WASHINGTON, DC.
August 28, 1991

COUNCIL OF INFRASTRUCTURE FINANCING AUTHORITIES

Hon. Max Baucus
United States Senate

Chairman, Subcommittee on Environmental Protection Committee, Committee on Environment and Public Works, Washington, DC.

DEAR SENATOR Baucus:

Thank you for forwarding the additional questions which Senator Lautenberg asked Mr. Robert Lenna of the Maine Municipal Bond Bank who appeared with me at your recent hearing on legislation to reauthorize the Clean Water Act. Enclosed are the answers to the questions which Senator Lautenberg asked. We both appreciate the opportunity to provide our views on this important issue. Most sincerely,

JAMES N. SMITH
EXECUTIVE DIRECTOR

ADEQUACY OF STATE REVOLVING LOAN PROGRAMS

1. The amount of authorization in S. 1081 to capitalize State SRFS is $4.3 billion over a 4 year period, but in no case may the authorization for SRFS exceed the total amount authorized in the 1986 Act, which means that only $3.7 billion would be available for appropriation. This amount, together with the required 20 percent State match, would provide approximately $4.5 billion for SRF loans. Compared to a dimension of estimated need for public waste water treatment and correction estimated by most surveys to exceed $100 billion, the authorized amount is deminimis. Five States individually have needs in excess of $4.5 billion, and several other States are approaching that level of treatment needs. Only two States, North Dakota and Wyoming, may possibly be adequately capitalized to meet their needs under the S. 1081 provisions.

2. Providing "adequate" funding for the SRFs depends on a number of variables ranging from the cost of implementing "new" treatment requirements that may be contained in the legislation as it is finally passed, to the manner in which the States manage their SRFs. As we pointed out in our testimony, if all of the authorized money in S. 1081, with the exception of the $1.6 billion for special grants to Indian Tribes, clean lakes and estuaries, and the set-aside for 106 State management grants and the 4 percent for SRF management, were dedicated to capitalize the SRFS it is realistic to anticipate creation of a lending pool of all State funds approaching $40 billion by the end of this decade, and exceeding $60 billion by 2025. This assumes an average return on loans from the SRFS of 3.1 percent interest with 60 percent of the fund leveraged at a factor of 2:1.

While this would not meet all needs for all States, it would provide substantial funding for clean water facilities well into the future. For this reason, we strongly urge continuing authorization for the SRF capitalization of between $2 to $3 billion annually for the next five years.

DISADVANTAGED COMMUNITIES

1. Urban areas experiencing diminishing tax-base and heavy costs for social programs can certainly experience problems financing large capital projects. Most, however, have a sufficient revenue flow from utility user charges, to service the cost of low-interest loans from the SRFS. Moreover, the present law provides the State with considerable latitude in discounting the interest rate on the SRFs, including provision of no-interest loans.

2. At this time we would not support a national program for special assistance to problem urban areas. Although, if experience demonstrates that States are having difficulty either placing facility loans or collecting repayment in distressed urban areas, Congress may need to revisit this issue.

STATE FLEXIBILITY

The single most effective way to ensure that local environmental concerns are properly addresses in a timely fashion is to maintain the flexibility of the SRF program. Thus, as a general policy, CIFA normally does not support the special earmarking by Congress of funds for either individual are categorical areas. While we respect the right of Congress to identify national priorities such as correction of combined sewer overflow or non point source control, we strongly urge that the

STANFORD) I IDDAL

committee preserve the flexibility in the law to allow States to select priorities among projects based on environmental criteria and readiness to proceed.

PREPARED STATEMENT OF HON. ROGER N. BEGIN

Mr. Chairman, Members of the subcommittee on Environmental Protection, my name is Roger N. Begin and I am the Lieutenant Governor of the State of Rhode Island. I am pleased to be here today to provide testimony on S. 1081, the Federal legislative proposal which would reauthorize the Clean Water Act of 1987. This legislation has received a great deal of attention and it's very easy to understand why. The issue of america's water quality needs, including its CSO needs, is not only a very important topic but a timely one as well. In creating the State revolving loan fund programs in 1987, the United States congress created a fundamental shift in the way wastewater treatment projects are to be financed. In short future Federal grants will no longer pay for three-quarters of the cost of building wastewater treatment facilities.

Federal assistance of any type for wastewater treatment projects is not authorized after 1994. Without Federal financial needs assistance the burden of paying for wastewater treatment infrastructure improvements necessary to ensure that States can meet even minimal standards of water quality falls to State and local governments. I am here today to tell you that the cost to address Rhode Island's wastewater treatment needs is staggering. The State's financing needs for such projects has been estimated to be between $1-1.5 billion over the next twenty year period. And CSOs represent a big part of the problem. The cost to correct Rhode Island's CSO problem alone is currently estimated to be $335 million.

