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Congressional Testimony
February 26, 2002 Tuesday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 4158 words
COMMITTEE:
SENATE ENVIRONMENT AND PUBLIC WORKS
HEADLINE: WATER INFRASTRUCTURE AND CLEAN WATER
TESTIMONY-BY: BENJAMIN H. GRUMBLES, DEPUTY ASSISTANT
ADMINISTRATOR
AFFILIATION: ENVIRONMENTAL PROTECTION
AGENCY
BODY: STATEMENT OF BENJAMIN H. GRUMBLES
DEPUTY ASSISTANT ADMINISTRATOR FOR WATER ENVIRONMENTAL PROTECTION AGENCY
BEFORE THE COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS
UNITED
STATES SENATE
February 26, 2002
Good morning, Mr. Chairman and
Members of the Committee. I am Ben Grumbles, Deputy Assistant Administrator for
Water at the U.S. Environmental Protection Agency (EPA). First, let me convey
Tracy Mehan's regrets for being unable to be here today to speak with this
Committee. Second, I appreciate this opportunity to provide the Administration's
views on S. 1961, the "Water Investment Act of 2002," and being able to discuss
how to ensure that the Nation's drinking water and wastewater facilities can
meet the challenge of protecting our public health and water quality in the 21st
century.
Through a strong and evolving local, State, federal and private
partnership, the United States has made great progress over the past three
decades in reducing water pollution and assuring the safety of drinking water.
The Clean Water Act (CWA) and the Safe Drinking Water Act (SDWA) have served us
well and provide the solid foundation we need to make sure that all Americans
will continue to enjoy safe drinking water and clean rivers, lakes, and coastal
waters. In particular, our cooperative investment in water and wastewater
treatment, and pollution prevention has paid dramatic dividends for water
quality and public health. The economic and social benefits of improved water
quality are readily evident from urban waterfronts to recreational water bodies
to wild rivers all across America. We have also made dramatic progress in
improving the safety of our Nation's drinking water. Today, more than 90 percent
of the population served by community water systems receives water from systems
with no reported violations of health-based standards in place as of 1994.
CLEAN WATER AND DRINKING WATER STATE REVOLVING LOAN FUNDS
The
financial demands that communities face in providing clean and safe water to all
Americans are substantial, and the Administration is committed to helping find
ways to meet those demands. The federal government has provided over $80 billion
in wastewater assistance since passage of the Clean Water Act, which has
dramatically increased the number of Americans enjoying better water quality.
The primary mechanism that EPA uses to help local communities finance
water infrastructure projects is the
State Revolving
Fund (SRF), established in the 1987 CWA amendments and the 1996 SDWA
amendments. The SRFs were designed to provide a national financial resource for
clean and safe water that would be managed by States and provide a funding
resource "in perpetuity." These important goals are being achieved. Other
federal, State, and private sector funding sources are also available for
community
water infrastructure investments. Under the SRF
programs, EPA makes grants to States to capitalize their SRFs. States provide a
20% match to the federal capitalization payment. Local governments get loans for
up to 100% of the project costs at below market-interest rates. After completion
of the project, the community repays the loan, and these loan repayments are
used to make new loans on a perpetual basis. Because of the revolving nature of
the funds, funds invested in the SRFs provide about four times the purchasing
power over twenty years compared to what would occur if the funds were
distributed as grants.
In addition, low interest SRF loans provide local
communities with dramatic savings compared to loans with higher, market interest
rates. An SRF loan at the interest rate of 2.4% (the average rate during the
year 2001) saves communities 23% compared to using commercial financing at an
average of 5.3%.
To date, the federal government has provided more than
$19.7 billion in capitalization funding to States for their Clean Water SRFs,
more than twice the authorized level for the program. With the addition of the
State match, bond proceeds, and loan repayments, States have $37.7 billion in
assets in their clean water SRFs. Since 1988, States have made nearly 11,000
individual loans for a total of about $34.3 billion, with another $3.4 billion
either unallocated or being readied for loans as of June 2001. In FY 2001, the
Clean Water SRF issued a record total of 1,370 individual loans with a value of
$3.8 billion. The Clean Water SRFs have provided between $3-4 billion in loans
each year for several years, and are widely considered a tremendous success
story. For FY 2003, the President's Budget proposes funding the Clean Water SRF
at $1.212 billion.
