May 15, 2002

To All Members of the Senate Committee on Environment and Public Works:

This letter outlines states' concerns regarding the Water Investment Act of 2002 (S. 1961) scheduled for markup on Thursday, May 16, 2002. The bill authorizes significant new funding for the Clean Water and Drinking Water State Revolving Loan Funds (SRFs), which is an important step toward addressing the nation's growing water infrastructure needs. We fully support this new funding, and we appreciate the proposed increase in funding for state administration of the SRF program. However, Governors and state officials responsible for implementation of the SRF believe that if S. 1961 becomes law as currently drafted, the viability of the existing program will be seriously compromised. We urge you to adopt amendments that will be offered by Senator George Voinovich to address the issues we outline.

Over the past several weeks, we have worked with the Committee and offered numerous suggestions and proposals aimed at addressing states' concerns. Despite our sincere efforts to reach consensus on the key issues, the current bill, although somewhat improved from the manager's initial mark, continues to present more barriers than benefits to improving the nation's water quality. S. 1961 was initially characterized as modernizing, streamlining and updating the SRFs. In the states' view, the SRFs will be unable to accomplish these goals under the current bill because it undermines the bedrock principle of one of the most successful public works and environmental programs in history, namely state authority and responsibility for the SRFs.

Three important issues illustrate how the provisions in the bill will establish barriers to assisting local governments and nonpoint sources. The most egregious is the requirement that, as a condition of making a loan, a state will have to oversee and monitor in detail the operations of a local utility to determine whether the water and sewer rates they charge their customers reflect the utility's cost of service. This will not only create rate battles between the state and the local governments; it also ignores the fact that most states are prohibited by state statute from interceding in local water and sewer rate-setting processes.

Federal intrusion into state and local decision-making can be found in virtually all of the new conditions that S. 1961 places on SRF funding. For example, the capacity development provisions of the bill would require SRF managers to act as financial planner, management consultant, and quality controller for every facility requesting a loan. SRF managers have neither the expertise nor the staff to implement these measures.

S. 1961 also mandates that states oversee cities, counties, towns and individuals seeking a loan to make sure that they have "appropriately" consulted with local land use, transportation and watershed planning agencies. This requirement elevates purely local issues to the state level, adding unnecessary cost, delays and bureaucracy to an already burdensome application process. Moreover, small and hardship communities that benefit most from SRF loans used to improve their programs and to address routine compliance problems will likely be ineligible for a loan under the bill's noncompliance provision. Compounding all of these new mandates is the fact that S. 1961 would encourage unnecessary litigation against states since it does not provide a bar to law suits by groups that seek to override state administrative decisions.

We believe that the new mandates contained in S. 1961 will unnecessarily burden the assistance approval process thereby rendering the SRF program less attractive and accessible to borrowers. More red tape, the potential for more regulation by the Environmental Protection Agency, and more federal intervention into state and local decision making will only serve to jeopardize this program.

We ask that you consider carefully and adopt those amendments addressing our concerns that will be offered on Thursday by Senator Voinovich. These amendments are necessary to maintain the SRF program as a state-based program that provides states with maximum flexibility to address their unique water quality needs and requirements.

Sincerely,