\1\ The Water Environment Federation is a not-for-profit technical and educational organization with members from varied disciplines who work toward the WEF vision of preservation and enhancement of the global water environment. The WEF network includes more than 100,000 water quality professionals from 77 Member Associations in 31 countries.
\2\ See, generally, EPA Progress in Water Quality, June 2000 3 WEF has been active over the years in urging a renewed federal commitment to meet future wastewater and water infrastructure challenges. In 1999 the Association of Metropolitan Sewerage Agencies and WEF released the "Cost of Clean" identifying major total capital unmet needs over the next 20 years. In 2000, WEF, as part of the WIN coalition of drinking water, wastewater, municipal and state government, engineering and environmental groups called the Water Infrastructure Network (WIN), released the "Clean and Safe Water for the 21st Century" report which estimates a $23 billion a year funding gap between current investments in infrastructure and the investments needed over the next 20 years to meet Clean Water and Safe Drinking Water Act requirements. In February 2001, WIN released "Water Infrastructure Now", a series of detailed recommendations to Congress on how to close the infrastructure gap.
1) Are Reported Needs the Result of New Regulatory Requirements or the Need to Replace Aging Infrastructure?
The needs reported by the draft EPA gap study and the Water Infrastructure Network ("WIN") in the 2000 and 2001 WIN reports result from new requirements and the need to replace and rehabilitate infrastructure which were not quantified when Congress last reauthorized the Clean Water Act in 1987. 3
New requirements in this case mean new regulations or policies such as for combined sewer overflows, biosolids, and such water quailty initiatives as the Great Lakes. Additionally, it means new or revised water quality standards and treatment requirements adopted by states and approved by EPA under the Act or new treatment facilities needed to comply with water quality standards exceeding secondary wastewater treatment. It also reflects compliance actions by NPDES permitting authorities which have preceded the issuance of emerging regulations or policies for discharges from separate systems during wet weather events. Additionally, EPA is issuing new guidance on nutrients and other constituents and is proceeding to comply with court orders requiring total maximum daily load (TMDL) allocation which will have major fiscal impacts as they are implemented.
Drinking water costs from regulatory developments are also dramatic owing to the need for reliable facilities to protect public health, continuing additions of maximum contaminant levels for drinking water pollutants, and the costs associated with the protection of drinking water sources.
Aging water and wastewater infrastructure is occurring in three waves: infrastructure constructed (1) at the end of the 19th Century with a useful life of approximately 100 years, (2) following World War I with a useful life of approximately 70 years, and (3) after World War II with a useful life of approximately 50 years. Additionally, facilities constructed during the 1970s and 1980s will need some updating as the decade proceeds.
The cost impact of these regulatory developments and aging were not, and probably could not have been known in 1985 and 1986, when municipalities were completing basic secondary treatment facilities.
2) Why Aren't These Needs Being Met by Existing Financing Mechanisms? Are Water and Wastewater Utilities Unable to Raise Rates or Incur More Debt? Is There an Affordability Problem Everywhere? The magnitude of regulatory driven needs converging with the magnitude aging infrastructure is a principal basis for why a strengthened federal commitment is needed. Local governments generally are unable to meet the entire cost of these converging needs for two basic reasons. Primarily, local governments have been paying the overwhelming share -- over 90% -- of construction costs since the beginning of loans under the clean water state revolving funding program. Secondly, costs of other local government infrastructure and essential program priorities, some resulting from federal law, have increased.
Because of these wide ranging and converging needs, it can be said that affordability is a national problem. The true local impact of this problem is manifested on a site-by-site basis given the mix of water and wastewater system types, pollutants to be removed, ability to absorb rate increases, other infrastructure needs, and fiscal condition. All ratepayers regardless of location should benefit from federal funding. No community should be left behind. Local governments are doing their share and have made and will continue to make enormous efforts to address the affordability issue. Here are two examples.
A. Strengthening Local Utility Competitiveness
What is clear, and what is already accounted for in the WIN cost reporting is that local governments have been, and can be expected to continue, reegineering their utility management to bring significant operational cost savings to provide cost-effectively serve customers and meet competitive challenges. Since the middle of the last decade, WEF and the Water Environment Research Foundation (WERF) have implemented major programs to assist continuous improvement in water and wastewater utility management.
Improvements in local utility management including mergers and consolidations continue to be driven by overall costs, the need to better serve customers, and economies of scale and other market forces. Public utilities have an inherent customer advantage in that the are exempt from federal income taxes and enjoy financing advantages precisely because they have the inherent stability and the public interest to provide for public health and environmental protection. These public programs and market forces will continue. The federal government should strongly resist regulatory mandates favoring private for profit entities and should recognize those utilities which are excelling in providing cost-effective customer service through incentives.
B. Technology Advancements
The 2001 WIN report also takes account of improvements in technology for more cost-effective treatment, conveyance and management. During the past decade, the Congress through the Agency's annual appropriation bill has supported grant funding of some projects developing or demonstrating better science and technology recognizing the nationwide benefits of such projects. Primarily, however, national technology advancements have not benefited from the level of federal funding provided under the Clean Water Act in the 1970s and 1980s. WINow includes suggestions for renewing that level of effort in cooperation with water and wastewater utilities.
