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The Bond Buyer
Copyright (c) 2002 Thomson Financial, Inc. All Rights Reserved.

Monday, January 7, 2002

Vol. 339, No. 31298

News

GOP Senators Readying Water SRF Legislation
By Humberto Sanchez

WASHINGTON -- Top Republicans on the Senate Environment and Public Works Committee are expected to introduce legislation, perhaps as early as this month, to reauthorize the drinking water and wastewater state revolving loan fund programs, sources said Friday.

Their plans became clear after a survey conducted by the General Accounting
Office was released late Thursday showing that federal and state sources
provided about $69 billion to build and maintain drinking water and wastewater
infrastructure between fiscal 1991 and 2000.

The survey, which was designed to identify what funds are available for
water infrastructure and where they come from, was requested about a year ago
by Sen. Robert C. Smith, R-N.H., the ranking minority member on the full
committee, and Sen. Michael D. Crapo, R-Idaho, the ranking member of the
committee's fisheries, wildlife and water subcommittee.

The survey is expected to provide Smith and other legislators with
background information that will assist them in developing the SRF
legislation. The bill, sources said, would address just the drinking water and
wastewater SRFs and not any regulatory matters in the Safe Drinking Water Act
and the Clean Water Act, which are controversial and could threaten approval
of the SRF measure.

The legislation is expected to reauthorize the SRFs for five years and
increase their funding levels, but the exact amounts are still being
discussed, the sources said.

Despite Smith and Crapo's interest in reauthorizing the SRFs, committee
chairman James M. Jeffords, I-Vt., has not indicated if he will support their
plan or introduce a bill of his own.

The SRF programs, which are initially funded each fiscal year with grants
from the Environmental Protection Agency, provide low-interest loans to local
governments and operators of sewer and water facilities. The programs have
become a major source of water infrastructure financing and are often
leveraged with bonds. States also issue bonds, in some cases, to provide
required matching funds -- equal to 20% of the federal contribution. The
authorization for the wastewater SRF program expired at the end of fiscal
1994, although Congress has continued to appropriate funds every year since.
The drinking water SRF is authorized through fiscal 2003, which ends Sept. 30,
2003.

In fiscal 2002, which started Oct. 1, the federal government provided $1.35
billion for the wastewater SRF and $800 million for the drinking water SRF.

About half of the 50 states that have SRFs have leveraged their federal
capital grant and matching funds to borrow in the public bond market for
purposes of increasing the pool of available funds for project lending. Nearly
$9 billion has been added to the loan pool through leveraging, according to
the Council of Infrastructure Financing Authorities, which represents state
and local officials that operate SRFs.

The survey, to which 46 states responded, stated that from the fiscal years
1991 through 2000, nine federal agencies provided about $44 billion in a
variety of forms for drinking water and wastewater capital improvements. Four
agencies -- the EPA and the Departments of Agriculture, Housing and Urban
Development, and Commerce -- accounted for approximately 98% of the total.

Over the 10-year period, the EPA provided more than $20 billion in grants to
states to capitalize their revolving loan funds and $4.5 billion in grants for
water and wastewater projects specifically designated in the appropriations
process.

State governments also provided a total of about $25 billion in state funds
available for water infrastructure programs over the past 10 years.
Specifically, the states reported that they collectively contributed about
$10.1 billion to match the EPA's capitalization grants for the drinking water
and wastewater SRFs. This amount consisted of about $3.3 billion from state
appropriations or other state sources, and about $6.8 billion that the states
leveraged -- that is, raised through the sale of state-issued bonds backed by
the funds.

While estimates vary, the amount needed for future capital investments in
drinking water and wastewater infrastructure appears daunting.

"According to the EPA's most recent survey of drinking water systems,
conducted in 1999, the needs are $150.9 billion over 20 years," the GAO survey
said. The Water Infrastructure Network, a consortium of industry, municipal,
and nonprofit associations, recently estimated needs of up to $1 trillion over
the next 20 years for drinking water and wastewater systems combined, when
both the capital investment needs and the cost of financing are considered.

"The actual future needs will likely be met by some combination of local,
state, and federal funding sources," the GAO concluded.

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