[Senate Hearing 107-316]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 107-316
 
                         WATER AND WASTEWATER 
                          INFRASTRUCTURE NEEDS
=======================================================================


                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON 
                     FISHERIES, WILDLIFE, AND WATER

                                 OF THE

                              COMMITTEE ON
                      ENVIRONMENT AND PUBLIC WORKS
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                                   ON

       ASSESSING THE STATE OF THE NATION'S SUPPLY OF CLEAN WATER

                               __________

                             MARCH 27, 2001
                               __________


  Printed for the use of the Committee on Environment and Public Works








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               COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS

                      one hundred seventh congress
                             first session
                   BOB SMITH, New Hampshire, Chairman
             HARRY REID, Nevada, Ranking Democratic Member
JOHN W. WARNER, Virginia             MAX BAUCUS, Montana
JAMES M. INHOFE, Oklahoma            BOB GRAHAM, Florida
CHRISTOPHER S. BOND, Missouri        JOSEPH I. LIEBERMAN, Connecticut
GEORGE V. VOINOVICH, Ohio            BARBARA BOXER, California
MICHAEL D. CRAPO, Idaho              RON WYDEN, Oregon
LINCOLN CHAFEE, Rhode Island         THOMAS R. CARPER, Delaware
ROBERT F. BENNETT, Utah              HILLARY RODHAM CLINTON, New York
BEN NIGHTHORSE CAMPBELL, Colorado    JON S. CORZINE, New Jersey
                Dave Conover, Republican Staff Director
                Eric Washburn, Democratic Staff Director
                                 ------                                

             Subcommittee on Fisheries, Wildlife, and Water

                   MICHAEL D. CRAPO, Idaho, Chairman

CHRISTOPHER S. BOND, Missouri        BOB GRAHAM, Florida
JOHN W. WARNER, Wyoming              MAX BAUCUS, Montana
LINCOLN CHAFEE, Rhode Island         RON WYDEN, Oregon
BEN NIGHTHORSE CAMPBELL, Colorado    HILLARY RODHAM CLINTON, New York
                                     JON S. CORZINE, New Jersey

                                  (ii)

  
                            C O N T E N T S

                              ----------                              
                                                                   Page

                             MARCH 27, 2001
                           OPENING STATEMENTS

Bond, Hon. Christopher S., U.S. Senator from the State of 
  Missouri.......................................................     2
Chafee, Hon. Lincoln, U.S. Senator from the State of Rhode Island    20
Clinton, Hon. Hillary Rodham, U.S. Senator from the State of New 
  York...........................................................     8
Corzine, Hon. Jon S., U.S. Senator from the State of New Jersey..    18
Crapo, Hon. Michael D., U.S. Senator from the State of Idaho.....     1
Smith, Hon. Bob, U.S. Senator from the State of New Hampshire....    26
Voinovich, Hon. George V., U.S. Senator from the State of Ohio...     3

                               WITNESSES

Beecher, Janice, Beecher Policy Research, Inc., Indianapolis, 
  Indiana, on behalf of the H2O Coalition.............    38
    Prepared statement...........................................    88
    Responses to additional questions from:
        Senator Chafee...........................................    97
        Senator Crapo............................................    94
Biaggi, Allen, Administrator, Nevada Department of Conservation 
  and Natural Resources, Division of Environmental Protection, 
  Carson City, NV................................................    28
    Prepared statement...........................................    82
    Responses to additional questions from Senator Chafee........    84
Sandoval, Jon, Chief of State, Idaho Department of Environmental 
  Quality, Boise, ID.............................................    22
    Prepared statement...........................................    53
    Responses to additional questions from Senator Crapo.........    65
Schwartz, Paul, National Policy Coordinator, Clean Water Action, 
  Washington, DC.................................................    40
    Prepared statement...........................................    72
Stewart, Harry, Director, Water Division, New Hampshire 
  Department of Environmental Services, Concord, NH..............    26
    Prepared statement...........................................    77
    Responses to additional questions from Senator Chafee........    82
Struhs, David, Secretary, Florida Department of Environmental 
  Protection, Tallahassee, FL....................................    24
    Prepared statement...........................................    70
    Responses to additional questions from:
        Senator Chafee...........................................    71
        Senator Graham...........................................    72
Tobey, Hon. Bruce, mayor, Gloucester, MA, on Behalf of the Water 
  Infrastructure Network.........................................    36
    Prepared statement...........................................    84
Whitman, Hon. Christine Todd, Administrator, Environmental 
  Protection Agency..............................................     6
    Prepared statement...........................................    43

                          ADDITIONAL MATERIAL

Letters:
    Associated Builders and Contractors, Inc.....................   100
    Blowe, Bobby.................................................   110
    City of Cape Coral, FL.......................................   113
    Colorado Department of Public Health and Environmental.......   112
    Colorado Water Resources & Power Development Authority.......   113
    Iowa Department of Natural Resources.........................   106
    Louisiana Department of Environmental Quality................   108
    Michigan Department of Environmental Quality.................   111
    Montana Department of Environmental Quality..................   107
    Nebraska Department of Environmental Quality.................   110
    Oregon Department of Environmental Quality...................   103
    State of Oklahoma Water Resource Board.......................   101
    Texas Water Development Board................................   109
    Tucson Water Development.....................................   140
    Utah Department of Environmental Quality Division of Water 
      Quality....................................................   104
Report, Water Infrastructure Network.............................   123
Statements:
    American Society of Civil Engineers..........................    98
    Association of Metropolitan Sewerage Agencies................   114
    Campaign for Safe and Affordable Drinking Water..............    75
    Clean Water Action...........................................    98
    Water Environment Federation.................................    67







                         WATER AND WASTEWATER 
                          INFRASTRUCTURE NEEDS

                              ----------                              


                        TUESDAY, MARCH 27, 2001

                                       U.S. Senate,
                 Committee on Environment and Public Works,
            Subcommittee on Fisheries, Wildlife, and Water,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 9:35 a.m., in 
room 406, Senate Dirksen Office Building, Hon. Michael D. Crapo 
(chairman of the subcommittee) presiding.
    Present: Senators Crapo, Bond, Chafee, Voinovich, Reid, 
Clinton, Corzine, and Smith [ex officio].

          OPENING STATEMENT OF HON. MICHAEL D. CRAPO, 
              U.S. SENATOR FROM THE STATE OF IDAHO

    Senator Crapo. The subcommittee will come to order.
    This is the Subcommittee on Fisheries, Wildlife, and Water 
hearing on water and wastewater infrastructure needs. I 
appreciate our witnesses joining us here today to examine the 
infrastructure needs in America for potable water supplies and 
sewage treatment and removal.
    Administrator Whitman, it is good to see you here with us 
again. Thank you for coming. We appreciate your joining us on 
such an important issue to this committee. In fact, I have 
noted in a number of context how critical clean water is to us 
in America. I should parenthetically note, a very broad survey 
was just done in my home State of Idaho asking people to list 
what their most important environmental concerns were, and 
clean water, in two different ways, were No. 1 and No. 2 on the 
list. I think that indicates probably the way it would be in 
most States. Clean water and clean air are some of the most 
critical things that we can deal with, and that underscores the 
importance of this hearing today.
    I also welcome our other witnesses here today and 
especially want to recognize Jon Sandoval from the Idaho 
Department of Environmental Quality. Jon, thank you for being 
here. He will be on our second panel.
    Infrastructure needs continue to gather attention and 
interest from all sides including States, utility providers, 
and the public. More and more often, we see reports of failing 
infrastructure, in many cases a legacy of previous times and 
conditions and of previous management decisions. We are also 
seeing growing examples of communities that cannot financially 
meet obligations placed upon them by the environmental and 
public health regulations.
    These episodes are not limited to any region of the country 
or to any size of system. Each and every member of this 
committee is familiar with a case in his or her own State of a 
water or a wastewater system unable to meet current demands. 
These examples include: crumbling transmission systems, 
treatment works needing upgrades or replacement, weather-
related stresses, and other problems. These situations affect 
both the public and private systems.
    As public servants, we are driven to want to help. But 
before we can do so, we must have a better understanding on the 
magnitude of the problem that we are trying to address. That is 
what brings us here today.
    Future hearings in this subcommittee will explore other 
components of this challenge. Today, however, we are trying to 
answer one simple underlying question: How big is the problem 
of water and wastewater infrastructure needs in America today?
    To get there, we ask our witnesses today to help us with 
this challenge by providing their perspectives on the size of 
the problem. We would also appreciate their ability to document 
their findings so that we are able to compare apples to apples, 
so to speak.
    Although there is undoubtedly no shortage of issues and of 
recommendations about how we can solve this problem that many I 
am sure are eager to share with us, I hope that our panelists 
today will save those for another time and another hearing. I 
assure you that we will hold those hearings.
    Before too bleak a picture of the needs situation in this 
country is projected today, however, I would like us all to 
remember that our community utilities are generally solid and 
managed well. Despite episodes of pipes failing or public 
exposure contaminants, most systems are striving to meet 
current demands and responsibilities.
    This is simply a question of recognizing that we can do 
better to ensure that the public and the environment are served 
efficiently and effectively by the resources invested in this 
area.
    With that, I once again thank our witnesses for joining us. 
We look forward to their important testimony that they will 
provide on this issue today.
    Senator Bond.

        OPENING STATEMENT OF HON. CHRISTOPHER S. BOND, 
            U.S. SENATOR FROM THE STATE OF MISSOURI

    Senator Bond. Thank you very much, Mr. Chairman. Thank you 
for outlining the importance of this issue. Drinking water and 
wastewater quality are critical elements in environmental 
protection and economic success. We can say that the economic 
vitality and a community's livelihood is directly tied to its 
water systems. But we also know from a few isolated instances 
that when the systems break that is when we have some real 
human health problems. There is nothing that has a more direct 
impact on a community's health than to have either the 
wastewater treatment facility go down or the public drinking 
supply, the safe drinking water protections become inadequate. 
This is an environmental problem. It is a human health problem. 
It is one of the very most important environmental problems we 
face.
    Now my colleagues have probably heard me talk too much 
about all the prejudices I carried into this job from being a 
Governor. But nothing ticked me off more as Governor than to 
look at all the Federal mandates placed on States and local 
governments. Without adequate resources, without support for 
carrying out the great plans that the Olympians on Capitol Hill 
in Congress imposed on States and localities--and very often 
they told us to do things that did not make sense--we were 
forced to devote our resources to areas that were lower 
environmental priorities than the priorities we had established 
in the State. So I came in with a history on this. I came in 
with a strong feeling that we needed to do our job, and do our 
job properly.
    I have had the pleasure of serving as chairman of the 
appropriations subcommittee that funds EPA. That is why I look 
forward to working with my good friend, Administrator Whitman, 
fellow former Governor, because in the past we have had to undo 
some very bad budget recommendations. Under the past 
Administration, they talked the talk about safe drinking water 
and clean water but they did not walk the walk. Each year came 
in with big slashes in the State Revolving Funds program and 
they moved that money into all kinds of new ideas in the 
environment. Well, frankly, we need to take care of some of the 
old ideas, and clean water, safe drinking water are not only 
the old ideas, they are still some of the most important ideas.
    I believe that the requirements that we have put on the 
States and the communities are good for the environment, they 
are good for public health. But the Federal Government has to 
continue to provide resources for them. I expect that when the 
Bush Administration details will come out on the budget we will 
see them recognizing the importance of the drinking water and 
clean water revolving funds.
    We also know, and I think this is a good place to kick it 
off, that we are going to have to revisit the Federal role to 
determine what we can do and what we should be doing in this 
entire area. There are frightening statistics about the need 
for capital investment in the structure. Frankly, as one who 
serves on both the Budget and the Appropriations Committee, I 
can tell you that these needs are well beyond what is 
foreseeable under any reasonable budget scenario that I have 
heard of on the Hill.
    I intend to continue to champion and fight for the State 
Revolving Funds, for other sound investments. We, in this 
committee, with the help and leadership of the EPA, must 
determine what the appropriate role is and how we can best go 
about meeting our needs.
    So, Mr. Chairman, this is a vitally important hearing. I 
thank you for calling it. I look forward to hearing our 
witnesses today.
    Senator Crapo. Thank you very much, Senator Bond.
    Senator Voinovich.

        OPENING STATEMENT OF HON. GEORGE V. VOINOVICH, 
              U.S. SENATOR FROM THE STATE OF OHIO

    Senator Voinovich. Chairman, although I am not a member of 
this subcommittee, I appreciate having the opportunity today to 
participate.
    Senator Crapo. We welcome you.
    Senator Voinovich. I look forward to working with you, Mr. 
Chairman, to address the incredible unmet water and water 
infrastructure needs of our country.
    The state of our Nation's water and wastewater 
infrastructure has been a longstanding concern of mine. It is 
an issue that I have been involved with as a county 
commissioner, a State legislator, mayor, Governor, and now a 
U.S. Senator. As Mayor of Cleveland, for instance, I saw rates 
increase dramatically to deal with the city's dual water 
infrastructure problems, drinking water and wastewater 
treatment. Currently, my State's water infrastructure needs are 
estimated at $12.4 billion; that is $5 billion for drinking 
water, and $7.4 billion for wastewater.
    We are now faced with a rumbling of a rebellion across the 
country as communities struggle to deal with aging 
infrastructure, growth, and increasing Federal water quality 
requirements. Many communities face the realization that they 
will have to obtain the revenues to conduct those costly 
overhauls locally. Of course, the general public considers rate 
increases as they do taxes. With the reaction to the dramatic 
rise in energy costs and other necessities, such as health 
care, it is easy to understand why the public is concerned with 
increasing water and sewer rates--and they are going up 
astronomically all over this country.
    As Governor, I worked with the National Governors 
Association, as the Administrator knows, to identify unfunded 
mandates on our State and local communities, and I thought we 
did a pretty good job with the unfunded mandates relief 
legislation that we were able to get through Congress. Water 
infrastructure is no exception. In December of last year and 
earlier this month, I conducted two meetings in Ohio with 
several Ohio communities to discuss the extent of their water 
infrastructure needs and how the Federal water quality 
requirements affect their ability to meet those needs. The 
folks dealing with the problem at the local level are being 
mandated to fill a whole host of Federal requirements, some of 
which appear to defy common sense and cannot be justified 
through cost-benefit analysis, risk assessment, and good sound 
science. With increasing requirements, these communities just 
cannot do it by themselves.
    Because of my frustration with unfunded mandates, I have 
been working toward improving the condition of our Nation's 
water infrastructure and helping communities cope with the high 
cost of compliance. That is why I introduced legislation 
earlier this year that would reauthorize the highly successful 
but undercapitalized Clean Water State Revolving Loan Fund. My 
bill, the Clean Water Infrastructure Financing Act of 2001 will 
authorize $3 billion per year over 5 years, for a total of $15 
billion.
    In addition, one of the bills I pushed especially hard last 
year was the Wet Weather Quality Act, that is H.R. 828 that 
came over from the House. This bill, which was enacted as part 
of the Consolidated Appropriations Act in December, created a 
$1.5 billion grant program to help localities deal with CSO and 
SSO problems. We are hopeful that in the budget of the 
Administration and in appropriations that the first $750 
million of that grant program will be made available to help 
these communities represented here today.
    In the longer term, we need a larger program to close the 
gap in water infrastructure investment. I do not know what 
dollar amount Congress can ultimately approve. But I am in 
favor of talking about the cost incurred by localities as a 
result of actions taken by the Federal Government, this is the 
unfunded mandates that are passed on by Washington, and seeing 
what we can do to alleviate the situation.
    Toward that goal, I have asked the General Accounting 
Office to conduct a study of the unmet infrastructure needs of 
our Nation in order to get a better handle on exactly what 
those needs are. This includes items such as: highways, mass 
transit, airports, drinking water supply, wastewater treatment, 
public buildings, water resources, flood control and 
navigation, and hydropower generating facilities. For each 
infrastructure area, the GAO will look at those needs estimates 
and figure out just what they are going to cost. The GAO will 
also identify good and bad examples of such estimates and where 
there is room for improvement.
    I would like to get a sense today from the witnesses of 
what you are being asked to do and what you need to do to get 
the job done. Does what the Federal Government is asking you to 
do make sense? Does it make sense what you are being asked to 
do? For example, the city of Mansfield, OH, faces rate 
increases of up to 300 percent to improve the quality of wet 
water overflows that is already at or better than the water 
qualities of the receiving stream. Here they are taking care of 
their problem, they have got a holding tank, they put it in, 
they treat the water after the storm, they put it back in the 
stream, it is at higher quality, and they are being told, ``No, 
that is not good enough, we want you to go beyond that.'' So 
their bills are going to go from about $40 a month to $100 a 
month. So we need to look at that.
    If Federal regulations do make sense, does the Federal and 
the State organizations have the capacity to implement them?
    Finally, how are we going to pay for it? What is the 
partnership going to be--how much Federal, how much State, and 
how much local--to get the job done?
    I thank you all for being here, particularly, 
Administrator, your being here today. I look forward to your 
testimony and the testimony of the other witnesses.
    Senator Crapo. Thank you, Senator Voinovich.
    We will have a number of other Senators joining us. It is a 
busy morning and a number of other committees are operating. As 
those Senators arrive, we will, at appropriate junctures, 
interrupt and let them make their opening statements.
    However, at this time we will go to our witnesses and begin 
the process of hearing from them.
    By way of introduction and instruction to all of the 
witnesses, you should have each been advised that we ask you to 
limit your verbal testimony today to 5 minutes. I realize that 
you have a lot more than 5 minutes' worth to say. There are 
very few people who come and testify before our panels who can 
actually say everything they want to say in 5 minutes. But we 
do have your written testimony. We do like the opportunity to 
engage in dialog with you following your testimony. That gives 
you an opportunity to fill in some of the things that you may 
not have had a chance to say when you summarized your 
testimony.
    But we do have a system of lights up here to help you 
remember that we would like you to summarize in 5 minutes. The 
green light stays on for I believe 4 minutes, the yellow light 
comes on when 1 minute is left, and the red light comes on when 
the 5 minutes have expired. We ask that when the red light 
comes on you summarize your thought at that point and conclude. 
If you miss that, I will kind of lightly tap the gavel here to 
remind you so that we can keep the hearing moving along. We 
hate to do that but we find that we have incredibly busy 
schedules here and we do want to get to the point where we can 
have dialog with you.
    So with that, Administrator Whitman, we again appreciate 
your being with us today and invite you to give your testimony.

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

    Ms. Whitman. Thank you very much, Mr. Chairman. I am 
pleased to be here and with members of the subcommittee and the 
full committee. With your permission, I would like to proceed 
exactly the way you outlined, and offer a brief opening 
statement and submit a longer, more detailed one for the 
record.
    Senator Crapo. Please do.
    Ms. Whitman. Mr. Chairman, over the past 25 years, America 
has made great progress in reducing water pollution and 
assuring safe, affordable, and abundant supply of drinking 
water to our people. The Clean Water Act, the Safe Drinking 
Water Act have provided a solid foundation for our progress.
    We can be proud of the work that has been done with 
partnerships among all levels of government and with the 
private sector. This work has made a real difference in the 
quality of life of all Americans. Our drinking water system is 
among the safest and most reliable in the world. The 265 
million Americans who rely on public water, they can have full 
confidence that the water 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 Fund, or 
SRFs. These funds provide States with moneys from Washington 
that they can then use to manage, maintain, or improve their 
water systems.
    Because this is a revolving 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 millions 
of dollars.
    It is also worth noting that almost three out of every four 
loans made for drinking water SRF projects have been provided 
to small water systems that usually have a difficult time 
obtaining affordable financing. These funds have made an 
important contribution to our success in cleaning America's 
water.
    But the job is clearly not finished.
    Under the law, EPA is required to take a periodic look at 
water infrastructure investments needed around the country. 
Last month, the EPA released the second of such reports. The 
bottom line, Mr. Chairman, is that we foresee the need for $150 
billion over the next 20 years to ensure the continued safety 
of our drinking water supply.
    In addition, several interest groups, including the Water 
Infrastructure Network and the Association of Metropolitan 
sewerage Agencies, have also issued reports estimating water 
infrastructure needs. Their estimates are quite a bit above 
ours, largely because we only include projects with 
documentation that are eligible for SRF funding, and that is 
critical to how we administer that program.
    No matter which estimates you use, there are several key 
components of water infrastructure funding that must be more 
fully evaluated. These include: population growth, aging 
infrastructure, emerging environmental and public health 
demands, increasing operation and maintenance cost, and 
maintaining affordability. We need to keep affordability in 
mind as we move forward with both funding and regulatory 
proposals.
    If I may digress for just a moment on a subject with 
respect to my recent decision on acceptable arsenic levels in 
drinking water. Last week I asked for more time to look at all 
the issues in respect to this question. That request for 
additional analysis does not mean that this administration will 
not lower the standard from the current 50 parts per billion. 
We will do so in time to meet the deadlines proposed in the 
rule of last January, the year 2006.
    What I want to ensure, however, is that we have the 
opportunity to review the science behind the standard, and that 
the standard we set is not so expensive to implement, 
especially for water systems that serve America's small towns, 
that it ends up being self-defeating. Let me just give you an 
example of what I mean. I was in Denver last week for the 
Western Governors Association and in the course of that heard 
of the instance of a town in Arizona where water had been found 
to contain 90 parts per billion of arsenic. When the company 
was ordered to reach 50 parts per billion, they shut down their 
system, the 30 people who were left had no water, they had to 
drill their own wells, and they are now ingesting water at 90 
parts per billion, with no way for us to mitigate that.
    I want to make sure that we avoid unintended consequences 
such as these. Whether it is providing technical assistance or 
something else, we need to remember that these decisions do not 
get implemented in a vacuum. They have real consequences and we 
need to know how to address them. At the end of the day, 
however, we will issue new standards for arsenic and they will 
be based on strong science and solid cost-benefit analysis.
    That being said, Mr. Chairman, I am pleased to report that 
the President's fiscal year 2002 budget maintains Federal 
support for both clean water and drinking water infrastructure. 
This administration proposes $1.3 billion for wastewater grants 
to States. This will provide a substantial and sustained 
contribution to clean water infrastructure needs, and is $500 
million more than the Clinton administration's fiscal year 2001 
request. The grants to States will help communities address 
combined and sanitary sewer overflows, in keeping with the 
important legislation you recently enacted in response to this 
need.
    The administration also proposes to maintain capitalization 
of the drinking water SRF in the fiscal year 2002 budget. EPA 
expects that over the long term with maintained funding the 
drinking water SRF will be able to provide average annual 
assistance of $500 million.
    Furthermore, in keeping with the President's commitment to 
focusing on goals rather than process, the administration 
supports the mechanism currently in law to give States 
flexibility to move funds between its clean and its drinking 
water revolving funds. Mr. Chairman, this proposed financing 
will help communities across America finance important clean 
water and drinking water projects.
    As your committee continues to look at these issues, I am 
eager to be able to be part of that discussion, and the agency 
commits to working with you in any way that we can to ensure 
that we reach the proper decisions as we make these critical 
assessments relative to human health and to clean water. Thank 
you.
    Senator Crapo. Thank you very much, Administrator Whitman.
    As I indicated, as Senators arrive, we would interrupt and 
let them make their opening statements. We have been joined by 
Senator Clinton. So before we go to questions for you, we will 
let Senator Clinton make her opening statement.

       OPENING STATEMENT OF HON. HILLARY RODHAM CLINTON, 
            U.S. SENATOR FROM THE STATE OF NEW YORK

    Senator Clinton. Thank you so much, Mr. Chairman. I very 
much appreciate you holding this hearing today. I think the 
issue of how we address our Nation's water and wastewater 
infrastructure needs is really one of the most pressing 
environmental and public health challenges in our country 
today.
    I would like to welcome Governor Whitman and the other 
witnesses who will be here today.
    Now, I know that this may cause some dispute in the 
audience, but I would have to say that New York has some of the 
best tasting water in the country. That has been proven time 
and time again by blind taste tests. It is apparently the 
secret to the unmatched quality of New York bagels, at least 
that is what we are told. So I have a unique and abiding 
interest in today's hearing.
    But we also have some of the most pressing water and 
wastewater infrastructure needs in the country. According to 
the EPA's 1996 Clean Water Needs Survey, which is the most 
recent survey available, New York has the highest clean water 
infrastructure needs in the country; namely, about $16 billion. 
That should not be surprising since so many of our communities 
are relying on infrastructure that is 100 years or even older.
    According to the EPA's 1999 Drinking Water Infrastructure 
Needs Survey, which was released just last month, New York has 
the second highest current and total drinking water 
infrastructure needs--$10.5 billion, and $13.1 billion, 
surpassed only by California.
    While the national price tags that are being attached to 
our Nation's water and wastewater infrastructure needs may 
vary, they do have one thing in common. They are expensive. 
They are an issue that we cannot at our peril ignore.
    Various agencies and organizations are estimating 20 year 
needs in the range of anywhere from approximately $300 billion 
to $1 trillion. But while the costs of upgrading and 
maintaining our water and wastewater infrastructure may be 
high, the cost of not updating these systems will be even 
higher.
    In New York, for example, the lack of adequate wastewater 
treatment has led to significant water quality problems in Long 
Island Sound, impacts that are going to be difficult and costly 
to reverse. Sewer overflows continue to be the leading cause of 
beach closures across the country, including in New York. 
Although numbers are down, there were still over 165 beach 
closings and advisories in New York in 1999.
    When people in this country take their families for a day 
at the beach, they do not question, or do not believe they 
should have to question, whether it is safe for their children 
to go in the water. When people turn on their taps, they should 
not have to question whether the water they are about to drink 
is safe. These are important quality of life issues that should 
not be taken for granted.
    I have to say I have been a little concerned that our 
health-based drinking water standards have recently come under 
question by the new administration, as have the costs of 
meeting the new, more protective standards. Other proposed 
regulations that would affect the quality of our Nation's 
rivers, lakes, and bays are also being scrutinized.
    Rather than rolling back standards, like the standard 
reducing arsenic in our drinking water, I think we should be 
rolling up our sleeves and investing in our Nation's 
infrastructure so that our water, whether it be the water we 
drink or the water we swim in, can be as clean and safe as 
possible. We should continue to update and improve our clean 
water and drinking water standards. We should also update and 
improve the funding for the systems needed to meet these new 
standards. I think that is why this particular hearing is so 
timely.
    When we look at the needs that are out there, from New York 
to California, I think that many people are as concerned as 
those of us on the committee are. My guess is that if given a 
choice, many, many Americans would vote for clean water as 
opposed to a tax cut that might undermine our capacity to 
provide for that clean water. My hope is, though, that we have 
both, that we have discretion when it comes to the size of the 
tax cut, understanding that there are other important national 
needs, such as how safe our water is.
    Many people today are talking about an energy crisis in our 
country. They talk about our infrastructure. They point to a 
lack of sufficient natural gas pipelines, or sufficient 
electric generating capacity, or sufficient numbers of 
transmission lines. But if we do not address our Nation's water 
infrastructure needs, some day soon people will be talking 
about a water crisis. That is something that I do not see any 
reason for us to have to confront. We should be able to take 
the steps necessary today to avoid that.
    So I look forward to working with my colleagues in a 
bipartisan manner and with the administration to ensure that 
Americans continue to enjoy the cleanest and safest water in 
the world. Thank you, Mr. Chairman.
    Senator Crapo. Thank you very much, Senator Clinton.
    I think it is pretty evident from the opening statements we 
have seen that this is an issue of critical importance. In 
fact, as I was thinking about the jurisdiction of this 
subcommittee over things such as water, the Endangered Species 
Act, and so forth, it represents some of the most critical 
environmental issues that this country faces. At the top of 
that list is water. We do have to make sure that we make the 
commitment at the Federal level to do what is necessary to 
assure that we have safe drinking water and clean water 
throughout the system.
    In that context, Administrator, I will begin with some 
questions. As has already been indicated, the projections of 
what the need is over the next 20 years differ quite widely. As 
you indicated, the EPA's projections are about $150 billion. I 
think when you add in the previous reports of the EPA to cover 
both safe drinking water and our wastewater systems, it is 
about $300 billion. Some of the projections by other groups, 
such as the Water Infrastructure Network, get as high as $1 
trillion.
    Could you explain to us, if you know, why the wide variance 
between these projections?
    Ms. Whitman. One of the reasons is what is taken into 
account. Because we use our estimates to decide on formulas 
that we give to the States through the SRF, we include current 
and documented future needs. What is happening in some of these 
other studies is they are looking at projected needs. As to 
what is coming down the pike, we are looking at aging 
infrastructures.
    That is why the gap analysis is currently underway which 
will take a much more comprehensive look. One thing I wanted to 
ensure is that as we do that gap analysis, some of the work 
which has been done, it is being reviewed within the agency, 
but we are also going to be putting it out for peer review so 
that we can be able to have a meaningful dialog with you that 
will allow an apples to apples comparison. The problem is here 
whether you do a modeling system, and most of those others, the 
WIN report and others, are based on modeling systems. Ours are 
based on actual projects. That is one of the reasons why you 
see the big difference in the numbers.
    Senator Crapo. Do I understand correctly that the EPA's 
analysis includes only those projects that would qualify for 
funding under the grant or loan programs?
    Ms. Whitman. That is correct.
    Senator Crapo. I think it is very critical that we do have 
the ability in this committee to compare apples to apples, so 
to speak. So it will be very helpful to us that, as the gap 
analysis proceeds and the other analyses that you talked about 
proceed, that you give us the ability to make those 
comparisons. This committee will ultimately have to make the 
decisions about whether to change or expand the Federal 
Government's approach to the funding for these needs. It is 
going to be critical that we not only understand the level and 
scope of the need, but that we understand whether we are 
talking about current needs or projected needs, and what that 
modeling is based on. So your help in that is tremendously 
appreciated.
    Ms. Whitman. Absolutely. As you know, it is the directives 
that we have gotten from Congress that actually limits what we 
can look at. So that is why we want to be able to give you the 
information you need to make all the determinations required 
here.
    Senator Crapo. Would it also be fair to say, in your 
opinion, that although the EPA has directives as to how it must 
analyze and what it can evaluate, that the other projections 
that come from other groups, even though they may be based on 
different approaches, nonetheless identify critical needs that 
we need to address before the committee?
    Ms. Whitman. I would say so, yes. Because they use modeling 
does not make it incorrect. We may use different tools, but 
when you are looking and understanding that you are talking 
about systems that are over 100 years old in some cases, you 
are talking about areas where you have had a great increase in 
growth in population that has put a different strain on the 
system, these are all legitimate considerations to be taken 
into account.
    Senator Crapo. That is going to put a strain on the ability 
of this committee and those of us in Congress to identify a 
solution, because when you have a disparity of $300 billion to 
$1 trillion, which of those estimates or where you fall 
somewhere in between can have a tremendous impact on what type 
of an approach must be determined and utilized.
    So, again, we will look forward to whatever advice and 
guidance that the EPA can provide us as we approach this to 
evaluate where we must draw the line and how we must provide 
those resources. I believe that there will be a very strong 
commitment on both sides of the aisle to provide those needed 
resources. Which is why we are here, to try and make sure that 
we have a good handle on what they are.
    The recent Drinking Water Needs Survey indicates a level 
comparable to the previous survey. But the proportion of 
current needs versus future needs has grown considerably. Would 
this indicate to you that many systems are increasingly coming 
to the end of their projected life? Or what is the reason that 
we see such a shift into current needs as opposed to the future 
needs?
    Ms. Whitman. That is precisely it. Some of those projects 
that back in 1996 were future are now current. The time is now. 
The systems are aging. As I indicated, we have new standards on 
drinking water in some instances which have required and will 
require changes to the infrastructure. Also, you do have new 
pressures from development; new people coming on to systems and 
asking the systems to provide more than that for which they 
were designed.
    Senator Crapo. I have also noticed that in the time that 
has passed between the previous study and this one there is an 
increasing percentage of rural communities or costs in the 
rural and small system arena. Can you give any idea as to why 
it is we see a larger proportion of the need growing in these 
smaller service areas?
    Ms. Whitman. Well, a lot of that goes back to the self-same 
needs: That they are aging infrastructures, there are new 
requirements being put on them, and there are in some instances 
growth which is putting additional demand on those systems. You 
have a much smaller base over which to spread the cost. That 
means that the individual impact, the incremental impact 
becomes much greater on the ratepayers in those systems.
    Senator Crapo. Thank you. I notice that my red light has 
come on. So I will quit asking questions.
    Senator Corzine, we indicated we would let Senators make 
their opening statements as they arrive. Would you prefer to 
make yours now or wait until we have finished with the 
questioning?
    Senator Corzine. Why don't we wait. Frankly, I will be 
happy just to submit my statement so we can go on with the 
witnesses.
    Senator Crapo. We will be glad, as soon as we finish the 
questions, to let you make or submit your opening statement.
    In order of arrival, we will turn next then to Senator 
Bond.
    Senator Bond. Thank you very much, Mr. Chairman.
    Administrator Whitman, I am interested in determining the 
overall level at which the Clean Water State Revolving Fund is 
operating today, and what you see as an operating level that we 
need to reach for a sustainable revolving fund. Now I very much 
appreciate the information that the official recommendation is 
$1.3 billion for the clean water revolving fund. You have 
reversed the unfortunate pattern of past submissions where we 
have seen those slashed.
    But I would like to know, with what we are putting in, what 
is being repaid, what the States are putting in with their 20 
percent match, what is the annual operating level now, and also 
with the $1.3 billion to be added?
    Ms. Whitman. Well, right now, we are seeing, as I indicated 
in the testimony, that we are getting a good return on the 
dollar through the revolving loan system and that the States 
have been stepping up and providing their portion of that in 
order to maximize the amount of money that is actually going 
into infrastructure repair. As you know, that revolving loan 
system, $2 billion is where we think we can have an ongoing 
significant impact. We believe that the budget submissions that 
we will see, and understanding that it is not finalized in all 
its details, will allow us to reach that.
    Senator Bond. We are going to hold you to that even though 
it is not finalized. We are going to assume that is the budget 
recommendation.
    Ms. Whitman. Right. That will allow us to go forward.
    Senator Bond. Now is that $2 billion, are you saying that 
you need--are we operating at $2 billion with the payback?
    Ms. Whitman. The submission is for $1.3 billion in 
wastewater grants. Then we will do the revolving loan. But the 
revolving loan fund, because you get more money back, will 
stabilize at about $2 billion.
    Senator Bond. Do you think $2 billion is adequate for the 
needs?
    Ms. Whitman. Certainly, everything that we have identified 
to date that is currently acceptable to be considered. Now, 
obviously, this committee, as you go forward with your 
hearings, will perhaps identify other and greater needs. But we 
believe that $2 billion will provide the kind of support for 
States and localities that will enable them to start to address 
these needs in significant ways.
    Senator Bond. So, with $1.3 billion going in, you are 
saying that the State match plus the repaid funds coming back 
in to be loaned out again is only roughly $700 million? So we 
are getting $1.3 billion in the direct appropriation to go into 
the funds, and then there is about another $700 million coming 
back in to the system through State match and revolving----
    Ms. Whitman. As the funds get paid off, and what you have 
is you get into a position where you are funding that at about 
$2 billion.
    Senator Bond. What is the operating level for the safe 
drinking water fund now?
    Ms. Whitman. The operating goal is $500 million.
    Senator Bond. OK. That is the sustainable level you are 
seeking?
    Ms. Whitman. Yes.
    Senator Bond. What thoughts are you giving at EPA to 
additional financing mechanisms to assist in meeting these 
capital improvement needs for both wastewater and safe drinking 
water?
    Ms. Whitman. I am asking that we look at all, particularly 
as it focuses on the smaller water systems where you have the 
most difficulty in compliance and meeting infrastructure needs 
and repairs, that we ensure that we look at the whole basket of 
what we are providing; that is this enough? I cannot tell you 
today whether it is or it is not, whether we have all the tools 
that we need in order to be able to support this kind of 
drinking response and repair, particularly, as I said, as it 
relates to the smaller companies where you have a greater 
difficulty in achieving standards and finding the funding to do 
the repair and getting the kind of financing that is required.
    Senator Bond. I realize that you do not have the final 
answer, because that would take all the fun out of these 
hearings if we had the solution. But we appreciate working with 
you.
    A quick question about the small rural communities. In 
Missouri and across the country they are having difficulty with 
financing and meeting the regulatory mandates. Any thoughts on 
how EPA can do a better job of assisting these small 
communities or expanding the role for rural water technical 
assistance?
    Ms. Whitman. Again, that is part of what we are looking at. 
It all falls into the review I have asked, actually, because of 
the arsenic decision. I want to make sure that we have a full 
tool chest to provide small and mid-size utility companies, 
water systems with everything they need in order to be able to 
implement the standards that we think are the safe ones that 
people need to have in their drinking water.
    Senator Bond. Thank you, Madam Administrator.
    Senator Crapo. Thank you.
    Senator Voinovich.
    Senator Voinovich. Thank you.
    Administrator, do you know exactly what the number is, I 
was not sure I caught this, for the SRF fund that is going to 
be recommended, State Revolving Loan Fund?
    Ms. Whitman. We are still finalizing that. That will be 
part of the submission made on the 9th of April.
    Senator Voinovich. Are you looking at the authorization we 
put in the Wet Weather Program for grants, that $3 billion 
program over a 2-year period?
    Ms. Whitman. With what we are looking at at this point is 
out of the $1.3 billion, that part of that goes to the wet 
water as a way to prioritize. What we are trying to do, again, 
is to achieve the $2 billion level which is consistent with 
historic levels of assistance provided. What we need to do is 
prioritize and ensure that that money goes where it needs to 
go. But those numbers have not been finalized yet.
    Senator Voinovich. I would like to suggest that that is 
totally inadequate. I will never forget when I went to the 
legislature in 1967 my first act was to put a resolution on the 
ballot for a $375 million bond issue to take care of waste 
treatment in our State where we were doing just primary 
treatment and we wanted to move it to tertiary. Then the 
Federal Government got involved, and a lot of people have 
forgotten about this, but we would not have the waste treatment 
facilities we have in this country today if it was not for the 
75-25 program that went in during the late 1970's. We had that 
until 1985, then went off it and went to the State Revolving 
Loan Fund. A little more than 30 years later, we have a real 
problem.
    There is an organization called WIN that recently met and 
talked about spending $57 billion over a 5-year period to deal 
with the clean water and wastewater problems that we have in 
our Nation. I think that one of the greatest things that the 
Bush administration could do, and you could do as 
Administrator, would be to sit down with these various 
organizations and really look at what the costs are out there 
today in this country and put a realistic number on those 
costs, rather than having them in the drawer as what we 
experienced during the last 8 years around here. It is time to 
confront the issue.
    One of the things I did as mayor is we came up with a 
special program to buildup greater Cleveland, where I was told 
it is impossible. So we got everybody together and we 
identified clean water, waste water, transit, and so forth, and 
then put a program together and that is when we started to move 
forward. I would urge the Administration to sit down and really 
look at these costs.
    Ms. Whitman. Senator, that is the focus of the gap 
analysis. As I indicated to you, that is a much more 
comprehensive analysis that is going on. While we are reviewing 
that internally, we will also put that out for peer review. So 
that we will be able to give you a comprehensive understanding 
of where we are in these needs and one that will allow you to 
compare apples to apples as we try to decide what is the 
appropriate balance and what is the appropriate level of 
support from the Federal Government.
    Senator Voinovich. I think at the same time that you are 
doing that, you can get into like this arsenic issue. If it 
really is something that we should be doing, then how do we pay 
for it. If it is something that is really harmful to health and 
it needs to be done, then we have got to do it. On the other 
hand, if it is not, then we need to look at it in another way. 
But you are never going to get to the issue of some of these 
regulations until you put the cost on the table and start to 
balance them. Unfortunately, around here we have been doing 
that in a vacuum. We have not put everything on the table and 
started to weigh it. That is why I like risk assessment, and 
cost-benefit, and good science, and peer review, and 
alternative regulations.
    I just want to switch to one other question. One issue that 
is a problem right now out there is the interaction between the 
current EPA mandates for CSOs, SSOs, stormwater management, and 
the TMDLs. In other words, you have got four programs out 
there. What are your views on giving the EPA the authority to 
combine these separate regulatory programs into a unified wet 
weather regulatory program that would enable municipalities to 
evaluate the sources of their wet weather water quality 
problems and rank them by environmental benefit, thereby allow 
the community to address the most severe environmental 
stressors first and getting the most bang for the dollar?
    So you have got four programs out there, they are not 
coordinated. What would you think of possibly allowing the EPA 
to coordinate these and have more input from the local level on 
the best way of spending the dollars to get the biggest bang 
for their buck?
    Ms. Whitman. Senator, I agree with you on the need for 
coordination. It is something I have asked the department to 
start to do, to step back and look at the broader picture--what 
are all the things that we are imposing on States and 
localities; how do they integrate with one another; are we 
layering things; can we get rid of some things. I had not 
thought about the approach particularly that you have outlined. 
I would be happy to talk with you further about it.
    Senator Voinovich. Most of the national organizations think 
it is a great idea. I would suggest that maybe you also get 
some input from them on how it could be done.
    Ms. Whitman. Certainly.
    Senator Voinovich. Thank you.
    Senator Crapo. Thank you, Senator.
    Senator Clinton.
    Senator Clinton. Thank you. I just want to associate myself 
with the comments of Senator Voinovich. I really think that 
these clean water and wastewater needs should be at the very 
top of our national priorities. It is not going to be cheap, 
and we know that it is going to expend a lot of Federal dollars 
matched by some State and local dollars. But I just do not 
think there is a more important priority. I also agree that if 
we find through science that there are changes that should be 
made, we should have the resources at the Federal level to be 
able to assist communities in meeting those changes.
    I would urge the Administration, which has an opportunity 
now as we look at this new budget, to really take seriously in 
our time of surpluses, albeit probably diminishing surpluses, 
nevertheless surpluses, to take care of some of these national 
needs. I know that many people in a bipartisan way would 
certainly work with the Administration to do that.
    I am sorry that I missed your opening statement. I 
apologize. I know that you mentioned arsenic. I just wanted to 
get some clarification, if I could. I have a couple of 
questions and maybe I will just ask those and then you could 
respond to all of them. Obviously, many of us are concerned 
about the decision that has been taken.
    I would like to know:
    First, in response to some of the statements that have come 
out of EPA, what is the new science that you will be looking 
at?
    What is the process you see as you move forward to withdraw 
the standard?
    As you know, there is a June 2001 statutory deadline for 
issuing the new standard. The deadline was established in a 
rider to a fiscal year 2001 appropriations bill, which was 
actually an extension of a January 2001 deadline set in the 
1996 Safe Drinking Water Act Amendments. So these are issues 
that have been around for a number of years. Are you saying 
that EPA does not plan to meet this statutory deadline?
    Fourth, under the Safe Drinking Water Act, EPA is required 
to set a maximum contaminant level that is as close to the 
maximum contaminant level goal as is feasible, where feasible 
means feasible with the use of the best technology available. 
Now it is my understanding, based on the science that I have 
reviewed and that led to the decision that was made by EPA, 
that the feasible science available could achieve a level of 3 
parts per billion arsenic in drinking water. Yet the standard 
that was agreed on in a compromise, as all standards usually 
are, set a standard three times that level. Do you know of any 
other cases where the agency has set a standard above the level 
feasible using the best available technology and now is willing 
to jettison that standard?
    Finally, it is my understanding also that EPA has a cancer 
risk policy in place under which the agency sets standards so 
that risks of cancer in humans do not exceed 1 in 10,000. In 
fact, it is my understanding that the agency usually strives 
for a risk rate of 1 in 1,000,000. Do you intend to revise the 
agency's cancer risk policy? Because there is significant 
evidence that the arsenic standard was keyed to a cancer risk 
standard that underlay the science.
    If you could answer these questions. If there is additional 
information that you need, if you could submit those answers to 
the committee, I would appreciate it.
    Ms. Whitman. Sure. No, I would be happy to answer them 
right off the top.
    What is the new science? There have been a couple of new 
studies, one actually that indicates that arsenic might be an 
endocrine disrupter, something the previous Administration did 
not have when they made the decision. Which is why I have said 
I do not know what that standard will be. It may be 3, it may 
be 5, it may be 15. But we have not, as has been characterized 
by some, walked away from a reduced standard. There will be a 
reduced standard. But there is that.
    What is the new process? One of the things I am asking is 
that we take that into account. We also are going to be 
reaching out to some outside; the National Academy of Sciences 
and then other groups that look at cost-benefit analysis, to 
ensure that the standard that we are setting--while the 
National Academy of Sciences and everyone agrees that 50 parts 
per billion is too high, as you indicate, there are those who 
think 3 parts per billion is right, 5, 10. There is, 
unfortunately, no definitive scientific study that says that 10 
is the magic number, or 3, or 20, for that matter. That is the 
frustration we sometimes run into in the agency in setting 
these standards. But we are going to be undertaking a complete 
review that will allow us to ensure that we have the new 
standards in place for implementation by the year 2006, which 
is when this particular standard was going to take effect.
    You mentioned the June deadline. Obviously, we want to work 
with the Congress to see if we can, as you have granted in the 
past, provide an extension to allow us to do this more 
comprehensive review of impacts. We have no intention of 
changing the cancer risk assessment. That is not part of it.
    My concern here, Senator, is that--you missed in the 
opening statement, but something that I encountered as I have 
talked to more and more people who are on the small water 
systems, and this is a real life example in Arizona, where the 
local water company was providing water at 90 parts per 
billion. When they were told that they had to meet the current 
standard of 50 parts per billion, they closed shop and walked 
away. That left the 30 people on that system with no way to get 
water save to drill their own wells, which they did, and they 
are now getting water at 90 parts per billion. We have no way 
to mitigate that. The unfortunate thing here as far as arsenic 
is concerned, there is no way to mitigate that at the tap or in 
the home; it has to be at the water supply system. My only 
concern is I want a thorough review of what we are able to 
provide those small systems to keep this from happening. What 
are we going to be able to do if 10 is the standard, if 5 is 
the standard, if 15 is the standard? Do we have everything we 
need? Financially, are we able to provide them with all the 
help? Are there other tools that we can give them? Do we have 
everything?
    I just want a decision that really has looked at the entire 
picture. I was not satisfied as I talked with the staff that 
they had really been adequately able to incorporate all the 
interested parties in this and the full impact. While they 
looked at a cost analysis, that was amortized over the entire 
country. The heavy burden here will fall on those least able to 
afford it; many of these rural areas, low-income populations, 
people for whom an increase in their water bills is just going 
to be the straw that breaks their back and they are not going 
to be able to stay there. We want them to have safe drinking 
water. Because they live in a poor area does not mean that they 
should not have the same standard of drinking water that 
everybody else has.
    I want to make sure that we have everything in place so 
that we can give them that support and that everybody 
understands what the full impact of this will be. But we are 
not talking about revisiting the cancer standard. We will look 
to ensure that we have the right number. As I said, I cannot 
tell you whether it is 3, 5, 10, or 15. It will be lower than 
50. It will be in place by 2006.
    Senator Clinton. I would just urge in the strongest 
possible terms that we try to meet this June statutory 
deadline. Everything that you have just said does not suggest 
to me that should be a difficult task to achieve. I am 
continuingly concerned that, at the end of this process, 
whatever standard you choose based on the science will incur 
costs for people. I go back to what Senator Voinovich said. If 
we do not have money in this budget which will set the stage 
for expenditures for the next 5 to 10 years, we will not be 
able to fix the water systems that are going to need the help 
to keep the arsenic out of the drinking water.
    Again, I am just so concerned that we are not going to have 
the resources available to take care of our water needs. Your 
setting this standard, whatever it might be, will incur expense 
for some communities. We better make sure we have got the money 
for it. I do not think it would be appropriate to do otherwise.
    I do not want to see us end up as a Third World country in 
terms of our water. We have always prided ourselves on being 
able to turn on the tap and drink it. Some may want to go out 
and buy bottled water, which I have problems with because I 
think if they actually did an examination of what is in some of 
their bottled water they would go back to the tap water. But, 
nevertheless, we should be able to turn on the tap and drink 
the water anywhere in America. Right now, we are not sure we 
can do that. That is a problem that should be fixed, and it is 
going to take resources.
    Ms. Whitman. Senator, I could not agree with you more. That 
is why this Administration's budget is $500 million more for 
this program than the previous Administration's budget.
    Senator Crapo. Thank you.
    Senator Corzine.

