Statement of Mayor Douglas Palmer, Trenton, NJ
Mr. Chairman and Members of the Committee.
My name is Douglas Palmer. I am the Mayor of Trenton, New Jersey and Chair of the Conference of Mayors’ Urban Water Council.
The Conference of Mayors is a national nonpartisan organization that represents more than 1,100 cities across the nation. We represent the largest water and wastewater systems in the United States.
Mr. Chairman, I would like to thank you and the other members of the Committee for introducing S. 1961, the Water Investment Act of 2002.
I would also like to thank you for holding these hearings and for inviting me to give the Mayoral perspective on water and wastewater investment issues.
As you know the issue of water and wastewater infrastructure is critical to our nation and to our nation’s cities. To maintain healthy and viable communities, we must make sure that our water and drinking water supply is clean and safe.
However, to do that, costs money. The estimate to build, rebuild and maintain our water and wastewater infrastructure has been estimated to cost close to one trillion dollars.
As Mayors we have recognized that there is not enough local, state or federal money available to satisfy all the water infrastructure needs in the nation.
The Urban Water Council was created to focus on these issues. Its purpose is to assist local governments in providing high quality water resources in a cost-effective manner.
The Urban Water Council has identified three basic approaches to help cities finance the water and wastewater infrastructure development necessary to comply with clean and safe drinking water laws. These include:
What we find productive and positive about the bill:
The bill you have introduced has many excellent components.
We agree with the Committee that the focus of this bill should be on water infrastructure investment instead of a new set of provisions that would require municipal water and sewer operators to assume even greater responsibilities when the current infrastructure is clearly insufficient to deal with current water quality compliance criteria. Local elected officials are engaged in trying to achieve water quality goals, but we need a chance like this to focus on such achievements, and not be redirected to new goals.
The bill authorizes $20 billion between 2003 and 2007 for the SRF categories under the Federal Water Pollution Control Act; and $15 billion for the SRF categories under the Safe Drinking Water Act. These SRF authorizations are clearly not enough to subsidize the funding necessary to “close the needs gap”, but a combined $35 billion boost over the next five years is also clearly much more than previous funding levels. For this, we are grateful to the Senate, and we support this approach.
S. 1961 also incorporates some innovative concepts, two of which are deemed crucial by the Conference of Mayors in creating the right conditions for successful achievement of water quality goals. First, the proposed Section 103 provision that would require a recipient of SRF funds to consider, among other things, “forming public-private partnerships or other cooperative partnerships” is a step in the right direction. It has been our experience since the mid-90s that alternative approaches to planning, financing and operating water and wastewater projects can yield greater public benefits for the amount of money invested. While choosing a public-private partnership approach should not be prescriptive, it should be made possible for those cities that want to take advantage of such an approach.
The Urban Water Council has prepared two reports, which are available on our website at www.usmayors.org, that describe over 40 public-private partnership projects that have realized savings related to operation and maintenance of water and wastewater facilities. Regulations under the federal tax code were modified in 1997 to allow long-term (20 year plus) outsourcing of public infrastructure facilities. This tax regulation modification, along with Executive Order 12803 which modified the construction grant repayment provision, have removed serious federal impediments that cities have faced When Congress and the Administration provide the right types of financial incentives, local elected officials can establish public-private partnerships that benefit our citizens and the environment.
The Conference of Mayors adopted policy in 2001 to encourage competition in the design-build-operate phases of new water and wastewater infrastructure. This policy was adopted once it was determined that competition for both surface and sub-surface infrastructure projects need not be as costly as the traditional design-build methods employed in the past. The Lynn, Massachusetts experience is an example of what can be achieved by using competitive approaches to design, build and operate water infrastructure that is intended achieve compliance with the zero discharge requirements for storm waters. In that example, the City was required to eliminate overflows and traditional design-build-operate planning anticipated a $400 million (plus) solution. A competitive bid process, however, anticipating a public-private partnership approach yielded a zero discharge solution that cost less than one-quarter of the traditional approach. Hence, it is possible through competition to achieve compliance with water quality goals at a cheaper price.
The second innovative approach incorporated in S. 1961 is under Title III, Section 302 – the demonstration program for water quality enhancement and management. One of the most difficult problems we face as cities involves achieving state water quality objectives and total maximum daily loads (TMDLs) and the virtually unregulated nonpoint sources that are usually outside our jurisdictions.
