[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]



                DRINKING WATER NEEDS AND INFRASTRUCTURE

=======================================================================

                                HEARING

                               before the

          SUBCOMMITTEE ON ENVIRONMENT AND HAZARDOUS MATERIALS

                                 of the

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 28, 2001

                               __________

                           Serial No. 107-59

                               __________

      Printed for the use of the Committee on Energy and Commerce


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house

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                    COMMITTEE ON ENERGY AND COMMERCE

               W.J. ``BILLY'' TAUZIN, Louisiana, Chairman

MICHAEL BILIRAKIS, Florida           JOHN D. DINGELL, Michigan
JOE BARTON, Texas                    HENRY A. WAXMAN, California
FRED UPTON, Michigan                 EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida               RALPH M. HALL, Texas
PAUL E. GILLMOR, Ohio                RICK BOUCHER, Virginia
JAMES C. GREENWOOD, Pennsylvania     EDOLPHUS TOWNS, New York
CHRISTOPHER COX, California          FRANK PALLONE, Jr., New Jersey
NATHAN DEAL, Georgia                 SHERROD BROWN, Ohio
STEVE LARGENT, Oklahoma              BART GORDON, Tennessee
RICHARD BURR, North Carolina         PETER DEUTSCH, Florida
ED WHITFIELD, Kentucky               BOBBY L. RUSH, Illinois
GREG GANSKE, Iowa                    ANNA G. ESHOO, California
CHARLIE NORWOOD, Georgia             BART STUPAK, Michigan
BARBARA CUBIN, Wyoming               ELIOT L. ENGEL, New York
JOHN SHIMKUS, Illinois               TOM SAWYER, Ohio
HEATHER WILSON, New Mexico           ALBERT R. WYNN, Maryland
JOHN B. SHADEGG, Arizona             GENE GREEN, Texas
CHARLES ``CHIP'' PICKERING,          KAREN McCARTHY, Missouri
Mississippi                          TED STRICKLAND, Ohio
VITO FOSSELLA, New York              DIANA DeGETTE, Colorado
ROY BLUNT, Missouri                  THOMAS M. BARRETT, Wisconsin
TOM DAVIS, Virginia                  BILL LUTHER, Minnesota
ED BRYANT, Tennessee                 LOIS CAPPS, California
ROBERT L. EHRLICH, Jr., Maryland     MICHAEL F. DOYLE, Pennsylvania
STEVE BUYER, Indiana                 CHRISTOPHER JOHN, Louisiana
GEORGE RADANOVICH, California        JANE HARMAN, California
CHARLES F. BASS, New Hampshire
JOSEPH R. PITTS, Pennsylvania
MARY BONO, California
GREG WALDEN, Oregon
LEE TERRY, Nebraska

                  David V. Marventano, Staff Director

                   James D. Barnette, General Counsel

      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                 ______

          Subcommittee on Environment and Hazardous Materials

                    PAUL E. GILLMOR, Ohio, Chairman

JAMES C. GREENWOOD, Pennsylvania     FRANK PALLONE, Jr., New Jersey
STEVE LARGENT, Oklahoma              EDOLPHUS TOWNS, New York
GREG GANSKE, Iowa                    SHERROD BROWN, Ohio
JOHN SHIMKUS, Illinois               GENE GREEN, Texas
  (Vice Chairman)                    KAREN McCARTHY, Missouri
HEATHER WILSON, New Mexico           THOMAS M. BARRETT, Wisconsin
VITO FOSSELLA, New York              BILL LUTHER, Minnesota
ROBERT L. EHRLICH, Jr., Maryland     LOIS CAPPS, California
STEVE BUYER, Indiana                 MICHAEL F. DOYLE, Pennsylvania
GEORGE RADANOVICH, California        JANE HARMAN, California
CHARLES F. BASS, New Hampshire       HENRY A. WAXMAN, California
JOSEPH R. PITTS, Pennsylvania        EDWARD J. MARKEY, Massachusetts
MARY BONO, California                JOHN D. DINGELL, Michigan,
GREG WALDEN, Oregon                    (Ex Officio)
LEE TERRY, Nebraska
W.J. ``BILLY'' TAUZIN, Louisiana
  (Ex Officio)

                                  (ii)


                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Beecher, Janice A., Beecher Policy Research, Inc., on behalf 
      of the National Association of Water Companies.............   138
    Beider, Perry, Principal Analyst, Congressional Budget Office   122
    Hamill, Barker, Association of State Drinking Water 
      Administrators, Chief, Bureau for Safe Drinking Water, New 
      Jersey Department of Environmental Protection..............   146
    Ingram, Beverly, Assistant Director, Detroit Water and Sewer 
      Department, on behalf of the Association of Metropolitan 
      Water Agencies.............................................   134
    Neukrug, Howard, Director, Office of Watersheds, Philadelphia 
      Water Department, on behalf of the American Water Works 
      Association................................................   128
    Olson, Erik D., Senior Attorney, Natural Resources Defense 
      Council....................................................   154
    Whitman, Hon. Christine Todd, Administrator, U.S. 
      Environmental Protection Agency............................    25
Material submitted for the record by:
    Dingell, Hon. John D., and Hon. Frank Pallone, Jr.:
        Letter dated March 28, 2001, to Hon. Christine Todd 
          Whitman, requesting response to questions..............   164
        Letter dated May 2, 2001, to Hon. Christine Todd Whitman, 
          requesting response to questions.......................   169
    Krenik, Edward D., Associate Administrator, Office of 
      Congressional and Intergovernmental Afffairs:
        Letter dated June 20, 2001, to Hon. John D. Dingell......   172
        Letter dated September 26, 2001, to Hon. John D. Dingell.   175
    Whitman, Hon. Christine Todd, Administrator, U.S. 
      Environmental Protection Agency, letter dated October 31, 
      2001, to Hon. John D. Dingell..............................   179

                                 (iii)

  

 
                DRINKING WATER NEEDS AND INFRASTRUCTURE

                              ----------                              


                       WEDNESDAY, MARCH 28, 2001

              House of Representatives,    
              Committee on Energy and Commerce,    
                            Subcommittee on Environment    
                                   and Hazardous Materials,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:10 p.m., in 
room 2123, Rayburn House Office Building, Hon. Paul Gillmor 
(chairman) presiding.
    Members present: Representatives Gillmor, Shimkus, Wilson, 
Pitts, Bono, Walden, Terry, Bass, Tauzin (ex officio), Pallone, 
Brown, McCarthy, Barrett, Luther, Capps, Waxman, and Dingell 
(ex officio).
    Also present: Representative Engel.
    Staff present: Jerry Couri, policy coordinator; Bob Meyers, 
majority counsel; Peter Kielty, legislative clerk; Dick 
Frandsen, minority counsel; and Dave Schooler, minority general 
counsel.
    Mr. Gillmor. The subcommittee will now come to order. The 
Chair recognizes himself for 5 minutes for the purposes of 
delivering an opening statement. I want to welcome our 
panelists today, particularly Governor Whitman, the 
Administrator of EPA, who is appearing before us for the second 
time before this subcommittee.
    Today's hearing focuses on the pressing needs of drinking 
water systems across the country. Provision of safe drinking 
water is one of the highest environmental duties that we as a 
Congress could undertake.
    Water quality directly relates to the future health and 
well being of our population, and this should come as no 
surprise to anyone who has been told by their doctor to drink 
more water, or who has had to live under the effects of a water 
contaminant advisory.
    One of the benefits of living in this country is that over 
76,000 water systems have taken great pains to construct 
networks that deliver safe and affordable water. This luxury is 
not available in every place throughout the world, as the 
Health and Environment Subcommittee examined last year.
    As the committee of sole jurisdiction over drinking water 
programs, we need to work diligently to ensure that a high 
standard of health protection continues. The dictionary 
definition of clean drinking water is that which is free from 
foreign matter or pollution, and not infected.
    And I believe that underscores the root goals of the Safe 
Drinking Water Act; to help guide communities in a way that 
will protect their drinking water from organism that could 
cause otherwise healthy people to become ill. Without the 
provisions of the Act, which help build pipes and direct 
disinfection efforts, public health would be seriously at risk.
    The Safe Drinking Water Act of 1996 required the U.S. 
Environmental Protection Agency to survey the needs of water 
systems every 4 years, and I believe that anyone who has taken 
the time to carefully look at this matter understands that the 
pursuit of cleaner drinking water in local communities demands 
additional resources.
    Local and State taxes can be raised to meet those 
obligations, but it is really the Revolving Loan Fund under the 
1996 Act that helps localities afford safe drinking water. As 
someone who has been a long supporter of funding Federal 
mandates on local and State governments, I believe that the SRF 
is crucial to providing Federal resources to entities trying to 
comply with Federal Standards and protect public health.
    Today's witnesses will help us better understand the 
drinking water needs of communities across our country. 
Following up on the recently released EPA's drinking water 
needs assessment, we will have the Administrator tell us about 
the needs of systems across our country that are trying to 
ensure that water is disease and contaminant free.
    Later, we will have representatives from the Congressional 
Budget Office, environmental groups, and drinking water 
associations to enlighten us on their past work and future 
financial requirements.
    I recognize that many members of our panel have varying 
concerns about contaminants regulated under the Safe Drinking 
Water Act, particularly arsenic, and I share your views that 
our Nation has drinking water standards that are protective of 
human health and the environment.
    In fact, our committee has had a long dialog with the EPA 
on this matter, and members may be assured that I will continue 
to monitor the effort. Our hearing today has been set up under 
bipartisan agreement of staff, to focus solely on drinking 
water needs.
    That being said, I would intend to exercise our committee's 
authority as chairman of the subcommittee to review EPA's 
implementation of the Drinking Water Act, and its work on all 
contaminant levels and standard setting.
    I want to thank the witnesses for coming to our panel, and 
I want to thank Mr. Pallone for his staff's cooperation in 
setting up this hearing. It is vital that we assess where 
drinking water system needs lie.
    The EPA currently believes that $102 billion is immediately 
needed by all sizes and forms of systems, and that another $50 
bill will be required over the next 20 years to guarantee that 
safe drinking water reaches those who need it.
    Certainly, just putting pipes into the ground to deliver 
this water is not enough. The emphasis on this extra funding 
needs to be on a comprehensive public health campaign that 
seeks to mobilize public and private resources to purify water 
from its initial source through its distribution channels, and 
finally out to tap.
    Let me just add one short story in closing. Yesterday's 
Washington Post ran a piece in its ``Style'' section on 
Hollywood Producer Mike Medavoy, who was at a swank Beverly 
Hills cocktail party last Friday night.
    And he said that he and everyone that he knew is unaffected 
by drinking water contaminants ``because we all drink Evian.'' 
And when asked about people who could not afford Evian, he 
announced, ``well, they should drink Pellegrino.''
    Well, I guess that some people's attitude in Hollywood is 
not much different than Marie Antoinette's. But I believe that 
we should not be forced into making safe drinking water a 
luxury for the monied classes, but it ought to be something 
available for all people in our country.
    And at this point, I am very pleased to recognize the 
ranking member of our panel, Mr. Pallone, of New Jersey, for 
the purpose of making an opening statement.
    Mr. Pallone. Thank you, Mr. Chairman, and I want to thank 
you again for holding this important hearing. The delivery of 
safe drinking water is obviously an issue of the utmost 
importance and an issue that warrants immediate attention, as 
this topic continues to be exploited at the Congressional 
level.
    I did want to mention that I hope that the organizations 
seeking more funding will respect the clear jurisdictional 
divisions between the safe Drinking Water Act and the Clean 
Water Act. Otherwise, our efforts will not likely succeed.
    And we are going to hear today from a number of panelists, 
but I believe the message will be clear and consistent from 
each; the need for updates and improvements in our drinking 
water infrastructure is great.
    Congress must act now to renew its commitment to America's 
drinking water resources. I am particularly looking forward to 
hearing from Administrator Whitman on Panel One today.
    And I have to say, Mrs. Whitman, that if I call you 
Governor, you have to forgive me, instead of Administrator, 
because once a Governor, always a Governor. So I may keep doing 
that. But keeping in line with the health and safety of our 
drinking water, I want to highlight my concerns about the 
administration's latest actions regarding arsenic.
    The proposal to reduce the acceptable amount of arsenic in 
drinking water from a level of 50 parts per billion to 10 parts 
per billion is not too much to ask. The European Union and the 
World Health Organization have adopted a standard of 10 parts 
per billion.
    As a matter of fact, when Governor Whitman was serving as 
Governor in New Jersey, our State Department of Environmental 
Protection supported a level of 10 parts per billion, or even 
less, and I know that you have previously supported that 
standard.
    And just to give you an idea--and again I am using my own 
State as an example--after the EPA decided that they were not 
going to use the 10 parts per billion, at least for now, this 
was from Asbury Park Press in my District.
    ``The State Department of Environmental Protection of New 
Jersey said they still plan to set a 10 parts per billion 
limit. We certainly do not want 50 parts per billion as a 
standard,'' said Eileen Murphy, Assistant Secretary of the 
DEP's Division of Science, Research, and Technology, commenting 
on the EPA's decision. ``That should have been changed years 
ago. This is not a good thing for EPA to have done.''
    So obviously I am not happy. I am hoping that Governor 
Whitman will give us some indication of why that was changed. I 
say this because we are talking about a substance that the EPA 
itself said can cause bladder, lung, skin, and other kinds of 
cancer.
    The prior standard for arsenic in drinking water was 
developed in 1942. I know that Administrator Whitman pointed to 
the fact that the science was not available to back up the 
change to 10 parts per billion.
    But again we had this study by the National Academy of 
Sciences, one of the most distinguished scientific bodies 
referred to by Congress, and they state that exposure to 
arsenic at the level of the current standard, 50 parts per 
billion could easily result in a combined cancer risk on the 
order of 1 in 10.
    That level of risk is much higher than the maximum cancer 
risk typically allowed by Safe Drinking Water Act standards. I 
guess I just don't buy this idea that the science is not there. 
I really do not think that the question is the science. I think 
it is the special interests.
    I think there are a number of special interests within the 
administration that did not find the new standard acceptable. 
It was interesting that the very day that the EPA announced 
that it was not going to use the 10 parts per billion, there 
was an article in the Washington Post that talked about the 
American Timber Institute going into see the President or 
somebody else at the White House, saying that they could not 
live with this because they could not--you know, they were 
using arsenic and painting boards that were used for docks or 
boardwalks or whatever, and it was going to hurt them in their 
business.
    The other thing that I want to say to the Governor and with 
regard to this decision on arsenic regulations, is that I am 
not just concerned about the standards. I am concerned about 
the infrastructure. That is the purpose of the hearing today.
    And after reviewing Mrs. Whitman's statement, it was clear 
that the EPA recognizes the significant needs of our Nation's 
drinking water infrastructure. But if we all agree that there 
is a massive shortfall in resources available for water systems 
to upgrade, and replace, and expand infrastructure, I would 
like to know whether President Bush plans to do anything about 
it.
    You know, we have the budget on the floor today. Is the 
budget, the President's budget, going to meet these needs. Is 
he going to be appropriating or suggesting that more money be 
available for the infrastructure.
    There is a problem with enforcement also with regard to 
safe drinking water standards. Is the budget going to request 
more money so we can enforce even the existing standards, and 
find out when there is non-compliance.
    Again, there is a huge discrepancy between what we are 
hearing today on all sides on a bipartisan basis about what the 
needs are, even from the EPA in the statements, as opposed to 
what level of funding is actually going to be available.
    And I seriously question whether this administration is 
going to provide the additional funding given what they are 
doing with the budget, and the tax cuts, and the magnitude of 
the tax cuts that are going to be using up a large part of the 
surplus.
    The other thing that I want to say is that I believe very 
strongly, Mr. Chairman, that the Federal Government has to make 
this investment, and it has to make an investment in safe 
drinking water infrastructure a national priority, and that of 
course begins here in this subcommittee.
    We have to face the fact that if the Federal Government 
does not do it, the State and towns do not have the money to do 
it. My Governor, I'm sure, knows that from her own experience 
as a Governor, and the State cannot make up this shortfall, and 
that means that the ratepayers are going to have to make it up 
if the Federal Government does not provide the funds.
    So what I am asking is that there be a significantly 
enhanced Federal role in providing assistance for drinking 
water infrastructure. Otherwise the critical investments are 
not likely to be made, or they are going to be made at costs 
strictly to the ratepayers.
    And whether the solutions, whether it is grants, trust 
funds, loans, and incentives for private investment, we can 
certainly discuss that. The bottom line is that we need a 
significant investment of Federal dollars, and I would like to 
know again whether we are going to see that from this 
administration in the budget, or in the proposals on the 
appropriations level over the next fiscal year.
    Thank you, Mr. Chairman, and again I want to thank you for 
cooperating with us and in making the presentations today, the 
panels, and working with our staffs.
    Mr. Gillmor. Thank you, Mr. Pallone. The Chair recognizes 
the gentleman from Illinois, Mr. Shimkus, for an opening 
statement.
    Mr. Shimkus. Thank you, Mr. Chairman, and I will just be 
brief. We are going to hear a lot from my friends about 
obviously the arsenic decision, but what I want to say is that 
we had 8 years of a previous administration who dropped this 
rule as they were going out the door, probably because they 
couldn't get their own side to help them move legislation or 
the process through and so they waited until the end.
    I think it is very credible to make sure that we are doing 
the right thing, and I have full faith and credit in your 
desire to uphold the safe drinking water standards of our 
citizens.
    I will just say on--and so I hope that we do not have to 
get all emotional. We can just get down to facts and realize 
that we have to base our decisions on science and not on 
emotions. Senator Miller, when he came to Washington, was quote 
as saying, ``I use it all the time now.''
    Washington, DC is the only place where the election is 
never over, and here is a former Governor of a State saying 
that, and that is so true in this city, and I think we are 
going to hear some of that today.
    Administrator, my concern and questions are going to be on 
rural America and rural parts of my district. Even without 
higher standards, we still have parts in the rural United 
States where even under the current standards we don't have 
safe drinking water.
    I mean, I have still got farmers who are going into town 
loading up their water in the back of a pickup and driving it 
home, and that is not uncommon, I'm sure, even in some of the 
rural parts of New Jersey. There may be some of that still.
    Through U.S.D.A. and rural development, they made a great 
effort to leverage with local water districts and the like to 
get usable clean water out to rural Illinois, and what I would 
like the EPA to look at is how you can all partner with those 
existing programs through U.S.D.A., and cross over these 
administrative boundary lines.
    And also with the States, and with what they have locally, 
because that is of concern to the 20th District of Illinois, 
and I appreciate you being here, and with that, Mr. Chairman, I 
yield back my time.
    Mr. Gillmor. Thank you very much. The ranking member of the 
full committee, Mr. Dingell.
    Mr. Dingell. Mr. Chairman, I thank you, and I commend you 
for holding today's hearings on the Capital Investment needs of 
American's public water systems. These infrastructures are 
vital to protect the public health and provide safe drinking 
water for our citizens.
    Last month, EPA reported that the current needs to ensure 
provision of safe drinking water to our people are $102.5 
billion and growing, a huge sum of money. Billions more were 
documented as necessary for future years, and the EPA has 
acknowledged that its estimates are in fact conservative.
    The funding to reduce aging pipes, facilities, and other 
parts of our water infrastructure systems is a critical issue 
for the city of Detroit, where pipes were first installed in 
1887, over 100 years ago, are still being used.
    Mr. Chairman, this is not a partisan issue. It is 
thoroughly bipartisan, and I am pleased that addressing water 
infrastructure funding to protect public health is a priority 
of this subcommittee.
    For the administration of those who are seeking increased 
funding, I would advise them to keep in mind that drinking 
water infrastructure funding lies in the exclusive jurisdiction 
of the Committee on Energy and Commerce under the Safe Drinking 
Water Act.
    Matters relative to waste water funding under the Clean 
Water Act have traditionally been dealt with by the 
Transportation Committee. Failure to work each committee in 
proper fashion will not achieve the worthier goal of obtaining 
increased funding for our water infrastructure needs.
    One of the purposes of the State revolving fund program 
created by the Safe Drinking Water Act amendments of 1996 was 
to assist drinking water systems to comply with the cost of new 
protective standards, such as the arsenic standard.
    Since 1996, EPA drinking water State revolving fund program 
has made available over $3.6 billion to assist drinking water 
systems, but contrast that if you will to a need of $102.5 
billion, and you will find that we have much to do.
    Also in 1996, this committee on a bipartisan basis mandated 
that EPA promulgate new drinking water standards for arsenic 
within 5 years. And if my $40 calendar watch tells me 
correctly, that 5 years is about up.
    I believe that the Bush Administration's recent 
announcement to delay or withdraw the new arsenic standards of 
10 parts per billion is a serious mistake, one which 
jeopardizes the health of the American people, and one which 
Administrator Whitman will come to regret.
    Americans should not be subject to health risks from 
arsenic in their drinking water, and I note that arsenic is a 
deadly poison that exceed those of other developed nations, and 
that exceed levels recommended by the World Health 
Organization.
    The EPA has found that long term exposure to low 
concentrations of arsenic in drinking water can lead to skin, 
bladder, lung, and prostate cancer, cardiovascular disease, 
diabetes, and reproductive and adverse neurological effects.
    I support sound science, but not those who use the term as 
a shibboleth for more delay in changing the current 
unprotective arsenic standard. Thank you, Mr. Chairman. I look 
forward to the testimony of our witnesses, with some emphasis 
on the subject of arsenic and why the change was made.
    Mr. Gillmor. Thank you very much, Mr. Dingell. The Chair 
would also point out that the focus of our hearing today is the 
funding needs of drinking water systems, which is an item as 
the ranking member pointed out exclusively under our 
jurisdiction.
    I know that a lot of people may want to talk about arsenic, 
and there is free speech, and so people can talk about whatever 
they want. But as I indicated in my opening statement, arsenic 
really deals with standards, and not needs and infrastructure.
    We hope to get into that later, and I would point out that 
the witnesses, under bipartisan agreement, when we asked them 
to come today, had only been asked to talk upon the needs 
subject.
    So recognizing that it is impossible for it to work that 
way, the Chair would still request that the members try to 
stick to the agenda as much as possible. The gentlelady from 
New Mexico, Mrs. Wilson.
    Mrs. Wilson. Thank you, Mr. Chairman. With that admonition, 
I would start out by saying that the first form of self-
government in the State of New Mexico after the Spanish settled 
over 400 years ago was not the town hall meeting, and it was 
not the parish church.
    It was the acequia commissions, and acequias are ditches, 
and where we get our water from, and where we still get our 
water from today as we irrigate up and down the Rio Grande 
Valley.
    And in the American West, water is a big issue, and in some 
ways it is the issue for everyone. It is kid of a--it is so 
serious that you often find folks on ditches with shotguns to 
keep everybody else from the ditches.
    It has been a serious issue throughout the history of the 
West, and it is a very important issue as we look at the 
development of the West to make sure that safe drinking water 
is available.
    In this country, 60 percent of our water supply is deemed 
drinkable, which is a big deal. Not many countries have 
achieved that, but it also means that 40 percent is not, and 
there is much left to do with respect to infrastructure.
    I also want to say something about arsenic in response to 
my colleague from New Jersey, and that is that the State of New 
Mexico has one of the highest naturally occurring arsenic 
levels in the water because we are a volcanic State.
    The water comes out of the ground with high levels of 
arsenic, and we don't have much timber industry. So the concern 
is not what industry wants, but the fact is that in New Mexico 
we have been drinking this water for generations, and many of 
the public health effects that people fear are actually lower 
in New Mexico, including the instances of things like bladder 
cancer and so forth.
    So if you look at the public health issues impacts, I can 
only conclude from those two things that there is missing data 
at those levels below 50 parts per billion that we need to 
gather, or that green chile is the natural antidote to arsenic.
    But with respect to arsenic, the real issue for us is this. 
If we are to change the arsenic standard for public health 
reasons, that is an investment just in capital costs alone of 
probably three-quarters of a billion dollars in New Mexico.
    I can think of a lot of ways to impact public health with 
$750 million, whether it is the vaccination of children, 
improvement of water and waste water. There are public policy 
decisions that we have to make on where we spend the marginal 
dollars making an impact.
    And when I don't see the public health evidence that tells 
me that we know what that level should be, between 5 and 50 
parts per billion, it is hard for me to say that that is the 
right way to spend the money. And that is the issue for those 
of us in the Southwest. Thank you.
    Mr. Gillmor. Thank you. The Chair recognizes the gentleman 
from California, Mr. Waxman.
    Mr. Waxman. Thank you very much, Mr. Chairman. I was 
Chairman of the Health and the Environment Subcommittee 15 
years ago, and as such, I was one of the leaders in writing the 
1986 Safe Drinking Water Act.
    And 5 years ago, I was the ranking member on the Health and 
the Environment Subcommittee when we did the 1996 drinking 
water amendments. So I have some experience with these drinking 
water issues, and that's why I was particularly disappointed 
with the Bush Administration's first drinking water action, 
this action to revoke the arsenic standard.
    That decision has left most Americans scratching their 
heads in puzzlement to try to figure out why the Bush 
Administration wants more arsenic in drinking water. Meanwhile, 
mining and chemical lobbyists are celebrating.
    Now, this weekend in my District in Hollywood, we had the 
Academy Awards, and that got me to thinking. We should have 
some awards here in Washington to recognize truly remarkable 
performances in lobbying that result in mind-boggling 
government decisions.
    So I have modestly decided to initiate a new award called 
the Golden Jackpot, and I have a Golden Jackpot here which has 
in it coins, but they are candy coins. This award is something 
that I think from time to time I will be giving out to 
recognize particularly indefensible and outrageous windfall 
given to special interest groups.
    And today we have three outstanding nominees; starting with 
President Bush's decision to break his campaign promise to 
curve carbon dioxide emissions. The President's decision was 
made possible by an all-out pressure from the oil and the coal 
industries.
    Not only was this the first campaign promise that the 
President broke, but for good measure, it jeopardizes the 
international effort to combat global warming. It has 
everything that a jackpot nominee needs to win.
    The second nominee is Congress' decision to repeal at the 
request of the Bush Administration's ergonomics rule. This is 
an important work safety rule which was put into effect over a 
long deliberation for a decade.
    The Chamber of Commerce, the National Association of 
Manufacturers, pulled out all the stops on this one, and it is 
an example of special interests being the real interests of 
thousands of workers, whether they be store clerks, meat 
packers, or nursing home aides.
    And the third nominee is President Bush's and Administrator 
Whitman's decision to revoke these arsenic standards. Here the 
mining and the chemical industries gave an unforgettable 
performance, and repeal means that dangerous levels of arsenic 
will remain in the drinking water of millions of American 
families.
    Well, all of these as they say at the Academy Awards are 
real winners. But the envelope, and the award I believe should 
go to EPA's decision to revoke the arsenic standard, and 
therefore I am going to give to the Governor the Golden Jackpot 
Award on behalf of the Bush Administration. It was not a 
difficult decision----
    Mr. Terry. Would the gentleman yield?
    Mr. Waxman. And to stop telling the American people that 
they need more arsenic in their drinking water. Governor 
Whitman, my time is about up, but I wanted you to accept----
    Mr. Terry. Would the gentleman yield?
    Mr. Waxman. [continuing] this award on behalf of the 
administration, and maybe you will even enjoy eating some of 
these chocolates. But in 1996, we asked for a tighter arsenic 
standard, because we wanted to protect the American people.
    We should invest in trying to prevent disease. I don't know 
whether they are going to spend the money in New Mexico, but 
they should not be spending money to invest in how to cure 
arsenic poisoning if we can make an investment in our water 
systems that will keep people healthy, and prevent a pollutant 
that can cause cancer and other problems.
    EPA has set the standard under the mandate of the law by 
January 1 of 2001, and this administration deserves this Golden 
Jackpot Award for repealing it, and I think harm to the public 
interest as a result.
    [The prepared statement of Hon. Henry A. Waxman follows:]

    Prepared Statement of Hon. Henry A. Waxman, a Representative in 
                 Congress from the State of California

    Mr. Chairman, fifteen years ago, as Chairman of the Health and the 
Environment Subcommittee, I was one of the leaders in writing the 1986 
Safe Drinking Water Act. And five years ago, as the Ranking Democrat on 
that Subcommittee, I was one of the leaders in writing the 1996 Safe 
Drinking Water Act. So I have some experience with drinking water 
issues.
    That's why I was particularly disappointed with the Bush 
Administration's first drinking water action: it's decision to revoke 
the arsenic standard. That decision has left most Americans scratching 
their heads trying to figure out why the Bush Administration wants more 
arsenic in drinking water. Meanwhile, mining and chemical lobbyists are 
celebrating.
    Now this weekend in Hollywood, as everyone knows, the Academy 
Awards were held. That got me to thinking that we should have some 
award here in Washington to recognize truly remarkable performances in 
lobbying that result in mind-boggling government decisions. So I've 
modestly decided to initiate a new award, called the ``Golden 
Jackpot.'' The award is a golden jackpot filled with chocolate gold and 
silver coins.
    From time to time I'll be giving this award to recognize a 
particularly indefensible and outrageous windfall given to a special 
interest group.
    Today, we have three outstanding nominees, starting with President 
Bush's decision to break his campaign promise to curb carbon dioxide 
emissions. The President's decision was made possible by an all-out 
pressure campaign by oil and coal companies. Not only was this the 
first campaign promise the President broke, but for good measure it 
jeopardizes the international effort to combat global warming. It has 
everything a jackpot nominee needs to win.
    The second nominee is Congress' decision to repeal the ergonomics 
rule, the most important workplace safety regulation in the last 
decade. The Chamber of Commerce and the National Association of 
Manufacturers pulled out all the stops on this one. It is a memorable 
example of special interests beating the real interests of thousands of 
workers, such as store clerks, meatpackers, and nursing home aides.
    And the third nominee is President Bush's and Governor Whitman's 
decision to revoke the arsenic standard. Here, the mining and chemical 
industries gave an unforgettable performance, and repeal means that 
dangerous levels of arsenic will remain in the drinking water of 
millions of American families.
    As they say during the Academy Awards, there is no loser among this 
group. All of the special interests involved--the oil industry, the 
manufacturers, the mining companies--received extraordinary windfalls 
from official action by the Administration or Congress.
    Now, Price/Waterhouse have not audited the results, but I do have 
an envelope with the winner. And . . . the Golden Jackpot goes to EPA's 
decision to revoke the arsenic standard. It was a difficult decision, 
but it's tough to beat telling the American people that they need more 
arsenic in their drinking water.
    Governor Whitman, after the hearing you'll have the opportunity to 
accept the Golden Jackpot on behalf of the Bush Administration. You 
might disagree with the judges' decision, but I hope you at least enjoy 
the chocolate that goes with the prize.
    You know, back in 1996, the science was clear that we needed a 
tighter standard for arsenic, and efforts to revise the safety level 
had already been debated for years. But the industry argued that 
reducing arsenic would be too expensive and that more study was needed. 
So we reached a compromise. We required EPA to issue a new regulation--
after even more study--by January 1, 2001.
    After the law was passed, EPA commissioned a comprehensive study by 
the National Academy of Sciences, which found that EPA should lower the 
standard ``as promptly as possible.'' And in January 2001, former EPA 
Administrator Carol Browner finally issued the new standard--just as 
this Committee had directed and the science dictated.
    It makes absolutely no sense to undo the new arsenic standard, and 
I will soon be introducing legislation to make sure every American is 
protected from this unnecessary risk.

