SECTION: CAPITOL HILL HEARING TESTIMONY

LENGTH: 1918 words

COMMITTEE: HOUSE TRANSPORTATION

SUBCOMMITTEE: WATER RESOURCES AND ENVIRONMENT

HEADLINE: WATER QUALITY FINANCING

TESTIMONY-BY: ANDREW SHEA, VICE PRESIDENT

AFFILIATION: POSEIDON RESOURCES CORPORATION

BODY:
Presented by

Andrew Shea Vice President Poseidon Resources Corporation

Before The Subcommittee on Water Resources and Environment Committee on Transportation and Infrastructure

U.S. House of Representatives

March 13, 2002

Good morning, Mr. Chairman and Members of the Subcommittee. Thank you for this opportunity to comment on the proposals to Amend the Federal Water Pollution Control Act.

My name is Andrew Shea, Vice President for Poseidon Resources Corporation. Poseidon is a leading developer of water and wastewater public-private partnerships in North America. Based in Stamford, CT, Poseidon specializes in water resources development. Along with over 100 other organizations from both the public and private sectors, I am a member of the National Council for Public-Private Partnerships. Our common interest is our experience with public-private partnerships and the promotion of the concept of risk and reward sharing agreements that benefit the general public and the balance sheet of public agencies. NCPPP's mission -- on behalf of both its public and private sector members -- is to provide accurate and timely information about the use of public-private partnerships and assist communities in understanding how they can best be served by public-private partnerships. We are pleased to have been invited to discuss the need for additional financing tools and the viability of partnerships to help bridge the infrastructure needs gap. GENERAL COMMENTS

The Committee is to be commended for addressing an important is national need. We also complement the Water Infrastructure Network (WIN) for its efforts in making this policy matter and funding challenge known to the general public and most importantly to the Members of Congress. As the needs assessment report of the WIN Coalition (May 2000) and numerous other sources amply illustrate, there is an unprecedented need to replace aging water and wastewater infrastructures, and comply with increasingly stringent water quality mandates. The costs for these efforts will be in the hundreds of billions of dollars. Simultaneously, governments at the federal, state and local levels are all facing the challenge of increasing demands on their limited budgets.

Recognizing the funding gap, we believe that there are proven solutions to this national challenge, and we are here to give you the good news. Increasingly communities have found a range of tools that can help them address their needs. These are tools that provide cost-effective solutions to immediate financial issues and environmental compliance, as well as lead to the long- term sustainability of their utilities. Specifically, we are talking about water and wastewater public-private partnerships.

We believe the proposed legislation presents a number of approaches that will substantially address this funding gap. Communities need to have available a full range of options to develop the best approach for their local situation. Your language recognizes that there are innovative approaches and proven mechanisms that can be of help in meeting our nation's water quality agenda. Communities are developing effective solutions, which in some cases include public-private partnerships. Your legislation strengthens a community's ability to explore the full range of options that are available to them.

Maintaining and enhancing the State Revolving Fund program is an example of building on an existing system that has worked well in meeting the public's needs. Provisions that encourage sound economic management and asset management plans will insure effective operations that offer performance levels, environmental compliance and financial benefit to these communities. As GASB 34 accounting methods become more widely adopted as a management tool, the full costs of providing water and wastewater services will be more fully understood. We believe more communities will recognize the value of including private-private partnerships as an option for addressing the financial and environmental compliance challenges they may face.

Specifically, this legislation must include provisions to enhance a community's ability to work with the private-sector in meeting this challenge. These provisions include encouraging communities to examine the options available through public-private partnerships (PPPs) and removing the cap on Private Activity Bonds (PABs). Congresswoman Karen Thurman presented this latter initiative in a "Dear Colleague" letter dated February 20, 2002, and noted two salient case studies that bring to light the benefits to local municipalities and to the environment from public-private partnerships.

This mechanism is often misunderstood and I hope two examples (from among the numerous already in place) will help to demystifying this tool.

PARTNERSHIP CASE STUDIES

The first example involves Cranston, RI's outsourcing of the innovative $78 million renovation and tertiary wastewater treatment facilities upgrade to meet Narragansett Bay environmental standards while providing significant operational savings to avoid ratepayer impact. This innovative partnership solution was aided by a state allocation of $28.5 million in PABs and resulted in a 30% reduction in the city's debt, fulfillment of regulatory mandates and long-term stability of user fees.

