G. TRACY MEHAN
ASSISTANT ADMINISTRATOR FOR WATER
U.S. ENVIRONMENTAL PROTECTION AGENCY
COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS,
SUBCOMMITTEE ON FISHERIES, WILDLIFE, AND WATER
UNITED STATES SENATE
October 31, 2001
Good morning, Mr. Chairman and Members of the Subcommittee. I am Tracy Mehan, Assistant
Administrator for Water at the U.S. Environmental Protection Agency. I welcome this
opportunity to discuss the Nation's investment in drinking water and wastewater treatment
facilities to protect human health and the environment.
As a Nation, we have made great progress over the past quarter century in reducing water
pollution and assuring the safety of drinking water. The Clean Water Act and the Safe
Drinking Water Act have served us well and provide the solid foundation we need to make
sure that all Americans will continue to enjoy safe drinking water and clean river, lakes,
and coastal waters.
Our success in improving drinking water and surface water quality is the result of many
programs and projects by local, State and Federal governments in partnership with the
private sector. But our cooperative investment in water infrastructure -- in pipes and
treatment plants -- has, more than any other single effort, paid dramatic dividends for
water quality and public health.
I would like to take a moment to recognize the events of September 11. This hearing was
originally scheduled for the thirteenth of September and, as such, this testimony was
developed prior to the tragic events of September 11. Reviewing the testimony again after
one month, I was struck by how much the world, even the somewhat circumscribed world of
the water industry, has changed. As you know, EPA has established a Water Protection Task
Force to accelerate work that had been ongoing on critical infrastructure protection. For
the last month, my staff has been working diligently with other federal agencies, states,
and water industry representatives to ensure that measures are in place to protect our
population from security threats that could endanger our drinking water supplies or
pollute our nation's waterways.
But this morning I want to move forward with our original testimony and give you a brief
overview of the progress we have made in improving water quality and challenges we still
face. I will summarize what EPA knows about the need for future investment in clean water
and drinking water facilities.
Clean and Safe Water-- Accomplishments and Challenges
Most Americans would agree that the quality of both surface waters and drinking water has
improved dramatically over the past quarter century.
Thirty years ago, the Nation's waters were in crisis -- the Potomac River was too dirty
for swimming, Lake Erie was dying, and the Cuyahoga River had burst into flames. Many of
the Nation's rivers and beaches were little more than open sewers.
The 1972 Clean Water Act has dramatically increased the number of waterways that are once
again safe for fishing and swimming. The Act launched an all-out assault on water
pollution, including new controls over industrial dischargers, support for State efforts
to reduce polluted runoff, and a major investment by the Federal government to help
communities build sewage treatment plants.
The Federal government has provided over $80 billion in wastewater assistance since
passage of the Clean Water Act, which has dramatically increased the number of Americans
enjoying better water quality. The economic and social benefits of improved water quality
are readily evident all across the country. Some of the most dramatic improvements are
seen in urban areas such as Boston, Cleveland, St. Petersburg and Baltimore, where the
efforts to restore the health and vitality of our waters has also led to economically
vibrant, water-focused urban environments.
The dramatic progress made in improving the quality of wastewater treatment since the
1970s is a national success. In 1968, only 86 million people were served by secondary or
advanced treatment facilities. Today, of the 190 million people served by wastewater
treatment facilities, about 165 million people are served by secondary or better
We have also made dramatic progress in improving the safety of our Nation's drinking
water. Disinfection of drinking water is one of the major public health advances in the
20th century. In the early 1970's, growing concern for the presence of contaminants in
drinking water around the country prompted Congress to pass the Safe Drinking Water Act.
Today, the more than 265 million Americans who rely on public water systems enjoy one of
the safest supplies of drinking water in the world.
Under the Safe Drinking Water Act, EPA has established standards for 90 drinking water
contaminants. Public water systems have an excellent compliance record -- more than 90
percent of the population served by community water systems receive water from systems
with no reported violations of health based standards in place as of 1994. In the past
decade, the number of people served by public water systems meeting Federal health
standards in place as of 1994 has increased by more than 23 million.
Despite past progress in reducing water pollution, almost 40 percent of the Nation's
waters assessed by States still do not meet water quality goals established by States
under the Clean Water Act. On a national scale, States report that the leading sources of
pollution include agriculture, municipal point sources, and urban runoff and storm sewers.
Other sources, ranging from factories to forestry operations, cause water pollution
problems on a site-specific basis. Point-source pollution has been so greatly reduced that
now non-point sources (i.e., diffuse runoff) are the leading cause of water pollution.
