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FINANCING WATER INFRASTRUCTURE

PROJECTS

(109–21)

HEARINGS

BEFORE THE

SUBCOMMITTEE ON

WATER RESOURCES AND ENVIRONMENT

OF THE

COMMITTEE ON

TRANSPORTATION AND

INFRASTRUCTURE

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

JUNE 8 AND 14, 2005

Printed for the use of the

Committee on Transportation and Infrastructure

(
COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE

DON YOUNG, Alaska, Chairman

THOMAS E. PETRI, Wisconsin, Vice-Chair

SHERWOOD L. BOEHLERT, New York

HOWARD COBLE, North Carolina

JOHN J. DUNCAN, JR., Tennessee

WAYNE T. GILCHREST, Maryland

JOHN L. MICA, Florida

PETER HOEKSTRA, Michigan

VERNON J. EHLERS, Michigan

SPENCER BACHUS, Alabama

STEVEN C. LATOURETTE, Ohio

SUE W. KELLY, New York

RICHARD H. BAKER, Louisiana

ROBERT W. NEY, Ohio

FRANK A. LOBIONDO, New Jersey

JERRY MORAN, Kansas

GARY G. MILLER, California

ROBIN HAYES, North Carolina

ROB SIMMONS, Connecticut

HENRY E. BROWN, JR., South Carolina

TIMOTHY V. JOHNSON, Illinois

TODD RUSSELL PLATTS, Pennsylvania

SAM GRAVES, Missouri

MARK R. KENNEDY, Minnesota

BILL SHUSTER, Pennsylvania

JOHN BOOZMAN, Arkansas

JIM GERLACH, Pennsylvania

MARIO DIAZ-BALART, Florida

JON C. PORTER, Nevada

TOM OSBORNE, Nebraska

KENNY MARCHANT, Texas

MICHAEL E. SODREL, Indiana

CHARLES W. DENT, Pennsylvania

TED POE, Texas

DAVID G. REICHERT, Washington

CONNIE MACK, Florida

JOHN R. ‘RANDY’ KUHL, JR., New York

LUIS G. FORTUN ̃ O, Puerto Rico

LYNN A. WESTMORELAND, Georgia

CHARLES W. BOUSTANY, JR., Louisiana

VACANCY

JAMES L. OBERSTAR, Minnesota

NICK J. RAHALL, II, West Virginia

PETER A. DEFAZIO, Oregon

JERRY F. COSTELLO, Illinois

ELEANOR HOLMES NORTON, District of

Columbia

JERROLD NADLER, New York

ROBERT MENENDEZ, New Jersey

CORRINE BROWN, Florida

BOB FILNER, California

EDDIE BERNICE JOHNSON, Texas

GENE TAYLOR, Mississippi

JUANITA MILLENDER-MCDONALD,

California

ELIJAH E. CUMMINGS, Maryland

EARL BLUMENAUER, Oregon

ELLEN O. TAUSCHER, California

BILL PASCRELL, JR., New Jersey

LEONARD L. BOSWELL, Iowa

TIM HOLDEN, Pennsylvania

BRIAN BAIRD, Washington

SHELLEY BERKLEY, Nevada

JIM MATHESON, Utah

MICHAEL M. HONDA, California

RICK LARSEN, Washington

MICHAEL E. CAPUANO, Massachusetts

ANTHONY D. WEINER, New York

JULIA CARSON, Indiana

TIMOTHY H. BISHOP, New York

MICHAEL H. MICHAUD, Maine

LINCOLN DAVIS, Tennessee

BEN CHANDLER, Kentucky

BRIAN HIGGINS, New York

RUSS CARNAHAN, Missouri

ALLYSON Y. SCHWARTZ, Pennsylvania

JOHN T. SALAZAR, Colorado

(II)
SUBCOMMITTEE ON WATER RESOURCES AND ENVIRONMENT

JOHN J. DUNCAN, JR., Tennessee, Chairman

SHERWOOD L. BOEHLERT, New York

WAYNE T. GILCHREST, Maryland

VERNON J. EHLERS, Michigan

STEVEN C. LATOURETTE, Ohio

SUE W. KELLY, New York

RICHARD H. BAKER, Louisiana

ROBERT W. NEY, Ohio

GARY G. MILLER, California

HENRY E. BROWN, JR., South Carolina

BILL SHUSTER, Pennsylvania

JOHN BOOZMAN, Arkansas

JIM GERLACH, Pennsylvania

TOM OSBORNE, Nebraska

TED POE, Texas

CONNIE MACK, Florida

LUIS G. FORTUN ̃ O, Puerto Rico

CHARLES W. BOUSTANY, JR., Louisiana,

Vice-Chair

VACANCY

DON YOUNG, Alaska

(Ex Officio)

EDDIE BERNICE JOHNSON, Texas

ROBERT MENENDEZ, New Jersey

JOHN T. SALAZAR, Colorado

JERRY F. COSTELLO, Illinois

GENE TAYLOR, Mississippi

BRIAN BAIRD, Washington

TIMOTHY H. BISHOP, New York

BRIAN HIGGINS, New York

ALLYSON Y. SCHWARTZ, Pennsylvania

EARL BLUMENAUER, Oregon

ELLEN O. TAUSCHER, California

BILL PASCRELL, JR., New Jersey

RUSS CARNAHAN, Missouri

NICK J. RAHALL, II, West Virginia

ELEANOR HOLMES NORTON, District of

Columbia

JAMES L. OBERSTAR, Minnesota

(Ex Officio)

(III)

(V)

CONTENTS

Proceedings of:

June 8, 2005 ......................................................................................................... 1

June 14, 2005 ....................................................................................................... 110

June 8, 2005

TESTIMONY

Page

Ciaccia, Julius, Director, Cleveland Division of Water, on behalf of the American Water Works Association ............................................................................ 12

Luntz, Dr. Frank, President, the Luntz Research Companies ............................ 12

Neely, Susan K., President and CEO, the American Beverage Association ....... 12

Rubin, Dr. Kenneth I., Managing Partner, PA Government Services ................ 12

Schenendorf, Jack, Of Counsel, Covington & Burling, on behalf of the Associated General Contractors of America ................................................................. 12

PREPARED STATEMENT SUBMITTED BY A MEMBER OF CONGRESS

Costello, Hon. Jerry F., of Illinois .......................................................................... 38

PREPARED STATEMENTS SUBMITTED BY WITNESSES

Ciaccia, Julius .......................................................................................................... 41

Luntz, Dr. Frank ..................................................................................................... 46

Neely, Susan K. ....................................................................................................... 50

Rubin, Dr. Kenneth I. .............................................................................................. 55

Schenendorf, Jack .................................................................................................... 63

ADDITIONS TO THE RECORD

American Concrete Pressure Pipe Association, Jim Clift, Chairman of the

Board, statement .................................................................................................. 75

American Society of Civil Engineers, statement ................................................... 81

American Supply Association, Dottie Ramsey, president, statement .................. 89

Construction Management Association of America, statement ........................... 91

Public Citizen, Energy and Environmental Program, Wenonah Hauter, statement ...................................................................................................................... 93

Vinyl Institute, Timothy F. Burns, President, statement .................................... 96

Western Coalition of Arid States, Charlie Nylander, Chairman, Legislative/

Budget Committee, statement ............................................................................ 103

June 14, 2005

TESTIMONY

Page

Hill, Donald, Deputy Mayor Pro Tem, Dallas, Texas ........................................... 113

Howard, Stephen, Senior Vice President, Lehman Brothers ............................... 113

Khuman, Jag, Director, Maryland Water Quality Financing Administration,

Maryland Department of the Environment ....................................................... 113

Martin, Debra, RCAP Program Director, Great Lakes Rural Community Assistance Partnership ............................................................................................ 113

Nelson, Valerie, Director, Caolition for Alternative Wastewater Treatment ..... 113

Ward, Kevin, Executive Administrator, Texas Water Development Board, representing the Council of Infrastructure Authorities ......................................... 113
Page

VI

PREPARED STATEMENTS SUBMITTED BY WITNESSES

Hill, Donald .............................................................................................................. 141

Howard, Stephen ..................................................................................................... 151

Khuman, Jag ............................................................................................................ 166

Martin, Debra .......................................................................................................... 173

Nelson, Valerie ......................................................................................................... 177

Ward, Kevin ............................................................................................................. 185
(1)

FINANCING WATER INFRASTRUCTURE

PROJECTS

Wednesday, June 8, 2005

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON WATER

RESOURCES AND ENVIRONMENT, COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE, WASHINGTON, D.C.

The subcommittee met, pursuant to call, at 10:00 a.m., in Room

2167, Rayburn House Office Building, Hon. John Duncan [chairman of the subcommittee] Presiding.

Mr. DUNCAN. I want to, first of all, welcome everyone to our

hearing today. Today is the first portion of a two-part hearing on

financing water infrastructure projects. We will hold the second

part of this hearing next week on Tuesday, June 14. These will be

two very important hearings.

We are all well aware that our national wastewater infrastructure is aging, deteriorating and in need of repair and replacement.

The American Society of Civil Engineers recently graded the condition of the wastewater infrastructure in our country and gave it a

D-minus.

The Congressional Budget Office, the EPA and the Water Infrastructure Network have estimated it could take over $400 billion

to address our Nation’s clean water infrastructure needs over the

next 20 years, twice the current level of investment when you consider what is coming from all levels of government. That is a staggering amount of money.

We can reduce the overall cost of wastewater infrastructure with

good asset management, innovative technologies, increased water

efficiency; and regional approaches to water pollution problems also

could help reduce costs. But these things alone will not close the

large funding gap that now exists between wastewater infrastructure needs and current levels of spending. Increased investment

must still take place. That leads to the question, where is the

money going to come from?

There is no single answer to that question. Municipal wastewater

services are State and local responsibilities, but there is clearly a

strong Federal interest in keeping our waters clean. So what we

need is an effective partnership. That means, of course, that all

partners would need to contribute.

At the local level, communities need to evaluate their assets,

make capital improvement plans, identify sources of capital to implement those plans and ask for rate increases that will repay that

capital over time. That last part, as we all know, is very difficult.

No one likes to spend more, but if citizens understand the relation-
2

ship between clean water and wastewater infrastructure, they

should be willing to make the necessary investments.

A recent survey by the Luntz Research Companies suggests that

citizens do understand this relationship. The survey found that

most Americans believe clean and safe water is a national priority

and are willing to pay more money to get it. The survey also found

that most Americans want a sustainable, dedicated source of funding for water infrastructure projects and that they would support

the creation of a sustainable trust fund for wastewater infrastructure.

Supported by these findings, some are advocating the creation of

a national clean water trust fund as a means for financing wastewater infrastructure needs. One of the most complex aspects of

moving from the trust fund concept to reality, however, is determining the funding sources for such trust fund. The water and

wastewater community has not supported a user fee for a trust

fund, and so far no other water user has stepped forward in support of a fee or tax on their activities either. As a result, it remains

unclear how a trust fund would be funded.

We will hear today from Dr. Frank Luntz about the results of his

public opinion survey, including the public’s perception of the need

for clean water and of the trust fund concept. In addition, we will

hear from representatives of the National Association of Clean

Water Agencies, the Associated General Contractors of America,

the American Water Works Association and the American Beverage

Association on issues relating to a national clean water trust fund.

I hope our witnesses will bring forward ideas on how we can increase funding for wastewater infrastructure, identify potential

willing revenue sources and ensure equitable means for generating

revenues.

At next Tuesday’s hearing, we will continue this discussion by focusing on funding mechanisms other than a trust fund.

Let me now turn to my good friend, our ranking member, Mrs.

Johnson, for any opening statement she would like to make.

Ms. JOHNSON OF TEXAS. Thank you very much Mr. Chairman,

and thank you for holding this series of hearings on the issue of

water infrastructure financing.

The condition of the Nation’s wastewater infrastructure is of a

tremendous importance to the health of our citizens and the environment, as well as the economic health of our Nation. It is also

virtually unnoticed and unappreciated by most Americans because

we take it for granted. Of course, this out-of-sight and out-of-mind

attitude changes when problems with infrastructure arise.

Our Nation faces the unprecedented possibility of failure of critical water and wastewater infrastructure and the reality of unmet

infrastructure needs for the protection of the environment. The

union of these issues poses a significant threat to the Nation and

can lead to a reality of increased sewage overflows, closed beaches

and contaminated drinking water. We cannot address these threats

without increased infrastructure investment from Federal, State

and local sources.

First and foremost, the Federal Government must acknowledge

and meet its continuing role to work in partnership with States

and local governments to address the existing issues. However, in
3

recent years, the Federal commitment falls short. The Federal contribution to State storage water infrastructure has averaged about

$1.2 billion annually for wastewater involving local loan funds, and

$700 million annually for drinking water funds. Compare this level

of investment to annual needs of $10 to $15 billion or more as documented by the Congressional Budget Office and the EPA.

Worse still, in the past 2 years, the Federal contributions towards wastewater infrastructure have declined rapidly, dropping to

$1.1 billion in fiscal year 2005 and are expected to be under a billion dollars for fiscal year 2006.

Last month, the House approved the fiscal year 2006 funding bill

for EPA with only $850 million for the Clean Water State Revolving Fund, a 23 percent decline in funding in just 1 year. This reduction and the Federal commitment could not come at a worse

time for our communities. Many medium-sized and small rural

communities simply are not able to afford the needed investment

in water infrastructure on their own. They need increased Federal

assistance, not cuts. Even some larger communities have either

been a significant—have seen significant erosion in their tax base

or significant increases in needs such as they require to help to

meet those needs.

Some say these are local issues, yet State and local governments

already invest 10 times the amount contributed by the Federal

Government. With polluted waters across the State boundaries and

people traveling freely throughout the Nation, they expect safe

drinking water wherever they go. Clean and safe water is essential

to our way of life and the Nation’s economic success.

There is still a strong Federal interest in water quality, and this

committee has a history of support towards reauthorizing and increasing funding for the Clean Water Act. I question, however,

whether that can be translated into real dollars, especially in light

of the unrealistic spending limitations contained in the budget for

the next few years.

Mr. Chairman, this series of hearings will explore whether there

are other resources that have not been utilized, that can help address this problem. For example, for the past few years, there has

been talk of creating a trust fund to meet water and wastewater

funding needs, similar to the highway and aviation trust funds.

This is an attractive idea and one in which the committee has significant experience. Unfortunately, however, the task for water will

be much greater.

TEA-21 and AIR-21 both include dedicated resources of revenue

financed by taxes directly related to highway and air transportation. But water, the challenge comes from identifying viable

sources of funding that potentially could be tapped to pay for necessary water infrastructure repairs and improvements.

I am sure this will be a lively debate, but it is one that must

occur if we are serious about meeting the challenge of addressing

water and wastewater infrastructure needs. Regardless of the

source of increased funding, we must work together to ensure that

our commitment to the environment and to safe drinking water

will not be diminished. We can either move forward or fall behind,

but without additional funding, we will surely fall behind.
4

Again, Mr. Chairman, I thank you for your interest in calling

these hearings, and I look forward to our witnesses’ testimony.

Mr. DUNCAN. Thank you very much, Ms. Johnson. You have said

something that I have said before, that there is nothing that the

people of this country take so much for granted as our wastewater

and clean water infrastructure.

But I will tell you, in the year since I have chaired this subcommittee, I have met personally with the Mayors of Los Angeles,

Atlanta, Chicago, all over the country. Monday, I met with the

Mayor of Miami and Mr. Pascrell, who has been an active member

of this subcommittee, and has experience in his city in this regard.

And the Mayors and the people on the front lines know how important this work is.

I would like to call on Mrs. Kelly.

Mrs. KELLY. I thank you, Chairman Duncan, especially for holding this hearing to spotlight the importance of our Nation’s water

infrastructure.

Members of this committee are pretty well aware of the tremendous funding gap that is in our Nation’s wastewater infrastructure

system. Many of us have been working for years to try to strengthen the Federal commitment to wastewater infrastructure programs.

You know, for some time now, there has been this predictable pattern of budget proposals and enacted funding levels that clearly

show that we have our work to do to put enough funding in to save

our wastewater infrastructure.

Like I did in the previous Congresses, I have introduced a bill

with my colleague, Ellen Tauscher, that is aimed at substantially

increasing Federal investment in clean water infrastructure. H.R.

2684, the Clean Water Infrastructure Financing Act, would dedicate $25 billion over the next 5 years to the State revolving funds.

People may suggest that these funding levels fall short of what

is needed. Well, actually, they do, but it is a place to start.

We have got to put attention into our Nation’s wastewater infrastructure. We have problems with combined sewer overflows. We

have problems with potential blending problems, because of our

systems cannot carry what we have. We are a growing nation, and

we are an aging nation. The combination puts a tremendous pressure on our need for this Clean Water Infrastructure Financing

Act.

It is a complicated issue. It involves the critical question of how

a trust fund is supposed to be spent. But it is an issue that is not

going to be resolved in the short term. It is a long-term beginning,

and I think it is very useful to have these conversations to see

where we can get common ground. I look forward to getting the

input from these witnesses today.

And I again thank you very much and congratulate you, Chairman Duncan, on your efforts.

Mr. DUNCAN. Thank you for your good work on this and your

work with Mrs. Tauscher. I believe Mrs. Tauscher was next. We

will go to her for any statement she wishes to make.

Mrs. TAUSCHER. Thank you, Chairman Duncan, for holding this

hearing today on an issue which I know is of importance to all of

our constituents. We must ensure clean water and protect our Na-
5

tion’s waterways. This is a priority that should be of paramount

importance to all of us.

Mr. Chairman, the need is not unknown. According to an EPA

needs assessment survey, there is an investment gap for wastewater infrastructure in this country at around $12 billion a year,

or 225 billion over the next 20 years. It is clear that without additional Federal support, our local communities and publicly held

utilities will not be able to keep up with this demand.

In April, this subcommittee, under your leadership, Mr. Chairman, held a hearing on the EPA’s proposed wastewater blending

policy. Like many of my colleagues, I opposed the EPA’s proposed

policy because it is too broad and does not go far enough to protect

the $650 million investment my constituents have already made to

upgrade the community’s wastewater infrastructure. However, at

that same hearing, I made the case for increased Federal investment in infrastructure financing.

We cannot be silent players in the fight for clean water. We have

a responsibility to ensure our local communities have the resources

necessary to sustain the necessary environmental protections

which this Congress should rightly mandate. Unfortunately, we

have done less than an adequate job in ensuring that this financing

is available to meet the growing need.

As many of my colleagues know, this year’s Interior Appropriations measure decreased the Federal commitment to the Clean

Water State Revolving Fund by hundreds of millions of dollars. Despite attempts by some Members to increase these funds on the

floor, the Clean Water SRF remains woefully underfunded.

We have to get serious about solutions. With my colleague, Sue

Kelly, we have again introduced the Clean Water Infrastructure Financing Act. Our legislation would dramatically increase the Federal investment in local communities’ environmental infrastructure

by helping to bridge the current funding gap by providing $25 billion over the next 5 years.

Mr. Chairman, as I said, it is time to get serious about our commitment to funding these infrastructure requirements. I look forward to hearing our witnesses today, especially my friend, Dr.

Frank Luntz. And I am looking forward to working with you, Mr.

Chairman, to moving legislation later this year. I yield back.

Mr. DUNCAN. Thank you very much.

Mr. Osborne?

Mr. Salazar.

Mr. SALAZAR. Thank you, Mr. Chairman and Ranking Member

Johnson.

I know that many of us have just returned from traveling our

districts and meeting with local groups. As I work back home on

my own land and out in the district, I can never get away from the

issue of clean water or plain water. As you see, I am a farmer. And

in the Third Congressional District of Colorado, which is largely

rural and agriculture to the bone, the issue we are discussing

today, clean water, is about our way of life.

This past weekend, one of the big news items in Pueblo was the

contamination of Fountain Creek and the overflow of some of the

sewage from Colorado Springs into Fountain Creek, which flows

into the Arkansas River. An estimated 26,400 gallons of untreated
6

water flowed into the Fountain and contaminated both Fountain

Creek and the Arkansas River. This is just one of the many challenges we face in our community.

While we are sensitive to the need to invest in water and water

infrastructure, these improvements are extremely costly, especially

in rural America. This is a problem we have faced for decades and

there is no easy solution. While most communities would prefer to

hold their own, we know that Federal assistance is often the only

way that large-scale projects can come through in rural America.

I understand the pitfalls that come with the idea of creating a

clean water trust fund and who will pay for it, but it is something

this Congress should tackle. As I think about the needs of my own

family and neighbors, the issue of clean water hits home all too

well. I look forward to hearing from you today.

Thank you, Mr. Chairman and Ranking Member Johnson.

Mr. DUNCAN. Thank you very much.

Mr. Pascrell.

Mr. PASCRELL. Mr. Chairman, as a former mayor, I can attest

that sewer system modernization is one of the issues that can keep

you up nights. Cities want to be in compliance with the EPA regulations, and they want to keep local rivers clean by doing what is

right for the environment and for future generations. But when you

mix large capital investments with severe budgetary constraints,

many cities are simply unable to do what they need to do to meet

Federal regulations; and the panel knows that better than I do.

Mr. Chairman, thanks to your leadership, this committee is well

aware of the vast clean water infrastructure needs our Nation

faces, but apparently we need to do a better job educating the rest

of the Congress. The House-passed Interior Appropriations bill actually cuts water infrastructure investment.

Now, I have heard the word ′′start,′′ this is a ′′good start for,′′ 7

years, 7 years. I think we should end using the word ′′start,′′ because we are past that. This is a charade; there are no two ways

about it.

You even state, Dr. Luntz, in your presentation that in the polling that you have done, what America’s priorities are; and America’s priorities are, they would rather have clean water than tax

cuts. You can’t make it any more simple than that. That is an Archie Bunker statement if I ever saw one.

