S. HRG. 112–980 

OUR NATION’S WATER INFRASTRUCTURE: 

CHALLENGES AND OPPORTUNITIES 

HEARING 

BEFORE THE

SUBCOMMITTEE ON WATER AND WILDLIFE 

OF THE

COMMITTEE ON 

ENVIRONMENT AND PUBLIC WORKS 

UNITED STATES SENATE 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

DECEMBER 13, 2011 

Printed for the use of the Committee on Environment and Public Works 

( 

Available via the World Wide Web: http://www.fdsys.gov 

OUR NATION’S WATER INFRASTRUCTURE: CHALLENGES 

AND OPPORTUNITIES 

U.S. GOVERNMENT PUBLISHING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Publishing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

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26–626 PDF 2017

S. HRG. 112–980 

OUR NATION’S WATER INFRASTRUCTURE: 

CHALLENGES AND OPPORTUNITIES 

HEARING 

BEFORE THE

SUBCOMMITTEE ON WATER AND WILDLIFE 

OF THE

COMMITTEE ON 

ENVIRONMENT AND PUBLIC WORKS 

UNITED STATES SENATE 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

DECEMBER 13, 2011 

Printed for the use of the Committee on Environment and Public Works 

( 

Available via the World Wide Web: http://www.fdsys.gov 

(II) 

COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

BARBARA BOXER, California, Chairman 

MAX BAUCUS, Montana 

THOMAS R. CARPER, Delaware 

FRANK R. LAUTENBERG, New Jersey 

BENJAMIN L. CARDIN, Maryland 

BERNARD SANDERS, Vermont 

SHELDON WHITEHOUSE, Rhode Island 

TOM UDALL, New Mexico 

JEFF MERKLEY, Oregon 

KIRSTEN GILLIBRAND, New York 

JAMES M. INHOFE, Oklahoma 

DAVID VITTER, Louisiana 

JOHN BARRASSO, Wyoming 

JEFF SESSIONS, Alabama 

MIKE CRAPO, Idaho 

LAMAR ALEXANDER, Tennessee 

MIKE JOHANNS, Nebraska 

JOHN BOOZMAN, Arkansas 

BETTINA POIRIER, Majority Staff Director 

RUTH VAN MARK, Minority Staff Director 

SUBCOMMITTEE ON WATER AND WILDLIFE

BENJAMIN L. CARDIN, Maryland, Chairman 

MAX BAUCUS, Montana 

FRANK R. LAUTENBERG, New Jersey 

SHELDON WHITEHOUSE, Rhode Island 

TOM UDALL, New Mexico 

KIRSTEN GILLIBRAND, New York 

BARBARA BOXER, California (ex officio) 

JEFF SESSIONS, Alabama 

JOHN BARRASSO, Wyoming 

DAVID VITTER, Louisiana 

MIKE CRAPO, Idaho 

LAMAR ALEXANDER, Tennessee 

JAMES M. INHOFE, Oklahoma (ex officio) 

(III) 

C O N T E N T S 

Page 

DECEMBER 13, 2011 

OPENING STATEMENTS 

Cardin, Hon. Benjamin L., U.S. Senator from the State of Maryland ................ 1 

Sessions, Hon. Jeff, U.S. Senator from the State of Alabama ............................. 2 

Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma .................... 3 

Barrasso, Hon. John, U.S. Senator from the State of Wyoming .......................... 4 

Gillibrand, Hon. Kirsten, U.S. Senator from the State of New York, prepared 

statement .............................................................................................................. 33 

WITNESSES 

Hanlon, James A., Director, Office of Wastewater Management, Office of 

Water, U.S. Environmental Protection Agency ................................................. 5 

Prepared statement .......................................................................................... 8 

Responses to additional questions from: 

Senator Boxer ............................................................................................ 18 

Senator Cardin .......................................................................................... 20 

Senator Inhofe ........................................................................................... 21 

DiLoreto, Gregory E., President-Elect, American Society of Civil Engineers ..... 51 

Prepared statement .......................................................................................... 54 

Responses to additional questions from: 

Senator Boxer ............................................................................................ 62 

Senator Inhofe ........................................................................................... 64 

Freeman, Joe, Chief, Financial Assistance Division, Oklahoma Water Resources Board ....................................................................................................... 70 

Prepared statement .......................................................................................... 73 

Responses to additional questions from Senator Inhofe ............................... 81 

Scott, Theodore E., Executive Vice President and Founder, Stormwater Maintenance .................................................................................................................. 84 

Prepared statement .......................................................................................... 86 

Responses to additional questions from Senator Boxer ................................ 97 

Richey, Van L., President and Chief Executive Officer, American Cast Iron 

Pipe Company ....................................................................................................... 99 

Prepared statement .......................................................................................... 101 

Responses to additional questions from Senator Inhofe ............................... 481 

ADDITIONAL MATERIAL 

Statements from: .....................................................................................................

American Public Works Association ............................................................... 522 

Associated General Contractors of America ................................................... 526 

Clean Water Council ........................................................................................ 532 

Construction Management Association of America ....................................... 536 

PVC Pipe Association ....................................................................................... 539 

The Vinyl Institute ........................................................................................... 541 

U.S. Mayor, March 28, 2011 ................................................................................... 545 

The Bond Buyer: A Better Path for Infrastructure, October 28, 2011 ................ 547 

Rhode Island Department of Environmental Management, Office of Water 

Resources, Fiscal Year 2012 Project Priority List ............................................. 548 

(1) 

OUR NATION’S WATER INFRASTRUCTURE: 

CHALLENGES AND OPPORTUNITIES 

TUESDAY, DECEMBER 13, 2011 

U.S. SENATE, COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS, SUBCOMMITTEE ON WATER AND WILDLIFE, Washington, DC. 

The Subcommittee met, pursuant to notice, at 10 a.m. in room 

406, Dirksen Senate Office Building, Hon. Benjamin L. Cardin 

(Chairman of the Subcommittee), presiding. 

Present: Senators Cardin, Sessions, Barrasso, Gillibrand, Inhofe, 

Merkley, Udall, and Whitehouse. 

OPENING STATEMENT OF HON. BENJAMIN L. CARDIN, 

U.S. SENATOR FROM THE STATE OF MARYLAND 

Senator CARDIN. I want to welcome you all to the Subcommittee 

on Water and Wildlife of the Environment and Public Works Committee. Today’s hearing is involving our nation’s water infrastructure challenges and opportunities. 

I first want to acknowledge and thank Senator Sessions and Senator Inhofe and Senator Boxer. The panels that we brought together for today’s hearings were mutually agreed panels. Normally 

you have the Democrats will select some witnesses, the Republicans will select some witnesses. But we did it differently for this 

hearing. In true bipartisan cooperation, we came together as to 

what witnesses we thought collectively would be the best to point 

out the importance of this subject, which is that Americans’ depending upon turning on their faucets and getting clean water. 

They almost take that for granted today. We are concerned as to 

whether the status of our water infrastructure in this country is 

one that will guarantee in the future that that in fact will be the 

case. 

We know that those who have rated our nation’s water infrastructure have determined that it is sub-par and that it is in need 

of significant attention. We know that in my own State of Maryland, how many times we have had episodes of water main breaks, 

where River Road in Montgomery County literally became a river, 

where people had to be rescued by helicopter, where in Baltimore 

we found in Dundalk thousands of homes were flooded because of 

a water main break. And then most recently in Prince Georges 

County where we had a water main break that closed the beltway 

for a period of time. 

So we need to pay attention to our nation’s water infrastructure 

for the sake of preserving the confidence of the American people 

2 

that in fact, when they do turn their faucets on, that they will get 

clean, safe drinking water, and that we are taking care of our 

wastewater in an appropriate manner. 

The good news here is that in doing that, we also can create jobs. 

I think we will find during the course of this hearing how investment in water infrastructure will return big dividends to our economy as far as job growth is concerned. I am very pleased, again, 

at the witnesses that we have that will, I think, add to this debate. 

And without objection, I will put my entire opening statement into 

the record and turn to the Ranking Republican on the Subcommittee, Senator Sessions. 

[The prepared statement of Senator Cardin was not received at 

time of print.] 

OPENING STATEMENT OF HON. JEFF SESSIONS, 

U.S. SENATOR FROM THE STATE OF ALABAMA 

Senator SESSIONS. Thank you, Mr. Chairman, for your leadership. Whatever you do has always been the most fair and courteous 

that I could ever ask for, and it is a pleasure to work for you on 

this Committee. I think working for you is a good way to say it. 

[Laughter.] 

Senator SESSIONS. We do have great needs on our water and 

sewer infrastructure. There is no doubt about that. I agree with 

you, we have an excellent panel to discuss those issues. I am especially pleased to have Mr. Van Richey of the Alabama Cast Iron 

Pipe Company. They have plants in Oklahoma, Minnesota, Texas, 

and around the country. 

But typical of the good companies that provide good jobs, Mr. 

Chairman, when we were able to utilize them, and I know the commercial work that these companies have been doing is way down, 

commercial construction is way down. So it is a fact that well constructed governmental expansions of our water and sewer systems 

can help keep good companies busy and good workers busy. 

So we will be looking for ways to do this more smartly to try to 

see how the Federal Government, which is not the primary responsible entity for water and sewer systems throughout the country, 

but how it can use its resources effectively. And I am of the view 

that if we are going to attempt to stimulate the economy it is better 

to do it in ways that create real jobs in the United States, producing something that provides a long-term infrastructure benefit 

to America. I really do feel strongly about that. 

I remember President Bush sent out the checks. That was sending out $600 checks or whatever. And it didn’t, history showed, do 

a lot to stimulate the economy. Likewise, I am a bit uneasy with 

this holiday, withholding tax holiday. But I guess I am more intrigued in creating jobs, in a program that would be infrastructure 

improving over a long period of time. 

So we also maybe can look at the way, Mr. Chairman, to ensure 

that our American manufacturers have a fair chance and are not 

unfairly competed against by foreign manufacturers in the course 

of trying to create jobs in America. Those are some issues that will 

come up. 

Thank you for your leadership, and I look forward to the fine 

panel, and thank you for what you have done. 

3 

Senator CARDIN. Thank you, Senator Sessions, very much. 

The Ranking Republican on the full Committee, Senator Inhofe. 

OPENING STATEMENT OF HON. JAMES M. INHOFE, 

U.S. SENATOR FROM THE STATE OF OKLAHOMA 

Senator INHOFE. Thank you, Mr. Chairman. Let me first say, remind my colleagues here that the Chairman and I were both of the 

same class in the House of Representatives. And I have never had 

an occasion to, while we have had disagreements on policy issues, 

he has always kept his word, and I really appreciate the work he 

is doing on this water issue. Nationwide investment in water infrastructure projects will increase jobs, repairs to crumbling infrastructure, and protect public health and the environment. 

I can remember when they used to consider us, out in Oklahoma 

and some of the newer States, as not having the problems with infrastructure that the more mature States like Maryland had. But 

that is not true anymore. We have gone beyond a time where it is 

necessary to start working on our infrastructure. I are pleased that 

we have our chief, Joe Freeman, from the Oklahoma Water Resources Board. I will not comment on him now, because I will do 

that before the second panel so I can introduce him. 

I also want to mention to my friend from Alabama that yes, I am 

very thankful for Mr. Richey. He and I have had a chance to talk. 

His operation actually is in Pryor, Oklahoma, which is kind of the 

gateway to our lake area. Not many people realize that the State 

of Oklahoma has more miles of freshwater shoreline than any of 

the 50 States. In Pryor is where it all starts. So I appreciate the 

contribution he had made. 

In fact, he has been the salvation of that town. We have lost— 

he and I have talked about this—a lot of the industries from there. 

I appreciate his involvement there. 

The U.S. Conference of Mayors notes that the public dollar invested in water infrastructure increases private long-term GDP 

output by $6.35; the National Association of Utility Contractors estimates that $1 billion invested in water infrastructure can create 

over 26,000 jobs. I only wish that back when we opposed it, several 

of us did, but they passed it, the $800 billion stimulus, that we had 

had more stimulus for things we are talking about here today and 

roads and highways. So I am looking forward to this hearing, and 

I appreciate our witnesses being here. 

[The prepared statement of Senator Inhofe follows:] 

STATEMENT OF HON. JAMES M. INHOFE, 

U.S. SENATOR FROM THE STATE OF OKLAHOMA

I would like to make a note about EPA’s recent study of groundwater in Pavillion, 

Wyoming. I continue to have many questions and concerns about this study and its 

implications for the natural gas industry in America, but I believe those questions 

are best addressed by those who are involved, and I will be withholding any questions on that today to Mr. Hanlon. 

I first want to state for the record how tirelessly Senator Cardin has worked to 

continue the Federal investment in water infrastructure. I have appreciated working with him, and although we have not always agreed, there is no doubt in my 

mind that we share the same goal of maintaining clean water and safe drinking 

water. I look forward to continuing to work with him and other members of the Subcommittee next year. As this Committee is well aware, a nationwide investment in 

water infrastructure projects creates jobs, repairs crumbling infrastructure, and protects public health and the environment. I am grateful that the Water and Wildlife 

4 

Subcommittee is tackling this issue which is so important to Maryland, Alabama, 

California, Oklahoma, and to the rest of the U.S. I am especially pleased that we 

can hear a State perspective on water infrastructure needs today from Joe Freeman, 

Chief of the Oklahoma Water Resources Board’s Financial Assistance Division. 

Joe has worked on water infrastructure financing issues both in Oklahoma and 

at a national level, and will be able to provide us with a valuable perspective today. 

I would like to mention that Oklahoma is nearing completion of a State water plan. 

I know the Oklahoma Water Resources Board has done tremendous work in putting 

this 50 year plan for water use in Oklahoma in place. While the decisions have been 

challenging and sometimes painful, I know that there is one thing Oklahomans 

agree on: we need to invest in our water infrastructure. 

I am also looking forward to hearing more about the jobs that are created as a 

result of water infrastructure investments from Mr. Richey. I understand that the 

American Cast Iron Pipe Company has a presence in Oklahoma and that they employ approximately 215 people at their American Castings plant in Pryor, Oklahoma. 

Funding for water infrastructure is greatly needed. Each day, the condition of our 

water infrastructure results in significant losses and damages from broken water 

and sewer mains, sewage overflows, and other symptoms of water infrastructure 

that is reaching the end of its useful life cycle. 

Investments in water infrastructure provide significant economic benefits as well. 

The U.S. Conference of Mayors notes that each public dollar invested in water infrastructure increases private long-term GDP output by $6.35. The National Association of Utility Contractors estimates that $1 billion invested in water infrastructure 

can create over 26,000 jobs. In addition, the Department of Commerce estimates 

that each job created in the local water and sewer industry creates 3.68 jobs in the 

national economy, and each public dollar spent yields $2.62 in economic output in 

other industries. 

Considering the importance of water infrastructure to the well-being of the American people and to our economy, I will continue to support investment in water infrastructure and am looking forward to hearing the testimony of all of our witnesses 

on this important topic. 

Thank you. 

Senator CARDIN. Thank you very much. 

Senator Barrasso. 

OPENING STATEMENT OF HON. JOHN BARRASSO, 

U.S. SENATOR FROM THE STATE OF WYOMING 

Senator BARRASSO. Thank you, Mr. Chairman. 

As everyone in this room knows, water is the most fundamental 

issue in my home State of Wyoming. The need to provide a clean, 

abundant supply of water is essential to the survival of the intermountain West. 

As I have stated before in this Committee, as well as the Senate 

Energy Committee, on which I serve, the infrastructure that we 

have today in our home State and across the nation is aging. For 

example, repairs that are needed to our irrigation districts include 

concrete structures, such as canals and sub-canals, that divert 

needed water to farmers and ranchers. The price tag, Mr. Chairman, for these repairs, will only get higher. The longer we wait, the 

more irrigation districts will fall into disrepair. This will impact 

the economic livelihood of ranchers and farmers in Wyoming, and 

across the entire country. 

Funding for water infrastructure is essential. It is only a part of 

the solution. We must remove the regulatory red tape and give 

States the flexibility to provide a clean, abundant supply of water 

for the future. 

The EPA’s one size fits all approach to water quality issues is not 

always in our State’s best interest. Often, solutions that come out 

of Washington and are imposed upon rural communities that can’t 

5 

afford them end up providing very little benefit to the community, 

given their scarce resources. We all recognize the need to upgrade 

wastewater treatment facilities, sewer lines, wastewater collection 

systems, and public drinking water systems. However, bureaucrats 

in Washington need to know that a solution for a water quality 

problem in Chicago, Illinois, doesn’t necessarily work for Sheridan, 

Cheyenne, or Casper, Wyoming. 

So let’s work to ensure that the regulatory decisions that we 

make are based on sound science and that we achieve a balance 

with the community and environmental needs. Let’s empower our 

States and our local communities and give them the tools and the 

flexibility that they need to provide clean water. 

With that, Mr. Chairman, thank you for holding the hearing, and 

I look forward to the testimony. 

Senator CARDIN. Thank you, Senator Barrasso. 

Now I am pleased to call on Jim Hanlon, I welcome you to the 

Committee, the Director of the Office of Wastewater Management 

in EPA’s Office of Water. 

Mr. Hanlon has served as the Office Director since April 2002. 

The Office of Wastewater Management has oversight responsibility 

and provides technical assistance supporting EPA’s regional water 

programs. The Office also administers Federal financial and technical assistance for publicly owned treatment works, including municipal sewage collection systems and treatment plans. 

Mr. Hanlon, we welcome you and would be glad to hear from 

you. 

STATEMENT OF JAMES A. HANLON, DIRECTOR, OFFICE OF 

WASTEWATER MANAGEMENT, OFFICE OF WATER, U.S. ENVIRONMENTAL PROTECTION AGENCY 

Mr. HANLON. Senator Cardin, Ranking Member Sessions, and 

members of the Subcommittee, thank you for the opportunity to appear before you today to discuss the state of our nation’s water infrastructure and the progress that EPA has made in the implementation of the Clean Water Act and Safe Drinking Water Act and 

new opportunities that we believe will help bridge the divide between our nation’s water infrastructure needs and the ability to 

pay. 

We have come a long way in improving the protection of public 

health, water quality, and the environment over the last 40 years. 

Our nation’s drinking water meets standards as protective as any 

in the world, and we have improved water quality in streams, rivers, lakes, and bays nationwide. 

However, significant challenges remain. To tackle these challenges, we believe that new tools and techniques will be necessary 

to continue to meet America’s water infrastructure needs, needs 

that are critical for protecting the nation’s communities, creating 

jobs and strengthening our economy. 

Based on our most recent water infrastructure needs surveys, 

communities across the country identify the need for $300 billion 

in wastewater and $335 billion in drinking water capital expenditures over the next 20 years. Recognizing these needs and sustaining our nation’s water infrastructure will remain a significant 

challenge in the years ahead. 

6 

Despite the progress made since the passage of the Clean Water 

Act in constructing and operating wastewater treatment facilities, 

the nation will continue to face water pollution challenges related 

to water infrastructure. The Census Bureau tells us that there will 

be a 35 percent increase in the U.S. population by 2050. By 2025 

this increasing trend in population growth, combined with other 

factors, will result in a projected rate of biochemical oxygen demand, or BOD, being discharged by publicly owned treatment 

works at a level about equal to the rate experienced in 1968, the 

year when the discharge of oxygen demanding material from 

POTWs had reached its historical peak. This projection underscores 

the importance of investing in wastewater infrastructure, treatment infrastructure to maintain and improve pollutant removal efficiencies. 

These trends also have implications for drinking water utilities 

with respect to the quality of their source waters. In addition to the 

population growth challenge noted above, demographic trends will 

further impact infrastructure decisions affecting our large and 

growing urban centers as well as rural America. 

The complexity of the challenges facing water utilities also continues to increase. Advancements in measurement and toxicological 

capability are producing questions concerning pharmaceuticals, 

personal care products, and other contaminants that were not previously part of the national conversation. 

Two of the nation’s most important sources of water infrastructure financing are the Clean Water and Drinking Water State Revolving Funds. These two programs have provided financing of over 

$111 billion to 39,000 projects since their beginnings in 1987 and 

1996, respectively. The State Revolving Funds have been widely 

recognized as technically and financially sound designs that have 

resulted in a return on the Federal investment of more than 2 and 

a half to 1. 

As the nation’s largest water quality financing program, the 

Clean Water Fund supports the overarching goal of protecting public health and aquatic systems throughout the country. The Drinking Water Fund helps ensure that the nation’s drinking water remains safe. At their discretion, States may also use a portion of 

their capitalization grants to fund a range of programs designed in 

part to help small systems in disadvantaged communities. 

One of the keys to the success of the SRFs is the flexibility that 

States have to decide how funds are used under varying State-specific circumstances. This flexibility allows States to provide financial assistance to local governments in a timely manner, allowing 

funds to benefit local economies quickly. 

EPA is working with partners across the water sector and beyond to provide the knowledge and tools to ensure that the investments we make in our water infrastructure move us toward a more 

sustainable footing. We are targeting our efforts toward assisting 

systems to achieve results by promoting the use of asset management frameworks, water and energy efficiency improvements, and 

innovation through the use of alternative technologies. We are committed to promoting sustainable practices that will help assure that 

communities continue to enjoy the benefits of clean and safe water. 

7 

In October of last year we issued a Clean and Safe Drinking 

Water Infrastructure Sustainability Policy. The policy represents 

the next step in our efforts to increase the sustainability of water 

infrastructure. We will also continue to work with utilities to ensure they have the technical, financial, and managerial capacity to 

effectively manage all aspects of their operations. 

In conclusion, our nation is confronted with significant water infrastructure challenges. Addressing these challenges will require 

the participation of EPA, the States, communities, and other partners, and will require us to leverage more innovative and sustainable tools. We look forward to working with the Subcommittee and 

our many partners and stakeholders to continue our progress toward protecting and providing clean water to all Americans. 

Thank you again for inviting me to testify, and I would be happy 

to respond to any questions you have. 

[The prepared statement of Mr. Hanlon follows:] 

8 


26626.001

TESTIMONY OF JAMES A. HANLON 

DIRECTOR, 

OFFICE OF WASTEWATER MANAGEMENT 

OFFICE OF WATER 

U.S. ENVIRONMENTAL PROTECTION AGENCY 

BEFORE THE 

SUBCOMMITTEE ON WATER AND WILDLIFE 

COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS 

UNITED STATES SENATE 

DECEMBER 13, 2011 

Chairman Cardin, Ranking Member Sessions, and Members of the Subcommittee, thank 

you for the opportunity to appear before you today to discuss the state of our nation's drinking 

water and wastewater infrastructure, progress and accomplishments that the U.S. Environmental 

Protection Agency (EPA) has made in the implementation of the Clean Water Act (CWA) and 

Safe Drinking Water Act (SDWA), and new opportunities that we believe will help bridge the 

divide between our nation's water infrastructure needs and the ability to pay for such needs. 

Current State of Our Drinking Water and Wastewater Infrastructure 

We have certainly come a long way in improving protection for public health, water 

quality, and the environment under the CWA and SDWA since the creation of the EPA over 40 

years ago. Our nation's drinking water meets standards as protective as any in the world and we 

have improved water quality and increased public health protection in streams, lakes, bays, and 

other waters nationwide. However, significant challenges remain. To tackle these challenges, 

we believe that new tools and techniques will be necessary to continue to meet America's 

drinking water and wastewater needs needs that are critical for protecting the nation's 

communities, creating jobs, and strengthening our economy. 
9 


26626.002

Based on the most recent clean water and drinking water needs assessment surveys 

conducted by the EPA, communities across the country identified the need for $300 billion in 

wastewater and $335 billion in drinking water infrastructure improvements for capital 

expenditures over the next 20 years. Sustaining the nation's infrastructure will remain a 

significant challenge in the years ahead. 

Future Challenges 

Despite the progress made since passage of the CW A in constructing and operating 

wastewater treatment facilities, the nation will continue to face water pollution challenges related 

to water infrastructure in the years ahead. The Census Bureau projects a 35% increase in U.S. 

population by 2050. By 2025, this increasing trend in population growth, combined with other 

factors, will result in a projected rate of biochemical oxygen demand (BOD), a conventional 

pollutant under the CWA, being discharged by Publicly Owned Treatment Works (POTWs) at a 

level about equal to the rate experienced in 1968 (21 ,280 metric tons per day), the year when the 

discharge of oxygen-demanding material from POTWs had reached its historical peak. This 

projection underscores the importance of investing in wastewater treatment infrastructure to 

maintain and improve pollutant removal efficiencies. Many of the envirorunental successes of 

the past three decades may be overwhelmed by future demands. These trends also have 

implications for drinking water utilities with respect to the quality of their source waters. These 

water and wastewater infrastructure challenges will be faced by systems across the country, both 

in our large and growing urban centers as well as our rural towns. 

The complexity of the challenges facing water utilities also continues to increase. 

Advancements in measurement and toxicological capability are producing questions concerning 

2 
10 


26626.003

the human health and ecological impacts of low levels of contaminants associated with 

pharmaceuticals and personal care products that were not previously part of the national 

conversation. 

Stormwater pollution is one of our nation's most challenging water quality problems and 

is a significant contributor to the impairment of the country's streams, rivers, and watersheds. 

Unlike pollution from industry or sewage treatment facilities, which is caused by a discrete 

number of specific sources, stormwater pollution comes from a very large number of both point 

and nonpoint sources. Rainwater and snowmelt nms off landscaping, parking lots, streets, 

buildings, farms, and construction and industrial sites. This water picks up fertilizers, soil and 

sediments, pesticides, oil and grease, heavy metals and many other pollutants on the way to our 

rivers, lakes, and coastal waters. The impermeable surfaces of our traditional urban and suburban 

landscapes also result in increased stormwater volume. In addition to these problems, many 

older cities (including many of our nation's largest cities), have combined sewage and 

stom1water pipes which periodically-and in some cases frequently---overflow due to 

precipitation events. 

Finally, as described earlier, implementing the projects that are needed to maintain and 

upgrade our existing water and wastewater infrastructure will be a critical challenge in the years 

ahead to ensure that our infrastructure continues to provide us with clean drinking water and 

healthy rivers, Jakes, and streams. 

3 
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26626.004

Tools for Protecting Public Health and the Environment 

Financing 

Two of the nation's most important sources of water infrastructure financing are the 

Clean Water and Drinking Water State Revolving Fund programs. These two programs have 

financed over $111 billion of infrastructure projects and 39,000 loans since their inceptions in 

1987 and 1996, respectively. The State Revolving Funds have been widely recognized as 

technically and financially sound designs that have resulted in a return on the federal investment 

of more than 2. 5 to 1. 

As the nation's largest water quality financing program, the Clean Water State Revolving 

Fund (CWSRF) program supports the ovcrarching goal of protecting public health and aquatic 

systems throughout the country. The CWSRF program was established by Congress in 1987 to 

provide capitalization grants to states, which in turn provide low-cost financing to communities 

to finance the cost of much-needed infrastructure. Since 1987, the CWSRF program has 

provided approximately $89.5 billion through more than 30,000 individual loans. Projects 

include wastewater treatment, nonpoint source pollution control, and watershed and estuary 

management. 

The DWSRF program helps to ensure that the nation's drinking water remains safe. The 

DWSRF program was established by Congress in 1996, and similar to the CWSRF program, 

provides capitalization grants to states, which in turn are authorized to provide low-cost loans 

and other types of assistance to public water systems to finance the costs of infrastructure 

projects needed to achieve or maintain compliance with SDWA requirements. At their discretion, 

states may also use a portion of their capitalization grants to fund a range of programs designed 

in part to help small systems and disadvantaged communities. Since its inception, the DWSRF 

4 
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26626.005

program has provided approximately S21.7 billion dollars in assistance through more than 9,000 

loans that have improved public health protection for millions of people. 

One of the keys to the success of the SRFs is the considerable flexibility that states have 

to decide how funds are used under varying state-specific circumstances. This flexibility allows 

both programs to make these much-needed funds available to local governments in a timely 

manner, allowing funds to enter local economies quickly. 

In 2009, Congress passed the American Recovery and Reinvestment Act (ARRA). EPA 

and its state partners have succeeded in placing 100 percent of available ARRA SRF funding 

into construction contracts and into local economies. 3,214 SRF projects were funded in all 50 

states and Puerto Rico, totaling nearly $6 billion. More than $1.6 billion of these funds went 

toward green infrastructure projects, exceeding the 20% Green Project Reserve requirement. As 

of today, over 90% of all SRF ARRA funds have been spent and we estimate that approximately 

65,000 jobs have been created. 1 

Research 

The EPA established the Aging Water Infrastructure (A WI) Research Program to 

generate scientific and engineering solutions to water infrastructure problems. The goal is to 

evaluate, advance, and rehabilitate water infrastructure though innovative technologies and 

techniques that reduce the cost and improve the effectiveness of operation, maintenance, and 

replacement of aging and failing drinking water and wastewater facilities. In addition to 

innovative techniques on gray infrastructure, EPA is also developing a green infrastructure 

approach to improve stormwater management. The results will provide much needed design and 

1 Based on the May 2009 President's Council of Economic Advisers (CEA) guidance for American Recovery and 

Reinvestment Act reporting 

5 
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26626.006

performance information on green and gray technologies to the regulated community to enable 

better decisions. 

Sustainability 

The EPA is working with partners across the water sector and beyond to provide the 

knowledge and tools to ensure that the investments we make in our water infrastructure move us 

toward a more sustainable footing. The goal can be achieved through strong infrastructure 

planning and management practices at water utilities. We arc targeting our resources to help 

systems achieve results in the following areas: 

Promoting an asset management framework that ensures that the right investments arc 

made at the right time. 

Promoting water and energy efficiency to ensure that water sector systems adopt 

sustainable practices and technologies for improving their efficiency, reducing costs and 

addressing future needs. 

Promoting infrastmcture financing and providing options to pay for water infrastructure 

needs, including through full cost pricing. 

Promoting alternative technologies and assessment to ensure that systems are using the 

best and most innovative solutions when investing in water infrastructure. 

We are committed to promoting sustainable practices that will help assure that 

communities continue to enjoy the benefits of clean and safe water. In October 2010, we issued 

a Clean Water and Safe Drinking Water Infrastmcture Sustainability Policy. The Policy 

represents the next step in our efforts to increase the sustainability of water infrastmcture. The 

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Policy informs our water infrastructure activities funded through the SRF programs but is also 

intended to guide our efforts more broadly. Based on the principles laid out in the Policy, we 

will promote sustainability on three interrelated fronts-the sustainability of water infrastructure, 

the broader sustainability of water and wastewater utilities, and the role these play in fostering 

the overall sustainability of communities. We will also work closely with the states to promote 

the use of SRF funds to support all of these fronts. 

The Policy places significant emphasis on the promotion of planning by utilities that 

result in infrastructure investments that also support other relevant community goals. The Policy 

encourages a robust analysis of various infrastructure options, including green and decentralized 

approaches; and encourages utilities to implement management strategies and rate structures that 

support a systems' water infrastructure investments and operations and maintenance. We will 

also continue to work with utilities to ensure they have the technical, financial, and managerial 

capacity to effectively manage all aspects of their operations. Finally, under the umbrella of the 

HUD-DOT-EPA Partnership on Sustainable Communities, we will work to help coordinate 

federal infrastmcture investments with these other federal partners. 

Flexibility 

Increases in impervious surfaces, population growth, aging infrastmcture, regulatory 

requirements, complex water quality issues and our contemporary economic challenges are 

stressing the implementation of CW A programs. The EPA recently issued a memo entitled, 

"Achieving Water Quality Through Integrated Municipal Stonnwater and Wastewater Plans." 

Through this new policy, we will work with states and municipalities to improve how we 

implement CW A programs to ensure continued progress in public health and environmental 

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26626.008

protection. We believe that integrated planning, to meet the various requirements of the CW A, 

offers municipalities an approach that will meet water quality goals in a more timely and costeffective manner. 

Under an integrated approach, the EPA and states will use the flexibility of the EPA's 

existing regulations and policies to evaluate a given municipality's CW A requirements and their 

financial capability to better allow innovative solutions, such as green infrastructure, and 

sequencing wastewater and stormwater projects in a way that allows the highest priority projects 

to be started first. We are not suggesting that existing regulatory standards be lowered. Nor do 

we suggest that projects be stopped while a municipality is developing plans. 

Consistent with the recently released memo, the agency is developing a framework 

document that will identify guiding principles for the development of integrated plans. In early 

2012, we will hold a series of public meetings around the country to discuss a draft of the 

integrated framework. 

Innovations and Benefits 

Green infrastructure is a promising approach for reducing stormwater pollution from its 

diverse sources and can help catalyze significant improvements to our nation's water quality. 

Green infrastructure techniques utilize natural systems, or engineered systems that mimic natural 

landscapes, to capture, cleanse and reduce stormwatcr discharges using plants, soils and 

microbes. Green infrastructure can also support the reuse of rainfall, which also reduces the 

volume and impacts of stormwatcr discharges to water quality. 

On a regional scale, green infrastructure consists of a network of open spaces and natural 

areas (such as forested areas, t1oodplains and wetlands) that improve water quality while 

8 
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26626.009

providing recreational opportunities and wildlife habitat. When discussing green infrastructure at 

large geographic scales, it is also important to consider the value of open space preservation and 

natural resource protection for purposes of wildlife habitat and other ecological functions. On the 

local scale, green infrastructure consists of site-specific management practices, such as rain 

gardens, porous pavements, green roofs and cisterns, that are designed to maintain natural 

hydrologic functions by absorbing and infiltrating precipitation where it falls, and by returning it 

to the atmosphere via plants. 

Green infrastructure has a number of other environmental and economic benefits in 

addition to improving water quality, including recharge of ground water and surface water 

supplies; cleaner air; reduced urban temperatures; reduced energy demand; carbon sequestration; 

reduced flooding; and community benefits, such as improved aesthetics; improved human health; 

additional recreational and wildlife areas; and potential cost savings associated with lower capital 

costs compared to building large stormwater collection and conveyance systems. 

EPA recognizes the tremendous opportunities that green infrastructure presents and has 

created an internal green infrastructure steering committee to coordinate various EPA efforts in 

this area and to further encourage and support the implementation of green infrastructure 

solutions. EPA is working with other federal agencies, state and local governments, tribes, 

municipalities, and the private sector to identify opportunities and provide technical assistance to 

communities implementing green approaches to control wet weather. 

The water-energy nexus is another area ripe for innovation that will drive economic 

growth. Three percent of our nation's energy is used to pump and treat water. Water and energy 

consumption in the U.S. are interdependent- the more water we usc, the more energy we need. 

The less energy we use, the less water we need and reducing energy and water use can have 

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26626.010

great financial benefits for industry and communities. New treatment technologies and design 

concepts are playing an important role in helping communities deal with their water 

infrastructure challenges. For example, in many cases, energy can be captured from wastewater. 

Capitalizing on this opportunity can yield financial benefits and maximize the sustainability of 

our existing systems. Industry is continuing to innovate in the construction and operation of 

wastewater treatment facilities, particularly in energy efficiency, such as in the use of anaerobic 

digestion to produce methane gas for energy. There is potential for a large payoff in turning 

waste into energy by using biosolids, manure, or other waste products as energy sources. It is 

smart business to save on energy costs, increase energy security, and benefit the environment, 

and the EPA strongly supports these innovative efforts. 

Conclusion 

Our nation is confronted with significant water infrastructure challenges. Addressing 

these challenges will take effort from the EPA, states, communities, and other partners, and will 

require us to use more innovative and sustainable tools to solve these significant challenges. We 

look forward to working with Members of the Subcommittee, our federal and state colleagues, 

and our many partners, stakeholders, and citizens who are committed to continuing our progress 

in providing clean water to all Americans. Thank you again for inviting me to testify and I 

would be happy to respond to any questions you may have. 

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26626.011

OU!!Stlons for the Bacon! 

This document contains answers to questions for the record from James A. Hanlon, Director, Office of 

Wastewater Management, u.s. Environmental Protection Agency from the hearing held on December 13, 2011 

by the Subcommittee on water and Wildlife entitled, "Our Nation's Water Infrastructure: Challenges and 

Opportunities." 

Senator Barbara Boxer 

1. Please describe the economic and environmental benefits of using green Infrastructure? can these practices 

help ta reduce casts for wastewater and drlnkln11 water utilities? How Is EPA working with local communities 

to promote these practices? 

Green Infrastructure Is a demonstrated approach that many cities are using as a cost-effective means for 

reducing the volume of wet weather discharges and the pollutants contained within stormwater. By managing 

rain near to where It falls, green Infrastructure can prevent polluted stormwater from entering local waterways 

and degrading water quality. In addition, green Infrastructure can improve air quality by capturing pollutants, 

reduce the urban heat island effect, decrease energy use, and provide many community benefits associated with 

increased vegetation. 

By helping to prevent stormwater from entering sewer systems, green infrastructure can reduce the capital 

Investment and operational expenses needed for managing and treating these discharges. in titles with 

combined sewer systems, the reduced sewer Inflows can also reduce the volume of combined sewer overflows 

(CSOs). The use of green infrastructure practices that capture and use rainwater for beneficial uses reduces the 

amount of potable water treated and delivered by drinking water utilities, reducing operational costs and 

environmental impacts. Examples where green infrastructure Is being used for enhanced environmental and 

economic outcomes include: 

Onondaga County, New York Is investing approximately $80 million in green infrastructure practices as a 

part of Its program to reduce CSOs. This Investment Is anticipated to save up to $20 million when compared 

to a grey Infrastructure only remedy. 

Portland, Oregon is investing $86 million in both green and grey infrastructure to improve the performance 

of the combined sewer system In Its Brooklyn Creek Basin. Using green streets, trees and restoring natural 

vegetated areas as part of the solution is anticipated to save the city $58 million compared to the grey 

infrastructure only approach. 

• Kansas City, Mlssourt Is Investing In a green and grey Infrastructure Improvement within the 10Q.acre Middle 

Blue River Basin to reduce CSOs. The green/grey solution is projected to provide 500,000 gallons of 

additional stormwater capacity when compared to the grey Infrastructure only option and is anticipated to 

cost $10 million less to construct. 

A large emphasis of the EPA's green infrastructure program has been outreach and technical support. In 2011, 

the agency Initiated a green infrastructure partnership program with 10 communities across the U.S. to 

recognize successful applications of green Infrastructure and provide technical resources and support to these 

communities for further development of their green Infrastructure programs. The EPA intends to expand this 

effort during 2012 to include up to 20 additional communities. 

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26626.012

2. Please describe the key components of EPA's efforts to promote sustalnablllty of the nation's water 

Infrastructure. What are the primary beneflts of this approach? Can Improved sustalnablllty help to reduce 

the gap In Infrastructure funding needed? 

Based on the principles laid out In the agency's Clean Water and Safe Drinking Water Infrastructure 

Sustalnabllity Polley, Issued in September 2010, the EPA Is working with a broad group of stakeholders to 

promote sustainability across the water sector on three Interrelated fronts: 

Sustainable Water Infrastructure-To help address the mounting need to renew and replace our aging 

water Infrastructure, the EPA is promoting up-front planning to ensure that utilities' water infrastructure 

Investments support community sustalnablllty goals; are based on the consideration oh range of 

alternatives, including green Infrastructure; and are supported by a financial strategy,lncluding 

adequate rates, to construct, operate, maintain, and replace the alternatives chosen. 

Sustainable Water Sector Systems-While Infrastructure Is a core component of water sector 

sustainability, wastewater and drinking water systems need to be effectively manaslng all aspects of 

their operations. The EPA will continue to support our partnenhip with several professional associations 

to promote effective utility management based on a series of Attributes of Effectively Monoged Utilities, 

including smaller utilities that often face daunting management challenges. Similarly, we are working to 

enhance the Capacity Development Program under the safe Drinking Water Act to help build the 

technical, managerial, and financial capacity of drlnkiniJ water systems. 

Sustainable Communities- Investments In water infrastructure and water sector systems can have a 

profound Impact on the overall character and sustalnabillty of our communities. The EPA is 

promoting the coordinated targeting of Investments from various infrastructure sectors, such as 

housing, transportation and water, to locations within a community that support Its goals for livability 

and sustainable growth. 

We believe this approach will provide an array of benefits to the public by ensuring that Investments in water 

Infrastructure are cost-effective over their life-cycle, efficient, and support the long·term sustalnablllty of the 

communities this infrastructure serves. 

3. Please describe how the use of additional subsidization authorities In the State Revolving Fund programs 

helps small communities access funding for needed water Infrastructure upgrades. 

Additional subsidization is a tool that further reduces the effective Interest rate of a State Revolving Fund (SRF) 

loan. The reduction may come In the form of a grant, principal forgiveness, or negative interest rates. In each 

Instance, the recipient community will pay back less than the cost of the project, or In some cases, nothing. 

Though not a requirement, the EPA recommends that this authority be used for those communities that could 

not otherwise afford a traditional SRF loan. 

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26626.013

Senptgr BenJamin \, cardin 

1, EPA has estimated a required Investment of over $500 billion dollars In our wastewater and drinking water 

Infrastructure over the next two decades. What are the likely Impacts If we fall to commit ourselves to this 

level of Investment? 

As a nation, we have invested billions of dollars over the years to build an extensive network of drinking water, 

wastewater and stonnwater infrastructure to provide the public with safe and clean water. While some of that 

infrastructure Is now 100 years old or older, much of our network of water treatment plants, distribution lines, 

sewer lines and storage facilities was built after World War 11. The renewal and replacement of the assets that 

make up our nation's water Infrastructure Is a constant and ongoing task. Deferral of renewal and replacement 

can negatively Impact levels of service In the long run. 

The future investment required for sustaining this drinking water and wastewater infrastructure will largely be 

borne by the municipalities that depend on these vital public services. Federal programs such as the State 

Revolving Funds can help provide subsidized assistance to states and communities in making water 

infrastructure Investments, but these programs have never served as the primary source of funding. The 

construction of new infrastructure and maintenance of existing Infrastructure will continue to be largely a local 

responsibility. 

The EPA Is committed to do Its part toward promoting sustainable practices, providing technical assistance to 

communities, and supporting community infrastructure Investments in order to help ensure that citizens of 

these communities continue to enjoy the benefits of clean and safe water. 

2, A variety of proposed water Infrastructure flnandng approaches Involve private sector partnership. For 

example, proposed legislation here In the Senate would lift the existing cap on private activity bonds for 

water Infrastructure proJects. In your opinion, what Is the appropriate role of the private sector In funding 

these typas of proJects? What potential challenges should we keep In mind as we determine how best to 

Incorporate private sector funding? 

Currently, the private setter Is significantly involved in the ownership and operation of drinking water facilities. 

According to 2011 data, 47 percent of the 51,226 community water systems are privately owned. This Includes 

Investor-owned utilities that serve very large and small communities, as well as manufactured home 

communities and homeowner associations. Under the Drinking Water State Revolving Fund (DWSRF), states can 

already make financing available to private community systems, except In states In which state law prohibits this 

practice. 

Private sector Involvement In wastewater treatment facilities Is less significant than drinking water facilities due 

to a variety of economic and regulatory fattors. However, contract operations where a private entity operates 

and maintains a publicly owned treatment works have been increasingly common and we expect that this trend 

will continue. 

With privatization involving private equity In a public-purpose wastewater treatment facility, the primary 

challenge Is for the privately owned facility to achieve and maintain a level of service equal to or better than a 

publicly owned facility. At the same time, the privately owned facility would need to keep user rates affordable 

to consumers at a level comparable to a publicly owned facility. There are also other considerations that must 

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26626.014

be taken into account, including public and political opposition to a facility changing ownership from a public 

entity to a private entity. 

Senator James M. lnbofe 

1. At the hearing, you mentioned within AlUlA, the FY10 budget, and the CR FY11 budget, Congress has tried 

to encourage sreen lnfrastrudure by dlctatins states use 20% of their capltaUzation srant money for these 

green, water efficiency, and enersv efficiency projeds, If such projeds are available. 

a. How many states are using the ful120% of their capitalization arant money for "green" projeds? 

All states and Puerto Rico used at leut 20% of their ARRA capitalization grants for "green" projects. All states 

and Puerto Rko plan to use at least 20% of their FY 2010 and FY 2011 capitalization grants for "green" projects. 

several states have already reached the 20% goal for FY 2010 and FY 2011. 

b. How many of these projeds are enersv efficient or water efficient rather than low Impact development or 

"green" design? 

SRF Green Project Reserve (GPR) projects are classified into four categories: energy efficiency, water efficiency, 

green infrastructure, and other environmentally innovative projects. Below are the percentages of funding 

provided to projeds classified as "energy efficiency" and "water efficiency" projects (note that a single project 

may be classified into multiple categories If, for example, It Includes both energy efficiency and water efficiency 

elements). 

Clean Water State Revolvillfl Fund (as of January 2012) 

Percent of Total Percent of Total 

Enersv Efficiency GPRFundlnc Water Efficiency GPR Fundillfl 

ARRA $606mllllon 54% $153mllllon 14% 

FY2010 $69mllllon 35% $37mllllon 19% 

FY 2011 Not enough Information reported to date. 

Drinking Water State Revolving Fund (as of January ZOlZ) 

Percent ofTotal Percent ofTotal 

Enersv Efficiency GPRFundlns Water Efficiency GPRFundlng 

ARRA $142mllllon 26% $356mllllon 66% 

FY 2010 $20mllllon 16% $76mllllon 62% 

FYZ011 Not enough Information reported to date. 

c. Is EPA concerned that the "Green Projed Reserve• can lead to hlaher priority water projeds belns by· 

passed by the SRF prosram to meet the zo" green goal? 

For the Clean Water SRF, the Green Project Reserve represents a very small percentage of overall SRF annual 

funding. FY 2012 Appropriations Act language requires at least 10% of the amount appropriated to be used for 

the GPR. The annual appropriations only represent approximately 20% of the total SRF funding volume when 

including repayments, Interest, bond proceeds, etc. Therefore, the effective requirement for GPR is only 

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26626.015

approximately 2'16 of all SRF annual funding. It Is highly unlikely that this requirement will Impact a state's ability 

to fund high priority water projects. Furthermore, GPR funds can be used to pay for energy- or water-efficient 

portions of high priority projects. 

For drinking water projects, the picture Is different. For the American Recovery and Reinvestment Act, and 2010 

and 201lapproprlatlons, at least 20 percent of the amount appropriated was to be for GPR. Some states raised 

concerns that It was challenging to Identify GPR projects to meet the 20 percent requirement and that doing so 

could Impact projects with greater public health significance. The FY 2012 appropriation does not require GPR 

for the DWSRF but, at the discretion of each state, the capitalization grants may be used for addressing green 

infrastructure, water or energy efficiency, or other environmentally Innovative activities. 

z. Can you further describe the sustalnablllty handbook you mentioned durlns the hearlns that Is supposed to 

come out early this year? 

a. Whet will It contain and will there be any new requirements for state manasers of the SRF pnosram? 

b. What Is the definition of sustalnablllty used In the handbook? 

As part of the agency's ongoing efforts to promote sustainable water infrastructure, the agency recently issued 

Planning for Sustalnablllty: A Handbook for Water ond Wastewater Utilities. The Handbook is designed to help 

utilities enhance their current planning processes to ensure that Infrastructure Investments are cost-effective 

over their life cycle, resource efficient, and support other relevant community goals. The Handbook Is organized 

around a series of Core Elements Including: 

Setting utility sustainabillty goals and objectives that also support relevant community goals; 

Analyzing a range of alternatives, Including green Infrastructure and other Innovative approaches, based 

on fullllfe·cycle costs; and 

Implementing a financial strategy, Including adequate rate structures, to ensure the alternatives chosen 

are sufficiently funded, operated, maintained, and replaced over time. 

The Handbook does not Include any new requirements for state managers of the SRF program. The Handbook 

also does not Include a definition of sustainablllty but instead Is organized around the Core Elements described 

above. Each element also Includes a series of steps utilities can take to implement the element as well as 

numerous examples from other communities. 

3. As was noted In the hearin& the SRF program is deslsned to slve communities access to low Interest loans 

for Infrastructure In order to meet water quality and public health goals. How is EPA ensuring that the 

sustalnabllltv policy does not interfere with the core goals of the SRF program? 

The sustainabllity policy Is a tool for planning and does not require any particular action on the part of state SRF 

programs. State prosrams are encouraged to follow the principles outlined In the policy and report on its use In 

the state's annual report. Furthermore, the EPA believes that by following the principles of the policy, states are 

furthering the core goals of the SRF program by ensuring that investments In water Infrastructure are costeffective over their life-cycle, efficient, and support the long·term sustainablllty of the communities the 

Infrastructure serves. 
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26626.016

4. Becaun the term "sustalnablflty" In the sustalnabllity policy refers both to system sustainablllty • 

management of systems for long term flnandal and physical viability, and 'ommunlty sustalnablllty -smart 

growth, low lmpa" development, and green lnfrastrurture, and these are not necessarily clearly separated In 

the policy document, how are the EPA reslons ensuring they are consistently applying this policy? 

As mentioned above, the sustalnability policy Is a tool for water utilities to engage In a collaborative process to 

ensure water Infrastructure Investments meet community and utility goals. The regions are not enforcing any 

aspects of the policy, but they are encouraging Its use. As described In our response to Question 2 above, we 

believe that the Core Elements of a sustainable water and wastewater utility can Include l22!b. system 

sustainabillty .!US! community sustalnablllty, not simply one or the other. 

5. Conslderlns that the SRF Is only a portion of the water Infrastructure Investments made in the US each year, 

why Is EPA uslns the SRF program and not the wider regulatory program to try and achieve these 

sustalnabUity soals? 

The sustalnablllty policy Is a tool for helping to ensure that federal investments, policies, and actions support 

water Infrastructure In efficient and sustainable locations to best aid ulstlng communities, enhance economic 

competitiveness, and promote affordable neighborhoods. As the policy emphasizes, federal SRF capitalization 

funds currently finance a relatively small portion of the capital projects undertaken across the water sectorand none of the operations and maintenance. For this reason, the EPA recognizes that achieving sustainability 

goals will require more than simply targeting SRF funding. Under the Polley, the EPA will work with all 

stakeholders, Including states, local governments, and their communities, to provide guidance and technical 

assistance to support increasing the sustainabllity of water Infrastructure In the u.s. 

The EPA Is promoting the use of flexible approaches within its regulatory programs to encourage the adoption of 

practices by water and wastewater utilities that will help these utilities plan and effectively manage their 

Infrastructure and operations to ensure sustalnabllity and to develop and maintain the necessary technical, 

financial and managerial capacity to conduct effective planning. Over the past several years, we have been 

working closely with state and local governments to incorporate flexibility for sustainable measures, like green 

infrastructure approaches, within permits and enforcement actions. We have many successful examples of titles 

that will utilize green Infrastructure to meet regulatory requirements In a way that also yields jobs, enhances 

neighborhoods, and promotes more sustainable communities. 

On Aprll20, 2011, the EPA Issued a memorandum entitled "Protecting Water Quality with Green Infrastructure 

in EPA Water Permitting and Enforcement Programs" to encourage the incorporation of green Infrastructure 

approaches Into National Pollutant Discharge Elimination System (NPDES) permits, as well as remedies designed 

to address non·compllance with the Clean Water Act (CWA), to the maximum extent possible. The EPA further 

committed to work with states and communities to Implement and utilize Integrated planning approaches to 

municipal wastewater and stormwater management In its October 27, 2011 memorandum entitled "Achieving 

Water Quality Through lntergrated Munidpal Srormwater and Wastewater Plan$." Integrated planning will 

assist municipalities on their critical paths to achieving the human health and water quality objectives of the 

CWA by identifying efficiencies In Implementing the sometimes overlapping and competing requirements that 

arise from distinct wastewater and stormwater programs, including how best to make capital Investments. 

integrated planning can also facilitate the use of sustainable and comprehensive solutions, including green 

infrastructure, that protect human health, Improve water quality, manage stormwater as a resource, and 

6 
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26626.017

support other economic benefits and quality of life attributes that enhance the vitality of communities. The 

integrated planning approach does not remove obligations to comply with the CWA, but rather recognizes the 

fleKibilitles in the CWA for the appropriate sequencing of work. 

6. Do you think that the additional subsidization requirements In the FV10 and FVU appropriations bHis are 

reduclnB states' leveraging capacity? 

For the Clean Water SRF, over $3.6 billion was appropriated to the states in FY10 and FYU. States were required 

to proviile at least $433 million of this amount as additional subsidization, but were also given the ability to 

provide up to $1.44 billion for such purposes. 

For the Drinking Water SRF, $2.3 billion was appropriated for those years. States were required to provide at 

least $690 million of that amount as additional subsidization, but could provide as much as $1.61 billion. 

Requiring that a portion of the federal appropriation be directed as additional subsidization can negatively 

Impact the states' leveraging capacity in several ways. There Is less capital available to the states to secure a 

bond Issuance through a debt service reserve, which helps ensure that the bonds receive a favorable credit 

rating. In addition, providing assistance in the form of additional subsidization reduces Interest earnings that 

would have come from recycled loan payments and future Investment opportunities. States may compensate 

for this by reducing the size offuture bond Issues, charging a higher Interest rate to dean Water SRF assistance 

recipients, or both. 

For the Clean Water SRF, given the relatively small amount of the FYlO and FY11 federal appropriations that Is 

required to be provided as additional subsidization (approximately 12%), the Impact on the states' leverage 

capacity Is estimated to be minor. Even with the additional subsidization requirement, the amount available to 

the states as permanent federal capitalization greatly exceeds the amounts provided prior to 2009. 

For the Drinking Water SRF in 2010 and 2011, the amount of required subsidy was significantly higher, with a 

minimum of 30% of the grant required to be used for subsidy. The impact on states' ability to leverage will be 

greater than for the Clean Water SRF. The amount available for permanent capitalization Is likely to be only 

slightly higher than the amount available from the 2009 appropriations, despite larger amounts available in 2010 

and 2011, due to the additional subsidization. 

7. Please provide for the record the guidance EPA Issues to the states to lnterpnat the SRF directives In this 

year's FY 1Z appropriations bill. 

FY 2012 SRF procedures are currently being finalized. We will provide you a copy after it's released. 

7 
25 

Senator CARDIN. Mr. Hanlon, thank you for your testimony. 

I want to talk a little bit more about the potential risks to health 

in regard to the status of our water infrastructure. The Baltimore 

Sun recently ran an article—and without objection I will include it 

in the record—pointing out that sewer lines are leaking that go 

into the Inner Harbor of Baltimore. But they are directly next to 

leaking drinking water lines, and raising the question as to whether there is potential risk to the public health as a result of the 

leakage, not only directly because of the quality of the Bay, but 

also as it relates to the safe drinking water. 

[The referenced information was not received at time of print.] 

Senator CARDIN. Can you just comment as to the risk factors related to the infrastructure needs on public health? 

Mr. HANLON. The exposure routes for leaking stormwater or 

wastewater collection lines or through normal leaks on a day to day 

basis, as was pointed out in that Baltimore Sun article, or overflows during wet weather episodes, either from separate sewers or 

combined sewers like Baltimore has, the typical route of exposure 

would be to individuals either entering the Inner Harbor or local 

creeks or waterways where recreation occurs. 

Because drinking water lines are under pressure, it is not likely 

that that sort of an underground water leak from a sewer would 

enter a drinking water line. Because basically the drinking water 

lines are under pressure, and the water sort of leaks out under 

pressure at that point. 

But the other sort of potential, as I had mentioned in my statement, is that where there are overflows or combination of source 

waters, where the drinking water intakes are, especially if there 

are substantial peaks, that could very much complicate the drinking water treatment process on a site by site basis. 

Senator CARDIN. Of course, the fact that it is under pressure is 

one of the reasons why we have so much leakage, which adds to 

the efficiency issues of our systems. 

Mr. HANLON. Yes. 

Senator CARDIN. So there are tradeoffs, I guess, in all the issues. 

If we have more modern water infrastructure, we wouldn’t have 

the leaks, we wouldn’t have these problems to start off with. 

And of course, we have had major breaks in our drinking water 

lines that have caused us to have to boil water or issues like that, 

because the pressure has been compromised. So there have been 

times that we have seen major concerns about public health related 

to the leakages. You mentioned a number, $300 billion in our needs for the 

wastewater, $335 billion in drinking water infrastructure. Those 

are staggering numbers, $635 billion of infrastructure needs. Can 

you give us a little more detail as to what that entails, how those 

numbers were arrived at? 

Mr. HANLON. Both the Clean Water Act and the Safe Drinking 

Water Act require EPA on an every 4-year basis to report to Congress in terms of water infrastructure needs. We work with the 

States cooperatively and they with local governments to document 

what their infrastructure needs are. And in order to have a need 

that would be reported in the survey, there has to be some baseline 

information, a capital improvement plan, a facilities plan where the 

26 

local utility has sort of done out-year planning, and basically the 

window for the needs surveys are 20 years, to identify their required capital improvements for drinking water and wastewater infrastructure. Those are then compiled, we do quality assurance 

checks. If they have confidence in the numbers, those are sent up 

to Congress on an every 4-year basis. The most recent surveys summarize those $300 billion and $335 

billion plus needs respectively. 

Senator CARDIN. So this is based upon the local plans as to what 

they would want to see done? 

Mr. HANLON. Yes. 

Senator CARDIN. And of course, under the current financing, 

there is nowhere near that type of capacity to get those types of 

projects moving? 

Mr. HANLON. That is correct. 

Senator CARDIN. Water infrastructure, unlike harbor maintenance or unlike our transportation program, does not have the 

dedicated revenue source. Is that an area that you have looked at 

at all as to whether there should be a more reliable, longer-term 

commitment to meeting these demands? 

Mr. HANLON. We have, within the Office of Water at EPA, 

worked very closely with the States to manage the State Revolving 

Funds. Those are the capital improvement programs that we have 

in place. And there is some baseline level of funding there, because 

as the design of the State Revolving Funds have played out, the 

Federal grants, the required State match, along with the repaid 

loans and the interest earnings over time have created sort of viable funds, or banks, that revolve over time, so that there is capacity 

in place in those 51 clean water banks and the 51 drinking water 

banks to provide infrastructure funding. 

For example, in the 12 months that ended last June 30th, the Clean Water SRF provided $5.3 billion in assistance to local governments, yes, SRF revolving funds. And the drinking water revolving fund provided $1.6 billion in assistance. So that is a total 

of $6.9 billion. Again, not near sort of what the national needs are, 

but that’s the capital financing program that EPA manages under 

the two statutes. 

Senator CARDIN. Senator Sessions. 

Senator SESSIONS. Thank you, Mr. Chairman. 

Mr. Hanlon, in the course of EPA’s work with sewer and water 

systems, have you developed and have there been developed techniques for making those systems longer lasting, more efficient, and 

less subject to defect and leaks? 

Mr. HANLON. I think the challenges that local water utilities 

face, and Baltimore is an example, as was mentioned earlier, or 

sort of any community across the landscape, that the preponderance of the water infrastructure is out of sight. If there is a pothole 

in the road that you drive to every day to work, you know about 

it, and you avoid it. If there is a leak in a water line, if there is 

a leak in an underground sewage collection line, it is very difficult, 

it is out of sight, and for a long time it has been out of mind. 

EPA has been working with the professional associations, the 

American Water Works Association, the Water Environment Federation, and others, the American Society of Civil Engineers, to 

27 

sort of deploy better practices to account for in-place infrastructure. 

The use of asset management techniques, environmental management systems are tools that allow local governments to better inventory their assets, do condition assessments, and identify what 

the needs are. And it is those needs in part that are reflected in 

the needs surveys that we spoke about earlier. 

Senator SESSIONS. Our country is facing the most severe debt crisis we have ever faced. It is systemic, it is long-term, it is not going 

to go away when the economy bounces back. And so we are having 

to see, how can we enhance critical matters like our water and 

sewer infrastructure at the lowest possible cost. I guess it is not 

EPA’s primary responsibility. But do you think that the country 

has sufficiently analyzed the techniques that help keep costs down 

and problems down? Do you have any suggestions how we could do 

better? 

Mr. HANLON. I think the challenge of the water infrastructure is 

a very sort of retail undertaking. There are 16,000 publicly owned 

wastewater treatment plants in the country, over 50,000 community water systems under the jurisdiction of those local water infrastructure managers. And so I think the full continuum is out there. 

Senator SESSIONS. We support many of those through loans and 

other programs. I guess I am saying they go to a local contractor 

who may not be the most sophisticated contractor in the latest 

techniques to be more effective. Do you think that some of our 

moneys are spent in ways that could be better spent? 

Mr. HANLON. I think the design of local infrastructure improvement projects is left to the local governments and their design engineers, primarily members of the American Society of Civil Engineers and others, who basically are the experts in designing either 

new systems or repairs to existing systems. 

Senator SESSIONS. Mr. Hanlon, the EPA has a serious responsibility enforcing water pollution laws. And there are city and rural 

and municipal sewer systems that leak and that impact adversely 

the environment. And you have responsibilities in that regard. 

One of the things I have seen both when I was United States Attorney and then as Attorney General is that some areas really have 

a difficult time having the funds necessary to meet what the EPA 

demands that they meet oftentimes right there. I don’t want to 

raise a complex subject, and it is an embarrassment to Alabama, 

but the largest municipal bankruptcy in the history of the country 

was the water-sewer system in Jefferson County, our largest county. I remember when I was Attorney General, EPA had demanded 

what was then estimated to be $1 billion in sewer upgrades. Well, 

it sounded like a good idea, I suppose. It took my breath away, 

knowing how that was probably a third of the State’s budget that 

this one county was going to have to fund. 

And then it went forward, and there were negotiations, and lawsuits I guess were maintained, and the threats continued. So the 

county ended up spending $4 billion. They borrowed the money unwisely from people who have gone to jail as a result of all of that. 

But the county went into bankruptcy, and it was driven primarily 

by the expenditures to improve the water-sewer system in the 

county. 

28 

What kind of policies do you have? I know one poor city in the 

State that EPA worked with in my experience to try to get the system improved and deal with the worst problems first. Do you have 

any kind of policies that allow you to develop a plan in these areas? 

Mr. HANLON. That subject has been one that we have had a fair 

amount of discussions on with a variety of stakeholders, including 

the Conference of Mayors and others over the last year or so. It 

had led to the issuance of a memo by my boss, Nancy Stoner, who 

is the Acting Assistant Administrator for the Office of Water, her 

counterpart, Cynthia Giles, who heads up EPA’s Compliance Enforcement Office on October 27th, that laid out an integrated planning framework for municipalities. Again, it is not a requirement, 

but it is an option. 

If the utility has basically a more cost effective way of sort of 

aligning their local needs in terms of these projects have the most 

potential to either provide protection for public health or reduction 

of overflows on a sort of pound per dollar basis, what the memo 

lays out is a process that EPA, working with the States, is willing 

to entertain those proposals by local governments to sequence their 

projects. It doesn’t lower the bar or sort of put off or absolve anyone from public health or water quality protections. But basically 

it is an effort to better sequence projects to get the most important 

projects to the top of the list. 

Senator SESSIONS. Do you have engineers that are capable of negotiating that, or do you just compare reports and suggestions 

about how to go forward? My time is up, maybe we can follow up 

on that. 

Mr. HANLON. Both EPA and the States have technical staff on 

board to entertain those discussions. 

Senator SESSIONS. It is important. 

Thank you, Mr. Chairman. 

Senator CARDIN. I hope we would be able to follow up on that 

point, because I do think the cost effectiveness, particularly to governments of limited capacity, is an issue that we need to be very 

informed about, as to the best way to proceed to make sure we protect public health, but mindful of the capacity of the local governments. 

Senator SESSIONS. Mr. Hanlon, if a city is in serious violation, 

you require them to stop, isn’t that right? It is not a question of, 

there are times when you just say, you have to fix this or shut the 

system down? 

Mr. HANLON. I think the conversations that occur, both within 

the permitting context as well as the compliance and enforcement 

context, again, the standards don’t change. Most of the water quality standards are established by the States. But what happens 

within the construct of those discussions is sort of how long it is 

going to take. 

We understand that the sewer systems across the United States 

we inherited from our grandparents, and they have been in the 

ground for a hundred or more years, the pipes out in front of this 

building. And we are not going to fix them in 3 years, we are not 

going to fix them in 5 years. So as the compliance schedules are 

negotiated, basically the end point is clear in terms of where we 

want to get to protect public health and protect the environment. 

29 

And it is the schedules that are most often negotiated in terms of 

is it 10 years, is it 20 years. There are consent agreements that 

have been entered into within the last 6 months that go up to 25 

years. 

Senator CARDIN. Senator Inhofe. 

Senator INHOFE. Did you want to go back and forth? OK, thank 

you very much. Thank you, Mr. Chairman. 

First of all, I took a quote out of your written statement, and I 

want to repeat it here, because I think it is significant. It says, 

‘‘one of the keys to the success of the SRFs is the considerable flexibility that States have to decide how funds are used under the 

varying State-specific circumstances. This flexibility allows both 

programs to make these much needed funds available to local governments in a timely manner, allowing funds to enter local economies quickly.’’ I strongly agree with that, and I am a believer that 

the States are best equipped to take care of these problems. 

So I would ask first, are EPA’s current SRF policies continuing 

to provide the maximum flexibility to the States? And I would ask 

those who will be on the second panel to listen to your answers. 

I would also further request that you stay and listen to their testimony if you have time to do so. 

Mr. HANLON. Yes. Basically the States, the statutory authorities 

are a little bit different between the Clean Water SRF and the 

Drinking Water SRF. On the Clean Water side, States are required 

to put together a project priority list, and then on an annual basis 

identify their list of projects they propose to fund through an intended use plan. And they can go anywhere on that list to select 

projects to fund. Generally basically the States go to the top of 

their priority list in terms of what are the most important public 

health or water quality projects that they have identified within 

the State. So that is the Clean Water Act. 

On the Safe Drinking Water Act, a very similar process, although 

the act encourages or requires States to have their most important 

public health needs at the top of the list and fund in accordance 

with those public health priorities as identified in the State. 

Within both funds, there have been some additional requirements, beginning with the Recovery Act. For example, green infrastructure, green project reserve, began with the Recovery Act and 

was included in both the fiscal year 2010 appropriation and 

through the continuing resolution in the fiscal year 2011 appropriation, encouraging—not requiring but encouraging States to the extent projects were available to use 20 percent of their capitalization 

grant for green infrastructure, water efficiency, or energy efficiency. 

So States have sort of worked within the project list to try to 

meet that congressional suggestion in terms of finding the 20 percent. 

Senator INHOFE. Congressional suggestion, that is a new term. 

[Laughter.] 

Mr. HANLON. We take those seriously, sir. 

[Laughter.] 

Senator INHOFE. Let me just say this. First of all, I am an admirer of yours, Mr. Hanlon. You have had this job since, what, 

2002? 

30 

Mr. HANLON. Yes, sir. 

Senator INHOFE. So you have gone through different Administrations. I don’t think it is any real surprise that the SRF program, 

other clean water programs and air programs and others are normally—there is a propensity by any Administration to use these 

programs to advance another agenda. In this case, it could be the 

smart growth policies and this type of thing. I will be asking the 

same question of the next panel. 

The SRF program is designed to give communities access to low 

interest loans for infrastructure in order to meet the water quality 

and public health goals. That is what they are supposed to be 

doing. I complained last year that they are getting into extraneous 

issues. And I would just say—I would ask if you could explain how 

the EPA’s sustainability policy is not interfering with the important need to provide States with the flexibility that you are going 

to hear about in the next panel. 

Mr. HANLON. The October 2010 sustainability policy basically 

laid out a number of activities; first of all, it encouraged States to 

work with their local municipalities to identify projects and to plan 

projects that would provide over the long term, the sustainable provision of safe drinking water and the wastewater treatment that 

would serve the local municipality well over the long term. So that 

you don’t only look within the fence line of the municipality, but 

sort of look beyond that in terms of what was going on within their 

watershed, et cetera. 

We have worked with the States and with the water utilities to 

develop a sustainability handbook. Again, it is a guidance document, not required for States and local governments to consider. 

We hope to have that out early next calendar year. 

Senator INHOFE. OK, that is fine, Mr. Hanlon. Did you say that 

you would be able—your schedule would allow you to stay to listen 

to the second panel? 

Mr. HANLON. I have a commitment, the sustainable planning effort that we talked about, the integrated planning effort we talked 

about earlier, there is a meeting in town with a bunch of local governments to sort of talk about implementing it. My staff is here to 

hear the second panel. 

Senator INHOFE. Thank you, sir. 

Thank you, Mr. Chairman. 

Senator CARDIN. Thank you. 

Senator Udall. 

Senator UDALL. Thank you, Senator Cardin. 

We have been having a little bit of a discussion here back and 

forth about funding for these programs. One point I just want to 

make, and I am not asking for a comment on this, Mr. Hanlon, but 

isn’t it clear that, or maybe I am—isn’t it clear that folks that are 

hurt the most when you reduce the funding in the Clean Water 

and Drinking Water State Revolving Funds are rural communities 

and low income communities? Those are the ones that aren’t able 

to afford it. That is basically the case, isn’t it? 

Mr. HANLON. The data shows that small, mid and small size 

communities have taken advantage of the State Revolving Funds, 

because the States are able, through their management of the fund, 

to first of all determine their creditworthiness; basically, they are 

31 

not going to make loans that can’t be repaid. But also, the State 

Revolving Fund programs tend to avoid many of the transaction 

costs, the bond councils and rating agencies and things that large 

municipalities do as a matter of course. 

So over time, the Clean Water State Revolving Fund has provided 23 percent of the dollars over the last 20 or more years to 

towns under 10,000 population, and the Drinking Water Fund 37 

percent of the money goes to towns under 10,000. That is important as you look across the landscape. I was at a meeting a month 

ago with the public health officials from the State of Virginia, who 

document that—they believe that they have 30,000 residents in the 

State of Virginia that do not have access to basic sanitation. They 

either have outhouses or straight pipes, in Virginia, in 2011. 

Senator UDALL. Shifting gears now, and I want to ask you about 

the non-structural approaches to stormwater, also known as green 

infrastructure. I have introduced legislation with Senators Whitehouse and Cardin. And it would encourage EPA to incorporate 

green infrastructure into its permitting actions and overall promote 

green infrastructure approaches. Can you give a quick explanation 

of what green infrastructure means in terms of water infrastructure and what its advantages are? 

Mr. HANLON. Green infrastructure are techniques on the ground 

that basically, for wet weather, during wet weather events, either 

infiltrate, evapotranspirate, or store and re-use rainwater. The benefit of those designs is first of all, it eliminates some of the peak 

flows from getting into either storm sewers, or into an area like 

this, combined sewers, that then have to be sort of collected and 

treated before they are discharged. 

Other benefits of green infrastructure are neighborhood impacts. 

You can put a lot of money in a tunnel or a pipe below the ground 

and not see any sort of surface impacts or benefits. Green infrastructure has the benefit of greening, if you will, neighborhoods. It 

also has the benefit, if done at a larger scale, to reduce the heat 

island effects of urban areas, has the potential to improve air quality in urban areas, and really, over the long term, has the potential 

of improving what urban America looks like, if you look out 20, 30 

years. 

Senator UDALL. What is EPA doing to incorporate green infrastructure into its permitting activities, and how are these actions 

reducing costs for local utilities? 

Mr. HANLON. From the permit program standpoint, the Clean 

Water Act is a performance based statute. So its permits are written basically, it is sort of the performance of an individual project 

or an individual municipality that is the end point for the permit. 

How the municipality gets there, EPA typically doesn’t get involved 

in the detailed designs, as we spoke earlier. The local consulting 

engineer is working with the public works department. 

Having said that, EPA has had a major investment, over the last 

3 years, in green infrastructure. We have a green infrastructure 

partnership, we are doing research in our Office of Research and 

Development on green infrastructure techniques, to better understand the efficiencies and efficacies of green infrastructure techniques, not only in a parcel by parcel basis, but at scale, at a sewer 

32 

shed basis, 10 square blocks, 50 square blocks, how does green infrastructure work and what efficiencies can we expect. 

Senator UDALL. Thank you very much. 

Thanks, Chairman Cardin. 

Senator CARDIN. Senator Gillibrand. 

Senator GILLIBRAND. Thank you, Mr. Chairman. 

Thank you very much for coming to testify in front of this Committee. New York has substantial water and sewer infrastructure 

needs. I think the last estimate I saw was about $70 billion of need 

over the next 20 years. So we have very significant, grave concerns 

about how we can actually get that important work done. 

We also have many towns, particularly rural towns, that are 

under consent order because of their dilapidated or broken sewer 

systems. So one of the concerns that I have is that there is not 

enough attention being given to repairing and upgrading existing 

water infrastructure. The focus has been more often on new growth 

and development. 

To what extent is the EPA working with States to ensure that 

funding is being utilized to repair infrastructure? 

Mr. HANLON. As I said earlier, under the Clean Water State Revolving Fund, basically the States decide sort of what projects go 

to the top of their list and which projects are funded. Having said 

that, certainly there is an encouragement from EPA, working with 

the States, to identify those existing needs from a documented need 

basis or from a compliance basis, and to use scarce SRF resources 

there first. 

Senator GILLIBRAND. Well, yes, have heard you say a couple of 

times that the success of the State Revolving Funds has been quite 

meaningful. But in our State, there is still a massive gap between 

the amount of funding that is needed and the amount that is available to meet the infrastructure needs that we have. What are the 

steps that need to be taken to ensure that we don’t end up with 

the massive infrastructure failures that put health and safety at 

risk? 

Mr. HANLON. Again, I would like to compliment New York State. 

They have been one of the leaders nationally in terms of their management of the State Revolving Fund. There is a technique called 

leveraging, where basically the State can go to the bond market 

and actually—through leveraging transactions, actually put multiples or two or three times the amount provided through the Federal grant into infrastructure. New York has done that annually 

since the late 1980s. 

Having said that, again, I believe that the efforts at the local 

level to identify what their critical infrastructure needs are, 

through techniques like asset management, to document their assets in place, what the condition of those assets are. And then from 

a criticality standpoint do assessments in terms of what the immediate needs are on a local basis that should be queued up for consideration earlier, what are the most critical projects locally. It is 

very difficult for the people in Albany or impossible for EPA from 

the distance we are to determine sort of what the relative priorities 

are of projects within a local drinking water or wastewater jurisdiction. 

33 

Senator GILLIBRAND. Well, one of the problems is, there is just 

too much demand. You have a certain budget, so you have to structure projects based on the budget need. But that doesn’t mean that 

that small town that is under consent order doesn’t have still an 

urgent need that is not being met. It just might not have made 

that list. 

So what I am really worried about is, if we agree that this need of $70 billion investment over 20 years is legitimate, are there any 

other ideas that you have besides getting local communities to leverage money beyond the State Revolving Fund models that you 

think we should begin to employ in different parts of the country 

to make more resources available? Are all States, for example, 

using these leveraging models to make more Federal money available for more at-risk cities, States, and communities that are already doing things well? 

New York is just unique. We are an older State; our infrastructure was built between 50 and 100 years ago. It is now deteriorating significantly. We have 20 million people. So it is not the 

same as every other State. So the needs are very significant. 

So are there things we should be doing on a national level to 

make more Federal money available for the more urgent needs 

around the country? 

Mr. HANLON. The issue of making more Federal money available 

I will leave to the Subcommittee. With respect to leveraging, there 

are somewhere between 25 and 30 States who have leveraged their 

State Revolving Funds over time. We at EPA have worked with our 

environmental finance advisory board. They have produced a report 

that sort of demonstrates the benefits of leveraging that we have 

made available to the States. 

And at the end of that conversation, though, the critical decisionmaking point for a State is they have to have projects that are absolutely ready to go, ready to go to bid, ready to go to construction 

before they can leverage their fund. Otherwise, they are borrowing 

money, basically, to do the leveraging transaction. If they can’t 

turn that around in terms of loans to local projects, basically they 

are not going to go through a leveraging transaction. 

So like New York has done, you have to have a full pipeline that 

then can support a leveraging transaction. 

Senator GILLIBRAND. Thank you. 

[The prepared statement of Senator Gillibrand follows:] 

STATEMENT OF HON. KIRSTEN GILLIBRAND, 

U.S. SENATOR FROM THE STATE OF NEW YORK

Chairman Cardin, thank you for holding this important hearing today to highlight 

the challenges and the opportunities that we face in maintaining our nation’s water 

infrastructure. This is one of the most important issues that this Committee is responsible for, and it is one that affects the lives of virtually every American—across 

every region of the country. 

In each of our States, communities are grappling with the challenge of maintaining safe and reliable water infrastructure during a time when Federal, State, and 

local budgets are stretched to their limits. In my State of New York, these significant challenges were made even more urgent in the aftermath of severe flooding 

caused by Hurricane Irene and Tropical Storm Lee. These storms devastated communities across eastern New York State and will have long-term impacts on the region’s infrastructure. 

New York’s water needs have been well documented in reports by the New York 

State Department of Environmental Conservation and the New York State DepartVerDate Aug 31 2005 06:59 Sep 08, 2017 Jkt 000000 PO 00000 Frm 00039 Fmt 6633 Sfmt 6633 S:\_EPW\DOCS\26626.TXT SONYA
34 

ment of Health. The most recent estimates project that it will cost over $70 billion 

to repair, replace, and upgrade New York’s wastewater and drinking water infrastructure over the next 20 years. 

New York has already made significant investments in protecting our water infrastructure, but State and local governments cannot meet this challenge alone. It is 

critical that Congress and the Administration make a strong commitment to ensuring that families across New York and the United States have access to safe and 

reliable water. We can do this by addressing the continued funding shortfall, investing in ‘‘green’’ infrastructure to provide long-term cost savings, and ensuring that 

rural and disadvantaged communities have access to Federal funding. 

Mr. Chairman, thank you again for this hearing and for your leadership on this 

important issue. I look forward to continuing to work with you and with my colleagues on this Committee to strengthen and improve the Federal response to our 

nation’s water infrastructure needs. 

Senator CARDIN. Senator Merkley. 

Senator MERKLEY. Thank you, Mr. Chairman. I am going to pass 

on my questions in order to bring up the next panel. 

Senator CARDIN. Thank you. 

Senator Whitehouse. 

Senator WHITEHOUSE. Thank you, Chairman. 

I would like to ask unanimous consent that a letter from the National Utility Contractors Association of Rhode Island in support of 

additional funding be part of the record. 

Senator CARDIN. Without objection, so ordered. 

[The referenced information follows:] 

35 


26626.018

!'au! !h::~!am 

lice !'residen/ 

KarenQuattmeC"h! 

S'l!crelw:v 

RobcrlL I nlkur 

l:recutire/)wector 

Ronald Nunes 

Posfl'resideof 

1\.cnndh J)iFonto 

lanws Cntl!mi.::r 

John Rocchio 

David Skurka 

[J)HHYIST 

'1\.'rranc~an.l:sq. 

l.cnc!tc F. Bnissdlc. Fsq. 

I.E{;ISLATI\'E/LAHO!t 

J Willinms Street 

North Smithlicld, Rholl<' Island 0289(, 

Phont•: 401-996~6965 Fax: 40t-7fi6-.JR90 

Rm~il: utilltyconh'fH.'{!l"'laol.com 

Wellsitc: """''"'"''"''"'" 

December 12, 20 ll 

Honorable Sheldon Whitehouse 

United States Senator 

502 Senate Ol11ce Duilding 

Washington, DC 2051 Q,J905 

Dear Senator \Vhitehouse, 

I am writing to hring you up to date as to Rhode Island's continuing 

struggle to put our industry back to work. We arc well mvare of your 

continued suppoti for underground and clean water and waste\vatcr 

infrastructure repair. 

As already may be aware, Rhode Island's needs alone exceed$ L5 

in tl.mding and growing, in order to repair and/or replace our aging 

inti,astructurc, I need not remind you that Rhode Island as well as the 

Northeast has some of the oldest infrastructure in the United States. 

fn addition to providing the necessary funding to fix our aging 

infrnstructure) it creates sorely needed jobs in a state that still has 

unemployment in the construction sector over 20%, 

UCARI and the National Utility Contractors Association (NUCA) who 

chairs the Clean Watet' Council (CWC), wholeheatiedly supports your 

efforts on behalf of our nation's serious underground utility needs, 

The Clean Water Council (CWC) is a coalition of 40 national 

orgsnizations representjng underground construction contractors, design 

protCssionals, manufacturers and suppliers, labor representatives and 

others committed to ensuring a high quality of life through sound 

environmental infrastructure. These industries work collectively to 

improve critical underground systems that unqucstionably enhance 

America's quality of lite. 

In 2009, the CWC released a new study on the job creation and enhanced 

economic activity that comes with investment in water and wastewater 

inth1structure projects. The study, titled L)~uddenlmpact: A . .,·sessrnenl of 

,)"hort-Term Economic Impacts ofJYater and Wa,vtewater Projects· in the 

United ,)'!ales, shows that a $1 billion investment in wster and wastewater 

intl-astructurc results in: 

the creation of up to 27,000 new .i£)bs with average annual earnings for 

the construction portion oflhc jobs at more than $50,000; 

total national output (Le,, demand for products and services in all 

industries) of up to $3.46 billion; 
36 


26626.019

Honorable Sheldon \Vhitchnusc 

United States Scnutor 

December 12, 201! 

Page2 

personal (household) income oi' $1.06 billion; and 

approximately $82A million in state and locul tax revenue. 

r--.~ach or these economic impacts occurs during and immediately after 

project construction. Supplementary economic benefits will also ensue in 

the future, when repair and maintenance is conducted on these systems. In 

both the short-term and long-1crm, economic benefits ripple through local 

economics from manuh1cturcrs to distributors to construction laborers. and 

countless other industry sectors. In fact. the study found thai investment in 

water and wastewater infrastructure creates measurable employment in 

325 other standard indus1ry classifications. Copies of the SuddeJ!lmpact 

arc avcli!<Jblc to any and all members of the subcommittee upon request 

lJCARL NUCA and the CWC believe that reauthorization of the SRF 

programs is critical to provide core federal funding ft1r state und local 

\Vater infl·astructurc. ln addition. the volume cap on private acth·ity 

bonds for water infh1structure is a responsible complement to 

existing federal investmenls in water that would generate up 

to S5 billion in annual private investment at a minimal cost to government. 

Although lJCARf's, NUCA 'sand the CWC's request for supportl<w this 

additional runding wil! effect just the tip of the iceberg, it is a start to 

finally the n<Jtion's \Vnter and wastewater needs on the top of the 

priority 

Again, J want to thank you for your support of the Utility Cnntractors 

Association of Rhode Island as as NUCA and the CWC. 

\Vc look fOrward to 

lhturc of all Rhode 

coutinucd support on behalf of the residents and 

and our nation. 

Should you have any questions. please f~e! free to call me. 

\Varmcst rcgmds, 

Executive Director 
37 

Senator WHITEHOUSE. I would like to also ask that a letter from 

the Warwick Sewer Authority in Rhode Island be put into the 

record. And I would just like to read from it one short passage: ‘‘In 

addition to directly creating jobs, water infrastructure projects 

stimulate other economic activity. These projects depend on American-made pipes, fittings, cement, aggregates and other products. 

The United States Conference of Mayors estimates every job created through rebuilding our water systems creates over 3.6 jobs 

elsewhere, and every dollar invested in water infrastructure adds 

$6.35 to the national economy.’’ 

So I would like to ask that that also be put in the record. 

Senator CARDIN. Without objection, it will be included in the 

record. 

[The referenced information follows:] 

38 


26626.020

December 12, 2011 

WARWICK SEWER AUTHORITY 

125 ARTHUR W. DEVINE BLVD 

WARWICK, RHODE ISLAND 02886 

TEL 14011-739-4949 

The Honorable Sheldon Whitehouse 

717 !!ati Senate ()nice Building 

Washington, DC 20510-3905 

RE: City of Warwick Water Infrastructure Needs 

Dear Senator Whitehouse: 

Thank you for the opportunity to provide you with information about the water-related 

infrastructure needs in the City of Warwick. This tetter mostly focuses on wastewater 

infrastructure; however, I have coordinated my response with the City's Water Department and 

Planning Department to provide a more comprehensive picture of water infrastructure needs, 

including funding for drinking water and storm water projects. 

Enclosed is a list of wa~tewater-rclated capital improvement and infmstructur<! upgrade projects. 

By far, the biggest expense on the list is the upgrades to the treatment fi1cility for phosphorus 

removal as required by our new discharge pcnniL (We. will be sending you more detailed 

inl{mnation about this project and our 20-year Facilities Plan in the next week.) ln addition to 

the phosphorus upgrades and associated equipment improvements, we are <!stimating that 

improvements to the levee that protects the facility from tlooding will cost around $7 million. 

We also have numerous projects related to our aging collection system infrastmcture, most 

signiticantly some structural improvements to the 48-inch influent pipe that runs under Interstate 

Route 95 to the treatment facility. The total estimated need for spending on existinx wastewater 

infrastructure is over $30 million in the next tive to 10 years. 

As you know. the City of Warwick would like to continue its sewer expansion program as there 

arc large. environmentally sensitive areas of the City that continue to be serviced by cesspools 

and aging septic systems. Our "wish'' list tor new sewer construction is enclosed and totals 

almost $55 million in today's dollars. 

In addition to these wastewater infrastructure projects, the City budgets, but has no funding lor. 

drinking water and drainage project needs totaling approximately $1.1 miltion per year. This 

represents mostly capital rehabilitation projects, not new construction (sec enclosed excerpts 

from the City's capital budget). 
39 


26626.021

Senator Sheldon Whitehouse 

December !2. 20!! 

Page 2 

Recent surveys by municipal and utility organizations found that there are at least $20 billion in 

water-related projects that arc ready to go as soon as a funding commitment is made. An 

immediate investment of this magnitude would employ an estimated 700,000 American workers 

through repairs and improvements to water mains. leaking pipes, water and wastewater treatment 

plants, pumping stations. storage reservoirs, elevated tanks, security safeguards, installing green 

infrastructure to manage stom1water, and similar projects. 

In addition to directly creating jobs, water infrastructure projects stimulate other economic 

activity. These projects depend on American-made pipes, tlttings, cement aggregates, and other 

products. The United States Conference of Mayors estimates that every job created through 

rebuilding our water systems creates over 3.6 jobs elsewhere and every dollar invested in water 

intl·astructurc adds $6.35 to the national economy. Investments in water infrastructure also otier 

multiple benefits. including protection of public health and satcty, improved water quality, and a 

better quality of lite. Here in the City of Warwick, we believe that our wa~tewatcr and 

stormwater infrastructure improvements will not only create jobs and stimulate thl' local 

economy but will have a major impact on improving water quality in both Narragansett and 

Greenwich Bays. 

I would like to thank you for your suppmt for water infrastructure funding initiatives and your 

work on the Senate Environment and Public Works Committee's Water Subcommittee. 

Should you have any questions or need additional information, please contact me at ( 40 I) 468-

4700 or email lillli.m;.l.bur~£@warwic.l<..J:i.com. 

Respectfully, 

Executive Director 

Encl. 

Cc: Kate Konschnik, Chief Environmental Counsel 

Mark Carruolo, Mayor's Oftlce 

Dan O'Rourke, Water Department 

William DePasquale, Planning Director 

26626.022

Warwick Sewer Authority 

Capital Improvements & Upgrades 

Project Name Total Cost (2011) Program Implementatio

Treatment Facility 

Phosphorus Removal Upgrades $11,600,000 2014 

Replace Fine Screen $293,000 2014 

Replace Submersible Mixers $300,000 2014 

Retrofit Center Clarifiers (scum removal) $755,000 2014 

Rehabilitate Existing Rotary Screen Thickener and Install $562,000 2014 

Additional Unit 

Flood Protection Improvements to Levee $7,000,000 Pending funding 

Collection System 

Warwick Neck Pumping Station Upgrades $2,393,000 Pending funding 

Upgrades to 7 Existing Ejector Stations (Irving Road, $2,275,000 Pending funding 

Northampton, Posnegansett, Stanmore, Hilton Road, 

Lakeshore South and Lakeshore North) 

Cedar Swamp Pump Station Upgrades $250,000 2012 

Main Influent Interceptor Upgrades $300,000 2012 

Bellows Street Pump Station Replacement $980,000 2012, EDA grant 

Warwick Avenue Pump Station Upgrades $345,000 2013 

Oakland Beach Pump Station Upgrades $500,000 2013 

Knight Street Pump Station Relocation $1,750,000 2014, pending funding 

lockwood Pump Station Force Main Relocation $1,150,000 2014, pending funding 

Warwick Vets Pump Station Force M;Jin Rei!J~ilti~_ $600,000 2013 

~-~-

TOTAL $31,053,000 

12/12/2011 

26626.023

Warwick Sewer Authority 

New Capital Projects 

Project Name 

Governor Francis Ill Sewer Extension 

Northwest Gorton Pond Sewer Extension 

O'Donnell Hill Area Sewer Extension 

Bayside I Sewer Extention 

Bayside II Sewer Extension 

Bayside Ill Sewer Extension 

Warwick Neck South Sewer Extension 

Strawberry Field II Sewer Extension 

Greenwood East Sewer Extension 

Pilgrim P~rk S~wer Extensiorl__ 

TOTAL 

12/12/2011 

Total Cost (2011) Program Implementation 

$4,600,000 2014. pending bond authorization 

$4,000,000 2015, pending bond authorization 

$1,899,800 2016, pending funding 

$5,635,000 2018, pending archaeological findings 

$4,370,000 2018, pending archaeological findings 

$3,900,000 2018, pending archaeological findings 

$11,933,600 2020, pending funding 

$860,500 2021, pending cleanup of contamination 

$13,362,160 2022, pending airport roadway extension 

$4,250,540 2023, pending funding 

$54,811,600 

26626.024

A. WATER DEPARTMENT 

City ofWanvick, Rh

201 Capital Improvements Program a

W-1 Water Department Capital Improvements and Infrastructure Replacement 

The proposed expenditure of capital funds for the future reflects the upgrade of the existing infrastructure. transmis

distribution systems, Funds will be used to upgrade and expand the existing transmission and/or distribution system, inclu

elimination of dead-ended lines and increased tire protection in conjunction with state and local road/wastewater projects. 

Allocation of Funds: 

Year: 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 

Amount: $600,000 $600.000 $600,000 $600,000 $600,000 $600,000 

Page 19 of -13 

26626.025

PUBLIC WORKS 

PW-1 & 2 Streets and Drainage 

City ujWanrick. Rh

20/1-2012 Capita/Improve menu Program a

The maintenance of city streets and drainage comprises a large expenditure of the city's budget. This program is a continuou

that involves the construction of new drainage facilities in selected areas and the overlaying of streets as prioritized 

Engineering Division in concert with the Public Works Director, the Mayor and the City CounciL 

Allocation offunds: 

Year: 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017 

Street Improvement: $500,000 $500.000 $500.000 $500,000 $500,000 $500,000 

Drainage Improvement: S500,000 $500,000 $500,000 $500,000 $500.000 $500,000 

-------·---------------------------------------------------------------

Page 5 of43 
44 

Senator WHITEHOUSE. Finally, I would like to ask unanimous 

consent that a letter from the Kingston Water District be included 

in the record. 

Senator CARDIN. Without objection. 

[The referenced information follows:] 

45 


26626.026

KINGSTON WATER DISTRICT 

\j,dl R 0. Box 216,, West Kingston, Rl 0289Z 

14 Frank Ave., West Kingston, Rl 02892 

Senator Sheldon Whitehouse 

170 Westminster Street 

Providence. Rl 02903 

Re: Pipe Samples 

Dear Senator Whitehouse: 

Tel. 401-783-5494 

Fax40l-789-7004 

December 8, 201 1 

On behalf of Atlantic States Rural Water and Wastewater Association and Kingston 

Water Distri<.'l, thank you lhr taking time out of your busy sche-dule to meet with me last Friday, 

Per your request, l have enclosed two samples of badly corroded and tuberculated pipes 

that were removed from the Kingston Water District's system. Both pipes typify the kinds of 

conditions found throughout water systems across the country, especially in older systems such 

as we have in Rhode Island. 

The larger of the two samples is a cast iron pipe that was removed from the center of 

Kingston Village, Though this village served as one of the state capitals during the early years of 

Rhode Island's statehood. the pipe datl'<l onZv from !920, We still have over two miles of 

similar, but larger, cast iron mains that need to he replaced, 

The smaller pipe sample was removed from Kingstown Road (Rt. 108). The sample was 

taken from a plastic water service that had to be replaced. Even though plastic services do not 

corrode, they can become tuberculated when fed otT of old iron mains. 

These arc just two of many examples of decayed infrastructure that our nation must 

replace if the next generation is going to enjoy the benefits of reliable and high quality water 

supplies. Once again, thank you l(Jr your continued support of environmental and public works 

programs, 
46 

Senator WHITEHOUSE. The Kingston Water District has sent a 

few samples in of piping that they have removed. This is piping 

taken from the Kingston City Center, and as you can see, it is 

filled in and corroded a lot. This was installed in 1920. So the city 

has been around since the 17th century, the late 17th century or 

early 18th century. But these aren’t pipes that are that old, these 

are newer. And you can see how much of it has been lost. 

So that is the status quo out there. And we have a chance to fix 

that. It is not just the big pipes as well, and it is not just the old 

iron ones. This is a piece of plastic pipe. And despite the fact that 

it is plastic, if you try to look through it, the hole, I can barely get 

my finger through and the pipe is 2 inches or so across. And because the plastic piping is attached to the regular cast iron piping, 

it tuberculates just as much as the others do. 

So this is the status quo out there. I think this is a call to action 

from the U.S. Congress to make sure that Americans have the 

water quality infrastructure that they deserve, and we are going to 

have to do this sooner or later. Why not do it now, while we so urgently need the jobs? 

So I want to congratulate Chairman Cardin for holding this hearing. I thank Ranking Member Sessions for his support of this hearing, and urge that we work our way forward, so that America’s 

drinking water no longer has to go through piping that looks like 

this, while we have the ability to upgrade it. 

Thank you very much. 

[The referenced information follows:] 

47 


26626.027
48 


26626.028
49 


26626.029
50 

Senator CARDIN. Thank you, Senator Whitehouse. I appreciate 

that. It will be difficult to figure out how we are going to get that 

into the record, but we will do the best we can. 

[Laughter.] 

Senator CARDIN. Let me thank Mr. Hanlon very much for your 

testimony. 

We will now turn to the second panel. And for that, let me first 

turn to Senator Sessions, who I believe wants to introduce one of 

the panelists. 

Senator SESSIONS. I would be honored to introduce Van Richey, 

who served as President and CEO of American Cast Iron Pipe 

Company, or CIPCO, since 1989. Founded in Birmingham in 1905, 

CIPCO is a global manufacturer of industrial and capital goods. 

CIPCO’s founder, John Eagen, actually gave the company to the 

employees in 1922. Since then, they have been frequently recognized as one of the ‘‘best companies to work for in America.’’ 

Mr. Richey was born in Cullman, Alabama, not too far north of 

Birmingham; a pretty good town, Cullman is. Served in the United 

States Army, received his BS and MBA degrees from the University of Alabama, and completed Harvard’s advanced management 

program. An outstanding citizen, he served as Chairman of the 

Business Council of Alabama, several boards, including the President’s Cabinet at the University of Alabama—roll, Tide. Our Chairman, Senator Boxer, put on an Oklahoma shirt with No. 1 on it. 

That faded fast, didn’t it, Senator Inhofe? 

Senator INHOFE. Indeed it did. 

[Laughter.] 

Senator SESSIONS. So maybe she would be willing to put on an 

Alabama one if your team wins. 

He is active in the Boy Scouts, Alabama Health Services, and 

University of Alabama Birmingham Health System and the Salvation Army. 

Thank you, Mr. Chairman. Mr. Richey will be an excellent witness, and I appreciate his ability to come. 

Senator CARDIN. We will next turn to the Oklahoma Senator for 

a response. 

Senator Inhofe, do you want to make an introduction? 

Senator INHOFE. Yes, I do. I am real pleased to have Joe Freeman here. He has served as the Chief of the Oklahoma Water 

Board since 1993. So he has been around for a long time. He joined 

that board actually in 1990, to supervise financial analysts in technical and credit reviews and served on the water and wastewater 

facility loans. 

Prior to joining the board, he was a banker, 13 years in Oklahoma. He has deep roots there. He is a past president and member 

of the board of directors of the Council of Infrastructure Financing 

Authorities. He also serves on the Oklahoma Funding Agency’s coordinating team. 

In 2010 he was named to the Oklahoma Rural Water Hall of 

Fame. And there is somebody else who is in the Oklahoma Rural 

Water Hall of Fame, who had the same job as Mr. Freeman many 

years ago, and that was my father-in-law, Glade Kirkpatrick. He 

was kind of Mr. Water at the time. And all the way back to when 

51 

we had the McClellan-Kerr navigation way going in, he was very 

much involved in that. So we have that bias also. 

I don’t think there is anyone who could do a better job on this 

panel, and I hope that you will be very straightforward on some of 

the problems and lack of flexibility. That is what this hearing is 

for, and we appreciate your being here, Mr. Freeman. 

Senator CARDIN. And Senator Merkley, for an introduction. 

Senator MERKLEY. Thank you very much, Mr. Chairman. It is my 

pleasure today to introduce one of our distinguished witnesses, Mr. 

Gregory DiLoreto, of Portland, Oregon. Mr. DiLoreto holds degrees 

in civil engineering and public administration from Oregon State 

and Portland State University. He has applied his expertise in 

these two areas to serving the public, and has become one of the 

most highly respected water administrators in the country. 

Under his leadership, the Tualatin Valley Water District has 

been a leader in the field of sustainability, receiving two awards 

from the American Public Works Association, and recently doubling 

their renewable energy generation, all while serving more than 

200,000 customers in the Portland metro area. 

Mr. DiLoreto has been a leader in the field of civil engineering 

as well, and is here today to represent the American Society of 

Civil Engineers as their new president-elect. Congratulations. 

Water infrastructure is extremely important to Oregon, as it is 

to States throughout our nation. The next generation of projects 

will be critical for the maintenance and improvement of that infrastructure. Oregon is looking to the Federal Government to partner 

in these efforts. 

With his dual expertise in water administration and civil engineering, Mr. DiLoreto is exceptionally qualified to testify to the 

state of our nation’s water infrastructure and potential consequences of inaction or under-action. Mr. Chairman, I am very 

pleased to introduce to the Subcommittee Mr. Gregory DiLoreto. 

Senator CARDIN. Thank you very much. 

Let me now welcome the Marylander that is on the panel, Ted 

Scott, a Maryland small business owner with expertise in green infrastructure for stormwater management and design. Mr. Scott is 

a practicing professional civil engineer, certified professional in erosion and sediment control, LEED accreditation professional, and 

master stormwater practitioner with over 25 years of experience. 

Mr. Scott’s firm provides design and maintenance for stormwater 

systems as well as environmental restoration consultation. 

Mr. Scott also serves on the board of directors of Blue Water Baltimore, a group that uses community-based restoration to achieve 

clean, healthy water in Baltimore Harbor and the Chesapeake Bay. 

Mr. Scott, we welcome you also to our Committee. 

We will start with Mr. DiLoreto and then work our way across. 

STATEMENT OF GREGORY E. DILORETO, PRESIDENT-ELECT, 

AMERICAN SOCIETY OF CIVIL ENGINEERS 

Mr. DILORETO. Mr. Chairman, Senator Sessions and members of 

the Subcommittee, again, my name is Gregory E. DiLoreto, and I 

am the President-Elect of the American Society of Civil Engineers. 

I am also the Chief Executive Officer for the publicly owned 

Tualatin Valley Water District in the Portland, Oregon, metropoliVerDate Aug 31 2005 06:59 Sep 08, 2017 Jkt 000000 PO 00000 Frm 00057 Fmt 6633 Sfmt 6633 S:\_EPW\DOCS\26626.TXT SONYA
52 

tan area. The district is the second largest water utility in Oregon, 

serving over 200,000 customers in the Portland area. I am also a 

licensed professional engineer in Oregon. 

As a public official, I am honored to be here today to testify on 

behalf of ASCE on the state of America’s drinking water and 

wastewater infrastructure as the Subcommittee examines our nation’s water infrastructure challenges and opportunities. 

Every 4 years ASCE publishes the Report Card for America’s Infrastructure which grades the current state of 15 national infrastructure categories on a scale of A through F. In 2009 our most 

recent report card gave the nation’s wastewater and drinking water 

infrastructure systems a grade of D¥. As a snapshot at a moment in time, the Report Card identifies 

20-year funding needs. It does not answer critical questions about 

the impact of delayed or reduced investments in key infrastructure 

systems as the nation grapples with its aging public works. That 

is why ASCE has undertaken a series of four economic studies to 

identify the long-term consequences to the nation’s economy due to 

our deteriorating infrastructure. 

In July of this year we issued the first report on the under-investment in the nation’s surface transportation system. Our second 

report, which we will issue Thursday, answers the questions of how 

the condition of the nation’s deteriorating wastewater and drinking 

water infrastructure impinges on our economic performance. In 

other words, how does that D¥ for water treatment and transmission affect America’s economic future? 

The answer is sobering. Our report, the Economic Impact of Current Investment Trends in Water and Wastewater Treatment Infrastructure, concludes that the nation’s wastewater and drinking 

water infrastructure is under great strain. By now, I am sure every 

member of this Subcommittee is aware of the funding needs for 

drinking water and wastewater systems. According to our report, 

if current investment trends persist, by 2020, just 8 years from 

now, the anticipated capital funding gap will be $84 billion. This 

funding gap will lead to $147 billion in increased costs for businesses and a further cost of $59 billion for households. 

In the worst case, by 2020 the U.S. could lose almost 700,000 

jobs. By 2020 the average annual effect on the U.S. economy is expected to be $416 billion in lost GDP. Putting the problem in terms 

that all of us can understand, the average family household budget 

will increase by about $900 per year due to increased water rates 

and lost income. 

Our key solutions are ambitious and will not be achieved overnight. But Americans are capable of real and positive change. In 

the short term, we believe that Congress must act quickly to address the under-investments in drinking water and wastewater infrastructure. Congress needs to first reinvigorate the State Revolving Loan Fund programs under the Clean Water Act and the Safe 

Drinking Water Act by reauthorizing Federal funding of $13.8 billion over 5 years. Second, explore the potential for a water infrastructure finance innovations authority that would access funds 

from the U.S. Treasury at their rates and use those to support 

loans and credit mechanisms for water projects. Those loans would 

be repaid with interest back to the Treasury. 

53 

Three, eliminate the State cap on private activity bonds for water infrastructure projects that could bring $6 billion to $7 billion annually in new private financing to bear on the problem. Fourth, 

allow public-private partnerships as one of the many methods of financing infrastructure improvements. ASCE supports the use of 

PPPs, but only when the public interest is protected. And we believe any public revenue derived from PPPs should be and must be 

dedicated exclusively to comparable infrastructure facilities in the 

State or locality where the project is based. 

Fifth, establish a national infrastructure bank. Such a bank 

would leverage public funds with private dollars to invest in the infrastructure. And sixth, investigate legislation to establish a dedicated source of revenue for wastewater and drinking water projects 

that would provide a stable, long-term basis for financing these 

critical systems. 

Now, finally, the Federal Government cannot be the bank of last 

resort. Individual water utilities must consider the possibility of increasing the price of water to local ratepayers. Water must be appropriately priced to ensure improvements can rebuild the infrastructure. 

All these solutions involve costs, separately or in combination. 

These solutions will require action at the national, regional, local, 

private levels and will not occur automatically. 

I want to thank you, Mr. Chairman, for the opportunity to testify, and I would be pleased to answer your questions. 

[The prepared statement of Mr. DiLoreto follows:] 

54 


26626.030

ASC 

AMERICAN SOCIET1' OF CIVIL ENGINEERS 

Testimony Of 

Washington Office 

101 Constitution Ave .. N.W. 

Suite 375 East 

Washington, D.C. 20001 

(202) 789 -7850 

Fux.: {202) 789-7~59 

The American Society of Civil Engineers 

Before The Subcommittee on Water and 

Wildlife 

Environment and Public Works Committee 

U.S. Senate 

On 

Our Nation's Water Infrastructure: 

Challenges and Opportunities 

December 13, 2011 
55 


26626.031

ASCE Page- I -

Mr. Chairman, Senator Sessions, and Members of the Subcommittee: 

Good morning. My name is Gregory E. DiLoreto, and I am the president-elect of the 

American Society of Civil Engineers (ASCE). I am the chief executive officer for the 

publicly owned Tualatin Valley Water District in the Portland, Oregon, metropolitan 

area. The District is the second largest water utility in Oregon, serving more than 

200,000 customers in the Portland area. I am a licensed Professional Engineer in the 

state of Oregon in civil and environmental engineering. 

As a public official, I am honored to be here today to testifY on behalf of ASCE on the 

state of America's drinking-water and wastewater infrastructure as the 

Subcommittee examines "Our Nation's Water Infrastructure: Challenges and 

Opportunities." 

Every four years, ASCE publishes the Report Card for America's Infrastructure, which 

grades the current state of 15 national infrastructure categories on a scale of A 

through F. In 2009, our most recent Report Card gave the nation's wastewater and 

drinking-water infrastructure systems a grade of a D-. 

As a snapshot at a moment in time, the Report Card identifies 20-year funding needs; 

it does not answer critical questions about the impact of delayed or reduced 

investments in key infrastructure systems as the nation grapples with its aging 

public works. 

That is why ASCE has undertaken a series of four economic studies to identify the 

long-term consequences to the nation's economy due to our deteriorating 

infrastructure. 

In july, we issued our first report on the under investment in the nation's surface 

transportation systems. We concluded that by 2020 the nation's deteriorating 

surface transportation systems could cost the American economy more than 

876,000 jobs, and suppress the growth of the country's Gross Domestic Product 

(GOP) by $897 billion. 

Our second report, which we will release later this week. answers the question of 

how the condition of the nation's deteriorating wastewater and drinking-water 

infrastructure impinges on economic performance. In other words, how does that 

D- for water treatment and transmission affect America's economic future? The 

answer is sobering. 

Water is vital. If it is not available, essential life activities cannot be sustained. 

Although water may be conserved, it must be obtainable. A well-maintained public 

drinking-water and wastewater infrastructure is critical for public health, strong 

businesses, and clean rivers and aquifers. 
56 


26626.032

ASCE Page- 2-

But capital spending has not kept pace with needs, and if these trends continue, the 

resulting gap will only widen. As a result, pipes will leak, new facilities required to 

meet stringent environmental goals will be delayed, operations and maintenance 

will become more expensive, and sources of water will become polluted. 

I. Investment Shortfalls Total Billions of Dollars 

By now every member of this subcommittee is aware of the funding needs for 

drinking-water and wastewater systems. In short, by 2020 the gap between needs 

and anticipated funding for wastewater and drinking-water infrastructure will be 

$84 billion. 

The nation's drinking-water systems face staggering public investment needs over 

the next 20 years. According to the EPA, while America spends billions on 

infrastructure each year, drinking-water faces an average annual shortfall of at least 

$11 billion to replace aging facilities that are near the end of their useful life and to 

comply with existing and future federal water regulations. The shortfall does not 

account for any growth in the demand for drinking-water over the next 20 years. 

In january 2008, the U.S. Environmental Protection Agency (EPA) reported that the 

total investment needs of America's publicly owned treatment works were $202.5 

billion. This reflects an increase of$16.1 billion (8.6 percent) since the previous 

analysis was published in january 2004. 

In 2002, the Congressional Budget Office (CBO) estimated that for the years 2000 to 

2019 annual costs for investment would need to be between $13 billion and $20.9 

billion for wastewater systems. 

II. The Economic Impact of Current Investment Trends 

Our report, The Economic Impact of Current Investment Trends in Water and 

Wastewater Treatment Infrastructure,! concludes that the nation's wastewater and 

drinking-water infrastructure is under great strain. 

Clean water is fundamental to our economy and our way of life. Today, the clean 

water necessary to support our economy and our health cannot be supplied by 

nature alone. Drinking-water systems collect source water from rivers and lakes, 

remove pollutants, and distribute safe water for people to drink and for businesses 

to operate. Wastewater systems collect used water and sewage, remove 

contaminants, and discharge clean water back into our rivers and lakes for future 

use. Wet weather management prevents various types of pollutants like sewage, 

1 The full report will be available on December 15'" at '!_vww.as0].,orglfailuretoact 
57 


26626.033

ASCE Page- 3-

heavy metals, or fertilizer from lawns from ever reaching our waterways. These 

systems are inextricably linked. 

As the U.S. population has increased, the percentage served by public water systems 

has also increased. Each year new water lines are constructed to connect more 

distant dwellers to centralized systems, continuing to add users to aging systems. 

Although new pipes are being added to expand service areas, drinking-water 

systems degrade over time; they must be replaced at the end of their useful life, 

which ranges from 15 to 95 years. 

Particularly in the country's older cities, much of the drinking-water infrastructure 

is old and in need of replacement. Failures in drinking-water infrastructure can 

result in water disruptions, impediments to emergency response, and damage to 

other types of essential infrastructure. In extreme situations caused by failing 

infrastructure or drought, water shortages may result in unsanitary conditions, 

increasing the likelihood of public health issues. 

Water infrastructure in the U.S. is clearly aging, and investment is not able to keep 

up with the need. Our findings indicate that investment needs will continue to 

escalate. 

To repeat, if current trends persist, by 2020 the anticipated capital funding gap will 

be $84 billion. Even with the increased use of sustainable practices and costeffective development of other efficiency methods, the growing gap between capital 

needs to maintain drinking-water and wastewater treatment infrastructure and 

investments to meet those needs will likely result in unreliable water service and 

inadequate wastewater treatment. 

Our analysis assumes that the mounting costs to businesses and households will 

result in a number of scenarios or choices: 

• Doing nothing and living with water shortages, and higher rates (rationing 

though price increases); major outlays by businesses and households, 

including expenditures incurred by moving to where infrastructure is still 

reliable, purchasing and installing equipment to conserve water or recycle 

water, and increasing reliance on self-supplied water and wastewater 

treatment (i.e., installing individual wells and septic waste systems when 

municipal facilities and services are not available options). 

• Responses to failing public infrastructure will vary by location, size, 

household characteristics, and type of business. Expenditures due to moving, 

or from installing and operating new capital equipment for "self-supply," are 

estimated for households, commercial establishments, and manufacturers. 
58 


26626.034

ASCE Page - 4 -

Movement across regional boundaries and relocation of businesses outside 

of the U.S. is certainly a response that may be triggered by decreasing 

reliability of public water and sewer systems. 

• Households and businesses that do not self-supply are assumed to absorb the 

higher costs that are a consequence of disruptions in water delivery and 

wastewater treatment due to worsening infrastructure. The assumption for 

this category is that these households and businesses will pay the $84 billion 

associated with the 2020 capital gap in terms of higher rate costs over and 

above the baseline projected rates for water and wastewater treatment. 

III. Effects on the Nation's Economy 

The $84 billion funding gap may lead to $14 7 billion in increased costs for 

businesses and a further $59 billion for households. In the worst case, the U.S. will 

lose almost 700,000 jobs by 2020. 

By 2020, the average annual effect on the U.S. economy is expected to be $416 

billion in lost GOP. Putting the problem in terms we can all understand, the average 

family household budget will increase about $900 annually to cover the cost of 

increased water rates and lost income. 

IV. What Can Be Done? 

First, the good news is that some of these effects can be mitigated if American 

households and businesses adopt sustainable practices. Without sustainable 

practices, the economic effects outlined above will continue to escalate. 

But, if households and businesses adopt sustainability practices like improved 

efficiency through process or equipment changes, water reclamation, or green 

infrastructure to address wet weather management as water rates continue to rise, 

negative long-term economic effects can be mitigated. 

If sustainability measures are broadly adopted, for example, rather than job losses 

possibly reaching 1.4 million by 2040, losses would peak at between 800,000 and 

830,000 in 2030, and drop to 615,000 by 2040. 

Sustainability measures alone won't solve the problem, but they're a good first step. 

And an additional $84 billion in investments by 2020 will amount to an annualized 

cost of approximately $9.3 billion. 

Funding to close the gap can come from multiple sources. Federal grants and loans 

have played crucial roles in building water infrastructure over the decades. Despite 

recent federal deficits, infrastructure spending can both create short-term 
59 


26626.035

ASCEPage- 5 

construction jobs and improve the foundation upon which the nation's economy 

rests. 

Yet federal funding is not the only answer; since the mid-1970s, money from local 

and state governments has represented an increasing percentage of public drinkingwater and wastewater investment-rising to more than 95 percent in recent years. 

Because some water systems are now privatized (approximately 10 percent of the 

170,000 public-serving drinking-water systems), private capital may become 

increasingly important. But whether a system is government owned or private, 

households and businesses still ultimately foot the bill; thus, setting rates at levels 

sufficient to maintain and upgrade infrastructure is critical. If rates increase too 

much, however, more low-income residents would face financial hardship. 

Of course, we recognize that Congress is dealing with enormous deficits and a 

massive federal debt, but the remedies for these problems must not come at the 

expense of programs aimed at protecting public health from the dangers of 

increased contamination in our rivers, lakes and streams and our drinking-water 

supplies. 

Americans owe their economic prosperity, public safety, and high quality of life to 

the infrastructure that serves them every day. While we have identified the serious 

needs facing the nation's infrastructure, these can be solved. 

Our Key Solutions are ambitious and will not be achieved overnight, but Americans 

are capable of real and positive change.' ASCE urges all those who want to continue 

our tradition of a strong and prosperous nation to begin by maintaining and 

improving the infrastructure that makes us great. 

In the short term, we believe that Congress must act quickly to address the under 

investments in drinking-water and wastewater infrastructure. Congress needs to: 

1) Reinvigorate the State Revolving Loan Fund (SRF) programs under the Clean 

Water Act and the Safe Drinking-water Act by reauthorizing federal funding 

of $13.8 billion over five years. 

2) Explore the potential for a "Water Infrastructure Finance Innovations 

Authority" that would access funds from the U.S. Treasury at Treasury rates 

and use those funds to support loans and other credit mechanisms for water 

projects. The loans would be repaid to the Authority and then to the U.S. 

Treasury with interest. 

z http: //www.infrastructurereportcard. org I so I uti ons 
60 


26626.036

ASCE Page - 6-

3) Eliminate the state cap on private activity bonds for water infrastructure 

projects to bring an estimated $6 billion to $7 billion annually in new private 

financing to bear on the problem. 

4) Allow Public Private Partnerships (PPPs) as one of many methods of 

financing infrastructure improvements. ASCE supports the use ofPPPs only 

when the public interest is protected. Any public revenue derived from PPPs 

must be dedicated exclusively to comparable infrastructure facilities in the 

state or locality where the project is based. 

5) Establish a National Infrastructure Bank. Such a bank would leverage public 

funds with private dollars to invest in infrastructure-transportation, 

environment, and energy projects of significance-that could play a 

significant role in improving the nation's infrastructure. 

6) Investigate legislation to establish a dedicated source of revenues for 

wastewater and drinking-water projects that would provide a stable, longterm basis for financing for these critical systems. 

Finally, the federal government cannot be the bank of last resort. Individual water 

utilities must consider the possibility of increasing the price of water to local 

ratepayers. Water must be appropriately priced to ensure investments can rebuild 

the infrastructure. 

V. Conclusion 

Unless current trends are reversed, the performance of the U.S. economy will 

continue to suffer. 

• Business productivity will go down. As water rates rise, costs to businesses will go 

up, and Gross Domestic Product will have dropped by a cumulative total of$416 

billion below its anticipated level. 

·America will lose jobs. The U.S. economy is predicted to lose 700,000 jobs by 2020. 

• These effects will be widely felt. job losses will occur throughout the economy, 

with almost 500,000 jobs threatened in sectors traditionally employing people 

without extensive education and 184,000 jobs in knowledge-based sectors. 

• Cumulatively, families will earn $541 billion less in 2020 than they earned in 2011. 

By 2020, this means that an individual household will be earning $806 less a year. 

• U.S. exports will fall by a cumulative total of approximately $6 billion by 2020, 

accounting for about four percent of the total decrease in business sales estimated 
61 


26626.037

ASCE Page- 7-

for that year. The greatest losses are in the technology and manufacturing sectors, 

including aerospace, instruments, chemicals and drugs, as well as associated finance 

and professional services. 

There are multiple ways to prevent these negative consequences described in this 

report. Possible preventive measures include spending more on existing 

technologies, investing to develop and then implement new technologies, and 

changing patterns in where and how we live. 

All these solutions involve costs. Separately or in combination, these solutions will 

require action at the national, regional, and private levels, and will not occur 

automatically. 

Thank you, Mr. Chairman. That concludes our testimony. I would be pleased to 

answer your questions. 
62 


26626.038

Environment and Public Works Committee Hearing 

December 13, 2011 

Follow-Up Questions for Written Submission 

Questions for DiLoreto 

Questions from: 

Senator Barbara Boxer 

1. Your testimony highlights how implementation ofsustainability practices (e.g., 

improved efficiency, water reclamation, and green infrastructure) can help 

close the infrastructure funding gap and mitigate impacts of failing 

infrastructure on the economy. How can Federal agencies help promote these 

practices in communities nationwide? Have Federal financing programs (e.g., 

the State Revolving Funds) been effective at promoting these types of practices. 

ASCE defines sustainability as a set of environmental, economic and social 

conditions in which all of society has the capacity and opportunity to maintain and 

improve its quality of life indefinitely without degrading the quantity, quality or 

availability of natural, economic, and social resources. Sustainable development is 

the process of converting natural resources into products and services that are 

more profitable, productive, and useful, while maintaining or enhancing the 

quantity, quality, availability and productivity of the remaining natural resource 

base and the ecological systems on which they depend. 

To achieve these aims, ASCE supports the following implementation 

strategies: 

Promote broad understanding of economic, environmental, political, 

social, and technical issues and processes as related to sustainable 

development. 

Advance the skills, knowledge and information necessary for a 

sustainable future, including habitats, natural systems, system flows, 

and the effects of all phases of the life cycle of projects on the ecosystem. 

Advocate economic approaches that recognize natural resources and 

our environment as capital assets. 

Promote multidisciplinary, whole system, integrated and multiobjective 

goals in all phases of project planning, design, construction, operations, 

and decommissioning. 

Promote reduction of vulnerability to natural, accidental, and willful 

hazards to be part of sustainable development. 

Promote performance based standards and guidelines as bases for 

voluntary actions and for regulations in sustainable development for 

new and existing infrastructure . 

• 1 -
63 


26626.039

The Environmental Protection Agency (EPA) has taken significant steps in this 

direction. These steps include labeling green products and promoting green chemistry 

and engineering, managing materials rather than creating waste, using green 

infrastructure to manage stormwater runoff, and supporting the sustainable design of 

urban communities. The agency has used funding through the State Revolving Loan 

Fund (SRF) program under the Clean Water Act to advance these priorities in the area 

of water infrastructure. 

2. In addition to continued support for the State Revolving Funds, what other 

financing tools are most important to help local communities invest in aging 

infrastructure? Please expand on how the "Water Infrastructure Finance 

Innovations Authority" described in your testimony would promote further 

investment in water infrastructure. What benefits would such an authority 

provide? 

ASCE supports a variety of financial mechanisms for the trust fund, such as 

appropriations from general treasury funds; issuance of revenue bonds and tax 

exempt financing at state and local levels; public-private partnerships; state 

infrastructure banks; user fees on certain consumer products; and other innovative 

financing mechanisms, including broad· based environmental restoration taxes to 

address problems associated with water pollution, wastewater management and 

treatment, and stormwater management. ASCE continues to support 

reauthorization of the Clean Water Act to increase and expand the federally funded 

State Revolving Loan Fund (SRF) program in the short-term. 

The "Water Infrastructure Finance and Innovation Act" (WIFIA) would be 

modeled in the program for major surface transportation projects enacted in 1998. 

The Act would provide credit assistance for qualified projects of regional and 

national significance. The projects eligible under the WIFIA would have to satisfy 

the state's 'intended use plan" required by the Clean Water Act for projects receiving 

SRF monies.1 The WIFIA credit program would be designed to fill market gaps and 

leverage substantial private co-investment by providing supplemental and 

subordinate capital. The federal government would be a minority investor, 

providing anywhere from a 33 percent to SO percent of a project's cost. 

Financing would be in the form of secured (direct) loans-the most likely 

form of assistance-loan guarantees, or standby lines of credit. Loans would be 

repaid over 35 years from the completion of the project. Interest rates would be 

fixed and follow the equivalent Treasury rates (currently at 1.95 percent for a 10-

year Treasury security constant maturity). 

' "Each State shall annually prepare a plan identifying the intended uses of the amounts available to 

its water pollution control revolving fund." 33 U.S.C. § 1386 (c). 

- 2-
64 


26626.040

The WIFIA program would assist sewage treatment projects having their 

own revenue streams from the federal trust fund, user fees, local ratepayers, or 

other revenue sources, all of which can help attract substantial private capital with a 

limited federal investment This program offers the sponsors of large projects a new 

tool to leverage limited federal resources, stimulate additional investment in our 

nation's infrastructure by as much as $15 billion annually, and encourage greater 

private sector partidpation in meeting the nation's clean water needs. 

Finally, ASCE supports the creation of a federal Water Infrastructure Trust 

Fund to establish a dedicated revenue stream to finance WIFIA and the national 

shortfall in funding of infrastructure systems under the Clean Water Act and the 

Safe Drinking Water Act, including stormwater management and other projects 

designed to improve the nation's water quality. 

Senator James lnhofe 

1. You mentioned the need to identify critical questions about the impact of 

delayed or reduced investments in key infrastructure systems. Can you identify 

some of those questions for us? 

Without a continuing commitment at the federal and state levels to renewing 

the nation's infrastructure, we must ask what the consequences will be for the 

sustained economic development necessary to keep America competitive with other 

nations. What is the "missing risk" if our infrastructure fails? What will be the 

impact on public health if essential wastewater treatment systems are allowed to 

deteriorate further? What will happen to the economy if nationwide transportation 

systems fail or function so poorly that commerce is severely interrupted? The 

longer we delay critical investments to improve the operability, safety, and 

resilience of the nation's infrastructure, the greater the future cost and risk of 

failure. 

2. Will you please describe the economic impact to both businesses and the 

American family if we continue to delay investment in water infrastructure? 

Our testimony only briefly summarized a new ASCE report released in 

December. The report, "Failure to Act: The Economic Impact of Current Investment 

Trends in Water and Wastewater Treatment Infrastructure," found that aging water 

infrastructure will cost U.S. businesses $147 billion over the next decade.2 Our 

water and wastewater infrastructure systems are aging and overburdened, with 

many of them built around the turn of the century. Unless new investments are 

made, by 2020 unreliable and insufficient water infrastructure will cost the average 

American household $900 a year in higher water rates and lower wages. American 

2 The report is at http: /lwww.asce.org/failurewct/ 

-3-
65 


26626.041

businesses can expect an additional $147 billion in increased costs and the economy 

will lose 700,000 jobs by 2020. 

The report also shows that a modest investment in drinking water, 

wastewater, and wet-weather management can prevent these economic losses. The 

analysis showed that by 2020, the gap between what is being spent on water 

infrastructure and what is needed to meet the nation's needs will reach $84 billion. 

Annual capital investment in water infrastructure is approximately $36.4 

billion. In order to meet the needs of our growing population for clean, available 

water, the annual investment must increase to $91 billion. An additional $9.4 billion 

per year between now and 2020 would avoid $21 billion per year in costs to 

households and businesses. The report identifies three sectors of the economy that will 

bear the brunt of the impact. Retail, restaurants and bars, and construction businesses 

face the greatest job losses as a result of aging water infrastructure, driven by a 

combination of less disposable income, increased water costs and the higher costs of 

water-based goods. 

Other solutions can help minimize these impacts. If households and 

businesses adopt sustainability practices such as improved efficiency through 

process or equipment changes, water reclamation or green infrastructure to address 

wet weather management, the economic impact could be lessened. The report's 

projections assume needs and available funding based on current trends, and do not 

adjust for possible costs associated with climate change, changes in regulations, or 

other factors. 

Delays in providing federal assistance to water infrastructure will continue 

to retard the U.S. economy. Economists have known for more than 20 years that 

public expenditures for infrastructure assure a healthy economy. "[S]ignificant 

weight should be attributed to public investment decisions-specifically, additions 

to the stock of nonmilitary (public] structures such as highways, streets, water 

systems, and sewers-when assessing the role the government plays in the course of 

economic growth and productivity improvement."3 "[P]ublic infrastructure 

investment has a significant, positive effect on output and growth."4 

3. You mentioned that both businesses and households can adopt sustainability 

measures to help circumvent this problem. Will you describe some of those 

measures that can be adopted to help with this problem? 

' David Aschauer, Is Public Expenditure Productlve723]. MON. ECON. 177, 197 (1989) (emphasis 

added). Moreover, this Committee has studied the problem for more than two decades. See 

Infrastructure, Productivity, and Economic Growth: Hearing before the Subcomm, an Water Res., Trans., 

and Infrastructure, 102nd Cong. (1991). 

4 Alicia H. Munnell, Infrastructure Investment and Economic Growth, 6 J. ECON. PERSP. 189, 197 

(1992). 

-4-
66 


26626.042

If we want to assure that households and businesses will continue to receive 

access to affordable and safe water in the future, then there are also needs to 

maintain and grow available resources such as dams, aquifers, and other water 

supply sources. Three of the nation's four regions with high population growththe Far West, Rocky Mountain, and Southwest-include virtually all its desert lands 

and most of its semiarid regions. Deserts and semiarid regions receive less than 20 

inches of rain per year, and have evaporation rates that exceed precipitation rates. 

In these water-scarce regions, water is often drawn from deep underground 

aquifers or piped in from wetter climes. 

One area of focus for future research will be to refine estimates of the 

availability and cost to access additional water sources, particularly as technology 

continues to develop. A related focus for future research would be to examine how 

climate change may affect water supplies. Future climate change can alter the timing 

and extent of snow and rain seasons, affecting reservoirs and exacerbating drought 

conditions in arid climates. Additionally, extended storms may overextend wetweather system overflows in place. 

Another area for future research would attempt to develop data on how 

households and businesses react to the loss of reliable water services and the costs 

to adjust. Tools that could be employed in a study include a survey to examine how 

businesses and households have reacted to breakdowns in water delivery and costs 

that have been incurred to date. To be most effective, this type of survey effort 

should be segmented by household income and industry sector-the latter to 

separate water-dependent industries from other industries. 

A second tool would be to fully develop a national database of water and 

sewer systems that includes a historical national profile of water delivery and cross· 

tabulated by gallons per day, costs, geography, customer market, and age of the 

system (or state of good repair). 

Our research validates a widely accepted premise that the age of the water 

and wastewater treatment infrastructure is a major problem in maintaining reliable 

service. The disaggregation of water delivery and treatment systems is a barrier to 

developing a comprehensive national study of the age of pipes and their remaining 

useful life. Nevertheless, given the aging infrastructure, particularly in the older 

urban areas of the Northeast, Mid-Atlantic, and Midwest, older water systems that 

are not being replaced or substantially upgraded appear to be critical points for 

infrastructure failure. In this context, a comprehensive national study is needed as 

the first step toward. 

There are several types of new and emerging technologies and approaches 

are described that may impact drinking-water, wastewater, and wet-weather 

overflow infrastructure, and therefore affect the size of the capital gap of failing to 

invest in current systems. 

- 5-
67 


26626.043

• Separate Potable and Nonpotable Water 

A large portion of public supply water is used for watering lawns, flushing 

toilets, and washing clothes. These uses do not require potable water, but in most 

localities, all publicly supplied water is treated to meet federal drinking-water 

standards. 

• Advanced Treatment of Wastewater 

The "advanced" treatment of wastewater denotes treatment that is more 

stringent than secondary treatment or produces a significant reduction in 

biochemical oxygen demand, nitrogen, phosphorous, ammonia, metals, or synthetic 

organic compounds. 

• Reclaimed Wastewater 

In areas of water scarcity, it is sometimes reasonable to divert wastewater 

treatment plant effluent for beneficial uses such as irrigation, industrial use, and 

thermoelectric cooling, instead of releasing the effluent into rivers or aquifers. In 

this way, a "new" water source is tapped. 

• Green Infrastructure 

Green infrastructure provides several techniques that mimic natural systems 

by providing infiltration and capturing mechanisms for wet weather runoff, 

including green roofs, grassy swales, permeable pavement, and rain barrels. 

• Desalination 

Although a response to water-supply shortages and not a type of water 

delivery, desalination is important because of the scale of investment required for 

its development. Desalination removes salt and minerals from seawater or brackish 

groundwater, making it fit to drink. 

• Water Hauling 

One extreme and logistically challenging strategy to address water 

deficiencies in delivery systems and supply is water-hauling, which is the practice of 

supplying water to households and businesses by truck delivery. Although this 

practice is part of everyday life in many nations, in the U.S. it is mostly limited to 

cases of extreme droughts and large natural disasters, 

ASCE also has been involved in the education process through research into 

such areas as sustainable design and construction technologies, the use of biofuels 

and biomass to produce renewable energy, the effects of urbanization on 

groundwater, and low-impact development (LID). 

In reauthorizing the Clean Water Act, for example, Congress could consider 

specific funding for programs to promote the use of LID as an effective alternative 

for, or be integrated with, traditional stormwater management, as well as 

to examine successful watershed management practices related to protection of 

-6-
68 


26626.044

streams through hydromodification; practices that accelerate change in the practice 

of stormwater management, including an information exchange that intends to 

refine design processes, review procedures, and evaluate construction standards 

related to LID technologies; and establishing a national program to improve our 

collective understanding of how vegetation helps manage stormwater, intercept 

precipitation, expand urban green space, and Improve urban livability. 

4. What kinds of new technology can be invested in to contain costs in the long 

run and improve our aging infrastructure? 

Recent ASCE research by the Society's Task Committee on Planning for 

Sustainable Infrastructure concluded: "New technologies are emerging in the 

market at an accelerating rate. Performance measures can assess the contributions 

of new technologies to sustainable communities. More efforts are also being made 

to integrate traditionally disparate technologies and specialties for additional 

benefits. Transportation planning increasingly is relying on communications and 

information technology to manage congestion; energy planning is venturing to 

integrate wastewater treatment and traditional power generation with the delivery 

of thermal heating and cooling; and waste management programs are generating 

energy. Another instance is in the use of model-based, simulation-based design 

tools for sustainable design and constructabillty analysis in building information 

modeling (BIM) processes supported by Integrated Project Delivery (IPD) and 

Project Alliancing approaches. These are reducing risk, liability and project costs 

while improving project delivery timelines."S 

Asset management also may play a role. ASCE research has investigated 

asset management system utilizing life-cycle analysis and life-cycle optimization 

methods for infrastructure systems and components. For example, to aid the 

decisionmaking process in highway construction, ASCE experts have developed a 

life-cycle optimization model to determine the near optimal preservation strategy 

for a pavement network. 

5. Is there anything else you would like to add for the record? 

It is not clear how America will continue to pay for essential infrastructure 

systems with greatly reduced federal appropriations. Enabling the potential failure 

of the nation's indispensable public infrastructure through arbitrary budget-cutting 

is deeply troubling to ASCE. "Doing more with less" is a political slogan that 

disguises severe cuts or the complete elimination of funding for key infrastructure 

programs, leaving the nation vulnerable to future catastrophic system breakdowns 

that could well threaten public safety and ensure the nation's economic decline. 

s ASCE Task Committee on Planning for Sustainable Infrastructure, Planning Infrastructure to 

Sustain America 4 (2010), http;l/www.asce.org/uploadcdfiles/Systainability • 

New/Resoyrces/PLANN(NG%201NERASTRUCTURE%20T0%20SUSTAIN%20AMERICA%201009!5 

:2..JW.!' 

. 7. 
69 


26626.045

Respectfully submitted, 

THE AMERICAN SOCIETY OP CML ENGINEERS 

-8· 
70 

Senator CARDIN. Thank you for your testimony. 

Mr. Freeman. 

STATEMENT OF JOE FREEMAN, CHIEF, FINANCIAL ASSISTANCE DIVISION, OKLAHOMA WATER RESOURCES BOARD 

Mr. FREEMAN. Good morning, Mr. Chairman and members of the 

Committee. As Senator Inhofe said, my name is Joe Freeman, I am 

Chief of the Financial Assistance Division of the Oklahoma Water 

Resources Board. 

We administer the Clean Water State Revolving Fund in Oklahoma, along with the financial portion of the Drinking Water State 

Revolving Fund, and three other State water and wastewater funding programs. I am pleased to be with you today to share Oklahoma’s views with the Committee on the challenges and opportunities that face us. 