    Mr. Gillmor. The gentleman's time has expired. When I was a 
very young State Senator in Ohio, by our desks we had 
spittoons, and those all disappeared as they became collectors 
items, and nobody knew where they went, but it looks a lot like 
that.
    Mr. Waxman. Well, this is the Golden Jackpot award, and the 
first time it has been given out. I hope that it is the last, 
but I expect with this administration in just this short 3 
months that we are going to have a lot of examples of Golden 
Jackpots for special interests winning out over the public 
interest.
    Mr. Gillmor. The Chair at this point would like to lay 
before the committee a letter that he has received from the 
Small Business Administration that was sent to the EPA, talking 
about its very strong support of the administration's action in 
this, of the EPA and the current Administrator's action, and 
pointing out that the average cost to households in the 
smallest systems would have exceeded $320 a year.
    I would ask for unanimous consent simply to enter the 
letter in the record.
    Mr. Waxman. Reserving the right to object, would the 
chairman also agree to put in the National Academy of Science's 
report on why the arsenic in drinking water ought to be in 
their words, ``promptly reduced as promptly as possible in 
order to protect the public health.''
    Mr. Gillmor. It would be very difficult for me to do that 
since I don't have it with me here, but we would also be happy 
to entertain a summary of that going in if the gentleman from 
California would like to present it.
    We probably could not take the whole report into the record 
simply as a model of volume. If you would like to present a 
summary, we would be happy to do it.
    Mr. Waxman. I would be pleased to do that.
    Mr. Gillmor. Very good.
    Mr. Waxman. I withdraw my objection.
    Mr. Brown. I would like to also submit for the record the 
standards suggested by the World Health Organization also.
    Mr. Gillmor. The members may do that at any point. We would 
be happy to have them do that. Without objection then, the 
Chair--does the gentleman from California withdraw his 
objection?
    Mr. Waxman. I withdraw my objection.
    Mr. Gillmor. Without objection then, the letter will be 
entered in the record.
    [The material referred to follows:]

                         U.S. Small Business Administration
                                                     March 27, 2001
The Honorable Christine Todd Whitman
Administrator
U.S. Environmental Protection Agency
Ariel Rios Building
1200 Pennsylvania Avenue, N.W.
Washington, DC 20460

Subject: EPA Review of Safe Drinking Water Standard

    Dear Administrator Whitman: We are writing in support of your 
recent decision to revisit the 10 ppb arsenic standard that was 
promulgated in January of this year. The Office of Advocacy of the U.S. 
Small Business Administration was established by Congress pursuant to 
Pub. L. 94-305 to represent the views of small business before Federal 
agencies and Congress. One of the primary functions of the office is to 
measure the costs and other effects of Government regulation on small 
businesses and make recommendations for eliminating excessive or 
unnecessary regulation of small businesses.
    We strongly agree that the Environmental Protection Agency (EPA) 
should take time to carefully examine the various issues involved in 
the establishment of this Safe Drinking Water Act standard. In our 
review of the record last year, we concluded that the science and cost 
evidence did not justify the 10 ppb standard at that time. We support 
the swift implementation of an interim final regulation, pending the 
establishment of an arsenic standard that can be supported by the 
science evaluations still underway at EPA. We would retain the current 
schedule for implementation in the final rule (effective in 2006). 
Thus, the new rule would not cause any reduction in public health 
benefits over the January final rule.
    In 1999, the Office of Advocacy, Office of Management and Budget, 
and EPA participated in a Small Business Regulatory Enforcement 
Fairness Act (SBREFA) panel regarding arsenic in drinking water. During 
the Panel, Advocacy supported lowering the arsenic standard to a level 
that is protective of public health. Questions were raised about the 
costs and benefits of lowering the arsenic standard (Maximum 
Containment Limit) from the current 50 ppb to a much lower standard. To 
do so would be expensive for small water systems. National costs would 
exceed $180 million annually, by EPA's estimate. The average costs to 
households in the smallest systems (under 100 persons served) would 
exceed $320 per year. Hundreds of small systems, predominantly in 
poorer rural America, would be forced to bear the costs of this rule 
with undemonstrated benefits.
    The EPA Science Advisory Board (SAB) noted numerous factors that 
would lead EPA to an overestimate of the health risks by using high 
concentration risk data from the Taiwanese population, which has 
different nutritional ,selenium, zinc and arsenic food intake 
characteristics than the U.S. population. In addition, in the only 
large scale study of arsenic exposure in the U.S., the SAB found ``no 
evidence of either bladder or lung cancer where mean drinking water 
concentrations approached 200 ppb. While these concentrations are up to 
an order of magnitude lower than found in sites where positive 
associations with cancer have been obtained, these results give rise to 
significant questions about whether the Taiwan data apply 
quantitatively to those U.S. populations that have a more adequate 
nutritional status.'' SAB Report at 30. Thus, there is no direct 
evidence that U.S. citizens would experience any excess bladder or lung 
cancers due to arsenic exposure at the concentrations found in the U.S.
    Further, both the NRC and the SAB suggested that the risk at lower 
levels found in the U.S. would be significantly less than the risk 
indicated by the default linear extrapolation model employed by EPA. 
While both agree that the burden of proof of existence of these 
nonlinear modes of action had not been met, and EPA properly employed 
the model in the risk estimates, both agreed that the risk was 
significantly overestimated in this regard.
    As the SBREFA panel stated, it would be poor public policy to set a 
standard that was too low, require water utilities to make the 
considerable investment in treatment capacity, only to learn too late 
that the arsenic effects at low levels were considerably smaller or non 
existent. The SAB advocated a phased standard setting approach, which 
would establish an interim standard protecting the higher risk 
populations that would be superseded after a period of additional 
research and analysis. SAB Report at 39. We agree wholeheartedly with 
the SAB phased approach. A phased approach would allow the arsenic 
research to proceed and avoid waste of taxpayer and rate payer 
resources.
    A higher standard would be sound public policy. It would be 
consistent with the Safe Drinking Water Act Provision allowing EPA to 
select a less stringent standard that ``maximizes health risk reduction 
benefits at a cost that is justified by the benefits.''
    We look forward to working with EPA and interested parties in the 
expeditious promulgation of a new standard that would address the 
health needs of our Nation, without unnecessary damage to small water 
companies, small communities, and our citizens in rural America.
            Sincerely,
                                          Susan M. Walthall
                                  Acting Chief Counsel for Advocacy

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           Arsenic in Drinking Water International Standards

    Countries that have a 10 parts per billion standard: 
Belgium, Denmark, United Kingdom, Germany, Spain, Finland, 
France, Ireland, Greece, Italy, Luxembourg, Netherlands, 
Austria, Portugal, Sweden, Japan, Jordan, Laos, Mongolia, 
Namibia, and Syria.
    Countries that have a 50 parts per billion standard: 
Bahrain, Bangladesh, Bolivia, China, Egypt, India, Indonesia, 
and Oman.
    Australia has a 7 parts per billion standard

    Mr. Gillmor. And the Chair recognizes the gentleman, Mr. 
Terry.
    Mr. Terry. I will yield back in the interest of hearing 
from the witness.
    Mr. Gillmor. Very good.
    Mr. Brown.
    Mr. Brown. Thank you, Mr. Chairman. The purpose of today's 
hearing is to discuss water infrastructures, and I am glad to 
welcome Administrator Whitman to the hearing, and I am glad 
that you have joined us.
    I would hope, Mr. Chairman, that the Bush-Whitman arsenic 
repeal, the repeal of the arsenic standard, would be a subject 
for future hearings specifically on that. This inexplicable 
assault on a straightforward consumer protection policy baffled 
the scientific community as was pointed out by Mr. Waxman and 
Mr. Pallone.
    And outraged those of us who ushered in these protections 
since passage of the 1996 Safe Drinking Water Act. In 1981, 
then President Reagan tried a similar approach to undo another 
pro-consumer regulation. He overturned a safety standard on air 
bags promulgated by the previous administration.
    Like the arsenic standard, this measure reflected 
substantial research, and years and years of input, from 
private and public sector experts. The Supreme Court overturned 
President Reagan's action, calling it an arbitrary decision. It 
was not based on any new information that countered the 
evidence of the support of the air bag standard.
    The Supreme Court protected consumers in those days when 
the President would not. We can only hope that this 
administration's arsenic decision meets the same fate. Mr. 
Chairman, the European community, and the World Health 
Organization, and the National Academy of Sciences, all relying 
on objective, sound scientific research, have endorsed lowering 
the arsenic standard from 50 parts per billion to 10 parts per 
billion.
    This administration provided no factual rationale for 
dismissing the recommendation from these respected 
organizations. The only rationale that I can find in our 
research for repeal of the arsenic standard lies in President 
Bush's campaign finance report.
    And in the last election cycle, mining companies gave $5.6 
million in political contributions to Republicans. The chemical 
industry gave almost $9 million to Republicans. We know that 
the smelting of metal ores in mining can release arsenic into 
the environment.
    A group of chemical and mining companies wrote to the EPA 
and argued that we did not need new protections. This later 
group formed something called the Environmental Arsenic 
Council. Yes, the Environmental Arsenic Council. It sounds like 
somebody needs a little better public relations agency.
    You have to hand it to PR firms like this. They can make 
any anti-health or anti-environment group sound like the garden 
club. My hat is off to these spinmeisters. What the 
Environmental Arsenic Council won't tell you, and what 
President Bush does not remind us is that arsenic imperils 
human health in at least three ways.
    It is a toxic. We have all known that in this society for 
years. It is a carcinogen, and we found that out, and it causes 
birth defects. If we are gambling on the environment, we would 
call arsenic the trifecta of health hazards. It is not 
conjecture. It is science, and that's why the administration's 
excuse that it wants to conduct more research rings so hollow 
with responsible non-industry people in the scientific 
community.
    I look forward to hearing the administration explain how it 
could be in the best interests of the public's health to 
condone higher levels of arsenic in drinking water. 
Administrator Whitman has a tough job, and her agency's 
historical mission is under direct assault from the White 
House.
    Given these circumstances, I look forward to hearing from 
her about these important water related issues. And, Mr. 
Chairman, I would also want to submit in the record--this is a 
list of arsenic and drinking water international standards.
    Australia has a 7 parts per billion standard, and let me 
read a handful in my last 30 seconds. Countries that have 10 
parts per billion standard are Belgium, Denmark, Jordan, 
Mongolia, Laos, The Netherlands, France, Greece, Spain, and 
several others.
    Countries that have a 50 parts per billion standard, joined 
with the United States again now apparently are Bahrain, 
Bangladesh, Bolivia, The People's Republic of China, Egypt, 
India, Indonesia, Oman, and alphabetically, the United States 
of America. Mr. Chair, if I could submit this. Thank you.
    Mr. Gillmor. Without objection, the Chair hearing none, it 
will be entered in the record.
    Are there further opening statements? The gentleman, Mr. 
Luther.
    Mr. Luther. Thank you, Mr. Chairman. I want to thank 
Administrator Whitman for being before the committee again. I 
hope that she is enjoying herself. I am not sure. I think we 
can all agree that America's drinking water infrastructure is 
in critical need of reinvestment.
    One issue that I would like to hear about in this hearing 
is whether the drinking water State revolving fund should focus 
more on existing infrastructure rather than on new 
infrastructure.
    With the concern that we have over sprawl and quality of 
life today, would that in fact remove an incentive from 
developers who are rapidly expanding into the outer suburbs of 
our Metropolitan areas in the country. So I think it would be 
good if we could focus a bit on that.
    Last, Mr. Chairman, I would also like to express my concern 
over the Bush Administration's decision to withdraw the 
standard on arsenic in the Nation's drinking water.
    Indeed, it was our committee, I believe, on a bipartisan 
basis urged the EPA to promulgate new final standards on 
arsenic. So it is my hope--I don't have an award for you today 
or anything, Administrator, and I apologize for that.
    But it is my hope that if not today, Mr. Chairman, our 
subcommittee in the very near future can in fact focus on this 
issue and hear it out. So thank you very much.
    Mr. Gillmor. Thank you. Are there further opening 
statements? The gentlelady from California.
    Ms. Capps. Thank you for holding this hearing, Mr. 
Chairman, and I realize that a vote is on, and I will be as 
brief as I can. I am so pleased that the subcommittee is 
turning its attention to drinking water infrastructure needs of 
this country.
    There is a clear need for upgrades to our system to ensure 
that all communities have safe drinking water and drinking 
water systems, and as a member of this committee, I am pleased 
that we will bring to bear the substantial expertise of our 
members on this important topic.
    Ensuring clean sources of water is indeed a public health 
issue, and properly belongs before this committee. Our 
witnesses are to be commended for appearing today, and 
especially I want to thank Administrator Whitman for your 
presence today.
    I also want to take a moment to mention a related drinking 
water issue, MTBE pollution. This is a real problem in my 
district, and I believe throughout the State of California and 
across this country.
    MTBE has polluted the ground water of many communities, 
including the Town of Cambria in San Luis Obispo County, which 
has at this moment no safe backup drinking water system because 
of MTBE pollution.
    There are two issues regarding MTBE that I want to raise. 
We need to stop the harm that it is causing and fix the damage 
that it has already caused. California has a waiver request 
before the EPA from the Clean Water Act's 2 percent oxygenate 
requirement, and I hope that you will give this request quick 
attention.
    California needs this waiver to help protect public health 
and their environment. Second, I have a bill that would help 
communities whose drinking water has been contaminated by MTBE. 
It dedicates $200 million out of the leaking underground 
storage tank fund, the LUST fund, toward MTBE cleanup.
    I believe that this is something that Congress could move 
forward on I hope that Administrator Whitman will look at my 
legislation and work with me and this committee on this and any 
other steps that we can take to help communities like Cambria.
    Ensuring clean drinking water is just about the most basic 
service that any government does, and that's why I, like other 
members of this committee, who have been eloquent in their 
statements, have also been disturbed by the recent action on 
arsenic and drinking water.
    The standards for allowable levels of arsenic in drinking 
water were set in 1942. One would think that we could update 
this 59 year old public health protection act. And Knight-
Ritter has reported just in the last couple of days that a 
Dartmouth University toxicologist, Joshua Hamilton, says that 
there is sufficient evidence that 50 parts per billion is not 
protective, and 10 parts per billion is reasonable.
    In fact, this committee directed EPA to come up with the 
standards, and now the rules have been withdrawn. I believe, as 
a public health nurse, that this action comes at the expense of 
public health. It is one more in a disturbing pattern where 
this administration is putting the health and safety of the 
American people behind more powerful interests.
    We have seen this with the CO2 flip-flop and the 
apparent abandonment of global warming efforts that I read 
about in today's Washington Post. These decisions are going to 
have a real life impact. They are going to reduce our ability 
to ensure our air and water are clean and to fight global 
warming.
    So I am hoping that the EPA and the administration will 
reconsider these moves. I say that with all due respect and I 
yield back the balance of my time. Thank you.
    Mr. Gillmor. Thank you, Ms. Capps. We are going to take a 
very short recess, because we do have a vote on. And, Mr. 
Shimkus, the vice chairman, using a system that we frequently 
use, left to vote early, and as soon as he comes back, he will 
start the hearing so that we do not keep you any longer, 
Governor.
    And I will return as soon as possible so that we can keep 
the hearing moving. So, the Chair now declares this in a brief 
recess.
    [Additional statement submitted for the record follows:]

 Prepared Statement of Hon. W.J. ``Billy'' Tauzin, Chairman, Committee 
                         on Energy and Commerce

    First, I want to thank Subcommittee Chairman Gillmor for scheduling 
today's hearing on drinking water needs and infrastructure. I believe 
Chairman Gillmor is off to a great start as Subcommittee Chairman and 
today's hearing only affirms his--and my--desire to aggressively pursue 
major issues which fall under the Subcommittee's jurisdiction.
    I also want to thank Administrator Whitman for her appearance 
before us today. I appreciate the effort Administrator Whitman 
displayed in providing testimony on what EPA has been doing to analyze 
drinking water needs and to provide assistance through authorities 
contained in the Safe Drinking Water Act.
    Let me begin my formal remarks by stating what should be obvious. 
The Energy and Commerce Committee has jurisdiction over public health 
and the Safe Drinking Water Act. Since the original Safe Drinking Water 
Act was added as an amendment to the Public Health Service Act in 1974, 
this Committee has amended the law and reauthorized provisions of the 
Act several times.
    Most recently, this Committee made substantial alterations and 
enhancements to the underlying statute through the 1996 Safe Drinking 
Water Act Amendments. Many of the interested parties in this room 
participated in that process. The Environmental Protection Agency 
provided technical assistance to the 1996 effort and, through several 
long months during the winter, spring and summer of 1996, we were able 
to pass a comprehensive measure into law.
    As part of that effort, this Committee created the first 
substantial source of federal funding for drinking water systems. We 
authorized the Drinking Water State Revolving Fund to provide a 
sustainable source of assistance for both infrastructure projects and 
state drinking water programs. As of this year, $4.4 billion has been 
appropriated by Congress for the Drinking Water SRF.
    EPA informs us that through September of last year, the money 
Congress and the states have provided to the Drinking Water SRF has 
funded over 1,400 projects nationwide. These projects address treatment 
facilities, transmission and distribution systems, source and storage 
projects, planning and design, land acquisition, the purchase of 
systems, system restructuring and other expenses associated with 
drinking water systems.
    In brief, the tree we planted in 1996 is now bearing fruit. But 
rather than sit back and admire our handiwork, the question now is: 
what can we do to increase its yield? How can we make our system of 
financing water infrastructure work better to further protect the 
public health?
    In addressing this question, I believe we must first analyze how 
well the Drinking Water SRF has worked since its creation. We need to 
know where the program has succeeded, as well as where there might be 
shortcomings. We also need to review the interaction of this fund with 
the Clean Water SRF, since states have been allowed under the 1996 
Amendments to shift resources between each entity. We also need to 
closely examine the available evidence on the need for additional water 
infrastructure, including EPA's analytical efforts and studies like 
those produced by the Water Infrastructure Network. In this regard, it 
is my sincere hope that we will be able to work with the Administration 
and all interested public and private parties in this endeavor.
    But let me be clear on one overriding issue. The Energy and 
Commerce Committee has broad and substantial jurisdictional interest in 
the matter of water infrastructure. And this is an interest we intend 
to thoroughly pursue as Congress considers any effort to channel more 
resources into this area, no matter what legislative vehicle is 
constructed. Water infrastructure is not built because such things are 
nice to have around; they are built because they are needed to preserve 
the environment and protect the public health. Our Committee's interest 
in such matters is widespread and longstanding.
    Again, I want to thank all of the witnesses who are with us today.

    [Brief recess.]
    Mr. Gillmor. The committee will come to order, and we will 
proceed with our first panel, which consists of the--Ms. 
McCarthy, we closed opening statements. Could you submit yours 
in writing?
    Ms. McCarthy. Yes, Mr. Chairman.
    Mr. Gillmor. Or do you feel an absolute compulsion to give 
it?
    Ms. McCarthy. I would be happy to do so.
    Mr. Gillmor. Thank you. I appreciate it.
    [The prepared statement of Hon. Karen McCarthy follows:]

Prepared Statement of Hon. Karen McCarthy, a Representative in Congress 
                       from the State of Missouri

    Thank you, Mr. Chairman, for holding this hearing to examine the 
very important issue of the status of our nation's drinking water 
infrastructure and to determine what critical needs we have before us, 
and for having EPA Administrator Whitman and the distinguished panel of 
experts here to testify. This Subcommittee, with legislative 
jurisdiction over the nation's drinking water, and specifically the 
Safe Drinking Water State Revolving Fund (SRF) program, is in a unique 
position to protect the public health in a significant way.
    In my district, Kansas City has made substantial progress in 
meeting the high and growing expectations of drinking water consumers. 
In fact, I am proud to share with the committee that the Kansas City 
Water Services Department (WSD) has recently been recognized by the 
Association of Metropolitan Water Agencies' (AMWA) as a winner of its 
2001 Gold Award for Competitiveness Achievement for using exceptional 
management practices and achieving high performance--I am pleased to 
see that AMWA is here to testify today on the needs of drinking water 
utilities and the gap that exists between spending and need. The Kansas 
City Water Department has worked hard to keep rates fair and equitable 
while producing a quality product, but the infrastructure system is 
simply deteriorating far too quickly for them to fund such a staggering 
undertaking on their own.
    I am interested to hear from our witnesses on the success, or 
failures, of the Drinking Water State Revolving Loan Fund. Has the 
program created the necessary flexibility to allow the states to manage 
and run their programs effectively? Is there more that can be done to 
assist states in ensuring the safety of our drinking water? 
Unfortunately, Kansas City has not been able to utilize the fund. 
Because our water quality is high and the Water Services Department is 
in compliance with the many regulations, it falls so low on the State 
Revolving Fund priority list that they are unable to receive the much-
needed funds to assist with their many needs. As the old adage goes, 
there is no reward for being good. I am interested to hear from our 
witness on we can address issues such as these.
    Clearly, as the recent EPA Drinking Water Infrastructure Needs 
Survey illustrates, if we are to continue the responsibility of 
protecting our nation's drinking water from harmful contamination, we 
must begin to make substantial investments in its infrastructure now. I 
am interested to hear our witnesses' perspectives on how we can best 
accomplish this given the dire state of current resources.
    This is an issue that effects us all, from the small town of 
Grandview to urban Kansas City, Missouri. While cost-estimates for 
drinking water investment needs over the next 20-years may vary, I 
think we can all agree that more needs to be done to ensure that public 
health is kept safe now and that future needs are met. We must do all 
we can in order to avoid a future infrastructure crisis and ensure that 
the consumer does not bear the costly burden of infrastructure neglect. 
The Federal government must invest in drinking water infrastructure and 
make it a national priority. I welcome the input of our witnesses on 
how best to get there.

    Mr. Gillmor. We will now proceed to our first panel, which 
is the Administrator of the Environmental Protection Agency, 
Governor Whitman. Go ahead.

 STATEMENT OF HON. CHRISTINE TODD WHITMAN, ADMINISTRATOR, U.S. 
                ENVIRONMENTAL PROTECTION AGENCY

    Ms. Whitman. Thank you, Mr. Chairman. I appreciate the 
opportunity to testify on this very important area, but I beg 
leave of the chairman to stray a little bit given all the 
discussion that has been held heretofore. I must say that when 
cameras are in the room that it heightens the discussion. We 
get a lot more interest and interesting discussion.
    Mr. Gillmor. There has been a lot of strain, and so feel 
free.
    Ms. Whitman. I just wanted to say a couple of things. One 
is that if all that we heard here today was true, I would be 
worried as well on the arsenic rule. Something to be made very 
clear is the standard.
    The arsenic rule as proposed by the previous 
administration, dropping 50 parts per billion of arsenic to 10 
parts per billion would not have become effective, or is not 
due to become effective until 2006.
    We will have a new regulation in place that will have an 
effective date of 2006. It will be well below 50 parts per 
billion. However, as it has been pointed out, there is no 
definitive and scientific study that says that 10 is it.
    And while the National Academy of Sciences said very 
clearly that 50 parts per billion was too high, they did not 
endorse 3, 5, 7, or 10, or 20. Given that uncertainty, I think 
it is important that we hear from all the affected parties.
    And the way that rule was promulgated at the last minute, 
while the scientific studies may have been going on for years, 
there was not, I do not feel, an adequate time for full input 
from all the affected communities.
    We need to know what the full impact is so that we don't 
suffer from unintended consequences, and when I talk about 
unintended consequences, I can tell you of a real instance 
where a town, where the water company was purveying water at 90 
parts per billion, and they were told to come into line with 50 
parts per billion.
    The water company closed up and walked away, and that left 
the 30 people on that system with no water and no choice but to 
sink their own wells, which they then did and are now ingesting 
90 parts per billion, without the same protections that we 
could offer them if we had done it through the water company 
system.
    The concern that I have is not that we have any lesser 
standard because of the cost, but that we fully understand what 
the costs are, and we make sure that we have in place the tools 
necessary, whether it be strictly financial or technical, for 
what we need to do to help those small and mid-sized 
communities where arsenic is a naturally occurring substance, 
and to be able to reach whatever the standard is that we set.
    We have had a new study that indicates that arsenic may 
well be an endocrine disrupter. In that instance, we may find 
that it should be at 3, or 5, and not just 10. But it might 
also be above that, slightly above that.
    I can't tell you what the final will be, but I will tell 
you that this administration has put nobody's drinking water in 
jeopardy, and nobody is drinking any more unsafe drinking water 
today than they were last month, last year, nor will they for 
the next 2 years, because that standard was not going into 
effect until the year 2006.
    There will be a new standard going into effect in the year 
2006. I also beg to differ with some of the allegations about 
how this decision was reached, and I would just like to say 
that I fully accept responsibility for the decision, when in 
fact I gave to the administration both that decision and the 
decision on the reviewing of pesticides, which nobody mentions 
when they say how anti-environment the administration is.
    And in fact that was a decision that the environmentalists 
were looking for, but that has been shunned aside. The one that 
they asked questions about and pushed back on was the arsenic 
decision. Why was I doing it, and was I satisfied that this is 
what we needed to do.
    I never read a letter from the timber industry, and I never 
read a letter from a miner. I sat with staff to listen to how 
this rule had been promulgated, and I wanted to make sure that 
we had fully included all that needed to be heard.
    We can do that, and we can do that in a way that allows us 
to move forward with the standard, because as all of you know, 
the process is that when EPA finalizes a regulation, there is 3 
years from finalization to implementation.
    In this instance the Agency chose to give the water 
companies 5 years. So we will meet that 3 years, and we will 
hopefully meet 4 years, and I would like to get it done much 
sooner than that.
    We are going to ask for outside review by the National 
Academy of Sciences to see if there is any new science to be 
taken into account, and then those who look at cost benefit--
because by the way, that is also part of the law. We are 
required by law to look at cost benefit.
    That is something that is in the Safe Drinking Water Act, 
and we need to meet that obligation, and unfortunately I did 
not feel that that had been satisfactorily addressed during the 
original rule promulgation.
    Having said that, Mr. Chairman, I will keep my opening 
statement brief. If it is all right, I will submit a longer 
statement on the issue at hand that gets more to the specifics.
    Mr. Gillmor. Thank you.
    Ms. Whitman. I think it is safe to say that over the past 
25 years that America has indeed made great progress in 
reducing water pollution and ensuring safe, affordable, and an 
abundant supply of drinking water to the people.
    Our drinking water system is among the most safe and 
reliable in the world. The 265 million Americans who rely on 
public water can have full confidence that the water that they 
use is safe for them and safe for their families.
    We can, however, do better. As you know, the primary 
mechanism EPA uses to help local communities finance water 
infrastructure projects is the State Revolving Loan Funds.
    The Federal Government provides grants to States to 
capitalize loan funds for drinking water in each State. States 
then use these funds to make low cost loans to communities to 
finance drinking water projects.
    Because this is a revolving loan fund, the money invested 
in SRFs provides about four times as much purchasing power over 
20 years as straight grants would. In addition, because the 
funds make loans to local communities at below market rates, 
communities have over the years saved their taxpayers literally 
millions of dollars.
    It is also worth noting that almost 3 out of every 4 loans 
made for drinking water projects have been provided to small 
water systems that usually have a difficult time in affording 
and accessing affordable financing.
    These funds have made an important contribution to our 
success in America's drinking water, but as I said before, the 
job is certainly not finished. Under the law, EPA is required 
to take a periodic look at drinking water and clean water 
infrastructure investments needed around the country.
    Last month, EPA released the second of these reports 
describing needed water investments. The bottom line, Mr. 
Chairman, is that we perceive the need of about $150 billion 
over the next 20 years to ensure the continued safety and 
availability of water.
    Other outside groups have also issued reports estimating 
water infrastructure needs, estimates that exceed ours. But no 
matter which estimate you use, there are several key components 
of water infrastructure funding that must be fully evaluated.
    These include population growth, aging infrastructure, 
emerging environmental and public health demands, increasing 
operation and maintenance costs, and maintaining affordability.
    We need to keep affordability in mind as we move forward 
with both funding and regulatory proposals. I am pleased to 
report that the President's fiscal year 2002 budget maintains 
Federal support for drinking water infrastructure.
    EPA expects that the drinking water SRF will be able to 
provide average annual assistance of $500 million over the long 
term life if this capitalization funding is maintained. 
Furthermore, in keeping with the President's commitment to 
focus on goals rather than process, the administration supports 
the mechanism currently in the law that gives States the 
flexibility to move funds between clean water and its drinking 
water revolving loan funds.
    Mr. Chairman, this proposed funding will help communities 
across America finance important drinking water projects. As 
your committee continues to study America's drinking water 
needs, we look forward to a constructive dialog on the 
appropriate role that the Federal Government can play.
    There is no doubt that ensuring safe drinking water will 
require a shared commitment on the part of Federal, State, and 
local governments, as well as in private business and 
consumers.
    You have my pledge that EPA will continue to work in 
partnership with Congress and with all the other stakeholders 
to better understand, and then meet the needs of our water 
infrastructure. Thank you, Mr. Chairman, and I would be happy 
to answer questions.
    [The prepared statement of Hon. Christine Todd Whitman 
follows:]

Prepared Statement of Hon. Christine Todd Whitman, Administrator, U.S. 
                    Environmental Protection Agency

    Good afternoon, Mr. Chairman and Members of the Subcommittee. I am 
Christine Todd Whitman, Administrator of the Environmental Protection 
Agency.
    I welcome this opportunity to discuss the Nation's investment in 
drinking water infrastructure-the pipes and treatment plants that 
deliver safe drinking water to our taps. These drinking water 
facilities are critical to protecting human health.
    As a Nation, we have made great progress over the past quarter 
century in assuring the safety of drinking water. The Safe Drinking 
Water Act has served us well and provides the solid foundation we need 
to make sure that all Americans will continue to enjoy safe drinking 
water.
    Our success in improving drinking water quality is the result of 
many programs and projects by local, State and Federal governments in 
partnership with the private sector. But our cooperative, 
intergovernmental investment in drinking water infrastructure 
facilities has, more than any other single effort, paid dramatic 
dividends for public health and water quality.
    This afternoon, I want to give you a brief overview of the progress 
we have made in improving water quality, and the public health 
challenges we still face. I also will summarize what EPA knows about 
the need for future investment in drinking water and identify the key 
challenges I see in meeting this need. I will conclude with some 
thoughts about how Congress and others could proceed when addressing 
the problems of financing drinking water infrastructure.

               SAFE WATER--ACCOMPLISHMENTS AND CHALLENGES

    Most Americans would agree that the quality of drinking water has 
improved dramatically over the past quarter century.
    We have made dramatic progress in improving the safety of our 
Nation's drinking water. Disinfection of drinking water is one of the 
major public health advances in the 20th century. In the early 1970's, 
however, growing concern for the presence of contaminants in drinking 
water around the country prompted Congress to pass the Safe Drinking 
Water Act. Today, the more than 265 million Americans who rely on 
public water systems enjoy one of the safest supplies of drinking water 
in the world.
    Under the Safe Drinking Water Act, EPA has established standards 
for 90 drinking water contaminants. Public water systems have an 
excellent compliance record-more than 90 percent of the population 
served by community water systems receive water from systems with no 
reported violations of health based standards.
    In the past decade, the number of people served by public water 
systems meeting Federal health standards has increased by more than 23 
million. Although compliance with drinking water contaminant standards 
is good, public health risks from drinking water can be further 
reduced.

                DRINKING WATER STATE REVOLVING LOAN FUND

    The primary mechanism that EPA uses to help local communities 
finance drinking water infrastructure projects is the State Revolving 
Loan Fund (SRF) established in the Safe Drinking Water Act. The SRF was 
designed to provide a national financial resource for clean and safe 
water that would be managed by States and would provide a funding 
resource ``in perpetuity.'' These important goals are being achieved. 
Other Federal, State, and private sector funding sources are available 
for community water infrastructure investments.
    Under the SRF program, EPA makes grants to each State to capitalize 
their SRFs. States provide a 20% match to the Federal capitalization 
payment. Local governments get loans for up to 100% of the project 
costs at below market interest rates. After completion of the project, 
the community repays the loan and these loan repayments are used to 
make new loans on a perpetual basis. Because of the revolving nature of 
the funds, the dollars invested in the SRF provides about four times 
the purchasing power over twenty years compared to what would occur if 
the funds were distributed as grants.
    In addition, low interest SRF loans provide local communities with 
dramatic savings compared to loans with higher, market interest rates. 
An SRF loan at the interest rate of 2.6% (the average rate during the 
year 2000) saves communities 25% compared to using commercial financing 
at an average of 5.8%.
    The drinking water SRFs, which this Committee created as part of 
the 1996 amendments to the Safe Drinking Water Act, were modeled after 
the clean water SRFs, but included several important improvements.
    States were given broader authority to use drinking water SRFs to 
help disadvantaged communities and fund programs that look to prevent 
contamination of sources of drinking water and promote better 
management and operations of drinking water systems.
    Through fiscal year 2001, Congress has appropriated $4.4 billion 
for the Drinking Water SRF program. EPA has reserved $83 million for 
monitoring of unregulated contaminants and operator certification 
reimbursement grants. Through June 30, 2000 States had received $2.7 
billion in capitalization grants, which when combined with state match, 
bond proceeds and other funds provided $3.7 billion in total cumulative 
funds available for loans. Through June 30, 2000, States had made close 
to 1,200 loans totaling $2.3 billion and $1.4 billion remained 
available for loans. Approximately 74% of the agreements (38% of 
dollars) were provided to small water systems that frequently have a 
more difficult time obtaining affordable financing. States also 
reserved a total of approximately $420 million of SRF capitalization 
grants for other activities that support the drinking water program.

