Clean Water Advocacy - Newsroom - AMSA in the News
No. 210
Thursday, November 1, 2001 Page A-8
ISSN 1521-9402
News
Water Pollution
Integrity of SRF Should Be Maintained With Some Revisions, EPA Water Chief Says
The integrity of the state revolving fund, which helps cover the cost of
water infrastructure, should be maintained, but innovative funding mechanisms
need to be explored, the head of water programs at the Environmental Protection
Agency told a Senate panel Oct. 31.
G. Tracy Mehan, EPA assistant administrator for water, said among the options
that should be considered is allowing states to shift money among the two
revolving funds as they see fit. He testified before the Senate Environment and
Public Works Subcommittee on Fisheries, Wildlife, and Water on innovative
financing techniques for water infrastructure improvements.
For the past several years, Congress has included in EPA's budget $1.35 billion
for clean water SRF and about $850 million for the drinking water SRF. States
administer these funds, which are used to build treatment facilities, among
other purposes. Currently, money in the drinking water SRF is used for drinking
water purposes while funds in the clean water SRF are restricted to dealing with
wastewater issues. Transfers are allowed in some circumstances.
Consolidation of Small Systems
Other options include consolidating small systems or merging them with larger
systems to integrate resources and reduce costs. Mehan said some 54,000 systems
provide drinking water for U.S. communities.
"A lot of people like having a small system nearby," Mehan said. "But maybe we
need to consider consolidation and allow a single system to bear the costs and
amortize them over time."
Sen. Bob Graham (D-Fla.), who chairs the subcommittee, said recent security
concerns spawned after the events of Sept. 11 might be prompting movement toward
more smaller systems, so as "not to put a whole city at risk by being dependent
on a single water treatment plant."
Mehan said the agency wanted to encourage economic research that might help
elucidate what benefits could be derived from some consolidation.
He acknowledged that consolidation might generate "local control" issues.
However, he said "we have an extensive system that could use a modicum of
streamlining."
The SRF program is "tremendous" and has been an effective way to improve water
quality, but aspects of it need to be retooled, he said.
Other Recommendations
Other recommendations suggested by Mehan include:
providing the authority to forgive the loan principal for disadvantaged
communities,
allowing privately owned water treatment facilities to be eligible for SRF
funding, and
expanding the SRF to include more water conservation activities.
On the latter point, Mehan said focusing more on water conservation made good
environmental as well as economic sense.
In addition to the SRF, there have been attempts to set up grant programs to
finance water and wastewater infrastructure. Municipalities, in particular, have
supported this idea. For one thing, grants would benefit small and disadvantaged
communities that may not have the resources to pay back loans made through the
SRF, including some no-interest loans.
The Bush administration proposed a $450 million grant program in its fiscal year
2002 budget request to address infrastructure problems associated with wet
weather, but did so at the expense of the SRF, and Congress quickly rejected it.
Private water treatment companies and other organizations oppose the grants
concept, saying it breeds inefficiency and does not force public utilities to
run their operations more efficiently and charge realistic rates.
"The federal-state partnership and the successes it has created would be
severely threatened by the onset of separately delivered grant programs,
earmarking, and other alternate funding mechanisms," Rick Farrell, executive
director of the Council of Infrastructure Financing Authorities, told the panel.
Removing Barriers to Innovative Finance
Rather, all subsidies, he said, should be provided through the SRF structure.
For one thing, it keeps overhead costs low and minimizes confusion, he said. In
addition, the SRF provides the capacity for communities to leverage funds.
"Leveraging in the SRF context, means that states have the ability to use the
federal capital grants, as well as their matching share, as collateral to borrow
in the public bond market for purposes of increasing the pool of available funds
for project lending," Farrell said.
Farrell said currently leveraging is not an option for all states because of
certain federal policy constraints. Impediments include the inability to
transfer funds between the clean water and drinking water SRF, the required
pre-approval for certain financing techniques, and various other conditions and
restrictions. Congress should also look at revising arbitrage rebate rules,
which govern the issuance of tax-exempt bonds.
"CIFA estimates that in the absence of these restrictions, the affected states
could earn an additional $100 million to $200 million annually on their SRF
capitalization funds, which, when leveraged, would permit an additional $200
million to $400 million annual investment in needed water projects," Farrell
said.
Municipal officials, while supportive of the SRF, said Congress needed to
modernize it.
Community Needs Not Being Met
"The needs of hundreds of communities across the nation are not being met by
EPA's current wastewater loan program," Paul Pinault, executive director of the
Narragansett Bay Commission and vice president of the Association of
Metropolitan Sewerage Agencies. He recommended combining the drinking water and
clean water SRF to improve efficiencies in how the loan program is run.
Moreover, he said, the federal government should authorize $11.5 billion
annually to help states and localities address the financing gap for
infrastructure.
Peter Cook, executive director of the National Association of Water Companies,
said federal assistance should be limited to those systems that demonstrate a
financial need. Many systems, he said, do not charge their ratepayers the "full
cost of the program."
Grants, he said, are "as far from innovation as you can get."
Loans combined with allowing "the full power of the private sector to be
unleashed" will do more to address the water quality challenge, he said.
By Susan Bruninga