Today I am not only representing the State of Oklahoma, but 

also the Council of Infrastructure Financing Authorities, the Association of Clean Water Administrators, and the Western States 

Water Council. We believe sustained Federal funding is essential 

to realizing our nation’s water quality goals, and we hold strongly 

to the view that the State Revolving Fund loan program should remain a foundation for future projects in meeting water infrastructure needs. 

It is vital that the SRF partnership between Federal and State 

governments continue as the basic mechanism for assistance to 

communities in addressing water quality issues. In the past two 

decades few federally authorized programs have proven as effective 

in realizing their intended goals as the SRF programs. It is important to note that the assistance made available to communities is 

significantly greater than the initial Federal investment as a result 

of State match, loan repayments, issuance of bonds, and interest 

earnings. The State Revolving Funds nationwide have committed 

over $84 billion to projects for wastewater infrastructure and over 

$20 billion for drinking water infrastructure. The majority of funding goes to the highest priority projects that clean up polluted 

streams, rivers, and estuaries and ensure safe drinking water nationwide. 

Furthermore, public investment in water infrastructure yields 

significant economic benefits. The U.S. Department of Commerce 

estimates that $1 invested in water infrastructure generates $2.62 

in economic output in other industries, and that each job created 

in the local water and sewer industry creates 3.68 jobs in the national economy. States, including Oklahoma, as the recipients of 

SRF capitalization grants, recognize that we incur a number of responsibilities. We must manage those funds in a fiscally responsible manner and be accountable. We must give priority in our 

funding decisions to the resulting water quality benefits and the 

urgency of environmental problems needing resolution. We need to 

pay particular attention to the challenges faced by small, rural, 

and disadvantaged communities. 

We see our mission as using all the possible tools and strategies 

to achieve the largest impact in terms of achieving the goals of the 

Clean Water Act and the Safe Drinking Water Act. As we look to 

the future, the ability of States to meet water and wastewater inVerDate Aug 31 2005 06:59 Sep 08, 2017 Jkt 000000 PO 00000 Frm 00076 Fmt 6633 Sfmt 6633 S:\_EPW\DOCS\26626.TXT SONYA
71 

frastructure needs is based on continued funding of the SRF programs at a sufficient level to ensure the full realization of the revolving nature of the funds and to maximize the utilization of 

leveraging by States such as Oklahoma that choose the leveraging 

option. 

We recognize the current budget realities and the fact that the 

annual capitalization grants represent a significant percentage of 

the overall EPA budget. We understand the need for budget restraint, but would hope that not too great a share of that restraint 

is at the expenses of the SRF programs. 

Through the Oklahoma Comprehensive Water Plan, the Oklahoma Water Resources Board and its many partners assessed the 

water and wastewater infrastructure needs over the next 50 years 

in Oklahoma. Detailed information was gathered from large and 

small urban and rural systems to complement the needs survey 

conducted through the Environmental Protection Agency. In Oklahoma, we have documented alone over the next 50 years $82 billion 

in needs for water and wastewater infrastructure. In order to meet 

these needs, it is going to take continued partnership and innovative discussions between local and State governments and the Federal Government. 

As a proactive response to the findings of our intensive water 

planning efforts, we have compiled a committee of infrastructure financing professionals with the goal of investigating solutions to 

meeting Oklahoma’s infrastructure needs. The group is evaluating 

a number of options, including restructuring our State infrastructure loan programs and creation of a credit reserve enhancement 

program. 

As this Committee weighs the future of SRF legislation, we 

would hope that you will keep the record of accomplishments by 

States and the perspective of State program managers uppermost 

in your considerations. After years of successful program operation, 

it is clearly the experience of Oklahoma that the more latitude and 

operating flexibility that States are allowed, the greater our ability 

is to accomplish our environmental and financial goals. Certainly, 

States need to continue to be fully accountable for their use of Federal dollars, but excessive oversight or administrative control by 

EPA stifles innovation and the ability of States to best respond to 

local needs. 

The success of the program derives from the flexibility of the 

SRF model, which allows each State to decide the best approach to 

meet its individual water quality needs. The SRF programs have 

historically allowed for individual water quality needs to be addressed using traditional construction methods or in many cases, 

more green methods. We believe that it is important to recognize 

that water quality needs vary from State to State and that States 

are in the best position to recognize the needed priorities for providing assistance. 

Oklahoma’s needs are most likely not much different than the 

needs in other States, but we are confident that we if take intense 

planning and collaborative teamwork, Federal, State, and local 

partners coming together to find creative solutions to address infrastructures, we can succeed. 

72 

In closing, I just want to remind you of the success that Staterun SRF programs have had in addressing our nation’s water quality and drinking water issues, and I hope that together we can 

work to protect water for future generations. Thank you. 

[The prepared statement of Mr. Freeman follows:] 

73 


26626.046

Senate Committee 

On 

Environment and Public Works 

"Our Nation's Water Infrastructure: 

Challenges and Opportunities" 

December 13, 2011 

Testimony by 

Joe Freeman, Chief 

Financial Assistance Division 

Oklahoma Water Resources Board 

Stole of Oklahoma 

WATER RESOURCES BOARD 

the water agency 
74 


26626.047

Good morning Mr. Chairman and members of the committee. My name is Joe 

Freeman I am Chief of the Financial Assistance Division of the Oklahoma Water 

Resources Board. We administer the Clean Water State Revolving Fund as well as 

the financial portion of the Drinking Water State Revolving Fund along with three 

other state water and wastewater financing programs. 

I am very pleased to be with you this morning to share Oklahoma's views with the 

Committee on the Challenges and Opportunities facing Water and Wastewater 

Infrastructure Financing. Today, I am not only representing the Great State of 

Oklahoma but also the Council of Infrastructure Financing Authorities, the 

Association of Clean Water Administrators, and the Western States Water Council. 

This is obviously a subject which we give a great deal of thought as we attempt to 

meet the challenges of addressing pressing needs with often limited resources. 

We believe sustained Federal funding is essential to realizing our nation's water 

quality goals. And, we hold strongly to the view that the State Revolving Fund 

loan programs should remain a foundation for future progress in meeting water 

infrastructure needs. Innovation, new approaches and new priorities can and 

should be addressed in the context of the SRF concept. It is vital that the SRF 

2 
75 


26626.048

partnership between federal and state government continue as the basic mechanism 

for assistance to communities in addressing water quality issues. 

In the past two decades, few federally authorized programs have proven as 

effective in realizing their intended goals as the SRF programs. They have 

provided a sustainable source of funding to protect and restore our nation's rivers 

and streams and assure safe drinking water for all our citizens. It is important to 

note that the assistance made available to communities is significantly greater than 

the initial federal investment as a result of state match, loan repayments, issuance 

of bonds and interest earnings. In Oklahoma for example, every one million in 

federal funds is leveraged into three million dollars in capacity for funding 

additional infrastructure projects. Consequently, the Federal Government IS 

providing less than one-third of the infrastructure funded via the SRF Programs. 

The Clean Water State Revolving Fund and the Drinking Water State Revolving 

Funds nationwide have committed over $84 billion to projects for wastewater 

infrastructure and over $20 billion for drinking water infrastructure. The majority 

of funding goes to the highest priority projects that clean up polluted streams, 

rivers, lakes and estuaries and ensure safe drinking water nationwide. 

Furthermore, public investment in water infrastructure yields significant economic 

3 
76 


26626.049

benefits, the U.S. Department of Commerce, estimates that one dollar invested in 

water infrastructure generates $2.62 in economic output in other industries and that 

each job created in the local water and sewer industry creates 3.68 jobs in the 

national economy. 

States, including Oklahoma, as the recipients of SRF capitalization grants, 

recognize that we incur a number of responsibilities. We must manage those funds 

in a fiscally responsible manner and be accountable. We must give priority in our 

funding decisions to the resulting water quality benefits and the urgency of 

environmental problems needing resolution. We need to give particular attention 

to the challenges faced by small, rural and disadvantaged communities. And, we 

must be creative financial stewards seeking to identify every appropriate avenue 

for delivering as much assistance as feasible to communities and ensuring that this 

assistance achieves the fullest potential impact in terms of improved water 

infrastructure. 

We see our mission as using all the possible tools and strategies, allowable by law 

and consistent with prudent financial management, to achieve the largest impact in 

terms of achieving the goals of the Clean Water Act and Safe Drinking Water Act. 

As we look into the future, the ability of States to meet water and wastewater 

4 
77 


26626.050

infrastructure needs is based on continued funding for the SRF programs at a 

sufficient level to ensure the full realization of the revolving nature of the funds 

and the maximum utilization of leveraging by States, such as Oklahoma, that 

choose this option. We recognize the current budget realities and the fact that the 

annual capitalization grants represent a significant percentage of the overall EPA 

budget. We understand the need for budget restraint but would hope that not too 

great a share of that restraint is at the expense of the SRF programs. 

Through the Oklahoma Comprehensive Water Plan, the Oklahoma Water 

Resources Board and its many partners assessed the water and wastewater 

infrastructure needs over the next 50 years. Detailed information was gathered 

from large and small, urban and rural systems to compliment the Drinking Water 

and Watershed Needs Surveys conducted through the Environmental Protection 

Agency. In Oklahoma, we have documented over $82 Billion in need for water 

and wastewater infrastructure over the next 50 years. In order to meet these needs, 

it is going to take continued partnership and innovative discussions between local 

and state governments and the federal government. As a pro-active response to the 

findings of our intensive water planning efforts, we have compiled a committee of 

infrastructure financing professionals with the goal of investigating solutions to 

meeting Oklahoma's burgeoning infrastructure needs. The group is evaluating a 

5 
78 


26626.051

number of options including re-structuring our state infrastructure loan programs 

and creation of a Credit Reserve Enhancement Program. 

As this Committee weighs the future of SRF legislation, as well as other initiatives 

to spur water infrastructure development, we would hope that you will keep the 

record of accomplishment by States and the perspective of State program managers 

uppermost in your consideration. If progress is to continue, it will be in the hands 

of each individual State to deliver. 

After years of successful program operation it is clearly the experience of 

Oklahoma that the more latitude and operating flexibility that States are allowed, 

the greater our ability is to accomplish our environmental and financial goals. 

Certainly States need to continue to be fully accountable for their use of federal 

dollars, but excessive oversight or administrative control by EPA stifles innovation 

and the ability of States to best respond to local needs. Currently, funding levels 

are decreasing while the restrictions and set-asides for those funds are increasing, 

thus making the program even less sustainable and growing the gap of unmet 

needs. 

6 
79 


26626.052

The success of this program derives from the flexibility of the SRF model which 

allows each State to decide the best approach to meet its individual water quality 

needs. The SRF programs have historically allowed for individual water quality 

needs to be addressed using traditional construction methods or in many cases 

more green methods. In Oklahoma, we have funded Automated Meter Reading 

projects, reflective roofs, high efficiency pumps, rain gardens, green roofs and 

streambank stabilization projects to name a few. We firmly support green 

infrastructure and the desire for additional subsidization but we believe that the 

actual funding levels for these types of initiatives should be at the discretion of the 

states to ensure that the individual state's needs are being addressed. We believe 

that it is important to recognize that water quality needs vary from State to State 

and that States are in the best position to recognize the needed priorities for 

providing assistance. Additionally, every federal dollar that EPA directs away 

from addressing the primary goal of the SRF programs addressing public health 

and water quality protection reduces the capacity of a state to leverage their 

programs and address infrastructure needs. 

Again, I sincerely appreciate the opportunity to discuss Oklahoma's perspective on 

meeting our State's water and wastewater infrastructure needs. Oklahoma's needs 

are most likely not much different than the needs in other states. But, we are 

7 
80 


26626.053

confident that it will take intense planning and collaborative teamwork - federal, 

state, and local partners coming together to find creative solutions to address our 

mounting infrastructure needs. The SRF Programs with their infusion of federal 

funds is one of the most important tools in our Nation's infrastructure financing 

tool kit. In closing, I just want to remind you of the success that state-run SRF 

programs have had in addressing our nation's water quality and drinking water 

issues and I hope that together we can protect our water for future generations. 

8 
81 


26626.054

Environment and Public Works Committee Hearing 

December 13, 2011 

Questions from: 

Senator James M. lnhofe 

Follow-Up Questions for Mr. Joe Freeman 

1. Mr. Richey of the American Cast Iron Pipe Company testified that, on average 

nationwide, 20-25% of treated water that goes into the distribution system is lost 

to leakage. Do you have an estimate for the amount that is lost to leakage in 

Oklahoma? Do you think this is a significant problem in Oklahoma and, if so, 

what is the best way to fix this problem? 

OWRB Response: Unfortunately, there is not an official repository in Oklahoma 

which tracks system leakage. In discussions with our friends at the Oklahoma 

Rural Water Association and the Oklahoma Municipal League we agree that 

leakage is a significant problem In Oklahoma. 

In Oklahoma, the SRF programs fund approximately 70% of the water and 

wastewater infrastructure construction. We see many systems with acceptable 

water loss (amounts necessary to allow for line flushing and fire protection) but 

other systems exhibit extreme loss due to leakage. An extreme example is a 

system that we are working with in central Oklahoma which documented more 

than a 50% water loss in 2011. To arrive at an estimate for Oklahoma in 2011, 

OWRB staff evaluated the SRF applications received between July 1, 2011 and 

December 31, 2011 and compared the amount of water purchased/produced to 

the amount of water sold/consumed. In 2011 the average amount of water which 

was unaccountable was 25.21%. 

In my opinion, the solution to fix the leakage problem is twofold. First, ensure 

that there are affordable sources of funding available to systems so that they can 

proactively address their infrastructure needs. We would encourage the sources 

of funding to continue to be a combination of federal and state funds delivered 

through existing programs such as the SRF and state grant/loan programs. 

Secondly, ensure that there is adequate continuing education available for 

system owners and operators. It is imperative that systems are able to know 

what to look for and how to address minor problems before them become major 

issues. In Oklahoma, Oklahoma Rural Water Association, the Oklahoma 

Municipal League, and the Funding Agency Coordinating Team provide ongoing 

training opportunities for systems. 

1 
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2. You state that "We need to give particular attention to the challenges faced by 

small, rural and disadvantaged communities." Can you give any specific 

examples of problems facing these communities in Oklahoma and how OWRB is 

working to address these issues? 

OWRB Response: A detailed analysis of Oklahoma's water and wastewater 

infrastructure needs was completed as part of the 2012 Update of the Oklahoma 

Comprehensive Water Plan. Through that analysis it was determined that 45% 

of the identified demand ($17.4 Billion) for drinking water infrastructure 

investment over the next 50 years is associated with 13% of the population, 

whereas 23% of the Identified demand ($10.3 Billion) for wastewater 

infrastructure investment over the next 50 years is associated with 23% of the 

population. Ultimately it Is the smaller systems that, over time, will have greatest 

need for infrastructure Improvements. 

So why is this? Smaller systems in many cases have less capacity- managerial, 

financial and technical- than larger systems making it difficult to meet state and 

federal water/wastewater regulations. The OWRB is not a regulatory agency 

therefore we are unable to specifically comment on water/wastewater regulatory 

issues. However, there are many systems that are unable to meet these 

requirements because they are so small and do not have the staff nor the 

customer base to adequately support the system. It is a very delicate issue but 

we try to encourage these systems with the help of the Oklahoma Department of 

Environmental Quality to investigate consolidation and regionalization 

opportunities. 

3. You mentioned that SRF money and state money will not be adequate to meet 

the projected $82 billion in needs in Oklahoma over the next 50 years. How will 

more flexibility with regards to additional subsidization help Oklahoma meet 

these needs? 

OWRB Response: The requirement for additional subsidization does not help 

Oklahoma meet the projected $82 billion in infrastructure funding needs over the 

next 50 years. Every dollar that is removed from a State's revolving pool of funds 

reduces the number of projects that can be funded that year as well as into the 

future. 

As additional subsidization continues with the SRF programs, we would like to 

see the maximum level of flexibility be provided to the States. Furthermore, we 

believe that the amount of subsidization provided should be at State's discretion 

with a ceiling or maximum amount available for subsidization mandated via the 

appropriations bill or guidance thus ensuring that 100% of the SRF funds are not 

provided as subsidy. Flexibility would allow Oklahoma the ability to maximize our 

leveraging capacity to help meet the $82 billion in need but also to utilize the 

subsidization as an incentive when appropriate to encourage the implementation 

of priority practices such as regionalization, consolidation or conservation. 

2 
83 


26626.056

4. Can you expand on the duplicative reporting requirements imposed by EPA? 

OWRB Response: Utilizing public funding understandably requires the SRF 

programs to be transparent and accountable. It becomes burdensome, however, 

when the State Programs have to report or provide the same information via 

multiple websites and documents. 

Example of Duplication of Reporting 

a) Intended Use Plans- Annual planning documents for the SRF Programs. 

Must be specific regarding how the funds will be utilized over the next 12 

months. 

b) Annual Reports- Annual Report on how SRF and leveraged funds were 

used over the last 12 months. Includes much of the same information as 

the EPA NIMS/C/ean Water Benefits Report System. 

c) State Websites- Per EPA guidance (as well as a good business practice) 

Information and documentation regarding the current and historic use of 

funds under the SRF program. 

d) Federal Funding Accountability Transparency Act website -Federal website 

which tracks the expenditure of all federal funds which were awarded after 

October 1, 2010. 

e) Automated Standard Application for Payments website- Federal website 

where Oklahoma draws funds from the Federal Government. 

f) EPA NIMS/C/ean Water Benefits Reporting- These applications specific to 

the Clean Water State Revolving Fund Program. Electronic based where 

State's enter project specific data. It is a way for states and EPA to track 

environmental improvements. 

g) Periodic EPA Requests for Jnformation - We receive multiple requests from 

the regional office to provide information that they already have access to 

but would like in a different format. The majority of the requests are 

required within an unrealistic timeframe. 

5. Is there anything else you would like to add for the record? 

OWRB Response: EPA Headquarters and Regional Offices are partners along 

with States in the SRF Program. The challenge, however, is when EPA 

guidance is interpreted different ways by the 10 Regional Offices. Obviously, 

there are differences in every state but the implementation of EPA guidance 

should be the same regardless of what part of the country you are located. 

3 
84 

Senator CARDIN. Thank you, Mr. Freeman, for your comments. 

Mr. Scott. 

STATEMENT OF THEODORE E. SCOTT, EXECUTIVE VICE 

PRESIDENT AND FOUNDER, STORMWATER MAINTENANCE 

Mr. SCOTT. Good morning, Mr. Chairman and members of the 

Committee. Thank you for the opportunity to be here today. 

I am going to lend a little bit of a different perspective, one of 

an on the ground small businessman that deals with these issues. 

I am a professional engineer, and I am co-owner of a civil engineering firm and a niche construction and maintenance company 

that specializes in stormwater related infrastructure. We work 

from Richmond, Virginia, to Connecticut. A critical part of our 

work is minimizing the impacts on the environment. 

Being involved in this field for 25 years, I have been part of a 

paradigm shift toward green infrastructure. I am also involved in 

work that addresses our aging stormwater infrastructure. 

Ever since people began converting land for their use, the 

changes to the physical characteristics of the land and resulting 

stormwater runoff have impacted the environment. Traditionally, 

engineers have designed storm drain systems that reduce water filtering into the ground, increased flows and downstream flooding, 

and eventually send the problem downstream. This results in impacts to what were natural filters, streams, bays, estuaries, and ultimately the oceans. Minuscule pieces of plastic, once thought too 

small to matter, are becoming great floating masses in our oceans. 

This all begins with how we treat our stormwater on the street. 

About 30 years ago, some parts of the country, including my 

home State of Maryland, began to regulate the treatment of 

stormwater. The first methods used were large basins and ponds 

that collected drainage and treated it in centralized ponds and basins. Several decades of research have indicated that these practices do not allow enough water to filter into the ground and convey 

a significant amount of pollutants downstream. The results were 

continued impacts. 

Since the 1990s alternative ways to treat stormwater have been 

researched and implemented. Referred to as green infrastructure, 

these practices are a different way of planning communities and 

urban areas. Alternative materials such as green roofs and permeable pavement are used for surfaces that absorb pollutants and 

allow stormwater to filter directly into the ground. Landscape practices use natural processes to slow flows, absorb water, and remove 

pollutants. With careful planning and engineering and landscape 

design, stormwater practices have become an integral part of the 

community and are considered amenities. 

As these practices represent a change in the way land is developed, adoption has taken some time. In Maryland, new regulations 

were suggested for the use of these practices starting in the year 

2000. Because voluntary change was not embraced, the regulations 

were revised to mandate these practices on every project beginning 

in 2009. These practices are now becoming the status quo for 

stormwater design in Maryland. 

Green infrastructure differs in many other ways from traditional 

large engineered ponds. Being smaller, they require more hand 

85 

labor and less heavy equipment. Maintenance changes requiring 

teams of laborers instead of large equipment with few operators. 

This generates permanent jobs, not one-time construction employment assignments. 

Because skill sets and equipment requirements are less with 

green infrastructure, a wide range of alternatives to traditional 

construction are available. Grass roots NGOs, such as Blue Water 

Baltimore, have initiated numerous community projects involving 

green infrastructure. Through efforts like these, clean water has 

become a meaningful vehicle to bring urban communities together. 

Many stormwater treatment facilities, such as ponds and basins, 

are nearing 30 years old. The materials in these systems have finite life systems. Failure of pipe systems leads to hazardous sinkholes and pollution from sediments. The failure of stormwater 

ponds can result in catastrophic floods that can damage property, 

cause injuries or even death. These situations can be easily avoided 

by requiring inspection and maintenance programs for aging 

stormwater infrastructure. Costs for maintaining stormwater facilities are usually borne by property owners, just like other expenses 

of maintaining a property, such as repairs to plumbing or heating 

systems. 

Many municipalities and large corporations understand the value 

of maintaining their infrastructure and have programs in place. 

These municipalities and landowners have found that ongoing inspection and routine maintenance involve budgeted costs that can 

be incidental to doing business. Others, including many Federal facilities, await specific mandates to begin maintaining their infrastructure. Meanwhile, many Federal and private stormwater facilities have become point sources for pollution and some on the verge 

of catastrophic failure. 

With the appropriate regulatory directives, the resources and 

jobs that were dedicated to constructing this infrastructure can be 

converted to maintaining and repairing it. Some have suggested 

environmental regulations and infrastructure maintenance mandates are bad for business. My personal experience is the opposite. 

Many business owners, like myself, have identified how regulations 

change the business environment and met the changing market’s 

needs, resulting in success. Over the course of the worst economic 

environment since World War II for design and construction firms, 

we have quadrupled the size of our firm. Regulations involving 

green and existing infrastructure are the primary drivers for this 

growth. 

Thank you, Mr. Chairman and Committee members, for the opportunity to appear before you today. I appreciate it. 

[The prepared statement of Mr. Scott follows:] 

86 


26626.057

5TORMWATERCONSU LTI NGINC. STORMWATERMAI NTE NANCE 

128 Cockeysville Road, Suite 2.00, Hunt V<tlley, M<1ry!and 21030 I phone 410.785,0875 1 fax 443.269.0216 l tes@MdSWM.com 

www.MdSWM.com I www.SWMaintenance.com 

United States Senate 

Committee on Environment and Public Works 

Subcommittee on Water and Wildlife 

Testimony of Theodore E. Scott, PE, CPESC, LEED AP, MSP 

December 13, 2011 

Good Morning Mr. Chairman and Members of the Committee. My name is Theodore Scott. I 

am a professional engineer and co-owner of two small businesses: a civil engineering and 

landscape architecture firm and a niche construction and maintenance company. Both 

companies specialize in stormwater related infrastructure from Richmond, Virginia to 

Connecticut. Our professions design, construct, and maintain spaces that communities use to 

live, work, shop, and play. A critical part of our work is designing to minimize the impacts on 

the environment. Being involved in this field for 25 years, I have been a part of the paradigm 

shift in the way development protects and restores the environment I have also been involved 

in work that begins to address our aging stormwater infrastructure. 

After a brief introduction of the issue of stormwater runoff, I'd like to discuss three topics: 

Green Infrastructure 

The condition of our existing stormwater infrastructure, 

• The economic impact of green infrastructure and maintaining existing stormwater 

infrastructure. 

§.tcm:n~loll!lter ~!Jnoff 

Urbanization creates a wide variety of pollution. 

Every time it rains, stormwater runoff flushes 

pollutants from rooftops, sidewalks, and streets. 

Flooding and pollutants such as trash, debris, and 

sediment are the visible impacts of urban 

stormwater runoff. But stormwater also carries 
87 


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United States Senate Committee on Environment and Public Works 

Testimony of Theodore E. Scott, PE, CPESC, MSP, LEED AP 

December 13,2011 

p~~Q_f_.§. 

unseen pollutants such as oil and grease from vehicles, and chemicals from a wide variety of 

sources. 

Ever since people began converting land for 

their use, the changes to the physical 

characteristics of land and resulting 

stormwater runoff have impacted the 

environment. Traditionally, engineers have 

designed storm drain systems that are 

efficient and quickly put runoff out of sight 

into pipe systems. These methods reduce water filtering into the ground, increase flows and 

downstream flooding, and efficiently send the problem downstream. This results in physical 

impacts to streams, bays, estuaries and ultimately the oceans, causing unbalanced marine 

environments. With these natural filters impacted, many pollutants now end up in our oceans. 

By now, many have heard of the emerging 

ocean garbage patches. The styrofoam 

coffee cup or plastic water bottle dropped 

outside on the street will quite possibly end 

up in the Atlantic Garbage Patch. Miniscule 

pieces of plastic, once thought to be too 

small to matter, are becoming great floating 

masses in our oceans. We are realizing that 

society's lack of action regarding stormwater 

runoff is becoming an international public 

health issue that affects everyone. It all begins with how we treat our stormwater runoff. 

Green lnfra§jructure 

Mitigation of stormwater pollution has been occurring for some time. About 30 years ago, 

some areas of the country, including my home state of Maryland, began efforts to regulate the 

treatment of stormwater. 
88 


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United States Senate Committee on Environment and Public Works 

Testimony of Theodore E Scott, PE, CPESC, MSP, LEED AP 

December 13,2011 

~~ 

The first methods utilized were larger basins and ponds that collected drainage and treated it 

in centralized areas. Several decades of 

research indicated these practices do not 

allow enough water to filter into the ground, 

radically change drainage patterns, and 

convey a significant amount of pollutants 

downstream. The results were continued 

impacts to streams, estuaries, and our 

oceans. Since the 1 990s, alternative ways to 

treat stormwater have been researched and 

implemented to resolve these continuing 

issues. 

Referred to as green infrastructure, these practices are a different way of planning 

communities and urban areas. Alternative materials such as green roofs and permeable 

pavement are used for surfaces that absorb 

pollutants and allow stormwater to filter directly into 

the ground. Landscaped practices use natural 

processes to slow flows, absorb water, and remove 

pollutants. These practices are very small and are 

distributed throughout site areas. Instead of one or 

two very large ponds, we may have 20 or 30 small 

practices throughout the site. In lieu of mounded 

landscaping, we design strategically located 

stormwater treatment areas. 

Land planning is also different. Instead of using all 

available land area for communities, as we have 

done for decades to create tract housing, land use is 
89 


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United States Senate Committee on Environment and Public Works 

Testimony of Theodore E. Scott, PE, CPESC, MSP, LEED AP 

December 13, 201·1 

f:_£g~~'l9t§ 

intensified in smaller areas leaving natural or restored areas interspersed throughout. This 

planning preserves sensitive forest and wetland resources while facilitating restoration of 

features degraded by past development. 

By converting parking lot islands into small 

stormwater practices, natural runoff 

processes are preserved, allowing water to 

seep into the ground throughout the site. 

With careful planning, engineering, and 

landscape design, stormwater practices 

become an integral part of the community 

and are considered amenities instead of 

being hidden out of site. Invisible pollutants 

are treated by the vegetation or absorbed into the ground. Trash, debris, and sediments are 

easily removed by homeowners or landscape maintenance crews. Micro-habitats emerge 

within the spaces created for people, establishing flora and fauna in between rows of parking. 

As these practices represent a change in the way land is developed, adoption has taken some 

time. In Maryland, new regulations suggested the use of these practices starting in year 2000. 

Even though there are numerous advantages, sometimes including cost savings, many 

developers and engineers resisted the change. In 2009, the Maryland legislature revised our 

regulations regarding stormwater, which 

mandated these practices on every project. 

While some developers and engineers 

resistant to change feel challenged, they are 

clearly working through it and these practices 

are becoming the status quo for stormwater 

in Maryland. 

These practices differ in many ways from the 

traditional large engineered ponds. One 

important way is in how they are constructed and maintained. Because they are smaller and 
90 


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United States Senate Committee on Environment and Public Works 

Testimony of Theodore E, Scott, PE, CPESC, MSP, LEED AP 

December 13, 2011 

P£!£1~.5 of8 

integrated throughout sites, they require more hand labor and less heavy equipment. With 

many more of them on a given site, maintenance changes dramatically, requiring teams of 

laborers instead of large equipment with a few operators. This generates jobs. As they are 

also amenities, there is more motivation for re-occurring maintenance. Therefore, many of the 

jobs created are permanent not one-time construction employment assignments. 

Because the skill set and equipment 

requirements are less with green 

infrastructure, a wide range of alternatives to 

traditional construction are available. We 

have been engaged in numerous projects at 

school sites. These projects introduce green 

infrastructure hands-on and involve a wide 

range of students. The design, construction, 

and monitoring of these practices involves 

practically every subject - from art and math to geography and biology. Known as retrofits, 

these projects right previous wrongs with green infrastructure treating areas that never before 

had treatment. In many cases, existing infrastructure is upgraded at that same time. Learning 

outdoors, the kids love it. The driver for these projects is usually grant funding with volunteer 

participation. 

These programs are also being extrapolated 

into larger community events. Grass roots 

NGOs such as Blue Water Baltimore have 

initiated numerous community projects 

involving green infrastructure. Through 

efforts like these, clean water is becoming a 

meaningful vehicle to bring urban 

communities together. An example is a Blue 

Water Baltimore school greening project at the Academy for College & Career Exploration in 

Baltimore last summer that involved several hundred volunteers. 
91 


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United States Senate Committee on Environment and Public Works 

