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Congressional Testimony
February 28, 2002 Thursday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 3573 words
COMMITTEE:
SENATE ENVIRONMENT AND PUBLIC WORKS
HEADLINE: WATER INFRASTRUCTURE &
CLEAN WATER PROGRAMS
TESTIMONY-BY: PAUL PINAULT,
EXECUTIVE DIRECTOR,
AFFILIATION: NARRAGANSETT BAY
COMMISSION
BODY: February 28, 2002
Testimony of Paul Pinault Executive Director, Narragansett Bay
Commission
on behalf of the Association of Metropolitan Sewerage
Agencies
Introduction
Good morning Chairman Graham, Senator
Crapo and members of the Subcommittee, my name is Paul Pinault. I am Executive
Director of the Narragansett Bay Commission in Providence, Rhode Island and Vice
President 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 each
day and service the majority of the U.S. sewered population.
On behalf
of AMSA and the Narragansett Bay Commission, I thank you and your colleagues for
introducing S. 1961, the Water Investment Act of 2002, and for holding this
hearing. Like you, AMSA and its members are committed to one very serious and
important goal - commemorating this year's 30th Anniversary of the Clean Water
Act by passage of a meaningful funding bill for our nation's core water and
wastewater infrastructure. This bill should:
- Focus on core
infrastructure needs, including repair and replacement of aging pipes and
facilities;
- Fully fund the documented
water
infrastructure funding needs at an authorized level of
$
57 billion over five years through a combination of
grant and loan funding options;
- Streamline state
funding procedures; and - Invest in clean and safe water technology and
management innovation to reduce infrastructure costs, prolong the life of
America's water and wastewater assets, and improve the productivity of utility
enterprises.
The Senate during hearings last year laid the foundation
necessary to introduce S. 1961 by reinforcing the need to reinstate a long-term
financial partnership between the federal government, states, and communities,
which is essential to achieve our nation's water quality goals. Water quality
should be a priority at every level of government, and America's municipalities
should not be left alone to face the challenge of providing clean and safe water
to every citizen. Existing and new regulatory requirements continue to strain
local budgets, including the tremendous expenses needed to comply with total
maximum daily loads (TMDLs), and combined sewer (CSO) and sanitary sewer (SSO)
overflow programs and requirements. The events of September 11, 2001 added to
these already tremendous operating costs by requiring expensive facility
security upgrades. The reality is that without a significant fiscal partnership
that includes long-term federal participation to meet these core infrastructure
challenges, we will see a continued and devastating decline in both our national
wastewater treatment and collection systems and the nation's public health and
environmental well being.
S. 1961 addresses two essential issues at the
heart of the
water infrastructure matter - the vast dollars
needed to ensure the continued viability of our water systems, and the
efficiency of our wastewater treatment systems. However, many of the bill's
provisions send a troubling message to all of us in the wastewater treatment
community. They suggest that the federal government is not with us for the long
haul, that Congress does not have confidence in our management skills and
believes we are not charging Americans enough for their water, and that the
states and the U.S. Environmental Protection Agency (EPA) need to micromanage
our operations. The provisions of S. 1961 suggest that after this bill's
infusion of federal funds, we will once again be left on our own. The reality,
however, is that even with Congress' appropriation of federal infrastructure
funds at the WIN recommended level of $
57 billion over five
years, local water rates will continue to rise and local rate payers will still
assume between 85 and 90 percent of infrastructure costs.
Accordingly, I
now would like to provide the Subcommittee with AMSA's and my perspective on
these issues as they are addressed in the bill.
Infrastructure Funding
S. 1961 comes part way toward addressing the true, significant funding
gap addressed by so many sources, including EPA, the General Accounting Office
(GAO), and the
Water Infrastructure Network (WIN). The bill
authorizes $
20 billion over five years for the Clean Water SRF
and $
15 billion over the same period of time for the Drinking
Water SRF. This authorization is an important and significant step toward
bridging the funding gap. However, S. 1961 falls short of the WIN-recommended
$
57 billion over the next five years needed to truly address
core infrastructure investments. We urge the Subcommittee to amend the bill to
fully fund both SRFs at the WIN recommended levels. Our focus on core
infrastructure funding leads us also to urge that the Subcommittee add to the
bill's Section 2 "Purposes" the following additional issue - "to recognize the
national, environmental and public health importance of maintaining our nation's
water and wastewater infrastructure."
