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Congressional Testimony
April 11, 2002 Thursday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 3707 words
COMMITTEE:
HOUSE ENERGY AND COMMERCE
HEADLINE:
DRINKING WATER INFRASTRUCTURE
TESTIMONY-BY: MS. JOSEPH
BELLA, EXECUTIVE DIRECTOR
AFFILIATION: PASSAIC VALLEY
WATER COMMISSION
BODY: Testimony The Committee on
Energy and Commerce W.J. "Billy" Tauzin, Chairman
Drinking Water Needs
and Infrastructure
Subcommittee on Environment and Hazardous Materials
April 11, 2002
Ms. Joseph Bella Executive Director Passaic
Valley Water Commission
SUMMARY
The
Water
Infrastructure Network estimates that drinking water utilities across
the nation collectively need to spend about $
24 billion per
year for the next 20 years on infrastructure, for a total of
$
480 billion. Drinking water systems currently spend
$
13 billion per year on infrastructure, leaving an
$
11 billion annual gap between current spending and overall
need.
Compounding these financial burdens are the looming investments
local drinking water agencies will be forced to make to help protect their
facilities and consumers from potential terrorist attacks.
WIN estimates
that household water bills must double or triple in most communities, on
average, if utilities are forced to absorb the entire infrastructure bill.
Further compounding this burden is demographics. When populations grow,
the infrastructure is expanded, but when people move away, the pipe and the
liability for repair and replacement remain behind, creating a financial burden
on the remaining customers. Thirty-one states provided no assistance to
metropolitan water agencies in fiscal year 2001.
What is needed to help
close the drinking
water infrastructure gap is an investment
program that not only helps small systems achieve and ensure regulatory
compliance, but one that also recognizes the challenges facing large water
systems. AMWA and our WIN partners have asked Congress to authorize and
appropriate $
57 billion over a five year period for both
drinking water and wastewater infrastructure ($
28.5 billion for
drinking water).
We recommend the Drinking Water SRF include a
15-percent set- aside for metropolitan drinking water agencies, to make certain
that states address their needs.
We urge the subcommittee to avoid
authorizing the states or the EPA to develop new and cumbersome requirements for
water systems applying for funds. This would reduce access to the program,
potentially leaving many water systems with compounding needs and unresolved
compliance problems.
AMWA urges the subcommittee to encourage, through
SRF incentives, voluntary cooperative partnerships. In particular, financial
incentives should be provided to those drinking water systems that agree to
partner with small systems facing compliance problems.
The association
urges the subcommittee to avoid endorsing public- private partnerships as other
legislation has. Privatization can be a very contentious issue in communities.
Whether a water agency consider a public-private partnership should remain at
the discretion of local government, because local factors will dictate whether
the partnership is in the interest of the consumers.
INTRODUCTION
Good morning, Mr. Chairman. My name is Joseph Bella. I'm the Executive
Director of the Passaic Valley Water Commission, headquarted in Clifton, New
Jersey.
I'm testifying on behalf of the Association of Metropolitan
Water Agencies, which is an organization of the nation's largest publicly owned
water agencies. Together, AMWA members serve clean, safe drinking water to over
110 million Americans.
The Passaic Valley Water Commission was
established in 1927 and serves drinking water to 750,000 people in Passaic,
Bergen, Hudson, Essex and Morris Counties in northeast New Jersey. The
commission also provides water on a wholesale basis to municipal water agencies
and private companies, including the New Jersey- American Water Company and
United Water-New Jersey.
AMWA is a founding member of the
Water
Infrastructure Network (WIN), which consists of 46 organizations
representing publicly and privately owned water systems, urban and rural water
systems, mayors, city council members, county officials, labor,
environmentalists, consumers, engineers, manufacturers and builders.
Here is a list of WIN members. Committee members are probably familiar
with many of them.
