SECTION: CAPITOL HILL HEARING TESTIMONY

LENGTH: 2065 words

COMMITTEE: HOUSE TRANSPORTATION

SUBCOMMITTEE: WATER RESOURCES AND ENVIRONMENT

HEADLINE: WATER QUALITY FINANCING

TESTIMONY-BY: MICHAEL SULLIVAN, MAYOR OF HOLYOKE

BODY:
Statement of Michael Sullivan Mayor of Holyoke

Mr. Chairman and Members of the Committee.

My name is Michael Sullivan. I am the Mayor of Holyoke and a member of the Conference of Mayors' and its Urban Water Council.

The Conference of Mayors is a national nonpartisan organization that represents cities with populations of 30,000 or more.

Water and wastewater infrastructure is critical to our nation. As a mayor, I know it's essential to provide my citizens with a clean, healthy, and cost efficient water and wastewater system. I would like to start off with telling you a little about the city and the area that I represent. Holyoke is a city of about 40,000 people. In 1874 we became the first planned industrial city created in the nation. The sewer system that was created, over 125 years ago, was designed to assist our industries in getting rid of their byproducts.

Like many other former industrial towns, Holyoke is suffering severe economic hardship. Those industries I mentioned have long since moved out, unemployment is close to 5% and the average per capita income is just $11,108. Our median household income is just under $32,000 which is similar to communities such as Sumpter, Illinois, Fort Ashby, West Virginia, and Stonewall, Texas.

Like so many other Northeast communities, Holyoke is facing a severe CSO problem. Below the Holyoke Dam, there are more than a hundred combined sewer overflows in the communities along the Connecticut, Chicopee, and Westefield Rivers. The federal government has been pushing eight western Massachusetts communities, including Holyoke, for the better part of a decade to eliminate these CSOs - at a collective cost of more than a quarter of a billion dollars.

The City of Springfield is facing a total CSO cost of $110 - $140 million. The City of Chicopee is facing a CSO cost of $258 million. And the City of Hartford will need over $100 million in funds.

Holyoke's estimated costs to take care of its own CSO problem is between $56-$78 million dollars. Officials have estimated that it will cost every sewer-using customer in my city $833, up from $200, per year to foot the bill.

That is just an example of the problem that my city is facing. My counterparts all across the nation are facing similar problems.

We do, however, recognize that there is not enough local, state or federal money available to satisfy all the water infrastructure needs in the country.

The Urban Water Council was created to focus on these issues. Its purpose is to assist local governments in providing high quality water resources in a cost-effective manner.

The Urban Water Council has identified three basic approaches to help cities finance the water and wastewater infrastructure development necessary to comply with clean and safe drinking water laws. These include:

- Providing grants to municipalities, either directly or through states, for water and wastewater infrastructure where there is an affordability issue or when a community faces severe environmental problems;

- Expanding some portion of the current 20-year loan category to include a 30-year no-interest loan category under the State Revolving Fund loan program for water and wastewater infrastructure investment; and

- Modifying current tax law by removing Private Activity Bonds (PABs) used for water and wastewater infrastructure from the state volume cap.

In our opinion, these approaches are the best means to meet our water infrastructure needs.

(Positive Aspects of the bill)

I would like to thank the members of the Committee for introducing the "Water Quality Financing Act of 2002" and for inviting me to testify. Your bill is an excellent step in assisting local communities meet their water infrastructure needs.

It is my understanding that your bill will authorize an increase over previously appropriated funds for both the SRF categories under the Federal Water Pollution Control Act and the Safe Drinking Water Act. While these SRF authorizations are not enough to subsidize the funding necessary to fund all of the unmet needs that are out there, we commend the members of this Committee for demonstrating this strong financial commitment. We also urge you to work with your fellow colleagues to assure full funding of your authorization.

We also want to thank you for including Title III Tax Provisions that would exempt water and sewage facilities from the volume cap on private activity bonds. Although we know that this particular section falls under the jurisdiction of the Ways and Means Committee, we applaud that this committee is taking a leadership role in identifying this much-needed change in their bill.

As my colleague, Trenton Mayor Doug Palmer told the Senate Environment and Public Works Committee last month, changing the tax code and exempting water and sewage facilities from the volume cap could potentially be one of the most fruitful financial incentives the Congress can provide. It potentially could bring billions of dollars of additional, much needed, investment to our facilities.

The Conference of Mayors believes that if public-private partnership approaches based on competitive pricing in the market place is increased, than more water projects can be completed with a given amount of financing than what would occur via traditional financing approaches. If this is true, then shifting some, but not all, of the water investment financing to private activity bonds should lead to improved water quality in the aggregate due to the increase in funding. It is generally believed that more money spent on water treatment results in improved water quality. While there are some exceptions to this assumption, the reverse is almost inevitable - "the failure to invest leads to continually deteriorating water quality".

