    [Senate Hearing 107-954]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 107-954

                         WATER INVESTMENT ACT AND OTHER
                           WATER INFRASTRUCTURE BILLS

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

                                    HEARINGS

                                   BEFORE THE

                      SUBCOMMITTEE ON FISHERIES, WILDLIFE,
                                   AND WATER

                                    AND THE

                                  COMMITTEE ON
                          ENVIRONMENT AND PUBLIC WORKS
                              UNITED STATES SENATE

                          ONE HUNDRED SEVENTH CONGRESS

                                 SECOND SESSION

                                       ON

      S. 252, A BILL TO AMEND THE FEDERAL WATER POLLUTION CONTROL ACT TO
     AUTHORIZE APPROPRIATIONS FOR STATE WATER POLLUTION CONTROL REVOLVING
                         FUNDS, AND FOR OTHER PURPOSES

          S. 1961, A BILL TO IMPROVE THE FINANCIAL AND ENVIRONMENTAL
           SUSTAINABILITY OF THE WATER PROGRAMS OF THE UNITED STATES

                                    _________

                            FEBRUARY 26 AND 28, 2002

                                    _________

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

    83-686              U.S. GOVERNMENT PRINTING OFFICE
                                WASHINGTON : 2003
    ____________________________________________________________________________
    For Sale by the Superintendent of Documents, U.S. Government Printing Office
    Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512�091800
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                   COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS

                          one hundred seventh congress
                                 second session

                      JAMES M. JEFFORDS, Vermont, Chairman
    MAX BAUCUS, Montana                  BOB SMITH, New Hampshire
    HARRY REID, Nevada                   JOHN W. WARNER, Virginia
    BOB GRAHAM, Florida                  JAMES M. INHOFE, Oklahoma
    JOSEPH I. LIEBERMAN, Connecticut     CHRISTOPHER S. BOND, Missouri
    BARBARA BOXER, California            GEORGE V. VOINOVICH, Ohio
    RON WYDEN, Oregon                    MICHAEL D. CRAPO, Idaho
    THOMAS R. CARPER, Delaware           LINCOLN CHAFEE, Rhode Island
    HILLARY RODHAM CLINTON, New York     ARLEN SPECTER, Pennsylvania
    JON S. CORZINE, New Jersey           BEN NIGHTHORSE CAMPBELL, Colorado
                     Ken Connolly, Majority Staff Director
                     Dave Conover, Minority Staff Director
                                    ------

                 Subcommittee on Fisheries, Wildlife, and Water

                         BOB GRAHAM, Florida, Chairman
    MAX BAUCUS, Montana                  MICHAEL D. CRAPO, Idaho
    HARRY REID, Nevada                   CHRISTOPHER S. BOND, Missouri
    RON WYDEN, Oregon                    JOHN W. WARNER, Virginia
    HILLARY RODHAM CLINTON, New York     LINCOLN CHAFEE, Rhode Island
    JON S. CORZINE, New Jersey           BEN NIGHTHORSE CAMPBELL, Colorado

                                      (ii)

    ?

                                C O N T E N T S

                                  ----------
                                                                       Page

                               FEBRUARY 26, 2002
                               OPENING STATEMENTS

    Baucus, Hon. Max, U.S. Senator from the State of Montana.........    45
    Bond, Hon. Christopher S., U.S. Senator from the State of
      Missouri.......................................................     7
    Corzine, Hon. Jon S., U.S. Senator from the State of New Jersey..     7
    Crapo, Hon. Michael D., U.S. Senator from the State of Idaho.....     9
    Inhofe, Hon. James, U.S. Senator from the State of Oklahoma......    14
    Jeffords, Hon. James M., U.S. Senator from the State of Vermont..     1
    Smith, Hon. Bob, U.S. Senator from the State of New Hampshire....     4
    Voinovich, Hon. George V., U.S. Senator from the State of Ohio...    12

                                   WITNESSES

    Barron, Jim, president, Ronkin Construction, on behalf of the
      National Utility Contractors Association.......................    38
        Prepared statement...........................................   140
    Grumbles, Ben, Deputy Assistant Administrator for Water, U.S.
      Environmental Protection Agency, Office of Water...............    21
        Prepared statement...........................................    46
        Responses to additional questions from:
            Senator Baucus...........................................    67
            Senator Crapo............................................    67
            Senator Jeffords.........................................    53
            Senator Smith............................................    51
    Kukurin, Bill, president, Kukurin Contracting, Associated
      Builders and Contractors.......................................    36
        Prepared statement...........................................   136
        Responses to additional questions from Senator Smith.........   139
    Kyl, Hon. Jon, U.S. Senator from the State of Arizona............    18
        Prepared statement...........................................    19
    Moore, Joseph A., Alderman, City of Chicago, on behalf of the
      League of Cities...............................................    27
        Prepared statement...........................................    72
    Palmer, Douglas H., Mayor of Trenton, NJ, chairman, Urban Water
      Council, Conference of Mayors..................................    25
        Prepared statement...........................................    68
        Responses to additional questions from Senator Crapo.........    71
    Schwartz, Paul, National Policy Coordinator, Clean Water Action..    34
        Prepared statement...........................................   133
    Stoner, Nancy, director, Clean Water Project, Natural Resources
      Defense Council................................................    32
        Prepared statement...........................................    74
        Responses to additional questions from:
            Senator Crapo............................................    78
            Senator Smith............................................    80
            Senator Wyden............................................    81

                                     (iii)

    Yellig, Terry, building trades attorney, Sherman, Dunn, Cohen,
      Leifer & Yellig................................................    40
        Prepared statement...........................................   144

                              ADDITIONAL MATERIAL

    Excerpts from Stormwater Strategies, NRDC........................83-132
    Statements:
        American Society of Civil Engineers..........................   146
        Association of California Water Agencies.....................   150
    Texts of bills:
        S. 252, Clean Water Infrastructure Financing Act of 2001....204-212
        S. 1961, Water Investment Act of 2002.......................152-203
                                     ------

                               FEBRUARY 28, 2002
                               OPENING STATEMENTS

    Clinton, Hon. Hillary Rodhman, U.S. Senator from the State of New
      York...........................................................   217
    Crapo, Hon. Michael D., U.S. Senator from the State of Idaho.....   215
    Graham, Hon. Bob, U.S. Senator from the State of Florida.........   213
    Reid, Hon. Harry, U.S. Senator from the State of Nevada..........   216

                                   WITNESSES

    Archuleta, Ed, general manager, El Paso Water Utilities, on
      behalf of the Association of Metropolitan Water Agencies.......   228
    Chapman, Andrew M., president, Elizabethtown Water Company, on
      behalf of the National Association of Water Companies..........   226
        Prepared statement...........................................   250
    Hirsch, Robert Associate Director of Water, U.S. Geological
      Survey.........................................................   221
        Prepared statement...........................................   248
    Morrissey, Tom, president, Association of State and Interstate
      Water Pollution Control Administrations, and director,
      Connecticut Division of Planning and Standards.................   240
        Prepared statement...........................................   271
    Neukrug, Howard, director, Office of Watersheds, Philadelphia
      Water Department, on behalf of the American Water Works
      Association....................................................   233
        Prepared statement...........................................   266
    Pinault, Paul, executive director, Narragansett Bay Commission,
      on behalf of the Association of Metropolitan Sewerage Agencies.   229
        Prepared statement...........................................   257
    Ronnebaum, Elmer, general manager, Kansas Rural Water
      Association, on behalf of the National Rural Water Association.   231
        Prepared statement...........................................   261
    Rutherford, Jay L., P.E., director, Water Supply Division,
      Vermont Department of Environmental Conservation, on behalf of
      the Association of State Drinking Water Administrators.........   242
        Prepared statement...........................................   276
    Sarbanes, Hon. Paul S., U.S. Senator from the State of Maryland..   218
        Prepared statement...........................................   246

                              ADDITIONAL MATERIAL

    Statements:
        American Council of Engineering Companies....................   282
        Johnson, Jerry, general manager, District of Columbia Water
          and Sewer Authority on behalf of the Association of
          Metropolitan Water Agencies................................   254
        Nelson, Valerie I., Ph.D., Coalition for Alternative
          Wastewater Treatment.......................................   279
        Siems, Rodger, D., board of directors, Eastern Municipal
          Water District (EMWD)......................................   281

       WATER INVESTMENT ACT, S. 1961 AND OTHER WATER INFRASTRUCTURE BILLS

                                  ----------

                           TUESDAY, FEBRUARY 26, 2002

                                           U.S. Senate,
                     Committee on Environment and Public Works,
                                                        Washington, DC.
        The committee met, pursuant to notice, at 9:34 a.m. in room
    406, Senate Dirksen Building, the Hon. James M. Jeffords,
    (chairman of the committee) presiding.
        Present: Senators Jeffords, Smith, Bond, Crapo, Voinovich,
    Warner, Chafee, and Corzine.
        Also present: Senator Kyl.

    OPENING STATEMENT OF HON. JAMES M. JEFFORDS, U.S. SENATOR FROM
                          THE STATE OF VERMONT

        Senator Jeffords. This committee will come to order.
        Our hearing today will be a legislative hearing to examine
    five pieces of legislation involving water infrastructure. Our
    focus will be S. 1961, the Water Investment Act of 2002. Along
    with Senators Graham, Crapo, and Smith, I wrote this
    legislation to provide additional resources to States, tribes,
    and localities, to meet water infrastructure needs.
        This legislation seeks to move the state-of-the-art in
    water program management forward by increasing the flexibility
    offered to States in administering their water programs.
        The Water Investment Act ensures that the ``next
    generation'' of water quality issues receives the appropriate
    focus and institutionalizes financial management capacity into
    our nation's water systems. This legislation authorizes funding
    of over $20 billion over 5 years nationwide for clean water,
    and $15 billion over 5 years nationwide for safe drinking water
    projects.
        There is significant new flexibility attached to these
    funds. Many of the provisions already authorized in the Safe
    Drinking Water Act will allow an extension of loan terms and
    more favorable loan terms, including principle forgiveness for
    disadvantaged communities. In States such as my own State of
    Vermont, these types of provisions are critical, as small
    communities struggle to meet their water quality needs.
        There is financial accountability built into the Water
    Investment Act of 2002. We have included provisions for both
    the Clean Water Act and the Safe Drinking Water Act, that are
    designed to help water utilities better manage their capital
    investments, using asset management plans, rate structures that
    account for capital replacement costs, and other financial
    management techniques.
        We encourage utilities to seek innovative solutions by
    asking them to review options for consolidation, public/private
    partnerships, and low-impact technology before proceeding with
    a project.
        Whenever one mentions ``consolidation'', concerns are often
    raised about inadvertently providing incentives for excessive
    or uncontrolled growth. This legislation recognizes that
    concern, and includes a provision that specifically requires
    States to ensure that water projects are coordinated with local
    land use plans, regional transportation improvement and long-
    range transportation plans, and State regional and municipal
    watershed plans.
        As a package, this legislation will help ensure that your
    utilities seek the most efficient organizational structure to
    meet their water quality needs.
        I am also very pleased that the bill includes provisions
    ensuring that the next generation of water quality issues
    receives the appropriate focus.
        As I worked on this legislation, I became aware that there
    are opportunities to use low-impact technologies to solve water
    quality issues that may or may not be considered by States and
    localities, and they seek to solve water quality issues. In
    response, our bill includes several incentives for the use of
    nonstructural technologies.
        The use of nontraditional technologies is the focus of the
    Water Investment Act, to ensure that nonpoint pollution
    receives appropriate emphasis under the Clean Water Act. The
    modifications this bill makes to the priority listing
    requirements in the Clean Water Act ensure that nonprofit
    source projects will be a part of the equation when funding
    decisions are made at the State level.
        I want to thank Senator Graham for his leadership on this
    legislation, and Senators Crapo and Smith for their dedication
    to introducing a bipartisan package today, and their
    willingness to find a compromise when we needed one.
        I recognize this issue is of great importance to every
    Senator. I look forward to working with each of you to pass
    this important legislation that is so important to our nation's
    water quality and drinking water safety.
        [The prepared statement of Hon. James Jeffords follows:]

     Statement of Hon. Senator James Jeffords, U.S. Senator from the State
                                   of Vermont

        The committee will come to order. Our hearing today will be a
    legislative hearing to examine 5 pieces of legislation involving water
    infrastructure. Our focus will be S. 1961, the Water Investment Act of
    2002. Along with Senators Graham, Crapo, and Smith, I co-sponsored this
    legislation to provide additional resources to States, Tribes, and
    localities to meet water infrastructure needs. Simultaneously, it seeks
    to move the state-of-the-art in water program management forward by
    increasing the flexibility offered to States in administering their
    water programs, ensuring that ``next generation'' of water quality
    issues receive the appropriate focus, and institutionalizing financial
    management capacity into our nation's water systems.
        This legislation is critical to our nation's future. We tend to
    take clean water in our faucets and well-functioning, hidden sewage
    treatment systems for granted in this country. However, without
    vigilance, these luxuries can quickly disappear. The Water Investment
    Act of 2002 will help our communities be vigilant.
        This legislation authorizes funding of over $20 billion over 5
    years nationwide for clean water and $15 billion over 5 years
    nationwide for safe drinking water projects.
        There is significant new flexibility attached to these funds.
        Many of the provisions already authorized in the Safe Drinking
    Water Act which allow an extension of loan terms and more favorable
    loan terms (including principal forgiveness) for disadvantaged
    communities. In States such as my home State of Vermont, these types of
    provisions are critical as small communities struggle to meet water
    quality needs. There is financial accountability built into the Water
    Investment Act of 2002. We have included provisions for both the Clean
    Water Act and the Safe Drinking Water Act that are designed to help
    water utilities better manage their capital investments using asset
    management plans, rate structures that account for capital replacement
    costs, and other financial management techniques. We encourage
    utilities to seek innovative solutions by asking them to review options
    for consolidation, public-private partnerships, and low-impact
    technologies before proceeding with a project.
        Whenever one mentions ``consolidation'', concerns are often raised
    about inadvertently providing incentives for excessive or uncontrolled
    growth. This legislation recognizes that concern and includes a
    provision that specifically requires States to ensure that water
    projects are coordinated with local land use plans, regional
    transportation improvement and long-range transportation plans, and
    State, regional and municipal watershed plans. As a package, this
    legislation will help ensure that utilities seek the most efficient
    organizational structure to meet their water quality needs.
        I am also very pleased that the bill includes provisions ensuring
    that ``next generation'' of water quality issues receives the
    appropriate focus. As I worked on this legislation, I became aware that
    there are opportunities to use low-impact technologies to solve water
    quality issues that may or may not be considered by States and
    localities as they seek to solve water quality issues. In response, our
    bill includes several incentives for use of nonstructural technologies.
    We specifically state in the statute that these approaches are eligible
    to receive funding under the Clean Water Act State Revolving Fund and
    require that recipients of funds consider the use of low-impact
    technologies. In addition, we authorize a demonstration program at $20
    million per year over 5 years to promote innovations in technology and
    alternative approaches to water quality management and water supply.
    This program requires that a portion of the projects use low-impact
    development technologies.
        The use of nontraditional technologies is the focus in the Water
    Investment Act to ensure that nonpoint source pollution receives
    appropriate emphasis under the Clean Water Act. The modifications this
    bill makes to the priority listing requirements in the Clean Water Act
    ensure that nonpoint source projects will be a part of the equation
    when funding decisions are made at the State level. The bill also
    addresses eligibility issues. It clarifies that planning, design, and
    associated preconstruction costs are eligible for funds under the Clean
    Water Act and Safe Drinking Water Act State Revolving Funds as stand-
    alone items. This ensures that small communities who may not have the
    resources available to get a project ready to go on their own can
    receive assistance. Small communities will also benefit from a
    provision in the bill that allows privately owned wastewater facilities
    to access the Clean Water Act State Revolving Fund Already permitted
    under the Safe Drinking Water Act, this will allow small, privately
    owned wastewater systems such as those located in trailer parks, to
    obtain much-needed financial assistance.
        To ensure that both public and private small systems can actually
    develop the projects to solve problems, our legislation provides three
    main types of technical assistance for small communities. It authorizes
    $7 million per year over 5 years for technical assistance to small
    systems serving less than 3300 people located in a rural area. It
    reauthorizes the Small Public Water Systems Technology Assistance
    Centers for an additional $5 million per year over 5 years. Finally, it
    reauthorizes the Environmental Finance Centers for $1.5 million per
    year over 5 years.
        We have heard from many organizations that public participation in
    the execution of the State revolving loan funds needs to be increased.
    I hope that every individual interested in how water quality projects
    are selected and prioritized in their States takes full advantage of
    existing opportunities for public participation. Our legislation takes
    action to ensure that there is ample opportunity for public comment
    when developing project priority lists and intended use plans.
        I want to thank Senator Graham for his leadership on this
    legislation and Senators Crapo and Smith for their dedication to
    introducing a bi-partisan package today and their willingness to find a
    compromise when we needed one.
        I recognize that this issue is of great importance to every
    Senator, and I look forward to working with each of you to pass this
    important legislation that is so important to our nation's water
    quality and drinking water safety.

        Senator Jeffords. Senator Smith.

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

        Senator Smith. Thank you very much, Mr. Chairman, and thank
    you for working with us to introduce this legislation on a
    bipartisan basis.
        One of my top priorities, when I had the Chair, was to
    renew our commitment to our nation's water. I am pleased that
    you have continued to keep this a priority.
        This is particularly timely for my State in New Hampshire,
    because it is in the midst of its worst drought in 50 years. It
    is having a devastating impact on our water supply. One of the
    reservoirs in Bellamie, which provides water for a number of
    New Hampshire towns, is down over 50 percent. This bill will
    help to alleviate these problems, with new funding for water
    conservation, recycling, and reuse.
        The bill helps to alleviate these problems, and it will
    take steps to address potential water shortages in the future.
    It involves the U.S. Geological Survey. It requires them to
    provide information on water shortages, as well as planning
    models. That requires streamline procedures for local
    governments to work with Federal Agencies responsible for water
    resources. This would be helpful in the communities in New
    Hampshire, who are facing severe water shortages.
        These are also being compounded in a couple of communities
    by the great trend now in bottled water, where we are taking
    hundreds of millions of gallons of water out of the ground, and
    selling it all over the world without, in my view, proper
    precautions.
        But beyond the drought, the nation does face a terrible
    water infrastructure problem. So much of our nation's water
    infrastructure is aging and it is in desperate need of
    replacement.
        So coupled with that, and the cost burden that local
    communities face with the ever increasing State and Federal
    mandates, the problem is exasperating. This bill addresses
    these problems, and makes structural changes to ensure that we
    do avoid a national crisis now and in the future.
        I believe in limited Government, and when it comes to water
    infrastructure, I do not believe the primary responsibility of
    financing local water needs to lie with Federal Government. I
    am adamant, however, that the Federal Government should not
    place unfunded mandates on these communities.
        We recognize both of these principles, and I think this
    bill strikes a balance. Unfortunately, there will be some who
    will try to take away the compromise through amendment, which
    is always regrettable. But it authorizes $35 billion over the
    next 5 years in Federal contribution to water infrastructure,
    to help defray the cost of mandates placed on these
    communities. This basically is a return to the communities of
    their tax dollars to help them.
        When the Clean Water Act was amended by Congress in 1987,
    there was a debate which many of us will remember, that set up
    a revolving fund to provide a continued pool of money for water
    needs. But unfortunately, not everybody met their commitment to
    plan for those needs, and what was not to be Federal
    responsibility became a Federal necessity.
        So this bill makes certain that we do not go down that road
    again. The Federal Government will help to defray the cost of
    Federal mandates, but with the new money comes a new
    requirement that all utilities do a better job of managing
    their funds and plan for the future.
        It will be a tremendous help to many of the struggling
    communities in New Hampshire, as we extend the repayment period
    for loans to disadvantaged communities. It is my hope that we
    can move it through the committee, Mr. Chairman, and see it
    passed by the Senate in short order.
        I believe that if we keep to the deal and not load it down
    with ``poison pills,'' as I said before, we can move the bill
    quickly. Unfortunately, the poison pill that always comes up,
    and there is usually ample water, no pun intended here, to take
    the pill, and that is Davis-Bacon. So Bacon and water, and
    Bacon and Davis and water, do not go very well together, in my
    view.
        I think we need to understand that to take these issues
    which really are, in my view, not relevant to the case at hand,
    to the question at hand, and load them up, first of all, it is
    going to cost more, by adding the Davis-Bacon provisions; and
    it is going to increase it by probably 5 to 15 percent
    nationally, and it could be as much as 38 percent in rural
    areas like New Hampshire; and there are some other Senators
    here with States who have lots of rural areas.
        So many States, including my own, have long ago eliminated
    Davis-Bacon rules from their statute books, because they want
    to maximize their investment in clean water. We want the money
    to go to clean water, and not to increased labor costs that are
    not necessary. That is why it is so particularly outrageous to
    think that we may have to face these kinds of amendments.
        Big unions are beholding to prevailing wage legislation,
    because it supports their members, to the exclusion of other
    workers, unfortunately. But all Americans should be treated
    equally, and none should be held back the way they are by
    Davis-Bacon. Davis-Bacon laws preclude the hiring of helpers,
    for example, who not only perform much needed lower-skilled
    work, but free up more experienced workmen for the more
    difficult tasks.
        So the bill is a bipartisan product, which is a testament,
    I think, to the hard work of the Chairman and Senators on both
    sides. The amendments, however, unfortunately if they pass, are
    going to destroy that bipartisan compromise, and I hope it does
    not happen, Mr. Chairman. Thank you.
        [The prepared statement of Hon. Bob Smith follows:]

          Statement of Hon. Bob Smith, U.S. Senator from the State of
                                 New Hampshire

        Good Morning. I am pleased to be here to discuss our recently
    introduced bipartisan legislation: the Water Investment Act of 2002.
    When I became chairman of this committee in 1999, one of my top
    priorities was a renewed commitment to our nation's water systems. I am
    pleased that Senator Jeffords has continued to make this a priority.
        This bill is particularly timely, as New Hampshire is in the midst
    of our worst drought in 50 years, and it has had a devastating impact
    on our water supply. One of the reservoirs, Bellamy, which provides
    water for a number of New Hampshire's towns, is down over 50 percent.
    Our bill will help to alleviate these problems with new funding for
    water conservation, recycling and re-use projects.
        We also take steps to address potential future water shortages. We
    require the U.S. Geological Survey to provide information on water
    shortages, surpluses and planning models. We also require streamlined
    procedures for the local governments to work with Federal agencies
    responsible for water resources. This valuable information will be
    helpful to communities facing a severe water shortage like so many of
    those in New Hampshire. It will also help to minimize the threat of
    future droughts.
        Beyond the drought, the nation faces a potential water
    infrastructure crisis. So much of our nation's water infrastructure is
    aging and in desperate need of replacement. Coupled with the aging
    problem is the cost burden that local communities face in order to
    comply with ever increasing State and Federal clean water mandates.
        This bill addresses these problems and makes structural changes to
    ensure that we avoid a national crisis now and in the future. I am a
    strong advocate of limited government and when it comes to water
    infrastructure, I do not believe the primary responsibility of
    financing local water needs lies with the Federal Government.
        I am equally adamant, however, that the Federal Government
    shouldn't place unfunded mandates on our local communities. We
    recognize both of these principles and strike a responsible balance.
        The legislation authorizes $35 billion over the next 5 years in
    Federal contribution to the total water infrastructure need to help
    defray the cost of the mandates placed on communities. This is a
    substantial increase in Federal commitment, but not nearly as high as
    some would have preferred. Even so, this commitment does not come
    without additional responsibilities.
        When the Clean Water Act was amended by Congress in 1987, a debate
    I remember well, we set up a revolving fund to provide a continual pool
    of money for water needs. Unfortunately, not everyone met their
    commitment to plan for future needs and what was not to be Federal
    responsibility became a Federal necessity.
        This bill makes certain that we do not go down that road again.
        The Federal Government will help to defray the costs of Federal
    mandates, but with the new money comes a new requirement that all
    utilities do a better job of managing their funds and plan for future
    costs. We also make additional structural changes to the law both to
    address financial concerns and to help achieve improved management of
    these water systems.
        One such change to the Clean Water Act is to incorporate a Drinking
    Water Act provision that allows States to provide principal forgiveness
    on loans and extends the repayment period for loans to disadvantaged
    communities. It will be a tremendous help to many struggling
    communities in New Hampshire and across the country.
        It is my hope that we can move it through the committee process and
    see it passed by the Senate in short order. I believe that if we keep
    to this deal and not try and load it down with any poison pills, we can
    move this bill quickly.
        One such poison pill is Davis Bacon.
        According to GAO, Davis Bacon will increase by costs by 5-15
    percent nationally and perhaps by as much as 38 percent in rural States
    like New Hampshire. Many States, like New Hampshire have long ago
    eliminated Davis-Bacon-like rules from their State statute books,
    because they want to maximize their investment in clean water. Davis
    Bacon will result in less capital improvement and less safe drinking
    and clean water. We need to spend every penny we can to get safe
    drinking water, and the way to do that is this bill, without amendment.
        Big unions are beholden to prevailing wage legislation, because it
    supports their members to the exclusion of other workers. I believe all
    Americans should be treated equally and none should be held back the
    way they are by Davis-Bacon.
        Davis-Bacon laws preclude the hiring of ``helpers'' who not only
    perform much-needed lower skilled work, but free up more experienced
    workmen for the more difficult tasks.
        This bill is a bipartisan product, which is a testament to the hard
    work of the Chairman and Senators on both sides of the isle. It is my
    hope that we can move a clean bill--one that will move through the
    process quickly and one that I can continue to support.

        Senator Jeffords. Thank you.
        Senator Corzine.

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

        Senator Corzine. Thank you, Mr. Chairman. I, like my
    colleagues, commend you for holding the hearing here. This
    focus on water infrastructure proposals is important to the
    State of New Jersey and, I think, the nation, as most issues we
    address.
        Before I begin, I want to say how pleased I am that Mayor
    Doug Palmer from Trenton, NJ will be testifying on one of the
    panels today for the Conference of Mayors. He is one of the
    bright lights of New Jersey, and truly familiar with all of
    these various issues, and a terrific leader. I welcome Mayor
    Palmer.
        Mr. Chairman, like other urbanized States, New Jersey faces
    all these issues that you and the ranking member have talked
    about: aging infrastructure, urban run-off, combined sewer
    overflows. I would say that the problems are exacerbated also
    by this growing crisis with regard to drought on the East
    Coast.
        That said, New Jersey has done a good job in meeting a lot
    of these challenges. I think our current EPA Administrator has
    led the way in trying to address many of these issues, but
    there is a lot more to do.
        One of the things about S. 1961 that I am particularly
    pleased about is the increase in authorization. The demand in
    our State to address many of these issues, both in clean water
    and drinking water safety, are real. I visited a number of
    places where the demands are high, and we need to push forward
    on it. So I congratulate everyone for working to increase these
    authorization levels, which I think at today's point are far,
    far too small.
        I will respectfully argue that the amendment that the
    ranking member talked about is one of those things that I think
    we are going to have to have debate about, because it is an
    issue that I think is important for making sure that we have
    high quality efforts with regard to how projects are executed.
    I think it is important that we maintain these common
    standards. So I, for one, understand or least appreciate the
    argument, but will be supportive of Davis-Bacon type
    amendments.
        I look forward to a good healthy debate on that, but moving
    forward with a bipartisan element with respect to the clean
    water activities. Thank you.
        Senator Jeffords. 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.
        I commend you, Senator Smith, Senator Graham, and Senator
    Crapo for your hard work in putting this bipartisan proposal
    together. It sounds like we have a little friction building up.
    I could certain agree with my colleague from New Jersey that we
    ought to maintain high standards. There is no question about
    that; but how that translates into a need for Davis-Bacon, I am
    afraid we are going to have to have that battle.
        I hope that we could stay on the environmental side of it,
    to show that we can work together. Because I happen to believe,
    from my work in my environmental area, that one of the things
    that is the most important is to make sure we have clean water,
    that we have safe drinking water, that we cleanup our waste
    water.
        I have been in small communities in too many areas in
    Missouri, where the systems have broken down. I believe any
    public health official will tell you that that is a real and
    present danger.
        There is a lot of talk about environment and the people who
    get out and talk about the environment; and then there are
    people who do the really tough, dirty work down in the
    trenches, who are maintaining the water systems. These are the
    true environmentalists. When you look at the total number of
    projects that are needed, it is huge.
        Then in small communities, as well as large, 84 percent of
    the Safe Drinking Water Act violations in 2001 were in systems
    serving fewer than 3,300 customers. You know, just because you
    live in a small community does not mean you ought to have to
    drink impure water.
        In Missouri, we have a community like Pickering, in
    northwest Missouri, that the waste water treatments works would
    be ridiculously expensive. They frankly cannot afford to pay
    for it, but we need to help.
        We have medium-sized communities like Lebanon, MO, where
    they struggle with problems with sanitary sewer overflows. Even
    though they tripled the water rates, they still could not get
    it done. We have a lot of problems in our big cities like St.
    Louis, which has a myriad of problems.
        We do need to have a good bipartisan bill. Certainly, I
    support the higher authorization levels, although I would
    remind my colleagues that what we do here, we can authorize all
    day long.
        We have a little problem. Senator Mikulski and I have been
    working on that problem, as long as we have worked together on
    the VA/HUD Independent Agencies Committee, to try to get our
    602(b) to where they can justify what we ought to be putting
    into the State revolving funds.
        There is somebody in OMB who must not like to drink water;
    because every year, in the past Administration and in the
    previous Administration, they make the politically outrageous,
    but I suppose appealing, statement of cutting the State
    revolving funds.
        It is like, you know, State revolving funds do not matter,
    so they just cut them. They think they would rather put in some
    fancy pet projects for the Administration. I will tell you,
    every time they do that, we go to bat. There is nothing like
    having Senator Mikulski, when you go after it. We have cut the
    pet projects and put it back in the State revolving funds.
        I support the higher authorization levels. I am going to
    need the help of everybody on this committee to try to get the
    funds available. Maybe one of these days, OMB could come and
    tell us why they do not like State revolving funds; why they do
    not think clean water and safe drinking water is appropriate.
        So we have a lot of battles. I am concerned about the
    application of the funding system. We need to work on nonpoint
    source pollution problems. We will work with you on that. I am
    delighted to support these authorization levels, and look
    forward to working with my colleagues on this committee to make
    sure that dollars are available to meet the implied promise of
    the authorization levels.
        [The prepared statement of Hon. Christopher S. Bond
    follows:]

      Statement of Hon. Christopher S. Bond, U.S. Senator from the State
                                  of Missouri

        Mr. Chairman, let me commend you, Senator Smith, Senator Graham and
    Senator Crapo for your hard work in developing this bipartisan proposal
    to increase funding for water infrastructure. The environmental debate
    today is far too polarized. This bill should serve as an example to
    those who care about the environment on what can happen when people
    come together.
        Every person, every family, every community in America depends on
    clean and safe water. America can be proud of all that we have
    accomplished to bring clean and safe water to so many of us.
        However, communities around the nation, and communities in
    Missouri, know that we need more funds to provide the water we need and
    deserve.
        A recent EPA report stated that 84 percent of Safe Drinking Water
    Act violations in 2001 were committed by systems serving fewer than
    3,300 customers. I doubt that many of these systems want anything other
    than clean water for their citizens. I imagine that most all lack the
    funds to provide the services they would like to provide.
        We have communities in Missouri like Pickering, in the northwestern
    Missouri, that are so small that they just plain can't afford
    wastewater treatment works. It's hard to tell the 150 residents and one
    business in Pickering that they should just raise their rates to build
    the clean water they need.
        Medium-sized communities like Lebanon, MO, in the southwest part of
    the State, struggle with problems like sanitary sewer overflows. They
    have tripled their water rates and they are still millions of dollars
    behind what they need for wastewater system they deserve.
        Then of course, large cities like St. Louis share many of the
    problems faced by old urban cities like those here on the East Coast
    and across the nation. I once heard that Philadelphia loses enough
    water from its pipes every day to supply all of New Orleans. I don't
    know how St. Louis and Kansas City would compare, but I believe we are
    right in there with everyone else.
        So it is good that we have a bipartisan bill before us to meet our
    overwhelming need for additional water spending.
        There are many positive measures in this bill. I support higher
    authorization levels. Although, I would remind my colleagues that our
    work will not be complete when we pass a reauthorization. We must also
    work to increase the money allocated for water needs in the
    appropriations process. Then we can make sure money is actually spent,
    and not just wished for.
        Measures to increase State flexibility and help disadvantaged
    communities are also positive. Although, we must make sure that we
    don't overload our States and applicants with too many new
    requirements. It doesn't make a lot of sense to give with one hand and
    take away with the other in the form of new mandates and requirements.
        I support efforts to broaden funding eligibility for nonpoint
    source problems. The farmers and communities of Missouri want to do
    their part to improve water quality, but they need the help and tools
    to do so.
        I am concerned with the proposed new formula for allocating money
    for the Clean Water SRF. I understand the desire expressed by many that
    the current system is outdated and unfair. A new system should be based
    on needs. I also understand the advantages of learning from the safe
    drinking water formula. However, early indications are that Missouri
    will suffer under the new formula. We will need to confirm that point
    and examine it in further detail.
        For now, thank you again Mr. Chairman, and my fellow members, and I
    look forward, for the sake of our communities and the environment, to
    working with all of you to make additional water funding a reality.

        Senator Jeffords. Senator Crapo.

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

        Senator Crapo. Thank you very much, Mr. Chairman, for
    calling this hearing today. To our witnesses, I want to say
    that I look forward to your insight on S. 1961, the Water
    Investment Act.
        You know, in terms of looking at the environment and the
    major issues of our nation, I think that the issues we deal
    with in this legislation are probably the single most
    significant environmental issue in America today. If not, they
    certainly compete for being among the most significant issues
    that we deal with.
        We are looking at not only improving and strengthening our
    effort at clean water, but also at safe drinking water around
    this nation, and a long-needed reform and strengthening of the
    system.
        As you know, when I first joined this committee as Chairman
    of the Fisheries, Wildlife, and Water Subcommittee, the late
    Senator John Chafee and I began a long process of assessing the
    performance of our water and waste water infrastructure
    statutes, and exploring needed improvements to addressing these
    outstanding problems. This process continued under his
    successor as chairman, Senator Smith.
        Over the past 3 years, I have convened many hearings and
    meetings with the stakeholders and Agency officials to debate
    how to address the problems of our communities with unmet water
    and waste water infrastructure needs.
        With the able partnership of yourself, Mr. Chairman,
    Senator Graham and Senator Smith, I am pleased that we have
    been able to culminate this work in S. 1961. As has been
    indicated here already, this is a very strong, bipartisan
    package, and we have had many, many hours of meetings together
    to try to resolve the various differences in approach on how to
    solve these issues. We have come up with remarkably a strong
    basis of common ground with which to move forward.
        Although we are likely to hear testimony on other bills
    pending before the committee, I want to confine my comments
    just to S. 1961.
        This legislation has several important provisions and
    goals, including modernizing State water pollution control
    revolving programs, and ensuring the allocation of funds that
    reflect the public health and water quality needs of our
    nation; streamlining State assistance programs for maximum
    efficient use of funds by States and communities; assisting
    disadvantaged communities, and enhancing the capacity of small
    systems to better service the public; and ensuring the enhanced
    Federal contributions to State assistance programs, as matched
    by appropriate accountability from those who are receiving the
    funds.
        These are strong guiding principles, and the ones that the
    committee should remember, as we advance this proposal through
    the legislative process.
        The needs of our nation's waste water and water
    infrastructure systems are enormous. Because Federal
    regulations drive the majority of the cost for communities, I
    think it is only appropriate for us to recognize that there is
    a strong Federal interest to help utilities and the public to
    address their needs. To help provide the Federal share, this
    bill authorizes a bold investment of $35 billion over 5 years,
    to invigorate State and revolving funds with the goal that
    these funds will be self-sustaining at the end of that
    investment period.
        The bill also aims to increase flexibility for States in
    managing their assistance programs to explore avenues, to
    reduce costs, to target resources to those most in need. It
    also embodies my commitment to assist rural areas in our most
    distressed communities with additional resources, and to help
    them serve the public.
        Although it is tempting to turn this legislation into a
    vehicle for individual proposals and controversial concepts, S.
    1961 represents the collaboration and hard work of many who
    recognize that the goal of assisting communities should be our
    guiding principle.
        If this important bill is to become law, controversial
    issues should be put aside for another time. I am not just
    referring to the one that was brought up already in this
    hearing. There are going to be, I believe, a number of
    controversial issues that could be problems for moving this
    legislation expeditiously.
        Too many communities are waiting for the assistance this
    bill will provide to see legislation brought down by other
    difficult proposals.
        With that, Mr. Chairman, I want to once again welcome our
    witnesses from all the panels. Your comments have been helpful
    throughout this process, and I look forward to your insights on
    S. 1961. Thank you.
        [The prepared statement of Hon. Mike Crapo follows:]

         Statement of Mike Crapo, U.S. Senator from the State of Idaho

        Mr. Chairman, thank you for calling together this hearing. To our
    witnesses here today and on Thursday, I look forward to your insights
    on S. 1961, the Water Investment Act.
        As you know, when I joined this committee as Chairman of the
    Fisheries, Wildlife, and Water Subcommittee, then-Chairman, the late
    Senator John Chafee and I began a long process of assessing the
    performance of our water and wastewater infrastructure statutes and
    exploring needed improvements to address outstanding problems. This
    process continued under his successor as Chairman, Senator Smith. Over
    the past 3 years, I have convened many hearings and meetings with the
    stakeholders and agency officials to debate how to address the problems
    of communities with unmet water and wastewater infrastructure needs.
    With the able partnership of Chairman Jeffords and Senator Graham, I am
    pleased that we have been able to culminate this work into S. 1961.
        Although we are likely to hear testimony on other bills pending
    before the committee, I would like to confine my comments to S. 1961.
    This legislation has several important provisions and goals including:
         modernizing State water pollution control revolving
    programs and ensuring the allocation of funds reflects public health
    and water quality needs
         streamlining State assistance programs for maximum
    efficient use of funds by States and communities
         assisting disadvantaged communities and enhancing the
    capacity of smaller systems to better serve the public
         ensuring the enhanced Federal contributions to State
    assistance programs is matched by appropriate accountability by those
    who receive funding
        These are strong guiding principles and ones that the committee
    should remember as we advance this proposal through the legislative
    process.
        The needs of our nation's water and wastewater infrastructure
    systems are enormous. Because Federal regulations drive the majority of
    costs for communities, it is appropriate for us to recognize there is a
    Federal interest to help utilities and the public address their needs.
    To help provide the Federal share, this bill authorizes a bold
    investment of $35 billion over 5 years to reinvigorate State revolving
    funds with the goal that these funds will be self-sustaining at the end
    of the investment period.
        The bill also aims to increase flexibility for States in managing
    their assistance programs, explore avenues to reduce costs, and target
    resources to those most in need. It also embodies my commitment to
    assist rural areas and our most distressed communities with additional
    resources to help them serve the public.
        Although it is tempting to turn this legislation into a vehicle for
    individual proposals and controversial concepts, S. 1961 represents the
    collaboration and hard work of many who recognize the goal of assisting
    communities should be our guiding principle. If this important bill is
    to become law, controversial items are best put aside for another time.
    Too many communities are waiting for the assistance this bill will
    provide to see the legislation brought down by difficult proposals.
        With that, I want to once again welcome our witnesses for all our
    panels. Your comments have been helpful throughout this process and I
    look forward to your insights on S. 1961.
        Thank you Mr. Chairman.

        Senator Jeffords. Senator Voinovich.

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

        Senator Voinovich. Thank you, Mr. Chairman. I would like to
    commend you, Senators Graham, Crapo, and Smith for proposing
    this legislation that addresses the incredible unmet water
    infrastructure needs that we have in this country.
        It is all too clear to me that we are facing an
    environmental and public health crisis in the country when it
    comes to water infrastructure, and I am pleased that this
    committee has made it a priority to address this problem with
    the Water Investment Act and other needed measures.
        I think Senator Bond really made a point. We are here
    authorizing. You know, the last couple of years, we have had a
    bill before this committee, in terms of the revolving loan fund
    for sewers. We have not been able to get that done, because of
    the fact that there was a debate over Davis-Bacon.
        So it got nowhere, and I have been working with groups, to
    see if we cannot compromise this thing out. We ought to get
    into that and try and work it out. All of you ought to
    understand, if we do not work that out, the bill is not going
    to go anywhere. So that is No. 1.
        No. 2, even if we do authorize it, this issue has to be
    given a higher priority by the Administration and by this
    country. I think the reason why OMB does not pay any attention
    to it is, they figure that the cost of this stuff belongs in
    the local governments, and why should the Federal Government
    pick it up?
        Now we had a little bill, a $1.5 billion bill, that Senator
    Smith and I and a couple others put together and got through
    this committee, that would have made grants over a 2-year
    period. There was not a dime for it in the last budget. The
    last budget had, what, $1,350,000. In my State, we could use $7
    billion a year, to take care of the problem.
        So the fact is, you are all going to have your testimony
    today. We will listen to you. We will try and get a bill out of
    here, but there are some fundamental things that we need to
    face up to.
        One of them is to get the money to get it appropriated. We
    have now, you know, the war on terrorism abroad, at home,
    homeland security, and the rest of it, and all these things
    that have to be reconciled. I think that that is where we are
    going to have to talk about this. I think it gets back, Mr.
    Chairman, to the appropriators.
        You cannot do it all. You know, if we are going to do
    homeland security in our water systems, and we do not have safe
    drinking water and we do not have sewers, that is another
    threat to the people in their communities. It is a big threat.
        So somehow, some of this has to be reconciled. We cannot,
    at this stage of the game, say, well, it is all homeland
    security, and let us ignore the infrastructure problems that
    have been out there. The fact of the matter is that this
    Congress and this Administration have a responsibility in this
    area. We have foisted upon local communities enormous costs, in
    most cases, justifiable; but they are incapable of handling
    them, incapable.
        In my State, Senator Crapo and I had a hearing in Ohio,
    where there was a 100 increase in their water rates, in order
    to comply with these new mandates that are coming out. We have
    a role to play in helping to pay for this.
        So I am very happy to be here. I hope we can get this out
    today. I hope we can work out the Davis-Bacon thing, but the
    key is, we have to get this as a national priority, if we
    expect to get the job done. Thank you.
        [The prepared statement of Senator Voinovich follows:]

      Statement of Hon. George V. Voinovich, U.S. Senator from the State
                                    of Ohio

        Thank you, Mr. Chairman. I would first like to commend you and
    Senators Graham, Crapo, and Smith for proposing legislation that looks
    to address our nation's incredible unmet water infrastructure needs.
        It is all too clear to this Senator that we are facing an
    environmental and public health crisis in this country when it comes to
    water infrastructure, and I am very pleased that this committee has
    made it a priority to address this problem with the Water Investment
    Act and other needed measures.
        Since coming to the Senate, I have made it a goal of mine to
    address the hundreds of billions of dollars of unmet wastewater and
    drinking water needs across the country as indicated in the EPA's Clean
    Water and Safe Drinking Water needs surveys. Other independent groups,
    such as the Water Infrastructure Network have documented a $23 billion
    per year gap between infrastructure needs and current spending.
        Over the last 2 years, I have held a number of meetings with
    officials from Ohio municipalities and sewer districts to discuss their
    wastewater infrastructure concerns. In addition, Senator Crapo was kind
    enough to conduct a field hearing as Chairman of the Fisheries,
    Wildlife and Water Subcommittee in Columbus last April to discuss
    Ohio's wastewater infrastructure needs.
        Last year, I introduced the Clean Water Infrastructure Financing
    Act (S. 252) to reauthorize the highly successful, but
    undercapitalized, Clean Water State Revolving Loan Fund (SRF) program.
    S. 252, and its companion bill in the House, H.R. 668, have strong
    bipartisan support.
        Congress created the Clean Water SRF program in 1987 to replace the
    construction grants program of the Clean Water Act. Under the
    construction grants program, the Federal Government paid up to 75
    percent of the cost of a wastewater infrastructure project. Under this
    program, our country made a substantial amount of progress to clean our
    water. Since then, States and localities have used the Clean Water SRF
    loan program to help meet critical environmental infrastructure
    financing needs.
        However, as I indicated a moment ago, in many States, the need for
    public wastewater system improvements greatly exceeds typical Clean
    Water SRF funding levels. For instance, in fiscal year 2002, a level of
    $1.35 billion was appropriated for the Clean Water SRF program.
    However, in Ohio alone, about $7.4 billion in needs have been
    identified.
        The city of Akron, for example, has proposed a CSO Long-Term
    Control Plan that will cost more than $248 million to implement--nearly
    20 percent of the total SRF level appropriated in fiscal year 2002 for
    the entire nation. Without outside funding, Akron's sewer rates could
    more than double.
        In many instances, communities face having to increase rates--
    sometimes as much as 100 percent or more--in order to comply with a
    number of Federal requirements. Without outside help, many of these
    communities cannot respond to the needs of their citizens. Simply put,
    if the Federal Government mandates it, the Federal Government ought to
    help pay for it.
        Authorization for the Clean Water SRF expired at the end of fiscal
    year 1994, and the continued failure of Congress to reauthorize the
    program sends an implicit message that wastewater infrastructure is not
    a national priority. Well, Mr. Chairman, we cannot afford to continue
    to ignore our unmet needs, and I believe that reauthorizing the Clean
    Water SRF program should fit right into our homeland security agenda.
        My bill, the Clean Water Infrastructure Financing Act, would
    authorize a total of $15 billion over the next 5 years for the Clean
    Water SRF program. Additionally, my bill would provide technical and
    planning assistance for small systems, expand the typed of projects
    eligible for loan assistance, and offer financially distressed
    communities extended loan repayment periods and principal
    subsidization. The bill would also allow States to give priority
    consideration to financially distressed communities.
        Mr. Chairman, I am pleased that your bill, the Water Investment
    Act, includes the core elements of my Clean Water SRF reauthorization
    bill. As someone who has had a long-standing interest in water
    infrastructure issues, I would like to see this committee support
    legislation that would increase funding for our nation's water
    infrastructure needs, increases State and local community flexibility
    to use SRF funds, provide our small communities assistance in financing
    their water infrastructure needs, and offer financially distressed
    additional consideration and assistance.
        While the funding levels included in the proposed legislation is
    modest compared to what is needed to bridge the enormous water
    infrastructure funding gap, passage of legislation which increases the
    authorization levels for the Clean Water and Safe Drinking Water SRF
    programs would be a great step in the right direction.
        Even though the loans provided by the SRF programs can help many
    communities finance water infrastructure projects, even a low-interest
    or no-interest loan can be too expensive for some communities. That is
    why I have also been a strong supported of the 2-year, $1.5 billion Wet
    Weather Grants Program that Congress enacted in 2000. I worked last
    year to fully fund the first year of the program. Although Congress did
    not provide any funding to the program, I will continue to push for the
    necessary funding to keep this program viable.
        I would like to thank you, Mr. Chairman, for including the Clean
    Water Infrastructure Financing Act on today's agenda. I look forward to
    the testimony from this morning's witnesses, and I also look forward to
    working with you and Senators Graham, Crapo, and Smith as the committee
    moves forward with its important water infrastructure legislative
    agenda. Thank you.

        Senator Jeffords. Well, thank you.
        Senator Inhofe asked unanimous consent to place his
    statement in the record. Without objection, that is done.
        [The prepared statement of Senator Inhofe follows:]

    Statement of Hon. James Inhofe, U.S. Senator from the State of Oklahoma

        Mr. Chairman, thank you for calling this hearing to discuss the
    important issue of water infrastructure. I commend you and Senators
    Graham, Crapo, and Smith for the hard work that was done to introduce
    this bi-partisan bill. This bill is a step in the right direction
    toward the continued improvement of the water infrastructure of this
    nation. This is an important bill for the nation and is especially
    important for Oklahoma. This bill will be of tremendous benefit not
    only to our citizens, by providing safe drinking water, but also to the
    environment by the continued improvement of water quality.
        Both the Clean Water and Drinking Water Program are very popular
    with local communities seeking assistance for clean and drinking water
    projects. Both program provide ``lower'' than market rate loans to
    assist communities to come into compliance with the respective Federal
    acts. Extending and increasing the Federal contribution for these
    programs will allow States to better meet the financial demands placed
    on these funds.
        The Water Investment Act contains many positive measures including
    the higher authorization levels, an increase in the percentage of funds
    set aside for Indian programs, and the increased flexibility afforded
    the States to manage their water programs. The measures contained in
    this bill that provide additional help for disadvantaged and small
    communities are also sorely needed.
        A primary concern with extending and increasing the Federal amount
    is the availability of the required 20 percent State matching funds.
    For your reference, I have attached a copy of two tables that reflect
    how Oklahoma has generated matching funds for both the Clean Water and
    Drinking Water SRF programs. As you can see we have had to issue match
    notes to provide the required State matching funds for the more recent
    capitalization grants. [State funds equaling 20 percent of the Federal
    capitalization grant has to remain in the fund.] Currently, we are
    utilizing Fund interest and investment earnings as the primary source
    to re-pay these State match notes. Future debt for State match notes
    and lower investment and interest earnings will continue to increase
    the financial burden to our SRFs. Another concern is that this bill
    does not do enough to assist our larger communities, those that serve
    over 10,000 customers, in meeting the infrastructure needs of their
    aging water systems.
        Thank you again Mr. Chairman for calling this hearing. I look
    forward to working with my colleagues on this piece of legislation to
    invest in the water infrastructure of our nation.

                                                              State of Oklahoma.--Source of State Match Drinking Water State Revolving Fund
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              Federal Appropriated                                                                     Less Utilized Set-      Total Available for
                           Cap Grant                                 Amount             State Match Amount       Over Match Amount        Notes              asides                 Assistance
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    97....................................................              $17,561,900            $3,512,380.00                    $0.00          (1)            $5,444,189.00           $15,630,091.00
    98....................................................              $10,224,200            $2,044,840.00                    $0.00          (2)            $3,169,502.00            $9,099,538.00
    99....................................................              $10,716,000            $2,143,200.00                    $0.00          (3)            $2,786,160.00           $10,073,040.00
    2000..................................................              $11,137,000            $2,227,400.00                    $0.00          (4)            $1,781,920.00           $11,582,480.00
    2001..................................................              $11,183,000            $2,237,600.00                $1,000.00          (4)            $2,254,670.00           $11,165,930.00
    2002..................................................              $12,446,500            $2,489,300.00                    $0.00          (5)            $3,236,090.00           $11,699,710.00
                                                            .......................  .......................  .......................  ...........                    $0.00                    $0.00
                                                           -----------------------------------------------------------------------------------------------------------------------------------------
      ....................................................              $73,268,600           $14,654,720.00                $1,000.00                        $18,672,531.00           $69,250,789.00
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Notes:
    (1) $3,500,000 of State match from the Constitutional Reserve Fund and $12,380 transferred from OWRB grant account. 6/12/98, S.B. 965
    (2) $2,000,000 of State match appropriated by legislature and $44,840 transferred from OWRB grant account.
    (3) State match from the Oil Overcharge Fund
    (4) 2001 State match note paid from investment and interest earnings on DWSRF accounts and the Guymon Ketchum bond loans. $2,227,400 went toward matching the fiscal year 2000 cap grant and
      $2,237,600 toward the fiscal year 2001 grant State match.
    (5) Match has not been identified at this time. Currently being considered by Oklahoma Legislature

                                     ______

                                                               State of Oklahoma.--Source of State Match Clean Water State Revolving Fund
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                  Federal Appropriated                                                                               Less 4 Percent Admin.     Total Available for
                Federal Fiscal Year                      Amount             State Match Amount       Over Match Amount              Notes                    Amount                 Assistance
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    1988......................................               $9,278,000            $1,855,600.00                    $0.00                      (1)              $371,120.00           $10,762,480.00
    1989......................................               $7,597,400            $1,519,480.00                    $0.00                      (1)              $303,896.00            $8,812,984.00
    1990......................................               $7,862,000            $1,572,400.00                    $0.00                      (2)              $314,480.00            $9,119,920.00
    1991......................................              $16,580,619            $3,316,124.00                    $0.20                      (2)              $663,224.76           $19,233,518.24
    1992......................................              $15,697,737            $3,139,548.00                    $0.60                    (3,4)              $627,909.48           $18,209,375.52
    1993......................................              $15,528,546            $3,105,709.00                   -$0.20                      (3)              $621,141.84           $18,013,113.16
    1994......................................               $9,632,600            $1,926,520.00                    $0.00                      (5)              $385,304.00           $11,173,816.00
    1995......................................               $9,951,183            $1,990,237.00                    $0.40                      (6)              $398,047.32           $11,543,372.68
    1996......................................              $16,300,350            $3,260,069.00                   -$1.00                    (6,7)              $652,014.00           $18,908,405.00
    1997......................................               $4,986,100            $1,018,670.00               $21,450.00                      (7)              $199,444.00            $5,805,326.00
    1998......................................              $10,879,110            $2,184,466.94                $8,644.94                      (8)              $435,164.40           $12,628,412.54
    1999......................................              $10,880,001            $2,281,647.00              $105,646.80                      (9)              $435,200.04           $12,726,447.96
    2000......................................              $10,996,702            $2,282,330.94               $82,990.54                     (10)              $439,868.08           $12,839,164.86
    2001......................................              $10,746,747            $2,149,349.40            $2,154,818.89                     (11)              $429,869.88           $12,466,226.52
      ........................................             $156,917,095           $31,602,151.28            $2,373,551.17  .......................            $6,276,683.80          $182,242,562.48
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Notes
    (1) State match from the Statewide Water Development Fund, 07/30/88, H.B. 1571; 04/26/89, S.B. 51
    (2) State match from the Special Cash Fund, S.B. 144, 03/20/91
    (3) State match from the Constitutional Reserve Fund, 05/28/93, S.B. 390; 05/18/94, H.B. 2761
    (4) $200,000 in State match provided by Ute settlement--State of New Mexico and $47,501 in State match provided from OWRB grant account.
    (5) 1994 State Match provided by OWRB Note Series 1994. Note paid from moneys in the Debt Service Reserve Fund (the ``1985 Reserve Fund'') for the Board's 1985 Bonds.
    (6) 1996 Match note paid from investment and interest earnings on CWSRF accounts and the Guymon and Ketchum bond loans. $1,990,236 toward the fiscal year 95 cap grant State match and
      $2,018,545 toward the fiscal year 96 cap grant State match.
    (7) 1997 State match note paid from investment and interest earnings on CWSRF accounts and the Guymon and Ketchum bond loans. $1,241,524 went toward matching part of the fiscal year 96 cap
      grant and $1,018,670 toward the fiscal year 97 grant State match.
    (8) 1998 State match note paid from investment and interest earnings on CWSRF accounts and the Guymon and Ketchum bond loans.
    (9) 1999 State match note to be paid from investment and interest earnings on CWSRF accounts and the Guymon and Ketchum bond loans.
    (10) 2000 State match note to be paid from investment and interest earnings on CWSRF accounts and the Guymon and Ketchum bond loans.
    (11) 2001 State match note to be paid from investment and interest earnings on CWSRF accounts.

        Senator Jeffords. The time is now, Senator Kyl.
        [Laughter.]

      STATEMENT OF HON. JON KYL, A U.S. FROM THE STATE OF ARIZONA

        Senator Kyl. Thank you, Mr. Chairman, that was most
    instructive. Mr. Chairman, thank you for the opportunity to
    testify today.
        I will be very brief. I just want to testify about
    something in this bill that I think, if we are successful in
    getting it through, everybody can be very proud of, and it will
    certainly help me a great deal. I have in mind the provisions
    that rectify the unfairness with respect to the allocation
    formula for the Clean Water State Revolving Fund.
        Interestingly, in 1996, when the Safe Drinking Water Act
    was adopted, the funds from the Drinking Water Fund were
    allocated on the basis of a quadrennial infrastructure needs
    survey, which is conducted by the States under EPA's
    supervision and guidance.
        But that is not true for the much larger Clean Water Fund.
    As a result, in the Clean Water Fund, Arizona, which is the
    fastest growing State in the country, ranks 53d out of the 50
    States, 53. Now that is behind Guam, Puerto Rico, and the
    District of Columbia.
        Based upon the needs survey conducted by the States under
    EPA's supervision, Arizona would rank 16th. Obviously, Arizona
    is being shorted considerably, and there are other
    unfairnesses, as it is to Arizona, with some other States,
    especially fast growing States.
        I have just a couple of statistics here. Arizona receives
    .41 percent of the documented need, while other States with
    comparable population receive 2.4 percent of documented need,
    which is six times as great a percentage. In fact, some States
    receive as much as 17 percent. So I think everybody can agree
    that this is unfair.
        I would just take one State, Maryland, a State with roughly
    the same population as Arizona, and a similar need in the most
    recent survey. It receives almost four times the actual funding
    that Arizona receives.
        So we have some significant discrepancies. Fortunately,
    this bill would correct that. That is why I said, I think the
    committee can feel very good about its work in this area.
        Let me just mention, Senator Smith asked me, well, how did
    the formula get adopted this way? Nobody knows for sure, but we
    think we know the culprit. Back 15 years ago, on a conference
    committee who developed a formula, it was based on an earlier
    construction grant program, that bore no relationship to waste
    water infrastructure requirements. That is when the percentages
    were fixed. It has been that way ever since.
        Mr. Chairman, let me just mention two other quick things.
    There is in the legislation that Senator Graham has drafted, a
    proposal to fix this, as I said, but it has a very high minimum
    share of 1.1 percent. I would urge the committee to look at
    that. That will, itself, skew some of the results.
        For example, the State of Wyoming receives 17 percent of
    its total need each year. Based upon this minimum, in 3 years,
    Wyoming would pay for everything that it had to have build out,
    and there would not be anything left.
        The other thing that I want to say is that I hope EPA will
    step up to the plate here. For 15 years, it has been
    administering a fund, without ever really raising any
    questions, to my knowledge. We have written officials at EPA,
    and still have not gotten a response.
        I think EPA has a responsibility here, if it is really
    concerned about meeting the needs of the country, to help
    revise this formula, to be supportive of it, and I hope that
    EPA will support the committee in its effort to make this fair.
        Let me thank you, again, Mr. Chairman, and also staff, and
    my personal thanks especially to Michele Nellenbach and
    Catherine Cyr of the committee staff, for their assistance to
    my staff in working on this.
        I will be very happy to work with you as you move forward
    with this. Again, I thank you for seeing to it that a very big
    wrong is corrected, as a result of one of the provisions of
    this bill.
        Thank you again, Mr. Chairman.
        [The prepared statement of Senator Kyl follows:]

      Statement of Senator Jon Kyl, U.S. Senator from the State of Arizona

        Thank you, Mr. Chairman, for allowing me to participate in this
    important hearing. I would like to commend you for calling a hearing
    that addresses the allocation formula for the Clean Water State
    Revolving Fund. You and your staff, along with other committee members
    and staff, have been most open and helpful, allowing my staff to become
    involved in the work of the committee on this issue. I would like to
    extend my personal thanks to Michele Nellenbach and Catharine Cyr of
    the committee staff for their efforts on my behalf.
        Mr. Chairman, as you and the other members of this committee know,
    the reason I am here today is to address the gross inequity of the
    current allocation formula for the Clean Water State Revolving Fund.
    Mr. Chairman, I have worked throughout the past year to create dialog
    on this issue and encourage my colleagues to support a more equitable
    Clean Water Funding formula. I am pleased that the committee has
    addressed this issue in the Water Investment Act of 2002.
        As you know, this issue is important to my home State of Arizona.
    Arizona ranks 161 in the most recent needs survey. However, under the
    Revolving Fund's fixed allocations, Arizona ranks last among the 53
    States, territories and the District of Columbia in proportional share
    of need fulfilled. Arizona receives just 0.41 percent of documented
    need while other States with comparable population receive 2.4 percent
    of documented need, six times as great a percentage. Some States
    receive as much as 17 percent. I think we would all agree such a system
    of allocations is unfair.
        Addressing this inequity is of critical importance to the State of
    Arizona. I am here today to urge my colleagues to lend their support to
    adopting a needs-based approach for allocations under the Clean Water
    Revolving Fund that addresses inequities like those I have just
    highlighted.
        The State Revolving Fund is crucial in ensuring States have the
    fiscal resources to address the most critical shortcomings in
    wastewater infrastructure. However, the State of Arizona, along with
    many others, including Florida, California, Virginia, and others, do
    not receive a fair share of the funds authorized and appropriated by
    Congress each year. This is not the fault of the EPA. The EPA allocates
    the funds among the States according to the formula that was set forth
    in the Clean Water Act in 1987. And that, Mr. Chairman, is the source
    of the inequity.
        The formula created by Congress was developed behind closed doors,
    during the conference for the Clean Water Act. The allocation
    percentages were based on an earlier construction grant program that
    bore no relationship to the wastewater infrastructure requirements, and
    the percentages were fixed. That is to say, once the Act was signed
    into law, each State would receive the same share of available funds in
    perpetuity, unless the Act itself were amended. As you know, we have
    yet to either amend or reauthorize the portion of the act pertaining to
    the faulty formula, and I applaud the committee for placing this issue
    on the legislative agenda.
        It is interesting to note that, when Congress enacted the 1996 Safe
    Drinking Water Act, we ensured that no such inequity would haunt the
    newly created Drinking Water State Revolving Fund. From its inception,
    the Drinking Water Fund was allocated on the basis of a quadrennial
    infrastructure needs survey conducted by the various States under EPA
    supervision and guidance. The survey involves the States in determining
    their own needs for drinking water infrastructure, to ensure compliance
    with EPA regulations. The EPA, in turn, validates the State submissions
    and compiles them in a report to Congress. The EPA then allocates
    Drinking Water Fund appropriations on the basis of each State's
    proportional share of the total need.
        There is a fundamental fairness associated with allocating the
    funds on the basis of the survey. The States themselves participate in
    the survey. The EPA has oversight, but in the end, valid needs are
    simply compiled into the aggregate, and the resulting shares determine
    Drinking Water Fund allocations among the States. Unfortunately, the
    same is not true for the much larger Clean Water Fund. A Clean Water
    Needs Survey is performed by the States and the EPA in fashion similar
    to the compilation of the Drinking Water Needs Survey. The Clean Water
    survey, however, has no impact on Clean Water Fund allocations. I
    believe, as I'm sure do most of my fair-minded colleagues, that it is
    time we take action to right this wrong. There is no reason for the
    Drinking Water Fund to be allocated fairly on the basis of actual need,
    while the Clean Water Fund is allocated on an arcane set of fixed
    percentages that were established before most of us were elected to
    Congress.
        I ask you if it is equitable for the State of Maryland, a State
    with roughly the same population as the State of Arizona, and similar
    need according to the most recent survey, to receive almost four times
    the actual funding? When looked at in terms of percentage of need
    funded, Maryland receives almost seven times what Arizona receives. Is
    that fair? No, it is not. And this is only one example.
        I have submitted to the committee two potential formula changes for
    the Clean Water Fund. I note that the draft legislation proposed by
    Senator Graham is similar to one of my proposals, except that Senator
    Graham's proposal includes a very high minimum share of 1.1 percent.
    The current fixed percentage Clean Water Fund formula also has a
    minimum share, of 0.4971 percent. While I support the Needs Survey
    basis of Senator Graham's proposal, I believe the 1.1 percent share is
    so high that it creates a different sort of inequity: creating a system
    that redistributes funds from those States with high levels of
    validated need to those with less need. In fact, at current levels of
    appropriations, and under the current minimum share of 0.4971 percent,
    the State of Wyoming receives 17 percent of its total need per year.
    With a 1.1 percent minimum share, Wyoming would receive one third of
    its total need per year, and would continue to receive the same amount
    after 3 years when, theoretically, all its need would have been met.
        Mr. Chairman I would ask the committee to reexamine this provision.
    I support a minimum share to ensure the smaller States receive some
    meaningful amount of funding for their needs. However, I believe the
    floor should not be set at a level that creates new inequities and
    perpetuates existing problems.
        My friends, it is simply an issue of fairness. Not even my
    colleagues from those States that stand to lose funding can argue
    against the fairness of a needs-based allocation formula. In fact, in
    the vote for my proposed amendment to the VA-HUD Appropriations Bill,
    Senators Allard and Feingold, both from States that would have lost
    funding under my proposal at the time, voted in favor of my amendment.
    There is a sense of fair play within the Senate. I urge the committee
    to capitalize on it and support legislation that will ensure the next
    budget we pass will allocate the Clean Water State Revolving Fund on a
    fair and equitable basis. I pledge my support to any reasonable
    legislation, including Senator Graham's proposal, that will create a
    needs-based allocation formula.
        Mr. Chairman, I call upon the Administration to exercise leadership
    on this important issue. For the EPA to have administered the revolving
    fund for 15 years despite gross discrepancies between the Agency's own
    assessment of needs and the formula allocations is simply wrong. The
    time has come for the Administration to support a formula change that
    takes account of the needs of every State. I would therefore ask the
    Administration to support this bill or a similar formula change.
        I thank you again, Mr. Chairman, for the opportunity to participate
    in this hearing. At this time I would like to ask one question of the
    Administration's witness.

        Senator Jeffords. Thank you, Senator.
        Are there any questions?
        [No response.]
        Senator Jeffords. I am going to keep on rolling. Somebody
    is going to replace me.
        Thank you very much for your testimony.
        Senator Kyl. Thank you, Mr. Chairman.
        Senator Jeffords. I would be interested in working with
    you. I understand, having been in Arizona, the problems are a
    little bit different than they are in Vermont. So I think we
    have to learn.
        Senator Kyl. You might be interested to know, and Senator
    Corzine spoke about the urban needs, but Arizona, I think,
    after Connecticut, is the most urbanized State in the country,
    in the sense that all the population is concentrated in a
    couple of big areas; but we also have some of the very poor
    rural issues, as well.
        So we are really very much like a lot of other States in
    the country. As I say, add that to the fast growth, and you can
    see why we would rank No. 16 in needs. We have to get the
    formula a lot closer to that than 53d.
        Senator Jeffords. Well, I will be interested in following
    that. In the future, too, maybe you can comment, just where are
    we in the ability of water in Colorado, and what does the
    future look like?
        Senator Kyl. Well, there are some issues. But year after
    year, the States of California, Nevada, and Arizona, have
    worked more closely together, to ensure that the limited supply
    of water is allocated according to the Supreme Court's rule,
    and California has been taking way more than its share, as
    everybody knows.
        California has committed to a 15-year program, or I think
    it is 15 years, to get that down to what it is supposed to
    take. Unfortunately, last year was the first year of the
    program, and they went way over, 100,000 and some feet over of
    what they were supposed to take; but we will get that resolved.
    The Upper Basin States have been very cooperative in that
    regard, as well, Mr. Chairman.
        Senator Jeffords. I do not want you to miss your vote.
        Senator Kyl. Thank you.
        Senator Jeffords. Thank you, it was an excellent statement.
        Our second panel is Ben Grumbles, Deputy Assistant
    Administrator for Water, U.S. Environmental Protection Agency,
    Office of Water. Thank you very much, and please proceed.

