Testimony by Jerry Johnson, General Manager
District of Columbia Water and Sewer Authority
on behalf of the
Association of Metropolitan Water Agencies
Subcommittee on Fisheries, Wildlife and Water
Committee on Environment and Public Works
United States Senate
S. 1961 - The Water Investment Act of 2002
February 28, 2002
Good afternoon, Mr. Chairman, members of the subcommittee.
My name is Jerry Johnson, and I'm the General Manager of the District of Columbia Water and Sewer Authority. I'm testifying today on behalf of the Association of Metropolitan Water Agencies (AMWA). AMWA is a nonprofit organization representing the nation's largest publicly owned water agencies. These large systems provide drinking water to approximately 110 million people from Anchorage, Alaska to Miami, Florida.
The DC Water and Sewer Authority provides retail water services to residents and businesses in the District of Columbia and parts of Virginia. WASA also provides wastewater treatment for the District of Columbia, portions of Montgomery and Prince Georges counties in Maryland and Fairfax and Loudon counties in Virginia as well as the town of Vienna, Virginia. WASA's Blue Plains Wastewater Treatment Plant, located in South West Washington, is the largest advanced wastewater treatment facility in the world.
Thank you for introducing S. 1961, the Water Investment Act of 2002, which is the first legislation to increase the federal investment in drinking water infrastructure since the 1996 amendments to the Safe Drinking Water Act.
The association believes the bill takes a major step in the right direction, by proposing to triple the authorization of the Drinking Water State Revolving Fund (SRF). While the needs of drinking water agencies over the five-year period covered by the bill are nearly $60 billion, the bill's proposed authorization, if enacted and appropriated, would fund hundreds of projects to ensure safe drinking water for decades to come.
Assistance to Metropolitan Water Agencies
Like current law, the bill's main focus is to help drinking water systems comply with the Safe Drinking Water Act. The bill also reinforces the Drinking Water SRF's support of small water systems, through the capacity development program, restructuring assistance, technical assistance and, most importantly, a 15-percent set aside for small systems. (Some states make loans to large water systems to ensure the funds revolve, especially where small systems are not prepared to apply for assistance.)
AMWA would like the subcommittee to consider ways to help metropolitan water agencies with replacing aging infrastructure. (Metropolitan water agencies serve the nation's larger communities.) To get a sense of the needs facing metropolitan water agencies, consider this: according to a recent survey, just 32 metropolitan systems reported that they must spend $27 billion over the next five years on drinking water and wastewater infrastructure. Nationwide, the needs of metropolitan water agencies are much higher. Yet 31 states provided no assistance to metropolitan water agencies in fiscal year 2001. If the proposed authorization in S. 1961 is appropriated, states will have more money to lend to metropolitan water systems, but higher authorizations and programmatic changes are necessary, too.
The cities that are served by metropolitan water utilities are the economic engines of their states and the nation, and a significant federal investment in these large publicly owned agencies will translate into stronger water delivery systems, better fire protection, and thousands of new jobs.
Therefore, AMWA recommends a 15-percent set-aside for metropolitan drinking water agencies, to make certain that states address their needs. Under this proposal, small systems would continue to get the help they need to comply with the Safe Drinking Water Act, and metropolitan water agencies could invest the billions of dollars needed to replace aging infrastructure. In states where there are few metropolitan systems or where the systems do not need assistance, the funds set aside could be used for small systems.
The capital needs facing water systems to make their facilities and consumer more secure are likely to run into the billion of dollars, and AMWA believes the Safe Drinking Water Act should specifically authorize Drinking Water SRF assistance for capital projects related to security. EPA guidance to states indicates these projects are eligible for funding, but something more substantial, namely legislation, is needed to show Congressional intent to allow such assistance.
Rate Structure and Asset Management
Among the new requirements established by S. 1961 are implementation of responsible rate structures and asset management plans. These practices embody those commonly used in metropolitan water agencies today. For instance, WASA has developed a comprehensive, ten year capital improvement program that totals $1.6 billion, of which approximately $505 million is attributable to drinking water infrastructure projects. Since its creation in 1996, WASA has raised its rates by 52 percent. Over the next ten years, WASA projects that it will need to raise its rates by 5 to 7 percent annually, due primarily to infrastructure upgrade and replacement needs.
In addition, WASA has an asset management plan to ensure capital is available for future upgrades, and, like most large water systems, the authority complies with the general accounting standards for state and local government known as GASB 34.
These concepts are nothing new to metropolitan water systems. Maintaining our bond ratings and accessing capital in open market necessitate our adherence to these good practices.
For these reasons, AMWA applauds the sponsors of S. 1961 for highlighting them, and AMWA encourages the subcommittee to maintain these best practices as ideals and provide the opportunity for utilities that have not yet adopted them to do so. There are a wide variety of equally reasonable approaches to defining the full cost of service and responsible asset management, and these areas are not in the realm of state environmental agencies or the U.S. EPA, both of which would have to develop rules or guidance and criteria for enforcement and compliance. Rate design is a particularly complex issue. For instance, consider the possibility that charging the full cost of service, covering all federal and state regulations and replacement of aging infrastructure, could put rates far beyond U.S. EPA's affordability criteria.
