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Patrick Karney Testimony
TESTIMONY OF
PATRICK T. KARNEY, P.E., DEE
DIRECTOR
Metropolitan Sewer District of Greater Cincinnati
Cincinnati, Ohio
Presented on behalf of the
ASSOCIATION OF METROPOLITAN SEWERAGE AGENCIES
Submitted to
the
SUBCOMMITTEE ON WATER RESOURCES AND ENVIRONMENT
HOUSE COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE
WASHINGTON, DC
March 28, 2001
Introduction
Mr. Chairman, Congressman DeFazio, and members of the Subcommittee, my
name is Pat Karney. I am Director of the Metropolitan Sewer District of
Greater Cincinnati and a member of the Association of Metropolitan
Sewerage Agencies (AMSA). AMSA represents the interests of more than 250
publicly-owned treatment works (POTWs). AMSA's members treat 18 billion
gallons of wastewater every day and provide service to the majority of
the United States' sewered population. On behalf of AMSA and the
Metropolitan Sewer District of Greater Cincinnati, I want to thank you
for providing me this opportunity to address your committee.
Last week, over a million consumers were plunged into darkness in
California as the nation's energy crisis deepened. As rolling blackouts
crippled homes and businesses, officials begged citizens to reduce their
demands. Imagine what will happen when the nation's water and wastewater
systems begin to fail. As the Director of Cincinnati's sewer district,
can I ask our consumers to tolerate untreated or unsafe water? Like
California's electric utilities, the nation's wastewater systems are
facing an infrastructure crisis. Unlike power providers, the failure of
wastewater systems could create a public health emergency, cause
widespread environmental degradation, and lead to an erosion of our
local economies.
America needs to spend an additional $23 billion a year for the next 20
years to repair and replace aging pipes and to meet current and future
water quality regulations. Is that an outrageous amount? No C not if you
consider the investment we already have made in our water and wastewater
systems and the fact this is the first big replacement cycle our country
has had to face in the water and wastewater utility sector.
America's water and wastewater infrastructure systems are national
assets that yield dividends to all citizens in the form of healthy
natural ecosystems, healthy people free from waterborne disease, and a
healthy and growing economy. The public trust in clean and safe water is
unwavering. Every day, Americans rely on clean water for recreation,
commercial fishing, and a wide range of industrial activity. These
activities generate billions of dollars in income every year, none of
which would be possible without clean water. Inadequate capacity to
treat wastewater or supply clean water can cripple a local economy,
drive manufacturing out of communities, and wipe out tourism.
We face financial challenges in the water sectors today that far exceed
historical investment patterns. While national resolve to improve the
economy, public health, and environmental integrity are at an all-time
high, one of our most successful strategies to accomplish these goals C
adequate and efficient wastewater systems for all Americans C is at risk
of failure because of inadequate investment. Water and wastewater
systems are the heart and soul of every American community. Would we
have built roads, bridges, and airports in communities that could not
provide clean and safe water? The answer is simply... no. The documented
needs of the water and wastewater community cannot C and should not C be
disputed.
Studies performed and released by the U.S. Environmental Protection
Agency (EPA) and the private sector have reached the same conclusion:
the needs of our cities, counties, and towns exceed the financial
capacity of our local governments and ratepayers. They simply cannot
bear the financial burden alone. Today, we're asking Congress once again
to make water infrastructure funding a national priority.
Public Investment Needs and Achievements
As documented in Clean and Safe Water for the 21st Century: A Renewed
National Commitment to Water and Wastewater Infrastructure, published in
April 2000 by the Water Infrastructure Network (WIN), America's water
and wastewater systems face an estimated funding gap of $23 billion a
year between current investments in infrastructure and the investments
that will be needed annually over the next 20 years to replace aging and
failing pipes and to meet the mandates of the Clean Water Act (CWA) and
Safe Drinking Water Act. This unprecedented level of investment will
face significant competition within local budgets from operating and
maintenance costs that are escalating by 6 percent a year above the rate
of inflation. Current federal contributions cannot help since they have
declined by 75 percent in real terms since 1980 and today represent only
about 10 percent of total outlays for water and wastewater
infrastructure and less than 5 percent of total water and wastewater
outlays.