     STATEMENT OF BEN GRUMBLES, DEPUTY ASSISTANT ADMINISTRATOR FOR
      WATER, U.S. ENVIRONMENTAL PROTECTION AGENCY, OFFICE OF WATER

        Mr. Grumbles. Thank you, Mr. Chairman.
        First of all, I would like to extend my deepest regrets on
    behalf of Tracey Meehan, who is not able to be here today to
    testify on behalf of the Office of Water.
        My second point is that it is indeed an honor to be able to
    appear on behalf of the Administration to testify on S. 1961. I
    can only hope that my testimony will be received more favorably
    than what I used to say as a House staffer, when I would come
    over here to try to argue in support of House water projects.
    That is often a very tough sell in this room.
        It is an honor to be here, and to talk a little bit on some
    of the principles and the importance of clean water and
    drinking water in S. 1961.
        First of all, just a few of the principles and basics to
    keep in mind is the year of clean water, and the 30th
    anniversary of the Clean Water Act.
        There is a wide acknowledgment that there is, and the
    Senators have certainly talked about it, a tremendous funding
    gap. The basic principle is that to respond to that gap, it
    requires a partnership: Federal, State, local, private
    entities, all working together to respond to that gap. Second,
    through the partnership, there is a need to put more resources
    into water and waste water infrastructure. Third, we need to
    reduce the costs by ensuring more efficient and productive use
    of these resources, through locally tailored, fiscally
    sustainable management and technical approaches.
        Today, I will address some of the basic concepts and
    principles that we have, as we look to engage and to work
    constructively with the Congress and other stakeholders on the
    whole water and waste, water infrastructure issues. One is to
    recognize that there is a fundamental need for a strong
    partnership, public/private partnership.
        Another is to recognize that there needs to be
    encouragement and incentives for fiscal sustainability and
    improved management; whether it is asset management, with some
    of the other mechanisms, to really get at the gap, and to have
    a more cost-effective approach.
        Another important principle involves recognizing the
    importance of cost-based rates: water and sewer rates. Another
    is to encourage innovation, and that is done through a variety
    of mechanisms, but certainly through increased research and
    development of innovative technologies and more cost effective
    approaches to waste water and drinking water treatment.
        A couple other principles are encouraging conservation and
    re-use reclamation of water and waste water. Then a final one
    is to encourage watershed-based approaches.
        Certainly, for the Administrator, a high priority of hers,
    as included in the budget request for fiscal year 2003, is to
    encourage more watershed-based approaches, through targeted
    initiatives that bring together drinking water and waste water,
    and focus on environmentally important projects.
        Now if I could just turn briefly to S. 1961, I am pleased
    to be able to say that in many respects, the legislation is
    important and a strong step forward. It has many provisions in
    it that encourage fiscal sustainability and greater
    flexibility.
        As you might have imagined, however, with respect to the
    funding levels, the Administration cannot support the funding
    levels in the bill. They are not consistent with the overall
    priorities laid out in the budget.
        The Administration believes that we can have a constructive
    dialog, and focus on various ways to help meet the needs,
    recognizing the funding levels, and that needs to be addressed.
        There are many other aspects of the legislation that are
    important steps forward. In the interest of time and brevity, I
    will just summarize by saying that there are aspects of the
    bill that we have provided technical assistance on, and that we
    look forward to talking with you about.
        There are a lot of good things in the legislation to
    encourage fiscal sustainability. I think that is the keystone
    that we want to work with you on and focus on, while at the
    same time recognizing that there is a balance; and that the
    more provisions that are included, in terms of conditions on
    the loans, there is a greater recognition that we must keep in
    sight that if we add more requirements and conditions, that at
    some point, the utilities and the users will have a difficult
    process to go through in order to get the loans.
        So there is encouragement from our perspective, and we look
    forward to working with you and with the committee, and
    continuing this extremely important dialog on water and waste
    water infrastructure.
        Thank you, Mr. Chairman.
        Senator Jeffords. Thank you.
        Do you favor the approach in this bill in the allocation
    formula for the Clean Water State Revolving Fund, moving toward
    a needs-based approach, as in the Safe Drinking Water Act?
        Mr. Grumbles. Mr. Chairman, I think there are some
    excellent aspects to the way the allotment formula is
    contemplated in the legislation. I know that traditionally,
    certainly as a former staffer on a congressional committee, I
    know that the approach is to defer to Congress in coming up
    with the allotment formulas.
        I know that the model, the approach, that was used in the
    Safe Drinking Water Act amendments of 1996, has a lot of
    support among the various stakeholders. I certainly have heard,
    and I know that Administrator Whitman has heard, the message
    from others, including Senator Kyl, that as you do come up with
    an allotment formula, that needs has to be a significant part
    of that formula.
        Now there are other criteria that one may want to look at,
    such as the level of effort that States have provided. But
    certainly, I think we recognize that need is and should be an
    important component of an overall formula for allocation of the
    funds.
        Senator Warner. Mr. Chairman, I had a question.
        Senator Jeffords. Yes, Senator Warner.
        Senator Warner. I just visited a community in my State this
    week, which has been a beneficiary of this program. But in the
    last 15 years, it has lost the shoe industry, the textile
    industry, and the tobacco industry which touches it is
    diminishing. There is the peanut problem, and I could go on and
    on, and the furniture business.
        They are in gridlock. They want to comply, and without the
    benefit of these funds, I just do not know what this community
    would do. So I am a strong supporter of the bill, in its
    present form, and I do hope we can move along with this. But it
    is a life and death matter with a lot of communities; several
    of them in my State.
        Thank you, Mr. Chairman.
        Senator Jeffords. Thank you for that helpful remark.
        In your testimony, you say the following. ``A continuing
    population growth means that even increasing capacity at
    current levels of waste water treatment will not be enough to
    prevent water quality degradation, and the development
    pressures on unprotected drinking sources will increase.''
        But then you finish by saying, ``The President clearly
    defined his priorities in the State of the Union as defense and
    homeland security. As the increased spending called for in this
    bill is not consistent with those priorities, the
    Administration does not support the funding levels contained in
    S. 1961.''
        In summary, you agree there is a great need for water
    infrastructure funding. You recognize that at current levels,
    our nation will continue to pollute its waterways in an
    unacceptable level. But you conclude by saying, ``The President
    only supports increased funding for defense and homeland
    security.''
        We are talking about safe drinking water here. We are
    talking about clean, fishable, swimmable lakes, rivers, and
    streams. We are talking about protecting human health and the
    environment. Are you telling us that this no longer is a goal
    of President Bush? Are you indicating that clean water and safe
    drinking water are not priorities of this Administration?
        Mr. Grumbles. Thank you, Mr. Chairman.
        That is an important discussion to respond to and to engage
    in. I think very clearly, clean water and safe drinking water
    are priorities and important aspects of the Administration and
    the budget request. I think there are a couple of things that
    need to be mentioned.
        One is that the Administration does support the State
    revolving funds, but the Administration also recognizes that
    that is one tool, one aspect. The Administration recognizes
    that there is a large gap.
        I think like all of the people in this room, everyone knows
    that it is more than just a Federal funding issue. It is an
    issue about encouraging an approach that deals not just with
    the supply side, but the demand side, and looks at asset
    management, looks at privatization incentives, tries to
    encourage State and local partnerships, and encourages
    innovative technologies and approaches. The point is to try to
    have a more cost-effective and equitable approach. As the
    testimony points out, there are tremendous needs. There are
    growing populations. There is a need for some innovation.
        We very much look forward to engaging with the committee in
    a discussion over the Federal funding levels, and coming up
    with the best possible approach that recognizes that there are
    mandates, there are also affordability issues; but working
    through the State revolving funds, and exploring with a new
    look some of the more cost-effective and innovative approaches,
    such as asset management, that will make tremendous progress,
    as we face the challenges ahead.
        Senator Jeffords. Well, I look forward to further
    discussion on this, because I am just not quite sure how all of
    that comes about, without sufficient increases in funds.
        Anyway, they are holding the Senate up, and we cannot let
    them do that. So I will be back, hopefully.
        [Recess.]
        Senator Corzine [presiding]. The hearing will come to
    order.
        I think we will move to the third panel in this hearing:
    Mayor Doug Palmer from Trenton, NJ, and we are truly pleased he
    is here; Joseph A. Moore, Alderman from the city of Chicago.
        It is always nice to have my first opportunity to chair a
    hearing while someone from my home State, who I care about, is
    about to testify. Mayor Palmer, would you like to start off?

     STATEMENT OF DOUGLAS H. PALMER, MAYOR, TRENTON, NJ, CHAIRMAN,
               URBAN WATER COUNCIL, CONFERENCE OF MAYORS

        Mr. Palmer. Certainly, and it is good to see you, Senator.
    We are very proud of you in New Jersey, and it is good to be
    here with you.
        As was stated, my name is Douglas Palmer. I am the Mayor of
    Trenton, NJ, and the chair of the Conference of Mayors' Urban
    Water Council.
        The Conference of Mayors is a national nonpartisan
    organization, that represents more than 1,100 cities across the
    nation. We represent the largest water and waste water systems
    in the United States.
        Mr. Chairman, I would like to thank you and the other
    members of the committee for introducing S. 1961, the Water
    Reinvestment Act of 2002.
        I first would like to take a few minutes to discuss some
    key components of your bill, and to touch on a few of the
    Conference of Mayors and Urban Water Council priorities. Since
    I do not want to go over my allotted time, I also would like to
    submit my full testimony for the record.
        Senator Corzine. Without objection.
        Mr. Palmer. As you know, the issue of water and waste water
    infrastructure is critical to our nation and to our nation's
    cities. To maintain healthy and viable communities, we must
    make sure that our water and drinking water supply is clean and
    safe. As Mayors, we have recognized that there is not enough
    local, State, or Federal money available to satisfy all of the
    water infrastructure needs in the nation.
        The Urban Water Council was created to focus on these
    issues. Its purpose is to assist local governments in providing
    high quality water resources in a cost-effective manner.
        The bill you have introduced has many excellent components.
    First of all, we agree with the committee that the focus of
    this bill should be on water infrastructure investment, instead
    of a new set of water quality provisions.
        Local elected officials are engaged in trying to achieve
    water quality goals, but we need a chance like this to focus on
    achieving already specified targets, and not be redirected to
    new goals.
        The bill authorizes $20 billion between 2003 and 2007 for
    the SRF categories under the Federal Water Pollution Control
    Act, and $15 billion for the SRF categories under the Safe
    Drinking Water Act. These SRF authorizations are clearly not
    enough to subsidize the funding necessary to close the needs
    gap. A combined $35 billion boost over the next 5 years is also
    clearly much more than previous funding levels. For this, we
    are grateful to the Senate, and we support this approach.
        S. 1961 also incorporates some innovate concepts, two of
    which are deemed critical by the Conference of Mayors in
    creating the right conditions for successful achievement of
    water quality goals. First, the proposed Section 103 provision
    that would require a recipient of SRF funds to consider, among
    other things, forming public/private partners, or other
    cooperative partnerships, is a step in the right direction.
        It has been our experience, since the mid-1990's, that
    alternative approaches to planning, financing, and operating
    water and waste water projects can yield greater public
    benefits for the amount of money that is invested. While
    choosing a public/private partnership approach should not be
    prescriptive, it should be made possible for those cities that
    want to take advantage of such an approach.
        The Urban Water Council has prepared two reports, which are
    available on our web site, that describe over 40 public/private
    partnership projects that have realized savings. These
    partnerships were encouraged through changes in regulations
    under the Federal tax code to allow long-term loans, and with
    an Executive Order that modified the construction grant
    repayment provision.
        When Congress and the Administration provide the right
    types of financial incentives, local elected officials can
    establish public/private partnerships that benefit our citizens
    and the environment.
        The Conference of Mayors adopted a policy in 2001 to
    encourage competition in the different phases of new water and
    waste water infrastructure. This policy was adopted once it was
    determined that competition for both surface and sub-surface
    infrastructure projects need not be as costly as the
    traditional methods employed in the past.
        The Lynn, Massachusetts experience is an example of what
    can be achieved by using a competitive approach. I will not go
    into that because of time. But the second demonstration
    approach incorporated in the bill is demonstration projects for
    water quality enhancement and management.
        One of the most difficult problem we face as cities
    involves achieving State water quality objectives and total
    maximum daily loads, TMDLs, and the virtually unregulated
    nonsources, such as agricultural uses, that are usually outside
    of our jurisdictions.
        The demonstration project provision of S. 1961 can provide
    some appropriate financial incentives necessary to bring
    voluntary cooperative efforts to solve the water quality
    designation TMDL problem that we are facing. The Conference of
    Mayors supports this innovative approach. What is also needed,
    however, is a strategy that will go beyond demonstration
    projects to a long-term solution.
        We support the proposed requirement for recipients of an
    SRF loan to develop and submit asset management plans that
    specify how water and waste water facilities will be properly
    maintained over time.
        Asset management is critical to the preservation of
    infrastructure. We have a long history of experience with using
    asset management planning, and we would like to mention that
    formalizing such as a requirement as a condition of receiving
    SRF funding should be integrated into the loan program in a
    cautious way.
        The focus of our efforts at the local government level
    should remain principally with ensuring the proper treatment of
    drinking water and waste water for public health and local
    economy reasons.
        The asset management plan is important, but the current
    proposal on what is acceptable is not entirely clear. We would
    be happy to work with the committee to explore what an
    appropriate scope and details of an asset management plan
    should be.
        Just quickly about the bill, we believe the bill specifies
    that disadvantaged communities can receive SRF loans with a 30-
    year repayment term. Perhaps the most significant shortcoming
    of this bill proposal is the lack of a similar 30 years
    repayment term for other communities.
        Similarly, the bill does not contain any reference to
    removing private activity bonds used for water and waste water
    from the State volume caps. I understand fully that changing
    the tax code is not in the jurisdiction of this particular
    Senate committee.
        However, I would like to convey to this committee that one
    of the most fruitful financial incentives that Congress can
    provide for increasing aggregate water infrastructure
    investment is to make certain that the largely unfunded
    environmental mandates and environmental goals they impose on
    local government should not be impeded by a rigid and
    inflexible tax code.
        Finally, there is no mention in the bill of the imminent
    need for water systems to conduct security assessments and
    retrofit the proper anti-terrorist controls necessary to ensure
    the safety of our water supplies, and the physical integrity of
    our water infrastructure. We would be happy to work with the
    committee to recommend a provision to address this problem.
        In conclusion, on behalf of the Conference of Mayors and
    the Urban Water Council, I wish to thank you again for this
    opportunity to speak before this committee. We look forward to
    working with you, as you move forward on this very important
    piece of legislation.
        Thank you.
        Senator Corzine. Thank you, Mayor Palmer.
        Alderman Moore.

      STATEMENT OF JOSEPH A. MOORE, ALDERMAN, CITY OF CHICAGO, ON
                     BEHALF OF THE LEAGUE OF CITIES

        Mr. Moore. Thank you, Senator Corzine and members of the
    committee. I am Joe Moore. I am an Alderman from the city of
    Chicago, and chairman of the National League of Cities Energy,
    Environment, and Natural Resources Committee.
        I am here today to testify on behalf of the NLC and the
    18,000 cities we represent across the United States on Senate
    bill 1961, the Water Investment Act of 2002.
        I would like to commend Senator Crapo, as well as Senators
    Graham, Jeffords, and Smith, for recognizing a need for a
    Federal partnership to help finance the rehabilitation and
    replacement of our nation's aging water infrastructure. We
    deeply appreciate your willingness to commit $35 billion over
    the next 5 years to our waste water and drinking water
    infrastructure needs.
        There are a number of provisions in S. 1961 that NLC
    believes to be particularly helpful to cities and towns. Allow
    me to briefly highlight six of them: No. 1, the extension of
    the transferability provisions; No. 2, the revisions to the
    Clean Water Act State Revolving Fund allocation formula to
    reflect needs more closely; No. 3, the extended repayment
    period for loans from the State Revolving Funds. We recommend
    that these provisions be applicable to all loans, not just to
    those to small communities. No. 4, the addition of source water
    protection as an eligible activity for funding; No. 5, the
    inclusion of demonstration projects. We strongly urge you to
    add storm water as an appropriate category, as well; and No. 6,
    NLC supports the bill's provisions providing nonrefundable
    assistance to communities that do not meet the strict
    definition of a disadvantaged community.
        It is unclear, however, how this provision would be
    implemented, and we look forward to working with you to clarify
    this matter.
        There are two provisions which we believe should be added
    to the bill. First, NLC believes water infrastructure should be
    expressly highlighted as a principle and primary purpose of S.
    1961. While we recognize that the current statutes authorize
    the use of State revolving fund resources for infrastructure
    replacement and rehabilitation costs, the enormity of our
    nation's water infrastructure needs, and a number of the
    Senators referred to them today in their own States, mandates
    special attention in the bill.
        Second, we agree with the Conference of Mayors that water
    security be included as a necessary and legitimate use of State
    revolving funds, in light of the recent tragic events.
        There are some provisions in S. 1961 that we believe need
    further clarification or revision. We certainly understand and
    appreciate the Federal Government's legitimate desire to ensure
    that Federal dollars are spent wisely and prudently. There is
    no question about that. We are concerned, however, that too
    many mandates and conditions may discourage cities from
    applying for funds regardless of how pressing their needs are.
        With respect to the provisions on asset management and
    local rate structures, NLC would like to work with you to
    assure that all water system function effectively and
    efficiently to meet the needs of local residents. Again, we
    want to make sure that the mandates and the conditions are not
    to onerous.
        We are concerned about the penalties assessed if States
    fail to develop asset management strategies. Reducing Federal
    assistance to States penalizes the local governments in those
    States. We, again, would like to work with you to ensure an
    equitable solution to this problem.
        We are concerned about the provision that appears to either
    require or encourage public/private partnerships in the water
    business. Certainly, we support those when they work. However,
    the majority of large private water companies operating in the
    United States are foreign owned.
        We are now only beginning to understand the full impact of
    international trade agreements on the ability of local
    governments to regulate and operate local utilities, once they
    are under contract with a private partner.
        We ask that you fully understand the ramifications of
    public/private partnerships in the water business, in light of
    the trade agreements, before requiring or encouraging such
    activities in Federal law.
        Finally, we are unclear as to whether the consolidation
    provisions are a funding requirement. Some systems, such as
    Chicago's, already serve millions of customers, and further
    consolidation is either feasible or sensible.
        Furthermore, Federal requirements exist that actually
    impede consolidation. One example is Section 1926(b) of the
    Agriculture Act of 1961, which disallows absorption of any
    drinking system indebted to the Farmers Home Administration.
    Many of these systems are inefficient and marginally protective
    of public health. Yet, Federal law bars State and local efforts
    at consolidation in such areas.
        Thank you for the opportunity to testify for the National
    League of Cities, and for initiating the legislative process on
    Senate bill 1961. NCL looks forward to working with you to make
    this one of the most important and significant pieces of
    legislation enacted by this Congress. I look forward to
    responding to any questions you might have.
        Senator Corzine. Thank you.
        I am sure Senator Jeffords will be back and has a series of
    questions. So I will start, and then we will go to Senator
    Crapo, if that is OK.
        Let me ask, on some of the financing issues that were
    mentioned, Mayor Palmer, you talked about the 30-year repayment
    term for disadvantaged communities that you wanted to see
    extended to all communities.
        Then I would also like to hear how serious an imposition it
    is now that the private activity bond caps exist, and what kind
    of broader funding we would be able to get for water
    infrastructure projects, if we were able to deal with those
    volume caps. Is there a dam that is backing up actions that
    would work to create greater activity with the revolving funds
    if we removed those caps?
        So my question is on either one of those or both issues,
    and Alderman Moore, if you want to comment, I would appreciate
    it, as well.
        Mr. Palmer. Well, you know, the volume cap certainly could
    help if that were changed. There is no way really for
    municipalities to really finance clean drinking water, the
    Clean Drinking Water Act. I mean, we just do not have enough
    money. The only thing we can do is raise rates, which is
    totally unacceptable.
        As you know, there is a needs gap. One of the ways that it
    can be fixed is if we look at the volume caps of private
    activity bonds, and use that as a source of helping the private
    sector get involved in forming public/private partnerships, and
    moneys that can be used to help narrow that.
        Because there is no way, when we look at trillions of
    dollars over the next 10, 15, 20 years, in terms of making our
    water safe to drink and dealing with the standards that are out
    here; there are no real ways to do that, other than continuing
    to raise rates, which becomes prohibitive. We should look at
    ways in which you can life these caps, so that more private
    activity can be involved in the financing of these structures.
        Mr. Moore. In Chicago's case, on the basis of a
    recommendation from a consulting firm, we have put in the
    process of a rate increase of 4 percent every year for the next
    4 years. So we are undertaking steps to do what we can, to go
    back to rate payers to take care of our very pressing
    infrastructure needs.
        The problem is, however, that they are so great, and there
    are only so many times that you can, if you will, go back to
    the well and ask the rate payers to pay more. While we do not
    fall under the strict definition of a disadvantaged community,
    we have within the city of Chicago large portions of our city
    that are disadvantaged, where we have people of very low and
    fixed income, who simply would not be able to either directly,
    as homeowners, or indirectly, as renters, afford the rate
    increases that would be required in order to meet our
    infrastructure needs.
        Senator Corzine. Are you already in a situation where your
    rate increases are reviewed by State boards or other
    structures? Are you challenged on those rate hikes on a regular
    basis?
        Mr. Moore. No, no, we are not. I do not believe we are
    subject to any State review.
        Mr. Palmer. In New Jersey, before we can raise rates, we
    have to go in front of the Board of Public Utilities and state
    our case. In my city, and I am bragging now, we have one of the
    lowest rates in the State. But as the Alderman said, there are
    only so many times you can continue to go back to the rate
    payers, when basically, if you raise it too high, they are
    really choosing between paying their rent or their mortgage or
    their water bills. There are only so many time we can do that.
        Senator Corzine. So you would believe that, again, these
    volume caps would be one way to get greater authorization for
    these projects to be met, without rate increases.
        Mr. Palmer. Absolutely; it was scored, and I think it came
    out this week, at about $147 million, but that could be
    debatable. We had a little higher figure. But it is really a
    small price to pay in terms of investment in clean water.
        I mean, no one cares about water, as long as they can turn
    on the faucet and see it coming out, and it is not green or
    brown or something. But the moment it stops coming out, or it
    has a funny color or a funny odor, then people get concerned
    about it. We want to do things before it gets to that point.
        Senator Jeffords. I have one quick followup. Are both of
    you up against your volume caps on infrastructure water
    projects?
        Mr. Palmer. I am not certain, but I believe so.
        Mr. Moore. I am not certain of that either, but we would be
    happy to get back to you on that.
        Senator Jeffords [presiding]. Senator Crapo.
        Senator Crapo. Thank you very much, Mr. Chairman. I just
    have one question, but before I ask that, I want to thank both
    Mayor Palmer and Alderman Moore for your attendance here today,
    for your comments, and for your support of this very critical
    legislation.
        The question I have is that there are a number of concerns
    in the country about excessive and uncontrolled growth, urban
    sprawl, if you will, and those kinds of issues. The legislation
    seeks to assure that water projects are coordinated with local
    land use plans, regional transportation plans, and State and
    regional municipal watershed plans.
        I do not know if you have really focused on the legislation
    in that context; but my question is, do you see any
    difficulties with requiring that there be coordination with
    these types of land use plans or transportation plans, and if
    so, would you have any comment on that?
        Mr. Moore. I would certainly support that, as long as it is
    not too onerous. But we already do cooperate with other local
    governmental authorities. Personally, I believe we need to do
    more of that.
        There is much more of an emphasis now on a regional
    approach in northeastern Illinois and northwest Indiana, and an
    acknowledgement that we are all dependent on each other.
    Decisions that one municipality make have an impact on other
    municipalities. So certainly, Chicago does not need a
    legislative mandate to cooperate with its neighbors. But to the
    extent that cities in this nation do, I think it is a good
    thing.
        Mr. Palmer. I would agree with the Alderman. Now with
    sprawl and preserving open space, in New Jersey, where we have
    such little space as it is, and through our State plan, those
    collaborations are almost mandated, if I could say that. So
    that cooperation and coordination is necessary.
        Senator Crapo. Well, thank you, I suspected that, but I
    just wanted to be sure. Thank you very much.
        Senator Jeffords. Thank you, Senator.
        Mayor, as the Mayor of Trenton, NJ, you experience the
    effects of building water infrastructure on the grassroots
    level. In particular, urban sprawl caused by unplanned and
    uncoordinated growth can have a detrimental effect on the
    city's cost to the living and quality of life.
        For that reason, I included a provision in the Water
    Investment Act to ensure that the construction of water
    infrastructure is coordinated with land plans, watershed plans,
    and transportation plans. Do you believe that there is
    sufficient funding to stem urban sprawl that might follow newly
    constructed water infrastructure?
        Mr. Palmer. Yes, I believe so. I think that is very
    necessary in the legislation. As I stated before, in New
    Jersey, sprawl is a tremendous problem. Our suburban areas, of
    course, want to limit growth. Our urban areas want to increase
    growth, because that is where the infrastructure is. Using
    waste water sewer capacity is a way of basically expanding
    growth in areas where it is not wanted.
        I think that coordination has to continue to be there, and
    recognize that we all have to work together in a coordinated
    approach to limit sprawl, but also not prohibit growth, because
    properly planned growth is good. Uncontrolled growth and
    uncontrolled expansion of infrastructures without looking at
    what is there, in terms of transportation, schools, and open
    space could be a problem.
        Mr. Moore. Senator, I agree. I think that is a very key
    provision of this bill. Like New Jersey, we have had a serious
    problem with sprawl in northeastern Illinois. The amount of
    land growth that has occurred has far exceeded the population
    growth by many, many times, and we simply have to get a handle
    on that.
        So we have already begun a process of regional cooperation,
    of taking steps to begin to curb growth, and also to encourage
    Federal legislation that will help us to rebuild our city, and
    to rebuild the infrastructure within our city, so as to
    discourage the kind of unchecked urban sprawl that has
    occurred. Certainly, the provision you are referring to in S.
    1961 will be a helpful tool to enable us to stem unchecked
    growth.
        Senator Jeffords. I thank you both.
        Senator Chafee.
        Senator Chafee. Thank you, Mr. Chairman.
        I heard Senator Voinovich's earlier comments about where we
    are going to get the money, and I just concur that it is
    distressing to hear the testimony of how important this is. At
    the same time, I think it is going to be a tough year ahead of
    us, as we try and meet all the priorities. I appreciate and
    commend you for your testimony here today.
        Senator Jeffords. Thank you, Senator.
        Well, I thank you both. This has been a very helpful
    testimony.
        Mr. Moore. Thank you, we appreciate your sponsorship of
    this legislation, and look forward to working with you as we
    get it through Congress; thank you, Senator.
        Senator Jeffords. Don't worry, we will be in touch.
        We will now proceed to the fourth panel. The fourth panel
    consists of Nancy Stoner, director of the Clean Water Project,
    Natural Resources Defense Council; Paul Schwartz, national
    policy coordinator of the Clean Water Action; Bill Kukurin, of
    the Associated Builders and Contractors; Jim Barron, president,
    Ronkin Construction, testifying on behalf of the National
    Utility Contractors Association; and Mr. Terry Yellig, building
    trades attorney, Sherman, Dunn, Cohen, Leifer & Yellig,
    testifying on behalf of the International Union of Operating
    Engineers. We are pleased to have you all with us. Ms. Stoner,
    we are going to start with you, I guess, and work down the
    line, so go right ahead.

       STATEMENT OF NANCY STONER, DIRECTOR, CLEAN WATER PROJECT,
                   NATURAL RESOURCES DEFENSE COUNCIL

        Ms. Stoner. Good morning, Mr. Chairman and members of the
    committee. I am Nancy Stoner, director of the Clean Water
    Project at the Natural Resources Defense Council, and one of
    the co-chairs of the Clean Water Network, which is a coalition
    of more than 1,000 groups supporting clean water from across
    the nation. I present the testimony of behalf of both NRDC and
    the Clean Water Network this morning.
        Thank you for holding this timely hearing today on water
    infrastructure investment. As Ben Grumbles mentioned, this is
    the 30th anniversary of the Clean Water Act this year. This is
    a tremendous opportunity for the Congress to provide increased
    funding and essential improvements in these programs.
        The Federal Government's investment in waste water and
    drinking water treatment, over those 30 years, has brought
    tremendous progress in cleaning up our waterways. That
    progress, however, has been overtaken by water pollution
    resulting from urban storm water, agricultural run-off, and
    discharges of inadequately treated sewage from our
    deteriorating sewage systems.
        We need to step up our investment and spend smarter now, to
    continue to make progress in keeping the promise of the Clean
    Water Act for clean, safe, usable water for the next
    generation. I am pleased to hear that many members of the
    committee support those goals, and spoke in favor of them
    today.
        As an initial matter, we urge you not to use
    reauthorization of the Clean Water and Safe Drinking Water SRF
    as a vehicle for reconsidering clean water or safe drinking
    water protections. Developing a new paradigm for water
    infrastructure funding that will better meet the needs of our
    nation and provide greater environmental benefit for each
    dollar spent is a large enough task for the moment.
        We would like to see water infrastructure legislation
    achieve three major goals: substantially increased funding for
    State clean water and safe drinking water projects; spend that
    money on more cost effect and environmentally beneficial
    projects; improve public participation in the funding process;
    and increase State accountability for the expenditure of
    Federal funds.
        My written testimony describes each of these issues in
    depth. I request that I be able to submit that testimony for
    the record.
        Senator Jeffords. Without objection.
        Ms. Stone. We need to authorize substantially more SRF
    funds to close the gap between our water needs and available
    Federal funding. While there are differing estimates on the
    amount of additional funding needed, the need for greater
    investment in clean water and drinking water infrastructure is
    clear and undisputed. We commend the sponsors of the Water
    Investment Act of 2002 for supporting substantially increased
    funding over the next 5 years.
        We urge you to look ahead, and to authorize additional
    spending for at least the next 10 years, since we know now that
    we will continue to need vastly increased water infrastructure
    financing beyond 2007.
        The growing funding gap suggests not just the need for more
    funding, but also the need to begin to spend that funding more
    wisely, to obtain the greatest amount of environmental benefit
    per taxpayer dollar invested in water infrastructure. We should
    not merely rebuild our waste water systems, using the hard
    infrastructure technologies of the past.
        We must become smarter about stretching our Federal
    investment in water infrastructure, by spending more on green
    infrastructure, nonpoint and nonstructural solutions that are
    more efficient and more environmentally effective than
    traditional concrete and pipe solutions.
        I have brought with me today a poster to illustrate a
    number of those green infrastructure approaches. I would ask
    you to take a look at those. They include water re-use, the use
    of eco-roofs or roof gardens, stream buffers, rain gardens, and
    conservation designs.
        These can be used in communities across the country, and
    are being used in communities across the country, to save
    money, and to provide additional benefits, in addition to water
    quality, like wildlife habitat, enhanced drinking water
    supplies, smog reduction, thermal reduction. These techniques
    that mimic Mother Nature can provide tremendous benefits. We
    ask you to include additional incentives in the legislation for
    the use of green infrastructure.
        In particular, we urge you to provide a 10 percent new
    funding incentive for States that establish dedicated funds for
    nonstructure and nonpoint solutions.
        We support a number of other mechanisms to ensure that
    taxpayer dollars are spent on projects that will address the
    greatest environmental and fiscal needs, including requiring
    that clean water SRF funds be spent to address those projects
    identified by the State as its top priorities; prioritizing
    projects that meet the most significant public health and
    environmental needs and those that help disadvantaged
    communities; ending subsidies for sprawl development, which
    increases water pollution in the long run; and ending funding
    subsidies for entities that will not commit to comply with the
    law; and improve publicly available information about projects
    that taxpayer dollars are used to fund.
        As poll after poll has shown, Americans want clean, safe
    water, and are willing to invest more to get it. We applaud you
    for moving forward with legislation to address the public's
    demand for clean water. We urge you to ensure that the bill you
    pass will encourage the most cost-effective strategies to meet
    that demand.
        This year, on the 30th anniversary of the Clean Water Act,
    let us move ahead with legislation that will ensure clean and
    safe drinking water for years to come.
        Thank you for providing me with the opportunity to testify
    today. We have drafted specific language on each of these
    issues, and would like to work with you to address them.
        I would be happy to answer any questions that you may have.
        Senator Jeffords. Thank you very much.
        Next is Mr. Schwartz.

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

        Mr. Schwartz. Great, good morning, Mr. Chairman; good day,
    Senator Crapo, Senator Chafee, and the rest of the
    distinguished committee. I am Paul Schwartz, the national
    policy coordinator for Clean Water Action. We are a community-
    based national environmental group in 15 States with 700,000
    members.
        I also come here today representing the Campaign for Safe
    and Affordable Drinking Water, a coalition of over 300
    organizations, including not just environmental ones, but
    consumers, health care providers, and vulnerable populations
    groups such as the National Association of People with AIDS.
        As Nancy has touched on the clean water side of the ledger,
    I am going to be focusing more on the drinking piece. I want to
    make a couple of more general points. Last Thursday, White
    House spokesperson, Scott McClellan said, ``we can have
    economic growth and protect our environment.'' We think that
    this bill, S. 1961, is an example of just that type of blending
    that the Administration was alluding to.
        We think that it is really important that as we press our
    leadership in the war against terrorism, that we do not go AWOL
    in the war against environmental pollution. I appreciate your
    remarks on that count, Senator Crapo.
        The importance that we want to draw out here is a couple of
    things. We have talked a lot about environmental and public
    health issues. One issue that I want to talk about is jobs,
    which is not something that we normally talk about here.
        But for each billion dollars of additional investment that
    we actually appropriate and put out there over the next few
    years, it will generate somewhere between 35,000 and 50,000
    jobs at the local level across the country.
        So the additional authorizations that we have here in front
    of us represent somewhere between 700,000 and 1 million
    additional jobs nationally. We think that is important, too,
    for the security and health of our country.
        Getting back to the bill itself and to the environmental
    and public health issues, I think it is important to recognize,
    as many have, in talking about the mandates that are in front
    of us, that on the drinking water side, there are many pressing
    drinking water issues that are right in front of our face,
    including arsenic, cryptosporidium and other microbial risks,
    radioactive radon, and the groundwater rule.
        All of these are critical rulemakings that will be having
    an impact on the quality of our public health across the
    country, and are going to require additional dollars on the
    part of rate payers and tax payers at the local level, State
    matches, and we think, an ongoing and longer term set of
    Federal funds from the Federal Government.
        To that end, although we applaud the bold step that S. 1961
    takes in authorizing an increased injection of Federal fundings
    for a 5-year period, I would echo Nancy's call that we have a
    longer term solution to an ongoing commitment through a Clean
    Water Trust Fund, to help funnel Federal dollars to needy
    communities across the country for many of our critical
    infrastructure needs.
        We would suggest that this trust fund should, in part, be
    funded by a ``pollute or pays'' mechanism, that imposes a small
    fee on those vested interests whose pollution behavior creates
    the need for drinking water cleanup and other water cleanup and
    public health protection in the first place.
        In addition, we would echo the call for more of a focus on
    nonpoint source pollution control. We think that it is very
    important that 10 percent of the money on the clean water side
    gets set aside for nonpoint source control.
        Now since I'm focusing in on drinking water, I think it is
    fair to ask, why am I on the clean water side of the ledger?
    That is because the Safe Drinking Water Act really has no
    source water protection provision. So the Clean Water Act is
    its first line of defense.
        Last, but not least, we would speak out for more
    accountability and more public participation provisions to be
    included in S. 1961. One of the clear problems is that when you
    add together all the sources of funding from the two SRF
    accounts and from the State matches, you are looking at, even
    under current authorizations and appropriations, $200 billion
    being obligated by the States over the next 20 years, with very
    little Federal oversight, and almost no citizen participation.
        It is a scandal that many communities do not know how to
    access these funds, and that citizens are not involved in the
    priority setting. So we are asking for a strengthening of those
    provisions.
        Thank you very much for the opportunity to testify. We look
    forward to working with this committee in moving forward this
    authorization through Appropriations, and we look forward to
    helping out on these specific suggestions that we have put in
    front of you.
        Senator Jeffords. Thank you, Mr. Schwartz.
        Mr. Kukurin.

      STATEMENT OF BILL KUKURIN, PRESIDENT, KUKURIN CONTRACTING,
                  ASSOCIATED BUILDERS AND CONTRACTORS

        Mr. Kukurin. Yes, thank you. Good morning Mr. Chairman and
    distinguished members of the committee. My name is Bill
    Kukurin, president of Kukurin Contracting, located in Export,
    PA.
        On behalf of the Associated Builders and Contractors, I am
    honored to be here and would like to thank Chairman Jeffords,
    Ranking Member Smith, and members of the Senate Committee on
    Public Works for providing me with this opportunity to discuss
    the Water Investment Act of 2002, and the important role it
    could play in improving our nation's water quality and
    infrastructure.
        I will be summarizing my comments, but I would request that
    my full statement be submitted for the official record.
        Senator Jeffords. Without objection.
        Mr. Kukurin. For nearly 30 years, Kukurin Contracting has
    been operating in western Pennsylvania as a family-owned and
    operated business. Kukurin Contracting has 125 employees, and
    focuses primarily on municipal work, specifically in the
    construction and maintenance of water and sewer lines, pumping
    stations, water tanks, reservoirs, and sewage treatment
    facilities.
        We have built our reputation through providing quality
    workmanship for our clients, and safe, health worksites for our
    employees.
        In 1997 and 1999, Kukurin was recognized by ABC National as
    one of the leaders in the construction industry, and was
    presented the annual excellence in construction award for work
    on several of our projects.
        Kukurin Contracting has been a member of the western
    Pennsylvania ABC for 20 years. ABC is a national trade
    association, representing more than 23,000 merit shop
    contractors, subcontractors, materials suppliers, and
    construction-related firms within a network of 82 chapters
    throughout the United States and Guam.
        Our diverse membership is bound by a shared commitment to
    the merit shop philosophy within the construction industry.
    This philosophy is based on the principles of full and open
    competition unfettered by the Government, and nondiscrimination
    based on labor affiliation and the awarding of construction
    contracts to the lowest responsible bidder, through open and
    competitive bidding.
        This process assures that taxpayers and consumers will
    receive the most for their construction dollar. With 80 percent
    of the nation's construction workers choosing not to be
    represented by a Union, ABC is proud to be their voice.
        I would like to commend Chairman Jeffords and Senators
    Smith, Graham, and Crapo for introducing Senate bill 1961, the
    Water Investment Act of 2002. I also commend this committee for
    undertaking a comprehensive look at our nation's water
    infrastructure needs.
        The costs of insufficient attention to clean water issues
    are indisputable. Non-point source pollution leaking toxins,
    storm water runoff, and coastal pollution pose grave risks to
    water quality. Our nation's water quality and environmental
    infrastructure could not be more vital to our health, safety,
    and overall quality of life.
        The Water Investment Act of 2002 would serve to ensure the
    environmental and financial stability of our nation's water
    programs. This measure would authorize the Clean Water and Safe
    Drinking Water State Revolving Loan Fund Program at $35 billion
    over 5 years.
        THE SRF Program allows States to provide low-cost financing
    to communities for the construction, repair, and rehabilitation
    of waste water collection and treatment facilities. While this
    legislation seeks to provide additional resources to States and
    localities to aid them in meeting water infrastructure needs
    and increased State flexibility to States in administering
    their water programs, the imposition of the Davis-Bacon Act to
    this vital program would negate many of these efforts.
        While ABC members have concerns regarding a number of waste
    water needs, I will focus my comments today on funding for
    construction of waste water treatment facilities, and on the
    detrimental impact that the discriminatory and antiquated
    Davis-Bacon Act would have, if included in the legislation, on
    these vital projects.
        Congress passed the Federal Water Pollution Control Act,
    the Clean Water Act, in 1972, which linked the Federal
    Government with States and cities to clean up the country's
    waters, providing projects for water supply and waste water
    treatment. The Clean Water Act of 1987 phased out the
    construction laws grant program by the close of fiscal 1990.
        From fiscal year 1990 through 2001, the EPA made available
    over $20 billion in grants. Even this number was under the
    appropriated amount. While this program has been a significant
    success, it is clear that to accommodate the nation's growing
    population, to meet new water quality standards, and repair and
    upgrade aging facilities, much greater investment must be made.
        Estimates for future needs for clean water infrastructure
    are staggering; anywhere from $300 billion to $1 trillion, over
    20 years.
        Small communities and States with large rural populations
    are having the largest share of problems with the SRF Program.
    Many small towns did not participate in the previous grants
    program, and consequently are likely to require major projects
    to achieve compliance with the law. Yet, these communities
    often lack an industrial tax base, and thus face the prospect
    of very high per capita user fees, if their citizens are
    required to repay the full capital costs of sewage treatment
    projects.
        According to the testimony from the General Accounting
    Office, SRFs will only meet about one-third of the State's
    funding needs, and will generally be unable to meet the needs
    of the disadvantaged communities.
        There are many small communities that do not have the
    capital base necessary to support a State Revolving Fund. More
    direct grant money is required for lower income communities.
        I see I am running out of time here. I would like to go
    more to the Davis-Bacon Act. ABC commends the sponsors of this
    vital legislation for not expanding Davis-Bacon Act
    requirements to the Clean Water/Safe Drinking Water State
    Revolving Fund. The SRF has operated efficiently without Davis-
    Bacon since 1995.
        ABC encourages the committee to continue to allow States
    and municipalities to operate the SRFs without this expensive
    and discriminatory requirement.
        Davis-Bacon is basically a relic of the infamous Jim Crow
    era. The law enacted in 1931 was intended to prevent minority
    workers, mostly from the South, from competing with northern,
    mostly union, construction firms, for Federal contracts in the
    North.
        Conceived during a time of discrimination, the act still
    has much the same effect today. Davis-Bacon disadvantages
    small, emerging businesses and minority businesses. Davis-Bacon
    discourages many qualified small and minority-owned contractors
    from bidding on public projects, because of the complex and
    inefficient wage and work restrictions, which make it nearly
    impossible for small businesses to compete with the well
    capitalized corporations.
        To seek Davis-Bacon contracts, small and minority-owned
    firms must not only pay the prevailing wage, and adopt
    inefficient work practices and rigid union-based job
    classification; but also expose themselves to huge compliance
    costs and burdensome paperwork regulations. As a result, few
    small or minority firms win Davis-Bacon contracts, and many
    others give up trying.
        In conclusion, Mr. Chairman, ABC strongly supports the
    efforts being made by the Environment and Public Works
    Committee to ensure that the nation's water quality is
    improved. ABC supports the Water Infrastructure Act of 2002, as
    currently written.
        We believe that with full funding and without any expansion
    to the Davis-Bacon Act, our water infrastructure needs will
    begin to diminish, and our nation's water quality will
    dramatically improve.
        It is imperative to improve the efficiency of the SRF
    Program by not imposing outdated and unnecessarily perceptive
    administrative requirements that the Federal Government places
    on municipalities, namely, the Davis-Bacon Act.
        On behalf of the Associated Builders and Contractors, I
    again want to thank you and the members of the committee for
    the opportunity to testify here today. I will be happy to
    answer any questions you may have.
        Senator Jeffords. Thank you, Mr. Kukurin.
        Our next witness is Mr. Jim Barron. Please introduce
    yourself and you may proceed.

      STATEMENT OF JIM BARRON, PRESIDENT, RONKIN CONSTRUCTION, ON
         BEHALF OF THE NATIONAL UTILITY CONTRACTORS ASSOCIATION

        Mr. Barron. Thank you, Chairman Jeffords, I appreciate the
    opportunity to speak before the committee today, and thank the
    distinguished Senators that are members of the Senate
    Environment and Public Works Committee.
        My name is Jim Barron. I am president and owner of Ronkin
    Construction, which is located just northeast of Baltimore. We
    are a small underground utility contracting firm that has been
    in existence for 25 years, building infrastructure in the
    Baltimore area.
        I am here today representing the National Utility
    Contractors Association, better known as NUCA. As Senator Bond
    spoke earlier on this issue, we are the true environmentalists.
    The men and women of NUCA are the people that build and
    maintain the nation's water, waste water, gas, electric and
    telecommunications infrastructure in this nation.
        Our members are also manufacturers and suppliers, that
    supply the needed services and materials to do this work. We
    are the people that get out there every day and have the
    firsthand knowledge about the existence and the depletion of
    our existing infrastructure in the United States today.
        The picture is bleak. It is getting worse and it is not
    going to get any better by itself. We need some help. However,
    NUCA and this committee and the Congress of the United States
    have an opportunity today to do something about that.
        Winston Churchill once said that a pessimist is one that
    looks at the difficulty in every opportunity, and the optimist
    is the one that looks at the opportunity in every difficulty.
        Well, we need to be optimists, and we need to look at the
    opportunity that we have before us today, to do something to
    the Water Investment Act of 2002. NUCA and this committee can
    work together to overcome this great difficulty through
    optimism. Through the Clean Water SRF and the Drinking Water
    SRF, we can begin to correct the problem.
        I would like to thank Senator Voinovich, who was here
    earlier today, for his commitment to the SRF through Senate
    bill 252. We are very, very happy that the key components of
    that bill are embodied in the Water Investment Act of 2002.
        I would also like to thank Senator Bond for his commitment
    through the VA and HUD Appropriations Committee, and my
    Senator, Senator Mikulski, who have worked tirelessly to keep
    the funding limits up, every time somebody decides to cut it,
    year in and year out. We are very appreciative of their work.
        I would also like to thank Senator Bond this morning for
    commenting that we are the true environmentalists. You know, it
    is very nice to hear, when we are standing knee deep in raw
    sewage in Baltimore trying to repair a broken sewer main, that
    somebody in the U.S. Senate thinks we are environmentalists and
    not a honey dipper. So we do thank Senator Bond for that
    comment.
        That is the view from the trenches. We are out there every
    day, and we see the problems that we face with America's
    infrastructure, in the cities and the communities around this
    great nation.
        In Baltimore alone, which I am most familiar with, 2 weeks
    ago in the Baltimore Sun, they reported that due to EPA
    requirements right now, in order for Baltimore and the citizens
    of Baltimore to not be fined heavily by EPA, the Mayor and the
    City Council will have to come up with $982 million over the
    next 3 years, just to correct the critical deficiencies in that
    crumbling infrastructure. That is a tough chore to accomplish
    in a city whose tax base has been cut in half over the last 10
    years.
        The cornerstone of the entire program has to be the
    Revolving Funds. It is a win/win for everybody. It not only
    corrects and maintains the existing infrastructure, but it also
    creates jobs. Studies have proven that for every billion
    dollars spent in SRF funding, that at least 55,000 jobs are
    created as a result of that.
        Let us look at the ripple effect. Let me give you an
    example. I just completed a project in Baltimore City that used
    to be a highrise of subsidized housing. They imploded the
    project, 35 acres. We put in $2.5 million worth of
    infrastructure, and today, they are building 300 townhomes
    there, that the citizens of Baltimore can, in fact, buy for
    $60,000 to $70,000.
        When they buy those homes, they have to get mortgages,
    through mortgage bankers and title companies. They have to
    furnish those homes with appliances and furniture. They are
    going to come back into the city of Baltimore and increase the
    tax base. The ripple effect is phenomenal, when this kind of
    money gets turned back into the community.
        My grandfather once said, ``It takes as long to get better
    as it took to get sick.'' This problem did not just surface
    overnight. It has been building and building for years and
    years, and we are going to have to have not funding just this
    year, but in the years to come, to correct the problem. We have
    to keep chipping away at it, year after year after year; not
    just the utility contractors, not just Congress, but us,
    together, have to work to solve this problem.
        Let us talk real quickly about the hot potato, Davis-Bacon.
    NUCA's membership is made up of open shop and union shop
    contractors. So NUCA's organization has to be somewhat neutral
    on this issue.
        But we believe there is a possible compromise; and that is,
    by allowing Davis-Bacon to be part of the first funding round,
    it would satisfy and compromise the position of this hot
    potato. If we cannot ignore it, we have to find a way to get
    around it and compromise that issue.
        In closing, I encourage you, when you leave today or when
    you go back to your communities, to take a ride. Just get in
    your car and take a ride and look around. You can see the
    bridges, you can see the highways, you can see the buildings
    that are in disrepair that need repaired; but you do not see
    the crumbling infrastructure underneath the streets.
        We cannot ignore it any longer. We have to work together
    and do something with the crumbling infrastructure in this
    country, and the SRF in this act will go a long way to
    accomplish that.
        Thank you very much.
        Senator Jeffords. Thank you.
        Our final witness is Terry Yellig, business trades attorney
    for Sherman, Dunn, Cohen, Leifer & Yellig.

     STATEMENT OF TERRY YELLIG, BUILDING TRADES ATTORNEY, SHERMAN,
                      DUNN, COHEN, LEIFER & YELLIG

        Mr. Yellig. Thank you, Mr. Chairman, my name is Terry
    Yellig, and I am testifying on behalf of the 14 affiliated
    unions that comprise the Building and Construction Trades
    Department of the AFL-CIO, as well as the millions of skilled
    construction workers who those unions represent.
        We commend you, sir, and Chairman Graham, as well as
    Senators Crapo and Smith, for introducing S. 1961, the Water
    Investment Act of 2002, which would authorize $35 billion over
    5 years for investment in America's clean water and safe
    drinking water infrastructure. It is nice for a change to be in
    the majority. Most of the speakers have endorsed that level.
        As we all know, recent annual appropriations have only
    funded approximately $2 billion per year to help pay for clean
    water and safe drinking water infrastructure projects. This is
    a woefully inadequate amount. That is why we are encouraged by
    S. 1961, and view it as an indication that this committee
    intends seriously to address America's water infrastructure
    needs.
        Notwithstanding, the Building and Construction Trades Union
    strongly feels, like many of the other witnesses, that more
    should be done to tackle our massive water infrastructure
    needs. We recognize the constraints that looming budget
    deficits pose on Federal infrastructure programs.
        Nevertheless, we strongly urge the committee to take a
    long, hard look at authorizing even higher levels for funding
    for clean water and safe drinking water projects in S. 1961, in
    order to bring funding levels up to the $50 billion to $60
    billion level over the next 5 years, as was recommended in a
    needs assessment report prepared by the Water Infrastructure
    Network, a broad-based coalition of locally elected officials,
    drinking water, and waste water service providers, contractors,
    engineers, environmentalists, and labor unions.
        As building and construction trades unions, we pledge our
    support to moving water infrastructure legislation through
    Congress that authorizes as much funding for new and improved
    clean water and safe drinking water infrastructure as possible.
        In addition to the various other policy considerations that
    we have heard about in this legislation, we are concerned about
    the labor standards that will be applicable to construction
    workers employed on federally assisted water infrastructure
    projects.
        Specifically, we respectfully urge this committee to take
    steps necessary to ensure that Davis-Bacon prevailing wages are
    paid on all such projects assisted under the Clean Water and
    Safe Drinking Water Acts.
        As many members of this committee are aware, Congress has,
    for 71 years, consistently applied Davis-Bacon prevailing wage
    requirements to Federal infrastructure programs, regardless of
    whether it was under Democratic or Republican control, or
    whether there was Democratic or Republican Administration in
    the White House.
        In recent years, as Congress has considered using various
    so-called innovative financing techniques that are intended to
    leverage a limited amount of Federal capital investment for
    maximum public benefit, as well as the more traditional Federal
    grant programs, it has steadfastly continued to apply complete
    and comprehensive Davis-Bacon wage coverage to construction
    projects funding under these programs.
        In fact, Congress included comprehensive Davis-Bacon
    prevailing wage requirements in the Clean Water Act in 1972,
    and in the Safe Drinking Water Act in 1974.
        However, as I have explained more fully in my prepared
    statement that I have submitted to the committee, EPA has
    concluded that Davis-Bacon prevailing wage requirements no
    longer apply to the construction of any water treatment
    projects assisted by State water pollution control revolving
    funds that began after the end of fiscal year 1994, even
    though, as I mentioned earlier, the Clean Water Act includes
    the Davis-Bacon prevailing wage provision.
        Accordingly, it is necessary to amend the Clean Water Act,
    so that EPA will have no discretion concerning application of
    Davis-Bacon prevailing wage requirements to construction of
    water treatment projects, including those supported by funds
    directly made available through Federal capitalization grants
    and those supported by recycled Federal funds.
        Similarly, as I explained in my prepared statement, the
    Safe Drinking Water Act already includes a broadly worded
    provision that directs the EPA Administrator to ``take such
    action as may be necessary to assure compliance with provisions
    of the Davis-Bacon Act.''
        However, contrary to that obligation, EPA now claims that
    the Davis-Bacon prevailing wage requirement in the Act does not
    apply to construction projects assisted by Safe Drinking Water
    Revolving Funds.
        For this reason, the Davis-Bacon wage requirement in the
    Safe Drinking Water Act must be amended to make it clear that
    the Davis-Bacon requirements apply to all construction projects
    supported by Safe Drinking Water Revolving Funds, with
    resources directly made available from Federal capitalization
    grants or with recycled funds made available by repayment of
    those funds.
        To fail to provide Davis-Bacon coverage of water
    infrastructure projects assisted by State Revolving Funds,
    under both the Clean Water Act and the Safe Drinking Water Act
    would, in our opinion, amount to piecemeal repeal of Davis-
    Bacon prevailing wage requirements applicable to two major
    Federal construction programs, contrary to congressional intent
    in the original Clean Water Act and the Safe Drinking Water
    Act, not to mention the other 60 or so Federal statutes that
    have extended Federal prevailing wage requirements to a myriad
    of other federally assisted construction programs.
        We again commend the committee for coming to grips with our
    significant clean water and safe drinking water infrastructure
    needs, and we look forward to working with the Senators on both
    sides of the aisle, as the process moves forward.
        Senator Jeffords. Thank you very much. That was an
    excellent statement.
        Mr. Yellig, we have heard this morning that the application
    of Davis-Bacon, which we have just been discussing here, will
    increase the cost of the Federal construction from 5 percent to
    38 percent, in some cases. Will you please respond to that
    claim, as well as Mr. Kukurin's claim that Davis-Bacon
    discourages minority and small contractors?
        Mr. Yellig. Well, with regard to the allegation that the
    application of Davis-Bacon prevailing wage requirements
    increases the cost of construction, first of all, it is
    important to understand that in any kind of construction
    project, whether it be water treatment or safe drinking water
    or housing or whatever, generally speaking the cost of the
    construction of the project, the labor cost, is approximately
    30 percent and actually going down, as a relative portion of
    the overall cost.
        Now in order for the Davis-Bacon wages to substantially
    inflate the cost of construction, even if the wages were 50
    percent higher than otherwise without the prevailing wage
    requirement, for example, that would only result in a 15
    percent increase in the overall cost, because it only accounts
    for 30 percent or less of the entire cost of the project.
        The studies that I have seen and read indicate that the
    cost of paying prevailing wages is minimal, if anything at all.
    But the allegations that Davis-Bacon increases cost of
    construction projects like 15, 30 or 35 percent, it is just not
    possible. That is not possible.
        With regard to opportunities for minority contractors, I
    spoke to a gentleman several years ago. He was a mechanical
    contractor here in Washington, DC.
        He said that the Davis-Bacon Act was the best friend that
    he has, because it enables him to compete on a level playing
    field, because he knows that the cost of labor is going to be
    relatively the same; regardless of whether it is a small
    contractor or large contractor, the cost of labor is going to
    be the same. So therefore, it is eliminated from the
    competition, and places a greater emphasis on productivity and
    efficiency.
        So the evidence that we have seen indicates that, in fact,
    the Davis-Bacon Act is actually a help to minority contractors
    in bidding for public work.
        Senator Jeffords. Thank you.
        Ms. Stoner, in your testimony, you stated that projects
    should be funded according to priority. Why is this important
    in terms of protecting the environment and public health?
        Ms. Stoner. I guess I would say a couple of things about
    that. The first is that there is a system for determining
    priority of the projects within every State.
        That is the public's opportunity, that is everyone's
    opportunity to look at those questions about what will be most
    environmentally beneficial for that State, and to ensure that
    the priority list reflects that, to the best of the ability of
    the State, to put together that list.
        Once that effort has been made, we feel it is very
    important to follow that list, the State's own determination,
    based on the information it has received of which projects will
    produce the most environmental benefit for the State. That is
    why we support funding from the priority list.
        There has been a question raised, what about projects that
    are not ready to go forward? We would support allowing the
    State to fund the next priority project that is ready to go
    forward. We certainly would not want to hold up funding for any
    project that is ready to go forward, based on waiting for a
    project before it in line. But we believe that is the best use
    of our taxpayer dollars.
        Senator Jeffords. I am interested in your pictures up
    there. In the upper left hand corner, that is obviously a drain
    pipe, and that water gets stored?
        Ms. Stoner. Yes, what this is, it is a storm drain. This is
    a gutter off someone's roof, like you probably have on your
    home and I have on my home.
        What they have at the bottom here is rain barrel with a
    hose attached at the bottom, so that the homeowner can store
    that water and reuse it for, here you can see it is in the
    middle of a garden for watering the vegetation, the lawn, and
    so forth. It is a way of reusing water and harvesting storm
    water, is what it is sometimes called, to make beneficial use
    of it.
        Senator Jeffords. Is it all gravity?
        Ms. Stoner. Yes, it is just gravity. This is a very
    inexpensive little device. You can actually buy it from mail
    order catalogs.
        Senator Jeffords. Thank you, I might just do that.
        You might have made a sale.
        [Laughter.]
        Senator Jeffords. Mr. Schwartz, in your testimony, you
    stated that more funds should be directed toward nonstructural,
    nontraditional water facilities. Do you have any sense as to
    how those expenses for nontraditional projects compare in terms
    of environmental benefit per dollar spent in structural
    projects; and are these projects an efficient use of SRF money
    to address nonpoint source pollution?
        Mr. Schwartz. Thank you for that question. Just before I
    answer it, I just want to make one other point on the question
    you asked Nancy about the priority projects.
        Since there has been a lot of lesson learning from the Safe
    Drinking Water SRF, one of the things under the Safe Drinking
    Water SRF is that the States are now allowed to go around the
    priorities that are established by the rankings, except for
    readiness to proceed.
        We think that that is a good thing to borrow from on the
    clean water side as well. Obviously, it takes away some
    flexibility on the part of the States, but it gets you some
    real accountability, in terms of scarce SRF funds being used
    for real public health and environmental needs.
        To answer your question, currently in Washington, DC, and
    in cities and counties across the United States, we have
    mandates to fix very old problems that this generation did not
    put in place. These are things like combined sewer overflow
    problems.
        The typical solutions that we are turning to are very
    expensive end-of-the-pipe deep tunnels. Now in a number of
    places, those deep tunnels have not worked too well. In
    Chicago, in Milwaukee, and other places, they are in place, and
    billions of dollars have been spent, and we are still having
    overflows of human sewage and we are still having problems in
    central business districts with overflows.
        What we are not doing is taking a look at the engineered
    nontraditional solutions that Nancy has pointed to, in part,
    that can capture storm water, that can slow down the flow, and
    that can make sure that not only do we get receiving waters at
    the end of a build watershed, like in the Potomac and Anacostia
    River without overflows, but that we actually are able to use
    that water, say, in drought situations like we have now, to
    make sure that trees are getting enough water, that our
    communities are not flooding with that water every time it
    rains, and we are able to get really ``two-for'' double
    benefits.
        If you consider spending the money on things like street
    cleaning, as opposed to your deep tunnel, you get to pick up
    the trash and the toxics that are dropping from cars, and
    divert them from the storm water flow.
        When you look at the number crunching that has been done by
    local municipal experts in Prince George's County, Maryland, by
    over 15 Federal and State and local Agencies that are
    cooperating in this city and county of Los Angeles with tree
    people, to engage in large scale application of these
    technologies, you are looking at real cost savings and real
    water quality pick-ups at the time you are looking at
    neighborhood revitalization.
        We can bring to bear some of those numbers for you and put
    them in front of the committee, so that you can take a look at
    the emerging economics and the emerging science that it backs
    up this intuitive notion that people have, that you can use
    natural infrastructure engineered as a way to begin to deal
    with some of the costs and environmental components of these
    problems.
        Senator Jeffords. We will followup with you on that. I
    would be interested in seeing what you have.
        Well, thank you all. We are reaching the end of the
    hearing. All of us have other things to do, and I am afraid I
    have to roar off, too.
        I just want to thank you for your testimony. I ask all of
    you to be ready though, because we will probably have some
    followup questions for you, and we would ask you to respond as
    quickly as possible. I ask all of our members to submit their
    questions for the record as soon as possible, so that we may
    share them with you.
        Thank you for coming. This has been a very, very helpful
    morning to me. There has been some excellent testimony. I know
    the hard work that goes into preparing testimony, and I want to
    let you know that I appreciate it, and I am sure the whole
    committee does, especially the staff.
        Thank you, and the committee adjourns.
        [Whereupon, at 11:30 a.m., the committee was adjourned, to
    reconvene at the call of the chair.]
        [Additional statements submitted for the record follow:]

      Statement of Hon. Max Baucus, U.S. Senator from the State of Montana

        Thank you, Mr. Chairman for holding this important hearing today on
    the growing water and wastewater infrastructure needs in this country.
    I would first like to compliment our chairman and ranking member, and
    Senators Graham and Crapo for working so diligently to produce a bi-
    partisan water investment bill, S. 1961, that we will hear about today.
    This bill is an important first step in the process of dealing with the
    critical issue of how the Federal Government can best help local water
    systems provide clean and safe water for their communities.
        I have spent a lot of time with these issues in the past,
    particularly during the development of the Safe Drinking Water
    Amendments of 1996. We worked hard to produce legislation that would
    relieve local water systems of unnecessary regulatory burdens, while
    ensuring that those water systems had the flexibility and the resources
    they needed to provide their customers with clean water.
        I worked hard to protect the interests of small and rural water
    systems in that bill. Small systems cannot spread their costs of
    complying with State and Federal regulations among a large number of
    ratepayers. This dynamic hasn't changed, and I'm afraid it will become
    more of an issue as new regulations come online. In my State of
    Montana, we have over 900 separate drinking water systems. Almost all
    of them serve fewer than 10,000 people. I've been told some 60 to 70
    percent of the water systems in Montana that receive funding through
    the Clean Water or Safe Drinking Water Revolving Loan Funds are
    considered small and/or disadvantaged communities. Some of them, like
    the area around Three Forks, Montana, have significant problems with
    arsenic.
        I want to make sure that, as we move forward with water investment
    legislation, these small systems will again be given the resources and
    the flexibility they need to protect public health and the environment,
    without being subject to unnecessary or undue regulatory burdens. The
    operators of these systems are trying to provide a basic public service
    to their neighbors. I don't want us to fall into the trap that led us
    to the 1996 Safe Drinking Water Act Amendments, where we unfortunately
    required systems, States, and the EPA to do way too much, to dilute
    their resources pursuing a lot of different efforts, instead of
    concentrating on the most egregious contaminants and problems, and
    focusing priorities on the what a system should be doing to make its
    water as pure as can be for the consumers. In a tight budget situation,
    this is even more important than ever.
        That said, I support the increased authorization levels in S. 1961
    for both the Safe Drinking Water and the Clean Water State Revolving
    Loan Funds. I think this committee can send a strong message that clean
    water is a top priority, and that we in Congress must make the
    necessary investments in the nation's water and wastewater
    infrastructure to protect basic public health and environmental needs.
    Few things are as important as clean and safe drinking water for our
    citizens.
        I look forward to hearing the testimony of the witnesses today and
    working with my colleagues on this important legislation. Thank you
    again Mr. Chairman.

                                   __________
     Statement of Benjamin H. Grumbles, Deputy Assistant Administrator for
                      Water, U.S. Environmental Protection

                                  INTRODUCTION

        Good morning, Mr. Chairman and members of the committee. I am Ben
    Grumbles, Deputy Assistant Administrator for Water at the U.S.
    Environmental Protection Agency (EPA). First, let me convey Tracy
    Mehan's regrets for being unable to be here today to speak with this
    committee. Second, I appreciate this opportunity to provide the
    Administration's views on S. 1961, the ``Water Investment Act of
    2002,'' and being able to discuss how to ensure that the nation's
    drinking water and wastewater facilities can meet the challenge of
    protecting our public health and water quality in the 21st century.
        Through a strong and evolving local, State, Federal and private
    partnership, the United States has made great progress over the past
    three decades in reducing water pollution and assuring the safety of
    drinking water. The Clean Water Act (CWA) and the Safe Drinking Water
    Act (SDWA) 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. In particular, our
    cooperative investment in water and wastewater treatment, and pollution
    prevention has paid dramatic dividends for water quality and public
    health.
        The economic and social benefits of improved water quality are
    readily evident from urban waterfronts to recreational water bodies to
    wild rivers all across America. We have also made dramatic progress in
    improving the safety of our nation's drinking water. Today, more than
    90 percent of the population served by community water systems receives
    water from systems with no reported violations of health-based
    standards in place as of 1994.

           CLEAN WATER AND DRINKING WATER STATE REVOLVING LOAN FUNDS

        The financial demands that communities face in providing clean and
    safe water to all Americans are substantial, and the Administration is
    committed to helping find ways to meet those demands. The Federal
    Government has provided over $80 billion in wastewater assistance since
    passage of the Clean Water Act, which has dramatically increased the
    number of Americans enjoying better water quality. The primary
    mechanism that EPA uses to help local communities finance water
    infrastructure projects is the State Revolving Fund (SRF), established
    in the 1987 CWA amendments and the 1996 SDWA amendments. The SRFs were
    designed to provide a national financial resource for clean and safe
    water that would be managed by States and provide a funding resource
    ``in perpetuity.'' These important goals are being achieved. Other
    Federal, State, and private sector funding sources are also available
    for community water infrastructure investments.
        Under the SRF programs, EPA makes grants to States 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 20 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 2.4 percent (the average rate
    during the year 2001) saves communities 23 percent compared to using
    commercial financing at an average of 5.3 percent.
        To date, the Federal Government has provided more than $19.7
    billion in capitalization funding to States for their Clean Water SRFs,
    more than twice the authorized level for the program. With the addition
    of the State match, bond proceeds, and loan repayments, States have
    $37.7 billion in assets in their clean water SRFs. Since 1988, States
    have made nearly 11,000 individual loans for a total of about $34.3
    billion, with another $3.4 billion either unallocated or being readied
    for loans as of June 2001. In fiscal year 2001, the Clean Water SRF
    issued a record total of 1,370 individual loans with a value of $3.8
    billion. The Clean Water SRFs have provided between $3 and $4 billion
    in loans each year for several years, and are widely considered a
    tremendous success story. For fiscal year 2003, the President's Budget
    proposes funding the Clean Water SRF at $1.212 billion.
        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 2002, Congress has appropriated
    $5.3 billion for the Drinking Water SRF program. Through June 30, 2001,
    States had received $3.6 billion in capitalization grants, which when
    combined with State match, bond proceeds and other funds, provided $5.2
    billion in total cumulative funds available for loans. Through June 30,
    2001, States had made close to 1,800 loans totaling over $3.8 billion,
    with another $1.4 billion either unallocated or being readied for
    loans. Approximately 75 percent of the agreements (41 percent of
    dollars) were provided to small water systems that frequently have a
    more difficult time obtaining affordable financing. By the end of
    fiscal year 2003, 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. The fiscal year 2003
    President's Budget proposes to fund the Drinking Water SRF at $850
    million.
        The Administration will continue to fulfill prior EPA commitments
    to capitalize the Clean Water SRF to revolve at a $2 billion average
    annual level and the Drinking Water SRF at a $500 million average
    annual level.

                              THE CHALLENGE AHEAD

        With the important investments made by and achievements of all
    levels of government and the private sector, together we have
    substantially improved quality of the water in every State--even while
    our population sharply increased and the output of our economy more
    than doubled.
        But the task America's intergovernmental, public-private
    partnership has undertaken--to protect public health and the
    environment by maintaining and improving water quality--is a continuing
    one. As our economy and population grow, partnership members must
    increase their efforts to provide clean and safe water every day. We
    must also periodically take a good look at the challenges ahead, and
    reassess the adequacy of the tools we have to meet those emerging
    challenges.
        EPA's most recent Drinking Water and Clean Water Needs Surveys have
    identified $150.9 billion and $150.5 billion, respectively (both in
    1999 dollars), in documented needs eligible for SRF assistance in the
    coming decades. More recent estimates associated with correcting
    sanitary sewer overflows may increase the estimated total Clean Water
    needs, and the Agency expects to release a new Clean Water Needs Survey
    in August 2002. Over the past year or so, several stakeholder groups
    have issued reports estimating water infrastructure needs that are
    substantially higher, based on different methodologies and definitions.
        With that in mind, the Agency is actively working to improve
    information about long-term infrastructure needs, assess different
    analytical approaches to estimating those needs, and estimate the gap
    between needs and spending. Last summer, EPA presented its analysis--
    known as the Gap Analysis--to a diverse panel of industry experts.
    Overall, the reviewers commended the report as a reasonable effort to
    quantify the gap. We have made revisions to the analysis based on peer
    review input and we expect to release the Gap Analysis shortly.
        In considering these studies and analyses, it is important to keep
    in mind a few points of context. First, there is no single ``correct''
    number to describe the gap. Any gap study must be built using
    methodologies and definitions of need, which in turn rest on
    assumptions about present conditions nationwide, and desirable or
    appropriate policies to follow in the future. That raises the second
    point that while these gap numbers may be helpful to provide a broad
    sense of the challenge ahead, they cannot themselves be a clear guide
    to policy, because they do not take into consideration how the various
    roles of Federal, State and local governments should be balanced.
    Third, under any study, funding gaps are not inevitable. They occur
    only if capital and operations and maintenance (O&M) spending remains
    unchanged from present levels over the time covered by the study. What
    a proper analysis may suggest is that a funding gap will result if the
    challenge posed by an aging infrastructure network--a significant
    portion of which is beginning to reach the end of its useful life--is
    ignored.
        I believe most partnership members would agree that the nation,
    through our partnership, needs to put more resources into water and
    wastewater infrastructure in the future than we have been doing; and,
    that we need to reduce costs by ensuring more efficient and productive
    use of such resources, through locally tailored, fiscally sustainable
    management and technical approaches. We need a strategy that addresses
    both the fiscal demand side (how to define and manage infrastructure
    needs) and the fiscal supply side (how to pay for those managed needs).
        While much of the projected gap is the product of deferred
    maintenance, inadequate capital replacement, and a generally aging
    infrastructure, it is in part a consequence of future trends we can
    anticipate today. For instance, continuing population growth means that
    even increasing capacity at current levels of wastewater treatment will
    not be enough to prevent water quality degradation, and that
    development pressures on unprotected drinking water sources will
    increase. The same tools we need to make the fiscal demand side of the
    gap more manageable--like reducing the flow of wastewater and
    stormwater requiring treatment through conservation and nonstructural
    alternatives, and protecting our drinking water sources--will help us
    to deal with the water quality impacts of a growing population.
        To meet these future challenges to clean and safe water the
    Administration believes that the touchstone of our strategy should be
    building fiscal sustainability. In particular, several basic principles
    should guide our pursuit of clean and safe water through fiscal
    sustainability:
         Utilizing the private sector and existing programs.--
    Fostering greater private sector involvement and encouraging integrated
    use of all local, State, and Federal sources for infrastructure
    financing.
         Promoting sustainable systems.--Ensuring the technical,
    financial, and managerial capacity of water and wastewater systems, and
    creating incentives for service providers to avoid future gaps by
    adopting best management practices to improve efficiency and economies
    of scale, and reducing the average cost of service for providers.
         Encouraging cost-based and affordable rates.--Encouraging
    rate structures that cover costs and more fully reflect the cost of
    service, while fostering affordable water and wastewater service for
    low-income families.
         Promoting technology innovation.--Creating incentives to
    support research, development, and the use of innovative technologies
    for improved services at lower life-cycle costs.
         Promoting smart water use.--Encouraging States and service
    providers to adopt holistic strategies to manage water on a sustainable
    basis, including a greater emphasis on options for reuse and
    conservation, efficient nonstructural approaches, and coordination with
    State, regional, and local planning.
         Promoting watershed-based decisionmaking.--Encouraging
    States and local communities to look at water quality problems and
    drinking water source water protection on a watershed scale and to
    direct funding to the highest priority projects needed to protect
    public health and the environment.
        This is an important and serious challenge. We would not be in this
    room today if we did not recognize that. That's good news in itself;
    and there's more, as we can see the tools, the means to realize these
    principles in practice, taking shape all across the country. Many
    States and local governments across the country have been changing the
    way they do business. As a result, they've successfully managed many of
    these infrastructure needs, using creative, individualized approaches
    that are cost-effective, environmentally protective, and socially
    equitable--efficient, clean, and fair.
        The two SRFs have proven themselves to be effective means to help
    local governments address their needs. Now the task is to refine them
    to facilitate and encourage the use of these State and local
    innovations in every community in America. Indeed, your bill itself
    reflects the learning about SRFs that went on between 1987 and 1996, by
    adopting for the Clean Water SRF some of the innovations adopted in the
    Drinking Water SRF. It is important that communities have and use all
    the necessary tools to close the gap before it widens, so the tools can
    work together consistently and effectively in a fiscally sustainable
    way.

