[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



 
                FINANCING WATER INFRASTRUCTURE PROJECTS

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

                                (109-21)

                                HEARINGS

                               BEFORE THE

                            SUBCOMMITTEE ON
                    WATER RESOURCES AND ENVIRONMENT

                                 OF THE

                              COMMITTEE ON
                   TRANSPORTATION AND INFRASTRUCTURE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                          JUNE 8 AND 14, 2005

                               __________


                       Printed for the use of the
             Committee on Transportation and Infrastructure





                                 _____

                 U.S. GOVERNMENT PRINTING OFFICE

22-500 PDF             WASHINGTON : 2006
_________________________________________________________________
For sale by the Superintendent of Documents, U.S. Government 
Printing  Office Internet: bookstore.gpo.gov  Phone: toll free 
(866) 512-1800; DC area (202) 512-1800 Fax: (202) 512-2250 Mail:
Stop SSOP, Washington, DC 20402-0001


















              COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE

                      DON YOUNG, Alaska, Chairman

THOMAS E. PETRI, Wisconsin, Vice-    JAMES L. OBERSTAR, Minnesota
Chair                                NICK J. RAHALL, II, West Virginia
SHERWOOD L. BOEHLERT, New York       PETER A. DeFAZIO, Oregon
HOWARD COBLE, North Carolina         JERRY F. COSTELLO, Illinois
JOHN J. DUNCAN, Jr., Tennessee       ELEANOR HOLMES NORTON, District of 
WAYNE T. GILCHREST, Maryland         Columbia
JOHN L. MICA, Florida                JERROLD NADLER, New York
PETER HOEKSTRA, Michigan             ROBERT MENENDEZ, New Jersey
VERNON J. EHLERS, Michigan           CORRINE BROWN, Florida
SPENCER BACHUS, Alabama              BOB FILNER, California
STEVEN C. LaTOURETTE, Ohio           EDDIE BERNICE JOHNSON, Texas
SUE W. KELLY, New York               GENE TAYLOR, Mississippi
RICHARD H. BAKER, Louisiana          JUANITA MILLENDER-McDONALD, 
ROBERT W. NEY, Ohio                  California
FRANK A. LoBIONDO, New Jersey        ELIJAH E. CUMMINGS, Maryland
JERRY MORAN, Kansas                  EARL BLUMENAUER, Oregon
GARY G. MILLER, California           ELLEN O. TAUSCHER, California
ROBIN HAYES, North Carolina          BILL PASCRELL, Jr., New Jersey
ROB SIMMONS, Connecticut             LEONARD L. BOSWELL, Iowa
HENRY E. BROWN, Jr., South Carolina  TIM HOLDEN, Pennsylvania
TIMOTHY V. JOHNSON, Illinois         BRIAN BAIRD, Washington
TODD RUSSELL PLATTS, Pennsylvania    SHELLEY BERKLEY, Nevada
SAM GRAVES, Missouri                 JIM MATHESON, Utah
MARK R. KENNEDY, Minnesota           MICHAEL M. HONDA, California
BILL SHUSTER, Pennsylvania           RICK LARSEN, Washington
JOHN BOOZMAN, Arkansas               MICHAEL E. CAPUANO, Massachusetts
JIM GERLACH, Pennsylvania            ANTHONY D. WEINER, New York
MARIO DIAZ-BALART, Florida           JULIA CARSON, Indiana
JON C. PORTER, Nevada                TIMOTHY H. BISHOP, New York
TOM OSBORNE, Nebraska                MICHAEL H. MICHAUD, Maine
KENNY MARCHANT, Texas                LINCOLN DAVIS, Tennessee
MICHAEL E. SODREL, Indiana           BEN CHANDLER, Kentucky
CHARLES W. DENT, Pennsylvania        BRIAN HIGGINS, New York
TED POE, Texas                       RUSS CARNAHAN, Missouri
DAVID G. REICHERT, Washington        ALLYSON Y. SCHWARTZ, Pennsylvania
CONNIE MACK, Florida                 JOHN T. SALAZAR, Colorado
JOHN R. `RANDY' KUHL, Jr., New York
LUIS G. FORTUNO, Puerto Rico
LYNN A. WESTMORELAND, Georgia
CHARLES W. BOUSTANY, Jr., Louisiana
VACANCY

                                  (ii)















            Subcommittee on Water Resources and Environment

                JOHN J. DUNCAN, Jr., Tennessee, Chairman

SHERWOOD L. BOEHLERT, New York       EDDIE BERNICE JOHNSON, Texas
WAYNE T. GILCHREST, Maryland         ROBERT MENENDEZ, New Jersey
VERNON J. EHLERS, Michigan           JOHN T. SALAZAR, Colorado
STEVEN C. LaTOURETTE, Ohio           JERRY F. COSTELLO, Illinois
SUE W. KELLY, New York               GENE TAYLOR, Mississippi
RICHARD H. BAKER, Louisiana          BRIAN BAIRD, Washington
ROBERT W. NEY, Ohio                  TIMOTHY H. BISHOP, New York
GARY G. MILLER, California           BRIAN HIGGINS, New York
HENRY E. BROWN, Jr., South Carolina  ALLYSON Y. SCHWARTZ, Pennsylvania
BILL SHUSTER, Pennsylvania           EARL BLUMENAUER, Oregon
JOHN BOOZMAN, Arkansas               ELLEN O. TAUSCHER, California
JIM GERLACH, Pennsylvania            BILL PASCRELL, Jr., New Jersey
TOM OSBORNE, Nebraska                RUSS CARNAHAN, Missouri
TED POE, Texas                       NICK J. RAHALL, II, West Virginia
CONNIE MACK, Florida                 ELEANOR HOLMES NORTON, District of 
LUIS G. FORTUNO, Puerto Rico         Columbia
CHARLES W. BOUSTANY, Jr.,            JAMES L. OBERSTAR, Minnesota
Louisiana, Vice-Chair                  (Ex Officio)
VACANCY
DON YOUNG, Alaska
  (Ex Officio)

                                 (iii)



















                                CONTENTS

Proceedings of:

  June 8, 2005...................................................     1
  June 14, 2005..................................................   110

                              June 8, 2005

                               TESTIMONY

                                                                   Page
 Ciaccia, Julius, Director, Cleveland Division of Water, on 
  behalf of the American Water Works Association.................    12
 Luntz, Dr. Frank, President, the Luntz Research Companies.......    12
 Neely, Susan K., President and CEO, the American Beverage 
  Association....................................................    12
 Rubin, Dr. Kenneth I., Managing Partner, PA Government Services.    12
 Schenendorf, Jack, Of Counsel, Covington & Burling, on behalf of 
  the Associated General Contractors of America..................    12

          PREPARED STATEMENT SUBMITTED BY A MEMBER OF CONGRESS

Costello, Hon. Jerry F., of Illinois.............................    38

               PREPARED STATEMENTS SUBMITTED BY WITNESSES

 Ciaccia, Julius.................................................    41
 Luntz, Dr. Frank................................................    46
 Neely, Susan K..................................................    50
 Rubin, Dr. Kenneth I............................................    55
 Schenendorf, Jack...............................................    63

                        ADDITIONS TO THE RECORD

American Concrete Pressure Pipe Association, Jim Clift, Chairman 
  of the Board, statement........................................    75
American Society of Civil Engineers, statement...................    81
American Supply Association, Dottie Ramsey, president, statement.    89
Construction Management Association of America, statement........    91
Public Citizen, Energy and Environmental Program, Wenonah Hauter, 
  statement......................................................    93
Vinyl Institute, Timothy F. Burns, President, statement..........    96
Western Coalition of Arid States, Charlie Nylander, Chairman, 
  Legislative/Budget Committee, statement........................   103

                             June 14, 2005

                               TESTIMONY

                                                                   Page
 Hill, Donald, Deputy Mayor Pro Tem, Dallas, Texas...............   113
 Howard, Stephen, Senior Vice President, Lehman Brothers.........   113
 Khuman, Jag, Director, Maryland Water Quality Financing 
  Administration, Maryland Department of the Environment.........   113
 Martin, Debra, RCAP Program Director, Great Lakes Rural 
  Community Assistance Partnership...............................   113
 Nelson, Valerie, Director, Caolition for Alternative Wastewater 
  Treatment......................................................   113
 Ward, Kevin, Executive Administrator, Texas Water Development 
  Board, representing the Council of Infrastructure Authorities..   113

               PREPARED STATEMENTS SUBMITTED BY WITNESSES

 Hill, Donald....................................................   141
 Howard, Stephen.................................................   151
 Khuman, Jag.....................................................   166
 Martin, Debra...................................................   173
 Nelson, Valerie.................................................   177
 Ward, Kevin.....................................................   185





















                 FINANCING WATER INFRASTRUCTURE PROJECTS

                              ----------                              


                        Wednesday, June 8, 2005

        House of Representatives, Subcommittee on Water 
            Resources and Environment, Committee on 
            Transportation and Infrastructure, Washington, 
            D.C.
    The subcommittee met, pursuant to call, at 10:00 a.m., in 
Room 2167, Rayburn House Office Building, Hon. John Duncan 
[chairman of the subcommittee] Presiding.
    Mr. Duncan. I want to, first of all, welcome everyone to 
our hearing today. Today is the first portion of a two-part 
hearing on financing water infrastructure projects. We will 
hold the second part of this hearing next week on Tuesday, June 
14. These will be two very important hearings.
    We are all well aware that our national wastewater 
infrastructure is aging, deteriorating and in need of repair 
and replacement. The American Society of Civil Engineers 
recently graded the condition of the wastewater infrastructure 
in our country and gave it a D-minus.
    The Congressional Budget Office, the EPA and the Water 
Infrastructure Network have estimated it could take over $400 
billion to address our Nation's clean water infrastructure 
needs over the next 20 years, twice the current level of 
investment when you consider what is coming from all levels of 
government. That is a staggering amount of money.
    We can reduce the overall cost of wastewater infrastructure 
with good asset management, innovative technologies, increased 
water efficiency; and regional approaches to water pollution 
problems also could help reduce costs. But these things alone 
will not close the large funding gap that now exists between 
wastewater infrastructure needs and current levels of spending. 
Increased investment must still take place. That leads to the 
question, where is the money going to come from?
    There is no single answer to that question. Municipal 
wastewater services are State and local responsibilities, but 
there is clearly a strong Federal interest in keeping our 
waters clean. So what we need is an effective partnership. That 
means, of course, that all partners would need to contribute.
    At the local level, communities need to evaluate their 
assets, make capital improvement plans, identify sources of 
capital to implement those plans and ask for rate increases 
that will repay that capital over time. That last part, as we 
all know, is very difficult. No one likes to spend more, but if 
citizens understand the relationship between clean water and 
wastewater infrastructure, they should be willing to make the 
necessary investments.
    A recent survey by the Luntz Research Companies suggests 
that citizens do understand this relationship. The survey found 
that most Americans believe clean and safe water is a national 
priority and are willing to pay more money to get it. The 
survey also found that most Americans want a sustainable, 
dedicated source of funding for water infrastructure projects 
and that they would support the creation of a sustainable trust 
fund for wastewater infrastructure.
    Supported by these findings, some are advocating the 
creation of a national clean water trust fund as a means for 
financing wastewater infrastructure needs. One of the most 
complex aspects of moving from the trust fund concept to 
reality, however, is determining the funding sources for such 
trust fund. The water and wastewater community has not 
supported a user fee for a trust fund, and so far no other 
water user has stepped forward in support of a fee or tax on 
their activities either. As a result, it remains unclear how a 
trust fund would be funded.
    We will hear today from Dr. Frank Luntz about the results 
of his public opinion survey, including the public's perception 
of the need for clean water and of the trust fund concept. In 
addition, we will hear from representatives of the National 
Association of Clean Water Agencies, the Associated General 
Contractors of America, the American Water Works Association 
and the American Beverage Association on issues relating to a 
national clean water trust fund.
    I hope our witnesses will bring forward ideas on how we can 
increase funding for wastewater infrastructure, identify 
potential willing revenue sources and ensure equitable means 
for generating revenues.
    At next Tuesday's hearing, we will continue this discussion 
by focusing on funding mechanisms other than a trust fund.
    Let me now turn to my good friend, our ranking member, Mrs. 
Johnson, for any opening statement she would like to make.
    Ms. Johnson of Texas. Thank you very much Mr. Chairman, and 
thank you for holding this series of hearings on the issue of 
water infrastructure financing.
    The condition of the Nation's wastewater infrastructure is 
of a tremendous importance to the health of our citizens and 
the environment, as well as the economic health of our Nation. 
It is also virtually unnoticed and unappreciated by most 
Americans because we take it for granted. Of course, this out-
of-sight and out-of-mind attitude changes when problems with 
infrastructure arise.
    Our Nation faces the unprecedented possibility of failure 
of critical water and wastewater infrastructure and the reality 
of unmet infrastructure needs for the protection of the 
environment. The union of these issues poses a significant 
threat to the Nation and can lead to a reality of increased 
sewage overflows, closed beaches and contaminated drinking 
water. We cannot address these threats without increased 
infrastructure investment from Federal, State and local 
sources.
    First and foremost, the Federal Government must acknowledge 
and meet its continuing role to work in partnership with States 
and local governments to address the existing issues. However, 
in recent years, the Federal commitment falls short. The 
Federal contribution to State storage water infrastructure has 
averaged about $1.2 billion annually for wastewater involving 
local loan funds, and $700 million annually for drinking water 
funds. Compare this level of investment to annual needs of $10 
to $15 billion or more as documented by the Congressional 
Budget Office and the EPA.
    Worse still, in the past 2 years, the Federal contributions 
towards wastewater infrastructure have declined rapidly, 
dropping to $1.1 billion in fiscal year 2005 and are expected 
to be under a billion dollars for fiscal year 2006.
    Last month, the House approved the fiscal year 2006 funding 
bill for EPA with only $850 million for the Clean Water State 
Revolving Fund, a 23 percent decline in funding in just 1 year. 
This reduction and the Federal commitment could not come at a 
worse time for our communities. Many medium-sized and small 
rural communities simply are not able to afford the needed 
investment in water infrastructure on their own. They need 
increased Federal assistance, not cuts. Even some larger 
communities have either been a significant--have seen 
significant erosion in their tax base or significant increases 
in needs such as they require to help to meet those needs.
    Some say these are local issues, yet State and local 
governments already invest 10 times the amount contributed by 
the Federal Government. With polluted waters across the State 
boundaries and people traveling freely throughout the Nation, 
they expect safe drinking water wherever they go. Clean and 
safe water is essential to our way of life and the Nation's 
economic success.
    There is still a strong Federal interest in water quality, 
and this committee has a history of support towards 
reauthorizing and increasing funding for the Clean Water Act. I 
question, however, whether that can be translated into real 
dollars, especially in light of the unrealistic spending 
limitations contained in the budget for the next few years.
    Mr. Chairman, this series of hearings will explore whether 
there are other resources that have not been utilized, that can 
help address this problem. For example, for the past few years, 
there has been talk of creating a trust fund to meet water and 
wastewater funding needs, similar to the highway and aviation 
trust funds. This is an attractive idea and one in which the 
committee has significant experience. Unfortunately, however, 
the task for water will be much greater.
    TEA-21 and AIR-21 both include dedicated resources of 
revenue financed by taxes directly related to highway and air 
transportation. But water, the challenge comes from identifying 
viable sources of funding that potentially could be tapped to 
pay for necessary water infrastructure repairs and 
improvements.
    I am sure this will be a lively debate, but it is one that 
must occur if we are serious about meeting the challenge of 
addressing water and wastewater infrastructure needs. 
Regardless of the source of increased funding, we must work 
together to ensure that our commitment to the environment and 
to safe drinking water will not be diminished. We can either 
move forward or fall behind, but without additional funding, we 
will surely fall behind.
    Again, Mr. Chairman, I thank you for your interest in 
calling these hearings, and I look forward to our witnesses' 
testimony.
    Mr. Duncan. Thank you very much, Ms. Johnson. You have said 
something that I have said before, that there is nothing that 
the people of this country take so much for granted as our 
wastewater and clean water infrastructure.
    But I will tell you, in the year since I have chaired this 
subcommittee, I have met personally with the Mayors of Los 
Angeles, Atlanta, Chicago, all over the country. Monday, I met 
with the Mayor of Miami and Mr. Pascrell, who has been an 
active member of this subcommittee, and has experience in his 
city in this regard. And the Mayors and the people on the front 
lines know how important this work is.
    I would like to call on Mrs. Kelly.
    Mrs. Kelly. I thank you, Chairman Duncan, especially for 
holding this hearing to spotlight the importance of our 
Nation's water infrastructure.
    Members of this committee are pretty well aware of the 
tremendous funding gap that is in our Nation's wastewater 
infrastructure system. Many of us have been working for years 
to try to strengthen the Federal commitment to wastewater 
infrastructure programs. You know, for some time now, there has 
been this predictable pattern of budget proposals and enacted 
funding levels that clearly show that we have our work to do to 
put enough funding in to save our wastewater infrastructure.
    Like I did in the previous Congresses, I have introduced a 
bill with my colleague, Ellen Tauscher, that is aimed at 
substantially increasing Federal investment in clean water 
infrastructure. H.R. 2684, the Clean Water Infrastructure 
Financing Act, would dedicate $25 billion over the next 5 years 
to the State revolving funds.
    People may suggest that these funding levels fall short of 
what is needed. Well, actually, they do, but it is a place to 
start.
    We have got to put attention into our Nation's wastewater 
infrastructure. We have problems with combined sewer overflows. 
We have problems with potential blending problems, because of 
our systems cannot carry what we have. We are a growing nation, 
and we are an aging nation. The combination puts a tremendous 
pressure on our need for this Clean Water Infrastructure 
Financing Act.
    It is a complicated issue. It involves the critical 
question of how a trust fund is supposed to be spent. But it is 
an issue that is not going to be resolved in the short term. It 
is a long-term beginning, and I think it is very useful to have 
these conversations to see where we can get common ground. I 
look forward to getting the input from these witnesses today.
    And I again thank you very much and congratulate you, 
Chairman Duncan, on your efforts.
    Mr. Duncan. Thank you for your good work on this and your 
work with Mrs. Tauscher. I believe Mrs. Tauscher was next. We 
will go to her for any statement she wishes to make.
    Mrs. Tauscher. Thank you, Chairman Duncan, for holding this 
hearing today on an issue which I know is of importance to all 
of our constituents. We must ensure clean water and protect our 
Nation's waterways. This is a priority that should be of 
paramount importance to all of us.
    Mr. Chairman, the need is not unknown. According to an EPA 
needs assessment survey, there is an investment gap for 
wastewater infrastructure in this country at around $12 billion 
a year, or 225 billion over the next 20 years. It is clear that 
without additional Federal support, our local communities and 
publicly held utilities will not be able to keep up with this 
demand.
    In April, this subcommittee, under your leadership, Mr. 
Chairman, held a hearing on the EPA's proposed wastewater 
blending policy. Like many of my colleagues, I opposed the 
EPA's proposed policy because it is too broad and does not go 
far enough to protect the $650 million investment my 
constituents have already made to upgrade the community's 
wastewater infrastructure. However, at that same hearing, I 
made the case for increased Federal investment in 
infrastructure financing.
    We cannot be silent players in the fight for clean water. 
We have a responsibility to ensure our local communities have 
the resources necessary to sustain the necessary environmental 
protections which this Congress should rightly mandate. 
Unfortunately, we have done less than an adequate job in 
ensuring that this financing is available to meet the growing 
need.
    As many of my colleagues know, this year's Interior 
Appropriations measure decreased the Federal commitment to the 
Clean Water State Revolving Fund by hundreds of millions of 
dollars. Despite attempts by some Members to increase these 
funds on the floor, the Clean Water SRF remains woefully 
underfunded.
    We have to get serious about solutions. With my colleague, 
Sue Kelly, we have again introduced the Clean Water 
Infrastructure Financing Act. Our legislation would 
dramatically increase the Federal investment in local 
communities' environmental infrastructure by helping to bridge 
the current funding gap by providing $25 billion over the next 
5 years.
    Mr. Chairman, as I said, it is time to get serious about 
our commitment to funding these infrastructure requirements. I 
look forward to hearing our witnesses today, especially my 
friend, Dr. Frank Luntz. And I am looking forward to working 
with you, Mr. Chairman, to moving legislation later this year. 
I yield back.
    Mr. Duncan. Thank you very much.
    Mr. Osborne?
    Mr. Salazar.
    Mr. Salazar. Thank you, Mr. Chairman and Ranking Member 
Johnson.
    I know that many of us have just returned from traveling 
our districts and meeting with local groups. As I work back 
home on my own land and out in the district, I can never get 
away from the issue of clean water or plain water. As you see, 
I am a farmer. And in the Third Congressional District of 
Colorado, which is largely rural and agriculture to the bone, 
the issue we are discussing today, clean water, is about our 
way of life.
    This past weekend, one of the big news items in Pueblo was 
the contamination of Fountain Creek and the overflow of some of 
the sewage from Colorado Springs into Fountain Creek, which 
flows into the Arkansas River. An estimated 26,400 gallons of 
untreated water flowed into the Fountain and contaminated both 
Fountain Creek and the Arkansas River. This is just one of the 
many challenges we face in our community.
    While we are sensitive to the need to invest in water and 
water infrastructure, these improvements are extremely costly, 
especially in rural America. This is a problem we have faced 
for decades and there is no easy solution. While most 
communities would prefer to hold their own, we know that 
Federal assistance is often the only way that large-scale 
projects can come through in rural America.
    I understand the pitfalls that come with the idea of 
creating a clean water trust fund and who will pay for it, but 
it is something this Congress should tackle. As I think about 
the needs of my own family and neighbors, the issue of clean 
water hits home all too well. I look forward to hearing from 
you today.
    Thank you, Mr. Chairman and Ranking Member Johnson.
    Mr. Duncan. Thank you very much.
    Mr. Pascrell.
    Mr. Pascrell. Mr. Chairman, as a former mayor, I can attest 
that sewer system modernization is one of the issues that can 
keep you up nights. Cities want to be in compliance with the 
EPA regulations, and they want to keep local rivers clean by 
doing what is right for the environment and for future 
generations. But when you mix large capital investments with 
severe budgetary constraints, many cities are simply unable to 
do what they need to do to meet Federal regulations; and the 
panel knows that better than I do.
    Mr. Chairman, thanks to your leadership, this committee is 
well aware of the vast clean water infrastructure needs our 
Nation faces, but apparently we need to do a better job 
educating the rest of the Congress. The House-passed Interior 
Appropriations bill actually cuts water infrastructure 
investment.
    Now, I have heard the word "start," this is a "good start 
for," 7 years, 7 years. I think we should end using the word 
"start," because we are past that. This is a charade; there are 
no two ways about it.
    You even state, Dr. Luntz, in your presentation that in the 
polling that you have done, what America's priorities are; and 
America's priorities are, they would rather have clean water 
than tax cuts. You can't make it any more simple than that. 
That is an Archie Bunker statement if I ever saw one.
    Why can't we get it? Why can't we get it? The House-passed 
Interior Appropriations bill actually cuts water infrastructure 
investments, Mr. Chairman. That is unacceptable.
    I understand the fact that we are facing record budget 
deficits and a growing Federal debt and that austerity is 
necessary. We actually say these things on this side of the 
table. But we did not come to this budget crisis in a vacuum. 
It has been through irresponsible management, misplaced 
priorities by the Congress, and we are forced to make cutbacks 
in public health priorities.
    This is a public health issue. I mean, we talk about 
homeland security, protecting our streets and grandchildren, 
and you have heard all those things over and over again. We 
can't even protect the water supply of the country. Wow. If 
dedicating funding is good enough for highways and aviation 
systems, it is certainly good enough for our water.
    Of course, like any new initiative, the devil is in the 
details. I look forward to working in a bipartisan fashion as 
this committee has worked in a bipartisan fashion. No one can 
accuse this committee, no one from the minority, can accuse the 
chairman or anybody on the majority side of trying to have it 
all ways. Either we are going to continue with the charade and 
continue to meet year after year and say the nice things that 
you want to hear and you come back with the statistics that 
indicate you are pretty supportive of what we have been 
attempting to do.
    Is anyone listening? Is the administration listening? Does 
the administration know that cleaner water is more important 
than giving Sammy Sosa a tax cut? Do they understand that?
    Let me also put in another plug for the bill this committee 
reported, to reauthorize 1.5 billion for a wet weather grant 
program. This legislation can give cities and towns the 
resources they need to clean up noncompliant combined sewer 
systems. I hope that everyone here will help us push this bill 
on the floor.
    And, Mr. Chairman, you have done a fantastic job since I 
have been on this committee.
    Mr. Duncan. Thank you, Mr. Pascrell.
    Mr. Miller.
    Mr. Miller. Thank you, Mr. Chairman.
    This is a huge issue for California. We have real water 
problems, as all of you know. We are putting a major 
transportation bill out that does a major study through the 
national forest, putting a tunnel in. And we have amended that 
to include the possibility of a major water line for MWD to 
meet the needs of California.
    You have to be real creative today to try to keep up with 
the infrastructure needs. And I commend many of my water 
agencies for what they are doing. They are doing a great job of 
water banking, conservation.
    This is a huge issue, and I am looking forward to the 
testimony today.
    Mr. Duncan. Mr. Bishop.
    Mr. Bishop. Thank you, Mr. Chairman and Ranking Member 
Johnson, for calling this hearing on how we can improve the way 
local water infrastructure projects are funded.
    Helping municipalities share this responsibility with the 
Federal Government will lead to a more efficient grant system 
that delivers the funding where it is needed the most. This is 
a vitally important issue throughout the country and for many 
of the municipalities of my district on Long Island.
    I have heard from and met with a number of locally elected 
officials in my district who have experienced difficulty over 
the years with the current system and continue doing the best 
job they can to stretch the value of their grant dollars. In 
particular, as Suffolk County, New York, continues its rapid 
expansion, most of the area is constantly experiencing growing 
pains that stretch the limits of its water system. Every year, 
the county and a growing number of other communities implore me 
to help them find funding for water treatment facilities and 
antiquated delivery systems.
    The need for reliable clean water is important to protect 
public health and maintain safe drinking water. The current 
funding system is riddled with problems that are taking a toll 
on smaller governments that simply cannot afford to pick up the 
slack, particularly at a time when we are asking them to absorb 
cuts to Medicaid, community development block grants and other 
investments in our infrastructure.
    In recent years, we have witnessed a disturbing shift away 
from fully funding clean water projects. We are aware of and 
sensitive to the need for fiscal responsibility, but the 
public's well-being should not come at the expense of keeping 
an outdated system that just needs a few adjustments, when 
other ways to pay for these projects exist.
    My hope is that these hearings will lead to bipartisan 
legislation that creates a more efficient funding system that 
guarantees that the dollars arrive where they are needed the 
most and ensures that we have money to pay for overdue 
projects.
    Thank you for holding this hearing.
    Mr. Duncan. Mr. Shuster.
    Mr. Shuster. Thank you, Mr. Chairman. I appreciate your 
holding these hearings today.
    And hearing from my friend from New York--he was talking 
about the urban areas--I come from a rural area and the needs 
are great in rural Pennsylvania and, I am sure, all across 
America for us to have the kind of economic development, 
attracting industry through western Pennsylvania where it has 
lost so much industry. It is absolutely critical we have water 
systems in place to be able to handle the growth, although it 
is small at this point, but the future growth that we are 
trying to attract there.
    I often say--and my press people cringe when I say this--
but if you can't flush toilets and turn on spigots for clean 
water, people aren't going to go there, businesses aren't going 
to locate there. This is vital to western Pennsylvania. And I 
appreciate you for being here to testify.
    Dr. Luntz, maybe you can tell me if that flushing toilets 
is a good thing or bad thing to use on the stump. I think it is 
effective and people can relate to that, I think.
    Thank you, Mr. Chairman. I look forward to hearing the 
testimony.
    Mr. Duncan. Ms. Schwartz.
    Ms. Schwartz. Thank you, Mr. Chairman. And Chairman Duncan 
and Ranking Member Johnson, I thank you for convening this 
hearing today and I look forward to the panelists.
    I am very proud to represent the city of Philadelphia and 
for the history buffs in the room, just to let you know in 
1801, the first water department in the United States to 
provide drinking water to the entire city was actually in the 
city of Philadelphia.
    So we have historic waterworks. And it has been renovated; 
you can come see it, and hopefully some day we will be able to 
eat there with a new restaurant. There is no question that the 
Philadelphia Fairmont Waterworks--and anyone in the water 
business knows about it--was a model for almost 30 years just 
in terms of a delivery system for an entire system and doing it 
effectively.
    Our water system is aging. You have heard it from my 
colleagues. One of the things that the public relies on and 
separates us from developing countries around the world is our 
infrastructure, particularly our drinking, wastewater and sewer 
systems. And we know in places like Africa, there are diseases 
that are spread every day that we, in fact, no longer worry 
about because of the safe water that we rely on in this country 
and that our public relies on.
    So we need to make sure that we are keeping pace, that we 
are a step ahead, that we are able to maintain the safety and 
security of our water systems and that we don't take it for 
granted. I think many of the public sort of does. And so we 
need to--it is our responsibility to step up to the plate and 
make sure that we are doing all that we can to ensure that our 
drinking water and that our water systems that were installed--
many of them, 50 and 100 years ago; that 1801 system actually 
has been replaced, at least in part, over the years--but many 
of them are still showing their age of 50 and 100 years ago. 
They are leaking, cracking and breaking, and it is enormously 
expensive for us to locally replace it.
    The introduction of disease and illness is certainly at 
stake. And as been briefly mentioned here, concern about our 
water system, the water treatment plant in my district, the 
concern about terrorism. We are looking to put a bike path 
along the Delaware River, and one of the issues is that they 
don't want us to go right by the water treatment plant that is 
there because of the fear of terrorists.
    I don't know if they come on bicycles or not, but more 
seriously, the fact is, we can't take for granted that our 
major water systems are safe. But again, there is a cost to the 
potential security. The estimates are that $1.6 billion is 
needed to finance security enhancements for the 8,400 community 
water systems across the United States.
    So it is my hope, at this morning's hearings, we will begin 
the much-needed discussion about ways we can work together--
Federal, State and local officials in the company of the 
private sector--to invest in, improve and maintain the water 
infrastructure that we all rely on in this country.
    Thank you very much.
    Mr. Duncan. Mr. Higgins?
    Mr. LaTourette?
    Mr. LaTourette. No.
    Mr. Duncan. Mr. Blumenauer? We will give you a chance to 
catch your breath.
    Let us go to Mrs. Norton.
    Ms. Norton. Thank you, Mr. Chairman. This is an important 
hearing, and I appreciate your calling it. Particularly as you 
begin with these witnesses that you have called about where the 
American people are on this issue will help to educate us about 
what appears to be a silent crisis in our country.
    I compare the transportation bill that we--that is now in 
conference and, obviously, our Federal interstate hooks into 
the national highway system. But the most important thing about 
that bill is that everybody can see its effects, and it becomes 
a top priority because everybody uses the roads and everybody 
uses mass transit and they wouldn't think of not having the 
Federal Government, the States and the private sector deeply 
involved in that part of our infrastructure.
    This hearing is about an equally important part of our 
infrastructure, but the part that we most take for granted 
because we believe that clean water is our birthright and we 
think it is going to continue to happen no matter what happens. 
I am here to tell you, as the Congresswoman for the Nation's 
Capital, which experienced a lead water crisis that was 
extremely disconcerting 2 years ago, that it is time that we 
understood that even clean water is nothing to take for granted 
in our country.
    I am particularly concerned about storm water overflow, 
because part of the reason for the overflow in this city is 
that the system, one-third of the system serves the Federal 
presence and the Congress of the United States. I am dealing 
with the waste of this body as a ratepayer. As we know, that is 
not enough here and it is not enough anywhere in the country to 
deal with what apparently is an increasing problem everywhere, 
that has gotten very little attention except at the local level 
where people do talk about it and do fret about it.
    I am--the reason I think this hearing is important is that 
it is focusing on all the possibilities here. And we really do 
need to be creative here. Yes, the Federal Government over the 
years has contributed billions of dollars. Yes, there needs to 
be more there. Yes, there needs to be more State and private 
support.
    Perhaps this national clean water trust fund--there needs 
to be something that structurally raises the level of this 
concern, not a few more dollars into a rising problem that 
drowns those dollars every time the toilet is flushed. We have 
got to look, stand back and see if there is a cosmic way to 
approach this problem so we can say, We have found a way to 
deal with clean water in our country.
    And I think this is a very important step, because let us 
hear first about the possibilities, let us hear where the 
American people are, and then let us try to craft a 
structurally different approach to going at this very critical 
problem that lies below the surface of the water we drink.
    Thank you very much, Mr. Chairman.
    Mr. Duncan. Thank you. I read a nice article about you and 
your daughter, and I know you must be very proud of her.
    Mr. Blumenauer.
    Mr. Blumenauer. Thank you, Mr. Chairman. I deeply 
appreciate your continuing the tradition of this subcommittee, 
trying to have a broad and comprehensive look at the problems 
that we face with water infrastructure.
    And this panel is, I think, well suited to help us focus on 
the range of problems that we face. I apologize in advance. I 
have a markup across the way and I am going back and forth. My 
staff and I are monitoring this very closely looking both at 
the testimony that is being presented and the interaction with 
the committee. And as time permits, I would like to come back.
    I spent 10 years prior to coming to Congress as the Public 
Works Commissioner for the City of Portland, Oregon. One of the 
little problems we worked with is combined sewer overflow, 
along with 1,100 communities around the country. And I have 
been struck by how this is sort of the hidden and ticking time 
bomb.
    I sat in on public hearings and had one guy sputter at the 
end saying, If you keep going with this program, in a couple of 
years, we are going to be paying as much for sewer and water as 
we are for cable TV. And let that sink in for a moment about 
the outrageous notion of protecting public health and families 
and economic development. And it was a truly horrifying 
prospect, I must admit.
    But I think that there are opportunities that we will be 
able to have in terms of having the Federal partnership 
redefine--perhaps increase a little bit--that aren't going to 
cost an arm and a leg, but will help catalyze the potential 
benefits we have by protecting clean water in communities and 
being able to do so in ways that are cheaper and greener.
    I think the panel's interaction today is an important first 
step. I appreciate the leadership of you and our ranking member 
and look forward to working with you, following up on this 
testimony.
    Mr. Duncan. Thank you very much, Mr. Blumenauer.
    We have put a lot of legislation through this subcommittee, 
but we certainly need to do more in this area. As has been 
pointed out at other hearings, unfortunately, we are spending 
more on the wastewater and clean water infrastructure in Iraq 
per capita than we have in the last couple of years here in the 
United States at the Federal level.
    Now we have been doing, thank goodness, a lot of good 
things at the local and at the State levels, and the ratepayers 
have been picking up the bulk of it, but there is an important 
Federal role here.
    But we are very pleased to have a distinguished panel here 
this morning. Our witnesses, from the Luntz Research Companies 
will be Dr. Frank Luntz, the President of that organization, 
from Alexandria, Virginia.
    Representing the Associated General Contractors of America 
will be Mr. Jack Schenendorf, who is of counsel with Covington 
& Burling. He was the staff director for this committee for a 
number of years and really did an outstanding job in that role. 
I am not sure there are many people that know the work of this 
committee better than Jack Schenendorf.
    Representing the National Association of Clean Water 
Agencies is Dr. Kenneth Rubin, the Managing Partner of PA 
Government Services, also from Washington, D.C.
    Representing the American Water Works Association is Mr. 
Julius Ciaccia, who is the Director of the Cleveland Division 
of Water, Cleveland, Ohio.
    And finally, representing the American Beverage Association 
is Ms. Susan Neely, who is the President and CEO of that 
association.
    We are pleased and honored to have each of you here today. 
We will put your full statements in the record. We give you 6 
minutes to make your statements. But in consideration of other 
witnesses, we will cut you off at that time and then we will 
get into more detail in the questions. And we always proceed in 
the order the way the witnesses are listed on the call of the 
hearing.