OPENING STATEMENT OF HON. JON S. CORZINE, U.S. SENATOR FROM THE 
                      STATE OF NEW JERSEY

    Senator Corzine. Governor, it is good to see you this 
morning. Let me say I am particularly encouraged that you have 
been very clear that you are talking about reducing these 
arsenic standards. I think there is a lot of misconception out 
and about with regard to what the actions and the statements 
surrounding it were, and we will be anxious to find that 
science.
    I am curious if you felt that some of the work out of the 
National Research Center, the National Academy of Sciences has 
not been adequate? Is there a feeling that they have not 
reviewed this in a thorough enough fashion?
    Ms. Whitman. No, Senator. The frustration comes that we all 
want to know what is really the right number, and there is no 
definitive scientific report that can say it is 10 versus 20 
versus 5, that this is where you really make the difference in 
human health. The National Academy of Sciences has agreed with 
what everybody agrees with, that 50 parts per billion set more 
than 50 years ago is far too high. In our State of New Jersey, 
we have gone to 10 parts per billion. We assumed that and went 
to that. But, again, there was nothing that said that this was 
the number that provided automatic safety for everybody 
drinking the water.
    We, fortunately, in New Jersey do not have a high 
incidence, and most of the East Coast, of naturally occurring 
arsenic. Naturally occurring arsenic is everywhere but you tend 
to see a greater impact in the West and the Midwest, many times 
in very rural areas, in towns that have one source of income, 
one particular facility there that provides it, and they do not 
have all the resources that they would be required. Again, when 
you amortize what the cost is going to be, it has a much 
greater impact on them.
    So, I just want to make sure that as we reach this standard 
everyone has a full understanding of what the implications are 
for everyone.
    Senator Corzine. This gets at the point about budgets. We 
know we are going to need to support some of those communities. 
One thing we should know, that 90 parts per billion, which you 
talked about in the Arizona case, is off the charts.
    Ms. Whitman. Oh, absolutely.
    Senator Corzine. It is going to lead more likely than not 
to something that is not even close to the cancer standards. 
So, as we say often around here, the perfect should not be the 
enemy of the good. But we ought to get this down to at least 
some level and moving in that direction almost immediately. As 
a matter of fact, it actually sounds more threatening when it 
is described in that kind of context, and then particularly 
when you know that a lot of these standards apply to school 
systems and what other ambient or transient systems are, that 
is the other term that is often used.
    I suggest speed in dealing with this, getting to those 
conclusions, and getting them implemented. Even an interim 
standard, to cover some of these places where I think our 
people are at risk, seems in order.
    I also want to identify, as Senator Clinton, Senator 
Voinovich, and others have talked about, the overall 
expenditures on wastewater infrastructure, which is a big 
problem in New Jersey, the CSO and other kinds of issues. Have 
you had a chance to scrub down in your own view these needs 
surveys that are the basis for a lot of the projections, the 
$135 billion, the $157 billion, and then I heard Senator 
Voinovich mention the WIN's proposal that might take as much as 
$1 trillion. Have you had a chance to work on these and factor 
this into budget processes. The $500 million sounds terrific 
but it does not sound too big inside a context of $1 trillion.
    Ms. Whitman. No, and that is why the issue becomes so huge 
and that, while we all agree that this is something we must 
achieve in this country, the continued assurance that we are 
not even remotely close to Third World status in our water and 
do not want to be, have no intention of that, that we are 
comparing apples to apples. That is what the gap review is 
intended to do. That is why we are also going to put it out for 
peer review, so that everybody has an opportunity to look at 
these numbers, everybody has an opportunity to see what is 
being compared to what.
    We have certain constraints in the agency that are 
legislated that, because of the way we distribute money under 
SRF, we can only consider certain things when we look at needs. 
We cannot authorize modeling. We do not use a model that 
projects out. That might be something that you can look at as 
you go forward. You hear such different numbers being 
considered. It is not that anybody is purposely 
underestimating; it is not that anyone is overlooking anything 
intentionally; there are certain constraints that allow what 
can be included in projections and what cannot be, depending on 
who is doing it. I am sure the committee will be looking at 
this issue.
    Senator Corzine. Would you comment on what you think the 
quality of the needs surveys projections are?
    Ms. Whitman. There is a huge need here, there is no 
question. You are looking at infrastructures that are well over 
100 years old in some cases. You are looking at infrastructures 
that have seen huge increases in population and so they are now 
supplying water beyond their design capacity. You are seeing 
new requirements from the Federal Government as to what these 
water companies are allowed to purvey to their customers and 
that has put on increased demands.
    So there is no denying that there is an incredible need 
here. We are talking about anywhere from $300 billion, that is 
a lot of money right there, much less $1 trillion. As you look 
at priorities, this is going to become a question of priorities 
as we address a lot of these challenges that we have before us. 
I would agree with you that this is certainly one of the 
primary challenges that we have to face.
    Senator Corzine. I certainly appreciate the benefits of 
cost-benefit analysis. But I think that as it relates to the 
health standards of our communities, I think safety comes first 
and making sure that we project this. I hope that that is 
factored into the analysis that goes here. I go back to 90 
parts per billion or where in similar situations--in New 
Jersey, I think your own Department of Environment requested a 
5 parts per billion on school districts. I think it is 
important to err on the side of conservatism and protection of 
our population.
    Ms. Whitman. Senator, I agree with you. The only thing that 
I do not want to see is unintended consequences, such as that 
that occurred in Arizona where people were forced to go to 
their own wells. This is an issue that has to be dealt with 
through a water treatment plant; you cannot do it at the home. 
So now these people are getting 90 parts per billion, which we 
all say is unacceptable. This was an effort to get the company 
to meet the 50 parts per billion, which is the current 
standard, and we have had unintended consequences. We just need 
to fully understand all that.
    Senator Crapo. Thank you.
    Senator Chafee.

           OPENING STATEMENT OF HON. LINCOLN CHAFEE, 
          U.S. SENATOR FROM THE STATE OF RHODE ISLAND

    Senator Chafee. Thank you, Mr. Chairman, for having this 
hearing on water and wastewater infrastructure needs. I think 
it is appropriate a week before we debate the budget to have 
this hearing. I certainly have been vocal in our caucuses on 
the opportunity we have with surpluses we have not seen for so 
many years to do something with our infrastructure. Being that 
the Water Infrastructure Network has worked with regulators, 
researchers, environmentalists, wastewater and water providers 
to have a study completed in 2000 that highlight the needs up 
to $1 trillion over 20 years, I just think we have the 
opportunity and should, as we go into the budget debate next 
week, address some of these needs either through revolving loan 
funds, low interest, or, ideally, no interest loans to the 
States to address this what Senator Phil Graham calls 
nonrecurring expenses. I think that is something we should be 
doing with our surpluses.
    Thank you, Governor, for being here.
    Senator Crapo. Thank you very much.
    Administrator Whitman, we appreciate your being with us. As 
I think is evidenced from the comments that you have heard from 
both sides of the aisle here today, there is going to be a very 
strong focus on this committee with regard to the budget needs 
of this particular part of our environmental effort. We 
appreciate your effort in working with us in that regard. Thank 
you.
    Ms. Whitman. Thank you, Senator. I look forward to it.
    Senator Crapo. Before we move to the next panel, it is my 
understanding that Senator Clinton wanted to read part of 
Senator Reid's statement welcoming the Nevada representative. I 
am right about that?
    Senator Clinton. Yes. Thank you, Mr. Chairman.
    Senator Crapo. You are welcome.
    Senator Clinton. I have never been a Ranking Member before, 
so this is all new.
    On behalf of Senator Reid, I want to extend his apologies 
for not being able to attend this morning's hearing. 
Unfortunately, his duties as the Assistant Minority Leader 
require that he be on the Senate floor at this time. However, 
he would like to thank all of today's witnesses for their 
service to the committee. He is keenly aware of the tremendous 
challenges that communities in his home State of Nevada and all 
across the Nation face in meeting their drinking water and 
wastewater infrastructure needs. He appreciates the opportunity 
to learn from each one of the witnesses their perspective on 
the magnitude of these needs. I will be going with Senator Reid 
during the Easter recess to Nevada to see firsthand some of the 
needs that Senator Reid is so concerned about.
    He would especially like to thank Mr. Allen Biaggi for 
taking the time to travel all the way from Carson City, NV, to 
participate in today's hearing. That is a considerable expense 
and effort to go all this way. It is difficult for anyone, but 
Mr. Biaggi is here with an achilles tendon injury on top of 
everything else. So we are especially grateful.
    Senator Reid would like to commend Mr. Biaggi and his 
division for the work they do to support the drinking water and 
wastewater treatment needs of Nevada's communities as well as 
to protect Nevada's environment.
    Finally, the Senator assures Mr. Biaggi that his travels 
today will be worth the effort. Senator Reid intends to read 
with special attention Mr. Biaggi's testimony on the water and 
wastewater infrastructure needs of the Nevada and Southwest 
regions. So we thank you and Senator Reid especially thanks you 
for making the effort to be here.
    Senator Crapo. Thank you very much, Senator Clinton.
    As I indicated earlier, this is a very busy morning. I am 
sure Senator Reid would be here if he could; he has got a lot 
of duties. There are many Senators who will be very carefully 
reading this record even though they are not here.
    We will now call up our second panel. This panel consists 
of representatives of four different States who will represent 
not only their own States but regional interests and other 
concerns of States in general.
    First, we have Mr. Jon Sandoval, who is the chief of staff 
of the Idaho Department of Environmental Quality; Mr. David 
Struhs, secretary of the Florida Department of Environmental 
Protection; Mr. Harry Stewart, who is the director of the Water 
Division of the New Hampshire Department of Environmental 
Services; and, as has been indicated, Mr. Allen Biaggi, the 
administrator of Nevada's Department of Conservation and 
Natural Resources in the Division of Environmental Protection.
    Gentlemen, we welcome all of you here. I would like to 
remind you of the instructions I gave earlier that you try to 
keep your comments to 5 minutes. I will give you the light tap 
of the gavel if you do not notice the red light when it comes 
on. That is because we want to have the opportunity to have 
dialog with you.
    We will begin then with you, Mr. Sandoval.

STATEMENT OF JON SANDOVAL, CHIEF OF STAFF, IDAHO DEPARTMENT OF 
                ENVIRONMENTAL QUALITY, BOISE, ID

    Mr. Sandoval. Thank you, Mr. Chairman, members of the 
committee. My name is Jon Sandoval. I am chief of staff at the 
Idaho Department of Environmental Quality in Boise, ID. I bring 
greetings to you, Mr. Chairman, from Governor Kempthorne and 
Director Steve Allred.
    Senator Crapo. Thank you.
    Mr. Sandoval. I am testifying to share with you the 
perspectives of Idaho and other largely rural Western States 
who, along with their small communities, face unique and often 
overlooked challenges in meeting water and wastewater needs. On 
behalf of the State of Idaho, I very much appreciate your 
invitation to share my comments with you today.
    Enhancements over the years to the Safe Drinking Water Act 
and the Clean Water Act have significantly enabled States to 
address major improvements in how infrastructure needs of small 
rural communities are served. States have been very successful 
in their efforts to work with small communities to better 
define current and projected infrastructure needs in rural 
areas. It is small communities who are most impacted by lack of 
capacity and financial stress in assuring that citizens are 
provided safe drinking water and wastewater treatment at an 
affordable cost.
    Small communities face a unique situation as they must 
weigh the costs of necessary capital investments to meet 
national environmental and public health goals. Small 
communities in Idaho, and in all Western States, face a number 
of common issues: How much is available to spend, and are the 
revenues adequate; how do they document the need for financial 
assistance; can the debt service be properly managed; how do 
they obtain the necessary engineering, financial, and technical 
expertise at an affordable cost; how do they find and obtain 
affordable public financing; how much of the cost will 
consumers have to bear?
    In Idaho, the mechanics of documenting need is a major 
challenge on our small communities. These communities face a 
number of obstacles when it comes to defining need as trends 
have continued to suggest, first of all: Federal requirements 
are increasingly becoming more stringent to improve water 
quality and drinking water safety?
    Increasing costs of attaining these requirements will 
continue to escalate as there is a more directed focus to use 
technologies that are more complex and more expensive. We also 
need to recognize that energy costs have tripled, especially in 
the Pacific Northwest. We also need to acknowledge the rising 
costs of capital improvements to replace aging or failing water 
distribution systems and wastewater collection systems for many 
of these communities is an extreme hardship.
    Small communities are at a distinct disadvantage with 
Federal requirements for environmental compliance as these 
entities lack necessary financial resources, capacity, 
structure, access to technology, and the right tools in their 
communities to make informed and rational decisions.
    The realities we need to address when it comes to 
understanding and responding to the infrastructure needs of 
small communities is that small towns and rural areas dominate 
our Nation. Approximately 90 million people live within 
jurisdictions serving less than 10,000 residents. Approximately 
75 million people live in small, rural communities of less than 
2,500. One-third of all local governments do not have any 
employees.
    In Idaho, there are 36 rural counties, with 88 percent of 
Idaho's land area, and 36 percent of Idaho's population. Idaho 
is the seventh most rural State in the country. In Idaho, we 
define ``small community'' as a community serving 1,000 people 
or less. I would encourage the Environmental Protection Agency 
to consider using this definition because it has been our 
experience that these are the communities where the greatest 
hardship exists. These are the communities where there is a 
need for infrastructure improvement and where we do not see 
enough Federal response to address the financial stress on 
these rural communities.
    Changing demographics, high unemployment, declining tax 
base, and increased costs of doing business are unique 
realities of small communities in rural areas. To not 
acknowledge these realities is a great mistake. If there is no 
regulatory relief and no flexibility to find innovative 
mechanisms to finance small community infrastructure needs, we 
will witness regulatory and financial flight by small 
communities. The burden is large.
    Fiscal concerns at all levels of government, and 
particularly for small, rural communities, have dramatically 
elevated the issues of Federal environmental protection program 
costs and flexibility. Environmental laws depend extensively on 
State and local implementation, which raise questions of where 
the financial burden should lie.
    There is a tension between desired environmental goals at 
the national level and the need to finance infrastructure 
enhancements at the local level. Issues in this debate include 
greater use of market incentives, cost effectiveness and 
flexibility in regulation, and more critical attention to who 
should pay for environmental protection is the unfunded 
mandates issue.
    We have read the WIN report. Idaho agrees that we need to 
work with EPA and local government to find out how we can 
address the gaps in funding. But we also need to address the 
gaps in need. Is it $1 trillion? I do not know. Is it $300 
billion? I do not know. Somewhere in the middle? I think taking 
in a State perspective, we will get a much better handle on 
what the infrastructure needs of Idaho communities are.
    With that, Mr. Chairman, time is up. But I need to point 
out, Mr. Chairman, that Idaho water is better than New York 
water.
    Senator Crapo. Sorry Senator Clinton is not here to engage 
in that debate. We will have to have a water taste test I 
think.
    Mr. Struhs.

  STATEMENT OF DAVID STRUHS, SECRETARY, FLORIDA DEPARTMENT OF 
           ENVIRONMENTAL PROTECTION, TALLAHASSEE, FL

    Mr. Struhs. Thank you, Mr. Chairman, members of the 
committee, I appreciate being invited here today. I think you 
deserve a lot of credit for reaching out to the States as you 
formulate the Federal Government's role.
    Florida, like every other jurisdiction, is eager to ensure 
that if new Federal resources become available in the future we 
get our fair share and a little bit more. But I would also 
pause and reflect that at this early stage of our discussions, 
we are eager to reflect on the larger question of what exactly 
is the appropriate role of the Government in building water 
infrastructure.
    Florida, at this moment in history, provides an important 
object lesson for the Nation. We are in the worst drought in 
our State's history. We are in a 100 and 200 years drought that 
is drying up rivers, pushing family-owned businesses to 
bankruptcy, burning 100,000 acres, and mobilizing an 
unprecedented strategy to secure emergency water supplies. If 
there was ever a political imperative to expand Government 
investment in new water supply infrastructure, this is clearly 
it. Yet wise men and women are counselling caution.
    Ironically, at the very same moment, with the tremendous 
leadership of the Congress, and particularly this committee and 
its chairman, we have launched the restoration of America's 
Everglades: an environmentally sustainable water resource plan 
that will help save 60 endangered species and will quench the 
thirst of 12 million Americans who are expected to call South 
Florida home.
    The lesson to be drawn from these experiences is plain--
Government must take the long view, not the short, or risk the 
fate of unintended consequences. In the area of water, this 
means understanding the difference between water resources and 
water supply.
    It is entirely appropriate and necessary for Government to 
continue to identify, secure, protect, and conserve the 
public's water resources. They are a classic example of the 
public commons deserving governmental stewardship. We need to 
take care of our water resources whether they be aquifers, 
rivers, or lakes because, among other reasons, they are in fact 
current and future public water supplies. The Everglades is an 
example of this on a grand scale. There are many reasons to 
restore the Everglades. The fact that the project will provide 
a long term, sustainable future water supply is among them. But 
the Federal Government is not, as part of that plan, paying for 
the pumps and the pipes that will provide new water supply 
service that is made available as a result of Everglades 
restoration.
    As we move from the stewardship of the public's common 
water resources and toward the specific development of water 
supplies for particular individuals, Government's role I think 
becomes less clear and eventually becomes counterproductive. 
Witness Florida's drought.
    Drought drives home the value of a robust water supply 
infrastructure. So, too, does it drive home the value of 
accurate price signals that lead to adjustments in demand. It 
is difficult I think to find any drought situation that has not 
been made worse by a failure on both counts.
    The danger is this: If Government uses revenues from 
general taxing authority to subsidize the expansion of a more 
robust water supply infrastructure, it risks making the next 
drought even more profound because price signals are further 
distorted while consumption has grown. This is entirely 
unfortunate, because as critical as water is to life, demand 
for water is demonstrable inelastic. There are a multitude of 
cost-effective opportunities for increased efficiency and 
substitution.
    Government needs to be a good steward of the public's water 
commons. Everyone benefits from and everyone should share in 
the cost of this stewardship. Protecting watersheds for water 
supplies is an appropriate use of generally collected tax 
revenues.
    However, the investments that are necessary to collect, 
store, treat, and distribute a water supply are probably in the 
long run best made by the actual water users, and how much they 
pay should be determined, at least in part, on how much they 
use.
    Sound public policy would lower taxes collected for 
subsidizing water supply development and rationalize utility 
bills to more accurately reflect the cost of water service. I, 
for one, do not know anyone who, if given a choice, would 
rather pay a tax than a fee that he or she could control by 
adjusting his or her own behavior. This is also obviously the 
environmentally preferable choice, because in the end 
environmentalism is about the efficient use of natural 
resources.
    An interesting footnote, as we prepared for today's 
hearing, we attempted to research water bills to determine, on 
average, how much of the actual water supply service is 
reflected in the bill and how much is actually paid through 
taxes. The fact that we found nearly impossible to answer that 
question I think makes the case for improving transparency to 
our water consumers.
    If you accept the basic premise of this analysis, there are 
a few simple steps that would help ensure that any new Federal 
commitments to water will move us to this more pro-environment 
and pro-market vision that many of us share.
    First, focus on protecting and restoring basic water 
resources, not on supply system infrastructure.
    Second, if there is a decision to apply some resources to 
subsidize infrastructure, the money should be loaned and not 
granted. Loans are more likely to be made transparent to the 
water consumer.
    Third, reward those entities that have conservation-based 
water rate schedules.
    Fourth, reward entities that close the loop and recycle 
their water resources. The re-use of advance-treated domestic 
effluent for irrigation and other nonpotable uses must become a 
bigger part of our water future.
    Fifth, recognize and support unconventional and new 
techniques for water resource management, whether they be 
aquifer storage recovery, engineered wetlands, et. cetera.
    These are all steps aimed at creating a sound public water 
policy that are fair and transparent to the taxpayer and the 
water consumer and are good for the environment.
    I genuinely appreciate the opportunity to appear before you 
today and look forward to your questions.
    Senator Crapo. Thank you very much, Mr. Struhs.
    Before we move to our next witness, we have been joined by 
the Chairman of our full Committee, Senator Smith, who just 
happens to come from the State that our next witness comes from 
and may want to say something before you speak, Mr. Stewart.
    I should indicate I failed to give Senator Corzine the 
opportunity to make his statement. But he has indicated he will 
submit his statement for the record, and we thank you, Senator.
    Senator Crapo. Senator Smith, would you like to say 
anything at this point?

             OPENING STATEMENT OF HON. BOB SMITH, 
          U.S. SENATOR FROM THE STATE OF NEW HAMPSHIRE

    Senator Smith. Yes. Thank you, Mr. Chairman. I will submit 
my statement for the record. I want to thank you for holding 
these hearings. Certainly, water and water infrastructure are 
problems for every State, almost every locality in the United 
States. I apologize for being late. We had an Armed Services 
Committee meeting at the same time. As we do around here, we 
schedule two or three hearings on the different committees at 
the same time and we have not yet figured out a way to be in 
all places at the same time.
    But I am proud to say in large part that New Hampshire has 
done an outstanding job in protecting waters of the State. One 
of the reasons for that is people like Harry Stewart, the 
director of the Water Division of the New Hampshire Department 
of Environmental Services. We are pleased to have you here 
today, Mr. Stewart, and I know you will provide perspective on 
the concerns that face not only New Hampshire but similar 
concerns of other States. So, welcome. Glad to have you here.
    Mr. Stewart. Thank you.
    Senator Crapo. Thank you very much, Senator Smith.
    Mr. Stewart, you may begin.

   STATEMENT OF HARRY STEWART, DIRECTOR, WATER DIVISION, NEW 
  HAMPSHIRE DEPARTMENT OF ENVIRONMENTAL SERVICES, CONCORD, NH

    Mr. Stewart. Good morning, Mr. Chairman, members of the 
committee. I am Harry Stewart, director of the Water Division, 
Department of Environmental Services. As Senator Smith 
indicated, I am here to present the New Hampshire view on water 
and wastewater infrastructure.
    Like the rest of the United States, New Hampshire has made 
great progress over the last 30 years in improving the quality 
of our surface water, groundwater, and drinking water supplies. 
These accomplishments would not have been possible without 
Federal and State assistance. In New Hampshire, that has been 
on the order of $0.9 billion in grants, and $0.3 billion in 
State and Federal loans to municipalities. Municipal share has 
been way beyond that over the years.
    We have long recognized that municipal environmental 
infrastructure upgrades need to be given priority and 
considered in an integrated fashion to ensure environmental and 
public health protection in an affordable manner to our 
citizens.
    In spite of what we have accomplished, New Hampshire still 
has major challenges that will require State and Federal 
funding well into the future to upgrade and improve our core 
infrastructure and improve water quality.
    New Hampshire's characteristics I think generally would be 
described as rural in some areas, with some old urban areas 
which have some of the oldest water and sewer systems in the 
country, like Portsmouth, Manchester, and Nashua. We have aging 
infrastructure, more stringent permit limits for water quality 
and drinking water. Storm water combined sewer overflows are a 
very significant issue in New Hampshire and New England. These 
all need to be addressed in the next 10 to 20 years.
    Our estimated needs in the drinking water arena are on the 
order of $500 million over this period based on the most recent 
needs survey. Wastewater needs are on the order of $1 billion 
for the same period. In New Hampshire, we are enabled to use 
the SRF for landfill closures also as a nonpoint source 
pollution. The $1 billion includes $300 million for landfill 
closures which will need to occur within the next 10 years.
    When you factor out all the grants and loans that might be 
available, which are on the order of $50 million a year, the 
local share is $20 to $100 million a year if you spread the 
cost over 10 to 20 years in New Hampshire alone. Local funding 
is provided by either increasing user rates or through property 
taxes, or both in some cases. Thus, affordability becomes the 
dominant issue particularly for small rural communities and 
water supplies.
    Many New Hampshire communities have significant problem 
with high water and sewer rates. In fact, 40 percent of 
municipal utilities in New Hampshire have combined water and 
sewer rates that exceed 2 percent of their median household 
incomes. Two percent is the commonly accepted threshold by 
State and Federal agencies in considering what is an excessive 
water and sewer rate.
    To illustrate, consider Berlin, Ashland, and Jaffrey, New 
Hampshire, where the median household incomes range from 
$25,000 to $32,000 a year. Their annual water and sewer rates 
are in the $1,000 to $1,300 dollar range. That translates into 
3 to 5 percent of median household income, which is very 
expensive for low-income households. So this is an 
affordability issue.
    With regard to Jaffrey, in particular, as an example, they 
are under an administrative order to develop and implement a 
multimillion dollar wastewater treatment plant upgrade to meet 
stringent water quality standards. Berlin has drinking water 
infrastructure needs. These are going to increase rates further 
above that 3 to 5 percent of median household income level. We 
have a real need to augment existing funds with more ability to 
subsidize the State Revolving Loan Fund with discounts on loans 
and grants.
    Thank you.
    Senator Crapo. Thank you very much, Mr. Stewart.
    Mr. Biaggi.

STATEMENT OF ALLEN BIAGGI, ADMINISTRATOR, NEVADA DEPARTMENT OF 
 CONSERVATION AND NATURAL RESOURCES, DIVISION OF ENVIRONMENTAL 
                  PROTECTION, CARSON CITY, NV

    Mr. Biaggi. Good morning, Mr. Chairman, subcommittee 
members. My name is Allen Biaggi, and I am the Administrator of 
the Nevada Division of Environmental Protection. I would like 
to thank you for allowing me to appear before you this morning 
to discuss water and wastewater infrastructure needs of Nevada. 
I greatly appreciate your interest in bridging the gap that 
exists between needs and financial resources in our water 
programs.
    At the outset, I would like to recognize Senator Reid and 
Senator Ensign for their leadership in addressing these serious 
public health and economic concerns and thank them for 
advancing this dialog on the national level.
    As the fastest growing and one of the most urbanized States 
in the country, infrastructure development and maintenance are 
critical to the health and well-being of our citizens and our 
visitors. Obviously, the need is great in Nevada's major urban 
centers where the majority of our growth is occurring. 
Paradoxically however, the need is no less important in our 
rural communities where mining and agriculture are struggling 
and where funding is often not available for even the most 
basic wastewater collection and treatment systems or for 
providing adequate and safe supplies of drinking water.
    Nevada has long supported its communities with State 
supported grant and loan programs for water and wastewater. 
Like all States, however, we have been asked to undertake 
significant new responsibilities under the Clean Water Act and 
Safe Drinking Water Act without the resources necessary to 
carry out those responsibilities. As a result, Federal 
assistance is vitally important and, frankly, the only way 
communities can achieve and maintain regulatory compliance to 
protect public health and maintain and improve environmental 
quality. Without increased funding at the Federal level, State 
drinking water and wastewater programs are facing crisis 
conditions.
    Let me give you some examples within our small State.
    On the clean water side of the equation, the State of 
Nevada has operated a construction grants program or a 
revolving loan program for over 20 years and has provided 
greatly needed financial assistance to rural and urban 
communities alike. For example, the rapidly growing communities 
of Henderson, Reno, and Sparks have taken advantage of programs 
and constructed some of the most sophisticated wastewater 
treatment systems in the country. This has allowed these 
communities to meet the requirements of the Clean Water Act and 
maintain and enhance water quality in the Colorado and in the 
Truckee Rivers. This provides high quality water for downstream 
users, for wildlife habitat, and the sustainability of 
endangered species. Similarly, small communities in Nevada, 
such as Silver Springs, have used these funds to meet waste 
collection and treatment needs and, for the first time, provide 
this basic service while protecting vital groundwater 
resources.
    The problem is that demand for these funds greatly exceeds 
availability. For the year 2000, we had $152 million in 
proposed projects submitted to the Clean Water SRF for funding; 
for 2001, $166 million, and we anticipate similar increases 
throughout the next decade. Compare this demand with the 
average available program funding of a mere $14 million.
    In an attempt to overcome this gap, we work closely with 
other entities such as economic development agencies and the 
Departments of Agriculture's Rural Assistance Program to 
leverage available funds and meet community needs. Yet dramatic 
shortfalls still occur. This means that facilities must be 
funded using alternative sources, or, as most often occurs, 
projects simply do not happen.
    What does this mean for a community? Sometimes it means 
that collection lines cannot be built to serve a residential 
development historically on septic tanks where groundwater 
contamination is occurring. Perhaps new treatment units cannot 
be constructed at wastewater treatment plants resulting in 
environmental impairment and the potential for fines and 
litigation. In some communities, it means they cannot meet the 
needs of growth and must initiate moratoriums or limits on 
residential and industrial development.
    On the drinking water side of the equation, the prospects 
are not any brighter. In Nevada, as in the rest of the country, 
there is a need to refurbish and, in many cases, replace the 
pipes, lines, and treatment facilities that supply our drinking 
water. Systems age and without the proper care and maintenance 
reliability is reduced, costs increase, and, in extreme cases, 
public health impacted.
    The year 2000 priority list for Nevada through the Drinking 
Water Revolving Loan program showed that over three quarters of 
a million dollars was needed to address acute health concerns 
associated with community water systems. An additional $35.8 
million is needed to address chronic concerns, and $94.8 
million for system rehabilitation.
    Add to this the ever-increasing demands of the regulatory 
environment. In the next few years we can expect new Federal 
rules dealing with groundwater disinfection, enhanced surface 
water treatment, and modified contaminant monitoring and 
screening. All these have good intentions with the goal of 
public health in mind, but they are costly to implement and to 
maintain. Nationally, it has been estimated that for the 
drinking water programs alone an $83 million gap exists for 
States to implement the program and billions per year for 
system upgrades and repairs.
    In closing, we in Nevada intend to do our part to continue 
to fund programs, provide grants and loans to our communities 
both large and small, and to advocate for increased support for 
water and wastewater infrastructure. We will continue to 
participate in the dialog along with our fellow State 
representatives and through national associations such as the 
Environmental Council of the States, Association of State Water 
Pollution Control Administrators, and Association of State 
Drinking Water Administrators.
    The challenges are great, the resources, however, are 
limited, and the stakes of public health and environmental 
quality high. I ask for your careful consideration in making 
water and drinking water infrastructure funding a national 
priority. Thank you.
    Senator Crapo. Thank you very much, Mr. Biaggi.
    I think I will begin and limit my questions to you, Mr. 
Sandoval. We have quite a few Senators here who have questions 
and we may run short on time.
    The first question I have is, from what I have seen, 
approximately 15 percent of the infrastructure projects that 
are submitted by the States and utilities are rejected by the 
EPA in both the drinking and the wastewater arena. Do we have a 
similar experience in Idaho? If so, could you comment on what 
causes this discrepancy.
    Mr. Sandoval. Mr. Chairman, as I talked a little earlier in 
my testimony, I talked about a gap in the needs as well as a 
gap in funding. I think when we are talking about dealing with 
the Environmental Protection Agency we are also talking about a 
gap in definition. We in Idaho certainly have experienced that 
shortfall, that 15 percent window in terms of rejected 
applications.
    As we look at what the definition of what ``small 
community'' is at EPA, EPA defines it as communities of 2,500 
or less. In Idaho, we use a small community definition of 1,000 
or less. We have identified this and we have found that these 
communities are impacted severely by a lack of financial 
capacity, lack of staff, and a lack of ability to arrange 
public financing. We really find that our experience in working 
with EPA to try to bridge the gap between the definitional 
issues versus what needs to happen on the ground in order to 
achieve an environmental result is something that we need to 
come to the table with in terms of how do we find a realistic 
solution to addressing this issue.
    Senator Crapo. It seems to me that, when we talked earlier 
with the Administrator about making sure we compare apples to 
apples, that the definitional gap that you just talked about is 
something that we need to evaluate in terms of getting a handle 
on what the overall need in the country is. Would you agree 
with that?
    Mr. Sandoval. I certainly would agree with that very much.
    Senator Crapo. All right. Thank you very much.
    I am going to limit my questions at this point in the 
interest of time. We will turn next to Senator Voinovich.
    Senator Voinovich. What I am hearing is that we need more 
money to deal with the infrastructure problems that we have in 
our respective communities. I have not heard very much comment 
from any of you on whether or not you think that the new water 
quality standards and other things that are being required from 
you are sensible and make sense. I think that is an issue that 
I would like your opinion on. Are you being asked to do some 
things that you ought not to be asked to do?
    Second, I was very much involved as Governor and active in 
the National Governors Association in promoting the amendments 
to the Safe Drinking Water Act which we hoped would help 
alleviate some of the problems that smaller communities 
particularly were having in the country. I would like to know 
whether it is your impression that those changes that we made 
in the Safe Drinking Water Act have been helpful to you.
    Mr. Sandoval. Mr. Chairman, Senator, I guess I would like 
to respond by saying that in looking at the number of 
regulatory changes coming down in terms of the Clean Water Act 
or Safe Drinking Water Act, and looking at 5 years out, the 
notable changes are going to have a significant financial 
impact on small communities and on the capacity of State 
government to deliver service.
    I think if anything could happen in terms of how do we 
address the gap, we need to look at finding better ways to 
service our communities and our States and work with EPA and 
Congress to look at creating a funding mechanism and a solution 
that drives down the ability of money to get where it needs to 
be. We are looking for an on-the-ground environmental result. 
We have to be able to identify how we pass that money on to 
local government.
    In regards to the changes in the Safe Drinking Water Act, I 
would have to say since Senator Kempthorne, now Governor 
Kempthorne, was one of the authors of revising the Safe 
Drinking Water Act, and we did have a lot of participation in 
Idaho in that legislation, we do think it is a good piece of 
legislation and it does create some opportunities for some 
innovation while at the same time responding to a number of 
challenges to drinking water systems all across Idaho.
    In Idaho, 97 percent of our drinking water systems are in 
compliance. We have good quality water. But when we start to 
look at what the impacts are going to be in terms of new 
changes in regulations and new standards, we are not so sure 
that the science is there in order to support the costs of 
those regulatory changes.
    Mr. Stewart. I will address the Clean Water Act element. 
The trend is toward increasing standards not just for the 
organics and the nutrients, but also for heavy metals. For our 
poorer communities, it is hard to sell to impose a heavy metal 
standard for water quality in a headwater area with low flow 
that are more stringent than the drinking water standard at the 
other end of the pipe. So that is a bit of a problem.
    I think what is happening, at least in New Hampshire, is 
that these headwater communities, like Jaffrey that I 
mentioned, are getting hammered by costs for water supply, for 
wastewater, and landfill closures all at once. So it is a very 
difficult situation and it is very difficult to sell more 
stringent standards in those kinds of situations.
    Mr. Biaggi. Mr. Chairman, Senator, I would like to address 
the nonpoint source issue because I think it is critical and it 
is where we need to head for the next few years with regard to 
water pollution control and get that remaining incremental 
contamination. The problem is, however, like everything else, 
it is going to be extremely expensive. Those dollars need to 
funnel down from the Environmental Protection Agency through 
Congress to the States in order to help implement those very 
expensive programs over the next 10, 15, and 20 years.
    Senator Voinovich. You think those programs make sense?
    Mr. Biaggi. I think that the policy and the direction make 
sense. We have had some concerns about specific provisions, but 
I think it is a direction that we need to go in for the future, 
yes.
    Senator Voinovich. You are specifically concerned that you 
are being forced to take care of cleaning up some things as a 
result of nonpoint sources, and that you think there should be 
something done about that to not have the burden fall totally 
on your systems?
    Mr. Biaggi. That is correct. Quite frankly, we do not have 
the resources to implement the full range and complement of 
nonpoint source issues. There is going to need to be some 
assistance at the Federal level to the States to help push that 
agenda forward.
    Senator Crapo. Thank you.
    Senator Corzine.
    Mr. Struhs. Mr. Chairman, I dare not be the only panelist 
to not respond to Senator Voinovich.
    Senator Crapo. Please take a brief moment and do so.
    Mr. Struhs. You had earlier in your comments, Senator, 
talked about the value of regulatory relief. In many cases, we 
are hesitant to talk about regulatory relief because it sounds 
like we are trying to get away with something. Indeed, I think 
the better term in some instances is regulatory 
rationalization. It is rationalizing the regulations, not 
getting relief from them.
    A specific point in Florida, which I think you are familiar 
with, is aquifer storage recovery. There are currently on the 
books a set of rules that are one-size-fits-all, which means 
anytime you want to use aquifer storage recovery, which is the 
storage of water underground for later use, it has to meet 
drinking water standards because that was the assumption, that 
these technologies would always be used for that purpose. As 
you well know, as we move forward to restore America's 
Everglades, we are going to rely heavily on that ASR technology 
and yet we are not using it for drinking water. So, query: Why 
be required to treat that water to drinking water standards 
prior to injection to be stored only to be pumped out later and 
again cleaned at that standard? It is clearly something that 
does not make sense from a rational point of view.
    Our Florida legislature right now is dealing with it at the 
State level, and we look forward to cooperation at the Federal 
level to make sure that our plan can go forward to do that kind 
of rationalization. The net effect would be to save about 
three-quarters of a billion dollars off the price tag of 
Everglades restoration, which is something that I think we can 
all support.
    Senator Reid. Mr. Chairman, if my friend Senator Corzine 
would withhold for just a brief minute. My beeper just went off 
and I have been called back to the floor. We are going to have 
a vote at 11:50.
    Senator Crapo. Certainly.
    Senator Reid. I just wanted, first of all, to extend my 
appreciation to Senator Clinton for welcoming my friend from 
Nevada. We appreciate very much the work you do and are very 
proud that you are back here representing the State at this 
part in the hearing.
    Mr. Biaggi. Thank you, Senator.
    Senator Crapo. Thank you very much, Senator Reid, and thank 
you for that information about the vote. We will all have to 
hurry I think.
    Senator Corzine. Mr. Stewart, I am glad to hear you talk 
about some of the age issues that are associated with some of 
these wastewater and water systems. In New Jersey, we have a 
very similar problem. We have a number of systems that still 
have wood-lined pipes which are certainly a problem along this 
line.
    But I wanted to ask a question with regard to cancer 
standards. We are talking often about the amount of dollars 
that are involved. But I am wondering, from any of your 
perspectives, whether you work with the EPA's standard and the 
NRC's view on what the maximum risk is. Is that a practical 
standard that you apply in your daily work as you work with 
your local communities? Because, ultimately, the benefit is 
hopefully to fall within those standards, and that is one of 
the reasons we have these costs. I just wonder whether that is 
being as much focused on as price signals or total overall cost 
of programs that are mind-boggling, $300 billion to $1 
trillion. Can anyone comment on how you think about the cancer 
standards or the goals that we are trying to achieve with the 
various standards that EPA has established.
    Mr. Biaggi. I can take a quick shot at that, Senator. In 
the State of Nevada, obviously, and I think most States, we do 
not have the resources or the abilities to establish those 
maximum contaminant levels. We have to look to the science and 
the evaluations, to the Federal Environmental Protection 
Agency, to the National Science Foundation, and other agencies 
in order to establish those MCLs. In other programs, however, 
such as the remediation programs, we always strive to achieve 
the greatest health protection standards possible, and usually 
that is 1 in 1,000,000 cancer risk. So in those programs, that 
is what we always strive for.
    Mr. Stewart. In New Hampshire, there are a number of 
contaminants, such as MTBE, where we have had to actually move 
out in front of EPA in terms of setting standards. We use a 
similar approach to EPA in terms of the risk associated with a 
particular contaminant.
    With regard to arsenic, we actually have proposed a rule of 
10 micrograms per liter. We did that in December, just ahead of 
EPA, and we are in our public hearing process. Obviously, we 
are going to weigh what EPA does in addition to what we get for 
public comment.
    Senator Corzine. That leads to an obvious question. Did you 
feel like you had science backing for that standard?
    Mr. Stewart. We rely on our Department of Health and Human 
Services to assess the science, and they were comfortable with 
10 as about the right level. I think the Administrator 
indicated that they are going to fall somewhere around between 
5, 10, 20. What we were concerned about in New Hampshire in 
particular was getting the word out that 50 is too high, and we 
were concerned not just for public water supplies, but also for 
private water supplies. So we moved forward to announce a 
proposal.
    Senator Crapo. Thank you.
    Senator Chafee.
    Senator Chafee. Thank you, Mr. Chairman.
    Mr. Struhs, you said in your statement that you recommend, 
``If there is decision to apply some resources to subsidize 
supply system infrastructure, the money should be loaned, not 
granted. Loans are more likely to be made transparent to the 
water consumer.'' Could you just elaborate on that. I think 
there was some other testimony that the grants were working.
    Mr. Struhs. Grants are always popular. We run a loan 
program and a grant program in our department in the State of 
Florida. The line at the grant window is always longer than the 
one at the loan window.
    Senator Chafee. That is why I am asking.
    Mr. Struhs. But if you believe that people make more 
rational decisions when they recognize the cost of the money, 
you will find priorities shake out and the truly important 
things will move to the front of the line.
    I think there is clearly a role for grants, particularly is 
you are talking about subsidizing rates for purposes of 
affordability. There will always be those who are unable to pay 
the full freight. I think a subsidization for purposes of 
affordability is one thing, and it is an appropriate thing. But 
subsidizing rates to the point where the true cost of water is 
camouflaged, you price signals become distorted. What you are 
actually doing is taking control away from the consumer.
    The question is not whether we are going to pay the bill 
for this new infrastructure, indeed, it is not even about who 
pays because it is all of us who are going to pay it. The 
question I think is how we are going to pay. I think there is a 
preference amongst many conservative environmental thinkers 
that to the extent you can rationalize the price of the water 
service, you will see better decisions made in terms of 
efficiency and conservation.
    So I think it is a happy coincidence in which conservative 
market principles can actually be brought to bear to provide a 
positive environmental good and, at the same time, to use a 
term that is not popular, show some compassionate conservatism 
in terms of subsidization for those who cannot afford it.
    Senator Chafee. Thank you. Anybody else from the panel wish 
to comment on that? I know we are pressed for time, so quickly 
on grants versus loans.
    Mr. Stewart.
    Mr. Stewart. I think that one thing that is happening, 
certainly in New Hampshire, is that, again, the headwater 
communities, the small, rural, low-income, headwater 
communities are getting hammered with very, very stringent 
NPDES permit requirements, for example, so that the burden of 
environmental protection in the global sense, is really being 
skewed to those communities if we do not have some reasonable 
level of subsidy to address the affordability issue.
    Senator Crapo. Thank you.
    Senator Smith.
    Senator Smith. Picking right up on that point, and others 
may wish to respond to it in terms of the smaller communities 
along the headwaters, if you will, if you look in the Merrimack 
River in New Hampshire, looking at it in a holistic way, we 
have lined up a number of communities along that river to 
assess the CSO problem, and you can pick any river in any of 
your States, and when you look at the dollars that are required 
by EPA to focus on 3 or 4 percent of the river's problem as 
opposed to where you might put those dollars somewhere else, 
fixing sewage pipes or whatever, are we better off to give you 
more flexibility in that area, No. 1. No. 2, what about 
regional partnerships as opposed to focusing on one community 
at a time to clean up not only the water, but the communities 
themselves? Anybody want to comment?
    I will start with you, Mr. Stewart, and then move on.
    Mr. Stewart. Yes. The idea of cost-benefit and the marginal 
cost of getting a smaller amount of pollutant versus going 
somewhere else and getting a greater bang for the buck 
obviously makes sense. We try to do that, to the degree that we 
can, with our priority list in New Hampshire. But more 
flexibility would be useful there.
    Mr. Struhs. Senator, I would add that the exercise that all 
the States are now embarking on in terms of establishing total 
maximum daily loads and then making the hard choices in terms 
of how you would then allocate those loads amongst the various 
watershed users can, if done correctly, reveal where those more 
efficient investments can actually occur, rather than looking 
at it on sort of a permit-by-permit basis. So I think, again, 
if you approach the TMDL with the right frame of mind, it can 
identify those efficiencies. Our hope would be that our Federal 
Government would provide us the flexibility to then act on 
those opportunities.
    Senator Smith. Anybody else want to comment?
    Mr. Sandoval. I guess I would echo that as well from Idaho. 
Flexibility is certainly I think the order of the day. I think 
there has to come a time when we make sense out of the 
nonsense. I think States have to have some flexibility and some 
decisionmaking to really decide where their resources need to 
go. The State of Florida picked out a really good example in 
terms of TMDLs and how we address the nonpoint source 
pollution. I think if we really combined our resources, and 
really focused our attention on arriving at flexibility, I 
think we would achieve a more sustainable, long-term, on-the-
ground result.
    Mr. Biaggi. Senator, I think you brought up a very good 
point of regionalization of looking at watersheds. In Nevada, 
we are in the unique situation that the majority of the heads 
of our watersheds are actually in the State of California, our 
neighbors to the West. We have started to develop those 
coalitions and those regional groups in order to address some 
of the water quality issues associated with the Carson River, 
the Truckee River, and the Walker River which have bi-State 
components to it and multiple counties.
    Senator Smith. Yet under current law, as you know, a small 
community below those headwaters that are in California along 
that river could be hammered with CSO standards where dollars 
would be forced to be spent on, say, a CSO problem that is much 
less important or significant than something else might be in 
that community. Is that, in essence, correct?
    Mr. Biaggi. That potential always exists, yes, sir.
    Senator Smith. I know the chairman has to move on with the 
next panel because of the upcoming vote. So I will stop there, 
Mr. Chairman.
    Senator Crapo. Thank you very much, Senator Smith.
    We would like to thank and excuse this panel. We have a lot 
more questions but we have just been informed that we have a 
real time pressure here.
    So thank you very much.
    Senator Crapo. We will now call up our third panel which 
consists of the Honorable Bruce Tobey, the mayor of Gloucester, 
MA, on behalf of the Water Infrastructure Network; Ms. Janice 
Beecher, Beecher Policy Research, Inc. of Indianapolis, IN, on 
behalf of the H2O Coalition; and Mr. Paul Schwartz, the 
National Policy Coordinator of the Clean Water Action.
    We would like to welcome each of our witnesses here. Again, 
I will remind you of the 5-minute requirement, which is even 
more important now since we are moving up toward a vote.
    We will start with you, Mayor Tobey.

