Copyright 2002 eMediaMillWorks, Inc.
(f/k/a Federal
Document Clearing House, Inc.)
Federal Document Clearing House
Congressional Testimony
April 11, 2002 Thursday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 5184 words
COMMITTEE:
HOUSE ENERGY AND COMMERCE
HEADLINE:
DRINKING
WATER INFRASTRUCTURE
TESTIMONY-BY: MR. DAVID M. WALKER, COMPTROLLER GENERAL
OF THE UNITED STATES
AFFILIATION: GENERAL ACCOUNTING
OFFICE
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. David M. Walker Comptroller General of the United States
General Accounting Office
Mr. Chairman and Members of the Subcommittee:
I am pleased to be testifying before you today as you consider the
infrastructure needs facing the nation's drinking water systems. As you know,
the U.S. Environmental Protection Agency (EPA) is required to conduct an
infrastructure needs assessment every 4 years to estimate the future capital
investment needs of local drinking water systems. In its most recent national
survey, EPA estimated that nearly $
151 billion will be needed
over the next 20 years to repair, replace, and upgrade the nation's 55,000
community water systems. The needs assessment survey, which EPA uses to estimate
infrastructure needs for each state, serves as the basis for EPA's grants to the
states under the Drinking Water
State Revolving Fund (DWSRF)
program. This program helps communities finance the infrastructure projects
needed to comply with federal drinking water regulations and protect public
health. EPA requests annual appropriations to capitalize the states' revolving
loan funds and then makes specific allotments to each state. The states, which
are required to match a portion of the grants, use the funds to make
low-interest loans to their local water systems; as the loans are repaid, the
states' funds are replenished, enabling them to make loans to other eligible
drinking water projects. For projects located in communities that qualify as
"disadvantaged," the states may extend loan repayment periods or use a portion
of their grants to provide additional subsidies.
In addition to EPA, a
number of federal agencies provide financial assistance for drinking water
facilities through a variety of grant and loan programs, some of which also may
be used for wastewater facilities. Further, some states sponsor their own
financial assistance programs for local drinking water and wastewater
facilities.
My testimony today discusses several issues critical to
assessing the nation's drinking
water infrastructure needs: (1)
the precision of EPA's most recent estimate of drinking
water
infrastructure needs, (2) states' use of EPA's drinking water
state revolving funds to aid disadvantaged communities, and (3)
the amounts and types of drinking
water infrastructure funding
EPA, other federal agencies, and the states have made available. The information
provided in this testimony is based on two recently-issued reports: our January
report for this subcommittee and committee[1] and our November 2001 report on
federal and state financial assistance for
water
infrastructure.[2] We focused on certain aspects of EPA's methodology
in reviewing the agency's needs assessment, specifically the impact of sampling
on the estimate's precision. In addition, we surveyed all 50 states to determine
how they use their drinking water state revolving loan funds to assist
disadvantaged communities. Finally, we obtained information on federal and state
drinking water and wastewater infrastructure funding over a 10-year period
(fiscal years 1991 through 2000) by collecting data from the nine federal
agencies responsible for the majority of the federal assistance and, using a
detailed questionnaire, surveying the states to collect information on
state-sponsored programs. Forty-six states responded to our funding survey. We
converted the annual amounts reported by the federal agencies and the states to
constant year 2000 dollars.
In summary, our work has shown the
following:
EPA took a number of steps to help ensure that it collected
valid data to estimate drinking
water infrastructure needs,
such as conducting site visits to selected systems and asking states to review
supporting documentation. However, EPA and other users of the needs assessment
cannot tell how closely the estimates reflect actual state-by-state needs
because EPA did not calculate the precision of the estimates. EPA set a target
level of precision-generally, the agency wanted to be 95 percent certain that
its estimates were within 10 percent of the "true" needs. We found indications
that the level of uncertainty was higher than EPA's target level of precision,
possibly by a considerable amount, for reasons associated with some of EPA's
sampling methods. Because the results of the survey are used to estimate both
national and state-level needs, they can influence the level of congressional
appropriations for the drinking water
state revolving fund
program, and they form the basis for EPA's allotment of these funds to the
states. Accordingly, we recommended that EPA calculate and report the level of
precision actually achieved in its recent needs assessment, and determine what
implications, if any, its findings have on the methodology to be used to conduct
future needs assessment surveys. EPA concurred that such a calculation would
confirm whether the survey met its precision targets and stated that it would
revisit the issue in the design of the 2003 survey. Thirty-one states have
established programs under their revolving loan funds to assist disadvantaged
communities, according to the results of our 50-state survey. Of the states with
programs, 21 provided about $
94 million in special
subsidies-mainly loan principal forgiveness-and 23 offered extended loan terms.