              DRINKING WATER INFRASTRUCTURE--FUTURE NEEDS

    The Safe Drinking Water Act requires that EPA periodically develop 
a ``needs survey'' to identify water infrastructure investments.
    One month ago, EPA released its second report on drinking water 
infrastructure needs. The new survey shows that $150.9 billion is 
needed over the next 20 years to ensure the continued provision of safe 
drinking water to consumers.
    The survey found that water systems need to invest $102.5 billion, 
approximately 68% of the total need, in what the report calls ``current 
needs.'' In most cases current needs would involve installing, 
upgrading or replacing infrastructure to enable a water system to 
continue to deliver safe drinking water. A system with a current need 
therefore, usually is not in violation of any health-based drinking 
water standard. For example, a surface water treatment plant may 
currently produce safe drinking water, but the plant's filters may 
require replacement due to their age and declining effectiveness, if 
the plant is to continue to provide safe water. Future needs account 
for the remaining $48.4 billion in needs; for example, projects that 
systems would undertake over the next 20 years as part of routine 
replacement such as reaching the end of a facility's service life.
    The survey includes needs that are required to protect public 
health, such as projects to preserve the physical integrity of the 
water system, convey treated water to homes, or to ensure continued 
compliance with specific Safe Drinking Water Act regulations (See Chart 
1). Transmission and distribution projects represented the largest 
category of need (56%) with $83 billion needed over the next 20 years. 
This result is not surprising given that, for most water systems, the 
majority of their capital value exists in the form of transmission and 
distribution lines. Treatment projects, which have a significant 
benefit for public health, make up the second largest category of needs 
at 25%.
    Although all of the 74,000 projects in the survey would promote 
public health protection, also water systems identified capital needs 
that are directly related to specific regulations under the Safe 
Drinking Water Act. Approximately 21%, or $31.2 billion, is needed for 
compliance with current and proposed regulations under the Act. Most 
(nearly 80%) of the remaining need is to comply with rules which 
protect consumers from harmful microbial contaminants, such as Giardia 
and E. coli. Most of the total needs derive from the costs of 
installing, upgrading and replacing the basic infrastructure that is 
required to deliver drinking water to consumers--costs that water 
systems would face independent of any Safe Drinking Water Act 
regulations. These findings indicate that most of the total need stems 
from the inherent costs of being a water system, which involves the 
almost continual need to install, upgrade, and replace the basic 
infrastructure that is required to provide safe drinking water.
    The survey also examined capital need by system size. The survey 
found that while small systems (serving fewer than 3,300 people) 
represent more than 80% of the nation's community water systems, they 
contribute 22% to the total national need. By contrast, large systems 
(serving more than 50,000) represent just 2 percent of the nation's 
water systems, yet account for more than 44% of the national need. This 
finding reflects the fact that small systems collectively serve about 
26 million people, whereas large systems serve a total of 138 million 
people.

           BROADER CONTEXT OF WATER INFRASTRUCTURE FINANCING

    Over the past year, several interest groups including the Water 
Infrastructure Network, and the Water Environment Federation issued 
reports estimating water infrastructure needs. These estimates were all 
substantially above those of EPA's Needs Surveys. In general, these 
cost estimates differ from EPA's because the methodologies and 
definitions for developing them differs. For example, EPA Needs Surveys 
include only projects that are eligible for SRF funding under the Clean 
Water Act and Safe Drinking Water Act. Also, EPA requires that costs 
included in the Needs Surveys be established by planning or design 
documentation.
    Nevertheless, EPA recognizes that effective decision-making 
concerning water infrastructure financing would benefit from a better 
understanding of the broader context of this effort. Key components in 
the broader context of water infrastructure funding that need to be 
more fully evaluated include:

--Population Growth: Steady growth and shifts in population puts 
        substantial pressure on local governments to provide expanded 
        drinking water and sewer services. More and more communities 
        are searching for ways to grow that fully protects their 
        quality of life and natural resources.
--Aging Infrastructure: Many sewage and drinking water pipes were 
        installed between 50 and 100 years ago and these pipes are 
        nearing the end of their useful life.
--Emerging Environmental and Public Health Demands: As our knowledge of 
        threats to water quality and public health improves, the public 
        expects its water infrastructure to continue to provide clean 
        safe water at reasonable cost.
--Increasing Operation and Maintenance Costs: As the size and 
        complexity of water and sewer systems increases, and facilities 
        get older, the costs of operations and maintenance tend to 
        increase.
--Affordability: Although water has historically been underpriced, some 
        systems may find it difficult to replace or update aging water 
        and sewer systems and keep household user charges at affordable 
        levels. This issue needs to be kept in mind as future 
        regulations are developed.
    In an effort to better understand the issues related to water 
infrastructure financing, the Agency is reviewing issues related to 
long-term needs, assessing different analytical approaches to 
estimating those needs, and estimating the gap between needs and 
spending. Some elements of this analysis--known as the Gap Analysis--
have been presented to a range of interested parties and EPA is 
committed to improving and refining this important work. To this end, 
the EPA plans to make this analysis available for peer review by expert 
organizations in the near future.

           FY 2002--DRINKING WATER INFRASTRUCTURE INVESTMENTS

    The President's FY 2002 budget proposes to maintain Federal support 
for drinking water infrastructure. The Administration proposes to 
maintain capitalization of the drinking water SRFs in FY 2002. By the 
end of FY 2002, we expect loans issued by State drinking water SRFs to 
reach 2,400, with about 850 SRF funded projects having initiated 
operations by that date.
    In addition, the law currently grants a State flexibility to 
transfer funds between its clean water and drinking water SRFs. The 
Administration supports this mechanism to help States fund their 
priority needs.
    This proposed FY 2002 funding will help communities across the 
country finance important drinking water projects. As your Committee 
continues to study the drinking water infrastructure needs, the 
Administration would like to encourage a constructive dialogue on the 
appropriate role of the federal government in addressing these needs.

                               CONCLUSION

    Thank you, Mr. Chairman, for giving me the chance to outline EPA's 
view of the drinking water infrastructure challenges the Nation is 
facing. Let me conclude by identifying some of the key issues that 
Congress, the Administration, the private sector and other interested 
parties will need to consider as we work toward a common approach to 
solving drinking water infrastructure problems.
1) We need a common view of the scale of the water infrastructure 
        problem that we face and the long-term timeframe for making 
        needed investments.
2) We need to consider the best role for the Federal government to play 
        in helping States and local governments finance drinking water 
        infrastructure projects and evaluate any barriers faced by 
        local governments in getting access to needed capital as part 
        of this process (such as poor bond ratings, or interest rates).
3) We need to consider the strengths and weaknesses of the existing 
        funding mechanisms and consider the best mix of financing under 
        various circumstances. We also need to review the role that 
        privatization might play in the future.
4) We need to review water rate structures, encourage rates that make 
        systems sustainable and address concerns that rates are 
        affordable, especially in poor communities.
5) We need to look closely at Federal mandates to ensure that those 
        mandates are not needlessly costly and burdensome.
6) Finally, addressing water investment needs in years to come will not 
        only require a strong commitment from Federal, State and local 
        governments, it will call for innovative funding mechanisms, 
        public/private partnerships, advancements in technologies, and 
        a commitment to sustainable management practices.
    Ensuring that our drinking water infrastructure needs are addressed 
will require a shared commitment on the part of the Federal, State and 
local governments, private business, and consumers.
    I pledge that EPA will continue to work in partnership with 
Congress, States, local governments, the private sector and others to 
better understand the drinking water infrastructure needs we face and 
to play a constructive role in helping to define an effective approach 
to meeting these needs in the future.
    I will be happy to answer any questions.

    Mr. Gillmor. Thank you very much. If I might begin. EPA's 
February 2001 Drinking Water Infrastructure Needs Survey 
indicated the purpose of the survey is to include 
infrastructure needs that are required to protect public 
health, such as projects to preserve the physical integrity of 
the water system, convey treated water to homes, or ensure 
compliance of specific SDWA regulations.
    Could you briefly describe each need and its relationship 
to maintaining public health?
    Ms. Whitman. Well, Mr. Chairman, public health is at the 
basis of all of these. It is the primary focus of the Safe 
Drinking Water Act. Each one of the needs to which you refer is 
tied directly to assuring safe drinking water.
    A needs survey report discusses the needs associated with 
components of the water system and its regulatory needs, but 
all of those are geared toward health, and we would obviously 
be more than happy to work with the subcommittee to provide 
additional information on the direct linkage and the importance 
of those health standards.
    Mr. Gillmor. And I thank you very much, and will look 
forward to whatever additional information you may have. That 
needs survey also indicates that most of the total need results 
from the costs of installing, upgrading, and replacing the 
basic infrastructure that is required to deliver drinking 
water, the consumer costs that are borne by water systems 
independent of SDWA.
    For a need to be included in the survey, however, it must 
be required to protect public health. Therefore, if a system 
fails to address a need, then a health based violation of the 
standard eventually may occur.
    And in more simple terms does that mean that the needs that 
EPA has identified in its survey are, one, public health needs; 
and, two, public health needs that ought to be addressed by 
SDWA?
    Ms. Whitman. Yes, Mr. Chairman. The survey only includes 
those infrastructure needs that are directed toward public 
health, but let me just add that many of those investments are 
being made by companies and proactive investments in order to 
prevent degradation of the water supply, and not necessarily 
because they are currently in violation.
    In order to ensure continuous safe drinking water, these 
systems face the constant need for upgrading of the system, and 
improving the pipes to meet the demand, and upgrading and 
replacing all that basic infrastructure.
    Mr. Gillmor. Thank you very much. Just one more question 
from me. You indicate that the operation of the Safe Drinking 
Water SRF, like the Clean Water SRF, essentially provides funds 
in perpetuity.
    And you also note the ability of Federal money to leverage 
State money, and provide multiple increases in actual 
purchasing power. These appear to be substantial benefits of 
the revolving fund concept. Could you expand on those benefits 
a little more, as well as any possible drawbacks with revolving 
funds?
    Ms. Whitman. Well, obviously we feel that this is a very 
appropriate way to approach the issue, because with a revolving 
loan fund, you are able to actually capitalize your money much 
faster and to ensure that you have a continuous flow of money 
able to go out to the communities to help where they must need 
it.
    That is also a--it also provides a saving, because we are 
there for communities when they have the need, and they are 
able to do some planning. The low interest rates, of course, 
save them directly, save them money.
    Now, of course, there are always those communities for whom 
even the lowest rates are too high, and provide a burden to 
them. So that is obviously a concern, but we believe that the 
approach is appropriate, and that the loan approach is 
appropriate, and we do have as you know certain grants that are 
available.
    But overall the loan approach allows us to maximize the 
dollars available and provide real support and real relief to 
these communities.
    Mr. Gillmor. Thank you very much, Governor. Mr. Pallone.
    Mr. Pallone. Thank you, Mr. Chairman. I want to ask two 
questions, and I guess the first one has to do with the arsenic 
standard and the second one is on infrastructure. As far as the 
arsenic standard is concerned, again, you know that I was very 
disappointed in the fact that you decided not to implement the 
10 parts per billion.
    And what you seem to be saying today is that you definitely 
think it should be lowered from 50, but you don't know if the 
10 is the right one. Again, I don't understand that because we 
have so many indications--the European Union, the World Health 
Organization, our own State of New Jersey, that has used 10.
    You even stated that maybe even 5 or 3, but it seems like 
the general consensus is that 10 is certainly what it should 
be. I mean, there is certainly some that say it should be 5 or 
3, but there are very few that are suggesting that it should be 
more than 10.
    And so I still don't understand why it was not the logical 
and the right thing to do to go to 10, and then if you wanted 
to reduce it to 5 or 3 later, that's fine. But to suggest that 
somehow it does not matter because it is not going to be 
implemented for a couple of years, but I still think it serves 
as an example for States and for water systems.
    And if we defer this 10 for a significant period of time 
before announcing it, that does have a public health impact. So 
would you please respond to that.
    Ms. Whitman. Well, first of all, we have not withdrawn the 
10. We have put a notice to withdraw the regulation as it 
currently exists. I am having a difficult time understanding 
how there is a public health issue if the new standard of 10 
parts per billion would not have been effective until 2006, and 
we will have a new standard effective by 2006 which may well be 
10.
    But as you yourself indicated--first of all, let me say 
also that it is very expensive for water companies. While it 
may sound all right to go to 10, and then if we find that it 
should be 7 or 5, to drop it lower than that later on, that is 
a huge incremental cost.
    So we want to make sure that we are at the right level, and 
my concern is that the previous rulemaking did not allow 
adequate time for us to hear of what I have seen of what we 
were able to get from all of the stakeholders, and all those 
affected.
    And we have made on a cost benefit analysis that the costs 
that we used were based on a national average, when what we see 
is the heavier concentrations of naturally occurring arsenic 
occur in the west and southwest; many and very small water 
systems, with populations that don't have a lot of disposable 
income.
    And I just think that it is fair that we hear all of that 
and understand what more we might need to do from either 
additional loans, grants, or technological help, to ensure that 
these small water companies--that we are not forcing people out 
of their homes or don't cause them as in the case that I cited 
before, don't cause them to sink their own wells and get 
unprotected water that is at the higher standards.
    Mr. Pallone. I guess my concern, Governor, is that I think 
10 is pretty much the consensus, although it may not be 90 or 
100 percent, and it would have been better to just proceed with 
that.
    And I guess I am also fearful that as much as you have the 
best intentions in trying to say that we are going to do 
something well, that that may not be what the administration 
does.
    The second thing though. With regard to the funding levels 
dedicated, I am very concerned as I said before that we are not 
going to see this administration and its budget actually 
provide for any significant increase in the funding levels for 
safe drinking water.
    You said in your statement that the administration proposes 
to maintain capitalization, which suggests to me that maybe 
that means that they are just going to stay at the same level.
    And the 500 million that I think that you suggested, is 
that for safe drinking water, or is that for clean water in 
general? I was not clear if you were putting the clean water 
and the safe drinking water together, and whether there was 
going to be an actual increase for the safe drinking water 
component.
    Ms. Whitman. What we are looking at is maintaining the same 
commitment as the previous administration on the clean water.
    Mr. Pallone. And, you see, that is the problem again. We 
are hearing figures here and testimony from that latest survey 
of 150 billion over 20 years. If we are just going to maintain 
the same level, we are never going to get to deal with these 
infrastructure problems the way they need to be dealt with.
    And I think what happens is that it goes back to the States 
and the ratepayers, and I don't think that is going to 
accomplish the goal of really making the kind of investment 
that they want.
    I don't think that these investments are going to be made 
if the Federal Government does not provide significant monies. 
What about the enforcement aspect? I mean, do you envision that 
we are going to have more money for staff, and for compliance 
to go out and look at the bad actors and see that there is 
adequate compliance with the existing standards?
    Ms. Whitman. We are certainly going to have a very active 
enforcement effort. As you know, we have not finalized the 
budget numbers. They will come to you. I believe it is the 9th 
of April.
    But we are also looking to maximize the ability of States 
to help us with that enforcement. We will enter into 
partnership with the States. Many as you know have done a very, 
very good job at this, and we want to ensure that we have the 
ability to do what needs to be done, and we feel that we can 
maximize that by working in partnership with the States.
    Mr. Pallone. Thank you, Mr. Chairman.
    Mr. Gillmor. Thank you, Mr. Pallone. The chairman of the 
full committee, Mr. Tauzin.
    Chairman Tauzin. Thank you, Mr. Chairman. Governor, let me 
thank you for coming to discuss with us critical issues 
concerning the Safe Water Drinking Water Act and its 
implementation.
    I missed the chance to give an opening statement, but I 
would have recognized the fact that since we started the 
Drinking Water State Revolving Fund as a result of the 1996 
Safe Drinking Water Act Amendments we have, as of this year, 
allocated $4.4 billion for drinking water specific funding 
across the country.
    And the result has been that there have been over 1,400 
projects funded nationwide, providing safer drinking water and 
safer health conditions for Americans. So it has been an 
extraordinary successful program, and I wanted to thank you for 
your commitment to it, and your willingness to come and share 
your thoughts with us today.
    I do want to make one thing, however, clear, and that is 
that if there has been a failure in the 1996 Safe Water 
Drinking Act, much of it has been the result of problems that 
we have had with the prior administration carrying out the 1996 
Act as we intended it.
    When it comes to this arsenic rule, for example, the prior 
administration was 1 year late in establishing the research 
plan, the scientific research plan, that was going to form the 
basis of this rule.
    And the former Chairman of this committee every year had to 
write EPA to complain about recommended cuts in the funding of 
that basic scientific research, and delays in the distribution 
of those research funds.
    It was the intent in 1996 to let science make the judgment 
on whatever level the 50 parts per billion would be lowered to, 
and to make that a correct scientific decision--as you have 
pointed out--because of the extraordinary expense in achieving 
this lower level all over this country, in water districts 
throughout America.
    And it was our intent then that science drive the standard, 
and EPA simply punted and punted, and this committee had to 
continually complain to EPA for its cuts in that research 
funding. It was no surprise to us, then, that the rule was 
issued in the last few days of the last administration. It was 
not even published until after President Clinton left office.
    So frankly, I want to commend you for putting science back 
into the process, and leaving science fiction where it belongs, 
in Hollywood.
    And for making sure that when we come up with the rule, 
which won't be effective as you point out until 2006, that it 
is the right number, whatever that number is, whether it is 10, 
12, 6, 3. You have got it just right. And I hope that your 
administration, and I know it will, will begin to rely upon 
real science rather than a phony science or science fiction to 
make these judgments.
    More importantly, I hope that when we pass statutes like 
the 1996 Act, and that Congress instructs very specifically on 
deadlines and dates to establish things like a scientific 
research plan, that the EPA under your administration will meet 
those deadlines. Can we have that kind of assurance from you?
    Ms. Whitman. You will certainly have my commitment to do 
our very best at that.
    Chairman Tauzin. We always get that assurance.
    Ms. Whitman. Well, when you are dealing with a scientist, 
sir, sometimes they push back at you in ways that I am not 
competent to second-guess.
    Chairman Tauzin. I know, but do you understand that in 21 
years on this committee that one of our biggest problems with 
every EPA administration has been the fact that when we tried 
to set deadlines for things as important as a scientific 
research plan that backs up an arsenic regulation, that those 
deadlines are always missed, and we always end up as we found 
ourselves at the end of this last administration, seeing a rule 
that may not have had the proper time to be vented and 
understood properly before it was promulgated?
    Ms. Whitman. Mr. Chairman, if I might, the commitment that 
I will make to you is if we can't meet a deadline, you will 
know it up front, and as you establish those deadlines, if 
there is anyone who is telling me that that is too tight a 
deadline, that for some reason, scientific or otherwise, that 
it is impossible to meet, I will certainly let you know. 
Otherwise, we take it as our obligation to meet those 
deadlines.
    Chairman Tauzin. And sometimes it is our own fault when we 
set a deadline that doesn't take that into account. I give you 
my word, as I know the chairman will give you his word, that we 
will always consult with you as we go forward on fixing these 
deadlines, and trying to make sure that they are realistic, and 
that you have the resources to meet them.
    And we had to do that with the Firestone issue recently 
when we put a significant amount of funds into NITSA to make 
sure that they could meet the standards of that new Act for 
Highway Safety.
    And we obviously have the same concerns here. When it comes 
to safe drinking water, obviously we are not talking about a 
nice thing to do. We are talking about something that 
critically impacts the health of all Americans, men, women, and 
children.
    And so this is a critical area, where we know that the 
science has to be right, and I basically wanted to take a few 
minutes that I had to welcome you and ask for your continued 
cooperation. I know that you have offered it privately and 
publicly to help us do our work.
    But most importantly to encourage you, and not to be 
deterred by critics who complain that you are going to take 
your time and do this thing right. Do it right, and make sure 
that science is the basis of your decision.
    And I guarantee that this committee will back you up when 
that is apparent to us in whatever decisions that EPA makes for 
the good of our country. I thank you very much, Mr. Chairman, 
and I yield back my time.
    Mr. Gillmor. The gentleman yields back. The gentleman from 
California, Mr. Waxman.
    Mr. Waxman. Thank you very much, Mr. Chairman. Mrs. 
Whitman, you have been the Administrator of the EPA for less 
than 2 months; isn't that correct?
    Ms. Whitman. That's correct.
    Mr. Waxman. This drinking water standard for arsenic has 
been in the works for 10 years. During those 10 years the 
professionals at EPA heard from all the different parties that 
had something to say about the matter.
    They heard from the scientists, and they heard from the 
industry, and they heard from the communities, and they came up 
with a clear decision that it ought not to be 50 parts per 
billion, but 10 parts per billion.
    But the industry said we may need some more time to comply. 
So EPA, before you got there, said all right. You have until 
2006 to comply, but the effective date was March 23, 2001.
    So when you talk about an effective date, and when you talk 
about there is no loss of time, that can't be true, because if 
the rule is effective on March 23, that means that is when they 
have to start complying. And the absolute deadline for 
complying is 2006.
    If you pull back that regulation, there is no deadline. 
There is no standard, except the old one that was set in 1942 
at 50 parts per billion; isn't that accurate?
    Ms. Whitman. We will ensure that we have enforcement ready 
for 2006, the same as this particular rule would have required. 
We do have a June 22nd deadline that you extended as a courtesy 
to the last administration for a year last year.
    I will obviously work with you to see if we can get the 
same kind of extension to do this. I just want to make sure 
that we have done everything that we need to do to be able to 
have all the information necessary to make the best possible 
decision, including as we are required to do by law what the 
whole fiscal impacts are.
    And again while the staff has definitely done a fiscal 
impact, and they have looked at what the potential impact is, 
they then did an averaging across the country, and when you 
look at how that comes into effect, it is very different.
    Mr. Waxman. Let me--excuse me, because I have a limited 
time. I just want to point out to you that the General 
Accounting Office reviewed the EPA's decision that was 
promulgated and that you have now lifted off the calendar, and 
the GAO said that the EPA has done an effective cost benefit 
analysis.
    They have got a long and complete record of many years, and 
so in 2 months you have come in and pulled off the regulation 
that was supposed to protect the public health. Now, I have to 
tell you that I cannot ignore the fact that the mining industry 
gave $5.6 million to the Republican Party.
    The chemical industry gave $9 million to the Republican 
Party. You maybe did not read any letters from the mining 
industry, but they were on file at EPA. It was well known that 
they did not like this regulation. They even filed a lawsuit 
about it.
    So I know that Mr. Dingell has sent a letter to you, and I 
think we ought to have an answer to it, that would tell us who 
met with your staff, who did the White House people talk to 
within the industry, and get a complete record of their 
influence in what is clearly to me a huge giveaway to the 
mining industry and to the chemical industry, I believe at the 
expense of the health of the American people.
    They are not going to be able to comply by 2006 unless you 
give them a standard, and the standard has been set and ought 
to be at 10 parts per billion. Isn't it accurate that when you 
were Governor of New Jersey that you set a standard of 10 parts 
per billion?
    Ms. Whitman. As an advisor, yes, absolutely. We are in the 
fortunate position of not having a lot of naturally occurring 
arsenic. We were able to do that, and we think it is 
appropriate. That's why I am not adverse to 10 parts per 
billion, but I have a responsibility----
    Mr. Waxman. Wasn't that based on sound science?
    Ms. Whitman. It was based on where we thought things were 
going, but we had no definitive scientific report that said 10 
parts per billion is the measurement at which you are fully 
protecting public health; and at 11 or 12, you are endangering 
people, and at 7 or 9, they are very healthy.
    We did not have that. We just took it. And, Congressman, I 
don't disagree with you that there are other States that have 
done the same thing, which shows you that people do want to do 
the right thing, but we have a responsibility----
    Mr. Waxman. States want to do the right thing because they 
are waiting for the EPA to set a national standard. Everyone in 
this country ought to be protected from levels of arsenic in 
their drinking water that could endanger people's health.
    Ms. Whitman. I could not agree with you more. I could not 
agree with you more, and we will, and I do believe that the 
companies are going to be able to reach that goal. They could 
do it in 3 years.
    Mr. Waxman. But you don't need them to do it by then. That 
is the last deadline for them to do it. They could start doing 
it now if EPA would set the standard at 10 parts per billion, 
and they could start meeting that standard now. And the 
deadline for all of them to meet it is in 2006, and a lot of 
them would meet it long before.
    Ms. Whitman. I wish that were the case, but I doubt that 
you would see that, and Congressman, just as I would never--I 
would hope that we would all understand that no one, and 
particularly this administration, would jeopardize the public 
health because of campaign contributions.
    I don't see that happening as decisions are made, where 
unions have given great deals of contributions. I don't see 
anybody making a decision that would jeopardize the public 
health on that. That is simply not what any administration 
would do, and we did no do this.
    As I indicated to you, when this decision was presented to 
the White House, they were concerned about that. They wanted to 
make sure that I was comfortable with that.
    Mr. Gillmor. The gentleman's time has expired.
    Mr. Waxman. One last sentence, Mr. Chairman. I can't ignore 
the fact that contributions were there. I just also want to 
comment about your statement about why didn't you get praised 
for not rolling back the pesticide regulations.
    Ms. Whitman. No, just recognition.
    Mr. Waxman. The recognition shouldn't be that you should be 
praised for not rolling back more environmental protections. 
You should be criticized if you have rolled back environmental 
protections that are needed to protect the public, and I don't 
think you ought to be complimented for not doing worse.
    Ms. Whitman. If we do, you can criticize us.
    Mr. Gillmor. The gentleman's time has long since expired. 
The gentlelady from New Mexico.
    Mrs. Wilson. Thank you, Mr. Chairman. Before I interrupted 
Mr. Waxman, I was hoping that I could get some chocolate, and I 
was very disappointed that I wasn't given that opportunity.
    Sometimes I wonder how it is that I could be seeing 
something from such a completely different perspective, and in 
this job you end up dealing with thousands of issues and some 
you really have to focus on because they are extremely 
important to your constituents.
    And I find myself in a hearing here today with a completely 
different perspective, and I asked my staff to go up and pull 
up my file from last year when we started looking at this from 
a public health point of view, and a science point of view to 
benefit the citizens of the State of New Mexico.
    There are several things that I would like to enter into 
the record with unanimous consent, Mr. Chairman. And I think I 
have now figured out one of the reasons, anyway, why I have 
this very different perspective.
    And that is that if you look at the East Coast and the West 
Coast, less than 3 percent of your water systems are going to 
be even affected. So what do you care? It is a bunch of New 
Mexicans that are going to have to pay for this.
    And it is us in New Mexico who show no adverse health 
effects at levels between 2 parts per billion, and 50 parts per 
billion. The question then becomes why. What is different?
    I would like to put several things into the record. One is 
a letter from the Mayor of the Village of Los Lunas explaining 
what this will do to the Village of Los Lunas, which is a 
little place south of Albuquerque.
    The second is a letter from the State Water Commission, the 
Water Quality Commission in the State of New Mexico, which is 
responsible for water quality in the State of New Mexico, which 
expresses significant concern about the science behind the rule 
and the science at what level the arsenic level should be set 
at between 2 parts and 50 parts.
    The third letter is from the Mayor of the city of 
Albuquerque, whose name is Jim Baca. He is a Clinton appointee 
in the Bureau of Land Management, and strongly supported by the 
environmental movement in this country, who with the entire set 
of mayors in the Rio Grande River Valley is opposed to setting 
the arsenic standard at this level for reasons based on science 
and public policy.
    And I have to tell you that I looked down this list, and I 
don't see many Republican mayors on the list. We don't have too 
many in the State of New Mexico.
    Mr. Gillmor. Does the gentlelady request unanimous consent?
    Mrs. Wilson. Yes.
    Mr. Gillmor. Without objection, and the Chair hearing none, 
they shall be entered in the record.
    [The information referred to follows:]