Why can’t we get it? Why can’t we get it? The House-passed Interior Appropriations bill actually cuts water infrastructure investments, Mr. Chairman. That is unacceptable.

I understand the fact that we are facing record budget deficits

and a growing Federal debt and that austerity is necessary. We actually say these things on this side of the table. But we did not

come to this budget crisis in a vacuum. It has been through irresponsible management, misplaced priorities by the Congress, and

we are forced to make cutbacks in public health priorities.

This is a public health issue. I mean, we talk about homeland security, protecting our streets and grandchildren, and you have

heard all those things over and over again. We can’t even protect

the water supply of the country. Wow. If dedicating funding is good

enough for highways and aviation systems, it is certainly good

enough for our water.
7

Of course, like any new initiative, the devil is in the details. I

look forward to working in a bipartisan fashion as this committee

has worked in a bipartisan fashion. No one can accuse this committee, no one from the minority, can accuse the chairman or anybody

on the majority side of trying to have it all ways. Either we are

going to continue with the charade and continue to meet year after

year and say the nice things that you want to hear and you come

back with the statistics that indicate you are pretty supportive of

what we have been attempting to do.

Is anyone listening? Is the administration listening? Does the administration know that cleaner water is more important than giving Sammy Sosa a tax cut? Do they understand that?

Let me also put in another plug for the bill this committee reported, to reauthorize 1.5 billion for a wet weather grant program.

This legislation can give cities and towns the resources they need

to clean up noncompliant combined sewer systems. I hope that everyone here will help us push this bill on the floor.

And, Mr. Chairman, you have done a fantastic job since I have

been on this committee.

Mr. DUNCAN. Thank you, Mr. Pascrell.

Mr. Miller.

Mr. MILLER. Thank you, Mr. Chairman.

This is a huge issue for California. We have real water problems,

as all of you know. We are putting a major transportation bill out

that does a major study through the national forest, putting a tunnel in. And we have amended that to include the possibility of a

major water line for MWD to meet the needs of California.

You have to be real creative today to try to keep up with the infrastructure needs. And I commend many of my water agencies for

what they are doing. They are doing a great job of water banking,

conservation.

This is a huge issue, and I am looking forward to the testimony

today.

Mr. DUNCAN. Mr. Bishop.

Mr. BISHOP. Thank you, Mr. Chairman and Ranking Member

Johnson, for calling this hearing on how we can improve the way

local water infrastructure projects are funded.

Helping municipalities share this responsibility with the Federal

Government will lead to a more efficient grant system that delivers

the funding where it is needed the most. This is a vitally important

issue throughout the country and for many of the municipalities of

my district on Long Island.

I have heard from and met with a number of locally elected officials in my district who have experienced difficulty over the years

with the current system and continue doing the best job they can

to stretch the value of their grant dollars. In particular, as Suffolk

County, New York, continues its rapid expansion, most of the area

is constantly experiencing growing pains that stretch the limits of

its water system. Every year, the county and a growing number of

other communities implore me to help them find funding for water

treatment facilities and antiquated delivery systems.

The need for reliable clean water is important to protect public

health and maintain safe drinking water. The current funding system is riddled with problems that are taking a toll on smaller gov-
8

ernments that simply cannot afford to pick up the slack, particularly at a time when we are asking them to absorb cuts to Medicaid, community development block grants and other investments in

our infrastructure.

In recent years, we have witnessed a disturbing shift away from

fully funding clean water projects. We are aware of and sensitive

to the need for fiscal responsibility, but the public’s well-being

should not come at the expense of keeping an outdated system that

just needs a few adjustments, when other ways to pay for these

projects exist.

My hope is that these hearings will lead to bipartisan legislation

that creates a more efficient funding system that guarantees that

the dollars arrive where they are needed the most and ensures that

we have money to pay for overdue projects.

Thank you for holding this hearing.

Mr. DUNCAN. Mr. Shuster.

Mr. SHUSTER. Thank you, Mr. Chairman. I appreciate your holding these hearings today.

And hearing from my friend from New York—he was talking

about the urban areas—I come from a rural area and the needs are

great in rural Pennsylvania and, I am sure, all across America for

us to have the kind of economic development, attracting industry

through western Pennsylvania where it has lost so much industry.

It is absolutely critical we have water systems in place to be able

to handle the growth, although it is small at this point, but the future growth that we are trying to attract there.

I often say—and my press people cringe when I say this—but if

you can’t flush toilets and turn on spigots for clean water, people

aren’t going to go there, businesses aren’t going to locate there.

This is vital to western Pennsylvania. And I appreciate you for

being here to testify.

Dr. Luntz, maybe you can tell me if that flushing toilets is a good

thing or bad thing to use on the stump. I think it is effective and

people can relate to that, I think.

Thank you, Mr. Chairman. I look forward to hearing the testimony.

Mr. DUNCAN. Ms. Schwartz.

Ms. SCHWARTZ. Thank you, Mr. Chairman. And Chairman Duncan and Ranking Member Johnson, I thank you for convening this

hearing today and I look forward to the panelists.

I am very proud to represent the city of Philadelphia and for the

history buffs in the room, just to let you know in 1801, the first

water department in the United States to provide drinking water

to the entire city was actually in the city of Philadelphia.

So we have historic waterworks. And it has been renovated; you

can come see it, and hopefully some day we will be able to eat

there with a new restaurant. There is no question that the Philadelphia Fairmont Waterworks—and anyone in the water business

knows about it—was a model for almost 30 years just in terms of

a delivery system for an entire system and doing it effectively.

Our water system is aging. You have heard it from my colleagues. One of the things that the public relies on and separates

us from developing countries around the world is our infrastructure, particularly our drinking, wastewater and sewer systems.
9

And we know in places like Africa, there are diseases that are

spread every day that we, in fact, no longer worry about because

of the safe water that we rely on in this country and that our public relies on.

So we need to make sure that we are keeping pace, that we are

a step ahead, that we are able to maintain the safety and security

of our water systems and that we don’t take it for granted. I think

many of the public sort of does. And so we need to—it is our responsibility to step up to the plate and make sure that we are

doing all that we can to ensure that our drinking water and that

our water systems that were installed—many of them, 50 and 100

years ago; that 1801 system actually has been replaced, at least in

part, over the years—but many of them are still showing their age

of 50 and 100 years ago. They are leaking, cracking and breaking,

and it is enormously expensive for us to locally replace it.

The introduction of disease and illness is certainly at stake. And

as been briefly mentioned here, concern about our water system,

the water treatment plant in my district, the concern about terrorism. We are looking to put a bike path along the Delaware River,

and one of the issues is that they don’t want us to go right by the

water treatment plant that is there because of the fear of terrorists.

I don’t know if they come on bicycles or not, but more seriously,

the fact is, we can’t take for granted that our major water systems

are safe. But again, there is a cost to the potential security. The

estimates are that $1.6 billion is needed to finance security enhancements for the 8,400 community water systems across the

United States.

So it is my hope, at this morning’s hearings, we will begin the

much-needed discussion about ways we can work together—Federal, State and local officials in the company of the private sector—

to invest in, improve and maintain the water infrastructure that

we all rely on in this country.

Thank you very much.

Mr. DUNCAN. Mr. Higgins?

Mr. LaTourette?

Mr. LATOURETTE. No.

Mr. DUNCAN. Mr. Blumenauer? We will give you a chance to

catch your breath.

Let us go to Mrs. Norton.

Ms. NORTON. Thank you, Mr. Chairman. This is an important

hearing, and I appreciate your calling it. Particularly as you begin

with these witnesses that you have called about where the American people are on this issue will help to educate us about what appears to be a silent crisis in our country.

I compare the transportation bill that we—that is now in conference and, obviously, our Federal interstate hooks into the national highway system. But the most important thing about that

bill is that everybody can see its effects, and it becomes a top priority because everybody uses the roads and everybody uses mass

transit and they wouldn’t think of not having the Federal Government, the States and the private sector deeply involved in that part

of our infrastructure.
10

This hearing is about an equally important part of our infrastructure, but the part that we most take for granted because we

believe that clean water is our birthright and we think it is going

to continue to happen no matter what happens. I am here to tell

you, as the Congresswoman for the Nation’s Capital, which experienced a lead water crisis that was extremely disconcerting 2 years

ago, that it is time that we understood that even clean water is

nothing to take for granted in our country.

I am particularly concerned about storm water overflow, because

part of the reason for the overflow in this city is that the system,

one-third of the system serves the Federal presence and the Congress of the United States. I am dealing with the waste of this body

as a ratepayer. As we know, that is not enough here and it is not

enough anywhere in the country to deal with what apparently is

an increasing problem everywhere, that has gotten very little attention except at the local level where people do talk about it and

do fret about it.

I am—the reason I think this hearing is important is that it is

focusing on all the possibilities here. And we really do need to be

creative here. Yes, the Federal Government over the years has contributed billions of dollars. Yes, there needs to be more there. Yes,

there needs to be more State and private support.

Perhaps this national clean water trust fund—there needs to be

something that structurally raises the level of this concern, not a

few more dollars into a rising problem that drowns those dollars

every time the toilet is flushed. We have got to look, stand back

and see if there is a cosmic way to approach this problem so we

can say, We have found a way to deal with clean water in our country.

And I think this is a very important step, because let us hear

first about the possibilities, let us hear where the American people

are, and then let us try to craft a structurally different approach

to going at this very critical problem that lies below the surface of

the water we drink.

Thank you very much, Mr. Chairman.

Mr. DUNCAN. Thank you. I read a nice article about you and your

daughter, and I know you must be very proud of her.

Mr. Blumenauer.

Mr. BLUMENAUER. Thank you, Mr. Chairman. I deeply appreciate

your continuing the tradition of this subcommittee, trying to have

a broad and comprehensive look at the problems that we face with

water infrastructure.

And this panel is, I think, well suited to help us focus on the

range of problems that we face. I apologize in advance. I have a

markup across the way and I am going back and forth. My staff

and I are monitoring this very closely looking both at the testimony

that is being presented and the interaction with the committee.

And as time permits, I would like to come back.

I spent 10 years prior to coming to Congress as the Public Works

Commissioner for the City of Portland, Oregon. One of the little

problems we worked with is combined sewer overflow, along with

1,100 communities around the country. And I have been struck by

how this is sort of the hidden and ticking time bomb.
11

I sat in on public hearings and had one guy sputter at the end

saying, If you keep going with this program, in a couple of years,

we are going to be paying as much for sewer and water as we are

for cable TV. And let that sink in for a moment about the outrageous notion of protecting public health and families and economic development. And it was a truly horrifying prospect, I must

admit.

But I think that there are opportunities that we will be able to

have in terms of having the Federal partnership redefine—perhaps

increase a little bit—that aren’t going to cost an arm and a leg, but

will help catalyze the potential benefits we have by protecting

clean water in communities and being able to do so in ways that

are cheaper and greener.

I think the panel’s interaction today is an important first step.

I appreciate the leadership of you and our ranking member and

look forward to working with you, following up on this testimony.

Mr. DUNCAN. Thank you very much, Mr. Blumenauer.

We have put a lot of legislation through this subcommittee, but

we certainly need to do more in this area. As has been pointed out

at other hearings, unfortunately, we are spending more on the

wastewater and clean water infrastructure in Iraq per capita than

we have in the last couple of years here in the United States at

the Federal level.

Now we have been doing, thank goodness, a lot of good things

at the local and at the State levels, and the ratepayers have been

picking up the bulk of it, but there is an important Federal role

here.

But we are very pleased to have a distinguished panel here this

morning. Our witnesses, from the Luntz Research Companies will

be Dr. Frank Luntz, the President of that organization, from Alexandria, Virginia.

Representing the Associated General Contractors of America will

be Mr. Jack Schenendorf, who is of counsel with Covington & Burling. He was the staff director for this committee for a number of

years and really did an outstanding job in that role. I am not sure

there are many people that know the work of this committee better

than Jack Schenendorf.

Representing the National Association of Clean Water Agencies

is Dr. Kenneth Rubin, the Managing Partner of PA Government

Services, also from Washington, D.C.

Representing the American Water Works Association is Mr. Julius Ciaccia, who is the Director of the Cleveland Division of Water,

Cleveland, Ohio.

And finally, representing the American Beverage Association is

Ms. Susan Neely, who is the President and CEO of that association.

We are pleased and honored to have each of you here today. We

will put your full statements in the record. We give you 6 minutes

to make your statements. But in consideration of other witnesses,

we will cut you off at that time and then we will get into more detail in the questions. And we always proceed in the order the way

the witnesses are listed on the call of the hearing.
12

TESTIMONY OF DR. FRANK LUNTZ, PRESIDENT, THE LUNTZ

RESEARCH COMPANIES; JACK SCHENENDORF, OF COUNSEL,

COVINGTON & BURLING, ON BEHALF OF THE ASSOCIATED

GENERAL CONTRACTORS OF AMERICA; DR. KENNETH I.

RUBIN, MANAGING PARTNER, PA GOVERNMENT SERVICES;

JULIUS CIACCIA, DIRECTOR, CLEVELAND DIVISION OF

WATER, ON BEHALF OF THE AMERICAN WATER WORKS ASSOCIATION; AND SUSAN K. NEELY, PRESIDENT AND CEO,

THE AMERICAN BEVERAGE ASSOCIATION

Mr. DUNCAN. Dr. Luntz, you will go first.

Dr. LUNTZ. Mr. Chairman, I want to thank you for the honor and

privilege of being here. In fact, this is the first time in 2005 that

I have worn a tie. I assure you, this will be the last time in 2005.

And to the Member from New Jersey, I would believe if you would

to poll Baltimore Oriole fans, you would find the vast majority

would deny Sammy Sosa his tax cut for this year. And to the Member from Pennsylvania, any mention of ′′toilet′′ is bad on a campaign trail.

My name is Frank Luntz and I am President of the Luntz Research Companies, a public opinion company out of Alexandria,

Virginia. I am here today to convey to you America’s strong bipartisan support for investing in America’s water infrastructure.

Earlier this year, my organization, in partnership with Bill Clinton’s former pollster, Penn, Schoen & Berland, conducted a nationwide telephone survey and found that nearly nine in 10 Americans

support creating a Federal trust fund to guarantee Federal investment in clean and safe water. Fully 86 percent of adult Americans

adopt the concept, a public opinion consensus rarely seen in America. In fact, not a single—there was a majority from every single

subgroup, age, income, education, region. No matter how you define

it, the majority of Americans support the concept of a trust fund.

And there are other findings I want to focus on briefly. Clean

water is seen as a higher priority and a more important principle

than investments that are made in more high-profile areas such as

transportation and America’s airways and airports. Ninety-one percent of Americans believe that—and I quote—if, as a country, we

are willing to invest over $30 billion a year on highways and more

than 8 billion a year on our airways, we certainly should be able

to make the necessary investments in our lakes, rivers and oceans.

And when asked to prioritize—and this is where it gets important, because you can’t do everything—71 percent choose investing

in clean water and safe water, compared to only 20 percent who

would choose roads and highways and just 3 percent who choose

airports and aviation.

And more than two-thirds of Americans would rather have the

Federal Government invest in our water infrastructure than introduce new tax cuts, as you so accurately and emphatically pointed

out.

The reason for this overwhelming support and clearly articulated

prioritization can be explained in three words, quality of life. Clean

water affects everyone and it matters to everyone in their day-today lives, and that is why you have universal support and bipartisan support. It doesn’t matter whether you are Republican or Democrat, it doesn’t matter if you are from a red State or blue State;
13

an overwhelming majority of Americans believe that investing in

water infrastructure is a ′′responsibility.′′ and that word is chosen

deliberately: It is the ′′responsibility′′ of the Federal Government.

I have been involved in this for 20 years, and it is hard for me

to imagine anything for 20 years. And you don’t see that kind of

consensus on any issue that faces America today. The reason why

Americans so overwhelmingly believe that investing in a clean

water infrastructure is a national issue is because they believe that

keeping water safe and clean cannot be confined to any locality or,

in their words, ′′clean water has no boundaries.′′ I am a message person, and I pay attention to words. Those are

the words that were spoken to us when we surveyed the American

people. Fully 71 percent believe in the statement, ′′Clean water and

safe water is a national issue that requires dedicated national

funding. As a matter of principle, the Federal Government should

become a true partner with States and localities and pay for the

necessary sewage and wastewater treatment systems to guarantee

clean and safe water for future generations of Americans.′′ And that phrase is also important for future generations. The

American people, when they talk about clean and safe water and

an infrastructure, they are not speaking about today. They are

speaking about 10 years from now, 20 years from now, because the

public fundamentally believes that the environment should be getting better and status quo isn’t good enough. And clean and safe

water is an important component of that environment.

The consensus goes beyond perception and straight into fact. For

example, when told that the Federal Government today pays only

5 percent of the cost of ensuring that our water is clean and safe,

80 percent of Americans say that is unfair and unacceptable.

This was an extensive poll. We dealt with facts, not just perceptions; and the public’s opinion was clear.

I have heard politicians complain that voters say, It is important,

but let someone else pay for them. This one is different. Four times

as many Americans believe that there should be, and I quote, ′′a

dedicated funding source to ensure clean and safe water for future

generations′′ than believed that ′′Our water infrastructure should

not receive Federal funding, but should continue to be funded as

it is.′′ seventy-three percent want you to do it and 18 percent believe it should stay the same way.

And this is the amazing part: 80 percent of Americans are prepared to open their wallets and pay more in taxes because clean

water is an important priority to them. Now you tell me any other

issue that has 80 percent support on anything. Eighty percent of

Americans wouldn’t even say that my shirt is blue, but they support clean and safe wastewater.

My Democratic colleague, Doug Schoen, concurs with me in this

interpretation. In his words, Environmental issues can sometimes

be divisive, but clean and safe water is not seen by voters as a divisive issue. Instead, there is overwhelming support from both political parties for what is seen as a basic need that has to be protected, clean and safe water for our children and for the next generation.

And I could not agree more.

Thank you, Mr. Chairman.
14

Mr. DUNCAN. Thank you very much, Dr. Luntz. Very fascinating

testimony.

Mr. Schenendorf.

Mr. SCHENENDORF. Thank you, Mr. Chairman and Ranking

Member Johnson. I am pleased to testify today on behalf of the Associated General Contractors of America on financing the $300 to

$500 billion water infrastructure funding gap identified by GAO

and CBO.

Addressing this shortfall with general fund appropriations would

be extraordinarily difficult in the current budget climate. Either

the deficit would be increased or if deficit-neutral, other programs

would have to be cut. Rather, I encourage the subcommittee to consider financing water infrastructure projects in the same way that

transportation infrastructure projects are funded through self-financed, deficit-proof trust funds.

Trust fund financing would pay for itself. It would not increase

the deficit or require cuts in other programs. Moreover, the funding

stream would not be subject to the vagaries of the annual appropriation process, thereby providing the certainty that State and

local officials need to commit to long-term infrastructure financing.

The biggest challenge and controversy would be determining who

should pay and how much should they pay.

In this regard, a look at the 1956 Highway Act and the financing

of the interstate system may be instructive. In the 1944 Highway

Act, Congress called for a 40,000-mile national system of interstate

highways, but because of very limited funding, very few interstates

were built between 1944 and the early 1950s. At that time, the

Federal program was funded from general revenues. There was a

Federal gas tax, but its proceeds were not earmarked. Meanwhile,

the price tag on the interstate system was estimated at $27 billion

over a 13-year period, equivalent to $185 billion investment in today’s dollars.

Congress was faced with a similar problem that it is faced with

today on the clean water funding. It took several years of controversy and several government studies to come up with a financing mechanism for the interstates. During this process, three financing alternatives were explicitly considered and rejected: general fund financing, tolling and bonding.

Finally, proponents of the interstate system embraced the controversial strategy of increasing Federal excise taxes levied on

highway users. Affected interests from the oil industry to the

trucking industry to the Teamsters Union were opposed for one

reason or another.

In addition, during the early 1950s, the Governors Conference

was not only opposed to increasing the gas tax, but they were

pushing for full repeal of the tax, arguing it should be reserved to

the States.

The overall opposition was so strong that legislation embodying

this approach was soundly defeated by more than a 2-to-1 vote

when the bill was considered on the House floor in 1955.

But supporters went back to the drawing board. They believed

the basic approach in the 1955 bill was sound. They developed the

1956 Highway Act, which contained a variety of highway user
15

taxes, including a 50 percent increase in the gas tax, 50 percent increase in the tire tax and a new licensing fee on heavy trucks.

A key aspect of the 1956 bill was the creation of the Highway

Trust Fund in which all these revenues would be deposited to be

available for expenditure without further congressional authorization or appropriation. Supporters, including the construction industry, also realized that they needed to do a much better job of educating the American public, affected interest groups and Members

of the Congress on the merits of the proposal, so they mounted an

extensive lobbying and education campaign. In fact, this is where

the highway lobby earned its reputation.

As a result, many of the groups that opposed the 1955 bill

changed their minds even though the tax proposals either did not

change or, in some cases, even got worse. Essentially, many of the

critics have had a chance to rethink their positions, especially

given that the trust fund mechanism linked revenues and spending. Many were more willing to accept the idea of increased taxes’

focusing instead on a fair distribution of the tax burden.

Ultimately, the 1956 Highway Act passed the House and Senate

by overwhelming votes. The rest is history. The battle to establish

the trust fund was worth it. The 1956 Highway Act, one of President Eisenhower’s most important achievements has been described as the best investment the Nation ever made. It often appears in the top five or top ten list of Federal legislation that really

mattered.

And it is often described as the law that created the interstate

system, but as we have seen, that is not really correct. The genius

of the 1956 act was that it created the Highway Trust Fund, the

financing mechanism that made the interstates a reality.