While criteria for defining disadvantaged communities vary, states typically use
some measure of household water rates relative to a community's median household
income. In addition, states reported that other factors, such as concerns about
depleting the fund and the availability of assistance from other federal and
state sources, influenced their decisions to offer assistance to disadvantaged
communities under the revolving fund program. Because providing additional loan
subsidies can affect the extent to which states' revolving loan funds are
replenished-and therefore potentially the extent to which future federal funds
will be requested-we attempted to estimate of the number of systems potentially
eligible for such assistance. On the basis of limited information provided by
the states, we estimate that about 28 percent of the nation's smallest water
systems could qualify for additional subsidies. In fiscal years 1991 through
2000, nine federal agencies made available about $
44.0 billion
in grants, loans, and loan guarantees for drinking water and wastewater capital
improvements. Of this amount, EPA provided about $
3.7 billion
in drinking water state revolving loan fund grants and about
$
16.6 billion under a similar program for wastewater
facilities. EPA's assistance, combined with that of three other agencies-the
Departments of Agriculture, Housing and Urban Development, and
Commerce-accounted for about 98 percent of the total federal assistance. About
11 percent of the federal aid was specifically for drinking water facilities and
another 40 percent was for either drinking water or wastewater facilities. Also,
according to responses to our survey, state governments made a total of about
$
25 billion in state funds available for
water
infrastructure programs over the 10-year period, including over
$
10 billion to match EPA's capitalization grants.
State-sponsored grant and loan programs accounted for about
$
9.1 billion of the states' contributions, including
$
800 million specifically designated for drinking water
facilities and $
6.3 billion that could be used for either
drinking water or wastewater facilities (and in some cases for other types of
infrastructure projects). In addition, states reported that they made another
$
4.4 billion available for loans by selling general obligation
and revenue bonds, and contributed about $
1.4 billion from
other state sources for purposes such as matching non-EPA federal funds and
financing state-designated specific drinking water or wastewater projects.
Background
Under the 1996 amendments to the Safe Drinking Water
Act, EPA is required to conduct an infrastructure needs assessment every 4 years
to estimate the future capital investment needs of water systems eligible for
assistance through the DWSRF program.[3] Of the estimated
$
150.9 billion capital investment needed according to EPA's
most recent survey, 80 percent ($
119.7 billion) is linked to
projects involving the installation, upgrade, and replacement of the basic
infrastructure needed to deliver safe drinking water to the public. The
remainder of the estimated needed investment--$
31.2 billion, or
about 20 percent-will go to projects directly associated with existing,
proposed, or recently issued regulations.
Water systems vary in size,
which is often measured by the number of customers they serve. In its most
recent survey, EPA obtained information from 100 percent of the largest 1,111
community water systems (those serving more than 40,000 people) and samples of
the remaining 7,534 medium systems (those serving from 3,301 to 40,000 people)
and 44,373 small systems (those serving 3,300 or fewer people). Small water
systems represent over 80 percent of all community water systems, but they only
account for about 22 percent of the estimated infrastructure needs. In contrast,
the largest water systems represent about 2 percent of the community systems and
account for nearly 44 percent of the needs.[4]
Subsidized loan
assistance is an integral part of the DWSRF program in that the interest rates
that states offer to local water systems must be at or below the current market
rate.[5] In addition, the Congress has authorized states to use an amount equal
to up to 30 percent of their DWSRF capitalization grants to provide additional
subsidies to communities that qualify as "disadvantaged" under state-defined
affordability criteria. States with disadvantaged community programs may opt to
forgive a portion of the loan principal or issue a loan at a negative interest
rate. States also have the option of extending the loan repayment period from
the standard 20 years to up to 30 years, provided that the repayment period does
not exceed the expected design life of the project.
