[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]


 
               REVIEW OF INNOVATIVE FINANCING APPROACHES 
                   FOR COMMUNITY WATER INFRASTRUCTURE 
                            PROJECTS--PART I 

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

                                (112-73)

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                    WATER RESOURCES AND ENVIRONMENT

                                 OF THE

                              COMMITTEE ON
                   TRANSPORTATION AND INFRASTRUCTURE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                           FEBRUARY 28, 2012

                               __________

                       Printed for the use of the
             Committee on Transportation and Infrastructure


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        committee.action?chamber=house&committee=transportation

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             COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE

                    JOHN L. MICA, Florida, Chairman

DON YOUNG, Alaska                    NICK J. RAHALL II, West Virginia
THOMAS E. PETRI, Wisconsin           PETER A. DeFAZIO, Oregon
HOWARD COBLE, North Carolina         JERRY F. COSTELLO, Illinois
JOHN J. DUNCAN, Jr., Tennessee       ELEANOR HOLMES NORTON, District of 
FRANK A. LoBIONDO, New Jersey        Columbia
GARY G. MILLER, California           JERROLD NADLER, New York
TIMOTHY V. JOHNSON, Illinois         CORRINE BROWN, Florida
SAM GRAVES, Missouri                 BOB FILNER, California
BILL SHUSTER, Pennsylvania           EDDIE BERNICE JOHNSON, Texas
SHELLEY MOORE CAPITO, West Virginia  ELIJAH E. CUMMINGS, Maryland
JEAN SCHMIDT, Ohio                   LEONARD L. BOSWELL, Iowa
CANDICE S. MILLER, Michigan          TIM HOLDEN, Pennsylvania
DUNCAN HUNTER, California            RICK LARSEN, Washington
ANDY HARRIS, Maryland                MICHAEL E. CAPUANO, Massachusetts
ERIC A. ``RICK'' CRAWFORD, Arkansas  TIMOTHY H. BISHOP, New York
JAIME HERRERA BEUTLER, Washington    MICHAEL H. MICHAUD, Maine
FRANK C. GUINTA, New Hampshire       RUSS CARNAHAN, Missouri
RANDY HULTGREN, Illinois             GRACE F. NAPOLITANO, California
LOU BARLETTA, Pennsylvania           DANIEL LIPINSKI, Illinois
CHIP CRAVAACK, Minnesota             MAZIE K. HIRONO, Hawaii
BLAKE FARENTHOLD, Texas              JASON ALTMIRE, Pennsylvania
LARRY BUCSHON, Indiana               TIMOTHY J. WALZ, Minnesota
BILLY LONG, Missouri                 HEATH SHULER, North Carolina
BOB GIBBS, Ohio                      STEVE COHEN, Tennessee
PATRICK MEEHAN, Pennsylvania         LAURA RICHARDSON, California
RICHARD L. HANNA, New York           ALBIO SIRES, New Jersey
JEFFREY M. LANDRY, Louisiana         DONNA F. EDWARDS, Maryland
STEVE SOUTHERLAND II, Florida
JEFF DENHAM, California
JAMES LANKFORD, Oklahoma
REID J. RIBBLE, Wisconsin
CHARLES J. ``CHUCK'' FLEISCHMANN, 
Tennessee

                                  (ii)


            Subcommittee on Water Resources and Environment

                       BOB GIBBS, Ohio, Chairman

DON YOUNG, Alaska                    TIMOTHY H. BISHOP, New York
JOHN J. DUNCAN, Jr., Tennessee       JERRY F. COSTELLO, Illinois
GARY G. MILLER, California           ELEANOR HOLMES NORTON, District of 
TIMOTHY V. JOHNSON, Illinois         Columbia
BILL SHUSTER, Pennsylvania           RUSS CARNAHAN, Missouri
SHELLEY MOORE CAPITO, West Virginia  DONNA F. EDWARDS, Maryland
CANDICE S. MILLER, Michigan          CORRINE BROWN, Florida
DUNCAN HUNTER, California            BOB FILNER, California
ANDY HARRIS, Maryland                EDDIE BERNICE JOHNSON, Texas
ERIC A. ``RICK'' CRAWFORD, Arkansas  MICHAEL E. CAPUANO, Massachusetts
JAIME HERRERA BEUTLER, Washington,   GRACE F. NAPOLITANO, California
Vice Chair                           JASON ALTMIRE, Pennsylvania
CHIP CRAVAACK, Minnesota             STEVE COHEN, Tennessee
LARRY BUCSHON, Indiana               LAURA RICHARDSON, California
JEFFREY M. LANDRY, Louisiana         MAZIE K. HIRONO, Hawaii
JEFF DENHAM, California              NICK J. RAHALL II, West Virginia
JAMES LANKFORD, Oklahoma               (Ex Officio)
REID J. RIBBLE, Wisconsin
JOHN L. MICA, Florida (Ex Officio)

                                 (iii)

                                CONTENTS

                                                                   Page

Summary of Subject Matter and attachment: Discussion draft, H.R. 
  ___, a Bill to provide financing assistance for qualified water 
  infrastructure projects, and for other purposes, 112th Cong., 
  2012...........................................................   vii

                               TESTIMONY

Mayor Gregory A. Ballard, Indianapolis, Indiana, testifying on 
  behalf of the U.S. Conference of Mayors/Mayors Water Council...    13
David R. Williams, Director of Wastewater, East Bay Municipal 
  Utility District, Oakland, California, testifying on behalf of 
  the National Association of Clean Water Agencies (NACWA).......    13
Aurel M. Arndt, General Manager, Lehigh County Authority, 
  Allentown, Pennsylvania, testifying on behalf of the American 
  Water Works Association (AWWA).................................    13
Eric S. Petersen, Esq., Partner, Hawkins Delafield & Wood LLP....    13
Thaddeus R. Wilson, Vice President, M3 Capital Partners LLC......    13
Jeffry Sterba, President & CEO, American Water, testifying on 
  behalf of the National Association of Water Companies (NAWC)...    13
Jeffrey A. Eger, Executive Director, Water Environment Federation    13
Steven A. Fangmann, P.E., BCEE, Executive Vice President, D & B 
  Engineers and Architects, testifying on behalf of the American 
  Council of Engineering Companies (ACEC) and the Water 
  Infrastructure Network (WIN)...................................    13

          PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS

Hon. Earl Blumenauer, of Oregon..................................    49
Hon. Eddie Bernice Johnson, of Texas.............................    52
Hon. Bill Pascrell, Jr., of New Jersey...........................    54

               PREPARED STATEMENTS SUBMITTED BY WITNESSES

Mayor Gregory A. Ballard.........................................    55
David R. Williams................................................    65
Aurel M. Arndt...................................................    73
Eric S. Petersen, Esq............................................    77
Thaddeus R. Wilson...............................................    84
Jeffry Sterba....................................................   102
Jeffrey A. Eger..................................................   110
Steven A. Fangmann, P.E., BCEE...................................   117

                       SUBMISSION FOR THE RECORD

Hon. Timothy H. Bishop, Ranking Member, Subcommittee on Water 
  Resources and Environment, request to submit statement of The 
  Associated General Contractors of America......................     5

                        ADDITIONS TO THE RECORD

Gregory M. Baird, Ex-Municipal Utility Chief Financial Officer 
  having served in California and Colorado, written testimony....   124
Robert A. Briant, Chairman, Clean Water Construction Coalition, 
  written statement..............................................   129
Diane Linderman, P.E., PWLF, President, American Public Works 
  Association, written statement.................................   132
Mark Policinski, Executive Director, Ohio-Kentucky-Indiana 
  Regional Council of Government, and Vice President, National 
  Association of Regional Councils, written testimony............   137
Ryan Schmitt, Chairman, NUCA, letter to Hon. Bob Gibbs, Chairman, 
  Subcommittee on Water Resources and Environment, February 28, 
  2012...........................................................   143

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                     REVIEW OF INNOVATIVE FINANCING
                     APPROACHES FOR COMMUNITY WATER
                    INFRASTRUCTURE PROJECTS--PART I

