DRINKING WATER

Spending Constraints

Could Affect States'

Ability to Meet

Increasing Program

Requirements

Statement of Peter F. Guerrero, Director,

Environmental Protection Issues

Resources, Community, and Economic

Development Division

United States General Accounting Office

GAO Testimony

Before the Subcommittee on Health and Environment,

Committee on Commerce, House of Representatives

For Release

on Delivery

Expected at

10 a.m. EDT

Tuesday

September 19, 2000

GAO/T-RCED-00-298
1

Mr. Chairman and Members of the Committee:

We are here today to discuss our report entitled, Drinking Water: Spending Constraints

Could Affect States’ Ability to Implement Increasing Program Requirements, which you are

releasing today.1

Ensuring an adequate supply of safe drinking water requires investing not

only in the physical infrastructure, such as water treatment and distribution systems, but

also in essential oversight activities performed by the states, such as training water system

operators and monitoring water systems’ compliance with the drinking water standards

promulgated by the Environmental Protection Agency (EPA). Under the Safe Drinking

Water Act Amendments of 1996, the states are responsible for implementing a number of

new requirements, such as ensuring that the nation’s thousands of drinking water systems

have the financial, managerial, and technical ability to comply with regulations and

assessing the vulnerability of drinking water sources to contamination. In addition, the

states must oversee their water systems’ compliance with complex new regulations on

specific contaminants.

In recognition of the key role that the states play in implementing the requirements of the

Safe Drinking Water Act, you asked us to provide information on

• how EPA’s budget requests for state program implementation compare to the amounts

that are authorized and estimated to be needed;

• how much the states have spent since the passage of the 1996 amendments to implement

their drinking water programs and how their expenditures compare with estimated

needs;

• what effects federal funding levels have had, and could have in the future, on the states’

ability to implement their programs; and

1

See GAO/RCED-00-199, Aug. 31, 2000.
2

• what existing practices have the potential to help the states implement their drinking

water programs more effectively and efficiently.

To understand these issues in context, Mr. Chairman, it is necessary to provide a brief

summary of the funding available for implementing the states’ drinking water programs. In

the 1996 amendments, the Congress substantially increased the amount of funding

authorized to help the states meet their responsibilities. First, the amendments authorized

an increase in the funding for Public Water System Supervision grants from $70 million to

$100 million annually through fiscal year 2003. The states use these supervision grants for a

variety of activities related to implementing their drinking water programs, such as

providing technical assistance to local water systems, conducting inspections, and

overseeing the water systems’ compliance with requirements for testing and treating water

quality. Second, the amendments authorized $9.6 billion, to be appropriated through 2003,

to establish the Drinking Water State Revolving Fund primarily for financing infrastructure

improvements at local water systems. In its annual budgets, EPA requests appropriations to

capitalize the states’ funds and, subsequently, makes specific allotments to each state for

that purpose. The states, in turn, loan these funds to their local water systems. As loans are

repaid, the states’ funds are replenished, and the states can make loans for other eligible

drinking water projects. While the state revolving funds are primarily directed at financing

local infrastructure, each state, at its option, may reserve or “set aside” up to 31 percent of

its annual allotment to supplement the supervision grant and, thus, help the state meet its

responsibilities in implementing its program. The states must match a portion of both the

supervision grants and the moneys they set aside from their revolving funds.

Despite the significant increases in the amount of funding Congress has authorized to help

states implement their programs, representatives of state drinking water programs have

expressed concerns about whether they have sufficient resources to fulfill their

responsibilities under the Safe Drinking Water Act. Although EPA does not routinely

estimate the states’ resource needs for implementing the act’s requirements, the Association

of State Drinking Water Administrators (ASDWA) has periodically developed such estimates

with EPA’s support and participation. According to ASDWA’s most recent estimate, which

incorporated the requirements of the 1996 amendments, the states’ collective needs range

from $345 million in fiscal year 1999 to $449 million in fiscal 2005.
3

In response to the questions you asked, Mr. Chairman, we found the following:

• In its budget requests for fiscal years 1998 through 2000, EPA requested about 94 percent

of the $100 million authorized annually for supervision grants. For the same fiscal years,

EPA requested, on average, 80 percent of the amounts authorized to capitalize the states’

revolving funds for drinking water. If the states had made maximum use of the setasides by reserving the full 31 percent available from the revolving fund, EPA’s requested

appropriations would have provided a total of $308 million in fiscal year 1999 and $318

million in fiscal year 2000 to help the states meet their responsibilities in implementing

their drinking water programs. These amounts, when combined with required matching

funds from the states, would have exceeded ASDWA’s estimates of the states’ needs.

