TYPE: COMMITTEE HEARING

LENGTH: 16973 words

COMMITTEE: HOUSE TRANSPORTATION WATER RESOURCES AND ENVIRONMENT SUBCOMMITTEE

HEADLINE: U.S. REPRESENTATIVE JOHN DUNCAN (R-TN) HOLDS HEARING ON FY 2003 BUDGET: WATER RESOURCES

SPEAKER:
U.S. REPRESENTATIVE JOHN DUNCAN (R-TN), CHAIRMAN

LOCATION: WASHINGTON, D.C.

WITNESSES:

MARIANNE LAMONT HORINKO, ASSISTANT ADMINISTRATOR FOR SOLID WASTE AND, EMERGENCY RESPONSE, EPA
BENJAMIN GRUMBLES, DEPUTY ASSISTANT ADMINISTRATOR FOR WATER, EPA
JANET HERRIN, SENIOR VICE PRESIDENT FOR RIVER OPERATIONS, TENNESSEE VALLEY AUTHORITY
MARGARET DAVIDSON, ACTING ASSISTANT ADMINISTRATOR FOR NATIONAL OCEAN, SERVICE, NATIONAL OCEANIC AND ATMOSPHERIC, ADMINISTRATION
THOMAS WEBER, DEPUTY CHIEF FOR NATURAL RESOURCES CONSERVATION, PROGRAMS, AT THE NATURAL RESOURCES CONSERVATION SERVICE

BODY:

 
HOUSE COMMITTEE ON TRANSPORTATION SUBCOMMITTEE ON WATER RESOURCES
AND
ENVIRONMENT HOLDS A HEARING ON AGENCY BUDGETS AND PRIORITIES FOR
FY03

FEBRUARY 14, 2002
 
SPEAKERS:
U.S. REPRESENTATIVE JOHN L. DUNCAN (R-TN)
CHAIRMAN
U.S. REPRESENTATIVE SHERWOOD L. BOEHLERT (R-NY)
U.S. REPRESENTATIVE WAYNE T. GILCHREST (R-MD)
U.S. REPRESENTATIVE STEPHEN HORN (R-CA)
U.S. REPRESENTATIVE VERNON J. EHLERS (R-MI)
U.S. REPRESENTATIVE STEVEN C. LATOURETTE (R-OH)
U.S. REPRESENTATIVE SUE W. KELLY (R-NY)
U.S. REPRESENTATIVE RICHARD H. BAKER (R-LA)
U.S. REPRESENTATIVE ROBERT W. NEY (R-OH)
U.S. REPRESENTATIVE ASA HUTCHINSON (R-AR)
U.S. REPRESENTATIVE RICHARD POMBO (R-CA)
U.S. REPRESENTATIVE DOUG BEREUTER (R-NE)
U.S. REPRESENTATIVE MIKE SIMPSON (R-ID)
U.S. REPRESENTATIVE HENRY E. BROWN JR. (R-SC)
U.S. REPRESENTATIVE BRIAN KERNS (R-IN)
U.S. REPRESENTATIVE DENNIS REHBERG (R-MT)
U.S. REPRESENTATIVE C.L. "BUTCH" OTTER (R-ID)
U.S. REPRESENTATIVE JOHN ABNEY CULBERSON (R-TX)
U.S. REPRESENTATIVE BILL SHUSTER (R-PA)
 
U.S. REPRESENTATIVE PETER A. DEFAZIO (D-OR)
RANKING MEMBER
U.S. REPRESENTATIVE ROBERT MENENDEZ (D-NJ)
U.S. REPRESENTATIVE GENE TAYLOR (D-MS)
U.S. REPRESENTATIVE EARL BLUMENAUER (D-OR)
U.S. REPRESENTATIVE JAMES MCGOVERN (D-MA)
U.S. REPRESENTATIVE NICHOLAS LAMPSON (D-TX)
U.S. REPRESENTATIVE BRIAN BAIRD (D-WA)
U.S. REPRESENTATIVE FRANK MASCARA (D-PA)
U.S. REPRESENTATIVE MARION BERRY (D-AR)
U.S. REPRESENTATIVE ROBERT BORSKI (D-PA)
U.S. REPRESENTATIVE BOB FILNER (D-CA)
U.S. REPRESENTATIVE EDDIE BERNICE JOHNSON (D-TX)
U.S. REPRESENTATIVE JUANITA MILLENDER-MCDONALD (D-CA)
U.S. REPRESENTATIVE WILLIAM PASCRELL (D-NJ)
U.S. REPRESENTATIVE MICHAEL HONDA (D-CA)
 


*


DUNCAN: We're going to go ahead and call this subcommittee hearing to order. I want to thank everyone for being here. Because we were voting until 3:00 this morning, I don't know how many members we're going to have here today. We usually have between about 16 and 18 members of our subcommittee here, although they come and go. But, hopefully, some of them will come and go as we move along this morning.

We will be interrupted shortly, I'm told, by a general vote, but I thought we would go ahead and at least open the hearing and maybe get an opening statement out of the way or something.

The Water Resources and Environment Subcommittee meets today to receive testimony on the fiscal year 2003 budgets and priorities of the Environmental Protection Agency, the Tennessee Valley Authority, the National Oceanic and Atmospheric Administration, and the Natural Resources Conservation Service. We will have a hearing on the budget of the Army Corps of Engineers a few days from now.

From the EPA's Office of Solid Waste and Emergency Response, we will hear Assistant Administrator Marianne Lamont Horinko. I'd like to welcome Ms. Horinko back to the subcommittee.

From the EPA's Office of Water, we will hear from Mr. Ben Grumbles. Mr. Grumbles is a former high ranking staff member of this committee, and I would like to congratulate him on his appointment as Deputy Administrator of the Office of Water and welcome him back to this committee in his new capacity. All of us look forward to working with him.

The Tennessee Valley Authority is represented today by Ms. Janet Herrin, the Senior Vice President for River Operations from Knoxville. Ms. Herrin is accompanied by Mr. William Oden, who is the Senior Financial Adviser, also from my home town of Knoxville.

The National Oceanic and Atmospheric Administration is represented here today by Ms. Margaret Davidson, Acting Assistant Administrator for the National Ocean Service.

Finally, the National Resources Conservation Service is represented today by Mr. Thomas Weber, Deputy Chief of the National Resources Conservation Programs.

This hearing will provide members of the subcommittee with the opportunity to examine the administration's fiscal and program priorities. I appreciate the constraints imposed on the fiscal year 2003 budget priorities as a result of the September 11th terrorist attack. But I still have some concerns with some of the priorities advanced by the administration's proposed budget.

First, in the EPA's account, the Clean Water Revolving Loan Fund Program continues to be greatly underfunded. Last May, Administrator Whitman told this subcommittee that the EPA wants to engage with Congress in a dialog on the appropriate level of federal funding for water infrastructure. It has been nearly a year, and while EPA has provided technical (ph) assistance, the EPA has not been engaged at certain levels in regard to policy.

As you know, we are working on water infrastructure legislation. I hope that Mr. Grumbles and others are ready to work with us. Congress is moving ahead with legislation, and if the EPA wants to help set the policy, then it must become involved now.

In this time of budgetary constraints, we know that we can't solve all our water quality problems simply by throwing money at them. Even if we had the money, we wouldn't want to return to the inefficiencies and cost overruns that characterized the construction of (OFF-MIKE) programs of the 1970s.

We need increased federal assistance, but we also need our communities to embrace more efficient operating practices. And we need to develop innovative, cost effective approaches to managing all of our water quality problems. I hope the EPA has some constructive some helpful suggestions, and I believe they can come up with such suggestions to help achieve these goals.

Last year, in our budget hearing, Administrator Whitman appealed to this committee to help pass a bipartisan brownfield legislation. Thanks to the efforts of this administration and both parties in both chambers of Congress, this is a goal that's been reached with the president signing on the Small Business (OFF-MIKE) and New Vitalization Act, now public law 107118.

This budget request treats the president's commitment to clean up brownfield sites by doubling the funding to $200 million. But I have some concerns about how the EPA proposes to use this funding.

(OFF-MIKE) the brownfield bill last December, I stated at that time that the EPA should not look at this legislation as an excuse or an opportunity to build a bureaucracy (OFF-MIKE). But now, I think many who have looked at this at this point where the EPA proposes to spend nearly $30 million on this budget, 15 percent of the total, to fund EPA administrative activities and to fund 65 additional federal employees.

This was not the intent of the brownfield funding authorized by the Congress. Congress intended the funding to into communities around the country to encourage and achieve brownfield (OFF-MIKE) development, not to fund EPA bureaucracy.

The Tennessee Valley Authority no longer receives federal appropriations, but this subcommittee still exercises the oversight jurisdiction over the TVA's budget and priorities and anticipates continuing to (OFF-MIKE) programs. I'm particularly interested in, as I have been for many years, TVA's debt reduction efforts.

At one point the TVA debt had reached almost $30 billion and the authority was spending 34 cents of every dollar on debt reduction. That has been decreased to a level that I understand is now 23 cents of every dollar. I'm disappointed, though, to notice a significant decrease in the level of TVA's fiscal year 2003 budget directed toward that reduction. I also want to hear how TVA's plans for expansion of its power generating capacity may affect its efforts to reduce its debt.

The NRCS's budget request for their small watershed program has experienced a significant reprioritization that should also receive attention by this committee.

Finally, NOAA has a significant role to play in various ocean and coastal programs, and I look forward to working with the agency.

And with that, I would like to introduce the newest member of the subcommittee, Dr. Boozman. We welcome him to the subcommittee, and we're certainly pleased to have him as the newest member on this subcommittee.

Dr. Boozman?

BOOZMAN: Thank you very much. I'm pleased to be here and represent the Third District of Arkansas.

DUNCAN: We've got hearings scheduled every week now for several weeks with the reauthorization (OFF-MIKE) a lot of infrastructure (OFF-MIKE) a lot of that in this subcommittee over the next couple of months when we return from this recess.

With that, Ms. Horinko, I'm going to let you go ahead and begin your opening statement.

HORINKO: Thank you and good morning, Mr. Chairman and members of the subcommittee. As Assistant Administrator for EPA's Office of Solid Waste and Emergency Response, I want to thank you for inviting us here today to discuss some of the important EPA programs that fall within the subcommittee's jurisdiction, and specifically to discuss the agency's priorities for those programs as reflected in the president's fiscal year 2003 budget.