  TESTIMONY OF DR. FRANK LUNTZ, PRESIDENT, THE LUNTZ RESEARCH 
 COMPANIES; JACK SCHENENDORF, OF COUNSEL, COVINGTON & BURLING, 
ON BEHALF OF THE ASSOCIATED GENERAL CONTRACTORS OF AMERICA; DR. 
  KENNETH I. RUBIN, MANAGING PARTNER, PA GOVERNMENT SERVICES; 
   JULIUS CIACCIA, DIRECTOR, CLEVELAND DIVISION OF WATER, ON 
 BEHALF OF THE AMERICAN WATER WORKS ASSOCIATION; AND SUSAN K. 
  NEELY, PRESIDENT AND CEO, THE AMERICAN BEVERAGE ASSOCIATION

    Mr. Duncan. Dr. Luntz, you will go first.
    Dr. Luntz. Mr. Chairman, I want to thank you for the honor 
and privilege of being here. In fact, this is the first time in 
2005 that I have worn a tie. I assure you, this will be the 
last time in 2005. And to the Member from New Jersey, I would 
believe if you would to poll Baltimore Oriole fans, you would 
find the vast majority would deny Sammy Sosa his tax cut for 
this year. And to the Member from Pennsylvania, any mention of 
"toilet" is bad on a campaign trail.
    My name is Frank Luntz and I am President of the Luntz 
Research Companies, a public opinion company out of Alexandria, 
Virginia. I am here today to convey to you America's strong 
bipartisan support for investing in America's water 
infrastructure.
    Earlier this year, my organization, in partnership with 
Bill Clinton's former pollster, Penn, Schoen & Berland, 
conducted a nationwide telephone survey and found that nearly 
nine in 10 Americans support creating a Federal trust fund to 
guarantee Federal investment in clean and safe water. Fully 86 
percent of adult Americans adopt the concept, a public opinion 
consensus rarely seen in America. In fact, not a single--there 
was a majority from every single subgroup, age, income, 
education, region. No matter how you define it, the majority of 
Americans support the concept of a trust fund.
    And there are other findings I want to focus on briefly. 
Clean water is seen as a higher priority and a more important 
principle than investments that are made in more high-profile 
areas such as transportation and America's airways and 
airports. Ninety-one percent of Americans believe that--and I 
quote--if, as a country, we are willing to invest over $30 
billion a year on highways and more than 8 billion a year on 
our airways, we certainly should be able to make the necessary 
investments in our lakes, rivers and oceans.
    And when asked to prioritize--and this is where it gets 
important, because you can't do everything--71 percent choose 
investing in clean water and safe water, compared to only 20 
percent who would choose roads and highways and just 3 percent 
who choose airports and aviation.
    And more than two-thirds of Americans would rather have the 
Federal Government invest in our water infrastructure than 
introduce new tax cuts, as you so accurately and emphatically 
pointed out.
    The reason for this overwhelming support and clearly 
articulated prioritization can be explained in three words, 
quality of life. Clean water affects everyone and it matters to 
everyone in their day-to-day lives, and that is why you have 
universal support and bipartisan support. It doesn't matter 
whether you are Republican or Democrat, it doesn't matter if 
you are from a red State or blue State; an overwhelming 
majority of Americans believe that investing in water 
infrastructure is a "responsibility." and that word is chosen 
deliberately: It is the "responsibility" of the Federal 
Government.
    I have been involved in this for 20 years, and it is hard 
for me to imagine anything for 20 years. And you don't see that 
kind of consensus on any issue that faces America today. The 
reason why Americans so overwhelmingly believe that investing 
in a clean water infrastructure is a national issue is because 
they believe that keeping water safe and clean cannot be 
confined to any locality or, in their words, "clean water has 
no boundaries."
    I am a message person, and I pay attention to words. Those 
are the words that were spoken to us when we surveyed the 
American people. Fully 71 percent believe in the statement, 
"Clean water and safe water is a national issue that requires 
dedicated national funding. As a matter of principle, the 
Federal Government should become a true partner with States and 
localities and pay for the necessary sewage and wastewater 
treatment systems to guarantee clean and safe water for future 
generations of Americans."
    And that phrase is also important for future generations. 
The American people, when they talk about clean and safe water 
and an infrastructure, they are not speaking about today. They 
are speaking about 10 years from now, 20 years from now, 
because the public fundamentally believes that the environment 
should be getting better and status quo isn't good enough. And 
clean and safe water is an important component of that 
environment.
    The consensus goes beyond perception and straight into 
fact. For example, when told that the Federal Government today 
pays only 5 percent of the cost of ensuring that our water is 
clean and safe, 80 percent of Americans say that is unfair and 
unacceptable.
    This was an extensive poll. We dealt with facts, not just 
perceptions; and the public's opinion was clear.
    I have heard politicians complain that voters say, It is 
important, but let someone else pay for them. This one is 
different. Four times as many Americans believe that there 
should be, and I quote, "a dedicated funding source to ensure 
clean and safe water for future generations" than believed that 
"Our water infrastructure should not receive Federal funding, 
but should continue to be funded as it is." seventy-three 
percent want you to do it and 18 percent believe it should stay 
the same way.
    And this is the amazing part: 80 percent of Americans are 
prepared to open their wallets and pay more in taxes because 
clean water is an important priority to them. Now you tell me 
any other issue that has 80 percent support on anything. Eighty 
percent of Americans wouldn't even say that my shirt is blue, 
but they support clean and safe wastewater.
    My Democratic colleague, Doug Schoen, concurs with me in 
this interpretation. In his words, Environmental issues can 
sometimes be divisive, but clean and safe water is not seen by 
voters as a divisive issue. Instead, there is overwhelming 
support from both political parties for what is seen as a basic 
need that has to be protected, clean and safe water for our 
children and for the next generation.
    And I could not agree more.
    Thank you, Mr. Chairman.
    Mr. Duncan. Thank you very much, Dr. Luntz. Very 
fascinating testimony.
    Mr. Schenendorf.
    Mr. Schenendorf. Thank you, Mr. Chairman and Ranking Member 
Johnson. I am pleased to testify today on behalf of the 
Associated General Contractors of America on financing the $300 
to $500 billion water infrastructure funding gap identified by 
GAO and CBO.
    Addressing this shortfall with general fund appropriations 
would be extraordinarily difficult in the current budget 
climate. Either the deficit would be increased or if deficit-
neutral, other programs would have to be cut. Rather, I 
encourage the subcommittee to consider financing water 
infrastructure projects in the same way that transportation 
infrastructure projects are funded through self-financed, 
deficit-proof trust funds.
    Trust fund financing would pay for itself. It would not 
increase the deficit or require cuts in other programs. 
Moreover, the funding stream would not be subject to the 
vagaries of the annual appropriation process, thereby providing 
the certainty that State and local officials need to commit to 
long-term infrastructure financing. The biggest challenge and 
controversy would be determining who should pay and how much 
should they pay.
    In this regard, a look at the 1956 Highway Act and the 
financing of the interstate system may be instructive. In the 
1944 Highway Act, Congress called for a 40,000-mile national 
system of interstate highways, but because of very limited 
funding, very few interstates were built between 1944 and the 
early 1950s. At that time, the Federal program was funded from 
general revenues. There was a Federal gas tax, but its proceeds 
were not earmarked. Meanwhile, the price tag on the interstate 
system was estimated at $27 billion over a 13-year period, 
equivalent to $185 billion investment in today's dollars.
    Congress was faced with a similar problem that it is faced 
with today on the clean water funding. It took several years of 
controversy and several government studies to come up with a 
financing mechanism for the interstates. During this process, 
three financing alternatives were explicitly considered and 
rejected: general fund financing, tolling and bonding.
    Finally, proponents of the interstate system embraced the 
controversial strategy of increasing Federal excise taxes 
levied on highway users. Affected interests from the oil 
industry to the trucking industry to the Teamsters Union were 
opposed for one reason or another.
    In addition, during the early 1950s, the Governors 
Conference was not only opposed to increasing the gas tax, but 
they were pushing for full repeal of the tax, arguing it should 
be reserved to the States.
    The overall opposition was so strong that legislation 
embodying this approach was soundly defeated by more than a 2-
to-1 vote when the bill was considered on the House floor in 
1955.
    But supporters went back to the drawing board. They 
believed the basic approach in the 1955 bill was sound. They 
developed the 1956 Highway Act, which contained a variety of 
highway user taxes, including a 50 percent increase in the gas 
tax, 50 percent increase in the tire tax and a new licensing 
fee on heavy trucks.
    A key aspect of the 1956 bill was the creation of the 
Highway Trust Fund in which all these revenues would be 
deposited to be available for expenditure without further 
congressional authorization or appropriation. Supporters, 
including the construction industry, also realized that they 
needed to do a much better job of educating the American 
public, affected interest groups and Members of the Congress on 
the merits of the proposal, so they mounted an extensive 
lobbying and education campaign. In fact, this is where the 
highway lobby earned its reputation.
    As a result, many of the groups that opposed the 1955 bill 
changed their minds even though the tax proposals either did 
not change or, in some cases, even got worse. Essentially, many 
of the critics have had a chance to rethink their positions, 
especially given that the trust fund mechanism linked revenues 
and spending. Many were more willing to accept the idea of 
increased taxes' focusing instead on a fair distribution of the 
tax burden.
    Ultimately, the 1956 Highway Act passed the House and 
Senate by overwhelming votes. The rest is history. The battle 
to establish the trust fund was worth it. The 1956 Highway Act, 
one of President Eisenhower's most important achievements has 
been described as the best investment the Nation ever made. It 
often appears in the top five or top ten list of Federal 
legislation that really mattered.
    And it is often described as the law that created the 
interstate system, but as we have seen, that is not really 
correct. The genius of the 1956 act was that it created the 
Highway Trust Fund, the financing mechanism that made the 
interstates a reality.
    Today, the Highway Trust Fund continues to be one of the 
most successful Federal financing mechanisms, providing about 
33 billion per year for highway investment. Moreover, its 
success persuaded Congress to create other transportation 
infrastructure trust funds, including the Airport and Airways 
Trust Fund and the mass transit trust fund.
    These transportation financing mechanisms have been 
enormously successful in creating stable, dependable revenue 
streams for funding transportation infrastructure projects, but 
in each case, there was a contentious debate as to who should 
pay and how much should they pay. Congress concluded each time 
that the societal and political benefits of transportation 
infrastructure investment outweighed the negative consequences 
of establishing the revenue stream.
    Clean and safe water infrastructure projects deserve no 
less. As Dr. Luntz has indicated, Federal legislation creating 
a long-term, sustainable and reliable trust fund for clean and 
safe water infrastructure has strong support among the American 
people. If Congress develops a fair system for raising the 
revenue, I believe the water infrastructure trust fund is 
achievable.
    The benefits for the American people, American business and 
our Nation's environment would be enormous. In fact, I am 
convinced that a law creating a robust water infrastructure 
trust fund would easily make future top five lists of Federal 
legislation that mattered. Thank you.
    Mr. Duncan. Thank you very much, Mr. Schenendorf. That is a 
very interesting and, I think, significant history that you 
gave us with many parallels of what we are talking about here 
today.
    Dr. Rubin.
    Dr. Rubin. Mr. Chairman and members of the subcommittee, 
thank you for the opportunity to be here today. My name is 
Kenneth Rubin, and I am testifying on behalf of the National 
Association of Clean Water Agencies.
    The subcommittee is obviously well aware of consensus 
figures from EPA, the Congressional Budget Office and others 
that over the next 20 years, America's wastewater systems will 
have to invest $12 billion a year more than current investments 
to replace aging and failing infrastructure and to meet the 
national goals of environmental and public health priorities of 
the Clean Water Act.
    To overcome this funding gap, both national and local 
solutions must operate together. Some stakeholders have argued 
that local rate increases alone are sufficient to solve this 
problem. I don't believe that is the case. Financing the $12-
billion-a-year gap with utility rate increases could result in 
a doubling or tripling of rates across the Nation. And if this 
were to happen, at least a third of the population of the U.S. 
would have to pay more than 2 percent of their household income 
for sewer services, which is often taken to be the conventional 
criterion for affordability.
    The important part of that statistic, however, is that it 
would hit small, rural and low-income communities the hardest. 
And it is important to consider this against the backdrop that 
60 percent of the U.S. population has experienced no increase 
or a loss in real household income over the last 20 years. For 
a significant portion of U.S. families, sharp increases in 
wastewater rates would have significant economic impacts.
    Alternatively and importantly, there is ample precedent and 
clear economic principles supporting a Federal clean water 
trust fund. The importance of wastewater infrastructure has 
been recognized here today and has been well understood by this 
Congress and in the years leading up to the passage of the 1972 
Clean Water Act. To avoid an environmental and public health 
crisis, significant U.S. dollars were dedicated to reverse the 
Nation's declining water quality at that time.
    But today, despite increasing Federal mandates for cleaner 
water, despite shifts in population that strand wastewater 
assets in urban core cities with few ways to pay for needed 
improvements and despite the nearly universal need to replace 
hundreds of billions of dollars in aging and failing 
infrastructure, the Federal contribution to wastewater costs 
has declined from more than 50 percent in the early 1970s to 30 
percent in 1980 and only 5 percent today. Under these 
conditions, I would submit that some localities are unlikely 
ever to meet the Federal goals for ambient water quality in 
this Nation.
    Part of the reason for this is that investments in 
wastewater systems pay substantial national dividends to all 
Americans. It is well documented that municipal wastewater 
treatment plants prevent billions of tons of pollutants each 
year from reaching America's rivers, lakes and coastlines. They 
help preserve our national treasures, such as the Chesapeake 
Bay here locally.
    Clean water supports a $50-billion-a-year, water-based 
recreation industry, at least $300 billion in coastal tourism, 
$45 billion in annual commercial fishing and shellfishing and 
hundreds of billions of dollars a year in basic manufacturing 
that relies on clean water.
    Simply stated, America's waters are what economists would 
call "public goods," that is, clean water processes, wastewater 
treatment plants, result in cleaner, healthier waterways for 
all to enjoy. These benefits are available widely throughout 
our society--of course, to those who pay for them; we call them 
"local ratepayers"--but they are also available to many others 
who don't pay directly for those services, those living 
downstream. A trust fund can help overcome those kinds of 
inequities.
    The trust fund concept also makes a lot of sense when 
considering population trends. Wastewater treatment assets wear 
out and must be replaced. For many urban core cities whose 
populations have shifted to the outlying suburbs, the cost of 
replacing wastewater infrastructure can be unmanageable. In 
many cities, a doubling, a tripling, even a quadrupling in 
sewer rates would not be enough to meet the replacement needs 
of existing infrastructure because too few people remain within 
the boundaries of these cities to pay for these fixed assets 
which, of course, operate on a network basis. In many 
locations, those who still populate urban centers, of course, 
have lower incomes, than those who can afford to move to 
outlying areas. Serious questions of equity arise when local 
sewer fees alone have to increase dramatically to serve these 
populations.
    Beyond that, having a common standard or level of service 
for clean water makes it easier for businesses and for labor to 
move from place to place without fear of cutting production 
because of local capacity shortfalls. It provides cultural 
benefits by helping to bind together people from across the 
Nation that know their waterways are safe and clean.
    The value of similar public outcomes and the recognition 
that a trust fund can be an appropriate way to help deliver 
them have long been recognized in Federal infrastructure 
policy. Of course, this has been the case in other basic 
infrastructure system such as highways, airports and transit; 
and to finance these systems, Congress has established Federal 
trust funds.
    The rationale is simple. These basic infrastructure systems 
underpin the U.S. economy broadly and their benefits accrue 
widely to users without geographic limitations. Moreover, these 
infrastructure systems have benefits that are felt only after 
all, or substantial portions of, these networks are complete 
and functional. Wastewater systems share these characteristics, 
and accordingly, an appropriately structured clean water trust 
fund makes good economic sense.
    You mentioned that the national debate centers on the 
need--not always on the need for a trust fund, but how it can 
be funded. Looking at the past trust funds, three sorts of 
strategies have been applied as to who should pay. Typically, 
polluters are asked to pay, beneficiaries are asked to pay or 
the Nation as a whole has been asked to pay.
    All three of these strategies can be applied to the clean 
water problem we face today, generating sufficient income to 
meet the funding gap while generating predictable revenue 
streams well into the future so the trust fund recipients can 
rely on support over long periods of time consistent with their 
own long-term capital planning needs and also while minimizing 
economic and trade disruptions.
    Using these criteria, I worked with the National 
Association of Clean Water Agencies to review a wide range of 
potential revenue sources, all Federal excise taxes to 
capitalize the new Federal clean water trust fund at a target 
level of $7 billion a year. We found that while all of these 
sources could raise that level of money, no single revenue 
source met all funding criteria uniformly, and so a combination 
of sources appears to be the most likely choice.
    Finally and in conclusion, it will be important to remind 
ourselves that even with an enhanced Federal financing role 
made possible through a new trust fund, local sewer rates will 
still pay 86 percent of the cost to provide wastewater 
treatment nationwide. Not only will the clean water trust fund 
deliver important dollars to the neediest of communities, it 
will help ensure meaningful, long-term, Federal, State and 
local fiscal partnership and continue our record of gains made 
under the 1972 Clean Water Act.
    Mr. Duncan. Thank you very much, Dr. Rubin.
    Mr. Ciaccia.
    Mr. Ciaccia. Good morning, Mr. Chairman, members of the 
committee. My name is Julius Ciaccia. I am director of 
utilities in Cleveland, Ohio. I am also chair of the Water 
Utility Council for the American Water Works Association, AWWA. 
I am here today on behalf of the AWWA.
    The association's 4,800 utility members provide safe water 
to over 80 percent of American people, and we commend you for 
holding this hearing addressing infrastructure and other 
challenges facing community drinking water systems.
    AWWA has long believed that utilities should be self-
sustaining through their rates and other local charges. Today 
we remain committed to that principle. Having said that, we 
know that some water systems will require assistance as they 
make the transition from rates they now charge to rates that 
make the system locally sustainable.
    Some communities face especially severe problems due to the 
large amounts of "stranded assets" resulting from significant 
population declines in the service territory. Federal 
requirements to remediate combined sewer overflows and other 
Federal mandates also exacerbate funding problems in many 
communities.
    Both drinking water and waste water 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. Waste 
water utilities face an enormously expensive Federal mandate, 
such as those relating to combined sewer overflows and sanitary 
sewer overflows. For both water and waste water utilities, 
these particular Federal mandates significantly skew financing 
for all other investments, including replacement of aging pipes 
and other infrastructure.
    Local ratepayers are often seriously challenged to pay for 
these CSO and SSO 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 CSO and SSO mandates has 
driven out the ability to raise rates for routine 
infrastructure repair and replacement in both waste water and 
drinking water systems.
    We believe that significant Federal assistance, including 
grants, is necessary and justified to help meet the cost of CSO 
and SSO mandates on water utilities. Support is also justified 
to help meet the cost of infrastructure repair and replacement 
that have been in many cases deferred because the 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 also justified by 
downstream benefits, including lower costs for drinking water 
utilities downstream in the form of improved water quality. 
These investments provide direct positive benefits to the 
entire Nation.
    AWWA does not believe Federal assistance should be 
prioritized to protect sources of drinking water first. Because 
the Federal budget deficit has been such a serious issue in 
Washington, it is likely that significant increases in Federal 
assistance may be possible only if new dedicated taxes can be 
developed. We need to consider several questions with respect 
to any funding proposal that dedicates new tax revenues to 
infrastructure investments.
    Most important, as you said in your opening statement, what 
is the source of funds? AWWA is unalterably opposed to a 
Federal water tax in any form. Will new revenues really be 
spent on infrastructure, or will some be diverted to other 
programs? Will expensive new mandates be attached? What 
criteria will determine who gets assistance? What communities 
or States will pay more taxes than they get back? Finally, how 
can we best encourage utilities and local officials to start 
now on the important work of raising rates, rather than tempt 
them to wait for Federal grants to begin the work ahead?
    AWWA deeply respects the work required to develop 
infrastructure funding legislation and will consider 
legislative proposals that address the Nation's drinking water 
needs. At this time, however, AWWA has not endorsed any 
infrastructure funding proposal, as one really hasn't been put 
forward as of yet.
    As you are probably aware, our local governments pay over 
97 percent of the cost of drinking water infrastructure. We 
believe that under any scenario, including new taxes, 
significant increases in Federal systems, local sources, local 
sources will continue to pay the large majority of the costs 
providing safe water and water infrastructure.
    Recognizing that most of the job is and should be up to 
local government, AWWA is focusing significant effort and money 
on giving utility managers and local officials the tools they 
need to meet growing costs of water service and local 
resources. We have recently sent all AWWA members reports 
detailing ways to adjust rates without causing rate shock, and 
without undue hardship on low-income households, something we 
all need to be sensitive to.
    Again, we thank you for holding this hearing concerning 
drinking water issues. AWWA stands ready to work with this 
committee to develop responsible and fair solutions to the 
challenges facing America's community water systems.
    Thank you very much.
    Mr. Duncan. Thank you very much, Mr. Ciaccia.
    Ms. Neely.
    Ms. Neely. Thank you, Mr. Chairman, Ms. Johnson, and 
members of the subcommittee for the opportunity to come and 
discuss the creation of a Clean Water Trust Fund with you.
    I am Susan Neely, the president and CEO of the American 
Beverage Association. We represent the nonalcoholic industry in 
this country, and have been doing so for about 85 years. Our 
member companies employ about 211,000 people around this 
country, many of whom work in your districts. We manufacture 
and market hundreds of brands, flavors and packages, including 
soft drinks, ready-to-drink teas, coffee, dairy-based products, 
fruit juice, fruit drinks, sports drinks. So suffice it to say 
that along with the American public, who have spoken through 
Dr. Luntz's poll, and the eloquent comments of the subcommittee 
members, we, too, see the conservation as vital to this 
country.
    Perhaps surprisingly, though, because our industry products 
account for almost half of what America drinks, we account for 
only a tiny fraction of total water use. Of the more than 400 
billion gallons withdrawn each year in the U.S., the beverage 
industry uses 3/100 of 1 percent, or about 1 gallon out of 
every 3,300 gallons withdrawn from ground or surface water 
sources. This is because we are engaged in continuous quality 
improvement to use state-of-the-art recycling practices. On 
average, it takes about a gallon and a half or 2 gallons of 
water to make one finished--1 gallon of a finished product.
    Beyond the water that goes directly into the product, we 
use water on the production line, we use it to clean production 