Today, the Highway Trust Fund continues to be one of the most

successful Federal financing mechanisms, providing about 33 billion per year for highway investment. Moreover, its success persuaded Congress to create other transportation infrastructure trust

funds, including the Airport and Airways Trust Fund and the mass

transit trust fund.

These transportation financing mechanisms have been enormously successful in creating stable, dependable revenue streams

for funding transportation infrastructure projects, but in each case,

there was a contentious debate as to who should pay and how

much should they pay. Congress concluded each time that the societal and political benefits of transportation infrastructure investment outweighed the negative consequences of establishing the revenue stream.

Clean and safe water infrastructure projects deserve no less. As

Dr. Luntz has indicated, Federal legislation creating a long-term,

sustainable and reliable trust fund for clean and safe water infrastructure has strong support among the American people. If Congress develops a fair system for raising the revenue, I believe the

water infrastructure trust fund is achievable.

The benefits for the American people, American business and our

Nation’s environment would be enormous. In fact, I am convinced

that a law creating a robust water infrastructure trust fund would

easily make future top five lists of Federal legislation that

mattered. Thank you.
16

Mr. DUNCAN. Thank you very much, Mr. Schenendorf. That is a

very interesting and, I think, significant history that you gave us

with many parallels of what we are talking about here today.

Dr. Rubin.

Dr. RUBIN. Mr. Chairman and members of the subcommittee,

thank you for the opportunity to be here today. My name is Kenneth Rubin, and I am testifying on behalf of the National Association of Clean Water Agencies.

The subcommittee is obviously well aware of consensus figures

from EPA, the Congressional Budget Office and others that over

the next 20 years, America’s wastewater systems will have to invest $12 billion a year more than current investments to replace

aging and failing infrastructure and to meet the national goals of

environmental and public health priorities of the Clean Water Act.

To overcome this funding gap, both national and local solutions

must operate together. Some stakeholders have argued that local

rate increases alone are sufficient to solve this problem. I don’t believe that is the case. Financing the $12-billion-a-year gap with

utility rate increases could result in a doubling or tripling of rates

across the Nation. And if this were to happen, at least a third of

the population of the U.S. would have to pay more than 2 percent

of their household income for sewer services, which is often taken

to be the conventional criterion for affordability.

The important part of that statistic, however, is that it would hit

small, rural and low-income communities the hardest. And it is important to consider this against the backdrop that 60 percent of the

U.S. population has experienced no increase or a loss in real household income over the last 20 years. For a significant portion of U.S.

families, sharp increases in wastewater rates would have significant economic impacts.

Alternatively and importantly, there is ample precedent and

clear economic principles supporting a Federal clean water trust

fund. The importance of wastewater infrastructure has been recognized here today and has been well understood by this Congress

and in the years leading up to the passage of the 1972 Clean Water

Act. To avoid an environmental and public health crisis, significant

U.S. dollars were dedicated to reverse the Nation’s declining water

quality at that time.

But today, despite increasing Federal mandates for cleaner

water, despite shifts in population that strand wastewater assets

in urban core cities with few ways to pay for needed improvements

and despite the nearly universal need to replace hundreds of billions of dollars in aging and failing infrastructure, the Federal contribution to wastewater costs has declined from more than 50 percent in the early 1970s to 30 percent in 1980 and only 5 percent

today. Under these conditions, I would submit that some localities

are unlikely ever to meet the Federal goals for ambient water quality in this Nation.

Part of the reason for this is that investments in wastewater systems pay substantial national dividends to all Americans. It is well

documented that municipal wastewater treatment plants prevent

billions of tons of pollutants each year from reaching America’s rivers, lakes and coastlines. They help preserve our national treasures, such as the Chesapeake Bay here locally.
17

Clean water supports a $50-billion-a-year, water-based recreation industry, at least $300 billion in coastal tourism, $45 billion in annual commercial fishing and shellfishing and hundreds of billions

of dollars a year in basic manufacturing that relies on clean water.

Simply stated, America’s waters are what economists would call ′′public goods,′′ that is, clean water processes, wastewater treatment plants, result in cleaner, healthier waterways for all to enjoy.

These benefits are available widely throughout our society—of

course, to those who pay for them; we call them ′′local

ratepayers′′—but they are also available to many others who don’t

pay directly for those services, those living downstream. A trust

fund can help overcome those kinds of inequities.

The trust fund concept also makes a lot of sense when considering population trends. Wastewater treatment assets wear out and

must be replaced. For many urban core cities whose populations

have shifted to the outlying suburbs, the cost of replacing wastewater infrastructure can be unmanageable. In many cities, a doubling, a tripling, even a quadrupling in sewer rates would not be

enough to meet the replacement needs of existing infrastructure

because too few people remain within the boundaries of these cities

to pay for these fixed assets which, of course, operate on a network

basis. In many locations, those who still populate urban centers, of

course, have lower incomes, than those who can afford to move to

outlying areas. Serious questions of equity arise when local sewer

fees alone have to increase dramatically to serve these populations.

Beyond that, having a common standard or level of service for

clean water makes it easier for businesses and for labor to move

from place to place without fear of cutting production because of

local capacity shortfalls. It provides cultural benefits by helping to

bind together people from across the Nation that know their waterways are safe and clean.

The value of similar public outcomes and the recognition that a

trust fund can be an appropriate way to help deliver them have

long been recognized in Federal infrastructure policy. Of course,

this has been the case in other basic infrastructure system such as

highways, airports and transit; and to finance these systems, Congress has established Federal trust funds.

The rationale is simple. These basic infrastructure systems underpin the U.S. economy broadly and their benefits accrue widely

to users without geographic limitations. Moreover, these infrastructure systems have benefits that are felt only after all, or substantial portions of, these networks are complete and functional. Wastewater systems share these characteristics, and accordingly, an appropriately structured clean water trust fund makes good economic

sense.

You mentioned that the national debate centers on the need—not

always on the need for a trust fund, but how it can be funded.

Looking at the past trust funds, three sorts of strategies have been

applied as to who should pay. Typically, polluters are asked to pay,

beneficiaries are asked to pay or the Nation as a whole has been

asked to pay.

All three of these strategies can be applied to the clean water

problem we face today, generating sufficient income to meet the

funding gap while generating predictable revenue streams well into
18

the future so the trust fund recipients can rely on support over long

periods of time consistent with their own long-term capital planning needs and also while minimizing economic and trade disruptions.

Using these criteria, I worked with the National Association of

Clean Water Agencies to review a wide range of potential revenue

sources, all Federal excise taxes to capitalize the new Federal clean

water trust fund at a target level of $7 billion a year. We found

that while all of these sources could raise that level of money, no

single revenue source met all funding criteria uniformly, and so a

combination of sources appears to be the most likely choice.

Finally and in conclusion, it will be important to remind ourselves that even with an enhanced Federal financing role made

possible through a new trust fund, local sewer rates will still pay

86 percent of the cost to provide wastewater treatment nationwide.

Not only will the clean water trust fund deliver important dollars

to the neediest of communities, it will help ensure meaningful,

long-term, Federal, State and local fiscal partnership and continue

our record of gains made under the 1972 Clean Water Act.

Mr. DUNCAN. Thank you very much, Dr. Rubin.

Mr. Ciaccia.

Mr. CIACCIA. Good morning, Mr. Chairman, members of the committee. My name is Julius Ciaccia. I am director of utilities in

Cleveland, Ohio. I am also chair of the Water Utility Council for

the American Water Works Association, AWWA. I am here today

on behalf of the AWWA.

The association’s 4,800 utility members provide safe water to

over 80 percent of American people, and we commend you for holding this hearing addressing infrastructure and other challenges facing community drinking water systems.

AWWA has long believed that utilities should be self-sustaining

through their rates and other local charges. Today we remain committed to that principle. Having said that, we know that some

water systems will require assistance as they make the transition

from rates they now charge to rates that make the system locally

sustainable.

Some communities face especially severe problems due to the

large amounts of ′′stranded assets′′ resulting from significant population declines in the service territory. Federal requirements to remediate combined sewer overflows and other Federal mandates

also exacerbate funding problems in many communities.

Both drinking water and waste water utilities face enormously

expensive Federal mandates that set the context for all other funding issues. The drinking water community faces a complex array of

expensive new Federal requirements and new standards, including

standards for arsenic, radon, disinfection byproducts, enhanced surface water treatment, and others. Waste water utilities face an

enormously expensive Federal mandate, such as those relating to

combined sewer overflows and sanitary sewer overflows. For both

water and waste water utilities, these particular Federal mandates

significantly skew financing for all other investments, including replacement of aging pipes and other infrastructure.

Local ratepayers are often seriously challenged to pay for these

CSO and SSO mandates, and little, if any, room is left in the rate-
19

payer’s budget for other vital spending. In many cases it appears

that mandatory spending for CSO and SSO mandates has driven

out the ability to raise rates for routine infrastructure repair and

replacement in both waste water and drinking water systems.

We believe that significant Federal assistance, including grants,

is necessary and justified to help meet the cost of CSO and SSO

mandates on water utilities. Support is also justified to help meet

the cost of infrastructure repair and replacement that have been in

many cases deferred because the Federal mandates have consumed

the ratepayer’s budget. We would point out that in the case of CSO

and SSO mandates, Federal support for the cost of those requirements is also justified by downstream benefits, including lower

costs for drinking water utilities downstream in the form of improved water quality. These investments provide direct positive

benefits to the entire Nation.

AWWA does not believe Federal assistance should be prioritized

to protect sources of drinking water first. Because the Federal

budget deficit has been such a serious issue in Washington, it is

likely that significant increases in Federal assistance may be possible only if new dedicated taxes can be developed. We need to consider several questions with respect to any funding proposal that

dedicates new tax revenues to infrastructure investments.

Most important, as you said in your opening statement, what is

the source of funds? AWWA is unalterably opposed to a Federal

water tax in any form. Will new revenues really be spent on infrastructure, or will some be diverted to other programs? Will expensive new mandates be attached? What criteria will determine who

gets assistance? What communities or States will pay more taxes

than they get back? Finally, how can we best encourage utilities

and local officials to start now on the important work of raising

rates, rather than tempt them to wait for Federal grants to begin

the work ahead?

AWWA deeply respects the work required to develop infrastructure funding legislation and will consider legislative proposals that

address the Nation’s drinking water needs. At this time, however,

AWWA has not endorsed any infrastructure funding proposal, as

one really hasn’t been put forward as of yet.

As you are probably aware, our local governments pay over 97

percent of the cost of drinking water infrastructure. We believe

that under any scenario, including new taxes, significant increases

in Federal systems, local sources, local sources will continue to pay

the large majority of the costs providing safe water and water infrastructure.

Recognizing that most of the job is and should be up to local government, AWWA is focusing significant effort and money on giving

utility managers and local officials the tools they need to meet

growing costs of water service and local resources. We have recently sent all AWWA members reports detailing ways to adjust

rates without causing rate shock, and without undue hardship on

low-income households, something we all need to be sensitive to.

Again, we thank you for holding this hearing concerning drinking

water issues. AWWA stands ready to work with this committee to

develop responsible and fair solutions to the challenges facing

America’s community water systems.
20

Thank you very much.

Mr. DUNCAN. Thank you very much, Mr. Ciaccia.

Ms. Neely.

Ms. NEELY. Thank you, Mr. Chairman, Ms. Johnson, and members of the subcommittee for the opportunity to come and discuss

the creation of a Clean Water Trust Fund with you.

I am Susan Neely, the president and CEO of the American Beverage Association. We represent the nonalcoholic industry in this

country, and have been doing so for about 85 years. Our member

companies employ about 211,000 people around this country, many

of whom work in your districts. We manufacture and market hundreds of brands, flavors and packages, including soft drinks, readyto-drink teas, coffee, dairy-based products, fruit juice, fruit drinks,

sports drinks. So suffice it to say that along with the American

public, who have spoken through Dr. Luntz’s poll, and the eloquent

comments of the subcommittee members, we, too, see the conservation as vital to this country.

Perhaps surprisingly, though, because our industry products account for almost half of what America drinks, we account for only

a tiny fraction of total water use. Of the more than 400 billion gallons withdrawn each year in the U.S., the beverage industry uses

3/100 of 1 percent, or about 1 gallon out of every 3,300 gallons

withdrawn from ground or surface water sources. This is because

we are engaged in continuous quality improvement to use state-ofthe-art recycling practices. On average, it takes about a gallon and

a half or 2 gallons of water to make one finished—1 gallon of a finished product.

Beyond the water that goes directly into the product, we use

water on the production line, we use it to clean production equipment, in washing our fleets, and in everyday employee use in the

plants. Just some examples of our conservation efforts, they include

use of deionized air to rinse cans and bottles prior to filling, reclamation of backwash water from our sand and carbon filtration

processes, and conversion to automated ′′clean in place′′ systems

that employ a closed loop for water.

Over the past 6 months, there have been press reports outlining

a proposal that would levy a Federal tax on beverages to generate

revenue for the recreation of a Clean Water Trust Fund. And, of

course, I am here today to say that levying a tax on packaged beverages is an inequitable and aggressive way to raise funds for environmental infrastructure, and I will give you three reasons as to

why.

First, as I have said, targeting our industry and consumers of

our products places the burden on only a very small share of water

users. As I have stated, products made by our members consume

less than 3/100 of 1 percent of water supplied by public systems,

and placing such a large tax estimated variously at 5 cents per container to 7 percent of sales on so few users just isn’t equitable.

Second, it is not clear from the press reports how such a tax

would be administered, and I understand that is what the subcommittee is exploring as part of its deliberations on this, but, of

course, it may be necessary to set up a whole new bureaucracy to

collect this tax.
21

And third, a tax on beverages is a tax on food. Beverages are a

staple in the family grocery cart, and we all know that food taxes

are aggressive, placing the greatest burden on working families,

the poor and elderly.

So let me close by saying that, as the Chairman said in his opening comments, we do believe this is a partnership. Our industry

will do its part to support infrastructure needs, but many commercial and industrial establishments use water as input to their products. Just as beverage companies buy water as a factor of production, so, too, do circuit board manufacturers, paper companies and

food processors. Our role is as one of many users that could pay

higher rates that reflect infrastructure needs, not as the sole source

of these funds.

Thank you, Mr. Chairman.

Mr. DUNCAN. Well, thank you very much, Ms. Neely, very fine

testimony.

I want to thank all the witnesses for being here. You have made

an outstanding panel. I am going to reserve my questions at this

point so we can try and get to as many Members as possible, and

since Mr. LaTourette has been here the whole time and didn’t give

an opening statement, I am going to yield to him for any statement

or questions that he has at this time.

Mr. LATOURETTE. Thank you very much, Mr. Chairman. And it

might have been my double was here the whole time, but I appreciate having the opportunity to go first.

I want to thank all the witnesses as well for your excellent testimony. I bet every Member—I was listening to—in my office to Mr.

Pascrell’s observation during his opening remarks. I think every

member on this panel has probably been to a waste water treatment plant, every member on this panel probably has had a water

main break for a sewer break in his or her district, and our experience in the industrialized Northeast is that there was a lot of free

money in the 1970s when the Clean Water Act came in where

grants would develop—the waste water treatment system in Cleveland, for instance, and it all dried up. And we keep making the

rules on CSOs and SSOs, but we don’t send any money down to

the locals to take care of their infrastructure needs. And I happen

to think that that is a—we are not doing our job here in Washington.

But all of you have hit, I think, on the central point. I am all

in favor of a Clean Water Trust Fund, but I think each one of you

in your own way—and I think, Ms. Neely, in your last one, in who

is going to pay for it, I think I have heard from you that the beverage industry doesn’t feel like paying for it. And so the question—

I have a couple of questions, Dr. Rubin and Mr. Schenendorf, and

also Dr. Luntz. And Mr. Luntz, as an aside, if I were going to wear

one tie a year, I might have picked a different tie. But anyway.

If we have a Clean Water Trust Fund, and going back to Mr.

Schenendorf’s great history lesson, I think, on the Highway Trust

Fund, and, Dr. Rubin, you talked about the fact that you have done

some modeling, and I guess I would start with you. Do you have

somewhere, within your organization or the coalitions that you are

working with, a model on who is—is it going to be people who
22

drink water, people who bathe in water in Pennsylvania, people

who flush water? How are we going to get at this?

And I think Ms. Neely makes a compelling point. If they are only

using 3/100 of a percent of water, should we put it on the people

that drink bottled water and other beverages? So do you have a

model as to where this money is going to come from for a trust

fund? Which I happen to think is a great idea, by the way.

Dr. RUBIN. That is a good question. We looked at very broadly

using a series of criteria, normal criteria that one might use for

these things, effectiveness, efficiency, equity, and manageable economic effects,trade effects, those sorts of things; and using those

criteria as our guide to where money might come from and who

should pay, we looked at a full range of things and do, in fact, have

models looking at these right now. Let me just read them off to you

to give you a sense of where we looked.

In fact, we did look at beverage taxes. We looked at taxes on

water-based recreational products and services. We looked at taxes

on industrial discharges to surface waters. We looked at taxes on

what we call flushable products, things that are used in households

and commercial establishments and flushed down the toilet. We

looked at a clean water restoration tax, similar to the environmental income tax used in part to fund a Federal superfund, and

we looked at taxes on agricultural chemicals.

So with each one of these product bases, we looked at whether

or not—or what the effects would be if one wanted to raise $7 billion a year. So that is what our model is addressing.

Mr. LATOURETTE. And going back to the formation of the Highway Trust Fund, two observations. I think, Mr. Schenendorf, you

talked about the wide opposition to the excise tax, the tire taxes

and so many other things that happened in 1955. Are any of you

aware of—and, Dr. Luntz, even to you in your observation that 80

percent have indicated that they would pay for clean water, has

anyone identified a segment that is going to be a willing participant in the Clean Water Trust Fund, that, yes, please hand over—

please tax us, or please impose a fee?

And then the second observation to you, Mr. Schenendorf, if we

are successful in creating a Clean Water Trust Fund, I would hope

you would agree that the genius today—and it has to do with Mr.

Shuster’s father and your work on the committee—is making sure

that if we are going to ask people to pay more for clean water, that

we wall it off and put up some firewalls so that we don’t do goofy

stuff and spend it on everything but clean water.

So, first of all, has anybody identified a willing segment of society that says we will pay?

Dr. LUNTZ. Well, we actually asked the question which of the following sources would you most strongly support. I can tell you who

the public would say should clean it up. And they are obviously

going to have constituencies here, the agricultural industry, because it uses the water, and the chemical manufacturers and the

hygiene product manufacturers because it is perceived that they

pollute the water. The public would say that these industries that

are most involved and most benefit from the water should be the

ones who are most responsible for paying for it, and those who are
23

shown to have polluted it should have the highest burden financially.

Mr. LATOURETTE. Mr. Schenendorf, what about the firewall

issue; would that be a recommendation that you would make?

Mr. SCHENENDORF. Yes. In my written testimony I made it very

clear the attributes that a Clean Water Trust Fund should have,

and that would clearly be one of the attributes. It ought to either

be separate from the unified budget as trust funds used to be, or

if it is within the unified budget, that the funding be protected

with a guaranteed funding mechanism similar to the one that was

in TEA-21.

Mr. LATOURETTE. Thank you very much, Mr. Chairman.

Mr. DUNCAN. Well, I think that is one of the most difficult questions. I don’t represent an agricultural district, but the agricultural

community is percentage wise very small, but they use, I am told,

35 or 40 percent of the water. And yet to tax them in any significant way would be very politically difficult, it seems to me. So that

is a big question here.

Ms. Johnson.

Ms. JOHNSON OF TEXAS. Thank you, Mr. Chairman. Let me just

comment on that. At least the farmers provide us with food, so we

all share in that responsibility, I guess.

Dr. Luntz, I wanted to ask you, do you know Karl Rove?

Dr. LUNTZ. Yes, I do. And he doesn’t resent the ties that I wear.

Ms. JOHNSON OF TEXAS. Well, I was just going to say I have

known him over 20 years, and he doesn’t care whether you have

on a tie or not; he didn’t wear any until he came here. But I want

you to understand he makes sure he gets this report, because I

think you have some very interesting observations here, and we

need the White House’s support in order to get a bill moving with

the kind of money that we need.

I would like to ask you, Mr. Schenendorf, how do you think we

can structure a fund that would create a fund for water?

Mr. SCHENENDORF. Well, I think there are a couple of important

things in this. First is, it is obviously—at the starting point you

have to look at almost everything. You have got to look at everything that is out there that might be used, and at the end of the

day what you would be trying to come up with is a fair grouping

of those different items to actually fund the trust fund.

In addition, one of the points that I didn’t make in my oral testimony on the interstate history experience was that one of the

things that was done in the interstate, as you got closer to 1956,

is they identified where the routes were going. And, in fact, in

1955, they came out with the final book that really showed where

the urban routes were going. And they really used that to sell the

interstate program and really build support for it. And that is

something that we tried to do in TEA-21, and I think it would be

essential here that it be more than just a trust fund for clean and

safe water; that you actually took the next step and said if you

were able to get this kind of funding, what would this mean in

local communities, what kinds of projects, and really ask local communities and States to identify the kinds of projects they would

get, and then make that known to the Members.
24

I mean, that is part of building the support for this, of taking it

down right to the grass roots and showing people if you make this

investment of whatever amount, here is what you are going to get

for it in real terms, and that that would be very, very helpful not

only in building overall support, but in also dissipating some of the

opposition to the sources of funding that you come up with.

Ms. JOHNSON OF TEXAS. You know, I heard Dr. Luntz indicate

that 80 percent of the people said they are willing to pay for clean

water, but I also heard other testimony where people were not that

willing or were not able to take increases for clean water, and some

of those were farmers and low-income people. And the farmers do

use a substantial—probably a larger percentage by proportion than

others in water in order to produce whatever they grow.

Obviously, all of—everything to do with water would probably be

addressed through any clean water fund we put together. Every

State is facing a crisis with infrastructure. And just today in the

Dallas Morning News, the State of Texas was indicating that.