Also appearing from EPA today is Deputy Assistant Administrator Ben Grumbles, who will discuss EPA's water programs in his opening statement. With your permission, we will submit our written statements for the record.

Let me start with a brief summary of the president's budget request for EPA. The budget requests $7.7 billion to protect public health and the environment and provide state, tribal, and local governments the resources they need to help build strong, healthy communities throughout our nation.

The president and EPA Administrator Whitman are committed to leaving America's air and water cleaner and its land better protected than it was when this administration took office. Nearly half of EPA's budget request provides funding for state and tribal programs, including almost $3.5 billion in grants for states, tribes, and other partners.

Focusing now on the programs within my office, I am pleased to say that the president's budget request would provide the funding needed to continue EPA's success in protecting public health and the environment through its Superfund, Brownfield, Oil Spill, and, more importantly than ever, our Homeland Security programs.

Let me begin with Superfund. The president's budget request continues steady funding for the Superfund program at $1.29 billion.

HORINKO: This year is not actually a reduction from last fiscal year because funding for the brownfields program will no longer be taken from the Superfund account. (OFF-MIKE) sites to have all cleanup construction completed with an additional 391 sites undergoing cleanup construction as scheduled.

I'm particularly pleased to report that more than 360 (ph) Superfund sites have been put back (OFF-MIKE) generating more than 15,000 jobs and representing approximately $500 million of economic activity at these sites.

Unfortunately, not all Superfund news is good news. Our projected number of sites for cleanup construction for fiscal year 2003 is 40. That is a figure that I am not satisfied with. EPA has done better in the past, and they'll do better in the future.

I am initiating a (OFF-MIKE) management review to ensure that our resources are properly focused to achieve maximum results. In addition, I will shortly announce the formation of a national advisory committee on environmental policy and technology to look at the future scope of the Superfund program, including the challenges that we face in remediating the (OFF-MIKE) and sediment (ph) sites and other (OFF- MIKE) sites that are the future of the Superfund program.

(OFF-MIKE) true on his commitment to making brownfield cleanup and redevelopment a top administration priority. The president's request of $200 million more than doubles last year's funding.

I want to thank the members of this subcommittee, in particular, the chairman, for your hard work and your leadership in passing bipartisan brownfield legislation last year. This additional funding will provide more resources for states, tribes, and local communities to clean up, develop, and remove abandoned brownfield properties. The EPA and its partners will revitalize neglected neighborhoods to protect public health and the environment (OFF-MIKE) and for local economies.

The president's budget also requests an increase in funding for EPA's oil program. The agency's program focuses on preventing oil spills from occurring, reduces the risk of hazardous exposure to people and the environment, and, when necessary, responds to spills. In FY 2003, EPA will ensure that 600 additional facilities are in compliance with the Spill Prevention, Control, and Countermeasure provisions of the oil pollution prevention regulations, for a total of almost 3,500 facilities reaching compliance since 1997.

The tragic events of September 11th will forever change the way EPA has addressed issues of homeland security and response to biological hazards. The president's budget reflects that EPA now has both important wartime and peacetime responsibilities.

As part of our wartime agenda, EPA has a critical role to play in homeland defense, ensuring that our emergency responders are adequately trained and equipped to prepare for the next attack, whether it be nuclear, biological, or chemical. Again, I thank this subcommittee for its support of our emergency response program in last year's supplemental budget request.

Chemical (OFF-MIKE) security is also among our highest priorities, recognizing that millions of residents live near or around these facilities. We have been working with representatives of the chemical industry as well as environmentalists to ensure that the highest levels of prevention are maintained, along with protectiveness and responsiveness. We are now looking for new and more effective means of (OFF-MIKE) to local citizens to improve community right to know programs.

I am also extraordinarily proud and humbled by the dedication of the EPA employees, who worked tirelessly at the World Trade Center, at the Pentagon, and here on Capital Hill to respond to these unprecedented threats. Their hard work and their commitment is truly inspirational and represents the best in public service.

Mr. Chairman, the president's budget request continues to support EPA's sensible programs to protect public health and the environment while providing resources to address the many new challenges facing this agency and our nation's security. We appreciate your oversight of these critical programs and look forward to working with you to improve our nation's environment.

That concludes my prepared remarks, and I'd be pleased to answer any questions that the subcommittee may have.

DUNCAN: Thank you very much, Ms. Horinko. We'll have to break at this time. We've had a vote going on for the past 10 minutes, and so I've got to go. The committee will be in recess for a few minutes.

(RECESS)

DUNCAN: We'll reopen the hearing. I've already given my opening statement, and we've had an opening statement by Ms. Horinko.

I'm always pleased and honored to have my predecessor as chairman of this subcommittee and now chairman of the full Science Committee, my friend, Sherwood Boehlert, here with us, a very active member of this subcommittee still, and I would like to call on him for any comments he wishes to make at this time.

BOEHLERT: Thank you very much, Mr. Chairman. I appreciate this courtesy. I'm especially pleased to be here with Ben Grumbles for his testimony before the committee.

As we all recall very fondly, Ben was an outstanding member of the staff, the professional staff, and I might add a very professional staff of this committee. And when I was selected to be chairman of the Science Committee, I had the good judgment and he was kind enough to accept an offer there. We weren't able to keep him. He's now deputy assistant administrator for water for the EPA.

But I want to way, Mr. Grumbles, on behalf of all of us up here, we appreciate the outstanding service you rendered to this committee and this Congress during your all too brief stay up here.

The chairman and I were walking back from our last vote, and I don't know if you've seen all the police and security, but somebody suggested it was for President Musharraf of Pakistan. I said no, it's for Ben Grumbles. So we're assured that you are secure in coming here, and we very much look forward to your testimony.

Mr. Chairman, thank you.

DUNCAN: Thank you very much, and we've been joined now by several other, I'm sure, very tired members. I would like to recognize any of them that wish to make any opening statements. We have Mr. McGovern and Mr. Berry and Governor Otter and Mr. Shuster and Dr. Boozman. Do you have statements?

UNKNOWN: No, I'll wait to trade my statement for a question.

DUNCAN: OK. Governor Otter?

OTTER: Thank you, Mr. Chairman. I remember when I used to stay up until 3:00 in the morning on purpose. It's changed somewhat since those days.

The president's budget request for EPA has some new things (OFF- MIKE) I think some items worthy of caution and criticism. I applaud the administration for coming in with a higher SRF (ph) request than last year and exactly $1.2 (ph) million higher than this committee has authorized this year.

Utility construction improves our communities and creates good jobs for the men and women who build them. But Lake Cordalane (ph) in Idaho is one of the most beautiful lakes in the world and (OFF-MIKE) job creating source and resource for our state. Unfortunately, it is also the subject at EPA (OFF-MIKE) to designate the entire lake as a Superfund site because of (OFF-MIKE) sediments (ph) at the lake there.

At one point, the EPA dredged that entire lake for these sediments, ignoring local (OFF-MIKE), state (OFF-MIKE), and common sense, just as they have proposed to do it elsewhere in the United States. While this idea seems to have been wisely rejected now by the EPA, the EPA still wishes to expand the existing Superfund site at Bunker (ph) Hill to cover the entire lake.

I and the rest of the Idaho delegation question the science that the EPA is using and has used for this purpose. That is why we have written a letter to the National Academy of Sciences yesterday, asking them for peer (ph) review efforts and (OFF-MIKE) the same (OFF-MIKE) is basing their decision on.

At the Bunker (ph) Hill site, the EPA ombudsman's office is currently undertaking an investigation of the EPA's actions. The previous administration attempted to silence the ombudsman's office and tried to destroy its independence. In response, Congressman Bilirakis and I introduced H.R. 1431 to give the office independence from political pressure.

While Administrator Whitman has announced that she is moving the ombudsman's office to the inspector general's office, I believe that H.R. 1431 giving complete independence to the ombudsman's office is the best way to go.

I do look forward to the testimony and the opportunity to question the witnesses, and I yield back the balance of my time.

DUNCAN: Thank you very much.

Mr. Shuster, would you like to make an opening statement? All right. Thank you very much.

Mr. Grumbles, you may go ahead and proceed with your statement. Thank you very much for being here with us.

You know, it just dawned on me that I always formally introduce all of the witnesses. I did that in my opening statement. I didn't do that for when you were called to the table, but I suppose it's not necessary, since everybody knows you. So go ahead with your statement.

GRUMBLES: Mr. Chairman, I am Ben Grumbles, Deputy Assistant Administrator for the Office of Water. I said that somewhat slowly, because there was the temptation to say counsel on the Water Resources and Environment Subcommittee.

It is a real pleasure and an honor to be here to appear before this important subcommittee today. First, I would like extend Tracy Mann's (ph), the Assistant Administrator, deepest regret for not being able to be here today. No matter how hostile the questions would have been, I'm sure he would have rather been here than away in the hospital.

Secondly, let me introduce to you someone who many of you already know, and that is Diane Legis (ph) sitting behind me. Diane (ph) has been and continues to be a real leading player and involved person in the Office of Water, whether it's the Deputy Assistant Administrator or the acting Assistant Administration, and she's a very integral part to the whole Office of Water and water issues at EPA.

And the third thing I want to do is just to thank you again for the opportunity to talk about the president's budget for fiscal year 2003 as it relates to water issues and programs.

Over the past three decades, our nation has made tremendous progress in water pollution prevention and cleanup. While we have substantially cleaned up many of our most polluted waterways and provided safe drinking water for millions of U.S. residents, significant challenges remain. And, certainly, the administration knows that there are significant challenges ahead.

The president's budget request responds to these challenges and will further our goal of providing clean and safe water for every American community. And that's particularly fitting, as this is the year of clean water, the 30th anniversary of the Clean Water Act.

In my presentation this morning, what I would like to do is just touch on some of the important aspects, such as the targeted watershed initiative that is very important to Governor Whitman and will lead to dramatic progress in cleaning up and protecting the nation's watershed, and also talk about the Office of Water and EPA's core programs for carrying out the Clean Water Act, and also talk about water infrastructure issues, and certainly last, but not least, talk a little bit about the many things that EPA is doing on water security in response to terrorism and other threats throughout the country. Now, with respect to the watershed initiative, Americans depend on clean water for drinking, clean beaches for swimming, and a healthy environment to support fish and other wildlife. Many communities around the country have united to protect their watersheds, using approaches that make sense for their local area.