3) Why Aren't Existing Sources of Federal and State Assistance Helping Utilities Close the Gap?
Existing sources of federal assistance under the Clean Water and Safe Drinking Water Acts are provided in the form of state revolving loans (SRF) which must be repaid by ratepayers. Reduced interest rates are not sufficient to meet the magnitude of regulatory and aging infrastructure needs. Because they are loans with attendant federal administrative requirements, some local governments find it more advantageous to rely on traditional sources of municipal finance.
Additionally, States are reluctant to provide deeply reduced, zero or negative interest rates because such "grant equivalents" reduce the ability of state revolving funds to obtain adequate repayments to assure that SRFs actually revolve. It is critical here to note that infrastructure grants are contracts between the federal government and local government recipients. The Congress provides funding and the local and state governments are obligated to use that funding to achieve national goals and commitments such as for adequate highway and transit systems, and safe and adequate airports. These goals and benefits signify that grants are not a gift because gifts create no obligation on the part of the person or entity receiving the gift. The federal grant share represents the value of the improved infrastructure to national goals and commitments.
In addition, grants leverage greater state and local commitments. Federal grant funding is appropriate and reflects national purposes determined by Congress, in this case -- achievement of clean and safe water. Construction grants provide the financial, and policy, incentive to local governments to achieve this national goal. In other words, grants leverage the expenditure of local utility rate revenues by demonstrating that if the local matching share is not provided, the community will lose the federal grant amount provided in furtherance of the national goal. The national policy basis or benefits fundamentally underlying grant funding include:
* To assure that major levels of water and wastewater infrastructure construction move forward more quickly in response to a national goal;
* Increases in local fees are more likely to be accepted by ratepayers and the public if the failure to raise local funds would mean the loss of federal grant funds;
* The size of the clean and safe water infrastructure gap exceeds local resources to repay traditional bond financing or federally funded loans;
* To provide flexibility to state administration of a comprehensive funding program and to avoid reduction in the corpus of revolving loan fund programs through grant equivalents through reduced, zero or negative interest;
* To increase knowledge of the effectiveness and value of water and wastewater systems investments;
* To support innovation, stability and predictability of funding;
* To maximize the benefits of clean and safe water to localities, regions, states and the nation as a whole; and
* To provide fairness and equity of cost allocation and revenue generation across the national economy.
Finally, because grants are ultimately provided by the Congress they are a much stronger demonstration of national leadership.
4) Why Are EPA's Estimates of Infrastructure Needs Different From Estimates Advanced by the Water Infrastructure Network and Other Groups that Represent Water and Wastewater Utilities?
The various estimates indicate that the overall magnitude of clean and safe water needs for regulatory requirements and to rehabilitate aging infrastructure is significant and to a level which supports a stronger federal funding commitment to this national goal. The traditional EPA Needs Surveys for wastewater and drinking water include actual documented costs eligible for federal loans which are known to states and EPA, plus some modeled costs for wet weather purposes. The EPA clean water Needs Survey does not include the full level of stormwater management costs.
In addition, we understand that EPA is preparing an estimate of rural nonpoint source needs to install best management practices that is exceeded by clean and safe water infrastructure estimates by up to a factor of ten. This information is not included in the WIN report on core infrastructure needs and more information on nonpoint source is needed.
The WIN report and the draft EPA gap study include cost estimates that are very similar in level. WEF will to continue to work with WIN, the Congress, the Congressional Budget Office, and other stakeholders to determine a more precise number for the water and wastewater infrastructure need. However, time is of the essence, and all stakeholders agree the gap is large and is growing and needs to be addressed as a priority. WEF believes the WINow report is the best data available on the gap between what is being spent on water and wastewater needs and what needs to be spent over the next 20 years to protect public health and the environment. The report answers three basic questions regarding how Congress can provide a long term, sustainable, and reliable source of funding for clean and safe water. WEF strongly endorses the WINow recommendations and we briefly summarize these recommendations below.
A. How Much Should Be Funded by Congress? $57 Billion in new authorizations over the next five years is needed to jumpstart the safe drinking water and safe drinking water programs which have seen a drastic reduction in federal commitment over the past 20 years. After the initial five year infusion of federal financial assistance, WIN recommends Congress establish a commission to evaluate alternatives and recommend funding beyond 2007.
B. What Should Be Funded? Core water and wastewater needs should be funded including drinking water and wastewater treatment facilities, and wet weather collection and treatment. In addition water and wastewater systems should be eligible for assistance whether they are publicly or privately owned and/or operated as long as they provide water or wastewater services that are generally available to the public.
C. How Will the Program Be Administered? States should maintain their primary role in administering the next generation of water and wastewater financing programs. Building on the current SRFs, states would establish new programs of state water and wastewater infrastructure financing authorities (WWIFA's) to offer grants, loans, loan subsidies, and other financial assistance to public or private system operators.
Thank you for the opportunity to provide this statement to the committee. WEF and its members are prepared to further assist the Congress in addressing the water and wastewater infrastructure gap. We look forward to building on the successful local, state, and federal partnership that has achieved significant gains in public health and the environment.