Testimony of Paul Pinault
Executive Director,
Narragansett Bay Commission
on behalf of the
Association of Metropolitan
Sewerage Agencies
Good morning Chairman Graham, Senator Crapo and members of
the Subcommittee, my name is Paul Pinault. I am Executive Director of the
Narragansett Bay Commission ("the Commission") in Providence, Rhode
Island and Vice President of the Association of Metropolitan Sewerage Agencies
(AMSA). AMSA represents the interests of more than 260 publicly owned treatment
works (POTWs) across the country. AMSA's members treat 18 billion gallons of wastewater
every day and provide service to the majority of the United States' sewered
population. On behalf of AMSA and the Commission, I thank you for this
opportunity to address your Subcommittee.
Adequate financial resources to states, cities, and communities
like mine are the most essential element to maintaining our nation's water and
wastewater infrastructure. The Clean Water Act (CWA) amendments of 1987 created
a new phase of clean water funding by replacing the federal Construction Grants
Program with the Clean Water State Revolving Fund Loan Programs (SRF). Since
1980, according to studies by both the U.S. Environmental Protection Agency
(EPA) and the private sector, federal contributions have declined by 75 percent
in real terms and today represent only about 10 percent of total capital
outlays for water and wastewater infrastructure and less than 5 percent of
total water and wastewater outlays. Local governments currently assume more
than 90 percent of water infrastructure construction costs in the form of
expensive bond issuances - municipal debt - and increased water and sewer
bills.
This hearing addresses what wastewater utilities, and state
and local governments are doing to maximize limited federal funding for water
and wastewater infrastructure improvements and what role the federal government
should play in ensuring the nation's infrastructure. I assure you that
wastewater utilities must be, and are being, extremely innovative in order to
get the most out of the limited dollars available. This testimony will address
both what the Commission is doing, what AMSA and wastewater utilities are doing
nationwide, and what the federal government can do to ensure that funding
levels are sufficient to meet infrastructure needs.
The Narragansett Bay Commission has had a positive
experience with its state loan program and has made significant use of the
monies Congress has appropriated to the SRF. The Commission owns the two
largest wastewater treatment facilities in Rhode Island. Field's Point was
originally built in 1901, and Bucklin Point in 1952. The Commission assumed
ownership and operations of both facilities by order of the Rhode Island
General Assembly in 1982 and 1992 respectively.
The Commission has borrowed approximately $72.3 million from
the SRF since the Commission's inception in 1980, enabling us to fund a
significant portion of our sewer system projects. The Commission is the largest
borrower from the Rhode Island Clean Water Finance Agency, which administers
the SRF. Field's Point required over $100 million in upgrades, a majority of
which was funded by statewide general obligation bonds.
In 1986, the Commission's debt service as a percentage of
total operating budget was 19 percent; in 2002, it will be 22 percent, and in
2006, it is projected to be 54 percent as a result of $350 million in planned
capital projects over the next five years, including construction start-up
costs on the first phase of our three-phase federally mandated combined sewer
overflow (CSO) project. Phase I is estimated at $250 million and the total
project budgeted at $550 million over next 20 years. While it is daunting to
think that 54 cents of every dollar the Commission receives will go for debt service
rather than operations, without the SRF, that number would be much higher.
The Commission has used the SRF to partially fund projects
including sewage receiving facilities, pump station rehabilitation and repairs,
facilities planning, and solids handling facilities. Future projects that will
require federal funds include a $60 million upgrade at the Bucklin Point
Wastewater Treatment Facility to improve capability for nutrient
removal/reduction and the $250 million Phase I for CSO controls.
I should fully clarify that these capital funding needs are driven
by the dual forces of aging infrastructure and increasingly stringent
environmental regulations, not operational costs. The Commission and its fellow
AMSA members around the country have a six-year documented record of reducing
operational costs. However, no amount of operational streamlining or
belt-tightening can offset the cost of replacing critical clean water
infrastructure.
As we plan for the future, we believe that the Rhode Island
Clean Water Finance Agency will need more money and a greater array of
financing mechanisms to meet the Commission's needs, as well as the needs of
the other 17 wastewater treatment facilities in the state - the three largest
of which face very expensive nutrient removal projects - and the state's
drinking water projects. If the SRF is underfunded and unreformed, the
Commission will be forced to borrow at daunting market rates to accomplish
these important projects.
