[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
A REVIEW OF INNOVATIVE FINANCING
APPROACHES FOR COMMUNITY WATER
INFRASTRUCTURE PROJECTS--PART II
=======================================================================
(112-76)
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
__________
MARCH 21, 2012
__________
Printed for the use of the
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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 Ronald A. Behm, City of Napoleon, Ohio..................... 14
Karen Massey, Director, Missouri Environmental Improvement and
Energy Resources Authority, testifying on behalf of the Council
of Infrastructure Financing Authorities........................ 14
David Weihrauch, Water Treatment Plant Manager, city of Oxford,
Ohio........................................................... 14
Stephen E. Howard, Director, Infrastructure Project Finance,
Barclays Capital............................................... 14
David Dornbirer, Vice President, Energy and Water Services
Division, CoBank............................................... 14
Benjamin H. Grumbles, President, Clean Water America Alliance.... 14
Ryan Schmitt, President, Petticoat-Schmitt Civil Contractors,
Inc., and Chairman of the Board, NUCA, representing utility and
excavation contractors, testifying on behalf of NUCA........... 14
Lynn Broaddus, Director, Environment Program, The Johnson
Foundation at Wingspread....................................... 14
Richard Abelson, Executive Director of District Council 48,
American Federation of State, County, and Municipal Employees
(AFSCME)....................................................... 14
PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS
Hon. Russ Carnahan, of Missouri.................................. 73
Hon. Dennis J. Kucinich, of Ohio................................. 74
Hon. Thomas E. Petri, of Wisconsin, and Hon. Gwen Moore, of
Wisconsin, joint statement..................................... 75
PREPARED STATEMENTS SUBMITTED BY WITNESSES
Mayor Ronald A. Behm............................................. 77
Karen Massey..................................................... 80
David Weihrauch.................................................. 87
Stephen E. Howard................................................ 91
David Dornbirer.................................................. 106
Benjamin H. Grumbles............................................. 128
Ryan Schmitt..................................................... 134
Lynn Broaddus.................................................... 139
Richard Abelson.................................................. 147
SUBMISSIONS FOR THE RECORD
Hon. Timothy H. Bishop, a Representative in Congress from the
State of New York, request to submit the following:
Katherine Baer, Senior Director, Clean Water Program,
American Rivers, letter to Hon. Bob Gibbs, a
Representative in Congress from the State of Ohio, and
to Hon. Timothy H. Bishop, a Representative in Congress
from the State of New York, March 19, 2012............. 5
Diane VanDe Hei, Executive Director, Association of
Metropolitan Water Agencies, letter to Hon. Bob Gibbs,
a Representative in Congress from the State of Ohio,
and to Hon. Timothy H. Bishop, a Representative in
Congress from the State of New York, March 21, 2012.... 9
Hon. Timothy H. Bishop, a Representative in Congress from
the State of New York; Hon. Steven C. LaTourette, a
Representative in Congress from the State of Ohio; and
Hon. Earl Blumenauer, a Representative in Congress from
the State of Oregon, letter to Doug Elmendorf,
Director, Congressional Budget Office, March 16, 2012.. 12
Lynn Broaddus, Director, Environment Program, The Johnson
Foundation at Wingspread, request to submit the following
reports \1\:
The participants of The Johnson Foundation Freshwater
Summit, ``Charting New Waters: A Call to Action to
Address U.S. Freshwater Challenges,'' September 2010... 35
The Johnson Foundation at Wingspread, ``Charting New
Waters: Financing Sustainable Water Infrastructure,''
convening report, January 2012......................... 43
Richard Abelson, Executive Director of District Council 48,
American Federation of State, County, and Municipal Employees
(AFSCME), request to submit the following report: Food & Water
Watch, ``Mortgaging Milwaukee's Future: Why Leasing the Water
System is a Bad Deal for Consumers,'' November 2009............ 151
Hon. Bob Gibbs, a Representative in Congress from the State of
Ohio, request to submit the following: Richard G. Little, AICP,
NAC, `` `Mortgaging Milwaukee's Future: Why Leasing the Water
System is a Bad Deal for Consumers'--A Critical Review''....... 52
David Weihrauch, Water Treatment Plant Manager, city of Oxford,
Ohio, insert for the record.................................... 59
Hon. Grace F. Napolitano, a Representative in Congress from the
State of California, reference to the following article:
Michael Hiltzik, Los Angeles Times, ``Metropolitan Water
District Wages Costly War with Nature and Age,'' http://
www.latimes.com/business/la-fi-hiltzik-20120318,0,1163346.col-
umn, March 18, 2012............................................ 175
Hon. Thomas E. Petri, of Wisconsin, and Hon. Gwen Moore, of
Wisconsin, request in their joint statement to submit the
following for the record:
Kevin L. Shafer, P.E., Executive Director, Milwaukee
Metropolitan Sewerage District, written statement.......... 178
Attachments:
United States Government Accountability Office, ``Clean
Water Infrastructure: A Variety of Issues Need to Be
Considered When Designing a Clean Water Trust Fund,''
Report to congressional requesters, GAO-09-657, May
2009 \2\............................................... 181
``National Investments in American Clean Water
Infrastructure: An American Clean Water Trust Fund to
Support National Clean Water Goals,'' March 2012....... 183
Water Environment Federation, ``Financial Sustainability
for Water Infrastructure,'' adopted by WEF Board of
Trustees, February 5, 2010............................. 189
ADDITIONS TO THE RECORD
Gretchen W. McClain, President and Chief Executive Officer,
Xylem, Inc., letter and enclosure to Hon Bob Gibbs, a
Representative in Congress from the State of Ohio, and to Hon.
Timothy H. Bishop, a Representative in Congress from the State
of New York, March 29, 2012.................................... 192
Robert Stewart, Executive Director, and Ari Neumann, Policy
Director, Rural Community Assistance Partnership, joint written
statement...................................................... 200
American Society of Civil Engineers, written statement........... 204
----------
\1\ These reports have been excerpted for this publication. They
can be found in their entirety online at the Government
Printing Office's Federal Digital System (FDsys) at http://
www.gpo.gov/fdsys/pkg/CPRT-112HPRT74562/pdf/CPRT-
112HPRT74562.pdf. Click on ``Bookmarks'' in the left-hand
navigation panel to select either report.
\2\ This report has been excerpted for this publication. It can
be found in its entirety online at http://www.gao.gov/assets/
300/291771.pdf.
A REVIEW OF INNOVATIVE FINANCING
APPROACHES FOR COMMUNITY WATER
INFRASTRUCTURE PROJECTS--PART II
----------
WEDNESDAY, MARCH 21, 2012
House of Representatives,
Subcommittee on Water Resources
and Environment,
Committee on Transportation and Infrastructure,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:05 a.m., in
Room 2165, Rayburn House Office Building, Hon. Bob Gibbs
(Chairman of the subcommittee) presiding.
Mr. Gibbs. Welcome to the second hearing of the Water
Resources and Environment Subcommittee on a review of
innovative financing approaches for water infrastructure
projects. I will start with an opening statement here, and then
we will turn it over to my ranking member, and then we will
turn it over to the panel.
But first, welcome. As I said, this is the second panel on
this subject. The first hearing we had was on February 28th. At
that hearing, we heard that there is a tremendous amount of
capital from the private sector and other sources potentially
available for investment in our wastewater and drinking water
infrastructure.
We also heard that in recent years, the financial markers
have been ``discovering'' water and wastewater infrastructure
and how this is becoming a popular asset class that is
increasingly attracting billions of dollars of private
investment capital. This is important because we need to take a
variety of financing tools available to the infrastructure
financing in the toolbox, so to say. This includes both public
and private funding and investment mechanisms.
There are a number of past and current legislative
proposals that could provide additional means for 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. This would
remove a barrier that has long inhibited bringing private
sector capital to municipal water and wastewater markets.
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 would be entitled the Water
Infrastructure Finance Innovation Act, otherwise known as
WIFIA. This WIFIA proposal is part of a model after the TIFIA
program for surface transportation projects and other credit
programs governed by the Federal Credit Reform Act.
WIFIA is designed to complement, not to compete, with the
Clean Water and Drinking Water State Revolving Fund programs,
but being another variety of financing tool in the toolbox for
infrastructure financing. There is plenty of room for SRF,
WIFIA, and private activity bonds and other approaches to
coexist and serve communities in infrastructure financing
needs.
Lastly, there are other proposals, including clean water
SRF reauthorization legislation, that this subcommittee has
advanced in past Congresses, and is included in a bill that the
subcommittee ranking member, Mr. Bishop, has introduced in this
Congress.
Today we will build on the information we obtained in part
one of this hearing and receive testimony from an excellent
panel of witnesses about these proposals and other potential
ways to encourage increased investment in water and wastewater
infrastructure, including from private sources.
Before I recognize the ranking member, I want to welcome
two witnesses from Ohio, Ronald Behm, who is mayor of the city
of Napoleon, and congratulations to the recently elected mayor
of the city of Napoleon of northwestern Ohio, in Congressman
Bob Latta's district; and also David Weihrauch, who is the
treatment plant manager for the drinking water utility serving
the city of Oxford down in southwestern Ohio, which is part of
Speaker Boehner's district.
So welcome, and at this time I will turn it over to Ranking
Member Bishop for any comments you may have.
Mr. Bishop. Thank you very much, Mr. Chairman, and thank
you for holding today's hearing. This is the second part in a
two-part series on the importance of investing in our Nation's
crumbling wastewater infrastructure.
As I noted at our last hearing, this subcommittee has a
long history of working across the aisle to renew the Federal
commitment to wastewater infrastructure. Over the past decades,
under both Republican and Democratic majorities, we have taken
significant steps to address the long-term infrastructure
challenges facing our States and communities, including passage
of several bipartisan water infrastructure financing measures.
These past measures highlight 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.
Since our February 27th hearing, we have had failures of
water pipes here in the Washington, DC, metro area, creating
sinkholes in roads and disrupting traffic. In San Antonio,
Texas, two sewage pipelines broke, spilling more than 200,000
gallons of untreated sewage into local water bodies. And in
Delray Beach, Florida, tens of thousands of gallons of raw
sewage poured from a ruptured pipe. Upon inspection, the water
department found that sewer gases had disintegrated one-third
of the 30-year-old pipe.
I draw reference to these three events as examples of the
systemic problem that now faces our Nation. With aging
infrastructure and increasing demand, we have to find
solutions, not excuses. The traditional financing tools that we
have used historically need revising and adjustment in the face
of the public demands and expectations and the reality of our
fiscal situations.
Mr. Chairman, at last month's hearing, you encouraged the
witnesses to evaluate the two proposals that are currently
before this subcommittee, your discussion draft entitled the
Water Infrastructure Finance and Innovation Act of 2012, as
well as a copy of the bipartisan bill that I have introduced
with the ranking member of the full committee, Mr. Rahall, and
Congressmen LaTourette and Petri, H.R. 3145, the Water Quality
Improvement and Job Creation Act of 2011. I am happy to
announce that since our last meeting, nearly a dozen additional
House Members have cosponsored H.R. 3145.
Both bills include mechanisms modeled after the successful
Transportation Infrastructure Finance and Innovation Act, or
the TIFIA program, authorized in TEA-21 to leverage additional
capital for wastewater infrastructure investment. Although
there are some differences in approach, my first impression 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.
Last month's hearing also gave us the opportunity to
discuss several critical policy questions integral to our
consideration of water infrastructure financing legislation,
namely, who is better suited to decide which projects are
funded and how a new water infrastructure financing authority
would complement or potentially compete with the existing Clean
Water State Revolving Fund.