The Drinking Water SRF was modeled after the Clean
Water SRF, but States were given broader authority to use Drinking Water SRFs to
help disadvantaged communities and support drinking water program
implementation. Through fiscal year 2002, Congress has appropriated $5.3 billion
for the Drinking Water SRF program. Through June 30, 2001, States had received
$3.6 billion in capitalization grants, which when combined with State match,
bond proceeds and other funds, provided $5.2 billion in total cumulative funds
available for loans. Through June 30, 2001, States had made close to 1,800 loans
totaling over $3.8 billion, with another $1.4 billion either unallocated o;
being readied for loans. Approximately 75% of the agreements (41% of dollars)
were provided to small water systems that frequently have a more difficult time
obtaining affordable financing. By the end of FY 2003, we expect the number of
loans issued by State Drinking Water SRFs to reach 2,400, with about 850 SRF
funded projects having initiated operations by that date. The FY 2003
President's Budget proposes to fund the Drinking Water SRF at $850 million.
The Administration will continue to fulfill prior EPA commitments to
capitalize the Clean Water SRF to revolve at a $2 billion average annual level
and the Drinking Water SRF at a $500 million average annual level.
THE
CHALLENGE AHEAD
With the important investments made by and achievements
of all levels of government and the private sector, together we have
substantially improved quality of the water in every State -- even while our
population sharply increased and the output of our economy more than doubled.
But the task America's intergovernmental, public-private partnership has
undertaken -- to protect public health and the environment by maintaining and
improving water quality -- is a continuing one. As our economy and population
grow, partnership members must increase their efforts to provide clean and safe
water every day. We must also periodically take a good look at the challenges
ahead, and reassess the adequacy of the tools we have to meet those emerging
challenges.
EPA's most recent Drinking Water and Clean Water Needs
Surveys have identified $150.9 billion and $150.5 billion, respectively (both in
1999 dollars), in documented needs eligible for SRF assistance in the coming
decades. More recent estimates associated with correcting sanitary sewer
overflows may increase the estimated total Clean Water needs, and the Agency
expects to release a new Clean Water Needs Survey in August 2002. Over the past
year or so, several stakeholder groups have issued reports estimating
water infrastructure needs that are substantially higher, based
on different methodologies and definitions.
With that in mind, the
Agency is actively working to improve information about long-term infrastructure
needs, assess different analytical approaches to estimating those needs, and
estimate the gap between needs and spending. Last summer, EPA presented its
analysis -- known as the Gap Analysis -- to a diverse panel of industry experts.
Overall, the reviewers commended the report as a reasonable effort to quantify
the gap. We have made revisions to the analysis based on peer review input and
we expect to release the Gap Analysis shortly.
In considering these
studies and analyses, it is important to keep in mind a few points of context.
First, there is no single "correct" number to describe the gap. Any gap study
must be built using methodologies and definitions of need, which in turn rest on
assumptions about present conditions nationwide, and desirable or appropriate
policies to follow in the future. That raises the second point that while these
gap numbers may be helpful to provide a broad sense of the challenge ahead, they
cannot themselves be a clear guide to policy, because they do not take into
consideration how the various roles of federal, State and local governments
should be balanced. Third, under any study, funding gaps are not inevitable.
They occur only if capital and operations and maintenance (O&M) spending
remains unchanged from present levels over the time covered by the study. What a
proper analysis may suggest is that a funding gap will result if the challenge
posed by an aging infrastructure network -- a significant portion of which is
beginning to reach the end of its useful life -- is ignored.