                              ----------                              


                       TUESDAY, FEBRUARY 28, 2012

                  House of Representatives,
                    Subcommittee on Water Resources
                                   and Environment,
            Committee on Transportation and Infrastructure,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:00 a.m., in 
Room 2167, Rayburn House Office Building, Hon. Bob Gibbs 
(Chairman of the subcommittee) presiding.
    Mr. Gibbs. The Subcommittee on Water Resources and 
Environment will come to order, and I would like to welcome 
everybody today.
    I do want to recognize a former Member, Mr. Ron Packard 
from California. Good to see you. Of course, I was not here 
when you were here, but I have heard good things about you. So 
welcome to the committee.
    I will start with my opening statement. We have got a great 
panel today, and we will recognize you in a few minutes. But 
first, again, I would like to welcome everybody to the hearing 
today on potential innovative financing approaches for 
community water infrastructure projects. This is the first 
portion of a two-part hearing. We will hold the second hearing 
on Wednesday, March 21st.
    We are all well aware that the needs for communities to 
address water and wastewater infrastructure are substantial, 
and these needs are growing. Our Nation's water and wastewater 
infrastructure is aging, deteriorating, and in need of repair, 
replacement, and upgrading. This has resulted in frequent 
leaks, blockages, and inadequate treatment of pollutants.
    The needs are especially urgent for hundreds of cities and 
towns around the Nation as they are trying to remedy the 
problem of combined sewer overflows and sanitary sewer 
overflows for communities lacking sufficient independent 
financing ability. Many cities could end up spending as much as 
$1 billion to $5 billion each, or even more, to eliminate the 
combined sewer and sanitary sewer overflow issue.
    Numerous other regulatory priorities are placing additional 
burdens on communities. For example, many of our Nation's 
wastewater utilities are being forced to install extremely 
expensive advanced waste treatment to remove the next increment 
of pollutants, including nutrients. In addition, EPA has 
initiated a controversial national rulemaking that lead to 
communities facing the prospect of substantially increased 
costs for controlling pollutants from stormwater runoff.
    Moreover, many communities face increasing regulatory 
burdens under the Safe Drinking Water Act for their public 
drinking water systems. All these initiatives are adding 
additional layers of regulatory requirements and economic 
burdens that our communities are having to somehow deal with.
    According to studies by the EPA, the Congressional Budget 
Office, and others, the costs of addressing our Nation's clean 
water infrastructure needs over the next 20 years could exceed 
$400 billion, roughly twice the current level of investment by 
all levels of Government. The needs for drinking water 
infrastructure drive this figure even higher.
    This is a staggering amount of money. A large portion of 
the Federal, not to mention State, regulatory mandates are 
going unfunded by Federal and State governments. Rather, our 
local governments are being forced to pay for more and more of 
their costs of these mandates, with the result that local 
communities and ratepayers are increasingly getting 
economically tapped out.
    Increased investment needs to take place, which leads to 
the question, where is the money going to come from? There is 
no simple answer to that question; rather, we need to make a 
variety of financing tools available for infrastructure 
financing, or the toolbox. This includes alternative financing 
approaches that would make more funds available. There is a 
tremendous amount of capital from the private sector and other 
sources potentially available for investment in our 
infrastructure.
    We have been hearing how in recent years, the financial 
markets have been discovering water and wastewater 
infrastructure, and how this is becoming a more popular asset 
class that is increasingly attracting billions of dollars in 
private investment capital. We have also been hearing that 
there are some barriers that have inhibited bringing private 
sector capital into the municipal water and wastewater markets, 
but with some restructuring and developing of innovative 
project financing mechanisms, we could start to overcome these 
barriers.
    There are a number of past and current legislative 
proposals that could provide additional means of increasing 
investment in infrastructure. For example, there is legislation 
to remove the volume cap that restricts the amount of private 
activity bonds that States and localities may issue in any 
given year for water and wastewater facilities.
    In addition, the subcommittee is looking at a potential 
financing tool that would provide Federal credit assistance in 
the form of direct loans and loan guarantees to finance 
significant water and wastewater infrastructure projects. This 
draft legislative proposal will be entitled the Water 
Infrastructure Finance and Innovation Act, or WIFIA. This WIFIA 
proposal is in part modeled after the TIFIA program for the 
surface transportation projects and other credit programs 
governed by the Federal Credit Reform Act.
    And there are other proposals, including the Clean Water 
SRF Reauthorization legislation, that this subcommittee has 
advanced in past Congresses and it is included in the bill that 
the subcommittee Ranking Member, Mr. Bishop, has introduced 
this Congress. Also, a few weeks ago we did have a hearing on 
integrating the process, the permitting process, to address 
issues of costs and streamlining prioritized projects for 
municipalities as part of this total package.
    At today's hearing we will hear from a variety of witnesses 
about these proposals and other potential ways we can encourage 
increased investment in infrastructure, including from private 
sources.
    Now I will recognize my Ranking Member, Mr. Bishop, for any 
remarks you may have.
    Mr. Bishop. Thank you very much, Mr. Chairman. Thank you 
for holding today's hearing on the importance of investing in 
our Nation's crumbling wastewater infrastructure.
    As you know, over the past decade this subcommittee has 
held numerous hearings on State and local needs to repair and 
replace its wastewater infrastructure. According to EPA's most 
recent Clean Watersheds Needs Survey, States have identified 
almost $300 billion in capital investment needs to meet their 
wastewater and stormwater treatment and collection needs over 
the next 20 years. Other organizations, including the 
Congressional Budget Office and the Water Infrastructure 
Network Coalition, have identified annual funding gaps ranging 
from $3.2 billion to $11.1 billion in order to make up the 
shortfall between annual needs and the current expenditures 
from all sources.
    This subcommittee has also, under both Republican and 
Democratic majorities, taken significant steps to address these 
long-term infrastructure challenges, including passages of 
several bipartisan water infrastructure financing measures over 
the decades. These past measures highlighted the best of what 
this subcommittee and this full committee is capable of doing, 
bridging any potential disagreements between the sides and 
moving forward on joint proposals that garner overwhelming 
support in committee and on the House floor, most recently in 
the 111th Congress by an almost 3 to 1 vote of support.
    I am encouraged today that both sides of the aisle seem to 
be advocating for a renewed commitment to meeting our Nation's 
wastewater infrastructure challenges, and have put forward 
proposals to do just that.
    All of the witnesses here today have been presented with a 
copy of the chairman's discussion draft, the Water 
Infrastructure Finance and Innovation Act of 2012, as well as a 
copy of the bipartisan bill that I introduced, the Water 
Quality Protection and Job Creation Act of 2011, along with 
Ranking Member of the full committee, Mr. Rahall, and 
Congressmen LaTourette and Petri.
    Both bills include mechanisms modeled after the successful 
Transportation Infrastructure, Finance and Innovation Act, or 
TIFIA program, as it is known, authorized in TEA-21 to leverage 
additional capital for wastewater infrastructure investment. 
Although there are some differences in approach, my first 
imposition is that there are more similarities than differences 
between these two drafts on this point, and that should give us 
all reason to work more closely together.
    The chairman's draft also picks up language from the 
bipartisan bill introduced by a former member of this 
subcommittee, Mr. Pascrell of New Jersey, and his colleague on 
the Committee on Ways and Means, Mr. Davis of Kentucky, related 
to private activity bonds.
    In addition, H.R. 3145, the bill that I have offered, 
continues this committee's efforts to reauthorize the Clean 
Water State Revolving Fund, a program that has not been 
successfully reauthorized in almost 25 years.
    Putting aside the question of the size of the 
reauthorization of appropriations for the Clean Water SRF, H.R. 
3145 also includes several bipartisan changes to provide 
communities with greater flexibility and how the Clean Water 
SRF funds are up side to reduce the long-term costs of SRF 
loans to local communities and to provide greater technical 
assistance to small and rural communities that often do not 
have the internal technical or financial capacity to address 
water infrastructure challenges.
    In addition, H.R. 3145 continues to explore the possibility 
of creating a Clean Water Trust Fund, which could provide a 
dedicated, sustainable source of long-term revenue for 
addressing water quality challenges, akin to the Highway Trust 
Fund or the Aviation Trust Fund.
    Mr. Chairman, in my view, the existing Clean Water Act has 
served this Nation well in meeting its water quality and water 
infrastructure concerns, and needs to be part of the long-term 
solution to addressing future challenges. The question of how 
some of these alternative financing approaches we will discuss 
today compliment, duplicate, or conflict with existing law in 
meeting these future challenges will still need to be 
addressed.
    Again, I welcome today's hearing as an opportunity to begin 
this conversation. I am hopeful that on this issue of meeting 
our long-term water infrastructure challenges, we can find 
agreement and move forward with one voice on an issue that 
greatly benefits our communities, our economy, and our overall 
public health and environment.
    Mr. Chairman, before I yield back, I ask unanimous consent 
to insert into the record two things: one, a statement for the 
record from Representative Pascrell; and the second is a 
statement from The Associated General Contractors.
    Mr. Gibbs. So ordered.
    [The prepared statement of the Honorable Bill Pascrell, 
Jr., appears together with other Members' statements. Please 
see the table of contents for ``Prepared Statements Submitted 
by Members of Congress.'' The statement from The Associated 
General Contractors follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Mr. Bishop. Thank you very much, Mr. Chairman. I yield back 
the balance of my time.
    Mr. Gibbs. Mr. Cravaack, do you have a comment, opening 
statement?
    Mr. Cravaack. Thank you, Chairman Gibbs and Ranking Member 
Bishop, for holding this hearing, innovative financing for 
water infrastructure projects. This issue is vital to the 
continued health and vitality of our fellow citizens and 
economy, and needs to be addressed immediately. I would like to 
welcome today's witnesses, and I would look for to hearing your 
testimony on this important issue regarding the future of our 
Nation's water infrastructure.
    Our water infrastructure is the cornerstone for many parts 
of the country, from our national security to our economy to 
the health of our children. Our water and infrastructure needs 
to be protected and improved in order to keep us safe, healthy, 
and prosperous.
    Our current infrastructure is getting to the age that it is 
going to need to be significantly updated or completely 
replaced. I know the 8th District of Minnesota is facing the 
reality of aging water and infrastructure systems, and 
dizziness of cities and townships that I represent are looking 
for efficient and innovative solutions to this problem.
    For example, a facility in my district located in Chisholm, 
Minnesota is currently operating at or above design capacity 
and is in need of replacement due to its age and lack of 
operating consistency and the lack of availability to increase 
treatment capacity. This has led to a construction moratorium 
and inability to meet current and future stringent Lake 
Superior drainage basin effluent requirements. The 
deterioration is so severe that the potential of a catastrophic 
failure is not if but when.
    This is the situation facing many similar projects, and I 
hope we can discuss answers here today. I am very pleased to be 
discussing a way to pay for these much-needed improvements 
instead of just passing more debt on to future generations.
    I will be interested to hear any options or solutions of 
this very important situation because we need results, and I am 
sure both Democrats and Republicans can agree to the necessity 
of our success.
    I look forward to hearing from our witnesses and their 
thoughts on the future financing of water infrastructure 
projects. Thank you again, and I will look forward to hearing 
your testimony. And I yield back.
    Mr. Gibbs. Representative Napolitano, do you have an 
opening statement?
    Mrs. Napolitano. Thank you, Mr. Chairman. And thank you, 
Ranking Member Bishop, for holding this very critical and 
important hearing.
    Investing in our clean water infrastructure does create 
jobs and does protect the public's health. Our Nation's 
infrastructure--and we hear that in this subcommittee, and we 
hear it at home--they are deteriorating to the point that it is 
causing great angst for the local elected officials in many of 
my areas. They are in need of critical repair, and there is no 
way many of these communities can fund the necessary repair and 
replacement.
    So we need long-term solutions that are going to be helpful 
in addressing this aging infrastructure to not only improve the 
water quality and the health of the environment but to create 
the jobs that come with it. We must continue to invest in 
improving our wastewater treatment because it will directly 
support clean water supply. And there is new technology that 
can be used and be able to possibly cut the cost of being able 
to do all this repair, needed infrastructure repair.
    I strongly support H.R. 3145, the Water Quality Protection 
and Job Creation Act of 2011, and congratulate both Ranking 
Member Bishop and Ranking Member Rahall on the full committee 
for introducing it. It provides $13.8 billion in a Clean Water 
State Revolving Fund over 5 years. What better than to have the 
States be able to help the communities?
    It is desperately needed to address these challenges facing 
our country's communities. And our EPA's most recent Clean 
Water Needs Survey found, as was stated by the Chair, $400 
billion worth of wastewater system repairs over the next couple 
of decades. My figure stated $300 billion, Mr. Chairman. I am 
glad you are stating it a little higher because you may have 
better figures than I do.
    These treatment plants have the capacity for solar, wind, 
and biomethane energy production, and we must continue to look 
at what is feasible, less expensive, and be able to get the new 
evolving technology recognized and utilized. This bill will 
help some of our water challenges, and this is one of the major 
ones.
    So with that, Mr. Chair, I urge my colleagues to help us 
get this bill through and be able to support our communities. I 
yield back.
    Mr. Gibbs. Thank you.
    I welcome our panel again, and we will start with our first 
witness. He is the mayor of Indianapolis, Mr. Gregory Ballard. 
He is testifying on behalf of the U.S. Conference of Mayors. 
Welcome. The floor is yours.

 TESTIMONY OF MAYOR GREGORY A. BALLARD, INDIANAPOLIS, INDIANA, 
 TESTIFYING ON BEHALF OF THE U.S. CONFERENCE OF MAYORS/MAYORS 
WATER COUNCIL; DAVID R. WILLIAMS, DIRECTOR OF WASTEWATER, EAST 
BAY MUNICIPAL UTILITY DISTRICT, OAKLAND, CALIFORNIA, TESTIFYING 
 ON BEHALF OF THE NATIONAL ASSOCIATION OF CLEAN WATER AGENCIES 
    (NACWA); AUREL M. ARNDT, GENERAL MANAGER, LEHIGH COUNTY 
AUTHORITY, ALLENTOWN, PENNSYLVANIA, TESTIFYING ON BEHALF OF THE 
  AMERICAN WATER WORKS ASSOCIATION (AWWA); ERIC S. PETERSEN, 
   ESQ., PARTNER, HAWKINS DELAFIELD & WOOD LLP; THADDEUS R. 
WILSON, VICE PRESIDENT, M3 CAPITAL PARTNERS LLC; JEFFRY STERBA, 
 PRESIDENT & CEO, AMERICAN WATER, TESTIFYING ON BEHALF OF THE 
  NATIONAL ASSOCIATION OF WATER COMPANIES (NAWC); JEFFREY A. 
  EGER, EXECUTIVE DIRECTOR, WATER ENVIRONMENT FEDERATION; AND 
STEVEN A. FANGMANN, P.E., BCEE, EXECUTIVE VICE PRESIDENT, D & B 
ENGINEERS AND ARCHITECTS, TESTIFYING ON BEHALF OF THE AMERICAN 
     COUNCIL OF ENGINEERING COMPANIES (ACEC) AND THE WATER 
                  INFRASTRUCTURE NETWORK (WIN)