U.S. drinking water
and wastewater systems encompass thousands of treatment facilities, collection
facilities, and related works and well over a million miles of pipes and
conduits. While the investment, made over decades, in these facilities is
enormous, even more funds will be needed in the future to support efforts to
maintain clean and safe water. The
Water Infrastructure
Network-a consortium of industry, municipal, and nonprofit associations-recently
estimated needs of up to $
1 trillion over the next 20 years for
drinking water and wastewater systems combined, when both the capital investment
needs and the cost of financing are considered. User rates serve as the major
source of facilities' financing, but both federal and state government agencies
offer financial support as well. In the 107th Congress, legislation has been
introduced in both the House and the Senate that would increase the amount of
federal assistance available through EPA's revolving loan fund programs.
EPA Took Steps to Validate Needs Data, But Did Not Calculate the
Precision of Its Estimates
The 1996 amendments to the Safe Drinking
Water Act require EPA to use the results of its most recent needs assessment
survey to allocate the amount of each state's annual DWSRF allotment. EPA
allocates the DWSRF funds on the basis of each state's share of the total
estimated national need, except that each state receives a minimum share of 1
percent. According to EPA, its periodic surveys are therefore intended to
provide "statistically precise" estimates of the needed capital investments, not
just in total for the nation, but within each state.
EPA took a number
of steps to ensure that it collected valid information about infrastructure
needs at local water systems, and the cost of addressing those needs. For
example, EPA took the following measures:
- For large and medium-sized
systems, EPA used a questionnaire to collect information on capital projects
needed to protect the public health. According to EPA's report to the
Congress,[6] the agency asked the surveyed water systems to provide detailed
information on each project including documentation explaining (1) why it is
needed, (2) the basis for the project (e.g., whether it addressed a current or
future need), and (3) the project's estimated cost (or enough information on the
design capacities so that EPA could use a model to estimate the cost.)
-
For the smallest water systems, EPA sent trained water system specialists on
site visits to collect data after deciding that specialists would provide better
information than a questionnaire because small systems generally have neither
the data nor personnel to complete a questionnaire of this type.
In the
case of the large and medium-sized systems, EPA obtained information from a
sufficient number of systems to estimate infrastructure needs on a
state-by-state basis. (EPA surveyed 100 percent of the largest water
systems-those serving populations of more than 40,000-and a statistical sample
of medium-sized systems, which amounted to about one-third of the systems
serving populations from 3,301 to 40,000.) For these systems, which typically
comprise the majority of a state's needs, EPA set a precision target of plus or
minus 10 percent, at the 95 percent confidence level. This means that EPA wanted
a 95 percent likelihood that its estimate of the needed capital investment in a
particular state would fall within 10 percent of the actual or "true" need for
that state.
For the small systems, the agency's precision target for the
national-level estimate was similarly set at plus or minus 10 percent at the 95
percent confidence level. EPA officials explained that the agency did not have
the resources to send specialists to enough small systems to get an accurate
picture of small-system needs on a state-level basis. (Specifically, EPA
estimated that it would have to conduct site visits at approximately 22,000
small water systems to collect enough data to estimate needs on a state-by-state
basis.) Instead, EPA selected a sample of about 600 small water systems for
these site visits. EPA used the results of these visits to calculate a
national-level estimate of small system infrastructure investment needs. EPA
then apportioned this estimated total among the states on the basis of the
number of each state's small systems, categorized by population served and type
of water source.
In an effort to assess the precision of EPA's needs
estimates, we performed a limited review of EPA's methodology, focusing on the
impact of sampling on the estimate's precision. We concluded that EPA probably
did not achieve its intended level of precision. More specifically, we found
indications that the level of uncertainty, or sampling error,[7] was higher than
EPA's target level of precision, possibly by a considerable amount. For example,
we found that:
- The agency's approach did not account for the fact that
it extensively used average costs estimated from models when calculating its
sample size.[8] Thus, EPA's sample sizes were probably too small, and it is
likely that EPA did not collect data from enough systems to achieve its
precision target.