Those efforts have yielded inspiring results -- cleaner beaches, restored fish and wildlife populations, and waterways that attract visitors, businesses, and families. A key part of the administration's budget for fiscal year 2003 is to catalyze more such efforts by investing up to $21 million for community based watershed approaches.

These funds will support efforts in up to 20 local watersheds and technical assistance throughout the country. The initiative complements other agency sponsored watershed management programs and projects. And I want to assure the committee that the administration is very serious about working with the committee, with Congress, with state and local government, with all the affected stakeholders on helping to shape this important watershed initiative in the following weeks and months.

With respect to core water quality programs, the president's request continues to support EPA's core water quality operating programs, including grants to states under the Clean Water Act Section 106 program, as well as grants under the Section 319 non-point source program to address polluted runoff. The funding level for the Section 106 grants is the highest request ever in a presidential budget.

GRUMBLES: Funding is also increased for grants to support the development of beach monitoring and notification programs at the state and local level, following up on some of the leadership efforts of this committee and others in Congress to enact beach (ph) legislation last Congress. In addition, the budget maintains support for EPA's most critical core programs, such as carrying out water quality standards, ensuring that sound science underlies the regulatory program, working on the TMDL program, and other important efforts.

Water infrastructure needs and financing those water infrastructure needs -- the demands that communities face in providing clean and safe drinking water to all Americans are substantial, and this administration is committed to providing the financial tools needed to help meet those demands. As the committee is aware, the primary mechanism that EPA uses to help local communities finance water infrastructure projects is the State Revolving Loan Funds, both under the Clean Water Act as well as under the Safe Drinking Water Act. The SRFs were designed to provide a national financial resource for clean and safe water and to do so in a way that the states would be managing the programs, and, importantly, this would all provide a funding resource in perpetuity, even after federal capitalization ends.

The president's budget affirms the administration's commitment to capitalize the SRFs and thereby continue to assist states and local governments in meeting their water infrastructure needs. The president proposes $1.2 billion -- specifically $1.212 billion -- for waste water grants to states for continued capitalization of the Clean Water SRF. Combined with the $850 million request for the Safe Drinking Water SRF, the total request for the water infrastructure SRFs is the highest ever.

Let me also say that just by way of some of the dramatic success under the SRF programs, so far, the federal government has provided more than $19.7 billion in capitalization funding to states for their Clean Water SRFs. With the addition of the state match, bond proceeds, and loan repayments, states have made nearly 11,000 individual loans under the Clean Water SRF program for a total of $34 billion since 1988. In fiscal year 2001, the Clean Water SRF issued a record total of 1,370 loans.

In '96, Congress enacted comprehensive amendments to the Safe Drinking Water Act which created a SRF program for the financing of drinking water projects. The Drinking Water SRF was modeled after the Clean Water SRF, but states were given even broader authority to use Drinking Water SRF funds to help disadvantaged communities and support Drinking Water program implementation. For fiscal year 2003, the administration proposes to fund the Drinking Water SRF at $850 million. By the end of 2003 fiscal year, we expect the number of loans issued by State Drinking Water SRFs to reach 2,400, with about 850 SRF funded projects having initiated operations by that date. Together, the Clean Water and Drinking Water SRF programs have proved to be an invaluable source of low cost financing to communities to address their most critical infrastructure needs. Let me just touch on some of the other important infrastructure issues and regional funding matters. One is the $75 million in the president's budget to address priority water and waste water infrastructure needs along the U.S.-Mexico border.

Another very important one is the $40 million to support much needed water and waste water projects in Alaska rural and native villages. Also, in recognition of the lack of basic waste water infrastructure that exists in much of Indian Country, the president is proposing to extend authority granted by the Congress for the current fiscal year that allows EPA to reserve up to 1.5 percent of the funds appropriated for the Clean Water SRFs for wastewater grants to tribes. In addition, the Safe Drinking Water Act Amendments of 1996, which this committee was so involved in, included a provision that allows states flexibility to transfer funds between their Clean Water and Drinking Water SRFs to help meet various needs within the state. Under the president's budget, the administration is proposing to allow states to continue to exercise this important flexibility, and I encourage this committee, working with the Energy and Commerce Committee and with others in Congress, to look very favorably at this request.

Let me just highlight a couple of other items, and one is future infrastructure needs. Under both the Safe Drinking Water Act and Clean Water Act, EPA is required to periodically develop a needs survey to quantify needed water infrastructure investments.

One year ago, EPA released its second report on drinking water infrastructure needs. The new survey shows that $150 billion is needed over the next 20 years to ensure the continued provision of safe drinking water to consumers with the majority of needs associated with water intake, distribution, and treatment. The agency is also actively working to improve information about long- term infrastructure needs, to assess different analytical approaches to estimating those needs, and to estimate the gap between needs and spending with respect to Clean Water Act infrastructure. Last summer, EPA presented its analysis -- known as the Gap Analysis -- to a diverse panel of industry experts. Overall, the reviewers commended the report as a reasonable effort to quantify the gap. We plan to be completing the report and expect to release it shortly, based on the analysis we receive after peer review. Let me just also say that with respect to infrastructure, the agency is aware of recent efforts by other organizations to estimate infrastructure needs, and that we will work closely with Congress and with all the affected stakeholders in getting the right number and working with everyone to really define the issue in terms of water infrastructure.

The last thing I would say -- and I appreciate your indulgence in terms of the length of time for the testimony -- with respect to water security is that this subcommittee held a very important hearing last year shortly after September 11th on the various issues that presented to the security of the nation's water supply. The EPA budget request for fiscal year 2003 responds to those concerns and needs. It includes $22 million to continue the important efforts with respect to vulnerability assessments and to help state and local systems use various tools to get a handle on the various types of threats after September 11th. And the agency is working very hard at implementing and using the funding that was included in the Emergency Supplemental Appropriations Act for 2002, to get the $88 million out through the systems and to those that need it for strengthening the water supplies throughout the country.

With that, Mr. Chairman, let me conclude and say that I'd be happy to answer any questions you or the members may have.

DUNCAN: Thank you very much, Mr. Grumbles and Ms. Horinko. Ranking Member DeFazio was unable to be here at the time of the opening statements, so I'm going to go first to him for any opening statement or comments that he wishes to make at this time.

Well, he just has questions, so I'm going to yield my time on questions at this point to Chairman Boehlert, and then we'll come back to Mr. DeFazio.

BOEHLERT: Mr. Grumbles, I'm going to cut right to the quick. I'm going to ask the most difficult question first, so we'll sort of set you up for this little exercise. After careful, thoughtful deliberation, do you agree it would be a good idea to elevate EPA to cabinet level? I'll let you submit your response to that in writing.

GRUMBLES: You'll get the answer to that in writing. Although I may not be providing the answers, but I appreciate your question...

BOEHLERT: I hoped that you'd be providing the guidance that you did so well so long up here.

GRUMBLES: I'm very familiar with your efforts on that front.

BOEHLERT: And your efforts, too. I just want thank you for a very comprehensive statement. I think we're moving in the right direction, and I applaud the administration for providing the resources necessary -- not necessary, but the extra resources we need. We're still not even close to getting past the adequacy test in view of the demand across the country for the SRF funds. And I'm glad you're focused on the fundability (ph) of Safe Drinking Water and the other SRF.

So I think we're moving in the right direction, and I look forward to working with you. It is always better for this institution to have people in your position with your background and qualifications, because you understand the process up here so well. You were part of it for so long, and now you're on the inside. So I applaud the administration for its outstanding selection, although I must confess I do say it with mixed emotions, because that denied us your services.

But just let me say that I know from experience under Chairman Duncan and Mr. DeFazio and the others on this subcommittee that yours is a very important operation. We think so. We know you think so, and we look forward to working together.

With that, Mr. Chairman, I would yield back my time.

DUNCAN: Thank you very much.

Mr. DeFazio?

DEFAZIO: Thank you, Mr. Chairman. I'm sorry that I was late in arriving.

You know, I don't too often disagree with the colleague that just preceded me from New York, but I'm a little puzzled at his statement that he wanted to congratulate the administration on the extra resources. I guess I'm still looking for the extra resources. I see a $475 million cut for construction for clean water below this year's authorized amount.

BOEHLERT (?): Would the gentleman yield for just a minute? That is somewhat offset by the fact that Mr. Grumbles is in the position he's in. He and I are on the same wavelength with respect to the necessary investments we had to make in the SRFs, and I'm just very mindful -- I'm not completely satisfied, but I'm mindful of those difficult challenges we face now post-September 11th, and I look forward to working with you to get where we both want to get.

DEFAZIO: I thank the gentleman, and, certainly, I know of his leadership on these issues. But I guess I would help Mr. Grumbles in a different way by pointing out the fact that the trolls who live over at OMB and the ones that set the budget priorities at the White House have unwisely reduced needed investment.

Would you like to comment on that, Mr. Grumbles, or do you want to just pass?

GRUMBLES: No, (OFF-MIKE) the trolls. Congressman, I appreciate your remarks about the infrastructure and the grant issues, and I would just note, as many members know, that when you start looking at the budget, there are various ways to look at it. And clearly, if you look at it from the perspective of where are the congressional site (ph) specific fundings or the earmarks, as some might say, then you will see that in the president's budget request, those are not included. So that contributes significantly to the conclusion that there's not the same amount of funding levels...

DEFAZIO: Maybe somebody has to put them back in.

GRUMBLES: I'm not going to comment on that up here, Mr. Congressman, but, certainly, the...

DEFAZIO: Well, we are certainly in touch with both Chairman Boehlert, in terms of his leadership on the (OFF-MIKE) end in looking at needed infrastructure investment, and we can identify billions of dollars of foregone investment on an annual basis in the nation's infrastructure. And then having observed that at this moment, we're debating a so-called stimulus bill for the third time on the floor of the House -- and, you know, one of the most certain ways to put people back to work is with investment in infrastructure. It both benefits those individuals who work, the construction companies who employ them, the people who supply the construction companies. But it also benefits the environment and ultimately benefits the economy, because we have the infrastructure in place for the industrial development and growth. So I think that the administration can expect that we will be pushing hard to raise that number.

