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Federal Document Clearing House
Congressional Testimony
March 13, 2002 Wednesday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 2394 words
COMMITTEE:
HOUSE TRANSPORTATION
SUBCOMMITTEE:
WATER RESOURCES AND ENVIRONMENT
HEADLINE: WATER QUALITY
FINANCING
TESTIMONY-BY: PATRICK T. KARNEY, P.E., DEE,
DIRECTOR
AFFILIATION: METROPOLITAN SEWER DISTRICT OF
GREATER CINCINNATI
BODY: March 13, 2002
Presented by
Patrick T. Karney, P.E., DEE Director Metropolitan
Sewer District of Greater Cincinnati Cincinnati, Ohio
Good morning
Chairman Duncan, Congressman DeFazio, and members of the Subcommittee, my name
is Pat Karney. I am Director of the Metropolitan Sewer District of Greater
Cincinnati (MSD) and a member of the Association of Metropolitan Sewerage
Agencies (AMSA). AMSA represents more than 270 publicly-owned treatment works
(POTWs) across the country. AMSA's members treat more than 18 billion gallons of
wastewater every day and serve the majority of the U.S. sewered population.
On behalf of AMSA and the MSD, I thank you and your colleagues for your
work on the forthcoming introduction of the Water Quality Financing Act of 2002,
and for holding this hearing. Like you, AMSA and its members look forward to
commemorating this year's 30th Anniversary of the Clean Water Act (CWA) with the
passage of a major funding bill for our nation's core wastewater infrastructure.
The House, during hearings last year, laid the foundation necessary for this
legislation by documenting the critical need to reinstate a long-standing
financial partnership between the federal government, states, and communities.
This partnership is essential to achieve our nation's water quality goals and
must be a priority for all levels of government.
Local government water
quality needs are great for many reasons, including the tremendous
infrastructure investments necessary to repair, replace and rehabilitate
existing infrastructure and meet current needs associated with combined sewer
(CSO) and sanitary sewer (SSO) overflow programs and requirements, not to
mention the many other Clean Water Act requirements with which we must comply.
MSD alone needs between $
1 and $
3 billion
dollars for design and construction to reduce CSOs and SSOs. These figures
exclude our regular operations and maintenance costs and the cost of planned
infrastructure repairs and rehabilitation. Additionally, as I testified before
you on October 10, 2001, we now must make significant investments to upgrade
facility security.
I now would like to provide the Subcommittee with
AMSA's perspective on several issues anticipated to be in this legislation. I.
Core Infrastructure Funding Provisions
We believe this legislation will
take a commendable and meaningful step toward addressing the magnitude of the
wastewater infrastructure funding gap and authorize significantly increased
funding for the clean water
state revolving funds (SRFs). We
thank the Subcommittee for its leadership on this issue.
While we
believe the funding increase will be substantial, it is unlikely to completely
close the gap between what local communities can raise through rates and new
efficiencies, and our existing and future wastewater infrastructure needs. Local
governments currently spend $
23 billion annually on their core
infrastructure needs. Even with an increased federal investment, local
governments will still shoulder the great majority of the overall investment in
clean
water infrastructure. Communities' bonded indebtedness
will continue to mount, our rates will continue to rise, and our efficiency
ratios will continue to improve. However, a long-term federal commitment to
water infrastructure funding is essential to meet our national
clean water objectives and goals. Simply put, more needs to be done to fully
close the documented
water infrastructure funding gap.
The legislation before you today is also anticipated to include several
key provisions affecting how new federal funds may be used. I would like to
present AMSA's views on three of these provisions.
