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Congressional Testimony
April 11, 2002 Thursday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 2904 words
COMMITTEE:
HOUSE ENERGY AND COMMERCE
HEADLINE:
DRINKING WATER INFRASTRUCTURE
TESTIMONY-BY: MR. BEN
GRUMBLES III, DEPUTY ASSISTANT ADMINISTRATOR OFFICE OF WATER
AFFILIATION: U.S. ENVIRONMENTAL PROTECTION AGENCY
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
Mr. Ben Grumbles III Deputy Assistant Administrator Office of
Water U.S. Environmental Protection Agency
Good morning, Mr. Chairman
and Members of the Subcommittee. I am Ben Grumbles, Deputy Assistant
Administrator for Water at the U.S. Environmental Protection Agency (EPA).
First, please let me convey Tracy Mehan's regrets for being unable to attend
today's hearing.
I welcome your invitation to discuss the Nation's
investment needs for drinking
water infrastructure -- the
pipes, treatment plants and other critical components that deliver safe drinking
water to our taps. The challenge of preserving the integrity of this
infrastructure -- so that public health can continue to be protected -- will
form the basis of my comments. As a Nation, we have made great progress over the
past quarter century in ensuring the safety of drinking water. Our success in
improving drinking water quality is the result of many programs and projects by
local, State and federal governments in partnership with the private sector.
More than any single effort, however, it is the cooperative, intergovernmental
investment in drinking water and wastewater infrastructure facilities that has
paid dramatic dividends for public health.
Today, I will summarize what
EPA knows about the need for future investment in drinking water and identify
the key challenges I see in meeting this need. I will conclude with some
thoughts about how Congress and others could proceed when addressing the
problems of financing drinking
water infrastructure.
Safe Water -- Accomplishments and Challenges
Most Americans
would agree that the quality of drinking water has improved dramatically over
the past quarter century.
We have made significant progress in improving
the safety of our Nation's drinking water. Disinfection of drinking water is one
of the major public health advances in the 20th century. In the early 1970's,
however, growing concern for the presence of contaminants in drinking water
around the country prompted Congress to pass the Safe Drinking Water Act --
which now forms the cornerstone of a solid foundation that ensures that all
Americans can continue to enjoy safe drinking water.
Today, the more
than 265 million Americans who rely on public water systems enjoy one of the
safest supplies of drinking water in the world.
Under the Safe Drinking
Water Act, EPA has established standards for 90 drinking water contaminants.
Public water systems have an excellent compliance record -- more than 90 percent
of the population served by community water systems receive water from systems
with no reported violations of health based standards.
In the past
decade, the number of people served by public water systems meeting federal
health standards has increased by more than 23 million. Although compliance with
drinking water contaminant standards is good, a substantial investment is needed
to ensure the safety and security of our drinking water.
Water
Infrastructure -- Future Needs
The Safe Drinking Water Act
requires that EPA develop -- every four years -- a survey to assess the Nation's
drinking water investment needs. The first survey report was released to
Congress in 1997.
Last year, we published the second infrastructure
survey report. The new survey showed that $
150.9 billion is
needed over the next 20 years to ensure the continued provision of safe drinking
water to consumers.
The survey includes needs that are required to
protect public health, such as projects to preserve the physical integrity of
the water system, convey treated water to homes, and to ensure continued
compliance with specific Safe Drinking Water Act regulations.
Transmission and distribution projects -- that is, the pipes that convey
water from a source to a treatment facility and then to consumers -- represented
the largest category of need (56%), with $
83 billion needed
over the next 20 years. This result is not surprising given that, for most water
systems, the majority of their capital value exists in the form of transmission
and distribution lines. Treatment projects, which have a significant benefit for
public health, make up the second largest category of needs at 25%.
The
survey also distinguished between "current needs" and "future needs." About
$
103 billion, or 68% of the total need, is needed now to
protect the public health and maintain existing distribution and transmission
systems. That systems require such a large investment to meet the current need
reflects the age and deteriorated condition of their infrastructure. However, it
is important to note that in most cases, current needs would involve installing,
upgrading or replacing infrastructure that would enable water systems to
continue to deliver safe drinking water. A system with a current need,
therefore, usually is not in violation of any health-based drinking water
standard. For example, a surface water treatment plant may currently produce
safe drinking water, but its filters may require replacement due to age and
declining effectiveness to ensure the continued provision of safe water.
Future needs account for the remaining $
48.4 billion in
needs. Future needs generally include projects that systems would undertake over
the next 20 years as part of routine replacement such as reaching the end of a
facility's service life.