    Mr. Ballard. Thank you, Chairman Gibbs and Ranking Member 
Bishop, and to the House Transportation and Infrastructure 
Committee's Subcommittee on Water Resources and the 
Environment, for inviting me to testify. As mentioned, my name 
is Greg Ballard. I have been the mayor of Indianapolis since 
2008.
    I am testifying on behalf of the U.S. Conference of Mayors, 
and I am here today to communicate the concern of our Nation's 
mayors, and share about the rising costs of water and 
wastewater infrastructure, and to ask for a renewed partnership 
with Congress and the U.S. EPA to provide sensible relief to 
local governments as they work toward their clean water goals.
    It is important to recognize that everyone wants to do the 
right thing with regard to the environment. And as a mayor, it 
is my job to be a steward for my citizens. I want them to have 
the best and the safest water, and so do my peers around the 
country. So does EPA. So does Congress. We are all in agreement 
on this. In fact, the American cities provide some of the 
safest and cleanest water in the world. However, this comes at 
a hefty price.
    In the last decade, public spending on water and wastewater 
grew by 65 percent, to $855 billion. During that same time, 
local government long-term debt grew by 82 percent, so $1.6 
trillion as of 2009, while local government revenues declined 
in the face of a struggling national economy.
    Clearly, this is an unsustainable problem. It is one reason 
the U.S. Conference of Mayors is calling on Congress to help us 
more sensibly and flexibly achieve our shared clean water 
goals.
    Congress has successfully partnered with local government 
on clean water goals in the past. In the 1970s and 1980s, 
Congress approved capital construction grants, while local 
governments shouldered the responsibilities--or the 
repercussions--or meeting or missing those goals. When these 
grants were replaced by the State Revolving Loan Fund program, 
it marked the beginning of a guideline retreat from shared 
responsibility.
    Congress shed financial responsibility for clean water 
goals, but allowed the administration to continue to set 
aggressive rules. As a result, many local governments now 
shoulder significant long-term debt to finance water and 
wastewater plants that they have had little say in developing. 
These are unfunded mandates, pure and simple.
    Congress can provide immediate relief by passing 
legislation that increases financing flexibility at the local 
level--for example, the modification of the Tax Code to remove 
State caps on the use of private activity bonds for public 
water and wastewater infrastructure investment, as seen in 
House Bill 1802 and Senate Bill 939.
    We also support the Water Infrastructure Finance and 
Innovation Act that has been talked about, which can lower 
overall costs for large capital water projects by as much 16 
percent, and that could happen with direct loans to cities. 
This will help address some of the most pressing debt 
challenges facing our cities as we strive to meet clean water 
goals.
    But the U.S. Conference of Mayors is also seeking a more 
sensible way forward. The proliferation of Federal regulatory 
mandates has drastically increased local water and wastewater 
spending requirements. Over 780 cities and water/wastewater 
utilities have or will experience sewer overflow enforcement 
actions by the EPA.
    We are calling on Congress to require EPA to set clean 
water priorities and reasonable expectations on affordability. 
This will give us the flexibility to find innovative and 
efficient solutions to our local water and wastewater 
challenges as we did in Indianapolis.
    Indianapolis originally faced $3\1/2\ billion in expenses 
under a 2006 consent decree. That figure quickly grew by $300 
million more through cost overruns, and most certainly would 
have continued to balloon.
    In 2008, we reevaluated the steps necessary to resolve our 
clean water concerns with an eye towards better results at a 
lower cost. Though difficult, Indianapolis was able to amend 
its EPA consent agreement twice. In each case, the city reduced 
the overall price of the solution and got better environmental 
results. In fact, our residents will benefit from cleaner water 
10 years sooner than under the original consent decree while 
saving $740 million.
    Indianapolis enjoyed forging a partnership with the EPA to 
find commonsense, less costly fixes to the challenges that we 
face. In fact, EPA called the renegotiation with my city as a 
win-win for everyone involved. It was a great example of 
governments working together. We demonstrated that flexibility, 
creativity, and government can go hand in hand.
    Unfortunately, the Indianapolis model is too often the 
exception to the rule. The U.S. Conference of Mayors urges the 
EPA and Congress to use the maximum flexibility allowed in the 
Clean Water Act and any future legislation to reduce the cost 
burden of reducing or eliminating sewer overflows. We also ask 
you to require EPA to prioritize mandates, and to allow 
flexibility and affordability to play a greater role in 
determining all clean water solutions at the local level.
    Thank you.
    Mr. Gibbs. We will have questions and answers when the 
whole panel gets through their opening statements.
    I would like to welcome at this time Mr. David Williams, 
who is the elected board member of the Central Contra Costa 
Sanitary District Board of Directors in Central Contra Costa 
County, California. He is also a director of Wastewater at the 
East Bay Municipal Utility District in Oakland, California. He 
is also president of the National Association of Clean Water 
Agencies in Washington, DC.
    Welcome. The floor is yours.
    Mr. Williams. Chairman Gibbs, Ranking Member Bishop, and 
members of the subcommittee, I am David Williams, president of 
the National Association of Clean Water Agencies, and here 
testifying on behalf of NACWA this morning; also Director of 
Wastewater at the East Bay Municipal Utility District in 
Oakland, California, and elected board member of Central Contra 
Costa Sanitary District in Martinez, California. Thank you for 
inviting me.
    The Clean Water Act will be 40 in October. We have seen 
four decades of exceptional public utility leadership. In 1972, 
90 percent of the Nation's waterways were impaired due to 
pollution. EPA now estimates that at 45 percent. We have come a 
long ways; there is still a ways to go.
    We were certainly helped along the way with the clean water 
grant program, and later the SRF. Today the SRF provides 
approximately $5 billion in low-interest loans. In addition, 
municipalities expend nearly $100 billion on providing water 
and wastewater services. This supports millions of jobs and 
also exemplifies local commitments and leadership to ensure 
clean, safe water.
    These investments continue to be made under increasingly 
difficult circumstances such as the shrinking Federal financial 
support, increasing cost of regulatory requirements, and in the 
midst of a major economic downturn.
    Despite these challenges, utility leaders are transforming 
the way we do business through unprecedented innovation. This 
is exemplified by energy conservation and recovery efforts; 
water recycling; biosolids reuse; resource recovery from waste 
streams, such as extracting phosphorus from wastewater and 
using that for agricultural fertilizer; green infrastructure 
and low-impact development to lessen the impacts of stormwater. 
This is all in addition to maintaining the core infrastructure 
needed to collect and treat the wastewater.
    I will give you an example of my utility at East Bay 
Municipal Utility District. Ten years ago we started a resource 
recovery program. Under this program, we bring in liquid waste, 
such as fats, oil, and greases; food processing waste, such as 
cheese waste or beverage waste; animal processing waste from 
the chicken and beef industries; and recently, even solid 
materials such as commercial source-separated food scraps from 
grocery stores and restaurants.
    We take these organic wastes and put them in anaerobic 
digesters, where they are digested and stabilized. A by-product 
is methane gas. We capture the methane gas and generate green, 
renewable energy from these waste materials. We do this at our 
power generation station that uses clean burn engines and a 
turbine. Today we are meeting our 5 megawatt daily demand at 
our wastewater treatment plant solely from these wastes, plus 
we are providing 2 megawatts of green energy back to the grid.
    Today's POTWs not only collect, treat, and dispose of 
municipal and industrial wastewater, but they are reimaging 
themselves as green factories. By becoming green factories, 
POTWs generate revenues that help keep rates low. There are 
recycling benefits to the environment. Revenue and energy 
generation free up capital for investment. That, of course, 
creates jobs. And jobs, of course, creates increased tax 
revenues.
    In pursuing all of these efforts, financing is a key 
ingredient. The types of innovative financing mechanisms being 
contemplated here, plus others yet to be identified, could be 
very helpful to continue the progress we have made today to 
promote the types of innovation I have described.
    Simply put, more money on the table is helpful, whether it 
comes from low guarantee loans such as WIFIA, exempting water 
and wastewater projects from the volume cap on private activity 
bonds, or other approaches. NACWA supports new additions to the 
municipal financing toolbox.
    Some important considerations, however. We want to make 
sure that new mechanisms do not negatively impact existing 
well-used funding mechanisms such as SRF. An example is that 
funding a new program should not increase public agency costs 
to access the existing bond markets or other capital markets.
    Funds from new financing tools should also be available to 
help clean water agencies fund innovative projects and new 
technologies. The budget constraints that make innovative 
financing a vital discussion today also demand we look at the 
other side of the coin--namely, we need to reassess the command 
and control structure of the Clean Water Act.
    I testified before this committee last year on NACWA's 
money matters campaign. The theme of that campaign is: Smarter 
investment to advance clean water. Its intent is to shed light 
on growing financial and compliance challenges posed by the 
Clean Water Act regulations.
    NACWA has called for an integrated planning approach. This 
approach will serve to prioritize competing costs of 
requirements and help achieve maximum water quality benefits at 
a cost that will not break the bank, which is our ratepayers. 
EPA is working on their integrated planning and hope to have 
the framework finalized by March.
    Finally, if we find that under EPA's integrated planning 
that the 40-year-old Clean Water Act does not have the 
flexibility to accomplish the goals of cost-effective clean 
water, NACWA hopes that we can continue to work with this 
subcommittee to consider targeted changes to the Clean Water 
Act to effectively address 21st-century challenges and ensure 
another four decades of water quality improvements and 
unrivaled utility leadership.
    The cost-effective, innovative, green factory concepts that 
I have described are the underpinnings of NACWA's 20/20 vision 
of the water resources utility of the future. In the coming 
months, NACWA is developing an advocacy agenda for specific 
legislative steps that will help ensure any roadblocks to this 
vision are removed and the needed tools and support are 
available for utilities. And we look forward to working with 
this subcommittee to make the utility of the future a reality 
today.
    I thank you for the opportunity to testify.
    Mr. Gibbs. Thank you.
    At this time I would like to welcome our next witness, Mr. 
Arndt. He is the general manager of the Lehigh County Authority 
in Allentown, Pennsylvania. He is testifying on behalf of the 
American Water Works Association.
    Welcome. The floor is yours.
    Mr. Arndt. Thank you, Mr. Chairman. Good morning, Chairman 
Gibbs, Ranking Member Bishop, and members of the subcommittee. 
I am Aurel Arndt, general manager and chief financial officer 
of Lehigh County Authority, which provides water and wastewater 
service to more than 22,000 customers in Lehigh and Northampton 
Counties in eastern Pennsylvania.
    Throughout my career, including service on the executive 
board of the Government Finance Officers Association, the board 
of the Pennsylvania Infrastructure Finance Authority, also 
known as PENNVEST, and the Water Utility Council of the 
American Water Works Association, I have focused my efforts and 
interest on water infrastructure finance.
    I deeply appreciate this opportunity to speak today on 
behalf of AWWA and its more than 50,000 U.S. members on the 
need for innovative financial mechanisms to sustain and 
rejuvenate our country's water infrastructure.
    Yesterday we released a report titled, ``Buried No Longer: 
Confronting America's Water Infrastructure Challenge.'' We will 
be sure to provide copies of this report to the committee. This 
report reveals that replacing and expanding our buried drinking 
water infrastructure will cost at least $1 trillion over the 
next 25 years. During that time, the required annual investment 
will more than double, growing from $13 billion to almost $30 
billion per year by the end of that period.
    I must emphasize that this $1 trillion is only for buried 
drinking water infrastructure, largely the pipes underground. 
Aboveground drinking water facilities, wastewater, stormwater, 
and other water-related needs are also very large and must be 
added to this forecast to reflect the true magnitude of the 
water investment before us.
    I would like to focus my remarks today on the new financing 
tool addressed in the draft legislation released last week, 
which would help American water utilities address this 
challenge. I must emphasize, however, that AWWA strongly 
believes the cornerstone of water infrastructure finance is and 
should remain local rates and charges.
    We have had a chance to review the draft legislation, the 
Water Infrastructure Finance and Innovation Act, or WIFIA, and 
we wholeheartedly endorse this approach. As described in the 
draft, WIFIA will fill a significant gap between what current 
water infrastructure tools can do and what needs to be done.
    We urge this subcommittee, the full committee, and the rest 
of Congress to enact this legislation, which is modeled after 
the highly successful Transportation Infrastructure Finance and 
Innovation Act, or TIFIA.
    As we see WIFIA, it has three significant attributes that 
collectively cannot be matched by any other new water 
infrastructure financing tool.
    First, WIFIA would increase capital available to utilities 
for infrastructure investment. Water utilities already use a 
variety of approaches to finance their capital needs, including 
the State Revolving Loan Funds, municipal bonds, corporate 
bonds and equity, and private activity bonds, among others. 
Unfortunately, the investment need before us will push many 
utilities beyond the limits of those traditional financing 
sources and undermine the ability to set affordable customer 
rates.
    Second, WIFIA will provide a lower cost of financing for 
many utilities. We anticipate that WIFIA would access funds 
from the U.S. Treasury and use those funds to provide loans, 
loan guarantees, and other credit support for projects at rates 
at or close to Treasury rates. In most market conditions, 
Treasury rates are lower than the cost of capital on most other 
sources of water infrastructure financing.
    However, reducing the interest rate by just a few 
percentage points can amount to a significant savings. For 
example, lowering the cost of borrowing by 2\1/2\ percent on a 
30-year loan reduces the lifetime project cost by almost 26 
percent, the same effect as a 26-percent grant. Moreover, the 
savings can significantly accelerate water infrastructure 
investment by making it more affordable for utilities and their 
customers.
    Third, and perhaps most importantly, WIFIA will have 
minimal cost to the Federal Government. All of us are well 
aware of the importance of controlling the Federal budget and 
the deficit. WIFIA is highly responsive to these concerns. 
Under the Federal Credit Reform Act, a Federal entity can 
provide credit assistance to the extent that Congress annually 
appropriates budget authority to cover the subsidy cost of the 
assistance--in other words, the net long-term cost to the 
Federal Government.
    Under WIFIA, that long-term cost is minimal, first because 
loans are repaid in full with interest to the WIFIA 
administrator, which in turn repays the Treasury, again with 
interest.
    In addition, there is minimal credit risk because virtually 
all water-related loans are repaid in full.
    That fact is highlighted by a Fitch rating report which 
determined that the historical default rate on water bonds is 
.04 percent--I repeat, .04 percent--putting water service 
providers among the best credits in the United States. 
Moreover, the leveraged SRF programs across the country have no 
history of defaults, also placing them among the strongest 
credits in the country.
    We note that TIFIA is able to leverage Federal funds at a 
ratio of 10 to 1. With the water sector's strong credit ratings 
and history, the ratio for WIFIA should be even greater because 
the subsidy cost required by the Federal Credit Reform Act 
would be minimal. If the WIFIA leverage ratio is set at 25 to 
1, which is actually 100 times lower than the risk ratio of .04 
percent, a $200 million appropriation will produce $5 billion 
in infrastructure investment. It is important that we are not 
advocating loan forgiveness or negative interest loans or other 
similar credit aspects that would increase the cost of the 
WIFIA program to the Federal Government.
    In conclusion, WIFIA will allow us to do more with less--
specifically, to build more water infrastructure at less cost, 
and to top that, our Nation will get a cleaner environment, 
better public health and safety, and a stronger foundation for 
our economy.
    We thank the subcommittee for its leadership in offering 
this important tool, WIFIA, to help address a significant need 
with our water infrastructure. We offer to work with the 
subcommittee in communicating the value of WIFIA to the rest of 