I believe
most partnership members would agree that the nation, through our partnership,
needs to put more resources into water and wastewater infrastructure in the
future than we have been doing; and, that we need to reduce costs by ensuring
more efficient and productive use of such resources, through locally- tailored,
fiscally sustainable management and technical approaches. We need a strategy
that addresses both the fiscal demand side (how to define and manage
infrastructure needs) and the fiscal supply side (how to pay for those managed
needs).
While much of the projected gap is the product of deferred
maintenance, inadequate capital replacement, and a generally aging
infrastructure, it is in part a consequence of future trends we can anticipate
today. For instance, continuing population growth means that even increasing
capacity at current levels of wastewater treatment will not be enough to prevent
water quality degradation, and that development pressures on unprotected
drinking water sources will increase. The same tools we need to make the fiscal
demand side of the gap more manageable -- like reducing the flow of wastewater
and stormwater requiring treatment through conservation and nonstructural
alternatives, and protecting our drinking water sources -- will help us to deal
with the water quality impacts of a growing population.
To meet these
future challenges to clean and safe water the Administration believes that the
touchstone of our strategy should be building fiscal sustainability. In
particular, several basic principles should guide our pursuit of clean and safe
water through fiscal sustainability:
Utilizing the private sector and
existing programs: Fostering greater private sector involvement and encouraging
integrated use of all local, State, and federal sources for infrastructure
financing.
Promoting sustainable systems: Ensuring the technical,
financial, and managerial capacity of water and wastewater systems and creating
incentives for service providers to avoid future gaps by adopting best
management practices to improve efficiency and economies of scale, and reducing
the average cost of service for providers.
Encouraging cost-based and
affordable rates: Encouraging rate structures that cover costs and more fully
reflect the cost of service, while fostering affordable water and wastewater
service for low-income families.
Promoting technology innovation:
Creating incentives to support research, development, and the use of innovative
technologies for improved services at lower life-cycle costs.
Promoting
smart water use: Encouraging States and service providers to adopt holistic
strategies to manage water on a sustainable basis, including a greater emphasis
on options for reuse and conservation, efficient nonstructural approaches, and
coordination with state, regional, and local planning.
Promoting
watershed-based decision-making: Encouraging States and local communities to
look at water quality problems and drinking water source water protection on a
watershed scale and to direct funding to the highest priority projects needed to
protect public health and the environment.
This is an important and
serious challenge. We would not be in this room today if we did not recognize
that. That's good news in itself; and there's more, as we can see the tools, the
means to realize these principles in practice, taking shape all across the
country. Many States and local governments across the country have been changing
the way they do business. As a result, they've successfully managed many of
these infrastructure needs, using creative, individualized approaches that are
cost-effective, environmentally protective, and socially equitable -- efficient,
clean, and fair.
The two SRFs have proven themselves to be effective
means to help local governments address their needs. Now the task is to refine
them to facilitate and encourage the use of these State and local innovations in
every community in America. Indeed, your bill itself reflects the learning about
SRFs that went on between 1987 and 1996, by adopting for the Clean Water SRF
some of the innovations adopted in the Drinking Water SRF. It is important that
communities have and use all the necessary tools to close the gap before it
widens, so the tools can work together consistently and effectively in a
fiscally sustainable way.
S. 1961, THE WATER INVESTMENT ACT of 2002
I would like now to turn to S. 1961, the bill introduced by the
Environment and Public Works Committee leadership.
The Administration
shares the Committee's goal of improving the Nation's water quality and has
submitted a budget that will continue progress towards achieving that goal by
targeting non- point source pollution, the largest remaining problem. However,
the President clearly defined his priorities in the State of the Union as
defense and homeland security. As the increased spending called for in this bill
is not consistent with those priorities, the Administration does not support the
funding levels contained in S. 1961. The Administration and Congress should look
for creative ways to help the water and wastewater industries meet their needs.
At this initial stage of the Committee's consideration of this bill, I
will give the Administration's response to some of the bill's key approaches and
major components. We would also like to take this- opportunity to state the
Administration's support for privatization incentives. On these, as well as
other provisions that this testimony does not specifically address, we look
forward to working with you and stakeholders during the Committee's
deliberations in the weeks ahead.