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    Mrs. Wilson. And the third is a map. This is the State of 
New Mexico, and every little dot here is a water system that is 
going to be impacted by these rules. Some of these are in my 
district.
    This little county over here isn't so little. New Mexico, 
by geography, is the fifth largest State in the country. This 
county over here is Harding County, and it has two water 
systems affected.
    In the census, they were very pleased. They are now at 871 
people in the entire county of Harding County. Bernalillo, in 
New Mexico, in my district, has 6,700 souls. Their estimate of 
the cost, the Mayor has estimated--Mayor Charles Aguilar has 
estimated the cost of this standard of about $91 on everybody's 
water bill.
    This is a town where the median household income is 
$19,000. That's why New Mexicans care about this. We want clean 
water for our families, but we want to get this right so that 
we have the money to be able to pay it, and we don't lose our 
water systems.
    The people that I am listening to are not folks in the 
timber industry. I don't even have enough trees to have a 
timber industry. What I care about is public health and good 
science, and I think it is possible to do that on a bipartisan 
basis because we have done it in the State of New Mexico. And I 
yield the balance of my time.
    Mr. Gillmor. The Gentle Lady yields back. The gentleman 
from Ohio, Mr. Brown.
    Mr. Brown. Thank you, Mr. Chairman. I listened to my friend 
from New Mexico, and we have worked on several infectious 
disease and other issues together, and I appreciate her 
integrity and her good work.
    The subject though of this hearing is to discuss the 
massive funding of the water infrastructure in this country, 
and some of this money should be diverted to communities like 
yours, but it doesn't mean that you delay cleaning up the water 
in those communities.
    I mean, that is what we are really here for, I think. 
Administrator Whitman, let me understand this. Now, when you 
were the Governor of New Jersey, you accepted--you used the 
word advisor, and I don't know quite what that meant. But you 
accepted the 10 parts per billion as making sense for New 
Jersey, correct?
    Ms. Whitman. Yes.
    Mr. Brown. But now you say that going from 50 to 10 that 
you don't want to do it without more studies and more science. 
So, as Governor of New Jersey, you thought 10 made sense.
    And you didn't care about the science so much then, and the 
thoroughness of the science, and sound science as my friends on 
the other side of the aisle always like to say when they have 
industry scientists spewing their point of view. But why today 
you want more science, more studies, more delay?
    Ms. Whitman. Well, Congressman, we have the luxury of being 
able to accept something that was accepted but not 
scientifically definitive. We could do it without, because we 
don't have a great deal of naturally occurring arsenic in our 
water.
    We have not as many water companies as you saw in the map 
that the gentlewoman from New Mexico showed us. We are able to 
do it in a way that did not push any of our people to the point 
where they have to make a decision whether they were going to 
be able to afford their water or food, or the constant things 
that we always hear of in tradeoffs.
    So this was a decision that we came to without the same 
kinds of constraints. Again, I would like to assure everyone, 
and to repeat, that what we are doing here is looking to make 
sure that we fully understand all the impacts of the decision 
that we are making, and are there other steps that we need to 
take so that we don't have unintended consequences from this 
rule.
    Simply because I would love nothing better than to have the 
definitive study that says that it is 10, and that's it, or it 
is five, and that's it. We may end up at five.
    Mr. Brown. Administrator Whitman, we hear that around here 
from people that don't particularly have a good record in the 
environment. We need a definitive study, and we need sound 
science, and we need absolutely 100 percent proof.
    Ms. Whitman. We are not going to get it. We need to make a 
decision without everything that we would like to have.
    Mr. Brown. Yes, but you are the agency. It is my 
understanding that the EPA's established numbers are maximum 
contaminant levels for 83 contaminants under the Safe Drinking 
Water Act. Is every single one of those--I know that you have 
not been there very long, but is every single one of those a 
product of a definitive scientific study that clearly 
identified the exact number for the EPA to act every time?
    Ms. Whitman. And I am not saying that we are going to hold 
up a decision on this until we get that kind of a study, 
because I don't think that we ever will get that kind of a 
study with arsenic. So we have to be prepared to make a 
decision without everything that we would like to have. That is 
what I would love to have, but we are prepared to go forward.
    Mr. Brown. If I may, in light of what this list of 
countries--and I mentioned some of them earlier--have done; 
Australia is 7 parts per billion, and Belgium, Denmark, United 
Kingdom, German, Spain, Finland, France, Ireland, Greece, 
Italy, Luxembourg, The Netherlands, Portugal, Syria, Nunibia, 
Mongolia, Laos, Jordan, Japan, Sweden, they have all come down 
to 10 parts per billion.
    And the European Union has said 10 parts per billion, and 
the World Health Organization, as reputable an organization as 
there is on international public health, has said 10 parts per 
billion; and because you are not sure, you maybe need one more 
study to be sure.
    You don't want to join New Jersey, and you don't want to 
join all of these countries. You don't want to join the world 
health organization and the EU to say let's do 10 in this 
country because maybe we ought to delay it. Who is going to pay 
the cost for that delay?
    Who is going to get sick, and who is going to be a victim 
of an endocrine disrupter, or who are going to be victims of 
birth detects, or who is going to be the victims of the toxic 
substance of arsenic or cancer because of this delay?
    Ms. Whitman. Congressman, if we determine that it should be 
five, I would like the flexibility to take it to five right 
away. Not wait, and not do 10, and then have them come down to 
five, and that is maybe where we end up.
    Mr. Brown. Maybe it is, but from the record so far of this 
administration, from the Governor of Texas' record on the 
environment, and from the record--and I don't know much about 
your record in New Jersey, but from the record so far with 
carbon dioxide, with others, and with all that we have seen in 
this administration already, for us to think that there is not 
some interest in delay, when the clock began or was supposed to 
begin March 23, and then these communities began to comply.
    We can do some things for Ms. Wilson and others through the 
revolving fund. We ought to be doing that, but to begin this 
delay doesn't send a very good message to the people of this 
country for an administration that has already established a 
pretty poor environmental record in a record of a hundred days.
    Ms. Whitman. Well, Congressman, did you feel that way about 
the diesel regulation as well? Because I would say when you 
look at the record of this administration on the environment, 
the important thing is to understand that we will judge each 
issue on its merit individually.
    We do not come to it, I will admit it, with an over arching 
desire to end up in one place predetermined. We want to 
determine each issue on its merits, and that is the way that we 
will do it. And sometimes we will agree and sometimes we won't.
    Mr. Gillmor. The gentleman from Illinois, Mr. Shimkus.
    Mr. Shimkus. Thank you, Mr. Chairman. Administrator, your 
testimony indicates that some infrastructure needs which need 
to be more fully evaluated are population growth, aging 
infrastructure, merging environment and public health demands, 
operation and maintenance costs, and the affordability of water 
services.
    And as I said in my opening statement, I would think access 
would be another one that we would want to make sure that we 
consider. I think those make an assumption that everyone has 
access, and so we are going to evaluate on new standards.
    And we are going to evaluate on how old the equipment is. 
Again, I still want to continue to put the plug in for maybe 
just simple access that some people still need regardless of a 
standard. I thought I would throw that out.
    Two questions. Are these items, or in other words the ones 
that I mentioned, to be addressed in further refinement of the 
gap analysis?
    Ms. Whitman. Yes, those are all going to be things that we 
are going to be looking at with that gap analysis, and with an 
idea to seeing where we can tighten the way that we do our 
assessments. And we will also submit that gap analysis for peer 
review.
    Mr. Shimkus. Can you also at least as you go through the 
process--and I again look at what we are doing for access, and 
what we are doing in conjunction with the U.S.D.A.
    And again I just want to make the point that there are 
places out there where they are still hauling water in to their 
homes. Also, could you provide the subcommittee with any study 
design plans, or other documentation, upon how the evaluation 
of these elements will proceed?
    Ms. Whitman. Certainly. We will be happy to provide you 
with anything that you need on that.
    Mr. Shimkus. And let me again finally ask. I was trying to 
explain this arsenic debate on the radio a few minutes ago, and 
I was talking about 50 basketballs in a gymnasium, versus 10 
basketballs parts per billion. Is that 10 versus 50, is that a 
good analysis, or should it be in an arena, or should it be in 
the Super Dome?
    Do we have any idea of how you could put it down in 
layman's terms? How many basketballs and what size of a----
    Ms. Whitman. Well, I would say off the top of my head that 
if we are doing basketballs that it would be in an arena, 
because we are talking about parts per billion.
    Mr. Shimkus. State your name for the recorder so that he 
can get it.
    Mr. Hamill. Barker Hamill, for the State of New Jersey. Ten 
seconds versus 50 seconds out of 32 years.
    Mr. Shimkus. Thank you very much. That clears--but you did 
not answer the basketball. Could I get submitted for the record 
the basketball analysis?
    Ms. Whitman. Unfortunately, Congressman, our professional 
basketball team is not something that we----
    Mr. Shimkus. Thank you, and I yield back my time, Mr. 
Chairman. Thank you.
    Mr. Gillmor. The gentleman yields back. Mr. Engle.
    Mr. Engel. Well, thank you, Mr. Chairman, for holding this 
hearing today on safe drinking water infrastructure. Governor, 
welcome. From my district, I can look across the Hudson River 
and see New Jersey. So I am aware of your record as a Governor 
and the environment and I hope that as other issues are being 
decided in this administration that you will continue to weigh 
in heavily on your feelings about this.
    I want to talk about something that is very parochial to my 
district in New York. As you may know, in New York there has 
been a problem implementing the Safe Drinking Water Act, 
particularly within my district.
    About a decade ago, a filtration plant was mandated for the 
Crotin Reservoir, and since then four different areas in my 
district in The Bronx, and several sites in Westchester County 
just north, have been identified by the New York City 
Department of Environmental Protection as possible sites for 
the filtration plant.
    There are several problems with the four possible sites in 
The Bronx, including the fact that they are located in densely 
populated areas. Now, I have problems with the filtration 
plant, and its potential location, and have been working to 
find alternatives to filtration.
    I have a bill which would explore alternatives to 
filtration. Now, the New York city of Environmental Protection 
has been on a dual track; while starting the building of a 
filtration plant, they have also studied filtration 
alternatives.
    And it is my understanding that there are several 
alternatives to filtration that might adequately protect the 
water supply, thereby circumventing the need to build a 
filtration plant.
    As I have mentioned, I have introduced legislation in the 
past and I am drafting legislation for the current Congress, 
which amends the Safe Drinking Water Act to allow the use of 
new technologies as an alternative to filtration if it is 
appropriate.
    Your predecessor, Carol Browner, visited the possible sites 
for a filtration plant and I would hope that you would consider 
joining me in visiting those sites and talking to community 
leaders about the potential of non-industrial techniques to 
protect the water supply i the Crotin Reservoir.
    I hope that you could do that in The Bronx, and if that is 
difficult, I hope that we could have a meeting here in 
Washington with you personally to discuss these different 
alternatives, and I just wanted to raise that. And I would look 
forward to sitting down with you either in New York or here in 
Washington to discuss this.
    Ms. Whitman. I would be happy to discuss that with you, 
Congressman.
    Mr. Engel. I thank you very much. Thank you, Mr. Chair.
    Mr. Gillmor. Thank you, Mr. Engel. I would like to enter 
into the record two items. First, comments from the American 
Water Works Association regarding the arsenic standard, in 
summary form.
    And, second, correspondence and contacts between Chair 
Bliley and the EPA regarding delay in the arsenic research plan 
and funding of arsenic research, and without objection, and the 
Chair hearing none, those will be entered in the record.
    [The information referred to follows:]

      Association of State Drinking Water Administrators--3/28/01
    ASDWA POSITION STATEMENT--Drinking Water Infrastructure Funding
                               (#01-2001)

Reference: None

ASDWA Position
    It is the position of the Association of State Drinking Water 
Administrators (ASDWA) that current and future funding vehicles for 
drinking water infrastructure improvements and state implementation 
activities should: 1) maintain maximum state flexibility in structure 
and implementation; 2) ensure long-term sustainability of the funds as 
well as water system capacity; 3) expand upon the current Drinking 
Water State Revolving Loan Fund (DWSRF) as the preferred funding 
vehicle; and 4) unless sufficient funding is made available through the 
base state Public Water Supply Supervision (PWSS) grant, maintain 
sufficient support through set-aside funding or other viable mechanisms 
to provide for administration and state SDWA implementation costs.

Rationale
    The Safe Drinking Water Act (SDWA) Amendments of 1996 created 
enormous new programs and a complex regulatory structure that will 
require water systems to continue improving their water system 
infrastructure, and expand state implementation requirements. The SDWA 
provided for the creation of the DWSRF program to help finance water 
system infrastructure needs and for set-asides for states to supplement 
administrative and program implementation costs. The SDWA authorized a 
total of $9.6 billion for FY-94 through FY-03 for the DWSRF (although 
only $4.42 billion has been appropriated through FY-01). Congress 
authorized broad eligibilities for the drinking water funding to 
address serious risks to human health, ensure compliance with the SDWA, 
and to assist systems most in need on a per household basis. Projects 
that address present or prevent future violations of health-based 
standards as well as to replace aging infrastructure are eligible for 
funding. Eligible project categories include treatment, installation or 
replacement of transmission and distribution pipes, rehabilitation or 
replacement of contaminated sources, water storage, consolidation, and 
creating new or regional community water systems to address unsafe 
drinking water supplies.
    Congress and the U.S. Environmental Protection Agency (EPA) 
provided for loans at or below market interest rates including zero 
interest rate loans and provided further flexibility for states to 
provide loan subsidies such as principal forgiveness and negative 
interest rate loans to disadvantaged communities or communities that 
would become disadvantaged as a result of a project. They also allowed 
specified transfers of funds between the Drinking Water and Clean Water 
revolving funds, and created set-asides for states to fund training and 
technical assistance, fund administration, source water protection, 
operator certification, and state PWSS program implementation.
    To date, the DWSRF has proven extremely successful. Through June 
30, 2000, EPA had made available more than $2.7 billion to all 50 
states and Puerto Rico to capitalize state revolving loan funds. States 
had made approximately 1,200 low-interest loans totaling more than $2.3 
billion with 75 percent of the loans (40 percent of the funds) going to 
small water systems. States reserved and matched approximately $445 
million of the fund for capacity development, operator certification, 
source water protection, PWSS program implementation, source water 
assessments and delineations, technical assistance to small systems, 
and fund administration. This flexibility has allowed states to 
maximize infrastructure funding as well as ensure that needed tools and 
assistance are provided to water systems.
    Maintaining and expanding this successful DWSRF structure must be 
ensured if we are to continue to meet growing drinking water 
infrastructure needs. EPA's recent 1999 Drinking Water Infrastructure 
Needs Survey highlights $150.9 billion in infrastructure need 
nationwide over the next 20-year period through 2018. Of this total, 68 
percent, or $102.5 billion is needed now to ensure the provision of 
safe drinking water. Transmission and distribution projects represent 
the largest category of identified need followed by treatment, storage, 
and source.
    As Congress debates the future of infrastructure funding needs and 
funding vehicles, ASDWA strongly encourages the continued support of 
the DWSRF as a viable, successful model.

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    Mr. Gillmor. The gentleman, Mr. Walden.
    Mr. Walden. Thank you, Mr. Chairman, and I will keep my 
remarks fairly brief. And, Governor, welcome. One of the issues 
that I hear about out in my district, as much as some of these 
new standards that impact on very small rural communities, is 
the spin-off into TMDLs, because some of these areas tell me 
that they may in fact be required to treat water going out of 
their systems to a level that is cleaner than naturally 
occurring because of the minerals and things in the water.
    And I hope that you will flag that. I am not trying to 
create another presser here for another week of nightly news 
reports on poisoning people. But it is an extraordinary problem 
out there that we are setting standards that may well exceed 
what naturally occurs in streams in the West.
    And I hope my friends from the East understand that, but we 
each have our own set of problems and I think we all want clean 
water that is safe. So I would encourage you to take a look at 
that as well.
    Ms. Whitman. And we are reviewing that.
    Mr. Walden. Thank you.
    Mr. Gillmor. Mr. Terry, do you have a question?
    Mr. Terry. May I?
    Mr. Gillmor. You may.
    Mr. Terry. Good afternoon.
    Ms. Whitman. Good afternoon.
    Mr. Terry. I have worked in some of our rural communities, 
even though I am from Omaha, Nebraska, representing 
predominantly urban. As I say, we have more cement than fields 
in my district.
    But I have a memo from our Lieutenant Governor, and Health 
and Human Services Director, about the impact of the copper and 
arsenic rules, and I appreciate the movement, because as my 
friend from New Mexico said, just the natural state of our 
ground water that has been used for years will fall within and 
capture with the revised rules, placing a great burden on local 
communities in how they treat the water to meet the new 
standards.
    And I have two questions for you in that regard. First of 
all, is the EPA open to alternatives instead of providing the 
revolving fund or dollars? For example, in some of our 
communities with copper, for example, the copper leeches into 
the water from the piping in the house when it sits overnight, 
because the natural ground water is a little bit more acidic 
than in some other areas of the country.
    But yet they would rather--the EPA mandate basically is 
that they treat that. So they have to build facilities or alter 
their facilities at great cost to that community, as opposed to 
being open for less costly alternatives; filtration systems, 
pipe flushing, education.
    Whereas, one community came and asked me last week that it 
would be cheaper for us to go into the number of houses and 
replace their copper piping than to do what the EPA is 
mandating by way of the treatment facilities.
    So do you believe as the head of the EPA, and not 
necessarily that localities or States should have greater 
flexibility to adopt remedies that best fit the locality and 
the situation without necessarily having to go to 
infrastructure changes?
    Ms. Whitman. Well, Congressman, one of the things that I 
believe is important for us and incumbent upon us as an agency 
is to set the standards that we believe best protect the public 
health.
    But I do not believe it is therefore incumbent on us to 
dictate the technology that reaches that standard, whether it 
be in drinking water or air. It really does not matter, and 
that we have that obligation to set the standards to protect 
people, but I don't believe that we are in the business of 
managing any of these companies, or any of these businesses 
that are impacted or communities.
    And that we should allow them to reach those standards in a 
way that reflects their needs and is responsive to their needs.
    Mr. Terry. Well, what you say certainly is different than 
what the past Administrator was telling the State of Nebraska 
in how to do with that, and so I appreciate that level of 
flexibility.
    Ms. Whitman. We will try to work with you to see if we can 
resolve these issues.
    Mr. Terry. That is much appreciated, because there is 
sometimes common sense in easy solutions that just seem to 
escape or be beyond the grasp of some Administrators out here. 
So I appreciate that.
    Now, with that, if we continue though to force some of 
these communities with lowering the standards, and then having 
to expand their infrastructure to meet the new standards with 
the Drinking Water State Revolving Fund, according to this memo 
there could be as many as 120 communities in the State of 
Nebraska that would have to sp end infrastructure dollars.
    I am not sure the revolving fund as it sits today has 
enough money that all of these communities could take part in 
the program, receive some dollars, and comply by 2001 or 2006.
    Ms. Whitman. Well, it is important to understand that we 
also have--and while there are as you know special provisions 
within the SRF that allows for States to provide additional 
dollars to the small water companies in the small areas, and in 
fact they have done that to a great degree, we have a number of 
other tools available to help the small water systems, with 
technical assistance, and training, and capacity development, 
operational help that we can give them.
    And it is the kind of thing that--operational 
certification. Last year's budget included approximately $14 
million specifically targeted to helping the small companies. 
And that is something that I believe that we need to look at 
and review, and make sure that we have the necessary tools 
available to be able to support small water companies, and that 
they know what is available.
    Because very often I found that sometimes we have--there 
either may be money in a particular form that is available to 
them, or this other assistance, and they don't even know it is 
available. So they are not taking advantage of it.
    And we could be. We are already in a position to provide 
more aid overall than we are, and they are not getting it 
because they don't know about it.
    Mr. Terry. Well, I appreciate that you recognize that and 
have a commitment to that. Certainly in Omaha, when the 
standards change, we can absorb that cost without much 
difficulty, but the smaller communities can't without that 
assistance, and I appreciate your recognition of that fact. 
Thank you, Mr. Chairman.
    Mr. Gillmor. Thank you. That concludes--oh, I beg your 
pardon. Mr. Barrett. Excuse me.
    Mr. Barrett. Thank you very much, Mr. Chairman.
    Mr. Gillmor. Most important for last.
    Mr. Barrett I appreciate that warm introduction. Last 
Friday, there was an article in the Night Ritter Services that 
said that on Tuesday, Environmental Protection Agency 
Administrator, Christine Todd Whitman, said Clinton's proposal 
to limit arsenic in drinking water to 10 parts per billion was 
too expensive and, ``the scientific indicators are unclear.
    Today it seems that you are talking more about the 
scientific indicators, as opposed to the expense. Can you 
comment on that?
    Ms. Whitman. No, it is both. It is that we don't 
unfortunately--and I don't know that we ever will have that 
definitive study that says that it is 10. But that is becoming 
more and more a common accepted number.
    But it is not hard and firm that says that over 10 that you 
are endangering people, and under 10, they are protected. We 
know that 50 is too high. That was set back 50 years ago or 60 
years ago.
    Mr. Barrett. I understand that. But my question is it the 
science or is it the expense? This article said that you had 
two.
    Ms. Whitman. It is a combination. We have an obligation as 
you know under the Safe Drinking Water Act to go through a 
process that identifies the science, and then we also have an 
obligation under the Act to look at the fiscal implications of 
that.
    Mr. Barrett. And what was the information that led you to 
the belief that the Clinton proposal was too expensive?
    Ms. Whitman. I was listening--well, not listening. I had 
heard a lot of concern about the arsenic rule overall, and in 
talking to staff and asking about the amount of time they had, 
and the kind of impact that they had for public comment, I 
became very troubled that this number wasn't--and the 
implementation wasn't based on all of the available input that 
was necessary.
    It might be as I have indicated before that we stay at 10, 
but I was not satisfied that we thoroughly understood all the 
implications of this decision.
    Mr. Barrett. And was there a legal challenge to this rule?
    Ms. Whitman. I don't know that there has been one yet. 
There are legal challenges to everything that we do.
    Mr. Barrett. Okay. Was there a legal challenge?
    Ms. Whitman. Yes, there was, I am told.
    Mr. Barrett. By the American Metropolitan Water 
Association?
    Ms. Whitman. I don't know. No.
    Mr. Barrett. American Water Works Association?
    Ms. Whitman. No.
    Mr. Barrett. National Association of Water Companies?
    Ms. Whitman. No.
    Mrs. Wilson. Would the gentleman yield?
    Mr. Barrett. Just a moment, please. The National----
    Ms. Whitman. I think it is in New Mexico.
    Mrs. Wilson. I was going to say it is New Mexico.
    Mr. Barrett. Okay. The National Rural Water Association? 
There is no legal challenge there.
    Ms. Whitman. No.
    Mr. Barrett. You stated that you did not talk to any 
industry individuals. How extensive was the lobbying by the 
industry against this rule?
    Ms. Whitman. I don't know. I did not receive any calls on 
it. I know that there are letters in the record on both sides. 
I mean, we have an enormous number of--I mean, we have letters 
from small town mayors who are Democrats who oppose it in 
enormous amounts.
    But my concern as someone who comes from the East and who 
cares greatly about the environment, and whose State went to 
10, I did not feel in asking questions of the staff that there 
had been enough time for them to do what ordinarily would have 
been done in getting all the input from the rest of the country 
to fully understand the implications.
    Mr. Barrett. I assume that you knew there was opposition 
from small town mayors.
    Ms. Whitman. I knew that there was a lot of concern about 
this rule, yes. Of course.
    Mr. Barrett. And I assume that you knew that there was 
opposition from the industry?
    Ms. Whitman. Not particularly. I mean, I knew that there 
was a lot of controversy around this rule. We pulled back as 
you know based on the Card memo all the last minute regulations 
promulgated by the previous administration, and this was one 
that was done after--you know, in January, in late January. So 
we looked at all of them.
    Mr. Barrett. You are painting a picture of sitting in a 
room and knowing of the concern of small town mayors, but not 
of the concern of the industry.
    Ms. Whitman. No, it is a picture of sitting in a room 
knowing that this is a very controversial rule.
    Mr. Barrett. And who did you know that it was controversial 
with?
    Ms. Whitman. It was in the papers all the time. There was a 
lot of talk about it.
    Mr. Barrett. Yes, I know, but who? Who as it controversial 
with? I mean, Ms. Wilson I think eloquently described her 
controversy, but I am having a little trouble here when I hear 
Mr. Waxman talk about these huge contributions; that somehow 
you did not know that the industry was opposed.
    Ms. Whitman. I did not know that the timber industry was 
opposed because of cricetine in the wood, although growing up 
on a farm, I am very familiar with cricetine in the fence 
posts, and probably we ought to check our water, too, because 
we are on a well, and for a period of time we were sinking 
those posts in the land.
    But it may be hard for anyone to understand us, but I got 
no pressure from the White House on this rule. None. I didn't 
talk to any member, no member of the President's staff. I mean, 
I can't make it any clearer than that. Nobody associated with 
the President called about this rule.
    I did not take any calls from any industry members. We knew 
that it was controversial, and there are suits about this rule. 
I didn't say, okay, who is suing and how much did they give.
    Mr. Barrett. Well, I have to admit that I didn't know that 
there was a pro-arsenic lobby. I just didn't know that there 
was one that existed, but apparently there is from what we have 
heard today.
    Ms. Whitman. This is the first that I have heard of it.
    Mr. Barrett. And I just have to say I find it troubling. It 
just strikes me that obviously industry from what we have 
learned today was very opposed to this, and I just find it hard 
to believe that that was not something that the EPA was 
concerning. So I would yield back my time.
    Ms. Whitman. Well, again, there may be a lot of industry 
opposition. There is also a lot of opposition from real people 
out there as well.
    Mr. Gillmor. Thank you very much. The gentleman from New 
Jersey, Mr. Pallone.
    Mr. Pallone. Mr. Chairman, I just wanted to ask two things. 
First of all, there is a letter to Mrs. Whitman from myself and 
Mr. Dingell with additional questions, written questions, that 
we would like to have answered.
    Ms. Whitman. Certainly.
    Mr. Pallone. And that I would like to have entered into the 
record and ask for unanimous consent.
    Mr. Gillmor. Without objection, the letter will be entered 
into the record.
    Mr. Pallone. And then, I know, Mr. Chairman, that a lot of 
documents have been entered into the record today, including 
one that was entered from--a statement by A.W.W.A., and I would 
just like to ask that the record remain open for additional 
comments, because in some cases documents from either side, we 
really have not had a change to look at, and it would be nice 
if we could leave the record open so we could do that.
    Mr. Gillmor. Without objection, we will hold the record 
open for that purpose for a week.
    Mr. Pallone. Thank you, Mr. Chairman.
    Mr. Gillmor. Well, I want to thank you, Administrator. You 
have been very generous with your time and your wisdom, and we 
appreciate you being here. Thank you very much.
    Ms. Whitman. Thank you very much, Mr. Chairman.
    Mr. Gillmor. That will conclude our first panel. We have a 
vote, and we will come back immediately after the vote and we 
will begin with Panel Two. Panel Two will consist of Perry 
Beider, the Principal Analyst from the Congressional Budget 
Office; Mr. Tom Curtis, the Deputy Executive Director of the 
American Water Works Association; Ms. Diane Van de Hei, 
Executive Director of the Association of Metropolitan Water 
Agencies; Ms. Janice Beecher, Director of the National 
Association of Water Companies; Mr. Barker Hamill, the Bureau 
Chief of New Jersey's Drinking Water Protection Office; and 
Erik Olson, the Senior Attorney at the Natural Resources 
Defense Council.
    We will recess now and begin with that panel as soon as we 
get back.
    [Brief recess.]
    Mr. Gillmor. All right. We will begin with the second 
panel. You have 5 minutes to summarize your statements before 
members may begin asking questions, and so you may begin as 
soon as you are ready, and I think we will begin with Mr. Perry 
Beider of the Congressional Budget Office.

  STATEMENT OF PERRY BEIDER, PRINCIPAL ANALYST, CONGRESSIONAL 
                         BUDGET OFFICE

    Mr. Beider. Mr. Chairman and members of the subcommittee, 
thank you for inviting me to testify. The Congressional Budget 
Office, CBO, appreciates this opportunity to contribute to your 
review of the needs for investment in drinking water 
infrastructure.
    My testimony today reflects some initial findings from an 
ongoing CBO study requested by this subcommittee and your 
colleagues on the Transportation and Infrastructure Committee.
    With me today is Dr. Natalie Tawail, who is also working on 
the CBO study. I would like to make four points today about 
water infrastructure investment needs. Point One is that there 
is a lot of uncertainty surrounding the existing estimates of 
those needs.
    As you know, the Water Infrastructure Network, or WIN, has 
estimated that annual needs for investment in drinking water 
will average $24 billion between 2000 and 2019, exceeding 
current spending from all ratepayers and public sources by $11 
billion per year, as shown in the chart.

  Summary of the Water Infrastructure Network's Estimate for the Annual
                     Funding Gap for Drinking Water
                      (In billions of 1997 dollars)
------------------------------------------------------------------------

------------------------------------------------------------------------
Capital Investment.........................................        19
Financing..................................................         5
                                                            ------------
  Total Capital............................................        24
Less 1996 Capital Funding..................................       -13
                                                            ------------
Estimated Funding Gap......................................        11
Memorandum:
Operation and Maintenance..................................        27
------------------------------------------------------------------------

    Of course, any 20-year projection is uncertain, but the 
uncertainty here is compounded by a shortage of critical data 
on the water pipe networks. Without looking system by system at 
pipes age and condition, it is very difficult to say exactly 
when replacement will be required.
    In the absence of a national inventory of drinking water 
pipes and other detailed local data, the WIN analysis uses some 
simple national assumptions. For example, it assumes that, on 
average, 1 percent of pipes will need to replaced each year 
through 2019.
    Although that assumption is grounded in a common rule of 
thumb, CBO considers it quite possible that the assumption 
could be off by 30 or 40 percent. That factor alone could imply 
an error of 20 or 30 percent in the overall funding gap.
    Point Two is that the WIN estimates are not independently 
confirmed by EPA's preliminary and unpublished gap analysis. 
The two estimates of drinking water needs are indeed 
independent, unlike their wastewater counterparts, but they are 
also significantly different.
    Of course, EPA's analysis could change as it undergoes 
agency review. Point Three is that some of the assumptions used 
in the analyses to date could tend to overstate costs.
    First, the analyses assume efficiency savings in operations 
and maintenance, O&M, but not in capital investment. While the 
data to support capital efficiencies are sparse, a growing 
number of systems have achieved significant savings from 
various innovative methods.
    Second, the WIN report appears to misstate the financing 
costs. Those costs seem to reflect all future debt-service 
payments associated with the average annual capital investment 
between 2000 and 2019, regardless of when those payments would 
be made.
    CBO estimates that the average annual debt service actually 
paid during those 20 years could be roughly 25 percent less 
than the reported $5 billion per year. And, third, the analyses 
may also overstate O&M costs for wastewater, and perhaps for 
drinking water also.
    They assume that in the absence of specific efficiency 
gains, the ratio of O&M to capital stock will rise steadily 
over time. My final point is that water investment needs are 
not only uncertain and perhaps overstated by current estimates, 
but also subject to influence by Federal policies.
    In particular, a broad increase in Federal funding intended 
to help keep water rates affordable could keep total investment 
needs higher than they would be otherwise by reducing the 
pressure on systems to operate more efficiently, and on 
customers to economize on their water use.
    Drinking water systems around the country have improved 
their operational efficiency in recent years, but industry 
experts see room for further savings in both operational and 
capital costs.
    Promising methods include consolidation of systems to 
achieve economies of scale; strategic use of preventive 
maintenance to minimize long-run costs; demand management, 
including the use of pricing strategies to reduce peak use; and 
innovative contracting for new construction, such as design/
build and design/build/operate construction.
    But such potential future savings could go unrealized if 
Federal policies undermine the growing incentives for 
efficiency. We have seen this before. A 1985 CBO study found 
that high Federal cost shares in the original construction 
grant program for wastewater treatment raised capital costs by 
more than 30 percent.
    In summary, CBO finds that the existing estimates of 
investment needs for drinking water are accompanied by 
significant uncertainty and may be too high. Moreover, how big 
the needs turn out to be will be influenced by who pays to meet 
them and how. I will be happy to try to answer any questions.
    [The prepared statement of Perry Beider follows:]

 Prepared Statement of Perry Beider, Principal Analyst, Microeconomic 
      and Financial Studies Division, Congressional Budget Office

    Mr. Chairman and Members of the Subcommittee, thank you for 
inviting me to testify. The Congressional Budget Office (CBO) 
appreciates this opportunity to contribute to your review of the needs 
for investment in drinking water infrastructure. My testimony today 
reflects some initial findings from an ongoing CBO study requested by 
this Subcommittee and your colleagues on the Transportation and 
Infrastructure Committee.
    Safe drinking water is essential to the economy and to human 
health. But how much and how to invest in order to maintain an adequate 
drinking water infrastructure are difficult issues. I hope to shed some 
light on those issues today.
    In particular, I want to impart two main points:

 First, the existing estimates of how much investment will be 
        needed over the next 20 years are very uncertain and may be too 
        large. The lion's share of the investment will be used to 
        rehabilitate or replace water pipes, but there is no national 
        inventory of pipes' ages and conditions on which to base 
        estimates of investment needs. In the absence of such an 
        inventory, analysts have to rely on rough national assumptions, 
        which add significantly to the uncertainty inherent in any 20-
        year projection. Moreover, notwithstanding claims that the 
        existing estimates are, if anything, likely to underestimate 
        the needs, CBO has identified some factors suggesting that 
        those estimates may be too large. Thus, policymakers should not 
        give undue credence to the estimates of future needs or the 
        associated ``funding gaps.''
 Second, the very concept of an investment ``need'' is a fuzzy 
        one. The amount of money that water systems must spend in order 
        to provide the necessary services can vary dramatically 
        depending on how efficiently the systems operate and invest. 
        Therefore, from the standpoint of economic efficiency, it is 
        important that any federal support for water infrastructure be 
        provided in a way that gives system operators and water users 
        the appropriate incentives to keep costs and usage down.
             the existing estimates of drinking water needs
    Projecting 20 years into the future is always difficult. Even the 
best 20-year estimate is only an extrapolation of what would happen 
under current and currently anticipated trends. In the case of 
projecting the needs for investment in water infrastructure, the 
difficulty is compounded by a shortage of data. The Environmental 
Protection Agency's (EPA's) quadrennial Drinking Water Infrastructure 
Needs Survey provides relevant data collected from systems around the 
country. However, EPA's reports based on the survey note that it 
underestimates infrastructure needs over its 20-year horizon because 
many systems are not able to identify and document all of their needs 
for the full period.1 According to EPA staff, follow-up 
visits to some systems after the first drinking water survey yielded 
revised estimates that averaged 55 percent above those initially 
reported.
---------------------------------------------------------------------------
    \1\ For example, see Environmental Protection Agency, Drinking 
Water Infrastructure Needs Survey: First Report to Congress (January 
1997), p. 1. EPA recently released a report on a second survey of 
drinking water needs but has not yet incorporated the results of that 
survey into its analysis of the infrastructure funding gap.
---------------------------------------------------------------------------
    Prompted in part by the incompleteness of EPA's survey, a 
consortium called the Water Infrastructure Network (WIN) has developed 
more comprehensive estimates of 20-year infrastructure needs, 
supplementing the data from the survey with assumptions based on 
professional judgments. According to WIN's estimates, shown in Table 1, 
investment needs for drinking water will average about $24 billion per 
year through 2019 (expressed in 1997 dollars and including financing 
costs). WIN estimates that capital spending in 1996 from all sources--
primarily local funds from ratepayers but also federal and state aid--
was roughly half of the estimated future needs; thus, relative to the 
1996 investment level, future needs for drinking water infrastructure 
represent an average annual funding gap of $11 billion.2 
(The table also shows WIN's estimates of average annual spending for 
operation and maintenance [O&M]. Because little outside funding is 
available for O&M, ratepayers cover almost all of those costs as well 
as a portion of capital costs; thus, the O&M estimates bear on the 
question of total costs facing future ratepayers.) EPA is also 
conducting a similar ``gap analysis'' but has not yet published its 
results.
---------------------------------------------------------------------------
    \2\ Water Infrastructure Network, ``Clean & Safe Water for the 21st 
Century: A Renewed National Commitment to Water and Wastewater 
Infrastructure'' (undated), available from the American Water Works 
Association (www.awwa.org/govtaff/win/finalreport.pdf), pp. 3-1 and 3-
3.

                                 TABLE 1
  Summary of the Water Infrastructure Network's Estimate of the Annual
                               Funding Gap
                      (In billions of 1997 dollars)
------------------------------------------------------------------------
                                                                Drinking
                                                                  Water
------------------------------------------------------------------------
Capital Investment............................................        19
Financing.....................................................         5
                                                               ---------
  Total Capital...............................................        24
Less 1996 Capital Fundinga....................................       -13
                                                               ---------
Estimated Funding Gap.........................................        11
Memorandum:
Operation and Maintenance.....................................        27
------------------------------------------------------------------------
SOURCE: Congressional Budget Office based on Water Infrastructure
  Network, ``Clean & Safe Water for the 21st Century: A Renewed National
  Commitment to Water and Wastewater Infrastructure'' (undated),
  available from the American Water Works Association (www.awwa.org/
  govtaff/win/finalreport.pdf).

a. From all sources, including ratepayers and federal and state aid.