equipment, in washing our fleets, and in everyday employee use 
in the plants. Just some examples of our conservation efforts, 
they include use of deionized air to rinse cans and bottles 
prior to filling, reclamation of backwash water from our sand 
and carbon filtration processes, and conversion to automated 
"clean in place" systems that employ a closed loop for water.
    Over the past 6 months, there have been press reports 
outlining a proposal that would levy a Federal tax on beverages 
to generate revenue for the recreation of a Clean Water Trust 
Fund. And, of course, I am here today to say that levying a tax 
on packaged beverages is an inequitable and aggressive way to 
raise funds for environmental infrastructure, and I will give 
you three reasons as to why.
    First, as I have said, targeting our industry and consumers 
of our products places the burden on only a very small share of 
water users. As I have stated, products made by our members 
consume less than 3/100 of 1 percent of water supplied by 
public systems, and placing such a large tax estimated 
variously at 5 cents per container to 7 percent of sales on so 
few users just isn't equitable.
    Second, it is not clear from the press reports how such a 
tax would be administered, and I understand that is what the 
subcommittee is exploring as part of its deliberations on this, 
but, of course, it may be necessary to set up a whole new 
bureaucracy to collect this tax.
    And third, a tax on beverages is a tax on food. Beverages 
are a staple in the family grocery cart, and we all know that 
food taxes are aggressive, placing the greatest burden on 
working families, the poor and elderly.
    So let me close by saying that, as the Chairman said in his 
opening comments, we do believe this is a partnership. Our 
industry will do its part to support infrastructure needs, but 
many commercial and industrial establishments use water as 
input to their products. Just as beverage companies buy water 
as a factor of production, so, too, do circuit board 
manufacturers, paper companies and food processors. Our role is 
as one of many users that could pay higher rates that reflect 
infrastructure needs, not as the sole source of these funds.
    Thank you, Mr. Chairman.
    Mr. Duncan. Well, thank you very much, Ms. Neely, very fine 
testimony.
    I want to thank all the witnesses for being here. You have 
made an outstanding panel. I am going to reserve my questions 
at this point so we can try and get to as many Members as 
possible, and since Mr. LaTourette has been here the whole time 
and didn't give an opening statement, I am going to yield to 
him for any statement or questions that he has at this time.
    Mr. LaTourette. Thank you very much, Mr. Chairman. And it 
might have been my double was here the whole time, but I 
appreciate having the opportunity to go first.
    I want to thank all the witnesses as well for your 
excellent testimony. I bet every Member--I was listening to--in 
my office to Mr. Pascrell's observation during his opening 
remarks. I think every member on this panel has probably been 
to a waste water treatment plant, every member on this panel 
probably has had a water main break for a sewer break in his or 
her district, and our experience in the industrialized 
Northeast is that there was a lot of free money in the 1970s 
when the Clean Water Act came in where grants would develop--
the waste water treatment system in Cleveland, for instance, 
and it all dried up. And we keep making the rules on CSOs and 
SSOs, but we don't send any money down to the locals to take 
care of their infrastructure needs. And I happen to think that 
that is a--we are not doing our job here in Washington.
    But all of you have hit, I think, on the central point. I 
am all in favor of a Clean Water Trust Fund, but I think each 
one of you in your own way--and I think, Ms. Neely, in your 
last one, in who is going to pay for it, I think I have heard 
from you that the beverage industry doesn't feel like paying 
for it. And so the question--I have a couple of questions, Dr. 
Rubin and Mr. Schenendorf, and also Dr. Luntz. And Mr. Luntz, 
as an aside, if I were going to wear one tie a year, I might 
have picked a different tie. But anyway.
    If we have a Clean Water Trust Fund, and going back to Mr. 
Schenendorf's great history lesson, I think, on the Highway 
Trust Fund, and, Dr. Rubin, you talked about the fact that you 
have done some modeling, and I guess I would start with you. Do 
you have somewhere, within your organization or the coalitions 
that you are working with, a model on who is--is it going to be 
people who drink water, people who bathe in water in 
Pennsylvania, people who flush water? How are we going to get 
at this?
    And I think Ms. Neely makes a compelling point. If they are 
only using 3/100 of a percent of water, should we put it on the 
people that drink bottled water and other beverages? So do you 
have a model as to where this money is going to come from for a 
trust fund? Which I happen to think is a great idea, by the 
way.
    Dr. Rubin. That is a good question. We looked at very 
broadly using a series of criteria, normal criteria that one 
might use for these things, effectiveness, efficiency, equity, 
and manageable economic effects,trade effects, those sorts of 
things; and using those criteria as our guide to where money 
might come from and who should pay, we looked at a full range 
of things and do, in fact, have models looking at these right 
now. Let me just read them off to you to give you a sense of 
where we looked.
    In fact, we did look at beverage taxes. We looked at taxes 
on water-based recreational products and services. We looked at 
taxes on industrial discharges to surface waters. We looked at 
taxes on what we call flushable products, things that are used 
in households and commercial establishments and flushed down 
the toilet. We looked at a clean water restoration tax, similar 
to the environmental income tax used in part to fund a Federal 
superfund, and we looked at taxes on agricultural chemicals.
    So with each one of these product bases, we looked at 
whether or not--or what the effects would be if one wanted to 
raise $7 billion a year. So that is what our model is 
addressing.
    Mr. LaTourette. And going back to the formation of the 
Highway Trust Fund, two observations. I think, Mr. Schenendorf, 
you talked about the wide opposition to the excise tax, the 
tire taxes and so many other things that happened in 1955. Are 
any of you aware of--and, Dr. Luntz, even to you in your 
observation that 80 percent have indicated that they would pay 
for clean water, has anyone identified a segment that is going 
to be a willing participant in the Clean Water Trust Fund, 
that, yes, please hand over--please tax us, or please impose a 
fee?
    And then the second observation to you, Mr. Schenendorf, if 
we are successful in creating a Clean Water Trust Fund, I would 
hope you would agree that the genius today--and it has to do 
with Mr. Shuster's father and your work on the committee--is 
making sure that if we are going to ask people to pay more for 
clean water, that we wall it off and put up some firewalls so 
that we don't do goofy stuff and spend it on everything but 
clean water.
    So, first of all, has anybody identified a willing segment 
of society that says we will pay?
    Dr. Luntz. Well, we actually asked the question which of 
the following sources would you most strongly support. I can 
tell you who the public would say should clean it up. And they 
are obviously going to have constituencies here, the 
agricultural industry, because it uses the water, and the 
chemical manufacturers and the hygiene product manufacturers 
because it is perceived that they pollute the water. The public 
would say that these industries that are most involved and most 
benefit from the water should be the ones who are most 
responsible for paying for it, and those who are shown to have 
polluted it should have the highest burden financially.
    Mr. LaTourette. Mr. Schenendorf, what about the firewall 
issue; would that be a recommendation that you would make?
    Mr. Schenendorf. Yes. In my written testimony I made it 
very clear the attributes that a Clean Water Trust Fund should 
have, and that would clearly be one of the attributes. It ought 
to either be separate from the unified budget as trust funds 
used to be, or if it is within the unified budget, that the 
funding be protected with a guaranteed funding mechanism 
similar to the one that was in TEA-21.
    Mr. LaTourette. Thank you very much, Mr. Chairman.
    Mr. Duncan. Well, I think that is one of the most difficult 
questions. I don't represent an agricultural district, but the 
agricultural community is percentage wise very small, but they 
use, I am told, 35 or 40 percent of the water. And yet to tax 
them in any significant way would be very politically 
difficult, it seems to me. So that is a big question here.
    Ms. Johnson.
    Ms. Johnson of Texas. Thank you, Mr. Chairman. Let me just 
comment on that. At least the farmers provide us with food, so 
we all share in that responsibility, I guess.
    Dr. Luntz, I wanted to ask you, do you know Karl Rove?
    Dr. Luntz. Yes, I do. And he doesn't resent the ties that I 
wear.
    Ms. Johnson of Texas. Well, I was just going to say I have 
known him over 20 years, and he doesn't care whether you have 
on a tie or not; he didn't wear any until he came here. But I 
want you to understand he makes sure he gets this report, 
because I think you have some very interesting observations 
here, and we need the White House's support in order to get a 
bill moving with the kind of money that we need.
    I would like to ask you, Mr. Schenendorf, how do you think 
we can structure a fund that would create a fund for water?
    Mr. Schenendorf. Well, I think there are a couple of 
important things in this. First is, it is obviously--at the 
starting point you have to look at almost everything. You have 
got to look at everything that is out there that might be used, 
and at the end of the day what you would be trying to come up 
with is a fair grouping of those different items to actually 
fund the trust fund.
    In addition, one of the points that I didn't make in my 
oral testimony on the interstate history experience was that 
one of the things that was done in the interstate, as you got 
closer to 1956, is they identified where the routes were going. 
And, in fact, in 1955, they came out with the final book that 
really showed where the urban routes were going. And they 
really used that to sell the interstate program and really 
build support for it. And that is something that we tried to do 
in TEA-21, and I think it would be essential here that it be 
more than just a trust fund for clean and safe water; that you 
actually took the next step and said if you were able to get 
this kind of funding, what would this mean in local 
communities, what kinds of projects, and really ask local 
communities and States to identify the kinds of projects they 
would get, and then make that known to the Members.
    I mean, that is part of building the support for this, of 
taking it down right to the grass roots and showing people if 
you make this investment of whatever amount, here is what you 
are going to get for it in real terms, and that that would be 
very, very helpful not only in building overall support, but in 
also dissipating some of the opposition to the sources of 
funding that you come up with.
    Ms. Johnson of Texas. You know, I heard Dr. Luntz indicate 
that 80 percent of the people said they are willing to pay for 
clean water, but I also heard other testimony where people were 
not that willing or were not able to take increases for clean 
water, and some of those were farmers and low-income people. 
And the farmers do use a substantial--probably a larger 
percentage by proportion than others in water in order to 
produce whatever they grow.
    Obviously, all of--everything to do with water would 
probably be addressed through any clean water fund we put 
together. Every State is facing a crisis with infrastructure. 
And just today in the Dallas Morning News, the State of Texas 
was indicating that.
    So it would seem to me that it might take a little while, 
but we need the money right quickly. The infrastructure is 
crumbling around the Nation because of its age.
    I don't know how we get through and educate in order to 
move as rapidly as possible. I know that at home, whenever 
something happens with the water, our water and sewage system 
is owned by the city, and they add a little fee to it, and they 
call it user fee, just as tools. So I wonder if you have in 
mind, or if you could recommend some way we could reach this 
decision rather rapidly. You have had a lot of experience with 
this committee and probably could predict as well as what we 
could here the direction we should go in order to try to 
address these problems as quickly as possible.
    Mr. Schenendorf. I think having hearings like this is 
obviously very helpful, but I am not sure this is going to be 
something that is going to be solved quickly. Even with the 
interstate system, it took a few years of studies, and it took 
a few years of trying. The basic funding concept was brought to 
the House and defeated by a 2-to-1 vote the year before. It 
took another year to turn things around.
    So it is not going to be an easy process. I don't think 
anybody is going to come volunteer and say, tax me; but at the 
end of the day what people have to see is what you have done is 
fair, and if it is fair and they can see the benefits, then it 
is possible.
    Ms. Johnson of Texas. We are late getting started, so we 
can't let it take too long to get started because we are in the 
midst of the crisis now; but I agree that it might take a 
while.
    We have not passed a clean water bill in about 5 years or 
so, so I think we do kind of slow down when it comes to 
something like that. But if there are ways of which you can 
suggest that we can get a jump-start, I would appreciate it.
    And, Dr. Luntz, you could help us get a jump-start if you 
could get this report in the right hands. Thank you.
    Mr. Duncan. Thank you very much, Ms. Johnson.
    That is a pretty dramatic turnaround, Mr. Schenendorf, from 
one year to the next on something that major.
    Mrs. Kelly.
    Mrs. Kelly. Thank you, Mr. Chairman.
    Dr. Rubin, I would like to know, when you talked about the 
various abilities, the thought processes you had on applying 
taxes in various areas, did you look also at what market 
dislocations might occur if a tax occurred on those particular 
items? For instance, what kind of market dislocation would 
occur if we taxed bottled water? What kind of market 
dislocation would occur on the other items that you mentioned, 
agriculture, chemical? Did you look at those?
    Dr. Rubin. Yes, we did. I would like to clarify, though, 
before I talk a little bit specifically directly to your 
question.
    The amount of money that we are talking about raising and 
dedicating to at least water treatment is still a small 
proportion of the total amount of funding. So, again, as I said 
in my testimony, even if we were to raise on the order of $7 
billion, we are still talking about increases in local sewer 
rates to pay for a lot of the other work that needs to get 
done. So we are talking about financing the top margin of work 
that is currently being deferred and that is creating a lot of 
water quality impairment and lack of service locally, things 
that end up in polluting beaches so they get closed, or not 
achieving the nitrogen standards in the Chesapeake Bay, for 
example. It is the top margin of things that make a lot of 
difference in delivering benefits to people. As Mr. Schenendorf 
suggested, linking the funding mechanism to the real benefits 
people get is probably the most critical thing to do to seek 
broad consensus about a funding source.
    Now getting to your question. For each of the options we 
looked at, of course we looked at the extent to which, if that 
tax were applied, whether the increase in payments, if you 
will, would be absorbed by the producer, would be absorbed by 
the importer, would be passed forward in consumer prices and so 
forth. And, of course, these are imprecise estimates and 
calculations based on literature values of elasticities and a 
lot of economic mumbo-jumbo, but the fact of the matter is, as 
we looked at these effects, in almost every case two or three 
very broad-based options--and that tends to be the key is the 
broader the base, the lower the effects, the more willing 
individuals should be and will be to pay. As Ms. Neely pointed 
out, they are not against taxes on bottled beverages, they are 
against just taxes on bottled beverages. They would be willing 
to do their part, and that is really a telling comment.
    So when you lower the tax rate and broadenthe base, you 
tend to spread those economic effects so broadly across the 
entire Nation that you match the receipt of benefits of clean 
water with those payments, and those sorts of dislocations tend 
to go away. But very specifically, we did look at imports as 
well as domestic productions to avoid trade locations, 
specifically.
    Mrs. Kelly. I am thinking in terms of actual user--market 
user, dislocations that would occur in the agriculture 
business, for instance, if certain types of chemicals that are 
currently being used were taxed. The same with flushables. It 
is an interesting question, and I don't know that anybody has 
actually done any kind of a deep dive on this, and that was 
really where I was going with it.
    Dr. Rubin. Well, you are very perceptive. In the area of 
flushables, for example, the range of products is very broad. 
For some of those products a 1 or a 2 percent price increase 
would result in reduced demand for those products. People would 
use less. Those who were on the edge couldn't afford to pay the 
next dollar, would not pay that dollar, and demand would 
probably go down, production might probably go down, some jobs 
could be lost.
    Again, the key is to minimize it. We minimize it. We looked 
at particularly two types of fees where we felt broadening the 
base would reduce those economic dislocations on the users. The 
corporate environmental income tax, again modeling the program 
very much like the third of the superfund financing sources, 
imposing a very small, 1/2 of 1 percent or so, environmental 
restoration fee, clean water restoration tax on corporations. 
In fact, it was only those that paid more than $2 million in A 
and T. So it further narrows the impact of large corporations. 
And combining that with the flushables tax broadens the base 
very nicely to avoid those dislocations that we are worried 
about.
    Mrs. Kelly. Thank you.
    Mr. Duncan. Well, thank you very much, Mrs. Kelly.
    Mr. Pascrell.
    Mr. Pascrell. Thank you, Mr. Chairman.
    Mr. Chairman, I know down the road we are going to be 
talking about bonding, possibilities of bonding in this, and I 
would like our panelists to respond to the issuing of bonds, 
dedicated money to these water problems that we have in the 
United States, and particularly the private activity bonds.
    You know, we have had exemptions; we have had exemptions in 
areas such as recycling. And I am wondering, in terms of the 
solid waste landfills that we had problems with back in the 
early 1990s, if we had an exemption for waste water and water 
purification investment, do you see this as a possibility? And 
what are your thoughts about that?
    And, Dr. Luntz, what do you think will help us get through 
to the administration as to the significance of this issue, and 
where we should be going?
    So anybody who wants to take a crack at the first one in 
terms of the tax--in fact, the tax-exempting private activity 
bonds, what do you think about that?
    Dr. Rubin. I am happy to give you an opinion. It addresses 
part of the problem, and, of course, not all of the problem. 
The act of floating a bond is just capitalizing downstream 
payments today so you can build something today and pay for it 
over a long period of time. But no matter how you raise that 
capital, you still have to pay for it, users would still have 
to pay.
    Mr. Pascrell. Well, we do that in education and in housing.
    Dr. Rubin. But there are limitations in the marketplace 
attributable to private activity bonds and so forth, the State 
caps being one, and obviously the fact that waste water private 
activity bonds are not exempt, as are solid waste private 
activity bonds.
    Mr. Pascrell. Would you support that?
    Dr. Rubin. For those communities that otherwise could pay 
and they are facing a private activity bond cap, and they 
wouldn't mind using private activity bonds, that is a viable 
option. That is a capital formation solution, not a payment 
solution. But yes.
    Mr. Pascrell. What about you, Mr. Schenendorf?
    Mr. Schenendorf. Just to analogize, in the transportation 
area I think things have evolved to the point where people are 
willing to take the money wherever they can get it. They 
realize they are going to need multiple sources of financing in 
order to address the serious problems that are out there. So it 
would seem as though, again, any source of funding that can 
help with the clean water issues ought to be on the table and 
might be part of a final package that Congress would be able to 
enact.
    Mr. Pascrell. Would you support the exempting of what we 
are considering here as we have done in other areas? The cap, 
that is. I mean, we have caps on what the towns and States can 
borrow; there are exemptions depending upon the danger and the 
significance. It would seem to me that we have a pretty 
significant health situation on our hands here. And I 
understand the urgency; I would hope that the bond community 
would also.
    Mr. Schenendorf. I think if it turned out that the expert 
said that this would be something that would really help and 
would lead to investment, then it would sound like a good 
thing.
    I do think if you go back to the interstate example, 
though, you did see there is a natural reluctance in bonding 
because ultimately you are paying part of that in interest. And 
ultimately what won the day on the interstate program was 
taking that money and making real investments with it so that 
you knew you were raising the taxes, it was a pay-as-you-go 
system, and the Members found that far more preferable than--
    Mr. Pascrell. I know the easy way out might be in some 
States to bond. In fact, in States meeting their own 
obligations in terms of leveraging, for instance, the gas tax. 
States don't like to use the term "tax" any more than we do. So 
there is room for camouflage here. And what we are trying to 
communicate out there is that we will bond it. And, of course, 
there has to be interest paid on that, we all understand, but 
maybe a combination of these things. And it is important that 
we have the willpower to do this one way or the other and not 
debate the process in--which buries the whole issue.
    Dr. Luntz, what about my question to you?
    Dr. Luntz. I was hoping you would have used up your 5 
minutes.
    Mr. Pascrell. I have a little extra time, Dr. Luntz, 
anyway, so--
    Dr. Luntz. Well, first off, don't yell at people who 
support you is the first thing I would say. Second is that it 
is an issue of priorities. If you are going to spend as much as 
you do on transportation, and you ask the American public where 
would you like this extra money to go, to a Safe and Clean 
Water Trust Fund or to another element of transportation, they 
would tell you, as I said earlier, overwhelmingly, spend it on 
the Clean Water Trust Fund. It is a matter of setting up the 
priorities, and, frankly, you are using public opinion as a 
weapon.
    Mr. Pascrell. But isn't the umbrella here, Dr. Luntz--let's 
get down to the nitty-gritty--isn't the umbrella let's make 
government smaller? I mean, this is what we get when we start 
to talk about priorities. When everything is a priority, 
nothing is a priority. We think that this is a priority, all of 
us up here. You think it is a priority. Your numbers seem to 
indicate the American people think it is a priority. So how do 
you communicate with an administration--you know, I am trying 
to learn here--how do you communicate with an administration 
that has this umbrella up--of course, there is nothing between 
the spokes, but there is an umbrella up, and we are talking 
about smaller government, meanwhile we are making government 
humongous in other areas. But in the area of public health, we 
can't find room to provide the impetus, as was asked before by 
the Ranking Member; we can't find it. I mean, what are we 
missing? What aren't we doing to communicate that? I mean, this 
is a lovely poll that you have here. Tell us what is the next 
step.
    Dr. Luntz. The next step is to work across the aisle. And I 
have heard comments that, Chairman, you have done--
    Mr. Pascrell. This committee is on record over 7 years 
working across the aisle. The committee is not the problem. I 
mean, we are a lot of problems here in the Congress, but this 
is not one of them. So now what do you do?
    Dr. Luntz. In my experience, when you have numbers that are 
this overwhelming--and I have got a chart--you get 91 percent 
of Americans that agree that this is a smart approach, usually 
public opinion in the end wins out. Usually people will find a 
way to adjust the individual details to their own philosophy.
    This is not about big or small governments, and this is not 
just about health; it is actually also about safety. This is 
not about today's generation; this transcends generations. This 
is not about a region, the Northeast in New Jersey or the West, 
for instance; this is everywhere across America. And this 
becomes an issue of personal health, personal safety today and 
tomorrow. It is not an issue of big government.
    I don't always agree with those that I have helped in the 
past on specific issues. That is why I gladly did this 
bipartisan poll. But I will tell you that rather than 
complaining to those who don't seem to see the light, you will 
be more effective by trying to mobilize America, the people 
through these cameras right here, that they actually should 
call Washington, they should write their Representative and say 
on this thing--as a Republican, I believe this can be done.
    Mr. Pascrell. As a former mayor--and there is no one closer 
than the mayors of small towns and large towns to the major 
problems in this country, whether you are talking about 
homeland security, whether you are talking about better water, 
better air. Talk to those mayors out there.
    You know, I think this is critical. I don't see us 
listening to the mayors. I don't really think we appreciate 
what they go through day in and day out, and any council 
members. And if we did, we would have responded in a much 
better fashion. We have all the answers here.
    Thank you, Dr. Luntz.
    Mr. Duncan. Thank you, Mr. Pascrell.
    And I want to apologize; I was going to try and wait until 
the end, but I have to go to another meeting, and I am going to 
have to turn this hearing over to Dr. Boustany in just a 
