[Congressional Record Volume 142, Number 85 (Tuesday, June 11, 1996)]
[Senate]
[Pages S6025-S6026]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
PUBLIC/PRIVATE PARTNERSHIPS FOR WASTEWATER TREATMENT FACILITIES
Mr. LOTT. Mr. President, I rise today to urge action to foster
public/private partnerships for wastewater treatment facilities. Today,
Federal regulations and the tax code inhibit the ability of State and
local governments to create public/private partnerships. By getting
Washington out of the way, local governments can acquire the much
needed freedom to better manage competing demands for scarce
governmental resources, and to make infrastructure and servicing
decisions that are best for their citizens and the environment.
What, my colleagues might ask, are public/private partnerships, and
why do they make good sense for wastewater treatment?
The answer is that public/private partnerships are voluntary,
cooperative arrangements between a State or local government and a
private sector entity whereby that private sector entity agrees to
perform a public purpose service that would otherwise require the
government to perform as well as pay for the service. In the wastewater
treatment context, for example, it involves a private entity building,
improving, maintaining, and operating, under long-term lease or as
owner, sewage treatment plants. The private entity invests private
sector capital to build or upgrade a plant to meet Clean Water Act
standards and other legal requirements. The State or local government
and the Federal Government are spared the need to spend scarce public
funds on these plants, while retaining the ability and authority to
ensure compliance with all laws and reliable, fairly priced service to
their citizens.
Such public/private partnerships cut costs and improve services. The
private owner/operator is held accountable by local government to the
citizens it services, to ensure that it maintains quality service and
competitive pricing. Studies have shown that private operation of
public purpose facilities can result in a savings to State and local
taxpayers of between 16 and 77 percent because of the superior
expertise and specialization of private firms as well as the built-in
incentives that are created through competition. As EPA has recognized,
private companies often can also construct, improve, and maintain
facilities more cost effectively than can the government by taking
advantage of economies of scale and cost-reducing advances in
technology long before their public counterparts. Transferring a
wastewater treatment facility to a private entity can also generate
cash for local governments to use to finance other necessary
improvement projects. Furthermore, if impediments to these and other
public/private partnerships were removed, it is estimated that as much
as $7.7 billion per year in new revenues could be generated through
Federal income taxes paid by the private owners of facilities that
would be exempt under public ownership.
In addition to these fiscal considerations, public/private
partnerships in the wastewater treatment area also further
environmental goals that might otherwise be indefinitely delayed. EPA
estimates that existing and additional publicly owned treatment works
and other wastewater infrastructure needs will require approximately
$137 billion in capital investment over the next 20 years to comply
with Clean Water Act requirements. Even the most optimistic scenarios
give no reason for blithe confidence that such enormous sums will be
readily available from Federal or State and local treasuries. Given
that qualified, experienced private companies can finance, build, own
and operate wastewater treatment facilities in a cost-effective and
reliable manner, we should take advantage of this opportunity to
encourage State and local governments to look to the private sector to
meet the needs of their communities, use scarce dollars to meet other
pressing needs, and simultaneously achieve the environmental goals of
the Clean Water Act.
In light of these benefits of public/private partnerships for
wastewater, one might ask: What's the problem; why have they not gone
forward in more of the many communities that see them as desirable; and
why is legislation needed?
Federal legislation is needed because three aspects of current law
either impede or fail to provide adequate incentives and certainty for
these partnerships.
First, Federal regulations discriminate against private entities
owning public purpose wastewater treatment works by denying them the
domestic sewage exemption available to a public owned treatment work
[POTW] under the Clean Water Act. It is impossible for a private entity
to own and operate a plant under a partnership agreement unless that
plant is considered a POTW.
Second, there is no Federal statutory assurance that local
governments may transfer existing treatment plants to private firms
without having to pay back to the Federal Government the Federal grant
money originally used to build or improve the plant. The Clean Water
Act contains no such requirement, but Federal regulations require total
repayment for transfers of wastewater and other infrastructure to a
private entity. Recognizing the counterproductive effects of those
requirements, Presidents Bush and Clinton issued Executive order
requiring only
[[Page S6026]]
partial payback for certain wastewater plant transfers. Legislation is
needed to address this issue in law and provide certainty to
communities for planning.
Finally, the Tax Code also hinders private investments in wastewater
treatment facilities. In order to stimulate public/private partnerships
for wastewater treatment, it is essential to ensure that Federal tax
provisions do not discourage private sector in-vestment and long-
term operation of treatment plants. The changes to the Tax Code I have
in mind are appropriate for wastewater treatment facility public/
private partnerships because these transactions will not alter the
original public purposes served by wastewater treatment facilities--
providing wastewater services to communities. I would be delighted to
provide my colleagues with details of these important changes.
Legislative initiatives seeking to address some of these problems
have been undertaken, but they are either trapped in a more
comprehensive bill or address a broad array of public/private
partnerships extending well beyond wastewater treatment. Moreover, none
of the initiatives thus far addresses the significant disincentives
created by provisions of the Tax Code.
The House has taken steps to address some of these points. The Clean
Water Act Amendments of 1995, H.R. 961, passed by the House a year ago,
includes provisions that statutorily define public owned treatment
works so that regulations are based on the purpose and actual
operations of a wastewater treatment facility rather than the identity
of its owner. It would provide the legal certainty necessary for State
and local governments to transfer wastewater treatment facilities to
qualified private sector companies. In addition, it provides for a
grant repayment approach whereby the State and local governments are
able to recover their investment in the wastewater treatment facility,
and then are only required to repay the undepreciated portion of any
Federal grants. While the House provision on grant repayment is a step
in the right direction, I believe that the Federal-aid Facility
Privatization Act, S. 1063, of which I am a cosponsor, takes a better
approach to the difficult problem faced by municipalities that are
confronted with deteriorating infrastructure of all kinds, obsolete
technology, tougher regulatory requirements, and a shortage of funds to
finance and operate the wide variety of essential infrastructure
projects that need improvement. S. 1063 improves on the House grant
repayment provision by allowing total forgiveness of those grants. The
local governments are really the best ones to decide how to use the
money the Federal Government has given them for public purposes.
Mr. President, I would hope that my colleagues will consider this
matter carefully, and that we can get together and do it soon. It
should be a win-win for everyone. Removing the Federal obstacles to
public/private partnerships for wastewater treatment does not cut
government service, it only cuts government restrictions and burdens--
something we in America need to be doing. Doing so will also save
money, yield environmental benefits, and serve as a pilot for similar
challenges by fostering an innovative, market-based approach without
increasing the burden on State and local governments.
____________________