I'd like to ask another question. I don't know which way it would be most appropriately addressed, but it would be the issue of the Superfund trust funds balance, which -- from a high of $3.789 billion in '96, the year in which the tax expired -- is down to $28 million, but I believe the expenditures this year will exceed $28 million. So I gather that instead of having a dedicated tax from potentially responsible parties, we are now funding this out of the general funds.

HORINKO: Mr. Congressman, I'll be happy to respond, and you're absolutely right. The trend has continued -- in fact, increased -- over the last number of years to have Superfunds be appropriated out of general revenues rather than the trust fund. And we are, indeed, going to be down to $28 million at the end of this fiscal year.

HORINKO: I would note that we have continued our commitment to the polluter-pays principle, and, in fact, Superfund cleanups continue to be performed 70 percent of the time by the responsible parties. So the administration is very conscious of our need to leverage the trust fund money as much as we can and continue to maintain the polluter- pays principle and look to the responsible parties first to do the cleanup or pay for the cleanup at as many sites as we can.

DEFAZIO: I don't want to bring up the subject of dead bodies, but, you know, we did, on this committee, a couple of years ago with the last administration, which wasn't particularly helpful, on this issue -- and nor were our colleagues outside this committee -- but we did propose to reinstate the tax, which achieved those trust fund levels. Is this administration willing to support reinstatement of the tax, or is that considered a new tax and, therefore, we get to the issue of not over my dead body?

HORINKO: I can't comment on that at this time, but I would be pleased to work with you, and we will have an administration position on that very shortly, I'm hopeful.

DEFAZIO: OK. Thank you.

Thank you, Mr. Chairman.

DUNCAN: Thank you very much. I believe Dr. Boozman was the one that was here first on our side.

BOOZMAN: Mr. Grumbles, in the area that I come from, we have several bordering states. Right now, there's different water quality standards in the streams and things. So it's a little bit confusing. One state will have one standard, and then you get into Arkansas and you have a different standard, and then maybe another state that the stream flows through has a totally different standard.

Are you all addressing this? Do you have any help that you can give us as far as coming out with a standard that might be -- it's not going to be acceptable to all, but at least give us some guidance in that area.

GRUMBLES: Thank you, Congressman. And knowing where you're from -- the Supreme Court case Arkansas v. Oklahoma, which really dealt with the whole issue of interstate water bodies and upstream standards versus downstream standards. EPA certainly recognizes that is an important issue, and that there is a national water quality program.

Some of the things that the agency is doing and continues to do -- one of the important initiatives and efforts of Governor Whitman and Tracy Mann (ph) is to really focus on watersheds, not just watersheds within a single state, but watersheds that are interstate, to try to bring the various parties together and work through cooperative organizations or interstate commissions that may already exist. But there is a lot of discussion on that subject, and there are a lot of thoughts given to how to try to integrate so that upstream and downstream understand they're within a watershed. Sometimes watersheds don't necessarily respect political boundaries.

So what I would say to you is I can probably provide to you some more specific actions that we're doing. But it is a priority to try to have a more integrated approach in watersheds and to look for where there can be consistency, while also respecting the prerogatives of each and every state, since the states are really the governmental entities that establish the standards and carry out the regulations under the Clean Water Act.

DUNCAN: Thank you very much.

Mr. McGovern?

MCGOVERN: Thank you, Mr. Chairman. I appreciate the testimony of the witnesses today, and I want to join with my colleague, the former chairman of this committee, Mr. Boehlert, in commending Mr. Grumbles and commending the administration for their wisdom in appointing you. I also want to associate myself with the ranking member, Mr. DeFazio, in expressing my disappointment in the administration's budget.

I'm the only New England member on this panel, and I feel compelled to express my strong disappointment with the administration's gross underfunding of waste water infrastructure programs. Aging waste water infrastructure and the cost of water and sewer operations is a very serious problem throughout this country, but especially in my part of the country, in New England.

I agree that homeland security must be a priority. But I think Americans also expect a homeland secure from pollution and the health risks associated with it.

The president's budget provides, I think you said, $1.212 billion for the waste water state revolving fund. But that's actually a 10 percent cut from what was appropriated in FY2002, which was $1.35 billion. So we're going in the opposite direction. The administration's request may be up, but what is actually dedicated to this is down.

My home state of Massachusetts stands to lose $4.5 million. And as I've expressed before, we have a waiting list of communities trying to tap into this fund.

The president's budget fails to provide any money for the $750 million combined shore overflow and wet weather grant program, which Congress authorized two years ago. This is a huge issue.

I represent the community of Fall River. We have a combined shore overflow issue there that is devastating the economy, and we're trying creatively to find ways to help that community.

But what's happening is they're passing the cost on to the rate payers, and what that's doing is not only increasing people's water and sewer bills, but it's discouraging economic growth. Businesses are leaving that area, because the water and sewer costs are too expensive there. And it's an issue that we have to deal with.

You know, the EPA acknowledges that there was a funding gap of as much as $23 billion a year for water and waste water infrastructure, yet for the second year in a row, the president's budget reduces federal participation in closing that gap. And I guess the question is, you know, what's the deal?

I'm not sure you can give me an answer. But I just want to make it clear that a lot of us are very frustrated with these budget numbers. And we can point to OMB and we can say that, well, you know, the people who are doing the numbers are just not giving us the leeway to move on this.

But I think we need to send a message that there are a lot of people that are very concerned about this budget, and it's not just people on this panel. If you talk to governors and mayors and boards of selectmen (ph) and city councils all across this country, they're more interested in infrastructure monies and water monies as a way to revitalize their economy than they are in some of these tax cuts that we're talking about. I won't get into that debate.

But the fact of the matter is we've got to figure out a way to make this a priority, and I hope that you'll take the message back that there are some of us who are very disappointed with this budget. It doesn't meet the needs, especially of my communities, and I hope that we can figure out a way before all is said and done to make this thing better.

GRUMBLES: I might just very briefly respond by, first of all, saying, Congressman, I appreciate your remarks on that. I know that one of our priorities is to fully engage in a constructive dialog that always takes place when the administration sends a budget proposal, and the Congress sends its message and also decides what it wants to do in terms of finding a balance between a wet weather flow grants program or putting the additional resources into the SRF.

I think what you see in the president's budget request is to start with the operating principal of putting the maximum resources you can in a wartime budget toward the SRFs. You engage in a constructive dialog with the Congress. You plan on having some infrastructure forums, because there is that very clear recognition that investments in infrastructure are not only good for the environment, but they're good for the economy. And you try to come up with the right mechanisms, alternative approaches, asset management.

I think Tracy Mann (ph) has outlined some of the principles that we're thinking about on infrastructure and SRFs in testimony before the Senate, I believe, last year. But I just want to say I hear very clearly what you're saying, and I look forward to working with you on it.

MCGOVERN: I appreciate that. And you mentioned wartime budget, but, you know, we can blame the war on a lot of different things, but we had, I think, an inadequate budget last time around as well, and it's not just the administration. We need to do better here in trying to get our priorities straight.

But I'll tell you, you leave Washington, and you go out and start talking to some of these leaders in the communities, and the issues that we're all talking about here are foremost on their list. And yet that's not reflected in the budgets that are put forward, not only by the president, but I don't think it's reflected in the budgets that come out of this Congress. But I look forward to working with you, and I appreciate your testimony here today.

DUNCAN: Thank you very much, Mr. McGovern.

I was going to go next to Governor Otter, but he's out, so I'll just -- are you ready? Go ahead.

OTTER: Thank you very much, Mr. Chairman, and thank you for that consideration.

I'd like to start with the deputy director, if I might. The whole principle behind the brownfields bill that we passed last December was to engage and create partnerships with the states in order to provide for the program and for its cleanup.

How can we now, then, justify a 15 percent hold-back of that money that is supposed to go to brownfields and actually do some good cleanup work, and instead that 15 percent, as I understand it, would add about 65 brand new FTEs (ph). How can that be justified?

HORINKO: Congressman, that's always a good question, because our goal in the brownfields program is to push as much federal money out to the states and to the communities so that those dollars can be leveraged and private investment brought in and the communities revitalized. The 15 percent is actually consistent with the percentage that we had last year, in terms of not only the grant management and grant competition functions, but also outreach functions, technical support, enforcement guidance, making sure that the heavy hand of federal liability doesn't fall on these sites, and environmental justice and tribal activities.

OTTER: So then if I might, 15 percent is a reasonable measurement of what could be expected to achieve the oversight, achieve the administration of it?

HORINKO: It's not only oversight and administration, but a number of other important programmatic activities.

OTTER: Well, then, why do we allow the states only a 4 percent take on that same money that we give -- if it costs the federal government 15 percent, and you can justify that, then how can we only give the states 4 percent set aside or 4 percent dedication for their administration and their oversight, especially when they're the ones that are supposed to be doing it?

HORINKO: Congressman, the 4 percent, I believe, is used to supplement the states' own programmatic and administrative resources. But I'd be happy to come up and sit down and go over the numbers with you specifically and talk about whatever adjustments we need to make. And as we engage in the dialog on the budget process, we'll be happy to refine our numbers and sharpen our pencils if we need to based on our discussions.

OTTER: OK. I look forward to that. The EPA recently ordered General Electric to pay $37 million in costs that the EPA itself suffered in doing a study because it didn't agree with the study that was otherwise done. At the same time, I see that the money that was requested for reimbursing a similar study for Lake Portalane (ph) in Idaho is no longer in the budget.

If we're willing to pay out of the EPA, use EPA resources, et cetera, to improve a bad study, why aren't we willing to pay for a good study, one that we now agree with?

HORINKO: Congressman, I'm not sure which particular GE facility you're talking about, but I would be happy to sit down with you again and look into this and make sure that we're doing things consistently across all of our sites as much as we can.

OTTER: Thank you very much.

My apologies, Mr. Chairman. I'm working on another project here with my colleague from Washington, and let me go to that.

Mr. Grumbles, in the watershed project -- and I think that's a very important part of it, because in Idaho, we live, we recreate -- everything we do is on the watershed. So almost any activity that's engaged in, whether it's just raising a family, is on the watershed. If you're going to work every day, it's on the watershed. If you're going to school, if you're going to college -- everything we do is, indeed, on the watershed.

