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American Society of Civil Engineers Report Card on Infrastructure (February 2001).

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Insight

"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."

PATRICK T. KARNEY, P.E., DEE
DIRECTOR
Metropolitan Sewer District of Greater Cincinnati

 

 

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.



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.




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.




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.




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.




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.



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.




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.




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





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.




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.




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.





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.





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.





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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