American Coal Ash Association (ACAA)
American
Concrete Pipe Association (ACPA)
American Concrete Pressure Pipe
Association (ACPPA)
American Council of Engineering Companies (ACEC)
American Public Works Association (APWA)
American Society of
Civil Engineers (ASCE)
American Water Works Association (AWWA)
Associated General Contractors of America (AGC)
Associated
Equipment Distributors (AED)
Association of California Water Agencies
(ACWA)
Association of Metropolitan Sewerage Agencies (AMSA)
Association of Metropolitan Water Agencies (AMWA)
American
Portland Cement Alliance (APCA)
Construction Management Association of
America (CMAA)
California Rebuild America Coalition (CalRAC)
Clean Water Action (CWA)
Construction Industry Manufacturers
Association (CIMA)
Design-Build Institute of America (DBIA)
Environmental and Energy Study Institute (EESI)
Laborers'
International Union of North America (LIUNA)
International Association
of Bridge, Structural, Ornamental and Reinforcing Iron Workers
International Union of Bricklayers and Allied Craftworkers (BAC)
International Union of Operating Engineers, AFL-CIO (IUOE)
National Association of Counties (NACO)
National Association of
Flood and Stormwater Management Agencies (NAFSMA)
National Association
of Regional Councils (NARC)
National Association of Sewer Service
Companies (NAASCO)
National Association of Towns and Townships (NATAT)
National Heavy & Highway Alliance
National League of Cities
(NLC)
National Ready Mixed Concrete Association (NRMCA)
National
Rural Water Association (NRWA)
National Society of Professional
Engineers (NSPE)
National Urban Agriculture Council (NUAC)
Operative Plasters' and Cement Masons' International Association of the
United States and Canada (O&CMIA)
Pipe Rehabilitation Council (PRC)
Plastics Pipe Institute, Inc. (PPI)
Prestressed/Precast Concrete
Institute (PCI)
Rural Community Assistance Program, Inc. (RCAP)
Uni-Bell PVC Pipe Association (Uni-Bell)
The Vinyl Institute
United Brotherhood of Carpenters and Joiners of America (UBC)
Water Environment Federation (WEF)
WateReuse Association
(WateReuse)
Western Coalition of Arid States (WESTCAS)
INFRASTRUCTURE FUNDING NEED AND GAP
The
Water
Infrastructure Network's (WIN) report Clean & Safe Water for the
21st Century and its follow up,
Water Infrastructure Now:
Recommendations for Clean and Safe Water in the 21st Century, estimate that
drinking water utilities across the nation collectively need to spend about
$
24 billion per year for the next 20 years on infrastructure,
for a total of $
480 billion. WIN's analysis also concluded that
drinking water systems currently spend $
13 billion per year on
infrastructure, leaving an $
11 billion annual gap between
current spending and overall need. There are similar figures for wastewater
systems.
Other estimates show large long term needs as well. The
American Water Works Association's Dawn of the Replacement Era estimates a
$
250 billion need over the next 30 years, based on a survey of
20 utilities. And EPA's drinking water needs survey indicates a
$
150.9 billion need for the next 20 years, although it only
focuses on needs related to compliance with the Safe Drinking Water Act.
WIN's estimate was developed by expert economists who are familiar with
the water industry, its resources and how it manages and builds infrastructure.
We believe it is comprehensive and accurate. Nevertheless, all of the estimates
demonstrate that investments for safe, clean water and fire protection will be
massive.
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]. For instance,
Cleveland, Ohio must spend up to $
700 million over the next
five years; Columbus, Ohio, $
253 million; New Orleans,
$
1.2 billion; Kansas City, Mo., over $
500
million; Denver, $
363 million; Chicago, $
600
million; Austin, $
568 million; Phoenix, $
1.28
billion; Omaha, Nebraska, $
355 million. In Detroit, ongoing and
new capital expenditures for drinking water projects are $
1.4
billion over the next five years and $
2.9 billion for
wastewater projects.
At the Passaic Valley Water Commission, we
anticipate spending $
160 million over the next ten years on
capital improvements.