We also recommend that the
Subcommittee add to S. 1961 a provision to make
grant funding
available to all communities. Only
grant funding in significant
amounts provides sufficient resources and incentives to gain local support for
increasing utility rates to pay for new regulatory costs and the costs of
replacing or rehabilitating aging infrastructure. If there is any doubt
regarding whether
water infrastructure grants are in fact an
essential part of addressing the significant core infrastructure needs of our
nation's communities, one need look no further than the fiscal year 2002 VA-HUD
appropriations bill for EPA. In this bill, Congress approved direct
grants for 337 core
water infrastructure
projects totaling nearly $
344 million to communities across the
country. The fact is that
grants are, and always have been, a
necessary part of a real solution to our local infrastructure needs. Without a
grant component specifically targeted to address core
infrastructure concerns, S. 1961 will not succeed in addressing the most
critical of our communities' investment needs.
SRF Payment Terms and
Reservation of SRF Funds for Specific Purposes
S. 1961 offers
"disadvantaged communities," as defined by their states, up to 30 years to fully
amortize a SRF loan. AMSA encourages the Subcommittee to amend the bill to allow
all communities to take advantage of a 30-year repayment schedule or to choose
repayment "over the life of the project." Longer repayment terms for all
communities are an essential way to add flexibility to the SRF program, and an
important way to achieve the bill's stated purpose of "maximizing use of federal
funds."
S. 1961 also allows up to 15 percent of SRF funds to be used for
additional subsidization for all communities so long as the funds are "directed
through the user charge rate system to disadvantaged users within the
residential user class of the community." Title I, Sec. 103(c)(8)(A)-(B). Title
I, Section 103(e)(2) further provides that states can direct up to 30 percent of
SRF loans to:
S Fund the development of "technical, managerial, and
financial capacity" and asset management plans (Sec. 103(c)(7)) in all
communities; and
S "Provide additional subsidization (including
forgiveness of principal) to a disadvantaged community, or to a community that
the State expects to become a disadvantaged community as the result of a
proposed project" (Sec. 103(c)(9)).
We address the bill's asset
management provisions in the next section. As to disadvantaged communities, we
understand the Subcommittee's desire to ensure that low-income and disadvantaged
persons and localities are given a variety of flexible ways to afford water
service and finance core infrastructure upgrades. In fact, many AMSA members
have these systems in place. In addition, local support systems in the form of
third parties such as churches, community service organizations, and other
organizations provide direct assistance to water users. The reality is, however,
that many local rate setting and billing methods do not give POTWs the ability
to target subsidization to individual ratepayers as S. 1961 directs. Further, we
are concerned that the bill's allowance of a total of up to 45 percent of the
already limited SRF dollars to be directed to low income users within
communities, disadvantaged communities, and for the development of asset
management plans will seriously jeopardize the availability of adequate funds
for core critical infrastructure projects. We urge the Subcommittee to delete
these requirements, and instead express the sense of Congress that SRF funds
should be directed as much as possible to needy communities, and that Congress
expects the states will carry out this responsibility as they review and
prioritize SRF fund applications.
Efficiency and Stability of Wastewater
Treatment Systems
S. 1961 creates several new requirements for
communities to receive SRF loans. AMSA is seriously concerned that these
provisions will only slow down and hinder the SRF process, rather than
streamline the fund as the bill's "Purposes" intend, and as many stakeholders
have recommended over the years.
Demonstration of Technical, Managerial,
and Financial Capacity, Including Asset Management
One new requirement
in S. 1961 is that within three years, each POTW receiving "significant" SRF
assistance - we note this is an undefined term - must demonstrate "adequate
technical, managerial, and financial capacity, including the establishment and
implementation of an asset management plan" to receive the funds. Title I, Sec.
103(i)(5). States are given three years to implement a detailed strategy to
assist treatment works in attaining and maintaining such technical, managerial,
operations, maintenance, and capital investments, and meeting and sustaining
compliance with federal and state laws. Sec. 103(i)(2)(A)-(B). States with
inadequate strategies would lose 20 percent of their SRF funds within one year,
and significant future funding if the strategy remains unacceptable to EPA. Sec.