Testimony of Theodore E. Scott, PE, CPESC, MSP, LEED AP 

December 13, 2011 

~~~ 

We understand what the problems are and the solutions that Green Infrastructure offers. The 

challenge is implementing the solutions with 

the least impact on economics. As 

mentioned, in Maryland we have had several 

iterations of regulations moving toward green 

infrastructure. In the end, we found that the 

most effective way to make it happen is with 

a regulatory mandate. All along the way, 

there have been naysayers that simply did 

not want to deal with change. True, these 

practices present new challenges to design 

and construct. It takes creativity. The most creative designers consistently realize cost 

savings with these practices. Those who prefer to do cookie cutter work are the ones who 

have struggled the most. In the end, we have found that creative developers and designers 

can incorporate green stormwater practices into new projects with minimal economic impact. 

As mentioned, stormwater related 

infrastructure has been in place for some 

time. Conveyance systems, such as catch 

basins and underground pipe systems have 

been installed in urban areas for many years. 

Since the 2nd World War, most suburban 

areas have been developed with these 

systems. Large stormwater treatment 

facilities, such as ponds and basins, began to be installed in many parts of the country thirty 

years ago. As with the case of any infrastructure, the materials in these systems have finite 

life cycles. Constant exposure to water accelerates corrosion and degradation. Failure of pipe 

systems leads to pollution from sediments entering the pipes and being conveyed 

downstream. When part of a stormwater pond or basin, the failure of these pipes can result in 
92 


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United States Senate Committee on Environment and Public Works 

Testimony of Theodore E. Scott, PE, CPESC, MSP, LEED AP 

December 13,2011 

E.age 7 of..§: 

embankment failure which results in sudden and uncontrollable floods. Floods from dam 

failures can be catastrophic and can damage the environment, other infrastructure such as 

homes and roads, and result in deaths to people who may be caught in the path of the 

floodwaters. 

These situations can be easily avoided by 

instituting reliable Operations and 

Maintenance (O&M) programs. These 

programs establish standards for the 

inspection, maintenance, and repair of aging 

infrastructure. Although some of the 

infrastructure is publically owned, the majority 

of stormwater facilities that we see are 

privately owned. Therefore costs of 

instituting and maintaining O&M plans for 

stormwater facilities are distributed to many parties. For the typical property owner, this is an 

expense of maintaining property, such as repairs to plumbing or heating systems. 

Many municipalities have these programs in place. Numerous large corporations understand 

the value of maintaining their infrastructure and have programs in place. These municipalities 

and landowners have found that once the initial repairs are performed, ongoing inspection and 

maintenance involve costs that are incidental to doing business. 

Others, including many federal facilities, await specific mandates to begin to maintain their 

infrastructure. Without such a mandate, those responsible for the maintenance of stormwater 

infrastructure can take little action. Meanwhile, many stormwater facilities have become pointsources of pollution with some on the verge of catastrophic failure. 

With the appropriate regulatory directives, the resources and jobs that were dedicated to 

constructing this infrastructure can be converted to maintaining and repairing it. 
93 


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United States Senate Committee on Environment and Public Works 

Testimony of Theodore E. Scott, PE, CPESC, MSP, LEED AP 

December 13, 2011 

E.age 8 of 8 

!r!mact on Busine_s_s 

Some may suggest that environmental regulations and infrastructure maintenance mandates 

are bad for business. My experience is the opposite. As demonstrated from the success of 

the Leadership in Energy and Environment 

Design (LEED) driven green building industry 

over the past five years, businesses that rely 

on regulatory insight and market savvy 

capitalize on environmental initiatives. Many 

business owners have identified how 

regulations change the business 

environment, and met the changing market 

needs, resulting in success. Over the course 

Revenues + 540% 

Stormwater Maintenam:e, 

l006·20U 

of the worst economic environment since World War II for design and construction firms, we 

have quadrupled the size of our firm. Regulations and green infrastructure are the primary 

drivers for this growth. 

In the midst of these difficult economic times, our company's greatest challenge is determining 

the best way to maximize benefits from the opportunities ahead. Along the way, we look 

forward to continuing to do our part to improve and restore the impacts of urbanization, one 

stormwater facility at a time. 

Thank you, Mr. Chairman, and committee members for the opportunity to appear before you 

today. I stand ready to answer any questions you might have. 
94 


26626.065

STORMWATERCONSULT!NGINC. STORMWATERMAINTENANCE 

ii•hiiStt!dii·itii·IHIBdiii!,SRI~tt 

2:1lJ3D i phone 41t:L785.(J875 l fax 443.269,0:21€- I t€$@MdSWNLorom 

~r.MdiiWM.coml~ww.SW'Mali~n,nce.oom 

THEODORE E. SCOTT, PE, CPESC, LEED AP, MSP 

A practicing Professional Civil Engineer, Certified Professional 

in Erosion and Sediment Control, LEED Accredited 

Professional, and Master Stormwater Practitioner, Mr. Scott 

has over 25 years of experience in site and stormwater 

management design, maintenance, construction, and repair. 

He is the founder of Stormwater Consulting, Inc., which is an 

engineering and landscape architecture firm specializing in 

stormwater, environmental, and infrastructure restoration 

design. He is also the founder of Stormwater Maintenance, 

LLC, a niche construction company devoted to the inspection, 

maintenance, repair, and construction of stormwater 

management, stream, and wetlands systems. The firms 

collectively trade as Applied Stormwater and perform work 

from Richmond, Virginia to Connecticut 

His on-the-ground experience and specialization provides unique insight into emerging trends 

in design, inspection, maintenance, and repair of stormwater BMPs. He applies this 

experience to help his clients minimize the cost of constructing, owning, and operating 

stormwater infrastructure. 

Founded by an established industry leader, Mr. Scott's firms provide services throughout the 

Mid-Atlantic and Northeast with clients ranging from small "Mom & Pop" businesses to 

Fortune 50 Corporations. Together, his firms provide turn-key design/build services for 

stormwater and environmental restoration projects. 

Mr. Scott is a sought after national speaker and trainer on subject matter related to the 

design, inspection, construction, maintenance, and repair of all types of stormwater 

management facilities and drainage infrastructure. 

Stormwater, It's what we do. 

IN>\I\\I)~lJ\Il\ll<'!il1te_n<lllCe.com www.MdSWM.com 
95 


26626.066

Stormwaterrunoffoccurs when rain and snowmelt 

flows over land or impervious surfaces (such as 

streets, lots, sidewalks, and rooftops) and 

does not percolate into the 

in impervious surface area cause 

rates as runoff collects debris, chemicals, 

sediment and other pollutants that could 

adversely affect water quality to 

WHY TREAT STORMWATER? 

Control and treatment of stormwater runoff in 

the United States was mandated by the Clean 

Water Act in 1972. The National Pollutant Discharge 

Elimination System (NPDES) program requires 

businesses, states, and municipalities to have 

programs, practices, and infrastructure in place 

to control the discharge of pollutants in stormwater. 

As a result, most sites constructed in the past 20 

years include some fom1 of stormwater treatment. 

HOW IS STORMWATER MANAGED? 

Controlling and treating runoff is known as 

stormwater management. While there are many 

two broad categories are Above Ground and 

Below Ground. Above Ground facilities include 

basins, dry ponds, wet ponds, sand filters, 

bioretention, swales, etc. Below Ground facilities 

are usually unseen and may be underground pipe 

storage systems, oil/water separators, sand filters, 

vaults, or they may be proprietary devices for 
96 


26626.067

INSPECTIONS 

be addressed 

a !TJamtenance prograrn, 

• Inspections catch small before they become 

larger (and more 

UNDERGROUND STRUCTURES 

• Standing water in metal pipes can 

• Damaged pip<'s 

• Backed up systems can cause flooding. 

REPAIRS 

of dred9ing. 

• Our in ·house civil engineers design and prepare plans 
97 


26626.068

STORMWATERMAI NTE NANCE STORMWATERCONSU LTI NG!NC. 

1• I 1-IBm!IIJRll!\& 

128 Cockeysville Road, Suite 300, Hunt Valley, Maryland 21030 1 phone 410.78S.O!nS ) fax 443.269.021fi j tscott@lswmaintenance.com 

January 24, 2012 

Mr. Jonathan Aronchick 

US Senate Committee on Environment and Public Works 

410 Dirksen Senate Office Building 

Washingtoon, DC 20510 

\;'1,'\.J;M.bll,: Jonathan.Aronchick@epw.senateJJQY 

Subject: Committee on Environment and Public Works 

December 13,2011 hearing 

Answer to Questions from Senator Boxer 

Dear Mr. Aronchick: 

Below please find responses to Senator Boxer's questions: 

Question 1: Please expand on the benefits of using green infrastructure to help reduce 

stormwater pollution and infrastructure costs. 

Answer: 

Green Infrastructure (GI) reduces stormwater pollution by mimicking natural processes. This 

differs from traditional engineered approaches that attempted to invent ways of dealing with 

stormwater runoff. By applying smaller facilities that rely on biologic-based processes, Gl: 

increases recharge of groundwater which maintains consistent subsurface flows into wetlands 

and stream systems, reduces surface flows to receiving water bodies which in turn lowers the 

likelihood of stream bank erosion and related pollution, and eliminates or filters out pollutants 

close to their source to avoid concentration in streams, estuaries, and oceans. 

Development costs can often be reduced with Gl. One of the most obvious ways is by having the 

Gl stormwater treatment serve multiple purposes and benefits. For example, a green roof not 

only reduces stormwater pollution, it serves as a rooftop. The green roof also saves energy by 

insulating the roof, reducing the costs for insulating a traditional rooftop. In many cases, Gl 

drainage techniques, such as vegetated swales, convey storm fiows and reduce or eliminate 

traditionally specified underground pipe systems. Rain gardens treat stormwater, but also meet 

landscaping requirements and improve aesthetics. 

Question 2: Can additional use of green infrastructure help to reduce the large gap in 

infrastructure funding that currently exists? What job-creation benefits have you seen 

from the use of green infrastructure? 

Answer: 

There are many aspects to the infrastructure funding gap. Gl can contribute to savings in many 

cases. For example, integrating a holistic watershed-based Gl approach in a Combined Sewer 

Overfiow (CSO) system can reduce flows that would normally contribute to over-capacity pipe 

systems and wastewater treatment plants. Such an approach can reduce the costs of upgrading 

this infrastructure. Because Gl is more sustainable than traditional hard engineered approaches, 

once a system is upgraded it will have a longer effective lifespan and cost less the next time it 

requires remediation. 
98 


26626.069

Committee on Environment and Public Works 

December 13, 2011 hearing 

Answer to Questions from Senator Boxer 

January 24, 2012 

Page 2 of 2 

Because they are usually smaller and distributed throughout site areas, Gl stormwater practices 

are more labor intensive to construct than traditional stormwater practices. This requires retooling for contractors and increases the focus on manpower while reducing the use of large 

highly automated equipment. The result is an increase in the number of employees required to 

construct these practices. Equivalent or reduced costs can be achieved by reducing the heavy 

equipment used on a give project. 

Employment is also increased on the operations and maintenance phase long after construction 

is complete. Because Gl techniques serve multiple uses, the aesthetics and associated 

motivation to maintain them increases. Again, manpower is the key as smaller landscape 

oriented crews perform the work instead of traditional heavy equipment used for mucking out 

large ponds. These jobs are not one-time construction assignments, there are permanent. 

Question 3: How can Federal infrastructure financing programs (e.g., the State Revolving 

Funds) promote green infrastructure practices? 

Answer: 

As mentioned in the original testimony, our experience in Maryland has been that adoption of Gl 

is limited if it is only suggested or recommended. We believe this is because Gl requires a high 

level of creativity and demands a change in the way sites are designed and constructed. It does 

require re-tooling of civil design and construction businesses. For example, contractors need to 

hire more workers who are skilled in detailed construction and purchase smaller equipment that 

can work on smaller facilities. Their large heavy equipment is too cumbersome to build these 

types of projects. So those who have been satisfied with the status quo have little desire to 

change. 

Because of this resistance to change, in Maryland we found that the most effective way to begin 

meaningful implementation of Gl was to mandate it. The market is then put in a position to work 

through the changes in their business practices. 

The regulatory requirement provides the spark for the free market to identify opportunities and to 

adjust accordingly. As has been consistently evident throughout the history of our great country, 

those who adjust will succeed. 

Based on this, it seems reasonable to conclude that the most effective way Federal infrastructure 

financing programs can promote Gl practices would be to require them as a condition of funding. 

While I am not personally familiar with the intricacies of these funding mechanisms, I leave the 

specifics of such an approach to others more knowledgeable on the subject matter. 

Thank you for the opportunity to testify and to submit these answers. Please contact me if further 

information is needed. 

Very Truly Yours, 

STORMWATER MAINTENANCE, LLC 

I I 

....... ·rljlt j J~v<l ,_, Theodore E. Scott, PE (MD), CPESC, LEED AP 

Executive Vice President 
99 

Senator CARDIN. Thank you, Mr. Scott. 

Mr. Richey. 

STATEMENT OF VAN L. RICHEY, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, AMERICAN CAST IRON PIPE COMPANY 

Mr. RICHEY. Thank you, Chairman Cardin and Ranking Member 

Sessions, for the opportunity to testify here today. 

I am Van Richey, President and CEO of American Cast Iron Pipe 

Company. American is a leading domestic manufacturer of waterworks products, with manufacturing plants in Alabama, Oklahoma, 

Arizona, Texas, Minnesota, and South Carolina. 

Our 2,600 employees proudly make the pipe, valves, hydrants, 

and other products that are vital to our nation’s water distribution 

and wastewater collection systems. American was founded in 1905, 

and in 1922 the company’s founder, John J. Eagan, left all the 

stock in the company in a trust for the benefit of the employees, 

who are still the beneficial owners today. Our structure philosophy 

led Fortune Magazine to include us as one of the 100 best companies to work for for 8 straight years. 

Today, however, I am speaking on behalf of both our company’s 

employees and the other domestic manufacturers of ductile iron 

pipe. They are Griffin, McWane and Mueller/U.S. Pipe. Our industry employs approximately 16,000 people in 20 States. Iron pipe 

has been the backbone of our country’s water systems since the 

1800s, and is still the preferred pipe used for drinking water systems. 

It is almost completely manufactured from recycled materials, removing hundreds of thousands of old cars from our nation’s highways and junk yards every year. I want to thank the members of 

this Committee for all the support you have shown in maintaining 

and improving our water infrastructure. I know that you are keenly aware of the crisis that we all face. 

Past generations had the wisdom to invest in clean, safe drinking 

water and in treating wastewater. But today, the system is breaking down. Communities are facing major challenges to replace their 

water infrastructure, much of which was constructed 100 to 150 

years ago. On average, 25 percent of treated water is lost. An investment funding gap of more than $500 billion exists. 

The recession has hit our industry especially hard. Almost 50 

percent of our business has evaporated with the lack of new housing starts. Our business with water utilities has also suffered because of their difficulty in raising capital for projects. As a result, 

our industry’s employment is down almost 30 percent and could decline further, a loss of approximately 4,700 high paying manufacturing jobs along with tens of thousands of construction jobs. 

Once a foundry closes, it is usually gone forever, as are the jobs 

that it provides. Investment in water infrastructure creates new 

jobs and boosts our economy. Studies show that $1 billion of investment creates or supports up to 27,000 jobs and adds $9 billion to 

our GDP. While funds are scarce, two proven policies will improve 

our water systems, foster economic growth in the manufacturing 

sector, and preserve and create jobs quickly. They are the State Revolving Funds and the private activity bonds. 

100 

Let me thank the Committee for its support of the SRF programs. They have been crucial to help ensure the quality of America’s drinking water and wastewater facilities. And there is a pressing need to reauthorize them. Although no program should be immune to budgetary review, we ask the Committee to continue to 

recognize the effectiveness of the SRF programs. 

We should also look to public-private partnerships for additional 

sources of investment. Lifting the State volume caps on PABs for 

water projects would inject billions of dollars into the infrastructure. PABs encourage State and local governments to collaborate 

with private capital to meet a public need without increasing the 

debt of governments. The debt is borne by the private sector, therefore benefiting users and customers. 

The revenue impact would be nominal relative to the significant benefits. Each year $35 million in lost tax revenue would leverage 

as much as $5 billion annually in private capital, creating more 

than 135,000 jobs and adding almost $45 billion to the nation’s 

GDP. This is a good investment under any circumstance and the 

perfect example of a public-private partnership. 

Senators Robert Menendez and Mike Crapo have introduced the 

Sustainable Water Infrastructure Investment Act. I would like to 

thank the Committee co-sponsors of this bill, Senators Cardin, 

Gillibrand, Inhofe, and Whitehouse. I also thank Senator Baucus 

for his support. 

Along with the companion bill in the House, both bills have bipartisan support, creating an opportunity for Congress to tackle a 

pressing public problem on a cooperative and cost effective basis. 

In summary, today we are facing crises of lost water, lost jobs, 

and the lost opportunity to address our country’s needs. The reauthorization of the SRF programs is important for Congress to address as soon as possible to help provide the core Federal funding 

for State and local infrastructure. I believe domestic manufacturers 

and their employees can fairly compete for these projects. 

Lifting the volume cap on PABs would generate billions in annual investment at a minimal cost. By meeting the public need 

through these two measures, Congress could protect hundreds of 

thousands of domestic jobs. On behalf of our industry’s 16,000 employees, we respectfully ask Congress to enact both of these measures without delay, and thank you all for your service and opportunity. 

[The prepared statement of Mr. Richey follows:] 

101 


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Testimony as Submitted 

Van Richey- President & CEO 

American Cast Iron Pipe Company 

December 13, 2011 

Mr. Richey: Thank you, Chairman Boxer, Ranking Member Inhofe, Subcommittee Chairman 

Cardin and Subcommittee Ranking Member Sessions for the opportunity to testify here today. I 

am Van Richey, President & CEO of American Cast Iron Pipe Company. American is a leading 

domestic manufacturer of water works products, with manufacturing plants in Alabama, 

Oklahoma, Texas, Minnesota and South Carolina. Our 2,600 employees proudly make the iron 

and steel pipe, valves, hydrants, fittings and gaskets that are vital to our nation's water 

distribution and waste water collection systems. 

American has been in continuous operation since 1905, and in 1922 the Company's founder John 

1. Eagan left all of the stock in the Company in a trust for the benefit of the employees of 

American. Today the employees are still the beneficial owners of the Company, and our 

Company's governing rule continues to be the Golden Rule -- "Do unto others as you would have 

them do unto you." Our ownership structure and management philosophy led Fortune Magazine 

to include American as one of the "100 Best Companies To Work For" in the United States for 8 

straight years. 

Today I have the privilege of speaking on behalf of not only our Company's employees and their 

families, but also the other domestic manufacturers of ductile iron pipe, fittings, valves and fire 

hydrants. They are Griffin Pipe Products, McWane, Inc. and Mueller Water Products/U.S. Pipe 

and Foundry Company. Altogether our industry operates foundries and manufacturing plants 

located in 19 different states. Iron pipe has been the backbone of our country's water systems 
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since the 1800's and is still the most prevalent and preferred water pipe material used for 

drinking water systems in the United States. Ductile iron pipe is recognized as an especially 

long-lasting and cost-effective solution for providing clean, safe drinking water. It is almost 

completely manufactured from recycled ferrous scrap materials. As a result, each year ductile 

iron pipe companies take tens of thousands of old cars from our nation's highways and junkyards 

for use in the manufacture of our products. 

Before I go further I want to thank the members of this Committee for all of the support you 

have shown in maintaining and improving our nation's water infrastructure. I know that you are 

keenly aware of the crisis that we face. It is a crisis which affects every major constituency in 

the water works sector - taxpayers/consumers, owners, operators, engineers, installers, 

distributors and manufacturers. 

First and foremost, the crisis is one of need for a safe, efficient, reliable water system. Past 

generations had the wisdom to invest in providing clean, safe drinking water and collecting and 

treating wastewater. It is a system that has worked so well that most citizens take it for granted. 

But today that system is breaking down. The "out of sight, out of mind" nature of water 

infrastructure has resulted in communities across the nation facing major challenges over the 

next 20 years in replacing their aging water and wastewater infrastructure, much of which was 

constructed 100 to 150 years ago. Studies estimate that as much as 20-25% of the treated water 

that goes into the distribution system is lost through leakage, wasting not only one of our most 

precious resources, but also all of the energy and expense associated with treating and pumping 

it. In addition, leaking sewage poses serious threats to public health and the environment. 

2 
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Recent studies by the EPA and the GAO predict an investment-funding gap of more than $500 

billion for needed upgrades and repairs to puhlic water and wastewater systems, but capital 

investment for such projects will be difficult as many states and local governments face 

mounting budget deficits, constraining debt, and revenue shortfalls. Already state and local 

governments are delaying or shelving much needed water projects due to falling sales tax 

revenues and the decline of property values. 

Not only are state and local governments facing a crisis, so is the domestic water infrastructure 

industry. The recession has hit the waterworks foundry industry hard. Almost fifty percent of 

our business has evaporated with the crash in the real estate markets and the lack of new housing 

starts. Similarly, despite the pressing need for waterworks infrastructure repairs, our remaining 

business with water utilities has also suffered because of their difficulty in raising capital for 

such projects. As a result, our industry's nationwide employment is down by 29% as a result of 

the economic downturn, and could decline further. This represents a loss of approximately 4, 700 

high-paying manufacturing jobs, along with tens of thousands of construction-related jobs 

associated with the installation and repair of water systems. It is important to note that these job 

losses cannot be easily reversed -- an iron foundry cannot be turned on and off like a light 

switch. Because of the technical and regulatory requirements related to the operation of these 

complex operations, once a foundry closes, it is usually gone forever, as are the jobs that it 

provides. 

Beyond the need to provide safe, clean water, to preserve a vital resource and to protect existing 

jobs and operations, however, investment in water infrastructure is a proven method of creating 

new jobs and boosting our economy. According to the Associated General Contractors and the 

3 
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National Conference of Mayors respectively, each billion dollars of investment in infrastructure 

creates or supports 28,500 jobs, and every dollar invested in water and wastewater infrastructure 

adds $8.97 to our nation's gross domestic product. That's a significant return on investment by 

any measure. 

Although we all realize that funds are scarce in these difficult times, there are two proven 

policies under consideration by Congress the reauthorization of the State Revolving Funds 

(SRF) and lifting the state volume caps on private activity bonds (PABs) for water infrastructure 

projects -- that will enhance our ability to improve our clean water and wastewater systems, 

foster economic growth in the U.S. manufacturing sector, preserve and create jobs quickly, and 

thus make a significant difference in the health and welfare of this country, the future of the 

waterworks foundry industry and the livelihoods of our communities and employees. 

First, let me once again thank the members of the Committee for their support of the primary 

federal-aid programs for our nation's drinking water and wastewater infrastructure, the Drinking 

Water State Revolving Funds and Clean Water State Revolving Funds. The SRF programs have 

been crucial to help ensure the quality of America's drinking water and wastewater facilities. 

However, in rect,>·nt years funding for the SRF programs have been significantly reduced, and 

there is a pressing need to reauthorize the programs. We agree with the need to reduce the 

federal deficit and that no program is immune to reductions in federal spending. But we ask that 

the Committee continue to recognize the effectiveness of the SRF programs and the vital 

importance they have to fund water infrastructure projects. 

Given the fiscal challenges and mounting debt faced by all levels of government, we should look 

to a proven tool for numerous other types of projects by forming partnerships with private 

4 
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enterprise to secure additional sources of funding for water infrastructure projects. Lifting the 

state volume caps on private activity bond financing for water infrastructure projects would 

inject billions of dollars of low cost, private capital into infrastmcture repairs, while shifting the 

economic risk away from cash-strapped municipalities and toward the private sector. Private 

activity bonds are a form of tax-exempt financing that encourages state and municipal 

govermnents to collaborate with sources of private capital to meet a public need without 

increasing the debt of local governments the debt is borne by the private sector. Currently, the 

tax code caps the volume of most types of federal tax-exempt bonds that may be issued in a 

given year, and allocates them state-by-state based upon population. Historically, most of the 

tax-exempt bonds have been issued to politically attractive, short-term projects such as housing 

and education loans. This tendency has limited the amount of such bonds that can be utilized for 

long-term water infrastructure projects; in fact in 2007 only I .3% of all exempt facility bonds 

were issued to water and wastewater projects. 

Local governments commonly use PABs for a variety of public purposes: public housing; school 

loans; airports; recreation and cultural facilities; solid waste facilities; port facilities; airport 

terminals; and, certain industrial pollution prevention projects. In the past, P ABs have been used 

to solve critical infrastructure problems including the solid waste disposal crisis in the 1980's, 

where the private sector invested over $20 billion in new waste-to-energy facilities to avoid 

massive groundwater pollution and reduce the growing number of hazardous waste sites. 

Lifting the cap for water projects would generate additional, more affordable capital for 

infrastructure repair and construction for municipalities, thereby ultimately benefitting users and 

customers. Moreover, these are projects that private investors are willing to invest in and bear 

5 
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the risk. The revenue impact would be nominal relative to the significant benefits: each year a 

mere $35.4 million in lost tax revenue (according to 2010 scoring from the Joint Committee on 

Taxation) would leverage as much as $5 billion annually in private capital, creating more than 

135,000 jobs and adding almost $45 billion to our nation's GDP. This is a good investment 

under any circumstance and the perfect example of a public-private partnership. 

Reps. Bill Pascrell (D-NJ), Geoff Davis (R-KY) and Senators Robert Menendez (D-NJ) and 

Mike Crapo (R-ID) have introduced H.R. I 802/S. 939, the Sustainable Water Infrastructure 

Investment Act that would lift the cap on private activity bonds for water infrastructure. Both 

bills have bipartisan cosponsors-- 54 in the House and 7 in the Senate-- creating an opportunity 

for Congress to demonstrate its ability to tackle a pressing public problem on a cooperative, 

bipartisan and cost-effective basis. 

In summary, today we are facing a crisis of loss in the waterworks sector of our economy. It's a 

crisis of lost water, lost jobs, and the lost opportunity to address our country's needs. Changing 

how we view the crisis and how we fund the vital repairs in an age of budget constraints is our 

challenge. Using a mix of traditional funding and innovative ways to partner government efforts 

with private capital is our opportunity. I believe that the reauthorization of the SRF programs is 

important for Congress to address as soon as possible to help provide the core federal funding for 

state and local water infrastructure. In addition, lifting the volume cap on private activity bonds 

for water infrastructure is a fiscally responsible complement to existing federal investments in 

water infrastructure that would generate billions in annual investment at a minimal cost. By 

meeting the public need for additional water infrastructure through these two measures, Congress 

could also help protect hundreds of thousands of domestic jobs at a time when they are 

6 
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desperately needed. On behalf of our industry's 16,000 employees, we respectfully ask Congress 

to enact both of these measures without delay. 

Thank you all for your service and this opportunity. 

7 
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i - ' 

Assess,me,l n

1

t ofShort-Term Economic 

Impacts of Water and wastewater · 

.·ccnstructionProjectsinthe United States· 

I 09NUCAStudy-36,ndd 1 
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26626.078

This assessment was prepared for the Clean Water Council (C\VC}, a coalition of 35 national organizations dedicated to and enhancing America's water and wastewater Infrastructure. 

Group, a leading global rnanagement, systems and techwas made possible by generous financial support from the follm.~Iing members of the 

~American 

~ Associated 

~ Association 

corporate partners: 

Iron Pipe Research Association 

~ John Deere Construction Equipment 

"Laborers-Employers Cooperation and TI·ust 

" National Stone, Sand and Gravel Association 

"National 

~ Plastics Pipe 

• Portland Cement Association 

Institute 

Sewer Distributors of America 

IIIIIIINSSGA 

The CWC is he<JciouaJ·tered 4301 JV. Fairfax Dr.. Suitr 360, Arlington \.A. 22203. 

Please www_ waremewsupdate.corn for additional information about 

09NUCAStudy-,%.mdd 2 

358-9300. 
110 


26626.079

Acknowledgement. 

Background and Purpose 

Key Findings . 

Methodology 

Results and Analysis: 

United States OveralL 

California 

Georgia. 

Minnesota. 

New Mexico 

Pennsylvania 

..2 

,,4 

.6 

.7 

' ... '.' .. 10 

... 12 

. ".!6 

.22 

..•• ' ... 25 

.29 
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26626.080

li6ter and Water lnfrastructtlrr Gap 

Analysis forecast an alarming $534 billion 

between currPnt investment and 

Survey documented existing nationwide wastewater infrastructure needs a1mte at 

$202.5 billion. In 2009, EPA projened 20·year 

nreds for drinking water infrastructure alone 

at $334.8 billion 

wastedrinking \11/ater infrastructure letter grades of "D minus" their 

most recent 2009) 

has gone from bad to 

worse. This consensus is supported by the 

first-hand of communities across 

the fallout from col+ 

impacts and value added to local economies 

by construction pertaining to \Vater 

treatment and and wastewater 

collection and treatment This assessment 

provides data demonstrating that \;<,rater. sewer 

and storm water management rlo in 

fact add immediate value to eronomy ln three well-defined ways during the time 

period of construction: 

1. Direct impacts through jobs and the 

chase of materials and supplies 

related to 1he construction and of 

© 20{}9 Clean Water Coundt 
112 


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There arc also long-term economic benefits 

that n'sult from thesr the 

multi-decade life 

These benefits are summarized ln America's 

f<~'nvjronmental Infrastructure {1990), \1\lhich 

is available by request from the CWC In 

addition, these 

contaminated storm water 

other forms While 

ihcse lasting benefits are the focus of this 

short-term economic assessment, it is important to recognize that they ocCUL 
113 


26626.082

lfwestments in water and v•.:astewatrr 

s't:tuclure have immediate, substantial and 

tar rectrh'1ne effects on the economy. 

level, an investment of $1 

billion almost triples in size as totai demand 

cmd services reaches an e~timated 

to $3.46 blllion . 

., The total efff'ct on economic demand is 

.smaller at the state leveL but direct invest, 

ments in water and wastewater infrastruc· 

"·"'"'""m" ,., for 

in 

of sectors. 

estimate-d 20.003 to 

26,669 jobs can result from 

a national investment of Sl 

billion. These opportunitiPs 

are spread across the econ~ 

with more than one~ 

of the jobs in industries 

other than water and wastewater construction. 

- Personal incomes and economic security are impacted 

by infrastructure invest· 

ffienL An increase in total 

employee cornpcms;1tic'n 

levels. 

" State and local revenues 

increase as infrastructure is 

built or 

the size 

11;1 2009 Cl!!an Wat~Cr Cound! 

MliO!l 1"17'46PM' 
114 


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ment? That is, what is the economic impact on in· 

to provide data 

Data on project 

location. costs were gathered 

projects from 35 contractors and represented 73 

wun1ies atross the fiw states. 
115 


26626.084

stare and local t?x reve-nues, 

We also used RIMS n 

Tl!c study Ls drsigncd ',o rdlect rPJ.,riorm! ond local 

Minnesota, New 

Mexico, ond the geogwphk 

bourHlarie:; economic unpacls 

surrd -;'hes~e .s1?.tt\~ were sekctt'd to rdlrn variation in 
116 


26626.085

llll"nt of Commerce, 

US Bureau of Labor Statisric:>, and other 

AU used 2007 IMPLAN data 

RIMS ll uses mtional and 

btimale lmpac:ls Economic impart re-sulls help prioritize planning & 

© 2009 Clean WateJ Council 

09NUCAStudy-36Fndd Sec1'9 

lnwstmt'nl dt>cisions 

The economic impacts at the state level, and county 
117 


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10 

investment in water and waste~ 

wli;ter\n!lrastru<:tUI'e at the national level has 

and far-reaching effects through-

• The total effect of a $1 billion investment 

almost triples in size to an estimated $2.87 

to $3.46 billion in economic demand. 

.. Industries indirectly related to water and 

wastewater infrastructure experience an 

estimated $918 million in demand. These 

industries are indirectly affected by investments in water and wastewater infrastructurE' because they provide services that 

support project design (e.g., architectural 

and engineering services) or products and 

supplies es.sential for project completion 

(e.g .. industrial machinery and equipment 

truck transport) 

• Ripple effects on economic demand can 

range across a number of industries and 

amount to an estimated $949 million. A 

wide range of industries that are not related, 

directly or indirectly, to building or improving w3.ter and wastewater infrastructure 

nonetheless see demand for their products 

or services increase as households re~spend 

income in the economv. These effects occur 

in sectors as varied as vbookkeeping services, 

09NUCAStudy-36indd Sec1:10 

energy and telecommunications, health 

rare. motor vehicles, food retail stores. dining establishments. and amusement and recreation services, 

What Jobs? Besides construction jobs. a $1 billion investment Jn water and sewer generates 

measurable national in 325 other 

standard industry everything 

from tires to tortillas. For every 20,003 jobs 

created, at least 100 workers are hired ln the 

short-term. in each of the following industry 

segrncnts: 

© 2009 Cl~>an \Vater Council 

618/09 1:17:50FM: 
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• An estimated 20,003 to 

ated. About one-half of 

are ereconstruction, further illustrating the broad 

reach of the- initial investment. 

'" The economic security of households is 

strengthened, Total e~ployee compensation 

- a c3.tegory that includes wages and salaries as well as contributions to social insur~ 

ance programs such as Social 

enhanced by an estimated $1 billion. 

creation includes an estimated 

in the pipe construction sector where average earnings of more than $50,000 exceeds 

median household income for the US. 

A $1!3 investment in pipe construction in the 

United States results in the following economic impacts: 
119 


26626.088

12 

water and wastewater infrastructure would 

result an t'stimared $1.8 to 2.5 billion 

demand for goods and services across the 

and services 

>n"~"s!mcctm~e projects would 

over $370 million in economic 

demand. A wide of other industries 

would sell an $448 million in 

goods and services as businesses and house~ 

holds in the economy. 

\oVOuld be created. 

would be in the 

incorn€:' of about $50,000. 

data on 16 recr:mtly completed 

ranged in size from $250.000 to 

million and covered 12 coumics 

OONUCASludy·3B.•ndd 

A $1B investment in 

California results in 

impacts: 

$2~5 

Pconomic 

© 2009 Clean WatC>r Counc-ll 
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case Studies 
121 


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case Studies 
122 


26626.091

© 2009 Ci!.'an Water Cound! 15 

09NUCA S!~dy-36Jndd Sect:1S 
123 


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!6 

.. An investment of $1 billion in Georgja's 

water and wastewater infrastructure would 

result in an estimated $1.76 to 2.6 billion 

demand for goods and services across the 

state's economy. 

~ Industries that provide goods and services 

in support of jnfrastructure projects vmuld 

experience over $390 million in economic 

demand. A Viiide range of other industries 

would sell an estimated $365 million in 

goods and services as households spend 

money in the- economy. 

• 14.867 to 22.254 jobs would be created 

\-Vith slightly fe\ver than 6.000 occurring in 

sectors other than wa.ter and wastewater 

construction. Nearly 9,000 jobs would be in 

the pipe construction sector where earnings 

average $44.260. 

~ We analyzed data on 33 recently completed 

prqjects that ranged in size from $100,000 to 

$164 million and covered 20 counties. 

A $4.3 million wastewater treatment plant 

in Chatham County illustrates the local eco, 

nomic impacts of these investments. The 

plant another $2.6 million in de" 

goods and services 

acros.s other economic sectors. Slightly less than $1.5 

million was spent on goods 

and services that support 

construction of treatmetlt 

plants, such as 

services, machinand other equipment 

supplies. As households 

paid for goods and services 

as varied as telecommunications and child care services. 

the local 

enced an 

lion in demand. 

(l9NVCAS!udy..J6 . .ndd Sec1·16 

GO jobs were created, more than 20 of which 

were in industries other than pipe construction. An estimated $2.6 million in employee 

salaries, and payroll 

rmttrlloution to insurance 

suits from the initial $4.3 million 

and stare and local tax revenues increase an 

estimated $160.000. 

A $1 B investment in 

Georgia results in the 

impacts: 

economic 
124 


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Case Studies 

© 2009 Clean Water Council 17 

09NUCAStudy-3S.indd Sec1·17 S/B/09 l:17:59PM 
125 


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Case Studies 
126 


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©2009C!eanWaterC<;Juncll 19 

09NUCI\Study.;'l.6indd Sec1:t9 6ill!!l9: 1:tii:O!PM 
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Case Studies 
128 


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(c) 2009 Clean Water Coun('il 21 

09NUCAS!lidy·36iodd Sec1:21 
129 


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22 

"An investment of $1 billion in Minnesota's 

water and wastewater infrastructure would 

result in an estimated $1 .8 to 2.4 billion 

demand for goods and services across the 

state's economv 

~ Industries that -provide goods and servires 

of infrastructure projects would 

over $400 million in economic 

demand. A wide of other industries 

would sell an $396 million in 

goods and services as households spend 

in the economy. 

to 20.397 jobs 'Would be created with 

about 6.000 occurring in sectors other than 

water and wastewater construction and 

8,500 jobs in the construction sector where 

earnings average $48,122. 

~ We analyzed data on 11 recently completed 

projects that ranged in size from $900.000 to 

$14 million and covered 10 counties. 

A $1.8 million storm water treatment project 

OSNUCAStu<fy·36.mdd Sec1;22 

in Hennepin County illustrates 

the local economic impacts of 

these investments. The storm 

compensation 

and payroll rm>tcif" >tinn 

to social insurance 

rived from the initial $1.8 million 

and state and local tax revenues were affected 

an estimated $70,000. 

A $1 B investment in 

Minnesota results in 

impacts: 

construction 

following economic 

D 2009 Cll'an Water Coundl 
130 


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Case Studies 

09NUCAS!udy-3SinddSec1·23 6J<l/09 1:1.S·05PM I 
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case Studies 
132 


26626.101

• An investment of $J billion in New Mexico's 

water and wastewater infrastructure would 

rPsult in an estimated $1.7 to 2 billion 

demand for goods and seiVices across the 

state's economy, 

~ Industries that goods and services 

in support projects would 

experience almost $390 million in economic 

demand A wide range of other industries 

would sell an estimated $320 million in 

goods and services as households spend 

money in the economy. 

• 15.329 to 20,901 Jobs would be created with 

6,000 occurring in sectors other than water 

and wastewater construction and more than 

9.000 jobs would be in the pipe construction 

sector where earnings average $40,930. 

" Wf' data on 18 rc>centlv 

ranged in size fro~ 

million and covered 10 counties. 

A $2.6 million project to install new 'll'ater 

and sewer lines in Dona Afla illus~ 

tmtes the local econorrtic impacts 

investments. Altogether the infrastructure 

investrnent resulted in less than $4 

million in demand for 

In addition to the 

investment for the water and 

sewer lines, about $730,000 

were spent on and 

services necessary complete 

such work. Re-spending of 

income resulted in another 

$610.000 in local economic 

demand as households paid 

for goods and services mnging from rent, motor vehicles, 

and gasoline to amusement 

centers and beverage establishments. More than 10 jobs 

wt-re created, including an 

'0 2009 (lE'an \\'a1er Council 

OSNUCAStudy-:l$Jndd Sec1:25 

estimated 27 in water pipe construction sector 

and another 15 across other economic sectors. 

An estimated $1.3 million in employee compensation salarif's, and payroll contribution to insurance programs) derived 

from the initial $2.6 million investment, and 

state and local tax revenues were affected an 

estimated $80,000. 

A $1B investment in pipe construction in New 

Mexico results in the following economic 

impacts: 
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Case Studies 

26 ® 2009 Clean Water Cound! 

09NUCAStudy-36.indd Sec126 6/SIOS 1:18·i4PM! 
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Case Studies 
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~ An investment of $1 billion in Pennsvlva~ 

rlia's water and wastewater infrast_ru~ture 

would result in an estimated $1.8 to 2.6 billion demand for goods and services across 

the state ·s economy. 

• Industries that provide goods and services 

in support of infrastructure would 

experience almost $430 economic 

demand. A wide range of other industries 

would sell an estimated S438 million in 

goods and services as households spend 

in the economy. 

to 20,037 jobs ~vould be created with 

more than 6.000 ln sectors other than water 

and wastewater construction and more than 

8,000 jobs in the pipe constructlon sector 

where earnings $52,037. 

• We analyzed data on recently completed 

that in size from $80.000 to 

million covered 21 counties 

economic impacts 

~9 2009 Clean Water Council 

09NlJCAStudy-38.n1dd Sec1·29 

of these investments. Altogether the 

infrastructure investment resulted 

in about $3.2 million in demand for 

products and services. In addition 

to the $2 million investment for the 

pumping station, about $640,000 

were spent on supplies and services 

necessmy to complete such work. 

Re-spending of household income resulted in another $570,000 in demand 

for goods and services in the local 

economy. More than 20 jobs were 

created, most of which (17) were in 

the water construction sector 

and another across other economic 

sectors. An estimated $1.3 million in 

employee cmno<onsaticm 

ries, and 

insurance 

initial $2 million 

salalocal tax revenues were affected an estimated 

$80,000. 

A $1B investment in pipe construction in 

Pennsylvania rt:'sults in the following economic impacts: 

29 

S/l!f09 1:18:17PM 
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Case Studies 

30 !6 2009 C!0an Water Cotmcll 

OSNUCAStudy<>6mdd Sec1:Jll 
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I 09NUCAStudy-36inddSec1<>1 618100 1:18:21 PM j 
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Case Studies 
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'f) 2009 Clean Water Council 33 

09NUCAStudy.J6.indd Sec1;33 
141 


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Case Studies 

34 ((l 2009 Clnm WatH Cound! 

09Nl.!CAS~dy-36indd Sec1·34 
142 


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((:) 2009 Clean Water Cound! 35 

QgNUCAStudy-36inddSac1·35 
143 


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Alternative 

Financing 

Tools for Water 

Infrastructure 
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26626.115

e are pleased to bring you this special supplement covering alterna'~''l§ 

financing ideas for our water infrastructure. The locus of this supri'•J• 

men! is the Sustainable Water Infrastructure Investment Act, name.;~~ 

House Resolution 1802 and its companion legislation, Senate Bill 939. This iii>~! .. 

islation would amend the IRS code to open up infrastructure investment in ;:;cg• 

water systems by private sources. The effect would be to remove the volume .c;;p 

on Private Activity Bonds. This is bi-partisan legislation introduced by Reps. 

Geoff Davis (R-Ky.) and Bill Pascrell (0-N.J.) and Sens. Michael Crapo (R-Idaho) and 

Robert Menendez (0-N.J.). Passage of this legislation would potentially provide for $5 billion in private investment lor water infrastructure. Wall Street has continually said that 

money is waiting on the sidelines to put cash into what many consider to be one of the 

safest investments out there water. 

The sponsoring Representatives and Senators are working diligently to line up co-sponsors, and can use our help. If your elected officials have not signed on, please contact 

them immediately. As of Sept. 30, there were 48 co-sponsors in the House and three in the 

Senate (see page 28 lor the complete list). 

In addition to Congress, there is broad support from industry, as the following pages will 

attest. We have contributed pieces from a broad range of individuals and groups representing all facets of the market, including investors, utilities, contractors, labor, equipment 

manufacturers, dealers, rental houses, engineers, labor and businesses. 

The reason is clear: water is a vital resource needed for life. Additionally, it is a key 

driver for economic growth and sustainability. The more financial tools we have available, 

the better off we all are. 

We would like to thank the organizations who made this special publication possible, 

namely our sponsors: John Deere, American Water, the National Association of Water 

Companies, the National Utilities Contractors Association and the Clean Water Council, 

which is a coalition of 37 underground construction contractors, design professionals, 

manufacturers, suppliers and other professionals committed to ensuring a high quality of 

life through sound environmental infrastructure. 

There is much to be done to fix our water infrastructure, but it all centers around money. 

Please lend you voice in getting this much needed water legislation passed. 

Your voice counts! 

Bernard P. Krzys 

President & Publisher 

AlternatiVe Financing Tools for Water Infrastructure A3 
147 


26626.116

3 

8 

1 

12 

14 

18 

A4 

Alternative Financing Tools for 

Water Infrastructure 

Table of Contents 

Publisher's Message: 

By Bernie Krzys 

President & Publisher 

Benjamin Media Inc, 

Making the Case for the Sustainable 

Water Infrastructure Investment Act 

of2011 

By Geolt Davis 

U.S. Representative 

Kentucky's Fourth District 

The Keys to the Vault 

Bv Debra Coy 

Principal 

Svanda & Coy Consulting 

Private Activity for Water Sustainability 

By M:chael Deane 

Executive Director 

National Association of Water Companies 

Ben Grumbles 

President 

Clean Water America Alliance 

Public Benefit Through the Private Sector 

By Eben M. Wyman 

Vice President-Government Relations 

National Utilities Contractors Association 

Working Toward Viable Solutions for 

the Future 

By Walter Lynch 

President/COO-Regulated Operations 

American Water 

22 

24 

28 

30 

Global Demand for Infrastructure 

and Water 

Contributed by John Deere 

The Sustainable Water Infrastructure 

Investment Act: Improving Our 

Nation's Underground Infrastructure 

By 1bby Mack 

President/CEO 

Associated Equipment Dealers 

Raising the Grades on America's 

Water Systems 

By AndrewW 

President-Elect 

American Society of Civil Engineers 

Harnessing Private Investment for 

Infrastructure 

Cor<tributed by United Rentals 

Sustainable Water Infrastructure 

Investment Act of 2011's Congressional 

Sponsors and Co-Sponsors 

Q&A 

with Rep. Bill Pascrell 

U.S. Representative 

New Jersey's Eighth District 

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149 


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The Sustainable Water Infrastructure Investment Act has garnered support from a WJde range of stakeholders, including contractors, engineers, 

uttl!tles, elected officials, labor, equipment manufacturers and more, 

Below is a sampling of letters written to Rep, Bill Pascrell of New Jersey, 

sponsor of the House bill, in support of the legislation. 

Dear Representative Pascrell: 

The U.S. Chamber of Commerce, the world's 

largest business federation representing the 

interests of more than three million business~ 

es and organizations of every size, sector, and 

region, believes H.R 1802, the "Sustainable 

Water Infrastructure Investment Act," is an 

important step to enhance the ability of local 

governments to finance water and wastewater 

infrastructure projects and create jobs by 

encouraging private investment. 

Private investment in infrastructure frees 

government dollars for allocation to other 

troubled areas of the economy and transfers 

risk away from the public partner to the private 

entity. Recent studies indicate that every $1 

billion invested in water infrastructure gener~ 

ates up to $3.46 billion of total national output, 

$82.4 million in state and local tax revenue, 

and supports 28,500 jobs. 

Few businesses can survive without sustain~ 

able water and wastewater infrastructure. 

Now more than ever, the United States 

needs significant capital investment in water 

infrastructure. 

The Chamber applauds your introduction of 

this important legislation and looks forward to 

continuing to work with Congress and the 

Administration, and interested stakeholders 

on this important issue. 

Sincerely, 

R. Bruce Josten 

Executive Vice President-Government Affairs 

U.S. Chamber of Commerce 

Dear Congressman Pascrell: 

The National Construction Alliance II supports 

your legislation, H.R 1802, the Sustainable 

Water Infrastructure Investment Act of 2011. The 

A6 

National Construction Alliance II - a partnership between the International Union of 

Operating Engineers and the United Brotherhood 

of Carpenters and Joiners represents nearly 

1 million workers, many of whom build the 

nation's water and wastewater infrastructure. 

Your legislation, which will bring water projects out from underneath the Private Activity 

Bond (PAB) volume cap, will make PABs a key 

form of financing to replace and upgrade the 

nation's drinking and wastewater systems. 

H.R. 1802 will help lower the cost of project 

financing, which will assist in controlling rates 

for customers, and it will facilitate more multi~ 

year water projects. This access to new private capital will help utilities that are struggling 

to finance water and wastewater upgrades, 

which are in dire need. In its annual report on 

the nation's infrastructure, the American 

Society of Civil Engineers (ASCE) gives both 

drinking water and wastewater infrastructure a 

D-, just barely above failing. ASCE estimates 

that $11 billion is needed annually for drinking 

water upgrades alone. 

Most important to the Carpenters and 

Operating Engineers, H.R. 1802 will create 

jobs in the hard-hit construction sector. The 

unemployment rate in construction is currently 

15.6 percent, and it reached over 27 percent 

in February 2010. Our industry is in desperate 

need of legislation that will help put the tens of 

thousands of unemployed construction workers back on the job. Your legislation will help 

achieve this objective by creating an estimated 1 .4 million jobs, roughly half of those in the 

construction sector. Passage of H.R. 1802 will 

deliver the type of boost that the construction 

sector needs right now. 

PABs have already proven to be an important mechanism for local governments to 

Alternative Financing Tools for Water Infrastructure 
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26626.119

finance projects such as airports, high-speed 

intercity rail and solid waste sites. With greater 

access to this innovative financing, publicprivate partnerships can be expected to bring 

more water and wastewater projects to mar~ 

ket, creating jobs and reducing the nation's 

infrastructure deficit. 

The National Construction Alliance II endorses the Sustainable Water Infrastructure 

Investment Act of 2011, H.R. 1802, and we 

look forward to working with you to enact it 

into law this Congress. 

Thank you for your leadership on creating 

American jobs. We sincerely appreciate it. 

Sincerely, 

Raymond J. Poupore 

Executive Vice President 

National Construction Alliance II 

Dear Representative Pascrell: 

On behalf of the nation's principal cities 

represented by The U.S. Conference of 

Mayors (USCM), I am writing to express 

strong support for the Sustainable Water 

Infrastructure Investment Act of 2011 (H.R. 

1802). The purpose of the legislation, as you 

so well state, is to modify the tax code to 

help local government finance much needed 

water and wastewater infrastructure and create jobs by encouraging private investment. 

The USCM has supported similar legislative 

proposal for over a decade, and we wish to 

express our thanks to you for continuing to 

fight for this important legislation. We agree 

with you that water and wastewater infrastructure is critical to the well being of public 

health and the nation's economy. 

Our Member Cities, in 2005, identified their 

most pressing water resources management 

issue is the rehabilitation of an aging lnfrastruc~ 

lure. Subsequently, our research clearly indicates that local government efforts, in 2008, 

involved a $100.2 billion expenditure on water 

and wastewater infrastructure and services. 

Yet, Congress and the Administration have 

contributed less than 2 percent to local govemAlternatJVe Financing Tools for Water Infrastructure 

men! to support this effort. At the same time, 

the U.S. Environmental Protection Agency has 

promulgated several very costly unfunded fed· 

era! mandates. EPA has announced plans to 

develop more regulations that will become a 

cost burden on the nation's cities. Our mayors 

are expected to rebuild their existing systems 

to maintain basic services, but also compty 

with new and costly regulatory programs. 

local government allocation of financial 

resources to comply with federal water policy 

is rapidly and significantly diverting resources 

away from other equally important public 

needs. Congress set no cap on what cities are 

expected to spend to satisfy the water laws. 

EPA has proven to be insensitive to the cost 

impacts of unfunded mandates. The nation's 

mayors recognize that this is both ill-advised 

and unsustainable. 

Your legislation would provide some muchneeded relief by encouraging local government to work with private capital to deliver a 

critical public service. A study we published 

in 2008 indicates that local government 

investment in water and wastewater infrastructure adds value to the national (and 

local) economy. That study suggests that 

every local dollar spent for this purpose generates $9 in direct and indirect income. Every 

local job created in water and sewer creates 

3.68 jobs in the national economy to support 

that job. Your understanding of the relationship between infrastructure investment and 

job creation is a welcome sign of leadership 

in the right direction. 

Thank you for sponsoring the Sustainable 

Water Infrastructure Investment Act of 2011. 

This minor modification of the tax code will 

provide an expansion of the tool-box of local 

government to provide safe, affordable and 

adequate water and wastewater services and 

infrastructure for the nation's principal cities in 

the 21st century. 

Sincerely, 

Tom Cochran 

CEO and Executive Director 

The U.S. Conference of Mayors 

A7 
151 


26626.120

By Geoff Davis 

ater and wastewater infrastructure is critical to our economy. 

However, budget challenges 

across the nation combined with an everincreasing regulatory burden are combining to significantly strain this essential 

ingredient for development and growth in 

our communities. 

In response I am proud to be the lead 

Republican sponsor of a bill to help address 

this problem called the Sustainable Water 

Infrastructure Investment Act of 2011 (H.R. 

1602). Congressman Bill Pascrell (0-N.J.) 

and I believe this legislation will help make 

much-needed updates in wastewater infrastructure systems more affordable by encouraging more private investment. 

Communities in Kentucky and around the 

country are struggling to comply with federal 

water and wastewater regulations, which in 

turn are leading to increased rates for customers. By encouraging additional resources 

from private investment to improve and 

upgrade these communities' water infrastructure, the bill helps alleviate the burdens of 

costly federal mandates while ensuring reliable water services to communities across 

the nation. 

Specifically, the Sustainable Water 

Infrastructure Investment Act of 2011 would 

remove the federally mandated state volume 

caps on private activity bonds (PABs) for 

water and wastewater financing. PABs are 

municipal securities, the proceeds of which 

AB 

are used by private entities to 

make infrastructure improvements. With a few exceptions, 

the interest earned on these 

bonds is excluded from gross 

income lor tax purposes, making them an 

attractive investment. Congress has already 

exempted airports, interc~y high-speed rail, 

and solid waste disposal sijes from these 

bond caps. H.R. 1602 would give the same 

status to water and sewage !acillties. By 

expanding the amount of tax-exempt bonds 

that can be issued for water infrastructure, 

this legislation would result in increased private economic investment to upgrade and 

rebuild aging water infrastructure. 

The Sustainable Water Infrastructure 

Investment Act will help lacil~ate cost-effective 

repairs and updates to our water infrastructure. Additionally, increased private investment in our water infrastructure will boost 

employment opportunities in cities and small 

communities across America. 

It is important to ensure safe water access 

for all Americans. Passage of H.R. 1802 will 

encourage necessary private investment to 

meet our water service challenges in a more 

affordable manner, improve public health by 

providing families with reliable access to 

clean water, and create private-sector jobs lor 

hard-working Americans. 

Geoff Davis serves in the U,S, House of 

Representatives tor Kentucky's Fourth District 

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You made the investment. Let it be our job to protect II. 
153 


26626.122

By Debra Coy 

ne of the great ironies in the water 

industry in addition to the central 

irony that we generally pay so little 

for something of such irreplaceable value 

is the fact that so many cities are in desper~ 

ate need of investment in infrastructure while 

so much money is available, but seemingly 

just out of reach. We are like blind beggars, 

still sitting on the same street corner waiting 

tor the same meager handouts. while plentiful food, shelter - and jobs - are being 

handed out on the next street over. 

It does seem to be finally sinking in tor the 

water industry that the meager handouts from 

Washington are over. The hangover from years 

of binge government spending will result in a 

morning after that will last a long time. The 

efforts to ramp up the State Revolving Funds 

(SRFs), to get more stimulus money, or to ere~ 

ate a trust fund or infrastructure bank that will 

materially benefit investment in water infrastructure. have all fizzled. They are unlikely to 

be revived any time soon, despite President 

Obama's recent brave attempt to jumpstart a 

new jobs plan that includes an infrastructure 

bank component. Even ifthe bank could make 

~through the toxic swamp that passes lor the 

political process these days, it would likely 

only be useful tor large regional water transmission or storage projects, not the vast array 

of smaller local projects that need funding. 

Meanwhile, there are billions of dollars in 

capital sitting on the sidelines, in the hands of 

investors who would like nothing better than to 

put their money into water projects, it only they 

could figure out how. 

A10 

In fact. more than $150 billion in 

capital has been committed to 

infrastructure via privateJy managed infrastructure funds over the 

past five years, with many more 

billions to follow ~ enough transactions begin 

to materialize. Much of this "private eqully" is 

actually public capital-that is, state and local 

government employee pension funds and uni~ 

varsity endowments. The Cal~omia Public 

Employees Retirement System (CALPERS), 

tor example, voted in September to invest up 

to $800 million in public and private inlrastruclure projects in California over the next three 

years. in add~ion ~ overall comm~ent of 

$4.5 billion tor infrastructure projects across 

the United States and globally as a way to 

hedge against inflation. These large insmutional investors are reliant on steady, predictable cash flows to meet their payment obligations to members over a long period of time. 

Amid the tunmoil and volatillly on Wall Street, 

they are locking tor slabillly and risk management, rather than high returns. 

Water is a particularly attractive asset dass 

for this type of investor. Water rates on average 

are still relatively low compared to other utilities, giving room for growth over time. The 

industry is structurally stable, without the competition and volatility experienced in the telacom industry. tor example, and assets like 

water mains and treatment plants have a relatively long life, allowing costs to be spread out 

over a number of years. 

This stability is a key reason why investorowned water utilities have performed well 

Altemative Financing Tools for Water Infrastructure 
154 


26626.123

during the recent stock mariket downturn. 

The largest, American Water Works, has 

seen its stock price appreciate more than 15 

percent year to date, while the S&P 500 

index has declined about 5 percent. When 

these companies issue equity, investors are 

willing to pay a premium to their asset value, 

in return for steady dividends and predictable performance over time. 

So why aren '! investors putting their 

money to work in municipal water and 

sewer projects? 

There are several reasons, but perhaps the 

biggest is the reluctance of the industry to 

leave the zone of comfort -the unwillingness 

of the beggar to leave the street comer where 

he's been getting some quarters in his cup. 

We're used to relying on government subsi~ 

dies for water, whether through tax-exempt 

muni bonds or direct grants and loans, and 

we're not keen to try something new. 

Many municipalities tear that the cost of private capital is materially higher than for traditional municipal bonds, which induce investors 

to accept a lower return by eliminating the tax 

liability on their investment earnings, though in 

fact the variance has declined recently. Under 

Alternative F1nanc1nQ Tools tor Water Infrastructure 

pending federal legislation that would remove 

the cap on private activity bonds, private capital would be put on a level playing field with 

tax-exempt municipal bonds, removing this 

disincentive for municipaltties to explore public-private partnerships. Partnerships that are 

incentivized to improve operating efficiencies 

can also help to reduce costs. 

Overall, while it is true that investor capital 

requires some return- who among us wants 

to put money in a pension plan or retirement 

account that won't grow over time? it is 

also true that projects can be privately funded without significantly increasing the cost 

to ratepayers. 

It's time to walk across the street and explore 

some new alternatives, don't you think? 

Debra G. Coy is a principal wilh Svancla & Coy 

Consulting, which serves customers in the water sec~ 

tor: She launched her Independent consu~ing practice 

in 2010 after 20 years covering the water environmental 

sectors for institutional investors for WaU Street firms, 

including Janney Montgomery ScoU, SchVv"ab Capital 

!Vlarkets and HSBC SecurtHes. She has been recog~ 

niled as the industry's leading anatyst and ran Waif 

Street's top water conference for more than a decade. 

A11 
155 


26626.124

ctlvi for 

ustainabili 

By Michael Deane and Ben Grumbles 

E

veryone has heard a lot about private financing for infrastructure over 

the past several years from nearly 

every major news outlet to the President's 

recent jobs proposal to Congress. Many 

national and local leaders are looking for 

the opportunity to infuse public service 

with private enterprise and tap the finan~ 

cia! resources and expertise of the private 

sector to move public water service forward for our nation's communities. Figures 

have come out that nearly $180 billion of 

private capital and infrastructure funds are 

looking to invest their money in American 

(or else Chinese) infrastructure projects. 

The Administration is looking to greatly 

expand opportunities for public~private 

partnerships. To this end, most segments 

of the water industry have rallied around a 

long-standing proposal to remove the 

state volume cap on private activity bonds 

to facilitate private investment and publicprivate partnerships. 

Why is this needed, particularly when water 

utilities have always been a market darling, 

most having little difficulty raising money in the 

capital marl<ets or municipal debt markets? 

After all, water and wastewater projects usually 

have a reliable and long4erm revenue stream 

and they rarely defautt on their debt. We do not 

have an availability of capital problem; we 

have a lack of flnanceable projects due to the 

unwillingness of entities governing utility rates 

to establish rates sufficient to attract the needAi2 

ed capital. Year 

after year 

we watch 

as water investments get deferred, denying 

communfties and their residents reliable service and the economic, environmental and 

public health benefits of sustainable water 

infrastructure. 

The bi-partisan, bi-cameral proposal currently before Congress that would change 

the law on tax exempt private activity bond 

debt has support from nearly 60 water industry groups and leaders and equally as many 

members of Congress. It could go a long 

way to solving the access to capital problem 

that holds up so many water infrastructure 

projects. All other variables equal, there is a 

2 to 3 percent cost of capital difference 

between private taxable debt and tax-exempt 

debt that can significantly increase the cost 

of a project. This small change in legislation 

could reduce that cost spread and greenlight projects that would otherwise remain 

on the back-burner. 

For too many years American communities have suffered from the need to choose 

between lower-cost, tax-exempt debt or 

operationally efficient public-private partnerships. Private activity bond reform will enable 

progressive local officials seeking the best 

solutions for their utility customers to choose 

both a more efficient infrastructure and 

service delivery along with the tax exemption 

Alternative F!nanctng Tools for Water Infrastructure 
156 


26626.125

long available tor tru"' f.'"''!":·· purpose investments. 

This change in l~!~i;;ii;:~~r.E.m 

could also make an i·rr;,:;;;:mi:;,;;tt 

project delivery meth~,,g '"'""~;, .. 

stream by putting the ''F" "''' 

"DBFO." Nearly 2,000 <>em!:r .. i· ,;x;:j 

wastewater entities in th=:T iJln!itr~~] 

States have already ''""''-'''• t''" value in partnering witf: r:f~g; ~=tilvate sector to design, f.i:L!iii;:!~ :r::r!:] 

operate their public :'.'f.'if?.if'"""· 

These types of arran·!J'-"T'•'-""'''' 

allow communities t~'' t~~~~,l~:;i!: 

greater efficiencies arr.t:i i:L;:E:~~ 

leaders to hold the privli'!'.i• ,;;.;;;;:;t;::•r 

accountable for strici p:f.;"f::J:i· 

mance measurementt,·L i,~~;;::;n 

passage of the privati.! ,;;;c;t¥.;·r, 

bond legiuslation, thes& -::•i:'.Ti:n·'..: .. 

nities and others coui~E ~~~·;!;: ~~· 

their private partner to a:~l~L; f:Ei'!ri;~! 

affordable money to th<• it;;~ti.'''·· ;; 

move that would create 1:m ;:;;t~;;i~· 

tiona! level of opportung:•; !i; §;;,;, 

public sector and fadii'~it~ll; ·ifl;g! 

success of many projeO~ii·. 

We have long touted''''''"!,,,, .. 

islation, whether called "~'·;;;,,,;u;, 

Activity Bonds" or "'','1-mC;•cr 

Enterprise Bonds," as'''"'''' •;;, 

add tools to the toolbo;,:, !!J•;.:r!:-e[! 

these unprecedented l>rc;;r;;.:i:;,¥i .. 

ly stressed times, com;'''"'"'ilhii:m 

need more tools and fi"!:fl1;:1n§:;;i;g:: 

ful choices than ever '""~""~· 

Let's work together ;.;, "''~'-~' 

it happen. 

Michael Deane is ExecutiVil• : 

of the National Assodatior: :-ri '; 

Companies and Benj!;, ;:,in !··l 

Grumbles is President of g·;m Clm:::::: 

Water America Alliance. 

Alternative Financing Tools for Water Infrastructure A13 
157 


26626.126

Public Benefit rough 

the Private Sector 

By Eben M. Wyman 

I t makes perfect sense when you consider 

all the factors. Hundreds of billions of dollars needed nationwide to repair and 

rebuild America's underground water and 

wastewater infrastructure. National unem~ 

ployment remains unacceptably high, and 

unemployment rates in construction have 

ranged from 13 to 24 percent over the past 

several years. Talk to construction compa· 

nies involved in water infrastructure projects 

and inevitably you'll conclude that unemployment in underground infrastructure construction industries is much higher. Evaluate 

the potential for job creation and economic 

impact that comes with these projects and 

you'll see that investment in water and 

wastewater infrastructure markets is sound 

government policy. 

However, when you recognize the lack of 

public dollars available at the federal, state 

and local levels, you'll see that increased 

opportunities for robust investment from the 

private sector must be created. Opening the 

door for more public-private partnerships for 

water and wastewater projects through 

increased use of private activity bonds 

(PABs) is a simple yet effective and badly 

needed first step. 

Rising Needs, Declining Federal 

Dollars 

The need to invest ln America1s underground envimnmental infrastructure is well 

known and clearly documented. According 

A14 

to the Environmental Protection 

Agency (EPA) hundreds of billions of dollars will be needed 

over the next 20 years to address 

America's wastewater and drinking water infrastructure improvements. At 

the same time, federal financing for these 

critical infrastructure projects has been significantly reduced over the past several 

years. 

For example, EPA's Clean Water and 

Drinking Water State Revolving Fund (SRF) 

programs have been decimated. After 

absorbing a nearly $1 billion cut in this 

year's "continuing resolution," the SRF programs are on the chopping block again in 

Fiscal Year 2012. At a time when financing 

needs are skyrocketing, construction firms 

continue to close their doors, the municipal 

bond market remains in turmoil as public 

dollars are pared back, innovative financing 

and significant opportunities for participation 

from the private sector are needed now 

more than ever. 

Sound Investment Brings Huge 

Economic Dividends 

Investment in water and wastewater infrastructure not only addresses public hea~h 

and environmental protection concerns, H: 

also creates scores of high-paying jobs, 

generates significant economic activity and 

expands the local tax base. In fact, in 2009 

the Clean Water Council (CWC) released 

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26626.127

Sudden Impact: An 

Assessment of Short-Term 

Economic Impacts of Water 

Wastewater Construction 

Projects in the Un~ed States, 

which demonstrated the economic benefits that come with 

these investments. The study 

found that every $1 billion 

invested in water and waste~ 

water infrastructure creates up 

to 27,000 new jobs with average annual earnings of more 

than $50,000, increases 

national output (i.e., demand 

for products and services in 

other industries) by up to $3.46 

billion, and produces more 

that $1 billion in personal 

(spending) income. 

Importantly, a $1 billion investment also generates approximately $82.4 million in state 

and focal tax revenue at a time 

when states and local commu· 

nities need it most. 

It's also important to note 

the broad range of jobs that 

are created when underground 

environmental infrastructure 

projects get off the ground. 

The Sudden Impact study 

underscored the ripple effect 

that construction employment 

offers. In addition to construction jobs, investment in water 

infrastructure generates measureable employment in 325 

standard industry classifications recognized by the US 

Census Bureau, Scores of 

jobs are created in industries 

such as architecture, health 

care, retail, automotive, resAlternative Flnancmg Tools for Water Infrastructure A\5 
159 


26626.128

taurant, entertainment and accounting, just 

to name a few. 

A Private-Sector Solution 

Private activity bonds are a form of taxexempt financing for state and municipal 

governments looking to partner with a private entity to "meet a public need," such as 

construction of a wastewater treatment 

plant. Use of public-private partnerships 

makes infrastructure repair and construe~ 

tion more affordable for municipalities. 

PABs use private capital in lieu of public 

debt and shift the risk and long-term debt 

from the municipality to the private partner. 

The tax-exempt status of the bond provides 

lower cost financing for investors, which 

translates to lower costs for local governments and ultimately their customers. 

However, federal tax law restricts PABs 

from reaching their maximum benefit. The 

Internal Revenue Code limits the amount of 

PABs that may be issued annually in a state. 

This "volume cap" is based on the state 

population - this year the cap was determined by the greater of $95 per resident or 

$277.82 million. Because water and wastewater projects are "out of sight, out of mind," 

tax-exempt funding is commonly directed 

toward more politically attractive projects 

such as public housing and student loans. 

As a result, in 2007 only 1 .3 percent of all 

exempt facility bonds were issued to water 

and wastewater projects. 

By lifting the cap on PABs that fund 

water and wastewater infrastructure projects, it has been estimated that up to $5 

billion could be generated in annual private investment. However, no matter how 

great an idea may be, these days on 

Capitol Hill the question of "how much 

does it cost" can obstruct even the best 

legislative proposals. The last "score" or 

cost estimate conducted by the Joint 

Committee on Taxation found that this proAi6 

vision would cost $354 million over the 

next 10 years. The fact that this "cost" is 

solely a mild loss of federal tax revenue is 

significant - the measure doesn't actually 

"spend" a federal dime. 

Legislation to remove water and wastewa~ 

ter infrastructure from under the state val~ 

ume cap on PABs has broad support both 

on and off Capitol HilL The Sustainable 

Water Infrastructure Investment Act of 2011 

(HR 1 802 I S 939) is cosponsored by 

Democrats on the far left as well as strict 

conservatives on the right. Dozens of business groups also support the legislation, 

from the Clean Water Council to the U.S. 

Chamber of Commerce to Operating 

Engineers and Laborers' unions. 

A Model for Future lnveslmenl 

Just do the math: over the next 10 years 

the federal government can generate up to 

$50 billion in private investment in a starving 

market, put countless Americans back to 

work in a broad range of industries, and 

rebuild critical infrastructure by simply getting out of the way. Ceding $354 million in 

lost tax revenue while acquiring $50 billion in 

private investment should be more than palatable, especially when considering that a 

one-year, $5 billion investment will yield 

$412 million in state and local tax revenue, 

covering the JCT's 1 0-year cost estimate. 

At a time when all levels of government are 

scrambling to make ends meet, and policymakers of all stripes are clamoring for more 

private-sector solutions to job creation, 

increased use of PABs and other opportunities for public-private partnerships for water 

infrastructure improvements are needed now 

more than ever. 

Eben Wyman is Vice President of Government 

Relations for NUCA, representing uti!lty and exca~ 

vation contractors. NUCA serves as chair of the 

Clean Water Council (CWC). 

Alternative Financing Tools for Water Infrastructure 
160 


26626.129

America's water and w~stewater infrastructure is crumbling. 

Nationwide financing n~~ds are in the hundreds of billions of 

dollars while public funding available to repair and rebuild the 

infrastructure has been virtually cut in half. 

Water and wastewater projects create scores of high-paying 

jobs and generate significant economic activity yet 

unemployment in the construction remains 

unacceptably high. 

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~11~-r,d ·~~~h;~~r ·'-~~r.d! ·~~,~.';i;t·~,,.~,~t·er projects 

t~,r.,,,,,r.,;r,a't;;;;, $5 ib~lii~•r.!F;, i!n !l!·ifiin'b§!lii! n;;;n••a'r;;;;, 

~(i ~bl'ii'•!!'~~r;m,!!.ml ll!!!r.di p!..!'t !!3!(),.!()00 ~"-" '!Fi"!.i!f!f. ~n [h~.r: '!!!!':!!>~ 
161 


26626.130

By Walter Lynch 

Of all of our needs, water is the single most important It is 

a life-essential resource - we need it every day for almost 

everything we do and there is no substitute. 

At about a penny a gallon, it's simple to see the true value 

of water service, but many people don't. 

In the United States, water services are 

often so reliable that many of us do not 

think twice about what comes out of our 

faucets or what it's been through to become 

drinkable. Indeed, for many of us, having 

access to clean, dependable water is a 

given, not a luxury. Water is taken for grant~ 

ed and this has led to a real problem with 

serious consequences. 

It's no secret that our nation's deteriorat~ 

ing water and wastewater infrastructure is in 

critical need of repair, mainly due to the fact 

that our country has underinvested and has 

not paid what it really costs to maintain a 

system of pipes and plants that ensures our 

health and economic stability. 

Many of the systems were built 100 years 

ago and have reached the end of their functional lifespan. Without renewal or replace· 

men!, water pipes in the United States clas· 

sified as poor, very poor or life-elapsed will 

A18 

increase from 10 percent to 44 

percent by 2020. The risks of 

allowing these systems to lapse 

are as real as they are alarming. 

Too often, because many of our 

water assets are buried beneath 

the ground, the need to invest in water and 

wastewater systems is overshadowed by 

more visible crumbling roads and bridges, 

The EPA estimates it will cost upward of $1 

trillion over the next 20 years to replace and 

repair our water and wastewater infrastructures. So who's going to pay this massive bill 

to replace and repair our water and wastewater infrastructures? 

This burden, which would currently fall on 

the public sector, can be reduced if private· 

sector investment in water infrastructure is 

more widely enabled. Some argue this would 

allow private companies to "own" our water 

future. Nothing could be further from the 

A!temat1ve Financing Toots for Water !nfras""uucture 
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26626.131

truth. Water is a public resource, regulated 

by federal and state governments. In the 

face of the enormous strains on local govw 

emment budgets, we need to enable privatesector investment to help treat and deliver 

water to consumers. 

According to the U.S. Conference of 

Mayors, local governments spent $93 billion in 2008 on water and wastewater 

systems. However, there is a critical backlog in replacing old and failing infrastructure across the United States and regardless of the fact the! billions of dollars are 

spent annually on rehabilitating infrastructure, hundreds of billions more are 

required to prevent infrastructure failures 

and provide high-quality reliable water 

service in the future. 

Adding to this challenge is the fact that 

no utility sector is more capital intensive 

than the water industry. With water-related 

services nearly twice as capital intensive 

as electricity and three times as capital 

intensive as gas, many communities face 

significant challenges to upgrade their systems, many of which are decades to a 

century old. 

So what can be done to address this? 

The Sustainable Water Infrastructure 

Investment Act (SWIIA) of 2011 would 

remove water and wastewater from the limitations (or caps) that have been placed on 

private investment through the use of private activity bonds, which provide low-cost 

financing for water and wastewater proj~ 

eels. Caps placed on private activity bonds 

in 1986 have never been updated, and the 

lifting of water projects from state volume 

caps, as SWIIA calls for, would enable local 

governments to tap into billions of dollars of 

much-needed private sector capital. 

This will not only address the nation's 

deteriorating water and wastewater infrastructure, it will also generate thousands of 

Alternative F1nanc1ng Tools for Water Infrastructure 

jobs and help stimulate the economy. 

According to the U.S. Conference of Mayors, 

$6 billion in infrastructure investment would 

yield 244,000 jobs annually, and every dollar invested in water infrastructure adds 

$6.35 to the national economy. 

The SWIIA passed the House twice, but 

failed to reach the Senate floor for a vote in 

201 0. It was re-introduced as a bipartisan, 

bicameral act in the 112th Congress by U.S. 

Representatives Bill Pascrell Jr. (D-N.J.) 

and Geoff Davis (R-Ky.) and Senators Robert 

Menendez (D-N.J.) and Mike Crapo 

(A-Idaho). We are hopeful that the collaborative origins of the bill, as well as the 

economic benefits it brings to the nation's 

economy, will assist in its passage. 

American Water supports various types of 

funding to help improve the nation's water 

and wastewater infrastructure. We are glad 

to see that funding for infrastructure is on 

the agenda in Washington, and that the 

President's proposed America Infrastructure 

Financing Act, which is based on the 

Infrastructure Bank that was initially proposed last year by Senators John Kerry 

(D-Mass.) and Kay Bailey Hutchinson 

(A-Texas), includes water projects as well 

as wastewater projects. 

It will require a strong commitment now for 

quality water to be ready at the tap in the 

future, and for wastewater to be handled in a 

way that minimizes the "waste" aspect and 

protects public safety and the environment 

The Sustainable Water Infrastructure 

Investment Act is an important first step for 

everyone to work together to create viable 

solutions for the future. 

Walter Lynch is president and chief operating officer of regulated operations for American Water, the 

nation's largest publicly traded water and wastewater utility company serving 15 million people in 

more than 30 states and parts of Canada 

A19 
163 


26626.132

e world faces significant challenges 

in the coming decades as a result of 

global trends that include feeding a 

growing and more affluent population, and 

developing the infrastructure required to support massive urbanization. World population is 

expected to climb from nearly 7 billion today to 

more than 9 billion by 2050. Put another way, 

we will have at least 30 percent more people to 

feed, shelter and clothe in the next 40 years 

without significant additional land, water and 

other inputs. In order to provide enough food, 

~ber and fuel to support this growth, agricultural output must double and do so in a 

sustainable manner. 

Population growth and an increase In 

global affluence are fueling a migration from 

rural to urban areas. Perhaps we passed the 

tipping point in 2007 when, for the first time 

in human history, more than 50 percent of 

the world's people lived in urban areas. That 

figure is expected to reach 70 percent by 

2050, when nearly as many people could be 

residing in cities as live on the entire planet 

today. Urbanization creates significant 

demand for new infrastructure. 

Access to freshwater and the related infrastructure are essential to support a growing 

world. Proper management of water resources 

is essential to closing the agricultural productivity gap and to estab~shing the conditions for 

humankind flourishing worldwide. However, 

water scarcity affects one in three people on 

every continent of the globe. While agriculture 

is the largest user of freshwater today, industrial, municipal and environmental uses are 

increasingly competing forth is limited resource. 

All signs point toward increased competition 

for freshwater in the future. 

John Deere is strongly and uniquely positioned to help our customers meet global 

needs for increased agricultural output and 

A20 

new infrastructure by providing premier equipment solutions and related services in agricultural mechanization, agricultural irrigation, 

construction and forestry. We believe John 

Deere has an opportunity, and an obligation, 

to help the world grow in sustainable ways. 

United States Water Infrastructure 

In the early days of our nation, John 

Deere's steel plow paved the way lor the 

settlement and the eventual development of 

much of the United States. Fast forward to 

today, and we must consider the major challenges we face in nearly every state, county 

and municipality in the United States. It is 

one of the most important. often overlooked, 

support systems for our way of life -water 

infrastructure. Drinking water, wastewater 

and stormwater systems ensure our public 

health, safety and economic livelihood. We 

have over 2 million miles of pipe in the 

United States. However, much of our nation's 

water infrastructure was buitt generations 

ago. These systems were not designed and 

built for such a long service life or to support 

such a large and prosperous country. Experts 

agree that many of these old and fragile systems are operating on borrowed time. 

A safe, reliable water infrastructure requires 

maintenance, rehabilitation and when necessary- replacement. These projects require 

billions of dollars in investment. Not only are 

such investments critical in order to provide 

clean drinking water to our nation's residents, 

but keeping water flowing to business and 

industry is essential to the economic viability 

of our country and its competitiveness. 

Much of our current water infrastructure has 

reached the end of its useful life. Experts estimate that a costs approximately three times 

as much to replace a water system once it 

has failed. That is why ~is important to invest 

in our water infrastructure now, before more 

Altemat1va Financing Tools for Water infrastructure 
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26626.133

systems fail. Unfortunately, 

projected expenses to maintain and upgrade existing 

facilities far outpace expected 

revenues. Many water infra~ 

structure projects were initially 

constructed and funded using 

federal grant money which is 

no longer available 

Remove 

Investment 

Infrastructure 

Barriers to 

in Water 

With so many competing 

demands for federal infra· 

structure dollars, it is clear 

that opening doors to addi· 

tiona! revenue sources to 

help rebuild our water infrastructure is sorely needed. As an equipment 

manufacturer, John Deere has seen financial 

uncertainty caused by a lack of investment 

in infrastructure lead to a hesitancy or unwillingness by construction contractors to invest 

in new construction equipment. Our customers want to know their major capital invest~ 

ments will not be sitting idle while they wait 

for government to act. 

Important legislation has been introduced 

in the U.S. House and Senate to lift the state 

volume cap on private activity bonds for 

water and wastewater infrastructure proj· 

eels. This legislation has the potential to 

generate billions in private capital for the 

infrastructure market at a very low cost to 

government. This action is a positive step 

toward rebuilding our broken infrastructure, 

Water infrastructure investments create 

long-term job opportunities for John Deere 

customers involved in construction and utility 

work, and the independently owned dealerships which sell and service their equipment 

throughout the country. Investments in water 

infrastructure will resuij in additional demand 

for John Deere products, strengthening our 

U.S. manufacturing operations and workforce 

and providing additional work for our suppli· 

Alternative Fmanc1ng Tools for Water Infrastructure 

ers. The positive impact on job creation in all 

facets of our industry cannot be overstated. 

John Deere is proud to be a trusted partner 

and to pmvide the equipment necessary to 

rebuild our nation's infrastructure, New tech~ 

nologies and equipment are available, with 

workers standing ready to help build our 

nation's water systems for the next generation. With unemployment in the construction 

industry still hovering around 13 percent, 

clearing the way for new and upgraded water 

infrastructure projects would assist in putting 

more than 1. I million unemployed construction workers back on the job. We are commit· 

ted to partner with other leaders throughout 

America in asking Congress to protect our 

way of life by investing in water infrastructure 

and removing barriers to additional investments in these critical water systems. 

Deere & Company is a world leader in providing 

advanced products and services and is committed 

to the success of customers whose work is !inked 

to tho land- those who cultivate, harvest, transform, 

enrich and build upon the !and to meet the \NOrld's 

dramatically increasing need for food, fuel, shelter 

and infrastructure. Since 1837, John Deere has 

delivered innovative products of superior quality 

built on a tradition of lntegrJ!y. 

A2i 
165 


26626.134

The Sustainable Water 

Infrastructure Investment Act: 

I 

By Toby Mack 

0 ur nation's water infrastructure is in 

desperate need of a major upgrade. 

A system of outdated pipes delivers 

water to our homes and businesses. Given 

the age of our water infrastructure network, it 

is no surprise that pipes break every day 

across our country, resulting in traffic delays, 

boil water alerts, environmental damage, 

lost productivity, and even fatalities. 

The astonishing part is that we willfully 

continue to neglect one of our nation's 

greatest resources clean water. 

Unfortunately, in the current budget situation, all federal programs, including water 

infrastructure investments, are on the chop~ 

ping block. Consequently, we must look to 

innovative financing mechanisms to ensure 

that water infrastructure projects continue. 

Reps. Geoff Davis (R-Ky.) and Bill Pascrell 

(D-N.J.) and Sens. Robert Menendez (D-N.J.) 

and Mike Crapo (R-Idaho) have introduced 

bipartisan legislation that leverages privatesector investment to put people back to 

work, create economic growth and rebuild 

our deteriorating water systems. 

The Sustainable Water Infrastructure 

Investment Act (H.R. 1802, S. 939) would 

remove the state volume cap on private 

activity bonds (PASs) -- or exempt facility 

bonds -- that fund water and wastewater 

infrastructure projects. Removing the PAS 

volume cap will increase private invest~ 

ment in water infrastructure to address 

years of underfunding. According to estiA22 

mates, the legislation could generate as much as $5 billion annually in incremental private capital 

for water infrastructure projects 

with a nominal cost to the federal 

government. 

The broad reach of water infrastructure 

investment cannot be overstated. A 2008 

Associated Equipment Distributors (AED)-

National Utility Contractors Association 

(NUCA) study found that on average, at 

least 12 percent of a water utility project bid 

is attributable to the purchase, rental, leasing and dealer repair of construction equipment. AED estimates that the Sustainable 

Water Infrastructure Investment Act will provide equipment distributors $600 million 

annually in market opportunity a significant boost to an industry that has struggled 

to recover from the recession. 

The bang for your buck from water intrastructure investment goes beyond the construction sector. In fact, according to a 

recent study by the Clean Water Council, 

of which AED is a member, a $1 billion 

national investment supports 20,000 to 

26,669 jobs. These opportunities are 

spread across the economy with nearly 

half the jobs in industries other than water 

and wastewater construction, demonstrating the broad reach of water infrastructure 

investment. 

Water infrastructure investment is not 

just about job creation and economic 

AlternatiVe Financing Tools tor Water Infrastructure 
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26626.135

growth. There are clear needs across the 

country. The American Society. of Civil 

Engineers gave the nation's drinking water 

and wastewater infrastructure a "0-minus," 

the lowest grade of any national infrastructure category. 

Last year, the Environmental Protection 

Agency (EPA) released The Clean 

Watersheds Needs Survey 2008 (CWNS), 

documenting a $43.4 billion (17 percent) 

increase in needs over the 2004 CWNS 

report. The EPA estimates that as of Jan. 1, 

2008, nationwide capital investment needs 

lor wastewater pollution control are $298.1 

billion. The figure includes $192.2 billion 

for publicly owned wastewater pipes and 

treatment facilities, $63.6 billion for combined sewer overflow corrections, and 

$42.3 billion for stormwater management. 

Our wastewater needs are in addition to 

the $334.8 billion investment EPA estimates is necessary to repair and rebuild 

our nation's drinking water infrastructure in 

Alternative F1nanc1ng Tools for Water Infrastructure 

the most recent Drinking Water Infrastructure 

Needs Survey and Assessment released in 

2009. 

Not only will investing in water infrastructure help the nation's economic recovery 

and reverse stubborn unemployment in 

the construction industry, it will also 

improve the health, quality of life and environment for all Americans. Consequently, 

AED has made the Sustainable Water 

Infrastructure Investment Act one of our 

top legislative priorities for the 112th 

Congress. 

With the plight of the nation's water infrastructure network growing bleaker every 

day, we must invest now to prevent further 

deterioration of our pipe and sewer systems. 

AED looks forward to working wtlh industry 

groups, lawmakers and all interested parties 

to enact this important legislation. 

Toby Mack is President & CEO of the Associated 

Equipment Distributors. 

A23 
167 


26626.136

By Andrew W Herrmann 

T

he American Society of Civil 

Engineers' 2009 Report Card for 

America's Infrastructure gave the 

nation's wastewater and drinking-water 

systems identical grades of D-, marking 

them as systems in disrepair. 

Aging systems discharge billions of gallons of untreated wastewater into U.S. surface waters each year. The U.S. 

Environmental Protection Agency estimates 

that the nation must invest $390 billion over 

the next 20 years to update or replace existing systems and build new ones to meet 

increasing demand. 

In the 2009 Report Card, ASCE estimated 

that the physical condition of many of the 

nation's 30,000 wastewater treatment and 

collection facilities was poor due to a lack 

of investment in plants, equipment and 

other capital improvements over the years, 

while federal funding under the Clean Water 

Act State Revolving Loan Fund (SRF) program had remained flat for more than a 

decade. Federal assistance has not kept 

pace with the needs, yet virtually every 

authority agrees that funding needs remain 

very high, a condition that has not improved 

in the last two years. 

The EPA "Clean Water Needs Survey" for 

2008 put the total wastewater and stormwater management needs for the nation at 

$298 billion as of Jan. 1, 2008. This amount 

includes $192 billion for wastewater treatment plants, pipe repairs, and buying and 

installing new pipes; $63.6 billion lor combined sewer overflow correction; and $42.3 

billion for stormwater management. Small 

A24 

communities have documented 

needs of $22.7 billion. 

In addition to the $298 billion in 

wastewater and stormwater needs, 

the report documented needs of 

$22.8 billion for nonpoint source 

pollution prevention and $23.9 billion for 

decentralized wastewater (septic) systems. 

An estimated $334 billion and $81.5 billion 

in needs are potentially eligible for assistance from EPA, according to the agency. 

America's drinking-water systems do not 

fare any better. Drinking water systems 

across the country face an annual shortfall 

of at least $11 billion to replace aging facilities that are near the end of their useful life 

and to comply with existing and future federal water regulations. This does not 

account for growth in the demand for drinking-water over the next 20 years. 

Leaking pipes lose an estimated seven 

billion gallons of clean drinking-water a day. 

Although Americans still enjoy some of the 

best tap water in the world, the costs of 

treating and delivering that water where it is 

needed continue to outpace the funds 

available to sustain the system. 

Federal funds contributed to the drinking 

water and wastewater revolving funds have 

ensured efficient system~wide planning and 

continuing management of sustainable 

water infrastructure since 1987. With the 

nation facing a $400 billion to $500 billion 

investment gap in its wastewater and drinking water infrastructure over the next 20 

years, now is not the time to cut federal 

investments in public health. 

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To begin with, Congress needs to rein· 

vigorate the state revolving fund programs 

for wastewater and drinking water. 

Lawmakers need to provide authority for 

EPA to spend at least $20 billion in new 

federal investments for wastewater and $15 

billion for drinking water infrastructure over 

a five-year period. 

Another promising source of financing 

over the long term are private activity bonds. 

The Internal Revenue Code states that 

qualified private activity bonds are tax-ex· 

empt bonds issued by a state or local government, the proceeds of which are used 

for a defined qualified purpose by an entity 

other than the government issuing the 

bonds. For a private activity bond to be tax 

exempt, 95 percent or more of the net bond 

proceeds must be used tor one of the sev~ 

eral qualified purposes. But the IRC places 

a cap on these bonds on a state-by-state 

basis. Drinking water and wastewater infrastructure are a "qualified purpose," but the 

federal cap limits the use of these bonds. 

In 2008, EPA estimated that lifting the 

cap on private activity bonds for wastewaA!ternat1ve F~nanc1ng Tools for Water Infrastructure 

ter and drinking water systems could 

raise an estimated $5 billion annually for 

these critical infrastructure systems. 

These bonds would complement local 

efforts to move toward full-cost pricing for 

wastewater and drinking water services 

and thereby help localities become self· 

financing, which would reduce the need 

for future federal expenditures. Congress 

should pass pending legislation (H.R. 

1802/S. 939) to remove the state cap on 

private activity bonds for drinking water 

and wastewater systems. 

The case lor increased federal investment 

is compelling. Clean and safe water should 

be a national priority, and if we fail to meet 

the investment needs of the next 20 years~ 

we risk reversing the public health, environ· 

mental and economic gains of the past 

three decades. 

Andrew W Herrmann is a Principal of Hardesty & 

Hanover LLP. a transportation consulting engineering firm founded in 1887 and headquartered In New 

York City, and is President-Elect of the American 

Society of Civil Engineers (ASCE) 

A25 
169 


26626.138

Congress should enact the Sustainable 

Water Infrastructure Investment Act 

(S. 939/H.R. 1802) and remove the 

state volume cap on the amount of private 

activity bonds that can be issued by state 

and local governments to finance public purpose water and wastewater facilities. The bill 

would cost the federal government an estimated $354 million in lost revenue to the 

Treasury, but unleash an estimated $50 bil· 

lion in private capital to support public projects over 1 0 years. 

The bill will help to address the $500 billion 

that will be necessary to replace and improve 

safe drinking water and wastewater treatment 

facilities over the next 20 years. It is the first step 

toward harnessing private investmentto address 

crumbling infrastructure and empowering state 

and local governments to meet the needs of 

expanding populations. 

Fiscal restraints have caused federal spend· 

ing on water infrastructure to retract in the last 

decade, with the need amounting to billions of 

dollars, wihile funding has declined to the millions. In the fiscal year 2012 funding bill, the 

House has proposed reducing the Clean Water 

State RevoMng Fund to $689 million and the 

Drinking Water State Revolving Fund to $829 

million, wihich would fund these accounts at fiscal year 2008 spending levels. Even as the 

legislature proposes reducing the funding avail· 

able to state and local governments, the need 

continues to grow the EPA's 2008 Needs 

Assessment was $298.1 billion for wastewater 

projects and the 2007 estimate for drinking 

water was $334.8 billion. 

Legislators need to consider a new approach 

to water infrastructure projects that will maike 

funding less dependent on tradftional grant 

programs and relieve the burden on local com· 

munities wiho are in urgent need of providing 

safe, clean drinking water to their residents. 

The Sustainable Water Infrastructure 

Investment Act was introduced in the House by 

Reps. Bill Pascrell (0-N.J.) and Geoff Davis 

(R-Ky.), and in the Senate by Sens. Robert 

Menedez (0-N.J.) and Mike Crapo (A-Idaho). 

A26 

The legislation has gained considerable support within the political spectrum, including 

Reps. Ron Paul (A-Texas), wiho favors small 

government, and Earl Blumenauer (0-0re.), 

who is a proponent of establishing a trust. Both 

the U.S. Chamber of Commerce and the U.S. 

Conference of Mayors have endorsed the bill 

because of the potential benefits of private 

investment in water infrastructure, which is estimated to contribute $3.46 billion to total national output, $82.4 million in state and local tax 

revenue, and 28,500 new construction jobs for 

every $1 billion invested. 

United Rentals, a leader in the construction 

equipment rental industry, understands the 

importance of the Sustainable Water 

Infrastructure Investment Act. While the equipment rental industry is growing this year 

despite the still-struggling U.S. economy, it 

hasn't been easy. Construction customers, 

one of United Rentals' primary end markets, 

are still seeing projects stalled or postponed 

for lack of funding. Construction is considered 

to be the backbone of America, and yet unemployment in the construction industry has 

been consistently above the national average, 

with 13.2 percent unemployed in August2011, 

while the national average for unemployment 

overall was 9.1 percent. 

Continued growth in the construction 

equipment rental industry, and a return to 

growth in construction, is dependent in part 

on sustainable funding for infrastructure 

projects, including water. 

Providing disciplined, private investment, as 

outlined under the bill, will help stabilize funding 

for water projects, allow local and state governments to repair struggnng systems, plan for and 

expand infrastructure, and hire more than a million new workers. 

Founded in 1997, UniTed Rentafs 1nc_ is the largest 

equipment rental company ln the world, with an integrated network of more than 550 rental locations in 48 

states and 1 0 Canadian provinces. Its diverse cus~ 

tamer base Includes construction and industria! companies. utilities, municipalities and homeowners. 

Alternative Ftnanc1ng Tools for Water Infrastructure 
170 


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171 


26626.140

Sustainable Water 

Infrastructure 

Investment Act 

of 2011 

The Sustainable Water Infrastructure Investment Act of 2011, introduced in the 

House as H.R. 1802 and in the Senate as S. 939, has broad support among 

Democrats and Republicans. The measure would remove the state cap on private 

activity bonds for water and wastewater infrastructure, therefore opening the door 

for an added revenue stream. The following list shows the Congressmen and 

Senators who have signed on as supporters of this legislation. 

A28 Alternative Financing T oo!s for Water Infrastructure 
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H.R.1802 

SPONSOR 

Rep, Pascrell, Bill, Jr. [NJ-8] 

(Introduced 5/t 0/2011) 

COSPoNSORS (48) 

(As of 9/30/2011) 

Rep. Betkfey, Shelley [NV-1] 

Rep. Blumenauer, Earl [OR-3] 

flep. Brown, Corrine [FL-3) 

Rep. Carson, Andre [IN-7] 

Rep. Castor, Katl1y [FL-11 J 

Rep. Cicilline, David N. [RI-1) 

Rep. Coble, Howard [NC-6) 

Rep, Connolly, Gerald E. "Gerry" [VA-11 J 

Rep. Costello, Jerry F: [IL-12] 

Rep. Critz, MarkS. [PA-12] 

Rep. Davis, Geoff [KY-4] 

Rep. Defazio, Peter A [OR·4l 

Rep. Duncan, John J., Jr. [TN-2) 

Rep, Filner, Bob [CA·51] 

Rep. Garamendi, John [CA-10] 

Rep. Gerlach, Jim [PA-6] 

Rep. Hanna, Richard L. [NY-24] 

Rep. Hastings, Alcee L [FL-23] 

Rep. Higgins, Brian [NY-27) 

Rep. Holden, Tim [PM 7) 

Rep. Johnson, Eddie Bernice [TX.:lOJ 

Rep. Kildee, Dale E. [MI·5J 

Rep. Langevin, James R. [RI·2J 

Rep. Larsen,.Rick [WA-2) 

Rep. Larson, Johns. [CT-1] 

Rep: Lewis, John [GA·5] 

Rep. LoBiondo, Frank A .. [NJ-2] 

Rep. McDermott, Jim [\I.'A-7] 

Rep, Meehan, Patrick [PA:7] 

Rep. Meeks, Gregory\/.'. [NY-6] 

Rep. Moran, James P. [VA-8] 

Rep. Napolitano, Grace F. [CA-38] 

Rep, Neal, flichard E, [MA-2] 

Rep. Paul, Ron [TX-14] 

Rep. Rahall, Nick J., II [WV·3] 

Rep, Rangel, Charles s. [NY-15] 

Rep, Ross, Dennis [FL-12] 

A!ternattve Ftnancing Tools for Water Infrastructure 

Rep. Ross, Mike (AR-4] 

Rep, Rothman, Steven R. [NJ-9] 

Rep, Ryan, Tim [OH-17] 

Rep. Schwartz, Allyson Y [PA-13] 

Rep. Shuster, Bill [PA-9] 

Rep. Sires, Albia [NJ,·13] 

Rep, Sutton, Betty [OH-13] 

Rep. Tonko, Paul [NY-21] 

Rep. Turner, Michael R. [OH·3] 

Rep. Welch, Peter f\ITl 

Rep. West, Allen B. (FL-22] 

$. 

Sen. Menendez, Robert [NJ) 

(Introduced 5110/2011) 

COSPONSORS {3) 

Sen. Crapo, Mike [ID] 

Sen. Whitehouse, Sheldon [RIJ 

Sen. Wicker, Roger F: [MS] 

A29 
173 


26626.142

Rep. BiU Pascrell 

Bill Pascrell Jr., the New Jersey congressional representative for New Jersey's 

Eighth District, sat down with Benjamin 

Media President and Publisher Bernie 

Krzys at the National Utility Contractor 

Association's Washington Summit in May 

to answer questions about the Sustainable 

Water Infrastructure Investment Ac1. 

Pascrell introduced the legislation in the 

House along with Rep. Geoff Davis of 

Kentucky. 

Below is a transcription of that interview: 

Krzys: Tell us about HR-1802, which is a 

resolution involving exempt facility bonds. 

Pascrell: Geoff Davis (Ky.) is a co-sponsor 

with me. I'm the Democrat and he's the 

Republican. And we have similar legislation in the Senate (S. 939), which I asked 

Bob Menendez (D-N.J.} to take and Sen. 

Mike Crapo (R-Idaho) as welL So we have 

bi-partisan support in each of the houses 

tor this infrastructure legislation, which I 

think is going to be beneficiaL 

Krzys: It strikes me that this is such a nobrainer. But a lot of things in Washington 

seem to be no-brainers until you try to 

start to get them passed. 

Pascrell: Well we've passed this twice in 

the 11 Oth Congress. And the Senate tried 

to fit it in with one of its tax bills, and it 

never quite got there. We've been trying to 

work on this lor 10 years, and it's had 

bipartisan support every time. I think this 

is a great way for us to fix our water infrastructure, our sewer infrastructure- which 

is falling apart. The government 

itself estimates that there's about 

$500 billion worth of work that 

has to be done. On this particular 

infrastructure legislation which provides 

for private bonds, the bonding can exceed 

the caps so that we can have this private 

bonding. When you consider that we're 

losing about 25 percent of our treated 

water because of the repairs that need to 

be done, that's pretty incredible. People 

talk about waste throughout the federal 

government, this is waste throughout the 

United States. If we don't correct that situation and it's not getting any better 

then it's going to cost more money. Every 

billion dollars that is invested into the 

water infrastructure system of this country 

creates over 28,000 jobs. I think that's a 

pretty remarkable figure. These private 

bonds are tools that we should be using. 

This will bring $50 billion, we've calculated, in private investment So it's certainly 

a drop in the bucket in terms of what we 

need of $500 billion, but it's a pathway to 

that goal. 

Krzys: In this particular economic situation that we're in right now, this is going to 

create so many jobs through the construction market when there is now almost 20 

percent unemployment in construction. 

Pascrell: You're talking about over 1.5 

million jobs. That's a lot of jobs. You have 

to get the construction folks back to work. 

They'll be working on meaningful projects. 

We're losing all of this wonderful resource: 

clean water. So this is a double-win. 

A30 Alternatrve Financing Tools for Water Infrastructure 
174 


26626.143

Krzys: When you dig up pipes that have 

been in the ground, it's amazing what 

you see. 

Pascrell: When you start digging, then 

you find other problems. Or you create 

other problems. So we have to try and get 

a handle on this. We don't have a handle 

on it now. So I hope the legislation moves 

this year. 

Krzys: How did you feel about getting this 

passed through Congress this year? 

Pascrell: I felt enthusiastic and optimistic 

about it every year. There needs to be 

more cooperation on the Senate-side, i 

Alternative Financing Tools for Water Infrastructure 

think we're at that point I think Sen. 

Menendez, once he puts his hands around 

something he'll tend to run with it, and 

same with Sen. Crapo. So I'm very opti· 

mistic, I don't think falsely so. I think it's 

reaL 

Krzys: There seems to be more public 

interest in water than ever. There even 

seems to be more willingness to consider 

rate increases, which is surprising. 

Pascrell: We have to continue to respond 

to the problems that exist in the system that 

provide clean water for our sons and daughters and our grandkids, then we have to 

take care of it. It doesn't heal itself. 

A3i 
175 


26626.144

Benjamin Media Inc. wishes to thank the following 

organizations for making this publication possible: 

AMERICAN * WATER 

CLEAN 

W ER C: DUN C:: l t 

JOHN DEERE 
176 


26626.145
177 


26626.146

BACKGROUND 

Water has for too long been absent from the 

national debate on infrastructure. Hidden 

underground, the deterioration of our nation's 

water pipes and treatment systems has 

become an unseen crisis. In an era of water 

scarcity and tight budgets, we can no longer 

afford to lose nearly two trillion gallons of 

clean water, at an annual cost of $2.6 billion, 

to broken and leaking pipes every year. 

Americans agree 

ITT's nationwide survey on the value of water 

details what Americans think should be done 

about this crisis-and who should pay for it 
178 


26626.147

EXECUTIVE SUMMARY 

95% of American voters 

value water over any other 

service they receive, including 

heat and electricity 

Our nation's industrial and 

agricultural businessesamong the heaviest water 

users-rank it second, 

after only electricity 

About three out of four 

American voters and 

businesses* say disruptions 

in the water system would 

have direct and personal 

consequences 

Too many take clean water for 

granted 69% of voters, 72% 

of businesses* 

When asked, US voters and 

businesses* do express concern 

about our nation's water. 

lill Nearly one in four American voters is 

"very concerned" about the state of the 

nation's water infrastructure 

29% percent of voters agree that 

water pipes and systems in America 

are crumbling and approaching 

a state of crisis 

• 80% of voters say water infrastructure 

needs reform; about 40% say 

major reform 

*INDUSTRIAL AND AGRICULTURAL BUSINESSES ONLY 
179 


26626.148

EXECUTIVE SUMMARY 

People understand that 

fixing our nation's water 

infrastructure problems 

shared resporlsibility 

a 

6 85% of voters. 83% of businesses* 

agree federal, state and local 

governments should invest money in 

upgrading our water pipes and systems 

6 79% of voters, 75% of businesses* 

agree and think government officials 

need to spend more time addressing 

water issues 

6 Both citizens and businesses* 

understand and accept responsibility 

63% of American voters, and 57% of 

businesses* say they are willing to pay 

a little more each month to upgrade our 

water system 

*INDUSTRIAL AND AGRICULTURAL BUSINESSES ONLY 

People everywhere are 

willing to pay more. regardless 

of region, residence, gender. 

age or political affiliation 

t Voters are willing to pay on average 

$6.20 more per month 

t If we took them up on their offer, the 

United States could invest about 

$5.4 billion more per year in our nation's 

water infrastructure** 

This is more than four times the FY09 

federal investment in our nation's 

drinking water systems 

**BASED ON 2010 CENSUS U.S. BUREAU PROJECTIONS: 114,200,000 U.S. HOUSEHOLDS 
180 


26626.149

TABLE OF CONTENTS 

Ill THE INFRASTRUCTURE CONTEXT 

Despite pressing economic concerns, most Americans 

believe the nation's crumbling water infrastructure 

should become a priority. 

Ill THE VALUE Of WATER 

A steady supply of clean water is taken for granted despite 

the fact that it is valued above all other services. 

A SHARED RESPONSIBILITY 

Americans want government to take responsibility, 

but are willing to do their part and shoulder some of the costs. 

EDUCATION HEIGHTENS CONCERN 

Presenting Americans with facts and statistics about water 

infrastructure challenges elevates their concern and desire for reform. 

s 

7 

12 

20 
181 


26626.150

ECONOMY AND JOBS 

TOP AMERICANS' CONCERNS 

1111 VOTERS 

*INDUSTRIAL AND AGRICULTURAL BUSINESSES ONLY 

08: ln your opinion, what is the most important issue facing the United States today? 

(Coding of open-ended responses} I Base-Voters: 1,003: Business'~<· 502 

ECONOMY 

JOBS/UNEMPlOYMENT 

WAR/TERRORISM/TROOPS 

HEAlTHCARE 

US lEADERSHIP 

WAJ~R ~~~fQ~tW'I' 

"'~ - - - "' =--: "-, __ -=- - -

DON'T KNOW 

VOTEGS 

2% 
182 


26626.151

BUT INFRASTRUCTURE ISSUES 

NEED TO BE ADDRESSED AT THE 

SAME TIME AS OTHER PROBlEMS 

*INDUSTRIAL .'~ND AGRICULTURAL BUSINESSES ONLY 

Q9A. Which statement comes closer to your v1ew? I Base-Voters: 577, Business*· 502 
183 


26626.152

VOTERS VALUE WATER MORE 

THAN ANY OTHER SERVICE; 

BUSINESSES* RANK IT SECOND 

40% 60% 

RN/A 

IIJIIIIIIIIIIIIIIIIIIIIIIIIIIIII~IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII~IIII~IIII 

II:JIIIIIIIIIIIII~IIIIIIIIIIIIIIIIIII!!!::::::::::::::;;;;mllllllllll~!illlll!l!i Ill Nf!.\ 

1!1 N/c\ 

*!NOUSTR!Al AND AGRICULTURAL BUSINESSES ONLY 

WATER 

ELECTRICITY 

HEAT 

INTERNET 

CELL PHONE 

LAND LINE TELEPHONE 

CABLE TELEVISION 

COOLING SYSTEMS 

ELECTRICITY 

WATER 

INTERNET 

HEAT 

COOLING SYSTEMS 

LAND LINE TELEPHONE 

CELL PHONE 

CABLE TELEVISION 

II VOTERS 

BUSINESS' 

Ql0-17· How important is this service to you personally/your company? I Base-Voters: 1.003; Business*: 502 
184 


26626.153

... AND BELIEVE WASTE 

DRIVES U.S. WATER SHORTAGES 

PEOPLE .IRE IIAB'I'ING 

'100 MUCH 11.11'151 - --- - -

VOTERS 

59% 

BU NESS* 

57% 

"INDUSTRIAL AND AGRICULTURAl BUSINESSES ONLY 

B QSl, Why do you think so many states could be facing water shortages? I Base-Voters· 1.003; Business'~<· 502 
185 


26626.154

BUT THEY STILL TAKE CLEAN WATER 

FOR GRANTED 

"I generally take my access to clean water for granted." 

"I don't really worry about the water that comes out of the 

tap because it is generally dean and unpolluted." 

*INDUSTRIAL AND AGRICULTURAL BUSINESSES ONLY 

026/27· Do you .. strongly agree, somewhat agree. somewhat disagree, strongly disagree? 

Base-Voters: 1,003; Business*· 502 

9 
186 


26626.155

PEOPLE ARE CONCERNED 

ABOUT THE STATE OF AMERICA"S 

WATER INFRASTRUCTURE ... 

VERY 

CONCERNED 

SOMEWHAT 

CONCERNED 

NOT VERY 

CONCERNED 

NOT - CONCERNED 

ATALL -8% 

Ill! VOTERS 

II BUSINESS* 

10 

NOT CONCERNED 

VOTERS: 24% 

BUSINESS*: 31% 

*INDUSTRIAL AND AGRICULTURAL BUSINESSES ONLY 

046: How concerned are you about the state of America's water infrastructure system? 

Base-Voters: 1.003; Business*: 502 
187 


26626.156

... AND BELIEVE THAT DISRUPTIONS 

IN THE SYSTEM WOULD HAVE DIRECT 

AND PERSONAL CONSEQUENCES 

A GREAT 

DEAL 

SOME 

NOT TOO 

MUCH 

NOT 

AT All 

*INDUSTRIAL AND AGRICULTURAL BUSINESSES ONLY 

047· !f there were problems with our nation's water infrastructure system, 

how much do you thmk it would affect you personally? Base-Voters: 1.003; Business*: 502 

NOT AFFECT ME 

VOTERS: 21% 

BUSINESS*: 28% 

IIIVOTEnS 

Ill BUSINESS' 

ll 
188 


26626.157

MANY AMERICANS BEliEVE OUR 

NATION FACES AN IMPENDING WATER 

INFRASTRUCTURE CRISIS 

Water pipes and systems in America are 

crumbling and approaching a state of crisis. 

2 9% 

OFVOTERS 

0 

STRONGLYAGREE 

*INDUSTRIAL AND AGRICULTURAL BUSINESSES ONLY 

12 029: Do you, .. strongly agree, somewhat agree, somewhat disagree, strongly disagree? 

Base-Voters: 1.003; Business*· 502 
189 


26626.158

AMERICANS BELIEVE REFORM 

IS NEEDED ... 

100% 

80% 

60% -

40% 

20% 

0% 

1111 VOTERS 

1111 BUSINESS' 

COMPLETE 

OVERHAUL 

*INDUSTRIAL AND AGRlCULTURAL BUSINESSES ONLY 

MAJOR REFORM MINOR REFORM NO NEED 

FOR CHANGE 

DON'T KNOW 

VOTERS· ll% 

BUSINESS" g% 

Q<lS: Now, thinking about the water Infrastructure system in America, wou!d you say it needs a complete overhaul. maJor 13 reform, minor reform. or is there no need for change? f Base-Voters: 1,003; Busine.,;s*· 502 
190 


26626.159

... REGARDLESS OF REGION. RESIDENCE. 

AGE OR POLITICAL AFFILIATION 

Reform of the nation's water infrastructure is needed. 

100% 

80% 

60%-

40%-

209:<)-

0%-

14 

* * "' "' "' 00 >f: ro 

REGION STATE AREA GENDER AGE POLITICAl HOUSEAFFILIATION HOLO 

INCOME 

045: Now, thinkmg about the wat€r infrastructure system tn America, would you say lt needs a complete overhaul. 

major reform, minor reform. or is there no need for change? I Base-Voters: 1.003 
191 


26626.160

GOVERNMENT MUST LEAD 

THE SEARCH FOR SOLUTIONS 

Who would you hold accountable for fixing water 

infrastructure problems7 

Local & municipal govts 

State govts 

Federal govt 

Business* & industry 

All of the above 

79. 

OF VOTERS AGREE 

*"INDUSTRIAL AND AGRJCULTURAL BUSINESSES ONLY 

36% 50% 

26% 22% 

25% 17% 

5% 

2% 

Federal, state and local 

governments should invest 

money in upgrading our 

water pipes and systems 

Think our government officials 

need to spend more time 

addressing water issues 

Q48: If there were problems with our nation's water infrastructure system, who would you hold accountable furfixing these problems? 15 

031/32: Do you ... strongly agree. somewhat agree, somewhat disagree, strongly disagree? I Base-Voters: 1.003; Eluslness* 502 
192 


26626.161

... BUT EVERYDAY AMERICANS MUST 

SHARE RESPONSIBILITY 

100% 

80% 

60% -

40% -

20% 

1111 

IIIII 

0% -

DON'T KNOW 

VOTERS 

BuSINESS' 

EVERDAY 

AMERICANS 

LOCAL AND 

MUNICIPAL 

GOVERNMENT 

FEDERAL 

GOVERNMENT 

STATE 

GOVERNMENT 

BUSINESS* 

ANOINDUSTRY 

*lNDUSTR!Al AND AGRICULTURAL BUSINESSES ONLY 

16 049: If our water infrastructure system needed to be repaired and upgraded to continue to bring clean water 

to American households/ and businesses*), who do you think. should be responsible for paying for these improvements? 

Base-Voters: 1<003; Business*· 502 
193 


26626.162

AMERICANS AND U.S. BUSINESSES* 

ARE WilliNG TO DO THEIR PART 

Would you be willing to pay a little more each month in your 

water bill to upgrade our water system to ensure long-term 

access to dean water? 

NO DON'T KNOW 

'"INDUSTRIAL AND AGRICULTURAL BUSINESSES ONLY 

043: Would you/Do you think your company would be willing to pay a little more money each month in your/ its water bill to 17 

upgrade our water system to ensure that we have long-term access to clean water? J Base-Voters: 1.003; Business*· 502 
194 


26626.163

TWO-THIRDS OF AMERICAN VOTERS 

ARE WILLING TO PAY AN AVERAGE OF 

$6.20 MORE PER MONTH 

$6.20 

AVERAGE PERCENTAGE 

INCREASE OVER CURRENT 

WATER Bill 

AMOUNT VOTERS ARE 

WilliNG TO PAY 

PER MONTH 

11% 

An increase of only 11% by 63% of American 

households alone would lead to increased 

investment in our nation's water infrastructure by 

more than $5 billion per year* 

Of the 57% of businesses** willing to pay more now, the 

average acceptable increase is 7% 

*BASED ON 2010 CENSUS U.S. BUREII.U PROJECTIONS· ll4.2DO.OOO U.S. HOUSEHOLDS 

**INDUSTRIAL AND AGRICULTURAL BUSINESSES ONLY 

18 040/41: How much would you say you/your company pays on average each month for your water bill' 

044: How much more money would you/do you think your company would be w!l!ing to pay each month to upgrade our water 

system to ensure that we have long term access to dean water? /Base-Voters: 1,003; Business**· 502 
195 


26626.164

PEOPLE ARE WILLING TO PAY 

MORE REGARDLESS OF REGION, 

RESIDENCE. GENDER, AGE. POLITICAL 

AFFILIATION OR INCOME LEVEL 

I am willing to pay a little more in my water bill each month, 

100% 

80%_ 

~ 

60%-

4Q%_ 

20%_ 

0%-

* 

REGION STATE AREA GENDER AGE POLITICAL HOUSE· 

AFFILIATION HOLD 

INCOME 

043: Would you/Do you think your company would be willing to pay a little more money each month in your/ its water bill to 19 

upgrad~ our water system to ensure that we have long~term access to clean water? I Base-Voters: 1,003 
196 


26626.165

AMERICANS ARE RESPONSIVE 

TO THE FACTS 

20 

%CONVINCING (VERY/ SOMEWHAT) 

In 2009 The New Yorl< Times reported that [since 2004J 

62 million Americans have been exposed to drinking water 

that does not meet government health gulde!lnes. 

to more pjpes breaKing and1rrc:rease6thance.s for contaminated watec 

82% 75% 

81% 

.86% 79% 

*INDUSTRIAL AND AGRICUlTURAl BUSINESSES ONLY 

053-61. How convincing of a reason is this to fix America's water infrastructure systE<m7 

Base-Voters: 1,003; Business*: 502 
197 


26626.166

AMERICANS ARE RESPONSIVE 

TO THE FACTS 

%CONVINCING !VERY/ SOMEWHAT) 

According: to the U.S. Environmental Protiktion.Agency, lf the United 

States decrease'd our residential, commen:;ia! aru:l lrldust!ja! water 

leaks by only 0.5%, we woUld save 270 rril!!lon _g?llons of water a day 

and 150 nli!Hon kilowatt hours of electricity annually. That's enough 

e!ectr1city to power 300.000 energy efficient refrigerators for l yeac 

*!NDUSTRlAl AND AGRJCULTURAL BUSINESSES ONLY 

053-61: How convincing of a reason is this to fix America's water infrastructure system? 

Base-Voters: 1,003; Busmess*· 502 

86% 

87% 

87%. 

82% 

82% 

21 
198 


26626.167

EDUCATION HEIGHTENS CONCERN 

Concerned about the state 

of America's wate1 

inf1ast1uctu1e system: 

100% 

85% 

60% 

40% 

20% 

0% 

VOTERS BUSINESS* 

Ill PRE-INFO 

POST-l~FO EXPOS~JRE 

The wate1 inf1ast1ucture system 

in Ame1ica needs a complete 

ove1haul m majm 1efo1m 

100% 

80% 

68% 

60% 

40% -

20% -

0% -

VOTERS BUSINESS• 

Ill PRE-INfO FXPOSLJR~ 

• EXPOSURE 

*INDUSTRIAL AND AGR!CULTURALBUSJNESSES ONLY 

22 046/63: How concerned are you about the state of America's water infrastructure system'~ 

045/62: Now, thinking about the water infrastructure system in America, would you say it needs a complete overhauL 

major reform. minor reform. or is there no need for changer f Base-Voters: 1,003; Business*· 502 
199 


26626.168

METHODOLOGY 

1605-person telephone survey 

82 questions 

Fielded August 6-September 3, 2010* 

ofEtror"" 

at the 95% 

confidence level 

Margin of 

+~1~4.26% at the .cJ5% 

confidence level 

of Error 

at the 95% 

confidence !eve! 

Representative 

Even 

Sophomores, 

*NOTE THAT SURVEY FIELDING COMPLETED PRIOR TO THE OBAMA ADMINISTRATIONS INFRAS1RUCTURE FINANCING PROPOSAL 

**INDUSTRIAL AND AGRICULTURAL BUSINESSES ONLY 

***NOT INCLUDED IN THIS REPORT ANALYSIS 

• '=100 

23 
200 


26626.169

ABOUT ITT 

ITT Corporation IS a hlgh~technology engineenng and manufactunng company operating on a!l seven 

contments tn three Vital markets. water a.nd fluids management. global defense and security. and mot1on 

and flow control With a hentage of tnnovat1on. ITT partners with its customers to deliver extraordinary 

solutions that create more livable env!fonments. prov1de protection and safety and connect our world 

Headquartered m White P!a1ns. NY, the company reported 2009 revenue of $10 9 bt!fion 

wwwittcom 

www 1tt.com/va!u1?ofwater 

.X. 

__y ITT 
201 


26626.170
202 


26626.171

CBO 

•••••• 

Future Investment in 

Drinking Water and 

Wastewater Infrastructure 

Noveml)er 2002 

The Congress of the United Srates • Congressional Budget Office 
203 


26626.172

Notes 

Numbers in the text and tables may not add up to totals because of rounding. 

Unless other.vifie indicated, all costs referred to are in 2001 dollars. 

Cover photo shows chlorine contact tanks at a wastewater treatment plant within the Delta 

Diablo Sanitation District, Antioch, California. ©Paul Cockrell. 
204 


26626.173

Preface 

A cconling to experts from the Environmental Protection Agency and various non federal groups, the nation's drinking water and. wastewater systems f8.ce increasing challenges over 

the next several decades in maintaining and replacing their pipes, treatment plants, and other 

infrastructure. But there is neither consensus on the size and timing of future investment costs 

nor agreement on the impact of those costs on households and other water ratepayers. 

The Congressional Budget Office (CBO) has analyzed. those issues ar the request of the Chairmen and Ranking Members of the Suhcomminee on Wa.rer Resources and Environment of 

the House Commitree on Tr<~nsportation and Infrastructure and the Subcommittee on Environment and Hazardous Materials of the Houst..' Commiuee on Energy and Commerce. This 

study provides b<1ckground information on rhe nation's warer systems, presents CBO's 

estimates of fllrurc cosrs for water infrastructure under rwo scenarios-a low-cosr case and a 

high-cost case~ and discusses hroad policy options for the federal government. In keeping 

with CBO's mandate to provide objective, impartial analysis, this report makes no recommendations. 

The srudy was written by Perry Beider and Naralic Tawil of CEO's !\..1icrocconomic and 

Financial Srudics Division,, under the supervision of David Moore and Roger Hirchner. 

Many people- within CBO and outside it provided valuable assistance; they are acknowledged 

in Appendix D. 

November 2002 

Dan L. Crippen 

Direcror 

www.cbo.gov 
205 


26626.174

1 

2 

3 

Summary i.1; 

Drinking Water and Wastewater Infrastructure 

An Overview of U.S. '\l/arer Systems 

The Federal Role 6 

The N ced for Increased Investment 8 

l~stimates of Future Investment Costs 

and Their Implications 11 

Rottorn-Up and Top--Down Estimates 

oflnvesrrnent in Water Systems 13 

CBO's Estimates of Furure Costs 17 

Comparing Current Spending and Future Costs 25 

The Impact of Projected Water Costs 

on Homeholds' Budgets 26 

Options for Federal Policy 33 

Federal Support l()r Resc<~rch and Development 

and Its Implications 34 

Federal Support fOr Infl:-astructure lnvcstmenr 

and Its Implications 35 

Direct Federal Support ror Ratepayers and 

Its Implications 42 

Condudlng Note 43 

Appendix A 

Assumptions the Congressional Budgcr Office Used 

In Its Low-Cost and High-Cost Cases 45 

Appendix B 

Maj{)r Sources ofEHlciency Savings 51 

Appendix C 

'The 4 Percent Benchmark for Affi)fdability 55 

Appendix D 

Acknov.·iedgrnents 57 
206 


26626.175

vi FUiliRE INVESl'MENT IN DRINKING WATERA.\1) WASTh'"W'ATER INHt\~iRU(,'TIJRE 

Tables 

S-1. 

S-2. 

S-3. 

2-l. 

2-2. 

2-3. 

2-4. 

2-5. 

2-6. 

2-7. 

2-8. 

Figures 

S-1. 

S-2. 

1-1. 

1-2. 

Assumptions Used in CBO's Low-Cost and High-Cost Cases 

Estimates of Average Annual Costs for Investment in 

Water Systems, Including Financing, 2000 to 2019 

Estimates of Average Annual Costs f()r Investment in 

Water Systems, Measured as Capital Resource Costs, 

2000 lO 2019 

Summary of Estimates ofinvestment Costs 

for Water Systems 

CBO's E<>timates of the Likely Range of Average 

Annual Costs for \Vater Systems, 2000 to 2019 

Comparison ofCBO's and WlN's Estimates of 

Average Annual Costs, 2000 to 2019 

Assumptions Used in CBO's and \VIN's Analyses 

Contributions ofindividual Assumptions to DiflCrences 

Between CBO's and \VIN's Estimates 

Estimates of Average Annual Capital Costs for Investment 

in Water Systems. 2000 to 2019 

Estimates of the DiHerence Rctwecn 1999 Spending and 

Future Costs for Investments in Water Systems 

Percentage Shares of Households' Average Expenditures 

in the Late 1990s, by Category 

CBO's Estimates of Annual Investment Costs 

for Water Infrastructure 

Water Bills as a Share of Household Income 

A Drinking Water Plant 

A Wastewater Treatment Planr 

xi 

xiv 

15 

17 

18 

20 

23 

24 

26 

29 

xviii 

3 
207 


26626.176

CQNTENTS vii 

1-3. Community Water Systems and Population Served 

by Size of System, 200 I 4 

1-4. Wastewater Treatment Facilities and Population Served 

by Size of Facility, 1996 

2-1. Water Bills as a Share of Household Income 30 

Boxes 

S-1. Estimates of Costs for Water Systems' Furure Operarions 

and Maintenance xii 

S-2. Options ro Expand Federal Aid for Private Water Systems xix 

2-1. Alternative Measures of Investment Spending 12 

2-2. Securicy Investments for Water Systems 14 

2-3. The Water Infrastructure Network's Published Estimates 

oflnvestment Needs and the "Funding Gap" 19 

2-4. CBO's Analysis of Household Water Bills 27 

2-5. Water Bills in Various Industrialized Countries 28 

3-1. Federal Support of Privarely Owned Water Systems 36 
208 


26626.177

Sununary 

wter industry authorities and analym believe 

that maintaining the nation'~ high~quality drinking water 

and waste\Vater services will require-a substantial increase 

in spending over the next two decades. They point ro 

many types of problems with existing water infrastructUrt\ in-cluding the collapsed storm sewers in various 

cities, rhe 1.2 trillion gallons of water that overflows every 

year from sewer systems that commingle stonnwater and 

wastewater, and the estimated 20 percent loss from leakage in many drinking water systems. 

Bm the amount of money needed for hnure investment 

in water infrastructure is a maner of some debate, and 

various estimates have been developed. The "needs surveys'' of drinking water and wastewater systems conducted periodically by the Environmental Protection 

Agency (EPA) provide one measure of potential investment cosrs. Others are offered hy groups such a~ the 

\V'ater Infrastructure Network (WIN) and the American 

Water \'(forks Association. The Congressional Budget 

Office (CBO) has also analJLed futun· costs f(n water 

infrastructure and presents irs esrimarcs here as low-cost 

and high-cost scenarios, illustrating the large amount of 

uncertainty surrounding those fUture costs. 

In the debate about future investment in water systems, 

hoth the amount of money that >vill he needed and the 

source of those funds are at issue. Advocates of more 

federal spending have argued that es[imates of the difference bet\vecn future costs and some measure of recent 

spending-the "funJinggap"-jmtify increased federal 

supporr. However, higher fmure costs could be funded 

from many sources and are not necessarily a federal 

responsibility. 

The tederal government currently supports investment 

in water systems through several programs. They include 

stare revolving funds (SRFs) f()r wastewater and drinking 

water, which receive capitalization grants through appropriations to EPA; loan and grant programs of the Departmem of Agriculture's Rural Utilities Service; and the 

Community Development Block Grants administered by 

the Department of Housing and Urban Development. 

Notwithstanding those and variotJS smaller programs, the 

largt~ majority of the funding for drinking water and 

\>V:.tstewater services in the United States taday comes from 

local ratepayers and local taxpayers. 

Ultimately, society as a whole pays 100 pncent of rhe 

costs of water services, whether through ratepayers' bills 

or through fCderal, ~tate, or locd taxes. Federal subsidies 

for investment in water infrastructure can redistribute the 

burden of water costs from some households to others. 

However, subsidies run the risk of undermining the inthe water industry and. raising total costs to the nation as 

a whole. 

CBO's Estimates of Future Costs 

for Water Infrastructure 

CBO estimates thar for rhe years 2000 to 2019, annual 

costs fOr investment will aver.age between $11.6 billion 

and $20.1 billionfordrinklngwatersystemsand berween 

$13.0 billion and $20.9 biiJion flx wastewater systems 

(sre Summary Figure 1). 
209 


26626.178

X ftl11JRE ll\'VliSTMEJYf Lt.;' DRINKll\G WATER AND WASTt'\VATER lNFRi\STRUCTURE 

Summary Figure 1. 

CBO's Estimates of Annual 

Investment Costs for Water 

Infrastructure 

(Billions of2001 dollars) 

10' 

1999 

30 

10 

Drinking Water Wastewater 

.Sollfce: Congtrssional Bu~get Office. 

a .. ~veragr annual costs for the 2000 to 2019 period. 

Total 

CBO also projects that annual costs over rbe period for 

operations and maintenance (O&M), "vhich arc not eligible for aid under current fCderal programs, will average 

between $25.7 billion and $31.8 billion for drinking 

water systems and berween $20.3 billion and $25.2 bil-

}jon for wastewater systems. (Unless other-vise noted, all 

costs in this study are in 200 l dollars.) For its estimates, 

CBO chose the 2000 to 2019 period ro simp! if}' compari" 

sons with earlier estimates developed by the Water Infrastructure Nerwork, a coalition of groups representing service providers, elected officials, engineers, construction 

companies, and environmentalists. Data on actual ~pending in 2000 and 2001 are nor yet available. 

CBO'sestimates of future investment and O&lvf spending under two different scenarios--··-a low-cost case and 

a high-cost case-are intended to span the most Iikdy 

possibilities that could occur. The range of estimates reflects the limited .information available at the national 

level about existing water infrastructure. For example, 

there is no accessible inventory of rhe age and condition 

of pipes, even for the relatively few large systems that 

serve most of the country's households. That lack of 

adequaresystem-specific data compounds the uncertainty 

inherent in projecting co:-;ts rwo decades into the future. 

Indeed, given the limitations of the data and the uncertainry about how future technological, regulatory, and 

economic facrors might aHect water systems, CBO does 

not rule out the possibility that the actual level of investment required could lie outside of the range it has estimated. 

Under each scenario, the estimates are intended to represent rhe minimum amount that water systems must spend 

(given the scenario's specific assumptions) to maintain 

desired levels of service to customers, meet standards for 

water quality, and maintain and replace their assets costeffectively. However, the estimates exclude certain categories ofinvestment. Because water systems are still developing estimates of the costs for increasing security in the 

wake of the September ll attacks, the estimates do not 

include those expenses-but preliminary reports suggest 

that security costs •vill be tdatively small compared with 

the other costs for investment in infrastructure. Also excluded from the estimates is investment by drinking water 

,'>ysrcms to serve new or future customers. Such projects 

are generally not eligible for assisrance from the SRFs and, 

hence, are not covered in EPA's needs survey. 

CBO's estimates measure investment spending in costs 

as financed rather than in current resource costs, the 

yardstick that economists typically use. Costs as financed 

comprise the full capital costs of invesrmtnts made out 

of funds on hand~thar is, on a pay-as-you-go hasi.~­

during che time period being analyzed and the debt service (principal and imere!'t) paid in those years on new 

and prior investments that were financed through borrowing. In contrast, current resource costs include the 

investments' capital costs, regardless ofhow they are paid 

for, and exclude payments on past investments. Current 

resource costs are more suitable than other measures of 

investment for analyzing whether society is allocating 

resources efficiendy,-·for example, in assessing the costs 

and benefits of water-qualiry regulations. But CBO's 

present analysis takes goals for water quality and services 

as a given and focuses on the financial impact of meeting 

those goals. For that purpose, measuring costs as financed 

is more useful than measuling currem resource costs 

because the former better indicates tbe burden facing 

water systems and their ratepayers at a given time. 
210 


26626.179

SUMMARY 

Summary Table 1. 

Assumptions Used in CBO's Low-Cost and High-Cost_<:,~~~--

Capital Factors 

Savings from Increased Efficiemy by Drinking Water and Wastewater Systems (Percent) 

Drinking Water Systems 

15.0 5.0 

Annual percentage of pipes replaced 

Average annual cost for regulations not yet proposed (Billions of 2001 dollars) 

0.6 

0 

1.0 

0.53 

Wa...;;tewater Systems 

Annual percentage depreciation 

Share of invc,;tments in EPA's needs survey for replacing existing capilal (Percent) 

Average annual cost for abating combined sewer over!lows (Billions of2001 dollars) 

2.7 

25.0 

2.6 

3.3 

15.0 

5.4 

Financing Factors 

Real (Inflation-Adjusted) Interest Rate (Percent) 

Repayment Period 

Pay-As-You-Go Share ofTotallnvestment (Percent) 

Source: Congressional Budget Office. 

How CBO Derived Its Estimates CBO derived its estimates of investment following the 

basic approach~-i nduding the major sources of data and 

supplementary models---used by WIN, which projected 

costs for bmh physical capital and interest on loans and 

bonds. Within that approach, CBO's two cases differ in 

the values for six assumptions abour physical capital requirements and for three assumptions about flnancing 

costs (see Summmy Table 1). The assumptions most 

responsible for the difference in the two scenarios' estimated cost.<> are those about the rate at which drinking 

water pipes are replaced, rhe savings associated with improved efficiency, the costs ofcontrollingwhat arc termed 

combined sewer overflows (CSOs), and the repayment 

period. 1 (Summary Box I discusses how CBO derived its 

estimates ofO&M costs and compares them with \XTIN's 

estimates.) 

l. A "combined" sewer system is one that commingles storm\vatN 

with household 'Jild industrial wastev.-ater. About 5 percent of 

publicly owned wastC\vater systems have combined sewers; the 

rest have separate "sanitary" sewers. Both types of sysrems can 

overflow, particularly during a period of heavy rainfall, discharging the excess flow directly into receiving waters. 

3.0 

30 years 

15.0 

4.0 

25 years 

30.0 

To estimate physical capital requirements for drinking 

\Yater and wastewater systems, CBO started with data collected by EPA in its needs surveys and~hecause the surveys do not adequately cover the full 20-year periodsupplemented them with estimates derived from simple 

model~. According to EPA, many drinkingwater systems 

have rt>sponded to the surveys on the basis of planning 

documents covering just one to five years, and many 

wastewater systems plan their investments over a rime 

span of five or 1 0 years. 

The methods CBO used to supplement EPA's survey data 

differed for drinking water and wastewater systems. For 

drinking water systems, CBO replaced EPA's data on investments in pipe nerworks with larger estimates hased 

on a study by Stratus Consulting for the American \\;later 

Works Association (A \l/WA). The Stratus study estimated the need fOr replacing pipes on the basis of some 

national-level data and assumptions abom the number 

of drinking ovater systems nationwide (classified by size 

and region), the miles of pipe per system, the distribution 

of pipe mlleage by pipe size, the replacement cost of pipes 

of each size, and the replacement rare. 

xi 
211 


26626.180

xii FUTURE I\TV'ESTMENT IN DRINKING WATER AND \VASTE\VATER JNFR"STRl!CTliRE 

Summary Box 1. 

The Congressional Budget Ofllce (CBO) used rela--

tively simple methods to estimate water systems' future 

spending on operations and maintenance (O&M). For 

both drinking water and wastewater systems' O&M in 

the high-cost case, CBO extrapolated a linear trend 

from real (inflation-adjusted) spending on O&M over 

rhe 1980-1998 period. For the low-cost case, it starred 

with that same linear trend hut adjusted it downward 

to reflect savings from improved efficiency phased in 

over 10 years, beginning at 2 percent in 1995 and 

reaching 20 perccnr by 2004. Thus, only one factor distinguishes the estimates under the two scenarioswhich, as a result, probably do not capture as much of 

the uncertainty surrounding future O&M costs as do 

CI30's more-detailed models of capital investment. 

Estimates of annual 0&!\.1 costs by the \Vater Infrastructure Netvvork (\X!IN)-~$29 billion lor drinking 

\Vater and $24 billion lor wasrewater~are roughly in 

the middle of the ranges spanned by CBO' s two ca~cs. 

Because CBO and WIN used the same basic approach 

In analyzing capital costs for wastcwarer systems, CBO 

distinguished between projects to replace existing infrastructure and other invesrmenrs. It estimated replacement 

costs for each year of the 2000-2019 period hy mulciplying rhe estimated net capital stock in that year by a 

{.:Onstant rate of depreciation. CBO assumed rhat the cosr 

of other investments in each year equals rhe average annual amount reported in EPA's needs survey, with two 

adjustments. One adjustment substitured EPA's more 

recenr estimate of the costs of correcting sanitary sewer 

overflows (SSOs) for the survey's reported needs for repairing and replacing sewers. Because some unidentified 

portion of rhe needs reponed in the survey and in the 

later analy·sis ofSSO costs represented amounts tO replace 

existing infrastniCUlre, the secOIJd adjustment reduced rhe 

sum of those needs to avoid douhle-counting. 

CBO calculated interest cosrs for investmenrs made during the2000-2019 period usingassumptionsabout interest rates, borrowing terms, and the share ofim'esrmenrs 

of extrapolating a future trend from existing data on 

O&M spending, and borh \XTIN's analysis and CBO's 

low-cost case assume savings of 20 percent from efficiency gains, one might expect the two sets of estimates 

w be similar. However, WIN used different spans of 

data fOr extrapolation than CBO did (from 1985 to 

1994 for drinking water and from 1972 to 1996 for 

wastewater); used a construction cost index (which 

might not correspond well to the types of expenditures 

associated with O&M) to convert rhe data to real 

dollars instead of the more general price index for gross 

domestic product that CBO used; and phased in the 

efflciency savings t\VO years later. Moreover, fOr wastewater, WIN extrapolated its trend not !rom data on 

O&M spending itself bur rather tfom data on O&M 

spending per dollar of net capital stock. Although a 

water ~ysrem's capita! stock is plausibly related to its 

O&M costs, there is no dear reason for associating 

each additional dollar of capital stock with an increasing (rather than a steady) amount of additional O&J\.1 

spending. 

paid for through borrowing rather than on a pay-as-yougo basis. However, much of the principal and interest on 

investments financed during the period will nor be paid 

until after 2019. To measure investments from 2000 to 

2019 in costs as financed, CBO focused only on the debt 

service paid Juring the period, whether on nevvly built 

projects or on those hui!t befOre 2000. (As discussed later, 

that approach differs from WIN's.) 

Within the basic approach, CBO selected contrasting 

assumptions fOr its low-cost and high-cost cases (shown 

in Summary Table l on page xi) by examining analyses 

by other estimators and comultingwith inJusrry experts. 

For example, the assumptions used for the costs of controlling CSOs ref1ecrviews from EPA and rhe CSO Partnership, a coalition of communities that have such overflows and firms that design such controls. In particular, 

the low-cost case uses EPA's estimate of the cost of conrrolling 85 percent of rainwater and snowmelt, whereas 

rhe high-cost case reflects the CSO Partnership's belief 
212 


26626.181

SUMMARY 

that costs will be roughly [wice as high unless sta[es revise 

standards addressing water quality to allow less expensive 

controls. Similarly, the values assumed in rhe tv.ro scenarios for the pay-as-you-go share ofinvestment are hased 

on CBO' s expectation that systems wil1 increase their usc 

of borrowing as they try to restrain rates in tbe face of 

rising investment costs, but they reflect diHerent views 

among experts about how much and how quickly the me 

of pay-as-you-go financing will decline. 

Comparing Current Spending 

and Future Costs As noted earlier, part of the policy debate on investment 

in water infrastructure has focused on the difference henveen current spending and future costs and on how that 

difference could affect household ratepayers. However, 

the available data on current spending, collected for rhe 

Census Bureau's Survey of State and Local Government 

Finances, shed lim ired light on the issue hecause they do 

not measure spending in costs as financed. The census 

data identify rhe current interest payments only of drinking water systems and not ofwastewarer systems. Further, 

(he data include the capital costs of all investment in a 

given year---whether the burden of those projects f11ls on 

ratepayers in that year or is being deferred through bornnving-and exclude the principal being repaid on previous harrowing. 

For I 999, lhe latest year fOr which information is available, CBO's best estimates of investment spending are 

$ll.8 blllion for drinking water and $9.8 billion fOr 

wastewater, measured in costs as financed. To devdop 

tl1ose estimates, CBO had to make many assum!)tions~ 

for example, about rhe extent to which water systems had 

borrowed to finance investments over the previous 20 

years. DiflCrem assumptions could have increased or decreased the results, perhaps hy 20 percent. 

The difTerence between those estimates of 1999 investment spending and projected average annual investment 

from 2000 ro 2019 under the low-cost case is dose w 

zero for drinking water systems and is $3.2 billion for 

wastewater sysrems. Togeilier, the future costs for hath 

types of sysrems represent growth of 14 percent from the 

1999 levels. That result contradicts the conventional 

wisdom that the nation's water systems will soon be 

straining to fund a large increase in investment. Neverthelcs.s, CBO considers that result reasonable, given the 

uncenaintyabour the condition of the existing infrastructure, the prospects for cost savings from improved efficiency, and the possibility that water systems will fund 

more of their investment through borrowing and will 

horrow for longer rerrns. Under the high-cost case, the 

esrimated increases average $R.3 billion per year for 

drinking water and $11.1 billion for wastewater, together 

representing growth of about 90 percent over rhe estimated levels for 1999. 

Comparing CBO's Estimates 

with Those of Others 

\\!hen measured in comparable terms, \'VIN' s estimates 

are similar to those ofCBO's high-cost case. In contrast, 

estimates obtained from "bottom-up" studies (those that 

derive national rotals from data on individual systems) 

are rven lower than the ones CBO projects in irs low-cost 

case. 

Comparing CBO's and WIN's Estimates 

CBO's estimates of future investment in water infrastructure are nol directly comparable with those of the coalition because the latter are not measured in costs as financed. WJN's published esrimares comprise roral capital 

cosL~ associated with all inveslmems~whcrher funded 

on a pay-as-you-go basis or through debt-··-during the 

2000-2019 period and all interest paid over time on those 

investments. Thus, they differ from co.srs-as-financed 

esrimares because they include debt service (principal and 

interest) paid after 20 19 on investments during the two 

decades instead of debt service paid during that rime on 

pre-200() investments. That difference is important 

because the amounts of investment that were financed 

yearly from 1980 through 1999, and that cominue to he 

paid off from 2000 to 2019, are smaller than the new 

amounts rhat rhc analyses project will be financed during 

the latter period. 

An addicional facror complicates comparing CBO's and 

\VlN's estimates. WIN's measure of current spending 

differs from irs measure of future costs, so irs estimates 

of rhe increased costs. are inconsistent. In particular, 

xiii 
213 


26626.182

xiv FlffURE INVESTMENT L'\ DRI;'\KJNG WATER AND WASTh\VATl:R INFRASTRVCTURE 

Summary Table 2. 

Estimates of Average Annual Costs for Investment in Water Systems, 

Inclm!!llg ~inancing,}~~O t()_~~!2 .. --·-··---·· -············ ···-----·-- On biltions of 2001 dollars) 

CBO" 

\Vater Infrastructure Network 

As published 

In costs as financed 

Increase in Investment Above Rece-nt Level 

CBO (Using a 19<)9 baseline)' 

Water Infrastmcture Network 

As published" 

In coSL't a.-; financcJc 

Drinking Water 

IL6to 20.! 

26.3 

21.4 

-0.2 to 8.3 

12.2 

9.4 

Waioitewater Total 

13.0 to 20.9 2<i.6 to 4LO 

24.2 50.5 

18.9 40.3 

3.2 to 11.1 3.0 to 19.4 

I:i.'i 25.7 

9.2 18.6 

Sources: Congressional Budget Office: Water Infr.tslructure Network. Clean and St~fi.? Waterfor the 21st Century': A Renewed .National Commitment to Water and 

Wastewater Infrastructure (Wa.<;hington, D.C.: \VlN, 1\prH 2000). 

a. Ranges art' defined by CHO's low-cost and high,cost ;.:ccnarto.:. 

b. Rrlative to a £996 baseline. 

c. CEO's approximation of WIN's resul!S using a !99') baseline 

WIN's measureofcurrent spending in dudes the interest 

paid in the current year on past investments in drinking 

water infrastructure and does not include interest on investments in wastewater infrastructure. Again, however, 

irs measure of costs fOr future years include:;; all subse--

quent interest payments on investments made in each 

such year. 

Using more-detailed results provided by WIN's analysts, 

CBO f()und that measuring future investment in cost:. as 

flnanc.ed reducl';'s WIN's estimates ofawrage annual neeJs 

from $26.3 billion to $21.4 billion for Jrinking water 

and ffom $24.2 billion roS 18.9 billion for wastewateran overall reduction of 20 percent (see Summary Tabfe 

2).1 CBOalso recalculated the coalition's estimates of the 

difference hetween current spending and average annual 

Those comparisons express all costs in 2001 dollars. As originally publisht.'d, W1N's annual estima!t'"S of future spending 

were in 1997 dollars and totaled $24 billion for drinking water 

sysrems and $22 billion for ;vastewarer systems. See Watn Infrastructure Network Clean and Safr Wrtterji:Jr thl' 2! st Cn1tu1y: 

A Rmewed NdtionRl Commitment to WC:1ter and W'lastew<lff"T Injlwstructure (Washington, D.C.: WIN, Aprll 2000). 

future needs----the so-calleJ fUnding gap-~in costs as 

financed. (To do so, ho·wever, CBO had to approximate 

WIN's estimate of currem debt service, a key component 

of current spending in costs as financed, because not 

enough information was available to calculate it directly.) 

Again, the revised estirnares are lower---$9.4 billion instead of$12.2 billion for drinking water and $9.2 billion 

instead of $13.5 billion for wastewater, for a combined 

reduction of2) percent. 

The reductions that result from measuring investment 

volume in costs as financed bring WIN's estimates close 

to those ofCBO's high-cost case: the coalition's figures 

are somewhat higher t{)r drinking water and a linle lower 

lor wastewater, ·rhe similarity in rbe rwo sets of estimates 

is not surprising, given that CBO and WIN used the 

same ba.<>ic modeling approach and rhat the specific assumptions used in CBO'shigh~cost scenario either duplicate those in W'IN'sanalysis----both assume iliar 1 percent 

of Jrinking water pipes and 3.3 percent of waslewater 

capital will be replaced annually-,~·or differ in ways that 

tend m oflSel each other. Thus, CBO's high-cost case 

does not provide independent supporr lor \'\!IN's esri-
214 


26626.183

SUMMARY 

Summary Table 3. 

Estimates of Average Annual Costs for Investment in Water Systems, 

Measur~d ~-Capital Resource Co~~,~~9_QQ to 2012 _____________________ _ 

(In billions of 2001 dollars) 

CBO' 

Water Infrastructure Nehvork 

Environmental Protection Agency 

Clean Water Needs SurveY' 

As pnblished 

Adjusted for more recent estimate of costs to control 

sanitary sewer overflO\'vs 

Drinking Water lnfrastmcture Needs Survej' 

As published 

Adjusted for undcrreporting 

Ameli can Water Works Associationd 

Drinking Water 

12.0 to 20.5 

20.9 

ILa. 

n.a. 

8.0 

ILl 

s.s 

Wastewater 

14.9 to 22J 

19.2 

7,3 

1L4 

n.a. 

n.a. 

n.a. 

rota! 

26.9 to 42.7 

40J 

n.a. 

n.a. 

n.a. 

n.a. 

n.a. 

Sources: Congressional Budget Office; Environmental Protec!ion Agency. Office ofWatrr. 1996 Clean WaterNeed.>Suney: Report to Congress. EPA 832-R-9Hl03 

(September 1997); Err-.ironmental Protection Agency, Office ofWater,Drinking lr'lJter InjTastructure Seeds Stm:~r- SerondRepori to Congress, EPA816-R· 

01-00<i (February 200 I); American Water Works Association, Reinvesting in Drinking lof"'Ctter fnjrastrncture: Dawn of the Replacement Era (Denver, 

Colo.: i\V:'WA, May 2001); Water Infrastructure Network, Clean and Sq{e Waterfor tbe 21st Century: A Renewed Nationnl Commitment to water and 

lf!asteutaler lnfiustrth7tturt (Washington, D.( :WIN, April 2000). 

Note: n.a. = not applicable. 

a. Ranges reflect CBO's low-cos! and high-cost cases. 

b. Estimate for 1996 Lhrm1gh 201'). 

c. Estimate for 1999 through 2018. 

d. J'.sl.irnate for 2000 through 2029. 

mates but instead .sttggesrs that to obtain estimates of that 

magnitude requires making relatively pessimistic assumptions. 

Comparing CBO's Estimates and 

Estimates from Bottom-Up Studies 

Support for lower estimates of investment costs comes 

from bottom-up studies by EPA and the A WW A Those 

studies measure investment in currem resource costs·--

again, total capital costs regardless of financing but 

withour including interest costs. So comparing their 

estimates with CBO' s and 'W'IN' s projections requires 

that those projections also be expressed in terms of resource costs. 

\Vhen the results are measured comparably, the estimates 

from CBO' s low-cost case are above those from EPA's 

and AWWA's studies, even after some (perhaps incomplete) adjustments to EPA's estimates to rryto correct fOr 

the surveys' limitations in capmring investments over rhe 

full 20-year horizon (see Summar} Table 3). 

EPA's latt·st availablewastewater survey, conducted in 

1996 and published in 1997, estimated that average 

annual11eeds were $7.3 billion peryear.3 Substituting 

EPA's later projection of costs for controlling sanitary 

sewer overflows raises the estimate to $1 1.4 billion. 

For drinking water, EPA's 1999 needs survey (published in 2001) estimated average annual needs of$8.0 

3. Environmental Protection Agency, Office of\):rater, 1996 C!t:an 

Water Needs Sul11ry- Report w Congrm, EPA 832-R-97 -003 

(September 1997). 

XV 
215 


26626.184

xvi FUil'RE INVE~iMR"lT IN DRINKll\G WATER A_.l'.j1) WA.'>nlWATI:R L~FRASTR1 CTI_:R.E 

billion; iftheamountof underreportingin that;;;urvey 

equals the amount that EPA found in fOllo\v-up visits 

to 200 medium-sized and large systems after the 

initia11995 needs survey, then the estimate of $8.0 

billion can be scaled up to $11.1 billion.4 

The A \i.'W A conducted a detailed engineering analysis of the needs of20 medium-sized and large drinking water systems; extrapolating from that admittedly 

small base to national totals, the association estimated 

that average annual needs cost $8.5 billion.s 

Water Costs in Household Budgets How might future costs ofinvestmcnt in water infrastructure and ofopcrations and maintenance affect houst~hold 

budgets? CBO estimates that in the late 1990s, tO[al 

household bills fordrinking\vaterand wastewat<'r services 

combined represented 0.5 percent of household income 

nationwide. By 2019, CBO projects, household water 