Uncertainty of the Estimates
    The assumptions and judgments required in the absence of detailed 
data increase the uncertainty surrounding the estimates. The analysis 
underlying WIN's estimate illustrates that uncertainty. Part of that 
analysis comes from a 1998 report done for the American Water Works 
Association (AWWA), which focused only on investments in transmission 
and distribution systems and only on capital costs, not financing or 
O&M.3
---------------------------------------------------------------------------
    \3\ Stratus Consulting Inc., ``Infrastructure Needs for the Public 
Water Supply Sector: Final Report'' (unpublished paper prepared for the 
American Water Works Association, Boulder, Colo., December 22, 1998).
---------------------------------------------------------------------------
    The 1998 report estimated needs of $325.1 billion over 20 years (an 
average of $16.3 billion per year), including $101.4 billion for large 
systems, $198.0 billion for medium-sized systems, and $25.7 billion for 
small systems.4 The analysis took the figure for small 
systems directly from EPA's 1995 needs survey and estimated the other 
figures using probability distributions to reflect uncertainty in four 
factors: the annual rate of pipes' replacement, the miles of pipe per 
water system, the distribution of pipes by size, and the cost per foot 
of replacing pipes of each size. To reflect the uncertainty about 
systems' replacement of pipes, for example, the analysis randomly 
selected replacement rates between 0.5 percent and 1.5 percent per 
year.
---------------------------------------------------------------------------
    \4\ Ibid., p. 3-11. CBO has been unable to learn exactly how WIN's 
consultants adapted the AWWA's estimate. Presumably, investments in 
treatment facilities and equipment account for at least some of the 
difference between the AWWA's annual average of $16.3 billion and WIN's 
figure of $19 billion (for capital costs).
---------------------------------------------------------------------------
    The resulting distributions of estimated needs were wide (see Table 
2). For medium-sized systems, the analysis found that the ``80 percent 
confidence interval'' around the mean estimate of $198 billion spanned 
$116 billion to $272 billion--leaving a 10 percent chance that the need 
was less than $116 billion and another 10 percent chance that it 
exceeded $272 billion. For large systems, the 80 percent confidence 
interval spanned $19 billion to $193 billion--or from 82 percent below 
the mean to 91 percent above it.
    Notwithstanding those results, CBO does not believe that the 
existing estimates of total needs for drinking water investment are 
likely to be off by as much as 80 percent or 90 percent.5 
However, the results do illustrate the point that the use of 
assumptions in the absence of hard data inevitably increases the 
imprecision of a future projection. CBO further notes that the range of 
uncertainty around the needs does not have to be plus or minus 80 
percent to have a dramatic impact on the potential scope of the policy 
problem that the needs represent. Because the estimated funding gap for 
capital investment--that is, the amount above recent funding levels--is 
roughly half of the total projected investment needs (according to 
WIN's numbers), an error of, for example, 30 percent or 40 percent in 
the projected needs translates to an error of 60 percent or 80 percent 
in the funding gap. According to rough calculations by CBO, an error of 
30 percent or 40 percent just in the assumptions about the necessary 
rate of replacing pipes, which CBO believes is quite possible, could 
imply an error of 20 percent or 30 percent in the funding gap. 
6
---------------------------------------------------------------------------
    \5\ The analysts who developed the AWWA's estimate may have 
inadvertently overstated its uncertainty by using simple flat 
probability distributions for most of the uncertain factors. They 
probably would have been justified in giving greater weight to outcomes 
near the center of the range of possible values, which would have 
required using more complex peaked or bell-shaped distributions. 
Moreover, confidence intervals tend to get smaller in percentage terms 
as individual components of an estimate (for example, the needs of 
large systems and medium- sized systems) are added together, allowing 
random errors to offset one another.
    \6\ The probability distribution of replacement rates for pipes 
assumed in the AWWA's analysis of drinking water infrastructure ranged 
from 0.5 percent to 1.5 percent per year, as noted in the text, and 
averaged 1.0 percent per year. That analysis also discussed an 
alternative approach, which assumed that pipe footage was laid in 
proportion to nationwide population growth. Under that alternative, the 
replacement rate between 2000 and 2019 would be about 0.6 percent per 
year, 40 percent less than under the selected approach.
    Pipes represent roughly three-quarters of total capital assets of 
drinking water systems, and--at least in the wastewater analysis--
replacement of existing assets represents about half of total 
investment needs. Therefore, an error of 40 percent in the assumed rate 
of pipes' replacement could imply an error of 15 percent in total 
investment needs and, hence, of 30 percent in the funding gap.

                                TABLE 2.

  The American Water Works Association's Estimate of 20-Year Investment
     Needs for Drinking Water Transmission and Distribution Systems
                      (In billions of 1998 dollars)
------------------------------------------------------------------------
                                                            80 Percent
               Size of System                    Mean       Confidence
                                               Estimate      Interval
------------------------------------------------------------------------
Small.......................................       25.7             N.A.
Medium......................................      198.0   115.6 to 271.6
Large.......................................      101.4    18.6 to 193.2
  Total.....................................      325.1             N.A.
Memorandum:
Estimated Needs per Year....................       16.3
WIN's Estimate of Total Capital Investment         19
 per Year (Including for treatment and
 storage)...................................
------------------------------------------------------------------------
SOURCE: Congressional Budget Office based on Stratus Consulting Inc.,
  ``Infrastructure Needs for the Public Water Supply Sector: Final
  Report'' (unpublished paper prepared for the American Water Works
  Association, Boulder, Colo., December 22, 1998),'' and Water
  Infrastructure Network, ``Clean & Safe Water for the 21st Century: A
  Renewed National Commitment to Water and Wastewater Infrastructure''
  (undated), available from the American Water Works Association
  (www.awwa.org/govtaff/win/finalreport.pdf).
NOTE: N.A. = not available.

    Similar estimates derived independently can raise one's confidence 
in those estimates. Contrary to the common perception, however, the 
current, preliminary version of EPA's ``gap analysis'' does not reach 
the same conclusion as the WIN report. Although both analyses present 
estimated gaps of $23 billion per year for drinking water and 
wastewater combined, that figure means different things in the two 
cases: in the WIN analysis, it is the 20-year average of a gap that 
grows year by year, whereas in EPA's preliminary analysis, it is the 
gap at the end of the 20-year period.7 The differences are 
concentrated on the drinking water needs; for wastewater, the two 
estimates of needs are indeed very similar, if not identical--but that 
is because they were derived using the same methodology from the same 
consultants. In short, the two drinking water estimates are independent 
but not similar, and the two wastewater estimates are similar but not 
independent.
---------------------------------------------------------------------------
    \7\ Personal communication, Steve Allbee, Environmental Protection 
Agency.
---------------------------------------------------------------------------
Possible Biases in the Estimates
    Given that the estimates of needs are surrounded by significant 
uncertainty, the question arises as to whether that uncertainty is 
roughly balanced--that is, whether the estimates are about equally 
likely to prove too low as too high, or to lie primarily on one side or 
the other. WIN and EPA analysts argue that they have deliberately erred 
on the low side in their assumptions on capital and O&M spending and, 
therefore, that their estimates probably understate future needs. In 
particular, they point to their assumptions that 25 percent of the 
investment is financed without borrowing, that the rest is financed at 
a real interest rate of 3 percent, and that increased efficiency 
reduces O&M costs by 20 percent to 25 percent.
    Those assumptions are reasonably conservative. But CBO has 
identified other factors that could tend to overstate the estimated 
costs for capital investment, financing, and O&M:

 First, in estimating needed capital investment, the existing 
        analyses do not assume any savings from improved efficiency. 
        Although the data to support such savings are sparser than they 
        are for O&M, evidence from a growing number of case studies 
        suggests savings from methods such as design/build contracting, 
        preventive maintenance, and demand management (discussed 
        below). Incorporating efficiencies in capital investment would 
        also reduce the estimates for financing and O&M costs, because 
        each dollar not invested cuts 75 cents from the debt to be 
        financed and reduces the capital stock to be operated and 
        maintained.8
---------------------------------------------------------------------------
    \8\ Of course, some methods used to reduce investment needs require 
more O&M spending rather than less. As noted later in the text, the 
existing analyses do not reflect a detailed model of the relationship 
between capital spending and O&M spending.
---------------------------------------------------------------------------
 Second, the financing costs in the WIN report may be 
        overstated. They appear to be the lifetime debt-service 
        payments associated with the average annual capital investment 
        over the period of 2000 to 2019. However, debt payments on 
        investments made late in the period will primarily occur after 
        2019 and therefore have little influence on the average payment 
        for debt service within the period. Conversely, the amount of 
        debt paid in much of the first decade will primarily reflect 
        the level of investment made before 2000, which is 
        significantly lower than the level the report recommends from 
        2000 on. According to CBO's rough calculations, under WIN's 
        assumptions the average annual debt service paid within the 
        period would be roughly 25 percent below the reported $5 
        billion.
 Third, the assumed reductions in O&M costs resulting from 
        increased efficiency are relative to a baseline that may be too 
        high for wastewater and perhaps for drinking water as well. CBO 
        does not have specific information on the methods used to 
        calculate O&M costs for drinking water systems, but the 
        wastewater analysis used in both the WIN report and EPA's 
        preliminary study assumes that the baseline ratio of O&M to 
        capital stock rises steadily throughout the 20-year period, 
        extrapolating from a general trend in data from 1972 to 1996. 
        Although additional capital stock is typically associated with 
        additional costs for O&M, it is not obvious that the ratio of 
        O&M to capital would continue rising indefinitely in the 
        absence of efficiency gains. Increases in that ratio during the 
        1970s and 1980s may reflect unique causes, such as the initial 
        introduction of many secondary treatment facilities and 
        biosolids disposal programs. Going forward, some investments, 
        such as those to replace deteriorated pipes or install 
        automated sensing and measurement equipment, could reduce the 
        O&M required per unit of capital stock.
    In short, there is much about future investment needs in drinking 
water infrastructure that is unknown, and assumptions based on even the 
best professional judgments can be significant sources of error.

           EFFICIENCY, EQUITY, AND THE DEFINITION OF ``NEED''

    Although considerable uncertainty surrounds the available 
estimates, CBO accepts the judgment of industry professionals that 
drinking water systems will require large investments over the next few 
decades. But future ``needs'' are not a predetermined reality; they are 
partly the result of many federal, state, local, and private choices 
yet to be made. The amount of investment needed to maintain services 
and meet water quality requirements under current industry practices 
and current government policy is likely to differ from the amount 
needed under evolving industry practices, under alternative government 
policies, or under a least-cost approach.
    In particular, a broad increase in federal funding intended to help 
keep water rates affordable could reduce the pressure on systems to 
operate more efficiently and on customers to economize on their use of 
water services and thereby keep total investment needs higher than they 
would be otherwise. That is another example of the familiar trade-off 
between equity and efficiency.
    In recent years, both drinking water and wastewater systems around 
the country have taken steps to become more efficient. The results are 
illustrated by data from a survey conducted periodically by the 
Association of Metropolitan Sewerage Agencies. For example, the average 
sum of O&M costs and administrative costs per million gallons declined 
from $1,108 in the 1996 survey to $987 in the 1999 survey.9 
One method used to reduce costs has been more efficient use of 
employees: among 45 municipal wastewater agencies that responded in 
both 1996 and 1999, full-time-equivalent staffing per 10,000 people in 
the served area declined from 5.0 to 4.7.10
---------------------------------------------------------------------------
    \9\ CBO's calculations, using data from Association of Metropolitan 
Sewerage Agencies, The AMSA Financial Survey, 1999: A National Survey 
of Municipal Wastewater Management Financing and Trends (Washington, 
D.C.: AMSA, 1999) and its 1996 counterpart. The averages cover 84 
responding wastewater systems in the 1999 report and 97 systems in 
1996. CBO recalculated the 1996 average shown in the reports to exclude 
five high-cost systems that did not respond to the later survey. Also, 
the 1999 average that CBO obtained using available data for 84 systems 
differs slightly from AMSA's average of $930 for 87 systems.
    \10\ Ibid., p. 67. Both the opinions of industry experts and more 
detailed data on the nature of the reductions in staffing and 
operational costs indicate that those savings primarily reflect true 
gains in efficiency, rather than reductions in necessary maintenance or 
other vital services.
---------------------------------------------------------------------------
    Experts in the water industry see room for further cost savings, 
not only in operational costs but also in capital costs. Promising 
methods include the following:

 Consolidation of systems to achieve economies of scale. 
        Reportedly, 50 percent of small drinking water systems lie 
        within a standard metropolitan statistical area.
 Asset management, which involves analyzing local data on 
        assets' age, performance, and condition in order to identify a 
        maintenance and replacement strategy that minimizes long-run 
        costs.
 Demand management, including the use of pricing strategies to 
        reduce peak use.11
---------------------------------------------------------------------------
    \11\ See Allan Dietemann, ``A Peek at the Peak: Reducing Seattle's 
Peak Water Demand'' (Seattle Public Utilities, Resource Conservation 
Section, February 9, 1998).
---------------------------------------------------------------------------
 Innovative contracting for new construction, such as the use 
        of contracts covering both design and construction, or even 
        design, construction, and operation.12
---------------------------------------------------------------------------
    \12\ For a well-documented example involving wastewater, see David 
Higgens and Frank Mangravite, ``Comparison of Design-Build-Operate and 
Conventional Procurements on Washington Borough, N.J., Wastewater 
Treatment Plant,'' International Supplement to RCC's Public Works 
Financing (July-August 1999), pp. 1-7.
---------------------------------------------------------------------------
    But those potential future savings could go unrealized if federal 
policy inadvertently undermines the forces pushing for efficiency. The 
savings observed to date have occurred primarily because of pressures 
from two sources. One source has been competition from private firms 
seeking contracts to operate municipal systems. The actual or potential 
threat of such competition has led to significant increases in 
efficiency in systems that remain publicly operated as well as in those 
contracted out to private operators. The second source of pressure has 
been resistance from customers and oversight bodies to large rate 
increases. That pressure too has led system operators to reexamine 
their management practices and find many ways to reduce costs without 
sacrificing quality of service.
    Whether federal aid would undermine or reverse the progress in 
water systems' efficiency would depend on how much aid the government 
provided and in what form. Clearly, if the federal government issued 
blank checks for infrastructure, local systems would lose any incentive 
to keep capital costs down. But the issue is also relevant in less 
extreme cases: a 1985 CBO analysis found that high federal cost shares 
in the original construction grant program for wastewater treatment 
raised capital costs by more than 30 percent.13 
Unfortunately, CBO cannot describe the precise relationship between 
federal support and total nationwide costs.
---------------------------------------------------------------------------
    \13\ Congressional Budget Office, Efficient Investments in 
Wastewater Treatment Plants (June 1985), p. xi.
---------------------------------------------------------------------------
    But if it is not clear ``how much is too much'' federal aid from 
the standpoint of efficiency, it is also not clear ``how little is too 
little'' for equity purposes--that is, to address the affordability and 
fairness issues. A large, broad program would probably benefit not only 
the neediest water users but also well-off users, with little 
additional gain in equity. CBO is analyzing the affordability issues 
associated with water infrastructure needs and expects to provide 
additional information on them in a report to be issued later this 
year.
    In summary, CBO's analysis of the existing estimates of investment 
needs for drinking water infrastructure leads the agency to conclude 
that those estimates are accompanied by significant uncertainty and may 
be too high. Moreover, how big the needs turn out to be will be 
influenced by who pays to meet them; in particular, proposals intended 
to address the equity problem of keeping rates affordable may adversely 
affect efficiency by raising total national costs.

    Mr. Gillmor. Thank you very much. And we will now go to Mr. 
Howard Neukrug, from Philadelphia, representing the American 
Water Works Association.

  STATEMENT OF HOWARD NEUKRUG, DIRECTOR, OFFICE OF WATERSHEDS, 
PHILADELPHIA WATER DEPARTMENT, ON BEHALF OF THE AMERICAN WATER 
                       WORKS ASSOCIATION

    Mr. Neukrug. Well, thank you, and good afternoon, Mr. 
Chairman. My name is Howard Neukrug, and I am the Director of 
the Office of Watersheds for the Philadelphia Water Department, 
which is a drinking water, waste water, and storm water 
utility, which services about 2 million people in the greater 
Philadelphia area.
    I am speaking to you today on behalf of A.W.W.A, where I 
serve as the Chair Elect of the Water Utility Council. We thank 
you for holding this hearing, and for providing this 
opportunity to present our views on the Nation's critical 
drinking water infrastructure needs.
    As you know, drinking water systems in the United States 
invest billions of dollars each year toward its mission of 
providing safe drinking water at rates affordable to the 
public. However, it is now clear that many customers will need 
to invest significantly more over the next 20 years to replace 
aging and failing water pipes.
    These investments, along with those required for new 
federally mandated regulations, drive the need for enormous new 
capital dollars in water related infrastructure.
    Compounding this problem is local competition for limited 
capital dollars from our storm water and waste water utility 
partners, as they move forward to repair and replace aging 
sewer pipe and meet requirements of major EPA programs, such as 
the national CSO and SSO control policies.
    As reported in WIN, the combined water and waste water 
capital dollar needs over the next 20 years amounts to an 
unprecedented $1 trillion. I am here today to ask Congress to 
work with the drinking water industry as we move forward to 
invest in our future and the future of all Americans.
    We do not come here asking for Federal subsidies, but 
looking for a partner in investment to secure America's future. 
The A.W.W.A. will continue to do everything possible to support 
our utility search for solutions, identify the infrastructure 
capital requirements, minimize the need for new capital, 
explore new opportunities for capital in innovative funding 
mechanisms, and education and outreach to the public, our 
regulators, Congress, and other utility partners to increase 
this awareness and our understanding of the issues.
    Everyone knows that utilities are sensitive to rising rate 
pressures, be it water, gas, electric, or telephone. Underlying 
the sensitivity is the understanding that there exists a class 
of customers who must make a monthly choice of which bills to 
pay.
    The choice between water, food, heat, and shelter are not 
often talked about in the development of new drinking water 
regulations, but is a subject that must be considered as we 
move forward in this and other deliberations concerning our 
Nation's drinking water supply.
    In Philadelphia, where 40 percent of the population lives 
in poverty, the rise in water bills will remain a significant 
social issue into the foreseeable future. In order to 
understand how we got here, one must first understand the 
history of drinking water supply in the U.S.
    Quite simply, beginning in the 1870's, thousands of miles 
of Victorian era pipe were laid to meet a new demand called 
indoor plumbing. Pipe manufacturing was cruder than the process 
used today, but the manufacturers compensated for this by 
producing pipe of substantial wall thickness and strength.
    Today, a 120 years later, much of this pipe remains in 
service in our urban areas. The need to replace this pipe is 
dependent on more than just simply age, but soil conditions, 
and the quality of manufacturer, and the installation playing 
equally important roles.
    The pattern of water main installation during the 20th 
century is a simple reflection of the overall pattern of 
population growth in large and small cities across the United 
States. There was an 1890's boom, a World War I boom, and 
roaring 20's boom, and a massive post-World War II baby boom.
    For every boom in housing construction, there was a 
commensurate boom in the water and sewer pipe installation 
business. Pipe quality and useful life can vary as much as the 
quality of homes built in the 20th century. The A.W.W.A. is 
currently undertaking a study into the nature and scope of the 
emerging infrastructure challenge based on the history of pipe 
installation and prediction of remaining useful pipe life for 
20 U.S. leading utilities.
    Using useful remaining pipe life estimates for the various 
types of pipe installed, and counting the years since the 
original installations, the A.W.W.A. developed ``Nessie 
Curves'' which forecast that investment needs will rise 
steadily, extending throughout the 21st century.
    Replacement of water treatment plant assets presents a 
different picture from that of the pipes, but greatly 
complicates infrastructure funding for utilities. Treatment 
assets are also much more shortlived than pipes, with pipe 
expectancies between 20 and 70 years.
    Many are about due for replacement in the next decade in 
Philadelphia, and our annual capital expenditure for waste 
water and water treatment plants has recently been increased 
from $30 to $50 million. Thank you very much.
    [The prepared statement of Howard Neukrug follows:]

 Prepared Statement of Howard Neukrug, Director, Office of Watersheds, 
 Philadelphia Water Department, on Behalf of the American Water Works 
                              Association

                              INTRODUCTION

    Good morning Mr. Chairman. I am Howard Neukrug, Director of the 
Office of Watersheds for the Philadelphia Water Department in 
Pennsylvania. The Philadelphia Water Department is a municipal water, 
wastewater and stormwater utility serving over two million people in 
the Philadelphia metropolitan area. I serve as the Vice Chair of the 
American Water Works Association (AWWA) Water Utility Council and am 
here today on behalf of AWWA. AWWA appreciates the opportunity to 
present its views on drinking water needs and infrastructure.
    Founded in 1881, AWWA is the world's largest and oldest scientific 
and educational association representing drinking water supply 
professionals. The association's 57,000 members are comprised of 
administrators, utility operators, professional engineers, contractors, 
manufacturers, scientists, professors and health professionals. The 
association's membership includes over 4,2000 utilities that provide 
over 80 percent of the nation's drinking water. AWWA and its members 
are dedicated to providing safe, reliable drinking water to the 
American people.
    AWWA utility members are regulated under the Safe Drinking Water 
Act (SDWA) and other statutes. AWWA believes few environmental 
activities are more important to the health of this country than 
assuring the protection of water supply sources, and the treatment, 
distribution and consumption of a safe, healthful and adequate supply 
of drinking water.
    AWWA is also a member of the Water Infrastructure Network (WIN)--a 
broad-based coalition of drinking water, wastewater, municipal and 
state government, engineering and environmental groups, dedicated to 
preserving and protecting the hard-won public health, environmental and 
economic gains that America's water and wastewater infrastructure 
provides. AWWA and its members thank you for holding this hearing 
concerning the infrastructure needs of the Nation's drinking water 
utilities. AWWA looks forward to working with the subcommittee in its 
efforts to address the growing infrastructure costs facing drinking 
water utilities and consumers.

The Drinking Water Infrastructure Need
    Last fall WIN released Clean & Safe Water for the 21st Century, 
which summarized infrastructure needs and the funding shortfall facing 
drinking water and wastewater systems. That report estimates that the 
total drinking water and waste water infrastructure needs over a 
twenty-year period approaches one trillion dollars. According to report 
estimates, drinking water utilities across the nation collectively need 
to spend about $24 billion per year for the next 20 years, for a total 
of $480 billion. The report identified an $11 billion annual gap 
between current spending and overall need.
    A separate needs estimate was released in February by the U.S. 
Environmental Protection Agency (EPA), based on a survey of water 
systems. The survey results suggest water systems will need $150 
billion during the next twenty years. However, the EPA estimate is 
limited to identifying eligible Safe Drinking Water Act compliance 
needs for the Drinking Water State Revolving Fund (DWSRF) and does not 
include many needs, such as the replacement of treatment facilities and 
distribution systems due to age. These needs are not eligible for 
funding from the DWSRF yet they are the largest infrastructure expense 
facing the nation's water suppliers. EPA also relied on five-year 
capital improvement plans (CIPs) by utilities and included them in the 
20-year period, leaving the remaining out-years compliance needs 
undocumented.
    None-the-less, both estimates suggest an emerging large cost for 
drinking water infrastructure.

Why is the need emerging now?
    Water is by far the most capital intensive of all utility services, 
mostly due to the cost of pipes--water infrastructure that is buried 
out of sight. Most of drinking water pipes were originally installed 
and paid-for by previous generations. They were laid down during the 
economic booms that characterized the last century's periods of growth 
and expansion. Pipes last a long time (some more than a century) before 
they cost very much in maintenance expense near the end of their useful 
life, or ultimately need replacement. For the most part, then, the huge 
capital expense of pipes is a cost that today's customers have never 
had to bear. However, replacement of pipes installed from the late 
1800s to the 1950s is now hard upon us at the beginning of the 21st 
Century and replacement of pipes installed in the latter half of the 
20th Century will dominate the remainder of the 21st Century. This is a 
significant change that ushers in a completely new era in water utility 
financing.
    Recognizing that we are at the doorstep of a new era in the 
economics of water supply, the replacement era, the American Water 
Works Association (AWWA) has undertaken an analysis of 20 utilities 
throughout the nation to understand the nature and scope of the 
emerging infrastructure challenge. The project involved correlating the 
estimated life of pipes with actual operations experience in the sample 
of 20 utilities. Projecting future investment needs for pipe 
replacement in those utilities yields a forecast of the annual 
replacement needs for a particular utility, based on the age of the 
pipes and how long they are expected to last in that utility. By 
modeling the demographic pattern of installation and knowing the life 
expectancy of the pipes, we can estimate the timing and magnitude of 
that obligation. This analysis graphically portrays the nature of the 
challenge ahead of us. We will summarize the highlights of the analysis 
in this statement and AWWA will provide the subcommittee with a copy of 
the report when it is completed shortly.

Pipe Replacement Value
    The original pattern of water main installation from 1870 to 2000 
in 20 utilities throughout the nation analyzed by AWWA is a reflection 
of the overall pattern of population growth in large cities across the 
country. There was an 1890s boom, a World War I boom, a roaring '20s 
boom, and the massive post-World War II baby boom.
    The oldest cast iron pipes--dating to the late1800s--have an 
average useful life of about 120 years. This means that as a group 
these pipes will last anywhere from 90 to 150 years before they need to 
be replaced, but on average they need to be replaced after they have 
been in the ground about 120 years. Because manufacturing techniques 
and materials changed, the roaring '20s vintage of cast iron pipes has 
an average life of about 100 years. And because techniques and 
materials continued to evolve, pipes laid down in the post World War II 
boom have an average life of 75 years, more or less. Using these 
average life estimates and counting the years since the original 
installations, it's clear that water utilities will face significant 
needs for pipe replacement in the next couple of decades.
    The cumulative replacement cost value (the cost of replacement in 
constant year 2000 dollars) of water main assets has increased steadily 
over the last century in our sample of 20 utilities. In aggregate 
across our sample of utilities, the replacement value of water mains in 
today's dollars is about $2,400 per person. This is more than three 
times what it was in 1930 in constant year 2000 dollar terms. The 
difference is not due to inflation; rather, there is simply more than 
three times as much of this infrastructure today as there was in 1930, 
in order to support improved service standards and the changing nature 
of urban development. In older cities the per capita replacement cost 
value of mains today is as high as nine times the 1930 level (in 
constant year 2000 dollars) due to loss of center city population.
    Reflecting the pattern of population growth in large cities over 
the last 120 years, the AWWA analysis forecasts investment needs that 
will rise steadily like a ramp, extending throughout the 21st Century. 
By 2030, the average utility in our sample of 20 will have to spend 
about three and half times as much on pipe replacement as it spends 
today.
    Many water systems all across America have seen this day coming and 
have already begun to ramp-up their expenditures on pipe rehabilitation 
and replacement. But it is clear that for most utilities this problem 
is just emerging and is enormous in scope.

Pipe Repair Costs
    As pipe assets age, they tend to break more frequently. But it is 
not cost-effective to replace most pipes before, or even after, the 
first break. Like the old family car, it is cost efficient for 
utilities to endure some number of breaks before funding complete 
replacement of their pipes.
    Considering the huge wave of aging pipe infrastructure created in 
the last century, we can expect to see significant increases in break 
rates and therefore repair costs over the coming decades. This will 
occur even when utilities are making efficient levels of investment in 
replacement that may be several times today's levels. In the utilities 
studied by AWWA, there will be a three-fold increase in repair costs by 
the year 2030 despite a concurrent increase of three and one-half times 
in annual investments to replace pipes.

Water Treatment Plant Costs.
    Replacement of water treatment assets presents a different picture 
from that of the pipes, but greatly complicates infrastructure funding 
for utilities. Major investments in water and wastewater treatment 
plants were made in several waves following the growing understanding 
of public health and sanitary engineering that evolved during the 20th 
Century. Of course, the installation pattern of treatment assets also 
reflects major population growth trends. But whereas pipes can be 
expanded incrementally to serve growth, treatment must be built in 
larger blocks. Investments in treatment thus present a more 
concentrated financing demand than investments in pipes.
    Treatment assets are also much more short-lived than pipes. 
Concrete structures within a treatment plant may be the longest lasting 
elements in the plant, and may be good for 50 to 70 years. However, 
most of the treatment components themselves typically need to be 
replaced after 25 to 40 years or less. Replacement of treatment assets 
is therefore within the historical experience of today's utility 
managers. Even so, many treatment plants built or overhauled to meet 
EPA standards over the last 25 years are too young to have been through 
a replacement cycle. Many are about due for their first replacement in 
the next decade or so.
    The concurrent need to finance replacement of pipes and of 
treatment plants greatly increases the challenge facing utilities. 
While spending for the replacement of pipes rises like a ramp over the 
first part of the 21st Century, spending for treatment plant 
replacement will occur at intervals causing ``humps'' in capital needs 
on top of the infrastructure replacement capital needs. This is 
graphically illustrated in the attached ``Relative Asset Replacement 
Projections'' graph of the BHC Company water utility in Bridgeport, 
Connecticut, from the forthcoming AWWA report. This pattern has been 
found to be common in many water utilities and has been nicknamed ``The 
Nessie Curve'' because of its resemblance to depictions of the Loch 
Ness Monster.

Demographic Changes.
    Water utilities are the last natural monopolies. The large 
investment required in pipe networks makes it impossible to have more 
than a single provider of water service within a given area. These 
large investments are also a major source of financial vulnerability 
for water utilities due to the very fixed nature of the assets and the 
very mobile nature of the customers. When populations grow, the 
infrastructure is expanded, but when people move away, the pipe assets 
and the liability for repair and replacement remain behind, creating a 
financial burden on the remaining customers. This problem, known as 
``stranded capacity'' (essentially, capital facilities that are not 
matched by rate revenue from current customers), is typical of the 
demographics of older cities and adds considerably to the challenge of 
funding replacement in these cities.
    In Philadelphia, over the one hundred years from 1850 to 1950, the 
population grew from 100,000 to 2 million people. But from 1950 to the 
end of the century, Philadelphia lost 25 percent of its population, 
dropping to 1,500,000. This situated was replicated again and again 
throughout the older cities of the Northeast and Midwest. The effect is 
to increase the burden of replacement funding on the remaining 
residents of the city.
    As previously mentioned, the average per capita value of water main 
assets in place today across our sample of 20 utilities is estimated to 
be three times the amount that was present in 1930. In Philadelphia, 
however, that ratio is almost eight times the average per capita value 
of water main assets in 1930 due to population declines since about 
1950.
    Demographic change, then, places financial strain on all public 
water systems and has a direct impact on affordability of the 
investment required.
Affordability of Rates
    A central question for policy makers and utilities, then, is 
whether the increased rate of infrastructure spending that utilities 
now face over the next 30 years can be financed by the utilities 
themselves at rates customers can afford.
    WIN estimates that total water and wastewater infrastructure bills 
will have to double or triple in most communities to meet these needs, 
if consumers are forced to bear the entire infrastructure cost. The 
cost of compliance with storm water regulations alone may dwarf 
domestic drinking water and wastewater expenditures. Therefore, the 
impact on household affordability and rates of projected drinking water 
infrastructure expenditures must be viewed in the context of the total 
water and wastewater utility infrastructure bill to be paid by the 
consumer.
    In the sample of 20 utilities studied by AWWA, the analysis showed 
an aggregate increase in needed utility expenditures above current 
spending levels of $3 billion by 2020 and $6 billion by 2030. This 
implies the need for collection of an additional $1,575 per household 
for infrastructure repair and replacement over 30 years. The estimated 
$1,575 per household is an average of the individual results. The 
individual utilities in the survey present wide-ranging needs for 
increased expenditure (from $550 per household over 30 years to $2,290 
per household over 30 years) and ``lumpy'' patterns of increased 
expenditure needs that are unique to each set of circumstances.
    The sample of 20 utilities represents relatively large utilities 
that are on the ``cutting-edge'' of utility management. The household 
expenditure increase will be much higher in small systems that do not 
have a large rate-base over which to spread the costs. Extrapolating 
from EPA's estimated 20-year capital need for small systems, the AWWA 
analysis projects the total 30-year expenditure for infrastructure 
repair and replacement in small systems might be in a range of $1,490 
per household to $6,200 per household.
    Moreover, there is no guarantee that the projected expenditures per 
household can be spread evenly or taken on gradually over the 30-year 
period. There are ``humps'' for treatment plant replacement throughout 
the period. Additionally, expenditure ``humps'' for compliance with a 
dozen or more new regulations is not included in this 
analysis.Conclusion
    How we address our emerging drinking water infrastructure needs is 
a critical question facing the Nation and this Congress. To help reduce 
the burden on consumers, many water utilities have made great strides 
in efficiencies, with some utilities achieving a 20 percent savings in 
operations and maintenance. Water utilities will continue to reduce 
costs, seek cost-effective financing and employ innovative management 
strategies. Regardless, there will be significantly increased costs for 
needed infrastructure investment.
    AWWA does not expect that federal funds will be available for 100 
percent of the increase in infrastructure needs facing the nation's 
water utilities. However, AWWA does believe that due to concurrent 
needs for investment in water and wastewater infrastructure, 
replacement of treatment plants, new drinking water standards, and 
demographics, many utilities will be very hard pressed to meet their 
capital needs without some form of federal assistance. Over the next 
twenty years, it is clear that Safe Drinking Water Act (SDWA) and Clean 
Water Act (CWA) compliance requirements and infrastructure needs will 
compete for limited capital resources. Customers are likely to be very 
hard pressed in many areas of the country. Compliance and 
infrastructure needs under the SDWA and CWA can no longer be approached 
as separate issues. Solutions need to be developed in the context of 
the total drinking water and wastewater compliance and infrastructure 
needs.
    AWWA pledges to work with Congress to develop a responsible and 
fair solution to the Nation's growing drinking water infrastructure 
challenge. As a start, AWWA will provide a copy of the forthcoming AWWA 
report to members of the subcommittee to assist the subcommittee 
deliberations on this issue. We thank you for your consideration of our 
views.
    This concludes the AWWA statement on drinking water needs and 
infrastructure. I would be pleased to answer any questions or provide 
additional material for the committee.