During the question-and-answer period, I want to further
pursue these questions with our witnesses as well as questions
on the potential impact of differing financing approaches,
including private capital, on local communities and workforces.
Similarly, in considering the economic challenges facing all
levels of Government, I want to explore how we can target
Federal resources to those who will benefit from it most, our
local communities.
I also do not want to lose sight of the fact that investing
in our water infrastructure not only improves the pipes and
pumps, the investment creates much-needed construction and
engineering jobs and creates opportunities for America's
economy to step forward and build for the future.
Mr. Chairman, as I noted earlier, 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 complement, duplicate, or conflict with
existing law in meeting these challenges will still need to be
addressed.
Again, I welcome today's hearing as an opportunity to
further 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 the environment.
And before I yield back, Mr. Chairman, I have three
statements that I would like to submit for the record, with
unanimous consent. The first is a statement from American
Rivers endorsing--pardon me--that speaks to both the bill that
I have filed and the draft bill that you are working on; also,
a statement from the Association of Metropolitan Water
Agencies; and finally, a copy of a letter that I, along with
Congressman LaTourette and Congressman Blumenauer, sent to Doug
Elmendorf, the director of the CBO, requesting that he begin to
provide us with suggestions for how we would fund a clean water
trust fund.
Mr. Gibbs. So ordered.
Mr. Bishop. Thank you very much. I yield back the balance
of my time.
[The material referenced by Mr. Bishop follows:]
Mr. Gibbs. Thank you.
At this time I want to introduce the rest of the panel, and
then we will turn it over to our first panel witness. And what
we will do, we will go through the whole lineup with your
opening statements, and then we will do question and answers.
As you can see, there are just the two of us here. Others
might stroll in. There are a lot of other committees happening,
a lot of conflicts, but I know there is a lot of interest in
this subject area.
But I already introduced the mayor. But then next to the
mayor, we have Ms. Massey. She is the director of the Missouri
Environmental Improvement and Energy Resources Authority; she
is testifying on behalf of the Council of Infrastructure
Financing Authorities. And I believe she really represents the
State SRFs.
Of course, Mr. Weihrauch from Ohio. Then we have Mr.
Stephen Howard, Infrastructure Project Finance, Barclays
Capital; I am really looking forward to the testimony on
financing opportunities. We also have Mr. David Dornbirer, vice
president of Energy and Water Services Division of the
Cooperative Bank out in Colorado.
Next to him is Mr. Benjamin Grumbles. He is president of
the Clean Water America Alliance. And then Mr. Ryan Schmitt is
president of Petticoat-Schmitt Civil Contractors. He is
chairman of the board of NUCA, which is representing the
utility and excavation contractors, testifying on behalf of
NUCA today.
Then we have Ms. Lynn Broaddus, director, Environment
Program, The Johnson Foundation at Wingspread, Racine,
Wisconsin--Racine, I guess. Racine. Mr. Richard Abelson; he is
executive director of AFSCME, Council 48, Milwaukee, Wisconsin,
testifying on behalf of the American Federation of State,
County, and Municipal Employees.
Welcome today, and we will start down here with the mayor
from Napoleon, Ohio. The floor is yours.
TESTIMONY OF MAYOR RONALD A. BEHM, CITY OF NAPOLEON, OHIO;
KAREN MASSEY, DIRECTOR, MISSOURI ENVIRONMENTAL IMPROVEMENT AND
ENERGY RESOURCES AUTHORITY, TESTIFYING ON BEHALF OF THE COUNCIL
OF INFRASTRUCTURE FINANCING AUTHORITIES; DAVID WEIHRAUCH, WATER
TREATMENT PLANT MANAGER, CITY OF OXFORD, OHIO; STEPHEN E.
HOWARD, DIRECTOR, INFRASTRUCTURE PROJECT FINANCE, BARCLAYS
CAPITAL; DAVID DORNBIRER, VICE PRESIDENT, ENERGY AND WATER
SERVICES DIVISION, COBANK; BENJAMIN H. GRUMBLES, PRESIDENT,
CLEAN WATER AMERICA ALLIANCE; RYAN SCHMITT, PRESIDENT,
PETTICOAT-SCHMITT CIVIL CONTRACTORS, INC., AND CHAIRMAN OF THE
BOARD, NUCA, REPRESENTING UTILITY AND EXCAVATION CONTRACTORS,
TESTIFYING ON BEHALF OF NUCA; LYNN BROADDUS, DIRECTOR,
ENVIRONMENT PROGRAM, THE JOHNSON FOUNDATION AT WINGSPREAD; AND
RICHARD ABELSON, EXECUTIVE DIRECTOR OF DISTRICT COUNCIL 48,
AMERICAN FEDERATION OF STATE, COUNTY, AND MUNICIPAL EMPLOYEES
(AFSCME)
Mr. Behm. Good morning, Chairman Gibbs, Ranking Member
Bishop, and members of the subcommittee. My name is Ronald
Behm, and I am the mayor of the city of Napoleon, Ohio.
The city of Napoleon is located in northwest Ohio in
Congressman Latta's district along the Maumee River. It is your
typical small town USA. We are facing challenges similar to
others who live in the Midwest with high unemployment, lower
salaries, decreasing property values, and rising costs.
Using a 10-year comparison of the U.S. Census data, the
city of Napoleon has lost nearly 600 residents over the past
decade, and the median household income is roughly $2,000 lower
than 10 years ago. The median household income for a resident
of our community is $35,762. This is significantly lower than
the Ohio average of $47,318.
Our city is facing other challenges in that we are under
findings and orders for our SSOs and CSOs. In 2004, the city
came to an agreement with the EPA for a 20-year plan, which
requires the city to remove all SSOs from our system and reduce
the CSOs to one. The plan was estimated to cost our city $35
million to complete, and contains 62 individual projects.
As of 2012, the city of Napoleon is on schedule and we have
completed 22 of the 62 projects. So far we have spent more than
$19\1/2\ million. Our city engineer estimates that the total
cost of all 62 projects for the 20-year period will cost closer
to $100 million. In addition, we now have to spend another $15
million to upgrade our water treatment plant to meet current
and near-future EPA standards. So the total bill our community
of 8,749 residents will receive due to the EPA is approximately
$115 million.
The city of Napoleon has made efforts to pay for the
projects by raising the sewer and water rates. These increases
have been added every year but one since 2003. This has doubled
the water and sewer rates for our residents and businesses. Of
the $19\1/2\ million spent on this project so far, the city of
Napoleon has issued debt for $19.4 million. Even though we have
doubled our water rates, we are still only able to service the
debt and pay for the normal water and sewer operations.
Over the next 2 years, our city council has authorized two
additional rate increases totaling 20 percent, as suggested by
an independent consultant. In 3 years, when it is time to
upgrade the water plant, it has been recommended that the city
must raise the water rates by an additional 50 to 60 percent.
The concern with increasing taxes and raising rates is that
at some point in time you reach a breaking point, a point where
the residents and businesses cannot afford to pay the rates but
instead are forced to leave our city. I fear that our community
is at that breaking point. The bottom line is that we simply
cannot continue to proceed down this road, a road we have been
forced to go down rather than pay fines imposed by the EPA.
The Water Infrastructure Finance and Innovation Act, as I
understand it, attempts to help communities receive funding.
However, the city of Napoleon has not had a problem with
receiving funds and issuing debt. Our problem is with raising
money to pay the debt and the amount of time in which we have
to pay.
I am familiar with another bill, H.R. 1189, the Clean Water
Affordability Act 2011, sponsored by Congressman Latta, which
helps address the problems that the city of Napoleon and so
many communities of similar size are facing. H.R. 1189 would
help assist municipalities in funding projects for wastewater
treatment and extent repayment periods to 30 years of the
design life of the project. This would have been helpful with
our equalization basin, which cost the city $8.85 million to
build, has an estimated life of 30 to 40 years, but we could
only receive funding for 20 years.
H.R. 1189 also requires States to put aside 15 percent of
funds for assistance to municipalities of fewer than 10,000
residents that meet specified affordability criteria. It also
requires States to establish affordability criteria to help
identify those in greatest need.
The city of Napoleon needs assistance if we are expected to
continue to meet the mandates we have been saddled with. This
is an issue that is shared by all residents, regardless of
their political positions and beliefs. That is why I am hoping
Congress will come to an agreement which will help cities in
similar situations to that of the city of Napoleon.
I appreciate the opportunity to provide the subcommittee
with a local government perspective on this important issue,
and thank you for your time today.
Mr. Gibbs. Thank you.
Ms. Massey, the floor is yours. Welcome.
Ms. Massey. Thank you. My name is Karen Massey, and I am
the director of the Missouri Environmental Improvement and
Energy Resources Authority. Today I am here in my capacity as
the president for the Council of Infrastructure Financing
Authorities, representing State programs that run the State
Revolving Funds. Thank you so much for allowing us to express
our views here today.
Sustained Federal funding is essential to realizing our
Nation's water quality needs. Clearly, the current level of
funding provided is not enough to meet the escalating needs,
and we welcome new approaches and tools to generate additional
resources. We do believe, however, that the SRF partnership
between Federal and State governments should continue as the
primary means to assistance for communities in addressing their
water quality problems.
Few federally authorized programs have proven as effective
in realizing their intended goals. State SRFs have provided a
sustainable source of funding to protect and restore our
Nation's streams and rivers for over two decades. By using
State match, loan repayments, interest earnings, and issuing
bonds, the assistance made available to our communities is
significantly greater than the initial Federal investment.
The clean water SRF alone has committed over $90 billion
for projects for local wastewater infrastructure. As the
subcommittee weighs the future of the State SRF program as well
as new initiatives, we hope you will keep in mind this record
of success.
As the State programs look forward, we have two primary
areas of concern, funding and program flexibility. Our ability
to meet water infrastructure needs is predicated on the
continued funding of the SRF. We understand the need for budget
restraint. We simply hope that not too great a share of that
restraint is at the expense of the SRF programs.
The success of this program also derives from flexibility.
We are concerned about the imposition of new requirements and
obligations that are not at the core of the SRF program goals.
The SRF provides loans, not grants. If an SRF loan becomes too
weighed down with extraneous requirements, it will cease to be
an attractive option for many communities, and clean water
goals will suffer.
We must be fully accountable. But excessive oversight or
administrative control by EPA stifles innovation and our
ability to respond to local needs. Efforts to mandate that a
set percentage of funding be set aside for certain types of
projects, or that require States to dedicate a set percentage
for additional subsidization, fail to recognize that States are
in the best position to decide their priority water quality
needs.
So what tools or innovations may help achieve clean water
goals? As we learned from the Recovery Act, when communities
can have access to free or very affordable money, water
infrastructure gets built. Ideally, new approaches should
provide additional funding at an attractive rate. With those
traits, projects that are not being built due to funding
constraints may be able to move forward.
One such approach is WIFIA. It seeks to facilitate Federal
credit assistance in the form of direct loans and loan
guarantees for larger scale water and wastewater projects.
The assistance made available through WIFIA would not
approach the very low interest rates of a subsidized SRF loan
and in many market conditions borrowing at the Treasury rate,
the key benefit of WIFIA, will not provide any advantage over
traditional tax-exempt financing which will remain attractive,
both from the standpoint of competitive rates and the absence
of Federal requirements and conditions likely to be imposed on
a Federal loan guarantee.
