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EPA Seeks to Remove Limit on Bonds Used to Pay for Water Infrastructure Repairs
The Environmental Protection Agency will pursue legislation to remove the borrowing limit on private activity bonds issued by cities and towns to pay for repairs to wastewater and drinking water infrastructure, Administrator Stephen Johnson said Feb. 5.
Removing the borrowing limit on tax-exempt private activity bonds for repairs to wastewater and drinking water utilities would require a revision of Section 146 of the tax code, Johnson told reporters at a news conference on the proposed fiscal year 2008 budget.
"It will require a legislative change by Congress to make it happen," he added.
The purpose of the agency's initiative in the FY 2008 budget request is to amend the tax code and remove the barriers that discourage cities and towns from making "greater use" of private activity bonds (called water enterprise bonds by EPA), Benjamin Grumbles, EPA's assistant administrator for water, told BNA Feb. 5.
"Right now, they are not used very much to finance wastewater and drinking water infrastructure," Grumbles said. "The administration's proposal is to remove the volume cap so there is no artificial restriction on the use of private activity bonds."
Private activity bonds are tax-exempt bonds that allow the private sector to participate in financing public projects. The federal government limits the use of these bonds by the private sector for public projects. Each state caps the level of debt a municipality may incur when using these bonds, according to EPA.
In addition to seeking an exemption, EPA is asking Congress to approve $688 million for the clean water state revolving fund and $842 million for the drinking water SRF for fiscal year 2008. The agency's SRF request is $197 million below what the House recently approved in a continuing budget resolution for fiscal 2007 (21 DEN A-11, 2/1/07 ).
Linda Eichmiller, executive director of the Association for State and Interstate Water Pollution Control Administrators, described the House action as cause for "optimism," even though EPA for a second year is seeking less money than states and publicly owned sewage groups say is actually needed to make infrastructure repairs at water and wastewater utilities.
Encourage Full-Cost Pricing
Johnson described the exemption as another "tool" that states,
cities, and towns can use to leverage private financing for public projects, in
addition to relying on the clean water and drinking water state revolving funds
to provide low-interest loans.
Johnson said EPA is drawing upon the success the Resource Conservation and
Recovery Act program at EPA has had in attracting private investment for cleanup
of contaminated sites.
Using private investment figures under the RCRA program as a yardstick, Johnson said, he expects the proposal if enacted to draw between $1 billion and $3 billion each year in private investment for infrastructure financing.
In addition to providing another financing tool to states, EPA believes the proposal will encourage cities and towns to develop public-private partnerships, with the resulting market forces leading municipalities to fully charge for supplying drinking water and treating wastewater.
EPA's proposed exemption reflects recommendations made by the U.S. Conference of Mayors' water council in a July 2006 report. In its Major Capital Investment in Water and Wastewater Infrastructure: City Practices and Attitudes Concerning the State Revolving Fund Loan Program report, the water council recommended removing the cap on private activity bonds.
The mayors' water council found that two-thirds of the country's largest cities are not trying to use low-interest SRF loans because they prefer to float municipal bonds, which have much lower interest rates than the SRF.
Cities Back Exemption, Utilities Cautious
At a House hearing in January, Mayor Martin Chavez, of Albuquerque, N.M., and J. Kevin Ward, of the Council of Infrastructure Financing, urged Congress to remove this cap. Chavez is co-chairman of the mayors' water council (13 DEN A-6, 1/22/07 ).
The National Association of Clean Water Agencies issued a statement saying they are reviewing EPA's proposal to work with Congress on removing barriers to using private activity bonds. NACWA represents publicly owned wastewater treatment plants across the nation.
"The association supports providing its members with as many tools as possible to help them finance their infrastructure needs," NACWA Public Affairs Director Susan Bruninga said. "However, this alternative should not be viewed as a substitute for the real financial commitment the federal government--not the private sector--should make to America's waters."
Bruninga also said private activity bonds do not provide a "meaningful way" to fill the gap of roughly $400 billion to $500 billion facing the nation's clean water agencies over the next 20 years. "NACWA believes that the best way to help cities meet these needs is through a combination of grants, loans, and loan subsidies," she added.
NACWA also decried EPA's "downward trend" in funding clean water needs using the SRF. NACWA observed that "the proposed amount is half the historical funding level of $1.35 billion last seen in fiscal year 2004."
By Amena H. Saiyid