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71–489CC 2001

DRINKING WATER NEEDS AND INFRASTRUCTURE

HEARING

BEFORE THE

SUBCOMMITTEE ON ENVIRONMENT AND

HAZARDOUS MATERIALS

OF THE

COMMITTEE ON ENERGY AND

COMMERCE

HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

MARCH 28, 2001

Serial No. 107–59

Printed for the use of the Committee on Energy and Commerce

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/house

2

COMMITTEE ON ENERGY AND COMMERCE

W.J. ‘‘BILLY’’ TAUZIN, Louisiana, Chairman

MICHAEL BILIRAKIS, Florida

JOE BARTON, Texas

FRED UPTON, Michigan

CLIFF STEARNS, Florida

PAUL E. GILLMOR, Ohio

JAMES C. GREENWOOD, Pennsylvania

CHRISTOPHER COX, California

NATHAN DEAL, Georgia

STEVE LARGENT, Oklahoma

RICHARD BURR, North Carolina

ED WHITFIELD, Kentucky

GREG GANSKE, Iowa

CHARLIE NORWOOD, Georgia

BARBARA CUBIN, Wyoming

JOHN SHIMKUS, Illinois

HEATHER WILSON, New Mexico

JOHN B. SHADEGG, Arizona

CHARLES ‘‘CHIP’’ PICKERING, Mississippi

VITO FOSSELLA, New York

ROY BLUNT, Missouri

TOM DAVIS, Virginia

ED BRYANT, Tennessee

ROBERT L. EHRLICH, Jr., Maryland

STEVE BUYER, Indiana

GEORGE RADANOVICH, California

CHARLES F. BASS, New Hampshire

JOSEPH R. PITTS, Pennsylvania

MARY BONO, California

GREG WALDEN, Oregon

LEE TERRY, Nebraska

JOHN D. DINGELL, Michigan

HENRY A. WAXMAN, California

EDWARD J. MARKEY, Massachusetts

RALPH M. HALL, Texas

RICK BOUCHER, Virginia

EDOLPHUS TOWNS, New York

FRANK PALLONE, Jr., New Jersey

SHERROD BROWN, Ohio

BART GORDON, Tennessee

PETER DEUTSCH, Florida

BOBBY L. RUSH, Illinois

ANNA G. ESHOO, California

BART STUPAK, Michigan

ELIOT L. ENGEL, New York

TOM SAWYER, Ohio

ALBERT R. WYNN, Maryland

GENE GREEN, Texas

KAREN MCCARTHY, Missouri

TED STRICKLAND, Ohio

DIANA DEGETTE, Colorado

THOMAS M. BARRETT, Wisconsin

BILL LUTHER, Minnesota

LOIS CAPPS, California

MICHAEL F. DOYLE, Pennsylvania

CHRISTOPHER JOHN, Louisiana

JANE HARMAN, California

DAVID V. MARVENTANO, Staff Director

JAMES D. BARNETTE, General Counsel

REID P.F. STUNTZ, Minority Staff Director and Chief Counsel

SUBCOMMITTEE ON ENVIRONMENT AND HAZARDOUS MATERIALS

PAUL E. GILLMOR, Ohio, Chairman

JAMES C. GREENWOOD, Pennsylvania

STEVE LARGENT, Oklahoma

GREG GANSKE, Iowa

JOHN SHIMKUS, Illinois

(Vice Chairman)

HEATHER WILSON, New Mexico

VITO FOSSELLA, New York

ROBERT L. EHRLICH, Jr., Maryland

STEVE BUYER, Indiana

GEORGE RADANOVICH, California

CHARLES F. BASS, New Hampshire

JOSEPH R. PITTS, Pennsylvania

MARY BONO, California

GREG WALDEN, Oregon

LEE TERRY, Nebraska

W.J. ‘‘BILLY’’ TAUZIN, Louisiana

(Ex Officio)

FRANK PALLONE, Jr., New Jersey

EDOLPHUS TOWNS, New York

SHERROD BROWN, Ohio

GENE GREEN, Texas

KAREN MCCARTHY, Missouri

THOMAS M. BARRETT, Wisconsin

BILL LUTHER, Minnesota

LOIS CAPPS, California

MICHAEL F. DOYLE, Pennsylvania

JANE HARMAN, California

HENRY A. WAXMAN, California

EDWARD J. MARKEY, Massachusetts

JOHN D. DINGELL, Michigan,

(Ex Officio)

(II)

3

C O N T E N T S

Page

Testimony of:

Beecher, Janice A., Beecher Policy Research, Inc., on behalf of the National Association of Water Companies ....................................................... 138

Beider, Perry, Principal Analyst, Congressional Budget Office ................... 122

Hamill, Barker, Association of State Drinking Water Administrators,

Chief, Bureau for Safe Drinking Water, New Jersey Department of

Environmental Protection ............................................................................ 146

Ingram, Beverly, Assistant Director, Detroit Water and Sewer Department, on behalf of the Association of Metropolitan Water Agencies ........ 134

Neukrug, Howard, Director, Office of Watersheds, Philadelphia Water

Department, on behalf of the American Water Works Association .......... 128

Olson, Erik D., Senior Attorney, Natural Resources Defense Council ......... 154

Whitman, Hon. Christine Todd, Administrator, U.S. Environmental Protection Agency ............................................................................................... 25

Material submitted for the record by:

Dingell, Hon. John D., and Hon. Frank Pallone, Jr.:

Letter dated March 28, 2001, to Hon. Christine Todd Whitman, requesting response to questions ............................................................. 164

Letter dated May 2, 2001, to Hon. Christine Todd Whitman, requesting response to questions ...................................................................... 169

Krenik, Edward D., Associate Administrator, Office of Congressional and

Intergovernmental Afffairs:

Letter dated June 20, 2001, to Hon. John D. Dingell ............................ 172

Letter dated September 26, 2001, to Hon. John D. Dingell ................... 175

Whitman, Hon. Christine Todd, Administrator, U.S. Environmental Protection Agency, letter dated October 31, 2001, to Hon. John D. Dingell .. 179

(III)

(1)

DRINKING WATER NEEDS AND

INFRASTRUCTURE

WEDNESDAY, MARCH 28, 2001

HOUSE OF REPRESENTATIVES, COMMITTEE ON ENERGY AND COMMERCE, SUBCOMMITTEE ON ENVIRONMENT

AND HAZARDOUS MATERIALS, Washington, DC.

The subcommittee met, pursuant to notice, at 2:10 p.m., in room

2123, Rayburn House Office Building, Hon. Paul Gillmor (chairman) presiding.

Members present: Representatives Gillmor, Shimkus, Wilson,

Pitts, Bono, Walden, Terry, Bass, Tauzin (ex officio), Pallone,

Brown, McCarthy, Barrett, Luther, Capps, Waxman, and Dingell

(ex officio).

Also present: Representative Engel.

Staff present: Jerry Couri, policy coordinator; Bob Meyers, majority counsel; Peter Kielty, legislative clerk; Dick Frandsen, minority

counsel; and Dave Schooler, minority general counsel.

Mr. GILLMOR. The subcommittee will now come to order. The

Chair recognizes himself for 5 minutes for the purposes of delivering an opening statement. I want to welcome our panelists today,

particularly Governor Whitman, the Administrator of EPA, who is

appearing before us for the second time before this subcommittee.

Today’s hearing focuses on the pressing needs of drinking water

systems across the country. Provision of safe drinking water is one

of the highest environmental duties that we as a Congress could

undertake.

Water quality directly relates to the future health and well being

of our population, and this should come as no surprise to anyone

who has been told by their doctor to drink more water, or who has

had to live under the effects of a water contaminant advisory.

One of the benefits of living in this country is that over 76,000

water systems have taken great pains to construct networks that

deliver safe and affordable water. This luxury is not available in

every place throughout the world, as the Health and Environment

Subcommittee examined last year.

As the committee of sole jurisdiction over drinking water programs, we need to work diligently to ensure that a high standard

of health protection continues. The dictionary definition of clean

drinking water is that which is free from foreign matter or pollution, and not infected.

And I believe that underscores the root goals of the Safe Drinking Water Act; to help guide communities in a way that will protect

2

their drinking water from organism that could cause otherwise

healthy people to become ill. Without the provisions of the Act,

which help build pipes and direct disinfection efforts, public health

would be seriously at risk.

The Safe Drinking Water Act of 1996 required the U.S. Environmental Protection Agency to survey the needs of water systems

every 4 years, and I believe that anyone who has taken the time

to carefully look at this matter understands that the pursuit of

cleaner drinking water in local communities demands additional

resources.

Local and State taxes can be raised to meet those obligations, but

it is really the Revolving Loan Fund under the 1996 Act that helps

localities afford safe drinking water. As someone who has been a

long supporter of funding Federal mandates on local and State governments, I believe that the SRF is crucial to providing Federal resources to entities trying to comply with Federal Standards and

protect public health.

Today’s witnesses will help us better understand the drinking

water needs of communities across our country. Following up on

the recently released EPA’s drinking water needs assessment, we

will have the Administrator tell us about the needs of systems

across our country that are trying to ensure that water is disease

and contaminant free.

Later, we will have representatives from the Congressional

Budget Office, environmental groups, and drinking water associations to enlighten us on their past work and future financial requirements.

I recognize that many members of our panel have varying concerns about contaminants regulated under the Safe Drinking

Water Act, particularly arsenic, and I share your views that our

Nation has drinking water standards that are protective of human

health and the environment.

In fact, our committee has had a long dialog with the EPA on

this matter, and members may be assured that I will continue to

monitor the effort. Our hearing today has been set up under bipartisan agreement of staff, to focus solely on drinking water needs.

That being said, I would intend to exercise our committee’s authority as chairman of the subcommittee to review EPA’s implementation of the Drinking Water Act, and its work on all contaminant levels and standard setting.

I want to thank the witnesses for coming to our panel, and I

want to thank Mr. Pallone for his staff’s cooperation in setting up

this hearing. It is vital that we assess where drinking water system needs lie.

The EPA currently believes that $102 billion is immediately

needed by all sizes and forms of systems, and that another $50 bill

will be required over the next 20 years to guarantee that safe

drinking water reaches those who need it.

Certainly, just putting pipes into the ground to deliver this water

is not enough. The emphasis on this extra funding needs to be on

a comprehensive public health campaign that seeks to mobilize

public and private resources to purify water from its initial source

through its distribution channels, and finally out to tap.

3

Let me just add one short story in closing. Yesterday’s Washington Post ran a piece in its ‘‘Style’’ section on Hollywood Producer

Mike Medavoy, who was at a swank Beverly Hills cocktail party

last Friday night.

And he said that he and everyone that he knew is unaffected by

drinking water contaminants ‘‘because we all drink Evian.’’ And

when asked about people who could not afford Evian, he announced, ‘‘well, they should drink Pellegrino.’’ Well, I guess that some people’s attitude in Hollywood is not

much different than Marie Antoinette’s. But I believe that we

should not be forced into making safe drinking water a luxury for

the monied classes, but it ought to be something available for all

people in our country.

And at this point, I am very pleased to recognize the ranking

member of our panel, Mr. Pallone, of New Jersey, for the purpose

of making an opening statement.

Mr. PALLONE. Thank you, Mr. Chairman, and I want to thank

you again for holding this important hearing. The delivery of safe

drinking water is obviously an issue of the utmost importance and

an issue that warrants immediate attention, as this topic continues

to be exploited at the Congressional level.

I did want to mention that I hope that the organizations seeking

more funding will respect the clear jurisdictional divisions between

the safe Drinking Water Act and the Clean Water Act. Otherwise,

our efforts will not likely succeed.

And we are going to hear today from a number of panelists, but

I believe the message will be clear and consistent from each; the

need for updates and improvements in our drinking water infrastructure is great.

Congress must act now to renew its commitment to America’s

drinking water resources. I am particularly looking forward to

hearing from Administrator Whitman on Panel One today.

And I have to say, Mrs. Whitman, that if I call you Governor,

you have to forgive me, instead of Administrator, because once a

Governor, always a Governor. So I may keep doing that. But keeping in line with the health and safety of our drinking water, I want

to highlight my concerns about the administration’s latest actions

regarding arsenic.

The proposal to reduce the acceptable amount of arsenic in

drinking water from a level of 50 parts per billion to 10 parts per

billion is not too much to ask. The European Union and the World

Health Organization have adopted a standard of 10 parts per billion.

As a matter of fact, when Governor Whitman was serving as

Governor in New Jersey, our State Department of Environmental

Protection supported a level of 10 parts per billion, or even less,

and I know that you have previously supported that standard.

And just to give you an idea—and again I am using my own

State as an example—after the EPA decided that they were not

going to use the 10 parts per billion, at least for now, this was from

Asbury Park Press in my District.

‘‘The State Department of Environmental Protection of New Jersey said they still plan to set a 10 parts per billion limit. We certainly do not want 50 parts per billion as a standard,’’ said Eileen

4

Murphy, Assistant Secretary of the DEP’s Division of Science, Research, and Technology, commenting on the EPA’s decision. ‘‘That

should have been changed years ago. This is not a good thing for

EPA to have done.’’ So obviously I am not happy. I am hoping that Governor Whitman will give us some indication of why that was changed. I say

this because we are talking about a substance that the EPA itself

said can cause bladder, lung, skin, and other kinds of cancer.

The prior standard for arsenic in drinking water was developed

in 1942. I know that Administrator Whitman pointed to the fact

that the science was not available to back up the change to 10

parts per billion.

But again we had this study by the National Academy of

Sciences, one of the most distinguished scientific bodies referred to

by Congress, and they state that exposure to arsenic at the level

of the current standard, 50 parts per billion could easily result in

a combined cancer risk on the order of 1 in 10.

That level of risk is much higher than the maximum cancer risk

typically allowed by Safe Drinking Water Act standards. I guess I

just don’t buy this idea that the science is not there. I really do not

think that the question is the science. I think it is the special interests.

I think there are a number of special interests within the administration that did not find the new standard acceptable. It was interesting that the very day that the EPA announced that it was not

going to use the 10 parts per billion, there was an article in the

Washington Post that talked about the American Timber Institute

going into see the President or somebody else at the White House,

saying that they could not live with this because they could not— you know, they were using arsenic and painting boards that were

used for docks or boardwalks or whatever, and it was going to hurt

them in their business.

The other thing that I want to say to the Governor and with regard to this decision on arsenic regulations, is that I am not just

concerned about the standards. I am concerned about the infrastructure. That is the purpose of the hearing today.

And after reviewing Mrs. Whitman’s statement, it was clear that

the EPA recognizes the significant needs of our Nation’s drinking

water infrastructure. But if we all agree that there is a massive

shortfall in resources available for water systems to upgrade, and

replace, and expand infrastructure, I would like to know whether

President Bush plans to do anything about it.

You know, we have the budget on the floor today. Is the budget,

the President’s budget, going to meet these needs. Is he going to

be appropriating or suggesting that more money be available for

the infrastructure.

There is a problem with enforcement also with regard to safe

drinking water standards. Is the budget going to request more

money so we can enforce even the existing standards, and find out

when there is non-compliance.

Again, there is a huge discrepancy between what we are hearing

today on all sides on a bipartisan basis about what the needs are,

even from the EPA in the statements, as opposed to what level of

funding is actually going to be available.

5

And I seriously question whether this administration is going to

provide the additional funding given what they are doing with the

budget, and the tax cuts, and the magnitude of the tax cuts that

are going to be using up a large part of the surplus.

The other thing that I want to say is that I believe very strongly,

Mr. Chairman, that the Federal Government has to make this investment, and it has to make an investment in safe drinking water

infrastructure a national priority, and that of course begins here in

this subcommittee.

We have to face the fact that if the Federal Government does not

do it, the State and towns do not have the money to do it. My Governor, I’m sure, knows that from her own experience as a Governor,

and the State cannot make up this shortfall, and that means that

the ratepayers are going to have to make it up if the Federal Government does not provide the funds.

So what I am asking is that there be a significantly enhanced

Federal role in providing assistance for drinking water infrastructure. Otherwise the critical investments are not likely to be made,

or they are going to be made at costs strictly to the ratepayers.

And whether the solutions, whether it is grants, trust funds,

loans, and incentives for private investment, we can certainly discuss that. The bottom line is that we need a significant investment

of Federal dollars, and I would like to know again whether we are

going to see that from this administration in the budget, or in the

proposals on the appropriations level over the next fiscal year.

Thank you, Mr. Chairman, and again I want to thank you for cooperating with us and in making the presentations today, the panels, and working with our staffs.

Mr. GILLMOR. Thank you, Mr. Pallone. The Chair recognizes the

gentleman from Illinois, Mr. Shimkus, for an opening statement.

Mr. SHIMKUS. Thank you, Mr. Chairman, and I will just be brief.

We are going to hear a lot from my friends about obviously the arsenic decision, but what I want to say is that we had 8 years of

a previous administration who dropped this rule as they were going

out the door, probably because they couldn’t get their own side to

help them move legislation or the process through and so they

waited until the end.

I think it is very credible to make sure that we are doing the

right thing, and I have full faith and credit in your desire to uphold

the safe drinking water standards of our citizens.

I will just say on—and so I hope that we do not have to get all

emotional. We can just get down to facts and realize that we have

to base our decisions on science and not on emotions. Senator Miller, when he came to Washington, was quote as saying, ‘‘I use it

all the time now.’’

Washington, DC is the only place where the election is never

over, and here is a former Governor of a State saying that, and

that is so true in this city, and I think we are going to hear some

of that today.

Administrator, my concern and questions are going to be on rural

America and rural parts of my district. Even without higher standards, we still have parts in the rural United States where even

under the current standards we don’t have safe drinking water.

6

I mean, I have still got farmers who are going into town loading

up their water in the back of a pickup and driving it home, and

that is not uncommon, I’m sure, even in some of the rural parts

of New Jersey. There may be some of that still.

Through U.S.D.A. and rural development, they made a great effort to leverage with local water districts and the like to get usable

clean water out to rural Illinois, and what I would like the EPA

to look at is how you can all partner with those existing programs

through U.S.D.A., and cross over these administrative boundary

lines.

And also with the States, and with what they have locally, because that is of concern to the 20th District of Illinois, and I appreciate you being here, and with that, Mr. Chairman, I yield back my

time.

Mr. GILLMOR. Thank you very much. The ranking member of the

full committee, Mr. Dingell.

Mr. DINGELL. Mr. Chairman, I thank you, and I commend you

for holding today’s hearings on the Capital Investment needs of

American’s public water systems. These infrastructures are vital to

protect the public health and provide safe drinking water for our

citizens.

Last month, EPA reported that the current needs to ensure pro- vision of safe drinking water to our people are $102.5 billion and

growing, a huge sum of money. Billions more were documented as

necessary for future years, and the EPA has acknowledged that its

estimates are in fact conservative.

The funding to reduce aging pipes, facilities, and other parts of

our water infrastructure systems is a critical issue for the city of

Detroit, where pipes were first installed in 1887, over 100 years

ago, are still being used.

Mr. Chairman, this is not a partisan issue. It is thoroughly bipartisan, and I am pleased that addressing water infrastructure

funding to protect public health is a priority of this subcommittee.

For the administration of those who are seeking increased funding, I would advise them to keep in mind that drinking water infrastructure funding lies in the exclusive jurisdiction of the Committee

on Energy and Commerce under the Safe Drinking Water Act.

Matters relative to waste water funding under the Clean Water

Act have traditionally been dealt with by the Transportation Committee. Failure to work each committee in proper fashion will not

achieve the worthier goal of obtaining increased funding for our

water infrastructure needs.

One of the purposes of the State revolving fund program created

by the Safe Drinking Water Act amendments of 1996 was to assist

drinking water systems to comply with the cost of new protective

standards, such as the arsenic standard.

Since 1996, EPA drinking water State revolving fund program

has made available over $3.6 billion to assist drinking water systems, but contrast that if you will to a need of $102.5 billion, and

you will find that we have much to do.

Also in 1996, this committee on a bipartisan basis mandated that

EPA promulgate new drinking water standards for arsenic within

5 years. And if my $40 calendar watch tells me correctly, that 5

years is about up.

7

I believe that the Bush Administration’s recent announcement to

delay or withdraw the new arsenic standards of 10 parts per billion

is a serious mistake, one which jeopardizes the health of the American people, and one which Administrator Whitman will come to regret.

Americans should not be subject to health risks from arsenic in

their drinking water, and I note that arsenic is a deadly poison

that exceed those of other developed nations, and that exceed levels

recommended by the World Health Organization.

The EPA has found that long term exposure to low concentrations of arsenic in drinking water can lead to skin, bladder, lung,

and prostate cancer, cardiovascular disease, diabetes, and reproductive and adverse neurological effects.

I support sound science, but not those who use the term as a

shibboleth for more delay in changing the current unprotective arsenic standard. Thank you, Mr. Chairman. I look forward to the

testimony of our witnesses, with some emphasis on the subject of

arsenic and why the change was made.

Mr. GILLMOR. Thank you very much, Mr. Dingell. The Chair

would also point out that the focus of our hearing today is the

funding needs of drinking water systems, which is an item as the

ranking member pointed out exclusively under our jurisdiction.

I know that a lot of people may want to talk about arsenic, and

there is free speech, and so people can talk about whatever they

want. But as I indicated in my opening statement, arsenic really

deals with standards, and not needs and infrastructure.

We hope to get into that later, and I would point out that the

witnesses, under bipartisan agreement, when we asked them to

come today, had only been asked to talk upon the needs subject.

So recognizing that it is impossible for it to work that way, the

Chair would still request that the members try to stick to the agenda as much as possible. The gentlelady from New Mexico, Mrs. Wilson.

Mrs. WILSON. Thank you, Mr. Chairman. With that admonition,

I would start out by saying that the first form of self-government

in the State of New Mexico after the Spanish settled over 400 years

ago was not the town hall meeting, and it was not the parish

church.

It was the acequia commissions, and acequias are ditches, and

where we get our water from, and where we still get our water

from today as we irrigate up and down the Rio Grande Valley.

And in the American West, water is a big issue, and in some

ways it is the issue for everyone. It is kid of a—it is so serious that

you often find folks on ditches with shotguns to keep everybody

else from the ditches.

It has been a serious issue throughout the history of the West,

and it is a very important issue as we look at the development of

the West to make sure that safe drinking water is available.

In this country, 60 percent of our water supply is deemed drinkable, which is a big deal. Not many countries have achieved that,

but it also means that 40 percent is not, and there is much left to

do with respect to infrastructure.

I also want to say something about arsenic in response to my colleague from New Jersey, and that is that the State of New Mexico

8

has one of the highest naturally occurring arsenic levels in the

water because we are a volcanic State.

The water comes out of the ground with high levels of arsenic,

and we don’t have much timber industry. So the concern is not

what industry wants, but the fact is that in New Mexico we have

been drinking this water for generations, and many of the public

health effects that people fear are actually lower in New Mexico,

including the instances of things like bladder cancer and so forth.

So if you look at the public health issues impacts, I can only conclude from those two things that there is missing data at those levels below 50 parts per billion that we need to gather, or that green

chile is the natural antidote to arsenic.

But with respect to arsenic, the real issue for us is this. If we

are to change the arsenic standard for public health reasons, that

is an investment just in capital costs alone of probably three-quarters of a billion dollars in New Mexico.

I can think of a lot of ways to impact public health with $750

million, whether it is the vaccination of children, improvement of

water and waste water. There are public policy decisions that we

have to make on where we spend the marginal dollars making an

impact.

And when I don’t see the public health evidence that tells me

that we know what that level should be, between 5 and 50 parts

per billion, it is hard for me to say that that is the right way to

spend the money. And that is the issue for those of us in the Southwest. Thank you.

Mr. GILLMOR. Thank you. The Chair recognizes the gentleman

from California, Mr. Waxman.

Mr. WAXMAN. Thank you very much, Mr. Chairman. I was Chairman of the Health and the Environment Subcommittee 15 years

ago, and as such, I was one of the leaders in writing the 1986 Safe

Drinking Water Act.

And 5 years ago, I was the ranking member on the Health and

the Environment Subcommittee when we did the 1996 drinking

water amendments. So I have some experience with these drinking

water issues, and that’s why I was particularly disappointed with

the Bush Administration’s first drinking water action, this action

to revoke the arsenic standard.

That decision has left most Americans scratching their heads in

puzzlement to try to figure out why the Bush Administration wants

more arsenic in drinking water. Meanwhile, mining and chemical

lobbyists are celebrating.

Now, this weekend in my District in Hollywood, we had the

Academy Awards, and that got me to thinking. We should have

some awards here in Washington to recognize truly remarkable

performances in lobbying that result in mind-boggling government

decisions.

So I have modestly decided to initiate a new award called the

Golden Jackpot, and I have a Golden Jackpot here which has in it

coins, but they are candy coins. This award is something that I

think from time to time I will be giving out to recognize particularly indefensible and outrageous windfall given to special interest

groups.

9

And today we have three outstanding nominees; starting with

President Bush’s decision to break his campaign promise to curve

carbon dioxide emissions. The President’s decision was made possible by an all-out pressure from the oil and the coal industries.

Not only was this the first campaign promise that the President

broke, but for good measure, it jeopardizes the international effort

to combat global warming. It has everything that a jackpot nominee needs to win.

The second nominee is Congress’ decision to repeal at the request

of the Bush Administration’s ergonomics rule. This is an important

work safety rule which was put into effect over a long deliberation

for a decade.

The Chamber of Commerce, the National Association of Manufacturers, pulled out all the stops on this one, and it is an example

of special interests being the real interests of thousands of workers,

whether they be store clerks, meat packers, or nursing home aides.

And the third nominee is President Bush’s and Administrator

Whitman’s decision to revoke these arsenic standards. Here the

mining and the chemical industries gave an unforgettable performance, and repeal means that dangerous levels of arsenic will remain in the drinking water of millions of American families.

Well, all of these as they say at the Academy Awards are real

winners. But the envelope, and the award I believe should go to

EPA’s decision to revoke the arsenic standard, and therefore I am

going to give to the Governor the Golden Jackpot Award on behalf

of the Bush Administration. It was not a difficult decision—— Mr. TERRY. Would the gentleman yield?

Mr. WAXMAN. And to stop telling the American people that they

need more arsenic in their drinking water. Governor Whitman, my

time is about up, but I wanted you to accept—— Mr. TERRY. Would the gentleman yield?

Mr. WAXMAN. [continuing] this award on behalf of the administration, and maybe you will even enjoy eating some of these chocolates. But in 1996, we asked for a tighter arsenic standard, because

we wanted to protect the American people.

We should invest in trying to prevent disease. I don’t know

whether they are going to spend the money in New Mexico, but

they should not be spending money to invest in how to cure arsenic

poisoning if we can make an investment in our water systems that

will keep people healthy, and prevent a pollutant that can cause

cancer and other problems.

EPA has set the standard under the mandate of the law by January 1 of 2001, and this administration deserves this Golden Jackpot Award for repealing it, and I think harm to the public interest

as a result.

[The prepared statement of Hon. Henry A. Waxman follows:]

PREPARED STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF CALIFORNIA

Mr. Chairman, fifteen years ago, as Chairman of the Health and the Environment

Subcommittee, I was one of the leaders in writing the 1986 Safe Drinking Water

Act. And five years ago, as the Ranking Democrat on that Subcommittee, I was one

of the leaders in writing the 1996 Safe Drinking Water Act. So I have some experience with drinking water issues.

That’s why I was particularly disappointed with the Bush Administration’s first

drinking water action: it’s decision to revoke the arsenic standard. That decision has

10

left most Americans scratching their heads trying to figure out why the Bush Administration wants more arsenic in drinking water. Meanwhile, mining and chemical lobbyists are celebrating.

Now this weekend in Hollywood, as everyone knows, the Academy Awards were

held. That got me to thinking that we should have some award here in Washington

to recognize truly remarkable performances in lobbying that result in mind-boggling

government decisions. So I’ve modestly decided to initiate a new award, called the ‘‘Golden Jackpot.’’ The award is a golden jackpot filled with chocolate gold and silver

coins.

From time to time I’ll be giving this award to recognize a particularly indefensible

and outrageous windfall given to a special interest group.

Today, we have three outstanding nominees, starting with President Bush’s decision to break his campaign promise to curb carbon dioxide emissions. The President’s decision was made possible by an all-out pressure campaign by oil and coal

companies. Not only was this the first campaign promise the President broke, but

for good measure it jeopardizes the international effort to combat global warming.

It has everything a jackpot nominee needs to win.

The second nominee is Congress’ decision to repeal the ergonomics rule, the most

important workplace safety regulation in the last decade. The Chamber of Commerce and the National Association of Manufacturers pulled out all the stops on this

one. It is a memorable example of special interests beating the real interests of

thousands of workers, such as store clerks, meatpackers, and nursing home aides.

And the third nominee is President Bush’s and Governor Whitman’s decision to

revoke the arsenic standard. Here, the mining and chemical industries gave an unforgettable performance, and repeal means that dangerous levels of arsenic will remain in the drinking water of millions of American families.

As they say during the Academy Awards, there is no loser among this group. All

of the special interests involved—the oil industry, the manufacturers, the mining

companies—received extraordinary windfalls from official action by the Administration or Congress.

Now, Price/Waterhouse have not audited the results, but I do have an envelope

with the winner. And...the Golden Jackpot goes to EPA’s decision to revoke the arsenic standard. It was a difficult decision, but it’s tough to beat telling the American

people that they need more arsenic in their drinking water.

Governor Whitman, after the hearing you’ll have the opportunity to accept the

Golden Jackpot on behalf of the Bush Administration. You might disagree with the

judges’ decision, but I hope you at least enjoy the chocolate that goes with the prize.

You know, back in 1996, the science was clear that we needed a tighter standard

for arsenic, and efforts to revise the safety level had already been debated for years.

But the industry argued that reducing arsenic would be too expensive and that

more study was needed. So we reached a compromise. We required EPA to issue

a new regulation—after even more study—by January 1, 2001.

After the law was passed, EPA commissioned a comprehensive study by the National Academy of Sciences, which found that EPA should lower the standard ‘‘as

promptly as possible.’’ And in January 2001, former EPA Administrator Carol

Browner finally issued the new standard—just as this Committee had directed and

the science dictated.

It makes absolutely no sense to undo the new arsenic standard, and I will soon

be introducing legislation to make sure every American is protected from this unnecessary risk.

Mr. GILLMOR. The gentleman’s time has expired. When I was a

very young State Senator in Ohio, by our desks we had spittoons,

and those all disappeared as they became collectors items, and nobody knew where they went, but it looks a lot like that.

Mr. WAXMAN. Well, this is the Golden Jackpot award, and the

first time it has been given out. I hope that it is the last, but I expect with this administration in just this short 3 months that we

are going to have a lot of examples of Golden Jackpots for special

interests winning out over the public interest.