                   S. 1961, THE WATER INVESTMENT ACT OF 2002

        I would like now to turn to S. 1961, the bill introduced by the
    Environment and Public Works Committee leadership.
        The Administration shares the committee's goal of improving the
    nation's water quality and has submitted a budget that will continue
    progress toward achieving that goal by targeting non-point source
    pollution, the largest remaining problem. However, the President
    clearly defined his priorities in the State of the Union as defense and
    homeland security. As the increased spending called for in this bill is
    not consistent with those priorities, the Administration does not
    support the funding levels contained in S. 1961. The Administration and
    Congress should look for creative ways to help the water and wastewater
    industries meet their needs.
        At this initial stage of the committee's consideration of this
    bill, I will give the Administration's response to some of the bill's
    key approaches and major components. We would also like to take this
    opportunity to state the Administration's support for privatization
    incentives. On these, as well as other provisions that this testimony
    does not specifically address, we look forward to working with you and
    stakeholders during the committee's deliberations in the weeks ahead.
        Project Eligibilities.--On the Clean Water side, the bill addresses
    project eligibilities, and clarifies that a broad range of projects
    that would improve water quality under Clean Water Act programs can be
    supported using the SRF. We believe that the provision authorizing
    assistance for projects or activities for conservation, reuse or
    recycling must be limited to those that have primarily a water quality
    benefit, or substantial SRF resources could be diverted to projects or
    activities whose primary objective and benefit does not further Clean
    Water Act goals.
        Capacity Development/Priority List Funding.--The bill closely
    adapts for the Clean Water Act two important provisions from the 1996
    Safe Drinking Water Act Amendments, on capacity development and SRF
    priority list funding, and adds asset management requirements in both
    Acts.
        We believe that this demonstrates once again the effectiveness and
    durability of the approaches Congress adopted in 1996, and welcome the
    committee's use of the SDWA model here. In order for water and
    wastewater systems to achieve fiscal sustainability, these systems need
    to: have long-term technical, financial, and managerial capacity;
    optimize the efficient operation and useful life of their capital
    assets; and, direct funding to the highest priority projects needed to
    protect public health and the environment.
        In these regards, S. 1961 moves in a generally positive and useful
    direction. As with any new approach, there are some questions about how
    aspects of these capacity development and asset management provisions
    would work in practice. Here again, we want to work with you and
    stakeholders to share and learn from our experiences with SDWA, and
    make sure that help in achieving these objectives can reach those who
    will need it, especially in smaller communities.
        Disadvantaged Assistance.--Regarding disadvantaged assistance, the
    bill makes two major modifications. First, it adds to the Clean Water
    SRF the disadvantaged community provisions enacted for Drinking Water
    in 1996, enabling States to provide additional loan subsidization,
    including forgiveness of principal, to such communities as defined by
    the States. It also includes in the Clean Water SRF the extended loan
    terms available to disadvantaged communities under the Drinking Water
    SRF.
        Second, it adds to the laws governing both SRFs a new provision,
    authorizing States to provide this additional subsidization to
    treatment works or public water systems which are not disadvantaged, so
    long as the assistance agreement with the recipient ensures that the
    subsidy will be directed to disadvantaged users within the community.
    We want to work with you to ensure that States or communities can use
    programs which are as effective as user rate systems in directing these
    additional subsidies to needy users.
        The bill's provisions for aid to disadvantaged users specify that
    up to 15 percent of capitalization grants can be used for additional
    subsidies. It is not clear whether this 15 percent is within the 30
    percent limit for disadvantaged communities or on top of it, as the
    bill's provisions are worded differently for the two SRFs. We oppose
    making the 15 percent additional to the 30 percent limit in both SRFs.
    Placing the 15 percent within the 30 percent would protect the
    availability of additional subsidies for disadvantaged communities
    while giving the States flexibility to provide such help to
    disadvantaged users as well.
        The revolving loan funds will always face the challenge of striking
    a balance between important values--of offering additional support for
    low-income residents, small communities, and State programs on the one
    hand, and preserving the corpus of the fund so it can assist
    communities far into the future on the other. If new assistance to
    disadvantaged users is added on top of the 30 percent, it would allow
    about half of the capitalization grant to be removed before it ever
    enters the States' revolving funds. This would undercut the funds'
    capacity to serve as a viable resource for communities in perpetuity,
    and would disrupt a vital balance that the Administration believes we
    must maintain. We would like to collaborate with the committee to
    achieve disadvantaged assistance provisions that strike this important
    balance.
        Loan Conditions.--For both the Clean Water and Drinking Water SRFs,
    the bill creates new provisions requiring several things of loan
    applicants as a condition of project approval. Taken together, these
    loan conditions are among the key provisions in the bill, and the
    Administration supports the objectives behind them as according with
    basic principles that should guide our infrastructure revitalization
    efforts. At the same time, we want to make sure that the conditions
    operate in ways that loan applicants can learn to handle, and that the
    SRFs can continue to function to provide the needed kinds of
    assistance.
        One condition is a requirement that prospective loan recipients
    consult and coordinate with local, regional, or State agencies that may
    adopt land use, transportation, or watershed plans. S. 1961 also
    requires loan recipients: to develop and implement asset management
    plans; to have plans to achieve rate structures that reflect, as far as
    possible, the cost of service and include capital replacement costs;
    and to consider, throughout preconstruction phases, consolidation,
    partnerships, or alternative, nonstructural approaches.
        We agree that local governments should undertake, and States must
    supervise, management and planning changes to ensure fiscally
    sustainable solutions. All of the studies indicate that the potential
    gap in water and wastewater infrastructure comes largely from
    replacement of aging pipes and O&M costs--both, historically, a
    responsibility primarily of local government (although pipe replacement
    is eligible under both SRFs). Through its loan conditions, S. 1961
    encourages States and communities to look at water quality problems and
    drinking water source water protection on a watershed scale, and to
    adopt comprehensive strategies that integrate water management into
    whatever planning for sustainable communities they may be doing. And,
    it creates incentives for service providers to adopt best management
    practices to improve efficiency and economies of scale, reduce the cost
    of service, and avoid future gaps, while encouraging rate structures
    that cover costs.
        These new conditions on assistance to communities are among the
    most important innovations in this legislation. Promoting a
    comprehensive examination of all cost-effective tools and options, on
    both the fiscal demand and supply sides, is key to building fiscal
    sustainability. The Administration believes that the potential gaps
    will become more manageable if these conditions can be designed and
    implemented effectively.
        Having said that, we must all recognize that these new conditions
    are going to increase substantially the level of effort required to
    obtain an SRF loan. We must make sure that these conditions are framed
    in a workable way; that we provide a transition to the new conditions
    that equips applicants to address them in a timely way; that those who
    need special help in meeting the conditions can get it; and that small
    loans can continue to be provided without a level of analysis that's
    disproportionate to the investment sought. Here as elsewhere, we look
    forward to working with the committee to pursue these shared objectives
    in a practical manner.
        SRF Fund Transfer Authority.--In addition, the bill would make
    permanent the States' authority to transfer funds between the Clean
    Water and Drinking Water SRFs. This is an important enhancement of
    State flexibility to address their highest priority needs, and we
    welcome the committee's proposal to turn what began in 1996 as a short-
    term experiment into a well-established tool to promote cost-effective
    investment.
        Promoting Technology Innovation.--This strategy to renew our water
    and wastewater infrastructure for the 21st century puts a high premium
    on optimizing the efficient use of our current capital assets and the
    new investments we must make. That will require the use of innovative
    technologies for improved services at lower life-cycle costs, which in
    turn means supporting research and development on these innovative
    technologies and practices.
        Substantial reductions in life cycle costs are possible through the
    use of innovations such as: (1) new construction and repair practices;
    (2) remote monitoring and real-time control of water and wastewater
    systems; and (3) advanced sensors for contaminants and structural
    integrity. Research and development, in coordination with demonstration
    efforts, is needed to assure that these and other advancements are
    available to community decisionmakers. We want to work with the
    committee on ways to promote this objective.
        Legal Issues.--EPA has legal concerns regarding two provisions of
    S. 1961. On judicial review, the provisions amending both Acts are
    written so broadly they could prevent judicial enforcement of virtually
    all provisions of the SRF statute and other applicable Federal statutes
    as well. On State water rights, one subsection essentially duplicates
    existing language in the Clean Water Act, while the second raises
    several issues of legal applicability and potentially problematic
    unintended consequences. However, we do recognize and want to work with
    all interested members of the committee to see that the underlying
    concerns reflected in these provisions are addressed.

                                   CONCLUSION

        In summary, notwithstanding our continuing concerns with the
    funding authorization levels proposed in this bill, we appreciate the
    committee's initiative in taking up this important issue, and
    particularly in its efforts to build fiscal sustainability in water and
    wastewater infrastructure. We look forward to continuing our
    constructive participation in your efforts to refine this legislation.
    Thank you for the opportunity to present the Administration's views on
    this bill. That concludes my prepared remarks, and I would be happy to
    answer any questions.

                                     ______

          Responses of Benjamin Grumbles to Additional Questions from
                                 Senator Smith

        Question 1. In discussions with stakeholders before the
    introduction of S. 1961, we heard much about needing to maintain State
    flexibility but also the need to fund innovative approaches and
    nonpoint source pollution. S. 1961 allows States to list nonpoint
    sources on their priority lists, a change from current law. We do not
    mandate the funding of nonpoint sources instead leaving State the
    flexibility to decide which projects to fund. Should these priorities
    be mandated by the Federal Government or left to the States, with
    public input, to determine?
        Response. We believe it is appropriately left to the States, with
    public input, to ultimately determine what projects should be funded
    through their CWSRF. The CWSRF program is primarily a State-run
    program, and a State is in the best position to decide, with input from
    its citizenry, how CWSRF funds should be used.
        We believe that S. 1961 appropriately requires that States use all
    available water quality data (such as data and information developed
    pursuant to Clean Water Act sections 303(d), 303(e), 305(b), 319, and
    320) to determine their water quality problems across the State and to
    develop a priority ranking system to address those water quality
    problems. Funding projects in priority order, to the maximum extent
    practicable, will bring about the highest level of water quality
    benefit.

        Question 2. In your testimony, you voice support for encouraging
    the private sector's participation in both water and sewer systems. Can
    you speak more to what benefits you believe investor-owned utilities
    have brought to the management of water and sewer systems and why for
    some communities they may be a good alternative?
        Response. Privately-owned utilities in capital-intensive operations
    such as electric and natural gas service have frequently used asset
    management, demand and pricing strategies, and private contracting.
    This potentially relevant experience on these approaches should be
    considered in the water and sewer context.
        Many local governments are seriously considering the possible role
    of the private sector in providing water and wastewater services in
    their communities, hoping to take advantage of private sector skills
    and market experience, to increase efficiency in service delivery, and
    to obtain access to investment capital. Private sector involvement can
    be as basic as provision of limited services under contract or as
    complete as full ownership and operation of the utility.
        While some form of public/private partnerships may be completely
    appropriate for some communities, we believe that the more important
    consideration is technical, financial, and managerial capacity to
    operate and maintain a water or wastewater system. High performing
    public entities can perform equally well as high-performing privately-
    owned or operated facilities. EPA's objective is to improve capacity
    when appropriate so as to better protect public health and water
    quality across the country.
        To help close the infrastructure gap, some communities may decide
    to enter into public/private partnerships of one form or another. We
    think it appropriate to remove barriers where they exist so that
    communities who choose to can engage with the private sector.
    Ultimately, though, we believe the decision to engage in privatization
    of water or wastewater systems is best left to the community itself
    based on their individual circumstances and situation.

        Question 3. Can you describe for the committee the various programs
    available to small communities to help them not only comply with
    Federal and State regulations but also operate and maintain their
    facilities? Do these programs include discussion of how to reduce
    nonpoint source pollutants which can reduce the cost to the treatment
    works and the water system? Given that each of us continues to hear
    that there is not enough technical assistance available, what more can
    be done?
        Response. Training and technical assistance are cornerstones for
    building sustainable water and wastewater systems capable of providing
    appropriate public health and environmental protection. As discussed
    below, numerous training and technical assistance programs are funded
    by EPA and other Federal Agencies. The key to helping communities
    develop sustainable systems for public health and environmental
    protection lay not in providing additional technical assistance, but in
    focusing existing assistance on core needs and in establishing
    appropriate performance and accountability measures for technical
    assistance providers.
        The priority direction for all technical assistance should be the
    development of sustainable system capacity for performance. The focus
    should not be on ``doing'' things for systems but rather on teaching
    systems ``how to do'' things and indeed on building system self-
    sufficiency for future learning.
        In terms of publicly owned treatment works, EPA partners with
    several organizations to provide technical assistance and training to
    small communities.
        Technical assistance programs provide advice, assistance, and
    training pertaining to the installation, operation, and maintenance of
    treatment works in small communities. They include:
         The Rural Community Assistance Program (located at http://
    www.rcap.org/), which addresses management, financing, construction and
    the Clean Water Act compliance needs of wastewater treatment,
    collection, and disposal systems in small communities;
         The Small Community Outreach and Education network, which
    helps small communities provide self-sufficient wastewater systems
    through technology, financial management, pollution prevention, and
    public education;
         The National Rural Water Association (http://www.nrwa.org)
    offers training and technical assistance to small systems in all
    aspects of providing safe drinking water;
         The Drinking Water Technology Assistance Centers, a
    network of eight university-based centers, work to protect public
    health, improve system sustainability, and enhance compliance by:
    verifying technology performance, pilot testing innovative
    technologies, and providing training and technical assistance;
         EPA's On-Site Technical Assistance 104(g) program, which
    provides no-cost, over-the-shoulder operation and maintenance,
    financial management, and technical assistance to municipal wastewater
    treatment plant operators; and
         An on-line message board (located at http://www.wef.org/
    techinfoctr/index.jhtml), which allows small communities to communicate
    with each other and obtain answers to their technical questions.
        Various education programs provide training to small communities in
    the areas of treatment works operation and trouble-shooting. They
    include:
         The National Environmental Training Center for Small
    Communities (located at http://www.estd.wvu.edu/netcsc/netcsc--
    index.htm), which supports environmental trainers who work with small
    communities to improve drinking water, wastewater, and solid waste
    services;
         The National Small Flows Clearinghouse (located at http://
    www.estd.wvu.edu/nsfc/nsfc--index.htm), which provides national
    information on collection systems in order to help small communities
    meet their wastewater treatment needs; and
         The Youth and the Environment Training & Employment
    Program, which provides under-privileged high school students with an
    awareness of job opportunities in the environment and allows for hands-
    on training in wastewater treatment plant operations.
        In terms of nonpoint source technical assistance, EPA has created a
    website (located at http://www.epa.gov/owm/decent/index.htm) for
    onsite/decentralized wastewater systems that provides information on
    management, funding, technology, and public outreach to assist small
    communities when using or considering decentralized systems to manage
    their wastewater needs. EPA's nonpoint source management program uses a
    significant portion of its 319 grant funds to provide technical
    assistance for nonpoint source needs.
        Note that the Department of Agriculture also provides training and
    technical assistance related to point and nonpoint sources in rural
    areas.
        We believe these programs, and the funding levels included in the
    President's FY 2003 budget for these programs, are sufficient to
    address technical assistance needs.

        Question 4. In crafting this legislation, Senators Jeffords, Crapo
    and Graham and I all sought to find ways to prevent another trillion
    dollar request 20 years from now. Under the construction grants
    program, the Federal Government invested $53 billion over 18 years for
    the construction of treatment works. With those facilities now nearing
    the end of their useful life, the owners of those facilities are back
    asking for more money. You also support a provision in the bill to
    extend the Safe Drinking Water Act's capacity development requirements
    to the Clean Water Act and require a full assessment of each facilities
    assets. How well have the Safe Drinking Water provisions worked in
    weeding out systems that did not have capacity and sustaining the
    viability of other water systems? What improvements can be made to the
    program, if any?
        Response. The State capacity development strategies are in the
    early stages of implementation, and there is not yet a track record
    sufficient to make a judgment on their effectiveness. It is clear at
    this early stage that the opportunity presented by strategy development
    has been valuable in helping States to define the focus of their
    efforts to help systems develop capacity.
        The requirement that all DWSRF recipients demonstrate technical,
    financial and managerial capacity, has likely helped to improve the
    viability of systems receiving assistance. For example, in Vermont, in
    evaluating the capacity of 59 systems, the State found that 46 needed
    to make changes to ensure that they would meet the State's
    requirements. The State required that the systems make the necessary
    changes as a condition of the loan. Without the requirement to assess
    the capacity, it is possible that these 46 systems would have continued
    business as usual.
        In addition to requirements for capacity development, we believe
    that the provisions for asset management, consideration of cost-
    effective nonstructural, conservation, and restructuring alternatives,
    and consultation with local, State, or regional planning agencies are
    also important for building sustainability for water and wastewater
    systems, improving management and reducing life-cycle costs. The
    Administration supports the objectives behind these provisions as
    according with basic principles that should guide our infrastructure
    revitalization efforts. At the same time, we want to make sure that the
    conditions operate in ways that are workable for loan applicants and
    States alike, and that the SRFs can continue to function to provide the
    needed kinds of assistance.

                                     ______

          Responses of Benjamin Grumbles to Additional Questions from
                                Senator Jeffords

        Question 1. Please provide the committee with data, studies,
    analysis of State law and other information on States' requirements for
    public participation during the creation of the priority list for
    projects to be funded under a State SRF?
        Response. Given the time constraints associated with this request,
    we are not able to provide data, studies, and analyses of State law for
    this question and the two following it. We did ask States to provide us
    some information to help inform the committee and have attached them to
    this package. While we will provide a general response to each
    question, we refer you to the attachments for state-specific material.
        Each SRF program has requirements related to public participation
    in development of their Intended Use Plan which describes how the State
    intends to use funds in its program--including the priority list of
    projects to be funded. For the DWSRF program, these requirements are at
    40 CFR 35.3555(b). For the CWSRF program, the requirements are at 40
    CFR 35.3150(a). Many States are subject to additional legal
    requirements or have developed procedures that dictate how public
    review is conducted. We have attached information received from several
    States to help respond to the question.

        West Virginia: For the CWSRF, the draft IUP and list are made
    widely available. A public meeting is held, with 30 days advanced
    notice, to discuss the contents of the priority list. The State mails
    out the draft to all proposed assistance recipients on the priority
    list and their respective engineering firms, regional planning and
    development councils, and other State agencies. There is a 2-week
    period after the meeting when comments can be received that may impact
    the list, prior to finalization. For the DWSRF, the State makes the
    priority list available through a posting in the State journal, the
    website, provides copies to other agencies, and makes copies available
    in offices throughout the State. A public meeting is held in the
    central office and to date, there has been little or no public input.
    Occasionally they will receive some comment from other agencies.
        Kansas: The priority List and Intended Use Plan are prepared once a
    year. The State gathers information throughout the year on specific
    problems, needs, and projects from KDHE staff in the NPDES compliance
    (effluent violations and raw sewage overflows), sludge disposal
    programs, KDHE field staff that conduct inspections and respond to
    complaints, City and County officials, and consulting engineers. A
    Draft Priority List and IUP is distributed to cities and counties that
    have projects listed in the documents, and also to other Federal and
    State agencies, consultants, equipment suppliers, and other interested
    parties, 350 copies in total. A Public Hearing notice is mailed with
    each copy and is also scheduled and advertised in the Kansas Register
    (similiar to the Fed Reg). The comment period is 5 to 8 weeks, and all
    comments receive individual written response, including Reg 7 EPA. The
    Final List and IUP is prepared and distributed to those who received
    the draft, plus anyone else that wants it.
        Georgia: The polices of the program which address the priority
    point system are updated annually and approved by the Board of
    Directors at about the same time as a draft IUP is presented. In
    addition, an annual announcement of a public hearing on the draft IUP
    is posted on the State's website and is sent to over 1,500 interested.
    At the public hearing, the draft IUP is presented and public comments
    are solicited. GEFA has not received any adverse comments in over 8
    years (potentially longer). Comments normally range from communities/
    consultants wanting to add projects or other non-profit groups seeking
    funding.
        Nebraska: The CWSRF IUP development cycle starts with an annual
    needs survey (October) to cities, counties and engineers. In November,
    the State holds a stakeholder meeting of about 30 interested
    individuals and entities that benefit from the SRF to discuss policies
    and direction. Three meetings are held in December around the State to
    present program changes and seek comment. The IUP and priority list are
    developed January--April 15. Then the draft IUP is public noticed and a
    formal hearing is held in June. Changes to the draft are made in the
    hearing and the final IUP is approved by the Environmental Quality
    Council (a 16 member board representing various interests in the
    State).
        Maryland: The State makes available for public review and comment
    both the draft Project Priority List and Intended Use Plan, and holds a
    formal public hearing.
        Virginia: The Virginia Dept. of Health 1974 Waterworks Regulations
    created a public participation committee known as the Commissioner of
    Health's Waterworks Advisory Committee (WAC). The WAC brings together
    stake holders every 2 months to discuss current and future issues.
    Annually, the State formally solicits input via mail (current mailing
    list about 3500) to create the draft project list and then again to
    receive comments on the final. The State also holds a public meeting to
    receive comment, following requirements in Virginia's Administrative
    Processes Act. The same mailings are placed into the Virginia Register
    (equivalent to the Federal Register) and on VDH website. The State also
    holds workshops (this year at 5 different locations) to discuss the
    program details, to respond to questions, and to obtain feedback. The
    State also conducted a survey of clients in 2001 to learn ways to
    improve their procedures. For the CWSRF, the IUP and Priority Funding
    List are presented annually to the public for review and comment. Each
    year before the IUP and priority funding list is submitted to EPA, it
    is taken before a citizen Board (SWCB) for tentative approval. These
    Board meetings are open to the public and the agenda for the meeting is
    made available to the public. Special agenda summaries are also mailed
    to interested and impacted parties. Following Board action, Virginia's
    tentatively approved IUP and yearly funding list is re-opened for
    public review and comments. Notice requesting public comment is
    published in six regional newspapers. In addition, notice of the
    meeting or hearing to receive public impute is subsequently mailed to
    appropriate and interested groups and individuals. Also, all proposed
    modifications to Virginia's SRF program implementation criteria and/or
    its priority ranking structure undergo the same public scrutiny
    process.
        Alabama: The State publishes its priority lists in the four major
    newspapers in the State and are sent to several hundred individuals,
    State and Federal agencies, and environmental groups for review, in
    addition to being posted on the State's website, for a public comment
    period of 45 days.
        Utah: The Drinking Water Board approves any revisions to the DWSRF
    priority list quarterly. The list is submitted to Utah's Resource
    Development Coordinating Committee (RDCC) for review. The RDCC's agenda
    is sent to all State & Federal agencies, local association of
    governments and town officials, and the media. When major revisions,
    occur the list is sent to all drinking water systems, associations of
    governments, consultants, etc.
        Missouri: Both the CWSRF and DWSRF programs have public hearings
    after the draft IUP is mailed to all cities, counties, sewer districts,
    legislators, engineering firms and parties on our mailing list (30-day
    public notice period).
        Alaska: Annually, Alaska mails a notice to all eligible
    participants inviting them to submit information for proposed projects.
    After a scoring and ranking process, a draft priority list is mailed
    out to all eligible participants and made available on the internet for
    30 days. The State then considers all comments and publishes a second
    priority list for 30 days, again considering any public comment before
    finalizing the list. During both of these public comment periods, the
    State invites suggestions for improvement to the scoring criteria and
    makes appropriate changes.
        Washington: For the DWSRF, the State develops a draft priority
    project funding list which is part of the draft IUP, and is subject to
    a 30-day public review and comment period (including a public hearing).
    The public comment period is advertised in three major newspapers
    across the State, on the DOH website, and at the State library. Very
    few comments and testimony are received, and very few people attend the
    hearings. In the event comments are received, they are taken into
    consideration when the IUP is finalized. For the CWSRF, virtually all
    the information about its water quality financial assistance programs
    is posted on the departmental web site. Annually, the State solicits
    applications for water quality financial assistance, including loans
    from the Washington Water Pollution Control Revolving Fund, generally
    January to March. Early in the solicitation period, the State holds
    four workshops around the State to answer any questions about the
    process, the application materials, and the project priority system.
    The draft Intended Use Plan and offer list is then published for a 30-
    day public review. During the public review period, at least one public
    meeting is held to solicit public comment. The final IUP is then
    published on the departmental web site.
        New York: The draft IUPs are distributed very widely to public
    officials, all known environmental groups, and other interested
    parties, is posted on the website, and noticed in the Environmental
    News Bulletin. Then the State holds a joint public meetings for DW and
    CWSRF and has a comment period after public hearing. The final IUP is
    published, widely distributed, and posted on the website. Amendments
    are mailed to same mailing list. Public interest has fallen off
    considerable since 95-96 for CW, since 99 for DWSRF. Usually no one or
    very few people attend meetings or submit comments, outside
    representatives from the communities.
        New Jersey: The draft IUPs are distributed very widely to public
    officials, all known environmental groups, and other interested parties
    (a very extensive mailing list: 1200 for CW 2000 for DW), and is posted
    on the website at least 45 days. Then the State holds a joint public
    meetings for DW and CWSRF and has a comment period after public
    hearing. The final IUP is published, widely distributed, and posted on
    the website. Public interest has fallen off considerable since 95-96
    for CW, since 99 for DWSRF. Usually no one or very few people attend
    meetings or submit comments, outside representatives from the
    communities.
        Puerto Rico: There is only one POTW that is a loan recipient, and
    they are really the only ones that show up at the public meetings.
    Draft and final IUP are publicly noticed in papers and libraries, but
    no one attends the public meetings.
        Idaho: Idaho sends all eligible borrowers a letter soliciting
    projects for the IUP. After the projects are scored and ranked, a draft
    of the IUP and the project priority list are posted on DEQ's website,
    sent to all applicants and/or consultants related to projects on the
    list, and advertised in statewide papers for a 30-day public comment
    period. The draft IUP and project list are also posted on EPA Region
    X's website, indicating the 30-day public comment period. After the 30-
    day public comment period ends, a public hearing is held, after being
    advertised in statewide newspapers and on the DEQ website. The Board of
    directors then formally approve the IUP, project priority list, and
    projects funded that year.
        Oregon: The State sends all eligible borrowers a letter soliciting
    projects for the IUP. Any interested community sends the State a
    preliminary application which the State uses to score and rank
    projects. Only projects that are ready to proceed are considered for
    actual funding that year and are placed, in priority order, on the
    fundable range portion of the IUP. The entire IUP, project priority
    list, and fundable range are advertised in State newspapers for a 30-
    day public comment period and sent to EPA Region X, which places the
    documents on its website indicating the 30-day public review period.
    With every new handbook which determines the method for the priority
    listing, there is a public comment and hearing process.
        Tennessee: In terms of meeting notices, the State does a mass mail-
    out to cities, engineering consultants, county executives, utility
    districts, plant operators etc., totaling about 1100 letters. Projects
    are scored according to Tennessee regulations, and the State posts the
    draft and final priority ranking lists on their website.
        Florida: Florida publishes the notice of hearing in the Florida
    Administrative Weekly, and send the draft priority list and general
    information to all interested parties. The draft priority list includes
    a brief description of each project, proposed funding, the type of
    funding, the priority score, and the population.
        Illinois: In accordance with State statute, Illinois publishes any
    proposed rulemaking (including the priority systems for DW and CWSRF)
    in the Illinois Register. Annually the State publishes a notice of the
    hearing on the Intended Use Plan in a quarterly publication, posts a
    notice on their website, and also mails out copies of the priority
    lists and draft IUPs to individuals and organizations on the State's
    mailing list.
        Wisconsin: Wisconsin publishes the project priority list and
    includes it as a subject of an annual public hearing. The public has
    extensive participation opportunities during the promulgation of the
    administrative rule which defines the ranking system used to create the
    priority list.
        New Hampshire: New Hampshire publishes a public hearing notice in
    the Manchester Union Leader (a State-wide newspaper) both 30 days and
    14 days in advance of the hearing. The draft priority list is sent to
    all the sewered municipalities and those municipalities with landfills
    that will require closing. The State holds the public hearing in August
    of each year and open the hearing for public comments and accept public
    input for 2 weeks after the hearing. The priority list is adjusted
    based on public comment.
        Mississippi: A notice of a public hearing is run three separate
    times in The Jackson Clarion-Ledger (a newspaper with statewide
    circulation) regarding the draft IUP, and any draft amended IUPs. The
    draft IUP and any amended IUPs are posted on the State's website and
    mailed to consulting engineers, municipalities, and rural water
    associations who have participated in the program in the past, as well
    as any other interested parties. The Executive Director of the American
    Council of Engineering Companies, the Executive Director of the
    Mississippi Municipal League, and the Executive Director of the
    Association of (County) Supervisors are members of the State's Board,
    and they notify their members of the draft IUP and the hearing date.
    The State will also make presentations (and booths when appropriate) to
    the Mississippi Rural Water Association, the Mississippi Water and
    Pollution Control Operators' Association, the American Council of
    Engineering Companies, the Mississippi Public Works Directors'
    Association, the Water Environment Federation, and the Mississippi
    Association of (County) Supervisors regarding the priority list process
    and the approximate date of availability of the IUP.
        Oklahoma: The State holds a public meeting on the SRF Project
    Priority List and any revisions made to the priority rating systems. A
    notice is published in a statewide publication 30 days prior to the
    public meeting. The State also circulates information about the
    Priority List and a description of each proposed project. In addition,
    prior to the public meeting, copies of draft IUP and Priority List are
    mailed to interested parties and potential loan recipients.
        Rhode Island: The State holds a public hearing annually.
        Arkansas: Arkansas has a statewide public notice, a 30-day public
    comment period, and a public hearing for both Intended Use Plans and
    the Project Priority Lists.
        Louisiana: The priority list and IUP are made available to the
    public for comment at a scheduled public hearing.
        Massachusetts: Massachusetts holds several public hearings (all
    following the same public notification requirements) as a project moves
    towards the SRF program. The Notification requirement is two statewide
    circulation newspaper, internet, and notification to the Secretary of
    State. Both spoken and written testimony is accepted at the hearing;
    only written comments after the hearing. Most notably the ``NEPA Like''
    review requires a public hearing for each application; all permit
    requests require public hearings. The draft priority list is published
    30 days in advance of the public hearing and presented at a public
    hearing, without project descriptions. The hearing that has a 30-day
    notice prior to the hearing and a 30-day comment period after the
    hearing. This year the State will hold its first public hearing and 30-
    day comment period at the outset of the SRF solicitation process to set
    watershed funding priorities. This hearing will give communities notice
    that solutions to certain problems in each watershed will be given
    watershed planning points in the upcoming project evaluation.
        Hawaii: Hawaii publishes a public notice in a statewide circulated
    newspaper on the draft IUP and Project Priority List. These documents
    are made available at each district health office throughout the State.
    A public hearing is scheduled only if there is significant interest.
        Vermont: Vermont regulations for IUP and project priority list
    development include statewide publication of a meeting notice (in 3
    daily newspapers which have general circulation in the State) 30 days
    prior to holding a public hearing on a draft Priority List and IUP. The
    Draft list, IUP, and a 5-year projection of pollution control projects
    are distributed to approximately 300 individuals and organizations
    (municipal officials, consultants, legislators, State officials, etc.).
    Public comment is received at any time prior to, during, and up to 7
    days following the hearing. Following the close of the comment period,
    the adopted list and IUP together with a responsiveness summary are
    distributed to the above individuals and organizations.
        New Mexico: The State notifies entities on its mailing list and
    advertises in The New Mexico Register and newspapers of general
    circulation, inviting entities to submit applications for funding. When
    the priority list is completed, the State again advertises and requests
    comments for a 30-day comment period. The State used to schedule public
    hearings for the priority list but nobody ever showed up. Based on good
    communication with communities and interest groups, the belief is that
    they are in favor of the projects. Also, because the State has
    sufficient funding to move forward with all projects that have been
    ready to proceed, there has not been controversy or competition between
    communities for CWSRF funds.
        Minnesota: The Project Priority List is prepared according to a
    priority system that is established in Minnesota's administrative
    rules. The development of the priority system rules followed the
    extensive pubic participation process required when any rules are
    developed. In addition, the Project Priority List is included as part
    of the annual Intended Use Plan which is provided in draft to all
    interested parties during a public comment period.
        Maine: The draft IUP is mailed to all potential treatment works
    projects each year with a copy of the priority system for comments.
        Nevada: The State publishes the draft priority list and IUP along
    with a notice of a public hearing. The public notice is mailed to over
    100 entities (counties, GID, environmental groups, etc.) and is also
    published in 4 major newspapers (Reno Gazette, Las Vegas Journal,
    Carson Capital Paper, and Elko Free Press). The State also announces
    the public hearing on its web page to allow public input concerning the
    proposed projects.
        North Carolina: The State held a public hearing with prior
    notification on the adoption of rules for the priority system. The
    State also holds a public hearing on each year's IUP/priority list.
    Notification consists of publication of the hearing in the North
    Carolina Register, selected newspapers in the State, and notices to
    stakeholders and selected interested parties.
        California: The State has NEPA-like reviews, environmental
    assessments, and environmental impact statements for qualifying
    projects which seek input from the various State agencies that may have
    an interest in or be impacted by the projects. Even the smallest
    projects are sent to public notice (including local government) and
    noticed to other State agencies. Additional coordination and
    consultation takes place on an informal basis.
        Kentucky: Kentucky publishes a statewide meeting notice on the
    draft priority list in newspapers and on its website. They then notify
    the public and hold a public meeting on the draft and respond in
    writing to any comments received.
        Montana: Each year, Montana publishes notice in its 5 major
    newspapers announcing the availability of draft Intended Use Plans and
    project priority lists, along with a scheduled public hearing date. A
    30-day public comment period is also provided. The announcement and
    IUPs are also posted on the State website. The DWSRF program uses an
    advisory committee that includes members representing the Montana
    League of Cities and Towns, the Montana Association of Counties, and
    each House of the Montana Legislature to help develop the draft list.
        Colorado: The State publishes public hearing notices in the
    Colorado Journal and the Denver Post. Draft priority lists are sent to
    all communities on the list and everyone that requests a copy from the
    public notice. To date the only public input has been communities
    asking to be added to the list. There have been no controversies in the
    program since Colorado (through leveraging) has been able to fund all
    communities that requested loans and were ready to proceed.
        Iowa: The State prepares a draft funding list and presents it to
    its Environmental Protection Commission for information. The following
    month it is again part of the EPC meetings. Press releases re hearings
    on the draft list go out to the technical/professional organizations,
    and everyone that applied for funding is sent a direct notice which
    includes the draft IUP. Once the hearing is held, the State prepares a
    responsiveness summary and request EPC approval. During each of the
    three EPC meetings statewide notice is made, the agenda of the EPC
    meeting is made available and if anyone request a copy of the agenda
    brief or the IUP they obtain a copy prior to the meeting. Usually, no
    one shows up for hearings on the IUP.
        Delaware: First, if there are any amendments to the project
    priority criteria from the previous year, the changes are presented to
    stakeholders at a public workshop with requests for comments. They are
    also sent to EPA for comments and approval. Solicitation for projects
    sent to all eligible parties and interested stakeholders. The draft
    PPL, which is created utilizing Project Priority Criteria, is then sent
    to all those who applied for funding. Notice of public workshop to
    review the draft PPL is sent to all eligible systems and interested
    stakeholders. Comments and questions are accepted prior to and during
    workshop. The final PPL is created after all questions and comments
    have been addressed.
        Louisiana: Public hearings for the priority list are usually
    attended only by State staff and a court reporter to make a transcript.

        Question 2. Please provide the committee with data, studies,
    analysis of State law and other information on whether individual
    States require asset management plans when administering loans under
    the SRF?
        Response. While States may not require recipients to have (or
    develop) a formal asset management plan as a requirement of funding,
    many require that systems have similar plans or establish replacement
    funds to address future infrastructure needs. In the DWSRF program,
    systems may have to provide documentation that would speak to elements
    of an asset management plan as part of the demonstration of technical,
    financial and managerial capacity. See the attached for additional
    State information.

        West Virginia: No asset management plans are requested or required
    when administering SRF loans. The DWSRF requires projects that will
    receive funding to have a Capacity Development assessment completed on
    the system. This will review the system's financial, managerial and
    technical capabilities and make recommendations for improvements. If
    there were negative findings, then the DW SRF would require the system
    to correct any deficiencies prior to issuing a Binding Commitment. The
    Public Service Commission (PSC) also issues a Certificate of
    Convenience and Necessity prior to a water system making modifications
    to their system. The PSC will review the financial aspects of the
    project and make the determination if the system has the rate structure
    to make the debt service payments and still be a financially viable
    system. The loan applicant has to receive the Certificate from the PSC
    before the DW SRF will close the loan.
        Kansas: Kansas follows the Construction Grant requirements. The
    Operation, Maintenance, and Replacement expenses must be determined by
    the engineer for existing and new facilities, and the User Charge
    system must provide sufficient revenues for these expenses. O, M, and R
    charges must be proportional to use. The Replacement Account is
    required to be established to set aside funds for future major
    equipment items (usually anything over $2000 cost) that have a useful
    life more than 1 year and less than 20 years. The Replacement Account
    is a separate sinking fund savings account to insure money is available
    at the future time equipment needs to be replaced. The financial
    capability review required with SRF loans also insures adequate funds
    are collected to repay the loan.
        Georgia: The State has no asset management requirement, but an
    Operation and Maintenance Manual is required to be submitted within 1
    year of project start-up. For some of the more sophisticated
    consultants, these manuals are fairly elaborate, often detailing
    higher-level operational issues.
        Nebraska: State legislation requires loan recipients to develop and
    implement a long-term wastewater treatment works management plan for
    the term of the loan, including yearly renewals.
        Maryland: Maryland has no requirement. However, financial advisory
    services may be provided to small communities on how best to achieve/
    maintain financial capacity (usually an outcome of the State's
    financial/credit review).
        Virginia: State law, which existed prior to the Federal capacity
    development requirements, allows the State to require a Comprehensive
    Business Plan (CBP) for permit issuance or to require corrections at an
    ill-performing waterworks. The CBP addresses capacity to operate the
    waterworks in the long term. In addition the VDH Waterworks Regulations
    require a Preliminary Engineering Report (PER) for any new project to
    address that project as well as the existing waterworks facilities.
    CWSRF regulations currently do not require the loan recipient to
    develop an asset management plan. The existing program does, however,
    review and evaluate the recipient's current and proposed operation,
    maintenance and replacement (O/M&R) cost and borrowing impacts. The
    loan agreement requires that each system be operated in a sound and
    economical manner and that the loan recipient maintain the system in
    good repair and operating condition. The program requires the
    development of an adequate and appropriate sewer use ordinance and the
    loan agreement requires that the recipient maintain an adequate user
    charge fee structure to assure proper continued operation. The loan
    program evaluates the impact borrowing has on the residential users of
    the system. This information is shared with the potential recipient in
    order to evaluate its yearly operational budgeting impacts. In
    addition, DEQ offers and provides technical support and assistance to
    any locality or operator experiencing operational problems.
        Alabama: The State has no formal asset management plan
    requirements. However, a financial advisor under contract with this
    Department conducts a thorough review of each SRF recipient and advises
    them of any needed changes to ensure viability of the system. This
    service has proven effective, as evidenced by a zero default rate for
    the SRF programs.
        Utah: Utah has nothing directly associated with asset management as
    such. Each applicant provides an engineering report summarizing its
    needs and the latest inspection report is evaluated and taken into
    consideration. The capacity development review is made according to
    Utah's adopted standard. Each loan recipient is required to establish
    and maintain throughout the life of the loan a capital facilities
    replacement account with annual deposits equaling 5 percent of the
    system's annual budget including debt service and depreciation. Other
    systems are encouraged to do the same since the interest rate is
    discounted for those having such accounts.
        Missouri: Communities within the State are slowly but steadily
    moving to perform asset management pursuant to GASB 34 requirements.
        Alaska: The State does not require a formal asset management plan
    as a condition of receiving an SRF loan. However, in our project
    consultation phase, these types of plans are encouraged and may afford
    the project a higher priority ranking. Our experience has been that
    this type of incentive is much more effective than requiring an asset
    management plan by regulation. If a system misses the funding cutoff by
    a few points because they didn't have an asset management plan, the
    next year they certainly will have one.
        Washington: Water system plans identify necessary capital
    construction projects, associated costs, and payment strategies. The
    principal goal of water system planning is to make the best use of
    available resources in order to provide high quality service and
    protect the health of utility customers. The State looks at the
    utility's water system plan as the foundation, whereby the utility
    takes a comprehensive look at all of its needs, desires, and
    requirements. The State considers a water system plan (or small water
    system management program) to be part of the system capacity
    requirements.
        New York: The CWSRF program does not require this at present.
    Larger communities such as NYC have well defined planning and budgeting
    programs that produce 5- and 10-year capital plans typically. For the
    DWSRF, applicants must provide their current adopted capital and
    operating budgets, financial statements (audited if available) for the
    3 most recent fiscal years, their official statement or document
    associated with the most recent public issuance of debt, cost
    documentation for the refinancing of costs already paid, and stand-
    alone financial reports that have been developed by the applicant
    within the last 3 years.
        New Jersey: For private water systems, the Board of Public
    Utilities determines financial and managerial capabilities and reviews
    various financial and organizational documents from the private water
    company including Annual Reports and Management Audit Reports. The
    Department of Community Affairs looks at annual budgets/audits for the
    publicly owned water systems, including municipalities, counties, etc.
        Oregon: Asset management plans are not required, but to obtain an
    SRF loan, a community must either have a Facility Plan, Plans and
    Specifications, and Operations and Management Plan. Additionally, when
    reviewing user charge systems prior to awarding a loan, the State
    requires a rate system that not only covers the cost of repaying the
    CWSRF loan but also O&M costs.
        Idaho: Asset management plans are not required, but to obtain an
    SRF loan, a community must either have a Facility Plan, Plans and
    Specifications, and Operations and Management Plan. Additionally, when
    reviewing user charge systems prior to awarding a loan, the State
    requires a rate system that not only covers the cost of repaying the
    CWSRF loan but also O&M costs.
        Tennessee: Asset management information is obtained and reviewed by
    the State through the following documents: facilities plans, operating
    and maintenance manuals, user rate systems, etc.
        Florida: The State requires project sponsors to meet capacity
    development requirements. While this does not specifically address
    asset management, it does provide documentation that the systems are
    managing their resources adequately.
        Illinois: Pursuant to State rules on planning, a loan applicant has
    to look at what is needed to achieve and maintain compliance. In order
    to do that, the engineer has to look at the existing assets and
    evaluate their viability. In reviewing user charge systems prior to
    loan award, the State makes sure that the established rates are
    adequate to not only pay off the loan but are adequate to pay for
    operation, maintenance, and replacement.
        Wisconsin: Although the State does not require assets management
    plans as a condition of receiving SRF loans, it does require that loan
    recipients establish and maintain an equipment replacement fund.
    Wisconsin also has in place an extensive compliance maintenance program
    which requires each POTW to annually assess and report on the physical
    conditions and performance of the treatment works. One of the
    objectives of the compliance maintenance program is to extend the
    useful life of the treatment facilities.
        Mississippi: Part of the financial capacity assessment of the water
    system capacity assessment program asks the following:
         Is the municipality current in submitting audit reports to
    the State Auditor's Office?
         Was a copy of the latest audit report available for review
    at the time of the survey?
         Does this audit clearly show that water and sewer fund
    account(s) are maintained separately from all other municipal accounts?
        or:
         Has the rural water system filed the required financial
    reports with the State Auditor's Office and were these reports
    available for review?
         Does the latest financial report show that receipts
    exceeded expenditures?
        And regardless of whether the system is municipal or rural:
         Has the water system raised water rates in the past 5
    years or can the system provide acceptable financial documentation
    clearly showing that rate increase is not needed and that revenue has
    consistently exceed expenditures by at least 10 percent?
         Does the system have an officially adopted policy
    requiring that water rates be routinely reviewed and adjusted as
    appropriate, and was this policy available for review during the
    survey?
         Does the water system routinely follow an officially
    adopted cutoff policy for customers who do not pay their water bills,
    and was this policy made available for review during the survey?
         At the time of the survey, were 5 percent or less of the
    customers (active meters) of the water system delinquent in paying
    their water bills?
        As part of the loan application process, each applicant is required
    to show whether the current rate structure is sufficient to make the
    note. If it is not, a proposed rate increase must be included.
        Under State law, municipalities must authorize repayment from their
    portion of the taxes collected by the State Tax Commission, and
    counties must authorize repayment from their homestead reimbursement
    funds. Should these not be sufficient to make the repayment amount,
    then a check is required.
        Listed as part of the Management Capacity Assessment portion of the
    Water System Capacity Assessment program is:
         Have acceptable written policies and procedures for
    operating this water system been formally adopted and were these
    policies available for review during the survey?
         Have all board members completed Board Member Training
    (required of all members newly elected after passage of State law)?
         Does the Board of Directors meet monthly and were minutes
    of Board meetings available for review during survey?
         Does the system have any SDWA violations within the past
    24 months?
         Does the water system have the ability to provide water
    during emergencies (generator, emergency tie-ins, etc.)?
        Oklahoma: Oklahoma SRF loan recipients agree to covenants in the
    loan agreement that the system will be operated and maintained in good
    condition. The State has implemented an annual asset inspection program
    for all completed loan projects to insure that this loan covenant is
    being complied with. Asset inspections verify annually if the borrowers
    infrastructure is being operated and maintained. Also, all loans
    require net revenue available for debt service to equal at least 125
    percent of the maximum annual amount required to repay the loan. Excess
    revenues may be utilized by the borrower for O, M & R expenditures. Net
    revenues and debt coverage ratios of each borrower are verified
    annually as annual audits are reviewed by the State. For the DWSRF, all
    systems must meet our capacity development guidelines which require the
    system to have adequate financial, managerial and technical capacity.
        Rhode Island: All CWSRF borrowers received construction grants and
    are still operating under those requirements for O, M, and R.
        Louisiana: The State does not require an asset management plan, but
    does require an annual audit for State review. Plans may exist as part
    of the audit report. Louisiana also requires the development of a rate
    structure with an annual review to assure that the cost of operating
    and maintaining the system will be covered, and the development of an
    O&M Manual for use by employees of the system.
        Massachusetts: The State has maintained the requirement that O&M
    manuals must be reviewed and approved by DEP prior to a treatment works
    completion certification can be accepted. Projects funded under revenue
    bonds must provide an initial rate structure that covers O&M, debt
    service, and budget reserves to maintain the fiscal health and
    stability of the system. Future capital debt must be approved and made
    subordinate to SRF debt. Annual financial statements and reports are
    required for revenue bonds as well.
        Hawaii: The State does not require an asset management plan,
    however, they conduct an annual operation and maintenance inspection of
    all POTWs through which they review their sewer user charge systems in
    terms of financing operation, maintenance and replacement costs and
    debt service requirements as well.
        Vermont: No formal asset management plan is required; however,
    municipal loan recipients are required by State law to adopt a capital
    budget and program. Also, as part of the pollution control funding
    program, the State assists municipalities with development/changes to
    user charge systems.
        New Mexico: Although the State does not require a formal asset
    management plan, they do have the following components in place. They
    require review of the existing and/or proposed rate structures as well
    as a form of dedicated revenues by pledging a repayment stream via an
    ordinance that is adopted through the entity governing body. In
    addition, a debt reserve and replacement reserve is required. They also
    coordinate technical assistance for operators and managers of
    facilities constructed with CWSRF funds. This is considered the most
    effective use of limited dollars and staff time to assure that
    facilities are operated to meet water quality requirements and to
    prolong the useful life of facilities.
        Minnesota: Municipalities that have the financial capability to
    borrow SRF funds for construction or rehabilitation of water and
    wastewater facilities can be reasonably expected to continue to have
    sufficient financial capability to incur debt for the capital cost of
    future improvements. Many communities do have asset management plans
    and some establish a capital replacement fund for future improvements.
    Minnesota has a State supplemental assistance program that can provide
    grants or other assistance in combination with CWSRF funds for high
    cost projects. Recipients of these funds are required to establish a
    long-term capital replacement fund which can only be used with approval
    from the Public Facilities Authority.
        Maine: The State does not require asset management plans, but does
    require a facilities plan that addresses age of system and other
    pertinent information. Larger communities with staff do assess their
    equipment and manage their assets.
        North Carolina: DWSRF loan recipients must meet ready to proceed
    criteria to receive funding, which include having engineering plans and
    specifications approved by the State prior to construction. For an
    authorization to construct to be issued, the system must have prepared
    a Water System Management Plan which includes asset management
    considerations such as the projected useful life of the equipment and
    how they plan to fund the maintenance and replacement. The guidance
    document requires: a positive cash flow for the upcoming five year
    period; adequate capital to finance equipment replacement; an operating
    cash reserve greater than or equal to one-eighth of the annual
    operating, maintenance and administrative expenses of the water system
    that will be fully funded at the end of the first year of operation; an
    emergency cash reserve greater than or equal to the cost of replacing
    the largest capacity pump that will be fully funded at the end of the
    fifth year of operation (or if they applicant owns multiple water
    systems, showing reserves affording greater or equal capabilities, or
    showing equivalent financial capacity to comply with requirements);
    budget and expenditure control procedures and adoption of generally
    accepted accounting procedures.
        California: California requires several elements that might be
    included in an asset management plan. These include a user rate
    structure to assure sufficient funds to properly operate and maintain
    the facilities and the Wastewater Capital Reserve Fund to provide funds
    for replacement of some equipment.
        Kentucky: All projects must go through a program and credit review
    before being approved. Any asset management issues at that time are
    placed as conditions of funding. The State is available to work with
    communities to remedy any deficiencies.
        Montana: Systems' operating and maintenance budget, which may
    include any reserve funds (such as capital replacement), and rate
    structure, etc. are addressed in the Preliminary Engineering Reports
    and reviewed during the application process. For the drinking water
    program, this is also done in conjunction with the capacity development
    review.
        Colorado: Colorado currently requires communities to have a 10-year
    capital improvement plan as well as a user charge system that covers
    O&M, Replacement and debt service.

        Question 3. Please provide the committee with data, studies,
    analysis of State law, and other information on whether coordination
    and consultation takes place between water facility planners and State
    transportation planners, watershed planners, and land use planners?
        Response. Coordination and consultation with relevant State
    agencies is commonly conducted as part of the environmental review
    process. SRF projects subject to Federal cross-cutting authorities must
    also comply with the Demonstration Cities and Metropolitan Development
    Act which instructed Federal Agencies to consult with local officials
    to ensure smoother coordination of their assistance programs and to
    ensure that projects funded under Federal programs are consistent with
    local planning requirements. States may also have their own laws and
    regulations relating to coordination with State agencies. See the
    attached for additional State information.

        Alabama: The Intended Use Plan is provided to a large group of
    diverse interests. In addition, recipients are required to coordinate
    with the USFWS, COE, historic preservation officer, and regional
    planning agency prior to submitting a request for funding. The State's
    environmental review process again provides for these organizations,
    other agencies, and the public at large to comment on these projects.
    Alabama's water planning program and SRF programs are both administered
    by the same division in the environmental regulatory agency.
        Alaska: Both SRF priority lists are available to other State and
    local government planning entities. (There are no county governments in
    Alaska.) At the planning and design phase of a project, an extensive
    coordinated review occurs through the State Division of Governmental
    Coordination within the Governor's Office.
        Arkansas: The Arkansas Soil and Water Conservation Commission is
    responsible for the State Water Plan, NPS planning and monitoring, and
    ground water planning and monitoring, plus providing State and Federal
    funding for water projects.
        California: During the planning process project alternatives are
    considered in light of these various plans both as part of the project
    report and environmental review. The contents of the project report is
    specified in the SRF Policy and the environmental review document, for
    the most part, by CEQA.
        Colorado: Colorado has a site application/approval process on all
    new or upgrades of POTW's. This process requires the POTW to get
    comments and approvals from adjacent communities, counties, and
    regional water quality planning agencies. Counties also have a similar
    1041 permitting process which includes public hearings on proposed
    construction. The SRF planning process also requires public meetings on
    proposed projects.
        Delaware: All DWSRF projects in Delaware must be approved by the
    Cabinet Committee on State Planning Issues (CCSPI) prior to issuance of
    a binding commitment. The CCSPI is managed through the State Planning
    Office and consists of Cabinet Secretaries from many of the Departments
    in the State, including Dept. of Natural Resources and Environmental
    Control, Dept. of Transportation, Dept. of Public Safety, Dept. of
    Education, Dept. of Agriculture, Dept. of Health and Social Services,
    Dept. of Finance, State Housing Authority and Budget Office. A project
    will not be approved unless it is in compliance with ``Livable
    Delaware'', the State Land Use Planning Act and with County
    Comprehensive Plans.
        Florida: All projects must go through the clearinghouse, so the
    appropriate staff in each department have the opportunity to provide
    input prior to any design work being authorized. Because each facility
    plan is also reviewed by numerous programs within the Department of
    Environmental Protection, there are additional opportunities for
    coordination on various issues, such as consolidation, watershed/source
    water protection, and land use planning.
        Georgia: Under Georgia's current Governor, Roy Barnes, GEFA is
    taking the lead in addressing water related issues on a regional basis
    and the associated issues that the committee may have interest in. More
    information is available through the State's website at:
    www.northgeorgiawater.org The Executive Coordinator is Ted Larrabee who
    can be reached at 404/463-7206.
        Hawaii: Hawaii does not have a process of integrating all planners
    from different agencies, however, Hawaii's Revised Statutes, Chapter
    243, requires that all projects using State land, funds and resources
    must submit an environmental assessment which is reviewed by all State
    agencies. Also, if a project involves a change of zoning, the Land Use
    Commission must submit the proposed project for all State agencies
    review.'
        Idaho: Facility plans for POTWs include consideration of related
    plans such as land use plans, comp. plans, etc. The facility planning
    process also includes a detailed environmental review process under the
    Federal Environmental Policy Act. There is no formal consultation with
    the entities that develop these other plans.
        Illinois: Coordination with various levels of government is done on
    an as needed basis. It is definitely not needed on every project. There
    is no specific requirements for the coordination, although agencies
    have opportunity for input into the planning process through the public
    participation process.
        Kansas: The environmental review process requires a public meeting
    and public hearing of the applicant, and intergovernmental review by
    interested Fed and State agencies. Planning and Zoning authority is at
    the city and county level of government, at their option. Wastewater
    projects must be in conformance with county-level and/or city-level
    plans, as typically a ``special use permit'' (rezoning) is required for
    a new wastewater treatment plant site. Local agencies also do water
    long range planning, and land use plans, and transportation plans to an
    extent. Watershed planning is done at the State level, if done at all.
    (KDHE does TMDLs for water quality, but water quantity (flooding) is by
    others.) The environmental clearance documents are sent to about 16
    interested Fed and State agencies, the regional Planning Commission if
    there is one, the local newspapers, EPA, and other interested parties.
        Kentucky: Kentucky has help several ``Smart Growth'' forums across
    the Commonwealth over the past year. It is the Governor's intent to
    pass legislation relating to Smart Growth initiatives.
        Louisiana: There is no coordination between the different planners
    in the State.
        Maine: A new law passed (PL770) requires that all State and Federal
    moneys loaned or granted for sewer extensions must be in growth
    designated areas to avoid sprawl.
        Maryland: This is at the discretion of the borrower when planning
    water/sewer projects. However, prior to providing SRF assistance, the
    State undertakes a State Clearinghouse Review, which offers several
    State agencies an opportunity to review the proposed project and offer
    any comments. Projects also have to be in compliance with the State's
    Smart Growth/Priority Funding Area legislation.
        Massachusetts: The Massachusetts SRF program is integrating the
    Massachusetts Watershed Initiative (MWI) into the annual priority
    setting mechanism. The MWI is also implementing the Community
    Preservation Act--our version of Smart Growth. This effort just
    completed a build-out analysis of all 351 communities. The Community
    Preservation Act requires the community to accept the build out plan.
    In addition, the acceptance also allows the community to charge 3
    percent of the first $100,000 of a property sale to provide funds for
    land acquisition, historic property restoration, and affordable
    housing. The State will match funds used from the 3 percent to
    subsidize expense. Communities that accept the Community Preservation
    Act receive 10 points on any State funded program priority lists.
        Minnesota: The Minnesota Public Facilities Authority is the
    responsible for management of the CWSRF and the DWSRF and the financial
    administration of the loan programs. The Authority is made up of the
    Commissioners or their delegates from six State departments: Pollution
    Control Agency, Health, Agriculture, Finance, Transportation and Trade
    and Economic Development. The make up of the Authority and the good
    relations between Authority staff and the other departments allows for
    extensive coordination and consultation. Authority staff also consult
    regularly with staff from the State planning office. Minnesota has also
    established a high degree of coordination with Federal Agencies,
    including USDA Rural Development and the Army Corps of Engineers, as
    well as the State staff that administer HUD block grant funds. This
    State-Federal coordination has been very successful.
        Missouri: The State does coordination as part of its NEPA-like
    environmental review requirements.
        Montana: No coordination generally occurs between the water/
    wastewater facility and transportation or land use planners unless
    those agencies were to provide comment during the environmental review
    process. During that process, at a minimum the applicants must provide
    information and request comments from Montana Departments of
    Environmental Quality, Fish Wildlife and Parks, Natural Resources and
    Conservation, the State Historic Preservation Officer, U.S. Fish and
    Wildlife Service, and the U.S. Army Corps of Engineers. Other agencies
    may also be contacted, as applicable, for a specific project. Some
    coordination with transportation planners may also occur at the local
    level on a project specific basis when integral to construction.
    Coordination does occur regularly between the major State and Federal
    Agencies that provide funding for public works projects in Montana.
    This organization is called the Water, Wastewater, and Solid Waste
    Action Coordinating Team (W2ASACT) and meets bi-monthly to review
    status of current and future projects. If a new drinking water source
    is proposed as part of a project, the State's DEQ Source Water
    Protection program does become involved in the review process. The
    WPCSRF program uses an integrated priority list ranking system that
    considers TMDL development and watershed issues. Projects are ranked by
    these priorities for TMDL development.
        Nebraska: Coordination and consultation is generally done at many
    levels on a regular basis and specifically to some extent on an
    individual project basis. The critical people that need to be involved
    in any given situation (program or project) are brought together when
    needed.
        Nevada: The State promotes coordination and planning across
    appropriate levels of government to maximize use of existing
    infrastructure, to control sprawl, to promote watershed protection,
    etc. The Infrastructure Of Nevada Communities (INC) was established to
    bring together groups like RCAC, the Nevada Bureau of Health, State
    Division of Water Planning, Groundwater Task Force, Conservancy Boards,
    Nevada Division of Environmental Protection and others to address water
    quality infrastructure needs at the most affordable cost.
        New Hampshire: The State requires that each application for a SRF
    loan be forwarded to the Office of State Planning to undergo the
    Intergovernmental Review Process.
        New Jersey: Depending on the level and scope of a given project,
    the Department requires coordination with different groups and
    permitting agencies such as the Watershed Management and Permitting
    Program which promotes a watershed-based approach enabling the
    Department to better address regional problems and opportunities,
    assess the implication of various water supply issues, and better
    evaluate pollution from all sources including identifying the most
    effective way to control non-point source pollution in the project
    area. The existing SRF program structure in New Jersey requires that,
    as a condition to qualify for funding, applicants must receive all
    applicable permits and approvals to undertake the project.
        New Mexico: There is coordination done with the Surface Water
    Bureau and the Ground Water Bureau of the New Mexico Environment
    Department. All CWSRF projects are funded in coordination with the
    State water quality management plan. There is currently no coordination
    with State transportation planners or land use planners. There are no
    State land use planners. There is no State land use planning
    requirement or even a State planning office in New Mexico.
        New York: Environmental review process and documents and forms that
    have to be prepared by local communities address land use and watershed
    issues; transportation issues not as much. Public notice of
    environmental review documents is made to all affected agencies. There
    is significantly more coordination in urban areas than in rural areas.
    Formalization of the coordination efforts among drinking water and
    wastewater planners, specifically State and Federal funding agencies,
    has recently taken place in New York. Part of this effort is devoted to
    providing training and outreach to planners and officials at all levels
    of government and to the private sector. This outreach is aimed at
    raising the level of interest for other planners to consult and
    coordinate their efforts with the water planners.
        North Carolina: NEPA-like reviews, environmental assessments, and
    environmental impact statements for qualifying projects seek input from
    the various State agencies that may have an interest in or be impacted
    by the projects. Even the smallest projects are sent to public notice
    (including local government) and noticed to other State agencies.
    Additional coordination and consultation takes place on an informal
    basis.
        Oklahoma: With respect to water facility plans, all SRF loans are
    coordinated with the appropriate regional planning agencies, State
    water regulatory agency. Prior to project planning approval concurrence
    must be gained from the State regulatory agency (208 & facility
    standards). Substate planners are all notified during the planning
    process. There is no coordination with State transportation planners.
    There is coordination with watershed plans. All SRF loans are
    coordinated with the appropriate Federal/State/local water shed
    planners (208 Management Plan Water Quality Standards, NPDES, State
    construction permits/stormwater runoff), COE 404 permitting process,
    and local floodplain coordinators. This coordination is done during the
    planning and/or design stage. Coordination with land use plans is done
    as it applies to prime farmland protection and threatened or endangered
    species. Generally, the Oklahoma SRF projects are not development
    projects, but upgrades or expansion existing facilities to enhance
    watershed protection and to bring communities into compliance with the
    appropriate Federal act.
        For DWSRF projects, the DEQ also requires each DWSRF project to
    submit a environmental and engineering report to be reviewed first by
    the project coordinator and district engineer respectively. The
    environmental assessment is sent out to local, State and Federal
    Agencies for comment prior to approval.
        Oregon: For POTWs the State's facility planning requirements
    include consideration of related plans such as land use plans, comp.
    plans, and watershed plans. The facility planning process also includes
    a detailed environmental review process under the State's Environmental
    Policy Act. Through master plans, water planners must consider traffic
    patterns & proposed development in planning for source capacity,
    storage capacity & water movement in the distribution system. Less
    coordination historically goes on with watershed planners here, though
    it is increasing. Oregon's Drinking Water Program has a land use
    planning requirement. A construction plan is reviewed or approved only
    when accompanied with a signed statement of land use compatibility from
    the local land use planning authority based upon a State approved land
    use plan. Oregon Revised Statutes 448.165, Water Systems.
        Rhode Island: At the facility planning stage, communities must get
    in contact with State historical, DOT, statewide planning. Facility
    plans are not approved until the statewide planning office has provided
    comments.
        Tennessee: Coordination and planning across appropriate levels of
    government agencies is done through the existing Interdisciplinary
    Environmental Reviews. The Tennessee Division of Community Assistance
    Contacts the following Agencies during the planning phase of all CWSRF/
    DWSRF projects: Department of Agriculture, Department of Economic and
    Community Development, Department of Transportation, Division of Air
    Pollution Control, Division of Archaeology, Division of Groundwater
    Protection, Division of Natural Heritage, Division of Solid Waste
    Management, Division Water Pollution control Division of Water Supply,
    Tennessee Historical Commission, Tennessee Wildlife Resources Agency,
    Tennessee Valley Authority, US Army Corp of Engineers, US Fish and
    Wildlife Service.
        Utah: The SRF program does not talk directly to the planners at the
    State level. The local association of government coordinates those
    issues as, at times, the county commissions. The usual projects that
    are funded involve renovation of existing works or are so small they
    don't impact local planning. Communities vary as to the involvement of
    planners in their infrastructure, its maintenance, improvement or
    expansion. Water conservation and management are big issues and a water
    management and conservation plan are required of each recipient of
    financial assistance as are inclining block rates for water service.
        Vermont: ANR is currently proposing a change to the priority system
    that would limit funds to projects that will support ``smart growth''
    and avoid those projects defined as sprawl inducing. There has been
    increased coordination on new projects between growth analysts, land-
    use planners, project engineers, and department staff to address growth
    issues/secondary impacts at the outset of facilities planning. An
    initiative is underway to develop ways for addressing water quality
    impacts related to sprawl in regulatory reviews conducted by the
    department.
        Virginia: For the DWSRF--Virginia law created an entity--the
    Planning District Commission (PDC)--that is charged with coordinating
    resources. Each PDC is responsible for a particular geographic area
    that usually will encompass 4 to 5 counties (http://
    www.institute.virginia.edu/vapdc/pdcmap.htm) and serve as a
    clearinghouse for review of application for DWSRF Federal funds. The
    PDCs receive advance information regarding any impending DWSRF
    activity. The environmental review process involves these types of
    entities described in the question. In addition, VDH issues transmittal
    letters with construction permits to approve projects. Reference is
    made that local permits that apply must be obtained. Of course this
    includes land zoning.
        For the CWSRF--While loan procedures do not specifically require
    that each loan recipient coordinate its planned wastewater project
    activities with area and State water facility planners, transportation
    planners, watershed planners and land use planners, it would be
    unrealistic to imply that no communication or coordination is apparent.
    Any proposed wastewater and sewer conveyance projects is required to
    obtain the necessary permits to construction and alter land use. Local
    governments and its consultants know the importance of early and
    adequate communication and coordination during the planning stage of a
    project in order to obtain necessary permits. State law requires local
    governments to develop and maintain land use plans. When the
    capitalization grant is prepared, DEQ is required to notify the State's
    regional planning authorities of the SRF contemplated projects across
    the Commonwealth. In addition, all environmental assessments (reports)
    prepared for a SRF planning project are required to be formally
    submitted to various State and local regulatory agencies. Each loan
    recipient must schedule, properly notice and hold a public hearing to
    receive comments on its planned activity. Once this is finalized, the
    State issues and publishes its environmental review statement or a
    categorical exclusion statement. This again is published in a local
    newspaper and public comments are solicited in regards to the State's
    environmental clearance being issued for the project. In Virginia, it
    would be highly unlikely that any agency, group or individual could
    claim that they were not given ample notice of any impending project
    and/or given the opportunity to comment and be consulted during the
    planning process of a project.
        Washington: DOH (DWSRF) coordinates with a variety of Water
    Resource Inventory Areas across the State at various levels;
    participates in regional planning efforts/coordination that cross all
    planning boundaries (land use, transportation, watershed, critical
    areas, adequacy, fish and wildlife). Water system plans are submitted
    to local governments for review and all plans for systems over 1000
    connections are required to follow the SEPA process. Each plan is
    developed by the water system/consultant and submitted to DOH for
    review and approval. The process coordinates with Ecology on water
    resource issues.
        For POTW projects funded through the CWSRF, the State's facility
    planning requirements include consideration of related plans such as
    land use plans, shoreline management plans and watershed plans. The
    facility planning process also includes a detailed environmental review
    process under the State's Environmental Policy Act.
        West Virginia: There is no official coordination, per se, however
    the West Virginia Infrastructure and Jobs Development Council (IJDC)
    coordinates the water and wastewater projects that seek any State funds
    in West Virginia and water systems may request funds at the same time
    wastewater systems are, or economic development requests in areas that
    may be pursuing loans. The projects are reviewed technically and
    financially prior to receiving approval from IJDC. The review process
    also includes alternatives to the proposed projects. Specifically if
    there is existing infrastructure that could provide the same service as
    the project proposes. If there are less expensive alternatives, then
    the project will have to be justified to receive approval from IJDC.
    The DW SRF is a member of the IJDC. As a part of each project, an
    environmental review is conducted and if there are potential impacts,
    then the project design may have to be reevaluated.
        Wisconsin: The State requires that all projects receiving loans
    undergo a review under the State equivalent of the National
    Environmental Policy Act. This review involves coordination between
    State and local government planners. The State also requires approval
    of a facilities plans for each treatment facility. The facility plan
    approval requires that the project conform with water quality
    management plans developed under Section 208 of the Federal Water
    Pollution Control Act Amendments by local government planning agencies.
    Facility plans must also conform with water basin plans that are
    developed by WDNR staff. There is also a requirement that the
    wastewater facility plans be reviewed by A-95 planning agencies
    (regional planning agencies or local government planning agencies) with
    comments provided to WDNR. In all cases it is likely that some level of
    unmandated consultation does occur between water facility planners,
    land use planners and transportation planners, appropriately at the
    local government level. In addition, the WI priority scoring system
    assigns additional points to projects that are consistent with local
    resource management plans.
        Louisiana: Coordination currently exists through the clearinghouse
    review that affords other agencies an opportunity to review and comment
    on proposed projects. In addition, Louisiana is in the process of
    making the SRF a part (Volume 7) of the Louisiana Water Quality
    Management Plan under Municipal Waste Treatment. The SRF program is
    being used as part of the watershed planning effort under the WQM plan,
    which depends on the SRF program to provide a substantial part of the
    program for municipal waste treatment. This is useful to both the
    watershed planning part and the land use planning since the two
    overlap.

        Question 4. In meeting with stakeholders before introduction of S.
    1961, I came to understand that the problem of nonpoint source
    pollution is one of the most unmet problems confronted by the Clean
    Water Act. To address that problem, we made nonstructural projects
    eligible for funding under a State SRF in S. 1961. However, in
    subsequent meetings, I have learned that nonstructural projects are
    rarely considered because the plans to implement their construction and
    the mechanisms for their payment are different than wastewater
    treatment facilities. How can we ensure that nontraditional projects
    are funded so as to address the unmet need of nonpoint source pollution
    problems?
        Response. We believe that the requirements related to the priority
    setting system will go far to increase the number of nonpoint source
    projects that are funded through the Clean Water SRF. As written, the
    bill would require that States use available water quality data (e.g.,
    information developed by the State under CWA sections 303(d) and
    305(b); the State's continuing planning process developed under section
    303(e), the State's nonpoint source management program under section
    319, any estuary plans developed under section 320 etc.) to determine
    their overall water quality problems in the State. Inherent in this is
    an acknowledgment of the various sources of water quality problems and
    their relative contributions, whether they be point or nonpoint source.
    Then the States would have to develop a priority ranking system that
    ranks eligible projects to address those problems. The priority ranking
    system combined with the requirement to fund projects in priority
    order, to the maximum extent practicable, will work together to achieve
    improved water quality benefits, whether they are related to point
    source or nonpoint source solutions. EPA is working with the States to
    streamline the water quality data reporting process and improve the
    quality of the data.

