Who will pay the piper?

The United States built its drinking water infrastructure in waves: first in the late 1800s, then in the 1920s, and finally in the post-World War II boom. The structures and materials used in those projects are reaching the end of, or are exceeding, their life expectancy. That fact, coupled with the population trends of the past century, has created an urgent need to repair and replace that infrastructure.

The estimated cost of overhauling the nation’s water system is astronomical. The U.S. Environmental Protection Agency (EPA) places the cost of repairing and/or replacing water and wastewater infrastructure between $745 billion and $1 trillion over the next 20 years. (That estimate does not include the cost of water system security measures, which will require additional investments of millions of dollars.)

Utilities are hard-pressed to make the necessary investments, as much of their funding is dedicated to meeting federal mandates under the Clean Water Act and the Safe Drinking Water Act. Last year, the Washington, D.C.-based Water Infrastructure Network (WIN) compared the amount of money being invested in water and wastewater infrastructure to the amount of money needed to replace aging pipes and meet federal mandates. (WIN is a coalition of local elected officials, drinking water and wastewater professionals, state environmental and health officials, engineers and environmentalists.) Based on its study, the coalition estimated an annual shortfall of $23 billion for the next 20 years.

Congress began recognizing the looming infrastructure challenge in the late 1990s, and legislation has begun moving in the current session. However, the bills stop short of dedicating dollars to repair and replacement, or to water system security, meaning that local governments must review their rate structures and asset management plans to bridge the funding gap.

Bills lack specificity

The U.S. House of Representatives is addressing the infrastructure issue primarily by increasing funding for — and making administrative changes to — the existing State Revolving Loan Fund (SRF) programs. For example, in March, the House Transportation and Infrastructure Committee (with jurisdiction over wastewater issues) passed H.R. 3930, boosting funding for wastewater SRF programs.

The bill expands eligibility for SRFs to include projects related to stormwater runoff, facilities security, watershed management, conservation, lake protection and decentralized treatment systems. However, it gives priority to projects that enhance water quality, and its applicability to infrastructure repair and replacement is open to interpretation.

The House Ways and Means Committee completed its work on H.R. 3930 in April. At the same time, the House Energy and Commerce Committee heard testimony on needs for drinking water infrastructure, but it has yet to introduce legislation.

In the Senate, the Environment and Public Works Committee has jurisdiction over matters related to both drinking water and wastewater. Early this year, committee members Bob Graham, D-Fla.; Michael Crapo, R-Idaho; James Jeffords, I-Vt.; and Robert Smith, R-N.H., introduced S. 1961, the Water Investment Act of 2002.

The Senate legislation would do the following:

• Authorize $35 billion over five years for capitalization grants to the states, for use in SRF programs. Drinking water would get $15 billion of that total, and wastewater would get the remaining $20 billion.

• Authorize a state to use up to 15 percent of its capitalization grant in any year to give more favorable loan terms (including forgiveness of principal) to any community. The community must demonstrate that the financial benefit it receives will be directed to disadvantaged individuals, as determined by income.

• Require a community receiving an SRF loan to have an asset management plan in place by the completion of the project. As a condition of a loan, communities also would be required to have rates (or a plan to adopt rates within a reasonable time) that reflect the actual cost of service.

• Authorize 10 pilot projects per year to demonstrate innovative or alternative approaches to water supply or water quality management.

• Despite its potential benefits, the bill does not extend SRF eligibility to repair or replacement of aging infrastructure, or to security-related projects.

  Rate reviews a must

  The federal government should not be expected to cover 100 percent of the nation’s water infrastructure needs; local governments and utilities must be prepared to make much of the investment and recover their costs through rate adjustments. However, for many municipalities, those costs are creating an affordability gap for local ratepayers. There is a growing discrepancy in utilities’ need to invest in facilities and the public’s ability or willingness to pay the higher bills necessary to finance those investments.

  To keep water affordable while meeting the need for investments in infrastructure, security and health-related compliance, the nation needs a substantial new commitment to water infrastructure. The American Water Works Association has testified before the House and Senate regarding infrastructure issues, and it has made the following recommendations.

• Congress should expand and reform the Drinking Water State Revolving Fund to provide at least $15 billion over the next five years.

• Congress should make repair and replacement of aging infrastructure, as well as security-related projects, explicitly eligible for SRFs.

• SRF guidance must make the eligibility of investor-owned utilities explicit. Congress has said that the program includes investor-owned utilities, but the law does not specify their inclusion; as a result, some states exclude investor-owned utilities from the program.

• Congress should ensure that large utilities have a guaranteed share of SRF funding equal to the share already reserved in current law for small systems, assuming there is a sufficient number of eligible projects to fund.

• Congress should minimize the red tape involved for utilities that are participating, or wish to participate, in SRF programs.

• This being an election year, there are more than a few issues — including the federal budget deficit and the war on terrorism — competing for legislative attention and federal funding. Consequently, local communities will likely have to wait for a significant infrastructure bill.

  In the meantime, infrastructure repair, replacement and security cannot wait. Utilities must review their rates and establish plans to self-finance through their rates. They also should develop asset management plans, spelling out exactly how they will maintain their water infrastructure and establishing schedules for replacing it over a set period of time.

  Ron Schwarzwalder is president of the American Water Works Association, based in Denver.