INCREASED SECURITY COSTS
Compounding these
financial burdens are the looming investments local drinking water agencies will
be forced to make to help protect their facilities and consumers from potential
terrorist attacks. The Passaic Valley Water Commission anticipates spending as
much as $
2 million over the next two years.
Near-term
security improvements at water systems include fencing around facilities and
reservoirs, security doors and locks, intruder alert systems, better lighting,
surveillance cameras to monitor entry ways and sensitive facilities, access
control and barricades around key facilities. Some systems already have some or
all of these measures in place, while others are in the process of installing
them. The American Water Works Association estimates that these costs could
total $
1.6 billion for the 54,000 public drinking water systems
in the U.S. The average cost per utility ranges from $
8,000 for
water systems serving only a few thousand people to $
700,000
for systems serving more than 100,000 people. Those serving more than one
million people expect to spend much more.
Capital projects may be needed
to. Water systems are now in the process of assessing their vulnerabilities to
terrorism. When these assessments are complete, water systems will know what
they need to accomplish to become more safe and secure. Only then will we know
accurately what capital construction projects are going to be needed.
PAST AND PRESENT FEDERAL FUNDING
The needs of small water
systems are substantial, and the lack of infrastructure dollars available to
them could have public health impacts. However, metropolitan water agencies --
those serving 100,000 or more people -- are facing monumental infrastructure
replacement costs. AMWA urges the committee to consider mechanisms to address
the needs of both small and large systems.
Historically, the federal
government has invested billions of dollars in smaller drinking water systems.
Over a 12 year period, the Rural Utility Service (RUS) and EPA have poured over
$
8 billion in loans and
grants into small
systems and $
932 million into systems serving between 10,000
and 100,000 people. During this same time period, metropolitan water systems
have received drinking water SRF loans amounting to only $
547
million.
This difference of nearly $
8.5 billion
illustrates the need for state and federal policy makers to consider the
problems of the nation's urban areas and the critical nature of these systems to
the economic wellbeing of the country.
The
water
infrastructure in many American cities is 80 to 100 years old. Although
some states make loans to large water systems to ensure the funds revolve,
especially where small systems are not prepared to apply for assistance, most
states do not help large systems. In fact, 31 states provided no assistance to
metropolitan water agencies in fiscal year 2001. Yet 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. Along with banking and finance,
telecommunications, transportation and oil and gas production,
water
infrastructure is among the nation's most critical infrastructures.
Uninterrupted water service is necessary to local, state and national economies;
strong infrastructure provides fire protection; and safe drinking water protects
our families and consumers from water-borne diseases and pollution from farm and
urban runoff and other types of contamination.
WATER RATES
WIN
estimates that household water bills must double or triple in most communities,
on average, if utilities are forced to absorb the entire infrastructure bill.
This scenario is complicated by rate inelasticity. A household's water bill
often covers drinking water supply, sewer and storm-water control. Raising rates
to cover one, diminishes the ability to pay for the other two. Unfortunately,
all three sectors are facing massive infrastructure challenges. The impact on
American families is even harsher when you consider the other utility expenses,
such as phone, gas and electricity.
Members of Congress who served at
the local level know this debate all too well. In communities large and small
across the nation, utility managers face rate inelasticity each time they
propose a rate increase to cover infrastructure costs.
DEMOGRAPHICS
Further compounding this issue is demographics. Large investments are a
major source of financial vulnerability for water utilities due to the very
fixed nature of the pipes and plants and the very mobile nature of the
customers. When populations grow, the infrastructure is expanded, but when
people move away, the pipe and the liability for repair and replacement remain
behind, creating a financial burden on the remaining customers. This is true in
small towns facing economic hardship, as well as cities, where the more affluent
leave the less affluent to cover the
water infrastructure
maintenance and replacement costs. This problem, known as "stranded capacity,"
adds considerably to the challenge of funding infrastructure replacement in our
communities.
