Bruce Tobey Testimony

STATEMENT OF
THE HONORABLE BRUCE TOBEY
MAYOR OF GLOUCESTER, MASSACHUSETTS

on behalf of

THE NATIONAL LEAGUE OF CITIES

before the

ENVIRONMENT AND PUBLIC WORKS COMMITTEE
SUBCOMMITTEE ON FISHERIES, WILDLIFE AND WATER
UNITED STATES SENATE

on

SUCCESSES AND NEEDED IMPROVEMENTS IN DRINKING WATER
AND WASTEWATER INFRASTRUCTURE FINANCING PROGRAMS

May 23, 2001

Note: The Hearing Scheduled for May 23, 2001 was not held. This testimony is provided for information only.

Mr. Chairman, members of the committee: I am Bruce Tobey, Mayor of Gloucester, Massachusetts and a member of the National League of Cities Board of Directors. I am here today to testify on behalf of the 18,000 cities NLC represents on the Environmental Protection Agency's support for water and wastewater infrastructure.

I believe the subject of today's hearing involves more than just the Environmental Protection Agency. I think we would more accurately reflect the true nature of our discussion if we focus on the role of the federal government, because, in fairness, the agency can only do what Congress and the president authorize and allow within the confines of the funding available.

In that context, I would like to elaborate on:

• Clean Water Act funding mechanisms;
• Safe Drinking Water Act funding authorities;
• research and technical assistance;
• nonpoint source requirements and funding; and,
• assistance to address the municipal drinking water and wastewater infrastructure funding gap.

Clean Water Act

Over the past several decades, my colleagues who have come before this committee have indicated that, in the opinion of local elected officials, the Clean Water Act was the nation's most successful environmental statute. The 1972 law and, to a lesser extent the 1981 amendments, clearly reflected the belief - across partisan lines and among all three levels of government - that financing the restoration and protection of the nation's water bodies was in the national interest and a shared responsibility. The federal government and the States have invested more than $96 billion over the past 25-plus years. Local governments have provided over $117 billion from local tax and ratepayers. It is without question that these investments by all three levels of government have yielded benefits to our country and our cities that have far outweighed the costs.

For the past decade, this partnership has been in decline. Federal financial participation in grants for the construction of wastewater treatment facilities dropped from 75 percent to 55 percent of the cost of construction and subsequently all but vanished. The exception has been the "earmarks," or grants, for specific cities, provided through the annual appropriations process. In addition, Congress approved urban wet weather legislation in late 2000 that once again recognizes that neither municipalities nor their ratepayers can bear the entire financial burden of compliance with complex and extraordinarily costly sewer overflow mandates.

To sum up where we are now:

• There is a loan program to which the federal government contributes slightly more than $1 billion annually and to which the States add an additional $200 million nationwide. This program allows municipalities to borrow - and repay - money for wastewater purposes specified in the Clean Water Act.
• There are - and have been - "earmarks" in appropriations measures, usually totaling over $500 million a year. These "earmarks" are the equivalent of grants, and are used for specified wastewater treatment purposes and do not have to be refunded; and,
• Last December, Congress passed, and the president signed, a measure which authorizes $850 million in grants each year - assuming full funding of the Clean Water State Revolving Fund - for the next two years to assist communities meet their combined and sanitary sewer overflow infrastructure needs.

NLC has supported the Clean Water State Revolving Fund (CWSRF), albeit reluctantly, since its inception. When the loan program was first proposed in the mid-1980s as the means to phase out federal financial participation in helping to meet the wastewater treatment needs of the nation, it was clear that support for a revolving loan program that would be temporarily financed with federal contributions was not optional.