bills will account for 0.6 percent of national household 

income under tbe low-cost scenario and 0.9 percent 

under the high-cost scenario. According to rhe best available intemarional data, such shares would not be high 

compared with the income shares devoted to household 

\Vater bills in many other industrialized countries."' 

CBO's estimates assume steady levels ofsupporr financed 

by taxpayers and constant shares of water costs paid by 

household and nonhousehold ratepayers. Any changes in 

those levels or shares would shift tbe fOrm of the impact 

on household budgets bur would not change the average 

irnpact nationwide, since households ultimately pay I 00 

't Environmental Protection Agency, Office of Water, DrinHng 

\Fatn Ir~{rastrurture Needs Sun'l')'.' St'nmd Rt'port to Ccmgrrss, 

EPA 816-R-01~004 \February 2001). 

5. American \X!ater Works A<>sociation, Reinwsti-ng /)r£nkillg 

U:-:izter h:fi·astruaure: Dawn of thr Repl.aanmu Eta (D~·nvcr, 

Colo.: AW\Y!A, May 200 I). 

6. International data are limited to average direct hilling costs for 

typicallevds of water use. See Organi12tion fOr Economic Co~ 

operation and Dc.."Vdopment, Environment Directorate, Envi~ 

ronmem Policy Committee. Houst,hold 'W'ata l'ricinf!. in 0£(1) 

C'mmtries, ENV/EPOC/GEEl(98)12/FlNAL (Paris: OECD, 

1999). 

percent ofwater costs, whether through water bills, taxes, 

or the costs of other goods and services produced using 

water. 

National shares, however, can obscure important differences among households; thus, rhey shed only limited 

light on the argurnenr, made by advocates of boosting 

federal aid for water infrasrrucrure, that water bills will 

otherwise become "unaffordable" for many households. 

Accordingly, CI30 went beyond national averages to 

examine the currenrdistriburion ofhousehold water bills 

relative to income and to project future distributions. 

Specifically, CBO analyzed thecurrentdistriburion using 

a national sample of annualized water bills reported by 

approximately 2,800 households; thos(' households participated fora year in the Consumer Expenditure Interview 

Survey some time between the third quarter of1997 and 

the first quarter of 1999. COO's analysis of the data 

included imputing expenditures for the 39 percent of 

respond~nts who did not report their own bills by using 

data from households with comparable- incornes. 7 To 

project the distributions forward to 2019, CBO scaled 

up the individual water hills to reflect e-srim~ued costs in 

the two scenarios and extrapolated household income to 

reflect growth in real income and population. 

The results ofCBO's analysis can b~ characterized in several ways, with different me-Jsures highlighting differem 

features of the distributions. One summary measure that 

has received signiflcam attention in discussions of furure 

water costs is the proportion of households whose water 

bills exceed 4 percent of their income. Bur 4 percent has 

no economic significance as rbe point arwhid1 household 

water bills become "unaffordable," so rhe measure is no 

better (or worse) than many others. 

In terms of that particular measure, CBO estimates tbat 

in the late 1990s, 7 percent of U.S. households spent 

more than 4 percent of their income on water bills. An 

7. Thar impmation may over~{ate water costs since most nonreponing households are likely to be apartment dwellers (who 

do not receive s<'parate water bills), and water use per 

eenerally lower in multifamily units than in 

homes. 
216 


26626.185

SUMMAI!Y 

additional 16 percent of U.S. households had expenditures greater than 2 percent of their income; 25 percent 

\Vere spending less than 2 percent but more than 1 percent, and 51 percent were spending no more than 1 percent (see Summary Figure 2). If the additional burdens 

associated with CBO's low-cost and high-cost estimates 

led to uniform percentage increases in ratepayers' bills, 

10 percent to 20 percent of U.S. households might he 

spending more than 4 percent of their income on water 

bills in 2019; an additional 19 percent to 23 percent 

might be spending more than 2 percent. 

ln the 'XTIN coalition's estimates, water bills account for 

a much larger shan.~ ofhousehold budgets, both now and 

in the future. In 1997, \VIN estimates, 18 percent of 

households spent more than 4 percent of their income on 

water services; it foresees 22 percenr ofhouseholds having 

bills at that level by 2009 (half\vay through the 2000-

20 l9 period) and a third or more of the population experiencing such costs as rates continue to rise. 8 

Apparently, the discrepancy between WIN's estimate of 

18 percent for 1997 and CBO's estimate of7 percent for 

the late 1990s derives primarily from the use of different 

data on household water costs. CBO analyzed actual bills 

based on water use by households; \VIN, however, calculated household water bills using data on charges in 1997 

among systems in Ohio for 250 gallons per day, WIN 

chose to use those charges because, according to the 1990 

census, Ohio households' drinking water bills relative to 

their income matched well those for U.S. households as 

a whole. (The 1990 census did nor have data on household wastewater expenditures.) However, if household 

water bills nationally cannot be accurately characterized 

on that basis, then 'WIN's results may not be representative. lf, for example, lo\v-income households tend to use 

less than 250 gallons per day, then, other things being 

equal, 'W'lN' s estimates overstate the numher of households with water bills claiming more than 4 percent of 

their income. 

8. Water Infrastructure Ncrwork, Octm and ~""aft Wfatrr for the 2bt 

Centw.y, pp. 3-4 and 3-.'i. 

Rationales for Federal Involvement 

in Water Services 

Economic principles suggest that the federal government's intervention in drinking water and wastewater 

markets may be able to increase the cost-·effectiveness of 

providing and using water when state and local governments and water systems do not have adequate incentives 

to account for effects that their pranices may have on 

third parties. This CBO srudy focuses on federal financial 

support; of course, the federal government also inteJvenes 

in water markets through irs role in establishing waterquality standards under the Clean Water and Sate Drinking Water Acts. Whether current standards promote the 

economically efficient use of society's resources is an important question bur is not addressed here. 

One opportunity for federal funding to improve costeffectiveness may be by supporting research and development (R&D). Nonfederal emities measure potential 

R&D expenditures only against the benefits that they 

themselves could realize, ignoring gains that might accrue 

to others, Without federal involvement, r.herefore, funding for the development of new technologies is likely to 

be lower than is optimal. Bur determining the right level 

of federal support in practice is a challenge. Ir depends 

on the returns to investment in R&D, which are typically 

difficult to predict, and the extent to which nonfederal 

entities reduce rheir R&D expenditures in response tO 

f("deral fUnding. 

A similar case might also be made in favor offederal support for disseminating "best management practices." The 

argument i.s not simply that such practices can help water 

systems reduce their costs, alrhough that appears to be 

true. (On the basis of 136 a5$essments of water systems 

since 1997, the consulting firm EMA Associates found 

that adherence to besrpractices could reduce operational 

costs by an average ofl8 percent.) Railier, the crux of the 

argument is the possibility that federal costs for gathering 

and disseminating information about widely applicable 

practices would be lower than the total costs that individual system managers would incur in seeking out relevant 

information. If so, then taxpayer-funded support might 

yield cost savings. 

xvii 
217 


26626.186

xviii FLlllRE INVESTMEJ\T IN DRINKING WATER ANlJ WASTt\VATEH lNHMSTRUCTURE 

Summary Figure 2. 

Water Bills as a Share of Household Income ---- ------------------------------------ (Percentage oflLS_ households) 

Bills in the Late 1990s 

60 

10 

10 More 

Percentage of Income than 10 

Bills Under the Low-Cost Case, 2019 

60 

;o 

30 

20 

10 

10 More 

Percentage of Income than 10 

Bills Iinder the High-Cost !:ase, 2019 

60 

;o 

40 

30 

20 

10 

- 10 

-

More 

Percentage of Income than 10 

Source: Congn.:ssJonal Budget Office. 
218 


26626.187

SliM MARY 

Summary Box 2. 

Half of all community drinking water systems in the 

United States are privately owned, as are roughly 20 

pen;ent ofrhewasrewater systems rhat treat household 

sewage. However, those systems serve only a small share 

of households: private drinking water systems reach 

only ahout 1 ')percent ofhouseho!ds-exduding those 

using individual wells-and privarewa.srewarer systems 

reach only about 3 percent of sewered households. 

Giving private systems access to federal funds on equal 

footing with public systems may or may nor improve 

cost-effectiveness because of two opposing effects. On 

the one hand, balanced treatment could result in some 

cost savings if private ownership can reduce a system's 

costs in some cases and local decisionmakers can correctly identify those cases. On the other hand, increasing fCderal aid rends to increase investment costs, 

To help equalize fCderal support, the Congres~ could 

modifY the Clean Water Act to make private systems 

eligible for loans from the stare revolving fimds. On the 

tax preference side, it could alter policies related to taxexempt private activiry bonds (PABs). Specific options 

publicized by the Environmental Protection Agency's 

Environmental financial Advisory Board include: 

Exempting bonds issued for water systems from 

the federal limits on the amount ofPABs issued in 

each state; 

However, other type."> of federal support for water services 

(such as the current spending programs and tax preferences that help fund invesnnenr) distort prices and rhus 

undermine incentives for cosr-dfecrivc actions by water 

systems and ratepayers. Eliminating those distortions 

could lower total national costs: for example, system mJnagers might reduce investment costs by undertaking more 

preventive maintenance and improving rhedesign of their 

pipe networks, and households might cut water use by 

fixing leaks and watering lawns less oli-en. 

Exempting interest earned on those PABs from the 

individual alternative minimum tax (AMT) and 

partially e-xempt it from the corporate AMT; 

Increasing opportunities for PAB issuers to benefit 

f!om arbitrage profits-those earned by investing 

PAB proceeds at a rare ahove the bond's own yield 

~by allowing issuers a full two years to spend their 

bond proceeds; and 

Allowing one-rime refinancing of PAlls up to 90 

days before redemption of the original debt. 1 

One argument fi)r providing private water systems with 

equal access to federal aid is that it would treat customers of private and public systems equally. Conversely, one argument agaJnsr equal access is that it 

would give private water systems unique advantages 

relative tO orher types ofprlvately owned firms. Under 

current law, privately managed enterprises such as 

airports and solid-wasre facilities can be exempt from 

the PAll limits, but only if they are publicly owned. 

The dearcsr argument for current policies to subsidize 

investment in water infrastructure is to shift the costs of 

water services from ratepayers served by high~cosr systems 

(such as those in small and rural communities) to those 

served by low-cost systems, or from low-income to highincome hou::;eholds. {Most federal support goes to publicly owned systems, hur some goes to privately owned 

ones; Jee Summt.t.Jy Box 2for options to expand aid to private systems.) 

xix 
219 


26626.188

XX HJH!RE INVESTME"iT IN DRINKING WATER AND WASTE~'ATER lt\FRASTRI!CTERE 

In evaluating the case for subsidizing water services, it il' 

important to recognize that the level and form of the 

subsidies influence nor only the disttibutionaJ effects but 

also the extent to which support undermines inct:ntives 

for cost-effective actions. To preserve those incentives for 

both water systems and users, the Congress could pursue 

policies rhat redisrrihure income rather than those that 

distort the price of water. 

Implications of Federal Support 

for Infrastructure Investment Federal support for water systems can have unintended 

consequences. For example, an analysis of the federal 

wastewater construction grants program under the Clean 

Water Act concluded that it reduc~d other contributions 

ro capiral spending, Thus, total investmenr in water infrastructure increased only 33 cents for each dollar oflederal 

support; the other 67 cents effectively reduced stare and 

local taxes or was spent on other uses.<) 

Federal support for investment projects also undermines 

the cost-effec:rive provision of water services bydiswning 

the price signals that systems face and thus affCcting 

managers' choict>..s in many areas, such as preventive maintenance, construction methods, treatment technology, 

pipe materials, and excess capacity. The resulting losses 

can be significant, particularly if the subsidies ate large. 

For example, a statistical analysis done for a l 985 CBO 

study of rhewa<;tewater construction grants program estimated that setting the federal cost share at 7'5 percent 

initially rather than 55 percent (the reduced level that 

went into effect that year) raj sed plant construction costs 

about 40 percent, on average. 10 

9. Junes Jondrow and R11hen A. "Tht' Displacement of 

10. 

Local Spending for ro!!ution Control by federal Construction 

Grants," American Economic Re;,ie-w, vo!. 74, no. 2 (May 1984), 

pp. 174··178. The displac<"mem of srare and local spending per 

dollar offederal funds might have been kss had tht~ federal share 

b(>eO smaller than 75 percent, its sratmory level during the: period the au.rhors .~rudied, 

One way to reduce the distorting effects of federal subsidies might be to target increased aid to fewer systemsthose judged most deserving, whether because of high 

costs associated with declining customer bases, federal 

regulations, or simply high levels of anticipated investment (or investment and O&M spending) in generaL 

However, defining the target group in a way that does not 

reward systems fOr poor management ami past underinvestment might be difficult. Targeting could even 

undermine cost-effective practices ifit encouraged system 

managers to let infrastructure deteriorate in hopes of 

qualifYing for aid in the future. 

A variety of spending mechanisms-grants, loan subsidies, and credit assistancc~are available to deliver and 

annually readjust a desired level and pattern of aid for 

water systt:ms, but the design of such programs vwuld 

iniluenct: total costs. For example, federal support such 

as parriaJ grants, panialloans, or credit assistance would 

leave investment projects relying on private funds as well, 

and thus could help keep costs down by subjecting water 

systems to more market discipline from lenders and rate~ 

payers. Another approach to help system and stare authorities make cost-dTective choices would be to allow 

them more flexibility in using the SRFs. That strategy 

might include eliminating floors and n:ilings on funding 

fOr eligible activities in the drinking water program, 

easing restrictions on rransfCrringfederal money between 

drinking water and wastewater revolving funds, and 

broadening the funds' range of uses ro address issues such 

as nonpoim .source pollution. 

The federal government can also use tax prdf.rences to 

aid water systems, but doing so limits its discretion in 

delivering<:ertain levels and patterns of aid. Public water 

systems and the interest paid on municipal bonds issued 

on their behalf are already generally exempt from federal 

taxes, Options for enhancing the tax preferences include 

increasing the span ohime during which issuers may keep 

arbitrage profits (earned by investing the proceeds from 

a bond at a rate above the bond's own yidd) and eliminating the partial raxarion ofinrerest earned on municipal 

bonds held by corporations that pay the alternative 

minimum tax. Such enhancements would aid mediumsized and large \Vater systems; small systems that did not 

haw independent access to the municipal bond marker 
220 


26626.189

SUM~~IRY 

could benefit indirectly, through cheaper or more plentiful SRF loans. The greater year-to-year stability of tax 

preferences (compared to spendingprogramswith annnal 

appropriations) would make planning easier for system 

managers, hut enhancing the preferences for water systems and nor for other issuers of municipal bonds would 

make the rax code more complex. 

Implications of Direct Federal 

Support for Ratepayers An alternative to subsidizing investment in watersysrems 

would be ro assist low-income honseholds facing high 

water bills. The federal government does not currently 

provide such assistance, but it aids low-income households through more general transfer programs and tax 

provisions; ir also subsidizes bills for some other uriliries. 

Compared with suppon for investment by water systems, 

support for ratepayers could address concerns about rbe 

impact ofwarer bills on household budgets more precisely 

and with less loss of efficiency. Unlike investment subsidies, support for ratepayers would nor distort rhe 

choices confronringsysrcm managers; nor would it reduce 

the water prices faced by households nor receiving the 

direct subsidies. 

xxi 
221 


26626.190

1 

Drinking Water and Wastewater Infrastructure 

Drinking water and wastewater services in the 

United States arc very decentralized; there is a strong history of local control, and the large majority of flmding 

for water se-rvices come-s fl-om local and taxpayers. But over the past three decades, 

ment has taken the lead in regulating such systems and 

has provided some funding fOr inn•stment in vvarer infra·· 

investment 

tematic refOrms to encourage cosr-dJtctivencss in the provision of water services. 

An Overview of U.S. Water Systems Ivfost U.S. residents are served by drinking \Vater and 

wastewater systems that are eligible for i'Cderal support 

through state revolving funds (SR}s). In 1999, roughly 

51,000 publicly or privately owned community drinking 

water systems (defined as those with at. le~lsl 15 ;o;ervice connections used hyyear-round rcsidcntsorothervviseserving 

rosome 250 million people. 1 

owned treatment works collected and 1)roccssed thewastewarer from about 190 million people. 

Though the details vary, water systems generally provide 

the same basic functions: drinkingwarer sysn;ms take in, 

treat (in most cases), monitor, anJ distribute water to 

households and other customers, while wastewater systems 

collect, treat, and typicaJly discharge water after use. 

J. ''Noncommunity.., syst<Cms that are not-for-profit. such as rhosc 

of schools and hospitals, arc a.lso eligible f01 assi~UHet' from rhe 

revolving funds. 

Roughly one-third of the households served by community 

>Vater systems use groundwater, \vhich in some cases does 

not require treatment. Otherwise, drinking water undergoes one or more of' the following processes: flocculation 

and sedimentation (to coagulate small particles into larger 

groups and have them settle out of the water stream), 

filtration (to remove additional particles), ion exchange 

(to treat hard warn and remove a variety ofinorg-aniccontaminants), and disinfection bychlorint.; or ozone (to kill 

microbes). Ultimately, the water is distributed through 

a w:m'ork of pipes; the uecessary pressure is supplied by 

gravity, when the water has been pumped up into a storage 

tower, or by direct pumping, when the water is from a 

ground-level storage faciliry (.ree F{'1Jf_re 1 -1). 

Publicly owned trearmem works collect wastewater 

through a network of sewers, then process it using various 

physical, biological, and chemical treatments, So-called 

"primary treatment" uses screens, settling tanks, and other 

phy~ical methods to remove sand, grit, and larger solids; 

it can remove up to 50 percent of the suspended solids 

and biochemical oxygen demand (a measure of organic 

matter, defint.~d by dw amoum of oxygen that bacteria 

would consume in decomposing it). ln 1972, rhe Clean 

Water i\ct required publicly owned treatment works to 

to consume rbe wasre materials prior to dischargt~) in order to reduce the levels of key pollutants by 

85 percent (set> F£gure l-2). In some cases, various types 

of"advanc.:ed treatment" may be required to, for example, 

reduce the unconventional pollutants like nitrogen and 

phosphorus (which can promoleexcessive growth of algae) 

in order ro meet qualiry goals set fOr specific bodies of 

war cr. 
222 


26626.191

HJ11JRE lNVE 'lTMENT .. IN DRL\IKING WATER AND WASTEWATER INFRASTRUL'TIJRE 

Figure 1-1. 

Source: Adapted by permission. Copyright American Water Works Association. 
223 


26626.192

Cll>l'fER ONE DRmKING WATERAN1l WAm:WATER INl'RASTRUGfllRE 

Figure 1-2. 

A Wastewater Treatment Plant 

Source: Congressional Uudgt'l Office basC'd on Water Environment Federation, G'leanl'fi1terjor foday: Wbntls U'astm.rater Treatm£'rlt? (Alexandria, Va,; WEF, Nov"t'mber 

1999) 

Assisted by federal funding provided since 1972, public 

wastewater systems have nearly reached the goal of universal secondary tre-.umem: as of 1996, only 176 of the 

14,000 public treatment facJliries that discharged effluent 

streams were not meeting the requiremem-~and some of 

those were exempt from it because they discharged to 

sufficienrly deep oceJ.n waters or to other facilities that 

in turn provided secondary treatment. As a result, although 

the amount of biochemical oxygen demand arriving at 

rrcatment facilities rose by more than 25 percent between 

1972 and 1996 (which \VdS consistenr with population 

and economic gro-wth), the amount discharged fell about 

ItO percent. 

Most water systems are smalL For example, 58 percent 

of community drinking water systenls serve 500 people 

or fewer, and 85 percent reach no more than 3,300 people 

(see Figure 1-3). Many smaH wastewater facilities (such 

as household septic units) arc privately owned and rhm 

excluded from statistics on publicly owned treatment 

works. Even so, 81 percent of the public facilities in operation in 1996 handled no more rhan 1 million gallons 

per day (MGD), enough tO serve roughly 8,000 people, 

and 41 pcn:em processed no more than 0.1 MGD (see Figure l-4). 1 

Though oumumbered by the small systems, the relative 

handful oflargcsystems serve the great majority of people. 

Just 7 percent of community drinking warersystems serve 

more rhan 10,000 people each, but they supply 81 percent 

of rhose served by such systems; indeed, "very large"sys2. The dat:a in million gallons per day arc from Environmental 

Prntenion Agency, Office ofWarc:r, 1996 C!Mn Wlzta Nn:ds 

Survry: Rrport to Gmr:rns. EPA 832~R~97-003 {September 

1997), p. C-4. The conversion from MGD to persons assumes 

12). gallons per person-day, the low end of a range provided in 

a personal communication from John Flowers ofEPA. 
224 


26626.193

4 FU11.:RF. IN\l:STMENT LN DRINKI~G WATER AND WASTEWATER INFRASTRUCn:RF. 

Figure 1·3. 

~o~u-~i!}'_!ater_~I~!e~~~nd Pop_lJI;tti~nS~~~~-~y-~ze ~! ~rs_tem, 20_1)!__ 

(Percentage) 

80 ~ Percentage of Systems 

70 II Percentage of People Served 

50 : 

44 

40 : 

30 26 

20 

10 ' 

Up to 500 S01 to 3,500 3,301 to 10,000 10,001 to 100,000 More than 100,000 

Size of System, in Number of People Served 

Source: Environmental Protection Agency, Tactolds: Drinking Water and Ground \Vater Statistics for 2001" Oanuary 2002). 

Note: The total number of water :>y:.1ems is 53,783. The total number of people served is 264.145,129. 

terns, defined by the Environmental Protection Agency 

(EPA) as ones with more than 1 00,000 customers, represent 1 percent of systems but 44 percent of all people 

served. Similarly, the largest 3 percent ofwastewater plants 

handled 68 percent of the total flow processed by all such 

plants nationwide. 

For both drinking water and wastewater, systems owned 

hy the public sector---by local governments or special local 

or regional government authorities---serve the large majority of households. Although community drinking water 

systems owned by the private sector account for over half 

of all such systems, they serve only ahout 15 percent of 

households; private \Vastewater !>}'Stems that treat household sewage account for roughly 20 percent ofthe total, 

but serve few households----perhaps 3 percent.;> In a hybrid 

3. EPA's data show that roughly 4,200 private facilities have permits to discharge treated household sewage {by comparison, 

tlwre are. about 16,000 publicly owned treatment works). Priarrangement, a small hut growing number of publicly 

owned systems have contracted '\Vith private firms to 

operate and maintain them. 

The U.S. pattern of decentralized, local control of water 

sysrems is also common abroad, but an increasing number 

of industrialized countries have moved to consolidate 

operations or ownership, and some are emphasizing the 

role of the private sector. In Great Britain, for example, 

jnst 10 regional private companies provide almost all 

wastewater services and most of the drinking water in 

England and Wales, and fewer than 20 smaller companies 

vate wastewater systems are not eligible for assistance from SRFs 

(unlike their drinking water counterparts), ;,o they are not in~ 

eluded in some of EPA's data-collection effort,<,, ,<,uch as rhe 

Gran W.att7 Nads Survey. Consequc:nr!y, pr~::r..i.-e data on the 

percentage of the population that they serve are not readily 

available: the estimate of 3 percent n·flccts common thinking in 

the industry. 
225 


26626.194

CI!ArfERONE DRINKING WATER AND WASTEWATER m'RASTR!IGTURE 

Figure 1-4. 

Wastewater _'!~~~cnt Facilities and Population Served by Size of Facility, 1996 

(Percentage) 

60 

;o 

1fO 

30 

20 

10 ' 

Percentage of Facilities 

1\1 Percentage of FJmy 

41 

Up to OJOO 0,101 to LOOO 

24 

L001 to I MOO 10,001 to 100 More than 100 

Size of Facility. in Millions of Gallons of Wastewater Treated Daily 

Soun:e: Congre~"\ional Budget Office ba'>ed on Environmental Protection Agency. Offiet• ofWater, J.IJ-)6 Cleanlf'aterl1ieedsStJroey: Reporl to Cangress, EPA S32-R-97-003 

(September 1997). 

Note: Thf total number of facilities is 15,986: the total daily Dow is 32,I 1S million gallons per day. Totals exclude 38 facilities for which data were unavailable. 

supply most of the rernainingdrinkingwarer4

: rhrt.~e pubJic 

aurhorities provide the water and sewer services in Scotland.5 Ausrralia, Canada, and Ireland also have regional 

systems that provide both drinking water and wastewater 

scrvices.6 France has 15,500 mt!nicipallyowned watcrsys4. Org;lni7~-ulon for Economic Cooperation and Devdopment, 

Environmem Directorate, Working Parry on Economic and 

Environmenral Policy Integration, lndustri1Ii Water Pric-ing in 

OEC:D Coumries, ENV!EPOC/GEEl{98)l0/flNAL (Paris: 

OECD, 1999), pp. 9, 192, 197. 

5. \'{feb site of the North of Scotland Water Authority, V>'>'l'.v. 

flOS\'I'd..CO.Uk. 

6. 

tems, but most of those systems contract out their operations to one of a handful of private companies. 7 

The costs of providing water services can vary widely, depending on the size of the system, the proximity and 

guallty of the local water sources, and other factors. 

T rearm em costs in particular are subject to economies of 

scale. For example, EPA's data on the costs of monitoring 

and treatment ro comply with the Safe Drinking Water 

Act srandard.s in force as of September 1994 suggest that 

the average cost per household was on the order of$4 per 

year in systems serving more than 500,000 people, but 

7, for Economic Cooperation and Development, 

p. 91; anJ Liana Moraru-·dc Loe, "Privatizing Water Supply and Sewage Treatment Services in On~ 

tario," Water News, vol. 16, no. 1 (March 1997), available at 

www.cwra.org/n~:ws/arts/privarisarion.lumL 
226 


26626.195

nifliRE INVESTMENT IN DRINI\1NG WATER AND WASTEWATER li\FRASTR{iCTURE 

$300 per year fix systems serving no more than 100 

people.8 

The large majority of funding for water services comes 

from local sources, as can be seen in the derailed data 

reported by the Association of Metropolitan Sewerage 

Agencies in its AJ\1SA. Financial Suroey, 1999. Of the 

revenues reported by 112 medium-sized and large wastewater systems, 5) percent came from user charges or hookup fees, 15 percent from reserves and interesr, 15 percent 

from bond proceeds, 4 percent from property taxes, 3 percent from SRF loans, 2 percent from federal and state 

grants, and the remainder from various smaJler categories.9 

Excluding reserves, interest, and bond and loan proceeds, 

aU of which derive or must be repaid from other sources, 

the local funding provided by user charges, hookup fees, 

and property taxes made up 88 percent of the "underlying" 

revenues, while feJeral and state grants conuibuted just 

3 percent. 10 However, ft.>deral aid plays a larger role in the 

financing of small and rural systems not included in the 

AMSA survey, as discu.<;sed below. 

The A.Iv1SA's data do not categorize user charges by type 

of customer, but EPA ha.'> some information on that subject f()r drinking water ~ysrerns. Results from the agency's 

1995 Communit;' Water System Survey indicate that residential cusrom.:rs accounred for three rimes the sales volume of commercial and industrial customers~ 55 percent 

versus 18 percent. Another 4 percent of sales were to 

wholesaJe customers (who in turn sold to final users), and 

23 percem were described as "other," including sales to 

governmental and agricultural customers and sales by systems that did not disaggregate by customer type. 11 

8. New calculation based Oll data 

The Safe Drinking W'ater ikt: A 

aa/Mandatt(September 1995), pp. 16-17. 

9. Association of Me:rropo!itan Sewerage Agmcic-s, The Ak!S4 

Finamial Survry, J{}99 (\Xfashingron, D.C.: AJv1SA), p. 36. 

10. Those percenrages do not account for the federal and !!tat!." contributions through subsidized interest rates on SRF loans. 

11. Environmental Protection Agency, Office ofWarer, Community 

Water System Survey, Volume 1, EPA 81 "i~R-97"00la (lanuary 

!997),pp.l.l·14. 

The Federal Role 

Except as a builder of dams and other major public works 

used to supply water, the federal government played a 

relatively minor role in funding or regula ring local water 

systems befiue 1972. 12 The Public Health Service had published drinking water standards as early as 1914 and updared them in 1925, 1946, and 1962, but those standards 

\Vere federally enfOrced only for the water supplies ofinterstate carriers. Matching grams for 30 percent to 50 percent 

oft he cost of consrructingwastewarer treatment facilities 

became available in 1956, but initially the amount of 

fUnding was small and there were no federal requirements 

fOr such facilities. 

With the passage of the Federal Water Pollution Conrrol 

Act Amendments of 1972, later designated the Clean 

Water Act, the Congress adopted the goal ofrestoringand 

maintaining the chemical, physicaJ, and biological integrity 

of the nation's waters, thereby ensuring that they would 

be fishable and swimmable. Toward that goal, the legish· 

tion established a requirement that municipal wastewater 

dischargeJ to surface waters be given secondary treatment, 

increased the federal matching share to 75 percent forconstmcting publicly owned treatment works, and grearly expanded the amount of the available funding. Consequently, federal outlays for wastewater rreatment grams 

rose tenfold in real (inflation-adjusted) terms during the 

1970s, reaching a high of$9.1 billion (in 2001 dollars) 

in 1980.11 

The expansion of aid was seen as a temporary infUsion 

of capital to allow publicly owned wastewater systems to 

construct secondary treatment faciliries--·and, indeed, 

funding has declined sharply since irs real peak in 1980. 

In 1981, amendments to th(· Clean \Vater Act cut the 

authorization for wastewater grants in half and reduced 

the federal marching share to S 5 percenr for faciliTies huilt 

after 1984. Then in 1987, legislation was enacted to phase 

out the construction grant program by 1991 and replace 

12. lssnes involving federal water projects and the ade-quaL;t of water 

supplie!! are outside the scope of this study. But sec Congt'd-sion;ll Budget Office, U:Cta [he Conjlictr in tbe 1Vtst: lrnplicalions 

of RefOrming the Bureau of Reclamation:, W:rter Supply Policies 

(Augusr 1997). 

Budget Office, Trends in Public lrifi·astructure 

CBO Paper (M<~y 1999), pp. 102-104. 
227 


26626.196

CHAPTER ONE 

.it with a period of grants w capitalize state revolving 

funds, with the states matching 20 percent of each federal 

dollar. The SRFs provide several types of financial support 

--including loans at or below market interest rates, pur~ 

chase of existing local debt obligations (bonds), and guar~ 

anrccs for new debt ~but they do not make grams. The 

1987 law envisioned that loan repaymenrs would allow 

the SRFs to operate without ongoing federal support and 

authorized contributions only through 1994; howf'Ver, 

the Congress has- continued ro appropriate funds each year 

since then, including$1.35 billion for 2002. 14 1n nominal 

dollars, appropriarions from 1973 through 2002 have 

totaled $73 billion. 

The federal government's primary involvement with 

drinking water began with the SafC Drinking Water Act 

in 197 4. Among the fdctors leading tO its passage were 

concerns that the Public Health Service's drinking water 

standards were based on inadequate and ohsolete Jata, 

that state and local officials were not adequately monitoring water systems, and that pollutants fOund in drinking 

water were carcinogenic. EPA issued ft-\-v standards for 

drinking water conraminants in the law's first decade, and 

the Congress amended lr in 1986 tO require the agency 

to develop standards for 83 specified contaminants and 

for 25 others every three years. As amended, the law called 

for the standards, deemed "maximum contaminant levels," 

to he set as dose as feasible to levels ar which no adverse 

health effects were known or anticipared"-uking cost into 

consideration in defining feasibility. EPA considers a 

standard fCasible if the cost of meeting it is "reasonable" 

for large water systems. 1

;. 

Neither the original Sate Drinking Water Act nor the 

1986 amendments authorized federal funding, but as the 

number of standards and rhecosrs of meeting them grew, 

so did support for providing drinking water systems -with 

financial assistance. Thus, a key provision of the hnv's 

14. ln ;tddition, for 2002 rhc Congn:ss earmarked $~44 million in 

grams for wasttwater and drinking \Vater projects. 

1 S. See, for example, Environmental Protection Agemy, "Nation:ll 

Primary Drinking Water Rq~ularion~: Arsenic and Clarifications 

to Compliance and New Source Contaminants !1•foniroring, 

Final Rule," Federal Registe-r, vol. 66, no. 14 Uanuary 22, 2001L 

p. 69RL 

DRINKING WATER AND WASTEWATER INFRASTRUCTURE 

1996 amendments created a program of drinking water 

SRFs modeled after the existing wastewater program and 

authorized $9.6 billion through fiscal year 2003 in capitalization grants, again requiring a20 percent state match. 

(Appropriations through fiscal year 2002 fOr the drinking 

\Yater funds have totaled $5.3 billion.) Other major provisions revoked the requirement that EPA regulate an additional 25 contaminants .every three years) authorized the 

agency w adopt kss stringent contaminant standards if 

necessary to keep costs from exceeding benefits, andrequired it to idemi(y "variance technologies" that could 

be approved fOr use by small systems judged unable to afford to comply •vith the relevant standards. The amend~ 

mems also called on states to establish programs to certifY 

and develop the rechnic.1.l, financial, and managerial capacity of drinking water systems to comply with all federaJ 

requirements. 

Federal spending programs outside of EPA also provide 

financial support for investments in water infrasrructure. 

Tbe Rural Utilities Service of the Department ofAgricul~ 

ture provides a mix ofloans and grams fOr water and waste 

disposal projects in communities with fewer than 10,000 

people; the program received $647 million in 2002. 

Drinking water and wastewater projects may also receive 

funding through rhe Public Works and Development 

Facilities Program (-adminisrered by the Economic Development Administration in the Commerce Department) 

or the Community Development Block Grams program 

(administered by the Deparrmem ofHousingand Urban 

Development) if they meet the relevant criteria: the former 

program focuses on joh creation and the latter on community development that benefits low- and moderate~ 

income people. Still other programs focus on assistance 

to specific groups or locations, such as Indian tribes, native 

Alaskan villages, Appalachia, and unincorporated colonia.r 

on rhe U.S.-Iviexico border. 

The federal government also supports water infrastructure 

indirectly, through tax preferences. Because the interest 

paid on stare and local bonds is genetaHy excludable from 

taxable income, municipalities and other public warer 

authorities can issue bonds at lower rates than they would 

otherwise have to pay. Also, bonds issued for privately 

owned drinking water and wastewater systems are considered "qualified private activity honds" eligible for taxexempt status; however, the federal government limits the 
228 


26626.197

FUI'URE INY'ESTMl':NT IN DRlNKING WATER AND WASll\WAU:R !NF\t\~TR!iC1L RE 

volume of tax-exempt private bonds that each state can 

issue annually. Issues of municipal and tax-exempt private 

bonds for municipal utilities-primarily drinking water 

and waste\vater systems but abo some solid and hazardous 

waste facilities-totaled$ 1 4.0 billion in 2000 and $29.3 

billion in 200 l. 16 The Joint Committee on T axarion estimates that the exemption will save bondholders $0.6 billion in fiscal year 2002. 17 

The Need for Increased Investment Dramatic incidents in recenr years have called attention 

to rhe importance of water infrastructure. In 1993, contamination of the Milwaukee warer supply by cryptosporidium caused 400,000 cases of gastrointestinal illness 

and an estimated 50 to 100 deaths. That same year, rwo 

people in Atlanta were killed by falling into a sinkhole 

created by rhe collapse of a storm sewer. Baltimore had 

rwo sinkholes of30 teet or more in 1997, and a Manhattan sinkhole caused millions of dollars in damage in ] 998. 

Less catastrophic failures demonstrate the widespread 

nature of the prohlems. According to EPA's data, 880 

publicly owned trearmentworks receive flows from "combined sewer sysrems" which commingle stormwaterwith 

household and industrial wastewater and frequently overload during heavy rain or snowmelt. EPA estimates that 

such overflows discharge 1.2 trillion gallons ofstormwater 

and untreatedsewageeveryyear. Even "sanitary" systems 

with separate sewers for wastewater can overflow or leak 

because of pipe blockages, pump failures, inadequate 

maintenance, or excessive demands. According to a draft 

EPA report, overflows from sanitary sewers alone result 

in a million illnesses each year. 18 l\1oreover, according 

16. Pc:rs.onal communication from Amy Resnick, editor, The Bond 

Buyn~ citing dara from Thomson Financial. 

17. Joint Committee on Taxation, Estimates q,fFederal TtL~ 1:...\-:pmd£~ 

tumfor Fim1./ Yt>,m: 2002~2006, JCS-1-02 (lanuary 2002), 

p. 21. 

18. F.nvironomics, Inc., and Parsons Engineering Science, Inc., 

Economic And{rsis of Proposed Regulations Addressing NPDES 

Permit for Sanitary Sewa Co!kction 

Sy.>tnn> Sa1titary SewtT (draft prepared hlr the 

Environmental Protection Agency, March 24, 2000), p. 3-1. 

to industry experts, many urban and rural drinking water 

systems lose 20 percent or more of the water they produce 

through leaks in tbeir pipe nerworks. 19 

In parr, those problems result from the aging of the nation' swater infrastmcrure, particularly irs pipes. Though 

less visible than treatment facilities, pipes actually account 

for the majority of borh drinking water and wastewarer 

systems' asset5.20 According to ~srimates, drinking water 

systems have 800,000 milesofpipes, and sewer lines cover 

more than 500,000 miles. The rule of thumb is that a 

sewer pipe lasts 50 years (although actual useful lifetimes 

can be significantly longer, depending on maintenance 

and local condirions), and a 1998 survey of42 municipal 

sewer sysrems found that existing pipes averaged 33 years 

old, suggesting that many are, or soon will be, in need of 

replacement.12 Similarly, a study by the American Water 

\Vorks Association that analyzed 20 medium-sized and 

large drinking water systems concluded that the need ro 

19. Personal mmmunications from John Young, Vice Pre~idem for 

Engineering, American \Vater W'orks Services Company, and 

Bmt. T erer, Research ami Development Spec.ia1ist, American 

Leak Detection. 

American Water \"t'orks Association, Reinvesting 

Drinking Wllter lnftilstructure: Dawn of tlw Rtp!.u-cment Ertt 

(May 2001), p. II, .available at 'NW't'v.a\\'\V.l..org/gonafllinfN-

.'>tructure.pd( 

2!. Amc1ican Society of Civil Engineers, Drinking \X'I.ua, ls.>ue 

Brief (no date); Parsons Engineering Science, Inc., Metcalf and 

Eddy, and Limno-Tech, Inc.. Sanitary Sewer Q;Jerjlow (SSO) 

Nerds Report (prepared fOr the Environmental Protection 

Agency. Office of\Vastewater Management, May 2000), p. 2-2. 

The estimate for sewer lines is for system.s with separate sanitary 

sewers; given rht• same assumption.s, system~ that combine sanitary wa;,tc>vatcr and stormwatcr add roughly 140,000 more 

miles to rhe overall rotal. 

22. American Society of Civil Enginee1s, (~'?timizatirm of Collection 

System Afaintenance Frequmdes and S)'stan rnforrnancc (prepared for the Environmental Protection Agency, >Jovember 

1998). 
229 


26626.198

CHAI'fER ONE 

replace pipes will rise sharply over the next 30 years as previous generations wear out.23 

Although treatmenr plants represent a smaller share of 

water systems' assets than pipes do, they too are aging. 

Equipment in many plants built under the Clean Water 

Act and Safe Drinking Water Act will need to be replaced 

in the next decade or TWO. Moreover, many drinking water 

23. American Water Works Associarion, Reinvesting in Drinking 

Water !nfrastmcturr. 

DRINKING WATER ANU WASTEWATER Ir--'FRASTRUCTliRE 

systems will have to make additional investments in treJ.tment equipment w satisfY forthcoming regulations under 

the Safe Drinking Water Act. 

ln short, costs to construct, operate, and maintain rhe 

nation's water infrastructure can be expected w rise significantly in rhe future. Less dear, however, are the 

amount and [iming of [he increases. Estima[es of future 

costs and the uncertainties surrounding them are discussed 

in Chapter 2; sources of funding to pay those costs are 

considered in Chapter 3. 
230 


26626.199

2 

Estimates of Future Investment Costs 

and Their Implications 

A ny estimate of costs for future investment in 

water systems reflects not only the current state and future 

depreciation of the existing infrastructure but also the 

goals--such as the regulatory requirements and the levels 

of customer satisfaction-that water systems seek to 

achieve and the eHlciency with which they pursue dwse 

goals. An underlying assumption, about which there ap~ 

pears to be general consensus, is that customers will con~ 

tinue to expect high-qualiry service. Less consensus exists, 

however, regarding the future costs of regulatory rtX]Uirements and potential efficiency savings. 

Given the limitations of the available data, which begin 

\Vith uncertainties about even the amount and condition 

of the current infrastructure, in this study the Congressional Budget Ollice (CBO) docs not provide a single 

point estimate of 20-year investment costs. Instead, it 

discusses estimates fOr rwo scenarios~a low-cost case and 

a high -cost case~t hat it believes span the most likely possibilities. CBOderived those estimates by applying specific 

ne\v assumptions to the same modeling framtwork rhar 

rhe Water Infrastructure Nenvork (\VIN)---a coalition 

of groups r~presenting water systems, elected ofliciats, 

engineers, construction companies, and environmentalists 

~used to develop its own estimates. Like 'X'IN's analysis, 

CBO's scenarios cowr the years 2000 to 2019; data on 

actual investment in 2000 and 2001 are not yet available. 

The nvo scenarios yield estimates of average annual investment costs ranging from $11.6 billion to $20.1 billion 

fOr drinking \Vater systems and from $13.0 billion to 

$20.9 billion for waste-.,vater systems. 1 Those estimates 

measure investment volume in 200 l dollars (as do all other 

dollar figures in this chapter not identified othen·vise) and 

in terms of costs as fJnanced, taking into account the use 

ofborrowing to spread the investment burden over time. 

In particular, the estimates reflect the tt1ll capital costs of 

invcstrnents made each year on a pay-as-you-go basis anJ 

the debt service and interest) paid on prior 

financed investments. financed are particularly 

relevant to policy debates about affordabiliry because they 

reflect the current burd.:n on water systems. (One could 

also measure investment volume in [efms of e.;onomic 

resource costs; see Box 2-1.) 

By comparison, spending on investment in states' 1998-

1999 fiscal year (calculated using similar assumptions ro 

the ones underlying the projections of fUture investment) 

was $11.8 billion for Jrlnkingwaterand $9.8 billion fot 

\Vastcwater. Thus, the projected overall shortfall between 

current spending anJ future costs is $3.0 billion per year 

in the low·· cost case (-$0.2 billion for drinking water and 

$:3.2 billion forwasrewater) and $19.4 billion in thchighcostcasc ($8.3 billion fOrJrinkingwaterand $11.1 billion 

fOr wasrewater). 

l. The {·stimates fM drinking >Vater ;<.nd wastC'INJ.ter arc not strictly 

comparable because the method~ CBO used to derive them 

wen' nor identical, as discussed helow. 
231 


26626.200

12 FL11lRE I!'!'VE..I\TMENT IN DRINKING WATER ,~u\1) WAS11~ATER INFRASTRUCTIJHE 

CBO has also analyzed lhe impact of those projected 

increases on household hudgers.Assuming for simplicity 

that both the level of taxpayer-financed support and the 

distribution of costs between household and other water 

ratepayers remained constant, CBO estimates thar hy 

Box 2-1. 

This study measures investments in water systems in 

terms of costs as financed because that measure hest 

reflects the impact on water rates and hence on the 

aflOrdability of household water bills. The alternative 

and more common measure is economic costs-the 

quantity of real economic resources required by rhe 

investments. 

In particular, economic costs reflect the c.-apital costs of 

all investments, whether financed by bonds or loans or 

paid for from funds on hand; that measure omits imerest payment_., on bonds and loans, which represent mere 

transfers of funds. Thus, it differs in two ways from rhc 

measure describing costs as financed: by excluding 

interest cosrs and by fOcusing on the full capital costs 

of new fmanced investments rather rhan the current 

principal payments on previous financed investments 

(see the table). Although less relevant than costs as fi~ 

nanced for judging the affordabiliry of water services) 

economic cosrs :.ue the preferred measure for policy 

queS[ions that focus on the efficient usc of society's 

resources, such as questions about the costs and benefits 

of water-quality regulations. 

2019, average bills for drinking water and wastewater 

services combined would account for 0.6 percent of 

average household income under the low-cost case and 

0.9 percent under the high-costcase, up from 0.5 percent 

in the late 1990s. Of course, many households would pay 

The Water Infrastructure Network's (\\/IN's) estimates 

reflect neither economic costs nor costs as financed. For 

each of the 20 years analyzed, the estimates combine 

the capital costs for all investments made that year~ 

that is, the economic costs-and the sum (in real dollars) of all future interest costs for the portion of the 

invesrments financed hy borrowing. In other words, 

each year's estimate adds rhe cost of that year's pay-asyou-go investments and the total debt service (principal 

plus interest) to be paid in later years for the new financed investments. Thus, whereas costs as financed 

include the current debt service paid on past investments, \'\l1N's estimates include future debt service on 

current investments. The impact of that difference is 

discussed in Box2-3on page 19. 

Note thar rhe distinction between the two measures of 

cost does not apply to spending on operations and 

mainrenance (O&M). Since O&fv1 is paid for from 

current funds, the real resource costs to the economy 

are the same as the immediate burden on water systems 

and their ratepayers. 

Costs Included in Measures of Investme-nt Spcuding 

Capital C,osls of Current Pay-As-You-Go Investments 

Current Principal for Old Financed Investments 

Total Future Principal for Current Financed Investments 

Current Interest on Old Financed Investmenls 

Total Future Interest on Current Financed Investments 

Source: ('.ongression:U Budget Oflke. 

Costs as Finance-d 

yes 

yes 

no 

yes 

no 

Economic Costs WIN's Estimate-s" 

yes 

no 

yes 

no 

no 

yes 

no 

yes 

no 

yes 

a. As published. Elsewhere in this study, CBO has converted \VI}fs estimufcs to cosl~ ns financed, using detailed results from WIN's analysis to include and 

exclude component costs, as needed 
232 


26626.201

CHAPTER 1\VO 

less than those averages, and many others would pay 

more. For example, in CBO's two cases an estimated 10 

percent to 20 percent of households would be paying 

more than 4 percent of their income for water services by 

2019, compared with 7 percent doing so in the late 

1990s. 

CBO's estimates of future investment costs appear to be 

significantly below those published in the \VIN report; 

however, the two are not directly comparable because 

'WIN's estimates do not reflect costs as financed. \Vhen 

expressed in comparable terms, rhe estimates from CBO's 

high-cost case and WIN's analysis are similar. That similariry is not surprising because CBO used W1N' s basic 

modeling approach and, in the high-cost case, similar 

assumptions. Thus, CBO's bigh-cosr case docs not lend 

independent support for 'WIN's estimates; rather it suggests that estimates of that magnitude require relatively 

pessimistic assumptions. Srudies that project national investmenr costs by aggregating data from individual water 

systems have yielded estimates that are lower than those 

of CBO's low-cost. case. 

CBO's estimates do nor include the costs of additional 

investments in infrastructure secmity prompted by the 

September 2001 attacks on rhe \Vorld Trade Center and 

the Pentagon. A-. this report was written, the drinking 

water and wastewater industries were in the early stages 

of assessing theirvulnerabilities (see Box 2-2). Preliminary 

indications are rhat capita! costs for security will not add 

much to the investment costs described here. CBO's estimates also exclude investments in drinking water systems 

that ::;erve only fmure growth; such investmenrs are not 

eligible for funding under the state revolving l-Und program. 

Bottom-Up and Top-Down Estimates 

of Investment in Water Systems To interpret CBO's scenarios and estimates, it is useful 

to understand the basic approaches underlying previous 

estimates of investment in water systems-particularly 

those used in \X'1N's analysis, which CBO adapted. Th~ 

approaches can be divided imo two categories: bottom-up 

estimates reflecr assessments of the needs of individual 

systems--either all systems nationwide ora sample of sysESllMATf,S OF !WURE lh'VESTM~'IT COSTii AND THEIR IMPLICATIONS 13 

tems-whereas top-down estimates are based on analyses 

of aggregate national data. Top-down studies are simpler 

and less expensive, but their results are sensitive to anumber of assumptions required because of the limitations of 

the aggregate data-particularly the lack of a national inventory of pipes' age and condition. 

Bottom-Up Estimates 

EPA's periodic needs surveys ptovide the most comprehensive bottom-up estimates. 2 The 1999 drinking water 

survey, published in February 2001, estimates total investment costs from 1999 to 2018 to be $159.5 billion 

(sa Ti1ble Z-1).3 The agency's latest available wastewater 

survey estimates 20-year costs to be $147.0 billion, if 

$13.2 billion for projects not involving infras-rructure per 

se is exdudcd. 4 Expressed as average annual costs, those 

estimates are $8.0 billion fOr drinking water systems and 

$7.3 billion for wastewater systems; both estimates reflect 

capital costs alone, excluding financing. 

One key limitation of both surveys, acknowledged in 

EPA's reports, is that many respondents may have been 

unable w supply adequate documentation for investments 

later in the 20-year survey period because they relied on 

2. Some of the estimates identified here as "bottom-up" contain 

minor tup-down components and vice versa. 

3. Environmental Prote.:.:tion Agen;,:y, OHice of Water, Drinking 

W~uer hifrastructu.re Needs Sunwy: Secand Report to Congress, 

EPA 816-R~Ol-004 (February 2001), p. 12. The report expressed the estimate as $150.9 billion in January 1999 dollars. 

The survey included on-site analy$eS at 599 small systems (st'rv~ 

ing up to 3,300 pffiple) randomly selected from the roughly 

4 ),000 such ~ystems and questionnaires mailed to all of the 

l, 111 serving more than 40,000 people and a random 

sample of the 7,759 systems serving 3,301 to 40,000 

people. The return rate on the questionnaires was 96 percent, 

lbid., pp. 18-19. 

4. The origlna! figures, in Janu;J.ry 1996 dollar~, were $128.0 billion and$.]].) billion; EPA derived the m.rional rora!s after reviewing dntunte!tration suhmlttt"d hy the .\tares. Environmental 

rrotecrion Agency, Oftlce of Water, 1996 C!nm Wlmr Need> 

Sunlf:y: Report to Congmr, EPA 832~R-97-003 (September 

1997), pp. l -2, 20. The exdnded categories cover projects addressing nonpoim source polhu!on involving agriculture and 

si!vimlture; urban runoff; and groundwater, estuaries, and wetlands. 
233 


26626.202

14 FUl1iRE I:\TV'ESTMEST IN DRI~ll.lNG WATER AND WASTb"\l/ATER INFRASTRUCTERE 

Box 2·2. 

Security Investments for Water S~tems __ _ 

Although utility, government, and academic experts 

can idernifjrgenerally what measures are needed to safeguard water services, a reliable assessment of rhe total 

potential costs of addressing those needs is not yet 

available. 

Environmental Protection Agency-officials and outside 

security experts generally view a terrorist attack on physica.l infra.<;trucrure (dams, treatment plants, pipes, and 

computer systems) as the scenario warranring the most 

attention. In some cases, successfuj at racks, such as one 

that would destroy any of the 93,000 "high hazard" 

dams, could not only dismpt service hut also immediately cause human deaths. Contamination of drinking 

warer at a reservoir or ueatm~nt plant is considered 

relatively unlikely to cause a large-scale health problem 

hecause of the volume ofconraminants needed and because of the screening involved in treatment. 1 Contamination of the water once it was in the distribution 

system would he more direct but would affecl fewer 

people. 

In the short term, water systems are focusing on securing or eliminating toxic chemical stockpiles at treatment plants; installing basic surveillanL-e and security 

equipment such as fencing, lighting, morion sensors, 

dosed-circuit television, locks, and alarms; and conducting background checks and security training pmgrams. Also, the water indusrry'slnformation Sharing 

1. For a contrary vit:w, see www.amsa-deanwater.org/advocacy/ 

sc:curiry/anidcs.cfm, which cites an article from the November 

17, 2001, St. Louis Post Dispatch quoting nvo government officials who believe rhar the potential risk from bacterial contamination is high. 

planning documents covering one to 1 0 years, 5 The report on wastewater also argues that the survey underreports future investments to correu problems with .sani5. Environmental Protection Agency, Drinking \f!ater Tnj1mtmc·· 

ture Needs s·unwy, p. 4J: and 1996 Clean \-\?ater Nredr Surf!Cy, 

p. 7. 

and Analysis Center (ISAC)-a Web-ba.-ed tool providing threat alerts, a mechanism for systems to report 

incidents, and training resources··----is scheduled to be 

launched in December 2002. The !SAC will help water 

systems, law enforcement agencies, and emergenq response organizations share information. 

For longer-term improvements in security, the nation's 

water systems are working to finish vulnetabilityassessrnems and to adapt their emergenL)' response plans tO 

in dude terrorist acts. Moreover, research and development is underway to identifjrways to combat physical 

vulnerabilities and contamination (chemical, biological, 

or radiological) and to identifY the interconnections 

with other critical services such as those of the energy, 

telecommunications, and transportation sectors and 

emergem.y services, 

As the vulnerability assessments and research projects 

are completed, investment needs will become dearer, 

and perhaps much larger than those identified today. 

Nonetheless, on the basis of conversations with industry expens, CBO anticipates that rhose needs will be 

small compared with the widespread needs to replace 

and improve thewarer infrastructure. for example, the 

American Water \Xl orks Association has estimated national costs of $450 million to complete vulnerability 

assessments for all systems serving more than 3,300 

people and $1.6 billion for initial security improvements (access controls such as fences, lighting, cameras, 

and alarms). Combined, those one-time amounts represent less than 1 percent ofCBO's estimates of the 20-

year capital costs of investment in drinking water 

sys(erns. 

tary sewer overflows (SSC)s)." Indeed, a subsequent topdown report placed rhe investment costs of controlling 

SSOs at $92.4 billion, well above rhe figures found in the 

6. Environmental Prmcnion Agency, 19?6 Oearr 1,.17atn Needs 

Sumey, p. 7. 
234 


26626.203

FSTIMATES OF luTiiRE INVRSTMENT COSTS AND THEIR IMPLIC,TIONS 15 

Table 2·1. 

Summary of Estimates of lnve~~~ll~-~~sts !'"'r Water ~~!e~s 

(In billions of 2001 dollars) 

_ _!Jrinki_11g~~er_____ _ ~~~\Vaste_~V_a~e!_~~ 

As Per As Per As Per 

Published Year Published Year Published Year ---·---~------

Bottom-!lp Estimates 

Environmental Protection Agency 

Clean Water Needs Snrvey n.a. n . .a. 147_0 over 20 years 7J n.a. n.a. 

Drinking Water Infrastructure 

Needs Survey 159.5 over 20 years s_o n.a. n.a. n.a. n.a. 

American Water Works Association 255 over 30 years 8-5 n.a. n.a. n.a. n.a. 

Top-Ilo"n Estimates 

Stratus Consulting (Investments 

in distribution systems only) 348.3 over 20 ye-Ars 17.4 lUi. n.a. n.a. n.a. 

Water Infrastmcturc Network 

Capital only 20-9 per year 20_9 192 per ye-Ar 19-2 40.1 per year 40.1 

Capital and financing 26-3 per year 26.3 24.2 per year 24.2 50.5 per year 50 5 

Source: Congressional Budget Office ba..,ed on Environmental Protection Agency, OfficeofWaJer, 1996Clean WaterNeedsSurnv•: Reporl to C@gress, EPA832-R-97-003 

(September 1997); Ernirorunenlal Protection Agency, OfficeofWater,Drin/..ting Water lnjrastrncture Need~Sumey: SecmuJReporl to Congress, tJIASI6-R·01-

00~ {}'cbruary2001); American Watt•rWorks A.~odation, Re-fmi(Jsting inl>rinking il'l1ter Infrastructure: Dawn of the .Replacement Era (Denver, Colo.: 

AV/'it't\, May 2001); StrJtus ConsuJting, Inc., Iufrastructure Need.'! jar/})(! Public Water SupNv!:!'ector (unpublished r(j)Ort for the American Watt~r Works 

A.«sociation, December 22, 1998); and Water Infrastmcture Nel:\vork, Clmn and Slife Water for the 21st Centmy: A Renewed National Commitment to 

lflUer and Wastewater Infrastructure (Washington, D.C.: \liN, April2000). 

Note: n.a. ""' not applicable. 

corresponding categories ohhesurvey. 7 Replacing those 

figures reported in the surwywith th~ top-down estimate 

raises total costs from $147.0 billion to $198.2 billion. 

The perceived shortcomings ofEPA's surveys helped spur 

the American \Vater WorksA<>sociation (A\'{<WA) to conduct an in-depth analysis of20 large and mediurn··sizcd 

drinking water systems. On the basis of tbe actual age 

and estimated liferimes oft he pipes, treatment plants, and 

orher assets, the analysis found that the 20 systems would 

need w spend about $6 billion (in 2000 dollars) above 

Parsons Engineering Science, Inc., Metcalf and Eddy, and 

Limno-Tech, Inc., Sanitary Sewer Oztet:flmu (SSO) Needs Report 

(prepared for the Environmental Protenion Agency, OHlce of 

Wastewater Management, May 2000), pp. I-7, 5-3" A~ pn·-

scnted in the report, tht estimate was $R7.3 b!llion in December 1998 dollars. 

their current levels over the next 30 years.8 The corresponding annual costs per household ranged from about 

$18 to $T7. On the basis of those 20 systems, the report 

extrapolated a national total of$255 billion over 30 years, 

implying an annual average of$8.5 billion (in 2001 dollars)~very similar to tbe $fLO billion average reported 

in EPA's drinking water survey. 

Top-Ilo1m Estimates 

The top-do\vn estimates reviewed fOr this study arc largt.'l 

tban the bottom-up estimates (see Table 2-1). The diftCrences could reflect incomplete coverage of costs over 

the 20-year period and other limitations of the existing 

bottom-up studies, inaccurate assumprions in the topdown smdics, or both. 

8" Am(•rican Watt'"r ~'orks Association, Rrinwuing in Drinking 

W'ater lnji-asJructure: Dawn ~(the Rep!.tummt Em (~'ashington, 

D.C AWWA, M,y 2001). p. 18. 
235 


26626.204

16 FUTURI INVESTMR~T fN DRlNKlNG WATER A.\ID WASn'WA'TI~R INfRASTRl'CTURE 

A top-down study done by Stratus ConsulEing for the 

A W\VA (not robe confused with the association's recem 

20-system study) estimated 20-year costs for investments 

in drinking water distribution systems to be $348.3 

billion, roughly four rimes the amount reported in EPA's 

survey.'1 The total from the Stratus study translates to 

average annual costsof$5.1 billion for large systems and 

$9.9 billion for medium-sized systems, reflecting point 

estimates or probability distributions for flve factors: the 

number of systems nationwide (classifled by size and 

region), the miles of pipe per system, the distribution of 

pipe mileage by size category, the replacemem cost of 

pipes in each size category, and the average annual rare 

of replacement. 10 Many uncertainties surround those factors. For example, two databases cited in the study 

yielded estimates of828 miles and 713 miles of pipe in 

the average large sysrem. 1

J Simply using rhe lower figure 

instead of the higher would have reduced estimated investment costs for large sysrems by 14 percent, or $15 

billion over 20 years. And major uncertainty accompanied the assumptions regarding fUture replacernem rates, 

as discussed in rhe next section. 

\XIIN's April 2000 report combined data and estimares 

from existing sources with a m.w tOp~down analysis. 12 For 

9. Stratus Consulting, Inc .. lnfrmtruttun Needs for the Public W'aSector (unpublished report for the American Water 

Association, December 1998). The study estimated 

costs only for larg~~ and medium~sizeJ systems; for small <>}'Stems, it adopted the estimate from EPA's 199? needs sum:y. 

10. The report provided 80 pt'fCent confidence intervals--· that is, 

the rauges that cover the cemral 80 percent of the possible nutcomes, omitting only tht> bottom 10 percent and the top 10 

percent. For large systems, the 80 percent confidence interval 

(in 1998 dollars) covered $0.9 billion to $9.7 billion. for 

medium-sized systems, the distribution was somewhat le.s,<: dif~ 

fuse, SfMtlning $5.8 billion to $13.6 Oilllon. Ihid., p. 3~10. 

11. lbid., p. 3-2, 

12. Wan·r lnfra.mucture NetwoJ k, C&an and Sti]C 'IX~tter for the 21st 

Renewed National Commitment to Water anti W~tste­

(\X!ashington, D.C.: WIN, April 2000), 

available at '.vww.win·water.org. The following description of 

WIN's methods comes from an unpubli~hed appendix to the 

reporr and from several sets of oral or writtt'n statements from 

Kenneth Rubin, PA Consulting, who st>rved as lead analyst 

developing tht• modd for \'?'IN. 

drinking water, WIN borrowed estimates related to water 

distribmion from the Stratus srudy and estimates for all 

other categories (treatment, storage, water sources, and 

"other") from EPA's 1995 needs survey for drinking 

water, rhepredecessorto the 1999 survey discussed above. 

For wasrewarer, \\TIN's approach disringuished investments to replace existing infrastructure from all other 

investments, such as those to build new treatment plants 

or new structures ro contain stormwater runoff. The 

analysis calculated the cost each year for replacing infrastructure as rhe product of net capiral stock in thar year 

and a fixed depreciation rate. 13 \Xt1N estimated oilier investment costs on rhc basif> of EPA's needs survey, adjusted using rhe agency's revised estimate for controlling 

sanitary sewer overHo"\vs. However, because the survey 

captured some replacement pro jeers also, WIN's analysts 

subtracted a percentage to avoid double-counting. Again, 

some key assumptions, such as those about the depreciation rare and rhe correction factor for double-counting, 

were accompanied by significant uncenainty. 

The WIN report went beyond rhe studies discusse-d above 

by also estimating financing costs and operarion and 

maintenance (O&lvf) costs. To estimate financing costs, 

WfN's analysts assumed thatwarer systems would pay for 

25 percent ofinvesrment costs from internal flmds, witb 

rhe rest financed for 20 years at a real interest rate of 

3 percent. They esrimated O&M LUSts by extrapolating 

a linear trend through data on actual spending: for drinking water, they used 1985-1994 data on O&M spending 

itself; for wastewater, rhey used 1972-1996 data on 

O&M spending per dollar of estimated net capital stock. 

Both estimates apparently subtract 20 percent for eHlcicnc.y savings, phased in over 10 years. Those approaches 

are discussed in more derail in Appendix A. 

1.'1. W1N constructed irs estimate of the capital stock of wastewater 

infrastructure that existed in 1999 from a 1990 estimate prepared for the Federal Infrastructure Strategy Program of dw 

Army Corps of Engineers, information on annual investments 

for 1990 ro 1999 ohtained or extrapohn.ed from census data, 

and the assumed depreciation rare, That depr.:ciation rt>fers to 

the annual reduction in the usdi.1l economic life of an asset, not 

to the rd:ned accounting concept of the credit allowed for tax or 

regulatory purpos(.'s. 
236 


26626.205

C!IAVIEI~ TWO ESTIMATES OF FlJfllRl': fNVl:.SHvlliNT C0~1'S AND THEIR IMPliCATIONS 17 

Table 2-2. 

CBO's Estimates of the Likely Range of Average Annual Costs 

for Water Systems, 2000 to 2019 

(In billions of 2001 dollars) 

Debt Service on Pre-20!10 lnveslmenl' 

Capita] Cesls (Paygo + Financed Principal) on New Investments 

Interest on New Hnanced Investments 

Toial Investment 

Operations and Maintenance 

Somer: C.ongresslonaJ Budget Office. 

Note: Ranges reflect CBO's Jow~rost and high-cost cases. 

CBO' s Estimates of Future Costs CBO's rwo sets of projections of20-year costs for water 

systems differ significantly. Under its low-cost case, the 

estimate- for average annual investment costs for hoth 

drinking water and wastewater is $24.6 billion ($1 l.G billion for drinking water and $13.0 billion for wastewater 

-see Table 2-2), 40 percent less than irs estimate of 

$41.0 billion under the high-cost c."e ($20.1 billion for 

drinking water and $20.9 billion fOrwastewater).Again, 

the estimates are measured in terms of costs as financed, 

reflecting the average annual capital costs for pay-as-yougo (or more briefly, paygo) investments and rhe debt service (principal and interest) paid on prior financed investments. 14 The divergent estimates reflect nine differences 

in the assumptions used in rhe two scenarios and illustrate 

the uncertainty inherent in top-down analyses of20-year 

investment needs. 

For operations and maintenance, the range of esrimarc.s 

between the two cases is narrower-rhe smaller total of 

$46.1 hill ion is just 19 percent below the larger figure of 

$57.0 billion. Those estimates reflect a relatively narrow 

14. As Table 2-2 ;;:hows, debt service on pre-2000 projectS accounts 

for roughly one-third of total investment cow, in the low-cosr 

cast" aml one-fifth in the high~cost case. 

Drinking Water Wa400tewater 

rf,4 to 4.4 4.3 to 4.3 

~ 

5.3 to I2.I 6.5 to I2.9 

..1.Jl!W_ 

11.6 to 20.1 1).0 to 20.~ 

25.7 to 31.8 20J to 25.2 --~-~--~-~-

Total 

8.7 to 8.7 

11.8 to 25.0 

~ 

24.6 to 41.0 

46.1 to 57.0 

range of modeling assumptions and may understate the 

true range of uncertainty. 

CBO' s estimates of future investment under its high-cost 

scenario are similar to those from \VIN's analysis, when 

the latter are measured in terms of costs as financed (see 

Table 2-3), (WIN's report does nor provide costs-asfinanced estimates, but CBO was able tO calculate such 

csrirnares using more-detailed results provided by WIN's 

analysts; see Box 2-3.) WIN's operations and maintenance estimates are directly comparable to CBO' sand fall 

within the upper half ofrhe range between the two cases. 

Note that because of the nature of the underlying data 

sources, CBO's estimates offmurecosts, like WIN's, exclude some investments associated wirh new customers 

and expansion, at least fOr drinking water. The estimates 

for investments in drinking water distriburion, which are 

based on the analysis by Srratus Consulting, cover on!y 

the cost of replacing the existing infrastructure and exclude the eHCcts of any increases (or decreases) in capacity. The estimates for other categories ofinvesrmcnts in 

drinking water systems reOect the eligibility criteria ustd 

in EPA's needs survey and thus include investments to 

serve new customers only if tbose investments are necessary to respond to a public health problem (tOr example, 

bringing service to homes served hy contaminated wells) 

or if they represent components of projects triggered by 

the needs of existing customers (such a.'i increased capacity 
237 


26626.206

18 HJTURE I~'VHSTMENT IN DRINKING WATER A.ND WASTEWATER INFRASTRVCTI!RE 

Table 2·3. 

(In billions o£2001 dollars) 

Investment (Cosls as financed) 

CBO" 

WIN (Calculated by CBO) 

Operations and Maintenance 

CBO" 

WIN 

Drinking Water 

JL6to 20.1 

21.4 

25.7 to 31.8 

29 

Wastewater 

13.0 to 20.9 

18.9 

20.3 to 25.2 

24 

Total 

24.6 to 4!.0 

40.3 

46.1 to 57.0 

53 

Source: Congressional Budget Office based in part on data from th(' Water Jnff"JS!Illt'ture /'."t~tvmrk 

Note: CRO rcruku!ated WIN's t•stimates for investment to com1->rt thl'nl to fOSts as financed. 

a. Ranges reflect CBO's low,cosf and high-cost cases. 

of a treatment plant due for replacement anyway). 15 

Those exclusions tend to bias estimated future costs 

downward; however, borh CBO' sand WIN's analyses of 

the impact offurure costs on water sysrems and ratepayers 

also neglect related ftcrors that could increase revenues, 

such as population growth and increased reliance on 

hookup fees and developers' contributions. 

The Low-Cost and lligb-Cost Scenarios 

CBO' s goal in assembling the assumptions for each 

scenario was to choose sets of plausibly (not extremely) 

low and high values that have a reasonable chance of 

occurring together. The resulting low and high estimates 

are thus intended ro span most of tbc distribution of 

possible outcomes but not irs extreme tails. 

In total, ll assumptions distinguish tht' lo·w-cost and 

high-cosr cases from each otber or from \VIN's analysis 

(sa Table 2-4). The three assumptions most responsible 

15. The estimates of investment costs for wastewater systems are 

probably also incomplete, though in a less systematic- way. The 

estimates of coo.~s for replacement do not directly include rhe 

incremental costs of <my increas<:>s in capacity or capability. In 

principle, those incremental costs could be reflected in the needs 

survey data that underpin the estimates of other costs (becansewasrew.ner projects to serve nrw ;::ustomers <He eligible for SRF 

assistance and are thus covered in the needs survey); as explained. however, it is doubtful that th.:: survey data capture 

such costs for the full 20~year period. 

for the difference in estimates of investment costs in 

CBO's scenarios are those concerning the rate at which 

drinking water pipes will need to he replaced, the costs 

associated with addressing combined s~ver overflows 

(CSOs), and the potential savings in investment costs 

from gains in efficiency. Those assumptions are outlined 

here; a more comprehensive discussion of a !Ill assumptions is available in Appendix A. 

Repfacemmt Rate for Drinking Water Pipes. The aging of 

existing water infrasrructure is the single largesr factor 

driving projected increases in investment spending. 16 But 

how much of the infrastructure will need to be rep !aced 

over the next 20 years is a difficult question. Again, for 

purposes of this analysis, CBO assumes that managers 

maintain service srandards and make efficient choices in 

trading ofT investment and maintenance; dearly, one 

could reduce replacement costs over a span of 20 years 

by delaying appropriate investments, at the cost of! ower 

standards of service, excessive maintenance expenditures 

in the meantime, or botb. 

16, Of course, such investments cannot always be assigned a unique 

caus('. For example, some replacements of deteriorated sewer 

pipes can be viewt:d either a!) triggered by a need to comply with 

regulations on sev.·er overflows or as ordinary replacements of 

depreciated capital stock. 
238 


26626.207

Cf~\PJ'ERlWO l!Sl'IMATES OF f11TURE INVFSfMENT COSTS AND T!IEIR !MlUG\TIONS 19 

Box 2·3. 

The Water Infrastructure Network's Published Estimates of 

Investment Needs and the "Fun~!n~_:llJ_"~----

The Water lnfra'>tructure Network's (WlN's) published estimates of total investment needs (capital plus 

financing) do not reflect costs as financed: they include 

totaJ debt service on new investments from 2000 to 

2019, regardless of when those payments occur, rather 

than the debt service (on both pre-2000 and new investments) actually paid during the period. The difference is important because the investments financed 

from 1980 tO 1999 and still being paid off from 2000 

to 2019 are smaller than the invesrments projected to 

be financed during the latter period. Therefore, as the 

table shows, recalculated to express the costs ofinvesrment as financed---the true burden facing water ~)'Stems and ratepayers during the 20-year periodWlN's results drop by 20 percent: from the published 

annual average of $50.5 billion (in 2001 dollars) for 

both drinking water and ·wastewater to $40.3 billion. 

Not only do \XTIN's published estimates not represent 

cosrs as financed, they also do not measure the same 

things covered by the Census Bureau's data on water 

systems' current spending (discussed below in the text). 

Thus, subtracting the census data frorn \X'IN' s estimates, which \'VIN did to derive what termed the 

"funding gap," does not yield an imernally consistent 

estimate of the difference between current spending 

and flJturc needs. In particular, whereas \VIN' s projections of needs in any year indude all interest paid over 

time on that year's investments, the census data for a 

given year include interest payments made in that year 

on preexisting debt for drinking water systems and exclude interest on debt for wastewater systems. \Vhen 

both furure investment needs and current spending arc 

measured in rerms of costs as financed, the estimated 

funding gap that \XTIN refers to averages $18.6 billion 

per year lor drinking water and wastewater combined. 1 

l < That e:.tirnare uses 1999 as the base year fOr "currem" !>pending, 

whereas WIN's published estimate used 19%. CBO has not 

pursued the data far enough to estimate 1996 spending in terms 

of costs as financed; doing so would re~1uire: estimating 1996 

debt-service payments on investm~ms going back to 1976 {assuming 20-year borrowing). Nonetheless, it is safe to say that 

the funding gap measured in costs as financed would be similar 

with I99G as the base year: costs as fwanced rl.'"flccr debt service 

on many previolls years of investment and thus are a kind of 

moving aver.tge that smooths out yc,u~to-year changes in 

investment volume. 

WIN's Estimates, as Published and in Costs a~ Financed 

(In billions of 2001 dollars) 

Drinking Water Wastewater Total 

WIN's Estimates as Published 

Total investment 26-3 24_2 50.5 

Increase above 1996level ]2_2 13-5 25,7 

WIN's Estimates in Cosls as Financed 

(Calculated by CBO) 

Total investment 21.4 IR9 40.3 

Increase above 1999level 9.4 92 18.6 

Memorandum: 

CBO"s Range of Estimates 

Total investment I L6 to 20.1 13.0 to 20.9 24.6 to 41.0 

Increase above 1999 level -0210 8.3 3.2 to 11.1 3.0to 19.4 

Source: (',{)ngn'ssiona! Budget Office based in part on Water Infra.~tructure Network, Clean and Safe Water for the 21st Century·: A Reueux.J Commitment to 

Water and Wastewater Infrastructure (Washington, D.C: WIN, Aplil2000). 
239 


26626.208

20 FtiTIIRE INVESTMEJ'\T L~ DRINKING WATER A~TI WASlt::WATER INFRASTRilCTI:RE 

Table 2-4. 

Capital Factors 

Savings from lncrea.<>ed Efficiency in 

Investment by Drinking Water and 

Wastewater Systems (Percent) 

Drinking Water Systems 

Annual percentage of pipes replaced 

Average annual cost for regulations 

not yet proposed 

(Billions of2001 dollars) 

Wastewater Systems 

Annual percentage depreciation 

Share of investments in EPA's nerds 

sun·~~ for replacing existing capital 

(Percent) 

Average annual cost for ahating 

combined sewer overflows 

(Billions of2001 dollars) 

"Financing Factors 

Real Interest Rate (Percent) 

Hepaymcnt Period 

Pay-.1\s-You-Go Sbare of Total Investment 

(Percent) 

Average Annual Debt Sendee on Pre-2000 

Investments (Billions of 2001 dollars) 

Operations and Maintenance 

---~---~!tO's ~!l~~Q!l£__ ___ ~ 

Low-Cost Case High~Cost Ca"ie 

15.0 

o.G 

2.7 

25.0 

2.6 

3.0 

)0 years 

15.0 

8.7 

Linear extrapo1ation 

of 1980·1998 trend, 

less 20 percent 

efficiency savings 

phased in from 

1995 to 200!t 

5.0 

1.0 

0.53 

3.3 

15.0 

5.4 

40 

25 years 

30.0 

8.7 

Linear extrapolation 

of 1980· I 998 trend 

Source: Congressional Bmlgrt Office based in part on data from Lhe Water Infmstmrture Network 

WIN's Assumptions 

1.0 

3.3 

20.5 

2.6 

3.0 

20yL>arS 

25.0 

9.5 

Drinking water: Unear 

extrapolaUon of 1985· 

19~)4 trend, apparently 

less 20 percent 

efficiency savings 

phased in from 

1997 to 2006 

Wastewater: linear 

extrapolation of 1972-

1996 trend per unit of 

net capital stock, less 

20 percent efficiency 

savings phased in from 

1997 to 2006 
240 


26626.209

Cllll'ltRTWO 

In the case of drinking water pipes, both of CRO' s 

scenarios assume replacement rates drawn from theaforeffit'ntioned study by Stratus Consulting, whose findings 

were later incorporated in the WIN coalition's analy"Sis. 

The Stratus srudy assumed that 1 percent of pipe mileage 

is repla<:ed each year on average, and CBO adopted that 

assumption in irs high-cost case. 17 HoweverJ that study 

also presented a plausible alternative approach in which 

a pipe is replaced when its age reaches its service life, and 

groVflh in pipe mileage since 1880 has been proportional 

to growth in the U.S. population. On the basis of that 

approach, CBO's low-cost case adopted an average annual replacement rate of0.6 percent. 18 

Abatement ~{Combined SewerOtJerjlows. After the deterioration of existing infrastructure, regulatory requirements 

are probably the second largest factor driving investments 

in water systems. Wastewater systems in particular face 

major investments to reduce the incidenceofsewer overflows----from both combined sewers, which t:ommingle 

storm water with domestic sewage and industrial wastewater, and separate sanitary sewets. 19 As noted in Chapter 1, combined sewer systems-found in roughly 900 

18. 

More pre-cisely, the study assumed a range of aruma! rt•pbcement rates from 0.5 percent to 1.5 percent, LO percent. The study used repeated random sampling from 

and ranges tOr other uncertain tJ.ctors to calculate a prob.tbi!ity 

distribution for investment .:ost&. Su-arus Consulting. !nfrmtrur:-

turc Needs for the Public WmnSupp{y S('ctor, p. 3·9. 

50 years, just 0.3 percmt if they bst 75 ye<Jrs {because it assumes that relatively few pipt'S were !aid during the Depression 

and World \'V'ar II, when the population grew slowly), and 

about 0.6 percent if they lasr 100 years (ibid., p. 3-'5). CBO 

avcragr-d those three rates to obtain the 0.6 percent rate assumed 

in its low··Cost case. Each of the three rates is well below the 

long-run average set by the inverse of the lifetime (rhar is, 2.0 

percent for 50 yea.rs. 1.3 pen::ent for 75 years, and l.O pi"rcent 

for l 00 years), indie.1ting that pipe networks remain rdarively 

young until after 2019. Thus, the approach does not support 

the perception of an imminent crisis in drinking water pipes. 

19. Although investmem costs to <Jddress sanitary sewer nwrflows 

are also uncertain, CBO's two scenarios both use EPA's e~timan.: 

of those costs, largely for lack of information to underpin an 

alternative estimate. 

ESTIMATES OF FlmJRE INVESTMENT COSTS ANTI THEIR IMPUCA TIONS 21 

wastewater systems nationwide, about 4 percent of the 

total-frequently exceed their collection and treatment 

capacity during periods of heavy rain or snowmelt, discharging the excess How directly into receiving waters. 

The low-cost case assumes th~H investments to control 

CSOs will total $51.3 billion nationally, as estimated in 

EPA's 1996 Clean Water Needs Sun"y, That estimate 

comes from a top-down statistical analysis, supplemented 

by communiries' documentation of specific plans when 

available. The analysis assumed that communities would 

need to capture and treat 85 percent of their rain and 

snowmelt and calculated the cost of constructing basins 

and disinfection facilities to do so. 

For many communities, however, 85 percent will not he 

enough, given their state's designated uses fOr water 

bodies and associated quality standards. Thus, analy·srs 

generally regard EPA's esrimate ofCSO control cosrs as 

too low under current standards.2

° For example, the CSO 

Pannership-·-a coalition ofcommunitieswith combined 

sewer systems and firms experr in designing conrrols~believes rhat EPA's estimate is a reasonable one only .if states 

make wide usc of their legal option to revise rhe standards 

but that meeting current standards could cost on the 

order of $100 billion.21 CBO adopted that figure in its 

high-cost scenario. 

20. In some cases, hmvever, emerging innov;nl\e approaches that 

remove swrmwarer from the cemralized sewn systfrn .. -such a~ 

decentralized wastewater treatment {which emphasizes reusing 

treated flows where practical) and restorativt' redevelopment 

(which reintroduces stormwater to the soil and vegetation)~-­

might rt"sult in costs lower than those reflccred in EPA's e~tlStates are authorized to modifY the designated 

iry srandanls for their water bodies if they demomrrare 

meeting the old standards is technically infeasible or would have 

"substantial and widespread ecormmic and social impacts." Examples of changes that could reduce costs fm addres.si11g CSOs 

i11cludc allowing a higher number of day~ rhar ~wimming may 

be suspended became of elrrated bacreria levels; allowing less 

stringent standarJs in the winter when swimming, is less popular; and applying water quality sta11dards at the: site of human 

contact, rather than the site of the discharge from the comhined 

sewer system. 
241 


26626.210

22 FUrt;RE INVESTMENT fN DRINKlNG WATER A.t'iD WASTEWATER INFRASTROCTIJRr: 

EfjicienryS'aving;.l\-1any water systems are realizingsigni-

~lcant savings in operational and capital costs per unit of 

service by focusing on such things as demand management, labor productivity, system consolidation, asset 

management, and innovative construction contracting (see 

Appendix B). However, the amount that systems will 

save from efficienc-y gains over the next 20 years--or 

could save, if given the right incemives~is uncertain. 

CBO' s1ow--cosr and high-cost cases assume that efficiency 

savings reduce future investment by 15 percent and 5 percent, respectively. 'Ibose assumptions reflect several types 

ofindirect or anecdoral evidence~data on potential and 

observed savings in O&M costs, estimates of investment 

savings from studies ofwarer systems abroad, and individual case studies of domestic systems-and are within tht: 

range cited by some industry experts. 23 

Evidence thar water systems are already reaping savings 

in 0&1v1 costs and could continue to do so comes from 

con1paring a consuJting firm' /:i assessmenL'> of97 mediutnsized and large water urilities conducted through 1997 

with 136later assessments. ln the initial group, porential 

savings in operational cosc~ through the use of six types 

of best practices averaged 25 percent; for the later group, 

22. For examples of the methods .systems are using w !demit)' po~ 

tential savings. see Teny L At hen on, "Success Through Mock 

Competition," and Mark Premo, "Rehuildlng a Utility with 

Employee Invo!vemcm and Peer both in Association of 

Metropolitan Water Agencies, n:-aw·x: Comprtitivrm:ss 

Public Watf'r Utilities, voL I (Washington, D.C.: 

undated). 

For example, one expert has testified to the Congn·ss that "The 

cost profiles of the watet and wastewater industries suggest the 

porcnt!al for cost reductions in the range of five percent or mort:' 

in each of the following areas: efficiency practice; (planning, 

operations), integrated resource management 

and operaring), and industry restructuring (consolidation, pri~ 

vatintion, and marker-based approache~)" (empha\is in original). Supplemental answer.s from Dr. Janice/\. Bt>e~:h~-r, Beecher 

Policy Research, Inc., in Senate Committee on Environment 

and Public Works, Subcomminee on Fisheries, Wildlife, and 

Water, \¥~-ttl'T and Wastewater lnftmtructure Needs. Committt>f' 

Print 107-316 (March 27. 2001), p. 9). Of course, some of 

those categories would apply more to operational costs than to 

capital costs. 

the distance from the dllciencies of best practices had 

narrowed, averaging only 18 percent.24 Similarly, a 1996 

report from the Association of l\1etropolitan Sewerage 

Agencies said that it is ''not unusual" for systems that 

undertake efficiency initiatives to reap savings of20 percent tO 25 percent in operational costs.25 

Fewer data are available on the potential impact of efficiency savings on investment costs. Some of the best evidence comes from overseas. One study of urban water 

systems in New South \Y/ales,Australia, estimated potential investment savings ofl2 percent to 14 percent within 

five years; also, executives from rwo Australian systems 

report anecdotally that they have already realized savings 

of 30 percent. ln the United Kingdom, the latest rates 

from the government regulator of water companies assume capital savings averaging 13 percent over five years, 

on top of savings already achieved in the past decade. 27 

Here in the United Stares, rwo well-documented examples of innovarivc contracts giving a single firm the responsibility to design, build, and operate a treatment 

plant have yielded estimated savings of about 20 percent 

and 40 percent, the latter including discounted O&M 

costs (see Appendix R). 

Comparing CBO's Estimates with loose of Others 

One measure ofthe importance of rhe above assumptions 

is rhe impact each one would have had on the estimate 

of investment costs for drinking water and wastewater 

24. Personal communication with AJan Manning, EM~\ Associates. 

"'"'"'"'"'"rm•awwu'm' An AMSA 

Chtcklio-t (Wasbiugron, D.C: AMSA, 1996), p. ll. 

26. Halcrow Management S~.-ience!. Limited, New South Wales WnSummmy (December 1999), p. 53, availthe lndependem Pricing and Regulatory Tribunal at 

V.'V.'w.iparcnsw.gov.au U!lder ''\'V'hat's New~lJpdates," January 

2S, 2000; J.nd persona! communication with Claude Piccinin, 

Deputy Executive Director, \'(later Services Association of A us~ 

m!ia. July 26,2001. 

27. OHicc of Water Services, FinaL !>eterminutions: Futurr Watrr 

and Sewerage Char_gn 2000-05 (undated), p. 98, available ar 

WV'lW.of\vat.gov.ukJfinal_dererminations.hrm. 
242 


26626.211

CHAPTER TWO 

systems lflt had been used individually in W'IN's analysis. 

For example, if that analysis had used 0.6 percent instead 

of] .0 percent for the average annual rate of replacement 

for drinking water pipes, as in CBO's low-cost case, 

\VIN' s estimate in costs as financed would have heen 

reduced by $5.4 billion per year (see Table 2-5). Thus, 

that factor alone accounts for more than one-third of the 

total difference between the estimates from \VIN's 

analysis and CBO's low-cost case. Conversely, the higher 

costs for abating combined sewer overflows assumed in 

CBO's high-cost case would have raised WIN's estimate 

Table 2·5. 

ESJ1MATFS OF Rr!URE !NVF,;TMENT COSTS AND THEIR IMPLICATIONS 23 

of average annual costs by $2.2 billion. CBO's assumptions ahom effidency would also have had significant 

impacts: the assumed savings of 5 percent to 15 percem 

would have reduced estimated annual costs by $1.5 bil~ 

lion to $4.6 billion. 

Despite some different assumptions, CBO's estimate 

from its high-cost case is very dose to \X!IN' s because savings from a longer borrowing term, on old debt service, 

and from efHciency are almost entirely offset by larger 

costs to address combined sewer overflows, to fund to inContributions of Individual Assumptions to Differences Between 

CBO's and WIN's Estimates 

(In billions of 2001 dollars per year) 

\\~N's Estimate (one case) 

CBO's Estimate 

Difference ro Be Explained (WIN minus CBO) 

Capital Factors 

Savings from Increased Efficiency by Drinklng Water and Wastewater Systems 

Drinking Water Systems 

Annual percentage of pipes replaced 

Average annual cost for regulations not yet proposed 

Wa.l!tewater Systems 

Depreciation rate 

Share of investments in EPA's needs survey for replacing existing capital 

Average annual cost to control combined sewer overflows 

Total Sa;ings from Capital Factors 

Total Capital Savings, Including Interactions 

Real Interest Rate 

Repayment Period 

Pay-As-You-Go Share ofTorallnvesrment 

Average Annual Debt Service on Pre-2000 Investments 

Total Sa\ings from Financing Factors 

Total Financing Savings, Including Interactions 

Source: Congressional Budget Office, 

Financing Factors 

Notes; 11.a not applicable (when assumptions do not differ from WIN's). 

Low-Cost case 

40.3 

24.6 

15.7 

4.6 

5.4 

n.a. 

0.8 

0.5 

n.a. 

11.4 

10.4 

n.a. 

5.0 

1.2 

0.8 

7.1 

7.8 

High-Cost Case 

40.3 

41.0 

-0.7 

1.5 

n.a. 

-0.4 

n.a. 

-0.6 

·2.2 

-1.7 

·1.7 

-2.0 

3.0 

-0.6 

0.8 

1.3 

1.1 

Berause of interaction eiJeciS, the ~-um of th(' dollar imparts from each assumption intlhidual!y--or from aU capital factors ami all financing factors--does 

not equal the overall difference bctY.'t'Cn CBO's and WJN's estimates. l

1

or cxarnple, the impact of investment efficiencies is smaller when tlle mte of investment 

is reduced by !ower rates of depn:.'t"lal.ion wd replacement 
243 


26626.212

24 Rfllllli': £NVt::..'ITME!'>lT fN DRINKING WATER ANTI W'A..)Th~'ATER fNFRASTRlCTIJRE 

Table 2-6. 

Estimates of Average Annual Capital Costs for Investment in Water Systems, 

_20_00_ to ~019·~c--~-~~~~ (In billions of2001 dollars) 

CBO' 

Water lnfntStrncmre Network 

Environmental Protection Agency 

Clean Water Needs Survey" 

As published 

Drinking Water 

12.0 to 205 

20.9 

n.a. 

Wastewater 

14.9 to 22.3 

19.2 

7.5 

Adjusted for more recent estimate of costs to control sanitary sewer overflO\VS 

Drinking Water Infrastructure Needs Survey' 

n.a. 11.4 

As published 8.0 n.a. 

Adjusted for estimated underreporting 11.1 n.a. 

American Water Works Assofialiond 8 5 n.a. 

Sources: Congressional Budget Office; l~nvironmenta! Proteclion Agency, Office of Water, L996 Clean Water Needs Survey: Report to Congress, EPA .R32-R-97-003 

(September 1997); Environmental Protection Agency, Office ofWater, Drinking Water lr~{rastmctureNeed.•·Snroey: SecmutRepott to Congress, EPA816-R97-003 (February 2001); Amrrican Water Works Association.Reim:esting in Drinking Water lnfiustmcture: lkm111 of the Replac·ement Bra (Denver, 

Colo.: A\VW1t May 2001); Water Infr"a.'>tmcturc Network. Clmn mid Sqfe \f.flter for the 21st Crn!ury': A Renewed National Commitment to Water and 

Wastewater h{(m.strm:ture (Washington, D.{ : \'\'IN, April 2000). 

Note: n.a. =-not applicable. 

a. Ranges rellect CBO':; low-cost and high-cost cases. 

h. t:stimate for 1996 dtrough 2015. 

c. Estimate for 1999 through 2018. 

d. Eslimatt' for 2000 through 2029. 

vestments in wastewater systems tiJr purposes other than 

replacing existing infrastructure, and to meet drinking 

\Vater standards, along with a higher interest rate and 

larger paygo share. ln contrast, CBO's low-cost case differs sharply from WIN's largely because of the replacement rate assumed fordrinkingwater pipes, the assumed 

savings ffom efficiency, and the longer borrowing term; 

other assumprions, such as a smaller paygo share and 

lower estimate of old debt serv-ice, have smaller bur still 

significant efiecrs. 

Evidence from the available hottom-up studies--EPA's 

needs surveys and the American Water Works Association's study of 20 systems--does not support estimates 

of the magnitude produced by CBO's high-cost case and 

WIN's analysis. Indeed, estimates from the bottom-up 

studies are well below those from CBO' .\ low-cost case 

(when expressed Jn comparable terms), Specifically, EPA's 

survey estimated average annual capital (that is, real resource) costs of $8.0 billion for drinking water, and 

A WWA's study put that figure at $8.5 billion. For wastewater, EPA's figure was $7.3 billion. By comparison, 

CBO' s estimates of real resource costs in the low-cost case 

arc $12.0 billion fordrinkingwater and $14.9 billion fOr 

wastewater (see Table 2-6). The estim.ates based on EPA's 

surveys remain somewhat lower even after (perhaps incomplete) adjustments to better capture investmenr needs 

over the full 20-year horizon, which raise the figure for 

drinking water to $11. 1 billion and the figure for wastewater to $11.4 billion. 

28. The adjustment Cor drinking water systems applies the percentage amount of underreponing that EPA fOund in follow-up 

visits ro 200 medium-sized and large systems after the 1995 

needs survey. The adjustment for wastewater systems :.ubstinues 

EPA's later model-based estimate of costs to address SSOs for 
244 


26626.213

CllAI'IIR TWO 

For O&M costs, the differences between CBO's and 

\X!IN's estimates: involve fewer factors. The approach that 

CBO used in irs low-cosr case to estimate O&M cost'i for 

drinking water systems is essentially the same as WIN's, 

differing only in extrapolating from 19 years of clara 

instead of 10 and phasing in the assumed 20 percent 

efficiency savings two years sooner. Those facrors accounr 

for a minor part of the diffCrence in the two estimates; 

most appears to reflect differences in data sources. For 

wastewater systems, one additional difference between 

CBO's low-cost case and ~1N' s analysis is that the latter 

extrapolates the uend in the ratio of O&M ro capital 

srock, nor in O&M itself (see the discussion in Appendix A). For both drinking water and wastewater, CBO's 

high-cost case estimates exceed W'IN's because they assume no efficiency savings (beyond those already rd}ected 

in the 1980-1999 trend). 

Comparing Current Spending 

and Future Costs 

Large future investment costs are relevant to policymakers 

primarily because of the prospect that they \'.'ill require 

large increases above current investment levels and hence 

large increases in the rates charged to households and 

other\vater users. 'X'IN' s report, EPA oHlcials, and water 

industry representatives have refCrred to the difference 

between current (or recent) spending and future costs as 

a "funding gap." But the difference does not reflect the 

ability of local water systems to generate additional resources on their own to pay for increased future investment, so it does not reflect a gap that can only be fil1ed 

by federal funds. 

CBO estimates that invL-stment spending in 1999 was 

$11.8 hillion for drinking water and $9.8 billion for 

wastewater (in 2001 dollars). Those figures are estimates 

hecause the available data do not measure spending in 

terms of costs as financed. The most comprehensive data, 

from the Census Bureau's annual surveys of state and 

29. For example, whereas CBO took the data it used to convert 

nominal O&M spending to 2001 dollars from the GDP price 

deflawr, ""1N app,·ars to have used the New.>· 

Records Conmucrion Cost Index, which both WIN CHO 

used for capital spending. 

E._>;TI:Y1~TES Oil FllTIJRE INVESTMENT COSTS A"-1) THEIR IMPU('ATIONS 25 

local government finances, show total capital oudays 

(whetherflnanced through borrowing or paid from funds 

on hand) for both drinking water and wastewater systems 

and interest payments for drinking water systems. Thus, 

the census data do not capture costs as financed because 

they lack informacion on inrerest payments for wastewater 

systems (which the survey classifies as municipal depart~ 

ments, not utilities} and hec..tuse they include the capital 

costs fOr new financed investments rather than the current principal payments made on past investments. 

CBO's estimates of 1999 baseline spending for drinking 

water and wastewater combined include estimates of 

spending on new paygo investments and on debt service 

for earlier investments financed through borrowing. CBO 

calculated the former as an assumed share of all investments made in 1999; the latter reflecrs assumptions regarding interest rates and paygo shares from 1979 

through 1998.30 (CBO used the same approach ro estimate the fmure costs of debt service on pre-2000 investments; see Appendix A for derails.) The resulringestimares 

are nece.,.sarilysomewhat uncertain, given the large number of assumptions involved. 

Those estimates of 1999 spending imply that future investment costs represent an annual average increase for 

drinking water and waSte\Vater systems combined of$3.0 

billion under the low-cost case and $19.4 billion under 

rhe high-cost case (see Table 2-7). The fOrmer figure 

represents just 14 percent of the current financial burden 

of water investments. That result is contrary 10 the conventional wisdom rhat the nation's water systems will 

soon be straining ro fund a large increas~! in investment, 

but CBO considers it reasonable, given the uncertainty 

about how soon existinginfrastructurewill need replaceJO. CBO's analysis aho involved scaling up the census data on investments in drinking water systems by 15 percent iO capture 

on p!ivatdy owned sysrems. For lack of information, 

CBO did not adjust the dat"a duwnwa1d to omit investments to serve future growth. 1\5 noted above, growthrelated investments are t'xJuded from EPA's ueeds survey and 

thus from CBO's estimates of future investment cosrs: consequently. their inclusion in the census data lends a downward 

bias to CBO's projections of rhe difference between current 

spending and future costs. \VIN's analysis of baseline spending 

made those sam!;' choice~. 
245 


26626.214

26 FUTURE tNil£.)TMf.NT lN DRINKING WATER A.\ID WA.';TE\lATER L'll'RASTRlJCTIJRE 

Table 2·7. 

Estimates of the Difference Between 1999 Spending and Future Costs 

for Investments in Water §ystems -~----~~--~~----~~-

(In billions of2001 dollars per year) 

CBO' 

Future costs 

1999 spending 

Difference 

W1N (Costs as financed) 

Future costs 

1999 spending (Approximate) 

Difference 

Source: Congressional Budgrt Office. 

l)rinking Water 

11.6to20.1 

__ n_.s_ 

· 0.2 to 8.3 

21.4 

12.0 

9.4 

Wastewater 

13.0 to 20.9 

---'LJL. 

3.2 to 11.1 

18 9 

21 

9.2 

Total 

24.6 to 41.0 

___ill!_ 

3.0 to 19.4 

40.3 

21.7 

18.6 

Note: The figures for 1999 spending are estimates, rellrcling assump!lonsabout drbt srrvice payments on investment<> from earlier years. Forthrpurpose of comparison. 

CBO recakula!ed WIN's results in terms of costs as financed and approximated WIN's estimate of 1999 spendi11g. 

a. Ranges reflect CBO's low·co.<rt and h!gh·co:.i cases. 

ment, the prospect:; for increased efficiency, and the po~ 

temial for water systems to fund more of their investment 

through borrowing and to borrow fOr longer terms. In 

contrast, the $19.4 billion difference estimated under lhc 

high-cost case, which CBO considers equally possible, 

nearly marches the current financial burden of investments in warer sysrcrns. 

Expressed in costs as financed, \X!IN's results show a dif· 

f'erence between 1999 spending and average future costs 

of $9.4 billion for drinking water and $9.2 billion for 

wasrcwarcr (see Table 2-/).51 Again, the implied estimates 

from WIN's analysis are dose to those from the high-cost 

case and much larger than those from the low-cost case 

(while significantly below 'X'IN's published figures, 

shown in Box 2-3 on page 19). The main novelty here is 

31. CBO did not obtain enough infOrmation to dirctt!y calculate 

'XTfN's es·rimate of 1999 debt service, a key component of baseline "pending in terms of costs as financed. Instead, CBO ap· 

proximated WIN's estimate by using a proxy model based on 

WlN's method~ and assumptiom. To improve rhc approximation, CBO adjusted the proxy model's estimate of 1999 debt 

service in proportion to the diffcrenLe between 'W'JN's known 

estimate of average annual debt service from 2000 to 2019 and 

the corresponding est! mare from the proxy modeL 

that subtracting baseline spending makes the differences 

hetween \XfiN's estimates and CBO's larger in rdative 

terms. 

The Impact of Projected Water Costs 

on Households' Budgets 

Ultimately, individuals bear the costs ofinvesrmenrs in 

water systems and expenditures for O&M--direcrly 

through households' drinking water and wastewater bills 

and indirectly through the prices they face fOr goods and 

services produced using water and through local, state, 

and federal taxes Sttpportingwatcr systems. "l'he distribution of costs among individuals depends on rheir water 

use, cheir system's characteristics (including rare structures and external funding), rheirconsumprion of waterintensive goods and services, and their tax bills. 

Given the availability of data on households' water bills, 

but nor on indirect expenditures on water through taxes 

and consumption of other goods and servict's, CBO has 

analyzed the impact that projected lcvds of inYestment 

and O&M spendingwould have on households' budgets 

in the absence of increased support from taxpayers. For 

simplicity, the analysis assumed that all residential, com-
246 


26626.215

Cll \PTER lWO 

Box 2-4. 

CBO's data come from the quarterly responses of approximately 2,800 households participating in the 

national Consumer Expenditure Interview Survey, 

carried out by rhe Bureau of the Census under contract 

with the Bureau of Labor Statistics. Households in 

CBO' s sample began their yearlong participation in rhe 

survey no earlier than tbe third quarter of 1997 and no 

later than the second quarter of 1998. To obtain 

national-level results, CBO weighted the dara to adjust 

for the fact that not all surveyed households participated for the full course of a year. 

Participants report" cash" income from all sources, including food stamps. To guard against an overly conservative estimate of the proportion of household income spent on water bills, CBO incorporated all 

incomes as reported to rhe Consumer Expenditure 

Survey even though 3 percent of households in the 

sample have an annual income of!ess than $5,000 and 

a small fraction have large negative incomes. Some 

analysts question rhe reliability of such reponed incomes because expenditures hy those households often 

exceed their pretax income. 1 

I. C~eoffrey D. Paulin and David L ferraro, ulmputing Incomes 

in the Consumer Expenditure Sun'ey,'' Monthly Lahor Rn1iew, 

vol, 117, no. 12 (December 1 994), pp. 

mercia!, and industrial water customers would face the 

same percem:.tge increase in their bills, notwithsranding 

the fact that invesrmem and O&J\.-1 requirements vary 

among systems. 

CBO's Estimates 

CBO estimates that total household water bills represented 0.5 percent of total household income in the late 

I 990s, when customers paid a hom $'58 billion directly 

tO water systems (see Box 2-4). To pay for future infrastructure expenditures and O&M costs without increased 

support from taxpayers, direct funding from cusromers 

in 2019would have to reach$84.7 billion in the low-cost 

case and $121.9 billion in the high-cost case, implying 

average annual rates of increase between 1999 and 2019 

of 1.62 percent and 3.48 percent, respectively. Taking 

ESTIMATES OF FliTIJRE INVl~TMENT COSTS AI'Hl THEIR lMPLICATIONS 27 

Participants also report water expenditures on the basis 

of bills received exclusively for drinking water and 

sewer services. for the 39 percent of respondents not 

reponing their own water hills, CBO imputed their 

cxpendirures by using the average values of water hills 

from reporting households in comparable income 

classes. Those income classes covered $10,000 segments 

up to $100,000; the last income class consisted of 

households earning at least $100,000. Again, that 

imputation errs on the side of overstating the share of 

household income spent on water since most nonrcponing households are probably apartment dwellers 

who do not receive separate water bills. Water use per 

capita is generally lower in multifamily unirs, which, 

compared with single-family home<;, tend to have fewer 

water-using appliances and to share landscaping and 

swimming pools. 2 

2. Duane 0. Baumann, John J. Boland, and 'X'. M khad Haneman, 

UrlMn Wfiirr Demand lvfanagcment and rlmwing(New York: 

McGraw-Hill, lnc., 1998), 

into account projected growth in income over th-at time, 

water bills in 2019 would equ-al 0.6 petcenr of national 

household income in the low-cost cas.e and 0.9 percent 

in the high-cost case. 2 The best available data suggest 

that such shares would not be high compared with those 

in many other industrialized countries (see Box 2-5). 

The percentage.<. reflect a prnjecn:>d 19.2 percent increase in rea! 

household income between the late 1990s and 2019 on the 

basis of CBO's July 2001 fOrecast through 2011 for raxable 

personal income KH earners age 20 and over (witb married cou· 

pies counting as one earner) and the Social Securiry trustee.<.' 

midrange assumptions for population growth. The simple analysis leaves out several factors, including poremial changes in the 

spread of the income distribution or in the allocation of water 

costs between household and other use-rs. 
247 


26626.216

28 FIJTl1RE INVF"'ITMFJo/T IN DRINKING WATER AND WASTEWATER INrR.\STR!lCTIJRE 

Box2-5. 

Water Bills in Various Industrialized Countries 

Compared with households in orher counuies, U.S. 

households cypically enjoy relatively low-cost water 

bills. Without information on household costs associated with tax-financed subsidies ror water systems, 

imcrnarional comparisons ofdrinkingwaterand wastewater costs at the household level are limited ro examining bills that users pay for typical quantities of 

water services. By that measure, U.S. households' '\Yater 

bills as a share of personal financial resources, on average, currently rank third-lowest among those of 16 industrialized countries of the Organiz.'lrion for Economic Cooperation and Development (see the table). 

By 2019, under the Congressional Budget OlTice's 

high-cost case, U.S. households' average cosrs (as a percentage of per capita gross domestic product) would 

nearly double if the increases in investment and O&M 

expenditures were passed along entirely ro customers 

in their water bills. if households' water bills in other 

countries rose no faster than per capita GDP, the 

United States' ranking would tall from third- w tenthlowest. Even with those assumptions, direct billing for 

water services relative to personal financial resources 

would still be lower in the United States, on average, 

than in France or England. 

However, shares of income nationwide can obscure impOrt3.nt differences among households and [hus shed only 

limited light on the argument, made by advocates of increased fedcraJ aid for investment in water systems, that 

rising costs will make hills unaffordable for some households:B Certainly, households ar difFerent income levels 

33. Other summary m{'asures of water cos-v; consider the sll:ue of 

income spent by individual households. For example, the 

median share of income spem on vnter services in the late 

-----------------------·-------------

Households' Average Bills for Typical Levels of 

Water Consumption in OECD Countries in the Late 

1990s (Percentage of per capita GDP) 

Korea 0,64 

Italy 0,72 

United States 1.00 

Japan 1.04 

Turkey 1.32 

Belgium 1.44 

Sweden lAS 

Spain !.52 

Denmark 1.60 

Australia 1.72 

Finlaud 2.16 

france 2,20 

England and Wales 2,28 

Netherlands 2,52 

Czech Republic 384 

Hungary 620 

~ource: Congressional Budget Office based on Organization for Economic 

CQoperaUon and Drvelopment, En,ironment Directorate. Em· iron· 

ment PolicyCommittre,Hm~·eholdWater Pricing ltt OECD Countries, ENVII'J'OG'Ghcl(98) 12/11NAL (Paris: OE<:D, May 19991. 

No!c: The table reflects tht' bcSl in<Ucator of households' water bills that 

CDO can construct, glv~n limitations on international data. H dra\VS 

(l11 hvo data sources that incorporate infonnation from different 

years. Thr first rrports 1996 data on aver:.1g_e drinking water charges 

for a l10usehold using 200 cubic meters of wai.er per year relativeto per capita GDP; the st~nmd reports average drinkiJJg \Vater and 

sewer charge.s per cubic meter for a year between 1994 and 1999, 

depending on the most recent data available for each country. 

1990s was 0.98 percent, meani!lg that half of all households spent 

less rhan rharamount and the other half spent more. Another sunlma!y measure~the average of the individual house-hold shares-~ 

cannm be calculated in a nonarbitrary way because of the yery 

small, zero, and negariw inconws r<>port~d by some surveyed households (ge Box 2-4). One arbitrary approach is to cap all shares ar 

some maximnm level; ·with a cap of l 0.1 percent. the average 

household share hecomes 1.6 percent. Anorherway is to ignore the 

data from all households reponing zero or negative income; under 

that approach, which accepts all small bm positive incomes as accurate, the average share i~ 4.8 pe-rcem. 
248 


26626.217

CIIAI'IERJWO t:SITMATFS OF fUTURE INVFSfM!Wf COSTS AND THFJR IN!l'UCAT!ONS 29 

Table 2-8. 

Percentage Shares of Households' Average Expenditures 

in the Late 1990s, by Category 

__ i\llllUallfouseiiOid !lxpelldiiUre.sJ'I1t<lus_al1lll;_llf_<l<>ll!lrSJ~.~···· 

Under Over 

10 10 to 20 20 to 30 30 to 40 40 to 90 90 "-··~·--------------

Water and Sewer 2.49 167 1.27 109 0.80 0.56 

Other Utilities 10.75 8.62 7.39 6.70 5.24 3.74 

Shelter, Household Operations, and Supplies 34.86 35.05 30.63 28.75 26.48 26.68 

Food 20.97 17.31 15.50 14.59 12.35 10.13 

Health Care 6.70 743 5.76 5.52 4.21 3.16 

Other Identified Expenditures' 24.41 29.33 35.65 37.24 4168 40.41 

Taxes (Nonproperty) :!L!!2 _MQ _jJill _ill _ill lill 

Total for Identified Expenditures 100 100 100 100 100 100 .. ·-·-···-~----

Source: Congres~ional Budgrt Offkc based on data from Bureau of the Cenws, Consumer J:::.'lp<:'nditure Interview Survey, third quarter 1997 through first quarter 1999. 

a. Apparel and personal care, transportation, person-a] insurance and pensions, rcrrt'lllion, entertainmmt, alcohol, smoking, education and reading, anrl cash contributions. 

devote different. proportions of their total spending to 

water services~as they do to other utilities, fOod, medical 

care, and housing. For example, households with total expenditures under $10,000 devoted an average of2.5 per-· 

cent to water bills in the late 1990s and thus would generally have to adjust more to accommodate rate increases 

than would households with expenditures of: say, over 

$90,000, which devoted an average of just 0.56 percent 

to water bills (see Table 2-8).34 For comparison, the share 

34. 

compares spending in each category not tO income but to total 

For households th.at ar.;o net savers, water bills repn> 

of spending than of income; for households 

that are net bormwers, the opposite is true. 

Households' adjustments to higher rates would rdlecr not only 

their income and expenditures but also their potential fOr reducing water use. A 1984 assessment of '50 peer-reviewed studies 

concluded that a 10 percent increase ln p1ice, with ("verything 

else unchanged, would prompt a 2 percent to 4 percent decline 

in residential water demand. John ). Boland, Benedykt 

Dziegielewski, Duane D. Baumann, and Eva M. lnjlumce of Price and Ratr.' Stmctures on }o1unicipal [ndwtri,11 

Water [he, Institute for Water Resources Report 84-C-2 (Fort 

Belvoir, Va.; U.S. Army Corps of Engineers, l984L 

of total spending going to everything other than food, 

housing, medical care, utilities, and taxes averages 22 percent for the former group and 40 percent for the latter. 

OF course, the share of a household's income spent on 

water bills also depends on its water use and local rates. 

Sorting individual households specifically by the share of 

income going to water biHs, CBO found tbat in rhe late 

1990s, half of all households spent 1 percent of income 

or less fOr water services, while mhers spent significantly 

more {su Figure 2-1). 35 

Distributions such as rhose CBO found can be characterized in many ways, emphasizing different features. One 

measure that has received significant attention i1> the fraction of households billed more than 4 percent ofincome 

for their water services-bur that is simply one of many 

potential summary measures. Four percent has no particular economic significance as ilie point at which households' water bills become "unaffordable." (For the origin 

of the 4 percent measure, see AppendiX C) 

35. The figure tre--.us households that reponed ze-ro or negative income as spending more than 10 percent of their income for 
249 


26626.218

30 f'LITURE INVESTMENT IN DRJNKlNG WATER A~'D WASTh'WAThR INFR>\STRUCTURE 

Figure 2·1. 

Water Bills as a Share of Household Income 

(Percentage ofU.S. households) 

60 

60. 

50 

60 

50 

<O • 

30 

20 

10 

Slmrrr: l,ongressional Budget Office. 

Bills in the Late 1990s 

Percentage of Income 

Bills Under the Low-Cost Case, 2019 

Percentage of Income 

Bills Iinder the High-Cost Case, 2019 

Percenta~e of Income 

10 

More 

than 10 

.. 

More 

than 10 
250 


26626.219

However, using that particular measure, CBO estimates 

that in rhe late 1990s, 7 percent ofU.S. households spent 

rnore than 4 percent of rheir income on water; an additional l 6 percent spent more than 2 percent. T wemy-flve 

percent spent less than 2 percent but more rhan J percent, and 51 percent spent no more than 1 percent. .If> 

The di~rribution in the late 1990s represents a modest 

shift from the !are 1980s, when only 4.7 percent ofU.S. 

households were spending over 4 percent of their income 

on "vater bills. ln 2019, given uniform increases in 

charges associated with CBO's low-cost and high-cost 

esrimates, 10 percent to 20 percent of U.S. households 

might be spending more rhan 4 percent of their income 

on bills for the services they now use; an additional 

19 percent to 23 percent might be spending more than 

2 percent. 

Comparing CBO's and WIN's Estimates 

Compared with CBO, \VIN found water bills accounting 

for a much larger share of household budgets, both now 

and in the future. The coalition's estimate that 18 percenr 

of U.S. households spent more than 4 percent of their 

income on water bills in 1997 is more than rwiceas high 

as CBO's estimate of 7 percent. WIN projected that 

22 percent ofhouseholds would spend over 4 percent of 

36. The disuibution appears w be similar f{n urban and rural areas. 

For example, CBO estimates th;Jt 7 percent of urban households 

and S percent of rural households were paying more than 4 percent of rheir income fOr water bills, Howevt'r, the urban-rural 

comparison is hampered by the large share (47 percent) of rum! 

households that did not report water bilk Since CBO impured 

spending for nomeporters using average bills of all rural and 

urban housdwlds with similar income, estimated bi!ls for rural 

households may be too low if anual bills for rural nonrt"porrers 

exceeded the imputed averages. Alternatively, estimated bills for 

nm.l households may be too high if the impute'd com exceeded 

the actual cosrs~if, fOr example, manr of [he rural nonreporrcrsw;cd private wells and septic tanb. 

l~TIMATES OF FUTURE INVFSTMENT COSTS AND THEIR IMPUGATIONS 31 

their income on water bills by 2009 (halfway through the 

2000 to 2019 study period) and stated that a third or 

more of the population would have bills reaching that 

level as cosrs continued to rise. 37 

The discrepancy between CBO' s estimate for the late 

1990s and WIN's for ] 997 apparently exists because 

\'VIN did not analyze actual bills based on water use by 

individual households as CBO did. Instead, WIN calt:ulated households' water bills using data on Ohio systems' 1997 charges for the equivalent of250 gallons per 

day. 18 (The other possibility would be thar \X!IN' s estimates of household income were lower than CRO's, bur 

comparing averag~ income by percentile across \'iflN's 

and CBO's data sources suggests that household income 

was higher in \X!IN's analysis.) The accuracy of WIN's 

results rests on the extent tO which households' water bills 

nationally can be characterized using only data on charges 

f(u consumption of250 gallons per day in Ohio. If, for 

example, low-income households rend ro use less water 

than that, then, other things being equal, W1N's estimates overstate We numberofhouseholds with water bills 

claiming mote than 4 percent of their income.J9 

37. '\Xratcr Infrastructure Network, Clean and Saf: Water_{Or the 21st 

Century·, _1-lP· 3-<'i and 3--). 

3R. Ahhough '\<TIN's Clnm mul Saft W1

ater for the 21st C'emuryn_•o 

pon stares that its analysis is based on "individual fe:es (not averag~·)," it is actually based on the 1997 rates that Ohio households would have faced if they used the eqllivalent of 2')0 gallons per day, according fo Ken Rubin ofPA Comulting. 

39. WIN considered Ohio households' expmditures for drinking 

water and wastewater services (relative to income) as representative of such expenses nationwide because rhe 1990 census 

such data on spending for drinking water in that state matched 

well >vith the information fOr the United State~ as a whole. (The 

1990 ccmus data do not include wastewater expenditure&.) 
251 


26626.220

3 

Options for Federal Policy 

F cderal intervention in drinking water and wastewater markets may be designed to serve various purposes, 

such as protecting the environment or ensuring that 

drinking water meerscerrain standards everywhere in the 

country, All such policy objectives can bevieo.ved a_<; efforts 

to increase the cosr-cflCctivencss of providing and using 

water or to achieve a certain distriburion of the bene firs 

and costs. 

Economic principles suggest that federal action may be 

able ro increase cost-eHCctiveness yvhen other entities do 

not have adequate incentives to account for the ~;xrrajurisdictional, or "spillover," dff:cts that their decisions have 

on third parties. For example, standards for wastewater 

(featment may improve cost-effectiveness by reducing cost5 

w downstream w>ers hy more than tht:-c-osts of trf'atment. 

However, whether current standards established under 

the Clean \'\later and Safi: Drinking \"\later Acts are consistent with the economically efficient useofsociery's resources is an important question that is outside the scope 

of this study. 

A main opportunity f(n federal involvement that may improve cost-effectiveness is sponsoring research and development (R&D). Private firms and stategovernmen!s rhat 

may fund R&D for water systems have little incentive to 

consider the spillover benefirs that would accrue to other 

parties and thus :ue likely to forgo some research opportunities rhat would be worthwhile from th~· national 

perspectlve. 

l. 

Federal intervention in "\-Vater markets can also be intended 

to serve distributional pmposes·--to shift cost.<; from people 

who have low income, usc a lot of water, or are served by 

high-cost systems to people who have high income, use 

relatively little wate-r, or arc served by low-cost systems. 

Tbe drawback of such interventions through federal 

fundinga11d tax preferences, however, is that they generally 

distort prices and thereby undermine incentives forcostdTective actions by producers and consumer;,; of \Vate-r 

services. Eliminating the distortiom; could lower total 

national costs: without federal support, the prospect of 

rising costs and accountability to rarepaycrs would give 

managers of water systems strong incentives to look for 

ways ro control costs in both their operational and investment choices. Similarly, the increased rates themselves, 

better reflecting the true costs of water services, would tend 

to encourage-water users to adjust their behavior-·-·for example, to usc less \Vater or to pretreat indusrrial wasttwater 

--ln order tO cut costs. 

Both the disuibmional effects of subsidies for warcr ser~ 

vices and tbe extent of their adverse impact on incentives 

for cost-effective actions depend on rhe subsidies' level 

and f~xm. To preserve incentives tOrcost-effecrive actions 

by \o\r<J.ter systems and users, the Congress could pursue 

policies thar redistribute income-such as aid to water 

sysremsbasedon apredercrmined formula not tied to current investments or direct subsidies to needy households 

for a basic level of water use.--,rather than policies rhat distort the price of water, such as tht· present subsidies fix 

invesrment in infrasrructurc. 

ate kvel of research through mordlmued volumary contributions. 
252 


26626.221

34 FUTCRE I"NVt:STMENT IN DRINKING WATER i\ND WASTh"'W,-\TEH lNFR-tSTRlll111RE 

Federal Support for Research and 

Development and Its Implications Technical R&D into new pipe materials, construction and 

maintenance methods, and treatment technologies can 

lead to significant savings. One of the many successful innovations that could be cited here is pipe bursting, a 

method for replacing pipes that does not require trenches 

to be cut along the entire length of the replacement. Instead, using a single access point, the construction crew 

sends equipment into a section of pipe to burst it from 

within and feeds a flexible new pipe in to take its place. 

By using pipe bursting, the drinking water system in 

Columbus, Georgia, reduced its costs for replacing water 

mains by an estimated 25 percent.2 A le,.;;s tested but promising rechnology for wastewater treatment, supercritical 

water oxidation, could achie\'e superior environmental 

results and reJuce operating cosrs by one-third, according 

to one study. Capital costs could be somewhat higher than 

those for existing technologies but might fall as the 

method is further devdopeJ or used at larger .scales.' 

Despite the potential for technological progress to provide 

cost savings, the level ofR&D spending on drinking water 

and wastewater currently seems low compared with that 

for electrical power according to the lim ired data available. 

The combined budgets of the American \'Vater Works 

Association Research Foundation (AWWARF) and the 

Water Enviwnment Research Foundation (WERF), the 

main research organizations for the drinking water and 

wastewa.rer industries, are on theorderof$25 million per 

year. That amount represents roughly 0.05 percent of cur·· 

rent spending for investment in water systems and their 

operations and mainrenance. In contra'll, spenJing in 2000 

by the Electric Power Research Institute wa~ 0.14 percent 

of total electricity sales (which roughly corresponds to 

spending on investment and O&M). The Environmental 

2. Steve Allbee, Environmental Prott'ction Agency. "The Infr:t· 

structure Invest men! Gap Facing Drinking Water and Wastewater Synems" (speech to the Associarion of Metropolitan 

Water Agencies, Sr. Pete Heach, Fla .. October 24, 2000). 

3. '"New 'X>'astewater Treatment Good tOr the Environment,'' 

W11tcrTechOnlinc, October 9, 2001, availahle at Wl.\'w.water 

techonline.com/n.ews.asp?modr-"'4&N_Ilh26205. 

Protection Agency funded an additional $7 million of 

R&D in 2002, excluding grants to AWWARF and 

\'\IERl'A 

To uy to speed the developmem and adoption of less 

costly materials and methods, the federal government 

could increase its financial support of technical R&D. 'l'he 

increa._<;e could take [he form of additiona.l research projects 

managed by EPA, larger federal grants to private organizations su<.:h as AW\VARF and WERF, or both. One 

specific proposal, advanced by the Water Infrastructure 

Network coalition, calls for federal funding of$250 million per year for a new Instituteon·echnologyand Management Excellence. 5 As the name suggests, that institute 

would support not only technical R&D bur also the dissemi nation of good management practices. 

While additional federal funding for R&D may have the 

potential to lower total national costS for water services, 

in practice it may be difficul[ to determine an appropriate 

increase, since the line between a useful response to a 

market failure and a wasteful subsidy is not always dear. 

Federal funding may be subject to various influences nor 

related to the cost-effective provision of water services and 

may allow others to reduce their own research funding. 

Thus~ a compelling case for increased appropriations for 

water research cannouest at the theoretical level but must 

include the details of the proposed uses of the additional 

funds and the capabiliries of othe-r funders. 

In many cases, the key to improving the cosr-effectiveness 

of a particular drinking water or wastl".Vater system may 

lie not in developing new technologies but in improving 

the way system managers deploy exisring and emerging 

technologies. Notwithstanding important differences in 

loc.-.1-l conditions that are beyond managerial control, it is 

clear that some systems operate less efficiently than others, 

whether because of ignorance, system-level problems (such 

4. Personal commnnication >vith Te-rry Grindsraf{ EPA. September 27, 2002. The figure includes $6.2 million for research on 

drinking water treatment anJ $0.7 million on wastewater rre-ar5. Water Infrastructure Network, Water !nftastmrture Now: Recommendations for ClNn mtd S11ft Wflter in the 2lst Cmtury(nnc 

dared), available at wwv.·.win-water.org, p. 12. 
253 


26626.222

CILWTERTHR!lli 

as poor leadership, featherbedding, or operation on a small 

scale), or simply a lack of concern over current water costs. 

As noted in Chapter 2, according to recem assessments 

of 136 systems, the industry is becoming more efficient 

but still could reduce operating costs by an average of 

18 percent through more widespread use of "best practices."6 

Of course, rising costs for investment and O&M can be 

expected tO motivate system managers to acquire knowledge and overcome local constraints in order to reduce 

the pressure for higher rates. So whether federal support 

for the dissemination of information on best practices 

could further improve systems' efficiency is unclear. 

Federal Support for Infrastructure 

Investment and Its Implications 

Through different spending programs, including the state 

revolving funds, fed.eral funds paid for about ll percent 

of the nationwide investment in water infrastructure in 

1999, and fCderal tax preferences provided a subsidy equivalent to perhaps 3 percent more, Ag<lin, Congressional 

action to increase such support would affect hoth the 

national costs for water services and the distribution of 

those costs, but the specific effects would depend on 

choices about the amount of the increase, the degree of 

targeting to panicular categories ofwarer systems, and the 

mechanisms used to provide the support. Similarly, the 

effCcts of cutting back federal assistance would depend 

on the details of the cuts. 

Current Feder-dl Support for Water Systems 

As noted in Chapter 1, the federal government supports 

investmem in water infrastrucrure through a variety of 

spending programs and, to a lesser exrenr, through tax 

prefCrences. Small and disadvantaged communities benefit 

disproportionately from the spending, through rirherexplicit targeting at the federal level or states' allocations of 

loans from rhe revolving funds. In contrast, larger communities (which can access the municipal hand market 

more easily) are the primary beneficiaries of the tax preferences. Privately owned water systems have less access to 

6. Personal communication with Alan Manning, EMJ-\ As.'ioLiates, 

OPTIONS FOR flillERAL POUCY 35 

federal support than their publicly owned counterparts 

do (see Box 3-1). 

Federal tax law aid<; investment in water systems primarily 

through the general exemption of interest on municipal 

bonds, which makes the bonds more attractive to buyers 

and thus reduces the interest rates that water systems must 

offer. The exemption applies to personal and corporate 

income taxes but not to the alternative minimum tax 

(AJvlT) for corporations; firms that pay the AMT must 

include interest on the bonds in calculating their ''adjusted 

current earnings," which effectively makes 75 percent of 

the interest subject to rhat tax. Two other provisions of 

the federal rax code rdated to municipal bonds also help 

water systems: bond is._<;uers can keep some arbitrage profits 

(made by reinvesting bond proceeds at a higher interest 

rate) and can refinance the bonds up to 90 days before 

redeeming the original debr. 7 The Joint Committee on 

Taxation estimated that the imerestexemprion and related 

provisions saved bondholders $0.6 billion in 1999 on 

bonds issued for both municipal and privately owned 

'-Vater systems and hazardous waste facilities. 8 That figure, 

including the unknown but relatively small share associated with hazardous waste facilities, corresponds to roughly 3 percem of the investment in water systems in 1999, 

the latest year for which data are available. 

Federal spending programs supporr water infrastructure 

in several ways, including direcr grams for investment 

projects, capitalization grams to the SRFs, and credit subsidies in the form ofloans and loan guarantees. On the 

7 • To keep any Jrbitrage profits, systems must spend the bond 

proceed.s within tOur phased deadlines over two years. Also, they 

..:.;~.nUS<! the "advance refunding" option only once for each original bond i~sue. 

S. Joint Committee on Taxation, h'stimates ~(Federal TtlX &prndi~ 

tun:s_for Fim1l Yean 1999 2003, staff <eport JCS~7-98 (December 14, 1998), p. ! 6. This figure covers bonds backed by water 

syst~·ms' revmues hut not municipal "general obligation" bonds. 

Note that the commiuec's estimate of rhe "expenditure" associ·· 

ared with a tax preference is somewhat larger than the corresponding estimate of the increased federal revenue associated 

with eliminating it: the former takes the existing level of the 

taxed activity as givm and thus does not reflect behavioral adjustments that tax:payers would make if th<" preferem·e was 

changed. 
254 


26626.223

36 FUWRE INVESTME:'H' IN DRINKI:'-JG WATER fu";'D WASTh"W,UER INFRASTRUC1l1RE 

Box 3-1. 

The large majoriryofhouseholds are served by publicly 

owned, or municipal, drinking water and wastewater 

systems. Although nearly half of all community drinking 

water~)'Stcms are privately owned, they reach only about 

15 percent of the households served. Roughly 20 percent 

of wastewater systems that treat household sewage arc 

privately owned, but they serve only about 3 percent 

of households. 1 Various federal and state restrictions 

limit private systems' access to federal aid provided 

through the stare revolving fund (SRF) programs and 

to federal tax preferences. 

Private wastewater sysrems are not eligible for loans from 

SRFs, and although private drinking water systems are 

eligible under federal law, they may be blocked by 

provisions in some states' constitutions. In other states, 

private systems' access to SRF loans can be inhibited 

simply because the states leverage their SRF money. If 

enough of the proceeds lrom bonds issued to leverage 

SRF money are used to make loans to private systems, 

the bonds are considered private activity bonds (PABs), 

which are subject to several restrictions. 1 

The most important of those restrictions is the cap on 

each state's annual volume of tax-exempt PABs. Federal 

tax lav.· sets the limjts at the greater of$75 per resident 

of the state or $225 million in calendar year 2002, aftet 

which those figures will be indexed for inflation. To 

date, the limits have restrained the jssuance ofPABs in 

l. The estimate of3 percent is commonly cited wirhin the industry, 

bur prccist·data on thehouselmlds.<.erved by prlvatt' wastewat<.'r 

systems are not readily .:tvailablc. 

2. 

19')8). Private activi!y hondsare rhose for which 10 percent or 

more of the proceeds are used directly or inJirecdy by a nongovernmental entity and I 0 percent or more are secured directly 

or indirectly by property used in a trade or business. Formally, 

the definition applies to both taxable and tax"exempt bond~; 

most states.3 And within those limits, water systems' 

needs compete for allocations against many other purposes, such as housing, industrial developnlent, student 

loans, mass commuting facilities, and local electricity 

and gas E1cilities. Indeed, all "exempt f.·1t:ilitles"-rhe 

subset of eligible facilities or purpo$CS that includes 

water infra.srmcture------accounted for less than l 0 percent 

ofPABs in 1999. 

Even when private water systems are allocated a share 

of a state's PABs, three other provisions of federal tax 

law raise their financing costs relative to those of municipal systems. First, interest on PABs remains subject 

ro the alternative minimum tax (A ... \1T) for both corporations and individuals, which reduces rhe demand for 

such borrds by potenrial investOrs who pay the A .. MT 

and thus raises the interest rare that issuers must offer.4 

(As discussed in the body of rhis report, interest on 

municipal bonds can be parriallytaxed under the corporate AMT.) Second, privately owned systems must 

spend bond proceeds within six months, whereas public 

,<,)'stems have fOur phased deadlines that allow spending 

ro occur over rwo years. The shorter spendout period 

reduces the time during which private systems can earn 

"arhitrage profirs" hy investing bond proceeds at rates 

above the bond's own yield and may also force them 

to incur higher transaction costs for a phased series of 

smaller bond issues. Third, private systems have somewhat less flexibility in refinancing bonds to take advantage of favorable interesr rates; PABs cannot be refinanced with newtax:-exempt bonds unless the proceeds 

are used immediately to retire the original dt'bt, 

Scates may carryforward allowances under the cap for de,.ignated 

projer:tsfor three: years, Freguendy, a state that appears to havt' 

not issued PABs up to its limit in a given year will actually be 

us-ing that option to save allowances for a large project or to wait 

for mort favorable market conditions. 

4.. The impact on PAB rates is estimated to be 15 to 2') basis points 

{that is, 0.15 to 0.25 percentage points). See Environmental 

Protection Agenc)', Environmental FimnciJ.! AJvisory Board, 

Funding Privately Owned Water Providers. 
255 


26626.224

CllAPTl\R THREE 

Box 3·1. 

Continued 

whereas governmental bonds can be "advance refunded" 

once, up to 90 days befOre redemption of the original 

debt. 

The Congress could eliminate most of those provisions 

rhat place privately o-..vncd systems at a disadvantage 

relative to municipal systems--the exception being obstacles in states' constitutions thar disallow aid from 

SRFs. 5 For example, it could amend the Clean Water 

Act to allow SRF loans to private wastewater systems. 

It could also reclassify bonds for projects that served 

public needs for water services as governmental bonds 

rather than PABs (thus sidestepping all of the differences 

in tax treatment), or it could partially or fully C'.xempt 

bonds forwarer systems from the annual caps on PABs. 

There is no precedent for such tax treatment of privately 

owned utilities, however. PABs for airports, docks, 

wharves, solid-waste f..1cilities, and environmental enhancements of hydroelectric generating JJ.cilities are 

exempt from the volume caps, as is 75 percent of the 

valueofPABs for high-speed intercity rail facilities, hut 

only if the facilities are publicly owned, with private 

parties restricted to serving as operators or lessees.{' 

A commonly heard argument for equalizing both the 

access to funding and tbe tax treatment of private and 

municipal water systems is that water users should not 

the calculation of each Mate's share of the annual federal ap~ 

nor makt:' loans to such systems. 

6. Moreover, rbe contract or lca'>e f01 such a f:tcility is subject to 

SITtral restrictions: it must not allow the privatt' operator to 

claim depreciation or inve.::tment tax credits, 1"-'Xtend heyond 

value; and compensation to the operator must be primarily in 

rht· form of a fixed perioJic payment. Also cxdudeLl frorn tbC'" 

volume cap on PABs are bonds fOr veteran:-' mortgages and for 

certain nonprofit organiz.atiom. Honds for puhHc educational 

facilities haw their own cap, equal to the greater of$ IO per 

person or.$) mit! ion. 

OPTIONS t'OR FEDERAL POI.JCY 37 

be denied the benefits offederal aid simply because their 

service comes from a privately owned system. Opponents of aid to privare sysn:ms sometimes argue that 

the government should not support private profits; 

however, state regulation of rates charged by private 

utility monopolies such as water systems constrains 

profits and can ensure that most of the gaim; from federal aid How to customers. 7 

The overall cost impact of treating publicly and privately 

owned systems equally is not dear. On the one hand, 

equal treatment could he beneficial to the extent that 

private ownership reduce!' investment oropera.ting costs 

in at least some cases and that local decisionmakers can 

generally idenrify the eHicient arrangements. On rhe 

other hand, equalizing the treatment would in all likelihood mean increasing federal aid to pdvate systems 

rather than reducing aid to public systems; thus, as with 

the options to increase aid to water systems in general, 

it could contribute to higher total national cost<; by 

distorting water companies' own choices--such as 

choices between equity and bond financing and between 

investment and maintenance. 

One finaJ argument sometimes made for equalizing 

treatment-or more broadly, for encouraging or reducing barriers to direct private investment in water 

systt::ms--is that the private sector can rap large additional sources of funding for infrasrrucrure needs. That 

argument is flawed, however, since rhe funds for both 

publicly and privately owned systems ulrimately come 

from rhe ratepayers (and perhaps taxpayers). A more 

compelling version of the argurnem is that private 

O"'-Vners may have access to cheaper financing in some 

cases. 

7. Small water systems, such as those owned by small housing de< 

vdopments, hoJW:!OWtlers' assoc!arions, resorts, sumn\er camps, 

and trailer parks, are not always subject to rate regular! on. Even 

when not regulated, however, many such system~> are- likdy to 

pass the benefits of tCderal .support on to water users, whetlwr 

becaust""ofthe-ir Clwner.~hip strucTUre {in the case ofhomeowflers' 

associarions) or because of marker competition on overall rates 

(in cases such as camps and trailer parks). 
256 


26626.225

38 FUnJRE I!'ii-'ESTMI'~Vf lN DRINKING WATER .tND WAS1'b"WATER INHV\STRUCTt1RE 

basis of a mix ofdara on appropriarions, obligations, and 

outlays, the General Accounting Office reported that federal support in 2000 included $1.5 billion in project 

grants, nearly $2.2 billion in SRF grants, and $780 million 

in rhe fKe value of loans and loan guarantees from the 

Department of Agriculture (USDA).' Of course, SRF 

grants do not flow directly to water systems but rather to 

state pools from which loans are made, and only a small 

portion of the face value of loans and loan guarantees 

represents a subsidy to the recipient water systems. Taking 

into account the actual volume ofSRF loans, the average 

interest rates charged in the SRF program and USDA's 

program, and rhe marker-based rates that borrowers would 

otherwise have to pay, Lhe Congressional Budget Office 

estimates that federal and federally supported spending 

providcJ a subsidy equivalent to 1 0.8 percent of the total 

investment in drinking water and wastC\vater systems in 

1999. 10 

Some federal spending on water infrastrucrure is targeted 

to panicular categories of systems. Thedrinkingwarer SRF 

program allows states to use up ro 30 percent of their capitalization grants to subsidize the loans to systems serving 

disadvantaged communiries, as defined hy state affordability criteria, and requires stares to give at least 15 percent of the loan dollars to systems serving no more than 

10,000 people, if enough eligible projects are available. 

Through 2000, systems of that size had received 39 percent of the loan funds (and 7 4 percent of the loans). 11 

USDA's program exclusively aids communities of no more 

than 10,000 people. UnJer that program, communities 

9. 

(November 

2001). The figures are in 2000 dollars. 

10. This calculation of the v>~lue of the subsidy received by water 

systems is partly analogous to the L'llculation of the subsidy 

value under the Federal Credit RefOrm Act of 1990 for the pur~ 

pose of determining the impact on the federal budget. The latrer would usc the f~·deral government's borrowing ran: Onsread 

of rhc marker rare) and make allowances for default risk. {Neither calculation reflects any illiquidity or undive-rsifiahiliry associated with the debt.) 

ll. Mary Tiemann, Safi Drinking Waur Act.· State Rn!olving Fund 

CRS Shorr Report fOr Congress 97-677 (Congres· 

Research Service, updated January 10, 2002). 

with a lower median household income receive loans 

carrying lower interest rates; eligibility for grant assistance 

is restricted to projects that would otherwise exceed an 

affl1rdabiliry guideline. 12 Various smaller federal programs 

target aid on Lhe basis oflocation (as with grants from the 

Appalachian Regional Commission), local economic 

distress (for example1 the Public Works Program of the 

Commerce Department), or other factors. 

In contrast, neither rhe clean water SRF program nor the 

federal rax preferences draw fOrmal distinctions between 

small and large water systems. Nonetheless, a November 

2000 repon noted that states had given wastewater systems 

serving up to 10,000 people 23 percent of the money 

loaned under tbe SRF program (and 58 percent of the 

loans) since 1990, whereas systems of that size accounted 

for 11 percent of the 20-year needs documented in EPA's 

1996survey. 13 Conversely, because many small communi~ 

ties have no credit rating and cannot issue their own 

bonds, drinking water and wastewater systems owned by 

such communities cannot directly rake advantage of the 

tax preferences; instead, they benefit indirectly to the extent that tiK')' receive assistance from a state revolving fund 

or other pooling mechanism that taps rhe bond market. 

General implications of Federal investment 

Support for Watc..- Systems 

Federal investment support for water systems can have 

uninrended consequences, such as a reducrion in comparable spending by state or local governments. Evidence from 

l 2. Subject to additional eligibility requirements, projects may receive gram funding if the ratio of the median household incom~ 

(MHI) in the- service area to rhe statewide median for nonmetropolitan areas is no greater than 80 percent and the proj~:"cr's debr service per household would exceed 0.5 percent of 

the local MHI or if the rario is between 80 percent and l 00 percent and the- debt service would exceed 1.0 percent of the local 

MHL Because that guideline focuses on the debt service associare-d with an individual project mther than lot:.al com in totaland on MHI rather than individual household income- -it sheds 

little !i~ht on the question, discussed in Appendix c; of the frac~ 

tion of income above which water bills might be considered 

unaffordable. 

13. Claudia Copeland, 

ground iYJformation, CRS Repon Congress 98-64 ENR 

{CongreMional Research Service, November .'30, 2000}. 
257 


26626.226

(JlAI'!ER l1lllliE 

the federal wastewater construction grants program under 

the Clean Water Act suggests that large increases in federal 

aid can lead 10 significant displacement. Berwecn 1970 

and 1980, federal support for wastewater plants rose hy 

$8.2 billion, but state and local funding fell by $1.9 billion, effectively negating about one-quarter of the federal 

increase. A more deraJled analysis, raking into account 

factors that might otherwise bave led to increased state 

and local investment, concluded that federal construction 

grants reduced other capital spending by 67 cents on the 

dollar. ~ The exact relationship herween federal funding 

and displacement of spending by state and local governments is nor known; for instance, displacement per dollar 

could be smaller at lower levels of federal involvement. 

Bur to the extent that state and local governmems cut their 

funding for water systems, federal support iorended for 

water infrastructure benefits state and local taxpayers instead through increased spending on other services or 

through lower nonfCderal taxes. 

A second unintended consequence offCdetal aid fOr investment projects is that ir disrons price signals for system 

managers-~and thus affects their decisions about such 

things a.<; preventive maintenance, construction methods, 

treatment technology, pipe matedals, and excess capaciry 

~and for ratepayers, affecting their decisions abom usage. 

The overa!l eiTcct is to undermine the cost-effective provision and use of water services. Evidence from a 1985 

CBO srudy of wastewater treatment plants indicates that 

the effects can be significant, at lea'it at high levels of subsidization. Case studies of four plants, financed with 

various levels of govcrnxnental assistance, ;;hawed that 

higher subsidies led to the selection of more costly treatment technologies, the construction ofsignificant reserve 

capacity, and longer construction pcriods. 1

" 

14. Jamt"s Jondrow and Rnbnr A. Levy, "'The Displacement of 

Local Spending for Pollution Control by Federal ConsTn.Ktion 

Grant.~," ,1merican Economit: ReFiew, vol. 74, no. 2lMay 1984), 

pp. 174-178. 

1 S. Congressional Budget Office, Efficient investments in \X'i:stf'u.~1ter 

Treatmt'nt Pfnnts Oune 198)), pp. xl-xiL An;:ording to som~ 

analyMs, another far.:tor respomible for r..tising costs io the con" 

strunion grant program was the industry's inability to design 

and build treannent phmts rapidly enough to accommodate the 

sudden, large infusion of additional fCderal dollars. 

OPTIONS FOR FEDERAL POl.lCY 39 

ln that same study, a statistical analysis of cost data on 68 

plants indicated that reducing the nonlocal share of 

inve-stment fUnding from 75 percent to 55 percent, as occurred in 198 5 under the construction grant program, 

would reduce capital cost.'> by an average of roughly 30 percent. That estimate implies that the fCderal hurd en for the 

same number of projects would he almost rwice as high 

at 75 percent support as at 55 percent, with more than 

four-fifths of the difference going to cover higher costs 

and le..o:;s than one-fifth going to reduce the burden on local 

sysrcms. 16 Thus, at least for wastewater treatment plants, 

high levels of subsidization appear w be a very inefficient 

way to reduce local investment costs. 

The srudy was Jess ahlc to quantifY rhe effects that lower 

subsidy levels would have on cost-effectiveness. It is plausible that the impact of an additional dollar of federal aid 

depends on rhe base level of subsidy-for example, that 

raising the subsidy from 5 percent to 10 percent, with recipient systems still bearing 90 percent of c:1pital cmts, 

would lead to a smaller increase in costs than raising ir 

from 50 percent to 55 percent vmuld. But efforts tO map 

rhe rela.tionship benveen external support and project cosrs 

in more detail were inconclusive, in part because of the 

small data ser. 

One way ro reduce the distortions associated with federal 

aid to water systems, of course, would he to reduce the 

aid itself: Doing so would encourage system managers 10 

find grearer efllciencies in their investment and operations 

and prompt ratepayers to reduce lmv-priotity uses. Consequently, tOtal nationwide costs for water services would 

be lower than they would if federal suppon remained 

steady or increased. But despit(' the savings, total costs 

would probably still .rise, given the projected increases in 

replacement and new investment--and a larger share of 

those toral costs would be paid morevisihly through water 

bills, rather than raxt>s. Opponents of cutting federal aid 

t(n water infrastructure also argue that national funding 

16. For example, a treatment plant that cost $10 million to build 

with a 75 percent fcd(nJ subsidy would have a federal share of 

$7. ')million and a local share of$2.5 million, while: a plant that 

cost 30 percent less and had a 55 percent subsidy would entail 

kdc:ral costs of $3.8') million and local costs of $:3.15 million. 

So the: hight>r ;;ub~idy rate raises federal spending by $.3.65 mil· 

lion hut rcJuces local ~pending by only $0.65 million. 
258 


26626.227

40 FL'TIJRE ThiYESTMENT IN DRfNKING WA'n\R t\;\D WASTh\VJ\T.ER fNVRASTRUCTURE 

should continue to help local systems pay for the costs of 

meet.ing water quality standards set or directed by the federal government. 

Another way to reduce the distOrtions would be tO deliver 

the aid tO water systems differently---according to some 

formula that does not involve systems' current investments 

or activities and thus does not disrort the marginal costs 

seen by system managers. Such a formula could include 

factors related to sysrems' size (such as miles of pipes and 

investment spending over some fixed historical period), 

investment needs (for example, average age of pipes and 

treatment plants), and local financial capacity (sudl as the 

population and average income of the service area). By 

leaving marginal costs largely untouched, formula-based 

aid reflecting such independent factors would redistribute 

revenue to water services without undermining managers' 

incentives for cost-effective choices, at least in the short 

run. 17 However, it would not address the issue offCderal 

support displacing funding from stare and local govern-· 

ments. 

Targeting Investment Aid for Water Systems 

Still another way ro limit the negative incemives of increased federal support for water systems is to target the 

aid. All things being equal, the fewer systems eligible for 

aid, the smaller the undesired consequences. Aid could 

be given to systems f..'lcing high costs (relative ro the population served or relative to Ihe aggregate income of the 

popularjon served) for investment (or investment and 

O&M) in general or for narrower categories of costs, such 

as rhose rocomplywith federal regulations or to rnaintain 

or replace invesrmenrs "stranded" by shifts in population. 

Bur defining the target group in a way rhat does nor re·· 

ward systems for poor management and lmv spending in 

the past, and does not encourage such laxness in sysrems 

hoping to qualify for aid in the future, could be diftlculr. 

17. Some Factors included in an aid formula could be influenced by 

rhe choices of system managers over a longer period of time. For 

example, the level of investment activity in a system would af".. 

feet the average age of its infiasrructure. Even in that case, hO\vever, the incentives to invest would be only modestly distorted if 

the formula reflected not the current average age of intf-astructure but. say, the average- age five- years earli~r. 

Implementation would be another challenge. One of the 

two main choices would be ro establish a formula to 

determine rhe amount of aid to be given to a system with 

certain characteristics; the other would be to specifY general criteria and then have systems submit funding applications that would be judged against the criteria, allowing 

a system to present whatever infixmarion supports its case. 

On the one hand, case-by-case review avoids the use. of 

rough proxies and arbitrary thresholds and could allow 

for aid to systems with ongoing weaknesses to be tied to 

specific requirements for improvemenr. On the otht:r 

hand, the administrative costs of preparing and evaluating 

the applications would be higher, and the lower predictabilirywould give more systems reason to defer investing 

on their own in hopes of gaining outside funding. 

Advocates of maintaining or increasing the Cllrrent targeting ofsmall systems in any expansion of federal aid point 

to a backlog of requests for USDA's assistance and high 

projected per capita investment costs, at least for drinking 

warer systems. 18 Some opponents argue that rhesrares' emphasis on small systems in allocating SRF money makes 

additional federal targeting unnecessary. Moreover, it 

could be ineffective: increasing the staturory targeting 

within the SRF programs would merelycodifywhatmany 

states are already doing, and providing increased support 

through other programs (such as USDA's program) might 

lead states to readJust their SRF portfOlios to maintain the 

current distribution of aid berween small and large systems. Some opponents also ques-rion whether current programs do enough to ensure that small systems do notremain dependent on external funding indefinitely. 

Grants, Credit Subsidies, and Ta~ Preferences 

As noted earlier, subsidies to investments in water sysrems 

may be delivered through spending on grants or credit 

!8. In Janu;UJ 2000, USDA reponed a backlog of S3.3 hill ion in 

requesu for water loans and grants. FPA's latt·st survey of drink~ 

in~ wate-r needs reported that 20-year ned.<. per household aver~ 

aged $3,000 in systems serving up to 3,300 people, nearly foul 

time-s the $790 average for 

than 50,000 peopl~). Similarly, 

that the smallest systems lack economies of scale and are likely 

ro f..ce the largest percentage increases in user charges and fees; 

however, results from the 1996 Clean !.rate; Needs Survey found 

rhat small systems accounted for ll percent of both needs and 

population, implying equal costs per capita. 
259 


26626.228

CHAYfER THREE 

subsidies (such as loans with subsidized interest rates, loan 

guarantees, and bond insurance) and through tax preferences. Despite the seeming diversity, each of those approaches serves to reduce investment costs to the water 

system, and fora given reduction in thecostofa particular 

project, each is likely to have the same impact on therecipient. For example, a 1 0 percent reduction in the local 

cost of a $12 million treatment plant that would otherwise 

he financed by 30-year bonds paying 5 percent inreresr 

could be accomplished by providing a grant of$1.2 million, a loan for the full cost of the project at 4.1 percent 

interest, or bond insurance or tax preferences that reduced 

the bond interest rate to that same 4.1 percent. 

Bur some levels and patterns of federal subsidy may nor 

be easily attained through all of the me<:hanisms. For example, providing large increases in aid to publicly owned 

water systems through tax polk)'aJonewould be difficult, 

given that such systems and the interest paid on municipal 

bonds are generally exempt from federal taxes already. 

(Significantly increasing the tax preferences available ro 

privately owned sysrems vmuld be ea.~icr; He Box 3-1.) 

Where taX preferences and spending programs are viable 

alternatives to achieve the desired level and pattern of 

support to water systems, therwo can be contrasted in several ways. One argument in fJ.voroftax preferences is that 

they provide moreyear-ro-ycar srabiliry, which can facilitate planning by system managers. However, spending 

programs are more readily reviewed and adjusted by the 

Congress. And changing the tax rules to benefit water 

systems alone could raise questions about the neatment 

of other users of municipal bonds while aJding complexity 

to rbe tax code and increasing administrative costs. 

Federal spending programs also differ from rax preference.~ 

in rhat they make it easier for rbe Congress to specify 

derailed conditions under which the aid is to occur. Such 

conditions can have horh posirive and negative effects on 

cost-effectiveness. In some cases, incentives or requirements associared with fCderal funds~" carrots and sticks" 

-may prompt recipients to take cost-d1Cctive actions that 

they would not othenvise. But conditions on spending 

that are truly beneficial may be rare: broad, general pro-· 

visions may have lirrle impact, and specific. detailed conJirions may be cost-effective for some systems but HOt for 

others. Currently, one prominent stick is the requirement 

that drinking water systems receiving SRF assistance 

OI}TIONS FOR FEDERAL POU(.Y 41 

demonstrate the technical, managerial, and financial capacity to comply with the Safe Drinking Water Act over the 

long term. In keeping with that requirement, some states 

give priority to SRF loans that address capacity problems 

byconsolidatingtwoormoresystems. 19Variousadditional 

carrots and sticks have been proposed, such as giving priority to systems that adhere to certain best practices or to 

states that have or adopt laws allowing water treatment 

plants to he designed and built using integrated contracrs 

(discussed earlier in Box 2-3 on page 19). 

More generally, however, restrictions on the use of federal 

dollars can reduce cost-dlCctiveness by limiting the recipients' flexibility in addressing their goals for water services. 

To increa<>e such flexibiliry, the Congress could reduce 

the amount of money earmarked for special-purpose 

projects and provide those funds ro the SRFs instead. Also, 

the SRFs themselves could be made more flexible hy 

eliminating floors and ceilings on funding for eligible 

activities in the drinking water program, allowing states 

to transfer more of their grant money between the drinking water and the wastewater SRFs, and broadening the 

range of uses-as in a proposal from EPA'sEnvironmenr._<tl 

Financial Advisory Board to combine rhe existing SRFs 

into environmental state revolving funds (ESRfs).lfl 

Designed to address a broad set of issues affecring water 

qualiry, the ESRFs could fund a wider range of projects 

to control non point source pollution (particularly projects 

on private property) and contamination problems associated with landfills, ''hrownfields," and air pollurion.11 

19. Environmental Protection J\gt'ncy, Office of Water, 77Je Drinking Water Stiltr Re11ob1ing Fund: Financing AmericaS Drinking 

Water, EPA-816-R-00-023 (November 2000), p. 7. 

20. Under current law, nares may shift up to one-third of each 

year's drinking wata SRF gram to the dean water program or 

an equal amount in the other direction. For the proposal to 

create ESRFs, see Environmental Protection Agency, Environmental Financial Advisory Board, Environmental Statr Re11olving 

Fundr: Dr11elopinga Motb! to Expand thr Scopr ~frhe SRFOune 

2001). 

21. Of course, allowing greater flexibility in the usc- of SRF money 

might be said to dilute the original Congressional intent to support infrastructure, and some of the gains expected from broadening the SRF programs may not materialize if the state agencies 

administering the funds lack the technical expertise to au.:urat.e!y 

ev4luare new kinds of proposals. 
260 


26626.229

42 HffiiRE L\'VESTMENT IN DRINKir\G WATER ,\J.ffi WASTI:WATER L~l·'R1STlWC1liRE 

Within the set of spending options, the distinctions among 

grants and credit subsidies arguably have less policy significance. Grants are sometimes said to be more appealing 

because they are simpler w explain to local ratepayers. 

Conversely, it is sometimes argued that in comparison to 

grants, credit subsidies have a lower federal cost per dollar 

of support seen by the recipient-rhatargument, however, 

holds only under the assumption that the government's 

cost should nor be measured using a discount rate reflect~ 

ing the same risk premiums that private lenders reqttirc. 

Finally, investment projects that rely at least in pan on 

private funding can help keep costs down by subjecting 

systems to more market discipline; that argues against 

traditional loans covering 100 percent of capital costs and 

in favor of grants or partial loans or loan guarantees. 

In terms of tax preferences, one approach that could benefit both municipally owned sysrems and private systems 

would be to relax the restrictions on arbitrage profits-the 

gains state and local govcrnment'i make from the difference 

between the tax-free rate of interest that they pay bondholders and the higher rates rhey can earn on taxable bonds 