Our needs are great because our systems are at a critical juncture in
their life cycles. A combination of reduced federal spending and
increased federal mandates to meet treatment requirements is taking its
toll. The collective aging of our pipes and systems further compounds
our ability to meet the objectives of the Clean Water Act. Seventy-five
percent of the nation's capital investment in wastewater and drinking
water infrastructure is buried underground. The useful life of these
pipes is coming to an end. Any additional deferral of the needed
investments to repair and renew these systems will lead to greater
increases in the costs associated with providing clean and safe water
services.
About a trillion dollars of the public's money was spent on capital
expenditures and on the operation and maintenance of the nation's
drinking water and wastewater systems during the period between 1956 and
1992. The gains in water quality realized by this investment have been
significant. Effluent discharges have fallen by half since 1970, despite
the fact that waste loads grew by more than a third due to population
growth and an expanding economy. However, these environmental
achievements are now at risk. According to a U.S. EPA report entitled
Progress in Water Quality (June 2000), Awithout continued improvements
in wastewater treatment infrastructure, future population growth will
erode away many of the CWA achievements in effluent loading reduction.
By the year 2016, the report projects that biological oxygen demand
loading rates could rise to the same levels that existed in the
mid-1970s, only a few years after the CWA was passed.
Cincinnati and Hamilton County, Ohio Needs
In 1987, the Metropolitan Sewer District of Greater Cincinnati (MSD) of
Greater Cincinnati initiated county-wide studies to identify solutions
to combined sewer overflow (CSO) problems. The studies resulted in
system capacity increases and constructed solutions, and have been
expanded to include sanitary sewer overflows (SSO). Last year, MSD
performed an in-house estimate of the costs involved in addressing its
current collection system needs. The figures so alarmed District
management that MSD officials elected to engage a consulting engineering
firm to perform an independent analysis of the needs. Remarkably, the
two studies arrived at very similar conclusions and provided municipal
officials with a high degree of confidence in their accuracy.
Exclusive of normal operations and maintenance costs and the
routine/planned rehabilitation efforts of an aging system, which the
community now supports, the new design/construction necessary to
alleviate the CSO and SSO problems amount to somewhere between 1 and 3
billion dollars.
Currently, the user charges in affect for MSD are in the middle of the
pricing range when compared to those of the surrounding 67 utilities.
However, in order to meet the obligations currently imposed upon it by
the federal government, MSD will be forced to increase its user charge
rate by approximately 7 percent per year for each of the next 15 years,
assuming the problem can be solved with one billion dollars worth of
design and construction. This would multiply the existing rate by nearly
three fold (276%).
Taking a more conservative view of how the pending SSO regulations might
impact the utility, costs may rise to three billion dollars for design
and construction. That would result in rate increases of 21 percent per
year for 15 years. This would multiply the current rates seventeen times
(1,750%).
It is important to note that MSD's ratepayers have been paying the full
cost of service since 1968. Like nearly all major wastewater utilities,
MSD is a stand-alone enterprise that does not receive subsidies from
other governmental units via property tax contributions or payments
whose source is a different taxing authority. Hamilton County ratepayers
pay the true cost of wastewater collection and treatment in their
quarterly bills.
In 2000, MSD of Greater Cincinnati's rates were increased by 9.5
percent. In 2001, Hamilton county enacted another MSD rate increase of
seven percent. Hamilton County Commissioners are preparing to consider
yet another 7 percent rate hike for the coming year.
When our Commissioners find that they can no longer raise fees at this
alarming rate, the U.S. EPA will begin imposing fines on Hamilton County
for water quality rule violations. The monies which might have been
spent improving environmental quality and protecting public health will
go, instead, to the Treasury Department. We then can expect the U.S.
Justice Department to intervene and initiate civil and criminal
proceedings against local jurisdictions and officials for violations of
the Clean Water Act. Without additional assistance, the enormous rate
increases cited earlier will be imposed on city and county users. The
magnitude of the increases is expected to cause economic distress in all
sectors of the County. Especially hard hit will be lower income
households. We also anticipate a loss of jobs and revenue as businesses
flee to localities with lower rates. As the population shrinks, MSD will
lose revenue, forcing rates even higher.