An important part of the funding equation is the cost that
users pay for services. I want to stress to the Committee that The Commission's
ratepayers have been paying their fair share of the cost of the services
provided. However, it is becoming increasingly clear that our ratepayers cannot
sustain additional, substantial rate increases. Twenty-two percent of
households in the Commission service area fall under the federal poverty line;
15 percent of the Commission's service area population are over 65 years of age
and, most likely, on a fixed income; and 65 percent of children at or below the
poverty line in Rhode Island live our service area.
In January of this year, the Commission raised its rates by
25 percent. This rate increase was driven primarily by the Commission's need to
increase its debt capacity to pay for the CSO project. We will have to apply to
the Rhode Island Public Utilities Commission again shortly for additional rate
increases to meet growing debt capacity needs. For our demographic group, these
increase~ represent substantial financial hardship-well in excess of the 2
percent median household income affordability levels set by the U.S.
Environmental Protection Agency (EPA).
I want to reiterate that the Narragansett Bay Commission has
been fortunate in that it has been able to access Rhode Island's state loan
fund to help us finance our water infrastructure needs. Unfortunately,
impediments such as cumbersome program administration requirements and limited
leveraging of state monies to maximize the capacity of the program have
prevented many wastewater utilities from having similar experiences. It is
clear that based on current and future infrastructure needs, the SRF program is
not-and will not be-adequate to ensure continued compliance with our nation's
water quality goals.
Again, municipal debt comprises 90 percent of water
infrastructure construction costs, which includes compliance with federal
regulations. Debt management offers a case-in-point of the innovations that
wastewater treatment plants employ, as public officials rise to meet the
funding challenge. To make municipal bonds as effective a source for generating
income as possible, municipalities are increasingly involved in "pooled
borrowing." Pooled borrowing is a bond issuance mechanism in which several
municipalities join together and, instead of issuing bonds individually, issue
a single bond. By doing so, these municipalities can ensure both a slightly
better interest rate and, more importantly, a significant reduction in issuing
costs. These activities can result in both short-term and long-term savings.
Additionally, many local utilities structure and restructure
their debt to achieve low cost, low risk debt and to minimize debt service
costs over the long-term. This often involves a delicate balancing act between
reducing an agency's debt reduction in the near term for somewhat increased
debt service costs in the future. This must be done while ensuring that
ratepayers' costs remain stable and the environment fully protected. Some local
governments have moved to longer term - 30 and 40 year - debt plans that help
reduce annual payments.
Public Agency Management Innovations: Minimize Costs
/Maximize Performance
Utility managers over the past decade have become better
business operators. Publicly-owned wastewater treatment plant operators have
worked diligently to be more competitive to meet the demands of the ratepayer,
protect the public's investment, and meet the nation's water quality goals.
Environmental management systems (EMSs) and asset management are becoming
essential tools nationwide.
EMSs and more narrowly targeted management programs, like
asset management, can and should be implemented in a complementary fashion.
EMSs can provide the overall framework for implementing these other management
programs. AMSA, in cooperation with EPA and the Water Environment Federation,
is currently engaged in a joint project to develop comprehensive EMS guidance
for wastewater utilities that will provide a key tool to ensure a more
integrated, cost-effective management approach for wastewater utilities in the
near future. Such a system gives a utility the tools to identify and more
efficiently manage its capital assets, address a full range of environmental
impacts, focus on improving environmental performance beyond the levels
required by regulations, and do so through an open and transparent process that
addresses the needs of communities, regulators and other stakeholders.
At the same time, AMSA is collaborating with EPA on
developing a nationwide asset management program for wastewater utilities, scheduled
for implementation in early 2002. Historically, capital investments in the form
of water and wastewater infrastructure have been placed into service and
considered candidates for rehabilitation and replacement only when the system
faces critical levels of age or deterioration. Current physical, economic,
social, financial, and institutional factors have rendered such an approach no
longer viable. AMSA's view is that public utilities must be able to plan and
optimize the maintenance and replacement cost cycles for their infrastructure
assets in order to minimize costs and maximize performance.
An added incentive for this shift to a more measured
planning approach can be found in the June 1999 changes to financial accounting
and reporting standards issued by the Governmental Accounting Standards Board
for State and Local Governments (known as GASB 34). These sweeping changes
require governments to report depreciation of assets or to implement an asset
management system. Under the standards, any asset management system utilized by
a government must result in an up-to-date inventory of infrastructure assets,
the undertaking of condition assessments of assets, the development of annual
estimates of the funds necessary to maintain the assets and documentation that
assets are being maintained.
The goal of the accounting requirements of the GASB is to
add value to decision makers nationwide. Advances in geographic information
systems, combined with effective relational database management, improved data
collection technologies and increased analytic computer capacity provide a
unique and challenging opportunity to improve management decisions and reduce
cost.