Congress and our respective publics.
    Thank you again for this opportunity to appear here today. 
I will be happy to answer any questions and to provide you with 
any other assistance I can now or in the coming months. Thank 
you.
    Mr. Gibbs. Thank you.
    At this time I would like to welcome Mr. Eric Petersen. He 
is a partner in the Hawkins Delafield & Wood law partnership in 
New York City.
    Welcome. The floor is yours.
    Mr. Petersen. Thank you, Mr. Chairman.
    Chairman Gibbs, Ranking Member Bishop, and members of the 
subcommittee, my name is Eric Petersen, and as was mentioned, I 
am a partner at Hawkins Delafield & Wood, a leading national 
law firm in the fields of public finance, public contracts, and 
public-private partnerships. I specialize in water projects, 
and represent the interests of municipal water and wastewater 
utilities.
    Hawkins has negotiated major water infrastructure contracts 
for Seattle, San Diego, Phoenix, Santa Fe, San Antonio, 
Washington, DC, New York City, and 75 other cities, counties, 
and authorities over the past 20 years.
    Federal financial support for water infrastructure, in my 
view, consists mostly of the tax exemption of interest on 
municipal bonds issued for water and wastewater projects. 
Proposals continue to surface in Congress and from the 
administration to raise revenue by curtailing, by any number of 
means, the tax exemption of interest on municipal bonds. 
Passage of any of these measures would only serve to tighten 
the financial vice on the water industry.
    Municipal water bonds are tax-exempt only if they are 
issued by the municipality itself, so-called governmental 
bonds. Bonds issued for water projects by private companies, 
known as private activity bonds, are not tax-exempt and thus 
carry the higher interest rates of corporate bonds.
    As a result, if a city wants to have a private firm design, 
build, finance, and operate a new project, known as a public-
private partnership or P3 project, the private financing 
element causes the debt to be taxable and generally makes the 
overall project costs too expensive.
    The Internal Revenue Code does contain an exception to the 
provision that makes private activity bonds taxable. Water 
projects are part of a category of private activity bonds 
called exempt facility bonds. The total amount of exempt 
facility bonds that can be issued on a tax-exempt basis in each 
State, however, is tightly capped.
    Private financing of public water infrastructure has thus 
been effectively blocked. The planning process for large water 
projects takes years, and the uncertainty and unlikelihood as 
to the availability of tax-exempt private activity bond volume 
cap for a proposed water project, as a practical matter, 
eliminates private financing and P3 approaches to project 
implementation.
    Unrestricted tax-exempt private financing of public water 
infrastructure is no cure-all. Most projects surely will 
continue to be municipally financed using traditional water 
revenue bonds. But I am convinced that certainty as to the 
availability of tax exemption for privately financed water 
projects could create a significant level of renewed interest 
from the private sector in providing innovative and flexible 
solutions to a wide variety of municipal water project 
challenges.
    This was indeed the case in 1986, when certainty as to the 
tax-exempt private activity bond financing for municipal solid 
waste projects, which was provided by the Tax Reform Act of 
1986, unleashed a wave of additional investment in waste to 
energy and other facilities needed in the municipal solid waste 
management field, totaling over $15 billion.
    To conclude with a real and current example in the water 
sector, the San Diego County Water Authority this year is going 
to contract for the purchase of water from an $800 million 
seawater desalination project in Carlsbad. It is a public-
private partnership with Poseidon Resources which will design, 
build, finance, and operate the plant.
    Poseidon's private financing makes the project bonds 
private activity bonds, but the company has secured volume cap 
allocation from the State. This is an unusual and fortunate 
occurrence, made possible only by the collapse in demand for 
private activity housing bonds in the present market.
    The price of water with tax-exempt interest rates is 
projected at approximately $1,850 per acre-foot. With taxable 
financing at interest rates about 100 to 150 basis points 
higher, the price would be over $2,000 per acre-foot, or around 
a 10-percent increase. It is quite possible that this key water 
resource project for California would not proceed had lower 
cost, tax-exempt financing not been secured by the private 
company. The value of assured tax exemption for water private 
activity bonds is thus quite plain.
    Thank you for this opportunity. I look forward to your 
comments and questions.
    Mr. Gibbs. Thank you.
    At this time I would like to welcome Mr. Thaddeus Wilson. 
He is vice president of M3 Capital Partners in Chicago.
    Welcome. The floor is yours.
    Mr. Wilson. Thank you, Mr. Chairman. Chairman Gibbs, 
Ranking Member Bishop, members of the subcommittee, it is an 
honor to be here today to discuss innovative financing 
approaches for community water infrastructure projects. My name 
is Thad Wilson, and I am a vice president with M3 Capital 
Partners, a management-owned investment and advisory firm based 
in Chicago, Illinois.
    Through an advisory affiliate, M3 currently manages equity 
commitments of $2.9 billion on behalf of a U.S. public pension 
plan, focused on long-term investments in real estate.
    M3 is currently forming a North American water 
infrastructure fund that we anticipate will initially be 
capitalized by a U.S. public pension plan as the 
``cornerstone'' sponsor.
    It is expected that the fund will focus primarily on 
offering an innovative design/build/operate/finance approach to 
municipal water infrastructure project delivery. We believe 
this approach offers a robust form of public-private 
partnership, or P3, to municipalities to capitalize their water 
infrastructure improvements.
    In the U.S. today, there is a significant and growing need 
for investment in our critical water infrastructure, as we have 
heard in detail this morning. Given State and local funding 
challenges, particularly in the current environment, accessing 
private capital through P3 structures may be a compelling 
option for municipalities.
    At the same time, public pension plans need long-term 
investments that can provide stable returns for their 
beneficiaries--teachers, firefighters, police, and other public 
employees.
    In my view, the primary benefits of water infrastructure 
P3s include the following.
    Because a P3 is not an outright sale or privatization, 
municipalities can retain long-term ownership and control of 
their water facilities.
    Municipalities can also accelerate the launch of new 
projects, which may help to meet compliance-driven deadlines 
and may generate near-term employment opportunities for the 
local economy.
    Municipalities can transfer key risks to the private 
partner. As a result, the private partner is well-aligned with 
the municipality and is putting its capital at risk, with a 
requirement to perform its obligations throughout the term of 
the P3.
    And finally, municipalities can potentially realize life-
cycle cost savings as a fully integrated team takes on 
responsibility to effectively design, build, operate, and 
finance their water infrastructure projects.
    Potential measures to facilitate more water infrastructure 
P3s include the following.
    Encourage broader appreciation for the value of water and 
water infrastructure, supporting true cost pricing for water 
services, where appropriate.
    Increase awareness of the many social benefits from water 
infrastructure investment, such as conservation and reuse of 
water from water recycling initiatives.
    Increase awareness of the potential benefits of P3 
structures, combined with efforts to implement regulations that 
facilitate the use of P3s.
    Help to lower the cost of debt financing for private 
partners in water facility P3s by removing the State volume cap 
on private activity bonds for such projects.
    And finally, specific to the Water Infrastructure Finance 
and Innovation Act legislation the subcommittee is currently 
preparing, in Section 104(b) on public-private partnerships, I 
would recommend amending the discussion draft to include ``the 
private financing or development partner'' as an additional 
``entity eligible for assistance.''
    In summary, municipal obligations to provide quality water 
services align well with the increasing desire of public 
pension plans to invest in stable infrastructure assets. P3s 
utilizing public pension plan capital can help to meet water 
facility investment needs, and more municipalities should find 
it advantageous to explore this innovative financing approach.
    I thank you for your time today and for your consideration 
of this issue.
    Mr. Gibbs. Thank you.
    At this time I would like to welcome Mr. Jeffry Sterba. He 
is president and CEO of the American Water Company, and he is 
also testifying on behalf of the National Association of Water 
Companies.
    Welcome.
    Mr. Sterba. Thank you. Chairman Gibbs, Ranking Member 
Bishop, members of the committee--I will turn that on to make 
that better. Now you can hear me. Most people hear me so loud 
they would just rather I lowered my voice.
    I appreciate the invitation to appear before you today. I 
am Jeff Sterba, president and CEO of American Water, which is 
the largest publicly traded water and wastewater company 
operating in the United States. We have over 7,000 employees 
who serve more than 15 million customers in 30 States of the 
United States and a couple of Provinces in Canada.
    I am testifying on behalf of American Water and the 
National Association of Water Companies, which represents 
numerous companies in the private water sector.
    This committee has heard from many about the disturbing 
status of our country's water and wastewater infrastructure, 
and I applaud your commitment to do something about it. The 
primary point that I will make in my testimony is that in this 
era of very tight Federal, State, and local municipal budgets, 
private capital is, and can be made more, available to help 
address our crumbling infrastructure and the economic harm that 
it causes. This can be done without changing the fundamental 
nature of public ownership of water because we are talking 
about the infrastructure that treats and delivers it, not the 
ownership of it.
    American Water serves roughly 4\1/2\ to 5 percent of the 
United States, and we invest roughly $1 billion per year in 
upgrading the infrastructure, which is about 7\1/2\ percent of 
the total investment that is made.
    If we couple that with the investments made by other 
private water companies, which are roughly also about $1 
billion, that is $2 billion, which is roughly equivalent to the 
amount that the U.S. Government invests through the two 
revolving fund mechanisms for both clean drinking water and 
under the Clean Water Act.
    So, while there is substantial private capital at work 
today, it is not sufficient. Ranking Member Bishop, you 
mentioned the $3 to $10 billion annual shortfall. So we have 
got to find another set of ways to create more capital for 
sustainable water management projects. So let me touch on four 
ways fairly quickly.
    First, three of the four proposals are legislative in 
nature, but the first can largely be accomplished through a 
policy shift. Right now, if a community is going to partner 
with a private water company to improve or expand its 
infrastructure, its customers will likely have to pay a large 
penalty to remove existing municipal debt because of the way 
the IRS interprets some of its rules.
    This penalty can drive a 15- to 25-percent increase in 
interest cost with no real benefit, and that 15- to 25-percent 
increase in interest cost is paid for by customers. The penalty 
comes from having to retire existing low-cost debt, pay 
issuance costs for replacement debt, and possibly having to 
prefund amounts greater than the amount of debt to be paid off.
    Now, we are not talking about changing the ownership 
structure. We are talking about a long-term lease. There is 
nothing gained that I can tell by this defeasance requirement 
except higher cost to customers. There is no cost to the 
Federal Treasury to make this change, and it would enable 
access to new capital to repair and upgrade water and 
wastewater systems, adding to the economy and creating jobs. So 
let's not enable financial barriers for local governments. 
Instead, let's rewrite the rules that hinder these win-win 
public-private partnerships.
    The second tool has already been touched on, and that is to 
create greater access to private activity bonds for all public 
purpose drinking water and wastewater projects. H.R. 1802, the 
Sustainable Water Infrastructure Investment Act, would do that 
by removing the water projects from State volume caps.
    Experts have stated that this would generate at least $2 
billion in new investment each year, an amount which, using 
U.S. Conference of Mayors' analysis, would translate into some 
60,000 jobs. We appreciate the inclusion of similar language in 
the draft WIFIA legislation.
    Frankly, the WIFIA legislation is the third idea I would 
like to mention. It primarily seeks to lower the financing cost 
of infrastructure investments. NAWC commends the organizations 
which have put this forward, and we generally support the 
principles of WIFIA.
    It is not clear, though, how much WIFIA will really 
increase the total amount of capital investment rather than 
just substitute for municipal debt or State Revolving Fund 
leveraging that would otherwise occur. While lowering the cost 
of debt through a Federal subsidy is a worthy goal, the real 
priority is to increase the amount of capital that can flow 
into this needed infrastructure.
    Finally, as part of the WIFIA proposal, we strongly 
encourage the subcommittee to redress an unfortunate oversight 
in the Clean Water Act. Currently, private water utilities are 
not eligible to participate in the Clean Water State Revolving 
Fund. Moreover, while the Safe Drinking Water Act gives States 
the option to make private water utilities eligible for the 
Drinking Water State Revolving Fund, only about half the States 
have done so.
    The part of WIFIA that helps leverage State Revolving Funds 
would provide little benefit to the millions of American 
taxpayers who are customers of NAWC member companies. Existing 
Federal programs such as the State Revolving Funds and any new 
Federal programs such as WIFIA should benefit all taxpayers, 
including customers of private water companies.
    Now, in the end, we know intellectually and we have to 
understand that the cost of water and wastewater infrastructure 
upgrades will put upward pressure on rates. Multiple surveys 
have found that American voters are willing to pay more to help 
ensure appropriate infrastructure and service. However, we must 
bring operational efficiency and low-cost capital to the table 
to minimize this impact.
    Private water companies are integral to doing so, and we 
stand ready to help the committee on this important challenge. 
Thanks, and we will take any questions you have.
    Mr. Gibbs. Thank you.
    At this time I would like to welcome Mr. Jeffrey Eger. He 
is the executive director of the Water Environment Federation 
in Alexandria, Virginia.
    Welcome. The floor is yours.
    Mr. Eger. Thank you, Mr. Chairman and Ranking Member Bishop 
and members of the subcommittee. I join this distinguished 
panel in thanking you for hosting this very important hearing.
    My name is Jeff Eger. I serve as the executive director of 
the Water Environment Federation, WEF. It is an 84-year-old 
professional and technical organization with 36,000 members, 
including scientists, engineers, and others working for clean 
water in North America and around the globe.
    We are the sponsors of WEFTEC, the largest annual water 
conference in the world, and our peer-reviewed publications 
serve as the benchmark for best practice in wastewater 
treatment, stormwater management, and water quality.
    The majority of our members, including those of the Ohio 
Water Environment Association, work in and for municipal 
government, so the topic of financing for publicly owned 
treatment facilities is a very important one for us.
    Prior to coming to WEF, I served for 18 years as the 
executive director of Sanitation District 1, the second-largest 
public utility in Kentucky. SD-1 maintains $1 billion in 
physical assets, including 1600 miles of sewer lines, 143 
wastewater pumping stations, and 3 major treatment plants. Two 
of those plants were designed and constructed during my tenure, 
and to help with this, we secured more than $80 in low-interest 
loans through the State Revolving Loan program. Federal 
financial assistance was an important component of our overall 
financing package.
    I am also proud that during my time at SD-1, we tried to be 
proactive in identifying our capital needs and working with 
local leaders, including elected officials in the business 
community, to obtain support for rate increases, having enacted 
double-digit rate increases seen out of the last 10 years.
    We also worked with our State and the U.S. EPA to implement 
a holistic watershed-based approach to protect water quality 
that reduced cost and enabled us to assure that ratepayers saw 
that their money was being spent cost-effectively.
    This experience led us to our working with Mayor Ballard's 
organization, the U.S. Conference of Mayors, to bring the 
issues of affordability and priority-setting forward as a 
national issue. Mr. Chairman, we appreciate the attention that 
you provided to this issue during the subcommittee hearing late 
last year.
    As other witnesses have noted, local governments are facing 
the worst financial circumstances in more than a generation. If 
we are going to continue to provide essential services and make 
progress in water quality, it is time to reimagine the way we 
provide local water services.
    We need to encourage innovation--innovative technologies, 
innovative management approaches, and innovative financing. As 
you heard from my associate, Mr. Williams, we believe that we 
are on the cusp of transforming from a waste treatment industry 