Although all of the 74,000 projects in the
survey would promote public health protection, water systems also identified
capital needs directly related to specific regulations under the Safe Drinking
Water Act. Approximately 21% of the total need, or $
31.2
billion, is needed for compliance with current and proposed regulations under
the Act. Therefore, most of the investment needs documented in the survey (i.e.,
approximately 79%) stem from the costs of installing, upgrading and replacing
the basic infrastructure that is required to deliver drinking water to consumers
-- costs that water systems would face independent of any Safe Drinking Water
Act regulations. These findings indicate that most of the total need derives
from the inherent costs of being a water system, which involves the almost
continual need to install, upgrade, and replace the basic infrastructure that is
required to provide safe drinking water.
The survey also examined
investment need by system size. The survey found that small systems (serving
fewer than 3,300 people) comprise more than 80% of the nation's community water
systems, but they account for only 22% of the total national need. By contrast,
large systems (serving more than 50,000) constitute just 2 percent of the
nation's water systems, yet account for more than 44% of the national need. This
finding reflects the fact that small systems collectively serve far fewer people
-- about 26 million -- than large systems, which serve about 138 million people.
Although the total small system need is modest compared to the needs of
larger systems, the costs borne on a per household basis by small systems are
almost 4-fold higher than those of large systems. Small systems often face
challenges in obtaining financial assistance to address these costs -- which is
one of the reasons Congress created the drinking water
State Revolving
Fund. Other Estimates of Investment Needs
Several
groups, including the
Water Infrastructure Network and the
American Water Works Association, have also issued reports estimating
water infrastructure needs. These estimates were all
substantially above those of EPA's assessment. The difference owes to the
dissimilar methods used to calculate the needs. The other studies used models to
estimate needs, whereas EPA's estimate is derived from projects that systems
themselves identified and documented on a questionnaire. However, regardless of
which number is used to characterize the magnitude of investment needs, all of
these estimates are significant -- as are the challenges faced by the Nation's
water systems in meeting these needs.
Broader Context of Investment
Needs
EPA believes the key to understanding the
water
infrastructure financing challenge is to consider a broad context of
factors, including: aging infrastructure, population growth, increasing
operations and maintenance costs, and affordability -- especially for low-income
households and communities.
To better understand the issues related to
water infrastructure investments and financing, the Agency is
reviewing issues related to long-term needs, assessing different analytical
approaches to estimating those needs, and estimating the gap between needs and
spending. Last summer, EPA presented a portion of this analysis - - known as the
Gap Analysis -- to a diverse panel of experts drawn from academia, industry,
think tanks, and consulting firms. Overall, the reviewers commended the report
as a credible effort to quantify the gap. We have made revisions to the analysis
based on the peer review and we expect to release the Gap Analysis shortly.
In considering these studies and analyses, it is important to keep in
mind a few points. First, there is no single "correct" number to describe the
gap. Any gap study must be built using methods and definitions of need, which in
turn rest on varying assumptions about present conditions nationwide, and
desirable or appropriate policies to follow in the future. The second point is
that these gap studies are limited to quantifying the investment gap, and
therefore they cannot themselves be a clear guide to policy; for example, they
do not consider how the various roles of federal, State and local governments
should be balanced. Third, under any of these studies, funding gaps are not
inevitable. They occur only in the unlikely event that capital spending remains
-- for the next 20 years -- unchanged from present levels. An honest evaluation
would conclude that a funding gap will result only if the challenge posed by an
aging infrastructure network -- a significant portion of which is beginning to
reach the end of its useful life -- is ignored.
I believe that most
decision makers at the federal, State and local levels would agree that, through
our partnership, the Nation needs to put more resources into
water
infrastructure in the future than we have been doing. At the same time,
we need to reduce costs by ensuring a more efficient and productive use of such
resources through an approach that emphasizes the development of a system's
self-sustaining capacity to operate, manage, and fund its infrastructure.
Drinking Water State Revolving Loan Fund
The primary mechanism
that EPA uses to help local communities finance drinking
water
infrastructure projects is the State Revolving Loan Fund (SRF)
established in the 1996 Safe Drinking Water Act amendments. The SRF was designed
to provide a national financial resource for clean and safe water that would be
managed by States and would provide a funding resource "in perpetuity." These
important goals are being achieved. Other federal, State, and private sector
funding sources are also available for community
water
infrastructure investments.
