SECTION: CAPITOL HILL HEARING TESTIMONY

LENGTH: 4743 words

COMMITTEE: HOUSE ENERGY AND COMMERCE

HEADLINE: DRINKING WATER INFRASTRUCTURE

TESTIMONY-BY: MR. ELMER RONNEBAUM

AFFILIATION: KANSAS RURAL WATER ASSOCIATION

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. Elmer Ronnebaum Kansas Rural Water Association

SUMMARY:

The dynamics of small communities that we believe need to be recognized in discussing funding policies are: that small communities make up the overwhelming percentage of water and wastewater utilities; small town consumers often pay high water rates and have a greater percentage of the poor households and a lower median household income; small systems often have limited technical and administrative resources to deal with compliance and navigate through funding programs; and consolidation and privatization are limited solutions for small systems -- federal policy that favors consolidation over the locally preferred solution is a step in the wrong direction for consumers. The 1996 Safe Drinking Water Act SRF was a monumental step in the right direction. Its flexibility and targeting of funds has made SRFs better and more responsive to nearly every stakeholder. Many of our small systems are receiving large funding packages from the SRF. States have exploited the provisions in the SRF to invent one of the best local-state partnerships in all of government. Key elements for small and rural communities in considering any modifications to the drinking water SRFs: Retain the three legislative provisions that ensure communities in the greatest public health and economic need receive prioritization in funding programs. Review proposals for changes in the SRF with caution. There has been no credible finding that the current SRF is not meeting its mission of efficiently providing resources to the communities with the greatest public health and economic needs. There is no need to include additional requirements for applicants including: environmental, land use planning, capacity, actual cost of water, common industry practices, etc. Consider including provisions guiding the percent of a project that can be used for engineering/consulting services on projects. Extend loan durations to 40 years loans to small communities or regional systems. Limit corporate water systems' eligibility for state revolving funding. Taxpayer subsidies should be prohibited from profit generating companies or companies paying profits for shareholders/investors.

The amount of money is needed for water infrastructure is dependent on EPA rules and standards. The regulations will force small towns to come up with millions in financing - many systems will be stressed to comply. The State Revolving Loan Fund is working. Rural Water encourages Congress to consider that whatever changes are considered, please make sure, first, that these Loan Funds target those most in need; second, that the SRFs do not provide tax-payer supported loans to large corporate systems; third, encourage guidelines to keep professional services competitive as in other federal funding programs and last and possibly most important, recognize that new regulations will place more and more demand for further funding just for systems to maintain compliance.

WRITTEN TESTIMONY

Mr. Chairman and Members of the Subcommittee, thank you for the opportunity to be here today to discuss small communities and their water funding concerns.

My name is Elmer Ronnebaum. I am General Manager of the Kansas Rural Water Association. Kansas Rural Water has more than 750 small community members that operate water utilities and most operate wastewater utilities. The Association is governed by the local communities. The mission of the Association is to improve and protect water quality through grassroots technical assistance of utility operation and maintenance and training. Kansas Rural Water Association is an affiliate of the National Rural Water Association which represents over 22,000 small and medium sized community water and wastewater utilities. Every community wants to provide the best possible water quality to their consumers. Rural Water provides the resources and training to achieve this objective in a common sense, hands-on manner systems can utilize. I am honored to speak on their behalf today.

On behalf of all small and rural communities, I would like to thank the Committee for your efforts to assist small communities with compliance with the federal Safe Drinking Water Act. Rural Water looks forward to working with you as you consider the Safe Drinking Water Act and the State Revolving Loan Funds.

Recently, EPA announced they would provide direct grants to large communities to conduct vulnerability assessment for security. EPA has not provide any of the over $90 million appropriated by Congress for small communities. However, small communities are just as, if not more so, as risk than large communities. Also, the cost of security plans in small communities will be greater per household than in large communities. Many small communities believe that they need to make security improvements immediately. This is another concern of small communities that is not being addressed in federal funding programs.