Mr. GILLMOR. The Chair at this point would like to lay before the

committee a letter that he has received from the Small Business

Administration that was sent to the EPA, talking about its very

strong support of the administration’s action in this, of the EPA

and the current Administrator’s action, and pointing out that the

11

average cost to households in the smallest systems would have exceeded $320 a year.

I would ask for unanimous consent simply to enter the letter in

the record.

Mr. WAXMAN. Reserving the right to object, would the chairman

also agree to put in the National Academy of Science’s report on

why the arsenic in drinking water ought to be in their words,

‘‘promptly reduced as promptly as possible in order to protect the

public health.’’ Mr. GILLMOR. It would be very difficult for me to do that since

I don’t have it with me here, but we would also be happy to entertain a summary of that going in if the gentleman from California

would like to present it.

We probably could not take the whole report into the record simply as a model of volume. If you would like to present a summary,

we would be happy to do it.

Mr. WAXMAN. I would be pleased to do that.

Mr. GILLMOR. Very good.

Mr. WAXMAN. I withdraw my objection.

Mr. BROWN. I would like to also submit for the record the standards suggested by the World Health Organization also.

Mr. GILLMOR. The members may do that at any point. We would

be happy to have them do that. Without objection then, the Chair— does the gentleman from California withdraw his objection?

Mr. WAXMAN. I withdraw my objection.

Mr. GILLMOR. Without objection then, the letter will be entered

in the record.

[The material referred to follows:]

U.S. SMALL BUSINESS ADMINISTRATION

March 27, 2001

The Honorable CHRISTINE TODD WHITMAN

Administrator

U.S. Environmental Protection Agency

Ariel Rios Building

1200 Pennsylvania Avenue, N.W.

Washington, DC 20460

Subject: EPA Review of Safe Drinking Water Standard

DEAR ADMINISTRATOR WHITMAN: We are writing in support of your recent decision

to revisit the 10 ppb arsenic standard that was promulgated in January of this year.

The Office of Advocacy of the U.S. Small Business Administration was established

by Congress pursuant to Pub. L. 94-305 to represent the views of small business

before Federal agencies and Congress. One of the primary functions of the office is

to measure the costs and other effects of Government regulation on small businesses

and make recommendations for eliminating excessive or unnecessary regulation of

small businesses.

We strongly agree that the Environmental Protection Agency (EPA) should take

time to carefully examine the various issues involved in the establishment of this

Safe Drinking Water Act standard. In our review of the record last year, we concluded that the science and cost evidence did not justify the 10 ppb standard at that

time. We support the swift implementation of an interim final regulation, pending

the establishment of an arsenic standard that can be supported by the science evaluations still underway at EPA. We would retain the current schedule for implementation in the final rule (effective in 2006). Thus, the new rule would not cause any

reduction in public health benefits over the January final rule.

In 1999, the Office of Advocacy, Office of Management and Budget, and EPA participated in a Small Business Regulatory Enforcement Fairness Act (SBREFA) panel

regarding arsenic in drinking water. During the Panel, Advocacy supported lowering

the arsenic standard to a level that is protective of public health. Questions were

raised about the costs and benefits of lowering the arsenic standard (Maximum ConVerDate 11-MAY-2000 12:07 Dec 26, 2001 Jkt 010199 PO 00000 Frm 00015 Fmt 6633 Sfmt 6621 E:\HEARINGS\71489 pfrm11 PsN: 71489
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tainment Limit) from the current 50 ppb to a much lower standard. To do so would

be expensive for small water systems. National costs would exceed $180 million annually, by EPA’s estimate. The average costs to households in the smallest systems

(under 100 persons served) would exceed $320 per year. Hundreds of small systems,

predominantly in poorer rural America, would be forced to bear the costs of this rule

with undemonstrated benefits.

The EPA Science Advisory Board (SAB) noted numerous factors that would lead

EPA to an overestimate of the health risks by using high concentration risk data

from the Taiwanese population, which has different nutritional ,selenium, zinc and

arsenic food intake characteristics than the U.S. population. In addition, in the only

large scale study of arsenic exposure in the U.S., the SAB found ‘‘no evidence of either bladder or lung cancer where mean drinking water concentrations approached

200 ppb. While these concentrations are up to an order of magnitude lower than

found in sites where positive associations with cancer have been obtained, these results give rise to significant questions about whether the Taiwan data apply quantitatively to those U.S. populations that have a more adequate nutritional status.’’

SAB Report at 30. Thus, there is no direct evidence that U.S. citizens would experience any excess bladder or lung cancers due to arsenic exposure at the concentrations found in the U.S.

Further, both the NRC and the SAB suggested that the risk at lower levels found

in the U.S. would be significantly less than the risk indicated by the default linear

extrapolation model employed by EPA. While both agree that the burden of proof

of existence of these nonlinear modes of action had not been met, and EPA properly

employed the model in the risk estimates, both agreed that the risk was significantly overestimated in this regard.

As the SBREFA panel stated, it would be poor public policy to set a standard that

was too low, require water utilities to make the considerable investment in treatment capacity, only to learn too late that the arsenic effects at low levels were considerably smaller or non existent. The SAB advocated a phased standard setting approach, which would establish an interim standard protecting the higher risk populations that would be superseded after a period of additional research and analysis.

SAB Report at 39. We agree wholeheartedly with the SAB phased approach. A

phased approach would allow the arsenic research to proceed and avoid waste of

taxpayer and rate payer resources.

A higher standard would be sound public policy. It would be consistent with the

Safe Drinking Water Act Provision allowing EPA to select a less stringent standard

that ‘‘maximizes health risk reduction benefits at a cost that is justified by the benefits.’’

We look forward to working with EPA and interested parties in the expeditious

promulgation of a new standard that would address the health needs of our Nation,

without unnecessary damage to small water companies, small communities, and our

citizens in rural America.

Sincerely,

SUSAN M. WALTHALL

Acting Chief Counsel for Advocacy

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ARSENIC IN DRINKING WATER INTERNATIONAL STANDARDS

Countries that have a 10 parts per billion standard: Belgium, Denmark,

United Kingdom, Germany, Spain, Finland, France, Ireland, Greece, Italy, Luxembourg, Netherlands, Austria, Portugal, Sweden, Japan, Jordan, Laos, Mongolia, Namibia, and Syria.

Countries that have a 50 parts per billion standard: Bahrain, Bangladesh,

Bolivia, China, Egypt, India, Indonesia, and Oman.

Australia has a 7 parts per billion standard

Mr. GILLMOR. And the Chair recognizes the gentleman, Mr.

Terry.

Mr. TERRY. I will yield back in the interest of hearing from the

witness.

Mr. GILLMOR. Very good.

Mr. Brown.

Mr. BROWN. Thank you, Mr. Chairman. The purpose of today’s

hearing is to discuss water infrastructures, and I am glad to welcome Administrator Whitman to the hearing, and I am glad that

you have joined us.

I would hope, Mr. Chairman, that the Bush-Whitman arsenic repeal, the repeal of the arsenic standard, would be a subject for future hearings specifically on that. This inexplicable assault on a

straightforward consumer protection policy baffled the scientific

community as was pointed out by Mr. Waxman and Mr. Pallone.

And outraged those of us who ushered in these protections since

passage of the 1996 Safe Drinking Water Act. In 1981, then President Reagan tried a similar approach to undo another pro-consumer regulation. He overturned a safety standard on air bags promulgated by the previous administration.

Like the arsenic standard, this measure reflected substantial research, and years and years of input, from private and public sector

experts. The Supreme Court overturned President Reagan’s action,

calling it an arbitrary decision. It was not based on any new information that countered the evidence of the support of the air bag

standard.

The Supreme Court protected consumers in those days when the

President would not. We can only hope that this administration’s

arsenic decision meets the same fate. Mr. Chairman, the European

community, and the World Health Organization, and the National

Academy of Sciences, all relying on objective, sound scientific research, have endorsed lowering the arsenic standard from 50 parts

per billion to 10 parts per billion.

This administration provided no factual rationale for dismissing

the recommendation from these respected organizations. The only

rationale that I can find in our research for repeal of the arsenic

standard lies in President Bush’s campaign finance report. And in the last election cycle, mining companies gave $5.6 million in political contributions to Republicans. The chemical industry gave almost $9 million to Republicans. We know that the smelting of metal ores in mining can release arsenic into the environment.

A group of chemical and mining companies wrote to the EPA and

argued that we did not need new protections. This later group

formed something called the Environmental Arsenic Council. Yes,

the Environmental Arsenic Council. It sounds like somebody needs

a little better public relations agency.

21

You have to hand it to PR firms like this. They can make any

anti-health or anti-environment group sound like the garden club.

My hat is off to these spinmeisters. What the Environmental Arsenic Council won’t tell you, and what President Bush does not remind us is that arsenic imperils human health in at least three

ways.

It is a toxic. We have all known that in this society for years.

It is a carcinogen, and we found that out, and it causes birth defects. If we are gambling on the environment, we would call arsenic

the trifecta of health hazards. It is not conjecture. It is science, and

that’s why the administration’s excuse that it wants to conduct

more research rings so hollow with responsible non-industry people

in the scientific community.

I look forward to hearing the administration explain how it could

be in the best interests of the public’s health to condone higher levels of arsenic in drinking water. Administrator Whitman has a

tough job, and her agency’s historical mission is under direct assault from the White House.

Given these circumstances, I look forward to hearing from her

about these important water related issues. And, Mr. Chairman, I

would also want to submit in the record—this is a list of arsenic

and drinking water international standards.

Australia has a 7 parts per billion standard, and let me read a

handful in my last 30 seconds. Countries that have 10 parts per

billion standard are Belgium, Denmark, Jordan, Mongolia, Laos,

The Netherlands, France, Greece, Spain, and several others.

Countries that have a 50 parts per billion standard, joined with

the United States again now apparently are Bahrain, Bangladesh,

Bolivia, The People’s Republic of China, Egypt, India, Indonesia,

Oman, and alphabetically, the United States of America. Mr.

Chair, if I could submit this. Thank you.

Mr. GILLMOR. Without objection, the Chair hearing none, it will

be entered in the record.

Are there further opening statements? The gentleman, Mr. Luther.

Mr. LUTHER. Thank you, Mr. Chairman. I want to thank Administrator Whitman for being before the committee again. I hope that

she is enjoying herself. I am not sure. I think we can all agree that

America’s drinking water infrastructure is in critical need of reinvestment.

One issue that I would like to hear about in this hearing is

whether the drinking water State revolving fund should focus more

on existing infrastructure rather than on new infrastructure.

With the concern that we have over sprawl and quality of life

today, would that in fact remove an incentive from developers who

are rapidly expanding into the outer suburbs of our Metropolitan

areas in the country. So I think it would be good if we could focus

a bit on that.

Last, Mr. Chairman, I would also like to express my concern over

the Bush Administration’s decision to withdraw the standard on arsenic in the Nation’s drinking water.

Indeed, it was our committee, I believe, on a bipartisan basis

urged the EPA to promulgate new final standards on arsenic. So

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it is my hope—I don’t have an award for you today or anything,

Administrator, and I apologize for that.

But it is my hope that if not today, Mr. Chairman, our subcommittee in the very near future can in fact focus on this issue

and hear it out. So thank you very much.

Mr. GILLMOR. Thank you. Are there further opening statements?

The gentlelady from California.

Ms. CAPPS. Thank you for holding this hearing, Mr. Chairman,

and I realize that a vote is on, and I will be as brief as I can. I

am so pleased that the subcommittee is turning its attention to

drinking water infrastructure needs of this country.

There is a clear need for upgrades to our system to ensure that

all communities have safe drinking water and drinking water systems, and as a member of this committee, I am pleased that we

will bring to bear the substantial expertise of our members on this

important topic.

Ensuring clean sources of water is indeed a public health issue,

and properly belongs before this committee. Our witnesses are to

be commended for appearing today, and especially I want to thank

Administrator Whitman for your presence today.

I also want to take a moment to mention a related drinking

water issue, MTBE pollution. This is a real problem in my district,

and I believe throughout the State of California and across this

country.

MTBE has polluted the ground water of many communities, including the Town of Cambria in San Luis Obispo County, which

has at this moment no safe backup drinking water system because

of MTBE pollution.

There are two issues regarding MTBE that I want to raise. We

need to stop the harm that it is causing and fix the damage that

it has already caused. California has a waiver request before the

EPA from the Clean Water Act’s 2 percent oxygenate requirement,

and I hope that you will give this request quick attention.

California needs this waiver to help protect public health and

their environment. Second, I have a bill that would help communities whose drinking water has been contaminated by MTBE. It

dedicates $200 million out of the leaking underground storage tank

fund, the LUST fund, toward MTBE cleanup.

I believe that this is something that Congress could move forward on I hope that Administrator Whitman will look at my legislation and work with me and this committee on this and any other

steps that we can take to help communities like Cambria.

Ensuring clean drinking water is just about the most basic service that any government does, and that’s why I, like other members

of this committee, who have been eloquent in their statements,

have also been disturbed by the recent action on arsenic and drinking water.

The standards for allowable levels of arsenic in drinking water

were set in 1942. One would think that we could update this 59

year old public health protection act. And Knight-Ritter has reported just in the last couple of days that a Dartmouth University

toxicologist, Joshua Hamilton, says that there is sufficient evidence

that 50 parts per billion is not protective, and 10 parts per billion

is reasonable.

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In fact, this committee directed EPA to come up with the standards, and now the rules have been withdrawn. I believe, as a public

health nurse, that this action comes at the expense of public

health. It is one more in a disturbing pattern where this administration is putting the health and safety of the American people behind more powerful interests.

We have seen this with the CO2 flip-flop and the apparent abandonment of global warming efforts that I read about in today’s

Washington Post. These decisions are going to have a real life impact. They are going to reduce our ability to ensure our air and

water are clean and to fight global warming.

So I am hoping that the EPA and the administration will reconsider these moves. I say that with all due respect and I yield back

the balance of my time. Thank you.

Mr. GILLMOR. Thank you, Ms. Capps. We are going to take a

very short recess, because we do have a vote on. And, Mr. Shimkus,

the vice chairman, using a system that we frequently use, left to

vote early, and as soon as he comes back, he will start the hearing

so that we do not keep you any longer, Governor.

And I will return as soon as possible so that we can keep the

hearing moving. So, the Chair now declares this in a brief recess.

[Additional statement submitted for the record follows:]

PREPARED STATEMENT OF HON. W.J. ‘‘BILLY’’ TAUZIN, CHAIRMAN, COMMITTEE ON

ENERGY AND COMMERCE

First, I want to thank Subcommittee Chairman Gillmor for scheduling today’s hearing on drinking water needs and infrastructure. I believe Chairman Gillmor is

off to a great start as Subcommittee Chairman and today’s hearing only affirms

his—and my—desire to aggressively pursue major issues which fall under the Subcommittee’s jurisdiction.

I also want to thank Administrator Whitman for her appearance before us today.

I appreciate the effort Administrator Whitman displayed in providing testimony on

what EPA has been doing to analyze drinking water needs and to provide assistance

through authorities contained in the Safe Drinking Water Act.

Let me begin my formal remarks by stating what should be obvious. The Energy

and Commerce Committee has jurisdiction over public health and the Safe Drinking

Water Act. Since the original Safe Drinking Water Act was added as an amendment

to the Public Health Service Act in 1974, this Committee has amended the law and

reauthorized provisions of the Act several times.

Most recently, this Committee made substantial alterations and enhancements to

the underlying statute through the 1996 Safe Drinking Water Act Amendments.

Many of the interested parties in this room participated in that process. The Environmental Protection Agency provided technical assistance to the 1996 effort and,

through several long months during the winter, spring and summer of 1996, we

were able to pass a comprehensive measure into law.

As part of that effort, this Committee created the first substantial source of federal funding for drinking water systems. We authorized the Drinking Water State

Revolving Fund to provide a sustainable source of assistance for both infrastructure

projects and state drinking water programs. As of this year, $4.4 billion has been

appropriated by Congress for the Drinking Water SRF.

EPA informs us that through September of last year, the money Congress and the

states have provided to the Drinking Water SRF has funded over 1,400 projects nationwide. These projects address treatment facilities, transmission and distribution

systems, source and storage projects, planning and design, land acquisition, the purchase of systems, system restructuring and other expenses associated with drinking

water systems.

In brief, the tree we planted in 1996 is now bearing fruit. But rather than sit back

and admire our handiwork, the question now is: what can we do to increase its

yield? How can we make our system of financing water infrastructure work better

to further protect the public health?

In addressing this question, I believe we must first analyze how well the Drinking

Water SRF has worked since its creation. We need to know where the program has

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succeeded, as well as where there might be shortcomings. We also need to review

the interaction of this fund with the Clean Water SRF, since states have been allowed under the 1996 Amendments to shift resources between each entity. We also

need to closely examine the available evidence on the need for additional water infrastructure, including EPA’s analytical efforts and studies like those produced by

the Water Infrastructure Network. In this regard, it is my sincere hope that we will

be able to work with the Administration and all interested public and private parties in this endeavor.

But let me be clear on one overriding issue. The Energy and Commerce Committee has broad and substantial jurisdictional interest in the matter of water infrastructure. And this is an interest we intend to thoroughly pursue as Congress considers any effort to channel more resources into this area, no matter what legislative vehicle is constructed. Water infrastructure is not built because such things are

nice to have around; they are built because they are needed to preserve the environment and protect the public health. Our Committee’s interest in such matters is

widespread and longstanding.

Again, I want to thank all of the witnesses who are with us today.

[Brief recess.]

Mr. GILLMOR. The committee will come to order, and we will proceed with our first panel, which consists of the—Ms. McCarthy, we

closed opening statements. Could you submit yours in writing?

Ms. MCCARTHY. Yes, Mr. Chairman.

Mr. GILLMOR. Or do you feel an absolute compulsion to give it?

Ms. MCCARTHY. I would be happy to do so.

Mr. GILLMOR. Thank you. I appreciate it.

[The prepared statement of Hon. Karen McCarthy follows:]

PREPARED STATEMENT OF HON. KAREN MCCARTHY, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF MISSOURI

Thank you, Mr. Chairman, for holding this hearing to examine the very important

issue of the status of our nation’s drinking water infrastructure and to determine

what critical needs we have before us, and for having EPA Administrator Whitman

and the distinguished panel of experts here to testify. This Subcommittee, with legislative jurisdiction over the nation’s drinking water, and specifically the Safe

Drinking Water State Revolving Fund (SRF) program, is in a unique position to protect the public health in a significant way.

In my district, Kansas City has made substantial progress in meeting the high

and growing expectations of drinking water consumers. In fact, I am proud to share

with the committee that the Kansas City Water Services Department (WSD) has recently been recognized by the Association of Metropolitan Water Agencies’ (AMWA)

as a winner of its 2001 Gold Award for Competitiveness Achievement for using exceptional management practices and achieving high performance—I am pleased to

see that AMWA is here to testify today on the needs of drinking water utilities and

the gap that exists between spending and need. The Kansas City Water Department

has worked hard to keep rates fair and equitable while producing a quality product,

but the infrastructure system is simply deteriorating far too quickly for them to

fund such a staggering undertaking on their own.

I am interested to hear from our witnesses on the success, or failures, of the

Drinking Water State Revolving Loan Fund. Has the program created the necessary

flexibility to allow the states to manage and run their programs effectively? Is there

more that can be done to assist states in ensuring the safety of our drinking water?

Unfortunately, Kansas City has not been able to utilize the fund. Because our water

quality is high and the Water Services Department is in compliance with the many

regulations, it falls so low on the State Revolving Fund priority list that they are

unable to receive the much-needed funds to assist with their many needs. As the

old adage goes, there is no reward for being good. I am interested to hear from our

witness on we can address issues such as these.

Clearly, as the recent EPA Drinking Water Infrastructure Needs Survey illustrates, if we are to continue the responsibility of protecting our nation’s drinking

water from harmful contamination, we must begin to make substantial investments

in its infrastructure now. I am interested to hear our witnesses’ perspectives on how

we can best accomplish this given the dire state of current resources.

This is an issue that effects us all, from the small town of Grandview to urban

Kansas City, Missouri. While cost-estimates for drinking water investment needs

25

over the next 20-years may vary, I think we can all agree that more needs to be

done to ensure that public health is kept safe now and that future needs are met.

We must do all we can in order to avoid a future infrastructure crisis and ensure

that the consumer does not bear the costly burden of infrastructure neglect. The

Federal government must invest in drinking water infrastructure and make it a national priority. I welcome the input of our witnesses on how best to get there.

Mr. GILLMOR. We will now proceed to our first panel, which is

the Administrator of the Environmental Protection Agency, Governor Whitman. Go ahead.

STATEMENT OF HON. CHRISTINE TODD WHITMAN, ADMINISTRATOR, U.S. ENVIRONMENTAL PROTECTION AGENCY

Ms. WHITMAN. Thank you, Mr. Chairman. I appreciate the opportunity to testify on this very important area, but I beg leave of the

chairman to stray a little bit given all the discussion that has been

held heretofore. I must say that when cameras are in the room that

it heightens the discussion. We get a lot more interest and interesting discussion.

Mr. GILLMOR. There has been a lot of strain, and so feel free.

Ms. WHITMAN. I just wanted to say a couple of things. One is

that if all that we heard here today was true, I would be worried

as well on the arsenic rule. Something to be made very clear is the

standard.

The arsenic rule as proposed by the previous administration,

dropping 50 parts per billion of arsenic to 10 parts per billion

would not have become effective, or is not due to become effective

until 2006.

We will have a new regulation in place that will have an effective

date of 2006. It will be well below 50 parts per billion. However,

as it has been pointed out, there is no definitive and scientific

study that says that 10 is it.

And while the National Academy of Sciences said very clearly

that 50 parts per billion was too high, they did not endorse 3, 5,

7, or 10, or 20. Given that uncertainty, I think it is important that

we hear from all the affected parties.

And the way that rule was promulgated at the last minute, while

the scientific studies may have been going on for years, there was

not, I do not feel, an adequate time for full input from all the affected communities.

We need to know what the full impact is so that we don’t suffer

from unintended consequences, and when I talk about unintended

consequences, I can tell you of a real instance where a town, where

the water company was purveying water at 90 parts per billion,

and they were told to come into line with 50 parts per billion.

The water company closed up and walked away, and that left the

30 people on that system with no water and no choice but to sink

their own wells, which they then did and are now ingesting 90

parts per billion, without the same protections that we could offer

them if we had done it through the water company system.

The concern that I have is not that we have any lesser standard

because of the cost, but that we fully understand what the costs

are, and we make sure that we have in place the tools necessary,

whether it be strictly financial or technical, for what we need to do

to help those small and mid-sized communities where arsenic is a

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naturally occurring substance, and to be able to reach whatever the

standard is that we set.

We have had a new study that indicates that arsenic may well

be an endocrine disrupter. In that instance, we may find that it

should be at 3, or 5, and not just 10. But it might also be above

that, slightly above that.

I can’t tell you what the final will be, but I will tell you that this

administration has put nobody’s drinking water in jeopardy, and

nobody is drinking any more unsafe drinking water today than

they were last month, last year, nor will they for the next 2 years,

because that standard was not going into effect until the year 2006.

There will be a new standard going into effect in the year 2006.

I also beg to differ with some of the allegations about how this decision was reached, and I would just like to say that I fully accept

responsibility for the decision, when in fact I gave to the administration both that decision and the decision on the reviewing of pesticides, which nobody mentions when they say how anti-environment the administration is.

And in fact that was a decision that the environmentalists were

looking for, but that has been shunned aside. The one that they

asked questions about and pushed back on was the arsenic decision. Why was I doing it, and was I satisfied that this is what we

needed to do.

I never read a letter from the timber industry, and I never read

a letter from a miner. I sat with staff to listen to how this rule had

been promulgated, and I wanted to make sure that we had fully

included all that needed to be heard.

We can do that, and we can do that in a way that allows us to

move forward with the standard, because as all of you know, the

process is that when EPA finalizes a regulation, there is 3 years

from finalization to implementation.

In this instance the Agency chose to give the water companies 5

years. So we will meet that 3 years, and we will hopefully meet 4

years, and I would like to get it done much sooner than that.

We are going to ask for outside review by the National Academy

of Sciences to see if there is any new science to be taken into account, and then those who look at cost benefit—because by the

way, that is also part of the law. We are required by law to look

at cost benefit.

That is something that is in the Safe Drinking Water Act, and

we need to meet that obligation, and unfortunately I did not feel

that that had been satisfactorily addressed during the original rule

promulgation.

Having said that, Mr. Chairman, I will keep my opening statement brief. If it is all right, I will submit a longer statement on

the issue at hand that gets more to the specifics.

Mr. GILLMOR. Thank you.

Ms. WHITMAN. I think it is safe to say that over the past 25 years

that America has indeed made great progress in reducing water

pollution and ensuring safe, affordable, and an abundant supply of

drinking water to the people.

Our drinking water system is among the most safe and reliable

in the world. The 265 million Americans who rely on public water

27

can have full confidence that the water that they use is safe for

them and safe for their families.

We can, however, do better. As you know, the primary mechanism EPA uses to help local communities finance water infrastructure projects is the State Revolving Loan Funds.

The Federal Government provides grants to States to capitalize

loan funds for drinking water in each State. States then use these

funds to make low cost loans to communities to finance drinking

water projects.

Because this is a revolving loan fund, the money invested in

SRFs provides about four times as much purchasing power over 20

years as straight grants would. In addition, because the funds

make loans to local communities at below market rates, communities have over the years saved their taxpayers literally millions

of dollars.

It is also worth noting that almost 3 out of every 4 loans made

for drinking water projects have been provided to small water systems that usually have a difficult time in affording and accessing

affordable financing.

These funds have made an important contribution to our success

in America’s drinking water, but as I said before, the job is certainly not finished. Under the law, EPA is required to take a periodic look at drinking water and clean water infrastructure investments needed around the country.

Last month, EPA released the second of these reports describing

needed water investments. The bottom line, Mr. Chairman, is that

we perceive the need of about $150 billion over the next 20 years

to ensure the continued safety and availability of water.

Other outside groups have also issued reports estimating water

infrastructure needs, estimates that exceed ours. But no matter

which estimate you use, there are several key components of water

infrastructure funding that must be fully evaluated.

These include population growth, aging infrastructure, emerging

environmental and public health demands, increasing operation

and maintenance costs, and maintaining affordability.

We need to keep affordability in mind as we move forward with

both funding and regulatory proposals. I am pleased to report that

the President’s fiscal year 2002 budget maintains Federal support

for drinking water infrastructure.

EPA expects that the drinking water SRF will be able to provide

average annual assistance of $500 million over the long term life

if this capitalization funding is maintained. Furthermore, in keeping with the President’s commitment to focus on goals rather than

process, the administration supports the mechanism currently in

the law that gives States the flexibility to move funds between

clean water and its drinking water revolving loan funds.

Mr. Chairman, this proposed funding will help communities

across America finance important drinking water projects. As your

committee continues to study America’s drinking water needs, we

look forward to a constructive dialog on the appropriate role that

the Federal Government can play.

There is no doubt that ensuring safe drinking water will require

a shared commitment on the part of Federal, State, and local governments, as well as in private business and consumers.

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You have my pledge that EPA will continue to work in partnership with Congress and with all the other stakeholders to better

understand, and then meet the needs of our water infrastructure.

Thank you, Mr. Chairman, and I would be happy to answer questions.

[The prepared statement of Hon. Christine Todd Whitman follows:]

PREPARED STATEMENT OF HON. CHRISTINE TODD WHITMAN, ADMINISTRATOR, U.S.

ENVIRONMENTAL PROTECTION AGENCY

Good afternoon, Mr. Chairman and Members of the Subcommittee. I am Christine

Todd Whitman, Administrator of the Environmental Protection Agency.

I welcome this opportunity to discuss the Nation’s investment in drinking water

infrastructure-the pipes and treatment plants that deliver safe drinking water to

our taps. These drinking water facilities are critical to protecting human health.

As a Nation, we have made great progress over the past quarter century in assuring the safety of drinking water. The Safe Drinking Water Act has served us well

and provides the solid foundation we need to make sure that all Americans will continue to enjoy safe drinking water.

Our success in improving drinking water quality is the result of many programs

and projects by local, State and Federal governments in partnership with the private sector. But our cooperative, intergovernmental investment in drinking water

infrastructure facilities has, more than any other single effort, paid dramatic dividends for public health and water quality.

This afternoon, I want to give you a brief overview of the progress we have made

in improving water quality, and the public health challenges we still face. I also will

summarize what EPA knows about the need for future investment in drinking water

and identify the key challenges I see in meeting this need. I will conclude with some

thoughts about how Congress and others could proceed when addressing the problems of financing drinking water infrastructure.

SAFE WATER—ACCOMPLISHMENTS AND CHALLENGES

Most Americans would agree that the quality of drinking water has improved dramatically over the past quarter century.

We have made dramatic progress in improving the safety of our Nation’s drinking

water. Disinfection of drinking water is one of the major public health advances in

the 20th century. In the early 1970’s, however, growing concern for the presence of

contaminants in drinking water around the country prompted Congress to pass the

Safe Drinking Water Act. Today, the more than 265 million Americans who rely on

public water systems enjoy one of the safest supplies of drinking water in the world.

Under the Safe Drinking Water Act, EPA has established standards for 90 drinking water contaminants. Public water systems have an excellent compliance recordmore than 90 percent of the population served by community water systems receive

water from systems with no reported violations of health based standards.

In the past decade, the number of people served by public water systems meeting

Federal health standards has increased by more than 23 million. Although compliance with drinking water contaminant standards is good, public health risks from

drinking water can be further reduced.

DRINKING WATER STATE REVOLVING LOAN FUND

The primary mechanism that EPA uses to help local communities finance drinking water infrastructure projects is the State Revolving Loan Fund (SRF) established in the Safe Drinking Water Act. The SRF was designed to provide a national

financial resource for clean and safe water that would be managed by States and

would provide a funding resource ‘‘in perpetuity.’’ These important goals are being

achieved. Other Federal, State, and private sector funding sources are available for

community water infrastructure investments.

Under the SRF program, EPA makes grants to each State to capitalize their

SRFs. States provide a 20% match to the Federal capitalization payment. Local governments get loans for up to 100% of the project costs at below market interest

rates. After completion of the project, the community repays the loan and these loan

repayments are used to make new loans on a perpetual basis. Because of the revolving nature of the funds, the dollars invested in the SRF provides about four times

the purchasing power over twenty years compared to what would occur if the funds

were distributed as grants.

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In addition, low interest SRF loans provide local communities with dramatic savings compared to loans with higher, market interest rates. An SRF loan at the interest rate of 2.6% (the average rate during the year 2000) saves communities 25%

compared to using commercial financing at an average of 5.8%.

The drinking water SRFs, which this Committee created as part of the 1996

amendments to the Safe Drinking Water Act, were modeled after the clean water

SRFs, but included several important improvements.

