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Underground Construction
Copyright 2002 Gale Group Inc. All rights reserved. COPYRIGHT 2002 Oildom
Publishing Company of Texas, Inc.

Saturday, June 1, 2002

ISSN: 1092-8634; Volume 57; Issue 6

Questions on drinking water infrastructure needs. (Washington Watch).
Stephen Barlas

Two influential analysts cautioned Congress about accepting industry
and Environmental Protection Agency (EPA) estimates on funding needs for
local drinking water infrastructure. Their testimony to a House Energy &
Commerce Subcommittee came as the committee was trying to write
legislation making changes to the Drinking Water State Revolving Fund
(DWSRF), which Congress established in 1996. The DWSRF awards are
granted to states which are then used for loans with below-market
interest rates and, when repaid, replenish the state's revolving fund.

Any House bill would set an annual authorization level for DWSRF. The
Bush administration has proposed authorizing $850 million in fiscal
2003. There is already a Senate bill (S. 1961) which would authorize $15
billion over five years. The Water Infrastructure Network (WIN), a
coalition of industry groups, has been pushing hard for increased
federal spending on the DWSRF and the Clean Water SRF. WIN has stated
that drinking water utilities across the nation collectively need to
spend about $24 billion per year for the next 20 years on
infrastructure--a total of $480 billion. WIN's findings also concluded
that drinking water systems currently spend $13 billion per year on
infrastructure, leaving an $11 billion annual gap between current
spending and overall need. The EPA has used a substantially smaller
number: $151 billion over 20 years.

The two Washington insiders casting doubts on WIN's and EPA's
estimates of drinking water infrastructure needs were Perry Beider, an
analyst with the Congressional Budget Office (CBO), and David Walker,
Comptroller General of the U.S. (head of the General Accounting Office). The CBO's Beider presented new analysis his office has done which
projects annual capital costs for drinking water infrastructure at an
average $11.6 billion from 2000 to 2019 under a "low-cost" scenario and
$20.1 billion under a "high-cost." So even the high-cost case is below
WIN's $24 billion a year estimate.

Since WIN says drinking water systems already spend $13 billion on
infrastructure, the CBO low-cost scenario estimate of $11.6 billion a
year would mean that there is no need at all for federal funding of the
DWSRF, with one caveat. The CBO estimate is based on water utility
spending in 1999. "The possibility reflected in CBO's low-cost
scenario--that the average yearly burden of investment in drinking water
infrastructure through 2019 might not exceed the 1999 level--contradicts
conventional wisdom," Beider told the subcommittee. "However, the CBO
considers that scenario reasonable, given the uncertainty about how soon
pipes will need to be replaced, the prospects for increased efficiency
and the potential for water systems to fund more of their investments
through borrowing and to borrow for longer terms. Of course, the
estimate of future needs under the high-cost case--representing an
increase of about 70 percent over estimated spending in 1999--is also
considered reasonable, if less optimistic."

Beider's estimates confused a lot of people at the hearing because of his techno-speak when explaining how the CBO numbers were arrived at, and because of the wide gap between the low and high estimates. But Beider undermined WIN's $24 billion/year estimate with a number of observations. "The fact that WIN's estimates are close to those of CBO's high-cost case when both are expressed in comparable terms should not be interpreted as independent support for estimates of that magnitude," he emphasized. "The lesson that CBO draws from comparing the three estimates is that under the basic framework of the modeling approach, fairly pessimistic assumptions are required to obtain estimates as high as WIN's."

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