Copyright 1999 Federal Document Clearing House, Inc.
Federal Document Clearing House Congressional Testimony
October 07, 1999
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 2494 words
HEADLINE:
TESTIMONY October 07, 1999 GREG MASON STATE REVOLVING FUND PROGRAM MANAGER
GEORGIA ENVIRONMENTAL FACILITIES AUTHORITY
SENATE ENVIRONMENT
AND PUBLIC WORKS WATER INFRASTRUCTURE ISSUES
BODY:
Testimony of Greg Mason, for the Council of Infrastructure Financing
Authorities before the Senate Environment and Public Works Committee October 7,
1999 Mr. Chairman and members of the Committee, I am Greg Mason, State Revolving
Fund Program Manager of the Georgia Environmental Facilities Authority (GEFA). I
am pleased to appear before you today to testify both in that capacity and on
behalf of the Council of Infrastructure Financing Authorities (CIFA). CIFA is a
national organization of State and local authorities whose mission is to
facilitate financing of public infrastructure facilities. Like my own
organization in Georgia, most of our State members manage at least the financial
component of the State Revolving Loan Funds (SRFs) for wastewater treatment and,
as such, are vitally interested in the subject of this hearing. My testimony
today will mainly address Title VI of the Clean Water Act, authorizing the State
Revolving Loan financing program. This has been a singularly successful program
that has fulfilled the vision of this Committee and the Congress in creating the
loan fund mechanism over a decade ago. In that time the SRF has created a loan
pool of more than $30 billion providing low-cost lending to build municipal
treatment and water pollution abatement projects throughout the nation. This
year, as last year, it is expected the program will provide more than $3 billion
in loans for these critical environmental projects. Moreover, the loans provide
substantial cost-savings to the borrowers. With SRF interest rates averaging two
and one half to three percent below market, we estimate, over its duration, the
cumulative subsidy the program has provided borrowers is around $8 billion. In
terms of federal investment, the SRF program has proven to be a tremendous
bargain. The federal contribution, thus far, in funding for capital grants to
the States has been around $15 billion, about one half of the total amount of
the SRF. State contributions, loan repayments, other interest earnings and
leveraged funds account for another $15 billion. A very good return on the
initial federal investment, and one that will continue to grow as the fund
matures. As the Committee looks at provisions to amend and reauthorize Title VI
of the Clean Water Act our advice is cautionary. Clearly, after nearly twelve
years of experience with the SRF there are small modifications that will make
the program more efficient. A new SRF has been created to finance safe drinking
water needs and the inter-relationship of these two funds could be more
successfully joined by some small changes in the statute. Also, growing
recognition of new priorities for nonpoint source projects, as well as the
economic hardship project costs can impose on some communities, suggest the need
for some deeper subsidy for certain types of borrowers. Some changes are needed
in the administrative provisions of the fund to match it to the realities of
this thriving loan program. We will offer some suggestions for such
modifications. But overall, we ask the Committee to move cautiously toward
adopting any provisions that would dramatically overhaul or alter the way water
quality projects are financed. Like the ancient admonition to physicians, Afirst
do no harm.@ Proposals before this Committee to set up a new program of grant
funding for certain categories of projects could have major repercussions for
the future operation of the SRFs and the future quality of the nation's waters.