                                     ______

          Response of Benjamin Grumbles to Additional Questions from
                                 Senator Baucus

        Question. Other panelists have testified that the infrastructure
    for water and sewer systems is in considerable disrepair. Does this
    situation pose a significant public health hazard? If it does pose a
    major risk to public health, should that affect the budget priority
    afforded water and wastewater infrastructure funding by this
    Administration?
        Response. Substantial work remains to address remaining risks
    associated with wastewater infrastructure in our nation. In terms of
    the 900 cities across the country with combined sewer systems, EPA
    reported in its January 29, 2002, Report to Congress that although
    cities have made substantial progress and investments in CSO control
    and are realizing public health and water quality benefits, CSOs
    continue to pose a public health and environmental threat.
        Sanitary sewer overflows also represent public health and water
    quality threats. EPA estimates that there are at least 40,000 sanitary
    sewer overflows each year. Untreated sewage from these overflows can
    contaminate our waters, causing serious water quality problems and
    threatening drinking water supplies in addition to fish and shellfish.
    Untreated sewage can also back up into basements, causing property
    damage and threats to public health for those exposed to untreated
    sewage. As collection systems continue to age, sanitary sewage
    overflows may increase unless substantial effort is made to properly
    manage, repair, and replace systems.
        Any time there is a failure in a drinking water transmission or
    distribution pipe, there is a potential risk to public health caused by
    disruptions to the treatment process and introduction of contaminated
    water into the distribution system. As pipes continue to age and
    deteriorate, deficiencies could contribute to an increase in waterborne
    disease outbreaks. The vulnerability of surface and ground water
    sources of drinking water to contamination can also pose a risk to
    public health. States are conducting assessments to determine the
    susceptibility of sources to contamination, but if States and water
    systems fail to take the next step of actually implementing protection
    measures, there will be little benefit to public health.
        The Administration considers water quality and public health
    protection as priorities and is committed to improving the nation's
    water quality and ensuring the safety of drinking water. The
    President's FY 2003 budget request underscores this commitment. The
    President's budget provides the largest SRF request in the history of
    the SRF programs. However, the President did clearly identify in his
    State of the Union address his highest priorities as defense and
    homeland security. Appropriation levels that are higher than those
    included in the President's budget would not be consistent with those
    priorities.

                                     ______

          Responses of Benjamin Grumbles to Additional Questions from
                                 Senator Crapo

        Question 1. Although S. 1961 proposes a higher authorization level
    than the EPA supports, do you believe an investment of $20 billion for
    clean water and $15 billion for drinking water projects over 5 years
    can be effectively managed to meet the nation's needs? At what
    financial level will the State Revolving Funds be self-sustaining after
    this investment period?
        Response. The President's Budget proposes funding of $1.212 billion
    for the Clean Water SRF and $850 million for the Drinking Water SRF. At
    these funding levels, the CWSRF will revolve at an average level of
    over $2 billion and the DWSRF will revolve at an average level of $500
    million annually through FY 2035. As of June 2001, approximately $3.4
    billion in CWSRF funds and $1.4 billion in DWSRF funds remained
    unallocated by the States.
        While the SRFs have proven to be highly effective programs, the
    bill's authorization levels are not consistent with the President's
    Budget.
        The Administration looks forward to working with the committee on a
    fiscal approach centered appropriately on shared responsibility,
    particularly on incentives for creative and innovative approaches now
    being used to address these issues by numerous States and communities.

        Question 2. Are the levels of technical assistance for small
    communities over the next 5 years called for in the bill ($7 million
    per year for communities of less than 3,300 people located in a rural
    area, $5 million a year for Small Public Water Systems Technology
    Assistance Centers, and $1.5 million a year for the Environmental
    Finance Centers) appropriate investments?
        Response. We believe the appropriation levels included in the
    President's FY 2003 budget represent appropriate funding levels for
    technical assistance to small communities.

        Question 3. Have State program managers generally demonstrated
    appropriate competency and expertise to fully implement the goals of
    the Clean Water Act and the Safe Drinking Water Act? If so, is the
    flexibility provided in S. 1961 adequate to reflect the role of States
    on the front-line of environmental management and utility
    infrastructure oversight?
        Response. Yes, we believe that Clean Water and Drinking Water SRF
    program managers demonstrate appropriate competency and expertise to
    fully implement the goals of the Clean Water Act and the Safe Drinking
    Water Act, although some States report resource constraints in managing
    their programs. We believe in providing States with flexibility to meet
    the goals of the Clean Water Act and Safe Drinking Water Act. For
    example, the FY 2003 President's Budget proposes extending through FY
    2003 States' authority to transfer funds between their Clean Water and
    Drinking Water SRFs, which will allow States to address their highest
    priority water infrastructure needs. We appreciate the committee's
    recognition of this useful authority.
        As was noted in the Deputy Assistant Administrator for Water Ben
    Grumbles' testimony on February 26th, the Administration supports the
    objectives behind the new loan conditions in S. 1961 as according with
    basic principles that should guide our infrastructure revitalization
    efforts. At the same time, we want to make sure that the conditions
    operate in ways that are workable for loan applicants and States alike,
    and that the SRFs can continue to function to provide the needed kinds
    of assistance.

        Question 4. How do you believe the EPA would administer the
    demonstration program to promote the goals of the title?
        Response. Although it is difficult to provide much detail at this
    early stage, we would anticipate that the demonstration program would
    be run through a competitive process in which potential projects are
    ranked and selected based on their ability to promote technology and
    management innovations and increased efficiency, and S. 1961's specific
    criteria.

                                   __________
     Statement of Douglas H. Palmer, Mayor, Trenton, NJ, on Behalf of the
                           U.S. Conference of Mayors

        Mr. Chairman and members of the committee. My name is Douglas
    Palmer. I am the Mayor of Trenton, NJ and Chair of the Conference of
    Mayors' Urban Water Council.
        The Conference of Mayors is a national nonpartisan organization
    that represents more than 1,100 cities across the nation. We represent
    the largest water and wastewater systems in the United States.
        Mr. Chairman, I would like to thank you and the other members of
    the committee for introducing S. 1961, the Water Investment Act of
    2002.
        I would also like to thank you for holding these hearings and for
    inviting me to give the Mayoral perspective on water and wastewater
    investment issues.
        As you know the issue of water and wastewater infrastructure is
    critical to our nation and to our nation's cities. To maintain healthy
    and viable communities, we must make sure that our water and drinking
    water supply is clean and safe.
        However, to do that, costs money. The estimate to build, rebuild
    and maintain our water and wastewater infrastructure has been estimated
    to cost close to $1 trillion.
        As Mayors we have recognized that there is not enough local, State
    or Federal money available to satisfy all the water infrastructure
    needs in the nation.
        The Urban Water Council was created to focus on these issues. Its
    purpose is to assist local governments in providing high quality water
    resources in a cost-effective manner.
        The Urban Water Council has identified three basic approaches to
    help cities finance the water and wastewater infrastructure development
    necessary to comply with clean and safe drinking water laws. These
    include:
         Providing grants to municipalities, either directly or
    through States, for water and wastewater infrastructure where there is
    an affordability issue or when a community faces severe environmental
    problems;
         Expanding the 30-year no-interest loan category under the
    State Revolving Fund loan program for water and wastewater
    infrastructure investment; and
         Modifying current tax law by removing Private Activity
    Bonds (PABs) used for water and wastewater infrastructure from the
    State volume cap.
        In our opinion, these approaches are the best means to meet our
    water infrastructure needs.
              what we find productive and positive about the bill
        The bill you have introduced has many excellent components.
        We agree with the committee that the focus of this bill should be
    on water infrastructure investment instead of a new set of provisions
    that would require municipal water and sewer operators to assume even
    greater responsibilities when the current infrastructure is clearly
    insufficient to deal with current water quality compliance criteria.
    Local elected officials are engaged in trying to achieve water quality
    goals, but we need a chance like this to focus on such achievements,
    and not be redirected to new goals.
        The bill authorizes $20 billion between 2003 and 2007 for the SRF
    categories under the Federal Water Pollution Control Act; and $15
    billion for the SRF categories under the Safe Drinking Water Act. These
    SRF authorizations are clearly not enough to subsidize the funding
    necessary to ``close the needs gap'', but a combined $35 billion boost
    over the next 5 years is also clearly much more than previous funding
    levels. For this, we are grateful to the Senate, and we support this
    approach.
        S. 1961 also incorporates some innovative concepts, two of which
    are deemed crucial by the Conference of Mayors in creating the right
    conditions for successful achievement of water quality goals. First,
    the proposed Section 103 provision that would require a recipient of
    SRF funds to consider, among other things, ``forming public-private
    partnerships or other cooperative partnerships'' is a step in the right
    direction. It has been our experience since the mid-90's that
    alternative approaches to planning, financing and operating water and
    wastewater projects can yield greater public benefits for the amount of
    money invested. While choosing a public-private partnership approach
    should not be prescriptive, it should be made possible for those cities
    that want to take advantage of such an approach.
        The Urban Water Council has prepared two reports, which are
    available on our website at www.usmayors.org, that describe over 40
    public-private partnership projects that have realized savings related
    to operation and maintenance of water and wastewater facilities.
    Regulations under the Federal tax code were modified in 1997 to allow
    long-term (20-year plus) outsourcing of public infrastructure
    facilities. This tax regulation modification, along with Executive
    Order 12803 which modified the construction grant repayment provision,
    have removed serious Federal impediments that cities have faced When
    Congress and the Administration provide the right types of financial
    incentives, local elected officials can establish public-private
    partnerships that benefit our citizens and the environment.
        The Conference of Mayors adopted policy in 2001 to encourage
    competition in the design-build-operate phases of new water and
    wastewater infrastructure. This policy was adopted once it was
    determined that competition for both surface and sub-surface
    infrastructure projects need not be as costly as the traditional
    design-build methods employed in the past. The Lynn, Massachusetts
    experience is an example of what can be achieved by using competitive
    approaches to design, build and operate water infrastructure that is
    intended achieve compliance with the zero discharge requirements for
    storm waters. In that example, the city was required to eliminate
    overflows and traditional design-build-operate planning anticipated a
    $400 million (plus) solution. A competitive bid process, however,
    anticipating a public-private partnership approach yielded a zero
    discharge solution that cost less than one-quarter of the traditional
    approach. Hence, it is possible through competition to achieve
    compliance with water quality goals at a cheaper price.
        The second innovative approach incorporated in S. 1961 is under
    Title III, Section 302--the demonstration program for water quality
    enhancement and management. One of the most difficult problems we face
    as cities involves achieving State water quality objectives and total
    maximum daily loads (TMDLs) and the virtually unregulated nonpoint
    sources that are usually outside our jurisdictions.
        The U.S. Environmental Protection Agency (EPA) has recognized that
    agricultural and livestock land uses contribute a major portion of
    nonpoint source pollution in many areas. Many of our cities are engaged
    in watershed management efforts to deal with nonpoint sources
    (including urban runoff). Yet there is a critical lack of regulatory
    drivers forcing the agricultural and livestock land users to contribute
    to the solution. In some cases, the timing of pending TMDL requirements
    will force cities to pay for water treatment caused in part by the
    upstream, non-urban land users.
        The Conference of Mayors adopted an action plan for sustainable
    watershed management in 1998. One of the five principles of that plan
    is to focus on non-urban, nonpoint source water pollution, and pursue
    public policy that would assign responsibility to pay for the treatment
    of polluted water commensurate with the contribution of the pollutant
    loadings. The action plan also clearly calls for allowing the
    agricultural and livestock land users to employ best practices and
    least cost approaches that are effective in lieu of stringent and
    costly regulations. Mayors fully recognize that these land users,
    although they may or may not be part of our cities, are important
    contributors to our regional economies. While we prefer to use the
    powers of persuasion to convince them to participate in the water
    pollution solutions, we have begun to experience failure in cooperative
    efforts, and have in some instances resorted to legal actions.
        The demonstration projects provision of S. 1961 can provide some of
    the appropriate financial incentives necessary to bring voluntary
    cooperative efforts to bear to solve the water quality designation/TMDL
    problems that we are facing. The Conference of Mayors supports this
    innovative approach. It is our belief that Congress can do more to
    specify in this bill that achieving water quality goals in watersheds
    through the use of SRF financing to install technology that is
    currently available to ameliorate the impact on streams lakes and
    estuaries from animal feeding operations will be more cost effective
    than requiring downstream cities to pay for the upstream pollution.
        We support the proposed requirement for recipients of an SRF loan
    to develop and submit asset management plans that specify how water and
    wastewater facilities will be properly maintained over time. Asset
    management is critical to the preservation of infrastructure. We have a
    long history of experience with using asset management planning; this
    is not a new or radical concept. We would like to mention that
    formalizing such a requirement as a condition of receiving SRF funding
    should be integrated into the loan program in a cautious way. The focus
    of our efforts at the local government level should remain principally
    with ensuring the proper treatment of drinking water and wastewater for
    public health and local economy reasons. The asset management plan is
    important, but the current proposal on what is acceptable is not
    entirely clear. We would be happy to work with the committee to explore
    what an appropriate scope and details of an asset management plan
    should be.

                        WHAT CAN BE IMPROVED IN THE BILL

        The bill specifies that disadvantaged communities can receive SRF
    loans with a 30-year repayment term. Perhaps the most significant
    shortcoming of the S. 1961 proposal is the lack of a similar 30-year
    repayment term for other communities. A 30-year, no-interest loan
    program administered under the SRF program would provide a financial
    incentive that many local elected officials would welcome. It obviously
    would make new infrastructure investment more affordable than the
    traditional 20-year loan period. It also has the potential to increase
    aggregate water infrastructure investment because local government now
    has to make difficult choices on where to spend limited financial
    resources.
        Similarly, the bill does not contain any reference to removing
    private activity bonds used for water and wastewater from the State
    volume caps. I understand fully that changing the tax code is not in
    the jurisdiction of this particular Senate Committee. However, I would
    like to convey to this committee that one of the most fruitful
    financial incentives the Congress can provide for increasing aggregate
    water infrastructure investment is to make certain that the largely
    unfunded environmental mandates and environmental goals they impose on
    local government should not be impeded by a rigid and inflexible tax
    code.
        If public-private partnership approaches based on competitive
    pricing in the market place is increased, then more water projects can
    be completed with a given amount of financing than what would occur via
    traditional financing approaches. If this hypothesis is true, then
    shifting some, but not all, of the water investment financing to
    private activity bonds should lead to improved water quality in the
    aggregate. What we have found to be true in general is that more money
    spent on water treatment results in improved water quality. While there
    are some exceptions to this assumption, the reverse is almost
    inevitable--``no investment leads to continually deteriorating water
    quality''.
        There is also no mention in S. 1961 of the imminent need for water
    systems to conduct security assessments and retrofit the proper anti-
    terrorist controls necessary to ensure the safety of our water
    supplies, and the physical integrity of our water infrastructure. We
    would be happy to work with the committee to recommend a provision to
    address this problem in S. 1961.
        We also support the committee's provisions addressing clarification
    of the State intended use and priority projects lists. It is important
    to the cities we represent to ensure that states fully understand the
    close relationship between water quality and watershed management, and
    that the SRF program can play a critical role if states prioritize
    solutions that focus on the other, non-urban land uses in the watershed
    that contribute to impacts on streams, lakes and estuaries.

                                   CONCLUSION

        On behalf of the Conference of Mayors and the Urban Water Council I
    wish to thank you again for this opportunity to speak before this
    committee. We look forward to working with you as you move forward on
    this very important piece of legislation.

                                     ______

        Responses of Mayor Douglas Palmer to Additional Questions from
                                 Senator Crapo

        Question 1. Recognizing that there are concerns about excessive and
    uncontrolled growth in several areas in the United States, the proposed
    legislation requires that States consider a number of factors to ensure
    that water projects do not encourage sprawl. The legislation seeks that
    water projects are coordinated with local land use plans, regional
    transportation plans, and State, regional, and municipal watershed
    plans. Do you think that this requirement can be implemented with
    noticeable results?
        Response. It is the Conference of Mayors belief that better
    comprehensive planning is essential to discourage sprawl. Comprehensive
    planning needs to include transportation systems, housing developments,
    placement of schools, and placement of water and sewer lines. Requiring
    water projects to be coordinated with local land use plans will serve
    as a valuable tool to assist local officials as they attempt to
    implement better regional growth plans. New housing developments are
    usually dependent upon water and sewer lines being available. If they
    are not available, housing developments may have to consider areas
    where the infrastructure is already in place. We believe this will
    significantly encourage development to occur in already existing
    communities.

        Question 2. Some communities are concerned that the community
    development requirement to consult and coordinate with other plans may
    become an unintended mandate and discourage projects from participating
    in SRFs. How do you believe communities would respond to this
    requirement?
        Response. Each community will respond differently to this
    requirement depending upon the way input is currently solicited. As
    long as there is enough flexibility to allow a community to meet these
    needs in their own fashion, we think it would serve as a valuable
    mechanism for better planning and community development.

        Question 3. Is a call for consideration of consolidation, public-
    private partnerships, and other approaches a positive outcome for
    communities?
        Response. A call for considering consolidation, public-private
    partnerships and other approaches will be a very positive outcome for
    many communities. It has been our experience that communities who
    consider public-private partnerships realize cost-saving solutions
    regardless of whether they decide to go with the public-private
    solution due to the increased competitive process. For those
    communities who have done public-private partnerships, we have many
    examples of cost-savings solutions being employed, additional private
    sector investment and resources being brought to bare, and
    environmental risk-sharing being undertaken from both parties. For many
    communities it has been a very positive solution.

        Question 4. How do you think your communities would participate in
    the demonstration program established under the bill?
        Response. There are a number of different ways communities may
    utilize the demonstration program outlined in the Senate bill. A
    problem that many cities are dealing with involves animal waste and
    non-point source pollution in watersheds. Traditionally, efforts to
    improve water quality involved the application of treatment technology
    at the POTW. This approach reaches an economy of scale when the POTW is
    designed to handle point source discharges from households,
    institutions and commercial establishments. Industrial point sources
    also must employ pretreatment before discharging effluent into the
    sewer. When the source of the pollution is up-stream in the watershed
    the technology employed at the POTW may not be the right technology or
    sufficient technology. Such situations call for treatment or mitigation
    measures in the watershed. A new project in Chino, California addresses
    non-point source pollution, water quality and energy generation. An
    anaerobic animal waste digester was built by the Inland Empire Water
    Authority that is capable of managing the manure from roughly 4,000
    head of cattle. The digester generates methane gasses in a closed
    system and converts the gas into 450,000 kilowatts of electricity via a
    gas turbine. The electricity is used to clean and reclaim brackish
    water, and the remaining electricity is sold to the grid. The residual
    from the digester still has nutrient value, and is mixed with
    greenwaste in a composting operation. This arrangement provides answers
    to non-point source water quality problems, animal waste management,
    and energy needs. It is out thought that other communities may want to
    address. This is just one example of a potential demonstration project
    that could turn into a best practice that is implemented by other
    communities. Without these demonstration projects, a community may not
    be able to explore innovative, cost-saving solutions to their problem.

        Question 5. S. 1961 calls for a nationwide assessment that
    identifies areas of the United States at risk for water shortage or
    surplus in the next 50 years. The assessment, to be conducted by the
    USGS, would provide a ``State of the water resources'' for the nation,
    identify Federal research priorities, and share information to States
    and all stakeholders. Do you perceive that such an assessment will be
    helpful to the strategic planning and operation activities to respond
    to the identified regional risks?
        Response. Yes, it would be helpful. At the national, State, and
    local level, it is imperative that we have good, current data that
    addresses the ``State of water resources'' in this country. This is
    necessary to better understand the situation, to frame up the
    appropriate issues to our constituents, and to make sound decisions to
    deal with the issues in the present and the future.

                                   __________
        Statement of Joseph A. Moore, Alderman, Chair, on Behalf of The
                           National League of Cities

        Mr. Chairman, members of the committee: I am Joseph Moore, Alderman
    from the city of Chicago, and chair of the National League of Cities'
    Energy, Environment and Natural Resources Committee. I am here today to
    testify on behalf of NLC and the 18,000 cities we represent across the
    United States on S. 1961, the Water Investment Act of 2002.
        First and foremost, I would like to congratulate the four
    cosponsors of S. 1961 for recognizing the need for a renewed Federal
    partnership in helping finance the rehabilitation and replacement of
    the nation's aging water infrastructure. We deeply appreciate your
    willingness to commit $35 billion over the next 5 years to our
    wastewater and drinking water infrastructure needs. The introduction of
    S. 1961 demonstrates your understanding that the nation's cities and
    towns truly face an uphill struggle in assuring the continuation of the
    environmental progress made in the past 30-plus years and need your
    help in protecting the significant investments we have jointly made.
        Accordingly, while we understand that the current statutes--the
    Clean Water Act and the Safe Drinking Water Act--authorize the
    expenditure of SRF resources for infrastructure rehabilitation and
    replacement, NLC nevertheless believes water infrastructure should be
    one of the expressed priority purposes of S. 1961. As the committee
    well knows, infrastructure replacement costs are expected to approach
    $1 trillion over the coming two decades and should therefore be
    highlighted as a principal and primary purpose of this statute.
        NLC also advocates including water security as an appropriate use
    of these funds. Our wastewater and drinking water facilities were
    constructed with little, if any, thought given to? the potential for
    the unprecedented terrorist activities of the type witnessed on
    September 11th. The security mechanisms built into these systems were
    not designed for anything; of that magnitude. We believe Federal
    assistance to enhance wastewater and drinking; water security needs--
    especially those involving vulnerability assessments and capital
    investments--is both necessary and a legitimate use of these funds.
        While NLC applauds the bill's attempt to provide non-refundable
    assistance to communities that do not meet the definition of a
    ``disadvantaged community'' by providing subsidies that will benefit
    the poor populations in those cities, it is unclear how this provision
    would be implemented. The idea is laudable in concept; we are uncertain
    whether it will work in practice. We would like the opportunity to work
    with you on developing this provision so that it is acceptable to you
    and accomplishes the intended objectives for us.
        Other provisions in S. 1961 affecting funding which NLC supports
    include:
         the extension of the transferability provisions allowing
    the use of a portion of the wastewater and/or drinking water funds to
    be used interchangeably;
         revisions to the ;allocation formula in the Clean Water
    SRF to reflect needs more closely;
         the extended repayment period for loans from the SRFs. We
    would recommend, however, that these provisions be applicable to all
    loans, not just those for small communities;
         the addition of source water protection as an eligible
    activity for funding; and,
         inclusion of demonstration projects to promote innovative
    technology and new approaches to water quality management and supply.
    For too long, the Federal Government has been inadequately involved in
    the development of new and more cost-effective ways to come into
    compliance with the requirements of the Clean Water and the Safe
    Drinking Water Acts. We would strongly urge you add stormwater as an
    appropriate category for demonstration programs as well. Given that
    most municipalities will begin implementation of the stormwater program
    next month, and given the likely application of TMDLs to stormwater at
    some point in the future, we are sorely in need of information and
    demonstration programs on how to accomplish such objectives.

                               ISSUES OF CONCERN

        In parts, S. 1961 seems rather overly prescriptive. While we
    understand the legitimate concerns of the Federal Government in
    protecting its investments, NLC believes that if the proposal imposes
    too many mandates as a condition for the receipt of funds, they may
    prove to be a disincentive to apply for them--regardless of need.
        Many water systems already have asset management programs in place.
    Likewise, many utilities have kept their rate structures up-to-date. It
    is important to recognize these achievements in the context of
    eligibility requirements. While there are utilities which have not
    implemented new management techniques and/or updated their rates, NLC
    believes there may be better alternatives to assure proper operations
    and adequate rate structures than new mandates with respect to such
    activities. Furthermore, NLC is concerned that utilities that already
    have asset management programs in place, and have imposed rate
    increases to maintain and operate their systems effectively, not be
    barred from, or have lesser status in, accessing these funds. We would
    like to work with you to assure that all water systems are well managed
    and that rate structures--to the maximum extent feasible--are adequate
    to meet the short- and long-term needs of local water utilities.
        NLC is also concerned that states may not have adequate capacity,
    or the expertise to develop the required strategies. Congress is aware
    that the states are currently struggling with the TMDL program, and are
    expected to have significant resources involved in these activities for
    the foreseeable future. If, because of these or other priority
    responsibilities at the State level, asset management strategies are
    not developed, we also have concerns about the penalty. From the local
    government perspective, reducing Federal assistance to the State by 20
    percent penalizes the local governments in that state. We are aware
    that these types of penalties are supposed to insure that the affected
    local governments pressure the states to develop their strategies. But,
    such pressures don't always work--especially when the states are
    overloaded with their own responsibilities--responsibilities that are
    subject to lawsuits if not completed.
        Other criteria of concern to NLC are those with respect to public/
    private partnerships and consolidation.
        Public/Private Partnerships.--NLC is newly arrived at discussions
    about the impact of international trade agreements on the privatization
    of local services and the relationship of such agreements to the
    maintenance of local control and autonomy. So while having little
    expertise, NLC considers it important to raise the issue for further
    review by the committee. As the committee undoubtedly knows, the
    majority of the large private water companies operating in the United
    States are foreign owned. At the local level, we have concerns that
    contracting with these foreign-owned companies may--because of the
    terms and conditions of international agreements--adversely affect the
    ability of a local government to make many critical determinations
    about the utility once it is under contract with such a private
    partner. We would be happy to provide expert resources and additional
    information to the committee on this issue and ask only that there is a
    full understanding of the ramifications of public/private partnerships
    in the water business before requiring or encouraging; such activities
    in Federal law.
        Consolidation.--The provisions relating to consolidation of systems
    are also somewhat perplexing. As we read the proposal, systems are
    encouraged to consider consolidation to become more effective and
    efficient. Our first question is whether this is a requirement to be
    eligible for funding. If so, there are some systems that already serve
    millions of customers and further consolidation is neither feasible nor
    sensible. Our second question is whether the committee is willing to
    remove Federal impediments to consolidation--for example, Sec. 1926(b)
    of the Agriculture Act of 1961, which disallows absorption of any
    drinking system indebted to the Farmers Home Administration. Numerous
    cities have attempted to expand their service areas to unincorporated
    areas served by this small system, or to areas surrounding the small
    system service area. Federal law precludes their doing so. States that
    have attempted to deal with this issue find that even they may not
    override Federal law. Many of these small systems are inefficient and
    marginally protective of public health. State and local efforts at
    consolidation in such areas have been barred by Federal law.
        Mr. Chairman, members of the committee, thank you for the
    opportunity to testify for the National League of Cities and for taking
    the initiative in developing, proposing and starting the legislative
    process on S. 1961, the Water Investment Act of 2002. NLC looks forward
    to continuing to work with you on making this one of the most important
    and effective pieces of legislation in the 108th Congress.

                                   __________
       Statement of Nancy Stoner, Director, Clean Water Project, Natural
                               Resources Defense

        Good morning, Mr. Chairman, and members of the committee. I am
    Nancy Stoner, Director of the Clean Water Project at the Natural
    Resources Defense Council (NRDC), a national environmental group that
    has a long history of working to protect our nation's waters through
    the Clean Water Act. I am also one of the cochairs of the Clean Water
    Network, a coalition of more than 1,000 groups supporting clean water
    from around the country. I present this testimony on behalf of both
    NRDC and the Clean Water Network. My expertise is primarily on clean
    water, not safe drinking water issues, so while I will touch on both, I
    will focus my remarks on the Clean Water State Revolving Fund.
        Thank you for holding this timely hearing today on S. 1961, the
    Water Investment Act of 2002, which would reauthorize the Clean Water
    Act and Safe Drinking Water Act State revolving funds (SRFs). This is a
    tremendous opportunity for the Congress to provide increased funding
    and essential improvements in these programs.

                  RESTORE OUR WATER INFRASTRUCTURE INVESTMENT

        The Federal Government's investment in wastewater and drinking
    water treatment over the last 30 years has brought tremendous progress
    in cleaning up our rivers, lakes, and coastal waters and in ensuring
    the safety of our drinking water. For example, EPA has documented a
    dramatic decrease in loadings of sewage contaminants into our waterways
    from the wastewater treatment plants that we built through the
    construction grants and clean water State revolving fund programs.
    Progress in Water Quality: An Evaluation of the National Investment in
    Municipal Wastewater Treatment, U.S. EPA 2-72 (June 2000)
        That progress, however, has been eroded by water pollution
    resulting from urban stormwater, agricultural runoff and of discharges
    of inadequately treated sewage from our deteriorating collection
    systems and wastewater treatment facilities. In fact, the same EPA
    report that trumpets our tremendous success to date in reducing sewage
    contamination predicts that, if we do not substantially increase
    investment and treatment efficiency, by 2025, we will again have
    pollutant loadings from domestic sewage that are as high as they were
    in 1968--the highest in our nation's history.
        And untreated sewage is not the only growing water pollution
    problem. NRDC's annual report on beach pollution shows increasing beach
    closures and advisories due to bacterial contamination of coastal
    waters for 10 of the 13 years reported. Testing the Waters (Eleventh
    Edition), Natural Resources Defense Council (August 2001). The number
    of closures in 2000 was the highest ever. While some of the increase is
    due to better monitoring and reporting of beach pollution, stormwater
    pollution continues to increase as development replaces soil and
    vegetation with paved surfaces that collect and convey pollutants
    directly into our waterways. Stormwater Strategies, Natural Resources
    Defense Council 23-38 (May 1999). We need to step up our investment now
    to keep these sources of pollution from overshadowing our previous
    water quality gains.

       INCREASE FUNDING AND SPEND IT ON MORE ENVIRONMENTALLY BENEFICIAL
                                    PROJECTS

        The environmental community would like to see water infrastructure
    legislation achieve three major goals:
        1. Substantially increase funding for State clean water and safe
    drinking water projects.
        2. Spend that money on more cost-effective and environmentally
    beneficial projects.
        3. Improve public participation in the funding process and increase
    State accountability for the expenditure of Federal funds.
        I will describe each of these issues and our proposals addressing
    them through this legislation in turn, but, as an initial matter, I
    would also note that we are concerned that reauthorization of the Clean
    Water and Safe Drinking Water SRFs not be used as a vehicle for rolling
    back clean water or safe drinking water protections. We urge the
    Congress to stick narrowly to the issue of developing a new paradigm
    for water infrastructure funding that will better meet the needs of our
    nation and will provide greater environmental benefit for each dollar
    spent. That is a large enough task for the moment.

                                  MIND THE GAP

        As was discussed extensively at the Fisheries, Wildlife & Water
    Subcommittee's oversight hearing last spring, the funding gap between
    water infrastructure needs and available resources is very large and
    continues to grow. Yet, the current Clean Water and Drinking Water SRFs
    are grossly insufficient to meet our nation's water quality needs,
    which include repairing and replacing aging sewer plants and collection
    systems, controlling contaminated stormwater, minimizing polluted
    runoff, and remedying decaying and out-of-date drinking water
    treatment, protection, and distribution systems. We need to authorize
    substantially more SRF funds to close the gap between our water needs
    and available Federal funding. The U.S. Environmental Protection Agency
    and the Water Infrastructure Network estimate that $23 billion must be
    invested annually in the next 20 years to replace aging infrastructure
    and to meet the requirements of the Clean Water Act and the Safe
    Drinking Water Act.
        While there are differing estimates of the amount of additional
    funding needed, the need for greater investment in clean water and
    drinking water infrastructure is clear and undisputed. Any
    reauthorization of the Clean Water and Safe Drinking Water SRFs must
    substantially raise the funding levels for those programs. We commend
    the sponsors of the Water Investment Act of 2002 for supporting
    substantially increased funding over the next 5 years, but urge you to
    look ahead and to authorize additional spending for at least the next
    10 years. We know now that we will continue to need vastly increased
    water infrastructure financing beyond 2007. We should begin to plan now
    to meet those future needs by authorizing them in this legislation.

                  FUND THE SMARTEST, MOST BENEFICIAL PROJECTS

        The growing funding gap suggests not just the need for more
    funding, but also the need to begin to spend that funding more wisely
    to obtain the greatest amount of environmental benefit per taxpayer
    dollar invested in water infrastructure. We should not merely rebuild
    our wastewater systems using the hard infrastructure technologies of
    the past. We must become smarter about stretching our Federal
    investment in water infrastructure by spending more on ``green
    infrastructure''--non-point and non-structural solutions that are more
    efficient and more environmentally effective than traditional concrete
    and pipe solutions. We need to take advantage of the innovative
    approaches that have been developed over the past several decades that
    allow us to use onsite source controls (like rain gardens), stream
    buffers, conservation practices, and other approaches to prevent
    pollution. These approaches reduce the amount of water that needs to be
    conveyed to centralized treatment facilities, thereby reducing the cost
    of operating those facilities.

                  INCREASE FUNDING TO ADDRESS POLLUTED RUNOFF

        For years we have known that polluted runoff is the most
    significant source of water pollution in the nation for lakes, streams,
    and coastal waters. Yet, year after year, we continue to direct the
    vast majority of Federal funding to point source discharges. According
    to EPA, between 1987 and last summer, only 4 percent went to non-point
    source projects. Four years ago, EPA adopted a goal of increasing the
    annual percentage of Clean Water SRF funds loaned for non-point source
    projects to 10 percent by 2001. EPA pledged to ``work with States and
    territories to ensure that State loan funds are used for the highest
    priority polluted runoff projects that meet the programs' financial
    criteria.'' Clean Water Action Plan, U.S. EPA 57 (Feb. 1998). This goal
    has not been met. In fact, the percentage of Clean Water SRF funds used
    for non-point sources has not increased in the 4-years since this
    pledge was made. We need to do more than continue talking if we are
    going to begin to see the real changes in water quality that are the
    goal of the SRF program.

       PREVENT POLLUTION AND REDUCE COSTS WITH ``GREEN INFRASTRUCTURE''
                                   APPROACHES

        While States are allowed to fund non-point source projects under
    the Clean Water SRF, many of them continue to fund traditional,
    centralized wastewater treatment approaches even when a non-point or
    non-structural solution would be less expensive, more effective, and
    provide non-water quality benefits. Similarly, while States are also
    authorized to fund non-structural drinking water protection (such as
    buffer zones or easements), many States have failed to use this
    authority despite the cost-effectiveness and environmental benefits of
    such projects. While hard infrastructure projects are an important
    component of addressing our wastewater needs, we can often mitigate
    these needs and do a better job of cleaning up the water by funding a
    combination of cost-effective, non-structural, preventive projects
    (green infrastructure) and innovative and alternative engineering
    strategies. Use of distributed, nonstructural, pollution prevention
    approaches in addition to modernization of aging, decaying treatment
    plants, collection systems, and distribution systems can forestall the
    need for even more costly approaches and investments in the future.
        Non-structural and non-point approaches can also provide a wider
    array of benefits than hard infrastructure, like pipes and wastewater
    treatment facilities, can. Those benefits include improved wildlife
    habitat, enhanced drinking water supplies, energy savings, smog
    reduction, decreased flooding, and higher property values. Stormwater
    Strategies, NRDC, Chapter 12 (Sept. 2001). These approaches result in
    cleaner bodies of water, a greener environment, and better quality of
    life. Green infrastructure is already working in a number of
    communities across the nation, saving money and enhancing environmental
    quality.

     PROVIDE A SPECIFIC FUNDING INCENTIVE FOR NON-STRUCTURAL AND NON-POINT
                                   SOLUTIONS

        The Water Investment Act of 2002 takes a step in the right
    direction on this issue by clarifying that non-structural and non-
    traditional approaches to wastewater needs are eligible for funding
    under the Clean Water SRF. However, this clarification alone is not
    sufficient to overcome the institutional barriers to using SRF funds
    for non-point and non-structural solutions to address wastewater and
    stormwater pollution. Those institutional barriers include the relative
    ease of making one large loan for a major construction project rather
    than making many small non-point source loans, the greater voice of
    sewer authorities than most potential non-point loan recipients in
    setting priorities at the State and local level, the bias of many
    engineering firms for traditional, hard infrastructure projects, and
    the greater difficulty that many non-point source recipients have in
    paying back loans since they often do not have a guaranteed source of
    revenue as water and sewer authorities do. Some States also have laws
    or regulations that prevent non-point sources from obtaining SRF loans,
    even when their projects can provide greater environmental benefit at
    lower cost.
        State and local officials repeatedly tell us that these
    institutional barriers to funding non-point and non-structural
    solutions with Clean Water SRF moneys will be overcome only if we
    provide incentives for their use. That's why NRDC and the Clean Water
    Network support providing a specific incentive for non-point, non-
    structural approaches for cleaning up our waters. In particular, we
    support providing an incentive of additional funding of up to 10
    percent of base funding for any State that voluntarily sets up a SRF
    clean water fund for projects that provide non-structural protection to
    surface waters, including agricultural best management practices that
    benefit impaired watersheds, non-structural stormwater and low-impact
    development practices, conservation easements, land acquisition for
    water quality protection, stream buffers, wetlands restoration and
    other non-point source or estuary projects.
        This incentive approach relies on lessons learned from the
    Intermodal Surface Transportation Efficiency Act of 1991 and its
    successor, the Transportation Equity Act for the 21st Century, which
    allocated 10 percent of State surface transportation funds for
    environmental enhancement projects that improve transportation systems
    and the quality of life in our communities. Transportation enhancements
    preserve the human and natural environment, increase the transportation
    mode choices available to citizens, and encourage coordinated State,
    local, and public involvement in transportation decisions. This multi-
    billion dollar program has received broad support from State and local
    communities by making funding available for non-traditional
    transportation projects, including the restoration of a historic train
    station in Tampa, Florida, creation of a park in Manchester, Vermont,
    and the construction of a rail-trail in Mineral Wells, Texas.
        The Water Investment Act of 2002 contains funding a demonstration
    program to promote innovations in water supply and treatment
    technology. While such a program would helpful to spur continued
    innovation in water and wastewater technologies, many green
    infrastructure approaches have been in use for more than a decade. They
    have been demonstrated to be effective and should be promoted for
    widespread use, not merely piloted, at this point.

         DIRECT FUNDING TO THE GREATEST ENVIRONMENTAL AND FISCAL NEEDS

        In addition to the monetary incentive for non-point and non-
    structural solutions, we support a number of other mechanisms to ensure
    that taxpayer dollars are spent on projects that will address the
    greatest environmental and fiscal needs.

                       FUND ONLY ENVIRONMENTAL PRIORITIES

        First, we need to require that Clean Water SRF funds be spent to
    address those projects identified by the State as its top priorities.
    The Safe Drinking Water SRF already has such a provision. There is no
    good reason why clean water funds, unlike safe drinking water funds,
    should be squandered on projects that are not identified as top
    priorities. This loophole in the current statute must be closed.

      GIVE PRIORITY TO PROJECTS ADDRESSING SIGNIFICANT PUBLIC HEALTH AND
           ENVIRONMENTAL NEEDS AND NEEDS OF DISADVANTAGED COMMUNITIES

        Second, we need to prioritize projects that meet the most
    significant public health and environmental needs and those that help
    disadvantaged communities the most. We support providing an explicit
    priority for projects on these bases, as the Safe Drinking Water Act
    already does, and also support principal forgiveness and other means to
    ensure that disadvantaged communities and users receive greater access
    to SRF funds. We also recommend two mechanisms to ensure that this
    mandate is adhered to--improved EPA oversight of State priority lists
    and intended use plans and increasing public participation and
    involvement in setting priorities and in monitoring use of the funds.
    With little oversight by US EPA and almost no public involvement today
    in the creation of intended use plans and identification of priorities,
    there is very little indication of whether Federal dollars are
    supporting the most pressing public health or environmental needs.
    Meaningful public participation in 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.

                     END SRF FUNDING FOR SPRAWL DEVELOPMENT

        Third, we need to stop using SRF funds to subsidize new sprawl
    development. Sprawl development makes pollution worse in the long run
    by bringing more and ever-larger parking lots, roadways, and driveways
    to more and more watersheds. The volume of polluted runoff is
    significant--a 1-acre parking lot produces 16 times more runoff than an
    undeveloped meadow. And the aggregate costs to our environment are
    adding up. Urban runoff causes nearly half of the impairment of estuary
    miles assessed by EPA. Disturbingly, U.S. Department of Agriculture
    figures show that sprawl is accelerating. The 2.1 million acre-a-year
    development rate in the 1990's is 50 percent higher than in the
    previous decade. The increase in paved surfaces leads directly to
    increased flooding, stream channel degradation, habitat loss, increased
    water temperature, contamination of water resources, and increased
    erosion and sedimentation. By using our scarce taxpayer dollars to fund
    sprawl, instead of repair, rehabilitation, and replacement of existing
    sewer systems, we could exacerbate water pollution in the long run.
    Sprawl will happen, but the Federal Government shouldn't help foot the
    bill. Congress should make the Safe Drinking Water Act requirement that
    projects in State plans not support future growth a part of the Clean
    Water Act State Revolving Loan Fund as well.

                         FUND ONLY LAW-ABIDING ENTITIES

        Fourth, we need to discontinue funding for entities that are in
    significant noncompliance with the Clean Water Act and that have not
    made a commitment to remedy those violations in the future. Funding of
    significant violators undermines efforts of law abiding entities to
    raise funds for their wastewater needs. We will never have enough
    Federal funding to address all wastewater needs. We need to provide
    incentives for communities to step up to the plate now and raise funds
    at the State and local level as much as possible to address their
    wastewater and stormwater problems, not to stay in violation and wait
    until more funding becomes available. The Clean Water Act SRF should be
    available only to entities that have committed to comply, not those
    that have thumbed their noses at the regulatory requirements.

                INFORM THE PUBLIC ABOUT PUBLICLY FUNDED PROJECTS

        Fifth, we need to improve the publicly available information about
    the projects that taxpayer dollars are used to fund. Currently required
    reports on the use of SRF funds provide little useful information and
    are not routinely available to the public. The public has a right to
    know which projects are being funded at taxpayer expense and what they
    are accomplishing. The Water Investment Act of 2002 does little to
    improve State accountability for the use of funds or public
    availability of such information.

                        AMERICANS WANT CLEAN, SAFE WATER

        As poll after poll has shown, Americans want clean, safe water and
    are willing to invest more to get it. We applaud you for moving forward
    with legislation to address the public's demand for clean water. We
    urge you to ensure that the bill you pass is the best, most effective
    one possible to meet that demand. Only if Congress substantially
    increases funding for State clean water and safe drinking water
    projects, spends that money on more cost-effective and environmentally
    beneficial projects, improves public participation in the funding
    process, and increases State accountability can we hope to achieve the
    clean and safe water Americans want and deserve. This year is the 30th
    Anniversary of the Clean Water Act. Let's move ahead this year with
    legislation that will ensure clean and safe drinking water for years to
    come.
        Thank you for providing me with the opportunity to testify today.
    We have drafted specific language on each of these issues and would
    like to work with you to address them. I would be happy to answer any
    questions you may have.

                                     ______

      Responses of Nancy Stoner to Additional Questions from Senator Crapo
        Question 1. The bill specifically encourages development and use of
    non-structural alternatives and low-impact development technologies.
    These approaches are eligible to compete for State Revolving Fund
    moneys. Additionally, the new demonstration program would be authorized
    at $20 million per year over 5 years to promote innovations in these
    technologies and approaches. Do you believe that these incentives will
    increase the implementation of these technologies and approaches?
        Response. Non-structural approaches and low-impact development
    technologies are eligible for funding now under the SRF program. While
    it is helpful to identify these approaches as among those eligible for
    funding, it is, in our view, insufficient to overcome the barriers to
    their use. The demonstration program is also a step in the right
    direction, but it is not enough to address the problem. First, the
    demonstration projects are not limited to non-structural means of
    protecting surface waters. In fact, they are not even limited to
    projects that provide greater environmental benefit than existing
    projects or to projects focused on water quality as opposed to other
    water issues. The demonstration program is authorized to fund only 10
    projects per year, yet nonstructural methods of protecting surface
    waters are well beyond the pilot project stage. They are well-
    established and documented means of providing multiple environmental
    benefits, often at lower cost than conventional methods, particularly
    for controlling contaminated stormwater. While we appreciate that the
    intent of this provision is to promote these approaches to those who
    may be unfamiliar with them, we are concerned that setting up only a
    small pilot program for these types of approaches will wrongly suggest
    that these approaches are experimental and marginal, and will not
    encourage communities to consider these as integral components of any
    program to effectively control sewage, stormwater, and other nonpoint
    source loadings into impaired waterways. Many communities will
    incorporate these strategies into their resource protection programs if
    the financial and institutional platform is available.
        We urge you to provide direct incentives to applicants through
    subsidization incentives as well as a set-aside to encourage States to
    direct more funding for nonpoint and nonstructural solutions. We urge
    that the final Senate bill ensure that nonstructural surface water
    protections receive no less than 10 percent of States' total SRF
    allocations. We urge you to consider incentives for potential loan
    recipients as well, including additional subsidization for these types
    of projects in the form of principal forgiveness or negative interest
    loans. Due to the multiple barriers to efficient use of non-structural
    projects (as discussed more fully below), incentives at every level of
    the funding process would be helpful to begin spending our limited
    Federal resources more wisely on the most environmentally beneficial
    projects.

        Question 2. In your testimony, you mentioned that many ``green''
    infrastructure approaches have been in use for some time throughout the
    country. Could you elaborate on why some communities are resistant to
    more widely adopting them?
        Response. Incentives are needed to overcome significant
    institutional barriers at the State level to using SRF funds for non-
    point and non-structural solutions to address wastewater and stormwater
    pollution. State and local officials repeatedly tell us that these
    institutional barriers to funding non-point and non-structural
    solutions with Clean Water SRF moneys will be overcome only if we
    provide significant incentives for their use. Those barriers include
    the relative ease of making one large loan for a major construction
    project rather than making many small non-point source loans, the
    greater voice of sewer authorities than most potential non-point loan
    recipients in setting priorities at the State and local level, and the
    biases of many engineering firms for traditional, hard infrastructure
    projects. Some States also have laws or regulations that prevent non-
    point sources from obtaining SRF loans, even when their projects can
    provide greater environmental benefit at lower cost.
        There was a lot of discussion of barriers to the use of non-point
    and non-structural approaches to water protection at the EPA conference
    on ``Paying for Water Quality: Managing Funding Programs to Achieve the
    Greatest Environmental Benefit'' that concluded on March 15, 2002.
    Federal, State, and local SRF experts from the across the country
    attending the conference expressed their support for mechanisms to
    increase Federal funding for non-point, non-structural, and watershed
    approaches. Several participants described our current allocation of
    SRF resources as ``grossly inefficient.'' Participants identified a
    number of barriers to effective use of this money now. Among the
    barriers discussed at the conference were limitations on eligibility
    (including operations and maintenance funding for decentralized systems
    and funding for stormwater controls on private lands within NPDES
    permitted municipalities), State prohibitions on using SRF funds for
    non-point source activities, State prohibitions on funding private
    entities, insufficient resources at the State level to fund staff to do
    many small loans for non-point projects (as opposed to one large loan
    for a treatment works), a ``stovepipe mentality'' among SRF
    administrators, traditional funding priority for large communities, and
    the lack of knowledge of many smaller communities about funding
    options.

        Question 3. Since there is an inherent risk in trying new
    approaches, should communities that undertake innovative, but untested
    approaches be compensated if the proposal fails to serve its intended
    purpose or inadvertently contributes to increased water pollution?
        Response. Non-structural and non-point approaches are not
    inherently more risky than traditional approaches for protecting
    surface waters. Traditional approaches also fail, at least
    occasionally, and when they do fail, they are likely to have more
    catastrophic effects than an approach that relies on multiple barriers
    to protect the water (such as distributed stormwater storage and
    filtering throughout a watershed) rather than a centralized solution.
    One example of the type of problems that traditional approaches can
    have is found in Milwaukee, WI, which spent $2.8 billion on deep
    tunnels to store combined sewage during rain events, but which
    underestimated the amount of storage needed and the amount of seepage
    into the tunnels, and has consequently had to divert more than 13
    billion gallons of untreated sewage into Lake Michigan since 1994,
    despite that investment. In addition to raw sewage discharges into Lake
    Michigan, which is Milwaukee's primary source of drinking water,
    Milwaukee's groundwater contamination is also reported to have resulted
    from sewage exfiltration from Milwaukee's deep tunnels. The long-term
    experience with conventional approaches is that over time they begin to
    deteriorate and not operate in accordance with the design efficiency.
    Large-scale maintenance requirements are often ignored or postponed,
    particularly in times of reduced municipal funding. Many end-of-pipe
    approaches require sophisticated operations and maintenance, which, if
    not consistently performed, may cause significant pollutant loadings to
    receiving waters.
        While it is certainly true that technologies for restoring
    wetlands, installing stream buffers, and implementing distributed
    stormwater controls continue to evolve and improve over time, they are,
    we believe, inherently less risky than centralized controls because
    they incorporate a treatment train approach that offers redundant and
    multiple opportunities to treat pollutants. While one rain garden or
    eco-roof that is improperly designed or maintained may fail, it is very
    unlikely that 100 or 1000 such micro-scale facilities in a community
    would all fail. Furthermore, a component in the design of distributed
    stormwater approaches relying on soil and vegetation is to have a
    backup system (often underdrains) that capture overflow runoff in the
    event of a very large rain event. See, e.g., Start at the Source (Bay
    Area Stormwater Management Agencies Association, 1999)
                                     ______

      Responses of Nancy Stoner to Additional Questions from Senator Smith
        Question 1. In your testimony, you say low impact development
    technologies and innovative approaches have been used with great
    success across the country, and yet, cities may still be reluctant to
    use them. Unless we address some of the reasons why States and
    municipalities are not using these technologies, the 10 percent bonus
    you suggest in your testimony will go unused.
        I cannot support a mandate on States that would eliminate their
    flexibility. Short of doing that, what would you recommend we do at the
    Federal level to increase the comfort level with these technologies?
        Response. We believe that providing one or more monetary incentives
    for the use of non-structural means of protecting surface waters will
    encourage States and municipalities to remove a number of barriers to
    the use of these cost-effective approaches. We agree with you that we
    need to structure the funding for these initiatives so that there is
    not unspent money. We can do that by allowing EPA to hold the new money
    set aside in reserve for States that spend at least 10 percent of their
    funding on eligible projects. That money could be distributed to other
    States for such projects in subsequent years in the event that any
    money was left in the fund at year's end.
        We appreciate your inquiry concerning other options for increasing
    SRF funding for nonstructural and non-point projects as well. Although
    there are several improvements that we would suggest to the language,
    the provision in the companion House bill (H.R. 3930) that would allow
    States to provide additional subsidization, including forgiveness of
    principal and negative interest loans for innovative and alternative
    processes, materials, and techniques is worthy of your consideration.
    We believe that the incentives provided should be focused on the most
    environmentally beneficial of these approaches including, agricultural
    best management practices that benefit impaired watersheds, non-
    structural stormwater and low-impact development practices,
    conservation easements, land acquisition for water quality protection,
    stream buffers, and wetlands restoration. Non-municipal non-point and
    non-structural recipients often have greater difficulty in paying back
    loans since they often do not have a guaranteed source of revenue for
    repayment. We urge that the final bill ensure that nonstructural
    surface water protections receive no less than 10 percent of States'
    total SRF allocations and that incentives be provided to States and
    potential loan recipients, including non-municipal entities, to use
    green infrastructure approaches.

        Question 2. There is one community in New Hampshire who is
    considering a few of these low impact development technologies. They
    are currently awaiting an engineers report on what different approaches
    there are to addressing CSOs. Rain gardens and constructive wetlands
    would reduce the amount of storm water overflowing into the local
    waterbody.
        However, will they take away enough water to significantly reduce
    the amount of pipe separation or the size of the holding reservoir to
    actually reduce a communities costs? Can you quantify this?
        Response. There are several communities within the United States
    and internationally that are using nonstructural and non-point measures
    to reduce combined sewer overflow volumes. We commend New Hampshire
    communities for evaluating what such approaches can do to improve water
    quality, save money, and provide non-water quality environmental
    benefits for its citizens. Portland, Oregon's Clean River Plan
    addresses the very questions that you pose. Portland Clean River Plan
    relies upon streambank restoration, downspout disconnection, eco-roof
    installations, tree plantings, naturescaping, wetlands restoration and
    enhancement, and distributed stormwater controls as well as more
    traditional sewer separation and pumping techniques to reduce
    overflows. Portland estimates that its Clean River Plan will reduce CSO
    volume by 94 percent, reduce stormwater runoff by almost 1 billion
    gallons each year (495 million gallons from additions of trees and
    vegetation and 500 million gallons from inflow projects), relieve
    basement flooding for 8,000 properties currently at risk, and prevent
    100,000 cubic yards of sediment from entering waterways each year.
    Portland's Clean River Plan; Frequently Asked Questions, Portland
    Department of Environmental Services (Feb. 2000).
        Portland has also demonstrated on a lot-level basis that non-
    structural approaches save money. For example, Portland, Oregon's
    Museum of Science and Industry (OMSI) used green infrastructure
    stormwater management techniques in its 20-acre site, including grass
    swales and ``mini-wetlands,'' that store and filter nearly 70 percent
    of the runoff from a 6-acre parking lot. These techniques have been
    documented to remove 50 percent of sediment and other contaminants that
    would otherwise have poured into the city's stormwater system, and have
    saved the museum $78,000 in hard infrastructure costs (e.g., manholes,
    pipes, trenching, catch basins). A Cost Comparison of Conventional and
    Water-Quality-Based Stormwater Designs, Portland Department of
    Environmental Services, pp 1-3, (1996).
        There are also monitored data to answer your question as well from
    Tokyo, Japan, where infiltration has been used to mitigate CSO volume,
    reduce urban runoff, and recharge groundwater since 1983. Within a 5.5
    square mile area, Tokyo installed 33,300 infiltration pits, 122 acres
    of permeable pavement, and over 175 miles of infiltration trenches. The
    cost of this approach was determined to be about 33 percent less than
    conventional open pond detention systems and only 10 percent of the
    cost of storage vaults. Tokyo found that this approach reduced CSO
    volume by 81 percent and storm drain flows by up to 50 percent. It also
    reduced suspended solids loads by 91 percent and biochemical oxygen
    demand (a measure of the amount of oxygen-depleting pollutants) by 95
    percent (Fujita and Koyama).

        Question 3. You have also raised the issue of funding in priority
    order. My State has a well run program that is small enough to allow
    them to fund projects as those projects are ready to go. In other
    words, funding can continue to flow if the No. 2 project on the list
    has its local bond denied.
        Or take for example a very small community a long a small waterway
    in a State that also has a major estuary, like Chesapeake Bay or Long
    Island Sound which are likely to consume most of a State's priority
    list. A State may want the flexibility to give that small community
    money as it becomes available but isn't a position to make it one of
    the top priorities in the State because it impacts so few people.
        Why is this flexibility a problem?
        Response. We support allowing the State to move forward with the
    next priority project if one project is not ready to proceed. We also
    support allowing the State to have a priority system that allows
    funding for both large and small projects, but would suggest that the
    system be transparent and that the public have a meaningful opportunity
    to comment upon those funding priorities. In other words, the State's
    approach to funding should not solely be based on only the applicant
    and the State's view of funding priorities, but should take into
    account the perspectives of members of the public who have a different
    view than State officials and staff.

                                     ______

      Responses of Nancy Stoner to Additional Questions from Senator Wyden
        Question 1. Ms. Stoner, in your written testimony you stated: We
    should not merely rebuild our wastewater systems using the hard
    infrastructure technologies of the past. We must become smarter about
    stretching our Federal investment in water infrastructure by spending
    more on ``green infrastructure''--nonpoint and non-structural
    solutions.
        As an incentive to promote this strategy you recommend providing
    additional funding of up to 10 percent of the base for any State that
    voluntarily sets up a clean water State revolving fund for projects.
    that would include: Best management practices that benefit impaired
    watersheds, nonstructural stormwater and low-impact development
    practices, conservation easements, stream buffers, and other non-point
    source or estuary projects.
        Could you provide examples to illustrate these ``non-structural''
    wastewater strategies are in fact ``smarter'' and that they will help
    stretch Federal investments to improve water quality?
        Response. While hard infrastructure projects are an important
    component of addressing our wastewater needs, we can often mitigate
    these needs and do a better job of cleaning up the water by funding a
    combination of cost-effective, non-structural, preventive projects
    (green infrastructure) and innovative and alternative engineering
    strategies. Use of distributed, nonstructural, pollution prevention
    approaches in addition to modernization of aging, decaying treatment
    plants, collection systems, and distribution systems can forestall the
    need for even more costly approaches and investments in the future.
    They should represent a significant component of every State's Clean
    Water State revolving fund.
        Once again, some of the best information comes from Portland,
    Oregon, which identifies the following among the benefits of its Clean
    River Plan:
         Greatly improved water quality
         Reduced stormwater volume and pollutant loadings
         Better habitat for fish and other wildlife due to lower
    pollution levels, streambank restorations, and in-stream habitat
    restoration
         More green space for people to enjoy
         Less frequent flooding
         Improved fish recovery efforts
         Thermal pollution reduction
         Improved air quality
         Greater community involvement and stewardship
        Portland's Clean River Plan: At a Glance, Portland Department of
    Environmental Services (Feb. 2000).
        Case studies on a variety of non-structural means of protecting
    surface waters from contaminated stormwater runoff are included in
    NRDC's 1999 report, Stormwater Strategies: Community Responses to
    Runoff Pollution, which is available in full on NRDC's website,
    www.nrdc.org. Those case studies include the following:
         Staten Island Bluebelt (NY)--New York City estimates that
    its use of natural systems (open space, streambeds, and wetlands) will
    save it $50 million as compared to the cost of additional subsurface
    storm sewer lines
         Charles River Valley (MA)--Preserving wetlands to store
    flood waters cost $10 million or one tenth the cost of constructing a
    dam to prevent flooding of $100 million and provides aesthetic and
    ecological benefits as well
         Hillsborough County (FL)--Residential development that
    preserves vegetation and open space cost lowers maintenance costs and
    increases property value for residents as well as providing secondary
    environmental benefits for the neighborhood.
         Fort Bragg (NC)--Environmental design for new vehicle
    maintenance facility saved $1.6 million out of an $8 million site
    design budget while serving both environmental and non-environmental
    goals.
         Village Homes (CA)--Stormwater-sensitive site design for
    residential community in Davis saved $800 per lot in construction
    costs, provide higher resale values than adjoining traditional
    neighborhoods, and yields excellent floodwater protection and water
    filtration as well as aesthetic and recreational benefits for
    residents.
         Prairie Crossing (IL)--Conservation design that includes
    restored prairies, wetlands, and swales reduces pollution, provides
    valued homeowner amenities, and provided cost savings for developer of
    between $1.6 and $2.7 million.
        Information about the economic and environmental benefits of one
    type of non-structural approach to controlling stormwater, i.e., ``low
    impact development,'' is discussed in depth in the update to Stormwater
    Strategies: Community Responses to Runoff Pollution, which NRDC
    released in CD-ROM format in September of 2001. That chapter is
    attached in full for your reference.

        Question 2. Would you describe how a 10 percent incentive to States
    for funding nonstructural wastewater approaches might work, and given
    the States interest in retaining as much flexibility as possible, why
    you believe we should set aside funds exclusively to promote these
    types of investments?
        Response. The incentive funds would be reserved by EPA to provide
    to States that had enough qualifying projects to use 10 percent of
    their allotted funds. If one or more States did not reach that goal and
    there was, therefore, unused money, it would be provided the following
    year for the use of any State on qualifying projects. This structure
    would accomplish several things:
         it would ensure that at least 10 percent of SRF funds
    nationally were spent on the more environmentally beneficial projects
         it would encourage every State to spend at least 10
    percent of these projects, but would not mandate that they do so
         it would provide additional incentives to States to fund
    even more of these projects if there were some States that chose not to
    do so; and
         it would not allow any SRF funds to go unspent.
        We support directing funds to projects involving non-structural
    protections for surface waters to try to redirect some of the resources
    that are not now being spent on the most environmentally beneficial
    approaches to pollution control. We recognize, however, that there are
    very worthy traditional sewer and stormwater projects and support
    continuing to provide substantial funding to those projects as well,
    particularly to address economically stranded treatment works and
    collection systems in our urban centers. We do not believe it necessary
    to direct SRF funds to those projects because they already receive a
    large share of the funding, but we do support prohibiting SRF funds to
    be used for new collection systems in previously undeveloped areas or
    to fund anticipated future growth. Such a provision will not only
    prevent our SRF dollars from subsidizing sprawl, but will also ensure
    that existing systems receive adequate funding.

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       Statement of Paul D. Schwartz, National Policy Coordinator, Clean
                                  Water Action

        Good day, Mr. Chairman and other distinguished members of
    committee. I am Paul Schwartz, National Policy Coordinator of Clean
    Water Action, a national environmental 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 has organization
    in 15 States and has 700,000 members across the nation. Additionally, I
    serve as cochair of the Clean Water Network's Wet Weather and Funding
    Workgroup and am on the Steering Committee of the Campaign for Safe and
    Affordable Drinking Water.
        Mr. Chairman, thank you for holding this hearing today on S. 1961,
    the Water Investment Act of 2002, and other water infrastructure
    proposals. The committee's sustained focus on water infrastructure
    funding and the two State clean and safe water revolving funds is
    timely and of vital importance to the nation's environment, economy and
    public health. This hearing is a crucial next step toward securing more
    dollars for critical drinking water and wastewater infrastructure
    needs. While Ms. Stoner of NRDC focused on the ``clean water'' issues,
    I'll be focusing most of my remarks today on drinking water issues.

                           1. FUNDING NEEDS & DRIVERS

        It has been well established by the USEPA, the Water Infrastructure
    Network (WIN) and others that there is a gap between all available
    sources of revenue and the financial resources needed by our
    communities, small and large; rural, suburban and urban; well off and
    hard-pressed, to meet urgent public health and environmental
    protections. WIN puts the estimate of the need at $1 trillion and
    projects that $23 billion must be invested annually over the next 20
    years to begin to close the gap. Others have set the number at a
    somewhat lower level.
         Over the next few years communities across America are
    facing the need to deal with many pressing drinking water issues
    including: arsenic, cryptosporidium and other microbial risks,
    radioactive radon, and the groundwater rule.
         Also, the U.S. national drinking water infrastructure
    (both pipes and treatment works), once the envy of the world, is old
    and out of date. There is no other sector of the nation's
    infrastructure that relies primarily on a physical infrastructure built
    50 to 100 years ago, and that mostly utilizes treatment technology that
    was developed during the Victorian-era before WWI. As municipalities
    and private operators delay repair, replacement and modernization, the
    costs escalate exponentially.
         Further, Clean Water Action notes with dismay how few
    drinking water providers have moved from a purely end-of-the-pipe
    engineering focus to an integrated watershed approach to dealing with
    many pressing drinking water issues. There are many reasons for this
    failure, including: the lack of integration between the Clean Water Act
    and the Safe Drinking Water Act in both the policy and implementation
    arena, and at all levels of government; an institutional bias toward
    big pipe and plumbing projects and against incorporation and
    integration of green infrastructure, distributive and low impact
    development pollution prevention approaches; and finally, an almost
    total freezing out of the tax-paying and rate-paying public from the
    priority setting and approval process that determines which projects
    and approaches are funded and move forward.

                            2. NECESSARY NEXT STEPS

        Below are some elements that Clean Water Action wants to be
    incorporated in any water infrastructure bill that moves forward this
    year:

              Clean Water Action advocates that any new pot of
            dollars gets used primarily to deal with core water quality
            problems by being targeted: (1) to modernize our water
            distribution system, and (2) to assist the move to modern-broad
            spectrum water treatment. But drinking water spending cannot be
            focused just on the traditional modes and methods of end-of-
            the-pipe engineering solutions. Heretofore, 98 percent of water
            infrastructure funding has gone to brick and mortar projects.
            But the committee also needs to support those pollution
            prevention measures that enhance the performance and cost
            effectiveness of needed traditional infrastructure investments.
              The committee needs to give the States the flexibility to
            invest in pollution prevention as part of an integrated core
            infrastructure package. Traditional ``core'' infrastructure
            needs can be mitigated by putting an emphasis on funding a
            combination of 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.
              Clean Water Action and the Clean Water Network and the
            Campaign for Safe and Affordable Drinking Water all stand
            behind the proposal to set aside a full 10 percent of the Clean
            Water SRF to allow for these approaches and hope that
            subsequent versions of the S. 1961, or other bills, reflect
            this cost-effective priority.
              While S. 1961 proposes a substantial increase for the
            two water SRF accounts over the next 5 years, from $3 billion
            to $7 billion per year, the assumption of the bill is that the
            Federal role in funding water infrastructure ends after this
            injection of cash takes place. Clean Water Action appreciates
            the substantial increased authorizations proposed in S. 1961
            but challenges this committee to set in place a permanent Clean
            Water Trust Fund and ``polluter pays'' funding mechanisms that
            will augment the funding burden which falls primarily on the
            small consumer and taxpaying public.
              Clean Water Action seeks for Congress to inject more
            accountability along with more dollars into the SRF programs.
            Any reauthorization of the Clean Water and Safe Drinking Water
            SRF's must incorporate mechanisms that ensure open information
            and public involvement. Many communities don't know how to
            access the SRF accounts; all too often it is the politically
            connected that are able to take away the dollars not those with
            the most pressing existing needs. Also, meaningful public
            participation in the decisionmaking process about which
            projects get funded is usually absent. S. 1961 makes a
            rhetorical nod toward fixing this problem but does not back up
            its rhetoric with meaning steps and measures that will turn
            this problem around.
              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.
              One concern that makes the call for increased water
            infrastructure funding very urgent, and clearly marked as a
            Federal matter, is the growing permanence of a two-tier water
            infrastructure picture across the country. Both, big cities
            that have lost much of their rate base while their
            infrastructure, beyond its useful life, deteriorates, 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.
              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 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. And 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.
              The intention of S. 1961 to help small communities, cities
            with declining and impoverished rate bases, and needy
            consumers, address affordability concerns is on the face of it
            evident. Clean Water Action thinks that the committee must
            revisit these provisions and consider a true grant program that
            supplements (not replaces) the existing loan program. The
            loans, which in fact act in part as grants, are a good base to
            start from, but more direct help is needed. Additionally, Clean
            Water Action wants clarification as to how the low-income
            assistance program would work.
              While Clean Water Action supports additional funding
            to address existing wastewater and drinking water needs we
            oppose using scarce Federal dollars to subsidize drinking water
            and waste water systems that support new sprawl development.
            Core water infrastructure systems, 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).
              S. 1961 misses an opportunity to make sure that State SRF
            funds do not funnel scarce dollars to sprawl development. S.
            1961 should clarify the ``reasonable growth'' loophole in the
            Safe Drinking Water Act (SDWA). Under the Drinking Water State
            Revolving Fund (DWSRF) it is left up to each State to determine
            some standard for defining ``reasonable growth.'' An uneven and
            all too flexible set of practices has sprung up among the
            States in some cases allowing for major diversion of funds into
            sparking sprawl development not for meeting existing
            environmental and public health needs. On the clean water side
            the problem is even more egregious. States with a much more
            elastic definition of ``reasonable growth'' are rewarded by
            EPA's drinking water needs survey which is the basis for
            determining the allocation of the Federal drinking water
            infrastructure dollars to the States. Thus States that
            constrain the use of their dollars more narrowly to existing
            needs instead of growth lose out when it comes time for
            allocating the scarce DWSRF dollars.
              Even though the States must develop a priority list for
            doling out the Clean Water State Revolving Fund (CWSRF) dollars
            based on a clear set of public health and environmental
            criteria, the State has the right to ignore the priority list
            rankings altogether and fund whatever project it wants. S. 1961
            should fix this unfair, dangerous and unaccountable loophole.
            This loophole, which is used heavily in some States, goes
            beyond needed flexibility and potentially undermines the
            integrity of the CWSRF.
              Clean Water Action is heartened by the restructuring
            and consolidation language contained in S. 1961 and feel that
            many drinking water problems of small systems could be solved
            by the taking of such measures. More should be done to insure
            that States are doing all they can to carry out such cost
            effective steps.
              Additionally, Clean Water Action believes that S. 1961 takes
            a good stab at extending SDWA capacity development principles
            over to the world of wastewater. However, S. 1961 does not do
            enough to limit 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.

                                 3. CONCLUSION

        Clean Water Action applauds the $35 billion 5-year authorization
    proposed in S. 1961, the Water Investment Act of 2002. We also are
    heartened by proposed increased authorizations in Senator Reid's
    ``Small Community Drinking Water Funding Act, S. 503; and, S. 252,
    Senator Voinovich's bill. While there are many refinements and
    improvements to S. 1961 that Clean Water Action would like to see it is
    important that the final bill be both fair and clean.
    Make the Bill Fair--Keep the Bill Clean
        As S. 1961 moves forward from today, the key question for the
    Congress is how do we act in a way that invokes, to the maximum extent
    possible, water infrastructure equity, affordability, and
    sustainability while meeting the triune goals of preserving the
    environment, enhancing the public's health and helping to lay 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 by Nancy Stoner of NRDC earlier. The
    environmental and consumer movements are united in their demand that
    any final water infrastructure legislation:

              1. Substantially increases funding for State clean and safe
            drinking water funding projects.
              2. Provides significant incentives to States to direct more
            Clean Water SRF funds to nonpoint pollution and non-structural
            approaches, ensuring that (1) today's greatest source of water
            pollution (nonpoint runoff) is addressed; and (2) that cost-
            effective ``green infrastructure'' solutions are used to repair
            and improve existing wastewater and drinking water systems.
              3. Ensures that SRF funds are not used to subsidize new
            sprawl development, but instead are used to repair and improve
            existing wastewater and drinking water systems.
              4. Funds SRF projects based on the States' priority system
            ranking after meaningful public input, by closing the loophole
            (in the Clean Water SRF) that allows States to fund projects
            not on their own priority list. Also, tighten-up and make
            consistent the ``reasonable growth'' loophole in the Drinking
            Water SRF.
              5. Removes incentives for noncompliance with the Clean Water
            Act, to ensure that CWSRF funding is only going to utilities
            that are making efforts to come into compliance with the law.

        As the committee considers 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 is heartened by the
    introduction of the Water Investment Act of 2002, and other serious
    efforts introduced by Senators Reid and Voinovich. The emergence of the
    Senate's bills and the hearings today and this Thursday are most
    encouraging. Let's keep the bipartisan and interest group comity and
    pursue water infrastructure solutions that lay the foundation for clean
    and safe water for the next century to come. On the other hand, failure
    to move a clean and fair funding bill will be a sure sign of Congress
    having failed the clean and safe water test. The time to act is now.
        Thank you for the opportunity to comment. I would be happy to
    entertain any question or concern.