to a resource production industry. Funds for research and 
implementation have never been more important and critical in 
this regard.
    We are approaching the 40th anniversary of the Clean Water 
Act. The Clean Water Act contained a number of innovations, 
including a grants program to help cities meet the ambitious 
national requirements. Fifteen years later, the 1987 amendments 
phased out grants in favor of another innovation, the State 
Revolving Loan program.
    WEF was an early supporter of the SRF program, and as I 
noted earlier, the Clean Water SRF has been remarkably 
successful. We fully support the continuation of the SRF, and 
we want to thank Congressman Bishop for including 
reauthorization of the SRF in his legislation introduced last 
October.
    But now, 25 years later, it is time to innovate once again. 
The WIFIA concept, discussed earlier and proposed in draft 
legislation, is one opportunity for Congress to assist local 
communities with their water infrastructure needs in a way that 
makes sense today. WIFIA would provide much-needed low-interest 
funding in a manner that compliments the SRF and leverages the 
available Federal dollars.
    As has been mentioned, reduction of just 1 percentage point 
in a long-term loan could mean savings of millions of dollars 
over the life of that loan. These savings mean that available 
public funds will go further in addressing our critical 
infrastructure needs.
    Mr. Chairman, subcommittee members, we know that this 
Congress in particular is facing some serious issues, including 
concern about Federal spending and deficit reduction. It can be 
challenging to see a clear path forward, even on an issue like 
clean water, which enjoys widespread public support and where 
there is a strong history of bipartisanship.
    Innovative financing legislation provides an opportunity to 
demonstrate once again that clean water is a national priority, 
and that leaders here in Washington are sympathetic to the 
needs of local governments.
    In a few weeks, WEF will be launching a major new public 
awareness campaign, ``Water Is Worth It.'' We have already gone 
public with an electronic billboard in Times Square, and over 
time, will be working with the other organizations here at this 
table, and we hope with you, to reinforce the value of water.
    We see introduction and eventual passage of new water 
infrastructure financing legislation as a very important step 
in supporting the value of water and our essential water 
infrastructure. We stand ready to work with you and your staffs 
to perfect this legislation and move it forward.
    Thank you for your time.
    Mr. Gibbs. Thank you.
    At this time I would like to welcome Mr. Steven Fangmann. 
He is the executive vice president of D & B Engineers and 
Architects in Woodbury, New York. He is testifying on behalf of 
the American Council of Engineering Companies and the Water 
Infrastructure Network Coalition.
    Welcome.
    Mr. Fangmann. Thank you, Chairman Gibbs, Ranking Member 
Bishop, and the distinguished members of the Water Resources 
and Environment Committee.
    My name is Steve Fangmann. I am executive vice president of 
D & B Engineers and Architects, a Long Island based firm with 
over 45 years of expertise in environmental engineering and 
ranked by Engineering News Record as one of the top 200 
environmental design firms.
    During my career I have worked for many communities on 
wastewater management and water supply services, and formerly 
served as the Deputy Commissioner of Public Works for the 
Nassau County DPW where I was responsible for the overall water 
and wastewater management of the department, which included two 
major wastewater facilities and a $400 million upgrade of both.
    I was also responsible for water management, planning for 
Nassau's sole source groundwater aquifer system, as well as 
3,000 miles of a separate sewer collection system.
    Engineering firms who work closely with local government 
officials have a considerable appreciation of the difficulty 
municipalities and utility districts face in balancing their 
constituents' demands, public safety, and environmental 
protection, all in the context of extremely limited funding 
options.
    I am testifying this morning on behalf of the Water 
Infrastructure Network and the American Council of Engineering 
Companies. WIN is a broad-based coalition of the Nation's 
leading construction, engineering, labor, conservation and 
municipal water and wastewater treatment providers. ACEC is the 
business association of America's engineering industry with 
thousands of firms that specialize in water and wastewater 
design and consulting.
    We commend the subcommittee for the timeliness of this 
hearing today. There are few Members of Congress who are not 
aware that the country is facing a water infrastructure funding 
crisis. The question is what can we do to solve it. We know 
that we must solve it because without safe and clean water for 
our communities, not only is public safety at risk, but also 
water dependent industries such as agriculture, commercial 
fishing and tourism would be at risk and would be unable to 
contribute the hundreds of billions of dollars annually that 
they currently provide to our economy. We simply cannot afford 
to postpone the solution.
    We think the answer is not just one silver bullet. What 
communities need is a comprehensive toolbox of water 
infrastructure financing options. The water infrastructure 
financing challenges we face have been a century in the making 
and will take all of the best ideas that have been presented 
today to the subcommittee, as well as many that have yet to 
have been developed, to meet this challenge.
    For today's hearing, we would like to focus on just four 
proposals of the many that have been discussed. The development 
of a TIFIA Program for water infrastructure, as championed by 
Chairman Gibbs, and the innovative finance tools in the Water 
Quality Protection and Job Creation Act, as introduced by 
Congressman Bishop, all must be tools in the toolbox.
    In addition, we commend Chairman Gibbs for including H.R. 
1802 in his draft water infrastructure finance bill. The 
Sustainable Water Infrastructure Investment Act, which has 
strong bipartisan support, provides an exemption from private 
activity bond State volume caps for all water and wastewater 
projects.
    We also support a dedicated source of funding for water 
infrastructure, as well as reauthorizing the State Revolving 
Funds for water and wastewater projects.
    Regarding TIFIA, WIN and ACEC believe that the development 
of a TIFIA-like program for water infrastructure makes eminent 
sense, and we are pleased that water infrastructure funding 
legislation being advanced by Chairman Gibbs and Congressman 
Bishop has embraced this financing concept.
    Engineering firms who specialize in highway transportation 
projects are great proponents of leveraging potential of TIFIA, 
but its usefulness is sometimes limited because of the revenues 
required, such as toll roads or fees. The TIFIA concept is 
better suited for financing water infrastructure projects. 
Municipal water and wastewater projects have a built in system 
of customer user fees or volume rates collected on a regular 
schedule and dedicated only to water services and 
infrastructure. These fees guarantee that bonds can be paid 
back and offer minimal risk to the lender, as others have 
stated here. We estimate that 90 percent of the water projects 
would fit in this category.
    We also think that some important modifications would make 
WIFIA proposals more effective, streamlined and transparent. We 
have outlined these in detail in our written testimony. In 
particular, we would urge that the existing State Revolving 
Fund programs be used to the maximum extent practicable to 
distribute WIFIA loans. The States already have a 25-year 
mechanism in place for distributing SRF loans, a mechanism that 
selects projects based on an objective ranking system that is 
publicized and available for review.
    In addition, it would be far more cost effective for the 
Department of Treasury to oversee approximately 50 loan 
agreements with the State SRF financing authorities instead of 
hundreds or potentially thousands of loans to individual 
communities. We think that limiting access to WIFIA to only $20 
million or larger projects could restrict its usefulness to 
many medium size and smaller States.
    A direct loan program of State SRF financing authorities 
would allow the States to use their existing ranking systems to 
issue the loans.
    We also hope that the WIFIA proposal would incorporate the 
improvements to the SRF Program, such as extended loan 
repayments and expanded project eligibilities that are part of 
the SRF reauthorization bills passed by the House.
    And finally, we would strongly resist efforts to have WIFIA 
funding supplant existing SRF funding to the States.
    I will just quickly touch on private activity bonds. They 
will have an important role to play and should be definitely a 
part of the toolbox. Currently each State is limited, as stated 
by others, by the volume cap. What happens with water and 
wastewater projects, our projects are out of sight, out of 
mind, meaning underground structures do not get the public's 
attention. So the private activity bonds are not used for those 
types of projects with a volume cap.
    It is not a new idea. The Federal Government lifted some 
low-volume caps when the Nation was facing a financial crisis 
with respect to the development of adequate solid waste 
disposal facilities, as testified before me.
    Regarding the Clean Water Trust Fund, WIN and ACEC continue 
to believe that a long-term, deficit neutral, dedicated funding 
source for water infrastructure must be one of the tools in the 
toolbox. Though not perfect, dedicated trust funds have 
financed the majority of our Nation's highway and airport 
infrastructure construction, and as general funds become 
scarcer, we must consider the concept.
    We remain committed to working with the committee to 
identify viable funding sources for a Clean Water Trust Fund.
    Again, on the SRF, we are strongly supportive of 
reauthorization, and in conclusion, we are extremely encouraged 
by the subcommittee's efforts to develop the next generation of 
water infrastructure financing tools. The House Transportation 
and Infrastructure Committee and this subcommittee, in 
particular, have a long history of developing water 
infrastructure funding legislation that earns broad bipartisan 
support.
    We look forward to working with the bipartisan leadership 
of this subcommittee to perfect the innovative water 
infrastructure financing tools discussed at today's hearing and 
deliver a bill to the President's desk this year.
    Thank you for the hearing.
    Mr. Gibbs. I will start off the go-round of questions here, 
but just a couple of comments. You have probably noticed in the 
draft legislation we are working on it is left blank the 
dollars that will be put in. That is because we are trying to 
figure out how we are going to pay for it, at least the 
exposure to the taxpayers, and so we are working through that.
    I think the overall theme versus the support here, there is 
obviously a need for more financing, but I guess I will open it 
up to the panel starting off. We heard a little bit about doing 
some new innovative thinking with like the WIFIA and not be in 
conflict with other programs because we do not want to have 
unintended consequences. So kind of along that line you may 
want to maybe discuss a little bit to make sure that we are not 
going to do something that is going to cause problems for the 
current SRF or some of our other financing programs.
    Then also I think you could probably touch a little bit 
maybe on what impediments you might see, either Federal, State 
or local, that could be challenges that we need to try to work 
through in the legislation.
    So whoever wants to address that. Mr. Arndt.
    Mr. Arndt. Thank you, Mr. Chairman.
    As we see it, WIFIA is really a complement to the other 
tools that are already in place. I know there has been some 
discussion of does it become a substitute for other programs. I 
will focus on the SRF.
    When you look at what the SRF does, it really helps those 
utilities that in many cases cannot fund their infrastructure 
on their own, and as a result, you see things like grants. You 
also see very low-interest loans and that sort of thing. So we 
are not looking to essentially replace that capability which 
comes forward from the SRF.
    Likewise those entities, particularly the higher credit 
rated utilities that are out there, can access the bond markets 
quite readily, and again WIFIA is not meant to substitute for 
that access to the bond market. It is a supplement to that.
    In summary my comment would be that it is one more tool in 
that toolbox that we need to fill the gap and, in particular, 
where we see the increasing needs in areas such as the 
infrastructure replacement and renewal expenditures which are 
unprecedented and just emerging at this point in time, to fill 
that gap that is going to grow progressively as time passes.
    Mr. Gibbs. Maybe just to follow up now with Mr. Petersen 
because your testimony I thought was excellent. In your 
experience working with private-public partnerships, how do you 
see to, you know, bring that money in under a WIFIA concept?
    Mr. Petersen. Thank you, Mr. Chairman.
    Yes, our experience tends to be at the planning stages of 
these projects, and if you can put yourself in the shoes of an 
administrator of a water or wastewater public authority and 
they have a large capital need, let's say a CSO Program or a 
replacement wastewater plant or a new water treatment plant, 
something like that. They will engage a team of consultants. 
They will us their own internal resources, and they will look 
at all of the options that are available to them. They will try 
to plan for the optimal technical solution. They will project 
costs. They will have a plan of financing for the project. They 
will have a financial advisor advising them on current market 
interest rate conditions, and so forth.
    And then they will turn to the question of how are they 
going to actually deliver the project. Are they going to 
deliver it using traditional design-build with the municipal 
operations and municipal bond financing? Are they going to try 
something a little more innovative like the design-build 
contracting two contracts in one for efficiency and more 
expedited delivery; maybe even include private operations in 
the mix?
    Then they will turn to the question of should I consider 
private financing in this mix of potential ways of delivering 
this project. And as I was trying to say in my testimony, that 
is where they always stumble.
    We went through a business case exercise considering 
different project delivery methods for a major wastewater 
treatment plant in Pima County, for example, in the Tucson 
area, a million people. They need to replace an old plant, and 
they went through this whole kind of analysis that I just 
summarized and they attempted to ascertain the risk adjusted 
net present value of life-cycle costs of the project under all 
of these different approaches of delivering it and financing 
it.
    And the conclusion was they picked a design-build-operate, 
one contract with three elements, with public financing 
traditionally. They would have picked design-build-finance-
operation, a P3 type of project with private financing but for 
the uncertainty as to the availability of tax exempt financing. 
That is where the rubber meets the road.
    As I indicated and as I think you all know from discussing 
this in the past, private financing is obtainable for water 
projects if you get wide cap allocations, but you can never be 
sure. And the legislation you are considering will take that 
uncertainty away.
    And I think in the case of the example I just gave in Pima 
County, they might well have selected private financing to get 
the debt off their own balance sheet, put it in the balance 
sheet of the private project company that would develop it if 
they had some assurance that they could count on the taxes and 
financing that they would benefit from through the terms of the 
contract.
    Mr. Gibbs. Just to follow up, we know that with the 
proposal the risk is really on the taxpayers, and of course 
that helps bring in this private equity. Also, you know, you 
have a good stream, a good track record because of the 
ratepayers' fees.
    I guess to conclude here in my first round of questions is 
one question that comes up, and I think I know the answer, but 
I want to make sure it is on the public record, what 
historically would be the default rate on water-sewer type 
projects that maybe we should be looking at for when I have to 
defend or argue what the cost and what the risk is to 
taxpayers. What kind of default rate would there be for this 
kind of operation?
    Does anybody want to take a stab at that?
    Mr. Petersen. I will answer that if I might. Our firm does 
a lot of bond counsel work, bond counsel to public agencies, 
and works with rating agencies. Most all of the data is rated 
by the investment rating agencies, and in general as several of 
us have said here on the panel, municipal water and sewer 
revenue debt that is secured by pledged rates and charges is 
very secure. The default rate is near zero, and that is why 
most have very strong investment grade credit ratings, in many 
cases stronger than even tax secured general obligation debts, 
which is subject to, you know, the vicissitudes of the economy. 
This is just straightforward rates and charges for water and 
sewer, very strong credit.
    Mr. Gibbs. Yes, Mr. Sterba.
    Mr. Sterba. Mr. Chairman, if I could answer your question 
about whether there are conflicts that exist between what is 
being proposed and other existing financing mechanisms. From 
our perspective we do not see conflicts so much as we do see 
opportunities for leveraging.
    So, for example, one of the mechanisms in WIFIA that can 
bring new capital to the table, as opposed to just lowering the 
cost of capital, is direct loans. But if you leverage that by 
requiring private capital to be brought to the table in order 
to qualify for a loan, then you are effectively getting double 
value. So you are bringing a loan to the table and then 
encouraging another source of capital to come along with it.
