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71–967 PS












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MARCH 28, 2001

Printed for the use of the

Committee on Transportation and Infrastructure


DON YOUNG, Alaska, Chairman

THOMAS E. PETRI, Wisconsin, Vice-Chair
HOWARD COBLE, North Carolina
JOHN J. DUNCAN, Jr., Tennessee
STEPHEN HORN, California
JOHN L. MICA, Florida
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SUE W. KELLY, New York
JOHN R. THUNE, South Dakota
RICHARD W. POMBO, California
JIM DEMINT, South Carolina
ROBIN HAYES, North Carolina
ROB SIMMONS, Connecticut
HENRY E, BROWN, JR, South Carolina
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SAM GRAVES, Missouri
MARK R. KENNEDY, Minnesota
BILL SHUSTER, Pennsylvania

NICK J. RAHALL II, West Virginia
ROBERT A. BORSKI, Pennsylvania
BOB CLEMENT, Tennessee
ELEANOR HOLMES NORTON, District of Columbia
BOB FILNER, California
FRANK MASCARA, Pennsylvania
GENE TAYLOR, Mississippi
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JAMES P. MCGOVERN, Massachusetts
TIM HOLDEN, Pennsylvania
BRIAN BAIRD, Washington
MICHAEL M. HONDA, California
RICK LARSEN, Washington



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JOHN J. DUNCAN, Jr., Tennessee

STEPHEN HORN, California
SUE W. KELLY, New York
RICHARD W. POMBO, California
HENRY E. BROWN, Jr., South Carolina
DENNIS R. REHBERG, Montana, Vice-Chair
BILL SHUSTER, Pennsylvania
  (Ex Officio)

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GENE TAYLOR, Mississippi
JAMES P. McGOVERN, Massachusetts
BRIAN BAIRD, Washington
FRANK MASCARA, Pennsylvania
ROBERT A. BORSKI, Pennsylvania
BOB FILNER, California
BILL PASCRELL, Jr., New Jersey
MICHAEL M. HONDA, California
  (Ex Officio)



    Accetturo, Mark, Vice President, Reynolds Inc., Fairburn, GA, on behalf of the National Utility Contractors Association

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    Beecher, Dr. Janice A., Beecher Policy Research, Inc., Indianapolis, IN, on behalf of the National Association of Water Companies

    Beider, Perry, Principal Analyst, Congressional Budget Office, Microeconomic and Financial Studies Division, accompanied by Natalie Tawil, Analyst, Congressional Budget Office

    Elmore, Bill, Senior Vice President and Chief Operating Officer, Knoxville Utilities Board, Knoxville, Tennessee, on behalf of the Association of Metropolitan Water Agencies and the American Water Works Association

    Karney, Patrick T., Director, Metropolitan Sewer District of Greater Cincinnati, Cincinnati, Ohio, on behalf of the Association of Metropolitan Sewerage Agencies

    Schwartz, Paul D., National Policy Coordinator, Clean Water Action, Washington, D.C.

    Tobey, Hon. Bruce, Mayor, Gloucester, Massachusetts, on behalf of the National League of Cities


    Blumenauer, Hon. Earl, of Oregon
    Boehlert, Hon. Sherwood, of New York
    Borski, Hon. Robert A., of Pennsylvania
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    Mascara, Hon. Frank, of Pennsylvania


    Accetturo, Mark

    Beecher, Dr. Janice A

    Beider, Perry

    Elmore, Bill

    Karney, Patrick T

    Schwartz, Paul D

    Tobey, Hon. Bruce


    Accetturo, Mark, Vice President, Reynolds Inc., Fairburn, GA, on behalf of the National Utility Contractors Association, chart, America's Wastewater Infrastructure Needs

    Beider, Perry, Principal Analyst, Congressional Budget Office, Microeconomic and Financial Studies Division, chart, Summary of the Water Infrastructure Network's Estimate of the Annual Funding Gap
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    Karney, Patrick T., Director, Metropolitan Sewer District of Greater Cincinnati, Cincinnati, Ohio, on behalf of the Association of Metropolitan Sewerage Agencies:

Commonly asked questions and answers
Water Infrastructure Now, Recommendations for Clean and Safe Water in the 21st Century, report

    Schwartz, Paul D., National Policy Coordinator, Clean Water Action, Washington, D.C., Principles and Criteria for Water Infrastructure Funding bill


    American Society of Civil Engineers, statement

    Associated Builders and Contractors, Inc., Anne Bradbury, Washington Representative, letter, March 28, 2001

    City of Cape Coral, Florida, S.W. Daignault, P.E., City Manager, letter, August 4, 2000

    Colorado Department of Public Health and Environment, Douglas Benevento, Director, Environmental Programs, letter, July 18, 2000

    Colorado Water Resources and Power Development Authority, Daniel L. Law, Executive Director, letter, July 21, 2000
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    Iowa Department of Natural Resources, Wayne Farrand, Supervisor Wastewater Section, letter, August 4, 2000

    Louisiana Department of Environmental Quality, J. Dale Givens, Secretary, letter, July 31, 2000

    Michigan Department of Environmental Quality, Russell J. Harding, Director, letter, July 14, 2000

    Mississippi Department of Environmental Quality, Mark Smith, comments

    Montana Department of Environmental Quality, Todd Teegarden, P.E., Water Pollution Control State Revolving Fund Program Manager, Technical and Financial Assistance Bureau, letter, July 17, 2000

    Nebraska Department of Environmental Quality, Mike Linder, Director

    North Carolina Clean Water SRF, Bobby Blow, email, June 22, 2000

    North Carolina League of Municipalities, Henry Lancaster II, SDirector of Intergovernmental Relations, statement

    Oklahoma Water Resources Board, Duane A. Smith, Executive Director, letter, August 1, 2000
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    Oregon Department of Environmental Quality, Tom Meek, Program Lead, Clean Water State Revolving Fund, letter, August 3, 2000

    Texas Water Development Board, Craig D. Pedersen, Executive Administrator, letter, July 7, 2000

    Utah Department of Environmental Quality, Division of Water Quality, Don A, Ostler, P.E., Director, letter, July 12, 2000

    Water Environment Federation, statement


Wednesday, March 28, 2001
House of Representatives, Committee on Transportation and Infrastructure, Subcommittee on Water Resources and Environment, Washington, D.C.

    The subcommittee met, pursuant to call, at 10:16 a.m. in room 2167, Rayburn House Office Building, Hon. John J. Duncan, Jr. [chairman of the committee] presiding.