- Even though EPA's technical experts believed that a
simple random sample[9] would be required to achieve the target level of
precision for small-system needs, EPA deviated from this sampling methodology in
two important ways. First, to avoid the travel costs associated with visiting
about 600 randomly selected systems located throughout the country, EPA used
statistical sampling to select 100 geographical areas and then chose six systems
within each area. Although an acceptable approach, such a statistical sampling
technique can require a considerably larger sample size than when simple random
sampling is used to achieve the desired level of precision. EPA did not increase
its sample size to account for the change in technique. Second, based on
recommendations from an advisory workgroup,[10] EPA intentionally selected at
least one area in each of the 50 states, Puerto Rico, and the U.S. Virgin
Islands. Such geographical constraints had the potential of increasing the
sampling error, thereby reducing the level of precision of EPA's estimate.
Although EPA has calculated and reported the actual precision levels for
other surveys, EPA officials told us that doing so for the most recent drinking
water needs assessment would not be worthwhile, because it would not affect the
allocation of DWSRF funds to the states. In addition, according to an EPA
official responsible for managing the periodic needs surveys, EPA has already
invested approximately 4 years and $
3.6 million to implement
its most recent assessment and summarize the results. The official said that
calculating the actual precision of the cost estimates would cost at least an
additional $
30,000 to $
40,000. Moreover,
actually achieving the precision target could cause the agency to incur further
costs, depending on how many additional site visits were needed.
On the
other hand, there are arguments in favor of calculating the precision of EPA's
estimates. A number of leading survey research associations advocate for the
calculation and reporting of the precision level to fully inform users of a
sample's limitations.[11] More importantly, determining the precision level of
its estimates could help EPA identify any needed changes in its survey
methodology-for example, larger or differently selected samples designed to
minimize sampling error-to improve the future surveys required by the Safe
Drinking Water Act. In commenting on a draft of our January report, EPA agreed
that the calculation of confidence limits would confirm whether the survey met
its precision targets. EPA also stated that it would fully consider our
recommendation and that it would revisit the issue in the design of the 2003
survey.
States Have Made Limited Use of the Optional DWSRF Provision to
Assist Disadvantaged Communities
Under the 1996 amendments to the Safe
Drinking Water Act, the Congress authorized states to use an amount equal to up
to 30 percent of their DWSRF capitalization grants to provide additional
subsidies to communities that qualify as "disadvantaged." The subsidies may take
the form of forgiving a portion of the loan principal or issuing a loan at a
negative interest rate.[12] States have the flexibility to develop their own
criteria to define a disadvantaged community. States with disadvantaged
community programs typically use some measure of household water rates relative
to the community's median household income, allowing the states to assess the
impact of capital project debt on the community's water rates and measure the
project's affordability.
According to our state survey:
-
Thirty-one states have adopted a disadvantaged community program and offer
assistance in the form of loan subsidies or extended loan terms. Three more
states reported plans to offer such assistance as part of their DWSRF programs
within the next 3 years. As of December 31, 2000, 25 of the 31 states had
provided assistance to qualified communities.
- Of the 31 states with a
disadvantaged community program, 27 have adopted criteria that consider local
water rates, often in conjunction with a community's median household income. In
total, 21 states use median household income as a criterion in determining
whether communities qualify as disadvantaged.[13]
- Most states that
have a disadvantaged community program offer principal forgiveness or extended
loan terms for capital improvement projects. States rarely offer negative
interest rate loans to disadvantaged communities. (According to state DWSRF
officials, they find this option difficult to explain to local communities and
difficult to administer.)
- Of the 14 states that had provided loan
subsidies,[14] only Maine, which had used 23 percent of its grants for
assistance to disadvantaged communities, came close to reaching the 30 percent
cap.