States were given broader authority to use drinking water SRFs to help disadvantaged communities and fund programs that look to prevent contamination of sources

of drinking water and promote better management and operations of drinking water

systems.

Through fiscal year 2001, Congress has appropriated $4.4 billion for the Drinking

Water SRF program. EPA has reserved $83 million for monitoring of unregulated

contaminants and operator certification reimbursement grants. Through June 30,

2000 States had received $2.7 billion in capitalization grants, which when combined

with state match, bond proceeds and other funds provided $3.7 billion in total cumulative funds available for loans. Through June 30, 2000, States had made close to

1,200 loans totaling $2.3 billion and $1.4 billion remained available for loans. Approximately 74% of the agreements (38% of dollars) were provided to small water

systems that frequently have a more difficult time obtaining affordable financing.

States also reserved a total of approximately $420 million of SRF capitalization

grants for other activities that support the drinking water program.

DRINKING WATER INFRASTRUCTURE—FUTURE NEEDS

The Safe Drinking Water Act requires that EPA periodically develop a ‘‘needs survey’’ to identify water infrastructure investments.

One month ago, EPA released its second report on drinking water infrastructure

needs. The new survey shows that $150.9 billion is needed over the next 20 years

to ensure the continued provision of safe drinking water to consumers.

The survey found that water systems need to invest $102.5 billion, approximately

68% of the total need, in what the report calls ‘‘current needs.’’ In most cases current needs would involve installing, upgrading or replacing infrastructure to enable

a water system to continue to deliver safe drinking water. A system with a current

need therefore, usually is not in violation of any health-based drinking water standard. For example, a surface water treatment plant may currently produce safe

drinking water, but the plant’s filters may require replacement due to their age and

declining effectiveness, if the plant is to continue to provide safe water. Future

needs account for the remaining $48.4 billion in needs; for example, projects that

systems would undertake over the next 20 years as part of routine replacement such

as reaching the end of a facility’s service life.

The survey includes needs that are required to protect public health, such as

projects to preserve the physical integrity of the water system, convey treated water

to homes, or to ensure continued compliance with specific Safe Drinking Water Act

regulations (See Chart 1). Transmission and distribution projects represented the

largest category of need (56%) with $83 billion needed over the next 20 years. This

result is not surprising given that, for most water systems, the majority of their capital value exists in the form of transmission and distribution lines. Treatment

projects, which have a significant benefit for public health, make up the second largest category of needs at 25%.

Although all of the 74,000 projects in the survey would promote public health protection, also water systems identified capital needs that are directly related to specific regulations under the Safe Drinking Water Act. Approximately 21%, or $31.2

billion, is needed for compliance with current and proposed regulations under the

Act. Most (nearly 80%) of the remaining need is to comply with rules which protect

consumers from harmful microbial contaminants, such as Giardia and E. coli. Most

of the total needs derive from the costs of installing, upgrading and replacing the

basic infrastructure that is required to deliver drinking water to consumers—costs

that water systems would face independent of any Safe Drinking Water Act regulations. These findings indicate that most of the total need stems from the inherent

costs of being a water system, which involves the almost continual need to install,

upgrade, and replace the basic infrastructure that is required to provide safe drinking water.

The survey also examined capital need by system size. The survey found that

while small systems (serving fewer than 3,300 people) represent more than 80% of

the nation’s community water systems, they contribute 22% to the total national

need. By contrast, large systems (serving more than 50,000) represent just 2 percent

of the nation’s water systems, yet account for more than 44% of the national need.

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This finding reflects the fact that small systems collectively serve about 26 million

people, whereas large systems serve a total of 138 million people.

BROADER CONTEXT OF WATER INFRASTRUCTURE FINANCING

Over the past year, several interest groups including the Water Infrastructure

Network, and the Water Environment Federation issued reports estimating water

infrastructure needs. These estimates were all substantially above those of EPA’s

Needs Surveys. In general, these cost estimates differ from EPA’s because the methodologies and definitions for developing them differs. For example, EPA Needs Surveys include only projects that are eligible for SRF funding under the Clean Water

Act and Safe Drinking Water Act. Also, EPA requires that costs included in the

Needs Surveys be established by planning or design documentation.

Nevertheless, EPA recognizes that effective decision-making concerning water infrastructure financing would benefit from a better understanding of the broader context of this effort. Key components in the broader context of water infrastructure

funding that need to be more fully evaluated include:

—Population Growth: Steady growth and shifts in population puts substantial

pressure on local governments to provide expanded drinking water and sewer

services. More and more communities are searching for ways to grow that fully

protects their quality of life and natural resources.

—Aging Infrastructure: Many sewage and drinking water pipes were installed between 50 and 100 years ago and these pipes are nearing the end of their useful

life.

—Emerging Environmental and Public Health Demands: As our knowledge of

threats to water quality and public health improves, the public expects its water

infrastructure to continue to provide clean safe water at reasonable cost.

—Increasing Operation and Maintenance Costs: As the size and complexity of

water and sewer systems increases, and facilities get older, the costs of operations and maintenance tend to increase.

—Affordability: Although water has historically been underpriced, some systems

may find it difficult to replace or update aging water and sewer systems and

keep household user charges at affordable levels. This issue needs to be kept

in mind as future regulations are developed.

In an effort to better understand the issues related to water infrastructure financing, the Agency is reviewing issues related to long-term needs, assessing different

analytical approaches to estimating those needs, and estimating the gap between

needs and spending. Some elements of this analysis—known as the Gap Analysis—

have been presented to a range of interested parties and EPA is committed to improving and refining this important work. To this end, the EPA plans to make this

analysis available for peer review by expert organizations in the near future.

FY 2002—DRINKING WATER INFRASTRUCTURE INVESTMENTS

The President’s FY 2002 budget proposes to maintain Federal support for drinking water infrastructure. The Administration proposes to maintain capitalization of

the drinking water SRFs in FY 2002. By the end of FY 2002, we expect loans issued

by State drinking water SRFs to reach 2,400, with about 850 SRF funded projects

having initiated operations by that date.

In addition, the law currently grants a State flexibility to transfer funds between

its clean water and drinking water SRFs. The Administration supports this mechanism to help States fund their priority needs.

This proposed FY 2002 funding will help communities across the country finance

important drinking water projects. As your Committee continues to study the drinking water infrastructure needs, the Administration would like to encourage a constructive dialogue on the appropriate role of the federal government in addressing

these needs.

CONCLUSION

Thank you, Mr. Chairman, for giving me the chance to outline EPA’s view of the

drinking water infrastructure challenges the Nation is facing. Let me conclude by

identifying some of the key issues that Congress, the Administration, the private

sector and other interested parties will need to consider as we work toward a common approach to solving drinking water infrastructure problems.

1) We need a common view of the scale of the water infrastructure problem that

we face and the long-term timeframe for making needed investments.

2) We need to consider the best role for the Federal government to play in helping

States and local governments finance drinking water infrastructure projects and

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evaluate any barriers faced by local governments in getting access to needed

capital as part of this process (such as poor bond ratings, or interest rates).

3) We need to consider the strengths and weaknesses of the existing funding mechanisms and consider the best mix of financing under various circumstances. We

also need to review the role that privatization might play in the future.

4) We need to review water rate structures, encourage rates that make systems sustainable and address concerns that rates are affordable, especially in poor communities.

5) We need to look closely at Federal mandates to ensure that those mandates are

not needlessly costly and burdensome.

6) Finally, addressing water investment needs in years to come will not only require

a strong commitment from Federal, State and local governments, it will call for

innovative funding mechanisms, public/private partnerships, advancements in

technologies, and a commitment to sustainable management practices.

Ensuring that our drinking water infrastructure needs are addressed will require

a shared commitment on the part of the Federal, State and local governments, private business, and consumers.

I pledge that EPA will continue to work in partnership with Congress, States,

local governments, the private sector and others to better understand the drinking

water infrastructure needs we face and to play a constructive role in helping to define an effective approach to meeting these needs in the future.

I will be happy to answer any questions.

Mr. GILLMOR. Thank you very much. If I might begin. EPA’s February 2001 Drinking Water Infrastructure Needs Survey indicated

the purpose of the survey is to include infrastructure needs that

are required to protect public health, such as projects to preserve

the physical integrity of the water system, convey treated water to

homes, or ensure compliance of specific SDWA regulations.

Could you briefly describe each need and its relationship to

maintaining public health?

Ms. WHITMAN. Well, Mr. Chairman, public health is at the basis

of all of these. It is the primary focus of the Safe Drinking Water

Act. Each one of the needs to which you refer is tied directly to assuring safe drinking water.

A needs survey report discusses the needs associated with components of the water system and its regulatory needs, but all of

those are geared toward health, and we would obviously be more

than happy to work with the subcommittee to provide additional

information on the direct linkage and the importance of those

health standards.

Mr. GILLMOR. And I thank you very much, and will look forward

to whatever additional information you may have. That needs survey also indicates that most of the total need results from the costs

of installing, upgrading, and replacing the basic infrastructure that

is required to deliver drinking water, the consumer costs that are

borne by water systems independent of SDWA.

For a need to be included in the survey, however, it must be required to protect public health. Therefore, if a system fails to address a need, then a health based violation of the standard eventually may occur.

And in more simple terms does that mean that the needs that

EPA has identified in its survey are, one, public health needs; and,

two, public health needs that ought to be addressed by SDWA?

Ms. WHITMAN. Yes, Mr. Chairman. The survey only includes

those infrastructure needs that are directed toward public health,

but let me just add that many of those investments are being made

by companies and proactive investments in order to prevent degVerDate 11-MAY-2000 12:07 Dec 26, 2001 Jkt 010199 PO 00000 Frm 00035 Fmt 6633 Sfmt 6602 E:\HEARINGS\71489 pfrm11 PsN: 71489
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radation of the water supply, and not necessarily because they are

currently in violation.

In order to ensure continuous safe drinking water, these systems

face the constant need for upgrading of the system, and improving

the pipes to meet the demand, and upgrading and replacing all

that basic infrastructure.

Mr. GILLMOR. Thank you very much. Just one more question

from me. You indicate that the operation of the Safe Drinking

Water SRF, like the Clean Water SRF, essentially provides funds

in perpetuity.

And you also note the ability of Federal money to leverage State

money, and provide multiple increases in actual purchasing power.

These appear to be substantial benefits of the revolving fund concept. Could you expand on those benefits a little more, as well as

any possible drawbacks with revolving funds?

Ms. WHITMAN. Well, obviously we feel that this is a very appropriate way to approach the issue, because with a revolving loan

fund, you are able to actually capitalize your money much faster

and to ensure that you have a continuous flow of money able to go

out to the communities to help where they must need it.

That is also a—it also provides a saving, because we are there

for communities when they have the need, and they are able to do

some planning. The low interest rates, of course, save them directly, save them money.

Now, of course, there are always those communities for whom

even the lowest rates are too high, and provide a burden to them.

So that is obviously a concern, but we believe that the approach is

appropriate, and that the loan approach is appropriate, and we do

have as you know certain grants that are available.

But overall the loan approach allows us to maximize the dollars

available and provide real support and real relief to these communities.

Mr. GILLMOR. Thank you very much, Governor. Mr. Pallone.

Mr. PALLONE. Thank you, Mr. Chairman. I want to ask two questions, and I guess the first one has to do with the arsenic standard

and the second one is on infrastructure. As far as the arsenic

standard is concerned, again, you know that I was very disappointed in the fact that you decided not to implement the 10

parts per billion.

And what you seem to be saying today is that you definitely

think it should be lowered from 50, but you don’t know if the 10

is the right one. Again, I don’t understand that because we have

so many indications—the European Union, the World Health Organization, our own State of New Jersey, that has used 10.

You even stated that maybe even 5 or 3, but it seems like the

general consensus is that 10 is certainly what it should be. I mean,

there is certainly some that say it should be 5 or 3, but there are

very few that are suggesting that it should be more than 10.

And so I still don’t understand why it was not the logical and the

right thing to do to go to 10, and then if you wanted to reduce it

to 5 or 3 later, that’s fine. But to suggest that somehow it does not

matter because it is not going to be implemented for a couple of

years, but I still think it serves as an example for States and for

water systems.

33

And if we defer this 10 for a significant period of time before announcing it, that does have a public health impact. So would you

please respond to that.

Ms. WHITMAN. Well, first of all, we have not withdrawn the 10.

We have put a notice to withdraw the regulation as it currently exists. I am having a difficult time understanding how there is a public health issue if the new standard of 10 parts per billion would

not have been effective until 2006, and we will have a new standard effective by 2006 which may well be 10.

But as you yourself indicated—first of all, let me say also that

it is very expensive for water companies. While it may sound all

right to go to 10, and then if we find that it should be 7 or 5, to

drop it lower than that later on, that is a huge incremental cost.

So we want to make sure that we are at the right level, and my

concern is that the previous rulemaking did not allow adequate

time for us to hear of what I have seen of what we were able to

get from all of the stakeholders, and all those affected.

And we have made on a cost benefit analysis that the costs that

we used were based on a national average, when what we see is

the heavier concentrations of naturally occurring arsenic occur in

the west and southwest; many and very small water systems, with

populations that don’t have a lot of disposable income.

And I just think that it is fair that we hear all of that and understand what more we might need to do from either additional loans,

grants, or technological help, to ensure that these small water companies—that we are not forcing people out of their homes or don’t

cause them as in the case that I cited before, don’t cause them to

sink their own wells and get unprotected water that is at the higher standards.

Mr. PALLONE. I guess my concern, Governor, is that I think 10

is pretty much the consensus, although it may not be 90 or 100

percent, and it would have been better to just proceed with that.

And I guess I am also fearful that as much as you have the best

intentions in trying to say that we are going to do something well,

that that may not be what the administration does.

The second thing though. With regard to the funding levels dedicated, I am very concerned as I said before that we are not going

to see this administration and its budget actually provide for any

significant increase in the funding levels for safe drinking water.

You said in your statement that the administration proposes to

maintain capitalization, which suggests to me that maybe that

means that they are just going to stay at the same level.

And the 500 million that I think that you suggested, is that for

safe drinking water, or is that for clean water in general? I was not

clear if you were putting the clean water and the safe drinking

water together, and whether there was going to be an actual increase for the safe drinking water component.

Ms. WHITMAN. What we are looking at is maintaining the same

commitment as the previous administration on the clean water.

Mr. PALLONE. And, you see, that is the problem again. We are

hearing figures here and testimony from that latest survey of 150

billion over 20 years. If we are just going to maintain the same

level, we are never going to get to deal with these infrastructure

problems the way they need to be dealt with.

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And I think what happens is that it goes back to the States and

the ratepayers, and I don’t think that is going to accomplish the

goal of really making the kind of investment that they want.

I don’t think that these investments are going to be made if the

Federal Government does not provide significant monies. What

about the enforcement aspect? I mean, do you envision that we are

going to have more money for staff, and for compliance to go out

and look at the bad actors and see that there is adequate compliance with the existing standards?

Ms. WHITMAN. We are certainly going to have a very active enforcement effort. As you know, we have not finalized the budget

numbers. They will come to you. I believe it is the 9th of April.

But we are also looking to maximize the ability of States to help

us with that enforcement. We will enter into partnership with the

States. Many as you know have done a very, very good job at this,

and we want to ensure that we have the ability to do what needs

to be done, and we feel that we can maximize that by working in

partnership with the States.

Mr. PALLONE. Thank you, Mr. Chairman.

Mr. GILLMOR. Thank you, Mr. Pallone. The chairman of the full

committee, Mr. Tauzin.

Chairman TAUZIN. Thank you, Mr. Chairman. Governor, let me

thank you for coming to discuss with us critical issues concerning

the Safe Water Drinking Water Act and its implementation.

I missed the chance to give an opening statement, but I would

have recognized the fact that since we started the Drinking Water

State Revolving Fund as a result of the 1996 Safe Drinking Water

Act Amendments we have, as of this year, allocated $4.4 billion for

drinking water specific funding across the country.

And the result has been that there have been over 1,400 projects

funded nationwide, providing safer drinking water and safer health

conditions for Americans. So it has been an extraordinary successful program, and I wanted to thank you for your commitment to

it, and your willingness to come and share your thoughts with us

today.

I do want to make one thing, however, clear, and that is that if

there has been a failure in the 1996 Safe Water Drinking Act,

much of it has been the result of problems that we have had with

the prior administration carrying out the 1996 Act as we intended

it.

When it comes to this arsenic rule, for example, the prior administration was 1 year late in establishing the research plan, the scientific research plan, that was going to form the basis of this rule.

And the former Chairman of this committee every year had to

write EPA to complain about recommended cuts in the funding of

that basic scientific research, and delays in the distribution of

those research funds.

It was the intent in 1996 to let science make the judgment on

whatever level the 50 parts per billion would be lowered to, and to

make that a correct scientific decision—as you have pointed out—

because of the extraordinary expense in achieving this lower level

all over this country, in water districts throughout America.

And it was our intent then that science drive the standard, and

EPA simply punted and punted, and this committee had to continVerDate 11-MAY-2000 12:07 Dec 26, 2001 Jkt 010199 PO 00000 Frm 00038 Fmt 6633 Sfmt 6602 E:\HEARINGS\71489 pfrm11 PsN: 71489
35

ually complain to EPA for its cuts in that research funding. It was

no surprise to us, then, that the rule was issued in the last few

days of the last administration. It was not even published until

after President Clinton left office.

So frankly, I want to commend you for putting science back into

the process, and leaving science fiction where it belongs, in Hollywood.

And for making sure that when we come up with the rule, which

won’t be effective as you point out until 2006, that it is the right

number, whatever that number is, whether it is 10, 12, 6, 3. You

have got it just right. And I hope that your administration, and I

know it will, will begin to rely upon real science rather than a

phony science or science fiction to make these judgments.

More importantly, I hope that when we pass statutes like the

1996 Act, and that Congress instructs very specifically on deadlines

and dates to establish things like a scientific research plan, that

the EPA under your administration will meet those deadlines. Can

we have that kind of assurance from you?

Ms. WHITMAN. You will certainly have my commitment to do our

very best at that.

Chairman TAUZIN. We always get that assurance.

Ms. WHITMAN. Well, when you are dealing with a scientist, sir,

sometimes they push back at you in ways that I am not competent

to second-guess.

Chairman TAUZIN. I know, but do you understand that in 21

years on this committee that one of our biggest problems with

every EPA administration has been the fact that when we tried to

set deadlines for things as important as a scientific research plan

that backs up an arsenic regulation, that those deadlines are always missed, and we always end up as we found ourselves at the

end of this last administration, seeing a rule that may not have

had the proper time to be vented and understood properly before

it was promulgated?

Ms. WHITMAN. Mr. Chairman, if I might, the commitment that

I will make to you is if we can’t meet a deadline, you will know

it up front, and as you establish those deadlines, if there is anyone

who is telling me that that is too tight a deadline, that for some

reason, scientific or otherwise, that it is impossible to meet, I will

certainly let you know. Otherwise, we take it as our obligation to

meet those deadlines.

Chairman TAUZIN. And sometimes it is our own fault when we

set a deadline that doesn’t take that into account. I give you my

word, as I know the chairman will give you his word, that we will

always consult with you as we go forward on fixing these deadlines,

and trying to make sure that they are realistic, and that you have

the resources to meet them.

And we had to do that with the Firestone issue recently when

we put a significant amount of funds into NITSA to make sure that

they could meet the standards of that new Act for Highway Safety.

And we obviously have the same concerns here. When it comes

to safe drinking water, obviously we are not talking about a nice

thing to do. We are talking about something that critically impacts

the health of all Americans, men, women, and children.

36

And so this is a critical area, where we know that the science has

to be right, and I basically wanted to take a few minutes that I had

to welcome you and ask for your continued cooperation. I know

that you have offered it privately and publicly to help us do our

work.

But most importantly to encourage you, and not to be deterred

by critics who complain that you are going to take your time and

do this thing right. Do it right, and make sure that science is the

basis of your decision.

And I guarantee that this committee will back you up when that

is apparent to us in whatever decisions that EPA makes for the

good of our country. I thank you very much, Mr. Chairman, and I

yield back my time.

Mr. GILLMOR. The gentleman yields back. The gentleman from

California, Mr. Waxman.

Mr. WAXMAN. Thank you very much, Mr. Chairman. Mrs. Whitman, you have been the Administrator of the EPA for less than 2

months; isn’t that correct?

Ms. WHITMAN. That’s correct.

Mr. WAXMAN. This drinking water standard for arsenic has been

in the works for 10 years. During those 10 years the professionals

at EPA heard from all the different parties that had something to

say about the matter.

They heard from the scientists, and they heard from the industry, and they heard from the communities, and they came up with

a clear decision that it ought not to be 50 parts per billion, but 10

parts per billion.

But the industry said we may need some more time to comply.

So EPA, before you got there, said all right. You have until 2006

to comply, but the effective date was March 23, 2001.

So when you talk about an effective date, and when you talk

about there is no loss of time, that can’t be true, because if the rule

is effective on March 23, that means that is when they have to

start complying. And the absolute deadline for complying is 2006.

If you pull back that regulation, there is no deadline. There is

no standard, except the old one that was set in 1942 at 50 parts

per billion; isn’t that accurate?

Ms. WHITMAN. We will ensure that we have enforcement ready

for 2006, the same as this particular rule would have required. We

do have a June 22nd deadline that you extended as a courtesy to

the last administration for a year last year.

I will obviously work with you to see if we can get the same kind

of extension to do this. I just want to make sure that we have done

everything that we need to do to be able to have all the information

necessary to make the best possible decision, including as we are

required to do by law what the whole fiscal impacts are.

And again while the staff has definitely done a fiscal impact, and

they have looked at what the potential impact is, they then did an

averaging across the country, and when you look at how that comes

into effect, it is very different.

Mr. WAXMAN. Let me—excuse me, because I have a limited time.

I just want to point out to you that the General Accounting Office

reviewed the EPA’s decision that was promulgated and that you

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have now lifted off the calendar, and the GAO said that the EPA

has done an effective cost benefit analysis.

They have got a long and complete record of many years, and so

in 2 months you have come in and pulled off the regulation that

was supposed to protect the public health. Now, I have to tell you

that I cannot ignore the fact that the mining industry gave $5.6

million to the Republican Party.

The chemical industry gave $9 million to the Republican Party.

You maybe did not read any letters from the mining industry, but

they were on file at EPA. It was well known that they did not like

this regulation. They even filed a lawsuit about it.

So I know that Mr. Dingell has sent a letter to you, and I think

we ought to have an answer to it, that would tell us who met with

your staff, who did the White House people talk to within the industry, and get a complete record of their influence in what is

clearly to me a huge giveaway to the mining industry and to the

chemical industry, I believe at the expense of the health of the

American people.

They are not going to be able to comply by 2006 unless you give

them a standard, and the standard has been set and ought to be

at 10 parts per billion. Isn’t it accurate that when you were Governor of New Jersey that you set a standard of 10 parts per billion?

Ms. WHITMAN. As an advisor, yes, absolutely. We are in the fortunate position of not having a lot of naturally occurring arsenic.

We were able to do that, and we think it is appropriate. That’s why

I am not adverse to 10 parts per billion, but I have a

responsibility——

Mr. WAXMAN. Wasn’t that based on sound science?

Ms. WHITMAN. It was based on where we thought things were

going, but we had no definitive scientific report that said 10 parts

per billion is the measurement at which you are fully protecting

public health; and at 11 or 12, you are endangering people, and at

7 or 9, they are very healthy.

We did not have that. We just took it. And, Congressman, I don’t

disagree with you that there are other States that have done the

same thing, which shows you that people do want to do the right

thing, but we have a responsibility——

Mr. WAXMAN. States want to do the right thing because they are

waiting for the EPA to set a national standard. Everyone in this

country ought to be protected from levels of arsenic in their drinking water that could endanger people’s health.

Ms. WHITMAN. I could not agree with you more. I could not agree

with you more, and we will, and I do believe that the companies

are going to be able to reach that goal. They could do it in 3 years.

Mr. WAXMAN. But you don’t need them to do it by then. That is

the last deadline for them to do it. They could start doing it now

if EPA would set the standard at 10 parts per billion, and they

could start meeting that standard now. And the deadline for all of

them to meet it is in 2006, and a lot of them would meet it long

before.

Ms. WHITMAN. I wish that were the case, but I doubt that you

would see that, and Congressman, just as I would never—I would

hope that we would all understand that no one, and particularly

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this administration, would jeopardize the public health because of

campaign contributions.

I don’t see that happening as decisions are made, where unions

have given great deals of contributions. I don’t see anybody making

a decision that would jeopardize the public health on that. That is

simply not what any administration would do, and we did no do

this.

As I indicated to you, when this decision was presented to the

White House, they were concerned about that. They wanted to

make sure that I was comfortable with that.

Mr. GILLMOR. The gentleman’s time has expired.

Mr. WAXMAN. One last sentence, Mr. Chairman. I can’t ignore

the fact that contributions were there. I just also want to comment

about your statement about why didn’t you get praised for not rolling back the pesticide regulations.

Ms. WHITMAN. No, just recognition.

Mr. WAXMAN. The recognition shouldn’t be that you should be

praised for not rolling back more environmental protections. You

should be criticized if you have rolled back environmental protections that are needed to protect the public, and I don’t think you

ought to be complimented for not doing worse.

Ms. WHITMAN. If we do, you can criticize us.

Mr. GILLMOR. The gentleman’s time has long since expired. The

gentlelady from New Mexico.

Mrs. WILSON. Thank you, Mr. Chairman. Before I interrupted

Mr. Waxman, I was hoping that I could get some chocolate, and I

was very disappointed that I wasn’t given that opportunity.

Sometimes I wonder how it is that I could be seeing something

from such a completely different perspective, and in this job you

end up dealing with thousands of issues and some you really have

to focus on because they are extremely important to your constituents.

And I find myself in a hearing here today with a completely different perspective, and I asked my staff to go up and pull up my

file from last year when we started looking at this from a public

health point of view, and a science point of view to benefit the citizens of the State of New Mexico.

There are several things that I would like to enter into the

record with unanimous consent, Mr. Chairman. And I think I have

now figured out one of the reasons, anyway, why I have this very

different perspective.

And that is that if you look at the East Coast and the West

Coast, less than 3 percent of your water systems are going to be

even affected. So what do you care? It is a bunch of New Mexicans

that are going to have to pay for this.

And it is us in New Mexico who show no adverse health effects

at levels between 2 parts per billion, and 50 parts per billion. The

question then becomes why. What is different?

I would like to put several things into the record. One is a letter

from the Mayor of the Village of Los Lunas explaining what this

will do to the Village of Los Lunas, which is a little place south of

Albuquerque.

The second is a letter from the State Water Commission, the

Water Quality Commission in the State of New Mexico, which is

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responsible for water quality in the State of New Mexico, which expresses significant concern about the science behind the rule and

the science at what level the arsenic level should be set at between

2 parts and 50 parts.

The third letter is from the Mayor of the city of Albuquerque,

whose name is Jim Baca. He is a Clinton appointee in the Bureau

of Land Management, and strongly supported by the environmental

movement in this country, who with the entire set of mayors in the

Rio Grande River Valley is opposed to setting the arsenic standard

at this level for reasons based on science and public policy.

And I have to tell you that I looked down this list, and I don’t

see many Republican mayors on the list. We don’t have too many

in the State of New Mexico.

Mr. GILLMOR. Does the gentlelady request unanimous consent?

Mrs. WILSON. Yes.

Mr. GILLMOR. Without objection, and the Chair hearing none,

they shall be entered in the record.

[The information referred to follows:]

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Mrs. WILSON. And the third is a map. This is the State of New

Mexico, and every little dot here is a water system that is going

to be impacted by these rules. Some of these are in my district.

This little county over here isn’t so little. New Mexico, by geography, is the fifth largest State in the country. This county over

here is Harding County, and it has two water systems affected.

In the census, they were very pleased. They are now at 871 people in the entire county of Harding County. Bernalillo, in New

Mexico, in my district, has 6,700 souls. Their estimate of the cost,

the Mayor has estimated—Mayor Charles Aguilar has estimated the cost of this standard of about $91 on everybody’s water bill.

This is a town where the median household income is $19,000.

That’s why New Mexicans care about this. We want clean water for

our families, but we want to get this right so that we have the

money to be able to pay it, and we don’t lose our water systems.

The people that I am listening to are not folks in the timber industry. I don’t even have enough trees to have a timber industry.

What I care about is public health and good science, and I think

it is possible to do that on a bipartisan basis because we have done

it in the State of New Mexico. And I yield the balance of my time.

Mr. GILLMOR. The Gentle Lady yields back. The gentleman from

Ohio, Mr. Brown.

Mr. BROWN. Thank you, Mr. Chairman. I listened to my friend

from New Mexico, and we have worked on several infectious disease and other issues together, and I appreciate her integrity and

her good work.

The subject though of this hearing is to discuss the massive funding of the water infrastructure in this country, and some of this

money should be diverted to communities like yours, but it doesn’t

mean that you delay cleaning up the water in those communities.

I mean, that is what we are really here for, I think. Administrator Whitman, let me understand this. Now, when you were the

Governor of New Jersey, you accepted—you used the word advisor,

and I don’t know quite what that meant. But you accepted the 10

parts per billion as making sense for New Jersey, correct?

Ms. WHITMAN. Yes.

Mr. BROWN. But now you say that going from 50 to 10 that you

don’t want to do it without more studies and more science. So, as

Governor of New Jersey, you thought 10 made sense.

And you didn’t care about the science so much then, and the

thoroughness of the science, and sound science as my friends on

the other side of the aisle always like to say when they have industry scientists spewing their point of view. But why today you want

more science, more studies, more delay?

Ms. WHITMAN. Well, Congressman, we have the luxury of being

able to accept something that was accepted but not scientifically

definitive. We could do it without, because we don’t have a great

deal of naturally occurring arsenic in our water.

We have not as many water companies as you saw in the map

that the gentlewoman from New Mexico showed us. We are able to

do it in a way that did not push any of our people to the point

where they have to make a decision whether they were going to be

able to afford their water or food, or the constant things that we

always hear of in tradeoffs.

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So this was a decision that we came to without the same kinds

of constraints. Again, I would like to assure everyone, and to repeat, that what we are doing here is looking to make sure that we

fully understand all the impacts of the decision that we are making, and are there other steps that we need to take so that we don’t

have unintended consequences from this rule.

Simply because I would love nothing better than to have the definitive study that says that it is 10, and that’s it, or it is five, and

that’s it. We may end up at five.

Mr. BROWN. Administrator Whitman, we hear that around here

from people that don’t particularly have a good record in the environment. We need a definitive study, and we need sound science,

and we need absolutely 100 percent proof.

Ms. WHITMAN. We are not going to get it. We need to make a decision without everything that we would like to have.