It is a fact that the use of traditional user fees to fund capital
improvements to replace aging infrastructure and meet additional
treatment requirements will be severely constrained. MSD is just one of
tens of thousands of cities, counties and towns that are facing a
financial need of crisis-proportion. Every older Northeast and Midwest
city has aging infrastructure and faces the challenge of eliminating
CSOs and SSOs. Every major U.S. city, including those without combined
sewers, are quantifying the size and costs of their rehabilitation
needs.
New Efficiencies through Competitiveness
Public water and wastewater utilities have provided Americans with some
of the best water service in the world. There is little disagreement
that public investments in water and wastewater systems pay substantial
dividends to the environment, public health, and the economy. However,
the provision of water supply and wastewater treatment services is
highly capital intensive, significantly outpacing telephone, gas and
electric services. Local control of such an essential service as
wastewater treatment is of great value to the nation's consumers. So
city and town mayors and councils have empowered us as water and
wastewater managers to innovate and modernize in order to deliver more
efficient service. By reinventing ourselves through efficiency
initiatives such as improved maintenance, better technology, and new
labor-management partnerships, we have achieved efficiency gains at
least as dramatic as anything offered by the private sector.
Public utilities must be able to plan and optimize the maintenance and
replacement cost cycles for their infrastructure assets in order to
minimize costs and maximize performance. Added incentive for a shift to
a more measured planning approach can be found in the June 1999 changes
to financial accounting and reporting standards issued by the
Governmental Accounting Standards Board for State and local governments
(known as GASB 34). These sweeping changes require governments to soon
begin reporting depreciation of their assets or to implement an asset
management system. Under the standards, any asset management system
utilized by a government must result in an up-to-date inventory of
infrastructure assets, the undertaking of condition assessments of
assets, the development of annual estimates of the funds necessary to
maintain the assets and provide documentation that assets are being
preserved.
Implementation of asset management practices and programs at public
water and wastewater utilities carries with it numerous benefits. The
initiation of such a program serves to highlight the economic importance
of infrastructure, to increase the recognition of the costs of
infrastructure and enables a community to control and potentially reduce
the costs of assets required to meet service objectives. Some estimates
suggest that the potential exists for a 20 percent savings when the
current capital investment approach is abandoned and an asset management
approach is implemented. This 20 percent savings has been factored into
WIN's estimates in both the Clean and Safe Water and Water
Infrastructure Now:
Recommendations for Clean and Safe Water in the 21st Century (WINow)
reports.
Solving the Problem through a Fiscal Partnership
Elected officials, businesses, and residents of our nation's communities
agree that local revenues are insufficient to address current and future
problems. The financial impact of replacing the underground system of
collection pipes and updating treatment systems with 100-year old
components dating back to the early 1800s is staggering. Even though our
wastewater infrastructure is out of sight, it no longer can stay out of
mind.
Local utility managers have faced the growing pressure to plan for
future needs for years. But only now is the water infrastructure crisis
creeping into national consciousness. Why the delay? The size of the
problem was not quantified earlier. We, and our predecessors, knew the
cost would be large. As we began to individually quantify our needs,
they were so enormous that very few of us were willing to discuss them
in public, much less engage a national debate on how to fund such
enormous needs.
The challenge of closing the water infrastructure financing gap can be
met, but not without a substantial and concerted effort by the federal
government to join with local communities and consumers in a fiscal
partnership. To bridge the investment gap, the federal government should
meet localities halfway by authorizing an average of $11.5 billion per
year in capitalization funds over the next five years. States would
receive the funds and, in turn, offer grants and loans to local
agencies. The WINow report, released last month, and endorsed by over 30
nation ally-recognized organizations recommends that Congress pass and
the President budget for and sign legislation that would:
- Create a long-term, sustainable, and reliable source of
federal funding for clean and safe water;
- Authorize capitalization of the next generation of state
financing authorities to distribute funds in fiscally
responsible and flexible ways, including grants, loans, loan
subsidies, and credit assistance;
- Focus on critical "core" water and wastewater infrastructure
needs and non-point source pollution;
- Streamline federal administration of the funding program and
encourage continuous improvement in program administration at
both the federal and state levels;
- Adequately finance strong state programs to implement the
Clean Water Act and the Safe Drinking Water Act;
- Establish a new program for clean and safe water technology
and management innovation to reduce infrastructure costs,
prolong the life of America's water and wastewater assets, and
improve the productivity of utility enterprises; and
- Provide expanded, targeted technical assistance to
communities most in need.