    That is something that has not necessarily been required, 
but there is a provision in WIFIA that says the Administrator 
can take into account whether or not other private sources of 
funding or other sources of funding are brought to the table. 
So I would encourage the committee to utilize that because it 
can enhance the pool of overall funding.
    The other comment goes back to one of the things that I 
mentioned about something that could be done administratively. 
It is very similar to what Mr. Petersen referenced, except it 
deals with existing assets. Say you have a municipally owned 
system that was built some time ago and financed with tax 
exempt debt. It has not been invested in, has not been kept up, 
and it also has growth and renewal obligations that the 
municipality cannot meet on its own. So it turns to an entity 
that provides expertise in that.
    Today, the debt that is currently outstanding must be 
either repaid or defeased, increasing the cost to customers 
without adding value. And this issue, I think, may be able to 
be tackled solely administratively working with the IRS. It 
would help bring new capital, some of which may come through 
WIFIA, some of which may come through a private purpose entity 
that is going to fund the new capital additions, but without 
adding the burden on the existing capital that is already 
financing assets built 5, 10, 15 years ago.
    Mr. Gibbs. That is an excellent point. My time is up.
    Mr. Bishop.
    Mr. Bishop. Thank you very much, Mr. Chairman, and thank 
you to the panel. It has been very, very helpful testimony.
    We have a lot of commonality here. We have agreement that 
we clearly have a problem that we have to address. We have an 
agreement that we cannot address it sufficiently with the 
amounts of money that are currently on the table, and we have 
before us in effect two different proposals which are, I think, 
complementary as opposed to contradictory with respect to how 
we go about trying to fund this or what role the Federal 
Government would play in funding these water infrastructure 
needs.
    The draft bill that the Chairman proposes takes basically a 
WIFIA approach. The bill that I filed along with Ranking Member 
Rahall and with Members LaTourette and Petri takes sort of an 
approach in which it creates a suite of activities, a more 
robustly funded SRF, the creation of a trust fund, and then a 
WIFIA approach.
    Two differences that I would like to explore and get your 
guidance on. One is in the bill that I filed. The WIFIA 
approach type funding would continue to flow through the SRF 
and judgments would be made by whatever entity the State has 
set up allocate SRF funds. In New York State, it is the 
Environmental Facilities Corporation. There are analogues all 
over the country.
    In the Chairman's draft, it seems as if decisionmaking with 
respect to what projects would be funded would be vested with 
the Administrator of the Environmental Protection Agency.
    And so my question is you are the stakeholders. You are the 
guys who are on the ground. Is it better to have the decisions 
made by a body that is State-based or is it better to have the 
decisions made by a Federal or is it better to have the 
decisions made by a Federal body?
    So, Mr. Fangmann, let me start with you.
    Mr. Fangmann. Well, having a lot of experience with EFC in 
New York, one of what I believe are the best run SRF programs 
on the wastewater side, I think going through that model is the 
best way. I testified to that effect on behalf of WIN and ACEC.
    The idea there is they broke it down into priority groups 
throughout the State so that the most popular city is 
guaranteed some bulk of money, but as well as the local 
communities downstate and upstate so that the money is spread 
through the State on an equitable basis based on need and 
priority. You know, what will probably benefit from the 
projects?
    So that is all built into the existing program. So I see 
additional funding come through a loan to that same program 
would be an efficient way of moving financing.
    Mr. Bishop. Other members? Mr. Arndt.
    Mr. Arndt. Perhaps a bit of correction. In the draft 
legislation as we see it, the EPA Administrator would 
effectively be charged with allocating the funds. There are 
actually two different mechanisms that are made available in 
that legislation. In the case of large projects they would have 
the ability to directly access with the funding via an 
application, I presume to the Administrator. In the case of the 
remaining systems who are not eligible for that large project 
or large utility status, they could in turn work through their 
SRFs. So it is not an all or a nothing type of approach in that 
regard.
    I would comment that I think the SRFs have an advantage in 
that they are an established organization. They have criteria. 
They have had the history of working in that funding arena for 
now 20-some years, and as a result, I think there is a working 
relationship that has been developed. Those agencies tend not 
to be regulatory agencies. They tend to be financial 
organizations which I think is an important aspect, that the 
primary focus be to finance, not as a regulatory approach.
    In that regard, some of our earlier discussions related to 
WIFIA actually called for the establishment of an authority of 
some sort to provide the funding as opposed to working through 
EPA, which is still, we believe, workable. However, we 
recognize the advantages of working through an established 
agency as well.
    So I think there is perhaps some more consideration that 
could be given on that point.
    Mr. Bishop. Are you saying that it is a jump ball?
    Mr. Arndt. I think what is included with the draft, I 
think, is workable and that we would support. However, perhaps 
it could be refined. Perhaps the Administrator could delegate 
that authority to an authority type organization which has more 
of a financial focus.
    Mr. Bishop. I would just say I appreciate that. When we 
were drafting our bill, our original draft was the direct 
approach, and the stakeholders told us no. The stakeholders 
told us to say with the established mechanism, which is the SRF 
for the reasons that you just cited. People are familiar with 
it. It works. There is an established criterion, and that it is 
something that entities are comfortable with.
    My time has expired. I have another question, but I will 
defer. Thank you very much, Mr. Chairman.
    Mr. Gibbs. All right. Anybody down here? Just raise your 
hand. Representative Napolitano, go ahead.
    Mrs. Napolitano. Thank you again, Mr. Chairman.
    In listening to the individuals talk about all of the needs 
that our communities have, as a past mayor of a small city I 
understand exactly some of the issues that affect our local 
communities.
    Mr. Ballard, you talked about EPA prioritizing and some of 
the mandates that affect the ability for some of the 
communities to be able to meet those requirements, and you 
stress the need of flexibility.
    We have been able to in our local area to bring the 
Regional Director to talk to the Councils of Government to be 
able to have direct input from them as to how they are affected 
or not affected by the mandates in our area. I am not sure if 
anything of that nature is going on and you could suggest to 
the Conference of Mayors that this is something that is 
available to them. It has been made available to us.
    The new concepts, Mr. Williams that you talk about, is the 
utilization of new technology, of the green technology, of 
being able to convert methane gas into electricity to run a lot 
of stuff, but there is a lot of other technology coming out.
    How much of that is being used and being incorporated into 
long-term plans? And are we actively looking at a way to reduce 
the energy usage in planning for further need as we move 
forward in upgrading or maintaining or structuring new areas?
    Mr. Williams. So for years, publicly owned treatment works 
have been looking at their energy demand inside their plants, 
and they do energy audits and that type of thing to reduce the 
energy demand, put in more efficient mechanical equipment, 
lighting, that type of thing.
    What I was talking about was actually going beyond that, 
and that is actually generating more energy by bringing in 
waste material, waste material that currently goes to landfills 
or in some cases actually have energy put into it in order to 
help the disposal process. So what I am finding in California 
is that 10 or so years ago not too many plants were doing that, 
but more and more plants are beginning to do it.
    One thing you are seeing a lot of, is plants beginning to 
take in fats, oil and greases which are very digestible and 
create a huge amount of energy and using that to power their 
treatment plants.
    Mrs. Napolitano. How is this--I am sorry. My time is 
running out--how is this being able to increase the 
participation of the three Ps, the public-private partnerships?
    Mr. Williams. Some of these things take additional capital. 
So if you were able to partner with the public sector on that 
and bring in capital to actually build the facilities needed to 
do this, that would be very beneficial.
    Mrs. Napolitano. And does this affect a lot of the smaller 
communities that may not be able to afford to be able to find 
out where these partnerships can be formulated or how they can 
obtain some of the assistance they are going to need to upgrade 
and maintain?
    Mr. Williams. It would definitely help smaller communities 
because smaller communities oftentimes just do not have the 
wherewithal to build facilities that are needed to produce the 
green energy.
    Mrs. Napolitano. Well, as you know, Government does move 
very slowly in being able to move forward, and we want to be 
sure that we have those new concepts made known so that we can 
continue to advocate, whether it is with the Department of 
Energy or with EPA and other agencies.
    Mr. Arndt, you talk about doing more for less. The Federal 
debt currently precludes thoughtful necessary action. We have 
to go on the current trend, which is no earmarks, no pork, pay 
for, et cetera. So how would that be able to increase the 
participation of the public-private partnerships? And how do we 
make this more available to communities that have no idea where 
to go?
    Mr. Arndt. Like a lot of things, no simple answer, but one 
of the things that has been included in our written comments 
and others have alluded to that here is that----
    Mrs. Napolitano. Would you move the mic up please?
    Mr. Arndt. Yes. One of the things that is included in our 
testimony is the fact that WIFIA should be allowed to take a 
subordinate position on financings which we believe would then 
leverage or encourage private investment and essentially act as 
an incentive for that purposes.
    Beyond that, fundamentally, if you have a lower cost source 
of capital, which effectively is one of the attributes of 
WIFIA, what it does is increases affordability to the 
ratepayers. It increases the certainty that the debt would be 
repaid with interest as it becomes due, and also it increases 
the capacity of the utility to do more projects.
    I think when you put all of those things together, you end 
up with a net improvement beyond where we are today.
    Mrs. Napolitano. Understood. My time has run out, but with 
the indulgence of the Chair, I will ask one more question and I 
will be done, and that is are any of you proposing to any of 
your cities, communities or the partnerships that you have to 
look into the future because of the increase in population and 
the demand it is going to create on the infrastructure itself, 
one?
    And two, what are you doing to educate the general public 
about the need to increase the rates, whether it is 
incrementally or generally saying that these needs are going to 
be vital to the delivery of clean, potable water?
    Thank you, Mr. Chairman.
    Gentlemen?
    Mr. Ballard. Congresswoman, thank you for that question.
    As you probably know as a former mayor, you have to always 
educate your constituency on the rates. We were facing large 
rate increases, and that is why we had to do what we had to do, 
by negotiating with the EPA and coming up with creative 
financing and all that we could with creating infrastructure 
and all that we possibly could at the local level.
    I think mayors across the country are generally doing that. 
They are looking for new solutions like WIFIA. They are looking 
at all sorts of financing opportunities. They are looking at 
being more creative with technology, all while telling their 
constituency that rates are probably going to go up regardless 
of what we do. And I think they understand that, and as you 
know, that is a delicate balance as you move forward.
    Mrs. Napolitano. Thank you for your indulgence, Mr. Chair.
    Mr. Gibbs. Mr. Duncan.
    Mr. Duncan. Thank you, Mr. Chairman.
    Mayor Ballard, I am sorry I did not get to hear your 
testimony. I was in another meeting, but I was here when we had 
the Mayor of Omaha here, I guess, a few months ago who told all 
of the problems he had with EPA. I notice you mentioned him in 
your testimony.
    But in your testimony you talk about that you were under 
this consent decree that had a potential cost of $3.5 billion, 
and then it ballooned up even from that another $300 million, 
but you say that you were able to renegotiate that and reduce 
the overall price and get a better environmental result.
    How much money were you able to save, and how did you do 
that? I mean, what better things were you able to do after this 
renegotiation?
    Mr. Ballard. Well, it was a difficult process, Congressman, 
and thank you for your question. It took a while to get there, 
to be honest with you. It did balloon up to $3.8 billion by the 
time we had entered office. We knew that that was a huge number 
that directly was going to go to ratepayers. No question about 
that.
    I was lucky enough to hire some rather brilliant people to 
work for the city. They had run water companies before 
actually, and they went to the EPA and said, ``We need to 
relook at this. We think we have a better solution.''
    That is what we did. We told them we thought we had a 
better solution, and we thought we could make it greener. We 
thought we could make it faster, and we thought we could make 
it cheaper. To be frank with you, initially that did not matter 
very much.
    Mr. Duncan. Do you mean that did not matter to the EPA? Is 
that what you mean?
    Mr. Ballard. Right, and so we had to essentially negotiate 
for well over a year, especially on the second amendment and we 
told them that we had that combination of gray and green 
infrastructure, which we thought would be more environmentally 
sound and a lot cheaper for the citizens of Indianapolis, and 
it took over a year of negotiation. We were very happy that we 
got that done, and everybody came out in saying that was a win-
win solution.
    But I would tell you, as I said in my oral testimony today, 
we are the exception to the rule. Mayors across the country, 
and you just have to spend a couple hours at any Water Council 
meeting that are dotted throughout the country to sense the 
frustration that mayors are going through regarding this. It is 
palpable. It is hurting them, and frankly, you can see on their 
faces that they are very, very worried, and that's why whenever 
I talk about it I ask for more flexibility, more 
reasonableness, and as you may know, mayors, they just have to 
get things done.
    I mean, as I say, at the city level a buck is a buck, and 
you have to get things done at the city level. And so there are 
creative solutions out there, and the mayors and other 
municipalities, maybe even smaller, are working their tail off 
to be creative to work with the mandates that are thrown upon 
us and to make sure that we can do it in an affordable manner, 
and that is why we talk about prioritizing mandates, and that 
is why we talk about being flexible with the EPA.
    Mr. Duncan. Well, my dad was Mayor of Knoxville from the 
time I was 11 until I was 17, and so I have great sympathy for 
any mayor. I found out that everybody and his brother wanted to 
be a fireman or a policeman, and the way after they went on the 
force they wanted a promotion and a raise, and certain other 
problems. Knoxville has had to spend a tremendous amount of 
money over the last few years, and so I have heard some of 
these things.
    I am going to run out of time. I will say this. When you 
said that the EPA did not seem to care about the cost, that is 
really a sad statement because too often people in Government 
do not worry about the cost because it is not money coming out 
of their pockets, but they forget that there are a lot of poor 
and lower income people that have trouble paying some of these 
things.
    Mr. Williams, let me very quickly ask you. I know you 
expressed concern about the exploding costs on these things, 
too, in your testimony, but you say that in this subcommittee 
the best way we could help is to give maximum flexibility to 
the local water agencies. Do you feel like the Clean Water Act 
as it is now is not giving enough flexibility? Is that what 
caused you to put that in your testimony?
    Do you have an example?
    Mr. Williams. The short answer is yes. I testified here 
last year on the integrated permitting and planning that EPA is 
proposing, and they are going to be finalizing that framework 
in March. One of the things the clean water community is very 
anxious to see is what does this actually look like.
    We have looked at the framework, but it is hard to tell 
from the framework how it is actually going to play out on the 
ground. So we are interested in actually test cases so that you 
can take a difficult situation where there is a number of 
regulations and see how this actually plays out, see how they 
are prioritized, and what flexibility is there.
    And we would like to look at that holistically as the 
entire clean water community in the Nation and just see what 
happens. If it does not play out as we would like to see it 
play out where you do get the flexibility, then we would like 
to work with the subcommittee in terms of introducing 
legislation that will provide that flexibility.
    Mr. Duncan. All right. My time is up, but let me just 
express one other major concern I have. Mr. Fangmann just a 
minute ago talked about the distribution of funds. I represent, 
you know, primarily an urban-suburban district in and around 
