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Federal Document Clearing House
Congressional Testimony
October 31, 2001, Wednesday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 4041 words
COMMITTEE:
SENATE ENVIRONMENT AND PUBLIC WORKS
SUBCOMMITTEE: FISHERIES, WILDLIFE AND WATER
HEADLINE: WATER PURIFICATION PROGRAMS
TESTIMONY-BY: PAUL PINAULT, EXECUTIVE DIRECTOR
AFFILIATION: NARRAGANSETT BAY COMMISSION
BODY: TESTIMONY OF THE ASSOCIATION OF METROPOLITAN
SEWERAGE AGENCIES (AMSA)
October 18, 2001
Presented by
PAUL PINAULT Executive Director Narragansett Bay Commission Providence,
Rhode Island
Submitted to the SUBCOMMITTEE ON FISHERIES, WILDLIFE AND
WATER SENATE ENVIRONMENT AND PUBLIC WORKS COMMITTEE
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 ("the Commission") in Providence, Rhode Island and
Vice President of the Association of Metropolitan Sewerage Agencies (AMSA). AMSA
represents the interests of more than 260 publicly owned treatment works (POTWs)
across the country. AMSA's members treat 18 billion gallons of wastewater every
day and provide service to the majority of the United States' sewered
population. On behalf of AMSA and the Commission, I thank you for this
opportunity to address your Subcommittee. Adequate financial resources to
states, cities, and communities like mine are the most essential element to
maintaining our nation's water and wastewater infrastructure. The Clean Water
Act (CWA) amendments of 1987 created a new phase of clean water funding by
replacing the federal Construction Grants Program with the Clean Water
State Revolving Fund Loan Programs (SRF). Since 1980, according
to studies by both the U.S. Environmental Protection Agency (EPA) and the
private sector, federal contributions have declined by 75 percent in real terms
and today represent only about 10 percent of total capital outlays for water and
wastewater infrastructure and less than 5 percent of total water and wastewater
outlays. Local governments currently assume more than 90 percent of
water infrastructure construction costs in the form of
expensive bond issuances - municipal debt - and increased water and sewer bills.
This hearing addresses what wastewater utilities, and state and local
governments are doing to maximize limited federal funding for water and
wastewater infrastructure improvements and what role the federal government
should play in ensuring the nation's infrastructure. I assure you that
wastewater utilities must be, and are being, extremely innovative in order to
get the most out of the limited dollars available. This testimony will address
both what the Commission is doing, what AMSA and wastewater utilities are doing
nationwide, and what the federal government can do to ensure that funding levels
are sufficient to meet infrastructure needs.
The Narragansett Bay
Commission's Experience
The Narragansett Bay Commission has had a
positive experience with its state loan program and has made significant use of
the monies Congress has appropriated to the SRF. The Commission owns the two
largest wastewater treatment facilities in Rhode Island. Field's Point was
originally built in 1901, and Bucklin Point in 1952. The Commission assumed
ownership and operations of both facilities by order of the Rhode Island General
Assembly in 1982 and 1992 respectively.
The Commission has borrowed
approximately $
72.3 million from the SRF since the Commission's
inception in 1980, enabling us to fund a significant portion of our sewer system
projects. The Commission is the largest borrower from the Rhode Island Clean
Water Finance Agency, which administers the SRF. Field's Point required over
$
100 million in upgrades, a majority of which was funded by
statewide general obligation bonds.
In 1986, the Commission's debt
service as a percentage of total operating budget was 19 percent; in 2002, it
will be 22 percent, and in 2006, it is projected to be 54 percent as a result of
$
350 million in planned capital projects over the next five
years, including construction start-up costs on the first phase of our
three-phase federally mandated combined sewer overflow (CSO) project. Phase I is
estimated at $
250 million and the total project budgeted at
$
550 million over next 20 years. While it is daunting to think
that 54 cents of every dollar the Commission receives will go for debt service
rather than operations, without the SRF, that number would be much higher.
The Commission has used the SRF to partially fund projects including
septage receiving facilities, pump station rehabilitation and repairs,
facilities planning, and solids handling facilities. Future projects that will
require federal funds include a $
60 million upgrade at the
Bucklin Point Wastewater Treatment Facility to improve capability for nutrient
removal/reduction and the $
250 million Phase I for CSO
controls.
I should fully clarify that these capital funding needs are
driven by the dual forces of aging infrastructure and increasingly stringent
environmental regulations, not operational costs. The Commission and its fellow
AMSA members around the country have a six-year documented record of reducing
operational costs. However, no amount of operational streamlining or belt-
tightening can offset the cost of replacing critical clean
water
infrastructure. As we plan for the future, we believe that the
Rhode Island Clean Water Finance Agency will need more money and a greater array
of financing mechanisms to meet the Commission's needs, as well as the needs of
the other 17 wastewater treatment facilities in the state - the three largest of
which face very expensive nutrient removal projects - and the state's drinking
water projects. If the SRF is underfunded and unreformed, the Commission will be
forced to borrow at daunting market rates to accomplish these important
projects.