       STATEMENT OF HON. BRUCE TOBEY, MAYOR, GLOUCESTER, 
  MASSACHUSETTS, ON BEHALF OF THE WATER INFRASTRUCTURE NETWORK

    Mayor Tobey. Thank you, Mr. Chairman, members of the 
subcommittee. I am going to try to take off my individual mayor 
hat, which I know from past mayors on the panel may be a 
difficult thing to do, and speak first of all for the National 
League of Cities today, which represents 18,000 cities, towns, 
and villages from around this country, that range in member 
size from 8 million to 653. So we cover the gamut. So, too, 
does the second group I speak for, the WIN coalition, 29 
organizations that have come together, that, in the final 
analysis, I believe they represent the interests of America 
across the board in water and wastewater infrastructure issues.
    Speaking for those groups as well as for my own community, 
I seek your support today for a renewed Federal partnership in 
financing the capital needs of our wastewater and water 
infrastructure systems. There is a core fact here, Senators: 
the needs are large, they are unprecedented, and local sources 
just cannot handle them on their own.
    Local government and regional entities around this country 
currently are annually spending on water and wastewater 
infrastructure $60 billion a year. We are doing it with local 
rates that we have steadily increased to keep pace with costs 
that are escalating at a rate in excess of 6 percent above 
inflation annually. Those local resources that we now are 
relying on can only cover over the course of the next 20 years 
about half of the $2 trillion that reasonable and sound 
research from a number of sources has shown we are gong to need 
to come up with to fund the needs of our water and wastewater 
systems.
    Now, why is there this gap?
    Let me suggest, if I may, four reasons. I will just briefly 
touch on each of them.
    First, we are simultaneously seeing the expiration of the 
useful life of water infrastructure systems built over the 
course of history at different times. The sad fact is there 
were systems built 100 years ago and the good news then was 
they had a useful life of about 100 years given the materials 
used. Then there is another phase about 75 years ago. But guess 
what? Useful life, 75 years. On it goes. It is coming in, it is 
roosting today on our families, families like ours across this 
Nation.
    Second, population growth. These systems were not built 
with the expectation of the kind of population growth we have 
seen and they are, if you will, bursting at the seams.
    Third, we are witnessing the implementation of new, more 
costly, and much more complex Federal mandates which, in 
effect, are substituting Federal priorities for local 
priorities. If there is only so much money in the kitty and we 
have to make a tough choice between maintaining what we 
currently have and thereby deferring very costly capital 
replacement and keeping the regulators from being at our door 
with fines and consent orders and all that, regrettably, we 
wind up dealing with regulatory standards all too often and not 
being able to do both, which is what we want to be able to do. 
Local government wants to do the right thing on these 
environmental issues.
    Fourth, and that is why we are here, there has been a 
substantial decline in Federal financial participation in 
meeting wastewater mandates. I would just footnote Senator 
Voinovich and others for that proposition.
    This is a situation already costing real people real money. 
Just a couple of examples. Helena, MT, a recent increase in 
rates, 61.43 percent. Baton Rouge, LA, a proposed increase from 
the nexus of $21 a month to in excess of $37 a month, a 76-
percent increase to fuel a $450 million CSO project. Des 
Moines, IA, a proposed increase of basic monthly charges by 
24.5 percent and a volume charge by 35.5 percent over 2 years 
to cover $28 million in improvements. My own city, I had the 
distinct privilege, as we expanded our sewer system to 800 
families in a very difficult piece of terrain. to then have to 
send them their share of the bill for the construction of that 
system's expansion; $20,300 per home, and that is for 
construction. What they will pay for the use of that through 
rates hereafter is on top of that.
    What we seek, very simply, is a 5-year, $57 billion 
authorization beginning in fiscal year 2003 for loans, grants, 
loan subsidies, and credit assistance to meet these basic water 
infrastructure needs. It is a further refund for the people who 
built the surplus that the Federal Government now enjoys. I 
would ask you to consider it in this context: The $2 trillion 
deficit soon to be paid off at 6 percent, that is $120 billion 
a year in interest. That is going to be gone. That is a good 
piece of news. We are seeking, spread over 5 years, about half 
of the interest saved in a single year.
    We can reestablish the partnership of the Clean Water Act. 
We do not need that poster child of the burning Cayahoga River 
to move us on. That is in the past. Let's build on that 
success. We can maintain a sound infrastructure that is good 
for our economies, good for our people's public health, good 
for America.
    America's infrastructure of transportation systems, of 
aviation systems have a steady guaranteed source of funding, 
our defense system, too. I would respectfully contend that our 
water and wastewater infrastructure systems are no less 
critical. They warrant the same degree of guarantee.
    I am pleased to say that the League of Cities and the 
entire WIN network is here today to work with you in 
partnership to advance meeting that goal. Thank you, sir.
    Senator Crapo. Thank you very much, Mayor Tobey.
    Dr. Beecher.

  STATEMENT OF JANICE BEECHER, BEECHER POLICY RESEARCH, INC., 
        INDIANAPOLIS, IN, ON BEHALF OF THE H2O COALITION

    Ms. Beecher. Thank you, Mr. Chairman, and members of the 
committee. I find it a real privilege to be here. My name is 
Jan Beecher and I am an independent research consultant. I 
specialize in the structure and regulation of the water 
business. My testimony here today is actually based on an 
independent analysis that I conducted and I was invited then to 
come here and present these findings to you.
    Let me begin by emphasizing that my purpose is not to 
dispute the fact that the water and wastewater industries face 
substantial infrastructure needs, although I think we can have 
further dialog about what is driving those needs. My purpose is 
to promote further discussion, dialog about some of the 
assumptions behind the concept of a funding gap and some of the 
presumptions about how to best address it.
    The $1 trillion number has become a real focal point for 
discussion. My concern is that it is imprecise, I think we all 
sort of agree about that, in that it actually may be inflated. 
We spent a lot of time increasing the number and I would like 
to see us spend some time on decreasing the number. Estimates 
to the need seem to give little weight to the potential for 
lowering total costs through restructuring, innovation, 
operational efficiency, markets, and integrated resource 
management.
    The gap is basically a construct, not an inevitability. The 
projected shortfall will result if, and only if, the need 
estimate is accurate, and funding and expenditure levels are 
not increased. Thus, the gap will materialize only if we take 
no action to close it.
    A number of interrelated myths have emerged in the context 
of this 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 are essential or should 
be the centerpiece of the solution.
    I believe it is appropriate to challenge some of these 
assumptions that are contributing to these beliefs. To this 
end, I will highlight a half a dozen basic reality checks, 
again for just further dialog.
    First of all, local governmental expenditures in the 
aggregate for water and sewer services exceed revenues from 
water and sewer charges. This observation can be contrasted to 
municipal energy services which tend to generate a positive 
revenue stream. Such findings generally suggest that municipal 
water customers do not pay for the full cost of service through 
rates today.
    Second, a related point is that some communities may 
deliberately, no matter how well-intentioned, try to maintain 
low prices for water and wastewater services. Persistent 
underpricing of water services is a contributing cause of the 
anticipated funding gap. Underpricing sends inappropriate 
signals to customers about the value of water, leading to 
inefficient usage. According to basic economic theory, 
underpricing leads to over-consumption as well as inefficient 
supply strategies to meet inflated demand.
    Third, water services today are a relative bargain for many 
households, including mine. Water and other public services 
actually account for a relatively small share of the average 
household utility budget, less than 0.8 percent of total 
expenditures. Again, these are aggregate numbers and I realize 
there are differences. But particularly in comparison to energy 
and telecommunications services, water is a bargain.
    On average, a four-person household spends about the same 
each year on cable television and tobacco products as on water 
services. Total expenditures for other discretionary services, 
such as cellular phones, internet services, and other 
communication devices, are rising. In addition, water prices in 
the United States are comparatively much lower than prices 
charged for water services in other developed countries of this 
world.
    Fourth, Americans are very concerned, as we have heard 
today, about the quality of their drinking water and the 
protection of our precious water resources. But consumers also 
seem to sometime show a greater willingness to buy bottled 
water than to support the cost of community water through 
rates. Conservatively, the average price of 1 gallon of 
community-supplied water, conveniently delivered to the tap, is 
about one-third of one penny. In general, every other water 
alternative is no more safe, much less convenient, and 
astronomically more expensive. At $1.15 a gallon, designer 
water costs 347 times the price of tap water. The bottled water 
industry is earning about $5 billion in revenues.
    Local funding priorities may be similarly skewed. For 
example, the price tags for municipal stadiums often are in the 
range of the amounts needed for our water infrastructure.
    Fifth, 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 obligation 
to fund infrastructure needs and maintain their systems. A 
massive grant subsidies seem neither likely, nor beneficial, 
from a societal standpoint. Subsidies will only continue to 
perpetuate inefficiency.
    Finally, many systems can, and do, manage their assets 
effectively and charge the cost of water through rates. The 
transition to cost-based rates for services can trigger rate 
shock and raise legitimate affordability concerns for 
disadvantaged communities and disadvantaged households. There 
are financing rate-making and assistance methods to address 
those, and I believe the Safe Drinking Water Act provides an 
excellent framework for addressing some of those issues.
    In sum, the concept of a funding gap merits further 
consideration and debate. The need to invest in our 
infrastructure is very real but the funding gap is a construct. 
The water industries need to take responsibility and provide 
leadership and action to address these issues. I believe that 
the essential tools for closing the gap involve finding 
increased efficiency as well as finding ways of charging the 
true cost of water. Subsidies should be used minimally, 
judiciously, and on a needs basis, and the goal should be 
sustainable systems, not sustainable subsidies. Thank you.
    Senator Crapo. Thank you, Dr. Beecher.
    Mr. Schwartz.

STATEMENT OF PAUL SCHWARTZ, NATIONAL POLICY COORDINATOR, CLEAN 
                  WATER ACTION, WASHINGTON, DC

    Mr. Schwartz. Good afternoon, and thank you for your 
patience with all of us. I really appreciate your work, 
Chairman Crapo, and the other subcommittee members and full 
committee members, thank you. My name is Paul Schwartz, and it 
is my pleasure to be testifying before you today. The Clean 
Water Action has large membership organizations in three of the 
four States of the remaining Senators; from New Jersey, with 
the New Jersey Environmental Federation, in New Hampshire, and 
in Rhode Island. We look forward to working with you in 
sculpting some type of solution to the types of problems that 
we have heard today.
    I think it is important, as some people have said, to 
remember that we have had three decades of Federal water 
investments and those three decades have made a big difference 
in improving the quality of both our rivers, lakes, and streams 
and our drinking water quality. But that difference can be 
transitory and can go away.
    I think we can also all agree that the funding gap, whether 
it is a construct or a reality, as you add up the potential 
costs and the real costs, has the possibility of being very 
large. Whether we are talking about a construct or whether we 
are talking about real needs facing particular communities 
right now, there is a new need for a shot of Federal investment 
as the systems are growing old and their life is coming due.
    There is no other infrastructure in the United States that 
is relying on pre-World War I technology as the basis for the 
technology that we use. There is no other infrastructure in the 
United States whose physical plant is as old as our water 
infrastructure. In many other infrastructures, we talk about 
trading on our grandparents' generation. For water 
infrastructure, we are talking about trading on our great 
grandparents' generation. We used to have an infrastructure 
that was the wonder of the world. Folks would come from all 
over the world to look at our systems. That is not the case any 
more.
    Congress has heard and will continue to hear a steady and 
almost unremitting drumbeat of information about funding gaps 
and about the needed and available resources. At Clean Water 
Action, the specific overall dollar figure that we understand 
may vary somewhat depending on the specific frame, model, or 
method used to generate the numbers, but everybody agrees that 
without significant new investment we face some sobering 
environmental and public health and economic issues. We have 
taken a look at the various surveys, the WIN survey, the 
Drinking Water and Clean Water surveys from EPA, and we think 
that the order of magnitude of the problem approaches something 
like what is in the WIN survey.
    The key question is how do we act in a way to maximize, to 
the extent possible, equity, affordability, and sustainability 
while maintaining the goals of preserving the environment, 
enhancing public health, and laying a new foundation for broad 
economic prosperity. Now how we dispose of that problem and 
your role in doing that is at the center of the debate. That is 
why we believe we are at the table.
    We think there are some common sense, fiscally 
conservative, market-driven principles that should guide how we 
think about moving forward in these areas.
    First, we believe that we should give the States 
flexibility to invest in ``green'' infrastructure as well as in 
the traditional infrastructure needs. The WIN report and others 
have supported this notion of looking at cost-effective 
pollution prevention, source control, and innovative and 
alternative technologies. The WIN report also talks about a 
$250 million science, technology, and best management fund, 
which we believe is key in figuring out how to maximize the 
dollars that we have available to us.
    Second, we need to make sure that the dollars actually go 
for cleanup, not sprawl development or environmentally 
destructive projects. Currently, EPA has no way of tracking how 
the States are actually spending the money in the sense of 
knowing whether the dollars are going for real environmental 
compliance or public health needs, or whether that money is 
going to spur sprawl development. We would like to see that 
situation change. We would like to see some more fiscal 
restraint and some more capacity for transparency on the part 
of our States in the way they spend their dollars.
    Additionally, ratepayer and taxpayer protections should be 
supported by conservative approaches in utilizing market-based 
incentives. There are five points that we would like to throw 
out and suggest that we consider as we move through this 
process: First, I----
    Senator Crapo. I would like to ask you to try to summarize 
quickly. We are running tight on time.
    Mr. Schwartz. Sure. I appreciate that. I will skip then to 
the back.
    Let me address grants. Requiring a local match for any 
grant program is what we think is necessary to make sure that 
as we layer grants, if we do, on top of loan programs, we have 
some buy-in from the communities. Maybe that match could be 
keyed to some affordability index.
    Second, we really want to protect taxpayers and ratepayers 
by assuring that costs are fairly apportioned between users of 
all water resources. That is why we suggest that there is a 
mechanism that already exists that could result in the raising 
of billions of dollars for water infrastructure needs in the 
sense that we have vastly under-utilized NPDES permits for 
discharges where there is either free or very low cost for 
those permits. We think this is a way that you could raise 
tremendous numbers of dollars. The Federal role there would be 
to recognize a preference to States who choose to use this type 
of funding mechanism.
    Last, we think it is very important, as we have heard 
today, to fund safe and affordable water for small communities. 
We are very concerned that we have a two-tier drinking water 
system being set up in this country in a de facto way. Because 
of this, we support the type of moves that Congress made in the 
1996 Safe Drinking Water Act that gave States the flexibility 
to use up to 30 percent of their funds to aid small systems in 
a variety of ways. A current early read shows that many of the 
States are not taking advantage of those funds. So we believe 
that Congress needs to move beyond mere suggestion to really 
mandating more of that usage. We support the type of approaches 
such as the Reid-Ensign Small Communities Safe Drinking Water 
Infrastructure Funding Act that look at the special needs of 
small systems.
    To conclude, we are very concerned that as we move forward 
in this process we not take advantage of the distress that we 
see in our communities as a way to reopen difficult and complex 
issues under the Clean Water Act and Safe Drinking Water Act 
reauthorizations. If we choose to use this setting and this 
scene to do that, that will be the quickest way to undercut the 
vast coalition of political forces who have come together here 
in this room to support solutions to pressing environmental and 
public health and economic problems in our communities. Thank 
you.
    Senator Crapo. Thank you very much, Mr. Schwartz.
    We have about 5 minutes before the vote and four Senators. 
I will forego my questions and ask each of the Senators to try 
to be brief.
    Senator Corzine.
    Senator Corzine. I will defer.
    Senator Crapo. Thank you, Senator.
    Senator Chafee.
    Senator Chafee. I will just ask Mayor Tobey how he is still 
in office after sending his constituents the bill for $20,000.
    [Laughter.]
    Mayor Tobey. Otherwise delivering good government has its 
rewards.
    Senator Crapo. Congratulations.
    Senator Smith, you get the remainder of the time.
    Senator Smith. Just a quick question. Dr. Beecher, one of 
the concerns you hear about is if the Federal Government tries 
to provide incentives for privatization the Federal Government 
will wind up with the worst systems and the privatization will 
move toward the better systems, if you will; we will get the 
inefficient and the private sector will pluck off the better 
systems. How do you avoid that?
    Ms. Beecher. I am not sure that that is a real significant 
issue. I think, certainly, if you are talking about investor 
ownership, there are protections there in the form of State 
public utility regulatory oversight.
    I think that the goal might be to leverage money and use it 
accordingly to meet goals, to have it very goal-based and 
performance-based so that rewards follow performance. Use those 
incentives to have the private sector play a more central role 
and, clearly, tie incentives to performance and the ability to 
address the hardest problems. So I think it can be done. I 
think it just takes a lot of creative energy and program 
design.
    Senator Smith. Mr. Schwartz, where does water 
infrastructure stand in terms of priorities? Of all the 
environmental problems we have in America, where would you put 
it?
    Mr. Schwartz. Right at the top. I sit on the steering 
committees of both the Campaign for Safe and Affordable 
Drinking Water and the Clean Water Network, representing 
thousands of environmental organizations around the country. We 
believe, as ``Deep Throat'' put it so well in Watergate, follow 
the money. The dollars are at the center of the politics and of 
the solutions, and that is where we need to address it if we 
are serious about maintaining clean water in this country.
    Senator Smith. Thank you, Mr. Chairman. Thank the 
witnesses.
    Senator Crapo. Thank you very much, Senator Smith.
    I, too, would like to thank the witnesses. I apologize to 
you that we did not have the opportunity for the dialog we 
would ordinarily have liked to have had with the panel. It 
happens a lot. But I can assure you that we will carefully 
review your written testimony.
    Frankly, if there are points that you would like to add to 
supplement the record, either in terms of questions that 
members may want to submit to the panelists, or in terms of 
additional information the panelists would like to submit to 
us, we will keep the record open through Friday for an 
opportunity for that to happen.
    I agree with the comments of many who have testified here 
today about the critical importance of our clean water, whether 
it be water for safe drinking water or the clean water of the 
other water uses and sources that we have in our country. I 
think it is at the highest level. We must provide the 
commitment at the Federal level, but make sure we do it smart 
and in a way that will make sure that we address the priorities 
without devastating communities. I believe we can do that. We 
are going to be looking for the path forward to do this as we 
complete this hearing and move into the other hearings and as 
this subcommittee addresses this critical issue.
    Again, I thank you very much, all of you, for attending.
    Senator Crapo. This hearing is adjourned.
    [Whereupon, at 11:52 a.m., the subcommittee was adjourned, 
to reconvene at the call of the chair.]
    [Additional materials submitted for the record follow:]
       Statement of Hon. Christine Todd Whitman, Administrator, 
                  U.S. Environmental Protection Agency
    Good morning, 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 and sewage treatment facilities to protect human 
health and the environment.
    As a Nation, we have made great progress over the past quarter 
century in reducing water pollution and assuring the safety of drinking 
water. The Clean Water Act and the Safe Drinking Water Act have served 
us well and provide the solid foundation we need to make sure that all 
Americans will continue to enjoy safe drinking water and clean rivers, 
lakes, and coastal waters.
    Our success in improving drinking water and surface 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 
investment in water infrastructure--in pipes and treatment plants--has, 
more than any other single effort, paid dramatic dividends for water 
quality and public health.
    This morning, I want to give you a brief overview of the progress 
we have made in improving water quality and the water pollution and 
public health challenges we still face. I also will summarize what EPA 
knows about the need for future investment in clean water and drinking 
water facilities 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 water 
infrastructure.
          clean and safe water--accomplishments and challenges
    Most Americans would agree that the quality of both surface waters 
and drinking water has improved dramatically over the past quarter 
century.
    Thirty years ago, the Nation's waters were in crisis--the Potomac 
River was too dirty for swimming, Lake Erie was dying, and the Cuyahoga 
River had burst into flames. Many of the Nation's rivers and beaches 
were little more than open sewers.
    The 1972 Clean Water Act has dramatically increased the number of 
waterways that are once again safe for fishing and swimming. The Act 
launched an all out assault on water pollution, including new controls 
over industrial dischargers, support for State efforts to reduce 
polluted runoff, and a major investment by the Federal Government to 
help communities build sewage treatment plants.
    The $76 billion in Federal wastewater assistance since passage of 
the Clean Water Act in 1972 has dramatically increased the number of 
Americans enjoying better water quality. The economic and social 
benefits of improved water quality are readily evident all across the 
country. Some of the most dramatic improvements are seen in urban 
areas. In cities such as Boston, Cleveland, St. Petersburg and 
Baltimore, the efforts to restore the health and vitality of our waters 
has also led to economically vibrant, water-focused urban environments.
    The dramatic progress made in improving the quality of wastewater 
treatment since the 1970's is a national success. In 1972, only 84 
million people were served by secondary or advanced wastewater 
treatment facilities. Today, 99 percent of community wastewater 
treatment plants, serving 181 million people, use secondary treatment 
or better.
    We have also 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, 
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.
    Despite past progress in reducing water pollution, almost 40 
percent of the Nation's waters assessed by States still do not meet 
water quality goals established by States under the Clean Water Act. On 
a national scale, States report that leading sources of pollution 
include urban runoff and storm sewers, agriculture and municipal point 
sources. Other sources, ranging from factories to forestry operations, 
cause water pollution problems on a site-specific basis. Point-source 
pollution has been so greatly reduced, that now non-point sources are 
the leading cause of water pollution. Also, although compliance with 
drinking water contaminant standards is good, public health risks from 
drinking water can be further reduced.
       clean water and drinking water state revolving loan funds
    The primary mechanism that EPA uses to help local communities 
finance water infrastructure projects is the State Revolving Loan Funds 
(SRFs) established in the Clean Water and Safe Drinking Water Acts. The 
SRFs were 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 programs, EPA makes grants to each State to 
capitalize their SRFs. States provide a 20 percent match to the Federal 
capitalization payment. Local governments get loans for up to 100 
percent 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, funds invested in the SRFs provide 
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 percent (the average rate 
during the year 2000) saves communities 25 percent compared to using 
commercial financing at an average of 5.8 percent (see Chart 1).
    To date, the Federal Government has provided more than $18 billion 
in capitalization grants to States for their clean water SRFs through 
fiscal year 2001. With the addition of the State match, bond proceeds, 
and loan repayments, the cumulative funds available for loans of the 
clean water SRFs were more than $34 billion, of which $3.4 billion was 
still available as of June 30, 2000.
    Since 1988, States have made over 9,500 individual loans for a 
total of $30.4 billion. In fiscal year 2000 the Clean Water SRFs issued 
a record total of 1,300 individual loans with a value of $4.3 billion 
(see Chart 2). The Clean Water SRFs have provided about $3 billion in 
loans each year for several years.
    In 1996, Congress enacted comprehensive amendments to the Safe 
Drinking Water Act which created a SRF program for financing of 
drinking water projects. The Drinking Water SRF was modeled after the 
Clean Water SRF, but States were given broader authority to use 
Drinking Water SRFs to help disadvantaged communities and support 
Drinking Water program implementation.
    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 percent of the agreements (38 
percent 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.
                   water infrastructure--future needs
    The Safe Drinking Water Act and Clean Water Act both require 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 percent 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.
    Transmission and distribution costs are the largest category of 
need. 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 
3). Transmission and distribution costs are the largest category, at 56 
percent of the total need, or $83.1 billion. Treatment projects make up 
the second largest category of needs (i.e. 25 percent) and have a 
significant benefit for public health.
    Approximately 21 percent, or $31.2 billion, is needed for 
compliance with current and proposed regulations under the Act. Nearly 
80 percent of the regulatory need is to comply with rules which protect 
consumers from harmful surface water 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.
    As you may know, EPA's most recent survey of clean water 
infrastructure needs was released in 1996 and we plan on releasing a 
new clean water needs survey in 2002.
    The 1996 clean water needs survey estimated wastewater needs of 
$140 billion, including $26.5 billion for secondary treatment projects, 
$17.5 billion for advanced treatment, and $73.4 billion for various 
types of sewage conveyance projects, including collectors, 
interceptors, combined sewers, and storm water and $10 billion for 
nonpoint pollution control projects (see Chart 4). EPA is working to 
supplement the 1996 clean water needs survey as more accurate 
information becomes available. For example, the Agency has developed a 
model to estimate costs associated with reducing sanitary sewer 
overflows that predicts costs significantly higher than the estimate in 
the 1996 needs survey.
    The Agency is also 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.
           broader context of water infrastructure financing
    Over the past year, several interest groups including the Water 
Infrastructure Network, the Association of Metropolitan Sewerage 
Agencies, 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 decisionmaking 
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 that need to be more fully 
evaluated are described below.
     Population Growth. Steady growth and shifts in population 
puts substantial pressure on local governments to provide expanded 
drinking water and sewer services.
     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 increase, 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.
               fy 2002--water infrastructure investments
    The President's fiscal year 2002 budget proposes to maintain 
Federal support for both clean water and drinking water infrastructure.
    The Administration proposes $1.3 billion for wastewater grants to 
States in fiscal year 2002. This funding will provide a substantial and 
sustained contribution to clean water infrastructure needs. The $1.3 
billion requested for wastewater grants to States is $500 million more 
than the previous Administration's fiscal year 2001 request.
    Because of the revolving nature of the clean water SRFs, this 
fiscal year 2002 capitalization amount will allow the SRFs to provide 
$3 billion in loans over the next several years. In addition, EPA 
expects that, over the long-term, the clean water SRFs will be able to 
provide average annual assistance of $2 billion (see Chart 5).
    The Congress recently enacted important new legislation to help 
communities address water pollution problems caused by overflows of 
combined and sanitary sewers. In response to this new legislation, the 
Administration will propose grants to States for these important 
projects in fiscal year 2002.
    In the case of safe drinking water projects, the Administration 
proposes to maintain capitalization of the drinking water SRF in fiscal 
year 2002. By the end of fiscal year 2002, we expect the number of 
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 fiscal year 2002 funding will help communities across 
the country finance important clean water and drinking water projects. 
As your committee continues to study the water infrastructure needs, 
the Administration would like to encourage a constructive dialog 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 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 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 both Drinking 
Water and Wastewater infrastructure projects and evaluate any barriers 
faced by local governments in getting access to needed capital as part 
of this process (e.g. poor bond ratings, 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 and sewer 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, and advancements in technologies.
    Ensuring that our 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 
water infrastructure challenges 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.
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    Statement of J.R. Sandoval, Chief of Staff, Idaho Department of 
                         Environmental Quality
    Mr. Chairman and members of the committee: My name is Jon Sandoval. 
I am chief of staff at the Idaho Department of Environmental Quality in 
Boise, Idaho. I bring greetings to you, Mr. Chairman, from Governor 
Kempthorne, and director, Steve Allred.
    I am testifying to share with you the perspectives of Idaho and 
other largely rural Western States who, along with their small 
communities, face unique and often overlooked challenges in meeting 
water and wastewater needs. On behalf of the State of Idaho, I very 
much appreciate your invitation to share my comments with you today.
     water and wastewater infrastructure needs of small communities
    Enhancements over the years to the Safe Drinking Water Act (SDWA) 
and the Clean Water Act (CWA) have significantly enabled States to 
address major improvements in how infrastructure needs of small rural 
communities are served. States have been very successful in their 
efforts to work with small communities to better define current and 
projected infrastructure needs in rural areas. It is small communities 
who are most impacted by lack of capacity and financial stress in 
assuring citizens are provided safe drinking water and wastewater 
treatment at an affordable cost.
    Small communities face a unique situation as they must weigh the 
costs of necessary capital investments to meet national environmental 
and public health goals of the CWA and the SDWA with other pressing 
public needs. These communities struggle with the need to replace 
outdated and failing infrastructure in order to achieve environmental 
compliance. Small communities in Idaho, and in all Western States face 
a number of common issues:
     How much is available to spend, and are revenues adequate?
     How do they document the need for financial assistance?
     Can debt service be properly managed?
     How do they obtain the necessary engineering, financial 
and technical expertise at an affordable cost?
     How much does it cost to operate and maintain their 
facilities?
     How do they find and obtain affordable public financing?
     How much of the cost will consumers have to bear?
     Small communities in Idaho, and throughout the Western 
United States, find themselves facing what they perceive are 
unrealistic regulatory burdens. These same communities have serious 
funding limitations and few opportunities to address drinking water 
quality and wastewater treatment infrastructure needs in rural areas.
    In Idaho, the mechanics of documenting need is a major challenge on 
our small communities. While limited technical assistance is available 
from State and Federal sources, these communities face a number of 
obstacles when it comes to defining need as trends have continued to 
suggest:
     Federal requirements are increasingly becoming more 
stringent to improve water quality and drinking water safety.
     Increasing costs of attaining these requirements will 
continue to escalate as there is a more directed focus to:
         use technologies that are more complex and expensive
         recognize energy use costs have tripled in the Pacific 
        Northwest
         Lacknowledge the rising costs of capital improvements 
        to replace aging and/or failing water distribution systems and 
        wastewater collection systems is, for many of these 
        communities, an extreme hardship.
    Small communities across the western portion of the United States 
face substantive environmental challenges and responsibilities. Local 
leaders find themselves, as one Mayor of a small community of 1500 in 
Eastern Idaho Stated ``being documented to death''. Documenting needs 
of small communities to a host of jurisdictional and public financing 
agencies results in a great deal of dialog and discussion but, 
unfortunately, yields little or no on-the-ground results. As the Mayor 
from that small town in Eastern Idaho concludes: ``It's all talk. I am 
asked to make de-facto decisions about complex financing and technical 
issues about water treatment processes without the benefit of knowing 
exactly what it means to my community''.
    Small communities are at a distinct disadvantage with Federal 
requirements for environmental compliance--as these entities lack 
necessary financial resources, capacity, structure, access to 
technology, and the right tools in their communities to make informed 
and rational decisions. The debate in small communities traditionally 
focuses on the merits of upgrading a 20-year old wastewater treatment 
plant, buying a fire truck, or upgrading a 50-year old elementary 
school. What should the community determine is the best value for their 
tax dollar: Environmental compliance? Schools? Public Safety? This is 
the reality of the issues and the decisions small communities have to 
make.
    It is increasingly difficult for small towns to manage and 
implement environmental requirements, even though EPA and States have 
broadened and expanded their capacity to provide direct technical 
assistance. States, as well as the Federal Government, often impose 
unrealistic expectations on these communities to document need at a 
level of detail without acknowledging the reality of the issues and 
decisions these small communities in rural areas must make.
    The realities we need to address when it comes to understanding and 
responding to the infrastructure needs of small communities is that 
small towns and rural areas dominate our nation. Approximately 90 
million people live within jurisdictions serving less than 10,000 
residents. Approximately 75 million people live in small, rural 
communities of less than 2,500. One-third of all local governments do 
not have any employees. 97 percent of the country's landmass is 
classified as ``rural''.
    In Idaho, there are 36 rural counties, with 88.3 percent of Idaho's 
land area, and 36.2 percent of the State's population. Idaho averages 
14.8 persons per square mile, compared to 74.6 persons for the United 
States. Idaho is the seventh most rural State in the country with rural 
counties averaging 6.1 persons per square mile. Counties with fewer 
than six persons per square mile are often referred to as ``frontier 
areas'' with six counties having less than two persons per square mile. 
In Idaho, we define a ``small community'' as a community of 1,000 
people or less. I would encourage the Environmental Protection Agency 
to consider using this definition because it has been our experience 
using our definition of small communities . . . these are the 
communities where the greatest hardship exists. These are the 
communities where the need for infrastructure improvement and 
enhancement are Idaho's biggest challenge and where we do not see 
enough Federal response to address the financial stress of rural 
communities.
    People who live in small rural communities in Idaho are proud of 
their communities and their rural heritage. They want to comply with 
reasonable health and environmental standards. However, local officials 
are concerned about requirements where no consideration for the unique 
circumstances and challenges of small communities has been factored. 
These same local leaders take issue with unnecessary and cumbersome 
regulations restricting a small community's ability to respond 
intelligently to local priorities and needs.
    Small communities want to provide the necessary infrastructure for 
safe drinking water supplies and wastewater treatment facilities but 
need to have the Federal Government recognize the limited financial 
capacity these small communities are experiencing. Changing 
demographics, high unemployment, declining tax base and increased costs 
of doing business are unique realities of small communities in rural 
areas. To not acknowledge these realities is a grave mistake. If there 
is no regulatory relief and no flexibility to find innovative 
mechanisms to finance small community infrastructure needs, we will 
witness ``regulatory and financial flight'' by small communities. As it 
stands, small communities in Idaho and across all States in the West 
cannot viably comply with overly prescriptive environmental mandates or 
find innovative ways to obtain and secure financing for infrastructure 
needs.
    We have a responsibility as public policymakers to assist small 
communities to build capacity to comply with reasonable environmental 
regulations and to solve the financing issues in a collective effort to 
ensure public health and environmental protection.
    Fiscal concerns at all levels of government, and particularly for 
smaller, rural communities, have dramatically elevated the issues of 
Federal environmental protection program costs and flexibility. 
Environmental laws depend extensively on State and local 
implementation, which raise questions of where the financial burden 
should lie. Public health values are also raised, as it is our 
responsibility to extend these values uniformly to all citizens, which 
can also lead to unequal cost burdens because of variations in local 
conditions, services involved, populations affected and economies of 
scale. Environmental compliance has become more costly, especially for 
small communities struggling with other competing public and community 
needs. Environmental statutes (i.e., CWA and SDWA) are not consistent 
in addressing the sharing of cost burden of achieving local public 
health and environmental benefits.
    There is a tension between desired environmental goals at the 
national level and the need to finance infrastructure enhancements at 
the local level. Issues in this debate include greater use of market 
incentives, cost effectiveness and flexibility in regulation, and more 
critical attention to who should pay for environmental protection--the 
unfunded mandates issue.
    A general perception in small communities in the West is that the 
costs to States and localities imposed by Federal mandates are growing 
disproportionately faster than Federal assistance. We calculate in 
Idaho, if we are to meet the infrastructure needs of all small rural 
communities, we will need to spend considerable State resources and 
need to find more innovative ways to fund infrastructure needs. We 
suggest grant funding or, at minimum, very low interest loans in order 
to allow federally mandated projects to meet new requirements.
    If we realistically want to address the small community water and 
wastewater infrastructure need, we need to see more Federal dollars 
directed to local government in the form of grants for costs related to 
National Environmental Policy Act (NEPA) requirements. While the SRF 
programs in Drinking Water and Wastewater work well for larger 
municipalities, small communities are distinctly at a disadvantage when 
it comes to capacity, documenting need, securing the necessary 
financing package to service to debt obligations.
    Compounded by the cost factor is the additional perception that 
there is no flexibility. State and local interests are at stake. The 
perceptions of small communities is not to ``roll back'' environmental 
and other laws designed to protect the public health and welfare--but, 
on the contrary, to have firm support that Congress should address the 
funding issues directly without altering requirements to comply with 
pollution standards.
    Local government is most affected by the costs of complying with 
federally mandated pollution standards, particularly for meeting 
drinking water and sewage treatment requirements. The capacity to 
borrow money at commercial financing institutions is not a viable 
option. It is our experience that ``small communities'' without staff, 
technical and financial expertise, access to technology, and no money--
need a much better solution to address their infrastructure needs. 
Small communities will have to spend considerably more money per year 
than they now spend if they are to meet the total investment, 
operation, and maintenance needs to replace aging and failing 
distribution and collection systems.
    Small communities are most frequently at a disadvantage when it 
comes to ``documentation''. Small communities lack capacity, know-how, 
and sophistication to produce Capital Improvement Plans, Environmental 
Impact Statements (EIS), or Engineering Reports describing capital 
improvements necessary to provide safe water or demonstrate adequate 
capacity to treat waste.
    In Idaho, as in most rural States, where capital improvement plans 
and engineering reports are unavailable or cannot be produced by small 
communities, the State response has been effective. State Water Quality 
engineering staff take the lead to compile required documentation 
onsite or through contractual assistance to the community via a State 
initiated ``planning grant'' to obtain the necessary data to be 
submitted to EPA. We sometimes experience great frustration in 
obtaining approval of priority projects with EPA as approximately 15 
percent of our proposed projects are ``disapproved'' for lack of 
adequate documentation. While the documentation is provided, there is a 
general perception in Idaho that there is heavy reliance at EPA to 
support ``modeling data and applications'' over documented needs 
submitted by individual States.
    Based on the documentation we collect from small communities, or 
when small communities have generated and submitted detailed 
explanations of infrastructure needs on their own, we make 
determinations for funding based on:
     Public Health Emergency or Public Health Hazard
     Highest Priority to Protect Water Quality and the 
Environment
     Watershed Restoration
     Watershed Protection from Impacts
     Preventing Impacts to Uses
     Highest Priority to Protect Water Quality and the 
Environment
     Ability to Pay and Secure Public Financing
     Water Quality Violation
     General Conditions of Existing Facilities
     Under Consent or Administrative Order
     Incentives:
         Source water assessment
         Master or facility plan complete
         Replacement fund established
         Regionalization/consolidation plan implemented
         Rate structure
         Monitoring requirements met
         Affordability
    (O.M.R and debt service greater than 2 percent of median household 
income (MHI)
    Small communities incur pollution control costs because they own or 
operate public water supplies for drinking water, sewage treatment and/
or waste disposal facilities. The 1987 revision to the Clean Water Act 
began a phaseout of the long-standing federally funded sewage treatment 
grant program with a revolving loan program that local governments 
could tap, but would have to repay. When it comes to the needs of small 
communities, there have to be better solutions and a much better 
Federal response to provide direct funding assistance to communities of 
1,000 or less.
    Our experience in Idaho, as it is with most States in the West, is 
that we have to do a much better job of serving the needs for water and 
wastewater infrastructure needs of small rural communities. It means, 
States and EPA must be more flexible, innovative and more responsive to 
the needs of communities who are experiencing severe financial 
hardship.
    We must work with EPA to find better ways to increase State 
capacity to provide more technical assistance to these impacted 
communities. A mandatory Wastewater Operator Certification Program is a 
good idea in respect to evolving and expanding Federal testing and 
monitoring requirements--but we need to ensure funding is available to 
train operators before requirements are implemented if we want to 
ensure we are protecting water treatment in small rural communities.
    In respect to the WIN Report, Idaho does agree there will be a 
substantial funding gap for water and wastewater systems between 
current investments in infrastructure and the investments that will be 
needed annually over the next 20 years to replace aging and failing 
pipes and to meet increasing Federal compliance requirements. Idaho has 
voted to support the resolution of the Environmental Council of the 
States (ECOS) passed unanimously at its 2001 Spring Meeting on the 
Water Gap Analysis.
    Providing additional resources to fix aging infrastructure is 
essential, but no matter how it is ultimately done, States will be 
expected to play a significant management role. In addition to the gaps 
in funding, States also continue to face extraordinary needs to manage 
nonpoint source issues, TMDLs, as well as new proposed rules to manage 
animal feeding operations . . . which in turn, have an impact on the 
infrastructure needs of small communities. Increased assistance for 
State capacity to meet these needs must also be factored into the 
debate as we attempt to address the rest of our water quality 
challenges at the local, State and Federal level.
    It is the financial and prescriptive ``Federal strings'' attached 
to the revolving loan programs for drinking water and wastewater 
treatment that raise the hackles and the tempers of local government 
officials trying to find reasonable financing mechanisms to comply with 
pollution abatement requirements. The Federal Government must come to 
fully recognize that local governments and ratepayers fund 90 percent 
of clean and safe water infrastructure costs while struggling to 
resolve competing demands to educate children, maintain roads, fight 
crime, and provide other basic access to primary health care services.
    Small communities should not have ``to choose between providing 
safe and clean water and funding other necessary community and public 
needs''. Better solutions are needed because what we have is not 
working for small communities.
    Overall infrastructure spending, according to the Congressional 
Budget Office, was about $200 billion per year by the mid-1990's. The 
Federal capital expenditure, however, has remained relatively flat at 
about $50 billion per year from 1977 to 1998, or about 2 percent of the 
total Federal budget''. Local government, and in particular, small 
communities, has born the brunt of infrastructure improvements and 
spending since the late 1950's.
    The economic history of rural communities is closely linked with 
natural resources: soils, and water for crop and livestock production; 
hardrock minerals, coal, oil, and natural gas extraction; and forested 
lands for timber. Be it rural Idaho, or the Mora Valley of Northern New 
Mexico; the agricultural production of the San Luis Valley in Southern 
Colorado; the forested areas of Western Montana; or the Gas Hills in 
North Central Wyoming--small communities in these areas and throughout 
the West have continued to depend on water as the life blood of their 
communities. However, new technologies coupled with globalization of 
labor and the economy are changing where and how Americans work. New 
applications in resource extraction industries as well as growth in 
``service'' occupations are helping to diversify many rural economies.
    Such diversification offers opportunities for small communities. 
Until the 1960's, environmental protection, whether to preserve 
environmental amenities such as swimmable and fishable water, to 
protect economic values or public health--was almost solely the 
responsibility of local and State government.
    Idaho believes it can manage environmental programs at reduced cost 
and with more efficient service delivery mechanisms if given requisite 
flexibility and the ability to decide and determine State environmental 
protection priorities. In order to maximize our resources, the correct 
Federal response will be to address the economic issues of communities 
of 1,000 people or less.
    The cost of environmental compliance and environmental protection 
vary widely from one area to another. States are concerned about the 
need and the cost to replace inadequate or aged drinking water and 
wastewater treatment facilities. States are concerned about the impacts 
of these costs in rural areas on small communities in particular. 
Without a significantly enhanced Federal role in providing direct 
financial assistance to drinking water and wastewater infrastructure, 
critical investments in small communities will not occur.
    Idaho, as well as other Western States, would consider entering 
into a serious discussion with EPA to closely assess and evaluate the 
water and wastewater treatment infrastructure needs of communities of 
1,000 people or less. The area of focus needs to be directed at 
increasing State capacity to address impacted community issues, 
financing, documentation of needs, transmission costs, regulatory 
compliance, and establishing standards appropriate to small rural 
communities. We would ask Congress to seriously consider other funding 
options to get financial resources to these communities in order to 
respond appropriately to the infrastructure needs.
    It has been the Idaho experience that small communities do not have 
the financial resources available to shoulder the immediate and long-
term infrastructure improvement or replacement costs of aged 
facilities. There is a definitive need for targeted financial 
assistance to pay for expensive water treatment facilities and adequate 
public water supplies in small rural communities.
    The Federal Government must come to fully recognize that local 
governments and ratepayers fund 90 percent of clean and safe water 
infrastructure costs while struggling to resolve competing demands to 
educate children, maintain roads, fight crime, and provide other basic 
access to primary health care services.
    Small communities should not have ``to choose between providing 
safe and clean water and funding other necessary community and public 
needs''. Better solutions are needed because what we have is not 
working for small communities and the infrastructure needs are not 
being adequately addressed in spite of State government efforts to find 
more creative ways to assist these communities.
    Local capacity for developing long-term funding strategy is very 
limited in rural communities due in large to the complexity of the 
policies. Economies of scale do not favor small communities. Greater 
assistance is needed to help communities address infrastructure issues 
and the need for capital asset management.
    The complex matrix of Federal, State and private funding sources 
provides flexibility in water quality efforts; however, this 
flexibility only exists if knowledge and capacity are present. Greater 
funding is needed to help build financial knowledge and capacity of 
rural communities.
    We need to work together to design and develop an integrated vision 
of the economic, environmental and social characteristics of small 
communities. This requires strong leadership at all levels.
    Thank you, Mr. Chairman and members of the committee, for this 
opportunity to comment on this important issue to States and to the 
small communities we serve in rural areas.
                         what do we need to do?
     Appropriate flexibility needs to be incorporated into new 
environmental regulations, and added to existing ones to account for 
small community priorities and needs. Moreover, regulations should be 
written in user-friendly language the average citizen can understand.
     We need to switch gears. We need to focus on results and 
not process. Rules and regulations should identify a result to be 
achieved rather than a process to be followed.
     SDWA statutory requirements for new contaminants are not 
based on sound science or risk factors. We need to identify a process 
to select contaminants for regulation based on sound science, relative 
risk, and on the real dollar cost of implementation.
     Revisit testing and monitoring requirements for 
contaminants in SDWA and for effluents and background ambient water 
criteria related to wastewater treatment under the CWA. If we set 
requirements, the requirements should consider standards for which 
there is affordable technology to undertake testing and implement 
adequate monitoring activities.
     The provisions of the Davis-Bacon Act often have the 
effect of setting wages at a much higher rate than the local market can 
sustain. Small communities should pay a fair wage based on a local 
competitive market, rather than a prevailing wage based on a wage scale 
that is influenced by larger, metropolitan areas.
     The process for approving new analytical methods for 
monitoring and testing drinking water and wastewater should be 
streamlined and expedited.
     A review of the necessity for small rural communities to 
comply with: National Environmental Policy Act (NEPA); Davis-Bacon wage 
rates; Minority and Women's Business Enterprise (MBE/WBE) goals; and, 
Equal Employment Opportunity (EEO) requirements, are costly relative to 
the amount of money small communities need for infrastructure 
improvements and/or enhancements. We need to eliminate the red tape.
     If Water and Wastewater Infrastructure Financing 
Authorities (WWIFAs) are required, this creates a difficulty in Idaho. 
It is not likely the Idaho Legislature would be agreeable to creating 
another Financing Authority, as there is no indication specifying how 
much of the fund could be used for administering programs or what the 
scope and magnitude of the entity would entail.
     EPA needs to improve methodologies for assessing the 
environmental impacts, costs, and practical and technical applications 
of proposed regulations and funding mechanisms. Special consideration 
should be given to how regulations will impact communities with 
populations less than 2,500. We need to make sense of the nonsense.
     EPA needs to formulate a reasonable method for allocating 
Federal resources and funds for water and wastewater infrastructure 
needs targeted on the basis of need . . . recognizing that small 
communities often pay a disproportionate share of the expense.
     States need to be fully recognized and funded for their 
ability to solve local problems in the most economically feasible and 
timely manner and to manage water and wastewater infrastructure 
programs based on experience, capacity, and ability to work with local 
communities to solve issues. The Federal Government is too far removed 
to effectively become ``your locally involved Federal Government.'' 
Small communities know their needs, potential, and limitations.
     EPA and Congress need to recognize that States have the 
capacity and the experience to provide technical assistance to assist 
small communities to comply with water and wastewater requirements with 
less Federal oversight and intervention.