Improved asset management practices and programs at public
wastewater utilities protect the public's investment in a vital local service.
Sound management practices enable communities to control and potentially reduce
the costs of assets required to meet service objectives. Some estimates suggest
that the potential exists for a 20 percent savings when the current capital
investment approach is abandoned and an asset management approach is
implemented.
Local utility management teams currently explore new ways to
stretch available funding including environmental management systems, asset
management, bond issuances and debt management, and are stretching their
dollars to the greatest extent possible. Publicly-owned wastewater treatment
plants have a distinct mission for which innovation must be complimented by
critical changes to the State Revolving Fund (SRF) as well as increased federal
funding.
There is ample precedent for, and clear economic principal
for supporting, a strong federal role in funding water infrastructure--.---
Despite increasing federal mandates for cleaner water, shifts in population that
strand wastewater plants in urban core cities with few ways to pay for needed improvements,
and the nearly universal need to replace billions of dollars in aging and
failing water distribution and wastewater collection systems, current federal
funding policies and mechanisms to meet the country's water infrastructure
needs are woefully inadequate. As is true of America's highway and airport
infrastructure, there is a compelling need and rationale for a long-term,
sustainable, and reliable source of federal funding for clean and safe water.
Every day, the agencies that comprise AMSA ensure that waste
is removed from millions of American businesses and households and that the
environment is clean and safe. For decades, AMSA has been a partner with
federal, state and local stakeholders to make environmental progress through
the improvement of municipal wastewater services. The importance of .
wastewater infrastructure was well understood in the late 1960s as the nation
watched the quality of its waters decline precipitously and chose, in the 1972
Clean Water Act, to spend federal tax dollars to reverse this trend. A large
number of publicly-owned treatment works (POTWs) have built their secondary and
advanced treatment capabilities as a result of the EPA's Construction Grants
Program. According to EPA's 2000 report entitled Progress in Water Quality, a
total of $61.1 billion ($96.5 billion as constant 1995 dollars) was distributed
to municipalities through construction grants from 1970 to 1995. State SRFs
have received about $16 billion for the eleven-year period between 1988 and
1999. The wastewater treatment infrastructure funded with this grant and loan
money is coming to the end of its useful life. And the SRF, as -currently
structured and funded, is becoming an out-dated financing mechanism.
As the broad national benefits of improved water services
accrue, the number of people served by POTWs is rising, regulatory mandates are
skyrocketing, ratepayers' bills are continually increasing, and infrastructure
is aging. During this same time, available funding options have been narrowed
-to loans only-while program eligibilities have been greatly expanded. Local
communities need a full range of funding options from an improved EPA water
infrastructure financing program. The current state revolving fund program
needs to modernized. As we increasingly approach our water quality challenges
on a watershed basis, our financing mechanisms must be consolidated, streamlined
and updated to accommodate the most effective and efficient approaches to
funding environmental protection.
Some public wastewater treatment agencies, like the
Narragansett Bay Commission, have been able to take advantage of the funds to
help offset the tremendous costs of upgrading, rehabilitating and replacing
their wastewater treatment facilities. Other communities, however, simply
cannot afford to pay back a loan. These communities should be afforded a full
range of funding options - including grants - to meet their infrastructure
needs. AMSA member agencies report different levels of success in dealing with their
state-run loan programs.
The needs of hundreds of communities across the nation are
not being met by EPA's current wastewater loan program. We face financial
challenges in the water infrastructure sector today that far exceed historical
investment patterns. In addition, communities must plan to reach multiple
environmental programmatic goals simultaneously. We're upgrading and replacing
our plants, controlling sewer overflows, protecting wetlands, managing coastal
areas, controlling stormwater, upgrading and replacing pipe, dealing with
nonpoint sources and taking on the challenge represented by a whole host of
other water quality duties. With the limited amount of funds available, we must
make certain that our dollars are spent in the most efficient and effective
manner possible. In short, Congress must modernize the SRR
AMSA supports the recommendation contained in the recent
WINow report by the Water Infrastructure Network that calls for the next
generation of the SRF - state water and wastewater infrastructure financing
institutions. In order to effectively manage all of the water quality programs
and challenges previously mentioned, communities should not have to deal with
more than one SRF. As you are aware, this is not a new idea. Already, 30 states
have combined their wastewater and drinking water SRFs. By creating one
centralized financing program states can eliminate duplication, streamline
government, save money, and gain other efficiencies. By taking this
common-sense approach, states will have more money to help fund their
communities' needs. The expanded SRFs should have all the necessary financial
tools needed by local governments to efficiently and effectively meet their
needs. Federal EPA funds should be administered through flexible statewide
water and wastewater financing institutions that would use appropriate
combinations of grants, loans, loan subsidies and other types of financial
assistance instruments.