and other assets. To avoid encouraging stare and local governments to issue bonds simply to rake advantage of the 

spread in interest rates, the federal government restricts 

such arbitrage profits. In particular, current rules requite 

that systems rebate to the government arbitrage profits 

on bo~d proceeds not spent on schedule within a rvvo-year 

deadline (or for private systems, a six-month deadline), 

Extending the deadline or orhenvise increasing the arbitrage earnings that water systems could keep would reduce 

their net cost ofhorrowing:<:> Another option would be 

22. The J.rgument is that the fCderal government ha8 a lower dis~ 

t;OUnt rate (based on its lower borrowing cost), which gives the 

same loan repayment stream a higher present value for the Treasury than for the local system-·-··arJd thus rhat the net feden1l 

cost of making rhe loan is smaller than the net support ir pro~ 

vides. PaulK. Marchetti, 

gration of Gnmts and Loam tho· Sttttr Rez,olm'ng Funds, 

Council oflnfr~structure FirJ;mcingAuthorities Monograph no. 

11 (Septrmber 200 !), pp. J 1-U. 

23. A variant option would be to maintain the current time limits 

during which proceeds on tax-exempt bonds may t'JTn arbirro.ge 

profits but exrmd rhe period during v.:hich the proceeds must 

be spent. That alone could lower investment costs by reducing 

the number of cases in which .systems would haw to usc a 

phased series of smaller bond issues. 

to eliminate the partial taxation of interest on municipa1 

bonds held by corporations that pay the alternative minimum rax. 

Direct Federal Support for 

Ratepayers and Its Implications 

The federal government supports low-income households 

in various ways, notably through income-based welfare 

programs and the earned income tax credit, but does not 

currently provide direct funding to assist households with 

their water bills. Existing payment assistance programs 

fOr water services are organized locally-some by individual utilities., others by local aurhoriries using tax revenues 

for support or by community organizations using donated 

funds-and are much less common than those for home 

energy and telecommunications services.14 The federal 

governmem does provide some assistance fiuorher uriliry 

bills. In particular, theLow-IncomeHomeEnergy Assistance Program (LIHEAP), established in 1981, provides 

stares with over $1 billion in block grams each year to 

subsidize low-income households' hearing and cooling 

costs. Also, the Low Income Program ofrherelccommunicarions Universal Service Fund, authorized in its current 

form in 1996, has used approximately $600 million per 

year (from tf:es charged to firms that provide interstate 

telecommunications services) to provide- eligible households with discounts on telephone services. 

Federal aid to households could address distributional 

objectives with more precision and less loss of efllcienc)' 

than can be achieved from aid for investment in water 

systems, A program that aided households directly could 

be more cost-effective in achieving a given distributional 

ohjecrive bec.:mse fewer households would face reduced 

water prices and water system managers would not face 

distorted choices. A program designed to defray rhe 

24. For a comprehensive discussion of payment assistance programs 

for water services, sec American Water \'(forks Association Re~ 

search Four1dation, \Vater Affirdabili~y Programs (Washington, 

D.C.: A WWARF, 1998). 

25. RR. 3930 and S. 1961 in the 107th Congress would allow 

states to nst> a certain portion of federal SRF grants to buy down 

the interest rate or otherwise increase the subsidy on SRF loans 

to local warer systems, if the !>.ystems in turn direcred the bene~ 
261 


26626.230

CHAPTER 11 !REE 

expense of basic water usc·-·-one that provided a dollar 

amount determined by the number of mcmhrrs in the 

household instead of paying benefits as a proportion of 

water bills, for example--would not affect households' 

marginal costsofwaterconsumption, thus preserving incentives for consumers to avoid overusing water services. 

A consumption subsidy could also be designed to support 

conservation measures---for example, by subsidizing repairs ro fix leaky plumbing. However, beneficiaries (and 

others allocJting funds on their behalf) are likely to prefer 

direct assistance over conservation measures with even 

moderately long payback periods. 

Delegating most implementation responsibilities to subfederal entities and providing the consumption subsidy 

to service providers on behalf of households could mini~ 

fits of rhe additional subsidy to needy households through adjustments irl user charges. The increa~es in the subsidy component of SRF loans should not increase the dismrting effects of federal support 

point of vi~w of water systems ren:iving the loans, the savings in 

repayment costs would be oflSct by reduced revenues from beneficiary households. 

26. The Universal Service Fund's Low Income Program il!n.'itrares 

that .approach: each of irs three rypes of benefits is capped at a 

!eve! t'ssenrially unrelated to the volume of service used by a 

p<~rticul.ar household. The ''Link-Up" benefit subsidizes half of 

the customary connection fee, up to a maximum of $30. "Life· 

line" reduces monthly service bills by $5.25 to $7.85, depending on a number of factors, including whether the state has a 

signifll.:<tm discrt"tion in det~rmining house~ 

hold benefits, questions about incfflcient comumption have 

arisen: the Securing America's Future Energy Ao of 2001, 

passed by rhe House, calls fOr tht" General Accounting Office ro 

determine the extent to which those bendlts encour.tge 01 dis~ 

courage energy conservation and inwstments in l"nergy effi~ 

ciency. It also requests that that agency examine the exteut to 

wbich the goals of conservation and assistann:: tO !ow~mcomt~ 

households could be achieveJ through cash income supplemems 

that do not specifically target t'llergy. 

Federal rules fm LIHEAP allow states to use 1) percent of their 

grants for lcnv-cosr residential we,lfhcri:mtion or other em:lg)'~ 

related home repairs. Each year, states may also apply for per~ 

mission w raise rhat share to as much as 25 percent~ however, 

on average, only five states have done so in recent years. 

OP110NS FOR FEDERAL POIJCY 43 

miz.e the federal government's administrative costs and 

allow more p~ople to be served for a given amount of 

funding. For example, delegating to the states would allow 

for cost-effective variations, taking advantage of existing 

state institutions and programs, in the methods used to 

idemif}r, no tit}\ and c.ldiver benefits to eligible households. 

But some of the federal costs "saved" would be merely 

shifred to nonfederal parties, such as service providers. 

State governments shoulder most of the responsibility for 

administering LIHE.AP, and most states exercise their 

authorizarion ro make consolidated payments on behalf 

of households to utility companies and fuel dealers.28 In 

the Low Income Program for telecommunications, all payments from the fund go to companies Dn behalf of the 

households receiving the subsidized services. Administra" 

tive costs for the program are about $1.7 million annually, 

less than one-half percent of the program's fiscal year 2000 

outlays oF$553 million (in current dollars). The costs in~ 

currecl by service providers w idenrify eligible households 

and apply the appropriate benefits are unknown. 

Concluding Note Water pipes and treatment planrs last for decades. Consequently, today'.s infrastructure represents a cumulation 

of investment choices and maintenance practices over 

many years past, and today's investments will affect operating costs and service quality for many years into the future. The magnitude and especially the riming of Future 

investments are uncertain, as discussed in Chapter 2, but 

barring major breakthroughs in technology, investment 

costs will certainly rise fOr decades to come as more and 

more of the existing infrastructure wears our. Although 

this report bas focused on the costs of water services 

through 2019, if the drinkingwarerand wastewater induscries continue to fall short of self-sufficiency, the consequences for tbe federal budget may lasr nor rwo dec.;dcs, 

but five or 10. 

28. From 1995 through 1999, aggre-gatt> state administrative cosrs 

averaged dme ro 9 percent of total spending under LIHEAP. 
262 


26626.231

A 

Assumptions the Congressional Budget Office 

Used In Its Low-Cost and High-Cost Cases 

A swithall modeling exercises, the Congressional 

Budget Office's (CBO's) analysis of future costs fi)r investment in \\'<1tcr infrastructure rests on the quality of the 

data used as inputs and the validity of the many 

assumptions used in converting the data into e-stimates. 

The mostreadilyapparem assumptions are the 11 sped fie 

numerical values that differ between CBO' s low-·cosr and 

high-cost cases and between those cases and the anajysis 

done bvtbe Water InfrastructureNerwork (WIN). Those 

assum~tions include a factor describing savings from improved efllciency in invesrmem by both wastewater and 

drinking water systems; three f.1-ctors pertaining to capital 

costs for wastewater systems alone; two specific to capital 

costs for drinking water systems; f(mr involving financing 

costs; and one pertaining ro operations and m<~intenancc 

(0&1v1). The goal in selecting the assumptions W<lS not 

to derermine the lowest and highest possible values of 

each one, hut to identify reasonably low and high values 

rhat might rea1istically occur together in the scenarios. 

Aside fl-om the 11 distinguishing assumptions (se.t Table 2 

on page 20), CBO's scenarios and \X!IN's analysis have 

much jn common, including primary data sources and 

"structural" assumptions about which factors influence 

other factors. The effects of those common elements is 

unknown. For example, CBO cannot quantify the extent 

to which differences in the available data and modeling 

approaches uscJ to analyze investments for drinking 

water and wastewater affected the estimated costs. 

Savings from Increased Efficiency 

in Investment 

Although quantif}ring the potential impact of improved 

management anJ betrer technology on future investment 

is; difficult, CBO considers it likely dwt U.S. systems 

could achieve savings of 1 0 percent or more, given incentives to do so. Evidence for that assumption comes from 

Australia and the United KingJom, where water systems 

have been pressed to become more efficient. Accordingly, 

CBO reduced estimated costs f{)r capital investment in 

both drinking water and waste-..vater systems by 15 percent ln the !ow-cost case and by 5 percent in the high-cost 

case. 1 

Capital Costs for Wastewater Systems In light of the limlted data available and the resulting 

uncertainty, the two scenarios di!Tcr in the depreciation 

rates fOr ,;astewater infrastructure, the shares ofinvestmem for replacing infrastructure that CBO assumed were 

! . Bmh sn'narios implicitly assume that the data collected in the 

F:!tvironmmtal Protection Agency's needs stu veys do not already 

reilr:-ct fUture 11Ho: other sources of estimated 

capita! costs··-·the \Var..:r Nrrwork's analysis of 

invc~mwnt in wastewater ~)'~terns for replacing infrastructure 

and Snatus Con!:.ulting's report OJl investment in drinking warn 

disuibmion~are explicitly based on current prlces and va!u;v 

tions and thus do nor reflect pot-l'ntial dllcienL)' gains. 
263 


26626.232

46 HmJRF. 1~1-'ESTMFJ'-lT JN DRINKING WATER A~D WASTE\'VAU:R INl:RASTRUCruRE 

included among the needs estimated in the Environmental Protection Agency's (EPA's) survey, and the costs for 

dealing with combined sewer overflows (CSOs). The 

costs tO address sanitary sewer overflows (SSOs) arc also 

uncertain, bur CBO used the same estimate of those costs 

f<)r both scenarios, largely for lack of information on 

which to base contrasting estimates. 

WIN's rule-of-thumb assumptions about the litCtimes for 

sewer pipes, treatment plants, and vehicles~ 50 years, 

20 years, and 5 years-seem reasonably conservative (in 

other words, short). Reflecting those assumptions and the 

relative importance of the three types of capital stock, 

CBO adopted a weighted (economic) depreciation rate 

of3.3 petcellt for its high-cost case. Those rules of thumb 

could in principle underestimate replacement costs if 

wastewater systems have built up an investment backlog; 

presumably, however, most overdue investment'> would 

be affecting service quality and rhus would probably be 

included in EPA's needs survey and reflected in WIN's 

estimate of costs for investments besjdes those for replacing infrastructure. 

Conversely, some experts have suggested to CBO that 

reasonably optimistic lifetimes for pipes and treatment 

plants would be 75 years and 30 years, respectively. 

Moreover, replacement rares over a period of 20 years 

could fall below the average level implied by those liferimes, depending on the age of rhe existing srock In the 

absence ofbetter data on actual lifetimes and current ages, 

however, the low-cost case assumes lifetimes of only 

60 years for pipes, 2'5 year.~ for treatment phnrs, and 

7 years for vehicles, and uses the corresponding weighted 

overall depreciation rate of2.7 percent. 2 

structure by cumulating past investments :md subtracting depreciation, the lower the rate of depreciation iu the past, the larger 

the curre!lt capital stock. For consiste-ncy, therefore, CRO calculated .tn alternative estimate of the 1999 capital stock for the 

low-cost case, using the lower dcpnx:iation rate assumed in that 

scenario. Tht! a!rernatiw: estimate is 12.3 peru·nt larger, which 

partly offsets the impact of the lower depreciation r.ne on estimated future investment. 

Also, CBO's analysis, like W1N's, calculated each year's invest~ 

ment fOr rcplacinf; infrJ.Strunure by applying the depreciation 

The low-cost and l1igh-cost scenarios assume, respectively, 

that 25 percent and 15 percent of the investments in the 

relevant categories ofEPA' s needs survey-secondary and 

advanced treatment, new collector and interceptor sewers, 

combined sewer overflows, and stormwater management 

----represent replacement of existing infrastructure. Since 

such investments are captured in the analysis by applying 

the depreciation rate to rhe rota! capital stock) that 

15 percent to 25 percent overlap must be subtracted from 

the rotal in the needs survey ro avoid double-counting. 

CBO chose those percentages to illustrate the uncertainty 

surrounding WlN's estimate of20. 5 percent-which was 

derived by assuming that investments to replace existing 

infrastructure represented 50 percent of the investments 

circd in EPA's survey for addressing SSOs and zero percent of the investments in other survey categories. 

CBO's low-cost case takes irs estimate of the costs for 

addressing CSOs from EPA's needs survey. W1N' s analysis uses the same figure, but \VIN argues that EPA's estimate is too low and is a significant sourc.e of downward 

bias in its analysis. The CSO Partnership believes that 

EPA's estimate is a reasonable one if srates exercise rhe 

maximum Hexibiliry in reviewing and revising theirwater 

quality standards, but costs could reach $1 00 billion if 

states maintain rhe current standards. Consequently, 

CBO' s high-cost case incorporates rhat latter figure.:\ 

Capital Costs for Drinking 

Water Systems 

The main factor responsible for the diil'Crence between 

rhe two scenarios' estimates ofinvestmenr costs for drinking water is the assumed rare of pipe replacement. The 

Stratus Consulting report rhar underlies WIN's analysis 

rate to the .:urrem net srock of capita!, not the gross stock That 

approach is dearly not a literal description of replacement at the 

lcvd of individual inve~tmems: a pipe or treatment plant does 

not c-ost less w n~place simply because it is older and thus has 

depn:ciated more. Rather, it should be view'til as a W<l)' of ap· 

amount of f{'placement needed for a large 

3. The assumptiom in both scenarios are "gro:~.s" costs-that is, the 

costs before subtracting anything for overlap with investments 

to tep!ac(" infrasrrucmre or efficiency savings. 
264 


26626.233

APPE~1l!XA MJSUMrriONS THE C,ONGRESSIONAL BIJDGH OFFICE USED IN ITS LO\HOST .~ND HIGH-COST CASES 47 

focused on an average rate of 1.0 percent per year (averaging over rates randomly selected from a uniform probability distribution from 0.5 percent to 1. 5 perct:nt), but it 

also presented an alternative analysis that related historical 

investment in pipes to population growth. CRO's highcost case, like WIN's analysis, adopts Stratus's assumption of 1.0 percent as a plausible rhough marked increase 

above recent rates. The low-cost case fOcuses on the alternative "demographic" analysis and assumes a replacement 

rare of0.6 percent-the average of the six rates calculated 

for the 2000-2010 and 2010-2020 decades using 50-, 

75-, and 1 00-year pipe lifetimes." Here, as elsewhere in 

its analysis, CBO assumes for simplicity that the relevant 

replacement rate ( LO percent or0.6 percent) holds steady 

throughoutthe2000-2019 period. In reality, replacement 

is likely to accelerate as. exisring pipes age, so the rates are 

best viewed as averages over the period. 

The other assumption pertaining to investment for drinking water concerns the costs associated with future federal 

regulations. EPA's estimates of compliance costs for 

drinking water regularions are frequently controversial, 

with water systems claiming that they are grossly underStated. Often, assumptions about compliance methods 

are at the bean of the controversy. For example, a study 

issued by the American Water Works Association Research Foundarion estimated that national annualized 

costs to comply with an arsenic standard of 10 micrograms per liter could be as low as $230 million, dose to 

EPA's estimate of$180 million tO $206 million, if each 

svsrem affected by the standard was able to achieve com-

~liance by using ~he least costly technology.~ However, 

using professional judgments about rhe likely performance of various technologies under different conditions, 

the smdy' s ''best estimate" of compliance costs was much 

4. One factor that could keep pipe replacement rates !ow is the ust 

of new techniques to identify pipes that are redundant and can 

be abandoned, given existing or potential alternative routes in 

the pipe network 

S. Michelle M. Frey and others, "Cost Implications of a Lowrr 

Arsenic MCL," A\Y/WA Research Foundation Project #2635 

(October 2000), p. ES-20, available at \VWW.awwarf.com/ 

exsums/2635-.htm. The srudy does not specify the rype (nominal or inflation-adjusted) or year of the dollars used in the cstihigher--$585 million. Conversely, an EPA contractor's 

repon looking retrospectively at compliance with regulations for nitrate and atrazine found that many systems 

used cheaper compliance melhods than EPA had assumed 

in its regulatory impact analyses.6 That finding suggests 

that the agency's estimates may overstate costs rather than 

understate them, at least in some cases. 

Even if the estimates in EPA's impacr analyses were 

known to be perfectly accurate, uncertainty would still 

remain about the cosrs of regulations nor yet promulgated 

or proposed, fOr which no such analyses exisr. Agency 

sources do not currently anticipate proposing high-cost 

rules beyond those already part of the regulatory agenda, 

but some new development in the next five to 1 0 years 

could lead to regulations that would have significant cost 

impans by 2019. In the low-cost case, CBO assumes 

incrememal costs of zero fOr furore regulations (as does 

\X'TN' s analysis), on the grounds that those already proposed or promulgated could reflect most of the compliance costs that sysrems will incur through 2019, with 

efficiency savings on those "known" regulations roughly 

balancing any costs during the period for subsequent 

requirements. In the high-cost case, CBO adds $10 hillion (in January 1999) dollars over the 20-year period 

-the equivalent of $0.53 billion per year in 200 I dollars-on the assumption that the estimate ofcompliance 

cosrs for lmown regulations expressed in EPA's needs 

survey ($9.3 billion in January 1999 dollars) covers 

roughly half of total costs through 2019 for both known 

and future regulations. That assumprion takes into account tbe possibility that costs for the known regulations 

will exceed EPA's estimate as well as the possibility of 

spending on larer requirements. Somewhat higher figures 

could also be justified as plausible bur would not have a 

major additional impan on rota! estimated costs. 

Financing 

In consultation with a haH:dozen experts from the water 

and municipal bond industries, CBO derived pairs of 

6. Abr i\ssociares, Inc., Predicting Community muer System Compliana Choias: Leuomfrom the Pmt (submined to the Environ~ 

memal Protection Agency, Office of Policy, Economics, and 

Innovation, Septe-mber 2000). 
265 


26626.234

48 F!TniRE ll\'VESTMENT IN DRINKING WATER A."''1l WASTEWATER INFRASTRUCTURE 

assumptions about future imere-;t rates, borrowing terms, 

and the use of debt financing versus pay-as-you-go (or 

paygo) for capital i nvestmem. CBO used related assumptions to estimate the average annual spending to service 

debt on "old" (that is, pre-2000) investments in drinking 

water and wast'-'Water systems; the resulting estimates arc 

common to both ofCBO' s scenarios but somewhat lower 

than those used in WIN's analysis. 

The low-cost case uses a real interest rate of3 percent (as 

does WIN's analysis), and the high-cost case uses 4 percent. CBO chose those assumptions on the basis of an 

estimated 3.2 percent weighted average covering marketrate bonds and subsidized rate•;; on state revolving fund 

(SRF) loans. The estimate rook into accow1t CBO's longrun projections for inflation and the nominal interest rate 

on 30-year Treasury bonds, traditional spreads henveen 

Treasuries and municipal bonds, projections of potential 

assistance from SRFs, and current interest rates on SRF 

loans. That range from3 percent to 4 perce11t may under--

$tare the true uncerrainryahout average interest rates over 

the 2000-2019 period; however, once those figures are 

combined with the many other pairs of low-cost and 

high-cost assumptions, CBO believes that theyyidd suitably low and high estimates or investment spending. 

cno assumes the average repayment period on harrowed 

funds to be 30 years in the lmv-cosr case and 25 years in 

rhe high-cost ca~e; WIN's analysis assumes a shorter 

perJod of20 years. Although some (mostly smaller) municipalities continue to borrow at terms as short as 

I 0 years and loans from stare revolving funds musr still 

be amortized over no more than 20 years, industry experts told CBO that water hond maturities have lengrhened overall and rhar 30 years is now the srandard rerm. 

Even within the wasrcwarer SRF program, EPA now 

interprets its regulations ro allow SRFs themselves to 

borrow 30-year money and usc it ro buy local systems' 

debt. As investment programs increase, stretching our 

debr service will be increasingly important as a way to 

contain rate increases; indeed, rhe Boston-area Massachusetts Wate-r Resources Authority is now borrowing 40-

year money. Accordingly, CBO considers 30 years a 

cautiously optimistic assumption for tht.:: average dollar 

borrowed over the 2000-20 I 9 period and 25 years an 

adequately pessimistic alternative. 

Similarly, keeping rates low in the face of rising investments will also mean reducing the use of paygo financing 

in favor ofborrowed funds. In n.vo small 1999 surveys 

of drinking water and waste\vater systems, indirect data 

appear to suggest average paygo shares of roughly 40 percent and 50 percent. 7 Nonetheless, according to industry 

experts, systems undertaking large amounts of investment 

generally use paygo financing vety little (often a share of 

just a few percent), suggesting that the national average 

paygo share will fall as capital spending rises. Reflecting 

the uncertainty ahour how quickly and bow far the average will fall through 2019, the high-co!>t and low-cost 

cases usc paygo rates of 30 percent and 15 percent, respectively. WIN's analysis assumes a paygo share of 

25 percent. 

Assumptions about borrowing terms, paygo shares, and 

interest rates are also relevant in estimating the costs of 

"old" debt service-that is, the financing costs associated 

with previous investments still being paid off during the 

2000-2019 period. for simplicity, CBO uses the same 

assumptions about those costs in both sccnarios.8 In 

7. In the one survey, ?6 plivately owned drinking water systems 

(many belonging to rhe same parent companies) repnrted total 

construction expenditures of $846 million and roraJ gross cash 

flow from financing ;octivities (before 5ubtracting d<."bt repayment and dividends) of $526 million. Presumably, paygo accounted for the remaining $320 million, or 38 percent. of construction spending. See National Association of\'l,latcr Compa~ 

nies, 1.999 Financial and Dat4 for lnve.rtor-Owned 

\.Fater UtifititJ (Washington, NA \'(!C, 2000). 

In the survey of wastewater ~ysterns, bond proceeds and SRF 

loans accounted fOr 46 percent of capita! spending; interest 

earned and other revenue sources provided another 7 percent. 

Depending on the classification of those latter rwo sources, the 

residual paygo share lay between 47 peKent and 54 percent. 

Only 40 w 69 systems provided responses other than zero to the 

survey'::. questions a hom capital speoding, however, so rht• sample may not have been representative of all medium-sized and 

Ltrge wastewater systems. See Association of Metropolitan Sewerage Agencies, The AMSA Financial Surttry, 1999: A Ntttional 

Surti~)l of I'l4unidpal W'a.rtewater Managemmt Financing and 

Trrnds (Washington. D.C.: AlVlSA, 1999). 

8. lhing two sets of a.~sumptions would have complicated tbe 

problem of matching assumptions abnut paygo shares with each 

of COO's scenarios. Low<•r paygo shares on new investments 

imply lower up-from costs; conversely. if paygo shares also vary 
266 


26626.235

APPENDLXA A&lliMI'flONS THE CONGRESSIONAL BUDGE! OFFK.E USED IN ITS LOW"COSI' AND H!GH"COST C'SES 49 

particular, CBO a..<;sumes that the repayment period on 

funds borrowed before 2000 is 20 years (shorter than the 

25-yearand 30-year periods used going fOrward) and that 

the assumed paygo shares decline by 1 percent each year, 

from 50 percent in 1980 to 31 percent in 1999. The 

latter assumption is broadly consistent with the theory 

that paygo shares decrease as investment programs increase; a higher trajectory ofpaygo rates could have been 

justified by the available (limited) survey data, but would 

have implied larger discontinuities between 1999 and 

2000. Finally, rather than assume a fixed real interest rate, 

CBO's analysis used each year's average nominal rate for 

10-year Treasuries, reduced hy spreads ranging from 

5 percent to 15 percent between municipal and T reasnry 

hands. CBO then converred total annual payments for 

debt service ro comtam dollars using the gross domestic 

product (GOP) deflator. For federal loans through EPA's 

state revolving funds and the U.S. Depanmem of Agriculture's (USDA's) rural utilities program, the analysis used 

those same interest rJ.tes less 2 percent.'> 

on previous investments, then lower shares imply higher costs 

for old debt t.erviu~. Thus, whether lower assumptions about 

past -and future pay~o shares should be assigned to rhe low-cost 

or the high-cost c.1se would haw been an empirical question, 

subject to changes in tho~t· shares or in other, interacting as~ 

sumptions. 

9. Data for the analysis came from several sources, induding Congressional Budget Office, Trends in f'ublic !nfrMtrU<ture Spend· 

ing (May 1999), v·rhich in turn drew on the Census Bureau's 

annual surveys of Swte and Local (]opermnent Finam:er; General 

Accounting Oft!ce, \f/aur lnfi·mtrucmre: TnfOnnation on Federal 

and State Financial Assistance GAO~Ol~l34 (November 2001); 

and data from EPA on loan volumes and federal otnlay~ for the 

state revolving funds. Data on 

from the census soflley, which covers 

terns, are scaled up hy 15 percent to account for spending by 

privately owned systems. That adjusunern roughly reflect:> the 

population served hy privately owoed systems; \'V'IN. too, makC"s 

that adjustment in its analysis. 

For lack of information, however, CBO did not scale the census 

data down by a perccnta~e reflecting investments in drinking 

water infta5tmtrurc ro serve growth, which are not covered in 

the cstimatl'S of future COHS. That factor i~ one of two that tends 

to ovt:rstate relevant investrnem spending in 1999 and future 

debt service on pre-2000 investmems. The other is the neglect 

of any refinancing tha[ systems did as interest rates fd! in the 

1990s. Two other limitations of rhe dara act in the oppositt! 

direction: they do not distinguish USDA loans from loLa! sysThe estimates of average annual costs for "old" debt service resulting from those assumptions are somewhat lower 

than WIN's: $4.4 billion instead of $5.1 billion for 

drinking \Vater and $4.3 billion instead of$4.4 billion for 

wastewarer. 10 The differences are primarily attributable 

to CBO' s higher paygo shares and differences in data 

sources; the use of variable interest rates and the different 

method of convening ro real dollars did not have much 

impact. 

Operations and Maintenance 

Although the focus of this study is on investment costs, 

spending f()f operations and mainrenance is relevanr in 

that it contrihmes to the total financial burden facing 

water systems and their ratepayers. CBO used comparativdy simple approaches to model future O&M costs. 

Under the high-cost case, both drinking \vater and wastewater systems' O&M are modeled by extrapolating a 

linear trend through estimated spending (in constant 

dollars) from 1980 through 1998." The approach used 

in the low-cost case starts from the same trend lines bur 

assumes that increased efficiency yields savings of20 percent, phased in 2 percent each year from 1995 to 2004. 

The rationale.<; for those scenarios are straightforward. 

The trend lines for hoth drinking water and wastewater 

sysrems' O&M fir the 1980-1998 data exrremely well 

(explaining 99 percent of rhe variation from rhe means) 

and rhus appear to be reasonable bases for extrapolating 

future spending. At the same time, cost savings of20 percent seem well in line with the experience of systems rhar 

tems' spending of their own funds before 1991. and they 1.mder~ 

St.J.tc local spending starting in 1992 by an amount equal to the 

federal budgt"t cost (that is, tbe subsidy va1ue) of dwse loans. 

10. WlN's analysis used the same assumptions for pre-2000 invest· 

mcnts as for new investments: a 20-year borrowing term, 25 

pen.ent paygo share, and 3 pern.·nt real inten.>st rate. 

11. The estimates -.vere derived from data in the Census Bureau's 

surveys of governmt"nt Gnanct"S. cno averaged data from successive surveys to convert from state fiscal years (typically July l 

to June 30) to calendar years and us.txl the GDP price index tO 

convert from nominal dollars to constant 2001 dollars. Again, 

CBO incre-ased the estimates for drinking water systems by 1 S 

percent ro account tOr privately owned systems not covered by 

thesm\'eys. 
267 


26626.236

50 HmJRE INVESTMENT L\' DRINKING W !ITER fu\TI WASTEWATER INFRASTRtJC111RE 

have begun to emphasize efficiency and competitiveness 

and also broadly consistent with significant decreases in 

the average annual growth in O&M spending seen in the 

last four years of available data (1995 through l99H). 

The approach CBO took in irs low-cost case echoes that 

used in \X'IN's analysis, which also appears to modif)r 

linear extrapolations by phasing in 20 percent efficiency 

savings over I 0 years. Jl For drinking water systems' 

O&M, the low-cost case differs from its 'X'IN counter~ 

part only in the data sources: WIN's analysis based irs 

extrapolation on data from 1985 to 1994, and, roconverr 

from nominal to 1997 dollars, appears ro have used rhe 

Engineering News-Records Construction Cost Index 

(which focuses on only the prices oflabor, srructural steel 

shapes, cement, and lumber) rather than the more general 

GDP price index. For wastewater systems' O&M, an 

additional factor distinguishes the two approaches: 

12. The documentation available w CBO did nor show that dTiciency savings were 

terns' O&M; however, by experimenting with 

\VIN used, CBO fOund that including such savings and phasing 

them ln over the same 1997~2006 period specified for the saving~ by wastewater systems roughly reproduced W'IN's pub· 

!ished estimate of average annual costs over the 2000-2019 

period. Although 'W'JN's report said that ir.~ model .assumed 2'5 

saving_;, the consu!tam who led the analysis has con~ 

that the c-orrect figure is 20 percent. 

\X!JN's linear extrapolation (using 1972-1996 data) was 

nor on O&Ivl spending itselfbut on spending per dollar 

of net capital stock. 

Although the size of the capital stock is plausibly related 

to the amount ofO&M, CBO did not see a compelling 

cas.c fOr \\'liN's more complicated approach. It is not 

obvious that each additional dollar of capital stock should 

be associated with an ever-increasing (rather than a 

steady) amount of additional O&M spending. Specific 

factors that contributed ro steady increases in wastewater 

systems' O&M spending (in comparison ro capital stock) 

between 1972 and 1996, such as a major increase in the 

use of secondary treatment merhods and increased requirements for handling biosolid residues, may have 

largely played themselves out by now. And the linear 

trend line through the data on spending per dollar of net 

~;apital sroc.:k, while a very good fit, was no better than the 

trend lin~ rhrough the Jata on O&M spending itself. 

Of course, the simple approaches CBO used could understate the uncertainty surrounding O&M costs by failing 

to capture some ways in which tbe future could differ 

ffom the past. for example, tighter emuent Standards or 

addirional drinking water regulations might raise O&lvf 

c:osrs faster rhan projected in the high-cost case, while 

more aggressive efficiency campaigns or Faster technological progress might yield savings larger than projected in 

the low-cost scenario. 
268 


26626.237

B 

Major Sources of Efficiency Savings 

Faced with increased pressure from ratepayers and 

local government officials to control costs, drinkingwarer 

and wastewater systems around the country are looking 

fOr ways to improve the efficiency of their investment, 

operations, and maintenance activities. Their eflOns have 

identified many sources of efficiency savings, most of 

which are caprured under one or more of the categories 

discussed below. 

Demand Management EffOrts to influence the demand tOr water sen·iccs may 

take a variety of forms, including increases in prices ro 

better retlect rhe full costs of water services, rebates for 

purchases of equipment that uses less water, and campaigns to promme voluntary reductions in water use. 

Oneimporrant application of demand management is to 

reduce peak usage and thereby postpone expensive in·· 

creases in capacity. For example, after determining that 

higher demand fOr water in rhesummer, driven primarily 

by residential landscapewarering. cost four time;; as .much 

ro satisfy as average annual demand ($0.97 versus $0.22 

per hundred cubic feet, in unspecified dollars), Seatrle 

Public Utilities implemented several methods-including 

a media campaign, appearances by speakers, denwnsrration gardens, bill insens, zoning codes, and seasonal rate 

increase-" ranging from 50 percent to 160 percent-to 

reduce summer watering. According to the utility, the 

measures have cur the maximum amount demanded on 

any one day of the year by almosr one-third despite an 

increase of 20 percent in the population served. The 

measures yielded savings of millions of dollars from 

postponed expansions in disnibution and supply facilities 

and additional savings in enE"rgy and labor costs and 

increased flexibility in routingwaterthrough the distribution system. 1 

On rhe wastev;;arer side, pricing based on marg_inal-cosr 

principles to reduce cross-subsidies between difTerent 

classes of users can improve efficiency not only by alleviating pressure for investments in overall capacity but also 

by reducing costs assoc.:iated with treating particular rypes 

fius, oils, and greases 

(as from restaurants auto shops) can raise a waste-· 

water system's COSL'i for keeping its Se\Vers unclogged; and 

metal contaminants can raise the costs of disposing of 

treated biosolids by making them unfit for application on 

nearby agriculmralland.2 By analyzing the cost impacts 

ofstKh wastes and charging accordingly, s-ystem managers 

can givt' users incentives to "pretreat" them on-site or 

avoid creating them whenever the cost of doing so is 

lower than Lhe cost of treating them in the wastewater 

:system. 

Labor Productivity Labor costs are a major focus of efforts to improve efficiency because they represent the largest single compol. A!bn Dietenmann, "A Peek J.t the Peak: Reducing S..:-attle's 

Peak \'l/3tN Dem<'!nd~ (Seattle Public UtilitieS, Resource Con· 

-'>ervation Section, febur:uy 9- 1998). 

For examples and discussion, st'e Industrial Economics, lnc.. 

Cost Acc!Jtmting and Budgeting for Improved Wa.>tfu•ater 

for the Environmental Protection Agen'-;-', Office: Hanning and Evaluation and Office of Water, 

February 1"}98). 
269 


26626.238

52 flfnJRE INYT.STMl'.'NT IN DRINKING WATER A"<D WASTE\'t-\ TER L"''FRASTRUCTIIRE 

nent of water systems' operational costs. For example, 

according to a 1999 survey of medium-sized and large 

wastewater systems by the Association of Metropolitan 

Sewerage Agencies (AMSA), "in-house" wages and benefits accounted for 48 percent of operational costs, on 

average. In comparison, services that the wastewater systems purchased from other municipal departments or 

private comracwrs accounted for another 28 percent, and 

electricity and other utilities, chemicals, parts, and supplies, the remaining 24 percem. 3 

But rheAMSA survey also shows evidence of the progress 

wastewater systems are making in increasing labor productiviry. Rcsponding~]Stems had an average of 4. 7 fulltime-equivalent (PTE) workers per l 0,000 people served, 

down from 5.6 FTEs in the 1996 survey and 6.8 FTEs 

in the 1990 survey. Because the set of responding systems 

changes with each survey, however, those figures may 

obscure rhe actual change over time. A smaller comparison, focusing on the 45 ~ystems that an::>wered both the 

1996 and !999 surveys, shows FTEs per !0,000 people 

served falling from 5.0 to 4. 7 over those three years, a 

reduction of 6 percenr::i 

One method rhat sysrems are using to improve prod ucrivity is cross-training ro increase the flexibility of their 

workfOrce-tOr example, by reducing or eliminating the 

distinction bcrn,een "operawrs" and "maintenance staff" 

Another is reducing staffing, particularly for off-peak 

shifts, through more use ofauromation and communica~ 

tion technologies to allow equipment to operate unat~· 

rended under normal circumstances. 5 

. 7. Association of Metropolitan Sewerage Agencies, l11e A/v!SA 

Finanri<~.l Survey, 

Ibid., pp. 12, 67. An a!rern.ative: measure of staffing~-FTEs per 

million gallons of water tn•ated per day .. --aJso fell by rouf;:hly 

6 percent, from 3.5 to 33, fOr 41 syst<:'ms r('sponding in both 

1996 and 1999. 

5. Apogf"e Research/ Hagler Bailly, Inc., and EP.1A_ Services, lnc. 

"Thinkin_g, G.;-tting, & Staying Competitive; A Public Sector 

Handbook" (prepared fur lhe AssoCJation of!'vtetropolitan Sew~ 

erage Agencies and the A<>sociation of Metropolitan Water 

Agl"ncies, Washingron, D.C., und;ned), pp. }5-36. Many water 

.systems are finding '-Vays ro economize on other opcr,ltional 

Consolidation of Systems As discussed in Chapter l, the large majority of drinking 

water and wastewater systems are small. All rhings being 

equal, small systems incur much higher unit costs for 

treatment and other functions. For example, the Environmental Protection Agency's dara on the costs of monitOring and treatment to comply wirh rhe Safe Drinking 

\Vater Act's standards in force as of September 1994 

suggest rhat the average cost per household was about $4 

per year in systems serving more than 500,000 people bur 

about $300 per year for systems serving no more than 

100 people. 6 Among the diHiculties small systems face 

are a shorrage of staff and financial resources ro stay current Vl'ith the latest technologies and management pracrices and rhe small scale of their purchases of chemical 

supplies and other materials. 

Many small water systems, including roughly half of all 

small drinking water sysrems, lie within one of the nation's roughly 275 merropolitan areas (defined using 

census data), and a subset of those may be good candidates for physical comolidarion or mc:sger.7 Some srares 

have used SRF assistance as leverage to induce small systems to consolidate and to help larger regional systems 

absorb smaller neighbors.8 Alternatively, where rhe distances make physical connections impractical and thereby 

preclude savings from centralized trearmenr, some efficiencies may still be obtained through consolidating 

costs, notably those for electricity an-d chemicals. Some of those 

savings are found through asscr management~in particular, 

~hrough the l!St' of !ife·()'•:Jc costing to identif}' efficient inveM~ 

ment~ ln improved t~:chno!ogy . 

F..stimate~ are in 1992 dollars, based on data in Congressional 

Budget Otlice, Tbe Safe Drinking W'at,.r Act: A Case Study of an 

Unfimdnl hderal Mall(lilfe (Septemher 1995), pp. 16-17. 

Anlf'rican Water Works Association, Reinvesting in Drinking 

\l?ater lnfrastrurturt: Dawn oft!u RepW.ceml'nt Era (\X1ashington, 

D.C.: A\XlWA, May 200!), p. 15. 

8. The drinking water SRF progr:nn prohibits assistance to any 

sysrem that Glllnot demonstrate "the [echnical, financial, and 

managerial capacity to ensun· compliance with the [Safe Drinking Water Act] over the long-term." Environment,li Protection 

Agency. Office of Water, The Drinking Water Stllte Retlolving 

Fund: Financing Amcrial S Drinking W"ater, EPA-81 G-R-00-023 

(November 2000), p. 7 . 
270 


26626.239

APPENDTXB 

management, statT, and administrative functions. Even 

systems that continue to operate independently may be 

able to cooperate in, for example, hiring a "circuit rider" 

to provide technical expertise on a shared basis. 

Asset~anage~ent 

As the words suggest, "asset management" refers to efforts 

to get the maximum benefit from an organization's assets, 

usually its fixed physical assets. For existing assets, the key 

ro maximizing the benefits is making efficient choices 

about maintenance and replacement. For new assets, the 

key is to evaluate total life-cycle costs-not only initial 

capital costs but also subsequent operational, mainrenance, and disposal costs-to ensure that the investment 

is optimally cost-effective. 

Active asset management in a large water system is challenging; it requires paying attention to the condition of 

equipment and the performance of the system and analyzing rhe discounted costs of different invesnnent and 

maimenance strategies. But the potential for managing 

assets efficiently has increased with the advenr of sophisticated analytical tools that help optimize the design of 

pipe necworks (in some cases, identifYing links rhar can 

be abandoned rather than replaced) and evaluate the 

uade-ofTs involved in maintaining equipmenr versus 

replacing it. The payoffs of such effon can be significant} 

by extending the life of equipment, eliminaTing redundant equipment, redudng O&M costs by as much as 

40 percent, and improving the reliability of the system 

by roughly 70 percenr.'' 

Innovative Construction Contracting Some water systems have found rha[when rhe time comes 

to construcr a new treatment plant (or significantly expand or update an old one), they are able to reduce costs 

significantly rhrough rhc use of "design/build" or "design/build/operare" (DB or DBO) co orr acting. Whereas 

traditional practice involves using one firm (often selected 

without competition) to do the engineering design and 

then competitively awarding the actual construction to 

the lowest bidder, hoth DB and DBO procurements 

9. Apogee Research!Hagler Bailly and EMA SePJices, "Thinking, 

Getting, & Staying Competitive," p, 12. 

MAJOR SOURCES OF EHlCIENC¥ SAVINGS 53 

bundle the design and construction phases into a single 

contract, awarded on the basis of competitive bids that 

are judged on cost and quality together. Done properly, 

the approach may save rime, increase accountability, and 

reduce costs (in part by allowing design firms to incorporate more pwprieta1y or specialized methods and technologies and by reducing the need to "overdesign" to avoid 

later errors in construction or operarion). According to 

EPA's Environmental Financial Advisory Board, some 

DRO contracts have yielded savings of 35 percent to 

40 percent of project costs. 10 Savings claims for DR contracts are commonly around ] 0 percent or 15 percent. 

Two examples of DBO projects that provide dear evidence of cost savings are a 120-million-gallon-per-day 

(MGD) filtration plant fOr drinking water for Seattle, 

Wa.shingron, and a 1.2 MGD wastewater treatment plant 

for Washington Borough, New Jersey. In the Seattle case, 

a conventional design was substantially complete by the 

rime Seattle Public Utilities decided to switch to the 

DBO approach, and so more information than usual is 

available ahour the costs of the forgone alternative. On 

the basis of engineering estimares in rhe conventional 

design, Seattle Public Utilities has calculated that that 

approach would have cost $171 million (in discounted 

present value, using 1998 dollars) for construction and 

25 years of operarjons, compared with $ l 0 l million 

under the DBO conrract.ll The savings of 41 percent 

may he somewhat overstated, however, because engineering estimates of construction costs Jo not necessarily 

reflect the lowest qualified bid thanvil! subsequently be 

received. 11 

10. Environmental Protection Agenq', Environmental Financial 

Advisory Board, "Private Sector Initiatives to Improve Efficiency 

in Providing Public--Purpos,, Environmental SerYices" (July 

20()]). 

11. See "The Solicitation Process" on Se.an!e's Troject Summary" 

\'\feb page fOr the T oh Treatment Facilities, at >Yww.ciryof 

scattle.ner!util/DW/TOLT/summary.htm. 

12. David Hi~ens and Frank Mangravite, "Contparison ofDesignBuild~Operate and Convemional Procurements on Washington 

Borough, N.J., \'V'astewater Treatment Plant," lmemationa! 

S"upplemmt to RCC's Public Works Financing (July-August 

19';)9), p. 1. 
271 


26626.240

54 tunJRt: INVESTMENT IN DRINKING WATER AND WASTEWATER INFRASTRUCTURE 

In the Washington Borough case, the conventional approach was taken one step funher, and actual construction bids were received. Using alternative assumptions for 

such things as the cosrs of construction change orders 

under the forgone approach, the borough and its advisers 

estimate that the DBO contract reduced design and construction costs by beiWeen 17 percent and 25 percent and 

lowered annual operating costs by 4.2 percent. 13 

13. Ibid., p. 6. 
272 


26626.241

c 

The 4 Percent Benchmark for Affordability 

~e Environmental Protection Agency has never 

adopted a measure to indicate how much an individual 

household can pay for water services before they hecome 

unaffordable. Yet participants in the current debate use 

(and attribute to EPA) the assumption that any houst'--

hold with water bills in excess of 4 percent of its income 

is experiencing a hardship. In adopting that notion, they 

mistakenly apply to individual households "affordability 

criteria" that the agency developed for \Vhole water 

~ysrems. 

The distinction is important because EPA's criteria compare the revenues co!Iected by a wa!{"f system to the 

median household income (MHI) in a service area, not 

to individual household income. Certainly, average 

household costs that correspond to 4 percent of a comtntmity's MHI represent an even higher percentage of Ehe 

income of an individual household earning less than the 

median. Thus, EPA's (subjective) judgment that 4 percent of MHI is a reasonable ceil1ng on a ware.r system's 

yield does not translate into a judgment that each individual household served hy that system should pay no more 

than 4 percent of its income for water services. 

The 4 percent benchmark reflects EPA's separate figures 

of2 percent each forwastewaler and drinking water. The 

origins of those individual figures highlight [he suhjectivity inherent in setting atfordability criteria. 

EPA's Affordability Criterion 

for Wastewater Systems 

EPA's guidance on the affOrdabiliry of investment in 

wastewater systems uses an average household rate of 

2 percent ofMHI as one assessment f.1.cror in conjunction 

with measures ofrhcsystem's debt, socioeconomic conditions of the area, and financial management conditions. 1 

The focus on affordability at the system leYel is also reflected in the guidance's reference to a 1988 study examining municipal governments' ability to issue revenue 

bonds ro finance environmental compliance. EPA assumed that lending institutions would initially be reluclant to accept ratios of user fCes to income that were 

much above those already in existence in most corrununiries, but the agency was clearly not concerned ahout 

whether individual households could affOrd higher rates 

~it asseneJ that as new environmental regulations 

gained "\videracceptance, lenders \Vould not be put off by 

higher ratios.~ 

1. See Environmental Protection Agency, Ofl'ice ofWarer, Office 

of \Vastewarcr !vfanagemt!lt, "Cornhint1l St'wer Overfl0ws--

Guidance for Financial Gpab1lity .Assessment and Schi."dule 

Development," EPA 852-H-97-004 (February 1997). 

Financial markers do not use a houschold·leve! affOrdabiliry 

criterion in a system\ overall iinaw:ial condition 

do consider whether rates that are 

tal improvement plans and rates that reflect rheo fl.dl cost of ser· 

vice·. !n addition to rates. financi<~! analy~ts exclmine the diversity 

and breadth of a system's customer base, the strength of the 

!oc<~l economy, the system's govl'rnance :md organizational 

structure, dK quality ofits management and ~trategic focus. and 

its liquidity. S('"e Mary Francoetu, Chee Mo:t· Hu, and Thomas 

Pao!ice!li, Rt1ting lvfethodolof!Y: Am1lytical f'mmewo:rk ji1r \Vatrr 

and St•wcr SyJtem Ratints (Moody's Investor Service, Municipal 

Credit Research, August 1999). Conversati0n with Chee Mee 

Hu, December 1?, 200L 
273 


26626.242

56 :FUTURE INVESI'ME:Vf tN DRINKI;.IG WATER AND W ..J;STEWATER INJlRASTRUCTl'-rui 

EPA's Affordability Criterion 

for Drinking Water Systems EPA was led ro establish an affordability criterion for 

drinking water systems by the 1996 Amendments to the 

Safe Drinking Water Acr. Theamendmemsspecificd that 

small public drinking water sy$temswould be allowed to 

use less effective pollutant control technologies when designated technologies capable of achieving a maximum 

contaminant level for a pollutant or satisl}ring a treatment 

technique requirement were not ''affordable." EPA judged 

that a technology was not affordable for a small system 

if the associated average expense pet household served 

exceeded 2 percent of the service area's I\-1HI. 

EPA settled on 2 percent after seeking a value that would 

be "closer to the cost of other utilities, and not significantly less than the cost of specific discretionary items."·~ 

J, Sec lnternationaJ Consultants and others, "National Level 

Affordability Criteria Under the 1996 Amendments to rhe Safe 

Drinking Water Act (Final Draft Report)," USEPA Contract 

68-CG-0039 (AuguS! 1998), pp. 6-2, 4·6; and Environmental 

Prmcction Agency, Office of Water, "Varl:mcc Tedmology 

Findings for Contaminants Regulated Before 1996," EPA 81 '}-

R,lJS-003 (September 1998), p. 19. 

Consumer expenditures on alcohol and tobacco represented 1.5 percent ofl995 pretax MHI, and expenditures 

on energy and fUels accounted for 3.3 percent.4 From that 

range, the agency selected 2 percent, in pan because it 

was roughly consistent with the premium that some 

households were choosing to pay when installing a dtinking water treatment device or purchasing bottled water. 5 

EPA recently decided to raise the value to 2.5 percent of 

MHI, which highlights the subjective underpinnings of 

the agency's affordabiliry crirerion. The change allows 

EPA to designate point-of-use rreatment devices as "compliance technologies:" because it ensures that average 

household charges by small systems installing such devices 

would remain below the affordability criterion. In effect, 

the change limits the recourse of small drinking water 

systems to less efh:ctive pollutant control technologies. 

4. Environmental Prow.:tion Ag~·ncy, Office of\'(!ater, "Variance 

Technology Findings," p. 45. 

). International Consuhams, "National Level Affordabiliry Criteria," p. 4~3. 
274 


26626.243

D 

Acknowledgments 

M any people assisted the authors of this study, by 'Yping drafts, reviewing drafts, providing helpful in!urmation, 

editing and proofreading the study, and preparing the final version for printir1g and for posting on the Congressional Budget 

Office's \X'eh sire (\VWW.cho.gov). Taking responsibility l(n any remaining errors, the authors want to express their 

appreciation to the people listed helow for their contributions. 

Congressional Budget Office 

Christine Bogus:t 

Tracy Foertsch 

Ed Harris 

Annette Kalicki 

Angela Z. McCollough 

Susanne t-,1e.hlman 

John Peterson 

John Skeen 

Eric Warasta 

David \\7 einer 

Kathryn \Y/insread 

Rae Wiseman 

Dennis Zimmerman 

Environmental Protection Agency 

Steve Allbee 

George Ames 

Veronica Bicttc 

Alvin Edwards 

Kit Farber 

John Flowers 

Terry Grindsraff 

Sandra Perrin 

David Travers 

Kevin Weiss 
275 


26626.244

58 FliTliRE INVE,'\TMENT IN DRINKING WATER AJ\0 Wi\STh"V.'ATER l"ilTh\STRUCTIJRE 

Other 

Janice Beecher, Beecher Policy Research 

Mel Blackwell, Universal Service Administrative Company 

Larry Bowman, U.S. Department of Agriculture 

Caroline Carbaugh, U.S. Census Bureau 

Peter Cook, National Association of\X'ater Companies 

Claudia Copeland, Congressional Research Service 

John Cromwell, PA Consulting 

Michael Deane, United Water 

Andreas Deppe, formerly of Hagler Bailly Services 

Rick Farrell, Council of fnfrastrucrure Financing Authorities 

Lee Garrigan, Association of~1etropoliran Sewerage Agencies 

Jim Gebhardt, New York Environmental Facilities Corporation 

Barbara Gottschalk, formerly of the Massachusetts Water Resources Authority 

Jon Harcum, Tetra Tech, Inc. 

Thomas Holtmann, Joint Committee on Ta.-'(ation 

Eric Keil, Bureau of Labor Statistics 

Ken Kirk, A<>sociarion of Metropolitan Sewerage Agencies 

Jim Land, Federal Communications Commission 

Amy Laskey, Fitch Ratings 

Robert Letma, !vfaine Municipal Bond Bank 

Randall Lutter, American Enterprise 1 nstitute 

Steven Maguire, Congressional Research Service 

Alan Manning, E!v1A, Inc. 

Guy Nagahama, First Albany 

Charles Noss, Warer Environment Research Foundation 

Tom Paolicelli, New York City Municipal Water Finance Authority 

Mark Poland, CSO Parrnership 

Kirby Posey, U.S. Census Bureau 

George Raft:elis, Raftdis Consul ring 

Bill Reinhardt, Public Works Finance 

Glenn Reinhardt, \Vater Environment Research Foundation 

Haydn Reynolds, Haydn Reynolds and Associates 

Kenneth Rubin, PA Consulting 

1\hrgot Saunders, National Consumer Law Center 

Jon Schellpfeffer, l\1adison Metropolitan St'Werage District 

Nick St. Angelo, Department of Health and Human Services 

Buzz Teeter, American Leak Detecrion 

Sreve Via, American Water Works Association 

Marcelo Vieira, Bond Market As-sociation 

A1 Warburton, American Water Works Association 

WolfWeber, Bureau of Labor Statistics 

Colleen Woodell, Standard & Poor's 

John Young, American Warcr Works Services Company 
276 


26626.245

CONGRESS OF THE UNITED STATES 

CONGRESSIONAL BUDGET OFFICE 
277 


26626.246

Pub. No. 2880 
278 


26626.247

CBO 

PAPER 

Trends in Public Spending on 

Transportation and Water Infrastructure, 

1956 to 2004 

August 2007 

The Congress of the United States • Congressional Budget Office 
279 


26626.248

Notes 

Unless stated otherwise, spending by state and local governments is net of federal grants and 

loan subsidies. 

All years cited in the paper refer to fiscal years. 

Numbers in rhe text and tables may not add up to totals because of rounding. 

Dollar values that have been adjusted for inHation are expressed in 2006 dollars. 

Among the photographs on the cover, the top left-hand one shows Webbers Falls Lock and 

Dam, located near Webbers Falls, Oklahoma, on the Arkansas River; it is used courtesy of 

the Department of Energy. Clockwise from that, the photographs are© S. Alden/ 

Photolink/PhorodisdGetty Images; TR002563/PhotodisdGetry Images; and Jupiterlmages. 
280 


26626.249

Preface 

T.e nation's infrastructure plays a vital role in its economy. Vigorous commerce and the 

daily activities of the nation require reliable means of transporting merchandise from producers to consumers and of conveying passengers to their destinations. Fundamental to economic 

activity as well is sound stewardship of the nation's resources, including ensuring an adequate 

supply of fresh water and of wastewater treatment services. 

In response to a June 2007 request from the Chairman and Ranking Member of the Senate 

Finance Committee, this paper by the Congressional Budget Office (CBO) analyzes spending 

on infrastructure by the federal government and state and local governments. It updates and 

expands upon the agency's May 1999 Trends in Public Inftastructure Spending. In accordance 

with CBO's mandate to provide objective and impartial analysis, the paper contains no 

recommendations. 

Nathan Musick of CBO's Microeconomic Studies Division wrote the paper under the supervision of Joseph Kile and David Moore. Elizabeth Robinson and Lawrence Hush of the Office 

of Management and Budget and Henry Wulf and Stephen Owens of the Bureau of the Census provided the primary data on infrastructure spending and supplied helpful answers to 

questions about them. Carma Ray Hogue of the Bureau of the Census, Nicole Carter and 

Robert Kirk of the Congressional Research Service, Paul Aussendorf of the Government 

Accountability Office, Thomas Holtmann of the Joint Committee on Taxation, and David 

Joulfuian and Thornton Matheson of rhe Department of Treasury provided additional 

insights into the data on infrastructure spending and tax expenditures. Within CBO, Raben 

Dennis, Scott Dennis, Ann Futrell, Mark Hadley, Arlene Holen, Jeff Holland, Daniel 

Hoople, Majorie Miller, Donald Marron, Sarah Puro, Bob Sunshine, Tom Woodward, and 

Dennis Zimmerman provided useful comments. Bill Reinhardt of Public Works Financing 

reviewed the draft. (The assistance of an external reviewer implies no responsibility for the 

final product, which rests solely with CBO.) 

John Skeen edited the manuscript, and Kate Kelly proofread it. Maureen Costantino designed 

the cover and prepared the paper for publication. Lenny Skutnik produced the printed copies, 

and Linda Schimmel handled the distribution. Simone Thomas prepared the electronic version for CBO's Web sire (www.cbo.gov). 

August 2007 

Peter R. Orszag 

Director 
281 


26626.250

Contents 

Introduction and Summary 

Basic Features of Public Spending on Infrastructure 

Infrastructure Spending and rhe Federal Budget 

Public Spending on Infrastructure as a Share of 

Gross Domestic Product 

Infrastructure Spending for Capital and fur Operation and 

Maintenance 

Economic Returns to Public Spending on Infrastructure 

Infrastructure Spending by Type of Project 

3 

4 

6 

The Composition of Federal Spending on Infrastructure 10 

The Composition of State and Local Spending on Infrastructure 13 

Ta"-Exempt Bond Financing and tbe Pcivate Sector's Role in 

Supplying Public Infrastructure 14 

Tax-Exempt Bond Financing 15 

The Supply of Public lnfrasrrucrure by the Private Sector 17 

Public-Private Partnerships I 7 

Appendix: Speoding on Transportation and Water Infrastructure 

Since 1956 19 

Tables 

A-I. Public Spending on Infrastructure, 1956 to 2004 20 

A-2. Federal Spending on Infrastructure as a Share of 

Nondefense Expenditures, 1956 ro 2006 22 

A-3. Public Spending on Infrastructure as a Percentage of 

Gross Domestic Product, 1956to 2004 23 

A-4. Public Spending for Infrastructure Capital and Relared 

Operation and Maintenance, I 956 to 2004 24 

A-5. Federal Spending for Infrastructure Capital and Related 

Operation and Maintenance, 1956 to 2006 26 

A-6. Srate and Local Spending for Infrastructure Capital and 

Related Operation and Maintenance, I 956 to 2004 2B 
282 


26626.251

VI TRENDS IN PUBUC SPENDING ON TRA.~SPOR'I'ATION AND WATER INFRA.1

iiRUCTURE, 1956 TO 2004 

Figures 

l. Public Spending on Infrastructure, 1956 to 2004 

2. Federal Spending on Infrastructure in Dollars and as a 

Share of Total Federal Spending, 1956 to 2009 

3. Public Spending for Infrastructure Capital and Related 

Operation and Maintenance, 1956 to 2004 

4. Federal Spending for Infrastructure Capital and Related 

Operation and Maintenance, 1956 to 2006 

5. State and Local Spending for Infrastrucrure Capital and 

Related Operation and Maintenance, 1956 to 2004 

6. Federal Capital Spending for Infrastructure, by Type, 

1956 to 2006 10 

7. Federal Spending on the Operation and Maintenance of 

Infrastructure, by Type, 1956 ro 2006 11 

8. State and Local Capital Spending for Infrastructure, by Type, 

1956ro2004 14 

9. State and Local Spending on the Operarion and 

Maintenance oflnfrastructure, by Type, 1956 to 2004 15 

10. Governmental Obligations and Privare Activity Bonds to 

Finance Public Infrastructure, 1991 to 2004 16 

Boxes 

1. Different Measures of Public Infrastructure 

2. Federal Grants and Loan Subsidies to States and Localities for 

Infrastructure 

3. Federal Spending to Protect Critical Infrastructure 12 
283 


26626.252

Trends in Public Spending on 

Transportation and Water Infrastructure, 

1956 to 2004 

Introduction and Summary The nation's infrastructure plays a vital role in its economy and in the daily lives of its citizens. Since the mid1950s, expenditures for transportation and water infrastructure by the federal government and state and local 

governments have annually accounted for over 2 percent 

of the nation's gross domestic product (GOP). In 2004, 

such spending for infrastructure was more than $312 billion (measured in 2006 dollars). 

This Congressional Budget Office (CBO) paper describes 

rhe trends in public spending for transporration and 

water infrastructure since I 956. 1 CBO focuses on spending for highways and roads, mass transit, rail, aviation, 

water rransportation, water resources such as the construction and maintenance of dams and levees, and water 

supply and wastewater treatment. Those types of infrastructure, which draw heavily on federal resources, share 

the economic characteristics of being relatively capital 

intensive and producing services under public management that facilitate private economic activity. They are 

rypically the types examined by studies that attempt to 

calculate the payoff, in terms of benefits to the economy, 

from government funding of infrasrructure.2 

Broader definitions of infrastructure might include such 

things as energy generation and distribution facilities and 

telecommunications networks-or schools and research 

L This paper is the fifrh in a series of reports by CBO on the topic 

since 1992. The last paper was Congressional Budget Office, 

Trends in Public Infrastructure Spending (May 1999). 

2. See, for example, Edward M. Gramlich, "Infrastructure Investment: A Review Essay," journal of Economic Literature, vol. 32, 

no. 3 (September 1994), pp. 1176-1196. 

labs. Those types of infrastructure, however, are often primarily provided by either state and local governments or 

the private sector, and they are not included in this paper. 

The paper reports public spending both for capital and 

for operation and maintenance. Capital spending is for 

the purchase, construction, rehabilitation, and improvement of physical infrastructure. Spending for operation 

and maintenance is composed of expenditures that are 

generally required to provide the services needed for 

infrastructure to function and that are often necessary for 

the repair and safe operation of existing infrastructure. 

(In some cases-as with air traffic control services, for 

instance-the costs can be sizable.)3 

CBO's tally of public spending on infrastructure provides 

a budgetary perspective on such spending. As such, this 

paper reports gross governmental spending on infrastructure capital and related operation and maintenance. 

The budgetary perspective stands in contrast to an 

alternative economic perspective that would, in particular, focus on measuring the value of the stock of 

3. For accessibiliry, CBO has adopted the phrase operation and 

maintenance. Most of the expenditures for those purposes are 

classified by the Office of Management and Budget as being for 

"noninvestment activities"; the corresponding classification by rhe 

Bureau of the Census is "current operations." In addition to operation and maintenance per se, the category includes expenditures 

for related purposes--for instance, to cover administrative and 

other expenses of government infrasrructure programs and ro conduct public safery and educational programs and research and 

development related to infrastructure. A methodological appendix 

to this paper, which has been published as a Web supplement 

(available at wwv.r.cbo.gov), provides a comprehensive discussion 

of data sources and definitions. 
284 


26626.253

2 lRENDS IN PUBUC SPENDING ON 1RANSPORfATION AND WA11R INFRASJ'RLJCTURE, 1956 TO 200\ 

infrastructure and changes in that value as investments 

are made and physical assets depreciate (see Box 1). 

The data that CBO uses foe its analysis of public spend~ 

ing on transportation and water infrastructure, which 

come from the Office of Management and Budget 

(OMS) and the Bureau of the Census, cover federal 

spending from 1956 to 2006 and state and local government spending from 1956 to 2004. The data on federal 

spending also incorporate CBO's estimate of spending foe 

2007 and its baseline projecrions through 2009 (the 

period through which expenditures on highways and 

roads and mass transit, which account for over one-half 

of federal spending on infrastructure, have been authorized by the Congress).4 CBO reports total federal spending on infrastructure as well as its two componems: 

(1) grants and loan subsidies to states and localities, 

which constitute almost two-thirds of the total, and 

(2) all other federal spending on infrastructure. CBO 

reports state and local spending net of rhe federal grants 

and loan subsidies. 

4. The: baseline projc:~:tions for programs governed by annual appropriations assume that the appropriated amounts increase each year 

at the rate of inflation. The numbers in this paper reflect CBO's 

baseline projections that were issued in March 2007. 

From 1956 tO 2004, annual public spending on infrastructure, adjusted for inflation, rose steadily---gcowing 

an average of 2.3 percent per year. During the first several 

decades of the span, that growth was mostly arrributab1e 

to increases in federal expenditures, particularly, rising 

capital spending on highways and toads, water supply 

and wastewater treatment facilities, and rail. 

From 1987 onward, infrastructure spending by the federal government and by states and localities has grown in 

real terms by 1. 7 percent and 2.1 percent, respectively. 

Additionally, several other key features of public infrastructure spending have been quite stable over roughly 

the past two decades: 

• Infrastructure spending by states and localities has 

accounted for around three-fourths of total spending; 

• Capital expenditures have been slightly less (about 

45 percent) than expenditures for operation and 

maintenance (55 percent); 

• As a share of GDP, infrastructure spending has fluctuated between 2.3 percent and 2.6 percent; and 

a Federal spending on infrastructure has hovered around 

3 percent of total expenditures in the federal budget. 
285 


26626.254

lRENDS IN Pl!BUC SPENDING ON 'IRANSPORTATlON AND WATER INFRo\STROCll!RE, 1956 TO 2004 3 

In 2006, the federal government spent $76.3 billion 

on infrastructure. Grants and loan subsidies totaled 

$50.6 billion, and all other federal spending on infrastructure totaled $25.7 billion. Over and above those 

amounts (and the other federal spending on infrastructure reported throughout this paper) are revenues 

forgone through the rax preferences that the federal governmenr offers on municipal bonds issued by states and 

localities to finance their infrasrructure spending. In 

2006, those forgone revenues amounted to an estimated 

$7.9 billion, or about 16 percent of the value of grams 

and loan subsidies provided by the federal government in 

that year. 

Several recent developments have influenced the amount 

of federal resources allocated to infrastructure and related 

activities. First, the hurricanes of 2005 prompted 

increased federal spending both to repair damage to highways and roads and to respond to and recover from future 

hurricanes, flooding, and other natural disasters. Those 

expenditures totaled $3.3 billion in 2006. 

Second, as a result of the heightened terrorist threat after 

September 11,2001, federal spending to make public 

infrastructure more secure--especially the facilities and 

services for air travel-has been sizable. Because such 

expenditures are essentially for national defense and law 

enforcement, they are not included in the totals reported 

here. However, from 2002 to 2006, spending on airline 

and airport security by the Transportation Securi~ 

Administration of rhe Department of Homeland Security 

amounted to $28.8 billion (financed in part by $8.7 billion in revenues from security and cargo fees). Those 

expenditures have paid for a variety of security measures, 

including hiring additional federal air marshals and con~ 

ducting more-rigorous screening of passengers, baggage, 

and other cargo. From 2003 to 2006, the Department of 

Homeland Securiry also provided $1.4 billion in grants to 

states. 

Third, another relatively new development is the growth 

in the private sector's interest in participating in infrastructure projects. According to the available data, such 

private activity has most likely accounted for only a very 

small share of spending on public infrastructure in the 

United States, but private funding and participation may 

increase in the future as the growing resources of pension 

funds that seek stable long-term investments are tapped 

by governments at various levels for upgrades to and 

expansion of infrastrucrure. 

As part of its analysis of public spending on infrastructure, CBO has also reviewed the current literature on the 

resulting economic returns. Such spending provides benefits to the economy by reducing the cost of private business transactions or yielding other social benefits. During 

the past 20 years, economists have attempted to measure 

the purely economic benefits from public expenditures 

on infrastructure and have obtained a wide range of estimates. The literature supports two conclusions: first, that 

public spending on infrastructure often has positive economic returns and, second, that both the average return 

and the range of returns among projects vary significantly 

and depend upon a number of factors. For example, 

research suggests that the returns to early public investments, such as expanding the interstate highway system, 

can be large but that rhe economic payoff from such 

spending declines as those types of systems grow. 

Basic Features of Public Spending on 

Infrastructure 

Real {inflation-adjusted) public spending on infrastructure totaled just over $312 billion in 2004. Of that, 

the federal government spent $73.5 billion, about 24 percent of the total, on projects that it funded directly and 

on grams and loan subsidies to state and local governments. States and localities spent $238.7 billion, or 76 

percent of the totaL The spending shares of the federal 

government and states and localities have been quite stable over roughly the past two decades (see Table A-1 in 

the appendix).5 

Berween 1956 and 2004, annual spending on infrastructure rose steadily, growing an average of 2.3 percent 

each year (after an adjustmenr for inflation) (see 

Figure 1). At times, rhat overall growth mask~ highly 

divergent trends: in spending at the federal and the state 

and local levels. From 1956 through the mid-l970s, real 

federal spending on infrastructure grew much more rapidly than did state and local spending; on average, federal 

spending grew at an annual rate of 7 percent, versus 

about 1 percent for srate and local spending. In 1977, 

federal spending reached its peak share of 38 percent of 

total spending. From the late 1970s through the mid1980s, real state and local spending grew at a Faster 

5. In addition to the tables in the appendix, the Web supplement to 

this paper provides greater detail on spending. 
286 


26626.255

4 lRENDS IN PUBUC SPENDL~G ON IRANSPORTATION M1> WATER L"'FRASS'RIJCfLllli, 1956 TO 2004 

Figure 1. 

Public Spending on Infrastructure, 1956 to 2004 

(Billions of 2006 dollars) 

350 

300 

250 

200 

150 

100 

so 

1956 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 

Source: Congressional Budget Office. 

Note: Data on state and toea! spending do not include eKpenditures on freight rail or, after 1990, water resources. 

annual rate than did federal spending, which, on average, 

declined slightly. Between 1987 and 2004, spending by 

the federal government rose 1.7 percent annually, while 

yearly spending by state and local governmems grew by 

2.1 percenr.6 

InfrastnJcture Spending and tbe Federal Budget 

Since the late 1980s, federal spending on infrastructure 

typically has constituted around 3 percent of all federal 

6. The recent figures for .state and local governments do not include 

spending on water resources, because specific data have been 

unavailable since 1991. The Bureau of !he Census's most relevant 

category (Oilier Natural Resources-Function Code 59) includes 

spending on both water resource infrastructure and other activities, such as environmental projects (for example, soil conservation, reclarnarion, and erosion-control measures), regulation of 

mineral and energy resources, and geological surveying and mapping. Annual expenditures in !hat category are approximately $12 

billion. 

Figures on state and local governmencs' spending on freight rail 

axe also not included here, because rhe Bureau of the Census does 

not collect data on it (the agency puts expenditures for passenger 

rail in the mass transit category). However, recent clara on stares' 

spending on both freight and passenger r:ail together can be found 

in Virginia Department of Rail and Public Transportation, State 

Rail Agencies Throughout the US.--Str'Ucture, Governance, Funding (October 2005}, available at http://fi:eight.transportation.org/ 

doc/raii/DRPT _railreport.pdf. 

spending. As a share of nondefense spending, which is 

another useful basis of comparison because this paper primarily includes expenditures on civilian infrastructure, 

federal spending on infrastructure during thac period ha..'> 

ranged between roughly 3.5 percent and 4 percent (see 

TableA-2). 

Before the lace 1980s, infrastructure spending as a share 

of nondefense federal expenditures was considerably 

greater than it is today, regularly accounting for about 

10 percent or more from 1959 through 1966, which was 

parr of a period of exceptionally rapid growch in federal 

spending on infrastructure. The subsequent decline of 

that share occurred in part because of a rise in spending 

on domestic programs unrelaced to infrastructure-for 

example, health care and income suppon programs generally and Medicare and Social Security in particular. 

After adjusting for inflation, CBO estimates that federal 

spending on infrastruccure will rise from $76.3 billion in 

2006 ro $77.3 billion in 2007; under CBO's assumprions 

for ics baseline, oudays would rise further-to $79.4 billion in 2008 and $81.5 billion in 2009. Spending on 

inftastructure would accoum for roughly 3 percem of 

rocal federal spending during rhat period (see Figure 2). 
287 


26626.256

1l!ENDS IN PUBUC SPENDING ON TRANSPORTATION AND WATER INFRASTRUCTURE, 1956 TO 2004 5 

Figure 2. 

Federal Spending on Infrastructure in 

Dollars and as a Share of Total Federal 

Spending, 1956 to 2009 

(Billions of 2006 dollars) 

90 

so 

70 

60 

so 

40 

30 

20 

10 

1956 1966 1976 

Total Spending 

(Right scale) 

1986 1996 

Source: Congressional Budget Office. 

(Percent) 

2006 

Note: The dashed vertical line separates actual from projected 

spending. The 2007 amount is the Congressional Budget 

Office's estimate of outlays in that year: The 2008 and 

2009 amounts are the agency's baseline projections of 

outlays in those years. 

Public Spending on Infrastructure as a Share of 

Gross Domestic Product 

.A5 a share ofGDP, public spending on infrastructure has 

ranged from 2.3 percent ro 2.5 percenr since rhe midl980s. Before then, it had trended downward, from a 

peak of3 percent in the !are 1950s and early 1960s. 

Spending shares for capital and for operation and maintenance have similarly been fairly stable over the past two 

decades (see Table A-3). 

Although infrastructure spending as a share ofGDP 

serves as a measure of the importance of public infrastructure in the economy, for several reasons ir does nor 

necessarily indicate whether the appropriate level of 

investment in infrastructure is taking place. First, , 

although Infrastructure spending facilitates the growth of 

rhe economy and improvement in the quality of life, 

determining the level of infrastructure spending that is 

appropriate for those purposes is difficult. Similarly, 

determining the level of spending necessary for the 

efficient and safe operation of existing infrastructure is 

difficult at the aggregate level, because individual infrastructure projects have varying needs depending upon 

their age, type of construction, intensity of we, and other 

factors. 

Second, economic growth and the additional demands it 

may place on infrastructure need not always give rise to 

proportionate increases in infrastructure spending. The 

average cost of providing some services, for example, 

highway or rail transportation, could decline as use 

increased. That outcome is likely whenever high fixed 

costs (that is, costs that do not vary regardless of the 

number of users) are incurred when the infrastructure is 

first put in place and additional users can be accommodated with little or no additional cost. Conversely, 

because infrastructure facilities usually are subject to wear 

over time, simply reporting annual investment does not 

provide insight imo whether the spending is sufficient to 

remedy deteriorarion and accommodate potential new 

demands from economic growth. 7 

Finally, public spending on infrastructure as a share of 

GOP may not maintain a predictable relationship to economic activity because such spending may be intended ro 

achieve policy goals apart from facilitating commerce, 

such as providing widespread access to basic services. For 

example, federal expenditures for water supply and wastewater treatment are often made to support such infrastructure in disadvantaged communities.8 

Infrastructure Spending for Capital and for 

Operation and Maintenance 

In 2004, public spending on infrastructure for capital 

projects totaled $143.6 billion, and spending for opera7. Stocks of infrastructure capital, which incorporate both new 

investment as \JII'ell as assumptions about how quickly the existing 

infrastructure capital depreciates, are calculated by barb the Office 

of Management and Budget {see Budget of the United States, Fiscal 

Year 2008: Analytical Pmpectives, pp. 63-65) and the Department 

of Commerce's Bureau of Economic Analysis (available at 

www.bea.gov/bealdn/FA20041SelectTab!e.asp#S7). 

8. The Rural Utilities Service of the Department of Agriculture and 

the Community Development Block Grants program of the 

Department of Housing and Urban Development fund such 

projects in disadvantaged communities; such funding is also avail~ 

able through the Environmental Protection Agency's Drinking 

Water State Revolving Fund. See Environmental Protection 

Agency, Han.dhook on Coordint.lting Funding for ~ter and Waste~ 

water Infrartructure-A Compilation of State ApprotUhes (October 

2003), pp. 1-2). 
288 


26626.257

6 mENDS IN PUBUC SPENDING ON IRANSPORfATION Al\'ll WATER INFRASTRIJCl'UilE, 1956 TO 2004 

Figure 3. 

Public Spending for Infrastructure 

Capital and Related Operation and 

Maintenance, 1956 to 2004 

(Billions of 2006 dollars) 

180 

160 

14ll 

120 

100 

80 

60 

40 

20 

1956 1964 1972 1980 1988 19% 2004 

Source: Congressional Budget Office. 

Note: Data on state and local spending do not include 

expenditures on freight rail or, after 1990, water resources. 

tion and maintenance amounted to $168.7 billion. The 

shares of capital expenditures and operation and maintenance expenditures within the total have been fairly stable at arouud 45 percent and 55 percent, respectively, 

since the early 1980s. Before then, capital expenditures 

usually exceeded spending on operation and maintenance 

(see Figure 3 and Table A-4). Since 1981, real growth in 

spending on capital has averaged 2.0 percent a year; for 

operation and maintenance, it has averaged 2.1 percent. 

As a share of GOP, capital spending has remained relatively flat; it was 1.09 percent in 1983 and 1.10 percent 

in 2004. The increase in public capital spending between 

1983 and 2004 in real terms-from $81.9 billion to 

$143.6 billion-was due primarily to the growth of capital spending by states and localities, which now account 

for more capital spending on infrastructure than does the 

federal government, as they did prior to the mid-1970s 

(even with federal grants and loan subsidies excluded 

from states' and localities' spending) (see Box 2 on page 

9) 9 Adjusred for inflation, annual capital expenditures by 

states and localities rose from $41 billion in 1983 to 

$87.2 billion in 2004. 10 From rhe late 1990s through 

abour 2003, federal capital expenditures also rose rapidly, 

in part as a result of several transportation 

measures enacted by the Congress and the President 

(including the Transporration Equity Act for the 21st 

Century, Public Law 105-178, 112 Stat. 107 (1998), and 

the Wendell H. Ford Aviation Investment and Reform 

Act for the 21st Century, P.L. 106-181, 114 Stat. 61 

(2000)). 11 Nevertheless, s~ate and local governments currently account for about 60 percent of total public capital 

spending. 

Total spending for operation and maintenance has been a 

fairly constant share ofGDP over the past three decades. 

During that period, the federal government has allocated 

somewhat over one-fourth of its infrasrructure spending 

ro operation and maintenance, whereas the corresponding proportion for state and local governments has risen 

steadily, from 41 percent in 1956 to 63 percent in 2004 

(see Figures 4 and 5 and Tables A-5 and A-6). State and 

local governments account for the vast majority--dose to 

90 percent-of spending on operation and maintenance. 

Economic Returns to Public 

Spending on Infrastructure Federal spending on infrastructure increases the stock of 

publicly owned capital and, in that sense, is an investment in the future productivity of the private sector. The 

economic literature on the topic today supports two con9. OMB notes, however, that some federal grams and loan subsidies 

classified as capiral spending are not always ultimately disbursed as 

such because the state or local government ultimately determines 

how the money is used. See Budget of the Un.iud States Government, Fi.sr:al Year 2008: Analytical Prrspu:tives, p. 55. Additionally, 

because OMB classifies federal outlays according to how most of 

the money is expected to be spent, some portion of a grant or loan 

that is classified as capital spending may be used by a state or 

locality for some other purpose. 

10. A comparison offederal and state and local spending on infra~ 

structure on the basis of outlays does not, however, recognize the 

financial burden that the federal government incurs by making 

exempt from most taxes the income from bonds issued by state 

and local governments to finance infrastructure. Debr financing is 

especially appropriate to capital projects, which ofren require substantial up-front investment but which generate revenues only 

over time. The cost to rhe federal government from tax~exempt 

bond financing is considered below. 

11. Those spending programs have since been reauthorized in, respectively, the Safe, Accountable, Flexible, Efficient Transportation 

Equity Act: A Legacy for Users, P.L. 109-59, 119 Srar. 1144 

(2005), and Vision 1 00-Century of Aviation Reauthorization 

Act, P..L. 108-176,117 Stat. 2490 (2003). 
289 


26626.258

IRENDS IN PUBllC SPENDING ON TRANSPORTATION AND WATER INFRASTRUCTIJRE, 1956 TO 2004 7 

Figure 4. 

Federal Spending for Infrastructure 

Capital and Related Operation and 

Maintenance, 1956 to 2006 

(Billions of 2006 dollars) 

70 

60 

so 

40 

30 

20 

10 

1956 1966 1976 1986 1996 

Source: Congressional Budget Office. 

2006 

elusions: first, thar public spending on infrastructure 

ofren displays positive economic returns and, second, that 

both the average return and the range of returns among 

projects will probably vary significantly and depend upon 

a number of factors. The early research on the economic 

payoff from public spending on infrastructure found very 

large rerurns. For example, one prominent study from the 

late I 980s found rhat a 1 percent increase in the stock of 

"core infrastructure" (consisring basically of the types of 

infrastructure included in this paper, plus elecrrical and 

natural gas facilities) was associated with a 0.24 percent 

increase in the level of national output from 1949 to 

1985. 12 Thar result suggested that public capital 

enhanced the economy's abiliry ro produce goods and services so much that $1 spent on infrastructure could generate close to $1 of output within roughly a year. An 

implication of such findings was that a substantial part of 

the productivity slump of the 1970s and 1980s was due 

to a shortfall of investment in infrastructure. 

But estimates of such large rerurns have proved controversiaL For example, some of those estimates have been 

found ro be very sensitive to minor changes in the data 

that generated them-such as changing slightly the time 

period or sectors of the economy covered by the analysis. 

Follow-on research has identified other methodological 

weaknesses and, after attempting to correct for them, has 

in some cases come to a different conclusion about the 

economic returns to public spending on infrastructure. 

For example, the size of the stock of public capital and 

the level of economic output can vary together over time 

for reasons unrelated to a causal link between them. One 

study that has attempted to control for that spurious 

covariance finds that, as a result, the estimated positive 

association of public capital with economic performance 

disappears. 13 Further, the direction of causality may not 

be certain: For example, additions to public capital may 

not be what is making states more productive; it may be 

that more productive and prosperous states spend more 

on infrastructure. One study finds that, once such statespecific characteristics are recognized, public capital plays 

no role in the differences among states' economic performance.14 

Recent surveys that include a number of countries in 

addirion to the United States find a positive economic 

payoff from investment in public capital. For example, a 

2007 study concludes that the recent literature reflects 

more consensus about the "growth-enhancing effect of 

12. Most of the issues considered in the 1990s were raised by David 

Alan Aschauer, "Is Public Expenditure Productive?" journal gf 

Monetary Economics, vol. 23, no. 2 (March 1989), pp. 177-200, 

and discussed in a large number of papers reviewed by .A.licia H. 

Munnell, "Policy Watch: Infrastrunure Investment and Economic 

GrOW'(h," journal of Economic Perspectives, vol. 6, no. 4 (Autumn 

1992), pp. 189-198, and Edward M. Gramlich, "Infrastructure 

Investment: A Review Essay," journal <J[Eco1Wmic Literature, 

voL 32, no. 3 (September 1994), pp. 1176-1196. See also Congressional Budget Office, The Economic Efficts of Federal Spending 

on Infrastructure and Other lnvestmentJ Uune 1998). A more recent 

examination is Jeffrey P. Cohen and Catherine J. Morrison Paul, 

"Public Infrasuucmre Investment, Interstate Spatial Spillovers, 

and Manufacturing Costs," Review of Economic; and Statlltics, vol. 

86, no. 2 (May 2004), pp. 551-559. The precise definition of 

public capital and the periods covered by rhose papers vary. 

13. See Charles R. Hulten and Robert M. Schwab, "P1.1blic Capital 

Formation and the Growth Process in Developing Countries," 

NationaLT11X]oumal, vol. 44, no. l,part 1 (December 1991), 

pp. 121-134. A criticism of such efforts that focus on year-to-year 

changes is that they can mask any long-term relationship between 

accumulated stocks of public capital and subsequent economic 

performance-when additions to the stock of public capital could 

influence economic activity for a number of years after they occur. 

14. See Douglas Holrz-Eakin, "Public-Sector Capital and the Productiviry Puzzle," Review of Economics and Statistics, vol. 76, no. 1 

{February 1994), pp. 12-2L 
290 


26626.259

8 TRENDS IN PUBUC SPENDING ON lRANSPORrAT!ON AND WATER INFRASTRUCflJRE, 1956 TO 2004 

Figures. 

State and Local Spending for 

Infrastructure Capital and Related 

Operation and Maintenance, 

1956 to 2004 

(Billions of 2006 dollars) 

180 

160 

140 

120 

100 

so 

60 

40 

20 

1956 1964 1972 1980 1988 1996 2004 

Source: Congressional Budget Office. 

Note: Data on state and local spending do not include 

expenditures on freight rail or; after 1990, water resources. 

public capital" than existed before. Similarly, a srudy 

sponsored by the Organization for Economic Cooperation and Development finds a "positive effect of infrastructure."15 The implications of those findings for public spending on infrastructure in the United States, 

though, are unclear because much of the newer research 

supporting those favorable assessments took place under 

circumstances that may not be relevant in this country. 

Those studies range from analyses of national and 

regional spending on infrastructure within various countries in Europe, South America, and Asia to investigations 

of economic returns to infrastructure spending in a large 

sample of countries at different levels of development. 

15. For a comprehensive overview of the relevant economic literature, 

with brief descriptioris of individual papers and their results, see 

Ward Romp and Jakob de Haan, "Public Capital and Economic 

Growth: A Critical Survey;" Perspektivrn der Wirtschaftrpo/itik, 

voL 8, special issue no. 1 (April2007), pp. 6-52. See also Vincent 

Ribeyrol, "Impact of Infrastructure on the Economy: Review of 

the Uterature" (paper presented at the Organization of Economic 

Cooperation and Development's conference entitled Global Infrastructure Needs: Prospens and Implications for Public and Private 

Actors, Paris, June 3, 2005). 

Moreover, some important results cited by those surveys 

rely on a concept of infrastructure that is broad, including public investment in basic telecommunications, for 

example, and other areas that in the United States are 

funded by private rather than public investment. 16 

Altogether, recent research finds that rhe returns to 

investment in public capital in the United States are positive, but below earlier estimates. For example, a 2006 

study concludes that public spending on highways and 

roads from 1982 to 1996 reduced annual congestion 

costs to drivers by $0.11 for every dollar spenr. 17 However, because the measure of spending in that study combines expenditures for capital and operation and mainrenance, the amount by which public spending during any 

particular year reduces congestion costs in subsequent 

years would be considerably less than the average annual 

estimate of $0. I l-as expenditures for operation and 

maintenance typically continue on an annual basis. 

Consistent with such findings, other economic research 

points out that the payoff from investments in public 

infrastructure such as highways falls off significantly after 

the initial impact that those investments had on economic activiry. For example, according to data spanning 

1953 to 1989, construction of the interstate highway system in the United States made vehicle-intensive industries in particular more productive; however, the capital 

spending that rook place after completion of that system 

in 1973 effectively had no impact on differences in 

16. See Lars-Hendrik ROller and Leonard Waverman, "Telecommunications Infrastructure and Economic Development: 

A Simultaneous Approach," American Economic &view, vol. 91, 

no. 4 (September 2001), pp. 909-923, and Christophe Hurlin, 

"La Contribution du Capital Public a Ia Productivite des Facteurs 

Priv€5: une Estimation sur Panel Sectoriel pour Dix Pays de 

I'OCDE (May 1999), available at www.dauphine.fr/eurisco/ 

CH_Recherche/PaneLpd£ The latter study applies two definitions 

of infrastructure: one that includes only equipment used in the 

provision of public services and the other that includes investment 

undertaken in conjunction with all types of activities provided by 

government {ranging from telecommunications to national 

defense). 

17. Congestion costs basically reflect both the amount of gasoline 

consumed as well as the value of the time that motorists lose as a 

result of traffic delays, See Clifford Wtnston and Ashley Langer, 

"The Effect of Government Highway Spending on Road Users' 

Congestion Costs," }uurn4/ of Urban Economics, vol. 60, no. 3 

(November 2006), pp. 463-483. 
291 


26626.260

1RENDSIN PUBUC SPENDINGON1RANSPORTATIONANDWATER£NFRASTRUCTURE, l956TO 2004 9 

Box 2. 

Federal Grants and Loan Subsidies to States and Localities for 

Infrastructure 

Federal grants and loan suhsidics account for a sign illcam shone of capital expenditures by states anJ locali~ 

des. (In this paper, federal grants and loan subsidit;s 

arc included in the 

Amounting to $50.6 and 

loans also represent a, large portion·---almost twothirds-of total federal spending on infrastructure. 

Most inJirect federal ourlays are imcnded fnr capital 

purchases. Since the !ate"l980s, Sllch outlays have 

accounted for a hit over one-third of stare and local 

governments' rota! capital (:xpcnditurcs on infrastrUL'tUr<· (see the fi~urc). from the late 1970s through 

the mid- l {)ROs, that share was .~uhstandally higher, 

n:fic-ctiug a increase in the federal 

mcnt's <H the sLue local 

lewis highways and road!. and for water supply 

and wastewater trc;nmcnl Currently, almm! 

all indirect fcJeral outlay~ infras1ructurt consist of 

grants and loan subsidies for highways and roads, 

mass tran:<.it, aviation, and wa1cr supply and wastt.'Wa~ 

tn treatment. The importance that such outlays ha\'C 

f(w states and localities varies amonp; the types of 

infrastructure: In 1004, the capital porlion of f(:dcral 

gratHs and loan subsidies accounted for almost om'" 

half of total .~tate and local capital exprnditurcs f~,r 

highways and nn.ss 1ramit and ahout OH!>Ihird and 

OfH>ttnth, respcnivdy. o( such expenditures for avia~ 

rion :llld for water supply and wastewater treatnH'Ilt. 

industries' productivity. 18 The evidence thus suggests 

positive returns to investments in infrastructure, but 

those returns depend on the type of infrastructure and 

the amount of infrastructure already in place. 

18. See John G. Fernald, "Roads to Prosperity? Assessing the Link 

Berween Public Capital and Prosperity,» American Economic 

Review, vol. 89, no. 3 Qune 1999), pp. 619-638. 

Fedcr.il Grants and l,oan Subsidies as a Share of 

State and Local Governments' Capital 

Spending for Infrastructure, 1956 to 2004 

(Percent) 

60 

so 

40 

30 

20 

10 

1956 1964 1972 1980 1988 1996 2004 

Infrastructure Spending by 

Type of Project Priorities for infrastructure programs have changed more 

at the federal level than at the state and local levels. 

Although the largest part of federal spending for infrastructure has been for highways and roads, the shares 

devoted to water supply and wastewater treatment and to 

mass transit and rail significantly increased during the 

1970s. Beginning in the mid-1980s and continuing to 

the present, highways and roads once again and, to lesser 

degrees, aviation followed by mass transit and water 

resources have been the primary sectors for federal 
292 


26626.261

10 1RENDS IN PUBUC SPE!Ill!NG ON TI!ANSPORTATION AND WATER INFRASTRUCfliRE, 1956 TO 2004 

Figure&. 

Federal Capital Spending for Infrastructure, by Type, 1956 to 20o6 

(Billions of 2006 dollars) 

Source: Congressional Budget Office. 

dollars. (Some of those highway and water resource 

projects undertaken in rhe past several years were in 

response to damage from the hurricanes in 2005.) 

In contrast to federal spending, the priorities for state and 

local spending have changed little since the 1970s: 

Expenditures for highways and roads have always been 

predominant. However, expenditures at rhe state and 

local levels are distributed somewhat more evenly among 

the various types of infrastructure--in particular, highways and roads, aviation, and mass transit and rail-than 

they are at the federal leveL 

The Composition of Federal Spending on 

Infrastructure 

Capital spending, much of which is for highway and road 

projects, accounts for about rhree-fourrhs of all infrastructure expenditures by the federal government. Over 

80 percent of that capital spending is typically done 

through grant and loan subsidy programs for stares and 

localities. In contrast, only around 10 percent of spending for operation and maintenance is done through 

grants and loan subsidies. 

Capital. By far, the largest amount of federal capital 

spending is for highways and roads. In 2006, approximately $34 billion in capital expenditures, or 60 percent 

of the total, went for highway and road projects (see 

Figure 6). 19 Mass transit accounted for $8.4 billion, 

followed by aviation ($6.2 billion), water resources 

($3.4 billion), and water supply and wastewater treatment ($2.2 billion). Water transportation projects and 

rail accounted for about $1 billion each.20 

Almost all of the capital spending on highways and roads, 

mass transit, and water supply and wastewater treatment 

was done through grant and loan programs. Federal capital expenditures on aviation took the form of both grants 

(through the Airporr Improvement Program) and direct 

outlays for rhe facilities and equipment account of the 

Federal Aviarion Administration. Capital spending on the 

remaining types of infrastructure consisted of direct outlays by the Bureau of Reclamation and the Army Corps 

of Engineers for water resource projects, by the Coast 

Guard for water transportation, and by rhe Federal Railroad Administration for rail. 

Although highways and roads have always dominated 

federal capiral spending, that share has fluctuated 

19. Included in that total are expenditures of about $849 million 

through the Emergency Relief Program of the Federal Highway 

Administration to repair damage caused by Hurricane Katrina to 

highways and roads. 

20. Most of those federal capital outlays correspond quite closely to 

the spending totals reponed in Budget of the United States Government, Fiscal Year 2008: AMlytical Perspectives, Table 6-2, "Federal 

Investment Budget Authoriry and Oudays: Grant and Direct Federal Programs," p. 58. 
293 


26626.262

lRENDS IN PUBUC SPENDING ON TI<ANSPORTATION ANO WATER INFRAStRUCTURE, 1956 TO 2004 11 

Figure 7. 

Federal Spending on the Operation and Maintenance of Infrastructure, by Type, 

1956 to 2006 

(Billions of 2006 dollars) 

25 

20 

15 

10 

1956 1961 1966 1971 1976 

Source: Congressional Budget Offtce. 

between roughly 40 percent and 70 percent. In particular, 

highway and road expenditures accounted for a substantially smaller share ( 48 percent) of all federal capital 

spending from 1971 through 1980 than they did before 

that time. In contrast, in the 1971-1980 period, warer 

supply and wastewater treatment accounted for 21 percent and aviarion, mass transit, and rail, 15 percent of 

total federal spending on infrastructure capital; the corresponding spending shares on those types of infrastructure 

prior to that time were 2 percent and 4 percent, respectively. 21 The shifting emphasis of federal spending on 

infrastructure has reflected some particular priorities at 

different times: establishing and improving highways and 

roads in the 1950s and facilities for providing dean water 

in the 1970s. 

Operation and Maintenance. In 2006, spending on 

aviation operation and maintenance by the Federal Aviation Administration to run the nation's air traffic control 

system amounted to $8.9 billion, representing 45 percent 

21. The boost in spending on infrastructure capital for V.'ater supply 

and wastev.rater treatment was the result of the Clean Water Act of 

1972, which required (and made federal money available for) 

greater efforts to dean wastewater before it could be discharged to 

surface waters. See Congressional Budget Office, Future lnvntmrnt in Drinking Wzter and Wastewatt'T Infrastructure (November 

2002), p. 6. 

1981 1986 1991 1996 2001 2006 

of total federal spending for infrastructure operation and 

maintenance (see Figure 7). Such spending on water 

resources-which for the most part funded the activities 

of the Corps of Engineers and the Bureau of Reclamation-was $5.4 billion (or 27 percent of the total), while 

$2.1 billion (or 11 percent) went to rhe Coast Guard for 

its role in supporting water transportation. Water supply 

and wastewater treatment accounted for $1.8 billion and 

highways, $1.2 billion. 

During the past several years, operation and maintenance 

spending for water resources has spiked as a result of 

expenditures from the Flood Control and Coastal 

Emergencies account of the Corps of Engineers. From 

$150 million in 2005, those outlays increased to $2.5 billion in 2006. Those expenditures are intended to improve 

the Corps of Engineers' ability to address future flooding, 

hurricanes, and other natural disasters. 

The federal government has also devoted substantial 

resources in the wake of the terrorist attacks of 

September 11, 2001, to making public infrastructure 

more secure. However, because those expenditures are 

made primarily for purposes of national defense and law 

enforcement, they are excluded from public spending on 

infrastructure as defined in this paper (but considered 

separately in Box 3). Within rhe federal programs whose 

infrastructure expendirures are reported by this paper, 
294 


26626.263

12 rnE!>'DS IN PUBliC SPENDING ON TI!ANSPORIATJON AND WATER INFRASTRUCTURE, 1956 TO 2004 

Federal ft1nd!ng ofhnrneland security related tn infra~ 

structure-~though not included in this paper-has 

heen sizable, 1 The largest sum of ft·d£:ral spending 

specifically intt:nded m prott'ct infi·asrructure 

ti-on security. 

Jars from 2002 

I. 

norL w orht•t l:~w enfutn:ment. 

spending to protect infrastructure (and thus related to 

homeland security) typically accounted for less rhan 

5 percent of the total funds available from 2003 to 2006. 

Hence, spending for homeland security by federal infrastructure programs does not represent a large reallocation 

of public resources for infrastructure as defined by this 

paper and earlier ones by CB0. 22 

With only a few exceptions since 1956, federal spending 

for the operation and maintenance of infrastructure has 

22. See Budget of the United Sta.tes Government· Fiscal Yearr 2005-

2008: Analytical Pmpectives, HomelAnd Security Mi.Jsion Funding 

by Agenry and Budget Account. CBO's calculations of funding 

shares are in terms of budget authoriry (basically the amount 

of money that federal programs are approved to spend each year). 

However, those shares are not exhaustive of federal agencies' 

spending to protect rhe infrastructure for which they are responsible, bec:aU.'ie agencies may also allocate funds to efforts related to 

homeland securiry in ways that cannot be linked to specific 

infrastructure programs (see, for example, the discussion by 

Mary Tiemann, Safoguarding the NationS Dr£nking Witter: EPA 

aru:l CongressionalActiom, CRS Report for Congress RL3I294 

(Congressional Research Service, January 25, 2006). 

of stcurity measures, including hiring additional fed~ 

eral air marshals and t·onducting more~rigorous 

scn:ening of passengers, baggage, and other c:ugo. Of 

that :amount, spending for aviation opera· 

tinns was $24.8 billion {or 86 percent total}; 

for securitY ao.:oumcd fm the 

Those' fOr aviation 

tions are equal to 58 pen .. -ent of tlw federal 

f(Jr aviation operation and mal!lt<,nancr 

2otU~-2006 period the air traffic t·onrrol system 

and other Sp'epding to make the nat ion's 

water transportation system mor~ secure has also 

Fwm 2001 through 2001. ;.~irlin::~ ;tbo H'teincd $4,6 billion 

been concentrated on aviation-which has been around 

SO percent of total spending for those purposesfollowed by spending on water resources and, from the 

1970s through the 1990s, highways and mass transit. 

Additionally, from the mid-1970s to late 1980s, rail 

spending claimed a sizable share of federal resources for 

infrastructure, peaking in 1981 as a result of the settlement of litigation related to the government's acquisition 

of the assets of Conrail. 23 

13. The Regional Rail Reorganization Act of 1973 (known as the 3R 

Act) established the Consolidated Rail Corporation (Conrail) to 

assume the assets, routes, and service of the Penn Central and 

other bankrupt railroads in the Northeast. The 3R Act set the 

stage for Amtrak to take over the tights of way, tracks, and facilities between Boston and Wa.iliingron, D.C.-that is, the Northeast Corridor. That takeover was subsequendy accomplished 

through passage of the Railroad Revitalization and Regulatory 

R.t:form Act of 1976 (the 4RAct). In 1981, the federal government reaehed a settlement -with Penn Central and its subsidiaries 

and affiliates on the value of properties transferred to Conrail in 

1976. That settlement amounted to $2.1 billion in principal and 

interest (about $4.6 billion in 2006 dollars). Smaller settlements 

were also reached with other litigants over the next several years. 
295 


26626.264

ffiEtiDS IN PIJBUC SPEtiDING ON lRANSPORTATION AND WATER INPRASTRUCTIJRE, 1956 TO 2004 13 

111c Department of Homeland Security's (irantG to Protect Critical Infrastructure 

Grants Through 2006 Grants Expected in 2007 

Amount Percent Amount Percent 

Trnnsit Sect~rity Grant Program $388 18.2 $172 43.4 

Intercity Passenger Rail Program $l3 l.O Included above Included above 

Trucking Security Program $50 3.6 $12 2.9 

Port Security Grant Progrmn $874 63.6 $201 50.8 

Intemly Bus Security Program $49 3.5 $12 2.9 

100.0 $396 100.0 

Source: Congresswnallludget Offu:e based on Department of Homeland Security, "DHS Announces Close to $400 MH!ion in Grants 

Available to Secure the Nation's Critical Infrastructure'' (press release, July 6, 2006), "DHS Awrds $399 Million m Grants 

to Secure the Nat1on's Critical Infrastructure" (press release, September 25, 2006}, and "DHS Announces $445 MiH1on to 

(that is, binding agn:e~ 

men1s that will result cxpenditurr.~) by thl' Coast 

Cu:mfs Ports, Waterways and Costal Security pro" 

gram have exceeded $1 hillion ;mnually sin~.:~ that 

inception in 2003 and roralc.d almost 

over Tlu: 2003 ·2006 p(CrioJ.5 

The Department of Homeland Srcuriry has also 

made to both governments at the state and 

local and cntiticb to protect critical 

inf1a~tructurc. administert'd by the ()Hke 

of (;ram~ ollld Training, those grants have been av<1il· 

SrtW'Ifl' 

The Composition of State and Local Spending on 

Infrastructure 

State and local expenditures on infrastructure differ from 

spending at the federal level in several ways. First, expenditures for operation and maintenance account for about 

two-thirds of the total for states and localities but cypically slightly more than one-fourth for the federal government. Second, spending on highways and roads constitures the largest share ofboth operation and maintenance 

as well as capital expenditures by states and localities, 

of surface transportation as well 

as for ports have received the bulk of the 

funds). 2006, such grants amounted to 

$1 A billion, another $400 million expert('d in 

2007 (see the tablc). 4 

while federal spending for the operation and maintenance 

of highways and roads is small relative to such federal 

spending on other types of infrastructure. Third, infrastructure spending by states and localities for either capital or operation and maintenance is less concentrated on 

a particular type of infrastructure than is federal spend~ 

ing. Finally, states and localities' priorities fot both capital 

and operation and maintenance expenditures have 

remained fairly stable. 
296 


26626.265

14 TRENDS IN PUBUC SPENDING ON TRANSPORTATION AND WATER INFRASTRUC!lJRE, 1956 TO 2004 

Figure 8. 

State and Local Capital Spending for Infrastructure, by Type, 1956 to 2004 

(Billions of 2006 dollars) 

90 

so 

70 

60 

50 

40 

30 

20 

10 Highways and Roads 

1956 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 

Source: Congressional Budget Office. 

Note: State and local spending does not in dude expenditures on freight rail. 

Capital. In 2004, state and local spending (after an 

adjustment for inflation) on highways and roads totaled 

$40.6 billion and accounted for 47 percent of total capital expenditures by those levels of government. States and 

localities also spent $28.3 billion (32 percent) on water 

supply and wastewater treatment, $8.9 billion (10 percent) on mass transit (which includes passenger rail), 

$7,5 billion (9 percent) on aviation, and $1.9 billion 

(2 percent) on water transportation. The increases in real 

capital spending at the state and local levels since 1983 

represent a marked departure from the trend prior to 

that time, when that spending was either stable or declining depending on the type of infrastructure (see 

Figure 8). Such growth has been especially pronounced 

for aviation, mass transit, and rail and for water supply 

and wastewater treatment-the latter probably because of 

states' and localities' need (as federal funding declined) to 

meet requirements of the Clean Water Act of I 972. 

Operation and Maintenance, In 2004, states and localities' spending for the operation and maintenance of 

highways and roads was $58.5 billion, or 39 percent of 

their total spending for operation and maintenance. 

(Such state and local spending accounted for 98 percent 

of rotal public spending for the operation and maintenance of highways and roads.) Spending by states and 

localities on water supply and wastewater treatment was 

$51.2 billion (34 percent of rheir spending on operation 

and maintenance); on mass transit (including passenger 

rail), $29.9 billion (20 percent); on aviation, $9.3 billion 

(6 percent); and on water transportation, $2.5 billion 

(2 percent). Operation and maintenance spending at the 

state and local levels has persistently increased since the 

mid-1950s (see Figure 9). 

Tax-Exempt Bond Financing and the 

Private Sector's Role in Supplying 

Public Infrastructure In addition to making grants and subsidized loans for 

infrastructure spending by states and localities, the federal 

government also provides a source of funding to those 

levels of government through the ta.x revenues it forgoes 

by offering tax exemptions on debt they issue--estimated 

at $7.9 billion in 2006, or 16 percent of the $50.6 billion 

in federal grants and loan subsidies that year. The proceeds from tax-exempt bonds can, in certain cases, be 

used to fund private-secror activities (which is also true 

for funds available through some federal grant and loan 

ptograms). According to the available data, such privatization for public infrastructure has been modest. However, recent developments suggest a potentially larger role 

for the private sector in providing public infrastructure. 
297 


26626.266

!RENDS L' PUBUC SPENDING ON lRANSPORTATION AND WATER INfRASTRUCTURE, 1956 TO 2004 15 

Figure 9. 

State and Local Spending on the Operation and Maintenance of 

Infrastructure, by Type, 1956 to 2004 ----------------------------------- (Billions of 2006 dollars) 

1956 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 

Source: Congressional Budget Office. 

Note: State and local spending does not include expenditures on freight raiL 

Tax-Exempt Bond Financing 

Tax-exempt bonds issued by stares and localities can be of 

two types: general governmemal obligations and private 

activity bonds that are used by a nongovernmental entity 

to finance certain types of projects. The tax exemption 

for governmental obligations is greater than for private 

activity bonds, because interest income from private 

activity bonds is subject to the alternative minimum tax. 

According to data from the Internal Revenue Service, 

governmental obligations account for most (approxi~ 

mately 87 percent) of the tax-exempt debt that has been 

issued to finance public infrastructure since the early 

1990s. (That share applies both to funding for new 

projects and refinancing of debt on existing projects.) On 

an annual basis, the amount of governmental obligations 

and private acriviry bonds issued by state and local governments to finance infrastructure projects has fluctuated 

markedly (see Figure 10) 24 

Although a small amount of private acriviry bonds has 

been issued relative to governmental obligations, they 

rend to be concentrated on only a few types of infrastructure projects, and, as a result, they make an important contribution to covering the capital costs. In particular, aboUt 80 percent of the total value of private activiry 

bonds issued between 1991 and 2004 to fmance infrastructure projects, as defined by this paper, funded airport construction, according to data from the Internal 

Revenue Service. Some studies suggest that, for that purpose, private activiry bonds may have been as important 

ovet the past decade as other rypes of funding such as federal grams or airport user charges. 25 In addition to 

24. All of the data apply to long~term bonds (ones with maturities of 

13 months or more), which are the predominant type of taxexempt bond. According to the Internal Revenue Service, for gov~ 

ernmental obligations, an infra'itructure bond can fund either a 

transportation or utilities project. (From 1987 through 2005, typIcally between 85 percent and 90 percent ofthevalue of the taxeJ~:empt utilities bonds issued annually funded water supply and 

wastewater treatment facilities,) See Thomson rinandal, The 

Bond Buyer Yearbook (New York, 2007 and earlier issues). Private 

activity infrastructure bonds may be issued to fund airports, docks 

and wharVl::S, mass commuting and select surface ttansponation 

facilitie.'i, and water and sewage projects. 

25. See ACI-NA Policy Center, Reforming the Federal Tax Treatment of 

Airport Bonds, Executive Summary (February 28, 2006), available 

upon request from the Airports Council International-North 

America at www-.aci-na.org. Note, however, that the various 

sources of funding may not be entirely independent, because airport user charg~ can be used to secure or to pay off loans. Additionally, federal grants through the Airport Improvement Program 

appear to be more important to smaller airports than larger ones, 

because the laner arc better able to tap financial markets to fund 

their capital projects. See RobertS, Kirk, Airport !mprovmzent Pnrgram: Issuer for Gmgrm, CRS Report for Congress RL33891 

(Congressional Research Service, February 26, 2007), p, 7. 
298 


26626.267

16 TRENDS IN PL'BUC SPE!IDING ON lRANSPORTATION AND WATER INFRASTRUCTIJRE, 1956 TO 2004 

Figure 10. 

Governmental Obligations and Private Activity Bonds to Finance Public 

Infrastructure, 1991 to 2004 

------------------------------------ (Billions of dollars) 

100 

80 

60 

40 

20 

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 

Source: Congressional Budget Office based on data from the Internal Revenue Service. 

airports, private activity bonds provide some financing 

for highway and intermodal freight transfer facilities, 

mass transit and high-speed intercity rail, water transportation facilities, and water supply and wastewater treatment?6 

According m OMB, the federal government's loss of revenues because of tax-exempt bonds-also referred to as tax 

expenditures-was about $23 billion in 2006. The 

agency provides an estimate only of the total amount, but 

because bonds that financed either transportation or 

water projects accounted for a stable share of about 

27 percent of the total value of governmental obligations 

issued between 1991 and 2004, a reasonable inference of 

the loss of federal revenues in 2006 attributable ro governmental obligations' financing public infrastructure is 

approximately $6.3 billion (27 percenr of $23 billion)27 

For private activity bonds backing projects involving airports, docks, and similar transporration facilities (one of 

the rwo groups of projects for which estimates are available), the loss of federal revenues was about $1.1 billion 

26. In 2005, The Safe, Accountable, Flexible, Efficient Transportation 

Equiry Act: A Legacy for Users added highway and intermodaJ 

freight transfer facilities to the list of projects that can be financed 

through private activity bonds, with a cap of $15 billion on the 

amount of debt that can be iiSued (see P.L. l 09-59, section 

11143). 

in 2006, and for such bonds for water and sewer facilities 

(the other group), about $510 million.28 Thus, the revenue loss to the federal government from all tax-exempt 

infrastructure bonds amounted w about $7.9 biUion in 

200629 

That sum is over and above the $50.6 billion in federal 

grants and loan subsidies for infrastructure in 2006, but it 

overstates the amount by which rax exemptions on governmental obligations and private acrivity bonds actually 

27. See Budget of the United States Government, Fiscal Year 2008: Analytical Perspectives, Table 19.2, "Estimates ofT oral Income Tax 

Expenditures," p. 294. An estimate of a loss in revenues does not 

imply an equivalent gain if the tax exemption was eliminated. In 

particular, the calculation of the tax expenditure does not rake 

into account how the: behavior oflenders would change as a result 

of removing the exemption. 

28. Private activity bonds in OMB's category for water and sewer 

projects can also apply to the financing of hazardous waste dis" 

posa1 facilities. However, only a very small amount of such debt 

has been issued. 

29. States rypically exempt from taxation income from municipal 

bonds issued in sra.re and, in a few cases, those i!>Sued out of state. 

However, states' income tax rates are much lower than the federal 

government's; hence, any forgone n:venues for state governments 

would be as well-although estimates of such losse:s for states or 

municipalities are unavailable. See Thomson Financial, The Bond 

Buyer Yearbook (New York, 2007), pp. 118-119. 
299 


26626.268

1REr>ilJS L'\ PUBUC SPENDING ON JRA.~SPORTATION AND WATER L'..ll~ASTR11Cl1JRE, 1956 TO 2004 17 

reduced states and localities' costs ofhorrowing to finance 

infrastructure projects: The savings in financing costs that 

states and localities gain through the tax exemption (and 

which is determined by the tax rate applied to municipal 

bond purchasers at the margin, that is, to those last purchasers who reflect the final extent of demand) are less 

than the federal revenues forgone from the tax exemption 

(which is determined by the tax rate of the average purchasers).Tax-exempt bond financing is generally not considered to be a cost-effecrive way of transferring revenues 

ftom the federal government to states and localiries.30 

The Supply of Public Infrastructure by the 

Private Sector 

The federal government also fosters the private sector's 

support of infrastructure through other means. For example, private investment to improve the nation's surface 

transportation system (namely, highways and transit and 

rail systems) is encouraged through federal credit assistance made available under the Transportation Infrastrucrure Finance and Innovarion Act (TIFIA) of1998 

(P.L 105-178, sections 1501-1504). Through TIF!A, 

the federal government has contributed $3.2 billion 

(mosrly in the form of direct loans) to pro jeers ·with costs 

totaling $13.2 billion.31 Businesses and commercial 

enterprises may also receive loans for projects involving 

water systems from state revolving funds thar are capital~ 

ized with grants made by the Environmental Protection 

Agency. 32 Private entities are also eligible to receive fed30. See Statement of Donald B, Marron, Acting Director, Congressional Budget Office, Ewnomic Issues in the Use o[Tax~Prej(md 

&nd Fmancing, before the Subcommittc:e on Federal Revenue 

Measures, House Committee on W'ays and Means {March 16, 

2006). 

31. The federal gowrnment's fioancing share of such projects is 

capped ar 33 perceot, and projecn that qualify must have investme[]t grade credit ratings on the remaining debt they take on. k a 

result, of the total amount of credi£ thar it has extended or guaran· 

re.ed through TIFIA, the federal government has provided a credit 

subsidy of approximately $240 million by lending at interest rates 

lower than its own borrowing com or by assuming defaulted debt. 

SeE TlPIAJoint Program Office, TIFIA Credit Pr(Jgr!J.m Ot;erview 

{September 27, 2006), available at http://tifia.fhwa.dot.gov, and 

Budget of the United St!J.tes Government, Fiscal Year 2008: Department ofTramporration, In this paper, the outlays [or credit subsidies under TIFIA are included in tht>: data for indirect federal 

capital spending. 

32. See Environmental Protection Agency, FinancingAmerita's Cletm 

W4ter Since 1987-A Report on Progress and lnrwrution, EPA-832-

R-00-0ll (M')' 2001), pp. 2-3. 

eral grants through the Airport Improvement Program 

for the development or improvement of airforts that are 

"significant to national air transportation." 3 

Public-Private Partnerships 

Infrastructure projects in which a private entity plays a 

role beyond simply supplying its services to a government 

agency are often referred to as public-private partnerships. Among the various types of public infrastructure, 

such partnerships appear to be most common for projects 

involving highway and road transportation, rail, and 

water supply and wasrewater rreatment, which can lend 

themselves to private operation. For example, a private 

entity can control access ro and charge for the use of a toll 

road or a drinking water system, whereas it would be 

harder to charge users to recoup costs given the more 

diffuse benefits from a dam or flood-control projecr.34 

The fundamental difference between the traditional role 

of the private sector in infrastrucrure and the role it plays 

in a public-private partnership is the greater amount of 

risk that the private entity assumes in the partnership. 

The degree of risk for the private entity can range from 

almost complete rcsponsibiliry to only a modest stake in 

the project. In some public-private partnerships for highway and road construction, for example, the private 

entity raises most or all of the funds and is also responsible for the design, construction, and operation and maintenance. It recoups its investment through charging user 

fees. 35 The Dulles Greenway highway in Virginia and the 

SR-91 and SR-125 toll roads in California are examples 

of the results of rwo such public-private parmerships. In 

contrast, having more-limited involvement, private enri-

:)3. See Federal Aviation Administrauon, "National Plan oflntegrated 

Airport Systems," available at wwwJaa.gov!airports_airtraffid 

airports/ planning_ capaci ry/ n pi as. 

34. Those factors reflect two potential rationales for a government's 

role in providing infrastructure. Fim, because they ~:an hav~ high 

fixed (or up-fro[]t) costs and low marginal costs, infrastructure 

projects may lend themselves less well than other types of investment to a competitive marker: It may be economically feasible for 

only one producer to undertake such a project, so some type of 

government intervention or regulation may be necessary in order 

to maintain the price and supply n[ the infrastructure services at 

or near a competitive and economically efficient level. Second, 

when it is not possible for a private entiry to charge all who make 

use of infrastructure services on the basis of the benefits received, 

then the private sector may not provide enough of such services. A 

government could remedy that undersupply by recouping the cost 

of the infnmructure through mxation. 
300 


26626.269

18 1RENDS L"l PUBIJC SPB\'DL~G ON 1RANSPORTATION MD WATER INFRASI'RllCTIJRE, 195fi TO 2004 

ties may simply bid to supply various services such as 

maintaining public roads or operating water supply facilities. In the more extensive type of public-private partnership, ilie risk to the private entity depends on the accuracy of predictions about many things, most important, 

construction and financing costs. In the partnerships 

based on contract services, the risk to the private partner 

depends on its ability to deliver agreed-upon services at 

the contract price.36 

Several factors may have combined recently to make public-private partnerships more attractive to the various levels of government responsible for public infrastructure: in 

particular, a demand by the public for improved infrastructure services coupled with a large supply of investment funds, such as public- and private-sector pension 

funds, whose managers seek stable long-term rerurns. 

However, potential drawbacks to the private sector's 

involvement in public infrastructure exist. For example, 

in cases in which private entities bid for the right to 

undertake infrastructure projects and/or provide services, 

too few bidders could (absent government scrutiny that 

allowed ilie competition to be called off) lead to a con35. The risk to the private entity of not recouping its: investm1"nt is 

often reduced by advantageous financing available through government sponsorship of the project and by terms granting rhe private entity the exclusive right to provide the infrastructure 

services. 

36. An extensive treatment of public-private partnerships in transportation can be found m Department of Transportation, Report to 

Congres.s on Pub/it-Private Partn.erships (December 2004), ava.ilable at \vww.fhwa.dot.gov/reports/pppdec2004/index.htm. 

tract award that favored the private sector over taxpayers. 

Furthermore, profit-driven behavior in the private sector 

may sometimes not be compatible with public goals for 

infrastructure (for instance, e!"suring access to all). 

Finally, if the private entity responsible for a particular 

type of public infrastructure fails to complete the project, 

the government may need to step in to provide services. 

According to a regularly cited survey, the cumulative 

project costs of public-private partnerships in the United 

States that had been funded or completed by October 

2006 totaled a bit over $48 billion (in nominal dollars)J? 

In contrast, nominal capital spending on infrastructure 

by the federal government and states and localities totaled 

$1.6 trillion between 1985 and 2004 (averaging $80 billion annually). Hence, public-private parmerships-and 

the amount of private-sector funds committed to themhave not accounted for a significant share of public infrastructure spending in the United States. Other studies 

have come to a similar conclusion for highway and transit 

projects. 38 

37. The figure is based on data from the 2006 International Major 

Projecrs Survey, v.-hich accompanied Public Works Financing, 

voL 209 (October 2006). The data have imponam limitations: 

For the purposes of this analysis in particular, they do not distinguish berween the public- and private-sector components of such 

project~. More generally; the data wete nor collected to provide an 

exhaustive inventory of pub!ic~private partnerships and, as a 

result, probably understate the extent of them. 

38. See General Accounting Office, Private Sector Sponsorship and 

Investment in Major Pro;ects Has Been Limited, GA0~04-419 

(March 2004). 
301 


26626.270

Appendix: 

Spending on Transportation and 

Water Infrastructure Since 1956 

The tables in this appendix provide the amounts spent year by year on transportation and water infrastructure since 

1956 and are the basis for the figures that appear in the text. 
302 


26626.271

20 TI!ENDS IN PLJBUC SPENDL'G ON 1R>\NSPORTATION AND WATER INFRASTRUCTURE, 1956 TO 2004 

Table A·1. 

Public Spending on Infrastructure, 1956 to 2004 

(Millions of 2006 dollars) 

Federal State and Local 

Total Amount Percent Amount Percent 

1956 105,628 15,998 15.1 89,630 84.9 

1957 113,215 18,713 16.5 94,503 83.5 

1958 120,683 24,032 19.9 96,651 80.1 

1959 133,742 36,972 27.6 96,769 72.4 

1960 131,273 40,100 30.5 91,173 69.5 

1961 136,779 38,531 28.2 98,247 71.8 

1962 138,190 39,047 28.3 99,143 71.7 

1963 146,238 41,600 28.4 104,638 71.6 

1964 149,125 45,746 30.7 103,379 69.3 

1965 153,831 48,767 31.7 105,064 68.3 

1966 156,140 47,603 30.5 108,537 69.5 

1967 157,852 46,653 29.6 111,199 70.4 

1968 157,794 46,439 29.4 111,355 70.6 

1969 159,029 44,767 28.2 114,262 71.8 

1970 156,969 43,437 27.7 113,532 72.3 

1971 164,791 47,591 28.9 117,200 71.1 

1972 168,620 47,071 27.9 121,549 72.1 

1973 163,206 48,415 29.7 114,791 70.3 

1974 158,743 48,785 30.7 109,958 69.3 

1975 170,699 52,877 31.0 117,822 69.0 

1976 173,644 62,419 35.9 111,225 64.1 

1977 173,609 66,496 38.3 107,113 61.7 

1978 177,147 64,658 36.5 112,489 63.5 

1979 189,598 68,504 36.1 121,094 63.9 

1980 196,318 74,060 37.7 122,258 62.3 

1981 194,547 70,478 36.2 124,070 63.8 

--------------------------------------------------------------- Continued 
303 


26626.272

APPE.~lHX 1RENDS IN PL'BUC SPFJ~DING ON 'ffiANSPORTATION .1\ND WAlER INFRASTRUCWRE, 1956 TO 2004 

Table A·1. 

Continued 

·------------------------------------------------------- -------

Federal State and local 

Total Amount Percent Amount Percent 

1982 185,053 59,417 32.1 125,636 67.9 

1983 187,699 56,140 29.9 131,559 70.1 

1984 192,071 58,292 30.3 133,779 69.7 

1985 202,740 60,744 30.0 141,996 70.0 

1986 213,993 61,951 29.0 152,042 71.0 

1987 220,775 55,150 25.0 165,624 75.0 

1988 228,880 56,514 24.7 172,366 75.3 

1989 233,906 55,562 23.8 178,344 76.2 

1990 239,220 56,728 23.7 182,491 76.3 

1991 237,175 57,159 24.1 180,016 75.9 

1992 243,268 60,049 24.7 183,219 75.3 

1993 245,042 59,871 24.4 185,171 75.6 

1994 253,712 62,384 24.6 191,328 75.4 

1995 258,517 62,859 24.3 195,658 75.7 

1996 260,850 61,779 23.7 199,071 76.3 

1997 268,005 62,118 23.2 205,887 76.8 

1998 274,113 62,910 23.0 211,203 77.0 

1999 283,936 65,339 23.0 218,597 77.0 

2000 290,518 68,180 23.5 222,338 76.5 

2001 305,811 77,956 25.5 227,855 74.5 

2002 317,570 81,146 25.6 236,424 74.4 

2003 319,110 77,934 24.4 241,176 75.6 

2004 312,217 73,517 23.5 238,700 76.5 

Source: Congressional Budget Office. 

Note: State and local spending is reported net of federal grants and loan subsidies. Those data do not include expenditures on freight rail or, 

after 1990, water resources. 

21 
304 


26626.273

22 TI<E~llS IN PUBUC SPENDING ON 1RANSPOIITATION AND WATER INFRASTRUCilJRE, 1956 TO 2004 

TableA-2. 

Federal Spending on Infrastructure as a Share of Nondefense Expenditures, 

1956 to 2006 

(Percentage) 

Share of Share of 

Share of Total Nondefense Share of Total Nondefense 

Federal Spending Expenditures Federal Spending Expenditures 

1956 2.6 6.5 1982 3.7 4.9 

1957 2.9 7.1 1983 3.3 4.5 

1958 3.5 8.2 1984 3.4 4.7 

1959 4.9 10.4 1985 3.3 4.5 

1960 5.3 11.2 1986 3.3 4.6 

1961 5.0 10.2 1987 3.0 4.2 

1962 4.8 9.4 1988 3.0 4.1 

1963 5.0 9.6 1989 2.8 3.9 

1964 5.3 9.8 1990 2.8 3.6 

1965 5.8 10.1 1991 2.7 3.4 

1966 5.2 9.2 1992 2.8 3.6 

1967 4.6 8.3 1993 2.8 3.6 

1968 4.2 7.8 1994 2.9 3.6 

1969 4.2 7.6 1995 2.9 3.6 

1970 4.2 7.1 1996 2.8 3.4 

1971 4.6 7.3 1997 2.8 3.4 

1972 4.4 6.6 1998 2.8 3.4 

1973 4,5 6.5 1999 2.9 3.5 

1974 4,5 6.4 2000 3.0 3.6 

1975 4.4 6.0 2001 3.4 4.1 

1976 4.9 6.5 2002 3.4 4.1 

1977 5.1 6.7 2003 3.1 3.9 

1978 4.7 6.1 2004 2.9 3.6 

1979 4.9 6.3 2005 2.9 3.6 

1980 5.0 6.4 2006 2.9 3.5 

1981 4.5 5.9 

Source: Congressional Budget Office. 
305 


26626.274

APPE~ll!X '!RENDS IN PUBllC SPE.\ll!NG ON 1RANSPORTATION Mll WATER INFR\STRUCTIJRE, 1956 TO 20<14 23 

Table A-3. 

Public Spending on Infrastructure as a Percentage of Gross Domestic Product, 

1956 to 2004 

Operation and Operation and 

Total Capital Maintenance Total Maintenance 

1956 2.58 L58 1.00 1981 2.66 1.22 1.43 

1957 2.73 1.67 L06 1982 2.SB l.lS 1.43 

19SB 2.92 L84 LOB 19B3 2.S1 1.09 1.42 

19S9 3.06 1.93 1.13 19B4 2.41 LOS 1.36 

1960 2.94 LBO 1.15 19B5 2.46 L09 1.36 

1961 3.04 l.B4 1.20 1986 2.S2 1.14 1.3B 

1962 2.94 l.B1 1.13 1987 2.54 1.17 1.38 

1963 3.02 1.85 1.17 19B8 2.S2 1.17 1.35 

1964 2.93 1.81 1.12 19B9 2.48 1.14 1.3S 

196S 2.B7 1.76 l.ll 1990 2.51 1.14 1.36 

1966 2.78 1.69 1.10 1991 2.48 l.lS 1.33 

1967 2.80 1.69 l.ll 1992 2.46 l.ll l.3S 

1968 2.70 1.60 l.lO 1993 2.42 1.07 1.35 

1969 2.68 l.S7 l.ll 1994 2.42 LOS 1.37 

1970 2.71 l.S4 1.17 199S 2.42 LOS 1.37 

1971 2.82 l.S9 1.23 1996 2.36 1.02 1.34 

1972 2.78 LS7 1.21 1997 2.33 1.00 1.33 

1973 2.S9 1.41 1.18 1998 2.30 1.00 1.30 

1974 2.57 1.38 1.19 1999 2.31 1.03 L28 

197S 2.79 1.48 1.31 2000 2.33 L06 1.27 

1976 2.70 1.41 1.29 2001 2.45 1.11 1.34 

1977 2.60 1.26 1.34 2002 2.S2 1.16 1.36 

197B 2.49 1.16 1.33 2003 2.51 1.16 1.36 

1979 2.S9 1.27 1.32 2004 2.40 l.lO 1.30 

19BO 2.73 L36 1.37 

Source: Congressional Budget Office. 

Note: Data on state and local spending do not fndude expenditures on freight rail or, after 1990, water resources. 
306 


26626.275

24 TRENDS IN PUBUC SP&.'Il!NG ON IR>\NSPQIITATION AND WATER li>TRASTRUCTURE, 1956 TO 2004 

TableA•4. 

Public Spending for Infrastructure Capital and Related Operation and 

Maintenance, 1956 to 2004 

(Millions of 2006 dollars) 

eae~al Oj!eration and Maintenance 

Total Amount Percent Amount Percent 

1956 105,628 64,694 61 40,934 39 

1957 113,215 69,315 61 43,901 39 

1958 120,683 75,905 63 44,777 37 

1959 133,742 84,583 63 49,159 37 

1960 131,273 80,320 61 50,953 39 

1961 136,779 82,999 61 53,780 39 

1962 138,190 85,107 62 53,083 38 

1963 146,238 89,740 61 56,498 39 

1964 149,125 92,258 62 56,867 38 

1965 153,831 94,710 62 59,121 38 

1966 156,140 94,896 61 61,244 39 

1967 157,852 95,461 60 62,391 40 

1968 157,794 93,864 59 63,930 41 

1969 159,029 93,762 59 65,268 41 

1970 156,969 89,581 57 67,388 43 

1971 164,791 93,828 57 70,963 43 

1972 168,620 95,728 57 72,892 43 

1973 163,206 89,414 55 73,792 45 

1974 158,743 85,390 54 73,354 46 

1975 170,699 91,267 53 79,432 47 

1976 173,644 91,116 52 82,528 48 

1977 173,609 84,176 48 89,433 52 

1978 177,147 82,950 47 94,197 53 

1979 189,598 93,086 49 96,511 51 

1980 196,318 97,973 50 98,345 so 1981 194,547 90,080 46 104,468 54 

---------------------- ------------- -------------------------- Continued 
307 


26626.276

APPENDL"'< 1RENDS IN PliBUC SPL'l'DmG ON TMNSPORTATION AND WATER INFRASTRUCTURE, 1956 TO 2004 25 

Table A·4. 

Continued 

·--------------------------------------------------------------- Capital Oeeration and Maintenance 

Total Amount Percent Amount Percent 

1982 185,053 82,615 45 102,438 55 

1983 187,699 81,867 44 105,833 56 

1984 192,071 83,746 44 108,325 56 

1985 202,740 90,474 45 112,266 55 

1986 213,993 97,010 45 116,983 55 

1987 220,775 101,297 46 119,477 54 

1988 228,880 106,175 46 122,706 54 

1989 233,906 107,040 46 126,865 54 

1990 239,220 109,223 46 129,997 54 

1991 237,175 109,731 46 127,444 54 

1992 243,268 109,879 45 133,389 55 

1993 245,042 108,533 44 136,509 56 

1994 253,712 110,036 43 143,677 57 

1995 258,517 111,896 43 146,622 57 

1996 260,850 112,546 43 148,304 57 

1997 268,005 115,366 43 152,640 57 

1998 274,113 119,438 44 154,675 56 

1999 283,936 126,958 45 156,978 55 

2000 290,518 131,752 45 158,766 55 

2001 305,811 138,693 45 167,118 55 

2002 317,570 145,867 46 171,703 54 

2003 319,110 146,935 46 172,175 54 

2004 312,217 143,557 46 168,659 54 

Source: Congressional Budget Office. 

Note: Data on state and local spending do not include expenditures on freight rail or, after 1990, water resources. 
308 


26626.277

26 TI<ENDS IN PUBUC SPa-1JING ON lRANSPDRrATION AND WATER L'l'RASTRVCfURE, 1956 TO 2004 

Table A-5. 

Federal Spending for Infrastructure Capital and Related Operation and 

Maintenance, 1956 to 2006 

(Millions of 2006 dollars) 

Capital Operation and Maintenance 

Total Amount Percent Amount Percent 

1956 15,998 11,903 74 4,095 26 

1957 18,713 14,140 76 4,572 24 

1958 24,032 20,408 85 3,624 15 

1959 36,972 30,969 84 6,003 16 

1960 40,100 33,692 84 6,407 16 

1961 38,531 31,437 82 7,094 18 

1962 39,047 32,382 83 6,665 17 

1963 41,600 34,405 83 7,195 17 

1964 45,746 38,525 84 7,221 16 

1965 48,767 40,545 83 8,222 17 

1966 47,603 39,260 82 8,342 18 

1967 46,653 38,019 81 8,634 19 

1968 46,439 37,353 80 9,086 20 

1969 44,767 35,212 79 9,555 21 

1970 43,437 33,310 77 10,127 23 

1971 47,591 35,712 75 11,880 25 

1972 47,071 35,357 75 11,714 25 

1973 48,415 35,698 74 12,718 26 

1974 48,785 36,655 75 12,130 25 

1975 52,877 38,647 73 14,230 27 

1976 62,419 46,545 75 15,873 25 

1977 66,496 50,219 76 16,277 24 

1978 64,658 46,773 72 17,884 28 

1979 68,504 51,013 74 17,490 26 

1980 74,060 55,400 75 18,660 25 

1981 70,478 47,922 68 22,556 32 

·--------------------------------------------------------------- Continued 
309 


26626.278

APPFJ-UH:X TRENDS IN PL'BUC SP!Th-'DL~G ON TRANSPORTATION AND WATER INFRASTRUCTIJRE, 1956 TO 2004 27 

TableA•S. 

Continued 

·--------------------------------------------------------------- Capital Operation and Maintenance 

Total Amount Percent Amount Percent 

1982 59,417 42,352 7l 17,065 29 

1983 56,140 40,818 73 15,322 27 

1984 58,292 43,083 74 15,209 26 

1985 60,744 45,612 75 15,132 25 

1986 61,951 47,752 77 14,199 23 

1987 55,150 41,313 75 13,837 25 

1988 56,514 42,571 75 13,943 25 

1989 55,562 41,074 74 14,488 26 

1990 56,728 42,475 75 14,253 25 

1991 57,159 42,820 75 14,339 25 

1992 60,049 43,508 72 16,541 28 

1993 59,871 44,103 74 15,768 26 

1994 62,384 44,828 72 17,556 28 

1995 62,859 45,348 72 17,511 28 

1996 61,779 44,552 72 17,228 28 

1997 62,118 43,942 7l 18,176 29 

1998 62,910 45,959 73 16,951 27 

1999 65,339 49,135 75 16,204 25 

2000 68,180 52,829 77 15,352 23 

2001 77,956 58,673 75 19,283 25 

2002 81,146 62,242 77 18,904 23 

2003 77,934 59,259 76 18,675 24 

2004 73,517 56,332 77 17,185 23 

2005 73,646 55,102 75 18,544 25 

2006 56,344 74 26 

Source: Congressional Budget Office. 
310 


26626.279

28 1RE~'DS IN P!JBUC SPF.,'DING ON mANSPORTATION AND WATER INH<ASTRUCfiJRE, 1956 TO 2004 

Table A·&. 

State and Local Spending for Infrastructure Capital and Related Operation and 

Maintenance, 1956 to 2004 

(Millions o12006 dollars) 

Capital Operation and Maintenance 

Total Amount Percent Amount Percent 

1956 89,630 52,791 59 36,839 41 

1957 94,503 55,174 58 39,328 42 

1958 96,651 55,497 57 41,154 43 

1959 96,769 53,613 55 43,156 45 

1960 91,173 46,627 51 44,546 49 

1961 98,247 51,561 52 46,686 48 

1962 99,143 52,725 53 46,418 47 

1963 104,638 55,335 53 49,303 47 

1964 103,379 53,733 52 49,647 48 

1965 105,064 54,165 52 50,899 48 

1966 108,537 55,635 51 52,901 49 

1967 111,199 57,441 52 53,758 48 

1968 111,355 56,511 51 54,844 49 

1969 114,262 58,549 51 55,713 49 

1970 113,532 56,271 so 57,261 so 1971 117,200 58,116 so 59,083 so 

1972 121,549 60,371 so 61,179 50 

1973 114,791 53,717 47 61,074 53 

1974 109,958 48,735 44 61,223 56 

1975 117,822 52,620 45 65,202 55 

1976 111,225 44,571 40 66,654 60 

1977 107,113 33,957 32 73,155 68 

1978 112,489 36,177 32 76,312 68 

1979 121,094 42,073 35 79,021 65 

1980 122,258 42,573 35 79,685 65 

1981 124,070 42,158 34 81,912 66 

--------------------------------------------------------------- Continued 
311 


26626.280

APPENDIX TRENDS IN PUBUC SPENDING ON TRANSPORTATION M'D WATER lli'FRASTRUClURE, 1956 TO 2004 29 

Table A·&. 

Continued 

·--------------------------------------------------------------- Capital O~eration and Maintenance 

Total Amount Percent Amount Percent 

1982 125,636 40,263 32 85,373 68 

1983 131,559 41,049 31 90,511 69 

1984 133,779 40,663 30 93,116 70 

1985 141,996 44,862 32 97,134 68 

1986 152,042 49,258 32 102,784 68 

1987 165,624 59,984 36 105,640 64 

1988 172,366 63,604 37 108,763 63 

1989 178,344 65,967 37 112,378 63 

1990 182,491 66,747 37 115,744 63 

1991 180,016 66,911 37 113,105 63 

1992 183,219 66,371 36 116,848 64 

1993 185,171 64,430 35 120,741 65 

1994 191,328 65,207 34 126,121 66 

1995 195,658 66,548 34 129,110 66 

1996 199,071 67,994 34 131,077 66 

1997 205,887 71,424 35 134,464 65 

1998 211,203 73,479 35 137,724 65 

1999 218,597 77,823 36 140,774 64 

2000 222,338 78,923 35 143,415 65 

2001 227,855 80,D20 35 147,835 65 

2002 236,424 83,625 35 152,799 65 

2003 241,176 87,677 36 153,500 64 

2004 37 151,474 63 

Source: Congressional Budget Office. 

Note: State and local spending Is reported net of federal grants and loan subsidies. Those data do not include expenditures on freight rail or, 

after 1990, water resources. 
312 


26626.281
313 


26626.282

The United States Conference of Mayors 

Beverly O'Neill, Mayor of Long Beach, C4 

President 

Michael A. Guido, Mayor of Dearborn, MI 

Vice President 

Douglas H. Palmer, Mayo,. ofT renton, Nj 

Advisory Board Chair 

Martin J, Chavez, Mayor ofA!buquerque, NM 

Chairman, Urban Water Council 

J, Thomas Cochran 

Executive Director 

Acknowledgement The U.S. Conference of Mayors' Urban Water Council would like to acknowledge 

and thank the 414 city Mayors and their staff who provided survey information for this report. 
314 


26626.283

THE U.S. CONFERENCE OF MAYORS URBAN WATER COUNCil 

National 

City ater 

Survey 

2005 

A Report Prepared 

by The United States 

Conference of Mayors 

Urban ~ter Council 

November 15, 2005 

Washington, D.C. 

Prepared by: 

Richard F. Anderson, Ph.D. 

Senior Advisor, Urban Water Council 

Brett Rosenberg 

Environmental Programs Associate 

Judy Sheahan 

Assistant Executive Director 
315 


26626.284

Executive Summary 

The United States Conference of Mayors' Urban Water Council (Lf\XTC) conducted a survey of the nation's 

principal cities to examine water resources priorities and trends. Mayors were asked in the survey to provide 

current infOrmation in four key vt<ater resources areas: issues and priorities; recent and planned major capital 

investments in water and wastewater intfastructure; adequacy ofwarer supplies; and) water conservation acrivitlcs. The 

UWC has tracked these four areas (and other subjects) of concern for over a decade. 

The survey was distributed to nearly I ,200 cities with mayoral forms of government. These are considered the 

nariorls principal cities because they have populations of 30,000 or greater. Nearly 35 percent of tllt": principal cities 

(414 dries) responded to the survey~ and form the basis for this report. Tht': survey re.o;;ponse, in this case, "\vas greater 

than usuaL Thus, the survey information provides robust data base. 

Water Priorities and Issues 

The top priorities identified~ measured by frequency of survey response, in dude a combination of chronic "every-dal 

problems a.s.sociated with maintaining and rehabilltar.ing aging water and wastewater infrastructure, and a nwnber of 

priorities associated with potential "catastrophic events", (see Table 2). 

1111 The chronic "every-day" problems include the number one priority-aging infrastructure (identified by 60.6 

percent of the survey citie!i) and priori des four and five; permirs and regulatory issues (also referred to as 

unfunded federal mandates, at 45.2 percent), and water quality (42.3 percent), respecth·dy. 

• The potential "catastrophic event<>'' issues include the number two priority: water infrastructure security 

(54,6 percent)~ the number six priority, flooding (38.4 and the numher seven priority, emergency 

planning and management for storms and hurricanes pt"rcent). 

1111 Concern over water supply availability was identified as the third highest priority (46A percent); three 

other related priorities were identified among the top ten concerns: drought management (32.6 percent); 

regional con!lict over water use (26.8 percent); and, water rights (25.1 percent). 

Water and Wastewater Infrastructure Investment and Financing The nation's principal cities are engaged in wide ranging and significant investment in building and rehabilitating the 

five major forms of water and wastewater infrastructure during this decade: water supply; water treatment plants; 

water distribution systems; wastewater treatment plants; and, wa.o;;tewater collection systems~ (see Tables 4-B and 5). 

1 

II 92 percent of the survey cities made major 

2004; 92 percent of the cities plan to make 

investments in 'vater infrastructure benveen 2000 and 

capital investments between 2005 and 2009. 

II 23 percent of the smvey cities made simultaneous major capital investments in all five water infrastructure 

categories. 

R Significant investment in underground infrastructure has been made or planned: 

83.7 perce.nt of ddes invested in water distribution pipes1 and 72.2 percent of cities invested in waste-

'IVat:er collection pipes during the f1rst half of the decade. 

79.0 percent of cities plan investment in water distribution pipes, and 69.8 percent of cities plan 

investments in wastewater collection pipes for tbe second half of the decade. 
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• Roughly one-half of the survey cities either made or plan major capital investments in water supply, water 

treatment plants and wastewater treatment plants, 

• Many smaller cities made or plan water infrastructure investment during this decade, but clearly a higher 

proponion oflarge and medium size cities are making investments than smaller cities. 

Traditional municipal financing methods continue to dominate city water infrastructure capital investments (see 

Tables 6, 7 and 8): 

• A small majority of cities (52.3 percent) relied on a single-source for water infrastructure financing in 

the first half of the decade, but a small majority of cities (53.5 percent) plan to use multiple-source financing during the second half of the decade. 

• The financing method used most frequently by the survey cities was the category "other," which was described as "Pay-As-You-Go." This approach relies on user charges, rate increases and capital reserves 

generated from user charges. 21.0 percent of the survey cities relied on a Pay-l\s-You-Go single-source 

finance merhod berween 2000 and 2004; Pay-As-You-Go was used in combination with other financing methods hy 51.7 percent of the survey cities. 

• In descending order of frequency, the following multi-source financing methods are used by cities for water 

infrastructure investments: Pay-As-You-Go, 51.7 percent; revenue bonds, 46.1 percent; State Revolving Fund 

(SRF) loans, 38.3 percent; general obligation bonds, 28.8 percent; and, private activity bonds, 0.8 percent. 

Adequacy of City Water Supply 

Water supply availability was identified as the third top priority hy the survey cities. For the most pan, cities ny to be 

self-sufficient when it comes to water supplies. ]\vo-thirds of the survey cities provide their own warer supply; and 

roughly 19 percent of the cities are served by private water companies. Some cities face a convergence of issues, 

including drought management, water rights, inter-basin rransfers, ground water depletion, and regional conflict 

over water use that may impact their ability to provide adequate and affordable water in their communities. 

• 55.6 percent of the survey cities indicated that they have an adequate water supply for more than 20 years, 

(see Table II). 

• 3'5 percent of the survey cities indicated that they have an adequate water supply for less than 20 years, they 

could face a critical water shortage by 2025. 

• Water shortages may be more pronounced in medium size cities. 

Sixty-nine percent of the cities that do not have adequate water supplies for more than 20 years have made major 

capital investments in water supply infrastructure between 2000 and 2004 (see Table 12). 

City Water Conservation Activities 

The potentiaJ for cities to experience critical water shortages in 2015 and 2025 elevates the importance of water 

conservation activities. Even if cities do not face a critical water shortage it makes good economic and environmental 

sense to conserve water resources. The survey findings indicate that cities are currently actively engaged in water 

conservation programs. See Tables 13 through 15. 

• Two-thirds of the survey cities indicated they had water conservation plans in place. A high proportion of 

large cities (about 80 percent) indicated they had programs. The proportion of smaller cities with conserva· 

tion programs was lower (58.6 percent). 

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II Cities were three times more likely to have water conservation programs where V."'J.ter supply infrastructure 

investments were made in the period 2000 to 2004. 

1111 Ciries planning to make major capital investments in water supply infrastructure for the period 2005 

to 2009 are nearly four times as likely to have an cstabHshed water conservation program. 

fl. 1\vo svs;tent·wide methods that can be effective in v.rater conservation programs are automated meters because use and billing; and altering \Vater rate structures as a demand~man:agernent moL 

Traditional water meters remain the most common conservation technique, employed by 72.5 percent 

of the survey cities. However) 68.8 percent of the cities indicated they would consider modernizing 

wh:h automated water meters if they could save water or money. 

\'Vhik the number of cities altering water rate structures is fairly constant over the three population 

size the proportion of cities employing the technique is dearly related to increasing population size 15). Almost half of the larger cities use the technique, while only about 40 percem 

of medium size dries and about 30 percent of smaller size cities do. 

Introduction 

The Urban Water Council (UWC) is a Task Force ofThe U.S. Conference of Mayors. It is open to all Mayors, 

and its purpose is to provide a forum for discus-sion of issues in1pacting how dries provide and protect community water and wastewater services. Some of the issues that the UWC focuses on include: developmcnr and 

rehabilitation of surface and subsurface water infrastructure; water infrastructure financing; watershed management; 

water supply planning; water conservation; wedands construction :and education progra1ns; and water system program 

management and asset management. Additionally, the lJWC serves as an educational clearinghouse fur cities by 

compiljng and disseminating water resources "Best. Practices." 

Periodically, the U\'VC conducts national determine trends in water resources programs and planning 

in the nation's large population cities. the surveys conducted ove.r the last decade address spedfi!.· 

areas of cnncern regarding water resource issues are prominent at any given time. This report is intended to 

identify trends in 2005 from and their cities participating in the survey. 

The 2005 survey on four areas of concern: general \\rater problems and prioritie!l; infrastructure 

investments; water supply issues; and water conservadon measures. These are briefly described below. 

General Wlzter Priorities and Problems 

asked to idendf), which of 24 water resources issues is either a current or future problem for their cities. 

of 24 water resources issues was derived from discussions \\ith Mayors and their staffS, as well as consultation 

with federal agencies. The Jist was nor intended to be, comprehensive. An 'other' response category was included to 

allow cities to identifY issues that were not on the pre-selected list, Mayors '"->ere also asked ro rank the five most 

pressing water resources issues on the list. This convention was intended to distinguish prioritie-5 among the problem 

issues, providing invaluable information for federal policy discussions. 

Wlzter and Wastewater Infrastructure Investment 

Warer and '\Vastewater infrastructure developmem, rehabilitation and financing have been critical concerns fot the 

UWC since irs inception in 1995. The American Society of Civil Engineer's Report Card on Infrastructure suggests 

that water and ~'<lStewater infrastructure is in serious nee-d of rehahiHtation in America. The US EPA estimates that 

new investment necessary to comply with existing law will cost more than $534 billion by the year 2019. Conven· 

tional wisdom suggests that local government f3.r outspends state and federal government for water and wastewater 

infrastructure in the Unit:ed States. 

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Mayors were asked to respond to questions concerning five categories of major capital investments in the past 5 

years (2000-2004) and the next 5 years (2005-2009). The five categories include: water supply; water treatment plant; 

water distribution systems; wastewater treatment plant; and, wastewater collection !>)'Stems. 

Additional questions focused on how the cities did or will finance these projects. The major forms of financing 

include: gener-al obligation bonds, revenue bonds, the Clean Water Act or Safe Drinking Water Act State Revolving 

Fund loan programs (SRF); private activity bonds; and 'other'. It is common for cities to use multiple forms of 

financing on major capital investments in water related projects. A special focus was placed on the use of SRF financing to determine its extent in capital spending. An open-ended question asked cities to explain why they do not rely on 

the SRF financing option. 

W'ater Supply 

The U.S. Geological Survey (USGS) recently reported that suhstantial reductions in water consumption have 

been achieved in both the agricultural and industrial sectors in the United States since 1985. Water consumption 

related to electricity production remains stable and accounts for the greatest single category of use. The municipal 

sector, however, is the only sector that continues to grow. The USGS estimates that municipal water use has increased 

25 percent since 1985. The USGS suggests that growth in this sector tracks population growth, in spire of reduced 

consumption due to water conservation programs. 

The survey asked Mayors to identif).r whether their water supplies are owned by the dry, or if they contract with 

a private water provider. Similarly, the survey asked Mayors if they or their private water provider has established and 

implemented a water supply plan. 

The survey also asked Mayors if their cities have an adequate future water supply for the next 10, 20 or greater 

than 20 years. Additional questions were geared toward determining if city water supplies rely on groundwater, surface 

water, or some combination. finally, the survey asked if cities were contemplating shifting water supply from groundwater to surface water. 

W'ater Conservation 

Cities may face future water shortages because there is a tl.nite supply of potable water and the population of the 

United States continues w increase. Therefore, in order to avert crirical shonages that would adversely impacr local 

and regional economics, and most certainly impact the quality of life for our citizens it is imperative that cities establish, implement and succeed in their water conservation programs. Water conservation is a hedge against water shortages. 'JV'hile it will not prevent water shortages, it has considerable potential to forestall critical shortages and buy the 

time necessary w advance technology, market forces and federal, state and local policy developmeuts to ensure adequate and afl-Ordable water supplies in the future. 

Similar to the water supply questions asked in the survey, the water conservation questions asked Mayors if they 

or their private water provider have estahlished and implemented water conservation programs. Mayors were asked if 

their city administration operates a water conservation department. 

Other questions were intended to determine if cities were actively experimenting with conservation. For example, Mayors were asked if their cities were altering water use rate structures as a form of demand management. 

They were also asked if they were modernizing meter technology to accurately au cUr and bill water consumption. 

Materials and Methods 

The United States Conference of Mayors (USCM) represents cities with populations of 30,000 or greater. There are 

roughly 1,200 dries in this size category, and the Urban Water Council (lJWC) conducted a saturation survey, (including all cities in this population group, regardless of whether or not they were members of the USCM). 

T'he survey (Attachment A) was mailed or faxed to the Mayor's office in each city. Mayors were asked to fill out 

the survey questionnaire and either mail or fax them back to the UWC. The survey was also available on the USCM 

website, and could be filled our and transmitted via a web-based format. Roughly one half of the 414 responding cities 

provided their response information via the internet. 

The 414 city respondents were categorized by population size (Table 1) in order to examine some of the findings 

relative to size of city. The categories were delineated as follows: 170 smaller cities (41 percent); 140 medium sized 

cities (34 percent); 1 04large cities (25 percent). 

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Table 1 

414 City Survey Respondents Categorized 

By Population Size (City Size) 

Sort by Population Size (%) 

Smaller Cities 

- Less Than 50,000 41 

Medium Cities 

- 50,000 to 100,000 34 

Large Cities 

- Greater Than 100,000 25 

Follow-up efforts involved one or more telephone calls to urge Mayors to respond to the survey questionnaire in 

the case of survey non-response. Additionally, telephone follow-up wa..'> conducted ro improve question non-response. 

Telephone interviews were conducted with half a dozen cities that submitted multiple survey responses. Each of these 

cases was dealt 'vith by questioning the Mayor or the Mayor's representative about which survey responses were correct 

and should be .included in rhe tabulation of findings. These cases involved situations where the city might own/operate 

either the water or wastewater treatment facilities, and/or a private water service provider might be involved. In each 

case, the convention followed was to include the priorities and informadon provided by the Mayor's office; or, based 

on rhe Mayor's advice, include the private water service provider's information. 

The survey questionnaire information was computer coded for data input. Statisrical analyses were performed via 

a mixture of applying the Statistical Package for the Social Sciences software (SPSS), or by applying statistical procedures provided in Microsoft ExceL Simple frequencies of data distributions and arithmetic averages were calculated 

and reported, as appropriate. Bivariate analyses involved sorring and filtering and the application of crosstabulations 

for descriptive purposes. Special attention was paid to open-ended questions. The convention used for analyzing these 

variables was to review each response and construct broad categories of similar responses. Professional judgment was 

used in these cases; and multiple reviews of the same responses conducted. 

Attachment A reports the percentage of cities a.n~wering individuaJ questions. The percentages reponed were 

based on 414 cities, the total sample of survey respondents. The reader is cautioned here that the text of this reporr and 

the tables presenrcd may vary from reliance on the 414 cities as the denominawr in calculating percentages. Each 

"Table'' of findings will indicate the "N", or number of cases (cities) used to make the calculations presented in the 

table if it does not rely on the full 414 city responses. For example, in Table 3 the percentage of cities making infrastructure investments in a parricular category is based on the total number of cities making water and wastewater 

infrastructure investment for that time period. 

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Findings 

City Water Resource Priorities 

General Water Issues and Priorities 

Mayors were asked to identifY which of 24 water resources issues is either a current or future issue o: priority for 

their cities. The list of issues was derived from discussions with Mayors and their staffs, as well as consultation 

with federal agencies. The list was not intended to be comprehensive. An 'other' response category was included 

to allow cities to identifY issues that were listed. 

The sunrey cities identified their water resource issues and priorities, which are listed in Table 2 in descending 

order of frequency. The top three priorities were: aging infrastructure (60.6 percent); water system security (54.6 

percent); and, warer supply availability (46.4 percent). These findings indicate that cities are concerned about a mixture of ~every-day,' problems and "catastrophic events." 