Adequate treatment of CSOS demands a massive commitment of public effort and financial resources. Rhode Island and its municipalities recognize the need to correct this problem and are willing to take necessary actions. With respect to correcting this problem Rhode Island is even ahead of some other States. To date, the State has spent a total of $4.9 million to complete its plans for CSOs. As a result Rhode Island is now ready to proceed with design and construction, but unfortunately does not have enough financial resources to be able to complete its project goals.

In 1985 $57 million was authorized for Rhode Island from a total of $18 billion authorized nationally to address its wastewater treatment needs. However, experience has shown us that Rhode Island generally receives about 80 percent of that total. This leaves Rhode Island in a position to receive $47 million from the Federal Government added to the State's capital development authorization of $40 million, Rhode Island's total capital resources are $87 million which will allow it to finance approximately $200 million in projects. Since Rhode Island's CSO project needs have been estimated to be $335 million, this leaves a shortfall of $135 million.

As you are already aware, S. 1081, titled the Water Pollution and Control Act of 1991, introduced by Sen. John H. Chaffee and others would change authorization levels to make up for a present gap in appropriations and would extend the revolving loan fund authorizations through fiscal year 1998. Thus the $10 million Rhode Island would receive under S. 1081 would clearly be most welcome.

Another section of this bill addresses grant funding of CSOs which EPA regards as one of the last major sources of untreated sewage entering the United States' waters. S. 1081 would set up a process whereby the EPA would require States to develop and implement plans for CSOs by providing one year for them to assess the extent of their CSO problem, three years for communities to come up with control plans, one year for EPA approval of the respective plans and up to seven years for implementation. To assist, in the financing of these goals, the bill would authorize $2.4 billion in grants.

However, as you know congress' decision to change the nature of federally sponsored assistance from grants to loans has resulted in the establishment of State loan programs across the nation. The Rhode Island legislature established its revolving loan program, the Rhode Island Clean Water Protection Finance Agency in 1989 in order to ensure that Rhode Island would qualify for dwindling sources of Federal financial assistance.

The reintroduction of a grants program to correct CSO programs at this time after Rhode Island has put substantial commitment into its loan program needs to be questioned. It could very well undermine State flexibility in prioritizing projects. In addition, the timing of projects as required under EPA regulations would significantly slow down projects already in the srf pipeline. Thus the possibility of providing grants or loans for CSO projects under the current srf structure, rather than a new set of grant regulations merits serious consideration.

Last I would like to comment on the part of S. 1081 which would require CSOs to be able to handle the kind of six-hour storm that occurs one a year. Although I believe that technical matters are often best decided by technicians, I would want to say that Rhode Island's department of environmental management has expressed its concern that this might be an example of where too much technology has been required. Clearly, the issue of how much technology is needed should be explored further before congress creates new costly mandates.

As Lt. Governor, I have spent the last two years, trying to identify and implement a financing mechanism to address our State's funding shortfall for wastewater projects. In 1990 and again in 1991 I introduced legislation which would create a cost-sharing program for financing Rhode Island's mandated projects, including CSOs. The legislation came about as a result of the work of a task force on rivers appointed in January of 1989 and charged with identifying funding alternatives to assist cities and towns with the high costs of meeting Federal and State clean water goals.

After studying this issue for one year, the task force recommended that the State of Rhode Island finance 60 percent of the cost of projects mandated by State and Federal laws. The funding of this effort would come from a 3 cents per 100 gallons tax on public water supplies. That fee would generate $13.8 annually and would support some $138 million in State bonding authority. Although this proposal is still being discussed, it shows our State's commitment to find a solution to address current inordinate costs.

In conclusion, in the 1970's and 1980's Rhode Island made a commitment to clean up its waterways. Through its participation in the construction grants program we recognized then that the benefits of this effort would be enjoyed by all the residents of our State. As we enter the 1990's we must make a similar effort to clean up the remainder of our water quality needs. Doing so is important for both economic and environmental reasons.

Unless something is done the remainder of this financial burden will fall to the cities and towns in which these CSOs are located, and quite frankly it is a burden they cannot afford to shoulder alone. We need your continued assistance to help us achieve our goals.

PREPARED STATEMENT OF BILL BARNHARDT

Good morning, Mr. Chairman. My name is Bill Barnhardt and I am the Government Relations Representative for the City of Minneapolis. I am testifying on behalf of Steve Cramer, Council Member from the City of Minneapolis and Vice President of the CSO Partnership. Steve was unable to be here this morning due to a scheduling conflict overseas, and I am honored to address this Subcommittee on a subject with which I am also very familiar-combined sewer overflows, commonly referred to as CSOs.