                                   __________
       Statement of Bill Kukurin, Kukurin Contracting, Inc. of Export, PA

        Good morning, Mr. Chairman and distinguished members of the
    committee. My name is Bill Kukurin and I am president of Kukurin
    Contracting, Inc. located in Export, PA. On behalf of Associated
    Builders and Contractors (ABC), I would like to thank Chairman
    Jeffords, Ranking Member Smith and the members of the Senate Committee
    on Public Works for providing me with this opportunity to discuss the
    Water Investment Act of 2002 and the important role it could play in
    improving our nation's water quality and infrastructure. I will be
    summarizing my comments, but I would request that my full statement be
    submitted for the official record.
        For nearly 30 years, Kukurin Contracting, Inc. has been operating
    in Western Pennsylvania as a family owned and operated business.
    Kukurin Contracting, Inc. has 125 employees and focuses primarily on
    municipal work, specifically the construction and maintenance of water
    and sewer lines, pumping stations, water tanks, reservoirs and sewage
    treatment facilities. We have built our reputation through providing
    quality workmanship for our clients and safe, healthy worksites for our
    employees. In 1997 and 1999, Kukurin Contracting, Inc., was recognized
    by ABC National as one of the leaders in the construction industry and
    presented the annual Excellence in Construction Award for our work on
    the Long Run Sewage Retention Facility and the Plum Creek Sewage
    Retention Facility, respectively.
        Kukurin Contracting, Inc. has been a member of the Western
    Pennsylvania Chapter of ABC for 20 years. ABC is a national trade
    association representing more than 23,000 merit shop contractors,
    subcontractors, materials suppliers and construction-related firms
    within a network of 82 chapters throughout the United States and Guam.
    Our diverse membership is bound by a shared commitment to the merit
    shop philosophy within the construction industry. This philosophy is
    based on the principles of full and open competition unfettered by the
    government, and nondiscrimination based on labor affiliation and the
    awarding of construction contracts to the lowest responsible bidder,
    through open and competitive bidding. This process assures that
    taxpayers and consumers will receive the most for their construction
    dollar. With 80 percent of the nation's construction workers choosing
    not to be represented by a union, ABC is proud to be their voice.
        I would like to commend Chairman Jeffords and Senators Smith,
    Graham and Crapo for introducing S. 1961, the Water Investment Act of
    2002. I also commend this committee for undertaking a comprehensive
    look at our nation's water infrastructure needs. The costs of
    insufficient attention to clean water issues are indisputable. Non-
    point source pollution, leaking toxics, stormwater run-off and coastal
    pollution pose grave risks to water quality. Our nation's water quality
    and ``environmental'' infrastructure could not be more vital to our
    health, safety and overall quality of life.
        The Water Investment Act of 2002 would serve to ensure the
    environmental and financial sustainability of our nation's water
    programs. The measure would authorize the Clean Water and Safe Drinking
    Water State Revolving Loan Fund (SRF) Program at $35 billion over 5
    years. The SRF program allows States to provide low-cost financing to
    communities for the construction, repair and rehabilitation of
    wastewater collection and treatment facilities. While this legislation
    seeks to provide additional resources to States and localities to aid
    them in meeting water infrastructure needs and increased State
    flexibility to States in administering their water programs, the
    imposition of the Davis-Bacon Act to this vital program would negate
    many of these efforts.
        While ABC members have concerns regarding a number of wastewater
    needs, I will focus my comments today on funding for construction of
    wastewater treatment facilities and on the detrimental impact that the
    discriminatory and antiquated Davis-Bacon Act would have, if included
    in the legislation, on these vital projects.

                                   BACKGROUND

        Congress passed the first Federal Water Pollution Control Act, the
    Clean Water Act (CWA), in 1972, which linked the Federal Government
    with States and cities to clean up the country's waters by funding
    projects for water supply and wastewater treatment. The Clean Water Act
    of 1987 phased-out the law's construction grant program by the close of
    fiscal year 1990. It was replaced by a State Revolving-Loan Fund (SRF)
    to help finance clean water infrastructure projects. The SRF is a low-
    interest program by which States fund local wastewater treatment
    facilities and similar infrastructure. From fiscal year 1990 through
    fiscal year 2001, the EPA made available over $20 billion in grants to
    States. While this program has seen significant success, it is clear
    that to accommodate the nation's growing population, meet new water
    quality standards and repair and upgrade aging facilities, much greater
    investments must be made. Estimates for future needs for clean water
    infrastructure are staggering-anywhere from $300 billion to $1 trillion
    over the next 20 years.
        The commitment Congress made with the States beginning in 1972 to
    clean up the country's waters by funding projects relating to water
    supply and wastewater treatment is responsible for the significant
    progress made in restoring the quality of our nation's waters. When
    Congress decided to turn the program over to the States in the Water
    Quality Act of 1987, a schedule was set to phaseout direct grants for
    construction and provide seed money to the States to establish
    revolving loan funds. These funds would eventually become self-
    sustaining and fund the States' wastewater treatment construction
    needs.
        All States have established the legal and procedural mechanisms to
    administer the new loan programs and are now eligible to receive State
    Revolving Fund (SRF) capitalization funds under title VI.
        Some with prior experience using similar financing programs moved
    quickly, while others had difficulty in making a transition from the
    previous grants program to the one that requires greater financial
    management expertise for all concerned. Moreover, many States have
    complained that the SRF program is unduly complicated by Federal
    Rules--some contained in the statute, others in EPA guidance-even
    though the States were intended to have greater flexibility.
        Small communities and States with large rural populations are
    having the largest share of problems with the SRF program. Many small
    towns did not participate in the previous grants program and
    consequently are likely to require major projects to achieve compliance
    with the law. Yet these communities often lack an industrial tax base
    and thus face the prospect of very high per capita user fees if their
    citizens are required to repay the full capital cost of sewage
    treatment projects. According to testimony from the General Accounting
    Office, SRFs will only meet about one-third of the States' funding
    needs and will generally be unable to meet the needs of disadvantaged
    communities. States simply have not been provided enough time or seed
    money to sufficiently capitalize their revolving funds. There are many
    small communities that do not have the capital base necessary to
    support a State revolving loan fund.
        ABC believes inadequate and insufficient wastewater facilities
    represent a large segment of clean water problems facing our nation
    today. It is imperative that the Federal Government immediately address
    our country's need for clean water infrastructure investment. ABC is
    encouraged by the efforts being made by the Senate Environment and
    Public Works Committee and the House Transportation and Infrastructure
    Committee and supports the arrangements being made for small
    communities, such as modifying the procedural or repayment requirements
    of the SRF loan program.
        Combined sewer overflows (CSO) are an example of a significant
    problem in over a thousand cities nationwide. Billions of dollars are
    needed to clean up previously overlooked and outdated systems. Nearly
    1,200 municipalities have combined sewers where domestic sanitary
    sewage, industrial wastes, infiltration from groundwater and stormwater
    runoff are collected and treated together. These systems serve
    approximately 40 million persons, mainly in older urban and coastal
    cities.
        Combined sewers are categorized as point sources under the Clean
    Water Act, yet they have not been considered a high regulatory or
    permitting priority for EPA or States. There are no express provisions
    in the Clean Water Act dealing with CSOs, except to the extent that
    they are subject to permit requirements and deadlines as are other
    point sources. The cost of controlling CSOs is potentially very high
    and local governments say that resources are not available for a
    program of that size. Conceivably, an extended program can also address
    improved drinking water filtration or solid waste disposal facilities.
    ABC supports the idea of allowing localities greater flexibility to
    consider costs and site-specific factors when designing various
    wastewater-treatment facilitates.
        ABC also supports continued Federal funding to further capitalize
    State revolving funds for the construction of wastewater treatment
    facilities or environmental infrastructure projects. Clearly, our clean
    water needs are vast and the Federal Government must maintain a certain
    level of participation. Shifting resources to State revolving funds to
    provide a self-sufficient program and stable revenue source is a
    productive use of Federal funds. Requirements for State revolving funds
    should be as uncomplicated as possible to facilitate an accessible and
    efficient program.
        Other forms of innovative financing and cooperative efforts will
    expand the power of Federal resources and should be encouraged.
    Privatization and public-private partnerships for example, are being
    used more frequently to augment Federal, State and local activities--
    and they work. These efforts bring experience, business savvy and
    financial strength of the private sector to government entities for the
    benefit of all. ABC supports the provision in S. 1971 that would allow
    private utilities to access Clean Water and Drinking Water SRFs.
        ABC urges Congress to rely on market incentives rather than
    pursuing taxes to induce environmental conformance. To that end, ABC
    commends the sponsors of the legislation for including a provision that
    encourages competitive bidding of all projects to help reduce overall
    project costs. In addition, any funding plan should consider that
    States would have to impose user fees to meet their share requirements.
        Continued Federal funding is not a panacea. A long-term integrated
    plan that takes into account new environmental problems and establishes
    realistic and achievable clean water goals should be adopted. We also
    believe every State must develop an environmental needs inventory and
    strategy for the future to ensure efficient management of resources.

                                DAVIS-BACON ACT

        ABC commends the sponsors of this vital legislation for not
    expanding burdensome Davis-Bacon Act requirements to the Clean Water
    and Safe Drinking Water State Revolving Funds. The SRF program has
    operated efficiently without Davis-Bacon since 1995, and ABC encourages
    the committee to continue to allow States and municipalities the
    flexibility to operate the SRFs without this expensive and
    discriminatory requirement.
        During this time of economic recession, while fighting a costly war
    on terrorism and facing a Federal budget deficit, any expansion of the
    Davis-Bacon Act would be fiscally irresponsible and unjustified. In an
    era of constrained resources, the promotion of higher Federal
    construction costs to the benefit of a few and to the detriment of the
    American taxpayer can no longer be accepted. The Davis-Bacon Act
    unnecessarily raises the cost of Federal construction by an average of
    5-15 percent and an enormous 25-38 percent in rural areas--where clean
    water infrastructure improvements are most desperately needed. This is
    a needless waste of taxpayer dollars and thwarts the progress of
    additional projects that could be built.
        Davis-Bacon is a relic of the infamous Jim Crow era. The law,
    enacted in 1931, was intended to prevent minority workers, mostly from
    the South, from competing with northern, mostly union construction
    firms for Federal contracts in the North. Conceived during a time of
    discrimination, the Act still has much the same effect today. Davis-
    Bacon disadvantages small, emerging and minority businesses. Davis-
    Bacon discourages many qualified small and minority-owned contractors
    from bidding on public projects, because the complex and inefficient
    wage and work restrictions make it nearly impossible for small
    businesses to compete with well-capitalized corporations. To seek
    Davis-Bacon contracts, small and minority owned firms must not only pay
    the ``prevailing wages'' and adopt inefficient work practices and rigid
    union-based job classifications, but also must expose themselves to
    huge compliance costs and burdensome paperwork regulations. As a
    result, few small and minority firms win Davis-Bacon contracts, and
    many others give up trying.
        According to the Congressional Budget Office, repealing the Act
    would save taxpayers $10.5 billion over 10 years. Eliminating Davis-
    Bacon requirements would reduce unnecessary Federal spending and
    guarantee more construction for the dollar for important public
    projects such as water infrastructure needs, schools, roads, bridges,
    low-income housing, hospitals and prisons. It would also remove
    barriers that preclude emerging businesses and entry-level workers
    (helpers) from working on public projects paid for with their own tax
    dollars. If funds wasted on Davis-Bacon wage rates were utilized in a
    more efficient manner, they could be put toward meeting our
    overwhelming national demand for environmental and infrastructure
    improvements.
        The Federal Davis-Bacon law hurts States and localities because its
    requirements are imposed even if the Federal Government contributes a
    minimal amount of funds. For example, the Federal Government could
    offer a small amount of money for a primary State, local or privately
    funded project, and the artificially inflated Davis-Bacon wage rate
    would have to be paid to all workers on that job. Often times these
    increased costs nullify the Federal contribution and States are better
    off not accepting Federal help. The Federal Government should not
    impose costly Davis-Bacon requirements on financially strapped State
    and local governments.
        Especially in the case of State revolving funds, where the Federal
    Government does not directly appropriate money for projects, Davis-
    Bacon requirements are not applicable. In the Clean Water Act of 1987,
    Davis-Bacon requirements sunset on all SRF assistance in fiscal year
    1995, and has not applied to such funds since. This loan program,
    whereby the funds are repaid and then revolved, is no place for
    federally mandated Davis-Bacon.
        Davis-Bacon violates States' rights for those 20 States that have
    chosen not to have a State prevailing wage law because the wage
    mandates inflate construction costs. These States should not be saddled
    with the outdated Federal law, which serves as an expensive and
    burdensome ``unfunded mandate'' imposed on State and local governments.
    In fact, even States that have ``little Davis-Bacon'' laws have voiced
    their opposition to federally mandated Davis-Bacon on Clean Water Act
    SRF projects. When the building trades sued to re-impose Davis-Bacon on
    CWSRFs, 13 States, 6 of which have their own State prevailing wage
    laws, formally wrote the EPA in opposition to the re-application of
    Federal Davis-Bacon requirements.

                                   CONCLUSION

        In conclusion, Mr. Chairman, ABC strongly supports the efforts
    being made by the Environment and Public Works Committee to ensure that
    our nation's water quality is improved. ABC supports the Water
    Infrastructure Act of 2002 as currently written. We believe that with
    full funding and without any expansion of the Davis-Bacon Act our water
    infrastructure needs will begin to diminish and our nation's water
    quality will dramatically improve. It is imperative to improve the
    efficiency of the State Revolving Loan Fund program by not imposing
    outdated and unnecessary prescriptive administrative requirements the
    Federal Government places on municipalities, namely the Davis-Bacon
    Act.
        On behalf of Associated Builders and Contractors, I again want to
    thank you and the members of the committee for the opportunity to
    testify here today, and I will be happy to answer any questions you may
    have.
                                     ______

      Responses of Bill Kukurin to Additional Questions from Senator Smith
        Question 1. How does Pennsylvania's Prevailing Wage Law restrict
    your business' use of semi-skilled laborers or other trainees?
        Response. The Pennsylvania Prevailing Wage Law restricts a
    contractor's use of semi-skilled laborers or other trainees in the
    following ways:
        1. Any contractor without union affiliation (which is more than 80
    percent of the construction industry today) must develop and implement
    a complex and expensive State approved apprentice training program in
    order to hire individuals as semi-skilled workers or trainees and pay
    them the reduced rate. The labor unions have historically had strong
    apprenticeship programs but cannot train enough workers to support the
    entire construction industry. Most contractors do not have a State
    approved training program in place due to a variety of reasons. For
    example, State approved apprenticeship programs do not allow for task
    based training, which is more often found in open shop contracting
    training. Moreover, State approved programs do not recognize
    ``helpers''. As a result, the construction industry is losing youth to
    other technical trades.
        2. Separate apprentice programs must be in place for each trade on
    any given project (i.e. operating engineer, carpenter, skilled
    laborer). A trainee is not permitted to work on multiple trades at a
    trainee rate. Many of our skilled employees are multiple trade workers.
    These skilled workers could mentor a trainee, teaching several trades,
    if given the flexibility of working in any trade as a trainee. The
    State approved apprenticeship program does not allow this flexibility.

        Question 2. Can you also speak of some of the ways in which Davis
    Bacon interferes with your company's efficiency and production?
        Response. Davis Bacon requires that a new hire learning a trade be
    paid the same rate as a skilled worker, but the contractor does not get
    the same labor production from a trainee. Without ``helper'' or
    ``trainee'' rates, it is not cost effective to hire a trainee. Most
    construction companies can only compete and remain productive by
    employing the highest skilled individuals. Skilled workers are very
    difficult to find and trainees are not as efficient and productive. The
    construction industry needs to continuously train new workers to be
    skilled workers and encourage more individuals to seek a career in
    construction.
        Davis Bacon does not allow a contractor to hire an unskilled worker
    at a lower rate and mentor and train that individual to become a
    skilled worker. Some say that contractors are looking for cheap labor.
    Contractors need the opportunity to pay an individual (in training) a
    lower rate while they receive on-the-job training to become a future
    journeyman.
        Under Davis Bacon, the both the contracting firm and the
    construction worker looking to gain invaluable experience, lose. In the
    private sector, helpers work under direct supervision of higher
    skilled, journey--level workers. They gain valuable entrance into the
    industry, a well paying job and on-the-job training. Despite the fact
    that helpers is not considered a ``prevailing'' practice, I can tell
    you that it is and it would be if not for Davis Bacon. A ``helpers''
    classification would help create lifelong learning opportunities in
    local communities. Helpers could help address the shortage of skilled
    workers, provide new jobs and cut government waste.
        Moreover, Davis Bacon is extremely rigid and ignores modern
    construction management and classifies workers on an inflexible basis.
    These rigid job classifications hinders productivity by not allowing
    competent craftsmen to work across craft lines.

                                   __________
        Statement of Jim Barron, Ronkin Construction, National Utility
                            Contractors Association

                                  INTRODUCTION

        The National Utility Contractors Association (NUCA) is a family of
    more than 2,000 companies from across the nation that build, repair,
    and maintain water, wastewater, gas, electric, and telecommunications
    systems, and manufacture and supply necessary materials and services.
        Every day utility contractors witness the atrocious conditions of
    America's failing wastewater infrastructure facilities that threaten
    our public health and the environment. These conditions grow worse as
    Federal funding for clean water projects continues to be woefully
    inadequate. On the job, utility contractors see firsthand the benefits
    of the Federal water programs like the Clean Water State Revolving Fund
    (SRF), an extremely effective financing program that provides the
    capital resources to build and rehabilitate this infrastructure.
        NUCA supports the Water Investment Act of 2002 (S 1961), which
    would increase resources provided to the Clean Water SRF and Drinking
    Water SRF programs that would boost State's efforts to address the
    looming crisis facing America's water and wastewater infrastructure. We
    applaud the Senate Environment and Public Works Committee for holding
    today's hearing, and we hope to see quick action on this important
    legislation.

                            A VIEW FROM THE TRENCHES

        Last year, the American Society of Civil Engineers awarded the
    nation's wastewater and drinking water categories ``D'' grades in their
    annual Report Card on America's Infrastructure. Aging wastewater
    systems are failing in every State. Each year, 400,000 homeowners find
    sewage backing up in their basements. Another 40,000 municipal sanitary
    sewers overflow into the nation's streets, waterways, and beaches,
    dumping potentially deadly pathogens.
        It is difficult to describe the appalling State of clean water
    infrastructure as utility contractors see it in the trenches, building
    and repairing America's unglamorous but vital water infrastructure
    system. What is out of sight and out of mind to most people is clearly
    visible to utility contractors on a daily basis. In our work, it is not
    uncommon to find dilapidated pipes with gaping holes spilling raw
    sewage into the surrounding ground in residential neighborhoods. This
    leakage can go undetected for months, even years in some cases. To make
    matters worse, these conditions are often within yards of waterways
    where we fish, beaches where we swim, and playgrounds where our
    children play.
        The U.S. Environmental Protection Agency's 1996 Clean Water Needs
    Survey Report to Congress placed a $139.5 billion price tag for 20-year
    capital investment needs for publicly owned wastewater treatment
    facilities. By March 1999, an EPA Needs Gap Study found that sanitary
    sewer overflow needs in the 1996 study were grossly underestimated.
    Originally estimated at a total $10.3 billion, sanitary sewer overflow
    needs are today estimated at $81.9 billion, bringing the total national
    wastewater infrastructure needs to more than $200 billion. Neither the
    $139.5 billion nor the $200 billion EPA estimate reflects replacement
    costs. EPA now indicates that the current needs for water and
    wastewater infrastructure could exceed $500 billion.
        Independent studies report a $23 billion gap in Federal investment,
    and there are groups that claim that the current water and wastewater
    needs are approaching $1 trillion over the next 20 years. However, NUCA
    believes that whether the needs are $200 billion or $1 trillion is not
    the key issue when recognizing the current Federal contribution to
    remedy this situation is continually less than 1 percent of the lowest
    needs estimate. The priority should be to provide increased resources
    immediately to begin closing this spending gap.

                        CLEAN WATER STATE REVOLVING FUND

        The Clean Water State Revolving Fund (SRF) program is a pragmatic
    and cost-effective program that provides States with vital financial
    resources to address their wastewater infrastructure needs. It has been
    hailed as the most successful federally sponsored infrastructure-
    financing program in history. The SRF program plays a key role in
    enhancing public health and safety, protecting the environment, and
    maintaining a strong economic base. It increases labor productivity,
    creates jobs, rehabilitates old neighborhoods, restores brownfields
    properties, and ensures the availability of recreational use of our
    waterways and shorelines.
        Congress annually capitalizes each State's revolving fund programs,
    and loans are made to local communities to be paid back over time, at a
    low interest rate. The money paid back to the fund ``revolves,'' and is
    available to loan out to other communities, thus sustaining the money
    for future projects.
        Besides serving as the key mechanism to finance water
    infrastructure installation and rehabilitation projects, the SRF
    creates scores of jobs for American workers. Up to 55,000 jobs are
    created with every $1 billion of Federal capitalization in the Clean
    Water SRF program. Recent research conducted by the Association of
    State and Interstate Water Pollution Control Administrators suggests
    that several billion dollars of Federal resources for Clean Water
    projects could put hundreds of thousands of Americans to work in the
    near future. This work will have a ripple effect, multiplying project
    funding through the economy. Rehabilitation of key infrastructure
    brings revitalized communities and opportunities for future business
    and investment. Thus, increasing SRF funding will provide economic
    stimulus in the short term as well as the long term at a time when
    America needs all the jobs it can get.
        Authorization for the Clean Water SRF lapsed in 1994, but because
    of its effectiveness, Congress has continued to fund the program every
    year through the annual appropriations process. The 15-year performance
    record of the SRF has been spectacular. Federal capitalization grants
    totaling approximately $18 billion have leveraged capital to more than
    $34 billion in perpetuity loans that are continually redistributed.
    When authorization expired, appropriations were just over the $2-
    billion mark. However, that level has dropped to $1.35 billion, which
    has been the amount provided in the last few years.

                              EVOLVING LEGISLATION

        For the past several years, NUCA has worked with Senator George
    Voinovich (R-Ohio) to gain support for the Clean Water Infrastructure
    Financing Act (S 252), which would reauthorize the Clean Water SRF at
    $3 billion per year for 5 years. Similar legislation in the House (HR
    668) gained the bipartisan support of more than 100 cosponsors from
    over 30 States. NUCA is very pleased that the EPW Committee has
    incorporated all key components of the Voinovich bill into S. 1961,
    which will authorize $20 billion to the Clean Water SRF program over 5
    years and $15 billion to the Drinking Water SRF program over the same
    period for a total of $35 billion toward refurbishing our water and
    wastewater infrastructure. NUCA applauds the Senate EPW Committee for
    incorporating the fundamental elements of S. 252 into the Water
    Investment Act of 2002.
        In addition to the substantial funding increases authorized for
    water and wastewater infrastructure projects, S. 1961 would modernize
    the Clean Water SRF to ensure that funds better address State needs,
    expand the eligibility for SRF projects, streamline State programs to
    maximize use of Federal funds, and provide for additional assistance to
    disadvantaged communities.
        The committee's comprehensive legislation would increase the SRFs'
    operational effectiveness by allowing States to operate their Drinking
    Water and Clean Water SRF programs in a more similar fashion. Water and
    wastewater infrastructure management is, and should continue to be, a
    State function. Federal resources should be allocated to assist the
    States without getting in the way of SRF program managers who know the
    best ways to operate their unique systems.

                                    CONCERNS

        While NUCA fully supports the intent of this legislation, NUCA is
    concerned with certain parts of the ``community development'' provision
    in Sec. 103 of Title I. While coordination and consultation with land
    use officials is appropriate, we are concerned that requiring
    substantial coordination may obstruct and delay the progress of many
    necessary water and wastewater installation and rehabilitation
    projects.
        NUCA is in full support of the concept of quality growth. NUCA is a
    member of the Quality Growth Coalition, and participated in the
    development of ``Building Better Communities: Quality Growth Toolkit,''
    a document designed to help citizens, civic leaders, and elected
    officials identify effective, common-sense solutions to traffic
    congestion, overcrowding in schools, and management issues regarding
    future development. NUCA believes that maintaining communications with
    State and local land use officials is beneficial in any infrastructure
    rehabilitation program to ensure consideration of the concerns and
    perspectives of local communities. However, contrary to the opinions of
    certain environmental organizations, water and wastewater treatment
    work is not a catalyst for what is known as ``sprawl.'' These projects
    are fundamental to ensure the safety and viability of these
    communities. NUCA suggests the committee clarify the ``community
    development'' provision in Sec. 103 to require ``coordination and
    consultation'' and not approval of water projects by land use
    officials.
        Another concern NUCA has pertains to the assumption that only five
    more years of Federal investment will eliminate the need for future
    funding. The SRF originated as a way of moving away from costly and
    politicized construction grants. The objective was to build the SRF
    over time until it reached self-sustainability. The plan for this
    investment was to help service providers to gain solid financial
    footing, after which fees would be sufficient to cover costs. However,
    this has not come to pass, and current conditions indicate that the
    objective of financial self-sufficiency is far from a reality. This is
    especially true when recognizing that needs estimates nationwide are
    skyrocketing. NUCA commends the EPW Committee for it's commitment to
    increasing funding to address this environmental problem, but we
    believe some form of Federal financial support will be essential in the
    future to ensure the availability of safe and clean water.

                             THE DAVIS-BACON ISSUE

        For the past several years, the main issue that has prevented some
    Members of Congress from co-sponsoring SRF reauthorization legislation
    was the application of prevailing wage requirements under the Davis-
    Bacon Act, which requires that local prevailing wages be paid on all
    Federal construction projects valued over $2,000. While collective
    bargaining and wage determination are important aspects of the
    construction bidding process, the issue of Davis-Bacon coverage should
    not delay or block legislation that will increase the resources that
    fund clean water projects.
        NUCA supported the Voinovich legislation (S. 252), which would have
    restored Davis-Bacon coverage for the first round of Clean Water SRF
    funding, leaving coverage of subsequent rounds to the discretion of the
    States. This was the way Davis-Bacon applied to the SRF before
    authorization expired in 1994. S. 252 would have restored Davis-Bacon
    provisions, but would have limited them to the first round of funding.
    NUCA believes that this was a middle of the road solution that many
    members on both sides could agree on, and it seemed like the only
    compromise that could move the bill forward.
        Opponents of the Davis-Bacon Act argue that the Depression-era law
    is no longer relevant in today's construction market. They say Davis-
    Bacon requirements force employers to pay higher wages for specific
    crafts, regardless of the workers' skill level in that craft, which can
    lead to reductions in productivity and inflated costs. Some say the
    requirements can also hurt small businesses that can't keep up with the
    complex work rules on Federal projects. Opponents generally believe the
    free market and competition should determine wages, not the Federal
    Government.
        Advocates of Davis-Bacon believe the requirements provide a level
    playing field, and ensures fairness to workers on Federal construction
    projects. They maintain that Davis-Bacon requirements provide for
    community standards for workers, and avoid pay discrimination based on
    religion, sex, race, etc.
        Since Clean Water SRF authorization lapsed in 1994, Federal Davis-
    Bacon requirements have not accompanied appropriations to the SRF
    program. In June of 2000, EPA issued a settlement agreement with the
    AFL-CIO's Building and Construction Trades Division (Building Trades),
    agreeing to restore Davis-Bacon requirements in the same manner as they
    were applied to SRF projects before the program's authorization expired
    in 1994. This would apply Davis-Bacon to the first round of Federal
    funding, leaving subsequent rounds to States' discretion. The Building
    Trades argued that Davis-Bacon requirements should have applied to SRF
    projects as Federal money was appropriated to the SRF program. Although
    EPA previously ruled that Davis-Bacon requirements did not apply to SRF
    projects after reauthorization expired, EPA later announced that
    prevailing wage rate requirements should continue to apply regardless
    of reauthorization. The agreement was to begin in January 2001, but the
    Bush Administration has suspended the implementation of the
    settlement's provisions, which have been under review ever since.
        Thirty-one States have Davis-Bacon coverage at the State level. It
    seems to us that Federal Davis-Bacon coverage should only be an issue
    for the 19 ``right-to-work'' States that do not cover Davis-Bacon at
    the State level. Many of NUCA's construction company members, union and
    open shop, will tell you that the current construction industry labor
    shortage, across-the-board drug testing, and technical know-how warrant
    employers to pay higher wages regardless of Davis-Bacon requirements.
    If construction companies want the workers, they must pay prevailing
    wages, or more in some cases. This is dictated by the free-market, not
    by Federal or State requirements. Others will tell you that Davis-Bacon
    stabilizes the construction market by making wage determination easier
    during the bidding process. Rather than haggle over wage rates for
    different job functions, employers simply pay the prevailing wage.
        The bottom line is that only time and extensive debate will resolve
    the Davis-Bacon issue, and time is something that we cannot afford when
    it comes to the problem with our wastewater and drinking water
    infrastructure. While our nation's elected officials argue about wage
    determination, our nations infrastructure deteriorates and the
    infrastructure crisis continues to grow.

                                   CONCLUSION

        Over the years, the annual Federal investment in the Clean Water
    SRF Program has been cut in half, yet there remain thousands of miles
    of barely functioning sewer pipelines that are leaking raw sewage into
    underground aquifers daily.
        A few years ago, Congress passed the Transportation Equity Act for
    the 21st Century, or TEA-21. The legislation provided a blueprint for
    development and maintenance of America's highways and roads. TEA-21 has
    paid off, and Congress is to be commended for its investment in the
    nation's roadways. Now it's time to focus on what is underneath the
    roads. The underground water infrastructure is literally falling apart
    as we speak.
        The math is simple. The past several years have shown a decline in
    Federal investment in ensuring the resources to maintain our wastewater
    and drinking water infrastructure. At the same time, while the existing
    infrastructure continues to age, failure rates continue to grow, as the
    declining investment is not able to keep up with the aging pipes. This
    has created a major financial gap that will only get worse if a firm
    commitment is not made and continual Federal resources are not provided
    to needy communities.
        People understand that their quality of life is linked to water
    quality and the collection and treatment of wastewater. The SRFs have
    become increasingly efficient and effective, but need more resources.
    Sufficient Federal seed money must be invested to ensure that human and
    environmental costs of the multi-billion dollar funding gap are
    prevented. The provisions in S. 1961 would be a huge step in that
    direction.

                                   __________
    Statement of Terry R. Yellig on Behalf of the Building and Construction
                           Trades Department, AFL-CIO

        My name is Terry R. Yellig, and I am testifying on behalf of the 14
    affiliated unions that comprise the Building & Construction Trades
    Department of the AFL-CIO and the millions of skilled construction
    workers who they represent. We commend Chairmen Graham and Jeffords, as
    well as Senators Crapo and Smith, for introducing S. 1961, the Water
    Investment Act of 2002, which would authorize $36 billion over five (5)
    years for investment in America's clean water and safe drinking water
    infrastructure.
        Authorization of funds of this magnitude is a critically important
    first-step in meeting the well-documented water infrastructure needs
    throughout this country. Various governmental entities, as well as
    private groups, have documented the hundreds of billions of dollars of
    water infrastructure needs facing our nation. EPA Administrator
    Christine Todd Whitman testified before this committee that estimated
    water infrastructure needs could total as much as a ``trillion
    dollars.'' As we all know, recent appropriations have only provided
    approximately $2 billion per year worth of the nation's clean water and
    safe drinking water infrastructure needs. These are woefully inadequate
    amounts given the acknowledged needs assessments. That is why we are
    encouraged by the introduction of S. 1961, the Water Investment Act,
    and view it as an important congressional statement that begins
    seriously to address the water needs of America.
        Notwithstanding, the building and construction trade unions
    strongly feel that more should be done at the Federal level to address
    our massive water infrastructure needs. We recognize the constraints
    that looming Federal budget deficits impose on Federal infrastructure
    programs, especially on those without dedicated revenue streams such as
    those that fund the Highway and Aviation Trust Funds. Nevertheless, our
    nation's water needs demand a broader based Federal commitment.
        Investment in critical water infrastructure by the Federal
    Government is as important to our country's economic well being as
    investment in our highways, transit systems and airports. From our
    perspective, significant Federal infrastructure investment is the
    predicate to, and the catalyst for, long-term economic growth and
    vitality. Robust economic growth will be stymied without sufficient
    investment in new and improved wastewater treatment facilities, as well
    as an abundant supply of safe drinking water and the systems to deliver
    it.
        Given enactment in recent years of legislation addressing
    significant surface transportation and aviation infrastructure issues
    facing this country, we strongly urge the committee to take a long hard
    look at authorizing even higher levels of spending in S. 1961 in order
    to bring investment levels up to the $50 billion to $60 billion level
    over the next 5-year authorization period.
        Clearly the needs are there. We call to the committee's attention
    the persuasive needs assessment report, ``Water Infrastructure Now,''
    prepared by the Water Infrastructure Network (``WIN''), a broad-based
    coalition of locally elected officials, drinking water and waste water
    service providers, contractors and engineers, environmentalists and key
    building trade unions. This report makes a compelling case for a $57
    billion investment program over a typical 5-year authorization cycle.
        Many of the witnesses at this and other hearings this committee has
    scheduled will discuss a variety of discreet policy issues pertaining
    to various aspects of S. 1961, and other important pieces of water
    legislation such as Senator Voinovich's bill to reauthorize the Clean
    Water Act State revolving loan fund program, S. 252. As building and
    construction trades unions, we pledge our support to moving water
    infrastructure legislation through Congress that authorizes as much
    funding for clean water and safe drinking water as possible.
        One of our primary responsibilities as building and construction
    trades unions is to provide the skilled manpower necessary to address
    this country's water infrastructure needs under whichever legislative
    framework Congress enacts into law.
        From heavy equipment operators to laborers, from ironworkers to
    carpenters, bricklayers and cement masons, we are prepared to provide
    the skilled craft workers who will build the water infrastructure
    projects authorized by S. 1961 in a timely, efficient and safe manner.
        As we stated earlier, the magnitude of this country's water
    infrastructure needs is such that Congress needs to authorize higher
    funding levels that will enable State and local water authorities
    seriously to begin addressing this problem within a reasonable
    timeframe. In addition to the various other policy considerations in
    this legislation, it obviously would create tens of thousands of jobs
    and provide real economic stimulus to this country's economy. In our
    judgment, there is no better economic stimulus than to put paychecks
    into the hands of the American workers, contractors and suppliers who
    will build this country's water infrastructure.
        We are also concerned about the labor standards that will be
    applicable to construction workers employed on federally assisted water
    infrastructure projects. Specifically, we respectfully urge this
    committee to take steps necessary to insure that Davis-Bacon prevailing
    wages are paid on all such projects assisted under the Clean Water and
    Safe Drinking Water Acts.
        As many members of this committee are well aware, for 71 years
    Congress has consistently applied the Davis-Bacon prevailing wage
    requirements to Federal infrastructure programs regardless of whether
    it was under Democratic or Republican control, or whether there was a
    Democratic or Republican Administration in the White House.
        The original policy of the Davis-Bacon Act was to acknowledge the
    potentially disruptive impact of Federal construction programs on local
    construction markets. Accordingly, the public policy interest set forth
    repeatedly by Congress in more than 60 Federal statutes over the past
    71 years has been to require contractors working on federally assisted
    construction programs to pay locally prevailing wages as determined by
    the U.S. Department of labor.
        In recent years, as Congress has considered using a variety of so-
    called innovative financing mechanisms such as revolving loan fund
    programs, credit enhancement programs, and loan guarantee programs, all
    of which are intended to leverage limited Federal capital for maximum
    public benefit, as well as more traditional Federal grant programs, it
    has steadfastly continued to apply complete and comprehensive Davis-
    Bacon prevailing wage coverage to these programs.
        In fact, Congress included comprehensive Davis-Bacon prevailing
    wage requirements in the Clean Water Act in 1972 and in the original
    Safe Drinking Water Act in 1974. However, the 1987 Water Quality Act
    shifted Federal support for water treatment projects under the Clean
    Water Act from a program of direct Federal grants to a program of
    Federal capitalization grants to support State Revolving Loan Funds
    (``SRF'') with the intention of phasing out the Federal capitalization
    grant program by the end of fiscal year 1994.
        Notwithstanding Congress' expectation that State Revolving Funds
    would become completely self sufficient by fiscal year 1995, they were
    not. On the contrary, Congress has continued to appropriate funds for
    new Federal capitalization grants to the States every year since fiscal
    year 1995. Moreover, after enactment of the 1987 Water Quality Act, the
    Administrator of the Department of Labor's Wage and Hour Division
    concluded that, under newly enacted Sec. 602(b)(6) of the Clean Water
    Act, the Davis-Bacon prevailing wage requirement did not apply to
    ``state matching funds required to be contributed into the SRF, moneys
    repaid to the SRF, or other moneys.''
        Under this interpretation, the first time State Revolving Funds
    provided assistance that is supported by Federal capitalization grant
    funds to help finance construction of a water treatment project, the
    Davis-Bacon requirement was applied; however, when the assistance was
    repaid to the State Revolving Fund and then ``recycled'' to assist
    construction of another water treatment project, according to DOL and
    EPA, Davis-Bacon prevailing wage requirements would not apply.
        This interpretation would, in the long-term, undermine the
    longstanding policy of assuring that all workers on projects supported
    by Clean Water Act grants are paid not less than the prevailing wage.
    This committee attempted to set EPA and DOL straight on this issue in
    1994 when it reported S. 2093, the Water Pollution Prevention and
    Control Act, which stated, among other things, that the Davis-Bacon
    prevailing wage requirement in the Clean Water Act applies to any
    project assisted by a loan or other type of assistance given by a State
    Revolving Fund, including projects assisted by recycled funds.
        Unfortunately, the full Senate failed to take action on S. 2093.
        In addition, Sec. 602(b)(6) of the CWA currently provides that the
    Davis-Bacon prevailing wage requirement only applies to construction of
    water treatment works projects financed by Federal funds made directly
    available to State Revolving Funds that began before the end of fiscal
    year 1994. Notwithstanding continuation of Federal financial assistance
    to the State Revolving Funds, EPA says that the Davis-Bacon prevailing
    wage requirement no longer applies even to construction of water
    treatment projects financed in whole or in part with funds directly
    made available through Federal capitalization grants, because of the
    language in Sec. 602(b)(6) of the Clean Water Act.
        Accordingly, it is necessary to amend Sec. 602(b)(6) of the CWA so
    that the Davis-Bacon prevailing wage requirement applies to
    construction of all water treatment projects assisted in whole or in
    part by SRFs with Federal funds, including those supported by funds
    directly made available through Federal capitalization grants and those
    supported by ``recycled'' Federal funds.
        Similarly, the Safe Drinking Water Act includes a broadly worded
    provision that directs the EPA Administrator to ``take such action as
    may be necessary to assure compliance with provisions of the [Davis-
    Bacon Act].'' In 1994, the Senate passed, but the House failed to act
    on the Safe Drinking Water Act amendments that, among other things,
    would have encouraged States to create revolving loan funds for
    drinking water projects funded by Federal capitalization grants to
    finance loans and other types of financial assistance to public water
    systems.
        The proposed 1994 Act anticipated that, like the SRF program
    created in the Clean Water Act, as the loans and other types of
    financial assistance were repaid, the revolving loan fund would be
    replenished, and new loans and other types of financial assistance
    could be made for other eligible drinking water projects. The proposed
    1994 Act included an additional Davis-Bacon labor standards provision
    that clearly applied Federal prevailing wage requirements to laborers
    and mechanics employed on projects assisted by State Revolving Loan
    Funds, including any assistance financed by repayments to the SRF.
        Subsequently, Congress enacted the Safe Drinking Water Act
    Amendments of 1996, which finally created a State Revolving Fund
    program that provides annual capitalization grants to each State in
    order to fund a State Revolving Fund that provides financial assistance
    to local agencies to facilitate compliance with EPA's National primary
    drinking water standards. The Safe Drinking Water Act Amendments of
    1996 did not, like the 1994 bill that passed the Senate but was not
    acted upon by the House, include a separate Davis-Bacon provision.
        There was no attempt to add a Davis-Bacon provision to the 1996
    Act, because it was my opinion as Counsel to the Building and
    Construction Trades Department that the Davis-Bacon provision already
    in the Safe Drinking Water Act was sufficiently broad to cover all
    construction projects supported by State Revolving Funds with funds
    directly made available from Federal capitalization grants or with
    ``recycled'' funds made available by repayment of Federal
    capitalization grant funds.
        However, contrary to the EPA Administrator's obligation under the
    Act to ``take such action as may be necessary to assure compliance with
    provisions of the [Davis-Bacon Act],'' she now claims that the Davis-
    Bacon prevailing wage requirement in the Safe Drinking Water Act does
    not apply to any construction projects supported by State Revolving
    Funds. Accordingly, the Davis-Bacon prevailing wage requirement in the
    Safe Drinking Water Act must be amended to make it clear that Davis-
    Bacon requirements apply to all construction projects supported by SRFs
    whether with funds directly made available from Federal capitalization
    grants or with ``recycled'' funds made available by repayment of
    Federal capitalization grant funds.
        To fail to provide full Davis-Bacon coverage of water
    infrastructure projects assisted by State Revolving Funds under both
    the Clean Water Act and the Safe Drinking Water Act would, in our
    opinion, result in the piecemeal repeal of Davis-Bacon prevailing wages
    on a major Federal construction program contrary to congressional
    intent in the original Clean Water and Safe Drinking Water Acts, not to
    mention the other 60 or so Federal statutes that have extended Federal
    prevailing wage requirements to a myriad of other federally assisted
    construction programs.
        We again commend the committee for coming to grips with our
    significant clean water and safe drinking water infrastructure needs,
    and we look forward to working with Senators on both sides of the aisle
    as the process moves forward.

                                   __________
              Statement of the American Society of Civil Engineers

        Mr. Chairman and members of the committee:
        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 and on the
    bill S. 1961, the Wastewater Investment Act of 2002.
        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.

                               EXECUTIVE SUMMARY

        ASCE is pleased to support passage of S. 1961, the Water Investment
    Act of 2002. The proposed funding levels in the bill are a far-sighted,
    responsible attempt to rebuild the nation's aging and corroded
    wastewater and drinking-water facilities and to upgrade their
    performance to meet the nation's health and security needs in the 21st
    century.

                                  I. THE ISSUE

        In March 2001, 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.\1\
    ---------------------------------------------------------------------------
        \1\ American Society of Civil engineers, the 2001 Report Card for
    America's Infrastructure (2001), http://www.asce.org/reportcard.
    ---------------------------------------------------------------------------
        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.
        We know, of course, that the Federal budget condition is less
    healthy now than it was in early 2001. When the Report Card was issued,
    the nation anticipated budget surpluses well into the future. The
    Congressional Budget Office (CBO) projected in January 2001 that, if
    the tax and spending policies then in effect remained the same, the
    government would run surpluses totaling more than $5.6 trillion over
    the 10-year period from 2002 through 2011. CBO revised those
    projections in August, reducing the 10-year surplus to $3.4 trillion.
        But in January 2002 CBO estimated that the cumulative surplus for
    2002 through 2011 under current policies would total $1.6 trillion--a
    drop of $4 trillion from last January's figure. More significantly, if
    current tax and spending policies remain in place, the total budget
    will show a deficit of $21 billion in 2002 and $14 billion in 2003,
    according to CBO. Indeed, total Federal receipts in the first 4 months
    of fiscal year 2002 were down by $11 billion (1.6 percent) compared
    with the same period a year ago.
        ASCE is well aware of the fiscal quandary that Congress must
    resolve. These short-term budget realities, however, should not blind
    Congress to the enduring need for a strong Federal investment in public
    health and in the security and stability of the nation's wastewater and
    drinking-water infrastructure. Naturally the Federal Government cannot
    overcome these problems without help. To remedy the current nationwide
    infrastructure problem, ASCE estimates we will need to invest $ 1.3
    trillion in all U.S. infrastructure over the next 5 years. This
    unprecedented need must be met by all levels of government--Federal,
    State and local--as well as the private sector.

                    II. 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
    2002, the appropriated amount is $825 million. The total appropriated,
    which represents 82.5 percent of the $1 billion authorized level, is at
    the same level as the fiscal year 2001 appropriation and equals 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.

                      III. 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. Congress, however, has not
    authorized new funding for wastewater treatment plants since 1987, and
    the current benchmark authorization of $600 million (established for
    fiscal year 1994 in 1987) is far too low to meet current needs.
        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 Year 2002, Congress appropriated $1.35 billion
    for wastewater infrastructure, the same appropriation as fiscal year
    2001. The amount 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.

                 IV. THE WATER INVESTMENT ACT OF 2002 (S. 1961)

        The Water Investment Act of 2002 (S. 1961) would amend and
    reauthorize the Clean Water Act and the Safe Drinking Water Act to
    provide substantially greater funding for wastewater and drinking-water
    facilities.
        The bill is intended to modernize State water pollution control
    revolving funds and the allocation for those funds to ensure that the
    funds distributed reflect water quality need; to streamline State water
    pollution control assistance programs and State drinking-water
    treatment assistance programs to maximize the use of Federal funds and
    encourage maximum efficiency for States and localities; to provide
    additional structure to the water supply research conducted in the
    United States; and to ensure that the Federal Government is performing
    the appropriate role in analyzing regional and national water supply
    trends.
        The bill would authorize funding of $35 billion over 5 years. It
    would authorize more than $20 billion for clean water and $15 billion
    for safe drinking water projects, respectively. There are provisions
    for the Clean Water Act and the Safe Drinking Water Act that are
    designed to help water utilities better manage their capital
    investments using asset management plans, rate structures that account
    for capital replacement costs, and other financial management
    techniques.
        In addition, there are provisions that seek to ensure that the
    ``next generation'' of water-quality issues receives a major focus. The
    bill includes incentives for use of non-structural technologies. The
    bill would make these approaches eligible to receive funding under the
    Clean Water Act State Revolving Fund and require that recipients of
    funds consider the use of low-impact technologies. Moreover, it would
    authorize a demonstration program at $20 million per year over 5 years
    to promote innovations in technology and alternative approaches to
    water quality management and water supply. This program requires that a
    portion of the projects use low-impact development technologies.

                     V. RECOMMENDED IMPROVEMENTS TO S. 1961

        The Water Investment Act of 2002 could be amended to enhance its
    effectiveness and improve on its ability to build modern wastewater and
    drinking-water facilities and protect national security. ASCE strongly
    encourages the committee to adopt the following provisions to S. 1961
    as it deliberates the legislation:

              The bill should give a State the discretion to use
            the design-build project delivery method for each facility
            financed under the SRFs. The use of this method should be
            consistent with State law. Once a State decides that the
            design-build project delivery system is appropriate for a given
            project, the recipient should be required to the use of the
            two-phase competitive source-selection procedures authorized
            under section 303M of the Federal Property and Administrative
            Services Act of 1949.
              The bill should require that each contract and
            subcontract for architectural and engineering design services,
            program and construction management and other professional
            services should be awarded in the same manner as contracts that
            are awarded under title IX of the Federal Property and
            Administrative Services Act of 1949.
              The bill should expressly authorize the Environmental
            Protection Agency to use the Clean Water Act State Revolving
            Loan Fund (SRF) and the Safe Drinking Water Act SRF to provide
            financial assistance for the construction of physical security
            measures at wastewater and drinking-water plants. Certain
            terrorist groups have made it clear that the destruction of
            U.S. water-treatment facilities is one of their aims. Federal
            funds should be made available through the SRFs to deal with
            specific security needs, including improved building design and
            construction requirements, fencing and other physical security
            measures. No funds should be made available to hire security
            guards, establish private police forces or implement other non-
            structural protections, which should be addressed through
            operating funds.
              Some have argued that Federal regulatory programs
            establishing water-quality standards under the Clean Water Act
            and drinking-water standards under the 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 at the
            present time, 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.

                           VI. FUTURE POLICY OPTIONS

        ASCE recommends that funding for water infrastructure system
    improvements and associated operations ultimately be provided through a
    comprehensive program that addresses the infrastructure needs of
    drinking-water and wastewater systems. At some point, Congress needs to
    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.
        Congress also should consider the use of Federal capitalization
    grants to purchase or refinance outstanding debt obligations of water
    or wastewater service providers; guarantee, or purchase of insurance
    for, an obligation of a water or wastewater system; and secure the
    payment or directly repay principal or interest on general obligation
    bonds issued by the State if proceeds of the bonds will be deposited
    into the SRF.
        As part of the Federal funding package designed to lower the cost
    of capital for recipients that choose to leverage their Federal
    capitalization grants and for individual issuers seeking to borrow in
    the public capital markets, Congress should exempt from State private
    activity bond volume caps State and local private activity bonds for
    water and wastewater infrastructure, where such bonds (1) are used to
    finance core water or wastewater infrastructure, as defined below, and
    (2) produce public health or environmental protection benefits that are
    generally available to the public.

                                   __________
           Statement of the Association of California Water Agencies

        The Association of California Water Agencies (ACWA) is pleased to
    submit comments for the record to the Senate Environment and Public
    Works Committee on S. 1961, which seeks to address water infrastructure
    funding needs. ACWA is the largest and oldest collection of public
    water agencies in the country, and the association's members are
    responsible for 90 percent of the water delivered in California for
    municipal, agricultural and industrial use.
        Unless Congress acts now to invest in and repair our nation's water
    infrastructure, ACWA believes that a looming water crisis in California
    and the west is inevitable. In general, ACWA supports the increase in
    funding levels within S. 1961, recommends some changes to the bill, and
    believes the bill can work in concert with other innovative resource
    approaches like the CALFED Bay-Delta Program.
        Western States in general, and particularly California, face a
    dizzying array of resource demands that compete for finite supplies of
    water. Heavily urbanized areas depend on reliable supplies of high
    quality water to meet drinking water needs. Burgeoning high tech
    industries expect even higher quality water to develop the products
    that have transformed California's and the nation's economy.
    Agricultural communities today must vigorously safeguard water
    supplies, growing more food with less water, on ever-smaller tracts of
    usable land. And new environmental mandates have reduced flexibility of
    operations within California's water system.
        At the same time, the administration of the Clean Water Act and the
    Safe Drinking Water Act has imposed increasingly expensive requirements
    on water suppliers. New treatment technologies for arsenic, MTBE,
    cryptosporidium, disinfection biproducts and other agents have been
    developed and are working to meet these mandates. Local agencies have
    helped pioneer many of these innovations, and while the benefits to
    public health have been great, they have not come without a cost.
        The ``infrastructure funding gap'' cited by EPA Administrator
    Christie Todd Whitman, the Water Infrastructure Network (WIN) and
    others this year is very real. Estimates vary, but according to the
    General Accounting Office the figure is between $300 billion and $1
    trillion over the next 20 years\1\--a widening shortfall between
    Federal funds appropriated and those needed to keep up with needs in
    cities, counties and rural communities. This funding gap becomes
    especially glaring in the face of new Federal water quality standards,
    environmental mandates and population shifts, factors which can wring
    the last ounce of flexibility from water networks, and make it
    difficult for States to contemplate necessary regional environmental
    water resource plans.
    ---------------------------------------------------------------------------
        \1\ Water Infrastructure: Information on Federal and State
    Financial Assistance, GAO November 2001/GAO-02-134
    ---------------------------------------------------------------------------

                        CALFED-S. 1961 IS COMPLIMENTARY

        California's CALFED Bay-Delta Program is one example of innovative
    environmental and water resource planning whose future will be acutely
    impacted by water infrastructure investment. CALFED is the largest
    ecosystem restoration project in California's history, tasked with the
    commensurate goals of improving water quality and water supply
    reliability for farms and 20 million urban residents. Legislation like
    S. 1961 will complement CALFED by repairing the water networks in
    cities that rely on water from the Bay Delta ecosystem. The bill will
    enable urban water conservation, drinking water quality improvements,
    pipeline and canal upgrades, and the expansion of water recycling, all
    of which will relieve pressure on the fragile Bay-Delta and allow its
    multi-faceted restoration work to proceed.
        The two major arteries for delivered water in California, the
    Federal Central Valley Project (CVP) and the State Water Project (SWP)
    are both more than 40 years old. Each is managed by agencies
    participating in CALFED. Neither one, however, has been completed to
    the extent its planners envisioned, and while both are feats of
    engineering, they were built when the State's population was less than
    one third of where it stands today, with a vastly different economy,
    and virtually no Federal environmental laws to enforce.
        The investment of S. 1961, as well as the restoration promised by
    CALFED, are both direly needed for California and its western neighbors
    to meet water demand into the 21st Century. Just as the restoration of
    the Everglades, the Chesapeake and the Great Lakes have proceeded in
    concert with ongoing Federal water management initiatives, CALFED
    requires that infrastructure funding move forward with the Program's
    long-term resource goals.

                               RED TAPE CONCERNS

        As demonstrated by the debate surrounding 1996 amendments to the
    Safe Drinking Water Act, a delicate balance must be struck between the
    benefits of water investment and the costs of new regulations that
    often accompany it. S. 1961 dedicates substantial resources to water
    systems, but some sections of the bill impose broad new requirements,
    which may be unnecessary. The bill needs to focus on funding for repair
    and investment in water infrastructure.
        Section 103(e)(3) would mandate a new coordination process between
    local land use, transportation, and watershed plans in order for States
    to take advantage of water pollution revolving loan funds. Under ACWA-
    supported State legislation enacted in 1995 and revised in 2001,
    California already makes approval for new developments contingent upon
    adequate water supplies, giving hydrologic forecasts a loud voice in
    land use decisions. Section 103(g) of the bill creates new expectations
    of ``Technical, managerial, and financial capacity for optimal
    performance,'' but States and local districts in California already
    employ best management practices to seek every possible efficiency from
    their systems.
        ACWA recommends that the specific language of S. 1961 be changed in
    the committee process to achieve both operational and public policy
    improvements. One example is the section singling out ``Disadvantaged
    Communities'' for extended loan terms. While many of ACWA's members
    would undoubtedly fall into this category, the bill now provides a
    limited loan allotment for each district. While attempts to help
    disadvantaged entities are always valued, it is unclear how the
    presence of several separate 'disadvantaged communities' inside many of
    California's large, demographically mixed water districts could meet
    this test without competing with one another for a single districts'
    loan allotment. The disadvantaged community designation could also
    distort the use of funds meant for district operation and maintenance
    under language on page 9 of the introduced version.

                             REGIONAL PARTNERSHIPS

        California's water districts have met with considerable success in
    the development of regional partnerships. These arrangements consist of
    two or more drinking water providers pooling resources together so that
    expertise and equipment can be shared, or so that strengths in one
    agency can be used to offset limitations in another. Across the
    country, water districts have begun to stratify into two groups of
    water systems, the small (<10,000) and the large (>100,000). Because
    regional partnerships are used by many of the small districts that S.
    1961 seeks to assist, ACWA believes the bill should enable small
    districts to more easily access the financial, technical, and
    managerial resources available through regional partnerships. Regional
    partnerships could be made eligible to apply for grants and loans, and
    could take the form of water supply agreements, operating agreements,
    construction contracts, joint powers authorities or other approved
    arrangements.

                                  WATER REUSE

        Every day, water managers in California and the west are confronted
    with a unique set of resource constraints not found in other parts of
    the country. Naturally arid climates where water is scarce, along with
    a much greater incidence of endangered species (California leads the
    nation with over 260 designations), bring constant uncertainty to water
    deliveries. For that reason, every effort must be made to reclaim and
    reuse all available water supplies. ACWA supports the funding for these
    programs found in S. 1961 as progressive and needed investment for
    chronically water-short communities of the western United States.
        Finally, it is unclear how language in Section 403 of the bill
    would influence Federal water management. This section calls for ``an
    assessment of the state of water resources in the United States,'' and
    requires that this report ``be used by Federal agencies as a guide in
    making decisions on the allocation of water research funding.'' While
    more information is always better than less when making water
    management decisions, it may be useful to clarify whether the
    assessment will create priority lists or influence the disbursement of
    Federal funding.
        Thank you for the opportunity to provide comments to the committee.
    ACWA stands ready to provide any information or assistance in the
    furtherance of water infrastructure investment and the enactment of
    improvements to S. 1961.

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      WATER INVESTMENT ACT, S. 1961, AND OTHER WATER INFRASTRUCTURE BILLS

                                  ----------

                          THURSDAY, FEBRUARY 28, 2002

                                   U.S. Senate,
             Committee on Environment and Public Works,
                Subcommittee on Fisheries, Wildlife, and Water,
                                                        Washington, DC.
        The committee met, pursuant to notice, at 9:30 a.m. in room
    406, Senate Dirksen Building, Hon. Bob Graham (acting chairman
    of the subcommittee) presiding.
        Present: Senators Graham, Reid, Clinton, Crapo, Chafee, and
    Jeffords [ex officio].
        Also present: Senator Sarbanes.

      OPENING STATEMENT OF HON. BOB GRAHAM, U.S. SENATOR FROM THE
                            STATE OF FLORIDA

        Senator Graham. I will call the hearing to order. We will
    soon be joined by the ranking member, Senator Crapo.
        Last March, this subcommittee began a series of hearings
    and meetings on the nation's water infrastructure needs. The
    Subcommittee on Fisheries, Wildlife, and Water continues our
    commitment to address the water infrastructure concerns of our
    nation with today's legislative hearing.
        The focus of this hearing is going to be on S. 1961, the
    Water Investment Act of 2002. Witnesses are also asked to
    provide testimony on a number of related bills currently
    pending before the subcommittee.
        On February 15, I introduced the Water Investment Act with
    Senator Crapo, Senator Jeffords, and Senator Smith, in an
    attempt to address the critical challenges facing our nation's
    wastewater and drinking water infrastructure. These problems
    include: funding levels, allocation of funds, water supply,
    project prioritization, and project planning and management.
        Specifically, this legislation authorizes $35 billion over
    5 years to assure the financial and environmental
    sustainability of our nation's water programs. In addition, we
    have revised the allocation formula for Federal money under the
    State Revolving Fund Programs to reflect a needs-based
    approach. I think that these two factors are crucial if we are
    to succeed in maintaining the nation's existing infrastructure
    and planning for our future needs.
        The Water Investment Act also encourages smart planning by
    assuring that communities look at regional transportation
    plans, land use plans, and watershed plans. From the
    perspective of my State of Florida, one of the most improvement
    provisions of the bill is the analysis of water supply and
    drought information. This information will be compiled by the
    Federal Government and shared with State and local governments,
    so that we can more adequately prepare for our future water
    needs. This represents a recognition on the part of the Federal
    Government that our water supply is becoming an increasingly
    precious and frequently threatened resource. Sections of our
    country that had an abundance of water are now looking at
    restrictions.
        This legislation moves us toward suggestions of ways in
    which the supplies we have can be used more effectively while
    new supplies are being developed. The Water Investment Act
    represents the culmination of a year of hearings, meetings,
    correspondence with national organizations and other
    governmental entities. The bill responds to the pleas we have
    heard from those organizations to fund our nation's looming
    water infrastructure needs.
        In closing, I wish to thank my friend and colleague on this
    subcommittee, Senator Crapo, as well as our chair and ranking
    members, Senators Jeffords and Smith, and the staff for all the
    work that they have put into the Water Investment Act. I look
    forward to hearing from the witnesses about the specific
    provisions of this legislation, as well as other legislation
    relating to water infrastructure which has been referred to
    this subcommittee.
        [The prepared statement of Senator Graham follows:]

      Statement of Hon. Bob Graham, U.S. Senator from the State of Florida

        Last March, this subcommittee began a series of hearings and
    meetings on our nation's water infrastructure needs. The Subcommittee
    on Fisheries, Wildlife and Water continues our commitment to address
    water infrastructure concerns with today's legislative hearing.
        Although the focus of this hearing is S. 1961, the Water Investment
    Act of 2002, witnesses are also asked to provide testimony on a number
    of related bill currently pending before the subcommittee.
        On February 15, I introduced the Water Investment Act with Senator
    Crapo, Senator Jeffords, and Senator Smith in an attempt to address the
    critical challenges facing our nation's wastewater and drinking water
    infrastructure. These problems include funding levels, allocation of
    funds, water supply, project prioritization, and project planning and
    management. Specifically, the bill authorizes $35 billion over 5 years
    to ensure the financial and environmental sustainability of our water
    programs.
        In addition, we have revised the allocation formula for Federal
    money under the SRF programs to reflect a needs-based approach. I think
    that these two factors are crucial if we are to succeed in maintaining
    the nation's existing infrastructure and planning for our future needs.
        The Water Investment Act also encourages smart planning by ensuring
    that communities look at regional transportation plans, land use plans,
    and watershed plans. From the perspective of Florida, one of the most
    important provisions of the bill is the analysis of water supply and
    drought information. This information will be compiled by the Federal
    Government and shared with State and local governments so that we can
    more adequately prepare for our future water needs. This represents
    recognition on the part of the Federal Government that our water supply
    is becoming an increasingly precious resource.
        Sections of the country that had an abundance of water are now
    looking at restrictions. This legislation moves us toward suggestions
    of ways in which the supplies we have can be used more effectively and
    new supplies can be developed.
        The Water Investment Act represents the culmination of a year of
    hearings, meetings, and correspondence with national organizations and
    government entities. The bill responds to the pleas that we have heard
    from these organizations to fund our nation's looming water
    infrastructure needs.
        In closing, I want to thank Senator Crapo, Senator Jeffords,
    Senator Smith and their staffs for all of their work on The Water
    Investment Act I look forward to hearing from the witnesses about the
    specific provisions in this legislation.

        Senator Graham. Senator Crapo, did you have an opening
    statement?

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

        Senator Crapo. Yes, thank you very much, Mr. Chairman. I
    had the opportunity to give a full opening statement on
    Tuesday, so I'll confine myself to just a few remarks right
    now.
        Once again, I want to welcome our witnesses to this
    hearing. Your review and comments on S. 1961, the Water
    Investment Act, will be of great use to this subcommittee as we
    work to perfect and advance this legislative proposal. As you
    know, S. 1961 is the result of several years of discussions and
    work by this subcommittee and is in response to the many issues
    that you and others have raised.
        Although the legislation cannot accommodate all of the
    requests that have been made, I believe it represents an
    important improvement in our current infrastructure statutes by
    modernizing State Revolving Fund Programs to ensure assistance
    is effectively directed to public health and water quality
    needs, assisting communities in need, and enhancing the
    capabilities of smaller systems to better serve the public, and
    ensuring the enhanced Federal investments in State assistance
    programs are matched by appropriate accountability by those who
    manage and receive funding. These are strong guiding principles
    and ones that we should commit ourselves to as S. 1961 moves
    through the legislative process.
        Being the result of a strong collaborative process, S. 1961
    recognizes this with an increased Federal investment to assist
    communities to meet their public health and environmental
    needs. Simply put, the legislation is possibly the most
    environmentally significant legislation that we'll handle in
    Congress this year.
        I know I can speak for all of us on the subcommittee that
    we welcome your thoughts on the bill as witnesses, as well as
    any constructive improvements that can be made.
        Mr. Chairman, I want to thank you for being willing to work
    with us. There were a lot of issues that we had to resolve. I
    think we did come together in a good compromise with
    collaboration that did come forward with a good, strong bill. I
    appreciate the work that we have been able to do together on
    this legislation. Thank you very much.
        Senator Graham. Senator, I appreciate those gracious words,
    and I reciprocate in the way in which you and those who have
    represented you have worked so effectively toward the goal of
    getting legislation that will be of assistance to the nation in
    one of its most critical resource areas.
        Senator Crapo. Thank you.
        Senator Graham. We've been joined by two other members of
    the subcommittee, Senator Reid of Nevada and Senator Clinton of
    New York.
        Do you have an opening statement?

      OPENING STATEMENT OF HON. HARRY REID, U.S. SENATOR FROM THE
                            STATE OF NEVADA

        Senator Reid. I do have a brief opening statement, Mr.
    Chairman. I apologize to my friend from Maryland for having you
    wait, but I appreciate also the work that you and Senator Crapo
    have done--and not only the work that you have done, but the
    timing in drafting this water infrastructure bill. This is so
    important.
        It will not only help us provide clean and safe water
    across our nation, but it will also be a major catalyst for new
    jobs. Major infrastructure projects generate good jobs. For
    every billion dollars we invest, we create approximately 42,000
    new jobs. During our debate on the Economic Stimulus Package, I
    argued that we needed a major new investment in our
    communities, and that infrastructure funding was the key to
    stimulating that investment.
        After September 11th, Nevada's tourism industry suffered
    tremendously as tens of thousands of workers lost their jobs.
    Then, as well as now, we need to stimulate investment that will
    create jobs. Infrastructure investment is one of the best ways
    to create jobs in Nevada and the rest of the country. So I'm
    glad to see this committee picking up where that debate has
    been on the Senate floor.
        I want to mention two ways in which I think we can improve
    this bill. First, it's critically important that the bill be
    modified to include comprehensive Davis-Bacon prevailing wage
    rate protections. There were a lot of things said about these
    protections during the Tuesday hearing on this water bill. The
    main argument used by those opposed to such protection was that
    the market alone should determine wages in our communities. The
    first response to this argument is Davis-Bacon, named after two
    Republicans. Prevailing wage protections are set by the Labor
    Department, which calculates then based on the prevailing wages
    in that community.
        The timely response, however, is that we have recently
    relearned a very powerful lesson about the market. Enron shows
    us what happens when we leave the protection of our workers
    completely in the hands of the market.
        The second important issue relates to the needs of our
    small communities in providing safe, affordable drinking water.
    There was a lot of heated debate and conflicting views last
    year about the Bush Administration's response to the arsenic
    rule, but one area where there seemed to be consensus was that
    we need to help our smaller communities comply with new
    drinking water requirements.
        While S. 1961 makes several great improvements to the
    Drinking Water Act Revolving Loan Fund, small communities can't
    afford to use them. They need more traditional grants to get
    some of the important work done. In response to that, I
    introduced the Small Community Drinking Water Funding Act with
    Senator Ensign to provide grants to help small communities
    comply with this and other drinking water requirements.
    Treating small communities differently than large ones makes
    sense, and this grant component of this legislation should be
    added to S. 1961.
        Why? As some of my colleagues know, the per-household cost
    of providing water infrastructure improvements in small
    communities is four times greater than the large communities.
    Part of the reason for this is that there are just so many
    small systems across our nation. In Nevada, for example,
    upwards of 98 percent of the systems are small, another reason
    that smaller communities have a much smaller tax base to share
    in the cost of these expensive improvements.
        So, again, I thank you both very much for your leadership.
    I would hope that when we report this bill next week, we can
    include the Davis-Bacon prevailing wage protection and also
    that part of my bill that I talked about earlier.
        Senator Graham. Thank you, Senator. Senator Clinton.

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

        Senator Clinton. Thank you, Mr. Chairman. Mr. Chairman, I
    want to thank you and the ranking member for the extraordinary
    work you've done on this legislation. I appreciate your holding
    this hearing. I apologize, I was not able to be here for the
    Tuesday hearing, but I know that a number of important points
    were made at that hearing as well. I want to associate myself
    with the remarks made then by Senator Voinovich about the need
    to not just authorize, but appropriate the funding required for
    our nation's water infrastructure. I would like to associate
    myself also with the remarks made by the distinguished Senator
    from Nevada, because I agree with him on both counts with
    respect to Davis-Bacon and with respect to the difficulty small
    communities face.
        I represent a State that, according to EPA's 1999 Drinking
    Water Infrastructure Needs Survey, has the highest current and
    total infrastructure needs when it comes to complying with
    Federal drinking water regulations. Now some of that is because
    we've been around a long, long time. Unlike some of the States
    that developed in the 20th century, we have communities that go
    back to the 17th century. Unfortunately, we have some water
    infrastructure that seems like it goes back that far, although
    it's probably only about a 100-plus years old.
        We have the highest clean water infrastructure needs in the
    country, $16 billion, and that's according, also, to the 1996
    EPA Clean Water Needs Survey. If you look at the total drinking
    water infrastructure, both current and total, we have $10.5
    billion and $13.1 billion in needs. So we have a lot to gain
    and possibly even more to lose with respect to getting this
    water legislation reauthorized and getting sufficient funds
    appropriated.
        We have seen the results of inadequate infrastructure
    investment. In the Long Island Sound, for example, we have
    rather severe water quality problems because we have not had
    sufficient effective wastewater treatment coming out of New
    York City into the Long Island Sound. Some of you have learned
    about that issue and have followed it, and that's only one of
    many of comparable problems that we currently face in New York.
        I think that one way that we can demonstrate the commitment
    that this committee feels toward this important issue is to
    recognize that having clean drinking water, having adequate
    wastewater treatment infrastructure, shouldn't even be
    debatable. We've always been so fortunate in our country that,
    historically, we have been able to turn on the tap and drink
    the water, and when we traveled out of our country and went to
    other places, one of the things we often learned was we
    couldn't do that. We didn't have those kinds of difficulties
    that other places faced. Although we didn't have the total
    national infrastructure commitment that we needed, we certainly
    did better than any place I'm aware of. We're in danger of
    losing that tremendous investment and the kind of commitment to
    the health and safety that people should be able to take for
    granted.
        So I want to thank you again, Mr. Chairman, for the work
    that you've done on a bipartisan basis to ensure that Americans
    and New Yorkers continue to enjoy the cleanest, safest water in
    the world, both by providing the necessary authorization and
    the necessary resources. They have to go hand-in-hand or we're
    just going to get further and further behind in the effort to
    try to make sure we make good on the promise of clean water
    here in our country. Thank you, Mr. Chairman.
        Senator Graham. Thank you very much.
        Senators, our first witness today is our colleague, Senator
    Sarbanes, who is here to testify on legislation that he has
    introduced relative to Chesapeake Bay, one of America's
    beautiful and most productive water areas.
        Senator Sarbanes.