               FY 2001 State Loan Drinking Water Project Priority (Sorted By Rank and Rating--DW)
----------------------------------------------------------------------------------------------------------------
                                         FY 2001           Regional    DEQ Est.
 Rank               Project               Rating    Pop     Office    Loan Amt.         Project Description
----------------------------------------------------------------------------------------------------------------
    1   Rivers Pointe HOA..............      215      140       BOI       50,000  Expand Filtration System
                                                                                   (SWTR)
    2   Bruneau Water & Sewer Dist.....      196       80       BOI      286,000  Fluoride Treatment
    3   Four Seasons Ranch #2..........      172      160       POC       60,000  Reverse Osmosis Filter and
                                                                                   Pressure Tank
    4   Ashton.........................      148    1,180       IdF      450,000  Treatment Improvements
    5   McCall, City of................      134    2,005       BOI    5,000,000  Installation of Filtration
                                                                                   (SWTR)
    6   Valley View WS Dist............      133      150       LEW      500,000  New well and wellhouse
    7   Parkview Water Assn............      132       90       CdA       20,000  2nd well needed to eliminate
                                                                                   nitrate contamination
    8   Black Cliffs MH Park...........      130      100       POC       70,000  Connect to Pocatello Water
                                                                                   System
    9   Central Shoshone Cnty Wtr Dst..      104    4,052       CdA    1,500,000  Upgrade Shoshone County well,
                                                                                   lead-copper treatment,
                                                                                   replace transmission line
   10   Pocatello......................       95   51,344       POC    2,000,000  Drinking Water Aeration
                                                                                   Facility
   11   Laclede Wtr District...........       94      400       CdA      150,000  Phase II Water Treatment Plant
                                                                                   Improvements
   12   Burke-East Shoshone County            90      100       CdA      400,000  SWTR Compliance
         Water Dist.
   13   Idaho City, City of............       87      397       BOI      118,000  Install Chlorine Contact
   14   Kingston Wtr District..........       84      800       CdA      600,000  Install Filtration or Well
                                                                                   (SWTR) Corrosion Control
                                                                                   (SDWA)
   15   Bancroft, City of..............       81      430       POC      100,000  New wells and water lines
   16   Little Blacktail Ranch Park....       81       60       CdA       30,000  New Wells
   17   Riverside Independent W/S Dist.       80       77       LEW    1,180,000  New Storage Tank, WTP Upgrade
   18   Clifton........................       79      250       POC      150,000  New Well and Distribution
                                                                                   Upgrade
   19   Salmon, City of................       76      154       IdF    5,500,000  Upgrade Coagulation and Filter
                                                                                   System and Add 1.5 MG storage
   20   Priest River, City of..........       71    2,000       CdA      750,000  Additional storage reservoir
                                                                                   and addl contact time
   21   Bloomington....................       70      300       POC      200,000  New Storage System
   22   Weiser, City of................       69    5,262       BOI    2,000,000  New flocculation,
                                                                                   sedimentation, chem feed and
                                                                                   storage bldg, change from
                                                                                   chlorine gas to another
                                                                                   disinfectant, new clear well.
   23   Deary, City of.................       68      529       LEW      120,000  New well or well upgrade
   24   Genesee, City of...............       67      775       LEW      500,000  New well and Wellhouse
   25   West Mtn. Water User Assn./           66      150       BOI      500,000  New Supply and/or Filtration
         South Lake Wtr & Sewer Dist.                                              (SWTR) and Distribution Lines
   26   North Oakley Holding Co........       66      100       TwF      517,000  Second Source, Storage,
                                                                                   Distribution
   27   Filer, City of.................       66    1,640       TwF      350,000  Well, Pump Controls and
                                                                                   Distribution System
   28   Elm Park.......................       65      130       TwF       75,000  Upgrade
   29   Atlanta Water Assn.............       65       50       BOI       20,000  Re-coat Storage Tanks
   30   Smith Road Wtr Users...........       62       66       POC       50,000  New Well and Storage Tank
   31   Arimo, City of.................       61      320       POC      300,000  New Well and Distribution
                                                                                   System Upgrade
   32   North Forks Water Works........       60       64       IdF       30,000  Install Corrosion Control/
                                                                                   Disinfection
   33   Pocatello, City of.............       58   53,074       POC      750,000  Three (3) new wells
   34   Weippe, City of................       56      805       LEW      250,000  New Storage Reservoir
   35   Homedale, City of..............       55    1,963       BOI      500,000  System Upgrade
   36   Rapid River Subdivision........       55       89       LEW      200,000  Disinfection and Contact Time
   37   Whitney-Nashville Wtr Dst......       55      400       POC      235,000  New Storage and Meters
   38   Georgetown.....................       54    1,557       POC      100,000  Spring reconstruction
   39   Carey Water & Sanitation Dist..       54      150       TwF      250,000  New Source & Wellhouse
   40   Twin Falls Joslin Field........       54   32,000       TwF      400,000  Storage, Pump Station Retrofit
                                                                                   and Distribution
   41   New Hope.......................       53       49       LEW       40,000  New Well
   42   Jerome.........................       52    7,250       TwF    1,764,954  Distribution System, Retrofit
                                                                                   Small Water Lines
   43   Valley View Heights............       52       65       IdF       30,000  Install Corrosion Control
   44   Challis, City of...............       50    1,073       IdF      800,000  Needs to Increase Contact Time
                                                                                   for SWTR
   45   Kootenai County Water Dist.....       48      450       CdA      447,000  Water Treatment and
                                                                                   Disinfection
   46   Serenity Terrace MH Park.......       47       26       CdA       25,000  Water Treatment, Construct
                                                                                   Well house and land purchase
   47   Rexburg........................       47   15,000       IdF      250,000  Disinfection System
   48   Franklin.......................       46      500       POC       50,000  Acquire Property Adjacent to
                                                                                   Source
   49   Stites.........................       46      253       LEW        6,000  Reservoir Repair
   50   Del Rio Estates................       46       46       TwF       10,000  New Source
   51   Donnelly, City of..............       44      135       BOI      210,000  Back-up Well
   52   McCammon.......................       44      800       POC      250,000  Upgrade Distribution System
   53   Scriver Woods HOA..............       43       75       BOI       25,000  Corrosion Control for Lead and
                                                                                   Copper
   54   New Horizon Wtr Assn...........       43       85       BOI      125,000  Back Up Well, Storage and
                                                                                   Distribution Improvements
   55   Murtaugh, City of..............       43      130       TwF      750,000  Well, Distribution and Storage
   56   Orofino, City of...............       42    1,609       LEW    2,000,000  New Tank, Distribution Upgrade
                                                                                   and WTP Upgrade
   57   Eagle Water....................       42    8,000       BOI      700,000  Construct a 2-million gallon
                                                                                   reservoir
   58   Fishhaven Pipeline Co..........       41      200       POC      250,000  Upgrade Dist. System
   59   Leisure Acres..................       41      180       CdA       50,000  Corrosion Control and Dist.
                                                                                   System Replacement
   60   Tammany Alternative Ctr........       41      225       LEW      115,000  35,000 ft of 8" pipe--top
                                                                                   connect to LOID
   61   Driggs, City of................       41      835       ldF    2,000,000  Install filter system
   62   Cambridge, City of.............       41      383       BOI    1,500,000  Distribution, Storage, and
                                                                                   Upgrade Well #1
   63   Star Water & Sewer Dst.........       41    1,344       BOI       20,000  Telemetry system, treatment
                                                                                   system, and bldg for well #2
   64   Rolling Hills Wtr Co...........       40      250       BOI       30,000  Replace old 50 hp pumps
   65   Payette, City of...............       40    5,592       BOI      500,000  Construct a 1-million gallon
                                                                                   reservoir
   66   Burley, City of................       40    9,500       TwF    2,250,000  Dist. System, storage,
                                                                                   telemetry
   67   Blackfoot, City of.............       39    9,600       POC      200,000  New water line installation
                                                                                   west of Snake River
   68   Sagle Valley Water/Sewer Dist..       39       70       CdA      136,000  New well and water main
                                                                                   replacement
   69   Lewiston, City of..............       39   14,052       LEW    9,075,000  New Water Treatment Plant, New
                                                                                   1-million gallon storage tank
   70   Groveland Wtr Swr Dst..........       39      200       POC      330,000  New well, addl storage,
                                                                                   upgrade dist. system
   71   Shoshone County................       38    4,052       CdA      500,000  Upgrade Enaville Well
   72   Montpelier, City of............       36    3,000       POC      520,000  New Well, Storage Reservoir,
                                                                                   Dist. Upgrade
   73   Round Valley Water Assn-Challis       35      125       IdF      150,000  Addl water storage and repair
                                                                                   of existing well
   74   Dubois, City of................       35      300       LdF       20,000  Replace Pump and shaft at well
                                                                                   #1
   75   Aberdeen, City of..............       33    1,800       POC    3,200,000  New well and water lines
   76   Atomic City, City of...........       33       60       POC      200,000  New Well and dist system
                                                                                   upgrade
   77   Grandview Water & Sewer Assn...       33      450       BOI      150,000  Wastewater Treatement upgrade-
                                                                                   nitrate problem
   78   Riverend Estates...............       33       25       POC       50,000  New well
   79   Island Village MH Park.........       32       70       BOI       20,000  New well, new pumphouse
   80   Eagle West Subdivison..........       32       92       BOI      100,000  Replace water main
   81   Buhl, City of..................       32    3,600       TwF    1,700,000  Loop system and storage
   82   Notus, City of.................       32    3,380       BOI      500,000  New source distribution and
                                                                                   storage improvements
   83   Hulen Meadows Wtr Sys..........       30      390       TwF      350,000  New well source, new reservoir
                                                                                   and meter system
   84   Hauser Lake Wtr Sys............       30      850       CdA      850,000  New reservoir, replace
                                                                                   transmission and dist. piping
   85   New Plymouth, City of..........       30    1,313       BOI      800,000  Back up source, dist. and
                                                                                   storage improvements
   86   Valhalla Hillis................       30       75       LEW      120,000  Fix water lines, install new
                                                                                   well
   87   Albion, City of................       28      310       TwF       10,000  Increase well depth
   88   Kimberly, City of..............       27    2,361       TwF      400,000  Dist. system and meters
   89   Picabo, City of................       26       50       TwF       35,000  New source
   90   Riggins, City of...............       26      430       LEW        5,000  Upgrade chlorination system
   91   El Rancho Heights..............       25      235       BOI      100,000  Back up well and storage
   92   Hailey, City of................       25    6,500       TwF    1,669,850  Storage reservoir and new
                                                                                   sorce
   93   Hazelton, City of..............       25      550       TwF      522,000  Storage, new well, systems
                                                                                   control and distribution
   94   West Bonner Water Dist.........       24      500       CdA      800,000  Replace Transmission Line
   95   Greenleaf Water Assn...........       24      500       BOI      250,000  System upgrade
   96   Lapwai, City of................       23      932       LEW      150,000  New storage tank, distribution
                                                                                   system upgrade
   97   Victor, City of................       22      292       IdF      300,000  Upgrade Spring (GWUDI)
   98   Eden, City of..................       21      345       TwF       60,000  Generator and distribution
                                                                                   system
   99   Holbrook, City of..............       20       50       POC       50,000  New pump and distribution
                                                                                   system
  100   Cottonwood, City of............       20      941       LEW       70,000  New well and remodel
  101   Spendid Acres..................       20       88       BOI       16,000  Upgrade distribution system
  102   Elm Park Water System..........       19      130       TwF       75,000  Dist. and Generator upgrade
  103   Wymosa Water Assn..............       19       30       BOI       10,000  Replacement of water lines,
                                                                                   update of pumps
  104   Plummer, City of...............       18      800       CdA      565,000  New Transmission Line
  105   Hayden Lake Irrigation Dst.....       18    1,850       CdA    1,500,000  New water storage tank
  106   Preston, City of...............       18    4,355       POC    1,400,000  Water main extension and
                                                                                   meters
  107   Snake River RV Resort..........       17       28       BOI       20,000  Install secondary water
                                                                                   treatment
  108   Sky Ranch Estates..............       17       27       BOI      100,000  Increase storage capacity
  109   Grangeville, City of...........       16    3,226       LEW      800,000  Upgrade high pressure zone,
                                                                                   repair leaks, upgrade dead-
                                                                                   end lines
  110   Wayside Estates................       16       50       TwF       30,000  New source
  111   Skin Creek Wtr Assn............       16      150       CdA       45,000  Dist. system upgrade to
                                                                                   correct pressure problems
  112   Dalton Gardens Wtr Assn-Inc....       16    2,000       CdA      150,000  Water main replacement
  113   Northside Water Users Assn.....       16      350       CdA       55,000  New transmission line
  114   Beeline Water Assn, Inc........       14      121       CdA      140,000  Upgrade Dist. System
  115   Ahsahka Wtr System.............       12       85       LEW      120,000  New Well and System Upgrade
  116   Ross Point Wtr Dist............       12    3,000       CdA      200,000  New well and transmission
                                                                                   line, pumphouse
  117   Arco, City of..................       12      700       POC      300,000  Upgrade Dist. System
  118   Cottonwood Point Wtr Assn......       12       63       CdA       50,000  New storage tank
  119   North Fork Trailer Court.......       11       70       TwF       30,000  Filter system
  120   Pineridge Wtr & Swr Dst........       11      390       LEW      300,000  Replace 4" water main with 6"
                                                                                   wtr main, replace galv,
                                                                                   service lines, control valves
                                                                                   and hydrants
  121   Craigmont, City of.............       10      542       LEW      120,000  Replace hydrants, water mains,
                                                                                   service lines, separate water/
                                                                                   sewer lines
  122   McKinney MH Park...............       10       45       LEW       40,000  New well
  123   Buffalo River Estates..........        5      120       IdF     1250,000  Install new well and dist.
                                                                                   lines
  124   Happy Valley Rancho Water Inc..        5      250       CdA       20,000  Recoat and/or replacement
                                                                                   water storage tanks
  125   Onaway, City of................        2      290       LEW        5,000  System upgrade
  126   Travel America Park............        2       50       CdA       20,000  New well
  127   Garden Valley School Dst.......        2      200       BOI    3,000,000  Drill potable well for school
----------------------------------------------------------------------------------------------------------------
WARNING: USE OF THIS LIST AS A MAILING LIST OR A TELEPHONE NUMBER LIST IS PROHIBITED BY IDAHO CODE SECTION 9-348
  AND IS PUNISHABLE BY A CIVIL PENALTY OF UP TO $1,000.
(SWTR)--Improvements required to comply with Surface Water Treatment Rule
(SDWA)--Improvements needed to comply with Lead-Copper Rule


                                     FY 2001 State Loan Wastewater Project Priority (Sorted By Rank and Rating--WW)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                DEQ Est.     Needs                                             Discharge Permit
 Rank                 Project               FY 2001    Reg    Loan Amount  Category         Project Description         STEP          #          BOD  SS
--------------------------------------------------------------------------------------------------------------------------------------------------------
    1   South Fork CdA River Sewer Dist...       44      CdA    4,000,000    I,IIIA  Plant Upgrade & I/I Removal......    4         ID-002130-0   30  30
    2   Pine Ridge SD.....................       40      LEW    1,000,000         I  Plant Upgrade....................    4        No Discharge
    3   Outlet Bay Water/Sewer Dist.......       40      CdA    2,293,000         I  Plat Upgrade and Land App. System    4        No Discharge
                                                                                      Upgrade.
    4   Coolin SD.........................       40      CdA    1,000,000         I  Plant Upgrade Land Application...    4         ID-002150-4   30  30
    5   Kamiah............................       40      LEW    3,500,000     I,IVB  Plant Upgrade/New Interceptor....    4        No Discharge
    6   Valley County So Lake Sewer Dist..       31      BOI    6,000,000   I,IVA-B  New Plant/New Collectors and         4        No Discharge
                                                                                      Interceptors.
    7   Pocatello.........................       30      POC   13,000,000     IVA-B  Treatment Plant/Interceptor          4         ID-002178-4   30  30
                                                                                      Upgrade (Phase II) Phase III-
                                                                                      Dist. upgrade.
    8   Fremont Cnty Last Chance/Ponds           30       IF    1,088,100         I  Plant Upgrade....................    4        No Discharge
         Lodge.
    9   Granite/Reeder Sewer District.....       27      CdA    2,000,000   I,IVA-B  New Secondary/New Collectors and     4        No Discharge
                                                                                      Interceptors.
   10   Fremont County Sawtelle Area......       24       IF   1,000,0000     IVA-B  New Collectors & Interceptors....    4        No Discharge
   11   Rupert............................       22      TwF    4,500,000         I  Plant Upgrade....................    4        No Discharge
   12   Fremont County Buffalo River Area.       22       TF    1,000,000     IVA-B  New Collectors & Interceptors....    4        No Discharge
   13   St. Charles/Fish Haven............       20      POC      500,000         I  Expand Land Application..........    4        No Discharge
   14   Fremont County Henry's Lake.......       20       IF    3,500,000   I,IVA-B  New Secondary/New Collectors and     4        No Discharge
                                                                                      Interceptors.
   15   Coeur d'Alene.....................       20      CdA    2,000,000         I  Plant Upgrade--Nitrification         4         ID-002285-0   30  30
                                                                                      Facilities.
   16   Williams Lake.....................       19       IF      750,000   I,IVA-B  New Secondary/New Collectors and     4        No Discharge
                                                                                      Interceptors.
   17   Fremont County Island Park Res.          18       IF    3,500,000   I,IVA-B  New Secondary/New Collectors and     4        No Discharge
         Area.                                                                        Interceptors.
   18   Meridian..........................       17      BOI    5,000,000    I,IIIB  Plant Upgrade/Sewer Rehab........    4         ID-002019-2   10  30
   19   Nampa.............................       17      BOI   10,000,000         I  Plant Upgrade....................    4         ID-002206-3   30  30
   20   Valley View Heights Lemhi.........       17       IF      500,000     IVA-B  New Collectors & Interceptors....    4         ID-002000-1   30  35
   21   Payette...........................       17      BOI    3,000,000    I,IIIB  Plant Upgrade/Sewer Rehab........    4         ID-002067-2   30  30
   22   Lava Hot Springs..................       17      POC      255,000         I  New Main Line, Land App.             4         ID-002182-2   60  60
                                                                                      Irrigation Equipment, and
                                                                                      Purchase Land App. Site.
   23   Lake Cascade Ranch Sub NLRSWD.....       17      BOI      106,000      IV-A  Collection System................    4        No Discharge
   24   Lemhi Co/Salmon...................       17       IF      500,000     IVA-B  New Collectors & Interceptors....    4         ID-002000-1   30  35
   25   West Mtn. Estates.................       17      BOI      111,000      IV-A  Cameron Drive South-Collection       4        No Discharge
                                                                                      System.
   26   Boise Sewer #2....................       16      BOI    1,600,000      IIIB  Sewer Rehab.-NW Trunk............    4         ID-002044-3   20  30
   27   Hagerman..........................       16      TwF    1,000,000  I,II,IVB  Additional Capacity/Advanced         4         ID-002594-1   45  70
                                                                                      Secondary/New Interceptor.
   28   Donnelly..........................       16      BOI      150,000      IIIB  Sewer Rehabilitation.............    4        No Discharge
   29   Burke Canyon Area.................       15      CdA      500,000   I,IVA-B  New Secondary/New Collectors and     4         ID-002129-6   30  30
                                                                                      Interceptors.
   30   Horseshoe Bend....................       15      BOI      500,000         I  Plant Upgrade....................    4         ID-002102-4   30  30
   31   Spirit Lake.......................       15      CdA    1,000,000         I  Plant Upgrade....................    4        No Discharge
   32   Bloomington.......................       15      POC      525,000         I  New Lagoon, chlorination and land    4        No Discharge
                                                                                      application.
   33   Emmett............................       15      BOI    1,500,000    I,IIIB  Plant Upgrade/Sewer Rehab........    4         ID-002031-1   30  70
   34   Lewisville........................       14       IF    1,500,000   I,IVA-B  New Secondary/New Collectors and     4        No Discharge
                                                                                      Interceptors.
   35   Burley............................       14       IF    8,000,000         I  WWTP Upgrade.....................    4         ID-00200-95   30  30
   36   Melba.............................       13      BOI      500,000    I,IIIB  Plant Upgrade/Sewer Rehab........    4        No Discharge
   37   Eagle Sewer Dist..................       12      BOI      500,000    I,IV-B  Plant Upgrade/Pump Station.......    4        No Discharge
   38   Tensed............................       12      CdA      500,000    I,IIIA  Treatment Plant Upgrade/I/I          4        No Discharge
                                                                                      Correction.
   39   Athol.............................       12      CdA    2,000,000   I,IVA-B  New Secondary/New Collectors and     4        No Discharge
                                                                                      Interceptors.
   40   Paul..............................       12      TwF      200,000      IIIB  Sewer Rehabilitation.............    4        No Discharge
   41   Downey............................       11      POC      300,000         I  Expand Lagoon Treatment..........    4        No Discharge
   42   Bannock Co/Tyhee..................       11      POC    2,000,000     IVA-B  New Collectors and Interceptors      4         ID-002178-4   30  30
                                                                                      to Chubbuck.
   43   Greenleaf, City of................       11      BOI    2,500,000   I,IVA-B  New Treatment Plant and New          4        No Discharge
                                                                                      Collectors & Interceptors.
   44   American Falls....................       10      POC      110,000         I  Anaerobic Digested Sludge            4         ID-002075-3   30  30
                                                                                      Disposal Facilities.
   45   Bingham County Riverside/Moreland.       10      POC    3,500,000   I,IVA-B  New Collectors & Interceptors to     4        No Discharge
                                                                                      Blackfoot.
   46   Preston...........................       10      POC      600,000         I  Interceptors & Collectors Upgrade    4         ID-002021-4   30  30
                                                                                      (Phase II).
   47   Kendrick..........................       10      LEW    1,000,000     I,IVB  Plant Upgrade/New Interceptors...    4         ID-002455-4   45  70
   48   Wendell...........................       10      TwF      550,000     IVA-B  New Collectors & Interceptors....    4        No Discharge
   49   Rigby.............................       10       IF    1,000,000     I,IIA  Plant Upgrade/Evaluate I/I.......    4         ID-002001-0   30  30
   50   Plummer...........................       10      CdA      800,000  IIIB,IVB  Upgrade facility, I/I Rehab, New     4         ID-002278-1   30  30
                                                                                      Interceptor.
   51   Culdesac..........................       10      LEW      500,000         I  Treatment Facility Upgrade.......    4        No Discharge
   52   Kimberly..........................        9      TwF    2,000,000        IV  Rehab............................    4        No Discharge
   53   Buhl..............................        9      TwF      500,000     I,IVB  New Interceptor..................    4         ID-002066-4   60  90
   54   Lapwai............................        8      LEW      100,000         I  Plant Upgrade....................    4        No Discharge
   55   Southside Sewer District-Sagle            8      CdA      500,000   I,IVA-B  New Secondary/New Collectors and     4        No Discharge
         Area.                                                                        Interceptors.
   56   Meridian..........................        8      BOI    3,000,000     IVA-B  New Collectors & Interceptors....    4         ID-002019-2   10  30
   57   Star Sewer District...............        8      BOI    4,000,000    I,IIIB  Plant Upgrade/Sewer Rehab........    4         ID-002359-1   45  70
   58   Grace.............................        7      POC      300,000     IVA-B  New Collectors/Interceptors......    4         ID-002382-5   30  30
   59   City of Ketchum...................        7      TWF    3,500,000    I,IIIB  Plant Upgrade....................    4         ID-002028-1   30  30
   60   Boise.............................        6      BOI    1,000,000     III-B  Miscellaneous Sewer Rehab........    4         ID-002044-3   20  30
   61   Aberdeen..........................        6      POC      100,000         I  Treatment Plant Sludge Handling      4         ID-002017-6   30  30
                                                                                      Upgrade.
   62   Kuna..............................        6      BOI    1,200,000         I  Plant Upgrade....................    4         No Discarge
   63   Hayden Reg Swr Bd.................        6      CdA      300,000         I  Septage Handling Facility........    4         No Discarge
   64   Montpelier........................        6      POC      250,000      IIIB  Sewer Rehabilitation.............    4         No Discarge
   65   Challis...........................        6       IF      300,000         I  Plant Upgrade....................    4         No Discarge
   66   Jerome............................        6      TWF    2,500,000         I  WWTP Upgrade.....................    4         ID-002016-8   30  30
   67   Dover.............................        6      CdA      500,000     IVA-B  New Interceptors & Collectors....    4         No Discarge
   68   Sandpoint.........................        6      CDA    1,000,000  ........  Plan Upgrade.....................
   69   Sagle Valley WS Dist..............        6      CDA      115,000  ........  Collection system replacement        4        No Discharge
                                                                                      replace drainfield.
   70   Orofino...........................        6      LEW    1,000,000         I  Improve Biosolids Management         4        No Discharge
                                                                                      Systems at WWTP.
   71   Malad.............................        4      POC      350,000      IIIB  Sewer Rehabilitation.............    4        No Discharge
   72   Boise.............................        4      BOI   10,300,000        II  Phosphorus Removal/Advanced          4         ID-002044-3   20  30
                                                                                      Treatment.
   73   Boise.............................        4      BOI   16,000,000         I  Upgrade Existing West Boise          4         ID-002398-1   20  30
                                                                                      Facility.
   74   Georgetown........................        3      POC      150,000     I,IVA  New Interceptor and Replacement      4         ID-002514-3   30  30
                                                                                      Aerators.
   75   Mountain Home.....................        2      BOI    1,500,000   I,IIIB,  Plant Upgrade/Sewer Rehab New        4        No Discharge
                                                                              IVA-B   Collectors & Interceptors.
   76   Nampa.............................        2      BOI    1,000,000      IIB,  Sewer Rehab/New Collectors and       4         ID-002206-3   30  30
                                                                              IVA-B   Interceptors.
   77   Caldwell..........................        2      BOI    1,000,000      IIB,  Sewer Rehab/New Collectors           4         ID-002150-4   30  30
                                                                              IVA-B   Interceptors.
   78   McCall............................        2      BOI    1,500,000     IVA-B  New Collectors & Interceptors....    4         ID-002023-1   20  20
   79   Homedale..........................        2      BOI      300,000    I,IIIB  Plant Upgrade/Sewer Rehab........    4         ID-002042-7   45  70
   80   Troy..............................        2      BOI      500,000         I  Plant Upgrade....................    4          ID-0023604   45  70
--------------------------------------------------------------------------------------------------------------------------------------------------------
Needs Category
I: Secondary Treatment
II: Advanced Treatment
IIIA: Infiltration/Inflow Correction
IIIB: Replacement/Rehabilitation
IVA: New Collector Sewers
IVB: New Interceptor Sewers
V: Combined Sewer Overflows
VI: Storm Water
WARNING: USE OF THIS LIST AS A MAILING LIST OR A TELEPHONE NUMBER LIST BY IDAHO CODE SECTION 9-348 AND IS PUNISHABLE BY A CIVIL PENALTY OF UP TO $1,000.
(SWTR)--Improvements required to comply with Surface Water Treatment Rule
(SDWA)--Improvements needed to comply with Lead-Copper Rule

  Responses by Jon Sandoval to Additional Questions from Senator Crapo
    Question 1. Approximately 15 percent of infrastructure projects 
submitted by States and utilities have been rejected by the EPA in both 
the drinking water and wastewater areas. To what do you credit this 
discrepancy?
    Response. The discrepancy in the 15 percent rejection is due in 
part to several factors. One apparent reason could be the rigid 
software modeling applications and protocols developed by the 
Environmental Protection Agency (EPA) to be used in the Needs Survey 
for projects. The software modeling applications, as I understand the 
process, rejects data that is not available from a submitted document 
such as a completed engineering report. Some projects that have been 
submitted have, on occasion, exceeded the parameters of the modeling 
application software and have been rejected back to individual States 
for additional clarification. Another example for the discrepancy could 
be that Needs Surveys submitted in the past, were subject to third-
party reviews of data conducted prior to the data being entered into 
the system at EPA Headquarters. The mechanics of documenting need is a 
major challenge to small communities in Idaho. Increasing costs of 
meeting requirements coupled with lack of technical expertise, 
financial capacity, staff, and access to state-of-the art technologies 
all factor into recognizable limitations.

    Question 2. What data collection system improvements do you 
recommend for increasing the reliability and confidence in the needs 
information?
    Response. As in all data collection systems developed by the 
Federal Government, feeding data into a Federal repository is not 
necessarily the answer. There is a significant need to:
   Improve the accuracy and reliability of environmental data;
   Make the data more accessible to constituents; and,
   Reduce the cost and burden of exchanging such information.
    It is possible for Federal agencies to be ``data rich; but 
information poor.'' Integrated data systems with relational databases 
to allow the uploading and downloading of relevant State data needs 
information would be a substantive step forward.
    To EPA's credit, there is some recognition that States are well out 
in front of EPA in designing efficient data systems that are accessible 
and user-friendly. More flexibility in data entry, QA/QC would improve 
the speed of data validation in the area of needs surveys . . . relying 
primarily on an increase in trust between governmental entities.
    We have experienced one major improvement in the data collection 
systems as we have been allowed to ``directly input'' data through user 
friendly software on our computer network. There will be no ``third 
party'' review of the data. We see this improvement as a step in the 
right direction toward more flexibility and less oversight in 
determining need.

    Question 3. What role can technology innovation play in reducing 
utility needs?
    Response. Innovation in technology, when affordable and accessible 
to small communities, could play a significant role in reducing utility 
needs. This requires ``out-of-the box'' thinking, and suggests a more 
collaborative process to identify ways States and the Federal 
Government can work together to reduce these needs. The Environmental 
Council of the States (ECOS) has assembled a Small States Technical 
Assistance Initiative comprised of small States addressing major 
environmental issues such as improvements in data collection systems 
and finding ways to reduce cost and increase service to local 
government jurisdictions.
              small states technical assistance initiative
    The goal of the Small States Technical Assistance Initiative 
(SSTAI) is to build the institutional and informational capacity of 
``small'' States to provide timely, accurate, and high quality 
information internally, to the public and EPA. Broadly defined, 
``small'' States are characterized by inconsistent funding for 
enterprise wide information projects, small and dispersed funding 
sources, limited IT staff, and fewer regulated facilities. Small States 
have fewer options on how to approach IT system development and 
maintenance due to fiscal and human resource limitations. The central 
theme of the SSTAI is to develop a collaborative network of States that 
will function to provide shared information technology assistance and 
work towards investments in State capacity building. By addressing 
information management issues as a group, the SSTAI may better leverage 
development costs and human resource knowledge, maintain greater 
institutional momentum, provide consistent investment payback, and more 
economically produce readily usable materials and approaches that can 
be efficiently shared and implemented.

    Question 4. Does the State of Idaho coordinate with other Federal 
agencies when working to establish accurate community needs information 
and documentation.
    Response. The State of Idaho coordinates wherever possible with 
other Federal agencies on a limited basis. The extent of our 
involvement has been through the Environmental Council of the States 
(ECOS) where a major focus has been to address issues primarily with 
the EPA. In recent years, Idaho, in conjunction with ECOS has worked 
with other Federal agencies such as: Department of Energy; Department 
of Interior; Corps of Engineers; Department of Transportation; Federal 
Highways; and, other Federal land management agencies. The discussions 
have not centered around establishing accurate community needs 
information and documentation, but have been along general terms to 
address impacts on small communities, sustainability, public 
involvement, and finding better solutions to address the needs of 
small, rural communities. The former Mayor of Fairfield, Idaho at one 
time chaired the EPA Small Towns Task Force that was a great vehicle to 
identify, discuss, and present small community issues on a national 
scale from a rural State perspective.

    Question 5. Does the relative younger age of systems in western 
States indicate that future costs will increasingly be a problem?
    Response. The age of our systems, when we factor in infrastructure 
life span, capacity, and ability to meet forecasted growth, definitely 
means there are strong economic and physical indicators that cost will 
be an increasing problem well into the future.

    Question 6. How do growth and demographic issues complicate 
assessing infrastructure needs?
    Response. In reviewing the 2000 Census data for Idaho, and from our 
experience in the field, Idaho does have small cities that have doubled 
or even tripled in size during the last ten years. The State is 
currently undergoing major change in population centers and economic 
development. Southwest Idaho (Ada, Canyon, and Elmore counties) has 
seen dramatic increases in population, economic development, commercial 
and residential construction, and significant changes in land use 
patterns in recent years. The change will continue well into the next 
decade if all economic and demographic indicators prevail. Other growth 
areas include Kootenai County, Idaho Falls, Twin Falls and Pocatello. 
As structures age, cost for replacement, enhancements and upgrade could 
be a major impediment.

    Question 7. Is there an aggregate impact of regulations on 
communities for which the current statutory provisions for 
affordability do not account?
    Response. One way to focus on an aggregate impact of the cost of 
implementing regulations for affordability is to do a basic calculation 
factoring a one-to-two percent cost for implementing each existing or 
new regulatory requirement. If there were 35 requirements, it would not 
be unreasonable to assume that a minimum of one percent of the total 
operations and maintenance budget at a facility must be targeted to 
implement each. A small community, trying to assure effective service 
delivery to consumers would have to factor in about 35-40 percent of 
its operating budget would be targeted for the necessary monitoring, 
laboratory analysis, data collection, and implementation of the 
regulatory requirements. Is it affordable? Could be if there is an 
adequate user fee to cover basic operating costs, but is there a more 
affordable alternative? Affordability is not a factor in the current 
regimen of statutory provisions, however, during implementation of the 
regulations it is an enormous consideration for small rural, 
communities.

    Question 8. How large do you estimate the needs of small 
communities are for developing technical and financial expertise?
    Response. The need for technical and financial expertise is 
enormous. We estimate that approximately 95 percent of the drinking 
water systems in Idaho, serving under 1,000 people, lack the technical 
and financial expertise to prepare basic planning documents. There 
needs to be a new definition of ``small community.'' The current 
definition of 2,500 population or less does not address the unique 
situations of small rural communities of 1,000 or less. If a new 
definition were in place, the needs of small communities of 1,000 or 
less would be better served and States would then have an increased 
capacity to provide the specific and necessary expertise to serve the 
technical and financial needs of these communities.

    Question 9. How do you think a change in the community size 
definition will change needs assessment?
    Response. While I advocate for changing the community size 
definition for reasons cited above, it also needs to be pointed out 
that in Idaho we try to assess the needs of all systems regardless of 
size. This will not change the needs assessment process. A change in 
the community size definition would allow States to focus on the 
special and unique needs of small rural communities in a manner 
consistent with capacity building and responsiveness to particular 
small community need.
                               __________
             Statement of the Water Environment Federation
    Mr. Chairman and members of the subcommittee, the Water Environment 
Federation (``WEF'' or ``Federation'') appreciates the opportunity to 
provide this statement for the record on the crucial national issue of 
clean and safe water infrastructure needs as reflected in the 
chairman's opening statement.\1\
---------------------------------------------------------------------------
    \1\ The Water Environment Federation is a not-for-profit technical 
and educational organization with members from varied disciplines who 
work toward the WEF vision of preservation and enhancement of the 
global water environment. The WEF network includes more than 100,000 
water quality professionals from 77 Member Associations in 31 
countries.
---------------------------------------------------------------------------
    Four years ago WEF President Billy Turner appeared before the House 
Water Resources and Environment Subcommittee to describe the vast needs 
our nation faces regarding new commitments and requirements while 
maintaining and upgrading our wastewater treatment and transport 
infrastructure. During his testimony, which provided the first 
comprehensive discussion of the national water and wastewater 
infrastructure crisis, Mr. Turner called for a national goal of 
building--and maintaining--a wastewater and water supply infrastructure 
that adequately protects public health and the environment. WEF 
believed then and continues to believe today, that the enormous gains 
our nation has made in meeting our clean and safe water goals will soon 
be jeopardy if the Federal Government fails to strengthen its 
commitment to clean and safe water infrastructure.\2\
---------------------------------------------------------------------------
    \2\ See, generally, EPA Progress in Water Quality, June 2000.
---------------------------------------------------------------------------
    The challenges that local communities face in meeting ever 
increasing clean water needs continue to grow and are well documented 
by the WINow Report and the EPA gap study. We as a nation can no longer 
wait to address these water infrastructure challenges. It is vital that 
the Federal Government play a stronger role in assisting communities to 
meet new requirements as well as rehabilitation of aging systems. This 
Federal role must include increased funding, including grants and 
loans, at a level that is reflective of the national commitment to 
clean and safe water. Many issues arise as a result of a significantly 
enhanced Federal role for water and wastewater infrastructure and this 
statement will address some of the more frequently asked questions.

    Question 1. Are Reported Needs the Result of New Regulatory 
Requirements or the Need to Replace Aging Infrastructure?
    Response. The needs reported by the draft EPA gap study and the 
Water Infrastructure Network (``WIN'') in the 2000 and 2001 WIN reports 
result from new requirements and the need to replace and rehabilitate 
infrastructure which were not quantified when Congress last 
reauthorized the Clean Water Act in 1987.\3\
---------------------------------------------------------------------------
    \3\ WEF has been active over the years in urging a renewed Federal 
commitment to meet future wastewater and water infrastructure 
challenges. In 1999 the Association of Metropolitan Sewerage Agencies 
and WEF released the ``Cost of Clean'' identifying major total capital 
unmet needs over the next 20 years. In 2000, WEF, as part of the WIN 
coalition of drinking water, wastewater, municipal and State 
government, engineering and environmental groups called the Water 
Infrastructure Network (WIN), released the ``Clean and Safe Water for 
the 21st Century'' report which estimates a $23 billion a year funding 
gap between current investments in infrastructure and the investments 
needed over the next 20 years to meet Clean Water and Safe Drinking 
Water Act requirements. In February 2001, WIN released ``Water 
Infrastructure Now'', a series of detailed recommendations to Congress 
on how to close the infrastructure gap.
---------------------------------------------------------------------------
    New requirements in this case mean new regulations or policies such 
as for combined sewer overflows, biosolids, and such water quality 
initiatives as the Great Lakes. Additionally, it means new or revised 
water quality standards and treatment requirements adopted by States 
and approved by EPA under the Act or new treatment facilities needed to 
comply with water quality standards exceeding secondary wastewater 
treatment. It also reflects compliance actions by NPDES permitting 
authorities which have preceded the issuance of emerging regulations or 
policies for discharges from separate systems during wet weather 
events. Additionally, EPA is issuing new guidance on nutrients and 
other constituents and is proceeding to comply with court orders 
requiring total maximum daily load (TMDL) allocation which will have 
major fiscal impacts as they are implemented.
    Drinking water costs from regulatory developments are also dramatic 
owing to the need for reliable facilities to protect public health, 
continuing additions of maximum contaminant levels for drinking water 
pollutants, and the costs associated with the protection of drinking 
water sources.
    Aging water and wastewater infrastructure is occurring in three 
waves: infrastructure constructed (1) at the end of the 19th Century 
with a useful life of approximately 100 years, (2) following World War 
I with a useful life of approximately 70 years, and (3) after World War 
II with a useful life of approximately 50 years. Additionally, 
facilities constructed during the 1970's and 1980's will need some 
updating as the decade proceeds.
    The cost impact of these regulatory developments and aging were 
not, and probably could not have been known in 1985 and 1986, when 
municipalities were completing basic secondary treatment facilities.

