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Tuesday, April 8, 2003


Cities struggle to find sewer improvement funds

Damon Franz, Greenwire staff writer

Residents of Baton Rouge, La., are paying twice as much this year in sewer bills than they were just three years ago to pay for deferred maintenance and repairs. In Toledo, Ohio, public utilities managers plan to raise rates annually for the next 10 years to finance $450 million in infrastructure improvements mandated by the U.S. EPA. And in Holyoke, Mass., city officials estimate average sewer bills will jump from $200 per year to $833 per year to eliminate untreated wastewater discharges.

Saddled with aging sewage infrastructure and increasing pressure from federal regulators to eliminate leaks and overflows, cities across the country are facing massive shortfalls of funding needed to repair and upgrade antiquated sewage systems and wastewater treatment plants. Meanwhile, the only federal program to help municipalities meet the challenge is facing major budget cuts, forcing municipalities to pass along billions of dollars in maintenance and repair costs to consumers.

Reports from from numerous federal agencies and private consultants have found substantial and growing gaps between funding to wastewater utilities and the costs they will incur to meet EPA orders to overhaul entire sewer and wastewater systems, expand sewer capacities, replace old and faulty equipment and make other substantial upgrades. If not rectified, the cost gap could easily run into the hundreds of billions of dollars, the reports say, leading to a doubling, tripling or even quadrupling of sewer rates in many U.S. cities.

By EPA's own estimates, between 2000 and 2019 the difference between funding and costs for sewer and wastewater improvements in the U.S. will be about $271 billion, according to a Gap Analysis completed by the agency last September. Meanwhile, the Water Infrastructure Network, a coalition of municipalities, engineering groups, sewer utilities and others, placed the gap about about $241 billion, a figure roughly equivalent to the gross domestic product of Austria.

New regulations, old pipes drive need for renovation

One reason for the huge capital investment required for wastewater systems is that as sewers and treatment plants age, they deteriorate, leading to chronic pipe ruptures, failing pumps and overextended treatment facilities. Because of deferred maintenance and outright neglect, some cities on the Eastern Seaboard rely on 200-year-old pipes to carry millions of gallons of wastewater daily. According to EPA, even the most modern sewer systems are designed to last from 15 years to over 100 years, depending upon local conditions.

In Baltimore, aging wastewater infrastructure has been blamed for leaks and overflows that for years discharged millions of gallons of untreated sewage into city streets and local waterways, including tributaries of the Chesapeake Bay. To repair the problem, Baltimore plans to spend $940 million over the next 14 years to replace pipes, install parallel piping and complete a general upgrade of the system. A 6-percent increase in water and sewer rates implemented this year will be a first step toward raising the necessary funds, said public works spokesman Bob Murrow. But until the city completes a full assessment of its centuries-old system, the costs to perform the necessary upgrades could go much higher.

Adding to the problem is the fact that most of the nation's sewers and wastewater treatment plants were built with inadequate capacity to handle all the wastewater they receive. Often, a city's sanitary sewer system -- which moves human waste from homes and businesses to treatment facilities -- is connected to stormwater collection channels in what is called a "combined sewer system." Heavy rains and snowmelt routinely overwhelm these systems, which are designed to route untreated sewage directly into creeks or other waterbodies when inflow exceeds capacity.

Environmentalists have for years pointed to such "safety valve" sewer systems as major contributors to water pollution in urban areas, prompting EPA in the mid-1990s to begin cracking down on combined sewer overflows (CSOs). Regulators estimate such overflows are responsible for roughly 1.26 trillion gallons of untreated wastewater into the nation's waters each year.

In 1994, EPA began requiring point-source pollution permits for CSOs under the National Pollutant Discharge Elimination System (NPDES), which requires technology-based controls on discharges to the nation's waterways. The CSO control policy was designed to allow communities flexibility, taking into account their financial limitations, and EPA estimated the policy would cost municipalities approximately $44.7 billion, one-tenth of the estimated costs they face today.

Beyond performing maintenance work needed to keep aging sewers running, managers of financially strapped wastewater utilities say its hard to envision where the necessary money will come from. William Schatz, general counsel for the Northeast Ohio Regional Sewer District, said in recent congressional testimony that his district raised rates 7 percent just to cover the $1 billion needed for sewer maintenance and permit requirements. Another $1.35 billion will be required to meet EPA's mandate for CSO control, he said.

Federal sewer loan fund whittled down

To help address these needs, the federal government offers assistance in the form of the Clean Water State Revolving Loan Fund (SRF), a program that offers below-market loans to communities seeking to make sewer improvements. Under the program, federal contributions are matched by state governments that distribute the loans to needy communities.

The Bush administration has made it clear, however, that funding this program is not a priority. In its budget blueprint for FY '04, EPA proposed spending $850 million on the Clean Water SRF, a $500 million reduction from the FY '03 enacted level and $362 million less than the administration's FY '03 request.

In Congress, efforts are underway to restore funding for the program. Recently, House Transportation and Infrastructure Water Resources Subcommittee Chairman John Duncan (R-Tenn.) introduced legislation that would authorize a $20 billion federal contribution to the SRF over the next five years. Competing legislation from Reps. Sue Kelly (R-N.Y.) and Ellen Tauscher (D-Calif.) would authorize $25 billion over the same period.