Mr. BROWN. Yes, but you are the agency. It is my understanding

that the EPA’s established numbers are maximum contaminant

levels for 83 contaminants under the Safe Drinking Water Act. Is

every single one of those—I know that you have not been there

very long, but is every single one of those a product of a definitive

scientific study that clearly identified the exact number for the

EPA to act every time?

Ms. WHITMAN. And I am not saying that we are going to hold up

a decision on this until we get that kind of a study, because I don’t

think that we ever will get that kind of a study with arsenic. So

we have to be prepared to make a decision without everything that

we would like to have. That is what I would love to have, but we

are prepared to go forward.

Mr. BROWN. If I may, in light of what this list of countries—and

I mentioned some of them earlier—have done; Australia is 7 parts

per billion, and Belgium, Denmark, United Kingdom, German,

Spain, Finland, France, Ireland, Greece, Italy, Luxembourg, The

Netherlands, Portugal, Syria, Nunibia, Mongolia, Laos, Jordan,

Japan, Sweden, they have all come down to 10 parts per billion.

And the European Union has said 10 parts per billion, and the

World Health Organization, as reputable an organization as there

is on international public health, has said 10 parts per billion; and

because you are not sure, you maybe need one more study to be

sure.

You don’t want to join New Jersey, and you don’t want to join

all of these countries. You don’t want to join the world health organization and the EU to say let’s do 10 in this country because

maybe we ought to delay it. Who is going to pay the cost for that

delay?

Who is going to get sick, and who is going to be a victim of an

endocrine disrupter, or who are going to be victims of birth detects,

or who is going to be the victims of the toxic substance of arsenic

or cancer because of this delay?

Ms. WHITMAN. Congressman, if we determine that it should be

five, I would like the flexibility to take it to five right away. Not

wait, and not do 10, and then have them come down to five, and

that is maybe where we end up.

Mr. BROWN. Maybe it is, but from the record so far of this administration, from the Governor of Texas’ record on the environment,

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and from the record—and I don’t know much about your record in

New Jersey, but from the record so far with carbon dioxide, with

others, and with all that we have seen in this administration already, for us to think that there is not some interest in delay, when

the clock began or was supposed to begin March 23, and then these

communities began to comply.

We can do some things for Ms. Wilson and others through the

revolving fund. We ought to be doing that, but to begin this delay

doesn’t send a very good message to the people of this country for

an administration that has already established a pretty poor environmental record in a record of a hundred days.

Ms. WHITMAN. Well, Congressman, did you feel that way about

the diesel regulation as well? Because I would say when you look

at the record of this administration on the environment, the important thing is to understand that we will judge each issue on its

merit individually.

We do not come to it, I will admit it, with an over arching desire

to end up in one place predetermined. We want to determine each

issue on its merits, and that is the way that we will do it. And

sometimes we will agree and sometimes we won’t.

Mr. GILLMOR. The gentleman from Illinois, Mr. Shimkus.

Mr. SHIMKUS. Thank you, Mr. Chairman. Administrator, your

testimony indicates that some infrastructure needs which need to

be more fully evaluated are population growth, aging infrastructure, merging environment and public health demands, operation

and maintenance costs, and the affordability of water services.

And as I said in my opening statement, I would think access

would be another one that we would want to make sure that we

consider. I think those make an assumption that everyone has access, and so we are going to evaluate on new standards.

And we are going to evaluate on how old the equipment is.

Again, I still want to continue to put the plug in for maybe just

simple access that some people still need regardless of a standard.

I thought I would throw that out.

Two questions. Are these items, or in other words the ones that

I mentioned, to be addressed in further refinement of the gap analysis?

Ms. WHITMAN. Yes, those are all going to be things that we are

going to be looking at with that gap analysis, and with an idea to

seeing where we can tighten the way that we do our assessments.

And we will also submit that gap analysis for peer review.

Mr. SHIMKUS. Can you also at least as you go through the process—and I again look at what we are doing for access, and what

we are doing in conjunction with the U.S.D.A.

And again I just want to make the point that there are places

out there where they are still hauling water in to their homes.

Also, could you provide the subcommittee with any study design

plans, or other documentation, upon how the evaluation of these

elements will proceed?

Ms. WHITMAN. Certainly. We will be happy to provide you with

anything that you need on that.

Mr. SHIMKUS. And let me again finally ask. I was trying to explain this arsenic debate on the radio a few minutes ago, and I was

talking about 50 basketballs in a gymnasium, versus 10 basketVerDate 11-MAY-2000 12:07 Dec 26, 2001 Jkt 010199 PO 00000 Frm 00083 Fmt 6633 Sfmt 6602 E:\HEARINGS\71489 pfrm11 PsN: 71489
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balls parts per billion. Is that 10 versus 50, is that a good analysis,

or should it be in an arena, or should it be in the Super Dome?

Do we have any idea of how you could put it down in layman’s

terms? How many basketballs and what size of a—— Ms. WHITMAN. Well, I would say off the top of my head that if

we are doing basketballs that it would be in an arena, because we

are talking about parts per billion.

Mr. SHIMKUS. State your name for the recorder so that he can

get it.

Mr. HAMILL. Barker Hamill, for the State of New Jersey. Ten

seconds versus 50 seconds out of 32 years.

Mr. SHIMKUS. Thank you very much. That clears—but you did

not answer the basketball. Could I get submitted for the record the

basketball analysis?

Ms. WHITMAN. Unfortunately, Congressman, our professional

basketball team is not something that we—— Mr. SHIMKUS. Thank you, and I yield back my time, Mr. Chairman. Thank you.

Mr. GILLMOR. The gentleman yields back. Mr. Engle.

Mr. ENGEL. Well, thank you, Mr. Chairman, for holding this

hearing today on safe drinking water infrastructure. Governor, welcome. From my district, I can look across the Hudson River and see

New Jersey. So I am aware of your record as a Governor and the

environment and I hope that as other issues are being decided in

this administration that you will continue to weigh in heavily on

your feelings about this.

I want to talk about something that is very parochial to my district in New York. As you may know, in New York there has been

a problem implementing the Safe Drinking Water Act, particularly

within my district.

About a decade ago, a filtration plant was mandated for the

Crotin Reservoir, and since then four different areas in my district

in The Bronx, and several sites in Westchester County just north,

have been identified by the New York City Department of Environmental Protection as possible sites for the filtration plant.

There are several problems with the four possible sites in The

Bronx, including the fact that they are located in densely populated

areas. Now, I have problems with the filtration plant, and its potential location, and have been working to find alternatives to filtration.

I have a bill which would explore alternatives to filtration. Now,

the New York city of Environmental Protection has been on a dual

track; while starting the building of a filtration plant, they have

also studied filtration alternatives.

And it is my understanding that there are several alternatives

to filtration that might adequately protect the water supply, thereby circumventing the need to build a filtration plant.

As I have mentioned, I have introduced legislation in the past

and I am drafting legislation for the current Congress, which

amends the Safe Drinking Water Act to allow the use of new technologies as an alternative to filtration if it is appropriate.

Your predecessor, Carol Browner, visited the possible sites for a

filtration plant and I would hope that you would consider joining

me in visiting those sites and talking to community leaders about

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the potential of non-industrial techniques to protect the water supply i the Crotin Reservoir.

I hope that you could do that in The Bronx, and if that is difficult, I hope that we could have a meeting here in Washington

with you personally to discuss these different alternatives, and I

just wanted to raise that. And I would look forward to sitting down

with you either in New York or here in Washington to discuss this.

Ms. WHITMAN. I would be happy to discuss that with you, Congressman.

Mr. ENGEL. I thank you very much. Thank you, Mr. Chair.

Mr. GILLMOR. Thank you, Mr. Engel. I would like to enter into

the record two items. First, comments from the American Water

Works Association regarding the arsenic standard, in summary

form.

And, second, correspondence and contacts between Chair Bliley

and the EPA regarding delay in the arsenic research plan and

funding of arsenic research, and without objection, and the Chair

hearing none, those will be entered in the record.

[The information referred to follows:]

ASSOCIATION OF STATE DRINKING WATER ADMINISTRATORS—3/28/01

ASDWA POSITION STATEMENT—Drinking Water Infrastructure Funding

(#01-2001)

Reference: None

ASDWA Position

It is the position of the Association of State Drinking Water Administrators

(ASDWA) that current and future funding vehicles for drinking water infrastructure

improvements and state implementation activities should: 1) maintain maximum

state flexibility in structure and implementation; 2) ensure long-term sustainability

of the funds as well as water system capacity; 3) expand upon the current Drinking

Water State Revolving Loan Fund (DWSRF) as the preferred funding vehicle; and

4) unless sufficient funding is made available through the base state Public Water

Supply Supervision (PWSS) grant, maintain sufficient support through set-aside

funding or other viable mechanisms to provide for administration and state SDWA

implementation costs.

Rationale

The Safe Drinking Water Act (SDWA) Amendments of 1996 created enormous

new programs and a complex regulatory structure that will require water systems

to continue improving their water system infrastructure, and expand state implementation requirements. The SDWA provided for the creation of the DWSRF program to help finance water system infrastructure needs and for set-asides for states

to supplement administrative and program implementation costs. The SDWA authorized a total of $9.6 billion for FY-94 through FY-03 for the DWSRF (although

only $4.42 billion has been appropriated through FY-01). Congress authorized broad

eligibilities for the drinking water funding to address serious risks to human health,

ensure compliance with the SDWA, and to assist systems most in need on a per

household basis. Projects that address present or prevent future violations of healthbased standards as well as to replace aging infrastructure are eligible for funding.

Eligible project categories include treatment, installation or replacement of transmission and distribution pipes, rehabilitation or replacement of contaminated

sources, water storage, consolidation, and creating new or regional community water

systems to address unsafe drinking water supplies.

Congress and the U.S. Environmental Protection Agency (EPA) provided for loans

at or below market interest rates including zero interest rate loans and provided

further flexibility for states to provide loan subsidies such as principal forgiveness

and negative interest rate loans to disadvantaged communities or communities that

would become disadvantaged as a result of a project. They also allowed specified

transfers of funds between the Drinking Water and Clean Water revolving funds,

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ministration, source water protection, operator certification, and state PWSS program implementation.

To date, the DWSRF has proven extremely successful. Through June 30, 2000,

EPA had made available more than $2.7 billion to all 50 states and Puerto Rico to

capitalize state revolving loan funds. States had made approximately 1,200 low-interest loans totaling more than $2.3 billion with 75 percent of the loans (40 percent

of the funds) going to small water systems. States reserved and matched approximately $445 million of the fund for capacity development, operator certification,

source water protection, PWSS program implementation, source water assessments

and delineations, technical assistance to small systems, and fund administration.

This flexibility has allowed states to maximize infrastructure funding as well as ensure that needed tools and assistance are provided to water systems.

Maintaining and expanding this successful DWSRF structure must be ensured if

we are to continue to meet growing drinking water infrastructure needs. EPA’s recent 1999 Drinking Water Infrastructure Needs Survey highlights $150.9 billion in

infrastructure need nationwide over the next 20-year period through 2018. Of this

total, 68 percent, or $102.5 billion is needed now to ensure the provision of safe

drinking water. Transmission and distribution projects represent the largest category of identified need followed by treatment, storage, and source.

As Congress debates the future of infrastructure funding needs and funding vehicles, ASDWA strongly encourages the continued support of the DWSRF as a viable,

successful model.

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Mr. GILLMOR. The gentleman, Mr. Walden.

Mr. WALDEN. Thank you, Mr. Chairman, and I will keep my remarks fairly brief. And, Governor, welcome. One of the issues that

I hear about out in my district, as much as some of these new

standards that impact on very small rural communities, is the

spin-off into TMDLs, because some of these areas tell me that they

may in fact be required to treat water going out of their systems

to a level that is cleaner than naturally occurring because of the

minerals and things in the water.

And I hope that you will flag that. I am not trying to create another presser here for another week of nightly news reports on poisoning people. But it is an extraordinary problem out there that we

are setting standards that may well exceed what naturally occurs

in streams in the West.

And I hope my friends from the East understand that, but we

each have our own set of problems and I think we all want clean

water that is safe. So I would encourage you to take a look at that

as well.

Ms. WHITMAN. And we are reviewing that.

Mr. WALDEN. Thank you.

Mr. GILLMOR. Mr. Terry, do you have a question?

Mr. TERRY. May I?

Mr. GILLMOR. You may.

Mr. TERRY. Good afternoon.

Ms. WHITMAN. Good afternoon.

Mr. TERRY. I have worked in some of our rural communities,

even though I am from Omaha, Nebraska, representing predominantly urban. As I say, we have more cement than fields in my district.

But I have a memo from our Lieutenant Governor, and Health

and Human Services Director, about the impact of the copper and

arsenic rules, and I appreciate the movement, because as my friend

from New Mexico said, just the natural state of our ground water

that has been used for years will fall within and capture with the

revised rules, placing a great burden on local communities in how

they treat the water to meet the new standards.

And I have two questions for you in that regard. First of all, is

the EPA open to alternatives instead of providing the revolving

fund or dollars? For example, in some of our communities with copper, for example, the copper leeches into the water from the piping

in the house when it sits overnight, because the natural ground

water is a little bit more acidic than in some other areas of the

country.

But yet they would rather—the EPA mandate basically is that

they treat that. So they have to build facilities or alter their facilities at great cost to that community, as opposed to being open for

less costly alternatives; filtration systems, pipe flushing, education.

Whereas, one community came and asked me last week that it

would be cheaper for us to go into the number of houses and replace their copper piping than to do what the EPA is mandating

by way of the treatment facilities.

So do you believe as the head of the EPA, and not necessarily

that localities or States should have greater flexibility to adopt

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remedies that best fit the locality and the situation without necessarily having to go to infrastructure changes?

Ms. WHITMAN. Well, Congressman, one of the things that I believe is important for us and incumbent upon us as an agency is

to set the standards that we believe best protect the public health.

But I do not believe it is therefore incumbent on us to dictate the

technology that reaches that standard, whether it be in drinking

water or air. It really does not matter, and that we have that obligation to set the standards to protect people, but I don’t believe

that we are in the business of managing any of these companies,

or any of these businesses that are impacted or communities.

And that we should allow them to reach those standards in a

way that reflects their needs and is responsive to their needs.

Mr. TERRY. Well, what you say certainly is different than what

the past Administrator was telling the State of Nebraska in how

to do with that, and so I appreciate that level of flexibility.

Ms. WHITMAN. We will try to work with you to see if we can resolve these issues.

Mr. TERRY. That is much appreciated, because there is sometimes common sense in easy solutions that just seem to escape or

be beyond the grasp of some Administrators out here. So I appreciate that.

Now, with that, if we continue though to force some of these communities with lowering the standards, and then having to expand

their infrastructure to meet the new standards with the Drinking

Water State Revolving Fund, according to this memo there could

be as many as 120 communities in the State of Nebraska that

would have to sp end infrastructure dollars.

I am not sure the revolving fund as it sits today has enough

money that all of these communities could take part in the program, receive some dollars, and comply by 2001 or 2006.

Ms. WHITMAN. Well, it is important to understand that we also

have—and while there are as you know special provisions within

the SRF that allows for States to provide additional dollars to the

small water companies in the small areas, and in fact they have

done that to a great degree, we have a number of other tools available to help the small water systems, with technical assistance,

and training, and capacity development, operational help that we

can give them.

And it is the kind of thing that—operational certification. Last

year’s budget included approximately $14 million specifically targeted to helping the small companies. And that is something that

I believe that we need to look at and review, and make sure that

we have the necessary tools available to be able to support small

water companies, and that they know what is available.

Because very often I found that sometimes we have—there either

may be money in a particular form that is available to them, or

this other assistance, and they don’t even know it is available. So

they are not taking advantage of it.

And we could be. We are already in a position to provide more

aid overall than we are, and they are not getting it because they

don’t know about it.

Mr. TERRY. Well, I appreciate that you recognize that and have

a commitment to that. Certainly in Omaha, when the standards

119

change, we can absorb that cost without much difficulty, but the

smaller communities can’t without that assistance, and I appreciate your recognition of that fact. Thank you, Mr. Chairman.

Mr. GILLMOR. Thank you. That concludes—oh, I beg your pardon.

Mr. Barrett. Excuse me.

Mr. BARRETT. Thank you very much, Mr. Chairman.

Mr. GILLMOR. Most important for last.

Mr. BARRETT I appreciate that warm introduction. Last Friday,

there was an article in the Night Ritter Services that said that on

Tuesday, Environmental Protection Agency Administrator, Christine Todd Whitman, said Clinton’s proposal to limit arsenic in

drinking water to 10 parts per billion was too expensive and, ‘‘the

scientific indicators are unclear.

Today it seems that you are talking more about the scientific indicators, as opposed to the expense. Can you comment on that?

Ms. WHITMAN. No, it is both. It is that we don’t unfortunately— and I don’t know that we ever will have that definitive study that

says that it is 10. But that is becoming more and more a common

accepted number.

But it is not hard and firm that says that over 10 that you are

endangering people, and under 10, they are protected. We know

that 50 is too high. That was set back 50 years ago or 60 years ago.

Mr. BARRETT. I understand that. But my question is it the

science or is it the expense? This article said that you had two.

Ms. WHITMAN. It is a combination. We have an obligation as you

know under the Safe Drinking Water Act to go through a process

that identifies the science, and then we also have an obligation

under the Act to look at the fiscal implications of that.

Mr. BARRETT. And what was the information that led you to the

belief that the Clinton proposal was too expensive?

Ms. WHITMAN. I was listening—well, not listening. I had heard

a lot of concern about the arsenic rule overall, and in talking to

staff and asking about the amount of time they had, and the kind

of impact that they had for public comment, I became very troubled

that this number wasn’t—and the implementation wasn’t based on

all of the available input that was necessary.

It might be as I have indicated before that we stay at 10, but

I was not satisfied that we thoroughly understood all the implications of this decision.

Mr. BARRETT. And was there a legal challenge to this rule?

Ms. WHITMAN. I don’t know that there has been one yet. There

are legal challenges to everything that we do.

Mr. BARRETT. Okay. Was there a legal challenge?

Ms. WHITMAN. Yes, there was, I am told.

Mr. BARRETT. By the American Metropolitan Water Association?

Ms. WHITMAN. I don’t know. No.

Mr. BARRETT. American Water Works Association?

Ms. WHITMAN. No.

Mr. BARRETT. National Association of Water Companies?

Ms. WHITMAN. No.

Mrs. WILSON. Would the gentleman yield?

Mr. BARRETT. Just a moment, please. The National—— Ms. WHITMAN. I think it is in New Mexico.

Mrs. WILSON. I was going to say it is New Mexico.

120

Mr. BARRETT. Okay. The National Rural Water Association?

There is no legal challenge there.

Ms. WHITMAN. No.

Mr. BARRETT. You stated that you did not talk to any industry

individuals. How extensive was the lobbying by the industry

against this rule?

Ms. WHITMAN. I don’t know. I did not receive any calls on it. I

know that there are letters in the record on both sides. I mean, we

have an enormous number of—I mean, we have letters from small

town mayors who are Democrats who oppose it in enormous

amounts.

But my concern as someone who comes from the East and who

cares greatly about the environment, and whose State went to 10,

I did not feel in asking questions of the staff that there had been

enough time for them to do what ordinarily would have been done

in getting all the input from the rest of the country to fully understand the implications.

Mr. BARRETT. I assume that you knew there was opposition from

small town mayors.

Ms. WHITMAN. I knew that there was a lot of concern about this

rule, yes. Of course.

Mr. BARRETT. And I assume that you knew that there was opposition from the industry?

Ms. WHITMAN. Not particularly. I mean, I knew that there was

a lot of controversy around this rule. We pulled back as you know

based on the Card memo all the last minute regulations promulgated by the previous administration, and this was one that was

done after—you know, in January, in late January. So we looked

at all of them.

Mr. BARRETT. You are painting a picture of sitting in a room and

knowing of the concern of small town mayors, but not of the concern of the industry.

Ms. WHITMAN. No, it is a picture of sitting in a room knowing

that this is a very controversial rule.

Mr. BARRETT. And who did you know that it was controversial

with?

Ms. WHITMAN. It was in the papers all the time. There was a lot

of talk about it.

Mr. BARRETT. Yes, I know, but who? Who as it controversial

with? I mean, Ms. Wilson I think eloquently described her controversy, but I am having a little trouble here when I hear Mr.

Waxman talk about these huge contributions; that somehow you

did not know that the industry was opposed.

Ms. WHITMAN. I did not know that the timber industry was opposed because of cricetine in the wood, although growing up on a

farm, I am very familiar with cricetine in the fence posts, and probably we ought to check our water, too, because we are on a well,

and for a period of time we were sinking those posts in the land.

But it may be hard for anyone to understand us, but I got no

pressure from the White House on this rule. None. I didn’t talk to

any member, no member of the President’s staff. I mean, I can’t

make it any clearer than that. Nobody associated with the President called about this rule.

121

I did not take any calls from any industry members. We knew

that it was controversial, and there are suits about this rule. I

didn’t say, okay, who is suing and how much did they give.

Mr. BARRETT. Well, I have to admit that I didn’t know that there

was a pro-arsenic lobby. I just didn’t know that there was one that

existed, but apparently there is from what we have heard today.

Ms. WHITMAN. This is the first that I have heard of it.

Mr. BARRETT. And I just have to say I find it troubling. It just

strikes me that obviously industry from what we have learned

today was very opposed to this, and I just find it hard to believe

that that was not something that the EPA was concerning. So I

would yield back my time.

Ms. WHITMAN. Well, again, there may be a lot of industry opposition. There is also a lot of opposition from real people out there as

well.

Mr. GILLMOR. Thank you very much. The gentleman from New

Jersey, Mr. Pallone.

Mr. PALLONE. Mr. Chairman, I just wanted to ask two things.

First of all, there is a letter to Mrs. Whitman from myself and Mr.

Dingell with additional questions, written questions, that we would

like to have answered.

Ms. WHITMAN. Certainly.

Mr. PALLONE. And that I would like to have entered into the

record and ask for unanimous consent.

Mr. GILLMOR. Without objection, the letter will be entered into

the record.

Mr. PALLONE. And then, I know, Mr. Chairman, that a lot of documents have been entered into the record today, including one that

was entered from—a statement by A.W.W.A., and I would just like

to ask that the record remain open for additional comments, because in some cases documents from either side, we really have not

had a change to look at, and it would be nice if we could leave the

record open so we could do that.

Mr. GILLMOR. Without objection, we will hold the record open for

that purpose for a week.

Mr. PALLONE. Thank you, Mr. Chairman.

Mr. GILLMOR. Well, I want to thank you, Administrator. You

have been very generous with your time and your wisdom, and we

appreciate you being here. Thank you very much.

Ms. WHITMAN. Thank you very much, Mr. Chairman.

Mr. GILLMOR. That will conclude our first panel. We have a vote,

and we will come back immediately after the vote and we will

begin with Panel Two. Panel Two will consist of Perry Beider, the

Principal Analyst from the Congressional Budget Office; Mr. Tom

Curtis, the Deputy Executive Director of the American Water

Works Association; Ms. Diane Van de Hei, Executive Director of

the Association of Metropolitan Water Agencies; Ms. Janice Beecher, Director of the National Association of Water Companies; Mr.

Barker Hamill, the Bureau Chief of New Jersey’s Drinking Water

Protection Office; and Erik Olson, the Senior Attorney at the Natural Resources Defense Council.

We will recess now and begin with that panel as soon as we get

back.

[Brief recess.]

122

Mr. GILLMOR. All right. We will begin with the second panel. You

have 5 minutes to summarize your statements before members

may begin asking questions, and so you may begin as soon as you

are ready, and I think we will begin with Mr. Perry Beider of the

Congressional Budget Office.

STATEMENT OF PERRY BEIDER, PRINCIPAL ANALYST,

CONGRESSIONAL BUDGET OFFICE

Mr. BEIDER. Mr. Chairman and members of the subcommittee,

thank you for inviting me to testify. The Congressional Budget Office, CBO, appreciates this opportunity to contribute to your review

of the needs for investment in drinking water infrastructure.

My testimony today reflects some initial findings from an ongoing CBO study requested by this subcommittee and your colleagues

on the Transportation and Infrastructure Committee.

With me today is Dr. Natalie Tawail, who is also working on the

CBO study. I would like to make four points today about water infrastructure investment needs. Point One is that there is a lot of

uncertainty surrounding the existing estimates of those needs.

As you know, the Water Infrastructure Network, or WIN, has estimated that annual needs for investment in drinking water will

average $24 billion between 2000 and 2019, exceeding current

spending from all ratepayers and public sources by $11 billion per

year, as shown in the chart.

Summary of the Water Infrastructure Network’s Estimate for the Annual Funding Gap for Drinking

Water

(In billions of 1997 dollars)

Capital Investment ............................................................................................................................................................... 19

Financing .............................................................................................................................................................................. 5

Total Capital .................................................................................................................................................................... 24

Less 1996 Capital Funding .................................................................................................................................................. -13

Estimated Funding Gap ....................................................................................................................................................... 11

Memorandum:

Operation and Maintenance ................................................................................................................................................. 27

Of course, any 20-year projection is uncertain, but the uncertainty here is compounded by a shortage of critical data on the

water pipe networks. Without looking system by system at pipes

age and condition, it is very difficult to say exactly when replacement will be required.

In the absence of a national inventory of drinking water pipes

and other detailed local data, the WIN analysis uses some simple

national assumptions. For example, it assumes that, on average, 1

percent of pipes will need to replaced each year through 2019.

Although that assumption is grounded in a common rule of

thumb, CBO considers it quite possible that the assumption could

be off by 30 or 40 percent. That factor alone could imply an error

of 20 or 30 percent in the overall funding gap.

Point Two is that the WIN estimates are not independently confirmed by EPA’s preliminary and unpublished gap analysis. The

two estimates of drinking water needs are indeed independent, unVerDate 11-MAY-2000 12:07 Dec 26, 2001 Jkt 010199 PO 00000 Frm 00126 Fmt 6633 Sfmt 6602 E:\HEARINGS\71489 pfrm11 PsN: 71489
123

like their wastewater counterparts, but they are also significantly

different.

Of course, EPA’s analysis could change as it undergoes agency

review. Point Three is that some of the assumptions used in the

analyses to date could tend to overstate costs.

First, the analyses assume efficiency savings in operations and

maintenance, O&M, but not in capital investment. While the data

to support capital efficiencies are sparse, a growing number of systems have achieved significant savings from various innovative

methods.

Second, the WIN report appears to misstate the financing costs.

Those costs seem to reflect all future debt-service payments associated with the average annual capital investment between 2000 and

2019, regardless of when those payments would be made.

CBO estimates that the average annual debt service actually

paid during those 20 years could be roughly 25 percent less than

the reported $5 billion per year. And, third, the analyses may also

overstate O&M costs for wastewater, and perhaps for drinking

water also.

They assume that in the absence of specific efficiency gains, the

ratio of O&M to capital stock will rise steadily over time. My final

point is that water investment needs are not only uncertain and

perhaps overstated by current estimates, but also subject to influence by Federal policies.

In particular, a broad increase in Federal funding intended to

help keep water rates affordable could keep total investment needs

higher than they would be otherwise by reducing the pressure on

systems to operate more efficiently, and on customers to economize

on their water use.

Drinking water systems around the country have improved their

operational efficiency in recent years, but industry experts see

room for further savings in both operational and capital costs.

Promising methods include consolidation of systems to achieve

economies of scale; strategic use of preventive maintenance to minimize long-run costs; demand management, including the use of

pricing strategies to reduce peak use; and innovative contracting

for new construction, such as design/build and design/build/operate

construction.

But such potential future savings could go unrealized if Federal

policies undermine the growing incentives for efficiency. We have

seen this before. A 1985 CBO study found that high Federal cost

shares in the original construction grant program for wastewater

treatment raised capital costs by more than 30 percent.

In summary, CBO finds that the existing estimates of investment

needs for drinking water are accompanied by significant uncertainty and may be too high. Moreover, how big the needs turn out

to be will be influenced by who pays to meet them and how. I will

be happy to try to answer any questions.

[The prepared statement of Perry Beider follows:]

PREPARED STATEMENT OF PERRY BEIDER, PRINCIPAL ANALYST, MICROECONOMIC AND

FINANCIAL STUDIES DIVISION, CONGRESSIONAL BUDGET OFFICE

Mr. Chairman and Members of the Subcommittee, thank you for inviting me to

testify. The Congressional Budget Office (CBO) appreciates this opportunity to contribute to your review of the needs for investment in drinking water infrastructure.

124

1For example, see Environmental Protection Agency, Drinking Water Infrastructure Needs

Survey: First Report to Congress (January 1997), p. 1. EPA recently released a report on a second survey of drinking water needs but has not yet incorporated the results of that survey into

its analysis of the infrastructure funding gap. 2Water Infrastructure Network, ‘‘Clean & Safe Water for the 21st Century: A Renewed National Commitment to Water and Wastewater Infrastructure’’ (undated), available from the

American Water Works Association (www.awwa.org/govtaff/win/finalreport.pdf), pp. 3-1 and 3-

3.

My testimony today reflects some initial findings from an ongoing CBO study requested by this Subcommittee and your colleagues on the Transportation and Infrastructure Committee.

Safe drinking water is essential to the economy and to human health. But how

much and how to invest in order to maintain an adequate drinking water infrastructure are difficult issues. I hope to shed some light on those issues today.

In particular, I want to impart two main points:

• First, the existing estimates of how much investment will be needed over the next

20 years are very uncertain and may be too large. The lion’s share of the investment will be used to rehabilitate or replace water pipes, but there is no national

inventory of pipes’ ages and conditions on which to base estimates of investment

needs. In the absence of such an inventory, analysts have to rely on rough national assumptions, which add significantly to the uncertainty inherent in any

20-year projection. Moreover, notwithstanding claims that the existing estimates are, if anything, likely to underestimate the needs, CBO has identified

some factors suggesting that those estimates may be too large. Thus, policymakers should not give undue credence to the estimates of future needs or the

associated ‘‘funding gaps.’’

• Second, the very concept of an investment ‘‘need’’ is a fuzzy one. The amount of

money that water systems must spend in order to provide the necessary services can vary dramatically depending on how efficiently the systems operate and

invest. Therefore, from the standpoint of economic efficiency, it is important

that any federal support for water infrastructure be provided in a way that

gives system operators and water users the appropriate incentives to keep costs

and usage down.

THE EXISTING ESTIMATES OF DRINKING WATER NEEDS

Projecting 20 years into the future is always difficult. Even the best 20-year estimate is only an extrapolation of what would happen under current and currently

anticipated trends. In the case of projecting the needs for investment in water infrastructure, the difficulty is compounded by a shortage of data. The Environmental

Protection Agency’s (EPA’s) quadrennial Drinking Water Infrastructure Needs Survey provides relevant data collected from systems around the country. However,

EPA’s reports based on the survey note that it underestimates infrastructure needs

over its 20-year horizon because many systems are not able to identify and document all of their needs for the full period.1 According to EPA staff, follow-up visits

to some systems after the first drinking water survey yielded revised estimates that

averaged 55 percent above those initially reported.