Project Eligibilities: On the Clean
Water side, the bill addresses project eligibilities, and clarifies that a broad
range of projects that would improve water quality under Clean Water Act
programs can be supported using the SRF. We believe that the provision
authorizing assistance for projects or activities for conservation, reuse or
recycling must be limited to those that have primarily a water quality benefit,
or substantial SRF resources could be diverted to projects or activities whose
primary objective and benefit does not further Clean Water Act goals.
Capacity Development/Priority List Funding: The bill closely adapts for
the Clean Water Act two important provisions from the 1996 Safe Drinking Water
Act Amendments, on capacity development and SRF priority list funding, and adds
asset management requirements in both Acts.
We believe that this
demonstrates once again the effectiveness and durability of the approaches
Congress adopted in 1996, and welcome the Committee's use of the SDWA model
here. In order for water and wastewater systems to achieve fiscal
sustainability, these systems need to: have long-term technical, financial, and
managerial capacity; optimize the efficient operation and useful life of their
capital assets; and, direct funding to the highest priority projects needed to
protect public health and the environment.
In these regards, S. 1961
moves in a generally positive and useful direction. As with any new approach,
there are some questions about how aspects of these capacity development and
asset management provisions would work in practice. Here again, we want to work
with you and stakeholders to share and learn from our experiences with SDWA, and
make sure that help in achieving these objectives can reach those who will need
it, especially in smaller communities.
Disadvantaged Assistance:
Regarding disadvantaged assistance, the bill makes two major modifications.
First, it adds to the Clean Water SRF the disadvantaged community provisions
enacted for Drinking Water in 1996, enabling States to provide additional loan
subsidization, including forgiveness of principal, to such communities as
defined by the States. It also includes in the Clean Water SRF the extended loan
terms available to disadvantaged communities under the Drinking Water SRF.
Second, it adds to the laws governing both SRFs a new provision,
authorizing States to provide this additional subsidization to treatment works
or public water systems which are not disadvantaged, so long as the assistance
agreement with the recipient ensures that the subsidy will be directed to
disadvantaged users within the community. We want to work with you to ensure
that States or communities can use programs which are as effective as user rate
systems in directing these additional subsidies to needy users.
The
bill's provisions for aid to disadvantaged users specify that up to 15 percent
of capitalization grants can be used for additional subsidies. It is not clear
whether this 15 percent is within the 30 percent limit for disadvantaged
communities or on top of it, as the bill's provisions are worded differently for
the two SRFs. We oppose making the 15 percent additional to the 30 percent limit
in both SRFs. Placing the 15 percent within the 30 percent would protect the
availability of additional subsidies for disadvantaged communities while giving
the States flexibility to provide such help to disadvantaged users as well.
The revolving loan funds will always face the challenge of striking a
balance between important values -- of offering additional support for
low-income residents, small communities, and state programs on the one hand, and
preserving the corpus of the fund so it can assist communities far into the
future on the other. If new assistance to disadvantaged users is added on top of
the 30 percent, it would allow about half of the capitalization grant to be
removed before it ever enters the
States' revolving funds. This
would undercut the funds' capacity to serve as a viable resource for communities
in perpetuity, and would disrupt a vital balance that the Administration
believes we must maintain. We would like to collaborate with the Committee to
achieve disadvantaged assistance provisions that strike this important balance.
Loan Conditions: For both the Clean Water and Drinking Water SRFs, the
bill creates new provisions requiring several things of loan applicants as a
condition of project approval. Taken together, these loan conditions are among
the key provisions in the bill, and the Administration supports the objectives
behind them as according with basic principles that should guide our
infrastructure revitalization efforts. At the same time, we want to make sure
that the conditions operate in ways that loan applicants can learn to handle,
and that the SRFs can continue to function to provide the needed kinds of
assistance.