    Question 2. Why Aren't These Needs Being Met by Existing Financing 
Mechanisms? Are Water and Wastewater Utilities Unable to Raise Rates or 
Incur More Debt? Is There an Affordability Problem Everywhere?
    Response. The magnitude of regulatory driven needs converging with 
the magnitude aging infrastructure is a principal basis for why a 
strengthened Federal commitment is needed. Local governments generally 
are unable to meet the entire cost of these converging needs for two 
basic reasons. Primarily, local governments have been paying the 
overwhelming share--over 90 percent--of construction costs since the 
beginning of loans under the clean water State revolving funding 
program. Second, costs of other local government infrastructure and 
essential program priorities, some resulting from Federal law, have 
increased.
    Because of these wide ranging and converging needs, it can be said 
that affordability is a national problem. The true local impact of this 
problem is manifested on a site-by-site basis given the mix of water 
and wastewater system types, pollutants to be removed, ability to 
absorb rate increases, other infrastructure needs, and fiscal 
condition. All ratepayers regardless of location should benefit from 
Federal funding. No community should be left behind. Local governments 
are doing their share and have made and will continue to make enormous 
efforts to address the affordability issue. Here are two examples.
    A. Strengthening Local Utility Competitiveness.--What is clear, and 
what is already accounted for in the WIN cost reporting is that local 
governments have been, and can be expected to continue, reegineering 
their utility management to bring significant operational cost savings 
to provide cost-effectively serve customers and meet competitive 
challenges. Since the middle of the last decade, WEF and the Water 
Environment Research Foundation (WERF) have implemented major programs 
to assist continuous improvement in water and wastewater utility 
management.
    Improvements in local utility management including mergers and 
consolidations continue to be driven by overall costs, the need to 
better serve customers, and economies of scale and other market forces. 
Public utilities have an inherent customer advantage in that the are 
exempt from Federal income taxes and enjoy financing advantages 
precisely because they have the inherent stability and the public 
interest to provide for public health and environmental protection. 
These public programs and market forces will continue. The Federal 
Government should strongly resist regulatory mandates favoring private 
for profit entities and should recognize those utilities which are 
excelling in providing cost-effective customer service through 
incentives.
    B. Technology Advancements.--The 2001 WIN report also takes account 
of improvements in technology for more cost-effective treatment, 
conveyance and management. During the past decade, the Congress through 
the Agency's annual appropriation bill has supported grant funding of 
some projects developing or demonstrating better science and technology 
recognizing the nationwide benefits of such projects. Primarily, 
however, national technology advancements have not benefited from the 
level of Federal funding provided under the Clean Water Act in the 
1970's and 1980's. WINow includes suggestions for renewing that level 
of effort in cooperation with water and wastewater utilities.

    Question 3. Why Aren't Existing Sources of Federal and State 
Assistance Helping Utilities Close the Gap?
    Response. Existing sources of Federal assistance under the Clean 
Water and Safe Drinking Water Acts are provided in the form of State 
revolving loans (SRF) which must be repaid by ratepayers. Reduced 
interest rates are not sufficient to meet the magnitude of regulatory 
and aging infrastructure needs. Because they are loans with attendant 
Federal administrative requirements, some local governments find it 
more advantageous to rely on traditional sources of municipal finance.
    Additionally, States are reluctant to provide deeply reduced, zero 
or negative interest rates because such ``grant equivalents'' reduce 
the ability of State revolving funds to obtain adequate repayments to 
assure that SRFs actually revolve. It is critical here to note that 
infrastructure grants are contracts between the Federal Government and 
local government recipients. The Congress provides funding and the 
local and State governments are obligated to use that funding to 
achieve national goals and commitments such as for adequate highway and 
transit systems, and safe and adequate airports. These goals and 
benefits signify that grants are not a gift because gifts create no 
obligation on the part of the person or entity receiving the gift. The 
Federal grant share represents the value of the improved infrastructure 
to national goals and commitments.
    In addition, grants leverage greater State and local commitments. 
Federal grant funding is appropriate and reflects national purposes 
determined by Congress, in this case--achievement of clean and safe 
water. Construction grants provide the financial, and policy, incentive 
to local governments to achieve this national goal. In other words, 
grants leverage the expenditure of local utility rate revenues by 
demonstrating that if the local matching share is not provided, the 
community will lose the Federal grant amount provided in furtherance of 
the national goal. The national policy basis or benefits fundamentally 
underlying grant funding include:
     To assure that major levels of water and wastewater 
infrastructure construction move forward more quickly in response to a 
national goal;
     Increases in local fees are more likely to be accepted by 
ratepayers and the public if the failure to raise local funds would 
mean the loss of Federal grant funds;
     The size of the clean and safe water infrastructure gap 
exceeds local resources to repay traditional bond financing or 
federally funded loans;
     To provide flexibility to State administration of a 
comprehensive funding program and to avoid reduction in the corpus of 
revolving loan fund programs through grant equivalents through reduced, 
zero or negative interest;
     To increase knowledge of the effectiveness and value of 
water and wastewater systems investments;
     To support innovation, stability and predictability of 
funding;
     To maximize the benefits of clean and safe water to 
localities, regions, States and the Nation as a whole; and
     To provide fairness and equity of cost allocation and 
revenue generation across the national economy.
    Finally, because grants are ultimately provided by the Congress 
they are a much stronger demonstration of national leadership.

    Question 4. Why Are EPA's Estimates of Infrastructure Needs 
Different From Estimates Advanced by the Water Infrastructure Network 
and Other Groups that Represent Water and Wastewater Utilities?
    Response. The various estimates indicate that the overall magnitude 
of clean and safe water needs for regulatory requirements and to 
rehabilitate aging infrastructure is significant and to a level which 
supports a stronger Federal funding commitment to this national goal. 
The traditional EPA Needs Surveys for wastewater and drinking water 
include actual documented costs eligible for Federal loans which are 
known to States and EPA, plus some modeled costs for wet weather 
purposes. The EPA clean water Needs Survey does not include the full 
level of stormwater management costs.
    In addition, we understand that EPA is preparing an estimate of 
rural nonpoint source needs to install best management practices that 
is exceeded by clean and safe water infrastructure estimates by up to a 
factor of ten. This information is not included in the WIN report on 
core infrastructure needs and more information on nonpoint source is 
needed.
    The WIN report and the draft EPA gap study include cost estimates 
that are very similar in level. WEF will to continue to work with WIN, 
the Congress, the Congressional Budget Office, and other stakeholders 
to determine a more precise number for the water and wastewater 
infrastructure need. However, time is of the essence, and all 
stakeholders agree the gap is large and is growing and needs to be 
addressed as a priority. WEF believes the WINow report is the best data 
available on the gap between what is being spent on water and 
wastewater needs and what needs to be spent over the next 20 years to 
protect public health and the environment. The report answers three 
basic questions regarding how Congress can provide a long term, 
sustainable, and reliable source of funding for clean and safe water. 
WEF strongly endorses the WINow recommendations and we briefly 
summarize these recommendations below.
    A. How Much Should Be Funded by Congress? $57 Billion in new 
authorizations over the next 5 years is needed to jumpstart the safe 
drinking water and safe drinking water programs which have seen a 
drastic reduction in Federal commitment over the past 20 years. After 
the initial 5 year infusion of Federal financial assistance, WIN 
recommends Congress establish a commission to evaluate alternatives and 
recommend funding beyond 2007.
    B. What Should Be Funded? Core water and wastewater needs should be 
funded including drinking water and wastewater treatment facilities, 
and wet weather collection and treatment. In addition water and 
wastewater systems should be eligible for assistance whether they are 
publicly- or privately-owned and/or operated as long as they provide 
water or wastewater services that are generally available to the 
public.
    C. How Will the Program Be Administered? States should maintain 
their primary role in administering the next generation of water and 
wastewater financing programs. Building on the current SRFs, States 
would establish new programs of State water and wastewater 
infrastructure financing authorities (WWIFA's) to offer grants, loans, 
loan subsidies, and other financial assistance to public or private 
system operators.
    Thank you for the opportunity to provide this statement to the 
committee. WEF and its members are prepared to further assist the 
Congress in addressing the water and wastewater infrastructure gap. We 
look forward to building on the successful local, State, and Federal 
partnership that has achieved significant gains in public health and 
the environment.
                               __________
    Testimony of David B. Struhs, Secretary, Florida Department of 
                        Environmental Protection
    Mr. Chairman, Senator Graham, members of the Committee: Thank you 
for the invitation to share some thoughts as you deliberate future 
Federal action to meet America's water resource needs.
    While there will always be disagreement over how to estimate our 
water infrastructure needs and who should pay the bills, there is 
little disagreement over two things: (1) that water resources are 
critical to economic development, national security, public health and 
quality of life; and, (2) the 50 States play a central role in making 
sure the resources are protected and the infrastructure gets built.
    You deserve much credit for reaching out to states and other 
interests as you formulate the federal government's role.
    Florida, like every other jurisdiction, is eager to ensure that if 
additional Federal resources become available in the future, that we 
get a fair share.
    But at this early stage of discussion, we are also eager to reflect 
on the larger questions of exactly what is the appropriate role of 
government in building water infrastructure.
    Florida, at this moment in history, provides an important object 
lesson for the nation. We are in the worst drought in our state's 
history: a 1-in-200 year experience that is drying up rivers, pushing 
family-owned businesses to the edge of bankruptcy, burning nearly 
100,000 acres, and mobilizing an unprecedented strategy to secure 
emergency water supplies. If ever there was a political imperative for 
expanded government investments in new water supply infrastructure, 
this is it. Yet wise men and women are counseling caution.
    Ironically, at this same moment, with the tremendous leadership of 
the Congress and particularly this Committee, we have launched the 
restoration of America's Everglades: an environmentally sustainable 
water resource plan that will help save 60 endangered species and will 
quench the thirst of 12 million Americans who are expected to call 
South Florida home.
    The lesson to be drawn from these two experiences is plain: 
Government must take the long view, not the short view, or risk the 
fate of unintended consequences. In the area of water, this means 
understanding the difference between water resources and water supply.
    It is appropriate and necessary for government to continue 
identifying, securing, protecting and conserving the public's water 
resources. They are a classic example of public commons demanding 
governmental stewardship. Government must care for our water 
resources--aquifers, rivers and lakes--because, among other reasons, 
they are our current and future public water supplies. The Everglades 
are an example of this on a grand scale. There are many reasons to 
restore the Everglades. The fact that the project will provide a long 
term, sustainable future water supply is among them. But the federal 
government is not, as part of the plan, paying for the pumps and pipes 
that will provide water supply service made available as a result of 
Everglades restoration.
    As we move from the stewardship of the public's common water 
resources and towards the development of water supplies and the 
provision of water service for individual citizens, government's role 
becomes less clear and eventually counterproductive.
    Witness the drought.
    Drought drives home the value of a robust water supply 
infrastructure. So too does it drive home the value of accurate price 
signals that lead to adjustments in demand. It is difficult to find any 
drought situation that has not been made worse by a failure on both 
counts.
    The danger is that if government uses revenues from its general 
taxing authority to subsidize the expansion of a more robust water 
supply infrastructure, it risks making the next drought even more 
profound because price signals are further distorted while consumption 
has grown. This is truly unfortunate, because as critical as water is 
to life, demand for water is demonstrably elastic. There are a 
multitude of cost-effective opportunities for increased efficiency and 
substitution.
    Government should be a good steward of the public's water commons. 
Everyone benefits from and everyone should share in the cost of this 
stewardship. Protecting watersheds for current and future public water 
supplies is an appropriate use of generally collected tax revenues.
    The investments that are necessary to collect, store, treat and 
distribute a water supply are best made by the actual water users, and 
how much they pay should be determined, at least in part, on how much 
they use.
    Sound public policy would lower taxes collected for subsidizing 
water supply development and rationalize utility bills to more 
accurately reflect the cost of water service. I do not know anyone who, 
if given a choice, would rather pay a tax than a fee that he or she 
could control by adjusting his or her own behavior. This is also 
clearly the environmentally preferable choice, because in the end 
environmentalism is about the efficient use of natural resources.
    If you accept the basic premise of this analysis, there are some 
simple steps that would help ensure that any new federal commitments to 
water move us closer to the pro-environment and pro-market vision many 
of us share.
    First, focus on protecting and restoring basic water resources, not 
on supply system infrastructure.
    Second, if there is a decision to apply some resources to subsidize 
supply system infrastructure, the money should be loaned not granted. 
Loans are more likely to be made transparent to the water consumer.
    Third, reward entities that have conservation-based water rate 
schedules.
    Fourth, reward entities that close the loop and recycle water 
resources. The re-use of advance-treated domestic effluent for 
irrigation and other nonpotable uses must become a bigger part of our 
water future.
    Fifth, recognize and support unconventional techniques for water 
resource management (e.g., aquifer storage recovery, engineered 
wetlands) as appropriate in certain circumstances.
    These steps are all aimed at creating sound public water policies 
that are fair and transparent to the taxpayer and water consumer and 
are good for the environment.
    I genuinely appreciate the invitation to share these thoughts with 
this important committee today and hope you will find it helpful. I 
would be happy to answer any questions you may have.
                               __________
   Responses by David B. Struhs to Additional Questions from Senator 
                                 Chafee
    Question 1. You testified that taxpayer dollars should be spent on 
the protection and restoration of water resources instead of supply 
system infrastructure. Additionally, any subsidies that do exist for 
infrastructure should be in the form of loans. Do you believe that 
there are any instances when grants may be preferable to loans, such as 
for small, rural community water systems?
    Response. It is always possible to identify a circumstance where an 
argument for grants can be made. However that determination, from an 
economic point of view, should be based solely on the individual 
consumer's inability to pay for water service. It should not be based 
on the type of community in which the consumer resides. Recognizing 
that different members of a community have different abilities to pay, 
if a grant is provided, its subsidy effect should be targeted through 
the billing system. Factors such as the size of the community or the 
relative urban or rural character of that community are not appropriate 
screens.
    Once a decision is made to offer grants as opposed to loans, the 
political challenge lies in determining where government draws the 
line. The pressure becomes great to make more, not fewer, communities 
eligible. You are then left with the dilemma of either increasing the 
grant pool or worse, providing smaller grants to community projects 
which results in water infrastructure projects started but not 
completed. This last scenario represents perhaps the least desirable 
allocation of capitol resources.
   Responses by David B. Struhs to Additional Questions from Senator 
                                 Graham
    Question 1. You mentioned water supply in your testimony. Can you 
describe your view of the Federal Government's role in water supply as 
a part of addressing the nation's infrastructure needs?
    Response. Government must take the long view, not the short view, 
or risk the fate of unintended consequences. In the area of water, this 
means understanding the difference between water resources and water 
supply.
    It is appropriate and necessary for government to continue 
identifying, securing, protecting and conserving the public's water 
resources. These resources are an example of public commons demanding 
governmental stewardship. Everyone benefits from and everyone should 
share in the cost of this stewardship. Protecting watersheds for 
current and future public water supplies is an appropriate use of 
generally collected tax revenues because, among other reasons, they are 
our current and future public water supplies. Ecosystem restoration 
projects, for example, may provide long term, sustainable future water 
supply.
    Government's role becomes less clear, and possibly 
counterproductive, when you move from the stewardship of the public's 
common water resources and into the arena of development of water 
supplies and the provision of water service for individual citizens. 
Government subsidization of water supply can lead to inaccurate price 
signals, distorting the true cost of water for consumers. This is basic 
economics. If people do not pay the true cost of a good or service, 
they are not likely to adjust their demand for that good or service. We 
cannot expect consumers to conserve water when the cost gives the 
impression it is an inexhaustible resource.
                               __________
      Statement of Paul D. Schwartz, National Policy Coordintor, 
                           Clean Water Action
    Good morning Chairman Crapo, Ranking Member Graham and other 
distinguished members of the Subcommittee on Fisheries, Wildlife, and 
Water. My name is Paul Schwartz and it is my pleasure to be testifying 
before you today on the topic of ``Water Infrastructure Needs.'' I am 
the National Policy Coordinator of Clean Water Action, a national 
organization working for clean, safe and affordable water, prevention 
of health-threatening pollution; creation of environmentally safe jobs 
and businesses; and empowerment of people to make democracy work. Clean 
Water Action organizes strong grassroots groups, coalitions and 
campaigns to protect our environment, health, economic well-being and 
community quality of life. Additionally, I serve as the Chair of the 
Clean Water Network's Funding Workgroup and on the Steering Committee 
of the Campaign for Safe and Affordable Drinking Water.
    Chairman Crapo, thank you for holding this oversight hearing today. 
The subcommittee's early focus in this 107th session of Congress on 
water infrastructure needs is timely and of vital importance to the 
nation's environment, economy and public health. This hearing along 
with tomorrow's focus on this topic in the U.S. House signals the 
importance Congress places in moving the discussion forward. This 
hearing is a crucial first step toward securing more dollars for 
critical drinking water and wastewater infrastructure needs.
   three decades of federal water investments have made a difference
    Almost twenty-nine years ago Congress put a down payment on 
cleaning up America's water resources with the passage of the Clean 
Water Act's sewage construction grants program. Staunching the flow of 
direct discharges of untreated sewage into our nation's rivers, lakes 
and streams has been one of the best investments the American people 
ever made. The Federal grants program, and now the Clean Water State 
Revolving Fund (CWSRF), have been integral to making the Clean Water 
Act one of the most successful laws on the books. Almost thirty years 
of investment, have been at the center of a remarkable water quality 
turn around. In 1972, it was estimated that American's could safely 
swim or fish in only 1/3 of our nation's waters. By the twenty-fifth 
anniversary of the Clean Water Act, the Environmental Protection Agency 
estimated that the simple act of swimming or fishing could be done with 
a threat to our health in sixty percent of our waters.
    Twenty-seven years ago Congress recognized that the nation's lakes, 
rivers and underground waters served a critical use not adequately 
addressed in the Clean Water Act--as a source of potable drinking 
water. In passing the Safe Drinking Water Act in 1974, Congress set up 
a framework which began to address key public health issues related to 
polluted drinking water sources. Five years ago, in 1996, Congress made 
a great stride forward in protecting drinking water by establishing for 
the first time a Federal pool of money to help our States and local 
communities meet the burden of delivering clean, safe, and affordable 
drinking water. With the establishment of the Drinking Water State 
Revolving Fund (DWSRF), Congress recognized a Federal responsibility to 
partner with ratepayers and local and State governments to meet the 
increasing challenges and needs in the drinking water arena. Millions 
of citizens have been touched by this act of Federal support and are 
now drinking cleaner more health protective, and affordable water as a 
result of this new program.
      the funding gap is large; new federal investments are needed
    We as a nation are proud of the progress that has been made in 
protecting America's water resources and public health. In the main we 
are going in the right direction. But there are some bumps on the road 
and there is more work to be done. Clean Water Action joined with the 
Water Infrastructure Network (WIN) this February in endorsing the call 
for Congress to set aside an additional $57 billion dollars over the 
next 5 years. Our alliance with Association of Metropolitan Sewerage 
Agencies (AMSA), the National Rural Water Association (NRWA) and the 
Western Coalition of Arid States (WestCAS) is not one that we entered 
into easily. Over the years Clean Water Action, AMSA and NRWA have 
found ourselves on opposite sides of critical Clean Water Act and Safe 
Drinking Water Act issues. This year we find ourselves in disagreeing 
with WestCAS over how health protective the arsenic standard will be. 
But despite these differences, what brings us together today is that, 
we all agree that there is a huge gap between the total dollars being 
raised and spent, and the investments that are needed.
    Congress has heard and will continue to hear a steady, almost 
unremitting drumbeat of information about the funding gap between 
drinking water and wastewater investment needs and available resources. 
The specific overall dollar figure may vary somewhat depending on the 
specific frame, model or method used to generate the numbers, but all 
agree that without significant new investment, we face some sobering 
environmental, public health and economic issues. Clean Water Action 
has taken a careful look at the WIN assumptions, the new 1999 USEPA 
``Drinking Water Infrastructure Survey,'' various other EPA white 
papers, and has concluded that however the number is sliced up, there 
exists a yawning chasm, a palpable gap between all funding sources and 
the serious commitment of resources that will be needed to deal with 
core water infrastructure needs.
    It is Clean Water Action's position that the yearly $3 billion 
currently in the Drinking Water SRF and Clean Water SRF accounts for 
the States each year (combined with State matches, leveraging, mounting 
built State SRF reserves, and other sources of Federal water 
infrastructure funding), is significant--but is unfortunately an order 
of magnitude too low. For a variety of reasons there has been an under 
investment in water infrastructure at all levels of government and by 
our private markets as well. All stakeholders stipulate to this simple 
fact. We need Congress to approach its investment in water 
infrastructure and protecting public health with as much enthusiasm and 
commitment as Congress has provided for our other important 
infrastructure, our bridges and highways and airports. Clean Water 
Action calls on Congress to fully fund the additional $57 billion 
dollar proposal for the next 5 years and to begin the process of 
looking into solutions for the long-term.
    Its worth noting that important organizations in addition to those 
backing the WIN report (the H2O Coalition, ASWIPCA, ASDWA and others) 
agree with its fundamental premise--the need for more investment in 
critical infrastructure funding. One way or another, ratepayers, 
taxpayers, and large users of water resources and water infrastructure 
will have to pay more, a lot more over time. Investing now will save 
money and yield immediate economic and health benefits.
    The key question is how do we act in a way that invokes, to the 
maximum extent possible, equity, affordability, and sustainability 
while meeting the triune goals of preserving the environment, enhancing 
the public's health and laying a new foundation for broad economic 
prosperity. How Congress disposes of this question is why Clean Water 
Action is at this table. We do not want this process to devolve into 
narrow interests fighting over turf. We are concerned about the 
possibility that this process might be used as a way to revisit 
important but contentious Clean Water Act and Safe Drinking Water Act 
reauthorization issues. Our approach, and we hope your approach, is to 
stick narrowly to the issues before us--to define what the needs are 
and to figure out how best we can collectively structure a new water 
infrastructure funding paradigm which meets the criteria and goals 
enumerated in the attached statement of Principles.
    Clean Water Action along with its partners in the Campaign for Safe 
and Affordable Drinking Water and the Clean Water Network has worked 
out a set of common sense principles and criteria for water 
infrastructure funding. It is our belief that if these principles and 
criteria are judiciously applied to any approach that we will have set 
in motion a process that will bring our water infrastructure from its 
mostly pre-WWI technology and state of general decay into the 21st 
century. We have a lot of catching up to do.
 give states flexibility to invest in green infrastructure as well as 
                    traditional infrastructure needs
    We strongly urge a focus by Congress on funding pressing current 
core needs. Heretofore, 98 percent of water infrastructure funding has 
gone to brick and mortar projects. But we also need to support those 
pollution prevention that enhance the performance and cost 
effectiveness of needed traditional infrastructure investments. We need 
to give the States the flexibility to invest in pollution prevention as 
well as basic infrastructure needs. These core infrastructure needs can 
be mitigated by putting an emphasis on funding a combination of cost-
effective, non-structural, preventive projects (green infrastructure), 
with innovative and alternative appropriate engineering strategies. 
When joined with needed modernization of old, decaying and out of date 
treatment plants, and collection and distribution systems we will 
finally lay the foundation that will forestall the need for even more 
costly approaches and investments in the near future.
    dollars for cleanup, not sprawl development or environmentally 
                          destructive projects
    While Clean Water Action generally supports funding to address 
existing wastewater and drinking water needs we oppose using scarce 
Federal dollars to subsidize systems which support new sprawl 
development. Core water infrastructure, most of which were built using 
taxpayer funds, are now in need of rehabilitation, replacement and 
repair. As we have said before, this is an investment in the future 
worth making to ensure that our lakes and streams are safe and support 
revitalization of our waterfronts and to provide safe drinking water 
throughout America. On the other hand funding should not be used to 
subsidize new systems (unless it can be shown that the new system would 
simply serve existing populations--new capacity should not be 
subsidized).
    In addition environmentally sound principles for project design and 
siting should be observed. In many cases State NEPA--like procedures 
are not followed or do not include any real review by the public. With 
little oversight by USEPA and almost no public involvement in the 
intended use plans (IUPs) there is very little indication whether or 
not Federal dollars are supporting real public health, compliance or 
environmental needs. Effective public participation is the best way to 
ensure that environmental and fiscally sound choices are made. Ensuring 
such participation is the best way for Congress to protect and build 
support for its clean safe water investment.
 ratepayer and taxpayer protections supported by fiscally conservative 
            approaches and utilizing market-based incentives
    Clean Water Action supports five fiscally conservative spending 
parameters which will in the end constrain the Federal dollars to flow 
most efficiently to solutions, instead of creating additional and more 
costly problems. We support:
    1. Providing flexibility and incentives to States/communities to 
invest in green infrastructure solutions that achieve the compatible 
ends (e.g. source water protections such as land acquisitions, source 
control water methods of water treatment, such as using rain gardens, 
stream buffers and water conservation and reuse) and make core 
``hardware'' investments more cost-effective;
    2. Fiscal accountability through the integration of meaningful 
public comment into priority setting, and clear publicly disseminated 
national tracking priorities, project purposes and expenditures;
    3. Limiting Federal investment to those facilities that have the 
financial, technical and managerial capacity to ensure compliance. 
Facilities which are in significant non-compliance, should only be 
allowed funding to restructure or consolidate to achieve compliance or 
where consolidation or restructuring is impossible, if the facility has 
made a good faith effort to comply and the facility is adhering to an 
enforceable compliance schedule, and the funding is necessary to avoid 
making water or sewer unaffordable to a significant portion of the 
facility's retail customers;
    4. Requiring a local match for any grant program that is layered on 
top of the existing SRF accounts. There is no need to encourage ``gold 
plating'' of projects when money is so scarce. ``Free'' money without a 
buy in from the local community is a prescription for throwing money 
away. The percentage of the required local match would be tied to an 
affordability index;
    5. Protecting taxpayers and ratepayers by ensuring that costs are 
fairly apportioned between all users of water resources, not just 
residential consumers. There is already a powerful mechanism in place 
for making market forces part of the equation for getting cleaner and 
safer water: fees charged for Federal permits that allow discharges 
into treatment plants and waterways; but, the potential is barely 
tapped. Permits are free or almost free in many cases, but a simple 
switch to volume/toxicity based fees could yield billions in revenue 
(that could be used to reduce the amounts taxpayers must pay) and 
provided a market incentives for effluent reductions.
    One concern which makes Clean Water Action and WIN's call for 
increased water infrastructure funding very urgent and clearly marked 
as a Federal concern, is the growing permanence of a two tier water 
infrastructure picture across the country. Big cities which have lost 
much of their rate base while their infrastructure grows beyond its 
useful life and small systems that lack the necessary scale to spread 
out costs to install or maintain new technologies are threatened to be 
left behind. Not only are millions of people's health on the line, but 
the basic economy's of many cities and whole regions of the country are 
put at risk.
          fund safe and affordable water for small communities
    Clean Water Action believes that it should be made mandatory that 
priority be given to projects that help systems/communities with the 
greatest need based on affordability criteria. An example of this need 
can be seen in all the small communities where millions of American's 
are currently drinking water with significant amounts of arsenic. The 
conundrum is clear, either we can help these communities with the 
necessary funding and technical innovation support or we can bury our 
collective heads in the sand and just shift the standard until we 
ensure that most communities are in compliance. The fact is that in 
Fallon, NV, and in small communities like Fallon across the country, no 
matter how un-health protective the final arsenic standard is set, 
Fallon will still have to get the arsenic out of its water. That is why 
Clean Water Action supports efforts such as the Reid/Ensign Small 
Communities Safe Drinking Water Infrastructure Funding Act, S. 503.
    One of the WIN proposals that Clean Water Action is especially 
delighted by is the call for Congress to authorize $250 million a year 
to support an Institute of Technology and Management Excellence. The 
Institute would bring to bear the best thinking regarding cost-
effective green infrastructure and promote the development and use of 
best management practices, innovative technologies to meet drinking 
water, wet weather, and wastewater goals. Clean Water Action would 
further recommend that the Institute nurture broad public participation 
in the development of its research, science and technology and best 
management practices agenda. Stakeholders beyond the utility community 
should have an integral role in helping to move this exciting project 
forward.
    As you consider the myriad of policy options and funding levels, 
know that the American public is fully behind your effort to address 
this pressing problem. Clean Water Action supports the WIN approach, 
and is open to addressing your concerns. We are heartened by Senator 
Voinovich's Clean Water SRF funding bill and by the analogous approach 
by Reps. Kelly and Tauscher in the House. The emergence of the Water 
Infrastructure Caucus and the hearings today and tomorrow are most 
encouraging. Let's keep the bipartisan and interest group comity and 
pursue water infrastructure solutions that lay the foundation for the 
next century to come.
    Thank you for the opportunity to comment. I would be happy to 
entertain any question or concern.
                                 ______
                                 
                               ATTACHMENT
Campaign for Safe and Affordable Drinking Water & Clean Water Network's 
     Principles and Criteria for Water Infrastructure Funding Bill
                               principles
    1. Safe and Affordable Drinking Water. The public has a right to 
safe, affordable drinking water, treated and delivered with reliable 
and safe collection, treatment, and distribution systems.
    2. Safe Water for Swimming, Drinking, and Fishing. The public has 
the right at all times to streams, lakes, and beaches that are safe for 
fishing, swimming, and protected as drinking water sources.
    3. Stop Sewage Pollution. Raw and inadequately treated sewage 
should not be dumped into our rivers, lakes, beaches, buildings, or 
streets. Only sewage that has been safely treated to secondary 
treatment standards--and to tertiary treatment standards where needed--
should be released.
    4. Right to Know About Water Pollution. In order to honor our right 
to know, and to ensure public support for infrastructure improvements, 
the public should be promptly advised about the nature, location, and 
extent of every raw sewage discharge into surface or ground water, 
streets, or buildings, and about contaminants in and threats to our 
drinking water.
    5. Innovative, Effective Solutions. Stormwater and sewer control 
needs can and should be reduced through water conservation, efficiency, 
and re-use; source control; pollution prevention; low impact 
development; use of natural systems; and open space preservation.
    6. Control Pollution Sources. Source control should be the primary 
means to reduce sewer overflows and contaminated stormwater discharges, 
but can be complemented, where necessary, by treatment options.
    7. Community Solutions. The public should be given an opportunity 
for effective participation in selecting and making funding decisions 
for local clean and safe water strategies.
    8. Taxpayer and Ratepayer Protection. The funding for water 
infrastructure improvements should come from all users of these 
systems, and from those who cause significant pollution necessitating 
such infrastructure, not just the taxpayer.
                                criteria
    1. Improve, Protect, Innovate. Funding should be only for: (i) 
improvements in existing drinking water and wastewater infrastructure 
(treatment, collection, distribution systems); (ii) non-structural 
protection of source and surface water (buffer zones, easements, water 
conservation, water reuse, land acquisition for water quality 
protection, other innovative/alternative source/surface water 
protection projects that will obviate the need for structural 
solutions); or, (iii) innovative or alternative drinking water 
treatment or protection, sewage treatment, and stormwater management 
projects.
    2. Dollars for Cleanup, not Sprawl Development or Environmentally 
Destructive Projects. Funding should be used to solve existing water 
problems, not to subsidize new sprawl or cause new environmental harm. 
This funding should not subsidize new systems (unless it is shown that 
the new system would simply serve existing populations--new capacity 
should not be subsidized). In addition, environmentally sound 
principles for project design and siting should be observed.
    3. Accountability. The program should assure accountability through 
the integration of meaningful public comment into priority setting, and 
clear, publicly disseminated national tracking priorities, project 
purposes, and expenditures. No funding should be available for 
facilities that (a) do not have the financial, technical, and 
managerial capacity to ensure compliance; or (b) are in significant 
noncompliance, except as noted in #4 below. Existing protections in 
current law (e.g. SDWA restrictions on funding to states lacking 
approved programs for operator certification and to assure systems have 
the financial, technical, and managerial capacity to ensure compliance) 
should be preserved.
    4. Improvement. Facilities in significant noncompliance may be 
funded: (a) to restructure and consolidate the facility to achieve 
compliance; or (b) where consolidation or restructuring is impossible, 
if the facility has made a good faith effort to comply, is adhering to 
an enforceable compliance schedule, and funding is necessary to avoid 
making water or sewer service unaffordable to a significant portion of 
the facility's retail customers.
    5. Protect Health, Meet Community Needs, Help Small Systems. 
Prioritize funding for projects that: (i) address the most serious 
risks to health and aquatic environment; (ii) help systems with the 
greatest need, based on affordability criteria; (iii) help consolidate 
or restructure small systems with current or anticipated compliance or 
health/aquatic environmental problems.
    For more information please call:
    Paul Schwartz, National Policy Coordinator, Clean Water Action 
(202) 895-0420 ex 105
    Nancy Stoner, Clean Water Program, Natural Resources Defense 
Council (202) 289-2394
    Erik Olson, Public Health Program, Natural Resources Defense 
Council (202) 289-6868
    Lynn Thorp, Coordinator, Campaign for Safe and Affordable Drinking 
Water (202) 895-0420 ex 109
    Ed Hopkins, Environmenental Quality Program, Sierra Club (202) 675-
7908
 Statement of Harry T. Stewart, Director, New Hampshire Department of 
                         Environmental Services
    Good morning, Mr. Chairman, members of the committee. I am Harry T. 
Stewart, Director of the Water Division of the New Hampshire Department 
of Environmental Services. I am here today to present the State of New 
Hampshire's views on the continuing significant need for Federal 
support for water supply and wastewater infrastructure funding, with a 
particular focus on New Hampshire. Thank you for this opportunity.
                         background and context
    Like the rest of the United States, New Hampshire has made great 
progress over the last thirty years in improving the quality of our 
surface water, groundwater and drinking water supplies. The cleanup of 
New Hampshire's rivers is an environmental success story, as we have 
gone from having one of the nation's ten most polluted rivers to having 
over 90 percent of the State's waters meeting or exceeding water 
quality standards. In addition, New Hampshire has achieved full 
compliance with the Surface Water Treatment Rule of the Safe Drinking 
Water Act for over 70 municipalities that originally had unfiltered 
surface water supplies. Unlined landfills, which are a significant 
source of groundwater and surface water contamination, are being closed 
systematically on a priority basis. These accomplishments by New 
Hampshire's municipalities would not have been possible without Federal 
and State financial assistance. These grants and loans to communities 
in New Hampshire have included:
     $837 million in wastewater treatment grants. In fact, long 
after the Federal construction grant program has evolved to the 
revolving loan program, New Hampshire still provides municipalities 
with $10 to $12 million per year in grants of 20 to 30 percent for 
qualifying communities.
     $250 million in State and Federal revolving fund loans 
have been issued for wastewater system improvements, drinking water 
supply upgrades and landfill closures.
     $14.7 million in State grants for drinking water supply 
upgrades for surface water treatment rule compliance.
     $21 million in State grants for landfill closures.
     $1.5 million in 25 percent State matching grants were 
provided to municipalities for land acquisition to protect current- and 
future-drinking water sources. This is a new program which was 
established in 2000.
    New Hampshire is the only State with grants and loan programs for 
improvements to wastewater and drinking water supply systems, source 
water protection by land acquisition, and landfill closures. We have 
long recognized that municipal environmental infrastructure upgrades 
need to be given high priority and considered in an integrated fashion 
to ensure environmental and public health protection in an affordable 
manner for our citizens.
    We work not only with the U.S. Environmental Protection Agency but 
also with the U.S. Department of Agriculture's (USDA) Rural Development 
Program and the Department of Housing and Urban Development's (HUD) 
Community Block Grant Program, which is administered in New Hampshire 
by the Office of State Planning, to optimize funding for drinking water 
and wastewater projects for New Hampshire's communities.
                            major challenges
    In spite of all that has been accomplished, New Hampshire still has 
major challenges that will require State and Federal funding well into 
the future to upgrade and improve our core infrastructure and improve 
water quality. These include:
     Aging infrastructure, in two broad categories:
         LFirst, most of our 85 publicly owned wastewater 
        treatment plants were constructed or upgraded over 20 years ago 
        during the ``Federal construction grants'' era. The end of the 
        useful life of original equipment is being approached and 
        substantial new investment will be required within the next 10 
        years.
         LAlso, water and wastewater piping systems (portions 
        of which are over 100 years old) are deteriorating in some 
        systems. The limited available local moneys from user fees and 
        taxes invested in water and wastewater infrastructure are used 
        primarily to meet regulatory requirements such as drinking 
        water and water quality standards.
    When the core infrastructure is inadequate, new development will 
move to undeveloped land, remote from urban centers, where onsite water 
and wastewater disposal is feasible, contributing to ``urban sprawl'' 
and increasing potential for water quality degradation in undeveloped 
areas. ``Smart growth'' requires water and wastewater piping systems 
with adequate capacity and integrity for reasonable growth.
     Increasingly more stringent permit limits for wastewater 
treatment, particularly for organic loading, nutrients, and metals. 
These improvements are much needed to improve water quality but the 
cost is a concern for our communities. In New Hampshire, this is a 
particular concern for small, rural low-income communities located on 
water quality limited streams (such as in the headwaters of our rivers) 
that can least afford costly upgrades to advanced wastewater treatment 
levels.
     Stormwater pollution caused by combined sewer overflows 
(CSOs), sanitary sewer overflows (SSOs), and stormwater systems. This 
is a significant, ongoing water quality and compliance concern, 
principally for New Hampshire's older industrial cities. These projects 
are large and costly over an extended time period, stressing available 
local and State resources.
     More stringent drinking water standards. New Hampshire 
strongly supports drinking water standards which are protective of 
public health. However, more stringent standards, particularly for 
naturally occurring contaminants such as arsenic and radon, 
disproportionately affect very small community public water systems 
where costs for one or more sophisticated treatment systems must be 
paid by a small user base, resulting in very high water rates.
     Completing the job of closing New Hampshire's unlined 
landfills which are a significant source of nonpoint source pollution. 
Of New Hampshire's 160 unlined municipal landfills, 80 have been 
properly closed and the other 80 are scheduled for closure over the 
next 10 years.
     Protection of land areas that contribute to current- and 
future-drinking water sources from contamination associated with 
development. Only about 12 percent of these critical areas are now 
protected. Beginning in 2000, New Hampshire has made this a priority 
for investment, with a budget of $1.5 million in State grant moneys as 
a 25 percent match to local contributions to preserve valuable water 
supplies for future generations.
                            estimated needs
    In order to meet these challenges and improve our environment and 
drinking water supplies, well-focused investment of Federal, State, and 
local resources, targeted at priority needs, is required. New 
Hampshire's needs are generally described below. In addition, in the 
addendum to this testimony, five tables are provided that contain 
detailed information on these needs.
    Drinking Water Supply Needs: New Hampshire has identified 
approximately $500 million in water supply infrastructure needs across 
categories that include transmission, treatment, storage, and source 
development. Our most recent water supply needs survey was completed in 
2000. About $45 million (9 percent) of this need has been identified as 
necessary to comply with Safe Drinking Water Act requirements with 
established deadlines. In addition to the $500 million, estimated costs 
for compliance with the proposed radon and arsenic rules are $5 to $55 
million and $2 to 4 million, respectively, depending on the final rule. 
The majority (63.5 percent) of the $500 million in water supply needs 
are for small community water systems serving fewer than 3,300 people 
where the user base is smaller and user rate impacts tend to be higher 
for major projects.
    Wastewater Needs: Wastewater needs are estimated to be 
approximately $750 million for treatment, sewers, combined sewer 
overflows (CSOs), sanitary sewer overflows and landfill closures. Over 
60 percent ($460 million) of these needs are to address CSOs in six 
municipalities whose sewerage systems were constructed over 100 years 
ago. Wastewater treatment needs are estimated at $98 million and are 
principally for upgrades to small municipal wastewater treatment plants 
for NPDES permit compliance.
    Total Annual Needs: New Hampshire's annual need is estimated to 
range from $77.5 million to $155 million per year for a period of 
investment bracketed between 10 and 20 years. New Hampshire's total 
long-term public drinking water and wastewater infrastructure needs are 
estimated at $1.55 billion. Assuming 20 years of uniform investment (to 
be consistent with the timeframe in the USEPA's 2000 drinking water 
needs survey), the total need is estimated to be about $77.5 million 
annually. However, this is probably low because most of the identified 
needs either exist now, or will exist shortly based on predictable 
events. Also, as noted above, the costs for compliance with proposed 
new arsenic and radon standards are not included so the total needs may 
also be low. To account for the potential for more rapid 
implementation, a 10-year construction period has also been included, 
resulting in an upper range for annual investment of $155 million per 
year.
                       available funding sources
    Collectively, in 2001, State and Federal sources will provide about 
$35 million in grants and $40 million in low interest loans to New 
Hampshire's municipalities for wastewater and drinking water projects. 
These State and Federal funding sources include:
     Both Wastewater and Drinking Water Supply Grants and Loans 
from the USEPA and NHDES. These programs are managed by NHDES.
     Rural Development Grants and Loans from the USDA's Rural 
Development Program.
     HUD Community Development Block Grants. This program is 
managed by the New Hampshire Office of State Planning. These State and 
Federal agencies work in close partnership to optimize funding packages 
for municipalities as projects are identified that require assistance. 
In particular, special attention is given to communities where drinking 
water supply and wastewater projects will have significant financial 
impact on low income households.
                        municipal funding burden
    New Hampshire's estimated annual needs and available funding can be 
summarized as follows:
    Infrastructure needs: $77.5 to $155 million per year.
    Available grants and loan subsidies: $53.6 million per year.
    Required local funding (including SRF loans), $23.9 to $101.4 
million per year.
    In a typical year, the available State and Federal grants are all 
used. Additional local funding is provided by either increasing user 
rates or through property taxes (or both in some cases). In communities 
with stressed water and sewer rates, upgrades to address noncompliance 
with drinking water or water quality standards will generally be funded 
while pipe replacement or upgrade projects will not. Thus, 
affordability becomes the dominant issue, particularly for small rural 
communities and water supplies.
    In New Hampshire, both median household incomes (MHIs) and water 
and sewer rates vary widely. The table below serves to illustrate this 
issue.