    STATEMENT OF HON. PAUL S. SARBANES, U.S. SENATOR FROM THE STATE
                              OF MARYLAND

        Senator Sarbanes. Well, thank you very much, Mr. Chairman,
    Senator Crapo, Senator Clinton. I appreciate this opportunity
    to testify in the context of your consideration of S. 1961, the
    Water Investment Act, about S. 1044, the Chesapeake Bay
    Watershed Nutrient Removal Assistance Act, which Senator
    Mikulski and I, Senators Warner and Allen of Virginia, and
    Senators Specter and Santorum of Pennsylvania have introduced.
        At the outset, I want to commend you and the other members
    of the committee for focusing this attention on our nation's
    clean water infrastructure needs. The issue is of vital
    importance to my State, and, indeed, it's of vital importance
    to the country, and I very much welcome the attention you have
    brought to it and the indication of a very prompt schedule for
    acting.
        Despite improvements over the past two decades, Maryland--
    and, indeed, the entire Chesapeake Bay region--still face very
    significant water quality problems and needs. In December 2001,
    a Task Force on Upgrading Sewage Systems, commissioned by
    Governor Glendening of Maryland, completed an assessment of the
    cost to implement needed sewerage requirements, to address
    combined sewer overflows, sanitary sewer overflows, and other
    upgrades of wastewater treatment plants throughout Maryland,
    and identified $4.3 billion of capital needs.
        Maryland's most recent allotment under the Clean Water Act
    State Revolving Loan Fund was $32.5 million--$4.3 billion just
    in this survey, let alone other concerns--as opposed to $32.5
    million, and even when combined with State and local funds, the
    Task Force report estimates a gap of $80 to $140 million a year
    in needed sewerage infrastructure spending.
        Clearly, continuing and enhancing the State Revolving Loan
    Fund is a vital part of the assistance which is required, and I
    commend the committee's efforts in that regard.
        Before I turn to the Bay bill specifically, let me just say
    a word about S. 1961 and the formula in there under Needs
    Survey to Determine State Apportionment. I would hope the
    subcommittee could consider a couple of what I regard as
    complicating factors.
        One is the Needs Survey was designed for traditional sewer
    needs. It doesn't account very well for restoration and
    reconstruction, which is, of course, particularly a problem in
    older States and older systems; and stormwater and non-point
    source control needs, which are difficult to quantify.
    Moreover, it may end up--and I think we need to look at this--
    penalizing States which have worked aggressively to upgrade
    sewage treatment facilities by utilizing State funds and
    overmatching Federal Revolving Loan Funds. In other words, if
    we have worked very hard to do a good job in the past and met
    some of our needs, so we reduce the need level, and other
    States have done nothing, then we revise the formula. I think
    we have to take that into consideration, to make some
    adjustment or accommodation to extra effort which may have
    taken place. So I hope some of these broader water quality
    measures can be factored in as the committee works toward
    addressing the formula under which the State Revolving Loan
    Fund will be determined.
        Now in the Chesapeake Bay watershed, we face a special
    challenge of finding ways to further reduce the level of
    nitrogen and phosphorous in wastewater effluent. Nutrient over-
    enrichment from both point and non-point sources remains the
    most serious pollution problem facing the Chesapeake Bay. In
    1987, the Governors of Maryland, Virginia, Pennsylvania, the
    Chesapeake Bay Commission, the Mayor of the District of
    Columbia, and the Administrator of the EPA, acting on behalf of
    the Federal Government, signed a Chesapeake Bay Agreement which
    set a goal of a 40 percent reduction of nitrogen and
    phosphorous loads to the main stem of the Bay by the year 2000.
    That was the most ambitious voluntary commitment for restoring
    water quality projected in any region of the country.
        During that 13-year period, tremendous efforts and
    investments were made by all the jurisdictions in upgrading
    sewage treatment plants as well as implementing best management
    practices on agricultural lands to meet that goal. I want to
    commend the farmers in those States for their response to this
    initiative in terms of cooperating on the best management
    practices approach.
        Two years ago, the States and the Federal Government
    conducted an extensive evaluation of cleanup progress since the
    1980's and determined, unfortunately, that we have fallen
    considerably short of the 40 percent reduction goal. Estimates,
    through the use of computer models, indicated that although
    nitrogen loads delivered to the Bay and all its tributaries
    declined by nearly 53 million pounds a year and phosphorous
    loads declined nearly 7 million pounds a year, that we were
    still well short, 21 million pounds on nitrogen loads and 3
    million pounds on phosphorous, from the 2000 goal.
        In 2000, a new Chesapeake Bay Agreement was signed,
    reaffirming the 40 percent nutrient reduction goal agreed to in
    1987 and committing the signatories to go well beyond that to
    correct all nutrient-related problems by the year 2010. But we
    need Federal funds in significant amounts for the wastewater
    treatment plant upgrades that are required.
        Recent modeling of the EPA's Bay Program found that total
    nutrient pollution must be further reduced by more than 45
    percent from current levels to restore the Bay and its
    tributaries to health. Municipal wastewater treatment plants,
    in particular, can be a major source of those needed
    reductions.
        Now, as you can see from this map, there are approximately
    300 major wastewater treatment plants in the Chesapeake Bay
    Watershed. Now, Mr. Chairman and members of the committee,
    maybe you can't see it by this map because those red dots are
    kind of small, but on that map everywhere you see sort of a
    name and a red dot, that's a wastewater treatment plant, major
    plant. They contribute about 60 million pounds of nitrogen per
    year. They discharge typically 18 milligrams per liter of
    nitrogen in their effluent. Some 71 of them have been upgraded
    with some form of nutrient removal technology to reduce
    nitrogen concentrations to about 8 milligrams per liter. We can
    upgrade them under the state-of-the-art technology where we get
    them down to where they produce 3 milligrams per liter. That,
    obviously, would make an enormous impact on this nitrogen
    removal problem.
        The legislation which Senators Mikulski, Warner, Allen,
    Specter, Santorum, and I have sponsored would establish a
    grants program to encourage States and municipalities in the
    six-State Bay Watershed to go the extra mile and install
    nutrient-reduction technologies at major wastewater treatment
    facilities. Our legislation would provide grants for 55 percent
    of the capital cost of upgrading the plants. We estimate the
    total cost would be about $1.2 billion. So the Federal share
    would be slightly over half of that; the rest of it would have
    to be provided at the State and local level.
        This effort would be the most reliable, the most immediate,
    and the most cost-effective way to reduce nutrient loads on the
    Chesapeake Bay. Mr. Chairman, I think it's pretty obvious that
    if we're going to achieve our long-run objectives, we need
    Federal assistance in upgrading these sewage treatment plants,
    reducing the nutrient loads. The States can't do it alone,
    particularly given the interstate nature of the pollution
    problem facing the Chesapeake Bay.
        We regard the Bay as a unique national resource. It's the
    largest and most productive estuary in the country, has a
    watershed encompassing 64,000 square miles and parts of six
    States and the District of Columbia. Its unique ecological
    features combine with its tremendous economic and cultural
    importance to make it a resource that deserves national
    protection. I'm reminded of the Florida Everglades as I think
    of unique resources that require national commitment and a
    national protection effort.
        I very much hope that the committee can see its way clear
    to approve this measure and include it in the legislation it's
    considering reporting to the floor of the Senate.
        Thank you very much, Mr. Chairman, for the opportunity to
    appear before you today on this important issue.
        Senator Graham. Thank you very much. Senator, you are not
    only unusually persuasive, but your selection of analogies
    helped to explain the significance of your proposal.
        [Laughter.]
        Senator Graham. Let me just ask a couple of factual
    questions. What is the share of the nutrient discharge into the
    Chesapeake that comes from point source such as wastewater
    treatment plants or industrial or other facilities, and how
    much comes from non-point runoff from agriculture and other
    such sites?
        Senator Sarbanes. I am not sure I have those exact figures
    in front of me. The point source is the easiest, obviously, to
    get it, because it can be identified, and that's why we're
    focusing on these wastewater treatment plants which are, of
    course, spread throughout the Bay.
        We also do have a very aggressive program to try to address
    non-point source pollution, but that's more difficult. That's
    harder to quantify, and it's harder to get at. It requires, of
    course, the cooperation of literally thousands and thousands of
    people. But I'll try to get the exact figures for you and
    submit it. Well, I'm told that point sources, including
    industrial and sewage treatment, make up 25 to 30 percent of
    the total nutrient load coming into the Bay from all sources,
    but we focus on that because it's the most easily located and
    identified, and the quickest to get at, and we have a very good
    technology for bringing about these very significant
    improvements.
        As I said, we're now at the 18 milligrams per liter. We
    reduced that by upgrading the technology to 8, and we now have
    state-of-the-art technology where, if we take the facilities up
    to that level, we can reduce it to 3 milligrams per liter,
    which is obviously a huge improvement over where most of these
    plants now find themselves.
        Senator Graham. Senator Crapo.
        Senator Crapo. Thank you, Mr. Chairman. I don't have any
    further questions. I appreciate Senator Sarbanes bringing this
    important issue to our attention.
        Senator Graham. Thank you very much, Senator. We will look
    forward to working with you as we proceed with S. 1961.
        Senator Sarbanes. Yes, we would certainly place ourselves
    at the call of the committee. We're very anxious to work with
    you both on S. 1961 and the inclusion of this as well. Thank
    you very much.
        Senator Graham. Our second panel consists of Mr. Robert
    Hirsch, Associate Director of Water, U.S. Geological Survey.
    Mr. Hirsch, thank you very much.

     STATEMENT OF ROBERT HIRSCH, ASSOCIATE DIRECTOR OF WATER, U.S.
                           GEOLOGICAL SURVEY

        Mr. Hirsch. Thank you, Mr. Chairman. Mr. Chairman and
    members of the subcommittee, thank you for the opportunity to
    testify today on S. 1961, the Water Investment Act of 2002. As
    you know, the mission of the U.S. Geological Survey is to
    provide scientific information to support decisionmaking on
    issues of resources, environmental quality, and natural
    hazards. Information about water has been a central part of our
    Agency's mission throughout our 123-year history. My remarks
    will be limited to Title IV of the bill, which relates to USGS.
    EPA has provided the administration's views on the remainder of
    the bill.
        We agree that the role defined in Title IV of the bill is
    an appropriate one for the USGS, but we would welcome an
    opportunity to work with the committee on the bill language to
    refine the assigned tasks for the USGS. Let me begin my remarks
    by providing some general context.
        Competition for water to meet the needs of families,
    communities, farmers, and industries in many parts of the
    country is increasing, as are requirements to leave water in
    the streams to meet environmental and recreational needs.
    Information on water resources is needed to help inform
    decisions about potential changes in water policies and
    investments.
        In this regard, the USGS received a directive from Congress
    as part of the report on our Fiscal Year 2002 appropriations to
    prepare a report describing the scope and magnitude of efforts
    needed to provide periodic assessments of the status and trends
    in the availability and use of fresh water resources. Our
    efforts over the past 6 months in preparing that report have
    provided us with insights that may be useful to this
    subcommittee as it considers this legislation.
        In preparing our report to Congress, the USGS has solicited
    input from many individuals and organizations involved in
    issues of water availability and use. In response to our
    request, we received nearly 100 responses from the water
    management and policy communities. Two messages stood out.
        First, there was a consensus that a better set of water
    facts is needed for informed decisions related to water
    availability and use. National organizations, in particular,
    noted the need for consistent indicators of water availability
    across the nation. However, individuals representing State and
    local governments reminded us that many States have conducted
    extensive planning to quantify water availability and that the
    availability and use of water is largely a State, local, or
    tribal issue.
        Our report to the House Appropriations Committee is in the
    final stages of review at the present time. Based on the
    comments we received from others, we believe that the critical
    need is for regular reporting of indicators of the status and
    trends of storage volumes, flow rates, and uses of water
    nationwide. This information is not available in an up-to-date,
    nationally comprehensive and integrated form at the present
    time.
        An assessment such as called for in this bill would need to
    rely on up-to-date, nationally consistent indicators that would
    reflect the status in surface water flows and storage,
    groundwater levels and storage, and water use. Currently, the
    USGS provides a number of assessment-type streamflow products
    on daily, weekly, and monthly time scales. Under a new program
    such as called for in this bill, the USGS would also produce
    indicators that describe streamflow at longer time scales.
        Long-term, systematic measurements of groundwater level
    provide essential data needed to evaluate changes in
    groundwater storage over time. However, at the present time, no
    Agency prepares a regular report of long-term changes in
    groundwater storage in our nation's aquifers.
        Tracking water use is an important part of understanding
    water availability. The USGS has compiled and disseminated
    estimates of water use for the nation at 5-year intervals since
    1950. The National Research Council recently reviewed the USGS
    program for water use information and will be making a number
    of recommendations for improvement in the program. This NRC
    report will be released within the next few months. We would
    encourage the committee to seek their input on this important
    component of the water resource equation. Valid and consistent
    water use data are as vital as river flow or groundwater data
    and are often more difficult to acquire.
        In summary, if this bill were enacted and funds
    appropriated, the USGS would develop and report on indicators
    of the status and trends of storage volumes, flow rates, and
    uses of water nationwide. The development and reporting of
    national indicators of water availability and use would be
    analogous to the task of other Federal statistical programs
    that produce and regularly update indicator variables that
    describe economic, demographic, or health conditions of the
    nation.
        In regard to Section 403(b) on water resource research
    priorities, we would note that we are currently contracting
    with the National Research Council, at the direction of
    Congress, to conduct a study of the priorities for, and best
    means of, organizing water research across the Federal
    Government. We would suggest that this National Research
    Council effort may provide very valuable inputs to help carry
    out the objectives of this section.
        In regard to Section 403(c) on information delivery
    systems, the objectives defined here are very much in concert
    with the existing charge to the USGS under OMB Memorandum 92-01
    on coordination of water resources information. This section
    would reinforce our ongoing role of coordination of water
    information across the Federal Government.
        We do have some concerns about the feasibility and
    appropriateness of some of the tasks defined in the bill. For
    example, the bill directs the USGS to identify areas of the
    United States that are at risk for water shortages or
    surpluses. However, long-range predictions of water supplies
    cannot be determined solely by physical science, but are
    heavily dependent on human decisions to invest in
    infrastructure, restrict use, change water laws, et cetera,
    which are largely State decisions.
        The USGS can make a significant contribution to these
    issues by regularly providing indicators of the changing status
    of the nation's water resources derived from long-term
    monitoring. However, defining areas of shortage and surplus
    over long timeframes is neither feasible nor is it appropriate
    for a Federal scientific Agency.
        We would welcome an opportunity to work with the committee
    on the language of Title IV to assure that it defines a task
    that is appropriate and useful. I welcome any questions you may
    have.
        Thank you, Mr. Chairman.
        Senator Graham. Good. Mr. Hirsch, thank you for your
    testimony, and particularly your several indications that the
    USGS will work with the committee as we try to construct in
    Title IV an appropriate capacity to get the best scientific
    information as to the current status and the future direction
    of water supply, recognizing that there is a considerable time
    gap between the recognition that you have a problem and your
    ability to take actions that will begin to affect that problem.
    We accept your generous offer and look forward to doing so.
        Frankly, I was one, with Senator Crapo, who had urged that
    Title IV be heavily oriented toward the U.S. Geological Survey
    because both of us have had experience with the USGS and
    recognize its professionalism and the degree of credibility
    which many of the stakeholders in this area invest in the USGS.
        We also come out of a strong background of State water
    rights and recognize the special role of the States in the
    management of their water, are not by any means in this title
    suggesting that the Federal Government is going to become
    authoritarian and take over water supplies, but rather use its
    special scientific knowledge, particularly as invested in the
    U.S. Geological Survey, to be of assistance to the States.
        With having said that, you raise some concern about
    projecting future water needs, and all of the factors, many of
    which are non-scientific there, they are demographic or public
    policy judgments. But do you think, can USGS give to the States
    such as mine, which is one of those that used to think of
    itself as having an abundance of water and has only recently
    started to recognize its restraints, the scientific basis upon
    which then better public policy decisions, and including land
    use and others that affect demographic distribution, can be
    made?
        Mr. Hirsch. Thank you for those comments and question. I
    think we can and do make significant contributions, and I would
    point particularly to something called our Cooperative Water
    Program, in which we cooperate with over 1,400 State and local
    agencies nationwide, and that program is extraordinarily and
    productive in the State of Florida, in which we provide a great
    deal of information of that kind.
        I think what this particular legislation would do is add
    another dimension to what we do, particularly as things move
    beyond the boundaries of a State into multi-State issues, so
    that we have consistent look at, for example, large river
    basins that cross State lines, aquifer systems that cross State
    lines, which is somewhat difficult for us to deal with simply
    through the mechanism of our cooperative program, which is
    cooperative just with individual State governments or
    localities. So I think this program would add a dimension to
    our ability to answer those kinds of questions.
        Senator Graham. Senator Crapo.
        Senator Crapo. Thank you very much, and, Mr. Chairman, I
    appreciate you highlighting our concern about State sovereignty
    over water. Mr. Hirsch, I also appreciate the fact that you
    also mentioned it in your testimony.
        One of the very important considerations that we undertook
    as we prepared this section of the legislation was to do
    everything we could to assure that it was clear that we are not
    in this section of the legislation seeking to in any way
    undermine State sovereignty over the allocation, management,
    and use of water.
        The question I have for you is, viewing Title IV, the
    entire section under which you would be involved, do you see
    any way in which the authorities that we establish here and the
    studies that we establish here could undermine State
    sovereignty of water?
        Mr. Hirsch. Let me give an example. I was particularly
    struck in the reading of it by the use of the word ``surplus.''
    Hypothetically, if we were to issue a report sometime in the
    future that says a particular State has a surplus of water, and
    that State were to enter into negotiations with an adjoining
    State or even international, I think that would have perhaps an
    undesirable effect on those negotiations.
        I know of no jurisdiction that probably thinks that it has
    a surplus of water. On the other hand, a declaration from us
    that there is a shortage of water, when State officials feel,
    based on their information and their policy decisions, that it
    is appropriate to allocate additional water, we would set
    ourselves in a position of really contradicting those State
    authorities, who I think should be the ones to say, from a
    legal sense, is there a shortage or is there is a surplus, and
    how should we deal with it?
        So the other aspect of it is that a community could be in
    severe State of shortage at a particular moment in time, but a
    decision to invest in certain infrastructure, such as
    additional dams, pipelines, wells, et cetera, could remedy that
    shortage very rapidly. So that statement is very much subject
    to those investment decisions that it chooses to make.
        Senator Crapo. So is this one of those areas of the
    language in the legislation that you felt you----
        Mr. Hirsch. Right.
        Senator Crapo.--could work with us on the committee to
    further refine----
        Mr. Hirsch. Right.
        Senator Crapo.--so that we make it clear that we achieve
    the objectives of the legislation but don't create any possible
    undermining of State sovereignty?
        Mr. Hirsch. Exactly. I think our attempt would be to make
    objective statements of, for example, in areas where there are
    major aquifers that are being mined, where the water is being
    depleted over the long-term to simply quantify the extent of
    that mining of groundwater just as one would define the mining
    of coal or the extraction of oil, and to put a number on that,
    but as opposed to projecting it or calling it a shortage or a
    surplus.
        Senator Crapo. Leave it to the policymakers to call it a
    surplus or a shortage?
        Mr. Hirsch. Exactly.
        Senator Crapo. You define what it is, quantifiably?
        Mr. Hirsch. That's right.
        Senator Crapo. Well, thank you very much. I appreciate
    that.
        Senator Graham. Thank you very much, sir.
        The members of panel three would please come forward. I
    will introduce you by name and affiliation: Mr. Andrew Chapman,
    who is testifying on behalf of the National Association of
    Water Companies; Mr. Ed Archuleta, testifying on behalf of the
    Association of Metropolitan Water Agencies; Mr. Paul Pinault,
    testifying on behalf of the American Metropolitan Sewerage
    Association; Mr. Elmer Ronnebaum, testifying on behalf of the
    National Rural Water Association, and Mr. Howard Neukrug,
    testifying on behalf of the American Water Works Association.
        I wish, on behalf of the subcommittee, to express our
    appreciation to each of you for your joining us this afternoon.
    We look forward to hearing your remarks. I will ask you to make
    your remarks in the order in which you were introduced. Mr.
    Chapman.

    STATEMENT OF ANDREW M. CHAPMAN, PRESIDENT, ELIZABETHTOWN WATER
        COMPANY, ON BEHALF OF THE NATIONAL ASSOCIATION OF WATER
                               COMPANIES

        Mr. Chapman. Good afternoon, Mr. Chairman and Senator
    Crapo. My name is Andrew Chapman. I'm president of the
    Elizabethtown Water Company, which serves a million people in
    central New Jersey, and I am also vice president of the
    National Association of Water Companies, which is a nonprofit
    trade association representing the investor-owned drinking
    water utilities.
        Mr. Chairman, NAWC commends you and the subcommittee for
    taking on this issue and introducing S. 1961, the Water
    Investment Act of 2002. We're particularly encouraged with your
    bipartisan approach to this legislation, and this practice has
    characterized your committee's and the Congress' work on
    drinking water for many years, and we certainly hope that that
    bipartisan approach continues.
        We are not here to complain or suggest substantial changes
    to S. 1961. In fact, NAWC, along with our colleagues in the
    H2O Coalition, support S. 1961 in its current form.
    We do so for the following reasons:
        First, the bill requires, as a condition for getting State
    Revolving Fund assistance, that a potential recipient consider
    consolidating ownership and management functions with other
    utilities. There are over 50,000 community water systems in the
    United States, and many of these systems are very small. In
    many cases the financial challenges facing these utilities can
    be addressed by achieving economies of scale through
    consolidation, and by tying consideration of consolidation with
    SRF assistance. S. 1961 will encourage localities to look for
    these economies of scale. To do so, they are, of course,
    putting aside their own parochial interests, but they're doing
    what's right for the customer in providing safe, adequate, and
    proper service at minimum cost.
        Second, the bill encourages utilities to use public/private
    partnerships. Municipalities all over the country, large and
    small, have realized substantial savings and success through
    these partnership arrangements. Cost savings that localities
    have realized over the years from such arrangements can run up
    to 40 percent. I can tell you from personal experience with my
    company, that these approaches can work, and your inclusion of
    this provision in the bill and tying that to SRF funding makes
    a lot of sense.
        Third, the bill will also keep the industry moving on the
    path toward self-sustainability from the standpoint of
    financial operations because you need rational, cost-based rate
    structures to cover the full cost of providing services, and
    also supporting good asset management policies.
        Fourth, the authors of the bill have wisely gone outside
    the box to an innovative program designed to assist
    disadvantaged consumers, instead of an entire utility operation
    and in circumstances where only some of the utility's customers
    are disadvantaged. Programs like this have been used in the gas
    and electric utilities with substantial success, and they
    enable Federal financial support to be targeted exactly toward
    those consumers who need that support, rather than to the
    overall utility.
        Finally, as you can imagine, NAWC, which represents the
    private water industry, is particularly happy to see that all
    utilities are being treated equitably under S. 1961 regardless
    of ownership. The bill makes private utilities eligible for the
    first time for assistance under the Clean Water Act SRF, which
    is good. This is a long delayed and much-needed innovation for
    the program that will place all systems in the wastewater field
    also on a level playing field with respect to access to the
    SRF.
        We are also very supportive of the provisions in S. 1961
    that will bring fairness to the State SRF allocation process.
    The bill's provisions require States that include private
    utilities in their needs survey to ensure that private
    utilities are actually eligible for assistance.
        We're glad that S. 1961 does not authorize a large grant
    program, which some have been advocating. We think that these
    grant programs can encourage inefficient application of capital
    within the industry and can impede the industry's progress
    toward being a financially self-sustaining industry, which it
    needs to be going forward.
        Also, by requiring asset management and full cost-of-
    service rates, S. 1961 requires utility managers who chose to
    take the SRF financing to take the steps necessary to assure
    self-sustainability of these utilities over the long-term.
    Without provisions like these, history has shown that water
    utilities will keep coming back to the government for
    additional subsidies at cost to the taxpayer, and with good
    ratemaking procedures, this is unnecessary.
        Senator Graham. Could you conclude your statement in 25
    seconds?
        Mr. Chapman. There are two other issues that I would like
    to raise.
        First of all, the industry strongly believes that the caps
    on private activity bonds for water and wastewater facilities
    should be removed. This simple change will make capital easier
    for both private and public sector water and wastewater
    investments, and would be a step in the right direction.
        Finally, we're encouraging the committee to include
    language in S. 1961 to make compliance with drinking water
    standards a defense in lawsuits. This would address a problem
    the entire water industry is facing. Failure to address this
    issue will undermine the entire standard-setting process, which
    is a terrific bipartisan achievement of Congress, the executive
    branch, the States, and the industry.
        Mr. Chairman, Senator Crapo, thank you for the opportunity
    to speak, and I'm happy to take any questions.
        Senator Graham. Thank you very much, Mr. Chapman. We'll
    withhold questions until all the members of the panel have had
    an opportunity to present their opening statement.
        Mr. Archuleta.

       STATEMENT OF ED ARCHULETA, GENERAL MANAGER, EL PASO WATER
     UTILITIES, ON BEHALF OF THE ASSOCIATION OF METROPOLITAN WATER
                                AGENCIES

        Mr. Archuleta. Yes, good afternoon, Mr. Chairman and
    Senator Crapo. My name is Ed Archuleta, and I'm the general
    manager of El Paso Water Utilities. I'm testifying today on
    behalf of the Association of Metropolitan Water Agencies, AMWA,
    which represents the nation's largest publicly owned drinking
    water systems.
        We want to thank you for introducing Senate bill 1961,
    which is the first legislation to increase the Federal
    investment in drinking water infrastructure since the 1996
    amendments to the Safe Drinking Water Act. Our association
    believes the bill takes a major step in the right direction by
    proposing to triple the authorization of the Drinking Water
    State Revolving Fund.
        Senate bill 1961 reinforces the drinking water SRF support
    of small water systems, but AMWA would like the subcommittee to
    consider how legislation could help metropolitan water systems,
    too. Earlier this afternoon Senator Clinton mentioned New York
    and its tremendous infrastructure issues, and these are
    indicative of major needs that we have in large systems across
    this country.
        These are the systems that serve our nation's largest
    communities. To get a sense of the needs facing these very
    large systems, consider this: According to a recent survey,
    just 32 metropolitan systems reported that they must spend $27
    billion over the next 5 years on drinking water and wastewater
    infrastructure. Nationwide the needs of metropolitan water
    systems are much higher. Yet, 31 States provided no assistance
    to metropolitan water agencies in Fiscal Year 2001.
        To help these cities, AMWA recommends a 15 percent set-
    aside for metropolitan drinking water agencies to make certain
    that States address their needs. Among the new requirements
    established by this bill are implementation of responsible rate
    structures and asset management plans, coordination with State
    planning agencies, and consideration of partnerships and non-
    structural alternatives. These practices embody those commonly
    used in metropolitan water agencies today.
        For example, in my city we have a number of public/public
    and public/private partnerships. I'm currently doing planning
    with Mexico, with WTAS in Mexico under our own initiative. So
    these are already in place in regional metropolitan areas.
        In our particular city, over the next 10 years we will have
    to spend $800 million in capital. We just raised rates by 9
    percent, effective March 1, and we anticipate a 60 percent
    increase over the next 10 years. In our particular city, we
    have major water supply issues that we face in the future as a
    desert community. We face a new arsenic standard we must comply
    with, and, of course, rehabilitation and replacement, as well
    as growth of our city.
        In our city we also have an asset management plan, which
    major cities have, to ensure capital is available for future
    upgrades. Like most large water systems, the authority complies
    with the general accounting standards for State and local
    governments known as GASB-34.
        So AMWA encourages the subcommittee to maintain these best
    practices as ideals and provide the opportunity for utilities
    that have not yet adopted them to do so. But these areas are
    not in the realm of State environmental agencies or the U.S.
    EPA, both of which would have to develop rules or guidance and
    criteria for enforcement and compliance. AMWA urges the
    subcommittee to avoid a situation in which the States or U.S.
    EPA enter the domain of local government and attempt to
    reinvent the wheel.
        Also among the requirements of Senate bill 1961 is, one, to
    require water systems to consider public/private partnerships,
    but whether a water agency specifically considers public/
    private partnerships should remain at the discretion of local
    government, because local factors will dictate whether the
    partnership is in the interest of the consumers or not.
        Also, privatization experts have identified some of the
    issues that need further exploration. Among them are those
    surrounding accountability and the blurring of roles and
    responsibilities. For example, who is responsible for complying
    with environmental regulations, resolving service complaints,
    and planning to meet future needs? Who pays if the private
    partner fails? If the private partner takes on more liability
    than it can afford, who's responsible when something goes
    wrong?
        Another issue that has recently emerged is a concern about
    the implications of international agreements on domestic
    privatization, since four of the major companies involved in
    the United States water market are located in other countries.
    Therefore, the association urges the subcommittee to look into
    public/private partnerships more closely before so strongly
    endorsing them. Privatization can be a very contentious issue
    in communities and worth a full exploration before Congress
    legislates it.
        In summary, we thank you for introducing the Water
    Investment Act of 2002, and our association is willing and able
    to work with you on any appropriate language changes, as we
    have suggested. Thank you.
        Senator Graham. Thank you very much, sir.
        Mr. Paul Pinault.

    STATEMENT OF PAUL PINAULT, EXECUTIVE DIRECTOR, NARRAGANSETT BAY
       COMMISSION, ON BEHALF OF THE ASSOCIATION OF METROPOLITAN
                           SEWERAGE AGENCIES

        Mr. Pinault. Good afternoon, Chairman Graham, Senator
    Crapo, Senator Chafee. My name is Paul Pinault. I'm executive
    director of the Narragansett Bay Commission in Providence, RI,
    and I also serve as vice president of the Association of
    Metropolitan Sewerage Agencies, AMSA.
        Thank you for introducing the Water Investment Act and for
    holding this hearing today. AMSA commends you for moving toward
    a strong financial commitment that would significantly increase
    the authorization levels of the SRFs to $35 billion over 5
    years. AMSA is grateful for your recognition that our nation's
    clean and safe water is a priority worth paying for. We urge an
    increase in the proposed funding level to help meet the
    documented gap between local financing and long-term needs,
    several of which were discussed this afternoon by your
    colleagues.
        The magnitude of the challenges we face are daunting. The
    continued viability of our nation's core water and wastewater
    infrastructure requires long-term Federal funding, including
    grants. Without this commitment, we will face an environmental
    and public health crisis that is simply unthinkable.
        Municipalities today shoulder nearly 90 percent of
    infrastructure costs and face costly regulatory requirements,
    including combined sewer and sanitary sewer overflow rules. The
    tragedies of September 11th have also increased our operating
    costs, as many facilities face expensive vulnerability
    assessments and security upgrades.
        Our local ratepayers simply cannot fund all these
    requirements and also modernize and repair their plants and
    collection systems without a long-term Federal commitment. For
    example, my Commission's current debt service as a percentage
    of total operating budget is 22 percent. By 2007, debt service
    will jump to 48 percent, due to $365 million in planned capital
    projects over the next 5 years, a total of $746 million over
    the next 10 years, including startup costs on a federally
    mandated combined sewer overflow project.
        The fact that 48 cents out of every dollar we receive will
    go to debt service clarifies the urgent need for a long-term
    Federal infrastructure commitment. Accordingly, we respectfully
    recommend the following modifications to S. 1961, beginning
    with streamlining SRF funding procedures:
        As written, the bill assigns new Federal and State roles in
    reviewing local wastewater rate structures, public/private
    partnership efforts, and asset management programs, and makes
    many of these prerequisites to SRF loans. Municipalities
    already consider all of these issues regularly and carefully.
    Adding layers of oversight will narrow the pool of SRF
    applicants, the precise opposite of S. 1961's stated purpose.
        We also recommend that the committee consider modifying the
    bill to encourage and assist communities in developing asset
    management programs, instead of making asset management a
    prerequisite to apply for an SRF loan, which will only
    discourage applicants. In fact, the market is already directing
    us toward this goal, and AMSA is leading the way.
        For example, AMSA recently released this Asset Management
    Workbook, and starting today we're running a series of
    workshops around the country to educate our members on asset
    management tools and the growing demand for asset management.
    AMSA shares the committee's concern for our disadvantaged
    communities and populations. States and municipalities are,
    however, addressing many of these concerns under existing
    programs. We are worried that the bill's allowance of up to 45
    percent of all SRF funds to be directed to disadvantaged
    communities and asset management programs will direct funds
    away from core infrastructure funding. As such, we recommend
    States be given broader flexibility to target grants, principal
    forgiveness, and negative interest rates on loans where they
    are most needed. Similarly, we recommend that the bill allow
    all communities to take advantage of the 30-year or life-of-
    the-project loan repayment schedule.
        AMSA would also like the committee to revisit the provision
    requiring a National Academy of Sciences rate study. Much of
    the data is already available and AMSA's financial survey
    demonstrates this. We can make copies available to you and your
    staff.
        AMSA believes authorization of a program for innovative
    technologies and research is vitally important. We would like
    to see funding levels for the program increased and eligibility
    expanded to help municipalities meet core infrastructure and
    regulatory challenges.
        We applaud your leadership efforts and look forward to
    working with you on S. 1961 to ensure a lasting, long-term
    fiscal partnership with the Federal Government to meet the
    nation's core water and wastewater infrastructure needs. Again,
    we're available to answer your questions.
        Senator Graham. Thank you very much, sir.
        Mr. Ronnebaum.

      STATEMENT OF ELMER RONNEBAUM, GENERAL MANAGER, KANSAS RURAL
       WATER ASSOCIATION, ON BEHALF OF THE NATIONAL RURAL WATER
                              ASSOCIATION

        Mr. Ronnebaum. Mr. Chairman, Senator Crapo, Senator Chafee,
    good afternoon.
        Thank you for the opportunity to be here today to discuss
    small communities and their water funding needs. My name is
    Elmer Ronnebaum. I'm general manager for Kansas Rural Water.
    We're a member of the National Rural Water Association in
    Kansas. We have approximately 900 public water supply systems,
    700 of which are members of Kansas Rural Water. National Rural
    Water represents some 22,000 small water and community water
    and wastewater utilities.
        We thank you for your efforts to assist small communities
    in finding solutions to the Clean Water Act and Safe Drinking
    Water Act, and to provide the safest drinking water and
    cleanest effluent possible. Rural Water looks forward to
    working with you as you move these ideas into laws and actual
    dollars in the field.
        I feel the principal dynamics of small communities that we
    believe need to be recognized in discussing funding policies
    include: first, that small communities make up 90 percent of
    the systems in the country; second, that a lack of economics
    due to scale, small town consumers often pay high water rates.
    In Kansas it's not uncommon to have a water bill of $50 for
    5,000 gallons. Many of these communities do not have other
    funds on which to pay that water bill. It's simply a revenue
    base.
        Small systems often have limited technical and
    administrative resources to deal with compliance and navigate
    through funding programs. Consolidation and privatization are
    options, yes, but only when economies make sense. We can't run
    a pipeline 42 miles to connect Atwood to Stockton, KS.
        In 1996, another Senator from Idaho had a great idea, and
    he introduced a great amount of flexibility into this program
    called the State Revolving Loan Fund. Small communities'
    message here today is that that was a monumental step in the
    right direction. This flexibility has made State SRFs better
    and more responsive to nearly every stakeholder. Small systems
    have seen a level of inclusion and involvement and the benefits
    for drinking water that we would not have imagined, given the
    history of the Clean Water Act SRF.
        My State of Kansas is exemplary. The State Drinking Water
    Revolving Loan Fund is the highest leveraged in the United
    States. It leverages $1 to $4. We've made $133.4 million in
    loans to 65 communities. Fifty-two of those communities were
    populations of less than 10,000. Of the dollar amount, that is
    $65 million. So that's a big percentage to small systems.
        We would like to summarize the key elements for small and
    rural communities in modifying the wastewater and drinking
    water SRFs as follows:
        Make the Wastewater Fund more like the Drinking Water Fund
    and put more money in both.
        We urge you to include three legislative provisions
    contained in the current drinking water SRF in both water and
    wastewater to ensure communities with the greatest public
    health and economic need receive prioritization: No. 1, that
    communities exhibiting the greatest need should receive
    priority, No. 2, provide both loans and grants, and No. 3, a
    minimum portion of the funds should be set aside for small
    systems.
        Our specific comments on Senate bill 1961 include: First,
    we appreciate that the bill did not include a myriad of new
    priorities for funding set-asides for various sized systems and
    changes in the disadvantaged communities' determination.
        Second, we appreciate that the bill retains the three SDWA
    provisions to ensure funding results in the greatest
    advancements in public health and protection. We urge the
    committee to include the same set-aside amounts for the
    wastewater as in the drinking water program, a minimum of 15
    percent.
        We believe that corporate water systems should not be
    eligible for State revolving funding. Taxpayer subsidies should
    be prohibited from profit-generating companies or companies
    paying profits to shareholders and investors.
        The bill includes many new requirements for applicants,
    including environmental, land use planning, capacity, actual
    cost of water, common industry practices. We urge you to
    exercise caution for increasing demands on these, as more and
    more complicated application processes will detract the small
    systems from participating in the program.
        We urge the committee to limit the ability of any portion
    of the water system or wastewater system to be eligible as a
    disadvantaged-type subsidy or other special treatment. To
    assist a portion of a system moves the effort from an
    infrastructure program into a social program.
        We urge the committee to consider including provisions
    guiding a percent of the project for professional services' use
    for engineering and consulting, similar to what USDA has in its
    programs.
        Last, it's not clear what defines public/private
    partnerships. This may be too ambiguous, and it means various
    things to various people.
        Thank you, Mr. Chairman and members of the committee. We
    would be happy to take questions later.
        Senator Graham. Thank you very much, sir.
        Mr. Neukrug.

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

        Mr. Neukrug. Well, good afternoon, Mr. Chairman and Senator
    Crapo.
        I am Howard Neukrug. I'm the director of the Office of
    Watersheds with the city of Philadelphia Water Department. I am
    speaking today on behalf of the American Water Works
    Association, where I serve as chair of the Water Utility
    Council. AWWA has 57,000 members, 4,700 utility members. We
    represent not just small and not just large, but both small and
    large utilities, and not just municipal or private, but both
    municipal and private utilities serving drinking water
    throughout the United States.
        I'm honored by this opportunity to express to you the views
    of the American Water Works Association concerning this
    important legislation. This bill marks a significant step by
    Congress toward solving our nation's enormous water
    infrastructure challenges. We appreciate the time and
    consideration already given to the drinking water suppliers by
    the committee and its staff. We look forward to continuing our
    work with you and to see this bill passed and signed into law
    this year.
        As you know, the drinking water community faces many new
    and expensive Federal mandates, including standards for
    arsenic, radon, disinfection byproducts, and enhanced surface
    water treatment. Wastewater utilities also face enormous
    challenges related to CSOs and SSO programs. Over the next 20
    years it is clear that the Safe Drinking Water Act and the
    Clean Water Act mandates, combined with other infrastructure
    requirements and new security-related upgrades, will compete
    for limited capital resources.
        We must respectfully note that this bill's authorization
    levels are a very small fraction of the $250 billion in
    infrastructure replacement needs identified by AWWA in this
    publication, which is available to committee and staff, and the
    $57 billion recommended by WIN over 5 years. Under this bill,
    the burden of paying for public water system improvements will
    remain overwhelmingly with the utilities and their ratepaying
    customers.
        Further, significant assistance in the form of both grants
    and higher levels of authorization for loans is, indeed,
    justified to help meet the costs of these Federal mandates.
    Without the support, we risk deferment of infrastructure repair
    where Federal mandates overwhelm local capital programs.
        Concerning project eligibility, we applaud the provisions
    of the bill that authorize the use of SRF moneys to support
    source water protection projects. As you know, source water
    assessments are required under the 1996 Safe Drinking Water Act
    amendments, but there are no requirements to implement source
    water protection. The ability to use SRF funds to support
    source water initiatives will be of significant assistance.
        With respect to distribution system infrastructure repairs
    and security upgrades, AWWA respectfully suggests that these be
    explicitly listed in the statute as SRF-eligible. Specific
    congressional language would not only signal your strong
    support for SRF funding for infrastructure repairs and security
    upgrades, but will help clarify any remaining ambiguity.
        With respect to streamlining procedures for obtaining
    drinking water SRF loans, we believe careful attention is
    required to strike an appropriate balance between Congress'
    desire to encourage certain behaviors at utilities and the need
    to keep the SRF as unencumbered as possible by unproductive red
    tape. We believe that Section 202 requires significant review
    with this in mind.
        In particular, while we strongly support the concepts of
    asset management best practices, self-sustaining rate
    structures, procurement competition, and optimizing management
    strategies, these are most appropriately local decisions based
    on local circumstances. Federal oversight of these management
    tools does not, in our opinion, either improve nor streamline
    the drinking water SRF program.
        Finally, we respectfully recommend that the American Water
    Works Association Research Foundation be identified in the bill
    to manage many of the studies and demonstration projects listed
    under Sections 302, 303, and 304. The Foundation is an
    internationally recognized research organization of the
    drinking water community. With over $37 million in Federal
    support over recent years, the AWWARF has leveraged almost $260
    million in total research on both technical and policy issues
    facing drinking water utilities.
        In conclusion, AWWA believes that S. 1961 is an appropriate
    first step to achieving our joint goals. In our testimony we
    have made recommendations that we believe will improve the
    bill. AWWA pledges to work with Congress to develop a
    responsible and fair solution to the nation's growing drinking
    water infrastructure challenge. I thank you for your
    consideration of our views. Thank you.
        Senator Graham. Thank you very much. To each of you, we
    would be very appreciative, if you have any specific
    recommendations beyond what is in your prepared statement for
    modifications of the legislation. As was indicated earlier, we
    are going to be moving on, I hope, a fast track on this
    legislation with the possibility of having a mark-up hearing on
    this bill within the next 2 to 3 weeks, and then move it to the
    floor. So your comments would be timely and very much
    appreciated.
        Mr. Pinault, you made a comment--we've been jointed by our
    chairman, Senator Jeffords, who is typically generous enough to
    say that we should proceed with our questions.
        You made a statement that we should preserve the 30-year
    loan repayment schedule. My State had a State Revolving Fund
    before the national program was initiated, and our thesis was
    that the principal problem that local water facilities had was
    in the preoperational phase; that is, in the period in which
    they were doing land acquisition, planning, design, and
    construction, and there was no revenue coming in. That was a
    hard phase to finance; that once the plant was completed and
    operational and generating revenue, you could then go to other
    sources of financing for that.
        So I have been influenced by that experience to say that
    the SRF ought to be primarily focused not on permanent
    financing, but rather on that difficult-to-finance, early stage
    of plant design, planning, and construction. One of the
    benefits of focus is that that means the money turns over more
    rapidly, and is, therefore, available to more communities that
    want to use the State Revolving Fund.
        Have you experienced some difficulty in getting revenue-
    based financing for the plant once it is in operation and is an
    ongoing economic entity?
        Mr. Pinault. That hasn't been an issue in New England. In
    the Providence metropolitan area, which we serve, it's
    basically been sewered since the 1800's, and development is not
    an issue as much as it is in your area of the country.
        The problem we have faced, though, is, because we have $746
    million in projects in various stages of planning, design, and
    construction, we have been warned by the rating agencies,
    Standard and Poor's and Moody's, that they are concerned about
    the impact on rates. We had a 25 percent rate increase last
    January. In December of this year we applied for another 25
    percent rate increase, and we will be doing that annually just
    to pay for the $300 million first phase of our CSO project over
    the next 5 years.
        So one of the things we've looked at is we can only borrow
    up to 20 years. We always try to pay back the loan as quickly
    as possible because, obviously, the longer you spread it out,
    the more it costs you. But there may be a situation in time
    where, because the facilities we're putting in the ground are
    going to last at least 50 years, at least the pipelines, we
    feel that there is a justification to at least have the
    provisions to pay back up to 30 years, which we feel gives some
    flexibility which could be added to this bill.
        Right now the 30-year provision is limited to disadvantaged
    communities only. Whether or not you're a disadvantaged
    community is left up to the definition by each State. It could
    vary from State to State. So we feel that this is a flexibility
    tool. Whether or not it is used will be determined on a case-
    by-case basis, and that's our position on that matter.
        Senator Graham. Are there any other comments on the
    question of whether the State Revolving Funds should be focused
    on the initial period pre-revenue-generating or should be
    available as permanent financing?
        Mr. Neukrug. Yes, we fully support the eligibility for the
    SRF funding to be for pre-revenue-producing times of the
    project.
        Senator Graham. Any others? Yes, Mr. Chapman?
        Mr. Chapman. I wouldn't want the availability of the
    program for permanent financing to be reduced. With an
    investor-owned utility where you have a State commission
    setting the rates, the typical practice is that the lower cost
    of capital provided through the Revolving Fund Program is
    passed through to the customers when the utility goes in and
    files for rates.
        So, to the extent that we don't have permanent financing
    through the program anymore, but only construction financing,
    and then you would shift to market-based permanent financing,
    the rates would kick up at that time; the customer rates would
    kick up to cover that higher cost of capital.
        We have used the program in our company in several
    circumstances where it is providing a good long-term source of
    capital under a 20-year repayment scheme, and that's been very
    successful for us, and our customers are enjoying the benefit
    of that lower cost of capital.
        Senator Graham. The concern is, however, if you have your
    money tied up in long-term permanent financing, then does that
    not make it more difficult for other communities within the
    State to be able to access the State Revolving Loan Fund for
    their initial pre-revenue construction phases?
        Mr. Chapman. Our experience has been, as long as that
    permanent financing either is in place or reasonably can be in
    place, the availability of construction period financing or
    financing prior to the in-service date has not been a problem.
        Senator Graham. My 5 minutes are up.
        Senator Crapo.
        Senator Crapo. Thank you very much. In fact, Senator
    Graham, you have covered the issue I was going to cover. I just
    would like to specifically direct this question to Mr.
    Ronnebaum.
        That is, as Senator Graham has indicated, S. 1961 provides
    eligibility for standalone projects to do design, planning, and
    engineering, and to be covered in the loan process. I just
    wanted to get for the record your feelings about whether that
    is a positive development in the utilization of these funds.
        Mr. Ronnebaum. Rural Water would support that, Senator. In
    Kansas, any work in design and planning presently can be
    covered by an SRF loan once it's approved. However, that
    doesn't sometimes kick in the local community to work on the
    regional concept; that otherwise may not be ever brought to the
    table. So if you have that incentive possibly out there to
    allow those types of grants, there would be more communities
    participating.
        Senator Crapo. Thank you. I have no further questions, Mr.
    Chairman.
        Senator Jeffords. I have just one question for you. What do
    you think is the appropriate Federal responsibility for water
    infrastructure, and how does that affect the future of the SRF
    program? All the hands leaping into the air there.
        [Laughter.]
        Senator Jeffords. Go right ahead, Mr. Ronnebaum.
        Mr. Ronnebaum. Senator, with all due respect, most of the
    communities--you hear a lot about self-sufficiency. If they
    didn't have increasing Federal mandates to comply with, they
    could be self-sufficient. It's the Federal mandates and the
    decreasing standards that cost more and more money.
        In the city of Atwood, KS, when it has a 12-part-per-
    billion arsenic standard, it's going to cost that community of
    1,300 people from $1.3 to $2 million additional money to change
    that standard possibly by a total of two. So that is what is
    adding to the cost of infrastructure improvements.
        Mr. Archuleta. Yes, representing AMWA, our largest cities,
    I think it's a combination of, in the West, for example, as
    well as in other parts of the country, growth is a big issue.
    In most communities development is not paying entirely for
    growth of the system, particularly for large water plants,
    wastewater plants, and large infrastructure. Typically, there's
    fees or other revenues associated with some parts of the
    infrastructure, including subdivisions, and what have you.
        So it's a growth issue. You do have the regulations, which
    are a big impact, particularly on drinking water, to us as
    large systems. Then, of course, the rehabilitation. But the
    answer is I think there has to be a reasonable program of at
    least low interest loans.
        In our particular city, we've used commercial paper. I
    think most large cities do not necessarily have to have the
    access to the engineering and pre-construction moneys, like
    small cities, because we can access that. It's when you get
    into construction, and we've had to go longer, too. We're
    having to go longer-term, more than 20 years, like we used to,
    because of the fact that, otherwise, you upload all your fees
    and cause big rate impacts on customers.
        Senator Jeffords. Mr. Chapman.
        Mr. Chapman. Senator, this SRF program really works. It's
    been incredibly effective in my State, in New Jersey. I was
    actually the treasurer of the State organization that was
    established to do the State side of the funding. Many of our
    municipalities and privately owned/investor-owned water
    companies have participated in this program, and it's been a
    huge success.
        Senate bill 1961 is an appropriate next step in the
    evolution of a really successful program. There is certainly an
    ongoing Federal role for providing low-cost capital to those
    communities that need it, but there is also language in this
    bill which is appropriate in that it pushes the water utility
    industry further toward financial self-sustainability. I think
    that ultimately gets us to the point where you have water
    provided on a cost-of-service basis in the communities where it
    can be provided on that basis, where you do not have the
    industry coming in year after year or decade after decade
    trying to get substantial amounts of Federal money. I think
    that is an appropriate direction for the industry to take. I
    applaud the provisions of this bill that continue to move the
    industry in that direction.
        Mr. Neukrug. Senator, in the State of Pennsylvania, we find
    that the State Evolving Fund Program is also a very successful
    program and we are very pleased to see this bill put in place.
    If there is a complaint that we had with it, probably the
    biggest one is the appropriations, the level of appropriations,
    compared to the amount of Federal mandates, particularly in the
    CSO programs and on the drinking water side with the new
    regulations coming down, a significant amount of additional
    cost coming in.
        We look forward to continuing a partnership with the
    Federal Government funding the SRF program and seeing it
    continue for many years.
        Mr. Pinault. I noted earlier, Mr. Chairman, that in the
    State of Rhode Island we have the largest wastewater authority.
    We are under a consent agreement to spend at least $600 million
    to solve combined sewer overflow problems. Right now we're the
    largest borrower from the SRF program. We receive over 50
    percent of the loans.
        But even with that help, rates are going up at an average
    of 25 percent a year, and they will go up by about 120 percent
    in the next 5 years, just because of the CSO project. So any
    assistance that we can get from the government would help.
        In addition, we just awarded a contract last week for $60
    million for nutrient removal for our smaller treatment plant.
    So it's ongoing Federal requirements, meeting TMDLs, SSO, CSO;
    it never ends. We're trying to do the best we can, but it's
    very difficult, especially in our community we have 22 percent
    below the poverty level, 16 percent are elderly, 65 percent of
    the poor children in the State live in our district, and a lot
    of people have trouble paying their bills right now.
        Senator Jeffords. Thank you. Thank you, Mr. Chairman.
        Senator Graham. Thank you, Mr. Chairman.
        One of the objectives of this legislation, which authorizes
    an additional $35 billion for the State Revolving Fund, is that
    this be the last authorization for the State Revolving Fund.
    The theory has been that there would be a block of Federal
    funds allocated among the States, and the States would manage
    that in a manner that, as one loan is paid off, then that would
    release funds which could be used for future loans.
        In fact, the original structure of the program called for
    the last Federal payment under the State Revolving Fund for the
    Clean Water Act to be in 1995. Do you believe that the $35
    billion that we are appropriating here, in conjunction with the
    previous appropriations for this purpose, will, in fact, be
    such that no further Federal funds after this 5-year
    authorization period is expended will be required?
        Mr. Pinault.
        Mr. Pinault. Again, Senator Clinton mentioned the needs in
    her State, billions of dollars, similarly in the State of Rhode
    Island, billions of dollars, with current requirements. As we
    all know, requirements continue to increase. If things were
    fixed and we could make a judgment today, we may be able to say
    that the funds that you are proposing may be adequate. However,
    the gap is significant. We're talking about a trillion dollars
    here and there, looking at the various studies. Obviously, this
    is a step in the right direction. Will it be sufficient
    funding? I think only time will tell.
        Senator Graham. Clearly, this is not going to be sufficient
    to finance all of the future water needs, even in conjunction
    with the significant previous Federal appropriation for this
    purpose, but can it be managed, along with those previous
    appropriations, in such a way as to fulfill this difficult-to-
    finance, early phase of pre-revenue activity?
        Mr. Neukrug. Senator, I don't think it's appropriate to
    think at this point that we have sufficient funding and
    sufficient partnership in the Federal Government to consider
    that this $35 billion is really going to do the trick in
    bringing our infrastructure issues to a completion. We really
    need to look at this more on a long-term basis. This is the
    infrastructure; we're talking not just 5 years out; we're
    talking 20, 100 years out. We're putting things into the ground
    today that we will have to replace 100 years from now. I think
    that the program of the SRF concept is to buildup a bank
    sufficient to provide that money, but I don't know if we are
    there yet with the suggested authorizations that are in this
    bill.
        Mr. Ronnebaum. Mr. Chairman, the other gentleman, panelist,
    mentioned the increasing regulations, and that is really what's
    driving a lot of the infrastructure needs. As another thing
    just to think about, when the Rural Development Agency,
    Farmers' Home Administration's Agency, sold its assets back in
    1988, we had interest rates of 10.5 and 11 percent. Just think
    of what we would be looking at today out on the street if you
    had to issue a bond, a revenue bond, and you had to pay 7.5
    percent versus 5.25 percent, for example, in Kansas. I mean,
    the interest rate is a big component of that water rate. We are
    enjoying presently very low interest rates, historically low
    interest rates. So we're in the best of all times in that
    regard.
        Senator Graham. Mr. Chapman.
        Mr. Chapman. The $35 billion, obviously, is a small number
    relative to what everybody's estimates of the long-term needs
    are, but what you're doing in this bill by requiring
    consideration of asset management planning, privatization,
    consolidation to take into account or get the benefits of the
    economies of scale, and establishing/moving the industry more
    toward cost-based ratemaking, you're encouraging the industry
    to become self-funded. So these provisions by themselves over
    time require utilities to start funding their own depreciation,
    and so forth, reinvesting in these assets, which should
    minimize the requests of this industry of the Federal taxpayer
    in the future.
        So I can't give you a quantified answer, but I can
    definitely say that the qualitative provisions of this bill
    will mitigate future requests, which I think is totally
    appropriate Federal policy.
        Senator Graham. Again, gentlemen, thank you very much for
    your contribution. If you have any additional thoughts that you
    would like to submit for the record, the record will be open
    for 2 days for that. I would particularly appreciate any
    specific suggested language changes in the legislation itself.
    Thank you. Best wishes.
        Would the participants on panel four please come forward?
        Mr. Tom Morrissey is the president of the Association of
    State and Interstate Water Pollution Control Administrations
    and is the director of the Connecticut Division of Planning and
    Standards. Mr. Morrissey, thank you very much.
        Mr. Jay Rutherford is from Vermont, and Senator Jeffords
    will introduce Mr. Rutherford.
        Senator Jeffords. I am very pleased to do so. Nice to have
    you here.
        I am very pleased today to welcome a representative of the
    Green Mountain State, Mr. Jay Rutherford. Jay is testifying on
    behalf of the Association of State Drinking Water
    Administrators. Jay has had a long career of environmental
    service not only in Vermont, but around the world. A graduate
    of the University of Vermont with a degree in civil
    engineering, Jay has his skills to the test, building small
    public water systems for villages in the Northeastern. In 1980,
    he took a position as environmental engineer with the Vermont
    Department of Environmental Conservation, DEC, and he has
    remained there ever since. Jay has held the position of
    director of Water Supply and ASDWA member twice, with a brief
    stint in between with the DEC as director of enforcement.
        Jay, it is a pleasure to have you with us.
        Do you want a second introduction or do you want him to go
    right ahead?
        Senator Graham. If you don't mind, Mr. Morrissey, we have
    been asking our panelists to speak in the order in which they
    were introduced, which has basically been alphabetical. So
    following that precedent, Mr. Morrissey.

    STATEMENT OF TOM MORRISSEY, PRESIDENT, ASSOCIATION OF STATE AND
        INTERSTATE WATER POLLUTION CONTROL ADMINISTRATIONS, AND
        DIRECTOR, CONNECTICUT DIVISION OF PLANNING AND STANDARDS

        Mr. Morrissey. Thank you, Chairman Graham. Thank you,
    Chairman Jeffords and Senator Crapo. We appreciate very much
    and thank you for inviting us here to testify before your
    committee today and to provide you input on Senate bill 1961.
        As you may not know, the Association of State and
    Interstate Water Pollution Control Administrators is an
    organization representing water pollution control
    administrators from all 50 States and many territories within
    the U.S. domain. As you may not know, by way of background,
    ASIWPCA was very much involved in the transition which occurred
    in 1987, when we went from a Title II grants program to really
    the SRF program as we know it today.
        That evolution has created a very effective program for
    financing wastewater infrastructure facilities. The Clean Water
    SRF has become one of the most, if not the most, successful
    public works programs in history, which is attributable to its
    careful design as a streamlined State-based program.
        Senate and House authors intended to address a vast array
    of State water quality program priorities under the States'
    Clean Water Fund Program, and I believe they achieved that
    objective when they passed that law.
        Having just passed the 15th anniversary of the last Clean
    Water Act reauthorization, we now have had sufficient time to
    build and document the track record of our SRF successes. We
    know, for example, that projects built are built under the SRF
    program in half the time than those constructed under the
    Federal Grants Program, the old Title II program. We know that
    the Clean Water SRF has saved taxpayers hundreds of millions of
    dollars, and we know that with each Federal dollar spent, there
    is almost an equal contribution at the State level to the same
    program.
        Mr. Chairman, States are committed to the Clean Water State
    Revolving Loan Fund because it has met and exceeded the
    expectations set by its creators and its customers, including
    the provision of funding to address State water pollution
    control priorities, including the development of a funding
    mechanism that would revolve and provide in perpetuity funding
    sources and support for those programs, and the establishment
    of the States as the program lead to manage and operate the
    fund, providing close and consistent assistance to its
    recipients, the loan recipients.
        ASIWPCA believes that in reauthorizing the Clean Water SRF
    program, it is vitally important to increase the funding for
    the program, to assure that the SRF remains competitive in the
    financial marketplace, to maintain a streamlined program which
    is accepted by its customers, principally municipalities and
    private entities, and to enable States to direct the fundings
    with priority water quality needs, which brings me to the Water
    Investment Act of 2002.
        The association takes great pride in the fact that the
    Clean Water SRF program continues to enjoy strong support of
    both the administration, the Congress, and this committee. We
    appreciate the committee's effort to propose and develop S.
    1961 and to hold hearings to address issues associated with it.
        Mr. Chairman, as we have discussed with you in prior
    meetings, the association appreciates your leadership in
    developing the Year of Clean Water legislation to commemorate
    the 30th anniversary of the Clean Water Act. We can think of no
    better way to celebrate the 30th anniversary of the Clean Water
    Act than reauthorizing the SRF, which is the engine which
    drives clean water fund programs throughout the United States.
        The goals of S. 1961 are laudable and the bill, if enacted,
    could advance the program with increasing funding levels and
    authorization levels, extended eligibilities for what funding
    can be dedicated to, extended loan repayment periods,
    particularly for distressed communities, loan subsidies for
    distressed communities and for hardship situations, and fund
    transfers between the clean water and drinking water SRF, which
    would promote flexibility within the States.
        These enhancements will, for example, better enable States
    to address small communities' onsite systems non-point source
    pollution, urban stormwater, and combined sewer overflow
    pollution problems. We do have several concerns with the bill,
    and we're very anxious to work with you and your staffs to
    address those concerns.
        One of those concerns involves loan conditions. The loan
    conditions include land use planning at the planning stages,
    evaluating the cost of services, capital replacement, rate
    structures, restructuring, and private partnership
    enhancements, and capacity development for loan recipients.
        In many cases States already have programs in place to
    address those needs. For instance, in Connecticut we provide a
    55 percent grant from State funding to do the planning work
    upfront to plan and design facilities. We believe that to
    improve the bill you may want to consider State equivalency
    tests, so that if States have these programs in place already,
    there's not a need to overlay it with another Federal
    requirement.
        Another area of concern where we know we have problems now
    is in the area of administrative fees. In the proposed
    legislation there are certain administrative requirements that
    will consume resources at the State level. We want to provide
    assistance and technical capabilities to the people who receive
    our loans, and we do now, but in order to enhance that program,
    States would probably have to allocate a greater amount of
    administrative fees charged to the program, both at the State
    and the Federal level, so that we can enhance those services.
        But, again, in general, we very much support the bill. We
    look forward to working with you and your staffs to improve it,
    and we would be very happy to provide you with detailed
    comments and suggestions on the draft legislation as it exists
    today. Thank you very much.
        Senator Graham. Thank you, Mr. Morrissey.
        Mr. Rutherford.

     STATEMENT OF JAY L. RUTHERFORD, P.E., DIRECTOR, WATER SUPPLY
    DIVISION, VERMONT DEPARTMENT OF ENVIRONMENTAL CONSERVATION, ON
           BEHALF OF THE ASSOCIATION OF STATE DRINKING WATER
                             ADMINISTRATORS

        Mr. Rutherford. Mr. Chairman, Mr. Chairman Jeffords, and
    Senator Crapo, good afternoon and thank you, Chairman Jeffords,
    for the introduction.
        I am Jay Rutherford, director of Vermont's Drinking Water
    Program, and I'm here today speaking to you on behalf of the
    Association of State Drinking Water Administrators, which
    represents the 50 States, territories, and the District of
    Columbia in helping to ensure the provision of safe water to
    all Americans.
        We'll continue our comments today to the provision in S.
    1961 that affect the Safe Drinking Water Act. We thank you for
    the opportunity to address this bill, and we very much
    appreciate the committee's interest in ensuring that this much-
    needed and successful program will continue to receive funding,
    and that drinking water SRF funding will be enhanced
    substantially to a total of $14.5 billion through Fiscal Year
    2007.
        We also strongly support the purposes of this bill to
    streamline the drinking water SRF, to maximize use of Federal
    funds, and to encourage efficiency. The several of the
    provisions will assist in this area, such as extending the
    transferability of funds between the drinking water and clean
    water SRFs, authorizing fund use for source water protection
    activities, calling for increased accountability for the 10
    Technology Assistance Centers, and the information generated by
    the proposed NAS rate study and USGS assessments.
        We're concerned, however, that some provisions of the bill
    may, in fact, hinder, rather than help, meet the designated
    purposes of the bill. Our written testimony details our
    concerns, so I'll only touch on three examples.
        Under Title II, the legislation proposes to strengthen
    activities relating to the use of the SRF for source water
    protection, consolidation initiatives, assistance for small and
    disadvantaged communities, and coordination with other planning
    programs. These activities would be authorized under SDWA
    Section 1452(g), which currently requires a dollar-for-dollar
    or 100 percent State match in order to access these funds.
        Many States cannot take full advantage of these funds now,
    and certainly may not be able to access them for these
    additional activities. We suggest that the bill strike the 100
    percent match and replace it with a 25 percent match for these
    important activities. In addition, States would also like to
    see drinking water security added to the list of drinking water
    SRF-eligible activities.
        Another example concerns Section 203, which authorizes
    States to use up to 15 percent of the capitalization grant to
    provide assistance to the poverty pockets in communities which
    are otherwise not disadvantaged. This 15 percent is in addition
    to the 30 percent cap on loan subsidies to disadvantaged
    communities, meaning that up to 45 percent of the
    capitalization grant may be used for grants or grant-like
    assistance. We think this threatens the corpus of the Revolving
    Loan Fund, since these funds will not be repaid and will not
    then be able to be used for loans for new projects.
        Finally, there are requirements in this bill for States to
    ensure that water system set rates for full-cost recovery and
    that the systems follow through on providing the subsidies to
    individual households. These types of activities have typically
    been local determinations over which the States have no control
    and very little experience in this area.
        We're very concerned that water systems will forgo the use
    of the drinking water SRF rather than subject themselves to
    such close State scrutiny. We fear that if this happens, of
    course, it will lead us away from the purposes of the bill.
        Although the States have a number of concerns with several
    of the initiatives in S. 1961, we would very much like to
    continue to work with this committee to ensure that these
    provisions will not be excessively burdensome to either States
    or drinking water systems, and that this legislation will,
    indeed, maximize the effectiveness and enhance efficiency of
    the drinking water SRF.
        Mr. Chairman, I very much appreciate the opportunity to
    speak with the committee today, and I would be pleased to
    answer any questions you or Mr. Chairman Jeffords might have.
    Thank you.
        Senator Graham. Thank you very much, Mr. Rutherford.
        First, Mr. Morrissey, you, after stating your concerns
    about some of the pre-conditions that had been added, then
    suggested that maybe adopting the principle of State
    equivalency should be allowed to substitute. As an example,
    several of the conditions relate to compatibility of decisions
    on water policy with areas such as land use, transportation,
    and other, what I would call, growth management-type decisions.
        There are a number of States which already have in place
    some form of a comprehensive planning requirement that
    incorporates all of the above plus more. Would you find it to
    be desirable if, for instance, there were to be a waiver of the
    specific requirements that are called for in this legislation
    upon a demonstration that the State already had the equivalent
    type of comprehensive reviews through some other methodology?
        Mr. Morrissey. Yes, sir. Our fear would be, if there were
    additional Federal requirements and they were imposed,
    superimposed, upon our existing State requirements, those
    States would have to do it twice or do it in a different
    format, and we would be wasting resources. Our hope is that
    with an equivalency waiver, we would only have to do it once,
    do it at the State level, in a manner in which we're used to
    doing, and therefore, forgo or not have to involve ourselves in
    another layer of review similar to Federal requirements.
        So I'll give you an example. When we conduct a facilities
    plan for a wastewater treatment system in Connecticut, we first
    study what area we're going to sewer and we assure the local
    communities that we're not going to induce growth by sewering
    areas outside of this. We build the capacity and we limit the
    hydraulic capacity of the facility which will be serving this
    sewer area to prescribe the growth area that this will induce.
    From our perspective, that meets with the Connecticut Plan of
    Conservation and Development, and it has to be consistent with
    zoning laws throughout the local communities. We see that as a
    similar requirement as you've outlined here, and we would not
    have to do that twice or, to do different standards, if you
    will.
        Senator Graham. I would be interested, Mr. Morrissey, if
    you might suggest some language that we could consider that
    would accomplish what seems to be an imminently reasonable
    suggestion.
        Mr. Morrissey. Another thing to keep in mind is this: The
    old Title II program did not allow for growth in the
    development of sewage treatment plants financed with those
    grants. Many States have held over those requirements, so that
    there may be already a no-growth statute prohibition at the
    State level as a remnant, if you will, of the old Title II
    program.
        Senator Graham. Mr. Rutherford, the issue of requiring
    asset management plans an including full cost recovery rate
    structures has as one of its goals to assure that there's going
    to be enough money available for maintenance and repair, so
    that we don't 30 years downstream have a system that was
    designed to last 75 years collapse on us because it hasn't been
    adequately maintained.
        You raise some objection to doing it the way this bill
    proposes to do it. How would you, if you agree that it is a
    reasonable objective that there should be some asset
    management, including the capability to do necessary ongoing
    maintenance and repair and rehabilitation, how would you
    suggest we accomplish that objective?
        Mr. Rutherford. Mr. Chairman, I'll have to fall back on my
    more parochial role from Vermont rather than speaking
    nationally to this question. We have encouraged systems for a
    long time--in fact, we do have a State requirement for
    assistance to set up a sinking fund, if you will, to be able to
    make necessary repairs over the useful life of a system. It
    does not require that it have any funds in it, however. So the
    purpose of it has not quite met its need.
        The concern that I have over that particular portion is
    that I interpret it to mean that systems would have to not just
    recover or not just cover the costs of ongoing maintenance and
    repairs to keep that system going for its useful life, but that
    it would also have to be setting aside a sinking fund to be
    able to pay for future capital construction needs, which I'm
    guessing is going to happen sooner than 60 or 75 years out.
    Given Federal drinking water regulations just in the last
    decade, there's been a substantial amount of construction
    that's needed to happen just to stay up with those, and there
    are more still coming.
        So if that interpretation is correct, then I think we would
    be looking at a water system paying back the loan that they got
    today over a 20- or even a 30-year period while at the same
    time they're having to save up money to be able to pay for the
    next set of improvements.
        My experience has been that with many of the small systems
    that we have in Vermont, which are virtually all of them--we
    have no large systems in the State--is that, even with all of
    the assistance that we can give them, the best that they can do
    is just to keep up with that assistance. I don't know how we're
    going to be able to have in 20 years' time an independent set
    of systems in the country that would be able to finance their
    own improvements when they needed them. I think there will
    continue to be a need for Federal or State assistance.
        Senator Graham. Senator Jeffords, I was a little concerned
    that Mr. Rutherford started his response to that last question
    by saying that he was not going to be looking at this from a
    national perspective, but from the perspective of Vermont.
    You've taught us that Vermont is the national perspective.
        [Laughter.]
        Senator Jeffords. I didn't see any conflict.
        [Laughter.]
        Senator Jeffords. For both of you, S. 1961 includes a
    provision to coordinate planning for water infrastructure
    projects with land use planning and transportation planning
    entities. How does this coordination, if any, actually happen
    today? That's an easy one for you, Mr. Rutherford.
        Mr. Rutherford. Yes, it is, Mr. Chairman. Planning has been
    a difficult process, as we both know, in our State. But so much
    of the work that we've done in the Drinking Water Revolving
    Fund has been associated with addition of treatment to address
    Federal regulations or infrastructure improvements, that the
    issue of planning and growth has always struck me as something
    that should have been considered perhaps years ago, before
    these small systems, which we have so many of in Vermont, were
    created.
        So it seemed to me that it's going to be hard to address
    this particular part of the legislation because we don't have
    strong regional statewide planning to coordinate with, and yet
    our systems are there. They are in the ground. They need to
    make improvements, whether they're well-thought-out or not.
        Senator Jeffords. Mr. Morrissey.
        Mr. Morrissey. Senator Jeffords, we in Connecticut have
    what we call a Plan of Conservation and Development. That plan
    maps all of Connecticut into growth areas and non-growth areas,
    conservation areas and open space areas. We are prohibited, by
    State statute, through the Connecticut Environmental Protection
    Act, in sewering areas which are designated as protection or
    open space. Therefore, when we develop a facilities plan, as I
    was saying before, with a municipality to determine a sewer
    shed, we can only delineate the sewer shed in those areas
    designated for growth. We cannot use Federal or State funds to
    build sewers outside those areas which would induce growth in
    the rural conservation or in the open space areas. So it is
    part of our system already, as part of the CEPA review, if you
    will, in Connecticut.
        Senator Jeffords. Has it created any serious problems, as
    you rethink that, or is it working pretty well?
        Mr. Morrissey. Oh, it creates problems. There's no doubt
    about that.
        Senator Jeffords. Yes.
        Mr. Morrissey. For instance, recently, we have a town which
    historically planned on building an industrial park within its
    watershed for its water supply reservoir, and we've had quite a
    row about whether or not we're going to build sewers there, and
    if sewers are built there, what special land use controls will
    we place on that industrial development, such as limiting
    impervious areas to less than 10 percent, so that we don't
    adversely affect that reservoir and the drinking water supply
    for that town.
        So it does lead to conflicts. Several of the conflicts are
    resolved legislatively, but typically we can work them out
    through negotiation. By and large, though, it works. It keeps
    sewers within the designated sewer sheds that we agree to with
    municipalities during the planning stages for our projects.
        Senator Jeffords. Thank you, Mr. Chairman.
        Mr. Morrissey. May I ask, what is that?
        [Laughter.]
        Senator Graham. Well, the answer to that question is that
    is a quorum call, which is the parliamentary equivalent of
    timeout, which means that, for various reasons, whatever is
    currently transpiring will be suspended until people can figure
    out what they want to do next.
        [Laughter.]
        Senator Jeffords. These are some, well, shall we say,
    awaited moments where nobody's talking on the Senate floor, and
    so everybody relaxes a little while, and sometimes that helps,
    but we'll see.
        [Laughter.]
        Senator Jeffords. Well, it's a close balance between the
    help that you get by a few seconds of respite from talk and the
    mental distress at having to listen to those ``blank'' buttons
    go off.
        [Laughter.]
        Senator Graham. Gentlemen, thank you very much. I would
    like to make the same request that I did of the previous
    witnesses. If there are any specific modifications--to use as
    an example, Mr. Morrissey, your suggestion of an equivalency
    standard--we would like the benefit of your specific wording,
    and similarly, Mr. Rutherford.
        As I indicated, because we are operating under the whiplash
    of Senator Jeffords, we're trying to move this bill
    expeditiously, and we would appreciate having your suggestions,
    say, within the next week, and the record will be open for the
    next 2 days, if you would like to supplement the statements
    that you have made.
        Mr. Rutherford. Thank you, Mr. Chairman.
        Mr. Morrissey. Thank you.
        Senator Jeffords. Thank you very much.
        Senator Graham. Thank you.
        [Whereupon, at 12:05 p.m., the subcommittee was adjourned,
    to reconvene at the call of the chair.]
        [Additional statements submitted for the record follows:]

        Statement of Hon. Paul S. Sarbanes, U.S. Senator from the State
                                  of Maryland

        Thank you, Mr. Chairman, for this opportunity to testify on S.
    1044, the Chesapeake Bay Watershed Nutrient Removal Assistance Act. At
    the very outset, I want to commend you, and other members of the
    Committee, for focusing attention on our nation's clean water
    infrastructure needs. This issue is of vital importance to the State of
    Maryland and to our continued efforts to restore the Chesapeake Bay.
        Despite improvements over the past two decades, Maryland and,
    indeed, the Chesapeake Bay region still face very significant water
    quality problems and needs. In December 2001, a ``Task Force on
    Upgrading Sewerage Systems,'' commissioned by Governor Parris
    Glendening completed an assessment of the costs to implement needed
    sewerage requirements to address combined sewer overflows (CSOs),
    sanitary sewer overflows (SSOs), and other upgrades at wastewater
    treatment plants throughout Maryland and identified $4.3 billion of
    capital needs. Maryland's most recent allotment under the Clean Water
    Act's State Revolving Loan Fund was $32.5 million, and even when
    combined with State and local funds, the Task Force report estimates a
    gap of $80--$140 million a Year in needed sewerage infrastructure
    spending. Clearly, continuing and enhancing the State Revolving Loan
    Fund is a vital part of the assistance needed to help address that gap.
        But I am concerned about using just the needs survey to determine
    State apportionments for the SRF, as proposed is S. 1961. The survey
    was designed for traditional sewer needs and does not account very
    accurately for restoration, reconstruction, storm water and non-point
    source control needs, which are difficult to quantify. Moreover, it
    unfairly penalizes States, like Maryland, which have worked
    aggressively to upgrade sewage treatment facilities--utilizing State
    funds and overmatching Federal revolving loan funds. In addition, it
    fails to measure very well the overall water quality challenge a State
    or region faces. In my judgment, the ultimate formula for the SRF
    should have a broader water quality measure in it--some factor related
    to the percent of waters not meeting designated uses or water quality
    standards. I hope that the Committee will work with us to address these
    deficiencies in the needs survey, which is being used as the basis for
    the new formulas in S. 1961.
        In the Chesapeake Bay watershed, we face a special challenge of
    finding ways to further reduce the level of nitrogen and phosphorus in
    wastewater effluent. Nutrient over-enrichment from both point and non-
    point sources remains the most serious and ubiquitous pollution problem
    facing the Chesapeake Bay. In 1987, the Governors of Maryland,
    Virginia, Pennsylvania, the Chesapeake Bay Commission, the Mayor of the
    District of Columbia and the Administrator of the EPA, on behalf of the
    Federal Government, signed a Chesapeake Bay Agreement which set a goal
    of a 40 percent reduction of nitrogen and phosphorous loads to the main
    stem of the Bay by the year 2000--the most ambitious voluntary
    commitment for restoring water quality of any region in the nation.
    During that 13 year period, tremendous efforts and investments were
    made by all the jurisdictions in upgrading sewage treatment plants as
    well as implementing Best Management Practices on agricultural lands to
    meet that goal.
        Two years ago, the States and the Federal Government conducted an
    extensive evaluation of cleanup progress since the 1980's and
    determined that, unfortunately, we have fallen short of the 40 percent
    goal. Estimates through the use of computer models indicated that,
    although nitrogen loads delivered to the Bay and all its tributaries
    declined by nearly 53 million lbs/year and phosphorus loads declined
    nearly 7 million lbs/year, Bay-wide nitrogen loads fell about 21
    million lbs/year short and phosphorus loads fell nearly 3 million lbs/
    year shy of the 2000 goal. A new Chesapeake 2000 agreement was signed
    reaffirming the 40 percent nutrient reduction goal agreed to in 1987,
    and committing the signatories to go much further by correcting all
    nutrient related problems in the Chesapeake Bay by the year 2010. But,
    without Federal funds for wastewater treatment plant upgrades, the
    States will be unlikely to meet the 2010 water quality goal.
        Recent modeling of EPA's Bay Program has found that total nutrient
    pollution must be further reduced by more than 45 percent from current
    levels to restore the Chesapeake Bay and its major tributaries to
    health. To do so, the current annual nitrogen discharge of 285 million
    pounds will need to be cut by at least 130 million pounds. Municipal
    wastewater treatment plants, in particular, can be a major source of
    these needed reductions.
        As you can see from this map, there are approximately 300 major
    wastewater treatment plants in the Chesapeake Bay watershed. These
    plants contribute about 60 million pounds of nitrogen per year, more
    than one-fifth, of the total load of nitrogen to the Bay. Typically,
    these plants discharge about 18 mg/liter of nitrogen in their effluent
    but 71 of the plants have been upgraded with some form of nutrient
    removal technology to achieve nitrogen concentrations of about 8 mg/
    liter. By further upgrading these plants with nutrient removal
    technologies to achieve nitrogen reductions of 3 mg/liter--state-of-
    the-art reductions--scientists estimate that we would remove 42 million
    pounds of nitrogen in the Bay each year or about 40 percent of the
    total nitrogen reductions needed.
        The legislation which Senators Mikulski, Warner, Allen, Specter,
    Santorum and I sponsored, would establish a grants program to encourage
    States and municipalities in the six-State Chesapeake Bay watershed to
    go the extra mile and install nutrient reduction technologies at major
    wastewater treatment facilities to achieve state-of-the-art nitrogen
    reductions of 3 mg/liter. Our legislation would provide grants for 55
    percent of the capital cost of upgrading the plants. The total cost of
    these upgrades is estimated at $1.2 billion, with a Federal share of
    $660 million. Any publicly owned wastewater treatment plant which has a
    permitted design capacity to treat an annual average of 0.5 million
    gallons per day within the Chesapeake Bay watershed portion of New
    York, Pennsylvania, Maryland, West Virginia, Delaware, Virginia and the
    District of Columbia would be eligible to receive these grants. These
    nutrient reduction technologies are the most reliable, immediate and
    cost-effective ways to reduce nutrient loads to the Chesapeake Bay.
        Mr. Chairman, if we are to achieve the ultimate, long-term goal of
    the Bay Program--improving and protecting the water quality and living
    resources of the Chesapeake Bay--Federal assistance in upgrading sewage
    treatment plants and in this nutrient reduction effort is absolutely
    essential. The States cannot do it alone, particularly given the
    interstate nature of the pollution problem facing the Chesapeake Bay.
    The Bay is a unique national resource. It is the largest and most
    productive estuary in the country, with a watershed encompassing 64,000
    square miles and parts of six States and the District of Columbia. Its
    unique ecological features combine with its tremendous economic and
    cultural importance to make it a resource that deserves national
    protection. I hope that the Committee can act quickly to approve this
    measure and report it to the full Senate for consideration.