Subsidization
We were gratified to learn that the legislation will include
subsidization and a grant related component. The 30 years of clean water
progress we celebrate this year began with a federal grant program that
jumpstarted our nation to improve water quality for all Americans. Congressional
action demonstrated to the nation the federal government's commitment to clean
water and its willingness to take necessary actions to get the job done. Even
today, the ongoing local need for direct
water infrastructure
grants is clearly evidenced in the Fiscal Year 2002 VA-HUD appropriations bill
for EPA. In this bill, Congress approved funding to 337 core
water
infrastructure projects directing nearly $
344 million
to municipalities across the country. Grants are, and always have been, a
necessary part of a real solution to our local infrastructure needs. We applaud
the Committee for recognizing how important this financing tool is to the
nation's communities.
It is anticipated that this legislation would give
States the discretion to provide up to 30 percent of current and new federal SRF
funds in the form of grants and additional subsidization, including principal
forgiveness or negative interest loans. We further understand that states would
be required to use 25 percent of any federal funds provided above
$
1.4 billion for additional subsidization targeted to: 1)
municipalities that are economically disadvantaged under the State's
affordability criteria; 2) pockets of poverty if the subsidy will directly
benefit disadvantaged ratepayers; or 3) alternative processes and techniques for
achieving water quality improvements.
We believe it is essential to
ensure that states have the authority to define these affordability criteria
broadly, with the result that municipalities with priority projects due to
public health risks and environmental impairment --as well as those meeting
traditional affordability parameters --are eligible for such funding.
Extended Repayment Terms It is anticipated that the legislation would
extend SRF repayment to communities that meet State affordability criteria up to
30 years, or the design life of the project, to fully amortize a SRF loan. AMSA
encourages the Committee to allow all communities to take advantage of these
extended repayment terms. Longer repayment periods will add flexibility to the
SRF program and further maximize federal SRF monies for all municipalities.
Security and Watershed Projects We appreciate the bill's recognition of
the significant new investments we will be making in facility security by making
SRF funds available for these projects. We also support using the SRF to fund
watershed projects as authorized in Section 121 of the Wet Weather Water Quality
Act of 2000. Making the SRF available for watershed projects will allow local
governments to promote holistic methods to achieve regional water quality goals.
II. New State Capitalization Grant Agreement Requirements We understand
that this legislation would amend CWA 602(b) to require POTWs applying for SRF
funds to meet several new conditions under state review. Such requirements may
include: conducting a physical and operational analysis of the system proposed
for repair, replacement, or expansion; analyzing the cost and effectiveness of
alternative management and financing approaches, including rate structures, bond
issuance, consolidation, and public-private partnerships; and developing and
implementing plans for funding asset maintenance, repair, and replacement.
Recognizing that the SRF funds only 10 percent of most communities'
infrastructure needs, these provisions impose a disproportionate burden on both
states and SRF applicants. AMSA is concerned that these provisions will only
serve as further disincentives for municipalities to access the SRF. While many
larger municipalities already provide this information to receive loan funding,
smaller communities may lack the resources to do so and serve to discourage them
from taking full advantage of this funding resource. We question whether
provisions like these are the best mechanism to encourage municipalities to
access the SRF or to undertake the analyses and plans described.
We
recommend that the Committee consider an alternative approach to encourage
utility efficiency through the establishment of a new institute for technology
and management excellence, as recommended by the
Water
Infrastructure Network (WIN). Such a program would further develop
management policies that would reduce infrastructure costs, prolong the life of
America's water and wastewater assets, and improve the productivity of utility
enterprises.
I would like to specifically address two of these concepts
in greater detail.
Physical & Operational Analyses of Systems, Asset
Maintenance, Repair, & Replacement Plans We understand that the legislation
would require SRF fund applicants to conduct physical and operational analyses
of the systems proposed for funding, and to plan for their future maintenance,
repair and replacement. Today, without any federal requirements, public
wastewater utilities must continuously plan and optimize the maintenance and
replacement cost cycles for their infrastructure assets in order to minimize
costs and to maximize performance. POTWs recognize that asset management and
long-term planning are an essential part of protecting our nation's
water infrastructure investments.