 ------------------------------------------------------------------------
                                      Median                   Water &
                                    household     Average    sewer rates
           Municipality               income    annual user  (as percent
                                      (MHI)         fees       of MHI)
------------------------------------------------------------------------
Berlin...........................      $25,040       $1,083          4.3
Ashland..........................       25,495        1,295          5.1
Jaffrey..........................       32,540        1,012          3.1
Hanover..........................       51,899          454          0.9
Merrimack........................       52,798          296          0.6
------------------------------------------------------------------------

    Without Federal and State funding, infrastructure projects in 
communities such as Ashland, Berlin, and Jaffrey will either further 
financially stress low income households or discretionary projects will 
be delayed. As a result of a recent drinking water system upgrade, 
Ashland has the highest water and sewer rates as a percent of MHI in 
New Hampshire. Jaffrey is under administrative order to develop and 
implement a multi-million dollar wastewater treatment plant upgrade to 
meet stringent water quality limits. Likewise, Berlin also has 
multimillion dollar drinking water supply infrastructure needs that the 
city is attempting to address. For both Jaffrey and Berlin, the result 
will be increased water and sewer rates within a few years, even with 
20 to 30 percent State-aid grants and, for Berlin, additional Federal 
grants that have been received, further stressing the resources of 
these low income communities.
    As illustrated by Ashland, Jaffrey, and Berlin, many New Hampshire 
communities have a significant problem with high water and sewer rates. 
In fact, of 80 municipal utilities for which DES has current data on 
both water and sewer rates, 33 (40 percent) currently have combined 
water and sewer rates that exceed 2 percent of the MHI. Two percent of 
MHI is the commonly accepted threshold by State and Federal agencies, 
including the USDA's Rural Development Program and HUD's Community 
Development Block Grant Program, at which water and sewer rates are 
considered excessive.
                    conclusions and recommendations
    New Hampshire has significant need for additional Federal 
investment to fund drinking water and wastewater infrastructure 
improvements. This is important to meet already well-defined needs, 
both for regulatory compliance and to maintain and improve core 
infrastructure elements, like aging piping and treatment equipment.
    As alternatives are considered at the national level, we strongly 
recommend that the existing State Revolving Loan Fund program be 
maintained as the cornerstone of these programs. We recommend that 
additional funding be provided through the existing SRF program. 
Construction grants distributed to communities through existing State 
processes to augment the SRF could also be used effectively if targeted 
based on State priorities to augment SRF loans for communities with 
high water and sewer rates.
    As we have for years, the New Hampshire Department of Environmental 
Services is well prepared to establish statewide priorities and needs 
with input from our communities, and to manage and distribute funds on 
a priority basis. In New Hampshire, the integration of grant and loan 
functions with the technical programs has resulted in outstanding 
performance for decades and will continue to do so into the future. The 
SRF, coupled with the State-aid grant programs, have worked very well 
and any additional Federal resources provided would be used effectively 
to leverage these existing resources. This approach needs to be 
preserved.
    State environmental agencies should also be provided with greater 
flexibility to establish State-specific criteria for, and address, 
financial hardship caused by excessively high water and sewer rates. 
This would help us to develop funding packages that make these 
improvements more affordable for communities with low income levels and 
accelerate environmental improvements by facilitating local approvals 
for funding. This is particularly crucial for communities that are, in 
a short timeframe, confronted with the need for major upgrades to meet 
regulatory and core infrastructure requirements for some combination of 
water supply, wastewater and solid waste facilities, considering that 
any of these demands alone could stress a low income community.
    Finally, there is also a significant gap in the resources for New 
Hampshire and other States required to manage existing mandates to 
clean up our water. We continue to face extraordinary demands to manage 
water quality and water supply programs. As is also expressed in the 
Environmental Council of States Resolution on the Water Quality GAP 
Analysis, as the subcommittee considers its options for addressing the 
water supply and wastewater infrastructure needs, we also urge you to 
support State program management capacity to meet those needs.

 Tables With Detailed Cost Estimates on New Hampshire's Drinking Water 
               Supply and Wastewater Infrastructure Needs

  Table 1.--New Hampshire's Public Water Supply Program: Total Need by
                                Category
                              [in millions]
------------------------------------------------------------------------
                                                       Total    Percent
                    Type of Need                        Need     Total
------------------------------------------------------------------------
Transmission and distribution.......................   $233,2       46.7
Treatment...........................................    105.5       21.1
Storage.............................................    108.0       21.6
Source..............................................     49.4        9.9
Other...............................................      3.3        0.7
                                                     -------------------
    Total Need......................................   $499.4      100.0
------------------------------------------------------------------------


  Table 2.--New Hampshire's Public Water Supply Program: Total Need by
                          System Size and Type
                              [in millions]
------------------------------------------------------------------------
                                                                Percent
                     System Size                        Need     Total
------------------------------------------------------------------------
Large community water supplies (CWSs) (serving over     $44.9        9.0
 50,000 people).....................................
Medium CWSs (serving 3,301 to 50,000 people)........     90.3       18.1
Small CWSs (serving 3,300 and fewer people).........    317.1       63.5
Not-for-profit non-community water supplies.........     47.1        9.4
                                                     -------------------
    Total Need......................................   $499.4      100.0
------------------------------------------------------------------------


  Table 3.--New Hampshire's Wastewater Programs: Total Need by Category
                               [$millions]
------------------------------------------------------------------------
                                                       Total    Percent
                    Type of Need                        Need     Total
------------------------------------------------------------------------
Treatment...........................................      $98        9.3
Sewers..............................................      150       14.3
Combined sewer overflows............................      460       43.8
Sanitary sewer overflows............................       17        1.6
Landfill closures...................................      300       28.6
Other...............................................       25        2.4
                                                     -------------------
    Total Need......................................   $1,050      100.0
------------------------------------------------------------------------


  Table 4.--Summary of New Hampshire's Estimated Total Needs and Annual
                Needs If Distributed over 10 and 20 years
------------------------------------------------------------------------
                                                           Annual needs
                                                          if distributed
                                                  Total        over:
                    Program                       Need   ---------------
                                                            10      20
                                                          years   years
------------------------------------------------------------------------
Wastewater....................................  $1,050.0   $105     52.5
Water supply..................................     499.4     50       25
                                               -------------------------
    Total.....................................  $1,549.4   $155    $77.5
------------------------------------------------------------------------


 Table 5.--Estimated Annual State and Federal Funding for Drinking Water
 and Wastewater Infrastructure Projects in New Hampshire for Fiscal Year
                                  2001
                              [in millions]
------------------------------------------------------------------------
                   Funding Source                       Grants    Loans
------------------------------------------------------------------------
USEPA/NHDES Wastewater Funding:
EPA State Revolving Fund Capitalization Grant.......               $13.3
State Match to Capitalization Grant.................                 2.7
Revolving Loan Repayment Fund.......................                10.5
Wastewater State-Aid Grant (20%-30% Loan Subsidy)1..         21
Landfill State-Aid Grants (20%-30% Loan Subsidy)1...         20
                                                     -------------------
  Subtotal, Wastewater Funding......................      $41.0    $26.5
USEPA/NHDES Drinking Water Supply Funding:..........
EPA State Revolving Fund Capitalization Grant SRF           1.9      4.3
 Loans (with administrative costs deducted) need-
 based loan relief (up to 30% year).................
State Match to Capitalization Grant.................                 1.5
Revolving Loan Repayment Fund.......................                 1.8
State-Aid Grant (20%-30% Loan Subsidy)--(for Surface        2.0
 Water Treatment Rule compliance only)1.............
Source Water Protection Land Grants.................        1.5
                                                     -------------------
  Subtotal, Drinking Water Funding..................        5.4      7.6
USDA Rural Development Administration...............        2.8      5.3
USHUD/NHOSP Community Development Block Grants......        1.7  1 The values of ``State-Aid Grants'' for wastewater and water supply
  infrastructure improvements and landfill closures are the estimated
  present values of these loan subsidies. Loan periods vary from 5 to 20
  years and the interest rates vary with the loan period. Consequently,
  the values presented here are an estimate of the present value of
  future loan subsidies for an assumed portfolio of loans of different
  maturation periods developed based on the history of these programs.

                               __________
 Responses by Harry Stewart to Additional Questions from Senator Chafee
    Question 1. What are the primary benefits in maintaining a grant 
program after the revolving loan programs have reached a full-revolving 
status.
    Response. Excessively high user rates and tax increases for 
infrastructure projects are a major problem for small low income 
communities that grants, or equivalent loan discounts, address better 
than loans. Affordability is a major issue when water and wastewater 
improvement projects are considered at the local level. For example, 
loans from the clean water revolving loan funds result in discounts 
relative to market rates for loans but still require loan principal 
repayment in full. Grants, or the equivalent in loan subsidies such as 
discounts on loan principal, result in lower user rates and make these 
projects more affordable than loans.
    Many New Hampshire communities already have a significant problem 
with high water and sewer rates so new projects are unaffordable. 
Grants address the needs of these communities better than loans. As 
noted in my original testimony, in New Hampshire, 40 percent of 
municipal utilities with water and sewer systems have combined water 
and sewer rates that exceed 2 percent of the MHI. Two percent of MHI is 
the commonly accepted threshold by State and Federal agencies, 
including the USDA's Rural Development Program and HUD's Community 
Development Block Grant Program, at which water and sewer rates are 
considered excessive. Grants or discounted loans are one way to 
diminish these impacts in the long term. The table below provides of 
New Hampshire communities with high water and sewer user rates:

------------------------------------------------------------------------
                                      Median                   Water &
                                    household     Average    sewer rates
           Municipality               income    annual user  (as percent
                                      (MHI)         fees       of MHI)
------------------------------------------------------------------------
Berlin...........................      $25,040       $1,083          4.3
Ashland..........................       25,495        1,295          5.1
Jaffrey..........................       32,540        1,012          3.1
------------------------------------------------------------------------

    Without Federal and State funding such as grants or discounted 
loans, infrastructure projects in these communities financially stress 
low income households to extraordinary levels.
    By making projects more affordable, grants provide encouragement 
for communities to adequately invest in the core water and wastewater 
infrastructure beyond the minimum to meet regulatory requirements. 
Long-term infrastructure investment for nonregulatory purposes is 
frequently deferred in small low-income communities because of the 
inability to afford today and in light of other pressing competing 
priorities for limited resources. Water and wastewater infrastructure 
projects are driven by two distinct forces: (1) State or Federal 
regulatory actions and (2) local recognition of the need for improved 
infrastructure like upgraded piping and water supply storage. 
Improvements driven by enforcement take priority and virtually always 
occur. However, nonregulatory core infrastructure improvements 
frequently don't occur until a near crisis stage, particularly if user 
rates are already too high. Grants or loan discounts that dampen user 
rate impacts better improve the chances that these investments will be 
made before crises occur.
                               __________
 Statement of Allen Biaggi, Nevada Division of Environmental Protection
    Members of the Subcommittee on Fisheries, Wildlife and Water, my 
name is Allen Biaggi, and I am the Administrator of the Nevada Division 
of Environmental Protection. I would like to thank you for allowing me 
to appear before you this morning to discuss the water and wastewater 
infrastructure needs of Nevada. I greatly appreciate your interest in 
bridging the gap that exists between need and fiscal resources in the 
water programs.
    At the outset, I would like to recognize Senator Reid and Senator 
Ensign for their leadership in addressing these serious public health 
and economic concerns and thank them for advancing the dialog on the 
national level.
    As the fastest growing and one of the most urbanized States in the 
country, infrastructure development and maintenance are critical to the 
health and well being of our citizens and visitors. Obviously, the need 
is great in Nevada's major urban centers where the majority of this 
growth is occurring. Paradoxically however, the need is no less 
important in our rural communities where mining and agriculture are 
struggling and where funding is often not available for even the most 
basic wastewater collection and treatment systems or for providing 
adequate and safe supplies of drinking water.
    Nevada has long supported its communities with State supported 
grant and loan programs for water and wastewater. Like all States, 
however, we have been asked to undertake significant new 
responsibilities under the Clean Water and Safe Drinking Water Acts 
without the resources necessary to carry out those responsibilities. As 
a result, Federal assistance is vitally important and, frankly, the 
only way communities can achieve and maintain regulatory compliance to 
protect public health and maintain and improve environmental quality. 
Without increased funding at the Federal level, State drinking water 
and wastewater programs are facing crisis conditions.
    Let me give you some examples of the needs within our small State.
    On the clean water side of the equation, the State of Nevada has 
operated a construction grants program or a revolving loan program for 
over twenty years and has provided greatly needed financial assistance 
to rural and urban communities alike. For example, the rapidly growing 
communities of Henderson, Reno and Sparks have taken advantage of these 
programs and constructed some of the most sophisticated wastewater 
treatment systems in the country. This has allowed these communities to 
meet the requirements of the Clean Water Act and maintain and enhance 
water quality in the Colorado and Truckee Rivers. This provides high 
quality water for downstream users, wildlife habitat and the 
sustainability of endangered species. Similarly, small communities in 
Nevada, such as Silver Springs, have used these funds to meet waste 
collection and treatment needs and, for the first time, provide this 
basic service to their citizens while protecting vital groundwater 
resources.
    The problem is that demand for these funds greatly exceeds 
availability. For the year 2000, we had $152 million dollars in 
proposed projects submitted to the Clean Water SRF for funding; for 
2001, $166 million, and we anticipate similar increases throughout the 
next decade. Compare this demand with the average available program 
funding which is a mere $14 million.
    In an attempt to overcome this funding gap, we work closely with 
other entities such as economic development agencies and the U.S. 
Department of Agriculture's Rural Assistance Program to leverage 
available funds and meet community needs. Yet dramatic shortfalls still 
occur. This means that facilities must be funded using alternative 
sources, or, as most often occurs, projects simply do not happen.
    What does this mean for a community?
    Sometimes it means that collection lines cannot be built to serve a 
residential development historically on septic systems where ground 
water contamination is occurring. Perhaps new treatment units cannot be 
constructed at a wastewater treatment plant resulting in environmental 
impairment and the potential for fines and litigation. In some 
communities it means they cannot meet the needs of growth and must 
initiate moratoriums or limits on residential and industrial 
development.
    On the drinking water side of the equation, the prospects are not 
any brighter.
    In Nevada, as in the rest of the country, there is a need to 
refurbish and, in many cases, replace the pipes, lines and treatment 
facilities that supply our drinking water. Systems age and without the 
proper care and maintenance reliability is reduced, costs increase and 
in extreme cases public health impacted. The year 2000 priority list 
for Nevada through the Drinking Water Revolving Loan program showed 
that over three quarters of a million dollars was needed to address 
acute health concerns associated with community water systems. An 
additional $35.8 million is needed to address chronic concerns and 
$94.8 million for system rehabilitation.
    Add to this the ever-increasing demands of the regulatory 
environment. In the next few years we can expect new Federal rules 
dealing with ground water disinfection, enhanced surface water 
treatment, and modified contaminant monitoring and screening. All with 
good intentions with the goal of public health in mind, but costly to 
implement and maintain. Nationally, it has been estimated that for the 
drinking water program alone, an $83 million dollar gap exists for 
States to implement the program and billions per year for system 
upgrades and repairs.
    In closing, we in Nevada intend to do our part to continue to fund 
programs, to provide grants and loans to our communities large and 
small, and to advocate for increased support for water and wastewater 
infrastructure. We will continue to participate in a dialog along with 
our fellow State representatives and through national associations such 
as the Environmental Council of the States, Association of State Water 
Pollution Control Administrators and Association of State Drinking 
Water Administrators. The challenges are great, the resources limited, 
and the stakes of public health and environmental quality high. I ask 
for your careful consideration in making water and drinking water 
infrastructure funding a national priority.
                               __________
 Responses by Allen Biaggi to Additional Questions from Senator Chafee
    Question. What do you see as a potential solution for the Clean 
Water and Safe Drinking Water Revolving Fund (SRF) funding gaps? Would 
you advocate for an expansion of the SRF program?
    Response. As outlined in my testimony, a serious funding gap exists 
between need and resources in both the Drinking Water and Clean Water 
SRFs.
    As federally mandated requirements such as ground water treatment 
requirements, the arsenic rule and increased monitoring are implemented 
state and local communities bear the majority of the financial burden. 
States and local governments simply do not have the resources to meet 
these mandates. As such, the State of Nevada does advocate for and 
supports the expansion and increased funding for the SRF programs. By 
providing additional capitalization, funds, the States can leverage 
these dollars to assist local communities in meeting their commitments 
under the Clean Water Act and the Safe Drinking Water Act.
                               __________
Statement of Hon. Bruce Tobey, Mayor, Gloucester, MA, on Behalf of the 
     National League of Cities and the Water Infrastructure Network
    Mr. Chairman, members of the subcommittee: I am Bruce Tobey, Mayor 
of Gloucester, MA, and a member of the National League of Cities Board 
of Directors. I am here today to testify on behalf of the 16,000 
cities, towns and villages that NLC represents, as well as on behalf of 
the Water Infrastructure Network \1\ (WIN).
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    \1\The Water Infrastructure Network is a coalition of State, local, 
environmental, professional, and labor organizations comprised of 29 
diverse groups including: American Coal Ash Association; American 
Concrete Pressure Pipe Association; American Consulting Engineers 
Council; American Public Works Association; American Society of Civil 
Engineers; American Water Works Association; Associated General 
Contractors; Association of California Water Agencies; Association of 
Metropolitan Sewerage Agencies; Association of Metropolitan Water 
Agencies; California Rebuild America Coalition; Clean Water Action; 
Environmental and Energy Study Institute; Environmental Business Action 
Coalition; International Union of Operating Engineers, AFL-CIO; 
National Association of Counties; National Association of Flood and 
Stormwater Management Agencies; National Association of Towns and 
Townships; National League of Cities; National Rural Water Association; 
National Society of Professional Engineers; National Urban Agriculture 
Council; Prestressed/Precast Concrete Institute; Rural Community 
Assistance Program, Inc.; Water Environment Federation; WateReuse 
Association; and Western Coalition of Arid States.
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    I am pleased to be here this morning to discuss the coalition's 
report--Water Infrastructure NOW--which recommends a major new and 
revitalized Federal commitment to the nation's drinking water and 
wastewater infrastructure. It outlines the parameters of a potential 
Federal response to the $1 trillion gap between investments cities are 
making in our local infrastructure and the $1 trillion additional 
needed to assure protection of public health, the environment and our 
economy over the next generation.
    Before outlining for you the parameters of the Report's 
recommendations, it would seem appropriate to address some fundamental 
questions: First, why do we have a funding gap of such enormous 
magnitude; Second, what have local governments been doing to address 
the issue; and, Finally, why and how should the Federal Government 
help?
          1. why is there a water infrastructure funding gap?
    A number of factors:
     the simultaneous expiration of the useful life of water 
infrastructure installed at different times;
     population growth;
     implementation of new, more costly, and more complex 
Federal mandates which, in effect, substitute Federal priorities for 
local priorities; and,
     a substantial decline in Federal financial participation 
in meeting wastewater mandates.
    The Nation's water infrastructure represents more than a century of 
investment, substantially funded by local ratepayers. A significant 
part of the nation's water infrastructure dates from the late 19th 
century. More recent expansions of these systems took place following 
the two world wars. All of which means the newest systems are over 50 
years old. What is more, the newer the infrastructure, the more likely 
it is to be deteriorating. Different materials, with increasingly 
shorter useful lives leave us in the position where 100 year's worth of 
infrastructure is being exhausted all at once. As a consequence, 
municipalities now face a confluence of deterioration of the 
underground pipes, and, in some cases, the treatment facilities, that 
process the nation's drinking water and sewerage.
    Under no circumstances does this denigrate the substantial $96 
billion investment and commitment to wastewater made by Federal and 
State governments in the 1970's and 1980's. Without this assistance we 
would never have made such incredible progress in cleaning up the 
nation's waterways. But, EPA cautions that unless we renew our joint 
commitment to maintaining and upgrading our wastewater facilities, 
within 15 years our rivers, lakes and streams will again resemble their 
condition 30 years ago.
    Until passage of the 1996 Safe Drinking Water Amendments, local 
governments have not had a Federal financial commitment to the nation's 
drinking water systems. The fact that drinking water in the United 
States is among the safest in the world is a significant tribute to the 
local ratepayers that have financed these treatment facilities.
    Another factor contributing to the current funding gap is that 
simultaneous with the aging of local water and wastewater 
infrastructure, has come a significant increase in population. 
According to the Association of Metropolitan Sewerage Agencies (AMSA), 
municipal wastewater plants served 68.5 million people in 1990. By 
1999, the number had increased to 79 million people. That 10 million 
person increase occurred in less than one decade. Systems designed and 
built for the population at the time of their construction are now 
serving two to three times as many people as their design capacity. In 
fact, the Clean Water Act of 1972 precluded local governments from 
anticipating population growth in designing wastewater treatment plants 
built with Federal financial assistance. The fact that local systems 
serve significantly more people than their design anticipated 
contributes to some of their problems--combined sewer overflows, 
sanitary sewer overflows--all of which need immediate and costly 
attention if we are to protect public health and the environment. 
Congress recognized this problem in passing the wet weather provisions 
in a fiscal 2001 appropriations measure last year, but, we do not yet 
have any appropriations from this authorization and, in all honesty, 
the $1.5 billion, 2 year authorization, is only a down payment on 
problems that alone are expected to cost well over $120 billion.
    A third contributing factor is the significant decline in Federal 
financial assistance for wastewater needs. While once the Federal 
Government appropriated $2.4 billion for grants cover 75 percent of 
wastewater needs, we now see instead $1.35 billion annually for 
repayable loans. Without even considering aging and deteriorating water 
infrastructure, $1 billion is what one city alone is spending on 
remediating its sanitary sewer overflows. While Congress recognized, in 
passing the Safe Drinking Water Act Amendments of 1996, the need to 
provide similar assistance to municipal drinking water suppliers, this 
funding is limited in its use for infrastructure repair and, for the 
most part, is available largely as loans.
    Finally, Federal drinking water and wastewater mandates have also 
played a role in diverting local resources away from local needs and 
priorities and retargeting them to Federal priorities. When cities do 
manage to set aside funds to address a critical local water 
infrastructure need, along comes a new unfunded--and usually costly--
Federal mandate that is almost always accompanied by fines and 
penalties for non-compliance. As you well know, we are not talking 
about an occasional new Federal requirement. At the local level there 
seem to be almost daily--or at least weekly--new burdens.
     2. what have local governments been doing to help themselves?
     Local governments--or rather local tax and ratepayers--
invest $60 billion annually in our drinking water and wastewater 
systems. Since the Clean Water Act was adopted in 1972, local 
governments have invested over $117 billion in their wastewater 
infrastructure. We have no similar figures for drinking water 
investments, but the 20 cities that have been involved in recent asset 
management studies estimate the average per capita replacement value of 
their systems at $2,400 per person.
     Local water and sewer utility rates have been increasing 
to accommodate EPA's estimated annual 6 percent increases in the costs 
of system operations and maintenance;
     New Federal requirements developed by the Government 
Accounting Standards Board--on which local government bond ratings are 
based--are moving local governments toward managing their 
infrastructure assets in a more businesslike manner; and
     Local governments are applying new management tools to 
assess and operate their systems more effectively and efficiently.
    While the funding allocated to local governments under the Clean 
Water Act has been of invaluable assistance in helping municipalities 
meet Federal requirements, Congress should not lose sight of the fact 
that local governments have invested over $117 billion in our 
wastewater infrastructure since the early 1970's. Until recently, our 
drinking water infrastructure was entirely funded by local ratepayers. 
The deteriorating water infrastructure that needs to be replaced 
because it has maximized its useful life over the past 50 to 100 years 
was entirely completed at local expense.
    In addition, municipal local rate structures generate the $60 
billion annually we invest in maintaining and operating these systems 
and cover 90 percent of our costs including those for construction. In 
facing the enormous needs of the future, cities also expect to 
finance--again through local ratepayers--$1 trillion of the needs for 
repair, rehabilitation and replacement of the aging and crumbling water 
infrastructure over the next 20 years.
    Municipalities have also been raising their water and sewer rates 
to accommodate increases in their operating and maintenance costs, 
which, according to EPA, are rising at 6 percent above inflation 
annually. Many cities require developers, and subsequently homeowners, 
to finance the cost of new connections to municipal systems. My city is 
directly billing homeowners who are newly connected to our wastewater 
system $20,000 per home--to be paid over the next twenty years--to 
finance conversion from septic to sewered systems.
    In addition, cities are improving their management practices. Local 
governments will soon be required to comply with new rules promulgated 
by the Governmental Accounting Standards Board in Statement 34 (GASB 
34). These rules will require reporting of a municipality's long-term 
financial position, quantifying resources and obligations more 
comprehensively. The information cities will be required to provide 
will include an evaluation of the condition of our municipal 
infrastructure. Bond rating services and others will be able to 
evaluate whether we are ``acquiring assets to benefit future fiscal 
years or if these assets are being used but not replaced.'' \2\ The 
GASB 34 rule will, at a minimum, encourage local governments to 
evaluate their infrastructure in a more systematic manner.
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    \2\ ``GASB 34: What Implementation Means to the Rating Process,'' 
Hyman C. Grossman and LaVerne Thomas, Public Finance, p. 2, Sept. 20, 
1999, Standard and Poor's.
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    Other asset management tools, such as the ``Nessie Study'' are also 
being implemented by cities to help identify when pipes and treatment 
plants were built, how long they can be expected to last, when they 
will need to be replaced, and what the cost is likely to be for such 
replacement. More efficient operations are also among the tools used to 
provide more cost effective operations at the municipal level. As an 
example, a 1999 AMSA survey \3\ documents the reduction in personnel 
from 6.8 employees per 10,000 population in 1990 to 4.7 in 1999. Some 
local governments are subjecting their system operations to competitive 
bidding to affect cost savings and generate new and better 
efficiencies.
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    \3\ AMSA 1999 Financial Survey of Municipal Wastewater Management 
Financing and Trends, Association of Metropolitan Sewerage Agencies.
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               3. why should the federal government help?
     A sound infrastructure is the foundation of a sound 
economy;
     A sound infrastructure is essential to the protection of 
public health;
     Federal assistance, as demonstrated by the success of the 
Clean Water Act, is the catalyst that ensures environmental progress;
     Water bodies, like air sheds, do not respect political 
boundaries;
     Infrastructure assistance will benefit the people whose 
money created the Federal surplus--another way of giving them the 
refund they deserve;
     At 6 percent, the interest on $2 trillion in debt is $120 
billion; the Water Infrastructure Network seeks less than half of the 
interest avoided in a single year, spread over 5 years.
    The Water Infrastructure NOW report made an eloquent case for a 
renewed Federal financial partnership in water infrastructure. It says:

          The case for Federal investment is compelling. Needs are 
        large and unprecedented; in many locations, local sources 
        cannot be expected to meet this challenge alone; and because 
        waters are shared across local and State boundaries, the 
        benefits of Federal help will accrue to the entire nation. 
        Clean and safe water is no less a national priority than are 
        national defense, an adequate system of interstate highways, or 
        a safe and efficient aviation system. These latter 
        infrastructure programs enjoy sustainable, long-term Federal 
        grant programs; under current policy, water and wastewater 
        infrastructure do not.

    In light of the staggering costs of maintaining, operating, 
rehabilitating, and replacing our water and wastewater system 
infrastructure to serve our citizens and the environment effectively, 
the Clean Water Act partnership of the 1970-80's needs to be re-
established. It is in our interest as a nation, since virtually all of 
us live downstream from someone else, for all levels of government to 
participate in assuring that our drinking water and wastewater 
infrastructure is sound, reliable, protective of human health and the 
environment, and affordable.
                4. how can the federal government help?
     Re-establish the partnership in the Clean Water Act of 
1972 for wastewater infrastructure and establish one for drinking water 
infrastructure;
      Provide more flexibility in the types of assistance 
available to municipalities to include grants as well as loans;
     Restore earlier investments in research and technology 
development;
     Establish a mechanism to develop a long-term and secure 
financial partnership for water infrastructure needs.
    The Water Infrastructure Network has developed and agreed on the 
outlines of a legislative proposal to revitalize (in the case of 
wastewater) or enhance (for drinking water) the Federal financial 
commitment to water infrastructure needs. The proposal recommends a 5-
year, $57 billion authorization beginning in fiscal 2003 for loans, 
grants, loan subsidies and credit assistance for basic water 
infrastructure needs. These funds would be allocated to States to 
capitalize State-administered grant and loan programs.
    The WIN recommendations propose the creation of Water and 
Wastewater Infrastructure Financing Authorities (WWIFAs) in each State 
to replace the two current State Revolving Loan Funds (SRF) for 
drinking water and clean water. As with the SRFs, States would be 
required to provide a 20 percent match for any Federal revenues.
    While half the funds would be targeted to wastewater and half to 
drinking water needs, States would have the flexibility to shift up to 
an additional 15 percent from one purpose to the other. This 
flexibility would be available so long as such a transfer did not 
adversely affect any project on the State's priority list that was 
``ready to go.''
    WIN recommends that Congress require the new State funding 
authorities to provide 25 to 50 percent of each year's allocation as 
grants that would fund up to 55 percent of project costs. Up to 75 
percent of project costs would be eligible for grant funding in 
economically distressed communities. Loans and loan subsidies would 
include interest rate discounts, zero interest rate loans, principal 
forgiveness and negative interest rate loans.
    The report proposes an additional $4 billion in resources for State 
governments to help them meet their drinking water and wastewater 
responsibilities. WIN also recommends funding for development of 
innovative technology and management techniques to assist local 
governments in providing clean and safe water more effectively and 
efficiently in the future.
    Finally, the WIN report recommends that Congress ``establish a 
formal process to evaluate alternatives for, and recommend the 
structure of, a longer-term and sustainable financing approach to meet 
America's water and wastewater infrastructure needs.''
  Statement of Janice A. Beecher, Ph.D.,\1\ Beecher Policy Research, 
                Inc., on Behalf of the H2O Coalition \2\
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    \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.
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                                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 are 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 percent for 
deferred infrastructure maintenance/replacement; 39-55 percent for 
meeting demand growth; and 8-13 percent 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 percent) to 30 (.8 percent) 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 exceed total capital and 
operating expenditures. For water and sewer services (as well as solid 
waste and transit services), total expenditures exceed revenues. The 
findings generally suggest that municipal water customers do not cover 
expenditures through rates and other user charges. The implications of 
this ``gap'' are worse if the reported 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 associated revenues is 
detectable for different types of publicly-owned water systems: 
municipalities, special districts, counties, and townships. In 1997, 
for all local governments, the shortfall between revenues and 
expenditures amounted to $4.18 billion for water services and $2.57 
billion for sewer services (Census of Governments).
    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 financial 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 percent of total expenditures), particularly in comparison to 
electricity (2.4 percent) and telecommunications (2.1 percent). 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 actually 
declined somewhat with time (during the period between 1984 and 1999), 
although the share for water and other public services has increased 
slightly.
    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 percent 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 
rate disparity (another ``gap'').
    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 (the ``willingness to spend''). 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 regionalization and 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.
                                 ______
                                 
      Responses by Janice A. Beecher to Additional Questions from 
                             Senator Crapo
    Question 1. Your testimony makes the case that the actual size of 
the problem for infrastructure needs may not be as important as 
recognizing the relative importance of the issue. Without a carefully 
established needs assessment, do you believe the Federal Government 
will fully understand the scope of the infrastructure problem?
    Response. It is important for the Federal Government to have a 
reasonably valid and reliable estimate of water and wastewater 
infrastructure needs. But the estimation of national need is 
complicated by (1) the fragmented nature of the water and wastewater 
industries, (2) the long-term planning horizon under consideration, (3) 
the dynamics of the industries' structure and regulation, (4) 
differences among systems in accounting, financing, and ratemaking 
practices, and (5) the potential incentive to introduce bias to 
estimates of current spending, future needs, and the ``gap.'' It may be 
impractical to spend a disproportionate amount of resources on 
achieving a precise national needs estimate, given the limited benefits 
that greater precision might provide.
    Establishing some reasonable ranges and benchmarks may be 
sufficient for policy development purposes. Some of the existing 
methods for collecting data (such as the EPA's needs assessment 
surveys) can and will be sharpened to improve the estimation process.
    Obviously, an objective analysis of needs is needed. As emphasized 
in my testimony, however, any methodology for estimating need, must 
give fair and equal attention to the forces that might drive the total 
need upward and forces than might drive the need downward. The longer 
the time horizon, the greater the uncertainty about these dynamics, as 
must be recognized in any analysis. It might also be useful to develop 
scenarios that represent different sets of assumptions and strategies.

    Question 2. Does your information indicate a difference in needs if 
there is a preference for replacement instead of rehabilitation of 
older systems? Does an acceleration of replacement projects change the 
overall needs for utilities?
    Response. These questions cannot be easily answered at the national 
level and require technical knowledge beyond my scope of expertise. The 
mix of rehabilitation and replacement will affect the needs estimate in 
the short term and in the long term (possibly in different ways). For 
individual systems, the choice is meaningful. Life-extending 
maintenance may be cost-effective in some circumstances and not in 
others. Materials, maintenance practices, usage patterns, and 
topography are relevant factors.
    As I understand it, renovation (pipe lining) may cost about two-
thirds of the cost of replacement and provide only limited service 
life. For very old facilities, replacement may be preferred because it 
is the only cost-effective choice for meeting service standards 
(including regulatory compliance) over time. Fortunately, decision 
models are emerging to help individual systems weigh the costs and 
benefits of the repair/replace choice, taking a comprehensive look at 
relevant conditions, risks, and tradeoffs. For example, some systems 
are using advanced monitoring and geographic information systems to 
evaluate infrastructure integrity, including patterns of breakage and 
water losses, and make appropriate repair/replace decisions.
    In general, an excessive amount of cost-ineffective rehabilitation 
will add to total long-term needs, as would an excessive amount of 
uneconomic replacement.

    Question 3. What portion of needs do you believe are actually 
attributable to inefficient operation and management of systems?
    Response. Although the anticipated need attributable to inefficient 
operation and management cannot be estimated with precision it is 
reasonable to assume that this proportion is not zero. The WIN estimate 
of need appears to be static and seems to have a much greater upward 
bias than estimates prepared by EPA. Any estimate of potential savings 
on a percentage basis depends on the assumptions that underlie the 
needs estimate.
    In my opinion, the cost profiles of the water and wastewater 
industries suggest the potential for cost reductions in the range of 
five percent or more in each of the following areas: efficiency 
practices (planning, management, and operations), integrated resource 
management (supply side and demand side), technological innovation 
(capital and operating), and industry restructuring (consolidation, 
privatization, and market-based approaches).
    These estimates of potential savings are relatively conservative; 
some individual systems have demonstrated dramatic cost savings in 
these areas. Of course, individual water and wastewater systems vary in 
terms of efficiency and the potential for improvement; the least 
efficient systems have the most to gain. Efficiency gains and other 
improvements in performance can enhance the quality of service and help 
offset some of the cost impact associated with infrastructure 
replacement. Variable operating costs may present more opportunities 
for efficiency savings than fixed capital costs, although all costs are 
variable in the long run.
    The long-term assessment of infrastructure needs should recognize 
the dynamic nature of the water sector, particularly as the sector 
responds to this challenge. As pipes are replaced, water losses and 
associated operating costs will be significantly reduced. Based on 
research in this area, the value of water lost through leakage could 
exceed $1 billion annually (extrapolated from an American Water Works 
Association Research Foundation study). Loss-reduction, conservation, 
and other resource management programs are helping some individual 
systems reduce operating costs and postpone or avoid significant 
capital costs (EPA case studies are available on this issue). New 
analytical tools are emerging to improve operations and the deployment 
of primary inputs (water, energy, and chemicals). Given the long-term 
horizon for which needs are estimated, the potential for technological 
advances in treatment and other processes also seems great. Management 
efficiency is as important as operating efficiency. Numerous case 
studies in performance improvement, privatization arrangements, and 
market-based practices (such as competitive bidding) have shown that 
substantial savings are achievable for some systems. The markets for 
new technologies and services will continue to evolve and play a role 
in broader industry restructuring. Finally, more efficient (cost-based) 
price signals will promote more efficient water usage and help reduce 
some types of system costs for both water and wastewater utilities.

    Question 4. How can utilities establish more ``realistic'' service-
life expectations of systems to improve confidence in the needs 
assessments?
    Response. The estimation of service life should be informed by 
general and system-specific knowledge about materials, maintenance 
practices, usage patterns, and topography. For many water systems, 
detailed records on distribution facilities are not readily available. 
However, the water industry has conducted numerous research studies and 
advanced various tools for assessing infrastructure conditions and 
anticipated useful life. Larger systems probably have greater capacity 
to make these assessments than smaller systems.
    Clearer standards and defined best practices in the water and 
wastewater industries could service the purpose of service-life and 
needs estimation.

    Question 5. Does the EPA's use of improved accounting methods 
result in more reliable needs assessments?
    Response. Yes. The water industry is unlike the energy and 
telecommunications industries in terms of Federal economic regulation 
and associated accounting. The lack of uniform of accounting in the 
water sector and the different practices used by different systems 
(especially publicly versus privately owned systems) presents a 
challenge for any survey effort. Gradually, however, EPA has moved 
toward better methods for surveying needs. Continued use of peer review 
can help EPA continue to refine its data-collection efforts.

    Question 6. What portion of needs do you believe can be addressed 
through rate changes and the associated alteration in usage patterns?
    Response. In practice, a significant segment of the water industry 
meets all needs (that is, total revenue requirements) through rates and 
other charges for service. Some private water systems use revolving 
fund loans, but loans are repaid from rate revenue. The investor-owned 
industry has met historic needs through rates and intends to meet 
future needs primarily through rates. Rates charged by investor-owned 
utilities are subject to regulatory review by the State public utility 
commissions. Many publicly owned water and wastewater systems also 
cover the cost of service through rates.
    In theory, then, a substantial portion of the anticipated 
infrastructure need can be met through rates, assuming that cities are 
willing to charge customers the cost of service. For some systems, 
depending on current rate levels, substantial rate increases would be 
required. Whether or not a rate increase is considered affordable 
depends on both the demographics of the system and the rate design used 
to recover costs. A larger system has the advantages associated with 
scale economies, as well as a more diverse customer base over which to 
spread costs.
    Cost-based rates have the potential to suppress some water usage 
and help utilities avoid operating costs (water, energy, and 
chemicals), as well as some capital costs. Usage by large-volume 
customers is more sensitive to price changes. Indoor water usage is 
generally less discretionary and not very price responsive (price-
inelastic); outdoor water usage is more discretionary and more price 
responsive (price-elastic). More discretionary usage (such as seasonal 
usage) tends to peak demand and associated costs. At higher prices, 
water usage may fall somewhat depending on income levels and other 
water usage determinants. Efficiency strategies can help reduce both 
indoor and outdoor water use. Better estimates of the potential for 
efficiency conservation to avoid costs are needed.
    The movement to cost-based rates for water and wastewater services 
will raise genuine concern for low-income households. Some smaller 
systems serve impoverished areas. Some larger systems have significant 
pockets of poverty. As stated in my testimony, Federal assistance 
should target water systems and water customers that are facing genuine 
and significant public-health risks and affordability challenges. 
Targeted assistance and a well-designed water rate can help keep basic 
water service affordable to low-income households.

    Question 7. What role can technology innovation play in reducing 
utility needs?
    Response. As noted above, technological advances conservatively 
should help reduce costs by 5 to 10 percent. Technological advances 
beyond a few years are nearly impossible to predict. Rising costs, 
regulations and standards, and the marketplace will drive technological 
development--if the incentives are appropriately maintained.
    In many respects, the physical properties of water and wastewater 
limit technological innovation (particularly in transmission and 
distribution). Nonetheless, the industries have seen substantial 
innovation in terms of emerging technologies in such areas as 
monitoring, maintenance, and treatment. For smaller water systems, 
technology (such as point-of-use treatment) may be especially important 
in terms of providing cost-effective methods of compliance with 
drinking water regulations. For larger systems, technology (such as 
reuse and desalination) may greatly reduce source-of-supply costs.
    The infrastructure funding debate has stimulated considerable 
attention to the need for innovation. Because the potential need is so 
great, private equipment manufacturers and suppliers are beginning to 
compete for market opportunities. Continued competition will stimulate 
innovation and help lower costs. The Federal Government can also 
encourage innovation by providing funding for innovative research, as 
well as demonstration projects. Care should be taken to ensure that 
Federal policies, including funding, help advance innovation rather 
than stifle innovation.
    Obviously, the water and wastewater industries should continue to 
provide leadership and promote an integrated science of asset 
management, in which technological and management innovation should 
play a central role.
                               __________
      Responses by Janice A. Beecher to Additional Questions from 
                             Senator Chafee
    Question 1. In your testimony, you mentioned that some private 
utilities have implemented surcharge mechanisms to fund continuous 
programs for infrastructure replacement. Would this surcharge mechanism 
be appropriate for all systems, regardless of size or public-private 
ownership?
    Response. Yes. Different types of water and wastewater utilities, 
regardless of size or ownership structure, can use a surcharge 
mechanism. However, oversight capacity with regard to the use of 
surcharges, as well as other rate structures and adjustment mechanisms, 
will vary by type of system. The regulatory process holds investor-
owned utilities to a high level of accountability and the public 
utility commissions have substantial financing and ratemaking 
expertise. Many local public officials and agencies may not have 
adequate capacity in these regards.
    The Distribution System Improvement Charge (DSIC) is used by 
investor-owned utilities in Pennsylvania, and the mechanism has been 
approved for use in Illinois and Indiana. The DSIC is not a panacea, 
but can be a very useful tool for addressing the ``ramp function'' 
associated with infrastructure costs, and it can also help lower rate 
case expenses. Adequate depreciation rates and a forward-looking 
ratemaking process (future test year) also are useful in terms of 
providing internal cash flow for making improvements.
    Use of the surcharge, however, depends on the consent of the 
oversight body to which the water system is accountable (state public 
utility commissions in the case of investor-owned utilities and local 
governing bodies, such as city councils, in the case of publicly-owned 
utilities). Regulators or other reviewers must be comfortable with the 
workings of the mechanism. The utility's need for revenues must be 
balanced against vital protections for ratepayers (including a cap on 
the allowed rate adjustment). Care must be taken to ensure that the 
utility--public or private--continues to have appropriate incentives 
for cost control.