    Mr. Gillmor. Thank you very much, and we will go to Ms. 
Beverly Ingram, from Detroit, the Association of Metropolitan 
Water Agencies.

 STATEMENT OF BEVERLY INGRAM, ASSISTANT DIRECTOR, DETROIT WATER 
     AND SEWER DEPARTMENT, ON BEHALF OF THE ASSOCIATION OF 
                  METROPOLITAN WATER AGENCIES

    Ms. Ingram. Thank you. Good afternoon, Chairman Gillmor and 
Congressman Pallone, and members of the subcommittee. My name 
is Beverly Ingram, and I am an Assistant Director with the 
Detroit Water and Sewerage Department. I am here today to 
discuss water infrastructure needs on behalf of the Association 
of Metropolitan Water Agencies.
    I would like to thank you for holding this hearing to learn 
more about the infrastructure needs of local water utilities. I 
would like to begin my statement by giving you a snapshot of 
the Detroit system.
    Detroit is recognizably one of the largest water and 
sewerage treatment facilities in North America. The Detroit 
system, built 160 years ago, serves drinking water to 4.2 
million people in southeastern Michigan.
    We pump approximately 239 billion gallons of water a day. 
We are also responsible for treating 634 million gallons a day 
of waste water. Our waste water system covers 857 square miles, 
and our water system over a thousand miles.
    Last fall, the water infrastructure network released clean 
and safe water for the 21st century, which summarized 
infrastructure needs in the funding shortfall, replacing 
drinking water and waste water systems.
    AWWA is a member of WIN. The report estimates that drinking 
water utilities across the Nation collectively need to spent 
about $24 billion per year for the next 20 years, for a total 
of $480 billion.
    WIN's analysis also concluded that water systems currently 
spend $13 billion per year on drinking water infrastructure, 
leaving an $11 billion annual gap between current spending and 
overall need.
    A separate needs estimate was released in February by EPA. 
The survey results suggest water systems will need $150 billion 
during the next 20 years. Mr. Chairman, since my written 
statement clearly spells out the reasons for the disparity in 
these numbers, I will not go into them here.
    Like the Nation's other 55,000 water utilities, the Detroit 
Water and Sewer Department is responsible for providing safe, 
clean drinking water to protect public health and complying 
with drinking water regulations.
    In addition, our customers, both families and businesses, 
expect reliable service. To meet our responsibilities, major 
metropolitan areas are currently funding repairs on old pipes 
and outdated treatment facilities at an astounding rate.
    To better understand the types of investments that public 
water systems are doing to meet these infrastructure needs, 
here are some local examples. In Kansas City, Missouri, they 
raised rates by 100 percent over the last 10 years; and the 
utility plans water rate increases of 4 percent each year, and 
sewer rate increases of 6 percent each year.
    The Water Department anticipates spending $85 million per 
year for the next 6 years just to resolve its infrastructure 
backlog. With these rate increases and new efficiencies will 
net the utility only $55 million a year, leaving an annual 
shortfall of $30 million.
    And Cleveland, Ohio, has been investing an average of $60 
million per year over the last 10 years for drinking water 
infrastructure. Over the next 8 years, Cleveland must invest 
$500 million to rehabilitate and modernize 3 of its 4 water 
plants. To finance this, Cleveland has adopted an 18 percent 
annual rate increase over the next 5 years.
    This is after 10 consecutive years of increases totaling 80 
percent. Yet, this does not even address Cleveland's 
distribution system needs in any substantial way. In Portland, 
Oregon, $1 billion mandated combined sewer overflow program 
will result in double-digit rate increases for about 15 years.
    At the same time the need for infrastructure funding for 
drinking water is $400 to $800 million in the next 10 years. 
The likelihood that water rates can be raised to cover those 
costs is doubtful.
    Given that the increase in sewer bills has virtually used 
up the elasticity that existed to raise rates, the Knoxville 
Utility Board has spent $40 million in capital improvements 
over the last 5 years for the drinking water system, and the 
utility is anticipating another $64 million in water systems 
improvement during the next 5 years.
    The Knoxville Utility Board is also a waste water utility, 
which has its own infrastructure needs, including $63 million 
in sewer system improvements over the next 5 years, In addition 
to $80 million, which they have spent over the previous 14 
years.
    How we close this $11 billion drinking water infrastructure 
gap between historical spending and overall need is the next 
question. To help reduce this gap, water utilities, especially 
large metropolitan systems, have raised rates and have made 
great strides in efficiencies, with some utilities achieving 20 
percent savings in operations and maintenance.
    Utilities will continue to reduce costs, seek cost 
effective financing, and employee innovative management 
strategies. There will remain a gap between the available funds 
and the significant level of investment required.
    AWWA does not expect the Federal Government to completely 
fill the gap, but some help is needed. AWWA pledges to work 
with Congress to develop a fair solution to this problem. Thank 
you again for holding this important hearing.
    [The prepared statement of Beverly Ingram follows:]

Prepared Statement of Beverly Ingram, Assistant Director, Detroit Water 
  and Sewer Department, on Behalf of the Association of Metropolitan 
                             Water Agencies

    Good afternoon, Chairman Gillmor, Congressman Pallone, members of 
the subcommittee. My name is Beverly Ingram, and I am the Assistant 
Director for Administration of the Detroit Water and Sewer Department.
    This testimony was prepared on behalf of the Association of 
Metropolitan Water Agencies, which is comprised of the nation's largest 
drinking water agencies. All AMWA member-agencies are publicly owned. 
Represented by city water commissioners and utility chief executives, 
AMWA's member-agencies collectively serve more than 110 million 
Americans with clean, safe drinking water.
    Thank you for holding this hearing to learn more about the 
infrastructure needs of local water utilities. Our goal is to provide 
you with information to help you understand the enormous challenges we 
are facing over the next 20 years.
Overall Need and the Gap
    Last fall, the Water Infrastructure Network (WIN) released Clean & 
Safe Water for the 21st Century, which summarized infrastructure needs 
and the funding shortfall facing drinking water and wastewater systems. 
AMWA is a member of WIN. The report estimates that drinking water 
utilities across the nation collectively need to spend about $24 
billion per year for the next 20 years, for a total of $480 billion. 
WIN's analysis also concluded that water systems currently spend $13 
billion per year on drinking water infrastructure, leaving an $11 
billion annual gap between current spending and overall need.
    A separate needs estimate was released in February by the U.S. 
Environmental Protection Agency (EPA), based on a survey of public 
water systems. The survey results suggest water systems will need $150 
billion during the next twenty years. But according to EPA, their 
survey underestimates the true need. The survey is intended to be used 
as the basis for the Drinking Water SRF distribution formula. Because 
the Drinking Water SRF is primarily concerned with projects that will 
help systems comply with drinking water quality regulations, so is the 
survey. Therefore, EPA's estimate excludes many needs, such as the 
replacement of treatment facilities and distribution systems due to 
age. This is the largest infrastructure expense facing the nation's 
water suppliers. The survey also excludes capital projects related to 
raw water storage, and EPA's estimate for medium and large systems is 
substantially under-evaluated because the agency relied on five-year 
capital improvement plans (CIPs) and included them in the 20-year 
picture. Utilities may estimate their needs for many years into the 
future, but most CIPs cover five-year periods, leaving the remaining 
out-years undocumented, and thus excluded by the survey.
    In contrast, WIN's $24 billion per year estimate is more 
comprehensive. It relies on historical system construction data, 
population figures from the Census Bureau, actual cost data from the 
drinking water community, data on infrastructure spending from the 
Department of Commerce, as well as needs estimates by EPA and AWWA.
    Like the nation's other 55,000 water utilities, the Detroit Water 
and Sewer Department is responsible for providing safe, clean drinking 
water to protect public heath and comply with drinking water 
regulations. In addition, our customers--both families and businesses--
expect reliable service. Detroit's 4.2 million customers expect and 
deserve safe water to come out of their taps each morning.
    To meet our responsibilities, old pipes and out-of-date treatment 
facilities must be replaced, repaired and refurbished. Distribution 
pipes in some of our cities were laid in the late 1800s, when municipal 
water systems were first built. These cast iron pipes are said to last 
as long as 120 years. Pipes laid in the 1920s, during a second wave of 
water system construction, are made of different materials that are 
said to last as many as 100 years. And experts say that pipes laid 
during a boom in construction after World War II could last 75 years.
    Similarly, treatment plants built in the 1950s have outlived their 
maximum life spans. Even treatment facilities built soon after passage 
of the Safe Drinking Water Act, in 1970s, are 25 to 30 years old, and 
must be replaced with advanced treatment technology.
    Considering the average life span of this infrastructure, it 
becomes clear that the time for refurbishment and replacement is upon 
us.
    Operations and maintenance costs must be taken into account, as 
well. AWWA estimates that water utilities will spend an additional $27 
billion per year to operate and maintain their facilities. We note this 
because electricity costs comprise between 20 to 80 percent of a water 
utility's total operating budget. The inevitable rise in energy costs 
will increase the O&M expenses of utilities, leaving fewer dollars for 
drinking water infrastructure.
    Similarly, the cost to finance infrastructure can affect the 
availability of funds and whether a community can afford to build a 
needed water project. AWWA and EPA estimate drinking water and 
wastewater systems will each spend $5 billion per year to finance their 
projects.
    WIN estimates that household water bills must double or triple in 
most communities, on average, if utilities are forced to absorb the 
entire infrastructure bill. This scenario is complicated by rate 
inelasticity. A household's water bill often covers drinking water 
supply, sewer and storm-water control. Raising rates to cover one, 
diminishes the ability to pay for the other two. Unfortunately, all 
three sectors are facing massive infrastructure challenges.
    Further compounding this issue is demographics and its impact on 
large urban centers, such as Detroit. When people move to the suburbs, 
the pipe and the liability for repair and replacement remain behind, 
creating a financial burden on the remaining, often less affluent, 
customers. Nevertheless, these cities cannot forgo infrastructure 
improvements.
    To better understand these infrastructure needs, here are some 
local examples.
    Kansas City, Missouri. Kansas City raised rates by 100 percent over 
the last 10 years, and the utility plans water rate increases of four 
percent each year and sewer rate increases of six percent each year. 
The water department anticipates spending $85 million per year for the 
next six years just to resolve its infrastructure back-log, but these 
rate increases and new efficiencies will net the utility only $55 
million per year, leaving an annual shortfall of $30 million.
    Cleveland, Ohio. Cleveland has been investing an average of $60 
million per year over the last 10 years for drinking water 
infrastructure. Over the next eight years, Cleveland must invest $500 
million to rehabilitate and modernize three of its four water plants. 
To finance this, Cleveland has adopted an 18 percent annual rate 
increases over the next five years. This is after 10 consecutive years 
of increases totaling 80 percent. Yet this does not even address 
Cleveland's distribution system needs in any substantial way.
    Portland, Oregon. In Portland, a $1 billion mandated combined sewer 
overflow program will result in double digit rate increases for about 
15 years. At the same time, the need for infrastructure funding for 
drinking water is $400-800 million in the next 10 years. The likelihood 
that water rates can be raised to cover these costs is doubtful, given 
that the increase in sewer bills has virtually used up the elasticity 
that existed to raise rates.
    Knoxville, Tennessee. The Knoxville Utility Board (KUB) has spent 
$40 million in capital improvements over the last five years for the 
drinking water system, and the utility is anticipating another $64 
million in water system improvements during the next five years. KUB is 
also a wastewater utility which has its own infrastructure needs, 
including $63 million in sewer system improvements over the next five 
years in addition to the $80 million KUB spent over the previous 14 
years.

Conclusion
    How we close the $11 billion drinking water infrastructure gap 
between historical spending and overall need is the next question. To 
help reduce this gap, water utilities, especially large metropolitan 
systems, are raising rates and have made great strides in efficiencies, 
with some utilities achieving a 20 percent savings in operations and 
maintenance. Utilities will continue to reduce costs, seek cost-
effective financing and employ innovative management strategies. 
Regardless, there will remain a gap between the available funds and the 
significant level of investment required. AMWA does not expect the 
federal government to completely fill the gap, but some help is needed.
    AMWA pledges to work with Congress to develop a fair solution to 
this problem. Thank you, again, for holding this important hearing.

    Mr. Gillmor. Thank you, and we will proceed with Dr. Janice 
Beecher, representing the National Association of Water 
Companies.

 STATEMENT OF JANICE A. BEECHER, BEECHER POLICY RESEARCH, INC., 
    ON BEHALF OF THE NATIONAL ASSOCIATION OF WATER COMPANIES

    Ms. Beecher. Thank you, Mr. Chairman, and Congressman 
Pallone. I am pleased to be here to discuss this very important 
issue. My name is Jan Beecher, and I am an independent policy 
research consultant. I specialize in the structure and 
regulation of the water industry.
    This testimony is based on my independent analysis of this 
subject that I prepared for a recent water infrastructure 
conference. Let me begin by emphasizing that my purpose here is 
not to dispute the fact that the water and waste water 
industries face substantial and accelerating infrastructure 
needs associated with a variety of cost drivers, not all of 
which are compliance driven.
    My purpose is to promote an informed dialog about some of 
the assumptions behind this infrastructure funding gap and some 
of the presumptions about how to best address it.
    The $1 trillion 20 year needs estimate for water and waste 
water systems has become a focal point for discussion, but the 
trillion dollar estimate is imprecise and may be inflated as I 
think was also suggested by the CBO analysis.
    Frankly, O&M costs I do not believe should be included. I 
also believe the costs of growth should not be included. Growth 
should pay for growth. I think that is a good principle.
    Plus, and as equally important, estimates of the needs seem 
to give little weight to the potential for lowering total costs 
through industry restructuring, innovation, operational 
efficiency, markets, and integrated resource management.
    The gap is essentially a construct, but not an 
inevitability. The projected cumulative shortfall will result 
if, and only if, the need estimate is accurate and funding and 
expenditure levels are not increased. A number of interrelated 
myths have emerged in the context of this infrastructure 
funding debate.
    First, that a national crisis is looming. Second, that the 
cost of water services cannot be supported through rates. 
Third, that a funding gap is inevitable, and fourth, that 
Federal funding solutions provide the centerpiece in terms of 
attending to the issue.
    Some of the assumptions behind these beliefs can be 
challenged. To this end, I will highlight a few basic reality 
checks. First, aggregate municipal finance data indicate that 
many water and waste water utilities are not collecting 
sufficient revenues relative to their expenditures.xxx
    Some communities have deferred investments, as well as 
deliberately maintained unrealistically low water and waste 
water rates. This persistent underpricing of water services 
contributes to the anticipated funding gap, and sends 
inappropriate signals to customers about the value of water 
services, which will lead to inefficient consumption and 
inefficient supply decisions to meet that inflated level of 
demand.
    Second, water services today are a relative bargain for 
many households. Water and other public services actually 
account in the aggregate for a relatively small share of the 
average household utility budget. Less than $400 per year, or 
.08 percent of the total household expenditures.
    And while I realize that there are variations from these 
averages, I think it is important to note these data. Consumers 
spend more than twice as much on electricity and 
telecommunications services.
    On average, a four person household spends about the same 
amount each year on cable TV and tobacco products as on water 
services. In addition, U.S. consumers pay much less for water 
services than consumers in many other developed countries.
    Third, Americans are very concerned about the quality of 
their drinking water and protection of water resources. The 
consumers are also more willing to pay for bottled water than 
tap water, at least it seems in many cases.
    Conservatively, the average price of one gallon of 
community supplied water conveniently delivered to the tap is 
less than one-third of one penny. Every other water alternative 
is no more safe, much less convenient, and astronomically more 
expensive.
    At a $1.15 per gallon, what I call designer water, costs 
347 times the price of tap water. We obviously need to do a lot 
in terms of public education in this area. Fourth, it is 
important for the water industries to have realistic 
expectations about future Federal funding for water programs in 
order to plan sufficiently to meet their infrastructure and 
service obligations.
    Federal health and environmental standards are not 
necessarily the primary cost driver, nor a rationale for 
general revenue funding. Massive Federal grant subsidies that 
go beyond affordability issues seem neither likely nor 
beneficial from a societal standpoint.
    Subsidies can perpetuate dependence, inefficiency, and 
technological stagnation on the part of recipients. The 
argument for public subsidies should also be examined in the 
context of local funding priorities. As an example, I will 
suggest that the price tags for municipal stadiums often are 
comparable to estimated water infrastructure needs.
    Finally, many systems can and do manage their assets 
effectively and support the cost of services through rates. The 
transition to cost base rates for water services can trigger 
rate shock and raise very legitimate affordability concerns for 
disadvantaged communities and low income households.
    And I think there has been some very pertinent discussion 
of that here today, but financing, rate design, and assistance 
methods can be used to mitigate these effects. The regulatory 
capacity development and funding principles embodied in the 
current Safe Drinking Water Act and SRF programs place 
appropriate priority on public health and affordability, and I 
think they can guide us in this area.
    In sum, the concept of a funding gap merits further 
analysis, consideration, and debate. The need to invest in the 
Nation's water and waste water infrastructure is real, but the 
funding gap is essentially a construct.
    The water industries should take responsibility, provide 
leadership, and effectively manage their current and future 
assets on the public's behalf. Aggressive action can close the 
projected gap from the top, in terms of reducing total and 
operating costs, and funding for research and development can 
play a role here.
    The essential tool for closing the gap from the bottom is 
cost based rates for water services. Subsidies should be used 
minimally, judiciously, and on a needs basis to address genuine 
affordability concerns. But the goals should be sustainable 
systems, and not sustainable subsidies. Thank you very much.
    [The prepared statement of Janice A. Beecher follows:]
 Prepared Statement of Janice A. Beecher,\1\ Beecher Policy Research, 
      Inc., On Behalf of The H2O Coalition 2
---------------------------------------------------------------------------
    \1\ Janice Beecher is an independent policy research consultant 
specializing in the structure and regulation of the water industry. Dr. 
Beecher has a Ph.D. in Political Science from Northwestern University 
and more than fifteen years experience in the field of utility policy, 
including research positions at Ohio State University and Indiana 
University. Dr. Beecher works on contract for clients that include the 
U.S. Environmental Protection Agency, the National Association of Water 
Companies, the American Water Works Association Research Foundation, 
and individual public agencies and private companies. Dr. Beecher is a 
nationally recognized researcher, author, and lecturer in her field and 
has participated in projects for the World Bank and the National 
Academy of Sciences.
    This testimony is based on an annotated graphic presentation, which 
is available to interested parties. This presentation was originally 
presented at the Infrastructure Conference of the American Water Works 
Association (Orlando, March 2001). The presentation has been expanded, 
revised, and annotated for distribution.
    This testimony is based on Dr. Beecher's independent analysis of 
the issues. Her participation in this hearing is sponsored by the 
H2O coalition. The opinions expressed in this presentation 
are those of the author and do not necessarily represent the views of 
research clients and sponsors.
    \2\ The H2O Coalition is made up of the National 
Association of Water Companies, the National Council for Public-Private 
Partnerships, and the Water and Wastewater Equipment Manufacturers 
Association.
---------------------------------------------------------------------------

Purpose
    Water and wastewater services are vital to the quality of life for 
citizens across this country. Although estimates of the industries' 
total infrastructure needs lack precision, there is actually a 
considerable amount of consensus that the water sector faces its most 
formidable challenge in terms of replacing and upgrading the aged 
delivery infrastructure.
    The purpose of this testimony is to provide some general ``reality 
checks'' in relation to the current national debate over infrastructure 
funding. The purpose of the analysis is not to critique any particular 
perspective, but rather to help inform the dialog on these most 
important issues.

The Infrastructure Funding Issue
    Why is water infrastructure funding on the Policy agenda? The 
infrastructure needs of the water and wastewater industries have 
recently taken a prominent place on the policy agenda, even though this 
issue is not entirely new. The industries are experiencing 
extraordinary increases in costs and investment needs that are closely 
related to ``people and pipe'' demographics--that is, historical 
patterns of urban development and the age and condition of the physical 
plant in place. Today, new data, models, and other tools have improved 
our understanding of this issue. The various stakeholders that 
recognize these needs have reached a critical mass.

Estimating Needs
    General agreement exists on the physical condition of the nation's 
many local water and wastewater systems. A recent report card issued by 
the American Society of Civil Engineers (ASCE) assigned low grades to 
most of the nation's various infrastructure sectors, including ``Ds'' 
for water and wastewater.
    In 1995, studies by the U.S. EPA estimated that water industry 
assets totaled about $144 billion (Community Water System Survey, 
inflation-adjusted to 1999), while the estimated 20-year infrastructure 
need totaled about $151 billion (Needs Survey, inflation-adjusted to 
1999). USEPA has recently issued an updated 20-year needs estimate that 
also is in the range of $151 billion. EPA's estimates focus on needs 
directly and indirectly associated with Safe Drinking Water Act (SDWA) 
compliance.
    USEPA found that more than half of the total infrastructure need is 
for transmission and distribution system needs. About 25 percent of the 
total need is for water treatment facilities. USEPA has also estimated 
the impact of infrastructure costs on households served by systems of 
different sizes. These findings demonstrate how scale economies are a 
key determinant of cost impacts. Smaller water systems are 
disadvantaged in this regard, although the service populations of small 
systems vary in their ability to support the cost of service.
    In 1998, the American Water Works Association (AWWA) escalated 
total 20-year water needs to $366, billion (inflation-adjusted to 
1999), focusing in particular on distribution system needs. Today, 
various groups have coalesced around a total 20-year needs estimate in 
the realm of $1 trillion for the water and wastewater industries.
    The $1 trillion 20-year needs estimate for water and wastewater 
systems has become a focal point for discussion. The $1 trillion 
estimate is imprecise. Comprehensive, valid, and reliable technical and 
financial data on the nation's water and wastewater systems is not 
readily available. A precise needs estimate is not as important as 
recognizing the general need. Indeed, devoting scarce analytical 
resources to estimating the need may not be beneficial. The gap is the 
projected cumulative shortfall that will result if--and only if--(1) 
the infrastructure need estimate is accurate and (2) expenditures on 
infrastructure are not increased. In other words, the gap will 
materialize only if no action is taken to close it.

Understanding the Infrastructure Monster
    Understanding the ``infrastructure monster'' is a challenge. It is 
instructive to look back to earlier research on water utility costs. 
Evidence from earlier studies suggests an awareness of rising costs and 
the role of infrastructure replacement in the cost profile:

 The Nation's Public Works: Report on Water Supply (Wade Miller 
        Associates, 1987) forecast annual needs for the water industry 
        in the range of $4.8 to 7.1 billion as follows: 37-49% for 
        deferred infrastructure maintenance/replacement; 39-55% for 
        meeting demand growth; and 8-13% for Safe Drinking Water Act 
        (SDWA) regulatory compliance
 Meeting Water Utility Revenue Requirements (NRRI, 1993) found 
        that ``In reality, SDWA compliance costs may pale in comparison 
        to costs associated with infrastructure and demand growth 
        needs.''
    Some of the larger utility systems also have been aware of the need 
to step-up the pace of infrastructure replacement. Some of the 
investor-owned (private) water utilities have been particularly active 
in this area. As an example, St. Louis County Water prepared detailed 
assessment of its distribution system in 1994. According to the 
company:

 ``An accelerated replacement program is needed now if we are 
        to avoid excessive customer reaction and a `crisis' response 
        plan . . .
 The Company's infrastructure replacement program is unique 
        because it does not involve the construction of one 
        extraordinary asset over a long construction cycle (e.g., a 
        nuclear plant), but a multitude of short-cycle construction 
        projects which, taken as a whole, are extraordinary in nature . 
        . .
 The Company believes it is critical and in the public interest 
        . . . [to] synchronize rate recovery with plant completion.'' 
        (St Louis County Water Company, 1994).

Capital Intensity, Age, and Deferral
    The water industry is very capital intensive, that is, physical 
plant or infrastructure is a substantial core cost. Water investments 
also have very long service lives that benefit generations of 
customers. Measured as a ratio of utility plant to revenues generated, 
water utilities are more capital intensive than the natural gas, 
electric, and telecommunications industries. Water utilities must 
invest more than $3.50 for every dollar of annual revenues received 
from customers. Trend data (and projected investments) indicate that 
the water industry is becoming even more capital intensive.
    Industry experts have estimated that pipes were installed in the 
early part of the century at a cost of about $5 per foot (or less). It 
is not unusual for replacement costs to total $100 per foot--which is 
more than double the overall rate of inflation for the same period. The 
rate of replacement reflects the anticipated life expectancy for a 
physical investment. A replacement rate of 1 percent implies a life 
expectancy of 100 years. Lower rates imply a much longer--and 
unrealistic--life expectancy. Today's pipe materials today are expected 
to last about 75 years, serving generations of customers.
    The rate of pipe breakage increases as infrastructure ages. 
Breakages lose water, disrupt service, and pose public health risks. 
Emergency repairs typically are much more costly than planned repairs. 
The rate of breakage varies with pipe material, which also correlates 
with the period of installation. Also, as facilities age, the overall 
percentage of ``accounted-for'' water declines; that is, more water is 
lost. The value of water losses has increased with the increased cost 
of water supplies, treatment, and pumping.
    Following its assessment, St. Louis County proposed to pick up the 
pace of replacement from 5 (.13%) to 30 (.8%) miles of pipe per year 
(total pipe miles equal 3,882). But even the accelerated pace of 
replacement now used by some systems is probably inadequate based on 
current knowledge about the life expectancy of materials. But making 
the case for replacement needs to rate regulators and other oversight 
bodies (mayors and city councils) has been a significant challenge. 
Recently, some private utilities have won approval for surcharge 
mechanisms to help fund a continuous program of replacement, while also 
mitigating rate shock (the leading example is the Distribution System 
Improvement Charge, implemented in Pennsylvania).
    Although much of the infrastructure challenge is simply age-
related, at least part of the current need can be attributed to capital 
deferrals, or the postponement of infrastructure investments. Because 
their profit is based on the value of their rate base, investor-owned 
utilities have less incentive to defer capital investments. Deferrals 
exacerbate the ``gap'' problem by increasing the level of need and 
thereby widening the gap between future expenditure levels and current 
revenue levels.
    A model developed by Australian researchers suggests that the 
compound effect of infrastructure replacement needs over several 
decades suggests a ``Nessie curve,'' named after the mythical Loch Ness 
monster. These cost curves can provide a useful model to help utilities 
and other stakeholders understand needs at the system level.
    In reality, the challenges of prudent capital replacement and 
``lumpy capacity'' are not new to utility economics. Other utility 
sectors have faced--and are facing--infrastructure needs. However, 
today's water and wastewater infrastructures were cheap to begin with, 
were well-subsidized (particularly for wastewater), and have long been 
depreciated. These factors combine to create an extraordinary pressure 
on costs. Emerging information systems, planning and management tools, 
and alternative technologies can help manage the monster--and close the 
funding gap.
    The real risk today may be in the potential for a ``responsiveness 
gap,'' that is, the gap between awareness and knowledge about an issue 
or problem and taking the actions necessary to address the problem and 
avoid or mitigate deleterious effects. However, debate is open as to 
how to respond to the challenges now faced by the water industry, 
particularly with respect to private versus public responsibilities.

The Emerging Myths
    The infrastructure funding debate is contributing to a number of 
emerging myths that may or may not be grounded in reality. The myths 
suggest:

 That a national crisis is looming.
 That the cost of water services cannot be supported through 
        rates.
 That a funding gap is inevitable.
 That public (that is, federal) funding solutions are 
        essential.
    Some reality checks may help inform the infrastructure funding 
debate by challenging some of the emerging myths. These reality checks 
are offered not as criticism of any given perspective, but rather to 
bring an empirical perspective to the dialog about these important 
issues.

Reality Check: Municipal Finances
    The water and wastewater industries are dominated by municipal 
ownership. Care should be taken to not over-generalize about municipal 
finances. However, some of the available data (from the U.S. Census of 
Governments and elsewhere) may be relevant to the funding debate.
    The data indicate that in general, when municipalities provide 
electricity and natural gas services, revenues from user charges exceed 
expenditures. For water and sewer services (as well as solid waste and 
transit services), expenditures exceed revenues from user charges. The 
findings generally suggest that municipal water customers do not cover 
expenditures through rates. The implications of this ``gap'' are worse 
if the expenditures understate the cost of water service (as is the 
case with deferrals). Of course, individual water and wastewater 
systems may have very different financial profiles.
    The deficit between expenditures and user charge revenues is 
detectable for different types of publicly owned water systems: 
municipalities, special districts, counties, and townships. Trend data 
indicate that the expenditure-revenue gap has been persistent over 
time, although it has closed somewhat. The difference between 
expenditures and revenues must be made up through tax revenues and 
subsidies (grants). The trend data are comparable when displayed on a 
per-capita basis. Data for individual cities show that aggregate 
expenditures on water, energy, and transit utilities exceed user-fee 
revenues in some cases, but not in others. Similar results can be seen 
for municipal wastewater systems.
    For investor-owned water utilities, operating revenues are provided 
primarily through cost-based rates charged to customers, and revenues 
exceed expenditures. An investor-owned water utility must support the 
full cost of service through rates in order to survive.
    The difference between revenues and expenditures is used to pay for 
taxes, depreciation, and the cost of capital. Rates charged by private 
water utilities are strictly regulated by state public utility 
commissions, which adhere to accepted systems of accounts and cost-of-
service standards of ratemaking. USEPA data (Community Water Systems 
Survey, 1995) also revealed that privately owned water systems collect 
more revenues per gallon than publicly owned systems.
    Municipal debt can be used for long-term capital investments, such 
as water treatment facilities. Debt instruments that can be used by the 
water sector include traditional issuances, as well as private-activity 
bonds. Debt instruments should not be used for routine maintenance 
(considered an annual expense). However, debt (short-term and long-
term) can be used for major capital replacements to amortize costs over 
time. Ideally, costs are recovered over the useful life of the capital 
investment (although in practice shorter time periods are used).
    Several interrelated financing issues have contributed to or 
complicated the infrastructure funding problem. These factors include: 
unrealistic service-life expectations, extraordinary cost inflation, 
inadequate accounting and accounting standards, investment deferrals, 
inadequate user charges, profits and reserves for a few systems, and 
concerns about rates and equity. Accounting standards are the domain of 
the Governmental Accounting Standards Board (GASB) for governmental 
utilities and the state public utility commissions for investor-owned 
utilities.

Reality Check: Household Expenditures
    Household expenditures for utility services and other goods and 
services provide another relevant perspective. Consumer expenditure 
data are available from the Consumer Expenditure Survey (Bureau of 
Labor Statistics). Although the data have limitations, they are useful 
for general purposes.
    Water and public services (sewer and solid waste) account for a 
relatively small share of the average household utility budget (less 
than .8% of total expenditures), particularly in comparison to 
electricity (2.4%) and telecommunications (2.1%). In many respects, 
water services are a ``bargain'' to average households. Of course, 
averages mask relevant variations and actual expenditures are affected 
by many factors. Over time, average household expenditures for 
utilities have climbed, but expenditures for water and other public 
services have retained their relative position. The percentage of 
household income and expenditures devoted to utilities has declined 
with time, although the share for water and other public services has 
remained relatively constant.
    On average, a four-person household spends about the same amount 
each year on cable television and tobacco products as on water 
services. Americans have shown a tremendous willingness to pay for 
advanced communications and entertainment technologies, including 
cellular phones ($41.24 per month), cable television ($28.92 per 
month), and internet services ($21.95 per month). For many U.S. 
households, the expenditures for these more discretionary services are 
greater than for water services. It is noteworthy that the nation's $80 
billion cellular telephony infrastructure has been entirely supported 
by private providers who collect fees from users.