But there are circumstances in which WIFIA will be very
useful. It offers an alternative for projects that are beyond
the scope of available SRF funding and for which a Federal
guarantee represents the optimal credit option. Viewed as a
supplementary program to address specific situations and unique
funding challenges, WIFIA should provide a valuable addition to
the financing toolbox. The needs of most communities, however,
will still be served most effectively by the State Revolving
Fund programs.
As the subcommittee explores legislative options, the
States hope there will be a focus on a number of
noncontroversial issues which will impact the future strength
and development of the SRF programs, and those are listed in my
written testimony for your consideration.
We also encourage the subcommittee to consider whether
proposals seeking to incorporate new goals within the SRF may
undermine that core mission of maximizing sustainable financial
assistance to communities to develop water infrastructure.
For 25 years, States have successfully worked with their
citizens to determine the best approaches to meet unique water
quality needs. The recent trend toward additional requirements
seems to signal a Federalization of this program. SRFs are
being targeted to advance policy goals ranging from green
infrastructure and smart growth to better asset management,
full cross-pricing, and buy American.
States are beginning to experience resistance from
municipalities, especially our smaller communities, which now
view an SRF loan as too complex and too burdensome. A host of
new requirements, however well-intentioned, will impede the
effort to get communities with the most significant water
quality issues moving forward to address those challenges.
Another area of concern involves the corpus of the clean
water SRF. Following the first use of capitalization grant
funds, all repayments, interest earning, fee revenues, and bond
proceeds have been treated as State, not Federal funds. After
25 years of this practice by all 51 clean water SRFs, now the
issue is whether Federal controls should be placed upon that
corpus. The implications really are significant.
Will this new Federal control extend to and threaten our
existing assistance agreements? Investments? And what about the
use of State bond proceeds? Will it increase the cost of
borrowing for our communities?
These and many more important questions are raised by the
expanded Federal control of the State SRF programs. The
tremendous success of the clean water SRFs as State-run
programs argues for a careful assessment of where this
Federalization of the program will lead. We are fearful that
the result may be an SRF program that is less productive and a
less attractive source of financing in a time of escalating
water infrastructure needs.
Thank you for the opportunity to provide the views of the
State SRF programs. We do look forward to working with the
subcommittee as it continues its work to support water
infrastructure development.
Mr. Gibbs. Thank you.
And Mr. Weihrauch, try to speak into the microphone as
close as you can because I know it is hard to hear up here. And
I do not know if people in the audience can hear or not. So do
not hesitate to speak loudly.
The floor is yours. Go ahead.
Mr. Weihrauch. Good morning, Chairman Gibbs and members of
the subcommittee. My name is David Weihrauch, and I am the
water treatment plant manager for the drinking water utility
serving the city of Oxford, Ohio. I very much appreciate this
opportunity to offer input on a draft bill the subcommittee is
considering, the Water Infrastructure Finance and Innovation
Act, commonly called WIFIA.
I am here representing the American Water Works
Association, which has done groundbreaking work to define the
water infrastructure needs facing towns like Oxford, as well as
helping to describe innovative financing tools like WIFIA.
I want to reiterate that the American Water Works
Association strongly supports the approach to WIFIA reflected
in the draft bill which Chairman Gibbs circulated before the
first hearing. We are very excited about such an innovative
financing tool, and we urge the subcommittee to see this bill
introduced and move through the legislative process as soon as
possible on a bipartisan basis without changes that would
dilute its value to the Nation's water and wastewater systems.
Recent reports, including AWWA's ``Buried No Longer:
Confronting America's Water Infrastructure Challenge,'' provide
detailed analysis of our Nation's water, wastewater, and
stormwater-related needs, which total in excess of $2 trillion
over the next 25 years.
I do not believe that any serious person disputes that the
Nation faces immense water-related investment needs. Nor should
anyone believe that simply putting off this investment offers a
solution. In fact, as the recent AWWA analysis shows, any
temptation to delay needed investment presents a stark choice:
Make the investments on time or accept deteriorating levels of
water service, along with sharply higher investments when the
time comes at which the replacement of deteriorated assets
simply cannot be put off any longer.
I would be remiss if I did not take this opportunity to
address a number of key questions raised in the first hearing.
First, there was a question about whether WIFIA should be
directed to or through the State Revolving Funds. The American
Water Works Association believes that would be a very bad idea,
for a number of reasons. Most importantly, WIFIA is designed to
complement the SRF and to address the needs of very large
projects that the SRFs simply cannot address. Running WIFIA
through the SRFs defeats WIFIA's whole purpose, in a very real
sense.
In addition, many States have either legislation or policy
that prevents them from offering SRF support to very large
projects, and about half the States have constitutional or
legal restrictions against supporting investor-owned utilities
through the SRFs. Large systems need a source of low-interest
financing, and the customers of investor-owned utilities
deserve to benefit from low-cost financing, just as other
Americans do. Many SRFs cannot provide that.
Equally important, tying WIFIA to the SRFs would reduce the
amount of support available for these larger water projects.
That is because each State would have to be guaranteed a share
of the funding, causing the resources available to WIFIA to be
systemically divided among the States.
Rather than lending to large projects of national or
regional significance, funds would be allocated based on
criteria selected by the States, and without a doubt, States
would need to take money off the top of WIFIA, as they do the
SRFs, for administration and other purposes.
The bottom line is that every hand that touches the WIFIA
program will add a layer of administrative complexity and cost.
All of that would reduce the amount of low-interest loans that
could be delivered to water projects, and we cannot support it.
Fortunately, the draft bill does provide for States and
smaller water systems to directly benefit from the WIFIA
program. States may aggregate a number of smaller projects into
a WIFIA application. This has at least three noteworthy
advantages.
First, it essentially allows States to leverage their SRF
capital base. Second, it allows smaller projects to benefit
from low Treasury rates in the same way that larger projects
do. And third, it allows States to move larger projects and
pools of smaller projects out of the SRF applicant pool and
into the WIFIA pool, thereby reducing competition for SRF
funds.
A related question that arose at the last hearing concerned
whether WIFIA would have the effect of taking money away from
the established State Revolving Fund programs. The answer to
that question is ultimately in your hands, but we think the
answer should be a resounding no. WIFIA neither needs to be nor
should be funded at the expense of the SRFs.
As I noted a moment ago, WIFIA was explicitly designed to
operate as a complement to the SRFs programs, which are highly
effective and should be fully funded. WIFIA is designed to
address a problem that the SRFs cannot effectively address,
namely, the need for lower cost financing for larger projects
of national or regional significance. What we need is a toolbox
that includes both the SRF programs and WIFIA. Both need to be
adequately funded.
In summary, Mr. Chairman and members of the committee, the
American Water Works Association strongly supports the draft
bill as written. AWWA stands ready to help you in any way it
can in securing the earliest possible passage of this
legislation.
Thank you for addressing this important issue.
Mr. Gibbs. Thank you.
Mr. Howard, welcome. The floor is yours.
Mr. Howard. Good afternoon, Chairman Gibbs. I am going to
be quickly going through the first part of my written
testimony, and then walking through very quickly a presentation
that I have brought with me.
Good afternoon, Chairman Gibbs, Ranking Member Bishop, and
members of the subcommittee. I thank you for the opportunity to
testify today. My name is Steve Howard, and I am a director at
Barclays Bank PLC, based in New York. I have more than 25 years
of experience financing a broad range of infrastructure
projects for public and private sector clients across the
country. My project finance experience spans all sectors,
including water, wastewater, solid waste, environmental
transportation, and social infrastructure.
Today we have been invited by the Chairman of the
Subcommittee on Water Resources and Environment to testify on
innovative financing approaches to community water
infrastructure approaches. Our testimony today will focus on
accommodation of public and private funding investment
solutions, coupled together will foster local communities to
provide ongoing financing for water projects.
If we can go to the second slide in my presentation. You
will note that we basically have three approaches to financing
water infrastructure projects. At the top of the chart is tax-
exempt bonds, and there are two subcategories there,
governmental purpose bonds, which limit private participation,
and tax-exempt private activity bonds, which allow private
participation in equity investment alongside the issuance of
tax-exempt bonds.
Second major category is taxable bonds, which is unlimited
for this infrastructure but tend to be higher cost. Then last
but not least is private equity, which can be used in
conjunction with tax-exempt private activity bonds as well as
taxable bonds.
If we can then go to slide 5 in my presentation--keep
going--so this slide, this shows just a high-level view of how
a private project financing can be structured in conjunction
with a water purchase agreement with a public regional water
authority.
You see in the middle of the chart the private project
company, and that is the basket into which all of the private
contracts flow through. Lower left-hand corner is the private
investors' infrastructure funds; development companies, private
equity investors, would fund equity into the private project
company that would in turn enter into a water purchase
agreement with the regional water authority you see in the
left-hand box in the middle of the page.
The key point here is that the regional water authority
still maintains the interface with the ratepayers and controls
the rates that the ratepayers pay. That regional water
authority in turn negotiates the level of compensation that
goes to the private company for operation and debt service on
the project.
If you go over to the right-hand side of the page where it
says ``Issuer,'' that is typically a governmental conduit
issuer which serves as the issuer of the tax-exempt bonds
through the trustee to the bondholders in the upper right-hand
box in the middle of the page.
The key thing here is that the tax-exempt private activity
bonds flow through the trustee, a governmental conduit issuer;
are loaned to the private company, who in turn provides a
wholesale water delivery service to the governmental regional
water authority that in turn controls the rates for the
ratepayers.
If we can go to the next slide, what I like to do is draw
an analogy with the solid waste sector, municipal solid waste
sector, that many of you know back in the 1980s faced a serious
infrastructure investment deficit, where we were coming off of
an era of smoke-belching incinerators and leaking, open-burning
dumps.
The U.S. Congress in the late 1970s and early 1980s
responded in part by providing for the availability of tax-
exempt private activity bonds to help finance the new
investment in state-of-the-art infrastructure across the
country. As a consequence, about $20 billion of private
activity bonds were issued, which represents about 40 percent
of the total debt that was issued for municipal solid waste
infrastructure by both public and private entities over about a
30-year period.
If you go to the next slide, you can see in this slide the
blue bars represent tax-exempt governmental purpose bonds that
were issued by cities, States, and local governments for
publicly owned waste facilities. The red bars represent the
issuance of tax-exempt private activity bonds. That is about 40
percent, as I said, of the total debt invested in the solid
waste infrastructure over that period of time.
And the red bars really represent the partnership between
the public and the private sector through a variety of
different contracting methods, ranging from design/build
agreements to design/build/operate, and design/build/operate
and finance.
I personally was involved in about $10 billion of public-
private partnership investments through that era, and the good
news is you do not hear about any of those projects today
because they are all functioning properly and serving the
purpose that they were originally intended to.
Can we go to, then, several slides back? It will be slide
10, which shows what has happened in the water infrastructure.
Keep going. Keep going. No, you are going the wrong direction.
And we will take a look compared to what is--keep going,
several more--OK.
This is what has gone on in the municipal water and
wastewater sectors since the late 1980s. You see the blue,
again, is governmental purpose bonds, and the red, which you
can barely see at the bottom, is private activity bonds. And in
this case, private activity bonds represent only 1 percent of
the debt issued for municipal water and wastewater.
Now, this is a much larger sector than solid waste, by
multiples. It is like a 10 times larger investment in water and
wastewater than in municipal solid waste. But the key thing is
that the restriction on the use of private activity bonds in
water and wastewater has represented a significant limitation
to the ability of the private sector to partner with the public
sector through a variety of different contracting arrangements
to invest in water and wastewater projects.
And it is our expectation that, over time, were the limit
on private activity bonds to be reduced or eliminated entirely,
that we would see the portion of this chart with the red bars
would gradually increase.
