Good morning Mr. Chairman. I am Howard Neukrug, Director of the Office
of Watersheds for the Philadelphia Water Department in Pennsylvania. The Philadelphia Water Department is a
municipal water, wastewater and storm water utility serving over two million
people in the Philadelphia metropolitan area.
I serve as the Chair of the American Water Works Association (AWWA) Water
Utility Council (WUC). I am here today
on behalf of AWWA. AWWA appreciates the
opportunity to present its views on S.1961, Water Investment Act of 2002 and
drinking water infrastructure needs.
Founded in 1881, AWWA is the world's largest and oldest
scientific and educational association representing drinking water supply
professionals. The association's 57,000
members are comprised of administrators, utility operators, professional
engineers, contractors, manufacturers, scientists, professors and health
professionals. The association's membership
includes over 4,300 utilities that provide over 80 percent of the nation's
drinking water. AWWA and its members
are dedicated to providing safe, reliable drinking water to the American
people.
AWWA utility members are regulated under the Safe Drinking
Water Act (SDWA) and other statutes.
AWWA believes few environmental activities are more important to the
health of this country than assuring the protection of water supply sources,
and the treatment, distribution and consumption of a safe, healthful and
adequate supply of drinking water.
AWWA and its members commend you for introducing S.1961
to address the growing needs facing public water systems and their customers in
the coming years. In previous testimony
before this committee last year and in our report entitled Dawn of the
Replacement Era: Reinvesting in Drinking Water Infrastructure, that we
provided to all members of the Committee, AWWA called for a new partnership for
investing in drinking water infrastructure.
AWWA recommended changing and expanding the existing Drinking Water
State Revolving Fund to significantly increase federal funding for projects to
repair, replace, or rehabilitate drinking water infrastructure to include the
aging distribution pipes. We are pleased that many of our recommendations have
been incorporated into S.1961. We
appreciate the time and consideration given to drinking water suppliers by the
committee staff in the drafting of this bill.
AWWA looks forward to working with the committee to continue making improvements
and to see this bill passed and signed into law this year. In our testimony today, we will confine most
of our specific comments to the Safe Drinking Water Modifications in Title II
of the bill, with a general comment about wastewater funding issues.
FEDERAL
MANDATES AND THE CONTEXT FOR WATER AND WASTEWATER FUNDING ISSUES
Both drinking water and wastewater utilities face
enormously expensive federal mandates that set the context for all other
funding issues. The drinking water
community faces a complex array of expensive new federal requirements and new
standards, including standards for arsenic, radon, disinfection byproducts,
enhanced surface water treatment, and others.
Wastewater utilities also face enormously expensive federal mandates,
such as those relating to Combined Sewer Overflows (CSO) and Sanitary Sewer
Overflows (SSO). For both water and
wastewater utilities, these needs significantly skew financing for other
investments, including the replacement of aging pipes, appurtenances, and other
infrastructure. Local ratepayers are
often seriously challenged to pay for these mandates, and little, if any, room
is left in the ratepayer's budget for other vital spending. In many cases, it appears that mandatory
spending for clean water mandates has “driven out” the ability to raise rates
for drinking water services.
We believe that significant federal assistance,
including grants, is necessary and justified to help meet the cost of these
very expensive federal mandates on water and wastewater utilities, and to meet
the costs of infrastructure repair and replacement that have been, in many
cases, deferred because federal mandates have consumed the ratepayer’s budget.
We would point out that, in the case of CSO and SSO
mandates, federal support for the cost of those requirements is not only
justified in the community receiving federal support, it also lowers costs for
drinking water utilities downstream in the form of improved water quality. This is especially true in critical source
water protection areas.
DWSRF
AUTHORIZATIONS
AWWA applauds the increase in authorizations for the
Drinking Water State Revolving Fund (DWSRF) capitalization grants from the
current $1 billion per year to $6 billion dollars per year in fiscal year 2007.
This represents more than a three-fold increase in total authorized funds above
the current authorized levels for this period of time. We believe that this authorization marks a
significant step by Congress towards assisting in the enormous challenge public
water systems and their customers face in meeting federal mandates and at the
same time replacing aging distribution pipes in the coming years. As illustrated in AWWA's report entitled Dawn
of the Replacement Era: Reinvesting in Drinking Water Infrastructure, the
"demographics" of pipe replacement is real, it is big, and the bill
is coming due soon. This challenge is
exacerbated by population shifts and growth patterns over the years, economic
conditions and the changed demographics of urban populations. While AWWA certainly appreciates the
significant increase in federal funding for the DWSRF, we must note that the
authorization is a very small fraction of the $250 billion in infrastructure
replacement needs identified by AWWA.