Reality Check: Global Comparison
    Another reality check can be made using comparative international 
data. Americans use more water per capita overall than most nations of 
the world. Yet water prices in the United States are comparatively 
lower than prices charged by water service providers in many other 
developed countries. These findings also are supported by a study 
conducted by researchers in the Great Britain who controlled for 
international difference in the gross domestic product.

Reality Check: Rate Shock
    Large rate increases have the potential to cause rate shock among 
customers. Technically, rate shock applies when a rate increase is 
associated with a significant drop in usage, which reflects the 
willingness (and ability) to pay for service. For essential services 
(with relatively price-inelastic demand), these drops may be 
transitory. The term ``rate shock'' is also used to describe the pubic 
outcry associated with rate increases--which may have no basis in 
affordability. However, the extent of rate shock and affordability 
concerns depends in part on the level of the current water bill and the 
magnitude of the rate increase. Techniques are available to mitigate 
rate shock and address genuine affordability problems.
    Consumer Price Index data (BLS) reveal that real (inflation-
adjusted) water rates are rising faster than the overall rate of 
inflation--along with prices for garbage collection, cable television, 
and local telephone service. Data for individual communities suggest 
that real (inflation-adjusted) rates have risen for some but declined 
for others.
    Any given rate increase may or may not trigger rate shock or cause 
hardship. A higher percentage increase on a low base may not be 
problematic for most households. The magnitude of the increase relative 
to household income levels should be considered. Public involvement and 
communications (including informative bills) can help customers 
understand the reasons for the rate increase.
    As suggested in the review of municipal finances, underpricing of 
water services may be an important factor in the projected funding gap. 
Underpricing sends inappropriate signals to customers about the value 
of water, leading to inefficient useage. According to basic economic 
theory, underpricing also leads to over-consumption and inefficient 
supply decisions to meet inflated demand. Privately owned utilities are 
more likely to adhere to cost-based ratemaking that recovers total 
revenue requirements (capital and operating costs).
    Some communities deliberately maintain ``low'' prices for water and 
wastewater services for reasons that include community values, economic 
development, and political expedience. In some cases, rate increases 
have been avoided for very long time periods. Taking inflation into 
effect, a ``stable'' rate is actually a rate that has decreased over 
time. The ``loss'' of revenue presents an opportunity cost to the 
community in terms of its ability to make appropriate infrastructure 
investments.
    Rate shock in the water sector is possible because rising costs 
must be recovered over flat per-capita demand. Affordability concerns 
are real but manageable. Financing, ratemaking, and conservation 
strategies can mitigate rate shock to a degree. Surcharge adjustments 
can be used to achieve gradualism in rate increases. Larger systems can 
use consolidated rates, progressive rate structures, and conservation 
targeted to low-income households. Needs-based subsidies can be used to 
help eligible customers by providing direct payment assistance or 
funding a lifeline rate.
    From a theoretical standpoint, willingness to pay is represented by 
the demand curve, which incorporates the consumer's ability to pay. 
From a practical standpoint, ability to pay is a function of price and 
income and can be addressed through rate design and subsidies 
(respectively). For many publicly owned systems, the real problem is 
not the willingness nor the ability to pay--but the ``willingness to 
charge'' customers at rates closer to the true value of water service.

Reality Check: Consumer Preferences
    Another ``gap'' seems to persist between customer preferences and 
their willingness to pay for safe and reliable water service. According 
to opinion polls (Gallup) Americans consistently express a high degree 
of concern about drinking water and related issues. Paradoxically, 
consumers do not necessarily appreciate the value of water services. 
Consumers often appear unwilling to support rate increases necessary to 
ensure drinking water quality and reliability. Indeed, low prices 
reinforce the view that water services are an entitlement. Public 
education is needed to close the gap between opinion and willingness to 
pay the cost for arguably the most essential utility services.
    Water itself has no substitutes, but alternative methods of 
delivery are available. For many U.S. households, the price of one 
gallon of centrally-supplied water--conveniently delivered to the tap--
is less than one-third of one penny (see Raftelis Environmental 
Consulting Rate Survey). In general, every other water alternative is 
no more safe, much less convenient, and astronomically more expensive. 
At $1.15 per gallon, the price of ``designer water'' is 347 times the 
price of tap water.
    Despite the high costs, Americans continue to buy bottled water in 
increasing amounts.
    In 1999, bottled water sales had increased by 12 percent. In 1999, 
the nation's water utilities collected revenues totaling about $29.4 
billion. Wastewater treatment works collected revenues totaling about 
$26.3 billion. The bottled water industry collected revenues totaling 
$5.2 billion.
    Rough estimates can be used to compare the profit margin for 
bottled water versus tap water. For larger bottlers, total production 
costs (including source costs) amount to about 10 cents for each bottle 
that can be sold for 70 cents or more (a 600% markup). The ``markup'' 
for tap water, even for private companies, is closer to 10 percent.
Reality Check: Federal Funding
    The reality of the broader context of federal funding also is 
relevant to any particular constituency, including the water and 
wastewater industries. It is important for the water industries to have 
realistic expectations about future federal funding for water programs 
in order to plan sufficiently to meet infrastructure needs.
    Water services have always been and always will be subsidized to a 
degree. Some subsidies are in the public interest because of equity 
considerations, as well as health, safety, and environmental protection 
concerns. All subsidies have distributional consequences (that is, they 
result in both winners and losers). Subsidies can also perpetuate 
dependence, inefficiency, and stagnation on the part of recipients. 
Whether a water system or a customer, subsidies can mute incentives for 
cost control. Subsidies require tax revenues and taxpayers are also 
ratepayers (the same households pay one way or another). The social 
benefits of subsidies should outweigh the total costs.
    Programs have been established to assist low-income customers in 
other utility sectors.
    The LIHEAP programs provide payment assistance for energy services. 
Under the 1996 Telecommunications Act, the Lifeline and Linkup programs 
provide assistance to telephone customers.
    In reality, water and wastewater infrastructure funding already 
exceeds federal funding provided to the LIHEAP and Lifeline/Linkup 
programs. Levels of funding under the WIN (Water Infrastructure NOW) 
proposal would vastly exceed current levels for water infrastructure, 
as well as other utility programs. The WIN proposal expands grant 
subsidies, which effectively can both reward and perpetuate 
inefficiency. If a subsidy rewards past inefficiency, continued 
inefficiency on the part of the system is assured because underpricing 
will persist.
    Infrastructure funding for water is provided through the Clean 
Water and Safe Drinking Water State Revolving Funds (SRF). The 
principles underlying the DWSRF are sound: demonstration of capacity by 
systems; priority on pubic health and affordability; emphasis on loans 
(v. grants); and ineligibility of maintenance and growth-related costs. 
The SRF should not reward cost avoidance and inefficiency. The SRF 
should not advantage publicly owned systems (and their customers) over 
privately owned systems (and their customers) and further widen the gap 
in rates.
    Some programmatic reforms could enhance the existing Clean Water 
and Drinking Water funding programs. Potential measures include: 
improving efficiency and lowering administrative costs to states and 
systems; addressing barriers to access and funding equity for different 
types of systems (large and small systems; publicly and privately owned 
systems); establishing fair criteria for funding infrastructure costs; 
and promoting sound cost accounting and rate design.
    The long-term federal funding environment for all utility services 
is not without uncertainty. Concerns have emerged about maintaining 
funding for telecommunications assistance programs under the Bush 
administration. Base-level funding for LIHEAP (excluding supplemental 
appropriations) has declined over the life of the program. The budget 
of the USEPA also has been targeted for budget cuts under the Bush 
administration.

Reality Check: State and Local Priorities
    At the local level, water and wastewater services--although vital 
to communities--are not always assigned high priority. In many larger 
cities, funding needs for the water sector are comparable to funding 
provided for professional sports stadiums.
    Given their primacy for water and wastewater policies, the state 
also must play a role in addressing the infrastructure issues. Several 
states have taken steps in this area, including: Pennsylvania (cost 
recovery), Kentucky (regional consolidation), Rhode Island (capital 
planning), Oregon (program integration), and Texas (regulatory reform).

Reality Check: The Gap
    The concept of a funding gap merits further consideration and 
debate. The need to invest in the nation's water and wastewater 
infrastructure is real, but the ``funding gap'' is essentially a 
construct. The magnitude of the gap is uncertain and may be inflated. 
The potential to lower costs through restructuring, innovation, 
operational efficiency, and integrated resource management (including 
conservation achieved by water-efficient fixtures and practices) may 
not be fully considered. The need is largely attributable to system 
demographics (age and condition), although some deferrals have probably 
exacerbated the problem. Many water utilities (and most other 
utilities) can and do support the cost of service through rates. A 
funding gap will materialize if deferrals and underpricing persist; 
that is, if the responsiveness gap widens. The water industries must 
provide leadership and effectively manage their current and future 
assets on the public's behalf.
    Aggressive action is needed to close the projected gap from the top 
(infrastructure needs) and from the bottom (expenditure levels). Cost-
reduction strategies for closing the gap from the top include: 
efficiency and optimization (least-cost) approaches directed at both 
water production and usage; leadership and continued technological 
innovation; and industry restructuring to achieve scale economies and 
improve operational performance. Some gap estimates have attempted to 
incorporate efficiency improvements--but a gap is still anticipated. 
Technical and managerial innovation can substantially reduce operating 
costs; capital costs can be reduced, but probably to a lesser degree 
given the basic capital intensity of water services. Industry 
restructuring includes consolidation and fundamental changes in system 
ownership and management (including privatization).
    The gap can be closed from the bottom by increasing revenues to 
support infrastructure expenditures. Revenue-enhancement strategies 
include: cost-based (marginal-cost) rates to send better price signals 
to customers, along with other ratemaking strategies (such as 
surcharges); private-sector investment; and public-sector funding 
(local, state, and federal). With the magnitude of the infrastructure 
need and the complexity of the water sector, multiple revenue-
enhancement solutions are necessary and appropriate. However, cost-
based rates should be emphasized and public subsidies should be used 
judiciously.
    The public sector will continue to play a central role in 
addressing water and wastewater infrastructure needs. The public sector 
can: leverage other public and private funding sources; provide 
incentives for optimal investment, operational efficiency, and cost-
effective restructuring; support research and development, data 
collection and information dissemination; address at-risk systems and 
households based on demonstrable needs; and promote sustainable water 
systems, not sustainable subsidies.
    The private sector can play an expanded role in addressing water 
and wastewater infrastructure needs. The private sector can: provide 
leadership, technical innovation, and research; promote efficiency and 
sustainability through market-based solutions as appropriate; develop a 
range of asset ownership and management options to address capital and 
operating needs; secure and utilize available public funding; and 
maintain accountability through regulation.

The Real Challenges
    Moving forward, the real challenges to all stakeholders in the 
water and wastewater sectors may be to:

 Establish a new science of prudent asset management for the 
        water sector.
 Engage the public on water issues through open and 
        participatory processes.
 Demonstrate a willingness to charge for the true cost of water 
        service.
 Use public funding strategically to make lasting improvements 
        to operations.
 Do not postpone the inevitable and perpetuate the 
        responsiveness gap.
 Promote equity and sustainability over a long-term planning 
        horizon.
 Be receptive to technical and institutional innovation.
    Although formidable, these challenges can be met.
    I look forward to working with this Committee, the H2O 
Coalition, and all other stake holders on this issue. Thank you for 
your attention.

    Mr. Gillmor. Thank you. Barker Hamill of New Jersey, the 
Association of State Drinking Water Administrators.

   STATEMENT OF BARKER HAMILL, ASSOCIATION OF STATE DRINKING 
 WATER ADMINISTRATORS, CHIEF, BUREAU FOR SAFE DRINKING WATER, 
       NEW JERSEY DEPARTMENT OF ENVIRONMENTAL PROTECTION

    Mr. Hamill. Thank you. My name is Barker Hamill, and I am 
the Chief of the Bureau of Safe Drinking Water in the New 
Jersey Department of Environmental Protection. I am here 
representing the Association of State Drinking Water 
Administrators, and I thank you for the opportunity to offer 
comments on this subject.
    We certainly agree that there is a large infrastructure 
need and that there is a large portion of that need that is 
subject for underground piping needs. There is also evidence 
that the financing for the needs for the water infrastructure 
and developing viable solutions to meet these needs will be 
challenging.
    The Association is prepared to work with Congress, EPA, and 
the water utilities, and other stakeholders, to help define 
those activities. ASDW members are highly involved in providing 
the raw data used in EPA's drinking water need surveys.
    This activity competes with other new activities 
established by the 1996 Safe Drinking Water Act Amendments. 
State programs infrastructure is also experiencing a funding 
problem. Basic public water supply supervision program funding 
is unchanged since a much needed increase in fiscal year 1997. 
That recognized some of the increased demands of the 1996 Safe 
Drinking Water Act Amendments. While significant portions of 
the SRF funding theoretically can be used to support programs, 
the practical reality is that States have only been able to use 
about one-half of the available resources.
    A shortfall of funding from current funding sources will 
grow from about $110 million in fiscal year 1902 to $207 
million in fiscal year 1905. The 1996 Safe Drinking Water Act 
Amendments require that the EPA develop programs and 
regulations to address microbial contamination, disinfectant 
by-products, radon, radionuclides, arsenic, ground water 
protection, filter backwash, among other rules.
    The EPA must also evaluate potential contaminants for 
regulation well into the future, as well as look back and do a 
6 year review of existing rules. It is one of these 6 year 
review existing rules, the total coliform rule, that is likely 
to address major issues with distribution systems and 
distribution system water quality, which is where a lot of this 
activity is.
    As a result, infrastructure funding needs will continue to 
escalate as more regulations are promulgated that address new 
contaminants in drinking water, and its current regulatory 
level to lower or meet improved analytical methods to bring 
standards closer to the maximum contaminant level goal.
    In addition, new treatment technologies such as membrane, 
ozone, and UV eradication will become more commonplace in water 
treatment. Some of these technologies are capital intensive to 
install and operate, while others will require significant 
retrofitting of current treatment plants and upgrades to 
distribution systems.
    Funding of water system infrastructure needs involves the 
partnership at the Federal, State, and local level. At the 
Federal level, funding is available through the Drinking Water 
State Revolving Loan Fund that was established under the 1996 
Safe Drinking Water Act Amendments.
    In the 1996 Safe Drinking Water Act Amendments, Congress 
authorized $9.6 billion between fiscal year 1994 and fiscal 
year 2003 for States to provide loans and grant equivalents to 
water systems in need.
    An important note is that although $7.6 billion was 
authorized through fiscal year 2001, only $4.42 billion has 
been appropriated, leaving a funding gap of $3.18 billion that 
the States and water systems were expecting to be available to 
meet infrastructure needs and compliance requirements of the 
Safe Drinking Water Act.
    Many States have had a long involvement in providing 
financial assistance for drinking water projects. In New 
Jersey, we have had a loan program that has made over 180 loans 
for $145 million that started in 1984. We have integrated that 
program with the current SRF program and anticipate an 
additional 50 loans for about $300 million by the end of 2001.
    It is important to note that by the end of this year 
requests for SRF funds are greater than available SRF funds in 
New Jersey, and we will be using additional State funding to 
meet those needs, and we expect the demand to increase as time 
goes on.
    Finally, I would like to stress that Federal guidelines, 
given the amount of detail that they provide, should be as 
flexible as possible for States to deal with competing 
priorities, and to deal with State planning issues and how 
these funds are spent. The Association thanks you for this 
opportunity to come and comment.
    [The prepared statement of Barker Hamill follows:]

  Prepared Statement of Barker Hamill, Chief, Bureau of Safe Drinking 
Water, New Jersey Department of Environmental Protection, on Behalf of 
         The Association of State Drinking Water Administrators

                              INTRODUCTION

    The Association of State Drinking Water Administrators (ASDWA) is 
pleased to provide testimony before the House Committee on Energy and 
Commerce Subcommittee on Environment and Hazardous Materials regarding 
water infrastructure needs and state drinking water program needs. 
ASDWA represents the drinking water programs in each of the fifty 
states, territories, and the District of Columbia in their efforts to 
ensure the provision of safe, potable drinking water to over 250 
million consumers nationwide. ASDWA's primary mission is the protection 
of public health through the effective management of state drinking 
water programs that implement the Safe Drinking Water Act (SDWA).

                          WATER INFRASTRUCTURE

Water Infrastructure Needs
    Providing a supply of safe, potable drinking water is critical to 
protecting public health and ensuring current as well as the long-term 
economic growth of this Nation. In February 2001 the United States 
Environmental Protection Agency (EPA) released a report entitled 1999 
Drinking Water Infrastructure Needs Survey that indicates that drinking 
water systems infrastructure needs total $150.9 billion over the next 
20 years and that $102.5 billion is needed today to ensure the 
provision of safe drinking water. The bulk of this need, $83.2 billion, 
is for transmission and distribution projects followed by treatment 
($38.0 billion), storage ($18.4 billion), source ($9.6 billion), and 
other needs ($1.9 billion). These needs are documented for the 54,000 
community water systems and 21,400 not-for-profit noncommunity water 
systems nationwide.
    Large systems (serving more than 50,000 people) account for 41 
percent of this need while medium sized systems account for $43.3 
billion and small systems account for $31.2 billion. Not-for-profit 
noncommunity water systems account for $3.1 billion of need. Although 
the total small system need appears modest compared to needs of larger 
systems, the costs on a per household basis are almost four times 
higher than for larger systems because small systems lack the economies 
of scale to spread the costs of capital improvement among many 
consumers.

Why is there an Infrastucture Need?
    Water utilities must continue to upgrade and improve their 
infrastructure to meet new SDWA regulatory mandates and to replace 
aging and failing distribution system pipes and appurtenances. While 
water systems have typically had to keep pace with new requirements of 
the SDWA with regard to treatment, specific upgrades and replacement of 
pipes and transmission lines have been addressed, from a regulatory 
perspective, only in a minor way through mandatory replacement of lead 
pipes under the Lead and Copper Rule. Much has been learned over the 
last decade or so; however, about specific health problems associated 
with distribution system problems such as leaking pipes, cross 
connections, and backflow. Many of these concerns are likely to be 
addressed specifically in the future as EPA proposes developing a 
distribution system rule.
    The 1996 Amendments to the SDWA require that EPA develop 
regulations to address microbial contamination, disinfection by-
products, radon, radionuclides, arsenic, ground water protection, and 
filter backwash. EPA must also continue to evaluate potential 
contaminants for regulation well into the future. As a result, 
infrastructure funding needs will continue to escalate as more 
contaminants are promulgated that address new contaminants in drinking 
water, and as current regulatory levels are driven lower to meet 
improved analytical methods to bring standards closer to the maximum 
contaminant level goal. In addition, new treatment technologies such as 
membranes, ozone, and UV irradiation will become more commonplace in 
water treatment. Some of these technologies are capital intensive to 
install and operate, while others will require significant retrofitting 
of current treatment plants and upgrades to distribution systems.
    In addition to meeting infrastructure needs associated with 
compliance with the SDWA, water systems also face the challenge of 
replacing miles of distribution pipes as materials age and begin to 
fail. The demographics of distribution pipe installation indicate that 
over the course of the next 20 years, many of the miles of pipes that 
have been put in the ground over the last 100 years will reach the end 
of their useful life and need replacement.

Current Funding Availability
    Funding of water system infrastructure needs involves a partnership 
at the Federal, state, and local level. At the Federal level, funding 
is available through the Drinking Water State Revolving Loan Fund 
(DWSRF) that was established under the 1996 SDWA Amendments. In the 
SDWA, Congress authorized $9.6 billion between FY-94 and FY-03 for 
states to provide loans and ``grant equivalents'' to water systems in 
need. An important note is that although $7.6 billion was authorized 
through FY-01, only $4.42 billion has been appropriated leaving a 
funding gap of $3.18 billion that the states and water systems were 
expecting to be available to meet infrastructure needs and compliance 
requirements of the SDWA.
    States also must match the DWSRF with 20 percent state funding as a 
way to further capitalize this program. Through June 30, 2000 states 
had contributed over $548 million additional funds for the program. To 
the extent that the full Federal amount has not been appropriated; 
however, revenue is also lost due to the loss of state matching funds. 
A number of states also leverage the funds to create additional dollars 
for infrastructure improvements. Through June 30, 2000, states had 
leveraged over $1 billion in bonds to provide additional project 
funding. A number of states have also established their own grant and 
loan programs that are used to supplement DWSRF funding.
    Additional Federal funding also comes through the Rural Utility 
Service Water and Waste Loan and Grant Program under the U.S. 
Department of Agriculture's Rural Development office. These funds 
assist eligible applicants in rural areas and cities and towns serving 
up to 10,000 people. The Federal Housing and Urban Development (HUD) 
Agency also provides block grants to states under its Community 
Development Block Grant (CDBG) program to provide assistance to small 
local governments that generally serve less than 50,000 people and 
counties with a population of less than 200,000 people. Water and 
wastewater projects are eligible activities under the CDBG program. 
Many states use these funds along with USDA and DWSRF funding to 
package the appropriate mix of grants and/or loans to meet a 
community's specific financing needs.
    At the local level, a primary source of funding for infrastructure 
improvements comes through rates charged by utilities to consumers for 
water use. In many cases, however, rates have been kept artificially 
low and long-term maintenance costs deferred. This has the potential to 
contribute to ``rate shock'' should customers have to bear the full 
cost of projected infrastructure replacement needs. Municipalities can 
also borrow money from the private sector such as banks or go to the 
bond market although many smaller water systems and non-municipal 
systems find it more difficult to access these types of funding. 
According to the Water Infrastructure Network's report Clean and Safe 
Water for the 21st Century, water systems are currently investing 
around $13 billion per year for infrastructure needs.

Is There a Funding Gap?
    While it may be possible through instruments such as EPA's drinking 
water needs survey to project drinking water infrastructure needs over 
the next 20 years, it is much more problematic to define how large an 
infrastructure funding gap exits. To calculate this accurately, one 
needs to have a solid understanding of the current and long term 
funding needs and then have a fairly accurate assessment of the total 
sources of revenue at the Federal, state, and local level that can be 
brought together to meet these infrastructure funding needs. The delta 
(or gap) between these two numbers represents the funding gap or need 
but only at the gross national level. The ``gap'' can vary 
significantly on a water system-by-water system basis depending on 
system size, contaminants of concern, the system's current rate 
structure, access to available capital, and the age of the system, 
among many factors.

Conclusion
    Drinking water system infrastructure needs will continue to 
increase due to new SDWA regulatory requirements as well as the need to 
replace aging and failing pipes in distribution systems. A continued 
partnership among Federal, state, and local funding sources will be 
essential to ensure the long-term provision of safe, potable drinking 
water to consumers nationwide. Numerous needs surveys, including EPA's 
recent analysis, have concluded that nationally, water systems face a 
daunting task in continuing to ensure safe drinking water. While ASDWA 
is not able to calculate the actual definitive dollar figure between 
the need and available funding, others have indicated that a gap exists 
and may be quite large. ASDWA is prepared to work with Congress, EPA, 
the water utility industry, and other interested stakeholders to better 
refine the scope of the problem and the gap, and determine how best to 
meet these needs today and into the future.

                          STATE INFRASTRUCTURE

State Implementation Responsibilities
    State drinking water programs also need adequate funding to ensure 
the effectiveness of their own ``infrastructure'' to carry out the 
myriad responsibilities of the SDWA. Since the SDWA Amendments of 1996, 
state program responsibilities have dramatically expanded to move 
beyond compliance at the tap to delineating and assessing the sources 
of all waters used for public water supplies, ensuring qualified 
operators at all water systems, defining and implementing water system 
capacity programs, creating a new DWSRF funding mechanism, and 
providing significantly more information and outreach to the public. 
These efforts are in addition to implementing Federal as well as state-
specific drinking water regulations addressing specific contaminants.
    Forty-nine of the 50 states currently have ``primacy'' or 
enforcement authority for the Federal SDWA. To achieve and maintain 
primacy, states must adopt rules that are no less stringent than the 
Federal requirements and have the ability to enforce these regulations. 
Although some states have requirements that are more stringent; for the 
most part, state drinking water programs are implementing and enforcing 
Federal requirements.
    Collectively, state programs provide oversight, implementation 
assistance, and enforcement for approximately 169,000 public water 
systems nationwide. These systems range from large metropolitan 
municipalities to mobile home parks and schools. The vast majority 
(over 95 percent) of these systems are small, serving less than 3,300 
people. Many of these systems require extensive technical assistance, 
training, and oversight.
    Today, the regulatory landscape is significantly more complex than 
ever before. Since FY-97, state Public Water Supply Supervision (PWSS) 
dollars have had to stretch to cover development, implementation, and 
enforcement of numerous new regulations and programs such as those to 
address radionuclides, the microbial/disinfection byproducts rule 
cluster, unregulated contaminant monitoring, consumer confidence 
reports, capacity development, expanded operator certification 
requirements, source water assessment and delineation, and the DWSRF. 
States anticipate new regulations to be put in place this year to 
address radon, arsenic, and groundwater. Additionally, states are 
expected to implement revisions to the surface water treatment and lead 
and copper rules, public notification, and variance and exemption 
requirements. These requirements are in addition to the state program 
responsibilities for core activities such as compliance monitoring, 
data management, training, and enforcement for 88 currently regulated 
contaminants. States also are responsible for ensuring that public 
health is protected through preventive measures such as disease 
surveillance, risk communication, sanitary surveys, laboratory 
certification, permitting, and emergency response. States expect that 
their responsibilities will continue to expand as EPA promulgates 
additional regulations and reviews current regulations for modification 
(see attachment 1).

State Funding
    The SDWA authorizes EPA to fund up to 75 percent of the costs to 
states to implement the drinking water program. Historically, however, 
states have contributed 65 percent of the funding while EPA has only 
contributed 35 percent. While the actual contributions for individual 
states vary, with some substantially over matching the Federal 
contribution, the bottom line is that adequate Federal funding for 
states to implement this Federal law has not historically been 
provided.
    The current Federal PWSS grant provides $87.3 million for states to 
implement their programs (the remainder of the $93 million currently 
appropriated by Congress is directed to Indian Tribes). This level has 
not increased for states over the last five years (since FY-97), even 
though many of the new initiatives under the 1996 Amendments became 
effective almost immediately. The level funding of $87.3 million 
actually means that states have lost funding due to inflation and 
rising personnel costs, not to mention a FY-01 rescission that actually 
reduced state PWSS and DWSRF grants.
    The 1996 Amendments also allowed states to take up to 31 percent 
set-asides from the DWSRF for program implementation. EPA, however, has 
never requested the full $1 billion per year authorization. DWSRF funds 
are also used to provide resources for new programs at the national 
level such as operator certification training reimbursement and 
unregulated contaminant monitoring which further reduces the corpus of 
the funds available for state use. In addition, many states have 
encountered significant barriers to fully accessing these funds 
including:

 the inability to obtain the needed one-to-one state match with 
        new state revenue (for program implementation activities)
 the inability to shift resources directed to water system 
        infrastructure improvements to state program implementation
 the unstable nature of the annual SRF funding allocation which 
        is based on water system needs and is affected by the states' 
        annual intended use plan for projects and set-asides
 the threat of up to 40 percent withholding for failure to 
        implement certain program requirements such as capacity 
        development and operator certification
 the unwillingness of state legislatures to approve new hires 
        using ``temporary'' funding (the drinking water SRF is only 
        authorized until 2003)
    To supplement insufficient Federal funding, many states have turned 
to state general revenues and fees to maintain an adequate core 
program. These additional funds; however, have not be adequate to fully 
meet state program implementation costs.
    ASDWA and EPA conducted a national resource gap analysis in early 
1999 to estimate state resources needed to implement the drinking water 
program between 1999 and 2005. The analysis showed that in FY-99, the 
funding gap for states to implement the SDWA equaled $83 million and 
staffing needs fell short by 1,627 full time equivalents (FTEs). In FY-
02, the gap will widen to $110 million and 1,906 FTEs; and by FY-05, 
the states' ability to implement the SDWA is expected to fall short by 
$207 million and 2,670 FTEs (see charts, page 7). The situation was 
exacerbated this year when the state PWSS and DWSRF dollars were 
subjected to the Agency's FY-01 rescission cuts, thus further reducing 
Federal funds to the states.
    Even the U.S. General Accounting Office (GAO) has raised state 
funding concerns. In August 2000, GAO released a report to Congress 
entitled, Drinking Water: Spending Constraints Could Affect States' 
Ability to Implement Increasing Program Requirements. An extrapolation 
of their findings indicate that even if all states had been able to 
access the maximum 31 percent of DWSRF set-asides for program 
implementation and related activities, there would still be a funding 
gap beginning in FY-02. Since few states are able to access the full 
set-aside amounts, the funding gap is much greater than GAO's 
``optimum'' estimate, and in fact, a gap already exists. The Report 
further notes that even those states that felt they were managing to 
keep up with the pace of implementing and enforcing the new statutory 
program requirements, at least for the short term, were only able to do 
so by ``. . . scaling back their drinking water programs, doing the 
minimum necessary to meet requirements, and setting formal or informal 
priorities among their responsibilities.'' This is a blueprint for a 
public health crisis.

Conclusion
    Adequate infrastructure funding needs for state SDWA program 
implementation is just as critical as adequate funding for water system 
infrastructure improvements. States are responsible for ensuring water 
system compliance and providing ``infrastructure'' for source water 
assessments; certified and trained water system operators; water system 
financial, technical, and managerial competency; public outreach and 
communication; and working directly with water systems to obtain and 
maintain compliance. As Congress moves forward to evaluate and find 
solutions for the water infrastructure funding gap attention must also 
be directed to the state program funding gap.
    The goal of both of these efforts is protecting public health. It 
is about knowing that whenever you brush your teeth, bathe your child, 
or prepare your food, the water has been monitored and tested for 
contaminants; that the responsible operator has been trained and 
certified; and that the drinking water system has demonstrated that it 
is technically, financially, and managerially capable of providing safe 
drinking water. In order to meet Congressional expectations and Federal 
regulations to successfully implement the SDWA, both states and water 
systems need increased funding to ensure a safe and dependable supply 
of drinking water today and for future generations.

[GRAPHIC] [TIFF OMITTED] T1489.079

[GRAPHIC] [TIFF OMITTED] T1489.080

    Mr. Gillmor. Thank you, Mr. Hamill, and we will go to Mr. 
Erik Olson, from the Natural Resources Defense Council.

