STATEMENT OF
BENJAMIN H. GRUMBLES
DEPUTY ASSISTANT
ADMINISTRATOR FOR WATER
U.S. ENVIRONMENTAL
PROTECTION AGENCY
BEFORE THE
COMMITTEE ON ENVIRONMENT
AND PUBLIC WORKS
UNITED STATES SENATE
February 26,
2002
INTRODUCTION
Good morning,
Mr. Chairman and Members of the Committee.
I am Ben Grumbles, Deputy Assistant Administrator for Water at the U.S.
Environmental Protection Agency (EPA).
First, let me convey Tracy Mehan=s regrets for being unable to be here
today to speak with this Committee.
Second, I appreciate this opportunity to provide the Administration=s views on S. 1961, the AWater Investment Act of 2002,@ and being able
to discuss how to ensure that the Nation=s drinking water and wastewater facilities
can meet the challenge of protecting our public health and water quality in the
21st century.
Through a strong
and evolving local, State, federal and private partnership, the United States
has made great progress over the past three decades in reducing water pollution
and assuring the safety of drinking water.
The Clean Water Act (CWA) and the Safe Drinking Water Act (SDWA) have
served us well and provide the solid foundation we need to make sure that all
Americans will continue to enjoy safe drinking water and clean rivers, lakes,
and coastal waters. In particular, our
cooperative investment in water and wastewater treatment, and pollution
prevention has paid dramatic dividends for water quality and public health.
The economic and
social benefits of improved water quality are readily evident from urban
waterfronts to recreational water bodies to wild rivers all across
America. We have also made dramatic
progress in improving the safety of our Nation=s drinking water. Today, more than 90 percent of the
population served by community water systems receives water from systems with
no reported violations of health-based standards in place as of 1994.
CLEAN
WATER AND DRINKING WATER STATE REVOLVING LOAN FUNDS
The financial
demands that communities face in providing clean and safe water to all
Americans are substantial, and the Administration is committed to helping find
ways to meet those demands. The federal
government has provided over $80 billion in wastewater assistance since passage
of the Clean Water Act, which has dramatically increased the number of
Americans enjoying better water quality.
The primary mechanism that EPA uses to help local communities finance
water infrastructure projects is the State Revolving Fund (SRF), established in
the 1987 CWA amendments and the 1996 SDWA amendments. The SRFs were designed to provide a national financial resource
for clean and safe water that would be managed by States and provide a funding
resource Ain 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
programs, EPA makes grants to States to capitalize their SRFs. 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, funds invested in the SRFs
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 23% compared to using commercial financing at an
average of 5.3%.
To date, the
federal government has provided more than $19.7 billion in capitalization
funding to States for their Clean Water SRFs, more than twice the authorized
level for the program. With the
addition of the State match, bond proceeds, and loan repayments, States have
$37.7 billion in assets in their clean water SRFs. Since 1988, States have made nearly 11,000 individual loans for a
total of about $34.3 billion, with another $3.4 billion either unallocated or
being readied for loans as of June 2001.
In FY 2001, the Clean Water SRF issued a record total of 1,370
individual loans with a value of $3.8 billion.
The Clean Water SRFs have provided between $3-4 billion in loans each
year for several years, and are widely considered a tremendous success
story. For FY 2003, the President=s Budget
proposes funding the Clean Water SRF at $1.212 billion.
The Drinking
Water SRF was modeled after the Clean Water SRF, but States were given broader
authority to use Drinking Water SRFs to help disadvantaged communities and
support drinking water program implementation.
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 over $3.8 billion, with another $1.4 billion either
unallocated or being readied 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. By the end of FY
2003, we expect the number of loans issued by State Drinking Water SRFs to
reach 2,400, with about 850 SRF funded projects having initiated operations by
that date. The FY 2003 President=s Budget
proposes to fund the Drinking Water SRF at $850 million.
The
Administration will continue to fulfill prior EPA commitments to capitalize the
Clean Water SRF to revolve at a $2 billion average annual level and the
Drinking Water SRF at a $500 million average annual level.
THE
CHALLENGE AHEAD
With the
important investments made by and achievements of all levels of government and
the private sector, together we have substantially improved quality of the
water in every State -- even while our population sharply increased and the
output of our economy more than doubled.