Under the SRF program, EPA makes
grants to each State to capitalize its SRF. States provide a 20% match to the
federal capitalization payment. Local governments get loans for up to 100% of
the project costs at below market interest rates. After completion of the
project, the community repays the loan and these loan repayments are used to
make new loans on a perpetual basis. Because of the revolving nature of the
funds, the dollars invested in the SRF provide about four times the purchasing
power over twenty years compared to what would occur if the funds were
distributed as grants.
In addition, low interest SRF loans provide local
communities with dramatic savings compared to loans with higher, market interest
rates. An SRF loan at the interest rate of 2.4% (the average rate during the
year 2001) saves communities approximately 23% compared to using commercial
financing at an average of 5.3%.
The drinking water SRFs, which this
Committee created as part of the 1996 amendments to the Safe Drinking Water Act,
were modeled after the clean water SRFs, but included a few differences.
States were given broader authority to use drinking water SRFs to help
disadvantaged communities, and to provide technical assistance for management
and operations of drinking water systems.
In addition, the law provided
each State the flexibility to transfer funds between its clean water and
drinking water SRFs. The Administration supports continuing this mechanism to
help States fund their priority needs.
Through fiscal year 2002,
Congress has appropriated $
5.3 billion for the drinking water
SRF program. Through June 30, 2001 States had received $
3.6
billion in capitalization grants, which when combined with State match, bond
proceeds and other funds provided $
5.2 billion in total
cumulative funds available for loans. Through June 30, 2001, States had made
close to 1,800 loans totaling $
3.8 billion, with another
$
1.4 unallocated or available for loans. Approximately 75% of
the agreements (41% of dollars) were provided to small water systems that
frequently have a more difficult time obtaining affordable financing. States
also reserved a total of approximately $
576 million of SRF
capitalization grants for other activities that support the drinking water
program, such as protecting sources of drinking water and providing technical
assistance to small systems.
Infrastructure Investments and Fiscal
Sustainability
The President's FY 2003 budget continues to maintain
federal support for drinking
water infrastructure and requests
$
850 million for the drinking water SRF. By the end of FY 2002,
we expect loans issued by State drinking water SRFs to reach 2,400, with about
850 SRF funded projects having initiated operations by that date.
This
proposed FY 2003 funding will help communities across the country finance
important drinking water projects. As your Committee continues to study the
drinking
water infrastructure needs, the Administration would
like to encourage a constructive dialogue on the appropriate role of the federal
government in addressing these needs.
Ensuring that our drinking
water infrastructure needs are addressed will require a shared
commitment on the part of the federal, State and local governments, private
business, and consumers.
To meet these future challenges, the
Administration believes that the touchstone of our strategy should be building
fiscal sustainability. In particular, several basic principles should guide our
pursuit of safe drinking water:
Utilizing the private sector and
existing programs: Fostering greater private sector involvement and encouraging
integrated use of all local, State, and federal sources for infrastructure
financing. Promoting sustainable systems
: Ensuring the technical,
financial, and managerial capacity of water systems, and creating incentives for
service providers to avoid future gaps by adopting best management practices to
improve efficiency and economies of scale, and reducing the average cost of
service for providers. Encouraging cost-based and affordable rates
:
Encouraging rate structures that cover costs and more fully reflect the cost of
service, while fostering affordable water service for low-income families.
Promoting technology innovation
: Creating incentives to support
research, development, and the use of innovative technologies for improved
services at lower life-cycle costs. Promoting smart water use
:
Encouraging States and service providers to adopt holistic strategies to manage
water on a sustainable basis, including a greater emphasis on options for reuse
and conservation, efficient nonstructural approaches, and coordination with
State, regional, and local planning. Promoting watershed-based decision-making
: Encouraging States and local communities to look at drinking water
source water protection on a watershed scale and to direct funding to the
highest priority projects needed to protect public health and the environment.
Conclusion
This is an important and serious challenge, and I
commend your Subcommittee for holding this hearing and gathering such experts,
advocates, and colleagues. Already, we see the means to realize these principles
in practice, taking shape all across the country. Many States and local
governments have been changing the way they do business. As a result, they've
successfully managed many of these infrastructure needs, using creative,
individualized approaches that are cost-effective, environmentally protective,
and socially equitable -- efficient, clean, and fair.
Thank you, Mr.
Chairman, for this opportunity to discuss EPA's view of the drinking
water infrastructure challenges that the Nation is facing. I
pledge that EPA will continue to work in partnership with Congress, States,
local governments, the private sector and others to better understand the
drinking
water infrastructure needs we face and to play a
constructive role in helping to define an effective approach to meeting these
needs in the future.
I will be happy to answer any questions.
LOAD-DATE: April 29, 2002