    Question 2. In your opinion, what has caused the discrepancy 
between expenditures and user charge revenues for publicly-owned 
systems.
    Response. It is my opinion that many publicly owned water systems 
have used internal and external subsidies to support the cost of 
service. An internal subsidy may come from intragovernmental transfers 
made possible by general revenues collected from property or other tax 
revenues. An indirect form of internal subsidy also occurs when a 
municipality provides certain technical or administrative functions but 
does not ``charge'' the associated costs to the utility's accounts. For 
example, a city clerk or attorney paid from general revenues may 
provide services that benefit the utility. Subsidies sometimes flow 
between water and wastewater operations (overcharging for one service 
and undercharging for the other). Occasionally, internal subsidies flow 
from water and wastewater operations to other city functions, although 
this does not necessarily mean that adequate investments are being made 
in the water and wastewater facilities.
    External subsidies in the form of Federal and State grants also 
make it possible to support the cost of water and wastewater services. 
The subsidization of water services is sometimes rationalized on the 
basis of economic development and affordability grounds. In some 
instances, however, rates may be artificially suppressed for political 
reasons (that is, to avoid electoral consequences)
    The H2O Coalition and I both concur with the stated position of the 
American Water Works Association (revised and adopted January 26, 1992) 
on the central role of rates in sustaining water utilities:
    1. Every water utility should receive sufficient revenues from 
water service and user charges to enable it to finance all operating 
and maintenance expenses and all capital costs.
    2. Water utilities should maintain their funds in separate 
accounts. Such funds should not be diverted to uses unrelated to water 
utilities . . .
    3. Every water utility should adopt a uniform system of accounts . 
. .
    4. Water rate schedules should distribute the cost of water service 
equitably  . .
    This position is also reflected in the association's published 
guidance manuals on financing and ratemaking for water utilities.
                               __________
 Clean Water Action Calls On Congress to Create New $57 Billion Water 
                          Infrastructure Fund
environmentalist press case to fund pollution clean up and prevention, 
    not lower public health protections arsenic issue is highlighted
    ``Instead of gutting the new more health protective arsenic 
standard,'' said Clean Water Action's Paul Schwartz, ``Congress should 
follow Senators Reid and Ensign's lead and get our communities the 
necessary resources to do the right thing.''
    Washington, DC. (March 27, 2001). Clean Water Action (CWA) called 
today for Federal legislation to renew the nation's commitment to clean 
and safe water by creating a new $57 billion dollar water 
infrastructure fund. Testifying before the U.S. Senate's Subcommittee 
on Fisheries, Wildlife and Water, Clean Water Action's National Policy 
Coordinator, Paul Schwartz said, ``Now is the time for the Federal 
Government to recommit to protecting public health and the 
environment.''
    ``Public health and the environment are endangered by out-of-date 
and declining sewer and drinking water infrastructure. Not only do we 
have old plumbing and treatment in place, but public health threats 
such as arsenic, cryptosporidium and MTBE are putting an increasing 
strain on financially strapped communities across rural and inner-city 
America,'' said Schwartz. ``Instead of gutting the new more health 
protective arsenic standard, Congress should follow Senators Reid and 
Ensign's lead and get our hard pressed communities the necessary 
resources to do the right thing.''
    ``Over the last few years Congress has found the will to provide 
billions of dollars to make our highways and airports safer,'' said 
Schwartz, ``Congress must use its clout and Federal resources to bridge 
the clean, safe and affordable water funding gap.''
    Clean Water Action made the case that Congress must:
    1. Invest money now to save money in the long-term and yield 
immediate economic and health benefits.
    2. Give States flexibility to invest in green infrastructure as 
well as traditional infrastructure needs.
    3. Channel the dollars for cleanup, not sprawl development or 
environmentally destructive projects.
    4. Protect ratepayer and taxpayer by supporting fiscally 
conservative approaches and utilizing market--based incentives.
    5. Fund safe and affordable water for small communities.
    6. Give States and communities flexibility but demand 
accountability and encourage broader public participation in helping to 
determine which projects were ultimately funded.
    Clean Water Action is a national organization working to ensure 
clean, safe and affordable water, prevention of health-threatening 
pollution and creation of environmentally-safe jobs and businesses. CWA 
has more than 700,000 members nationwide.
          Statement of the American Society of Civil Engineers
    Mr. Chairman and members of the subcommittee: The American Society 
of Civil Engineers (ASCE) is pleased to provide this statement for the 
record on the drinking-water and wastewater infrastructure needs in the 
United States today.
    ASCE was founded in 1852 and is the country's oldest national civil 
engineering organization. It represents more than 125,000 civil 
engineers in private practice, government, industry and academia who 
are dedicated to the advancement of the science and profession of civil 
engineering. ASCE is a 501(c)(3) non-profit educational and 
professional society.
                              a. the issue
    Earlier this month, ASCE released its 2001 Report Card for 
America's Infrastructure in which the nation's life-sustaining 
foundation received a cumulative grade of ``D+'' in 12 critical areas. 
The reasons for such a dismal grade include the growing obsolescence of 
an aging system; local political opposition and red tape that stymie 
the development of effective solutions; and an explosive population 
growth in the past decade that has outpaced the rate and impact of 
current investment and maintenance efforts.
    The 2001 Report Card follows one released in 1998, at which time 
the 10 infrastructure categories rated were given an average grade of 
``D.'' This year wastewater declined from a ``D+'' to a ``D,'' while 
drinking water remained a ``D.'' Wastewater and drinking water systems 
are both quintessential examples of aged systems that need to be 
updated.
                 b. drinking-water infrastructure needs
    The nation's 54,000 drinking water systems face staggering 
infrastructure funding needs over the next 20 years. Although America 
spends billions on infrastructure each year, we estimate that drinking-
water systems face an annual shortfall of at least $11 billion to 
replace aging facilities that are near the end of their useful life and 
to comply with existing and future Federal water regulations. The 
shortfall does not account for any growth in the demand for drinking-
water over the next 20 years.
    Although the Safe Drinking Water Act Amendments of 1996 (SDWA) 
authorized the Environmental Protection Agency (EPA) to spend $1 
billion annually to construct and repair drinking water facilities, 
Congress has failed to appropriate the full amount. In fiscal year 
2001, the appropriated amount is $825 million, 82.5 percent of the 
authorized total, representing less than 10 percent of the total amount 
needed this year.
    In January 1997, EPA presented to Congress the first drinking water 
needs survey, that indicated the nation's 54,000 community water 
systems will need to invest $138.4 billion over the next 20 years to 
install, upgrade, or replace infrastructure to ensure the provision of 
safe drinking-water to these systems' 243 million customers.
    But the most recent study by the EPA reveals that the need is even 
greater. In 1999, the Agency conducted the second Drinking Water 
Infrastructure Needs Survey. The purpose of the survey is to document 
the 20-year capital investment needs of public water systems that are 
eligible to receive Drinking Water State Revolving Fund (SRF) moneys.
    The survey found that the total drinking-water infrastructure need 
nationwide is $150.9 billion for the 20-year period from January 1999 
through December 2018.
    Of course, notwithstanding the great need for further investment in 
replacement pipes and related infrastructure, we as a nation are making 
great strides in improving the quality of our drinking-water.
    Health-based violations of Federal drinking-water standards are 
declining steadily, according to data from the EPA. In 1993, 79 percent 
of Americans were served by water systems that did not experience 
health-based violations. By 2000, that number rose to 91 percent.
    Nevertheless, without a significantly enhanced Federal role in 
providing assistance to drinking water infrastructure, critical 
investments will not occur. Possible solutions include grants, trust 
funds, loans, and incentives for private investment. The question is 
not whether the Federal Government should take more responsibility for 
drinking water improvements, but how.
                   c. wastewater infrastructure needs
    Although the Federal Government has spent more than $71 billion on 
wastewater treatment programs since 1973, the nation's 16,000 
wastewater systems still face enormous infrastructure funding needs in 
the next 20 years to replace pipes and other constructed facilities 
that have exceeded their design life.
    With billions being spent yearly for wastewater infrastructure, the 
systems face a shortfall of at least $12 billion annually to replace 
aging facilities and comply with existing and future Federal water 
regulations. As with drinking-water needs, this total does not account 
for any growth in demand from new systems.
    Funding for wastewater infrastructure has remained essentially flat 
for a decade. In fiscal y ear 2001, Congress appropriated $1.35 billion 
for wastewater infrastructure, which represents about 11 percent of the 
annual need nationally. Requirements for communities that have not yet 
achieved secondary treatment or must upgrade existing facilities remain 
very high: $126 billion nationwide is required by 2016, according to 
the most recent estimate by the EPA.
    The largest need, $45 billion, is for projects to control combined 
sewer overflows. The second largest category of needs, at $27 billion, 
is for new or improved secondary treatment (the basic statutory 
requirement of the Clean Water Act). In addition to costs documented by 
EPA, States estimate an additional $34 billion in wastewater treatment 
needs for projects that do not meet EPA documentation criteria but, 
nevertheless, represent a potential demand on State resources.
    Between 35 percent and 45 percent of U.S. surface waters do not 
meet current water-quality standards. According to the EPA, sewer 
overflows are a chronic and growing problem. Many of the nation's urban 
sewage collection systems are aging; some sewers are 100 years old. 
Many systems have not received the essential maintenance and repairs 
necessary to keep them working properly.
                           d. policy options
    New solutions are needed to what amounts to a nearly trillion 
dollars in critical drinking-water and wastewater infrastructure 
investments over the next two decades. Not meeting the investment needs 
of the next 20 years risks reversing the public health, environmental, 
and economic gains of the last three decades.
    The case for Federal investment is compelling. Needs are large and 
unprecedented; in many locations, local sources cannot be expected to 
meet this challenge alone; and because waters are shared across local 
and State boundaries, the benefits of Federal help will accrue to the 
entire nation.
    Clean and safe water is no less a national priority than are 
national defense, an adequate system of interstate highways, and a safe 
and efficient aviation system. These latter infrastructure programs 
enjoy sustainable, long-term Federal financial aid; under current 
policy, water and wastewater infrastructure do not.
    Equally compelling is the case for flexibility in the forms of 
Federal investment including grants, loans, and other forms of 
assistance. Grants will be needed for many communities that simply 
cannot afford to meet public health, environmental, and/or service-
level requirements. Loans and credit enhancements may be sufficient for 
other types of communities with greater economies of scale, wealthier 
populations, or fewer assets per capita to replace.
    ASCE recommends that funding for water infrastructure system 
improvements and associated operations be provided through a 
comprehensive program that addresses the infrastructure needs of 
drinking-water and wastewater systems. Congress must create a Federal 
water trust fund to finance the national shortfall in funding for water 
and wastewater infrastructure. Money in the trust fund should not be 
diverted for non-water purposes.
    Moreover, we support the use of Federal appropriations from general 
treasury funds and the issuance of revenue bonds and tax-exempt 
financing mechanisms at the State and local levels, as well as public-
private partnerships, State infrastructure banks, and other innovative 
financing procedures.
    Finally, some have argued that Federal regulatory programs under 
the Clean Water Act and Safe Drinking Water Act are too restrictive; 
others argue that the current regulations may not be protective enough 
of human health and the environment. Without taking a position either 
way, ASCE does not believe that legislation designed to provide 
indispensable financing for our aging infrastructure should be the 
forum to address controversial regulatory changes about which there is 
little consensus at the moment.
                               __________
             Associated Builders and Contractors, Inc.,    
                                                    March 27, 2001.
Hon. Michael D. Crapo, Chairman,
Environment and Public Works Committee,
Dirksen Senate Office Building, Washington, DC.
    Dear Chairman Crapo: On behalf of Associated Builders and 
Contractors (ABC) and its more than 23,000 construction and 
construction-related firms in a network of 83 Chapters across the 
United States, I would like to respectfully submit the following 
comments for the record regarding the March 27 hearing on water 
infrastructure needs.
    ABC recognizes the importance of Federal support for clean water 
infrastructure funding. The cost of insufficient attention to clean 
water issues is indisputable. Non point source pollution, leaking 
toxins, stormwater runoff, and coastal pollution pose grave risks to 
our nation's water quality. Our Nation's water quality and 
environmental infrastructure could not be more vital to our health, 
safety and overall quality of life. Congress passed the first Clean 
Water Act in 1972, which linked the Federal Government with States and 
cities to clean up the country's water by funding projects relating to 
water supply and wastewater treatment.
    ABC strongly supports funding that maximizes State flexibility in 
addressing each State's water infrastructure needs. A primary goal of 
the Clean Water State Revolving Fund program is to provide States with 
increased flexibility in running their program, including prioritizing 
and choosing the best projects to improve water quality. Expanding loan 
eligibility further enhances State flexibility beyond providing loans 
to wastewater infrastructure, non-point source and estuary projects. 
Enhancing State flexibility would help States better address their 
changing infrastructure needs.
    However, ABC would like to note that the Federal Davis-Bacon Act 
limits State flexibility and adds between 5-39 percent to the costs of 
construction. The impact of this is felt most severely in rural areas, 
which often have the greatest need for improved water infrastructure. 
We strongly urge Congress to refrain from imposing this burden on SRF 
construction projects.
    Congressional intent was to sunset Davis-Bacon with FY 1995, and it 
has since then not applied. Adding Davis-Bacon is an inappropriate and 
unnecessary, Federal mandate that hurts much-needed construction 
efforts. Nineteen States recognize the waste associated with Federal 
restrictions like Davis-Bacon and have chosen not to have similar State 
restrictions. Moreover 12 States, including Colorado, Idaho, Iowa, 
Louisiana, Michigan, Montana, Nebraska, North Carolina, Oklahoma, 
Oregon, Texas and Utah, have formally expressed their opposition to the 
re-application of Federal Davis-Bacon requirements to SRF loans. As the 
State of Colorado noted in a letter to the EPA dated July 18, 2000,

          Our past experience indicates that for small rural 
        construction projects, the total project costs increase between 
        20-30 percent when Davis-Bacon requirements are imposed. In 
        addition, there is no evidence in Colorado to substantiate your 
        claim that the use of prevailing wage rates lead to higher 
        quality construction.

    Any new extensions of Davis-Bacon on SRF will act as a type of 
``unfunded mandate'' on those States by forcing them to spend money 
toward complying with an outdated Federal labor law that results in 
inflated costs. If the Federal Government were to appropriate $3 
billion over 4 years, assuming an average increase of 15 percent, the 
Davis-Bacon Act could divert $450 million a year, or $1.8 billion over 
4 years, from the money appropriated for clean water infrastructure 
projects.
    Furthermore, local residents should have the flexibility to work on 
local construction projects to meet neighborhood needs. Yet projects 
under Federal Davis-Bacon requirements cannot hire local ``helpers'' to 
work on infrastructure projects. These are valuable entry-level jobs 
for low-skilled workers who want job access and experience by working 
under the direct supervision of higher-skilled journey-level workers. 
In today's changing welfare-to-work environment, and with the 
importance of revitalizing disadvantaged communities, it is critical 
that the Federal Government not hinder State and local efforts to 
provide entry-level jobs. lnserting the Federal Government bureaucracy 
into the local construction process will limit job opportunities for 
many low-skilled minorities, at-risk youth, and displaced workers who 
would otherwise have a chance to gain experience as a helper on a 
project in their own neighborhood.
    Any application of Davis-Bacon requirements to State Revolving 
Funds is unnecessary and would be an expansion of Davis-Bacon to 
projects where it currently does not apply. ABC is strongly opposed to 
this effort and any similar expansion of Davis-Bacon to local 
construction activity.
            Respectfully submitted,
                                   Anne Bradbury,
                                   Washington Representative.
                               __________
               State of Oklahoma Water Resources Board,    
                                                    August 1, 2000.
Geoff Cooper,
Finance and Operations Law Office,
Office of General Counsel,
Environmental Protection Agency,
Washington, DC.
Re: Proposed Settlement Agreement, Application of Labor Standards 
Provision in the Clean Water Act State Revolving Fund Program

    Dear Mr. Cooper: The following comments are in response to the 
referenced notice published in the Federal Register on June 22, 2000.
    The Oklahoma Water Resources' Board objects to the proposal to 
reinstate the prevailing wage rate requirements of the Davis-Bacon Act 
for federally assisted projects in the Clean Water State Revolving Fund 
(CWSRF) Program. Title 33, Section 1382 of the United States Code sets 
forth requirements for a State to receive a capitalization grant. Among 
other items, Sec. 1382(b)(6) describes several provisions that must be 
applied to projects that receive assistance from funds directly made 
available by capitalization grants. However, Sec. 1382(b)(6) further 
stipulates that these requirements will apply to projects ``constructed 
in whole or in part before fiscal year 1995''. The provision that EPA 
proposes to apply, Sec. 1372, is among the requirements specifically 
designated in Sec. 1382(b)(6) that no longer apply. Congress, in 
enacting the Federal Water Quality Act of 1987 (``the Act''), chose 
language that limited the application of these requirements to projects 
``constructed in whole or in part before fiscal year 1995.'' Congress 
drew a distinction between direct construction grants made under 
subchapter VI of the Act. Prior to fiscal year 1995, Congress intended 
capitalization grants to be treated the same as direct construction 
grants. However, Congress by its own statutory construction would have 
capitalization grants treated differently than direct construction 
grants beginning in fiscal year 1995. If Congress had intended these 
specific requirements of Sec. 1382(b)(6) to continue to apply beyond 
the statutorily enacted date, then either: (i) Congress would not have 
included a specific expiration dates; thus allowing the provision to 
apply in perpetuity, as other requirements of Sec. 1382 continue to 
apply; or (ii) Congress would have reauthorized the specific 
requirements of Sec. 1382(b)(6) when making subsequent appropriations 
to fund the Act. As such, Congress has continued to appropriate funds 
for the Act both for direct construction grants and for capitalization 
grants. Congress has not directed that the requirements of 
Sec. 1382(b)(6), including reference to Sec. 1372, be renewed. The mere 
appropriation of money does not reauthorize expired statutory 
provisions. In fact, the expired provisions of Sec. 1382(b)(6) are 
completely unnecessary to the continued successful operation of the 
CWSRF Program. They are merely bygone provisions that Congress duly 
allowed to expire.
    Furthermore, we object to the characterization that Sec. 1372 
imposes an independent obligation on the EPA to apply the provision of 
the Davis-Bacon Act. Given the distinction drawn by Congress as noted 
above and the statutory expiration of the application of Sec. 1372 to 
capitalization grants, we are of the opinion that Sec. 1372 is in fact 
a separate obligation that does not apply to capitalization grant 
monies. Section 1372 refers to treatment works for which grants are 
made,'' and directs prevailing wages be paid according to the Davis-
Bacon Act at 40 U.S.C. Sec. 276a et seq. Section 276a(a) of the Davis-
Bacon Act States that the United States or the District of Columbia 
must be a party to a contract for its provisions to apply. In the case 
of a direct construction grant, it is clear that the United States is 
directing (through appropriate legislative appropriation by Congress 
and implementation by the authorized Federal agency) that a specific 
project be built. However, in the case of a capitalization grant. The 
United States is making a grant to a State revolving fund. The monies 
are then expended in accordance with the terms of a State's authorizing 
legislation and the Capitalization Grant Agreement to make loans to 
eligible entities for wastewater treatment projects. As such, no grants 
are being made to fund treatment projects directly, only a grant to 
provide funding to a State revolving fund. The United States does not 
enter into any agreement with the project entity, and does not 
designate the projects for which the funds are to be used. Rather, the 
individual State agency responsible for administering the State's CWSRF 
Loan Program identifies eligible projects and enters into loan 
agreements containing provisions stipulated in the Grant Agreement and 
in Sec. Sec. 1381 et seq., for which the application of Sec. 1372 is no 
longer required. Section 1381 clearly States the purpose of 
capitalization grants are to establish a water pollution control 
revolving fund for providing assistance in the form of loans, not to 
make direct construction grants, and directs that capitalization grants 
be made subject to the provision of subchapter VI. In each annual 
Congressional appropriation bill (see, for example, Pub. L. 105-276 and 
Pub. L. 106-74), a distinction is drawn between capitalization grant 
appropriations for Clean Water State Revolving Funds and other grants 
made directly for the construction of wastewater and water treatment 
facilities. Section 1383(e) directs a loan recipient to promptly repay 
any loan funds if a direct construction grant is later provided to the 
loan recipient. Furthermore, Sec. 1386(f) directs that the provisions 
of subchapter 11 (direct construction grants) will not apply to 
capitalization grants.
    The capitalization grant award is not a direct construction grant 
for the construction of treatment works referred to in Sec. 1372. But 
for the statutory language of Sec. 1382(b)(6), Sec. 1372 would not ever 
have applied to the capitalization grant funds. As per Congressional 
stipulation, beginning in fiscal year 1995, Sec. 1372 no longer does 
apply.
    The statutory language itself can only be interpreted one way. 
Beginning fiscal year 1995, the applicability of the Davis-Bacon Act to 
loans made from a CWSRF Loan Program funded by Capitalization Grants 
expired. Congress, and only Congress, is the appropriate forum for 
reapplying the Davis-Bacon Act to the CWSRF Program. A negotiated 
settlement between the EPA and the Building and Construction Trades 
Department, AFL-CIO, that revives a duly expired statutory provision is 
inconsistent with the statutory requirements of the Clean Water Act and 
an inappropriate extension of EPA authority.
    We strongly urge the EPA to give consideration to these comments 
and withdraw from the proposed settlement agreement. We appreciate the 
opportunity to comment. If you should have any questions regarding our 
comments, please feel free to contact me at (405) 530-8800.
            Sincerely,
                                   Duane A. Smith,
                                   Executive Director.
                               __________
            Oregon Department of Environmental Quality,    
                                                    August 3, 2000.
Geoff Cooper,
Finance and Operations Law Office,
Environmental Protection Agency,
Washington, DC.
Re: Proposed Settlement Agreement, Application of Labor Standards 
Provision in the Clean Water Act State Revolving Fund Program, FRL-
6720-5

    Dear Mr. Cooper This letter is to comment on the Proposed 
Settlement Agreement between EPA and the Building and Construction 
Trades Department, AFL/CIO.
    The Proposed Settlement Agreement will reinstate the Davis-Bacon 
Act on projects funded through Oregon's Clean Water State Revolving 
Fund. There will be no increase in protection to Oregon's workers as a 
result of this settlement. They already have the same protection from 
Oregon's prevailing wage law. However, the Proposed Settlement 
Agreement will place an unnecessary burden on small Oregon 
municipalities
    Oregon's prevailing wage law (ORS 279.348 et seq.) requires that 
prevailing wages be paid on public works projects. In many cases, the 
prevailing wage determined by Oregon's Bureau of Labor and Industries 
is slightly higher than the Federal determination.
    Oregon's prevailing wage law is simpler, easier to understand, and 
easier to comply with than Federal law.
    For example, under Oregon's prevailing wage law, the public agency 
soliciting bids must inform the contractor or subcontractor that 
prevailing wages must be paid on the project. This Statement may be 
made by the public agency in either the advertisement for bids, 
contract specifications, or the accepted bid.
    Under Davis-Bacon, the public agency must supply all bidders with 
the applicable wage determinations (including any changes made up to 10 
days in advance of the bid openings) and include those determinations 
verbatim in the construction specifications and the contract.
    Davis-Bacon wage rates are not readily available. One professional 
in this field has referred to them as ``the Federal Governments best 
kept secret.'' On the other hand, Oregon's prevailing wages may be 
downloaded from the Bureau of Labor and Industries web site, 
www.boli.State.or.us.
    Under Davis-Bacon, once the project is underway, the public agency 
must review weekly payroll reports from both the contractors and 
subcontractors. These payroll reports must be retained by the public 
agency for 3 years. The public agency must also conduct job site 
interviews to verify payroll information.
    Under Oregon's prevailing wage law, when the bid is awarded, the 
public agency must notify the Bureau of Labor and Industries. The 
contractor and subcontractors must then tender certified payroll 
reports at 90-day intervals. The contractor and subcontractor must 
retain these reports for 3 years.
    The public agency need not conduct on the job interviews in Oregon. 
Instead, the Bureau of Labor and Industries has the right to inspect 
the job site and the contractors premises at any time.
    Oregon's prevailing wage law is based on 3 assumptions: (1) that 
small municipalities have neither the resources nor the expertise to 
serve as wage police; (2) that the State's Bureau of Labor and 
Industries does have the resources and the expertise; and (3) that the 
payment of prevailing wages is fundamentally the responsibility of the 
contractor.
    Oregon's prevailing wage law is easier to understand and simpler to 
comply with; hence, it is more efficient in operation. Moreover, it 
does not place an administrative burden on small municipalities, the 
primary beneficiaries of Oregon's Clean Water State Revolving Loan 
Fund.
    If you have any questions, I may be reached at 503-229-6412.
    Sincerely,
                                          Tom Meek,
            Program Lead, Clean Water State Revolving Fund.
                               __________
                  Utah Department of Environmental Quality,
                             Division of Water Quality,    
                                                     July 12, 2000.
Geoffery Cooper,
Finance and Operations Law Office,
Office of General Counsel,
Environmental Protection Agency,
Washington, DC.
Subject: Proposed Settlement Agreement, Application of Labor Standards 
Provision (Davis-Bacon Act) in the Clean Water State Revolving Fund 
Program

    Dear Mr. Cooper: This is written in response to EPA's solicitation 
for comment on the proposed settlement agreement between the Agency and 
the AFL-CIO which would reinstate Davis-Bacon Act requirements into the 
Clean Water State Revolving Fund (CWSRF) program.
    This office, which administers the CWSRF, is opposed to the 
reinclusion of Davis-Bacon wage rates into ``first round'' CWSRF loans 
and believes EPA's reasoning in proposing that this be done is flawed.
    Utah is a right-to-work State and does not have area-wide wage 
agreements for the work force. Wages are driven by the local economy 
and are historically lower in the rural areas of the State than in 
metropolitan areas. Skills available in a local area depend on the 
economic activity and population so generally fewer skilled 
construction workers are available in rural Utah. These factors have 
allowed CWSRF projects to be constructed more affordably in the rural 
areas of the State utilizing mostly local contractors. Eighty-five (85) 
percent of Utah communities currently have populations under 10,000. 
Nearly three-fourths of loans made since the inception of the Utah's 
CWSRF program in 1987 have been made to these smaller communities. 
Thus, it will be the smaller Utah communities which will bear the 
burden of increased project costs attributable to the imposition of 
Davis-Bacon wage rates which are higher than the construction wages 
that otherwise would be paid on CWSRF projects.
    We have polled a number of contractors to determine their reaction 
to reinstating the Davis-Bacon Wage Act and to determine the cost 
impact of this proposal. Contractors were generally opposed to EPA's 
proposal. They expressed concern about the additional administrative 
burden attendant to complying with the Davis-Bacon Act. This includes 
the preparation and submission of weekly payrolls, including the 
identification of the appropriate worker classification, wage rate, 
fringe benefits, and hours worked in a particular classification. 
Contractors would be compelled to add a certification requiring; the 
tedious and time consuming checking of payroll records to ensure the 
correct wages and fringe benefits are paid. Contractors would need to 
oversight their subcontractors on Davis-Bacon Act requirements. 
Contractors would be responsible to keep abreast of the ever-changing 
wage determinations and bear the risk and associated liability of 
unknowingly being found in non-compliance with the Act. Further, 
requiring a contractor to pay more to his employees working on a CWSRE 
project than to those working on other projects where the local wages 
paid for comparable classifications are less than the Department of 
Labor wage determination would create a pay inequity within the 
contractor's workforce. Contractors prefer to avoid all of these 
burdens and the increased costs they will have on CWSRF projects.
    In the past the published wage determinations for an area did not 
include all of the job classifications required to staff a project. The 
contractor would be required to determine the local prevailing wage for 
the missing work classification and seek approval from the Department 
of Labor to use the class and rate on the project. This is a costly and 
time consuming process for the contractor. Without timely response from 
the Department of Labor the contractor is at risk when paying the 
proposed rate. If the wage rate the contractor is paying is found to be 
lower than that the Department of Labor ultimately approves, back wages 
may need to be paid. This is problematic when a project has already 
been awarded and is under construction. The contractor has no means of 
increasing his bid price to recoup these increased costs. The result is 
that contractors tend to 'pad'' their bids to protect themselves in 
this event, thus further increasing the cost of the project to the 
community which receives a CWSRF loan.
    How will these increased costs affect bids on CWSRF projects? 
Opinions vary, but all the contractors we spoke with agreed that there 
will be increased costs which will translate into higher bids on CWSRF 
projects. Those polled estimated that bid prices would increase from 
between 8 percent to 15 percent as a result of imposing Davis-Bacon Act 
on CWSRF projects.
    There would also be an administrative burden to the Division of 
Water Quality if the Davis-Bacon Act were to be reimposed on CWSRF 
projects. Staff would be required to perform on-site interviews with 
the work force of contractors and subcontractors to assure that each 
employee was informed of the job classifications wages and fringe 
benefits to be paid. On-site employee interviews are a cause of 
production disruption that increase the cost to the owner and 
contractor. The appropriate wage determination and modifications would 
need to be validated. Correspondence would be necessary with the 
Department of Labor. At a time when only 4 percent of the CWSRE 
capitalization grant can be used for program administration, which is 
by all accounts insufficient, we are not looking to perform increased 
administrative tasks which add nothing to the program.
    We are unsure why EPA is persuaded that it has an ``independent 
obligation'' to impose CWA Sec. 513 to any grant made under Title VI of 
the CWA. It is clear that Congressional intent, as demonstrated by the 
language in CWA Sec. 602(b)(6), was for the 16 Title It requirements 
(including Davis-Bacon.
    We are unsure why EPA is persuaded that it has an ``independent 
obligation'' to impose CWA Sec. 513 to any grant made under Title VI of 
the CWA. It is clear that Congressional intent, as demonstrated by the 
language in CWA Sec. 602(b)(6), was for the 16 Title II requirements 
(including Davis-Bacon wage provisions) to apply only to capitalization 
grants made before fiscal year 1995. It behooves EPA to wait under such 
time as the CWA is reauthorized to see if Congress wishes to reimpose 
Davis-Bacon Act requirements on the CWSRF. Under 29 CFR 1.9, Davis-
Bacon Act requirements are incumbent upon not only the Federal Water 
Pollution Control Act but also the Safe Drinking Water Act. If Congress 
can exempt Davis-Bacon Act provisions from the latter by not including 
these provisions in the legislation, Congress can also (and did) exempt 
their application to the former by specifically stating when the 
provisions would cease to apply.
    The proposed settlement agreement States that EPA and the Building 
Trades have determined that it is in the public interest to resolve 
this matter expeditiously. We do not feel that it is in the public's 
interest to impose a significantly higher cost and more administrative 
burden on CWSRF loan recipients.
    EPA's technical summary of the proposed settlement indicates that 
EPA believes there are benefits to human health and the environment 
through the imposition of Davis-Bacon requirements on CWSRF projects. 
In 15 years of experience working in the Construction Grants and CWSRF 
program, I have seen no evidence to support this contention. EPA 
suggests that the use of prevailing wages on CWSRF projects will 
promote a better-skilled workforce and presumably result in higher 
quality construction. We do not agree with this position. In Utah we 
believe that contractors will employ the same, only more highly-paid, 
workforce which will result in higher project costs, not better 
construction.
    The only silver lining to the proposed settlement agreement is that 
Davis-Bacon requirements would pertain only to ``funds directly made 
available'' from capitalization grants rather than to the entire CWSRF. 
This, however, is not sufficient reason for our office to support EPA's 
recommendation on this matter. It is our feeling that the program would 
be better served for EPA to take its chances in court rather than 
simply acquiesce to pressure from the Building Trades.
            Sincerely,
                                     Don A. Ostler,
                             Director, Water Quality Board.
                               __________
                  Iowa Department of Natural Resources,    
                                                    August 4, 2000.
Geoffery Cooper,
Finance and Operations Law Office,
Office of General Counsel,
Environmental Protection Agency,
Washington, DC.

Subject: Proposed Settlement Agreement, Application of Labor Standards 
Provision in the Clean Water Act State Revolving Fund

    Dear Mr. Cooper: The Iowa Department of Natural Resources has 
reviewed the Proposed Settlement Agreement, Application of Labor 
Standards Provision in the Clean Water Act State Revolving Fund 
Program, published in the Federal Register on June 22, 2000, with a 45-
day comment period. This transmittal will constitute comments from the 
Iowa Department of Natural Resources.
    The proposed agreement is between the United States Environmental 
Protection Agency and the Building and Construction Trades Department, 
AFL-CIO, American Federation of Labor/Congress of Industrial 
Organizations. The proposed agreement is for the new requirement for 
application of Davis-Bacon provisions in all EPA Clean Water State 
Revolving Fund loan capitalization grants made to States after January 
1, 2001. The Iowa Department of Natural Resources wishes to advise EPA 
that the proposed agreement exceeds the authority of EPA in the Clean 
Water Act. EPA should reconsider its negotiated position for the 
following reasons.
    1. Section 602(b)(6) of the Clean Water Act dearly applied the 
specific Title II requirements and Section 513 of Title V to projects 
constructed in whole or in part before FY1995 with funds directly made 
available by capitalization grants. The lack of Congress' 
reauthorization does not change this provision. In fact, the lack of 
reauthorization reinforces it. There has been every opportunity to 
extend these specific requirements. Congress has not taken it. The 
appropriations Congress has made for national allotments for State 
capitalization grants also could have been conditioned. They have not. 
The clear wording of 602(b)(6) makes the decision a Congressional one, 
not an agency one.
    2. All the provisions in Section 602(bX6) expired in FY 1995. EPA 
selectively choosing one to be reinstated out of a long list clearly 
goes beyond the authority of the statute. We see no reason that one 
provision in Section 602(b)(6) would be legally applicable and not the 
others listed in the same sentence. EPA's 1995 memorandum on the 
section was correct. The June 22, 2000, publication does not present 
any basis for a conclusion that Section 513 imposes a continuing 
independent obligation on the agency to apply or reinstate Davis-Bacon 
requirements. If it did, EPA has violated the statute since FY1994 and 
waiting to reinstate it in January, 2001 would be inappropriate. EPA 
has subrogated its authority by its new ``persuasion.'' It should 
remain with its admitted ``reasonable legal interpretation.'' If 
Section 513 created an independent authority, it would not have been 
necessary for the statute to list 513 as an equivalency requirement in 
Title VI. The interests of the building trades do not override the 
wording of the statute.
    3. For several years after FY 1994, EPA staff questioned why Iowa 
rules continued to apply equivalency requirements. The State's response 
was that the Clean Water Act was subject to reauthorization and the 
equivalency requirements could be readily reinstated with 
reauthorization. Rulemaking procedure in Iowa is a lengthy process and 
reinstatement of Federal requirements would confuse and complicate. So 
it was several years before Iowa rules removed the equivalency 
requirements from the Iowa program. It finally became obvious that 
either Congress was not about to reauthorize in the near future, or if 
they did, extending the equivalency requirements was not likely. If 
congressional intent is a concern at all, we merely have to observe 
what happened in the Drinking Water SRF statute, where Davis-Bacon is 
specifically not required.
    4. There are practical reasons for not reinstating Davis-Bacon 
provisions. There would be confusion and controversy in States' 
administration of SRF programs. Section 513 would clearly only apply to 
project funds directly made available by capitalization grants. As 
State SRF programs mature, a significant amount of the projects funded 
are with other funds. The differentiation of requirements for projects 
based on their source of funds is arbitrary and will cause unnecessary 
confusion and competition for ``non-cap grant funds.'' EPA policy for 
the SRF program for many years has been ``maximum State discretion.'' 
EPA's current persuasion will create undue burden on the State and loan 
recipients. EPA Statements that projects receive more competent 
construction when Davis-Bacon requirements are applied are unsupported. 
There is, however, little controversy that they do cost more, therefore 
limiting the use of available funds in the program to fewer projects. 
There are also reports that the increased costs do not go for increased 
wages in the trades. States have tried hard to make SRF programs 
attractive. The elimination of equivalency requirements according to 
Section 602(b)(6) greatly assisted in making SRF financing attractive 
and competitive with conventional municipal financing.
    EPA's original interpretation of the applicability of Section 602 
requirements was done by memorandum. The interpretation seemed clear 
and logical. We appreciate EPA's openness allowing comments on a 
proposed settlement agreement and the obvious uncertainty existing in 
EPA's current position by requesting comments. It is unfortunate that 
the input of State as major stakeholders with EPA was not sought in 
negotiations that have apparently occurred.
    We consider the Proposed Settlement Agreement to be an 
inappropriate EPA decision for the above reasons. Please consider the 
comments received from States carefully in your final decision.
    You may follow up with questions by response to this e-mail or by 
contacting me at 515/281-8877.
            Sincerely,
                                     Wayne Farrand,
                            Supervisor, Wastewater Section.
                               __________
           Montana Department of Environmental Quality,    
                                                     July 17, 2000.
Geoff Cooper,
Finance and Operations Law Office,
Office of General Counsel,
Environmental Protection Agency,
Washington, DC.

Re: State of Montana WPCSRF Public Comment Federal Davis-Bacon Wage 
Issue

    Dear Mr. Cooper: As program manager of the State of Montana's Water 
Pollution Control State Revolving Fund (WPCSRF) Loan Program I would 
like to provide public comment on the draft settlement agreement 
between EPA and the Department of Labor regarding the Federal Davis-
Bacon Wage issue. Currently both of Montana's SRF loan programs (WPCSRF 
and Drinking Water SRF) use the Montana Statewide Prevailing Davis-
Bacon Wage Rates. The State Davis-Bacon wage rates are very similar to 
the Federal Davis-Bacon rates. However, the State rates are much easier 
to administer. The State rates do not change very often while the 
Federal rates change quite frequently. The process for implementing and 
using the State's rates is very streamlined. Also, when projects have 
other State or local funding, the SRF programs are using the same rates 
as these other programs for work procured under State of Montana law. 
In summary, there is very little difference in substance between the 
Federal and State Davis-Bacon wage rates, but procedurally the State 
rates are much easier to implement.
    Another concern we have is that the draft settlement applies only 
to the Clean Water SRF program and not the Drinking Water SRF programs. 
We have worked hard to maintain consistencies between the two programs 
and actually use the same specification insert for both funding 
programs. We would prefer that State Davis-Bacon Wage rates be allowed 
for the CWSRF programs.
    In summary, Montana's WPCSRF Loan Program would prefer the 
flexibility to continue to use Statewide Prevailing Davis-Bacon Wage 
Rates. This will allow for a more streamlined program and provide 
consistency between SRF programs.
    If you have any questions please give me a call at 444-5324.
            Sincerely,
                                    Todd Teegarden,
                      WPCSRF Program Manager, Technical and
                               Financial Assistance Bureau.
                               __________
State of Louisiana, Department of Environmental Quality,    

                                                     July 31, 2000.
Geof Cooper,
Finance and Operations Law Office,
Office of General Counsel,
Environmental Protection Agency,
Washington, DC.

Re: Proposed Settlement Agreement, Application of Labor Standards 
Provision in the Clean Water Act State Revolving Fund Program (CWSRF)

    Dear Mr. Cooper: My staff in the Clean Water State Revolving Fund 
program and I have carefully reviewed the proposed Settlement Agreement 
and the accompanying documents. I must convey my complete opposition to 
any action by EPA that would re-impose the Davis-Bacon Act provisions 
on the CWSRF program.
    Louisiana is one of the nineteen States that do not have State 
prevailing wage laws. We experienced great difficulty in getting the 
loan program started because of the extra expense on borrowers caused 
by the Davis-Bacon Act requirements. A number of potential borrowers 
simply walked away from the SRF program because they could sell bonds 
on their own and build their project without Davis-Bacon more cheaply 
than they could if they borrowed from us, even though we offered a 
substantially lower interest rate. We even held up making binding 
commitments on some loans until FY 1995 to avoid the Davis-Bacon Act 
requirements.
    Re-imposition of the Davis-Bacon Act on new capitalization grants 
would again make it difficult to market the program in Louisiana. We 
would be forced to lower interest rates even below their present low 
rates in an effort to keep some of the potential borrowers that are now 
interested in the program. This would certainly jeopardize our ability 
to ``maintain the fund in perpetuity' which the law requires us to do.
    We can find no language in either section 513 or section 602(b)(6) 
of the Act that would allow EPA to impose the Davis-Bacon Act 
requirements as a condition of future capitalization grants. Section 
513 is very clear that the Davis-Bacon Act is applicable to ``. . . 
treatment works for which grants are made under this Act . . .'' EPA's 
view that section 513 applies to any grants made under the CWA for 
treatment works, including capitalization grants made under title VI is 
not correct.
    A capitalization grant made by EPA to a State is a grant to 
capitalize the State's CWSRF and is not a grant to construct a 
treatment works. States make loans, not grants, to local governments, 
and a loan made by a State to a local government for construction of a 
treatment works is not a grant made under the Act.
    Likewise, the language in section 602(b)(6) is also very clear. The 
sixteen requirements listed there all expired on October 1, 1994 
including the requirement to comply with section 513. Congress was 
aware that some loans resulting from funds directly made available by 
FY 1994 (and in some cases earlier) capitalization grants would be 
exempted since States do not enter into binding commitments immediately 
after the capitalization grant is awarded. Had it been the intent of 
Congress to apply Davis-Bacon to all capitalization grants, it would 
not have included Section 513 in the sunset provision of section 
602(b)(6).
    Furthermore, the Davis-Bacon Act does not apply to the Drinking 
Water Revolving Loan Fund (DWRLF), which was authorized by the Safe 
Drinking Water Act Amendments of 1996. We believe that Congress never 
intended to apply this requirement to one funding program and not the 
other; but knew that it had already expired in the CWSRF and 
deliberately left it out of the DWRLF so it would then not apply to 
either program.
    Re-imposition of the Davis-Bacon Act on new capitalization grants 
would not only make it difficult to market the program in Louisiana; it 
would also impose an undue burden on local governments, many of which 
are struggling to find the necessary funds to make improvements to 
their treatment works and stay in compliance with the enforceable 
requirements of the Act. We do not accept EPA's argument that the use 
of prevailing wage may result in fewer accidents, mistakes, and cost 
overruns during construction, reduced O&M costs, and a longer 
operational life for the treatment works. We have seen over two hundred 
projects constructed with construction grants and early SRF loans that 
were subject to prevailing wage requirements; and at least as many 
projects undertaken by local governments on their own without 
prevailing wage requirements. We can see no significant difference in 
the quality of construction between the two. What we have seen, in many 
cases, is a merit shop contractor forced to pay higher wages to the 
same workers that would have constructed the project in any case. The 
local government must pay this increased cost but gets nothing in 
return for it.
    We predict that re-imposition of Davis-Bacon Act requirements to 
the CWSRF would be counter-productive to our efforts to assist local 
governments achieve and maintain compliance. Forcing local governments 
to pay higher costs than necessary to construct improvements or new 
treatment works will result in more communities downsizing projects, 
deferring construction, and/or requiring their consultants to skimp on 
quality to reduce costs. The end result will likely be a lower level of 
compliance in those States that do not have State prevailing wage laws.
    We would like to leave you with one last thought. Michael J. 
Quigley, Director of the Municipal Support Division, EPA Headquarters, 
Stated in a June 8, 1994 memorandum to Myron Knudsen, Director of the 
Water Management Division, EPA Region 6, that ``Under the accepted 
rules of statutory construction, where the language of the law is 
clear, there is no need to consult the legislative history. Indeed, 
legislative intent cannot be used to `reinterpret' the plain meaning of 
statutory language.'' This is a case where the language in the law is 
clear and any attempt to ``reinterpret'' its meaning would not only be 
inappropriate, it would be plain wrong.
    We would like to thank you for the opportunity to comment on the 
proposed Settlement Agreement and sincerely hope that you understand 
our concerns and will not pursue it further. If that is not the case, 
we will request assistance from our Congressional delegation to support 
our position.
            Sincerely,
                                    J. Dale Givens,
  Secretary, Louisiana Department of Environmental 
                                           Quality.
                               __________
                         Texas Water Development Board,    
                                                      July 7, 2000.
Geoff Cooper,
Finance and Operations Law Office,
Office of General Counsel,
Environmental Protection Agency,
Washington, DC.

