Statement of

THE AMERICAN SOCIETY OF CIVIL ENGINEERS

for the

Oversight Hearing on Innovative Financing Techniques

For Wastewater Infrastructure Improvements

before the

Subcommittee On Fisheries, Wildlife, And Water

Committee on Environment and Public Works

U.S. Senate

October 31, 2001

Mr. Chairman and Members of the Subcommittee:

The American Society of Civil Engineers (ASCE) appreciates the opportunity to present this statement to the Subcommittee on Fisheries, Wildlife, and Water for its consideration during the oversight hearing on innovative financing techniques for wastewater infrastructure improvements.

ASCE was founded in 1852 and is the country’s oldest national civil engineering organization. It represents more than 125,000 civil engineers in private practice, government, industry and academia who are dedicated to the advancement of the science and profession of civil engineering. ASCE is a 501(c)(3) non-profit educational and professional society.

I. Infrastructure Problems

The American people value a strong working public infrastructure. Unfortunately, in many cases what they see are crumbling wastewater and drinking-water facilities and (sometimes) contaminated water supplies.

In March of this year ASCE released its 2001 Report Card for America’s Infrastructure. That assessment showed the nation’s infrastructure to be in alarmingly bad shape. The cumulative grade, covering 12 infrastructure categories, including drinking-water and wastewater treatment plants, was a D.

We attribute such a dismal grade to explosive growth in population that is outpacing the rate and impact of current investment and maintenance efforts and to the growing obsolescence of our nation's aging water infrastructure generally.

ASCE estimates that the United States needs to invest a staggering $1.3 trillion over the next five years just to meet current infrastructure demands. Virtually all federal spending on water systems, highways, and other aspects of the infrastructure is subject to annual congressional appropriations, and these appropriations have not come close to meeting funding needs in recent years.

Infrastructure, by its very nature, is a long-term investment. The current federal budget process is structured for short-term investment. This creates major problems in the planning, design and construction processes for long-term investments.

Generally, we believe that a federal capital budget could create the mechanism to help reduce the constant conflict between short-term and long-term needs. Without long-term financial assurance, the ability of the federal, state and local governments to do effective infrastructure investment planning is constrained severely.

ASCE supports the establishment of a federal multi-year capital budget for all public works infrastructure construction and major rehabilitation, similar to those used by state and local governments. The capital budget must be separated from non-capital federal expenditures.

Moreover, ASCE supports the creation of a "Clean Water Trust Fund" that would support clean water, drinking-water and nonpoint-source-related infrastructure projects throughout the country. Congress should reauthorize the Clean Water Act to provide adequate funding based on construction needs and compliance schedules

We turn now to the matter of innovative financing methods for all infrastructure improvements generally, including wastewater treatment plants and their related facilities.

II. A Unique Solution: H.R. 1564

Representative Dennis Kucinich (D-Ohio) and Representative Steve LaTourette (R-Ohio) have developed what we believe to be a unique funding solution to the nation’s infrastructure crisis. They have proposed legislation that would make money available from the Federal Reserve Board to invest in state and local infrastructure.

Let us describe the Kucinich-LaTourette plan briefly.

The bill, H.R. 1564, Rebuilding America’s Infrastructure Act of 2001, would fund capital projects undertaken by state and local governments. It would use existing funds to create a stable, long-term source. This is how it would work:

! The Federal Reserve System holds a large amount of Treasury securities in order to add liquidity to the monetary system. The KucinichBLaTourette bill would transfer a portion of those securities to a new bank, the Federal Bank for Infrastructure Modernization, the FBIM.

! The FBIM would act as a subsidiary bank, using the transferred funds to issue loans. Since the mortgages would be integrated by the central bank’s Federal Open Market Committee (FOMC), the Federal Reserve would be better able to maintain economic stability. More importantly, no congressional appropriations would be necessary.

! The bill would authorize FBIM loans to any state or local government, any Native American tribe, or any regional or multistate organization to fund certain types of capital infrastructure projects dealing with transportation, education, water, or hazardous waste.

! The FBIM would be authorized to offer approximately $50 billion annually in loans over a period of 10 years. Thus, $500 billion would be lent out during the initial authorization of the FBIM.

The Federal Reserve’s FOMC would direct the issuance of the loan amounts each year so as to integrate the FBIM’s operations with its own. The FOMC would be able to vary the $50 billion dispersal if it decided that the economy needed a boost.

This money would have a greater effect on the economy than a lowering of interest rates, which does no more than create an incentive to invest. Loans from the FBIM would represent actual investments and thus would have a direct effect on the economy. The FOMC would need to maintain some control over these funds so that it could vary the amounts available each year in response to economic conditions.

By providing zero-cost loans to states to fund infrastructure projects, the Kucinich-LaTourette bill would help slash the cost of infrastructure projects in half, making them much more affordable.

States would also be able to make decisions about which projects would be eligible for funding under the bill. At least 20 percent of the total amount of loans would have to be invested in schools.

Loan allocations would also be based on population. Additionally, the loans would have to be paid back in 10 to 30 years, and each loan would bear an administrative fee of 0.25 percent.

All infrastructure projects financed under the new law would first have to be approved by a state certifying officer or, in the case of a regional project, by an officer from each of the states involved before the FBIM could clear a loan. In the case of Native American tribes, the Secretary of the Interior would have to give her approval.

Finally, it should be noted that the funds made available through the FBIM would not be subject to the annual congressional budget and appropriations processes. The money would be paid out directly to the qualified agencies from the Federal Reserve, thereby having no consequences for federal budget surpluses or deficits.

Mr. Chairman, that concludes our statement. Thank you again for your courtesy in hearing our proposals. If the Committee has any questions, please contact Michael Charles of our Washington Office at (202) 789-2200.

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