The evolution to a more modem EPA water infrastructure
financing program would also create an opportunity for federal and state
government officials to streamline their funding programs. Areas of focus
should include federal and/or state paperwork requirements associated with
federal funding assistance, simplification of the application processes,
reduction of oversight and reporting requirements where they no longer serve
the federal or state interests, and flexibility in meeting requirements that do
serve federal and state interests.
AMSA's agencies know th at change does not come easily, nor
is it without some cost. For years, publicly-owned treatment works have been
changing the way they do business. By becoming more competitive, we have cut
costs and become more effective and more efficient. As States take the next
step in streamlining their operations, AMSA supports additional funding for the
States to combine and modernize their water infrastructure financing programs.
EPA's clean water SRF cannot satisfy our current financial
and regulatory needs. Both our systems and our watersheds are at a critical
juncture in their life cycles. A combination of reduced federal spending and
increased federal mandates to meet treatment requirements is taking its toll.
The collective aging of our pipes and systems further compounds our ability to
meet the objectives of the Clean Water Act. Any additional deferral of the
needed investments to repair and renew our systems will lead to greater
increases in the costs associated with providing clean and safe water services,
threats to public health, and environmental degradation.
The challenge of closing the water infrastructure financing
gap can be met, but not without a substantial and concerted effort by the federal
government to join with states, local communities and consumers in a fiscal
partnership. To bridge the investment gap, the federal government should meet
localities halfway by authorizing an average of $11.5 billion per year in
capitalization funds over the next five years. States would receive the funds
and, in turn, offer grants and loans to local agencies. AMSA further supports
the following recommendations in the WINow report to reform this country's
water and wastewater infrastructure financing program:
Create a long-term, sustainable, and reliable source of
federal funding for clean and safe water; Authorize capitalization of the next
generation of state financing authorities to distribute funds in fiscally
responsible and flexible ways, including grants, loans, loan subsidies, and
credit assistance; Focus on critical "core" water and wastewater
infrastructure needs and nonpoint source pollution; , Streamline federal
administration of the funding program and encourage continuous improvement in
program administration at both the federal and state levels; Adequately finance
strong state programs to implement the Clean Water Act and the Safe Drinking
Water Act; Establish a new program for clean and safe water technology and
management innovation to reduce infrastructure costs, prolong the life of
America's water and wastewater assets, and improve the productivity of utility
enterprises; and Provide expanded, targeted technical assistance to communities
most in need.
AMSA and other stakeholders recognize that no single
solution addresses the full range of water and wastewater infrastructure
funding needs. All levels of government and the private sector must share
responsibility for effective, efficient, and fair solutions.
Conclusion
Significant progress has been made in financing the clean up
of our nation's waters over the past 30 years through the Construction Grants
Program and the SRF. However, much remains to be done. The fundamental
challenge for Congress today is to fund a comprehensive financing program for
the 21" century that will allow state and local governments to meet their
water and wastewater infrastructure needs without putting unnecessary stresses
onto the nation's ratepayers.
The critical role of our nation's water infrastructure has
become clearer as a consequence of the tragic events of September 11.
Obviously, dollars will have to be stretched even further now not only to
ensure that utilities are protected from internal threats such as aging pipes,
but also from external threats. AMSA has played a leading role in organizing a
Wastewater Infrastructure Security Task Force and AMSA members have already
earmarked significant funds towards efforts to ensure that these security
challenges are met.
AMSA and the 40 organizations in the Water Infrastructure
Network support the inclusion of water infrastructure in an economic stimulus
package. We propose that $5 billion in grants should be made available to water
and wastewater utilities for construction projects that are ready to go. This
would serve both as an immediate job creation program and would also
demonstrate a strong commitment to the long-term, sustainable and reliable
source of funding of water and wastewater infrastructure upgrades and repair,
and the environmental well-being and public health of our nation.
AMSA, and the Water Infrastructure Network, have supported a
five year, $51 billion plan for new Congressional authorizations and funding to
capitalize state-administered grant and loan programs for water and wastewater
infrastructure. AMSA also understands the need to consider other potential
long-term options beyond this five-year period, and looks forward to discussing
this further with this Subcommittee and other members of Congress.
Chairman Graham, Senator Crapo and Members of the Committee,
we look forward to working with you to develop the right solutions to fund our
national water infrastructure needs. I will be happy to answer any questions.