We created in the prior season of 2000 an 880,000-acre what I would call an obvious Superfund site.

OTTER: And it happened to be the forest fires -- most of those forest fires, it has been agreed by all the experts, could have been averted if we had had a healthy forest, and part of that healthy forest, of course, is under the auspices of the Forest Department and the Department of Agriculture.

Is the EPA now working with, or will the EPA work with a partnership in establishing a good forest health policy so that we can truly protect our watershed, because now, that 180,000 acres -- that fire burned so hot that there's some depths on that watershed that were calcined down to 18 inches. There's nothing in it. There's no life left in it at all. And all that sediment is now headed for the Snake River, the Clearwater (ph) River, the Salmon River, and eventually to Mr. DeFazio's district in the Columbia River.

We've already asked the Army Corps of Engineers to get the dredges out, because the sediments going down that river are so bad it's stacking up on the bottom of what used to be a shipping lane, and we're starting to shoal. I would just ask you -- I see my time's already up -- but I would just ask you is it the EPA's intention to work out partnerships with other agencies like the Forest Service so that we can establish a good forest health plan that really calls for protecting the watershed and protecting the watershed for the best function that it can provide, and that is clean water.

GRUMBLES: Congressman, I think, very clearly, our intention is to reach out and to work with the Forest Service, work with other agencies within the Department of Agriculture, within the Department of the Interior, because if you don't have the integration among the federal family, you're not going to have a successful approach when there's so many different agencies and programs and players that are involved. So I know that the agency is working to really reach out and coordinate with the Forest Service and other agencies, and that's my understanding.

Now, if you get into some of the specific issues of control, of who is putting together a management plan -- and, clearly, the statutes and other agencies are the primary players, and EPA may have a limited role. But in terms of reaching out and trying to help provide constructive input and engagement, I think very much the EPA would look to do that.

The EPA recognizes that a holistic approach, a watershed based approach, means looking at the sediment, looking at the runoff, looking at the various types of activities in the watershed and coordinating with the various agencies that are making decisions. So I appreciate your comments on that, and I'd be happy to follow up with you more to get more specifics on it.

OTTER: Thank you, Mr. Chairman.

Thank you, Mr. Grumbles.

DUNCAN: Thank you very much, Governor Otter. Before I go to Mr. Baird, I just want to do a quick follow up to Governor Otter's first questions about the brownfields cleanup.

I had the privilege of being the lead sponsor on that brownfields cleanup bill along with Mr. Gillmor of Ohio, and I hope, and I think all of us hope, that that program will not end up being like the Superfund. We have read and heard for years, everybody has, about the whopping percentages of the Superfund bill that have been spent over the years on consultants, lawyers, studies, bureaucracy, administrative costs. I've seen estimates as high as 85 percent of that money -- and a very small percentage has been spent on actual cleanup.

So I appreciate Governor Otter's point. Frankly, his point was good, but what worries me is that I hope, a few years from now, we're not told down the road that even greater or much higher percentages of the brownfields cleanup has gone toward administrative or bureaucratic type costs and not much of it toward cleanup. I think the EPA is going to have to watch that and monitor that very closely to make sure that that program doesn't end up like the Superfund program.

Do you have any comment, Ms. Horinko?

HORINKO: Mr. Chairman, I could not agree with you more. In fact, one of the things about the brownfields program that makes it so successful is that it is not a program that is really run out of Washington. It is a program that is run in the field. And the folks who are in Washington have a very can-do, entrepreneurial attitude in terms of -- we don't want to create a large bureaucracy. We really do want to push the money out to the communities and make sure it gets in good hands.

DUNCAN: That's right, and so far, so good. But as I say, you have to watch that, because five or 10 years from now, it could be totally different if we don't stay on top of it.

Mr. Baird?

BAIRD: Thank you, Mr. Chairman. I want to begin by joining those who compliment Mr. Grumbles on his new position.

It's good to have you there. You did a great job in your former post.

One of the things you worked on in your former post had to deal with invasive species. Many of the folks who are testifying before us today -- the Tennessee Valley Authority, you folks talking about SRF funds, in a little bit, NOAA will be talking -- my grave concern is that invasive species is the number two cause of loss of habitat in our country. They cost billions of dollars in infrastructure, and as we are trying to find funding through SRF and other programs to implement public water quality infrastructure, we run the risk that on the other side, invasive species -- particular of concern to me is the zebra mussel, which my friend, Mr. Otter, and I are working on, but there are also issues of milfoil (ph) and a host of other species -- will cost us far more down the road than we are spending today to try to improve our infrastructure.

I know this is a comment for the next panel, and I hope I can stay long enough to chat with them. But I see that NOAA has zeroed out -- my understanding is -- their ballast water demonstration program. They have cut by $2.25 million down to just $800,000 their '02 request for research under invasive species.

I think this is ludicrous, given on the one hand, we're trying to clean up our water system with infrastructure. On the other hand, we may have invasives coming in that will clog all of that infrastructure. I wonder if you have some comments on that situation.

GRUMBLES: I appreciate the question and the issue. It's a dramatically important issue. EPA is spending a lot of time, actually, looking at invasive species. The assistant administrator, Tracy Mann (ph) -- as you know, his job prior to coming to EPA was running the Office of Great Lakes up in Michigan, and he is intimately familiar, perhaps painfully familiar, with some of the zebra mussel and other exotic species issues.

It's a water quality issue. It's an infrastructure issue. It's an ecosystem health issue. And EPA, on a variety of fronts, is looking at that, both in the Office of Oceans, Wetlands, Watersheds, as well as in some of the permitting offices -- looking at some of the issues.

But invasive species is, as you've pointed out, one of the major issues. It's already been an issue, and it may become an even greater issue in the future years. And we'll be looking at it and will be happy to work with you and other members and committees on the environmental and infrastructure aspects of it.

BAIRD: I recognize that it's very difficult in this institution to do things preventively. Nobody's going to stop us on the street and say, "Thank God you saved us from the zebra mussel."

But if we do prevent the zebra mussel from getting into the West Coast, the Snake River system, the Columbia River system, the entire West Coast river system, we will save our people, our taxpayers, hundreds of billions of dollars over the next few decades, and that would far outweigh the small investment we're making right now. So I would encourage you, as we look at the invasive species reauthorization this year, to do what you can to support increased funding through that, and in your contact with the administration to help them understand the tremendous threat that invasives pose to our ecosystem, to our agricultural system, to our water supply, to shipping, to our energy system, et cetera. It is billions of dollars, as you know.

I will work with you in any possible way I can. I look forward to working with Mr. Otter. I know the chairman is well aware of this situation as well, and thank you for your interest.

Thank you, Mr. Chairman. I yield back.

DUNCAN: Mr. Grumbles, Sunday before last on the ABC interview program with Sam Donaldson, Cokie Roberts, and George Will -- I don't remember the name. I know "Face the Nation" is CBS, and "Meet the Press" is NBC. I don't know remember the name.

But at any rate, they mentioned on that program that during the first year of the Korean War, President Truman recommended a whopping increase in the defense budget, but a 28 percent cut in domestic spending, and nobody raised a fuss. Now, President Bush has recommended a whopping increase in defense, and then a 2 percent increase in domestic spending.

Obviously, there are all kinds of studies and groups that have indicated that the water infrastructure needs are much, much greater than what is in the budget. Yet nobody is going to get all the money they want or need, I suppose.

But what I'm getting at is if substantial increases in federal dollars are not there because of the war or because we don't want to run up huge deficits, or whatever, what then can the EPA do to help communities meet their water infrastructure needs?

GRUMBLES: Mr. Chairman, first of all, I think it's fairly safe to say that there is no silver bullet. There is no single solution to that issue. The EPA certainly recognizes that there is a tremendous gap in infrastructure...

DUNCAN: But my question is are you studying or recommending public-private partnerships or innovative technology or -- in other words, let's get beyond the gap, recognizing that the gap is there, and that we're probably, realistically, not going to be able to take care of it all at once. So what do we then do?

GRUMBLES: The answer is yes, we are looking at that, the public- private partnership, the use of various mechanisms, asset management, to the extent there are barriers to having more cost effective approaches, getting in and looking at various ways, whether it's privatization, which can be very controversial in some circles, to other methods that can, through more strategic and targeted management of one's assets, help reduce some of the costs. Technology also offers a way to help reduce the gap, coming...

DUNCAN: Are you working or can you work hard to get some of this good information that you have or the good knowledge that your experts have out to the local communities?

GRUMBLES: Well, there's no doubt that we can always work harder on that, and we hear loud and clear it is a tremendous issue for communities, the whole affordability issue. One of the items that is definitely in the planning stages is to have a forum, a very high level forum, where elected and non-elected officials can talk about the tools to meet some of the infrastructure needs, to have more effective partnerships, to reduce costs, to come up with better ways.

Trading is a concept that is a very high priority of the assistant administrator and within the administration, looking at cost effective ways to meet Clean Water Act requirements, to go above and beyond the requirements to have more environmental progress, but to do it in a more cost effective way. And it's the utilities, it's the rate payers who are the ones who are very interested in that, because they know that the costs are only going to increase if you just continue with the status quo.

DUNCAN: I'll ask you or Ms. Horinko has the EPA done any comparison between market based approaches and regulatory approaches for achieving your water quality goals?

GRUMBLES: In terms of some of the studies the EPA has done, first of all, there have been a lot of studies. I think both members and staff on this committee know that over the years, there's been a lot of interest in market based approaches and economic incentives. There have been a variety of studies -- one of the studies that came out fairly recently that I'd be happy to provide copies of to the committee was in January, 2001, and that's "The United States Experience with Economic Incentives for Protecting the Environment," specifically talking about market based approaches, affluent trading, water quality base trading, things like that.

The one that really jumps off the top of my head is the cost estimates, or the TMDLs, the draft report, and that report addresses a lot of things.

GRUMBLES: But one of the items that was in the study is that the total implementation cost of more cost effective TMDL programs would be substantially less -- around $900 million -- than the less flexible programs in terms of meeting TMDLs.

DUNCAN: We had a hearing about that recently. Let me ask one last question. My time is up. Just yesterday, the Associated Press came out with a story that said that the EPA gave out $2 billion in grants -- it says, "$2 billion in grants the Environmental Protection Agency has given out to non-profit groups since 1993, many without competitive bids or subsequent audits, an Associated Press computer analysis has found."