• Despite the fact that the funds potentially available to the states exceed the estimated

needs, actual state spending fell short of what was needed. According to our nationwide

survey of state drinking water agencies, for fiscal years 1997 through 1999, the states’

actual expenditures for implementing their drinking water programs—including

expenditures of both federal and state funds—were $214 million, $237 million, and $276

million, respectively. In fiscal year 1999—the only year for which our data permit such a

comparison—total state expenditures fell short of ASDWA’s estimate of the amount

needed for program implementation by about 20 percent.

• However, according to our nationwide survey, the amounts of federal funding available

for fiscal years 1997 through 1999 had less of an impact on the states’ ability to

implement their drinking water programs than did the effects of state-imposed spending

constraints. Over 75 percent of the states reported that their staffing levels in fiscal year

1999 were inadequate to meet the act’s requirements in effect through that year. The

most frequently cited reasons were (1) the states’ authorized staffing and authorized

funding levels were too low, (2) hiring freezes prevented the states from filling

authorized positions, and (3) inadequate state salaries made it difficult to attract and

retain qualified staff. In addition, about 40 percent of these respondents indicated a

reluctance to use revolving fund set-asides to address inadequate staffing levels, citing,

among other things, concerns about diverting funds from infrastructure projects. Our

discussions with drinking water officials from eight states disclosed that they have been
4

able to meet most requirements in effect through fiscal year 1999, generally by scaling

back technical assistance and other oversight activities or doing the minimum amount of

work required. According to these officials, if this situation continues, it could

eventually lead to more compliance problems, especially among small water systems,

which make up the overwhelming majority of water systems. Over 90 percent of the

states in our nationwide survey predicted that their staffing levels would be less than

adequate in the future as a number of new program requirements and complex

contaminant regulations take effect.

• Program officials in the eight states we contacted cited some management practices that

could increase the efficiency of program implementation. For example, some states are

taking advantage of the expertise in other state and federal agencies or associations.

EPA officials pointed to new program requirements that may increase efficiency,

including those designed to assess water sources for contamination and improve the

financial, technical, and managerial ability of local water systems to comply with

drinking water regulations. However, it could take years to realize the benefits of these

programs.

Background

The Safe Drinking Water Act of 1974 authorized EPA to give the primary responsibility for

enforcing requirements of EPA’s safe drinking water program—commonly referred to as

“primacy”—to the states that meet certain requirements. Among the key requirements are

that the states (1) adopt drinking water regulations that are no less stringent than EPA’s

national primary drinking water regulations and (2) adopt and implement adequate

procedures to carry out the program’s requirements and enforce the regulations. All states,

except Wyoming, have assumed primacy for managing their drinking water programs. To

assist the states in developing and implementing their own drinking water programs, the

1974 act authorized EPA to award them program supervision grants and provided that the

federal funds would comprise not more than 75 percent of the cost of implementing state

programs.
5

In addition to increasing the authorized funding for the supervision grants, the 1996

amendments authorized $9.6 billion through fiscal year 2003 to establish the Drinking Water

State Revolving Fund for infrastructure improvements at local water systems. To give the

states more flexibility in operating their drinking water programs, the Congress gave the

states the option of setting aside up to 31 percent of their annual revolving fund allotments

for certain designated activities, most of which are related to program implementation. For

example, the states may set aside funds for: supervision of public water systems; technical

assistance through programs designed to protect sources of drinking water; strategies to

help ensure the financial, technical, and managerial capacity of water systems to provide

safe drinking water; and programs to certify water system operators.

The 1996 amendments also gave the states a number of new responsibilities. For example,

the amendments established new programs for assessing the vulnerability of drinking water

sources to contamination and ensuring the technical, financial, and managerial viability of

water systems. As these new programs are being implemented, states will also be

overseeing the water systems’ compliance with complex new regulations on such

contaminants as arsenic and radon.

