SECTION: CAPITOL HILL HEARING TESTIMONY

LENGTH: 2470 words

COMMITTEE: HOUSE ENERGY AND COMMERCE

HEADLINE: DRINKING WATER INFRASTRUCTURE

TESTIMONY-BY: MS. JOSEPH A. MOORE, ALDERMAN

AFFILIATION: CHICAGO

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 A. Moore Chicago Alderman

Mr. Chairman, members of the Committee: I am Joseph Moore, Alderman from the city of Chicago, and chair of the National League of Cities' Energy, Environment and Natural Resources Committee. I am here today to testify on behalf of NLC and the 18,000 cities we represent across the United States on the need for an expanded federal investment in the nation's drinking water infrastructure. We appreciate the opportunity to present the views of our members as well as those of the Water Infrastructure Network[1].

I would like to discuss the Water Infrastructure Network (WIN) Report - Water Infrastructure NOW - which recommends a major new and revitalized federal commitment to the nation's drinking water and wastewater infrastructure. It outlines the parameters of a potential federal response to the $1 trillion funding gap between the amount cities are currently investing in our drinking water and wastewater infrastructure and the additional dollars needed to assure protection of public health, the environment and our economy over the next generation. Before examining the details of the Report, however, it is necessary to address some fundamental questions:

(1) Why do we have a funding gap of such enormous magnitude?

(2) What have local governments been doing to address the issue?

(3) Why should the federal government help? and,

(4) How should the federal government help?

1.Why is there a water infrastructure funding gap?

A number of factors contribute to the water infrastructure funding gap facing municipalities:

the simultaneous expiration of the useful life of water infrastructure installed at different times;

population growth; and

implementation of new, more costly, and more complex federal mandates which, in effect,

substitute federal priorities for local priorities.

The nation's drinking water infrastructure represents more than a century of investment, funded almost entirely by local ratepayers. A significant part of the nation's water infrastructure dates from the late 19th century. More recent expansions of these systems took place following the two world wars. All of which means the newest systems are over 50 years old. What is more, the newer the infrastructure, the more likely it is to be deteriorating. Different materials, with increasingly shorter useful lives, were used over time, thus leaving us in the position where 100 year's worth of infrastructure is being exhausted all at once. As a consequence, municipalities now face a confluence of deterioration of their underground pipes, and, in some cases, their treatment facilities, that process the nation's drinking water and sewerage.

Until passage of the 1996 Safe Drinking Water Act Amendments, the federal government made no financial commitment to the nation's drinking water systems. The fact that drinking water in the United States is among the safest in the world is a significant tribute to the local ratepayers and their leadership that have financed these treatment facilities.

Another factor contributing to the current funding gap is that urban populations grew significantly as local water infrastructure aged. Systems designed and built for the population at the time of their construction are now serving two to three times as many people as their design capacity.

While Congress recognized the need to provide financial assistance to municipal drinking water utilities when it passed the Safe Drinking Water Act Amendments of 1996, this funding is limited in its use for infrastructure repair. For the most part, it is available only as loans, and is substantially targeted to addressing the non-compliance problems of the nation's smaller drinking water systems.

Finally, federal mandates have also played a role in diverting local resources away from local needs and priorities and retargeting them to federal priorities. When cities do manage to set aside funds to address a critical local water infrastructure need, more often than not, a new unfunded - and usually costly - federal mandate depletes local resources that would have been dedicated to infrastructure replacement.

2.What have local governments been doing to help themselves?

local governments - or rather local tax and ratepayers - invest $60 billion annually in our drinking water and wastewater systems. A recent asset management study in 20 cities estimated the average per capita replacement value of their systems to be $2,400 per person.

local systems are raising water and sewer rates to accommodate the increasing costs (which EPA indicates are 6 percent a year above the inflation rate) of operating and maintaining their systems.

local governments are managing their infrastructure assets in a more businesslike manner, spurred in part by new federal requirements developed by the Government Accounting Standards Board-on which local government bond ratings are based. local governments are applying new management tools to assess and operate their systems more effectively and efficiently.

Until recently, our drinking water infrastructure was funded entirely by local ratepayers. And the deteriorating water infrastructure that must be replaced because it has maximized its useful life over the past 50 to 100 years was constructed entirely at local expense.

In addition, municipal local rate structures generate the $60 billion annually we invest in maintaining and operating our drinking water and wastewater systems and cover 90 percent of all costs, including construction costs. In meeting the enormous needs of the future, cities also expect to finance-again through local ratepayers- trillion of the needs for repair, rehabilitation and replacement of the aging and crumbling water infrastructure over the next 20 years.

Municipalities have also been raising their water and sewer rates to accommodate increases in their operating and maintenance costs, which, according to EPA, are rising at six percent above inflation annually. Many cities require developers, and subsequently homeowners, to finance the cost of new connections to municipal systems.

In addition, cities are improving their management practices. Local governments will soon be required to comply with new rules promulgated by the Government Accounting Standards Board in Statement 34 (GASB 34). These rules will require municipalities to report their long-term financial position, quantifying resources and obligations more comprehensively. The information cities will be required to provide will include an evaluation of the condition of local infrastructure. Bond rating services and others will be able to evaluate whether cities are "acquiring assets to benefit future fiscal years or if these assets are being used but not replaced."[2] The GASB 34 rule will, at a minimum, encourage local governments, who have not done so already, to evaluate their infrastructure in a more systematic manner.