moment. But I want to thank all of you for coming and being 
such good witnesses. This has been a fascinating panel.
    But before I go, I do want to ask you a couple of 
questions. Mr. Ciaccia, my first client, when I first started 
practicing law, was the water district in Knoxville, Tennessee. 
And I have worked with your association. You have 57,000 
members, it is a good association, I have worked with them. But 
you point out throughout your testimony you mentioned that your 
group came out with this report entitled Dawn of the 
Replacement Era: Reinvesting in Drinking Water Infrastructure. 
And at another point you said the Federal Government should 
renew its commitment to significant support for compliance with 
health protective standards, security, and the repair and 
replacing of aging infrastructure. All of us have talked about 
the needs, and there are great needs there. But then you are 
adamantly opposed to any kind of a tax, and so obviously the 
only thing then is just more, larger contributions from the 
general revenues of the government. Is that what you are 
advocating? Is that your only solution that you can think of?
    Mr. Ciaccia. Mr. Chairman, we are not adamantly opposed to 
a tax. We, like Congressman LaTourette and others, are waiting 
to see who is going to come forward or how the tax is going to 
be applied. We do not, we do not, support a tax that is going 
to go on the water bill; that is what we are unalterably 
opposed to. We don't think that adding another line item onto 
the water bill or sewer bill is the way to accomplish it.
    So we are here today to--you know, this is a beginning of a 
process, as we see it, to work with our partner sewage agencies 
to determine what is the best method. We certainly support more 
money going into--
    Mr. Duncan. Well, if you don't want the users, though, to 
pay anything, where do you go?
    Mr. Ciaccia. Well, the user--when we are talking--when I am 
talking about users, I am talking about the out ratepayers. And 
that is just it, where do you go?
    Mr. Duncan. That is the big question, isn't it?
    Mr. Ciaccia. Exactly.
    Mr. Duncan. Ms. Neely, you have pointed out some problems, 
but I also assume that there would be sort of a bureaucratic 
administrative burden or some problems that would be created if 
you tried to go to a bottle tax; would there not?
    Ms. Neely. Yes, that is correct. And it is something we 
have experienced in States where there are bottle bills in 
place, that it is a substantial bureaucracy that needs to be 
put in place to be able to administer the tax. So that would 
have to be factored in.
    Mr. Duncan. Dr. Luntz, let me go back to you for just a 
moment. You heard me mention the agriculture industry a few 
moments ago, and certainly even if you don't represent 
agricultural districts as Ms. Johnson said, it is very, very 
important. The staff told me that the agricultural use has 
taken roughly 35 or 40 percent of our water in one form or 
another. How do we politically structure something that--this? 
I mean, all of us agree that the needs are there. Anybody who 
even looks at the surface of this knows that there are great 
needs.
    Mr. Schenendorf, are there are any comments that you have 
about that. How can we do that? You say, well, the political 
support is there with the 91 percent, and you think that the 
actions follow the political support. And if that is the case, 
and I probably would agree with you on that, how do we go 
about? What needs to be done in the most politically acceptable 
way? You are an expert on this. Tell us how you do it.
    Dr. Luntz. But I am used to imparting my political advice 
not in public, and only for that side of the aisle; so this is 
very strange for me.
    The answer is that everyone benefits, and therefore 
everyone should invest. You are trying to find a specific tax, 
a specific industry, a specific way to make this easier. The 
public would say that whatever you do to a river or stream up 
in Minnesota is going to affect what happens when that stream 
goes to Louisiana; that if something bad happens--and I have 
spent 4 years in Philadelphia--it is going to affect the people 
of Delaware, because there are no borders, because there are no 
boundaries. I will tell you that this could be an issue in the 
2008 Presidential campaign if you decided that you wanted to 
run.
    Mr. Duncan. There is no danger of that, I can assure you.
    Dr. Luntz. And that this becomes--if you ask the American 
people, and you gave them things like education, health care, 
tax policy, even national security, the ability to have a clean 
glass of water is going to be one of the top one or two. And 
they will gladly--in fact, they would look at the C-SPAN stuff 
and they would say, what are they waiting for; just do it.
    And that is how this message gets delivered. It is not by 
Democrats or Republicans, and it is not by political advantage, 
it is by someone holding up a glass of water and saying, I 
don't want to see anything else in this except for water.
    Mr. Duncan. Okay. Thank you.
    Mr. Schenendorf.
    Mr. Schenendorf. What I would add to this is that at the 
end of the day you are going to come up with basically an array 
of interest groups that are going to have to pay into this 
trust fund. It is not going to be just one group. And the 
challenge at that point for each of the individual stakeholders 
who will be paying in is to show them that the trust fund isn't 
being financed on their backs, that they are just paying a fair 
share, and at the same time showing them the benefits and 
translating the benefits down to really what it will mean for 
that industry if you are able to achieve these investments, to 
then let them weigh as to whether or not this is a fair and 
reasonable approach.
    And, you know, I think at the end of the daythat works. 
Nobody is going to volunteer to come up, and as long as they 
think it might be financed on their backs, they are going to be 
opposed; but at the end of the day, if you come up with 
something that is fair and equitable, then I think it is 
achievable.
    Mr. Duncan. All right. Thank you very much.
    Ms. Schwartz.
    Ms. Schwartz. I was going to ask a different question, that 
there is broad agreement that the American public expects us to 
take especially for clean and safe water. This is drinking 
water. People relate to that, and so we should do that.
    There are going to be some interesting questions about how 
we use this trust fund. We are going to have to figure out how 
to pay for it. Obviously we have been discussing that.
    But I was wondering if you could comment on the big 
differences here or the options that we have, the 
infrastructure we have been talking about. And there are also 
the security needs. And maybe you want to comment on this for 
the Water Works Association and just give some comment about 
how you would see the money being spent from the trust fund. Do 
you see that that principally has to go into the aging and 
building infrastructure, or on the Federal level do we have a 
greater responsibility on some of the security needs that are 
facing our water systems across the--well, certainly we don't 
want to see a disaster happen. Talk about galvanizing the 
public opinion, all you need is one water system be tainted in 
either a small or large city, it doesn't really matter where it 
happens, and the fear of the American public would be just 
tremendous and require a very rapid response on our part. We 
would, I think, many of us, like to see--prevent that from 
happening. And could you comment on whether the security issues 
between a Federal funding trust fund would trump 
infrastructure, or how you would see it being divided?
    Mr. Ciaccia. Thank you, Mr. Chairman.
    Well, speaking of Cleveland, we are spending--we plan on 
spending about $15 million on increased security in our system. 
That project is under way. And I know through my involvement 
through this association here that there are many other water 
utilities that are doing likewise. But it is--we are still 
trying to get our arms around exactly what type of--what is the 
standards that utilities should be looking at in the way of 
security.
    So security is a big issue. It was an unexpected issue that 
has hit all of our capital improvement programs. And I would 
certainly think that, you know, this particular program here 
would be integral in addressing those issues, too. But I really 
can't give you a real good answer on it at this point in time 
because we are still working with the EPA and the Homeland 
Security to try to get our arms around the whole entire 
security issue.
    Ms. Schwartz. Do you think it would be important for us, 
once we have a trust fund, to establish those kinds of 
standards, expectations, and so to learn from what is being 
done out there now so that--one of the things the American 
people are also saying is let's be smart about how we do the 
security; let's just not throw barriers without really 
understanding whether that is the best way to spend the dollar. 
Let's learn from experience of some of the different water 
systems already doing some of this, what does work, what is the 
most cost-effective as well, so that we will learn from the 
experience.
    But do you think that the system itself should set up 
standards for how the money would be invested in 
securityrelated to infrastructure?
    Mr. Ciaccia. Well, Mr. Chairman, I think that is one of the 
concerns that we have as we continue to go through this 
process, not just for security, but for all the spending, what 
are the standards going to be for ultimately doling out the 
money here.
    But as far as security goes, we are, as an association, and 
the other water associations are continuing to work very hard 
with the United States EPA and the Homeland Security, and we 
have formed the Water Sector Security Council, and we are 
working through those issues now. So I can't give you a really 
good answer on it at this point in time.
    Ms. Schwartz. Well, I look forward to--if we get to the 
point of having to worry about how to spend the money, we are 
in a good place. But it is really a serious issue, making sure 
that once we do this, we do spend that money effectively and 
appropriately to ensure safe as well as clean water for the 
American public.
    Thank you, Mr. Chairman.
    Mr. Boustany. [presiding.] The Chair now recognizes Mr. 
Miller.
    Mr. Miller. Dr. Luntz, I like to see how those questions 
were asked because that is really unfair, because in California 
we had a recent Governor, Gray Davis, that realized that people 
really get angry when you apply taxes to them, when they raised 
the fees on licensing your cars.
    But the phrase that has been said over and over, fair and 
equitable way of applying a tax, and yet I don't know which one 
it was talking about, that they would not like to see a tax on 
water bills or a tax on your sewer bill. And I am thinking 
every time I get my water bill in California, about 80 percent 
of the water to begin with goes to agriculture use. Residential 
gets a little over 5 percent in California. That is all we get.
    The first base is at a reasonable rate, and then the next 
level they can put a surcharge, and then above that is another 
surcharge, and above that is another surcharge. By the time I 
get my tax bill, I have a sewer fee, then I have a storm drain 
fee.
    So if we are going to try to create a fair and equitable 
way of applying a tax, it doesn't seem fair to go to this 
company who pays to clean their water and has to go out and 
compete in the marketplace and tell them we are going to tax 
them, but everybody who turns on a spicket in this country who 
might be--everybody drinks water. If you apply it, not 
everybody can afford bottled water, but everybody drinks water 
that they get from their tap. So what type of fair, equitable 
way would you apply a tax or fee on people that would not be 
applied to their water bill or sewer bill? And anybody can 
answer that. That is the problem: Nobody wants to answer that.
    And I agree with you, because if it is fair and equitable--
we can tax the rich, I mean, they can afford it. I guess we can 
go to one group out there, and that seems to be the one group 
we like to go to when tax increases. But if you are going to be 
fair and equitable, and you are going to say we need to make 
sure this water is safe, why wouldn't you apply it to 
everybody, because everybody drinks water? So if you go and you 
want to apply it to somebody who might buy a chemical, or 
somebody who produces that chemical, or somebody who produces 
bottled water, or somebody who produces a fertilizer, you go to 
businesses again and you place an additional burden on 
business. If clean water is the issue, why aren't we charging 
it to the people who use it? If it is farmers who use 80 
percent of it, well, that cost goes out to the people who eat 
food. And we all eat food last time I checked--some are even 
vegetarians more than others.
    But what way is fair and equitable in something like water? 
You can't go and say it is like a telephone. When we originally 
started the telephone tax, it was a tax on the rich because 
only about 1,900 people had telephones, so we are now paying a 
luxury tax on telephones. Or gas tax; well, that makes sense 
because people use the highways, so if they are paying a gas 
tax, they are using the highway more than somebody who wouldn't 
use the highways much because they are not using gas. So if we 
are going to be fair and equitable, that is fair; and 
equitable, when that toilet flushes, that is equitable. So give 
me a fair and more equitable way than those to provide clean 
water.
    Mr. Schenendorf. I think you have made a very valid point, 
and I think that this is similar to the debate that took place 
over the gas tax in the 1950s. The States were basically saying 
the Federal Government shouldn't tax gasoline because they 
really wanted to reserve it to the States.
    Mr. Miller. Don't like it, but it is a user fee.
    Mr. Schenendorf. But the Federal Government, ultimately 
they didn't listen to that, and they did impose a Federal gas 
tax, and now the States and Federal Government both tax 
gasoline, and the system works fine.
    Mr. Miller. But you are in agreement with me on saying when 
you fill up your gas tank, you know you are going to take that 
car and drive it on the street. And if you are using it for 
other purposes, then they eliminate the tax if you are not 
using it to be consumed on the roads and highways. There is no 
doubt what that water is used for, you drink it; or if you want 
to waste it and pay a huge bill like I do, you water your 
plants with it. I wish I had an option, but my plants die in 
California if I don't water them, so I pay a surplus to be able 
to water those plants.
    But if you look at some of the trust funds we have in the 
Federal Government right now, many are problematic. And if you 
want TEA-LU, you know how problematic they are. Many times it 
is trouble getting the appropriators to appropriate the money.
    Formula allocations. I can't wait until you try to 
determine the formula allocations because--are you going to be 
punished if you do a good job cleaning your water locally, and 
you don't get Federal funds, to somebody who doesn't clean it, 
they get more Federal funds? And fund management, that has got 
to be huge. And then we are back to this--the main issue is 
where are you going to get the money for the trust fund?
    So I agree with you on the water. I am shocked on the 
numbers because, Dr. Luntz, I get 700 letters every week, and I 
get probably about 10,000 hits on my Website a month. Nobody is 
talking about water except when it is not available. So I am 
trying to see how do we get there.
    Fair and equitable, I understand fair and equitable. I 
would like to have somebody define fair and equitable rather 
than going to some business in the private sector and say we 
are going to burden them with it. I will be honest, burdening a 
water company who sells bottled water when bottled water costs 
more than gasoline right now--when you go out and buy it in the 
7-Eleven or something, it is more expensive than gasoline, 
which doesn't make sense at all. So now we are going to place a 
greater burden, which puts them at a disadvantage to the public 
water agencies because now they have to charge $1.20 a bottle 
of water instead of getting it supposedly free over tap.
    So I know my time has run out, but if you can think of a 
way that is fair and equitable, would you please send me a 
letter?
    Thank you very much. I yield back.
    Mr. Duncan. Mr. Shuster.
    Mr. Shuster. Thank you, Mr. Chairman.
    I am going to follow along the same line of questioning as 
Mr. Miller because that is the question I have. How do we come 
up with a system that is fair and equitable? In the end--I 
mean, we can tax the water company, we can tax everybody, but 
in the end the consumer pays the tax. When I go divide this 
bottled water, if the water company is taxed, it is going to be 
in the price of that.
    So I guess the question is, do we be up front about it and 
say, okay, I think, as Mr. Miller was saying, fair and 
equitable was the end user has to pay that tax, whether it is 
on food or it is on bottled water or it is on whatever we are 
using it for, and not put it on the business because the 
business is going to pass it along to the end user.
    First question I have, though, is in your polling, Dr. 
Luntz--and I might add that Mr. LaTourette rents a born again 
tieware, he went to Italy and got some new ties, so I was 
shocked when he mentioned your tie. So I just wanted to point 
that out to you--he is not here to hear that, but I just wanted 
you to know for future reference.
    Your polling says 80, 90 percent of Americans support--I am 
not sure if I heard you say this, and I wish you would point it 
out. Do they believe it is something that we should pay for, 
fund? They want clean water; are they willing to pay the price? 
Are they willing to pay the user fee?
    Dr. Luntz. They are absolutely, positively, without a 
doubt, unequivocally willing to pay a price for it. They want 
it fair and equitable. But when it comes to something that is 
so basic, so fundamental, so at the core of our day-to-day 
life, they will pay for it.
    I should have responded to Congressman Miller, but I will 
respond to you. They will appreciate you debating the fund 
source to try and do it in the most fair way possible, but in 
the end, if they were to learn how old some of that 
infrastructure was, if they were to learn--and many of them in 
the cities--for Congresswoman Schwartz, I know Philadelphia, 
and I know how upset people were about the quality of the 
drinking water there, they don't want to put this off another 
day, another week, another month, and they will open up their 
wallets and their pocketbooks to pay for it. Just get it done.
    Just get it done.
    Mr. Shuster. So on that bill they get every month from the 
water company, if it is 1 percent, 2 percent, whatever the tax 
is, they are willing to do that?
    Dr. Luntz. They are willing to do it if they know it is 
going to get done. I mean, I am now trying to show you their 
frustration. Their attitude is Nike, just do it.
    Mr. Shuster. When I hear those numbers in my district, 
which is a conservative district, fiscally conservative, I have 
seen township supervisors lose races because they put in a 
system, raise rates from $30 to $45; they lose races because of 
that. So when I am out there, it is almost a disconnect. To me, 
I can't understand at times why somebody is willing to pay $100 
to get cable but aren't willing to go from 35 to $45 to get 
clean water and take care of the waste.
    Dr. Luntz. I will give you the statistic. If you learn your 
Congressman voted for the creation of a Federal trust fund that 
would guarantee annual funding for clean and safe water, how 
would it impact your vote? Among Democrats, 86 percent more 
likely to vote for that individual; only 5 percent less likely. 
Among independents, 79 percent to 10 more likely. Among 
Republicans, supposedly anti-tax, antigovernment party, 71 to 
18 more likely to vote for that individual if you get the job 
done. They are not saying go ahead raise my taxes or increase 
the Federal bureaucracy, they are saying you create that 
funding and do what it is meant to do and we will pay for it 
and we will vote for it.
    Mr. Ciaccia. Mr. Chairman, this is exactly how our members 
predicted that this debate would take place; that in the end, 
it would come into what is equitable and the discussion would 
start centering around, well, just put it on the water bill. 
And that is fine.
    And with all due respect to Dr. Luntz, as long as I am 
getting at least 100 percent of my investment on that water 
bill back--but we know that can't happen because Cleveland has 
much greater needs than Anaheim, California. And so that is not 
going to happen. And so I am not so sure they are going to be 
willing to pay that extra dollar on that water bill if they are 
only going to get $0.75 back.
    This is exactly what our members anticipated would--how the 
debate would go down. And so we just think if it comes to that, 
we might as well continue to deal with it locally. On the water 
side, drinking water side, we never had big Federal programs, 
so we have been doing this on a rate increase basis. But we are 
going into a different realm here now, and that is the basis of 
our concerns.
    Mr. Shuster. I understand that concern. That is the real 
tricky part about this. Where I come from, our water flows 
right into the Susquehanna which feeds the Chesapeake. We are 
getting regulations from the EPA and our State DEP and it is 
causing a tremendous burden. Just like the interstate highway 
system. I know Congressman Miller's concern, because California 
doesn't get the return that Pennsylvania does, if you like, at 
interstate travel. Same with the water. It starts in 
Pennsylvania or starts in Minnesota and flows down. We are 
going to have a greater expense to keep it clean to the end 
user, and that is in Minneapolis or Philadelphia. So that has 
to be balanced out, and people don't like to hear that, but 
that is the reality of it.
    If you could quickly--each of you represent an industry--
quickly and succinctly, if it is possible, what would your 
industry see as a tax, a broad end-user fee, or a combination, 
weighted one way or the other?
    Mr. Schenendorf. It would be a combination of things. 
Again, just like a broad gas tax, but there are taxes on trucks 
and the like. And in the highway trust fund, it is a broad 
base.
    Mr. Shuster. Do you have another comment on that issue I 
was talking about?
    Mr. Schenendorf. It is not all or nothing. If there is a 
tax on the water user, there would likely still be other taxes 
like the truck taxes that are in the highway trust fund that 
would supplement it.
    Dr. Rubin. Same answer. And it addresses the main question 
that you and Mr. Miller have been raising, which is what is a 
user? And in the case of the highway trust fund, it is very 
simple. If you want to use the highways, you have to buy gas.
    It is not that simple in our case. And you characterized 
the users as those who drink water. That is only one kind of 
user. People who have recreational boats, they are users. 
People who go to the beach, they are users. Environmentalists 
who believe in supporting wildlife, they are users. So a very 
broad base of broadly defined users encompassing all of that.
    Mr. Shuster. Not just people who drink water. If you use 
water in any way, you have to bear some responsibility.
    Dr. Rubin. They will benefit by the fact that it is 
cleaner.
    Mr. Ciaccia. I would echo with Dr. Rubin. As far as the 
water utility bills themselves on the drinking water side, we 
think we can continue to invest through our local water rates; 
CSOs, SSOs on the sewer side being a much different situation. 
That is what has got us all here today.
    Ms. Neely. I think we are all liking Dr. Rubin's appraisal 
of a broad base of responsibility. We just want things to be 
applied equitably. We have statistics that say the agriculture 
and thermoelectric power production account for about 82 
percent of the total withdrawals and paper and semiconductors 
or other large-scale industrial users. So again, broad base of 
responsibility.
    Mr. Shuster. I appreciate all of your answers. It sounds 
like we have some consensus here already. I not only think that 
this is important. As Dr. Luntz's polls point out, in the 
future, 20, 30, 40, maybe not in my lifetime, water is going to 
be more valuable than oil. If we don't start looking at it 
today and figure out how to do this, we are going to be 
fighting over water. And we see what is happening in the 
southwest and they don't have enough water. At any rate, I 
appreciate all your answers. And thanks for being here today.
    Mr. Boustany. [Presiding.] Dr. Luntz, I have a quick 
question for you. In your polling, did you see any differences 
when you broke out urban versus suburban versus rural 
respondents?
    Dr. Luntz. The biggest difference is partisan. There is 
some difference. The difference is that you have 90 percent of 
Democrats supporting these various principles. Low 80s among 
independents, mid to upper 70s among Republicans. There are 
some differences between States and regions, but not very 
significant. It is more of an ideological attitude than a 
regional attitude.
    Mr. Boustany. Certainly from the health standpoint--and I 
was wondering if any of the panels could share examples or 
studies that linked public health problems with inadequate 
water supplies in this country.
    Dr. Rubin. Not so much inadequate water supplies, but what 
comes to mind is inadequate wastewater management. Just look to 
any beach closing and our own closest beaches here, Bethany 
Beach or Ocean City. Last summer those beaches were closed for 
periods of time after heavy rains. That is due to runoff and 
inadequate CSOs, combined sewer overflows. The incidents in New 
Jersey 10 years ago with medical waste washing up, combined 
sewer overflows in Chicago. They are in the papers every day. 
There is a very clear relationship.
    Mr. Boustany. Thank you. Are any of you aware of any public 
awareness campaigns that have been waged locally or on a State 
level that have raised these issues? Obviously, I think one of 
the problems is that the general public really doesn't have a 
high level of awareness of many of the issues facing rural 
communities and some of the other older water structures in 
some of the cities. Are you aware of any public awareness 
programs that have been launched?
    Mr. Ciaccia. Mr. Chairman, we have been educating our own 
utility managers, I couldn't give you any answers as to any 
broad-based public awareness programs at this time.
    Mr. Boustany. Seems we will have to start on that front as 
well.
    I want to thank all of you on behalf of the subcommittee 
for sharing your testimony with us. We appreciate it and we 
look forward to working with you into the future as we try to 
solve some of these critical needs. Thank you.
    We now stand adjourned.
    [Whereupon, at 12:05 p.m., the subcommittee was adjourned.]