I think it is important for the committee to understand
that currently there is an excess of private activity bond cap
available across the country because the housing sector has
basically shut down, where the bulk of private activity bonds
cap has traditionally been allocated. We expect that this is a
temporary phenomenon and will gradually, over time, revert to
the situation that existed before 2008, where the availability
of private activity bond cap for water projects will become
severely limited.
All of these projects, as you I am sure can appreciate,
take a very long time to develop and implement. So there needs
to be certainty over time with respect to the availability of
these financing mechanisms. We do not expect that there will be
any significant effort to pursue public-private partnerships in
this sector until there is clarity about the availability of
private activity cap in the future.
Thank you very much.
Mr. Gibbs. Quickly, before we go on, I just--that last
chart up, can you bring that last chart back up?
Mr. Howard. Sure.
Mr. Gibbs. I just noticed on the--can you just comment
where it says, ``Taxable Build America Bonds''?
Mr. Howard. Yes.
Mr. Gibbs. And it looks like there must have been a change
made in 2009 or 2010.
Mr. Howard. Yes. That is a good question. As you may know,
in 2009 and 2010 there was a program set up under the Recovery
Act to allow municipalities to issue taxable Build America
Bonds. These were effectively taxable governmental purpose
bonds with a direct Federal subsidy of 35 percent of the
interest. They were not private activity bonds and did not
allow for private investment or partnering.
Mr. Gibbs. OK. So I am assuming that was temporary because
it was stimulus funds?
Mr. Howard. That was temporary. That program has shut down.
You will notice in--the chart is not clear, but none of those
have been issued since 2011.
Mr. Gibbs. Yes. I see. OK. Thank you.
Mr. Dornbirer--did I say that right?
Mr. Dornbirer. Dornbirer.
Mr. Gibbs. Dornbirer. OK. Welcome.
Mr. Dornbirer. Thank you. Good morning, Mr. Chairman,
Ranking Member Bishop, members of the committee. As sector vice
president of CoBank's Energy and Water Services Division, I
manage a portfolio of over $1 billion of water and solid waste
loans. For simplicity, the terms ``water'' and ``wastewater''
are used interchangeably in my testimony.
CoBank is a national cooperative bank serving vital
industries across rural America, and it is the largest U.S.
bank lender to the water utility industry. CoBank has over 23
years' experience providing a variety of financing structures
for water systems, including lending alongside State and
Federal agencies and using Federal guarantees from the USDA. I
was asked to testify this morning to provide a project finance
101 overview for the committee.
To begin with, project finance is not the same thing as
financing projects. When I talk about project finance, I am
referring to the long-term financing of discrete assets of a
water infrastructure owned by a single-purpose project company.
This alternative takes into account the entire life cycle cost
of the project, not just the short-term focus of its financing.
If a water utility needs to update its system to achieve a
compliance mandate or improve its infrastructure, project
finance is an innovative way for water systems to access
dependable funding to achieve its goals. The benefit of project
finance lies in its flexibility in the proper allocation of the
risks of that project among the project parties best suited to
manage them. Project finance is used extensively in the
international water sector, and in this country for energy,
power, and transportation projects.
Here I have a chart depicting a generic project finance
structure. At the beginning stages of the deal, the
municipality and the private equity sponsor form a public-
private partnership. The project company then is formed to
develop, build, and own the project.
The project company can be wholly owned by one or more
private equity sponsors, or the municipality could join in the
direct ownership of the project. By forming a standalone
project company, all the contract parties can look only to the
project company for the enforcement of contracts. This limits
the liability of the project sponsor as well as the
municipality.
From the point of formation of the project company, all the
work begins with negotiating and executing the contracts that
give the project life. Think of each contract or subset of the
boxes in the chart as a piece of the puzzle, each one being
integral to a complete project.
The heart of a project finance deal is the DBOF agreement,
which stands for design, build, operate, and finance, between
the project company and the municipality. The DBOF lays out who
is responsible for what, such as specifications of the plan,
the delivery schedule, revenues, permits, dispute process,
design changes, feature expansion, and transfer of ownership.
The project company's revenues come from the user fees
determined by the municipality's rate-making process. In
addition to rate-setting, the municipality may also agree to be
responsible for those operating costs of the plant that it can
control.
If the DBOF is the heart of the project, rate-setting is
the lifeblood. The source of project revenue should be
transparent and easily modeled in order to obtain the most
attractive financing terms benefitting the project, and
subsequently, the ratepayers.
The other major components of the project finance structure
include the engineering construction contract, the operation
and maintenance agreement, and the credit agreement, which is
between the lenders and the project company. The lending group
can include banks, bondholders, either taxable or tax-exempt,
and/or Government agencies.
The lender's role is to underwrite the loan which, together
with the sponsor's equity dollars, fund the total costs of
constructing and starting up the project. The lenders rely
solely on the contracts executed by the project company and the
cash flows generated by it.
The various project contracts are designed to provide and
protect those cash flows. The flexibility the project finance
provides allows a water utility to accomplish its goal of
upgrading the system in a timely fashion while ceding most of
the risks of that undertaking to third parties.
I hope my brief overview, combined with my written
testimony, provides the committee with an understanding of how
project finance works. CoBank recognizes the need for a variety
of financing tools to update our Nation's infrastructure.
Project finance is just one viable tool that can tap private
capital, and thereby leverage Government resources to
accelerate the achievement of that important goal.
I look forward to any questions you may have. Thank you.
[The charts from Mr. Dornbirer's overview follow:]
Mr. Gibbs. Thank you.
Mr. Grumbles, welcome. The floor is yours.
Mr. Grumbles. Thank you, Mr. Chairman.
Like the NCAA Sweet Sixteen, this panel seems to be
dominated by Ohio interests, and that is not necessarily a bad
thing because I am hearing testimony that is insightful----
Mr. Gibbs. I think there are three teams from Ohio still in
it. Right?
Mr. Grumbles. Yes. That is right. And the perspectives I am
hearing so far are all national perspectives, and this is a
national issue. It is a national crisis and an opportunity. I
want to thank the members, Mr. Chairman, Ranking Member Bishop,
Congresswoman Napolitano, for your leadership in water over the
years. This really is an important opportunity. It is great to
be before you again.
I am Ben Grumbles, president of Clean Water America
Alliance. It is a 501(c)(3), an educational nonprofit, that was
created 3 years ago that is unique in its membership and
structure. It embodies drinking water, wastewater, stormwater,
groundwater, source water protection, agriculture, energy
interests, and everyone shares the bond of working together
towards a more integrated and sustainable approach to national
water policy.
I cannot tell you a more pressing and urgent issue than the
one you are focusing on today, and that is financing
infrastructure to sustain America's most precious liquid asset.
Clean Water America Alliance does not have official positions
on the bills before you. We have endorsed a green
infrastructure principles statement. We also believe strongly
in some key points and principles that are important to your
deliberations.
As you approach the financing issue, which is such an
urgent one, Mr. Chairman, I would emphasize valuing water. I
would emphasize partnering for water. I would emphasize
greening, and meshing green with gray infrastructure. And
finally, I would emphasize connecting all the dots.
On the valuing of water, as was indicated in the extensive
survey over a year ago by ITT Water (now Xylem), the Nation,
the ratepayers, the citizens of the Nation, see water as an
emerging national crisis. There are, every day in America, 650
water main breaks, as AWWA would tell you, 240,000 every year.
You know the problem. The solutions have to start with
helping America understand and using your congressional tools
to launch this campaign on the value of water. And we think
that is a critically important one. Moving towards full-cost
pricing, which is a local issue, but also building the tools
and the public sentiment to really move forward--the country
deserves clean and safe water for the future.
The second point I want to emphasize is the partnering. Mr.
Chairman, water is not just simply a commodity. It is a
lifeblood asset that all of us should have. It is very
important that this public asset be maintained and sustained.
And what I like to call as the public rust doctrine is my
concern that these public assets, these public infrastructure
systems, will fall into rust and decay if we do not use
innovation and allow communities to bring in, when the
communities want to do so, the private sector through
financing, through operating, through managing--it is not
always all or nothing about privatization and selling off of
assets.
And our organization believes strongly that private sector
entrepreneurs and private sector involvement is important, that
there be a partnership. The private activity bond legislation
is a good example of progress. Your efforts in the WIFIA
legislation to integrate more private sector perspectives is
also an important one.
The other aspect I want to emphasize is greening. Our
organization, Clean Water America Alliance, truly believes that
one of the ways to save money, beautify communities, save
energy costs, is to look for greening infrastructure, greening
using trees, parks, connecting with the land and water
conservation fund, parks and recreation districts, and managing
watersheds. As you know and as New York City just recently
demonstrated this week, billions of dollars invested in green
infrastructure will save even more money and help the
community.
The other point I want to emphasize, Mr. Chairman, is that
WIFIA has very good elements to it. It is important to be part
of the toolbox on the table. It is also very important to work
through the logistics, the specifics, so as not to undermine a
program that this committee was very instrumental in in 1986
and 1987, the State Revolving Fund. So that is a key part of
it.
Regarding Congressman Bishop's legislation, which has broad
support from many other Members, it is a very important step
forward. It includes needed elements of the debate in financing
legislation.
On the infrastructure trust fund approach, our organization
believes that dedicated, sustainable funding is absolutely
necessary. I personally would say that we need a national
strategy on dedicated funding. We recognize that it is a recipe
for disaster if some type of new fund is set up that leads to a
Federal tax and decisions are made about local spending in
Washington, DC. But it really is important, as your bill does,
to keep that debate going about funding dedicated towards local
water and wastewater infrastructure.
Mr. Chairman, thank you for bringing together so many
experts and tackling this issue like you are.
Mr. Gibbs. Thank you.
Mr. Schmitt, welcome, and the floor is yours.
Mr. Schmitt. Chairman Gibbs, Ranking Member Bishop, and
members of the subcommittee, my name is Ryan Schmitt. I am the
owner and president of Petticoat-Schmitt Civil Contractors in
Jacksonville, Florida, and I am the current chairman of the
board at NUCA. We are the Nation's largest association
representing utility and excavation contractors. We are the men
and women that fix those water breaks and prevent those water
failures that Mr. Grumbles spoke about.
According to the EPA, hundreds of billions of dollars are
needed to repair America's underground infrastructure, yet the
lack of available public dollars has obstructed significant
progress to address these needs. I can tell you that in my
State of Florida, our company struggles for work, while many
water systems are clogged with tuberculation and desperately
need replacement.
The water infrastructure market and companies working in it
are also in serious trouble. In addition to the cuts in Federal
funding, State budgets have been hit hard due to lowered
revenue from property taxes. The lack of public dollars has
kept the construction industry on the sidelines. In my State,
almost half the construction workforce continues to be out of
work.
Although water and wastewater projects are generally
recognized for their effectiveness in enhancing public health
and environmental protection, the economic benefits that result
from this work are often overlooked. In a 2009 Clean Water
Council study, it showed that a billion-dollar investment in
water and wastewater infrastructure resulted in the creation of
up to 27,000 jobs, $3.46 billion in demand for products and
services in other industries, and $1 billion in generation of
household income. Importantly, each billion invested also
generates approximately $82.4 million in local and State tax
revenue.
When our company does land a project, I see the ripple
effect firsthand. The positive economic impact affects the
financial health of our company, our employees, our vendors,
and all related companies all the way down to the burger stand
next to the job site.