At that time, the federal government was facing an unprecedented deficit that was affecting the nation's ability to function effectively. Being willing partners in support of the federal government's efforts to get its fiscal house in order, NLC supported moving to a revolving loan program as an alternative mechanism for providing financial assistance to municipalities not yet in compliance with the law's secondary treatment requirements. Deficits are no longer an issue for the federal government, and in fact, Congress and the Administration are about to enact a $1.3 trillion tax cut. We believe these revised fiscal circumstances justify another look at the types of assistance made available by the federal government for the nation's drinking water and wastewater infrastructure - which plays a vital role in the nation's economic well being.

Since 1987 NLC's National Municipal Policy* has consistently stated that our organization "supports state revolving loan programs (SRFs) as a supplement to, not a substitute for, [emphasis added] a grants program."

There have been times when local officials have been dismayed at some of the terms and conditions involved in implementing the CWSRF. For example, the initial guidance for the program developed by EPA, authorized the States to use the interest paid by local governments on loans from the CWSRF to meet the State matching requirement. In other words, not only would local governments be required to pay 100 percent of the costs of constructing their wastewater treatment facilities, they have to pay the state's matching share as well. We were totally nonplussed when Congress approved, as part of an appropriations measure, authority for the States to charge "loan origination fees" to local governments borrowing money from this federal grant to the States.

These issues only exacerbate a far larger problem - and that is, very simply, that loans are never going to be adequate to accomplish our pollution abatement or control objectives under either the Clean Water Act or the Safe Drinking Water Act. Nor are they adequate to meet the new infrastructure replacement demands now facing these municipal drinking water and wastewater treatment facilities. There are communities facing costs approaching $1 billion - Houston's sanitary sewer overflow control program; San Francisco's combined sewer overflow remediation efforts. Other communities confront equally daunting costs given their size and resources: Richmond, Virginia's $440 million CSO program poses a significant burden on a community of 200,000 with a poverty rate in excess of 25 percent; Atlanta, Georgia's projected expenditures are approaching $2 billion over the next 20 years; Key Biscayne, Florida's has an $8 million loan half of which has to be repaid by 706 homeowners with the balance borne by its 10,000 residents. In city after city the anticipated costs over the next generation are staggering and very clearly beyond the ability of local ratepayers.

Safe Drinking Water Act

Federal financial assistance to municipalities to facilitate compliance with drinking water mandates is more recent - authorized in the 1996 Amendments to the Safe Drinking Water Act (SDWA). While this assistance too, is available primarily in the form of loans, the 1996 amendments - developed based on the experiences with the CWSRF - authorized the use of up to 30 percent of the funds (essentially the State contribution to the loan fund plus 10%) in the drinking water state revolving fund (DWSRF) for grants to economically disadvantaged communities. The law also requires that 15 percent of the funds be allocated to systems serving fewer than 10,000 persons.

Recent experience indicates that the preponderance of the DWSRF has benefited small communities almost exclusively. It is the smaller systems that have the preponderance of compliance problems with few resources to address them and as a consequence have received priority consideration for SRF funding. In some cases, these same communities are eligible for assistance from the Department of Agriculture's assistance programs to rural water systems. Larger systems - while better able to comply with federal requirements - have needs too. Under the current arrangements, these systems will never qualify for assistance regardless of their need, if they experience no violations of the law. While it is entirely appropriate to target limited funds to the worst problems, it highlights the need for additional funding.

The DWSRF also facilitates implementation of associated activities to assure protection of public health - research, source water assessments, operator training and certification - were, again, the result of our experience with the CWSRF. The '96 amendments earmark funds from the DWSRF for these purposes. We regret that the health effects research set aside has never been realized and remains subject to annual appropriations. NLC supported - and continues to support - these set asides because we believe that it is essential to fund health effects research, to properly finance state programs, to provide grants to small communities that cannot neither afford compliance nor consolidate with other systems, and to initiate source water protection.