In the case of Tampa Bay Water, the regional wholesaler of potable water serving a population of over 2 million citizens, Poseidon Resources is using a pay-for-performance public-private partnership structure under a 30 year agreement to supply 25 million gallons per day of potable desalinated seawater at competitive prices. This arrangement was largely facilitated by the expanded public-private partnership involving Southwest Florida Water Management District's infrastructure support funding to get Tampa Bay Water off of rapidly depleting well water supply. Additionally, this partnership was made possible by obtaining a $90 million allocation of PABs for this truly innovative partnership.

However, in both the Rhode Island and Florida cases, the states allocation under the PAB cap was nearly if not entirely used, thereby preventing the use of this valuable tool for other critical infrastructure needs in these two states. COMMENT ON PROVISIONS

Private Activity Bonds (PABs): The removal of the cap on PABs for public-purpose water and wastewater facilities would provide a significant new "tool in the tool box". Twenty years ago, this approach worked extremely well in mobilizing over $20 billion in private capital to address the solid waste capacity crisis. We look forward to working with this subcommittee and the Ways and Means Committee to find a similar solution to this funding crisis.

By removing the cap, communities will have an increased range of options from which to select what best works for meeting their needs. The Joint Committee on Taxation has provided scoring on removal of this cap -- this provision can be implemented for a budget cost of $147 million over ten (10) years. This is an approach, as illustrated by their recent comments before the Senate Environment and Public Works Committee, which is fully endorsed by the US Conference of Mayors. The National Association of County Officials, EPA Environmental Finance Advisory Board and WIN have similarly endorsed this initiative.

Public-Private Partnerships (PPPs): Earlier I offered two examples of PPPs -- in Cranston and Tampa. These are only two of a long list of examples. These partnerships have been in use for well over 100 years, and increasingly, communities are finding clear examples of success in using this approach to meeting their needs. Through the sharing of assets, appropriate allocation of risks and rewards, both the public and private sectors are finding cost-effective solutions that improve environmental and workplace performance, control costs, and provides a quality of service that meets and often exceeds community expectations. Equally important, in effective partnerships the community maintains a range of mechanisms to assure that performance of the utility meets the standards set forth.

We are pleased to note that the legislation does not make use of this tool mandatory but rather simply includes it as part of an analysis of "alternative management and financing approaches". Through such an analysis, communities can gain a true and correct understanding of how a PPP might help in meeting their needs. All too often, misperceptions and incomplete information have defined PPPs. For this reason, the NCPPP is preparing a White Paper that provides clearly documented information on how PPPs have been utilized for a wide range of community needs, and illustrates what "best practices" are appropriate to assure protection of a community's interests and the environment. We will shortly be providing you with a copy of this document.

The proposed provisions to encourage an analysis process will provide communities with critical information in assessing what approach best suits the local situation. This analysis is a practice that many cities have already adopted, which is one explanation for the continuing growth in the use of PPPs in a wide range of applications.

Utilizing of the SRF Program: We applaud the approach of continuing to use a system that already works. This program, particularly with the strengthening through this legislation, can improve a community's financial posture, while providing them with the needed flexibility in approaches. Similarly, these provisions will encourage the long-term sustainability of these same utilities. Also, it is important to note that with both the PABs and SRFs, experience illustrates their value of leveraging limited government resources. They can result in far superior financial packages and savings for participating communities. Equally import is the inclusion of successful programs that will increase accountability and accordingly, the long-term sustainability of these important systems.

Procurement Provisions: We applaud the Subcommittee for including provisions that will encourage the use of innovative technologies. This has been a hallmark of companies such as Poseidon as illustrated by the Cranston and Tampa public-private partnerships examples.

CLOSING

In closing, let me reinforce the ideas presented here today. Many, if not all of the positions I have stated are supported by a wide range of organizations representing all sectors with water and wastewater infrastructure concerns. I have already noted the support of the U.S. Conference of Mayors, but additional associations such as the National Association of Water Companies, the Water and Wastewater Equipment Manufacturers Association[1] and many of those who have testified before you today hold similar if not identical views.

Mr. Chairman, we appreciate the leadership role that you and the Members of this Subcommittee have taken to address water infrastructure and financing challenges. This bill will be an excellent opportunity to effectively address a real problem facing this country, and we look forward to working with you, the entire Committee, and your staffs in providing any other information that may be of assistance in your deliberations.

Mr. Chairman, the Council thanks you for your attention and the opportunity to present our views. I would be happy to answer any questions that you or the other Members may have.



LOAD-DATE: March 21, 2002