[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



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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.
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    \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
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    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?
---------------------------------------------------------------------------
    \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.
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