Put plainly, communities that anticipate receiving federal grants to build water
pollution projects are not likely to be interested in loans, no matter how
attractive the terms. And even though the proposal in S. 914 limits availability
of these grants to certain categories of projects, I submit that politically
maintaining that categorical limitation would be next to impossible. Soon every
project would be grant eligible and communities would defer needed projects
until grant dollars became available. Additionally, Congress should be careful
not to set up financial assistance programs that create dual and overlapping
administrative structures at either the state or federal level. The
re-initiation of a construction grant program would do just that. CIFA
recognizes that in order to address certain types of pollution problems it may
be necessary to provide deeper subsidies to the borrower. We support provisions
comparable to those contained in Senator Voinovich's bill, allowing States the
discretion to provide principal write-downs or extended repayment periods for
hardship borrowers. Such loan subsides, similar to those allowable with the
Drinking Water SRF, should be limited to no more than 20% of the capital grant
in any one year, with the proviso that states may bank the set-aside for use in
future years, as need may dictate. The subsidy should be in the form of
principal forgiveness and not limited in the amount available to any one
borrower. The criteria, instead, should be environmental and economic
justification. There are a number of other provisions in Senator Voinovich's
bill that CIFA supports. First, we support the de-coupling of allowable
administrative costs from the annual amount of the capital grant. The amount of
the capital grant to the State is no longer a measure of the administrative
burden of the program. The large and increasingly sophisticated loan portfolios
the States now manage require more administration. The size of the fund, not the
amount of the grant, should dictate the allowable administrative cost. Moreover,
new types of lending for nonpoint source and other borrowers can be very
manpower intensive. We support the provision that would connect the
administrative fee to the total value of the fund, allowing one half of one
percent of the fund or $400,000 annually, whichever is greater, as well as any
fees collected in association with the lending, to be used by the States to
administer the SRF. We also support the proposed level of authorization of $3
billion annually. CIFA believes that future demand for Clean Water SRF loan
funding will exceed the $2 billion annualized goal EPA has identified as
sufficient for federal capitalization. This goal for sustained SRF financing,
which was arrived at by EPA without consultation with the States, appears
woefully deficient when compared to the level of funding, estimated as high as
$300 billion, needed to meet public clean water requirements over the next
twenty years. CIFA also supports elimination of all cross-cutters and duplicate
federal requirements that increase the cost of the projects and slow down the
loan process, especially since these requirements are particularly burdensome to
small communities and potential nonpoint source borrowers. While recognizing
that the application of
Davis Bacon wage standards may increase
project costs in some states, CIFA defers to the will of the Congress with
regard to reapplication of these requirements to first round projects financed
with federal grant dollars. CIFA, however, strongly objects to the application
of those requirements, or other general grant conditions, to second round loans
from the SRF. We support the expansion of eligibilities for SRF lending to
include lands essential for the treatment works. We believe that protection of
riparian areas, water supply areas and purposes of mitigating environmental
damages or habitat loss are already eligible for SRF lending, but have no
objection to their being made explicit in the law. We would also support the
inclusion of conservation management and water conservation measures as eligible
SRF purposes. Further, we support, at the States' discretion, the extension of
the SRF to secure critical lands for other public purposes such as park,
recreation and habitat protection. The SRF, with its capability of providing
zero-interest lending, is capable of accomplishing the same purposes as the
Administration's proposed Better America Tax Credit Bonds, which are so far
untried in the municipal financing market and may not, in fact, provide the same
level of no-cost financing that the SRFs can and often do provide the borrower.
Finally, in any amendments to the SRF, it is absolutely essential the Congress
extend the current provision giving States the discretion to transfer a portion
of the capital grant from one SRF to the other. This authority, which was
provided in the 1996 Amendments to the Safe Drinking Water Act, expires next
year. Faced with this deadline, States are increasingly uneasy about executing
such transfers, even though efficient management of the two funds should
encourage such interdependency in order to shift funding toward current demands
in either program area. In addition, statutory provisions making it clear that
transfer of the proportionate share of the administrative fund allowance is also
permissible would be helpful to a number of state SRF programs. In conclusion,
the SRF has proven to be an effective and efficient means of providing federal
and state subsidies to finance municipal environmental treatment needs. The
Congress should be very circumspect about making major changes that will affect
or impact on the SRF program, or to impose provisions that will create rigidity
in the operation of the individual state loan programs. The genius of the SRF
program, in many ways, has been the flexibility that the Congress provided the
States in the 1987 amendments. In reality, no two state programs are identical
in their structure or their management, and this flexibility is what has allowed
each state to fashion the program to meet their own set of needs and their own
managerial and administrative structure. We appreciate the opportunity to
testify before this Committee and offer to work with the members and staff to
make statutory adjustments that will improve the efficiency of the SRF program.
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