AMSA recently
released a comprehensive asset management handbook and has begun to conduct
regional workshops to train hundreds of facility managers in asset management
techniques. This is in addition to the requirements of Government Accounting
Standards Board Statement 34 (GASB 34), which will require cities to plan for
and discuss in detail the condition and lifecycle of their major infrastructure
assets. For these reasons, we believe that insisting that states require SRF
applicants to make these asset management showings may become an overall SRF
deterrent, particularly for smaller municipalities.
Rate Structure
Analyses Our understanding of the legislation suggests that states would be
required to ensure that SRF applicants analyze the cost and effectiveness of
alternative management and financing approaches, including rate structures. Many
States currently require SRF applicants to submit such information, making new
requirements in this area unnecessary and burdensome. When it comes to rate
structures, let me assure you that municipalities across the country are
committed to supporting our operations and capital needs through rates. AMSA's
own triennial financial survey documents an increased reliance on user charges
as the primary revenue source for rising cost associated with repair and
replacement. The Survey also documents overall increased efficiency and improved
performance levels at agencies across the nation.
Ratepayers in my
service area have been paying the full cost of wastewater collection and
treatment since 1968. However, in order for us to reduce SSOs, we will need to
raise user rates approximately seven percent a year for the next 15 years - if
we stay near the low end of our design and construction budget estimate of
$
1 billion. If we spend closer to the high-end of the estimate
at $
3 billion, we anticipate rate increases of 21 percent a
year over 15 years. In Cincinnati and many other cities, countries and towns
across the country, rate increases alone cannot bridge the
water
infrastructure gap, which is why significant funding increases,
including grants, are so essential to meeting our present and future wastewater
infrastructure needs.
Public-Private Partnerships We understand that the
legislation would require states to ensure that SRF applicants explore public-
private partnerships as part of their cost effectiveness assessments. Again, we
believe this approach may discourage applicants from seeking SRF funding.
Wastewater treatment providers have a built in incentive to be efficient - they
must constantly innovate and modernize to deliver more efficient services and
manage the pace of rate increases. Additionally, more agencies are operating
plants that are providing higher levels of treatment. To meet these challenges,
municipalities regularly explore new ways of doing business, including
consolidating management functions or ownership with another facility, and
forming public-private partnerships or other cooperative partnerships. Where
these partnerships and business structures make sense for a locality, they are
pursued. Where they do not make sense, they are not pursued. The federal
government, however, should not push local governments in one direction or the
other. While public-private partnerships can be beneficial in some instances,
they are not appropriate across-the- board. AMSA is currently in the process of
updating a "public- private checklist" which will serve as a tool for
municipalities as they continue to consider this approach, and we will share
this publication with you when it is completed.
III. Conclusion
This legislation represents an important step toward narrowing the
significant wastewater infrastructure funding gap and helping states, cities and
communities across the country to address seriously their water quality
problems. AMSA member agencies are committed to sustaining our investment in
clean water and raising our rates as one means to attaining this goal. We are
also committed to managing our systems to achieve still greater efficiencies in
the future. Additionally, we are committed to considering alternative
approaches, including public-private partnerships, to achieve our clean water
objectives. Nevertheless, a renewed investment in national water quality through
the federal, state, and local partnership, is essential to helping communities
like mine meet the daunting infrastructure challenges before us. Thank you for
making that essential investment through this legislation.
In addition
to the important strides taken by this legislation, AMSA urges Congress to
establish a formal process to evaluate alternatives for, and recommend the
structure of, a long-term and sustainable funding financing approach to meet
America's wastewater infrastructure needs.
Chairman Duncan, we look
forward to working with you to help this legislation become law and plan to
provide additional, more detailed comments following a comprehensive review of
the legislation as introduced. We thank you for your leadership, and for the
opportunity to present AMSA's perspective on the bill. At this time, I will be
happy to answer any questions.
LOAD-DATE: March
21, 2002