An important part of the funding equation is the cost that
users pay for services. I want to stress to the Committee that The Commission's
ratepayers have been paying their fair share of the cost of the services
provided. However, it is becoming increasingly clear that our ratepayers cannot
sustain additional, substantial rate increases. Twenty-two percent of households
in the Commission service area fall under the federal poverty line; 15 percent
of the Commission's service area population are over 65 years of age and, most
likely, on a fixed income; and 65 percent of children at or below the poverty
line in Rhode Island live our service area.
In January of this year, the
Commission raised its rates by 25 percent. This rate increase was driven
primarily by the Commission's need to increase its debt capacity to pay for the
CSO project. We will have to apply to the Rhode Island Public Utilities
Commission again shortly for additional rate increases to meet growing debt
capacity needs. For our demographic group, these increases represent substantial
financial hardship-well in excess of the 2 percent median household income
affordability levels set by the U.S. Environmental Protection Agency (EPA).
I want to reiterate that the Narragansett Bay Commission has been
fortunate in that it has been able to access Rhode Island's state loan fund to
help us finance our
water infrastructure needs. Unfortunately,
impediments such as cumbersome program administration requirements and limited
leveraging of state monies to maximize the capacity of the program have
prevented many wastewater utilities from having similar experiences. It is clear
that based on current and future infrastructure needs, the SRF program is
not-and will not be-adequate to ensure continued compliance with our nation's
water quality goals.
The National Perspective
Again, municipal
debt comprises 90 percent of
water infrastructure construction
costs, which includes compliance with federal regulations. Debt management
offers a case-in-point of the innovations that wastewater treatment plants
employ, as public officials rise to meet the funding challenge. To make
municipal bonds as effective a source for generating income as possible,
municipalities are increasingly involved in "pooled borrowing." Pooled borrowing
is a bond issuance mechanism in which several municipalities join together and,
instead of issuing bonds individually, issue a single bond. By doing so, these
municipalities can ensure both a slightly better interest rate and, more
importantly, a significant reduction in issuing costs. These activities can
result in both short-term and long- term savings.
Additionally, many
local utilities structure and restructure their debt to achieve low cost, low
risk debt and to minimize debt service costs over the long-term. This often
involves a delicate balancing act between reducing an agency's debt reduction in
the near term for somewhat increased debt service costs in the future. This must
be done while ensuring that ratepayers' costs remain stable and the environment
fully protected. Some local governments have moved to longer term - 30 and 40
year - debt plans that help reduce annual payments.
Public Agency
Management Innovations: Minimize Costs / Maximize Performance
Utility
managers over the past decade have become better business operators.
Publicly-owned wastewater treatment plant operators have worked diligently to be
more competitive to meet the demands of the ratepayer, protect the public's
investment, and meet the nation's water quality goals. Environmental management
systems (EMSs) and asset management are becoming essential tools nationwide.
EMSs and more narrowly targeted management programs, like asset
management, can and should be implemented in a complementary fashion. EMSs can
provide the overall framework for implementing these other management programs.
AMSA, in cooperation with EPA and the Water Environment Federation, is currently
engaged in a joint project to develop comprehensive EMS guidance for wastewater
utilities that will provide a key tool to ensure a more integrated,
cost-effective management approach for wastewater utilities in the near future.
Such a system gives a utility the tools to identify and more efficiently manage
its capital assets, address a full range of environmental impacts, focus on
improving environmental performance beyond the levels required by regulations,
and do so through an open and transparent process that addresses the needs of
communities, regulators and other stakeholders.
At the same time, AMSA
is collaborating with EPA on developing a nationwide asset management program
for wastewater utilities, scheduled for implementation in early 2002.
Historically, capital investments in the form of water and wastewater
infrastructure have been placed into service and considered candidates for
rehabilitation and replacement only when the system faces critical levels of age
or deterioration. Current physical, economic, social, financial, and
institutional factors have rendered such an approach no longer viable. AMSA's
view is that public utilities must be able to plan and optimize the maintenance
and replacement cost cycles for their infrastructure assets in order to minimize
costs and maximize performance.
An added incentive for this shift to a
more measured planning approach can be found in the June 1999 changes to
financial accounting and reporting standards issued by the Governmental
Accounting Standards Board for State and Local Governments (known as GASB 34).
These sweeping changes require governments to report depreciation of assets or
to implement an asset management system. Under the standards, any asset
management system utilized by a government must result in an up-to-date
inventory of infrastructure assets, the undertaking of condition assessments of
assets, the development of annual estimates of the funds necessary to maintain
the assets and documentation that assets are being maintained.