LEGISLATIVE APPROACHES
What is needed to help close
the drinking
water infrastructure gap is an investment program
that not only helps small systems achieve and ensure regulatory compliance, but
also recognizes the challenges facing large water systems. AMWA and our WIN
partners have asked Congress to authorize and appropriate $
57
billion over a five year period for both drinking water and wastewater
infrastructure ($
28.5 billion for drinking water). This amount
is only half of the infrastructure funding gap for those years. This investment
program should include a strong
grants component to help
systems that are disadvantaged, yet have the capacity to return to
self-sustainability. We recommend it also include 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 in replacing 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.
Legislation was recently
introduced by leaders of the Senate Environment and Public Works Committee and
the House Transportation and Infrastructure Committee to invest more funds in
water infrastructure and to establish new procedures and
requirements to apply for and receive SRF assistance.
Although the needs
of drinking water agencies over the next five years are nearly
$
60 billion, the Senate bill, if enacted, would authorizes
$
15 billion over five years and fund hundreds of projects to
ensure safe drinking water for many years to come.
These bills also
attempt to address the areas of water rates, asset management plans, community
planning and contracting. These practices embody those commonly used in
metropolitan water agencies today. For instance, the Passaic Valley Water
Commission has raised rates on average three percent per year. This allows us to
keep up with inflation, invest roughly $
3 million to
$
4 million in infrastructure placement annually and cover other
expenditures. But had the commission not received SRF assistance, we would have
had to raise rates an additional three percent to cover the $
14
million in debt service that would have accompanied the private capital. What we
are concerned about is that states and the EPA might be authorized or even
directed to develop new and cumbersome requirements for water systems applying
for funds, even though many city and county governments and some state agencies
already address these issues adequately.
AMWA encourages the
subcommittee to maintain these practices as ideals and provide the opportunity
for utilities that have not yet adopted them to do so. The subcommittee should
avoid a situation in which the states or 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. This would reduce access to the program,
potentially leaving many water systems with compounding needs and unresolved
compliance problems.
The bills also emphasize 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. For
instance, the Passaic Valley Water Commission has partnered with private water
companies to buy and sell water to satisfy local supply demands, and we have
absorbed water systems around us, improving water service to consumers. Under
one partnership arrangement, the Passaic Valley Water Commission, the city of
Newark and other communities partnered to form the North Jersey District Water
Supply Commission, to share the costs of developing new sources of water. Other
utilities are engaged in a variety of voluntary cooperative partnerships,
ranging from providing less costly water supplies to cooperation in obtaining
new supplies and developing needed infrastructure.
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, loan forgiveness or lower interest rates 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.
Among the
partnerships water systems would be required to consider under the Senate bill
are public-private partnerships, a form of privatization. AMWA is not here today
to oppose private- public partnerships, but whether a water agency considers a
public-private partnership 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 avoid
endorsing public- private partnerships. Privatization is a very contentious
issue in most communities.
Privatization often sells itself as "faster,
better, cheaper" than public operation. But what the water industry has learned
in the last several years is that public water utilities can operate just as
efficiently as private water companies, or more so. In New Orleans, the public
employees participated in a competitive bid process against two international
private contractors, and the public employees demonstrated they could operate
the city's water systems even more efficiently than the private firms. At the
Passaic Valley Water Commission, by analyzing our competitiveness and
reengineering our operations, we have been able to save nearly
$
7 million per year and increase revenues by
$
3 million. Dozens of other public systems have produced
similar results, upending the "faster, better, cheaper" myth.
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? Will GATS or WTO prevent publicly owned U.S. water systems from
providing water or services to neighboring water agencies.
The Senate
bill also proposes 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 today, and AMWA urges the subcommittee to avoid such provisions
in its own legislation.
CONCLUSION
AMWA appreciates this
opportunity to discuss the infrastructure needs of drinking water agencies,
particularly those serving metropolitan areas. We look forward to working with
the subcommittee on proposals to help large and small water agencies continue to
provide safe and affordable drinking water.
LOAD-DATE: April 29, 2002