Knoxville, but I also have some small towns and some rural 
areas, and I have heard and read that while the problems of the 
bigger cities are getting the most publicity and the most 
attention, that there are a lot of even more problems in some 
of these small towns and rural areas, and even more so because 
many people in those areas do not have quite as much income as 
people in the cities do.
    So that is something that I think deserves a little bit 
more attention than it has been getting. I see somebody on the 
panel might want to say something about that. I see a couple of 
people nodding their heads, but if any of you want to say 
something about that, certainly feel free to do so.
    Mr. Arndt.
    Mr. Arndt. Thank you for that question.
    The Buried No Longer Infrastructure Report that I mentioned 
earlier looks at the infrastructure replacement and expansion 
needs across the country, and they slice that both on a 
regional basis and in terms of the system size, and one of the 
things that is very revealing in that regard is when you look, 
in particular, at small and very small systems on a per 
customer basis, their costs of keeping pace with those 
replacement and expansion, more replacement than expansion, are 
much more costly and in some cases actually would lead to a 
tripling of the user rates that are necessary to fund that kind 
of investment.
    That is not to diminish the impact, the concerns related to 
urban areas. In particular, when you look at it from the 
standpoint of the regional approach, when you look at the 
Northeast and the Midwestern States, because they tend to have 
the older cities their costs are quite significant and are 
rising more quickly than what would happen in other parts of 
the country.
    So there is no individual group that comes out with a clean 
slate as it were. Every category has its difficulties to deal 
with, and so I would say that the needs are universal. They are 
not limited to one area or one size system.
    Mr. Duncan. We have been having a couple of examples of 
small towns or cities around the country surrendering their 
charters because they just could not meet all of the mandates 
and the expenses of Federal requirements.
    Yes.
    Mr. Sterba. Congressman Duncan, just a thought. While we 
serve 15 million people, we predominantly serve fairly rural 
areas. A lot of those areas do not have the capacity to test 
for emerging contaminants and comply with all the other new 
regulations that come along. It puts an increasing burden on 
small systems, but the big thing that we have found is they 
lack purchasing power.
    We are working with a community right now where when we 
compare what they are paying for pipe, meters, and valves to 
what comes through our supply chain, it was over a 35-percent 
savings because a small community just does not have the 
capacity to access some of these economies of scale.
    Those are the kinds of things that can be done by attacking 
the other end of the cost equation. Financing is part of it, 
but how do we get efficient on the operating costs and on how 
much you have to spend for capital?
    Mr. Duncan. Thank you. Thank you, Mr. Chairman.
    Mr. Gibbs. Ms. Edwards.
    Ms. Edwards. Thank you, Mr. Chairman.
    I would like permission to enter into the record a 
statement from Congresswoman Eddie Bernice Johnson. She could 
not join us today, without objection.
    Mr. Gibbs. So ordered.
    [The Honorable Eddie Bernice Johnson's prepared statement 
appears together with other Members' statements. Please see the 
table of contents for ``Prepared Statements Submitted by 
Members of Congress.'']
    Ms. Edwards. Thank you.
    Mr. Chairman and Ranking Member Bishop, I really do 
appreciate this discussion, and to our witnesses, as always, I 
either am forced to rethink some things that I thought I knew 
or learn something differently. So I appreciate that.
    You know, there is probably not one of us who cannot tell 
stories about aging and failing infrastructure wherever it is 
that we live. I happen to represent a district that is right 
outside of Washington, DC. We have a couple million people 
serviced by one water agency, and the challenges are really 
great.
    A few weeks ago I jumped into the Potomac River, something 
completely unrelated, but it occurred to me that I did that, 
and I felt perfectly comfortable that the water I was jumping 
into was going to be clean because we were not having sewage 
runoffs into the river. The river, in fact, was warmer than it 
is in this room, but it reminds me of how much we do not think 
about the water until something happens, a boil water 
restriction, a water main break, any number of failures.
    And so I appreciate that we all understand what the gravity 
of the problem is. The question that I have first for Mr. 
Wilson, I am intrigued by this discussion of the benefits and 
value of using public pension funds to make investments, 
especially in an economic and financial environment in which 
the kinds of plans that you would not want to put at risk in 
the general market, investing in water infrastructure is stable 
by comparison.
    But one of the things that I am confused about as I look at 
your testimony is the recommended change in the chairman's 
draft that is part of today's discussion. In your testimony, 
you recommend that private investors like pension funds also 
have direct access to the U.S. Treasury funds at subsidized 
rates. And so I am curious as to why because it seems to me 
that that would mean then competing with the State Revolving 
Funds or other mechanisms for low-cost financing, which seems 
at odds given that the argument begins with public pension 
funds having, you know, sort of a lot to invest, and it is 
important to invest, and there are benefits like accelerated 
project funding, et cetera.
    So how would it be in the interest of the 27 or so 
municipalities that I represent to have you investing by 
borrowing capital funds from the Treasury only to then reloan 
the funds to the community? Help me understand that.
    Mr. Wilson. Yes, thank you for your question.
    Congresswoman, I was viewing that in the same vein as the 
ability to access private activity bonds that are tax exempt. 
So the private entity that would be set up to manage the 
design, build, operate, finance of the new project, would 
utilize primarily equity capital that may come from a public 
pension plan. They may also want to utilize some debt 
financing. So you have a total financing package, debt and 
equity. They may access taxable debt for that. It could be 
bonds. It could be bank financing, project financing.
    The lower the cost of that debt financing that that private 
entity puts together, the lower overall cost for the community 
and for the project. So whether it is accessing private 
activity bonds that are tax exempt or accessing other forms of 
tax-exempt debt, it should help to lower the cost for the 
project and should be able to be passed through to the 
community.
    Ms. Edwards. But is there not some burden shifting that 
goes on there? Because I would worry about that. I mean, if a 
municipality already has access to the SRF to do, you know, 
other kinds of projects, they may also want to engage in a 
partnership using the private equity, but would not necessarily 
want to shift the risk to the Federal taxpayer or to the local 
community because it is private activity.
    I mean, you get a long-term sort of deal to make the most 
that you can out of there, but also meeting the objectives of 
delivering water in the system. So I would hate it if we get 
into a situation where our taxpayers, either Federal or our 
ratepayers locally, would then end up acquiring a burden for 
this kind of private investment activity.
    Mr. Wilson. I was thinking of it as the burden or the risk 
would be taken on by the private entity, and the private equity 
would be first at risk, as if they were financing it. They were 
putting together the debt and the equity for the project. They 
would take on the risk to deliver the project on time, on 
budget, to make sure that it operates according to regulations 
throughout the PPP term.
    So the financing would team up with the service provider 
that would offer design, build, operate services. They would 
form one integrated team that would be financed with debt and 
equity. They would be obligated to repay that debt, that 
private entity. So that private entity would be at risk for the 
repayment of that debt.
    And my view was toward lowering the cost of the overall 
capital that was pulled together for a new project such that 
those costs could be passed on to the community.
    Ms. Edwards. Thank you.
    Mr. Chairman, if I could just have one more question I 
would appreciate it, and I appreciate your indulgence.
    I just wanted to direct this question actually to Mr. 
Williams. You raised a point, and I appreciate the partnership 
that we have had with NACWA. I have learned so much from NACWA. 
But you talked about green infrastructures being one of the 
tools in the toolkit to lower cost for communities and also 
provide the benefits that you can get in addition to doing your 
traditional kind of infrastructure. I wonder if you could speak 
to that as well as to the availability for municipalities of 
those kind of investments.
    I mean, I have introduced with your help H.R. 2030, a clean 
infrastructure bill, and I just think we have got to 
incorporate more of those techniques to offer something else to 
local communities that is an option for them rather than the 
tremendous amounts of money that they have just spent in 
traditional infrastructure.
    Mr. Williams. Yes. Whenever you are trying to meet 
regulations, I think that a community needs to have a balance, 
look at the overall cost, and compare the cost of the typical 
gray infrastructure with the green infrastructure. So any kind 
of innovative financing that goes forward should definitely be 
able to fund things like green infrastructure if those things 
appear to be cost effective.
    Mr. Gibbs. Mr. Capuano.
    Mr. Capuano. Thank you, Mr. Chairman.
    Gentlemen, thank you for coming. I think we are having a 
discussion about how to best finance something that we all seem 
to agree needs to be done. The problem that I have is that the 
American people do not understand this.
    We are fighting every day here about a big transportation 
bill on infrastructure that people can see and feel and touch, 
and we are losing the argument on that. This is something, as I 
think Mr. Fangmann said, out of sight, out of mind.
    Now, I will tell you that if I tell people, ``Do you want 
some clean water? Here you go, $6,'' no one complains and they 
take it and they drink it and they give it to their kids. But 
if I say for that same six bucks, ``Fix this,'' no one knows 
what it is. Everybody here knows what it is. Mr. Mayor, I know 
you know what it is. I got this when I was mayor.
    And for the people at home who do not know what this is, 
this is a 6-inch water main that is about 80 years old when it 
was taken out of the ground, and what is in the middle here? 
That is sediment, folks, normal, everyday, average gravity. 
Every night when every American goes to bed, we shut off our 
water. When we do, there is water in these pipes. It settles. 
We turn on the taps in the morning. Anyone who drinks the first 
drink in the water, especially in the older areas, you had 
better let it run.
    Anyone who has lived near a place where a fire department 
has come down and opened up a fire hydrant, you all know what 
happens. What happens is the fire hydrant opens up this 
sediment, blasts it through, and you get this, and we drink it. 
The problem is the American people never see this.
    This has been on my desk for 20 years. Every single person 
who comes in my office says, ``What in the heck is that?'' And 
when I tell them that is your water pipe that you will find in 
any American city, anywhere you live, they are all amazed.
    Gentlemen, if you want to win the hearts and minds of the 
American public, give one of these to every mayor, every city 
counselor, every county executive, and make them put them on 
their desk. Give it to every Member of Congress so that when we 
go back and say we need billions to provide you clean water at 
a lot cheaper rate, we now have a nice, easy visual.
    Now, granted, I do not want you to give me a sewer pipe.
    [Laughter.]
    Mr. Capuano. I have seen those, too, but those are a little 
bit more difficult to explain.
    The reason I do this is because I think too many of us 
forget. Everyone here knows exactly what you are talking about. 
Mr. Mayor, you know what I am talking about. Every day we get 
hit, schools, police, fire, and they are right. We want to do 
more.
    The argument is not that. The argument is when you have to 
make a decision, every mayor, every Governor, every President, 
every Member of Congress makes the decision. I have got to do 
it all, cannot do it all, what can be seen?
    When it comes to infrastructure, we do bridges fast. A 
bridge falls down. We fix it. A sewer collapses. We fix it. 
This can take 80 years to build up, but not one of us wants our 
children to drink it. Not one of us wants our mother to drink 
this. Not one of us wants to fix our own pipes to make sure 
that they do not get clogged up with this, and yet it is in 
every single American community, and nobody knows it.
    So what I really want to plead for you to do is, yes, we 
will have this debate on how to finance fixing these things, 
but please help me educate the American public so they can 
engage in this and they know what they get when we go back to 
them and say, yes, it is expensive, but here is what you get.
    As the richest country in the history of the world, we 
should not have undrinkable water in any corner of this 
country, and yet we do. At home because my State has chosen to 
put billions of dollars into cleaning the water, I just turn 
the tap on unfiltered, drink it all day long, not early in the 
morning. In most parts of this country you cannot. This is what 
you do. This is what you do.
    And I am not against this. This is fine. It is nice and 
convenient for here. I cannot have a tap right here today, but 
I do not want you to have to spend a buck and a half to have a 
drink with lunch, and I know you do not either.
    So as this whole discussion goes through and we are talking 
about the intricacies of finances, that is the important way to 
do it. But if we do not win the hearts and minds of the 
American public, we are going to be talking to ourselves now 
and forever more.
    Thank you, gentlemen.
    Mr. Gibbs. Ms. Eleanor Holmes Norton, do you have a 
question?
    Ms. Norton. Thank you, Mr. Chairman. I apologize. I had 
another hearing and could not hear all of this testimony. This 
issue is of great importance to the public and to me 
personally.
    First of all, I want to thank the National Association of 
Clean Water Agencies who helped me get a bill through here when 
the GAO came forward with the opinion that Federal agencies 
should not have to pay their stormwater fees because it was a 
tax here in the District of Columbia, and of course the Federal 
Government cannot tax. Of course, it was a fee for the 
homeowners. It was a fee for the businesses, and ultimately the 
Congress agreed it was a fee, and so the Federal Government is 
paying its share as well.
    I do want to speak about the visibility issue that my 
colleagues have raised. It is certainly true that the surface 
transportation bill which had to be pulled even though people 
do express real interest in roads and transit, it had to be 
pulled here and hopefully will come back, but the invisibility 
of public works underground surely has something to do with the 
problem we face here, and that arousing the public is 
important.
    Let me suggest that when there is a problem, it is not hard 
to arouse the public on clean water. We had a lead in the water 
scare here, right here in the Nation's capital. It aroused the 
public a lot. We had hearings here. As you are aware, lead or 
traces of lead in the water and its effect on children, on 
pregnant women, and then people began to distrust the water, 
and my colleague who says, well, this is an alternative. This 
is America. The whole notion that we have come to the point 
where some people believe you have to pay for water in order to 
have clean water is a step way back in the extraordinary 
progress our Nation has made.
    So let me put it this way. We have at least 33 States at 
last count who were in the same position that the District of 
Columbia that I represent is in, where the water comes from a 
single source, a combined sewer system. That was the way to do 
it when these older systems were built.
    So we have two problems. One is containing the water when 
there is excessive rainfall so that you get the water 
contaminating the river and everything around it, and we have 
two extra ordinary rivers here, one of which is very important 
for our water supply, the Potomac River, and then you have a 
problem that increasingly I believe we are not dealing with and 
do not know how to deal with. It is one thing to force the 
agencies to make sure there is not lead in the water and there 
is not arsenic in the water. But now we have reports of 
substances in the water that we have never had before, such as 
antibiotics.
    No one has to my satisfaction at least said to me that when 
these antibiotics are in the water because of natural waste, 
particular in stormwater overflow systems; that no one has 
assured me that the water I am drinking is not contaminated 
with some of these newer substances. I would simply like to get 
your views on whether we are informing the public in the right 
way.
    We are going to talk about pipes underground and even the 
very important issues here, and I thank the chairman for this 
committee about how to finance them because that is about the 
how, not just the what. As long as we are talking about 
something that the public cannot see, feel, visualize, feels 
strongly about, I am not convinced we are going to get anywhere 
on this subject.
    So I raise the issue that makes us an advanced Nation, the 
notion that you can draw your water supply and be assured that 
it is safe separates us from developing nations, something that 
the public assumes. How we can raise the level of visibility of 
clean water and not simply what it takes for the water to go 