But the task
America=s
intergovernmental, public-private partnership has undertaken -- to protect
public health and the environment by maintaining and improving water quality --
is a continuing one. As our economy and
population grow, partnership members must increase their efforts to provide
clean and safe water every day. We must
also periodically take a good look at the challenges ahead, and reassess the
adequacy of the tools we have to meet those emerging challenges.
EPA=s most recent
Drinking Water and Clean Water Needs Surveys have identified $150.9 billion and
$150.5 billion, respectively (both in 1999 dollars), in documented needs
eligible for SRF assistance in the coming decades. More recent estimates associated with correcting sanitary sewer
overflows may increase the estimated total Clean Water needs, and the Agency
expects to release a new Clean Water Needs Survey in August 2002. Over the past
year or so, several stakeholder groups have issued reports estimating water infrastructure
needs that are substantially higher, based on different methodologies and
definitions.
With that in
mind, the Agency is actively working to improve information about long-term
infrastructure needs, assess different analytical approaches to estimating
those needs, and estimate the gap between needs and spending. Last summer, EPA presented its analysis --
known as the Gap Analysis -- to a diverse panel of industry experts. Overall, the reviewers commended the report
as a reasonable effort to quantify the gap.
We have made revisions to the analysis based on peer review input 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 of
context. First, there is no single Acorrect@ number to
describe the gap. Any gap study must be
built using methodologies and definitions of need, which in turn rest on
assumptions about present conditions nationwide, and desirable or appropriate
policies to follow in the future. That
raises the second point that while these gap numbers may be helpful to provide
a broad sense of the challenge ahead, they cannot themselves be a clear guide
to policy, because they do not take into consideration how the various roles of
federal, State and local governments should be balanced. Third, under any study, funding gaps are not
inevitable. They occur only if capital
and operations and maintenance (O&M) spending remains unchanged from
present levels over the time covered by the study. What a proper analysis may suggest is that a funding gap will
result 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 most
partnership members would agree that the nation, through our partnership, needs
to put more resources into water and wastewater infrastructure in the future
than we have been doing; and, that we need to reduce costs by ensuring more
efficient and productive use of such resources, through locally-tailored,
fiscally sustainable management and technical approaches. We need a strategy that addresses both the
fiscal demand side (how to define and manage infrastructure needs) and the fiscal supply side (how to pay for those managed needs).
While much of
the projected gap is the product of deferred maintenance, inadequate capital
replacement, and a generally aging infrastructure, it is in part a consequence
of future trends we can anticipate today.
For instance, continuing population growth means that even increasing
capacity at current levels of wastewater treatment will not be enough to
prevent water quality degradation, and that development pressures on
unprotected drinking water sources will increase. The same tools we need to make the fiscal demand side of the gap
more manageable -- like reducing the flow of wastewater and stormwater
requiring treatment through conservation and nonstructural alternatives, and
protecting our drinking water sources -- will help us to deal with the water
quality impacts of a growing population.
To meet these
future challenges to clean and safe water the Administration believes that the
touchstone of our strategy should be building fiscal sustainability. In particular, several basic principles
should guide our pursuit of clean and safe water through fiscal sustainability:
<
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 and wastewater 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
and wastewater 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 water quality problems and 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.
This is an
important and serious challenge. We
would not be in this room today if we did not recognize that. That=s good news in itself; and there=s more, as we
can see the tools, the means to realize these principles in practice, taking
shape all across the country. Many
States and local governments across the country 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.
The two SRFs
have proven themselves to be effective means to help local governments address
their needs. Now the task is to refine
them to facilitate and encourage the use of these State and local innovations
in every community in America. Indeed, your bill itself reflects the learning
about SRFs that went on between 1987 and 1996, by adopting for the Clean Water
SRF some of the innovations adopted in the Drinking Water SRF. It is important that communities have and
use all the necessary tools to close the gap before it widens, so the tools can
work together consistently and effectively in a fiscally sustainable way.
S.
1961, THE WATER INVESTMENT ACT of 2002
I would like now
to turn to S. 1961, the bill introduced by the Environment and Public Works
Committee leadership.