Meanwhile, a survey from the Association of Metropolitan Sewerage Agencies (AMSA) found that less than 20 percent of sewer districts use the Clean Water SRF, and less than 10 percent of wastewater infrastructure projects are funded by it. And some communities say it makes little difference whether a municipality issues a bond, borrows from a bank or gets an SRF loan. Although communities can sometimes secure a better interest rate using an SRF loan, the added cost of the paperwork and bureaucratic hurdles can negate the savings in interest, public works officials said.

"We applied for SRF, but its not that much better than the rate we can get ourselves -- especially not with all the paperwork we need to fill out," said Kent Mudd, special projects engineer for East Baton Rouge Parish in Louisiana. Baton Rouge anticipates spending $618 million to meet the terms of an EPA settlement requiring the district to eliminate overflows from its sanitary sewer system caused by inadequate capacity, equipment malfunctions, aging pipes, heavy rains and other factors.

To pay for the improvements, the city has raised sewer rates 33 percent for each of the last three years and plans to use that revenue to leverage more money by issuing bonds, Mudd said. In an upcoming meeting, public works officials will explore ways to "cut through the red tape" involved in accessing SRF funds, he said.

Costs burden some towns more than others

While some cities face hundreds of million of dollars in sewer infrastructure needs, the economic impact of paying for the improvements depends largely on the cost of sewer service prior to the improvements and the willingness of consumers to accept the rate increases. Some managers said that once consumers understand the reasons behind the additional charges, they become more amenable to the fee hikes.

In a settlement with EPA over untreated sewer overflows, Toledo, Ohio, recently agreed to spend $450 million over the next 14 years to double sewage treatment capacity, build a basin to hold excess sewage and improve the sewage collection and treatment system. To fund the project, residents will pay rate increases averaging 5 percent per year for the length of the 14-year settlement, although there will be steeper increases early on, according to Department of Public Utilities Director Robert Stevenson.

But Stevenson said residents have complained little about the rate increases, partly because they voted in favor of the hikes. In a special referendum held last summer, 78 percent of Toledo's residents voted in favor of settling the suit with EPA. Furthermore, Stevenson said, the city's sewer rates were pretty low to begin with. "In the past, the rates have been fairly modest," he said. "Even with the increases, compared with the rest of the country, we'd probably still be in the middle -- not high and not low."

Even in Baton Rouge, where ratepayers just swallowed a 100-percent increase in sewer rates, there has been little complaining, according to Mudd, the projects engineers. As in Toledo, sewer rates in Baton Rouge were low to begin with -- about $11.50 per month before the increases -- and the public works department was aggressive in educating residents about the need for the increase.

"We made sure they were informed that we were in negotiations with EPA," he said. "We did presentations in every council district and informed them of the improvements we were proposing."

But Schatz said that in northern Ohio, even with full explanation for the rate increases, many residents remain adamantly opposed. "We try to make sure everyone understands what a good job we do and what we're trying to do with the improvements, but there still tends to be some backlash," he said.

Trust fund debated

Schatz said he is confident Congress will pass legislation creating a long-term federal funding source for sewer system improvements, similar to the highway trust fund but of a lesser magnitude. "We envision it as a way to fund the gap rather than it being the majority funding source," he said.

If such a fund is not created, the only way to make the needed improvements will be to hit up the ratepayers, which, Schatz said, will have an dire impact on a region of the country that is already suffering economically. "If we don't get the funding from Congress, we don't have an option now, aside from going back and raising the rates," he said. "With the states having budget crunches and municipalities suffering, the funding gap has put pressure on the rate payer to come up with an immediate solution to the infrastructure problem."

Schatz, who represents AMSA, said the group is hoping to work with members of Congress to draft legislation that would create an infrastructure trust fund. But the group will not draft a legislative proposal until a it has discerned a good funding source. "We want to come up with feasible solutions and raise the debate at that point," he said.

But W. Malcolm Steeves, Director of the Mobile Area Water and Sewer System, said that although his agency is an AMSA member, he disagrees with the group about the idea of a wastewater trust fund, saying it would not make sense to dole out federal money to ever sewer district neeindg to make improvements. "Our industry is pushing hard for a trust fund," he said. "But the problem is so spread out that the communities should be able to do it themselves."

Steeves' attitude is echoed by some in Congress who do not see increased federal assistance as the solution. To make the needed improvements, communities will just have to bite the bullet and put up the money, just as they did when the systems were first installed, said Rep. Vernon Ehlers (R-Mich.).

"We need to make certain we reauthorize the Clean Water SRFs and fund them adequately," said Rep. Vernon Ehlers (R-Mich.). "But it would be a mistake for people to look exclusively to the federal government to solve their problems." Ehlers said he remembers when the first sewer system was installed in his town. "The cost-to-income ratio for sewer infrastructure was much greater then than it is today," he said. "The public needs to appreciate the need for sewerage infrastructure and be willing to pay the bill."

Another option, according to Mayor Michael Sullivan of Holyoke, Mass., is a federal program that would provide grants to cities that need to make wastewater infrastructure improvements but are strapped for cash, or in instances where the town is threatened with severe environmental problems. Testifying before a House Transportation and Infrastructure Committee hearing on the issue last month, Sullivan told the panel that residents of his town face a four-fold increase in sewer rates because of EPA sewer overflow mandates -- a massive burden in a town where 26 percent of residents live below the poverty line, he said.

Currently, cash-strapped communities can access federal grant money, but only if the town's congressional representative is able to secure the money in an annual spending bill. The city of Toledo was able to get about $2 million in federal grants to help meet its $450 million in needed improvements, because the city's congresswoman, Marcy Kaptur (D-Ohio) worked to have the money included in last year's appropriation's bill.



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