    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]




                FINANCING WATER INFRASTRUCTURE PROJECTS

                              ----------                              


                         Tuesday, June 14, 2005

        House of Representatives, Subcommittee on Water 
            Resources and Environment, Committee on 
            Transportation and Infrastructure, Washington, 
            D.C.
    The subcommittee met, pursuant to call, at 9:59 a.m., in 
Room 2167, Rayburn House Office Building, Hon. John Duncan 
[chairman of the subcommittee] Presiding.
    Mr. Duncan. I would like to call this hearing to order and 
welcome everyone here today. Today is the continuation of our 
two-part hearing on financing water infrastructure projects, a 
very important topic for this entire Nation.
    We held the first part of this hearing last week, on 
Wednesday, June 8. At that hearing, we heard testimony about 
the concept of creating a national clean water trust fund as a 
means for financing wastewater infrastructure needs. Dr. Frank 
Luntz discussed the results of his recent public opinion 
survey, including the public's perception of the need for clean 
water, and more importantly, their willingness to pay money to 
get it.
    The survey found that most Americans believe that clean and 
safe water is a national priority, and would support the 
creation of a sustainable trust fund for wastewater 
infrastructure. In fact, according to his survey, 71 percent 
would give a priority to clean water projects, 20 percent to 
highway funding, and 3 percent to aviation funding.
    Representatives of the Association of General Contractors 
of America, the National Association of Clean Water Agencies, 
the American Waterworks Association, and the American Beverage 
Association all provide additional perspectives on creating and 
funding a national clean water trust fund. It is clear from 
last week's testimony that one of the most complex aspects of 
moving from a trust fund concept to reality will be determining 
the funding sources for such a trust fund.
    Today we will build on the information we obtained from 
last week's hearing by focusing on other mechanisms for funding 
wastewater infrastructure. We will hear today from a 
representative of the City of Dallas who will talk about the 
financial pressures faced by local governments to meet their 
water infrastructure needs and what they are doing to meet 
those needs.
    We will hear from a representative of the Texas Water 
Development Board representing the Council of Infrastructure 
Financing Authorities who will discuss the role of State 
financing authorities in advancing innovative debt financing 
techniques and assuring the availability and accessibility of 
adequate and economical funding for water infrastructure.
    The Maryland Water Quality Financing Administration; the 
representative of that administration will discuss Maryland's 
Chesapeake and Atlantic Coastal Bay's Restoration Fund and its 
associated fee system.
    A representative of Lehman Brothers will discuss private 
activity bonds as another potential means of making additional 
capital available to local communities.
    A representative of the Rural Community Assistance 
Partnership will discuss State-level best practices in the 
delivery of financing to small communities.
    Finally, a representative of the Coalition for Alternative 
Wastewater Treatment will discuss innovative ways for reducing 
infrastructure needs and costs through the use of decentralized 
and nonstructural approaches for managing wastewater.
    I hope our witnesses will bring forward ideas on how we can 
increase funding for wastewater infrastructure, a great need in 
this Nation, and will help us identify potential willing 
revenue sources and ensure equitable means for generating 
revenues.
    Let me now turn to our ranking member, Mrs. Johnson, for 
any opening statements she would like to make.
    Ms. Johnson. Thank you very much, Mr. Chairman, for holding 
this second hearing, and I look forward to hearing the 
witness's suggestions and recommendations as to how we fund our 
Nation's water.
    Our Nation's water and wastewater infrastructure is of 
critical importance to the health of our citizens, our 
environment, and our economic State. With our Nation facing an 
unparalleled possibility of failure of this infrastructure, we 
must address how to finance improvements in order to avoid 
threats such as increased sewage overflows, closed beaches, and 
contaminated drinking water.
    During our last hearing on this topic, we held an important 
conversation on the possibility of creating a trust fund for 
water similar to those used by the highways and aviation. Today 
we will hear of other possibilities for funding besides those 
relying on Federal funds, trust funds. For example, the Deputy 
Mayor of the City of Dallas, who is my city councilman, will 
discuss the potential of modifying the Tax Code to allow for a 
tax deduction for water and wastewater utility fees similar to 
the deduction currently authorized for local property tax. 
Allowing the deduction of water and wastewater expenses could 
reduce the impact on customers of rate increases to fund the 
infrastructure projects.
    Again, I am very interested in hearing our witnesses, and I 
thank you very much for holding this hearing.
    Mr. Duncan. Thank you very much. I would like to call on 
now the vice chairman of the committee, Dr. Boustany, for any 
statement he wishes to make.
    Mr. Boustany. All I want to say, Mr. Chairman, is I thank 
you for holding the hearing and I am eager to hear the 
testimony. Thank you.
    Mr. Duncan. Thank you very much. Mr. Salazar.
    Mr. Salazar. Thank you, Mr. Chairman, and Ranking Member 
Johnson. Last week, this subcommittee heard testimony from Dr. 
Frank Luntz and the National Association of Clean Water 
Agencies and others on the public support and need for the 
dedicated source for funding for clean water projects. The 
cross of Third Congressional District of Colorado communities 
are struggling with how to pay for competing and costly 
infrastructure improvement projects.
    For instance, in Mesa County, the Clifton wastewater 
treatment facility is in need of improvements for up to $2 
million in order to meet the new Federal guidelines. In 
Alamosa, Colorado, as the EPA tightens the Federal guidelines 
on arsenic, they are required to build something to the tune of 
$6 million. But with only 12,000 residents in Clifton and 
10,000 residents in Alamosa, and the struggling economies, the 
projects are nearly impossible without Federal assistance.
    As my fellow subcommittee members know, Federal funding 
streams continue to dry up in most recent attempts by the House 
interior appropriations bill, which cuts funding for the Clean 
Water State Revolving Loan Fund.
    Mr. Chairman, I would like to close by reemphasizing my 
sentiments from last week. This Congress must tackle issues of 
how to create a dedicated source of Federal funding for clean 
water projects. Water is a shared resource, and each one of us 
has a responsibility to protect and preserve it for our own use 
and future generations. Thank you, Mr. Chairman.
    Mr. Duncan. Thank you very much.
    We are always pleased to be joined by the former chairman 
of this subcommittee and the chairman of the Full Science 
Committee, Mr. Boehlert, for any comments.
    I believe Mr. Baird doesn't have a statement, either. Is 
that correct?
    Mr. Gilchrest.
    Mr. Gilchrest. Thank you, Mr. Chairman, for holding this 
hearing. And I would like to welcome Mr. Jag Khuman from the 
State of Maryland, director of the Water Financing 
Administration. Mr. Chairman, there are always money problems 
and there are always water problems. So Mr. Khuman and the 
State of Maryland and our former colleague, Bobby Ehrlich have 
basically to a large extent, resolved most of that trouble by 
sharing the cost in a very equitable fashion among all the 
citizens of Maryland with what we affectionately call the flush 
fee.
    So anybody who has flush toilets is going to pay a couple 
of bucks a month, raising millions of dollars to target the 60 
most problematic sewer plants. And this will be a program that 
will not only resolve those nutrient issues from wastewater 
plants, but also from septic tanks, and be able to use the 
Federal dollars which are always limited to those more rural 
smaller areas of the State that need help as well. So I think 
Maryland has done a fine job, and I want to welcome Mr. Khuman 
here this morning. Thank you, Mr. Chairman.
    Mr. Duncan. Thank you very much, Mr. Gilchrest. Always a 
very active member of this subcommittee.
    Mr. Brown.
    Mr. Brown. Mr. Chairman, I just welcome the panel this 
morning. I know the panel we had last week was trying to find a 
dedicated fund to fund the water needs of this Nation, and I 
would hope maybe somebody here might come up with a good 
solution. I heard a $2 flush fee. If we could solve the whole 
water system with a $2 flush fee, I think that would be a super 
solution. But, anyway, thank you all for being here this 
morning. Thank you, Mr. Chairman.
    Mr. Duncan. Thank you. Judge Poe. All right. Well, thank 
you very much. We are ready to proceed with our panel of 
witnesses. We have a very distinguished panel today. We have 
representing the City of Dallas, the Honorable Donald W. Hill, 
the deputy mayor of Dallas. He is a District 5 council member, 
and, of course, from Dallas.
    We have representing the Council of Infrastructure 
Authorities Mr. J. Kevin Ward, who is executive administrator 
of the Texas Water Development Board from Austin.
    We have representing the Maryland Department of the 
Environment Mr. Jack Khuman, who is the director of the 
Maryland Water Quality Financing Administration from Baltimore.
    We have representing the Lehman Brothers Mr. Stephen 
Howard, who is the senior vice president of that organization 
from the city of New York.
    We have representing the Great Lakes Rural Community 
Assistance Partnership Ms. Debra Martin, the RCAP program 
director from Fremont, Ohio.
    And we have representing the Coalition for Alternative 
Wastewater Treatment Dr. Valerie I. Nelson, who is the director 
of that coalition, and she is from Gloucester, Massachusetts.
    We thank all of you for being here with us today. Always, 
we proceed in the order the witnesses are listed on the call of 
the hearing. In this subcommittee, the staff usually puts the 
men first and the ladies last; maybe we should change that 
around sometime. At any rate, we won't do that today. 
Councilman Hill, we can begin with you.

