine contact tanks at a wastewater treatment plant within the Delta Diablo Sanitation District, Antioch, California. ©Paul Cockrell.





                
Preface

According to experts from the Environmental Protection Agency and various nonfederal groups, the nation's drinking water and wastewater systems face increasing challenges over the next several decades in maintaining and replacing their pipes, treatment plants, and other infrastructure. But there is neither consensus on the size and timing of future investment costs nor agreement on the impact of those costs on households and other water ratepayers.

The Congressional Budget Office (CBO) has analyzed those issues at the request of the Chairmen and Ranking Members of the Subcommittee on Water Resources and Environment of the House Committee on Transportation and Infrastructure and the Subcommittee on Environment and Hazardous Materials of the House Committee on Energy and Commerce. This study provides background information on the nation's water systems, presents CBO's estimates of future costs for water infrastructure under two scenarios--a low-cost case and a high-cost case--and discusses broad policy options for the federal government. In keeping with CBO's mandate to provide objective, impartial analysis, this report makes no recommendations.

The study was written by Perry Beider and Natalie Tawil of CBO's Microeconomic and Financial Studies Division, under the supervision of David Moore and Roger Hitchner. Many people within CBO and outside it provided valuable assistance; they are acknowledged in Appendix D.

Dan L. Crippen
Director
November 2002




CONTENTS


  Summary
   
1  Drinking Water and Wastewater Infrastructure
      An Overview of U.S. Water Systems
      The Federal Role
      The Need for Increased Investment
   
2  Estimates of Future Investment Costs and Their Implications
      Bottom-Up and Top-Down Estimates of Investment in Water Systems
      CBO's Estimates of Future Costs
      Comparing Current Spending and Future Costs
      The Impact of Projected Water Costs on Households' Budgets
   
3  Options for Federal Policy
      Federal Support for Research and Development and Its Implications
      Federal Support for Infrastructure Investment and Its Implications
      Direct Federal Support for Ratepayers and Its Implications
      Concluding Note
   
  Appendix A
Assumptions the Congressional Budget Office Used In Its Low-Cost and High-Cost Cases

Appendix B
Major Sources of Efficiency Savings

Appendix C
The 4 Percent Benchmark for Affordability

Appendix D
Acknowledgments


Tables  
   
S-1. Assumptions Used in CBO's Low-Cost and High-Cost Cases
S-2. Estimates of Average Annual Costs for Investment in Water Systems, Including Financing, 2000 to 2019
S-3. Estimates of Average Annual Costs for Investment in Water Systems, Measured as Capital Resource Costs, 2000 to 2019
2-1. Summary of Estimates of Investment Costs for Water Systems
2-2. CBO's Estimates of the Likely Range of Average Annual Costs for Water Systems, 2000 to 2019
2-3. Comparison of CBO's and WIN's Estimates of Average Annual Costs, 2000 to 2019
2-4. Assumptions Used in CBO's and WIN's Analyses
2-5. Contributions of Individual Assumptions to Differences Between CBO's and WIN's Estimates
2-6. Estimates of Average Annual Capital Costs for Investment in Water Systems, 2000 to 2019
2-7. Estimates of the Difference Between 1999 Spending and Future Costs for Investments in Water Systems
2-8. Percentage Shares of Households' Average Expenditures in the Late 1990s, by Category
   
Figures  
   
S-1. CBO's Estimates of Annual Investment Costs for Water Infrastructure
S-2. Water Bills as a Share of Household Income
1-1. A Drinking Water Plant
1-2. A Wastewater Treatment Plant
1-3. Community Water Systems and Population Served by Size of System, 2001
1-4. Wastewater Treatment Facilities and Population Served by Size of Facility, 1996
2-1. Water Bills as a Share of Household Income
   
Boxes  
   
S-1. Estimates of Costs for Water Systems' Future Operations and Maintenance
S-2. Options to Expand Federal Aid for Private Water Systems
2-1. Alternative Measures of Investment Spending
2-2. Security Investments for Water Systems
2-3. The Water Infrastructure Network's Published Estimates of Investment Needs and the "Funding Gap"
2-4. CBO's Analysis of Household Water Bills
2-5. Water Bills in Various Industrialized Countries
3-1. Federal Support of Privately Owned Water Systems
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