Senator Crapo and I recently introduced legislation to provide you, the nation’s cities and towns, with some financial assistance as your water infrastructure approaches the end of its useful life and new federal regulations kick in. Our bill, S 2550, passed our Committee just a few weeks ago on a voice vote. It’s a good, clean bill that doesn’t mandate anything new on any of you but seeks only to help you address the problems of aging infrastructure and new regulatory requirements.

This effort was inspired by a series of studies showing a pending crisis with the nation’s water infrastructure. The gap between what we currently spend and what we need to spend as a nation ranges from a few billion a year to $24 billion. Not only must the federal government fulfill its financial obligations but it must become more aware of the actual costs being imposed by these regulations which are contributing to the gap. It is important to note that this hearing is not about rolling back protections. However, we do need to ensure that our limited resources are put where they are most critically needed to address real problems and real health threats.

Today we are going to talk about costs – what EPA says these rules cost and what the real life experiences of you the people who run these facilities is. Several recent rules finalized by the Administration have costs that may not be justified by the benefits. So not only do we need to closely look at the science behind them but how EPA derived its cost estimates.

In 1995, Congress passed the Unfunded Mandates Reform Act, which I cosponsored, to ensure that the Federal Government pays the costs incurred by state and local governments in complying with certain requirements under Federal statutes and regulations. The Act required agencies before finalizing a rule that would result in more than $100 million annually to local and state governments to identify federal funding sources and the least expensive alternative or approach when it finalizes its regulations. However, despite passage of the Unfunded Mandates Act, the Agency continues to promulgate rules that far exceed $100 million that place financial strains on the nation’s cities and towns.

The Agency tends to assume full compliance with and success of existing regulations when calculating costs of new proposals. The Agency also fails to take into consideration the fact that all community water systems and all treatment works are not the same. They service various kinds of industrial and residential users, which means the wastewater they receive can differ dramatically from plant to plant. This, in turn, affects not only the types and quantities of chemicals used to meet discharge limits but also capital investments that may need to be made. All of which result in very different resource pressures for facilities across the country. They have different water sources, different chemical makeups and different resource pressures. Just as they cannot all be expected to use the exact same levels of chemicals to treat their water, they will not all experience the same level of cost. These differences must be reflected more strongly in the Agency’s cost analysis.

A critical issue related to the cost municipalities face is how the Agency defines affordability. I think we need to take a close look at how affordability is defined and if there are variance technologies available. EPA can, but has not, approved variance technologies for drinking water rules if it finds the rules are unaffordable to small communities. EPA defines affordable as 2.5% of the annual median household income, or $1000. The median amount paid for water in 2001 was $31 per month. In order for EPA to find that a rule is not affordable, it must cause that rate to increase to $83 a month. This may not seem like a real burden and it probably isn’t to most households. However, if you are low-income or on a fixed-income, finding another $52 a month can be a real challenge. Therefore, there must be some flexibility inserted into the calculation that incorporates regional differences, and ability of the truly disadvantaged to pay these costs. One important first step may be to look at the lower percentile instead of the median income levels so that affordability is based on what those in the 10 to 20th percentile can pay.

This speaks to one of the biggest problems we have with the bureaucrats running these programs. Congress clearly told EPA in the Safe Drinking Water Act to pay special attention to small, disadvantaged systems and yet its affordability standard reflects the median income, not that for the truly disadvantaged causing it to find all of its rule affordable for systems of all sizes.

When we began planning for this hearing, the first thing we did was look for existing reports and analysis of the cumulative financial impact of environmental regulations on local communities. For instance, when EPA conducts its cost-benefit analysis, it looks at each rule independent of other requirements ignoring the fact that while a municipality is struggling to fund arsenic removal technology, it may also have been hit hard by the storm water phase II rule and has several TMDL’s pending. For instance the city of Coweta, with a population of less than 10,000 people, is paying for a new wastewater treatment plant and complying with both the disinfection byproduct rule and the storm water phase II regulations. The city has also increased its rates every year for the past 5 years and anticipates more increases if help isn’t forthcoming.

Unfortunately, in preparing for this hearing, we were unable to find recent, comprehensive studies of the overall cost of these regulations. Therefore Senator Crapo and I are going to ask the General Accounting Office to conduct a thorough analysis of the cumulative cost to individual communities and ratepayers of both clean water and drinking water regulations. I think this study is critical to addressing the cost issue at the federal level and beginning a productive discussion with the Agencies responsible for these rules.

Today we will hear about a series of drinking water rules that have gone into effect or will go into effect all within a few years of one another. We will also hear about several clean water act issues. According to EPA, the Long Term surface treatment rule at most will cost one percent of affected households an increase of more than $10 per month. The Interim surface water treatment rule will cost less than one percent of affected households only $5 to $8 per month. The most expensive of this series is the disinfection byproduct at between $10 and $33 per month for one percent of the households. The storm water Phase II rule is estimated to cost $9.16 more per household.

EPA estimates that the arsenic rule will impose on systems greater than 10,000 people between 86 cents to $32. However, according to the American Water Works Association, the cost will likely far exceed that amount particularly in small communities with high arsenic levels. I am anxious to hear from Norman if the EPA numbers resemble their experience.

I look forward to hearing from our witnesses as to what the true ground cost of these requirements are and how we can move forward together to address those costs and infuse some flexibility and commonsense into the programs.