This morning I would like to confine my oral testimony to the following four 1) A brief background on the CSO Partnership;

areas:

2) A local viewpoint illustrating the complexities of CSO control. I will describe Minneapolis' CSO control plan, its implementation, and subsequent problems;

3) The CSO Partnership's perspective of S. 1081, the Clean Water Act reauthorization measure, introduced by Senator Baucus; and

4) An explanation of the Partnership's alternative legislative approach to CSO control. By way of background on our organization, the CSO Partnership is a national organization dedicated to addressing the problem of combined sewer overflows in a practical and responsible manner. The CSO Partnership was formed by local governments, sewage agencies, utilities, and related industries throughout the United States to provide a vehicle for developing and implementing practical solutions to the CSO problem.

The Partnership's genesis was a meeting among cities facing CSO issues from across the United States during the December 1988 Annual Conference of National League of Cities. These localities realized that their CSO problems need to be addressed, that the current law did not provide a framework for addressing the problem in a realistic and practical manner, and that the cost of the CSO control far exceeded the financial capabilities of most cities. Interest in establishing the CSO Partnership grew steadily in the months that followed as concerned local governments and representatives of sewerage authorities convened several meetings to share information and discuss possible approaches to address this crucial issue.

The Partnership has 60 members representing 27 States. Our membership stretches from Maine to Georgia and from Virginia to California. Our members include small cities and towns with fewer than 10,000 citizens, large metropolitan areas with well over a million citizens, and many cities and towns in between. But regardless of size, we all face the formidable task of controlling our CSOs.

As you know CSOs exist in hundreds of localities throughout the United States where sanitary sewer systems and stormwater runoff systems are interconnected. During periods of heavy rainfall, the combined sanitary and stormwater runoff flows exceed the capacities of these systems resulting in untreated discharges to surface waters from CSO outfalls.

The EPA estimates that there are approximately 1,200 communities with CSO problems nationwide. Several of these communities may be represented through a single jurisdiction or sewerage authority. In fact, the EPA has been generating cost estimates for CSO control about every two years since 1973. These estimates have been developed for the purpose of determining construction grant needs under the Clean Water Act. Therefore, the estimates do not necessarily include all costs associated with CSO control. The early cost estimates were based on examining typical CSO cities, developing costs based on those cities, and projecting costs to the rest of the nation. In the more recent EPA Needs Surveys, CSO areas without definitive plans were not included in the needs estimates. Because the needs assessment approach does not count costs for cities without definitive plans, recent cost assessment has been very low. In the most recent cost assessment, only about 300 of the 1,200 CSO cities provided cost information.

The CSO Partnership has been in contact with most of these communities and has gathered information from many of them on the nature and magnitude of their CSO problems. Needless to say, they all face significant economic hardships to control their CSOs.

Turning to the CSO problem itself, let me emphasize that local governments are not to "blame" for the existence of the CSO problem. The combined sewer systems that are that source of today's CSOs were installed many years ago to convey stormwater and sanitary wastes away from densely populated areas to protect public health.

As a general rule, wastewater treatment was not available at the time of installation of these combined systems. In many instances, combined systems were viewed as state-of-the-art in wastewater technology. Now, however, these systems are a burden to these older cities. Unfortunately, these older cities also face a disproportionate share of the ever-increasing cost to provide necessary municipal services and to maintain aging infrastructures. Now they must shoulder the cost of CSO control. Although there are still problems to be addressed, we have made great strides since the early 1970's in providing secondary or even more advanced treatment for municipal wastewater flows. As you know, that progress has not been without tremendous cost. Providing secondary treatment throughout the United States has cost many more billions of dollars than originally envisioned by Congress when it passed the Clean Water Act of 1972.

The problems of achieving secondary treatment nationwide have been difficult and time-consuming. However, these problems pale in comparison to the magnitude of the problems facing individual localities with substantial CSOs. Local governments that are addressing their CSOs have found the cost and technical complexity of the solutions overwhelming. These localities have already spent hundreds of millions of local dollars, only to find that hundreds of millions in additional dollars remain to be spent to fully address the problem.

Turning to the example of Minneapolis, like many cities, we developed what was then a "state of the art" combined sewer system early this century. In line with more modern engineering practices, Minneapolis has been separating waste water from stormwater sewers in conjunction with our residential paving program since the mid-60's. In the early 1980's, in response to increased environmental concerns about remaining untreated discharges into the Mississippi River, the city stepped up its sewer separation program. By the end of 1985, 87 percent of our city's sewers had been separated in a program that was entirely funded by Minneapolis residents.

At that point, to enable Minneapolis to complete sewer separation in a ten-year period, rather than the 20 years required by the ongoing city paving program, the State of Minnesota developed a CSO program that included Federal, State and city funds. Without this program, Minnesota faced possible litigation by the State of Wisconsin. This program received an NPDES permit and was launched in 1986. Under this partnership program the remaining sewer separation in Minneapolis will be completed by 1995. By the end of 1990, five years into the expedited ten-year program, Minneapolis was 95 percent separated at a cost of $30 million during that