My name is Steve Grossman, and I am the Executive Director of the Ohio Water Development Authority (OWDA). The Authority has existed for 38 years and is proud that Senator Voinovich had the insight to help create the Authority, and that the USEPA used the work of the Authority as its model when it created the State Revolving Fund Program in the mid 1980’s.

Since its inception, the Authority has made over $7.3 billion in loans to Ohio communities. From 2000 to 2004, loan programs that are financially managed by the Authority accounted for approximately 47% of all funding for water and wastewater construction in Ohio.

In cooperation with the leadership from several state agencies, OWDA helped create the Small Communities Environmental Infrastructure Group (SCEIG), an association of federal and state agencies, local governments and groups, service organizations, and educational institutions, designed to help small communities in meeting their environmental infrastructure needs.

One of the key committees of SCEIG is the Appalachian Environmental Infrastructure Strategy Workgroup, whose mission is to strengthen an effective delivery of technical and financial assistance from multiple sources, to areas in Appalachia most in need of wastewater and water infrastructure improvements.

It is with this background and my strong interest in knowing and understanding all the funding sources for water and wastewater in the state that I come before you today.

Referring to Attachment 1, during the 2000 to 2004 period, approximately $4.15 billion was invested by Ohio communities in water and wastewater projects. All the sources for this money are shown in Appendix 1. Of this amount, 12% came from grants, 45% came from loans with an interest rate that has been subsidized by a governmental body, and 43% came from loans at a market rate of interest. As noted in Attachment 1, for the preceding 10 year period, the percentages were 14%, 37% and 49% respectively.

While the percentages have gone down, actual funding has increased. Attachment 2 shows an annual average for the five year period of 2000 to 2004 to be $829.5 million, compared to the ten year average (1990-1999) of $505.7 million. This is an increase of 64%. While there was an increase in funding of 37% in grants and 43% in loans at a market rate of interest, the greatest increase of 103% came from loans with an interest rate that has been subsidized by a governmental body. Further analysis reveals that the SRF programs, both for water and wastewater, primarily accounted for this increase; thus enabling the state to keep up with the 64% increase in demand.

Having set the overall state picture, one needs to address what has happened in the Appalachian region of Ohio. As Attachment 3 demonstrates, the breakdown by funding types is significantly different in Appalachia as compared to the rest of the sate. Where the rest of the state received 9% of its funding from grants, Appalachia received 32%. As the rest of the state received 46% of its funding from loans at a market rate of interest, Appalachia received 15%. The difference for loans with an interest rate that has been subsidized by a governmental body is not as dramatic; the rest of the state received 45% compared to 53% for Appalachia.

Appalachia also is significantly different from the rest of the state in terms of program participation in funding water and wastewater projects. Historically, bonds issued by a local government and the SRF Programs account for more than 75% of project funding outside of Appalachia. Within Appalachia (Attachment 5) they account for only 34% of funding.

Ohio, as compared to many other states, has a relatively large variety of programs to assist communities in funding their water or wastewater projects. With this variety come complexities and an increased need for program coordination. This is clearly shown in Attachment 4 and 5, where the role of each program is shown. There is no one dominant program. Each community, with the assistance of its technical assistance provider and/or consulting engineer, sorts through a variety of programs, choosing the group of programs that the leadership of the community feels is best suited for its needs.

While 5% of total funding (Attachment 5) comes from the Appalachia Regional Commission, Attachment 6 shows that this is 15% of all grant money, a critical component for funding projects in Appalachia.

As one looks toward the future (and by future; assume a period of no more than four years), it is clear that there will be no let up on the demand for project funding in Appalachia. Based upon the Ohio EPA’s intended use plans for both water and wastewater, recent applications to the Ohio Public Works Commission, information entered into the Appalachia Bulletin Board (an initiative of the Appalachian Environmental Infrastructure Strategy Workgroup) and recent quarterly project planning reports submitted by communities to OWDA, there is already a demand for approximately $340 million. I believe that this is the minimum demand for funding that will be requested during the next four years. As noted in Attachment 2, the total demand has grown in the state and it will continue to grow.

If the number of $340 million proves to be accurate for a period of four years at $85 million/year; it would exceed the annual average of $80 million (Attachment 3) for the period of 2000 to 2004. The estimates are not precise and, as I have discovered in my 17 years with the Authority; the seriousness about any one project comes and goes. But one thing is certain; decreases in any grant funding will provide an increasing financial burden on any community.

One only has to look at the increasing water and sewer rates as compiled by the Ohio Environmental Protection Agency (Attachments 7 and 8) to see that user fees for both water and wastewater are increasing at a faster pace than inflation; and this increase, given today’s economic conditions and environmental demands, is only going to continue to increase at this higher pace.

If one was to look at all sources of grants in the state, one would conclude that, at best, it will remain the same during the next four years. While grant funds from the Ohio Public Works Commission will increase by approximately 20%, this will not occur within the next six years. There is continuing pressure on the US Department of Agriculture’s Rural Development Program to reduce the percentage of grants it provides to communities (a decrease has been occurring in recent years), and the Community Development Block Grant Program is under continuous pressure to having its funding reduced. Besides the US Department of Commerce’s Economic Development Program (which plays an important but minimum role in the Appalachian region of the state), the only other program source of grant money is from the Appalachian Commission.

Decreasing these funds would have a significant impact in Appalachia. I might add that a major unknown in all of this is federal appropriations (See Attachment 6) coming from Ohio’s congressional delegation to Ohio communities, through State and Territorial Assistance grants and through the Army Corps of Engineer’s 594 Program. While I recognize this is a Congressional prerogative, I believe that it is not going to increase.

I think that the increase in actual demand, as demonstrated in Attachment 2, is going to continue. It will not be as dramatic as all the national studies proclaim it will be, but it will increase. Where will the funding sources to meet the demand come from? There only are three possible sources.

· Debt Issued by the Community, which (See Attachment 5) infrequently occurs in Appalachia;
· OWDA’s Market Rate of Interest Loan Program and its Community Assistance Program; or
· The SRF Programs.

Regardless of which of the three financial programs is selected in the future, users in the communities will be paying more. Obtaining a five year reauthorization of the ARC will be an alleviating financial factor in Appalachia.