So it would seem to me that it might take a little while, but we

need the money right quickly. The infrastructure is crumbling

around the Nation because of its age.

I don’t know how we get through and educate in order to move

as rapidly as possible. I know that at home, whenever something

happens with the water, our water and sewage system is owned by

the city, and they add a little fee to it, and they call it user fee,

just as tools. So I wonder if you have in mind, or if you could recommend some way we could reach this decision rather rapidly. You

have had a lot of experience with this committee and probably

could predict as well as what we could here the direction we should

go in order to try to address these problems as quickly as possible.

Mr. SCHENENDORF. I think having hearings like this is obviously

very helpful, but I am not sure this is going to be something that

is going to be solved quickly. Even with the interstate system, it

took a few years of studies, and it took a few years of trying. The

basic funding concept was brought to the House and defeated by

a 2-to-1 vote the year before. It took another year to turn things

around.

So it is not going to be an easy process. I don’t think anybody

is going to come volunteer and say, tax me; but at the end of the

day what people have to see is what you have done is fair, and if

it is fair and they can see the benefits, then it is possible.

Ms. JOHNSON OF TEXAS. We are late getting started, so we can’t

let it take too long to get started because we are in the midst of

the crisis now; but I agree that it might take a while.

We have not passed a clean water bill in about 5 years or so, so

I think we do kind of slow down when it comes to something like

that. But if there are ways of which you can suggest that we can

get a jump-start, I would appreciate it.

And, Dr. Luntz, you could help us get a jump-start if you could

get this report in the right hands. Thank you.

Mr. DUNCAN. Thank you very much, Ms. Johnson.

That is a pretty dramatic turnaround, Mr. Schenendorf, from one

year to the next on something that major.

Mrs. Kelly.

Mrs. KELLY. Thank you, Mr. Chairman.
25

Dr. Rubin, I would like to know, when you talked about the various abilities, the thought processes you had on applying taxes in

various areas, did you look also at what market dislocations might

occur if a tax occurred on those particular items? For instance,

what kind of market dislocation would occur if we taxed bottled

water? What kind of market dislocation would occur on the other

items that you mentioned, agriculture, chemical? Did you look at

those?

Dr. RUBIN. Yes, we did. I would like to clarify, though, before I

talk a little bit specifically directly to your question.

The amount of money that we are talking about raising and dedicating to at least water treatment is still a small proportion of the

total amount of funding. So, again, as I said in my testimony, even

if we were to raise on the order of $7 billion, we are still talking

about increases in local sewer rates to pay for a lot of the other

work that needs to get done. So we are talking about financing the

top margin of work that is currently being deferred and that is creating a lot of water quality impairment and lack of service locally,

things that end up in polluting beaches so they get closed, or not

achieving the nitrogen standards in the Chesapeake Bay, for example. It is the top margin of things that make a lot of difference in

delivering benefits to people. As Mr. Schenendorf suggested, linking the funding mechanism to the real benefits people get is probably the most critical thing to do to seek broad consensus about a

funding source.

Now getting to your question. For each of the options we looked

at, of course we looked at the extent to which, if that tax were applied, whether the increase in payments, if you will, would be absorbed by the producer, would be absorbed by the importer, would

be passed forward in consumer prices and so forth. And, of course,

these are imprecise estimates and calculations based on literature

values of elasticities and a lot of economic mumbo-jumbo, but the

fact of the matter is, as we looked at these effects, in almost every

case two or three very broad-based options—and that tends to be

the key is the broader the base, the lower the effects, the more willing individuals should be and will be to pay. As Ms. Neely pointed

out, they are not against taxes on bottled beverages, they are

against just taxes on bottled beverages. They would be willing to

do their part, and that is really a telling comment.

So when you lower the tax rate and broadenthe base, you tend

to spread those economic effects so broadly across the entire Nation

that you match the receipt of benefits of clean water with those

payments, and those sorts of dislocations tend to go away. But very

specifically, we did look at imports as well as domestic productions

to avoid trade locations, specifically.

Mrs. KELLY. I am thinking in terms of actual user—market user,

dislocations that would occur in the agriculture business, for instance, if certain types of chemicals that are currently being used

were taxed. The same with flushables. It is an interesting question,

and I don’t know that anybody has actually done any kind of a

deep dive on this, and that was really where I was going with it.

Dr. RUBIN. Well, you are very perceptive. In the area of

flushables, for example, the range of products is very broad. For

some of those products a 1 or a 2 percent price increase would re-
26

sult in reduced demand for those products. People would use less.

Those who were on the edge couldn’t afford to pay the next dollar,

would not pay that dollar, and demand would probably go down,

production might probably go down, some jobs could be lost.

Again, the key is to minimize it. We minimize it. We looked at

particularly two types of fees where we felt broadening the base

would reduce those economic dislocations on the users. The corporate environmental income tax, again modeling the program very

much like the third of the superfund financing sources, imposing

a very small, 1/2 of 1 percent or so, environmental restoration fee,

clean water restoration tax on corporations. In fact, it was only

those that paid more than $2 million in A and T. So it further narrows the impact of large corporations. And combining that with the

flushables tax broadens the base very nicely to avoid those dislocations that we are worried about.

Mrs. KELLY. Thank you.

Mr. DUNCAN. Well, thank you very much, Mrs. Kelly.

Mr. Pascrell.

Mr. PASCRELL. Thank you, Mr. Chairman.

Mr. Chairman, I know down the road we are going to be talking

about bonding, possibilities of bonding in this, and I would like our

panelists to respond to the issuing of bonds, dedicated money to

these water problems that we have in the United States, and particularly the private activity bonds.

You know, we have had exemptions; we have had exemptions in

areas such as recycling. And I am wondering, in terms of the solid

waste landfills that we had problems with back in the early 1990s,

if we had an exemption for waste water and water purification investment, do you see this as a possibility? And what are your

thoughts about that?

And, Dr. Luntz, what do you think will help us get through to

the administration as to the significance of this issue, and where

we should be going?

So anybody who wants to take a crack at the first one in terms

of the tax—in fact, the tax-exempting private activity bonds, what

do you think about that?

Dr. RUBIN. I am happy to give you an opinion. It addresses part

of the problem, and, of course, not all of the problem. The act of

floating a bond is just capitalizing downstream payments today so

you can build something today and pay for it over a long period of

time. But no matter how you raise that capital, you still have to

pay for it, users would still have to pay.

Mr. PASCRELL. Well, we do that in education and in housing.

Dr. RUBIN. But there are limitations in the marketplace attributable to private activity bonds and so forth, the State caps being

one, and obviously the fact that waste water private activity bonds

are not exempt, as are solid waste private activity bonds.

Mr. PASCRELL. Would you support that?

Dr. RUBIN. For those communities that otherwise could pay and

they are facing a private activity bond cap, and they wouldn’t mind

using private activity bonds, that is a viable option. That is a capital formation solution, not a payment solution. But yes.

Mr. PASCRELL. What about you, Mr. Schenendorf?
27

Mr. SCHENENDORF. Just to analogize, in the transportation area

I think things have evolved to the point where people are willing

to take the money wherever they can get it. They realize they are

going to need multiple sources of financing in order to address the

serious problems that are out there. So it would seem as though,

again, any source of funding that can help with the clean water

issues ought to be on the table and might be part of a final package

that Congress would be able to enact.

Mr. PASCRELL. Would you support the exempting of what we are

considering here as we have done in other areas? The cap, that is.

I mean, we have caps on what the towns and States can borrow;

there are exemptions depending upon the danger and the significance. It would seem to me that we have a pretty significant health

situation on our hands here. And I understand the urgency; I

would hope that the bond community would also.

Mr. SCHENENDORF. I think if it turned out that the expert said

that this would be something that would really help and would

lead to investment, then it would sound like a good thing.

I do think if you go back to the interstate example, though, you

did see there is a natural reluctance in bonding because ultimately

you are paying part of that in interest. And ultimately what won

the day on the interstate program was taking that money and making real investments with it so that you knew you were raising the

taxes, it was a pay-as-you-go system, and the Members found that

far more preferable than—

Mr. PASCRELL. I know the easy way out might be in some States

to bond. In fact, in States meeting their own obligations in terms

of leveraging, for instance, the gas tax. States don’t like to use the

term ′′tax′′ any more than we do. So there is room for camouflage

here. And what we are trying to communicate out there is that we

will bond it. And, of course, there has to be interest paid on that,

we all understand, but maybe a combination of these things. And

it is important that we have the willpower to do this one way or

the other and not debate the process in—which buries the whole

issue.

Dr. Luntz, what about my question to you?

Dr. LUNTZ. I was hoping you would have used up your 5 minutes.

Mr. PASCRELL. I have a little extra time, Dr. Luntz, anyway, so—

Dr. LUNTZ. Well, first off, don’t yell at people who support you

is the first thing I would say. Second is that it is an issue of priorities. If you are going to spend as much as you do on transportation, and you ask the American public where would you like this

extra money to go, to a Safe and Clean Water Trust Fund or to another element of transportation, they would tell you, as I said earlier, overwhelmingly, spend it on the Clean Water Trust Fund. It

is a matter of setting up the priorities, and, frankly, you are using

public opinion as a weapon.

Mr. PASCRELL. But isn’t the umbrella here, Dr. Luntz—let’s get

down to the nitty-gritty—isn’t the umbrella let’s make government

smaller? I mean, this is what we get when we start to talk about

priorities. When everything is a priority, nothing is a priority. We

think that this is a priority, all of us up here. You think it is a priority. Your numbers seem to indicate the American people think it

is a priority. So how do you communicate with an administration—
28

you know, I am trying to learn here—how do you communicate

with an administration that has this umbrella up—of course, there

is nothing between the spokes, but there is an umbrella up, and

we are talking about smaller government, meanwhile we are making government humongous in other areas. But in the area of public health, we can’t find room to provide the impetus, as was asked

before by the Ranking Member; we can’t find it. I mean, what are

we missing? What aren’t we doing to communicate that? I mean,

this is a lovely poll that you have here. Tell us what is the next

step.

Dr. LUNTZ. The next step is to work across the aisle. And I have

heard comments that, Chairman, you have done—

Mr. PASCRELL. This committee is on record over 7 years working

across the aisle. The committee is not the problem. I mean, we are

a lot of problems here in the Congress, but this is not one of them.

So now what do you do?

Dr. LUNTZ. In my experience, when you have numbers that are

this overwhelming—and I have got a chart—you get 91 percent of

Americans that agree that this is a smart approach, usually public

opinion in the end wins out. Usually people will find a way to adjust the individual details to their own philosophy.

This is not about big or small governments, and this is not just

about health; it is actually also about safety. This is not about today’s generation; this transcends generations. This is not about a

region, the Northeast in New Jersey or the West, for instance; this

is everywhere across America. And this becomes an issue of personal health, personal safety today and tomorrow. It is not an issue

of big government.

I don’t always agree with those that I have helped in the past

on specific issues. That is why I gladly did this bipartisan poll. But

I will tell you that rather than complaining to those who don’t

seem to see the light, you will be more effective by trying to mobilize America, the people through these cameras right here, that

they actually should call Washington, they should write their Representative and say on this thing—as a Republican, I believe this

can be done.

Mr. PASCRELL. As a former mayor—and there is no one closer

than the mayors of small towns and large towns to the major problems in this country, whether you are talking about homeland security, whether you are talking about better water, better air. Talk

to those mayors out there.

You know, I think this is critical. I don’t see us listening to the

mayors. I don’t really think we appreciate what they go through

day in and day out, and any council members. And if we did, we

would have responded in a much better fashion. We have all the

answers here.

Thank you, Dr. Luntz.

Mr. DUNCAN. Thank you, Mr. Pascrell.

And I want to apologize; I was going to try and wait until the

end, but I have to go to another meeting, and I am going to have

to turn this hearing over to Dr. Boustany in just a moment. But

I want to thank all of you for coming and being such good witnesses. This has been a fascinating panel.
29

But before I go, I do want to ask you a couple of questions. Mr.

Ciaccia, my first client, when I first started practicing law, was the

water district in Knoxville, Tennessee. And I have worked with

your association. You have 57,000 members, it is a good association, I have worked with them. But you point out throughout your

testimony you mentioned that your group came out with this report

entitled Dawn of the Replacement Era: Reinvesting in Drinking

Water Infrastructure. And at another point you said the Federal

Government should renew its commitment to significant support

for compliance with health protective standards, security, and the

repair and replacing of aging infrastructure. All of us have talked

about the needs, and there are great needs there. But then you are

adamantly opposed to any kind of a tax, and so obviously the only

thing then is just more, larger contributions from the general revenues of the government. Is that what you are advocating? Is that

your only solution that you can think of?

Mr. CIACCIA. Mr. Chairman, we are not adamantly opposed to a

tax. We, like Congressman LaTourette and others, are waiting to

see who is going to come forward or how the tax is going to be applied. We do not, we do not, support a tax that is going to go on

the water bill; that is what we are unalterably opposed to. We don’t

think that adding another line item onto the water bill or sewer

bill is the way to accomplish it.

So we are here today to—you know, this is a beginning of a process, as we see it, to work with our partner sewage agencies to determine what is the best method. We certainly support more money

going into—

Mr. DUNCAN. Well, if you don’t want the users, though, to pay

anything, where do you go?

Mr. CIACCIA. Well, the user—when we are talking—when I am

talking about users, I am talking about the out ratepayers. And

that is just it, where do you go?

Mr. DUNCAN. That is the big question, isn’t it?

Mr. CIACCIA. Exactly.

Mr. DUNCAN. Ms. Neely, you have pointed out some problems,

but I also assume that there would be sort of a bureaucratic administrative burden or some problems that would be created if you

tried to go to a bottle tax; would there not?

Ms. NEELY. Yes, that is correct. And it is something we have experienced in States where there are bottle bills in place, that it is

a substantial bureaucracy that needs to be put in place to be able

to administer the tax. So that would have to be factored in.

Mr. DUNCAN. Dr. Luntz, let me go back to you for just a moment.

You heard me mention the agriculture industry a few moments

ago, and certainly even if you don’t represent agricultural districts

as Ms. Johnson said, it is very, very important. The staff told me

that the agricultural use has taken roughly 35 or 40 percent of our

water in one form or another. How do we politically structure

something that—this? I mean, all of us agree that the needs are

there. Anybody who even looks at the surface of this knows that

there are great needs.

Mr. Schenendorf, are there are any comments that you have

about that. How can we do that? You say, well, the political support is there with the 91 percent, and you think that the actions
30

follow the political support. And if that is the case, and I probably

would agree with you on that, how do we go about? What needs

to be done in the most politically acceptable way? You are an expert on this. Tell us how you do it.

Dr. LUNTZ. But I am used to imparting my political advice not

in public, and only for that side of the aisle; so this is very strange

for me.

The answer is that everyone benefits, and therefore everyone

should invest. You are trying to find a specific tax, a specific industry, a specific way to make this easier. The public would say that

whatever you do to a river or stream up in Minnesota is going to

affect what happens when that stream goes to Louisiana; that if

something bad happens—and I have spent 4 years in Philadelphia—it is going to affect the people of Delaware, because there are

no borders, because there are no boundaries. I will tell you that

this could be an issue in the 2008 Presidential campaign if you decided that you wanted to run.

Mr. DUNCAN. There is no danger of that, I can assure you.

Dr. LUNTZ. And that this becomes—if you ask the American people, and you gave them things like education, health care, tax policy, even national security, the ability to have a clean glass of

water is going to be one of the top one or two. And they will gladly—in fact, they would look at the C-SPAN stuff and they would

say, what are they waiting for; just do it.

And that is how this message gets delivered. It is not by Democrats or Republicans, and it is not by political advantage, it is by

someone holding up a glass of water and saying, I don’t want to

see anything else in this except for water.

Mr. DUNCAN. Okay. Thank you.

Mr. Schenendorf.

Mr. SCHENENDORF. What I would add to this is that at the end

of the day you are going to come up with basically an array of interest groups that are going to have to pay into this trust fund. It

is not going to be just one group. And the challenge at that point

for each of the individual stakeholders who will be paying in is to

show them that the trust fund isn’t being financed on their backs,

that they are just paying a fair share, and at the same time showing them the benefits and translating the benefits down to really

what it will mean for that industry if you are able to achieve these

investments, to then let them weigh as to whether or not this is

a fair and reasonable approach.

And, you know, I think at the end of the daythat works. Nobody

is going to volunteer to come up, and as long as they think it might

be financed on their backs, they are going to be opposed; but at the

end of the day, if you come up with something that is fair and equitable, then I think it is achievable.

Mr. DUNCAN. All right. Thank you very much.

Ms. Schwartz.

Ms. SCHWARTZ. I was going to ask a different question, that there

is broad agreement that the American public expects us to take especially for clean and safe water. This is drinking water. People relate to that, and so we should do that.
31

There are going to be some interesting questions about how we

use this trust fund. We are going to have to figure out how to pay

for it. Obviously we have been discussing that.

But I was wondering if you could comment on the big differences

here or the options that we have, the infrastructure we have been

talking about. And there are also the security needs. And maybe

you want to comment on this for the Water Works Association and

just give some comment about how you would see the money being

spent from the trust fund. Do you see that that principally has to

go into the aging and building infrastructure, or on the Federal

level do we have a greater responsibility on some of the security

needs that are facing our water systems across the—well, certainly

we don’t want to see a disaster happen. Talk about galvanizing the

public opinion, all you need is one water system be tainted in either a small or large city, it doesn’t really matter where it happens,

and the fear of the American public would be just tremendous and

require a very rapid response on our part. We would, I think, many

of us, like to see—prevent that from happening. And could you

comment on whether the security issues between a Federal funding

trust fund would trump infrastructure, or how you would see it

being divided?

Mr. CIACCIA. Thank you, Mr. Chairman.

Well, speaking of Cleveland, we are spending—we plan on spending about $15 million on increased security in our system. That

project is under way. And I know through my involvement through

this association here that there are many other water utilities that

are doing likewise. But it is—we are still trying to get our arms

around exactly what type of—what is the standards that utilities

should be looking at in the way of security.

So security is a big issue. It was an unexpected issue that has

hit all of our capital improvement programs. And I would certainly

think that, you know, this particular program here would be integral in addressing those issues, too. But I really can’t give you a

real good answer on it at this point in time because we are still

working with the EPA and the Homeland Security to try to get our

arms around the whole entire security issue.

Ms. SCHWARTZ. Do you think it would be important for us, once

we have a trust fund, to establish those kinds of standards, expectations, and so to learn from what is being done out there now so

that—one of the things the American people are also saying is let’s

be smart about how we do the security; let’s just not throw barriers

without really understanding whether that is the best way to spend

the dollar. Let’s learn from experience of some of the different

water systems already doing some of this, what does work, what

is the most cost-effective as well, so that we will learn from the experience.

But do you think that the system itself should set up standards

for how the money would be invested in securityrelated to infrastructure?

Mr. CIACCIA. Well, Mr. Chairman, I think that is one of the concerns that we have as we continue to go through this process, not

just for security, but for all the spending, what are the standards

going to be for ultimately doling out the money here.
32

But as far as security goes, we are, as an association, and the

other water associations are continuing to work very hard with the

United States EPA and the Homeland Security, and we have

formed the Water Sector Security Council, and we are working

through those issues now. So I can’t give you a really good answer

on it at this point in time.

Ms. SCHWARTZ. Well, I look forward to—if we get to the point of

having to worry about how to spend the money, we are in a good

place. But it is really a serious issue, making sure that once we do

this, we do spend that money effectively and appropriately to ensure safe as well as clean water for the American public.

Thank you, Mr. Chairman.

Mr. BOUSTANY. [presiding.] The Chair now recognizes Mr. Miller.

Mr. MILLER. Dr. Luntz, I like to see how those questions were

asked because that is really unfair, because in California we had

a recent Governor, Gray Davis, that realized that people really get

angry when you apply taxes to them, when they raised the fees on

licensing your cars.

But the phrase that has been said over and over, fair and equitable way of applying a tax, and yet I don’t know which one it was

talking about, that they would not like to see a tax on water bills

or a tax on your sewer bill. And I am thinking every time I get my

water bill in California, about 80 percent of the water to begin with

goes to agriculture use. Residential gets a little over 5 percent in

California. That is all we get.

The first base is at a reasonable rate, and then the next level

they can put a surcharge, and then above that is another surcharge, and above that is another surcharge. By the time I get my

tax bill, I have a sewer fee, then I have a storm drain fee.

So if we are going to try to create a fair and equitable way of

applying a tax, it doesn’t seem fair to go to this company who pays

to clean their water and has to go out and compete in the marketplace and tell them we are going to tax them, but everybody who

turns on a spicket in this country who might be—everybody drinks

water. If you apply it, not everybody can afford bottled water, but

everybody drinks water that they get from their tap. So what type

of fair, equitable way would you apply a tax or fee on people that

would not be applied to their water bill or sewer bill? And anybody

can answer that. That is the problem: Nobody wants to answer

that.

And I agree with you, because if it is fair and equitable—we can

tax the rich, I mean, they can afford it. I guess we can go to one

group out there, and that seems to be the one group we like to go

to when tax increases. But if you are going to be fair and equitable,

and you are going to say we need to make sure this water is safe,

why wouldn’t you apply it to everybody, because everybody drinks

water? So if you go and you want to apply it to somebody who

might buy a chemical, or somebody who produces that chemical, or

somebody who produces bottled water, or somebody who produces

a fertilizer, you go to businesses again and you place an additional

burden on business. If clean water is the issue, why aren’t we

charging it to the people who use it? If it is farmers who use 80

percent of it, well, that cost goes out to the people who eat food.
33

And we all eat food last time I checked—some are even vegetarians

more than others.