Ms. Horinko, what do you say about that? I know that these grants were not given on your watch, but is the EPA going to be more careful in the future about these grants and look more to competitive bids or do subsequent audits to make sure that the money is not being just blown or wasted or spent in some fraudulent way?

HORINKO: Mr. Chairman, I am very committed to that. In fact, I had the privilege of serving at EPA in the administration of the first President Bush, and that was at the time when there was all that concern about the Superfund program.

And under the leadership of my predecessor, Don Clay (ph), we were instrumental in bringing about many reforms to the grant process that ensured that not only were the expenses and the overhead kept down, but that there was competitive bidding and sourcing. Certainly, our experience in the brownfields program is illustrative of making sure that our cooperative agreements and grants and loans are administered in as fair and competitive a process as possible. So I'm committed to that and have a lot of experience with this, and I'd be happy to sit down and talk to you specifically about some of the efforts we're making to make sure that we award our grants and contracts as competitively as possible.

DUNCAN: Well, you probably should take a look at this Associated Press story from yesterday to try to make sure that some of these grants aren't given out -- they talk about golf courses -- I don't know -- $100,000 study on reducing methane emissions from cows in the Ukraine. I don't know. It's a lot of things like that.

Mr. Berry?

BERRY: Thank you, Mr. Chairman.

I don't know either one of you all. You seem like perfectly responsible and dedicated people, and I appreciate you being here today.

Ms. Horinko, you made the comment while ago -- I think you were talking about brownfields -- that you felt like that they did it better at the local level. Mr. Grumbles, in his remarks while ago, said that you didn't fund the earmarks. That seems to be kind of a conflict in position.

Of course, if we didn't have OMB, we'd have to invent them, and I understand that. But I would try to make the case that I think the earmarks have a good place, because I think they're more -- certainly, you all would not come to the position that these decisions are all better made in Washington than they are at the local level, and that's our job, to carry this information and get these projects done at the local level. We're the liaison between the two.

While I have the opportunity -- because I'm afraid I'm not going to have time to stay for this whole thing -- I want to make the point -- and this is not your issue -- but the fact that the small watershed program has not been funded at all is a terrible mistake. It is devastating to rural America. That is a program that is to the rural communities what the Corps of Engineers and others are to the big cities. And I would make the point that we just simply cannot have that go unfunded, and I would hope that you all would help carry that message.

The only other thing I want to mention -- Mr. Grumbles, you mentioned TMDLs while ago. The district I represent has the largest bait fish production in the country, in the world. EPA has suddenly, in the last couple of years, decided that they want to do a real serious, hard-core regulation of that industry.

When Ms. Whitman came in as the administrator, she told us that they were going to back off on some of these things, because it's all about water quality and what goes into the stream. And EPA had proposed at that time that they would require all of these producers to fill out a full-blown, complete financial statement, and their justification for that was we want to see how much regulation you can afford. I think that's absolutely unconstitutional.

Governor Whitman told us a year ago that they were not going to do that. Now, the EPA has proceeded with that effort. I would ask you to go back to the agency and really question this. If we've got a water quality problem there, the first thing we need to do is find out what the problem is. It has nothing to do with these people's financial condition. Whether they've made money or have money or have resources or anything else should not be relevant at all.

So I would hope that you would take that message back to the agency, and if we've got a water quality problem, let's work together to see what it is and correct it. But for the EPA to require these producers to fill out, under penalty of law, according to the letters they have sent out and the documents they have sent out -- to require them to fill out a full-blown financial disclosure statement, I think, is just absolutely irresponsible. So I would hope that you all would check into that.

GRUMBLES: Certainly, Congressman.

DUNCAN: Thank you very much, Mr. Berry.

Mr. Brown?

BROWN: Thank you, Mr. Chairman. I apologize for being late and not having the privilege to hear your testimony.

I'm from South Carolina. I represent the First Congressional District, which is down on the coast. Wetland protection and litigation is a big factor for us, and I certainly would like to make an appeal to -- I know you all probably aren't responsible for this particular activity, but we have a lot of areas, particularly -- we call them rice fields, which were planted back during the rice economy back in the 1600s and 1700s.

All of a sudden, EPA has taken a kind of a different interpretation of the use of those rice fields. They're used to cultivate food plots for water fowl, and so they've got to have some irrigation, some tilling, and this sort of thing, in the rice fields. And I would just hope that the EPA would look at those standards that have been set to allow flexibility for those people that want to participate in those type programs. I would appreciate your consideration on that.

DUNCAN: All right. Thank you very much. I think you can tell by the statements that there are many, many concerns, and most of these will have to be taken care of in private meetings rather than in full scale hearings.

But we do thank both of you very much for your very helpful testimony and your work, and we will be, I'm sure, meeting with you several times in the months ahead, and working together ought to solve some of these problems. Thank you very much for being with us today.

HORINKO: Thank you, Mr. Chairman.

GRUMBLES: Thank you, Mr. Chairman.

DUNCAN: I'll ask our second panel to come forward and take their seats at the table at this time. Representing the Tennessee Valley Authority is Ms. Janet Herrin, Senior Vice President for River Operations. She will be accompanied by Mr. William M. Oden, who is the Senior Financial Adviser for the Tennessee Valley Authority.

Representing the National Oceanic and Atmospheric Administration is Ms. Margaret A. Davidson, who is the acting Assistant Administrator for the National Ocean Service. Representing the Natural Resources Conservation Service is Mr. Thomas A. Weber, Deputy Chief of the Natural Resources Conservation Programs.

I thank each of you for being here with us and for taking time out of your busy schedules to be here this morning. We always proceed in the order in which the witnesses are listed in the call of the hearing, and that means we will start with Ms. Herrin.

Ms. Herrin, you may proceed with your statement.

HERRIN: Good morning, Chairman Duncan, Ranking Member DeFazio, and members of the subcommittee. On behalf of the TVA board and our employees, I would like to thank you for the opportunity to appear here today to give testimony on the Tennessee Valley Authority's budget forecast and recent operational highlights.

My name is Janet Herrin, and I serve as TVA's Senior Vice President of River Operations. In that capacity, I manage the daily operations of 49 dams, 29 hydroelectric plants, one pump storage facility, 650 miles of commercial navigation, and flood control operations of rivers that reach into seven states.

I am joined here today by Bill Oden, who is TVA's Senior Financial Adviser. Bill will be outlining TVA's recent financial performance and the budget forecast for fiscal year 2003.

Created by Congress in 1933, TVA is the nation's largest public power provider. TVA serves the people of the valley by producing reliable, affordable electric power; supporting sustainable economic development; and maintaining stewardship of the Tennessee River basin.

A corporation of the federal government, TVA operates as a business, using the best practices of private enterprise to achieve excellence in operations and public service. TVA is entirely self- financing and receives no funding from Congress. The last time TVA received federal funding for its traditional non-power program was in fiscal year 1999.

The mission set forth by the 1933 TVA Act remains the cornerstone of TVA's day to day service to the Tennessee Valley. TVA is charged with providing navigation, flood control, and agricultural and industrial development while providing electric power to the Tennessee Valley region.

Operationally, fiscal year 2001 was a very strong year for TVA. During last fiscal year, TVA's fossil system generated a record 100 billion kilowatt hours, representing 60 percent of TVA's total system output.

TVA's nuclear plants continue to set national standards in operational performance, and TVA's 17,000-mile transmission system maintained a reliability rate of 99.999 percent. Transmission reliability and plant efficiency enabled TVA to reach a new, all-time winter peak of 27,015 megawatts on January 3rd of 2001.

The Tennessee River is at the very heart of all of TVA operations. TVA met its statutory obligations to operate and maintain its extensive system of dams, reservoirs, and public land. TVA will continue to fund these public resource management services at approximately the same level as in fiscal year 1999, the last year TVA received appropriations of $43 million to support this effort.

There are a myriad of competing interests that depend on the river resources for pleasure, prosperity, and quality of life. It is for this reason that TVA recently initiated a formal study of reservoir operations that put special emphasis on analysis of water quality impact from alternative operating policy.

The TVA board chartered the Reservoir Operation Study to be completed in two years. The study will be conducted under the provisions of the National Environmental Policy Act in response to GAO and Regional Resource Stewardship Council recommendations that TVA evaluate how the reservoir system can allocate water among the competing uses to create the greatest benefit for all citizens. Analysis in the areas of flood risk, water quality, navigation improvement, and economic impacts of water based recreation are underway.

I also wanted to use this opportunity today to update the members of the subcommittee on the status of Chickamauga Lock. Many of you know that the lock suffers from concrete growth and will have to be closed sometime after 2009.

In December of 2001, the U.S. Army Corps of Engineers completed a draft supplemental feasibility study and a draft environmental impact statement in which they tentatively recommended construction of a 75 foot by 400 foot lock to replace the existing 60 foot by 360 foot lock. The current schedule calls for the Nashville District to finalize the feasibility report and EIS this spring.

HERRIN: The Corps of Engineers will prepare a report of the Chief of Engineers in accordance with Section 455 of the Water Resource Development Act of 2000. Upon completion of the chief's report and administration review, the project will be considered for inclusion in authorization legislation.

Thank you again, and I would like to turn things over to Bill Oden, who will discuss TVA's budget estimates for fiscal year 2003.

DUNCAN: Well, thank you very much, Ms. Herrin. And I can tell you that I had a meeting in my office just a few days ago with the top people -- General Flowers (ph) and others -- from the Army Corps of Engineers concerning the Chickamauga Lock, and Congressman Wamp and I are both staying on top of that. While it's in his district, it is much more important to my district, and we're making sure that that progress continues on that lock.

Mr. Oden?

ODEN: Thank you, Janet, and good morning, Mr. Chairman.

As TVA continues to prepare for competition in the future, our goal will be to offer a competitive price of electricity while maintaining an adequate supply of generation to meet the ever-growing demand of our customers. TVA's power sales have increased by an average of 3 percent annually over the past decade. To meet that demand, TVA has added some 5,000 megawatts to its generating capacity, which now totals 30,000 megawatts.