AMSA and other stakeholders recognize that no single solution
addresses the full range of water and wastewater infrastructure
funding needs. All levels of government and the private sector must
share responsibility for effective, efficient, and fair solutions.
Conclusion
Although significant progress has been made in cleaning up the nation's
polluted waters over the past 30 years, much remains to be done. This
debate is about preserving public health, environmental progress and the
economic viability of our nation's communities.
This debate is also a financial one...about how to fund a new,
comprehensive financing program for the 21st century that will allow
state and local governments to address water and wastewater problems on
a watershed basis. In an era of unprecedented federal surpluses, I can't
think of a better investment than the health of our citizens, the
integrity of our environment and the economic well-being of our
communities. I agree with President Bush...our citizens deserve a
refund. It's time that some of our hard-earned federal tax dollars C
just a small portion of the federal surplus C be reinvested in the water
and wastewater systems in our local communities.
Thank you for listening to me today. As part of AMSA's written
testimony, you have received an attachment of commonly-asked questions
and answers. Among other things, it provides the source of the needs
figures presented in the WIN report, explains the differences between
EPA's needs survey and the WIN report, addresses rates, and grants and
O&M costs. You also have been provided a copy of the WINow report.
Chairman Duncan, we look forward to working with you and the rest of the
committee in finding solutions to our national water infrastructure
crisis. I will be happy to answer any questions.
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COMMONLY-ASKED QUESTIONS & ANSWERS
Q: What is the source of the needs figures presented in the WIN report,
Water Infrastructure Now: Recommendations for Clean and Safe Water in
the 21st Century?
A: Water and wastewater funding needs figures in this report come from
WIN's previous report, Clean and Safe Water for the 21st Century. Those
figures came from the US EPA, the US Bureau of the Census, the American
Water Works Association, the Association of Metropolitan Sewerage
Agencies, and the Water Environment Federation. More detail is presented
below:
Historical capital and O&M Spending: US. Bureau of the Census[1]
Projected O&M Needs: trend-line projections of recent O&M spending
patterns from the US Bureau of the Census, reduced to assume that
operating efficiencies of 20% are captured over a 10-year period.
Projected Capital Needs: US Environmental Protection Agency (water and
wastewater needs surveys; Office of Water revised estimate of SSO
needs), WIN's estimate of wastewater asset replacement, and AWWA's
estimate of water asset replacement.
For water supply, replacement costs are taken from a recent analysis
undertaken by the American Water Works Association.[2] This method uses
a simulation model to project the future costs of replacing distribution
systems at then-current costs.
Wastewater assets were assumed to be replaced once they exceeded their
useful lives. Historical data on municipal expenditures for wastewater
capital facilities like treatment plants, collection systems, and
pumping stations and other fixed assets like vehicles, machinery, and
equipment were accumulated into annual values of total capital stock &emdash;
essentially the value of the nation's wastewater infrastructure. These
estimates of capital stocks or capital "assets" were then depreciated by
asset class, according to average lives within each class &emdash; 50
years for sewers and collection systems, 25 years for treatment
facilities, and 10 years for other assets (one 27-year depreciation
period averaged across the mix of assets "in the ground" over the past
several decades). Annual costs of replacement, then, is equal to annual
values of depreciation. This method was originally developed by the US
Department of Commerce for a Congressionally mandated infrastructure
council in the 1980s.[3] US EPA Needs Survey estimates were reduced to
avoid double counting associated with the cost of replacing water and
wastewater assets as derived above.
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Q: Why are these numbers different than EPA's Needs Surveys?
A: EPA estimates needs pursuant to both the Clean Water Act and Safe
Drinking Water Acts as the costs to local governments of meeting the
objectives of the acts.
Accordingly, EPA's needs estimates cover only the costs to comply with
statutory and regulatory requirements, which principally derive from
investments needed to comply with individual regulations governing the
quality of effluent and biosolids under the Clean Water Act and drinking
water purity under the Safe Drinking Water Act. Regulations pursuant to
each act and administrative procedures governing the collection of needs
estimates further restrict the definition of a "need" under the EPA
Needs Surveys. WIN, on the other hand, took the perspective of the local
providers of water and wastewater services, who have to make the
investments captured under the EPA Needs Surveys plus other investments
to deliver reliable and adequate quantities of services consistent with
demands of people living within the areas they serve. From the local
perspective, total capital outlays needed to stay in business and
deliver expected levels of service exceed &emdash; sometimes
dramatically &emdash; needs to remove X mg/l of a single contaminant
from a wastewater discharge. So, in addition to investments needed to
meet eligible categories under the Clean Water Act and Safe Drinking
Water Act, WIN's needs estimates included investments to replace aging
and failing infrastructure. Local capital investment budgets must meet
both types of investments.