NUCA supports a wide range of legislative solutions to
address America's infrastructure challenges. But because of the
reduced Federal dollars available over the past several years,
our association has recently focused on opportunities for more
private investment and public-private partnerships. The
Sustainable Water Infrastructure Investment Act would lift
water and wastewater projects from the State volume cap on
private activity bonds, thereby encouraging us each of more
public-private partnerships in this market.
Private activity bonds use private capital in lieu of
public debt, and shift the risk and long-term debt from the
municipality to the private owner. The tax-exempt status of the
bond provides lower cost financing for investors, which
translates to lower costs for local governments. Lifting the
cap that fund these projects would generate an estimated $5
billion in annual private investment at a very low cost to the
Federal Government.
NUCA has also been a long supporter of the EPA's State
Revolving Fund, or SRF programs. Therefore, we appreciate the
introduction of the Water Quality Protection and Job Creation
Act of 2011. The bill, authored by Congressman Bishop, would
authorize $13.8 billion over the next 5 years for EPA's Clean
Water State Revolving Fund, and $2.5 billion for combined sewer
overflows.
NUCA also supports the introduction of other legislation
pending in this subcommittee, known as WIFIA, that will offer
credit assistance through the use of loans and loan guarantees
to complement traditional financing programs for water and
wastewater projects.
Establishing a national infrastructure bank to finance
wastewater projects should also be evaluated. Levels of
Government oversight, structure of the bank, revenue sources,
and opportunities for private sector participation are all
issues that must be addressed while considering establishment
for such an entity.
While there continues to be a growing national conversation
about the establishment of a dedicated source of revenue
through a new clean water trust fund, NUCA is supportive of the
concept in the long term after many issues are fully vetted and
addressed.
To sum up, there are several alternatives that, if crafted
appropriately, could put the underground utility and excavation
industry back to work, create scores of jobs in countless
American industries, and expand local tax, bases while
repairing and rebuilding the Nation's crumbling infrastructure.
NUCA believes the congressional agenda should specifically
address removing the State volume cap on private activity
bonds, reauthorizing the SRF program, and establishing new
options for loans and loan guarantees through WIFIA.
Thank you for the opportunity to testify before the
subcommittee today, and I look forward to answering any
questions you might have.
Mr. Gibbs. Thank you.
Ms. Broaddus, you are welcome, and the floor is yours.
Ms. Broaddus. Good morning, Chairman Gibbs, Ranking Member
Bishop, and distinguished members of the Water Resources and
Environment Subcommittee. Thank you for inviting me to testify
today.
I am Lynn Broaddus, and I direct the environment program at
the Johnson Foundation at Wingspread in Racine, Wisconsin. The
Johnson Foundation's mission is to be a catalyst for positive
and lasting change through leading edge convening to create
healthier environments and communities.
I am here today to testify about a report released by the
Johnson Foundation titled, ``Financing Sustainable Water
Infrastructure.'' This report lays out a road map for
innovative ways to finance our Nation's water infrastructure
for the 21st century and beyond.
It brought together a group of experts from water utility
managers, the investment community, NGOs, and other
stakeholders. This effort was conducted in collaboration with
American Rivers and Ceres as part of the Johnson Foundation's
ongoing freshwater initiative known as ``Charting New Waters.''
The ``Financing Sustainable Water Infrastructure'' report
examines the operational, institutional, and market-related
challenges that our water and wastewater utilities need to
overcome if they are going to continue to support our people
and industries into the next century. I would like to highlight
three points from the report.
First, the water utility business model is changing.
Historically, water and wastewater utilities have functioned as
monopolies. Now there are innovative technologies that give
customers more options. For example, Google is recycling gray
water to cool its data center outside of Atlanta, eliminating
the demand for millions of gallons of treated drinking water.
The second point I would like to make is that we are likely
to see more consolidation in the industry. In the future, we
will see wastewater, water supply, stormwater, and flood waters
managed as one system rather than as separate systems that
often have conflicting goals.
And my third point is that these changes will drive the
need to consider a number of innovative financing strategies,
including: expanding the pool of water service funding to
include nontraditional revenue sources, such as energy capture
and nutrient recycling; avoiding future costs by incorporating
water sustainability into other forms of infrastructure, such
as our roads and buildings; and accounting and paying for
ecosystem services to expand utilities' debt capacity, and link
payments to watersheds as lower cost alternatives.
Many of these recommendations are encapsulated in the bills
put forward by both Chairman Gibbs' WIFIA legislation and
Ranking Member Bishop's H.R. 3145. While the Johnson Foundation
cannot offer any specific positions on legislation, I can tell
you generally about how these proposals fit into our report's
recommendations.
Generally, I think the two bills, while certainly
different, share a lot of common and important ground. Both the
chairman's and the ranking member's bills cover many of the
necessary recommendations contained in the ``Financing
Sustainable Water Infrastructure'' report.
However, our report also emphasizes the importance of
flexibility, recognition of new technologies, and changing
conditions in the water business in order to maximize the
impact and effectiveness of new financing mechanisms.
With regard to WIFIA, we need to make sure that any program
allows for the ability to finance smaller, more incremental
projects, especially for smaller communities. If financing
mechanisms are available only for mega-projects, then that is
what we will get, even when a smaller solution may have been
the more cost-efficient one.
Regarding Congressman Bishop's bill, we are pleased to see
that it recognizes the inherent benefits of smaller projects
and new technologies. Developing smaller solutions that are
tightly focused can avoid some of the problems we currently
see, where communities can no longer afford to maintain larger
facilities because of population shifts, reductions in per
capita water use, and other factors.
I would like to note, however, that the experts we convened
felt that if there is grant funding for water infrastructure,
it should be done in a way that does not hide the true costs of
water and wastewater services.
In closing, I believe that we can bring about a more cost-
efficient and effective system for the long term if we tackle
not only how to maintain the existing system, but how to
improve it so we can more effectively meet the needs of our
shifting population and water resources relative to the
environmental, technological, social, and demographic changes
we are expecting.
I would also like to ask unanimous consent to enter the
``Charting New Waters'' report and the ``Financing Sustainable
Water Infrastructure'' report into the record.
Mr. Gibbs. So ordered.
[The preamble to ``Charting New Waters'' and the executive
summary to ``Financing Sustainable Water Infrastructure''
follow. These reports can be found in their entirety online at
the Government Printing Office's Federal Digital System (FDsys)
at http://www.gpo.gov/fdsys/pkg/CPRT-112HPRT74562/pdf/CPRT-
112HPRT74562.pdf. Click on ``Bookmarks'' in the left-hand
navigation panel to select either report.]
Ms. Broaddus. Thank you for your attention to these issues,
and I would be very happy to take any questions.
Mr. Gibbs. Thank you.
Mr. Abelson, welcome. The floor is yours.
Mr. Abelson. Thank you, Chairman Gibbs, Ranking Member
Bishop, and members of the subcommittee. My name is Richard
Abelson. I am the Executive Director of the American Federation
of State, County and Municipal Employees, AFSCME, District
Council 48 in Wisconsin.
It is an honor to be here today to share with you AFSCME's
experience with the privatization of water and wastewater
systems, particularly in Milwaukee, Wisconsin.
AFSCME's 1.6 million members are primarily public employees
who work in areas such as health care, education, social
services, transportation, law enforcement, and of course, water
and wastewater treatment across the country.
We have a broad range of experience and knowledge of the
impact that privatization of public services had on communities
and the public at large.
Faced with rising financial challenges, the controller for
the city of Milwaukee in 2008 proposed the long-term lease of
the city's water works.
The Controller proposed a lease of 75 to 99 years,
something that was unheard of in a city the size of Milwaukee.
This proposal initiated a period of intense debate that lasted
for about a year.
A major coalition of community groups and individual
citizens came together to examine the impact this proposal
would have on the city of Milwaukee.
We found several negative consequences for the residents of
other Wisconsin cities that we desperately wanted to avoid.
We discovered that customers of privatized water systems in
Wisconsin pay 59 percent more for service than those who
receive water from a publicly run system.
We also discovered the customers in Wisconsin whose
drinking water systems are privatized encounter more water
quality issues and poor service problems.
In the end, the plan to turn over the city's water drinking
system to a private company in return for an upfront payment
was abandoned.
I would like to submit for the record an extensive report
that was done by Food & Water Watch entitled ``Mortgaging
Milwaukee's Future: Why Leasing the Water System is a Bad Deal
for Consumers.''
[Please see page 151 for ``Mortgaging Milwaukee's Future:
Why Leasing the Water System is a Bad Deal for Consumers,''
which Mr. Abelson attached to the end of his written
statement.]
In this extensive report, Food & Water Watch took a close
look at the Milwaukee water utility's financial statements and
proved how a long-term lease would actually cost the city
millions of dollars a year, and customers would see a huge jump
in their bills, suggesting that a lease of the water utility
was not in the best economic interest of the city or its
residents.
The report concluded that the city would undoubtedly
experience higher rates and poor service, leaving citizens with
little recourse.
The report is attached to my written statement.
Unfortunately, unlike our water works, our wastewater
system has been privatized, and it has been a less than
successful effort, to say the least.
Our environmental concerns have in fact become a reality.
We believe that the private sector does have a role to play
in the provision of certain public services, but it is not in
operating or managing public drinking and wastewater
facilities. That should be the responsibility of local
governments.
The private sector can use its vast resources to find
innovative solutions to the water crisis and create innovative
technologies for more efficient treatment plants.
We have to ask ourselves, is water a basic public resource
or a product that is sold for profit.
What we found in Milwaukee is not unique. Private investors
or public-private partnerships, whether in water and
wastewater, highways or other capital assets, typically demand
a high rate of return, and such provisions as lengthy contract
terms, anti-compete clauses, or guaranteed payments, which are
not in the public interest.
We believe that infrastructure is more appropriately
financed through vehicles with fixed income instruments than to
private equity with long-term stable returns.
Given that interest rates are at historic lows and many
public entities have latitude to issue debt, bond financing is
the best way to achieve this goal.
Renewal of the Build America Bonds Program could save the
Federal Government money, help put Americans back to work, and
revitalize the infrastructure that is critical to the United
States' economic competitiveness.
By providing access to tax exempt investors, such as
pension funds, solvent wealth funds, and life insurance
companies, Build America Bonds bring new sources of capital to
State and local governments.
We should work together beyond considering these options.
AFSCME and other labor unions are collaborating to explore
financing structures in which a public pension fund or group of
public pension funds hold majority control in an infrastructure
asset providing stable returns to the retirement system, as
well as providing an influx of badly needed investment in
public infrastructure.
I appreciate the opportunity to appear before the
Subcommittee today, and I would be pleased to answer any
questions which you may have.
Mr. Gibbs. Thank you. Before we move on to questions, I
have a draft report from Richard Little dealing with the Food &
Water Watch analysis of the Milwaukee situation.
I would ask for unanimous consent it be added to the
record. So ordered.
[The information follows:]
Mr. Gibbs. I want to go back to this end of the panel to
start. This is a large panel. A lot of information was covered
here. I think we will have some good discussion here.
Ms. Massey, you raised some concerns, I think, about
funding of SRFs and WIFIA. We heard from other panelists that--
in my opinion, we want to make sure that we do fund the SRF
programs, and it is a complementary program and not compete
with it.
You did talk a little bit about some things in the SRF that
may need to be fixed or adjusted. I do not know if you want to
expound a little bit, maybe something we should try to address
in the legislation to actually strengthen the SRF program, and
hopefully with a WIFIA type and other financing mechanisms, so
they all interact together and accomplish what we need to get
done.
Ms. Massey. I think the base where the Council of
Infrastructure Financing Authorities will come down, it does
come down to flexibility.