In our survey, we asked the states that had not adopted a DWSRF
program for disadvantaged communities to report the reasons why. Of the 19
states without disadvantaged community programs,
- 16 states cited
concerns about maintaining the body of the fund or the long-term viability of
the fund as a major (12) or moderate (4) reason for not establishing a
disadvantaged community program;
- 14 states cited the fact that their
DWSRF program already offers loans at below-market interest rates as a major (9
states) or moderate (5 states) reason for not offering additional assistance to
disadvantaged communities; and
- 12 states cited the availability of
other federal or state programs to address the needs of disadvantaged
communities as a major (5 states) or moderate (9 states) reason for not
providing assistance through the DWSRF.[15]
Non-DWSRF financing from
other federal and state sources is available to help disadvantaged communities,
and many states coordinate with these sources to help disadvantaged communities
secure the funding they need. According to the state drinking water officials we
interviewed, disadvantaged communities often receive a combination of DWSRF and
non-DWSRF funding to finance their drinking water projects. A significant amount
of funding is available for local drinking water projects from other federal
agencies and through state-sponsored grant and loan programs. In our survey on
assistance to disadvantaged communities, more than half the states indicated
that they provided some type of financial assistance for drinking water
projects. Six of the 19 states without DWSRF-related disadvantaged community
programs had state grant or loan programs intended specifically to help
economically distressed communities to finance drinking water improvement
projects.
Because providing additional loan subsidies to disadvantaged
communities can affect the rate at which
states' revolving
funds are replenished-and therefore potentially the extent to which
future federal funds will be requested-we attempted to determine the proportion
of the nation's community water systems that might qualify as "disadvantaged"
and thus be eligible to receive special assistance. According to EPA officials,
the vast majority of systems serving disadvantaged communities are likely to be
small systems.[16] Therefore, we used the same statistical sample of small water
systems that EPA had selected for its infrastructure needs assessment. (A
statistical sample allows generalizing the results to the universe of small
systems, thereby obtaining a national estimate.)
We identified the
specific systems included in EPA's sample-from 5 to 34 systems in each state-and
as part of our survey asked the states to determine which of those systems they
would consider to be disadvantaged. We asked states that were able to apply
their own criteria to determine whether each system initially qualified as
disadvantaged or qualified as a result of the additional costs needed to improve
it. Other states were asked to use GAO surrogate criteria (i.e., to qualify as
"disadvantaged," a community's water rates would have to exceed 1.4 percent of
its median household income).
Our effort met with limited success for
several reasons. The primary reasons were that some states did not have the
information necessary to readily make a determination about a system's
disadvantaged status or they lacked the time and resources to collect the
information for us.[17] In total, we obtained information on a portion of EPA's
sample representing 24,334 systems, or nearly 55 percent of the 44,373 small
community water systems in the United States. On the basis of EPA's sample and
the states' determinations, we estimated that 6,925 systems, or about 28 percent
of the 24,334 small systems reflected in the results of our survey, qualified as
"disadvantaged."[18] However, the high non-response rate associated with this
analysis left us without information on the systems representing the remaining
45 percent of the universe. As a result, we could not determine whether our
findings matched the actual percentage of systems that would qualify as
disadvantaged. Specifically, we had no way of determining whether the systems
for which we had information were systematically different from those systems
for which we lacked information in a way that would make the estimated
percentage of disadvantaged communities higher or lower.
Federal
Agencies Made About $
44 Billion Available for Drinking Water
and Wastewater Infrastructure, While States Provided About $
25
Billion
From fiscal years 1991 through 2000, nine federal agencies made
about $
44 billion in financial assistance available for
drinking water and wastewater infrastructure projects. Of this amount, EPA
provided about $
3.7 billion in drinking water state revolving
loan fund grants and about $
16.6 billion under a similar
program for wastewater facilities. EPA's assistance, combined with that of three
other agencies-the Departments of Agriculture, Housing and Urban Development,
and Commerce-accounted for about 98 percent of the total federal assistance.
About 11 percent of the federal aid was specifically for drinking water
facilities and another 40 percent was for either drinking water or wastewater
facilities. Over 82 percent of the total assistance was provided in the form of
grants; the remainder consisted of loans and loan guarantees. Although the
programs differed in terms of eligibility criteria, allowable uses, and funding
priorities, for the most part, the financial assistance was available to a broad
range of entities.
