I am pleased to be here this morning to discuss the coalition's report - Water Infrastructure NOW - which recommends a major new and revitalized federal commitment to the nation's drinking water and wastewater infrastructure. It outlines the parameters of a potential federal response to the $1 trillion gap between investments cities are making in our local infrastructure and the $1 trillion additional needed to assure protection of public health, the environment and our economy over the next generation.
Before outlining for you the parameters of the Report's recommendations, it would seem appropriate to address some fundamental questions: First, why do we have a funding gap of such enormous magnitude; Second, what have local governments been doing to address the issue; and, Finally, why and how should the federal government help?
1. WHY IS THERE A WATER INFRASTRUCTURE FUNDING GAP?
A number of factors:
* the simultaneous expiration of the useful life of water infrastructure installed at different times;
* population growth;
* implementation of new, more costly, and more complex federal mandates which, in effect, substitute federal priorities for local priorities; and,
* a substantial decline in federal financial participation in meeting wastewater mandates.
The nation's water infrastructure represents more than a century of investment, substantially funded by local ratepayers. A significant part of the nation's water infrastructure dates from the late 19th century. More recent expansions of these systems took place following the two world wars. All of which means the newest systems are over 50 years old. What is more, the newer the infrastructure, the more likely it is to be deteriorating. Different materials, with increasingly shorter useful lives leave us in the position where 100 year's worth of infrastructure is being exhausted all at once. As a consequence, municipalities now face a confluence of deterioration of the underground pipes, and, in some cases, the treatment facilities, that process the nation's drinking water and sewerage.
Under no circumstances does this denigrate the substantial $96 billion investment and commitment to wastewater made by federal and state governments in the l970's and '80's. Without this assistance we would never have made such incredible progress in cleaning up the nation's waterways. But, EPA cautions that unless we renew our joint commitment to maintaining and upgrading our wastewater facilities, within 15 years our rivers, lakes and streams will again resemble their condition 30 years ago.
Until passage of the 1996 Safe Drinking Water Amendments, local governments have not had a federal financial commitment to the nation's drinking water systems. The fact that drinking water in the United States is among the safest in the world is a significant tribute to the local ratepayers that have financed these treatment facilities.
Another factor contributing to the current funding gap is that simultaneous with the aging of local water and wastewater infrastructure, has come a significant increase in population. According to the Association of Metropolitan Sewerage Agencies (AMSA), municipal wastewater plants served 68.5 million people in 1990. By 1999, the number had increased to 79 million people. And that 10 million person increase occurred in less than one decade. Systems designed and built for the population at the time of their construction are now serving two to three times as many people as their design capacity. In fact, the Clean Water Act of 1972 precluded local governments from anticipating population growth in designing wastewater treatment plants built with federal financial assistance. The fact that local systems serve significantly more people than their design anticipated contributes to some of their problems - combined sewer overflows, sanitary sewer overflows - all of which need immediate and costly attention if we are to protect public health and the environment. Congress recognized this problem in passing the wet weather provisions in a fiscal 2001 appropriations measure last year, but, we do not yet have any appropriations from this authorization and, in all honesty, the $1.5 billion, two year authorization, is only a down payment on problems that alone are expected to cost well over $120 billion.
A third contributing factor is the significant decline in federal financial assistance for wastewater needs. While once the federal government appropriated $2.4 billion for grants cover 75 percent of wastewater needs, we now see instead $1.35 billion annually for repayable loans. Without even considering aging and deteriorating water infrastructure, $1 billion is what one city alone is spending on remediating its sanitary sewer overflows. While Congress recognized, in passing the Safe Drinking Water Act Amendments of 1996, the need to provide similar assistance to municipal drinking water suppliers, this funding is limited in its use for infrastructure repair and, for the most part, is available largely as loans.
And finally, federal drinking water and wastewater mandates have also played a role in diverting local resources away from local needs and priorities and retargeting them to federal priorities. When cities do manage to set aside funds to address a critical local water infrastructure need, along comes a new unfunded - and usually costly - federal mandate that is almost always accompanied by fines and penalties for non-compliance. And, as you well know, we are not talking about an occasional new federal requirement. At the local level there seem to be almost daily - or at least weekly - new burdens.