The U.S. Environmental Protection Agency (EPA) has recognized that agricultural and livestock land uses contribute a major portion of nonpoint source pollution in many areas. Many of our cities are engaged in watershed management efforts to deal with nonpoint sources (including urban runoff). Yet there is a critical lack of regulatory drivers forcing the agricultural and livestock land users to contribute to the solution. In some cases, the timing of pending TMDL requirements will force cities to pay for water treatment caused in part by the upstream, non-urban land users.
The Conference of Mayors adopted an action plan for sustainable watershed management in 1998. One of the five principles of that plan is to focus on non-urban, nonpoint source water pollution, and pursue public policy that would assign responsibility to pay for the treatment of polluted water commensurate with the contribution of the pollutant loadings. The action plan also clearly calls for allowing the agricultural and livestock land users to employ best practices and least cost approaches that are effective in lieu of stringent and costly regulations. Mayors fully recognize that these land users, although they may or may not be part of our cities, are important contributors to our regional economies. While we prefer to use the powers of persuasion to convince them to participate in the water pollution solutions, we have begun to experience failure in cooperative efforts, and have in some instances resorted to legal actions.
The demonstration projects provision of S. 1961 can provide some of the appropriate financial incentives necessary to bring voluntary cooperative efforts to bear to solve the water quality designation/TMDL problems that we are facing. The Conference of Mayors supports this innovative approach. It is our belief that Congress can do more to specify in this bill that achieving water quality goals in watersheds through the use of SRF financing to install technology that is currently available to ameliorate the impact on streams lakes and estuaries from animal feeding operations will be more cost effective than requiring downstream cities to pay for the upstream pollution.
We support the proposed requirement for recipients of an SRF loan to develop and submit asset management plans that specify how water and wastewater facilities will be properly maintained over time. Asset management is critical to the preservation of infrastructure. We have a long history of experience with using asset management planning; this is not a new or radical concept. We would like to mention that formalizing such a requirement as a condition of receiving SRF funding should be integrated into the loan program in a cautious way. The focus of our efforts at the local government level should remain principally with ensuring the proper treatment of drinking water and wastewater for public health and local economy reasons. The asset management plan is important, but the current proposal on what is acceptable is not entirely clear. We would be happy to work with the Committee to explore what an appropriate scope and details of an asset management plan should be.
What can be improved in the bill:
The bill specifies that disadvantaged communities can receive SRF loans with a 30- year repayment term. Perhaps the most significant shortcoming of the S. 1961 proposal is the lack of a similar 30-year repayment term for other communities. A 30-year, no-interest loan program administered under the SRF program would provide a financial incentive that many local elected officials would welcome. It obviously would make new infrastructure investment more affordable than the traditional 20- year loan period. It also has the potential to increase aggregate water infrastructure investment because local government now has to make difficult choices on where to spend limited financial resources.
Similarly, the bill does not contain any reference to removing private activity bonds used for water and wastewater from the state volume caps. I understand fully that changing the tax code is not in the jurisdiction of this particular Senate Committee. However, I would like to convey to this Committee that one of the most fruitful financial incentives the Congress can provide for increasing aggregate water infrastructure investment is to make certain that the largely unfunded environmental mandates and environmental goals they impose on local government should not be impeded by a rigid and inflexible tax code.
If public-private partnership approaches based on competitive pricing in the market place is increased, then more water projects can be completed with a given amount of financing than what would occur via traditional financing approaches. If this hypothesis is true, then shifting some, but not all, of the water investment financing to private activity bonds should lead to improved water quality in the aggregate. What we have found to be true in general is that more money spent on water treatment results in improved water quality. While there are some exceptions to this assumption, the reverse is almost inevitable - “no investment leads to continually deteriorating water quality”.
There is also no mention in S. 1961 of the imminent need for water systems to conduct security assessments and retrofit the proper anti-terrorist controls necessary to ensure the safety of our water supplies, and the physical integrity of our water infrastructure. We would be happy to work with the Committee to recommend a provision to address this problem in S. 1961.
We also support the Committee’s provisions addressing clarification of the state intended use and priority projects lists. It is important to the cities we represent to ensure that states fully understand the close relationship between water quality and watershed management, and that the SRF program can play a critical role if states prioritize solutions that focus on the other, non-urban land uses in the watershed that contribute to impacts on streams, lakes and estuaries.
On behalf of the Conference of Mayors and the Urban Water Council I wish to thank you again for this opportunity to speak before this committee. We look forward to working with you as you move forward on this very important piece of legislation.