Re: Proposed Settlement Agreement Application of Labor Standards 
Provisions in the Clean Water Act State Revolving Fund Program

    Dear Mr. Cooper: The following comments are in response to the 
referenced notice published in the Federal Register on June 22, 2000.
    We object to the proposal to reinstate the prevailing wage rate 
requirements of the Davis-Bacon Act for federally assisted projects in 
the Clean Water Act State Revolving Fund (CWSRF) Program. These 
requirements will impose new requirements on CWSRF borrowers in some 
States, and different or changed requirements for loan recipients in 
those States with requirements similar to the Davis-Bacon requirements. 
The requirements will require additional effort on the part of 
borrowers, and may delay needed construction start dates in instances 
where project specific wage rates are required. Project delays will 
have the most pronounced impact on the more urban areas, where project 
specific rates are the norm. Overall, the new requirements will have 
the greatest adverse impact on the smaller community borrowers. These 
borrowers already bear the burden of higher per-capita project cost, so 
additional efforts, costs and delays may inhibit such communities from 
accessing the CWSRF.
    In addition to the impact on CWSRF borrowers, the new requirements 
will create additional burdens on the States administering the CWSRF 
program. States will have to create the infrastructure necessary to 
educate borrowers, assist in acquiring wage rates, and track and report 
compliance. For some States, rule making will be required. These new 
activities will take time to implement and utilize administrative funds 
which could otherwise be better used to fund projects to further the 
goals of the Clean Water Act. Implementation, itself will require the 
expenditure of significant funds and amounts of effort. .
    Finally, if the proposed agreement is adopted, we find the January 
1, 2001 implementation date completely unacceptable. As EPA is aware, 
States must prepare seek public input on and adopt an Intended Use Plan 
each year, prior to being able to submit a capitalization grant 
application. The Intended Use Plan process alone may require 6 to 12 
months to complete, and is already in progress, in most States, in 
anticipation of receiving capitalization grants after January 1, 2001. 
As a result, the potential borrowers of funds made available from these 
capitalization grants may have already been identified and subjected to 
a public participation process. Imposition of the January 1, 2001 
implementation date has the effect of changing the rules of the game 
for these players, while the game is in progress. For some States, this 
may require re-notice and repeating much or all of the fiscal year (FY) 
2001 Intended Use Plan process. For States like Texas, which are 
already well into the FY 2001 Intended Use Plan process, a requirement 
to re-notice applicants could create a 6-month or more delay which 
would suspend the CWSRF program until the Intended Use Plan process 
were completed. This issue, coupled with the implementation time that 
will be required of the States, makes the January 1, 2001 date totally 
unrealistic. We suggest that implementation be delayed until after 
January 1, 2002.
    We strongly urge that EPA give consideration to these comments. We 
appreciate having the opportunity to offer comment. If you have any 
questions regarding our comments, please feel free to call me at (512) 
463-7848.
            Sincerely,
                                   Craig D. Pederson,
                                   Executive Administrator.
                               __________
                                                     June 22, 2000.
To: Geoff Cooper
cc: Angela Cracchiolo; Dorothy Rayfield; Conny Chandler

Subject: Proposed Settlement Agreement

    Mr. Cooper, I am responsible for administering the Clean Water SRF 
program in North Carolina and would like to comment on the proposed 
settlement agreement between the EPA and the AFL-CIO.
    While I am not a lawyer, it is quite clear to me that Title VI of 
the CWA specifically states that the Davis-Bacon requirements apply 
only to projects constructed before fiscal year 1995. It would follow 
then that any requirement to extend the Davis-Bacon requirements beyond 
that date would require action by the Congress and not through the 
interpretation of the EPA.
    It has not been my experience that the Davis-Bacon requirements 
have resulted in higher project costs in NC, but ensuring compliance by 
loan recipients and contractors does place an unnecessary burden upon 
the- State at a time when we are finding that the 4 percent limitation 
on administrative funding is insufficient. I ask that you reconsider 
your intentions to reinstate these requirements in the absence of a 
clear requirement by Congress to do so.
    Thank you for the opportunity to comment.
                                   Bobby Blowe.
                               __________
                       Department of Environmental Quality,
                                                       Lincoln, NE.
Geoff Cooper,
Finance and Operations Law Office,
Office of General Counsel,
Environmental Protection Agency,
Washington, DC.
Re: Reinstatement of Davis-Bacon Requirements Clean Water State 
Revolving Loan Program

    Dear Mr. Cooper: The Nebraska Department of Environmental Quality 
has reviewed the Proposed Settlement Agreement, ``Application of Labor 
Standards Provision in the Clean Water Act State Revolving Fund 
program'' between the United States Environmental Protection Agency and 
the Building and Construction Trades Department, AFL-CIO, American 
Federation of Labor/Congress of Industrial Organizations.
    The proposed agreement is for the reinstatement of Davis-Bacon 
requirements as a Federal requirement on all EPA Clean Water State 
Revolving Loan capitalization grants made to States after January 1, 
2001. The Nebraska Department of Environmental Quality opposes this 
agreement due to the following reasons:
    1. Davis-Bacon requirements are a carry over of the construction 
grant requirements and are a part of the Title II Equivalency 
Requirements of the Clean Water Act. All of these requirements expired 
on October 1, 1994 by law. Congress has not modified this, therefore 
EPA does not have the authority to reinstate the Davis-Bacon 
requirements. Also, if Sec. 513 created an independent obligation of 
EPA, it would not have been listed in Title VI as an equivalency 
requirement.
    2. We were given to understand from the discussions we have had 
with EPA that when the Clean Water Act got reauthorized that 
equivalency requirements would not be part of the reauthorization 
process. This has been demonstrated in the recent reauthorization of 
the Drinking Water Act on August 6, 1996 which authorized the 
implementation of the Drinking Water State Revolving (DWSRF) Loan 
Program. Congress chose not to impose the equivalency requirements on 
the DWSRF program which we also administer.
    3. As the name suggests, the revolving loan programs are called the 
State Revolving Loan Programs. These programs belong to the States 
unlike the EPA Construction Grants Program which had EPA ownership. The 
State of Nebraska has no intention of applying equivalency requirements 
to recycled SRF funds proceeds. The reinstatement of Davis-Bacon will 
create undue burden to the State in implementing two programs longer 
than necessary and will also complicate the implementation of the 
program in future years. Administration of the Davis-Bacon requirements 
for the State is tedious and time consuming. In several cases in the 
past, projects have experienced delays because certain trades were not 
included in wage decisions which meant that the loan and/or grant 
recipient, had to wait for the Department of Labor in Washington to 
recognize that trade and provide a wage for that trade.
    4. The SRF program is supposed to be a simplified program. It has 
taken program staff several years to convince the small communities in 
our State that the SRF program is not as cumbersome as the construction 
grants program. Also, the State has strived to reduce or simplify as 
many requirements as possible in order to provide a user friendly 
program. We are in competition with the commercial bond market which 
does not have as many requirements. Communities are very conscious of 
how much it costs to undertake wastewater treatment projects. Budgets 
are tight and user rates are escalating rapidly. In the State of 
Nebraska we have only a handful of communities i.e., 11 out of over 500 
that have a population of over 10,000 (by EPA definition population of 
less than 10,000 are considered small). Most small communities do not 
have the managerial capability to administer the Davis-Bacon 
requirements. The CDBG program in our State requires that the 
communities hire a grants administrator to oversee the administration 
of requirements such as Davis-Bacon. Several thousand dollars are spent 
to ensure that these Federal requirements are satisfied. The 
reinstatement of Davis-Bacon will create an undue burden on the small 
communities in our State.
    5. A survey of construction contractors which we conducted several 
years ago suggested that Davis-Bacon added anywhere from 10-30 percent 
to project costs in this State. Davis-Bacon in this State was perceived 
to add to the costs due to the additional record keeping requirements 
and not because of additional costs due to wages. In order to hire 
qualified personnel, our survey of contractors had indicated that most 
contractors paid their employees wages higher than Davis-Bacon. Also, 
unemployment in general in our State has been very low for the past 
several years and therefore Davis-Bacon is unlikely to improve wages.
    6. This agreement was drafted without the State's input. We 
consider ourselves to be a major stakeholder and this agreement 
certainly seems to be a deal which the EPA has negotiated with the AFL-
CIO without stakeholder input.
    We consider the Proposed Settlement Agreement to be inappropriate 
for the reasons stated above. Please consider our comments carefully as 
EPA moves forward on the settlement.
    If you have any questions, please contact Gautam ``Buddy'' 
Bhadbhade P.E. of my staff at (402) 471-4207.
            Sincerely,
                                   Mike Linder,
                                   Director.
                               __________
                       Department of Environmental Quality,
                                        Lansing, MI, July 14, 2000.
Mr. Geoff Cooper,
Finance and Operations Law Office,
Office of General Counsel,
Environmental Protection Agency,
Washington, DC.
    Dear Mr. Cooper: This letter is to enter Michigan's strong 
objection to the proposed settlement agreement with the Building and 
Construction Trades Department, AFL/CIO reimposing Davis-Bacon Act 
requirements on the State Revolving Fund (SRF) Program.
    This proposed settlement is contradictory to the requirements of 
Title VI of the Clean Water Act. This is born out by the explicit 
language in section 602(b)(6) that imposes certain requirements 
including Davis-Bacon, only through Fiscal Year 1994. The proposed 
settlement is an inappropriate, unilateral attempt to circumvent that 
language and the on-going legislative process to reauthorize the Clean 
Water Act.
    The SRF program is administered by States, yet this major 
settlement proposal, having far-reaching impacts on the SRF program, 
was developed by the EPA with no State input. Further, this proposed 
action will impose added mandates on local governments increasing both 
administrative costs, as well as financial demand on an already under 
funded SRF program, with no environmental benefit.
    Michigan opposes imposition of this mandate and urges the EPA to 
withdraw the proposed settlement agreement as it is inappropriate, 
improper, and most importantly, contrary to Federal law and the 
legislative process.
            Sincerely,
                                   Russell J. Harding,
                                   Director.
                               __________
  Colorado Department of Public Health and Environment,    
                                                     July 18, 2000.
Geoff Cooper,
Finance and Operations Law Office,
Office of General Counsel,
Environmental Protection Agency,
Washington, DC.

Subject: Proposed Re-imposition of Davis-Bacon Act Wage Rates on Clean 
Water SRF

    Dear Mr. Cooper: The Colorado Department of Public Health and 
Environment, Water Quality Control Division, administers the technical 
aspects of the Clean Water State Revolving Fund (CWSRF) program. Based 
on our previous experience with the Davis-Bacon Act requirements, prior 
to October 1, 1994, we are opposed to the re-imposition of this onerous 
requirement at this time due to the following concerns:
     Our past experience indicates that for small rural 
construction projects the total project costs increase between 20 
percent to 30 percent when Davis-Bacon requirements are imposed. In 
addition there is no evidence in Colorado to substantiate your claim 
that the use of prevailing wage rates lead to higher quality 
construction, best functioning treatment works, long-term cost 
advantages, reduced O&M costs or longer operational life of treatment 
works.
     The re-imposition of the Davis-Bacon requirements on 
January 1, 2001, does not allow sufficient time to notify future loan 
recipients of this burden and to re-train personnel for implementation. 
At least a 1-year notice is necessary to properly notify future 
borrowers and to re-train State and EPA personnel. I would recommend 
that, if this proposal is implemented, that the regulation not be made 
final until after January 1, 2001, and that the requirement not be 
imposed until January 1, 2002.
     The Act applying to all construction, alteration and/or 
repair in excess of $2,000 appears outdated. At a minimum, the amount 
should coincide with the value of the single audit act requirement 
which is currently $300,000.
    In conclusion, I believe the Davis-Bacon requirements if re-
imposed, will be a costly burden-to rural Colorado borrowers 
endeavoring to improve water quality in their area and to the State in 
administering these requirements.
    I trust you will give serious consideration to our comments and 
drop the re-imposition of these requirements, but at the very least, 
delay the adoption of this regulation until the next year.
            Sincerely,
                                   Douglas Benevento,
                                   Director, Environmental Programs, 
                                       Colorado Department of Public 
                                       Health and Environment.
                               __________
Colorado Water Resources & Power Development Authority,    
                                                     July 21, 2000.
Geoff Cooper,
Finance and Operations Law Office,
Office of General Counsel,
Environmental Protection Agency,
Washington, DC.

Re: Proposed Re-imposition of Davis-Bacon Act Wage Rates on Clean Water 
Act SRP's

    Dear Mr. Cooper: The Colorado Water Resources and Power Development 
Authority administers the financial aspects of Colorado's Clean Water 
State Revolving Fund. We oppose the re-imposition of Davis-Bacon Act 
wage requirements. First, we do not agree that Section 513 of the Clean 
Water Act imposes a continuing obligation to include Davis-Bacon Act 
wage requirements on grants awarded after 1994. It is clearly a policy 
decision by EPA which will increase the cost of improving water quality 
in Colorado. Second, Section 319 and 320 projects do not fall under the 
definition of ``publicly-owned treatment works'' as defined in the Act 
and should be excluded from the regulation and the settlement 
agreement.
    We also believe that there imposition of Davis-Bacon requirements 
as proposed will impair the functioning of the Revolving Funds in 
improving water quality. Our past experience with Davis-Bacon wage 
requirements, as applied to the Revolving Funds before FY 1995, 
indicates that for small rural construction projects, often those most 
in need of financial assistance, and of great importance in protecting 
water quality, Davis-Bacon wage requirements increase costs between 15 
percent and 30 percent. Such increases may be enough to discourage some 
communities from undertaking important pollution control projects in a 
timely manner. At the same time, we have seen no evidence in Colorado 
to suggest that the imposition of prevailing wage rates leads to higher 
quality construction, better functioning treatment works, long-term 
cost advantages, reduced O&M costs, or longer operational life for 
treatment works.
    Moreover, the time-frame proposed for re-imposition of Davis-Bacon 
requirements is unrealistic. It does not allow sufficient time to 
notify future loan recipients of this burden, or to retrain personnel 
for implementation. At least 1 year of advance notice will be needed to 
notify borrowers and the public through the Intended Use Plan process. 
Re-training State and EPA personnel will also require 3 to 6 months. 
Therefore, the regulation should not be made final--before January 1, 
2001, and the requirement should not be effective until at least 
January 1, 2002.
    Finally, the trigger for application of Davis-Bacon wage rates to 
construction work ($2,000) is outmoded. The trigger should be no lower 
than that for Single Audit Act requirements, currently $300,000, but 
preferably at least $1,000,000. Such an adjustment would at least 
lessen the burden of the proposal on some communities and projects, 
especially small financially distressed communities.
    In conclusion, I believe that the imposition of the Davis-Bacon 
requirements are not justified by a fair reading of the Clean Water 
Act, and will impose a costly burden on Colorado borrowers (especially 
normal borrowers already under financial strain) and on the State in 
administering the requirements, without any commensurate water quality 
benefits. I hope you will give serious consideration to our comments 
and drop the re-imposition of these requirements. At the very least, I 
would urge you to hold public hearings on the proposal around the 
country, so EPA policymakers can understand fully the burdensome 
implications.
            Sincerely,
                                   David L. Law,
                                   Executive Director, Colorado Water 
                                       Resources & Power Development 
                                       Authority.
                               __________
                                        City of Cape Coral,
                                    Cape Coral, FL, August 4, 2000.
Geoff Cooper,
Finance and Operations Law Office,
Office of General Counsel,
Environmental Protection Agency,
Washington, DC.
Subject: Comment on proposed settlement agreement: EPA--AFL/CIO
Reference: LFederal Register-June 22, 2000 (Volume 65 No. 121) Notice 
of proposed Settlement Agreement between the Agency and AFL/CIO 
(Building Trades)

    Dear Mr. Cooper: The City of Cape Coral, a city of 100,000, 
celebrating our thirtieth anniversary and located in the southwestern 
part of Florida, is currently in the process of constructing our second 
phase of the city's utility expansion project. It is the city's 
intention to apply to the State of Florida for State Revolving Fund 
financing to accomplish this expansion, which when complete, will 
provide water, sewer and reuse irrigation water to the majority of our 
citizens and reduce their dependency on individual wells and on-site 
septic systems.
    Due to the rapid growth being experienced in this region, 
contractors' and subcontractors' construction tradespeople are 
receiving wages that often exceed those published as Davis-Bacon 
Prevailing Rates. By the imposition of the Davis-Bacon Act, and the 
significant documentation required to comply with the Act, the 
contractors, the city, and eventually our taxpayers would incur added 
project performance costs with no added benefit to either the 
individual taxpayer or the construction trades person.
    The city is quite concerned about this added administrative burden, 
and therefore the cost, to be placed upon the citizens of Cape Coral 
should this proposed settlement agreement become effective. The city of 
Cape Coral urges the EPA to carefully evaluate the perceived benefits 
that the Davis-Bacon Act is purported to provide against the added 
burden placed on small municipalities using SRF funding, such as Cape 
Coral, and decide to withdraw from this proposed settlement.
            Very truly,
                                   S.W. Daignault, P.E.,
                                   City Manager, City of Cape Coral, 
                                       FL.
                               __________
       Statement of Association of Metropolitan Sewerage Agencies
                              introduction
    The Association of Metropolitan Sewerage Agencies (AMSA) represents 
the interests of more than 250 publicly-owned treatment works (POTWs). 
AMSA's members treat 18 billion gallons of wastewater every day and 
provide service to the majority of the United States' sewered 
population.
    Last week, over a million consumers were plunged into darkness in 
California as the Nation's energy crisis deepened. As rolling blackouts 
crippled homes and businesses, officials begged citizens to reduce 
their demands. Imagine what will happen when the Nation's water and 
wastewater systems begin to fail. Like California's electric utilities, 
the Nation's wastewater systems are facing an infrastructure crisis. 
Unlike power providers, the failure of wastewater systems could create 
a public health emergency, cause widespread environmental degradation, 
and lead to an erosion of our local economies.
    America needs to spend an additional $23 billion a year for the 
next 20 years to repair and replace aging pipes and to meet current and 
future water quality regulations. Is that an outrageous amount? No--not 
if you consider the investment we already have made in our water and 
wastewater systems and the fact this is the first big replacement cycle 
our country has had to face in the water and wastewater utility sector.
    America's water and wastewater infrastructure systems are national 
assets that yield dividends to all citizens in the form of healthy 
natural ecosystems, healthy people free from waterborne disease, and a 
healthy and growing economy. The public trust in clean and safe water 
is unwavering. Every day, Americans rely on clean water for recreation, 
commercial fishing, and a wide range of industrial activity. These 
activities generate billions of dollars in income every year, none of 
which would be possible without clean water. Inadequate capacity to 
treat wastewater or supply clean water can cripple a local economy, 
drive manufacturing out of communities, and wipe out tourism.
    We face financial challenges in the water sectors today that far 
exceed historical investment patterns. While national resolve to 
improve the economy, public health, and environmental integrity are at 
an all-time high, one of our most successful strategies to accomplish 
these goals--adequate and efficient wastewater systems for all 
Americans--is at risk of failure because of inadequate investment. 
Water and wastewater systems are the heart and soul of every American 
community. Would we have built roads, bridges, and airports in 
communities that could not provide clean and safe water? The answer is 
simply . . . no. The documented needs of the water and wastewater 
community cannot--and should not--be disputed.
    Studies performed and released by the U.S. Environmental Protection 
Agency (EPA) and the private sector have reached the same conclusion: 
the needs of our cities, counties, and towns exceed the financial 
capacity of our local governments and ratepayers. They simply cannot 
bear the financial burden alone. Today, we're asking Congress once 
again to make water infrastructure funding a national priority.
                public investment needs and achievements
    As documented in Clean and Safe Water for the 21st Century: A 
Renewed National Commitment to Water and Wastewater Infrastructure, 
published in April 2000 by the Water Infrastructure Network (WIN), 
America's water and wastewater systems face an estimated funding gap of 
$23 billion a year between current investments in infrastructure and 
the investments that will be needed annually over the next 20 years to 
replace aging and failing pipes and to meet the mandates of the Clean 
Water Act (CWA) and Safe Drinking Water Act. This unprecedented level 
of investment will face significant competition within local budgets 
from operating and maintenance costs that are escalating by 6 percent a 
year above the rate of inflation. Current Federal contributions cannot 
help since they have declined by 75 percent in real terms since 1980 
and today represent only about 10 percent of total outlays for water 
and wastewater infrastructure and less than 5 percent of total water 
and wastewater outlays.
    Our needs are great because our systems are at a critical juncture 
in their life cycles. A combination of reduced Federal spending and 
increased Federal mandates to meet treatment requirements is taking its 
toll. The collective aging of our pipes and systems further compounds 
our ability to meet the objectives of the Clean Water Act. Seventy-five 
percent of the Nation's capital investment in wastewater and drinking 
water infrastructure is buried underground. The useful life of these 
pipes is coming to an end. Any additional deferral of the needed 
investments to repair and renew these systems will lead to greater 
increases in the costs associated with providing clean and safe water 
services.
    About a trillion dollars of the public's money was spent on capital 
expenditures and on the operation and maintenance of the Nation's 
drinking water and wastewater systems during the period between 1956 
and 1992. The gains in water quality realized by this investment have 
been significant. Effluent discharges have fallen by half since 1970, 
despite the fact that waste loads grew by more than a third due to 
population growth and an expanding economy. However, these 
environmental achievements are now at risk. According to a U.S. EPA 
report entitled Progress in Water Quality (June 2000), ``without 
continued improvements in wastewater treatment infrastructure, future 
population growth will erode away many of the CWA achievements in 
effluent loading reduction.'' By the year 2016, the report projects 
that biological oxygen demand loading rates could rise to the same 
levels that existed in the mid-1970s, only a few years after the CWA 
was passed.
               cincinnati and hamilton county, ohio needs
    ln 1987, the Metropolitan Sewer District of Greater Cincinnati 
(MSD) of Greater Cincinnati initiated county-wide studies to identify 
solutions to combined sewer overflow (CSO) problems. The studies 
resulted in system capacity increases and constructed solutions, and 
have been expanded to include sanitary sewer overflows (SSO). Last 
year, MSD performed an in-house estimate of the costs involved in 
addressing its current collection system needs. The figures so alarmed 
District management that MSD officials elected to engage a consulting 
engineering firm to perform an independent analysis of the needs. 
Remarkably, the two studies arrived at very similar conclusions and 
provided municipal officials with a high degree of confidence in their 
accuracy.
    Exclusive of normal operations and maintenance costs and the 
routine/planned rehabilitation efforts of an aging system, which the 
community now supports, the new design/construction necessary to 
alleviate the CSO and SSO problems amount to somewhere between $1 and 
$3 billion.
    Currently, the user charges in affect for MSD are in the middle of 
the pricing range when compared to those of the surrounding 67 
utilities. However, in order to meet the obligations currently imposed 
upon it by the Federal Government, MSD will be forced to increase its 
user charge rate by approximately 7 percent per year for each of the 
next 15 years, assuming the problem can be solved with one billion 
dollars worth of design and construction. This would multiply the 
existing rate by nearly three fold (276 percent).
    Taking a more conservative view of how the pending SSO regulations 
might impact the utility, costs may rise to $3 billion for design and 
construction. That would result in rate increases of 21 percent per 
year for 15 years. This would multiply the current rates seventeen 
times (1,750 percent).
    It is important to note that MSD's ratepayers have been paying the 
full cost of service since 1968. Like nearly all major wastewater 
utilities, MSD is a stand-alone enterprise that does not receive 
subsidies from other governmental units via property tax contributions 
or payments whose source is a different taxing authority. Hamilton 
County ratepayers pay the true cost of wastewater collection and 
treatment in their quarterly bills.
    In 2000, MSD of Greater Cincinnati's rates were increased by 9.5 
percent. In 2001, Hamilton county enacted another MSD rate increase of 
seven percent. Hamilton County Commissioners are preparing to consider 
yet another 7 percent rate hike for the coming year.
    When the Commissioners find that they can no longer raise fees at 
this alarming rate, the U.S. EPA will begin imposing fines on Hamilton 
County for water quality rule violations. The monies which might have 
been spent improving environmental quality and protecting public health 
will go, instead, to the Treasury Department. We then can expect the 
U.S. Justice Department to intervene and initiate civil and criminal 
proceedings against local jurisdictions and officials for violations of 
the Clean Water Act. Without additional assistance, the enormous rate 
increases cited earlier will be imposed on city and county users. The 
magnitude of the increases is expected to cause economic distress in 
all sectors of the County. Especially hard hit will be lower income 
households. We also anticipate a loss of jobs and revenue as businesses 
flee to localities with lower rates. As the population shrinks, MSD 
will lose revenue, forcing rates even higher.
    It is a fact that the use of traditional user fees to fund capital 
improvements to replace aging infrastructure and meet additional 
treatment requirements will be severely constrained. MSD is just one of 
tens of thousands of cities, counties and towns that are facing a 
financial need of crisis-proportion. Every older Northeast and Midwest 
city has aging infrastructure and faces the challenge of eliminating 
CSOs and SSOs. Every major U.S. city, including those without combined 
sewers, are quantifying the size and costs of their rehabilitation 
needs.
                new efficiencies through competitiveness
    Public water and wastewater utilities have provided Americans with 
some of the best water service in the world. There is little 
disagreement that public investments in water and wastewater systems 
pay substantial dividends to the environment, public health, and the 
economy. However, the provision of water supply and wastewater 
treatment services is highly capital intensive, significantly outpacing 
telephone, gas and electric services. Local control of such an 
essential service as wastewater treatment is of great value to the 
Nation's consumers. So city and town mayors and councils have empowered 
water and wastewater managers to innovate and modernize utilities in 
order to deliver more efficient service. By reinventing ourselves 
through efficiency initiatives such as improved maintenance, better 
technology, and new labor-management partnerships, we have achieved 
efficiency gains at least as dramatic as anything offered by the 
private sector.
    Public utilities must be able to plan and optimize the maintenance 
and replacement cost cycles for their infrastructure assets in order to 
minimize costs and maximize performance. Added incentive for a shift to 
a more measured planning approach can be found in the June 1999 changes 
to financial accounting and reporting standards issued by the 
Governmental Accounting Standards Board for State and local governments 
(known as GASB 34). These sweeping changes require governments to soon 
begin reporting depreciation of their assets or to implement an asset 
management system. Under the standards, any asset management system 
utilized by a government must result in an up-to-date inventory of 
infrastructure assets, the undertaking of condition assessments of 
assets, the development of annual estimates of the funds necessary to 
maintain the assets and provide documentation that assets are being 
preserved.
    Implementation of asset management practices and programs at public 
water and wastewater utilities carries with it numerous benefits. The 
initiation of such a program serves to highlight the economic 
importance of infrastructure, to increase the recognition of the costs 
of infrastructure and enables a community to control and potentially 
reduce the costs of assets required to meet service objectives. Some 
estimates suggest that the potential exists for a 20 percent savings 
when the current capital investment approach is abandoned and an asset 
management approach is implemented. This 20 percent savings has been 
factored into WIN's estimates in both the Clean and Safe Water report 
and the new Water Infrastructure Now: Recommendations for Clean and 
Safe Water in the 21st Century (WINow) report.
            solving the problem through a fiscal partnership
    Elected officials, businesses, and residents of our nation's 
communities agree that local revenues are insufficient to address 
current and future problems. The financial impact of replacing the 
underground system of collection pipes and updating treatment systems 
with 100-year old components dating back to the early 1800s is 
staggering. Even though our wastewater infrastructure is ``out of 
sight,'' it no longer can stay ``out of mind.''
    Local utility managers have faced the growing pressure to plan for 
future needs for years. But only now is the water infrastructure crisis 
creeping into national consciousness. Why the delay? The size of the 
problem was not quantified earlier. We, and our predecessors, knew the 
cost would be large. As we began to individually quantify our needs, 
they were so enormous that very few of us were willing to discuss them 
in public, much less engage a national debate on how to fund such 
enormous needs.
    The challenge of closing the water infrastructure financing gap can 
be met, but not without a substantial and concerted effort by the 
Federal Government to join with local communities and consumers in a 
fiscal partnership. To bridge the investment gap, the Federal 
Government should meet localities halfway by authorizing an average of 
$11.5 billion per year in capitalization funds over the next 5 years. 
States would receive the funds and, in turn, offer grants and loans to 
local agencies. The WINow report, released last month, and endorsed by 
over 30 nationally-recognized organizations recommends that Congress 
pass and the President budget for and sign legislation that would:
     Create a long-term, sustainable, and reliable source of 
Federal funding for clean and safe water;
     Authorize capitalization of the next generation of State 
financing authorities to distribute funds in fiscally responsible and 
flexible ways, including grants, loans, loan subsidies, and credit 
assistance;
     Focus on critical ``core'' water and wastewater 
infrastructure needs and non-point source pollution;
     Streamline Federal administration of the funding program 
and encourage continuous improvement in program administration at both 
the Federal and State levels;
     Adequately finance strong State programs to implement the 
Clean Water Act and the Safe Drinking Water Act;
     Establish a new program for clean and safe water 
technology and management innovation to reduce infrastructure costs, 
prolong the life of America's water and wastewater assets and improve 
the productivity of utility enterprises; and
     Provide expanded, targeted technical assistance to 
communities most in need.
    AMSA and other stakeholders recognize that no single solution 
addresses the full range of water and wastewater infrastructure funding 
needs. All levels of government and the private sector must share 
responsibility for effective, efficient, and fair solutions.
                               conclusion
    Although significant progress has been made in cleaning up the 
Nation's polluted waters over the past 30 years, much remains to be 
done. This debate is about preserving public health, environmental 
progress and the economic viability of our Nation's communities.
    This debate is also a financial one . . . about how to fund a new, 
comprehensive financing program for the 21st century that will allow 
State and local governments to address water and wastewater problems on 
a watershed basis. In an era of unprecedented Federal surpluses, we 
can't think of a better investment than the health of our citizens, the 
integrity of our environment and the economic well-being of our 
communities. We agree with President Bush . . . our citizens deserve a 
refund. It's time that some of our hard-earned Federal tax dollars--
just a small portion of the Federal surplus--be reinvested in the water 
and wastewater systems in our local communities.
    As part of AMSA's testimony, attached please find a list of 
commonly-asked questions and answers. Among other things, it provides 
the source of the needs figures presented in the WIN report, explains 
the differences between EPA's needs survey and the WIN report, 
addresses rates, grants and O&M costs. A copy of the WINow report also 
have been provided to you.
    We look forward to working with the subcommittee in finding 
solutions to our national water infrastructure crisis. Please call Ken 
Kirk at (202) 833-4653 if you have any questions.
                               __________
       Responses of Association of Metropolitan Sewerage Agencies
    Question 1. What is the source of the needs figures presented in 
the WIN report, Water Infrastructure Now: Recommendations for Clean and 
Safe Water in the 21st Century?
    Response. Water and wastewater funding needs figures in this report 
come from WIN's previous report, Clean and Safe Water for the 21st 
Century. Those figures came from the U.S. EPA, the U.S. Bureau of the 
Census, the American Water Works Association, the Association of 
Metropolitan Sewerage Agencies, and the Water Environment Federation. 
More detail is presented below:
    Historical capital and O&M Spending: U.S. Bureau of the Census\1\
---------------------------------------------------------------------------
    \1\ U.S. Department of Commerce, Bureau of the Census, Government 
Finances data series.
---------------------------------------------------------------------------
    Projected O&M Needs: trend-line projections of recent O&M spending 
patterns from the U.S. Bureau of the Census, reduced to assume that 
operating efficiencies of 20 percent are captured over a 10-year 
period.
    Projected Capital Needs: U.S. Environmental Protection Agency 
(water and wastewater needs surveys; Office of Water revised estimate 
of SSO needs), WIN's estimate of wastewater asset replacement, and 
AWWA's estimate of water asset replacement.
    For water supply, replacement costs are taken from a recent 
analysis undertaken by the American Water Works Association.\2\ This 
method uses a simulation model to project the future costs of replacing 
distribution systems at then-current costs.
---------------------------------------------------------------------------
    \2\ American Water Works Association, Infrastructure Needs for the 
Public Water Supply Sector, prepared by Stratus Consulting, December 
22, 1998.
---------------------------------------------------------------------------
    Wastewater assets were assumed to be replaced once they exceeded 
their useful lives. Historical data on municipal expenditures for 
wastewater capital facilities like treatment plants, collection 
systems, and pumping stations and other fixed assets like vehicles, 
machinery, and equipment were accumulated into annual values of total 
capital stock--essentially the value of the Nation's wastewater 
infrastructure. These estimates of capital stocks or capital ``assets'' 
were then depreciated by asset class, according to average lives within 
each class--50 years for sewers and collection systems, 25 years for 
treatment facilities, and 10 years for other assets (one 27-year 
depreciation period averaged across the mix of assets ``in the ground'' 
over the past several decades). Annual costs of replacement, then, is 
equal to annual values of depreciation. This method was originally 
developed by the U.S. Department of Commerce for a congressionally-
mandated infrastructure council in the 1980's.\3\
---------------------------------------------------------------------------
    \3\ U.S. Department of Commerce, Office of Economic Affairs, 
``Effects of Structural Change in the U.S. Economy on the Use of Public 
Works Services,'' September 1987, prepared for the National Council on 
Public Works Infrastructure.
---------------------------------------------------------------------------
    U.S. EPA Needs Survey estimates were reduced to avoid double 
counting associated with the cost of replacing water and wastewater 
assets as derived above.

    Question 2. Why are these numbers different than EPA's Needs 
Surveys?
    Response. EPA estimates needs pursuant to both the Clean Water Act 
and Safe Drinking Water Acts as the costs to local governments of 
meeting the objectives of the acts. Accordingly, EPA's needs estimates 
cover only the costs to comply with statutory and regulatory 
requirements, which principally derive from investments needed to 
comply with individual regulations governing the quality of effluent 
and biosolids under the Clean Water Act and drinking water purity under 
the Safe Drinking Water Act. Regulations pursuant to each act and 
administrative procedures governing the collection of needs estimates 
further restrict the definition of a ``need'' under the EPA Needs 
Surveys.
    WIN, on the other hand, took the perspective of the local providers 
of water and wastewater services, who have to make the investments 
captured under the EPA Needs Surveys plus other investments to deliver 
reliable and adequate quantities of services consistent with demands of 
people living within the areas they serve. From the local perspective, 
total capital outlays needed to stay in business and deliver expected 
levels of service exceed--sometimes dramatically--needs to remove X mg/
l of a single contaminant from a wastewater discharge. So, in addition 
to investments needed to meet eligible categories under the Clean Water 
Act and Safe Drinking Water Act, WIN's needs estimates included 
investments to replace aging and failing infrastructure. Local capital 
investment budgets must meet both types of investments.

    Question 3. Is there any evidence at the utility level that needs 
are higher than projected by EPA and that rates will, indeed double or 
more in the future?
    Response. Yes. Based on recent analyses of 18 water and two 
wastewater utilities, the American Water Works Association has 
demonstrated that asset replacement needs at these utilities tracks 
closely the order of magnitude differences between WIN's national 
estimate of total needs and EPA's estimates of needs to comply with the 
Clean Water and Safe Drinking Water Acts. To accommodate these future 
investments in infrastructure replacement, on average, these 20 water 
and wastewater systems will have to increase real investment by a 
factor of 2.5 between 2000 and 2020.

    Question 4. What purpose will these future infrastructure 
replacement investments serve?
    Response. Future replacement of water and wastewater infrastructure 
will serve these purposes: maintenance of service levels, protection of 
public health, and environmental improvement.

    Question 5. Why are future replacement costs for water and 
wastewater infrastructure so much higher than current costs?
    Response. By its nature, infrastructure wears out. In the water and 
sewer sectors, the major investments in infrastructure (pipes, plant, 
pumping stations, etc.) took place around the turn of the century, 
around World War I, and around World War II. In the 1970's and 1980's, 
the Nation invested heavily in new wastewater treatment plants and 
water supply treatment facilities. In many locations, the original 
investments in infrastructure are only now beginning to wear out and in 
some locations, infrastructure put in pace in each of these successive 
periods is all wearing out more or less, at the same time over the next 
10-30 years. As a nation, we have never faced the replacement of these 
infrastructure assets since the oldest pipes lasted 100-120 years.

    Question 6. Why will local water and wastewater rates double or 
more if all needs are met through local rates alone?
    Response. Much of the WIN report focuses on capital needs and the 
financing implications of meeting those needs, but trends indicate that 
over the next 20 years, all local water and wastewater costs will go 
up. These trends were documented in two recent reports, the first 
published by the Association of Metropolitan Sewerage Agencies (AMSA) 
and the Water Environment Federation (WEF)\4\, and the second by the 
U.S. EPA.\5\
---------------------------------------------------------------------------
    \4\ Association of Metropolitan Sewerage Agencies and the Water 
Environment Federation, The Cost of Clean: Meeting Water Quality 
Challenges in the New Millenium, 1999.
    \5\ U.S. Environmental Protection Agency, Office of Water, ``Gaps 
Analysis,'' 2001.
---------------------------------------------------------------------------
    If over the next 20 years, local water and wastewater rates 
increased sufficiently to cover projected increases in the cost of 
operations and maintenance, which historically has increased at about 6 
percent a year more than inflation, plus the cost of meeting projected 
capital needs over the same period, local water and wastewater rates 
would more than double (123 percent real increase over 20 years), on 
average nationwide.
    This estimate does not consider several trends that could increase 
local costs, and rates, even further, including new capital needs 
associated with meeting new Federal and/or State regulatory 
requirements, and increased O&M costs either from aging capital stock 
or increased levels of treatment.

    Question 7. What sort of rate increases will cities experience if 
WIN's proposed $57 billion Federal funding package is implemented?
    Response. Annual household water and wastewater bills would 
increase by an estimated 81 percent (in real dollars) between 2000 and 
2019 if half the future unmet capital needs were funded with Federal 
grants as opposed to local sources. If only half the Federal 
contribution to unmet needs is provided as grants and half as market-
rate loans, average annual household rates (in real dollars) will just 
double over the period. Since WIN recommends Federal funding as both 
grants and loans, with the final proportions of each to be determined 
by the states, the final effect on average household rates will be 
somewhere between these two figures, but closer to a 100 percent 
increase.

    Question 8. What is the Federal contribution to total local 
spending for water and wastewater today?
    Response. WIN calculates that the combination of Federal earmarked 
grants for water and wastewater plus the subsidy in below-market rate 
loans offered by federally capitalized water and wastewater SRFs 
accounts for roughly 10 percent of the total local spending on water 
and wastewater operations, maintenance, direct capital investment, and 
capital servicing (payments on local water and wastewater bonds and 
loans).
    Local O&M in 1996:\6\ $15.3 billion
---------------------------------------------------------------------------
    \6\ All figures from the U.S. Bureau of the Census and expressed in 
1997 dollars.
---------------------------------------------------------------------------
    Local Capital in 1996 (from own sources): $7.9 billion
    Federal Capital in 1996 (estimated): $2.5 billion
    Total Investment in 1996 (from all sources): $25.7

    Question 9. The WIN report assumed that local water and wastewater 
utilities currently finance capital improvements using a combination of 
25 percent cash and 75 percent bonds. Is this expected to change if the 
Federal program as recommended in the WIN report is implemented?
    Response. Yes. Assuming that the current mix of sources of local 
capital investment is indeed, 25 percent cash and 75 percent debt (this 
is an estimate in and of itself), the local share of total capital 
investment would shift marginally toward more debt if the WIN program 
goes forward. This is because the Federal contribution under the WIN 
recommendation would come in the form of additional capitalization of 
State water and wastewater infrastructure banks, which in turn, will 
make a large portion of these Federal capitalization grants available 
to local water and wastewater utilities as loans. On balance, this will 
increase total borrowing and increase the proportion of debt to cash 
used in local water and wastewater capital financing.

    Question 10. What would be the impact of no new Federal investment 
in water and wastewater infrastructure as WIN has recommended?
    Response. Without any additional Federal funding, it is unlikely 
that investment will be sufficient to meet projected capital needs in 
all water and wastewater systems across the nation. In relatively new 
systems, those that are large and growing, and those that serve 
relatively wealthy populations, rate revenue may well prove to be 
sufficient to meet all investment needs. Under those circumstances, 
rates will increase substantially, but in all likelihood, remain 
affordable.
    In small cities, rural areas, and cities with shrinking populations 
and/or local economies, real water and sewer rates would have to 
double, triple, or more to meet all needs. This seems unlikely, 
especially in low-income communities and in older urban core cities 
where populations have migrated to the suburbs, leaving fewer users to 
finance replacement of a fixed infrastructure base. Under these 
circumstances, it would be logical to expect declining service levels 
resulting in violations of State and Federal clean and safe water 
requirements and threats to public health, safety, and the environment. 
In turn, these effects will discourage commerce and community well-
being, leading to further population loss, reductions in economic 
output, and a general worsening of the physical and financial health of 
water and sewer systems. There would be little to reverse this downward 
spiral. Inevitably, pressure will be brought to bear on the Federal 
and/or State Governments for fiscal relief.
    In systems facing high regulatory requirements or replacement of 
the oldest water and sewer infrastructure, these types of effects would 
be felt within the next 5 to 10 years. Facing a revenue shortfall, 
water systems will defer maintenance, cut costs (if they can), and 
deplete reserve funds. These strategies can work only in the short 
term, since deferred maintenance results in earlier capital replacement 
needs, only so much operational cost-cutting is possible, and reserve 
funds typically cannot cover revenue shortfalls for more than a few 
years.

    Question 11. WIN recommends consolidation of existing water and 
wastewater SRFs into a single State Water and Wastewater Infrastructure 
Financing Authority, or WWIFA? What is the rationale behind this 
recommendation?
    Response. Currently, about 30 states manage their clean water and 
safe drinking water SRFs more or less as a single entity. The other 20 
states manage two separate SRFs. The concept of a single WWIFA follows 
the model of consolidated management of both types of investments--
those in clean water and those in safe drinking water. Consolidation of 
management offers two types of benefits: reduced overhead costs per 
dollar of infrastructure funded and increased public health and 
environmental protection per dollar of investment funded.
    With regard to reduced overhead, the Clean Water Act and Safe 
Drinking Water Act enable states to set aside 4 percent each of their 
Federal allocations to their clean water and safe drinking water SRFs. 
While there is little empirical evidence available, it is clear that a 
certain portion of any organization's cost base is fixed and the 
remainder is variable. If, say only 25 percent of the cost of 
administering an SRF is fixed, then consolidated management of a single 
WWIFA compared to two separate SRFs would free up 1 percent of total 
State clean and drinking water allocations for investment in 
infrastructure as opposed to administration. Under the WIN 
recommendation, the Nation would enjoy some $570 million in additional 
infrastructure through consolidated management of a single entity 
compared to two separate entities.
    In support of the latter observation, it is not difficult to 
imagine that upgrading an upstream wastewater treatment plant to 
produce higher quality effluent would result in reduced treatment needs 
in a downstream drinking water facility. Similarly, an investment in 
watershed protection upstream could improve ambient water quality 
conditions to the point of obviating a downstream investment in 
nutrient removal at a wastewater treatment plant. Coordinating these 
investments in the future becomes increasingly important to the extent 
that WWIFAS finance investments in non-point source controls.

    Question 12. WIN recommends that WWIFAs be given broad authorities 
drawn from those of both the current water and wastewater SRFs. Which 
authorities in particular are needed for WWIFAs?
    Response. The current drinking water SRF is generally considered to 
be more flexible than the clean water SRF. WWIFAs should have at least 
the provisions of the drinking water SRFs plus others, as outlined in 
the WIN report, to enable them to act as broadly enabled banks to the 
water and wastewater sector. Examples of such flexibility include: 
ability to provide financing to both public and private owners of water 
and wastewater utilities, ability to offer financing packages comprised 
of grants, loans, and loan subsidies to meet the financial capabilities 
of recipients and address critical public health and environmental 
concerns, and ability to extend loan terms to 30 years for both water 
and wastewater investments.
    In its report, WIN recommends specifically, that WWIFAs be required 
to provide between 25-50 percent of each years' Federal capitalization 
allotment as grants and 10-25 percent of each year's allotment as 
subsidized loans. These provisions will help ensure that the Nation 
meets its clean and safe water goals even in economically disadvantaged 
communities and in communities that face critical public health and/or 
environmental threats.

    Question 13. Doesn't WIN's recommendation for more grants undermine 
the revolving and leveraging attributes of today's Federal financing 
program?
    Response. Absolutely not. In fact, WIN's recommendations will 
accelerate the pool of funds available in perpetuity for additional 
revolving loans. Even if Congress required WWIFAs to set aside the 
maximum amount of WIN's recommended $57 billion financing package as 
grants, the amount going into revolving loans would nearly triple 
compared to today's program. This, in effect, will greatly increase the 
long-run capacity of WWIFAs to sustain their revolving loan programs 
compared to today's SRF programs.
    Currently the leveraging of Federal capitalization grants is a 
matter of State policy. WIN has made no recommendations as to the 
merits of leveraging in the future. Assuming, however, that the current 
rates of leveraging continue without change, WIN's recommended funding 
levels will result in nearly $18 billion in additional leveraged 
investment over the period 2003-2007, even if WWIFAs make the maximum 
recommended amount of assistance available to local utilities in the 
form of grants.

    Question 14. The WIN report incorporates a 20 percent reduction in 
operations and maintenance costs for both water and wastewater 
utilities over the next 10 years. What is the source of this estimate?
    Response. Several WIN members--specifically, the Association of 
Metropolitan Sewerage Agencies, the Association of Metropolitan Water 
Agencies, the Water Environment Federation, and the American Water 
Works Association--have been studying the competitiveness of public 
water and wastewater utilities in the United States since the mid-
1990s.\7\ Based on this work, WIN members have delivered more than 25 
workshops to more than 2,500 utility managers, representing more than 
150 public water and wastewater utilities across the U.S. Findings from 
these workshops indicate that between 20 and 25 percent of current O&M 
costs could be cut from existing public utility budgets by applying 
best management practices, reforming work processes, reorganizing 
management structures, and using technology.
---------------------------------------------------------------------------
    \7\ See, for example: Association of Metropolitan Sewerage Agencies 
and Association of Metropolitan Water Agencies, Thinking, Getting, and 
Staying Competitive: A Public Sector Handbook, 1998.
---------------------------------------------------------------------------
    Many public water and wastewater utilities have already cut 
operating costs by this much or more. In a recent publication, AMSA and 
AMWA document four such cases: Ft. Wayne, Indiana; Orange County Public 
Utilities, Florida; Colorado Springs, Colorado; and Houston Public 
Utilities, Texas.\8\
---------------------------------------------------------------------------
    \8\ See Thinking, Getting, and Staying Competitive: A Public Sector 
Handbook.
---------------------------------------------------------------------------
    In recent presentations to the Environmental Financial Advisory 
Board to the U.S. EPA, several consultants actively working in the 
field corroborated this estimate.\9\
---------------------------------------------------------------------------
    \9\ See presentations of Garret Westerhoff, Malcolm Pirnie, Inc., 
Alan Manning, EMA Services, Inc. and Kenneth Rubin, PA Consulting Inc., 
to EFAB, March 5, 2001, the National Press Club, Washington, D.C. 
(available through EFAB staff, George Ames, U.S. EPA).
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                                   Tucson Water Department,
                                        Tucson, AZ, March 24, 2001.
Members,
Committee on Environment and Public Works,
Subcommittee on Fisheries, Wildlife and Water,
U.S. Senate

Re: Water and Wastewater Infrastructure Needs

    Honorable Subcommittee Members: I am writing to express the city of 
Tucson's support for a substantial increase in Federal funding of water 
and wastewater infrastructure, as recommended by the Water 
Infrastructure Network's (WIN) recent report Recommendations for Clean 
and Safe Water in the 21st Century.
    The underlying research for the WIN report documents the national 
costs to replace aging and failing infrastructure and to meet mandates 
of the Clean Water Act and the Safe Drinking Water Act. The aging 
pipelines and systems throughout the United States present a burden 
that cannot reasonably be accommodated by local water and wastewater 
systems. Typically, utilities would pass infrastructure costs on to 
water and wastewater customers via increased rates. While this pay as 
you go funding has allowed utilities to get by, the level of 
reinvestment required now to replace aging infrastructure is so great 
that customers, alone, simply can't afford to pick up the entire tab.
    The Federal Government is uniquely qualified to address this issue. 
As indicated in the WIN report, increased Federal participation is 
justified and produces numerous benefits:
     Size of challenge warrants national attention.
     Local revenue-raising capacity is enhanced with Federal 
funding.
     Federal involvement increases public awareness of needs.
     Federal support is less influenced by regional economic 
swings.
     Innovative project financing mechanisms are available.
     Would result in a fair and equitable allocation of costs 
and revenues.
    Effective water and wastewater systems are crucial to the health 
and economic viability of every city and town, every state, and the 
Nation as a whole. The replacement of water and wastewater 
infrastructure should be as important to this country as the interstate 
highway, mass transportation, and airport systems that receive 
substantial Federal funding today.
    Tucson, AZ, while a relatively young sunbelt city that experienced 
most of its growth after World War II, will soon face the same 
infrastructure replacement issues as now faced by older communities. 
The figure below illustrates that Tucson's cost to replace existing 
water pipelines and facilities will soon double and triple over current 
expenditures, and will stay at that higher level into the foreseeable 
future.
    I urge you to expand the Federal role as proposed by the WIN 
report. If you have any questions about the infrastructure needs of 
cities such as Tucson, Arizona, please do not hesitate to contact me.
            Sincerely,
                                              David Modeer,
                                            Director, Tucson Water.
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                                   - 
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