The Funds Potentially Available to the States Have Been Sufficient to Cover Their

Estimated Needs

For fiscal years 1998 through 2000, on average, EPA requested, as part of the President’s

budget, about 94 percent of the funding authorized for supervision grants in the Safe

Drinking Water Act Amendments of 1996 and 80 percent of the funding authorized for the

revolving fund, from which the set-asides are available. During this period, EPA’s requests

for the supervision grants remained constant at about $85 million while its requests for the

revolving fund allotments increased, making more funds available for set-asides each year,

from $212 million in fiscal year 1998 to $233 million in fiscal year 2000. (During this period,

EPA received the amount it requested for both the supervision grants and the revolving

fund, except for fiscal year 2000 when the appropriation for the revolving fund was $5

million less than the request.)
6

According to ASDWA, the total estimated needs for implementing the states’ programs in

fiscal years 1999 and 2000 are $345 million and $339 million, respectively. The amounts EPA

requested for those years would have been more than enough to meet the states’ annual

needs as estimated by ASDWA if

• the states took full advantage of the available set-asides—that is, if each state set aside

the maximum 31 percent for state implementation activities and provided the required

matching funds—and

• the supervision grants and minimum required match were included in the total.

The funds potentially available to the states would have exceeded their estimated needs for

fiscal years 1999 and 2000 by about $27 million and $44 million, respectively.

The States’ Overall Spending Has Fallen Short of Their Estimated Needs

According to the results of our nationwide survey, for fiscal years 1997 through 1999, the

states’ actual expenditures for implementing their drinking water programs—including

expenditures of both federal and state funds—were $214 million, $237 million, and $276

million, respectively. We found that the states are contributing a significant share of the

funding for their programs and are contributing more funding than the minimum required to

meet the statutory matching provisions. Over the 3-year period, state funds were the source

of 53 percent, on average, of the states’ total expenditures for implementing their drinking

water programs.

Although they have contributed more funds than required by the federal matching

provisions, according to the data on state expenditures obtained in our survey, the states

collectively may be spending less than ASDWA’s estimates of the amounts needed

nationwide. For example, in fiscal year 1999—the only year for which our data permit a

direct comparison—the states’ collective expenditures, including funds from both state and

federal sources, were about 80 percent of the amount estimated to be needed for program

implementation.2 If recent trends continue over the next several years—that is, if EPA’s

2

We collected data on how much the states spent to implement their drinking water programs for fiscal years

1997 through 1999 only; ASDWA estimated the amount of funding states would need to implement their

programs for fiscal years 1999 through 2005 only.
7

appropriations for supervision grants and the state revolving fund remain at about their

existing levels relative to the amounts authorized and states collectively continue to make

use of only about half of the available set-asides—then the gap between the amounts

expended and estimated to be needed could grow larger. ASDWA estimates that by fiscal

year 2005 the states will need $449 million to implement their drinking water programs, an

increase of about 30 percent from fiscal year 1999. Table 1 shows the projected resource

needs for implementing the states’ oversight programs, by year, from fiscal years 1999

through 2005.

Table 1: Resource Needs for Implementing the States’ Drinking Water Programs, Fiscal Years 1999 Through 2005

Dollars in millions

Fiscal year

Full-time

equivalent staff Funding

1999 4,911 $345

2000 5,020 339

2001 5,190 362

2002 5,208 374

2003 5,588 414

2004 5,755 439

2005 5,252 $449

Note: The estimates do not include Wyoming or the District of Columbia. In addition, we adjusted ASDWA’s estimates to

exclude Puerto Rico, the U.S. Virgin Islands, American Samoa, Guam, and the Commonwealth of the Northern Mariana

Islands.

Source: GAO’s presentation of data from ASDWA.