Prompted in part by the incompleteness of EPA’s survey, a consortium called the

Water Infrastructure Network (WIN) has developed more comprehensive estimates

of 20-year infrastructure needs, supplementing the data from the survey with assumptions based on professional judgments. According to WIN’s estimates, shown

in Table 1, investment needs for drinking water will average about $24 billion per

year through 2019 (expressed in 1997 dollars and including financing costs). WIN

estimates that capital spending in 1996 from all sources—primarily local funds from

ratepayers but also federal and state aid—was roughly half of the estimated future

needs; thus, relative to the 1996 investment level, future needs for drinking water

infrastructure represent an average annual funding gap of $11 billion.2 (The table

also shows WIN’s estimates of average annual spending for operation and maintenance [O&M]. Because little outside funding is available for O&M, ratepayers cover

almost all of those costs as well as a portion of capital costs; thus, the O&M estimates bear on the question of total costs facing future ratepayers.) EPA is also conducting a similar ‘‘gap analysis’’ but has not yet published its results.

125

3Stratus Consulting Inc., ‘‘Infrastructure Needs for the Public Water Supply Sector: Final Report’’ (unpublished paper prepared for the American Water Works Association, Boulder, Colo.,

December 22, 1998). 4 Ibid., p. 3-11. CBO has been unable to learn exactly how WIN’s consultants adapted the

AWWA’s estimate. Presumably, investments in treatment facilities and equipment account for

at least some of the difference between the AWWA’s annual average of $16.3 billion and WIN’s figure of $19 billion (for capital costs). 5The analysts who developed the AWWA’s estimate may have inadvertently overstated its uncertainty by using simple flat probability distributions for most of the uncertain factors. They

probably would have been justified in giving greater weight to outcomes near the center of the

range of possible values, which would have required using more complex peaked or bell-shaped

distributions. Moreover, confidence intervals tend to get smaller in percentage terms as individual components of an estimate (for example, the needs of large systems and medium- sized

systems) are added together, allowing random errors to offset one another.

TABLE 1

Summary of the Water Infrastructure Network’s Estimate of the Annual Funding Gap

(In billions of 1997 dollars)

Drinking

Water

Capital Investment ........................................................................................................................................................... 19

Financing .......................................................................................................................................................................... 5

Total Capital ................................................................................................................................................................ 24

Less 1996 Capital Fundinga ............................................................................................................................................ -13

Estimated Funding Gap ................................................................................................................................................... 11

Memorandum:

Operation and Maintenance ............................................................................................................................................. 27

SOURCE: Congressional Budget Office based on Water Infrastructure Network, ‘‘Clean & Safe Water for the 21st Century: A Renewed National Commitment to Water and Wastewater Infrastructure’’ (undated), available from the American Water Works Association (www.awwa.org/

govtaff/win/finalreport.pdf).

a. From all sources, including ratepayers and federal and state aid.

Uncertainty of the Estimates

The assumptions and judgments required in the absence of detailed data increase

the uncertainty surrounding the estimates. The analysis underlying WIN’s estimate

illustrates that uncertainty. Part of that analysis comes from a 1998 report done

for the American Water Works Association (AWWA), which focused only on investments in transmission and distribution systems and only on capital costs, not financing or O&M.3

The 1998 report estimated needs of $325.1 billion over 20 years (an average of

$16.3 billion per year), including $101.4 billion for large systems, $198.0 billion for

medium-sized systems, and $25.7 billion for small systems.4 The analysis took the

figure for small systems directly from EPA’s 1995 needs survey and estimated the

other figures using probability distributions to reflect uncertainty in four factors: the

annual rate of pipes’ replacement, the miles of pipe per water system, the distribution of pipes by size, and the cost per foot of replacing pipes of each size. To reflect

the uncertainty about systems’ replacement of pipes, for example, the analysis randomly selected replacement rates between 0.5 percent and 1.5 percent per year.

The resulting distributions of estimated needs were wide (see Table 2). For medium-sized systems, the analysis found that the ‘‘80 percent confidence interval’’

around the mean estimate of $198 billion spanned $116 billion to $272 billion—leaving a 10 percent chance that the need was less than $116 billion and another 10

percent chance that it exceeded $272 billion. For large systems, the 80 percent confidence interval spanned $19 billion to $193 billion—or from 82 percent below the

mean to 91 percent above it.

Notwithstanding those results, CBO does not believe that the existing estimates

of total needs for drinking water investment are likely to be off by as much as 80

percent or 90 percent.5 However, the results do illustrate the point that the use of

assumptions in the absence of hard data inevitably increases the imprecision of a

future projection. CBO further notes that the range of uncertainty around the needs

does not have to be plus or minus 80 percent to have a dramatic impact on the potential scope of the policy problem that the needs represent. Because the estimated

funding gap for capital investment—that is, the amount above recent funding levels—is roughly half of the total projected investment needs (according to WIN’s

numbers), an error of, for example, 30 percent or 40 percent in the projected needs

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6The probability distribution of replacement rates for pipes assumed in the AWWA’s analysis

of drinking water infrastructure ranged from 0.5 percent to 1.5 percent per year, as noted in

the text, and averaged 1.0 percent per year. That analysis also discussed an alternative approach, which assumed that pipe footage was laid in proportion to nationwide population

growth. Under that alternative, the replacement rate between 2000 and 2019 would be about

0.6 percent per year, 40 percent less than under the selected approach.

Pipes represent roughly three-quarters of total capital assets of drinking water systems, and—

at least in the wastewater analysis—replacement of existing assets represents about half of total

investment needs. Therefore, an error of 40 percent in the assumed rate of pipes’ replacement

could imply an error of 15 percent in total investment needs and, hence, of 30 percent in the

funding gap. 7Personal communication, Steve Allbee, Environmental Protection Agency.

translates to an error of 60 percent or 80 percent in the funding gap. According to

rough calculations by CBO, an error of 30 percent or 40 percent just in the assumptions about the necessary rate of replacing pipes, which CBO believes is quite possible, could imply an error of 20 percent or 30 percent in the funding gap. 6

TABLE 2.

The American Water Works Association’s Estimate of 20-Year Investment Needs for Drinking

Water Transmission and Distribution Systems

(In billions of 1998 dollars)

Size of System Mean

Estimate

80 Percent Confidence Interval

Small .............................................................................................................................................. 25.7 N.A.

Medium .......................................................................................................................................... 198.0 115.6 to 271.6

Large .............................................................................................................................................. 101.4 18.6 to 193.2

Total .......................................................................................................................................... 325.1 N.A.

Memorandum:

Estimated Needs per Year ............................................................................................................. 16.3

WIN’s Estimate of Total Capital Investment per Year (Including for treatment and storage) ... 19

SOURCE: Congressional Budget Office based on Stratus Consulting Inc., ‘‘Infrastructure Needs for the Public Water Supply Sector: Final Report’’ (unpublished paper prepared for the American Water Works Association, Boulder, Colo., December 22, 1998),’’ and Water Infrastructure Network, ‘‘Clean & Safe Water for the 21st Century: A Renewed National Commitment to Water and Wastewater Infrastructure’’ (undated),

available from the American Water Works Association (www.awwa.org/govtaff/win/finalreport.pdf). NOTE: N.A. = not available.

Similar estimates derived independently can raise one’s confidence in those estimates. Contrary to the common perception, however, the current, preliminary

version of EPA’s ‘‘gap analysis’’ does not reach the same conclusion as the WIN report. Although both analyses present estimated gaps of $23 billion per year for

drinking water and wastewater combined, that figure means different things in the

two cases: in the WIN analysis, it is the 20-year average of a gap that grows year

by year, whereas in EPA’s preliminary analysis, it is the gap at the end of the 20-

year period.7 The differences are concentrated on the drinking water needs; for

wastewater, the two estimates of needs are indeed very similar, if not identical—

but that is because they were derived using the same methodology from the same

consultants. In short, the two drinking water estimates are independent but not

similar, and the two wastewater estimates are similar but not independent.

Possible Biases in the Estimates

Given that the estimates of needs are surrounded by significant uncertainty, the

question arises as to whether that uncertainty is roughly balanced—that is, whether

the estimates are about equally likely to prove too low as too high, or to lie primarily on one side or the other. WIN and EPA analysts argue that they have deliberately erred on the low side in their assumptions on capital and O&M spending

and, therefore, that their estimates probably understate future needs. In particular,

they point to their assumptions that 25 percent of the investment is financed without borrowing, that the rest is financed at a real interest rate of 3 percent, and that

increased efficiency reduces O&M costs by 20 percent to 25 percent.

Those assumptions are reasonably conservative. But CBO has identified other factors that could tend to overstate the estimated costs for capital investment, financing, and O&M:

• First, in estimating needed capital investment, the existing analyses do not assume any savings from improved efficiency. Although the data to support such

savings are sparser than they are for O&M, evidence from a growing number

of case studies suggests savings from methods such as design/build contracting,

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8Of course, some methods used to reduce investment needs require more O&M spending rather than less. As noted later in the text, the existing analyses do not reflect a detailed model

of the relationship between capital spending and O&M spending. 9 CBO’s calculations, using data from Association of Metropolitan Sewerage Agencies, The

AMSA Financial Survey, 1999: A National Survey of Municipal Wastewater Management Financing and Trends (Washington, D.C.: AMSA, 1999) and its 1996 counterpart. The averages

cover 84 responding wastewater systems in the 1999 report and 97 systems in 1996. CBO recalculated the 1996 average shown in the reports to exclude five high-cost systems that did not

respond to the later survey. Also, the 1999 average that CBO obtained using available data for

84 systems differs slightly from AMSA’s average of $930 for 87 systems.

preventive maintenance, and demand management (discussed below). Incorporating efficiencies in capital investment would also reduce the estimates for

financing and O&M costs, because each dollar not invested cuts 75 cents from

the debt to be financed and reduces the capital stock to be operated and maintained.8

• Second, the financing costs in the WIN report may be overstated. They appear to

be the lifetime debt-service payments associated with the average annual capital investment over the period of 2000 to 2019. However, debt payments on investments made late in the period will primarily occur after 2019 and therefore

have little influence on the average payment for debt service within the period.

Conversely, the amount of debt paid in much of the first decade will primarily

reflect the level of investment made before 2000, which is significantly lower

than the level the report recommends from 2000 on. According to CBO’s rough

calculations, under WIN’s assumptions the average annual debt service paid

within the period would be roughly 25 percent below the reported $5 billion.

• Third, the assumed reductions in O&M costs resulting from increased efficiency

are relative to a baseline that may be too high for wastewater and perhaps for

drinking water as well. CBO does not have specific information on the methods

used to calculate O&M costs for drinking water systems, but the wastewater

analysis used in both the WIN report and EPA’s preliminary study assumes

that the baseline ratio of O&M to capital stock rises steadily throughout the 20-

year period, extrapolating from a general trend in data from 1972 to 1996. Although additional capital stock is typically associated with additional costs for

O&M, it is not obvious that the ratio of O&M to capital would continue rising

indefinitely in the absence of efficiency gains. Increases in that ratio during the

1970s and 1980s may reflect unique causes, such as the initial introduction of

many secondary treatment facilities and biosolids disposal programs. Going forward, some investments, such as those to replace deteriorated pipes or install

automated sensing and measurement equipment, could reduce the O&M required per unit of capital stock.

In short, there is much about future investment needs in drinking water infrastructure that is unknown, and assumptions based on even the best professional

judgments can be significant sources of error.

EFFICIENCY, EQUITY, AND THE DEFINITION OF ‘‘NEED’’

Although considerable uncertainty surrounds the available estimates, CBO accepts the judgment of industry professionals that drinking water systems will require large investments over the next few decades. But future ‘‘needs’’ are not a predetermined reality; they are partly the result of many federal, state, local, and private choices yet to be made. The amount of investment needed to maintain services

and meet water quality requirements under current industry practices and current

government policy is likely to differ from the amount needed under evolving industry practices, under alternative government policies, or under a least-cost approach.

In particular, a broad increase in federal funding intended to help keep water

rates affordable could reduce the pressure on systems to operate more efficiently

and on customers to economize on their use of water services and thereby keep total

investment needs higher than they would be otherwise. That is another example of

the familiar trade-off between equity and efficiency.

In recent years, both drinking water and wastewater systems around the country

have taken steps to become more efficient. The results are illustrated by data from

a survey conducted periodically by the Association of Metropolitan Sewerage Agencies. For example, the average sum of O&M costs and administrative costs per million gallons declined from $1,108 in the 1996 survey to $987 in the 1999 survey.9

One method used to reduce costs has been more efficient use of employees: among

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10 Ibid., p. 67. Both the opinions of industry experts and more detailed data on the nature of

the reductions in staffing and operational costs indicate that those savings primarily reflect true

gains in efficiency, rather than reductions in necessary maintenance or other vital services. 11See Allan Dietemann, ‘‘A Peek at the Peak: Reducing Seattle’s Peak Water Demand’’ (Seattle Public Utilities, Resource Conservation Section, February 9, 1998). 12For a well-documented example involving wastewater, see David Higgens and Frank

Mangravite, ‘‘Comparison of Design-Build-Operate and Conventional Procurements on Washington Borough, N.J., Wastewater Treatment Plant,’’ International Supplement to RCC’s Public

Works Financing (July-August 1999), pp. 1-7. 13 Congressional Budget Office, Efficient Investments in Wastewater Treatment Plants (June

1985), p. xi.

45 municipal wastewater agencies that responded in both 1996 and 1999, full-timeequivalent staffing per 10,000 people in the served area declined from 5.0 to 4.7.10

Experts in the water industry see room for further cost savings, not only in operational costs but also in capital costs. Promising methods include the following:

• Consolidation of systems to achieve economies of scale. Reportedly, 50 percent of

small drinking water systems lie within a standard metropolitan statistical

area.

• Asset management, which involves analyzing local data on assets’ age, performance, and condition in order to identify a maintenance and replacement strategy

that minimizes long-run costs.

• Demand management, including the use of pricing strategies to reduce peak use.11

• Innovative contracting for new construction, such as the use of contracts covering

both design and construction, or even design, construction, and operation.12

But those potential future savings could go unrealized if federal policy inadvertently undermines the forces pushing for efficiency. The savings observed to date

have occurred primarily because of pressures from two sources. One source has been

competition from private firms seeking contracts to operate municipal systems. The

actual or potential threat of such competition has led to significant increases in efficiency in systems that remain publicly operated as well as in those contracted out

to private operators. The second source of pressure has been resistance from customers and oversight bodies to large rate increases. That pressure too has led system operators to reexamine their management practices and find many ways to reduce costs without sacrificing quality of service.

Whether federal aid would undermine or reverse the progress in water systems’

efficiency would depend on how much aid the government provided and in what

form. Clearly, if the federal government issued blank checks for infrastructure, local

systems would lose any incentive to keep capital costs down. But the issue is also

relevant in less extreme cases: a 1985 CBO analysis found that high federal cost

shares in the original construction grant program for wastewater treatment raised

capital costs by more than 30 percent.13 Unfortunately, CBO cannot describe the

precise relationship between federal support and total nationwide costs.

But if it is not clear ‘‘how much is too much’’ federal aid from the standpoint of

efficiency, it is also not clear ‘‘how little is too little’’ for equity purposes—that is,

to address the affordability and fairness issues. A large, broad program would probably benefit not only the neediest water users but also well-off users, with little additional gain in equity. CBO is analyzing the affordability issues associated with

water infrastructure needs and expects to provide additional information on them

in a report to be issued later this year.

In summary, CBO’s analysis of the existing estimates of investment needs for

drinking water infrastructure leads the agency to conclude that those estimates are

accompanied by significant uncertainty and may be too high. Moreover, how big the

needs turn out to be will be influenced by who pays to meet them; in particular,

proposals intended to address the equity problem of keeping rates affordable may

adversely affect efficiency by raising total national costs.

Mr. GILLMOR. Thank you very much. And we will now go to Mr.

Howard Neukrug, from Philadelphia, representing the American

Water Works Association.

STATEMENT OF HOWARD NEUKRUG, DIRECTOR, OFFICE OF

WATERSHEDS, PHILADELPHIA WATER DEPARTMENT, ON BEHALF OF THE AMERICAN WATER WORKS ASSOCIATION

Mr. NEUKRUG. Well, thank you, and good afternoon, Mr. Chairman. My name is Howard Neukrug, and I am the Director of the

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Office of Watersheds for the Philadelphia Water Department,

which is a drinking water, waste water, and storm water utility,

which services about 2 million people in the greater Philadelphia

area.

I am speaking to you today on behalf of A.W.W.A, where I serve

as the Chair Elect of the Water Utility Council. We thank you for

holding this hearing, and for providing this opportunity to present

our views on the Nation’s critical drinking water infrastructure

needs.

As you know, drinking water systems in the United States invest

billions of dollars each year toward its mission of providing safe

drinking water at rates affordable to the public. However, it is now

clear that many customers will need to invest significantly more

over the next 20 years to replace aging and failing water pipes.

These investments, along with those required for new federally

mandated regulations, drive the need for enormous new capital dollars in water related infrastructure.

Compounding this problem is local competition for limited capital

dollars from our storm water and waste water utility partners, as

they move forward to repair and replace aging sewer pipe and meet

requirements of major EPA programs, such as the national CSO

and SSO control policies.

As reported in WIN, the combined water and waste water capital

dollar needs over the next 20 years amounts to an unprecedented

$1 trillion. I am here today to ask Congress to work with the drinking water industry as we move forward to invest in our future and

the future of all Americans.

We do not come here asking for Federal subsidies, but looking for

a partner in investment to secure America’s future. The A.W.W.A.

will continue to do everything possible to support our utility search

for solutions, identify the infrastructure capital requirements, minimize the need for new capital, explore new opportunities for capital

in innovative funding mechanisms, and education and outreach to

the public, our regulators, Congress, and other utility partners to

increase this awareness and our understanding of the issues.

Everyone knows that utilities are sensitive to rising rate pressures, be it water, gas, electric, or telephone. Underlying the sensitivity is the understanding that there exists a class of customers

who must make a monthly choice of which bills to pay.

The choice between water, food, heat, and shelter are not often

talked about in the development of new drinking water regulations,

but is a subject that must be considered as we move forward in this

and other deliberations concerning our Nation’s drinking water

supply.

In Philadelphia, where 40 percent of the population lives in poverty, the rise in water bills will remain a significant social issue

into the foreseeable future. In order to understand how we got

here, one must first understand the history of drinking water supply in the U.S.

Quite simply, beginning in the 1870’s, thousands of miles of Victorian era pipe were laid to meet a new demand called indoor

plumbing. Pipe manufacturing was cruder than the process used

today, but the manufacturers compensated for this by producing

pipe of substantial wall thickness and strength.

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Today, a 120 years later, much of this pipe remains in service in

our urban areas. The need to replace this pipe is dependent on

more than just simply age, but soil conditions, and the quality of

manufacturer, and the installation playing equally important roles.

The pattern of water main installation during the 20th century

is a simple reflection of the overall pattern of population growth in

large and small cities across the United States. There was an

1890’s boom, a World War I boom, and roaring 20’s boom, and a

massive post-World War II baby boom.

For every boom in housing construction, there was a commensurate boom in the water and sewer pipe installation business. Pipe

quality and useful life can vary as much as the quality of homes

built in the 20th century. The A.W.W.A. is currently undertaking

a study into the nature and scope of the emerging infrastructure

challenge based on the history of pipe installation and prediction

of remaining useful pipe life for 20 U.S. leading utilities.

Using useful remaining pipe life estimates for the various types

of pipe installed, and counting the years since the original installations, the A.W.W.A. developed ‘‘Nessie Curves’’ which forecast that

investment needs will rise steadily, extending throughout the 21st

century.

Replacement of water treatment plant assets presents a different

picture from that of the pipes, but greatly complicates infrastructure funding for utilities. Treatment assets are also much more

shortlived than pipes, with pipe expectancies between 20 and 70

years.

Many are about due for replacement in the next decade in Philadelphia, and our annual capital expenditure for waste water and

water treatment plants has recently been increased from $30 to

$50 million. Thank you very much.

[The prepared statement of Howard Neukrug follows:]

PREPARED STATEMENT OF HOWARD NEUKRUG, DIRECTOR, OFFICE OF WATERSHEDS, PHILADELPHIA WATER DEPARTMENT, ON BEHALF OF THE AMERICAN WATER WORKS

ASSOCIATION

INTRODUCTION

Good morning Mr. Chairman. I am Howard Neukrug, Director of the Office of Watersheds for the Philadelphia Water Department in Pennsylvania. The Philadelphia

Water Department is a municipal water, wastewater and stormwater utility serving

over two million people in the Philadelphia metropolitan area. I serve as the Vice

Chair of the American Water Works Association (AWWA) Water Utility Council and

am here today on behalf of AWWA. AWWA appreciates the opportunity to present

its views on drinking water needs and infrastructure.

Founded in 1881, AWWA is the world’s largest and oldest scientific and educational association representing drinking water supply professionals. The association’s 57,000 members are comprised of administrators, utility operators, professional engineers, contractors, manufacturers, scientists, professors and health professionals. The association’s membership includes over 4,2000 utilities that provide

over 80 percent of the nation’s drinking water. AWWA and its members are dedicated to providing safe, reliable drinking water to the American people.

AWWA utility members are regulated under the Safe Drinking Water Act (SDWA)

and other statutes. AWWA believes few environmental activities are more important

to the health of this country than assuring the protection of water supply sources,

and the treatment, distribution and consumption of a safe, healthful and adequate

supply of drinking water.

AWWA is also a member of the Water Infrastructure Network (WIN)—a broadbased coalition of drinking water, wastewater, municipal and state government, engineering and environmental groups, dedicated to preserving and protecting the

hard-won public health, environmental and economic gains that America’s water

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and wastewater infrastructure provides. AWWA and its members thank you for

holding this hearing concerning the infrastructure needs of the Nation’s drinking

water utilities. AWWA looks forward to working with the subcommittee in its efforts

to address the growing infrastructure costs facing drinking water utilities and consumers.

The Drinking Water Infrastructure Need

Last fall WIN released Clean & Safe Water for the 21st Century, which summarized infrastructure needs and the funding shortfall facing drinking water and

wastewater systems. That report estimates that the total drinking water and waste

water infrastructure needs over a twenty-year period approaches one trillion dollars.

According to report estimates, drinking water utilities across the nation collectively

need to spend about $24 billion per year for the next 20 years, for a total of $480

billion. The report identified an $11 billion annual gap between current spending

and overall need.

A separate needs estimate was released in February by the U.S. Environmental

Protection Agency (EPA), based on a survey of water systems. The survey results

suggest water systems will need $150 billion during the next twenty years. However, the EPA estimate is limited to identifying eligible Safe Drinking Water Act

compliance needs for the Drinking Water State Revolving Fund (DWSRF) and does

not include many needs, such as the replacement of treatment facilities and distribution systems due to age. These needs are not eligible for funding from the

DWSRF yet they are the largest infrastructure expense facing the nation’s water

suppliers. EPA also relied on five-year capital improvement plans (CIPs) by utilities

and included them in the 20-year period, leaving the remaining out-years compliance needs undocumented.

None-the-less, both estimates suggest an emerging large cost for drinking water

infrastructure.

Why is the need emerging now?

Water is by far the most capital intensive of all utility services, mostly due to the

cost of pipes—water infrastructure that is buried out of sight. Most of drinking

water 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. Pipes last a long time (some more than a century)

before they cost very much in maintenance expense near the end of their useful life,

or ultimately need replacement. For the most part, then, the huge capital expense

of pipes is a cost that today’s customers have never had to bear. However, replacement of pipes installed from the late 1800s to the 1950s is now hard upon us at

the beginning of the 21st Century and replacement of pipes installed in the latter

half of the 20th Century will dominate the remainder of the 21st Century. This is

a significant change that ushers in a completely new era in water utility financing.

Recognizing that we are at the doorstep of a new era in the economics of water

supply, the replacement era, the American Water Works Association (AWWA) has

undertaken an analysis of 20 utilities throughout the nation to understand the nature and scope of the emerging infrastructure challenge. The project involved correlating the estimated life of pipes with actual operations experience in the sample

of 20 utilities. 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. By

modeling the demographic pattern of installation and knowing the life expectancy

of the pipes, we can estimate the timing and magnitude of that obligation. This

analysis graphically portrays the nature of the challenge ahead of us. We will summarize the highlights of the analysis in this statement and AWWA will provide the

subcommittee with a copy of the report when it is completed shortly.

Pipe Replacement Value

The original pattern of water main installation from 1870 to 2000 in 20 utilities

throughout the nation analyzed by AWWA is a reflection of 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.

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 post World War II boom have an average life of

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75 years, more or less. Using these average life estimates and counting the years

since the original installations, it’s clear that water utilities will face significant

needs for pipe replacement in the next couple of decades.

The cumulative replacement cost value (the cost of replacement in constant year

2000 dollars) of water main assets has increased steadily over the last century 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 $2,400 per person. This is

more than three times what it was in 1930 in constant year 2000 dollar terms. The

difference is not due to inflation; rather, there is simply more than three times as

much of this infrastructure today as there was in 1930, in order to support improved

service standards and the changing nature of urban development. In older cities the

per capita replacement cost value of mains today is as high as nine times the 1930

level (in constant year 2000 dollars) due to loss of center city population.

Reflecting the pattern of population growth in large cities over the last 120 years,

the AWWA analysis forecasts investment needs that will rise steadily like a ramp,

extending throughout the 21st Century. By 2030, the average utility in our sample

of 20 will have to spend about three and half times as much on pipe replacement

as it spends today.

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 it is clear that for most utilities this problem is just emerging and is enormous

in scope.

Pipe Repair Costs

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 one-half times in annual

investments to replace pipes.

Water Treatment Plant Costs.

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 25 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. While spending for the replacement

of pipes rises like a ramp over the first part of the 21st Century, spending for treatment plant replacement will occur at intervals causing ‘‘humps’’ in capital needs on

top of the infrastructure replacement capital needs. This is graphically illustrated

in the attached ‘‘Relative Asset Replacement Projections’’ graph of the BHC Company water utility in Bridgeport, Connecticut, from the forthcoming AWWA report.

This pattern has been found to be common in many water utilities and has been

nicknamed ‘‘The Nessie Curve’’ because of its resemblance to depictions of the Loch

Ness Monster.

Demographic Changes.

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 fiVerDate 11-MAY-2000 12:07 Dec 26, 2001 Jkt 010199 PO 00000 Frm 00136 Fmt 6633 Sfmt 6621 E:\HEARINGS\71489 pfrm11 PsN: 71489
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nancial vulnerability for water utilities due to 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. This problem, known as ‘‘stranded capacity’’ (essentially, capital

facilities that are not matched by rate revenue from current customers), is typical

of the demographics of older cities and adds considerably to the challenge of funding

replacement in these cities.

In Philadelphia, over the one hundred 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 1,500,000. This situated

was replicated again and again throughout the older cities of the Northeast and

Midwest. The effect is to increase the burden of replacement funding on the remaining residents of the city.

As previously mentioned, 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 average per capita value of water main assets in 1930 due to population declines since about 1950.

Demographic change, then, places financial strain on all public water systems and

has a direct impact on affordability of the investment required.

Affordability of Rates

A central question for policy makers and utilities, then, is whether the increased

rate of infrastructure spending that utilities now face over the next 30 years can

be financed by the utilities themselves at rates customers can afford.

WIN estimates that total water and wastewater infrastructure bills will have to

double or triple in most communities to meet these needs, if consumers are forced

to bear the entire infrastructure cost. The cost of compliance with storm water regulations alone may dwarf domestic drinking water and wastewater expenditures.

Therefore, the impact on household affordability and rates of projected drinking

water infrastructure expenditures must be viewed in the context of the total water

and wastewater utility infrastructure bill to be paid by the consumer.

In the sample of 20 utilities studied by AWWA, the analysis showed an aggregate

increase in needed utility expenditures above current spending levels of $3 billion

by 2020 and $6 billion by 2030. This implies the need for collection of an additional

$1,575 per household for infrastructure repair and replacement over 30 years. The

estimated $1,575 per household is an average of the individual results. The individual utilities in the survey present wide-ranging needs for increased expenditure

(from $550 per household over 30 years to $2,290 per household over 30 years) and

‘‘lumpy’’ patterns of increased expenditure needs that are unique to each set of circumstances.

The sample of 20 utilities represents relatively large utilities that are on the ‘‘cutting-edge’’ of utility management. The household expenditure increase will be much

higher in small systems that do not have a large rate-base over which to spread

the costs. Extrapolating from EPA’s estimated 20-year capital need for small systems, the AWWA analysis projects the total 30-year expenditure for infrastructure

repair and replacement in small systems might be in a range of $1,490 per household to $6,200 per household.

Moreover, there is no guarantee that the projected expenditures per household

can be spread evenly or taken on gradually over the 30-year period. There are

‘‘humps’’ for treatment plant replacement throughout the period. Additionally, expenditure ‘‘humps’’ for compliance with a dozen or more new regulations is not included in this analysis.Conclusion

How we address our emerging drinking water infrastructure needs is a critical

question facing the Nation and this Congress. To help reduce the burden on consumers, many water utilities have made great strides in efficiencies, with some utilities achieving a 20 percent savings in operations and maintenance. Water utilities

will continue to reduce costs, seek cost-effective financing and employ innovative

management strategies. Regardless, there will be significantly increased costs for

needed infrastructure investment.

AWWA does not expect that federal funds will be available for 100 percent of the

increase in infrastructure needs facing the nation’s water utilities. However, AWWA

does believe that due to concurrent needs for investment in water and wastewater

infrastructure, replacement of treatment plants, new drinking water standards, and

demographics, many utilities will be very hard pressed to meet their capital needs

without some form of federal assistance. Over the next twenty years, it is clear that

Safe Drinking Water Act (SDWA) and Clean Water Act (CWA) compliance requireVerDate 11-MAY-2000 12:07 Dec 26, 2001 Jkt 010199 PO 00000 Frm 00137 Fmt 6633 Sfmt 6621 E:\HEARINGS\71489 pfrm11 PsN: 71489
134

ments and infrastructure needs will compete for limited capital resources. Customers are likely to be very hard pressed in many areas of the country. Compliance

and infrastructure needs under the SDWA and CWA can no longer be approached

as separate issues. Solutions need to be developed in the context of the total drinking water and wastewater compliance and infrastructure needs.

AWWA pledges to work with Congress to develop a responsible and fair solution

to the Nation’s growing drinking water infrastructure challenge. As a start, AWWA

will provide a copy of the forthcoming AWWA report to members of the subcommittee to assist the subcommittee deliberations on this issue. We thank you for

your consideration of our views.