The
Administration shares the Committee=s goal of improving the Nation=s water quality
and has submitted a budget that will continue progress towards achieving that
goal by targeting non-point source pollution, the largest remaining
problem. However, the President clearly
defined his priorities in the State of the Union as defense and homeland
security. As the increased spending
called for in this bill is not consistent with those priorities, the
Administration does not support the funding levels contained in S. 1961. The Administration and Congress should look
for creative ways to help the water and wastewater industries meet their needs.
At this initial
stage of the Committee=s consideration of this bill, I will give the
Administration=s response to
some of the bill=s key approaches
and major components. We would also
like to take this opportunity to state the Administration=s support for
privatization incentives. On these, as
well as other provisions that this testimony does not specifically address, we
look forward to working with you and stakeholders during the Committee=s deliberations
in the weeks ahead.
Project
Eligibilities: On the Clean Water
side, the bill addresses project eligibilities, and clarifies that a broad
range of projects that would improve water quality under Clean Water Act
programs can be supported using the SRF.
We believe that the provision authorizing assistance for projects or
activities for conservation, reuse or recycling must be limited to those that
have primarily a water quality benefit, or substantial SRF resources could be
diverted to projects or activities whose primary objective and benefit does not
further Clean Water Act goals.
Capacity
Development/Priority List Funding:
The bill closely adapts for the Clean Water Act two important provisions
from the 1996 Safe Drinking Water Act Amendments, on capacity development and
SRF priority list funding, and adds asset management requirements in both Acts.
We believe that
this demonstrates once again the effectiveness and durability of the approaches
Congress adopted in 1996, and welcome the Committee=s use of the
SDWA model here. In order for water and
wastewater systems to achieve fiscal sustainability, these systems need
to: have long-term technical,
financial, and managerial capacity;
optimize the efficient operation and useful life of their capital
assets; and, direct funding to the highest priority projects needed to protect
public health and the environment.
In these
regards, S. 1961 moves in a generally positive and useful direction. As with any new approach, there are some
questions about how aspects of these capacity development and asset management
provisions would work in practice. Here
again, we want to work with you and stakeholders to share and learn from our
experiences with SDWA, and make sure that help in achieving these objectives
can reach those who will need it, especially in smaller communities.
Disadvantaged
Assistance: Regarding disadvantaged assistance, the bill
makes two major modifications. First,
it adds to the Clean Water SRF the disadvantaged community provisions enacted
for Drinking Water in 1996, enabling States to provide additional loan
subsidization, including forgiveness of principal, to such communities as
defined by the States. It also includes
in the Clean Water SRF the extended loan terms available to disadvantaged
communities under the Drinking Water SRF.
Second, it adds
to the laws governing both SRFs a new provision, authorizing States to provide
this additional subsidization to treatment works or public water systems which
are not disadvantaged, so long as the assistance agreement with the recipient
ensures that the subsidy will be directed to disadvantaged users within the
community. We want to work with you to
ensure that States or communities can use programs which are as effective as
user rate systems in directing these additional subsidies to needy users.
The bill=s provisions for
aid to disadvantaged users specify that up to 15 percent of capitalization
grants can be used for additional subsidies.
It is not clear whether this 15 percent is within the 30 percent limit
for disadvantaged communities or on top of it, as the bill=s provisions are
worded differently for the two SRFs. We
oppose making the 15 percent additional to the 30 percent limit in both
SRFs. Placing the 15 percent within the
30 percent would protect the availability of additional subsidies for
disadvantaged communities while giving the States flexibility to provide such
help to disadvantaged users as well.
The revolving
loan funds will always face the challenge of striking a balance between
important values -- of offering additional support for low-income residents,
small communities, and state programs on the one hand, and preserving the
corpus of the fund so it can assist communities far into the future on the
other. If new assistance to
disadvantaged users is added on top of the 30 percent, it would allow about
half of the capitalization grant to be removed before it ever enters the States= revolving
funds. This would undercut the funds= capacity to
serve as a viable resource for communities in perpetuity, and would disrupt a
vital balance that the Administration believes we must maintain. We would like
to collaborate with the Committee to achieve disadvantaged assistance
provisions that strike this important balance.
Loan Conditions: For both the Clean Water and Drinking Water
SRFs, the bill creates new provisions requiring several things of loan
applicants as a condition of project approval.