This hearing is considering funding needs of water supply systems and how to improve the State Revolving Loan Fund. What water suppliers think their "needs" are, is different than what the EPA or state regulators might think the "needs" of the water suppliers are. If water suppliers are to include, in their "needs", compliance costs with all the existing regulations and upcoming regulations, then the water suppliers "needs" must include more grant funds and loan funds to comply with EPA regulations. Compliance with EPA regulations is much more expensive (as measured as price per gallon or cost per meter) for small suppliers due to the small suppliers' lack of "economy-of- scale"

The compliance with upcoming Maximum Contaminant Levels (MCL's) of total trihalomethanes (TTHMs) and haloacetic acids for surface water treatment systems serving less that 10,000 persons is an example of small systems' compliance costs. The "cost of compliance" includes monitoring costs, recordkeeping costs, reporting costs, engineering costs, capital improvements costs, and operation and maintenance costs. This is shown by the fact that there have been regulations for trihalomethanes on systems serving more that 10,000 persons - but not for the systems serving less than 10,000, for more than 15 years. Why did EPA not have the same TTHM regulations on small systems? It might be that it is due to the high unit cost that was judged to be "politically" unacceptable. Otherwise, why should citizens served by systems serving populations greater than 10,000 receive drinking water with much lower risks? Aren't people in small towns just as important?

The actual costs on any one supplier are not yet known. But when those costs are known, that water utility will surely note that the costs are considerable. What benefits and costs are realized by compliance with each regulation are unknown and debatable. The nation has said through the EPA regulations that the nation wants a much, much lower risk level from drinking water than many, many other things in our society. And as with many things, the costs of the ever-reducing the risks in drinking water results in ever- increasing costs, especially to the small systems.

The five principle dynamics of small communities that we believe need to be recognized in discussing funding policies are:

- One, that small communities make up the overwhelming percentage of water and wastewater utilities - over ninety percent of regulated communities.

- Two, that due to a lack of economies of scale, small town consumers often pay high water and sewer rates. Water bills of more than $50 for 5000 gallons of water are not uncommon in rural areas. This dynamic often results in very high compliance costs per household in rural systems. Simultaneously, the rural areas have a greater percentage of the poor households and a lower median household income. This results in very high compliance cost per household in rural systems coupled with a lesser ability to pay.

- Three, small systems often have limited technical and administrative resources to deal with compliance and navigate through funding programs. In the smallest systems, one person may run both the water and sewer system and in some cases communities can only afford a part-time or volunteer operator. The more complicated we make funding programs the more likely the small communities will not be able to participate. This dynamic is counter productive the objective of the SRF because small communities are usually the entities which most need the funds. The lack of resources also makes small systems a challenge for state agencies - it takes less state agency resources to deal with large town versus a smaller one who needs more "help" getting through the process.

- Four, small community water systems have been the historical solution to rural families living without water. Small water systems were ONLY started to improve the public health. The result is dramatic improvements in public health by providing an alternative for families from gathering their drinking water from untreated streams, shallow and contaminated wells, roof collection and cisterns. In 2001, there are hundreds of thousands of rural families that still don't have piped water in their homes. Millions of rural families still have water delivered to their homes. According to the USDA at least 2.2 million rural Americans live with critical quality and accessibility problems with their drinking water, including an estimated 730,000 people who have no running water in their homes. About five million more rural residents are affected by less critical, but still significant, water problems.

- Five, consolidation and privatization are limited solutions for small systems. Consolidation can work in some situations, but only for a small portion of small systems and only when the systems are in close proximity and the economics make sense. Rural Water is the lead proponent of consolidation when it makes sense (when it results in better service for the consumer) and we have consolidated numerous communities in all the states. Consolidation and regionalization that is in the consumers' best interest will happen naturally at the local level regardless of federal policy on issue. Federal policy that favors consolidation over the locally preferred solution is a step in the wrong direction for consumers (i.e. 42 U.S.C. Sec. 300g-3(h) Consolidation Incentive). Privatization is rarely a less costly solution for very small communities. In the very small communities it is, perhaps, more common to see private systems being transferred to public bodies so they can obtain better financing and local governmental control. The missions of private water and rural water systems are fundamentally different, the reason being the lack of profitability in sparse rural populations.