This concludes the AWWA statement on drinking water needs and infrastructure.

I would be pleased to answer any questions or provide additional material for the

committee.

Mr. GILLMOR. Thank you very much, and we will go to Ms. Beverly Ingram, from Detroit, the Association of Metropolitan Water

Agencies.

STATEMENT OF BEVERLY INGRAM, ASSISTANT DIRECTOR, DETROIT WATER AND SEWER DEPARTMENT, ON BEHALF OF

THE ASSOCIATION OF METROPOLITAN WATER AGENCIES

Ms. INGRAM. Thank you. Good afternoon, Chairman Gillmor and

Congressman Pallone, and members of the subcommittee. My name

is Beverly Ingram, and I am an Assistant Director with the Detroit

Water and Sewerage Department. I am here today to discuss water

infrastructure needs on behalf of the Association of Metropolitan

Water Agencies.

I would like to thank you for holding this hearing to learn more

about the infrastructure needs of local water utilities. I would like

to begin my statement by giving you a snapshot of the Detroit system.

Detroit is recognizably one of the largest water and sewerage

treatment facilities in North America. The Detroit system, built

160 years ago, serves drinking water to 4.2 million people in southeastern Michigan.

We pump approximately 239 billion gallons of water a day. We

are also responsible for treating 634 million gallons a day of waste

water. Our waste water system covers 857 square miles, and our

water system over a thousand miles.

Last fall, the water infrastructure network released clean and

safe water for the 21st century, which summarized infrastructure

needs in the funding shortfall, replacing drinking water and waste

water systems.

AWWA is a member of WIN. The report estimates that drinking

water utilities across the Nation collectively need to spent about

$24 billion per year for the next 20 years, for a total of $480 billion.

WIN’s analysis also concluded that water systems currently

spend $13 billion per year on drinking water infrastructure, leaving an $11 billion annual gap between current spending and overall need.

A separate needs estimate was released in February by EPA. The

survey results suggest water systems will need $150 billion during

the next 20 years. Mr. Chairman, since my written statement

clearly spells out the reasons for the disparity in these numbers,

I will not go into them here.

Like the Nation’s other 55,000 water utilities, the Detroit Water

and Sewer Department is responsible for providing safe, clean

135

drinking water to protect public health and complying with drinking water regulations.

In addition, our customers, both families and businesses, expect

reliable service. To meet our responsibilities, major metropolitan

areas are currently funding repairs on old pipes and outdated

treatment facilities at an astounding rate.

To better understand the types of investments that public water

systems are doing to meet these infrastructure needs, here are

some local examples. In Kansas City, Missouri, they raised rates by

100 percent over the last 10 years; and the utility plans water rate

increases of 4 percent each year, and sewer rate increases of 6 percent each year. The Water Department anticipates spending $85 million per year

for the next 6 years just to resolve its infrastructure backlog. With

these rate increases and new efficiencies will net the utility only

$55 million a year, leaving an annual shortfall of $30 million. And Cleveland, Ohio, has been investing an average of $60 million per year over the last 10 years for drinking water infrastructure. Over the next 8 years, Cleveland must invest $500 million to

rehabilitate and modernize 3 of its 4 water plants. To finance this,

Cleveland has adopted an 18 percent annual rate increase over the

next 5 years.

This is after 10 consecutive years of increases totaling 80 percent. Yet, this does not even address Cleveland’s distribution sys- tem needs in any substantial way. In Portland, Oregon, $1 billion

mandated combined sewer overflow program will result in doubledigit rate increases for about 15 years.

At the same time the need for infrastructure funding for drinking water is $400 to $800 million in the next 10 years. The likelihood

that water rates can be raised to cover those costs is doubtful.

Given that the increase in sewer bills has virtually used up the

elasticity that existed to raise rates, the Knoxville Utility Board

has spent $40 million in capital improvements over the last 5 years

for the drinking water system, and the utility is anticipating another $64 million in water systems improvement during the next

5 years.

The Knoxville Utility Board is also a waste water utility, which

has its own infrastructure needs, including $63 million in sewer

system improvements over the next 5 years, In addition to $80 million, which they have spent over the previous 14 years.

How we close this $11 billion drinking water infrastructure gap

between historical spending and overall need is the next question.

To help reduce this gap, water utilities, especially large metropolitan systems, have raised rates and have made great strides in efficiencies, with some utilities achieving 20 percent savings in operations and maintenance.

Utilities will continue to reduce costs, seek cost effective financing, and employee innovative management strategies. There will

remain a gap between the available funds and the significant level

of investment required.

AWWA does not expect the Federal Government to completely fill

the gap, but some help is needed. AWWA pledges to work with

Congress to develop a fair solution to this problem. Thank you

again for holding this important hearing.

136

[The prepared statement of Beverly Ingram follows:]

PREPARED STATEMENT OF BEVERLY INGRAM, ASSISTANT DIRECTOR, DETROIT WATER

AND SEWER DEPARTMENT, ON BEHALF OF THE ASSOCIATION OF METROPOLITAN

WATER AGENCIES

Good afternoon, Chairman Gillmor, Congressman Pallone, members of the subcommittee. My name is Beverly Ingram, and I am the Assistant Director for Administration of the Detroit Water and Sewer Department.

This testimony was prepared on behalf of the Association of Metropolitan Water

Agencies, which is comprised of the nation’s largest drinking water agencies. All

AMWA member-agencies are publicly owned. Represented by city water commissioners and utility chief executives, AMWA’s member-agencies collectively serve

more than 110 million Americans with clean, safe drinking water.

Thank you for holding this hearing to learn more about the infrastructure needs

of local water utilities. Our goal is to provide you with information to help you understand the enormous challenges we are facing over the next 20 years.

Overall Need and the Gap

Last fall, the Water Infrastructure Network (WIN) released Clean & Safe Water

for the 21st Century, which summarized infrastructure needs and the funding shortfall facing drinking water and wastewater systems. AMWA is a member of WIN.

The report estimates that drinking water utilities across the nation collectively need

to spend about $24 billion per year for the next 20 years, for a total of $480 billion.

WIN’s analysis also concluded that water systems currently spend $13 billion per

year on drinking water infrastructure, leaving an $11 billion annual gap between

current spending and overall need.

A separate needs estimate was released in February by the U.S. Environmental

Protection Agency (EPA), based on a survey of public water systems. The survey results suggest water systems will need $150 billion during the next twenty years.

But according to EPA, their survey underestimates the true need. The survey is intended to be used as the basis for the Drinking Water SRF distribution formula.

Because the Drinking Water SRF is primarily concerned with projects that will help

systems comply with drinking water quality regulations, so is the survey. Therefore,

EPA’s estimate excludes many needs, such as the replacement of treatment facilities

and distribution systems due to age. This is the largest infrastructure expense facing the nation’s water suppliers. The survey also excludes capital projects related

to raw water storage, and EPA’s estimate for medium and large systems is substantially under-evaluated because the agency relied on five-year capital improvement

plans (CIPs) and included them in the 20-year picture. Utilities may estimate their

needs for many years into the future, but most CIPs cover five-year periods, leaving

the remaining out-years undocumented, and thus excluded by the survey.

In contrast, WIN’s $24 billion per year estimate is more comprehensive. It relies

on historical system construction data, population figures from the Census Bureau,

actual cost data from the drinking water community, data on infrastructure spending from the Department of Commerce, as well as needs estimates by EPA and

AWWA.

Like the nation’s other 55,000 water utilities, the Detroit Water and Sewer Department is responsible for providing safe, clean drinking water to protect public

heath and comply with drinking water regulations. In addition, our customers—both

families and businesses—expect reliable service. Detroit’s 4.2 million customers expect and deserve safe water to come out of their taps each morning.

To meet our responsibilities, old pipes and out-of-date treatment facilities must

be replaced, repaired and refurbished. Distribution pipes in some of our cities were

laid in the late 1800s, when municipal water systems were first built. These cast

iron pipes are said to last as long as 120 years. Pipes laid in the 1920s, during a

second wave of water system construction, are made of different materials that are

said to last as many as 100 years. And experts say that pipes laid during a boom

in construction after World War II could last 75 years.

Similarly, treatment plants built in the 1950s have outlived their maximum life

spans. Even treatment facilities built soon after passage of the Safe Drinking Water

Act, in 1970s, are 25 to 30 years old, and must be replaced with advanced treatment

technology.

Considering the average life span of this infrastructure, it becomes clear that the

time for refurbishment and replacement is upon us.

Operations and maintenance costs must be taken into account, as well. AWWA

estimates that water utilities will spend an additional $27 billion per year to operate and maintain their facilities. We note this because electricity costs comprise beVerDate 11-MAY-2000 12:07 Dec 26, 2001 Jkt 010199 PO 00000 Frm 00140 Fmt 6633 Sfmt 6621 E:\HEARINGS\71489 pfrm11 PsN: 71489
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tween 20 to 80 percent of a water utility’s total operating budget. The inevitable

rise in energy costs will increase the O&M expenses of utilities, leaving fewer dollars for drinking water infrastructure.

Similarly, the cost to finance infrastructure can affect the availability of funds and

whether a community can afford to build a needed water project. AWWA and EPA

estimate drinking water and wastewater systems will each spend $5 billion per year

to finance their projects.

WIN estimates that household water bills must double or triple in most communities, on average, if utilities are forced to absorb the entire infrastructure bill. This

scenario is complicated by rate inelasticity. A household’s water bill often covers

drinking water supply, sewer and storm-water control. Raising rates to cover one,

diminishes the ability to pay for the other two. Unfortunately, all three sectors are

facing massive infrastructure challenges.

Further compounding this issue is demographics and its impact on large urban

centers, such as Detroit. When people move to the suburbs, the pipe and the liability for repair and replacement remain behind, creating a financial burden on the

remaining, often less affluent, customers. Nevertheless, these cities cannot forgo infrastructure improvements.

To better understand these infrastructure needs, here are some local examples.

Kansas City, Missouri. Kansas City raised rates by 100 percent over the last 10

years, and the utility plans water rate increases of four percent each year and sewer

rate increases of six percent each year. The water department anticipates spending

$85 million per year for the next six years just to resolve its infrastructure backlog, but these rate increases and new efficiencies will net the utility only $55 million

per year, leaving an annual shortfall of $30 million.

Cleveland, Ohio. Cleveland has been investing an average of $60 million per year

over the last 10 years for drinking water infrastructure. Over the next eight years,

Cleveland must invest $500 million to rehabilitate and modernize three of its four

water plants. To finance this, Cleveland has adopted an 18 percent annual rate increases over the next five years. This is after 10 consecutive years of increases totaling 80 percent. Yet this does not even address Cleveland’s distribution system needs

in any substantial way.

Portland, Oregon. In Portland, a $1 billion mandated combined sewer overflow

program will result in double digit rate increases for about 15 years. At the same

time, the need for infrastructure funding for drinking water is $400-800 million in

the next 10 years. The likelihood that water rates can be raised to cover these costs

is doubtful, given that the increase in sewer bills has virtually used up the elasticity

that existed to raise rates.

Knoxville, Tennessee. The Knoxville Utility Board (KUB) has spent $40 million in

capital improvements over the last five years for the drinking water system, and

the utility is anticipating another $64 million in water system improvements during

the next five years. KUB is also a wastewater utility which has its own infrastructure needs, including $63 million in sewer system improvements over the next five

years in addition to the $80 million KUB spent over the previous 14 years.

Conclusion

How we close the $11 billion drinking water infrastructure gap between historical

spending and overall need is the next question. To help reduce this gap, water utilities, especially large metropolitan systems, are raising rates and have made great

strides in efficiencies, with some utilities achieving a 20 percent savings in operations and maintenance. Utilities will continue to reduce costs, seek cost-effective

financing and employ innovative management strategies. Regardless, there will remain a gap between the available funds and the significant level of investment required. AMWA does not expect the federal government to completely fill the gap,

but some help is needed.

AMWA pledges to work with Congress to develop a fair solution to this problem.

Thank you, again, for holding this important hearing.

Mr. GILLMOR. Thank you, and we will proceed with Dr. Janice

Beecher, representing the National Association of Water Companies.

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STATEMENT OF JANICE A. BEECHER, BEECHER POLICY RESEARCH, INC., ON BEHALF OF THE NATIONAL ASSOCIATION

OF WATER COMPANIES

Ms. BEECHER. Thank you, Mr. Chairman, and Congressman

Pallone. I am pleased to be here to discuss this very important

issue. My name is Jan Beecher, and I am an independent policy research consultant. I specialize in the structure and regulation of

the water industry.

This testimony is based on my independent analysis of this subject that I prepared for a recent water infrastructure conference.

Let me begin by emphasizing that my purpose here is not to dispute the fact that the water and waste water industries face substantial and accelerating infrastructure needs associated with a variety of cost drivers, not all of which are compliance driven.

My purpose is to promote an informed dialog about some of the

assumptions behind this infrastructure funding gap and some of

the presumptions about how to best address it. The $1 trillion 20 year needs estimate for water and waste water

systems has become a focal point for discussion, but the trillion dollar estimate is imprecise and may be inflated as I think was also

suggested by the CBO analysis.

Frankly, O&M costs I do not believe should be included. I also

believe the costs of growth should not be included. Growth should

pay for growth. I think that is a good principle.

Plus, and as equally important, estimates of the needs seem to

give little weight to the potential for lowering total costs through

industry restructuring, innovation, operational efficiency, markets,

and integrated resource management.

The gap is essentially a construct, but not an inevitability. The

projected cumulative shortfall will result if, and only if, the need

estimate is accurate and funding and expenditure levels are not increased. A number of interrelated myths have emerged in the context of this infrastructure funding debate.

First, that a national crisis is looming. Second, that the cost of

water services cannot be supported through rates. Third, that a

funding gap is inevitable, and fourth, that Federal funding solutions provide the centerpiece in terms of attending to the issue.

Some of the assumptions behind these beliefs can be challenged.

To this end, I will highlight a few basic reality checks. First, aggregate municipal finance data indicate that many water and waste

water utilities are not collecting sufficient revenues relative to their

expenditures.xxx

Some communities have deferred investments, as well as deliberately maintained unrealistically low water and waste water

rates. This persistent underpricing of water services contributes to

the anticipated funding gap, and sends inappropriate signals to

customers about the value of water services, which will lead to inefficient consumption and inefficient supply decisions to meet that

inflated level of demand.

Second, water services today are a relative bargain for many

households. Water and other public services actually account in the

aggregate for a relatively small share of the average household

utility budget. Less than $400 per year, or .08 percent of the total

household expenditures.

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And while I realize that there are variations from these averages, I think it is important to note these data. Consumers spend

more than twice as much on electricity and telecommunications

services.

On average, a four person household spends about the same

amount each year on cable TV and tobacco products as on water

services. In addition, U.S. consumers pay much less for water services than consumers in many other developed countries.

Third, Americans are very concerned about the quality of their

drinking water and protection of water resources. The consumers

are also more willing to pay for bottled water than tap water, at

least it seems in many cases.

Conservatively, the average price of one gallon of community

supplied water conveniently delivered to the tap is less than onethird of one penny. Every other water alternative is no more safe,

much less convenient, and astronomically more expensive.

At a $1.15 per gallon, what I call designer water, costs 347 times

the price of tap water. We obviously need to do a lot in terms of

public education in this area. Fourth, it is important for the water

industries to have realistic expectations about future Federal funding for water programs in order to plan sufficiently to meet their

infrastructure and service obligations.

Federal health and environmental standards are not necessarily

the primary cost driver, nor a rationale for general revenue funding. Massive Federal grant subsidies that go beyond affordability

issues seem neither likely nor beneficial from a societal standpoint.

Subsidies can perpetuate dependence, inefficiency, and technological stagnation on the part of recipients. The argument for public subsidies should also be examined in the context of local funding

priorities. As an example, I will suggest that the price tags for municipal stadiums often are comparable to estimated water infrastructure needs.

Finally, many systems can and do manage their assets effectively

and support the cost of services through rates. The transition to

cost base rates for water services can trigger rate shock and raise

very legitimate affordability concerns for disadvantaged communities and low income households.

And I think there has been some very pertinent discussion of

that here today, but financing, rate design, and assistance methods

can be used to mitigate these effects. The regulatory capacity development and funding principles embodied in the current Safe Drinking Water Act and SRF programs place appropriate priority on

public health and affordability, and I think they can guide us in

this area.

In sum, the concept of a funding gap merits further analysis,

consideration, and debate. The need to invest in the Nation’s water

and waste water infrastructure is real, but the funding gap is essentially a construct.

The water industries should take responsibility, provide leadership, and effectively manage their current and future assets on the

public’s behalf. Aggressive action can close the projected gap from

the top, in terms of reducing total and operating costs, and funding

for research and development can play a role here.

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1 Janice Beecher is an independent policy research consultant specializing in the structure and

regulation of the water industry. Dr. Beecher has a Ph.D. in Political Science from Northwestern

University and more than fifteen years experience in the field of utility policy, including research positions at Ohio State University and Indiana University. Dr. Beecher works on contract

for clients that include the U.S. Environmental Protection Agency, the National Association of

Water Companies, the American Water Works Association Research Foundation, and individual

public agencies and private companies. Dr. Beecher is a nationally recognized researcher, author, and lecturer in her field and has participated in projects for the World Bank and the National Academy of Sciences.

This testimony is based on an annotated graphic presentation, which is available to interested

parties. This presentation was originally presented at the Infrastructure Conference of the

American Water Works Association (Orlando, March 2001). The presentation has been expanded, revised, and annotated for distribution.

This testimony is based on Dr. Beecher’s independent analysis of the issues. Her participation

in this hearing is sponsored by the H2O coalition. The opinions expressed in this presentation

are those of the author and do not necessarily represent the views of research clients and sponsors. 2The H2O Coalition is made up of the National Association of Water Companies, the National

Council for Public-Private Partnerships, and the Water and Wastewater Equipment Manufacturers Association.

The essential tool for closing the gap from the bottom is cost

based rates for water services. Subsidies should be used minimally,

judiciously, and on a needs basis to address genuine affordability

concerns. But the goals should be sustainable systems, and not sustainable subsidies. Thank you very much.

[The prepared statement of Janice A. Beecher follows:]

PREPARED STATEMENT OF JANICE A. BEECHER,1 BEECHER POLICY RESEARCH, INC., ON BEHALF OF THE H2O COALITION 2

Purpose

Water and wastewater services are vital to the quality of life for citizens across

this country. Although estimates of the industries’ total infrastructure needs lack

precision, there is actually a considerable amount of consensus that the water sector

faces its most formidable challenge in terms of replacing and upgrading the aged

delivery infrastructure.

The purpose of this testimony is to provide some general ‘‘reality checks’’ in relation to the current national debate over infrastructure funding. The purpose of the

analysis is not to critique any particular perspective, but rather to help inform the

dialog on these most important issues.

The Infrastructure Funding Issue

Why is water infrastructure funding on the Policy agenda? The infrastructure

needs of the water and wastewater industries have recently taken a prominent place

on the policy agenda, even though this issue is not entirely new. The industries are

experiencing extraordinary increases in costs and investment needs that are closely

related to ‘‘people and pipe’’ demographics—that is, historical patterns of urban development and the age and condition of the physical plant in place. Today, new

data, models, and other tools have improved our understanding of this issue. The

various stakeholders that recognize these needs have reached a critical mass.

Estimating Needs

General agreement exists on the physical condition of the nation’s many local

water and wastewater systems. A recent report card issued by the American Society

of Civil Engineers (ASCE) assigned low grades to most of the nation’s various infrastructure sectors, including ‘‘Ds’’ for water and wastewater.

In 1995, studies by the U.S. EPA estimated that water industry assets totaled about $144 billion (Community Water System Survey, inflation-adjusted to 1999),

while the estimated 20-year infrastructure need totaled about $151 billion (Needs

Survey, inflation-adjusted to 1999). USEPA has recently issued an updated 20-year

needs estimate that also is in the range of $151 billion. EPA’s estimates focus on

needs directly and indirectly associated with Safe Drinking Water Act (SDWA) compliance.

USEPA found that more than half of the total infrastructure need is for transmission and distribution system needs. About 25 percent of the total need is for

water treatment facilities. USEPA has also estimated the impact of infrastructure

costs on households served by systems of different sizes. These findings demonstrate

how scale economies are a key determinant of cost impacts. Smaller water systems

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are disadvantaged in this regard, although the service populations of small systems

vary in their ability to support the cost of service.

In 1998, the American Water Works Association (AWWA) escalated total 20-year water needs to $366, billion (inflation-adjusted to 1999), focusing in particular on

distribution system needs. Today, various groups have coalesced around a total 20-

year needs estimate in the realm of $1 trillion for the water and wastewater industries.

The $1 trillion 20-year needs estimate for water and wastewater systems has be- come a focal point for discussion. The $1 trillion estimate is imprecise. Comprehensive, valid, and reliable technical and financial data on the nation’s water and

wastewater systems is not readily available. A precise needs estimate is not as important as recognizing the general need. Indeed, devoting scarce analytical resources

to estimating the need may not be beneficial. The gap is the projected cumulative

shortfall that will result if—and only if—(1) the infrastructure need estimate is accurate and (2) expenditures on infrastructure are not increased. In other words, the

gap will materialize only if no action is taken to close it.

Understanding the Infrastructure Monster

Understanding the ‘‘infrastructure monster’’ is a challenge. It is instructive to look

back to earlier research on water utility costs. Evidence from earlier studies suggests an awareness of rising costs and the role of infrastructure replacement in the

cost profile:

• The Nation’s Public Works: Report on Water Supply (Wade Miller Associates, 1987) forecast annual needs for the water industry in the range of $4.8 to 7.1

billion as follows: 37-49% for deferred infrastructure maintenance/replacement;

39-55% for meeting demand growth; and 8-13% for Safe Drinking Water Act

(SDWA) regulatory compliance • Meeting Water Utility Revenue Requirements (NRRI, 1993) found that ‘‘In reality,

SDWA compliance costs may pale in comparison to costs associated with infrastructure and demand growth needs.’’ Some of the larger utility systems also have been aware of the need to step-up

the pace of infrastructure replacement. Some of the investor-owned (private) water

utilities have been particularly active in this area. As an example, St. Louis County

Water prepared detailed assessment of its distribution system in 1994. According to

the company:

• ‘‘An accelerated replacement program is needed now if we are to avoid excessive

customer reaction and a ‘crisis’ response plan... • The Company’s infrastructure replacement program is unique because it does not

involve the construction of one extraordinary asset over a long construction

cycle (e.g., a nuclear plant), but a multitude of short-cycle construction projects

which, taken as a whole, are extraordinary in nature... • The Company believes it is critical and in the public interest...[to] synchronize

rate recovery with plant completion.’’ (St Louis County Water Company, 1994).

Capital Intensity, Age, and Deferral

The water industry is very capital intensive, that is, physical plant or infrastructure is a substantial core cost. Water investments also have very long service lives

that benefit generations of customers. Measured as a ratio of utility plant to revenues generated, water utilities are more capital intensive than the natural gas, electric, and telecommunications industries. Water utilities must invest more than

$3.50 for every dollar of annual revenues received from customers. Trend data (and

projected investments) indicate that the water industry is becoming even more capital intensive.

Industry experts have estimated that pipes were installed in the early part of the

century at a cost of about $5 per foot (or less). It is not unusual for replacement

costs to total $100 per foot—which is more than double the overall rate of inflation

for the same period. The rate of replacement reflects the anticipated life expectancy

for a physical investment. A replacement rate of 1 percent implies a life expectancy

of 100 years. Lower rates imply a much longer—and unrealistic—life expectancy.

Today’s pipe materials today are expected to last about 75 years, serving generations of customers.

The rate of pipe breakage increases as infrastructure ages. Breakages lose water,

disrupt service, and pose public health risks. Emergency repairs typically are much

more costly than planned repairs. The rate of breakage varies with pipe material,

which also correlates with the period of installation. Also, as facilities age, the overall percentage of ‘‘accounted-for’’ water declines; that is, more water is lost. The

value of water losses has increased with the increased cost of water supplies, treatment, and pumping.

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Following its assessment, St. Louis County proposed to pick up the pace of replacement from 5 (.13%) to 30 (.8%) miles of pipe per year (total pipe miles equal

3,882). But even the accelerated pace of replacement now used by some systems is

probably inadequate based on current knowledge about the life expectancy of materials. But making the case for replacement needs to rate regulators and other oversight bodies (mayors and city councils) has been a significant challenge. Recently,

some private utilities have won approval for surcharge mechanisms to help fund a

continuous program of replacement, while also mitigating rate shock (the leading

example is the Distribution System Improvement Charge, implemented in Pennsylvania).

Although much of the infrastructure challenge is simply age-related, at least part

of the current need can be attributed to capital deferrals, or the postponement of

infrastructure investments. Because their profit is based on the value of their rate

base, investor-owned utilities have less incentive to defer capital investments. Deferrals exacerbate the ‘‘gap’’ problem by increasing the level of need and thereby widening the gap between future expenditure levels and current revenue levels.

A model developed by Australian researchers suggests that the compound effect

of infrastructure replacement needs over several decades suggests a ‘‘Nessie curve,’’ named after the mythical Loch Ness monster. These cost curves can provide a useful

model to help utilities and other stakeholders understand needs at the system level.

In reality, the challenges of prudent capital replacement and ‘‘lumpy capacity’’ are

not new to utility economics. Other utility sectors have faced—and are facing—infrastructure needs. However, today’s water and wastewater infrastructures were cheap

to begin with, were well-subsidized (particularly for wastewater), and have long

been depreciated. These factors combine to create an extraordinary pressure on

costs. Emerging information systems, planning and management tools, and alternative technologies can help manage the monster—and close the funding gap.

The real risk today may be in the potential for a ‘‘responsiveness gap,’’ that is,

the gap between awareness and knowledge about an issue or problem and taking

the actions necessary to address the problem and avoid or mitigate deleterious effects. However, debate is open as to how to respond to the challenges now faced by

the water industry, particularly with respect to private versus public responsibilities.

The Emerging Myths

The infrastructure funding debate is contributing to a number of emerging myths

that may or may not be grounded in reality. The myths suggest:

• That a national crisis is looming.

• That the cost of water services cannot be supported through rates.

• That a funding gap is inevitable.

• That public (that is, federal) funding solutions are essential.

Some reality checks may help inform the infrastructure funding debate by challenging some of the emerging myths. These reality checks are offered not as criticism of any given perspective, but rather to bring an empirical perspective to the

dialog about these important issues.

Reality Check: Municipal Finances

The water and wastewater industries are dominated by municipal ownership.

Care should be taken to not over-generalize about municipal finances. However,

some of the available data (from the U.S. Census of Governments and elsewhere)

may be relevant to the funding debate.

The data indicate that in general, when municipalities provide electricity and natural gas services, revenues from user charges exceed expenditures. For water and

sewer services (as well as solid waste and transit services), expenditures exceed revenues from user charges. The findings generally suggest that municipal water customers do not cover expenditures through rates. The implications of this ‘‘gap’’ are

worse if the expenditures understate the cost of water service (as is the case with

deferrals). Of course, individual water and wastewater systems may have very different financial profiles.

The deficit between expenditures and user charge revenues is detectable for different types of publicly owned water systems: municipalities, special districts, counties, and townships. Trend data indicate that the expenditure-revenue gap has been

persistent over time, although it has closed somewhat. The difference between expenditures and revenues must be made up through tax revenues and subsidies

(grants). The trend data are comparable when displayed on a per-capita basis. Data

for individual cities show that aggregate expenditures on water, energy, and transit

utilities exceed user-fee revenues in some cases, but not in others. Similar results

can be seen for municipal wastewater systems.

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For investor-owned water utilities, operating revenues are provided primarily

through cost-based rates charged to customers, and revenues exceed expenditures.

An investor-owned water utility must support the full cost of service through rates

in order to survive.

The difference between revenues and expenditures is used to pay for taxes, depreciation, and the cost of capital. Rates charged by private water utilities are strictly

regulated by state public utility commissions, which adhere to accepted systems of

accounts and cost-of-service standards of ratemaking. USEPA data (Community

Water Systems Survey, 1995) also revealed that privately owned water systems collect more revenues per gallon than publicly owned systems.

Municipal debt can be used for long-term capital investments, such as water

treatment facilities. Debt instruments that can be used by the water sector include

traditional issuances, as well as private-activity bonds. Debt instruments should not

be used for routine maintenance (considered an annual expense). However, debt

(short-term and long-term) can be used for major capital replacements to amortize

costs over time. Ideally, costs are recovered over the useful life of the capital investment (although in practice shorter time periods are used).

Several interrelated financing issues have contributed to or complicated the infrastructure funding problem. These factors include: unrealistic service-life expectations, extraordinary cost inflation, inadequate accounting and accounting standards,

investment deferrals, inadequate user charges, profits and reserves for a few systems, and concerns about rates and equity. Accounting standards are the domain

of the Governmental Accounting Standards Board (GASB) for governmental utilities

and the state public utility commissions for investor-owned utilities.

Reality Check: Household Expenditures

Household expenditures for utility services and other goods and services provide

another relevant perspective. Consumer expenditure data are available from the

Consumer Expenditure Survey (Bureau of Labor Statistics). Although the data have

limitations, they are useful for general purposes.

Water and public services (sewer and solid waste) account for a relatively small

share of the average household utility budget (less than .8% of total expenditures),

particularly in comparison to electricity (2.4%) and telecommunications (2.1%). In

many respects, water services are a ‘‘bargain’’ to average households. Of course,

averages mask relevant variations and actual expenditures are affected by many

factors. Over time, average household expenditures for utilities have climbed, but

expenditures for water and other public services have retained their relative position. The percentage of household income and expenditures devoted to utilities has

declined with time, although the share for water and other public services has remained relatively constant.

On average, a four-person household spends about the same amount each year on

cable television and tobacco products as on water services. Americans have shown

a tremendous willingness to pay for advanced communications and entertainment

technologies, including cellular phones ($41.24 per month), cable television ($28.92

per month), and internet services ($21.95 per month). For many U.S. households,

the expenditures for these more discretionary services are greater than for water

services. It is noteworthy that the nation’s $80 billion cellular telephony infrastructure has been entirely supported by private providers who collect fees from users.

Reality Check: Global Comparison

Another reality check can be made using comparative international data. Americans use more water per capita overall than most nations of the world. Yet water

prices in the United States are comparatively lower than prices charged by water

service providers in many other developed countries. These findings also are supported by a study conducted by researchers in the Great Britain who controlled for

international difference in the gross domestic product.

Reality Check: Rate Shock

Large rate increases have the potential to cause rate shock among customers.