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Q: Is there any evidence at the utility level that needs are higher than
projected by EPA and that rates will, indeed double or more in the
future?
A: Yes. Based on recent analyses of 18 water and two wastewater
utilities, the American Water Works Association has demonstrated that
asset replacement needs at these utilities tracks closely the order of
magnitude differences between WIN's national estimate of total needs and
EPA's estimates of needs to comply with the Clean Water and Safe
Drinking Water Acts. To accommodate these future investments in
infrastructure replacement, on average, these 20 water and wastewater
systems will have to increase real investment by a factor of 2.5 between
2000 and 2020.
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Q: What purpose will these future infrastructure replacement investments
serve?
A: Future replacement of water and wastewater infrastructure will serve
three purposes: maintenance of service levels, protection of public
health, and environmental improvement.
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Q: Why are future replacement costs for water and wastewater
infrastructure so much higher than current costs?
A: By its nature, infrastructure wears out. In the water and sewer
sectors, the major investments in infrastructure (pipes, plant, pumping
stations, etc) took place around the turn of the century, around World
War I, and around World War II. In the 1970s and 1980s, the nation
invested heavily in new wastewater treatment plants and water supply
treatment facilities. In many locations, the original investments in
infrastructure are only now beginning to wear out and in some locations,
infrastructure put in pace in each of these successive periods is all
wearing out more or less, at the same time over the next 10-30 years. As
a nation, we have never faced the replacement of these infrastructure
assets since the oldest pipes lasted 100-120 years.
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Q: Why will local water and wastewater rates double or more if all needs
are met through local rates alone?
A: Much of the WIN report focuses on capital needs and the financing
implications of meeting those needs, but trends indicate that over the
next 20 years, all local water and wastewater costs will go up. These
trends were documented in two recent reports, the first published by the
Association of Metropolitan Sewerage Agencies (AMSA) and the Water
Environment Federation (WEF)[4], and the second by the US EPA.[5] If
over the next 20 years, local water and wastewater rates increased
sufficiently to cover projected increases in the cost of operations and
maintenance, which historically has increased at about 6% a year more
than inflation, plus the cost of meeting projected capital needs over
the same period, local water and wastewater rates would more than double
(123% real increase over 20 years), on average nationwide. This estimate
does not consider several trends that could increase local costs, and
rates, even further, including new capital needs associated with meeting
new federal and/or state regulatory requirements, and increased O&M
costs either from aging capital stock or increased levels of treatment.
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Q What sort of rate increases will cities experience if WIN's proposed
$57 billion federal funding package is implemented?
A: Annual household water and wastewater bills would increase by an
estimated 81% (in real dollars) between 2000 and 2019 if half the future
unmet capital needs were funded with federal grants as opposed to local
sources. If only half the federal contribution to unmet needs is
provided as grants and half as market-rate loans, average annual
household rates (in real dollars) will just double over the period.
Since WIN recommends federal funding as both grants and loans, with the
final proportions of each to be determined by the states, the final
effect on average household rates will be somewhere between these two
figures, but closer to a 100% increase.
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Q: What is the federal contribution to total local spending for water
and wastewater today?
A: WIN calculates that the combination of federal earmarked grants for
water and wastewater plus the subsidy in below-market rate loans offered
by federally capitalized water and wastewater SRFs accounts for roughly
10% of the total local spending on water and wastewater operations,
maintenance, direct capital investment, and capital servicing (payments
on local water and wastewater bonds and loans).
Local O&M in 1996:[6]
$15.3 billion
Local Capital in 1996 (from own sources):
$7.9 billion
Federal Capital in 1996 (estimated):
$2.5 billion
Total Investment in 1996 (from all sources):
$25.7
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Q: The WIN report assumed that local water and wastewater utilities
currently finance capital improvements using a combination of 25% cash
and 75% bonds. Is this expected to change if the federal program as
recommended in the WIN report is implemented?