But what way is fair and equitable in something like water? You

can’t go and say it is like a telephone. When we originally started

the telephone tax, it was a tax on the rich because only about 1,900

people had telephones, so we are now paying a luxury tax on telephones. Or gas tax; well, that makes sense because people use the

highways, so if they are paying a gas tax, they are using the highway more than somebody who wouldn’t use the highways much because they are not using gas. So if we are going to be fair and equitable, that is fair; and equitable, when that toilet flushes, that is

equitable. So give me a fair and more equitable way than those to

provide clean water.

Mr. SCHENENDORF. I think you have made a very valid point,

and I think that this is similar to the debate that took place over

the gas tax in the 1950s. The States were basically saying the Federal Government shouldn’t tax gasoline because they really wanted

to reserve it to the States.

Mr. MILLER. Don’t like it, but it is a user fee.

Mr. SCHENENDORF. But the Federal Government, ultimately they

didn’t listen to that, and they did impose a Federal gas tax, and

now the States and Federal Government both tax gasoline, and the

system works fine.

Mr. MILLER. But you are in agreement with me on saying when

you fill up your gas tank, you know you are going to take that car

and drive it on the street. And if you are using it for other purposes, then they eliminate the tax if you are not using it to be consumed on the roads and highways. There is no doubt what that

water is used for, you drink it; or if you want to waste it and pay

a huge bill like I do, you water your plants with it. I wish I had

an option, but my plants die in California if I don’t water them, so

I pay a surplus to be able to water those plants.

But if you look at some of the trust funds we have in the Federal

Government right now, many are problematic. And if you want

TEA-LU, you know how problematic they are. Many times it is

trouble getting the appropriators to appropriate the money.

Formula allocations. I can’t wait until you try to determine the

formula allocations because—are you going to be punished if you

do a good job cleaning your water locally, and you don’t get Federal

funds, to somebody who doesn’t clean it, they get more Federal

funds? And fund management, that has got to be huge. And then

we are back to this—the main issue is where are you going to get

the money for the trust fund?

So I agree with you on the water. I am shocked on the numbers

because, Dr. Luntz, I get 700 letters every week, and I get probably

about 10,000 hits on my Website a month. Nobody is talking about

water except when it is not available. So I am trying to see how

do we get there.

Fair and equitable, I understand fair and equitable. I would like

to have somebody define fair and equitable rather than going to

some business in the private sector and say we are going to burden

them with it. I will be honest, burdening a water company who

sells bottled water when bottled water costs more than gasoline

right now—when you go out and buy it in the 7-Eleven or some-
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thing, it is more expensive than gasoline, which doesn’t make sense

at all. So now we are going to place a greater burden, which puts

them at a disadvantage to the public water agencies because now

they have to charge $1.20 a bottle of water instead of getting it

supposedly free over tap.

So I know my time has run out, but if you can think of a way

that is fair and equitable, would you please send me a letter?

Thank you very much. I yield back.

Mr. DUNCAN. Mr. Shuster.

Mr. SHUSTER. Thank you, Mr. Chairman.

I am going to follow along the same line of questioning as Mr.

Miller because that is the question I have. How do we come up

with a system that is fair and equitable? In the end—I mean, we

can tax the water company, we can tax everybody, but in the end

the consumer pays the tax. When I go divide this bottled water, if

the water company is taxed, it is going to be in the price of that.

So I guess the question is, do we be up front about it and say,

okay, I think, as Mr. Miller was saying, fair and equitable was the

end user has to pay that tax, whether it is on food or it is on bottled water or it is on whatever we are using it for, and not put it

on the business because the business is going to pass it along to

the end user.

First question I have, though, is in your polling, Dr. Luntz—and

I might add that Mr. LaTourette rents a born again tieware, he

went to Italy and got some new ties, so I was shocked when he

mentioned your tie. So I just wanted to point that out to you—he

is not here to hear that, but I just wanted you to know for future

reference.

Your polling says 80, 90 percent of Americans support—I am not

sure if I heard you say this, and I wish you would point it out. Do

they believe it is something that we should pay for, fund? They

want clean water; are they willing to pay the price? Are they willing to pay the user fee?

Dr. LUNTZ. They are absolutely, positively, without a doubt, unequivocally willing to pay a price for it. They want it fair and equitable. But when it comes to something that is so basic, so fundamental, so at the core of our day-to-day life, they will pay for it.

I should have responded to Congressman Miller, but I will respond to you. They will appreciate you debating the fund source to

try and do it in the most fair way possible, but in the end, if they

were to learn how old some of that infrastructure was, if they were

to learn—and many of them in the cities—for Congresswoman

Schwartz, I know Philadelphia, and I know how upset people were

about the quality of the drinking water there, they don’t want to

put this off another day, another week, another month, and they

will open up their wallets and their pocketbooks to pay for it. Just

get it done.

Just get it done.

Mr. SHUSTER. So on that bill they get every month from the

water company, if it is 1 percent, 2 percent, whatever the tax is,

they are willing to do that?

Dr. LUNTZ. They are willing to do it if they know it is going to

get done. I mean, I am now trying to show you their frustration.

Their attitude is Nike, just do it.
35

Mr. SHUSTER. When I hear those numbers in my district, which

is a conservative district, fiscally conservative, I have seen township supervisors lose races because they put in a system, raise

rates from $30 to $45; they lose races because of that. So when I

am out there, it is almost a disconnect. To me, I can’t understand

at times why somebody is willing to pay $100 to get cable but

aren’t willing to go from 35 to $45 to get clean water and take care

of the waste.

Dr. LUNTZ. I will give you the statistic. If you learn your Congressman voted for the creation of a Federal trust fund that would

guarantee annual funding for clean and safe water, how would it

impact your vote? Among Democrats, 86 percent more likely to vote

for that individual; only 5 percent less likely. Among independents,

79 percent to 10 more likely. Among Republicans, supposedly antitax, antigovernment party, 71 to 18 more likely to vote for that individual if you get the job done. They are not saying go ahead raise

my taxes or increase the Federal bureaucracy, they are saying you

create that funding and do what it is meant to do and we will pay

for it and we will vote for it.

Mr. CIACCIA. Mr. Chairman, this is exactly how our members

predicted that this debate would take place; that in the end, it

would come into what is equitable and the discussion would start

centering around, well, just put it on the water bill. And that is

fine.

And with all due respect to Dr. Luntz, as long as I am getting

at least 100 percent of my investment on that water bill back—but

we know that can’t happen because Cleveland has much greater

needs than Anaheim, California. And so that is not going to happen. And so I am not so sure they are going to be willing to pay

that extra dollar on that water bill if they are only going to get

$0.75 back.

This is exactly what our members anticipated would—how the

debate would go down. And so we just think if it comes to that, we

might as well continue to deal with it locally. On the water side,

drinking water side, we never had big Federal programs, so we

have been doing this on a rate increase basis. But we are going

into a different realm here now, and that is the basis of our concerns.

Mr. SHUSTER. I understand that concern. That is the real tricky

part about this. Where I come from, our water flows right into the

Susquehanna which feeds the Chesapeake. We are getting regulations from the EPA and our State DEP and it is causing a tremendous burden. Just like the interstate highway system. I know Congressman Miller’s concern, because California doesn’t get the return that Pennsylvania does, if you like, at interstate travel. Same

with the water. It starts in Pennsylvania or starts in Minnesota

and flows down. We are going to have a greater expense to keep

it clean to the end user, and that is in Minneapolis or Philadelphia.

So that has to be balanced out, and people don’t like to hear that,

but that is the reality of it.

If you could quickly—each of you represent an industry—quickly

and succinctly, if it is possible, what would your industry see as a

tax, a broad end-user fee, or a combination, weighted one way or

the other?
36

Mr. SCHENENDORF. It would be a combination of things. Again,

just like a broad gas tax, but there are taxes on trucks and the

like. And in the highway trust fund, it is a broad base.

Mr. SHUSTER. Do you have another comment on that issue I was

talking about?

Mr. SCHENENDORF. It is not all or nothing. If there is a tax on

the water user, there would likely still be other taxes like the truck

taxes that are in the highway trust fund that would supplement it.

Dr. RUBIN. Same answer. And it addresses the main question

that you and Mr. Miller have been raising, which is what is a user?

And in the case of the highway trust fund, it is very simple. If you

want to use the highways, you have to buy gas.

It is not that simple in our case. And you characterized the users

as those who drink water. That is only one kind of user. People

who have recreational boats, they are users. People who go to the

beach, they are users. Environmentalists who believe in supporting

wildlife, they are users. So a very broad base of broadly defined

users encompassing all of that.

Mr. SHUSTER. Not just people who drink water. If you use water

in any way, you have to bear some responsibility.

Dr. RUBIN. They will benefit by the fact that it is cleaner.

Mr. CIACCIA. I would echo with Dr. Rubin. As far as the water

utility bills themselves on the drinking water side, we think we can

continue to invest through our local water rates; CSOs, SSOs on

the sewer side being a much different situation. That is what has

got us all here today.

Ms. NEELY. I think we are all liking Dr. Rubin’s appraisal of a

broad base of responsibility. We just want things to be applied equitably. We have statistics that say the agriculture and thermoelectric power production account for about 82 percent of the total

withdrawals and paper and semiconductors or other large-scale industrial users. So again, broad base of responsibility.

Mr. SHUSTER. I appreciate all of your answers. It sounds like we

have some consensus here already. I not only think that this is important. As Dr. Luntz’s polls point out, in the future, 20, 30, 40,

maybe not in my lifetime, water is going to be more valuable than

oil. If we don’t start looking at it today and figure out how to do

this, we are going to be fighting over water. And we see what is

happening in the southwest and they don’t have enough water. At

any rate, I appreciate all your answers. And thanks for being here

today.

Mr. BOUSTANY. [Presiding.] Dr. Luntz, I have a quick question

for you. In your polling, did you see any differences when you broke

out urban versus suburban versus rural respondents?

Dr. LUNTZ. The biggest difference is partisan. There is some difference. The difference is that you have 90 percent of Democrats

supporting these various principles. Low 80s among independents,

mid to upper 70s among Republicans. There are some differences

between States and regions, but not very significant. It is more of

an ideological attitude than a regional attitude.

Mr. BOUSTANY. Certainly from the health standpoint—and I was

wondering if any of the panels could share examples or studies that

linked public health problems with inadequate water supplies in

this country.
37

Dr. RUBIN. Not so much inadequate water supplies, but what

comes to mind is inadequate wastewater management. Just look to

any beach closing and our own closest beaches here, Bethany

Beach or Ocean City. Last summer those beaches were closed for

periods of time after heavy rains. That is due to runoff and inadequate CSOs, combined sewer overflows. The incidents in New Jersey 10 years ago with medical waste washing up, combined sewer

overflows in Chicago. They are in the papers every day. There is

a very clear relationship.

Mr. BOUSTANY. Thank you. Are any of you aware of any public

awareness campaigns that have been waged locally or on a State

level that have raised these issues? Obviously, I think one of the

problems is that the general public really doesn’t have a high level

of awareness of many of the issues facing rural communities and

some of the other older water structures in some of the cities. Are

you aware of any public awareness programs that have been

launched?

Mr. CIACCIA. Mr. Chairman, we have been educating our own

utility managers, I couldn’t give you any answers as to any broadbased public awareness programs at this time.

Mr. BOUSTANY. Seems we will have to start on that front as well.

I want to thank all of you on behalf of the subcommittee for sharing your testimony with us. We appreciate it and we look forward

to working with you into the future as we try to solve some of these

critical needs. Thank you.

We now stand adjourned.

[Whereupon, at 12:05 p.m., the subcommittee was adjourned.]
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FINANCING WATER INFRASTRUCTURE

PROJECTS

Tuesday, June 14, 2005

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON WATER

RESOURCES AND ENVIRONMENT, COMMITTEE ON TRANS- PORTATION AND INFRASTRUCTURE, WASHINGTON, D.C.

The subcommittee met, pursuant to call, at 9:59 a.m., in Room

2167, Rayburn House Office Building, Hon. John Duncan [chairman of the subcommittee] Presiding.

Mr. DUNCAN. I would like to call this hearing to order and welcome everyone here today. Today is the continuation of our twopart hearing on financing water infrastructure projects, a very important topic for this entire Nation.

We held the first part of this hearing last week, on Wednesday,

June 8. At that hearing, we heard testimony about the concept of

creating a national clean water trust fund as a means for financing

wastewater infrastructure needs. Dr. Frank Luntz discussed the results of his recent public opinion survey, including the public’s perception of the need for clean water, and more importantly, their

willingness to pay money to get it.

The survey found that most Americans believe that clean and

safe water is a national priority, and would support the creation of

a sustainable trust fund for wastewater infrastructure. In fact, according to his survey, 71 percent would give a priority to clean

water projects, 20 percent to highway funding, and 3 percent to

aviation funding.

Representatives of the Association of General Contractors of

America, the National Association of Clean Water Agencies, the

American Waterworks Association, and the American Beverage Association all provide additional perspectives on creating and funding a national clean water trust fund. It is clear from last week’s

testimony that one of the most complex aspects of moving from a

trust fund concept to reality will be determining the funding

sources for such a trust fund.

Today we will build on the information we obtained from last

week’s hearing by focusing on other mechanisms for funding wastewater infrastructure. We will hear today from a representative of

the City of Dallas who will talk about the financial pressures faced

by local governments to meet their water infrastructure needs and

what they are doing to meet those needs.

We will hear from a representative of the Texas Water Development Board representing the Council of Infrastructure Financing

Authorities who will discuss the role of State financing authorities

in advancing innovative debt financing techniques and assuring the

availability and accessibility of adequate and economical funding

for water infrastructure.

The Maryland Water Quality Financing Administration; the representative of that administration will discuss Maryland’s Chesapeake and Atlantic Coastal Bay’s Restoration Fund and its associated fee system.
111

A representative of Lehman Brothers will discuss private activity

bonds as another potential means of making additional capital

available to local communities.

A representative of the Rural Community Assistance Partnership

will discuss State-level best practices in the delivery of financing

to small communities.

Finally, a representative of the Coalition for Alternative Wastewater Treatment will discuss innovative ways for reducing infrastructure needs and costs through the use of decentralized and

nonstructural approaches for managing wastewater.

I hope our witnesses will bring forward ideas on how we can increase funding for wastewater infrastructure, a great need in this

Nation, and will help us identify potential willing revenue sources

and ensure equitable means for generating revenues.

Let me now turn to our ranking member, Mrs. Johnson, for any

opening statements she would like to make.

Ms. JOHNSON. Thank you very much, Mr. Chairman, for holding

this second hearing, and I look forward to hearing the witness’s

suggestions and recommendations as to how we fund our Nation’s

water.

Our Nation’s water and wastewater infrastructure is of critical

importance to the health of our citizens, our environment, and our

economic State. With our Nation facing an unparalleled possibility

of failure of this infrastructure, we must address how to finance

improvements in order to avoid threats such as increased sewage

overflows, closed beaches, and contaminated drinking water.

During our last hearing on this topic, we held an important conversation on the possibility of creating a trust fund for water similar to those used by the highways and aviation. Today we will hear

of other possibilities for funding besides those relying on Federal

funds, trust funds. For example, the Deputy Mayor of the City of

Dallas, who is my city councilman, will discuss the potential of

modifying the Tax Code to allow for a tax deduction for water and

wastewater utility fees similar to the deduction currently authorized for local property tax. Allowing the deduction of water and

wastewater expenses could reduce the impact on customers of rate

increases to fund the infrastructure projects.

Again, I am very interested in hearing our witnesses, and I

thank you very much for holding this hearing.

Mr. DUNCAN. Thank you very much. I would like to call on now

the vice chairman of the committee, Dr. Boustany, for any statement he wishes to make.

Mr. BOUSTANY. All I want to say, Mr. Chairman, is I thank you

for holding the hearing and I am eager to hear the testimony.

Thank you.

Mr. DUNCAN. Thank you very much. Mr. Salazar.

Mr. SALAZAR. Thank you, Mr. Chairman, and Ranking Member

Johnson. Last week, this subcommittee heard testimony from Dr.

Frank Luntz and the National Association of Clean Water Agencies

and others on the public support and need for the dedicated source

for funding for clean water projects. The cross of Third Congressional District of Colorado communities are struggling with how to

pay for competing and costly infrastructure improvement projects.
112

For instance, in Mesa County, the Clifton wastewater treatment facility is in need of improvements for up to $2 million in order to

meet the new Federal guidelines. In Alamosa, Colorado, as the

EPA tightens the Federal guidelines on arsenic, they are required

to build something to the tune of $6 million. But with only 12,000

residents in Clifton and 10,000 residents in Alamosa, and the

struggling economies, the projects are nearly impossible without

Federal assistance.

As my fellow subcommittee members know, Federal funding

streams continue to dry up in most recent attempts by the House

interior appropriations bill, which cuts funding for the Clean Water

State Revolving Loan Fund.

Mr. Chairman, I would like to close by reemphasizing my sentiments from last week. This Congress must tackle issues of how to

create a dedicated source of Federal funding for clean water

projects. Water is a shared resource, and each one of us has a responsibility to protect and preserve it for our own use and future

generations. Thank you, Mr. Chairman.

Mr. DUNCAN. Thank you very much.

We are always pleased to be joined by the former chairman of

this subcommittee and the chairman of the Full Science Committee, Mr. Boehlert, for any comments.

I believe Mr. Baird doesn’t have a statement, either. Is that correct?

Mr. Gilchrest.

Mr. GILCHREST. Thank you, Mr. Chairman, for holding this hearing. And I would like to welcome Mr. Jag Khuman from the State

of Maryland, director of the Water Financing Administration. Mr.

Chairman, there are always money problems and there are always

water problems. So Mr. Khuman and the State of Maryland and

our former colleague, Bobby Ehrlich have basically to a large extent, resolved most of that trouble by sharing the cost in a very equitable fashion among all the citizens of Maryland with what we

affectionately call the flush fee.

So anybody who has flush toilets is going to pay a couple of

bucks a month, raising millions of dollars to target the 60 most

problematic sewer plants. And this will be a program that will not

only resolve those nutrient issues from wastewater plants, but also

from septic tanks, and be able to use the Federal dollars which are

always limited to those more rural smaller areas of the State that

need help as well. So I think Maryland has done a fine job, and

I want to welcome Mr. Khuman here this morning. Thank you, Mr.

Chairman.

Mr. DUNCAN. Thank you very much, Mr. Gilchrest. Always a

very active member of this subcommittee.

Mr. Brown.

Mr. BROWN. Mr. Chairman, I just welcome the panel this morning. I know the panel we had last week was trying to find a dedicated fund to fund the water needs of this Nation, and I would

hope maybe somebody here might come up with a good solution. I

heard a $2 flush fee. If we could solve the whole water system with

a $2 flush fee, I think that would be a super solution. But, anyway,

thank you all for being here this morning. Thank you, Mr. Chairman.
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Mr. DUNCAN. Thank you. Judge Poe. All right. Well, thank you

very much. We are ready to proceed with our panel of witnesses.

We have a very distinguished panel today. We have representing

the City of Dallas, the Honorable Donald W. Hill, the deputy mayor

of Dallas. He is a District 5 council member, and, of course, from

Dallas.

We have representing the Council of Infrastructure Authorities

Mr. J. Kevin Ward, who is executive administrator of the Texas

Water Development Board from Austin.

We have representing the Maryland Department of the Environment Mr. Jack Khuman, who is the director of the Maryland Water

Quality Financing Administration from Baltimore.

We have representing the Lehman Brothers Mr. Stephen Howard, who is the senior vice president of that organization from the

city of New York.

We have representing the Great Lakes Rural Community Assistance Partnership Ms. Debra Martin, the RCAP program director

from Fremont, Ohio.

And we have representing the Coalition for Alternative Wastewater Treatment Dr. Valerie I. Nelson, who is the director of that

coalition, and she is from Gloucester, Massachusetts.

We thank all of you for being here with us today. Always, we

proceed in the order the witnesses are listed on the call of the hearing. In this subcommittee, the staff usually puts the men first and

the ladies last; maybe we should change that around sometime. At

any rate, we won’t do that today. Councilman Hill, we can begin

with you.

TESTIMONY OF DONALD HILL, DEPUTY MAYOR PRO TEM, DALLAS, TEXAS; KEVIN WARD, EXECUTIVE ADMINISTRATOR,

TEXAS WATER DEVELOPMENT BOARD, REPRESENTING THE

COUNCIL OF INFRASTRUCTURE AUTHORITIES; JAG

KHUMAN, DIRECTOR, MARYLAND WATER QUALITY FINANCING ADMINISTRATION, MARYLAND DEPARTMENT OF THE

ENVIRONMENT; STEPHEN HOWARD, SENIOR VICE PRESIDENT, LEHMAN BROTHERS; DEBRA MARTIN, RCAP PROGRAM DIRECTOR, GREAT LAKES RURAL COMMUNITY ASSISTANCE PARTNERSHIP; AND VALERIE NELSON, DIRECTOR, COALITION FOR ALTERNATIVE WASTEWATER TREATMENT

Mr. DUNCAN. Let me say this. Your full statements will be placed

in the record. In consideration of other witnesses, we ask that you

limit your statement at this time to 5 minutes. We give you 6 minutes, but when that 6-minute time period runs out, to be polite to

the other witnesses you will see me signal, and that means stop.

All right. Thank you very much. Mr. Hill.

Mr. HILL. Thank you very much, Chairman Duncan, and Ranking Member Johnson, who I appreciate very much the pride in

which she does identify herself as one of my council constituents,

and I am very proud to have her. We really do appreciate this opportunity to testify today on this issue of vital importance to our

city and the cities of our size and other sizes throughout the Nation. As you have identified, I am the chairman of our city’s finance

and audit committee, so that the responsibility of trying to fund
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and finance these issues falls very squarely on my shoulders from

a leadership standpoint.