The most frequently identified priority is aging water resources infrastructure. This is a chronic or "every-day" 

problem experienced by many cities. Mainraining and replacing existing water infrastructure has long been a critical 

challenge for cities. The cosr of maintenance and replacement is considerahle. The U.S. Environmental Prorecrion 

Agency (US EPA) has estimated a water and wastewater infrastructure "Needs Gap" of over $500 billion in invesnnent 

to comply with water laws by the ye.r 2019. 

Another ~every~day" problem chat is high on the priority list is ensuring an adequate water supply. This was 

identified by 46.4 percent of the survey cities, and ranked number three on the list of24 issues. Other issues related to 

water supply were among rhe top ten priorities identified: drought management; regional conflict over water use; and 

water rights. Additionally, the 11th and 13th priority issues were related to water supply, i.e., ground warer depletion 

and inter-basin transfers, respectively. 

The second most frequently identified priority was water infra.~trucrure security and protection; this is generally 

viewed by cities as a potentially "catastrophic event" issue. This has become an important concern, especially since 

the 9111 terrorist attacks in the United States. Congress and the USEPA have directed resources toward vulnerability assessments at large and medium sized water supplies and distribution systems. Both public and private 

water suppliers have been aggressively developing vulnerability plans in an attempt to secure water supplies from 

chemical and biological sabotage. 

Other ncatastrophic event" issues included the 6th and 7rh priorities: flooding, and emergency planning 

and management for storms and hurricanes, respectively. Note that the survey was conducted in tbe first quarter of 

2005, long before rhe hurricanes Katrina and Rita struck and devastated Gulf Coast communities. 

Permits and regulatory issues ranked as the 4th most important priority. This issue has been a subject of considerable concern to the Conference of Mayors for some time. It is generally considered a priority because it involves 

unfunded federal mandates chat arc extremely costly for cities to meet. Another recent survey conducted by the Conterence of Mayors identified unfunded federal water mandates as the single largest category of costs fucing the nation's 

principal cities. 

The top four priorities were examined based on city size {based on population). Aging infrastructure was identified as a priority by 40.4 percent of small cities, 33.6 percent of medium cirics, and 26 percent of large cities. 

Water system security was identified as a priority by 36.6 percent of small dries, 29.9 percent of medium cities, 

and 33.5 percent of large cities. Water supply availability was identified as a priority by 34.9 percem of small cities, 

33.9 percent of medium cities, and 31.2 percent of large cities. Permits and regulatory issues were identified as 

a priority by 35.7 percent for both small and medium cities, and 28.6 percent of large cities. Other than aging 

infrastructure, that appears to be especially problematic for small cities, the other three top ranking priorities do 

not substantially vary by city size. 

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Table 2 

City Water Resource Priorities 

Rank Order Water Resources Issue Percent Of Cities 

1 Aging Water Resources Infrastructure 60.6 

2 Security/Protection of Water Resources Infrastructure 54.6 

3 Water Supply Availability 46.4 

4 Permits, Regulatory Issues 45.2 

5 Water Quality of Urban Streams and Rivers 42.3 

6 Flooding 38.4 

7 Emergency Planning and Management for Storms, Hurricanes 34.3 

8 Drought Management 32.6 

9 Regional Conflict Over Water Use 26.8 

10 Water Rights 25.1 

11 Groundwater Depletion 23.4 

12 Sediment Management 19.6 

13 Inter-basin Transfers 16.2 

14 Best Practices Technology Transfer 13.0 

15 Endangered Species 11.6 

16 Loss of River Corridors;Green-space 10.6 

17 Loss of Wetlands 10.4 

18 Other 9.7 

19 Water Transportation (Channels, Ports, Dredging) 8.5 

20 Beach/Shoreline Erosion 7.5 

21 Neglected/Decaying Waterfront Areas 6.8 

22 Channel/Harbor Adequacy 4.8 

23 Insufficient Water-Oriented Recreation 3.9 

24 Waterborne Traffic 3.4 

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Water and Wastewater Infrastructure 

Investment and Financing 

Major Capital Investment 

The survey cities were asked w identifY the types of water infrastructure investment they made over the last five years, 

and what investments they are planning to make over the next five years. The investments were limited to major 

capital investments as detern1ined by the survey ciries. This information is intended to provide a broad view of water 

infrastructure investment by cities, encompassing a decade's worth of spending activity. Not surprisingly, cities have 

been very active in making water infrastructure investments. Ninety-two percent of the survey cities made major 

capital investments in water and wastewater infrastructure between 2000 and 2004; 92.0 percent of ilie survey cities 

plan to make similar infrastructure investments between 2005 and 2009. 

The survey findings indicate that cities are making extensive major capital investments in the underground (or 

sub-surface) infrastructure involving pipes (Table 3). 

• 83.7 percent of the responding cities made major capital investments in water distribution systems bet\veen 

2000 and 2004 

• 72.2 percent of the responding cities made major capital investments in sewage collection systems between 

2000 and 2004 

More than 50 percent of the responding cities made major capital investments in water supply, water treatment and 

wastewater treatment infrastructure bet\Veen 2000 and 2004. 

Table 3 

Major Capital Investments in City Water and Wastewater Infrastructure 

2000- 2004* 2005 - 2009 * * 

Infrastructure (% of Cities) (% of Cities) 

Water Supply 61.5 59.3 

Water Treatment Plant 56.5 49.6 

Water Distribution System 83.7 79.0 

Wastewater Treatment Plant 55.5 52.8 

Wastewater Collection System 72.2 69.8 

* Actual investments made by 382 cities, percentage of cities 

based on a total of 382 cites, not 414 cities. 

* * Planned investments by 381 cities, percentage of cities based on 

a total of 381 cites, not 414 cities. 

Water infrastructure investment planning over the next five years indicates a similar pattern of major capital 

spending. 

• 79.0 percent of the responding cities plan major capital investments in water distribution systems between 

2005 and 2009 

• 69.8 percent of the responding cities plan major capital investments in sewer colleccion systems between 

2005 and 2009 

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Roughly 50 percent of the responding cities plan major capital investments in water supply, water treatment and 

wastev.rater treatment infrastructure between 2005 and 2009. 

Actual (2000-2004) and planned (2005-2009) water infrastructure capital investments were examined to determine if city size (measured by population) had any effect on investment decisions. TWo comparisons were made. 

First, infrastructure categories for both actual and planned investment were sorred by city size (Table 4-A). For 

each category, the percentage of smalt medium and large cities was calculated. As expected, the smaller cities made 

up the higher proportions of investments with few exceptions. This was expected because the smaller cities represented 

41 percent of the survey city population. 

Table 4-A 

Major Capital Investments in City Water and 

Wastewater Infrastructure and Size of City 

Infrastructure Small Cities Medium Cities 

Category % % 

Actual Investments 2000-2004 

Water Supply 35.3 34.9 

Water Treatment Plant 35.8 34.9 

Water Distribution System 39.7 33.1 

Wastewater Treatment Plant 36.8 31.1 

Wastewater Collection System 38.2 33.1 

Planned Investments 2005-2009 

Water Supply 34.5 31.9 

Water Treatment Plant 36.0 32.0 

Water Distribution System 38.9 33.2 

Wastewater Treatment Plant 35.4 32.3 

Wastewater Collection System 37.6 33.8 

Large Cities 

% 

29.8 

29.3 

27.2 

32.1 

28.7 

33.6 

33.8 

27.9 

32.3 

28.6 

Second, each infrastructure category was sorted by city size represented by the proportion of cities in a particular 

city size category (Table 4-B). Thus, the calculation employed the use of the overall proportion of cities in a particular 

size category as the denominator. A trend (Table 4-B) indicated that as city size increased so did the percentage of cities 

making water infrastructure investment. This trend appears ro be more pronounced in the water supply. water treatment plants and wastewater treatment plants categories. The trend was slightly less pronounced for the infrastructure 

categories involving water and sewer pipes. While there may be a greater number of smaller cities making or planning 

water infrastructure investment, clearly, a higher proportion oflarge and medium size cities are making investments 

than smaller cities. 

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Table 4-B 

Major Capital Investments in City Water and 

Wastewater Infrastructure by Proportion of City Size Category 

Infrastructure Small Cities Medium Cities Large Cities 

Category % % % 

Actual Investments 200G-2004 

Water Supply 47.6 58.6 66.3 

Water Treatment Plant 44.7 54.3 60.6 

Water Distribution System 73.5 76.4 83.0 

Wastewater Treatment Plant 45.3 47.8 67.3 

Wastewater Collection System 61.8 65.7 75.0 

Planned Investments 2005-2009 

Water Supply 44.7 52.1 71.1 

Water Treatment Plant 38.8 40.7 61.5 

Water Distribution System 68.2 72.1 79.8 

Wastewater Treatment Plant 41.2 46.4 62.5 

Wastewater Collection System 58.2 64.3 72.1 

It is common for cities to make multiple investment commitments to the same category of water or wa<;rewater 

infrastructure over extended periods of time (Table 5). For example, 72.0 percent of cities making a major capital 

investment in water distribution systems in 2000 to 2004 also plan to make major capital investments in water 

distribution systems in 2005 w 2009. The other infrastructure categories exhibited similar but less intensive levels of 

repeat investment: 62.3 percent of cities plan repeat major capital investments in wastewater collection systems (sewer 

pipes); 47.9 percent in water supply; 45.5 percent in wastewater treatment plants; and 39.0 percent in water treatment 

plants. This finding indicates that the level of financial commitment to water infrastructure by cities is both significant 

and sustained. 

The survey data reveaJed that the level of ciry capital investment in water infrastructure is not only significant and 

sustained, but is in some cases rather broad. 23 percent of the survey respondents indicated that they had made 

simultaneous major capital investments in all five of the infrastructure categories listed in Table 3 between 2000 and 

2004. The proportion of cities that plan simultaneous major capital investments in all five infrastructure categories 

increases to 27.2 percent for tbe 2005 to 2009 period. 

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Table 5 

Percentage of Repeat City Major Capital Investments 

in Water Infrastructure by Category 

Investment 2000-2004 

Repeat Infrastructure and 2005-2009 

Investment (%of Cities)* 

Water Supply 47.9 

Water Treatment Plant 39.0 

Water Distribution System 72.0 

Wastewater Treatment Plant 45.5 

Wastewater Collection System 62.3 

* Percentage of cities based on a total of 382 cites, not 414 cities. 

Financing Mechanisms 

As mentioned above, 92 percent of the survey cities made major capital investments in water and wastewater infrastructure be <:ween 2000 and 2004. Of those cities, 97.4 percent reported the rype of financing employed. 

The survey responses were examined to determine how frequently rhe cities relied on single and multiple 

source financing, (Tables 6 and 7). Five categories of capital investment financing were considered in the survey. 

52.3 percent of cities relied on a single source of financing for their major capital investments in water and wastewater infrastructure. 

Table 6 

Frequency of Single-Source Financing 

Of Major Capital Investments in Water Infrastructure 

2000-2004 2005- 2009* 

Type of Financing (%of Cities) (%of Cities) 

General Obligation Bonds 9.4 7.3 

Revenue Bonds 15.9 13.9 

Private Activity Bonds 0.0 0.0 

State Revolving Fund 5.9 4.6 

Other 21.0 20.6 

Overall % of Cities Using 

Single·Source Financing 52.3 46.5 

* Planned major capital investments in water infrastructure. 

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"Other'' was the most frequently identified form of single-source financing, accounting for 21.0 percent of cities. 

Sunrey respondents described "other" financing to include: capital reserves from user charges; increased user rates; and 

transfer from the general fund. These are generally referred to by the survey respondents as "pay-as-you-go" approaches 

to financing. 

The second most frequently identified single-source financing category was revenue bonds, at 15.9 percent. 

General obligation bonds accounted for 9.4 percent; and the State Revolving Fund Loan (SRF) accounted for only 5.9 

percent. Private activity bonds accounted for less than one percent. 

Nearly 48 percent of the survey cities utilized multiple financing sources. They rank in order of frequency as 

follows: "Other" combined with either general obligation bonds, revenue bonds, private activiry bonds or the state 

revolving fund loan at 51.7 percent; revenue bonds and other financing at 46.1 percent; the state revolving fund loan 

program and other financing at 38.8 percent; general obligation bonds and "other" financing at 28.8 percent; and, 

private activity bonds and other financing at 0.8 percent. 

Table 7 

Frequency of Multiple-Source Financing 

of Major Capital Investments in Water Infrastructure 

2000-2004 2005- 2009* 

Type of Financing (%of Cities) (%of Cities) 

General Obligation Bonds 28.8 28.0 

Revenue Bonds 46.1 50.8 

Private Activity Bonds 0.8 1.4 

State Revolving Fund 38.3 38.6 

Other 51.7 53.5 

* Planned major capital investments in water infrastructure. 

A similar pattern of water and wastewater infrastructure financing is planned by rhe survey cities for the years 

2005 to 2009 (Table 6). Slightly over 96 percent of the cities planning major capital investments in water and wastewater infrastructure reported the types of financing methods they anticipate using. Roughly 46 percent of the survey 

cities plan to utilize single source financing. In descending order of importance, they identified the following plans: 

"other" 20.6 percent; revenue bonds 13.9 percent; general obligation bonds 7.3 percent; tbe state revolving fund loans 

4.6 percent; and, private activity bonds at 0.0 percent. 

Not surprisingly, the 2005 to 2009 financing plans for water infrastructure investment utilizing multiple financing sources is similar to the earlier five year period, (lable 7). In descending order, they are: "other" 53.5 percenr; 

revenue bonds and other financing 50.8 percent; state revolving fund loans and other financing 38.6 percent; general 

ohligation bonds and other financing 28.0 percent; and private activiry bonds and other financing 1.4 percent. 

Table 8 provides a summary of both single source and multiple source financing of major capital investments in 

water and wastewater projects. The main diagonal ofTable 8 depicts single source financing, while the remaining cells 

depict multiple financing approaches. 

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Table 8 

Frequency of Single-Source and Multiple-Source Financing 

Of Major Capital Investments in Water Infrastructure(% of Cities)* 

General Private State 

Finance Obligation Revenue Activity Revolving 

Method Bond Bond Bond Fund Other 

General 

Obligation 

Bond 9.4 6.5 0.3 12.7 9.2 

Revenue 

Bond 17.3 

Private Activity 

Bond 0.3 

State 

Revolving 

Fund 15.6 

Other 21.0 

* Based on 371 cities reporting finance methods for the period 2000 to 2004. 

Survey cities (53.1 percent) indicated that they were willing to consider a Public-Private Partnership (PPP) 

approach to water infrastructure projects if cost savings in operation and maintenance or construction could be achieved. 

Slightly over 17 percent of the survey cities did not provide a response to this question. City size does not appear ro 

influence the willingness to consider PPPs. The 53.1 percent of cities that said they would consider a PPP approach 

had the following city size distribution pattern: 51 percent of small cities; 53 percent of medium cities; and, 58 percent 

of large ciries. 

The Role Played by the SRF The State Revolving Fund loan program (SRF) appears to play a consistent role in the way cities finance major water 

and wastewater infrastructure capital investments over periods of2000 to 2004 and 2005 to 2009. The SRF provided 

a single-source of financing for 5.9 percent of the survey cities in 2000-2004 and is expected to provide financing for 

4.6 percent of the survey cities in 2005-2009. In this respect the SRF is the fourth most important source of financing. 

The SRF provided one component of multiple-source financing for 38.3 percent of the survey cities in 2000-

2004. It is expected to be one component of multiple-source financing for 38.6 percent of the survey cities in 2005-

2009. In this respect the SRF is the third most important source of financing. 

Generally speaking, the SRF is not a major source of financing for water infrastructure investments among the 

survey cities. It does, however, play a significant role for the 5.9 percent of the survey dries where it provides 100 

percent of project financing. The SRF also provides a substantial (over 50 percent) source of financing for another 

17.2 percent of the survey cities (Table 9). It appears to be somewhat more important as a source of financing for 

smaller cities (Table 10). 

Water Supply Information, Issues and Priorities 

TWo-thirds of the survey cities provide their own water supply; roughly 19 percent of the cities are served by private 

water companies. Nearly three-quarters of the survey cities have a water supply plan. The survey cities rely on a 

combination of ground and surface water, (51.7 and 70.3 percent, respectively). Switching from ground water to 

surface water supplies is rare; with only 6.8 percent of the survey cities planning to switch. 

13 
328 


26626.297

The survey findings suggest that a critical water shortage could occur by 2025 in cities nationwide. Thirty-five 

percent of the survey cities indicated that they have an adequate water supply for less than 20 years; 55.6 percent 

indicated that they have an adequate water supply for more than 20 years (Table II). 

Table 9 

Frequency of SRF Financing Of Major Capital Investments 

in Water Infrastructure, 2000-2004 

Percent of Major 

Capital Investment %of Cities 

10% or less 5.9 

20% or less 3.0 

50% or less 7.3 

> 50 % but < 100 % 17.2 

100% 5.9 

Table 10 

Frequency of SRF Financing Of Major Capital Investments 

in Water Infrastructure, 2000-2009 

Percent of 

Major Capital %of %of %of 

Investment Small Cities Medium Cities Large Cities 

10% or less 1.0 1.3 3.5 

20% or Jess 0.3 0.5 2.2 

50% or less 3.5 1.6 2.2 

>50% 10.2 8.6 4.3 

TableU 

Adequacy of Current Water Supply and City Size 

Adequacy of %of %of %of 

Water Supply Small Cities Medium Cities Large Cities 

10 Years or Less 19.3 24.0 17.3 

20 Years or Less 15.3 19.2 22.4 

Greater than 20 Years 65.3 56.8 60.2 

Number of Cities 

(NOT%) 150 125 98 

14 
329 


26626.298

'When city size, based on population, is taken into account, it appears that about a third of small cities will face 

potential water shortages by 2015 and 2025. The problem is more pronounced for medium size cities with 43.2 

percent; and 39.7 percent oflarge cities. 

\Vater supply availabilicy was identified by 46.4 percent of the survey cities as one of the three top water resources 

priorities. Focusing on just these (46.4 percent) cities, 68 percent of those cities provide their own water supply while 

17 percent rely on private water companies. Cities that provide their own water supply are four times more likely 

to have indicated water supply availability problems Wan cities relying on private suppliers. Additionally, focusing just 

on the 46.4 percent of rhe survey cities indicating water supply availability as a priority issue, 45.8 percent of those 

cities will face water supply shortages by 2025, while 44.3 percent have a supply that is adequate for more than 20 

years. Eighty-three percent of the cities ranking water availability as a top priority have established water supply plans 

(even though the supply may be inadequate after 20 years), and 13 percenr have no water supply plans for the future. 

Sixty-nine percent of the cities that do not have adequate water supplies for more than 20 years have made major 

capital investments in water supply infrasrrucmre betvveen 2000 and 2004 (Table 12). However, 31 percent have not 

made capital commitments in new water supply infrastructure. More than half (54.8 percent) of the cities with an 

adequate water supply beyond 20 years have made major capital investments in new water supply infrastructure 

between 2000 and 2004. 

A similar pattern is observed for the period 2005 to 2009 for planned invesrmem (Table 12). Roughly 71 percent 

of cities without an adequate water supply after 20 years are planning to make major capital investments in water 

supply infrastructure. More than half (56.6 percent) of the cities with an adequate water supply beyond 20 years are 

planning major capital investments in new water supply infrastructure between 2005 and 2009. 

15 

Table 12 

Adequacy of Current Water Supply And 

Major Capital Investments in Water Supply Infrastructure 

Between 2000 and 2004 

Not Investing In Investing in 

Water Supply Water Supply 

Adequacy Infrastructure Infrastructure 

Water Supply (% of Cities) (% of Cities) 

2000-2004* 

10 Years or Less 6.3 13.9 

20 Years or Less 5.5 12.6 

Greater than 20 Years 27.3 34.4 

2005-2009* * 

10 Years or Less 5.8 15.7 

20 Years or Less 5.2 12.5 

Greater than 20 Years 26.4 34.4 

* Actual investment based on 366 cities 

* * Planned investment based on 344 cities 
330 


26626.299

Water Conservation Information, Issues and Priorities 

1Wo-thirds of the survey cities indicated they had water conservation plans in place. A higher proponion oflarge cities 

(about 80 percent) indicated they had programs; while the proportion of smaller cities with programs was lower (58.6 

percent). Water conservation departments as discrete units of local government are relatively rare (11.1 percent). 

About half of the survey cities use some percent of automated meters; and the average percent of automated meters in 

the cities that employed them was 38.4 percent but ranged from less than 1 percent to 100 percent. Traditional water 

meters remain the most common technique, employed by 72.5 percent of the survey cities. However, 68.8 percent of 

the cities indicated they would consider modernizing with automated water merers if they could save water or money. 

A high proportion (82.8 percent) of survey cities that indicated water supply availability was a priority issue had 

water conservation plans. The vast majority of these cities use traditional water meters (80.7 percent); less than half of 

them (46.8 percent) use automated water meters and about half of them (50.5 percent) alter water rate structures to 

improve billing and/or conserve water. Three-quarters of these cities indicated they would consider modernizing their 

Survey cities that have made or are planning major capital investments in water supply infrastructure are more likely to 

have established water conservation plans (Table 13). During the period 2000 to 2004, cities were three times mote 

likely w have water conservation programs where water supply infrastructure investments were made. Cities planning 

to make major capital investments in water supply infrastructure for the period 2005 to 2009 are nearly four rimes as 

likely to have an established water conservation program. Even where cities did not plan a water supply infrastructure investment, they were slightly more likely ro have established water conservation plans. 

Table 13 

Cities with Water Conservation Programs and Make or Plan 

Major Capital Investments in Water Supply Infrastructure 

Between 2000 and 2004 and 2005 and 2009 

Not Investing In Water Investing in Water 

Has Water Supply Infrastructure Supply Infrastructure 

Conservation Plan (%of Cities) (% of Cities) 

2000-2004* 

Yes 23.5 45.3 

No 16.9 14.3 

2005-2009** 

Yes 21.5 48.9 

No 17.1 12.5 

* Actual Investment Based on 391 cities 

** Planned Investment Based on 368 cities 

16 
331 


26626.300

Survey cities that have made or are planning major capital investments in water supply infrastructure are 

less likely to alter water rate structures to achieve water conservation (Table 14). There are two uncertainties concerning these figures that impact how one interprets these findings. First, the survey information does not include 

knowledge of whether or not altering rate structures in the past significantly reduced the volume of water use. Therefore, it is difficult to say whether the design volume of the warer supply infrasrrucrure involved was affected by altering 

the rate structure. Indeed, the design volume could he driven by population growth, an expanding local/regional 

economy, or other important factors. Second, cities planning major capital investment in the period 2005 to 2009 

may begin altering water rate structures as a conservation measure, and that mechanism may be parr of the overall 

water supply plan. 

'While the number of cities altering water rate structures is fairly constant over the three population size categories, the proportion of cities employing the technique is clearly related ro increasing population size (Table 15). Almost 

half of the larger cities use the technique, while only about 40 percent of medium size cities and about 30 percent 

of smaller size cities do. 

17 

Table 14 

Cities that Alter Water Rate Structures and Make or Plan 

Major Capital Investments in Water Supply Infrastructure 

Between 2000 and 2004 and 2005 and 2009 

Not Investing in Water 

Alters Water Supply Infrastructure 

Rate Structure (%of Cities) 

2000-2004* 

Yes 11.7 

No 26.3 

2005-2009** 

Yes 11.5 

No 25.4 

* Actual Investment Based on 369 cities 

**Planned Investment Based on 347 cities 

Table 15 

Investing in Water 

Supply Infrastructure 

(%of Cities) 

25.7 

36.3 

27.9 

35.2 

Cities that Alter Water Rate Structures and Population Size* 

Alters Water %of %of %of 

Rate Structure Small Cities Medium Cities Large Cities 

Yes 29.1 39.5 48.4 

No 70.9 60.5 51.5 

Number of Cities 

(NOT%) 158 124 95 

* Based on 377 cities 
332 


26626.301

ATTACHMENT A 

URBAN WATER RESOURCES SURVEY 

The United States Conference of Mayors Urban Water Council 

January 10, 2005 

STATEMENT OF SURVEY PURPOSE 

The U.S. Conference of Mayors' Urban Water Council (U\VC) is gathering information on water infrastructure, 

water supply/conservation, and water resource problems. The information we hope you provide will help us develop 

public policy positions, and help us focus priorities on the activities pursued by the UWC to aid local government. 

RESPONDENT INFORMATION 

Mayor:-------------------

Water Authority Coordinator: __________ _ 

Address:-------------------

Phone: __________________ _ 

F~: ___________________ __ 

E-mail: ___________________ _ 

PART 1: Water and Wastewater Infrastructure 

%of Cities 

I) Does your City own a drinking water treatment facility? Q2.2 Yes .1'f.l No 

2) Does your City operate a drinking water treatment facility? .G3_j_ Yes 2Q,.5_ No 

3) Does your Ciry own a wastewater treatment faciliry? ..5L2 Yes .41.3 No 

4) Does your City operate a wastewater treatment faciliry? .5..Q..l Yes 12...2 No 

5) Has your City made a major capital investment in the last five years in any of rhe following 

infrastructure categories? 0

/o of Gties 

Water supply 2_li Yes ..4iU_ No 2,1 No Response 

Water distribution system 7..1..3. Yes _l_L.Q No .LZ No Response 

Water treatment plant 2L.2_ Yes 44.0 No 4.J. No Response 

Wastewater treatment plant 5.Ll Yes ~No .5.J. No Response 

Wastewater collection system ~Yes ~No 6.0 No Response 

6) If yes, was that capital investment financed by: (check all that apply) 

%of Cities 

25.8 General obligation bonds 

1L2 Revenue bonds 

Q2 Private Activity Bonds 

:H.2 State Revolving Fund 

ill Other 

7) If the State Revolving Loan Fund was used, did it comprise: 

%of Cities 

5..,2 10% or less of the total project cost 

2.2 20 % or less of the total project cost 

Q.5. 50 % or less of the total project cost 

20.8 more than 50 %of the total project cost 

18 
333 


26626.302

8) Does your City plan to make a major capiral investment in the next five years in any of the following infrastructure 

categories? 

%of Cities 

Water supply 21J2 Yes ~No 

Water distribution system 71:.J.. Yes 2l..Z No 

Water treatment plane ;li& Yes :lid No 

Wastewater treatment plant 4a5. Yes ru No 

Wastewater collection system fuLl_ Yes ll!.Z No 

9) If yes, will that capital investment be financed by: (check all that apply) 

%of Cities 

2.':l2 General obligation bonds 

ID Revenue bonds 

.Ll Private Activity Bonds 

2:!.3. State Revolving Fund 

:!!i.Q Ocher 

10) If the Scare Revolving Loan Fund will be used, will it comprise: 

%of Cities 

.G:..5_ 10 tyo or Jess of rhc total project cost 

G.J. 20 o/o or less of the total project cost 

4.8 50 % or less of the total project cost 

1.2,1 more than 50 o/o of the total project cost 

~ No Response 

iJ2 No Response 

2Jl No Response 

2..2 No Response 

LQ No Response 

Jl) If your Ci<y does not rely on the State Revolving Fund Loan program to finance water or wastewater facility capital 

inveHment please state why. 

12) \Vould your Ciry consider a Public-Private Partnership approach to water infrastructure projects if cost-savings in 

operation and maintenance or construcrion c.1.n be achieved? 

%of Cities 

2.22 l:es 222 No lLl NR 

PART II: Water Supply Information 

l) Does your City provide iLs own water supply? 

2) Does your City rely on a private company to provide 

its water supply? 

3) Does your City have a water supply plan? 

4) Does your City have an adequate water supply for the next: 

%of Cities 

~ !Oyears 

16.7 20 years 

22& more than 20 years 

~ No Response 

5) Does your city's water supply come from grotmd water? 

6) Does your city's water supply come from surface water? 

66.2 Yes 

lJL2 Yes 

H.2 Yes 

ill Yes 

ZQ3_ Yes 

7) Does your City plan to switch from ground water to surface water supply? 

QJ! Yes 

o/o of Cities 

lblNo 

ZQJl No 

lQ,2 No 

%of Cities 

.:iUNo. 

2:\ANo. 

6.BJ1 No. 

8) If yes, why are you switching?~----------------------

19 

.LZNR 

4.,.1NR 

2,2NR 

liJ2 NR 

DNR 

2:\ANR 
334 


26626.303

PART Ill: Water Conservation Information 

%of Cities 

1) Does your City have a water conservation program? !2lh2_ Yes .2lLf No 2,2NR 

2) Does your City have a water conservation department? lL1 Yes llS_,_JNo liNR 

3) Does your water supply include water conservation? .5.2.,2 Yes .lUi No !UNR 

4) Does your City use automated water meter reading? 50.2 Yes ill No 6.J. NR 

5) Does your City use traditional water meter reading? Zb..5_Yes l2_J_ No 8.2NR 

6) Does your Ciry alter the water rate structure to 

achieve water conservation? ill Yes U2No lL5_ NR 

7) Would your City consider modernizing with aummated 

meter reading if it could save water or money? 68.6 Yes l0.6No 20.8NR 

8) Other water conservation measures?----------------------

PART IV: General Water Resources Problems and Priorities 

Here are some water resources issues. Please indicate whether each issue is an existing problem or a forecast problem 

for your community: (Please mark applicable problems in rhe box [X] below aod rank all that apply the top live 

problems (l--5) with l being the most significant in the line_ below, please do not assign same rankings). 

%of Cities 0

/o of Cities 

46.4 Water supply availability 34.3 Emergency planning and management 

16.2 Inter-basin transfers for storms, hurricanes, etc 

2.3.4 Groundwater depletion 60.6 Aging water resources infrastructure 

25.1 Water rights 54.6 Security/protection of water 

38.4 Flooding resources infrastructure 

32.6 Drought management 3.9 Insufficient water-oriented recreation 

26.8 Regional conflict about water use 19.6 Sediment management 

8.5 Water transportation 1!.6 Endangered species 

(channels, ports, dredging, etc.) 13.0 Best practices technology transfer 

45.2 Permits, regulatory issues 42.3 Water quality of urban streams 

6.8 Neglected/decaying waterfront areas and rivers 

10.6 Loss of river corridors/greenspace 3.4 Waterborne traffic 

10.4 Loss of wetlands 4.8 Chaonel/Harbor adequacy 

7.5 Beach/shoreline ero.sion 9.7 Other (specifY below) 

20 
335 


26626.304

ATTACHMENT B 

List of Cities Responding to the Survey 

Survey City State Population 

Anchorage AK 260,283 

Auburn AL 42,987 

Bessemer AL 29,672 

Birmingham AL 242,820 

Dothan AL 57,737 

Florence AL 36,264 

Huntsville AL 158,216 

Montgomery AL 201,568 

Fortsmith AR 80,268 

Little Rock AR 183,133 

North Little Rock AR 60.433 

Springdale AR 45.798 

Avondale Al 35,883 

Chandler Al 176,581 

Gilbert Al 109,697 

Mesa Al 396,375 

Scottsdale Al 202.705 

Tucson Al 486,699 

Alameda CA 72,259 

Alhambra CA 85,804 

Aliso Viejo CA 45,000 

Anaheim CA 328,014 

Bellflower CA 72,878 

Beverly Hills CA 33.784 

Brea CA 35.410 

Buena Park CA 78,282 

Campbell CA 38,138 

Cerritos CA 51.488 

Chino CA 67,168 

Compton CA 93.493 

Concord CA 121.780 

Fairfield CA 96,178 

Folsom CA 51,884 

Fresno CA 427,652 

Gardena CA 57.746 

21 
336 


26626.305

Survey City State Population 

Glendora CA 49,415 

Hanford CA 41,686 

Hawthorne CA 84,112 

Hayward CA 140,130 

Hemet CA 58,812 

Inglewood CA 112,580 

La Habra CA 58,974 

La Mesa CA 54,749 

La Mirada CA 46,783 

La Verne CA 31,638 

Lakewood CA 79,345 

Los Angeles CA 3,694,820 

Lynwood CA 69,845 

Manteca CA 49,258 

Modesto CA 188,856 

Norwalk CA 103,298 

Oxnard CA 170,358 

Pasadena CA 133,936 

Pittsburg CA 56,769 ·---- Pomona CA 149,473 

Porterville CA 39,615 

Rancho Palos Verdes CA 41.145 

Redlands CA 63,591 

Redondo Beach CA 63,261 

Redwood City CA 75,402 

Rialto CA 91,873 

Richmond CA 99,216 

Rocklin CA 36,330 

Salinas CA 151,060 

San Bernardino CA 185,401 

San Clemenete CA 49,936 

San Diego CA 1,223,400 

San Francisco CA 776,733 

San Jose CA 894,943 

San Mateo CA 92,482 

Santa Barbara I CA 92,325 

Santa Clarita I CA 151,088 

22 
337 


26626.306

Survey City State Population 

Santa Cruz CA 54,593 

Santa Marla CA 77,423 

Santa Monica CA 84,084 

Seaside CA 31,696 

Simi Valley CA 111,351 

South San Francisco CA 60,552 

Stockton CA 243.771 

Sunnyvale CA 131,760 

Temple City CA 33,377 

Thousand Oaks CA 117,005 

Torrance CA 137,946 

Ventura CA 100,916 

Vernon CA 91 

Vista CA 89,857 

Walnut Creek CA 64,296 

Whittier CA 83,680 

Arvada co 102,153 

Colorado Springs co 360,890 

Grand Junction co 41,986 

Littleton co 40,340 

Longmont co 71,093 

Thornton co 82,384 

Bridgeport CT 139,529 

Manchester CT 54,740 

Norwalk CT 82,951 

Stamford CT 117,083 

Trumbull CT 34,243 

West Haven CT 52,360 

Dover DE 32,135 

Wilmington DE 72,664 

Altamonte Springs FL 41,200 

Clearwater FL 108,787 

Coconut Creek FL 43,566 

Coral Springs FL 42,249 

Deerfield Beach FL 64,583 

Dora! FL 3,295 

Dunedin FL 35,691 

23 
338 


26626.307

Survey City State Population 

Fort Lauderdale FL 152,397 

Hallandale Beach FL 34,282 

Hialeah FL 226,419 

Holly Hill FL 12,119 

Jupiter FL 39,328 

Key West FL 25,478 

Lakeland FL 78,452 

Largo FL 69,371 

Lauderlakes FL 31,705 

Melbourne FL 71,382 

North Miami Beach FL 40,786 

Orlando FL 185,951 

Pembroke Pines FL 137,427 

Pinellas Park FL 45,658 

Plantation FL 82,934 

Port St. Lucie FL 88,769 

Sarasota FL 52,715 

St. Petersburg FL 248,232 

Tallahassee FL 150,624 

Tamarac FL I 55,588 

Tampa FL 303,447 

West Palm Beach FL 82,103 

Athens GA 101,489 

Atlanta GA 416,474 

Augusta GA 199,775 

Dekalb GA 39,018 

Roswell GA 79,334 

Savannah GA 131,510 

Wailuku HI 12,296 

Cedar Rapids lA 120,758 

Iowa City lA 62,220 

Sioux City lA 85,013 

Waterloo 

Coeur d'Alene ID 

lA~ 34,514 

Pocatello ID 51,466 

Addison IL 35,914 

Alton IL 30,496 

24 
339 


26626.308

Survey City State Population 

Arlington Heights IL 76,031 

Bartlett IL 36,706 

Belleville IL 41.410 

Berwyn IL 54,016 

Bolingbrook IL 62,948 

Calumet City IL 39,071 

Carpentersville IL 30,586 

Champaign IL 67,518 

Chicago IL 2,896,016 

Decatur IL 81,860 

Evanston IL 74,239 

Glen Ellyn IL 26,999 

Glencoe IL 8,762 

Glendale Heights IL 31,765 

Hanover Park IL 38,278 

Highland Park IL 31,365 

Lansing IL 28,332 

Lombard IL 42,322 

Moline IL 43,768 

Naperville IL 128,358 

Niles IL 30,068 

Northbrook IL 33,435 

Oak Brook IL 8,702 

Orland Park IL 51,077 

Park Ridge IL 37,775 

Quincy IL 40,366 

Rock Island IL 39,684 

Rockford IL 150,115 

Schaumnurg IL 75,386 

Tinley Park IL 48,401 

Villa Park IL 22,075 

Wheaton IL 55.416 

Wilmington IL 5,134 

Carmel IN 37,733 

Columbus IN 39,059 

East Chicago IN 32.414 

Elkhart IN 51,874 

Evansville IN 121,582 

25 
340 


26626.309

Survey City State Population 

Gary IN 102,746 

Indianapolis IN 791,926 

Marion IN 31,320 

Michigan City IN 32,900 

Kansas City KS 146,866 

Manhattan KS 44,831 

Overland Park KS 149,080 

Topeka KS 122,377 

Frankfort KY 27.741 

Amesbury MA 16,450 

Amherst MA 34,874 

Chicopee MA 54,653 

Everett MA 38,037 

Fall River MA 91,938 

Fitchburg MA 39,102 

Haverhill MA 58,969 

New Bedford MA 93,768 

Pittsfield MA 45,793 

Quincy MA 88,025 

Somerville MA 77,478 

Weymouth MA 53,988 

Worcester MA 172,648 

Annapolis MD 35,838 

Gaithersburg MD 52,613 

Hagerstown MD 36,687 

Bangor ME 31,473 

Lewiston ME 35,690 

Ann Arbor Ml 114,024 

Dearborn Ml 97,775 

Detroit Ml 951,270 

Farmington Hills Ml 82,111 

Flint Ml 124,943 

Grosse Pointe Woods Ml 17,080 

Jackson Ml 36,316 

Lansing Ml 119,128 

Muskegon Ml 40,105 

No vi Ml 47,386 

Pontiac Ml 66,337 

26 
341 


26626.310

Survey City State Population 

Southgate Mi 78,296 

Taylor Ml 65,868 

Brooklyn Park MN 67,388 

Burnsville MN 60,220 

Duluth MN 86,918 

Minnetonka MN 51,301 

Plymouth MN 65,894 

Richfield MN 34,439 

Woodbury MN 46,463 

Kansas City MD 441,545 

St, Peters MD 51,381 

Biloxi MS 50,644 

Jackson MS 184,256 

Meridian MS 39,968 

Billings MT 89,847 

Butte MT 34,6D6 

Asheville NC 68,889 

Cary NC 94,536 

Charlotte NC 54D,828 

Durham NC 187,D35 

Gastonia NC 66,277 

Goldsboro NC 39,D43 

Greensboro NC 223,891 

Kannapolis NC 36,910 

Salisbury NC 26,462 

Wilson NC 44,405 

Winston-Salem NC 185,776 

Fargo ND 9D,599 

Bellevue NE 44,382 

Grand Island NE 42,94D 

Lincoln NE 225,581 

Manchester NH 107,D06 

Bayonne NJ 61,842 

Bloomfield NJ 47,683 

Fair Lawn NJ 31,637 

Freehold NJ 31,537 

North Bergen NJ 58,092 

Piscataway NJ 50,482 

27 
342 


26626.311

Survey City State Population 

Sayreville NJ 40,377 

Trenton NJ 85,403 

Vineland NJ 56,271 

Wayne NJ 54,069 

Turnersville NJ 3,867 

Alamogordo NM 35,582 

Clovis NM 32,667 

Las Cruces NM 74,267 

Los Lunas NM 10,034 

Rio Rancho NM 51,765 

Sante Fe NM 62,203 

Las Vegas NV 478,434 

Reno NV 180,480 

Albany NY 95,658 

Binghamton NY 47,380 

Endwell NY 61,179 

Freeport NY 43,783 

Hempstead NY 56,554 

Huntington NY 195,289 

Long Beach NY 35,462 

Mount Vernon NY 68,381 

New York City NY 8,008,278 

North Tonawanda NY 33,262 

Rochester NY 219,773 

Schenectady NY 61,821 

Syracuse NY 147,306 

Troy NY 49,170 

Akron OH 217,074 

Bedford Heights OH 11,375 

Canton OH 80,806 

Cleveland OH 478,403 

Cleveland Heights OH 49,958 

Columbus OH 711,470 

Dublin OH 31,392 

East Cleveland OH 27,217 

Fairborn OH 30,529 

Garfield Heights OH 30,734 

Hamilton OH 60,690 

28 
343 


26626.312

Survey City State Population 

Huber Heights OH 38,212 

Kettering OH 57,502 

Lancaster OH 35,335 

Lima OH 40,081 

Loveland OH 11,677 

Mansfield OH 49,346 

Marion OH 35,318 

Newark OH 46,279 

North Olmsted OH 34,113 

Shaker Heights OH 29,405 

Solon OH 21,802 

Springfield OH 65,358 

Stow OH 32,139 

Toledo OH 313,619 

University Heights OH 14,146 

Upper Arlington OH 33,686 

Warren OH 46,832 

Westerville OH 35,318 

Westlake OH 31,719 

Broken Arrow OK 74,859 

Lawton OK 92,757 

Norman OK 95,694 

Oklahoma City OK 506,132 

Albany OR 40,852 

Bend OR 52,029 

Eugene OR 137,893 

Hillsboro OR 70,186 

Allentown PA 106,632 

Erie PA 103,717 

Fairless Hills PA 8,365 

Glenshaw PA 29,757 

Harrisburg PA 48,950 

Lower Paxton PA 44,424 

Reading PA 81,207 

Township of Lower Merion PA 59,850 

Upper Darby PA 81,821 

York PA 40,862 

Caguas PR 40,502 

29 
344 


26626.313

Survey City State Population 

Canavan as PR 43,335 

Cidra PR 42,753 

Corozal PR 36,867 

Hormigueros PR 16614 

Lajas PR 26,261 

Lares PR 34,415 

Trujillo Alto PR 75,728 

Cumberland Rl 31,840 

Pawtucket Rl 72,958 

Warwick Rl 85,808 

Woonsocket Rl 43,224 

Bartlett TN 40,543 

Germantown TN 37,348 

Johnson City TN 55,469 

Murfreesboro TN 68,816 

Beaumont TX 113,866 

Bryan TX 65,660 

Carrollton TX 109,576 

College Station TX 67,890 

Coppell TX 35,958 

Copperas Cove TX 29,592 

Corpus Christi TX 277,454 

Desoto TX 37,646 

Duncanville TX 36,081 

Euless TX 46,005 

Frisco TX 33,714 

Galveston TX 57,247 

Grand Prairie TX 127,427 

Grapevine TX 42,058 

Houston TX 1,953.631 

Hurst TX 36,273 

Irving TX 191,615 

Laredo TX 176,575 

Lewisville TX 77,737 

Longview TX 73,344 

Mission TX 45,408 

Nacogdoches TX 29,914 

Pearland TX 37,640 

Pharr TX 46,660 

30 
345 


26626.314

Survey City State Population 

Plano TX 222,030 

Round Rock TX 61,136 

Sugar Land TX 63,328 

Texas City TX 41,521 

Murray City UT 34,024 

Salt Lake City UT 181,743 

Sandy City UT 88,418 

Chesapeake VA 199,184 

Manassas VA 35,135 

Newport News VA 180,150 

Richmond VA 197,790 

Alexandria VA 128,283 

Danville VA 48,411 

Norfolk VA 234,403 

Suffolk VA 63,677 

Edmonds WA 39,515 

Everett WA 91,488 

Federal Way WA 83,259 

Kent WA 79,524 

Lacey WA 31,226 

Puyallup WA 33,011 

Redmond WA 45,256 

Renton WA 53,840 

Seattle WA 563,374 

Tacoma WA 193,556 

Vancouver WA 143.560 

Yakima WA 71,845 

Beloit WI 35,918 

Brookfield WI 38,649 

Kenosha WI 90,352 

La Crosse WI 51,818 

Manitowoc WI 34,053 

Milwaukee WI 596,974 

Racine WI 81,855 

Waukesha WI 64,825 

Wausau WI 38,426 

Wauwatosa WI 47,271 

Parkersburg wv 33,099 

Cheyenne WY 53,011 

31 
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Dawn of the Replacement Era 

TABLE OF CONTENTS 

Title Page 

Executive Summary 5 

Introduction 9 

Findings 10 

• Pipes are expensive, but invisible 10 

• Pipes are hearty, but ultimately mortal 10 

• Back to the future: pipe replacement needs are "demographic echo" 12 

• Water infrastructure is local and therefore vulnerable 

to demographic changes 14 

• Replacement of water treatment plants is also coming due 16 

• Increased expenditures are needed to climb the ramp and avoid a gap 17 

• Addressing affordability is the heart of the challenge 19 

Recommendations 22 

• Measures by utilities and local governments 22 

• Reform of state programs 23 

• A significant increase in federal assistance 23 

Conclusion 24 

20 Sets of Nessie Curves App A 

Acknowledgments App B 

AMEI~ICAN WATER WORKS ASSOCIATION 3 
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the Replacement Era 

EXECUTiVE SUMMARY 

The importance of safe drinking water to public health and the nations economic welfare 

is undisputed. However, as we enter the 21st Century, water utilities face significant economic challenges. For the first time, in many of these utilities a significant amount of 

buried infrastructure-the underground pipes that make safe water available at the turn of 

a tap-is at or very near the end of its expected life span. The pipes laid down at different 

times in our history have different life expectancies, and thousands of miles of pipes that 

were buried over 100 or more years ago will need to be replaced in the next 30 years. Most 

utilities have not faced the need to replace huge amounts of this infrastructure because it 

was too young. Today a new age has arrived. We stand at the dawn of the replacement era. 

Extrapolating from our analysis of 20 utilities, we project that expenditures on the order 

of $250 billion over 30 years might be required nationwide for the replacement of wornout drinking water pipes and associated structures (valves, fittings, etc). This figure does 

not include wastewater infrastructure or the cost of new drinking water standards. 

Moreover, the requirement hits different utilities at different times and many utilities will 

need to accelerate their investment. Some will see rapidly escalating infrastructure expenditure needs in the next 10-20 years. Others will find their investment decisions subject to 

a variety of factors that cause replacement to occur sooner or at greater expense, such as 

urban redevelopment, modernization, coordination with other city construction, increasing pipe size, and other factors. 

Overall, the findings confirm that replacement needs are large and on the way. There will 

be a growing conflict between the need to replace worn-out infrastructure and the need to 

invest in compliance with new regulatory standards under the Safe Drinking Water Act. 

In addition, the concurrent demands for investment in wastewater infrastructure and compliance with new Clean Water Act regulations, including huge needs for meeting combined sewer overflow (CSO) and stormwater requirements, will compete for revenue on 

the same household bill. 

Ultimately, the rate-paying public will have to finance the replacement of the nation's 

drinking water infrastructure either through rates or taxes. AWWA expects local funds to 

cover the great majority of the nation's water infrastructure needs and remains committed 

to the principle of full-cost recovery through rates. However, many utilities may face needs 

that are large and unevenly distributed over time. They must manage a difficult transition 

between today's level of investment and the higher level of investment that is required over 

the long term. Facing an inexorable rise in infrastructure replacement needs driven by 

demographic forces that were at work as much as 100 years ago, compounded by the negative effects of changing demographics on per-capita costs in center cities, many utilities 

face a significant challenge in keeping water affordable for all the people they serve. 

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Meeting this challenge requires a new partnership in which utilities, states, and the federal government all have important roles. Utilities need to examine their rate structures to 

assure long-term viability. States need to streamline their programs. And the federal government needs to significantly increase assistance for utilities. 

To better understand this problem, the American Water Works Association undertook 

studies of 20 large and medium utilities. The findings and recommendations of this report 

provide the basis for this new partnership to achieve the goal to which we all aspire-the 

provision of safe and affordable drinking water for all Americans. 

• Water utilities must make a substantial reinvesttnent in infrastructure over the next 

30 years. The oldest cast iron pipes, dating to the late 1800s, have an average life 

expectancy of about 120 years. Because of changing materials and manufacturing 

techniques, pipes laid in the 1920s have an average life expectancy of about I 00 

years, and pipes laid in the post-World War II boom can be expected to last about 

7 5 years. The replacement bill for these pipes will be hard on us for the next three 

decades and beyond. 

• Most utilities are just now beginning to face significant investments for infrastructure replacement. Indeed, it would have been economically inefficient to make 

large replacement investtnents before now. The utilities we studied are well managed and have made the right decisions. But the bills are now coming due, and they 

loom large. 

• On average, the replacement cost value of water mains is about $6,300 per household in today's dollars in the relatively large utilities studied. If water treattnent 

plants, pumps, etc., are included, the replacement cost value rises to just under 

$10,000 per household, on average. 

• Demographic shifts are a significant factor in the economics of reinvesttnent. In 

some older cities, the per-capita replacement value of mains is more than three 

times higher than the average in this sample due to population declines since 1950. 

• By 2030, the average utility in the sample will have to spend about three and a half 

times as much on pipe replacement due to wear-out as it spends today. Even so, the 

average utility will also spend three times as much on repairs in that year as it 

spends today, as the pipes get older and more prone to breakage. 

• The water utilities studied concurrently face the need to replace infrastructure and 

upgrade treattnent plants to comply with a number of new regulations to be implemented under the Safe Drinking Water Act. Many municipalities also face significant 

needs for investtnents in wastewater infrastructure and compliance. This concurrent 

demand significantly increases the financial challenge they face. 

• Overall, in the 20 utilities studied, infrastructure repair and replacement requires 

additional revenue totaling about $6 billion above current spending over the next 

30 years. This ranges from about $5 50 per household to almost $2,300 per house6 AMERICAN WATER WORKS A.SSOGIAT!ON 
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hold over the period. These household impact figures do not include compliance 

with new regulations or the cost of infrastructure replacement and compliance for 

wastewater. 

• The pattern and timing of the need for additional capital will be different in each 

community, depending on its demographically driven replacement "wave." 

• Household impacts will be two to three times greater in smaller water systems 

($1,100 to $6,900 per household over 30 years) due to disadvantages of small scale 

and the tendency for replacement needs to be less spread out over time. 

• Because of demographic changes, rate increases will fall disproportionately on the 

poor, intensifYing the challenge that many utilities face keeping water affordable to 

their customers. 

Recommendations: 

America needs a new partnership for reinvesting in drinking water infrastructure. There 

are important roles at all levels of government. 

1) Measures by Utilities and Local Governments 

Although the AWWA analysis has looked at the infrastructure issue in the aggregate, many 

key issues must be addressed at the local utility level. Utilities should develop a comprehensive local strategy that includes: 

• Assessing the condition of the drinking water system infrastructure. 

• Strengthening research and development 

• Working with the public to increase awareness of the challenge ahead, assess local 

rate structures, and adjust rates where necessary. 

• Building managerial capacity. 

2) Reform of State Programs 

The states too have an important role to play in addressing our infrastructure funding 

needs. States may need to match an appropriate share of any new federal funds that are provided for infrastructure assistance. Moreover, states need to reform their existing programs 

to make them more effective. States should commit to: 

• Respecting the universal eligibility of all water systems for federal assistance. 

• Streamlining their programs for delivery of assistance and allow alternative procurement procedures that save money. 

• Making their financing mechanisms more attractive by committing to grants and 

very low or negative interest loans. 

• Using federal funds in a timely fashion or face the reprogramming of those funds 

to other states. 

AMERICAN WATER WORKS ASSOCIATION 7 
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3) A Significant Increase in Federal Assistance 

The federal government has a critical role to play in preventing the development of a gap 

in water infrastructure financing. A\V\VA recommends either changing and expanding the 

existing Drinking Water State Revolving Fund and other drinking water programs, or creating a new, infrastructure-focused fund. The federal role should include: 

• Significantly increased federal funding for projects to repair, replace, or rehabilitate drinking water infrastructure. 

• An increase in federally supported research on infrastructure management, repair 

and replacement technologies. 

• Steps to increase the availability and use of private capital. 

8 AMERICAN WATER WORKS ASSOCIATION 
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lnt~roduction 

The importance of safe drinking water to the nation's public health and economic welfare 

is undisputed. About 54,000 community drinking water systems provide drinking water to 

more than 250 million Americans. By keeping water supplies free of contaminants that 

cause disease, our public water systems reduce sickness and related health costs as well as 

absenteeism in the workforce. By providing safe and sufficient supplies of water, America's 

public water systems create direct economic value across nearly every sector of the economy and every region of the country. However, significant economic changes are confronting the water profession as we enter the 21st Century. The new century poses new 

challenges in sustaining the infrastructure-particularly the underground pipes-that provides the broad public benefits of clean and safe water. 

Recognizing that we are at the dawn of a major change in the economics of water supply, 

the American Water Works Association (AWWA) has undertaken an analysis of the infrastructure challenge facing utilities. The project involved correlating the estimated life of 

pipes with actual operations experience in a sample of 20 utility systems geographically distributed throughout the nation (see Figure !). Projecting future investment needs for pipe 

replacement in those utilities yields a forecast of the annual replacement needs for a particular utility, based on the age of the pipes and how long they are expected to last in that 

utility. This analysis graphically portrays the nature of the challenge ahead of us. It also 

serves as the foundation for AWWA's call for a new national partnership to address the 

looming need to reinvest in our drinking water infrastructure. 

Figure I 
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but invisible. 

Most people do not realize the huge magnitude of the capital investment that has been 

made to develop the vast network of distribution mains and pipes-the infrastructurethat makes clean and safe water available at the turn of a tap. Water is by far the most capital intensive of all utility services, mostly due to the cost of these pipes, water infrastructure that is literally a buried treasure beneath our streets. But buried means out of sight. 

And as the old saying goes, out of sight means out of mind. Moreover, most of our pipes 

were originally installed and paid for by previous generations. They were laid down during the economic booms that characterized the last century's periods of growth and expansion. So not only do we take these pipes for granted because we can't see them, we also 

take them for granted because, for the most part, we didn't pay for them initially. What's 

more, they last a long time (some more than a century) before they cost us very much 

in maintenance expense near the end of their useful lives or ultimately need replacement. For the most part, then, the huge capital expense of the pipes is a cost that to day's 

customers have never had to bear. It has always been there, but it's always been invisible 

to us. 

The original pattern of water main installation from 1870 to 2000 in 20 utilities analyzed 

by AWWA is graphically presented in Figure 2. This graph reflects the total cost in current dollars of replacing the pipes laid down between 1870 and 1998 in the 20 utilities 

studied. It is a reflection of the development of these utilities, and in turn, mirrors the 

overall pattern of population growth in large cities across the country. There was an 1890s 

boom, a World War I boom, a roaring '20s boom, and the massive post-World War II 

baby boom. 

Original Asset Investment Profile 

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Figure 2 

10 AMERICAN WATER WORKS ASSOGIATI!DN 
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The cumulative replacement cost value of water main assets (that is, the cost of replacing 

water mains in constant year 2000 dollars) has increased steadily over the last cenmry in 

our sample of 20 utilities. In aggregate across our sample of utilities, the replacement value 

of water mains in today's dollars is about $6,300 per household. If water treatment plants, 

pumps, etc., are included, this figure rises to just under $10,000 per household. This is 

more than three times what it was in 193 0 in constant dollar terms. The difference is not 

due to inflation; rather, there is simply more than three times as much of this infrastrucmre today as there was in 1930, in order to support improved service standards and the 

changing namre of urban development. 

In general, then, there is a lot more water infrastructure in place today on a per-capita basis, 

implying an increased per-capita share of the liability for replacing these assets as they wear 

out. This invisible replacement liability has been accumulating gradually over several generations of water system customers, managers and governing boards. They have not had to 

recognize this liability because the bill was not yet due. For many utilities, board/council/commission relationships and customer relationships have developed in recent decades 

in the absence of a recognized need for significant investment in replacing the utility's 

assets as they age and wear out. 

The oldest cast iron pipes-dating to the late1800s-have an average useful life of about 

120 years. This means that, as a group, these pipes will last anywhere from 90 to 150 years 

before they need to be replaced, but on average they need to be replaced after they have 

been in the ground about 120 years. Because manufacturing techniques and materials 

changed, the roaring '20s vintage of cast-iron pipes has an average life of about 100 years. 

And because techniques and materials continued to evolve, pipes laid down in the PostWorld War II boom have an average life of 7 5 years, more or less. Using these average life 

estimates and counting the years since the original installations shows that these water utilities will face significant needs for pipe replacement over the next few decades. 

The modern public water supply industry has come into being over the course of the last 

century. From the period known as the "Great Sanitary Awakening," that eliminated 

waterborne epidemics of diseases such as cholera and typhoid fever at the turn of the last 

cenmry, we have built elaborate utility enterprises consisting of vast pipe networks and 

amazing high-tech treatment systems. Virtually all of this progress has been financed 

through local revenues. But in all this time, there has seldom been a need to provide for 

more than modest amounts of pipe replacement, because the pipes last so very long. We 

have been on an extended honeymoon made possible by the long life of the pipes and the 

fact that our water systems are relatively young. Now that honeymoon is over. From now 

on and forevermore, utilities will face significant requirements for pipe repair, rehabilitation, and replacement. Replacement of pipes installed from the latel800s to the 1950s is 

now hard upon us, and replacement of pipes installed in the latter half of the 20th Century 

will dominate the remainder of the 21st. 

We believe that we stand today at the dawn of a new era-the replacement era-for water 

utilities. Over the next three decades, utilities will be in an adjustment period during which 

they will incorporate the costs of pipe replacement in routine utility spending. This will 

require significant adjustments in utility revenues. The magnimde of the need and the 
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invisibility of that need to the person on (top of) the street will make this a particularly 

challenging adjustment. The need for significantly greater investment in pipe replacement 

is all the more difficult to convey because it was never there before. It's hard to explain why 

it's going to cost more to do the same job in the future than it cost in the past. 

Many water systems all across America have seen this day coming and have already begun 

to ramp up their expenditures on pipe rehabilitation and replacement. But for many utilities this problem is just emerging and is enormous in scope. For them the water supply 

business will never be the same. 

Back to the future: 

replacement needs are a 

To understand the nature and scope of the emerging infrastructure challenge, A\V\VA 

undertook an analysis of 20 utilities throughout the nation. The analysis projects future 

investment needs for pipe replacement in the 20 utilities and provides a forecast called a 

"Nessie Curve." The Nessie Curve is a graph of the annual replacement needs in a particular utility, based on when pipes were installed and how long they are expected to last 

in that utility before it becomes economically efficient to replace them. There are, of 

course, a number of factors that can require the replacement investment to be made earlier. In many cities, for example, there are urban redevelopment efforts or similar major 

construction projects that could require up-sizing or other modernization of the pipe network before the pipes reach the end of their useful lives. 

Data on repair and replacement needs for each of the 20 cities in our sample is presented 

in Appendix A. This information is presented for each city as a "Nessie Curve," that is, a 

projection of the city's economically efficient investment in pipe repair and replacement, 

based on the city's original pipe installation profile and how long the pipes last in that utility. The aggregate Nessie Curve for all 20 utilities is presented in Figure 3. The rising 

wave shape suggests why the curve is named after the Loch Ness Monster. 

Projected Main Replacement Expenditure Due to Wear-Out for 20 Utilities 

.., "' ~ ~ .., "' ,_ "' .., "' ,_ "' .., "' ,_ "' .., "' ,_ "' ~ ~ ~ ~ ~ ~ "' N N N N N 

i<: i<: i<: i<: i<: i<: i<: i<: ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ i<: 

Figure 3 

12 AMERICAN WATER WORKS ASSOCIATION 
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The Nessie Curve reflects an "echo" of the original demographics that shaped a particular 

utility. It is very similar to the echo of demographics that predicts future liabilities for the 

Social Security Trust Fund. Indeed, this is exactly the same type of problem that faces 

Social Security. Historical demographic trends-in our case, pipes laid down as long as a 

century ago-created a future financial obligation that is now coming due. By modeling the 

demographic pattern and knowing the life expectancy of the pipes, we can estimate the timing and magnitude of that obligation. 

Just as in Social Security, a threat to affordability arises when there were powerful demographic and economic trends at work originally, but the liability arrives at a later time when 

the demographic and economic conditions have changed. In the water business, the challenge is magnified by pipes that last through several generations of customers before they 

need to be replaced. 

Reflecting the pattern of population growth in large cities over the last 120 years, the 

Nessie Curves in Appendix A forecast investment needs that will rise steadily like a ramp, 

extending throughout the 21st Century. The curves show that replacement expenditures 

will have to rise steadily for the next 30 years. By 2030, the utilities in our sample of 20 will 

have to spend on average over three-and-a-half times as much per year as they do now (in 

constant dollars) to replace pipes that have reached the end of their economic lives. Some 

of the utilities in our sample will encounter the steepest part of the incline in the first 10 

years. Others will encounter most of the rise over 20 years, while some will experience a 

sustained increase over 3 0 years. 

Of course, every city has a different demographic history. In addition, numerous local factors will affect the life of a utility's pipes and therefore its Nessie Curve. Each utility has a 

unique set of circumstances and therefore a different set of infrastructure funding challenges in the future. Nonetheless, demographics will produce the same type of lagged 

replacement schedule in any major city. 

If that were not enough of a challenge, there is an important corollary. As pipe assets age, 

they tend to break more frequently. But it is not cost-effective to replace most pipes before, 

or even after, the first break. Like the old family car, it is cost-efficient for utilities to endure 

some number of breaks before funding complete replacement of their pipes. 

Considering the huge wave of aging pipe infrastructure created in the last century, we can 

expect to see significant increases in break rates and therefore repair costs over the coming 

decades. This will occur even when utilities are making efficient levels of investment in 

replacement that may be several times today's levels. In the utilities studied by AWWA, 

there will be a three-fold increase in repair costs by the year 2030 despite a concurrent 

increase of three and a half times in annual investments to replace pipes. 

It is important to note that a Nessie Curve is a prediction, not a destiny. That is, a utility 

can choose to manage its infrastructure replacement needs in various ways. For example, 

the utility may accept increased break repair costs up to a point and delay the replacement 

of an old pipe·, rehabilitate certain pipes to "buy time," or adopt other asset management 

techniques to extend the life of the pipes as long as possible. Nevertheless, it appears 

inevitable that many utilities will face substantial increases in infrastructure investments 

over the next 30 years, to replace pipes laid down as long as 120 years ago. 
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A final observation from our sample of 20 Nessie Curves is that the large "demographic 

wave" of replacement needs is only just now upon us. We are just now at the time when 

there is a compelling need to significantly increase the levels of replacement spending in 

most utilities. Importantly, there is no evidence that utilities are "behind the curve" or that 

America is in ruins. That is not the nature of the challenge. We are not faced with making up for a historical gap in the level of replacement funding. In fact, break rates in our 

sample of 20 utilities are within a range that is considered representative of best management practices for water utilities, indicating that the utilities have made efficient decisions 

and managed well up to this point. The challenge is ramping up utility budgets to prevent 

a "replacement gap" from developing in the near future. Unfortunately, keeping up with 

replacement needs is about to get a lot harder than ever before, and it's going to stay that 

way. We are coming face-to-face with a serious challenge that could become a crisis if we 

ignore it. 

Water infrastructure is local and 

therefore vulnerable to rl .. ~ ..... .-.,., ... ,.,,.,.h,i"" ct"'aru:l!es 

Water utilities are the last natural monopolies. The large investment required in pipe networks makes it impossible to have more than a single provider of water service within a 

given area. These large investments are also a major source of financial vulnerability for 

water utilities as the result of the very fixed nature of the assets and the very mobile nature 

of the customers. When populations grow, the infrastructure is expanded, but when people move away, the pipe assets and the liability for repair and replacement remain behind, 

creating a financial burden on the remaining customers. 

Figure 4 is a plot of U.S. Census population data for Philadelphia from 1850 to 1996. Over 

the 100 years from 1850 to 1950, the population grew from 100,000 to 2 million people. 

But from 1950 to the end of the century, Philadelphia lost 25 percent of its population, 

dropping to 1.5 million. This picture tells a story that was replicated again and again 

Philadelphia 

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14 AMERICAN \IVATER WORKS ASSOCIATION 
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throughout the Rustbelt cities of the Northeast and Midwest. The effect is to significantly increase the burden of replacement funding on the remaining residents of the city. 

As previously discussed, the average per-capita value of water main assets in place today 

across our sample of 20 utilities is estimated to be three times the amount that was present 

in 1930. In Philadelphia, however, that ratio is almost eight times the value in 1930 due to 

population declines since about 1950. This problem, known as "stranded capacity" (essentially, capital facilities that are not matched by rate revenue from current customers), is 

typical of Rustbelt demographics and adds considerably to the challenge of funding 

replacement in these cities. 

Urban demographic history also explains many other dimensions of the infrastructure 

replacement challenge facing the water industry. Both gains and losses in urban populations created small system infrastructure problems in their wake. During the first half of 

the 20th Century, many of the people swelling the populations of the urban centers came 

from smaller rural towns, leaving small water system infrastructure behind to struggle with 

fewer customers. In the latter half of the century, the departure of big city residents for the 

suburbs fueled an explosion of new, small water systems in suburban areas. Today about 

half of all small water systems are within Standard Metropolitan Statistical Areas defined 

by the U.S. Census. Built in boom times, many of these suburban systems were not built 

to enduring standards, creating another liability. \¥hen these systems are absorbed by larger metropolitan systems, it is commonly necessary to completely rebuild them. 

The pattern reflected in Sunbelt cities is the other side of the story from that in the 

Rustbelt. These cities are experiencing rapid growth and expansion which places capital 

financing demands upon them that are truly the opposite side of the coin. \¥hen water utilities are expanding, they must build some of the most expensive components-new source 

development, storage facilities, transmission mains, and treatment plants-in advance of 

population growth in order to serve people when they arrive. This is, in effect, another 

form of stranded capacity--capital facilities that must be paid for despite the fact the customers are not yet in place. Investor-owned utilities are, in fact, generally prohibited by 

state regulatory commissions from recovering such costs in rates. 

Demographic change thus places financial strain on all our public water systems. It is the 

same whether they are large or small; urban or rural or suburban; and Rustbelt or Sun belt. 

The inescapable fact is that water infrastructure is fixed while populations are mobile. The 

result is a form of "market failure" -an adverse side effect of market activity that creates an 

unfunded liability. America derives tremendous economic strength from the fact that it has 

a highly mobile labor force. \¥hen people move around, however, there are costs imposed 

on the local water infrastructure. It is the same whether it is people moving from rural 

towns to the city, from the city to the suburbs, or from the Rustbelt to the Sunbelt. Our 

labor mobility imposes a significant cost on water utilities on both the giving end and the 

receiving end of this market process, while the benefits are generally disseminated 

throughout the national economy. 

AMERICAN WATER WORKS ASSOCIATION 15 
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Replacement of water treatment 

nn'~"~"'"~ is also due. 

Replacement of water treatment assets presents a different picture from that of the pipes, 

but greatly complicates infrastructure funding for utilities. Major investments in water and 

wastewater treatment plants were made in several waves following the growing understanding of public health and sanitary engineering that evolved during the 20th Century. 

Of course, the installation pattern of treatment assets also reflects major population 

growth trends. But whereas pipes can be expanded incrementally to serve growth, treatment must be built in larger blocks. Investments in treatment thus present a more concentrated financing demand than investments in pipes. 

Treatment assets are also much more short-lived than pipes. Concrete structures within a 

treatment plant may be the longest lasting elements in the plant, and may be good for 50 

to 70 years. However, most of the treatment components themselves typically need to be 

replaced after 2 5 to 40 years or less. Replacement of treatment assets is therefore within 

the historical experience of today's utility managers. Even so, many treatment plants built 

or overhauled to meet EPA standards over the last 25 years are too young to have been 

through a replacement cycle. Many are about due for their first replacement in the next 

decade or so. 

The concurrent need to finance replacement of pipes and of treatment plants greatly 

increases the challenge facing utilities. Figure 5 presents a Nessie Curve showing both pipe 

replacement and treatment replacement needs for the Bridgeport Hydraulic Company. 

Similar Nessie curves for a number of other utilities are included in Appendix A. 

The distinguishing characteristic of this graph is the manner in which spending for the 

replacement of pipes rises like a ramp over the first part of the century, pushing up the 

overall level of annual expenditure required. Whereas pipe repair and replacement are 

generally funded out of current revenues, treatment costs are typically debt-financed. As 

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16 AMERICAN V\IATER V\IORKS ASSOCIATION 
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utilities face ever rising costs for repair and replacement of pipes, more and more of the 

utility's rate revenue will be required for those investments. This will leave the utility with 

increasingly weakened credit every time it gets to another "treatment hump," unless rates 

can be raised to match the slope of the curve. A final point to note about the treatment cost 

estimates used in developing Figure 5 and others like it in Appendix A is that these do not 

include the cost of new drinking water regulations likely to be implemented over the coming decades. 

Increased are needed 

to climb the ramp and avoid a gap. 

The Water Infrastructure Network (\VIN) has developed a "gap analysis" to estimate the 

total increased spending that is required by water and wastewater utilities in order to avoid 

getting behind in funding infrastructure replacement over the next 20 years .I The first step 

in the WIN estimate is accomplished by extrapolating from Census data on historical utility expenditures for 20 years into the future. The resulting baseline expenditure forecast is 

then examined to see how much it must be increased in order to meet new expenditure 

"needs" for both new EPA compliance requirements and infrastructure repair and replacement over the same 20-year period. The "gap" between the baseline expenditure forecast 

and the future "needs" forecast is the amount of additional expenditure that must be forthcoming in order for water and wastewater utilities to maintain their critical infrastructure 

in a healthy condition. 

The findings of this "gap analysis" indicate that the baseline expenditures of water utilities 

must be increased by about $300 billion over 20 years to keep up with both compliance and 

infrastructure needs. In similar fashion, the baseline expenditure trend in wastewater utilities must be increased by about $400 billion to meet such needs. Taken together, and 

accounting for the cost of capital, WIN has estimated that water and wastewater utilities 

together need to increase their investments in infrastructure by almost $1 trillion over the 

next 2 0 years. 

The WIN "gap analysis" is easily misunderstood. Many have interpreted it to mean that a 

trillion-dollar deficiency already exists. It is important to stress that the gap estimate represents the challenge ahead-the ramp that we must climb-in increasing utility expenditures in order to avoid such a deficiency. The AWWA Nessie Curve analysis of 20 utilities 

indicates that we are not now behind in maintaining our water infrastructure. There is no 

current crisis in these 20 utilities. Rather, they are challenged with finding significant additional funds over the next 30 years for investments in repair and replacement, in order to 

avoid getting behind. 

Extrapolation from aggregate baseline trends, such as in the WIN gap analysis, is akin to 

"technical analysis" of the stock market using charts, graphs and trending techniques. 

Investment analysts typically like to supplement such "technical analysis" with "fundamental 

analysis" of the situation existing within individual companies. The AWWA Nessie Curve 

analysis provides this type of supplemental perspective on increased expenditure needs. 

I Water Infrastructure Network (WIN), Clean & Safe Water for the 21st Century, April2000. 

AMERICAN WATER WORKS ASSOCIATION 17 
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As illustrated in Figure 5, the Nessie Curve analysis indicates that expendimres on infrastructure repair and replacement must be significantly ramped-up over a period extending 

from 2000 through 2030. The steep rise is shown to level off after that, but it does not go 

away. Expendimres will have to continue to climb, albeit more gradually, throughout most 

of the rest of the 21st Century. This shape is the signamre pattern of the new replacement 

era that we have entered. It is not a short-term "hump" that we have to get over. The 

shape of the challenge is that of a sustained rise in expenditures. This period of rampingup is going to be a period of significant adjustments. 

The Nessie Curves of the individual utilities shown in Appendix A present wide-ranging 

needs for increased expenditure for replacement of pipes and treatment assets due to wearout. In the 20 utilities studied, such needs total about $6 billion above current spending over 

the next three decades. On a household basis, needs range from $550 to $2,300 over 30 

years. These figures do not include the prospective costs of numerous new SDWA regulations likely to be implemented over the coming decade, nor any costs from the wastewater 

or stormwater side of the urban utility business. Moreover, as seen in Appendix A, the utilities vary widely in the timing of these needs; some face sharp needs in the next 10 years, 

while others don't face their highest needs for 10 or 20 years. The slope and the "humpy" 

patterns of increasing capital requirements are unique to each utility. 

Our sample of 20 utilities represents relatively large water utilities. On a per household 

basis, the total 20-year capital needs for replacement illustrated in our sample is about the 

same as that estimated by EPA for large water systems in their newly released Drinking 

Water Needs Survey.2 

The EPA Drinking Water Needs Survey uses a site visit methodology and a large sampling 

program to document needs in small systems and is probably the best information available on small system needs. Extrapolating from EPA's estimated 20-year capital need for 

small systems, we project the total 30-year expenditure for infrastrucrure repair and 

replacement in small systems might be in a range of $1,490 per household to $6,200 per 

household. 

The result of this "fundamental analysis" using Nessie Curves is not inconsistent with the 

order of magnitude of the need that WIN estimates to be facing water utilities ($300 billion over 20 years). Extrapolation from our 20 sets of Nessie Curves suggests that the need 

might be on the order of $2 50 billion nationally and extend over three decades. However, 

the Nessie Curve forecast is based on an assumption that pipes are left in the ground until 

their economic life is over. The reality in utility operation is that myriad other influences 

can cause the replacement need to arise sooner. These include urban redevelopment, 

modernization, coordination with other city construction schedules, increasing pipe size, 

and other factors. 

2 U.S. Environmental Protection Agency, 1999 Drinking Water Infrastructure Needs Survey 

(EPA 816-R-01-004), February 2001. 

18 AMERI6AN WATER WORKS ASSOCIATION 
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Addressing affordability is the heart of the challenge. 

The central question for policy makers and utilities is whether the increased rate of infrastructure spending that utilities must face over the next 30 years can be financed by the utilities themselves at rates customers can afford. AWWA remains, committed to the principle 

that utilities should be self-sustaining through their rates. For many utilities, however, the 

degree of change involved in adapting to the dawning replacement era, the adverse effect 

of demographic change on per household costs, and the competing demand for investment 

in wastewater and other municipal services, will combine to present a significant affordability challenge. 

There are two related dimensions to the affordability concern. First is the ability of utilities to finance the needed additional expenditures within their rates. Second is the impact 

of higher rates on households. 

In developing this study, AWWA brought together a group of utility managers from across 

the country to discuss infrastructure issues. This group characterized the question from a 

local perspective as an "affordability gap" or a "reality gap" and defined it as "the difference between what you think you should be spending on infrastructure and what you or 

your customers can afford to spend in reality." This characterization of the problem reflects 

the difficulty of obtaining significant utility rate increases. Rate increases are best received 

when implemented gradually in a number of installments over several years. Unfortunately, 

the rate increases required to meet the challenges of pipe replacement that utilities now 

face cannot be smoothly implemented in many cases. 

There is small likelihood that the $550 to $2,300 per household projected to be required 

for infrastructure repair and replacement in our 20 utilities over the next 30 years can be 

spread evenly or taken on gradually over that period. As illustrated in Appendix A, some 

Nessie curves present a steeper funding challenge and some present a gentler slope due to 

local variations in the historical demographic trends. There are "humps" on the up-ramp 

for replacement of treatment plants and other equipment. Additional "humpy" expenditures for compliance with anticipated new regulations are not included. In small systems, 

the estimated $1,490 to $6,200 range of household impact is likely to be even more concentrated since the original demographics were themselves more concentrated. 

Compliance-driven requirements to replace treatment plants and invest to meet new mandates will also dominate expenditures and push aside the more subtle need for investments 

in pipe replacement. This is exacerbated by the fact that the costs of water and wastewater 

service appear on the same bill in most communities. Thus, the needs to replace wastewater 

treatment plants and to replace wastewater lines compete with drinking water needs for the 

same consumer dollar. Sewer pipes generally impose higher unit replacement costs than 

water pipes, owing to their inherent characteristics (size, depth, etc.). Figure 6 presents a 

Nessie curve for a combined water and wastewater utility showing replacement funding 

needs for both water and wastewater pipes and other assets (treatment, pumping, etc.). The 

figure illustrates the typical relationship between water supply and wastewater costswastewater facilities cost noticeably more to replace. 

The combined repair and replacement needs for water and wastewater infrastructure 

amount to a significant financing challenge in their own right. But the cost of compliance 
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Asset Replacement Projections for a 

Combined Water & Wastewater Utility 

20e"''''"""'""""''"""""""""""""""""""""""'""'""""""""""""""""""""""""""""""'"""'""""""""""""""""""""""""""'""'"""""""""'""'"""'"'"""'' 

18 

16 

14 

~ 12 0 

~ 10 

.,. 8 

4 

0 

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Figure 6 

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N "' "' ~ ... ..... 0 N N 0 "' 0 0 0 0 0 0 N N N N N N N 

"' <0 "' N "' "' ;;; ~ ..... 0 "' <0 N 

"' "' "' "' "' "' "' <0 <0 <0 ..... 0 0 0 0 0 0 0 0 0 0 0 0 0 N N N N N N N N N N N N N 

Years 

Ill Water Supply Plant 

o All Water Mains 

Ell Wastewater Plant 

• All Sewers 

with combined sewer overflow (CSO) and stormwater regulations may dwarf everything 

else in water and wastewater utilities. The scale of the expenditure required in these programs may sweep everything else aside in some utilities, causing deferral of other needs 

and allowing a "gap" to open up. Note that CSO and stormwater compliance costs are not 

included in Figure 6. 

To avoid an infrastructure gap, utilities are going to have to increase expenditures to keep 

up with both compliance requirements and infrastructure replacement. If rate increases do 

not keep pace with the increased rate of expenditures, the financial ratios used to evaluate 

a utility's creditworthiness will deteriorate, making it more difficult and more expensive to 

raise capital. 

If a utility attempts to balance a deficiency in allowable rates by deferring infrastructure 

expenditures, then the stage is set for an infrastructure investment gap to begin to develop, creating a future liability for the utility and its customers. W!th the new accounting 

requirements being implemented under the Governmental Accounting Standards Board 

Statement No. 34 (GASB 34), such a deferral of infrastructure expenditures will be reported to the financial markets and begin to impair the utility's credit rating and ability to raise 

capital. 

Since the Nessie Curve represents replacement timing based on the economic life of the 

pipes, it follows that deferral of replacement will produce higher overall costs due to 

increased repairs than would be the case if replacement occurred on time. If replacement 

is deferred too far beyond the economic trade-off point between replacement and repair 

costs, the repair cost burden will spiral upwards and have significant impacts on utility 

cash flows. Such a scenario will indeed impair a utility's ability to repay debt and will be 

made plain to the credit market~ by the new GASB 34 requirements. 

20 AMERICAN WATER WORKS ASSOCIATION 
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In either of these scenarios-rates that don't keep up with expenditures or expenditures 

that don't keep up with needs-the bottom line is the same. If both expenditures and rate 

revenues cannot be increased at the required rate, then the utility's credit may be impaired, 

and it may face even higher costs as a result. For some utilities, there is the potential for 

this to become a vicious cycle-a financial trap. These systemic financial risks are the reason why we have a clear and present need for an enhanced partnership between utilities, 

states and the federal government. We need to provide the means to assist utilities "up the 

ramp and over the humps." We need to minimize the credit risks utilities face over the next 

three decades as we make the adjustments in rates required to assure sustainability in the 

new replacement era. 

The second, and all important, dimension of the affordability challenge is the bottom-line 

impact of increased water rates on household budgets. AWWA believes it is critical to avoid 

sudden and significant changes in rates that can induce "rate shock" among customers. The 

broader issue involved in rate shock ties back to the pivotal role of safe drinking water in 

promoting public health. 

America has by far the safest drinking water in the world. Standards promulgated under the 

Safe Drinking Water Act aspire to the highest levels of technology and treatment optimization known to science. As we push farther into the limits of science and technology, 

we unavoidably encounter diminishing returns in terms of quantifiable health benefits at 

the same time that we must take on increasing marginal costs. Many new standards relate 

to very subtle health concerns that are difficult to substantiate and quantifY. Yet, to be protective of health, there is a tendency to err on the side of safety, especially when the threats 

may relate to sensitive subpopulations such as children, the unborn, the elderly and the 

health-impaired. 

This is where the issue of rate shock must be brought into focus as a public health concern. 

Whenever the sensitive subpopulations we are striving to protect are also among the lowincome segment of the population and are forced to forego medical care or nutrition in 

order to pay their utility bills, we could be doing more harm than good. The fact that we 

are now entering a significantly more expensive replacement era in water infrastructure 

makes it all the more difficult to maintain the right balance in this aspect of public health. 

By some comparisons, it may appear that water is still cheap and there is room to increase 

water rates. But such comparisons are not relevant to low-income households. The only 

comparison that matters in these households is the size of the incremental increase. If it is 

large enough to trigger a budget substitution that negatively affects family health-for 

example, giving up a prenatal visit in order to pay a utility bill-then we may be losing 

ground. 

Over the past decade, utilities have formed an increasingly closer partnership with EPA, 

states, the environmental community, the public health community and other groups to 

continue to make progress for public health despite significant scientific challenges. This 

partnership must now be broadened to address the financial challenges of infrastructure 

replacement in order to preserve the fruits of our labors in the public health arena. 

AMERICAN WATER WORKS ASSOCIATION 21 
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26626.335

Considering all of these facts, the American Water Works Association believes it is time 

for a new American partnership for clean and safe water. This partnership requires that all 

levels of government and utilities play a role in working through the significant challenges 

ahead. Specifically, we recommend: 

I) Measures by Utilities and Local Governments 

The infrastructure funding issue varies from place to place, reflecting the age, character 

and history of the community. Although AVlWA has looked at the infrastructure issue in 

the aggregate, many key questions must be asked and answered at the local utility level. 

The development of a comprehensive local strategy can bring these elements into focus 

and create a new "reality" that will help make infrastructure repair and replacement more 

affordable. Such a comprehensive strategy includes: 

• Assessing the condition of the drinking water system infrastructure. Over the 

last few decades, utilities around the world have been developing innovative new 

approaches to managing long-lived buried infrastructure. In North America and 

overseas, some utilities are already taking advantage of tools such as geographic 

information systems, using new information to advance the state of the art and 

aggressively managing infrastructure replacement. Planning tools can help identifY and plan for needed investment decades in advance of the actual need for funds. 

\Ve should learn from, adapt, and use such tools. 

• Strengthening research and development, Although there is not likely to be a 

single. "silver bullet" to solve infrastructure management problems, an impressive 

array of technological tools have been moving through the research and development process in recent years. Efforts to develop and deliver such tools should be 

strengthened. 

• Working with the public to increase awareness of the challenge ahead, assess 

local rate structures, and adjust rates as necessary. For many years, water and 

wastewater utilities have been nicknamed "the silent service.'' Utilities have quietly provided an extremely reliable supply of high-quality water at relatively low 

rates compared to other public utilities and services. Partly as a result, a large number of utilities, particularly smaller ones, do not have appropriate rate structures. 

The 1996 SDWA requirement for Consumer Confidence Reports provides a vehicle for many utilities to take the first step in broadening their dialogue with customers and the public at-large. Comprehensive, focused, and strategic communications programs serve the dual function of providing consumers \vith important 

information about their water systems and building support for needed investments in infrastructure. 

• Building the managerial capacity of many water systems. Congress took new 

steps in the 1996 SDWA Amendments to assure the institutional capacity of small 

systems applying for state revolving fund loans. Much more remains to be done in 

this area. EPA, in conjunction with water associations, could sponsor training programs on appropriate rate structures, designed specifically to deliver assistance to 

small systems in planning for full cost recovery through rates. 
367 


26626.336

2) Reform of State Programs 

The states, too, have an important role to play in addressing our infrastructure funding 

needs. States may need to match an appropriate share of any new federal funds that are provided for infrastructure assistance. Moreover, they need to reform their existing programs 

to make them more effective. For example, some states have not allowed larger systems to 

access the existing state revolving fund, or have excluded investor-owned systems. Some 

states encumber their revolving funds with nonproductive red tape, charge high loan origination and other fees, or charge loan rates that are equivalent to market rates. Some states 

preclude the use of alternate procurement methods that minimize infrastructure procurement costs. For example, the "design/build" process for infrustructure procurement has 

been documented to save 20-40% of construction costs for new treatment plants in some 

cases. Public procurement laws in many states, while not explicitly banning design/build, 

mandate a process that prevents its use where local authorities have determined it would 

be advantageous. 

The result is that, in many states, revolving loan funds have not proved to be useful or attractive even to drinking water utilities desperately in need of capital. States should commit to: 

• Respecting the universal eligibility of all water systems for federal assistance. 

• Streamlining their programs for delivery of assistance and allowing alternative procurement procedures that save money. 

• Making their financing mechanisms more attractive by committing to grants and 

very low or negative interest loans. 

• Using federal funds in a timely fashion or facing the reprogramming of those funds 

to other states. 

3) A Significant Increase in Federal Assistance 

After accounting for the cost savings that can come from best practices in asset management, the development of new technologies, efforts to increase ratepayer awareness and support, and possible alternative compliance scenarios, for many utilities there is likely to remain 

a gap between the required expenditure increases and the practical ability to raise water rates. 

This gap could grow over the next few decades as infrastructure built in the late-1800s to 

mid-1900s must be repaired, replaced, and rehabilitated at the same time that we are trying 

to enhance the level of water treatment under the Safe Drinking Water Act (SDWA). 

AWWA remains committed to the principle that utility operations should be fully supported 

by rates. In the long run, the objectives must be to manage the costs of replacing pipes and 

treatment plants and ensure financial sustainability through local rate structures. However, 

many utilities are going to face a period of adjustment in adapting to the new reality of the 

replacement era described in this report. Many utilities and their customers will need additional assistance in working through extraordinary replacement needs in the next 20 years. 

The difference between drinking water utilities' current expenditures for infrastructure 

replacement and the needed level of expenditure is estimated by WIN to be about $11 billion per year over the next 20 years. If the federal government were to provide half the cost 

of this gap, the federal share of total utility spending would amount to under 12 percent of 

total utility spending. For comparison, the federal share of investment in roads, bridges, 

and airports is 80 percent. 
368 


26626.337

To prevent the development of a gap in critical water infrastructure financing, AWWA 

recommends either changing and expanding the existing Drinking Water State Revolving 

Fund and other drinking water programs or creating a new, infrastructure-focused fund. 

Such a fund should provide: 

• Significantly increased federal funding. 

• Clear eligibility of projects to repair, replace, or rehabilitate drinking water infrastructure. 

• Universal eligibility of all water systems, both public and investor owned, regardless of size. 

• Ability to make grants or loans in any combination and to use other financing tools 

to leverage public and private capital. 

• Reasonable terms and conditions such as demonstration of system viability and 

ability to repay a loan. 

• Streamlined procedures for those accessing the funds. 

Research is a critical component of a comprehensive federal program on infrastructure. 

Research stimulates the development of new techniques and unleashes American ingenuity. It offers the chance to save billions of dollars over the years to come through more efficient management, repair, and replacement technologies. The federal government should 

significantly increase its support for research on infrastructure management, repair and 

replacement technologies, methods for extending pipe life, and other means of advancing 

the art while lowering the cost of infrastructure management. 

Finally, the federal government should take other important steps to better access and 

leverage public and private capital. Congress should consider: 

• Development of a national water infrastructure financing bond bank similar to 

Fannie Mae. 

• Tax code and other reforms to increase the availability and use of private capital. 

This could include steps such as the removal of constraints on private activity 

bonds, development of subsidized bond insurance, provision of federal loan guarantees, and improved investment tax credit incentives. 

Considering when pipes were laid down in many water systems and how long they can be 

expected to last, it is clear that a new age-the replacement era-has arrived for water utilities. Over the next 30 years, infrastructure replacement needs will compete with compliance needs for limited resources. Clearly, infrastructure needs and compliance with the 

Safe Drinking Water Act can't be approached as separate issues, but need to be addressed 

together. 

Only in the true spirit of a new partnership, as outlined in this report, can we think most 

broadly about these issues. Only in this spirit can we achieve the goals to which we all 

aspire: the provision of safe and affordable water to all Americans. 

24 AMERICAN WATER WORKS ASSOCIATION 
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Dawn the Replacement Era 

APPENDIX A 

20 Sets of Nessie Ctnves 

This appendix presents results of infrastructure expenditure needs analyses conducted for 

20 water utilities across the United States. The "Nessie Curve" technique employed in this 

study produces a forecast of water main and other asset repair and replacement expenditure requirements based on how those assets "wear out" over the course of their economic life. VVhile this study has focused on projecting economically efficient replacement and 

repair costs from wear-out, there are other reasons why assets might be replaced sooner, 

such as needs relating to urban redevelopment, system improvements, coordination with 

other city construction, and increasing pipe size. The curves also focus only on existing 

assets and take no account of new assets needed to support growth or compliance with new 

SDWA regulations in the coming decades. 

For each utility, results are summarized in several Nessie Curves illustrating different perspectives. For each utility there is an estimate of the total replacement cost value of the 

utility's assets in today's dollars. There is also an indication of whether the utility was studied with respect to mains only, or whether it was studied with respect to a wider range of 

assets (including treatment plants). In viewing the charts, it is important to remember 

whether the utility is an "apple" (mains only) or an "orange" (all assets). 

The charts presented cover the next 50 years, primarily to better illustrate the characteristic shapes of the replacement "echo" while also identifying differences in the timing of 

major replacement requirements between the participating utilities. All values are constant 

year 2000 dollars. The forecasts assume zero inflation. 

The first chart is entitled. "Projected Per Household Expenditures Due to Wear-Out 

($/hhlyr)." In this graph, the total cost for replacement and repair due to aging is projected over the next 50 years at the household level. 

The second chart, entitled "Projected Total Expenditures Due to Wear-Out" is similar to 

the first chart, showing the relative requirements for replacement expenditures and repair 

expenditures for the assets studied in each utility, expressed in total dollar outlays for the 

utility. 

For the utilities that were studied with respect to all assets, there is a third chart on the 

page entitled, "Projected Total Replacement Expenditures Due to Wear-Out." This chart 

projects replacement investment only, showing the relative contributions to 50-year 

replacement needs of mains versus other assets (treatment, pumping, etc.). For utilities 

that were studied only with respect to mains, this third chart is omitted from the summary 

page for that utility. 

AMERICAN WATER WORKS ASSClGIATION A1 
370 


26626.339

Utility 

Austin, Texas 

Boston, Massachusetts 

BHC, Bridgeport, Connecticut 

West Virgina American, Charleston, West Virginia 

Cincinnati, Ohio 

Columbus, Georgia 

Denver, Colorado 

Des h1oines, Iowa 

East Bay MUD, Oakland, California 

Gloucester, Massachusetts 

Honolulu, Hawaii 

Louisville, Kentucky 

United Water, New''''""~"'"' New York 

Philadelphia, !:'erm51rlvama 

Portland, Oregon 

St. Paul, Minnesota 

Seattle, W~tsh:ington 

Tacoma, W;lshlinjg-to'n 

Tucson, Arizona 

Wausau, Wisconsin 

Page 

A-3 

A-4 

A-5 

A-6 

A-7 

A-8 

A-9 

A-10 

A-ll 

A-12 

A-13 

A-15: 

A-16 

A-17 

A-18 

A-19 

A-20 

A-21 

A-22 
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~ N 

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40.0 

35.0 

30.0 

25.0 

20.0 

15.0 

10.0 

5.0 

0.0 

Texas 

Asset Sets Modeled: Water MainsEstimated Replacement Value $2,348 M 

Projected Per Household Expenditures Due to Wear-Out ($/hhlyr) 

Ill Replacement Ill Repairs 

Projected Total Expenditures Due to Wear-Out 

§ I~ ,,,; ;~ ~~ ~~ ~ ~ i~ ;~., 

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Ill Replacement IIIII Repairs 

AMERICAN WATER WORKS ASSOCIATION A3 
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Asset Sets Modeled: Water Mains -

Estimated Replacement Value $694 M 

Projected Per Household Expenditures Due to Wear-Out ($/hh/yr) 

50·?""""""""""""""""""""""""'"!""""""""""""""""""""""""""""'""'""""""""""""""""""""""""""""""""""""""""""""""""''"""""""""""""""""""""! 

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A4 AMERICAN WATER WORKS ASSOCIATION 
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Asset Sets Modeled: Water Mains & Water Supply PlantEstimated Replacement Value $1,663 M 

140 

120 

100 

"' BO 

~ 

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60 

40 

20 

20.0 

:5 15.0 

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5.0 

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Projected Total Expenditures Due to Wear-Out 

"' "' 0 N .. "' "' 0 

~ ~ "' "' 0 N .. "' "' 0 ~ .. "' "' ~ 0 ~ 0 N N N M M M M M l1i l1i l1i l1i 0 0 0 0 0 0 l'l 0 l'l l'l 0 N N N N N N N N N l'l 

ll Replacement II Repairs 

Projected Total Replacement Expenditures Due to Wear-Out 

18 ·F"''"'"""'""'"'""'"!"'"'"""'"'""""""""'""'"""'"'"'"'!"""""""""""""""'"'"'''"'"""!""""""""'""'"'""'""'''"'"''"'""''~'"~"'""! 

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AMERICAN WATER WORKS ASSOCIATION A5 
374 


26626.343

wv 

Asset Sets Modeled: Water Mains & Water Supply PlantEstimated Replacement Value $650 M 

Projected Per Household Expenditures Due to Wear-Out ($/hh/yr) 

1111 Replacement 1111 Repairs 

Projected Total Expenditures Due to Wear-Out 

16.0 

14.0 

12.0 

"' c: 

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1111 Replacement 1111 Repairs 

Projected Total Replacement Expenditures Due to Wear-Out 

Ill Mains fill Other Assets 

A6 AMERICAN WATER WORKS ASSOCIATION 
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Asset Sets Modeled: Water Mains & Water Supply PlantEstimated Replacement Value $2,042 M 

80 

~ N 60 >-

40 

20 

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Projected Total Expenditures Due to Wear-Out 

!~ :~ 

till Replacement 1111 Repairs 

Projected Total Replacement Expenditures Due to Wear-Out 

@tlMains 0 Other Assets 

AMERICAN WATER WORKS ASSOCIATION A7 
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26626.345

Asset Sets Modeled: Water Mains & Water Supply Plant 

Estimated Replacement Value $648 M 

9.0 

8.0 

7.0 

~ 6.0 c: 

~ 5.0 ~ 

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Projected Total Expenditures Due to Wear-Out 

Iii Replacement Ill Repairs 

Projected Total Replacement Expenditures Due to Wear-Out 

I! Mains 0 other Assets 

A8 AMERICAN WATER WORKS ASSOGIATION 
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Asset Sets Modeled: Water Mains & Water Supply Plant -

Estimated Replacement Value $5,583 M (Includes Major Dams) 

"' 

~ "' 150 

100 

50 

90.0 

80.0 

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Projected Per Household Expenditures Due to Wear-Out ($/hh/yr) 

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Projected Total Expenditures Due to Wear-Out 

1111 Replacement 1111 Repairs 

Projected Total Replacement Expenditures Due to Wear-Out 

llil Mains 0 Other Assets 

AMERICAN WATER WORKS ASSOCIATION A9 
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Asset Sets Modeled: Water Mains & Water Supply Plant -

Estimated Replacement Value $524 M 

Projected Per Household Expenditures Due to Wear-Out ($/hh/yr) 

100 

80 

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40 

20 

~~ ~ § ·~ ,;,;; ;~ ;i~ '1::-l j;;j· L~ ~ ·~ 

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Projected total Replacement Expenditures Due to Wear-Out 

!!I Mains 0 Other Assets 

A10 AMERICAN WATER WORKS ASSOCIATION 
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Asset Sets Modeled: Water Mains & Water Supply Plant -

Estimated Replacement Value $8,110 M 

Projected Per Household Expenditures Due to Wear-Out ($/hh/yr) 

~ 150 ,~,,,,,,,,,,,.,,, ••• ,:.,:.;.,,,.,,.,.,,.,,.: 

>! 100 

50 

Iii! Replacement ill Repairs 

Projected Total Expenditures Due to Wear-Out 

140.0 

120.0 

~ 

c 100.0 

~ 

~ 80.0 

"' "' 60.0 >! 40.0 

20.0 

0.0 

liil Replacement Ill Repairs 

Projected Total Replacement Expenditures Due to Wear-Out 

80 

70 

60 

"' 50 c 

~ 40 ~ .,. 30 "' N 

>- 20 

10 

liil Mains 0 Other Assets 

AMERICAN WATER WORKS ASSOCIATION A11 
380 


26626.349

Asset Sets Modeled: Water Mains & Water Supply Plant -

Estimated Replacement Value $116 M 

r:! 1.4 

~ 1.2 

:E 1 

~ 0.8 >- 0.5 

0.4 

0.2 

Projected Per Household Expenditures Due to Wear-Out ($/hh/yr) 

llil Replacement Ill Repairs 

Projected Total Expenditures Due to Wear-Out 

Replacement !iii Repairs 

Projected Total Replacement Expenditures Due to Wear-Out 

lll!l Mains EJ Other Assets 
381 


26626.350

Asset Sets Modeled: Water Mains & Water Supply Plant -

Estimated Replacement Value $1,272 M 

Projected Per Household Expenditures Due to Wear-Out ($/hh/yr) 

100 

90 

80 

70 

60 

"' ::.: 

N 50 

>- 40 

30 

20 

10 

0 

f~ :~; 1~ :~~ 

·~; i~~; ~:;i· i::i 

l~ ~; ;;~j l~~ F~ 

Ill Replacement 1111 Repairs 

Projected Total Expenditures Due to Wear-Out 

Ill Replacement 1111 Repairs 

Projected Total Replacement Expenditures Due to Wear-Out 

25 

20 

c "' 

~ 15 ::1 

... 

::.: 

N 10 >-

l!il Mains l!il Other Assets 

AMERICAN WATER WORKS ASSOCIATION A13 
382 


26626.351

35.0 

. 25.0 

~ 20.0 ':E 

~ 15.0 

>-

10.0 

5.0 

0.0 

Asset Sets Modeled: Water Mains -

Estimated Replacement Value $1,343 M 

Projected Per Household Expenditures Due to Wear-Out ($/hh/yr) 

1111 Replacement Ill Repairs 

Projected Total Expenditures Due to Wear-Out 

1111 Replacement Ill Repairs 

A14 AMERICAN WATER WORKS ASSOCIATION 
383 


26626.352

6.0 

5.0 

. 

~ 4.0 

~ 

~ 3.0 

£ 

>- 2.0 

1.0 

0.0 

New New York 

Asset Sets Modeled: Water Mains -

Estimated Replacement Value $325 M 

Projected Per Household Expenditures Due to Wear-Out ($/hh/yr) 

11!11 Replacement 11!11 Repairs 

Projected Total Expenditures Due to Wear-Out 

1111 Replacement II Repairs 

AMERICAN WATER WORKS ASSOCIATION A15 
384 


26626.353

60 

50 

~ 40 

N 

>- 30 

20 

10 

'-' g 

v.; 

35.0 

30.0 

"' c 25.0 

~ 

~ 20.0 .,. 

"' N 15.0 >- 10.0 

5.0 

0.0 

Asset Sets Modeled: Water Mains -

Estimated Replacement Value $2,438 M 

Projected Per Household Expenditures Due to Wear-Out ($/hh/yr) 

~~ ~ ~ 1"'! ;:[ ·g:' ~~ iM r~~ r~ ;~~ !~ ;~~ ;~~ ;~~ .~~ 

1111 Replacement II Repairs 

Projected Total Expenditures Due to Wear-Out 

1111 Replacement 11 Repairs 

A16 AMERICAN WATER WORKS ASSOCIATION 
385 


26626.354

Asset Sets Modeled: Water Mains -

Estimated Replacement Value $1,257 M 

Projected Per Household Expenditures Due to Wear-Out ($/hh/yr) 

80"F'"""""1'""'"''"""""'""""'""'''""""'""""''"""'""""''""""''""""''""""''""""''""""''""""''""""''""""''"''""''''"""''""""''"""'"''''"""'7"""""""''""' 

70 

60 

~ 50 

~ 40 

30 

20 

10 

"' c: 

.!2 

~ 

~ >-

l~ !~ i;!f i~· !~~ ~;;i· l::i· '!~· ;r.· 

;~ l~i: ~li :~ :-: 

:'li ;~l ,:.;~ •"! ;:ro: ;;~ 1~ j~· ;~; 

Ill Replacement 1111 Repairs 

Projected Total Expenditures Due to Wear-Out 

1111 Replacement 1111 Repairs 

AMERICAN WATER WORKS ASSOCIATION A17 
386 


26626.355

Asset Sets Modeled: Water Mains & Water Supply PlantEstimated Replacement Value $1,005 M 

Projected Per Household Expenditures Due to Wear-Out ($/hhlyr) 

IIIII Replacement IIIII Repairs 

Projected Total Expenditures Due to Wear-Out 

Ill Replacement IIIRepairs 

Projected Total Replacement Expenditures Due to Wear-Out 

14 

12 

"' 10 

g " 

~ ... 

"' N 

>-

lill Mains 0 Other Assets 

A18 AMERICAN WATER WORKS ASSOCIATION 
387 


26626.356

"' " 

Seattle, Washington 

Asset Sets Modeled: Water MainsEstimated Replacement Value $1,713 M 

Projected Per Household Expenditures Due to Wear-Out ($/hh/yr) 

160:r=~======~==--~-~~-~~~-~~==~ 

140+·•:························:'············:··················:·············:····:···•··········:··:·'::;;·:··················:····:··········:·::-:·:····: 

120 

100 

~ 80 

~ 

c 

0 

~ 

~ )-

60 

40 

20 

40.0 

35.0 

30.0 

25.0 

20.0 

15.0 

10.0 

5.0 

0.0 

llil Replacement Ill Repairs 

ProJected Total Expenditures Due to Wear-Out 

Ill Replacement Ill Repairs 

AMERICAN WATER WORKS ASSOCIATION A19 
388 


26626.357

Asset Sets Modeled: Water Mains & Water Supply Plant -

Estimated Replacement Value $1,100 M 

Projected Per Household Expenditures Due to Wear-Out ($/hh/yr) 

Ill Replacement Ill Repairs 

Projected Total Expenditures Due to Wear-Out 

18.0 

16.0 

14.0 

12.0 

10.0 

8.0 

6.0 

4.0 

2.0 

0.0 

;~: 

i~h 

~ i:i 

~~ ;~~ ;~ :~ 

1111 Replacement Ill Repairs 

Projected Total Replacement Expenditures Due to Wear-Out 

Iii Mains 0 Other Assets 

A90 AMERICAN WATER WORKS ASSOCIATION 
389 


26626.358

Ariz:ona 

Asset Sets Modeled: Water Mains & Water Supply PlantEstimated Replacement Value $1,852 M 

Projected Per Household Expenditures Due to Wear-Out ($/hh/yr) 

11!11 Replacement Ill Repairs 

Projected Total Expenditures Due to Wear-Out 

60.0 

50.0 

"' 40.0 r:: 

~ 

~ 30.0 

Y> 

::.:: 

N 20.0 >-

10.0 

0 0 .;~· ·g.;· 

~~ m1 

~;~ ·f:' i;i :~~ 1~ ·1;;: ·j~; ;~ :~ ;~ ;~~i '~i 1;4 ~~i :~ ;~ .~~ •::• ;¥~ 

1111 Replacement Ill Repairs 

Projected Total Replacement Expenditures Due to Wear-Out 

35 

"' 30 r:: 

.g 25 

~ 20 Y> 

::.:: 15 N 

>- 10 

liill Mains 0 Other Assets 

AMERICAN WATER WORKS ASSOCIATION A21 
390 


26626.359

Asset Sets Modeled: Water Mains & Water Supply Plant -

Estimated Replacement Value $84 M 

Projected Per Household ExpendHures Due to Wear-Out ($/hh/yr) 

100 

90 

80 

70 

"" 60 ,c 50 "' >- 40 

30 

20 

10 

1111 Replacement Ill Repair 

Projected Total Expenditures Due to Wear-Out 

1.6 

1.4 

Ul 1.2 

c 

~ 1.0 

::E 0.8 

"" ,c 0.6 

>-"' 0.4 

0.2 

0.0 

~~ ~~; 

li!l Replacement II Repairs 

Projected Total Replacement ExpendHures Due to Wear-Out 

1111 Mains 0 Other Assets 

A22 AMERICAN WATER WORKS ASSOCIATION 
391 


26626.360

APPENDIX B 

ACKNOWLEDGMENTS 

The following people contributed the preparation of this report: 

RESEARCH TEAM 

John Cromwell 

PA Consulting Group 

Arlington, Virginia 

Elisa Speranza 

PA Consulting Group 

Cambridge, Massachusetts 

Haydn Reynolds 

Haydn Reynolds & Associates, Pty. Ltd 

Adelaide, South Australia 

AWWA WATER UTILITY COUNCILINFRASTRUCTURE ISSUES GROUP 

Aurel Arndt, General Manager 

Lehigh County Authority 

Allentown, Pennsylvania 

Paul Demit 

Camp Dresser & McKee 

Cambridge, Massachusetts 

Tom Errichetti 

BHC 

Bridgeport, Connecticut 

Peter Gallant 

BHC 

Bridgeport, Connecticut 

Joseph Gehin, Utilities Director 

Wassau Water Works 

Wausau, Wisconsin 
392 


26626.361

David Hughes 

Philadelphia Suburban Water Company 

Bryn Mawr, Pennsylvania 

William Knecht 

Cincinnati Water Works 

Cincinnati, Ohio 

John Loughry 

Denver Water 

Denver, Colorado 

Marilyn Miller 

East Bay Municipal Utility District 

Oakland, California 

Robert Miller 

Louisville Water Company 

Louisville, Kentucky 

David Monie 

SB Water Company 

Cherry Hill, New Jersey 

Dan Pedersen 

Azurix Corporation 

Houston, Texas 

Charles Schoening 

Austin Water and Wastewater Department 

Austin, Texas 

David Siburg, Manager 

Public Utility District #1 of Kilsap County 

Poulsbo, Washington 

John Sullivan, Chief Engineer 

Boston Water and Sewer Commission 

Boston, Massachusetts 

John Trax 

National Rural Water Association 

Washington, D.C. 

132 AMERICAN WATER WORKS ASSOCIATION 
393 


26626.362

AWWA WATER UTILITY COUNCILINFRASTRUCTURE FUNDING OPTIONS DEVELOPMENT GROUP 

Hamlet]. "Chips" Barry III, Manager 

Denver Water 

Denver, Colorado 

Joseph Gehin, Utilities Director 

Wassau Water Works 

Wausau, Wisconsin 

Stephen Gorden, Director 

Detroit Water and Sewerage Department 

Detroit, Michigan 

Gurney Gunter, Director 

Kansas City Water Services Department 

Kansas City, Missouri 

James Mcinerney, Chairman 

BHC 

Bridgeport, Connecticut 

Howard Neukrug, Director, Office of Watersheds 

Philadelphia Water Department 

Philadelphia, Pennsylvania 

Clair Olivers, Public Works Director 

City of Everett 

Everett, Washington 

David Siburg, Manager 

Public Utility District #1 of Kilsap County 

Poulsbo, Washington 

PARTICIPATING UTiLITIES 

A special thanks to the managers and staff of the following utilities for their time and 

effort in developing the Nessie Curves: 

City of Austin Water and Wastewater Department 

Austin, Texas 

Boston Water and Sewer Commission 

Boston, Massachusetts 

AMERICAN WATER WORKS ASSOCIATION B3 
394 


26626.363

BHC 

Bridgeport, Connecticut 

West Virginia American 

Charleston, West Virginia 

Cincinnati Water Works 

Cincinnati, Ohio 

Columbus Water Works 

Columbus, Georgia 

Denver Water Board 

Denver, Colorado 

Des Moines Water Works 

Des Moines, Iowa 

East Bay Municipal Utility District 

Oakland, California 

City of Gloucester 

Gloucester, Massachusetts 

Board of Water Supply 

Honolulu, Hawaii 

Louisville Water Company 

Louisville, Kentucky 

United Water New Rochelle 

New Rochelle, New York 

Philadelphia Water Department 

Philadelphia, Pennsylvania 

Portland Water Bureau 

Portland, Oregon 

St. Paul Regional Water Services 

St. Paul, Minnesota 

Seattle Water 

Seattle, Washington 

Tacoma Public Utilities 

Tacoma, Washington 

84 AMERICAN WATER WORKS ASSOCIATION 
395 


26626.364

Tucson Water 

Tucson, Arizona 

Wausau Water Works 

Wausau, Wisconsin 

AWWA STAFF 

Tom Curtis, Deputy Executive Director 

Government Affairs Office 

Washington, D.C. 

Albert E. Warburton, Director of Legislative Affairs 

Government Affairs Office 

Washington, D.C. 

Tommy Holmes, Legislative Programs Manager 

Government Affairs Office 

Washington, D.C. 

FUNDING 

The research, analysis and production of this report was funded by the 

Water Industry Technical Action Fund (WITAF). 

AMERICAN WATER WORKS ASSOCIATION 85 
396 


26626.365

INFRASTRUCTURE 
397 


26626.366

RECOMMENDATIONS FOR CLEAN AND 

SAFE WATER IN ThE 21ST CENTURY 
398 


26626.367

WATER INF NETWORK 

The Water Infrastructure Network (WIN} is a broad-based coalition of local elected officials, drinking 

water and wastewater service providers, state environmental and health administrators, engineers and 

environmentalists dedicated to preserving and protecting the health, environmental and economic gains 

that America's drinking water and wastewater infrastructure provides. 
399 


26626.368

Introduction 

In April 2000, the Water Infrastructure Network (WIN) released its first report, Clean & Safe Water for 

the 21st Centwy. That report documented significant improvements in water quality and public health 

associated with America's investments in water and wastewater infrastructure. But, it also documented 

an unprecedented financial problem: over the next 20 years, America's water and wastewater systems 

will have to invest $23 billion a year more than current investments to meet the national environmental 

and public health priorities in the Clean Water Act and Safe Drinking Water Act and to replace 

aging and failing infrastructure. EPA's own data and analyses corroborate the WIN figures. In the 

words of the WIN coalition, which represents a broad spectrum of professional, technical, academic, 

environmental, labor, and government organizations involved in water infrastructure: 

"New solutions are needed to what amounts to nearly a trillion dollars in critical water and 

wastewater mvestments over the next two decades. Not meeting the mvestment needs of 

the next 20 years risks reversing the public health, environmental, and economic gains of the 

last three decades." 

This second WIN report recommends a series of public and private actions that will be needed to meet 

the challenges for funding water and wastewater infrastructure over the coming decades. As part of 

this fiscal partnership, WIN recommends increasing the federal role where needs are great, public 

health or the environment is at risk, or local resources are inadequate. This enhanced federal role 

should provide for distribution of funds in fiscally responsible and flexible ways, including grants, 

loans, loan subsidies, and credit assistance. 

Investment in Water and Wastewater Will Yield Substantial Returns 

On this issue there is little disagreement- investments in water and wastewater systems pay substantial dividends to public health, the environment, and the economy. It is well documented that 

wastewater treatment plants prevent billions of tons of pollutants each year from reaching America's 

rivers, lakes, and coastlines. In so doing, they help prevent water-borne disease; make our waters safe 

for fishing and swimming; and preserve our natural treasures such as the Chesapeake Bay, the Great 

Lakes, and the Colorado River. Clean water supports a $50 billion a year water-based recreation 

industry, at least $300 billion a year in coastal tourism, a $45 billion annual commercial fishing and 

shell fishing industry, and hundreds of billions of dollars a year in basic manufacturing that relies on 

clean water. Clean rivers, lakes, and coastlines attract investment in local communities and increase 

land values on or near the water, which in turn, create jobs, add incremental tax base, and increase 

income and property tax revenue to local, state, and the federal government. 

Some 54,000 community drinking water systems provide drinking water to more than 250 million 

Americans. By keeping water supplies free of contaminants that cause disease, our water systems 

reduce sickness and related health care costs and absenteeism in the workforce. By providing adequate 

supplies to industry that relies on pure water for processing, cooling, or product manufitcturing, 

America's water systems create direct economic value across nearly every sector of the economy and 

every region of the country. By reducing illness and absenteeism, America's water systems contribute 

directly to the productivity of our workforce and continuous growth in Gross Domestic Product. 

Moreover, adequate water supply capacity to serve a growing industrial base enables expansion of 

the private economy. 

WATER INFRASTRUCTURE NOW 
400 


26626.369

Local, State, and Private Sources Form Part of the Funding Solution 

Through water and sewer bills, local citizens and private businesses already pay about $60 billion a 

year or 90 percent of the total cost to build, operate, and maintain their water and wastewater systems. 

Increased local fees and taxes undoubtedly will help pay for a fair share of future system requirements, but local fees alone cannot solve all funding problems. 

Efficiency gains also could pay some of the bill. Future increases in local water and sewer rates could 

well be reduced as competitive pressures drive utility managers to adopt more efficient organizational 

structures, work practices, and new technologies. Many publicly owned and operated utilities have 

demonstrated that operating costs can be reduced by 20--25 percent or more within a 3-5 year 

period. I But, WIN's estimate of the funding shortfall already deducts this "funding source" from its 

$23 billion total, so we can not count on operating efficiencies to meet more of our future needs. 

Private firms in the water and wastewater business also can play a key role. Their pressure to keep 

markets competitive will result in reduced costs of services overall. In addition, these companies can 

help finance new investments. But in the end, whether financing comes from local governments or 

private firms, local citizens and businesses will still have to pay the bills. 

The Federal Share in the 21st Century Will Be Critical 

Local solutions, like increased water and wastewater rates or operating efficiencies, can address 

only a portion of this problem. Financing the full $23 billion a year need with utility rate increases 

would result in a doubling of rates, on average, across the nation. If this were to happen, at least a 

third of the population of the U.S. would face economic hardship using EPA's conventional criterion 

for affordability. In small, rural, low-income, or older shrinking urban conunwrities, economic 

hardships would be significantly more acute than the average. Protecting the nation's waterways 

from pollution and our drinking water from contamination will grow increasingly unaffordable if 

local communities are asked to pay the entire bill. 

In some locations, much of the shortfall in infrastructure finance is due to simple demographics. 

Over the next several decades, many cities will need to replace water and wastewater facilities and 

pipes that were installed in response to population growth and demographic shifts in the late 1800s 

and early 1900s. The next wave of infrastructure investment responded to post-war demographic 

changes in the 1920s and 1950s. Since the economic lives of materials shortened with each new 

investment cycle, many local utilities will face unprecedented funding hurdles as multiple generations of infrastructure wear out, more or less at the same time, over the next two decades. 

1 See Association of Metropolitan Sewerage Agencies and Association of Metropolitan Water Agencies, Thinking, Getting, 

and Staying Competitive: A Public Sector Handbook. 1998. 

2 WATER INFRASTRUCTURE NOW 
401 


26626.370

The Case for Federal Investment 

The case for federal investment is compelling. Needs are large and unprecedented; in many locations, 

local sources cannot be expected to meet this challenge alone; and because waters are shared across 

local and state boundaries, the benefits of federal help will accrue to the entire nation. Clean and safe 

water is no less a national priority than are national defense, an adequate system of interstate highways, or a safe and efficient aviation system. These latter infrastructure programs enjoy sustainable, 

long-term federal grant programs; under current policy, water and wastewater infrastructure do not. 

Equally compelling is the case for flexibility in the forms of federal investment including grants, 

loans, and other forms of assistance. Grants will be needed for many communities that simply cannot 

afford to meet public health, environmental, and/or service-level requirements. Loans and credit 

enhancements may be sufficient for other types of communities with greater economies of scale, 

wealthier populations, and/or fewer assets per capita to replace. 

WATER INFRASTRUCTURE NOW 3 
402 


26626.371

WIN Recommendations 

The Water Infrastructure Network recommends that Congress pass and the President sign and b~dget 

for new legislation to finance clean and safe water for America that: 

• Creates a long-term, sustainable, and reliable source of federal funding for clean and 

safe water; 

• Authorizes capitalization of the next generation of state financing authorities to distribute funds in fiscally responsible and flexible ways, including grants, loans, Joan subsidies, 

and credit assistance; 

• Focuses on critical "core" water and wastewater infrastructure needs and non-point source 

pollution; 

• Streamlines federal administration of the funding program and encourages continuous 

improvement in program administration at both the federal and state levels; 

• Adequately finances strong state programs to implement the Clean Water Act and the 

Safe Drinking Water Act; 

• Establishes 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 

• Provides expanded, targeted technical assistance to communities most in need. 

WIN recognizes that no single solution addresses the full range of water and wastewater infrastructure and related challenges. All levels of government and the private sector must share 

responsibility for effective, efficient, and fair solutions. Each of these provisions is discussed 

subsequently. 

long-Term, Sustainable, and Reliable Funding for Clean and Safe Water 

The importance of water and wastewater infrastructure was highlighted in the 1960s as the nation 

watched the quality of its waters decline precipitously and chose in the 1972 Clean Water Act to 

spend significant federal tax dollars to reverse this trend. Despite growing threats to public health, 

despite increasing federal mandates for cleaner water and safer drinking water, despite shifts in population that strand water and wastewater assets in urban core cities with few ways to pay for needed 

improvements, and despite the nearly universal need to replace hundreds of billions of dollars in 

aging and failing water distribution and wastewater collection systems, the federal contribution to 

water and wastewater continues to decline. 

Interestingly, this is not the case in other basic infrastructure systems such as highways, airports, transit systems, harbors, or waterways, for which Congress has continued to provide substantial federal 

funding. The rationale is simple: these basic infrastructure systems underpin the U.S. economy 

broadly and their benefits accrue widely to users without geographic limitations imposed by local 

political boundaries. Moreover, these infrastructure systems have network benefits that are felt only 

after all, or substantial portions, of the network is complete and functional, affording Americans 

anywhere in the country access to minimum levels of services. Water and wastewater infrastructure 

provide comparable economic and societal benefits. 

4 WATER INFRASTRUCTURE NOW 
403 


26626.372

"' <=

~ 

iii 

<= 

..., 

.. "'

z: 

.. 

c 

:;; 

c 

"' .... 

Oi 

;§ 

Accordingly, WIN recommends that Congress renew its commitment to America's water resources 

with $57 billion in new authorizations and funding to capitalize state-administered grant and loan 

programs through Water and Wastewater Infrastructure Financing Authorities (WWIFAs).2 As depicted 

below, WIN recommends that appropriations ramp up over a five-year period to address, in a 

manageable fashion, the $23 billion annual shortfall in funding these critical infrastructure systems. 

New Federal Funding to Capitalize State Water and Wastewater Infrastructure Financing 

Authorities for Core Infrastructure and Non-Point Source Investments {by Fiscal Year)• 

2003 2004 2005 2006 2007 

Appropriations $6 billion $9 billion $12 b~lion $15 billion $15 billion 

a Current federal water and wastewater funding is about $3 billion a year, compared to WIN's estimate of 

$23 billion a year in needs. 

Over this five-year period, this level of funding is approximately half the capital funding shortfall. J 

In the chart below, WIN has identified how this new federal contribution could augment other sources 

to eliminate unmet needs by 2007. 

$80.0 

$60.0 

$40.0 

$20.0 

2001 2002 2003 2004 

Fiscal Year 

2005 2006 2007 

2 Logically, these institutions are the next generation of today's water and wastewater State Revolving Funds. But under the 

WIN recommendations discussed subsequently, their charter would be expanded significantly and where not already so structured, 

admin-Istration of separate water and wastewater SRFs wolJid be consolidated. WIN is recommending a change of name, therefore, to recognize these changes in scope, authority, and organization. 

3 Note: Federal funding in 2006 and 2007 exceeds half the annualized shortfall to compensate for funds in the prior years 

falling short of half the annual needs. 

WATER INFRASTRUCTURE NOW 
404 


26626.373

Looking simply at the capital portion of this funding plan, the chart below depicts the relative shares 

of an estimated $46 billion a year in capital funding needs for which each partner will be responsible 

over the first five years: 

$50.0 

-;;; $40.0 c 

~ ro 

E. 

.. $30.0 , 

"' ., 

z 

till 

"' $20.0 :s 

" "' .... 

~ ·a $10.0 .. 

<.> 

$0.0 

Fiscal Year 

The state match in these graphs is simply 20 percent of federal capitalization grants. While it is 

difficult to predict exactly, aetna! state contributions could be significantly higher than amounts 

shown here since many states contribute more than 20 percent through over-matching and leveraging 

federal capitalization grants in the bond market 

Consistent with the proportions ofunmet needs identified in the April 2000 WIN Report, Clean and 

Safe Water for the 21st Century, WIN recommends that half the federal capitalization grant be 

reserved for investments in drinking water systems and half for wastewater systems. 

WIN recommends that states retain the flexibility to shift the use of their capitalization grant funds 

from water to wastewater or vice versa, with two conditions. First, neither water nor wastewater 

allocations in any year could drop below 35 percent of that state's annual capitalization grant as a 

result of such a transfer. Second, no funds could be transferred from water to wastewater (or vice 

versa) if such a transfer resulted in not funding a water project on the state priority list that was 

otherwise "ready to go," and vice versa. 

6 WAHR INFRASTRUCTURe NOW 
405 


26626.374

WIN recommends further that Congress continue funding in years beyond 2007 to help meet the 

$23 billion annual shortfall identified in Clean & Safe Water for the 21st Century. In that regard, 

WIN notes that in July 2000 the U.S. Congressional Budget Office estimated that the federal budget 

would generate a surplus of$4.6 trillion between 2001 and 2010 and a $2.1 trillion surplus over the 

five-year period 2003-2007.4 

In 2003, at the outset of WIN's recommended federal funding initiative, Congress should establish 

a formal process to evaluate alternatives for, and recommend the structure of, a longer-term 

and sustainable financing approach to meet America's water and wastewater infrastructure needs. 

State Water and Wastewater Infrastructure Financing Authorities 

WIN recommends that federal funding be administered through flexible statewide water and wastewater banking institutions. These water and wastewater infrastructure financing authorities, or 

WWJFAs, would have broad latitude to meet needs within their states using appropriate combinations 

of grants, loans, and other fiuancial assistance instruments. In general, the relationship between 

WWJFAs and other relevant state, local, and federal institutions is depicted below. 

State Wastewater 

Program 

Needs 

EPA's Office of 

Water and Wastewater 

Infrastructure Financing 

Program 

Priorities Program 

Priorities 

State Drinking 

Water Program 

Financial J j6';ea~~\~~~~~d a !ion 

,-----------.... Needs 

Local Recipients 

WIN contemplates that WWIFAs would be the next generation of today's state revolving funds.5 

As such, they would have broad authorities to create affordable financial solutions to meet the 

investment needs of water and wastewater systems. They would handle the banking aspects of state 

water and wastewater infrastructure, working closely with state clean and drinking water programs 

4 This includes both on- and off-budget surpluses. See: Congressional Budget Office, The Budget and Economic Outlook: An 

Update, (July 2000). 

5 WIN contemplates a transibon from SRFs to WWIFAs, the exact details of which must be worked out from state to state. 

Win does not contemplate creabon of two parallel state funding institutions. WIN notes that some 30 states already operate 

WWIFA-Iike water and wastewater banking institutions, so transition issues, at least for these states, are likely to be minimal. 

WATER INFRASTRUCTURE NOW 7 
406 


26626.375

that would translate program priorities to meet the mandates of the Clean Water Act and Safe 

Drinking Water Act into sequenced WWIFA funding needs. Sequencing would help ensure that the 

most critical public health needs were addressed first. WWIFAs would have broad latitude to meet all 

funding needs with packages of grants, loans, and other forms of assistance (see below) that met 

sequencing requirements and resulted in local water and sewer fees that were affordable according 

to state financial hardship guidelines. 

Just as EPA's water and wastewater program offices would interact on programmatic issues with their 

state counterparts, WWIFAs would interact on banking issues with EPA's new Office of Water and 

Wastewater Financing. This would effectively create separate, parallel funding and technical program 

delivery capabilities at both the federal and state levels. 

WWIFAs should encourage water and wastewater utilities to use value-based procurement policies 

within an asset-management framework. 

Grants 

WIN recommends that Congress require state WWIFAs to provide 25...:50 percent of each year's 

federal capitalization allotment as grants for up to 55 percent of the cost of eligible clean and safe 

water projects, except in hardship cases where grants could cover up to 75 percent of eligible project 

costs. In awarding grants, WWIFAs should take into account such factors as public health risk, environmental impairment, affordability, and service quality. Grants would be subject to reasonable terms 

and conditions. 

These considerations would address the financial problems that many water and wastewater systems 

would face if they had to finance all of their needs through local rates. Acute public health risks, for 

example, should not endanger our communities nor should environmental threats degrade our unique 

water resources where cause and effect is unclear, leaving public and private concerns to debate who 

should pay to restore a watershed. Affordability should not stand as a barrier to clean, safe, and reliable 

water in any community in America. 

Loans and Loan Subsidies 

Many communities can afford to pay for loans and, in many cases, there is little debate over 

cost-effective solutions. Accordingly, WWIFAs should have flexibility in the types of loans and loan 

subsidies they offer, including interest rate discounts, zero interest rate loans, principal forgiveness, 

and negative interest rate loans. WIN recommends that Congress require WWIFAs to allocate 10-25 

percent of each year's capitalization grant to loan subsidies. In addition, WIN strongly recommends 

loan terms of up to 30 years, provided such terms do not exceed the useful lives of investments. 

Loan subsidies of any form should be designed to minimize administrative burdens and collateral 

requirements. Issues of potential concern include local accounting, reporting, and auditing requirements; requirements for public approvals; and cross-cutting federal requirements. Loan subsidies 

should be structured to be efficient and effective with no more requirements than those presently 

applicable to loan subsidies handled under the clean water and safe drinking water SRF programs. 

8 WATER INFRASTRUCTURE NOW 
407 


26626.376

Other Types of Financial Assistance to Meet Needs 

WIN recognizes that other financial assistance mechanisms, including public-private partnerships, 

may address a portion of the problem. Congress, therefore, should authorize WWIFAs to use federal 

capitalization grants to: 

• purchase or refinance outstanding debt obligations of water or wastewater service 

providers; 

• guarantee, or purchase of insurance for, an obligation of a water or wastewater system; 

• secure the payment or directly repay principal or interest on general obligation bonds issued 

by the state if proceeds of the bonds will be deposited into the SRF; and 

• deposit into a capital reserve for a debt instrument of a water or wastewater system. 

As part of the federal funding package designed to lower the cost of capital for WWIFAs that 

choose to leverage their federal capitalization grants and for individual issuers seeking to borrow 

in the public capital markets, Congress should exempt from state private activity bond volume caps 

state and local private activity bonds for water and wastewater infrastructure, where such bonds 

( l) are used to finance core water or wastewater infrastructure, as defined below, and (2) produce 

public health or environmental protection benefits that are generally available to the public. 

This will greatly reduce the cost of financing water and wastewater infrastructure. As important, 

it will allow communities increased flexibility to more efficiently structure public-private partnerships that bring together the particular strengths of both the public sector and the private sector. 6 

Funding Core Infrastructure Needs 

WWIFAs are broadly enabled banks for water and wastewater infrastructure and equivalent investments 

that yield clean and safe water. Accordingly, WIN believes that WWIFAs should focus on funding the 

following types of core investments, as identified in WIN's May 2000 report, Clean & Safe Water for 

the 21st Century: 

• Drinking water supply systems including water treatment facilities, finished water 

storage, finished water distribution systems, source water development, water supply 

management and inter-connection, source water protection, demand management, and 

rehabilitation of raw water conveyance and water storage infrastructure; 

• Domestic wastewater management systems - including wastewater collection and 

pumping infrastructure, wastewater treatment plants, wastewater reclamation and reuse 

facilities, biosolids (sludge) management, and discharge infrastructure; and 

• Wet weather runoff control systems and management practices - including pollution 

prevention and/or reduction practices as well as runoff collection, conveyance, and treatment facilities. 

6 For a more complete discussion of these issues, see: Environmental Financial Advisory Board to the U.S. Environmental 

Protec~on Agency, Incentives for Environmental Investment: Changing Behavior and Building Capital, August 9, 1991. 

WATER INFRASTRUCTURE NOW 9 
408 


26626.377

Since needs will vary from one system or one watershed to the next, WIN recommends that states set 

the following broad priorities for project-level investments under their WWIFA programs to: 

• Repair, rehabilitate, or replace treatment, collection, or distribution systems; 

• Attain compliance with applicable federal or state regulatory requirements; 

• Meet applicable local service levels; 

• Address public health or environmental emergencies; and 

• Address non-point source problems where such investments by local water or wastewater systems are cost effective relative to other core infrastructure solutions. 

WIN recommends that water and wastewater systems making investments in core infrastructure 

remain eligible for WWTFA assistance regardless of whether they are publicly or privately owned 

and/or operated as long as they provide water or wastewater services that are generally available to 

the public. 

Neither operations nor maintenance needs would be eligible for federal WWIFA funds. Using their 

own appropriated funds, states would be required to match 20 percent of federal capitalization grants. 

To avoid imposition of additional state fees, Congress should enable states to set aside sufficient 

portions of annual capitalization grants to administer these expanded programs. 

While decisions on individual projects would not be subject to federal approval, they would be 

subject to public review and comment 

Streamlined Federal and State Administration 

Currently, two different offices within the U.S. Environmental Protection Agency interact with state 

finance authorities- one handling water finance and the other handling wastewater finance. In addition, 

in about 20 states, separate water and wastewater agencies administer these financing programs. 

WIN recommends, therefore, that EPA form a new Office of Water and Wastewater Infrastructure 

Financing to oversee implementation of this new funding legislation. This office would consolidate 

the administration of grants to state WWTFAs. The director of this office should report to the 

Assistant Administrator for Water. This arrangement would streamline program delivery and partially 

separate funding and financial performance activities from regulatory program development and 

enforcement activities. 

Congress should authorize this new office to work with states, local borrowers, and other market 

participants through advisory panels to undertake a thorough analysis of, and recommend ways to 

streamline, inefficiencies in the administration of these funding programs. Recommendations should 

address the need to reduce federal and/or state paperwork requirements associated with federal funding 

assistance, simplify application processes, reduce oversight and reporting requirements where they 

no longer serve the federal or state interests, and provide flexibility in meeting requirements that do 

serve federal and state interests. 

10 WATER INFRASTRUCTURE NOW 
409 


26626.378

The State Role in Managing Clean and Safe Water Programs 

Under both the Clean Water Act and Safe Drinking Water Act, EPA delegates primary responsibility 

to the states to administer and enforce the national programs for clean and safe water. Each year, 

Congress appropriates grants to states to help pay their costs of administering these programs. 

Section 106 of the Clean Water Act authorizes EPA to provide Federal assistance to states (including 

territories, the District of Columbia, Indian Tribes) and interstate agencies to establish and implement 

ongoing water pollution control programs. Prevention and control measures supported by state 

water quality management programs include permitting, pollution control activities, surveillance, 

monitoring, and enforcement; advice and assistance to local agencies; and the provision of training 

and public information. 

The Safe Drinking Water Act gives states and Indian Tribes primary enforcement responsibility for 

public water systems in their jurisdictions if they meet certain requirements. Congress also provides 

grants under Section 1443 to state drinking water agencies to manage these delegated programs. 

Activities undertaken by the states continue to expand and include conducting sanitary surveys; 

monitoring and enforcing drinking water standards; training and certifying operators; reviewing 

plans and specifications for water systems; implementing source water assessments and capacity 

development programs; and providing emergency response, risk communication, disease surveillance, 

and technical assistance to local communities. 

Recent analyses have documented that federal grants to states have not kept pace with dramatic 

increases in costs of managing these federally delegated clean water and safe drinking water 

programs. While federal grants to support state drinking water programs may be used to provide up 

to 75 percent of a state program's costs, according to the Association of State Drinking Water 

Administrators, appropriations historically have covered only 35 percent. Accordingly, WIN recommends that Congress appropriate $400 million a year between 2003 and 2007 (in addition to the 

appropriations for WWIFA capitalization grants discussed earlier), or $200 million a year to help fund 

state implementation of the Clean Water Act and $200 million a year for state implementation of the 

Safe Drinking Water Act. 

Federal Funding for State Implementation of the Clean Water Act 

and Safe Drinking Water Act {by Fiscal Year} 

A New Program for Clean and Safe Water Technology and 

Management Innovation 

Technology and management innovation offer attractive solutions to high and rising costs of water 

and wastewater infrastructure. The rationale for technology research and development is simple: 

replacing existing and adding required new water and wastewater assets would cost more than $1 

trillion, so improving the performance or longevity of only 1 percent of these assets would result in 

direct savings of $10 billion. Management innovation can continue to increase productivity at the 

nation's water and wastewater utilities, which in tum reduces operations and maintenance costs. 

WATER INFRASTRUCTURE NOW 11 
410 


26626.379

Recent innovations in the structure of organizations, the efficiency of reengineered work practices, 

and applications of technology have demonstrated O&M savings on the order of 15 percent to 40 

percent. 

The federal government currently supports technology research and development through a variety 

of programs at the federal level including: 

• EPA programs administered by its Office of Research and Development and funded 

through grants to regional research organizations; 

• Congressional appropriations to non-profit research foundations including the Water 

Environment Research Foundation (WERF) and the AWWA Research Foundation 

(AWWARF); and 

• The Environmental Technology Verification Program. 

Yet, none of these programs focuses specifically on infrastructure. The AWWRF program is impressive 

at some $15 million a year, but only $1-2 million a year is directed to infrastructure research. 

WERF's $10 million a year program similarly spreads resources across many subjects including 

infrastructure. The Association of Metropolitan Sewerage Agencies (AMSA), the Association of 

Metropolitan Water Agencies (AMWA), the Water Environment Federation (WEF), and the American 

Water Works Association (AWWA) independently and working together have advanced the concepts 

of competitiveness to improve water utility productivity and reduce operating costs. Currently, these 

groups are focused on new ways to manage water and wastewater utility assets. Much more work 

in these areas is needed. 

Accordingly, WIN recommends that Congress authorize $250 million a year (in addition to authorization for WWIFA capitalization grants discussed earlier) to support an Institute of Technology and 

Management Excellence to promote the development and use of innovative technologies that would 

reduce the cost of meeting national clean and safe water requirements and replacing water and 

wastewater infrastructure. The Institute would offer 85 percent cooperation grants to water or 

wastewater systems and their private sector or university partners to develop new management 

techniques and technologies, demonstrate their performance and costs at the utility level, and disseminate results using an Institute-sponsored web learning center. The Institute would be charged 

with recommending to Congress and the states appropriate incentives to adopt new management 

approaches and/or technologies. The board of directors of the Institute would be comprised of public and private interests in clean and safe water. 

Federal Funding to Support a New Institute of Technology 

and Management Excellence (by Fiscal Year) 

2003 2004 2005 

Appropriations $250 million $250 million $250 million 

12 WATER INFRASTRUCTURE NOW 

2006 2007 

$250 million $250 million 
411 


26626.380

In addition, WIN recommends that Congress authorize and appropriate $150 million a year between 

2003 and 2007 for research and development pilot projects on stormwater management. These funds 

would go directly to local governments who want to engage in research or to demonstrate innovative 

approaches to managing separate storm sewer discharges more effectively. 

Federal Funding to Support Local Stormwater Management Pilot Projects (by Fiscal Year) 

2~ 2004 ~9()!) 29()6 2007 

\'i 

Appt:Optiations $l50mil)ion Sl50million Sl50t:rlntion Sl5.0million $150million 

Expand Technical Assistance for Communities Most in Need 

Technical assistance and capacity building for communities in need is low-cost insurance that funds 

will be wisely invested in water and wastewater infrastructure and that these facilities will be properly 

maintained and managed. Since proper maintenance improves operating performance and prolongs 

system life, both current operating and future replacement costs will be reduced. 

The federal government currently spends approximately $20 million a year on water and wastewater 

technical assistance to these communities through programs administered by the Environmental 

Protection Agency (EPA), the Department of Agriculture Rural Utilities Service (RUS), and various 

state programs. But, technical assistance needs are expected to grow with increases in funding for 

capital investment under the WIN recommendations. WIN therefore recmrunends that Congress 

authorize and fund an additional $25 million a year between 2003 and 2007 for technical assistance 

to communities in need. These funds would continue to be administered through existing programs. 

Federal Funding to Increase Water and Wastewater Technical Assistance 

to Communities Most in Need (by Fiscal Year) 

2003 2004 2005 2006 

$25 million $25 m.illion $25 million $25million 

Summary of Funding Recommendations 

2007 

$25 million 

The Water Infrastructure Network has found compelling evidence of water and wastewater needs that 

substantially exceed current investment levels. If we do nothing, the nation can expect increased 

threats to public health, environmental degradation, and real economic losses. At times and in places, 

these threats will be small and barely noticeable, but over the next two decades, and even more 

quickly in some locations, losses will mount and solutions will be financially unmanageable. 

The Water Infrastructure Network has recommended a series of actions, therefore, to strengthen the 

partnership among governments at the local, state, and federal levels and between public and private 

participants in the water and wastewater infrastructure community. 

WATER INFRASTRUCTURE NOW ]3 
412 


26626.381

These actions will not be cost free. WIN is recommending that all levels of government and the private 

sector pay for needed investments in efficient, effective, and equitable ways. Despite the figures 

below that represent the federal share of this fiscal partnership, local government will still be paying 

80 percent of the cost to build, operate, and maintain America's water and wastewater systems. 

The Water Infrastructure Network, a broad based coalition of organizations representing local elected 

officials, drinking water and wastewater service providers, state environmental and health program 

administrators, engineers, labor, and environmentalists, agree: this partnership is essential to water in 

the 21st century. 

The Federal Share of a Partnership for Clean and Safe Water for the 21st Century 

(in millions of current dollars) 

2003 2004 2005 .2006 2007 

Capitalize State Water and Wastewater 

Infrastructure Financing Authorities $6,000 $9,000 Sl2;QOO $15,000 $15,000 

Support State Clean Water Act jlnd 

Safe Drinking Water Act Programs $400 $400 $400 $400 $400 

Fund Technology and Management 

Innovation Cooperation Grants to 

Waterand Wastewater Systems $250 $250 $250 $250 $250 

Fund Local Stormwater 

Management Pilot Projects $150 $150 $150 $150 $150 

Provide Technical Assistance to 

Communities Most in Need $25 $25 $25 $25 $25 

TOTAL $6,825 $9,825 $12,825 $15,825 $15,825 

14 WATER INFRASTRUCTURE NOW 
413 


26626.382

American Coal Ash Association 

American Concrete Pipe Association 

American Concrete Pressure Pipe Association 

American Consulting Engmeers Council 

American Public Works Association 

American Society of Civil Engineers 

American Water Works Association 

Associated General Contractors of America 

AssociatiOn of California Water Agencies 

Association of Metropolitan Sewerage Agencies 

Association of Metropolitan Water Agencies 

California Rebuild America Coalition 

Clean Water Action 

Environmental and Energy Study Institute 

Env~ronmental Business Action Coalition 

International Union of Operating Engineers, AFL-CIO 

Laborers' International Union of North America 

National Association of Counties 

National Association of Flood and 

Stormwater Management Agencies 

NatiOnal Association of Towns and Townships 

National League of Cities 

National Rural Water Association 

National Society of Professional Engineers 

National Urban Agriculture Council 

Prestressed/Precast Concrete Institute 

Rural Community Assistance Program, Inc. 

Water Environment Federation 

WateReuse Association 

Western Coalition of Arid States 

ACAA 

ACPA 

ACPPA 

ACEC 

APWA 

ASCE 

AWWA 

AGC 

ACWA 

AMSA 

AMWA 

CaiRAC 

CWA 

EESI 

EBAC 

IUOE 

LIUNA 

NACO 

NAFSMA 

NAT AT 

NLC 

NRWA 

NSPE 

NUAC 

PCI 

RCAP 

WEF 

WateReuse 

WESTCAS 
414 


26626.383

The Sustainable Water Infrastructure Investment Act of2011 

Increasing the Availability of Private Activity Bonds for Water Projects 

Myths and Facts 

MYTH: The Sustainable Water Infrastructure Investment Act of20II (SWIIA) Will 

Address the Entire Water Infrastructure Replacement Challenge Faced by 

Communities. 

FACT: No, but passing SWIIA and increasing the availability of Private Activity Bonds 

for water and wastewater projects will give communities an important tool they 

need to address the replacement challenge. There are many strategies that 

communities can and should employ to address the challenge. These range 

from the operational, to the managerial and the financial; SWIIA is but one. 

The Environmental Protection Agency has estimated that expanding the 

availability of Private Activity Bonds for water and wastewater projects by 

removing the state volume cap as in SWIIA, could leverage as much as $5 

billion annually to address the water infrastructure replacement challenge, yet 

only cost the Federal Govermnent $354 million over the next decade a 

bargain! 

MYTH: Private Activity Bonds Promote Cmporate Welfare 

FACT: No, in virtually any utility ownership/management model, the benefits of 

SWIIA -low cost financing- would flow to utility customers in the form of 

lower utility rates, not to the private partner, its owners, directors or 

shareholders. 

In the case of a privately owned utility, the State Public Utility Commissions 

which oversee and set rates would assure this, and are on record supporting 

SWIIA for this reason. In the case of public-private partnership between a 

municipal utility and a private firm, the municipal partner sets the rates and can 

assure the savings are passed on to customers. 

MYTH: Private Activity Bonds Benefit Investors, Not Consumers 

FACT: No, customers of water and wastewater utilities and other projects will benefit 

from infrastructure reinvestment that is done with the lowest cost financing 

available such as the type SWIIA will provide. First, the savings are passed 
415 


26626.384

Under current law the total dollar amount of Private Activity Bonds that can be 

approved by a state or municipality is set annually; the P ABs that are approved provide 

funding for one year, and on projects needing multi-year funding, new P ABs must be 

approved each year, provided they are available. Therefore, the mere existence of an 

annual cap deters the undertaking of multi-year projects which water projects often are. 

MYTH: SWIIA Is Not Needed Because There Is No Shortage of Capita/for Infi·astructure 

Investments. 

FACT: While there are many financing alternatives available, there is a shortage of cheap, lowinterest capital. The more financing choices available to utilities, the more likely 

customers will get the lowest rates that are feasible. 

Furthermore, since Private Activity Bonds are issued by a private partner, not a 

municipality, virtually all of the financial risk is shifted to the private sector. This 

protects the public from fluctuations in the financial markets, and has no adverse affects 

on any other municipal financing or a municipality's bond rating. 

Finally, other sources of! ow-interest capital like the loans offered by the State 

Revolving Funds (SRF) for water and wastewater bave been diminishing in availability 

over the last decade due to cuts in federal appropriations. 
416 


26626.385

H.R.1802 

Latest Title: Sustainable Water Infrastructure Investment Act of2011 

Sponsor: Rep Pascrell, Bill, Jr. [NJ-8] (introduced 5/10/2011) Cosponsors (54) 

Related Bills: S.939 

Latest Major Action: 5/10/2011 Referred. to House committee. 

Status: Referred to the House Committee on Ways and Means. 

COSPONSORS (54), ALPHABETICAL 

Rep Bachus, Spencer [AL-6]- 1217/2011 

Rep Berkley, Shelley [NV-1]- 7/6/2011 

Rep Blumenauer. Earl [OR-3]- 6/14/2011 

Rep BrQlln, Paul<::;_, [GA-10]-11/2/2011 

Rep Brown. Corrine [FL-3] - 7/6/2011 

Rep Carson. Andre [IN-7]- 6/14/2011 

Rep Castor. Kathy [FL-11] - 6/2/2011 

Rep Cicilline. David N. [Rl-1] 7/29/2011 

Rep Coble. Howard [NC-6]-7/15/2011 

Rep Connolly. Gerald "Gerry" [VA-ll] - 7/6/2011 

Rep Costello. JerrvF. [IL-12]- 6/14/2011 

Rep Critz, MarkS. [PA-12]- 811/2011 

Rw Davis, Geoff [KY -4] - 5/10/2011 

Rep DeFazio. Peter A. [OR-4]- 7/20/2011 

Rep Duncan. John J., Jr. [TN-2] -51) 3/2011 

Rep Filner, Bob [CA-51]- 7/6/2011 

Rep Garamendi, John [CA-10]-7/20/2011 

Rep Gerlach, Jim [PA-6]-7/13/2011 

Rep Hanna, Richard L. [NY -24] - 9/29/2011 

Rep Hastings, Ak<±.L. [FL-23]- 9/13/2011 

Rep Higgins, Brian [NY-27]- 6/2/2011 

Rep Holden, Tim [PA-17]- 5/13/2011 

Rep Jackson, Jesse L, Jr. [IL-2] 10113/2011 

fum Johnson, Eddie Bernice [TX-30]- 7/6/2011 

Rep Johnson. Henry "Hank," Jr. [GA-4]- 10/13/2011 

Rep Kildee. Dale E. [MI-5]- 9/13/2011 

_B.epKing,PeterT. [NY-3]-1217/2011 

Rep Langevin, James R. [RI-2]- 9/29/2011 

Rep Larsen, Rick [WA-2]- 6/14/2011 

Rep Larson. John B. [CT-1]- 6/14/2011 

Rep LaTourette, Steven C. [OH-14]- 12/7/2011 

Rep Lewis, John [GA-5]- 5/24/2011 

Rep LoBiondo, Frank A. [NJ-2]- 5/26/2011 

Rep McDermott, Jim [WA-7]- 7/20/2011 

R§Jl_Meehan.J'!l.trick [PA-7]- 9/13/2011 

Rep Meeks, Gregory W. [NY-6]- 7/6/2011 

Rep Moran, James P. [VA-8]- 7/6/2011 

Rep Napolitano, Grace F. [CA-38]- 6/14/2011 

Rep Neal Richard E. [MA-2]- 7/13/2011 

Rep Paul, Ron [TX-14] - 7115/2011 

Rep Rahall, Nick J., II [WV-3]- 6/14/2011 

Rep Rangel, Charles B. [NY-15]-7/20/2011 

Rep Ross. Dennis [FL-12] - 6/2/2011 

Rep Ross, Mike [AR-4]- 7/21/2011 

Rep Rothman, Steven R. [NJ-9]-7/2112011 

Rep Ryan, Tim [OH-17]- 7113/2011 

Rep Schwartz, Allyson Y. [PA-13]- 5/24/2011 

Rep Shuster, Bill [P A-9] - 9/13/2011 

Rep Sires, Albio [NJ-13] - 6/14/2011 

Rep Sutton, Betty [OH-13]- 9/13/2011 

Rep Tonko, Paul [NY-21]- 7/20/2011 

Rep Turner, Michael R. [OH-3] -7/6/2011 

Rep Welch, Peter [VT]- 7/29/2011 

Rep West, Allen B. [FL-22]-7/6/2011 
417 


26626.386

S.939 

Latest Title: Sustainable Water Infrastructure Investment Act of2011 

Sponsor: Sen Menendez, Robert [NJ] (introduced 5/10/2011) Cosponsors (7) 

Related Bills: H.R.1802 

Latest Major Action: 5/10/2011 Referred to Senate committee. Status: Read twice and referred 

to the Committee on Finance. 

COSPONSORS (7), ALPHABETICAL: 