Just a few things. I will give you a couple of examples. As
I give you these examples, I do not want to lead you to believe
that the States are opposed to the base concept on some of
these because we are not.
Let's talk about green infrastructure. That is one that
comes to mind.
States are supportive of green infrastructure. There is no
question about that. What we do have an issue with is having a
dedicated set percentage of funds or projects that have to be
green infrastructure projects.
What we are finding is that not all States can meet the
percentages that are being set. Sometimes they just simply do
not get the projects in to meet the percentage.
Other times, what they are finding is the projects they are
getting in do not touch water quality to any significant
degree, so they are having to give up the higher water quality
benefit projects. That does become a problem.
I think it is when we lose flexibility by having--
``arbitrary'' might be the right word--arbitrary percentages of
certain types of things we have to do, then that becomes a
problem.
The same thing, I discussed additional subsidization. That
is a great tool, having the ability to either provide zero
interest or negative interest loans to disadvantaged
communities. That is a wonderful tool to have on behalf of the
States.
Requiring a certain percentage again does become
problematic, when your applications that come through the
process simply do not get you to that percentage level. It does
become a problem.
Those would be two off the top of my head.
Mr. Gibbs. OK. Thank you. To the whole panel, is there
anything that we should be looking at, impediments, either at
the Federal, State or local levels, to successfully implement a
different array of financing?
Does anybody have an opinion on things that are out there
that really need to be addressed to make WIFIA work or get the
cap off the volume? Is there something at any level of
Government that is an impediment that you can envision that
maybe we should try to address?
Anyone want to respond?
Mr. Dornbirer. Mr. Chairman, your memorandum actually did a
good job, I think, listing out some of the impediments to
considering other alternatives.
I think the largest thing, given that we have tens of
thousands of public utilities in the country, it is just a
painstaking process to educate each group of civil leaders that
there are alternatives.
I do not know how you would tie that in to a program other
than some sort of mandatory education process, that when you
are considering a loan, you are considering SRF funding or
something under WIFIA, that you are educated on all your
alternatives in case you do not qualify for one of those
programs.
Mr. Gibbs. OK. Yes, Ms. Broaddus?
Ms. Broaddus. I do not know that this is something that
would necessarily be addressed within WIFIA, but one of the
issues that was identified in our gathering and in our report
are GASB rules. The Government Accountability Standards Board
does not allow for accounting of natural assets or natural
capital. A lot of utilities around the country are using
watersheds to filter their water and protect their water
supply, but the accounting rules do not allow them to include
that in their assets.
I presume that would in some ways enter into some of the
bond activities and that sort of thing, and maybe something to
address outside of WIFIA.
Mr. Gibbs. Would that also include other programs like some
new programs that have taken off that I have been involved in,
the nutrient trading programs?
Ms. Broaddus. Most probably so; yes.
Mr. Gibbs. OK. Back to Mr. Weihrauch. Can you talk a little
bit as to WIFIA and the SRF, expound a little bit about how you
think it complements it and not conflict, and how you see it
playing out?
Mr. Weihrauch. The strength of WIFIA is it revolves around
the largest of projects. Projects that may be multistate.
For example, in Ohio, the Greater Cincinnati Water Works
serves the Cincinnati area, many counties, and portions of
Northern Kentucky.
Because of a posture, well thought out, of regionalization
and efficiencies inherent with regionalization, this practice
is going to tend to continue to grow.
To find synergy between the State of Kentucky's SRF program
and the State of Ohio's for funding improvements to those water
systems would tend to be quite difficult.
[Insert for the record from witness David Weihrauch
follows:]
The realities in both Kentucky and Ohio make it
extremely unlikely that either State would fund a
project in the other State, even if that project would
benefit its own citizens. For example, it is extremely
unlikely that Kentucky would fund upgrades to the
treatment plant in Ohio, even if Cincinnati Water
Works' customers in Kentucky would directly benefit.
And it is extremely unlikely that Ohio would fund
infrastructure replacement in Kentucky even if that was
improtant to the overall integrity of the regional
system, including the customers in Ohio.
I want to be clear that I'm not picking on Ohio and
Kentucky. The same conditions hold true in most States
if not all of them. And many if not most States have
political issues surrounding ``upstate vs. downstate''
or ``big systems vs. small systems'' that act to deny
SRF funding to their largest cities and to projects
that are truly regional or national in scope. WIFIA is
designed to address those compelling needs, to
ultimately benefit the customers served by large
projects.
That's why the American Water Works Association
strongly supports running WIFIA through EPA and not
through the States.
On the other hand, Section 105, subsection 8 of the
proposed WIFIA bill, allows SRF managers to bundle projects,
come into WIFIA, pick them up, and as long as the interest
climate is good, there is some real potential there.
For example, in the latest round of SRF projects in the
State of Ohio, among the 258 which were not funded, 49 were
scored at standard long-term interest rates. They are not going
to receive a great benefit in their interest or principal
forgiveness.
Those types of projects could be bundled, and all 49 of
them could be taken care of, and the net interest rate to the
project would be about the same as it would be through the
typical SRF structure, and the OEPA and the Ohio Water
Development Authority would each get their fees on top of that,
and still maintain a reasonable interest rate structure at
today's terms.
These are benefits, and part of the innovation of WIFIA.
Mr. Gibbs. Thank you. We are going to move on to Ranking
Member Bishop. Go ahead.
Mr. Bishop. Thank you very much, Mr. Chairman. I want to
stay on this issue of the two approaches, funding through the
SRF versus having the EPA make the decisions and sort of bypass
the SRF.
In the conversations that I and others have had about this
bill, it appears as if the clean water people want to continue
the process of working through the SRF, and the drinking water
people want to work around the SRF, as I say, at the risk of
over generalizing.
Let me frame the issue for you in this way. Mr. Weihrauch,
I think you said it best. You said it is up to us as to whether
or not this process might possibly undermine the SRF.
Here is my concern. My background is higher education. I
was a college administrator for 29 years before I came here.
In the late 1950s, in the wake of the Sputnik, the Federal
Government created something called the ``National Defense
Student Loan.'' Some of you may have borrowed a National
Defense Student Loan or something called the ``National Direct
Student Loan.''
It was a revolving loan fund where the Federal Government
provided money to participating colleges. Colleges loaned that
money. Students paid the money back to the colleges. The
colleges would re-loan the money. In other words, the higher
education version of the SRF.
It has not received a Federal capital contribution now
since 2000 or 2001, I think, and under current law, it is now
called the ``Perkins Loan Program,'' it is the same program,
and will go away.
In 2014, current law requires whatever balances exist in
the loan fund to be returned to the Federal Government and the
loan program will go away.
That is my concern. My concern is if we have a work around,
in a climate in which appropriators are going to have to make
really, really tough choices, and I think it is reasonable to
assume that climate is going to continue for a while, this is
an easy one.
Hey, we got this WIFIA. Let's do WIFIA. We do not have to
fund the SRF any more.
That is my concern about a structure that would create what
appears to be a complement but could result in a conflict.
Mr. Grumbles, first off, welcome back to this committee
room where I am sure you have spent more hours than you care to
count. It is good to have you back.
I thought you said it very well in your testimony. You
said, and I am quoting, ``It is critical to ensure that what is
intended as a supplemental tool does not become the one and
only tool or in some way, undermine the success of the SRFs.''
I think you have said it very well. Would you care to
comment on the concern that I just raised, and Mr. Schmitt, you
have raised similar concerns, if I could hear from each of you,
I would appreciate it. Thank you.
Mr. Grumbles. In 1986, when there was a massive agreement
between the Executive Branch, the President and the Congress to
move away from the construction grants' era of the Clean Water
Act, which led to enormous success, but based on fiscal and
philosophical perspectives, the decision then was to move away
clearly to a new model, the SRF model.
It was structured after much, much debate that it would be
a phased transition, and that transition has never fully
occurred. There are still some specific grants, although far
fewer, but the SRF capitalization grants did not end as was
envisioned by Congress in 1987 and by the Executive Branch.
Here, I think the situation is different where there seems
to be a willingness--the WIFIA legislation that I have read,
the draft, it is clearly the intent of the drafters to keep the
SRF going.
It is a political and budgetary decision on the
implementation of that. I would say as a former State
infrastructure finance authority official, it is realistic to
see that the big decisions made on Capitol Hill will lead to
far less or much earlier total phase out of the State Revolving
Fund.
There have to be safeguards built into that. For me, it
really does make sense, while some are concerned about the use
of the word ``flexibility,'' when Federal dollars are scarcer
and scarcer, and when State programs are showing how mature
they have developed over the last several decades, both under
the Clean Water Act and the drinking water program, it does
mean there needs to be greater flexibility given to the State
and local fund managers and the officials, who can then do
innovative things with integrating source water and clean
water.
I think there has to be real clear safeguards and a
mechanism to enforce that philosophy that it is not meant to
undermine the SRF.
I think your hearings are just going to lead to more and
more ideas about how to do that.
Mr. Bishop. Mr. Chairman, if you would indulge me, if we
could let Mr. Schmitt answer as well. Thank you, Mr. Grumbles.
Mr. Schmitt. NUCA has been a long time supporter of the
SRF, not only as a financing mechanism but the fact that the
States can utilize their project priority lists and their
intended use plans to determine where those funds can best be
used.
In our industry, the needs of water and wastewater spending
can be pretty specific and pretty critical, and can shift
pretty abruptly.
In my home town of Jacksonville, we are doing a project now
where we are pulling out the water mains where 8-inch mains
have about 2 inches of flow because of excessive tuberculation.
While that is addressed by a priority, there also might be
another instance where you have excessive overflows due to high
water tables that are in need of some immediate attention.
I know our utility struggles to try to prioritize what
projects need to get funded and what projects need to be put in
a place at what time.
The State is much closer than the Federal level, with all
due respect, on addressing those needs, and putting our
industry to work in evaluating and fixing those needs.
Mr. Bishop. Thank you very much. I yield back, Mr.
Chairman.
Mr. Gibbs. Representative Napolitano?
Mrs. Napolitano. Thank you, Mr. Chair. Yes, it is good to
see you, Mr. Grumbles. Long time, no see.
Having come from local government and taking a look at how
they have to deal with all the emergencies and having sat on a
sanitation board for years, I have a little understanding of
some of the trials and tribulations.
As I served at the State level, I heard from other cities
about their inability to be able to fund innovative and new
research and expansion of their wastewater treatment, and how
that affects them.
California has such a long shore line that you have
releases of wastewater into the beaches that prevents people
from getting into the ocean.
There are all kinds of things that have happened. One of
the things that you have not touched upon, and I would like to
find out from any and all witnesses who can answer this, how
and to what extent is green energy technology being
incorporated into long-term infrastructure planning, and are
you actively pursuing ways to reduce energy usage while
planning for future wastewater infrastructure needs?
I tell you that because we are working with IBW and NETECH
to green buildings and being able to recycle the methane gas
from the landfills, et cetera.
There is a lot of new technology. How is that playing a
role in what you are doing or going to be doing? Anybody?
Mr. Grumbles. I will just go first very briefly,
Congresswoman, to say that you have really touched on one of
the key paradigm shifts that this country, this committee and
others must usher in, and that is viewing in particular
wastewater treatment facilities not as treat and discharge
plants, but as centers of regeneration.
I can tell you just from our organization's perspective the
leading green city utilities who are members of Clean Water
America Alliance are all integrating more green energy, biogas
recovery, methane management issues, to put that to work,
recognizing that there is no such thing as wastewater, just
wasted water.