Of all the services that local governments provide, none contributes as much to public health, the environment, and general public

welfare as water and wastewater service. Maintaining and expanding the infrastructure needed to provide this critical service while

meeting Federal mandates is a very costly challenge for our city

and others as well. And I certainly do appreciate the fact that we

are beginning this dialogue and discussion about how can we help

local governments finance water and wastewater infrastructure

projects.

Just to tell you a little bit about our city, we are a regional water

provider. The City of Dallas provides drinking water and/or wastewater service to over 2.2 million people in Dallas and 28 neighboring communities spread over 699 square miles. A recently completed update to the city’s long-range water supply plan indicates

that Dallas will be providing water and/or wastewater service to

more than 4.5 million people by 2060. Our Department was founded in 1881. It operates three drinking water treatment plants with

865 million gallons of capacity per day to wastewater treatment

plants with over 260 million gallons of capacity per day, 4,700

miles of water mains, and over 4,100 miles of wastewater mains.

Impressive statistic: If laid to an end, our water mains could reach

from Dallas to London, and our wastewater mains would reach

from Dallas to Honolulu. This is a very large and complex system.

We certainly do recognize that. And, to some extent, citizens don’t

really know how much is really actually taking place as a part of

this process until we have one of our major water breaks or some

other kind of problem. As our Nation’s wastewater and water infrastructure deteriorates with age, you and I will increasingly hear

about those service problems from our constituents.

Our water department is funded solely by water and wastewater

rates paid by our customers. In addition, the city issues revenue

bonds back by its ratepayer base to finance major capital improvement projects. In fact, we just put a policy in place where we have

stretched out the period of time in which we finance those from 20

years to now 30 years.

Dallas’s drinking water currently comes from five surface

sources: Grapevine Lake, Lake Lewisville, Ray Roberts Lake, Ray

Hubbard Lake, and Lake Tawakoni. In addition, the city has water

in reserve in Lake Fork and Lake Palestine. The City’s Water Department maintains a proactive approach to long-range water planning, and recently completed an update to our long-range water

supply plan that identifies water supply demands and sources to

meet area demands through 2060. It includes conservation, drought

emergency planning, and an increased use of recycled water for

non-potable purposes, including irrigation and industrial uses and

using recycled water for potable purposes to augment our existing

supplies.

Our challenges are significant. Like many cities, Dallas faces the

dual challenge of replacing aging water and wastewater infrastructure and meeting Federal demands related to safe drinking water

and clean water. We are aggressively undertaking a comprehensive
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program to replace our aging water and wastewater infrastructure,

some of which dates back to the early part of the last century.

Over the next 10 years, we and our water department plan to

call for spending, we are going to spend $2.5 billion on capital improvements ranging from replacing water and wastewater mains to

increase the capacity and modernizing our treatment plants. Virtually all this work will be financed by ratepayers and the issuance

of revenue bonds. This puts a severe strain on our city’s finances

and on ratepayers. Much of it is necessary for the city to meet Federal drinking water and clean water standards and environmental

regulations.

Over the last 2 years, we have increased our water and wastewater, or sewage rates, rather, by 11.3 percent and 7.9 percent respectively, and we estimate in this new budget year that we will

probably pass on increases of 7 to 8 percent, and it will be something along those lines in terms of percentage increases over the

next several years to finance these costs of constructing new and

replacing infrastructure. This has posed, as you would expect, a

very, very significant issue for us both politically and just the financial burden of trying to handle the costs.

While we do recognize that providing water and wastewater service is a local responsibility, there, in our view, is an important role

for the Federal Government to play in financing water and wastewater infrastructure. We strongly support the goals of both the

Safe Drinking Water Act and the Clean Water Act. However, both

laws place expensive mandates on cities that the Federal Government we believe should help to meet.

The Federal Government helps State and local governments finance many kinds of infrastructure, most notably highways, airport, and transit, and we believe there is a sound basis for Congress to provide this kind of assistance as funding, for all three

easily translate into numbers of jobs and measurable mobility improvements. However, in our view, it is important to note that,

without safe and reliable drinking water and sanitary sewage service, jobs and mobility mean very little. It is clear that wastewater

and infrastructure financing would help local customer rates and

make them more affordable. And we, again, thank you.

Mr. DUNCAN. Thank you very much, Councilman Hill. A very fine

statement. In the 5 years I have chaired this subcommittee, I think

I have been visited by about 70 or 80 mayors of almost every large

city and many small cities to tell me that this is probably their biggest, most difficult problem. But thank you for your statement.

Mr. Ward.

Mr. WARD. Thank you, Chairman Duncan, Ranking Member

Johnson, Vice Chairman Boustany, and members of the committee

and staff. This conference for Infrastructure Finance Authority

greatly appreciates the opportunity to be here today and share with

you our views of what the needs are for investment and infrastructure across the country. We represent collectively almost every

State and some of the territories, and we are the entities that are

administering your clean water State revolving funds across the

country as well as, in many cases, the drinking water State revolving funds.
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We think our members are out there on the forefront of the development of these types of programs, and in many cases, our

members represent agencies that have been doing these programs

for decades and even before the Clean Water SRF came along. The

Ohio Water Development Authority is a great example of that.

They have got a long-standing program. And you will see some of

the innovation that we have talked about in our testimony, evidences that those type of agencies that are entrusted with this valuable resource that Congress has provided to the States have been

very effective at administering these programs and finding a way

to make them apply at the State level.

I have got four major points that we decided as an organization

we wanted to make here today. One, it is working. The congressional investment that you have continued since the appropriation

authorization ended with the Act, since 1994, has been well spent.

And it has, I guess, your continued investment shows us that you

believe it is well spent. So we agree, and we want to make that

point.

Also, it has been leveraged and in more than one way. We will

get to that.

There has been innovation and flexibility created in the program,

and it is because of the way it was set up, the way that the enabling legislation authorized the States to take some ownership of

the process and establish priorities within the State under a structure that the Federal Government had designed.

Also, we want to work with you going forward and offer our assistance in trying to help Congress in their deliberations on how to

change this program and help it meet the changing needs that are

out there that you are hearing about, needs that were expressed

very well here by Mayor Hill.

We, of course, have been feeling the pinch of the cuts that have

come down lately on the programs, and we wanted to tell you what

the real impact of that is. I think there has been a lot of analysis

that has been shown to you that demonstrates of course that there

is a corpus, an amount that you have in this investment. It is not

a trust fund in a true sense, but, in essence, what you have is your

investment in a vehicle at the State level that is a shared resource

now. Congress sets the tone for the type of priorities it wants, then

the States take that and they translate it in what the actual priorities are at the State level.

In doing so, we have developed different mechanisms for delivering these funds. I guess we would like to say, if it isn’t broke, don’t

fix it, but, in essence, you have taken a little over $25 billion worth

of investment over the years and we have turned it into almost $50

billion worth of projects now. And I would say that the more the

States are leveraging, so we think that that will actually grow and

be leveraged at a higher ratio going forward.

That is just the capital leveraging on this. When you get into the

testimony, you will see we have also demonstrated that there are

a multitude of programs out there that are designed for niches that

we will put together with a comprehensive project in a community

so that we meet the needs of the entire community, and we believe

we walk away with a sustainable infrastructure for that community.
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You know, examples of that exists not only in Texas, but also

States like Ohio, Massachusetts. I think Montana being a rural

State is an excellent example. We highlight that here because they

have combined other Federal programs and actually do a singular

application and make it easier for those rural applicants that don’t

really have the technical expertise to access these programs. And

we all know that it is very complex.

You have had, I am sure, mayors of small communities and midsized communities tell you that this is not easy. It is rocket science

in many cases. Well, this program is designed comprehensively to

provide that technical assistance to bring those projects in as well

as meet the needs of the largest cities like the Dallases of the

world, the Houstons of the world, and get them off of compliance

orders. Combined sewer overflows have been met, stormwater

projects. We have even gotten to the point in some States where

they link up deposits with banks and they will provide assistance

to thousands of individuals to remediate septic tanks. So the program is very healthy and it has been operating quite effectively.

I would like to turn my focus right now to some of the improvements that we think could be helpful going forward.

First off, we endorsed H.R. 1560 in the last Congress. We believed that it was really a good template to work from, and we

were willing to sit down and work out any of the details that would

have made sure that it would be effective. We also believed that

within that some of the priorities were the transferability of funds

that is between the clean water and the SRF, because the drinking

water is just getting off the ground; clean water is strong, and they

need to be able to transfer those funds and also be able to let the

State have the discretion and a little bit of the money in between.

Extended loan terms for the useful life of projects. We have seen

30-year loan terms be very effective, and the facilities do last that

long, so we do believe that is important. Also, that will help disadvantaged communities immensely.

Those are the ones. And then fee language, of course. You know

we run into that issue all the time. With the leveraged program,

if you look at the percentage that you can allow in the program

right now for the administration of the program, it is just not proportionate to an unleveraged program. So we would like to see

some relief there.

Finally, in the area of tax law, there were some areas that we

recognized in 1560 with regard to arbitrage rebate. Those really do

need to be addressed. It is your investment. It is Congress’s investment in the States. And then I think that, profoundly, everyone

takes ownership of it. And if we want to see the investment maximized, then indeed we need to see these issues addressed. I thank

you very much for the time you have given me.

Mr. DUNCAN. Thank you very much, Mr. Ward. We will get into

more detail with questions from members.

Mr. Khuman.

Mr. KHUMAN. Mr. Chairman and members of the committee, my

name is Jag Khuman. I serve as the director of the Maryland Quality Financing Administration, which is responsible for the financial

management of the Maryland Water Quality Revolving Loan Fund,
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the Drinking Water Revolving Loan Fund, and the recently enacted

Maryland Bay Restoration Fund, fondly known as the flush fee.

Thank you for inviting me to speak about the Maryland Fee Restoration Fund, a major new State initiative for financing sewer infrastructure projects. The 2004 water quality needs survey estimates that over $6 billion of sewer infrastructure needs in Maryland alone, which is a

small State, over the next 20 years. One key needs category is the

capital cost to upgrade wastewater treatment plants with advanced

treatment for nutrient removal, primarily nitrogen and phosphorus, before the treated affluent is discharged into the Chesapeake Bay.

Under the 2000 Chesapeake Bay agreement, Maryland and its

neighboring States have made certain commitments to reduce nutrients loadings, and Maryland’s numerical limits is a maximum

nitrogen loading of 37 million pounds per year and a phosphorus

loading of 2.9 million pounds per year, and to be achieved by 2010.

To meet this goal, Maryland still needs to reduce nitrogen by 20

million pounds per year and phosphorus by 1.1 million pounds.

Since 1985, the State implemented the biological nutrient removal program called the BNR program where the State provided

50 percent of capital costs in State grant funding for the design

and construction of BNR at wastewater treatment plants with half

amillion gallons per day or more of capacity. The remaining 50 percent of the costs were financed through the Maryland revolving

loan fund as a low interest rate loan. State funding came in the

form of State general obligation bond appropriation.

The goal of the BNR program is to reduce nitrogen levels in the

treated wastewater down to 8 milligrams per liter. For example, a

typical wastewater treatment plant discharges nitrogen at about 18

million grams per liter, and the BNR will bring that down to 8.

Through 2005, the State of Maryland has provided $208 million in

grant money, and it is estimated another $92 million is needed

over the next 3 to 6 years.

Recognizing that significant efforts still needs to be made to reduce nitrogen loading by 20 million pounds per year and phosphorus by 1.1 million pounds per year to achieve the targeted nutrient reduction goals by 2010, Maryland Governor Robert Ehrlich

proposed legislation during 2004 to create the Bay Restoration

Fund. The BRF, the Bay Restoration Fund legislation was passed

by the Maryland general assembly and signed into law in May

2004. The Bay Restoration Fund legislation created a dedicated

source of new State funding to upgrade the sewage treatment

plants from the BNR level to what we now call the enhanced nutrient removal levels, ENR, and will provide 100 percent in grant

funding. Under ENR, the wastewater treatment plants will be upgraded for nutrient removals to bring nitrogen down to the state

of technology 3 milligrams per liter discharge and 0.3 milligrams

per liter for phosphorus.

The capital cost to upgrade the largest 66 facilities in Maryland

would cost approximately $740 million. These wastewater treatment plants account for about 95 percent of the total sewage treated in the State. Once completed, these ENR upgrades will achieve

an estimated 7.5 million pounds per year of additional nitrogen re-
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duction and 260,000 pounds per year of phosphorus reduction. This

action is only about 37 percent of the 20 million pounds per year

goal for nitrogen reduction and 24 percent for phosphorus. The

Maryland Bay Restoration Fund will be financed through a fee of

$2.50, essentially $30 per year, on each household that is connected

to a wastewater treatment plant.

Similarly, nonresidential users like businesses and commercial enterprises will be paying $2.50 per equivalent dwelling unit for

the first 3,000 equivalent dwelling units, and then on a sliding

scale pay $1.25 per EDU for the next 2,000. No single business will

pay any more than $10,000 per month.

The BRF fee, the Bay Restoration Fee for users connected to

wastewater treatment plants became effective January 1, 2005,

and the fees will be collected by the local municipalities and building authorities that currently send out the water and sewer bills.

It is estimated that $60 million per year will be generated. The financing plan is essentially we will have $60 million a year

coming in, we will leverage that to issuing revenue bonds, and we

estimate some $510 million of revenue bonds will be issued so that

we can complete these upgrades in the next 5 to 6 years.

The Bay Restoration Fund also instituted a fee on septic tank users, which is essentially the same $30 a year for everybody who

is on septic tanks, and that money will be essentially used for 60

percent of the money to upgrade sewage septic tanks with nitrogen

removal technologies and the balance for the Cover Crop program.

In summary, Federal funding is insufficient to meet water quality infrastructure needs, and the States are trying to develop their

own funding programs to fill this gap. With over $6 million in future water quality needs, we believe increase Federal funding is

necessary. Thank you.

Mr. DUNCAN. We will cut you off there, Mr. Khuman, and we will

get into more detail in the questions from the members.

Mr. Howard.

Mr. HOWARD. Thank you. Mr. Chairman and members of the

subcommittee, I am Stephen Howard, representing Lehman Brothers. On behalf of Lehman Brothers, we are very grateful to appear

here before you today and offer our thoughts on possible tools to

help bridge the funding gap that exists in the country’s water quality infrastructure needs. I have been at Lehman Brothers for over

22 years, during which period I have financed over $7 billion of

water, solid waste transportation, and public facility infrastructure

projects in the tax exempt and taxable bond markets.

Today I want to present some thoughts on one tool that could be

added to the financing toolbox that could provide an immediate

benefit to the priority of unleashing capital to construct water quality infrastructure. I would like to note that the legislation has been

introduced on this tool that is pending before the House Committee

on Ways and Means. This bill would amend existing tax policy to

allow local communities to leverage the capital markets in combination with other financing mechanisms.

Essentially, H.R. 1708 would provide for the unfettered use of

tax exempt securities, known as exempt facility bonds or private

activity bonds, so-called PABs, to finance water quality infrastructure projects. As an important aspect of this financing tool is that
120

it would not, according to the Joint Tax Committee, significantly

affect the Federal Treasury. Stated another way, there would be

negligible impact upon the Federal budget. I would encourage the

subcommittee members to review this legislation and consider cosponsoring the bill as a means to help address our water quality

infrastructure funding gap.

I would like to take the remaining time I have today to explain

how this tool works and offer a real world example that illustrates

how a scarcity in environmental infrastructure assistance was met

using PABs, and thus addressed an environmental protection compliance issue. The financing options for infrastructure projects, tax

exempt bonds, governmental purpose bonds, which most of you are

familiar with, have been issued by governments for years. The second option with tax exempt is private activity bonds, which is the

subject of this discussion. Taxable bonds are also possible but more

expensive, as well as private equity from private participants and

projects.

It is important to note that taxes and private activity bonds are

typically used on project-financed public-private partnership transactions and are repaid by ratepayers through retail or wholesale

user fees.

This is a graphic, sort of replaying the previous slide, talks about

the costs and the spectrum of financing options, taxes and governmental purpose and private activity bonds are over on the left-hand

side. The key point that this chart makes is that there are a variety of options that are available if we could use private activity

bonds to optimize and expedite the development of water quality

infrastructure projects.

This is a chart that shows the availability of governmental purpose bonds as well as private activity bonds on an asset-classed

basis. As you know, that is a real patchwork currently in the Tax

Code, and the only category that has access to private activity

bonds across all ownership and project structure types is solid

waste. And the reason solid waste has this option is because of the

crisis that existed in the mid 1980s, it had to be addressed. And

we want to fill the same, we want to fill the checks in for water/

wastewater as well.

We will use solid waste as the means to determine what impact

the availability of private activity bonds would have on the

issuance of private activity bonds for water/wastewater projects.

As I mentioned, the municipal solid waste sector faced a crisis

in the early 1980s due to declining landfill capacity and rapidly increasing disposal costs. U.S. Congress responded to this crisis by

eliminating taxes and private activity bond cap for municipal solid

waste disposal projects in the Tax Reform Act of 1986. As a consequence, over 15 billion of PABs have been issued since 1986 to

help fund the development of new infrastructure to help solve the

municipal solid waste disposal crisis.

This chart shows the amount of private activity bonds issued for

water projects. In the past 25 years, you can see the blue for private activity bonds for water, and then the purple for governmental

purpose. Private activity bonds are available for water projects, but

they are subject to the State bond cap which severely restricts their

use, as you can see in this chart.
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This is a pie chart that shows, of all the taxes and bonds that

have been issued for water/wastewater over the past, since 1986,

only 1 percent was private activity bonds.

This shows the issuance of private activity bonds for solid waste

projects. Again, private activity bonds are in the blue bars and governmental purpose are in the purple bars, much higher issuance,

because private activity bonds are not subject to the State bond cap

allocation. A much higher percentage. Over 40 percent of tax exempt bonds issued for solid waste projects were private activity

bonds that released much more private participation in the development of this infrastructure.

Solid waste private activity bonds have equaled over 40 percent

of total issuances compared to 1 percent for water/wastewater, an

average of 700, almost 800 million of private activity bonds for

waste projects since 1986 compared to only 240 million for water/

wastewater.

Based on the experience in the solid waste sector, we believe private activity bond issuance for water/wastewater projects would

significantly increase and help expedite the construction of new

projects as it did in the solid waste sector. Actual issuance of PABs

for water/wastewater projects will be based on the number of

projects ready to be financed, particularly where the public sector

wants the private sector to assume a greater role and assuming development technology and performance risk. With the elimination

of the bond cap for water/wastewater projects, it is reasonable to

expect that 1 to 2 billion of PABs would initially be issued annually

and could double or triple annually over time as the Triple P, public private partnership, water/wastewater industry matures.

Mr. DUNCAN. We will have to stop there. But thank you. This

has been very helpful and informative testimony, and we will get

into more detail in a few minutes.

Ms. Martin.

Ms. MARTIN. Chairman Duncan, Ranking Member Johnson, and

members of the committee, I thank you for the opportunity to testify before you today on the need for wastewater infrastructure for

rural communities. I am the director of the Great Lakes Rural

Community Assistance Program, and our RCAP serves seven midwestern States, including Indiana, Illinois, Kentucky, Michigan,

Ohio, West Virginia, and Wisconsin. I am also pleased to attend

this hearing on behalf of the Rural Community Assistance Partnership. With regional partners throughout the U.S., RCAP comes representing the interests of low income rural communities.

RCAP is a national network of nonprofit technical assistance organizations that work with over 2,000 communities throughout the

U.S., Puerto Rico, the Virgin Islands, and Guam. For more than 30

years, our organizations have provided assistance with the development, management, financing, and operations of rural water and

wastewater systems.

As many of you know, rural communities sit at a disadvantage

in financing water and wastewater infrastructure. Rural residents

are three times as likely as their urban counterparts to lack water

and sanitary sewer services. When these services are available,

they pay, on average, three times as much for them simply because

they lack sufficient users to create economies of scale. The gap be-
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tween the current need and existing financing for infrastructure in

rural areas is well documented. Further, small communities face a

growing set of challenges in terms of meeting increasingly stringent water and wastewater regulations.

At the same time, rural communities face a shrinking pool of

government financing resources. Many rural residents are already

paying a significant portion of their income for these services. It is

unrealistic to expect that increasing user fees alone can solve the

problem and eliminate the funding gap.

We have also become increasingly concerned with the inconsistency of infrastructure financing mechanisms across the U.S. Rural

community financing varies significantly by State. Some States run

chronically short of resources to meet growing community needs,

and good practices in one State are unlikely to be transferred to

others. It is for this reason that we support the notion of a clean

water trust fund or other Federal financing mechanisms such as

through the SRFs, not only to increase the resources available at

the Federal level to address the gap, but also to promote better coordination of these resources while encouraging best practices.

We believe that a trust fund or a similar Federal mechanism

could be used as an incentive to the adoption of infrastructure financing best practices at the State level.

The allocation of such funds could serve as a carrot, if you will,

to encourage the adoption of practices that would make financing

of infrastructure more coordinated, efficient, and rational. By coordinating financing, States could become better stewards of the resources available. In some States, wise investments of resources

have allowed for a replenishment and even expansion of financial

resources over time. Likewise, some States have streamlined and

simplified the application process so that communities are less burdened in applying for financing. Additionally, some States have

mechanisms for coordinating or cross-funding agencies. These practices could be encouraged at all States as conditions of receiving

additional funding through a Federal mechanism.

One example of best practices from my home State is the creation of the Ohio Water Development Authority. OWDA was created in 1967 through the issuance of $100 million in State general

obligation bonds. Through careful stewardship and creative financing mechanisms, the funds have been leveraged so that the initial

investment is today worth about three quarters of a billion dollars.

The authority continues to revolve these funds and improve its

bond rating so that bonds can be issued to increase available funding without requiring the backing of the State and needlessly obligating precious State resources.