Sen Cardin, Benjamin L. [MD] - 10/11/2011 

Sen Casey, Robert P., Jr. [PAJ- 11/1/2011 

Sen Crapo, Mike [ID]- 5/10/2011 

Sen Gillibrand, Kirsten E. [NY]- 10/18/2011 

Sen Inhofe, James M. [OK]- 11/28/2011 

Sen Whitehouse, Sheldon [RI] - 617/2011 

Sen Wicker, Roger F. [MS]- 5/12/2011 
418 


26626.387

Supporters of Legislation to Remove Water Private Activity Bonds from State Volume Caps 

American Council of Engineering Companies 

American Iron and Steel Institute 

American Public Works Association 

American Road and Transportation Builders Assn. 

American Society of Civil Engineers 

American Water 

American Water Works Association 

Associated Equipment Distributors 

Associated Equipment Manufacturers 

Associated General Contractors of America 

Associated General Contractors of Texas 

Barclays 

Bond Dealers of America 

Bond Market Association 

California Association of Sanitation Agencies 

Carlyle Infrastructure Partners 

Caterpillar 

COM 

Coca Cola Company 

Design Build Institute of America 

Design Professionals Coalition 

Dow Chemical Company 

Ductile Iron Pipe Research Association 

General Electric 

Gulf Coast Waste Disposal Authority 

HDR Engineering 

HD Water Supply 

Infrastructure Management Group 

International Private Water Association 

International Union of Operating Engineers 

ITT Industries 

Jacobs Engineering 

John Deere 

Laborers-Employers Coop and Education Trust 

Laborers International Union of North America 

McWane, Inc. 

Mueller Water 

Nat'!. Assn. of Regulatory Utility Commissioners 

National Association of Towns and Townships 

National Association of Water Companies 

National Council for Public-Private Partnerships 

National League of Cities 

National Stone, Sand & Gravel Association 

National Utility Contractors Association 

Parsons Brinckerhoff, Inc. 

Plastics Pipe Institute 

Portland Cement Association 

Poseidon Resources Corporation 

San Antonio Water System 

Siemens 

Texas Rural Water Association 

Texas Water Development Board 

Unibel/PVC Pipe Association 

United Brotherhood of Carpenters and Joiners 

United Rentals, Inc. 

United Water 

US Chamber of Commerce 

US Conference of Mayors Mayors Water 

Council 

Valve Manufacturers Association 

Veolia Water 

Vermeer 

Vinyl Institute 

Water and Sewer Distributors of America 

Water and Wastewater Equipment Manufacturers 

Association 

Water Environment Federation 

WaterReuse Association 

Watts Water Technologies 
419 


26626.388

CHAMBER OF COMMERCE 

OF THE 

UNITED STATES OF AMERICA 

R. BRUCE JOSTEN EXECUTIVE VICE PRE.SlDENT 

GOVERNMEI'IT AFFAJRS 

The Honorable Bill Pascrell, Jr. 

U.S. House of Representatives 

Washington, DC 20515 

Dear Representative Pascrell: 

June 29, 2011 

1615 H STREET, N.W. 

WASHINGTON, D.C. 20062-2000 

202/463-5310 

The U.S. Chamber of Commerce, the world's largest business federation representing the 

interests of more than three million businesses and organizations of every size, sector, and 

region, believes H.R. 1802, the "Sustainable Water Infrastrucrure Investment Act," is an 

important step to enhance the ability of local governments to finance water and wastewater 

infrastructure projects and create jobs by encouraging private investment. 

Private investment in infrastructure frees government dollars for allocation to other 

troubled areas of the economy and transfers risk away from the public partner to the private 

entity. Recent studies indicate that every $1 billion invested in water infrastructure generates up 

to $3.46 billion of total national output, $82.4 million in state and local tax revenue, and supports 

28,500 jobs. 

Few businesses can survive without sustainable water and wastewater infrastructure. 

Now more than ever, the United States needs significant capital investment in water 

infrastructure. 

The Chamber applauds your introduction of this important legislation and looks forward 

to continuing to work with Congress and the Administration, and interested stakeholders on this 

important issue. 

Sincerely, 

R. Bruce Josten 

cc: The Members of the United States House of Representatives 
420 


26626.389

NATIONAL CoNSTRUCTION ALLIANCE II H! ADQUAI'I.HR>: 16_14 Eye Stred NW Suite 805 • Wi1:.hmgton, rx }0006 • 20) }39 11779 

The Ht1norablc Bill Pn,c,,;rdl 

Lnitcd St<tk'~ Hnu~e oi Reprcsentati\ c~ 

2J 70 H:1vhurn Hou~c OtTkc Buddmg 

\Vashiniton. DC 20S 15 

Dear Congressman Pascre!l 

!'he NatHmal Cnnstrudi'm A!!wm:c !I "uppo11s your 

Sustamahlc Watn !nrrahtructurc :\ct of 201 1 The l\all~:lnal 

partncrsh1r het\\ ecn the lntcrnatHtnal l :mnn of ( )penttmg. 

Brotherhood of Carpenter:-.: and Joiners represents nearly 

whom huild the n<i!lon·s \.\ah:r and \\'ash:walLT inlt-astrurturc 

II R 1802. the 

1\!liance l! <l 

and the l iniil"d 

YoUJ v.hich \\ill out !J·om unckrnl'<!!h the Prl\t!lc 

Bond \'olurnL· ,:ap. \\ dl a kc)- form of federal Jinancmg to replace 

upgrade the nal!on·s drinkmg and wastewater system~. H.R. 1 X02 \\ill help lo\l.·er the ,·o;.;t 

of \Yhich v. dl a~Sbl m controlling rates !(1r l'Ustnmcr!'>, and it \\ 1!1 

more \\ atcr proJcds. ·I lw~ a\:ccs:-, to nc\\ prn <ttL' v~.:ilJ help 

util!ti~~ that arc :-.trugg!mg ttl linancl.: \\ .ak·r and W<t.,IC\\·ater upgrmks, are m dm: 

need In th~ir annual rcpo11 on the naliorfs infra~tructun:. the Amcncan St'h.'icty of'Ci\·!1 

hnth \\ <1h:r and \Vastev. alL'r mf!·astructurc a 0-, !USl harel\' nhm 1.' 

e~ln:natc 1hat l~hJIJJon 1:-. nt•t.•dcJ annually l()r drinkmg \\atcr uPgrade:, 

alone 

to thl' Carpenters and hl,!!inclT-.;, H R l ~01 \\til (reah~ JOb~ in 

construction !>ector The ""''mnln,''"""" rate m con;.truction 1~ currL·ntl; 

l:'i.6~·o, and it n:adH;:d nvcr ::.ro in h:hruary Our industry~~ in desperate nc~'d of 

Jcgislalion thal wdl hdr pul the ten.<. of thousand:. of uncmployL'd l·onstn~el!on worker-. 

hack on tlw JOh. Your !egi.sla!!Pn \\Ill hdp <!dHL\C tlm. ohJccliH' creating <m e-Stimated 

l 4 m!I!Jon jnh:;;. roughly half Ill' those m !Ill' C(ln!',tnw!!on ~ector of H R 1 H02 

\\-ill deli\ LT Ilw type of boost that th~~ construcuon ~ector !ll'L'\1s nght tiP\\ 

P1--\lh. h;nc already pn1\cn to b~ <111 !11L'1..'hani;-;m for lt1;:al gmcrnnh.'nb to finance 

proJect~ :,uch a~ mrp\lrt~, mterctty raiL and ~ohd \~ astc site:;. \\/ith greatc1 

accL's:-, to Ih1s innm all\~ financmg, puhl!c-pn\·atL· partncr:-;.hips rnn be cx.pt_·,:ted 1(1 

more wall'!' and ,~,-·asle\Yatcr prnJl:d" to market t'n::Jting Joh~ nnd rcdul:mg the 

inh'aslrudun.: deficit 

fhc National Construction A!!ianCL' cndor~es tht: Sustainable \VatL·r Infrastructure 

investment Act of ]{ll J. H H I X(l2, and \\ c ln(lk !iln\;mJ l!l \\'(Irk in~\\ 1th you to L'!1<Kl it 

mto la\1, !h~:- Congn.·:-.:-

rhank you !i:1r your leadership on crcatmg Arneric;m JOh . .., \11/e smcercly appreciate !L 

RtGlONAL OFFJCE: 100 East Corson Street. Suite 230 • Pasadena, CA 91103 • 626-229-9975 
421 


26626.390

llnitrd States Srnatr WASHI~JGTON. DC 20S !0 

August 22. 2011 

Dear Colleague: 

We are writing to ask you to cosponsorS. 919. the Sustainable Water Infrastructure Investment 

:\ct of 20 II. This bill would allow local communities to leverage private capital markets in 

combination with other financial mechanisms to finance water and wastewater infrastructure 

projects by removing private activity bonds for water and wastewater projects from the annual 

private activity bond (PAB) volume caps. Removing these projects would make the PAB 

prngram far more effective in stimulating the critically needed financing of water and wastewater 

projects across the nation. 

Private activit~ bonds are a form of tax-exempt financing for a governmental entity such as a 

municipality or state that wants to partner with a private party to meet a public need. Congress 

controls the total volume of tax-exempt bonds by limiting issuance in each state with an annual 

cap. Including water and wastewater projects in the annual per state volume cap on private 

activity bonds hinders financing for these projects. In particular, since they are mostly multi-

) car projects they often lose out to single year projects which are a better fit in the annual 

,·olume cap structure of the PAB program. There is precedent for removing this cap- under 

current law there is no cap on PABs to build airports. housing. ports, high-speed rail and solid 

waste disposal sites. 

By at least one estimate. our legislation will generate $50 billion in private capital invcstmt>nt. 

create or support over 1.4 million jobs and generate billions in tax revenue at the federal state 

and local level. 

The Environmental Protection Agency and the Govemment Accountability Otlice estimate the 

investment gap for infrastructure upgrades over the next 20 years to be more than $500 billion to 

ensure safe drinking water and wastewater treatment. Despite this well-publicized critical 

national need to upgrade our water and wastewater infrastructure, only 1.3 percent of all PABs 

issued in 2007 were for water and wastewater projects. 

(iiven the importance of 4uality water and sewage infrastructure and the incompatibility of the 

current PAB structure with the financing of these types of projects. we believe it is critical to 

remove water and sewage projects from the annual volume caps. If you have any questions or 

would like to cosponsor. please contact Justin Field with Senator Menendez's staff at 4-4727, or 

Luke Tomanelli with Senator Crapo's statTat 4-6142. 

Sincerely. 

~~.jJ / e , ~---~ MICHAEL CRAPO 

United States Senator 

26626.391

Testimony of Stephen E. Howard 

Senior Vice President 

••••••••••••••• 1 1 ••••• 

Before the: 

Subcommittee on Water Resources and 

Committee on Transportation and 

U.S. House of Representatives 

Financing Water Infrastructure Projects 

June 14, 2005 

26626.392

Water/Wastewater Historical Data 

., 

c 

0 

40000 

35000 30000 

25000 

= 20000 

:E 

e 

15000 

10000 

5000 

0 

11111111111111111111 

Transaction Amounts Over Past 25 Years 

IIIII 

26626.393

Solid Waste Historical Data 

Transaction Amounts Over Past 25 Years 

3500 3000 

2500 

" c: 0 = 2000 

:!! 

e 

1500 1000 

500 

0 j •••• , •• 

Year 

Tax Reform Act of 1986 authorized issuance of tax-exempt PAB bonds 

____ ___ [J_l!xabl: 

----····-·-----·----·-------·-·-····-·---1 

Ill 
425 


26626.394

Economic Impact of Water and Wastewater Infrastructure Investment 

Main Street small business and job creation estimates of a bill to remove federal funding 

restrictions on tax-exempt bonds for water and wastewater projects 

Creating/Supporting Jobs 

While the nation continues to suffer through a recession, the construction industry is experiencing 

depression-like conditions. According to virtually every economic measure, construction businesses and 

their employees have been disproportionately affected by the economic downturn. 

,,' According to the U.S. Bureau of Labor Statistics, the construction industry's unemployment rate 

currently hovers at 25 percent, more than double the overall national jobless rate. 

,1' While construction jobs account for five percent of the nation's workforce, 20 percent of the jobs lost 

since 2007, over two million, have been in construction. 

,1' Multiple independent studies conducted by The U.S. Conference of Mayors, the Associated General 

Contractors of America (AGC) and the Clean Water Council estimate that $I billion in water 

infrastructure investment can support 28,500 jobs. 

According to the US Conference of Mayors, every $1 million invested in water infrastructure 

directly creates 8.7 jobs, and each of these jobs leads to an additional3.68 jobs elsewhere in the 

national economy. (8.7 x 1000 x 3.68 ~ 28,500 jobs per $1 billion) 

According to the AGC "Blueprint for Economic Growth", every billion dollars invested in 

nonresidential construction activity adds $3.4 billion to the gross domestic product, increases 

personal earnings by $1.1 billion and creates or sustains 28,500 jobs. Almost 19,000 of those 

jobs would be in areas outside the immediate construction sector, including equipment 

manufacturing, materials supply, food service, health care and retail. 

According to a recent study conducted by the Clean Water Council, every $1 billion invested in 

water and wastewater infrastructure also results in total national output (i.e., demand for products 

and services in all industries) of up to $3.46 billion, and approximately $82.4 million in state 

and local tax revenue. Additionally, the CWC study also estimates that a $1 billion investment 

generates measurable national employment in 325 other standard industry classifications. 

Employing Small Businesses Throughout the Country 

,,' The complex process of water provision requires; engineers, equipment manufacturers, distributors and 

wholesalers, retail and customer service, general and heavy construction workers, operators, and 

consultants throughout the supply chain. Many of these businesses employed in a water project are 

small and local. 

70 percent of the nation's engineering firms are defined as "small businesses." 

90 percent of the nation's general and heavy construction firms are small; employing fewer 

than 20 workers. Though according to the Small Business Administration, businesses with 

fewer than 20 employees account for 25% of all jobs but generated 40% of job growth in the 

last recovery. 
426 


26626.395

./ 75 percent of other businesses employed throughout the process of a water project are small 

at the following levels: 

• 500 employees for most manufacturing industries 

• I 00 employees for all wholesale trade industries 

$6.5 million annual revenue for most retail and service industries 

• $13 million annual revenue for all special trade contractors 

$5 Billion for Water and Wastewater (or more) annually 

./ Based on the EPA's estimate of up to $5 billion annually or $50 billion worth of private water 

investment over ten years, 1,425,000 jobs could be supported by creating a private activity bond 

volume cap exception for water and wastewater projects. As the market matures in the years to 

follow estimates show that volume could increase to $5 billion annually, supporting up to 142,500 

jobs . 

./ Recent estimates show that about $190 billion in new money for infrastructure investment is 

available. More of this capital can be deployed towards water investment when a P AB volume 

cap exception is created . 

./ In addition to companies that invest in infrastructure, there are over 30 infrastructure funds ready to 

invest in the U.S. market with a levered purchasing power of -$475 billion. 

Ready to Go 

./ Private Activity Bond issuance is one of the surest and swiftest fonns of federal assistance to water 

projects. A PAB issuance only requires a willing issuer- no time consuming applications. The 

entire process; approval to sale would take approximately 90-120 days for a ready-to-go project. 

Low Cost to the Federal Government 

./ This is a relatively inexpensive job creation proposal. The cost to the Federal Government of 

supporting 1,425,000 jobs through a PAB volume cap exception is a mere $354 million over 10 

years. 

Spurring Market Activity 

./ With credit markets in turmoil, providing broader access to the tax-exempt market will allow for 

more market activity from municipalities and infrastructure providers who might have otherwise 

deferred investment. 

26626.396

26-May·lO 4:48PM #!O-J 058 RIO 

VERY Prelimin

26-May-10 

ESTIMATED BUDGET EFFECTS OF THE REVENUE PROVISIONS CONTAINED IN H.R- 4213, 

THE" AMERICAN JOBS AND CLOSING TAX LOOPHOLES ACT OF 2010," 

SCHEDULED FOR CONSIDERATION BY THE HOUSE OF REPRESENTATIVES 

Fiscal Years 2010 • 2020 

/Millions of Dollars] 

Provision Effective 2010 2011 2012 2013 2014 2015 20!6 2017 2018 2019 2020 2010·15 

I. Infrastructure. Incentives 

A Extend Build America Bonds with Direct· Pay 

Subsidy Rate Decreasing to 32% for Governmental 

Capital Project Financing Bonds Issued During 

2011. and 30% fur Such Bonds During 2012 (1]. .... DOE ... -89 -343 -451 -451 -451 -451 -451 -451 -451 -451 -1,786 

B. Exempt·Facility Bonds for Sewage and Water 

Supply Facilities 

Provide that the volume cap for pnvate 

activity bonds shall not apply to bonds for 

facthties for the furnishing of water and for 

sewage faciht1es oiaDOE ·I -3 -7 -14 ·23 ·31 ·39 -47 -55 -63 -71 -79 

2. Permit Indian tribes to issue tax-exempt 

private activity bonds for facilities for the 

furnishing of water and for sewage facilities ... oiaDOE (2] [2] -l -I -1 -2 -2 -2 -3 ·3 -3 -5 

C Extension of Exemption from AMT Tax Treatment 

for Certain Bonds {sunset 12/31/ll) ... oia 12/31/10 -- ·13 ·25 -25 -25 -25 -24 -24 -22 -21 -20 -113 

D. Extension and Additional Allocations of 

Recovery Zone Bond Authority {1], ... DOE ·10 -104 -242 -266 -259 -256 -249 -249 -249 -249 -249 ·1,137 

E. Allow New Markets Tax Credit Against the 

AMT[3]. .. (4] ·I -6 -21 -43 -61 ·73 -77 -74 ·61 -28 -- -205 

F. Extension ofTax-Exehlpt Eligibility for Loans 

Guaranteed by Federal Home Loan Banks 

(sunset 12/3 1/11) .... DOE ... -13 -15 -15 ·15 -15 -15 ·15 -15 -15 -15 -73 

G. Extension of Temporary Small Issuer Rules to 

Tax-Exempt Interest Allocation Rules for Financial 

Institutions (sunset 12/31/11) ... bia 12/J !flO ... -7 -21 -29 -29 ·29 -29 -28 -28 -27 -27 -115 

Total of Infrastructure [ocentives ................................................... -12 -235 -675 -844 ·864 -882 -886 -890 ·884 -857 -836 -3,513 

26626.397

Page 2 

Provision Effective- 2010 2011 2012 201J 2014 2015 2016 2017 2018 2019 2020 2010-1

II. Exteo.!iion of Expiring Provision.!! 

A Energy 

1. Alternative motor vehicle credit for new qualified 

hybrid motor vehicles other than passenger 

automobiles and ltght trucks (sunset 12/31110) .... ppa 12/31/09 -3 -3 -I -1 [2] [5] [5] --- --- --- --- -

2. Excise tax credits and outlay payments for 

biodiesel and renewable diesel 

a. Biodiesel (sunset 12/31110) ... fsoua 12!31/09 -624 -231 -- -- -- - --- -- - --- -- ~85

b. Renewable diesel (sunset 12/31/IO) .. fsoua 12/31/09 -10 -4 -- -·- ·-- -·- --- ·- --- ·- --- -1

3. Extend and modify credit for electricity produced 

at open-loop biomass facilities placed~in~service before 10/22/04 (sunset 12131/10) ... epasa l2/3l/09 -43 ·29 -6 -3 -2 -1 --- -- ... --· --- -8

4. Extend and modify credit for steel industry fuel DOE& 

(sunset 12/31!10) ... fpa 10/1/08 -13 -15 -16 --- -·- -- --- --- --- --· - -4

5. Placed-in-service date for eligibility for tax credit 

for the production of coke or coke gas (suru;ct 

12/JIIIO).« fpisa 12/31/09 -3 -5 -5 -5 -3 -·- -- --· -- ·-- --- -2

6. Credit tOr construction of energy efficient new 

homes (sunset 12/31/10) .. haa 12/31!09 -23 -17 -6 -6 -5 -4 -4 -I --· --- -·· -6

7. Incentives for alternative fuel and alternative fuel 

mixtures (excluding liquefied hydrogen, coal to 

liquids, and P*series fuels) (sunset 12/31/10) ... fsoua 12/31/09 -73 -23 -- --- -- --· -· ... ·-- --- ... -9

8. Special rule for sales or dispositions to implement 

FERC or State electric restructuring policy for 

qualified electric utilities (sunset 12/31/10) .... ta 12/31/09 -221 -8& 49 49 49 49 49 49 17 --- - -11

9. Suspension of 100 percent-of-net- income 

limitation on percentage depletion for oil and 

natural gas from marginal properties (sunset 

12131110) ... tyba 12/Jl/09 -67 -36 ·- --- - - ·-· --· -- ... -- -10

10. Direct payment of energy-efficient appliance tax 

credit[l]. ... api 2009 & 2010 -68 -2 ·- --- ... -- ·- ... . .. --- -- -6

l L Modify the requirements for exterior windows, 

doors, and skylights to be eligible for the credit for 

nonbusiness energy property (sunset 12/31110). ppisaDOE --- -145 --- --- --- --- --· --· ... -- - -14

B. Individual Tax Relief 

l. Deduction for certain expenses of elementary and 

secondary school teachers (sunset 12/3IIl0). tyba 12/31109 -43 -172 --- -- --- -- -- -- -· --- - -21

2. Additional standard deduction for State and 

local real property taxes (sunset 12/31/10}. tyba 12131109 -233 -1,318 -·- -- --- --- - -·· --- -- -- -1,55

3. Deduction of State and local general sales taxes 

(sunset 12/31/10). tyba 12/31/09 -218 -1,288 -294 -- -- --· --- --- --- -·· ·- -1,80

26626.398

Page3 

Provision Effective 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2010~1

4 Contributions of cap1tal gain real property made 

for qualified conservation purposes (sunset 

12/31110) cmityba 12/31/09 -23 ~60 -22 -17 -14 -12 -10 -8 -8 -8 -8 ~14

5 Deduction for qualified tUitiOn and related 

expenses (sunset ll/31110) tyba 12/31/09 -35 -658 --- --- --- --- --- --- --- --- -- -69

6 Taxwfrec distributions from IRAs to certain 

pubhc ch.arities from age 70 l/2 or older, not 

to exceed $100,000 per taxpayer per year 

(sunset 12/31/10) Dm1tyba 12131/09 -175 -187 -24 -25 -26 -28 -29 -31 -33 -34 -35 -46

7 Look-thru of certain regulated investment company 

("RIC") stock in determimng gross estate of 

nonresidents (sunset 12/31/10) dda 12/31/09 

8. Election fOr direct payment oflow~mcome 

housing credit for 2010 (I] DOE -3.072 -1.232 281 435 504 521 523 523 523 523 482 -2.56

C Busmess Tax Relief 

1 Tax credit for research and cx:penmentahon 

expenses (sunset 12/31/10) apota 12/Jl/09 w2,195 -1.522 -483 ~425 ~374 -329 -291 -274 -265 -256 ~236 -5.32

2 Ind1an employment tax credit (sunset 12/31/10) tyba 12/31/09 -6 -34 -7 -I --- --- --- --- --- --- --- -4

3 New markets tax credlt (sunset 12/31/10) .. cyba 12(3l/09 --- -7 -33 -101 -156 -169 -191 -208 -205 -176 -100 -46

4. 50% tax: credit for certain expenditures for epmd 

maintaining railroad tracks (sunset 12/31/10) tyba 12/31/09 -66 -99 121 [2] --- --- --- --- --- --- -- -16

5. Mine rescue training credit 

a Mine rescue team training credit (sunset 

12131/10) .. tyba 12/31/09 [2] [2] 121 [2] 121 [2] [2] [2[ [2] [2] [21 -

b. Allow mine rescue team traming credit against 

the AMT (sunset l2/3lll0) .. tyba l2/3l/09 -I -I -I -1 [2] [2] [2] --- -- -- -- -

6. Employer wage credit for activated milltary 

reservists (sunset 12/31/10)."' pma 12!3l/09 -I -2 -I [2] [2] [2] [2] [2] [2] [2] [2] -

7. 5-year depreciation for certain farming business 

machinery and equipment (sunset 12/31/lO). ppisa 12/3l/09 ·Ill -228 -164 -156 -178 41 377 134 87 --- --- -79

8 IS-year straight-line cost recovery for qualified 

leasehold, restaurant and retail improvements 

(sunset 12/31/10) pp1sa 12131/09 -145 -410 -528 ~522 -511 -489 -475 ~479 -466 -443 -380 -2.60

9 7~year recovery period for certain motorsports 

entertainment complexes (sunset 12/31/10) ppisa 12/3l/09 -II -18 -II -6 -3 -4 -4 I 6 6 6 -5

10. Accelerated depreciation for business property 

on Indian reservations (sunset 12/31/10) ppisa 12/31/09 -107 -186 -69 1.1 51 80 65 35 4 -7 -4 -21

11 Enh.anced ch.antable deduction for contributions 

of food inventory (sunset 12/Jl/10) cma 12/JJ/09 -43 -35 -- -- --- -- --- - --- - - -7

12. Enhanced charitable deduction for contnbutions 

of book inventory (sunset l2/3ll10) cma 12/31/09 -17 -14 --- --- --- --- - --- - --- -- -3

26626.399

Page4 

Provision Effective 2010 2011 2011 2013 2f114 2015 2016 2017 2018 2019 2020 2010*1

13. Enhanced charitable deduction tOr qua!tfted 

compnter contnbutions (sunset 12/31/lO). CIUI tyba \2/Jl/09 -107 -88 -- --- --- --- -- -- -- --- - -19

14. Election to e"pense mine safety eqmpment (sunset 

12131110) . pptsa 12131/09 -8 -2 3 2 2 1 1 I [51 -- -- -

IS. Special expensing rules for qualified film 

and television productiOns (sunset 12/J 1110) qfatpca 12/31/09 -54 ~lOR 12 26 18 15 13 11 9 7 5 -9

16. Expensing of Brownfields environmental 

remediation costs (sunset 12/31/10) ... epoia 12/31/09 -201 -124 19 22 25 23 20 18 IS 13 12 -23

17. Deduction allowable with respect to income 

attributable to domestic production activities 

in Puerto Rico (sunset 12/J 1/10). tybo 12131109 -84 -101 -- -- -- --- - --- - --- --- -IS

18. ModifY tax treatment of certain payments 

under existing arrangements to controlling 

exempt orgamzattons (sunset 12/J 1/10) proaa 12/31/09 -17 -3 --- --- --- -- -- -- -- --- -- -2

19. Exclusion of gain or loss on sale or exchange of 

certam Brownfield sites from unrelated business 

taxable mcome (sunset 12/31/10) paa 12/31/09 I 1 -I -17 -18 -3 -3 -3 -3 -3 -3 -3

20 REIT timber provisions mcluding mineral 

royalties treated as qualified REIT income of 

timber REITs; treatment of REIT timber gain; 

and prohibited transactions safe harbor rules 

(sunset 12/31110) "". tyea 5/22/09 -I -I -I -1 -I -I -1 -1 --- --- --- -

21 Treatment of certain dividends of regulated 

investment companies ("RJCs") {sunset 

12131/10) ... [6] -12 -72 -- --- --- --- -- -- --- --- -- -8

22. Extend the treatment of RICs as "qualified 

investment entities" under section 897 

("FlRPTA") (sunset 12/31/10) .. 1/1/10 -5 -5 -- -- -- -- - --- --- - -- -1

23. Exception under Subpart F for active financing 

income (sunset 12/31/l 0) .. tybo 12131/09 -945 -2,978 --- --- --- --- --- --- --- -- -- -3,92

24. Look-thru treatment of payments between related 

controlled foreign corporations under foreign 

personal holding company income rules (sunset 

12/31110) tyba2009 -135 -439 --- -- -- -- --- -- --- --- --- ~57

25. Basis adjustment to stock ofS corporations 

making chantable contributions of property 

(sunset 12/31/10) cmi tyba 12/J 1/09 -11 -!I -1 -2 -2 -2 -2 -2 -2 -2 -2 -2

26 Empowerment zone tax mccnt1ves (sunset 

1213!110) tyba 12/31/09 -203 ·!OJ 8 2 I -- -2 -1 -2 -2 -2 ~29

27 Tax mcenhves for investment m the Dtstrict 

ofColumb1a (sunset 12/31/lO} tyba 12/31/09 -55 ·II -J -I -I -2 -4 -2 -2 -2 -2 -7

26626.400

Page 5 

Provision Effective 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2010-15 

28 Renewal commumty tax incentives (sunset 

12/31110). tyba 12/31/09 -239 -252 -80 -42 -3 -3 -2 -I I -- -- -615 

29 Increase in limit on cover over of rum exc1se 

tax revenues (from $10.50 to $13 25 per proof 

gallon) to Puerto Rico and the Virgm Islands: 

(sunsot !2/31110) [I] [7]. .. abiUSa 12/31/09 -104 -27 --- --- --- --- -- --- --- --- --- -Ill 

30. Payment to Amencan Samoa in heu of extension 

of econ01mc development credit [ 1] f7l . -- -18 --- --- -- -- --- --- --- --- --- --- -18 

31. Election to temporarily utilize unused AMT 

credits determined by domestic mvestment [8} ... tyba 12/31/09 -160 -3.032 167 142 120 102 87 74 63 53 45 -2.660 

32 Study of expiring tax provisions ... DOE 

D Temporary Disaster Relief Provisions 

I National disaster relief 

a Waive certain mortgage revenue bond 

requirements following Federally declared 

disasters (sunset 12/31/10) [9] bta 12/31/09 -1 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -I

Individual casualty losses attnbutable to Federally 

declared disasters deductible without regard to 

AGI; $500 floor applicable to all casualty losses 

(sunset 12/31/10) .. tyba 12131109 -273 -455 --- -- --- --- - --- -- -- --- -728 

c Special depreciation allowance for qualified coao doa 

disaster property (sunset 12/31/10). !2/Jl/09 -335 -625 -469 -183 -76 -69 -18 97 83 72 65 -1.757 

5-year carryback of net operating losses 

attributable to Federally declared disasters 

(sunset 12/31/10) .... doa 12/Jl/09 -21 -380 53 57 49 37 28 21 15 12 9 -205 

e Expensing of qualified disaster expenses eoao doa 

(sunset 12/31/10) ... !2131/09 -20 -17 I I I I I I --- -- --- -33 

New York Liberty Zone: 

a. Special depreciation allowance for 

nonresidential and residential real property 

(sunset 12/31/10) .. ppisa 12/31/09 -3) -10 I I I I I I I I I -39 

b TaxMexempt bond financing (sunset 12/31/10) ... bia 12131109 -2 -8 -12 -12 -12 -12 -12 -12 -12 -12 -12 -58 

GO Zone· 

a Extend the higher credit rate for GO Zone 

rehabilitation (sunset 12/31/10) ... apoia l2/3l/09 -23 -29 -6 2 2 2 2 2 2 2 2 -52 

b. Work opportunity tax credit with respect to 

certain mdividuals affected by Hurricane 

Katrina for employees inside disaster areas 

(sunset 8/27/10). iha 8/27/09 -6 -I (2] (21 [2] [2] -- -- -- --- -- -7 

26626.401

Page6 

Provision Effective lOIO lOll lOll lOU l014 l015 l016 2017 lOIS l019 lOlO lOI0-15 

c Extend the placcd-in-servtce deadline for GO 

Zone low-mcome housing credits (sunset 

12/31/12) pp!Sll 12/31/10 ... -8 -29 -40 -40 -40 -40 -40 -40 -40 -40 -157 

Extension of Expiring Provisions .................................................... -10,724 -16,960 -1,681 -815 -606 -l97 77 103 -214 -298 -199 -31,081 

III. Pension Provisions 

A. Pension Funding Rcltef 

l. Single~employcr plans [10) vanous 110 777 l,S95 1,524 859 468 239 -134 -1,006 -1,743 -1,380 5,333 

2. Rollover of amounts received in airline carrier 

bankruptcy .. DOE -25 -91 25 -4 -4 -4 -4 -4 -3 -3 -3 -102 

3. Multiemployer plans [10] vanous 9 34 56 79 99 117 134 132 99 40 -2 394 

B. Defin,ed Con,tribuhon Plan Fee Disclosure. pyb• 12/31/11 

Total o£ Pen,sion Provisions ........................................................... 94 720 1,676 1,599 954 581 369 -6 -910 -1,706 -1,385 5,625 

IV. Revenue Offsets 

A Foreign Provisions 

1. Rules to prevent splitting foreign tax credits from generally 

the income to which they relate , fitpoaa doi 75 850 800 750 700 650 600 550 500 450 400 3,825 

2. Denial of fore1gn tax credit with respect to foreign 

income not subject to United States taxation by generally 

reason of covered asset acqmsitions.". caaaDOE 25 400 400 400 400 400 400 400 400 400 400 2.025 

3. Separate application of foreign tax credit 

limitation, etc., to items resourced under treaties tyb•DOE 3 25 25 25 25 25 25 25 25 25 25 128 

4. Limitation on the amount of foreign taxes deemed 

paid with respect to section 956 inclusions .. [II] 10 100 100 100 100 100 100 100 100 100 100 510 

5. Special rule with respect to certam redemptions by 

foreign subsidiaries aa doi 5 25 25 25 25 25 25 25 25 25 25 !30 

6. Modification of affiliation rules for purposes of 

rules allocatmg interest expense .. tybaDOE 15 225 150 10 5 [5] [5] [5] [5] [5] [5] 405 

7. Termination of specml rules for mterest and 

divtdends received from persons meeting the generally 

80-percent foreign business requirements tyb• 12131110 ... I 2 6 9 12 15 21 25 29 33 30 

8. Source rules for income on guarantees gtaDOE 25 200 200 200 200 200 200 200 200 200 200 1.025 

9. Modification of statute of limitations for failure to 

disclose certatn foreign transactions . [12] 

B Personal Service Income Earned in Pass-Thru 

Entities 

1 Partnership interests transferred in connectiOn wtth 

performance of services tiptaDOE -.------------------------------------- Estunate !nc!udedm!tem !VB 2 

26626.402

Page7 

Provision Effective 2010 2011 2012 201J 2014 2015 2016 2017 2018 2019 2020 2010-1

2. Income of partners for performing mvestment 

management serviCes treated as ordmrny mcome 

received for performance of services [13] tycaDOE --- 2,026 1,580 1,707 1,661 1.463 1,551 1,977 2,267 2,268 2,185 8,43

3 Employment and seU:.employment tax treatment of 

professional servJce businesses [10]. tyba 12/31/10 --- 502 863 942 1,051 1,138 1,205 1,274 1,348 1,425 1,501 4,49

C Corporate Proviswns 

I Treatment ofsecunties of a controlled 

corporation exchanged for assets m certain 

reorganizations .. geaDOE 5 25 25 25 25 25 25 25 25 25 25 13

gea DOE 10 50 50 50 50 50 50 50 50 50 50 26

Increase Oil Spill Liability Trust Fund tax to 34 

cents per barrel (sunset 12/Jl/20) and remove 

smgle~mcident expendtture caps for the Otl Sptll fqb 60da DOE & 

Liability Trust Fund {14] emaDOE --- 1,185 1,197 1,200 1,199 1,195 1,195 1,161 U49 1,151 1,153 5,97

2. Increase by 36 percentage points the requtred 

corporate estimated tax payments factor fOr 

corporations with assets of at least $1 bill ton for 

payments due in July, August and September 

2015 DOE -- --- --- --- -- 21,234 -21,234 -- --- -- --- 21,23

Total of Revenue Offsets ............................................................... 173 5,614 5,417 5,440 5,450 26,517 ~15,843 5,808 6,114 6,148 6,097 48,61

Total of Titles 1-IV ......................................................................... -10,469 -10,861 4,737 5,380 4,934 25,919 -16,283 5,015 4,106 3,287 3,677 U,64

V. Unemployment Health, and Other Alisistance 

L Extension ofpremimn assistance for COBRA 

benefits for involuntary terminations through 

11/30/10 [I] [15], [16] ~2,620 -3,318 -982 38 31 19 12 4 I -- --- -6,83

2. Establish a CMS-1 RS data match to identify 

tax~delinquent providers [I] [7]. .. DOE --- --- 38 38 50 50 50 50 50 50 50 17

Total of Unemployment Health, and Other Assistance .......................... -2,620 -3,318 -944 76 81 69 62 54 51 50 50 -6,65

VI. Other Provisions 

I. Exclude from gross income amounts received by 

Indians pursuant to Co bell settlement DOE 

2 Provide that tax refunds or credits are not mcome 

in the year received for purposes of the 

admimstration of Federal programs and federally 

assisted programs (sunset 12/31/10) [lJ [7J ara 12/31109 -2 --- --- --- -- --- --- --- --- --- --- -

26626.403

PageS 

Provision Effective 2010 2011 2012 2013 

3 Extensmns of duty suStlensmns on certain cotton 

shirting fabrics (sunset 12/Jl/13) [7} DOE - (17] (17] [17] 

Total of ()ther Provisions., ....................... , .................................... -2 {17] fi7J {171 

NET TOTAL ................................................................................. .IJ,091 -14,179 3,793 5,456 

Joint Collllmttec on Taxation 

NOTE: Details may not add to totals due to rounding. The date of enactment IS assumed to be July I, 2010 

Legend for "Effective" column· 

aa"" acquisitiOnS after 

ab1USa"" articles brought into the United States after 

apt"" appliances produced in 

apoia""" amounts paid or incurred after 

ema :. expenditures made after 

eoao =expenditures on account of 

epasa"' electncity produced and sold after 

ep<Jia"" expenses paid or mcurred after 

epoid = expenses paid or incurred dunng 

2014 

117] 

[171 

5,015 

ara "" amounts recetved after 

bia"" bonds issued after 

caaa =covered asset acquisitions after 

cma ""· contnbutions made after 

fttpoaa = fore1gn income taxes paid or accrued after 

fpa "'fuel produced after 

cmi "" contributions made m 

cyba""' calendar years begmning after 

dda =decedents dying after 

Dmi distributions made in 

doa"" disasters occurring after 

DOE """ date of enactment 

[J 1 Estimate includes the following outlay effects: 

Build America Bonds ... 

Recovery Zone Bonds. 

fp1sa"' facilities placed in service after 

fqb-= first quarter beginning 

fsoua"" fuel sold or used after 

gea "'generally exchanges atler 

g1a '""guarantees issued after 

h.aa "'homes acquired after 

iha ~individuals hired after 

2010 illl 2012 2013 

-· 484 1,949 2,730 

14 70 141 141 

68 2 

3,112 1,334 

104 27 

18 ... 

277 289 508 CMS~IRS data match to identify tax-delinquent providers l7]. - ~38 -38 

Tax refunds or credits not income in the year received 

{2] Loss oflcss than $500,000 

[3] Estimate includes mteraction with. item ILC.3 

[4] Effective for qualified equ1ty investments initially made after March 1.5, 2010, and before January l, 2012. 

[Foolnote.sfor Table #10~1 058 RIO are conttmted on thefollowmgpagej 

2014 

2,730 

141 

-50 

2015 2016 2017 

... . .. . .. 

- -- -· 

25,988 -16,221 5,069 

2015 2016 2017 

2,730 2,730 2,730 

141 141 141 

-50 -50 -50 

20IIJ 2019 2020 2010~1

. .. -· ... [17

- ·- - -

4,157 3,337 J,727 12,98

1ipta"" mterests in partnerships transferred 

oia"" obhgatwns issued after 

paa = property acquired after 

Paa"" penalties assessed after 

pma "" payments made after 

ppa = property purchased after 

ppiSa""' property placed in serv1ce after 

proaa = payments received or accrued after 

pyba"'" plan years begmning after 

qfatpca"" qualified film and televisiOn 

productions commencmg after 

tyba """taxable years beginning after 

tyea = taxable years ending after 

60da = 60 days after 

2018 2019 2020 

2,730 2,730 2,730 

141 141 141 

-50 -50 -50 

2010-1

10,62

64

6

4,44

Il

1

1,07

-17

26626.404

Page 9 

-----------------------------------------

Footnotes for Table #10-l 058 RIO continued: 

l5J Gam of less tlwn $500.000 

[6] Eff~cttve for dtvtdends wtth respect to taxable years of regulated mvcstmcm compamcs bcginnmg after December 3 !. 2009 

f7] Estm1atc pronded by the Congrcsswnal Budget Office 

[8] Provisron docs not apply for ta-x<Ible years bcgmnmg after December 31.2010 

l9] Extends prov1sioos in Internal Revenue Cnde sectwos l~3(kl(ll) and 143(kJ( 13) 

[10] Estunate mcludcs the fo\lowmg off-budget effects 2010 l.Qll 2012 ~ Pcnswn Fundmg Rchcf fnr Smgle-Employer Plans --- 144 342 349 

Pension Fundtng Re!Jeffor Mnlticmp!oyerl'lans --- 5 12 20 

Employment and self-etnployment tax treatment ofprofessmnal 

scrv1ce husmcsses 3!6 553 547 

ll I] Effective for acqulSlttons of U.S property detennm~:d under scctton 956 after the date of wtroductiOn 

2014 2J:IJj 

202 104 

25 30 

568 615 

2016 

45 

36 

652 

[121 Effectwc for returns f1!cd after March 18. 2010. as \\ell as other returns for whtch thL! Juwta!lOns p~nod under section 6~01 had not yet cxprred as of that date 

]JJJJ. J!2!!! 

-60 -331 

37 29 

692 733 

[13] For taxable years bcgmnmg b~fore January l. 201\. 50 percent nfmco-me and other !letm to wh1ch the provtswn applies IS treated as ordmary. 75 percent thercarter These 

percentages also apply to self-employment and MedJcare unearned mcome tax EstJma!cd tax penaltJeCi arc waJVed m 2010 for any mcrease m habll1t)' owmg to the pro'HSIOn 

[14] EstmJate docs not mctude the follo\\-ing outlay effects. 2010 IPlJ. 2012 2013 f014 2015 2016 2017 2018 

whtch are prov1ded by the Congrcsstona\ Budget Office ~-- 500 400 100 

[15] Estunate mcludes mtcractton wtth the unemployment msurance program, provtded b} the Congres~wna! Budget Office 

[16] Gcncrfllly effCctJve as if included m the "American Recovery and Rcimcstment Ad of 2009" 

[171 Negltgthle revenue effect 

2019 2020 2010~1

·561 ·450 1,11

II -I 9

777 R23 2,59

_f_Q.12 ~~a_o ;!_Q.l.Q::

1.00
436 


26626.405

For Immediate Release 

Marcb 15,2010 

Contact Carlos Vogel (cvogel@usmayors.org) 202-861~6708 

AVERAGE AMERICAN HOUSEHOLD WATER AND SEWER RATES ARE EXPECTED TO 

INCREASE 2 TO 4 TIMES BY 2028 

Nation's Mayors Report on Past and Projected Cost of 

Public Water and Wastewater Services and Infrastructure 

Washington, D.C.- A report released today by the U.S. Conference of Mayors says that water and sewer rates 

for American households will double to quadruple over tbe next 20 years. The report forecasts future spending 

for public water and wastewater systems will range between $2.5 and $4.8 trillion over the next 20 year period 

2009 to 2028. Over the last 53 years, locaJ governments have invested $1.6 trillion. 

The report shows that cities provide the overwhelming majority of public water and wastewater infrastructure 

investment-accounting for more than 95% of total expenditures for these public senrices. In 2008 local government 

spent $93 billion on water and sewer services and Infrastructure, while Congress provided only $2 billion in grants to 

states who then disbursed the money in the form of loans to local governments which have to be paid back with 

interest 

"We need a new partnership with the federal government to achieve the clean water goals: providing safe, adequate 

and affordable water quality for the 21st Century while protecting the environment", said U.S. Conference Mayors 

President Burnsville (MN) Mayor Elizabeth Kautz. "Right now the federal govenunent is imposing many more 

mandates than the money needed to meet them." she said. "Many of these mandates impose costs on cities to clean 

up the pollution caused by mining and agricultural activities. ''But it is our citizens, whose family budgets are already 

strained by the economy, who will have to pay the sk)'Tocketing water and sewer rates." 

The report finds that current federal financial assistance programs are fragmented and not targeted to metro-urban 

areas that the nation depends on for employment, economic growth, and environmental stewardship. Currently the 

nation's preeminent federal water program--the State Revolving Fund Loan Program-is inadequate in its current 

fonn and needs to be revitalized to meet 21st Century needs. The report shows that the SRF program has received flat 

funding while the federal government has dramatically increased mandates on local govenunents. 

In addition to the wave of unfunded mandates, the report also finds that the increased costs are related to population 

growth, urbanization, and aging infrastructure. The combination of mandates and these other factors are forcing local 

government onto a spending treadmill where ever-growing annual investments may not be sufficient to guarantee 

safe, affordable and adequate supplies and services or meet state and federal requirements. 

KEY FINDINGS 

• The cost of providing public water and wastewater services and infrastructure from 1956 to 2008 was $1.6 trillion in 

nominal dollars and $3.2 trillion in inflation adjusted 2008 dollars. 

e Local government spending doubled five times over this period, while GDP doubled four times over the same 

period. Today, sixty cents on every dollar spent is for Operations and Maintenance; and 40 cents goes to capital 

investment, reversing an historical trend of a majority of expenditures on capital investments. 

• Local government devotes six tenths of one percent of GDP to this function each year, while the intended 

preeminent federal aid program the State Revolving Fund (SRF) loan programs- provides a mere 2 thousandths of 

one percent of GDP annually. The SRF program fails to provide adequate financial assistance to cities. 
437 


26626.406

• Cities are spending more dollars on water and wastewater each year, but the investment needs far outweigh local 

goverrunent's ability to keep up with an aging infrastructure- Americans will likely face increased service 

disruptions, increased water main breaks, and greater impacts on local economies and threats to public health. 

"The bottom line is that our federal water and wastewater programs must be refonned and directly fund our cities to 

meet these challenges,'' said U.S. Conference of Mayors CEO and Executive Director Tom Cochran, "Otherwise, 

families will be hit with unrealistic bills they cannot afford.'' "The nation's mayors call on Congress and the 

Administration to work with cities to establish a National Action Agenda that will renew and strengthen the 

intergovernmental commitment to water and wastewater infrastructure," he said. 

A copy of the Report: "TRENDS IN LOCAL GOVEIL'IMENT EXPENDITURES ON PUBLIC WATER AND 

WASTEWATER SERVICES AND INFRASTRUCTURE: PAST, PRESENT AND FUTURE", can be found at 

www.usmavors.org/publications 

### 

The U.S. Conference of Mayors is the official nonpartisan organization of cities with populations of 30,000 or more. 

There are I, 139 such cities in the country today, each represented in the Conference by its chief elected official, the 

Mayor. 
438 


26626.407

AUTHENTJCATED? 

US GOVERNMENT 

!NfORMATJON , 

GPO 

112TH CONGRESS 

1ST SESSION 

II 

S.939 

To amend the Intcmal RcYenne Code of 198() to provide that the ,-olnme 

eap for priYatc> activity bonds shall not apply to bonds for faeilities 

for the furnishing of water and sewage faeilities. 

IN THE SENATE OF THE UNITED STATES 

l\IAY 10, 2011 

l\Ir. l\IENE::'\DE:l. (for himself and Mr. C'l{APO) introduced the follov\ing hill; 

whic'h was rcarl t\\iee and referred to the Committee on Finanee 

A BILL 

To amend the Internal Revenue Code of 1986 to provide 

that the volume cap for private activity bonds shall not 

apply to bonds for facilities for the furnishing of ·water 

and sewage facilities. 

1 Be 1:t enacted by the Senate and House of Representa2 fi,ues of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Aet may be eited as the "Sustainable \Vater In5 frastructure Investment Act of 2011". 

6 SEC. 2. FINDINGS AND PURPOSE. 

7 (a) PI:\DI~Gs.-Congress finds the following: 
439 


26626.408

2 

(1) Our Nation's water and wastewater systems 

2 are among the best in the world, providing safe 

3 drinking water and sanitation to our citizens. 

4 (2) In addition to protecting the health of our 

5 citizens, community "·ater systems are essential to 

6 our local economies, enabling industries to achieve 

7 growth and productivity that make America strong 

8 and prosperous. 

9 (3) Regulated under title XIV of the Public 

10 Health Service Act ( 42 U .S.C. ~300f et seq.; com11 monly known as the "Safe Drinking \Vater Act") 

12 and the Federal Water Pollution Control Act (33 

13 U.S.C. 1251 et seq.), comnmnity drinking water sys14 tems and wastewater collection and treatment facili15 ties are critical elements in the Nation's infrastruc16 ture. 

17 ( 4) \Vater and wastewater infrastructure is 

18 comprised of a mi:A'iure of old and new technolog:;·. 

19 In man? local communities across the Nation, the 

20 old infrastl1lcture has deteriorated to critical condi21 tions and is ver.v costly to replace. Recent govern22 rnent studies have estimated costs of 

23 $500,000,000,000 to $800,000,000,000 over the 

24 ne:>.'i: 20 years for maintaining and improving the ex-

•S 939 IS 
440 


26626.409

3 

isting inventOl)', building nevv infrastructure, and 

2 meeting new water quality standards. 

3 ( 5) The historical approach of funding infra4 structure is insufficient to meet the investment 

5 needs of the future. 

6 ( 6) The F'ederal partnership with State and 

7 local communities has played a pivotal role in im8 proving the Nation's water quality and drinking 

9 water supplies. :B~ederal assistance under this part10 nership has been the linchpin of these improvements. 

11 (7) In light of constrained F'ederal budgets, the 

12 1wailability of exempt-facility financing represents an 

13 important financing tool to help close the gap be14 tween funds (~urrently being invested and water in15 frastrueture needs, preserving· the Pederal partner16 ship. 

17 (8) Providing· alternative financing solutiom;, 

18 such as tax-exempt securities, encourages investment 

19 in water and wastewater infrastructure that in turn 

20 creates local jobs and protects the health of our eiti21 zens. 

22 (9) Pederall~- mandated State volume cap re23 strictions in eonjuuction 'vith other priorities have 

24 limited the use of tax-exempt securities on water and 

25 waRtewater infrastrueture investment. 

•S 939 IS 
441 


26626.410

4 

(10) Removal of State volume caps for water 

2 and wastewater infrastructure 'viii accelerate and in3 crease overall investment in the Nation's critical 

4 water infrastructure; facilitate increased use of inno5 vative infrastructure delivery methods supporting 

6 sustainable water systems through public-private 

7 partnerships that optimize design, financing, con8 struction, and long-term management, maintenanee 

9 and viability; and provide for more effective risk 

I 0 management of complex water infrastructure 

II projects by municipal utility and private sector partI2 ners. 

I3 (b) PURPOSE.-The purpose of this Act is to prmide 

I4 alternative financing for long-term infrastructure capital 

15 investment pros'Tarns, and to restore the Nation's safe 

I6 drinking water and wastewater infrastructure capabilit~' 

17 and proteet the health of our citizens. 

18 SEC. 3. EXEMPT-FACILITY BONDS FOR SEWAGE AND WATER 

19 SUPPLY FACILITIES. 

20 (a) BO.i'\DS J;'OH \VATER AKD SEWAGI<J FACILI'l'mS 

21 EJ\.,.El\IP'l' FHO:VI VOLL\IE GAP Oi'\ Plm'A'l'E ACTIYI'l'Y 

22 BO:\'DS.-Paragraph (3) of section 146(g) of the Internal 

23 Revenue Code of 1986 is amended by inserting "(4), (5)," 

24 after "(2 ),". 

•S 939 IS 
442 


26626.411

5 

(b) CONFORMING CHAJ\GE.-Paragraphs (2) and 

2 Un(B) of section 146(k) of the Internal Revenue Code of 

3 1986 are both amended b? striking "(4), (5), (6),'' and 

4 inserting " ( 6) ". 

5 (c) EFFECTIVE DATE.-The amendments made by 

6 this section shall apply to obligations issued after the date 

7 of the enactment of this Act. 

0 

•S 939 IS 
443 


26626.412

For Immediate Release 

May 10,201 I 

For Information Contact 

Paul Brubaker (973) 523-5152 

REPS. PASCRELL, GEOFF DAVIS; SENS. MENENDEZ, CRAPO INTRODUCE 

BIPARTISAN LEGISLATION TO HELP CREATE JOBS BY ENCOURAGING PRIVATE 

INVESTMENT IN WATER INFRASTRUCTURE UPGRADES 

Lawmakers agree: Lifting the cap on private activity bonds for water infrastructure will make 

needed infrastructure updates more affordable. 

WASHINGTON- Citing the nation's undeniable needs for jobs creation and updated water 

systems, U.S. Reps. Bill Pascrell, Jr. (D-NJ-8) and Rep. Geoff Davis (R-KY-4) and U.S. Sens. 

Robert Menendez (D-NJ) and Mike Crapo (R-ID) introduced legislation today aimed at 

creating jobs by encouraging private investment in water infrastructure upgrade projects. 

"Our nation's job deficit and deteriorating water systems have gotten to the point that if you 

randomly pick up a newspaper in any American city, there's a good chance you find a story 

about a company's job cuts or a community's water main break- maybe both," said Pascrell, 

a member of the House Ways and Means and Budget Committees. "Taxpayers cannot be 

expected to foot the entire bill for all of the repairs and updates that our water infrastructure 

needs. That is why this legislation will encourage this is a public- private partnership that will 

unlock upwards of 50 billion dollars of private capital for the public good. More people will 

be put back to work and more reliable water services will be provided in communities across 

the nation." 

"This bill is an important step forward in incentivizing public-private partnerships to bring in 

needed private capital to ensure that water infrastructure is safe and reliable," Rep. Geoff 

Davis (R-KY) said. "I am pleased to have worked with Representative Pascrell on this 

important legislation that will make the financing of water infrastructure projects more 

affordable." 

"We're all too familiar with the increasing frequency of water main breaks that unexpectedly 

flood random areas, disrupting businesses, transportation, and the daily lives of so many on 

any given day," said Senator Menendez. "This legislation could create over a millionjohs 

leveraging a modest investment by the federal government into billions of dollars of critical 

private economic investment to upgrade and rebuild aging water infrastructure in communities 

across the nation. Creating private sector jobs to ensure American families have reliable 

access to clean water is a win for our workers, taxpayers, and the communities we live in." 

"Small communities need, and deserve, federal support to comply with federal water and 

wastewater guidelines," Sen. Crapo said. ''This bill would allow local communities to leverage 

private capital markets in combination with other financial mechanisms to finance water and 

wastewater infrastructure projects. It makes financial sense for communities and will improve 

public health and water quality." 

The Water Infrastructure Investment Act of20ll provides for the removal of state volume 
444 


26626.413

caps on private activity bonds (PABs) for water and wastewater financing. Congress has 

already exempted airports, intercity high-speed rail, and solid waste disposal sites from these 

bond caps. 

The legislation would allow water systems easier access to capital throughout the nation. 

PAB issuance would be one of the fastest forms of federal assistance when applied to water 

and wastewater projects, with only 90-120 days needed to complete the process from 

approval to sale- and get Americans to work. In the first year of implementation alone the 

legislation is expected to create 28,500 new jobs. 

### 
445 


26626.414

THE U:"JITED STATES CONFERENCE OF MAYORS 

May 20, 2011 

The Honorable Robert Menendez 

U.S. Senate 

528 Hart Senate Office Building 

Washington, DC 20510 

Dear Senator Menendez: 

JP]•J I ~I: '-IRU:I, \O,U"H\\E<.,f 

\1.,·\'-JH~f·;rn~. !)( -""~~., 

I Fl ri'IIU'\1. 1~ll2: .!"i· -~~o 

i'.\.'\J.!II.2)0:'H-.::-s.;;,;: 

nm j ~~)..:~ .::·J~-')"~"~'i 

I HI .\',O.VO .I~IH."<il''><'l)oi..l'•lll 

On behalf of the nation's Principal Cities represented by The United States 

Conference of Mayors (USCM), I am writing to express strong support for the 

Sustainable Water Infrastructure Investment Act of 2011 (S. 939). The purpose of the 

legislation, as you so well state, is to modify the tax code to help local government 

finance much needed water and wastewater infrastructure and create jobs by encouraging 

private investment. The USCM has supported similar legislative proposals for over a 

decade, and we wish to express our thanks to you for continuing to tight for this 

important legislation. We agree with you that water and wastewater infrastructure is 

critical to the well being of public health and the nation's economy. 

Our Member Cities, in 2005, identified their most pressing water resources 

management issue is the rehabilitation of an aging infrastructure. Subsequently, our 

research clearly indicates that local government efforts, in 2008, involved a $100.2 

billion expenditure on water and wastewater infrastructure and services. Yet, Congress 

and the Administration have contributed less than 2 percent to local government to 

support this effort. At the same time, the U.S. Environmental Protection Agency has 

promulgated several very costly unfunded federal mandates. The EPA has announced 

plans to develop more regulations that will become a cost-burden on the nation's cities. 

Our mayors are expected to rebuild their existing systems to maintain basic services, but 

also comply with new and costly regulatory programs. Local government allocation of 

financial resources to comply with federal water policy is rapidly and significantly 

diverting resources away from other equally important public needs. Congress set no cap 

on what cities are expected to spend to satisfy the water laws. The EPA has proven to be 

insensitive to the cost impacts of unfunded mandates. The nation's mayors recognize that 

this is both ill-advised and unsustainable. 

Your legislation would provide some much-needed relief by encoura1,ring local 

government to work with private capital to deliver a critical public service. A study we 

published in 2008 indicates that local government investment in water and wastewater 

infrastructure adds value to the national (and local) economy. That study suggests that 

every local dollar spent for this purpose generates $9 in direct and indirect income. Every 

local job created in water and sewer creates 3.68 jobs in the national economy to support 
446 


26626.415

that job. Your understanding of the relationship between infrastructure investment and 

job creation is a welcome sign of leadership in the right direction. 

Thank you for sponsoring the Sustainable Water Infrastructure Investment Act of 

20 ll. This minor modification of the tax code will provide an expansion of the tool-box 

of local government to provide safe, affordable and adequate water and wastewater 

services and infrastructure for the nation's principal cities in the 21 51 Century. If the 

Conference of Mayors can be of any service to your efforts. please contact Judy Sheahan 

or Rich Anderson of my staff at 202-293-7330. 

Sincerely, 

J--c.o~ 

Tom Cochran 

CEO and Executive Director 

The United States Conference of Mayors 
447 


26626.416

LIS AUT}o-lf.NTlCATED·~ GOVERNMENT 

t!'<;f01<MAT10N 

GPO 

I 12TH CONGRESS 

1ST SESSION H. R. 1802 

To amend the Internal Rewnue Code of 1986 to provide that the Yolume 

eap for private activity bonds shall not apply to bonds for faeilities 

for the furnishing of water and sewage faeilities. 

IN THE HOUSE OP REPRESENTATIVES 

MAY 10, 2011 

Mr. P,\BCRELL (for himself and lVIr. DAYIB of Kentuek~') introcluee<l tlw 

follo"·ing hill; whieh was refrned to the Committee on Ways and J\Irans 

A BILL 

To amend the Internal Revenue Code of 1986 to provide 

that the volume cap for private activity bonds shall not 

appl~' to bonds for facilities for the furnishing of water 

and sewage facilities. 

1 Be it enacted by the Senate and !louse of Rcprcsenta2 tives ofthe United States ~~{Anwrica in Congress assembled) 

3 SECTION 1. SHORT TITLE. 

4 This Act may be eited as the "Sustainable \Vater In5 frastructure Investment Act of 2011 ". 

6 SEC. 2. FINDINGS AND PURPOSE. 

7 (a) FIXDINGS.-Congress finds the follmving: 
448 


26626.417

2 

(1) Our Nation's water and wastewater systems 

2 are among the best in the world, providing safe 

3 drinking water and sanitation to our citizens. 

4 (2) In addition to protecting the health of our 

5 citizens, community water s;rstems are essential to 

6 our local economies, enabling industries to achie.-e 

7 gmwth and productivity that make America strong 

8 and prosperous. 

9 (~3) Hegnlated under title XIV of the Public 

10 Health Service Act ( 42 U .S.C. 300f et seq.; com11 monly known as the "Safe Drinking 'Vater Act") 

12 and the Federal \Vater Pollution Control Act (33 

13 U.S.C. 1251 et seq.), community drinking water sys14 terns and wastewater collection and treatment facili15 ties are critical elements in the Nation's infrastruc16 ture. 

17 (4) Water and wastewater infrastructure is 

18 comprised of a mixture of old and new teehnology. 

19 In many local eommunities across the Nation, the 

20 old infrastructure has deteriorated to eritieal condi21 tions and is Yery costly to replace. Recent govern22 ment studies have estimated costs of 

23 $500,000,000,000 to $800,000,000,000 over the 

24 next 20 years for maintaining and improving the ex-

•HR 1802 IH 
449 


26626.418

3 

1 isting inventory, building new infrastrueture, and 

2 Ineeting· new water quality standards. 

3 (5) The historical approach of funding infra4 stmeture is insufficient to meet the investment 

5 needs of the future. 

6 ( 6) 'l'he Federal partnership vvith State and 

7 local communities has played a pivotal role in im8 prm1ng the Nation's water quality and drinking 

9 water supplies. Federal assistance under this part10 nership has been the linchpin of these improvements. 

11 (7) In light of constrained Federal budgets, the 

12 availability of exempt-faeility finaneing represents an 

13 important finaneing tool to help close the gap be14 tween funds currently being invested and water in15 frastrueture needs, presen1ng the F'ederal partner16 ship. 

17 ( 8) Providing alternative financing solutions, 

18 sueh as tax-exempt securities, encourages investment 

19 in water and wastewater infrastructure that in turn 

20 ereates local jobs and protects the health of our citi21 zens. 

22 ( 9) Federal!~' mandated State Yolume cap re23 strietions in eon,juuction v.1th other priorities haYe 

24 limited the use of tax-exempt securities on water and 

25 wastewater iufrastrueture investment. 

•HR 1802 IH 
450 


26626.419

4 

1 (10) Removal of State volume caps for water 

2 and wastewater infrastructure will accelerate and in3 crease overall investment in the Nation's critical 

4 water infrastructure; facilitate increased use of inno5 vative infrastructure delivery methods supporting 

6 sustainable water s.vstems through public-private 

7 partnerships that optimize design, financing, conS struction, and long-term management, maintenance 

9 and viabilit.v; and provide for more effective risk 

10 management of complex water infrastructure 

11 projects b)' nmnieipal utilit)- and private sector part12 ners. 

13 (b) PeRPOSE.-The purpose of this Act is to provide 

14 alternative financing for long-term infrastructure capital 

15 investment programs, and to restore the Nation's safe 

16 drinking water and wastewater infrastructure capability 

17 and protect the health of our citizens. 

18 SEC. 3. EXEMPT-FACILITY BONDS FOR SEWAGE AND WATER 

19 SUPPLY FACILITIES. 

20 (a) BO?\DS 1<'()1{ \VATBH. A.:-JD SBWAGE FAClLlTlES 

21 EXK\lPT FROl\1 YOL"l::'IIE CAP ON PRIVATE ACTIVITY 

22 BONDS.-Paragraph (:3) of section 146(g) of the Internal 

23 Revenue Code of 1986 is amended by inserting "(4), (5)," 

24 after "(2),". 

•HR 1802 IH 
451 


26626.420

5 

1 (b) CONFORMING CILL'JGE.-Paragraphs (2) and 

2 (3)(B) of section 146(k) of the Internal Revenue Code of 

3 1986 are both amended by striking "(4), (5), (6)," and 

4 inserting " ( 6) ". 

5 (c) EF'FECTlVE DATE.-The amendments made by 

6 this section shall apply to obligations issued after the date 

7 of the enactment of this Act. 

0 

•HR 1802 IH 
452 


26626.421

TESTIMONY OF 

STEPHEN L. JOHNSON 

ADMINISTRATOR 

U.S. ENVIRONMENTAL PROTECTION AGENCY 

BEFORE THE SENATE APPROPRIATIONS COMMITTEE 

ON MARCH 4, 2008 

Madam Chairman and Members of the Committee, I appreciate the opportunity to discuss 

our proposed Fiscal Year (FY) 2009 Budget request for the Environmental Protection Agency 

(EPA) budget. 

The President requests $7.14 billion for FY 2009 to support EPA's mission to protect 

human health and the environment both directly and through EPA's state, local and tribal 

partners nationwide. Since its founding, EPA has laid a strong foundation of environmental 

progress. Our air, water and land are cleaner today than they were just a generation ago. This 

budget continues this progress, suppmts the environmental commitments that the President and I 

have made and institutionalizes EPA's major management and performance improvements. 

In particular, the budget meets the major priorities that I've set for my final year of service: 

Advancing clean, affordable and safe energy, 

• Safeguarding our nation through stronger homeland security, 

• Encouraging stakeholder collaboration to address energy and climate change issues, 

Improving our water infrastructure and programs, 

Continuing Superfund remediation of the most highly contaminated hazardous waste sites, 

Encouraging economic development through revitalization with our successful Brownfields 

program, 

Ensuring full compliance with the nation's environmental laws, 

Building a stronger EPA for my successor- including strengthening our protection of human 

health and the environment through best available science, and 

Demonstrating fiscal responsibility for all our successors. 

Advancing Clean, Affordable and Safe Energy 

We all know that our nation faces multiple challenges to assure a future of clean, 

affordable and safe energy. With both demand and costs on the rise, innovators are moving 

forward to propose cleaner power solutions that are good for our environment and good for our 

energy security. Industry is searching for many new domestic alternatives to help reduce our 

dependence on foreign energy. We estimate that over the next several years industry will 

propose drilling thousands of new oil and gas wells on Federal, state, and Tribal lands, apply to 

renew up to I 00 nuclear plant licenses, consider building dozens of new liquefied natural gas 

terminals, and propose many other projects. This budget recognizes that industry's increased 

efforts will mean a larger workload in our existing air and water permitting programs as well as 

our enforcement programs- especially out West. 

This budget includes an additional $14 million to help ensure environmentally sound 

decision-making with proper permitting and review and in full compliance with the law. The 
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$14 million will support our state and tribal partners' efforts to increase their capacity to review 

and assess all the proposed energy projects and pay for the additional technical experts the 

Agency needs to meet permitting, technical review, and NEP A requirements. 

One related clean energy initiative that I'm glad that we and the appropriating 

committees agreed upon is the Diesel Emission Reduction Act (DERA) program grants. In FY 

2009, $49 million will fund 250-300 diesel retrofit grant programs that target older diesel 

engines which are not subject to the new regulations. A combination of strategies including 

engine retrofits, rebuilds or replacements, switching to cleaner fuels, and idling reduction 

strategies can reduce particulate matter emissions by 95 percent, smog forming hydrocarbon and 

nitrogen oxide emissions by up to 90 percent and greenhouse gases by up to 20 percent. These 

strategies will allow us to make continued progress in five sectors: freight, construction, school 

buses, agriculture and ports. 

Homeland Security 

Homeland Security continues to be one of EPA's top priorities. EPA has responded to 

five major disasters and catastrophic incidents in recent years, including response actions to the 

9111 terrorist attacks, the anthrax terrorist incidents, the Columbia Shuttle disaster and recovery 

efforts, the Ricin incident on Capitol Hill, and the Gulf Coast hurricanes. Our experience from 

these responses, coupled with EPA's externally driven mandates such as Homeland Security 

Presidential Directives and Emergency Support Function mission assignments, lead me to 

propose that EPA heighten its preparedness. 

This budget ensures that we can meet these commitments by proposing an additional $32 

million over last year's enacted budget for a total of$170 million to advance the EPA's 

capabilities to respond to multiple incidents, strengthen bio-defense research, and continue to 

support the Water Security Initiative. 

As a part of this request, we remain committed to funding five Water Security Initiative 

pilots to secure a broad range of data so water utilities across the country will have the necessary 

information to install and enhance contamination warning systems. With the FY 2009 request 

we will have initiated all five pilots and expect to complete them by 2012. EPA is also 

advancing its preparedness to respond to multiple, large-scale, catastrophic incidents, and in 

particular, potential chemical, biological and/or radiological agent terror attacks. 

Climate Change 

For FY 2009, EPA requests a total of$114.7 million to continue to achieve real 

reductions of carbon dioxide, methane, per fluorinated compounds (PFCs) and other greenhouse 

gases, and continue research to better understand climate change and its ramifications. 

EPA will continue to achieve real reductions in greenhouse gases by promoting energy 

efficiency through partnerships with consumers, businesses and other organizations. We will 

continue to see real results in the home, building, industrial and transportation sectors by 

spurring our partners' investments in energy efficient and greenhouse gas saving technologies, 

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policies and practices. Based on a historical analysis, we estimate that for every dollar spent by 

EPA on its climate change programs, greenhouse gas emissions are reduced by up to the 

equivalent of one metric ton of carbon. 

One cornerstone of our partnerships is the ENERGY STAR program, which has helped 

speed new lighting technologies to market, fostered development of more energy efficient 

computers, and increased Americans' understanding of how they can help the environment by 

purchasing cleaner and more efficient machines. To give one example, ENERGY STAR 

qualified light bulbs use 75 percent less electricity and last up to I 0 times longer than traditional 

bulbs. If every American household switched just one traditional bulb to a high-efficiency 

ENERGY STAR bulb, America would save enough power to light more than three million 

homes ... save $600 million in energy costs ... and prevent greenhouse gas emission equal to 

more than 800,000 cars annually. 

A Washington Post article two weeks ago on how pollution can be blown to the U.S. 

from overseas reminded me that our international programs are essential to realizing American 

ecological goals. If we don't help China, India and other developing countries build energy 

efficient technologies into their infrastructure, their increases in greenhouse gas emissions will 

far out-weigh any reduction that we achieve here. That is why it remains essential that we move 

forward with the Asia Pacific Partnership, Methane to Markets and other international programs. 

In climate change research, EPA will invest $16.4 million to continue to better 

understand climate change and its ramifications. EPA will investigate how climate change 

affects air and water quality to protect the gains in public health made by the Agency. We will 

explore opportunities to anticipate the impacts and incorporate climate change considerations 

into regulatory processes. We will use research findings to support the development of a 

proposed rule on the geological sequestration of carbon dioxide to ensure that underground 

sources of drinking water are protected. We will continue to reach out to all our potential 300 

million "green" partners by making available free, online decision support tools to enable 

resource managers to incorporate climate change considerations into their day-to-day operations. 

Cooperative Programs 

Our cooperative programs also provide an outstanding example of how we can find "winwin" solutions that make sense both environmentally and economically. They allow us to work 

with businesses and individuals to achieve environmental results while improving the bottom 

line. They allow EPA to start addressing environmental challenges as soon as we recognize 

them and give us the opportunity to test innovative approaches to meet today's challenging 

environmental problems. To date, our conservative estimate is that over 20,000 businesses and 

other groups across America have participated in cooperative programs. We are proud of the 

record of success of these programs and want to encourage our talented employees to continue to 

use their creativity in finding innovative ways to improve environmental results. 

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Working with Federal Partners 

Cooperation with Federal partners is also crucial for EPA to meet its mission. In the FY 

2009 budget, I want to highlight our efforts to work with Federal partners to better understand 

the environmental impact of the almost $2 trillion worth of imported goods coming into the U.S. 

annually. To meet this challenge, the President directed agencies with import/ export 

responsibilities to work together to create an International Trade Data System (ITDS) within an 

expanded Automated Commercial Environment (ACE). EPA's $3.1 million investment in FY 

2009 will help build the linkage with ITDS to identify, track and confirm vital environmental 

details about imported goods in 6 areas: I) vehicles and engines, 2) ozone depleting substances, 

3) fuels, 4) pesticides, 5) toxic substances, and 6) hazardous waste. 

This is not a pie-in-the-sky dream. It builds on a successful pilot test by our Office of 

Enforcement, which showed that accessing useable records lead to timely action. One pilot test 

identified imported engines in several planned shipments that did not meet US specifications and 

allowed us to block their entrance. One bad engine can make a big difference in emissions of 

particulate matter. Another pilot test proved that even child's play can be harmful to the 

environment Detailed records highlight many batches of innocent-looking "silly-string" which 

contained banned chlorofluorocarbons (CFCs). These tests make clear that prompt data retrieval 

translates into prompt protection. 

This is also an example of how our long term planning has paid off. EPA can efficiently 

link to ITDS because of the Agency developed a Central Data Exchange, a standard set of lT 

systems and protocols for sharing information among multiple partners. 

Water Infrastructure and Programs 

This President's budget meets our commitments to finance state revolving funds, 

proposes new financing options, continues WaterSense and other collaborative water-efficiency 

projects, strengthens our wetlands and watershed protection, and furthers our successful 

geographic initiatives. 

We propose $842 million for Drinking Water State Revolving Fund (DWSRF) grants, an 

increase of $13 million. This funding will help achieve the target of 445 additional infrastructure 

improvement projects to public water systems and help reach a long term target $1.2 Billion 

revolving leveL The DWSRF program supports states by providing low-interest loans and other 

assistance to water systems to help provide safe, reliable water service on a sustainable basis, 

protect public health and achieve or maintain compliance with the Safe Drinking Water Act 

(SDWA). 

For Clean Water State Revolving Funds (CWSRFs), we propose a FY 2009 investment of 

$555 million to help meet the program's long term revolving target of$3.4 Billion. This 

program is able to meet EPA's $6.8 billion total capitalization goal for FYs 2004-2011 with a 

reduced budget request due to higher than anticipated funding levels in previous years. The 

CWSRF program provides funds to capitalize state revolving loan funds that finance 

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infrastructure improvements through low interest loans for public wastewater systems and other 

water quality projects. 

The President's FY 2009 budget continues to support the Water Enterprise Bond 

Initiative that proposes financing wastewater and drinking water infrastructure projects using 

Private Activity Bonds (PABs) that are exempt from unified state PAB volume caps. We 

estimate this initiative will increase capital investment in the nation's water infrastructure by up 

to $5 billion per year over time through public-private partnerships. These bonds will 

complement local efforts to move towards full-cost pricing for wastewater and drinking water 

services, help localities become self-financing and minimize the need for future Federal 

expenditures. 

These financing proposals work together with our continuing efforts to increase 

efficiency, protect our wetlands and watersheds, accurately monitor the condition of our waters 

and wetlands and target vital geographic areas. 

For example, in June 2006 EPA launched the WaterSense program to reduce water use 

across the country by creating an easy-to-identify label for water-efficient products. The 

WaterSense label certified that products had been independently tested to meet strict efficiency 

and performance criteria. In less than two years, WaterSense has become a national symbol for 

water efficiency among utilities, plumbing manufacturers, and consumers. More than 125 

different models of high-efficiency toilets and l 0 bathroom faucets have earned the label and 

more than 600 manufacturers, retailers, utilities and professionals have joined the program as 

partners. In FY 2009 EPA will continue supporting development of new products and working 

with utilities, retailers, distributors, and the media to educate consumers on the benefits of 

switching to water-efficient products. 

EPA's Wetlands Program supports the Administration's goals to achieve "no net loss" of 

wetlands in the Sec. 404 regulatory program and an overall increase in wetland quantity and 

quality. Wetlands provide numerous ecological and economic services: they help to improve 

water quality; recharge water supplies; reduce flood risks; provide fish and wildlife habitat; offer 

sites for research and education; and support valuable fishing and shellfish industries. In FY 

2009, EPA will work with its state and Tribal partners to promote up-to-date wetlands mapping 

tied with GIS (Geographic Information Systems) analysis, strengthen monitoring and assessment 

programs to report on wetlands condition, and improve data to better manage wetlands within a 

watershed context. Two key activities will be implementing the 2006 Supreme Court decision in 

the Rapanos case, and working with our federal agency partners to accelerate the completion of 

the digital Wetlands Data Layer within the National Spatial Data Infrastructure (NSDI). 

Watershed protection runs through our budget and strategic plan as one of the 

overarching principles for clean and healthy communities. Our strategic plan, our daily activities 

and our proposed FY 2009 budget all reflect the importance of core regulatory and stewardship 

programs prevent water pollution and protect source waters. With our partners we launched a 

Green Infrastructure Strategy on January 17, 2008 to reduce sewer overflows and storm-water 

runoff. We also continue to urge Congress to enact targeted, bipartisan clean water legislation to 

encourage "Good Samaritan" cleanup of abandoned hard rock mines. This simple step will 

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remove legal and bureaucratic obstacles, keep environmental safeguards in place, save tax payer 

dollars and help clean up watersheds. 

We continue to place a high priority on improving the states' ability to accurately 

characterize the condition of their waters. In FY 2009, we will continue our water quality 

monitoring initiative by providing grant funding totaling over $18.5 million to states and tribes 

that participate in collecting statistically valid water monitoring data and implement 

enhancements in their water monitoring programs. 

The FY 2009 budget continues funding for geographic initiatives, including: 

In the Great Lakes, EPA's $35 million investment in the Great Lakes Legacy Act will give 

priority to working with states and local communities to achieve improvements in water 

quality and reducing the number of toxic "Areas of Concern". "Areas of Concern" include 

areas with damaged fish and wildlife populations, contaminated bottom sediments and past 

or continuing loadings of toxic and bacterial pollutants. 

In the Chesapeake Bay, the $29 million investment will be committed to substantially 

accelerating the restoration of the Bay's aquatic habitat and achieving the pollution reduction 

targets for 20 I 0. 

For the Gulf of Mexico, EPA's $4.6 million investment will continue to support efforts to 

reduce nutrient loadings to watersheds. We will identify the top 100 nutrient-contributing 

watersheds in the Mississippi River Basin and use a computer model determine the location 

of major sources of nitrogen and phosphorus and where to target hypoxia- reduction efforts. 

Superfund remediation of highly contaminated hazardous waste sites 

The President's budget requests a $10 million increase for a total of$ !.264 Billion for the 

Superfund program to continue our progress cleaning up contaminated sites and strengthening 

our emergency preparedness and response capabilities. The vital goals of the Superfund program 

remain assuring the health and safety of neighboring citizens during cleanups and protecting 

human health and the environment in the long-term. Within this budget request, funding for 

Superfund clean-up remains at essentially the same level as enacted in FY 2008. 

EPA takes seriously its responsibility to take actions to protect human health by 

controlling exposure to hazardous substances during clean ups. Before or during long-term 

remedial action, the Superfund program often completes removal actions to mitigate immediate 

health threats prior to completing investigations and starting long-term cleanup construction. For 

example, to date, EPA has provided more than two million people living near contaminated sites 

with alternative sources of drinking water, has completed more than 9,400 removals at hazardous 

waste sites to reduce the immediate threat to human health and the environment, and has 

conducted 351 emergency response and removal cleanup actions in FY 2007 alone. 

Developed more than a decade ago, EPA's construction completion measure continues to 

show substantial progress in the Superfund program. As of the end ofFY 2007, cleanup 

construction had been completed at 1,030 of the National Priorities List (NPL) sites 66 percent 

of the sites listed on the NPL. EPA plans to complete clean up construction at 30 sites in FY 

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2008, and 35 sites in 2009. This will keep EPA on track to complete construction at 165 sites 

during the FY 2007 to FY 2011 time period- EPA's goal in the current Strategic Plan. 

To better measure long-term progress, the program added a Site-Wide Ready for 

Anticipated Use measure in 2007. This measure tracks the number of NPL sites where the 

remedy is constructed (construction complete) and all of the controls are in place to ensure that 

the land is protected for reasonably anticipated uses over the long term. EPA expects to make at 

least 30 sites ready for anticipated use in 2009, building upon its 2007 achievement of doubling 

the original goal of 30 by making 64 Superfund sites ready for anticipated use. 

Brownfields and Land Revitalization 

The President's FY 2009 budget request provides $165.8 million for the Brownfields 

program, including $93.6 million to fund program assessment, cleanup, revolving loan fund, and 

job training grants. This will fund 129 assessment grants, 96 cleanup grants, 7 revolving loan 

fund grants, and 12 job training grants. Through this work, we project that Brownfields grantees 

will assess I ,000 properties, clean up 60 properties, leverage 5,000 cleanup and redevelopment 

jobs, and leverage $900 million in cleanup and redevelopment funding. 

Experience has taught us that one of the best ways to clean up contaminated sites and to 

address blighted properties in communities is to expressly consider the future uses of this land. 

The country has accepted the economic and ecological importance of recycling various consumer 

products- and our understanding of sound resource management must now also embrace the 

recycling of contaminated properties. In addition, by incorporating "green" and sustainable 

approaches into Brownfields redevelopment, we can further increase the envirournental benefits 

from land revitalization. We remain committed to the goal of restoring our nation's 

contaminated land resources and enabling America's communities to safely return these 

properties to beneficial economic, ecological, and societal uses. 

Enforcement 

Experience has also shown that we cannot always rely on collaboration to attain all our 

goals. This budget doesn't neglect that lesson. Once again I request the largest enforcement 

budget in history, $563 million - an increase of $9 million - to maintain our vigorous and 

successful enforcement pro gram. 

These dollars will prove to be a wise investment. Last year, EPA's enforcement programs 

succeeded in: 

Having defendants agree to $10.6 billion in investments to reduce pollution; 

Achieving private party reimbursements of $252 million for Superfund; and, 

Reducing water pollution by 178 million pounds and air pollution by 427 million pounds. 

This all-time record budget request includes a $2.4 million increase to a total budget of 

$52.2 million for criminal enforcement. These dollars are vital to help us increase the number of 

criminal investigators. 

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Stronger EPA- Sound Science 

As a 27-year Agency veteran, one of my most solemn duties is to leave behind an EPA 

that is stronger than when I came in. As both a scientist and a long time manager I am 

convinced that the,only way that a technical, regulatory agency can meet its mission is by doing 

a lot of hard thinking to ensure that we keep our technical, legal and scientific base strong and 

that we hone our management goals and measures to guide our efforts. This budget builds on the 

progress we've made by strengthening our workforce, sharpening our management and 

performance measurement and increasing our scientific knowledge. 

First, as a scientist, I want to continue to provide strong support for research addressing 

our nation's and our world's critical and increasingly complex environmental issues. In FY 

2009, I propose that EPA invest extra resources to understand two critical, growing areas: 

nanotechnology and computational toxicology. 

For nanotechnology, I ask for an additional $4.5 million, for a total budget of $14.9 

million to strengthen understanding of health and ecological implications arising from new 

routes of exposure and/or toxicities associated with exposure to these novel materials. We must 

identify and develop risk assessment methodologies for use by risk assessors, and evaluate the 

adequacy of current exposure assessment approaches. We will coordinate this research closely 

with the President's National Nanotechnology Initiative (NNI), which emphasizes the need for 

the government to understand which processes govern the environmental fate of nano-materials 

and what data are available or are needed for accurate nano-material risk assessment. This 

includes detern1ining the release potential of nano-materials in the environment, researching the 

state of science for sampling and measuring nano-materials in environmental media. We must 

also study effects on human and ecological receptors and determine which technologies and 

practices minimize risk. 

I also remain strongly committed to improving our computational toxicology work and 

ask for a $2.7 million increase- for a total budget of $14.9 million for this vital area. In FY 

2009, we want to improve EPA's ability to more efficiently understand chemicals' toxicity 

through advanced modeling. One aspect of this work that is particularly important is that it can 

reduce the need to use animals for toxicity testing. 

To help further these initiatives and ensure EPA's ability to attract and retain the highest 

caliber scientists, the budget proposes expanded special authority that will allow EPA to hire up 

to 40 scientists quickly and competitively. 

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Stronger EPA Performance and Management 

As a manager, I want to make sure that we focus on something we can all take pride indelivering results. And I'm proud to tell you about what we've accomplished to date in the 

planning and management fields. EPA: 

• Scored "green" in the President's Management Agenda on all initiatives in the first quarter of 

FY 2008 one of only a few agencies to reach that goal, and 

• Improved outcome measures to more directly link the results of our work and resources to 

environmental, on-the-ground, results. 

We've addressed specific challenges as well. For the first time in ten years we've 

succeeded in removing grants management as a "management challenge" or "material 

weakness". We've fixed problems identified by the Government Accountability Office (GAO) 

and the Office oflnspector General (OIG) and built a system of internal controls fully integrated 

into the grants management process that includes: 

• Improved mandatory training, 

• Heightened grants performance standards, 

• Quarterly management close-out reviews, 

• New post-award monitoring orders, and 

• EPA's new grants management system. 

Finally, as I conclude my tenure at EPA, I want to fulfill my responsibility to cultivate the 

next generation of EPA leaders. This budget includes funding for a Leadership and Professional 

Development rotation program to ensure that our talented GS-13, 14 and 15 employees can 

expand knowledge and expertise, develop leadership skills and enhance professional growth 

through short term rotational assignments. For more senior leadership, we propose to continue 

our SES mobility program to make sure that we populate the highest levels of the agency with 

proven managers. 

Conclusion 

Madam Chairman, when I look at the candidates who are getting the opportunity to 

broaden their skills in these programs, I am heartened that I'll be leaving the agency in good 

hands. I look forward to working with you to enact this budget. 

I am confident that this budget gives them an excellent basis on which to build. I hope 

that together we can see prompt action on these budget proposals so that we can implement your 

funding decisions. 

Thank you. I will be happy to respond to any questions you may have. 

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General Explanations 

of the 

Administration's Fiscal Year 2009 

Revenue Proposals 
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ELIMINATE THE VOLUME CAP FOR PRIVATE ACTIVITY BONDS FOR WATER 

INFRASTRUCTURE 

Current Law 

In general, the interest on bonds issued by State or local governments is excludable from gross 

income if the bonds meet certain eligibility requirements. State or local governments issue taxexempt bonds to finance a wide range of public infrastructure projects. There are two basic 

kinds of tax-exempt bonds: governmental bonds and qualified private activity bonds. Bonds 

generally are treated as governmental bonds if the proceeds are used to carry out governmental 

purposes or the bonds are repaid with governmental funds. Bonds are classified as governmental 

bonds under a definition that limits private business use and private business sources of payment 

and also limits private loans. Governmental bonds are subject to various general restrictions, 

including arbitrage investment restrictions, registration and reporting requirements, Federal 

guarantee restrictions, advance refunding limitations, spending period limitations, and pooled 

bond limitations. Governmental bonds, however, are not subject to specific volume limitations. 

Bonds that have excessive private business involvement or private loans are classified as "private 

activity bonds." In particular. bonds are classified as "private activity bonds" if more than 10 

percent (reduced to 5 percent in the case of certain unrelated or disproportionate private business 

use) of the bond proceeds are both: (I) used for private business use; and (2) payable or secured 

from private sources. Bonds also are treated as private activity bonds if more than the lesser of 

$5 million or 5 percent of the bond proceeds are used to finance private loans, including business 

and consumer loans. 

Private activity bonds may be issued on a tax-exempt basis only if they meet the general 

requirements for governmental bonds and the additional requirements necessary for "qualified 

private activity bonds." Qualified private activity bonds include exempt facility bonds, qualified 

mortgage bonds for single-family housing, qualified veterans' mortgage bonds, qualified small 

issue bonds, qualified student loan bonds, qualified redevelopment bonds, and qualified 

50l(c)(3) bonds. Eligible facilities for which exempt facility bonds may be issued include 

facilities for the furnishing of water and sewage facilities. Most qualified private activity bonds 

are subject to an annual unified State volume cap. 

Reasons for Change 

The nation's water and wastewater infrastructure facilities serve important national public policy 

interests in ensuring clean and safe drinking water and sanitation. There is a significant need for 

capital funding to upgrade the nation's water and wastewater infrastructure facilities. Removing 

the volume cap on tax-exempt qualified private activity bonds for water and wastewater 

infrastructure facilities would encourage additional needed private investment and public-private 

partnerships in these needed water infrastructure facilities. 

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Proposal 

The proposal would provide an exception to the unified annual State volume cap on tax-exempt 

qualified private activity bonds for exempt facilities for the "furnishing of water" or "sewage 

facilities." The proposal would be effective for bonds issued after December 31, 2008, to 

finance water or sewer facilities. These bonds are intended to complement local efforts to move 

towards full cost pricing for wastewater and drinking water services, helping municipalities 

become self-financing and minimizing the need for future Federal expenditures. 

Revenue Estimate 

Fiscal Years 

2008 2009 2010 2011 2012 2013 2009-2013 2009-2018 

($ in millions) 

0 0 -3 -6 -10 -15 -34 -214 

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Tax-exempt Private Activity Bonds -Legislative history, Ill th Congress 

Legislation to remove from state volume caps, tax -exempt bonds for water and wastewater projects 

U.S. House of Representatives 

H.R. 537, Sustainable Water Infrastructure Investment Act of2009 

Introduced January 14,2009 by Rep. Bill Pascrell (D-NJ)- 55 Cosponsors 

Included in larger tax legislation: 

H.R. 4213, American Jobs and Closing Tax Loopholes Act 

Sec. I 02. Exempt-facility bonds for sewage and water supply facilities. 

PASSED House of Representatives: December 9, 2009 

H.R. 4849, Small Business and Infrastructure Jobs Tax Act of20!0 

Sec. 202. Exempt-facility bonds for sewage and water supply facilities. 

PASSED House of Representatives: March 24, 2010 

H.R. 5893, Investing in American Jobs and Closing Tax Loopholes Act of2010 

Sec. 102. Exempt-facility bonds for sewage and water supply facilities. 

INTRODUCED: July 28, 2010 

U.S. Senate 

S. 3262, Sustainable Water Injrastructure Investment Act of 20IO 

Introduced April27, 2010 by Senators Robert Menendez (D-NJ) and Michael Crapo (R-ID) 

l 0 Cosponsors 

Included in larger tax legislation: 

Baucus Substitute Amendment to H.R. 4213, American Jobs and Closing Tax Loopholes Act 

Sec. I 02. Exempt-facility bonds for sewage and water supply facilities. 

Baucus (Finance Comm.) Substitute Amendment 

Introduced May 2 I, 20I 0 

Amended June 8, 2010 

Amended June 16,2010 

Thune Amendment to H.R. 4213 (Republican Alternative) 

Sec. I OJ. Exempt-facility bonds for sewage and water supply facilities. 

H.R. 4849 Small Business and Infrastructure Jobs Tax Act of2010 

Senator Baucus asked Unanimous Consent that the modified House bill be read three times and 

passed as substitute amendment to H.R. 5297. 

Amendment Offered: September 16,2010 

S. 3793, Jobs Creation and Tax Cuts Act of2010. 

Sec. 102. Exempt-facility bonds for sewage and water supply facilities. 

INTRODUCED: September 16,2010 

Senate Amendment 4727 (Baucus) to H.R. 4853 entitled "An Act to amend the Internal 3 Revenue 

Code of 1986 to extend the funding and expenditure authority of the Airport and Airway Trust 

Fund" 

INTRODUCED: December 2, 2010 
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TECHNICAL EXPLANATION OF THE 

REVENUE PROVISIONS CONTAINED IN THE 

"AMERICAN JOBS AND CLOSING TAX LOOPHOLES ACT OF 2010," 

FOR CONSIDERATION ON THE FLOOR OF 

THE HOUSE OF REPRESENTATIVES 

Prepared by the Staff 

of the 

JOINT COMMITTEE ON TAXATION 

May 28,2010 

JCX-29-IO 
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B. Exempt-Facility Bonds for Sewage and Water Supply Facilities 

(sec. 102 of the bill and sec. 146 ofthe Code) 

Present Law 

In general 

Interest on bonds issued by State and local governments generally is excluded from gross 

income for Federal income tax purposes if the proceeds of the bonds are used to finance direct 

activities of these governmental units or if the bonds are repaid with revenues of the 

governmental units. Interest on State or local bonds issued to finance activities of private 

persons is taxable unless issued for certain purposes permitted by the Code ("qualified private 

activity bonds"). 21 

The definition of a qualified private activity bond includes exempt facility bonds, 

qualified mortgage, veterans' mortgage, small issue, redevelopment, 501 ( c )(3), and student loan 

bonds. 22 The definition of an exempt facility bond includes bonds issued to finance certain 

transportation facilities (airports, ports, mass commuting, and high-speed intercity rail facilities); 

low-income residential rental property; privately owned and/or operated utility facilities (sewage, 

water, solid waste disposal, and local district heating and cooling facilities, certain private 

electric and gas facilities, and hydroelectric dam enhancements); public/private educational 

facilities; qualified green building/sustainable design projects, qualified hazardous wast facilities, 

and qualifed highway or surface freight transfer facilities. 23 A facility for the furnishing of water 

will qualify as an exempt facility if: the water is or will be made available to members of the 

general public (including electric, industrial, agricultural, or commercial users); and either the 

facilities are (I) operated by a governmental unit or (2) the rates for the furnishing or sale of the 

water have been established or approved by a State or political subdivision thereof, by an agency 

or instrumentality ofthe United States, or by a public service or ,public utility commission or 

other similar body of any State or political subdivision thereof? 

Issuance of most qualified private activity bonds is subject (in whole or in part) to annual 

State volume limitations ("State volume cap"). 25 For calendar year 2010, the State volume cap, 

which is indexed for inflation, equals $90 per resident of the State, or $273,775,000, if greater. 26 

" Sec. 103(b)(l). 

21 Sec. 14l(e). 

23 Sec. 142(a). 

24 Sec. 142(e). 

" Sec. 146. 

26 Rev. Proc. 2009-50, 2009-45l.R.B. 617 (Novermber 9, 2009). 

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Exceptions from the State volume cap are provided for bonds issued for certain 

government-owned facilities (airports, ports, certain high-speed intercity rail, and solid waste 

disposal) and bonds which are subject to separate local, State, or national volume limits 

(public/private educational facilities, enterprise zone facility bonds, qualified green 

building/sustainable design projects, and qualified highway or surface freight transfer facility 

bonds). 

I fan issuing authority's State volume cap for a calendar year exceeds the aggregate 

amount of tax-exempt private activity bonds issued during the year, the authority generally may 

elect to treat all (or any portion) of the excess as a carryforward for one or more specified 

"carryforward purposes." The issuing authority is required to identify the purpose for which the 

carryforward is elected and specify the portion of the carryforward which is to be used for that 

purpose. The Code defines "carryforward purpose" to mean one of four purposes: issuing 

exempt facility bonds; issuing qualified mortgage bonds or mortgage credit certificates; issuing 

qualified student loan bonds; and issuing qualified redevelopment bonds. 27 A carryforward of 

unused State volume cap is valid for three years. 

Many States have State revolving fund programs ("SRFs") to finance wastewater and 

drinking water projects. SRFs are pools of capital dedicated to financing public infrastructure 

formed through Federal and state contributions. SRFs use Federal grants to make loans to local 

governments to finance the construction of water facilities and to establish debt service reserve 

funds for bonds the proceeds of which are so be used to make such loans. Although present law 

generally prohibits the Federal guarantee of tax-exempt bonds,28 the IRS has ruled that States 

may use Federal grants to fund debt service reserve funds for tax-exempt bonds issued to finance 

SRF loans without affecting the tax-exempt status of such bonds. 29 

Indian tribal governments 

Under present law, gross income does not include interest on State or local bonds 30 

State and local bonds are classified generally as either governmental bonds or private activity 

bonds. Governmental bonds are bonds the proceeds of which are primarily used to finance 

governmental facilities or that arc repaid with governmental funds. Private activity bonds are 

bonds in which the State or local government serves as a conduit providing financing to 

nongovernmental persons. For these purposes, the term "nongovernmental person" includes the 

Federal government and all other individuals and entities other than States or local 

27 Sec. 146(!)(5). 

28 Sec. l49(b ). 

29 Notice 88-54, 1988-l C.B. 539. 

30 Sec. 103. 

6 
468 


26626.437

governments. 31 Interest on private activity bonds is taxable, unless the bonds are issued for 

certain purposes permitted by the Code and other requirements are met. 32 

Although not States or subdivisions of States, Indian tribal governments are provided 

with a tax status similar to State and local governments for specified purposes under the Code. 33 

Among the purposes for which a tribal government is treated as a State is the issuance of taxexempt bonds. Under section 787I(c), tribal governments are authorized to issue tax-exempt 

bonds only if substantially all of the proceeds are used for essential governmental functions. 34 

The term essential governmental function does not include any function that is not customarily 

performed by State and local governments with general taxing powers. Section 787I(c) further 

prohibits Indian tribal governments from issuing tax-exempt private activity bonds (as defined in 

section 141 (a) of the Code) with the exception of certain bonds for manufacturing facilities. 

Explanation of Provision 

The provision provides that tax-exempt bonds issued to finance privately used or 

operated facilities for the furnishing of water or sewage facilities arc not subject to the State 

volume caps. 35 

Also, the provision allows Indian tribal governments to issue tax-exempt private activity 

bonds for two additional types of facilities. These new facilities are facilities for the furnishing 

of water36 and sewerage facilities. 37 These bonds are not subject to the private activity bond 

volume limitation, nor the essential government function test. 

Effective Date 

The provision is effective for bonds issued after the date of enactment. 

31 Sec. 14J(b)(6); Treas. Reg. sec. 1.141-l(b). 

32 Sees. I03(b)(l) and 141. 

33 Sec. 7871. 

34 Sec. 787J(c). 

35 To the extent an issuer previously designated facilities for the furnishing of water or sewerage facilities 

when the issuer elected to carry· forward unused volume cap, the issuer shall be allowed to designate another carryforward purpose in a time and manner provided under guidance ffom the Secretary ofthe Treasury. 

36 Sec. 142(a)(4). 

37 Sec. 142(a)(5). 

7 
469 


26626.438
470 


26626.439

Contents 

The Need ....... . . ......................................... 3 

The Plan: .5 

• Rebuild Private Construction Markets ••.•.. 5 

• Boost Investments in Infrastructure .••• • •••. 7 

• Revise Restrictive Policies & Regulations . . .•. 8 

The Cost vs. Return on Investment •. 10 

tf,~Ggf,t,mo~fLSe ((I; Quality People. Quality Projects. ""AI.It'jl;IC' 

The Associated General Contractors of America 

2300 Wilson Blvd., Suite 400, Arlington, VA 22201 I (703) 548-3118 
471 


26626.440

f.:~~-~---~----0' .. -~~-~-~-~---~4-

!The Need I ~--~-·---~---t--·--·---···--·--·~-- . 

• Why Construction is Essential to 

Our Economy 

While rhe nation continues to suffCr through ,1 reces8ion, the con~ 

~truction indu:.try is experiencing depression-like condition:.. According to vinna!ly every economic mc"surc, construction 

businesses and their employees h,1ve hccn disproportionJ.tdy affCcred hy the economic downrurn. The unemployment 

overall national 

of 

heen in coosrruction. In 

every three jobs lost was in comrruction. 

While $1.072 trillion was invcsred in consrrunion in 200H, that 

,unoum is projected ro ~hrink by as much as $1 ':)3 billion in 2009, 

J.£1 lB percent drop. The stimulus progum enacted early in 2009, 

which included JpproxiniJtdy $1.~1 hill ion f(H infrastrnctmc and 

consUU(tion projcLts, will hdp. f lowcvcr, the morH'Y wil! b..: invc~ted over M:veral years and much of it will be u!:>ed to oJEet dedining state and lm:al investments. In other words, tbt: ~timulus 

is 1101 enough to rum .J.round ,l trillion dolla_r indmtry, 

l~cw communities haw avoided thL· joh !os<,cs and declining conqruction currently devastating the industry. As of Au gmt 

2009, employment !ud de-dined in 4H states and 

improwd in only rv.'o from a year earlier. All hut 1.1 of rhc nation\ 

largest 336 metropolitan .m~as :..tw declines in construction em~ 

p!oymcm over th<· past year, with hnu communities seeing dedines in their com.trucrion workf(m:c in exu:ss nf 30 percent. 

This nationwide construction cri~is i~ not only dcva.~tating to 

pie working directly in construction. It i.<. serving as ..1 dn1g on 

economic growth. That j,<. becaust' the construction indu~try accounts for more th,m eight percent of U.S. gross domestic product 

and is rcspon.<.ihlc for one om of every 10 L'.S. manufacturing 

;hipments and one out of every 12 machinery .<.hipnH.:rm. Given 

dut the vast majority of construction firms are small, local husi~ 

ne<.>.es, the strengrh of rhe secttlr has a di~proponinnatc imp.Kt 

on counde~s communities. 

Addressing tile etlnstruction industry crisis is essctltia! to rebuilding. expanding .Hld sustaining the broader U.S. economy for a 

number of reasons. including: 

• Rebuilding the construction industry will boost job creation 

The best way to ensure tbat the economic recovery includes ~igniflcmt new job p;rowrh i~ to revitalile the L:.s. construction 

industry. Given tht· significant share of total jobs !osr that has 

come from rhe ~ector, any construction rurnaround will create 

J di.;;proporriondte ~urge in new hires while l.1ying a foundation 

for long-tl:'tm ('conomic growth. Th{:.\l' will be highwpaying job~ 

too, since the aver,1~e annual pay tOr construction workers i.~ 

$4~1,000, eight percent more tban tbe average fm all privatc~sector employees, 

• Restoring construction activity will boost economic gmwth 

through 2010. Econnmic outlook<> show little d1ance the omstruction ~ector will signifiumly improve bd(m: 2011 at the 

cJr!iest. given growing offkt:, retail and manufilnuring vacancies, ck·dining state and locJ! tax revenue .md little demand for 

largt', muhi-family housing construction. A prolonged ceo~ 

nomic crisis in the constnJction \ector will serve as a dr:1g on 

hroad~r economic growth. Re.~toring irnnwdiare demand fix 

construction activity. however, will provide a significant boost 

f~1r the nascent economic recovery. 

• Boosting the construction sector will generate broader economic activity. Every hil!ion dollars invested in nonresidential 

cnmtruction activity ,1dds $5A hil!hln w the gross domestic 

product, increases pcrsonJ.l earnings hy $LI billion and creates 

or sustains 28,500 johs. Almost 19,000 of rhosc johs would he 

in dreas ourside the immediate construction sector, including 

equiprncrn manufJcruring, m.uerials ~up ply, food service, health 

A £3/ueprinl for Economic Growtfl 3 
472 


26626.441

$1 billion in 

Nonresidential 

Construction 

Spending 

Supports: 

ore ,Uld rctJ.iL In other words. the bc:.t way to genn~ 

,uc nc\v economic auivitv, acros!l 

c'-~onomic sectors and gn;"v the economy w rebuild demand for comrrunions .~crviO.'!.. 

• Construction and infrastru~.:ture enhance our abilitv to compete globally. In a global the difference ber.\•.;ecn sucInduced 

14,300 Jobs 

o:s~ and fiilurc is often based on grade.\ in our buildings and facilities and keep construction co~ts 

cutting 

and nunufa..::turing fa~.:ilitics ,uc all essential to our continued 

r.lob,t! economic success. to invest in these [Kilitics 

now will help ,1 for continued economk 

growth th,H 

• Enhancing con<;tcuction will improve public health and protC(.'t the environment. Enhancing dw c()nstruction 

help deliver new, more friendly office 

ings, po\-.Tf facllitic,~ .. md facwrie:-.. At S<~Jnc time, 

infr-asrruC!urc will c.1se pollLuion-cau:-.ing 

and ensun: the safe and healthy supplil's of drinking 

w.ner f{x deca_dt-~ to comt·. You can't wish for a greener, hcdlthicr 

future -you have to bui!d it. 

llecausc rhc lwalth of the comrruction indu~rry is Yital tn our economic strength. environmental quality and puh!ic health. rhc as-

\ociarion hac-. pn:pared rbt· following narional for 

rcirwigorating the Jut ion's. construction industry h pred~ 

icatcd on the undcrsundin~ that the work ofimprovin!,! the construction must srart with the private sector. The 

piau outlines a incentives, tdx nedir~, trade 

policy change~ and regulatory revisiom dc~igned to stimulate new 

sector demand tfH consrruuion. Taken together. these 

allow ~ound priv,Hc-\ector comuuction 

icr access to credit and t!nancing. 

4 Dw!ci Now Fot The Future 

competittve. 

The pLm also calh for 

mcms in infr<lHrunure 

new public and private investwill hnmt construction now while 

enhancing our economic capacity hn decades to come. And it 

idemitle\ rcgulawry and policy changes th<H, when made, wiU 

allmv the~e public inve<>tmenr:- to tlo"v more npidly while increas~ 

mg government purcha~ing po\vcr. 

Vl't lt 

ch.11lcngc. That why everythe ~.:nd nf 2009 to deliver 

pos,ible benefh:-. w rhe 

role the construction industry plays in economy and 

the number of UJH"lllplnyed worker~ rh,!t \t,tnd to hendlt. 1hi' 

.~hould receive broad, hiparriqn "uppon. All rhat is needed 

the kind of sustained focus ,wd resolve that many in Congrcs!> 

and the Admini;,tr,uion already have shown in boo.'l-ting rhe bankin~, auromotive, hou\in~ and insur.-lTKI..' ~e..:wr~. The only diH"t-rc:nce i~ rh;n dw mea~urcs outlined in rhis plan will cost 

dr,unatically It-s;, w·hi!e providing taxp.1yers with a hett~r return 

nn their invl·stmcnt. 
473 


26626.442

• Rebuild Private Construction Markets 

to reinvigorate rhe cow,truction industry musr succcs<,.-

prrc,ur,ly-lunr1cd construction. Accounting 

in pcrcem of the tm,,! con~trucrio;; 

markct, the strength of the sector market i.~ the 

largest determining factor in health of uHlStruction 

As a result, rhe Associated General Conrr,lctor~ o( America 

poses the f(l!lowing measures ro \timulatc new. 

mo.\t ca~e~ immediate, nrr\'au,.v-rrunucacon\trUction activity: 

• lncrease Commercial Building Energy Efficiency Tax Deductions. Current law ,1!low' owners 10 deduct the wst 

like new heating and cooling unit;,, 

commt"rclal Thl:' amount of the deduction i;, 

$1.RO per SlJUart· f(mr that \Viii ~cl' ,u !ca<H .1 )() pcrccm 

;mr>rm'crncnr,( ;ivcnthc lim ired this deduction has 

Congress ~h{l\lld raise 

amount to .S,tOO per squ,are t(>OL saving energy 

and energy COC<>lS, 

• Convert Commercial Building Energy Efficiency 'I :.X Deduc~ 

tions into 13..."X Credits. In additiou to boosting the deduction 

amoum for efficiency upgrades to commercial building~. Congres~ \hou!d convert the tax bendit inrn a tax credit. ln an environment where owner~ an~ !ikdy 

to expericno: lus~e:. in have 

limited 10 no imp.Kt. Convening dednctiom imo credits will 

provide a siplificant financial incentive f(n property owner~ to 

improve the efficiency of commercial btti!dings. 

• Make Permanent Shortened Cost Recovery Period for Retail 

& Restaurant Improvements. Tax provi~ion~ shortening the 

cost recovery period of cen.tin leasehold. rct.til and re\t,mrant 

improvements. from 59 ro 1 ";i year~ are set In expire Jt the end 

of 2009, those provisions permanem will provide an 

impon.Hn filr retail and rc~tauranr operations ro make 

capita! improvenwms [() dwir lt·asehold )pace. 

• Repeal the Alternative Minimum ·Ia.'\:. Since t!w vast majority 

of America's businesses arc taxed as individuals instead of as corthe ,dtcrnatiw minimum ta:x would undercut potcnth.tt otherwise will lw reinwHed a~ retained 

ycM. The<;c retainc:d earning'- provide the capital 

busine<>sc.-, to invest in real estate, renovations and 

new manufacturing all of which is e~sential to rhe 

private r:onstrucrion Congress should fl'pca! the altL'fnarivt· minimum tax bcfort' it .-,ap~ more l..'apital out of the econ~ 

omy and nmkrminc!'> future constrw:tion projects. 

• Make Permanent Certain Expiring Tax Cuts from 200 J & 

200j, A hmJd range of rax curs enacted in 2001 and 200:1 are 

.>et w expirt' on December 31, businesses J.re organized as 

corpor;nion. Irnlcvds at the end of next yc,u will 

expendirun·~, induding invcstmcm~ in real C!>t<HC and upgrade~. and em hiring 

rhis ye,u and next a~ a way w conserve cash. As d result, Congress ~hould make the reductions in individual in· 

ocr,recranon,small husines.; expensing and (.:apital 

earlter thi, dtT,uie. Congres.~ a!~o should 

rax bracket and currenr eligibility limil~ 

fl:H joim fliers at 1 S percent brach·t to hdp rehired \Vorkcr~ 

us(· more of their earning to build new fiscal security. T:,1ken w-

!J;C!her, making rhe.~e curs permanent will strengrhcn capital 

markers and make it easier for businc~.<.c~ (comtruction and 

other) to grow. expand and !mild new f:-t.cilities. 

A B!uepnnt lor Econorwc Growtt1 5 
474 


26626.443

• 1:-Jiminate Disincentive!> on Global 

Investments in lJ .S. Commercial 

Real Estate. Congrcs~ un cncolH· 

a~e nC\V investment\ in commercial real c<>tat<.:: by the 

to diminatt: provi\illm 

tkH puni~h global inve\tlllCJH~ in 

l'.S. commerci,1l re,1l e\t,tte com-

• Extend the Term Asset Backed 

Securities Loan Facility (TALF) 

through 2010. Exrendin~; the 

TALE which i\ scheduled to expirl.' 

<H the end of 2009, for J.f !east one 

will 

• Allow Public Private Investment Programs to Finance Sound 

Construction Projects. \X'bik the Public Private Im·t\llllt'nt 

Prof!_ram i<. LUJTently being u:.ed 10 troubled existin~ 

lo,m~. ~!wuld npand dw to allo\V 

preciation" to 

higher smJ.!l-bmint'S!> perrn,mcnt to lovv·cr construnion 

custs and encourage comrruction firms to modernize rheir 

equipmcnc with newer, more efficient nuchinery rhar wit! emit 

lc:.~ gn:cnbome g.<<;.<,es than their predece:.wr<;. 

• Extend and Expand the Five-Year Carryback of Net Operating 

Losses for Small Businesses. The Act allowed husith.:tt cxpcril'!Kcd 

6 Bwlci Now For f·uture 

,1 rdlwd f(lr t,rxc:. p.ud 

imp,tct (l!l consrruccxpcri~·JKcd Ins:>(''> in 200R. Expanding provi.<.ion ro cnvcr ner opcr,ning los.\~'~ incurred in 

2009 ,llld 2010 for a!l bmitH:'>~c.<. rcg,ud!cs.<. of ~ire will allow 

ca~h-;,tr;lpped comtntcdun rlnm to conwrt future tax hcndlt'> 

into Cl'•h LUI iK' <l'·~·d to exp.:~nd 1uyrolk !l'tdin w~u·kers and inve'>t equipment. 

• Extend the Firsl -Time Home Buyer Credit. The currcm 

$8,000 flr'i-t-timc home buyer credit. ~vhicb i~ ~et 10 cxpirt' 1\'ovcrnbcr 2009, 

rcsidenrial construcrion th:.n abo would st imuLne nearby retail devdopmcm and boost T,lx revenue. New horne comrrnction 

boost.'> demand for public infra~rructun: and privatc-comtrucrion 

project.\ ~ud1 as ,~hop,,, rcsrauranL\ and pl.Kt'.<. of worship. 

• Restore "Fast Track" Trade Promotion Authority. Allowing the 

Prcsidem the fi·ecdom and tlc)\ib!!ity tu biLncral frcc 

tr,lde agret·menrs rhat can be prest·ntcd to for an 'upor-dmvn' ,Jmendrncnt-tf~,c vote would f\.'S10rt' confidence on the 

pArt of potcntial new trade p.uwer\ and accelerate 

of new pro-grmvth trade agrccmctlt';, Strt'<tmlining 

ti.nint. ,wthority will rnJkc it c.1\icr tn open new rn,ukcts 
475 


26626.444

• Remove Trade Barriers that Inflate Construction Costs. Rc~ 

ducing rhc tr.tde harriers tOr critical construnion component!. 

!ike sted, cetnern and softwood lumber will hdp keep wnstnKrinn cost~ competitive, thereby helping encourage new Cotl'>truction activity. 

• Boost Investments in Infrastructure 

While MimuLuing n('W privatt>M'Ctor construction is the 

hcq way w rebuild the construction indu:.rry and boost cre-

,uion, publicly- and priv.ttdy-hmded inffastructurc ,wd construction projects .tL~o .m' cruciaL These provide addiriotul 

stability and employment for construction firms. More 

important, the!>e inveHments reduce the significant ('COnomic 

costs of traffic-dogged networks. inelllcicm public 

building:., unrdiablt or levees Jnd failing water and 

wastew.tter facilities. That is why we arc recommending the following measures designed to boost investments in 1hv nation-~ 

public infra~tructurc and t;Kilitie~: 

• Double Investment Levels in Federal Highway, Transit, A via~ 

tion, Freight and Rail Programs. Multiple independent, biparti~Jn commi~siom have addw,scd the need to :.ig.nifiunt!y boost 

inwsnnem<. in the nation\ rransporution network. By .<.cuing 

federal transporration spending to approximately $120 billion 

a year the low end of most rccornnwndations- we cw imbclp ease chronic traffic congestion that wa'ites 

saps productivity and undermine.<. qu,llity of! if('. 

Addres~ing. our intfastructure invc~tment gap also will put contractors to work now building road. rail, ,tirport and transit pnlj· 

ect;, that wit! hoo:.t1.:conomic productivity for d<:cadc;, w come. 

• Begin ]fansition to Vehide Miles Ta.x, Right-Si:tc the federal 

Gas Ta..x. There is little debate that the fcder,ll gas tax, which 

charges drivers $0. 181J per ~all on offucl purch.~sed, is becoming 

increasin~ly ourdared dunks to improvenH·nrs in fuel efllciency, 

change\ in and d1(· growrh of hybrid and .{1-

tern.u ivc lud vehides. ultimate solution is 10 nansition to 

d vehicle miles travdcd method of collecting the highway U.<.er 

fCes to tinance vital road. bridge and tr.msit projects. Given that 

such a transition will rake at lea~t several ycJ.rs, Con~ress should 

rcvi\e the curroH ga~ tax ro rc\tore it~ pmchasing pO\ver to kvd~ 

last seen in 1993 hy setting the cxci~e at $0..)6 per !!:allon and 

indexing li.lr future in!Luion. This would allow the federal govcrnmenr to keep p.Ke with aging infrastructure and projened 

grmvth in both rhc amount of drivers and distanct they rr,wd 

while \imulraneou.:.ly adjusring w a more appropriate u:-.er fee. 

• Address Maintenance and Moderniu.tion Backlog for Federal 

Buildings. Congr~'s:<. ,md rhe Administration can provide immediate new opportunities for unemployed construction workers hy :tddressing llfl!llCt maintenance and modernization needs 

in it~ building inventory. The Government Accountability Office has identified $4 billion worth of needs in over 900 fed(·ral 

h11ildin~s. Aging federal bcili1ies undermine government productivity and w~ste significJtH .unoums of energy, For approximately half of one percent of it\ stimulus program. the federal 

government can boost construction employment, increase federal productivity and reduce energy comumpriorL 

• Boost Investments in Vital Navigation and Flood Control 

Projects. Congress and the Administration should begin to addrcs~ unmet navigation and flood control needs by increasing 

fundin~ for rh.: U.S. Civil Works prngr<lm w :1 minimum in In addirion, rhe Harbor MAintenance Trust Fund must b~ used I(H its intended 

purpose. Thi:-. wil! not only bon~t construction activity, 

but will help protect across the country lfom 

cosdy llood damage and ,t!!ow for more eHlciem and environ· 

mcnt.tlly-friendly freight movement along our WJrerways. 

• Invest in Clean Water. Congrc~~ \hould increase funding for 

the Clean Wa1cr State R.._·volving Lo.Ul f{md and Sal/: Drinking 

\'Vater S! are Lo,m Fund to a comhim,d $6 billion annually. In 

addition. the Administration and Congress should work together to ('Stablish .1 WaterTfust Fund that will ,1llow f(H· future 

A Btuepnnt lu1 E'conom1c Gwwt11 7 
476 


26626.445

funding. <.ources, instc,td of depending on unprediuable annuJ.I appropriatiom out of the Gem·ral Fund. 

• Establish a Nationallnfrastrunure Bank. Establishing J. national infrastructure b.1nk would :tl!ow \tate and loo.l government.~ facing dedininf!_ local revenue tn finance local 

infra.,tructure and comtruction The indcpetHknt bank 

would evaluate ,md finance building" infr.lstructurc 

including ma~s-tr.msit systems, public housing, road:. 

drinking water and l>t'w,tge tn:atmem :.y"'tem;,. 

• Encourage Public Private Partnerships. While current economic conditiom have certainly impacted the amount of priv,nc-.\CCtor c.tpital that could be invested in public infrastructure 

projects, these partnerships still hold significant potential J(n 

augmenting public invcmnenrs in highway, bridge, airport, 

building .md other revenue generating 

Conga~"~ and the Administration ~hnuld 

to public private panncr~hip~ by giving::.tate~ 

greater t1exibdiry ro ,tl\ow for rolling, allowing municipalitie~ 10 

priv.ui:tc .litpons and Jcccpt priv.uc invcsnncnt;, in trJmit, and 

expanding eligibility for private inwmnent~ in public building~. 

• Expand and Make Permanent Build Amcrka Bonds Program. 

The Recovery An created the Build Amcric,l Bonds prog:r;am a~ a 

new tlnalKing tool to allo\.v sutc and local governments to obtain 

much-nccded fi.mding, at lower borrowing costs, 

J~ constnlt~tion ofscho(lb, hospital\, transporiJtion "'''"""'"'"'", 

Since rhe program was launth-d in 

ApriL .:V! states h~W(' 17~ diffcrc!H Build America Bonds 

hi!lion.ln~tead ofJllowing thi.<. \Ucccssllll 

In 2010, Congress ~hould make it permanent exdigihiliry to cover ccruin private Jctivitic:i. with n,uiona! 

~uch as energy infrasrrunurc and df!cicncy upgrades at 

cnmmcrcial. manufacturing and health care buildings. 

• f<::Xempr Construction from Private Activity Bond Cap. Private 

Activity Bond;. ,m: a t~mn of fln.mcing that allows private cmitie:. to panner wirh ~cue or municipal governments ro n.·cciw 

tax-exempt financing for private- or publicly-owned projecrs in 

the public\ imerc.~t. However. the rule" the~e bonth 

limit the total dollar amount that can be 

population. Eliminating these 

more water, '\CWer .tnd mas~ 

rhis kind of tlnandnf!. 

would qualifY signitlcanrly 

projects, among other-;, for 

• Expedite Distribution of Stimulus Construction Funds. Cnngre-.:<. and thl' admini;.tr,nion were wi~e to include an estimated 

$I 55 billion in funds t(n a range of infrastrucrure and construction invc;,tmcnts a~ pan of rhc stimulu ... package. The infraHructure funding in the <otimulm has preserved nuny 

8 Build Now For !he Future 

con\lruuwn job;, but ha.~ p.:t w lin~ upton-, full promi~e. For 

cxampk. om;,iJe ofrhc uanspon,uion progr.un. th~: distribution 

oftiws~· funds has been slowed hy J. r,mgc of challenges, including coping with m·w H'gubtory requirements. FederaL statt." 

,wd local ~nvernmems should make possible cH(m to expedite invcstmt'nt of tlw~c viral fund<. so they can 

have the de~ ired imp.Kt boosting construction activity and employmt'll!, including prioritizing environnwnt.tl revie\\'S and cxpcdirin!! Guy American waiver reqm·st\. 

• Revise Restrictive Policies & 

Regulations 

As irnportant as boosting private-S('CfOr construction activity and 

public infrastructure gap i\, those efforr.;; will only bt.' 

cffecriw if we make long-needed rcvi-.ions to dated 

government policies J.nd regulations that delay projects, infhrc 

consrruction costs and diven rcSt1HrCC,\. ;..:ohody questions the 

need to .l.\k tough que-.tiom and demand ~ood Juswer.\ ahom construction's impact on the environment, the of work and 

wiH•thcr tht" C,OV('rtUllCnt 

But it 'houldn'r take year<. 

red rape !n ,mswer rho\t' que.\tinm. That i~ \Vhy the .l.~sociarion 

n:commend;, the f(J!lowing: regula wry .and policy revi~iom: 

• Streamline Environmema1 Reviews for Infrastructure Projects. 

The current federal enyironrnenul review proce.\s for federallyfunded inhastrucrure projects is unnecessarily slow and cxpensiw. hlr ex.unplc, it take~ an average or 1.~ year~ f(lr highway 

and 12 year\ f()r rransit project.; to n~alvc fcder.tl A\ 

.1 rc~m!t, every ctl()ft dwuid he m . .de to .stre..J.mlirw environmenu! review proces~ while 

ignating lead Federal 

timclinc;,, simplif}·ing analy~is 

~rarutc of limiratiom on cL~irll\. 

environment by de~-

and meeting cle.n 

requirements .md placing a 

• Reject the Clean Water Restoration Act. 1~ currently 

considering legislation that would expand federal 

jurisdiction over water;. and under Clean \'Cater 

Act. W'cre rhis legislation to become law, all t.:onstruction activity 

impacting rtny water or \W! area in the United State:. would be 

required to obtain a Clean Water Act permit. \X'here these permits ar(' currently required, have proven both and 

tinle-c:on:;unting For t'xample. is expected to up 

to j federal government is current bJcklog 15,000 Clean Water Act permit rcquesr~. TO avoid 

needlessly delaying billions of dollar~ wonh of wnstrm:tinn 

projects, Congte~~ should preM·rve \t.lt<• .tnd local authority over 

local !and and water use. 
477 


26626.446

• Accelerate Licensing of New Nudear Power Plants. With demand l(u proi(·ctd lO grow ~ub~t:a!Hidlly within the 

next two decades, the Administration need to act 

on the 30 pending power plant J.pplicJtion~ that have 

been suhmined to the Nuckar Regulatory Commi.-..<.ion. A:" one 

oft he kw .~ource<, th,n c1n generate electricity reliably. cfl-lcicndy 

and withom ga-" crniv.ions, nuclear power mtht n:-

rnain an component of om po-.vcr grid. Unf(munatdy, 

toddy\ J()li L'.S. nuclear reactors opcr,m: ,n more th,.m ()()percent cap.Kity. Constructillg <~ nuclear plam t,lkcs year.<., however. 

Further needles\ pnmitring ddays will only iw . .:rc,lsc our nJ.-

tiona! rdianu: on foreign .'.ourn:.'> of energy. 

• Revise Environmental Legislation to Encourage Green Construction Activity. Environmentallegi\l.ltion being debated in 

Congn:~s ueatc:. opportunities for the construnion industry by 

driving dxnJJ.nd {\)r cnergy-effkicm building~ and infrJ.\truv 

wre. Those opportunities, however. arc limited became the cap 

,md tradt· propO.\J.l incre,lst:~ dw cost ofcomtruction d!ld reduo..::-. 

demand for new commerciaL manufacturing ,md industrial facil!tics. In addition, the bill could add permitting requirement~ 

that block or delay the development of commercial and residential buildings. Congres\ .\hmdd revi~e the legislation to eliminate 

the cap and uade provi~ions and instead cJll.:ourage improvements to om environment and air quality by runmn~ "'""fJ<Y ficicnr infrastructure. The hi!! also must be to 

pre-empt usc of the Clean Air An to rcguLne greenhouse gas 

emissions, an approach ecnnmnist!'> agree stifle~ economic 

growrh and consrrucrion activity. 

• Establish a federal Multiyear Capital Budget for Public Works 

Infrastructure. Establishing ,l federal multiyear opiul budget 

for public work... will make it easier fnr officials to plan fOr . .tnd 

finance, major, multiyear infrastnJCtun· project:.. Most states alre.tdy me multiyear capital budgets. Such .m approach the current federal budgeting process for 

key infrastructure !ike water ,md wastewater facilitie~ rhar di~­

cnur,tges J;Ood lnng-rerm ;l<,s.:t man.1gemcm by flxusing on 

funding ~horHcrm need~ only. 

• Avoid Government-Mandated Project Labor Agreements. 

Govcrnmcnt-manddted project labor agreements have been 

proven 10 limit wmperition for con~rrunion work, necdles•dy 

denying worker!'> the opponunity to benefit f'rom publiclyfunded project~. Worse. government mandated project !.thor 

,lgn:tmcnts put public officiab with link to no experience in 

comuw.::tion in ch.trge ofst'rting work rules and schedules. creating inefficiencies Jnd undermining workplace safcry. The Admini'>! ration :-.hould avoid w.ing govcrnmcnt-mandared projt.•ct 

labor agreement\ Jt ,til co~!\ and in>te,ld let workers .1nd con-

'truction linn~ nq;otiatt• tcnm of employment and work. 

• Rescind Buy American Requirements. \Xldl-mcaning dl(ms to 

\timulate purcha~c,, ofAmericJ.n-rnade product11 too often cm~e 

necdlc\S delay'> to cnnsrrucrion project'> while intlaring consrrucrion co>L\. Invariably. ~ignificanrly more comaucrion worker~ 

arc imp,lcted hy these debys rhan the limited number of workers 

that h('ftctlt from these requirements. Congress and th<' Administr,nion <>hould n:scind Buy American requirements included 

in the stimulus dnd avoid furrher temptations ro expand these 

requirenwnrs bcyond rhdr traditional and limired use in fi:dera! 

procun'mcnt J.nd highway pn)grams. 

A Blu&prtn/ fu1 E:conurruc Growth 9 
478 


26626.447

in this blueprint will have .m irnbudger. Eliminating the A!tftnativt• Minimum 

extending exi~ring tax breab and credits will nor he easy. 

However. the new economic activity these measures stimulate will 

ptH more Amerit.Hl!> w \vork incrc,bt' huf>iness cxpeuditun:!> and 

boost revenue. As a re~ult, income, sales and corporate tax receipts 

will rise, offsetting ~orne of the costs Jssociared with these chant!L·s. 

It\ ,1lso wonh noting rht' cost of inaction. and 

revenue continue their current next vear, 

the corresponding declines in t.rx n:cciptswould he Cu more c;lstly 

than the t.lx measure~ outlined in rhi~ plan. 

Several of the investments in public infl·astructurc included in thi.\ 

.1!so arc likely ro have an imp<H.:t nn dK fcxkr"J.! budgt't. Boost~ 

fi.n navig;uion and flood conuol and addressing rhe 

modccn,,mon ,md buildings will 

require J.dditionJ.l Generctl Fund However, these prodeliver ,1 return on the 1axpaycrs' investment. 

that even: dollar invested in flood control saws 

SR.l~ in prevented Aoodf> ~nd a~sociared dJ.tnagcs, f(1r example. 

And moderni'ling rhc invemory of federal buildings will deliver 

-"avinp by incn:,t-"ing f(;deral productivity, dt.·crea ... ing 

rnamn:naJIKC expeme» and reducing energy consumption. 

Othtr propo'>a!s outlined in rhl· plan will he cnvcrt·d by corre-

~ponding incrcJses in mer fees. for example, the additional tram10 Build Now For The Fu!ure 

pnrration invesnncnts would he covered by increase» in the federal 

user t~;c, a national infra:.tructurc bank and increases in rhe private 

:Ktivity hond Additional invt:srment\ in clean water, mean~ 

while, would of a self-funded \X'<ltt:r 

Trust Fund. ln addition, several of the propos.11s oudined in the 

plan will incn:asc the amount of capital av,Iilahle f(H investment 

in construction, such as easinf! restrictions on intanational invef>tmenu. ,md boosting public private pannenhips 

More imponam than how spt·cific costs are uflSct is the broader 

impact a robust and growing comtrucrion industry will have on 

tfw n<~.tional ':co no my. Every billion doll.ar:. wonh of nonresidential construction a.ctiviry supports over rwenty-<.:ight thousand 

jnh~. boosts gross domestic product by $3.4 billion and raises pcrsonale:lrning" by $1.1 hill ion. dm plan in and 

rurnin!! around thi,. vitAl sector will cnnstruction aClivity that will employ thousand<., stimulate new investments in equipm~nt ,md supplic-" and !ay a foundation t(H 

long term t•conornic ctllciencic~ and prosperity. 

Thi" plan may not he free, but for every dollar in additional costs, 

it provide.~ ,1 significam return on invesum'nt that will rc~torc !mt 

jobs. boos! busim~:.s acrivi()', restore £ax recciprs and give our economy th~ boost it needs to turn hopes of recovery into reality. 
479 


26626.448

On cover 
480 


26626.449
481 


26626.450

Environment and Public Works Committee Hearing December 13, 2011 

Follow-Up Questions for Written Submission 

Questions for Mr. Richey from: Senator James M. lnhofe 

1. While highlighting the economic difficulties that have hit your respective 

industry, you stated that once an "iron foundry" goes out of business, it 

is usually gone forever due to regulatory burdens that have been placed 

on the industry. Will you expand on what those various regulatory 

burdens might be? 

American Cast Iron Pipe Company ("American") is an employee owned company 

which has been in business for over 100 years. American provides excellent pay 

and benefits while taking great pride in our commitment to the health, safety and 

welfare of our employee-owners and the communities surrounding our plants. It 

is not unusual for people working at American to be the 3rd or 4th generation of 

their families to do so. 

Today, however, that 100 year history of providing quality products to make our 

country's water supply safe and easily accessible, and of providing our 

employee-owners and their families a pathway to a financially secure future, is 

under intense pressure. As described in earlier testimony, the economic 

downturn has devastated the housing market which in turn has had significantly 

adverse effects on the water products manufacturing industry. Additionally, local 

municipalities and water authorities have suffered a decline in the revenues 

necessary to maintain, repair, improve and expand their water and waste water 

systems. Finally, the federal government has not given water infrastructure 

spending a high priority leading to the current EPA estimate that the country 

needs to spend $300 billion on water infrastructure. 

The pressure on the survivability of the domestic water products manufacturing 

industry comes not only from the marketplace, but also from increasing 

regulations in recent years. Increased regulations obviously impose additional 

financial burdens on American companies; burdens that are not borne by our 

foreign competitors. 
482 


26626.451

While Congress seems to have backed off from passing far ranging cap and trade 

legislation, the EPA has continued to advance an aggressive regulatory and 

enforcement agenda. EPA continues to implement its greenhouse gas emissions 

regulations and permitting requirements, as well as proposed greenhouse gas 

tailoring rules. Additionally, the iron and steel industry is spending a great deal of 

time and money complying with reporting obligations and implementing the 

requirements of the Iron and Steel Foundry Area Source Rule. 

While industry, the environmental community, and EPA can disagree on 

the need for or the implementation of specific policies and regulations, our 

company and industry understands the overall need to protect the environment 

for our children and grandchildren. A healthy environment and a safe place to 

work are American goals, both for our company as well as our country. 

Our concern is the seeming disconnect between recognition of the 

costs to industry in implementing the mechanisms to achieve environmental 

protection, and how those costs affect pricing and competitiveness, especially, 

when competing against companies and countries that do not face the same 

obligations. American workers love to compete and given a level playing field can 

win most contests. However, the huge disparity in regulatory costs, coupled with 

a foreign government industrial and trade policy of tariffs, supports, preferences, 

subsidies and currency manipulations, makes the playing field very tilted against 

American companies. We can compete against other companies, but not against 

other countries. 

2. Is there anything else you would like to add for the record? 

Federal spending should not be divorced from federal policy-making. U.S. 

taxpayer dollars should not go to foreign producers buoyed by governmental 

subsidies and a dearth of governmental regulation. Nor should these taxpayer 

dollars be used to reward those companies who have moved their operations, 

investment dollars, and jobs from the United States to foreign countries. Rather, 

federal spending should give a common sense preference (which is notably not 

an unworkable requirement) to those companies and workers who play by the 

rules and continue to invest in their U.S. operations, modernizing plants to make 

them safe, efficient, and compliant with U.S. regulations. 
483 

Senator CARDIN. Let me thank all four of you for your testimony. 

I found it extremely helpful. We all understand that we need the 

resources to improve our water infrastructure. 

It would be, I think, extremely valuable on the reauthorization 

of the State Revolving Funds. I think that would be very helpful. 

This Committee has done that; we have gotten it out of the Committee. It is not an easy issue, because of regional differences and 

the politics of reauthorization of bills in this Congress. But to me, 

it not only gives you the legal authority of the reauthorization, but 

it gives you the predictability to know that the program will be 

there at a predictable level, so locals can do their planning. I agree 

with that. Mr. Richey and Mr. Freeman, I think both of you mentioned the private activity bond limits, the Menendez-Crapo legislation, which as you noted, I am a co-sponsor. I think that could help. 

So we do need to get predictable funding. 

My first question, though, deals with some of you have pointed 

out that there are ways that the Federal Government could be 

more helpful in the way that the money gets out to the local governments. Can you give us any specific recommendations as to 

some of the concerns that you have on the requirements that the 

Federal Government has imposed that is restricting your ability to 

leverage or get money out quicker for water infrastructure? Any 

specific recommendations? 

Mr. FREEMAN. I would be happy to try to answer that question, 

Mr. Chairman. And I won’t say it is Congress as much as possibly 

the EPA, it is duplicative administrative reporting requirements. 

Like I said in my testimony, I believe we should be totally held accountable for the use of the Federal money. No way am I saying 

we shouldn’t be. But I believe there is duplication of reporting requirements that would help a great deal. 

I am also a little concerned on the additional subsidization level. 

In Oklahoma, the 30 percent suggested, it would reduce Oklahoma’s ability to leverage by [unclear] percent. We are right now 

providing below market interest rates, 30 percent below market for 

a drinking water SRF loan and 40 percent below a AAA rate for 

the smallest of borrower in our State, and I think we are pretty 

well subsidizing. But I am worried about the ongoing revolving 

fund nature of the fund with required continued subsidization. I 

think that the reporting requirements is the main thing, and I 

would be happy to follow up on that. 

Senator CARDIN. That would be helpful, if you could get us the 

specific concerns you have on the reporting requirements. That 

would be very helpful to this Committee. I appreciate that. 

[The referenced information follows:] 

484 


26626.452

J,D.STRONG 

EXECunVE DIRECTOR 

December 21, 2011 

The Honorable Benjamin Cardin 

United States Senate 

509 Hart Senate Office Building 

Washington, DC 20510 

Dear Senator cardin, 

STATE OF OKLAHOMA 

WATER RESOURCES BOARD .........w~A~.owrb,ok.gov 

MARY FALUN GOVERNOR 

I wanted to express my appreciation of your allowing me to testify during the December 13'", 2011 

Senate Committee on Environment and Public Works on uour Nation's Water Infrastructure: Challenges 

and Opportunities. n Additionally, l want to express my sincere appreciation to you for your support of 

improving water and wastewater infrastructure in Maryland and across the nation. 

As requested, I am writing this letter to provide additional information on how the SRF programs can be 

improved in order to accelerate the outlays of federal funds to communities for water and wastewater 

projects. The SRF programs have been extremely successful committing over $84 billion to projects for 

wastewater infrastructure and over $20 billion for drinking water infrastructure. It is important to note, 

however~ that the assistance made available to communities is significantly greater than the initial 

federal investment as a result of state match, loan repayments, issuance of bonds and interest earnings. 

The SRF accomplishments are many but there is always room for improvement. 

Requirements Umlting the Ability of States to Address Infrastructure Needs 

Green Project Reserve- The Appropriations Bills from FY 2010 and FY 2011 requires that not 

less than 20% of the funds be targeted toward "green ... projects as defined by EPA. In some 

States, this means that projects set to address more critical water quality or public health issues 

are being by-passed by the SRF program to meet the green quota. 

o Increase Flexibility~ SRF Programs have long been able to fund projects that are green 

including high efficiency pumps, reflective roofs, rain gardens, etc. The definition of 

what should be considered Green should be able to be defined on a state by state basis. 

o Increase Flexibility- Water Quality/Public Health needs vary from State to State and 

States are in the best position to recognize the priorities for providing assistance. Actual 

funding levels or percentages required for funding green projects should be at the 

discretion of the states to ensure that individual state needs are being addressed, 

Additional Subsidization- The Appropriations Bills from FY 2010 and 2011 required that not 

less than 30% of the funds be targeted towards additional subsidization in the form of grants, 

negative interest, or principal forgiveness. Furthermore, it is strongly encouraged the additional 

3800 N. CLASSEN BOULEVARD • OKlAHOMA CITY, OKlAHOMA 73118 

TELEPHONE {405) S30-8800 • FAX (405) 530-8900 

Un~ P. Lambl!rt, Chlllrman • F. Fon:!. Oru.mmond, Vka Chairman • JOKPh E. Taron, Secrvtary 

To.m Butharuon • Martlyn F- • Ed F!tt< • Rudy Hommann • Kenneth K_ Knowles- • Richan:l C Seuenoalu; 
485 


26626.453

Oklahoma Water Resources Board 12 Water Infrastructure: Challenges and Opportunities 

subsidies should be given to projects that could not otherwise afford such projects. States are 

already providing the SRF programs to municipalities at subsidized interest rates. 

o Increase Flexibility- Providing the additional subsidization reduces a programs 

leveraging capacity. In Oklahoma, capacity was reduced by approximately 30% under 

each program. Should additional subsidization continue it should be provided under 

circumstances deemed appropriate by the State not EPA. 

Sustalnabllity Polley- EPA issued their Clean Water and Drinking water Infrastructure 

Sustainability Policy as part of its efforts to promote sustainable infrastructure within the water 

section in October 2011. State SRF programs continually evaluate the sustainability of a system 

(technical, managerial, and financial) as part of their loan review. EPA emphasizes the 

importance of directing SRF assistance to projects that support sustainable systems that help 

build or maintain the technical, financial, and managerial capacity of the recipient. 

o Increase Flexibilitv -It is in a system's best interest to ensure that they are technically, 

financially and managerially sustainable. However, EPA's focus on these issues should 

be addressed through the regulatory portion of their programs not the SRF program 

which is focused on assisting community's meet their infrastructure needs. 

• Reporting- Utilizing public funding requires the SRF programs to be transparent. It becomes 

burdensome, however, when the State Programs have to report the same information in 

multiple websites and documents. And/or, when the information is available and EPA is unable 

to extract the information from the appropriate report. 

o Example of Duplication of Reports 

Federal Funding Accountability Transparency Act website 

EPA NIMS/Ciean Water Benefits Reporting 

Intended Use Plans 

Annual Reports 

Periodic EPA Requests for Information 

State Websites 

EPA Consistency- EPA Headquarters and Regional Offices are partners along with States in the 

implementation of the SRF Program. The challenge, however, is when EPA guidance is 

interpreted different ways by the 10 Regional Offices. Obviously there are differences in every 

state but the guidance should be the same regardless what part of the country you are located. 

Thank you again for the opportunity to testify during the Senate Hearing. If you have questions or 

need additional information, please do not hesitate to contact me by phone at 405.530.8800 or 

jsfreeman@owrb.ok.gov. 

Sincerely, 

//~~ 

6~ Freeman, Chief 

Financial Assistance Division 

Cc: Senator Barbara Boxer, EPW Majority Chairman 

Senator James lnhofe, EPW Minority Ranking Member 

Senator Tom Coburn 
486 

Senator CARDIN. All of you have mentioned the economic impact 

here. Mr. Scott, I am very impressed that during this economic period you have quadrupled your company. That is certainly impressive. Mr. Richey, your comments about the economic impact. 

Explain to me how we can leverage that more effectively, particularly the green infrastructure, which is jobs that can’t be exported 

overseas. What more do you want us to do that could help unleash 

economic activity, particularly in the green energy or the green sector? 

Mr. SCOTT. My suggestion, as I mentioned, our experience in 

Maryland is probably a good example. In the year 2000, green infrastructure was suggested in our stormwater design manual. The 

industry, the land development industry, land improvement industry, did not embrace it, mostly because it was a change in the way 

they had to do business. It is a change in the way we design sites; 

it is a change in the way we construct sites. 

Because of the resistance to change, the green infrastructure 

didn’t happen as a suggestion in the Maryland State design manual. In 2009 the legislature then followed up I think with some 

pressure from the environmental community to actually mandate 

it. Now that it is mandated, it is happening. 

I heard earlier the EPA has taken a similar tack as far as suggesting approaches, or suggesting the use of green infrastructure. 

Because it is a significant change in the way the design and construction of new sites occurs, it is not likely that that is going to 

go very far, if it is just suggested. There have to be more teeth in 

it to actually make it happen. We watched it over 9 years in Maryland, and that was our experience. 

On the maintenance and inspection side of things, it is a similar 

situation. EPA is working on their stormwater rule, and if that rule 

has some teeth to it, some meat to it as far as requiring inspection 

and maintenance of existing stormwater management ponds and 

systems that have been in place for the past, in some areas 20 to 

30 years, if they are not maintained, if they are not inspected, 

there is no pollutant removal. They are not performing. 

So suggestions to do this, and most stormwater management facilities that are constructed, there are suggestions on the plans, 

and the owners are suggested to inspect and maintain them. But 

until they actually have to do it, in many cases it just doesn’t happen. 

Senator CARDIN. Thank you. 

Mr. Richey, I just want to make one observation on one of the 

comments you made. It has to go, we have to highlight that. Twenty-five percent of the treated water is lost. 

Mr. RICHEY. Yes, sir, that is because of decaying pipelines. We 

know that that water has to be treated, it has to be pumped. So 

you have energy costs, you have precious water that is being lost. 

But back to the green infrastructure, almost all of our product in 

ductile iron pipe is made from recycled materials. So the way the 

Federal Government could help us is put a domestic preference in 

that the taxpayers are paying for anyway, in the SRFs and PABs, 

and help us use that recycled material here domestically. 

Senator CARDIN. Excellent suggestion. But if we can reduce the 

leakage by 25 percent, think about the energy savings, think about 

487 

the efficiency factors, think about the chemicals that don’t need to 

be used. There is a lot of savings, a lot of loss here with that 25 

percent. I just didn’t want that to go without putting a spotlight 

on that. 

Mr. RICHEY. That is right, Senator, and we would like to see all 

pipeline replaced with our pipe. We could solve that problem overnight. 

[Laughter.] 

Senator CARDIN. As long as we use your pipe. 

Mr. RICHEY. Yes. OK, any of our pipes, as long as it is ductile 

iron pipe. 

[Laughter.] 

Senator CARDIN. Thank you very much. 

I will turn to Senator Sessions. 

Senator SESSIONS. Mr. Chairman, I will let Senator Inhofe, our 

Ranking Member, go ahead. 

Thank you, Jim, for coming and for your leadership over many 

years on these issues. 

Senator INHOFE. Thank you very much. 

On this 25 percent, I was going to ask about that, is that nationwide? I was gone during part of your testimony? 

Mr. RICHEY. Yes, Senator, that is an average of 25 percent. 

Senator INHOFE. It is an average. 

Mr. RICHEY. Some places are going to be worse than that. 

Senator INHOFE. Is it going to be worse in some of the more mature parts of the country? Do you have that broken down? Do you 

know what Oklahoma is, for example? 

Mr. RICHEY. I don’t have that information, but I believe it would 

be, in the older, more mature areas where you have older pipelines, 

yes, some of our pipe has been in the ground for over 100 years 

and working great. But there are other areas where it just hasn’t 

been maintained properly. Also you have seismic shifts in the soil 

and the things that destroy pipelines after a lot of use. 

Senator INHOFE. Your suggestion is that cast iron lasts quite a 

while? 

Mr. RICHEY. Yes, sir. In fact, we have a club called the Century 

Club and several communities are members of that, where you 

have to have your pipeline over 100 years, and you join this club. 

Senator INHOFE. Well, I have a request of you. First of all, on 

that line, I can remember when they would all look at the newer 

States, like Oklahoma’s statehood in 1907, as not having the problems. However, it has turned around now, a lot of the more mature 

parts of the country have now had new infrastructure. So we don’t 

want to be left out, and I would be interested in maybe, Mr. Freeman, if you can find out the specific information about Oklahoma. 

But the request I have of you, Mr. Richey, is that if you think 

of anything that would make it beneficial to the American Cast 

Iron Pipe Company to make your job easier in Oklahoma, will you 

call me personally? 

Mr. RICHEY. Thank you, sir. 

Senator INHOFE. Mr. Freeman, you mentioned the flexibility, you 

were here when Mr. Hanlon testified, and I know he is trying, I 

know where his real concern is in terms of giving flexibility, but 

488 

you said increased flexibility is still desired. What type of flexibility 

do you want to recommend right now that needs to be improved? 

Mr. FREEMAN. As I previously mentioned, I think that flexibility 

on the additional subsidization to allow States to implement that 

as is more necessary from State to State. As I mentioned in my testimony, in Oklahoma through our comprehensive water plan that 

I know that you have been aware of, Senator Inhofe, we have identified $82 billion in need. What you just said is true, the more mature States, but now it is in Oklahoma. 

Senator INHOFE. That is right. And you talked about the small, 

rural, and disadvantaged communities. We have a lot of those. 

Mr. FREEMAN. Yes, sir. 

Senator INHOFE. And we have a program, the Credit Reserve Enhancement Program, that we are considering. Do you want to 

elaborate any more on that? 

Mr. FREEMAN. Yes, I would be pleased to. Through our comprehensive water plan, in identifying this large water and wastewater need over the next 50 years, we know that the State Revolving Fund alone, even at its current level of funding, let alone its 

being possibly reduced, and our State funding programs, are not 

going to be adequate to meet that $82 billion of need. 

And as you are aware, the economic realities nationally, but in 

Oklahoma I think we are doing a little better than most other 

States, but still, trying to go ask the legislature for additional moneys, come up with an idea that would require a vote of the people, 

and Representative Richardson of the Oklahoma House of Representatives is currently working on this with us, would be where 

instead of the State putting up $50 million or $100 million in additional appropriation, what we would ask is that the State, if the 

water board ever defaulted on one of our bond issues, one of our 

State bond issues, that the State at that time would then issue 

general obligation bonds to meet those defaults. 

Statistically, since the water board has been in water and wastewater financing loan-wise since 1985, before the SRF programs 

were in existence, we have never had any default or any payment 

problem at all. So statistically, the State would never have to put 

up a penny of money by issuing those general obligation bonds. If 

the State would allow us to have, let’s say, $100 million, we have 

already visited with Standard and Poors rating service, we could 

issue up to $1 billion in additional debt to provide funding for 

Oklahoma’s communities throughout the State. 

Senator INHOFE. I appreciate that, and I have often said, one of 

the reasons I so appreciate this Committee, this Committee has the 

largest jurisdiction of any committee in the Senate, Environment 

and Public Works. Of course, you are right in the middle of both 

of those. One of my concerns, because I do have the background of 

being the mayor of a major city, is the biggest problems facing communities and counties and cities in Oklahoma is not crime on the 

streets, it is unfunded mandates. 

We are doing a very good job, and you are doing a very good job 

in Oklahoma. We just want to maximize that and be able to assist 

you all we can. 

Thank you, Mr. Chairman. 

Senator CARDIN. Senator Sessions. 

489 

Senator SESSIONS. Thank you. 

Mr. Richey, I show a map here that indicates the number of 

States in the United States that have companies that manufacturer 

cast iron pipe, ductile iron pipe. We have seen the ones in yellow, 

Mr. Chairman, where plants have closed in recent years. 

So just basically, I guess you and Mr. DiLoreto would say that 

subdivisions are down, very few subdivisions are being constructed, 

very few shopping centers are being constructed. Private developments are down, and cities have tight budgets, so they are down. 

Would you say this is putting an extraordinary stress on the people 

who make the items that compose our infrastructure, and Mr. 

DiLoreto, our engineering support teams, too? 

Mr. Richey, do you want to start? 

Mr. RICHEY. Yes, Senator. The jobs are lost; we have lost jobs. 

And some of those jobs, I am sad to say, may never come back. And 

now I am worried about the jobs that are still existing, how do we 

make it through to the recovery of the economy? That is what we 

are here for today. I think that these two funding mechanisms that 

we are talking about will allow—it just gives the communities another tool in the toolbox which they can use to raise funds to replace the infrastructure that does need replacing after all these 

years. 

Senator SESSIONS. Well, I tend to agree with that. It is a needed 

infrastructure item. We have a deep American industry and that 

industry definitely is in a crisis situation. 

Would you agree that from an engineering perspective, Mr. 

DiLoreto, that it is a tough time? 

Mr. DILORETO. Absolutely. I commented that I was in a fast 

growing utility, we were putting in 200 to 300 meters a month in 

our utility. Last month we got a 27-lot subdivision, and we thought, 

oh, my gosh, this is the biggest thing we have seen in 4 years. The 

civil engineers, their jobs are being lost in that manner. The industry is being lost in that manner. Even my own maintenance workers we have had to change jobs of what they have done. And when 

an opening comes for one of these positions, hundreds of applications we get. 

Senator SESSIONS. Mr. Richey, what would be the impacts on job 

creation in your sector if a bill like 939 that would lift the volume 

caps on private bonds became reality? 

Mr. RICHEY. Senator, we have estimated about 27,000 jobs would 

be added by if we could start tomorrow in increasing the private 

activity bond, taking the cap off of it. 

Senator SESSIONS. One of the things, Mr. Chairman and Ranking 

Member on the Budget Committee, and those red ink numbers just 

overwhelm you every day, but one way to strengthen the United 

States balance sheet is to take some of these costs off our balance 

sheet, so private activity bonds put the total risk on the private activity provider. And in a way it has some costs, and we need to be 

sure we pay for that cost. But in terms of adding to the debt of the 

United States, it is much smaller than if we loaned the money out 

ourselves. 

How would the cities utilize, Mr. Richey, the private activity 

bonds? As a practical matter, how would that work? 

490 

Mr. RICHEY. I think what happens is the cities would determine, 

OK, do I need this funding, because I can’t raise it through tax revenues, I can’t raise taxes, I am not getting the ad valorem taxes 

on property. How do I get the funds that I need to replace infrastructure that needs to be replaced? 

So they advertise this, private activity bonds are issued. They 

are tax-exempt from Federal tax, and that encourages investors to 

take that risk that the local governments don’t have to take any 

more. 

Senator SESSIONS. Mr. Freeman, do you have any comment on 

that from your perspective? 

Mr. FREEMAN. No, sir. 

Senator SESSIONS. Mr. DiLoreto. 

Mr. DILORETO. No. 

Senator SESSIONS. Well, it is my understanding that many States 

are not currently using an entire volume cap. How does exempting 

water and wastewater plants and infrastructure deal with that 

problem? 

Mr. RICHEY. I think the difficulty there is that many of these 

projects we are talking about are multi-year projects. When they 

don’t know or the locals don’t know if the State Revolving Fund is 

going to have that funding every year, then there is a lack of funding, a lack of confidence about future projects. And if they had no 

cap, then they knew they could fund multi-year projects, we would 

start seeing the infrastructure being developed and being replaced 

where necessary. 

Senator SESSIONS. Let’s talk, one moment, Mr. Chairman, you 

can interrupt me, I just went over my time limit. But the idea of 

Buy America is something that a lot of us look carefully at. But I 

have come to have a growing feeling that we need to be far more 

interested in how we can help our manufacturing that creates jobs 

in the United States. The Wall Street Journal just had a big article 

about plants closing and how much it costs the Government, unemployment insurance, food stamps, welfare, other problems that 

occur there, right out of the Treasury, direct expenditures out of 

the U.S. Treasury. 

But first, Mr. Richey, you are competitive, you are in the world 

market competition. Would you explain to us some of the things 

that provide what many would consider unfair advantages from our 

trading partners? I know China is a manufacturer of pipe and an 

exporter of pipe. What are some of the advantages countries like 

that might have that are really unfair in your view? 

Mr. RICHEY. Thank you for the question. I sort of divided the two 

areas. One is unfair practices and the other is societal needs in the 

United States. So unfair practices, we know that we are competing 

not with other companies, we are competing with other countries. 

And I can stand toe to toe with another company, but not another 

country. The countries I am talking about allow subsidies for their 

exporters, they manipulate the currency, they have unbelievable 

high tariffs if I try to ship anything to their country. Yet we have 

very low tariffs coming into this country. 

And we also know that they dump, we know that they sell in this 

country cheaper than the sell in their own country. So I have all 

that working against me. At the same time, we have things that 

491 

we hold near and dear to our hearts here. We want to have a good 

environment, we want to have safety, we want to have pension 

plans, we want to have health care. So these taxpayers in this 

country are actually subsidizing not my business, they are subsidizing foreign competitors, foreign countries when we use taxpayer dollars to buy foreign products for these infrastructure 

projects and other things. 

Senator SESSIONS. If you took the currency manipulation, let’s 

say at 25 percent, which we have estimated on China, that gives 

an advantage to the importer of that much. And the environmental 

regulations that you face are far more intense than most of your 

foreign competitors, is that not correct? 

Mr. RICHEY. Yes, sir, in fact, we estimated that 25 percent of the 

particulate matter in a smoggy day in Los Angeles comes directly 

from China. So it is not just what happens in this country. We are 

actually allowing them to pollute this country. 

Senator SESSIONS. Well, I think that is a justification for, as we 

craft this, to try to do it in a way that at least levels the playing 

field so our manufacturers have that ability. 

Now, on the Buy American language, it does not prohibit foreign 

competition. Can you share some of the things that would allow a 

foreign competitor to still participate under some of the language, 

the Buy American language that has been suggested? 

Mr. RICHEY. Yes, Senator, in fact, it is really ironic, because it 

is not just Buy American, it is to encourage foreign competition. 

Because we are saying, all right, we will compete with you. If you 

have the same rules, if you sign the international agreements, if 

you sign a WTO agreement, then come on. We welcome you. 

But don’t compete against us when you don’t allow us a fair 

shake to get in your country, but you want to come here. We are 

not asking to Buy American only, it is a Buy American preference 

unless you sign those international agreements. If you sign the 

international agreements, no problem. We welcome you and welcome to compete with you. 

Senator SESSIONS. Thank you. 

Senator CARDIN. Mr. Richey, I think you said that just the way 

we have to get that message out to not only the American people 

but the international community. Because on a level playing field, 

we will do just fine. 

Mr. RICHEY. That is right. 

Senator CARDIN. And we have allowed foreign countries to subsidize, to do illegal trading practices, including dumping, as you 

pointed out, and we have not taken appropriate steps to allow our 

manufacturers to compete on a level playing field. 

I just want to identify myself with the comments that you have 

made, and thank Senator Sessions for those comments. It is about 

jobs here in America and we can compete and we need to make 

sure we do everything we can to have a level playing field. 

Let me thank the panel again for your testimony. The Committee 

has received testimony from the American Water Works Association, Water Environmental Federation, Association of Metropolitan 

Water Agencies, The Clean Water Construction Coalition, the 

United Association of Journeymen and Apprentices of the Plumbing and Pipefitters Industry of the United States and Canada, and 

492 

the Subsurface Technologies. Without objection, these statements 

will be made part of the Committee record. 

[The referenced information follows:] 

493 


26626.454

American Water Works 

Association 

December 12, 2011 

The Honorable Barbara Boxer 

Chair 

Senate Committee on Environment and Public Works 

The Honorable James M. lnhofe 

Ranking Member 

Senate Committee on Environment and Public Works 

The Honorable Benjamin L. Cardin 

Chair 

Senate Subcommittee on Water and Wildlife 

The Honorable Jeff Sessions 

Ranking Member 

Senate Subcommittee on Water and Wildlife 

Dear Senators, 

The American Water Works Association, the Association of Metropolitan Water Agencies and 

the Water Environment Federation respectively request to have the following joint statement 

and its attachment included in the record of the hearing titled, "Our Nation's Water 

Infrastructure: Challenges and Opportunities," that will take place on December 13. If you or 

your staff have any questions, please do not hesitate to contact Tommy Holmes at 202-326-

6128. 

Sincerely, 

Tommy Holmes 

Legislative Director 

American Water Works Association 

American Water Works 

Association 

1300 Eye St. NW 

Suite 701W 

Washington, DC 20005 

202 628-8303 

www.awwa.org 

Association of Metropolitan 

Water Agencies 

1620 I St. NW 