Clean Water and Drinking Water State Revolving Loan Funds
The primary mechanism that EPA uses to help local communities finance water
infrastructure projects is the State Revolving Fund (SRF) established in the Clean Water
Act and the Safe Drinking Water Act. The SRFs were designed to provide a national
financial resource for clean and safe water that would be managed by States and would
provide a funding resource "in perpetuity." These important goals are being
achieved. Other Federal, State, and private sector funding sources are also available for
community water infrastructure investments.
Under the SRF programs, EPA makes grants to States to capitalize their SRFs. States
provide a 20% match to the Federal capitalization payment. Local governments get loans for
up to 100% of the project costs at below market interest rates. After completion of the
project, the community repays the loan, and these loan repayments are used to make new
loans on a perpetual basis. Because of the revolving nature of the funds, funds invested
in the SRFs provide about four times the purchasing power over twenty years compared to
what would occur if the funds were distributed as grants.
In addition, low interest SRF loans provide local communities with dramatic savings
compared to loans with higher, market interest rates. An SRF loan at the interest rate of
2.6% (the average rate during the year 2000) saves communities 25% compared to using
commercial financing at an average of 5.8% (see Chart 1).
The Federal government has provided more than $18 billion in capitalization grants to
States for their Clean Water SRFs through FY2001. With the addition of the State match,
bond proceeds, and loan repayments, the cumulative funds available for loans from the
Clean Water SRFs were more than $34 billion of which $3.4billion was still available as of
June 30, 2000.
Since 1988, States have made over 9,500 individual loans for a total of $30.4 billion.
In 2000, the Clean Water SRFs issued a record total of 1,300 individual loans with a value
of $4.3 billion (see Chart 2). The Clean Water SRFs have provided about $3 billion in
loans each year for several years and are widely considered a tremendous success story.
In 1996, Congress enacted comprehensive amendments to the Safe Drinking Water Act which
created an SRF program for financing of drinking water projects. The Drinking Water SRF
was modeled after the Clean Water SRF, but States were given broader authority to use
Drinking Water SRFs to help disadvantaged communities and support drinking water program
Through fiscal year 2001, Congress has appropriated $4.4 billion for the Drinking Water
SRF program. EPA has reserved $83 million for monitoring of unregulated contaminants and
operator certification reimbursement grants. Through June 30, 2001, States have received
$3.65 billion in capitalization grants, which when combined with state match, bond
proceeds, and other funds provided $5.2 billion in total cumulative funds available for
loans. Through June 30, 2001, States have made close to 1,800 loans totaling $3.7 billion.
Approximately 74% of the loans (39% of dollars) were provided to small water systems that
frequently have a more difficult time obtaining affordable financing. States also reserved
a total of approximately $575 million of SRF capitalization grants for other activities
that enhance the management of water systems, protect sources of drinking water, and
support the drinking water program. Although the Drinking Water SRF is considerably newer
than the Clean Water SRF, it is showing the same promise as an infrastructure financing
Congress should consider adding some of the flexibilities of the Drinking Water SRF
program to the Clean Water SRF program and should extend the provision which allows States
to transfer funds between their Clean Water and Drinking Water SRFs in order to allow
States the flexibility to better direct funds towards priority needs.
Water Infrastructure -- Future Needs
The Clean Water Act ' 516 (b)(1) and the Safe Drinking Water Act '1452 both require that
EPA periodically develop a "needs survey" to identify needed water
In February of this year, EPA released its second report on drinking water
infrastructure needs showing that $150.9 billion is needed over the next 20 years to
ensure the continued provision of safe drinking water to consumers.
The survey found that water systems need to invest $102.5 billion, approximately 68% of
the total need, in what the report calls "current needs." In most cases, current
needs would involve installing, upgrading, or replacing infrastructure within the next few
years to enable a water system to continue to deliver safe drinking water. A system with a
current need, therefore, usually is not in violation of any health-based drinking water
standard. For example, a surface water treatment plant may currently produce safe drinking
water, but the plant's filters may require replacement due to their age and declining
effectiveness, if the plant is to continue to provide safe water. Future needs account for
the remaining $48.4 billion in needs; for example, projects that systems would undertake
over the next 20 years as part of routine replacement such as reaching the end of a
facility's service life.
The survey includes needs that are required to protect public health, such as projects
to preserve the physical integrity of the water system, convey treated water to homes, or
to ensure continued compliance with specific Safe Drinking Water Act regulations (see
Chart 3). Transmission and distribution costs are the largest category, at 56% of the
total need, or $83.1 billion. Treatment projects make up the second largest category of
needs (i.e., 25%) and have a significant benefit for public health.