To assess where we are now with respect to funding for drinking water:

• Until 1997 - a scant four years ago - our drinking water infrastructure was entirely funded by local ratepayers. We now have a loan program to which the federal government contributes slightly more than $800 million annually and to which the States add an additional $160 million nationally. This program permits municipalities to borrow - and repay - money for drinking water purposes specified in the Safe Drinking Water Act. In other words, with some exceptions, our drinking water needs are still entirely funded by local ratepayers.
• There are set-asides for State programs in the SRF to assure that concerns subsidiary to, but nevertheless essential to assuring public health protection, are adequately addressed.
• For the most part, the larger drinking water systems in this country have had little access to DWSRF funds since the funds are targeted to compliance with the drinking water law's requirements, not to infrastructure needs.

As with the CWSRF, NLC supports the drinking water loan program as well - perhaps a little less reluctantly than we did the original loan program. This support is largely based on the more flexible funding arrangements in the law - the availability of grants and the set asides for important State initiatives that are of benefit to local systems.

Research and Technical Assistance

Following Congressional approval of the 1972 Clean Water Act amendments, EPA made significant investments in research and development to assure that wastewater treatment plants built with a major federal financial contribution were on the cutting edge of technology and as environmentally protective as feasible. The agency also invested heavily in technical assistance to help municipalities with varying pollution problems meet the law's requirements as effectively as possible. Over time, the agency's commitment to these critical tools has substantially diminished - most especially in the wastewater area.

Drinking water research has always been a priority for the nation's larger municipal drinking water systems and much of it is financed through a combination of their monetary contributions and those of EPA.

Municipalities now face implementation of a wide variety of new, complex, and costly requirements in both drinking water and wastewater. Disinfection by-products and new microbial contaminant protections in drinking water systems are, or will soon go into effect. Phase Two municipal separate storm sewer requirements will take effect next March for all cities in urbanized areas; and we anticipate new, more stringent requirements with respect to Total Maximum Daily Loads (TMDLs).

It is essential that EPA become more engaged in research and demonstration programs - and in making the results of these initiatives widely available - to facilitate cost-effective compliance with these requirements. If municipalities are expected to comply with TMDLs for their stormwater discharges, someone has to figure out how that can be accomplished and at what cost. If we are expected to invest in new technologies to address contaminants of concern in our drinking water supplies, we need some assurances that these technologies will work and that they will not cause new problems at some future time.

And, most certainly, cities would like to see EPA provide, or at least facilitate, technical assistance to assure that cities are investing their resources wisely and cost-effectively.



Nonpoint Source Requirements and Funding

As municipalities face new and costly requirements in both drinking water and wastewater, the need to look to the remaining large contributors of pollution - nonpoint sources - becomes increasingly clear. NLC supports an enhanced non-point source program and strongly supports such efforts being focused on protection of sources of drinking water.

We are concerned that the anticipated more vigorous enforcement of TMDLs will result in significant increases in the costs imposed on municipalities to reduce pollutants - either directly at substantial cost, because we are dealing with the last and most expensive 3 to 5 percent of pollutant contributions from wastewater treatment plants; or indirectly, by requiring local tax and ratepayers to finance the pollutant control initiatives of nonpoint sources outside of our jurisdiction. While EPA has attempted to include nonpoint sources in their efforts to address the nation's waterbodies that do not meet water quality standards, their authority to do so is either minimal or nonexistent. We urge Congress to look carefully at the TMDL program to assure that the entire burden for restoring our waterways does not fall into the lap of municipal tax and ratepayers simply because cities are regulated and many nonpoint source contributors to pollution are not.



Infrastructure Financing Funding Gap

The debate on critical infrastructure funding issues in which we are engaged is not about small communities nor is it exclusively about "economically disadvantaged" communities. "Size" and "need" are not synonymous. The funding gap is an issue affecting all our older urbanized areas - large cities, suburban communities and exurban jurisdictions. While cities around the country are raising rates, tightening and strengthening their management practices, and operating their systems "smarter," to meet local needs, we cannot succeed without assistance.