Key to the success of this program is the flexibility that OWDA

possesses with few restrictions on how the funds can be employed.

OWDA, while an agency of the State, has been given the freedom

to operate much like a private sector entity. As such, they are have

the flexibility to work with other funders and technical assistance

providers in the State to create programs that respond to specific

needs, utilizing surpluses from their other programs. Some examples include a bridged loan program that does interim financing for

rural development borrowers, a research and development grant

that allows systems to test and utilize new technologies, and a
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community assistance program that offers very low interest rates

and long-term financing to borrowers that already pay a significant

portion of their income and utility fees. These programs have all

been created by adapting existing resources to respond to areas of

need.

OWDA was also instrumental in creating the Small Communities

Environmental Infrastructure Group. This group includes all of the

funding agencies in the State, technical assistance providers, private sector financiers, universities, electric cooperatives, and others

who have an interest in infrastructure. Initiatives have been developed through this group to streamline and better coordinate funding, promote training for local officials, and promote the use of new

technologies.

Other States have created similar mechanisms; the gentleman

mentioned Montana, which is a good example, and was actually

one of my examples so I won’t repeat that. But New York State has

developed a co-funding initiative. All of the funders have signed on

to a memorandum of understanding that formalizes their intent to

cooperate in the administration and coordination of financing. This

group has developed online tools to allow communities to match

their projects and their needs with the appropriate funding sources

and technical assistance providers.

There are numerous other examples of this type of coordination

that help to make the process of completing a project easier for

small communities, while also ensuring that scarce resources are

well targeted and efforts by the various agencies are not duplicated.

Technical assistance is also a critical component in ensuring that

small communities take maximum advantage of the resources that

are available to them. Most small communities lack the staff or the

expertise to coordinate the multiple resources that they need. This

is frequently the role played by RCAP or other technical assistance

providers. In addition, training for local officials is critically needed

to ensure that, once a system is created or upgraded, the capacity

exists to continue its operation.

And we thank you for the opportunity to testify.

Mr. DUNCAN. Already. Thank you very much, Ms. Martin.

Dr. Nelson.

Ms. NELSON. Mr. Chairman and members of the committee, I

very much appreciate the opportunity to testify before you this

morning. I represent the Coalition for Alternative Wastewater

Treatment, which is a national network of experts and advocate for

alternatives to conventional approaches.

I would like to join in support this morning on higher levels of

Federal assistance in meeting the looming gap in spending to repair America’s aging water and wastewater infrastructure.

I would like also to introduce, however, a quite different question. How can the limited Federal share of overall spending be better used to prod the Nation’s water and wastewater sector into

higher performance at less cost.

The current Federal share of overall capital spending is only

about 5 percent, and even a doubling of that still leaves the Federal Government as a minor actor in the overall spending pattern.

And if those monies could be used to provoke a save and a 10 per-
124

cent cost efficiency, that would represent about $8 billion in savings in capital and O&M that is projected for the future.

So it is I think a worthy question to ask: Can the series of carrots and sticks be attached to the Federal financing to provoke the

sector into becoming more efficient and innovative?

The current problem in water and wastewater infrastructure is

not just that the infrastructure is aging, but that the basic technology paradigm of large-scale piping and treatment plant centralization is looking less and less sustainable, and that, relative

to other countries, the U.S. is not yet seriously developing or implementing innovative approaches.

First, the U.S. has become a net importer of innovative water

and wastewater technologies. Very little R&D is occurring in either

the public or private sectors in the U.S. Further, America’s policymakers and practitioners are largely unaware of the intensity and

speed of innovation in other countries, and few have moved to

adopt the kinds of regulatory, management, or technology reforms

that are emerging overseas.

I suggest that this loss of American leadership in water and sanitation relative to the rest of the world is a problem that actually

eclipses the definition of the gap because it means both that the

U.S. sector is headed to relatively greater inefficiencies over time

and, secondly, that the jobs and export income from high-tech

water resource technologies and methods are being generated outside the U.S.

I have a lot more examples in my written testimony, but let me

just cite three this morning. Asset management developed in the

United Kingdom, Australia, New Zealand is an approach that involves a more business-like process of establishing customer service

levels and life cycle management and financing of the assets. Without asset management, cities all across the U.S. Are wasting

money in replacing pipes that don’t need to be replaced, and paying

more for emergency repairs of broken pipes that should have been

receiving cheaper routine maintenance all along.

Secondly, distributed technologies and reuse. In major cities such

as Tokyo and Singapore, high-tech membranes are being used to

create zero water emission buildings involving reuse of wastewater

and toilet flushing, landscaping, et cetera. Since 70 percent of the

cost of conventional water resource infrastructure is in the underground pipes and not in the treatment plants, technologies that can

avoid central collection systems lead to great cost savings. And this

can apply to repairing existing older systems as well.

Third, integrated water resource planning. Over time, everywhere, including in the U.S., bureaucracies in utilities developed in

separate silos of water, wastewater, stormwater, water supply, and

flood control, and many large inefficiencies occur as a result. Countries like Australia have restructured regulations in utilities into

catchments or watersheds where water is viewed in an integrated

holistic framework, and these efforts are leading to both cost savings and environmental improvements.

The larger point is not so much that a tremendous amount of

technological innovation is occurring overseas, but rather that U.S.

policymakers, utilities, and advocates are so slow to wake up to

these shifting realities. When you talk to various critics of the cur-
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rent infrastructure, they will tell you that the deepening crisis of

funding in the U.S. will eventually force municipalities and engineers to wake up to the need for fundamental redesign of U.S. infrastructure, but I believe instead that the Federal Government

must assert a—reassert a major leadership role if such changes are

to occur. Many of these kinds of approaches were incorporated in

the original Clean Water Act but have lapsed in more recent years.

I would like to ask your committee to consider a number of legislative initiatives both to support and encourage the work of innovative scientists, engineers, companies, and local utilities, as Ms.

Martin described in some of the States, and to insist that recipients

of Federal funds comply with asset management, integrated water

resource planning, and engineering alternatives analysis requirements. Specifically, authorize $250 million a year for science and

technology research and development. I know this sounds like a lot,

but in current dollars, the Clean Water Act authorized over $300

million a year in R&D on water. Authorize a national demonstration program for innovative technologies and management and

grants for innovative and alternative projects proposed by local

utilities. This would be similar to an old I&A program that was in

construction grants.

Require that any applicant for an SRF loan or trust fund grant

have prepared an asset management plan, coordinated with integrated water resource plans in a regional watershed and examined

the full range of engineering alternatives.

Request groups like EPA and the National Academy of Sciences

to start looking at long-term sustainability issues and the kinds of

approaches that can be brought into this country. And initiate collaboration among congressional committees having jurisdiction over

other agencies beyond EPA, USDA, HUD, DOE, Commerce, and

others in an attempt to try to bring a greater coherence and innovation into the larger water and wastewater sector. Thank you.

Mr. DUNCAN. Thank you very much, Dr. Nelson. Very informative. And, you know, the Knoxville airport is attempting to experiment with some reuse technology that the preliminary results are

pretty encouraging. As some people have said in other hearings we

have had on this subject, this may not be a sexy problem, but I can

tell you it is one of the most important significant problems that

we have facing this country today. Those mayors and others on the

front lines in dealing with this know it is very, very significant.

I am going to save my questions until the end so I can hopefully

get to more members that way, and I am going to yield my time

for questions at this time first to Mr. Gilchrest.

Mr. GILCHREST. Thank you, Mr. Chairman. The testimony was

enlightening and a breath of fresh air, I must say, especially from

Dr. Nelson, who, we as leaders of the free world, and you are looking at the leaders of the free world up here, here we are; we are

the leaders of the free world. That gives you great confidence, I

know, in your future. But I am sitting next to Vern Ehlers, who

is a Ph.D. In physics, and he is always pushing for more science

and more innovation. And certainly this country, with our resources, can put them to good use with initiative, ingenuity, and

intellect. And this issue of wastewater treatment, I think, you

know, within the decade could be solved.
126

But I had a question which is a little parochial and might have

an effect on all of you. The question is the gentleman from Maryland, and we have this fascinating idea and a concept known as the

flush fee, and it does generate a lot more money to resolve some

of these more pressing issues with the larger wastewater treatment

plants, and then the Federal dollars that come into the State can

be distributed in a much wider fashion.

In the process of looking at the wastewater and the nutrient reduction into the Chesapeake Bay, and it is called the Chesapeake

Bay Fund Restoration Project, has the State looked at a watershed

approach so part of the funds from the flush fee and certainly

money from the open space transfer tax can be looked at purchasing easements or outright purchase of land so there are larger

areas in a broader sense in perpetuity that is pervious, rather than

having to deal with the increasing problems of impervious surfaces,

more development, more sewage treatment plants? While we reduce the amount of nutrients per liter, the more sewage plants we

build and the more houses that are hooked up, we really don’t gain

anything because we are putting out more effluent.

So I guess the question is, have you looked at the watershed approach, and areas like New York City did to protect their water in

upstate New York from Manhattan, to not only let nature do some

of this for free, provide much more natural processes for nutrient

removal in the process of dealing with the wastewater problem in

the State of Maryland?

Mr. KHUMAN. Specific to the fee restoration fund, the flush fee,

the statute is very narrow that the money from the sewage treatment plant uses must be used for the targeted 66 sewage plants

that must be brought to the State-of-the-art technology. So that is

very specific. However, the watershed approach is working from

the State revolving loan fund perspective, the clean water revolving

loan fund can provide monies for purchase of land and buffers for

source water protection and also for water quality protection.

So we are using the revolving loan interest paid loans on the watershed approach.

Mr. GILCHREST. So the State revolving loan fund that we appropriate funds for here can also be used to purchase easements or

land?

Mr. KHUMAN. Yes.

Mr. GILCHREST. Or buffers for the purpose of nutrient removal

and those kinds of things? I understand how vital it was to get it

through the general assembly, but that the dollars for the flush fee

would be specifically targeted to those high-end treatment plants,

and I think that is a good idea. What I would suggest, if I might,

as a citizen of Maryland, that your office with those who work with

the State revolving loan fund sit down with the Department of Agriculture and also maybe USGS to see how the hydrologic cycle

works in Maryland, and then take a look at a watershed approach.

From a scientific perspective where should the buffers be? Where

should the pervious surface be preserved and even expanded? But

I want to thank you, Mr. Khuman, for all your work and effort in

this Bay Restoration Project. I think it is a sterling example of

what actually can happen and what can work. Thank you. Thank

you, Mr. Chairman.
127

Mr. DUNCAN. Thank you very much. Ms. Johnson.

Ms. JOHNSON. Thank you very much, Mr. Chairman. Mr. Hill, I

was intrigued by the allowing the local ratepayers to deduct the

portion of their water and wastewater utility bills from their taxes.

Could you elaborate on that a little?

Mr. HILL. Thank you, Congressman Johnson. We do think that

that is an approach that is consistent with some of the other things

we do now allow deductions for property taxes that fund our municipal operations. And so we think that is consistent, and it also

provides a way for what we have outlined as continuing escalating

costs that we are confronting to in some way be able to be beneficial to that that ratepayer, because our systems are based entirely

on the ratepayers bearing the costs of the replacement, the repair,

and the improvement to the infrastructure. So we think that is a

way to try to get some of the benefit back to the ratepayer and is

consistent with what we do with our taxes.

Ms. JOHNSON. Thank you.

Mr. Howard, in your testimony, you suggested alternative financing through bonds. You are aware that we sent that through with

the last bill, 107th Congress, Ways and Means struck it out. Has

anything changed with the Ways and Means Committee that you

are aware of?

Mr. HOWARD. It is due to come to hearing this year with the reintroduction of 1708.

Ms. JOHNSON. Thank you very much.

I will yield the rest of my time to Mr. Blumenauer.

Mr. BLUMENAUER. Thank you.

Mr. Chairman, again, you are helping, I think, frame these

issues in a way that are extraordinarily useful. Two things that I

am interested in is the range of financing options that we want to

explore.

I appreciate what Mr. Howard is talking about, sort of rounding

out the toolkit. Well, I must say that I hope that we circle back as

a committee, not just looking at the financing options and the technical elements, but as Dr. Nelson was saying, look at the way that

we use the Federal investment to encourage best practices.

I come from a community where there are people that are doing

this on fairly extensive level. In fact, we are sending some of our

local technologists overseas who actually are working in Singapore,

same as the days I used to work with—back in my days as head

of Public Works Commission for the City of Portland.

The extent to which we are able to craft, more specifically, programs that are going to encourage people to look at overall investment, I think is extraordinarily important. We did a little of this

with Transportation in 1991 with our ISTEA legislation. We encouraged some planning, we encouraged innovative financing. We

encouraged different ways of tying the elements together, whether

it is mass transit or highways, or dare I even say, bicycles.

It has made a little—it has made some difference, because in the

United States we will spend $2 trillion next year on transportation,

but only 3 percent of that is Federal.

But I think the signals that we sent in 1991, and hopefully what

we send with the reauthorization this time, help enhance the effi-
128

ciency of the transportation dollars. I don’t think we have done

that with Federal policy regarding water treatment.

You are right, it is not sexy, but I think there are so many areas

of research, of decentralized efforts, homeowners can do—we can

make this cheaper and greener. We are going to need all of the

tools that people are talking about here, because we are still not

investing enough.

But I think the work that we do on this subcommittee, we can

encourage it to be spent more wisely, and it will make even more

difference than rounding out the toolkit. I just want to thank you

again for a provocative hearing. I would like to work with the subcommittee on ways to build the carrot and stick; that is not right,

but incentives, we want these all to be incentives, no stick. We

want them all to be incentives to coax more out of the overall investment.

Mr. DUNCAN. All right, thank you very much, Mr. Blumenauer.

I certainly share some of those same goals and I hope we can make

some specific recommendation after this series of hearings.

Dr. Ehlers.

Mr. EHLERS. Thank you, Mr. Chairman.

I think this is one of the best hearings we have had on this topic.

I was pleased to relearn a number of the things we learned particularly about the flush fee, private activity bonds and integrated

planning. I agree with all of that.

As a scientist, I do bemoan our lack of research on some of the

very fundamental issues. It is great that we want to go to the moon

and Mars, but at the same time, we have to worry about what we

are going to do with our human waste, both solid waste and other

waste.

I think one of the big problems is the public’s lack of understanding of infrastructure. They really don’t know what it is. It is a term

that doesn’t really hit them. I think we are better off talking about

water and sewage than about infrastructure. They understand

that. Also, we could do a much better job in our schools by having

fuel trips of wastewater treatment plants. That leaves a great impression on the kids. They understand the problem better.

It probably would help if Dr. Seuss had written a book such as

′′Where the Flush Went′′ so kids would understand these things.

Because they grow up without an understanding. They take it for

granted and then they have to start paying water and sewage bills

and they say why does it cost so much?

We clearly need more research. One of my frustrations is we

have an abandoned water treatment plant in my city, in Grand

Rapids, Michigan. I have been trying to get the government to provide them the money to convert that into a research laboratory.

EPA says Homeland Security should do it. Homeland Security says

EPA should do it. An apartment developer wants to convert it to

an apartment building.

At this point the developer is going to win. I predict not too many

years in the future we will say we need a better place to do research and we will spend $100 million building something we could

get right now for 15.
129

I am interested in ideas that the panel might have on better educating the public about wastewater and the need for funding for

this and why it costs money. If anyone has any comments on that.

I am also—before we go into that, Dr. Nelson, I would appreciate

your comments on how we can get communities to do integrated

planning. I am not that excited about Federal mandates to do this.

I am not even that excited about a lot of Federal money doing it,

because I predict it will turn into a huge pork barrel once we get

substantial amounts of Federal money, and the political power will

decide who gets funded and not the needs of the people.

But a few comments from you and then any general comments

we have in time remaining on better educating the public on infrastructure.

Ms. NELSON. Well, many people have described the great difficulties of doing integrated planning. The silo-ed bureaucracies and

professions do not ordinarily talk together. It is quite amazing how

uncommunicative storm water and a water and a wastewater and

a flood control and transportation agencies can be and not integrating their infrastructure planning for the metropolitan area.

As I suggested, some analysts are sufficiently frustrated to say

that cities have to suffer enough financially to try to finally force

their own staffs and bureaucracies to begin to coordinate better.

I think that demonstration projects to cities that are willing,

Portland, Oregon, maybe, to get their bureaucracies to start working better and achieving great efficiencies is one step, as far as an

incentive goes. I do actually believe that the problem is serious

enough and the money that could be saved is great enough that

over time, that kind of planning should be required as a condition

of financial assistance from the Federal Government.

The fact that demonstrations can be there in parts of the country

to show other communities how to do that is very helpful.

Mr. EHLERS. We only have a minute or two left.

Any quick comments on infrastructure?

Yes, Mr. Ward.

Mr. WARD. In the State of Texas, we actually have an education

program for 5th and 6th—or 4th, 5th and 6th graders that we have

funded. The program is known as the Major Rivers Program, and

it goes over the water cycle and how the treatment works in a very

elementary way. But it yet raises the sensitivity of the children,

not only to the, you know, the value of water and where it comes

from and where it goes, but as well to water conservation.

Mr. EHLERS. Thank you. I see my time has expired, and we have

a vote.

Mr. DUNCAN. Thank you very much, Dr. Ehlers.

People do say why does it cost so much. But I can tell you, really,

what we pay for our water in this country is a bargain, especially

compared to cable and cell phone bills which the people pay. They

are paying much, much more. Unfortunately, we have a vote going

on.

Mr. EHLERS. Mr. Chairman, could I just comment? All you have

to do is compare what we pay on water treatment to the amount

the public spends on bottled water. You would be amazed.
130

Mr. DUNCAN. Right, well unfortunately we have a vote going on.

We will have to be in recess for about 10 minutes and then we will

come back. Thank you.

[recess.]

Mr. DUNCAN. If we could get the witnesses all back to the table,

we will go ahead and resume the hearing.

Mr. Blumenauer, since before you just had an opportunity to sort

of make a statement. If you have any questions, I will let you ask

any questions you might like to at this time if you have any.

Mr. BLUMENAUER. Thank you, Mr. Chairman, for your courtesy.

Thank you, Ranking Member Johnson for allowing me to sort of

slip in.

I was curious if we could get a sense, Mr. Howard, of what difference it would make in terms of the scale of things if we were

able to make the statutory change that you talked about and eliminate the State cap for these private activity bonds. What are we

talking about in terms of an overall range, do you think?

Mr. HOWARD. Well, drawing on the solid waste experience since

1986, over 40 percent of the total issuance of tax-exempt bonds has

been private activity bonds that were used primarily for large

projects that involved public authorities and cities, contracting with

the private sector to build major facilities that help solve the disposal crisis that the Nation felt it was in the late—mid to late

1980s.

Water, as my charts showed, private activity bonds are also

available, but they are subject to cap. As a consequence, only 1 percent of the tax exempt bonds that are issued are private active

bonds. We don’t think if we eliminated the cap for private water

activity bonds, we would see as high a percentage in water as we

have in solid waste, but we think we would see a significant increase. We are estimating probably initially 1 to 2 billion per year.

I think we were averaging about 750 million in solid waste. Obviously water is a much larger market and we think over time as the

industry matures, that number would probably increase to 5 or 6

billion. Now these are very rough estimates, but it is based on our

experience and knowledge of projects that are under development

in the planning phase and the private sector’s response to the public sector’s need to construct these projects.

Mr. BLUMENAUER. Dr. Nelson, you may remember a moment ago

I was talking about an analog to the ISTEA legislation in 1991 for

Transportation that had some elements that encouraged comprehensive planning, more tools, that appeared to me to be in

Transportation steering in the direction that you have suggested

for our approach to water resources.

Have you given some thought to what the parameters of comprehensive legislation would look like for water infrastructure that

might achieve that same objective?

Ms. NELSON. I actually was told by some of the earlier researcher

on ISTEA that that was a good model, a good planning requirement for what could be done for water and wastewater. There has

been some language in some of the reauthorization bills about—

certainly in the Senate, one of the versions about requiring as a

condition of a loan having an applicant coordinate with a regional

planning process.
131

I have tried to ask a lot of people about how well that has

worked in ISTEA, and generally been told that it is helpful to require a broader perspective that your applicant project fits into. So

I think that rather than any large new piece of legislation for clean

water, just in the financing system our requirement that any proposal comes in have been generated out of a larger coordinated

planning process.

The interesting—I think there has been a lot more discussion

about watershed planning such as Congressman Gilchrest brought

up. But there is a lot of opportunity within a city itself to work

across agencies, as I said. There are even some projects that can

have energy and water and transportation benefits that you should

do a total cost benefit comprehensive plan for.

Mr. BLUMENAUER. I see.

Ms. NELSON. I think both those requirements could be very, very

helpful.

Mr. BLUMENAUER. I think, Mr. Chairman, it would be interesting

if we could work with our staff to just look at some of the parallel

elements that were in the original ISTEA that might have some

application for what the water resources would look like. We don’t

have to reinvent the wheel, but some of the efforts to look at a

broader scope, have some encouragement, deal with State planning

initiatives to try and integrate it would be something that would

be kind of an interesting mix.

Mr. DUNCAN. All right. Thank you very much.

Mayor Hill, you know, I am biased in this regard. Not only because I chair this subcommittee, but when I was a young lawyer,

I was fortunate enough to sign on as a client the northeast Knox

public utility district, which was a small water district. I had them

as a client the whole time in my law practice.

So I have always felt that people get a real, real bargain in this

area. Yet, I know that they are horrified by high utility bills. Of

course, mostly that is over power, electricity, and not so much over

water.

But I noticed that the City of Dallas has raised its water and

soar rates by 11.3 and 7.9 percent over the past 2 years. I understand that you have staff estimates that you will need annual increases of that much or more for the next several years. Is that correct?