And even if every penny of the funds in this bill is appropriated and
every state gives out loan subsidies to the maximum extent allowed under the
bill, federal loan subsidies will amount to less than four percent of total
spending by drinking water utilities over the coming five years. It is clear that the burden of paying for
public water system improvements will remain overwhelmingly with utilities and
their rate-paying customers.
In recognition of these facts, we believe that, if the
needs of older cities with large economically disadvantaged populations are to
be met, an increase in the authorization is warranted. The Water Infrastructure Network has
recommended an authorization of $57 billion over five years, and we ask you to
consider that level of funding. We look
forward to working with the committee to ensure that authorization levels will
be adequate to address the needs of older cities with economically
disadvantaged populations.
LARGE
PUBLIC WATER SYSTEMS
AWWA does not believe that S.1961 adequately addresses
the challenges presented by large urban public water systems and particularly
those with declining and economically disadvantaged populations. In Section 203, the bill authorizes up to
fifteen percent of a state capitalization grant to be used for subsidizing the
water bills of economically disadvantaged customers. AWWA believes that is a significant step forward for the
nation. However, during the short
history of the DWSRF, large public water systems have not been receiving a fair
share of SRF loans. According to EPA,
states have made approximately seventy-five percent of all SRF loans to small
communities. In per capita terms,
assistance to very small communities has averaged over $400, while loans to
large communities (with over 100,000 people) have averaged a little over $50
per capita.
Committee staff has told AWWA that they believe that
the overall increased authorization for the DWSRF will provide states the
ability to provide assistance for more projects and thus be able to provide
more assistance to large public water systems than was possible
previously. AWWA is not convinced that
the authorization levels in this bill are sufficient to ensure this will
happen.
Current law mandates that fifteen percent of a state
capitalization grant shall be reserved for small systems serving populations
under 10,000 to the extent that such funds can be obligated for eligible
projects. AWWA supported that set-aside
in 1996, to ensure that small systems could participate in the loan
program. We did not anticipate that
large systems would be left out of the program, relatively speaking, and there
is no corresponding set-aside for large public water systems serving
populations over 100,000. As noted, the
bulk of DWSRF funding is going to small systems. To assure that systems of all sizes can participate in the SRF
program, AWWA believes that a corresponding set-aside of fifteen percent of a
state capitalization grant should be reserved for public water systems serving
a population of 100,000 or more, assuming there are eligible project
applications. This will ensure that
large system can participate in the DWSRF program in all States.
ELIGIBLE
PROJECTS
Aging
Infrastructure: As mentioned in the
introduction in the AWWA report entitled Dawn of the Replacement Era:
Reinvesting in Drinking Water Infrastructure, AWWA recommended changing and
expanding the existing Drinking Water State Revolving Fund to significantly
increase federal funding for projects to repair, replace, or rehabilitate
drinking water infrastructure to include the aging distribution pipes. This, we believe should be the major purpose
of the increased DWSRF authorizations.
However, S.1961 makes no mention of this purpose for the DWSRF. In discussions with committee staff, the
staff notes that the U.S. Environmental Protection Agency (USEPA) has
interpreted the current provisions of the Safe Drinking Water Act (SDWA) to
authorize the use of DWSRF funding for the replacement and rehabilitation of
aging distribution pipes as furthering the health protection objectives of the
SDWA as authorized in Section 1452 of the Act.
While this interpretation of the SDWA is welcome, it is not universally
accepted. Nor does it signal EPA and
the states that the Congress believes repair and replacement of aging infrastructure
is an important priority. AWWA
recommends that the DWSRF eligibility of projects for the replacement and
rehabilitation of aging distribution system pipes and appurtenances be made
explicit in the statute.