It is clear to us at the local level that a deteriorating infrastructure - an infrastructure that in many cities exceeds a century of use and in most others is past the half-century mark - and the accompanying estimated need for $23 billion annually to assure the continued functioning of systems vital to protect public health and the environment cannot be financed solely by local tax and ratepayers.

No city - regardless of size, wealth or commitment to the environment - can find or generate the resources to finance needs of this magnitude. Any expectation of major investments in water infrastructure needs will require a commensurate - and new - national financial commitment to assure that local governments can maintain and operate their facilities to maintain protection of public health and to facilitate compliance with federal mandates.

We commend to you the Water Infrastructure NOW report, and look forward to working with you and your staff on developing a new and revitalized federal financial commitment to our nation's drinking water and wastewater infrastructure.

* NATIONAL MUNICIPAL POLICY

December 9, 2001

ENERGY, ENVIRONMENT, & NATURAL RESOURCES

Water Quality And Supply

C. Federal Support for Water Infrastructure Programs
Federal participation in financing the requirements it mandates is critical to the ultimate achievement of national water quality goals and the availability of safe drinking water. Recognizing the gap between current expenditures and anticipated needs to enhance and maintain critical water infrastructure, this participation must be both substantial and a reliable long-term source of capital.

1. Grants and Loans

NLC calls on Congress to restore grant funding to assist municipalities in progressing toward meeting the nation’s water goals and objectives. Cities should be eligible for any combination of federal loans and grants to meet their water pollution control and drinking water supply needs. The use of loans and/or grants should be tailored to specific needs and capacity of each municipal applicant. Allocation of funds to municipalities should take into consideration a community’s ability to pay and past local efforts to address the problem.

2. State Revolving Loan Fund

NLC supports state revolving loan programs (SRF) as a supplement to, not a substitute for, a grants program. The federal government should continue to authorize an annual appropriation of funds, which are distributed to the states according to a specified formula. The states should continue their revolving loan programs for the distribution of loans, loan subsidies, or bond subsidies to local governments for meeting federal mandates and municipal water infrastructure needs. Such a supplementary program helps leverage federal funds, reduce annual local debt payments, and provide localities with added flexibility in structuring their water infrastructure financing plans.

Congress should prohibit states from charging loan origination fees or from using the interest on SRF loans to local governments to meet state matching requirements.

3. Research

The federal government must support comprehensive research on all wastewater and drinking water-related issues most especially those concerning protection of public health and the development, attainment and/or maintenance of federal requirements. Such research is essential to assure cost-effective use of state and local resources and to support the development of innovative and alternative technologies
E. Water Pollution Control
1. Federal Funding

It is estimated that the nation's cities face over $320 billion in unfunded Clean Water Act mandates to comply with secondary treatment requirements and separation of combined sewer overflows. These cost estimates do not include implementation of sanitary sewer overflow remediation, compliance with Total Maximum Daily Loads (TMDL) requirements, separate storm sewer management or wetlands protection or mitigation programs.

Federal funding for Clean Water Act purposes must be made available to meet all Clean Water Act mandates imposed on municipalities including construction of wastewater treatment plants, interceptors and major appurtenances, infiltration/inflow correction, major sewer overflow rehabilitation, repair, upgrading, collector sewers, combined and sanitary sewer overflow remediation, separate storm sewer system management programs and wetlands mitigation projects.

Under no circumstances should the federal government look to traditional local sources of revenues (e.g., a federal tax on water and sewer user charges, a federal tax on industrial dischargers to POTWs) to fund federal participation in financing Clean Water Act mandates.

Congress should remove current restrictions on the availability of federal tax incentives for private financing of wastewater treatment facility needs, since such financing arrangements may reduce capital costs and expedite project construction, upgrading, repair, rehabilitation, etc.

2. Local Financing

Local governments should have the choice between the ad valorem property tax, metered user charges, and any other mechanism for recouping construction and operating costs. Federally mandated sewer user charges should be deductible from federal income taxes.