In 1996, this Committee lead by Congressmen Bliley and Dingell, made a significant policy change in the Safe Drinking Water Act. At every opportunity, they ameliorated the Act by including as much flexibility as possible. Nowhere is this more apparent than in the state revolving fund section. Under this approach states were given all sorts of discretion on how to spend the money to meet their local priorities. For example, a state can make grants, can fund set-asides, expand technical assistance efforts, create new prevention programs, increase state staff, or choose to do none of these and retain the traditional low interest loan focus.

Small communities' message here today is that this was a monumental step in the right direction. This flexibility has made state SRFs better and more responsive to nearly every stakeholder. Small systems have seen a level of inclusion and benefits from the drinking water SRF that we could not imagine based on our experience with the wastewater SRF that does not include these flexible provisions.

Some state rural water associations have not been impressed with the way their state has chosen to utilize their discretion. Some states have steered funds to larger systems with less urgent needs, in their opinion, to make fund administration easy and keep bond ratings high. However, this is not a complaint that is appropriate for this committee. Those concerns are best handled in the states and each year locals have a better chance to improve their own state's program.

Kansas is an exemplary case for success in Drinking Water SRF implementation. Many of our small systems are receiving large funding packages from the Drinking Water Loan Fund. The state has made small system funding a priority in Kansas and Kansas has expanded technical assistance to small systems. Assistance is also provided to help small systems through the funding process. The Kansas application for drinking water funding is streamlined and simple enough for a small system operator (with too little time and too much to do) to complete. Kansas has received $50 million in EPA capitalization grants from 1997 to 2001. Rural Water in Kansas worked for legislative support to add $5 million in state funds to the new program. Kansas has the highest leveraged program in the nation at 1:4 thereby creating a loan fund of nearly $212 million. The technical assistance set-aside of 2% have provided $1,129,000 towards small system technical assistance of which about $500,000 has been utilized. The EPA grants have also provided approximately $2.4 million towards Capacity Development which is now beginning to be implemented. The EPA grant has also provided $2.6 million in state program administration. From 1997 to the present time, the Kansas Dept. of Health & Environment has made a total of 75 loans totaling $150,131,845. Fifty-one of these loans, or $67,252,924, were made to systems serving less than 5000 population. The interest rate for the Kansas Drinking Water Loan Fund is set at 80% of the 3 month average of the 20 Bond Buyer for both large, taxing entities and the non-rated rural water district participants. Loan demand through applications received, exceeds available funding by 100%. Why such demand for funding? First, new regulations drive demand for funding and second, infrastructure of the systems in many cases is obsolete and in a deteriorated state because the materials used 40, 50 or 80 years ago did not have the life expectancy of materials often used today. There is also demand for additional capacity. Again though, while bricks and mortar, pumps and pipes are important, the set-asides are also there to provide assistance, particularly to small systems. The Kansas drinking water administration has exploited the provisions in the SRF to invent one of the best local-state partnerships in government.

In Kansas, our state's drinking water administration has exploited the provisions in the SRF to invent one of the best local-state partnerships in all of government. As any new legislation may be considered, small and rural communities urge you to include a few key provisions dealing with flexibility and targeting of funding that have made the drinking water program more responsive to small systems. The Kansas application for drinking water funding is streamlined and simple enough for a small system operator (with too little time and too much to do) to complete.

Mr. Chairman, I would like to summarize the key elements for small and rural communities in considering any modifications to the drinking water SRFs as follows:

- We urge you to retain the three legislative provisions that ensure communities in the greatest public health and economic need receive prioritization in funding programs. One, the communities exhibiting the greatest need should receive funding first. Second, programs should not be limited to making loans because in many situations, small communities will not have the ability to pay back a loan - even with very low interest rates. Third, a minimum portion of the funds should be set-aside for small systems. This ensures that a state must set up a process for dealing with small communities. Once established, local pressures and priorities will determine the actual portion directed to small systems, which we expect will often be greater than the minimum prescribed. All of these provisions were included in some manner in the drinking water SRF - balancing the federal priorities with the state's flexibility to tailor individual programs and discretion on implementation of each these programs.

- We urge you to review proposals for changes in the SRF with caution. There has been no credible finding that the current SRF is not meeting its mission of efficiently providing resources to the communities with the greatest public health and economic needs. Why would we entertain changes to the SRF when it is not broken?