Suite 500 

Washington, DC 20006 

202 331-2820 

www.amwa.net 

Water Environment 

Federation 

601 Wythe St. 

Alexandria, VA 22314 

703 684-2400 

www.wef.org 
494 


26626.455

Water Works 

Water Environment 

Federatiorr 

tho water quality pecptet 

Written Statement 

for the Senate Subcommittee on Water and Wildlife 

on "Our Nation's Water Infrastructure: Challenges and Opportunities" 

December 13,2011 

Water Infrastructure: 

Challenges, Benefits and an Innovative Proposal 

The American Water Works Association (AWWA), Association of Metropolitan Water Agencies 

(AMWA) and the Water Environment Federation (WEF) commend the Senate Subcommittee on 

Water and Wildlife for addressing the challenges and opportunities surrounding our nation's 

water infrastructure. High-quality drinking water and wastewater systems are essential to public 

health, business, and quality of life in the United States. Our organizations and others have 

documented that our water and wastewater infrastructure is aging and that many communities 

must begin to increase their levels of investment in the repair and rehabilitation of water 

infrastructure now in order to protect public health and safety, business continuity and economic 

viability and to maintain environmental standards. The tenets outlined in this paper provide a 

path toward truly sustainable water infrastructure for all Americans. 

AWWA, AMWA and WEF have long believed that Americans are best served by water systems 

that are self sustaining through rates and other local charges. However, we recognize that at 

present, some communities need assistance due to hardship or special economic 

circumstances. There are also times when communities must access large amounts of funding 

in a short time period to address major water infrastructure needs. The U.S. Environmental 

Protection Agency's latest estimates for needed investment in drinking water and wastewater 

infrastructure shows that more than $500 billion must be invested through 2028 to maintain our 

current levels of service. And that only includes projects that would be eligible for state revolving 

loan fund projects (SRF). According to the US Conference of Mayors, more than 95 percent of 

water infrastructure funding is historically provided by state and local sources. 

In addition to the vital role water infrastructure plays in local economic growth and even 

sustainability, water infrastructure has significant impacts on the nation's economy. The U.S. 

Department of Commerce has estimated that every additional dollar invested in drinking water 

or wastewater sector results in an increase in revenue for all industries of $2.62. Furthermore, 

the Department estimates that every additional job in the water sector creates 3.68 jobs in the 

national economy. 
495 


26626.456

The primary federal role in water infrastructure is one of leadership. Among other things, that 

role includes demonstrating and encouraging: 

Utility use of modern asset management tools and full-cost pricing; 

Use of rate structures that accommodate low and fixed-income customers as much as 

practical; 

Adoption of green technologies and approaches such as water and energy conservation, 

water reuse, and innovative stormwater management; 

Use of cost-saving watershed and regional strategies, such as system consolidation, 

regional management, and cooperative approaches among water, wastewater, and 

highway agencies within a region; and 

Use of advanced procurement and project delivery methods. 

However, there is also an important role for the federal government in lowering the cost of 

capital for water and wastewater investments. Almost 70 percent of American communities use 

bonds to finance local infrastructure. They pay billions of dollars in interest costs each year. 

Lowering the cost of borrowing for water and wastewater infrastructure is an important way to 

leverage local funding and help America rebuild and rehabilitate our aging water infrastructure. 

A Novel Approach: The Water Infrastructure Finance and Innovation Act 

To lower the cost of infrastructure investments and to increase the availability of lower-cost 

capital, AWWA, AMWA and WEF urge Congress to enact a "Water Infrastructure Finance and 

Innovations Act" (WIFIA), modeled after the successful Transportation Infrastructure Finance 

and Innovations Act (commonly called TIFIA). Such a mechanism could lower the cost of 

capital for water utilities while having no or little effect on the federal budget deficit. WIFIA 

would access funds from the U.S. Treasury at Treasury rates and use those funds to support 

loans and other credit mechanisms for water projects. Such loans would be repaid to the 

Authority- and thence to the Treasury- with interest. 

The Water Infrastructure Finance and Innovations Act would: 

Provide for loans, loan guarantees, and other credit support for large water infrastructure 

projects and those with national or regional importance. Communities undertaking these 

projects often find it difficult or impossible to access SRF loans in meaningful amounts, due 

in part to inadequate capitalization of the SRFs. 

Reduce the cost of leveraging for SRF programs by lending to them directly. WIFIA could 

lend to those SRF wishing to leverage their capitalization grants at the lowest possible 

interest rates. This would allow SRFs to make more loans and would increase their ability to 

offer special assistance to hardship communities if they chose to do so. Currently, about 27 

states leverage their SRF programs on the bond markets. WIFIA loans to an SRF would 
496 


26626.457

offer another mechanism to accomplish the same goal and make such a practice more 

attractive to additional states. 

WIFIA should enable projects and state SRFs to obtain financing with no more burden than 

going to traditional credit markets through a streamlined review and application process. 

Fitch Ratings, a top credit rating agency, calculates that the historical default rate on water 

bonds is 0.04 percent. Indeed, water service providers are among the most creditworthy and 

fiscally responsible borrowers in the United States. Moreover, those states that leverage their 

SRF programs all have AAA or AA bond ratings and no history of defaults, placing them among 

the strongest credits in the country. Consequently, WIFIA- because it involves loans that are 

repaid - involves minimal risks and minimal long-term costs to the federal government. More 

information on the WIFIA proposal is attached. 

The SRF Program 

It is also important for the federal government to continue to directly capitalize state revolving 

funds, which can be used to both broadly lower the costs of water infrastructure investment and 

to address the needs of communities in hardship or special circumstances. AWWA, AMWA and 

WEF propose several enhancements to the State Revolving Fund programs to allow them to 

better serve our communities: 

Continue support for SRF capitalization. Despite growing needs and the implementation of 

new drinking water regulations, overall federal investment in the SRF programs has 

decreased significantly in recent years. We ask that Congress carefully consider the broad 

and important economic and public health benefits that flow from each dollar of support for 

the SRF programs. 

Provide states with flexibility in using SRF funds. This should include the ability to address 

the special needs of hardship communities they identify. This flexibility should also include 

the ability to use state procurement processes and standards that minimize process and 

administrative "burdens" for grant recipients and for states themselves. 

Eliminate arbitrage restrictions. Allow SRF programs that issue bonds to keep arbitrage 

earnings on their invested funds to the extent such earnings are used to support additional 

investment in water infrastructure. Based on historical market rates, this would provide 

$200-400 million per year in additional funds for water and wastewater investment. 

Streamline the SRF application. Provide incentives to streamline the SRF loan review 

process. It can take almost a year to obtain an SRF loan. This deters many communities 

from using the SRF, and leads them to issue higher-cost municipal bonds instead. Due to 

the revolving nature of the Fund, increasing the pace of awards through streamlining will 

help increase the revolving flow of funds, allowing even more projects to get built, and so on 

into the future. 
497 


26626.458

Americans can be proud of the progress we have made in protecting public health and the 

environment through past investment in water infrastructure, but we risk a reversal of that 

progress unless significant new investments are made in our aging water and wastewater 

systems. AWWA. AMWA, and WEF greatly appreciate your leadership on this issue and we 

look forward to working with you and other members of the committee in the months ahead to 

develop bi-partisan, sustainable solutions to the water infrastructure challenges that the country 

faces. 

American Water Works 

Association 

1300 Eye St. NW 

Suite701W 

Washington, DC 20005 

202 628-8303 

www.awwa.org 

Contact: Tom Curtis 

### 

Association of Metropolitan 

Water Agencies 

1620 I St. NW 

Suite 500 

Washington, DC 20006 

202 331-2820 

www.amwa.net 

Contact: Dan Hartnett 

Water Environment 

Federation 

601 Wythe St. 

Alexandria, VA 22314 

703 684-2400 

www.wef.org 

Contact: Tim Williams 
498 


26626.459

Water Works 

Water Environment 

FederatiorT 

the water quality -pe<9le" 

A Cost Effective Approach to Increasing Investment in Water Infrastructure: 

The Water Infrastructure Finance and Innovation Act (WIFIA) 

Background. High-quality drinking water and wastewater systems are essential to public 

health, business, and quality of life in the United States. The American Water Works 

Association (AWWA) and others have documented that our water and wastewater infrastructure 

is aging and that many communities must significantly increase their levels of investment in its 

repair and rehabilitation to protect public health and safety and to maintain environmental 

standards. EPA estimates that given current levels of investment, the shortfall between actual 

and necessary levels of investment in water infrastructure will exceed $530 billion over the 

coming twenty years. Other estimates vary, but they all point to a very large "infrastructure 

gap." This gap has profound implications for public health, welfare, the economy, and our 

quality of life. 

The organizations above believe that Americans are best served by water and waste water 

systems that are self-sustaining through rates and other local charges. Indeed, in 2005 

Americans invested $84 billion to build, operate, and maintain water and wastewater 

infrastructure, with more than 95 percent of those funds representing state and local monies 

without federal assistance or subsidies, according to the U.S. Conference of Mayors. 

However, the federal government can play an important role in facilitating increased local 

spending on infrastructure by lowering the cost of capital for water and wastewater projects. 

Almost 70 percent of American communities use bonds to finance local infrastructure. They pay 

billions of dollars in interest costs each year. Lowering the cost of borrowing for water and 

wastewater projects represents an important way to leverage local funding and help America 

rebuild its aging water infrastructure, since lowering the cost of capital can offer significant cost 

savings to the utility and its customers. For example, lowering the cost of borrowing by three 

percent on a thirty year loan can reduce total project cost by over twenty percent. In this way, 

low interest financing has the same effect as making a grant to cover part of the project's costs 

except that the financing will be repaid to the federal government and will not add to the longterm deficit. The savings for local borrowers can significantly accelerate water infrastructure 

investment by making it more affordable for utilities and their customers. 

Investment in Water Infrastructure Benefits the Nation. Lowering the cost of infrastructure 

investment pays dividends in many ways. It makes it possible to "do more (infrastructure) with 

less (money)." The US Department of Commerce Bureau of Economic Analysis estimates that 

for every dollar spent on water infrastructure, about $2.62 is generated in the private economy. 

And for every job added in the water workforce, about 3.68 jobs are added to the national 

economy, according to the Bureau. Moreover, these national benefits come on top of improved 

public health, a cleaner environment, better fire protection, and a better quality of life in the 

community. 

A New Approach: The Water Infrastructure Finance and Innovation Act. To lower the cost 

of infrastructure investments and increase the availability of lower-cost capital, we urge 
499 


26626.460

Congress to enact a "Water Infrastructure Finance and Innovation Act" (WIFIA), modeled after 

the successful Transportation Infrastructure Finance and Innovation Act (commonly called 

TIFIA). Such a mechanism could lower the cost of capital for water utilities while having little or 

no long term effect on the federal budget. WIFIA would access funds from the U.S. Treasury at 

long-term Treasury rates and use those funds to provide loans or other credit support for water 

projects. Funds would flow from the Treasury, through WIFIA, to larger water projects or to 

State Revolving Funds wishing to borrow to enlarge their pool of capital. Loan repayments -

with interest- would flow back to WIFIA and thence into the Treasury- again, with interest. 

See the attached table for a simplified illustration of the flow of funds. 

This funding mechanism would allow the Water Infrastructure Finance and Innovation Act to: 

Provide for loans, loan guarantees, and other credit support for large water infrastructure 

projects. These large projects often find it difficult or impossible to access SRF loans, 

and in many states large projects are expressly excluded from SRF eligibility because 

they would leave little room to finance other projects. 

Reduce the cost of leveraging for State Revolving Fund (SRF) programs by lending to 

them directly. WIFIA could lend to those State Revolving Funds wishing to leverage their 

state or federal capitalization grants at the lowest possible interest rates. This would 

allow SRFs to make more loans and would increase their ability to offer special 

assistance to hardship communities if they chose to do so. Currently, 27 states leverage 

their SRF programs on the bond markets. WIFIA loans to an SRF would offer an 

alternative mechanism to accomplish the same goal and make such a practice more 

attractive to additional states. 

Ensure a streamlined approach to financing. WIFIA should be directed to develop a 

streamlined review and application process and make decisions with no more burden to 

the applicant than required by traditional credit markets. 

Low Cost to the Federal Treasury. The Authority would operate much like the TIFIA program 

in providing credit assistance. Under the Federal Credit Reform Act, a federal entity can provide 

credit assistance only to the extent that Congress annually appropriates budget authority to 

cover the "subsidy cost" of the loan, i.e. the net long term cost of the loan to the Federal 

Government based on the risk of default. In this way, Congress directly controls the amount of 

lending - but the budgetary impact is also minimal because it reflects the net long-term cost of 

the loan, and most loans are repaid in full. In the case of TIFIA, the leverage ratio is 

approximately ten-to-one, where $1 in subsidy appropriation supports $10 in credit assistance. 

This ten-to-one ratio may be even higher for water infrastructure due to the very low historical 

default rates on water projects. Fitch Ratings, a top credit rating agency, calculates that the 

historical default rate on water bonds is 0.04 percent. Indeed, water service providers are 

among the most fiscally responsible borrowers in the United States. Moreover, those states that 

leverage their SRF programs have no history of defaults, placing them among the strongest 

credits in the country. Consequently, WIFIA- because it involves loans that are repaid with 

interest- involves minimal risks and minimal long-term costs to the federal government. 
500 


26626.461

The following examples show in simplified form how WIFIA would work and the benefits that 

could accrue to project sponsors. 

Example: Water or Waste Water Utility. Assume a water or wastewater utility wished to fund 

a $100 million project at the lowest possible cost. If the utility is an A-rated municipal utility, in 

the market conditions existing in May 2011 the utility could finance the project on the municipal 

debt market by selling 30-year bonds at an interest rate of 5.4%, plus a 1.5% underwriting fee 

on loan principal amortized over the life of the issuance. 

As an alternative the utility might apply for a WIFIA loan. WIFIA could support all or a part of the 

project, which might also involve municipal bonds, cash financing, an SRF loan, and/or private 

capital. A WIFIA loan reflects long term Treasury rates, plus a small mark-up (say, 1/81

h of one 

percent) to cover WIFIA administrative costs, and would total 4.04%in May, 2011. 

Further assume that in the project year, Congress has appropriated $400 million for WIFIA to be 

used to cover the "subsidy cost" of its loan portfolio, i.e. the estimated cost of defaults. It is 

reasonable to expect (based on calculations following Office of Management and Budget and 

Congressional Budget Office guidelines) that $400 million in appropriated budget authority could 

cover $4 billion or more in WIFIA credit assistance. In making each loan, WIFIA would have to 

set-aside a corresponding amount of its appropriated budget authority to cover the default risk 

for that loan. Upon approving a $100 million loan, WIFIA would disburse $100 million in federal 

Treasury funds for the project and set aside $10 million to cover the risk of default on the 

project. 

In accordance with the repayment schedule, the project sponsor would repay the WIFIA loan in 

full and with interest. All funds borrowed from the Treasury would be returned to the Treasury, 

with interest. As for the amount appropriated, the subsidy appropriation would have been based 

on the assumption that, over the entire portfolio of WIFIA loans, 90% of the funds would be 

repaid in full. If the repayment rate is ultimately greater across the loan portfolio, and the funds 

set aside were therefore not needed to cover defaults, a corresponding portion of the subsidy 

appropriation would also be returned to the Treasury. In some existing federal credit programs, 

the repayment of loans with interest and fees results in a net profit for the government. In this 

way, it is possible that WIFIA would have zero long-term cost to the government, or even return 

to the Treasury more than was appropriated and borrowed. 

While imposing minimal cost on the federal government, using WIFIA would offer significant 

savings to the utility. In this example the utility and its rate paying customers - save over $1 

million dollars annually in debt service, and almost $33 million over the life of the loan, 

compared to the municipal bond markets. Of course, the level of savings to be anticipated will 

change if the bond market changes. If the spread between municipal bonds and Treasury rates 

increases or decreases, this level of savings would also increase or decrease. The figure below 

demonstrates that lower-cost capital from WIFIA would be equivalent to an outright grant of 

about 16%, given market conditions in May 2011. Unlike a grant, however, the loan will be 

repaid. 

Annual Debt Service on $100 Million Loan 

30 Year Municipal Bond@ 5.4% 

30 Year WIFIA Loan @ 4.04% 

Annual Savings 

30 year savings 

Debt Service Savings 

$6,906,800 

$ 5,811,129 

$ 1,095,671 

$32,870,130 

15.9% 
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26626.462

Example: State Revolving Fund. Assume a State Finance Authority administers both the 

Drinking Water and Clean Water SRF programs in its state. Assume as well that numerous 

projects in the state have received SRF loans over the years, and several larger projects in the 

state have received WIFIA loans, but the state has more applications than it can approve in the 

current year, given available funds. 

The state could decide to enlarge its capital base by either 1) borrowing money from WIFIA or 

2) selling SRF bonds. Assume that in discussion with rating agencies, the state has learned 

that its SRF bonds will be rated A. Based on market conditions in May 2011, an A-rated 30-

year issue would carry an interest rate of approximately 5.4 % plus a 1.5% underwriting fee on 

loan principal amortized over the life of the loan. As in the example above, a 30-year WIFIA 

loan would carry an interest rate of 4.04% (including the small mark-up to cover the WIFIA's 

administrative costs). 

Instead of issuing bonds, the state might decide to seek WIFIA financing, and apply for a $30 

million WIFIA loan to enlarge its capital base. If the application is approved, these funds could 

be used alone or in combination with state funds, SRF funds, and other sources of capital to 

support projects that achieve compliance with current regulatory requirements, replace aged 

infrastructure, eliminate sanitary sewer overflows, improve reliability of service, and install new 

technology to achieve greater operational efficiencies. 

Once the loan is approved, WIFIA would borrow $30 million from the Treasury and provide 

those funds to the state SRF. When it received the funding, the SRF could use the funds alone 

or in combination with other capital, in accordance with its normal process. Each community 

that received a loan from the SRF would have to repay the state to the same extent it normally 

would under the SRF program. The state would use the flow of loan repayments or other 

revenues to repay its obligation to WI FlA. 

As can be seen below, using WIFIA would save the state- and its taxpayers- over $300,000 

annually and almost $10 million over the life of the loan, compared to a state bond offering. As 

in the example above, this level of savings is equivalent to an outright grant of about 16%. Of 

course, these numbers will change with changing conditions in the bond market. If the spread 

between municipal bonds and Treasury rates increases or decreases, the savings will be more 

or less dramatic. Savings the state realizes by borrowing from WIFIA could be used to support 

additional SRF loans, reduce interest rates to SRF borrowers, or reduce the overall level of 

state spending. 

Annual Debt Service on a $30 Million loan 

30 Year State Bond @ 5.4% 

30 Year WIFIA loan @ 4.04% 

Annual Savings 

30 year savings 

Debt Service Savings 

$2,072,040 

$1,743,339 

$328,701 

$9,861,030 

15.9% 
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26626.463

Conclusion. Enacting a Water Infrastructure Finance and Innovation Act (WIFIA) modeled 

after the successful transportation program known as TIFIA offers a modern, effective way to 

help increase this nation's level of investment in water and waste water infrastructure, at the 

lowest possible cost to the federal government. WIFIA would access Treasury funds at long 

term Treasury rates and in turn offer assistance in the form of low interest loans, loan 

guarantees, and other credit support to larger water and waste water projects and to State 

Revolving Funds that wish to leverage their capital. Such loans would be repaid with interest. 

The benefits of such low-cost financing to large water projects -which often lack access to 

State Revolving Funds- would be significant. As noted above, the long term cost to the 

Federal Treasury is minimal, and could even be positive, given the extremely low historic default 

rate on water projects. 
503 


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How WIFIA Works 

US Treasury 

water State RevoMng 

Prv,:,Ject:s Loan ~nds 
504 


26626.465

___Money Matter.,_ ________ _ 

14 JUNE 2011 ) JOURNAl AWWA 

GREGORY M. BAIRD 

Silver Bullet 

Aging Water 

istribution Systems? n folklore, a silver bullet is reportedly the only kind that provides an 

effective defense against terrible monsters. For the Lone Ranger, sil~ 

ver bullets symbolized justice-law and order. Today, a "'silver bullet" refers to any straightforward solution perceived to have extreme 

effectiveness. The phrase is typically used to infer that some new technologic 

development or practice will easily cure a major prevailing problem. If the evil 

monster or major problem is corrosion or pipe-replacement costs, then 

indeed, polyvinyl chloride (PVC) pipe would be the silver bullet to meet the 

challenges and costs associated with the aging water infrastructure crisis for 

water and wastewater systems. 

UNDERSTANDING THE TARGET 

In response to popularion growth, the United States installed underground 

water infrastructure during three main periods: the 1800s, 1900---45, and 

post-1945. Pipes constructed in each of these three eras will all start to fail at 

nearly the same time over the next couple of decades for reasons ranging 

from age and corrosion to inadequate design and poor installarion. Additionally, the useful life of the materials has become shorter with each new investment cycle (WIN, 2002). 

According to the AWWA report Dmvn of the Replacement Era (2001), 

the oldest cast-iron pipes-dating to the late 1800s-have an average useful life of about 120 years. As a group, these pipes will last anywhere from 

90 to 150 years, but on average they need to be replaced after they have 

been in the ground about 120 years. Because manufacturing techniques and 

materials changed, the 1920s vintage cast-iron pipes have an average life of 

about 100 years. Manufacturing techniques and materials continued to 

evolve, resulting in the pipes laid down post-World War II having an aver2011 ©American Water Works Association 
505 


26626.466

age useful life of 75 years. Using these average life 

estimates and counting the years since the original 

installations shows that water utilities will face significant needs for pipe replacement over the next few 

decades. Replacement of pipes installed from the late 

1800s to the 1950s is upon us, and replacement of 

pipes installed in the latter half of the twentieth century will dominate the remainder of the next one. 

Utilities arc faced with reviewing new methodologies 

and materials to select the best-fit, right-cost solution to 

age-old problems. Doing things the same old way and 

expecting different results does not meet the standards 

of an effectively managed utility. 

Corrosion costs. The majority of pipes needing 

replacement are failing primarily because of their age 

and the excessive corrosion that has weakened pipes 

both externally and internally. Tuberculation is a form 

of internal corrosion and biofilm contamination that 

develops in iron pipes and restricts water flow. This 

restricted water flow can lead to additional problems. 

Internal corrosion can also be a breeding ground for 

bacteria. Photographs of old water mains with built-up 

internal corrosion faster feelings of distrust when the 

public realizes the utility has been providing them with 

drinking water from the pipe for the past 50 years. 

Unlike iron pipe, PVC is not affected by tuberculation. 

Its smooth, noncorrosive, and bacteria-resistant surface 

stays clean for decades. 

PVC REPORTED TO LEVEL THE CORROSION 

PLAYING FIELD 

In many ways ductile iron behaves the same as gray 

cast iron. Some research has concluded that the corrosion behavior and corrosion resistance of ductile and 

gray cast irons would not he significantly different 

(Angel fire, 2011 ). Other studies have indicated that ductile iron might corrode faster than gray cast iron 

(Angelfire, 2011). Soils with lower resistivity are likely to 

cause more rapid pitting to ductile iron at rates that 

increase as the resistivity decreases, according to data 

compiled from various surveys and studies conducted in 

the United States, Canada, and Europe (Angelfire, 2011). 

The high cost of mitigating pipe corrosion and distribution water quality issues is starting to be better 

understood. The useful life of pipe varies considerably, 

depending on such factors as soil conditions, materials 

used, and character of the water flowing through it. 

Corrosion of various metals and concrete is a common 

problem in some soils. Corrosion affects materials 

both on the surface and within the soil to various 

degrees. Streets, highways, sidewalks, houses, and 

pipelines for gas, sewage, and water are a few examples of the structures and facilities that are exposed to 

corrosion. Selecting the wrong pipe material or failing 

to protect pipe can greatly shorten the lifespan of 

sewer and water lines. Corrosion affects both main 

lines buried under streets and service lines that connect 

to homes and businesses. Line maintenance may be 

continuous and costly where the materials are not 

suited to the soil. The risk of corrosion is rated in soil 

survey reports as low, moderate, or high. Soils are 

rated for corrosivity in a natural condition or the condition evident during a soil survey. Local soil conditions, such as excess moisture and alterations of the 

landscape, can accelerate corrosion. Additionally, fertilizer and industrial wastes can alter soil conditions 

and increase their corrosivity (USDA, 2004). 

In a sense, corrosion can be viewed as the spontaneous 

return of metals to their ores. The economic aspects of 

corrosion are far greater than most people realize. 

According to a 2001 report (Koch et al), the cost of corrosion in the United States alone was $276 billion per 

year. Of this, about $121 billion was spent to control 

corrosion, leaving the difference of $155 billion as the 

net loss to the economy. Utilities-particularly drinking 

water and sewer systems-suffer the largest economic 

impact, with transportation being a close second (Lower, 

2009). A real-time estimate is displayed on the corrosion 

cost clock at www.watermainbreakclock.com. 

The firing range. The main hot spots for these failures 

and resulting pipe replacement are in the industrialized 

population growth centers that were established after 

World War II. In 2001, the Water Infrastructure Network {WIN)-a consortium of industry, municipal, and 

nonprofit associations--estimated that as much as $1 

trillion over a 20-year period would be needed to sustain 

water and wastewater systems in the United States when 

both capital investment needs and the cost of financing 

were considered (Baird, 2010a). The US Environmental 

Protection Agency (USEPA) estimated $334.8 billion (in 

FIGURE 1 Total 20-year need by project type (in billions 

of dollars)• 

Percentage not equal to 100 because of rounding 

*Calculated according to 2007 dollars 

2011 ©American Water Works Association JOURNAL AWWA j JUNE 2011 15 
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26626.467

16 JUNE 2011 : JOURNAL AWWA 

2007 dollars) would he needed to maintain just drinking 

water systems over the next 20 years (USEPA, 2009). 

Pipe replacement costs. The majority (60%) of the 

replacement costs arc for water transmission and disrribution pipes. In 2007, this number was estimated at $200.8 

billion (Figure 1 ). Given that the economic downturn has 

resulted in deferred maintenance and delayed capital projects, this number is expected to increase to more than 

$250 billion. If the amount was mostly financed through 

long-term 30-year debt to achieve intergcnerational equity 

among ratepayers, the figure would increase to $500 billion over the next 20 years. Ultimately, however, the ratepaying public will have to finance the replacemcnr of US 

water infrastructure either through higher rates or taxes. 

Local funds are expected to cover the cost of the great 

majority of the nation's water infrastructure needs in the 

United States (AWWA, 2001 ). 

"The staggering cost of maintaining, operating, rehabilitating, and replacing our aging water infrastructure 

requires a new partnership between federal, state, and 

local government," said Dennis Archer, mayor of Detroit, 

Mich., and president of the National League of Cities 

(US EPA, 20lla). Efforts to engage multiple stakeholders 

in order to lower the cost of borrowing will conrinue to 

gain local political support, hut efforts will face heavy 

competition for funding priorities in Washington, D.C. 

Utilities that have effectively managed their pipe replacement programs and have addressed their corrosion issues 

do not want to subsidize those that have not. 

Utilities are constantly caught between needing to 

finance the high replacement costs of underground infrastructure and the political pushback resulting from rate 

itKrcascs and affordabilicy issues. The upshot is many 

managers are turning ro long-term capital project and 

infrastructure financial planning to demonstrate the cost 

savings of PVC over ferrous materials such as ductile 

iron and steel, while also addressing corrosion issues and 

matching long-rerm performance. Additionally, the completion of long-term infrastructure financial and asset 

management plans will he critical to attracting and 

retaining current and future bondholders and investors. 

To understand the nature and scope of the emerging 

infrastructure challenge, AWWA undertook an anal~·sis 

of 20 US utilities. The analysis projects future investment needs for pipe replacement in these 20 utilities 

(Figure 2) and provides a forecast called a "Nessie 

curve." The Nessie curve is a graph of the annual 

replacement needs for a particular utility, based on 

when pipes were installed and how long they are 

expected to last in that utility before it becomes economically efficient to replace them (AWWA, 2001 ). 

Required ram pups in water system replacement costs 

will continue. Long-term, low-cost options need to be 

openly accepted hy all municipalities and utilities. 

PVC, and even ne\v improvements to PVC, will be 

required to meet the growing challenge. 

2011 ©American Water Works Association 
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26626.468

AIMING FOR AFFOROABIUTY 

The USEPA continues to send forth important new 

strategic public policies on twenty-first-century water 

challenges such as "Coming Together for Clean Water: 

EPA's Strategy for Achieving Clean Water" and "EPA's 

Clean Water and Drinking Water Infrastructure Sustainability Policy." These approaches promote sustainability 

and cost-effective planning but remain silent on any clarification ahout affordability except that the public needs 

to understand the value of water. The USEPA's writing 

on the wall about what the value of water and full-cost 

pricing mean seems to point w a 5% allocation of average household income w water and wastewater services 

(Baird, 2010b). For many citizens, this represents a 200-

400% rate increase when 20% of lowerwincome families 

may already be paying more than 4% of their household 

income for water. As part of the solution, lowwcost, susw 

tainable, environmentally friendly PVC pipe should be 

considered in every open-cut pipe project for replacement needs or system expansion requirements. 

The main question for policy-makers and utility managers is whether the increasing rate of infrastructure 

spending that utilities are facing over the next 20 years 

can be financed hy the milities themselves at rates customers can afford (AWWA, 2001). Accordingly, engineers must consider costs and funding in every planning 

and design decision. As with Rome, the infrastructure 

wasn't built in a day. Our water and wastewater infrastructure was built over generations and can be rehuilt at 

an affordable pace if we make smart decisions now 

(AWWA, 2006). 

Developer fees affordability. Even for growth-related 

pipe projects and water distribution system expansions, 

the development communi[)' is concerned with the initial cost of the pipe. Developers in many areas are subject to development fees or connection/tap fees to help 

FIGURE 2 Projected expenditures for water main 

replacement caused by failure for 20 utilities 

Year 

offset the cost of growth to a municipality or utility 

(AWWA, 2000). As a result, developers are strongly 

voicing their concerns over legitimate procurement and 

bidding practices that include PVC pipe as a low-cost, 

long-term, durable and sustainable option. 

Utility managers no longer enjoy the benefits of being 

the silent utility and selecting design practices and 

rna terials from the past. In general, design practices in 

the United States are not drastically different from 

those used 30 years ago. However, research conducted 

in Europe and Japan suggests the broad goal of sustainability is not being achieved by current design practices 

in the United States (USEPA, 2011b). 

Ratepayer atfordability. As with metal pipes, improvew 

ments in PVC pipe manufacturing and design standards 

have helped improve durability and performance. These 

factors and cost comparisons have helped reduce the 

overall financial burden and historical infrastructure lia~ 

bility for ratepayers. In the March 2011 issue of U.S. 

Mayor,Jennifer Hosterman, Pleasanton, Calif., mayor 

and co~chair of the US Conference of Mayors Water 

Council, explained that PVC pipe is about 70% cheaper 

to use and less labor~intensive to install than is ductile 

iron pipe. Hosterman stated, "Giving taxpayers the best 

bang for the buck should be the chief goal for mayors 

and local elected officials across the country," and went 

on to explain that Pleasanton's approach rests on a dedi~ 

cation to improving customer senrice, managing tax dollars wisely, and adopting open procurement policies that 

welcome alternate and better-performing materials like 

PVC pipe (U.S. Mayor, 2011). 

J\t1any municipalities and utilities have adopted these 

polices and in return have saved tens of millions of dollars in capital costs while reducing operational and 

maintenance costs. Some utilities have chosen to keep 

rates at a minimum on the basis of these cost savings, 

while others have reinvested in advanced metering infrastructure to further transform their organization as a 

twenty-first-century utility. The materials' cost comparisons have also helped increase the public's perception of 

the utilities' due diligence and in return have helped justify the requirement for future rate increases. Conversely, 

utilities that fail to adopt open procurement practices to 

include the financial analysis of PVC materials versus 

historic pipe purchases are open to harsh criticism by 

both ratepayers and potential bondholders. 

UNDERSTANDING THE WEAPONS IN COMBATING 

AGING INFRASTRUCTURE 

The water industry is moving toward asset management practices. The benefits of this shift are helping utility managers make better decisions regarding condition 

assessment, life-cycle assessment, and life-cycle costing; 

leak-monitoring and investigation; prioritization of rehabilitation; and the selection, design, and timing of replacing aging assets. 

2011 ©American Water Works Association 18 JUNE 1011 i JOURNAL AWWA 
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26626.469

Life~cycle costing. To assist utilities, asset management 

firms are regularly applying low-cost PVC sliplining as 

an intermediate renewal solution and extending the pipeline life by a minimum 40 years. PVC, with 75 to 95 

years of minimum expected life and low maintenance, is 

then typically selected to achieve overall lower life-cycle 

cost projections. Both US and European sources consider 

PVC to have a durable life expectancy of more than 110 

years. With a common-sense and affordable approach, 

powerful, secure, and reliable networks of pipes, equipment, and treatments that will provide clean and safe 

water far into the future can be developed. 

Various other life-cycle cost comparisons and assessments have also found PVC to be a prudent choice. The 

discussion of life-cycle costs should not be confused 

with academic studies known as "life-cycle analyses" 

(LCAs). A life-cycle cost comparison looks at the costs 

to the user of a product from purchase through disposal. LCA, on the other hand, attempts to account for 

all the environmental effects of a given product-from 

production through use and disposal. Depending on the 

data categories that are included, LCAs may provide 

useful environmental information, but they are not a 

substitute for a life-cycle cost comparison. Life-cycle 

costs do not directly depend on the environmental 

impacts included in an LCA; rather, life-cycle costs 

reflect durability and ease of maintenance as well as 

initial costs (Ackerman & Massey, 2003). 

Life-cycle assessment. One life-cycle assessment study 

conducted in the Netherlands and comparing PVC and 

cast-iron pipes using the ceo-indicator 99 impact 

assessment method demonstrated that PVC performs 

significantly better from an ecologic point of view 

(Ministry of Housing, Spatial Planning and the Environment, 2000). If pipes are assessed according to the 

Swiss method of ecologic scarcity (Frischknecht et al, 

2006), the findings are essentially the same except for 

disposal. As a result, recommendations are that both 

iron pipe and plastic pipes should be collected and 

recycled separately, if possible. The European Plastic 

Pipes and Fittings Association (www.teppfa.org/pdf/ 

HSELCAWindspergerStudy.pdf) offers an appropriate 

collection system methodology. Recycling is the final 

conclusion for low environmental impact. 

Carbon footprinttesting. Recio and colleagues (2005) 

conducted an energy consumption study in which the 

same mean lifetime (50 years) was assumed, a similar 

protocol of inspections was followed, and the energy 

consumption associated with operation and maintenance was the same regardless of the pipe. The study 

showed that in the case of pipes for drinking water, 

PVC pipe required the least amount of energy and generated the smallest amount of C02 emissions, whereas 

recycled ductile-iron pipe had the poorest results 

according to the same measures. Even if recycled material is used in manufacturing the ductile-iron pipe, the 

energy consumption is still 26% higher than for the 

PVC pipe. The most unfavorable case corresponds to 

ductile-iron pipes without recycled material, in which 

the energy consumption is in the range of 56% higher 

than PVC (Recio eta!, 2005). 

Monitoring PVC pipes through leak detection. The 

National Research Council Canada conducted studies 

that involved extensive field tests carried out under 

controlled conditions at a specially constructed experimental leak detection facility in Ottawa, Can. Commonly used acoustic leak detection equipment was 

evaluated by inviting several experienced leak detection 

teams from utilities and service companies in Canada 

and the United States to participate in "blind" leak 

detection tests. Equipment used by the teams included 

listening devices and leak noise corrclators. Commercial leak noise correlators were generally found to be 

capable of locating any possible gasketed joint leak in 

plastic water distribution pipes (NRCC, 2011 ). 

SELECTING THE BEST AMMUNITION 

The water industry faces a number of distribution 

system deterioration problems, including water quality 

problems related to tuberculation and internal pipe corrosion, low-pressure and high-head-loss problems, system leakage, and main breaks. A properly selected pipe 

material should help address these common issues. 

PVC is strong, lightweight, durable, and resistant to 

chemicals; it does not corrode. The interior of PVC 

pipe is also smooth, and because it does not corrode, 

there is no tuberculation by corrosion by-products. 

Also, PVC does not serve as a nutrient, which makes it 

resistant to biological degradation from bacteria and 

other microorganisms. PVC provides the lowest biofilm 

formation potential of all the other common water pipe 

materials being used. The most common joining is the 

gasketed bell-and-spigot joint, but thermal fusion or 

butt-weld joints are also used for directionally drilled, 

trenchless installations for pipeline rehabilitation and 

relining (Opf/ow, 2005). 

PROPER LOADING ANO INSTALLATION 

Proper installation is vitally important in every pipe 

project. "Manufacturers of large-diameter PVC pipe 

place a mark on the spigot of the pipe to indicate the 

proper insertion depth into the adjoining bell during 

installation. If proper installation procedures are followed, inserting the spigot into the bell does not create 

significant stresses in the pipe," stated Steve Folkman, 

associate professor of mechanical and aerospace engineering at Utah State University in Logan (Folkman, 

2011). It is critical that utilities make certain their 

installation crews are well trained and even have an 

inspector to ensure complete compliance as a best practice while still achieving a high degree of cost savings. 

Manufacturers also provide procedures for proper 

2011 ©American Water Works Association 20 JUNE 2011 I JOURNAL AWWA 
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26626.470

assembly of pipe joints. The Handbook of PVC Pipe 

(PVC Pipe Association, 2011) offers guidance for the 

assembly of PVC pipe. 

THE BULLSEYE: SUSTAIN ABILITY THArs AFFORDABLE 

The USEPA:s Aging Water Infrastructure (AWl) 

research program {www.epa.gov/awi/accomplishments. 

html)-using research, information, meaningful metrics, methods, and technologies for strategic asset management-will be developed to support the goal of 

ensuring that our nation's water infrastructure is sustainable. PVC delivers on many of the AWl Research 

Program's focuses, including: 

• reduced life-cycle costs for water infrastructure 

management, 

• extended service life of existing infrastructure, 

• reduced high-risk water main breaks, 

• improved condition assessment and decision-making capabilities, 

• reduced potable water leakage and intrusion 

potential, 

• increased use of performance and cost data for 

decision support and the adoption of asset management, and 

• increased adoption of innovative technologies. 

Benefit from the experience ofthe undisputed 1eaderin 

ozone water treatment. 

Degremont Technologies-Ozonia has a prouen 

and trusted solution for your municipal or 

industrial disinfection application. 

Contact us today I 

PVC is considered in the top 20 engineering advancements according to a 1999 issue of Engineering News 

Record. The Australian Green Building Council, 

administrator of the PVC credit as parr of that country's GreenStar Program, understands the importance 

of low-cost, sustainable materials, stating: "PVC cannot be ruled out as a material for use in the built environment" (PVC Forum, 2010). 

TAKING AIM ATTHE TARGET 

The water industry must continue to apply condition 

assessment and asset management techniques to infrastructure repair/replacement programs, and to incorporate affordable solutions into new prioritized capital 

plans to reach an acceptable level of sustainabiliry. 

Many utilities have selected PVC as a means to accomplish these achievable goals, as demonstrated by the 

existence of more than 1 million miles (260 million 

bell-and-spigot connections) of PVC water pipe 

throughout North America. 

In other places around the world, PVC piping is recognized as a beneficial product that is a bacteria-resistant material. PVC helps maintain the quality of water 

when it flows from local borehole wells to various 

communities in rural Africa. The bacteria-resistant 

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2011 ©American Water Works Association JOURNAL AWWA j JUNE 2011 21 
510 


26626.471

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higher revenues 

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customers and incremental revenue to your bottom 

line- aU with no financial or operational risk to you. 

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1-888-777-1175 

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HomeServeUSA.com 

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PVC piping is essential to ensuring that residents continue to receive safe and dean water (Duffy, 2007). 

According to Bryan Karney, professor of civil engineering at the University of Toronto, a national program to replace older pipes with hydraulically efficient 

plastic pipes could achieve greenhouse gas emission 

reductions amounting to 5% of Canada's obligations 

under the Kyoto Protocol. PVC was chosen because it 

is corrosion-proof and leak-resistant; the ultrasmooth 

surface means that less energy is required to pump 

water from source to tap (Hollands, 2008). 

PVC pipe has gained significant popularity worldwide, not only because of its competitive price, but also 

because of its longevity. A study presented in Milan, 

Italy, at a worldwide pipe symposium reported that 

vinyl pipe installed 70 years ago in Germany could easily function for another 100 years. Longer-lasting and 

lower-maintenance infrastructure assets such as PVC 

save taxpayer dollars by making water systems more 

efficient. In Canada, Calgary and Edmonton are saving 

an estimated $5 million a year in avoided water mainrepair costs because of their extensive use of PVC pipe 

(Hollands, 2011). 

WHERE IS THE SMOKING GUN? 

PVC pipes do not contain lead or cadmium and are 

governed by strict standards and extensive quality control 

checks, including hydrostatic proof tests performed on 

each pipe. Green consumerism has jumped the gun on 

applying plastics concerns to long-term sustainable and 

affordable underground PVC piping solutions_ Modem 

PVC pipes used in water systems should not be characterized as plastic bags. Opponents fail to mention that there 

is an "unacceptable" category for underground long-life 

PVC pipes (PVC, 2011). PVC is recognized by many as a 

silver bullet to meet the challenges and costs associated 

with the aging water infrastructure crisis for water and 

wastewater systems. PVC is a versatile material and is 

indeed a game changer for a nation dealing with corrosion issues while looking for financially sustainable infrastructure to meet both replacement and expansion needs. 

-Gregory M. Baird (greg.m.baird@ 

agingwaterinfrastructure.org) is managing director 

and chief financial officer (CFO) of AWl Consulting. 

He served as the CFO of Colorado's third-largest 

utility with financial oversight on the Prairie Waters 

Project and as a California municipal finance officer. 

Baird is a graduate of Brigham Young University's 

Marriott School of Management with a master's degree 

in Public Administration. An active member 

of AWWA, Baird also serves on the Economic 

Development and Capital Planning Committee with the 

Government Finance Officers Association for the United 

States and Canada. 

2011 ©American Water Works Association 22 JUNE 2011 j JOURNAL AWWA 
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26626.472

REFERENCES 

Ackerman, E & Massey, R., 2003. The Economics of Phasing Out PVC. 

Global Development and Environment Institute. Tufts University, 

Somerville, Mass. http://ase.tufts.edu/gdae /po!icy_research/ 

hea!thEnvironment.html publications (accessed Apr. 29, 2011). 

Angelflre, 2011. External Corrosion and Protection of Ductile Iron Pipe. 

www.angelfire.com/pop/myfile/EXTD!Phtml.htm (accessed Apr. 

30,2011). 

AWWA, 2006. Water Infrastructure at a Turning Point The Road to Sus· 

tainab!e Asset Management AWWA WITAF Report. Denver. 

AWWA, 2001. Dawn of the Replacement Era: Reinvesting in Drinking 

Water Infrastructure. AWWA, Denver. 

AWWA, 2000 (5th ed.). Manual Ml. Principles atWater Rates, Fees, and 

Charges. AWWA, Denver. 

Baird, G.M., 2010a. A Game Plan for Aging Water Infrastructure. Jour: 

AWVVA, 102:4:74. 

Baird, G.M., 2010b. Water Affordabi!ity: Who is Going to Pick Up the 

Check? Jour. AWWA, 102:12:16. 

Duffy, A., 2007. New Pipes Mean Renewed Ufe for Thousands in West 

Africa. World Vision. Seattle. www.worldchlorine.org/pubHcations/ 

news{VVV~press042007.htm! (accessed Apr. 27, 2011). 

Folkman, S., 201 L Personal communication. 

Force, J., 2010. Doubling Up. Municipal Water & Sewer. www.mswmag. 

com/edltorial/2010/11/doub!ing-up(accessed May17,2011). 

Frischknecht, R.; Steiner, A.; & Jungbluth, N., 2006. The Ecological Scarcity Method: Eco-Factors 2006. Federal Offices for the Environment, Bern, Switzerland. WWIV.bafu.admin.ch/pub!ikationen/ 

pub!ikation/01031/index.html?!ang=en {accessed May 11, 2011). 

Hollands, B., 2008. Reducing Waste and Inefficiency in Water 

Distribution. Canadian Taxpayers Federation. 

www.undergroundsolutions.com/articles/ 

Municipai_TheTaxpayer.pdf(accessed May 1, 2011). 

Hosterman, J., 2011. Pleasanton's Underground Infrastructure: Sustainability, Cost-Efficiency Through Better Materials Procurement 

Practices. WWIV.usmayors.org(usmayornewspaper/ 

documents/03_28_11/032811 US Mayor. pdf (accessed 

Apr.15,1011). 

Koch, G.H.; Brongars, M.P.H.; Thompson, N.G.; Virmsni, P.Y.; & Payer, 

J.H., 2001. Corrosion Costs and Preventative Strategies in the 

United States. FHWA-RD-01-156. US Federal Highway Administration, Mclean, Va. http://events.nace.org/publicaffairs/ 

images_cocorr/ccsupp.pdf (accessed May 10, 2011 ). 

Lower, S., 2009. Electrochemical Corrosion. Cheml Virtual Textbook. 

Simon Fraser Universrty. www.cheml.com/acad/webtext/elchem/ 

ec7.html(accessedMay1,2011). 

Ministrv of Housing, Spatial Planning and the Environment, 2000. Eco~ 

indicator 99 Manual for Designers. www.pre.n!/download/ 

manuals/EI99_Manua!.pdf (accessed May 11, 2011). 

NACC (National Research Council Canada}, 2011. National Research 

Council Canada. Leak Detection Methods for Plastic Water Distribution Pipes. www.nrc-cnrc.gc.ca (accessed April28, 2011) 

PVC Awareness. 2011. PVC-The Misinformation. www.pvcawareness. 

com/PVCTheMisinformation.htm (accessed May 2, 2011). 

PVC Forum, 2010. New Green Star PVC Credit Issued in Australla. 

www.seepvcforum.com/en/article_groups/Varticles/99 

(accessed Apr. 27, 2011). 

PVC Pipe Association, 2011 The Handbook of PVC Pipe. Uni-Be!l PVC 

Pipe Association, Dallas, Texas. www.uni-bell.org/ 

resources.php?c=9(accessed Apr. 30, 2011). 

Recio, J.M.B.; Guerrero, P.J.; Ageitos, M.G.; & Narvaez, A.P., 2005. Estimate of Energy Consumption and C02 Emissions Associated With 

the Production, Use and Final Disposal of PVC, HOPE, PP, Ductile 

Iron, and Concrete Pipes. Universitat Po!itecnica de Catalunya. 

Barcelona, Spain. www.solvaymartorell.com/static/wma/ 

pdf/B/ln/5/Pipesfinalreport.pdf (accessed May 2, 2011). 

USDA jUS Department of Agriculture), 2004. Natural Resources Conservation Service, National Soil Survey Center. Understanding Soil 

Risks and Hazards. Lincoln, Nebraska. 

US EPA (US Environmental Protection Agency), 2011a. Aging Water 

Infrastructure (AWl) Research. Collaboration. WWIV.epa.gov/awil 

collaboration.htm!(accessedApr.26,2011) 

US EPA, 20llb. Aging Water Infrastructure (AWl) Research. Sustainab!!-

ity. www.epa.gov/awi/sustainability.html (accessed Apr. 26, 2011} 

US EPA, 2010. EPA's Clean Water and Drinking Water Infrastructure 

Sustainabihty Policy. water.epa.gov/aboutow(upload! 

Sustainabi!ity-Policy.pdf (accessed Oct 6, 2010). 

USEPA, 2009. Drinking Water Infrastructure Needs Survey and Assessment Fact Sheet. http://water.epa.gov/infrastructure/ 

drinkingwatar/dwns/factsheet.cfm (accessed Apr. 26, 2010). 

US EPA, 2002. The Clean Water end Drinking Water Infrastructure Gap 

Analysis. EPA 816-R-02-020. Office of Water, Washington. 

www.epa.gov/ogwdw/gapreport.pdf (accessed Apr. 26, 2011). 

WIN (Water Infrastructure Network), 2000. Clean and Safe Water for 

the 21st Centurv. www.win-water.org/reports/ 

winreport2000.pdf (accessed Apr. 26, 2011). 

2011 ©American Water Works Association JOURNAL AWWA I JUNE 2011 23 
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26626.473

CLEAN WATER CONSTRUCTION COALITION 

Combining Resources To Prmuote Federal Legislation That Improves 

Water and Wastewater Infrastructure Nationally 

AGCofTexas. 

Assoeiated Pennsyl~ania Constructors 

Ass.ociatod Utility Contracton; 

Of Maryland* 

Connecticut Construction !ndustri!;!sA(>sOC:iation 

C!C of Westchester County 

& Hudson Valley* 

Engineering Contractors Assoelation 

Engineering & Gooeral 

Contra:ctoro Association 

Engineering & Utility 

Contractors .1\.ssociation ~ 

Genara! Contractors Assodatlon Of New York 

Indiana Col'!struct!on Association 

Lake County 

Contractors Association 

Long Island 

ContractornAssociation 

Maryland Highway 

Contt<actors AssQCiation 

Michi_Qan lnfrastn.Jcture& 

Transportation Association 

Minnosota utility 

Contrac:ton; AS$ociation• 

National Rural Water Association 

Ohio ContractorsAssociatlor~ 

PubHcWorks Contractors 

Assodation of Maryland 

Southam California 

Contractor$ A.uoclatlon 

Tenness$$Road 

Bui!d&rs Association 

UCA of South Florida 

Underground Contr;~ctors 

Association of/Hinois• 

UCA of Anne Arundel County 

Utility Contractors Association 

of New England~ 

Utility & Transportation Conttactor'li 

AssociatlonofNewJerscy* 

Contl'actors Association 

OfWeatVirginia 

Wisconsin Underground 

Contr11Ctcl-rs Association 

'Steenng Committee Member 

P.O. Box 728 • Allenwood, NJ 08720 

Phone: (732) 292·4300 • Fax: (732) 292-4310 

December 12, 2011 

Chairnmn 

Subcommittee on \Vater and Wildlife 

Cmnmittee on Environment and Public Works 

U.S. Senate 

Washington, D.C. 20515 

Dear Mr. Chairman: 

ROBERT A. SRIANT 

Chairman 

On behalf of the Clean Water Construction Coalition, 1 am writing to 

respectfully request that the enclosed statement be made part of the official 

record of the December 13 hearing held by the Subcommittee on Water and 

Wildlife entitled "Our Nation's Water Infrastructure: Challenges and 

Opportunities." 

As always, the Coalition supports your leadership and efforts in securing 

enactment of the Clean Water and Safe Drinking Water authorization 

legislation. Thank you again for this opportunity and we look forward to 

continue working with you. 

Sincerely yours, 

Ru.5e;ot If. &riJJrt 

Robert A. Briant 

Chairman 
513 


26626.474

Foundt!d 1889 

of Journeymen and Apprentices of the 

Plumbing and Pipe Fitting Industry of the United States and Canada 

Three Park Place • Annnpolis, Maryland 2140 I 

(410) 269·2000 • Fax (410) 267-0262 • http:/.Avww.U;I.org 

General Office File Reference: WPH 

December 13, 2011 

The Honorable Benjamin Cardin, Chairman 

The Honorable Jeff Sessions, Ranking Member 

Subcommittee on Water and Wildlife 

Senate Committee on Environment & Public Works 

41 0 Dirksen Senate Office Building 

Washington, DC 2051 0 

Re: Challenges and Opportunities in U.S, Water Infrastructure 

Dear Senators Cardin and Sessions: 

William Hn~.· 

Gl.'Utm!Prr!>idcllt 

R. 

Gtnt!rtd Srcrctm:r· TnYmwa 

On beha~ of the more than 340,000 members of the United Association of Journeymen 

and Apprentices of the Plumbing and Pipe Fitting Industry of the Unned States and Canada 

("Unned Association"), I am writing to express our strong support for Increased investments in 

America's crumbling water infrastructure and to thank you for convening a hearing to discuss 

this crnically important topic. 

The Unned Association is the leading trade union representing workers in the plumbing 

and pipe fitting industry in the United States and Canada. The Unned Association as an 

organization invests roughly $200 million per year in training centers across the country in order 

to produce the best-trained and most highly-skilled workers our industry has to offer. For this 

reason, we are not only knowledgeable about what it takes to build and maintain water 

infrastructure that is environmentally-safe and protective of public heaRh and safety, but also 

well-equipped to do the massive work that will be needed to bring our country's water 

infrastructure into the twenty-first century. 

America's water infrastructure is facing a funding crisis that will, absent action by the 

U.S. Congress, impose substantial risks on public heaRh and safety and the quality of our 

environment Correcting this problem will require large and sustained investments but such 

investments would do more per dollar to create American jobs than perhaps any other 

government jobs program. 

Critical Need for Water Infrastructure 

OVer a decade ago, on June 6, 2000, David Wh~man of U.S, News and World Reporl 

published an article which highlighted a nationwide water infrastructure crisis already underway. 

Citing numerous disturbing examples, Mr. WMman reported that "Aging sewer systems are now 

faRering around the nation, endangering the health of hundreds of thousands of Americans and 
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creating hefty repair bills for municipalities and consumers. "

1 The Assistant Administrator of the 

Office of Water for the U.S. Environmental Protection Agency ("EPA"), G. Tracy Mehan, Ill, 

characterized the EPA's most recent Clean Water and Drinking Water Gap Analysis as a "more 

clinical report' of the trend documented in Whitman's U.S. News article.2 A recent white paper 

on this issue explains how neglect of our water systems imposes serious harm to public health 

and safety: 

Our decaying water infrastructure pollutes our waters, sickens our children, and wastes 

natural resources. The U.S. Geologic Survey estimates that the U.S. wastes six billion 

gallons of clean drinking water each day, or 14 percent of total use, through leaky pipes 

in need of repair. This is enough water to supply our ten largest cities with drinking water 

daily. 

Sewer overflows and leaks are a grave health threat to our communities. The U.S. 

Environmental Protection Agency (EPA) estimates that up to 3.5 million Americans fall 

sick each year from swimming in waters contaminated by sanitary sewer overflows 

(SSOs). This sewage contains pathogens such as bacteria, parasites, and viruses, as 

well as pharmaceuticals, synthetic hormones, and personal care products. 

Flawed water infrastructure also hurts business and commerce. Exposing the problem 

of ruptures in water mains, the New York Times has written that "[!]he dangers of the nation's 

plumbing are everywhere" and stressed the following: 3 

This year water main breaks have stranded drivers on washed-out 

roads around the nation, caused a mudslide in California and flooded 

school libraries in Minnesota and Texas. last month, just after Gov. 

David A. Paterson attended the opening of a new subway station in 

lower Manhattan, service to the subway line was suspended when a 

water main that was installed in 1870 burst, flooding the tracks. A 

break in Niagara Falls, N.Y., spewed some 11 million gallons of 

water. 

Failing pipes plagued Warren, Mich., just outside of Detroit, this 

winter. After the city suffered 1 07 breaks in the course of one 

particularly cold month -three times the average - the mayor, Jim 

Fouts, declared a state of emergency so he could hire outside 

workers to help his overwhelmed city crews cope. A break outside a 

shopping center created a sinkhole that engulfed a van, and left the 

center without water for three days. 4 

1 David Whitman, The Sickening Sewer Crisis, U.S. News and World Report (Apr. 4, 2010), available at 

http://www.usnews.com/usnewslnewslarticles/0006121archive 016392.htm. 

2 G. Tracy Mehan, Ill, Remarks at EPA Forum: "Closing the Gap: Innovative Responses for Sustainable 

Water Infrastructure (Jan. 31, 2003), available at http://water.epa.govlinfrastructurelsustainl 

upload/2009 05 26 waterinfrastructures aa-remarlls si waterinfrastructureforum-2003.pdf. 

3 Michael Cooper, Aging of Water Mains is Becoming Hard to Ignore, New York Times (Apr. 17, 2009), 

available at http://www.nytimes.com/2009/04/181us/18water.html. 4 Green for All. Water Works, Rebuilding Infrastructure, Creating Jobs. Greening the Environment, p. 2 

(2011 ), available at http://greenforall.org.s3.amazonaws.com/pdf/Water-Works-Report.pdf 

2 
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It is for reasons such as these that the American Society of Civil Engineers (ASCE) gave 

our country's wastewater and drinking water infrastructure grades of "D" and "D-" in its 2009 

report card.5 Based on the experiences of United Association members across the country, 

one could argue ASCE was being generous in its scoring. 

Notwithstanding mounting evidence of massive neglect, the water infrastructure funding 

gap has unfortunately not been addressed for over a decade now. Rather, the state of our 

water infrastructure has only worsened and EPA estimates that the current shortfall in water 

infrastructure funding stands at more than $500 billion over the next two decades. • For 

American communities and families, the consequences of this shortfall are far greater than the 

occasional leaky faucet. According to EPA, there are an estimated 240,000 water main breaks 

each year in the United States.7 In far too many cases, these breaks are attributed to pipes 

which are more than 100 years old and made from such out-of-date material as wood.8 

Water Infrastructure Investment as Jobs Engine 

Investing in our nation's water infrastructure is not only essential for public health and 

safety reasons, but such investments can serve as a major jobs creator to provide critically 

needed employment for unemployed and under-employed Americans. According to a study 

commissioned by the Alliance for American Manufacturing, water infrastructure is number one in 

job creation among all available infrastructure options, with nearly 20,000 jobs created for $1 

billion invested. 9 Other organizations which have researched the issue have reported even 

higher job numbers than the Alliance. For example, the Clean Water Council found that up to 

26,669 jobs are created per $1 billion invested, while the American Public Works Association's 

research indicates that more than 40,000 jobs per $1 billion are created. 10 

What's more, the U.S. Conference of Mayors has reported that each job created in water 

infrastructure adds 3.7 jobs elsewhere. 11 This means, based on the above research, that 

5 American Society of Civil Engineers, Report Card for America's Infrastructure (Jan. 2009), available at 

http:l/www.lnfrastructurereportcard.org/report-cards. 

6 U.S. Environmental Protection Agency Website, U.S. Water Infrastructure Needs & The Funding Gap 

(Last visited Dec. 8, 2011), at http:l/water.epa.govlinfrastructure/sustain/intrastructureneeds.cfm. 

7 U.S. Environmental Protection Agency Website, Water Distribution Systems (last visited Dec. 2011), at 

htto:l/www.epa.gov/awl/distributionsys.htrnl. 

8 See Cooper, infra note 6. 

9 Jim Christie, U.S. Water Infrastructure Needs Seen as Urgent, Reuters (May 8, 2009), available at 

http:/lwww.reuters.com/article/2009/05/08/us-infrastructure-summit-water-jdUSTRE54731G20090508. 

1

° Clean Water Council, Sudden Impact: An Assessment of Short-Term Economic Impacts of Water and 

Wastewater Construction Projects in the United States (Jun. 2009), p. 6, available at 

http://www.nuca.comlfiles/pubiic/CWC Sudden Impact Report FINAL.pdf; U.S. Conference of Mayors, 

Trends in Local Government Expenditures on Public Water and Wastewater Services and Infrastructure: 

Past and Future (Feb. 201 0), p. 43, at http:/lwww.usmayors.org/publications/201 002-mwc-trends.pdf. 

11 See American Water Works Association, Job Creation (Last Visited Sept. 6, 2011), at 

http://www.awwa.org/Govemment/contentcfm?ltemNumber=440Q4&navltemNumber=44055. 

3 
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annual investments at the level EPA says is needed, i.e., $25 billion, could be expected to add 

several million jobs each year to the American economy. Needless to say, at a time when 

working families across the country are wrestling with high unemployment, this level of job 

growth could not come soon enough. 

In addition to creating a tremendous number of jobs, water infrastructure investments 

are able to produce such jobs quickly. This was recently evidenced by the speed at which the 

$6 billion in water infrastructure funding under the Recovery Act reached projects on the ground. 

Specifically, according to EPA and the Government Accountability Office, all 50 states 

succeeded in awarding their water infrastructure funds under the Recovery Act within 1 year of 

the Act's passage.12 These funds were used to support more than 3,000 projects. 13 Based on 

this record, we can have confidence that returns on water infrastructure investments would be 

immediate. 

In considering possible legislation to fund water infrastructure projects, the 

Subcommittee's work is made easier by the fact that some very good bipartisan options were 

previously introduced in the 1111h Congress. One such option was Rep. Earl Blumenauer's 

Water Protection and Reinvestment Act of 2009 (H.R. 3202), which would have created a Water 

Infrastructure Trust Fund similar to the current highway trust fund, in order to guarantee a 

dedicated source of revenue to help states repair, replace and maintain water infrastructure 

each year. Funding of $10 billion per year to start would have provided through modest fees on 

a broad base of water users and polluters. 

The United Association strongly supports the concept of trust fund for water 

infrastructure as a general matter. Our water infrastructure is no less important- and is in even 

greater need of repair - than our highways, roads and bridges, which benefit from dedicated 

funding. In addition, there are singular public health and safety concerns associated with our 

water infrastructure that are not present in other infrastructure areas. For example, while 

Americans can see and avoid potholes in the road, they cannot always see or avoid 

contamination in our water supply. For such reasons, our water infrastructure merits at least the 

same commitment in terms of upkeep that our government assigns to highways, roads and 

bridges. 

Another strong bipartisan option from the previous Congress that the Subcommittee 

should consider is the Water Infrastructure Financing Act (S. 1005), which was sponsored by 

Senator Cardin and co-sponsored by Senators Boxer, lnhofe, Crapo, Feinstein, Mikulski and 

Sanders. This bill would have provided $39 billion over 5 years, or $7.8 billion, to fund critical 

water infrastructure projects. It would have also done so in an efficient manner by channeling 

funding through the existing Clean Water and Safe Drinking Water Revolving Loan Funds. 

Measures such as these represent precisely the sort of bipartisan collaboration, and large-scale 

down payments, that will be needed to begin addressing our country's water infrastructure 

crisis. 

12 U.S. Government Accountability Office, Recovery Act Funds Supported Many Water Projects, and 

Federal and State Monitoring Shows Few Compliance Problems (Jun. 2011), p. 2, available at 

http://www.aao.gov/new.items/d11608.pdf. 

131d. 

4 
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While multiple options exist to repair and replace our crumbling water infrastructure, it is 

absolutely imperative that we make these investments. The adverse consequences to public 

health and safety are already being borne by American communities and can be expected to 

increase on a dramatic scale in the coming years unless serious action is taken. What's more, 

given the state of the economy and the tremendous potential for job creation that water 

infrastructure investments offer, there is every reason to move these investments forward now. In doing so, Congress would not only be addressing a serious challenge to public health and 

safety, but also be doing a great deal of good for our economy and working families across 

America. 

Thank you again for holding a hearing on this critically important topic. 

WPH:bdh 

5 

Sincerely, 

William P. Hite 

General President 
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Statement for the Record 

On behalf of 

Subsurface Technologies, Inc. 

before the 

Subcommittee on Water and Wildlife 

of the 

Environment and Public Works Committee 

United States Senate 

Well Rehabilitation: 

Restoring a well to its most 

efficient hydrological 

condition by various 

treatments or 

reconditioning methods 

40 Stone Castle Road, Rock Tavern, NY 12575- Phone: 845.567.0695; Fax: 845.567~1035-

tlttp://www.subsurfacetech.com 
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December 13, 2011 

Statement for the Record 

On behalf of 

Subsurface Technologies, Inc. 

before the 

Subcommittee on Water and Wildlife 

of the 

Environment and Public Works Committee 

United States Senate 

December 13, 2011 

Chairman Cardin, Ranking Member Sessions, and members of the Subcommittee, 

Subsurface Technologies, Inc. (STI) appreciates the opportunity to submit this 

statement for the record on the criticality of addressing the nation's aging water 

infrastructure and the opportunities that doing so provides regarding job creation 

and economic growth. 

STI has devoted 25 years to developing highly effective, environmentally sound 

methods of restoring and improving the aging infrastructure of wells at ground 

water systems. Our methods restore lost capacity, increase water volume, reduce 

energy footprints, decrease pumping costs and solve water quality problems. STI's 

solutions are economically affordable, easy to incorporate and help facilitate job 

growth at the utilities we work with. 

The deterioration of wells can most often be attributed to the inherent 

characteristics of the aquifer, the well design or construction, water quality and 

other environmental factors. When a well has deteriorated beyond the point where 

maintenance programs can resolve their decreased water yields, rehabilitation is 

needed. 

While the infrastructure of all wells eventually ages, the need to restore well 

infrastructure is disproportionally greater among small communities. Preventative 

maintenance and rehabilitation costs are 10-20% of the costs of new well 

construction, which means that investing in ongoing well care is a sound investment 

for water systems. However, as many financially constrained small water systems 

cannot afford robust investments in rehabilitation, they often wait too long before 

40 Stone Castle Road, Rock Tavern, NY 12575- Phone: 845.567.0695; Fax: 845.567-1035- 2 

http:l/www.subsurfacetech.com 
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December 13,2011 

attempting to rehabilitate their wells and find that degradation has passed the point 

of restoration. 

Enabling small groundwater systems to invest in well infrastructure through a 

variety of economically sound and job producing proposals such as infrastructure 

banks, low interest loan programs and other funding mechanisms should be 

considered of the utmost importance in the fight to promote our nation's 

environmental and economic priorities. 

Well-related infrastructure work done by STI at small groundwater systems helps 

financially depressed communities grapple with reductions in their water yield, an 

inability to meet EPA mandates and stagnant local economies. By hiring local labor 

to implement our technologies and maintain the systems we put in place, STI works 

with utilities to leverage job creation from their existing need to service already 

aging and degraded infrastructure systems. 

STI projects that beginning next year, the infrastructure we do on wells will lead to 

an estimated 25-30% growth in our hiring every year for the next 5-7 fiscal cycles. 

As project volumes and revenues increase, we will continue to hire local workers to 

meet demand and expand our company field staff accordingly. 

These jobs will expand along the eastern seaboard and into the Midwest, creating 

economic engines through those locations. 

STI applauds the Committee's leadership in recognizing the imperative to repair and 

replace aging infrastructure across the water sector. As the Committee considers 

new water infrastructure funding mechanisms, we implore you to consider setting 

aside a small portion of funding to identify innovative and affordable technologies 

for small and disadvantaged communities to address the infrastructure needs of 

their aging wells. 

Setting aside resources for this purpose will enable small communities to have a 

wider range of proven solutions from which to choose when considering how best 

to comply with local, state and federal mandates. Currently, the market-orientated 

process is not resulting in the most innovative technologies being made available to 

small systems and federal funding mechanisms for doing so do not exist. 

In conclusion, STI would like to reiterate its thanks and support for the Committee's 

efforts and strong leadership in this area. It is only through the continued 

partnership and collaboration between the public and private sector that our 

nation's water infrastructure needs will be met and job creation will be accelerated. 

40 Stone Castle Road, Rock Tavern, NY 12575- Phone: 845.567.0695; Fax: 845.567-1035 3 

http://www.subsurfacetech.com 
521 

Senator SESSIONS. Mr. Chairman, Mr. Richey has provided a series of reports and documents that would support the testimony he 

has given. I would like to make that part of the record and ask that 

the record be left open for additional statements or comments. 

Senator CARDIN. Without objection, all that will be agreed to, and 

that will be included in the record. 

With that, the Committee will stand adjourned. Thank you all 

very much. 

[Whereupon, at 11:40 a.m., the Committee was adjourned.] 

[Additional material submitted for the record follows:] 

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AMERICAN PUBLIC WORKS ASSOCIAnON 

Hearing on Our Nation's Water Infrastructure: Challenges & Opportunities 

Senate Environment and Public Works Committee 

Statement of 

Diane Linderman, P.E., PWLF 

President of the American Public Works Association 

December 13, 2011 
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Madam Chair, Ranking Member Inhofe and members of the Committee, thank you for the 

opportunity to submit testimony relating to the recent hearing on Our Nation's Water 

Infrastructure: Challenges and Opportunities. My name is Diane Linderman, President of the 

American Public Works Association (APWA). I submit this statement reaffirming APWA's 

support for action that creates increased funding for capital investment in water and wastewater 

infrastructure on behalf of the more than 28,500 public works professionals who are members 

ofAPWA. 

APW A is an organization dedicated to providing sustainable public works infrastructure and 

services to millions of people in rural and urban communities, both small and large. Working in 

the public interest, APW A members plan, design, build, operate and maintain transportation, 

water supply and wastewater treatment systems, waste and refuse disposal systems, public 

buildings and grounds and other structures and facilities essential to the economy and quality of 

life nationwide. 

APW A supports actions that create increased funding for capital investment in water and 

wastewater infrastructure. APW A supports the continued authorization of the State Revolving 

Fund for capital investment in drinking water and wastewater systems to continue to protect the 

public health. APW A supports all efforts to establish increased funding opportunities for water, 

wastewater and storm water treatment system enhancements with particular emphasis on 

funding priority for small to moderate and rural systems, or those currently operating under 

administrative orders related to the Safe Drinking Water and Clean Water Acts. 

APW A members take a lead role in the effective management of facilities protecting water 

quality and are too familiar with the challenges local jurisdictions face keeping up with the 

demand for clean safe water. The state of the nation's drinking water and wastewater 

infrastructure is dire. Local jurisdictions struggle to fund water infrastructure capital projects. 

The current infrastructure system is deteriorating and strains under the increasing demand for 

clean and safe water fueled by population growth. According to the EPA's most recent clean 

water and drinking water needs assessment surveys, local communities will need $300 billion 

in wastewater and $335 billion in drinking water infrastructure improvements for capital 

expenditures over the next 20 years .. 

Investing in and updating the nation's aging water system is beneficial to the environment and 

the economy. Studies show that up to 25% of treated water is lost. Sufficient funding of water 
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and wastewater facilities will increase sustainability by ensuring that water loss is kept to a 

minimum. Additionally, the Water Infrastructure Network estimates that every $1 billion 

invested in waster infrastructure capital creates nearly 28,000 jobs. 

APW A supports all efforts to close the water infrastructure funding gap. It is a national 

problem and it deserves a national solution. Federal grants are the most preferred form of 

funding and ought to be pursued. Another funding mechanism, State Revolving Funds (SRFs) 

have proven to be a successful mechanism that provides local jurisdictions with needed funds 

for water infrastructure capital and APW A supports continued federal support for this program. 

Clean and Safe Drinking Water SRFs have provided $111 billion to local governments for 

water infrastructure since its inception. SRFs are a vital resource, especially for small and rural 

communities. The Clean Water SRF provides 23% of water infrastructure funding for localities 

with fewer than 10,000 residents and the Drinking Water SRF provides 37%. 

In addition to reauthorizing the SRF, APW A also supports the creation of a variety of 

innovative funding mechanisms to increase investment in water infrastructure and to provide 

public works directors with a range of options for determining how best to fund critical capital 

investment projects. The current economic environment compels localities to seek innovative 

solutions to the water infrastructure funding crisis. Local jurisdictions should not and cannot 

solely rely on public sources of funding. The creation of public private partnerships, raising the 

cap on private activity bonds, creation of a long term dedicated funding source such as a trust 

fund to fund local water system projects, or the establishment of a national infrastructure bank 

should all be available as potential funding vehicles for water infrastructure. 

The consequences of inadequate investment in water infrastructure are dismal. Without 

increased funding in water infrastructure local communities will not be able to keep pace with 

growing demand for clean and safe drinking water and economic opportunities will be lost. 

Robust federal investment in water infrastructure, however, is smart investment that can 

address important public health and environmental concerns while also improving economic 

competitiveness and creating much needed jobs. Water infrastructure funding should be a 

national priority; the stakes are too high to neglect this problem. 

Conclusion: 

Madam Chair and Ranking Member Inhofe and members of the Committee, thank you for 

holding this hearing and continuing to pursue a solution to the nation's looming water 

infrastructure funding crisis. We are especially grateful to you and Committee members for the 
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opportunity to submit this statement. APW A stands ready to assist you and your Congressional 

colleagues as you work to craft a solution to this critical problem. 
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Statement of 

The Associated General Contractors of America 

to the 

Subcommittee on Water and Wildlife 

Committee on Environment and Public Works 

U.S. Senate 

For a hearing on 

"Our Nation's Water Infrastructure: Challenges And Opportunities" 

December 13, 2011 

AGC of America fHE .'\.O:.SOOATCD CtNlRAl CONTRAClORS OF AMER!CA 

Quality People. Quality Proje<.1s. 

Building Your Quality of Life 

AGC is the leading association in the construction industry. Founded in 1918 at the express request or President Woodrow 

Wilson, AGC now represents more than 33,000 firms in nearly 100 chapters throughout the United States. Among the 

association's members are approximately 7,500 or the nation's leading general contractors, more than 12,500 specialty 

contractors, and more than 13,000 material suppliers and service providers to the construction industry. These firms engage in 

the construction or buildings, shopping centers, ractories, industrial racilities, warehouses, highways, bridges, tunnels, airports, 

waterworks racilities, waste treatment facilities, dams, hospitals, water conservation projects, defense racilities, multi-family 

housing projects, municipal utilities and other improvements to real property. 

THE ASSOCIATED GENERAL CONTRACTORS OF AMERICA 

2300 Wilson Boulevard, Suite 400 • Arlington, VA 22201 • Phone: (703) 548-3118 • FAX: (703) 548·3ll9 
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26626.487

Statement of 

The Associated General Contractors of America 

Subcommittee on Water and Wildlife 

Committee on Environment and Public Works 

United States Senate 

December 13,2011 

The Associated General Contractors of America (AGC) is pleased to write today to explain the 

many possible tools that could and should be active in the water and wastewater infrastructure 

financing toolbox. 

Founded in 1918 at the express request of President Woodrow Wilson, AGC is the leading 

association in the construction industry representing more than 33,000 firms in nearly I 00 

chapters throughout the United States. Among the association's members are approximately 

7,500 of the nation's leading general contractors, more than 12,500 specialty contractors, and 

more than 13,000 material suppliers and service providers to the construction industry. These 

firms engage in the construction of buildings, shopping centers, factories, industrial facilities, 

warehouses, highways, bridges, tunnels, airports, waterworks facilities, waste treatment facilities, 

dams, hospitals, water conservation projects, defense facilities, multi-family housing projects, 

municipal utilities and other improvements to real property. Many of these firms regularly 

undertake construction financed by the Environmental Protection Agency's (EPA) State 

Revolving Loan Fund Program (SRF) and the Department of Agriculture's Rural Utilities 

Service. Most are small and closely-held businesses. 

Even before the current economic downturn, many of our cities and towns, which include 

everything from large urban to small rural communities, had experienced substantial challenges 

repairing and replacing water infrastructure that is quickly reaching the end of its useful life. 

Many communities do not currently have the financial resources to make the necessary 

investments to meet federal water quality standards and face significant practical and political 

challenges enacting rate structures to raise adequate capital and make the improvements that are 

needed. Water infrastructure needs continue to multiply as chronic underinvestment in federal 

water infrastructure financing programs is compounded by an evolving and expanding regulatory 

landscape. State and local governments will continue to bear the brunt of this double-edged 

problem. EPA projects between $400 to $600 billion is needed in infrastructure improvements 

over the next 20 years simply to keep pace, yet consistent dwindling of federal commitment to 

the SRF programs has resulted in a gap in funding of more than $20 billion annually. 

When the federal government began mandating quality standards for drinking water and 

wastewater discharge through legislation like the Clean Water Act and Safe Drinking Water Act, 

it also recognized that forcing local governments to spend billions of dollars to upgrade facilities 

and equipment to comply with regulatory burdens was impractical. The EPA's SRF program is 

the vehicle the government uses to avoid foisting the burden of maintaining national water 

standards onto local ratepayers alone. Given that it is in the federal interest to set water quality 

standards, then so too must it be in the federal interest to provide financing help to operators so 

they can meet those standards. This is even more salient now with the sharp drop-off in State 

revenues and lack of budgetary flexibility most states have due to balanced budget requirements. 

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Federal investments in infrastructure also are often the best way to ensure the health, safety and 

economic vitality of sparsely populated rural communities. Many rural communities, indeed 

many rural states, lack the resources needed to finance the construction of major infrastructure 

projects like advanced wastewater treatment plants or safe drinking water filtration systems. The 

federal government is uniquely suited to supporting infrastructure investments in these rural 

communities, especially when so much of our nation depends on the commercial traffic that 

travels through them and the agricultural products that come from them. 

Economic Advantages 

Spending on construction creates jobs. We at the Associated General Contractors of America 

found that for every $1 billion in spending on infrastructure, 28,500 jobs are created in 

construction and construction-related activities which includes 9,700 (34%) direct construction 

jobs; 4,600 (16%) indirect jobs in supplier industries (mining, manufacturing and services); and 

14,300 (50%) induced jobs resulting from purchases out of the additional income of workers and 

owners in the directly and indirectly supported industries. The US Conference of Mayors found 

that every job created in water and sewer infrastructure creates over 3 additional jobs in the 

national economy to support that job. 

Federal support for drinking and wastewater systems also delivers a tremendous return for 

taxpayers by lowering healthcare costs, reducing the cost of cleaning up polluted waterways and 

contributing to increased economic vitality. Regular federal investments in infrastructure also 

save taxpayers money as it costs a lot less to maintain infrastructure than it does to repair it. The 

cost of replacing water pipes through routine maintenance is typically between $100 and $300 

per linear foot. The cost to repair a water main break is approximately $1,500 per linear foot, not 

including the costs of flooding damage, closures of businesses, and health hazards to those in the 

area. 

Potential Tools in the Toolbox 

There are several infrastructure financing options that have been suggested or have been in use at 

one time, but none that have remained consistent over the last several decades. There needs to be 

stability and predictability for state and local governments, which would allow them to create 

long-term construction plans, which in turn give stability and predictability in the water and 

wastewater construction markets. Giving municipalities and their contractor partners access to all 

the tools in the infrastructure financing toolbox will help achieve this. 

The first and most immediate solution is simply to halt the assault on the annual appropriations 

to the federal water infrastructure financing pathways- such as EPA's SRFs and USDA's Rural 

Utilities Service. The House voted to cut almost $1 billion in critical funding when it passed the 

appropriations for the EPA earlier this year. This instability hurts long-term planning, and can 

actually drive up the cost of construction because contractors will leave the market for more 

stable types of construction. AGC of America believes that a more stable revenue stream benefits 

everyone and is required to ensure that we are keeping up with the national need for safe and 

clean water. 

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The only bright spot in recent years was the American Recovery and Reinvestment Act, which 

provided $4 billion and $2 billion for the Environmental Protection Agency's Clean Water and 

Drinking Water State Revolving Loan Funds, respectively. Unfortunately annual Congressional 

appropriations for water infrastructure projects have been diminishing steadily over the years 

while national needs continue to increase. In addition, the Recovery Act saddled the SRF 

program with needless 'Buy American' restrictions that artificially constrained the supply chain, 

resulting in institutional paralysis, overcorrection, and project delay. While national and projectspecific waivers helped to alleviate the morass caused the application of these regulations to 

programs that had never had to comply previously, the delays and cost overruns needlessly 

reduced the effectiveness of the Recovery Act spending. 

While increased appropriations would go a long way toward alleviating the short-term problem, 

they would not solve the long-term problem of market stability and predictability. With the 

volatility inherent in the annual appropriations process, a sustainable, long-term funding 

mechanism is needed to provide market certainty for construction firms and local water 

authorities. This new long-term funding mechanism should be multi-year and utilize the existing 

SRF framework to move funds from the federal to state and local levels. This long-term 

mechanism should also embrace the "user pays" concept that other infrastructure funding 

mechanisms have implemented with success to create a budget-neutral, user-fee financed, clean 

water trust fund. The best long-term solution would be to establish this national clean water trust 

fund, to be financed by a wide array of small broad-based user fees. 

There is ample precedent for dedicated federal trust funds to tackle problems too big for states to 

handle alone. The GAO has identified more than 120 federal trust funds in operation. These trust 

funds help ensure funding for other critical projects, including Highways, Airports, Harbor 

Maintenance, even Oil Spill cleanup. But in this case we can use the model of the highway trust 

fund that has been extremely successful to build a dedicated long-term, sustainable, off-budget 

source of funding for water infrastructure such as a trust fund, which would create market 

certainty in the water and wastewater markets. 

Polling has shown that people believe that the government has a responsibility to provide clean 

water. In fact, 86 percent of Americans support legislation by the U.S. Congress that would 

create a long-term, sustainable, and reliable federal trust fund for clean and safe drinking water 

infrastructure. The Government Accountability Office (GAO) in 2009 released a report entitled 

"Options for a Clean Water Trust Fund" which acknowledges that our nation faces tremendous 

challenges in replacing and rehabilitating our water infrastructure. As the GAO's report states, a 

trust fund for water infrastructure may not be the only solution to our water infrastructure needs 

in America but it would establish a multi-year commitment to address the nation's pressing water 

needs. 

Additionally. while a trust fund would be the best solution, it is still only one tool in the toolbox 

of financing and funding mechanisms that Congress should make available for use by state and 

local governments. Alternative and creative methods of financing water infrastructure must be 

embraced in these tough times. As traditional methods of funding fall out of favor, it is important 

to seek fresh and creative approaches. However, it is crucial to note that these creative and 

- 4 -
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alternative mechanisms should supplement, rather than replace, the traditional financing 

mechanisms, such as the SRF, which are already proven to work. 

One such creative mechanism is the highly successful, but short lived, Build America Bonds 

(BAB) program in the Recovery Act. BASs are taxable bonds for which the U.S. Treasury 

Department pays a 35 percent direct subsidy to the issuer to offset borrowing costs. The program 

financed nearly $3 8 billion in water and sewer infrastructure projects over the two years it was 

active. That's more than ten times the combined amount appropriated to the SRFs for FY2010 

(the best year for SRF appropriations not adjusted for inflation). 

Another important financing mechanism to consider would be a federal water infrastructure 

bank. One of the success stories of the Surface Transportation Program has been the 

Transportation Infrastructure Finance and Innovation Act program (TIFIA). It may be possible to 

replicate that success for the water and wastewater infrastructure markets. This is especially true 

given that water and wastewater systems already have a built in system of collecting revenue (for 

loan repayment purposes) through ratepayers. A national program that was able to give direct 

loans and loan guarantees to water infrastructure projects could help take some of the pressure 

off municipalities with large needs. Such a program already exists in statute in Section 213 of the 

Clean Water Act, but it has never been funded or utilized. This structure can be used, modified, 

or even replaced if necessary to allow state and local governments to utilize the full faith and 

credit of the U.S. Treasury with loan guarantees to lower the overall cost of the project. An ideal 

water infrastructure bank would also be authorized to give direct loans for large projects, adopt a 

sensible project value minimum dollar amount, and reconcile the qualifications for "national or 

regional significance" that exist in other proposals for a national infrastructure bank. 

A final method of directing funds to water infrastructure would be to secure access to private 

investment in water infrastructure. Private activity bonds (PABs) can be an important tool for 

financing infrastructure investments in our communities by providing long-term financing for 

capital-intensive infrastructure projects. PASs are a form of tax-exempt financing available to 

entities like state or municipal governments that want to partner with a private party to meet a 

public need. Interest paid on bonds issued by State and local governments generally is excluded 

from gross income for Federal income tax purposes, which allows the interest rates on such 

bonds to be lower. This, in turn, lowers the borrowing costs for the beneficiaries of such 

financing. 

Congress controls the total volume of tax-exempt bonds by limiting issuance in each state with 

an annual cap - for example, in 20 I 0 the volume cap for a state was the greater of either $90 per 

resident, or $273.8 million. Water and wastewater projects should be removed from this annual 

volume cap, allowing those projects to no longer have to compete with the dozens of other 

categories of public spending these bonds finance, because these projects provide their own 

revenue source for repayment of the loans. Exceptions from the volume cap are currently 

provided for other governmentally owned facilities such as airports, ports, high-speed intercity 

rail, and solid waste disposal sites. 

- 5 -
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26626.491

PABs employ the best features of successful public-private partnerships, spreading risk and 

encouraging innovation. By reducing a government's project management burdens and its risk 

(with PABs, the private entity assumes much of the financial risk and administrative 

responsibility), multi-year projects and a broader project load become more feasible as the 

government has more resources to allocate. Also, PABs do not affect the municipality's bond 

rating, an important benefit ofPABs for municipalities. There is considerable private capital that 

could and would be invested in water infrastructure if the proper mechanisms were available, 

with some Wall Street estimates putting that value between $2 and $5 billion per year in new 

private spending. 

Concluding Remarks 

AGC thanks the Committee for the opportunity to submit this statement for the record. The SRF 

program is highly successful, but is in danger of being underfunded out of existence or actively 

de-funded. AGC of America believes the approach outlined above must to taken to give every 

locality - from the smallest rural towns to the biggest urban centers - the widest range of 

possible mechanisms to fund water and wastewater construction. Many of these options have 

been sporadically available in the past and remain good ideas waiting to come off the shelf. A 

true solution to the water infrastructure financing crisis would include making all of these 

options available all the time. Permanent long-term solutions are the only way to avert further 

crisis, let municipalities and contractors plan for the future, and truly safeguard our environment 

and health. 

-6-
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CLE/\N 

\NATER • C U C I I 

Written Statement 

Clean Water Council 

Subcommittee on Water and Wildlife 

Environment and Public Works Committee 

U.S. Senate 

Our Nation's Water Infrastructure: 

Challenges and Opportunities 

December 13, 2011 
533 


26626.493

The Clean Water Council (CWC) is a coalition of some 40 national organizations 

representing underground utility construction contractors, design professionals, 

manufacturers and suppliers, labor representatives and other organizations 

committed to ensuring a high quality of life through sound environmental 

infrastructure. 

The need to invest in America's underground environmental infrastructure is well 

known, clearly documented, and has broad support. According to the Environmental 

Protection Agency (EPA), $298 billion in investment is needed over the next 20 years 

to address America's wastewater infrastructure needs, and $334 billion in investment 

is needed over the same time period for drinking water infrastructure improvements. 

SRF Investment 

EPA's State Revolving Fund (SRF) programs are successful federal programs that help 

ensure the quality of America's wastewater and drinking water facilities. Federal capital 

investment to the SRF programs provide urgently needed resources for communities across 

the country to repair and rebuild their water and wastewater infrastructure. These projects 

are critical to maintain compliance with health-based standards, such as installation and 

replacement of failing wastewater treatment and water distribution systems. 

Revolving loans work in perpetuity. The SRF programs have successfully leveraged federal 

grants into tens of billions in revolving loans. These loans are repaid at low cost by local 

communities to the states, who in turn redistribute the funding to other priority 

environmental infrastructure projects. The SRF model has been hailed as the most 

successful federally sponsored infrastructure financing program ever. 

However, in recent years the SRF programs have fallen under attack. After being 

subject to a nearly $1 billion reduction in SRF funding under this year's continuing 

resolution, funding for the Clean Water SRF was reduced to $1.55 billion, down from 

$2.1 billion in FY 2010, and the Drinking Water SRF was cut to $990M, down from 

$1.4 billion. In total, the SRF programs received approximately $2.5 billion, cut from 

the $3.5 billion provided in FY 2010. 

To make matters worse, SRF funding faces further cuts next year. In fact, some in 

Congress are looking to return to FY 2008 levels, which would reduce annual 

appropriations to the Clean Water and Drinking Water SRFs to $689 million and $829 

million, respectively. 

A major impediment to increasing SRF investment is the inability in Congress to pass 

a robust SRF reauthorization bill. Despite the fact that authorization of the Clean 

Water SRF lapsed in 1994, Congress has continued to fund the program because of 

its effectiveness. However, the lack of passing reauthorization legislation has 

certainly contributed to these reductions in funding. 

While we understand the need to consider new and innovative financing methods for 

water and wastewater improvements across America, federal investment through the 

SRF programs is needed in both the short and long term. Therefore we encourage 

you to support increases in SRF appropriations, and for this committee to advance 

legislation that would reauthorize the SRF programs as soon as possible. 

Economic Impacts of Water Infrastructure 

In 2009, the CWC released a new study on the job creation and enhanced economic 

activity that comes with investment in water and wastewater infrastructure projects. 

The study, titled Sudden Impact: Assessment of Short-Term Economic Impacts of 

Water and Wastewater Projects in the United States, shows that a $1 billion 

investment in water and wastewater infrastructure results in: 

the creation of up to 27,000 new jobs with average annual earnings for the 

construction portion of the jobs at more than $50,000; 
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26626.494

total national output (i.e., demand for products and services in all industries) 

of between $2.87 and $3.46 billion; 

personal (household) income of up to $1.06 billion; and 

approximately $82.4 million in state and local tax revenue. 

Of particular note, each of these economic impacts occurs during and immediately 

after project construction. Significant supplementary economic benefits will also 

accrue in the future, decades-long service life of each facility when repair and 

maintenance activities are conducted on these systems. In both the short-term and 

long-term, economic benefits ripple through local economies from manufacturers to 

distributors to construction laborers, and countless other industry sectors. In fact, 

the study found that investment in water and wastewater infrastructure creates 

measurable employment in 325 other standard industry classifications. Copies of the 

Sudden Impact are available to any and all members of the subcommittee upon 

request. 

Use of Tax Exempt Private Activity Bonds 

Given the financial challenges and mounting debt faced by all levels of government, 

expanded use of public-private partnerships is becoming increasingly clear. Lifting 

the state volume cap on private activity bond (PAB) financing for water infrastructure 

projects would inject billions of dollars of low cost, private capital into infrastructure 

repairs, while shifting the economic risk away from cash-strapped municipalities and 

to the private sector. Private activity bonds are a form of tax-exempt financing that 

encourages state and municipal governments to collaborate with sources of private 

capital to meet a public need without increasing the debt of local governments- the 

debt is borne by the private sector. Currently, the tax code caps the volume of most 

types of federal tax-exempt bonds that may be issued in a given year, and allocates 

them state-by-state based upon population. 

Historically, most of the tax-exempt bonds have been issued to politically attractive, 

short-term projects such as housing and education loans. This tendency has limited 

the amount of such bonds that can be utilized for long-term water infrastructure 

projects; in fact in 2007 only 1.3% of all exempt facility bonds were issued to water 

and wastewater projects. 

Local governments have successfully used PABs for a variety of public purposes: 

public housing; school loans; airports; recreation and cultural facilities; solid waste 

facilities; port facilities; airport terminals; and, certain industrial pollution prevention 

projects. In the past, PABs have been used to solve critical infrastructure problems 

including the solid waste disposal crisis in the 1980's, where the private sector 

invested over $20 billion in new waste-to-energy facilities to avoid massive 

groundwater pollution and reduce the growing number of hazardous waste sites. 

Lifting the cap for water projects funded by PABs would generate significant, 

affordable capital for infrastructure repair and construction for municipalities, thereby 

ultimately benefitting users and customers. Additionally, these are projects that 

private investors are willing to invest in and absorb the risk. The revenue impact 

would be nominal relative to the significant benefits: each year a mere $354 million 

in lost federal tax revenue over 10 years (according to scoring from the Joint 

Committee on Taxation in 2010) would generate as much as $50 billion annually in 

private dollars over the same time period. This would be a sound and cost-effective 

investment of government resources and would demonstrate the value of publicprivate partnerships. 

Therefore the CWC strongly supports the Sustainable Water Infrastructure 

Investment Act (S 939 I HR 1802) that would lift water and wastewater projects 

from under the state volume cap on private activity bonds. The measure falls under 

the jurisdiction of the Senate Finance Committee, but we hope members of this 

subcommittee will support and consider cosponsoring the measure. 
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Conclusion 

To sum up, Congressional support of traditional water infrastructure financing 

through EPA's SRF programs coupled with innovative financing through use of publicprivate partnerships as provided in the PAB legislation would result in an successful 

combination of public and private sector resources to repair and rebuild America's 

underground environmental infrastructure, put the construction industry back to 

work, and contribute to the Nation's economic recovery. We thank you for your 

consideration. 
536 


26626.496

Statement by the Construction Management 

Association of America 

Senate Committee on Environment and Public Works 

Subcommittee on Water and Wildlife 

"Our Nation's Water Infrastructure: Challenges And Opportunities" 

December 13, 2011 

The Construction Management Association of America's more than 8,700 members include many 

owners of infrastructure projects and programs in the public sector, along with professional 

practitioners of Construction and Program Management who work for both owner organizations and 

companies that provide professional services to owners. 

CMAA has long been a strong supporter of increased federal investment in infrastructure. We 

particularly support and encourage such innovative investment vehicles as public private partnerships, a 

National infrastructure Bank, Build America and similar bonds, TIFIA financing, and the like. 

The case for increased federal infrastructure spending is usually expressed in terms of the need to 

repair, modernize and expand existing systems (which are often quite old and deteriorated), together 

with a pressing need to create jobs. So much attention has been paid to the inadequacy of our current 

infrastructure assets that we need not restate that point here. 

Moreover, the link between infrastructure spending and employment is clear. The Washington 

Suburban Sanitary Commission, a CMAA member organization, provides a compelling example. WSSC 

states that its in-progress, $158 million Bi-County Water Tunnel Project alone is creating nearly 3,500 

jobs. The Commission's ongoing water main replacement program, which has replaced more than 115 

miles of mains during the last three years, has created more than 3,700 jobs. As Jerry N. Johnson, 

general manager and CEO of WSSC, puts it, "we have many more projects than we have dollars to fund 

them." He also shared this information with CMAA: 

"Our data suggests that every $5 million received in (federal) assistance SAVES our ratepayers 

the equivalent of one percent on WSSC's operating budget; conversely, every additional $5 

million in operating and capital costs to maintain this critical infrastructure equates to a one 

percent rate INCREASE on ratepayers." 

Federal investment in this vital area, then, not only creates good, long-term jobs but also protects the 

public against potentially burdensome increases in the cost of an indispensable resource. 

While these are certainly valid points, a number of additional factors need to be addressed when 

considering water infrastructure investments in particular. 

Water affects the quality of our life in ways that often are not fully appreciated. In many parts of our 

nation, availability of water has emerged as a primary obstacle to continued economic growth and 

development. Ongoing population growth will only intensify this problem. It has been predicted, for 

example, that the population of the United States will grow by 130 million by 2050. Multiply that by 150 

gallons of water per person per day, plus 60 gallons of wastewater generated per person, per day, and 

we see the true dimensions of the challenge. The greatest impacts resulting from this growth will fall on 
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26626.497

states already struggling with water scarcity, including California, Florida and Texas. In California, it has 

been predicted that urban water use will expand by 67 percent between now and 2030. We also don't 

fully appreciate the impact that water scarcity issues have on other areas. How much electricity do we 

use each year, for instance, in pumping water to areas of shortage? 

Dallas Water Utilities currently serves 2.4 million people in Dallas and 22 surrounding cities, but 

the agency projects it will need to meet the water needs ofthree million customers by 2024. 

Part of its answer is an $800 million expansion of its East Side Treatment Plant. 

"You would be rationing water or you would limit growth to the area," says Jennifer Cottingham 

of DWU. "That's often what happens to communities that don't plan for the future. 

"Ask any real estate developer and they will tell you that there is no development where there 

is no water supply. Many of them will go as far as to say that water departments control growth 

with water supply. Many industries are also dependent on abundant water supply. The DFW 

metroplex has experienced tremendous economic growth in the last 50 years for what some 

say are two reasons: great planning for water supply after the drought of record in the 1950s 

and the DFW Airport." 

Economic growth, though, is not the only reason to care about better water infrastructure. 

We also continue to strive for improvements in water quality, which often require improvements in the 

performance and capacity of water treatment facilities. These gains come at a substantial cost, which 

local communities are often unable to meet. 

Consider the experience of another CMAA member. The Metro Wastewater Reclamation District in 

greater Denver, CO is currently planning how it will implement a proposal, scheduled for rule making in 

March 2012, to further control nutrients such as phosphorus and nitrogen in its municipal wastewater 

treatment plants effluents. 

The District tells us that it "estimates that the cost to meet the technology-based effluents proposed by 

the state of Colorado would be $28.4 million, which is in addition to the $250 million the District is 

currently spending to meet existing effluent limits for ammonia and nitrate. While the Metro District has 

the ability to finance these improvements through its Annual Charges for Service and the issuance of 

bonded debt at reasonable interest rates, many Colorado communities do not. Most communities in 

Colorado are dependent on state revolving loan fund programs for low-interest loans, if they can afford 

to repay the cost of the capital improvements at all ... The cost to meet the technology-based effluent 

limits greatly surpassed funds currently available through the state's revolving loan fund. Increased 

federal funding to meet the infrastructure needs to address the national priority to reduce nitrogen and 

phosphorus in our waters is critical to success." 

CMAA actively advocates other measures that can be expected to improve the "payoff' on 

infrastructure investments. We support legislation and/or regulation that would allow public sector 

owners to make use of a wider range of project delivery methods- such as Design-Build and 

Construction Manager At Risk- in addition to the traditional low-bid, design-bid-build method. The 
538 


26626.498

professional service of Construction Management is equally appropriate in the context of any of these 

delivery methods. 

We encourage all owners to adopt and apply the provisions of our Construction Management Standards 

of Practice, 2010 Edition in all of their projects as a proven means of controlling schedule, quality, risk, 

and cost. We believe applying the SOP leads to better project outcomes. We have also formed an 

alliance with the Construction Industry Institute (CII) at the University of Texas, as part of which we are 

integrating ell's library of validated construction Best Practices into our SOP. We believe this is the right 

approach to enhance transparency and accountability in the expenditure of public funds. With funding 

challenged and the needs so great, we cannot afford to tolerate any avoidable waste or delay. 

Meeting this water infrastructure challenge is not merely a matter of enabling economic growth; it really 

impacts the quality of life in our communities now, and whether that quality of life can be maintained in 

the future. 

#### 
539 


26626.499

PE ASSOCIATION UNI-8!:::\_L PVC P!PE ASS:JCI/l..710N j 2711 LEL; Fl-lEFV\/AY, S_!rTE 1 OClO : DALlAS. TX 752:::14 

VVVVI/V UNI,BELL OPG; PH. f]7:::2.2<!13 3902 l FX: 972 243 3907 

Written Statement for the Senate Committee on Environment and Public 

Works/Subcommittee on Water and Wildlife on "Our Nation's Water 

Infrastructure: Challenges and Opportunities," Tuesday, December 13,2011. 

Sustainable, Corrosion-Proof Piping for America's 

Water and Wastewater Infrastructure 

The Uni-Bell PVC Pipe Association is a not-for-profit organization representing 95 percent of the 

manufacturing capacity of the North American PVC pipe industry. Our pipe producing members 

operate over 90 facilities in the U.S. and our associate members (suppliers) hundreds more. 

PVC pipe extrusion facilities are found in 32 states across the United States: California has the 

most plants (9), followed by Texas (6), Arizona (5) and Pennsylvania (5). 

The PVC pipe industry serves a vast and complex market including 54,000 drinking water 

systems, 10,000 wastewater facilities and 15,000 sewer and wastewater contracting 

firms. PVC water and sewer pipe producers contribute in excess of $14 billion annually to the 

U.S. economy and support over 25,000 jobs. 

Building and replacing water and sewage lines across the U.S. will cost between $660 billion to 

$1.1 trillion over the next 20 years. These pipelines, however, are deteriorating faster than the 

rate at which they can be replaced because of corrosion, which is the leading cause of the 

watermain break epidemic in North America (estimated at some 300,000 breaks 

annually). According to a 2002 congressional study, corrosion is also a drag on the economy, 

costing U.S. drinking water and wastewater systems over $50.7 billion annually. As a result, 

any comprehensive and truly sustainable underground infrastructure strategy must 

address corrosion. 

Today's corrosion crisis is due to the materials used in America's piping networks over the last 

hundred years. At first, cast iron was used, with ductile iron gradually replacing it as the 

material of choice. Both now suffer from corrosion. Moreover, the burden of old technology 

materials is not limited to the cost of repairing and replacing failed pipelines. It includes the cost 

of losing treated water from leaking systems. Leaking pipes made from old technology materials 

lose an estimated 2.6 trillion gallons of drinking water annually, or 17 percent of all treated water 

pumped in the United States. 
540 


26626.500

The solution to these problems begins with sustainability, durability and corrosion resistance, 

and this is why more utilities must actively consider alternative piping materials like PVC in their 

bidding processes. Increased durability means fewer leaks, better water conservation and 

lower costs. Accordingly, any comprehensive action plan for water and wastewater 

infrastructure renewal must also include reform of municipal procurement practices that limit 

competition, shackle innovation and increase costs. We believe that to get the most efficient and 

sustainable use of federal money for water and wastewater projects, fair and open competition 

must be the operating standard. Federal grants provided to municipalities should have open 

competition stipulations similar to those used by the United States Department of Agriculture for 

its water and sewer grant programs for rural communities. In this way federal dollars obtain 

maximum value for taxpayers. 

With over two million miles in service, PVC pipe has been celebrated by Engineering News 

Record as one of the top 20 engineering advancements of the last 125 years. A study by the 

American Water Works Research Foundation recently quantified the life expectancy of PVC 

pipe at more than 110 years - making it excellent for long-term asset management and 

sustainability. Furthermore, PVC pipe is more efficient to manufacture, taking four times less 

energy to make than concrete pressure pipe, and half that used for iron pipe. As well, PVC pipe 

is cost-effective, has watertight joints and its lightweight reduces transportation and installation 

costs, yielding additional greenhouse gas reductions. It is also totally recyclable, though most of 

it has yet to enter the recycling stream given its great durability. 

The PVC pipe industry is an active member of the Clean Water Council (CWC). We 

support continued federal funding of FY 2012 of the State Revolving Funds (SRF's) for drinking 

water and clean water programs. These are essential programs that greatly help to maintain 

and improve these very important infrastructure systems. With the proposed decreases in 

government spending for water and wastewater systems we also believe S.939, the Sustainable 

Water Infrastructure Act of 2011, is critical to the continuous funding of this infrastructure. This 

legislation is important because it removes state volume caps on Private Activity Bond's (PAS's) 

for water and wastewater projects - opening the door for much needed additional revenues. 

The PVC pipe industry thanks you for letting us submit a statement for this important hearing 

and we wit! be pleased to answer any questions you may have. 

~··· Bruce Hollands 

Executive Director 

CertainTee~ 
541 


26626.501

The 

Vinyl 

Institute 

Statement for the Record 

Water and Wildlife Subcommittee 

ofthe Senate Committee on Environment and Public Works 

"Our Nation's Water Infrastructure: Challenges and Opportunities" 

Tuesday, December 13, 2011 

The Vinyl Institute (VI) respectfully submits this statement to the Water and Wildlife Subcommittee of 

the Senate Committee on Environment and Public Works. The comments we offer relate to testimony 

provided by witnesses invited to address the Subcommittee on Water and Wildlife at the December 13 

hearing on the subject, "Our Nation's Water Infrastructure: Challenges and Opportunities." 

About our industry 

VI represents the leading manufacturers involved in the production of polyvinyl chloride (PVC or vinyl) 

resin in the United States. PVC is one of the most versatile, valuable materials on the market today. 

Our industry generates an estimated $50 billion a year in products such as critical-care blood bags and 

medical tubing, energy-efficient window frames and roofing, fire-resistant insulation for electrical wire 

and cable, and others. Federal taxes from producing the raw material alone amount to $230 million, and 

replacing all PVC products would cost US consumers an estimated $17.7 billion annually in higher costs 

for alternatives that may not perform as well. 

An estimated 13 billion pounds of PVC were manufactured in 2010, creating high-paying jobs for tens 

of thousands of American manufacturing workers and many more for transporters, distributors, 

installers, and recyclers. Vinyl products are made in hundreds of plants in almost every state. The vinyl 

industry is projected to grow 5 percent through 2014 as construction picks up, consumers seek more 

energy-efficient products, and innovative new designs reach the marketplace. 

One of the vinyl industry's most valuable products is pipe to deliver safe drinking water and to move 

sewage effectively to treatment facilities. VI has a long-standing interest in promoting the rebuilding 

and expansion of the nation's water infrastructure systems. Among all infrastructure systems, none is 

more critical to public health and a clean environment than our water delivery and sewage-handling 

infrastructure. 

1737 King Street • Suite 390 • Alexandria, VA 22314 • TEL 571.970.3400 • FX 571.970.3271 
542 


26626.502

2 

The problems are well recognized. 

The deplorable state of our nation's deteriorating drinking water and sewer infrastructure systems is well 

documented by the U.S. Environmental Protection Agency and industry analyses and reports. Each year 

the quality and performance of these systems worsens and the number of dollars needed annually to fix 

the problems becomes more staggering. Drinking water and wastewater pipes are deteriorating due to 

corrosion, joint leaks and line breaks with an estimated 2.6 trillion gallons of treated drinking water lost 

every year in the U.S. This translates to approximately $3 billion in lost revenue to utilities yearly. 

Also, in regions where water is scarce, the loss of water from leaking and breaking pipes has become a 

critical availability problem. These well-recognized specific problems can be addressed effectively, 

however, with a national commitment to additional capital investment, proper design and planning, and 

the use ofhigh-perfonnance, non-corroding pipe systems that have a long life expectancy. 

PVC pipe is the preferred high-performance pipe solution for water infrastructure. 

PVC pipe offers a cost-effective, energy-efficient, non-corroding drinking water and sewage delivery 

solution to our water infrastructure problem. PVC's lighter weight makes it easier and less costly to 

handle, transport and install. In fact, most PVC pipe sizes can be handled manually, reducing the need 

for expensive installation equipment. 

Sludge, slime and other residue buildups are virtually nonexistent because of PVC's extremely smooth 

inner surface. And, the smooth interior walls of PVC pipe translate into increased flow rates at flatter 

grades, resulting in reduced trenching costs, fewer lift stations, and better energy efficiency, saving 

utilities and rate payers money for installing and operating water infrastructure systems. 

PVC pipe will resist earth and live load deflection and can bend under shifting soil conditions. It will 

withstand corrosive soil conditions and require virtually no maintenance. But if it does become 

damaged, it can be easily hand-cut and repaired, resulting in lower repair costs and less interruption in 

water and sewer service to the consumer. 

Federal legislation is needed to promote water infrastructure redevelopment throughout the U.S. 

VI for many years has supported increases in the federal contribution to state revolving funds (SRFs) for 

clean water and safe drinking water programs through reauthorization of the Clean Water Act and the 

Safe Drinking Water Act. Historically, the amounts budgeted by the President and appropriated by 

Congress for these accounts have differed significantly, but overall we have seen a troubling downward 

trend in federal support in recent years. 

Matching federal funds serve as an important catalyst to state and local government funding of drinking 

water and wastewater systems. Without federal support, state and local bonds to finance projects may 

not go forward. For many local communities that cannot support water infrastructure system upgrades 

alone, federal assistance not only helps with upgrades but prevents further deterioration. 

The ability to attract private investment in water infrastructure solutions should be another high priority 

for this Congress. The bill, S. 939, the "Sustainable Water Infrastructure Investment Act of 20 ll ," 

sponsored by Senator Robert Menendez should be given high-priority attention by the Senate as the 

House takes up an identical counterpart bill, H.R. 1802, sponsored by Rep. Bill Pascrell, Jr. These bills 
543 


26626.503

enjoy strong bipartisan support in both bodies and should proceed to committee mark up and floor 

consideration. 

Reluctance to move bipartisan water infrastructure legislation has been tied in part to the inability to find 

revenue offsets to fund the water infrastructure programs. On the broader and more costly funding 

question for the SRF programs, VI is committed to supporting one or more solutions among the many 

that have been offered or may yet be advanced. Funding must be sustainable over multiple years at a 

level that is effective in substantially reducing the significant backlog of unaddressed priority projects. 

Congress has an opportunity to advance the private activity bond (P AB) legislation now, however. 

Congressional Budget Office scoring indicates the revenue impact of the proposed bills is less than $50 

million annually. Under budget rules adopted in both bodies, this amount does not require revenue 

offsets, thereby removing a procedural barrier that has stalled other legislative programs in the House 

and Senate. Tapping private sector financing through state PABs must be a top priority of Congress, 

and moving S. 939 and H.R. 1802 should be high on the congressional agenda in 2012. 

PVC Pipe in Use Today is Dissimilar to the Plastic Pipe Exhibit Used in the Hearing 

In the hearing, Senator Whitehouse introduced a piece of plastic water pipe obtained from the Kingston 

Water District in Rhode Island. It was an old service line pipe of unknown age that had been connected 

to a main line made of cast iron. The cast iron main line was heavily tuberculated, with significant 

mineral deposits around the inside. The plastic pipe also had mineral deposits inside. A statement was 

made that plastic pipe can tuberculate in the same way as cast iron and ductile iron pipe and similarly 

result in a constricted interior obstructing normal flow. 

VI spoke with the Kingston Water District following the hearing regarding the plastic pipe exhibited 

during testimony and learned this pipe was manufactured and installed in the early 1970s. Mineral 

deposits occurred within approximately 3 feet of the connection to the main cast iron line that was 

corroded and tuberculated. This variety of plastic pipe was replaced in the mid to late 1980s with PVC 

and/or polyethylene (PE) plastic service pipe. We were told the Kingston Water Service is no longer 

observing the type of mineral deposits in PVC pipe seen in the early plastic pipe sample. 

Indeed, decades of experience show that PVC pipe does not tuberculate or corrode as metal pipe does. 

Federal funds should be dedicated to high-performance pipe that will not require replacement from 

corrosion and breakage in 30-50 years or require corrosion-resisting practices such as applying constant 

electrical current. Effective stewardship of federal funds should mean using more PVC pipe- the bestperforming, most cost-effective pipe product available for long-terrn water system performance. 

Buy America requirements in water infrastructure legislation could be counterproductive. 

The hearing testimony raised questions about the policy of requiring products used in water 

infrastructure projects funded by the federal government to be made in the U.S., in whole or in part. 

While members of the VI are U.S.-based manufacturers, and much of the material they manufacture here 

is made into finished products in this country, these companies also export PVC resin that can be made 

into pipe, as well as other end products, in other countries and imported back into the U.S. VI is 

concerned about the policy implications of rigidly barring foreign-made products in water infrastructure 

projects. International competition helps determine the price, quality and availability of PVC, and the 
544 


26626.504

use of this U.S.-made material, even if some of it is processed into a product abroad, can represent the 

best deal for U.S. consumers, utilities and the economy. 

4 

Moreover, congressionally constructed trade barriers may trigger an international response in which 

foreign markets are closed to American products. U.S. trading partners may be inspired by Made in 

America requirements to erect barriers to U.S. imports in their countries. The U.S. Congress, committed 

as it is to free trade, should not promote policies that limit U.S. exports by raising Made in America 

barriers to foreign products for water infrastructure projects. This is contrary to carefully balanced 

existing bilateral and multilateral trade agreements. 

If suppliers of water infrastructure products are concerned about unfair trade practices of foreign 

competitors, existing law and regulations offer tools to challenge foreign dumping and other unfair 

practices. 

Finally, U.S. suppliers of water infrastructure products promoting Buy America provisions in 

infrastructure legislation may find it difficult to prove all materials contained in their products originate 

from the U.S. Commodity markets are international, and some component materials used in finished 

products are likely to originate abroad. Proving I 00 percent Made in America will be a difficult, timeconsuming and unproductive exercise. Issues surrounding the implementation of conflict minerals 

reporting requirements under the recently passed Dodd-Frank legislation underscore the problems of 

prohibiting the use of foreign-made goods in the U.S. 

In closing, VI wishes to reiterate the PVC industry's support for enhanced water infrastructure funding 

while encouraging members of the Environment and Public Works Committee to support policies that 

promote high pipe performance while avoiding restrictive trade policies. 

Thank you for the opportunity to offer these comments. 

Sincerely, 

Allen Blakey 

VP, Industry & Government Affairs 
545 


26626.505

Leverages Over 

$13 Billion in 

Economic Activity 

Annually 

By Elena Tempfe·Webb, Dave 

Galton and Gene Lowe 

The U.S. Conference of Mayors, 

the Notional league of Cities, and the 

Notional Association of Counties at a 

March 16 press conference in !he Horl 

Senate Office Building continued their 

fight to Save CDBG and avoid draconian 

cuts (62 percent) in the progmm. These 

cuts were passed by the U.S. House of 

Representatives in H.R. 1 in February. 

At the event, the three organizations 

released o moior report outlining the 

broad economic impacts of the Community Development Block Grant program. 

Prepared independently by IHS Global 

Insight, the report calculated the economic impacts of the CDBG program in 

ten cities and caunlies. Between 2003-

2008, these ten communities spent on 

annual overoge of nearly $300 million, 

which generated per yeor 9,080 jobs; 

See CDBG on poge 3 

Wft to right, IH5 Global Insight Regional Economif!IJ Director JomeJ 

Diffley, Prince George's Counry br.ecutive Ru1hem Bal.:er, U5CM 

Communiry Development and Housing Choir Newton (MA} Mayor 

5etti Warren, TatTant Counry (TX) Judge NACo President Glen Whitley, 

Davenport (lA) Moyor Bill Gluba, USCM President Burnsville (MN) Mayor 

Elizabeth B. Kauh:, NLC 2nd Vice President Avondale (AZ) Mayor Marie 

Lopex R.ogers, NLC Jst Vice Pre.Jicknt Blvffton (IN} Mayor Ted Ellis, and 

NI.C President Charlorte (NC) Council Member James Mitchell, 

Conference of Mayors Reaches Out to Mayors in Japan See Sto•y on page 7 
546 


26626.506

Pleasanton's Underground 

Infrastructure: Sustainability, 

Cost-EHiciency Through 

Better Materials 

Procurement Practices 

By Pleasanfon (CA) Mayor Jennifer 

Hosferrnon 

Pleasanton (CA) is one of the best 

places to live in the U.S., according 

to Money Magazine. As a lang-time 

resident and fourth-term mayor, l om 

not surprised the city is recognized for 

its recreational, educational and cultural facilities as well as o climate that 

ore second-to-none. Our residen~ are 

proud of the general high quality of life: 

o low crime rote, dean stmeb, and stable employment- even in the$El times of 

high unemployment. We ore alw com· 

milted to building and mointoining sloteof..the-o"rl infr-ostructure- particularly the 

underground water and wastewater systems. That is why we hove embraced a 

n01Hradifional approach to pipe molerial selection and installation. The city 

enjoys several significant public benefil3 

from doing so. 

The city grew rapidly in the 1960s 

and 70s, and to accommodate the 

growth, '1t was necessary to expand 

water and wastewater pipe systems. The 

city cantrocts for water purification and 

wasle>Nater treatment services, but owns 

and maintains the pipe systems. Over 

the years, various piping materials were 

used. At first osbestos·cemenl pipe was 

installed, later being ~placed by ductile 

iron. Local soil with high alkalinity and 

other factors, such as soil moish.lre and 

stray electrical currents from other utili· 

lies, accelerate the corrosion of buried 

metal infrastruo::lure. Thus, c:orrosioninduced failure Ia<:! to adoption of costly 

measures to protect the iron pipe. 

Pleasanton is not alone in this respect. 

A 2002 Congressional sh.ldy found that 

Plea•anton. (CA] Mayor Jennifer 

Hosterman 

corrosion costs U.S. drinking water and 

sewer systerru $50.7 billion annua!!y.l 

Pipe corrosion is a leading cauM! of aver 

850 da'1ly water main breaks throughout 

North America. 

Pleasanton's utilities department 

adopted o variety of measures to deal 

with corrosion., Pleasanton Utilities 

Superintendent Don Marlin has overseen operations and maintenance of 

the water and wastewater pipe systems 

in addition Ia his many ather utilities 

responsibilities. Utilities managers strive 

to build durable, sustainable utilities that 

minimi:z.e operating and maintenance 

co$h. When rehabilitating or e;oo:panding 

the infrostruch.lre with ductile iron pipe, 

we typically require corrosion protection 

based on several systems that include 

epoxy coatings, polyethylene sleeves ond 

While traditional modes of doing business 

may be the best way, it is always fair to 

challenge the stotus quo, especially if a 

more efficient and sustoinable approach is 

available. 

Page 16 

- Pleasanton (CA) Mayer 

Jennifer Hosterman 

U.S. MAYOR 

U.S.MAYGR 

1620 I Street NW, Fourth Floor 

Washington, DC 20006 

sacrificial anodes connected to the pipe. 

While these protective measures have 

performed we!!, they greatly increased 

initial material and placement cosh. 

As a solution to corrosion and to 

better control costs, Pleasanton began 

using corrosion-proof PVC pipe in the 

mid·1980s because it doesn't need 

coatings, liners, or other materials to 

ensure strength or sustainability. Martin, who reporb to the mayor ond city 

council regularly, indicates that for the 

past decade over 90 percent of our pipe 

installations have involved PVC, which 

now represenb about one third of our 

water and wastewater lines. 

The resulh have been very impressive. 

Cast savings a~ confirmed by city staff. 

Jim Gotcher, our city canstruc~an man· 

ager, ~parts tho! PVC pipe is about 70 

percent cheaper than duc~!e iron. He alr.o 

emphasizes that PVC's cost-effectiveness 

~suits from various factors in addition to 

ih relo~ve cost advantage compared to 

troditianol pipe materials. For example, 

he says that it doesn't need the corrosion 

protection of ductile iron pipe, and instollation is less labor inlen$ive ond can be 

done with lighter equipment. 

This alternative pipe material performs 

well in the sustoinobility category. PVC 

pipe failures are extremely rare, helpillg to hold the line an operation and 

maintenance cosh - which are, accord· 

ing to a 2010 U.S. Conference ofMoyors 

Report an Trends in Public Ellpendih.lres 

on Water and Wastewater, have for surpassed capitol casls. Other public works 

information suggests that water and 

wastewater pipe O&M casl3 are increas-

~Jd~:~:fJ;r~~~ ~~~n!:1~ :~b~ ble, though most of it has yet to enter the 

recycling stream given il3 durobility and 

expected long in·u.5e life-cycle. 

As mayor, ! am commilted to the 

goa! of continually enhancing cur 

community's livability and sustainabil· 

ity. like other mayors, I rely heavily on 

city council and staff to be key drivers 

in establishing policies and programs 

that ensure Pleasanton's high quality 

of life and ib dedication to excellence. 

Part of this approach to improving customer service is managing with an eye 

for the rniny day, spending ~arrer and 

opening procurement policies to alternate materials like PVC pipe. As well, 

reserves were set aside in good times, 

allowing the city to conffnue investing in 

its infrastructure today. 

Ten yeors ago, we initiated progrorru 

to improve how Pleasanton manages 

its work, including sewer and water 

systems, to upgrade our services and 

expand opportunities for our population. Pleasanton's demonstrated progress and oubide recognition hove came 

from being odaptive, Aexible and open 

to beHer technologies such as PVC pipe, 

and other infrastruch.lre materials and 

ways of doing city business. This is a!! 

part of goad-government and smortgovemmenl. 

While traditional modes of doing 

business may be the best way, it is 

always fair to challenge the stah.ls quo, 

especially if o more efficient and sustoinob!e approach is ovai!ab!e. From ser· 

vice delivery to procurement practices it 

makes sense to keep an open mind from 

stofftocounc!! to mayor. 

(Endnotes} 

I U.S. O..porlmenl of Tron:~porlrllion ond ~he 

National Associalion of Cormsion Errgineen 

Cormsi0<1Costtondf'nMlnlr:ffl..-eSirolegiesin 

lheUnirn.dSiclw,Morr:h2002. 

2 Woterlnfms/r!JdureNetv.t>rl.:, C1oon &Sal.. 

Wafer For the 21<1 Coolt!ry A Re~ 

National Cammilmenl /o Watar and Wosltr 

wolarlnfmslrudurn, Apri/2000. 

MoyorJoreinvit..dlosvbmittlw:J~Best 

Practicm~ of their cities 1o U.S. ~YOR 

ContoctPub/icAffairsat202-29J-7330or$8nd e'ffl(Jiltoinfo®usmoyorJorg 

March 28, 2011 
547 


26626.507

THE BOND BUYER lliE DJIJL '( NEW$PAPER OF PUBliC fiNANCE 

A Better Path for Infrastructure 

Octohcr 20 l ~ 

By Gregory M. Baird 

While many officials may just want to throw money at our nation's infrastructure issues ("We already have the 

infrastructure bank we need," the Washington Post, Sept. 29), there is common sense in doing things smarter. 

For instance, much of our infrastructure is not managed correctly and results in early failures. Prior to any new 

public-private or federal funding or bailouts, infrastructure asset management best practices should be 

employed with the goal of maintaining an asset at an acceptable level of service at the lowest life-cycle cost. 

Asset management guides the asset investments in all stages, including planning, acquisition, operations, 

maintenance, renewal and decommissioning. 

Take our water and wastewater systems- 60% of the $700 billion-plus costs are the underground pipes. The 

wood pipes of the 1800s, the thick, grey, cast-iron pipes of the 1900s, the thin ductile iron pipes of the post1950s, all need to be replaced because of age and corrosion. 

These pipes are not going to fail all at once, so asset management helps direct the repair-replacement 

strategy, amount and timing of the investment. 

Another huge replacement cost savings includes the use of non-corrosive materials like PVC, which studies 

suggest has a design life of 110 to 170 years or greater, at 30-70% of the metallic pipe costs. 

Our nation can go a long way on the path of self-help in better managing our infrastructure and making wise 

replacement decisions. The federal government can focus on removing the state volume caps on privateactivity bonds to generate $50 billion for private funding of public water-wastewater projects. 

Washington can and should also support WIFIA (the Water Infrastructure Financing Innovations Authority) to 

offer low-cost capital loans to water utilities, and SRFs (state revolving funds) at a time when the White House 

is proposing to cut 38% of SRF funding. 

Chief Financial Officer, AWl Consulting 

Greg.m.baird@AgingWaterlnfrastructure.org 

2011 The Bond Buyct ;;tnd SourccMedia. Inc.. AU nghts rescrv0d. Usc, 

herem, exc0pt as m the subsuiptmn agreement. is strktly 

informa.tlon Reprint Sci vices pi case YlSit: http; I /\1conse. lcopyrlght.net/3, 77~5?1cX .. id"'20090817f'NHRUTWS 
548 


26626.508

Points 

58 

57 

56 

50 

49 

45 

43 

43 

43 

43 

43 

43 

43 

43 

43 

43 

42 

41 

41 

41 

41 

41 

40 

40 

40 

39 

39 

39 

39 

38 

36 

36 

36 

35 

35 

35 

35 

35 

34 

34 

33 

Rhode Island Department of Environmental Management 

Office of Water Resources 

Fiscal Year 2012 Project Priority List 

Category Community Project Name/Number 

10 Charlestown Community ISOS Repair Program 

10 North Kingstown North Kingstown Community Septic System Loan Program 

10 South Kingstown Community OWTS Repair Program 

10 Westerly Community Septic System Loan Program 

10 New Shoreham Community Septic System Loan Program 

10 Warwick Community Septic System Loan Program 

11 Narragansett Phase II Stormwater Program Compliance 

5 NBC Phase II CSO Facilities WCSOI West 

5 NBC Phase II CSO Facilities WCSOI Site Demolition 

5 NBC Phase II CSO Facilities WCSOI Regulator 

5 NBC Phase II CSO Facilities WCSOI North 

5 c Phase II CSO Facilities OF 037 North 

5 c Phase II CSO Facilities OF 037 West 

5 Phase II CSO Facilities OF 037 South 

5 Phase II CSO Facilities OF 027 

5 Phase II CSO Facilities Program and Construction Management 

4C,10 1rwick Community Sewer Tie~in Program 

5 NBC Phase II CSO Facilities WCSOI Main 

5 NBC Phase I! CSO Facilities SCSO! Regulator Modifications 

5 NBC Phase II CSO Facilities SCSOI Main 

5 NBC CSO Phase II Facilities Design 

5 NBC Phase II CSO Facilities OF 106t 

11 Charlestown Elimination of Directed Stormwater Discharge into Green Hill Pondt 

11 South Kingstown Phase II Stormwater Program Compliance 

11 South Kingstown TMDL Program Implementation 

5 NBC Floatables Control Facilities for CSO Outfalls 

10 Tiverton Community Septic System Repair Program 

4C Wa!Wick Sherwood Pari< Sewer ProjecUWSA Contract #90 

4C Warwick Greenwood East Sewer Project!WSA Contract #87 A 

10 Narragansett ISDS Management Program 

2 NBC Field's Point VIJVI/TF Nitrogen Removal Upgrade 

6 North Kingstown North Kingstown Town Wide Facilities Plan 

4C Warwick Strawberry Field Rd. Sewer Project/WSA Contract #77A 

10 Exeter Community Septic System Loan Program 

10 Hopkinton Community Septic System Loan Program 

10 Glocester Community Septic System Loan Program 

6 Portsmouth Illicit Discharge Detection Program 

10 Richmond Community Septic System Loan Program 

10 Portsmouth Community Septic System Repair Program 

10 Portsmouth Septic Repair Financial Assistance Program 

4C,40 Narragansett Harbour Island Sewers 

Page 1 of? 

Cost($) 

$900,000 

$300,000 

$1,000,000 

$300,000 

$300,000 

$150,000 

$150,000 

$18,076,000 

$667,000 

$1,096,000 

$24,000,000 

$15,126,700 

$24,608,000 

$15,126,700 

$11,412,000 

$30,315,000 

$150,000 

$116,332,000 

$19,791, ~ $10,197,000 

$200,000 

$150,000 

$650,000 

$3,395,000 

$300,000 

$1,500,000 

$8,700,000 

$250,000 

$71,789,000 

$100,000 

$3,000,000 

$300,000 

$300,000 

$300,000 

$100,000 

$300,000 

$10,000,000 

$12,000,000 

$7,585,600 
549 


26626.509

Points 

32 

31 

30 

30 

28 

28 

28 

27 

26 

26 

26 

26 

25 

25 

25 

25 

24 

24 

24 

24 

24 

24 

24 

24 

23 

23 

23 

23 

23 

23 

22 

22 

22 

22 

22 

22 

21 

21 

21 

21 

21 

20 

Rhode Island Department of Environmental Management 

Office of Water Resources 

Fiscal Year 2012 Project Priority List 

Category Community Project Name/Number 

5 

~ Implementation of System Master Plan for CSO Control 

10 Touisset Onsite WWMP Implementation- CSSLP 

2 NBC Bucklin Point VI/WTF Nitrogen Removal Facilities 

2 Smithfield Smithfield Facility Tertiary Treatment Upgradest 

4C,4D North Smithfield St Paul Area Sewer System 

4C.4D Warwick Bayside/longmeadow I Sewer Project/WSA Contract #86A 

4C,4D Warwick Warwick Vet's Force Main Relocation 

2 Cranston Wastewater Treatment Plant Upgrades 

11 Newport Stormwater Infrastructure Improvements 

4C,4D North Kingstown Post Road North 3 

4C,10 North Smithfield Community Sewer Tie-in Program 

36,11 Warren Water Street Sewer Line Replacement and Stormwater Abatement 

11 Middletown Easton's Point Stormwater Quality Improvements 

12 Providence Land Purchase for Water Quality Protectiont 

4C South Kingstown Upper Salt Pond Collection System 

6 Tiverton Facilities Plan Update 

11 Barrington Stormwater Drainage Upgrade/Rehab 

6 Bristol CMOM Program 

4C,4D Narragansett Great Island Sewers 

1 North Kingstown QDC Infrastructure Upgrades 

4C,4D North Kingstown Post Road North 2 

4C.4D North Kingstown Post Road North 1 

4C.4D North Kingstown Community Tie-in Program 

40 

10 Bristol ~~'"•~"-'""'"'-00' astewater Management Program 

4C Burrillville n Village Sewers- Contract 19A-3 

11 Cranston Drain Upgrades 

11 East Greenwi and Harbor District Stormwater Abatementt 

10 Smithfield munity Septic System Repair Program 

4C,4D Westerly Town Wide Sewer Expansion 

4C Narragansett Baltimore!Rhode Island Avenue Sewers 

4C Tiverton Bay Area Sewers 

4C iverton Summerfield Lane/Craig Ave. Sewers 

4C Tiverton Old Colony Area Sewers 

4C Tiverton Randolf Avenue Sewers 

4C,10 Tiverton Community Sewer Tie-In Program 

4C Burrillville Expansion of Sanitary Sewer System- Contract 21 

4C,4D Burrillville Eastern Village Sewers- Contract 19C 

11 East Greenwich McHale Athletic Fields Stormwater Mgmt.t 

2 WaiWick INNTF Upgrades to Comply with RIP DES Permit- Conlract #91 

R Woonsocket Wastewater Facility Upgrades 

Bristol Wastewater Pump Station Improvements, Constitution and Mt. Hope 

Page 2 of? 

Cost($) 

$35,000,000 

$750,000 

$52,688,000 

$7,000,000 

$6,179.700 

$5,000,000 

$600,000 

$30,000,000 

$500,00 

$3,500,00 

$300,00 

~ $150,000 

$1,500,000 

$350,000 

$8,750,300 

$5,000,000 

$8,500,000 

$20,500,000 

$300,000 

$600,000 

$300,000 

I $91,850,000 ""J

$1,409,300 

$5,300,000 

$275,000 

$4,400,000 

$585,000 

$300,000 

$2,100,000 

$2,300,000 

$1,500,000 

$14,000,000 

$50,000,000 

$2,500,000 
550 


26626.510

Points 

20 

19 

19 

19 

19 

19 

19 

19 

18 

18 

18 

18 

18 

18 

18 

18 

17 

17 

17 

17 

17 

17 

16 

16 

16 

16 

16 

16 

16 

16 

16 

16 

16 

15 

15 

15 

15 

15 

15 

Rhode Island Department of Environmental Management 

Office of Water Resources 

Fiscal Year 2012 Project Priority List 

Category Community Project Name/Number 

6 Portsmouth Small Lot Septic Solutions Study 

4C Burrillville Eastern Village Sewers~ Contract 198-2 

4C Coventry Wendell Ave. Sewer Project- Contract 9 

2 Cranston Odor Control at the Plant and Covering Clarifiers 

1 Narragansett Regional \IWI/TF Process Upgrade 

11 ~"I'~;,, Glycol Collection and Treatment Facility 

1 South Kingstown South Kingstown Regional \IWI/TF Septage Receiving Facilities 

2,6,7 West Warwick VI/WTF Process Improvements (Phosphorous) 

6 Burri!lville 

38 Middletown ~~·"~""~· ley Neighborhood Sewer Replacement 

10 Portsmouth ent Systems 

4C Smithfield Baldwin Dr., Kimberly Ann Dr., Crabapple Ln., 

. 

4C,4D Smithfield Reservoir Area~lndian Run Plat., Totem Pole Tr. 

11 

38 Warren ~"· ... -~,~.'-"'" Interceptors along Metacom Ave. 

4C,4D Westerly Collection System Expansion 

3A Bristol Source Removal 

4C Coventry Main Street and Industrial Drive Sewer Extension 

4C,10 Cranston Community Sewer Tie-In Program 

11 Glocester Catch Basin Retrofit Program 

1 Narragansett Regional \IWI/TF Hydraulic Expansion 

8 Richmond Richmond Landfill Cap Compliance 

4C,4D Coventry Fast Track Sewer Interceptor (Contract 1 &2) Refinance 

3A East Greenwich Inflow/Infiltration Analysis 

11 Glocester Chepachet River Park Stormwater Retrofitt 

1,12 NBC Field's Point \IWI/TF Wind Turbinet 

1,12 NBC Bucklin Point \IWI/TF Biogas Reuse Energy Projectt 

4C Smithfield Austin Ave., Mapleville Rd./Colwell Rd. 

1 South Kingstown South Kingstown Regional \IWI/TF Process Upgrades 

1 South Kingstown South Kingstown Regional \IWI/TF Phase II Hydraulic Expansion 

1 South Kingstown Regional \IWI/TF Replacement Generator 

4C,4D South Kingstown Saugatucket Pond (North Road) Sewers 

4C,4D Warwick Bayside/Longmeadow Ill Sewer Project!WSA Contract #86C 

3A,3B Barrington Sewer Line Rehabilitation 

6 Barrington Sewer System Evaluation Study 

1 Bristol WNTF Headwork.s & Misc. Improvements 

1 Bristol Replacement of Existing RBCs 

4C,1~ ~Sewer Tie-In Program 

10 ranston ISDS Repair Program 

Page 3 of7 

Cost($) 

$250,000 

$2,800,000 

$750,000 

$5,000,000 

$8,887,200 

$25,255,000 

$500,000 

$8,200,000 

$125,000 

$1,597,500 

$10,000,000 

$1,500,000 

$5,000,000 

$300,000 

$200,000 

$30,000,000 

$4,000,000 

$2,721,000 

$500,000 

$250,000 

$5,564,160 

$100,000 

$6,485,601 

$400,000 

$609,000 

$14,953,778 

$2,813,000 

$2,420,000 

$3,700,000 

$3,600,000 

$300,000 

$2,300,000 

$3,910,000 

$3,500,000 

$1,000,000 

$3,000,000 

$4,400,000 

$500,000 

$200,000 
551 


26626.511

Rhode Island Department of Environmental Management 

Office of Water Resources 

Fiscal Year 2012 Project Priority List 

Points Category Community Project Name/Number 

15 1 Narragansett Scarborough WWTF Upgrades 

15 8 Smithfield Landfill Closure (Ridge Road) 

14 38 Bristol Sewer Cleaning and TV Inspection 

14 I 4C Narragansett Alexander Drive Sanitary Sewers 

14 1 NBC Regulatory Compliance Building 

14 38 NBC Branch Avenue Interceptor Improvements 

14 38 NBC Louisquisset Pike Interceptor Replacement Effie Warwick Northwest Gorton Pond Sewer Project/\NSA Contract #88 

Warwick GAPS (Miscellaneous Sewer Extensions) 

13 3A~8 Bristol Sewer System Repairs 

13 4C Burrillvil!e Union/Emerson Sanitary Sewers-Contract 20 

13 4D Coventry Tiogue Ave. West (Nooseneck Hill Road)- Contract 7 

13 4C Coventry Hopkins Hill East Sewer Project 

13 4C Coventry Huron Pond Area Sewer Project 

13 4C,4D Coventry Quidnick Village- Contract 8 

13 4C,4D Coventry Lakeside Area II Sewer Project- Contract 11 

13 4C,4D Coventry Tiogue School & East Shore Dr.-Contract 10 

13 38 East Greenwich Water Street Collector Rehabilitation 

13 2 NBC NBC Fire Code Compliance 

13 4D South Kingstown South Road Interceptor 

13 4D South Kingstown Curtis Corner Road Interceptor 

13 6 Warwick CMOM/Asset Management!GIS Survey 

13 2 West Warwick Advanced WWTP Improvements - Clarifier Addition 

13 38 West Warwick Clyde Interceptor 

12 38 Barrington Ejector Stations (5) Rehab/Upgrade 

12 8 Barrington Landfill Closure #3 

12 8 Barrington Landfill Closure #4 

12 1 Burrillville WVVTF- General improvements and Maintenance Upgrades 

12 3A Cranston Inflow/Infiltration Study Implementation 

12 38 Cransto acity Upgrades 

12 4C Narraga Sewers 

12 38 NBC leaning and Inspection of NBC Interceptors 

12 1 Smithfield Smithfield Treatment Plant Upgrades-HVACt 

12 4C Smithfield Richard St. and Hazel Point 

12 4C Smithfield Green Lake Dr. and Russ Stone Dr. 

12 4C Smithfield Fanning Lane Area 

12 4C,4D Smithfield Friendship ln., Domin Ave., Potter Ave., Rawson Ave., Sydney St., 

Myers St., Ridge Rd. 

12 4C,4D Smithfield Highview and Hi!ldale Estates 

12 4C,4D Smithfield Levesque Dr., Jambray Dr., Dongay Dr., Elna Dr., John Mowry Rd., 

Bravton Rd. 

12 6 Warren Facility Plan Updates for Nitrogen Removal and Flow Discharge 

Limit 

Page 4 of7 

Cost($) 

$8,237,000 

$3,000,000 

$270,000 

$90,000 

$21,296,000 

$1,887,000 

$2,600,000 

$2,875,000 

$2,300,000 

$1,500,000 

$1,100,000 

$1,300,000 

$2,200,000 

$2,800,000 

$4,800,000 

$2,300,000 

$4,410,000 

$1,600,000 

$100,000 

$1,700,000 

$2,200,000 

$500,000 

$4,000,000 

$1,400,000 

$1,000,000 

$1,500,000 

$1,500,000 

$150,000 

$900,000 

$1,400,000 

$228,000 

$3,500,000 

$750,000 

$565,000 

$855,000 

$2,850,000 

$1,235,000 

$6,415,000 

$3,450,000 

$375,000 
552 


26626.512

Points 

12 

11 

11 

11 

11 

11 

11 

10 

10 

10 

10 

10 

10 

10 

10 

10 

10 

10 

10 

10 

10 

10 

10 

9 

9 

9 

9 

9 

9 

9 

9 

9 

9 

9 

9 

8 

8 

8 

Rhode Island Department of Environmental Management 

Office of Water Resources 

Fiscal Year 2012 Project Priority List 

Category Community Project Name/Number 

1 Warwick VWVTF Flood Protection Measures 

4C,10 Bristol Service Connection Loan Program 

3B Narragansett Sprague Pumping Station 

11 Narragansett Phase 1~ Porous Pavement at Town Beach S. Parking lot 

11 Narragansett Phase IIR Porous Pavement at Town Beach N. Parking Lot 

6 NBC River Model Development 

6 West Warwick Inflow/Infiltration Study Implementation 

3B Burril!vil/e Pumping StationsR General improvements and Maintenance 

Uoarades 

3B Middletown Town·wide CIPP S!iplining & Manhole Rehab Annual Program 

3B Middletown Marshall Village Pump Station Replacement 

3B Middletown !Stockton Dr. Pump Station Replacement/Removal 

3B Middletown !stockton Dr. Collection System 

3B Middletown !Commodore Perry Village Sewer Improvements 

3B Middletown Easton's Point Sewer Improvements 

3B Middletown Forest Ave. Sewer Relining and Repair 

3B Middletown Sewer Main Upgrades (Newport/Middletown Line) 

3B Middletown Aquidneck Ave. Sewer Upgrade 

6 Middletown SSES lnflow&lnfiltration Investigation 

1,12 Narragansett Scarborough & SK Regional Treatment Plants' Wind Energy 

Feasibilitv Studv and Data Collectiont 

3B NBC Improvements to NBC Sewers-FY 2012 

3B NBC Improvements to NBC Sewers-FY 2010 

3Bg 

Improvements to Town's Pump Stations 

4C Governor Francis Farms Ill Sewer Project: WSA Contract #858 

4C Woodland Sewer System 

38 Cranston System Wide Sewer Repair 

3A Narragansett Sand Hill Cove Area Ill Study/Removal 

3A Narragansett Pier Area Flow Improvements 

38 Narragansett Bonnet Shores Pumping Station 

3B Narragansett Mettatuxet Pumping Station 

3B Narragansett Wolf Road Pumping Station 

3B NBC New IM Facilities 

6 NBC Site Specific Study 

1 Smithfield Upgrade Smithfield Wastewater Treatment Plant's Fire Protection 

Svstem 

4C Smithfield North Candy Court Sewers 

4C Smithfield Elmgrove Avenue 

3B NBC Interceptor Easements- NBC AVI 

3B,7 NBC Interceptor Easements- NBC 8VI 

6 NBC Hydraulic Systems Modeling 

Page 5 of? 

Cost($) 

$8,000,000 

$150,000 

$1,050,000 

$588,765 

$1,033,967 

$378,000 

$500,000 

$500,000 

$570,000 

$625,000 

$575,000 

$900,000 

$495,000 

$2,000,000 

$2,100,000 

$750,000 

$465.000 

$370,000 

$250,000 

$1,500,000 

$702,000 

$320,000 

$5,060,000 

$1,000,000 

$1,400,000 

$200,000 

$100,000 

$150,000 

$95,000 

$55,000 

$6,609,000 

$452,000 

$250,000 

$160,000 

$720,000 

$1,361,425 

$327,000 
553 


26626.513

Points 

8 

8 

8 

8 

8 

8 

8 

8 

8 

8 

7 

7 

7 

7 

7 

7 

7 

7 

6 

6 

6 

5 

5 

5 

4 

4 

4 

4 

4 

4 

4 

4 

4 

4 

Rhode Island Department of Environmental Management 

Office of Water Resources 

Fiscal Year 2012 Project Priority List 

Category Community Project Name/Number Cost($) 

3A,3B Newport Sanitary Sewer Improvements I $4,000,000 

3A,3B Newport Sanitary Sewer Improvements II $4,000,000 

4C North Kingstown Pine River Road $1,300,000 

4C North Kingstown Mark Drive $3,600,000 

4C,4D North Kingstown Post Road South 1 $3,500,000 

4C,4D North Kingstown Post Road South 2 $9,300,000 

4D North Kingstown ASOAH Road Sewer Replacement $600,000 

3B South Kingstown Silver Lake/Kingston Pump Station Upgrades $500,000 

3B South Kingstown Replacement Jet~Vac Truck $290,000 

1 Westerly Energy Efficient Blower Upgradet $385,000 

6 Barrington GIS Software $10,000 

12 Barrington Vactor Truck $260,000 

6 

""~·"·· s· -·~" , .. , .. 

$100,000 

3B NBC oom $113,000 

1 New Shoreham , Motor Control Center, Power $800,000 

3A Smithfield ation and In-Flow Removal- SSES $1,500,000 

3B Warwick Swamp Line Break Emergency Repair (Refinance) $2,000,000 

4C,10 West Warwick unity Tie-In Program $300,000 

3B Cranston Sewer Pump Station Flood Proofing $500,000 

6 NBC NBC System W1de Facilities Planning $1,392,400 

2 Westerly VWI/TF Expansion $7,500,000 

3B NBC Moshassuck Valley Interceptor Replacement $2,884,000 

3B NBC NBC Interceptor Easements $5.432,000 

3B NBC Rehabilitation of NBC CSO Interceptors $6,058,000 

1,12 East Providence Forbes Street Solar Projectt $10,000,000 

3B Narragansett North Interceptor Access Road $100,000 

38 Newport Railroad Interceptor Replacement/Relocation $3,000,000 

3B Newport Hazard Ave. and Coddington Wharf Pump Statton Improvements $200,000 

3B Warren Locust Terrace Pump Station Upgrade $350,000 

38 Warwick ~o the Warwick Ave. Pump Station $345,000 

38 Warwick Relocation of the Knight Street Pump Station $1,750,000 

3B Warwick ockwood Force Main Away from Apponaug Pump Station $1,150,000 

3B Warwick Upgrades to the Oakland Beach Pump Station $500,000 

3B Warwick Reconstruction/Relocation of Bellows St. Pump Station $800,000 

Total: $1,257,420,854 

t Qualifies for Green Project Reserve 

Page 6 of7 
554 

Æ 


26626.514

Points 

Rhode Island Department of Environmental Management 

Office of Water Resources 

Fiscal Year 2012 Project Priority List 

Category Community Project Name!Number Cost($) 

Not.(tat~!t"*~I:Oiel:JA1readi'.Fund~di0otte!if~od'Stiilctioli1Colll 

Points Category Community Project Name/Number Cost($) 

-- 4C,4D Coventry Lakeside I Sewer Project-Contract 8 $2,896,000 

-- 4C East Greenwich Howland Farm Sewer Extension $600,000 

-- 3B NBC Field's Point WNTF Flow Control Efficiencies $1,740,000 

--- 5 NBC Tunnel Odor Control $1,500,000 

--- 5 NBC Resident Services for Phase I Construction $36,220,000 

-- 5 NBC Tunnel Pump Station & Site 1 Fitout, 067 Facilities $58,900,000 

-- 4C Warwick Governor Francis Farms II Sewer ProjectsfWSA Contract #BSA $4,500,000 

-- 4C,4D Warwick Bayside/Longmeadow IV Sewer Projects/WSA Contract #860 $4,370,000 

Total: $110,726,000 

Points Category Community Project Name/Number Cost($) 

--- -- Barrington Utility Truck $70,000 

-- -- Barrington Compost Screener $300,000 

--- 11 Westerly Misquamicut Municipal Drainage Project $880,000 

Total: $1,250,000 

Page 7 of 7