Technically, rate shock applies when a rate increase is associated with a significant

drop in usage, which reflects the willingness (and ability) to pay for service. For essential services (with relatively price-inelastic demand), these drops may be transitory. The term ‘‘rate shock’’ is also used to describe the pubic outcry associated with

rate increases—which may have no basis in affordability. However, the extent of

rate shock and affordability concerns depends in part on the level of the current

water bill and the magnitude of the rate increase. Techniques are available to mitigate rate shock and address genuine affordability problems.

Consumer Price Index data (BLS) reveal that real (inflation-adjusted) water rates

are rising faster than the overall rate of inflation—along with prices for garbage colVerDate 11-MAY-2000 12:07 Dec 26, 2001 Jkt 010199 PO 00000 Frm 00147 Fmt 6633 Sfmt 6621 E:\HEARINGS\71489 pfrm11 PsN: 71489
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lection, cable television, and local telephone service. Data for individual communities suggest that real (inflation-adjusted) rates have risen for some but declined

for others.

Any given rate increase may or may not trigger rate shock or cause hardship. A

higher percentage increase on a low base may not be problematic for most households. The magnitude of the increase relative to household income levels should be

considered. Public involvement and communications (including informative bills) can

help customers understand the reasons for the rate increase.

As suggested in the review of municipal finances, underpricing of water services

may be an important factor in the projected funding gap. Underpricing sends inappropriate signals to customers about the value of water, leading to inefficient

useage. According to basic economic theory, underpricing also leads to over-consumption and inefficient supply decisions to meet inflated demand. Privately owned

utilities are more likely to adhere to cost-based ratemaking that recovers total revenue requirements (capital and operating costs).

Some communities deliberately maintain ‘‘low’’ prices for water and wastewater

services for reasons that include community values, economic development, and political expedience. In some cases, rate increases have been avoided for very long

time periods. Taking inflation into effect, a ‘‘stable’’ rate is actually a rate that has

decreased over time. The ‘‘loss’’ of revenue presents an opportunity cost to the community in terms of its ability to make appropriate infrastructure investments.

Rate shock in the water sector is possible because rising costs must be recovered

over flat per-capita demand. Affordability concerns are real but manageable. Financing, ratemaking, and conservation strategies can mitigate rate shock to a degree.

Surcharge adjustments can be used to achieve gradualism in rate increases. Larger

systems can use consolidated rates, progressive rate structures, and conservation

targeted to low-income households. Needs-based subsidies can be used to help eligible customers by providing direct payment assistance or funding a lifeline rate.

From a theoretical standpoint, willingness to pay is represented by the demand

curve, which incorporates the consumer’s ability to pay. From a practical standpoint,

ability to pay is a function of price and income and can be addressed through rate

design and subsidies (respectively). For many publicly owned systems, the real problem is not the willingness nor the ability to pay—but the ‘‘willingness to charge’’

customers at rates closer to the true value of water service.

Reality Check: Consumer Preferences

Another ‘‘gap’’ seems to persist between customer preferences and their willingness to pay for safe and reliable water service. According to opinion polls (Gallup)

Americans consistently express a high degree of concern about drinking water and

related issues. Paradoxically, consumers do not necessarily appreciate the value of

water services. Consumers often appear unwilling to support rate increases necessary to ensure drinking water quality and reliability. Indeed, low prices reinforce

the view that water services are an entitlement. Public education is needed to close

the gap between opinion and willingness to pay the cost for arguably the most essential utility services.

Water itself has no substitutes, but alternative methods of delivery are available.

For many U.S. households, the price of one gallon of centrally-supplied water—conveniently delivered to the tap—is less than one-third of one penny (see Raftelis Environmental Consulting Rate Survey). In general, every other water alternative is

no more safe, much less convenient, and astronomically more expensive. At $1.15

per gallon, the price of ‘‘designer water’’ is 347 times the price of tap water.

Despite the high costs, Americans continue to buy bottled water in increasing

amounts.

In 1999, bottled water sales had increased by 12 percent. In 1999, the nation’s

water utilities collected revenues totaling about $29.4 billion. Wastewater treatment

works collected revenues totaling about $26.3 billion. The bottled water industry collected revenues totaling $5.2 billion.

Rough estimates can be used to compare the profit margin for bottled water

versus tap water. For larger bottlers, total production costs (including source costs)

amount to about 10 cents for each bottle that can be sold for 70 cents or more (a

600% markup). The ‘‘markup’’ for tap water, even for private companies, is closer

to 10 percent.

Reality Check: Federal Funding

The reality of the broader context of federal funding also is relevant to any particular constituency, including the water and wastewater industries. It is important

for the water industries to have realistic expectations about future federal funding

for water programs in order to plan sufficiently to meet infrastructure needs.

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Water services have always been and always will be subsidized to a degree. Some

subsidies are in the public interest because of equity considerations, as well as

health, safety, and environmental protection concerns. All subsidies have distributional consequences (that is, they result in both winners and losers). Subsidies can

also perpetuate dependence, inefficiency, and stagnation on the part of recipients.

Whether a water system or a customer, subsidies can mute incentives for cost control. Subsidies require tax revenues and taxpayers are also ratepayers (the same

households pay one way or another). The social benefits of subsidies should outweigh the total costs.

Programs have been established to assist low-income customers in other utility

sectors.

The LIHEAP programs provide payment assistance for energy services. Under the

1996 Telecommunications Act, the Lifeline and Linkup programs provide assistance

to telephone customers.

In reality, water and wastewater infrastructure funding already exceeds federal

funding provided to the LIHEAP and Lifeline/Linkup programs. Levels of funding

under the WIN (Water Infrastructure NOW) proposal would vastly exceed current

levels for water infrastructure, as well as other utility programs. The WIN proposal

expands grant subsidies, which effectively can both reward and perpetuate inefficiency. If a subsidy rewards past inefficiency, continued inefficiency on the part of

the system is assured because underpricing will persist.

Infrastructure funding for water is provided through the Clean Water and Safe

Drinking Water State Revolving Funds (SRF). The principles underlying the

DWSRF are sound: demonstration of capacity by systems; priority on pubic health

and affordability; emphasis on loans (v. grants); and ineligibility of maintenance and

growth-related costs. The SRF should not reward cost avoidance and inefficiency.

The SRF should not advantage publicly owned systems (and their customers) over

privately owned systems (and their customers) and further widen the gap in rates.

Some programmatic reforms could enhance the existing Clean Water and Drinking Water funding programs. Potential measures include: improving efficiency and

lowering administrative costs to states and systems; addressing barriers to access

and funding equity for different types of systems (large and small systems; publicly

and privately owned systems); establishing fair criteria for funding infrastructure

costs; and promoting sound cost accounting and rate design.

The long-term federal funding environment for all utility services is not without

uncertainty. Concerns have emerged about maintaining funding for telecommunications assistance programs under the Bush administration. Base-level funding for

LIHEAP (excluding supplemental appropriations) has declined over the life of the

program. The budget of the USEPA also has been targeted for budget cuts under

the Bush administration.

Reality Check: State and Local Priorities

At the local level, water and wastewater services—although vital to communities—are not always assigned high priority. In many larger cities, funding needs

for the water sector are comparable to funding provided for professional sports stadiums.

Given their primacy for water and wastewater policies, the state also must play

a role in addressing the infrastructure issues. Several states have taken steps in

this area, including: Pennsylvania (cost recovery), Kentucky (regional consolidation),

Rhode Island (capital planning), Oregon (program integration), and Texas (regulatory reform).

Reality Check: The Gap

The concept of a funding gap merits further consideration and debate. The need

to invest in the nation’s water and wastewater infrastructure is real, but the ‘‘funding gap’’ is essentially a construct. The magnitude of the gap is uncertain and may

be inflated. The potential to lower costs through restructuring, innovation, operational efficiency, and integrated resource management (including conservation

achieved by water-efficient fixtures and practices) may not be fully considered. The

need is largely attributable to system demographics (age and condition), although

some deferrals have probably exacerbated the problem. Many water utilities (and

most other utilities) can and do support the cost of service through rates. A funding

gap will materialize if deferrals and underpricing persist; that is, if the responsiveness gap widens. The water industries must provide leadership and effectively manage their current and future assets on the public’s behalf.

Aggressive action is needed to close the projected gap from the top (infrastructure

needs) and from the bottom (expenditure levels). Cost-reduction strategies for closing the gap from the top include: efficiency and optimization (least-cost) approaches

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directed at both water production and usage; leadership and continued technological

innovation; and industry restructuring to achieve scale economies and improve operational performance. Some gap estimates have attempted to incorporate efficiency

improvements—but a gap is still anticipated. Technical and managerial innovation

can substantially reduce operating costs; capital costs can be reduced, but probably

to a lesser degree given the basic capital intensity of water services. Industry restructuring includes consolidation and fundamental changes in system ownership

and management (including privatization).

The gap can be closed from the bottom by increasing revenues to support infrastructure expenditures. Revenue-enhancement strategies include: cost-based (marginal-cost) rates to send better price signals to customers, along with other ratemaking strategies (such as surcharges); private-sector investment; and public-sector

funding (local, state, and federal). With the magnitude of the infrastructure need

and the complexity of the water sector, multiple revenue-enhancement solutions are

necessary and appropriate. However, cost-based rates should be emphasized and

public subsidies should be used judiciously.

The public sector will continue to play a central role in addressing water and

wastewater infrastructure needs. The public sector can: leverage other public and

private funding sources; provide incentives for optimal investment, operational efficiency, and cost-effective restructuring; support research and development, data collection and information dissemination; address at-risk systems and households

based on demonstrable needs; and promote sustainable water systems, not sustainable subsidies.

The private sector can play an expanded role in addressing water and wastewater

infrastructure needs. The private sector can: provide leadership, technical innovation, and research; promote efficiency and sustainability through market-based solutions as appropriate; develop a range of asset ownership and management options

to address capital and operating needs; secure and utilize available public funding;

and maintain accountability through regulation.

The Real Challenges

Moving forward, the real challenges to all stakeholders in the water and wastewater sectors may be to:

• Establish a new science of prudent asset management for the water sector.

• Engage the public on water issues through open and participatory processes.

• Demonstrate a willingness to charge for the true cost of water service.

• Use public funding strategically to make lasting improvements to operations.

• Do not postpone the inevitable and perpetuate the responsiveness gap.

• Promote equity and sustainability over a long-term planning horizon.

• Be receptive to technical and institutional innovation.

Although formidable, these challenges can be met.

I look forward to working with this Committee, the H2O Coalition, and all other

stake holders on this issue. Thank you for your attention.

Mr. GILLMOR. Thank you. Barker Hamill of New Jersey, the Association of State Drinking Water Administrators.

STATEMENT OF BARKER HAMILL, ASSOCIATION OF STATE

DRINKING WATER ADMINISTRATORS, CHIEF, BUREAU FOR

SAFE DRINKING WATER, NEW JERSEY DEPARTMENT OF ENVIRONMENTAL PROTECTION

Mr. HAMILL. Thank you. My name is Barker Hamill, and I am

the Chief of the Bureau of Safe Drinking Water in the New Jersey

Department of Environmental Protection. I am here representing

the Association of State Drinking Water Administrators, and I

thank you for the opportunity to offer comments on this subject.

We certainly agree that there is a large infrastructure need and

that there is a large portion of that need that is subject for underground piping needs. There is also evidence that the financing for

the needs for the water infrastructure and developing viable solutions to meet these needs will be challenging.

The Association is prepared to work with Congress, EPA, and the

water utilities, and other stakeholders, to help define those activiVerDate 11-MAY-2000 12:07 Dec 26, 2001 Jkt 010199 PO 00000 Frm 00150 Fmt 6633 Sfmt 6602 E:\HEARINGS\71489 pfrm11 PsN: 71489
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ties. ASDW members are highly involved in providing the raw data

used in EPA’s drinking water need surveys.

This activity competes with other new activities established by

the 1996 Safe Drinking Water Act Amendments. State programs

infrastructure is also experiencing a funding problem. Basic public

water supply supervision program funding is unchanged since a

much needed increase in fiscal year 1997. That recognized some of

the increased demands of the 1996 Safe Drinking Water Act

Amendments. While significant portions of the SRF funding theoretically can be used to support programs, the practical reality is

that States have only been able to use about one-half of the available resources.

A shortfall of funding from current funding sources will grow from about $110 million in fiscal year 1902 to $207 million in fiscal

year 1905. The 1996 Safe Drinking Water Act Amendments require

that the EPA develop programs and regulations to address microbial contamination, disinfectant by-products, radon, radionuclides,

arsenic, ground water protection, filter backwash, among other

rules.

The EPA must also evaluate potential contaminants for regulation well into the future, as well as look back and do a 6 year review of existing rules. It is one of these 6 year review existing

rules, the total coliform rule, that is likely to address major issues

with distribution systems and distribution system water quality,

which is where a lot of this activity is.

As a result, infrastructure funding needs will continue to escalate as more regulations are promulgated that address new contaminants in drinking water, and its current regulatory level to

lower or meet improved analytical methods to bring standards closer to the maximum contaminant level goal.

In addition, new treatment technologies such as membrane,

ozone, and UV eradication will become more commonplace in water

treatment. Some of these technologies are capital intensive to install and operate, while others will require significant retrofitting

of current treatment plants and upgrades to distribution systems.

Funding of water system infrastructure needs involves the partnership at the Federal, State, and local level. At the Federal level,

funding is available through the Drinking Water State Revolving

Loan Fund that was established under the 1996 Safe Drinking

Water Act Amendments.

In the 1996 Safe Drinking Water Act Amendments, Congress authorized $9.6 billion between fiscal year 1994 and fiscal year 2003

for States to provide loans and grant equivalents to water systems

in need.

An important note is that although $7.6 billion was authorized

through fiscal year 2001, only $4.42 billion has been appropriated,

leaving a funding gap of $3.18 billion that the States and water

systems were expecting to be available to meet infrastructure

needs and compliance requirements of the Safe Drinking Water

Act.

Many States have had a long involvement in providing financial

assistance for drinking water projects. In New Jersey, we have had

a loan program that has made over 180 loans for $145 million that

started in 1984. We have integrated that program with the current

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SRF program and anticipate an additional 50 loans for about $300

million by the end of 2001.

It is important to note that by the end of this year requests for

SRF funds are greater than available SRF funds in New Jersey,

and we will be using additional State funding to meet those needs,

and we expect the demand to increase as time goes on.

Finally, I would like to stress that Federal guidelines, given the

amount of detail that they provide, should be as flexible as possible

for States to deal with competing priorities, and to deal with State

planning issues and how these funds are spent. The Association

thanks you for this opportunity to come and comment.

[The prepared statement of Barker Hamill follows:]

PREPARED STATEMENT OF BARKER HAMILL, CHIEF, BUREAU OF SAFE DRINKING

WATER, NEW JERSEY DEPARTMENT OF ENVIRONMENTAL PROTECTION, ON BEHALF

OF THE ASSOCIATION OF STATE DRINKING WATER ADMINISTRATORS

INTRODUCTION

The Association of State Drinking Water Administrators (ASDWA) is pleased to

provide testimony before the House Committee on Energy and Commerce Subcommittee on Environment and Hazardous Materials regarding water infrastructure

needs and state drinking water program needs. ASDWA represents the drinking

water programs in each of the fifty states, territories, and the District of Columbia

in their efforts to ensure the provision of safe, potable drinking water to over 250

million consumers nationwide. ASDWA’s primary mission is the protection of public

health through the effective management of state drinking water programs that implement the Safe Drinking Water Act (SDWA).

WATER INFRASTRUCTURE

Water Infrastructure Needs

Providing a supply of safe, potable drinking water is critical to protecting public

health and ensuring current as well as the long-term economic growth of this Nation. In February 2001 the United States Environmental Protection Agency (EPA)

released a report entitled 1999 Drinking Water Infrastructure Needs Survey that indicates that drinking water systems infrastructure needs total $150.9 billion over

the next 20 years and that $102.5 billion is needed today to ensure the provision

of safe drinking water. The bulk of this need, $83.2 billion, is for transmission and

distribution projects followed by treatment ($38.0 billion), storage ($18.4 billion),

source ($9.6 billion), and other needs ($1.9 billion). These needs are documented for

the 54,000 community water systems and 21,400 not-for-profit noncommunity water

systems nationwide.

Large systems (serving more than 50,000 people) account for 41 percent of this

need while medium sized systems account for $43.3 billion and small systems account for $31.2 billion. Not-for-profit noncommunity water systems account for $3.1

billion of need. Although the total small system need appears modest compared to

needs of larger systems, the costs on a per household basis are almost four times

higher than for larger systems because small systems lack the economies of scale

to spread the costs of capital improvement among many consumers.

Why is there an Infrastucture Need?

Water utilities must continue to upgrade and improve their infrastructure to meet

new SDWA regulatory mandates and to replace aging and failing distribution system pipes and appurtenances. While water systems have typically had to keep pace

with new requirements of the SDWA with regard to treatment, specific upgrades

and replacement of pipes and transmission lines have been addressed, from a regulatory perspective, only in a minor way through mandatory replacement of lead

pipes under the Lead and Copper Rule. Much has been learned over the last decade

or so; however, about specific health problems associated with distribution system

problems such as leaking pipes, cross connections, and backflow. Many of these concerns are likely to be addressed specifically in the future as EPA proposes developing a distribution system rule.

The 1996 Amendments to the SDWA require that EPA develop regulations to address microbial contamination, disinfection by-products, radon, radionuclides, arsenic, ground water protection, and filter backwash. EPA must also continue to

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evaluate potential contaminants for regulation well into the future. As a result, infrastructure funding needs will continue to escalate as more contaminants are promulgated that address new contaminants in drinking water, and as current regulatory levels are driven lower to meet improved analytical methods to bring standards closer to the maximum contaminant level goal. In addition, new treatment

technologies such as membranes, ozone, and UV irradiation will become more commonplace in water treatment. Some of these technologies are capital intensive to install and operate, while others will require significant retrofitting of current treatment plants and upgrades to distribution systems.

In addition to meeting infrastructure needs associated with compliance with the

SDWA, water systems also face the challenge of replacing miles of distribution pipes

as materials age and begin to fail. The demographics of distribution pipe installation

indicate that over the course of the next 20 years, many of the miles of pipes that

have been put in the ground over the last 100 years will reach the end of their useful life and need replacement.

Current Funding Availability

Funding of water system infrastructure needs involves a partnership at the Federal, state, and local level. At the Federal level, funding is available through the

Drinking Water State Revolving Loan Fund (DWSRF) that was established under

the 1996 SDWA Amendments. In the SDWA, Congress authorized $9.6 billion between FY-94 and FY-03 for states to provide loans and ‘‘grant equivalents’’ to water

systems in need. An important note is that although $7.6 billion was authorized

through FY-01, only $4.42 billion has been appropriated leaving a funding gap of

$3.18 billion that the states and water systems were expecting to be available to

meet infrastructure needs and compliance requirements of the SDWA.

States also must match the DWSRF with 20 percent state funding as a way to

further capitalize this program. Through June 30, 2000 states had contributed over

$548 million additional funds for the program. To the extent that the full Federal

amount has not been appropriated; however, revenue is also lost due to the loss of

state matching funds. A number of states also leverage the funds to create additional dollars for infrastructure improvements. Through June 30, 2000, states had

leveraged over $1 billion in bonds to provide additional project funding. A number

of states have also established their own grant and loan programs that are used to

supplement DWSRF funding.

Additional Federal funding also comes through the Rural Utility Service Water

and Waste Loan and Grant Program under the U.S. Department of Agriculture’s

Rural Development office. These funds assist eligible applicants in rural areas and

cities and towns serving up to 10,000 people. The Federal Housing and Urban Development (HUD) Agency also provides block grants to states under its Community

Development Block Grant (CDBG) program to provide assistance to small local governments that generally serve less than 50,000 people and counties with a population of less than 200,000 people. Water and wastewater projects are eligible activities under the CDBG program. Many states use these funds along with USDA and

DWSRF funding to package the appropriate mix of grants and/or loans to meet a

community’s specific financing needs.

At the local level, a primary source of funding for infrastructure improvements

comes through rates charged by utilities to consumers for water use. In many cases,

however, rates have been kept artificially low and long-term maintenance costs deferred. This has the potential to contribute to ‘‘rate shock’’ should customers have

to bear the full cost of projected infrastructure replacement needs. Municipalities

can also borrow money from the private sector such as banks or go to the bond market although many smaller water systems and non-municipal systems find it more

difficult to access these types of funding. According to the Water Infrastructure Network’s report Clean and Safe Water for the 21st Century, water systems are currently investing around $13 billion per year for infrastructure needs.

Is There a Funding Gap?

While it may be possible through instruments such as EPA’s drinking water needs

survey to project drinking water infrastructure needs over the next 20 years, it is

much more problematic to define how large an infrastructure funding gap exits. To

calculate this accurately, one needs to have a solid understanding of the current and

long term funding needs and then have a fairly accurate assessment of the total

sources of revenue at the Federal, state, and local level that can be brought together

to meet these infrastructure funding needs. The delta (or gap) between these two

numbers represents the funding gap or need but only at the gross national level.

The ‘‘gap’’ can vary significantly on a water system-by-water system basis depending

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on system size, contaminants of concern, the system’s current rate structure, access

to available capital, and the age of the system, among many factors.

Conclusion

Drinking water system infrastructure needs will continue to increase due to new

SDWA regulatory requirements as well as the need to replace aging and failing

pipes in distribution systems. A continued partnership among Federal, state, and

local funding sources will be essential to ensure the long-term provision of safe, potable drinking water to consumers nationwide. Numerous needs surveys, including

EPA’s recent analysis, have concluded that nationally, water systems face a

daunting task in continuing to ensure safe drinking water. While ASDWA is not

able to calculate the actual definitive dollar figure between the need and available

funding, others have indicated that a gap exists and may be quite large. ASDWA

is prepared to work with Congress, EPA, the water utility industry, and other interested stakeholders to better refine the scope of the problem and the gap, and determine how best to meet these needs today and into the future.

STATE INFRASTRUCTURE

State Implementation Responsibilities

State drinking water programs also need adequate funding to ensure the effectiveness of their own ‘‘infrastructure’’ to carry out the myriad responsibilities of the

SDWA. Since the SDWA Amendments of 1996, state program responsibilities have

dramatically expanded to move beyond compliance at the tap to delineating and assessing the sources of all waters used for public water supplies, ensuring qualified

operators at all water systems, defining and implementing water system capacity

programs, creating a new DWSRF funding mechanism, and providing significantly

more information and outreach to the public. These efforts are in addition to implementing Federal as well as state-specific drinking water regulations addressing specific contaminants.

Forty-nine of the 50 states currently have ‘‘primacy’’ or enforcement authority for

the Federal SDWA. To achieve and maintain primacy, states must adopt rules that

are no less stringent than the Federal requirements and have the ability to enforce

these regulations. Although some states have requirements that are more stringent;

for the most part, state drinking water programs are implementing and enforcing

Federal requirements.

Collectively, state programs provide oversight, implementation assistance, and enforcement for approximately 169,000 public water systems nationwide. These systems range from large metropolitan municipalities to mobile home parks and

schools. The vast majority (over 95 percent) of these systems are small, serving less

than 3,300 people. Many of these systems require extensive technical assistance,

training, and oversight.

Today, the regulatory landscape is significantly more complex than ever before.

Since FY-97, state Public Water Supply Supervision (PWSS) dollars have had to

stretch to cover development, implementation, and enforcement of numerous new

regulations and programs such as those to address radionuclides, the microbial/disinfection byproducts rule cluster, unregulated contaminant monitoring, consumer

confidence reports, capacity development, expanded operator certification requirements, source water assessment and delineation, and the DWSRF. States anticipate

new regulations to be put in place this year to address radon, arsenic, and groundwater. Additionally, states are expected to implement revisions to the surface water

treatment and lead and copper rules, public notification, and variance and exemption requirements. These requirements are in addition to the state program responsibilities for core activities such as compliance monitoring, data management, training, and enforcement for 88 currently regulated contaminants. States also are responsible for ensuring that public health is protected through preventive measures

such as disease surveillance, risk communication, sanitary surveys, laboratory certification, permitting, and emergency response. States expect that their responsibilities will continue to expand as EPA promulgates additional regulations and reviews

current regulations for modification (see attachment 1).

State Funding

The SDWA authorizes EPA to fund up to 75 percent of the costs to states to implement the drinking water program. Historically, however, states have contributed

65 percent of the funding while EPA has only contributed 35 percent. While the actual contributions for individual states vary, with some substantially over matching

the Federal contribution, the bottom line is that adequate Federal funding for states

to implement this Federal law has not historically been provided.

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The current Federal PWSS grant provides $87.3 million for states to implement their programs (the remainder of the $93 million currently appropriated by Congress is directed to Indian Tribes). This level has not increased for states over the

last five years (since FY-97), even though many of the new initiatives under the

1996 Amendments became effective almost immediately. The level funding of $87.3

million actually means that states have lost funding due to inflation and rising personnel costs, not to mention a FY-01 rescission that actually reduced state PWSS

and DWSRF grants.

The 1996 Amendments also allowed states to take up to 31 percent set-asides

from the DWSRF for program implementation. EPA, however, has never requested

the full $1 billion per year authorization. DWSRF funds are also used to provide

resources for new programs at the national level such as operator certification training reimbursement and unregulated contaminant monitoring which further reduces

the corpus of the funds available for state use. In addition, many states have encountered significant barriers to fully accessing these funds including:

• the inability to obtain the needed one-to-one state match with new state revenue

(for program implementation activities) • the inability to shift resources directed to water system infrastructure improvements to state program implementation • the unstable nature of the annual SRF funding allocation which is based on water

system needs and is affected by the states’ annual intended use plan for projects

and set-asides • the threat of up to 40 percent withholding for failure to implement certain program requirements such as capacity development and operator certification • the unwillingness of state legislatures to approve new hires using ‘‘temporary’’ funding (the drinking water SRF is only authorized until 2003)

To supplement insufficient Federal funding, many states have turned to state general revenues and fees to maintain an adequate core program. These additional

funds; however, have not be adequate to fully meet state program implementation

costs.

ASDWA and EPA conducted a national resource gap analysis in early 1999 to estimate state resources needed to implement the drinking water program between

1999 and 2005. The analysis showed that in FY-99, the funding gap for states to

implement the SDWA equaled $83 million and staffing needs fell short by 1,627 full

time equivalents (FTEs). In FY-02, the gap will widen to $110 million and 1,906

FTEs; and by FY-05, the states’ ability to implement the SDWA is expected to fall short by $207 million and 2,670 FTEs (see charts, page 7). The situation was exacerbated this year when the state PWSS and DWSRF dollars were subjected to the

Agency’s FY-01 rescission cuts, thus further reducing Federal funds to the states.

Even the U.S. General Accounting Office (GAO) has raised state funding concerns.

In August 2000, GAO released a report to Congress entitled, Drinking Water:

Spending Constraints Could Affect States’ Ability to Implement Increasing Program

Requirements. An extrapolation of their findings indicate that even if all states had

been able to access the maximum 31 percent of DWSRF set-asides for program implementation and related activities, there would still be a funding gap beginning in

FY-02. Since few states are able to access the full set-aside amounts, the funding

gap is much greater than GAO’s ‘‘optimum’’ estimate, and in fact, a gap already exists. The Report further notes that even those states that felt they were managing

to keep up with the pace of implementing and enforcing the new statutory program

requirements, at least for the short term, were only able to do so by ‘‘. . . scaling back

their drinking water programs, doing the minimum necessary to meet requirements,

and setting formal or informal priorities among their responsibilities.’’ This is a blueprint for a public health crisis.

Conclusion

Adequate infrastructure funding needs for state SDWA program implementation

is just as critical as adequate funding for water system infrastructure improvements. States are responsible for ensuring water system compliance and providing

‘‘infrastructure’’ for source water assessments; certified and trained water system

operators; water system financial, technical, and managerial competency; public outreach and communication; and working directly with water systems to obtain and

maintain compliance. As Congress moves forward to evaluate and find solutions for

the water infrastructure funding gap attention must also be directed to the state

program funding gap.

The goal of both of these efforts is protecting public health. It is about knowing

that whenever you brush your teeth, bathe your child, or prepare your food, the

water has been monitored and tested for contaminants; that the responsible operator has been trained and certified; and that the drinking water system has demVerDate 11-MAY-2000 12:07 Dec 26, 2001 Jkt 010199 PO 00000 Frm 00155 Fmt 6633 Sfmt 6621 E:\HEARINGS\71489 pfrm11 PsN: 71489
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onstrated that it is technically, financially, and managerially capable of providing

safe drinking water. In order to meet Congressional expectations and Federal regulations to successfully implement the SDWA, both states and water systems need

increased funding to ensure a safe and dependable supply of drinking water today

and for future generations.

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Mr. GILLMOR. Thank you, Mr. Hamill, and we will go to Mr. Erik

Olson, from the Natural Resources Defense Council.

STATEMENT OF ERIK D. OLSON, SENIOR ATTORNEY, NATURAL

RESOURCES DEFENSE COUNCIL

Mr. OLSON. Thank you, Mr. Chairman, and Mr. Pallone, and

other colleagues in the room. I am with the Natural Resources Defense Council, and I also chair a coalition of about 300 public interest groups, including health, medical, and environmental and consumer groups called the Campaign for Safe and Affordable Drinking Water.

I wanted to specifically talk about the aging infrastructure of the

United States. The water that I just poured for myself here came

out of pipes, some of which date to the Lincoln Administration here

in DC. We have an aging infrastructure across the United States— it is not just Washington—that has some serious problems.

We, the NRDC, issued a report a few years ago called, ‘‘Victorian

Water Treatment Enters the 21st Century.’’ What we found is that

90 percent of the utilities in the United States, the big utilities,

continue to use World War I era drinking water treatment technology.

There may have been some upgrades, but the basic technology

has not changed since World War I for the vast majority of big utilities. There clearly is a need for upgrading the infrastructure in the

United States for drinking water, and obviously the need is going

to cost a lot of money.

EPA’s estimates are the $100 to $150 billion number that you

have heard. There are estimates that the Water Infrastructure

Network was made that may or may not be inflated suggest between half-a-trillion and a trillion dollars will need to be spent on

this.

And we have heard a lot about arsenic, but let’s put this in perspective. If we take the industry’s own estimates of the total infrastructure needs, it is around $500 billion to $1 trillion. The arsenic

rule itself would be less than 1 percent of that total need.

We think that it is a good investment. I don’t want to spend a

lot of time talking about arsenic issues, but I think it is important

to respond to a couple of points that were made. One suggestion

was that this was rushed through at the last minute. EPA actually

took more than 20 years to put this rule together.

It took three statutory deadlines, court orders, and a series of extensions over a period from 1975 through 1991 for this to happen.

It was not rushed through. EPA had over 30 meetings with the

public to discuss this. There were over 1,000 comments submitted

to the Agency.