    Mr. DUNCAN. The hearing will come to order.
    I want to welcome everyone to our hearing on water infrastructure needs. I have just been told we are going to have a vote very shortly. So I am going to go ahead and give my opening statement and then we may have to break.
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    As a Nation, we rely on water infrastructure to deliver safe drinking water to our citizens, and to keep pollution from municipal sewage out of our waterways. There is, perhaps, nothing we take more for granted, or appreciate far less than we should, than our precious clean water supply.
    Several recent studies predict that unless we take steps now to replace aging infrastructure, we may not be able to continue to provide these very, very important services. According to these studies, we need to be spending an additional $23 billion a year over and above current investments to keep our drinking water and waterways clean and safe. Are these estimates conservative and reasonable or a pie in the sky wish list? This is a very important question. As you might expect, these predictions have gotten the attention of Congress, including this subcommittee.
    The purpose of today's hearing is to get more information about water infrastructure investment needs. I hope this hearing will give us a better understanding of why infrastructure needs are rising. Are these needs the result of new regulatory requirements, or the need to replace aging plants and pipes? Why aren't these needs being met by existing financing mechanisms? Are water and wastewater utilities unable to raise rates or incur more debt? Is there an affordability problem everywhere? Why aren't existing sources of Federal and State assistance helping utilities close this gap? Why are EPA's estimates of infrastructure needs different from estimates advanced by the Water Infrastructure Network and other groups that represent water and wastewater utilities? Once we have the answers to these and other questions, we can begin looking at potential solutions to this problem.
    I believe that the Federal Government has a very important role to play in meeting water infrastructure needs. Federal assistance for water infrastructure is not new. Currently, Congress provides over $3 billion a year in wastewater and drinking water infrastructure assistance. Since 1972, under the Clean Water Act, we have provided over $67 billion in Federal funding to help construct wastewater treatment plants, some of which may now be nearing the end of their useful lives.
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    However, simply throwing Federal dollars at our water infrastructure problem will not solve it. We need to make sure this money is spent wisely. I hope that working together we can help reduce the need to make capital investments through better asset management, innovative technologies, and greater efficiencies. I also hope we can identify additional sources of revenue, including: private sector investment, greater use of tax-exempt bonds, increased rates of return on investments made by managers of State Revolving Loan Funds, increased rates paid by users where affordable, and increased Federal assistance.
    I am particularly concerned about small communities that cannot afford to make capital investments. We should make sure that whatever Federal assistance is provided reaches these communities and meets their needs.
    There is no single solution to this problem. In fact, several proposals have already been advanced. Representative Kelly and Representative Tauscher have introduced H.R. 668, to reauthorize and expand the Clean Water State Revolving Loan Funds. In the Senate, Senators Reid and Enzi introduced S.503, to provide assistance to small communities. And the Water Infrastructure Network has advanced a legislative proposal to replace the existing State Revolving Loan Funds with new State financing authorities that would provide grants and loans for water and wastewater infrastructure, funded by $57 billion in Federal appropriations over five years.
    I want to assure everyone that I have not made up my mind or finalized any approach or proposal at this point. I am willing to work, though, and eager to work with Mr. DeFazio and other members of the this subcommittee as well as the Chairman and Ranking Member of the full committee to develop a committee proposal to address these matters. On drinking water infrastructure matters, we also will be working with the Energy and Commerce Committee.
    We have a lot of work ahead of us. I am pleased that we are starting that work today by learning more about our water infrastructure needs from our distinguished witnesses. And I am particularly pleased that we are hearing from one of my bosses, one of my constituents, Mr. Bill Elmore of the Knoxville Utility Board.
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    I am pleased now to recognize my good friend, the Ranking Member, Mr. DeFazio, for any comments he wishes to make.
    Mr. DEFAZIO. Thank you, Mr. Chairman. I share the sentiment that we do not want to throw Federal money at problems and waste it. But, I think what we are looking at here is an area where the Federal Government is absent from a partnership with States, counties, and municipalities that have obligations, substantial obligations under Federal law that are otherwise well-founded in terms of protecting our clean water, river resources, dealing with wastewater, and dealing with adequate clean water supplies, which are essential to business, economic development, and growth.
    In my largest county, I served as a County Commissioner on a multi-jurisdictional metropolitan wastewater management commission. We built a $100 million dollar project with a very substantial Federal match. At the time, some people criticized the size and the capacity, and it turns out that only 20 years later we are about at capacity. In areas of the country that are growing, they need some help from the Federal Government.
    This is an essential public service, I believe, that underpins the livability of our communities. It underpins the economic vitality of our communities. And the wonderful thing is, in meeting these obligations in partnership through low interest, no interest, revolving loan funds or grants, the Federal Government will produce economic activity and future growth.
    I think this is sort of an apple pie issue. I look forward to hearing the members of the panels who are substantiating what we know is a tremendous unmet need across the United States. I would caution those, and I do not think we have any today but I know there are some, with proposals for privatization of water supplies. I wish I had brought the Los Angeles Times with me to show what happens when you take what essentially are monopoly services that are essential to the public and you unleash them, as with the California energy situation. I would say the same thing could very well happen to many of our communities. We are just buying and fixing the last remaining mistakes in my State of private water systems that were under-maintained and were incredibly leaky. They have been taken over by municipalities and we still do not have adequate resources to put them in adequate working condition. They lose 40 percent or more of their water in leaks. So I would suggest this is a very appropriate area for Federal investment.
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    Unfortunately, I am not going to be able to sit through the entire panel because the Rules Committee, with not much notice, is allowing an alternative budget which I authored to be offered on the floor shortly. My budget does provide, unlike the majority's budget, a very substantial place where we could make room for Federal investment in infrastructure.
    I am hopeful that this committee can show leadership in the coming months to put forward an authorization and find a place for it in the budget that will meet infrastructure needs, because I see looming very, very huge unmet needs and a crisis coming in water and infrastructure. The alternative is, of course, we could just repeal the Federal laws, the Clean Water Act and others. Unfortunately, I think that would be a disaster. I do not think this Administration is going to propose that, and the American people would not put up with it. I do not think we are going to go back to the days of burning rivers and other things that we had in the 1960s.
    We need to move forward and we have got to move forward in partnership. I look forward to hearing of your struggles and your successes in those areas.
    I thank the Chairman and thank the members of the panel.
    Mr. DUNCAN. Thank you, Mr. DeFazio.
    I would like to go now to the real expert, a man who chaired this subcommittee for six years, now Chairman of the full Science Committee, Chairman Boehlert.
    Mr. BOEHLERT. Thank you very much, Mr. Chairman. I am glad to meet Mr. Elmore. Now we know who is partially responsible for you being here. I am looking forward to his testimony.
    This is a serious issue we are dealing with today. There is just no question I think in anyone's mind that we need a lot more money, because the best intentions in the world are not going to solve this problem. It is going to take some cold, hard cash to invest in our Nation's water infrastructure. And this committee has a reputation for doing some pretty productive things to deal responsibly with infrastructure. We did it with T-21, we did it with Air-21, now I think we need to do it with Water-21.
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    So, Mr. Chairman, I look forward to working with you under your leadership. This committee has a tradition of working on a bipartisan basis. We are going to lead the way; we are not going to follow. And I ask permission to include my words of wisdom in the statement at this juncture.
    I look forward to the testimony this morning.
    Mr. DUNCAN. They may be included in the record. Thank you very much, Chairman Boehlert.
    We also have the former Ranking Member of the subcommittee, Mr. Borski. It is always a pleasure to have him with us.
    Mr. Borski.
    Mr. BORSKI. Thank you very much, Mr. Chairman. Let me first commend you and our distinguished Ranking Member for holding this hearing today. It is, obviously, extremely important. I had a great pleasure of serving as a Ranking Member for six years with my good friend, Chairman Sherwood Boehlert, and I want to, as I often did during our hearings, agree with everything he said today. This is an obvious problem, one that we need to have some significant Federal investment to try and solve it. We have had great successes in this committee. We have had the great successes of T-21 and Air-21. And this committee has a great history of being an extremely bipartisan committee, one that looks at serious problems and tries to work at them in a bipartisan fashion.
    Water mains that break are not Republican or Democratic, they are mains in our cities, in our towns, in our rural areas across this country and we cannot solve these problems in a partisan way. We need to look at them, we need to work together. In my city of Philadelphia, we have water mains that are 80 years old. We have enough leaking water every single day to treat the population the size of the city of New Orleans. And this is not unique to our city; this happens throughout the country.
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    So again, Mr. Chairman, I want to commend you and Mr. DeFazio for foresight in having this hearing. We look forward to working together with you to solve this very significant problem.
    Mr. DUNCAN. Thank you very much, Mr. Borski.
    Mr. Blumenauer.
    Mr. BLUMENAUER. Thank you, Mr. Chairman. I know we have got a vote on, so I will be brief.
    I just want to say that I hope that in the context of these hearings that you are conducting, we will not only deal with the issues relating to resources, but also with how the Federal Government puts the pieces together. I am concerned that the people who are appearing before us not only have a resource problem that I want to stand with you to make sure that this Congress addresses, but also they have a management problem because they are so fractured in terms of what happens in regions. The Federal Government does not have a unified approach when dealing with the problems that deal with water resources.
    So I hope that with you and Ranking Member DeFazio and the other distinguished members of this subcommittee, we can deal with the resource question, we can be a better partner, but we also take a look to make sure that the Federal Government is looking at this in a holistic fashion, with whole watershed issues, and bringing the variety of Federal agencies that deal with water together so that we integrate the effort and are the type of partner that they deserve.
    Thank you very much. I would ask to be able to submit my full statement into the record.
    Mr. DUNCAN. Thank you very much. And all full statements will be placed in the record.
    We are very pleased and honored to have Mr. Tierney with us. I believe you want to make an introduction.
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    Mr. TIERNEY. I do, Mr. Chairman. Thank you and the Ranking Member and the other members of the committee for indulging this request. I am honored to join you this morning. I also want to make note of how important the topic is that you have chosen to deal with today, and I give you great encouragement on that. You will certainly do a service to our cities and towns throughout the country, and certainly in the 6th district of Massachusetts.
    Mr. Chairman, I want to introduce to you my good friend, Mayor Bruce Tobey of Gloucester, Massachusetts, which is America's oldest seaport. Besides steering that city through the recent filming of the ''The Perfect Storm,'' Mayor Tobey has led Gloucester through a decade of extraordinary challenge and change.
    When he first became Mayor, in 1991, the city was under a Federal court order to stop polluting the waters surrounding Cape Ann. Today, those coastal waters are clean, thanks in very large measure to the skill and ingenuity of the Tobey Administration. That Administration has aggressively pursued effective wastewater treatment and management throughout the city. The Mayor's knowledge and expertise in the field of wastewater management brought him to positions of leadership in the National League of Cities, which he represents here today. I am certain that he will provide this subcommittee with highly relevant testimony.
    Again, Mr. Chairman, Mr. Ranking Member, and others, I appreciate the opportunity to present to you Mayor Bruce Tobey from Gloucester.
    Mr. DUNCAN. Mr. Tierney, thank you very much. We are very pleased to have your Mayor with us.
    Unfortunately, because of a vote that is going on the Floor, we are going to have to break at this time. I apologize. We will be in recess just very briefly and come back as soon as we can. Thank you very much.
    Mr. DUNCAN. We will proceed once again.
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    We have been joined by Dr. Ehlers. Would you like to make an opening statement?
    Mr. EHLERS. No statement.
    Mr. DUNCAN. Okay. Mr. Baird? Mr. Pascrell, would you like to make an opening statement?
    All right. We will go ahead and proceed with the first panel. We are honored to have with us from the National League of Cities the Honorable Bruce Tobey, Mayor of Gloucester, Massachusetts. We will proceed in the order the witnesses are listed on the call of the hearing.
    Mayor Tobey, you may begin your statement.