What I am curious about is how much opposition did you run

into on those rate increases? Was there a big outcry or uproar? We

had Frank Luntz in here last week, and he had taken a poll saying

that there is tremendous support for water improvements in that

people were willing to pay for those if they were informed or educated about it. What can you tell me about your experience?

Mr. HILL. Well, your question and your comments focus on one

of the most significant issues for us. We do have that dichotomy of

people really having significant concerns about almost, at this

point, annual water increases, that significantly impact, not only

our seniors and those on fixed incomes, and some of our poorer citizens, but in some respects, business as well.

So it is something that though we recognize the importance of it,

and ultimately we are able to pass on these water increases, these
132

increases for, to fund the infrastructure, it is not with that much

consternation and a significant amount of concern from our seniors.

I guess in response to, or just in addressing the slush, slush—

flush, I keep saying slush, I don’t mean to say that, flush fund—

that is not Freudian—but on the flush fund, with that type of funding mechanism, combined with those increases you just talked

about, would really create a lot of stress on us politically, because,

again, I am not seeing these—and our fixed income people, our

lower income people, so that may be a good approach from a major,

a large urban area that is struggling with these kinds of costs.

That is a real problem for us, I will say to you very clearly.

Mr. DUNCAN. Was there a big outcry? Was it very difficult or was

it fairly easy to get those increases in that you have had the last

couple of years?

Mr. HILL. Mr. Chairman, it was difficult. But what we were able

to do, as a part of your overall process was really looked at what

we were doing with water from the standpoint of conservation, a

much-improved long-range planning process we put in place, and

so I think our citizens were ultimately comfortable that we were

doing everything we could and understood the importance of replacing the infrastructure.

So it was very difficult, but it called upon us to do a better job

of communication and advancing our best practices, and implementing the best practices. So it was ultimately—we could get it

done, but it was tough.

Mr. DUNCAN. Mr. Ward, what are some of the main obstacles

communities are facing in funding these water infrastructure

needs—and I am particularly interested in what you have seen or

what you can tell us about if the clean water SRFs are structured

in such a way that they are providing help to particularly the small

and rural and disadvantaged communities.

Mr. WARD. Our experience has been that we have had to create

some programs to complement the clean water SRF. If you contrast

it against what was put in place in the drinking water SRF, which,

of course, that law came on several years afterwards with the experience EPA had in administering the clean water SRF.

You can see without 30-year loan terms or some extended loan

term for some small and disadvantaged communities, as well as

the ability to offer and maintain a deeper subsidy, then you are

going to really have difficulty with the smaller and rural communities in reaching these folks that are fixed incomes and areas that

the infrastructure is high relative to the customer base.

Certainly, we have experienced that folks are willing to pay some

amount when they can. In the testimony we have provided two examples from Texas. One showed where there was a community

with a pretty strong base that needed a small amount of assistance

from other programs to meet the outer needs of the rural part of

the infrastructure. But then we have another one that contrasts

with that which is the city of Roma, which is a 20,000 population

entity. We were only able to give them a very small clean water

SRF loan, and the rest had to be provided in heavier assistance.

That flexibility needs to be there. Also the flexibility with financing structures in general to help the clean water SRF.
133

Mr. DUNCAN. A couple of years ago we had T. Boone Pickens in

here testifying about his efforts or his interest in speculating on

water in Texas. I remember he said that his home county in West

Texas had 550,000 acres, which is almost as big as the Great

Smoky Mountains National Park, with 600,000 acres there. He said

I think they had 967 people, and they were losing population.

So I remembered that. I am not talking about particularly areas

that small, but I am curious as to—we know the problems are tremendous in these big cities. The inner cities sometimes are losing

population, but people are still moving heavily to the urban areas.

We know the problems are great in these big cities and especially

close in suburban areas.

But have you found that they are as great in—you mentioned the

city, some city of 20,000, I didn’t catch the name.

Mr. WARD. Roma.

Mr. DUNCAN. Rome?

Mr. WARD. Roma.

Mr. DUNCAN. Roma?

Mr. WARD. Yes.

Mr. DUNCAN. Were about those size between 20,000, 50,000,

75,000? Are you finding the problems as similar or as great or

greater there?

Mr. WARD. There is a tremendous issue with aging infrastructure

across the United States, not just Texas. But that is what we are

experiencing. The old construction grants program did help a number of those communities. But the life span of those project projects

is over. In many cases, it has been expended to the repairs and

maintenance programs that these cities have put in place.

But at some point you have to replace the aging infrastructure.

Additionally, treatment requirements have gone up. You know, we

are taking better care of the environment. All of those require

greater investment, and the answer is, yes, we are seeing a tremendous need in those mid-size cities.

If you look at the evolution of the resolving funds, so to speak,

we started off trying to address major compliance issues across the

country. We still have a few of those left, CSOs in some area are

a big problem still and some major cities need a lot of influx in capital.

However, some of the States have addressed those primary needs

and are gone on now to these other entities on a maintenance

schedule that will fail if they don’t have an improvement done to

their system soon and giving them the incentives—that are offered

to these programs where the Federal Government believes it is a

priority and essentially lowers the cost so they get to the threshold

so they can afford the rates. It has been key and instrumental to

having those treatment needs addressed in a very quick manner.

Mr. DUNCAN. Well, thank you very much.

Mr. Khuman, you heard Dr. Nelson mention her 5 percent figure,

and most of us on this subcommittee feel that there is an important Federal role in regard to this water infrastructure problem

that we have in the Nation and that we should do more. But you

also may have heard Dr. Ehlers mention that he wouldn’t want a

fund set up that would turn into just gigantic pork barrel projects

that were distributed very unfairly around the country.
134

Would Maryland support a Federal clean water fund of some

type and if not, why not? But if so, how would you structure that

so that it would be distributed on a fairly basis and go to the places

where the needs were the greatest, let us say?

Mr. KHUMAN. If—

Mr. DUNCAN. Part of the question I will ask you is similar to

what I asked Mayor Hill. What if we put in a Federal flush fund?

How much opposition did you run into on the 250 in Maryland?

That is several different questions, but I would be interested in

your comments.

Mr. KHUMAN. Essentially in Maryland, we are fortunate that

Maryland, relative to other States, is a wealthy State. Because if

you look at the median household income, especially for the metro

area, you know, you are talking about $60,000 plus per year. So for

a reasonable fee of $2.50 per month, nobody with a straight face

could come in and say it is unreasonable.

Having said that, certainly there are pockets of inner city, there

are pockets of seniors on fixed income and there are pockets in

rural areas that there was opposition to that. For that, the statute

did allow for an exemption.

Mr. DUNCAN. That was going to be my next question, did you

allow for exemptions?

Mr. KHUMAN. Yes.

Mr. DUNCAN. Total or complete exemption?

Mr. KHUMAN. Complete exemption. That if somebody made the

threshold, that they were truly poor that they would not have to

pay this fee. We believe in Maryland that would be a very small

segment. So that is the premise from the opposition point of view—

and that was under the premise that everybody was looking at

$2.50 a month, how is that too expensive? So it was a reasonable

number and that was a starting point.

Mr. DUNCAN. Okay. Thank you very much.

Mr. Howard, I was most interested and encouraged about your

testimony about private activity bonds, because I personally think

that may be a real important part of the solution to the problems

that we hear about in this subcommittee. We just didn’t hear about

these problems today. We hear about them frequently.

But what restrictions exist now on the issuance of private activity bonds? In this H.R. 1708 that you mentioned, will it remove

most of those restrictions? For instance, I understand there is a cap

now of, is it 225 million or—

Mr. HOWARD. I believe it is the current minimum cap for small

States. The cap is based on a—I am sorry, that is a per capita dollar amount allowance.

Mr. DUNCAN. $75 per capita?

Mr. HOWARD. Right. What, in effect, it does is that it limits the

amount of private activity bonds that can be issued for any project

in a given State for any type of project in a given state. The bulk

of private activity bond issuance goes to—tends to go to housing,

which is a high priority need in many States.

So there is, in many cases, very few—very little private activity

bond capacity left for water projects, and what was—as I have said,

what was done in the solid waste sector was private activity bonds

were pulled out from under this cap which, in turn, he released a
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lot of investment in the solid waste sector to help solve the disposal

crisis that existed in the mid-1980s. In the water sector—

Mr. DUNCAN. I was very much interested in that. You know the

proof is in the pudding.

Mr. HOWARD. Exactly.

Mr. DUNCAN. Boy, in the solid waste area, I don’t remember your

figures, but it seemed like it was three or four times the activity.

Mr. HOWARD. Right. Well, it was a higher activity in a much

smaller sector. What happened in solid waste was that a lot of

projects got built that would not have gotten built were it not for

the availability of private activity bond cap. Because the private

sector was willing to come in and take the risk of developing these

projects. If they didn’t perform, the private sector had to step up

and pay the bonds off. We currently don’t have that with water

projects.

Mr. DUNCAN. I have got some more questions. But I have noticed

that Mr. Miller and Dr. Boustany have come back.

Mr. Miller.

Mr. MILLER. Thank you, Mr. Chairman. Following up on your

private activity bonds, in California, with housing—same as the

Melarus in California—is that what you are dealing with?

Mr. HOWARD. Yes.

Mr. MILLER. You bought funds for your infrastructure. The local

municipality usually puts them in the market. The private sector

buys it. They put infrastructure in on a basic housing development

or something like that.

Mr. HOWARD. Well, the case of California, private activity bond,

taxes private activity bond issuance is allocated by the State.

Mr. MILLER. That is for public, though. It would only be tax exempt if it went for some city improvements, not for the private sector?

Mr. HOWARD. Well, it could be for private sector if, you know,

they are available for the private sector as well, but they are subject to the cap.

Mr. MILLER. Yes, but they are generally for a much larger assessment per unit than you would if you passed some type of a private sector bond out there for water infrastructure. We had a hearing last week. I guess the thing that bothered me is we talked

about creating a national clean water trust.

They were talking about local assessments. The problem is that

wastewater and the clean water groups came in and nobody wanted to assess their people. They wanted to find somebody else to assess.

But, Dr. Nelson, in your testimony. I guess one of the problems

I have here, you talked about water and water utility agencies, and

you talked about some that had adopted asset management, Orange County, I represent part of that—which I am glad to see they

are in here—because that at least as good.

But I am confused because you went on to say that without asset

management, cities all across the country are wasting money on replacing pipes that don’t need to be replaced and paying more for

emergency repairs for broken pipes that should be receiving cheaper routine maintenance all along. That is basic management oversight or lack thereof.
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So what could you adopt—if we talk about the Federal Government getting into this, we will not eliminate bureaucracies by doing

that. We do not have oversight. I mean, we had Orange County—

or Orange County CCI—they are much better off managing their

own assets rather than me trying to do it back in Washington.

So how does the Federal Government get involved in something

that should be State or local agency’s oversight? How does that

have a benefit?

Ms. NELSON. Well, overall, there are assets that asset management can save upwards of 20 percent.

Mr. MILLER. Yes, but asset management is basic management. If

you have a water line—

Ms. NELSON. That is correct.

Mr. MILLER. — that needs—a minor break that needs to be repaired, you repair it. If you know you have an antiquated line that

you know you will start having considerable problems repeatedly

on because it is so old and needs to be replaced, you replace it.

That is basic management. I mean, I was a developer for over 30

years—I had a water leak in my home 2 weeks ago.

Now I realize it was cheaper for me to fix, to bring an insurance

company in—let us say the insurance company is the Federal Government. So I found a cheap way to repair it. I fixed the water line

rather than replacing the whole line because the insurance company says I can’t replace the whole water line. So how does bringing the Federal Government into something—especially when you

realize bringing us into it, somebody has to pay that tax.

Ms. NELSON. The problem—

Mr. MILLER. So what better tax than the local people who benefit

from the wastewater on assessment there. How does it benefit by

bringing in the Federal Government, who has to tax a different

way into it.

Ms. NELSON. One other way of stating what I tried to provide in

the testimony is there is a widespread perception that other than

places like Orange County, the water and wastewater sector in the

United States is uniquely not adopting asset management. You

find it widely used in electric utilities, manufacturing and transportation, not in wastewater.

Mr. MILLER. How does our involvement change that?

Ms. NELSON. My proposal is that an asset management planning

process be a requirement for any applicant.

Mr. MILLER. Define that. How would you come up with some program that we could understand that would change what they currently do? What I am saying is that somebody comes in and issues

a report to the Federal Government saying that a water line is antiquated and in such disrepair that it needs to be replaced, and we

have received paperwork, but we have no knowledge firsthand

whether that is true or they could repair the leaks. How does paperwork in a bureaucracy that has already proved to be failing increase the quality.

Ms. NELSON. I think the—

Mr. MILLER. In Orange County, they don’t have the problem. But

for agencies that do, how does that change the situation in—

Ms. NELSON. You know, I understand the GAO looked into asset

management, believes it is a very, very significant reform of the
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system that needs to happen and did raise issues about whether

different forms of asset management need to be developed for different size communities or situations. I view those as technical

challenges.

Mr. MILLER. And the local. Technical and local challenges?

Ms. NELSON. No, that what—that variation. I mean, all kinds of

technical things like this are done with what SRF requirements are

made of States. The ground rules for what qualifies as an asset

management plan for different circumstances can be developed, I

believe, and any applicant for Federal money ought to have evidence that they have gone through that process. SRF loans require

that you have done certain amounts of things. People sit in the

State offices for SRF and check off that that city has—

Mr. MILLER. But the problem that I am seeing is that lack of

management, it is like how we required the locals to tell us how

they are going to feed kids, and that the local school district prepares paperwork, who sends it to the State, and they keep some

of it, the Nation and the Federal Government, and nobody knows

what file cabinet that paperwork is in, but somehow those kids get

fed. I see that happening here. That is basic lack of management.

Obviously, my area, Orange County, has done a good job managing their infrastructure and they have come up with a system

whereby they anticipate how many years a water line is functional

and then when replacements are necessary, what type of ongoing

repairs are necessary to keep the system going. An organization locally who is not doing that, all the Federal dollars in the world is

not going to change that.

That is just throwing more dollars and making it easier to continue to try to expand the problem that is currently existing. That

is the problem I have. Local and State agencies are much more capable of understanding their own needs, because they change from

area to area.

Ms. NELSON. I agree with that.

Mr. MILLER. The Federal Government isn’t. It seems like the biggest problem we are having here is money. Our money doesn’t

come from heaven. I mean, we have got to put our hands in the

same wallet that you have got to put your hands into and bring it

back to Washington. The concept of doing that, rather than like the

last panel we heard, they want to do—assess water bottle companies for potable water for the sanitation districts rather than assessing their local people. That was problematic for me. Because

the best way to get a fair and equitable assessment on anything

that people benefited from is fair, you know, fairly benefiting each

individual and appropriating how much they benefit and they

should be paying X amount for their benefit. But you go outside of

that and that is what we talked about last week. Nobody was willing to accept the burden they were benefiting? They wanted to

place the burden on somebody else.

I enjoyed your testimony. I am not impugning you. I look at this

and say that is problematic. But throwing more money at groups

who aren’t doing the job isn’t necessarily going to resolve the problem.
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I understand paperwork. I could create paperwork to justify anything in the world to send it back to Washington. And when I read

it in Washington, I think that is really good.

But that is not typical of what reality is in a local agency. That

is my concern. I appreciate what you said here. It raised a huge

red flag that; yes, there is guys that are doing the job, Seattle,

Washington, Orange County. They are doing the job. But there is

a whole lot of people that aren’t doing the job—and throwing a

whole lot of Federal dollars at those agencies who are not doing

their job and expecting them to justify on paperwork that they are

doing their job. You know, for enough money I could hire somebody

to justify most anything in this world and that is what the problem

is.

In California—I am not your opponent here. I mean, in California, the biggest issues we have are water and transportation. Our

water—we have got to rely on everybody else. I will commend my

local agencies, Orange County is doing a magnificent job of taking

every drop of water and they are water banking it. I mean, I have

got Prado Dam. That water doesn’t get more than 1.5 miles from

Prado Dam, and it is gone.

It doesn’t go back into heaven. It went into the ground. So it is

not getting into the ocean. They are taking—they are being so creative and I applaud them for using every drop of water because we

are having to ask people for water from other States who don’t

want to give it to us.

So I look at agencies who are doing good, like Seattle and others,

and I think that is really great. But if we are going to throw money

out here and there is huge—like the health system is problematic

in a few areas. Throwing more money is not going to make them

more accountable, nor is it going to make them do a better job.

Yet instead of repairing that line, city line ought to replace it.

That is not efficient. That is my biggest concern Mr. Chairman.

Mr. DUNCAN. All right.

Mr. MILLER. Like I said, this is huge in California water. I think

we need to continue talking about this until we find a solution, but

this area has to be dealt with. Your credit performance is an

oxymoron, if, in fact, it doesn’t happen. You know, it is there.

Thank you, Mr. Chairman.

Mr. DUNCAN. All right. Thank you very much. Everybody always

wants somebody else to pay. That is part of the problem.

Ms. Johnson has another question. Then I will come to Dr.

Boustany.

Ms. JOHNSON. Thank you. Mr. Ward, having the view of a huge

State, which is mostly inland, if you had more flexibility and caps

lifted, what kind of mix do you think that would solve most of

Texas problem, rural versus urban?

Mr. WARD. Congresswoman Johnson, you are referring to the cap

on the private equity bonds being lifted? We would support that because right now the State of Texas has created within its own cap

structure the ability to draw on the cap for water projects, and we

are utilizing that routinely.

But it does compete significantly with the housing interest in the

State. So it hasn’t been well received, because it is not a reliable

source for a large amount of investment in projects. We have not
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seen it be used across the boards. We have only seen it in rural

settings, for the rural water project, primarily the ones that would

have formerly gone to R&D for assistance, and of course, with

dwindling resources going through that program, from our U.S.

rural utilities services, we have had to replace that in Texas with

the 40-year loan program where we access private activity bonds

now to do that.

But in thinking about it in the rural areas, particularly if you

kind of combine the concepts that this panel has here now, some

of the, you know, decentralized systems all the way through to

here, the reason it might hold a greater opportunity is that that

private benefit test of having a private benefit, causing it to be a

taxable function, when you are borrowing funds from the market,

if you can take that and eliminate it for those projects, for water

quality purposes and for drinking water purposes, and you are

going to lower the overall cost of the investment and thus spur it.

So I just don’t think that without people knowing that it is there,

and that you can access it, that we can determine what how big

the effect will be. My gut feeling is it will be very large, a lot larger

than anyone would project initially. Because once it started going

and people saw the tool and how to apply the tool, it would be applied more universally and by more entities across the board.

Ms. JOHNSON. Thank you very much.

Mr. DUNCAN. All right. Thank you, Ms. Johnson.

Dr. Boustany.

Mr. BOUSTANY. Thank you, Mr. Chairman. This has been a very

helpful set of testimony here for me. It has been very informative.

I come from a very rural district in southwest Louisiana, a lot of

small towns, agricultural based communities, maybe 10,000, 15,000

population. Many of them are strapped financially, yet they have

aged water systems. We are talking a lot about long-term solutions

to our problems. But we need short-term solutions as well. Private

activity bonds seem very interesting to me and that may be a possible short-term solution and a long-term solution. But what are

some of the pitfalls of trying to apply these to rural communities?

Mr. HOWARD. I would say rural communities, based on my experience, would need some assistance up front in helping to engage

the private sector in developing projects. But I think once that assistance in the form of seed money, programs, for helping to solicit

private sector interest or negotiating contracts. But I think once

that money is in place and has been spent, the private sector then

would take the project and develop it on behalf of the public sector.

Mr. BOUSTANY. Do you see a Federal role there or would that be

a State—

Mr. HOWARD. Again, drawing back on my solid waste experience,

I actually started in that business working for the U.S. Environmental Protection Agency where we ran a series of demonstration

grant programs and various seminars to help educate local communities on how to work with the private sector to develop these

projects.

So there was a limited role, but it was a very effective role that

the Federal Government took in helping to develop that infrastructure and solve that disposal problem.
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Mr. BOUSTANY. Thank you. Dr. Nelson, a quick question for you.

You talked a little bit about research and development and what

is going on in some of the other countries and so forth. Why haven’t

we seen private sector investment in R&D in this area and in our

water structure research and development, new technologies? Obviously, there are profits to be had in it, given the problems that are

out there. What reasons do you see for the paucity of private investment?

Ms. NELSON. Well, I do think the foundation for private sector

R&D is always a strong, Federal or university and research institute background in basic and applied science that we don’t have

any more in wastewater technology in this country. But beyond

that, a lot of people who look at innovation say that we have fragmented regulatory structures that aren’t quite creating big markets

nationally for companies to get involved in.

So equipment manufacturers in the U.S. tend to buy patents

from overseas and adopt innovations that have been developed, a

lot with government funding in Japan and the European Union, for

example. But not generate those ideas here at home.

Mr. BOUSTANY. What suggestions would you have other than further government investment and government taking the lead to

stimulate such private investment?

Ms. NELSON. Well, I only briefly alluded to some of the regulatory problems, local ordinances often don’t permit innovation. A

lot of rural areas could benefit greatly from decentralized integrated solutions, and the State agencies don’t permit those.

So I think, there again, a demonstration program to help innovative types, even in regulatory agencies, figure out better models for

local ordinances and encouragement to make those kinds of

changes also helps to open up private sector investment.

Mr. BOUSTANY. I thank you. That is all I have.

Mr. DUNCAN. Well. Thank you very much. Unfortunately, we

have got to end this hearing at this point. But you certainly have

been a very helpful and informative panel. There has been a lot of

interest from members. I appreciate it very much, all of you taking

time out of what I know are very busy schedules to be here with

us. That will conclude this hearing.

[Whereupon, at 12:02 p.m., the subcommittee was adjourned.]
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