AMWA urges the subcommittee to avoid a situation in which the states or U.S. EPA enter the domain of local government and attempt to reinvent the wheel. Instead, industry organizations have many years of experience in this area and could be relied upon to provide technical and educational service to those utilities that have not adopted the practices. Let's not discard what responsible water agencies have already accomplished and create a layer of bureaucracy that could make applying for SRF assistance too cumbersome, thus undermining the purpose of the program.
Consultation with State Planning Agencies
AMWA appreciates S. 1961 highlighting the importance of coordinating planning decisions with relevant state planning agencies, but the association is concerned that a federal requirement to consult these agencies may be burdensome or may intrude on the domain of local government. Metropolitan water agencies are naturally a part of local land use planning efforts, and consulting and coordinating with the appropriate bodies is standard practice.
Consolidation, Partnerships and Nonstructural Alternatives
AMWA applauds the bill's sponsors for emphasizing the importance of creative approaches to managing a water utility by encouraging consolidation, partnerships, and adoption of nonstructural alternatives. Many water systems are already considering various approaches to regional water management and it is important that these types of arrangements be evaluated and supported.
An excellent example is the Contra Costa Water District, a metropolitan system in California. Contra Costa is working with other local water entities in a variety of partnerships, ranging from providing less costly water supplies to cooperation in obtaining new supplies and developing needed infrastructure. One Contra Costa partnership with a local water system will save more than $7 million over the cost of separate solutions. Another Contra Costa partnership, involving three agencies, provided an alternative water supply that will save up to $13 million. In a third, 10 water and sanitation agencies joined to conduct a water supply and infrastructure study that focused on the region, thereby providing a more beneficial plan for the region as a whole.
Rather than require consideration of alternative approaches as part of a loan application process, the SRF should provide financial incentives in the form of grants or loan forgiveness for those drinking water systems that develop alternative arrangements that provide more effective and efficient management of local resources. In particular, financial incentives should be provided to those drinking water systems that agree to partner with small systems facing compliance problems.
Among the partnerships water systems would be required to consider under S. 1961 are public-private partnerships. These could include design-build solutions, contract management or other forms of privatization.
Whether a water agency specifically considers public-private partnerships should remain at the discretion of local government, because local factors will dictate whether the partnership is in the interest of the consumers. Therefore, the association urges the subcommittee to look into public-private partnerships more closely before so strongly endorsing them. Privatization can be a very contentious issue in communities and worth a full exploration before legislated by Congress.
Privatization experts have identified some of the issues that need further exploration. Among them are those surrounding accountability and the blurring of roles and responsibilities. For example, who is responsible for complying with environmental regulations, resolving service complaints and planning to meet future needs. Who pays if the private partner fails? If the private partner takes on more liability than it can afford, who’s responsible when something goes wrong?
Another issue that has recently emerged is a concern about the implications of international trade agreements on domestic privatization since four of the major companies involved in the U.S. water market are located in other countries. For example, once a municipality contracts with a foreign provider, can that municipality withdraw from the agreement? What impact could the General Agreement on Trade in Services (GATS) and the authority of the World Trade Organization (WTO) have on future contracts?
Members of the subcommittee, AMWA is not here today to oppose private-public partnerships. Many drinking water utilities have entered into such arrangements for a variety of purposes. It is another matter, however, to sanction these arrangements and make consideration of public-private partnerships a requirement in federal law.
AMWA is simply urging the subcommittee to look into public-private partnerships more closely before endorsing them. Legislating privatization may not be in the public interest.
Section 205 of the bill proposes imposing on drinking water agencies procurement provisions that were abandoned in the Clean Water Act when the Clean Water SRF program was adopted. The requirements were abandoned because they encumbered both state agencies and local government, overrode state and local procurement laws and created many disputes. The same would hold true for today, and AMWA urges the subcommittee to drop those provisions from the bill.
Rate Study and Water Resource Planning Studies
Among the provisions of Title III is a study on rates, affordability and how to define disadvantaged communities. Rate setting is a very difficult process and many water systems will appreciate assistance. Information on determining affordability and disadvantaged communities will be very beneficial, too. AMWA believes that U.S. EPA's current affordability criteria in many states does not fully capture the conditions that create disadvantaged communities. Most states determine whether a community is disadvantaged by looking at median household income and, sometimes, water rates. A more well-rounded analysis would consider additional facts such as: the number of people living below the poverty level, inflation and the loss of a tax base.
Title IV contains provisions for a study (and periodic update) of the nation's water resources. The study and the updates will provide a wealth of information that will help federal, state and local government make well-informed decisions. We applaud the sponsors' appreciation of water resource shortages.
Again, thank you for introducing the Water Investment Act of 2002 and for the opportunity to provide testimony on it.