Approximately 21%, or $31.2 billion, is needed for compliance with current and proposed
regulations under the Act. Nearly 80% of the regulatory need is to comply with rules which
protect consumers from harmful surface water microbial contaminants, such as Giardia and
E. coli. Most of the total needs derive from the costs of installing, upgrading, and
replacing the basic infrastructure that is required to deliver drinking water to consumers
-- costs that water systems would face independent of any Safe Drinking Water Act
EPA's most recent survey of clean water infrastructure needs was released in 1996, and
we plan on releasing a new clean water needs survey in 2002. The 1996 clean water needs
survey estimated needs of $140 billion, including $26.5 billion for secondary treatment
projects, $17.5 billion for advanced treatment, and $73.4 billion for various types of
sewage conveyance projects, including collectors, interceptors, combined sewers, and storm
water, and $10 billion for nonpoint pollution control projects (see Chart 4).
EPA is working to supplement the 1996 clean water needs survey as more accurate
information becomes available. For example, the Agency has developed a model that better
predicts costs associated with reducing sanitary sewer overflows.
Broader Context of Water Infrastructure Financing
Over the past year, several stakeholder groups including the Water Infrastructure
Network, the Association of Metropolitan Sewerage Agencies, and the American Water Works
Association issued reports estimating water infrastructure needs. These estimates were all
substantially above those of EPA's Needs Surveys. Generally, these cost estimates differ
from EPA's because the methodologies and definitions for developing them differ. For
example, EPA Needs Surveys include only projects that are eligible for SRF funding under
the Clean Water Act and Safe Drinking Water Act. Also, EPA requires that costs included in
the Needs Surveys be established by planning or design documentation.
The Agency also decided to undertake a broader review of needs and spending for water
and wastewater infrastructure, including estimating whether there is a quantifiable gap
between future needs and current spending. This analysis B known as the Gap Analysis B has
just recently undergone independent peer review by external subject matter experts. We
expect the final analysis will be ready for public release later this year.
EPA recognizes that effective decision-making concerning water infrastructure financing
benefits from a better understanding of the broader context of this effort. Key components
in the broader context of water infrastructure that need to be more fully evaluated
include the following:
- Population Growth: Steady growth and shifts in population put substantial pressure on
local governments to provide expanded drinking water and sewer services. While EPA does
not provide funding for projects related to population growth per se, this is an important
factor for locals.
- Aging Infrastructure: Many sewage and drinking water pipes were installed between 50 and
100 years ago, and these pipes are nearing the end of their useful lives.
- Current Treatment Issues: In 1998, States, Tribes, and interstate commissions determined
that wastewater treatment facilities and combined sewer overflows were two of the leading
causes of impairment to estuaries. A June 2000 EPA report "Progress in Water
Quality" estimates that by 2016, pollution levels could be similar to levels observed
in the mid-1970s if there is no increase in treatment efficiency.
- Research and Development: Innovation, research, and development are essential elements
of promoting the use of more effective, efficient, and affordable technologies in water
and wastewater treatment. A recent EPA report on public and private R&D expenditures
associated with water pollution abatement (AA Retrospective Assessment of the Costs of the
Clean Water Act 1972-1997") showed that expenditures decreased by half from the early
1970s to the late 1990s. The Federal investment in drinking water research has increased
substantially over the past 5 years.
- Increasing Operation and Maintenance Costs: As the size and complexity of water and
sewer systems increase, and facilities get older, the costs of operations and maintenance
tend to increase.
- Affordability: Although water has historically been underpriced, some systems may find
it difficult to replace or update aging water and sewer systems and keep household user
charges at affordable levels, especially for low-income households and communities.
A number of stakeholder groups have called for a significant increase in Federal
investment in water and wastewater infrastructure. Certainly, there will be a continuing
role for the Federal government in helping to meet the challenge of extensive
infrastructure investment need, but it cannot be the only solution. The solutions will
have to be multi-faceted with Federal, State, and local, public and private investment of
time, energy, money, research, and, perhaps most needed, innovative thinking and bold
actions. We must encourage states and local governments to think strategically as they
plan for forthcoming rules and program requirements, infrastructure repair and
replacement, and overall protection of the water that sustains their communities.
Ensuring that our water infrastructure needs are addressed in a sustainable manner will
require a shared commitment on the part of the Federal, state and local governments,
private business, and consumers. Governor Whitman and I are committed to working in
partnership with Congress, States, local governments, the private sector, and others to
better understand the water infrastructure challenges we face and to play a constructive
role in helping to define an effective approach to meeting these challenges in the future.
We believe that the SRF mechanism has proven to be a powerful and effective tool in
helping states and utilities achieve their public health and environmental goals. As your
Committee continues to study water infrastructure needs, the Administration would like to
encourage a constructive dialogue on the appropriate role of the federal government in
addressing these needs. Thank you, Mr. Chairman, for giving me the opportunity to speak
with you this morning.
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