    Mayor TOBEY. Thank you, Mr. Chairman, members of the subcommittee. I will not use my time to talk about the filming of ''The Perfect Storm,'' I will save that for another day. I am pleased to be here to speak on behalf of the National League of Cities, which, as you all know, is an organization of 18,000 cities, towns, and villages from across America. Our largest member has 8 million people; our smallest, 637. I think it is safe to say the NLC represents main street America and the people of our communities, large and small, but especially mid-sized and small.
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    My goal today is to seek your support, to see a renewal of the Federal partnership in financing the capital needs of wastewater and water infrastructure. There is a core fact here: the needs are large, they are unprecedented, and local sources and resources alone cannot cover them.
    Currently, our annual local expenditures on water and wastewater infrastructure are $60 billion a year. They are fueled by local rates, and those rates have steadily risen because they have had to address and meet costs that have been rising at a rate annually of 6 percent above the rate of inflation. Over the next 20 years, those local resources can only cover about one-half of the $2 trillion we are going to have to pull together if we are going to fully meet the needs of our water and wastewater systems.
    Now, what is this gap all about? Why does this funding gap exist? There are a number of factors. Four.
    First, we are seeing the simultaneous expiration of the useful life of water infrastructure, water infrastructure installed at various points in time in history. And there is a funny factor at play here. Too often, the systems installed 100 years ago only had a useful life of 100 years. And too often, 75 years ago, 75 years of useful life. And 50—well, you know the trend here. It is all coming home to roost at once. This is not a need that we have made up or chosen to have exist. The pipes are telling us when their lives are up.
    Population growth is the second factor. Populations have reached the point of having surpassed the capacity of our water and wastewater systems to handle them.
    Third, we are looking at the implementation of new, more costly, and much more complex Federal mandates which, in effect, are substituting Federal judgment for local priorities. Local priorities are not what is going to govern. The substitution of Federal priorities is too often the case. There are limited dollars in the till and the bottom line comes when we have to meet either the local O&M needs to keep the systems from crumbling, or we have to keep the Federal regulators from pounding on our door with consent orders and fines. And that is the option practicality drives us too often to have to give first priority to. We did not make up that need either. There is a Federal statutory scheme and a regulatory structure that is driving them.
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    Fourth, we have been looking over the course of years and decades now at a substantial decline in the Federal financial participation. That partnership in the aftermath of the Clean Water Act's enactment in 1972 is no longer what it once was. And this is a situation that is costing real people real money as we sit here today. Helena, Montana, rates went up 61.43 percent not long ago. Baton Rouge, Louisiana, from $21.50 a month to $37.88 a month, a 76 percent increase due to a $450 million CSO project. Lots of those examples. My favorite, unfortunately, is from Gloucester. I had to send 800 households a bill for the sewer expansion that we did for that neighborhood pursuant to a court order. The per household share, $20,300. That is real big money, and that does not cover the bill they get each year for their share of the operation of the system.
    The Water Infrastructure Network is looking for a five year, $57 billion authorization beginning in fiscal year 2003 for loans, grants, loan subsidies, and credit assistance so we can go forward together, arms linked in partnership to meet this pressing need. It is a further refund to the folks who helped build the surplus. It is a rebirth of that Clean Water Act partnership. And it is a renewal of the sound infrastructure that is the foundation of economic growth. That is how we help the small businesses of our main streets grow, the families trying to make ends meet get that job done.
    In the final analysis, I would contend that a water and wastewater infrastructure system worthy of the United States of America is just as great a priority as national defense, our aviation system, and our highway system. Those are systems that get guaranteed funding and a secure place in the hierarchy. The National League of Cities is proud to be a partner working with you and with our colleagues in the Water Infrastructure Network to make that happen, to give that priority to this pressing need. Thank you, Mr. Chairman.
    Mr. DUNCAN. Thank you very much, Mayor Tobey.
    The next witness represents the Association of Metropolitan Sewerage Agencies. Mr. Patrick T. Karney is Director of the Metropolitan Sewer District of Greater Cincinnati.
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    Mr. Karney, we are pleased to have you with us. You may begin your statement.

    Mr. KARNEY. Good morning, Mr. Chairman, Congressman Borski, and members of the subcommittee. I am Pat Karney, Director of the Metropolitan Sewer District of Greater Cincinnati, testifying today on behalf of the Association of Metropolitan Sewerage Agencies, or AMSA, whose members provide wastewater services to ratepayers in more than 250 metropolitan areas around the country. Thank you for the opportunity to speak today on this critically important issue of water infrastructure needs.
    Recently, more than a million consumers in California were plunged into darkness as the Nation's energy crisis deepened. Imagine what would happen if the Nation's water and wastewater systems began to fail. As the Director of Cincinnati's sewer district, could I ask our consumers to tolerate untreated or unsafe water? I think not, because the failure of wastewater systems could create a public health emergency, cause widespread environmental degradation, and lead to an erosion of our local economies.
    The public trust in clean and safe water is unwavering. Every day, American's rely on clean water for recreation, commercial fishing, and industrial activity. These activities generate billions of dollars in income every year, none of which would be possible without clean water. Water and wastewater systems are the heart and sole of every American community. Would we build roads, bridges, and airports in communities which could not provide clean and safe water? No.
    Inadequate capacity to treat wastewater or supply clean water can cripple a local community, drive manufacturing out, and wipe out tourism. More importantly, the gains we have made over the past 30 years are now at risk. According to EPA, without significant new investment, we can lose a generation of water quality progress by 2016. Today, we ask Congress once again to make water infrastructure funding a national priority.
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    America's water and wastewater systems face an estimated funding gap of $23 billion a year between current investments in infrastructure and what will be needed over the next 20 years to replace aging and failing pipes and to meet Clean Water Act and Safe Drinking Water Act mandates. This unprecedented level in investment will be needed at a time when local budgets are escalating 6 percent a year above inflation. Federal contributions have declined 75 percent since 1980 and today represent less than 5 percent of the total water and wastewater outlays.
    Let's put this into perspective. In Cincinnati, we need to invest between $1 and $3 billion to address the combined sewer overflow and sanitary sewer overflow problems. This is over and above normal operations and maintenance costs and routine rehabilitation of our aging system, which the community now supports on its own. Mr. Chairman, this number is staggering.
    Our user charges are currently mid-range compared to those of the 67 utilities that surround Cincinnati. If the problem can be solved on the low end, with only $1 billion, we would be forced to increase our user rates by 7 percent per year for the next 15 years. This would multiply existing rates by nearly threefold, or 276 percent. If, on the other hand, we end up at the high end, $3 billion, we face rate increases of 21 percent per year for 15 years. This would multiply current rates 17 times.
    Like nearly all major wastewater utilities, MSD has not received Government subsidies or local tax contributions for our normal operations. These increases will fall solely on the shoulders of our ratepayers, ordinary families who pay the true cost of wastewater collection and treatment in their quarterly bills and have been doing so since 1968. These are the same families whose sewer rates went up 9 percent in 2000, they have gone up another 7 percent this year, and we are expecting another 7 percent next year.
    Mr. Chairman, members of the subcommittee, Cincinnati is just one of tens of thousands of cities and counties facing a financial crisis due to aging infrastructure and challenges of eliminating CSOs, SSOs, or both, plus the expectations of greater demands from new environmental regulations. Local ratepayers cannot address these tremendous needs on their own. We can close this water infrastructure financing gap, but only if the Federal Government and the States meet our cities and counties half way by authorizing an average of $11.5 billion per year in capitalization funds to the States over the next five years.
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    The Water Infrastructure NOW report released last month, endorsed by over 30 national organizations including AMSA, recommends that Congress pass and the President budget for and sign legislation that would:
    Create a long-term, sustainable, and reliable source of Federal funding for clean and safe water;
    Authorize capitalization of the next generation of State financing authorities to distribute funds in fiscally responsible and flexible ways, including grants, loans, loan subsidies, and credit assistance;
    Focus on critical core water and wastewater infrastructure needs;
    Streamline Federal administration of the funding programs and encourage continuous improvement in public administration of both Federal and State levels;
    Finance strong State programs to implement Federal environmental laws;
    Establish a new program for technology and management innovation to reduce infrastructure costs, prolong the life of our assets, and improve the productivity of our utilities; and
    Provide expanded, targeted technical assistance to communities most in need.
    In an era of unprecedented Federal surpluses, I cannot think of a better investment than the health of our citizens, the integrity of our environment, and economic well-being of our communities. Simply put, we cannot afford to leave any community behind as we address the looming national water and wastewater infrastructure funding crisis.
    Chairman Duncan, we look forward to working with you and the rest of the committee to find solutions to this national crisis. Rolling blackouts of water and wastewater treatment would be truly devastating to the health and well-being of our citizens and the national economy. Thank you.
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    Mr. DUNCAN. Thank you very much, Mr. Karney.
    I previously mentioned our next witness, Mr. Bill Elmore, who is from my hometown of Knoxville, Tennessee. Mr. Elmore is here representing the Association of Metropolitan Water Agencies and the American Water Works Association. Mr. Elmore is the Senior Vice President and the Chief Operating Manager for the Knoxville Utility Board.
    Mr. Elmore, we are pleased to have you here with us. You may begin your statement.