Security
Upgrades: Since September 11, 2001, AWWA has been
advocating for federal assistance for public water systems to help pay for
security upgrades to protect public water systems from terrorist attack. Since that time events have validated this
concern, and water utilities are undertaking comprehensive vulnerability
assessments and emergency planning to protect both water quality (for health
protection) and water supply (for fire suppression and sanitation). Of note are documents found in the
possession of al Queda terrorists in Afghanistan that could be used to help
plan an attack on a drinking water utility.
Security concerns thus represent a large, immediate, and unprecedented
cost for public water systems. AWWA
strongly recommends that bill make explicit the DWSRF eligibility of capital
projects to address security concerns.
In discussions with committee staff, staff notes that
the U.S. Environmental Protection Agency (USEPA) has interpreted the current
provisions of the Safe Drinking Water Act (SDWA) to authorize the use of DWSRF
funding for security upgrades as furthering the health protection objectives of
the SDWA as authorized in Section 1452 of the SDWA. While this interpretation of the SDWA is welcome, it rests on
interpretation and is subject to change.
Moreover, it does not signal that Congress believes capital projects to
address security concerns should be priority projects for DWSRF funding. We strongly recommend that congress send
that signal to both EPA and the states.
Source
Water Protection. We
applaud the provisions of the bill that authorize the use of DWSRF monies to
support source water protection projects.
It is increasingly important to consider source water protection as an
integral part of utility resource planning, and to do so on a watershed basis. Many utilities have been in the forefront of
doing this, and the ability to use DWSRF funds to support source water
initiatives can be of significant assistance in those efforts.
AWWA endorses the intent of Section 203 concerning
additional subsidization for disadvantaged users. AWWA believes this is a significant step forward to address the
affordability of drinking water for economically disadvantaged drinking water
customers. AWWA remains committed to the principle that utility operations
should be fully supported by rates in the long run. This provision will enable a public water system to charge higher
rates if they are appropriate, without placing an unacceptable burden on economically
disadvantaged customers.
However, we believe it is important to ensure
maximum flexibility in how this provision is carried out. Many public water systems currently provide
some form of rate subsidy for their economically disadvantaged customers. This is done in a variety of ways. AWWA wants to ensure that this flexibility
remains, and that no public water system is mandated to create a bureaucracy to
administer what is essentially a social welfare program that is beyond the
capability and expertise of most public water systems. Many public water systems contract with a
third party, such as a community service organization, to administer their rate
subsidy programs. AWWA recommends that
Section 203 be amended to clarify that a public water system has flexibility in
how to meet this requirement, including contracting with third party
organizations.
NEW
DWSRF LOAN REQUIRMENTS
AWWA has recommended streamlining many of the
requirements and procedures for obtaining loans from the DWRSF. With respect to the bill, we believe careful
attention is required to strike an appropriate balance between Congress’ desire
to encourage certain behaviors at utilities, and the need to keep the SRF as
unencumbered as possible by unproductive red tape. Congress or EPA should exempt certain types of projects or
projects below a certain size threshhold from SRF red tape requirements that
don’t make sense. For example, under
current law SRF funds may not be used for growth. In a project that is not directed at (and with certain very tight
exceptions cannot even anticipate) growth, it is not clear why it makes sense
to require consultation with regional transportation planners, etc. A requirement to do so simply makes the
whole notion of SRF funding less attractive for that project, without advancing
any reasonable social goals. Similarly,
capital investments to improve the security of the nations’ drinking water
should be exempt from "red tape" to the maximum extent possible. We
believe that Section 202 requires significant review with this in mind.
Planning
and Engineering Phase Requirements: AWWA
recommends deleting the requirements identified for consideration during the
planning and engineering phase of SRF projects. These are inappropriate federal requirements for a DWSRF
loan. If a public water system is
otherwise financially sound, can repay the loan, and can comply with applicable
drinking water regulations, these requirements are irrelevant and an additional
burden to obtaining a loan. The federal
requirement to consider consolidation, public-private partnerships and the use
of non-structural alternatives or technologies is redundant to State
requirements in most cases. AWWA
believes that public-private partnerships are an appropriate utility management
option; however, this is a local decision based on local circumstances. These requirements involve local planning
and open the door for inappropriate federal involvement in local
decisions. These provisions add nothing
to improving or streamlining the DWSRF and are an invitation to federal one-size-fits-all
requirements.