(Cost effective measures-) We agree that your provisions that ask applicants to explore cost-effective measures is a positive step and should be encouraged. It has been our experience that alternative approaches to planning, financing and operating water and wastewater projects can yield greater public benefits for the amount of money invested. While choosing a public-private partnership approach should not be prescriptive and while it is not the answer for every community, it should be made possible for those cities that want to take advantage of such an approach. The Urban Water Council has prepared two reports, which are available on our website at http://www.usmayors.org/ , that describe over 40 public-private partnership projects that have realized savings related to operation and maintenance of water and wastewater facilities. Regulations under the federal tax code were modified in 1997 to allow long-term (20 year plus) outsourcing of public infrastructure facilities.

This tax regulation modification, along with Executive Order 12803 which modified the construction grant repayment provision, have removed serious federal impediments that cities have faced. By allowing these types of financial incentives to be made available, Congress and the Administration provide local elected officials with another potential tool that will benefit our citizens, our economy and the environment. The Conference of Mayors adopted policy in 2001 to encourage competition in the design-build-operate phases of new and refurbished water and wastewater infrastructure.

This policy was adopted once it was determined that competition for both surface and sub-surface infrastructure projects can lead to less costly projects than the traditional design-build methods employed in the past. The Lynn, Massachusetts experience is an example of what can be achieved by using competitive approaches to design, build and operate water infrastructure that is intended to achieve compliance with the zero discharge requirement for storm waters. In that example, the City was required to eliminate overflows and traditional design-build- operate planning anticipated a $400 million (plus) solution. A competitive bid process, however, anticipating a public-private partnership approach yielded a zero discharge solution that cost less than one-quarter of the traditional approach. Hence, it is possible through competition to achieve compliance with water quality goals at a cheaper price.

As I mentioned to you before, the estimate to take care of Holyoke's CSO problem will cost between $56-78 million dollars. If we conduct a traditional approach to solve this problem, the cost will be at the high end of that estimate. We are now considering doing a public-private partnership to handle this situation. The current estimate for this approach is around $32 million, a considerable savings. In my opinion, this is the best solution I have available. By doing a public-private partnership, we can save money, bring additional private sector resources, and share the risks together with the private sector. That is a very valuable tool to utilize to help us solve this tremendous problem. (Eligible Activities) Other positive aspects of your bill include the wide variety of eligible activities to be funded under the SRF. Activities such as development of a conservation and management plan, implementation of lake protection programs, programs to reduce municipal stormwater runoff, and watershed protection are all very worthwhile endeavors.

We would like to see even greater encouragement of the states to fund such comprehensive efforts to improve water quality. We also support the Committee's provisions addressing clarification of the state intended use and priority projects lists. It is important to the cities we represent to ensure that states fully understand the close relationship between water quality and watershed management, and that the SRF program can play a critical role if states prioritize solutions that focus on the other, non-urban land uses in the watershed that contribute to impacts on streams, lakes and estuaries. On this note, however, your bill, unlike the Senate version, contains no demonstration programs for water quality enhancement and management. One of the most difficult problems cities face involves achieving state water quality objectives and total maximum daily loads (TMDLs) and the virtually unregulated nonpoint sources that are usually outside our jurisdictions.

The U.S. Environmental Protection Agency (EPA) has recognized that agricultural and livestock land uses contribute a major portion of nonpoint source pollution in many areas. Many of our cities are engaged in watershed management efforts to deal with nonpoint sources (including urban runoff). Yet there is a critical lack of regulatory drivers forcing the agricultural and livestock land users to contribute to the solution. In some cases, the timing of pending TMDL requirements will force cities to pay for water treatment caused in part by the upstream, non- urban land users. The Conference of Mayors adopted an action plan for sustainable watershed management in 1998. One of the five principles of that plan is to focus on non-urban, nonpoint source water pollution, and pursue public policy that would assign responsibility to pay for the treatment of polluted water commensurate with the contribution of the pollutant loadings.

The action plan also clearly calls for allowing the agricultural and livestock land users to employ best practices and least cost approaches that are effective in lieu of stringent and costly regulations. Mayors fully recognize that these land users, although they may or may not be part of our cities, are important contributors to our regional economies. While we prefer to use the powers of persuasion to convince them to participate in the water pollution solutions, we have begun to experience failure in cooperative efforts, and have in some instances resorted to legal actions. A demonstration project provision in your bill could provide some of the appropriate financial incentives necessary to bring voluntary cooperative efforts to bear to solve the water quality designation/TMDL problems that we are facing. The Conference of Mayors supports this type of innovative approach and we would encourage this Committee to consider including this initiative.



LOAD-DATE: March 21, 2002