[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.

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