TESTIMONY OF DONALD HILL, DEPUTY MAYOR PRO TEM, DALLAS, TEXAS; 
 KEVIN WARD, EXECUTIVE ADMINISTRATOR, TEXAS WATER DEVELOPMENT 
BOARD, REPRESENTING THE COUNCIL OF INFRASTRUCTURE AUTHORITIES; 
    JAG KHUMAN, DIRECTOR, MARYLAND WATER QUALITY FINANCING 
ADMINISTRATION, MARYLAND DEPARTMENT OF THE ENVIRONMENT; STEPHEN 
 HOWARD, SENIOR VICE PRESIDENT, LEHMAN BROTHERS; DEBRA MARTIN, 
 RCAP PROGRAM DIRECTOR, GREAT LAKES RURAL COMMUNITY ASSISTANCE 
   PARTNERSHIP; AND VALERIE NELSON, DIRECTOR, COALITION FOR 
                ALTERNATIVE WASTEWATER TREATMENT

    Mr. Duncan. Let me say this. Your full statements will be 
placed in the record. In consideration of other witnesses, we 
ask that you limit your statement at this time to 5 minutes. We 
give you 6 minutes, but when that 6-minute time period runs 
out, to be polite to the other witnesses you will see me 
signal, and that means stop. All right. Thank you very much. 
Mr. Hill.
    Mr. Hill. Thank you very much, Chairman Duncan, and Ranking 
Member Johnson, who I appreciate very much the pride in which 
she does identify herself as one of my council constituents, 
and I am very proud to have her. We really do appreciate this 
opportunity to testify today on this issue of vital importance 
to our city and the cities of our size and other sizes 
throughout the Nation. As you have identified, I am the 
chairman of our city's finance and audit committee, so that the 
responsibility of trying to fund and finance these issues falls 
very squarely on my shoulders from a leadership standpoint.
    Of all the services that local governments provide, none 
contributes as much to public health, the environment, and 
general public welfare as water and wastewater service. 
Maintaining and expanding the infrastructure needed to provide 
this critical service while meeting Federal mandates is a very 
costly challenge for our city and others as well. And I 
certainly do appreciate the fact that we are beginning this 
dialogue and discussion about how can we help local governments 
finance water and wastewater infrastructure projects.
    Just to tell you a little bit about our city, we are a 
regional water provider. The City of Dallas provides drinking 
water and/or wastewater service to over 2.2 million people in 
Dallas and 28 neighboring communities spread over 699 square 
miles. A recently completed update to the city's long-range 
water supply plan indicates that Dallas will be providing water 
and/or wastewater service to more than 4.5 million people by 
2060. Our Department was founded in 1881. It operates three 
drinking water treatment plants with 865 million gallons of 
capacity per day to wastewater treatment plants with over 260 
million gallons of capacity per day, 4,700 miles of water 
mains, and over 4,100 miles of wastewater mains. Impressive 
statistic: If laid to an end, our water mains could reach from 
Dallas to London, and our wastewater mains would reach from 
Dallas to Honolulu. This is a very large and complex system. We 
certainly do recognize that. And, to some extent, citizens 
don't really know how much is really actually taking place as a 
part of this process until we have one of our major water 
breaks or some other kind of problem. As our Nation's 
wastewater and water infrastructure deteriorates with age, you 
and I will increasingly hear about those service problems from 
our constituents.
    Our water department is funded solely by water and 
wastewater rates paid by our customers. In addition, the city 
issues revenue bonds back by its ratepayer base to finance 
major capital improvement projects. In fact, we just put a 
policy in place where we have stretched out the period of time 
in which we finance those from 20 years to now 30 years.
    Dallas's drinking water currently comes from five surface 
sources: Grapevine Lake, Lake Lewisville, Ray Roberts Lake, Ray 
Hubbard Lake, and Lake Tawakoni. In addition, the city has 
water in reserve in Lake Fork and Lake Palestine. The City's 
Water Department maintains a proactive approach to long-range 
water planning, and recently completed an update to our long-
range water supply plan that identifies water supply demands 
and sources to meet area demands through 2060. It includes 
conservation, drought emergency planning, and an increased use 
of recycled water for non-potable purposes, including 
irrigation and industrial uses and using recycled water for 
potable purposes to augment our existing supplies.
    Our challenges are significant. Like many cities, Dallas 
faces the dual challenge of replacing aging water and 
wastewater infrastructure and meeting Federal demands related 
to safe drinking water and clean water. We are aggressively 
undertaking a comprehensive program to replace our aging water 
and wastewater infrastructure, some of which dates back to the 
early part of the last century.
    Over the next 10 years, we and our water department plan to 
call for spending, we are going to spend $2.5 billion on 
capital improvements ranging from replacing water and 
wastewater mains to increase the capacity and modernizing our 
treatment plants. Virtually all this work will be financed by 
ratepayers and the issuance of revenue bonds. This puts a 
severe strain on our city's finances and on ratepayers. Much of 
it is necessary for the city to meet Federal drinking water and 
clean water standards and environmental regulations.
    Over the last 2 years, we have increased our water and 
wastewater, or sewage rates, rather, by 11.3 percent and 7.9 
percent respectively, and we estimate in this new budget year 
that we will probably pass on increases of 7 to 8 percent, and 
it will be something along those lines in terms of percentage 
increases over the next several years to finance these costs of 
constructing new and replacing infrastructure. This has posed, 
as you would expect, a very, very significant issue for us both 
politically and just the financial burden of trying to handle 
the costs.
    While we do recognize that providing water and wastewater 
service is a local responsibility, there, in our view, is an 
important role for the Federal Government to play in financing 
water and wastewater infrastructure. We strongly support the 
goals of both the Safe Drinking Water Act and the Clean Water 
Act. However, both laws place expensive mandates on cities that 
the Federal Government we believe should help to meet.
    The Federal Government helps State and local governments 
finance many kinds of infrastructure, most notably highways, 
airport, and transit, and we believe there is a sound basis for 
Congress to provide this kind of assistance as funding, for all 
three easily translate into numbers of jobs and measurable 
mobility improvements. However, in our view, it is important to 
note that, without safe and reliable drinking water and 
sanitary sewage service, jobs and mobility mean very little. It 
is clear that wastewater and infrastructure financing would 
help local customer rates and make them more affordable. And 
we, again, thank you.
    Mr. Duncan. Thank you very much, Councilman Hill. A very 
fine statement. In the 5 years I have chaired this 
subcommittee, I think I have been visited by about 70 or 80 
mayors of almost every large city and many small cities to tell 
me that this is probably their biggest, most difficult problem. 
But thank you for your statement.
    Mr. Ward.
    Mr. Ward. Thank you, Chairman Duncan, Ranking Member 
Johnson, Vice Chairman Boustany, and members of the committee 
and staff. This conference for Infrastructure Finance Authority 
greatly appreciates the opportunity to be here today and share 
with you our views of what the needs are for investment and 
infrastructure across the country. We represent collectively 
almost every State and some of the territories, and we are the 
entities that are administering your clean water State 
revolving funds across the country as well as, in many cases, 
the drinking water State revolving funds.
    We think our members are out there on the forefront of the 
development of these types of programs, and in many cases, our 
members represent agencies that have been doing these programs 
for decades and even before the Clean Water SRF came along. The 
Ohio Water Development Authority is a great example of that. 
They have got a long-standing program. And you will see some of 
the innovation that we have talked about in our testimony, 
evidences that those type of agencies that are entrusted with 
this valuable resource that Congress has provided to the States 
have been very effective at administering these programs and 
finding a way to make them apply at the State level.
    I have got four major points that we decided as an 
organization we wanted to make here today. One, it is working. 
The congressional investment that you have continued since the 
appropriation authorization ended with the Act, since 1994, has 
been well spent. And it has, I guess, your continued investment 
shows us that you believe it is well spent. So we agree, and we 
want to make that point.
    Also, it has been leveraged and in more than one way. We 
will get to that.
    There has been innovation and flexibility created in the 
program, and it is because of the way it was set up, the way 
that the enabling legislation authorized the States to take 
some ownership of the process and establish priorities within 
the State under a structure that the Federal Government had 
designed.
    Also, we want to work with you going forward and offer our 
assistance in trying to help Congress in their deliberations on 
how to change this program and help it meet the changing needs 
that are out there that you are hearing about, needs that were 
expressed very well here by Mayor Hill.
    We, of course, have been feeling the pinch of the cuts that 
have come down lately on the programs, and we wanted to tell 
you what the real impact of that is. I think there has been a 
lot of analysis that has been shown to you that demonstrates of 
course that there is a corpus, an amount that you have in this 
investment. It is not a trust fund in a true sense, but, in 
essence, what you have is your investment in a vehicle at the 
State level that is a shared resource now. Congress sets the 
tone for the type of priorities it wants, then the States take 
that and they translate it in what the actual priorities are at 
the State level.
    In doing so, we have developed different mechanisms for 
delivering these funds. I guess we would like to say, if it 
isn't broke, don't fix it, but, in essence, you have taken a 
little over $25 billion worth of investment over the years and 
we have turned it into almost $50 billion worth of projects 
now. And I would say that the more the States are leveraging, 
so we think that that will actually grow and be leveraged at a 
higher ratio going forward.
    That is just the capital leveraging on this. When you get 
into the testimony, you will see we have also demonstrated that 
there are a multitude of programs out there that are designed 
for niches that we will put together with a comprehensive 
project in a community so that we meet the needs of the entire 
community, and we believe we walk away with a sustainable 
infrastructure for that community.
    You know, examples of that exists not only in Texas, but 
also States like Ohio, Massachusetts. I think Montana being a 
rural State is an excellent example. We highlight that here 
because they have combined other Federal programs and actually 
do a singular application and make it easier for those rural 
applicants that don't really have the technical expertise to 
access these programs. And we all know that it is very complex.
    You have had, I am sure, mayors of small communities and 
mid-sized communities tell you that this is not easy. It is 
rocket science in many cases. Well, this program is designed 
comprehensively to provide that technical assistance to bring 
those projects in as well as meet the needs of the largest 
cities like the Dallases of the world, the Houstons of the 
world, and get them off of compliance orders. Combined sewer 
overflows have been met, stormwater projects. We have even 
gotten to the point in some States where they link up deposits 
with banks and they will provide assistance to thousands of 
individuals to remediate septic tanks. So the program is very 
healthy and it has been operating quite effectively.
    I would like to turn my focus right now to some of the 
improvements that we think could be helpful going forward.
    First off, we endorsed H.R. 1560 in the last Congress. We 
believed that it was really a good template to work from, and 
we were willing to sit down and work out any of the details 
that would have made sure that it would be effective. We also 
believed that within that some of the priorities were the 
transferability of funds that is between the clean water and 
the SRF, because the drinking water is just getting off the 
ground; clean water is strong, and they need to be able to 
transfer those funds and also be able to let the State have the 
discretion and a little bit of the money in between.
    Extended loan terms for the useful life of projects. We 
have seen 30-year loan terms be very effective, and the 
facilities do last that long, so we do believe that is 
important. Also, that will help disadvantaged communities 
immensely.
    Those are the ones. And then fee language, of course. You 
know we run into that issue all the time. With the leveraged 
program, if you look at the percentage that you can allow in 
the program right now for the administration of the program, it 
is just not proportionate to an unleveraged program. So we 
would like to see some relief there.
    Finally, in the area of tax law, there were some areas that 
we recognized in 1560 with regard to arbitrage rebate. Those 
really do need to be addressed. It is your investment. It is 
Congress's investment in the States. And then I think that, 
profoundly, everyone takes ownership of it. And if we want to 
see the investment maximized, then indeed we need to see these 
issues addressed. I thank you very much for the time you have 
given me.
    Mr. Duncan. Thank you very much, Mr. Ward. We will get into 
more detail with questions from members.
    Mr. Khuman.
    Mr. Khuman. Mr. Chairman and members of the committee, my 
name is Jag Khuman. I serve as the director of the Maryland 
Quality Financing Administration, which is responsible for the 
financial management of the Maryland Water Quality Revolving 
Loan Fund, the Drinking Water Revolving Loan Fund, and the 
recently enacted Maryland Bay Restoration Fund, fondly known as 
the flush fee.
    Thank you for inviting me to speak about the Maryland Fee 
Restoration Fund, a major new State initiative for financing 
sewer infrastructure projects.
    The 2004 water quality needs survey estimates that over $6 
billion of sewer infrastructure needs in Maryland alone, which 
is a small State, over the next 20 years. One key needs 
category is the capital cost to upgrade wastewater treatment 
plants with advanced treatment for nutrient removal, primarily 
nitrogen and phosphorus, before the treated affluent is 
discharged into the Chesapeake Bay.
    Under the 2000 Chesapeake Bay agreement, Maryland and its 
neighboring States have made certain commitments to reduce 
nutrients loadings, and Maryland's numerical limits is a 
maximum nitrogen loading of 37 million pounds per year and a 
phosphorus loading of 2.9 million pounds per year, and to be 
achieved by 2010. To meet this goal, Maryland still needs to 
reduce nitrogen by 20 million pounds per year and phosphorus by 
1.1 million pounds.
    Since 1985, the State implemented the biological nutrient 
removal program called the BNR program where the State provided 
50 percent of capital costs in State grant funding for the 
design and construction of BNR at wastewater treatment plants 
with half amillion gallons per day or more of capacity. The 
remaining 50 percent of the costs were financed through the 
Maryland revolving loan fund as a low interest rate loan. State 
funding came in the form of State general obligation bond 
appropriation.
    The goal of the BNR program is to reduce nitrogen levels in 
the treated wastewater down to 8 milligrams per liter. For 
example, a typical wastewater treatment plant discharges 
nitrogen at about 18 million grams per liter, and the BNR will 
bring that down to 8. Through 2005, the State of Maryland has 
provided $208 million in grant money, and it is estimated 
another $92 million is needed over the next 3 to 6 years.
    Recognizing that significant efforts still needs to be made 
to reduce nitrogen loading by 20 million pounds per year and 
phosphorus by 1.1 million pounds per year to achieve the 
targeted nutrient reduction goals by 2010, Maryland Governor 
Robert Ehrlich proposed legislation during 2004 to create the 
Bay Restoration Fund. The BRF, the Bay Restoration Fund 
legislation was passed by the Maryland general assembly and 
signed into law in May 2004. The Bay Restoration Fund 
legislation created a dedicated source of new State funding to 
upgrade the sewage treatment plants from the BNR level to what 
we now call the enhanced nutrient removal levels, ENR, and will 
provide 100 percent in grant funding. Under ENR, the wastewater 
treatment plants will be upgraded for nutrient removals to 
bring nitrogen down to the state of technology 3 milligrams per 
liter discharge and 0.3 milligrams per liter for phosphorus.
    The capital cost to upgrade the largest 66 facilities in 
Maryland would cost approximately $740 million. These 
wastewater treatment plants account for about 95 percent of the 
total sewage treated in the State. Once completed, these ENR 
upgrades will achieve an estimated 7.5 million pounds per year 
of additional nitrogen reduction and 260,000 pounds per year of 
phosphorus reduction. This action is only about 37 percent of 
the 20 million pounds per year goal for nitrogen reduction and 
24 percent for phosphorus. The Maryland Bay Restoration Fund 
will be financed through a fee of $2.50, essentially $30 per 
year, on each household that is connected to a wastewater 
treatment plant.
    Similarly, nonresidential users like businesses and 
commercial enterprises will be paying $2.50 per equivalent 
dwelling unit for the first 3,000 equivalent dwelling units, 
and then on a sliding scale pay $1.25 per EDU for the next 
2,000. No single business will pay any more than $10,000 per 
month.
    The BRF fee, the Bay Restoration Fee for users connected to 
wastewater treatment plants became effective January 1, 2005, 
and the fees will be collected by the local municipalities and 
building authorities that currently send out the water and 
sewer bills. It is estimated that $60 million per year will be 
generated.
    The financing plan is essentially we will have $60 million 
a year coming in, we will leverage that to issuing revenue 
bonds, and we estimate some $510 million of revenue bonds will 
be issued so that we can complete these upgrades in the next 5 
to 6 years.
    The Bay Restoration Fund also instituted a fee on septic 
tank users, which is essentially the same $30 a year for 
everybody who is on septic tanks, and that money will be 
essentially used for 60 percent of the money to upgrade sewage 
septic tanks with nitrogen removal technologies and the balance 
for the Cover Crop program.
    In summary, Federal funding is insufficient to meet water 
quality infrastructure needs, and the States are trying to 
develop their own funding programs to fill this gap. With over 
$6 million in future water quality needs, we believe increase 
Federal funding is necessary. Thank you.
    Mr. Duncan. We will cut you off there, Mr. Khuman, and we 
will get into more detail in the questions from the members.
    Mr. Howard.
    Mr. Howard. Thank you. Mr. Chairman and members of the 
subcommittee, I am Stephen Howard, representing Lehman 
Brothers. On behalf of Lehman Brothers, we are very grateful to 
appear here before you today and offer our thoughts on possible 
tools to help bridge the funding gap that exists in the 
country's water quality infrastructure needs. I have been at 
Lehman Brothers for over 22 years, during which period I have 
financed over $7 billion of water, solid waste transportation, 
and public facility infrastructure projects in the tax exempt 
and taxable bond markets.
    Today I want to present some thoughts on one tool that 
could be added to the financing toolbox that could provide an 
immediate benefit to the priority of unleashing capital to 
construct water quality infrastructure. I would like to note 
that the legislation has been introduced on this tool that is 
pending before the House Committee on Ways and Means. This bill 
would amend existing tax policy to allow local communities to 
leverage the capital markets in combination with other 
financing mechanisms.
    Essentially, H.R. 1708 would provide for the unfettered use 
of tax exempt securities, known as exempt facility bonds or 
private activity bonds, so-called PABs, to finance water 
quality infrastructure projects. As an important aspect of this 
financing tool is that it would not, according to the Joint Tax 
Committee, significantly affect the Federal Treasury. Stated 
another way, there would be negligible impact upon the Federal 
budget. I would encourage the subcommittee members to review 
this legislation and consider co-sponsoring the bill as a means 
to help address our water quality infrastructure funding gap.
    I would like to take the remaining time I have today to 
explain how this tool works and offer a real world example that 
illustrates how a scarcity in environmental infrastructure 
assistance was met using PABs, and thus addressed an 
environmental protection compliance issue. The financing 
options for infrastructure projects, tax exempt bonds, 
governmental purpose bonds, which most of you are familiar 
with, have been issued by governments for years. The second 
option with tax exempt is private activity bonds, which is the 
subject of this discussion. Taxable bonds are also possible but 
more expensive, as well as private equity from private 
participants and projects.
    It is important to note that taxes and private activity 
bonds are typically used on project-financed public-private 
partnership transactions and are repaid by ratepayers through 
retail or wholesale user fees.
    This is a graphic, sort of replaying the previous slide, 
talks about the costs and the spectrum of financing options, 
taxes and governmental purpose and private activity bonds are 
over on the left-hand side. The key point that this chart makes 
is that there are a variety of options that are available if we 
could use private activity bonds to optimize and expedite the 
development of water quality infrastructure projects.
    This is a chart that shows the availability of governmental 
purpose bonds as well as private activity bonds on an asset-
classed basis. As you know, that is a real patchwork currently 
in the Tax Code, and the only category that has access to 
private activity bonds across all ownership and project 
structure types is solid waste. And the reason solid waste has 
this option is because of the crisis that existed in the mid 
1980s, it had to be addressed. And we want to fill the same, we 
want to fill the checks in for water/wastewater as well.
    We will use solid waste as the means to determine what 
impact the availability of private activity bonds would have on 
the issuance of private activity bonds for water/wastewater 
projects.
    As I mentioned, the municipal solid waste sector faced a 
crisis in the early 1980s due to declining landfill capacity 
and rapidly increasing disposal costs. U.S. Congress responded 
to this crisis by eliminating taxes and private activity bond 
cap for municipal solid waste disposal projects in the Tax 
Reform Act of 1986. As a consequence, over 15 billion of PABs 
have been issued since 1986 to help fund the development of new 
infrastructure to help solve the municipal solid waste disposal 
crisis.
    This chart shows the amount of private activity bonds 
issued for water projects. In the past 25 years, you can see 
the blue for private activity bonds for water, and then the 
purple for governmental purpose. Private activity bonds are 
available for water projects, but they are subject to the State 
bond cap which severely restricts their use, as you can see in 
this chart.
    This is a pie chart that shows, of all the taxes and bonds 
that have been issued for water/wastewater over the past, since 
1986, only 1 percent was private activity bonds.
    This shows the issuance of private activity bonds for solid 
waste projects. Again, private activity bonds are in the blue 
bars and governmental purpose are in the purple bars, much 
higher issuance, because private activity bonds are not subject 
to the State bond cap allocation. A much higher percentage. 
Over 40 percent of tax exempt bonds issued for solid waste 
projects were private activity bonds that released much more 
private participation in the development of this 
infrastructure.
    Solid waste private activity bonds have equaled over 40 
percent of total issuances compared to 1 percent for water/
wastewater, an average of 700, almost 800 million of private 
activity bonds for waste projects since 1986 compared to only 
240 million for water/wastewater.
    Based on the experience in the solid waste sector, we 
believe private activity bond issuance for water/wastewater 
projects would significantly increase and help expedite the 
construction of new projects as it did in the solid waste 
sector. Actual issuance of PABs for water/wastewater projects 
will be based on the number of projects ready to be financed, 
particularly where the public sector wants the private sector 
to assume a greater role and assuming development technology 
and performance risk. With the elimination of the bond cap for 
water/wastewater projects, it is reasonable to expect that 1 to 
2 billion of PABs would initially be issued annually and could 
double or triple annually over time as the Triple P, public 
private partnership, water/wastewater industry matures.
    Mr. Duncan. We will have to stop there. But thank you. This 
has been very helpful and informative testimony, and we will 
get into more detail in a few minutes.
    Ms. Martin.
    Ms. Martin. Chairman Duncan, Ranking Member Johnson, and 
members of the committee, I thank you for the opportunity to 
testify before you today on the need for wastewater 
infrastructure for rural communities. I am the director of the 
Great Lakes Rural Community Assistance Program, and our RCAP 
serves seven midwestern States, including Indiana, Illinois, 
Kentucky, Michigan, Ohio, West Virginia, and Wisconsin. I am 
also pleased to attend this hearing on behalf of the Rural 
Community Assistance Partnership. With regional partners 
throughout the U.S., RCAP comes representing the interests of 
low income rural communities.
    RCAP is a national network of nonprofit technical 
assistance organizations that work with over 2,000 communities 
throughout the U.S., Puerto Rico, the Virgin Islands, and Guam. 
For more than 30 years, our organizations have provided 
assistance with the development, management, financing, and 
operations of rural water and wastewater systems.
    As many of you know, rural communities sit at a 
disadvantage in financing water and wastewater infrastructure. 
Rural residents are three times as likely as their urban 
counterparts to lack water and sanitary sewer services. When 
these services are available, they pay, on average, three times 
as much for them simply because they lack sufficient users to 
create economies of scale. The gap between the current need and 
existing financing for infrastructure in rural areas is well 
documented. Further, small communities face a growing set of 
challenges in terms of meeting increasingly stringent water and 
wastewater regulations.
    At the same time, rural communities face a shrinking pool 
of government financing resources. Many rural residents are 
already paying a significant portion of their income for these 
services. It is unrealistic to expect that increasing user fees 
alone can solve the problem and eliminate the funding gap.
    We have also become increasingly concerned with the 
inconsistency of infrastructure financing mechanisms across the 
U.S. Rural community financing varies significantly by State. 
Some States run chronically short of resources to meet growing 
community needs, and good practices in one State are unlikely 
to be transferred to others. It is for this reason that we 
support the notion of a clean water trust fund or other Federal 
financing mechanisms such as through the SRFs, not only to 
increase the resources available at the Federal level to 
address the gap, but also to promote better coordination of 
these resources while encouraging best practices.
    We believe that a trust fund or a similar Federal mechanism 
could be used as an incentive to the adoption of infrastructure 
financing best practices at the State level.
    The allocation of such funds could serve as a carrot, if 