    Mr. ELMORE. Good morning. Thank you, Mr. Chairman, members of the subcommittee. As Congressman Duncan has indicated, I am here today to testify on behalf of water infrastructure needs and I am presenting this statement on behalf of the Association of Metropolitan Water Agencies and the American Water Works Association.
    I would like to begin my testimony by giving you a snapshot of Knoxville Utility Board's system. We are an independent public agency of the City of Knoxville that provides water and wastewater service to more than 180,000 people in Knoxville and Knox County. KUB also provides gas and electric service in Knoxville and parts of seven surrounding counties, bringing the total population served to over 400,000 people. KUB treats 37 million gallons of water each day, which requires two treatment plants, 22 booster pumping stations, over 1,400 miles of pipe, all in a 189 square mile service territory. KUB also operates four wastewater treatment plants, 46 pumping stations, and a 1,275 mile collection system.
    Last fall, the Water Infrastructure Network (WIN) released ''Clean and Safe Water for the 21st Century,'' which summarized infrastructure needs and the funding shortfall facing drinking water and wastewater systems. The report estimates that drinking water utilities across the Nation collectively need to spend about $24 billion per year for the next 20 years, for a total of $480 billion.
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    A separate drinking water needs estimate was released in February by the EPA. The survey suggests water systems will need $150 billion during the next 20 years. But according to EPA, their survey underestimates the true need. EPA's estimate excludes many needs, such as the replacement of treatment facilities and distribution systems due to age. The survey also excludes capital projects related to raw water storage, and EPA's estimates for medium and large systems is substantially under-evaluated because the agency relied on five year capital improvement plans, or CIPs, and included them in a 20 year picture. Utilities may estimate their needs for many years into the future, but most utility CIPs cover five year periods only, leaving the remaining outyears undocumented, and thus excluded by the survey.
    In contrast, WIN's $24 billion per year estimate is more comprehensive. It relies on historical system construction data, population figures from the Census Bureau, actual cost data from the drinking water community, and data on infrastructure spending from the Department of Commerce, as well as the needs estimated by EPA and AWWA.
    In another study, AWWA looked at the original pattern of water main installation from 1870 to the year 2000. They learned that water main installation reflects the overall pattern of population growth in cities across this country. There was an 1890s boom, a World War II boom, a Roaring '20s boom, and the massive post-World War II baby boom.
    The oldest cast iron pipes, dating to the late 1800s, have an average useful life of about 120 years. This means that as a group these pipes will last anywhere from 90 to 150 years before they need to be replaced, but on average they need to be replaced after they have been in service for about 120 years. Because manufacturing techniques and materials changed, the roaring '20s vintage of cast iron pipes has an average life of about 100 years. And because techniques and materials continued to evolve, pipes laid down in the post-World War II era have an average life of 75 years, or less.
    Using these average life estimates and counting the years since the original installation, it is clear that water utilities will face significant need for pipe replacement in the next couple of decades. Treatment facilities, on the other hand, are much more short-lived than pipes, with a life expectancy of 25 to 40 years, or less. Concurrent need to finance replacement of pipes and of treatment plants greatly increases the challenge facing utilities.
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    Compounding this issue is demographics. Large investments are a major source of financial vulnerability for water utilities due to the very fixed nature of the pipes and plants and the very mobile nature of our customers. When population grows, the infrastructure is expanded. But when people move away, the pipe and the liability for repair and replacement remain behind, creating a financial burden on the remaining customers. This problem, known as ''stranded capacity,'' adds considerably to the challenge of funding infrastructure replacements in many of our communities.
    Currently, local communities are financing over 90 percent of this bill. Knoxville has spent $40 million in capital improvements over the last five years for the drinking water system, and we are anticipating another $64 million in water system improvements during the next five years.
    Kansas City, Missouri, raised rates by 100 percent over the past 10 years, and anticipates spending $85 million per year for the next six years just to resolve its infrastructure backlog.
    Cleveland, Ohio, has been investing an average of $60 million per year over the last 10 years for drinking water infrastructure, and expects over $500 million in the next eight years to rehabilitate and modernize three of its four water plants.
    In Portland, Oregon, a $1 billion mandated combined sewer overflow program will result in double digit rate increases for about 15 years. At the same time, the need for infrastructure funding for drinking water is $400 to $800 million in the next 10 years.
    How we close the $11 billion drinking water infrastructure gap between historical spending and overall need is the next question. Regardless of the efficiencies we make locally, there will remain a gap between the available funds and the sufficient level of investment required.
    AWWA and AMWA pledge to work with this subcommittee to develop a fair and responsible solution to this problem. Thank you.
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    Mr. DUNCAN. Thank you very much, Mr. Elmore.
    Our final witness on this panel is from the Congressional Budget Office, Mr. Perry Beider, who is Principal Analyst for the Congressional Budget Office. He is accompanied by Ms. Natalie Tawil who is also an analyst with the Congressional Budget Office.
    Mr. Beider, we are very pleased to have you here with us. We know that you have great experience and expertise in this area. Thank you very much for being with us today. You may begin your statement.

