Testimony
by Jerry Johnson, General Manager
District
of Columbia Water and Sewer Authority
on
behalf of the
Association
of Metropolitan Water Agencies
before
the
Subcommittee
on Fisheries, Wildlife and Water
Committee
on Environment and Public Works
United
States Senate
on
S.
1961 - The Water Investment Act of 2002
February
28, 2002
Good
afternoon, Mr. Chairman, members of the subcommittee.
My
name is Jerry Johnson, and I'm the General Manager of the District of Columbia
Water and Sewer Authority. I'm
testifying today on behalf of the Association of Metropolitan Water Agencies
(AMWA). AMWA is a nonprofit
organization representing the nation's largest publicly owned water
agencies. These large systems provide
drinking water to approximately 110 million people from Anchorage, Alaska to
Miami, Florida.
The
DC Water and Sewer Authority provides retail water services to residents and
businesses in the District of Columbia and parts of Virginia. WASA also provides wastewater treatment for
the District of Columbia, portions of Montgomery and Prince Georges counties in
Maryland and Fairfax and Loudon counties in Virginia as well as the town of
Vienna, Virginia. WASA's Blue Plains
Wastewater Treatment Plant, located in South West Washington, is the largest
advanced wastewater treatment facility in the world.
Thank
you for introducing S. 1961, the Water Investment Act of 2002, which is the
first legislation to increase the federal investment in drinking water
infrastructure since the 1996 amendments to the Safe Drinking Water Act.
The
association believes the bill takes a major step in the right direction, by
proposing to triple the authorization of the Drinking Water State Revolving
Fund (SRF). While the needs of drinking
water agencies over the five-year period covered by the bill are nearly $60
billion, the bill's proposed authorization, if enacted and appropriated, would
fund hundreds of projects to ensure safe drinking water for decades to come.
Assistance to
Metropolitan Water Agencies
Like
current law, the bill's main focus is to help drinking water systems comply
with the Safe Drinking Water Act. The
bill also reinforces the Drinking Water SRF's support of small water systems,
through the capacity development program, restructuring assistance, technical
assistance and, most importantly, a 15-percent set aside for small
systems. (Some states make loans to
large water systems to ensure the funds revolve, especially where small systems
are not prepared to apply for assistance.)
AMWA
would like the subcommittee to consider ways to help metropolitan water
agencies with replacing aging infrastructure.
(Metropolitan water agencies serve the nation's larger communities.) To get a sense of the needs facing
metropolitan water agencies, consider this:
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]. Nationwide, the needs of metropolitan water
agencies are much higher. Yet 31 states
provided no assistance to metropolitan water agencies in fiscal year 2001. If the proposed authorization in S. 1961 is
appropriated, states will have more money to lend to metropolitan water
systems, but higher authorizations and programmatic changes are necessary,
too.
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.
Therefore,
AMWA recommends 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 the billions of dollars needed to
replace 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.
Security
The
capital needs facing water systems to make their facilities and consumer more
secure are likely to run into the billion of dollars, and AMWA believes the
Safe Drinking Water Act should specifically authorize Drinking Water SRF
assistance for capital projects related to security. EPA guidance to states indicates these projects are eligible for
funding, but something more substantial, namely legislation, is needed to show
Congressional intent to allow such assistance.
Rate Structure
and Asset Management
Among
the new requirements established by S. 1961 are implementation of responsible
rate structures and asset management plans.
These practices embody those commonly used in metropolitan water
agencies today. For instance, WASA has developed a comprehensive, ten year capital improvement
program that totals $1.6 billion, of which approximately $505 million is
attributable to drinking water infrastructure projects. Since its creation in 1996, WASA has raised
its rates by 52 percent. Over the next
ten years, WASA projects that it will need to raise its rates by 5 to 7 percent
annually, due primarily to infrastructure upgrade and replacement needs.
In
addition, WASA has an asset management plan to ensure capital is available for
future upgrades, and, like most large water systems, the authority complies
with the general accounting standards for state and local government known as
GASB 34.