- We have been told that large system groups believe too high a percentage of the present drinking water SRF funding is going to small communities. However, a significant portion of the funding should flow toward small systems because, generally, they need it more. Rates are often much higher per household in small communities - often from compliance requirements. EPA rules on the horizon will likely triple water rates in rural systems. Also, rural communities often have lower median household incomes. The SDWA axiom in rural areas is: much higher cost per household with much lower income. No large system is facing cost increases on a per household basis comparable to what is facing small systems. It only makes sense that federally subsidized funding would flow toward the communities with the greatest need - that is to small systems.

- There is no need to include additional requirements for applicants including: environmental, land use planning, capacity, actual cost of water, common industry practices, etc. We urge you to exercise caution for increasing demands on applicants as each new demand makes the process too complicated for small systems and therefore less attractive. We believe that the current review process is fully adequate to ensure repayment of loans, progressive environmental planning, and long-term capacity of applicants. Nationalizing policy industry practices and determining actual cost of water could lead to gold plating of water utility practices which is not in the best interests of consumers.

- We urge the Committee to limit the ability of any portion of a water system to be eligible for disadvantage type subsidies or other special treatment. To assist any portion of a system moves the effort from an environmental-public health program to a social program. If particular low-income consumers are having problems paying their water bills, we don't think the SRF should be used as the solution. That may be an issue for agencies other than the EPA. It is important to note that a state can determine a large system disadvantaged as well as a small system. Funding a portion of a system seems to be a way to skirt the current process which is working so well at prioritizing systems most in need. Also, this moves the SRF in a direction contrary to the SDWA's regulatory structure which only applies on a system-by- system scope.

- We urge the Committee to consider including provisions guiding the percent of a project that can be used for engineering/consulting services on projects. USDA has such a provision [PART 1780 - WATER AND WASTE LOANS AND GRANTS, S1780.39(b) Professional services and contracts related to the facility]. In Kansas, our research shows that engineering fees are sometimes charged at twice as much in programs that don't have such guidance on engineering fees.

- We urge the Committee to consider allowing states the discretion to extend loan durations to 40 years loans to small communities or regional systems. Due to scarcity of population in regional systems this additional loan time can be the determining factoring in making water affordable in regional projects. Also, this will make the fund consistent with the USDA grant and loan program which includes such authority.

- A change that may improve the SRF ability to meet its mission would be to limit corporate water systems' eligibility for state revolving funding. Taxpayer subsidies should be prohibited from profit generating companies or companies paying profits for shareholders/investors. Private companies argue that they have to comply with the same regulations. However, they voluntarily chose to get into this "business" and compliance is not the over- riding principle that should be considered in this discussion. We believe that the distinction in mission between public and private is the core principal that should be considered. Private systems are in the business to maximize profit. Public water utilities were and are created to provide for public welfare (the reason why public water continues to expand to underserved and non-profitable populations). This is a significant difference. And while we believe that maximizing profit is a noble virtue and as American as safe water, we do not think that taxpayers should help the cause of privately owned systems. In addition, the needs of less affluent public water systems and families with no piped water dwarf the current SRF allocations. The state of Florida has a novel compromise to this issue. Florida limits SRF funds to private water systems less than 1,500 people - ensuring funds are limited to the class of private water systems that did not get into the business as a corporate enterprise. Also, this group of private systems could be included in the state's needs assessment which determines allocations under the bill.

How much money is needed? That is completely dependent to Congress' answer to the question: What are the new EPA rules and what are the standards going to be? For example, the coming arsenic rule will increase the number of small systems facing funding challenges. Dozens of small systems in Kansas (thousands across all the states) will need funding to comply with the arsenic regulation.

One municipality in Kansas that will be greatly affected by Arsenic Rule, established at 10 ppb, is the City of Atwood (population of 1,300) surrounded by farmland and an agricultural economy.