Factors Other Than Federal Funding Levels Affect Most States’ Ability to

Implement Their Programs

According to our nationwide survey and more detailed discussions with drinking water

officials in eight states, for fiscal years 1997 through 1999, factors other than federal funding

levels affected the states’ ability to implement their drinking water programs. These factors

include both state-imposed spending constraints and concerns about using funds from the

revolving fund for program implementation instead of infrastructure projects. Despite these

factors, program officials from all eight states we contacted told us they were able to meet

most program requirements in effect through fiscal year 1999, largely by scaling back their

programs and doing the minimum amount of work required. For example, four states told
8

us that they have reduced the frequency with which they conduct comprehensive

inspections of water systems, called sanitary surveys. Officials from seven of the eight

states indicated that over the next 5 years, increasing program responsibilities could

exacerbate the effects that the states have experienced thus far.

Factors Contributing to Inadequate Staffing Levels in State Drinking Water Programs

In responding to our nationwide survey, 76 percent of the states reported that their current

staffing level is less than adequate or much less than adequate to implement their drinking

water programs. Among these states, the most frequently cited reasons for not having an

adequate staffing level were inadequate authorized state staffing levels (76 percent),

inadequate authorized state funding levels (60 percent), state-imposed hiring freezes that

prevent drinking water program offices from filling authorized positions (41 percent), and

inadequate state salary structures that make it difficult to attract and retain qualified staff

(49 percent).

According to program officials from the eight states we contacted, state legislatures

generally authorize the number of staff that state drinking water programs can hire and/or

the amount of state funding the programs can receive. This can create situations in which

some states have adequate authorized staffing levels to carry out program responsibilities

but not enough funding to hire all of the authorized staff. Other states may have adequate

funding but cannot hire anyone because they have inadequate authorized staffing levels or

because there is a hiring freeze.

Five of the eight states that we looked at in-depth were experiencing problems as a result of

these circumstances. For example:

• Program officials from Maine commented that even if they did receive additional federal

funds, they would not be able to hire new permanent staff unless the authorized state

staffing level is increased.
9

• A program official from Indiana said that the authorized state funding level is only

enough to meet the minimum match required to obtain federal funds and estimated that

the state needs to increase its total resource level by at least 50 percent.

Program officials from two of the states that we contacted attributed inadequate staffing

levels in their programs in part to an inability to pay staff competitive salaries, which makes

it difficult to attract and retain qualified staff. Arkansas’ program had several vacancies as a

result of this problem.

In addition to state-imposed spending constraints, our nationwide survey found that over 40

percent of the states that reported inadequate staffing levels attributed this situation to

factors that can limit the states’ use of the revolving fund set-asides to help implement their

drinking water programs.3 These factors included concerns about using the revolving fund

to implement drinking water programs instead of using the money to fund infrastructure

projects (41 percent) and uncertainty about the continued availability of the set-aside money

from this fund after its authorization expires (43 percent). In addition, about 30 percent of

the states reporting inadequate staffing levels said that an insufficient level of funding for

the supervision grants was a contributing factor.

Regarding the adequacy of the funding for the supervision grants, program officials from

four of the eight states we contacted said that an increase in this funding might prompt their

legislatures to approve additional state funding since a small increase in state funding could

be used to match a larger amount of federal dollars. Program officials from both Ohio and

Utah commented that increasing the supervision grants would mean that the states would

not be forced to make a choice between program implementation and infrastructure

construction.

Current and Future Impact of Inadequate Staffing on the States’ Ability to Implement Their

Programs

3

During fiscal years 1997 and 1998, the only years for which complete set-aside information is available, only 11

and 8 states, respectively, used the full 31 percent set-aside allowed by law. Collectively, the states reserved

about two-thirds of the available set-asides in fiscal year 1997 and took less than half of the amounts available

in fiscal year 1998.
10

Although program officials in all of the eight states we contacted maintain that they have

been able to meet most of the program requirements in effect through fiscal year 1999, they

have done so by (1) scaling back their programs, (2) doing the minimum amount of work

required, and (3) setting formal or informal priorities among their responsibilities. For

example, six of the eight states said they have had to scale back their programs by providing

less technical assistance to water systems, particularly small water systems, which make up

the overwhelming majority of all public water systems. In addition, six of the eight states

currently engage in some form of priority setting using such criteria as the size of the water

system, the size of the population at risk, the potential health effects of a violation, and

whether or not the state could lose federal funding if it did not perform an activity.