Taken together, these loan conditions are among the key provisions in
the bill, and the Administration supports the objectives behind them as
according with basic principles that should guide our infrastructure
revitalization efforts. At the same
time, we want to make sure that the conditions operate in ways that loan
applicants can learn to handle, and that the SRFs can continue to function to
provide the needed kinds of assistance.
One condition is
a requirement that prospective loan recipients consult and coordinate with
local, regional, or state agencies that may adopt land use, transportation, or
watershed plans. S. 1961 also requires
loan recipients: to develop and
implement asset management plans; to have plans to achieve rate structures that
reflect, as far as possible, the cost of service and include capital
replacement costs; and to consider, throughout preconstruction phases,
consolidation, partnerships, or alternative, nonstructural approaches.
We agree that
local governments should undertake, and States must supervise, management and
planning changes to ensure fiscally sustainable solutions. All of the studies indicate that the
potential gap in water and wastewater infrastructure comes largely from
replacement of aging pipes and O&M costs -- both, historically, a
responsibility primarily of local government (although pipe replacement is
eligible under both SRFs). Through its
loan conditions, S. 1961 encourages States and communities to look at water
quality problems and drinking water source water protection on a watershed
scale, and to adopt comprehensive strategies that integrate water management
into whatever planning for sustainable communities they may be doing. And, it creates incentives for service
providers to adopt best management practices to improve efficiency and
economies of scale, reduce the cost of service, and avoid future gaps, while
encouraging rate structures that cover costs.
These new
conditions on assistance to communities are among the most important
innovations in this legislation.
Promoting a comprehensive examination of all cost-effective tools and
options, on both the fiscal demand and supply sides, is key to building fiscal
sustainability. The Administration
believes that the potential gaps will become more manageable if these
conditions can be designed and implemented effectively.
Having said
that, we must all recognize that these new conditions are going to increase
substantially the level of effort required to obtain an SRF loan. We must make sure that these conditions are
framed in a workable way; that we provide a transition to the new conditions
that equips applicants to address them in a timely way; that those who need
special help in meeting the conditions can get it; and that small loans can
continue to be provided without a level of analysis that=s
disproportionate to the investment sought.
Here as elsewhere, we look forward to working with the Committee to
pursue these shared objectives in a practical manner.
SRF Fund
Transfer Authority: In
addition, the bill would make permanent the States= authority to
transfer funds between the Clean Water and Drinking Water SRFs. This is an important enhancement of State
flexibility to address their highest priority needs, and we welcome the
Committee=s proposal to
turn what began in 1996 as a short-term experiment into a well-established tool
to promote cost-effective investment.
Promoting
technology innovation: This strategy to
renew our water and wastewater infrastructure for the 21st century
puts a high premium on optimizing the efficient use of our current capital
assets and the new investments we must make.
That will require the use of innovative technologies for improved
services at lower life-cycle costs, which in turn means supporting research and
development on these innovative technologies and practices.
Substantial
reductions in life cycle costs are possible through the use of innovations such
as: (1) new construction and repair practices; (2) remote monitoring and
real-time control of water and wastewater systems; and (3) advanced sensors for
contaminants and structural integrity.
Research and development, in coordination with demonstration efforts, is
needed to assure that these and other advancements are available to community
decision-makers. We want to work with
the Committee on ways to promote this objective.
Legal Issues: EPA has legal concerns regarding two
provisions of S. 1961. On judicial
review, the provisions amending both Acts are written so broadly they could
prevent judicial enforcement of virtually all provisions of the SRF statute and
other applicable federal statutes as well.
On State water rights, one subsection essentially duplicates existing
language in the Clean Water Act, while the second raises several issues of
legal applicability and potentially problematic unintended consequences. However, we do recognize and want to work
with all interested members of the Committee to see that the underlying
concerns reflected in these provisions are addressed.
CONCLUSION
In summary,
notwithstanding our continuing concerns with the funding authorization levels
proposed in this bill, we appreciate the Committee's initiative in taking up
this important issue, and particularly in its efforts to build fiscal
sustainability in water and wastewater infrastructure. We look forward to continuing our
constructive participation in your efforts to refine this legislation. Thank you for the opportunity to present the
Administration=s views on this
bill. That concludes my prepared
remarks, and I would be happy to answer any questions.
* * *