    Mr. BEIDER. My pleasure, Mr. Chairman, and members of the subcommittee, thank you for inviting me to testify. The Congressional Budget Office (CBO) appreciates this opportunity to contribute to your review of the needs for investment in wastewater and drinking water infrastructure. My testimony today reflects some initial findings from an ongoing CBO study requested by this subcommittee and your colleagues on the Energy and Commerce Committee. With me today is Dr. Natalie Tawil, who is also working on the CBO study.
    I would like to make four points today about water investment needs.
    Point one is that there is a lot of uncertainty surrounding the existing estimates of those needs. As you know, the Water Infrastructure Network, or WIN, has estimated that investment needs between 2000 and 2019 will exceed current spending from all ratepayers and public sources by an annual average of $11 billion for drinking water and $12 billion for wastewater, making a total of $23 billion. You may be able to see that on the chart.
    Of course, any 20-year projection is uncertain. But the uncertainty here is compounded by a shortage of critical data on the water and sewer pipe networks. Without looking system by system at pipes' age and condition, it is very difficult to say exactly when replacement will be required.
    In the absence of a national pipe inventory, the WIN analysis uses some simple national assumptions. For example, it assumes that about 3 percent of the wastewater capital stock, including sewer pipes, and an average of 1 percent of drinking water pipes are replaced each year. Although those assumptions are grounded in common rules of thumb, CBO considers it quite possible that the estimated rates of pipe replacement could be off by 30 or 40 percent. That factor alone could imply an error of 20 or 30 percent in the overall funding gap.
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    Point two is that the WIN estimates are not independently confirmed by EPA's preliminary and unpublished gap analysis. For wastewater, the WIN and EPA estimates are, indeed, very similar but not independent. They were derived using the same methodology, from the same consultants. Conversely, the two drinking water estimates are independent but significantly different. Of course, EPA's analysis could change as it undergoes agency review.
    Point three is that some of the assumptions used in the analyses could tend to overstate the costs.
    First, the analyses assume efficiency savings in operation and maintenance (O&M) but not in capital investment. While the data to support capital efficiencies are sparse, a growing number of systems have achieved significant savings from various innovative methods.
    Second, the WIN report appears to misstate the financing costs. Those costs seem to reflect all future debt-service payments associated with the average annual capital investment between 2000 and 2019, regardless of when those payments would be made. CBO estimates that the annual debt service actually paid during those 20 years would average about $3 billion less than the reported $10 billion.
    And third, the analyses may also overstate O&M costs, at least for wastewater, because they assume that in the absence of specific efficiency gains, the ratio of O&M to capital stock would rise steadily over time.
    My final point is that water investment needs are not only uncertain and, perhaps, overstated by current estimates but also subject to influence by Federal policies. In particular, a broad increase in Federal funding intended to help keep water and sewage rates affordable could keep total investment needs higher than they would be otherwise by reducing the pressure on systems to operate more efficiently and on customers to economize on their use of water services.
    Drinking water and wastewater systems around the country have improved their operational efficiency in recent years. But industry experts see room for further savings in both operational and capital costs. Promising methods include consolidation of systems to achieve economies of scale; strategic use of preventive maintenance to minimize long-run costs; demand management, including the use of pricing strategies to reduce peak use and high-cost contaminants in wastewater; and innovative contracting for new construction, such as design/build and design/build/operate.
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    But such potential future savings could go unrealized if Federal policies undermine the growing incentive for efficiency. We have seen this before. A 1985 CBO study found that high Federal cost-shares in the original construction grant program for wastewater treatment, for all that program accomplished, raised capital costs by more than 30 percent.
    In summary, CBO finds that the existing estimates of investment needs for wastewater and drinking water are accompanied by significant uncertainty and may be too high. Moreover, how big the needs turn out to be will be influenced by who pays to meet them and how.
    I will be happy to try to answer any questions.
    Mr. DUNCAN. Thank you very much, Mr. Beider.
    Mayor Tobey, let me start by asking you this. You say at one point in your testimony that we have got 100 years' worth of infrastructure being exhausted all at once. Why would all of this be going bad all at once? I am all for the Federal Government playing an important role in this and maybe even doing more than it has been doing. We have had big investments over the last 20 or 30 years by the Federal Government, the State governments, and the local governments. We have been investing more money in recent years than we ever have before. Mr. Elmore said the City of Cincinnati has invested an average of $60 million for 10 years straight now. The City of Knoxville has invested $40 million over the last five years. Why, with all this money being invested, would everything be going bad all at once?
    Mayor TOBEY. Mr. Chairman, there are a couple of factors that come into play here. Frankly, part of it is just bad luck. It is not a matter of being able to, for example, in my case, Gloucester, exhume the bodies of the dead mayors who presided over these and let them have it. Would it were that simple. Veterans Day a year and a-half ago, I was awakened at 7:00 in the morning because the main 20 inch main that feeds water to the Island portion of my community, where 80 percent of the folk live, had ruptured. It was an old cast iron main. It had just had it. It was the state of the art when it was put in. It was put in with good intentions all those decades ago.
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    Similarly, other components of our systems across the country when put in were using the best available materials. And if you look, for example, at some of these ''Nessie'' curve analyses that look at community by community dates of installation, demographic components, costs, materials, you will see the cycles of investment reach a point now and in the coming years where they have had it, they just have had it because useful lives have been exhausted or are soon to be exhausted.
    That compounds with the second part of your question, sir, which was what did you buy with all that investment over the course of the last 20 to 30 years. By and large, it wound up being the treatment plants, the pump stations, the new clean it up components that were driven, for example, by the Clean Water Act of 1972, the Safe Drinking Water Act. And even there, we were looking at investments with limited useful lives but specific to solving new parts of the problem. Simultaneous with all those pipes letting go, we are seeing those useful lives of these plants and pump stations and the like coming to exhaustion, too.
    Mr. DUNCAN. You also mention in your testimony that your costs on these projects have been going up at a rate that is I think you said 6 percent above the rate of inflation. Is that correct?
    Mayor TOBEY. That is on the operation side, sir. Yes.
    Mr. DUNCAN. Why have they, and I will ask Mr. Karney also, he talked about potential costs of on the low end $1 billion and on the high end $3 billion. Is that correct, Mr. Karney?
    Mr. KARNEY. Yes, sir, it is.
    Mr. DUNCAN. Why have these costs been going up so much? Over the last ten years, we have had rates of inflation of about 3 percent a year. So why have they been going up at double or triple the rate of inflation? There is a big difference between $1 billion and $3 billion. Why that much uncertainty? That is to both of you.
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    Mayor TOBEY. I would point first, sir, to two key components of the cost equation of running, for example, a wastewater treatment plant or a drinking water treatment plant—power, chemicals. They have been going through the roof.
    By the way, that is not withstanding the fact that plants like mine in Gloucester are not operated by the city. I have contracted those out on a 20 year basis and have, therefore, been able to mitigate that kind of rise, just like other systems around the country have, because there is power in size and you can get more favorable treatment, be cherry picked, if you will, on electric rates, on chemical costs. So from where I sit, it has largely been those two components.
    Mr. DUNCAN. Mr. Karney?
    Mr. KARNEY. I will take on the first one, why are costs all of a sudden higher now. I think it is an out of sight, out of mind issue, as with what we did in the 1970s and 1980s with the surface improvements. The plants, the pump stations, things that were easy to see, we could see those investments. What we were totally ignoring back in those years were the incredible investments that were underground that we could not see, that we could not get a good handle on until they failed.
    Also, there were issues at that time that we did not pay any attention to—combined sewer overflows, sanitary sewer overflows. In many cases, those were intentionally constructed in the systems because the systems could not keep the pollutants away from the homeowners, away from public spots. So to solve problems in things that had been started in the 1800s, we designed in some of these reliefs which normally only pop off during wet weather, no big problem it used to all go in the streams, now only a little bit. We have changed and refined that view of what is environmentally acceptable and what is not over the last decade or so. As we have done that, we have had to find new methods to go out and inspect. We now run color television cameras through our sewer systems to determine conditions.
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    A lot of preventive maintenance goes on now that never went on 20, 30, even 15 years ago. So our costs in PM are increasing. The systems have gotten larger. That is more liability as far as more things that can go wrong. So that is why costs are going up. We are dealing with big assets that we never paid attention to in the past.
    Why $1 to $3 billion for CSOs and SSOs? It depends on whether you do it the way I think we should do it, or if you do it the way the fork stream on if there were absolutely no discharges from some of these sanitary sewer overflows at all. That is where the big price difference comes. Where are you going to put the economics. We still do not have totally clear direction from the Federal Government on how far we go with that. If we can do some improvements, maybe get away with $1 billion. If no discharges are going to be allowed from sanitary sewer overflows, then that means, instead of trying to do some isolated on-site treatment, we have got to convey and treat it at the main plant, it can triple the cost.
    Mr. DUNCAN. My time is up. But, Mr. Elmore, let me ask you one question. Mr. Karney got into uncertainty of the regulations from the Federal Government, and Mayor Tobey at one point says Federal drinking water and wastewater mandates have also played a role in diverting local resources away from local needs and priorities and retargeting them to Federal priorities. He says when cities do manage to set aside funds to address a critical local water infrastructure need, along comes a new, unfunded, and usually costly Federal mandate.