We use the term "made available" to encompass several
forms of federal funding. Because of differences in the programs and in the ways
that federal agencies account for their financial assistance, the information
that best reflected the amounts made available for drinking water and wastewater
facilities came from data on appropriations, obligations, or expenditures,
depending on the agency and the specific program in question. For example, EPA's
data include appropriated amounts for the revolving loan fund capitalization
grants to the states for each year; the states may not have loaned the funds
(i.e., actually made them available) to local water systems until after the end
of the fiscal year in which they were appropriated. In contrast, the data for
HUD and Commerce consist of obligated amounts-that is, the amounts of funds
allocated by the agencies to drinking water and wastewater infrastructure
projects during the fiscal year. For the loan programs of the Small Business
Administration and USDA's Rural Utilities Service, the amounts represent the
face value of the loans or loan guarantees that were available to be made for
the fiscal year; however, because most of these loans are repaid, the ultimate
cost to the federal government is significantly less than the face value.
More specifically:
EPA's financial assistance came primarily in
the form of grants to the states to capitalize the Drinking Water and Clean
Water
State Revolving Funds. In addition, EPA provided
$
4.5 billion in grants for drinking water and wastewater
projects specifically designated in the appropriations process.
USDA
provided local communities $
4.5 billion in grants,
$
7.1 billion in loans, and $
550 million in
loan guarantees. USDA also provided $
376 million in grants for
water and wastewater projects specifically designated in the appropriations
process.
HUD provided $
4.4 billion in block grants-some
directly to large communities and others to states for distribution to smaller
communities-to be used for water and wastewater projects. HUD provided another
$
39.9 million for specific projects designated in the
appropriations process.
Commerce's Economic Development Administration
provided $
1.1 billion in grants to local communities for water
and wastewater infrastructure.
The remaining federal assistance, which
totaled about $
1.1 billion over the 10 years, was provided by
the Appalachian Regional Commission, the Federal Emergency Management Agency,
the Department of the Interior's Bureau of Reclamation, the Small Business
Administration, and the U.S. Army Corps of Engineers.
In addition to the
assistance available to disadvantaged communities under EPA's DWSRF program,
other federal programs give priority to projects in economically distressed
areas. For example, to be eligible for USDA assistance, facilities generally
must serve rural areas with populations of 10,000 or less and must be unable to
finance their needs from their own resources or obtain credit at reasonable
rates and terms. Proposed projects must be located in economically distressed
areas to obtain funding under Commerce's program, and projects in severely
distressed areas are eligible for higher funding levels.
According to
our state funding survey responses, state governments made a total of about
$
25 billion in state funds available for
water
infrastructure programs from fiscal years 1991 through 2000.
Specifically, the states reported that they collectively:
Contributed
about $
10.1 billion to match EPA's capitalization grants for
the drinking water and wastewater
state revolving funds. This
amount consisted of about $
3.3 billion from state
appropriations or other state sources, and about $
6.8 billion
that the states leveraged-that is, raised through the sale of state-issued bonds
backed by the funds.
Made about $
9.1 billion in grants
and loan commitments under state-sponsored programs, including
$
3.4 billion through a variety of grant programs and
$
5.7 billion in loans.[19] The states reported having a total
of 56 state-sponsored grant programs, 29 state-sponsored loan programs, and 35
state- sponsored programs that include grants and/or loans. Of this funding,
$
800 million was specifically designated for drinking water
facilities while $
6.3 billion could be used for either drinking
water or wastewater facilities or for other types of infrastructure projects.
Made another $
4.4 billion available for loans by
selling general obligation and revenue bonds (15 states).
In addition,
the states reported that they contributed about $
1.4 billion
from state appropriations, interest earnings, and other state sources for
purposes, such as matching non-EPA federal funds and financing state-designated
specific drinking water or wastewater projects.
Mr. Chairman, this
concludes my prepared statement. I would be happy to respond to any questions
that you or other Members of the Subcommittee may have at this time.
LOAD-DATE: April 29, 2002