2. WHAT HAVE LOCAL GOVERNMENTS BEEN DOING TO HELP THEMSELVES?
* local governments - or rather local tax and ratepayers - invest $60 billion annually in our drinking water and wastewater systems. Since the Clean Water Act was adopted in 1972, local governments have invested over $117 billion in their wastewater infrastructure. We have no similar figures for drinking water investments, but the 20 cities that have been involved in recent asset management studies estimate the average per capita replacement value of their systems at $2,400 per person.
* local water and sewer utility rates have been increasing to accommodate EPA's estimated annual 6% increases in the costs of system operations and maintenance;
* new federal requirements developed by the Government Accounting Standards Board - on which local government bond ratings are based - are moving local governments towards managing their infrastructure assets in a more businesslike manner; and
* local governments are applying new management tools to assess and operate their systems more effectively and efficiently.
While the funding allocated to local governments under the Clean Water Act has been of invaluable assistance in helping municipalities meet federal requirements, Congress should not lose sight of the fact that local governments have invested over $117 billion in our wastewater infrastructure since the early 1970s. Until recently, our drinking water infrastructure was entirely funded by local ratepayers. And, the deteriorating water infrastructure that needs to be replaced because it has maximized its useful life over the past 50 to 100 years was entirely completed at local expense.
In addition, municipal local rate structures generate the $60 billion annually we invest in maintaining and operating these systems and cover 90 percent of our costs including those for construction. In facing the enormous needs of the future, cities also expect to finance - again through local ratepayers - $l trillion of the needs for repair, rehabilitation and replacement of the aging and crumbling water infrastructure over the next 20 years.
Municipalities have also been raising their water and sewer rates to accommodate increases in their operating and maintenance costs, which, according to EPA, are rising at six percent above inflation annually. Many cities require developers, and subsequently homeowners, to finance the cost of new connections to municipal systems. My city is directly billing homeowners who are newly connected to our wastewater system $20,000 per home - to be paid over the next twenty years - to finance conversion from septic to sewered systems.
In addition, cities are improving their management practices. Local governments will soon be required to comply with new rules promulgated by the Governmental Accounting Standards Board in Statement 34 (GASB 34). These rules will require reporting of a municipality's long-term financial position, quantifying resources and obligations more comprehensively. The information cities will be required to provide will include an evaluation of the condition of our municipal infrastructure. Bond rating services and others will be able to evaluate whether we are "acquiring assets to benefit future fiscal years or if these assets are being used but not replaced.2" The GASB 34 rule will, at a minimum, encourage local governments to evaluate their infrastructure in a more systematic manner.
Other asset management tools, such as the "Nessie Study" are also being implemented by cities to help identify when pipes and treatment plants were built, how long they can be expected to last, when they will need to be replaced, and what the cost is likely to be for such replacement. More efficient operations are also among the tools used to provide more cost effective operations at the municipal level. As an example, a 1999 AMSA survey3 documents the reduction in personnel from 6.8 employees per 10,000 population in 1990 to 4.7 in 1999. And, some local governments are subjecting their system operations to competitive bidding to affect cost savings and generate new and better efficiencies.
3. WHY SHOULD THE FEDERAL GOVERNMENT HELP?
* a sound infrastructure is the foundation of a sound economy;
* a sound infrastructure is essential to the protection of public health; * federal assistance, as demonstrated by the success of the Clean Water Act, is the catalyst that ensures environmental progress; * water bodies, like air sheds, do not respect political boundaries;
* infrastructure assistance will benefit the people whose money created the federal surplus - another way of giving them the refund they deserve;
* at 6%, the interest on $2 trillion in debt is $120 billion; the Water Infrastructure Network seeks less than half of the interest avoided in a single year, spread over five years.
The Water Infrastructure NOW report made an eloquent case for a renewed federal financial partnership in water infrastructure. It says:
The case for federal investment is compelling. Needs are large and unprecedented; in many locations, local sources cannot be expected to meet this challenge alone; and because waters are shared across local and state boundaries, the benefits of federal help will accrue to the entire nation. Clean and safe water is no less a national priority than are national defense, an adequate system of interstate highways, or a safe and efficient aviation system. These latter infrastructure programs enjoy sustainable, long-term federal grant programs; under current policy, water and wastewater infrastructure do not.