    Has Knoxville run into that? Have you seen that, some uncertainty on what the Federal Government is expecting or going to require, as Mr. Karney mentioned? And also, have you seen some of these costly, unfunded Federal mandates, or has that not been a problem for you?
    Mr. ELMORE. Congressman, I think all of us have dealt with the issue of trying to manage the resources that we have and the financial aspects of our operations. Clearly, as we look at the resources that are available to us through our revenues and trying to manage our rates such that the water and wastewater services are affordable, we do have to make decisions on prioritizations. Obviously, a great deal of concern, a great deal of priority goes to public health issues. Second to that, obviously, would be regulatory compliance.
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    I do think that while we have a pretty good handle in most cases on the regulations that are immediately pending and are expected to come into play within our five year capital improvement program, there are a number of concerns that are just outside that window of planning and certainty that cause us to try to be as flexible as possible in looking at our long-range plans and trying to be in a position to react and respond appropriately and in a timely manner to those regulatory needs. We have been fortunate in Knoxville to be able to manage our projects and I think have an appropriate balance between local needs, regulatory needs, and public health. But it is an ongoing challenge and it seems to grow bigger each day.
    Mr. DUNCAN. All right. Thank you very much.
    Mr. Borski?
    Mr. BORSKI. Thank you, Mr. Chairman.
    Mr. Tobey, if I may start with you. You mentioned in your opening statement the priorities given to aviation and surface transportation, obviously via Air-21 and TEA-21. I am sure you are aware that both of those projects have a fuel tax and a ticket surcharge and that is why we are able to prioritize the spending in those programs. You make a pitch that we should spend and prioritize more water investment. In your opinion, could a similar mechanism be established and dedicated for water infrastructure projects? And if so, what would be the source of revenue?
    Mayor TOBEY. I think in this instance, Congressman, that would not be available. I know, for example, there has been conversation on the notion of a surcharge on local rates. And meaning no disrespect, but I guess we are proving at the local level that we are very good at raising rates as it is and we are able to do that in ways targeted to the solution of the problems that we locally have to deal with, be they be problems driven by Federal requirements or our own local infrastructure needs.
    But I guess I would point out one thing to bear in mind. That is, with success in paying down the $2 trillion deficit, there is thereby a huge cost avoided that is coming into play because that $2 trillion at 6 percent a year is $120 billion of interest payments that hopefully go away. What, in the final analysis, the WIN group is looking for is over the course of five years about half of one year's saving.
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    Mr. BORSKI. Thank you.
    Mr. Beider, you state that Federal financial assistance could have the effect of increasing the amount of money needed for infrastructure. I would like for you to elaborate on that a little bit. And when you are finished, I would like to have our other witnesses respond to that as well.
    Mr. BEIDER. Certainly, sir. The 1985 CBO study that I referred to looked at this question in a couple ways. One thing it did was a statistical analysis. It also looked at four case studies of wastewater treatment plants. Two had been constructed under the Federal construction grant assistance program, and two outside of that program. The report found that the two projects that had been constructed outside of the program had shorter construction times, had more local oversight of costs, used less complicated treatment technologies, and built less reserve capacity. So those were the kinds of factors that led to lower costs for the projects built outside the Federal program.
    Mr. BORSKI. Any other witness like to respond to that question of whether Federal assistance could have the effect of increasing the amount of money needed for infrastructure?
    Mr. KARNEY. I will for just a bit on that. I came into the industry at the end of the construction grants period having had an industrial background prior to that. I know that there was a lot of frustration with the program when it first started. But there were significant improvements made in its administration and the way it went out. And part of what WIN is looking at here and has recommended in the report is further refinement, further improvement of how those funds are administered, how the projects are run and carried through.
    I think we have all learned a lot more on the utility side. We did not have to be in business a couple decades ago. There was no competition. We did what we did and that is all there was to it. I know I get complaints from my folks any time I talk about doing more with less, less people. You know, it is why don't we go back to the way it was 15 years ago. I say that train has left the station.
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    We are in an entirely different situation now. When you go to managers meetings, utility executive meetings, you hear talk about life cycle costing, about prioritizing CIP projects, about making sure that we are outsourcing where we need to outsource, only doing things inside when we can do them better, faster, cheaper. It is an entirely different industry both on our side and on the Federal Government's administrative side than it was back in those days.
    Mr. ELMORE. If I might, sir, just add to that. Knoxville Utility Board has used grant funding for wastewater treatment plant expansions, probably something in the neighborhood of $70 million overall out of $180 million or so in improvements over the past 20 years. The last grant that we did utilize from the Federal Government was back in the mid-1980s. I think, clearly, at that time, as was referred to earlier, there was a considerable amount of red tape and I do think there was a legitimate complaint that the regulations and the process drove those costs up. I do think that process is more streamlined now. I think it can be improved even greater in the future to make sure that those regulations and the red tape do not drive those costs even higher.
    But I would reiterate what was said just a moment ago as well. I think the attitude, the approach that public utilities are taking today, whether it is in a major capital project or whether it is in managing day to day O&M, is much more competitive, is much more business-like, is much more consistent with what you would see in terms of any other business in this country, much, much more so than it was in times past.
    I think all that working together is working very positively toward a more effective use of our local funding, our customer revenues, as well as whatever funding from the Federal Government would be available.
    Mr. DUNCAN. All right. Thank you very much, Mr. Borski.
    Chairman Boehlert?
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    Mr. BOEHLERT. Thank you very much, Mr. Chairman.
    I see yesterday in the testimony in the Senate that Administrator Whitman talked about a gap analysis and getting some more data from EPA. I applaud that. Obviously, we should operate based on facts and not just our pet theories. But that begs the real question. Whether the figure is $300 billion or $1 trillion, it is a hell of a lot more than we have got right now devoted to this.
    There is good news and bad news. The bad news is that the previous Administration I think played some games with us, the State Revolving Fund, and proposed a $500 million cut in funding, knowing full well I think that Congress would never approve of that. And we did not. And so we bumped it back up to $1.3 billion. That is the bad news.
    The good news is it looks like that gamesmanship is over. This present Administration is starting with that figure. But the fact of the matter is that it is not even close to meeting the national need. And so we have got to do a lot more. That is why I applaud what the WIN report has indicated.
    Our job is to educate people. So help in my education, if you will. First of all, we used to have a grant program. We do not have a grant program now. We have a loan program. People will argue very strongly that there is a better way to do it because, in the final analysis, you get more bang for the buck because people borrow, they do their project, they pay it back, and then the next guy stands in line and he can borrow. But one of my principal concerns has always been, particularly for the rural parts of America, that some communities cannot even borrow at zero interest rates and have any expectation of paying back the money because they just do not have it. What are we supposed to tell those communities, sorry, you have got to wither up and die on the vine?
    As you look at the various proposals, first of all, I would assume you will all applaud the present SRF fund concept. Is there anyone who opposes that?
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    [No response.]
    Mr. BOEHLERT. Secondly, I hope no one gets the impression we are trying to do away with that. We are trying to supplement it. And we have got to deal with those communities that are just hard-pressed. So would any of you care to comment on the need for having some sort of grant program? Now language is important. Cannot talk about grants. But, in effect, if we have a principal subsidy, or negative interest loan, or whatever variation on the theme you choose, that in effect comes to a grant. I think we have got to have some grant money available for so many communities that cannot make it just borrowing at no interest rate. Do any of you have any comment on that?
    Mayor TOBEY. Thank you, sir. I agree. We have got to deal with this need and it has to be more extensive than what has been on the table in the past. You are absolutely right, $1.3 billion for the SRF is just a giant leap forward in terms of beginning to more fully engage this.
    The WIN report looks to a number of options that can be put in play. For example, funding to help communities that do not have credit capacity get there; helping with the subsidization of interest payments. For example, Massachusetts has had great success, though unfortunately has backed away from it, with a four year period of zero percent interest on SRF loans. That has meant, in effect, a 50 percent grant equivalency because of the debt service cost avoided on the interest side. Indeed, in some instances, it has wound up being a negative interest rate when the numbers are all ground out to the bottom line.
    The interesting point is that if we engage in the kind of numbers that the WIN coalition is recommending on a portion of a financing package going towards grants, one of numerous points, nonetheless, we are looking at a 20 year period of a total rate increase on average of over 80 percent, as opposed to with no grants 120 percent-plus. So even grants in partial form do not provide the full scope of relief that may be needed. But we are trying to come at this in a way that will be responsible in the big picture.
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    Mr. BOEHLERT. Is there anyone on the panel that is opposed to any form of the introduction of a grant, and not just in theory but in fact?
    Mayor TOBEY. Absolutely not.
    Mr. BOEHLERT. All right. Which brings me to a really sensitive problem. It makes me think of California. And let me set up this question this way. I was in a meeting about two months ago when one of my colleagues from California talked about the crisis, the energy crisis, the price crisis facing all Californians. And then he said, ''Do you realize we are paying almost 6 cents a kilowatt hour for electricity in California?'' And I said, ''If that is all we had to pay in New York, we would get down on our knees and thank God.'' Which brings me to the issue of charges for water and sewer.