Past arsenic water quality results for the City of Atwood has shown a range of 12 to 18 ppb in the three currently used municipal wells. The proposed arsenic MCL of 10 ppb allows the City two general feasible options to attain the MCL. The community has an option to develop new well fields in the Ogallala formation located several miles from the community. However, while Ogallala formation generally provides better water quality and perhaps an arsenic concentration below the 10 ppb, it is a much more cemented and finer formation. This fine formation decreases production of wells. Thus to develop a sufficient municipal water supply, more area for wells is required since they must be a greater distance apart. The estimated cost of this option would be $2,200,000 based on a five-mile transmission main with four wells to meet daily water demand. A second option available is treatment of the existing water supply sources.

The city presently does not have a single point of entry into the distribution system. Each well is directly connected into the distribution system. All wells are located in separate areas of the existing system. Over 3,000 feet of distance exist between the two farthest wells. In order to implement a point of use treatment plant, a new dedicated transmission main would have to be constructed between the wells. Land and easements would have to be procured to build a treatment facility. Atwood's sulfate concentrations in the range of 90 to 309 mg/L will affect treatment efficiencies in an ion exchange process requiring frequent regeneration. This creates higher operation and maintenance cost (O&M). The estimated treatment facility cost would range from $1,300,000 to $2,100,000 depending on the Best Available Technologies (BAT) selected. Atwood could experience a budget increase of $50,000 to $75,000 per year with the incorporation of a treatment plant. These budget increases are due to operation and personnel requirements. Special by-product disposal requirements could require more operation costs.

In order to provide funding for capital construction and O&M assuming a 5% interest rate and 20-year loan period that corresponds with the life of a treatment facility with 700 connections, the monthly water rate would have to increase by $18 to $29 per connection. Again, please keep in mind this does not include the current water rate and upgrades currently necessary to keep the system in compliance. This analysis has been made by the city's consultant, Miller & Associates Consulting Engineers, P.C., McCook , NE.

This is a conservative estimate and does factor in all the costs for compliance. Rate increases on this type of a community could be devastating.

However, Mr. Chairman, while no system will be in greater need for federal assistance than Atwood, KS the challenge is how to craft a funding program that will work for those most in need. Cost estimates of the funding needed to sustain a healthy U.S. water supply are staggering. The Water Infrastructure Network, of which Rural Water is a member, estimates an $11 billion annual funding gap over the next 20 years. This estimate is over 4 times the current combined federal contribution in the USDA, EPA Drinking Water, and EPA Wastewater programs. While it is not essential for all systems to obtain financing through a federal or state program, the fact is that much of the funding needs are caused by ever stringent regulations. The question for Atwood, KS is what is the benefit of reducing naturally occurring arsenic by 2 parts per billion?

Rural Water is not the type of organization that can present an accurate cost figure on the future need for funding. However, we can acknowledge the extreme shortfall in both EPA SRF and the USDA water programs, as indicators that the current needs are not being met. The USDA program, which is the core-funding program for small water and wastewater projects, is currently experiencing a $3.2 billion backlog. We believe this is the most accurate indicator of need because all of the systems in USDA's backlog have applied for funding. They have met the requirements of USDA's strict needs requirement (including lack of commercial funding availability and high ratios of median household income to water rates).

As stated earlier, in addition to this current need, EPA is proposing more regulations. Many of the regulations will force small towns to come up with millions in financing - many systems will be stressed to comply. I think it is significant to observe a new dynamic in EPA regulations: the regulation of naturally occurring contaminants and the regulations of operations and maintenance in utilities. The result of this new effort by EPA will be to greatly expand the number of systems forced into costly compliance with EPA rules. For example, very few systems were required to treat for EPA's previous rules on organic contaminants, many with anthropogenic origins. However, the forthcoming arsenic rule could capture as many as 4,000 communities; this will greatly drive the demand for additional funding resources. Upcoming EPA rules that may be expensive in thousands of rural communities include: standards for certification of operators, filter backwash, radon, surface water treatment rules, arsenic, disinfection byproducts, ground water disinfection, and others.

The State Revolving Loan Funds are working. Rural Water encourages Congress to consider that whatever changes are considered, please make sure, first, that these Loan Funds target those most in need; second, that the SRFs do not provide tax- payer supported loans to large corporate systems; third, encourage guidelines to keep professional services competitive as in other federal funding programs and last and possibly most important, recognize that new regulations will place more and more demand for further funding just for systems to maintain compliance.



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