A: Yes. Assuming that the current mix of sources of local capital
investment is indeed, 25% cash and 75% debt (this is an estimate in and
of itself), the local share of total capital investment would shift
marginally toward more debt if the WIN program goes forward. This is
because the federal contribution under the WIN recommendation would come
in the form of additional capitalization of state water and wastewater
infrastructure banks, which in turn, will make a large portion of these
federal capitalization grants available to local water and wastewater
utilities as loans. On balance, this will increase total borrowing and
increase the proportion of debt to cash used in local water and
wastewater capital financing.
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Q: What would be the impact of no new federal investment in water and
wastewater infrastructure as WIN has recommended?
A: Without any additional federal funding, it is unlikely that
investment will be sufficient to meet projected capital needs in all
water and wastewater systems across the nation. In relatively new
systems, those that are large and growing, and those that serve
relatively wealthy populations, rate revenue may well prove to be
sufficient to meet all investment needs. Under those circumstances,
rates will increase substantially, but in all likelihood, remain
affordable.
In small cities, rural areas, and cities with shrinking populations
and/or local economies, real water and sewer rates would have to double,
triple, or more to meet all needs. This seems unlikely, especially in
low-income communities and in older urban core cities where populations
have migrated to the suburbs, leaving fewer users to finance replacement
of a fixed infrastructure base. Under these circumstances, it would be
logical to expect declining service levels resulting in violations of
state and federal clean and safe water requirements and threats to
public health, safety, and the environment. In turn, these effects will
discourage commerce and community well-being, leading to further
population loss, reductions in economic output, and a general worsening
of the physical and financial health of water and sewer systems. There
would be little to reverse this downward spiral. Inevitably, pressure
will be brought to bear on the federal and/or state governments for
fiscal relief.
In systems facing high regulatory requirements or replacement of the
oldest water and sewer infrastructure, these types of effects would be
felt within the next five to ten years. Facing a revenue shortfall,
water systems will defer maintenance, cut costs (if they can), and
deplete reserve funds. These strategies can work only in the short term,
since deferred maintenance results in earlier capital replacement needs,
only so much operational cost-cutting is possible, and reserve funds
typically cannot cover revenue shortfalls for more than a few years.
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Q: WIN recommends consolidation of existing water and wastewater SRFs
into a single state Water and Wastewater Infrastructure Financing
Authority, or WWIFA. What is the rationale behind this recommendation?
A: Currently, about 30 states manage their clean water and safe drinking
water SRFs more or less as a single entity. The other 20 states manage
two separate SRFs. The concept of a single WWIFA follows the model of
consolidated management of both types of investments &emdash; those in
clean water and those in safe drinking water. Consolidation of
management offers two types of benefits: reduced overhead costs per
dollar of infrastructure funded and increased public health and
environmental protection per dollar of investment funded.
With regard to reduced overhead, the Clean Water Act and Safe Drinking
Water Act enable states to set aside 4% each of their federal
allocations to their clean water and safe drinking water SRFs. While
there is little empirical evidence available, it is clear that a certain
portion of any organization's cost base is fixed and the remainder is
variable. If, say only 25% of the cost of administering an SRF is fixed,
then consolidated management of a single WWIFA compared to two separate
SRFs would free up 1% of total state clean and drinking water
allocations for investment in infrastructure as opposed to
administration. Under the WIN recommendation, the nation would enjoy
some $570 million in additional infrastructure through consolidated
management of a single entity compared to two separate entities.
In support of the latter observation, it is not difficult to imagine
that upgrading an upstream wastewater treatment plant to produce higher
quality effluent would result in reduced treatment needs in a downstream
drinking water facility. Similarly, an investment in watershed
protection upstream could improve ambient water quality conditions to
the point of obviating a downstream investment in nutrient removal at a
wastewater treatment plant. Coordinating these investments in the future
becomes increasingly important to the extent that WWIFAS finance
investments in non-point source controls.
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Q: WIN recommends that WWIFAs be given broad authorities drawn from
those of both the current water and wastewater SRFs. Which authorities
in particular are needed for WWIFAs?