    One, we have got to have a significant bump up of the State revolving fund for loans. Two, I think it is absolutely imperative that we introduce grant programs because there are so many communities that do not have the ability to pay. Now when I as a Federal legislator look at the situation, I say to myself, what is the fair price that anyone should be charged for safe drinking water and the proper handling of wastewater?
    There are communities, and, Mayor, you face this all the time and your colleagues across the country do, that bite the bullet, that make some investments, and they need some additional help to put the package over the top. There are other communities that look to us and say, ''Uncle Sam, as long as you have got a grant program, we would rather have you pay for it than we have to face the need for raising our rates or raising our taxes locally. So we are not going to do it.'' And the California and New York comparison I make on utility rates is a classic example.
    One of the reasons why California has been so successful, in addition to weather—if you happen to like weather that is 70 degrees or above all the time, we New Yorkers do not—but they are able to attract industry away because of utility rates being more favorable. Now they are in a pickle and they want everybody else to bail them out. My point is that we have got to have some way of measuring what is the responsible rate for these vital services that we should expect localities to charge before they can line up at the Federal trough to dip in. Do you have any comment on that? Do you see where I am coming from?
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    Mayor TOBEY. Yes, sir. I think I do. Let me tell you what I think is increasingly happening in the utility business, and my brothers to my left speak to this point very clearly when they say water and sewer utilities are increasingly being run like businesses because they have to be. What you are seeing more and more of is full recapturing of costs of operations and maintenance of our systems being the base for rate determination so that the real cost of service winds up being the cost paid by the consumer.
    There is a distinction there though to be drawn. That is, operations and maintenance versus construction, versus the capital cost of systems. That is where we are looking for help here. Not on the O&M side, on the grant side. But as long as we are doing a good job of running those facilities like businesses, maintaining them properly, keeping them going into the future and basing our rates on that, I think you will see a national leveling of the playing field in large measure.
    Mr. BOEHLERT. But if you have the rates on that and you are lucky enough to win the grand prize, the winning ticket in the bid for Federal assistance, the true cost of capital construction and operation and maintenance is going to be lower for your community because you are one of the prize winners than it is going to be for the next guy's community who did not get anything. And his community, they may have had a good proposal, but they did not win. Your community won. And so they are going to have to charge higher rates for what they provide, and that is going to be anti-competitive for that community.
    I am trying to figure out a way that we are responsible in helping to provide the resources needed, but also we have every right to expect that there has to be some responsibility at the local level. I am wrestling with it trying to get that right balance.
    Mr. KARNEY. It is a very difficult question, especially on a national issue. I think we would be more than happy to try to work with you on that, see what kind of answers we can come up with. Getting one across the country figure is going to be, I believe, impossible, there may be some scales to use, because of differing local conditions, the topography of an area. I was in Florida for 15 years. We did not have to deal with hills. In Cincinnati, an entirely different situation. The kinds of treatment that are necessary for discharge points, those are site-specific. Depending upon the receiving streams, whether it is going to be secondary treatment or if it has to be a tertiary process. If it is tertiary, you can double your operating costs, not to mention what it cost for additional capital. So a lot of those are going to have to be site-specific. But it seems like we should be able to help deal with some kind of a scale that could be used to help with this.
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    Mr. BEIDER. Congressman, if I may interject with a piece of information about the question you asked a moment ago. There is already a grant and loan program for rural communities for water and waste disposal, which is operated through the Rural Utilities Service of the U.S. Department of Agriculture.
    Mr. BOEHLERT. I am familiar with that program.
    Mr. BEIDER. Okay.
    Mr. BOEHLERT. You know what? About 1 out of 1,000 are successful because there is not enough money in the pot.
    Mr. BEIDER. Yes, sir.
    Mr. BOEHLERT. It is a good program. I applaud.
    Mr. BEIDER. Right. I do understand that it has a backlog in applications. The appropriation that it got for 2001 was $744 million.
    Mr. BOEHLERT. And what was the estimated need?
    Mr. BEIDER. I believe the USDA has indicated that the program has a backlog of applications of a few billion, $2 or $3 billion.
    Mr. BOEHLERT. A few billion here and there and pretty soon you are talking about real money. But you outline the dimensions of the problem. It is not meeting the need and rural America that is really in trouble.
    Mr. Chairman, I have overstayed my welcome. Thank you very much.
    Mr. DUNCAN. Thank you very much. Very good points. That rural program was $661 million last year. It is a good program, but there are a lot more millions needed.
    Mr. Elmore, we could tell Mr. Karney about some hills, couldn't we, in east Tennessee.
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    Mr. DUNCAN. I am very pleased and honored to have the Chairman of the full Committee who has come in. He has not hardly had time to catch his breath, but we are always pleased to have Chairman Young with us. I would like to call on him at this time for any statement or comments or questions that he might have.
    Mr. YOUNG. Thank you, Mr. Chairman. I congratulate you on holding these hearings. I have often said that the next crisis facing this country is water, not only in the rural areas, but of course our metropolitan areas that are far outdated and way behind as far as being able to deliver portable water to the public.
    I am not about to make any big statements. But I do have a question, and that is, in the process of spending money to try and solve this problem, how much is spent in administration and delays by the lack of the agencies agreeing on getting the problem solved? Anybody have any idea? If any one of you would like to comment.
    You know what I am talking about I think. All of you have been involved in water, you have got EPA, you have got one group here, another group here, another here, be it Federal, State, or municipalities. We are trying to solve a problem in this committee of delivering water to the people to drink and get rid of the wastewater. How much is wasted, how much is delayed, how much of a factor does that kick in? Have any of you done any analysis of that?
    Mayor TOBEY. Mr. Chairman, I cannot give you a precise number, but I can tell you this much from the vantage point of my city, Gloucester, Massachusetts. We went through years of wrangling and wrestling with our State environmental managers, with the region in EPA on what technologies to employ and how to employ them. I can only tell you in unquantified terms that the price went up while we wrangled and wrestled with it.
    Mr. YOUNG. I am going to charge all of you in this room, in this committee to look at this problem. Because one of my biggest concerns is we have a great deal of talking, and I call it delay tactics, by interest groups, and people have turf wars, and really the people that are supposed to be receiving this water are not receiving the water and the money that is being spent is wasted on bureaucracy and wasted on delay. It is just not this program, it is other programs that cost this country in infrastructure, period.
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    One of things I want to do, Mr. Chairman, and members of this committee, is to address this issue in all forms under this committee's jurisdiction so we can get better results from the money we are spending. I just want you to keep that in mind and we will probably be calling on you for suggestions. The idea that the EPA, or the local Fish and Wildlife, the Federal Fish and Wildlife, and the local DEC cannot sit down—maybe we ought to just have a lead agency that says, all right, we are going to do it. Maybe that way we could solve some of the problems.
    With that, Mr. Chairman, I want to thank you for having this hearing. I think it is badly needed. I do think this is one of the major crises facing this country. The waste of water, not wastewater, but the waste of water, delivery of water, and having safe drinking water for our population is crucially important. Thank you, Mr. Chairman.
    Mr. DUNCAN. Thank you, Chairman Young, for being with us here today and taking time out from your busy schedule to be here for this hearing.
    Next is Mr. Gilchrest.
    Mr. GILCHREST. Thank you, Mr. Chairman.
    There seems to be some discrepancy as to the estimated cost over the next 5, 10, 20 years for the water infrastructure needs of the country, sewer and drinking water. Is there any way for us to get a more accurate estimate as to what that might be? Or are the estimates that we now have as reasonable as we can expect to have under the circumstances?
    Mayor TOBEY. Congressman, if I may. In the ''Clean and Safe Water in the 21st Century'' report that the Water Infrastructure Network has done, we have laid out a pretty precise statement of where the costs lie and how they spread out over the course of time. They are based on real studies, based on real experience and honest projections. That is in Chapter 3 of the report. I would point that one out.
    There are going to be honest differences. But what is interesting I think, there are convergences happening. For example, the gap analysis being done by EPA on an ongoing basis is looking at sort of the macro aspect of the situation. Simultaneously, the ''Nessie'' curve analyses, the system by system studies of what the long-term projections look like given the past historic models of expenditures, on a micro point of view, yielding numbers that have been extrapolated out to show a real reinforcement of the gap analysis kind of projections.
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    So I think we are talking through the WIN report of certainly a good estimate.
    Mr. GILCHREST. Through the WIN report, Mr. Tobey, you would say that, given all the variables, it is fundamentally as reasonable an estimate as can be obtained.
    Mr. Beider, would you agree with that?
    Mr. BEIDER. Well, as I indicated in my statement, we have some questions about aspects of the WIN analysis. We are hoping that perhaps the conversation that we are having here today will help all of us involved in the issue resolve some of the areas of disagreement and confusion. Certainly, CBO's ongoing study on this area will report any additional findings that we come up with.
    Mr. GILCHREST. Does anybody on the panel recommend, suggest, or disagree, or have an opinion on whether or not we should authorize some entity, the National Academy of Science or somebody, to do an analysis of America's water infrastructure needs over the next 10 years? Is that necessary? Or is what we have fairly reliable?
    Mr. KARNEY. Mr. Gilchrest, I think that the WIN coalition welcomes the CBO questions and comments and is more than happy to look at those and try to go back and add some additional confidence to the kinds of numbers that have come forward. Relatively new things for us to do, a lot of what we have got out there is under the ground. Many of us at the utility level have been in denial for years.