These
concepts are nothing new to metropolitan water systems. Maintaining our bond ratings and accessing
capital in open market necessitate our adherence to these good practices.
For
these reasons, AMWA applauds the sponsors of S. 1961 for highlighting them, and
AMWA encourages the subcommittee to maintain these best practices as ideals and
provide the opportunity for utilities that have not yet adopted them to do
so. There are a wide variety of equally
reasonable approaches to defining the full cost of service and responsible
asset management, and these areas are not in the realm of state environmental
agencies or the U.S. EPA, both of which would have to develop rules or guidance
and criteria for enforcement and compliance.
Rate design is a particularly complex issue. For instance, consider the possibility that charging the full
cost of service, covering all federal and state regulations and replacement of
aging infrastructure, could put rates far beyond U.S. EPA's affordability criteria.
AMWA
urges the subcommittee to avoid a situation in which the states or U.S. 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, thus undermining the purpose of the program.
Consultation
with State Planning Agencies
AMWA
appreciates S. 1961 highlighting the importance of coordinating planning
decisions with relevant state planning agencies, but the association is
concerned that a federal requirement to consult these agencies may be
burdensome or may intrude on the domain of local government. Metropolitan water agencies are naturally a
part of local land use planning efforts, and consulting and coordinating with
the appropriate bodies is standard practice.
Consolidation,
Partnerships and Nonstructural Alternatives
AMWA
applauds the bill's sponsors for emphasizing 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.
An
excellent example is the Contra Costa Water District, a metropolitan system in
California. Contra Costa is working
with other local water entities in a variety of partnerships, ranging from
providing less costly water supplies to cooperation in obtaining new supplies
and developing needed infrastructure.
One Contra Costa partnership with a local water system will save more
than $7 million over the cost of separate solutions. Another Contra Costa partnership, involving three agencies,
provided an alternative water supply that will save up to $13 million. In a third, 10 water and sanitation agencies
joined to conduct a water supply and infrastructure study that focused on the
region, thereby providing a more beneficial plan for the region as a whole.
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 or loan forgiveness 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.
Public-Private
Partnerships
Among
the partnerships water systems would be required to consider under S. 1961 are
public-private partnerships. These
could include design-build solutions, contract management or other forms of
privatization.
Whether
a water agency specifically considers public-private partnerships 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 look into public-private partnerships more closely before so
strongly endorsing them. Privatization
can be a very contentious issue in communities and worth a full exploration
before legislated by Congress.
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?
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?
Members
of the subcommittee, AMWA is not here today to oppose private-public
partnerships. Many drinking water utilities
have entered into such arrangements for a variety of purposes. It is another matter, however, to sanction
these arrangements and make consideration of public-private partnerships a
requirement in federal law.
AMWA
is simply urging the subcommittee to look into public-private partnerships more
closely before endorsing them.
Legislating privatization may not be in the public interest.
Procurement
Requirements
Section
205 of the bill proposes imposing on drinking water agencies 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 for today, and AMWA
urges the subcommittee to drop those provisions from the bill.
Rate Study and
Water Resource Planning Studies
Among
the provisions of Title III is a study on rates, affordability and how to
define disadvantaged communities. Rate
setting is a very difficult process and many water systems will appreciate
assistance. Information on determining
affordability and disadvantaged communities will be very beneficial, too. AMWA believes that U.S. EPA's current affordability
criteria in many states does not fully capture the conditions that create
disadvantaged communities. Most states
determine whether a community is disadvantaged by looking at median household
income and, sometimes, water rates. A
more well-rounded analysis would consider additional facts such as: the number of people living below the
poverty level, inflation and the loss of a tax base.
Title
IV contains provisions for a study (and periodic update) of the nation's water
resources. The study and the updates
will provide a wealth of information that will help federal, state and local
government make well-informed decisions.
We applaud the sponsors' appreciation of water resource shortages.
Again,
thank you for introducing the Water Investment Act of 2002 and for the
opportunity to provide testimony on it.