through, which gets fairly technical, I would like to hear all 
that you may have to say on how we can talk about what is 
really at issue, what the public really cares about, which is 
what comes out the pipes, not the pipes and the infrastructure 
that delivers it.
    Yes, sir.
    Mr. Eger. Thank you, ma'am.
    We could not agree with you more, the Water Environment 
Federation. As a matter of fact, just within the past month the 
board of trustees of the Water Environment Federation has 
pledged a half million dollars to drive a messaging campaign 
that we are calling Water's Worth, and we have invited many of 
our associates here at the table and many of those in the water 
industry to join us as well.
    We have an advantage, as does many of the associations 
here, where we have what we call a ground game. We have member 
associations, our sectionals that represent States that are 
involved in local communities that, quite frankly, have been 
underutilized by many of us in the association world, but are 
just as anxious and hungry as you are driving this message and 
getting the concern that we need to make this investment.
    We are looking at a 3- to 5-year commitment to this 
messaging. I mentioned earlier in my testimony that we launched 
it with our research foundation and New York Water Group. We 
are now having a billboard in Times Square that talks about the 
value of water and what it's worth, and on March 22nd, which is 
World Water Day, we will be launching this initiative with our 
member associations, but we hear you.
    I spent 20 years in this business, many of those as Utility 
Director, and I am frustrated as well with the under 
appreciation, and we have got to take the cover off of it, and 
we have to talk about it more. Hopefully you will see more from 
all of us in this industry to do that.
    Ms. Norton. Yes. I thank you for that effort, I must say.
    Mr. Arndt. Congresswoman, many of your comments address the 
issue of drinking water, and I would start with the statement 
that there is no safer water in the world than the water that 
we have here in the United States. That said, it is a 
continuing quest to maintain that quality.
    Ms. Norton. You really think the water in the United States 
is safer, for example, than the water in some other advanced 
countries in the world?
    What do you say about antibiotics in the water?
    Mr. Arndt. Well, one of the things that I need to point to 
is that every year every water supplier sends out something 
called the consumer confidence report, which provides the 
details on what the quality of the water is in that particular 
community. Unfortunately, those documents get very little 
readership, and there are actually proposals under 
consideration right now to change the method in which those 
consumer confidence reports are distributed.
    We unfortunately suffer under the circumstance that what is 
out of sight is also very often out of mind, and the only time 
it becomes obvious is when there is a problem or a failure, and 
unfortunately that does nothing but undermine the confidence of 
the public and just as you have indicated.
    One of the things that we need to do as an industry, and I 
am sure all of the associations at the table here have some 
level of effort going forward to do just that; we need to make 
sure that we reach out to every group of stakeholders out there 
that have a benefit or a role to play in our water supply, 
whether it is manufacturing that needs our water, whether it is 
the general public that needs the water for drinking and 
sanitation, and that is something that we need to do day in and 
day out, and it just as important as financing our 
infrastructure because ultimately we can invest in the best 
infrastructure in the world, but if the public will not use it, 
it has become a wasted expenditure.
    And I think that is the message you presented here and the 
prior Congressman. Sometimes we need to be a little bit more 
dramatic about it to make sure that the public understands what 
the challenge is before us. There is no silver bullet. We just 
need to keep working at it.
    Ms. Norton. I appreciate what you are saying. I do not 
think we should undermine confidence in our water supply. I 
mean, when I got into restaurants, I say, ``Give me DC water.'' 
We have a terrific waterworks. They call themselves water. They 
no longer put the word ``sewer'' in their name. It used to be 
call the Washington Sewer Authority or something, but they call 
themselves water, and they try to sell the notion that the 
water is safe, and I do drink the water.
    On the other hand, you and I agree that as long as people 
simply have confidence, do not read the reports that you are 
speaking about, they apparently are not awakened to the issue 
sufficiently to pay for cleaner water, and you see certainly 
Congress is not.
    So the notion that the gentleman indicated about raising 
the consciousness is very important, not to say, by the way, 
that we had lead in the water here. We did not say everybody 
panic. We indicated though that you had to be careful about 
young children.
    I drink the water even though I do not know if there are 
antibiotics in it, but I am not sure that my new 1-month-old 
grandchild should have anything to do with this water, even 
though I believe it is safe for me. We are finding things in 
children, cancers of the kind that were not heard of when I was 
a child. I do not know what the cause is. I know a lot of 
people just do not want to take chances, and since the one 
ingredient that we all share is water, I think the people who 
are going to buy this, first and foremost, are people who have 
children under 18, because they do not want to be responsible 
for exposing very young bodies to what they may be more 
vulnerable to than we are.
    So I think this is a narrow issue, Mr. Chairman, and I 
appreciate your indulgence. I just want to make this point 
because I am very pleased that you raised it. I know that there 
are countries that do a better job in finding antibiotics, for 
example. I certainly do not want to undermine the confidence of 
the American people in their water supply.
    At the same time I do believe that the posters and the 
messaging that is going up in Times Square and around the 
country will help people to understand that this is not all for 
free and that we all have to pitch in.
    Thank you, Mr. Chairman.
    Mr. Gibbs. Thank you.
    What we are going to do I have a quick question or comment, 
and I do not know if anybody wants to respond. Then Mr. Bishop 
has the last question and we are going to wrap it up.
    But I wanted to go back to a little bit of the discussion 
and give you what my thinking is. We were talking about the SRF 
and the EPA and what is the vehicle to administer like the 
WIFIA Program for an example. Now, my thoughts are and my 
understanding the way how things work now in the SRF is that 
the EPA, through a very complicated formula process, 
capitalizes Federal dollars to the SRF to the States.
    Now, the reason in the draft bill, and it is one of the 
reasons we are having this hearing, is we are trying to figure 
out the best way to go. As we all know, the SRFs are smaller 
projects, and this draft legislation gives us the ability for 
them to aggregate and use the WIFIA concept, the bigger 
dollars. But the reason we at this point have the EPA 
administering that or being the vehicle is because these are 
bigger projects, and we are trying to allocate, as we all know, 
a limited amount of dollars.
    And so if you think it, and this is how you will probably 
want to respond, how the SRF is capitalized, and we are talking 
bigger dollars, the question is the SRF. It has got to be 
holistic and look at the whole country. That is kind of our 
thinking right now, our rationale.
    So I would love to hear what your thoughts are. You know, 
what is the best way to administer the program? Yes, Mayor 
Ballard.
    Mr. Ballard. Mr. Chairman, thank you.
    Of course, I would tell you from the U.S. Conference of 
Mayors' perspective, we like local. We like as close as you 
can. So that is what we are really just on record for that.
    Mr. Gibbs. Well, I obviously believe in federalism and 
think that local is better, too. But I guess what I am thinking 
is we have to have some mechanism. We could be talking, you 
know, hundreds of millions of dollars for these big projects, 
and who is going to decide, you know, if it should go to New 
York City or if it should go somewhere else.
    Mr. Ballard. I understand that. But as much local input as 
possible, and I realize that you are talking State at this 
point. I understand that.
    Mr. Gibbs. Yes.
    Mr. Ballard. But we would like that.
    Mr. Gibbs. Yes, Mr. Williams.
    Mr. Williams. I would just offer that each State has big 
dollar projects that they could utilize innovative financing 
for, and I would support Mr. Ballard in terms of local is 
better. I would, being from California, also urge that the 
allocation formula for distributing funds to the States be 
updated. There are plenty of big dollar projects within all of 
the States, so it is not just New York City or Chicago that 
would benefit. It is nationwide.
    Mr. Gibbs. Mr. Arndt.
    Mr. Arndt. To clarify my earlier comments, one of the 
dynamics that we faced with the SRFs is that they are largely 
unable to finance the large projects. I will not say that it 
never happens, but it is very rare to find projects, for 
example, exceeding $20 million that are financed by the SRFs, 
and it seems to me that one of the things that we need to 
overcome and can overcome, as has been included in this with 
the draft legislation, is to allow the large projects to go for 
direct funding because there are certainly economies and 
efficiencies of doing that.
    The SRFs clearly have a relationship with the smaller and 
midsize utilities, and that is why I believe the bill is 
drafted as it is, to allow the SRF to be an intermediary for 
that particular purpose. So I do not think that the SRF is 
perhaps best equipped to deal with those larger utilities, and 
that is why we endorse the bill as it has been presented.
    Mr. Gibbs. Mr. Petersen.
    Mr. Petersen. It may be another dimension here. Our 
experience with the SRF administrators in various States is 
that they are not always receptive to alternative approaches to 
project delivery. We have run into several State SRFs who 
actually oppose design-build contracting, for example, as 
opposed to traditional design-bid-build, and when you expand 
that to design-build-operate or the full P3 as we have 
discussed, the design-build-finance-operate, there is actually 
institutional opposition to that degree of private sector 
involvement, long-term operations, private financings, some of 
the complexities that Mr. Wilson talked about with private 
equity capital.
    So if you run this through the States you may well find 
yourself in many circumstances running into that kind of almost 
ideological opposition to that degree of private sector involve 
in public water infrastructure.
    Mr. Gibbs. OK, great. Yes, Mr. Petersen.
    Mr. Petersen. Yes, as I stated before, the States, 
especially, I believe, New York, have a system in place where 
they are able to divide the monies up for the larger projects 
as well as the smaller projects, and maybe there might be some 
tweaking of the SRF, you know, some of the things that have 
been in previous bills and would be in this bill to help the 
States better manage the funds so that the larger projects as 
well as the small projects can get the funds.
    The WIFIA legislation would allow some of the larger 
projects to get that funding, but would also help on the bottom 
end of it for them to go further down the list with their 
existing SRF funding to reach the smaller projects. So I think 
it is a win-win through the States.
    Mr. Gibbs. Great. Thanks.
    One just quick question, Mr. Williams. I have to comment 
because I am always impressed when I hear people doing what you 
said you are doing out there with the biodigester. Is there a 
lot of that starting to happen in the municipalities? Are you 
kind of leading the charge?
    Mr. Williams. I believe that my utility is the first that 
actually is powering its entire treatment plant solely from 
wastes that come in. However, I will say that that is something 
is getting a lot of attention. You can hardly open any kind of 
an industry journal and not read about the advances that are 
being made across the country in terms of utilization of biogas 
and bringing in high-strength waste, fats, oil, and grease to 
digest and produce biogas. It is these types of things that are 
very common in communities.
    So I think it is certainly catching fire across the 
country.
    Mr. Gibbs. Yes, Mr. Petersen.
    Mr. Petersen. I would say on this point and just for your 
information, there is a major contracting signing happening 
this afternoon at DC Water, as Representative Norton indicated 
for a design-build-operate biogas cogeneration facility right 
down here 8 miles south of here at Blue Plains Waste Water 
Treatment Plant. They are taking biogas from a new set of 
digesters they are going to build, and they are going to 
produce a lot less sludge; take that energy and build a 
cogeneration facility to run the biosolid treatment plant and 
reduce the electric bill at DC Water. They might have even gone 
P3 with that project had tax exempt financing been available 
for the private DBO firm.
    Mr. Gibbs. I have always been a strong proponent. We have 
got some digesters in my area of the country, not 
municipalities, but they are involved in it because it is a 
private entity, and they are moving the sludge from a sewage 
treatment plant, and they are digesting. Of course, as you all 
know, it does two things. It produces energy, but it also is 
less stuff going into the landfill and it is great for the 
environment.
    You do not hear a whole lot about that because maybe it is 
not as glamorous as some of the other things, but it is a real 
good program.
    Mr. Wilson, would you like to comment quickly?
    Mr. Wilson. I would just add that from the public-private 
partnership standpoint projects like biogas generators, also 
water recycling facilities that can generate revenues for a 
municipality, we can help to implement those projects and then 
monetize the value of the future revenues coming off of those 
projects as a way to reduce the cost for the municipality. So 
that can be part of the P3 package.
    Mr. Gibbs. Great. Mr. Bishop.
    Mr. Bishop. Thank you very much, Mr. Chairman.
    I am sort of back to where I was a little while ago. As I 
indicated, we chose when we did our bill to route the WIFIA 
type funding through the SRF in part because we heard from the 
stakeholders that that was a process they were familiar with 
and though that worked and we should keep.
    The second concern that I had was that if we create a 
separate funding mechanism that does not go through the SRF, 
that ultimately the SRF withers away. I will tell you what my 
frame of reference is. My background before coming to Congress 
was higher education. I was a college administrator for 29 
years.
    I should point out I am not a snob, and I should also point 
out that I have somehow maintained my faith.
    [Laughter.]
    Mr. Bishop. But there is a Revolving Loan Fund in higher 
education called the Perkins Revolving Loan Fund. You all may 
remember it was the National Defense Student Loan Fund or the 
National Direct Student Loan Fund. That has not received a new 
Federal capital contribution since, I think, 2000 or 2001, and 
under current law, it is slated to go out of existence in 2014. 
So I am concerned that if we create a separate funding stream 
that is apart from the SRF with the pressure that appropriators 
are under, that it will be an easy call to stop the Federal 
capital contribution to the SRF, and that over time we will see 
the SRF suffer the same fate as the Perkins Loan Fund I think 
is about to suffer, although I hope we can fight that off.
    So I guess I want to, again, put to you as the stakeholders 
and the practitioners: is that a concern that you share? Am I 
worst casing it?
    Someone, please. Yes, Mr. Williams.
    Mr. Williams. That is definitely a very significant concern 
of NACWA, the concern being that Congress has all kinds of 
pressures, and there are all kinds of demands for money and 
financing, and to the extent that if you have something out 
there separate, it is like, well, did we not address that and 
they got their money, and you move on.
    So the SRF has been a mainstay for 25 years, and NACWA 
would certainly like to see that continue. So it is a concern, 
and that was part of our testimony that it should not be to the 
detriment of the SRF with something like the WIFIA.
    Mr. Bishop. Thank you very much.
    Anyone else care to comment?
    Mr. Arndt. I guess I would just reemphasize what I said 
earlier, that WIFIA and the SRF program are not in competition 
with one another. They are dealing with two different sets of 
clients, as it were, in that the SRFs are very much providing 
funding for those that do not have the ability to access 
funding at all under highly subsidized circumstances typical.
    WIFIA does not address that need. WIFIA basically provides 
money at the margin at the lowest possible cost for those that 
need to do projects.
    Mr. Bishop. And I think I heard you say before that you 
think that that would be more for the larger project, and the 
SRF would be more for the smaller project. Is that what I heard 
you say before?
    Mr. Arndt. No. If I did, I did not intend to say that.
    Mr. Bishop. OK.
    Mr. Arndt. Certainly the direct access for the larger 
projects is there, but the SRFs also have access where they can 
essentially put together a pool of projects which may be 
smaller.
    Mr. Bishop. So what I think you are saying is that if we 
were to go this separate route, it would be incumbent upon all 
of us to make sure that we protect the SRF, that one does not 
fall away because we are pursuing another avenue. I would hope 
that that is something that we would all agree on.
    Mr. Chairman, thank you very much and thank you all very 
much.
    Mr. Gibbs. Thank you very much, and like I said, we will 
have our second panel on March 21st, I believe it is, on this 
issue. So thank you for coming, and this adjourns the 
committee.
    [Whereupon, at 12:19 p.m., the subcommittee was adjourned.]
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