you will, to encourage the adoption of practices that would 
make financing of infrastructure more coordinated, efficient, 
and rational. By coordinating financing, States could become 
better stewards of the resources available. In some States, 
wise investments of resources have allowed for a replenishment 
and even expansion of financial resources over time. Likewise, 
some States have streamlined and simplified the application 
process so that communities are less burdened in applying for 
financing. Additionally, some States have mechanisms for 
coordinating or cross-funding agencies. These practices could 
be encouraged at all States as conditions of receiving 
additional funding through a Federal mechanism.
    One example of best practices from my home State is the 
creation of the Ohio Water Development Authority. OWDA was 
created in 1967 through the issuance of $100 million in State 
general obligation bonds. Through careful stewardship and 
creative financing mechanisms, the funds have been leveraged so 
that the initial investment is today worth about three quarters 
of a billion dollars. The authority continues to revolve these 
funds and improve its bond rating so that bonds can be issued 
to increase available funding without requiring the backing of 
the State and needlessly obligating precious State resources.
    Key to the success of this program is the flexibility that 
OWDA possesses with few restrictions on how the funds can be 
employed. OWDA, while an agency of the State, has been given 
the freedom to operate much like a private sector entity. As 
such, they are have the flexibility to work with other funders 
and technical assistance providers in the State to create 
programs that respond to specific needs, utilizing surpluses 
from their other programs. Some examples include a bridged loan 
program that does interim financing for rural development 
borrowers, a research and development grant that allows systems 
to test and utilize new technologies, and a community 
assistance program that offers very low interest rates and 
long-term financing to borrowers that already pay a significant 
portion of their income and utility fees. These programs have 
all been created by adapting existing resources to respond to 
areas of need.
    OWDA was also instrumental in creating the Small 
Communities Environmental Infrastructure Group. This group 
includes all of the funding agencies in the State, technical 
assistance providers, private sector financiers, universities, 
electric cooperatives, and others who have an interest in 
infrastructure. Initiatives have been developed through this 
group to streamline and better coordinate funding, promote 
training for local officials, and promote the use of new 
technologies.
    Other States have created similar mechanisms; the gentleman 
mentioned Montana, which is a good example, and was actually 
one of my examples so I won't repeat that. But New York State 
has developed a co-funding initiative. All of the funders have 
signed on to a memorandum of understanding that formalizes 
their intent to cooperate in the administration and 
coordination of financing. This group has developed online 
tools to allow communities to match their projects and their 
needs with the appropriate funding sources and technical 
assistance providers.
    There are numerous other examples of this type of 
coordination that help to make the process of completing a 
project easier for small communities, while also ensuring that 
scarce resources are well targeted and efforts by the various 
agencies are not duplicated.
    Technical assistance is also a critical component in 
ensuring that small communities take maximum advantage of the 
resources that are available to them. Most small communities 
lack the staff or the expertise to coordinate the multiple 
resources that they need. This is frequently the role played by 
RCAP or other technical assistance providers. In addition, 
training for local officials is critically needed to ensure 
that, once a system is created or upgraded, the capacity exists 
to continue its operation.
    And we thank you for the opportunity to testify.
    Mr. Duncan. Already. Thank you very much, Ms. Martin.
    Dr. Nelson.
    Ms. Nelson. Mr. Chairman and members of the committee, I 
very much appreciate the opportunity to testify before you this 
morning. I represent the Coalition for Alternative Wastewater 
Treatment, which is a national network of experts and advocate 
for alternatives to conventional approaches.
    I would like to join in support this morning on higher 
levels of Federal assistance in meeting the looming gap in 
spending to repair America's aging water and wastewater 
infrastructure.
    I would like also to introduce, however, a quite different 
question. How can the limited Federal share of overall spending 
be better used to prod the Nation's water and wastewater sector 
into higher performance at less cost.
    The current Federal share of overall capital spending is 
only about 5 percent, and even a doubling of that still leaves 
the Federal Government as a minor actor in the overall spending 
pattern. And if those monies could be used to provoke a save 
and a 10 percent cost efficiency, that would represent about $8 
billion in savings in capital and O&M that is projected for the 
future.
    So it is I think a worthy question to ask: Can the series 
of carrots and sticks be attached to the Federal financing to 
provoke the sector into becoming more efficient and innovative?
    The current problem in water and wastewater infrastructure 
is not just that the infrastructure is aging, but that the 
basic technology paradigm of large-scale piping and treatment 
plant centralization is looking less and less sustainable, and 
that, relative to other countries, the U.S. is not yet 
seriously developing or implementing innovative approaches.
    First, the U.S. has become a net importer of innovative 
water and wastewater technologies. Very little R&D is occurring 
in either the public or private sectors in the U.S. Further, 
America's policymakers and practitioners are largely unaware of 
the intensity and speed of innovation in other countries, and 
few have moved to adopt the kinds of regulatory, management, or 
technology reforms that are emerging overseas.
    I suggest that this loss of American leadership in water 
and sanitation relative to the rest of the world is a problem 
that actually eclipses the definition of the gap because it 
means both that the U.S. sector is headed to relatively greater 
inefficiencies over time and, secondly, that the jobs and 
export income from high-tech water resource technologies and 
methods are being generated outside the U.S.
    I have a lot more examples in my written testimony, but let 
me just cite three this morning. Asset management developed in 
the United Kingdom, Australia, New Zealand is an approach that 
involves a more business-like process of establishing customer 
service levels and life cycle management and financing of the 
assets. Without asset management, cities all across the U.S. 
Are wasting money in replacing pipes that don't need to be 
replaced, and paying more for emergency repairs of broken pipes 
that should have been receiving cheaper routine maintenance all 
along.
    Secondly, distributed technologies and reuse. In major 
cities such as Tokyo and Singapore, high-tech membranes are 
being used to create zero water emission buildings involving 
reuse of wastewater and toilet flushing, landscaping, et 
cetera. Since 70 percent of the cost of conventional water 
resource infrastructure is in the underground pipes and not in 
the treatment plants, technologies that can avoid central 
collection systems lead to great cost savings. And this can 
apply to repairing existing older systems as well.
    Third, integrated water resource planning. Over time, 
everywhere, including in the U.S., bureaucracies in utilities 
developed in separate silos of water, wastewater, stormwater, 
water supply, and flood control, and many large inefficiencies 
occur as a result. Countries like Australia have restructured 
regulations in utilities into catchments or watersheds where 
water is viewed in an integrated holistic framework, and these 
efforts are leading to both cost savings and environmental 
improvements.
    The larger point is not so much that a tremendous amount of 
technological innovation is occurring overseas, but rather that 
U.S. policymakers, utilities, and advocates are so slow to wake 
up to these shifting realities. When you talk to various 
critics of the current infrastructure, they will tell you that 
the deepening crisis of funding in the U.S. will eventually 
force municipalities and engineers to wake up to the need for 
fundamental redesign of U.S. infrastructure, but I believe 
instead that the Federal Government must assert a--reassert a 
major leadership role if such changes are to occur. Many of 
these kinds of approaches were incorporated in the original 
Clean Water Act but have lapsed in more recent years.
    I would like to ask your committee to consider a number of 
legislative initiatives both to support and encourage the work 
of innovative scientists, engineers, companies, and local 
utilities, as Ms. Martin described in some of the States, and 
to insist that recipients of Federal funds comply with asset 
management, integrated water resource planning, and engineering 
alternatives analysis requirements. Specifically, authorize 
$250 million a year for science and technology research and 
development. I know this sounds like a lot, but in current 
dollars, the Clean Water Act authorized over $300 million a 
year in R&D on water. Authorize a national demonstration 
program for innovative technologies and management and grants 
for innovative and alternative projects proposed by local 
utilities. This would be similar to an old I&A program that was 
in construction grants.
    Require that any applicant for an SRF loan or trust fund 
grant have prepared an asset management plan, coordinated with 
integrated water resource plans in a regional watershed and 
examined the full range of engineering alternatives.
    Request groups like EPA and the National Academy of 
Sciences to start looking at long-term sustainability issues 
and the kinds of approaches that can be brought into this 
country. And initiate collaboration among congressional 
committees having jurisdiction over other agencies beyond EPA, 
USDA, HUD, DOE, Commerce, and others in an attempt to try to 
bring a greater coherence and innovation into the larger water 
and wastewater sector. Thank you.
    Mr. Duncan. Thank you very much, Dr. Nelson. Very 
informative. And, you know, the Knoxville airport is attempting 
to experiment with some reuse technology that the preliminary 
results are pretty encouraging. As some people have said in 
other hearings we have had on this subject, this may not be a 
sexy problem, but I can tell you it is one of the most 
important significant problems that we have facing this country 
today. Those mayors and others on the front lines in dealing 
with this know it is very, very significant.
    I am going to save my questions until the end so I can 
hopefully get to more members that way, and I am going to yield 
my time for questions at this time first to Mr. Gilchrest.
    Mr. Gilchrest. Thank you, Mr. Chairman. The testimony was 
enlightening and a breath of fresh air, I must say, especially 
from Dr. Nelson, who, we as leaders of the free world, and you 
are looking at the leaders of the free world up here, here we 
are; we are the leaders of the free world. That gives you great 
confidence, I know, in your future. But I am sitting next to 
Vern Ehlers, who is a Ph.D. In physics, and he is always 
pushing for more science and more innovation. And certainly 
this country, with our resources, can put them to good use with 
initiative, ingenuity, and intellect. And this issue of 
wastewater treatment, I think, you know, within the decade 
could be solved.
    But I had a question which is a little parochial and might 
have an effect on all of you. The question is the gentleman 
from Maryland, and we have this fascinating idea and a concept 
known as the flush fee, and it does generate a lot more money 
to resolve some of these more pressing issues with the larger 
wastewater treatment plants, and then the Federal dollars that 
come into the State can be distributed in a much wider fashion.
    In the process of looking at the wastewater and the 
nutrient reduction into the Chesapeake Bay, and it is called 
the Chesapeake Bay Fund Restoration Project, has the State 
looked at a watershed approach so part of the funds from the 
flush fee and certainly money from the open space transfer tax 
can be looked at purchasing easements or outright purchase of 
land so there are larger areas in a broader sense in perpetuity 
that is pervious, rather than having to deal with the 
increasing problems of impervious surfaces, more development, 
more sewage treatment plants? While we reduce the amount of 
nutrients per liter, the more sewage plants we build and the 
more houses that are hooked up, we really don't gain anything 
because we are putting out more effluent.
    So I guess the question is, have you looked at the 
watershed approach, and areas like New York City did to protect 
their water in upstate New York from Manhattan, to not only let 
nature do some of this for free, provide much more natural 
processes for nutrient removal in the process of dealing with 
the wastewater problem in the State of Maryland?
    Mr. Khuman. Specific to the fee restoration fund, the flush 
fee, the statute is very narrow that the money from the sewage 
treatment plant uses must be used for the targeted 66 sewage 
plants that must be brought to the State-of-the-art technology. 
So that is very specific. However, the watershed approach is 
working from the State revolving loan fund perspective, the 
clean water revolving loan fund can provide monies for purchase 
of land and buffers for source water protection and also for 
water quality protection.
    So we are using the revolving loan interest paid loans on 
the watershed approach.
    Mr. Gilchrest. So the State revolving loan fund that we 
appropriate funds for here can also be used to purchase 
easements or land?
    Mr. Khuman. Yes.
    Mr. Gilchrest. Or buffers for the purpose of nutrient 
removal and those kinds of things? I understand how vital it 
was to get it through the general assembly, but that the 
dollars for the flush fee would be specifically targeted to 
those high-end treatment plants, and I think that is a good 
idea. What I would suggest, if I might, as a citizen of 
Maryland, that your office with those who work with the State 
revolving loan fund sit down with the Department of Agriculture 
and also maybe USGS to see how the hydrologic cycle works in 
Maryland, and then take a look at a watershed approach. From a 
scientific perspective where should the buffers be? Where 
should the pervious surface be preserved and even expanded? But 
I want to thank you, Mr. Khuman, for all your work and effort 
in this Bay Restoration Project. I think it is a sterling 
example of what actually can happen and what can work. Thank 
you. Thank you, Mr. Chairman.
    Mr. Duncan. Thank you very much. Ms. Johnson.
    Ms. Johnson. Thank you very much, Mr. Chairman. Mr. Hill, I 
was intrigued by the allowing the local ratepayers to deduct 
the portion of their water and wastewater utility bills from 
their taxes. Could you elaborate on that a little?
    Mr. Hill. Thank you, Congressman Johnson. We do think that 
that is an approach that is consistent with some of the other 
things we do now allow deductions for property taxes that fund 
our municipal operations. And so we think that is consistent, 
and it also provides a way for what we have outlined as 
continuing escalating costs that we are confronting to in some 
way be able to be beneficial to that that ratepayer, because 
our systems are based entirely on the ratepayers bearing the 
costs of the replacement, the repair, and the improvement to 
the infrastructure. So we think that is a way to try to get 
some of the benefit back to the ratepayer and is consistent 
with what we do with our taxes.
    Ms. Johnson. Thank you.
    Mr. Howard, in your testimony, you suggested alternative 
financing through bonds. You are aware that we sent that 
through with the last bill, 107th Congress, Ways and Means 
struck it out. Has anything changed with the Ways and Means 
Committee that you are aware of?
    Mr. Howard. It is due to come to hearing this year with the 
reintroduction of 1708.
    Ms. Johnson. Thank you very much.
    I will yield the rest of my time to Mr. Blumenauer.
    Mr. Blumenauer. Thank you.
    Mr. Chairman, again, you are helping, I think, frame these 
issues in a way that are extraordinarily useful. Two things 
that I am interested in is the range of financing options that 
we want to explore.
    I appreciate what Mr. Howard is talking about, sort of 
rounding out the toolkit. Well, I must say that I hope that we 
circle back as a committee, not just looking at the financing 
options and the technical elements, but as Dr. Nelson was 
saying, look at the way that we use the Federal investment to 
encourage best practices.
    I come from a community where there are people that are 
doing this on fairly extensive level. In fact, we are sending 
some of our local technologists overseas who actually are 
working in Singapore, same as the days I used to work with--
back in my days as head of Public Works Commission for the City 
of Portland.
     The extent to which we are able to craft, more 
specifically, programs that are going to encourage people to 
look at overall investment, I think is extraordinarily 
important. We did a little of this with Transportation in 1991 
with our ISTEA legislation. We encouraged some planning, we 
encouraged innovative financing. We encouraged different ways 
of tying the elements together, whether it is mass transit or 
highways, or dare I even say, bicycles.
    It has made a little--it has made some difference, because 
in the United States we will spend $2 trillion next year on 
transportation, but only 3 percent of that is Federal.
    But I think the signals that we sent in 1991, and hopefully 
what we send with the reauthorization this time, help enhance 
the efficiency of the transportation dollars. I don't think we 
have done that with Federal policy regarding water treatment.
    You are right, it is not sexy, but I think there are so 
many areas of research, of decentralized efforts, homeowners 
can do--we can make this cheaper and greener. We are going to 
need all of the tools that people are talking about here, 
because we are still not investing enough.
    But I think the work that we do on this subcommittee, we 
can encourage it to be spent more wisely, and it will make even 
more difference than rounding out the toolkit. I just want to 
thank you again for a provocative hearing. I would like to work 
with the subcommittee on ways to build the carrot and stick; 
that is not right, but incentives, we want these all to be 
incentives, no stick. We want them all to be incentives to coax 
more out of the overall investment.
    Mr. Duncan. All right, thank you very much, Mr. Blumenauer. 
I certainly share some of those same goals and I hope we can 
make some specific recommendation after this series of 
hearings.
    Dr. Ehlers.
    Mr. Ehlers. Thank you, Mr. Chairman.
    I think this is one of the best hearings we have had on 
this topic. I was pleased to relearn a number of the things we 
learned particularly about the flush fee, private activity 
bonds and integrated planning. I agree with all of that.
    As a scientist, I do bemoan our lack of research on some of 
the very fundamental issues. It is great that we want to go to 
the moon and Mars, but at the same time, we have to worry about 
what we are going to do with our human waste, both solid waste 
and other waste.
    I think one of the big problems is the public's lack of 
understanding of infrastructure. They really don't know what it 
is. It is a term that doesn't really hit them. I think we are 
better off talking about water and sewage than about 
infrastructure. They understand that. Also, we could do a much 
better job in our schools by having fuel trips of wastewater 
treatment plants. That leaves a great impression on the kids. 
They understand the problem better.
    It probably would help if Dr. Seuss had written a book such 
as "Where the Flush Went" so kids would understand these 
things. Because they grow up without an understanding. They 
take it for granted and then they have to start paying water 
and sewage bills and they say why does it cost so much?
    We clearly need more research. One of my frustrations is we 
have an abandoned water treatment plant in my city, in Grand 
Rapids, Michigan. I have been trying to get the government to 
provide them the money to convert that into a research 
laboratory. EPA says Homeland Security should do it. Homeland 
Security says EPA should do it. An apartment developer wants to 
convert it to an apartment building.
    At this point the developer is going to win. I predict not 
too many years in the future we will say we need a better place 
to do research and we will spend $100 million building 
something we could get right now for 15.
    I am interested in ideas that the panel might have on 
better educating the public about wastewater and the need for 
funding for this and why it costs money. If anyone has any 
comments on that.
    I am also--before we go into that, Dr. Nelson, I would 
appreciate your comments on how we can get communities to do 
integrated planning. I am not that excited about Federal 
mandates to do this. I am not even that excited about a lot of 
Federal money doing it, because I predict it will turn into a 
huge pork barrel once we get substantial amounts of Federal 
money, and the political power will decide who gets funded and 
not the needs of the people.
    But a few comments from you and then any general comments 
we have in time remaining on better educating the public on 
infrastructure.
    Ms. Nelson. Well, many people have described the great 
difficulties of doing integrated planning. The silo-ed 
bureaucracies and professions do not ordinarily talk together. 
It is quite amazing how uncommunicative storm water and a water 
and a wastewater and a flood control and transportation 
agencies can be and not integrating their infrastructure 
planning for the metropolitan area.
    As I suggested, some analysts are sufficiently frustrated 
to say that cities have to suffer enough financially to try to 
finally force their own staffs and bureaucracies to begin to 
coordinate better.
    I think that demonstration projects to cities that are 
willing, Portland, Oregon, maybe, to get their bureaucracies to 
start working better and achieving great efficiencies is one 
step, as far as an incentive goes. I do actually believe that 
the problem is serious enough and the money that could be saved 
is great enough that over time, that kind of planning should be 
required as a condition of financial assistance from the 
Federal Government.
    The fact that demonstrations can be there in parts of the 
country to show other communities how to do that is very 
helpful.
    Mr. Ehlers. We only have a minute or two left.
    Any quick comments on infrastructure?
    Yes, Mr. Ward.
    Mr. Ward. In the State of Texas, we actually have an 
education program for 5th and 6th--or 4th, 5th and 6th graders 
that we have funded. The program is known as the Major Rivers 
Program, and it goes over the water cycle and how the treatment 
works in a very elementary way. But it yet raises the 
sensitivity of the children, not only to the, you know, the 
value of water and where it comes from and where it goes, but 
as well to water conservation.
    Mr. Ehlers. Thank you. I see my time has expired, and we 
have a vote.
    Mr. Duncan. Thank you very much, Dr. Ehlers.
    People do say why does it cost so much. But I can tell you, 
really, what we pay for our water in this country is a bargain, 
especially compared to cable and cell phone bills which the 
people pay. They are paying much, much more. Unfortunately, we 
have a vote going on.
    Mr. Ehlers. Mr. Chairman, could I just comment? All you 
have to do is compare what we pay on water treatment to the 
amount the public spends on bottled water. You would be amazed.
    Mr. Duncan. Right, well unfortunately we have a vote going 
on. We will have to be in recess for about 10 minutes and then 
we will come back. Thank you.
    [recess.]
    Mr. Duncan. If we could get the witnesses all back to the 
table, we will go ahead and resume the hearing.
    Mr. Blumenauer, since before you just had an opportunity to 
sort of make a statement. If you have any questions, I will let 
you ask any questions you might like to at this time if you 
have any.
    Mr. Blumenauer. Thank you, Mr. Chairman, for your courtesy. 
Thank you, Ranking Member Johnson for allowing me to sort of 
slip in.
    I was curious if we could get a sense, Mr. Howard, of what 
difference it would make in terms of the scale of things if we 
were able to make the statutory change that you talked about 
and eliminate the State cap for these private activity bonds. 
What are we talking about in terms of an overall range, do you 
think?
    Mr. Howard. Well, drawing on the solid waste experience 
since 1986, over 40 percent of the total issuance of tax-exempt 
bonds has been private activity bonds that were used primarily 
for large projects that involved public authorities and cities, 
contracting with the private sector to build major facilities 
that help solve the disposal crisis that the Nation felt it was 
in the late--mid to late 1980s.
    Water, as my charts showed, private activity bonds are also 
available, but they are subject to cap. As a consequence, only 
1 percent of the tax exempt bonds that are issued are private 
active bonds. We don't think if we eliminated the cap for 
private water activity bonds, we would see as high a percentage 
in water as we have in solid waste, but we think we would see a 
significant increase. We are estimating probably initially 1 to 
2 billion per year.
    I think we were averaging about 750 million in solid waste. 
Obviously water is a much larger market and we think over time 
as the industry matures, that number would probably increase to 
5 or 6 billion. Now these are very rough estimates, but it is 
based on our experience and knowledge of projects that are 
under development in the planning phase and the private 
sector's response to the public sector's need to construct 
these projects.
    Mr. Blumenauer. Dr. Nelson, you may remember a moment ago I 
was talking about an analog to the ISTEA legislation in 1991 
for Transportation that had some elements that encouraged 
comprehensive planning, more tools, that appeared to me to be 
in Transportation steering in the direction that you have 
suggested for our approach to water resources.
    Have you given some thought to what the parameters of 
comprehensive legislation would look like for water 
infrastructure that might achieve that same objective?
    Ms. Nelson. I actually was told by some of the earlier 
researcher on ISTEA that that was a good model, a good planning 
requirement for what could be done for water and wastewater. 
There has been some language in some of the reauthorization 
bills about--certainly in the Senate, one of the versions about 
requiring as a condition of a loan having an applicant 
coordinate with a regional planning process.
    I have tried to ask a lot of people about how well that has 
worked in ISTEA, and generally been told that it is helpful to 
require a broader perspective that your applicant project fits 
into. So I think that rather than any large new piece of 
legislation for clean water, just in the financing system our 
requirement that any proposal comes in have been generated out 
of a larger coordinated planning process.
    The interesting--I think there has been a lot more 
discussion about watershed planning such as Congressman 
Gilchrest brought up. But there is a lot of opportunity within 
a city itself to work across agencies, as I said. There are 
even some projects that can have energy and water and 
transportation benefits that you should do a total cost benefit 
comprehensive plan for.
    Mr. Blumenauer. I see.
    Ms. Nelson. I think both those requirements could be very, 
very helpful.
    Mr. Blumenauer. I think, Mr. Chairman, it would be 
interesting if we could work with our staff to just look at 
some of the parallel elements that were in the original ISTEA 
that might have some application for what the water resources 
would look like. We don't have to reinvent the wheel, but some 
of the efforts to look at a broader scope, have some 
encouragement, deal with State planning initiatives to try and 
integrate it would be something that would be kind of an 
interesting mix.
    Mr. Duncan. All right. Thank you very much.