Ninety-four percent of the states in our nationwide survey predicted that their staffing levels

would be less than adequate or much less than adequate as new program requirements and

complex contaminant regulations take effect over the next 5 years. Similarly, officials from

seven of the eight states we contacted indicated that the state-imposed constraints that

currently affect their ability to implement their programs—such as inadequate state staffing

and funding levels, hiring freezes, and inadequate state salary levels—will continue to

compromise their programs if not addressed. In light of ASDWA’s estimate that the states’

resource needs will increase by about 30 percent between fiscal years 1999 and 2005, the

effects experienced thus far could be exacerbated in the future.

The extent to which future spending constraints will affect the states’ drinking water

programs is unclear because the details of certain regulations, and hence the resulting

workload on their programs, are unclear. For example, an Ohio official pointed out that the

cost of implementing the arsenic regulation depends on where EPA sets the standard for

this contaminant. This official said that 225 public water systems in Ohio would be affected

by this regulation if the arsenic standard were set at 10 milligrams per liter while 500

systems would be affected if the standard were set at 5 milligrams per liter.

Management Practices and New Requirements Could Enhance the Effectiveness

and the Efficiency of the States’ Drinking Water Programs
11

Beyond adding more funding, one potential solution to the states’ increasing responsibilities

under the Safe Drinking Water Act is the adoption of management practices that improve

efficiency or otherwise enhance the states’ ability to implement their programs. Officials in

the eight states we contacted cited efforts to improve program efficiency by adopting such

new management practices as taking advantage of the expertise in other state and federal

agencies or associations through contracts, interagency agreements, and partnerships. Also,

the EPA officials we interviewed emphasized that new requirements to assess drinking

water sources and improve water systems’ ability to comply with drinking water regulations,

mandated in the 1996 amendments, would likely increase the efficiency of state programs

over the long term. Although these new requirements would necessitate substantial

resource investments in the short term, according to EPA officials, they will eventually

improve both the efficiency and effectiveness of the states’ programs.

Agency Comments on Our Report

We provided EPA with a draft of our report for its review and comment. EPA officials

generally agreed with the information presented in the draft report; however, they expressed

concerns in two areas. First, the officials said that the draft report did not sufficiently

emphasize the impact of the increasing program requirements on the states’ future resource

needs. We made several changes to highlight material already in the report concerning the

impact of potential state resource shortfalls on their future program implementation.

Second, the EPA officials noted that our comparison of the funds potentially available to the

states with the needs estimated by ASDWA could be misleading because, as our draft report

indicated, most states (1) do not take the maximum amount allowed for the revolving fund

set-asides and (2) actually have contributed much more than the minimum amounts required

for matching the EPA-provided funds. We clarified our presentation of this comparison.

-----

In summary, Mr. Chairman, the amounts of federal funds potentially available to the states

during the last few years appears to have been adequate for meeting their estimated

collective needs to date. However, a number of factors may impair the future ability of the

states to meet the requirements of the Safe Drinking Water Amendments of 1996. Most
12

important among these are the spending constraints at the state level, resulting in staffing

shortfalls, and an understandable reluctance to divert revolving fund resources from needed

infrastructure improvements at local water systems. While the eight states we contacted

have been able to meet statutory program requirements in effect through fiscal year 1999,

they have done so only by scaling back their programs and doing the minimum amount of

work necessary. As the states’ resource needs increase along with the growth in their

responsibilities, it will become imperative to address the factors that have thus far affected

the states’ ability to implement their programs.

This concludes my prepared statement. I would be pleased to answer any questions you or

Members of the Committee may have.

Contact and Acknowledgement

For future contacts regarding this testimony, please contact Peter F. Guerrero at (202) 512-

6111. Individuals making key contributions to this testimony included Ellen Crocker, Terri

Dee, Carolyn Hall, and Lisa Pittelkau.
Orders by Internet

For information on how to access GAO reports on the Internet, send an e-mail message

with “info” in the body to

info@www.gao.gov

or visit GAO’s World Wide Web home page at

http://www.gao.gov

To Report Fraud, Waste, and Abuse

in Federal Programs

Web site: http://www.gao.gov/fraudnet/fraudnet.htm

E-mail: fraudnet@gao.gov

Automated answering system: 1-800-424-5454