While investing is necessary to expand TVA's power system to meet growing demand, TVA has also been able to reduce its debt burden, and the TVA board remains strongly committed to maintaining the trend of debt reduction. In fiscal year 2001, TVA reduced its debt by $610 million. This represents a cumulative reduction of $2.3 billion since 1997.

By reducing debt and taking advantage of lower interest rates, TVA has substantially reduced its interest cost. In 1997, TVA's annual interest expense was $2.0 billion and consumed 34 percent of TVA's revenue dollar. In 2001, interest expense was down to $1.6 billion or about 23 percent of our revenue requirements. For the current fiscal year, we expect TVA's interest expense to be under $1.5 billion, which is a reduction of 25 percent since 1997.

As Janet mentioned earlier, TVA's power program is entirely self- financing, and it has been since 1959. With projected revenues of $7.3 billion in fiscal year 2003, TVA's power business will generate net cash flow of about $1.7 billion. Of this amount, $1.4 billion is expected to be used to fund capital requirements, and about $250 million would be available to reduce debt in 2003.

I would emphasize here that the 2003 estimates are preliminary estimates, and TVA's board has not signed off in final on the 2003 budget. They'll be doing that later in the summer. I know they intend to make these numbers even better.

TVA will also return approximately $50 million to the U.S. Treasury. TVA has made such annual payments of the taxpayers' original investment in TVA's power system plus a return on that investment at current market interest rates every year since 1959.

Our planned capital investment in fiscal year 2003 includes $343 million for emissions control equipment, $259 million for new generating capacity, and $176 million for transmission system improvements. Other investments will be made to upgrade and improve the efficiency of TVA's existing fossil, hydro, and nuclear generating plants as well.

TVA is working hard to prepare for the future by reducing our debt burden and keeping our power system reliability high and our electric rates low. The TVA board is intent on working with Congress, the administration, and stakeholders throughout the region on the issues that would help shape the future for the Tennessee Valley.

Thank you again for the opportunity to appear before you today, and Janet and I will be happy to answer any questions.

DUNCAN: Thank you very much, Mr. Oden. Before we go to Ms. Davidson, I will just tell you that for many years, I operated -- I'll probably never be rich, because I'm horrified by debt.

For many years, I operated without a single credit card. Then my wife insisted that I get one because of traveling and so forth, and I hardly ever use it now. I've said before I'd rather sleep on a floor than to sleep on a bed that's not paid for.

And I never paid for a car on time until I got sucked in by one of my sons a few months ago and bought a pickup truck on zero percent interest. So now I'm making car payments for the first time in my life.

But when I see that TVA has gone from $610 million, paying down their debt in 2001, down to $50 million in 2002, that bothered me. And I think that TVA has probably the best leadership it's ever had. I'm a big fan of Chairman McCulloughs (ph). Bill Baxter (ph), although he's, I think, very embarrassed by this, was a law clerk for me many years ago. He's been a long-time friend. And Skila Harris (ph) seems like a fine person also.

But I certainly hope that your projection of this $250 million is accurate and that you could possibly even surpass it, because I just think it's -- I've thought for many years that it's just been terrible that TVA got so deeply in debt. The Freemans (ph) just about ruined TVA and really hurt the rate payers by running up the debt to the extent that they did, and having to spend so much -- as I mentioned in my opening statement, 34 cents of every dollar -- to service debt.

A few years ago, I was pleased to help with the -- to be, actually, the first one to write to the Federal Financing Bank to get some help when the interest rates started going back down. But I really hope that you'll keep on working on that so we can do even better. To drop from $610 million to $50 million is not too good. And I hope I said million all through there. I'm so tired right now, I may have said billion sometimes when I meant million. I don't know.

But I'm not a night owl. I'm not used to staying up until 3:00 in the morning, although when I was talking about the brownfields bill a while ago, I happened to remember that we passed that bill, I think, a little past 4:30 in the morning. Of course, I had to speak on the floor, and I thought, boy, if there's anybody watching CSPAN at this time of the morning, they must be really an odd person or had a real problem sleeping.

I've gotten off track there, Ms. Davidson. Thank you very much for being here with us, and you may begin your statement.

DAVIDSON: Thank you, Chairman Duncan, and members of the subcommittee. My name is Margaret A. Davidson. I am the acting Assistant Administrator for NOAA's Ocean Service.

I appreciate the opportunity to appear before you this afternoon to discuss our fiscal year 2003 plans and priorities for those NOAA programs that are under your subcommittee's jurisdiction. I'd like to, of course, submit my written statement for the record and focus my brief remarks on how NOAA's Ocean Service fulfills NOAA's responsibilities for protecting and restoring coastal and marine resources.

NOAA is the lead federal trustee for coastal and marine resources, such as living marine resources, tidal wetlands, and within our national marine sanctuaries. Under CERCLA, the Comprehensive Environmental Restoration, Compensation, and Liability Act, known to you all most frequently as Superfund, as well as the Oil Pollution Act of 1990, NOAA is the coastal and marine trustee, and we protect and restore those coastal and marine resources when they are threatened or injured by releases of oil and other hazardous substances.

For instance, since 1985, our coastal protection and restoration program works with EPA out of EPA regional offices during remediation efforts at hazardous waste sites and contaminated sediment sites. Our responsibility and role is to recommend cost effective assessment, cleanup and monitoring strategies for those sites, restore natural resources through cooperative settlements with responsible parties, and provide database and mapping tools and training to both the agencies as well as to the private sector. Annually, that program improves habitat at over 250 coastal waste sites throughout the country, such as the 300 acre restoration project at the Tulalip Landfill in Washington State.

Our damage assessment and restoration program conducts natural resource damage assessment and restoration for oil spills and discharge of hazardous substances. One of our high profile projects has been down in Tampa Bay, Florida, where a big spill occurred about eight years ago, and the $8 million that was recovered from the responsible parties has been put toward oyster reefs, mangroves and marsh restoration, shoreline stabilization, sand replacement on the beaches, bird rehabilitation of habitats, construction of public trails and walkways, and rehabilitation of fishing piers and other state and local priorities for that damaged site.

Since its inception in 1990, that program has received total appropriations of less than $40 million for damage assessment activities, which cover our administrative costs, not quite, which is why we're here today. But that has led NOAA and its federal partners and the state injured parties to secure more than $300 million in restoration funding for those injured coastal and marine resources.

In our budget request for fiscal year 2003, we request a total of $17.2 million, including a modest increase of $2 million under the NOS response and restoration line item to help improve our protection and restoration of those injured resources. More specifically, Mr. Chairman, that request will support more restoration efforts through local and regional partnerships, more effective regional restoration planning, and incentives for industry restoration.

For example, our cooperative assessment pilot program will provide incentives for industry to restore coastal environments contaminated by hazardous substances themselves rather than waiting for the feds to get around to it. The goals are to expedite that restoration, streamline the damage assessment process, engage the private sector in the restoration itself, and help accelerate cleanup and restoration in state lead sites as well as coastal brownfield sites.

The administration is also requesting a continuation of the $10 million funding for implementation of coastal non-point programs under the Coastal Zone Management Act. Working with EPA, we've been making strides in the 33 coastal states to help address one of the greatest threats to solve in protecting coastal waters.

Again, I'd like to stress our unique authorities, our close cooperation with EPA, the fact that we're requesting an increase of $2 million in fiscal year 2003, and that we're working with EPA to address the non-point issues down at the coastal level at the bottom of the watershed through state and local authorities.

Thank you again for inviting me, Mr. Chairman and members of the subcommittee, to present this overview about our plans and our priorities, and I am happy to answer any questions that you may have now or later.

DUNCAN: Thank you very much.

Mr. Weber?

WEBER: Thank you, Mr. Chairman and members of the subcommittee. Thank you for the opportunity to appear before this subcommittee today to discuss water resource activities of the U.S. Department of Agriculture Natural Resources Conservation Service.

In very short remarks today, I'd like to describe our water resource budget priorities for fiscal 2003. The president's budget does set some clear priorities for this nation's security in response to the extraordinary events of September 11th, and these priorities have had an impact on this year's water resource budget proposal.

In the climate of changing budget priorities, emphasis has been place on focusing assistance on those areas and activities of greatest need and, consequently, on reducing or eliminating some programs. As a result, the president's budget for 2003 closes out USDA's flood mitigation projects.

The president's budget addresses the most critical needs on projects of greatest importance in protecting human life after natural disasters. The budget request for emergency watershed program funding through NRCS is $111 million. This account funds the actual implementation of projects that help people by relieving imminent hazards to life and property caused by flood, fire, wind storm, or other natural disasters, which had been approved and authorized under NRCS guidance.

Our agency works directly with the local and state governments to repair and protect land and structures damaged during these events, and the emergency watershed program also provides authority to help reduce future funding needs for flood damaged lands by purchasing flood plan easements. NRCS has purchased nearly 1,700 flood plan easements, encompassing nearly a quarter million acres since 1996.

The small watershed program has implemented projects in thousands of communities across the country, improving natural resources, preventing floods, and increasing economic development. The small watershed program was founded upon the principle of locally driven conservation.

Local government and other sponsors initiate these projects with the help of the NRCS and local conservation districts. Local sponsors secure the necessary land rights; secure federal, state, and local permits; pay a share of the construction costs; and assume all responsibility for operation and maintenance.

WEBER: Flood mitigation projects are 100 percent federally funded for construction cost for that purpose. In fiscal 2002, the program was funded at $106 million. The funding request for 2003 does not include funding for this program.

The funding request for 2003 for watershed rehabilitation does not include funding for the cost of rehabilitating aging dams. In fiscal 2002, $10 million in funding was provided for rehabilitation which is being used on 42 separate projects in 16 states.

We will continue to work with local communities to prioritize and evaluate our activities so that the financial and technical resources that are available can be placed where needed most.

I thank the subcommittee and would be happy to answer your questions.

DUNCAN: Mr. Weber, what I am particularly interested in is the last thing that you mentioned, or one of the last things you mentioned, which was that funding for flood damage protection has zeroed out. That's a program that's been very popular with small towns and rural areas across the country.

In fact, I'm told that over the past 10 years, $1,370,000,000 has been spent on that, and suddenly just to zero it out -- and I understand now that there's over 500 requests pending from various small towns and rural areas for that program. What went into that? What went into the thinking to zero that out instead of zeroing out or finding some other cost savings someplace? Why was that program just suddenly chopped off?