There is a tremendous amount of energy from it and money,
profit.
The research agenda still needs a lot more investment, but
I think the will is growing. Utilities really want to put that
to use.
Mrs. Napolitano. Coming from not only the ranking member of
the Subcommittee on Water and Power, I am very concerned about
recycled water and the stigma attached to wastewater. We need
to start calling it something else so that the general public
can accept the recycled tertiary treated water that is included
in your aquifers, et cetera.
Yes, ma'am?
Ms. Broaddus. I wanted to also address your question about
green energy. Of course, all water is recycled at one level or
another. We may have a hard time accepting that.
In terms of green energy and the ability to reduce the
energy impacts of water and wastewater treatment and movement,
the Water Environment Federation, who I believe was present at
the last panel, the February panel, had issued a statement, I
think back in the fall, that they believe that all wastewater
treatment can become energy neutral if not energy generating.
I think one of the things we want to be sure is
incorporated into the legislation, is the recognition that is
where we need to go. That is where we can go. The technology is
in the works, and in some cases, already there.
So any financing mechanism needs to not only have the
flexibility to allow that but also to encourage that.
Mrs. Napolitano. Mr. Howard, do you have a comment on that?
How is the business end of it looking?
Mr. Howard. I think that is one of the experiences that we
have had in the municipal solid waste sector, where we had a
fair amount of innovative technology that has been developed in
that sector, in partnership with the private sector.
We would expect that same experience would apply in water
and wastewater.
Mrs. Napolitano. Are you taking that in consideration as
you are looking at the funding mechanisms?
Mr. Howard. Yes, definitely. It has to be commercially
proven technology, I might add, to be acceptable to the
financing markets.
As long as it is commercially proven technology and viable,
it is a very active part of our financing programs.
Mrs. Napolitano. Anybody else?
Mr. Weihrauch. Yes. The American Water Works Association is
a strong supporter of innovation and forward looking
technologies.
I would submit there is no greener action that can be taken
than reducing the infiltration problem on our clean water side
and resolving the water loss statistics for our community water
systems, which can be greater than 40 percent for some
communities.
These are easily identifiable, and the only thing standing
between taking care of them and not taking care of them are
adequate and responsible funding sources.
Mrs. Napolitano. Ms. Massey?
Ms. Massey. From the States' perspectives, I believe what
we are seeing now is energy efficiency has just become part of
our standard dialogue.
We, some States, hardly consider that green infrastructure
any longer, because now I think everybody pretty much has
bought into it. It makes great operational sense, and it really
should be included in the designs, which is now giving us the
opportunity to look even further out into those new innovative
technologies.
Mrs. Napolitano. Thank you, Mr. Chair. I look forward to
the second round.
Mr. Gibbs. Thank you. I just want to make a quick comment.
I am very supportive of this concept of innovative
technologies. I appreciate Mr. Howard's comments and Ms.
Broaddus', because for energy generation and nutrient
recapture, there has to be a revenue source.
We do have the innovative part in the WIFIA draft. We are
very supportive to make that work, and we will try to look at
that and maybe make it stronger.
Ms. Johnson?
Ms. Johnson. Thank you very much. Let me also welcome Mr.
Grumbles back here. He is a staple around here. I should have
known you would never give up water as a career.
My question does not have to do so much with the funding
right now. I know that will be ongoing for a while.
I had a constituent who approached me on an interstate
water redistribution system, which seems almost impossible to
think about right now, but the concept being that where there
are floods, there could be some type of piping that would shift
that water to another area where it is needed. It would be
shifted by technology, whether the little flap is open or not.
I would like to hear some of you that are water experts on
the idea of something of that sort.
Ms. Broaddus. Without knowing the specifics of it, I guess
I will take a first crack. I think one should approach anything
like that with caution.
Based on what we have heard from the people we have met
with, one of the sort of long-term goals is not only to look at
the long-term impacts and life cycle costs of something like
that, including the energy costs associated, but there is a
concept of keeping water local and trying to mimic the natural
systems as best as possible.
Again, without knowing the specifics of that situation,
before looking to that kind of a technological solution, go
back and look at the underlying problem with why the flooding
is occurring.
It may be there is actually--it is part of a bigger
systemic problem, and there may be by restoration of natural
ecosystems a way to kind of stem the flooding and restore the
hydrological cycle locally.
Ms. Johnson. Yes. It came right after we had a great deal
of flooding in the east last year or year before. At the other
end of the spectrum, there was a lot of drought.
The idea came up as why cannot we not move this water
through some system to another area for agriculture or
whatever. I just thought that since many of you were water
experts, maybe you thought about something like that.
Mr. Grumbles. Congresswoman, I know this committee has for
decades looked at some of these regional and interstate water
quality, water quantity issues.
I think it is complex because of the laws that overlay the
management of water, particularly when you have water quantity
and water quality issues involved.
I know the goal for our organization is a ``one water''
management perspective that creates the forums to bring
together the flood and stormwater managers with the water
quality permitting agencies, and also the water rights,
particularly in our western water States, that definitely has
an impact.
Many people would say the future may be more interstate
compacts, blessed by Congress through the Constitution, but
more interstate compact arrangements involving multistates, but
as Lynn Broaddus said, when you think beyond local terms and
move water across watersheds, it can become complex, even
though it may well be the cheapest engineering solution.
It may prove very costly due to the laws and the political
debates surrounding it, and the long-term ecosystem damage, if
you are moving water, putting it where it would not normally
be.
Ms. Johnson. Thank you. Thank you very much, Mr. Chairman.
Mr. Gibbs. Ms. Norton?
Ms. Norton. Thank you, Mr. Chairman. I do want to thank you
and commend you and the ranking member for your concentration
on these series of hearings on ways to get financing for our
water structure through innovations perhaps.
I want only to mention that there are a large group of
Members of the House who are very, very concerned, so much so
that we are circulating a letter that is addressed both to the
leadership of the Senate and the House.
I am in the process of circulating this letter now. It is
going to be signed, among others, by Ranking Member Rahall,
Ranking Member Bishop, Ms. Johnson, and I am sure many other
members of this committee.
We are very concerned, but I have to be candid, that in
light of the difficulty we are having in getting a bill through
here, which is generally the most popular bill to come through
the House because of its visible benefits to every district in
the United States, the Service Transportation Bill, it is hard
for me to be optimistic about a water infrastructure bill which
the public is not nearly as aware of as they need to be, and I
think these hearings may help to encourage.
We are really dealing with a structural change here that I
am not sure how to grapple.
If we look at only 35 years ago, the Federal Government
covered almost 80 percent of water system funding for capital
projects.
That should not be surprising. That is about what we cover
for transportation projects with some funding, of course, the
rest of the funding by States and localities.
Today, the Federal Government has gone from almost 80
percent to 3 percent. That is not just a reduction. That is a
change that structurally transfers the capital costs to States
and cities in my own jurisdiction.
I represent the District of Columbia. We are in the process
of replacing one of the oldest stormwater overflow systems in
the country. It was built by the Corps of Engineers before the
District of Columbia even had home rule.
We are replacing it not by replacing the system, but by
using huge tunnels which will store the water as it overflows,
and then send it to be treated.
This is being paid for almost entirely by ratepayers. We do
get some funding in the appropriation bill from the Federal
Government. I think this year it was $11 million.
The reason we get that is the Federal Government is a
ratepayer. The Federal Government built the system. Or else we
would get nothing and it would be entirely on the ratepayers.
This is a very aggressive green jurisdiction, so the
authorities here in the District of Columbia have written the
EPA for permission to do a pilot project to see how much of
this could be--recognizing it would not be anywhere near--most
of it could be absorbed through green infrastructure because
the city itself is a very green city. I think it may be number
one in the United States.
We are having to seek permission to do that, and to do a
pilot project, of course, I do not think anyone knows through
data or through actual experience how much green infrastructure
can be done.
One would think we would want to be launching a matter of
experiments to find out what that means.
I am sorry I was not here to hear most of your questions. I
was in another hearing. I did want to say the Subcommittee is
doing exactly the right thing, to keep attention focused on
this issue. It is not going to go away. The Federal Government
has decided it simply is not in the game any more.
Unless the consciousness is raised of people who drink the
water, who increasingly buy the water, and now we see do not
buy that water, you do not need to buy that water, you should
not buy that water.
In our city, we are trying to say to people do not buy the
water. You are only making things worse.
Unless you see raising of consciousness in your own
jurisdictions, you are going to see what has been the collapse
of Federal participation, just going to zero. That is where it
almost is now.
I thank you very much, Mr. Chairman, for all of your hard
work and hearings that I think are putting a spotlight on this
very important issue.
Mr. Gibbs. Thank you. Mr. Weihrauch, I have a question. We
have heard testimony from some of the panelists and I think the
ranking member's concern about WIFIA should be ran through the
States, administered by the States.
In your testimony, you strongly recommend against that. Can
you give us maybe an example of why you think that is not good
to run it through the States?
Mr. Weihrauch. The pure and simple answer is that States do
not have the authority that the U.S. Treasury has, WIFIA being
modeled after TIFIA, would be a direct conduit of funds from
the Treasury, and extremely efficient, as it is outlined in the
bill.
Everybody that handles funding must cover their overhead,
and the temptation, of course, is always there to take a little
bit more for a noble program, and there are many good projects
underway within environmental management programs throughout
the States.
The efficiency is the hallmark of the WIFIA concept.
Mr. Gibbs. Also, to reiterate, the American Water Works
Association and the Water Environment Federation, the two
primary professional membership organizations of the water and
clean water industry, are of one mind on the thought of
efficiency through the WIFIA program for these large projects.
Neither organization wants to see additional layers of
management built into that funding structure. Of course, that
is large projects, but also in our proposed legislation,
smaller projects can aggregate, and actually the State would
administer that part. Is that correct?
Mr. Weihrauch. That is correct. The draft bill is
structured in SRFs can utilize it for bundles, $20 million and
up, and there is no ceiling there.
Mr. Gibbs. Thank you. Mr. Howard and Mr. Dornbirer, what
advantages would municipalities have by using private activity
bonds versus governmental bonds?
Mr. Howard. I think the point I made earlier about the
partnership with the private sector and the flexibility that
would provide under a variety of different contracting
structures, ranging from just a design/build approach with
public operation with innovative technology, all the way to
design/build, operate, finance, and owned by the private sector
under some sort of contractual, wholesale contractual
arrangement with the public sector.
I think our experience again in the solid waste industry,
and to a certain extent in the water industry, but to a much
more limited degree, is that what happens is you attract large
international private companies domestically based or
internationally based that have extensive capability and
knowledge around innovative technologies that have been applied
elsewhere that can be brought to bear to local jurisdictions.
We are involved in a number of public-private sector
arrangements across the country right now, and in a couple of
cases, dealing with very small municipalities that are under a
tremendous amount of strain budget wise, and just simply do not
have the local expertise to manage their systems.
They are reaching out to the private sector to help them.
Right now, we have plenty of tax exempt bonds to tap into, but
we do not expect that to last very long.
Mr. Gibbs. I think that is a very interesting point. You
are saying with that private investment capital coming in, you
also are going to get the expertise and the consultants.
Mr. Howard. That is the real benefit of the public-private
partnership model. What it forces the parties to do is to sit
down at the table and plan for a 30- or 40-year contract that
shifts a fair amount of risk to the private sector to manage
the system efficiently.
It is something that small jurisdictions very much benefits
from.
Mr. Gibbs. Thanks. I appreciate that.
Mr. Dornbirer. I would just like to add that we finance the
water recycling plant in Santa Paula, California, along with DZ
Bank.