                                   __________
       Statement of Robert M. Hirsch, Associate Director for Water, U.S.
                 Geological Survey, Department of the Interior

        Mr. Chairman and Members of the Subcommittee, thank you for the
    opportunity to testify today on S. 1961, ``The Water Investment Act of
    2002.'' As you know, the mission of the U.S. Geological Survey (USGS)
    is to provide scientific information to support decisionmaking on
    issues of resources, environmental quality, and natural hazards.
    Information about water has been a central part of our agency's mission
    throughout our 123-year history. My remarks will be limited to Title IV
    of the bill, which relates to USGS. EPA has provided the
    Administration's views on the remainder of the bill.
        As such, we agree that the role defined in Title IV of the bill is
    an appropriate one for the USGS and that it could improve Federal
    coordination of water information, but we would welcome an opportunity
    to work with the Committee on the bill language to assure that the
    tasks are feasible and clearly defined and that they are appropriate
    for the USGS as a Federal scientific agency. Let me begin by providing
    some general context for my remarks.
        Competition for water to meet the needs of homes, cities, farms,
    and industries in many parts of the country is increasing, as are
    requirements to leave water in the streams and rivers to meet
    environmental and recreational needs. Information on water resources is
    needed at many levels to address these issues. Included among these is
    information to help shed light on overall changing conditions of
    scarcity, use, and competition for water to help inform discussions
    about potential changes in policies and investment plans related to
    water. In this regard, the USGS received a directive from Congress as
    part of the report on the fiscal year (FY) 2002 Appropriations for
    Interior and Related Agencies (House Committee on Appropriations) to
    prepare a report describing the scope and magnitude of the efforts
    needed to provide periodic assessments of the status and trends in the
    availability and use of freshwater resources.
        Our efforts over the past 6 months in preparing that report have
    provided us with some insight that may be useful to this Subcommittee
    as it considers this legislation. In preparing our report to Congress,
    the USGS has solicited input from many individuals and organizations
    involved in issues of water availability and use. We asked them what
    types of decisions and policy issues would benefit from improved water
    facts today and in the future, how to build on existing efforts, and
    where to expand collaborative opportunities. In response to our
    request, we received nearly 100 responses from the water-management and
    policy communities.
        There were several clear messages. First, there was consensus that
    a better set of facts is needed for informed decisions related to water
    availability and use. National organizations, in particular, noted the
    need for consistent indicators of water availability across the
    country. However, individuals representing State and local governments
    reminded us that many States have conducted extensive planning to
    quantify water availability now and in the future, and that the
    availability and use of water is a State, local, or tribal issue in
    most respects.
        Our report to the House Appropriations Committee is in the final
    stages of review at the present time. Based on the comments we received
    from others, we believe that the critical need is for regular reporting
    on indicators of the status and trends in storage volumes, flow rates,
    and uses of water nationwide. This information is not available in an
    up-to-date, nationally comprehensive and integrated form.
        Water availability is a function of the total flow of water through
    a basin, its quality, and the structures, laws, regulations, and
    institutions that control its use. Information is currently synthesized
    about the Nation's water quality by the USGS National Water-Quality
    Assessment (NAWQA) program--A program that has recently been reviewed
    by the National Research Council (NRC) after completing its first
    decade. The NRC/NAWQA review committee stated ``NAWQA is providing key
    national leadership, reporting, and assessing the quality of surface
    water and groundwater resources across the Nation. Furthermore, NAWQA
    is playing a vital role in balancing its good science with
    responsiveness to policy and regulatory needs. This is a vital
    function.'' The assessment required by this bill could be used with
    water-quality information from NAWQA and other existing water-quality
    programs to provide a more complete national picture of both the
    quantity and quality aspects of water availability.
        Data that are germane to issues of water availability include
    population statistics, land uses, water costs and pricing, climate
    data, and instream-flow requirements for aquatic habitats. These data
    are compiled by State and local agencies, by universities and water-
    resource organizations, and by several Federal agencies.

                    INDICATORS OF WATER AVAILABILITY AND USE

        An assessment, such as called for in this bill, would need to rely
    on up-to-date, nationally consistent indicators that would reflect the
    status and trends in water availability and use nationwide, for
    surface-water flows and storage, ground-water levels and storage, and
    water use.
    Surface Water
        Currently, the USGS provides a number of assessment-type streamflow
    products at daily, weekly, and monthly time scales. These products,
    such as the online WaterWatch Internet site, are useful to emergency
    managers, public officials, and others tracking floods and droughts and
    to private citizens planning recreational activities. The USGS will
    continue to produce these types of information on daily to monthly
    conditions through our existing programs. Indicators that support
    longer-term water-availability decisions, however, require compilation
    of streamflow information at longer time scales.
    Groundwater
        Long-term, systematic measurements of ground-water levels provide
    essential data needed to evaluate changes in ground-water storage over
    time. The density of existing monitoring wells varies considerably from
    State-to-State, and even more so among major aquifers, with very
    limited monitoring in many aquifers. Thus, an inventory of existing
    water-level networks for major aquifer systems would be useful to
    identify data gaps across the Nation and determine the detail to which
    we can provide this information.
    Water Use
        Tracking water use is an important part of understanding water
    availability. The USGS has compiled and disseminated estimates of water
    use for the Nation at 5-year intervals since 1950. The National
    Research Council (NRC) recently reviewed the USGS program for water-use
    information and will be making a number of recommendations for
    improvement of the program to address inconsistencies in the
    availability of water-use data from State to State. This NRC report
    will be released within the next few months. We would encourage the
    Committee to seek their input on this important component of the water
    resource equation. Valid and consistent water-use data are as vital as
    river flow or ground-water data and are often even more difficult to
    acquire. An assessment such as is envisioned by this legislation
    depends on water-use data. The responsibility for collecting and
    analyzing these data must be shared by the States and the Federal
    Government.

                                    SUMMARY

        In summary, in response to the directive from Congress and with
    input from many others, the USGS has developed concepts for a national
    assessment of freshwater availability and use. The proposed assessment
    would develop and report on indicators of the status and trends in
    storage volumes, flow rates, and uses of water nationwide. Currently,
    this information is not available in an up-to-date, nationally
    comprehensive and integrated form. The development and reporting of
    national indicators of water availability and use would be analogous to
    the task of other Federal statistical programs that produce and
    regularly update indicator variables that describe economic,
    demographic, or health conditions of the Nation. Any such effort would
    comply with the Office of Management and Budget's (OMB) recently issued
    Information Quality Guidelines.
        The assessment would be highly collaborative, involving the USGS
    along with Federal and State agencies, Indian tribes, universities, and
    non-governmental interests. Collaboration across agency boundaries
    would ensure that information produced by the USGS could be aggregated
    with other types of physical, social, economic, and environmental data
    that affect water availability.
        In regard to Section 403(b) on water resource research priorities
    we would note that we are currently engaged in contracting with the
    National Research Council, at the direction of Congress, to conduct a
    study of the priorities for, and best means of organizing, water
    research across the Federal Government. We would suggest that this
    National Research Council effort may provide very valuable inputs to
    help carry out the objectives of this section.
        In regard to Section 403(c) on information delivery systems, the
    objectives defined here are very much in concert with the existing
    charge to the USGS under OMB Memorandum 92-01 on ``Coordination of
    Water Resources Information.'' This section would reinforce our ongoing
    role of coordination of water information across the Federal
    Government.
        In closing, again, we agree that the role defined in the bill is an
    appropriate one for the USGS, but we would welcome an opportunity to
    work with the Committee on the language of Title IV, to assure that the
    tasks are clear and feasible and that they are appropriate for the USGS
    as a Federal scientific agency. For example, the bill directs the USGS
    to identify areas of the United States that are at risk for water
    shortages or surpluses. However, long range predictions of water
    supplies cannot be determined solely by physical science but are
    heavily dependent on human decisions to invest in infrastructure,
    restrict use, change water laws, etc., which are largely State
    decisions. The USGS makes a significant contribution to these issues by
    regularly providing indicators of the changing status of the Nation's
    water resources derived from long-term monitoring.
        We appreciate this opportunity to discuss USGS capabilities and I
    welcome any questions you may have.

                                   __________
    Statement of Andrew M. Chapman, President, Elizabethtown Water Company
            on Behalf of The National Association of Water Companies

        Good afternoon, Mr. Chairman and Members of the Subcommittee, my
    name is Andrew Chapman. I am the President of Elizabethtown Water
    Company in New Jersey, and I am a Vice-President of the National
    Association of Water Companies.
        NAWC is a non-profit trade association that exclusively represents
    private and investor-owned drinking water utilities. I am offering this
    testimony on behalf of NAWC's membership-the 200 members in 39 States-
    which provide safe reliable drinking water to more than 22 million
    Americans everyday. I'm pleased to report that NAWC has members in
    nearly every State represented on this Subcommittee; Florida, Idaho,
    Montana, Missouri, Nevada, Virginia, New York, Rhode Island, New
    Jersey, and Colorado.
        Mr. Chairman, NAWC commends you and this Subcommittee for taking on
    the important issue of water infrastructure financing, introducing S.
    1961, the Water Investment Act of 2002, and holding these hearings
    today. The challenge of replacing and upgrading infrastructure is one
    of the greatest and most pressing facing our industry today.
    Congressional interest in this challenge, as demonstrated by the
    introduction of S. 1961 and the several hearings on the issue held over
    the last year, underlines this fact.
        We are particularly encouraged that this legislative project is
    being undertaken in a bipartisan fashion, a practice that drinking
    water issues have enjoyed in this committee for some time, and one that
    we sincerely hope continues far into the future.

                                GENERAL COMMENTS

        NAWC along with our colleagues in the H2O Coalition1\1\
    support S. 1961 and urge this committee to consider and report the bill
    to the full Senate at the earliest possible date.
    ---------------------------------------------------------------------------
        \1\ The H2O Coalition is made of the National
    Association of Water Companies, the Water and Wastewater Equipment
    Manufacturers Association, and the National Council on Public-Private
    Parnerships.
    ---------------------------------------------------------------------------
        This bill embraces many of the principles the H2O
    Coalition has been advocating for more than a year now. It encourages
    utilities to use creative public-private partnerships, consolidation
    and other solutions in addressing their infrastructure challenges. The
    bill will also keep the industry on the path to self-sustainability
    through rational rate structures and sound asset management practices.
    The authors of the bill have wisely thought outside the box with an
    innovative program designed to assist disadvantaged consumers, instead
    of the entire utility in circumstances where only some of the utility's
    customers are disadvantaged. Finally, S. 1961 at last puts the
    customers of privately owned utilities on full and equal footing with
    those of municipal utilities by extending private utility eligibility
    to the Clean Water SRF (CW-SRF) and encouraging all States to extend
    private utility eligibility to both the CW-SRF and Drinking Water SRF
    (DW-SRF).
        Conversely, S. 1961 wisely does not authorize a large grant program
    which some have been advocating. We are encouraged, Mr. Chairman, that
    you and your colleagues in drafting this bill saw the error in
    authorizing an old fashioned and outdated grant program that would do
    more harm than good for the entire water industry, waste taxpayers'
    money, and add to the Federal budget deficit.

                               SPECIFIC COMMENTS

        DW-SRF and CW-SRF Restructuring.--First, S. 1961 signals
    congressional support for creative non-governmental solutions to the
    infrastructure financing challenge by explicitly tying SRF assistance
    (both DW-SRF and CW-SRF) to:
        1. Consolidating ownership and/or management functions with other
    facilities.

              There are over 50,000 community water systems in the United
            States many of which are very small. In many, but not all,
            cases the financial challenges facing these utilities can be
            addressed by achieving economies of scale through
            consolidation. By tying consideration of consolidation with SRF
            assistance, Congress will encourage localities to put aside
            parochial interests, expand their vision and do what is right
            for the customer.

        2. Forming public-private partnerships or other cooperative
    partnerships

              Municipalities large and small all over the country have
            realized great savings and success through partnerships with
            private firms. These partnerships take many forms, from
            contracting out small portions of a utility's operations, such
            as billing or meter reading, to multi-year all inclusive
            management contracts wherein a private firm runs and manages
            all aspects of a municipally owned utility, to the transfer of
            assets to a private company. Cost savings that localities have
            realized over the years from such arrangements range up to 40
            percent, freeing up much needed capital for infrastructure
            replacement, without burdening either the customers or the
            American taxpayer.

        Second, S. 1961 seeks to avoid some past mistakes of government
    assistance programs by requiring utilities receiving DW-SRF and CW-SRF
    assistance to have in place:

              1. A rate structure that reflects the actual cost of service,
            taking into account capital replacement funds, and
              2. A sound asset management plan conforming to generally
            accepted industry practices and including a schedule of
            investments to meet and sustain performance objectives.

        These provisions require managers to take an enterprise approach to
    utility management and move all systems toward self-sustainability. The
    provisions will force utilities to solve their infrastructure problems
    in ways that are the least onerous to the American taxpayer, yet are
    responsible, efficient and effective.
        Absent these important safeguards we could relive many of the
    problems of past government subsidy programs wherein:
        1. Small or inefficient utilities were artificially propped up,
    discouraging consolidation and regionalization;
        2. Utilities became dependent on the government funds and needed
    regular infusions creating greater reliance on government money;
        3. Because of the subsidy, the American people got a false
    impression of the true cost of water, discouraging conservation; and
        4. The private sector was effectively barred from participation in
    the industry, thus denying utilities the benefits of the free
    marketplace and its associated innovations and economies.
        Some will argue that these provisions represent a too heavy-handed
    government approach to legislating, and are thus a step backward. We
    disagree. While both the CW-SRF and DW-SRF are administered through the
    States and include some State matching money, the vast majority of the
    SRFs' corpora are made up of Federal money coming from the American
    taxpayer. Therefore, the Federal Government has a responsibility to the
    American taxpayer to be sure their money is distributed and used in an
    efficient and accountable manner, as S. 1961 would do.
        Subsidization for Disadvantaged Users.--Section 203 introduces a
    new and innovative approach for targeting SRF moneys to subsidize the
    water rates of economically disadvantaged customers, as opposed to
    giving assistance to utilities in a form that subsidizes everyone's
    water rates. The bill provides for favorable loan terms, including
    principal forgiveness, to directly assist disadvantaged customers. NAWC
    and the H2O Coalition have long championed this target use
    of DW-SRF assistance and we are greatly encouraged to see the sponsors
    of this bill moving the DW-SRF in this direction.
        There may be many instances, particularly in larger utilities,
    where there are many disadvantaged customers who need assistance paying
    their bills, even though the vast majority of the customers of the
    particular utility have the means to pay the full cost of service. In
    such cases it makes no sense for the DW-SRF to subsidize the entire
    utility, when in fact only a percentage of customers need the
    assistance. This innovation will allow States to target assistance to
    where it is most needed, freeing up money for the worthiest projects.
        Private Utility Access.--As you can imagine, the NAWC, as the
    representative of the private water industry, is particular happy to
    see that all utilities are treated equally in S. 1961, regardless of
    ownership. First, the bill makes private utilities eligible for the
    first time for assistance from the CW-SRF. This is a long delayed and
    much needed innovation to that program that will place all systems on a
    level playing field.
        Private utilities have had access to the DW-SRF since it was
    established in 1996. When Congress established the DW-SRF it correctly
    determined that benefits of the DW-SRF would flow to the customers of
    the utilities, not to the owners or shareholders. This is no less true
    for the customers of privately owned wastewater utilities.
        Second, we are also greatly supportive of provisions in S. 1961
    that will bring fairness to the State SRF allocation process. The
    bill's provisions require States that include private utilities in
    their needs survey (thus maximizing the State's total DW-SRF
    allocation) to also ensure that private utilities are actually eligible
    for such assistance. As incredible as it may sound, currently there are
    13 States that include private utilities in their needs survey but
    exclude those same utilities from eligibility for loans because of
    State laws or practices. S. 1961 will end this practice in the DW-SRF
    and keep it from happening in the CW-SRF.
        Authorizations.--S. 1961 would authorize $35 billion over the next
    5 years for the two SRFs, with a combined $7 billion in fiscal year
    2006, and an eye-popping $12 billion in fiscal year 2007. We question
    whether Congress will ever appropriate anything close to these levels,
    considering that such appropriations would increase EPA's budget about
    2.5 times.
        We are concerned that such large authorizations, with relatively
    little chance of similar appropriations, may send counterproductive
    signals to utility operators. Utilities may defer making the necessary
    investments and hard choices required today with the false hope of
    significant Federal assistance coming their way in the future.
        Section 205: Competition Requirements.--While we embrace the
    concept of competition in procurement, we are concerned with the
    requirements in Section 205 that might force utilities to specify
    ``brand name or equal'' in their procurement documents. We have found
    from long experience that ``equal'' often means in practice inferior
    equipment. We believe the procurement process today under the Drinking
    Water SRF is highly competitive, encourages innovation, and need not be
    modified.

                      ADDITIONAL ISSUES FOR CONSIDERATION

        Private Activity Bonds.--As we have testified here before, one of
    the easiest and least expensive incentives Congress can provide to
    address the infrastructure issue in a sound and efficient manner is to
    remove the existing volume caps on Private Activity Bonds for water and
    wastewater infrastructure improvement. This simple change will make
    capital both easier to obtain and less expensive for partnerships
    between the public and private sector, thus making such partnerships
    much more economically attractive to all concerned.
        I understand that this, being a tax issue, is outside of the
    jurisdiction of this committee. It is, however, one of the most
    important modifications Congress can make to give local governments the
    tools they need to meet this coming infrastructure challenge.
        Since 1986 Congress has limited, under arbitrary State volume caps,
    the use of tax-exempt financing by private entities working for the
    public good. The cap has the unfortunate effect of limiting the use of
    private sector approaches for providing vital services, such as water
    services. Preliminary modeling indicates that this minor alteration in
    the tax code would cost the Federal Government very little ($147
    million over 10 years\2\), yet leverage huge sums of private capital.
    ---------------------------------------------------------------------------
        \2\ According to the Joint Tax Committee; February 12, 2002.
    ---------------------------------------------------------------------------
        This proposal has precedent. Congress has exempted other
    environmental facilities (certain waste disposal facilities) from the
    State volume caps because of a perceived public need.
        This proposal enjoys far reaching support. In the House, bipartisan
    legislation has been introduced which would make these changes. Also,
    the U.S. Conference of Mayors, the Water Infrastructure Network (WIN),
    and the U.S. Environmental Protection Agency's Environmental Financial
    Advisory Board have endorsed the proposal.
        Compliance with Drinking Water as a Defense in Lawsuits.--We have
    reported many times to this Committee on a disturbing trend that has
    been observed recently in many parts of the country, which could
    directly affect the ability of all utilities (both publicly and
    privately owned) to face the infrastructure financing challenges.
        This trend involves coordinated litigation aimed squarely at
    America's water industry, and the drinking water quality standard
    setting and regulatory system under which it has operated for many
    years. Massive civil lawsuits involving hundreds of plaintiffs have
    been organized and commenced against water suppliers in several States
    for allegedly supplying contaminated water even when these utilities
    have been in full compliance with State and Federal drinking water
    quality standards. These suits have targeted both privately owned and
    municipal water systems.
        To address this problem the entire drinking water industry has come
    together to support legislation that would make compliance with
    drinking water standards a defense in such lawsuits. Such legislation
    would not only deter unfounded lawsuits but would also assure the
    viability of Federal standards that would otherwise be eroded by juries
    second-guessing the national regulatory process. A regulatory process
    that has given our citizens the safest water in the world. Therefore,
    NAWC, along with five other associations representing public, private
    and rural utilities support legislation that would make compliance with
    Federal drinking water standards a defense in lawsuits involving
    contaminants covered by such standards.
        If Congress does not pass such legislation the repercussions of
    expensive, unfounded lawsuits could be extremely costly to our
    industry, the EPA, and the public. Costs include significant utility
    defense costs, higher liability insurance costs, and the costs of any
    adverse judgments that may be imposed by the courts, even when the
    utility has been in full compliance with EPA's standards.
        In addition, if lawsuits like these are successful and proliferate,
    it will be a terrible blow to the drinking water standard setting
    process. In effect EPA's standards, which are developed through an open
    and scientifically based regulatory process established under the SDWA
    of 1996 after long deliberations, will be replaced with standards
    established by juries all around the United States, who have no
    scientific training or water expertise. Any new ``safe'' levels
    established by these juries will become de facto standards and
    undermine the legal authority of EPA's national standards, producing
    chaos within the industry, since utilities will not know which standard
    to comply with.
        We do not need this at a time when there are other pressing needs,
    such as infrastructure replacement, increased security, and compliance
    with new standards, such as arsenic. These costs will eventually have
    to be borne by the customers of the water utilities, increasing their
    costs without providing any commensurate benefits, and increasing the
    chance that water, America's best value, will become unaffordable.
        Two years ago the U.S. Supreme Court confirmed the principle of
    compliance with Federal regulations as a defense in a tort action Geier
    v. American Honda Motor Company. The action alleged that Honda was
    negligent in failing to equip its 1987 Accords with airbags, even
    though Honda was in compliance with U.S. Department of Transportation
    (DOT) standards, which provided for a phase in of passive restraints
    over time. The Court held that the plaintiffs attempt to establish a
    different standard was pre-empted by the uniform Federal regulations.
        The Honda case is directly controlling over the recent drinking
    water cases, and we believe that utilities that are in compliance will
    ultimately win these lawsuits-but only after expensive trials and
    lengthy appeals. In a time of scarce resources we believe that Congress
    has an opportunity to resolve the issue now, and we encourage this
    Committee to include in S. 1961 language making compliance with
    drinking water standards a defense in lawsuits.

                                   CONCLUSION

        Mr. Chairman, we appreciate the leadership role that you and this
    Subcommittee have taken to address drinking water infrastructure
    problems. S. 1961 is an excellent response to the infrastructure
    challenge and we look forward to working with you, the entire
    Committee, and your staffs in advancing this legislation through
    Congress.
        In conclusion, Mr. Chairman, thank you very much for the
    opportunity to present our views, and I would be happy to respond to
    any questions.

                                   __________
    Statement of Jerry Johnson, General Manager, District of Columbia Water
    and Sewer Authority on Behalf of the Association of Metropolitan Water
                                    Agencies

        Good afternoon, Mr. Chairman, members of the subcommittee.
        My name is Jerry Johnson, and I'm the General Manager of the
    District of Columbia Water and Sewer Authority. I'm testifying today on
    behalf of the Association of Metropolitan Water Agencies (AMWA). AMWA
    is a nonprofit organization representing the nation's largest publicly
    owned water agencies. These large systems provide drinking water to
    approximately 110 million people from Anchorage, Alaska to Miami,
    Florida.
        The DC Water and Sewer Authority provides retail water services to
    residents and businesses in the District of Columbia and parts of
    Virginia. WASA also provides wastewater treatment for the District of
    Columbia, portions of Montgomery and Prince Georges counties in
    Maryland and Fairfax and Loudon counties in Virginia as well as the
    town of Vienna, Virginia. WASA's Blue Plains Wastewater Treatment
    Plant, located in South West Washington, is the largest advanced
    wastewater treatment facility in the world.
        Thank you for introducing S. 1961, the Water Investment Act of
    2002, which is the first legislation to increase the Federal investment
    in drinking water infrastructure since the 1996 amendments to the Safe
    Drinking Water Act.
        The association believes the bill takes a major step in the right
    direction, by proposing to triple the authorization of the Drinking
    Water State Revolving Fund (SRF). While the needs of drinking water
    agencies over the 5-year period covered by the bill are nearly $60
    billion, the bill's proposed authorization, if enacted and
    appropriated, would fund hundreds of projects to ensure safe drinking
    water for decades to come.

                   ASSISTANCE TO METROPOLITAN WATER AGENCIES

        Like current law, the bill's main focus is to help drinking water
    systems comply with the Safe Drinking Water Act. The bill also
    reinforces the Drinking Water SRF's support of small water systems,
    through the capacity development program, restructuring assistance,
    technical assistance and, most importantly, a 15-percent set aside for
    small systems. (Some States make loans to large water systems to ensure
    the funds revolve, especially where small systems are not prepared to
    apply for assistance.)
        AMWA would like the subcommittee to consider ways to help
    metropolitan water agencies with replacing aging infrastructure.
    (Metropolitan water agencies serve the nation's larger communities.) To
    get a sense of the needs facing metropolitan water agencies, consider
    this: according to a recent survey, just 32 metropolitan systems
    reported that they must spend $27 billion over the next 5 years on
    drinking water and wastewater infrastructure\1\. Nationwide, the needs
    of metropolitan water agencies are much higher. Yet 31 States provided
    no assistance to metropolitan water agencies in fiscal year 2001. If
    the proposed authorization in S. 1961 is appropriated, States will have
    more money to lend to metropolitan water systems, but higher
    authorizations and programmatic changes are necessary, too.
    ---------------------------------------------------------------------------
        \1\ Waterworld, December 2001
    ---------------------------------------------------------------------------
        The cities that are served by metropolitan water utilities are the
    economic engines of their States and the Nation, and a significant
    Federal investment in these large publicly owned agencies will
    translate into stronger water delivery systems, better fire protection,
    and thousands of new jobs.
        Therefore, AMWA recommends a 15-percent set-aside for metropolitan
    drinking water agencies, to make certain that States address their
    needs. Under this proposal, small systems would continue to get the
    help they need to comply with the Safe Drinking Water Act, and
    metropolitan water agencies could invest the billions of dollars needed
    to replace aging infrastructure. In States where there are few
    metropolitan systems or where the systems do not need assistance, the
    funds set aside could be used for small systems.

                                    SECURITY

        The capital needs facing water systems to make their facilities and
    consumer more secure are likely to run into the billion of dollars, and
    AMWA believes the Safe Drinking Water Act should specifically authorize
    Drinking Water SRF assistance for capital projects related to security.
    EPA guidance to States indicates these projects are eligible for
    funding, but something more substantial, namely legislation, is needed
    to show congressional intent to allow such assistance.

                      RATE STRUCTURE AND ASSET MANAGEMENT

        Among the new requirements established by S. 1961 are
    implementation of responsible rate structures and asset management
    plans. These practices embody those commonly used in metropolitan water
    agencies today. For instance, WASA has developed a comprehensive, 10-
    year capital improvement program that totals $1.6 billion, of which
    approximately $505 million is attributable to drinking water
    infrastructure projects. Since its creation in 1996, WASA has raised
    its rates by 52 percent. Over the next 10 years, WASA projects that it
    will need to raise its rates by 5 to 7 percent annually, due primarily
    to infrastructure upgrade and replacement needs.
        In addition, WASA has an asset management plan to ensure capital is
    available for future upgrades, and, like most large water systems, the
    authority complies with the general accounting standards for State and
    local government known as GASB 34.
        These concepts are nothing new to metropolitan water systems.
    Maintaining our bond ratings and accessing capital in open market
    necessitate our adherence to these good practices.
        For these reasons, AMWA applauds the sponsors of S. 1961 for
    highlighting them, and AMWA encourages the subcommittee to maintain
    these best practices as ideals and provide the opportunity for
    utilities that have not yet adopted them to do so. There are a wide
    variety of equally reasonable approaches to defining the full cost of
    service and responsible asset management, and these areas are not in
    the realm of State environmental agencies or the U.S. EPA, both of
    which would have to develop rules or guidance and criteria for
    enforcement and compliance. Rate design is a particularly complex
    issue. For instance, consider the possibility that charging the full
    cost of service, covering all Federal and State regulations and
    replacement of aging infrastructure, could put rates far beyond U.S.
    EPA's affordability criteria.
        AMWA urges the subcommittee to avoid a situation in which the
    States or U.S. EPA enter the domain of local government and attempt to
    reinvent the wheel. Instead, industry organizations have many years of
    experience in this area and could be relied upon to provide technical
    and educational service to those utilities that have not adopted the
    practices. Let's not discard what responsible water agencies have
    already accomplished and create a layer of bureaucracy that could make
    applying for SRF assistance too cumbersome, thus undermining the
    purpose of the program.

                   CONSULTATION WITH STATE PLANNING AGENCIES

        AMWA appreciates S. 1961 highlighting the importance of
    coordinating planning decisions with relevant State planning agencies,
    but the association is concerned that a Federal requirement to consult
    these agencies may be burdensome or may intrude on the domain of local
    government. Metropolitan water agencies are naturally a part of local
    land use planning efforts, and consulting and coordinating with the
    appropriate bodies is standard practice.

           CONSOLIDATION, PARTNERSHIPS AND NONSTRUCTURAL ALTERNATIVES

        AMWA applauds the bill's sponsors for emphasizing the importance of
    creative approaches to managing a water utility by encouraging
    consolidation, partnerships, and adoption of nonstructural
    alternatives. Many water systems are already considering various
    approaches to regional water management and it is important that these
    types of arrangements be evaluated and supported.
        An excellent example is the Contra Costa Water District, a
    metropolitan system in California. Contra Costa is working with other
    local water entities in a variety of partnerships, ranging from
    providing less costly water supplies to cooperation in obtaining new
    supplies and developing needed infrastructure. One Contra Costa
    partnership with a local water system will save more than $7 million
    over the cost of separate solutions. Another Contra Costa partnership,
    involving three agencies, provided an alternative water supply that
    will save up to $13 million. In a third, 10 water and sanitation
    agencies joined to conduct a water supply and infrastructure study that
    focused on the region, thereby providing a more beneficial plan for the
    region as a whole.
        Rather than require consideration of alternative approaches as part
    of a loan application process, the SRF should provide financial
    incentives in the form of grants or loan forgiveness for those drinking
    water systems that develop alternative arrangements that provide more
    effective and efficient management of local resources. In particular,
    financial incentives should be provided to those drinking water systems
    that agree to partner with small systems facing compliance problems.

                          PUBLIC-PRIVATE PARTNERSHIPS

        Among the partnerships water systems would be required to consider
    under S. 1961 are public-private partnerships. These could include
    design-build solutions, contract management or other forms of
    privatization.
        Whether a water agency specifically considers public-private
    partnerships should remain at the discretion of local government,
    because local factors will dictate whether the partnership is in the
    interest of the consumers. Therefore, the association urges the
    subcommittee to look into public-private partnerships more closely
    before so strongly endorsing them. Privatization can be a very
    contentious issue in communities and worth a full exploration before
    legislated by Congress.
        Privatization experts have identified some of the issues that need
    further exploration. Among them are those surrounding accountability
    and the blurring of roles and responsibilities. For example, who is
    responsible for complying with environmental regulations, resolving
    service complaints and planning to meet future needs.\2\ Who pays if
    the private partner fails? If the private partner takes on more
    liability than it can afford, who's responsible when something goes
    wrong?
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        \2\ Dr. Janice Beecher, Beecher Policy Research, Public Works
    Financing, November 2000.
    ---------------------------------------------------------------------------
        Another issue that has recently emerged is a concern about the
    implications of international trade agreements on domestic
    privatization since four of the major companies involved in the U.S.
    water market are located in other countries. For example, once a
    municipality contracts with a foreign provider, can that municipality
    withdraw from the agreement? What impact could the General Agreement on
    Trade in Services (GATS) and the authority of the World Trade
    Organization (WTO) have on future contracts?
        Members of the subcommittee, AMWA is not here today to oppose
    private-public partnerships. Many drinking water utilities have entered
    into such arrangements for a variety of purposes. It is another matter,
    however, to sanction these arrangements and make consideration of
    public-private partnerships a requirement in Federal law.
        AMWA is simply urging the subcommittee to look into public-private
    partnerships more closely before endorsing them. Legislating
    privatization may not be in the public interest.

                            PROCUREMENT REQUIREMENTS

        Section 205 of the bill proposes imposing on drinking water
    agencies procurement provisions that were abandoned in the Clean Water
    Act when the Clean Water SRF program was adopted. The requirements were
    abandoned because they encumbered both State agencies and local
    government, overrode State and local procurement laws and created many
    disputes. The same would hold true for today, and AMWA urges the
    subcommittee to drop those provisions from the bill.

                 RATE STUDY AND WATER RESOURCE PLANNING STUDIES

        Among the provisions of Title III is a study on rates,
    affordability and how to define disadvantaged communities. Rate setting
    is a very difficult process and many water systems will appreciate
    assistance. Information on determining affordability and disadvantaged
    communities will be very beneficial, too. AMWA believes that U.S. EPA's
    current affordability criteria in many States does not fully capture
    the conditions that create disadvantaged communities. Most States
    determine whether a community is disadvantaged by looking at median
    household income and, sometimes, water rates. A more well-rounded
    analysis would consider additional facts such as: the number of people
    living below the poverty level, inflation and the loss of a tax base.
        Title IV contains provisions for a study (and periodic update) of
    the nation's water resources. The study and the updates will provide a
    wealth of information that will help Federal, State and local
    government make well-informed decisions. We applaud the sponsors'
    appreciation of water resource shortages.
        Again, thank you for introducing the Water Investment Act of 2002
    and for the opportunity to provide testimony on it.

                                   __________
        Statement of Paul Pinault, Executive Director, Narragansett Bay
       Commission on Behalf of the Association of Metropolitan Sewerage
                                Agencies (AMSA)

                                  INTRODUCTION

        Good morning Chairman Graham, Senator Crapo and members of the
    Subcommittee, my name is Paul Pinault. I am Executive Director of the
    Narragansett Bay Commission in Providence, Rhode Island and Vice
    President of the Association of Metropolitan Sewerage Agencies (AMSA).
    AMSA represents more than 270 publicly owned treatment works (POTWs)
    across the country. AMSA's members treat more than 18 billion gallons
    of wastewater each day and service the majority of the U.S. sewered
    population.
        On behalf of AMSA and the Narragansett Bay Commission, I thank you
    and your colleagues for introducing S. 1961, the Water Investment Act
    of 2002, and for holding this hearing. Like you, AMSA and its members
    are committed to one very serious and important goal--commemorating
    this year's 30th Anniversary of the Clean Water Act by passage of a
    meaningful funding bill for our nation's core water and wastewater
    infrastructure. This bill should:
         Focus on core infrastructure needs, including repair and
    replacement of aging pipes and facilities;
         Fully fund the documented water infrastructure funding
    needs at an authorized level of $57 billion over 5 years through a
    combination of grant and loan funding options;
         Streamline State funding procedures; and
         Invest in 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.
        The Senate during hearings last year laid the foundation necessary
    to introduce S. 1961 by reinforcing the need to reinstate a long-term
    financial partnership between the Federal Government, States, and
    communities, which is essential to achieve our nation's water quality
    goals. Water quality should be a priority at every level of government,
    and America's municipalities should not be left alone to face the
    challenge of providing clean and safe water to every citizen. Existing
    and new regulatory requirements continue to strain local budgets,
    including the tremendous expenses needed to comply with total maximum
    daily loads (TMDLs), and combined sewer (CSO) and sanitary sewer (SSO)
    overflow programs and requirements. The events of September 11, 2001
    added to these already tremendous operating costs by requiring
    expensive facility security upgrades. The reality is that without a
    significant fiscal partnership that includes long-term Federal
    participation to meet these core infrastructure challenges, we will see
    a continued and devastating decline in both our national wastewater
    treatment and collection systems and the nation's public health and
    environmental well being.
        S. 1961 addresses two essential issues at the heart of the water
    infrastructure matter--the vast dollars needed to ensure the continued
    viability of our water systems, and the efficiency of our wastewater
    treatment systems. However, many of the bill's provisions send a
    troubling message to all of us in the wastewater treatment community.
    They suggest that the Federal Government is not with us for the long
    haul, that Congress does not have confidence in our management skills
    and believes we are not charging Americans enough for their water, and
    that the States and the U.S. Environmental Protection Agency (EPA) need
    to micromanage our operations. The provisions of S. 1961 suggest that
    after this bill's infusion of Federal funds, we will once again be left
    on our own. The reality, however, is that even with Congress'
    appropriation of Federal infrastructure funds at the WIN recommended
    level of $57 billion over 5 years, local water rates will continue to
    rise and local rate payers will still assume between 85 and 90 percent
    of infrastructure costs.
        Accordingly, I now would like to provide the Subcommittee with
    AMSA's and my perspective on these issues as they are addressed in the
    bill.

                             INFRASTRUCTURE FUNDING

        S. 1961 comes part way toward addressing the true, significant
    funding gap addressed by so many sources, including EPA, the General
    Accounting Office (GAO), and the Water Infrastructure Network (WIN).
    The bill authorizes $20 billion over 5 years for the Clean Water SRF
    and $15 billion over the same period of time for the Drinking Water
    SRF. This authorization is an important and significant step toward
    bridging the funding gap. However, S. 1961 falls short of the WIN-
    recommended $57 billion over the next 5 years needed to truly address
    core infrastructure investments. We urge the Subcommittee to amend the
    bill to fully fund both SRFs at the WIN recommended levels. Our focus
    on core infrastructure funding leads us also to urge that the
    Subcommittee add to the bill's Section 2 ``Purposes'' the following
    additional issue--``to recognize the national, environmental and public
    health importance of maintaining our nation's water and wastewater
    infrastructure.''
        We also recommend that the Subcommittee add to S. 1961 a provision
    to make grant funding available to all communities. Only grant funding
    in significant amounts provides sufficient resources and incentives to
    gain local support for increasing utility rates to pay for new
    regulatory costs and the costs of replacing or rehabilitating aging
    infrastructure. If there is any doubt regarding whether water
    infrastructure grants are in fact an essential part of addressing the
    significant core infrastructure needs of our nation's communities, one
    need look no further than the fiscal year 2002 VA-HUD appropriations
    bill for EPA. In this bill, Congress approved direct grants for 337
    core water infrastructure projects totaling nearly $344 million to
    communities across the country. The fact is that grants are, and always
    have been, a necessary part of a real solution to our local
    infrastructure needs. Without a grant component specifically targeted
    to address core infrastructure concerns, S. 1961 will not succeed in
    addressing the most critical of our communities' investment needs.
      srf payment terms and reservation of srf funds for specific purposes
        S. 1961 offers ``disadvantaged communities,'' as defined by their
    States, up to 30 years to fully amortize a SRF loan. AMSA encourages
    the Subcommittee to amend the bill to allow all communities to take
    advantage of a 30-year repayment schedule or to choose repayment ``over
    the life of the project.'' Longer repayment terms for all communities
    are an essential way to add flexibility to the SRF program, and an
    important way to achieve the bill's stated purpose of ``maximizing use
    of Federal funds.''
        S. 1961 also allows up to 15 percent of SRF funds to be used for
    additional subsidization for all communities so long as the funds are
    ``directed through the user charge rate system to disadvantaged users
    within the residential user class of the community.'' Title I, Sec.
    103(c)(8)(A)-(B). Title I, Section 103(e)(2) further provides that
    States can direct up to 30 percent of SRF loans to:
         Fund the development of ``technical, managerial, and
    financial capacity'' and asset management plans (Sec. 103(c)(7)) in all
    communities; and
         ``Provide additional subsidization (including forgiveness
    of principal) to a disadvantaged community, or to a community that the
    State expects to become a disadvantaged community as the result of a
    proposed project'' (Sec. 103(c)(9)).
        We address the bill's asset management provisions in the next
    section. As to disadvantaged communities, we understand the
    Subcommittee's desire to ensure that low-income and disadvantaged
    persons and localities are given a variety of flexible ways to afford
    water service and finance core infrastructure upgrades. In fact, many
    AMSA members have these systems in place. In addition, local support
    systems in the form of third parties such as churches, community
    service organizations, and other organizations provide direct
    assistance to water users. The reality is, however, that many local
    rate setting and billing methods do not give POTWs the ability to
    target subsidization to individual ratepayers as S. 1961 directs.
        Further, we are concerned that the bill's allowance of a total of
    up to 45 percent of the already limited SRF dollars to be directed to
    low income users within communities, disadvantaged communities, and for
    the development of asset management plans will seriously jeopardize the
    availability of adequate funds for core critical infrastructure
    projects. We urge the Subcommittee to delete these requirements, and
    instead express the sense of Congress that SRF funds should be directed
    as much as possible to needy communities, and that Congress expects the
    States will carry out this responsibility as they review and prioritize
    SRF fund applications.

            EFFICIENCY AND STABILITY OF WASTEWATER TREATMENT SYSTEMS

        S. 1961 creates several new requirements for communities to receive
    SRF loans. AMSA is seriously concerned that these provisions will only
    slow down and hinder the SRF process, rather than streamline the fund
    as the bill's ``Purposes'' intend, and as many stakeholders have
    recommended over the years.

    Demonstration of Technical, Managerial, and Financial Capacity,
            Including Asset Management
        One new requirement in S. 1961 is that within 3 years, each POTW
    receiving ``significant'' SRF assistance--we note this is an undefined
    term--must demonstrate ``adequate technical, managerial, and financial
    capacity, including the establishment and implementation of an asset
    management plan'' to receive the funds. Title I, Sec. 103(i)(5). States
    are given 3 years to implement a detailed strategy to assist treatment
    works in attaining and maintaining such technical, managerial,
    operations, maintenance, and capital investments, and meeting and
    sustaining compliance with Federal and State laws. Sec. 103(i)(2)(A)-
    (B). States with inadequate strategies would lose 20 percent of their
    SRF funds within 1 year, and significant future funding if the strategy
    remains unacceptable to EPA. Sec. 103(i)(3)-(4). States must submit
    annual reports to EPA on their progress improving the technical,
    managerial, and financial capacity of POTWs.
        We are seriously concerned that this entire ``hammer'' approach,
    which would make States responsible for keeping the asset management
    ball rolling, combined with loss of SRF funding for both States and
    communities, will create an enormous disincentive to access the SRF at
    all. This is the complete opposite result contemplated in the bill's
    stated ``Purposes.'' The bottom line is that without any Federal
    requirements, the type of asset management S. 1961 contemplates is
    already happening. Asset management and long-term planning are an
    essential part of protecting our nation's water infrastructure
    investments. AMSA and its member agency operators are working
    consistently to improve the efficiency of their operations. In fact,
    the AMSA Index has been reporting significant reductions in operations
    and maintenance costs since 1996. In addition, AMSA just released a
    comprehensive asset management handbook to POTWs across the country,
    and we are holding workshops throughout the year--including later this
    week--to train hundreds of facility managers in asset management
    techniques. The asset management plan outlined in the bill, including
    the mandate to develop an asset inventory, useful life projection, and
    an optimal schedule of capital and maintenance expenditures to sustain
    performance objectives, are precisely the techniques advanced in AMSA's
    handbook and workshops. In addition to knowing that asset management is
    the right way to manage a facility and its infrastructure assets, the
    legal requirements of Government Accounting Standards Board Statement
    34 (GASB 34) are requiring cities across the country to document and
    discuss in detail the condition of their major infrastructure assets.
        Let us not be lulled into believing that good management can repair
    the aging infrastructure of the past. Although extremely important,
    good management does not provide the bricks, mortar, concrete, and pipe
    to build and maintain a sewer system. And this is where S. 1961 must
    focus--on giving communities the funds they need to make their core
    infrastructure investments. We recommend that the Subcommittee remove
    these asset management requirements, and instead, revise the
    congressional statement of policy in the bill to express the sense of
    Congress that asset management is essential and strongly encouraged. We
    urge the Subcommittee to recognize that making asset management a
    prerequisite for SRF funds will have the effect of denying communities
    the very funds they need to fix their core infrastructure.
    Coordination with Local Land Use and Transportation Planning
        Another new requirement in S. 1961 is that States must ensure that
    SRF applicants consult and coordinate with local land use plans,
    regional transportation improvement and long-range transportation
    plans, and watershed plans. Title I, Sec. 103(e)(2). This type of
    coordination is already occurring across the Nation, and in fact,
    already is required by many SRFs, making this provision of the bill
    duplicative and potentially confusing. In fact, the State and regional
    clearing house process long-implemented under the Demonstration Cities
    and Metropolitan Development Act of 1968 and OMB Circular A-102 already
    provides sufficient local coordination in the areas contemplated in S.
    1961. For these reasons, we recommend that the Subcommittee remove this
    requirement from the bill.

    Consolidation of Management Functions; Rates Reflecting ``Actual Cost
            of Service''
        A third new requirement in S. 1961 is that communities may only
    receive SRF funding if they have considered ``consolidating management
    functions or ownership with another facility; [and] forming public-
    private partnerships or other cooperative partnerships.'' Title I, Sec.
    103(j)(1). A fourth new requirement is that the community must have in
    effect ``a plan to achieve, within a reasonable period of time, a rate
    structure that to the maximum extent practicable . . . reflects the
    actual cost of service provided by the recipient'' as well as an asset
    management plan. Sec. 103(j)(2). These provisions would introduce an
    inappropriate level of Federal and State oversight into the setting of
    local wastewater rates and the management of local utilities--areas in
    which they do not have sufficient expertise--and will deter communities
    from applying for the very SRF funds the bill intends them to receive
    more easily and directly. The subjective nature of the wording in these
    provisions only causes us greater concern. As a result, we strongly
    recommend they be deleted.
        Let me be clear--AMSA members are committed to supporting our
    operations and capital needs through our rates. In fact, most AMSA
    members operate as an authority or division of government with tight
    enterprise accounting procedures, and already recover full costs of
    service, including a payment to the underlying government for
    ``services rendered'' or ``in lieu of taxes.'' AMSA's own triennial
    financial survey of our industry, which we have provided to this
    Subcommittee, supports this statement. Most AMSA members' rates also
    address capital replacement funds to the extent they are identified.
    While some replacement costs and future regulatory requirements may not
    be typically captured in the traditional capital replacement programs,
    POTWs are working to fine tune their projections every day. In
    addition, we regularly explore new ways of doing business, including
    consolidating management functions or ownership with another facility,
    and forming public-private partnerships or other cooperative
    partnerships. Where these partnerships and business structures make
    sense for a locality, they are pursued. However, these decisions should
    be made at the local level, and not be legislated by the Federal
    Government as a requirement for a community to receive SRF funds.

                  INNOVATIVE TECHNOLOGY/DEMONSTRATION PROJECTS

        For many years, AMSA and WIN have supported the addition of
    provisions that will promote investment in 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. Title III, Section 302 of the
    bill establishes a demonstration program for water quality enhancement
    and management. We urge the Subcommittee to increase the $100,000,000
    authorized for this important initiative, and to expand the types of
    projects that would be eligible for the program.
          nas rate, affordability, and disadvantaged communities study
        We also recommend removal of S. 1961's provision at Title III,
    Section 303 for a National Academy of Sciences (NAS) study of public
    drinking and wastewater treatment system rates, affordability, and
    disadvantaged communities. The study would, among other things:
         Assess whether rates adequately address the cost of
    service and infrastructure replacement needs;
         Recommend best practices to establish rate structures
    addressing the ``true cost of service'' and the needs of disadvantaged
    communities and individuals;
         Evaluate existing standards of affordability;
         Describe how a ``disadvantaged'' community is determined
    in various parts of the country; and
         Assess how various factors affect whether a community is
    considered ``disadvantaged.''
        AMSA believes the answers to many of these questions already exist
    and render the study unnecessary. We also are concerned that S. 1961
    requires POTWs to make rate structure assurances, and the States to
    define ``disadvantaged'' through notice and comment rulemaking, well
    before this NAS study would be complete and its results examined. AMSA
    also does not believe it is the best use of the NAS' expertise to study
    topics that not only have been studied by academics and social
    scientists across the Nation for many years, but also that are as
    locally driven and diverse as these issues.

                     SUMMARY OF AMSA'S KEY RECOMMENDATIONS

        AMSA is pleased to provide the following summary of our recommended
    revisions to S. 1961:
         Fully fund the documented water infrastructure funding
    needs at an authorized level of $57 billion over 5 years using a
    combination of grants and loans, consistent with the WIN Report;
         Focus on core infrastructure needs;
         Recognize the national, environmental and public health
    importance of maintaining our nation's water and wastewater
    infrastructure;
         Allow all communities to take advantage of a 30-year or
    ``life of the project'' repayment schedule;
         Remove provisions allowing up to 45 percent of SRF dollars
    to be directed toward assistance to disadvantaged communities, low-
    income individuals, and asset management work. Instead, express the
    sense of Congress that SRF funds should be directed to needy
    communities and individuals in the States' discretion as they review
    and prioritize SRF fund applications, and that municipal asset
    management is an essential activity for which SRF funds may be used;
         Add provisions to truly streamline State funding
    procedures consistent with the bill's stated purposes, and to ensure
    the swiftest possible fund allocations for local infrastructure needs;
         Remove provisions making asset management a prerequisite
    for SRF funds and instead, include in the congressional statement of
    policy that asset management is encouraged;
         Remove provisions that introduce an inappropriate Federal
    and State role in the setting of local wastewater rates, utility
    partnerships, and land use planning;
         Increase the $100,000,000 authorization for the
    demonstration program for water quality enhancement and management, and
    expand the types of projects eligible for this program; and
         Remove the provision for a National Academy of Sciences
    study on public drinking and wastewater treatment system rates and
    factors creating disadvantaged communities.

                                   CONCLUSION

        The Water Investment Act of 2002 is an important first step toward
    reaching the $57 billion over 5 years needed to address core water
    infrastructure projects. The needs of communities across the Nation are
    not being met by EPA's current SRF program. AMSA believes that S. 1961
    should be amended to streamline SRF requirements and to direct funds to
    support the core needs of our industry--infrastructure repair and
    replacement, and compliance with new and forthcoming regulatory
    requirements.
        Wastewater agency executives like myself face our environmental
    challenges each day. Wastewater treatment plants operate 24/7 to
    provide secure systems, upgrade and replace our treatment plants and
    pipes, control sewer overflows and stormwater, protect wetlands, manage
    coastal areas, and meet a host of other water quality responsibilities.
    Simply stated, a lasting, long-term fiscal partnership with the Federal
    Government and the States is the answer to our call for assistance with
    this tremendous responsibility.
        Chairman Graham, we look forward to working with you to modify S.
    1961 to reflect our suggestions and those of other stakeholders in the
    coming weeks. Thank you for the opportunity to present AMSA's
    perspective on the bill. At this time, I will be happy to answer any
    questions.

                                   __________
       Statement of Elmer Ronnebaum, General Manager, Kansas Rural Water
              Association for the National Rural Water Association

        Good afternoon. Mr. Chairman and Members of the Subcommittee, thank
    you for the opportunity to be here today to discuss small communities
    and their water funding concerns.
        My name is Elmer Ronnebaum. I am General Manager of the Kansas
    Rural Water Association. We have more than 650 small community members
    that operate water utilities and most operate wastewater utilities.
    Kansas Rural Water Association is governed by the local communities.
    The mission of the Association is to improve and protect water quality
    through grassroots technical assistance of utility operation and
    maintenance and training. Every community wants to provide the best
    possible water quality to their consumers. Rural Water provides the
    resources and training to achieve this objective in a common sense,
    hands-on manner systems can utilize. I have personally worked with
    hundreds of small communities in Kansas on problems ranging from
    securing SRF or other funding, to water supply, to explaining to a new
    operator or city council member what the Safe Drinking Water Act, the
    Clean Water Act, and the Federal Register are and what they require.
    Kansas Rural Water is similar to the State rural water association in
    each of your States. I am honored to speak on their behalf today.
        On behalf of all small and rural communities, I would like to thank
    the Committee for your efforts to assist small communities with
    compliance with the Federal Clean Water Act and Safe Drinking Water Act
    and to provide the safe drinking water and highest quality of effluent
    possible. Rural Water looks forward to working with you to move these
    ideas into laws and actual dollars in the field.
        The five principle dynamics of small communities that we believe
    need to be recognized in discussing funding policies are:
         One, that small communities make up the overwhelming
    percentage of water and wastewater utilities--over ninety percent of
    regulated communities.
         Two, that due to a lack of economies of scale, small town
    consumers often pay high water and sewer rates. Water bills of more
    than $50 for 5000 gallons of water are not uncommon in rural areas.
    This dynamic often results in very high compliance costs per household
    in rural systems. Simultaneously, the rural areas have a greater
    percentage of the nation's poor and a lower median household income.
    This results in very high compliance cost per household in rural
    systems coupled with a lesser ability to pay.
         Three, small systems often have limited technical and
    administrative resources to deal with compliance and navigate through
    funding programs. In the smallest systems, one person may run both the
    water and sewer system and in some cases communities can only afford a
    part-time or volunteer operator. This lack of resources makes small
    systems a challenge for State agencies--the more complicated we make
    funding programs the more likely the small communities, which need the
    funds most, will not be able to participate.
         Four, small community water systems have been the
    historical solution to rural families living without water. Small water
    systems were ONLY started to improve the public health. The result is
    dramatic improvements in public health by providing an alternative for
    families from gathering their drinking water from untreated streams,
    shallow and contaminated wells, roof collection and cisterns. In 2001,
    there are hundreds of thousands of rural families that still don't have
    piped water in their homes. Millions of rural families still have water
    delivered to their homes. According to the USDA at least 2.2 million
    rural Americans live with critical quality and accessibility problems
    with their drinking water, including an estimated 730,000 people who
    have no running water in their homes. About five million more rural
    residents are affected by less critical, but still significant, water
    problems.
         Five, consolidation and privatization are limited
    solutions for small systems. Consolidation can work in some situations,
    but only for a small portion of small systems and only when the systems
    are in close proximity and the economics make sense. Rural Water is the
    lead proponent of consolidation when it makes sense (when it results in
    better service for the consumer) and we have consolidated numerous
    communities in all the States. Consolidation and regionalization that
    is in the consumers' best interest will happen naturally at the local
    level regardless of Federal policy on issue. Federal policy that favors
    consolidation over the locally preferred solution is a step in the
    wrong direction for consumers (i.e. 42 U.S.C. Sec. 300g-3(h)
    Consolidation Incentive). Privatization is rarely a less costly
    solution for very small communities. In the very small communities it
    is, perhaps, more common to see private systems being transferred to
    public bodies so they can obtain better financing and local
    governmental control. The missions of private water and rural water
    systems are fundamentally different, the reason being the lack of
    profitability in sparse rural populations.
        In 1996, another Senator from Idaho, Dirk Kempthorne, made a
    significant policy change in the Safe Drinking Water Act. At every
    opportunity, he ameliorated the Act by including as much flexibility as
    possible. Nowhere is this more apparent than in the State revolving
    fund section. Under the Kempthorne approach States were given all sorts
    of discretion on how to spend the money to meet their local priorities.
    For example, a State can make grants, can fund set-asides, expand
    technical assistance efforts, create new prevention programs, increase
    State staff, or choose to do none of these and retain the traditional
    low interest loan focus.
        Small communities' message here today is that this was a monumental
    step in the right direction. This flexibility has made State SRFs
    better and more responsive to nearly every stakeholder. Small systems
    have seen a level of inclusion and benefits from the drinking water SRF
    that we could not imagine based on our experience with the wastewater
    SRF that does not include these flexible provisions.
        Some State rural water associations have not been impressed with
    the way their State has chosen to utilize their discretion. Some States
    have steered funds to larger systems with less urgent needs, in their
    opinion, to make fund administration easy and keep bond ratings high.
    However, this is not a complaint that is appropriate for this
    committee. Those concerns are best handled in the States and each year
    locals have a better chance to improve their own State's program.
        My State of Kansas is an exemplary case for success in SRF
    implementation. Many of our small systems are receiving large funding
    packages from the SRF. The State has made small system funding a
    priority in Kansas and we have expanded technical assistance to small
    systems. Assistance is also provided to help small systems through the
    funding process. The Kansas application for drinking water funding is
    streamlined and simple enough for a small system operator (with too
    little time and too much to do) to complete.
        Also in Kansas, Mr. Kempthorne's creative experiment in policy
    ignited innovation in governmental programs. Our State's drinking water
    administration has exploited the provisions in the SRF to invent one of
    the best local-State partnerships in all of government. As you consider
    crafting new funding legislation, small and rural communities urge you
    to include a few key provisions dealing with flexibility and targeting
    of funding that have made the drinking water program more responsive to
    small systems.
        Mr. Chairman, I would like to summarize the key elements for small
    and rural communities in modifying the wastewater the drinking water
    SRFs as follows: Make the wastewater fund more like the drinking water
    fund and put more money in both.
        We urge you to include three legislative provisions in both water
    and wastewater that would ensure communities in the greatest public
    health and economic need receive prioritization in funding programs.
    One, the communities exhibiting the greatest need should receive
    funding first. Second, programs should not be limited to making loans
    because in many situations, small communities will not have the ability
    to pay back a loan--even with very low interest rates. Third, a minimum
    portion of the funds should be set-aside for small systems. This
    ensures that a State must set up a process for dealing with small
    communities. Once established, local pressures and priorities will
    determine the actual portion directed to small systems, which we expect
    will often be greater than the minimum prescribed. All of these
    provisions were included in some manner in the drinking water SRF--
    balancing the Federal priorities with the State's flexibility to tailor
    individual programs and discretion on implementation of each these
    programs.
        The SDWA included the following three provisions to ensure that
    funds would result in the greatest advancement in public health/
    environmental protection and be used to assist the consumer with the
    most economic needs.
        (1) A small system set-aside like the drinking water SRF (this
    serves as an incentive to create a useful process for outreach to small
    systems). Section 1452 (a)(2) Use of Funds.--Of the amount credited to
    any State loan fund established under this section in any fiscal year,
    15 percent shall be available solely for providing loan assistance to
    public water systems which regularly serve fewer than 10,000 persons to
    the extent such funds can be obligated for eligible projects of public
    water systems.
        (2) A requirement to target systems most in need like the drinking
    water SRF. Section 1452 (b)(3)(A) In General.--An intended use plan
    shall provide, to the maximum extent practicable, that priority for the
    use of funds be given to projects that--(i) address the most serious
    risk to human health; (ii) are necessary to ensure compliance with the
    requirements of this title (including requirements for filtration); and
    (iii) assist systems most in need on a per household basis according to
    State affordability criteria.
        (3) Grants (some type of mechanism to make funding useful for
    hardship communities). Section 1452 (d) Assistance for Disadvantaged
    Communities (1) Loan Subsidy.--Notwithstanding any other provision of
    this section, in any case in which the State makes a loan pursuant to
    subsection (a)(2) to a disadvantaged community or to a community that
    the State expects to become a disadvantaged community as the result of
    a proposed project, the State may provide additional subsidization
    (including forgiveness of principal). (2) Total Amount of Subsidies.--
    For each fiscal year, the total amount of loan subsidies made by a
    State pursuant to paragraph (1) may not exceed 30 percent of the amount
    of the capitalization grant received by the State for the year. (3)
    Definition of Disadvantaged Community.--In this subsection, the term
    `disadvantaged community' means the service area of a public water
    system that meets affordability criteria established after public
    review and comment by the State in which the public water system is
    located. The Administrator may publish information to assist States in
    establishing affordability criteria.
        Our specific comments on Senate Bill 1961 include:
        1. We appreciate that the bill did not include new priorities for
    funding, set-asides for various size systems, and changes in the
    disadvantage community determination. We have been told that large
    system groups believe too high a percentage of the present drinking
    water SRF funding is going to small communities. However, a significant
    portion of the funding should flow toward small systems because,
    generally, they need it more. Rates are often much higher per household
    in small communities--often from compliance requirements. EPA rules on
    the horizon will likely triple water rates in rural systems. Also,
    rural communities often have lower median household incomes. The CWA
    and SDWA axiom in rural areas is: much higher cost per household with
    much lower income. No large system is facing cost increases on a per
    household basis comparable to what is facing small systems. It only
    makes sense that federally subsidized funding would flow toward the
    communities with the greatest need--that is to small systems.
        2. We appreciate that the bill retains the three SDWA provisions
    (mentioned above) that ensure funding results in the greatest
    advancement in public health/environmental protection and be used to
    assist the consumer with the most economic need. This keeps the money
    tied to the regulations. Funds should be used for the greatest health
    protection, which should be what the regulations are targeting. To
    target funding for issues outside of the scope of the regulations would
    infer that the regulations are not covering the greatest health risks.
        3. We urge the Committee to include the three SDWA provisions [sec.
    1452 (b)(3)(A)--above] in wastewater program in a comparable form. This
    will ensure the more critical projects with the greatest need receive
    priority.
        4. We urge the Committee to include the same set-aside amounts for
    the wastewater and drinking water programs; 15 percent minimum for
    small systems as like the drinking water program and 30 percent
    disadvantaged community subsidy like in the drinking water programs.
    This parity will ensure States have the tools to help the systems most
    in need and will be especially important if the two funds have transfer
    authority between them.
        5. Corporate water systems should not be eligible for State
    revolving funding. Taxpayer subsidies should be prohibited from profit
    generating companies or companies paying profits for shareholders/
    investors. Private companies argue that they have to comply with the
    same regulations. However, they voluntarily chose to get into this
    ``business'' and compliance is not the over-riding principle that
    should be considered in this discussion. We believe that the
    distinction in mission between public and private is the core principal
    that should be considered. Private systems are in the business to
    maximize profit. Public water utilities were and are created to provide
    for public welfare (the reason why public water continues to expand to
    underserved and non-profitable populations). This is a significant
    difference. And while we believe that maximizing profit is a noble
    virtue and as American as safe water, we do not think that taxpayers
    should help the cause of privately owned systems. In addition, the
    needs of less affluent public water systems and families with no piped
    water dwarf the current SRF allocations. The State of Florida has a
    novel compromise to this issue. Florida limits SRF funds to private
    water systems less than 1,500 people--ensuring funds are limited to the
    class of private water systems that did not get into the business as a
    corporate enterprise. Also, this group of private systems could be
    included in the State's needs assessment which determines allocations
    under the bill.
        6. The bill includes many new requirements for applicants
    including: environmental, land use planning, capacity, actual cost of
    water, common industry practices, etc. We urge you to exercise caution
    for increasing demands on applicants as each new demand makes the
    process too complicated for small systems and therefore less
    attractive. We believe that the current review process is fully
    adequate to ensure repayment of loans, progressive environmental
    planning, and long-term capacity of applicants. Nationalizing policy
    industry practices and determining actual cost of water could lead to
    gold-plating of water utility practices which is not in the best
    interests of consumers.
        7. We urge the Committee to limit the ability of any portion of a
    water or wastewater system to be eligible for disadvantage type
    subsidies or other special treatment. To assist any portion of a system
    moves the effort from an environmental-public health program to a
    social program. If particular low-income consumers are having problems
    paying their water bills, we don't think the SRF should be used as the
    solution. That may be an issue for agencies other than the EPA. It is
    important to note that a State can determine a large system
    disadvantaged as well as a small system. Funding a portion of a system
    seems to be a way to skirt the current process which is working so well
    at prioritizing systems most in need. Also, this moves the SRF in a
    direction contrary to the CWA and the SDWA's regulatory structure which
    only applied on a system-by-system scope.
        8. We urge the Committee to consider including provisions guiding
    the percent of a project that can be used for engineering/consulting
    services on projects. USDA has such a provision [Part 1780-Water and
    Waste Loans and Grants, Sec. 1780.39(b) Professional services and
    contracts related to the facility]. In Kansas, our research shows that
    engineering fees are sometimes charged at twice as much in programs
    that don't have such guidance on engineering fees.
        9. It is not clear exactly what defines ``public-private''
    partnerships. This may be too ambiguous and means various things to
    various people--left open to EPA or State determinations may result in
    unintended consequences. Also, the States are doing a fine job of
    public outreach under the current rules. Before requiring more
    ``significant'' public outreach, we should first conclude the current
    is not working (which states and why would be useful information).
        10. The proposed wastewater program is limited to ``municipal''
    systems and privates. We urge you to consider opening it up to a
    variety of non-profit systems including districts and other quasi-
    governmental systems, which we believe was intended and is consistent
    with the drinking water programs. Many rural wastewater systems are not
    legally municipalities, but rather district or other non-profit
    utilities.
        11. We urge the Committee to consider allowing States the
    discretion to 30 years loans to any small community--not just to
    communities designated disadvantaged.
        The coming arsenic rule will increase the number of small systems
    facing funding challenges. Dozens of small systems in Kansas (thousands
    across all the States) will need funding to comply with the arsenic
    regulation.
        One municipality in Kansas that will be greatly affected by Arsenic
    Rule, established at 10 ppb, is the city of Atwood (population of
    1,300) surrounded by farmland and an agricultural economy.
        Past arsenic water quality results for the city of Atwood has shown
    a range of 12 to 18 ppb in the three currently used municipal wells.
    The proposed arsenic MCL of 10 ppb allows the City two general feasible
    options to attain the MCL. The community has an option to develop new
    well fields in the Ogallala formation located several miles from the
    community. However, while Ogallala formation generally provides better
    water quality and perhaps an arsenic concentration below the 10 ppb, it
    is a much more cemented and finer formation. This fine formation
    decreases production of wells. Thus to develop a sufficient municipal
    water supply, more area for wells is required since they must be a
    greater distance apart. The estimated cost of this option would be
    $2,200,000 based on a 5-mile transmission main with four wells to meet
    daily water demand. A second option available is treatment of the
    existing water supply sources.
        The city presently does not have a single point of entry into the
    distribution system. Each well is directly connected into the
    distribution system. All wells are located in separate areas of the
    existing system. Over 3,000 feet of distance exist between the two
    farthest wells. In order to implement a point of use treatment plant, a
    new dedicated transmission main would have to be constructed between
    the wells. Land and easements would have to be procured to build a
    treatment facility. Atwood's sulfate concentrations in the range of 90
    to 309 mg/L will affect treatment efficiencies in an ion exchange
    process requiring frequent regeneration. This creates higher operation
    and maintenance cost (O&M). The estimated treatment facility cost would
    range from $1,300,000 to $2,100,000 depending on the Best Available
    Technologies (BAT) selected. Atwood could experience a budget increase
    of $50,000 to $75,000 per year with the incorporation of a treatment
    plant. These budget increases are due to operation and personnel
    requirements. Special by-product disposal requirements could require
    more operation costs.
        In order to provide funding for capital construction and O&M
    assuming a 5 percent interest rate and 20-year loan period that
    corresponds with the life of a treatment facility with 700 connections,
    the monthly water rate would have to increase by $18 to $29 per
    connection. Again, please keep in mind this does not include the
    current water rate and upgrades currently necessary to keep the system
    in compliance. [Miller & Associates Consulting Engineers, P.C., McCook,
    NE 2001]
        This is a conservative estimate and does factor in all the costs
    for compliance. Rate increases on this type of a community could be
    devastating.
        However, Mr. Chairman, while no system will be in greater need for
    Federal assistance than Atwood, KS the challenge is how to craft a
    funding program that will work for those most in need. Cost estimates
    of the funding needed to sustain a healthy U.S. water supply are
    staggering. The Water Infrastructure Network, of which Rural Water is a
    member, estimates an $11 billion annually funding gap over the next 20
    years. This estimate is over 4 times the current combined Federal
    contribution in the USDA, EPA Drinking Water, and EPA Wastewater
    programs.
        Rural Water is not the type of organization that can present an
    accurate cost figure on the future need for funding. However, we can
    acknowledge the extreme shortfall in both EPA SRF and the USDA water
    programs, as indicators that the current needs are not being met. The
    USDA program, which is the core-funding program for small water and
    wastewater projects, is currently experiencing a $3.2 billion backlog.
    We believe this is the most accurate indicator of need because all of
    the systems in USDA's backlog have applied for funding. They have met
    the requirements of USDA's strict needs requirement (including lack of
    commercial funding availability and high ratios of median household
    income to water rates).
        In addition to this current need, EPA is proposing more
    regulations. Many of the regulations will force small towns to come up
    with millions in financing--many systems will be stressed to comply. I
    think it is significant to observe a new dynamic in EPA regulations:
    the regulation of naturally occurring contaminants and the regulations
    of operations and maintenance in utilities. The result of this new
    effort by EPA will be to greatly expand the number of systems forced
    into costly compliance with EPA rules. For example, very few systems
    were required to treat for EPA's previous rules on organic
    contaminants, many with anthropogenic origins. However, the forthcoming
    arsenic rule could capture as many as 4,000 communities; this will
    greatly drive the demand for additional funding resources. Upcoming EPA
    rules that may be expensive in thousands of rural communities include:
    standards for certification of operators, filter backwash, radon,
    surface water treatment rules, arsenic, disinfection byproducts,
    groundwater disinfection, etc.