One condition is a requirement that prospective loan
recipients consult and coordinate with local, regional, or state agencies that
may adopt land use, transportation, or watershed plans. S. 1961 also requires
loan recipients: to develop and implement asset management plans; to have plans
to achieve rate structures that reflect, as far as possible, the cost of service
and include capital replacement costs; and to consider, throughout pre-
construction phases, consolidation, partnerships, or alternative, nonstructural
approaches.
We agree that local governments should undertake, and States
must supervise, management and planning changes to ensure fiscally- sustainable
solutions. All of the studies indicate that the potential gap in water and
wastewater infrastructure comes largely from replacement of aging pipes and
O&M costs -- both, historically, a responsibility primarily of local
government (although pipe replacement is eligible under both SRFs). Through its
loan conditions, S. 1961 encourages States and communities to look at water
quality problems and drinking water source water protection en a watershed
scale, and to adopt comprehensive strategies that integrate water management
into whatever planning for sustainable communities they may be doing. And, it
creates incentives for service providers to adopt best management practices to
improve efficiency and economies of scale, reduce the cost of service, and avoid
future gaps, while encouraging rate structures that cover costs.
These
new conditions on assistance to communities are among the most important
innovations in this legislation. Promoting a comprehensive examination of all
cost-effective tools and options, on both the fiscal demand and supply sides, is
key to building fiscal sustainability. The Administration believes that the
potential gaps will become more manageable if these conditions can be designed
and implemented effectively.
Having said that, we must all recognize
that these new conditions are going to increase substantially the level of
effort required to obtain an SRF loan. We must make sure that these conditions
are framed in a workable way; that we provide a transition to the new conditions
that equips applicants to address them in a timely way; that those who need
special help in meeting the conditions can get it; and that small loans can
continue to be provided without a level of analysis that's disproportionate to
the investment sought. Here as elsewhere, we look forward to working with the
Committee to pursue these shared objectives in a practical manner.
SRF
Fund Transfer Authority: In addition, the bill would make permanent the States'
authority to transfer funds between the Clean Water and Drinking Water SRFs.
This is an important enhancement of State flexibility to address their highest
priority needs, and we welcome the Committee's proposal to turn what began in
1996 as a short-term experiment into a well- established tool to promote
cost-effective investment.
Promoting technology innovation: This
strategy to renew our water and wastewater infrastructure for the 21St century
puts a high premium on optimizing the efficient use of our current capital
assets and the new investments we must make. That will require the use of
innovative technologies for improved services at lower life-cycle costs, which
in turn means supporting research and development on these innovative
technologies and practices.
Substantial reductions in life cycle costs
are possible through the use of innovations such as: (1) new construction and
repair practices; (2) remote monitoring and real-time control of water and
wastewater systems; and (3) advanced sensors for contaminants and structural
integrity. Research and development, in coordination with demonstration efforts,
is needed to assure that these and other advancements are available to community
decision- makers. We want to work with the Committee on ways to promote this
objective.
Legal Issues: EPA has legal concerns regarding two provisions
of S. 1961.On judicial review, the provisions amending both Acts are written so
broadly they could prevent judicial enforcement of virtually all provisions of
the SRF statute and other applicable federal statutes as well. On State water
rights, one subsection essentially duplicates existing language in the Clean
Water Act, while the second raises several issues of legal applicability arid
potentially problematic unintended consequences. However, we do recognize and
want to work with all interested members of the, Committee to see that the
underlying concerns reflected in these provisions are addressed.
CONCLUSION
In summary, notwithstanding our continuing concerns
with the funding authorization levels proposed in this bill, we appreciate the
Committee's initiative in taking up this important issue, and particularly in
its efforts to build fiscal sustainability in water and wastewater
infrastructure. We look forward to continuing our constructive participation in
your efforts to refine this legislation. Thank you for the opportunity to
present the Administration's views on this bill. That concludes my prepared
remarks, and I would be happy to answer any questions.
LOAD-DATE: February 26, 2002