There, the private equity sponsor brought in an engineering
design firm and operating firm all in one. They designed the
plant and built the plant, knowing they were going to have to
operate the plant for the next 30 years. You have a much more
holistic approach to incorporating the new technologies.
Like Steve said before, we want commercially proven
technologies, but also technologies to actually provide an
asset from these plants. The effluent coming out of the plant
is now available for irrigating golf courses, and you can
directly inject it back into the aquifer because it is cleaned
to such a standard.
Mr. Gibbs. I do want to ask the Mayor from Napoleon, Mayor
Behm, since you are the only local elected official here,
administrator, can you comment on what you see as a medium
sized to small municipality, the challenges you have to access
capital and what hoops you have to go through, working with the
EPA or whoever?
Can you maybe elaborate on what you see some of your
challenges are, being a new Mayor?
Mr. Behm. Sure. The challenges, as I stated earlier, we
really have not had a problem necessarily getting funding. Some
of the challenges is on the length of the funds, such as our
equalization basin, which costs $8.85 million. We were able to
receive a low-interest loan through the EPA.
That, however, was only for 20 years, when actually the
equalization basin is going to be a lifetime expectancy of 30
to 40 years.
Something in that regard would be much more beneficial for
the city to pay over a longer time.
As far as receiving any kind of funds, it has not
necessarily been the problem. The problem again is generating
the revenue to----
Mr. Gibbs. Another thing this committee has been working on
with the EPA, and we are going to ask them to come back later
this Spring, because they are working on a pilot program to
integrate and prioritize the permitting process to hopefully
streamline things, so you can move forward and address
immediate needs, which might be different than a need in
another municipality, but give the ability through the
permitting process of flexibility, and hopefully that is
something you can see as a benefit.
Mr. Behm. That would be definitely beneficial.
Mr. Gibbs. I will yield to the ranking member.
Mr. Bishop. Thank you very much, Mr. Chairman. I have three
things which I will try to move through quickly.
Mr. Howard, Chart 10, I think it is, I just want to revisit
that. If I am reading it correctly, in 2010 and 2011, there
were some $25 billion worth of taxable Build America Bonds. Am
I reading that right?
Mr. Howard. That is correct, approximately; yes.
Mr. Bishop. Approximately. Those were used to construct
and/or renovate/rehab water and wastewater systems?
Mr. Howard. Yes, but under a traditional governmental
purpose bond financing structure. In order to issue taxable
Build America Bonds, the project that you finance had to
qualify as a governmental purpose----
Mr. Bishop. My question is a little different. I am
assuming these are projects that employed one or two people. Is
this correct?
Mr. Howard. No. These were projects--all different types of
projects.
Mr. Bishop. My point is these are projects that this is
funding that supported construction and/or rehab of water and
wastewater projects?
Mr. Howard. That is correct.
Mr. Bishop. Some people actually worked on these projects?
Mr. Howard. Yes.
Mr. Bishop. The Recovery Act did in fact----
Mr. Howard. Oh, definitely.
Mr. Bishop. Put people to work?
Mr. Howard. Definitely. Had a huge impact.
Mr. Bishop. Thank you very much for that, sir. I appreciate
that.
On the issue of private activity bonds, let me say that
this committee on a bipartisan basis four Congresses ago passed
legislation that would lift the cap on private activity bonds.
I think we are in full agreement. We also have another
legislative mechanism before us today, the Senate Highway Bill,
which passed last week. It is called ``MAP-21.'' It includes a
provision that would lift the cap for 5 years on private
activity bonds.
I introduced that bill in the House this morning in an
effort to jump start a process that seems to have ground to a
halt, and I do not want to put words in any of your mouths, but
it seems the consensus of the testimony that we have heard thus
far is you would encourage us to get that provision passed.
Am I right about that?
Right now, the only legislative mechanism before us to do
that is MAP-21, the Senate Highway Bill, which passed by a huge
bipartisan majority that I have now introduced in the House,
and hopefully, we can generate similar bipartisan support.
Lastly, Ms. Massey, I do not wish to be argumentative, but
I just want to make sure we have the same set of facts.
You talked about the green infrastructure requirement, the
set aside, as being a bit of an impediment.
It is our understanding that at least as it relates to the
clean water SRFs, all the States have reported to us they had
more than sufficient number of projects to meet the set aside.
By the way, the green infrastructure set aside was
established in the Recovery Act. It has now been carried
forward in the last couple of appropriation bills.
The appropriation bills have each included language that
eliminated the reserve or the set aside if the State did not
have sufficient projects.
My question is given the fact that we have States saying we
have no problem, we have plenty of projects that meet, and we
also have a provision that says if you do not have projects
that meet the requirement, we will waive it, on what basis is
it still viewed as an impediment?
Ms. Massey. I believe we can certainly live with the
current language the way it is. There are sufficient
applications.
What we are seeing is there are a dwindling number of
applications coming in, so I think we are looking toward the
future, and we have that concern, but we absolutely can live
with the language the way it currently is.
Mr. Bishop. If we were to continue to have language that
provides an exemption, if there are insufficient projects, that
would allow the administrators of the State SRFs to go forward
in a fashion that is productive?
Ms. Massey. Yes, we can live with that language.
Mr. Bishop. Thank you very much. I thank you all for your
testimony. Thank you, Mr. Chairman.
Mr. Gibbs. Ms. Napolitano?
Mrs. Napolitano. Thank you, Mr. Chair.
I have a little bit of an introduction of a news release
for the record, if you would. It has to do with one of my
providers in Los Angeles.
It is reflecting an increase of rates of 60 percent
associated with the O&M, operations and maintenance. They also
include in that this water distribution and treatment, an
example of the increases we are seeing nationally.
Costs are shifting from construction of projects to the
O&M, to operations and maintenance.
I would like to just quote part of the release. Of course,
in 1990, this agency, Metropolitan, went from $30 million in
maintenance to currently somewhere in the vicinity of $275
million a year, costs.
How do we then begin to look at cutting the O&M if we do
not upgrade the maintenance, if we do not replace, if we do not
take care of what ails our aging infrastructure?
Two questions for the panel. At the last hearing, one of
the witnesses suggested that private equity firms should have
direct access to a new water infrastructure and financing
authority to borrow at the same subsidized rates that would be
available to municipalities and communities.
The CRS, Congressional Research Service, told us that
providing this access to private equity firms could result in a
situation where they re-loan this federally subsidized funding
to local communities, and arguably, make a profit off acting as
a middle man of Federal financing.
Does that make sense, that we should be using federally
subsidized firms to increase profit margins of private equity
firms, especially if this comes at the expense of local
communities' ability to address their local infrastructure
needs?
Mr. Grumbles. I will just say, Congresswoman, that my firm
belief is the era of cheap water is over. As AWWA said, years
ago, we were entering the age of replacement, where all the
aging infrastructure systems need to be replaced and upgraded.
The most sustainable way to deal with that challenge and to
manage your assets is through the local rate making process,
which is a difficult one.
I think that is the fundamental first step, making sure the
rates reflect the true value of the service of the
infrastructure, not just putting it in the ground, but
maintaining it and upgrading it over time.
In terms of additional infusions of dollars, whether it is
State dollars or Federal dollars, the dollars beyond what is
coming from the ratepayers themselves, that is where you need
to look for opportunities to further engage the private sector,
because there will be efficiencies, and that will help reduce
that cost which has to be paid in order for the system to be
maintained.
The last point is the fundamental paradigm shift that is
occurring in places across the country, re-looking at the
systems and centralized water and wastewater treatment, and
trying to find ways, deploying the right technologies to treat
and reuse closer on-site, so you do not have the long miles of
leaking pipes and that type of problem.
I think the more you can structure a financing relationship
where the private sector can come in without selling the assets
to the private entity, I think that will help reduce the costs
on the burdened ratepayers.
Mrs. Napolitano. Anybody else?
Ms. Broaddus. I would like to address, Congresswoman
Napolitano, the first part of your question, and that is yes,
we do have a growing burden of the cost of repairing and
replacing this infrastructure that we have in place, both on
the clean water and the drinking water side.
Rates need to reflect that cost. They can be shaped in a
way that still protects those who are least able to pay, but we
want to make sure that in total, the full cost is recovered.
There also needs to be the flexibility to examine. There
may be times and it would be a case by case scenario, but there
may be times where it makes more sense to put in place some
kind of new technology.
During our meetings, we definitely heard about times where
it makes more sense to go ``off grid,'' if you will, a term
that is used more in energy than it is in water, but there are
opportunities to do that with water as well.
One needs the flexibility to figure out what makes the most
sense for that particular situation.
Mrs. Napolitano. Yes, sir?
Mr. Weihrauch. Yes, ma'am. I would just like to attempt to
add some clarity to part of the WIFIA approach and about the P-
3s, the partnerships.
The utility is sponsoring the loan, and this limits what
happens to that money. It is going to the direct benefit
developed within that contract, it is not creating a mechanism
where someone could take advantage of the availability of
Federal money by virtue of their access.
It would be established prior to the project being
underway, and would be limited within a very defined scope and
controlled through that mechanism.
Mrs. Napolitano. That could well be. Yes, sir? Go ahead.
Mr. Howard. I was just going to comment that one of the
many hats I wear in infrastructure is financing transportation
projects. We have been involved in several projects that
include the TIFIA program.
To your point, the benefit of the TIFIA program and the
flexibility and cost of funding for the TIFIA program passes
through ultimately to the public ratepayers in the form of a
lower cost of financing, and in some cases, whether the project
can be financed at all.
A lot of the projects that TIFIA supports in the
transportation sector would not get funded were it not for the
availability of the program.
Mrs. Napolitano. It also begs the question, and I beg your
indulgence, Mr. Chair, the length of the loan also. Will that
run with the new maintenance and operation, the age of the
loan?
Which one comes first? Then what happens after that? Should
we protect aging infrastructure public subsidy with private
equity financing firms?
Mr. Howard. I would say the contracts that are typically
set up, the long-term contracts that are set up for
infrastructure projects----
Mrs. Napolitano. How long, normally?
Mr. Howard. For new construction projects, typically 30 to
40 years. There is what we call a hand back requirement, where
the condition of the infrastructure has to meet certain minimum
standards before the asset is transferred back to the public
sector at the end of the agreement.
Mrs. Napolitano. Thank you, Mr. Chair.
Mr. Gibbs. I want to thank everybody for coming. I think
during this and the last hearing on this issue, it has brought
some more insight to some of the things, that we can make some
tweaks to the proposed legislation.
Also, I want to mention as you all know, this is really a
jobs bill to put people to work on building infrastructure that
we have to have.
I just want to comment on the Build America, it is
unfortunate that only 5 or 6 percent of the total Recovery Act
money went for infrastructure, a very small percentage.
Mrs. Napolitano. Mr. Chair, would you yield for a second?
Mr. Gibbs. Yes, go ahead.
Mrs. Napolitano. You touched on an important point that I
did not get to ask, and that is if any of the agencies here
have begun to estimate the impact on wastewater infrastructure
improvements and projects on local job creation, and I yield
back to you.
Mr. Gibbs. OK. Obviously, there is some job creation. This
is a jobs bill, as I say. Of course, I am always in favor, that
the private sector creates more jobs than the public sector,
but these are issues on infrastructure, and I think there is a
role in the public sector.
Thank you again for being here. We look forward to working
with you as we hopefully move this legislation forward.
That concludes this hearing. Thank you.
[Whereupon, at 12:02 p.m., the Subcommittee was adjourned.]