 STATEMENT OF ERIK D. OLSON, SENIOR ATTORNEY, NATURAL RESOURCES 
                        DEFENSE COUNCIL

    Mr. Olson. Thank you, Mr. Chairman, and Mr. Pallone, and 
other colleagues in the room. I am with the Natural Resources 
Defense Council, and I also chair a coalition of about 300 
public interest groups, including health, medical, and 
environmental and consumer groups called the Campaign for Safe 
and Affordable Drinking Water.
    I wanted to specifically talk about the aging 
infrastructure of the United States. The water that I just 
poured for myself here came out of pipes, some of which date to 
the Lincoln Administration here in DC. We have an aging 
infrastructure across the United States--it is not just 
Washington--that has some serious problems.
    We, the NRDC, issued a report a few years ago called, 
``Victorian Water Treatment Enters the 21st Century.'' What we 
found is that 90 percent of the utilities in the United States, 
the big utilities, continue to use World War I era drinking 
water treatment technology.
    There may have been some upgrades, but the basic technology 
has not changed since World War I for the vast majority of big 
utilities. There clearly is a need for upgrading the 
infrastructure in the United States for drinking water, and 
obviously the need is going to cost a lot of money.
    EPA's estimates are the $100 to $150 billion number that 
you have heard. There are estimates that the Water 
Infrastructure Network was made that may or may not be inflated 
suggest between half-a-trillion and a trillion dollars will 
need to be spent on this.
    And we have heard a lot about arsenic, but let's put this 
in perspective. If we take the industry's own estimates of the 
total infrastructure needs, it is around $500 billion to $1 
trillion. The arsenic rule itself would be less than 1 percent 
of that total need.
    We think that it is a good investment. I don't want to 
spend a lot of time talking about arsenic issues, but I think 
it is important to respond to a couple of points that were 
made. One suggestion was that this was rushed through at the 
last minute. EPA actually took more than 20 years to put this 
rule together.
    It took three statutory deadlines, court orders, and a 
series of extensions over a period from 1975 through 1991 for 
this to happen. It was not rushed through. EPA had over 30 
meetings with the public to discuss this. There were over 1,000 
comments submitted to the Agency.
    This was not rushed through. The other significant point is 
that the costs for over 90 percent of the population that is 
affected by this is $3 a month or less. Let me repeat that. For 
over 90 percent of the people affected by this arsenic rule, 
the cost is going to be $3 a month or less.
    Clearly for small systems, the costs may be higher. We 
think that the subject of the hearing today is fair in raising 
the issue of whether there is a need to have more Federal 
investment in infrastructure. We think the way to deal with the 
difficulties of a relatively small population that is going to 
have significant affordability problems as a result of arsenic 
or any other rule is to have a meaningful Federal assistance 
for small systems.
    Senator Reid and Senator Ensign have proposed a bill 
recently, S. 503, that would address targeted funding to small 
water systems. We think that is the answer, and not rolling 
back Federal standards. I think I will set a precedent by 
finishing a minute early.
    [The prepared statement of Erik D. Olson follows:]

Prepared Statement of Erik D. Olson, Senior Attorney, Natural Resources 
                            Defense Council

                              INTRODUCTION

    Good morning, I am Erik D. Olson, a Senior Attorney at the Natural 
Resources Defense Council (NRDC), a national non-profit public interest 
organization dedicated to protecting public health and the environment. 
We have over 450,000 members nationwide. We appreciate the opportunity 
to testify today on the need for improved drinking water 
infrastructure.
    Drinking water treatment improvements begun at the turn of the 20th 
Century have advanced public health protection enormously, but much of 
the nation's drinking water infrastructure now is aging and outdated. 
We must modernize our water systems and safeguard the nation's water 
supplies from new and emerging contaminants. While EPA has estimated 
based on state figures that the costs of modernization will exceed $138 
billion dollars, many in state and local government, in the water 
industry, and public health and environmental communities believe the 
true costs of this needed massive upgrade will be many times higher.
    For example, a report published in March 2000 by a coalition of 
state and local governments, the water industry, and water professional 
trade associations called the Water Infrastructure Network (WIN) 
estimated that building these costs would be far greater than previous 
estimates. The WIN report found that building new and replacing old 
drinking water facilities will cost $480 billion dollars (including 
finance costs) over the next 20 years, and that about $1 trillion 
dollars is needed for drinking water capital, financing, and operation 
and maintenance over that period. The WIN investigators concluded that 
there is a funding gap of about $15 billion per year for drinking water 
infrastructure, operation, and maintenance.1
---------------------------------------------------------------------------
    \1\ Water Infrastructure Network, Clean and Safe Water for the 21st 
Century: A Renewed National Commitment to Water and Wastewater 
Infrastructure (2000).
---------------------------------------------------------------------------
    Most of these expenses are expected to be necessary irrespective of 
Safe Drinking Water Act regulatory requirements. Aging pipes in 
distribution systems, antiquated water treatment plants, water 
professionals' recognition of the need for infrastructure improvements, 
public demands for improved water quality, taste, odor, and 
reliability, growth, and other factors, all will drive this investment. 
While most of these costs will be incurred with or without new EPA 
regulations, it is clear that many improvements will be necessary in 
water treatment and distribution systems in order to meet modern 
demands for safer tap water. Major new public investments will be 
needed to fund this important national priority, and to significant 
research initiatives are necessary to support and guide this 
modernization.
    It recently has been recognized that the United States and other 
developed nations' drinking water suppliers have begun a ``Third 
Revolution'' in drinking water provision. It is this revolution that 
the WIN report has recognized will require greater financing. These 
revolutions can be summarized as follows:

 The ``First Revolution,'' occurred when water was captured, 
        stored, and channeled or piped for household drinking and other 
        uses. This important advance began in pre-biblical times in the 
        Middle East and was expanded and refined by the Roman Empire.
 The ``Second Revolution,'' took place when coagulation, 
        sedimentation, filtration, and ultimately chlorination were 
        installed by many major water suppliers, beginning in the 19th 
        Century and with widespread adoption by the first World War. 
        This Second Revolution was triggered by the steady march 
        forward of medical science, the acceptance of the ``germ 
        theory'' of disease, and the leadership of public health 
        proponents such as John Snow who in 1849 linked the London 
        cholera outbreaks to water supplies. This resulted in enormous 
        public health benefits, and has hailed by the Centers for 
        Disease Control and Prevention (CDC) as one of the ten greatest 
        triumphs of public health protection of the 20th Century.
 The ``Third Revolution'' in drinking water provision now has 
        been launched by utilities in the U.S. and Europe. This 
        revolution is the culmination and synthesis of the ``multiple 
        barriers'' approach to preventing disease from drinking water 
        that had long been advocated by Abel Wolman and other 20th 
        Century water industry leaders. In essence, the Third 
        Revolution consists of a four-pronged approach to modern 
        drinking water protection:

    (1) vigorous measures to prevent contamination of drinking water, 
            through source water protection;
    (2) adoption of modern, highly effective, and broad-spectrum water 
            treatment technologies that can remove a wide array of 
            emerging contaminants simultaneously, such as membranes, 
            ultraviolet radiation disinfection, and granular activated 
            carbon with ozone disinfection;
    (3) the modernization of aging, sometimes century- or more-old 
            water distribution systems that often contain lead, are a 
            frequent cause of main breaks, can harbor microbial growth, 
            and, according to CDC, are a significant cause of 
            waterborne disease outbreaks; and,
    (4) The establishment and use of an efficient and open information 
            infrastructure and public involvement approach in which 
            utilities and their government regulators use advanced 
            methods to monitor, assess, communicate, and engage in a 
            dialogue with consumers regarding drinking water source 
            water threats, and tap water conditions, contaminants, and 
            quality.
    Many of America's drinking water utilities are endangering public 
health by providing Victorian-era service to the most technologically 
advanced nation on earth. In 1994, NRDC issued a report entitled 
Victorian Water Treatment Enters the 21st Century that provides an 
analysis of the protection and treatment techniques used by the 
nation's largest drinking water systems--those serving over 25,000 
people. We found that millions of Americans are needlessly exposed to 
hazardous chemicals and microorganisms because drinking water source 
protection and treatment systems are inadequate. Adding to the problem 
is that some drinking water utilities are using valuable resources and 
energy attempting to weaken health standards instead of improving badly 
outdated treatment and distribution systems. Despite decades of 
technological advancement, as most Americans are now on the Information 
Superhighway, too many American water utilities are traveling on the 
technological dirt road. We found that:

1. The vast majority of large water suppliers do little or nothing to 
        prevent contamination of the watershed or groundwater that they 
        rely upon for source water. Most large surface water systems 
        have failed to adopt watershed protections such as watershed 
        land ownership, and stream or reservoir buffers to prevent 
        runoff or discharges of chemically or microbiologically 
        polluted water into their source water. Many groundwater-
        supplied systems also have failed to adopt wellhead protection 
        programs to prevent contamination of their wells.
2. Despite widespread chemical contamination of drinking water, over 
        90% of large water utilities have failed to install modern 
        water treatment technologies developed after World War I to 
        remove chemical contaminants. Less than 10% of large Community 
        Water Systems are using modern treatment technologies like 
        Granular Activated Carbon or ozone to reduce the risks of 
        chemical contamination and disinfection byproducts.
3. Aged, crumbling distribution systems are neglected, and are often 
        the cause of waterborne disease outbreaks. In many cases, the 
        pipes that bring us our water are 100 or more years old and are 
        cracking or crumbling. These aged pipes often harbor microbial 
        growth, and are subject to catastrophic breakage. Broken or 
        ``cross connected'' pipes that allow contaminated water to seep 
        into the water system have often been linked by the Centers for 
        Disease Control to waterborne disease outbreaks, yet the 
        average water pipe will be over a century old before it is 
        replaced by a large water system. Many of these old pipes also 
        contain lead, and leach this dangerous toxin into drinking 
        water.
4. Effective source water protection and water treatment are both 
        technically and financially feasible. Safe Drinking Water Act 
        standards can be met and exceeded using techniques that, for 
        the most part, were invented before 1930. These techniques have 
        been proven effective, and are widely used in other 
        industrialized countries. The few American cities that have 
        installed modern treatment systems have shown that safe 
        drinking water can be provided for a reasonable price.
5. The Safe Drinking Water Act and Clean Water Act must be made 
        stronger to protect our Drinking Water Supplies. The Safe 
        Drinking Water Act (SDWA)--which sets standards for the quality 
        of water coming from your tap--and Clean Water Act (CWA)--which 
        sets standards for discharges and runoff into surface waters--
        need to be better integrated. Congress should enact provisions 
        designed to ensure coordinated public health and environmental 
        protection. Necessary legislative changes should include not 
        only increased funding to help systems pay for improvements, 
        but also strengthened provisions for watershed and groundwater 
        protection, tougher drinking water standards, and beefed-up 
        enforcement authority for EPA to ensure that standards are met.
    It's time to modernize systems and make the changes necessary to 
provide safe drinking water. Among the larger challenges now facing the 
water industry include:

1. Arsenic.
    The National Academy of Sciences, in a report issued in 1999, 
recognized that arsenic in tap water poses a significant public health 
risk in the United States, and that EPA's outdated arsenic in tap water 
standard set in 1942 ``does not achieve EPA's goal for public health 
protection and, therefore, requires downward revision as promptly as 
possible.'' 2 The Academy concluded that drinking water 
containing arsenic at the 50 parts per billion (ppb) level allowed by 
the outdated current standard ``could easily'' pose a total cancer risk 
of 1 in 100--about 100 times higher than EPA would ever allow for tap 
water under other rules. For the sake of comparison, the cancer risk 
allowed by this arsenic standard is about 10,000 times higher than EPA 
may permit in food under the Food Quality Protection Act of 1996, which 
Congress passed unanimously. It also is a cancer risk 100 times greater 
than EPA policy has allowed for drinking water contaminants for over 
two decades. The Academy also found that there was insufficient basis 
to find a threshold for arsenic carcinogenesis, and that there was no 
credible evidence that arsenic was a necessary nutrient for humans
---------------------------------------------------------------------------
    \2\ National Research Council, Arsenic in Drinking Water, p. 9 
(1999)
---------------------------------------------------------------------------
    Moreover, the Academy discussed a litany of other adverse non-
cancer health effects from arsenic in tap water, including 
cardiovascular effects, nervous system problems, skin lesions, and 
possible reproductive and other effects. Several peer-reviewed, 
published studies completed in the year since the Academy's report have 
reinforced the conclusion that a much lower standard is needed for 
arsenic in tap water.
    EPA in January 2001 published a rule to reduce allowable arsenic 
levels from 50 ppb down to 10 ppb--a level that still presents a cancer 
risk significantly higher than the 1 in 10,000 cancer risk that EPA 
traditionally allows in tap water. NRDC and many public health 
professionals and organizations believe that EPA should set the 
standard at 3 ppb, the level that EPA says is as close to the health 
goal (Maximum Contaminant Level Goal) as is feasible, considering 
costs, and is affordable.3 We are profoundly disappointed in 
the recent EPA announcement that the Agency intends to yet again reopen 
this decades-long debate, and to withdraw the new arsenic standard. 
This action is scientifically unjustified, unlawful, and bad public 
health policy. We believe that to the extent that action is needed on 
arsenic, the need is to assure that small, needy systems will have the 
resources to clean arsenic out of their water supplies. We therefore 
are generally supportive of the Reid-Ensign small system infrastructure 
assistance legislation (S. 503), which with certain modest 
modifications would be an effective tool to help needy small systems to 
pay for arsenic cleanup and other needed upgrades.
---------------------------------------------------------------------------
    \3\ The underlying science supports an arsenic standard lower than 
3ppb. EPA must consider that many Americans also have unavoidable 
exposure to arsenic in their food, so relatively low levels of arsenic 
in tap water can cause safety levels to be exceeded. A health-
protective tap water arsenic standard should allow a maximum lifetime 
cancer risk no greater than that EPA has traditionally accepted (a 
level presenting a lifetime cancer risk from 1 in 1,000,000 to at most 
1 in 10,000 for vulnerable or highly exposed individuals). This would 
require EPA to set a drinking water standard well below the current 50 
ppb standard--in the range of 1 ppb. Limitations in the analytical 
techniques widely used for measuring arsenic in water, however, would 
likely necessitate a standard of 3 ppb, rather than a standard of 1 
ppb, because reliably quantifying arsenic at levels below this would be 
difficult using current standard lab equipment and practices. Based on 
an extrapolation of NAS's risk estimates, even a relatively strict 
arsenic standard of 3 ppb could pose a fatal cancer risk several times 
higher risk than EPA has traditionally accepted in drinking water.
---------------------------------------------------------------------------

2. Radon
    Radon in tap water poses significant cancer risks to over 40 
million Americans. Another National Academy of Sciences report, issued 
last year, found that radon is known to cause cancer, and concluded 
that a multimedia mitigation strategy made the most sense in dealing 
with the radon problem. The Academy found that while radon can be 
present in tap water at levels posing substantial risks, on average 
nationally the vast majority of radon risk comes from radon seepage 
into homes from soils.
    Congress enacted a provision in the 1996 Safe Drinking Water Act 
Amendments that provides that states or water systems may adopt 
Multimedia Mitigation (MMM) programs for radon that focus on the 
highest indoor radon risks. States and public water systems with 
approved MMM programs need not assure compliance with the Maximum 
Contaminant Level for radon in tap water, and can instead meet a less 
stringent ``Alternative Maximum Contaminant Level'' (AMCL). The theory 
is that states will provide greater public health benefits by reducing 
overall indoor radon levels through a MMM program than would be 
achievable using only the MCL for tap water. EPA's proposed rule for 
implementing this provision, while in NRDC's view suffering from 
certain problems of lack of clarity to assure that the MMM programs 
actually will achieve the public health benefits billed, if improved 
could prove an important step toward protecting public health from 
radon. This rule was supposed to be finalized last year, and is now 
legally overdue.

3. Cryptosporidium, Other Microbial Risks, and Disinfection Byproducts
    EPA has engaged in a lengthy, multi-stage process of negotiations 
over the past eight years with the water industry, states, local 
government, water treatment trade associations, public health groups, 
and environmental organizations in an effort to tackle the complex 
issue of microbial contaminants and disinfection byproducts. These 
negotiations have wrestled with how to control the parasite 
Cryptosporidium (which sickened over 400,000 people and killed over 100 
in Milwaukee in 1993, and has lead to many smaller outbreaks since 
then). In addition, the issue of how to deal with risks introduced or 
exacerbated in the water distribution system was debated.
    These negotiations have sought to produce an agreement that would 
improve protection from the class of contaminants known as disinfection 
byproducts, which are created when chemicals such as chlorine are used 
to disinfect water, but create unwanted byproducts as a result of 
chemical reactions between the disinfectant and organic matter in the 
water, creating a potentially toxic soup of chemicals that have been 
linked in both animal studies and epidemiological studies of people to 
certain forms of cancer and to reproductive problems such as 
miscarriages and certain birth defects.
    After years of serious negotiations over the ``Stage 2'' 
disinfection byproduct rules, and the ``Long Term 2'' rule for surface 
water treatment, in late 2000 we finally achieved a breakthrough in the 
negotiations, and an agreement was reached. We hope that EPA will 
promptly follow through by issuing these rules in a timely manner. In 
addition, EPA is now legally overdue in issuing the Long Term 2 
Enhanced Surface Water Treatment Rule and the Filter Backwash Rule.

4. Groundwater Rule.
    EPA also was charged by Congress in the 1996 amendments with 
issuing a rule requiring that groundwater supplied public water systems 
disinfect their drinking water, unless such disinfection were to be 
found unnecessary. EPA recently proposed a groundwater rule, upon which 
the public comment period recently closed. NRDC believes that the 
proposal includes several important measures that may improve public 
health protection, but also has several fundamental flaws that will 
need to be fixed if the rule is not to become bogged down at the state 
level.4
---------------------------------------------------------------------------
    \4\ Among the major flaws of the proposed rule are: (1) 
Disinfection has become the last alternative. EPA has chosen to move 
from a position of requiring disinfection of ground water systems, with 
exceptions (where it can be shown that it is not necessary), to a 
position of not disinfecting a ground water system until almost all 
other options have been exhaused. (2) States do not have to set time 
limits for ground water systems to fix problems. (3) Ground water 
systems will not have to test for both pathogens and viruses. (4) EPA 
does not require sanitary surveys to be done frequently enough to find 
problems in time to correct them. (5) States may design Sanitary 
Surveys that vary widely in quality and oversight. (6) States are not 
required to have a cross connection control Program. (7) EPA does not 
establish a baseline list of significant deficiencies which states may 
exceed. (8) EPA should require public participation and Right To Know 
throughout the Ground Water Rule (9) The SWAP Should Be More Tied Into 
the Ground Water Rule. Though EPA advises States to take the SWAP 
process into account, we feel that EPA could do much more to formally 
tie source water assessments and the sanitary surveys together.
---------------------------------------------------------------------------
    The 1996 SDWA Amendments should help to encourage better health 
protection, and EPA should be commended for the generally open public 
process used to date in implementing most of this law. There are 
several other important challenges:

 The Need for a National Dialogue on How to Fund the Massive 
        Funding Gap for Drinking Water Infrastructure Improvement and 
        Modernization. The massive shortfall in resources available for 
        water systems to upgrade, replace, and expand their 
        infrastructure is a problem that must be addressed. NRDC 
        believes there is a need for a serious national dialogue on how 
        this funding gap will be addressed. While certainly federal 
        funding will not itself plug this massive hole, the time has 
        come for a serious discussion of what the respective federal, 
        state, and local governmental roles are, and what role private 
        industry might play in this overhaul. We believe that there is 
        a need for federal leadership on this issue, and for 
        significantly increased federal resources to be dedicated to 
        this crucially important national need.
 An Assured Funding Mechanism, Such as a Modest, Dedicated 
        Water Fee, Allocated to a Trust Fund Without Further 
        Appropriation, is Needed to Support Long-Term Drinking Water 
        Research and to Address High Priority Health Risks for Small 
        Systems. As part of a series of discussions with the water 
        industry and others, NRDC and many in the public interest 
        community (and frankly, some in the industry) have come to the 
        conclusion that Congress should enact a modest water fee that 
        would support a long-term guarantee of adequate research 
        funding for drinking water. The funds raised should be set 
        aside in a trust fund that is available without need for 
        further appropriations, so that the research agenda is not 
        buffeted by the ever-changing winds of the annual 
        appropriations process. In addition, we believe that those 
        funds should be made available for direct funding of the most 
        substantial public health threats posed by drinking water 
        systems, such as grants for emergency repairs, treatment, or 
        consolidation of small systems with serious health standard 
        violations.
 A ``Polluter Pays'' Mechanism is Needed to assure that 
        consumers do not end up footing the bill for expensive 
        monitoring and treatment when polluters contaminate source 
        water. We recommend that the SDWA be amended (or that separate 
        legislation be enacted) to enable public water systems or 
        consumers to recover the full costs that source water pollution 
        imposes on them in the form of increased monitoring, treatment, 
        and other costs.
 Appropriations Acts and a Court Decision Have Effectively 
        Eliminated the Drinking Water State Revolving Fund (DWSRF) Set-
        Aside for Health Effects Research, Undercutting Funding 
        Assurances. This Committee and the 1996 SDWA Amendments adopted 
        a provision in the DWSRF assuring a $10 million set-aside for 
        health effects research, SDWA Sec. 1453(n). The appropriations 
        committees, however, have included provisions purporting to 
        negate this set-aside in the last several appropriations acts. 
        Unfortunately, a court decision--reached with the support of 
        EPA--effectively found that the appropriations language 
        overrode the set-aside in the Act. Thus, this Committee's 
        effort to assure long-term funding of this research has been 
        nullified by subsequent Congressional action. This Committee 
        should fight for the full set-aside for this research.
 A Forum for Open Public Research Planning and Priority Setting 
        is Necessary. EPA should formalize an open public process for 
        developing its drinking water research plans, similar to the 
        highly successful Microbial and Disinfection Byproducts 
        Council, but with additional public comment and openness 
        assured. This is a far more effective approach than the largely 
        closed-door process EPA used in planning its arsenic research, 
        for example.
 Assuring More Effective Public Right-to-Know, Better Source 
        Protection, More Affordable Advanced Treatment Technologies, 
        Better Analytical Methods. EPA needs to conduct further 
        research and funding, and to take regulatory and other steps to 
        build better public understanding of tap water challenges. The 
        EPA right-to-know report rules issued in 1998 that required the 
        annual reports to be issued beginning in 1999, are a major step 
        forward. It is critical, however, that methods be developed to 
        improve public understanding of these complex issues. Other 
        important areas of research include: investigations into ways 
        in which source water protection can be made a more effective 
        tool for drinking water protection; research on how modern 
        treatment methods can be improved and costs decreased; 
        development of better, cheaper, and easier analytical methods; 
        and improved approaches to assuring small system compliance 
        through restructuring or treatment upgrades.
 Research to Support Treatment, Occurrence, and Related Issues 
        for Microbes, Disinfection Byproducts, Groundwater, and 
        Distribution System Risks. New standards will be issued over 
        the next several years for many contaminants, yet EPA resources 
        for research on the availability of treatment and on occurrence 
        are inadequate. These rules will be determinative as to whether 
        the ``Third Revolution'' in drinking water protection--
        involving true multiple barriers to contamination in the form 
        of source water protection, advanced ``leap frog'' treatment 
        technologies, and modern distribution system management--will 
        occur in the early 21st Century, or whether the nation's aging 
        and often outdated water supplies will continue to inadequately 
        address these emerging problems and to deteriorate. A stronger 
        research commitment is needed.
 Compliance Problems that Continue to Plague the Drinking Water 
        Program. Widespread violations of the SDWA, and inadequate 
        state and EPA enforcement against even the most recalcitrant 
        violators continue to be a major problem. Improved data 
        collection and management, and a stronger commitment to 
        enforcement, are crucial to assist EPA, states, and the public 
        to address these issues. Compliance problems and data 
        collection and management failures have been catalogued in a 
        USA Today series published in October, 1998, in an EPA audit 
        discussed in a front page USA Today article in late 1999, and 
        in EPA's own 1998 and 1999 Annual Compliance Reports. The EPA 
        drinking water program and states need to upgrade their 
        management systems and programs. Routine audits of federally-
        funded state programs are a crucial part of this effort. The 
        new SDWA small system viability provisions could begin to 
        reduce these problems, but substantial additional resources and 
        research are needed to assure that these programs bear fruit. 
        Additionally, small system technical assistance should be 
        granted on a competitive basis, based upon the best available 
        research, so that these assistance providers demonstrate that 
        they can deliver accurate technical assistance to small systems 
        in a cost-efficient manner. We oppose ``earmarked'' assistance 
        funding that is non-competitive, as it often fails to allocate 
        resources so as to maximize health benefits.
 Improved Data Management, Reporting, and A Comprehensive 
        National Contaminant Occurrence Database. EPA must work with 
        states and the public to develop a fully integrated and fully 
        automated joint data management system for the drinking water 
        program. Included in this system should be accurate, reliable 
        and real-time compliance, water quality, enforcement, and other 
        key information. In addition, an effective National Contaminant 
        Occurrence Database (NCOD) is needed that will require 
        compatible data systems across states, electronic data 
        reporting to EPA by states and testing labs, and sufficient 
        will to ensure that national contaminant reporting is complete 
        and timely. A well-organized NCOD will provide an essential 
        national right-to-know counterpart to the consumer confidence 
        or ``right to know'' reports that water utilities provide 
        directly to their customers.
 Better Integration of Clean Water Act and SDWA Programs. While 
        modest progress and much discussion have occurred in the effort 
        to better integrate the Clean Water Act and SDWA programs, in 
        fact we have a long way to go at the state and federal levels. 
        It is an unfortunate historical and jurisdictional byproduct 
        that hampers full integration of these programs and impedes 
        progress. For example, EPA's source water assessments and 
        protection programs, filtration avoidance programs, the 
        groundwater rule, wellhead protection programs, sole source 
        aquifer programs, and UIC programs under the SDWA, need to be 
        better integrated with the CWA Sec. Sec. 319, 305(b), and Total 
        Maximum Daily Load programs have developed largely independent 
        of each other. The Unified Watershed Assessment effort is 
        beginning to make some headway in integrating these diverse 
        programs, but a more aggressive effort would be helpful.
 Meaningful Source Water Protection Authority. Public water 
        systems, states, EPA, and the public need to have the ability 
        to protect, through regulatory mechanisms or other mechanisms 
        as necessary, source waters. The 1996 SDWA Amendments largely 
        punted on this issue, but creeping development and pollution 
        are contaminating many source waters; strong legal authorities 
        to prevent such contamination are needed.
 Better Leveraging of Other Federal Agency Resources. The 
        federal government has a wealth of expertise and resources 
        directly relevant to EPA's drinking water program that should 
        be better integrated into EPA's efforts. For example, the 
        Centers for Disease Control, Agency for Toxic Substances 
        Disease Registry, and many of the institutes at the National 
        Institutes of Health, including the National Cancer Institute, 
        the National Institute of Environmental Health Sciences, the 
        National Institute of Allergy and Infectious Disease, National 
        Institute of Child Health and Human Development, National 
        Heart, Lung, and Blood Institute, National Institute of 
        Neurological Disorders and Stroke, and many other institutes 
        and agencies conduct research of which EPA often is unaware. A 
        better program is urgently needed to assure more information 
        sharing and collaboration among the federal agencies. Some 
        successful examples of such collaboration can be noted--such as 
        the waterborne disease estimation research being jointly 
        spearheaded by EPA and CDC, and the joint work on disinfection 
        byproducts by EPA, ATSDR, and NTP. Perhaps more often, however, 
        there is little or no collaboration among many of the agencies 
        in priority setting and in conducting research. The lack of 
        coordination can result in serious lost opportunities, and 
        potentially in duplication of effort.
 Programs to Protect Consumers of Small Systems and Private 
        Wells. The United States may be moving towards a two-tiered 
        water supply: higher quality water for consumers in larger 
        cities, and lower quality water in small town and rural 
        America. America's small water systems are often having 
        significant difficulty complying with EPA's basic health 
        standards, and as additional rules (such as arsenic and the 
        groundwater rules) are issued, these difficulties will only 
        increase. There is a need to develop a stronger program to 
        assist and fund the restructuring, technical assistance, 
        regionalization, consolidation, package treatment technology, 
        and other approaches that will have to be adopted to assure 
        that small water system customers receive safe and affordable 
        drinking water. There also are 30 to 40 million Americans who 
        get their water primarily from private wells not covered by the 
        SDWA at all. Monitoring and protection of the quality of water 
        in these wells is often spotty to nonexistent. A national 
        dialogue is needed to discuss how these tens of millions of 
        Americans' health can be better protected from contamination of 
        these often highly vulnerable supplies.

                               CONCLUSION

    In conclusion, NRDC strongly believes that there is an urgent need 
for additional federal funding for drinking water infrastructure to 
assure water system upgrades needed to protect public health. This 
process will not be simple, nor will it be cheap. But this effort is 
necessary to protect the health and well being of all Americans for 
generations to come, and to achieve public demands for a reliable 
supply of safe, good-tasting tap water. Only a long-term stable source 
of adequate funding will assure that this is achieved.

    Mr. Gillmor. Let me say that the subcommittee commends you. 
Let me ask Mr. Neukrug a couple of questions. Mr. Neukrug, can 
you tell us the impact on public health of deteriorating, and 
breaking pipes, and the type of contamination that can occur?
    Mr. Neukrug. Well, everything that we are talking about 
here in terms of the infrastructure issue deals with public 
health, and whether the source water protection, or the 
treatment process, or the distribution process itself will 
involve public health.
    Mr. Gillmor. We are once again facing a vote. So let me 
defer any questions and I will go to Mr. Pallone, but I might 
ask that we may want to submit some questions to the members of 
the panel in writing, and hopefully if you could respond to 
some of those we would appreciate it. Mr. Pallone.
    Mr. Pallone. Thank you, Mr. Chairman. I know that we are 
running out of time. I wanted to ask each of the panel the same 
questions and I guess we could try to run through it faster, 
and if not, you can do a written response. And that is with 
respect to drinking water only, and not waste water.
    If each of you would indicate first the total current 
funding needs for drinking water infrastructure; and, second, 
the total drinking water infrastructure needs over the next 20 
years; and third, the total annualized funding need for 
drinking water infrastructure. If you can do that quickly, 
fine, and if not, you can submit it to me in writing with the 
permission of the Chair.
    But the other thing overlying that is that I obviously feel 
very strongly that we have a great need, and I know that some 
have suggested that maybe the need isn't as great as we think, 
but that there is a great need for increased Federal funding 
here.
    And obviously based on what Governor Whitman said, the 
budget that the President is going to submit is I guess level 
funding. That is what she clearly indicated, and I kind of 
wanted to find out what is going to happen.
    In other words, if there isn't a major increase in Federal 
funding, what is that going to mean. Is it going to mean that 
these projects don't get done? Does it mean that they will be 
done, but that the ratepayer is going to pay for it? Do the 
best that you can, and we will go through the panel here.
    And if you can't answer now quickly, then you can also send 
me something in writing.
    Mr. Beider. My quick answer to the question of how big the 
needs are is that it is very uncertain, and I will elaborate on 
that in writing.
    [The following was received for the record:]

    CBO does not have an estimate of total national needs for 
investment in drinking water infrastructure over the next 20 years. 
Indeed, as indicated in my statement, CBO does not believe that the 
information currently available allows a reliable point estimate of 
those needs. In light of current uncertainties about the necessary 
rates for replacing pipes and equipment, possible efficiency gains in 
construction and rehabilitation methods, future standards for the 
quality of drinking water, and other important factors, 20-year needs 
would be more appropriately estimated by a wide interval. The 
difference between the low end and high end of such an interval could 
be $10 billion or more per year.
    Current needs should be more readily measurable, by the kinds of 
bottom-up survey methods EPA uses in its Drinking Water Infrastructure 
Needs Survey. The results of the second such survey, recently released, 
estimate current needs to be $102.5 billion (measured in January 1999 
dollars). However, because CBO's study does not focus on current needs, 
my colleagues and I have not investigated the details of EPA's survey 
and cannot assess that estimate.
    In the absence of a major increase in federal funding, drinking 
water systems would manage their investment needs using a combination 
of three approaches: raising funds from nonfederal sources--principally 
ratepayers; deferring some investments; and finding additional ways to 
reduce the costs of investment projects, operations, and maintenance. 
How much of each approach would be used is unknown at this point, but 
the mix would undoubtedly vary from one system to another. CBO 
understands that the American Water Works Association will soon issue a 
report that summarizes detailed analyses of the investment needs of 20 
systems around the country and identifies how much rates would have to 
rise to meet those needs. That report could make a significant 
contribution to our understanding of the possible implications of level 
federal funding.

    Mr. Pallone. Thank you.
    Mr. Neukrug. I will go further and say it is enormous, and 
I will follow that up in writing.
    Ms Ingram. We will respond in writing.
    Ms. Beecher. I think again the need is substantial, and the 
gap is a separate issue, but I am optimistic though, and I 
think actually the benefit we have had by bringing this issue 
to light is that I think we have got now great minds and great 
energy working on it.
    And it will take multiple approaches to deal with it, 
particularly when it comes to the most disadvantaged customers 
and systems, and obviously there needs to be particular 
attention there, and that should be the priority for funding.
    But there are going to be choices here, and I think 
communities are going to have to think about those seriously, 
and I think we need to devote the resources toward need though, 
and be careful not to subsidize activities that frankly the 
market will take care of, or that we don't need to subsidize. 
For example, lawn watering, versus basic human needs, and I 
think we need to pay attention to those priorities.
    Mr. Pallone. Okay.
    Mr. Hamill. The current needs are well represented we feel 
by the EPA needs assessment survey, and we think that does a 
good job. Future needs are much harder, and I think we will 
respond separately to that, but I think for a number of 
reasons, probably as much as anything with future rules that 
will come out, are not as well represented by that process.
    Mr. Pallone. I think I would like for maybe one of you, and 
maybe Mr. Olson, just the whole question of if there isn't a 
significant increase in Federal funds, which I guess you are 
not going to get from this administration, what does that mean? 
Does that mean that these things don't get done?
    Mr. Olson. Well, we are certainly very concerned about the 
possibility that if there isn't increased Federal funding that 
some projects will not get done, particularly in communities 
that have high affordability problems. Often there are going to 
be small communities. So we certainly would like to see 
increased Federal funding, and particularly funding targeted at 
communities that especially need it.
    And in terms of your first questions about current, and 
over the next 20 years in annualized funding, we would just 
rely on the studies that have been done by others. So we don't 
have an independent analysis of that.
    Mr. Pallone. Okay. I think we only have about 4 minutes 
before the vote.
    Mr. Gillmor. I want to thank all of you for testifying, and 
you have been very helpful, and we appreciate it. Thank you.
    [Whereupon, at 5 p.m., the subcommittee adjourned.]
    [Additional material submitted for the record follows:]

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