In light of the staggering costs of maintaining, operating, rehabilitating, and replacing our water and wastewater system infrastructure to serve our citizens and the environment effectively, the Clean Water Act partnership of the 1970-80's needs to be re-established. It is in our interest as a nation, since virtually all of us live downstream from someone else, for all levels of government to participate in assuring that our drinking water and wastewater infrastructure is sound, reliable, protective of human health and the environment, and affordable.
4. HOW CAN THE FEDERAL GOVERNMENT HELP?
* Re-establish the partnership in the Clean Water Act of 1972 for wastewater infrastructure and establish one for drinking water infrastructure;
* Provide more flexibility in the types of assistance available to municipalities to include grants as well as loans;
* Restore earlier investments in research and technology development;
* Establish a mechanism to develop a long-term and secure financial partnership for water infrastructure needs.
The Water Infrastructure Network has developed and agreed on the outlines of a legislative proposal to revitalize (in the case of wastewater) or enhance (for drinking water) the federal financial commitment to water infrastructure needs. The proposal recommends a five-year, $57 billion authorization beginning in fiscal 2003 for loans, grants, loan subsidies and credit assistance for basic water infrastructure needs. These funds would be allocated to states to capitalize state-administered grant and loan programs.
The WIN recommendations propose the creation of Water and Wastewater Infrastructure Financing Authorities (WWIFAs) in each state to replace the two current State Revolving Loan Funds (SRF) for drinking water and clean water. As with the SRFs, States would be required to provide a 20 percent match for any federal revenues.
While half the funds would be targeted to wastewater and half to drinking water needs, States would have the flexibility to shift up to an additional 15 percent from one purpose to the other. This flexibility would be available so long as such a transfer did not adversely affect any project on the state's priority list that was "ready to go."
WIN recommends that Congress require the new state funding authorities to provide 25 to 50 percent of each year's allocation as grants that would fund up to 55 percent of project costs. Up to 75 percent of project costs would be eligible for grant funding in economically distressed communities. Loans and loan subsidies would include interest rate discounts, zero interest rate loans, principal forgiveness and negative interest rate loans.
The report proposes an additional $4 billion in resources for State governments to help them meet their drinking water and wastewater responsibilities. WIN also recommends funding for development of innovative technology and management techniques to assist local governments in providing clean and safe water more effectively and efficiently in the future. And finally, the WIN report recommends that Congress "establish a formal process to evaluate alternatives for, and recommend the structure of, a longer-term and sustainable financing approach to meet America's water and wastewater infrastructure needs."
\1\ The Water Infrastructure Network is a coalition of state, local, environmental, professional, and labor organizations comprised of 29 diverse groups including: American Coal Ash Association; American Concrete Pressure Pipe Association; American Consulting Engineers Council; American Public Works Association; American Society of Civil Engineers; American Water Works Association; Associated General Contractors; Association of California Water Agencies; Association of Metropolitan Sewerage Agencies; Association of Metropolitan Water Agencies; California Rebuild America Coalition; Clean Water Action; Environmental and Energy Study Institute; Environmental Business Action Coalition; International Union of Operating Engineers, AFL-CIO; National Association of Counties; National Association of Flood and Stormwater Management Agencies; National Association of Towns and Townships; National League of Cities; National Rural Water Association; National Society of Professional Engineers; National Urban Agriculture Council; Prestressed/Precast Concrete Institute; Rural Community Assistance Program, Inc.; Water Environment Federation; WateReuse Association; and Western Coalition of Arid States. 2 "GASB 34: What Implementation Means to the Rating Process," Hyman C. Grossman and LaVerne Thomas, Public Finance, p. 2, Sept. 20, 1999, Standard and Poor's. 3 AMSA 1999 Financial Survey of Municipal Wastewater Management Financing and Trends, Association of Metropolitan Sewerage Agencies.