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

                                  INTRODUCTION

        Good morning Mr. Chairman. I am Howard Neukrug, Director of the
    Office of Watersheds for the Philadelphia Water Department in
    Pennsylvania. The Philadelphia Water Department is a municipal water,
    wastewater and storm water utility serving over two million people in
    the Philadelphia metropolitan area. I serve as the Chair of the
    American Water Works Association (AWWA) Water Utility Council (WUC). I
    am here today on behalf of AWWA. AWWA appreciates the opportunity to
    present its views on S. 1961, Water Investment Act of 2002 and drinking
    water infrastructure needs.
        Founded in 1881, AWWA is the world's largest and oldest scientific
    and educational association representing drinking water supply
    professionals. The association's 57,000 members are comprised of
    administrators, utility operators, professional engineers, contractors,
    manufacturers, scientists, professors and health professionals. The
    association's membership includes over 4,300 utilities that provide
    over 80 percent of the nation's drinking water. AWWA and its members
    are dedicated to providing safe, reliable drinking water to the
    American people.
        AWWA utility members are regulated under the Safe Drinking Water
    Act (SDWA) and other statutes. AWWA believes few environmental
    activities are more important to the health of this country than
    assuring the protection of water supply sources, and the treatment,
    distribution and consumption of a safe, healthful and adequate supply
    of drinking water.
        AWWA and its members commend you for introducing S. 1961 to address
    the growing needs facing public water systems and their customers in
    the coming years. In previous testimony before this committee last year
    and in our report entitled Dawn of the Replacement Era: Reinvesting in
    Drinking Water Infrastructure, that we provided to all members of the
    Committee, AWWA called for a new partnership for investing in drinking
    water infrastructure. AWWA recommended changing and expanding the
    existing Drinking Water State Revolving Fund to significantly increase
    Federal funding for projects to repair, replace, or rehabilitate
    drinking water infrastructure to include the aging distribution pipes.
    We are pleased that many of our recommendations have been incorporated
    into S. 1961. We appreciate the time and consideration given to
    drinking water suppliers by the committee staff in the drafting of this
    bill. AWWA looks forward to working with the committee to continue
    making improvements and to see this bill passed and signed into law
    this year. In our testimony today, we will confine most of our specific
    comments to the Safe Drinking Water Modifications in Title II of the
    bill, with a general comment about wastewater funding issues.

       FEDERAL MANDATES AND THE CONTEXT FOR WATER AND WASTEWATER FUNDING
                                     ISSUES

        Both drinking water and wastewater utilities face enormously
    expensive Federal mandates that set the context for all other funding
    issues. The drinking water community faces a complex array of expensive
    new Federal requirements and new standards, including standards for
    arsenic, radon, disinfection byproducts, enhanced surface water
    treatment, and others. Wastewater utilities also face enormously
    expensive Federal mandates, such as those relating to Combined Sewer
    Overflows (CSO) and Sanitary Sewer Overflows (SSO). For both water and
    wastewater utilities, these needs significantly skew financing for
    other investments, including the replacement of aging pipes,
    appurtenances, and other infrastructure. Local ratepayers are often
    seriously challenged to pay for these mandates, and little, if any,
    room is left in the ratepayer's budget for other vital spending. In
    many cases, it appears that mandatory spending for clean water mandates
    has ``driven out'' the ability to raise rates for drinking water
    services.
        We believe that significant Federal assistance, including grants,
    is necessary and justified to help meet the cost of these very
    expensive Federal mandates on water and wastewater utilities, and to
    meet the costs of infrastructure repair and replacement that have been,
    in many cases, deferred because Federal mandates have consumed the
    ratepayer's budget.
        We would point out that, in the case of CSO and SSO mandates,
    Federal support for the cost of those requirements is not only
    justified in the community receiving Federal support, it also lowers
    costs for drinking water utilities downstream in the form of improved
    water quality. This is especially true in critical source water
    protection areas.

                              DWSRF AUTHORIZATIONS

        AWWA applauds the increase in authorizations for the Drinking Water
    State Revolving Fund (DWSRF) capitalization grants from the current $1
    billion per year to $6 billion per year in fiscal year 2007. This
    represents more than a threefold increase in total authorized funds
    above the current authorized levels for this period of time. We believe
    that this authorization marks a significant step by Congress toward
    assisting in the enormous challenge public water systems and their
    customers face in meeting Federal mandates and at the same time
    replacing aging distribution pipes in the coming years. As illustrated
    in AWWA's report entitled Dawn of the Replacement Era: Reinvesting in
    Drinking Water Infrastructure, the ``demographics'' of pipe replacement
    is real, it is big, and the bill is coming due soon. This challenge is
    exacerbated by population shifts and growth patterns over the years,
    economic conditions and the changed demographics of urban populations.
    While AWWA certainly appreciates the significant increase in Federal
    funding for the DWSRF, we must note that the authorization is a very
    small fraction of the $250 billion in infrastructure replacement needs
    identified by AWWA. And even if every penny of the funds in this bill
    is appropriated and every State gives out loan subsidies to the maximum
    extent allowed under the bill, Federal loan subsidies will amount to
    less than 4 percent of total spending by drinking water utilities over
    the coming 5 years. It is clear that the burden of paying for public
    water system improvements will remain overwhelmingly with utilities and
    their rate-paying customers.
        In recognition of these facts, we believe that, if the needs of
    older cities with large economically disadvantaged populations are to
    be met, an increase in the authorization is warranted. The Water
    Infrastructure Network has recommended an authorization of $57 billion
    over 5 years, and we ask you to consider that level of funding. We look
    forward to working with the committee to ensure that authorization
    levels will be adequate to address the needs of older cities with
    economically disadvantaged populations.

                           LARGE PUBLIC WATER SYSTEMS

        AWWA does not believe that S. 1961 adequately addresses the
    challenges presented by large urban public water systems and
    particularly those with declining and economically disadvantaged
    populations. In Section 203, the bill authorizes up to 15 percent of a
    State capitalization grant to be used for subsidizing the water bills
    of economically disadvantaged customers. AWWA believes that is a
    significant step forward for the Nation. However, during the short
    history of the DWSRF, large public water systems have not been
    receiving a fair share of SRF loans. According to EPA, States have made
    approximately 75 percent of all SRF loans to small communities. In per
    capita terms, assistance to very small communities has averaged over
    $400, while loans to large communities (with over 100,000 people) have
    averaged a little over $50 per capita.
        Committee staff has told AWWA that they believe that the overall
    increased authorization for the DWSRF will provide States the ability
    to provide assistance for more projects and thus be able to provide
    more assistance to large public water systems than was possible
    previously. AWWA is not convinced that the authorization levels in this
    bill are sufficient to ensure this will happen.
        Current law mandates that 15 percent of a State capitalization
    grant shall be reserved for small systems serving populations under
    10,000 to the extent that such funds can be obligated for eligible
    projects. AWWA supported that set-aside in 1996, to ensure that small
    systems could participate in the loan program. We did not anticipate
    that large systems would be left out of the program, relatively
    speaking, and there is no corresponding set-aside for large public
    water systems serving populations over 100,000. As noted, the bulk of
    DWSRF funding is going to small systems. To assure that systems of all
    sizes can participate in the SRF program, AWWA believes that a
    corresponding set-aside of 15 percent of a State capitalization grant
    should be reserved for public water systems serving a population of
    100,000 or more, assuming there are eligible project applications. This
    will ensure that large system can participate in the DWSRF program in
    all States.

                               ELIGIBLE PROJECTS

        Aging Infrastructure.--As mentioned in the introduction in the AWWA
    report entitled Dawn of the Replacement Era: Reinvesting in Drinking
    Water Infrastructure, AWWA recommended changing and expanding the
    existing Drinking Water State Revolving Fund to significantly increase
    Federal funding for projects to repair, replace, or rehabilitate
    drinking water infrastructure to include the aging distribution pipes.
    This, we believe should be the major purpose of the increased DWSRF
    authorizations. However, S. 1961 makes no mention of this purpose for
    the DWSRF. In discussions with committee staff, the staff notes that
    the U.S. Environmental Protection Agency (USEPA) has interpreted the
    current provisions of the Safe Drinking Water Act (SDWA) to authorize
    the use of DWSRF funding for the replacement and rehabilitation of
    aging distribution pipes as furthering the health protection objectives
    of the SDWA as authorized in Section 1452 of the Act. While this
    interpretation of the SDWA is welcome, it is not universally accepted.
    Nor does it signal EPA and the States that the Congress believes repair
    and replacement of aging infrastructure is an important priority. AWWA
    recommends that the DWSRF eligibility of projects for the replacement
    and rehabilitation of aging distribution system pipes and appurtenances
    be made explicit in the statute.
        Security Upgrades.--Since September 11, 2001, AWWA has been
    advocating for Federal assistance for public water systems to help pay
    for security upgrades to protect public water systems from terrorist
    attack. Since that time events have validated this concern, and water
    utilities are undertaking comprehensive vulnerability assessments and
    emergency planning to protect both water quality (for health
    protection) and water supply (for fire suppression and sanitation). Of
    note are documents found in the possession of al Queda terrorists in
    Afghanistan that could be used to help plan an attack on a drinking
    water utility. Security concerns thus represent a large, immediate, and
    unprecedented cost for public water systems. AWWA strongly recommends
    that bill make explicit the DWSRF eligibility of capital projects to
    address security concerns.
        In discussions with committee staff, staff notes that the U.S.
    Environmental Protection Agency (USEPA) has interpreted the current
    provisions of the Safe Drinking Water Act (SDWA) to authorize the use
    of DWSRF funding for security upgrades as furthering the health
    protection objectives of the SDWA as authorized in Section 1452 of the
    SDWA. While this interpretation of the SDWA is welcome, it rests on
    interpretation and is subject to change. Moreover, it does not signal
    that Congress believes capital projects to address security concerns
    should be priority projects for DWSRF funding. We strongly recommend
    that Congress send that signal to both EPA and the States.
        Source Water Protection.--We applaud the provisions of the bill
    that authorize the use of DWSRF moneys to support source water
    protection projects. It is increasingly important to consider source
    water protection as an integral part of utility resource planning, and
    to do so on a watershed basis. Many utilities have been in the
    forefront of doing this, and the ability to use DWSRF funds to support
    source water initiatives can be of significant assistance in those
    efforts.

                            ADDITIONAL SUBSIDIZATION

        AWWA endorses the intent of Section 203 concerning additional
    subsidization for disadvantaged users. AWWA believes this is a
    significant step forward to address the affordability of drinking water
    for economically disadvantaged drinking water customers. AWWA remains
    committed to the principle that utility operations should be fully
    supported by rates in the long run. This provision will enable a public
    water system to charge higher rates if they are appropriate, without
    placing an unacceptable burden on economically disadvantaged customers.
        However, we believe it is important to ensure maximum flexibility
    in how this provision is carried out. Many public water systems
    currently provide some form of rate subsidy for their economically
    disadvantaged customers. This is done in a variety of ways. AWWA wants
    to ensure that this flexibility remains, and that no public water
    system is mandated to create a bureaucracy to administer what is
    essentially a social welfare program that is beyond the capability and
    expertise of most public water systems. Many public water systems
    contract with a third party, such as a community service organization,
    to administer their rate subsidy programs. AWWA recommends that Section
    203 be amended to clarify that a public water system has flexibility in
    how to meet this requirement, including contracting with third party
    organizations.

                          NEW DWSRF LOAN REQUIREMENTS

        AWWA has recommended streamlining many of the requirements and
    procedures for obtaining loans from the DWRSF. With respect to the
    bill, we believe careful attention is required to strike an appropriate
    balance between Congress' desire to encourage certain behaviors at
    utilities, and the need to keep the SRF as unencumbered as possible by
    unproductive red tape. Congress or EPA should exempt certain types of
    projects or projects below a certain size threshhold from SRF red tape
    requirements that don't make sense. For example, under current law SRF
    funds may not be used for growth. In a project that is not directed at
    (and with certain very tight exceptions cannot even anticipate) growth,
    it is not clear why it makes sense to require consultation with
    regional transportation planners, etc. A requirement to do so simply
    makes the whole notion of SRF funding less attractive for that project,
    without advancing any reasonable social goals. Similarly, capital
    investments to improve the security of the nations' drinking water
    should be exempt from ``red tape'' to the maximum extent possible. We
    believe that Section 202 requires significant review with this in mind.
        Planning and Engineering Phase Requirements.--AWWA recommends
    deleting the requirements identified for consideration during the
    planning and engineering phase of SRF projects. These are inappropriate
    Federal requirements for a DWSRF loan. If a public water system is
    otherwise financially sound, can repay the loan, and can comply with
    applicable drinking water regulations, these requirements are
    irrelevant and an additional burden to obtaining a loan. The Federal
    requirement to consider consolidation, public-private partnerships and
    the use of non-structural alternatives or technologies is redundant to
    State requirements in most cases. AWWA believes that public-private
    partnerships are an appropriate utility management option; however,
    this is a local decision based on local circumstances. These
    requirements involve local planning and open the door for inappropriate
    Federal involvement in local decisions. These provisions add nothing to
    improving or streamlining the DWSRF and are an invitation to Federal
    one-size-fits-all requirements.
        Rate Structure Requirements.--AWWA remains committed to the
    principle that utilities should be self sustaining through their rates.
    In the long run, the objectives must be to manage the costs of
    replacing pipes and treatment plants and ensure financial
    sustainability through local rate structures. However, AWWA wishes to
    ensure that the provisions of S. 1961 do not lead to inappropriate
    Federal involvement in local rate setting. Particularly in light of the
    enormously expensive Federal mandates mentioned earlier, there are
    cases in which recovering the full cost of service through rates may
    not be possible in the short term at rates that are acceptable and
    affordable. We recommend that public water systems review their rates
    as a condition a DWSRF loan. After the National Academy of Sciences
    report on rates (as required in Section 303 of the bill) is published,
    USEPA should provide the report to States and drinking water utilities.
    AWWA would strongly oppose any requirement that would involve the
    Federal Government in reviewing or approving drinking water rates.
        Asset Management.--AWWA advocates that public water systems have an
    asset management plan as part of good utility management. However, it
    is important to ensure that the provisions of S. 1961 do not lead to
    Federal micro-management, such as review or approval of these asset
    management plans. One way to accomplish this is to make the provision a
    ``self certification'' requirement with no USEPA or State role in
    judging the method by which the asset management plan was developed or
    its adequacy.
        Local Planning Requirements.--AWWA believes that this provision
    requires clarification as to what is intended and how the provision
    would be implemented. It appears to only require consultation in
    ``appropriate'' circumstances but it's not clear who determines what is
    ``appropriate.'' Moreover, as noted above, many projects for which
    utilities might seek SRF support are not likely to be connected in any
    meaningful way to growth or open space considerations. At a minimum,
    those projects should be exempted, and for other projects, the
    requirement should be satisfied by a certification that utility has
    consulted with other local agencies as it deems appropriate.

                            COMPETITION REQUIREMENTS

        AWWA recommends that Section 205 concerning competition
    requirements be deleted from the bill. The provision appears to come
    from the old construction grants program of the Clean Water Act and has
    no place as a Federal mandate for a drinking water loan program. This
    provision that governs utility procurement would get the Federal
    Government into local procurement decisions. The provision is redundant
    because every States already has procurement procedures in effect.
    Rather than streamlining the DWSRF, this provision is an unnecessary
    encumbrance on the DWSRF that we cannot endorse.

                          RESEARCH AND DEMONSTRATIONS

        S. 1961 includes several provisions relating to research and
    demonstrations, including the demonstration program in Section 302, the
    rate study in Section 303, and the water resource planning provisions
    of Section 401. We believe it is critical that the public water supply
    community be substantially involved in planning and carrying out those
    sections of the bill to ensure that the research is relevant, credible,
    and coordinated with other drinking water related research efforts. The
    American Water Works Association Research Foundation (AWWARF) is the
    internationally recognized research organization of the drinking water
    community. With over $37 million in Federal support over recent years,
    the AWWARF has leveraged almost $260 million in total research on both
    technical and policy issues facing drinking water utilities. AWWARF
    should select and manage several of the demonstration projects under
    Section 302, carry out the rate study under Section 303, and have
    substantial involvement in the water resources study under Section 401.

                                   CONCLUSION

        How we address our emerging drinking water infrastructure needs is
    a critical question facing the Nation and this Congress. America needs
    a new partnership for reinvesting in drinking water infrastructure.
    There are important roles at all levels of government.
        AWWA does not expect that Federal funds will be available for 100
    percent of the infrastructure needs facing the nation's water
    utilities. However, AWWA does believe that due to concurrent needs for
    investment in water and wastewater infrastructure, security projects,
    replacement of treatment plants, new drinking water standards, and
    demographics, many utilities will be very hard pressed to meet their
    capital needs without some form of Federal assistance. Over the next 20
    years, it is clear that Safe Drinking Water Act (SDWA) and Clean Water
    Act (CWA) compliance requirements and infrastructure needs will compete
    for limited capital resources. Customers are likely to be very hard
    pressed in many areas of the country. Compliance and infrastructure
    needs under the SDWA and CWA can no longer be approached as separate
    issues. Solutions need to be developed in the context of the total
    drinking water and wastewater compliance and infrastructure needs.
        AWWA believes that S. 1961 is an appropriate first step to
    achieving these goals. In our testimony we have made recommendations
    that we believe will improve the bill. AWWA pledges to work with
    Congress to develop a responsible and fair solution to the Nation's
    growing drinking water infrastructure challenge. We thank you for your
    consideration of our views.
        This concludes the AWWA statement on S. 1961, Water Investment Act
    of 2002. I would be pleased to answer any questions or provide
    additional material for the committee.

        Statement of Tom Morrissey, President, Association of State and
               Interstate Water Pollution Control Administrators

        Mr. Chairman, Members of the Committee and Subcommittee, my name is
    Tom Morrissey. I am the President of the Association of State and
    Interstate Water Pollution Control Administrators (ASIWPCA) and
    Director of the Planning and Standards Division for the Connecticut
    Department of Environmental Protection.
        I would like to provide a little history as a backdrop to the
    Association's testimony here today. In the early 1980's,
    representatives of our organization, along with the then chair of the
    National Governors' Association (NGA), were called to the White House
    to discuss the future of the construction grants program. The $5
    billion program authorized by Congress for the construction of
    wastewater treatment facilities was under attack. The Director of the
    Office of Management and Budget told the State officials that the
    Administration intended to phaseout the grants program. OMB's Director
    said that if there was to be any subsidy for municipal wastewater
    treatment works, States and Congress would have to find a better
    vehicle. From the Administration's perspective, the grant program had
    lost credibility and was too expensive, too burdensome and a drag on
    the national economy.
        NGA and ASIWPCA took OMB's counsel to heart, as did a member of
    this Committee (John Chafee (RI), Mack Mattingly (GA), David
    Durenberger (MN), etc.). Congress and the States met the challenge,
    drafted legislation in early 1987 and the Clean Water State Revolving
    Loan Fund (CWSRF) was born. The CWSRF has become one of the most
    successful Federal public works programs in history, which is
    attributable to its careful design as a streamlined, State-based
    program. Senate and House authors intended to address the vast array of
    State Water Quality Program priorities under a States' Water Program
    fund.
        Having just passed the 15th anniversary of the last Clean Water Act
    reauthorization, we have had sufficient time to build and document a
    track record of SRF success. We know, for example, that projects are
    built in half the time than those constructed under the Federal grants
    program. We know that the CWSRF has saved taxpayers hundreds of
    millions of dollars and we know that, with each Federal dollar, there
    has been an almost equal contribution at the State level. Since 1987:
         More than $18.3 billion in Federal funds have been awarded
    and $37.7 billion is currently available for program use.
         States have made over 10,919 loans totaling over $34
    billion.
         25 percent of assistance agreements were for nonpoint
    source (NPS).

    ----------------------------------------------------------------------------------------------------------------
                                                                                                 Loan Amount  [in
              Communities Funded by the CWSRF Since 1987             Assistance Agreements     billion of dollars]
    ----------------------------------------------------------------------------------------------------------------
    Up to 9,999 population........................................        6499 (60 percent)                     $8.2
    10,000--99,999 population.....................................        3175 (29 percent)                     12.5
    Over 100,000 Population.......................................        1245 (11 percent)                     13.7
                                                                   -------------------------------------------------
      Total.......................................................           10,919                            $34.4
    ----------------------------------------------------------------------------------------------------------------

        Mr. Chairman, States are committed to the Clean Water State
    Revolving Loan Fund, because it has met and exceed the expectations set
    by its creators.
        1. To provide funding to address State water quality program
    priorities,
        2. To develop a funding mechanism that would revolve and provide a
    perpetual source of support and
        3. To establish the States as the program lead to manage and
    operate the Fund.
        ASIWPCA believes that in reauthorizing the CWSRF to it is vitally
    important:
         Increase funding for the program,
         Assure the SRF remains competitive in the financial market
    place,
         Maintain a streamlined program, and
         Enable States to direct the funding to priority water
    quality needs.

              THE WATER INVESTMENT ACT OF 2002 (SENATE BILL 1961)

        The Association takes great pride in the fact that the CWSRF
    program continues to enjoy the strong support of the Administration,
    the Congress and this Committee. We appreciate the Committee's effort
    to develop S. 1961 and hold hearings. And, Mr. Chairman, as we have
    discussed with you in prior meetings, ASIWPCA appreciates your
    leadership in developing Year of Clean Water Legislation to commemorate
    the 30th anniversary of the Clean Water Act. The goals of S. 1961 are
    laudable and the bill, if enacted, could advance the program in key
    areas particularly related to:
         Increased CWSRF funding authorization levels,
         Expanded eligibilities,
         Extended loan repayment periods,
         Expansion to forgive principal in hardship situations, and
         Fund transfers between the Clean Water and Drinking Water
    SRFs.
        These enhancements will, for example, better enable States to
    address small communities, onsite systems, nonpoint source pollution,
    urban stormwater and combined sewer overflows.
        As appreciative as we are of the Senate Committee efforts to
    enhance the CWSRF, our hope and expectation was that this proposed
    legislation would modernize and minimize the program to make it more
    user friendly. To the contrary, we note certain provisions that appear
    to make matters more difficult by adding greater complexity. The
    Association does have some concerns relative to effective
    implementation. Some of these provisions pertain to:
        New requirements that need to be simplified and reduced.--The
    cumulative effect of S. 1961's provisions would seriously weaken the
    effectiveness of the CWSRF. The coordination required between State
    water quality and State SRF programs will be extensive at many levels.
    In some instances, we question the necessity of the new requirements,
    since there is no compelling demonstrated need. Overall, we are
    concerned that some of the new requirements will lead to extensive
    bureaucracy, burdensome implementation and oversight, project delay,
    increased costs and potential litigation. These concerns primarily
    relate to provisions on:
         Consistency with local land use and other plans,
         The State priority system and intended use plan, and
         Federal requirements for State regulation of local
    technical, management and fiscal capacity building through CWSRF loan
    assistance.
        The significant increase in State management and administrative
    burdens that should be addressed.--The additional administrative and
    regulatory requirements will be very costly unfunded mandates, will
    slow the program and will yield minimal, if any, water quality
    improvement.
        The need to recognize that the CWSRF is a financing mechanism
    focused on addressing priority water quality problems.--States are held
    accountable for pollution abatement and control, yet several provisions
    in the bill would suggest that the CWSRF become a panacea for solving
    environmental, management, development and social issues.
        Mr. Chairman, we recognize and appreciate the fact that this bill
    represents the collective work of a lot of fine minds, those who care
    about clean water. However, unless you are on the front lines of day-
    to-day CWSRF implementation, it would be difficult to know that the
    collective impacts of many of these individual provisions would have
    serious and unintended negative consequences. The CWSRF's
    competitiveness as an effective tool to accomplish environmental
    results must not be weakened in any significant way. Unless refinements
    are made, provisions of S. 1961 will be perceived by a significant
    number of potential recipients as so onerous as to outweigh the value
    of CWSRF assistance. Again, we are looking for modernization and
    streamlining of the existing program.
        The Association strongly urges the Committee to consider the
    enhancements recommended by the State professionals who have the
    responsibility for the success of the SRF. And, because the States and
    our ASIWPCA membership have had limited time to review the bill in
    detail, additional suggestions may be forth coming.

                            ASIWPCA RECOMMENDATIONS

        SRF Authorization Funding: We applaud the Committee for the
    increased authorization levels and we look to this Committee to work
    through the appropriation process to secure ultimate approval by
    Congress for S. 1961's higher levels of funding. Infrastructure needs
    under the Clean Water Act (the Act) are well in excess of $200 billion
    and the bill represents a significant move in the right direction.
        Eligibilities: We are encouraged that the bill supports coverage of
    facility siting, related elements and other new coverage. We urge that
    the Committee also recognize the following:
         The need to support restoring impaired and addressing
    threatened waters (implementation of TMDLs and watershed protection
    plans should be broadly eligible).
         States need CWSRF funds to support technical assistance--
    this workload will increase significantly under S. 1961.
         The need to minimize the distinction between point and
    nonpoint source projects which inhibits State ability to address
    priority water quality problems. There are necessary and worthwhile
    improvements (such as facilities and best management practices for
    concentrated animal feeding operations (CAFOs), which should be
    eligible for CWSRF assistance.
         The State's lead role (e.g., Sections (1)(C and D) should
    read: ``water quality benefits as determined by the State'').
         The need to protect the corpus of the fund, (e.g.,
    ``Private utility'' may be more appropriately changed to ``privately
    owned system'').
        Maintenance of the Fund: The language in (c)(2)(B) needs to clarify
    what constitutes ``balances in the fund.'' States are uncertain what
    the term means.
        Loan Terms and Repayments: 40-year loans should be allowable with
    the same condition, i.e., that the loan term cannot be longer than the
    project life. Interceptor sewers and collection systems can last 40-50
    years.
        We recommend that this Section 603(d)(1)(D) on repayments be
    changed to read ``A State shall determine that the recipient of a loan
    has provided a dedicated source of income, and as appropriate adequate
    security, for the repayment of the loan.'' The proposed language in S.
    1961 could be read to require septic tank owners to provide security
    for loans. It also seems to require all private systems to demonstrate
    security. Further, it restricts the security requirement only to
    privately owned systems, whereas the intent should be that all loans
    are adequately secured, as necessary.
        Meeting Hardship Community Needs: States strongly support principal
    forgiveness. We appreciate the Committee's recognition that the
    definition of disadvantaged community should be a State responsibility.
         States support the goal of addressing hardship needs
    within larger community jurisdictions. However, we have some concerns
    relative to the wording in Section 103(c)(8) of S. 1961 on dealing with
    communities to charge different rates on the basis of user income
    levels (pockets of hardship). This appears to be an open invitation to
    litigation. It should be left to each State to decide how to craft an
    approach to get to this issue under the framework of disadvantaged
    community.
         We need to be cognizant of the fine line States need to
    walk between meeting hardship needs, which under S. 1961, could take up
    to 45 percent of the annual capitalization grant and the importance of
    protecting the corpus of the Fund.
        Administrative Costs: Increasing the percentage of capitalization
    grants which can be used for State administration of the CWSRF from 4
    percent to 5 percent is helpful, but falls short of the amount needed
    to cover CWSRF administration in the current program. This need would
    be exacerbated by the new responsibilities S. 1961 imposes on the
    States. Should capitalization end or be held in abeyance, no funds
    would be available for administration. Several options should be
    considered:
         Increase the percentage (e.g., up to 4 percent of the
    authorization and State match); allow States to use up to \1/2\ percent
    of the CWSRF's current valuation (the total assistance outstanding plus
    any funds available for new loans, including State match); or allow
    States to use up to $400,000 per year--which ever is greater. (However,
    to the extent that S. 1961 contains new requirements, these levels will
    need to increase)
        The Act should allow fees and surcharges collected by a State for
    CWSRF administration to be deposited in the fund to help defray
    administrative costs.
        Community Development: Applicants should be able to certify as to
    consultation/coordination, but shifting the burden to the CWSRF to
    ``ensure'' they do so in a certain way is an unreasonable and difficult
    standard to meet.
         Requirements for clearinghouse review by the local
    planning agencies already exist. The Act requires coordination with all
    water quality plans; if land use plans, especially those designed to
    encourage smart growth, have been prepared--local entities are required
    to comply. The States question what more is envisioned and what problem
    this provision is designed to resolve.
         With the addition of a significant number of new
    requirements, ASIWPCA has concerns about the potential for significant
    delays in program implementation at the State and Local level.
        Priority System Requirements: The proposed changes to the States'
    priority systems should be minimized, because such a major
    restructuring will delay project funding, divert staff and resources
    and, is frankly not necessary.
         The development of the State's priority system and
    intended use plan already involve extensive public outreach and
    involvement. The requirement for ``significant public outreach'' (a new
    and undefined term for the Act) should be deleted. It implies a level
    of intensity that will be difficult to achieve and will undoubtedly
    delay and over complicated the CWSRF program. States feel strongly that
    the CWSRF should not be held to higher standard than other existing
    Clean Water Act programs.
         States are required to use ranking criteria that are
    extensive, well documented and emphasize environmental benefit. The
    CWSRF is a primarily mechanism States have to focus limited resources
    on TMDL implementation in impaired waters and a extensive water quality
    information feeds into that process. It is reasonable for the CWSRF to
    consider relevant information in the 305(b) report. States and USEPA
    are investing significant time and resources integrating the 305(b)
    report and the 303(d) listing process. S. 1961 should not have the
    CWSRF move in a different direction, duplicate other efforts or use a
    different standard with no demonstrable improvement in water quality.
    (States should not be required to ``take into consideration all
    available water quality data'', because this is too ambiguous, differs
    from how data is considered in the water quality program and invites
    litigation.)
         Under the proposed S. 1961, there appears to be little to
    no latitude to consider critically important factors, including
    readiness to proceed. Is the Senate promoting a strict funding in
    priority sequence? The bill appears to also be in conflict with the
    existing statute and the current State priority systems, which are
    based on water quality contributions, rather than project type. The
    bill should be modified accordingly. If our national goal is clean
    water, then programmatic decisions need to be based on water quality
    improvement.
         It is beneficial to prioritize Section 319 and 320
    projects. However, requiring one integrated priority ranking system for
    Section 319, 320 and 212 projects may, in some States, diminish the
    ability to fund 319/320 projects, because they may not rank well in
    such a competitive process. To develop and implement a successful
    program overall, States need to be able to prioritize 319 projects with
    other similar projects.
         Requiring States to identify and prioritize each and every
    Section 319 project upfront (with schedules) in the yearly priority
    funding list is a major change and is close to impossible to implement,
    because such details are often not known that far in advance. We
    question what it means to require States to publish a summary of
    projects every 2 years and how that differs from the lists currently
    required. This program needs to be simple, straightforward and
    unintrusive if we are to expect and secure the participation of the
    nonpoint source community. It would be desirable for States to accept
    applications from farmers on a monthly basis.
         S. 1961 in Section (g) (4) should clarify that the
    determination of ``optimum water quality management'' is a State
    decision.

                  TECHNICAL, MANAGERIAL AND FINANCIAL CAPACITY

        We agree with the Committee that there is a need for capacity
    building. Loan recipients should be required to demonstrate the ability
    to effectively manage their wastewater system and successfully repay
    loans. However, ASIWPCA is concerned that S. 1961 goes beyond what is
    reasonable and realistic. The Association would suggest that this
    provision be streamlined, because as currently written, it entangles
    the program in extensive, unnecessary and burdensome bureaucratic
    process. In addition:
         We question whether the CWSRF is the appropriate tool to
    accomplish this objective and whether it is fair to hold recipients of
    CWSRF funds to a higher standard than other facilities, including those
    funded annually under set asides or site specific appropriations. We
    also question the equity of placing such requirements on CWSRF loan
    recipients that own treatment works--while not imposing such mandates
    on owners of collection systems or interceptor sewers.
         States, under the leadership of the National Governors'
    Association have consistently raised concerns about Federal unfunded
    mandates. If S. 1961 were to be enacted, higher levels of funding would
    be necessary to carry out these provisions.
         ASIWPCA remains concerned about the long-term integrity of
    the fund corpus. Each requirement has the potential to erode the fund
    and hence limit the utility of the SRF. To make CWSRF funding
    attractive, States would need to move to a zero interest rate which
    further erodes the corpus. Even that may not be sufficient to overcome
    the added burden of participation.
        Strategy.--The provision that States have a strategy in place to
    assist applicants in their development of financial, managerial and
    technical capability is laudable and supportable. In the development of
    such a strategy, the States need latitude to design it to meet their
    diverse challenges.
         As a house keeping measure, whenever (i) refers to
    ``State'' the term should be replaced by ``State agency''.
         Section (B) should be deleted--as unnecessary and overly
    prescriptive. In order to develop a meaningful strategy, States do not
    need to describe or analyze the litany of ``institutional, regulatory,
    financial, tax, or legal factors at the Federal, State, and local
    levels that encourage or impair the development of technical,
    managerial, and financial capacity.'' Requiring States to describe
    ``the manner in which the State intends to use the authorities and
    resources of the State'' implies more than a strategy and clearly
    invites litigation that could be misused. Sanctions could apply to
    successful and effective State programs, if there is a perceived
    failure to carryout a particular element in precisely a certain way.
         Given the potential for misinterpretation and misuse of
    this provision, a 20 percent sanction is excessive. In making a
    determination of failure: (1) USEPA should be required to notify the
    State of the decision, justification and actions that need to be taken,
    and (2) States should have at least 1 year to correct the inadequacy
    before sanctions apply.
         A simplified report every 3-5 years to USEPA on progress
    made under State strategies is the most efficient and effective means.
    Annual updates to measure and report on local improvements in
    technical, management and financial capacity is an undue burden for a
    CWSRF, especially since trends are difficult to detect and measure
    annually. The Committee needs to take a step back and generally review
    reporting requirements under the Act and how they can be most efficient
    and effective.
        Condition for Receipt of Assistance.--States support asset
    management and it may be workable to have treatment works certify they
    have needed capacity and make that rationale transparent to the public.
    However, ASIWPCA urges the Committee to reconsider how best to
    accomplish the objective, before adding statutory requirements and
    deadlines. Specifically we would ask the Committee to consider the
    following:
         Overseeing development and evaluating local technical,
    managerial and financial capacity and asset management plans will be a
    substantial workload, and we question the utility of this provision.
    The provision for States to require treatment works to demonstrate
    ``adequate'' capacity will require a fair amount of subjective judgment
    and new USEPA bureaucracy. This may not yield the desired result.
         States should not be expected to police asset management,
    unless there is consensus on: (1) The content of the plans with respect
    to capital replacement, etc. and (2) A clear definition of adequacy.
         If asset management is a good idea, it should be required
    of all systems, not just those that receive future SRF assistance.
        Restructuring.--This section should be deleted and the Committee
    should consider other avenues. We make this suggestion because (j)(1)
    (A)-(C) will require: (1) Additional hoops which will result in
    disincentives to participate in the program, (2) The provision will be
    accompanied by considerable Federal bureaucracy, (3) The requirements
    will entail considerable State work load, (4) The policy assumptions
    are not necessarily valid (e.g., that consolidation, public/private
    partnerships and nonstructural alternatives are environmentally
    beneficial) and (5) The focus of the Act should be on clean water and
    not bureaucratic processes and procedures. Regarding (j)(2):
         Rate structures are not appropriate for regulation under
    the CWSRF. Other State agencies (public utility commissions) have
    purview and since the definition of ``adequate'' is unknown (does it
    include complete capital replacement, for example), the program would
    be extremely difficult to implement in the CWSRF. Does the Committee
    really want to use the CWSRF for this purpose and is the Committee
    prepared to deal with unintended consequences? How is the CWSRF going
    deal, for example, with loan recipients that apply an inappropriate
    burden on certain customers through double and triple rates?
         Making the requirement effective upon enactment seems
    premature--since the National Academy of Science study is not required
    until 2 years after enactment. Time should be allotted to thoughtfully
    consider the results of the congressionally mandated study. Hence, any
    provisions to address rates at the State and local level in S. 1961
    would need to apply at least 30 months (or later) after study
    completion.
         States question the need for and the workability of
    applying the requirement to non-traditional needs such as nonpoint
    sources.
        Technical Assistance: States have a long and successful history
    providing technical assistance to loan recipients. This provision
    (Section 206) is disturbing in that it seems to presume that States are
    incapable of, or are not interested in, providing assistance to small
    systems. This is not an accurate assumption. Furthermore, the provision
    takes the circuitous route to reach an unspecified goal--e.g., creating
    a program to fund non-profit entities to provide small community
    assistance for CWSRF participation. States do not see the need for this
    provision, especially since it is not clear how the program would
    operate and relate to the CWSRF and Section 104(b). If there needs to
    be a grant program, State, Regional and Local initiatives should be
    eligible. Activities funded should be coordinated with State efforts so
    they are mutually supportive. S. 1961's reliance on USEPA (the Agency
    furthest from the point of need) is, at best, an ineffective approach.
    If this provision is to be included in national legislation, a State/
    Local advisory committee should be used to help create, focus and
    administer the program.
        Competition Requirements: Requirements of the old construction
    grants program (Section 204(a)(6)) should not be reinstated. This is a
    good example of the bureaucracy and pitfalls that the CWSRF was created
    to avoid. The Association would ask what documented problem in the loan
    program is this provision intended to address.
        Formula: States have questions about the formula and request
    additional information relative to how the numbers were derived and the
    effects of the proposed formula on States' allotments at various
    appropriation levels. The results of the 2000 Needs Survey should be
    released as soon as possible, so that States can gage the full impact
    of proposed changes. And, if the eligibilities are expanded to include
    CAFOs, etc., the allocation formula should reflect such needs.
        Furthermore clarification is needed relative consistency. If the
    Committee intends that all needs (which are included in the calculation
    of a State's allocation formula) be eligible under a State's CWSRF
    program (to receive funds for those needs under Title VI)--the
    provision needs wordsmithing (i.e. the issue may pertain to not just
    private utilities).
        Clean Water Act/Drinking Water Act Fund Transfers: ASIWPCA is
    supportive of this provision and suggests that, in addition to
    providing for the transfer of funds between the Clean Water and
    Drinking Water SRFs, S. 1961 should also allow for full cross-
    collateralization between the funds.
        Demonstration Program for Water Quality Enhancement: The goals of
    this effort are at once broad and inclusive of watershed protection of
    surface and source water, and yet focused on primarily municipal
    boundaries and wastewater facilities. The ASIWPCA suggests that: (1)
    Eligibilities go beyond municipalities to include State, regional and
    watershed based entities--governmental and non-governmental, (2) The
    list of project types be expanded to include integrated water
    management, etc. and (3) A advisory group with balanced stakeholder
    representation be convened to assist in carrying out the intent of
    Congress.
        NAS Rate Study: This study should be carried out in consultation
    with a balanced group of stakeholders, including a significant number
    of State and Local government officials responsible for on-the-ground
    implementation of the Clean Water Act requirements.
        Water Resource Planning: State water quality agencies question the
    need for this provision and are concerned about adverse impacts on
    other efforts of the US Geologic Survey (USGS). It appears to duplicate
    what States currently have underway with other Federal agencies,
    including the Bureau of Reclamation. USGS services are already being
    reduced and further mandates are counter-productive. For example, the
    stream-gauging program is critical to the State development of TMDLs.
    To further divert USGS attention away from its highest priorities to
    other activities, especially when they are already being performed by
    other agencies, seems counterintuitive. States need USGS to do what it
    does best--provide accurate timely water quality data for program
    implementation and decisionmaking. There may be a role for USGS within
    the context of the Clean Water Act and Mr. Robert Hersh will be
    articulating such activities in his testimony. In any event, State
    Water Quality Agencies must be integral to the creation of any clean
    water related authorities for USGS. The Department on Interior should
    be directed to closely coordinate and consult with the State water
    quality officials and agencies in carrying out the objectives of S.
    1961.
        Again Mr. Chairman, we applaud the Committee for beginning the
    discussion on the Clean Water Act SRF reauthorization and we, at
    ASIWPCA, are eager to work with you and your fine staff to refine
    legislation that will move this country forward in the pursuit of
    cleaner water. We thank you for the opportunity to come before you and
    we are available at any time to meet with you and the members of your
    staff on the recommendations provided in the statement. Please contact
    our Executive Director, Robbi Savage, at 202-898-0917. Thanks again for
    inviting the State Water Program Administrators.

                                   __________
    Statement of Jay L. Rutherford, P.E., Director, Water Supply Division,
       Vermont Department of Environmental Conservation on Behalf of the
               Association of State Drinking Water Administrators

                                  INTRODUCTION

        The Association of State Drinking Water Administrators (ASDWA) is
    pleased to provide testimony before the Senate Environment and Public
    Works Subcommittee on Fisheries, Wildlife, and Water regarding the
    Water Investment Act of 2002. ASDWA represents the drinking water
    programs in each of the fifty states, territories, and the District of
    Columbia in their efforts to ensure the provision of safe, potable
    drinking water to all Americans nationwide. ASDWA's primary mission is
    the protection of public health through the effective management of
    state drinking water programs that implement the Safe Drinking Water
    Act. For these reasons, our testimony will focus only on the drinking
    water-related provisions of S. 1961.

                                    OVERVIEW

        States have been implementing the Federal requirements for safe
    drinking water for more than 25 years. The 1996 amendments to the Safe
    Drinking Water Act created a host of new program responsibilities
    including a new Drinking Water State Revolving Loan Fund (DWSRF). The
    DWSRF was established to offer low cost loans to public water systems
    to enhance both their infrastructure and compliance capabilities. The
    Act authorized a total of $9.6 billion in annual appropriations through
    FY-03. ASDWA appreciates the Committee's interest, through this
    legislative initiative, in ensuring that this much needed program will
    continue to receive funding over the next several years and is
    especially pleased that the authorized funding equals $14.5 billion
    through FY-07. ASDWA also appreciates the acknowledgement that state
    drinking water programs must have additional funds to administer the
    program in an efficient and responsible manner.

                              TITLE II PROVISIONS

        ASDWA endorses the goal of streamlining the DWSRF process to
    maximize use of Federal funds and encourage efficiency. However, state
    drinking water programs are concerned that some of the elements
    contained in this Title will hinder rather than help efforts to achieve
    the stated goal. One overarching example lies in the legislation's
    proposal to strengthen activities relating to use of the DWSRF for
    source water protection, consolidation initiatives, assistance for
    small and disadvantaged communities, and coordination with other
    programs such as land use and transportation. However, the
    authorization to address many of these issues lies in SDWA Section
    1452(g). This section requires a dollar-for-dollar match for any state
    wishing to use additional program administration funds to address
    technical assistance for source water protection, capacity development,
    and operator certification initiatives. These are the very programs
    that get to the heart of the goals for S. 1961. States are hindered in
    their ability to find dollar-for-dollar match funds over and above the
    20 percent match required for the DWSRF program and the 25 percent
    match required for state public water supply supervision (primacy)
    grants program. As a result, many states cannot take advantage of these
    funds now and certainly may not be able to access them when the
    increased DWSRF authorizations are appropriated. The states ability to
    administer the DWSRF efficiently will decline, despite increased
    authorizations, unless the funds can be accessed for the purpose for
    which they were intended.
        Action: ASDWA recommends that the proposed amendment to SD WA
    Section 1452(g)(2)(A-D) strike the requirement for a dollar-for-dollar
    match and replace it with language calling for a 25 percent state match
    for these critical activities.

    Section 202
        (b) Public Outreach: Since the inception of the DWSRF, state
    drinking water programs have made significant investments in
    establishing communication and outreach networks to ensure public
    participation in the DWSRF process. Since its inception, states have
    worked to design opportunities for public notice and comment that best
    respond to the needs, interests, and concerns of their citizenry.
    States have created advisory boards, held community meetings, and met
    state statutory requirements that regulatory initiatives relating to
    DWSRF activities be published in the media as well as the state-level
    equivalent of the Federal Register. This flexibility has already
    allowed states to design programs that are responsive and responsible.
    A call for undefined ``significant public outreach'' is, therefore,
    unnecessary for the DWSRF.
        Action: ASDWA requests that this additional requirement for
    ``significant public outreach `` be removed.
        (c) Types of Assistance: Current SDWA language does not address the
    pressing need for capital improvements related to infrastructure
    security.
        Action: ASDWA recommends that capital improvements for security be
    specifically added to the list of eligible DWSRF activities.
        (c)(F) Types of Assistance: While state drinking water programs,
    through their capacity development initiatives, have worked with
    systems to ensure their technical, financial, and managerial
    capabilities, no drinking water program has the authority to direct or
    regulate how any system develops and/or applies its rate structure. As
    well, state drinking water programs do not possess the expertise
    required to ensure that a particular rate structure ``reflects the
    actual costs of service.'' These are local decisions, often politically
    driven, and are well beyond the authority of drinking water programs to
    direct or control.
        Action: ASDWA requests that the language on setting rates be
    removed.
        (d) Consultation and Coordination with State Agencies: ASDWA is
    concerned with the requirement that state drinking water programs shall
    ``ensure'' that applicants have appropriately ``consulted and
    coordinated'' with other regulatory bodies. Rather, this responsibility
    must fall on the applicant system.
        Action: ASDWA recommends that this language be modified to reflect
    the need for a loan applicant to consult and coordinate with other
    regulatory bodies and provide the results of that consultation to state
    programs rather than have states ``ensure `` that such consultation has
    occurred.

    Section 203
        Under the 1996 SDWA Amendments, state drinking water programs
    received the authority to reserve up to 30 percent of their DWSRF
    capitalization grants to address the needs of disadvantaged
    communities. This section proposes that states may reserve an
    additional 15 percent to address ``poverty pockets'' in otherwise non-
    disadvantaged communities. Further, states are directed to ensure that
    an appropriate ``user charge rate system'' is in place within the
    community. ASDWA has two significant concerns with this proposal:
        First, reserving up to 45 percent of a state's DWSRF program to
    address disadvantaged communities may not be the best use of limited
    resources to address public health protection on a statewide basis and
    has the real potential to quickly erode the corpus of the loan fund.
    State drinking water programs must balance the competing needs of all
    applicants to ensure that the broadest public health protection
    benefits are derived from the most efficient award of funds.
        The second concern with this proposal lies in the requirement for
    state drinking water programs to ensure the efficacy of any individual
    user charge rate system as part of an assistance agreement. This level
    of responsibility goes far beyond state drinking water programs'
    expertise and mandate to protect public health.
        Action: ASDWA requests that this section be modified to add
    ``disadvantaged users `` within an otherwise non-disadvantaged
    community to the existing SDWA Section 1452(d) language, and leave the
    reservation of funds up to a maximum of 30 percent. In addition, ASDWA
    requests that the requirement to ensure the efficacy of a user charge
    rate program be directed toward the applicant rather than the state.

    Section 205
        (1) Competition Requirements: ASDWA is uncertain of the value of
    this proposed addition to the SDWA. The language appears to have been
    taken from the old Clean Water Act construction grants program. It is
    ASDWA's understanding that the current Clean Water Act no longer
    contains these provisions and that they were removed due to their
    complexity and resulting burden placed on state programs and loan
    applicants alike.
        Action: ASDWA requests that this language be removed from the
    section.

    Section 206
        (a) Small Public Water Systems Technology Assistance Centers: ASDWA
    is pleased to see addition of accountability requirements under this
    section.

    Section 207
        (3) Reservation for Needs Survey: Under current law, EPA is
    required to conduct a drinking water needs survey once every 4 years.
    Yet, the language in this section authorizes the Agency to reserve $1
    million annually from the DWSRF to cover their associated costs. Is it
    the intent of this section to provide $5 million over the course of FY-
    03 through FY-07 for EPA to conduct one needs survey?
        Action: ASDWA requests clarification under this section.

                              TITLE III PROVISIONS

    Section 301
        (b)(1) Safe Drinking Water Fund: ASDWA is pleased that this
    legislation proposes to increase the allowable percentage of DWSRF
    funds that may be reserved for program administration. However, given
    the additional responsibilities outlined in this legislation,
    particularly those directed toward the very large number of very small
    systems, ASDWA believes that the percentage reservation for program
    administration should reflect the true cost of efficient
    administration.
        Action: ASDWA recommends that the level of funding reserved for
    state DWSRF program administration should be increased to 6 percent.
        (b)(2) Transfer of Funds: ASDWA is pleased that this legislation
    extends the ability of the Governors to transfer funds between the
    DWSRF and CWSRF.

    Section 303
        (a) Rate Study: ASDWA is pleased to support the call for a study
    regarding rate structures. ASDWA is also pleased by the requirement for
    such a study to be completed within 2 years. However, ASDWA is
    concerned that the statutory provisions for state drinking water
    programs to address rate structures and disadvantaged communities take
    effect upon enactment--without benefit of the information afforded by
    the rate study and without benefit of the to-be-developed new
    definition of ``disadvantaged community.''
        Action: ASDWA requests that, in concert with our earlier
    statements, the troublesome provisions in Sections 202 and 203 affected
    by this section be removed. However, in the event that the provisions
    are retained, ASDWA requests that implementation of these provisions be
    delayed until the results of the study are published and analyzed.

                                   CONCLUSION

        ASDWA extends its appreciation to the Committee for taking
    significant first steps to address the critical need for drinking water
    infrastructure funding. This legislative proposal also offers some
    relief to states that must administer these programs. However, ASDWA
    cautions that several of the proposed refinements to the SDWA will not
    achieve the stated goals for this legislative initiative. Adding new
    and more complex requirements to a drinking water utility's DWSRF
    application will not streamline the process, reduce the burden, or make
    the program more appealing. Adding additional requirements for state
    oversight in areas such as ratemaking, designated user charge programs,
    ensuring consultation and collaboration by systems with other agencies,
    and the like will not make the program more efficient and will hinder
    the states' best efforts to award loan funds in a timely manner.
        ASDWA would be pleased to work with members of the Committee to
    address these concerns and ensure successful implementation of the SDWA
    DWSRF program.

                                   __________
       Statement of Valerie I. Nelson, Ph.D., Coalition for Alternative
                              Wastewater Treatment

        I appreciate the opportunity to submit testimony to the
    Subcommittee on Fisheries, Wildlife and Water concerning S. 1961, the
    Water Investment Act of 2002, which would reauthorize the Clean Water
    Act and Safe Drinking Water Act State revolving funds (SRFs). I am the
    Director of the Coalition for Alternative Wastewater Treatment, which
    was formed 8 years ago to promote reform of Federal, State, and local
    policies and practices concerning decentralized wastewater treatment. I
    would also like to present the recommendations for SRF reauthorization
    developed at a national workshop on integrated water resource
    management that was held on February 19-20, 2002 in Arlington, VA.
        The central recommendation of my testimony is for the Congress to
    provide incentives in the SRF program for States to fund decentralized
    wastewater, distributed stormwater, and other non-point source
    projects. After several decades of investment in wastewater treatment
    plants and sewer collection systems, progress has been made by the
    Nation in water quality protection. However, estimates are now that a
    majority of water quality problems stem from non-point sources. The
    costs of addressing equivalent amounts of non-point pollution are
    substantially less than the costs for point-source treatment. And yet,
    the States are currently directing only 4 percent of SRF loans to non-
    point source projects. This represents a serious misallocation of
    Federal resources, and raises the question of how States can be
    encouraged to utilize SRF funding more cost-effectively. While EPA has
    issued guidance in recent years allowing States to provide SRF loans
    for non-point source projects, a majority of States have not broadened
    their eligibility lists to allow these projects to be funded.
        I would suggest that the best approach for the Federal Government
    to promote a more efficient use of Federal resources by the States is
    to create a 10 percent set-aside of new SRF funding for States to use
    for non-point source projects. This approach would maintain the
    flexibility in the use of the SRF which states request, but at the same
    time would assure greater accountability by the States to the goals and
    objectives of the Clean Water Act. States would be eligible to apply to
    the EPA for 10 percent in additional funds beyond the baseline
    allotment for the Clean Water SRF capitalization grant. Funds could be
    used for principal forgiveness, interest subsidies, and other creative
    financing mechanisms which each State would have the flexibility to
    develop.
        The 10 percent set-aside proposal is modeled on the successful
    enhancement grant set-aside established in the Intermodal Surface
    Transportation Efficiency Act of 1991. Because of this initiative,
    successful environmental enhancements have been constructed throughout
    the States, and reform of transportation planning and mainstream
    practice have occurred more generally.

                 INTEGRATED WATER RESOURCE MANAGEMENT WORKSHOP

        On February 19-20, 2002 a group of 35 leaders in water quality
    protection met in Arlington, Virginia to discuss the future of
    distributed and natural system approaches to integrated water resources
    management. Participants included public officials, engineers,
    academics, and environmental advocates from across the country. In
    recent years, much progress has been made in the development of
    decentralized or distributed approaches, including for example:
    advanced onsite and cluster system technologies and management for
    wastewater treatment; distributed stormwater remediation, including
    stream restoration; low impact development practices that retain
    natural infiltration/treatment zones and distribute infiltration and
    biorentention best management practices throughout a development;
    agricultural stream buffers and other best management practices; and
    ``soft path'' flood control measures such as parkland stream buffers.
        Water resource management in the United States has been dominated
    in recent decades by ``hard path'' centralized infrastructure
    solutions, including sewer collection systems and treatment plants,
    stormwater collection and underground storage tunnels, centralized
    water lines and filtration plants, and stream channeling and dams for
    flood control. And, permitting, funding, and management of these
    systems have been segregated into separate agencies, rather than
    integrated into a holistic watershed framework.
        The premise of the workshop was that this reliance on centralized
    solutions constructed without regard to the broader watershed and
    groundwater forces at work in the ecosystem has cumulatively led to
    major unintended consequences and environmental damage. Sewer
    collection systems and point-source discharges, by moving locally
    supplied water and infiltration/inflow water great distances to point-
    source discharges have led to depleted aquifers, saltwater intrusion in
    the coastal zone, and dried-up streambeds. Sewer systems have also
    promoted growth and development, with large-scale increases in
    stormwater runoff, and leaking sewer pipes now constitute the single
    greatest source of drinking water microbial contamination. Channeling
    to control floods has also led to disruptions in natural systems for
    water purification. And, finally, failure to fully utilize cost-
    effective water efficiency and distributed water reuse measures
    exacerbates the surface and groundwater impacts of water supply
    systems.
        Distributed and natural-system or ``soft path'' approaches hold
    great promise to achieve water resource protection at substantially
    lower cost than traditional centralized technologies, and in
    particular, entail far fewer adverse impacts to public health and the
    environment when considered in an integrated framework. The reason is
    that distributed, ``green'' solutions to sewage and stormwater
    treatment rely on and blend into large, natural surface water and
    groundwater systems that have evolved and stabilized over centuries.
    Centralized approaches constitute a much larger disruption of these
    natural systems than decentralized approaches. For example,
    decentralized wastewater systems, by widely dispersing the release of
    treated wastewater into the soil, help replenish aquifers. Distributed
    approaches also provide communities with more options and greater
    control over development, natural resource protection, and public
    amenities such as parks and open space.
        Workshop participants discussed the range of environmental,
    economic, and community benefits to decentralized and nonpoint-source
    approaches to water quality protection and integrated water resource
    management, and developed recommendations for reform of engineering
    practice, regulatory structures, management, and research. In addition,
    recommendations for the SRF reauthorization were discussed, and options
    from various workshop sub-groups include the following:
        1. Nonpoint-source or soft path projects need incentives in the
    SRF. These would include such approaches as:

              a. a 10 percent non-point source set-aside of new SRF funds
              b. a reduced match requirement for non-point source or
            distributed treatment projects
              c. a reduced interest rate
              d. principal forgiveness

        2. Extra funding should be provided for State and local entities to
    cover the additional administrative costs of developing non-point
    source projects, as well as integrated water resource plans.
        3. Eligibility should also be expanded to include:

              a. monitoring costs (as already exists in the Drinking Water
            SRF)
              b. pollutant trading
              c. training

        4. Funding approval should be tied to consistency with plans:

              a. drinking water grants should be tied to source water
            protection plans
              b. wastewater projects should be tied to integrated water
            resource plans developed by local entities
              c. transportation planning links should also be required

        5. States should be required to demonstrate that water quality
    goals are being met cost-effectively. Build assessment and feedback on
    environmental outcomes and cost-effectiveness into the process.

              a. One suggestion was for a focus on GPRA requirements to be
            imposed on State SRF agreements with EPA.
              b. Another suggestion was to revitalize the CWA planning
            process or 303e. Bring back the better elements of the water
            resources council that were dropped in the early 80's.

        6. Research projects are needed on such topics as: biological
    integrity before and after projects; lifecycle costs of non-point and
    soft path approaches; fate and transport of pollutants; analysis of the
    impediments to integrated water resource management; soft path best
    management practices; effectiveness of education campaigns, land-use
    controls, etc.
        7. Demonstration projects are needed on: integrated water resource
    management; regulatory changes needed to implement plans; stormwater
    decisionmaking; real-time water quality monitoring and technology
    programs, and community involvement; and others.

                                   __________
     Statement of Rodger D. Siems, President, Board of Directors, Eastern
                        Municipal Water District (EMWD)

        Good morning Chairman Jefford, Senator Smith, Senator Graham,
    Senator Crapo, and members of the Committee, my name is Rodger Siems. I
    am the President of the Board of Directors for Eastern Municipal Water
    District in Perris, California.
        Eastern Municipal Water District (EMWD) supports the purposes of S.
    1961, the Water Investment Act of 2002. We believe S. 1961 takes a
    meaningful first step toward addressing the infrastructure funding gap
    through the authorization of increased funding for State revolving
    funds (SRFs). EMWD provides water and wastewater service to a
    population of 480,000 in the arid west region of the Nation where
    native water resources are scarce. Due to the lack of plentiful
    indigenous water sources, EMWD is committed to water conservation and
    recycled water programs and sustainability of our groundwater
    resources. EMWD is therefore very pleased that S. 1961 provides funds
    for water conservation, reuse, reclamation, and/or recycling projects.
        EMWD is particularly supportive of the requirement in S. 1961 that
    loan recipients adopt, in both policy and practice, basic elements of
    asset management. Water and wastewater infrastructure systems provide
    services essential to public health. EMWD believes that proficient
    asset management is core to managing utility operations. Water and
    wastewater managers must ensure adequate operation of their facilities
    by using all the tools available to them and asset management is the
    most effective tool for managing present and future infrastructure.
    Requiring good asset management as a loan condition helps ensure wise
    and effective spending.
        EMWD also supports the concept of requiring loan recipients to
    achieve a rate structure that reflects the true cost of service and
    addresses capital replacement funds. EMWD is concerned that agencies
    that have not adopted a rate structure that pays for the true cost of
    their operations are undercharging for their services and are placing a
    tremendous burden on future ratepayers.
        EMWD believes these loan recipient requirements, asset management
    and rate restructuring, will promote self-sustaining water and
    wastewater operations and help limit future requests for Federal
    funding.
        Thank you for introducing S. 1961. It is a crucial first step to
    ensure the needs of America's water and wastewater infrastructure are
    met.

                                   __________
           Statement of the American Council of Engineering Companies

        The American Council of Engineering Companies (ACES) is pleased to
    provide this statement in support of S. 1961, The Wastewater Investment
    Act of 2002. The Water Investment Act of 2002 would amend and
    reauthorize the Clean Water Act and the Safe Drinking Water Act to
    provide substantially greater funding for wastewater and drinking-water
    facilities. We commend the Committee for taking the lead on the
    increased authorization for water infrastructure and we applaud this
    bi-partisan effort.
        The American Council of Engineering Companies (ACEC) is the
    business association of America's engineering industry, representing
    6,000 independent engineering companies throughout the United States
    engaged in the development of America's transportation, environmental,
    industrial, and other infrastructure. Founded in 1910 and headquartered
    in Washington, DC, ACEC is a national federation of 51 State and
    regional organizations.
        ACEC is pleased to support passage of S. 1961, the Water Investment
    Act of 2002. The proposed funding levels in the bill are a far-sighted,
    responsible attempt to rebuild the nation's aging and failing
    wastewater and drinking-water facilities and to upgrade their
    performance to meet the nation's health and security needs in the 21st
    century. As a founding member of the Water Infrastructure Network
    (WIN), ACEC has worked with our coalition partners to raise awareness
    among Members of Congress and the public about the critical gap that
    exists between our nation's water infrastructure funding needs and what
    is currently being appropriated.
        WIN has released reports that outline a projected shortfall of $23
    billion per year over the next 20 years in water infrastructure needs
    and what is currently being appropriated. The report, Water
    Infrastructure NOW: Recommendation for Clean and Safe Water in the 21st
    Century, suggests that the Federal investment for water infrastructure
    is $57 billion over the next 5 years. Although the authorization in S.
    1961 does not reach that goal, it represents a significant commitment
    on the part of the Federal Government to rectify the problems
    associated with our nation's water infrastructure. For too long, the
    Federal Government has relied on States, local governments and
    utilities to fill essentially all of this funding gap. Administrations
    have failed to request, and Congress has consistently failed to
    appropriate, the full authorization of $1 billion for the Safe Drinking
    Water SRF. With the implementation of S. 1961, the Federal Government
    is taking a significant step toward fulfilling its obligation.
        During his State of the Union speech last month, the President
    outlined his fiscal priorities of defense and homeland security. These
    are important priorities, but we should not lose sight of other
    critical national concerns. Improving the nation's water quality and
    water systems through infrastructure investment makes good economic
    sense. For every billion dollars we invest in environmental
    infrastructure we create over 30,000 jobs. Beyond the creation of
    thousands of new jobs in the design and construction industry, millions
    of existing American jobs depend on clean and safe water including
    those in the $45 billion commercial fishing industry and the $100
    billion water recreation industry.
        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
    existing pipes, bricks and mortar that are holding together our current
    infrastructure system are severely outdated and in need of repair.
    States are forced to delay construction projects in order to comply
    with important health and safety mandates by the EPA. With Federal
    requirements on TMDLs, combined sewer overflows, SSOs and arsenic
    removal, States will likely fall further behind in their efforts to
    repair and replace pipes. Without a significantly enhanced Federal role
    in providing assistance to drinking water infrastructure, critical
    investments will not occur. Federal assistance can come in the way of
    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.
        ACEC acknowledges the Committee's efforts to streamline the Federal
    requirements that hampered accessibility to the SRF program. We support
    the provisions in S. 1961 that broaden the definition of projects and
    communities that are eligible for Federal assistance through the State
    revolving funds and the flexibility with which those projects can be
    implemented.
        The Water Investment Act of 2002 could be amended to enhance its
    effectiveness and improve on its ability to build modern wastewater and
    drinking-water facilities and protect national security. ACEC strongly
    encourages the Committee to adopt the following provisions to S. 1961
    as it deliberates further on this legislation:
         The bill should expressly authorize the Environmental
    Protection Agency to use the Clean Water Act SRF Loan Fund and the Safe
    Drinking Water Act SRF to provide financial assistance for the
    construction of physical security measures at wastewater and drinking
    water plants. Certain terrorist groups have made it clear that the
    destruction of U.S. water-treatment facilities is one of their aims.
    Federal funds should be made available through the SRFs to deal with
    specific security needs, including improved building design and
    construction requirements, fencing and other physical security
    measures. No funds should be made available to hire security guards,
    establish private police forces or implement other non-structural
    protections, which should be addressed through operating funds.
         The bill should require that each contract and subcontract
    for architectural and engineering design services, program and
    construction management and other professional services should be
    awarded in the same manner as contracts that are awarded under title IX
    of the Federal Property and Administrative Services Act of 1949.
         The bill should give a State the discretion to use the
    design-build project delivery method for each facility financed under
    the SRFs. The use of this method should be consistent with State law.
    Once a State decides that the design-build project delivery system is
    appropriate for a given project, the recipient should be required to
    the use of the two-phase competitive source-selection procedures
    authorized under Section 303M of the Federal Property and
    Administrative Services Act of 1949.
        In conclusion, we would like to reiterate our support for S. 1961
    and we thank the four co-sponsors of the legislation, Senators
    Jeffords, Smith, Crapo and Graham for their leadership on this issue.
    The engineering community stands ready to help rebuild and replace the
    aging and failing infrastructure that puts so many communities and
    citizens at risk.