This was not rushed through. The other significant point is that

the costs for over 90 percent of the population that is affected by

this is $3 a month or less. Let me repeat that. For over 90 percent

of the people affected by this arsenic rule, the cost is going to be

$3 a month or less.

Clearly for small systems, the costs may be higher. We think

that the subject of the hearing today is fair in raising the issue of

whether there is a need to have more Federal investment in infrastructure. We think the way to deal with the difficulties of a relVerDate 11-MAY-2000 12:07 Dec 26, 2001 Jkt 010199 PO 00000 Frm 00158 Fmt 6633 Sfmt 6602 E:\HEARINGS\71489 pfrm11 PsN: 71489
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1Water Infrastructure Network, Clean and Safe Water for the 21st Century: A Renewed National Commitment to Water and Wastewater Infrastructure (2000).

atively small population that is going to have significant affordability problems as a result of arsenic or any other rule is to have

a meaningful Federal assistance for small systems.

Senator Reid and Senator Ensign have proposed a bill recently,

S. 503, that would address targeted funding to small water systems. We think that is the answer, and not rolling back Federal

standards. I think I will set a precedent by finishing a minute

early.

[The prepared statement of Erik D. Olson follows:]

PREPARED STATEMENT OF ERIK D. OLSON, SENIOR ATTORNEY, NATURAL RESOURCES

DEFENSE COUNCIL

INTRODUCTION

Good morning, I am Erik D. Olson, a Senior Attorney at the Natural Resources

Defense Council (NRDC), a national non-profit public interest organization dedicated to protecting public health and the environment. We have over 450,000 members nationwide. We appreciate the opportunity to testify today on the need for improved drinking water infrastructure.

Drinking water treatment improvements begun at the turn of the 20th Century

have advanced public health protection enormously, but much of the nation’s drinking water infrastructure now is aging and outdated. We must modernize our water

systems and safeguard the nation’s water supplies from new and emerging contaminants. While EPA has estimated based on state figures that the costs of modernization will exceed $138 billion dollars, many in state and local government, in the

water industry, and public health and environmental communities believe the true

costs of this needed massive upgrade will be many times higher.

For example, a report published in March 2000 by a coalition of state and local

governments, the water industry, and water professional trade associations called

the Water Infrastructure Network (WIN) estimated that building these costs would

be far greater than previous estimates. The WIN report found that building new

and replacing old drinking water facilities will cost $480 billion dollars (including

finance costs) over the next 20 years, and that about $1 trillion dollars is needed

for drinking water capital, financing, and operation and maintenance over that period. The WIN investigators concluded that there is a funding gap of about $15 billion per year for drinking water infrastructure, operation, and maintenance.1

Most of these expenses are expected to be necessary irrespective of Safe Drinking

Water Act regulatory requirements. Aging pipes in distribution systems, antiquated

water treatment plants, water professionals’ recognition of the need for infrastructure improvements, public demands for improved water quality, taste, odor, and reliability, growth, and other factors, all will drive this investment. While most of

these costs will be incurred with or without new EPA regulations, it is clear that

many improvements will be necessary in water treatment and distribution systems

in order to meet modern demands for safer tap water. Major new public investments

will be needed to fund this important national priority, and to significant research

initiatives are necessary to support and guide this modernization.

It recently has been recognized that the United States and other developed nations’ drinking water suppliers have begun a ‘‘Third Revolution’’ in drinking water

provision. It is this revolution that the WIN report has recognized will require

greater financing. These revolutions can be summarized as follows:

• The ‘‘First Revolution,’’ occurred when water was captured, stored, and channeled or piped for household drinking and other uses. This important advance

began in pre-biblical times in the Middle East and was expanded and refined

by the Roman Empire. • The ‘‘Second Revolution,’’ took place when coagulation, sedimentation, filtration, and ultimately chlorination were installed by many major water suppliers,

beginning in the 19th Century and with widespread adoption by the first World

War. This Second Revolution was triggered by the steady march forward of

medical science, the acceptance of the ‘‘germ theory’’ of disease, and the leadership of public health proponents such as John Snow who in 1849 linked the

London cholera outbreaks to water supplies. This resulted in enormous public

health benefits, and has hailed by the Centers for Disease Control and PrevenVerDate 11-MAY-2000 12:07 Dec 26, 2001 Jkt 010199 PO 00000 Frm 00159 Fmt 6633 Sfmt 6621 E:\HEARINGS\71489 pfrm11 PsN: 71489
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tion (CDC) as one of the ten greatest triumphs of public health protection of

the 20th Century.

• The ‘‘Third Revolution’’ in drinking water provision now has been launched by

utilities in the U.S. and Europe. This revolution is the culmination and synthesis of the ‘‘multiple barriers’’ approach to preventing disease from drinking

water that had long been advocated by Abel Wolman and other 20th Century

water industry leaders. In essence, the Third Revolution consists of a fourpronged approach to modern drinking water protection:

(1) vigorous measures to prevent contamination of drinking water, through

source water protection;

(2) adoption of modern, highly effective, and broad-spectrum water treatment

technologies that can remove a wide array of emerging contaminants simultaneously, such as membranes, ultraviolet radiation disinfection, and granular

activated carbon with ozone disinfection;

(3) the modernization of aging, sometimes century- or more-old water distribution systems that often contain lead, are a frequent cause of main breaks, can

harbor microbial growth, and, according to CDC, are a significant cause of

waterborne disease outbreaks; and,

(4) The establishment and use of an efficient and open information infrastructure and public involvement approach in which utilities and their government

regulators use advanced methods to monitor, assess, communicate, and engage in a dialogue with consumers regarding drinking water source water

threats, and tap water conditions, contaminants, and quality.

Many of America’s drinking water utilities are endangering public health by providing Victorian-era service to the most technologically advanced nation on earth.

In 1994, NRDC issued a report entitled Victorian Water Treatment Enters the 21st

Century that provides an analysis of the protection and treatment techniques used

by the nation’s largest drinking water systems—those serving over 25,000 people.

We found that millions of Americans are needlessly exposed to hazardous chemicals

and microorganisms because drinking water source protection and treatment systems are inadequate. Adding to the problem is that some drinking water utilities

are using valuable resources and energy attempting to weaken health standards instead of improving badly outdated treatment and distribution systems. Despite decades of technological advancement, as most Americans are now on the Information

Superhighway, too many American water utilities are traveling on the technological

dirt road. We found that:

1. The vast majority of large water suppliers do little or nothing to prevent

contamination of the watershed or groundwater that they rely upon for

source water. Most large surface water systems have failed to adopt watershed protections such as watershed land ownership, and stream or reservoir

buffers to prevent runoff or discharges of chemically or microbiologically polluted water into their source water. Many groundwater-supplied systems also

have failed to adopt wellhead protection programs to prevent contamination of

their wells.

2. Despite widespread chemical contamination of drinking water, over 90%

of large water utilities have failed to install modern water treatment

technologies developed after World War I to remove chemical contaminants. Less than 10% of large Community Water Systems are using modern

treatment technologies like Granular Activated Carbon or ozone to reduce the

risks of chemical contamination and disinfection byproducts.

3. Aged, crumbling distribution systems are neglected, and are often the

cause of waterborne disease outbreaks. In many cases, the pipes that bring

us our water are 100 or more years old and are cracking or crumbling. These

aged pipes often harbor microbial growth, and are subject to catastrophic breakage. Broken or ‘‘cross connected’’ pipes that allow contaminated water to seep

into the water system have often been linked by the Centers for Disease Control

to waterborne disease outbreaks, yet the average water pipe will be over a century old before it is replaced by a large water system. Many of these old pipes

also contain lead, and leach this dangerous toxin into drinking water.

4. Effective source water protection and water treatment are both technically and financially feasible. Safe Drinking Water Act standards can be

met and exceeded using techniques that, for the most part, were invented before

1930. These techniques have been proven effective, and are widely used in other

industrialized countries. The few American cities that have installed modern

treatment systems have shown that safe drinking water can be provided for a

reasonable price.

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2 National Research Council, Arsenic in Drinking Water, p. 9 (1999) 3The underlying science supports an arsenic standard lower than 3ppb. EPA must consider

that many Americans also have unavoidable exposure to arsenic in their food, so relatively low

levels of arsenic in tap water can cause safety levels to be exceeded. A health-protective tap

water arsenic standard should allow a maximum lifetime cancer risk no greater than that EPA

has traditionally accepted (a level presenting a lifetime cancer risk from 1 in 1,000,000 to at

most 1 in 10,000 for vulnerable or highly exposed individuals). This would require EPA to set

a drinking water standard well below the current 50 ppb standard—in the range of 1 ppb. Limitations in the analytical techniques widely used for measuring arsenic in water, however, would

likely necessitate a standard of 3 ppb, rather than a standard of 1 ppb, because reliably quantifying arsenic at levels below this would be difficult using current standard lab equipment and

practices. Based on an extrapolation of NAS’s risk estimates, even a relatively strict arsenic

standard of 3 ppb could pose a fatal cancer risk several times higher risk than EPA has traditionally accepted in drinking water.

5. The Safe Drinking Water Act and Clean Water Act must be made stronger to protect our Drinking Water Supplies. The Safe Drinking Water Act

(SDWA)—which sets standards for the quality of water coming from your tap— and Clean Water Act (CWA)—which sets standards for discharges and runoff

into surface waters—need to be better integrated. Congress should enact provisions designed to ensure coordinated public health and environmental protection. Necessary legislative changes should include not only increased funding to

help systems pay for improvements, but also strengthened provisions for watershed and groundwater protection, tougher drinking water standards, and

beefed-up enforcement authority for EPA to ensure that standards are met.

It’s time to modernize systems and make the changes necessary to provide safe

drinking water. Among the larger challenges now facing the water industry include:

1. Arsenic.

The National Academy of Sciences, in a report issued in 1999, recognized that arsenic in tap water poses a significant public health risk in the United States, and

that EPA’s outdated arsenic in tap water standard set in 1942 ‘‘does not achieve

EPA’s goal for public health protection and, therefore, requires downward revision

as promptly as possible.’’ 2 The Academy concluded that drinking water containing

arsenic at the 50 parts per billion (ppb) level allowed by the outdated current standard ‘‘could easily’’ pose a total cancer risk of 1 in 100—about 100 times higher than

EPA would ever allow for tap water under other rules. For the sake of comparison,

the cancer risk allowed by this arsenic standard is about 10,000 times higher than

EPA may permit in food under the Food Quality Protection Act of 1996, which Congress passed unanimously. It also is a cancer risk 100 times greater than EPA policy has allowed for drinking water contaminants for over two decades. The Academy

also found that there was insufficient basis to find a threshold for arsenic carcinogenesis, and that there was no credible evidence that arsenic was a necessary nutrient for humans

Moreover, the Academy discussed a litany of other adverse non-cancer health effects from arsenic in tap water, including cardiovascular effects, nervous system

problems, skin lesions, and possible reproductive and other effects. Several peer-reviewed, published studies completed in the year since the Academy’s report have reinforced the conclusion that a much lower standard is needed for arsenic in tap

water.

EPA in January 2001 published a rule to reduce allowable arsenic levels from 50

ppb down to 10 ppb—a level that still presents a cancer risk significantly higher

than the 1 in 10,000 cancer risk that EPA traditionally allows in tap water. NRDC

and many public health professionals and organizations believe that EPA should set

the standard at 3 ppb, the level that EPA says is as close to the health goal (Maximum Contaminant Level Goal) as is feasible, considering costs, and is affordable.3

We are profoundly disappointed in the recent EPA announcement that the Agency

intends to yet again reopen this decades-long debate, and to withdraw the new arsenic standard. This action is scientifically unjustified, unlawful, and bad public

health policy. We believe that to the extent that action is needed on arsenic, the

need is to assure that small, needy systems will have the resources to clean arsenic

out of their water supplies. We therefore are generally supportive of the Reid-Ensign small system infrastructure assistance legislation (S. 503), which with certain

modest modifications would be an effective tool to help needy small systems to pay

for arsenic cleanup and other needed upgrades.

2. Radon

Radon in tap water poses significant cancer risks to over 40 million Americans.

Another National Academy of Sciences report, issued last year, found that radon is

known to cause cancer, and concluded that a multimedia mitigation strategy made

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4 Among the major flaws of the proposed rule are: (1) Disinfection has become the last alternative. EPA has chosen to move from a position of requiring disinfection of ground water systems, with exceptions (where it can be shown that it is not necessary), to a position of not disinfecting a ground water system until almost all other options have been exhaused. (2) States

do not have to set time limits for ground water systems to fix problems. (3) Ground water systems will not have to test for both pathogens and viruses. (4) EPA does not require sanitary

surveys to be done frequently enough to find problems in time to correct them. (5) States may

design Sanitary Surveys that vary widely in quality and oversight. (6) States are not required

to have a cross connection control Program. (7) EPA does not establish a baseline list of significant deficiencies which states may exceed. (8) EPA should require public participation and Right

To Know throughout the Ground Water Rule (9) The SWAP Should Be More Tied Into the

Ground Water Rule. Though EPA advises States to take the SWAP process into account, we

feel that EPA could do much more to formally tie source water assessments and the sanitary

surveys together.

the most sense in dealing with the radon problem. The Academy found that while

radon can be present in tap water at levels posing substantial risks, on average nationally the vast majority of radon risk comes from radon seepage into homes from

soils.

Congress enacted a provision in the 1996 Safe Drinking Water Act Amendments

that provides that states or water systems may adopt Multimedia Mitigation

(MMM) programs for radon that focus on the highest indoor radon risks. States and

public water systems with approved MMM programs need not assure compliance

with the Maximum Contaminant Level for radon in tap water, and can instead meet

a less stringent ‘‘Alternative Maximum Contaminant Level’’ (AMCL). The theory is

that states will provide greater public health benefits by reducing overall indoor

radon levels through a MMM program than would be achievable using only the

MCL for tap water. EPA’s proposed rule for implementing this provision, while in

NRDC’s view suffering from certain problems of lack of clarity to assure that the

MMM programs actually will achieve the public health benefits billed, if improved

could prove an important step toward protecting public health from radon. This rule

was supposed to be finalized last year, and is now legally overdue.

3. Cryptosporidium, Other Microbial Risks, and Disinfection Byproducts

EPA has engaged in a lengthy, multi-stage process of negotiations over the past

eight years with the water industry, states, local government, water treatment trade

associations, public health groups, and environmental organizations in an effort to

tackle the complex issue of microbial contaminants and disinfection byproducts.

These negotiations have wrestled with how to control the parasite Cryptosporidium

(which sickened over 400,000 people and killed over 100 in Milwaukee in 1993, and

has lead to many smaller outbreaks since then). In addition, the issue of how to deal

with risks introduced or exacerbated in the water distribution system was debated.

These negotiations have sought to produce an agreement that would improve protection from the class of contaminants known as disinfection byproducts, which are

created when chemicals such as chlorine are used to disinfect water, but create unwanted byproducts as a result of chemical reactions between the disinfectant and

organic matter in the water, creating a potentially toxic soup of chemicals that have

been linked in both animal studies and epidemiological studies of people to certain

forms of cancer and to reproductive problems such as miscarriages and certain birth

defects.

After years of serious negotiations over the ‘‘Stage 2’’ disinfection byproduct rules,

and the ‘‘Long Term 2’’ rule for surface water treatment, in late 2000 we finally

achieved a breakthrough in the negotiations, and an agreement was reached. We

hope that EPA will promptly follow through by issuing these rules in a timely manner. In addition, EPA is now legally overdue in issuing the Long Term 2 Enhanced

Surface Water Treatment Rule and the Filter Backwash Rule.

4. Groundwater Rule.

EPA also was charged by Congress in the 1996 amendments with issuing a rule

requiring that groundwater supplied public water systems disinfect their drinking

water, unless such disinfection were to be found unnecessary. EPA recently proposed a groundwater rule, upon which the public comment period recently closed.

NRDC believes that the proposal includes several important measures that may improve public health protection, but also has several fundamental flaws that will

need to be fixed if the rule is not to become bogged down at the state level.4

The 1996 SDWA Amendments should help to encourage better health protection,

and EPA should be commended for the generally open public process used to date

in implementing most of this law. There are several other important challenges:

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• The Need for a National Dialogue on How to Fund the Massive Funding

Gap for Drinking Water Infrastructure Improvement and Modernization. The massive shortfall in resources available for water systems to upgrade,

replace, and expand their infrastructure is a problem that must be addressed.

NRDC believes there is a need for a serious national dialogue on how this funding gap will be addressed. While certainly federal funding will not itself plug

this massive hole, the time has come for a serious discussion of what the respective federal, state, and local governmental roles are, and what role private industry might play in this overhaul. We believe that there is a need for federal

leadership on this issue, and for significantly increased federal resources to be

dedicated to this crucially important national need. • An Assured Funding Mechanism, Such as a Modest, Dedicated Water Fee,

Allocated to a Trust Fund Without Further Appropriation, is Needed to

Support Long-Term Drinking Water Research and to Address High Priority Health Risks for Small Systems. As part of a series of discussions with

the water industry and others, NRDC and many in the public interest community (and frankly, some in the industry) have come to the conclusion that Congress should enact a modest water fee that would support a long-term guarantee of adequate research funding for drinking water. The funds raised should

be set aside in a trust fund that is available without need for further appropriations, so that the research agenda is not buffeted by the ever-changing winds

of the annual appropriations process. In addition, we believe that those funds

should be made available for direct funding of the most substantial public

health threats posed by drinking water systems, such as grants for emergency

repairs, treatment, or consolidation of small systems with serious health standard violations. • A ‘‘Polluter Pays’’ Mechanism is Needed to assure that consumers do not end

up footing the bill for expensive monitoring and treatment when polluters contaminate source water. We recommend that the SDWA be amended (or that

separate legislation be enacted) to enable public water systems or consumers to

recover the full costs that source water pollution imposes on them in the form

of increased monitoring, treatment, and other costs. • Appropriations Acts and a Court Decision Have Effectively Eliminated

the Drinking Water State Revolving Fund (DWSRF) Set-Aside for

Health Effects Research, Undercutting Funding Assurances. This Committee and the 1996 SDWA Amendments adopted a provision in the DWSRF

assuring a $10 million set-aside for health effects research, SDWA § 1453(n).

The appropriations committees, however, have included provisions purporting to

negate this set-aside in the last several appropriations acts. Unfortunately, a

court decision—reached with the support of EPA—effectively found that the appropriations language overrode the set-aside in the Act. Thus, this Committee’s

effort to assure long-term funding of this research has been nullified by subsequent Congressional action. This Committee should fight for the full set-aside

for this research.

• A Forum for Open Public Research Planning and Priority Setting is Necessary. EPA should formalize an open public process for developing its drinking

water research plans, similar to the highly successful Microbial and Disinfection

Byproducts Council, but with additional public comment and openness assured.

This is a far more effective approach than the largely closed-door process EPA

used in planning its arsenic research, for example.

• Assuring More Effective Public Right-to-Know, Better Source Protection,

More Affordable Advanced Treatment Technologies, Better Analytical

Methods. EPA needs to conduct further research and funding, and to take regulatory and other steps to build better public understanding of tap water challenges. The EPA right-to-know report rules issued in 1998 that required the annual reports to be issued beginning in 1999, are a major step forward. It is critical, however, that methods be developed to improve public understanding of

these complex issues. Other important areas of research include: investigations

into ways in which source water protection can be made a more effective tool

for drinking water protection; research on how modern treatment methods can

be improved and costs decreased; development of better, cheaper, and easier analytical methods; and improved approaches to assuring small system compliance

through restructuring or treatment upgrades.

• Research to Support Treatment, Occurrence, and Related Issues for Microbes, Disinfection Byproducts, Groundwater, and Distribution System Risks. New standards will be issued over the next several years for many

contaminants, yet EPA resources for research on the availability of treatment

and on occurrence are inadequate. These rules will be determinative as to

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whether the ‘‘Third Revolution’’ in drinking water protection—involving true

multiple barriers to contamination in the form of source water protection, advanced ‘‘leap frog’’ treatment technologies, and modern distribution system

management—will occur in the early 21st Century, or whether the nation’s aging and often outdated water supplies will continue to inadequately address

these emerging problems and to deteriorate. A stronger research commitment

is needed. • Compliance Problems that Continue to Plague the Drinking Water Program. Widespread violations of the SDWA, and inadequate state and EPA enforcement against even the most recalcitrant violators continue to be a major

problem. Improved data collection and management, and a stronger commitment to enforcement, are crucial to assist EPA, states, and the public to address

these issues. Compliance problems and data collection and management failures

have been catalogued in a USA Today series published in October, 1998, in an

EPA audit discussed in a front page USA Today article in late 1999, and in

EPA’s own 1998 and 1999 Annual Compliance Reports. The EPA drinking

water program and states need to upgrade their management systems and programs. Routine audits of federally-funded state programs are a crucial part of

this effort. The new SDWA small system viability provisions could begin to reduce these problems, but substantial additional resources and research are

needed to assure that these programs bear fruit. Additionally, small system

technical assistance should be granted on a competitive basis, based upon the

best available research, so that these assistance providers demonstrate that

they can deliver accurate technical assistance to small systems in a cost-efficient manner. We oppose ‘‘earmarked’’ assistance funding that is non-competitive, as it often fails to allocate resources so as to maximize health benefits. • Improved Data Management, Reporting, and A Comprehensive National

Contaminant Occurrence Database. EPA must work with states and the

public to develop a fully integrated and fully automated joint data management

system for the drinking water program. Included in this system should be accurate, reliable and real-time compliance, water quality, enforcement, and other

key information. In addition, an effective National Contaminant Occurrence

Database (NCOD) is needed that will require compatible data systems across

states, electronic data reporting to EPA by states and testing labs, and sufficient will to ensure that national contaminant reporting is complete and timely.

A well-organized NCOD will provide an essential national right-to-know counterpart to the consumer confidence or ‘‘right to know’’ reports that water utilities provide directly to their customers. • Better Integration of Clean Water Act and SDWA Programs. While modest

progress and much discussion have occurred in the effort to better integrate the

Clean Water Act and SDWA programs, in fact we have a long way to go at the

state and federal levels. It is an unfortunate historical and jurisdictional byproduct that hampers full integration of these programs and impedes progress.

For example, EPA’s source water assessments and protection programs, filtration avoidance programs, the groundwater rule, wellhead protection programs,

sole source aquifer programs, and UIC programs under the SDWA, need to be

better integrated with the CWA §§ 319, 305(b), and Total Maximum Daily Load

programs have developed largely independent of each other. The Unified Watershed Assessment effort is beginning to make some headway in integrating these

diverse programs, but a more aggressive effort would be helpful.

• Meaningful Source Water Protection Authority. Public water systems,

states, EPA, and the public need to have the ability to protect, through regulatory mechanisms or other mechanisms as necessary, source waters. The 1996

SDWA Amendments largely punted on this issue, but creeping development and

pollution are contaminating many source waters; strong legal authorities to prevent such contamination are needed.

• Better Leveraging of Other Federal Agency Resources. The federal government has a wealth of expertise and resources directly relevant to EPA’s drinking water program that should be better integrated into EPA’s efforts. For example, the Centers for Disease Control, Agency for Toxic Substances Disease

Registry, and many of the institutes at the National Institutes of Health, including the National Cancer Institute, the National Institute of Environmental

Health Sciences, the National Institute of Allergy and Infectious Disease, National Institute of Child Health and Human Development, National Heart,

Lung, and Blood Institute, National Institute of Neurological Disorders and

Stroke, and many other institutes and agencies conduct research of which EPA

often is unaware. A better program is urgently needed to assure more information sharing and collaboration among the federal agencies. Some successful exVerDate 11-MAY-2000 12:07 Dec 26, 2001 Jkt 010199 PO 00000 Frm 00164 Fmt 6633 Sfmt 6621 E:\HEARINGS\71489 pfrm11 PsN: 71489
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amples of such collaboration can be noted—such as the waterborne disease estimation research being jointly spearheaded by EPA and CDC, and the joint work

on disinfection byproducts by EPA, ATSDR, and NTP. Perhaps more often, however, there is little or no collaboration among many of the agencies in priority

setting and in conducting research. The lack of coordination can result in serious lost opportunities, and potentially in duplication of effort.

• Programs to Protect Consumers of Small Systems and Private Wells. The

United States may be moving towards a two-tiered water supply: higher quality

water for consumers in larger cities, and lower quality water in small town and

rural America. America’s small water systems are often having significant difficulty complying with EPA’s basic health standards, and as additional rules

(such as arsenic and the groundwater rules) are issued, these difficulties will

only increase. There is a need to develop a stronger program to assist and fund

the restructuring, technical assistance, regionalization, consolidation, package

treatment technology, and other approaches that will have to be adopted to assure that small water system customers receive safe and affordable drinking

water. There also are 30 to 40 million Americans who get their water primarily

from private wells not covered by the SDWA at all. Monitoring and protection

of the quality of water in these wells is often spotty to nonexistent. A national

dialogue is needed to discuss how these tens of millions of Americans’ health

can be better protected from contamination of these often highly vulnerable supplies.

CONCLUSION

In conclusion, NRDC strongly believes that there is an urgent need for additional

federal funding for drinking water infrastructure to assure water system upgrades

needed to protect public health. This process will not be simple, nor will it be cheap.

But this effort is necessary to protect the health and well being of all Americans

for generations to come, and to achieve public demands for a reliable supply of safe,

good-tasting tap water. Only a long-term stable source of adequate funding will assure that this is achieved.

Mr. GILLMOR. Let me say that the subcommittee commends you.

Let me ask Mr. Neukrug a couple of questions. Mr. Neukrug, can

you tell us the impact on public health of deteriorating, and breaking pipes, and the type of contamination that can occur?

Mr. NEUKRUG. Well, everything that we are talking about here

in terms of the infrastructure issue deals with public health, and

whether the source water protection, or the treatment process, or

the distribution process itself will involve public health.

Mr. GILLMOR. We are once again facing a vote. So let me defer

any questions and I will go to Mr. Pallone, but I might ask that

we may want to submit some questions to the members of the

panel in writing, and hopefully if you could respond to some of

those we would appreciate it. Mr. Pallone.

Mr. PALLONE. Thank you, Mr. Chairman. I know that we are

running out of time. I wanted to ask each of the panel the same

questions and I guess we could try to run through it faster, and

if not, you can do a written response. And that is with respect to

drinking water only, and not waste water.

If each of you would indicate first the total current funding needs

for drinking water infrastructure; and, second, the total drinking

water infrastructure needs over the next 20 years; and third, the

total annualized funding need for drinking water infrastructure. If

you can do that quickly, fine, and if not, you can submit it to me

in writing with the permission of the Chair.

But the other thing overlying that is that I obviously feel very

strongly that we have a great need, and I know that some have

suggested that maybe the need isn’t as great as we think, but that

there is a great need for increased Federal funding here.

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And obviously based on what Governor Whitman said, the budget that the President is going to submit is I guess level funding.

That is what she clearly indicated, and I kind of wanted to find out

what is going to happen.

In other words, if there isn’t a major increase in Federal funding,

what is that going to mean. Is it going to mean that these projects

don’t get done? Does it mean that they will be done, but that the

ratepayer is going to pay for it? Do the best that you can, and we

will go through the panel here.

And if you can’t answer now quickly, then you can also send me

something in writing.

Mr. BEIDER. My quick answer to the question of how big the

needs are is that it is very uncertain, and I will elaborate on that

in writing.

[The following was received for the record:]

CBO does not have an estimate of total national needs for investment in drinking

water infrastructure over the next 20 years. Indeed, as indicated in my statement,

CBO does not believe that the information currently available allows a reliable point

estimate of those needs. In light of current uncertainties about the necessary rates

for replacing pipes and equipment, possible efficiency gains in construction and rehabilitation methods, future standards for the quality of drinking water, and other

important factors, 20-year needs would be more appropriately estimated by a wide

interval. The difference between the low end and high end of such an interval could

be $10 billion or more per year.

Current needs should be more readily measurable, by the kinds of bottom-up survey methods EPA uses in its Drinking Water Infrastructure Needs Survey. The results of the second such survey, recently released, estimate current needs to be

$102.5 billion (measured in January 1999 dollars). However, because CBO’s study

does not focus on current needs, my colleagues and I have not investigated the details of EPA’s survey and cannot assess that estimate.

In the absence of a major increase in federal funding, drinking water systems

would manage their investment needs using a combination of three approaches:

raising funds from nonfederal sources—principally ratepayers; deferring some investments; and finding additional ways to reduce the costs of investment projects,

operations, and maintenance. How much of each approach would be used is unknown at this point, but the mix would undoubtedly vary from one system to another. CBO understands that the American Water Works Association will soon issue

a report that summarizes detailed analyses of the investment needs of 20 systems

around the country and identifies how much rates would have to rise to meet those

needs. That report could make a significant contribution to our understanding of the

possible implications of level federal funding.

Mr. PALLONE. Thank you.

Mr. NEUKRUG. I will go further and say it is enormous, and I will

follow that up in writing.

Ms INGRAM. We will respond in writing.

Ms. BEECHER. I think again the need is substantial, and the gap

is a separate issue, but I am optimistic though, and I think actually the benefit we have had by bringing this issue to light is that

I think we have got now great minds and great energy working on

it.

And it will take multiple approaches to deal with it, particularly

when it comes to the most disadvantaged customers and systems,

and obviously there needs to be particular attention there, and that

should be the priority for funding.

But there are going to be choices here, and I think communities

are going to have to think about those seriously, and I think we

need to devote the resources toward need though, and be careful

not to subsidize activities that frankly the market will take care of,

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or that we don’t need to subsidize. For example, lawn watering,

versus basic human needs, and I think we need to pay attention

to those priorities.

Mr. PALLONE. Okay.

Mr. HAMILL. The current needs are well represented we feel by

the EPA needs assessment survey, and we think that does a good

job. Future needs are much harder, and I think we will respond

separately to that, but I think for a number of reasons, probably

as much as anything with future rules that will come out, are not

as well represented by that process.

Mr. PALLONE. I think I would like for maybe one of you, and

maybe Mr. Olson, just the whole question of if there isn’t a significant increase in Federal funds, which I guess you are not going to

get from this administration, what does that mean? Does that

mean that these things don’t get done?

Mr. OLSON. Well, we are certainly very concerned about the possibility that if there isn’t increased Federal funding that some

projects will not get done, particularly in communities that have

high affordability problems. Often there are going to be small communities. So we certainly would like to see increased Federal funding, and particularly funding targeted at communities that especially need it.

And in terms of your first questions about current, and over the

next 20 years in annualized funding, we would just rely on the

studies that have been done by others. So we don’t have an independent analysis of that.

Mr. PALLONE. Okay. I think we only have about 4 minutes before

the vote.

Mr. GILLMOR. I want to thank all of you for testifying, and you

have been very helpful, and we appreciate it. Thank you.

[Whereupon, at 5 p.m., the subcommittee adjourned.]

[Additional material submitted for the record follows:]

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