The goal
of the accounting requirements of the GASB is to add value to decision makers
nationwide.
Advances in geographic information systems, combined with
effective relational database management, improved data collection technologies
and increased analytic computer capacity provide a unique and challenging
opportunity to improve management decisions and reduce cost.
Improved
asset management practices and programs at public wastewater utilities protect
the public's investment in a vital local service. Sound management practices
enable communities to control and potentially reduce the costs of assets
required to meet service objectives. Some estimates suggest that the potential
exists for a 20 percent savings when the current capital investment approach is
abandoned and an asset management approach is implemented.
Local utility
management teams currently explore new ways to stretch available funding
including environmental management systems, asset management, bond issuances and
debt management, and are stretching their dollars to the greatest extent
possible. Publicly-owned wastewater treatment plants have a distinct mission for
which innovation must be complimented by critical changes to the
State
Revolving Fund (SRF) as well as increased federal funding.
There is ample precedent for, and clear economic principal for
supporting, a strong federal role in funding
water
infrastructure. Despite increasing federal mandates for cleaner water,
shifts in population that strand wastewater plants in urban core cities with few
ways to pay for needed improvements, and the nearly universal need to replace
billions of dollars in aging and failing water distribution and wastewater
collection systems, current federal funding policies and mechanisms to meet the
country's
water infrastructure needs are woefully inadequate.
As is true of America's highway and airport infrastructure, there is a
compelling need and rationale for a long-term, sustainable, and reliable source
of federal funding for clean and safe water.
Evolve the SRF into a
Comprehensive Financing Program
Every day, the agencies that comprise
AMSA ensure that waste is removed from millions of American businesses and
households and that the environment is clean and safe. For decades, AMSA has
been a partner with federal, state and local stakeholders to make environmental
progress through the improvement of municipal wastewater services. The
importance of wastewater infrastructure was well understood in the late 1960s as
the nation watched the quality of its waters decline precipitously and chose, in
the 1972 Clean Water Act, to spend federal tax dollars to reverse this trend. A
large number of publicly-owned treatment works (POTWs) have built their
secondary and advanced treatment capabilities as a result of the EPA's
Construction Grants Program. According to EPA's 2000 report entitled Progress in
Water Quality, a total of $
61.1 billion ($
96.5
billion as constant 1995 dollars) was distributed to municipalities through
construction grants from 1970 to 1995. State SRFs have received about
$
16 billion for the eleven-year period between 1988 and 1999.
The wastewater treatment infrastructure funded with this grant and loan money is
coming to the end of its useful life. And the SRF, as currently structured and
funded, is becoming an out- dated financing mechanism.
As the broad
national benefits of improved water services accrue, the number of people served
by POTWs is rising, regulatory mandates are skyrocketing, ratepayers' bills are
continually increasing, and infrastructure is aging. During this same time,
available funding options have been narrowed -to loans only-while program
eligibilities have been greatly expanded. Local communities need a full range of
funding options from an improved EPA
water infrastructure
financing program. The current
state revolving fund program
needs to modernized. As we increasingly approach our water quality challenges on
a watershed basis, our financing mechanisms must be consolidated, streamlined
and updated to accommodate the most effective and efficient approaches to
funding environmental protection.
Some public wastewater treatment
agencies, like the Narragansett Bay Commission, have been able to take advantage
of the funds to help offset the tremendous costs of upgrading, rehabilitating
and replacing their wastewater treatment facilities. Other communities, however,
simply cannot afford to pay back a loan. These communities should be afforded a
full range of funding options - including grants - to meet their infrastructure
needs. AMSA member agencies report different levels of success in dealing with
their state-run loan programs.
The Needs Are Greater than the SRF
The needs of hundreds of communities across the nation are not being met
by EPA's current wastewater loan program. We face financial challenges in the
water infrastructure sector today that far exceed historical
investment patterns. In addition, communities must plan to reach multiple
environmental programmatic goals simultaneously. We're upgrading and replacing
our plants, controlling sewer overflows, protecting wetlands, managing coastal
areas, controlling stormwater, upgrading and replacing pipe, dealing with
nonpoint sources and taking on the challenges represented by a whole host of
other water quality duties. With the limited amount of funds available, we must
make certain that our dollars are spent in the most efficient and effective
manner possible. In short, Congress must modernize the SRF.
AMSA
supports the recommendation contained in the recent WINow report by the
Water Infrastructure Network that calls for the next generation
of the SRF - state water and wastewater infrastructure financing institutions.