Other asset management tools, such as the "Nessie Study" are also being implemented by cities to help identify when pipes and treatment plants were built, how long they can be expected to last, when they will need to be replaced, and the likely cost for such replacement. More efficient operations are also among the tools used to provide more cost effective operations at the municipal level. And some local governments are subjecting their system operations to competitive bidding to affect cost savings and generate new and better efficiencies.

3. Why should the federal government help?

a sound infrastructure is the foundation of a sound economy;

a sound infrastructure is essential to the protection of public health;

federal assistance, as demonstrated by the success of the Clean Water Act, is the catalyst that ensures public health protection and environmental progress; and,

federal assistance is essential to enhance the security of our drinking water systems.

The Water Infrastructure NOW report makes an eloquent case for a renewed federal financial partnership in water infrastructure. It says:

The case for federal investment is compelling. Needs are large and unprecedented; in many locations, local sources cannot be expected to meet this challenge alone; and because waters are shared across local and state boundaries, the benefits of federal help will accrue to the entire nation. Clean and safe water is no less a national priority than are national defense, an adequate system of interstate highways, or a safe and efficient aviation system. These latter infrastructure programs enjoy sustainable, long-term federal grant programs; under current policy, water and wastewater infrastructure do not.

With respect to the need for enhanced security, it should be remembered that our drinking water facilities were constructed with little, if any thought given to the potential for the unprecedented terrorist activities of the type witnessed on September 11th. The security mechanisms built into these systems were not designed for anything of that magnitude. We believe federal assistance to enhance drinking water security needs - especially those involving capital investments - is both necessary and a legitimate use of these funds.

In light of the staggering costs of maintaining, operating, rehabilitating, and replacing our drinking water system infrastructure to serve our citizens, a partnership similar to that in the Clean Water Act of the 1970-80's must be established. Since virtually all of us live downstream from someone else, it is in the national interest for all levels of government to participate in assuring that our drinking water infrastructure is sound, reliable, protective of human health, and affordable.

4. How can the federal government help?

establish a financial partnership for drinking water infrastructure;

provide more flexibility in the types of assistance available to municipalities to include grants as well as loans;

expand investments in research and technology development;

establish a mechanism to develop a long-term and secure financial partnership for water infrastructure needs; and

provide assistance to ensure implementation of new and heightened security needs of drinking water systems.

The Water Infrastructure Network has developed and agreed on the outlines of a legislative proposal to enhance the federal financial commitment to drinking water infrastructure needs. The proposal recommends a five-year, $57 billion authorization beginning in fiscal 2003 for loans, grants, loan subsidies and credit assistance for basic drinking water and wastewater infrastructure needs. These funds would be allocated to states to capitalize state-administered grant and loan programs.

Half the funds would be targeted to wastewater and half to drinking water needs, States would have the flexibility, however, to shift up to an additional 15 percent from one purpose to the other, an innovation incorporated in the 1996 amendments to the SDWA. This flexibility would be available so long as such a transfer did not adversely affect any project on the state's priority list that was "ready to go."

WIN recommends, and NLC supports, that Congress require the States to provide 25 to 50 percent of each year's allocation as grants that would fund up to 55 percent of project costs. Up to 75 percent of project costs would be eligible for grant funding in economically distressed communities. Loans and loan subsidies would include interest rate discounts, zero interest rate loans, principal forgiveness and negative interest rate loans.

The report proposes an additional $4 billion in resources for State governments to help them meet their drinking water and wastewater responsibilities. WIN also recommends funding for development of innovative technology and management techniques to assist local governments in providing clean and safe water more effectively and efficiently in the future.

And finally, the WIN report recommends that Congress "establish a formal process to evaluate alternatives for, and recommend the structure of, a longer-term and sustainable financing approach to meet America's water and wastewater infrastructure needs."

As the committee is well aware, both the House Transportation and Infrastructure Committee and the Senate Environment and Public Works Committee are moving forward with legislation that would significantly enhance resources available to the Clean Water and - in the case of the Senate - the Drinking Water SRFs. As these proposals have moved through the legislative process, NLC and others have raised concerns about potential new federal requirements to establish public/private partnerships in providing drinking water and wastewater services. We consider such recommendations sufficiently important, to raise the issue before you develop legislation.

First, NLC believes such relationships are solely the province of local governments. There are many examples at the local level where public/private partnerships - particularly in drinking water - are working well and redound to the benefit of local ratepayers, the municipality and the private entity operating the local system. Simultaneously, other examples indicate such relationships can leave much to be desired.

Second, while not claiming expertise in this area, NLC also has concerns about the impact of international trade agreements on the privatization of local services and the relationship of such agreements to the maintenance of local control and autonomy. As the committee undoubtedly knows, the majority of the large private water companies operating in the United States are foreign owned. At the local level, we have concerns that contracting with these foreign-owned companies may - because of the terms and conditions of international agreements - adversely affect the ability of a local government to make many critical determinations about the utility once it is under contract with such a private partner. We would be happy to provide expert resources and additional information to the committee on this issue and ask only that there be a full understanding of the ramifications of public/private partnerships in the water business before requiring or encouraging such activities in federal law.

Mr. Chairman, members of the Committee, thank you for the opportunity to testify for the 158,000 local elected officials who comprise the National League of Cities on the critical needs facing local governments in financing drinking water infrastructure needs over the next generation.



LOAD-DATE: April 29, 2002