103(i)(3)-(4). States must submit annual reports to EPA on their progress
improving the technical, managerial, and financial capacity of POTWs.
We
are seriously concerned that this entire "hammer" approach, which would make
states responsible for keeping the asset management ball rolling, combined with
loss of SRF funding for both states and communities, will create an enormous
disincentive to access the SRF at all. This is the complete opposite result
contemplated in the bill's stated "Purposes." The bottom line is that without
any federal requirements, the type of asset management S. 1961 contemplates is
already happening. Asset management and long-term planning are an essential part
of protecting our nation's
water infrastructure investments.
AMSA and its member agency operators are working consistently to improve the
efficiency of their operations. In fact, the AMSA Index has been reporting
significant reductions in operations and maintenance costs since 1996. In
addition, AMSA just released a comprehensive asset management handbook to POTWs
across the country, and we are holding workshops throughout the year - including
later this week - to train hundreds of facility managers in asset management
techniques. The asset management plan outlined in the bill, including the
mandate to develop an asset inventory, useful life projection, and an optimal
schedule of capital and maintenance expenditures to sustain performance
objectives, are precisely the techniques advanced in AMSA's handbook and
workshops. In addition to knowing that asset management is the right way to
manage a facility and its infrastructure assets, the legal requirements of
Government Accounting Standards Board Statement 34 (GASB 34) are requiring
cities across the country to document and discuss in detail the condition of
their major infrastructure assets.
Let us not be lulled into believing
that good management can repair the aging infrastructure of the past. Although
extremely important, good management does not provide the bricks, mortar,
concrete, and pipe to build and maintain a sewer system. And this is where S.
1961 must focus - on giving communities the funds they need to make their core
infrastructure investments. We recommend that the Subcommittee remove these
asset management requirements, and instead, revise the Congressional statement
of policy in the bill to express the sense of Congress that asset management is
essential and strongly encouraged. We urge the Subcommittee to recognize that
making asset management a prerequisite for SRF funds will have the effect of
denying communities the very funds they need to fix their core infrastructure.
Coordination with Local Land Use and Transportation Planning
Another new requirement in S. 1961 is that states must ensure that SRF
applicants consult and coordinate with local land use plans, regional
transportation improvement and long-range transportation plans, and watershed
plans. Title I, Sec. 103(e)(2). This type of coordination is already occurring
across the nation, and in fact, already is required by many SRFs, making this
provision of the bill duplicative and potentially confusing. In fact, the state
and regional clearing house process long- implemented under the Demonstration
Cities and Metropolitan Development Act of 1968 and OMB Circular A-102 already
provides sufficient local coordination in the areas contemplated in S. 1961. For
these reasons, we recommend that the Subcommittee remove this requirement from
the bill.
Consolidation of Management Functions; Rates Reflecting
"Actual Cost of Service"
A third new requirement in S. 1961 is that
communities may only receive SRF funding if they have considered "consolidating
management functions or ownership with another facility; [and] forming
public-private partnerships or other cooperative partnerships." Title I, Sec.
103(j)(1). A fourth new requirement is that the community must have in effect "a
plan to achieve, within a reasonable period of time, a rate structure that to
the maximum extent practicable . . . reflects the actual cost of service
provided by the recipient" as well as an asset management plan. Sec. 103(j)(2).
These provisions would introduce an inappropriate level of federal and state
oversight into the setting of local wastewater rates and the management of local
utilities - areas in which they do not have sufficient expertise - and will
deter communities from applying for the very SRF funds the bill intends them to
receive more easily and directly. The subjective nature of the wording in these
provisions only causes us greater concern. As a result, we strongly recommend
they be deleted.
Let me be clear - AMSA members are committed to
supporting our operations and capital needs through our rates. In fact, most
AMSA members operate as an authority or division of government with tight
enterprise accounting procedures, and already recover full costs of service,
including a payment to the underlying government for "services rendered" or "in
lieu of taxes." AMSA's own triennial financial survey of our industry, which we
have provided to this Subcommittee, supports this statement. Most AMSA members'
rates also address capital replacement funds to the extent they are identified.
While some replacement costs and future regulatory requirements may not be
typically captured in the traditional capital replacement programs, POTWs are
working to fine tune their projections every day. In addition, we 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. However, these decisions should be
made at the local level, and not be legislated by the federal government as a
requirement for a community to receive SRF funds.