In order to effectively manage all of the water quality programs and challenges
previously mentioned, communities should not have to deal with more than one
SRF. As you are aware, this is not a new idea. Already, 30 states have combined
their wastewater and drinking water SRFs. By creating one centralized financing
program states can eliminate duplication, streamline government, save money, and
gain other efficiencies. By taking this common-sense approach, states will have
more money to help fund their communities' needs. The expanded SRFs should have
all the necessary financial tools needed by local governments to efficiently and
effectively meet their needs. Federal EPA funds should be administered through
flexible statewide water and wastewater financing institutions that would use
appropriate combinations of grants, loans, loan subsidies and other types of
financial assistance instruments.
The evolution to a more modern EPA
water infrastructure financing program would also create an
opportunity for federal and state government officials to streamline their
funding programs. Areas of focus should include federal and/or state paperwork
requirements associated with federal funding assistance, simplification of the
application processes, reduction of oversight and reporting requirements where
they no longer serve the federal or state interests, and flexibility in meeting
requirements that do serve federal and state interests.
AMSA's agencies
know that change does not come easily, nor is it without some cost. For years,
publicly-owned treatment works have been changing the way they do business. By
becoming more competitive, we have cut costs and become more effective and more
efficient. As States take the next step in streamlining their operations, AMSA
supports additional funding for the States to combine and modernize their
water infrastructure financing programs.
Solving the
Problem through a Fiscal Partnership
EPA's clean water SRF cannot
satisfy our current financial and regulatory needs. Both our systems and our
watersheds are at a critical juncture in their life cycles. A combination of
reduced federal spending and increased federal mandates to meet treatment
requirements is taking its toll. The collective aging of our pipes and systems
further compounds our ability to meet the objectives of the Clean Water Act. Any
additional deferral of the needed investments to repair and renew our systems
will lead to greater increases in the costs associated with providing clean and
safe water services, threats to public health, and environmental degradation.
The challenge of closing the
water infrastructure
financing gap can be met, but not without a substantial and concerted effort by
the federal government to join with states, local communities and consumers in a
fiscal partnership. To bridge the investment gap, the federal government should
meet localities halfway by authorizing an average of $
11.5
billion per year in capitalization funds over the next five years. States would
receive the funds and, in turn, offer grants and loans to local agencies. AMSA
further supports the following recommendations in the WINow report to reform
this country's water and wastewater infrastructure financing program:
Create a long-term, sustainable, and reliable source of federal funding
for clean and safe water;
Authorize capitalization of the next
generation of state financing authorities to distribute funds in fiscally
responsible and flexible ways, including grants, loans, loan subsidies, and
credit assistance;
Focus on critical "core" water and wastewater
infrastructure needs and nonpoint source pollution;
Streamline federal
administration of the funding program and encourage continuous improvement in
program administration at both the federal and state levels; Adequately finance
strong state programs to implement the Clean Water Act and the Safe Drinking
Water Act;
Establish a new program for 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; and
Provide expanded, targeted technical assistance to
communities most in need.
AMSA and other stakeholders recognize that no
single solution addresses the full range of water and wastewater infrastructure
funding needs. All levels of government and the private sector must share
responsibility for effective, efficient, and fair solutions.
Conclusion
Significant progress has been made in financing the clean up of our
nation's waters over the past 30 years through the Construction Grants Program
and the SRF. However, much remains to be done. The fundamental challenge for
Congress today is to fund a comprehensive financing program for the 21" century
that will allow state and local governments to meet their water and wastewater
infrastructure needs without putting unnecessary stresses onto the nation's
ratepayers.
The critical role of our nation's
water
infrastructure has become clearer as a consequence of the tragic events
of September 11. Obviously, dollars will have to be stretched even further now
not only to ensure that utilities are protected from internal threats such as
aging pipes, but also from external threats. AMSA has played a leading role in
organizing a Wastewater Infrastructure Security Task Force and AMSA members have
already earmarked significant funds towards efforts to ensure that these
security challenges are met.
AMSA and the 40 organizations in the
Water Infrastructure Network support the inclusion of
water infrastructure in an economic stimulus package. We
propose that $
5 billion in grants should be made available to
water and wastewater utilities for construction projects that are ready to go.
This would serve both as an immediate job creation program and would also
demonstrate a strong commitment to the long-term, sustainable and reliable
source of funding of water and wastewater infrastructure upgrades and repair,
and the environmental well-being and public health of our nation.
AMSA,
and the
Water Infrastructure Network, have supported a five
year, $
57 billion plan for new Congressional authorizations and
funding to capitalize state-administered grant and loan programs for water and
wastewater infrastructure. AMSA also understands the need to consider other
potential long-term options beyond this five-year period, and looks forward to
discussing this further with this Subcommittee and other members of Congress.
Chairman Graham, Senator Crapo and Members of the Committee, we look
forward to working with you to develop the right solutions to fund our national
water infrastructure needs. I will be happy to answer any
questions.
LOAD-DATE: October 31, 2001