WEBER: Thank you, Mr. Chairman, for that question. I believe it was a tough choice, based on priorities, and the priority was placed on the emergency watershed program. It was funded at about the same level as what the watershed protection program would be as proposed for 2003.

The emergency watershed program typically is not funded in the appropriations process. It's usually funded through a supplemental process following disasters. I would believe the administration felt that we needed to put the priority on those things that most directly and immediately impacted people and property, and that's why the emergency program became the higher of the two priorities.

DUNCAN: Ms. Davidson, how many natural resource damage lawsuits is NOAA a party to now? Do you know?

DAVIDSON: My colleague doesn't know the exact number. I will get back with you on that, sir.

DUNCAN: I'd like to know how many lawsuits and what is the average settlement that's been obtained in the lawsuits that have been completed in that regard.

We've got votes starting. I'm going to go very quickly to Mr. Baird for any questions he might have.

BAIRD: I appreciate that very much, Mr. Chairman.

I mentioned earlier my concern about invasives. I wonder if you could comment briefly on that, and then I'd like to ask Mr. Weber a question.

DAVIDSON: Yes, Congressman Baird. I recall that your question had to do with the difference between the '02 appropriations for invasive species and the president's request for '03, correct?

BAIRD: Yes, on two fronts, one, the reduction of the invasive species funding, but, two, the complete zeroing out of the demonstration grant for ballast water.

DAVIDSON: Yes, sir. First -- and since I recall you also mentioned zebra mussels -- you probably do know that at least for the last few years, much of the invasive species work within NOAA has been actually led by the National Sea Grant (ph) College program. And you may be aware that the president's budget proposes a transfer of the National Sea Grant (ph) College program from NOAA to the National Science Foundation.

So that reduction, particularly with regard to the zebra mussel work and some other work, would transfer with the Sea Grant (ph) program, although I do believe that the president's budget also proposes reduced funding for Sea Grant (ph) as it moves through NSF.

With regard to the ballast water demonstration project, sir, those funds were not requested in fiscal year '03, because it was felt that they were not a priority item in what is a very tight budget year for NOAA and for commerce. What I would like to say to you -- you did identify that we are still requesting $800,000, but there are also, Congressman Baird, other efforts that are not identified as such that you would find in other parts of our programs.

For instance, through our Chesapeake Bay program, we're working on the Asian oyster issue. Actually, our Office of Response and Restoration, about which I just testified, also has efforts underway in both San Francisco Bay and Peugeot Sound that are engaged on the invasive species efforts, but they don't show up per se as invasive species as a budget request.

BAIRD: What's the impact on the budget request from those programs, for example, in the Peugeot Sound area?

DAVIDSON: Could I get back to you, Congressman Baird, on that one?

BAIRD: I would appreciate that.

DAVIDSON: Thank you.

BAIRD: Mr. Weber, thank you for your comments.

WEBER: Yes, thank you, Congressman.

BAIRD: The question I would ask Mr. Weber is this. We're zeroing out a program designed for flood control. Do you have any estimate of the amount of cost savings the public has realized over the past years due to NRCS's flood mitigation and reduction measures?

WEBER: I believe, Congressman, that the annual benefits from the federal investment in these projects runs about $1.6 billion per year.

BAIRD: So our benefits in terms of savings are $1.6 billion. That's basically money that we don't have to spend, that we've saved.

WEBER: Yes.

BAIRD: And yet we're zeroing out that program. I'm not picking on you. We shoot the messenger far too often in this body.

WEBER: I understand.

DUNCAN: Mr. Baird, thank you. Let me...

BAIRD: I'd be happy to yield, Mr. Chairman.

DUNCAN: Since this vote is going on, let me give Mr. Baker a chance to get in here real quickly.

BAKER: Thank you, Mr. Chairman. I will be brief, and I do appreciate your courtesy in conducting the hearing and offering me this opportunity.

I have a long-standing interest in the operations of the Tennessee Valley Authority, and that comes as no surprise to Mr. Oden, I know. And, Mr. Chairman, it's from a financial perspective only, in ensuring that we take appropriate action in light of your own comments, Mr. Chairman, about the increasing debt load of the enterprise.

They are not a government sponsored enterprise in the traditional chartered sense of the statute. But the taxpayer is on the line. Credit rating agencies do indicate their AAA status is pursuant only to the federal guarantee and not to the underlying business fundamentals. That is what's creating my principal concern.

Over the last year, I have had a nice letter exchange with the CFO and the president concerning their long-term plans, which, to date, have not been met. Secondly, I asked on several occasions whether we would expand revenue, whether we would reduce numbers of employees, whether we would raise rates -- how would we manage the increasing debt load. And, frankly, Mr. Chairman, there just hasn't been an answer that is really satisfactory.

I went, for example, to the 2001 financial report, which I have as a hard copy here, but I went to the web page this morning. And in looking at the highlights as its determined, in the top right-hand corner, you would find interest expense as a percentage of revenue showing a rather significant reduction in the graph as represented, meaning that interest expense is going down, presumably because of a reduction of rates generally in the overall market.

But if you read the program highlights, and you look at operating income, it's a total of $1.5 billion, and then you look at interest expense, net, of $1.6 billion -- round numbers. In other words, their interest expense is more than the basic operating income, Mr. Chairman.

Because of other income -- I guess concession stands or something -- they have $248 million worth -- it gets them to, before impairment of assets, a net cash flow of $108 million, but because of the impairment of assets -- that's future revenue loss because of the depreciation of an asset -- they actually have a net income loss for the year of $3.3 billion.

Now, companies have good years, and companies have bad years. What does that really mean to us? We have to look at it in light of the overall corporate performance and look at perhaps a different set of numbers.

I have a chart that's on the way which I would enter into the record later, Mr. Chairman, that shows the status in relation to interest expense and revenues from a double-A rated company to a single-A rated company to a triple-B rated company down to K-Mart. And the last little brick on the page will be the TVA. K-Mart, before insolvency, had a better ratio of income to interest expense than does the TVA.

Well, that in itself doesn't mean we're at the end of the pipe. After all, we do have the security of knowing that there is a $30 billion debt cap statutorily provided by the law, and they can't go over that. That's our safety valve.

But then I pick up this Wall Street Journal article. And, Mr. Chairman, I've been involved a little bit with Enron and special purpose entities. That's where you take an obligation, you move it off your books, and the problem with the Enron matter was that it was not disclosed on the balance sheet. They hid it from view.

This is not the same. I'm not alleging that, not in principle, because it is disclosed. But what it does mean is that the sale of this asset -- it's a plant at Brownsville, Tennessee, to a owner- lessor. The owner-lessor raised most of the money by selling securities, known as pass-through certificates, then leasing it immediately back to the TVA. And the chief financial officer says this is just building flexibility into our portfolio.

Well, it's interesting flexibility, because the way I understand it, Mr. Chairman -- and I may not understand it properly -- is that this enables them to move that debt off the balance sheet for the purposes of reducing the amount of debt reported under the statutory debt limit. What does it mean? They can borrow more money.

Mr. Chairman, I don't intend to engage Mr. Oden in a conversation this morning. I just wanted to come and express my frustration that I haven't been able to have a proper interchange with the executives of the TVA to get direct answers. And, Mr. Chairman, I hope that after studying this matter more, you and I could formulate some questions for the public interest.

DUNCAN: All right.

BAKER: I hope TVA is very successful. I hope they continue to expand and provide products for people everywhere. But I think we have a real obligation to step in here and to make sure that the taxpayers are not left with a surprise that would be a very unhappy moment for us, especially in light of all the accounting concerns that are going on in the marketplace today.

Thank you, Mr. Chairman.

DUNCAN: Well, let me say this, Mr. Baker. I think that you have raised some very legitimate questions and concerns, and, Mr. Oden, I'm going to ask that you respond.

We're not going to hold this panel here, because we've got some votes going on right now. But...

BAKER: Mr. Chairman, I'm sorry, but this was part of my theatrics, and it didn't arrive until just now, so, in deference to my staff, let me at least show it.

This is what I was talking about. This is a double-A rated corporation. In talking about ratio of operating income to interest, these are the ratios. If you go from double-A to A to triple-B to double-B to B -- this is K-Mart, just before they got shot. And at the same number of measure, that's TVA.

Now, I'll sign it and give it to them if they want it. But all I want is an honest discussion of this, because I don't -- I hope I'm not understanding this, because...

DUNCAN: Well, let me say this. Mr. Oden, you or whoever should at TVA -- I want you to give a very detailed response to Mr. Baker, and then he and I are going to meet together. And if his concerns aren't answered to his satisfaction, then we'll have to hold another hearing about this, and we'll have to get into the specifics of this lease arrangement and a lot of other things.

So I hope you will give him a very detailed -- I think he's doing a good service here by raising some of these questions, and these are some things that we need to look into. So would you do that?

ODEN: Yes, sir.

BAKER: Mr. Chairman, let me say I don't hold Mr. Oden accountable. I understand the other principals, the chief financial officer and others, with whom I've had conversations were not available today. So I do not wish to reflect on Mr. Oden's appearance here today in any way inappropriately.

DUNCAN: Let me say this. I think that response should be given within at least the next 30 days. I don't think that's any problem. And then after that, Mr. Baker can meet with me, and we'll go from there. Hopefully, you can answer his concerns.

But I want to thank each of you for being here with us today and providing very helpful testimony, and with that, we'll conclude this hearing.

END

NOTES:
[????] - Indicates Speaker Unknown
   [--] - Indicates could not make out what was being said.[off mike] - Indicates could not make out what was being said.

PERSON:  JOHN DUNCAN JR (92%); CHRIS JOHN (92%); JOHN L DUNCAN (58%); WAYNE T GILCHREST (57%); DON SHERWOOD (57%); STEVEN C LATOURETTE (56%); RICHARD H BAKER (55%); BEN GRUMBLES (55%); ROBERT W NEY (54%); WILLIAM ASA HUTCHINSON (54%); RICHARD W POMBO (54%); MIKE SIMPSON (53%); BRIAN KERNS (52%); DENNIS REHBERG (52%); PETER A DEFAZIO (50%); ROBERT MENENDEZ (50%); GENE TAYLOR (50%); 

LOAD-DATE: February 21, 2002