Innovative
Technology/Demonstration Projects
For many years, AMSA and WIN have
supported the addition of provisions that will promote investment in clean and
safe water technology and management innovation to reduce infrastructure costs,
prolong the life of America's water and wastewater assets, and improve the
productivity of utility enterprises. Title III, Section 302 of the bill
establishes a demonstration program for water quality enhancement and
management. We urge the Subcommittee to increase the
$
100,000,000 authorized for this important initiative, and to
expand the types of projects that would be eligible for the program.
NAS
Rate, Affordability, and Disadvantaged Communities Study
We also
recommend removal of S. 1961's provision at Title III, Section 303 for a
National Academy of Sciences (NAS) study of public drinking and wastewater
treatment system rates, affordability, and disadvantaged communities. The study
would, among other things:
S Assess whether rates adequately address the
cost of service and infrastructure replacement needs;
S Recommend best
practices to establish rate structures addressing the "true cost of service" and
the needs of disadvantaged communities and individuals;
S Evaluate
existing standards of affordability;
S Describe how a "disadvantaged"
community is determined in various parts of the country; and
S Assess
how various factors affect whether a community is considered "disadvantaged."
AMSA believes the answers to many of these questions already exist and
render the study unnecessary.
We also are concerned that S. 1961
requires POTWs to make rate structure assurances, and the states to define
"disadvantaged" through notice and comment rulemaking, well before this NAS
study would be complete and its results examined. AMSA also does not believe it
is the best use of the NAS' expertise to study topics that not only have been
studied by academics and social scientists across the nation for many years, but
also that are as locally driven and diverse as these issues.
Summary of
AMSA's Key Recommendations
AMSA is pleased to provide the following
summary of our recommended revisions to S. 1961: S Fully fund the documented
water infrastructure funding needs at an authorized level of
$
57 billion over five years using a combination of
grants and loans, consistent with the WIN Report;
S
Focus on core infrastructure needs;
S Recognize the national,
environmental and public health importance of maintaining our nation's water and
wastewater infrastructure;
S Allow all communities to take advantage of
a 30-year or "life of the project" repayment schedule;
S Remove
provisions allowing up to 45 percent of SRF dollars to be directed toward
assistance to disadvantaged communities, low- income individuals, and asset
management work. Instead, express the sense of Congress that SRF funds should be
directed to needy communities and individuals in the states' discretion as they
review and prioritize SRF fund applications, and that municipal asset management
is an essential activity for which SRF funds may be used;
S Add
provisions to truly streamline state funding procedures consistent with the
bill's stated purposes, and to ensure the swiftest possible fund allocations for
local infrastructure needs;
S Remove provisions making asset management
a prerequisite for SRF funds and instead, include in the Congressional statement
of policy that asset management is encouraged;
S Remove provisions that
introduce an inappropriate federal and state role in the setting of local
wastewater rates, utility partnerships, and land use planning;
S
Increase the $
100,000,000 authorization for the demonstration
program for water quality enhancement and management, and expand the types of
projects eligible for this program; and
S Remove the provision for a
National Academy of Sciences study on public drinking and wastewater treatment
system rates and factors creating disadvantaged communities.
Conclusion
The Water Investment Act of 2002 is an important first step toward
reaching the $
57 billion over five years needed to address core
water infrastructure projects. The needs of communities across
the nation are not being met by EPA's current SRF program. AMSA believes that S.
1961 should be amended to streamline SRF requirements and to direct funds to
support the core needs of our industry - infrastructure repair and replacement,
and compliance with new and forthcoming regulatory requirements.
Wastewater agency executives like myself face our environmental
challenges each day. Wastewater treatment plants operate 24/7 to provide secure
systems, upgrade and replace our treatment plants and pipes, control sewer
overflows and stormwater, protect wetlands, manage coastal areas, and meet a
host of other water quality responsibilities. Simply stated, a lasting,
long-term fiscal partnership with the federal government and the states is the
answer to our call for assistance with this tremendous responsibility.
Chairman Graham, we look forward to working with you to modify S. 1961
to reflect our suggestions and those of other stakeholders in the coming weeks.
Thank you 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 28, 2002