    Mayor Hill, you know, I am biased in this regard. Not only 
because I chair this subcommittee, but when I was a young 
lawyer, I was fortunate enough to sign on as a client the 
northeast Knox public utility district, which was a small water 
district. I had them as a client the whole time in my law 
practice.
    So I have always felt that people get a real, real bargain 
in this area. Yet, I know that they are horrified by high 
utility bills. Of course, mostly that is over power, 
electricity, and not so much over water.
    But I noticed that the City of Dallas has raised its water 
and soar rates by 11.3 and 7.9 percent over the past 2 years. I 
understand that you have staff estimates that you will need 
annual increases of that much or more for the next several 
years. Is that correct?
    What I am curious about is how much opposition did you run 
into on those rate increases? Was there a big outcry or uproar? 
We had Frank Luntz in here last week, and he had taken a poll 
saying that there is tremendous support for water improvements 
in that people were willing to pay for those if they were 
informed or educated about it. What can you tell me about your 
experience?
    Mr. Hill. Well, your question and your comments focus on 
one of the most significant issues for us. We do have that 
dichotomy of people really having significant concerns about 
almost, at this point, annual water increases, that 
significantly impact, not only our seniors and those on fixed 
incomes, and some of our poorer citizens, but in some respects, 
business as well.
    So it is something that though we recognize the importance 
of it, and ultimately we are able to pass on these water 
increases, these increases for, to fund the infrastructure, it 
is not with that much consternation and a significant amount of 
concern from our seniors.
    I guess in response to, or just in addressing the slush, 
slush--flush, I keep saying slush, I don't mean to say that, 
flush fund--that is not Freudian--but on the flush fund, with 
that type of funding mechanism, combined with those increases 
you just talked about, would really create a lot of stress on 
us politically, because, again, I am not seeing these--and our 
fixed income people, our lower income people, so that may be a 
good approach from a major, a large urban area that is 
struggling with these kinds of costs. That is a real problem 
for us, I will say to you very clearly.
    Mr. Duncan. Was there a big outcry? Was it very difficult 
or was it fairly easy to get those increases in that you have 
had the last couple of years?
    Mr. Hill. Mr. Chairman, it was difficult. But what we were 
able to do, as a part of your overall process was really looked 
at what we were doing with water from the standpoint of 
conservation, a much-improved long-range planning process we 
put in place, and so I think our citizens were ultimately 
comfortable that we were doing everything we could and 
understood the importance of replacing the infrastructure.
    So it was very difficult, but it called upon us to do a 
better job of communication and advancing our best practices, 
and implementing the best practices. So it was ultimately--we 
could get it done, but it was tough.
    Mr. Duncan. Mr. Ward, what are some of the main obstacles 
communities are facing in funding these water infrastructure 
needs--and I am particularly interested in what you have seen 
or what you can tell us about if the clean water SRFs are 
structured in such a way that they are providing help to 
particularly the small and rural and disadvantaged communities.
    Mr. Ward. Our experience has been that we have had to 
create some programs to complement the clean water SRF. If you 
contrast it against what was put in place in the drinking water 
SRF, which, of course, that law came on several years 
afterwards with the experience EPA had in administering the 
clean water SRF.
    You can see without 30-year loan terms or some extended 
loan term for some small and disadvantaged communities, as well 
as the ability to offer and maintain a deeper subsidy, then you 
are going to really have difficulty with the smaller and rural 
communities in reaching these folks that are fixed incomes and 
areas that the infrastructure is high relative to the customer 
base.
    Certainly, we have experienced that folks are willing to 
pay some amount when they can. In the testimony we have 
provided two examples from Texas. One showed where there was a 
community with a pretty strong base that needed a small amount 
of assistance from other programs to meet the outer needs of 
the rural part of the infrastructure. But then we have another 
one that contrasts with that which is the city of Roma, which 
is a 20,000 population entity. We were only able to give them a 
very small clean water SRF loan, and the rest had to be 
provided in heavier assistance.
    That flexibility needs to be there. Also the flexibility 
with financing structures in general to help the clean water 
SRF.
    Mr. Duncan. A couple of years ago we had T. Boone Pickens 
in here testifying about his efforts or his interest in 
speculating on water in Texas. I remember he said that his home 
county in West Texas had 550,000 acres, which is almost as big 
as the Great Smoky Mountains National Park, with 600,000 acres 
there. He said I think they had 967 people, and they were 
losing population.
    So I remembered that. I am not talking about particularly 
areas that small, but I am curious as to--we know the problems 
are tremendous in these big cities. The inner cities sometimes 
are losing population, but people are still moving heavily to 
the urban areas. We know the problems are great in these big 
cities and especially close in suburban areas.
    But have you found that they are as great in--you mentioned 
the city, some city of 20,000, I didn't catch the name.
    Mr. Ward. Roma.
    Mr. Duncan. Rome?
    Mr. Ward. Roma.
    Mr. Duncan. Roma?
    Mr. Ward. Yes.
    Mr. Duncan. Were about those size between 20,000, 50,000, 
75,000? Are you finding the problems as similar or as great or 
greater there?
    Mr. Ward. There is a tremendous issue with aging 
infrastructure across the United States, not just Texas. But 
that is what we are experiencing. The old construction grants 
program did help a number of those communities. But the life 
span of those project projects is over. In many cases, it has 
been expended to the repairs and maintenance programs that 
these cities have put in place.
    But at some point you have to replace the aging 
infrastructure. Additionally, treatment requirements have gone 
up. You know, we are taking better care of the environment. All 
of those require greater investment, and the answer is, yes, we 
are seeing a tremendous need in those mid-size cities.
    If you look at the evolution of the resolving funds, so to 
speak, we started off trying to address major compliance issues 
across the country. We still have a few of those left, CSOs in 
some area are a big problem still and some major cities need a 
lot of influx in capital.
    However, some of the States have addressed those primary 
needs and are gone on now to these other entities on a 
maintenance schedule that will fail if they don't have an 
improvement done to their system soon and giving them the 
incentives--that are offered to these programs where the 
Federal Government believes it is a priority and essentially 
lowers the cost so they get to the threshold so they can afford 
the rates. It has been key and instrumental to having those 
treatment needs addressed in a very quick manner.
    Mr. Duncan. Well, thank you very much.
    Mr. Khuman, you heard Dr. Nelson mention her 5 percent 
figure, and most of us on this subcommittee feel that there is 
an important Federal role in regard to this water 
infrastructure problem that we have in the Nation and that we 
should do more. But you also may have heard Dr. Ehlers mention 
that he wouldn't want a fund set up that would turn into just 
gigantic pork barrel projects that were distributed very 
unfairly around the country.
    Would Maryland support a Federal clean water fund of some 
type and if not, why not? But if so, how would you structure 
that so that it would be distributed on a fairly basis and go 
to the places where the needs were the greatest, let us say?
    Mr. Khuman. If--
    Mr. Duncan. Part of the question I will ask you is similar 
to what I asked Mayor Hill. What if we put in a Federal flush 
fund? How much opposition did you run into on the 250 in 
Maryland? That is several different questions, but I would be 
interested in your comments.
    Mr. Khuman. Essentially in Maryland, we are fortunate that 
Maryland, relative to other States, is a wealthy State. Because 
if you look at the median household income, especially for the 
metro area, you know, you are talking about $60,000 plus per 
year. So for a reasonable fee of $2.50 per month, nobody with a 
straight face could come in and say it is unreasonable.
    Having said that, certainly there are pockets of inner 
city, there are pockets of seniors on fixed income and there 
are pockets in rural areas that there was opposition to that. 
For that, the statute did allow for an exemption.
    Mr. Duncan. That was going to be my next question, did you 
allow for exemptions?
    Mr. Khuman. Yes.
    Mr. Duncan. Total or complete exemption?
    Mr. Khuman. Complete exemption. That if somebody made the 
threshold, that they were truly poor that they would not have 
to pay this fee. We believe in Maryland that would be a very 
small segment. So that is the premise from the opposition point 
of view--and that was under the premise that everybody was 
looking at $2.50 a month, how is that too expensive? So it was 
a reasonable number and that was a starting point.
    Mr. Duncan. Okay. Thank you very much.
    Mr. Howard, I was most interested and encouraged about your 
testimony about private activity bonds, because I personally 
think that may be a real important part of the solution to the 
problems that we hear about in this subcommittee. We just 
didn't hear about these problems today. We hear about them 
frequently.
    But what restrictions exist now on the issuance of private 
activity bonds? In this H.R. 1708 that you mentioned, will it 
remove most of those restrictions? For instance, I understand 
there is a cap now of, is it 225 million or--
    Mr. Howard. I believe it is the current minimum cap for 
small States. The cap is based on a--I am sorry, that is a per 
capita dollar amount allowance.
    Mr. Duncan. $75 per capita?
    Mr. Howard. Right. What, in effect, it does is that it 
limits the amount of private activity bonds that can be issued 
for any project in a given State for any type of project in a 
given state. The bulk of private activity bond issuance goes 
to--tends to go to housing, which is a high priority need in 
many States.
    So there is, in many cases, very few--very little private 
activity bond capacity left for water projects, and what was--
as I have said, what was done in the solid waste sector was 
private activity bonds were pulled out from under this cap 
which, in turn, he released a lot of investment in the solid 
waste sector to help solve the disposal crisis that existed in 
the mid-1980s. In the water sector--
    Mr. Duncan. I was very much interested in that. You know 
the proof is in the pudding.
    Mr. Howard. Exactly.
    Mr. Duncan. Boy, in the solid waste area, I don't remember 
your figures, but it seemed like it was three or four times the 
activity.
    Mr. Howard. Right. Well, it was a higher activity in a much 
smaller sector. What happened in solid waste was that a lot of 
projects got built that would not have gotten built were it not 
for the availability of private activity bond cap. Because the 
private sector was willing to come in and take the risk of 
developing these projects. If they didn't perform, the private 
sector had to step up and pay the bonds off. We currently don't 
have that with water projects.
    Mr. Duncan. I have got some more questions. But I have 
noticed that Mr. Miller and Dr. Boustany have come back.
    Mr. Miller.
    Mr. Miller. Thank you, Mr. Chairman. Following up on your 
private activity bonds, in California, with housing--same as 
the Melarus in California--is that what you are dealing with?
    Mr. Howard. Yes.
    Mr. Miller. You bought funds for your infrastructure. The 
local municipality usually puts them in the market. The private 
sector buys it. They put infrastructure in on a basic housing 
development or something like that.
    Mr. Howard. Well, the case of California, private activity 
bond, taxes private activity bond issuance is allocated by the 
State.
    Mr. Miller. That is for public, though. It would only be 
tax exempt if it went for some city improvements, not for the 
private sector?
    Mr. Howard. Well, it could be for private sector if, you 
know, they are available for the private sector as well, but 
they are subject to the cap.
    Mr. Miller. Yes, but they are generally for a much larger 
assessment per unit than you would if you passed some type of a 
private sector bond out there for water infrastructure. We had 
a hearing last week. I guess the thing that bothered me is we 
talked about creating a national clean water trust.
    They were talking about local assessments. The problem is 
that wastewater and the clean water groups came in and nobody 
wanted to assess their people. They wanted to find somebody 
else to assess.
    But, Dr. Nelson, in your testimony. I guess one of the 
problems I have here, you talked about water and water utility 
agencies, and you talked about some that had adopted asset 
management, Orange County, I represent part of that--which I am 
glad to see they are in here--because that at least as good.
    But I am confused because you went on to say that without 
asset management, cities all across the country are wasting 
money on replacing pipes that don't need to be replaced and 
paying more for emergency repairs for broken pipes that should 
be receiving cheaper routine maintenance all along. That is 
basic management oversight or lack thereof.
    So what could you adopt--if we talk about the Federal 
Government getting into this, we will not eliminate 
bureaucracies by doing that. We do not have oversight. I mean, 
we had Orange County--or Orange County CCI--they are much 
better off managing their own assets rather than me trying to 
do it back in Washington.
    So how does the Federal Government get involved in 
something that should be State or local agency's oversight? How 
does that have a benefit?
    Ms. Nelson. Well, overall, there are assets that asset 
management can save upwards of 20 percent.
    Mr. Miller. Yes, but asset management is basic management. 
If you have a water line--
    Ms. Nelson. That is correct.
    Mr. Miller. -- that needs--a minor break that needs to be 
repaired, you repair it. If you know you have an antiquated 
line that you know you will start having considerable problems 
repeatedly on because it is so old and needs to be replaced, 
you replace it. That is basic management. I mean, I was a 
developer for over 30 years--I had a water leak in my home 2 
weeks ago.
    Now I realize it was cheaper for me to fix, to bring an 
insurance company in--let us say the insurance company is the 
Federal Government. So I found a cheap way to repair it. I 
fixed the water line rather than replacing the whole line 
because the insurance company says I can't replace the whole 
water line. So how does bringing the Federal Government into 
something--especially when you realize bringing us into it, 
somebody has to pay that tax.
    Ms. Nelson. The problem--
    Mr. Miller. So what better tax than the local people who 
benefit from the wastewater on assessment there. How does it 
benefit by bringing in the Federal Government, who has to tax a 
different way into it.
    Ms. Nelson. One other way of stating what I tried to 
provide in the testimony is there is a widespread perception 
that other than places like Orange County, the water and 
wastewater sector in the United States is uniquely not adopting 
asset management. You find it widely used in electric 
utilities, manufacturing and transportation, not in wastewater.
    Mr. Miller. How does our involvement change that?
    Ms. Nelson. My proposal is that an asset management 
planning process be a requirement for any applicant.
    Mr. Miller. Define that. How would you come up with some 
program that we could understand that would change what they 
currently do? What I am saying is that somebody comes in and 
issues a report to the Federal Government saying that a water 
line is antiquated and in such disrepair that it needs to be 
replaced, and we have received paperwork, but we have no 
knowledge firsthand whether that is true or they could repair 
the leaks. How does paperwork in a bureaucracy that has already 
proved to be failing increase the quality.
    Ms. Nelson. I think the--
    Mr. Miller. In Orange County, they don't have the problem. 
But for agencies that do, how does that change the situation 
in--
    Ms. Nelson. You know, I understand the GAO looked into 
asset management, believes it is a very, very significant 
reform of the system that needs to happen and did raise issues 
about whether different forms of asset management need to be 
developed for different size communities or situations. I view 
those as technical challenges.
    Mr. Miller. And the local. Technical and local challenges?
    Ms. Nelson. No, that what--that variation. I mean, all 
kinds of technical things like this are done with what SRF 
requirements are made of States. The ground rules for what 
qualifies as an asset management plan for different 
circumstances can be developed, I believe, and any applicant 
for Federal money ought to have evidence that they have gone 
through that process. SRF loans require that you have done 
certain amounts of things. People sit in the State offices for 
SRF and check off that that city has--
    Mr. Miller. But the problem that I am seeing is that lack 
of management, it is like how we required the locals to tell us 
how they are going to feed kids, and that the local school 
district prepares paperwork, who sends it to the State, and 
they keep some of it, the Nation and the Federal Government, 
and nobody knows what file cabinet that paperwork is in, but 
somehow those kids get fed. I see that happening here. That is 
basic lack of management.
    Obviously, my area, Orange County, has done a good job 
managing their infrastructure and they have come up with a 
system whereby they anticipate how many years a water line is 
functional and then when replacements are necessary, what type 
of ongoing repairs are necessary to keep the system going. An 
organization locally who is not doing that, all the Federal 
dollars in the world is not going to change that.
    That is just throwing more dollars and making it easier to 
continue to try to expand the problem that is currently 
existing. That is the problem I have. Local and State agencies 
are much more capable of understanding their own needs, because 
they change from area to area.
    Ms. Nelson. I agree with that.
    Mr. Miller. The Federal Government isn't. It seems like the 
biggest problem we are having here is money. Our money doesn't 
come from heaven. I mean, we have got to put our hands in the 
same wallet that you have got to put your hands into and bring 
it back to Washington. The concept of doing that, rather than 
like the last panel we heard, they want to do--assess water 
bottle companies for potable water for the sanitation districts 
rather than assessing their local people. That was problematic 
for me. Because the best way to get a fair and equitable 
assessment on anything that people benefited from is fair, you 
know, fairly benefiting each individual and appropriating how 
much they benefit and they should be paying X amount for their 
benefit. But you go outside of that and that is what we talked 
about last week. Nobody was willing to accept the burden they 
were benefiting? They wanted to place the burden on somebody 
else.
    I enjoyed your testimony. I am not impugning you. I look at 
this and say that is problematic. But throwing more money at 
groups who aren't doing the job isn't necessarily going to 
resolve the problem.
    I understand paperwork. I could create paperwork to justify 
anything in the world to send it back to Washington. And when I 
read it in Washington, I think that is really good.
    But that is not typical of what reality is in a local 
agency. That is my concern. I appreciate what you said here. It 
raised a huge red flag that; yes, there is guys that are doing 
the job, Seattle, Washington, Orange County. They are doing the 
job. But there is a whole lot of people that aren't doing the 
job--and throwing a whole lot of Federal dollars at those 
agencies who are not doing their job and expecting them to 
justify on paperwork that they are doing their job. You know, 
for enough money I could hire somebody to justify most anything 
in this world and that is what the problem is.
    In California--I am not your opponent here. I mean, in 
California, the biggest issues we have are water and 
transportation. Our water--we have got to rely on everybody 
else. I will commend my local agencies, Orange County is doing 
a magnificent job of taking every drop of water and they are 
water banking it. I mean, I have got Prado Dam. That water 
doesn't get more than 1.5 miles from Prado Dam, and it is gone.
    It doesn't go back into heaven. It went into the ground. So 
it is not getting into the ocean. They are taking--they are 
being so creative and I applaud them for using every drop of 
water because we are having to ask people for water from other 
States who don't want to give it to us.
    So I look at agencies who are doing good, like Seattle and 
others, and I think that is really great. But if we are going 
to throw money out here and there is huge--like the health 
system is problematic in a few areas. Throwing more money is 
not going to make them more accountable, nor is it going to 
make them do a better job.
    Yet instead of repairing that line, city line ought to 
replace it. That is not efficient. That is my biggest concern 
Mr. Chairman.
    Mr. Duncan. All right.
    Mr. Miller. Like I said, this is huge in California water. 
I think we need to continue talking about this until we find a 
solution, but this area has to be dealt with. Your credit 
performance is an oxymoron, if, in fact, it doesn't happen. You 
know, it is there.
    Thank you, Mr. Chairman.
    Mr. Duncan. All right. Thank you very much. Everybody 
always wants somebody else to pay. That is part of the problem.
    Ms. Johnson has another question. Then I will come to Dr. 
Boustany.
    Ms. Johnson. Thank you. Mr. Ward, having the view of a huge 
State, which is mostly inland, if you had more flexibility and 
caps lifted, what kind of mix do you think that would solve 
most of Texas problem, rural versus urban?
    Mr. Ward. Congresswoman Johnson, you are referring to the 
cap on the private equity bonds being lifted? We would support 
that because right now the State of Texas has created within 
its own cap structure the ability to draw on the cap for water 
projects, and we are utilizing that routinely.
    But it does compete significantly with the housing interest 
in the State. So it hasn't been well received, because it is 
not a reliable source for a large amount of investment in 
projects. We have not seen it be used across the boards. We 
have only seen it in rural settings, for the rural water 
project, primarily the ones that would have formerly gone to 
R&D for assistance, and of course, with dwindling resources 
going through that program, from our U.S. rural utilities 
services, we have had to replace that in Texas with the 40-year 
loan program where we access private activity bonds now to do 
that.
    But in thinking about it in the rural areas, particularly 
if you kind of combine the concepts that this panel has here 
now, some of the, you know, decentralized systems all the way 
through to here, the reason it might hold a greater opportunity 
is that that private benefit test of having a private benefit, 
causing it to be a taxable function, when you are borrowing 
funds from the market, if you can take that and eliminate it 
for those projects, for water quality purposes and for drinking 
water purposes, and you are going to lower the overall cost of 
the investment and thus spur it.
    So I just don't think that without people knowing that it 
is there, and that you can access it, that we can determine 
what how big the effect will be. My gut feeling is it will be 
very large, a lot larger than anyone would project initially. 
Because once it started going and people saw the tool and how 
to apply the tool, it would be applied more universally and by 
more entities across the board.
    Ms. Johnson. Thank you very much.
    Mr. Duncan. All right. Thank you, Ms. Johnson.
    Dr. Boustany.
    Mr. Boustany. Thank you, Mr. Chairman. This has been a very 
helpful set of testimony here for me. It has been very 
informative. I come from a very rural district in southwest 
Louisiana, a lot of small towns, agricultural based 
communities, maybe 10,000, 15,000 population. Many of them are 
strapped financially, yet they have aged water systems. We are 
talking a lot about long-term solutions to our problems. But we 
need short-term solutions as well. Private activity bonds seem 
very interesting to me and that may be a possible short-term 
solution and a long-term solution. But what are some of the 
pitfalls of trying to apply these to rural communities?
    Mr. Howard. I would say rural communities, based on my 
experience, would need some assistance up front in helping to 
engage the private sector in developing projects. But I think 
once that assistance in the form of seed money, programs, for 
helping to solicit private sector interest or negotiating 
contracts. But I think once that money is in place and has been 
spent, the private sector then would take the project and 
develop it on behalf of the public sector.
    Mr. Boustany. Do you see a Federal role there or would that 
be a State--
    Mr. Howard. Again, drawing back on my solid waste 
experience, I actually started in that business working for the 
U.S. Environmental Protection Agency where we ran a series of 
demonstration grant programs and various seminars to help 
educate local communities on how to work with the private 
sector to develop these projects.
    So there was a limited role, but it was a very effective 
role that the Federal Government took in helping to develop 
that infrastructure and solve that disposal problem.
    Mr. Boustany. Thank you. Dr. Nelson, a quick question for 
you. You talked a little bit about research and development and 
what is going on in some of the other countries and so forth. 
Why haven't we seen private sector investment in R&D in this 
area and in our water structure research and development, new 
technologies? Obviously, there are profits to be had in it, 
given the problems that are out there. What reasons do you see 
for the paucity of private investment?
    Ms. Nelson. Well, I do think the foundation for private 
sector R&D is always a strong, Federal or university and 
research institute background in basic and applied science that 
we don't have any more in wastewater technology in this 
country. But beyond that, a lot of people who look at 
innovation say that we have fragmented regulatory structures 
that aren't quite creating big markets nationally for companies 
to get involved in.
    So equipment manufacturers in the U.S. tend to buy patents 
from overseas and adopt innovations that have been developed, a 
lot with government funding in Japan and the European Union, 
for example. But not generate those ideas here at home.
    Mr. Boustany. What suggestions would you have other than 
further government investment and government taking the lead to 
stimulate such private investment?
    Ms. Nelson. Well, I only briefly alluded to some of the 
regulatory problems, local ordinances often don't permit 
innovation. A lot of rural areas could benefit greatly from 
decentralized integrated solutions, and the State agencies 
don't permit those.
    So I think, there again, a demonstration program to help 
innovative types, even in regulatory agencies, figure out 
better models for local ordinances and encouragement to make 
those kinds of changes also helps to open up private sector 
investment.
    Mr. Boustany. I thank you. That is all I have.
    Mr. Duncan. Well. Thank you very much. Unfortunately, we 
have got to end this hearing at this point. But you certainly 
have been a very helpful and informative panel. There has been 
a lot of interest from members. I appreciate it very much, all 
of you taking time out of what I know are very busy schedules 
to be here with us. That will conclude this hearing.
    [Whereupon, at 12:02 p.m., the subcommittee was adjourned.]



    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