A: The current drinking water SRF is generally considered to be more
flexible than the clean water SRF. WWIFAs should have at least the
provisions of the drinking water SRFs plus others, as outlined in the
WIN report, to enable them to act as broadly enabled banks to the water
and wastewater sector. Examples of such flexibility include: ability to
provide financing to both public and private owners of water and
wastewater utilities, ability to offer financing packages comprised of
grants, loans, and loan subsidies to meet the financial capabilities of
recipients and address critical public health and environmental
concerns, and ability to extend loan terms to 30 years for both water
and wastewater investments.
In its report, WIN recommends specifically, that WWIFAs be required to
provide between 25-50% of each years' federal capitalization allotment
as grants and 10-25% of each year's allotment as subsidized loans. These
provisions will help ensure that the nation meets its clean and safe
water goals even in economically disadvantaged communities and in
communities that face critical public health and/or environmental
threats.
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Q: Doesn't WIN's recommendation for more grants undermine the revolving
and leveraging attributes of today's federal financing program?
A: Absolutely not. In fact, WIN's recommendations will accelerate the
pool of funds available in perpetuity for additional revolving loans.
Even if Congress required WWIFAs to set aside the maximum amount of
WIN's recommended $57 billion financing package as grants, the amount
going into revolving loans would nearly triple compared to today's
program. This, in effect, will greatly increase the long-run capacity of
WWIFAs to sustain their revolving loan programs compared to today's SRF
programs.
Currently the leveraging of federal capitalization grants is a matter of
state policy. WIN has made no recommendations as to the merits of
leveraging in the future. Assuming, however, that the current rates of
leveraging continue without change, WIN's recommended funding levels
will result in nearly $18 billion in additional leveraged investment
over the period 2003-2007, even if WWIFAs make the maximum recommended
amount of assistance available to local utilities in the for of grants.
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Q: The WIN report incorporates a 20% reduction in operations and
maintenance costs for both water and wastewater utilities over the next
10 years. What is the source of this estimate?
A: Several WIN members &emdash; specifically, the Association of
Metropolitan Sewerage Agencies, the Association of Metropolitan Water
Agencies, the Water Environment Federation, and the American Water Works
Association &emdash; have been studying the competitiveness of public
water and wastewater utilities in the US since the mid-1990s.[7] Based
on this work, WIN members have delivered more than 25 workshops to more
than 2,500 utility managers, representing more than 150 public water and
wastewater utilities across the US. Findings from these workshops
indicate that between 20 and 25 percent of current O&M costs could be
cut from existing public utility budgets by applying best management
practices, reforming work processes, reorganizing management structures,
and using technology. Many public water and wastewater utilities have
already cut operating costs by this much or more. In a recent
publication, AMSA and AMWA document four such cases: Ft. Wayne, Indiana;
Orange County Public Utilities, Florida; Colorado Springs, Colorado; and
Houston Public Utilities, Texas.[8] In recent presentations to the
Environmental Financial Advisory Board to the US EPA, several
consultants actively working in the field corroborated this estimate.[9]
[1] US Department of Commerce, Bureau of the Census, Government Finances
data series.
[2] American Water Works Association, Infrastructure Needs for the
Public Water Supply Sector, prepared by Stratus Consulting, December 22,
1998.
[3] US Department of Commerce, Office of Economic Affairs, "Effects of
Structural Change in the US Economy on the Use of Public Works
Services," September 1987, prepared for the National Council on Public
Works Infrastructure.
[4] Association of Metropolitan Sewerage Agencies and the Water
Environment Federation, The Cost of Clean: Meeting Water Quality
Challenges in the New Millennium, 1999.
[5] US Environmental Protection Agency, Office of Water, "Gaps
Analysis," 2001.
[6] All figures from the US Bureau of the Census and expressed in 1997
dollars.
[7] See, for example: Association of Metropolitan Sewerage Agencies and
Association of Metropolitan Water Agencies, Thinking, Getting, and
Staying Competitive: A Public Sector Handbook, 1998.
[8] See Thinking, Getting, and Staying Competitive: A Public Sector
Handbook.
[9] See presentations of Garret Westerhoff, Malcolm Pirnie, Inc., Alan
Manning, EMA Services, Inc. and Kenneth Rubin, PA Consulting Inc., to
EFAB, March 5, 2001, the National Pres Club, Washington, D.C. (available
through EFAB staff, George Ames, US EPA). |
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