Rate
Structure Requirements: AWWA remains committed
to the principle that utilities should be self sustaining through their
rates. In the long run, the objectives
must be to manage the costs of replacing pipes and treatment plants and ensure
financial sustainability through local rate structures. However, AWWA wishes to ensure that the
provisions of S. 1961 do not lead to inappropriate federal involvement in local
rate setting. Particularly in light of
the enormously expensive federal mandates mentioned earlier, there are cases in
which recovering the full cost of service through rates may not be possible in
the short term at rates that are acceptable and affordable. We recommend that public water systems
review their rates as a condition a DWSRF loan. After the National Academy of Sciences report on rates (as
required in Section 303 of the bill) is published, USEPA should provide the
report to States and drinking water utilities.
AWWA would strongly oppose any requirement that would involve the
federal government in reviewing or approving drinking water rates.
Asset
Management: AWWA advocates that public water systems
have an asset management plan as part of good utility management. However, it is important to ensure that the
provisions of S. 1961 do not lead to federal micro-management, such as review
or approval of these asset management plans.
One way to accomplish this is to make the provision a "self
certification" requirement with no USEPA or State role in judging the
method by which the asset management plan was developed or its adequacy.
Local
Planning Requirements: AWWA believes that this provision requires
clarification as to what is intended and how the provision would be
implemented. It appears to only require
consultation in “appropriate” circumstances but it’s not clear who determines
what is "appropriate.” Moreover,
as noted above, many projects for which utilities might seek SRF support are
not likely to be connected in any meaningful way to growth or open space
considerations. At a minimum, those
projects should be exempted, and for other projects, the requirement should be
satisfied by a certification that utility has consulted with other local
agencies as it deems appropriate.
COMPETITION
REQUIREMENTS
AWWA recommends that Section 205 concerning
competition requirements be deleted from the bill. The provision appears to come from the old construction grants
program of the Clean Water Act and has no place as a federal mandate for a
drinking water loan program. This
provision that governs utility procurement would get the federal government
into local procurement decisions. The
provision is redundant because every States already has procurement procedures
in effect. Rather than streamlining the
DWSRF, this provision is an unnecessary encumbrance on the DWSRF that we cannot
endorse.
RESEARCH
AND DEMONSTRATIONS
S.1961 includes several provisions relating to
research and demonstrations, including the demonstration program in Section
302, the rate study in Section 303, and the water resource planning provisions
of Section 401. We believe it is
critical that the public water supply community be substantially involved in
planning and carrying out those sections of the bill to ensure that the
research is relevant, credible, and coordinated with other drinking water
related research efforts. The American
Water Works Association Research Foundation (AwwaRF) is the internationally
recognized research organization of the drinking water community. With over $37 million in federal support
over recent years, the AWWARF has leveraged almost $260 million in total
research on both technical and policy issues facing drinking water
utilities. AWWARF should select and
manage several of the demonstration projects under Section 302, carry out the
rate study under Section 303, and have substantial involvement in the water
resources study under Section 401.
CONCLUSION
How we address our
emerging drinking water infrastructure needs is a critical question facing the
Nation and this Congress. America
needs a new partnership for reinvesting in drinking water infrastructure. There are important roles at all levels of
government.
AWWA does not expect
that federal funds will be available for 100 percent of the infrastructure
needs facing the nation's water utilities.
However, AWWA does believe that due to concurrent needs for investment
in water and wastewater infrastructure, security projects, replacement of
treatment plants, new drinking water standards, and demographics, many
utilities will be very hard pressed to meet their capital needs without some
form of federal assistance. Over the
next twenty years, it is clear that Safe Drinking Water Act (SDWA) and Clean
Water Act (CWA) compliance requirements and infrastructure needs will compete
for limited capital resources.
Customers are likely to be very hard pressed in many areas of the
country. Compliance and infrastructure
needs under the SDWA and CWA can no longer be approached as separate
issues. Solutions need to be developed
in the context of the total drinking water and wastewater compliance and
infrastructure needs.
AWWA believes that S.1961 is an appropriate first step
to achieving these goals. In our
testimony we have made recommendations that we believe will improve the
bill. AWWA pledges to work with
Congress to develop a responsible and fair solution to the Nation’s growing
drinking water infrastructure challenge.
We thank you for your consideration
of our views.
____________________________________
This concludes the AWWA statement
on S.1961, Water Investment Act of 2002. I would be
pleased to answer any questions or provide additional material for the
committee.