    Mr. GILCHREST. Why have you been in denial for years?
    Mr. KARNEY. Well, when you come forward and you talk to the people that put you in the position you are in and can take you out tomorrow and you say, okay, I have to triple the rates, that is the kind of thing that is very sobering. So as we begin to look at those and start to put them together and gain more confidence in what the localized numbers are, I think that is what is beginning to boil up into some Federal numbers and gives us greater and greater confidence. But, again, working with CBO I think is going to help this.
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    Mr. GILCHREST. So when we are looking at the gradual elimination of sewer and storm water overflow systems that are still in existence around the country, the maintenance costs that are increasing because we are doing more maintenance on a lot of these facilities, the underground operations that are so costly, you are suggesting, all of you, and I think we have understood this for a long time, a huge increase over the next 10 years certainly in need out there, especially if local communities and States are going to comply with, I do not want to use the term mandates, but with new understandings of what safe drinking water is or new understandings of less nutrient release by sewage treatment plants. And that the Federal Government needs to partner in a much more comprehensive way with State governments to resolve some of these issues. I think we are smart enough to be able to recharge another grants program similar to what we had in the 1970s throughout the 1980s.
    My perspective is for 50 years we built and now we are maintaining an Interstate Highway System, suggested by the Eisenhower Administration. I do not know how many billions of dollars that was. And I suppose the next big project for the United States is to ensure that everybody has safe drinking water and improved sewage treatment plants. So I guess I used up my time talking.
    Mr. GILCHREST. Would anybody care to make a quick comment before they close me down?
    Mr. KARNEY. I agree.
    Mr. DUNCAN. Good comment, Mr. Karney.
    Mr. GILCHREST. Thank you, Mr. Chairman.
    Mr. Horn?
    Mr. HORN. Thank you, Mr. Chairman, for holding this hearing. Excellent witnesses and issues. I happen to be in the chamber here with Mr. Boehlert and Mr. Gilchrest on this. My question to you is, we do have an Interstate Highway Trust, we do have an Airport Improvement Trust, and the question is, why can't we have a Water Environment Trust, otherwise known as WET-21? What I am interested in is what are the indicators on an equalization basis that existing water could help be that, just like gasoline at the pump. If it is small enough and there is a great aggregate in that, we could lead to some of these. Because we already have a State Revolving Fund that people are familiar with, and maybe we need a various number of approaches, particularly an equalization between States and towns and especially the small rural towns. You and I grew up in them. I do not want to see them without decent quality water.
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    So I would like to have your thoughts on what is the unit that perhaps could contribute to that trust fund, or an indicator?
    Let's start with Mayor Tobey?
    Mayor TOBEY. Thank you, sir. The National League of Cities specifically has looked long and hard at this issue. We have not been able to find an answer. We have looked at, for example, is there reason and equity in doing a surcharge, a tax, if you will, on top of water and sewer rates. And we just cannot get there.
    Needs vary from locality to locality. We are working hard to have efficiency in how we work to meet those, using our locally generated revenues as efficiently and equitably to our individual circumstances as possible. Furthermore, we are able to do that in a way so that the monies focused run through a funnel with but one stop on the way. Whereas, if it had to go to a Federal collection and be distributed through the States, bureaucratic inefficiencies are gong to eat up some of that money and, further, wind up seeing it inequitably applied when the day is done. Hence, that is why we have signed on to an approach such as that of the WIN coalition to the funding.
    Mr. HORN. Mr. Karney?
    Mr. KARNEY. I am just the little guy that is there where the rubber meets the road and tries to address the local needs and protect public health and the environment. If we were just to add some type of additional piece on top of the existing charges for water and sewer, I am doing that right now. That does not help the situation at all. That is something that I have been mandating for the last three years. And talk about the guy that fell off the back of a turnip truck when he came to town, the first way to get a good ticket out of town is to begin your first three months talking about rate increases and then continuing that dialogue over the course of three years.
    But we are stepping up to that issue locally trying to fulfill our challenges. This is just way beyond what can happen on a local basis.
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    Mr. HORN. How much have you saved for that future development of facilities and what is the gap?
    Mr. KARNEY. Right now, I can find a gap of between $1 and $3 billion just on the CSO and SSO end. We are spending about $60 million a year on realigning, rehabilitating the system as it is. So we are doing a big investment over and above the preventive maintenance work, the operations and maintenance that we do right now, and then trying to reduce costs wherever we can so that, instead of spending more on operations and maintenance, we can put more back in to the capital rehabilitation of the system.
    Mr. HORN. Mr. Elmore?
    Mr. ELMORE. Sir, I think three of our greatest challenges right now are maintaining our customer confidence, maintaining reliability, and, as much as anything, maintaining the affordability of the water and wastewater services we provide.
    In terms of our customers, I think whether or not we talk about increasing rates as a result of the need to fund increasing O&M costs or increasing capital costs, or whether it comes in the terms of a surcharge or a Federal tax or State tax, I think the end result is the same—their rates go up, their pocketbook feels the hit. And the concern of all of us I think today is financing that growing need and maintaining that affordability. I do not know that a State or local or Federal tax on that accomplishes that in the manner that our customers would understand and appreciate.
    Mayor TOBEY. Congressman, can I add one additional fact, and the point would be this. EPA's yardstick for affordability is 4 percent of household income going to water and sewer rates. As we sit here today, 31 or 32 percent of households are already over that 4 percent. So the margin there is small as we sit here today and it is getting smaller, because as the gap analysis proceeds, it is showing more and more communities and households are bumping up and over that 4 percent.
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    Mr. HORN. I represent Long Beach, California. When we had a water shortage a few years ago, the people were so conservationist employed and they simply used much less water both in the restaurants and all the other places. It was so successful that we had to up the water rates. So this is a way it seems to me for the water rates to get something into a trust fund and get the equalization across the country on that, just as we do with the Interstate Highway Trust situation and the Airport Improvement Trust.
    So the question is, do we do it on acre feet? What do we do? What is the indicator that would help generate the revenue?
    Mayor TOBEY. The problem with that analysis, sir, is that so many of our costs are fixed. So when we raise the rates there does not wind up being a profit, if you will.
    Mr. HORN. It sounds like everybody is just for their business and not trying to think about what we have to, about the small counties, the small cities, and this kind of thing.
    Mayor TOBEY. Except when we at the local level innovatively engage the problems. There are two small communities that abut mine. For them to have had to go out and build their own treatment plants and all the works that go with it would have been an enormous budget-buster for them and for the State and Federal systems they looked to for help. They have tied in. So Gloucester, not a metropolis at 30,000, is now finding ways to save money and to make for a more innovative and creative solution by regionalization. And all of us could speak to models like that all around. There are lots of needs and there is lots of innovation that is meeting, as best we can, the challenges we are daily facing.
    Mr. KARNEY. Also, our technical associations and societies have ways of being able to share technology improvements that we have had, case experiences, with the small communities that cannot afford the consulting help, or cannot do the research, or do not have the kind of professional talent that the larger agency has.
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    In addition to that, part of the WIN report speaks to targeted technical assistance for those that are in the most need, which would directly address the question you are asking.
    Mr. HORN. Mr. Beider and Ms. Tawil, what have you got in terms of how this situation could be segmented one way or the other to get the money in terms of a trust fund? And to what degree has CBO thought in that direction?
    Mr. BEIDER. We have not begun the phase of our study in which we are looking at detailed policy options. Of course, CBO does not recommend any policies one way or the other, but in our report to be completed later this year, we will be examining the implications of a wide variety of policy options.
    Mr. HORN. Has anyone, in terms of the National Association of Counties and the League of Cities, ever done a good questionnaire so we know what is out there?
    Mayor TOBEY. In lots of different ways, I think the answer is, yes. For example, through MACO and NLC being members of the WIN coalition, I think we have helped to commission that. Each of our organizations one way or another is engaging the EPA's gap analysis. And last, but not least, we all have to deal with the matter of getting our projects in line with our State and regional environmental management folks. So there are lots of ways that we are trying to get that data on the table and in a good and reliable form. I think we are going to see out of this effort, too, a whole lot more dialogue.
    Mr. HORN. I think we ought to look at the WET situation and not end up all wet. So you can give us some guidance in this with your various organizations I think. Then we would know within the committees here if it makes sense. Otherwise, we are going to be blind and some of this will still be here two years from now. And it is more serious than that. I remember the League of Women Voters, the University Women, and all in 1960 made water their top pick right across the Nation. And it was already clear what was going on and yet we had a long, long number of years before anybody even put their head up to say, gee, we have got a problem. So let's solve it.
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    Anything CBO has to say?
    Ms. TAWIL. If I could just interject quickly on the affordability question. I am not exactly sure where the different numbers come from, but we have looked briefly at the most recent data available from the Consumer Expenditure Survey. According to that data, 83 percent of U.S. households spent less than 2 percent of their personal income on water and sewer services in the late 1990s. Similarly, 85 percent of U.S. households spent less than 2 percent of personal income on cable TV or community antenna services. I just wanted to put those figures before you.
    Mr. HORN. That is very helpful. And besides your words on this, if there is any documentation, I would like, Mr. Chairman, to have it put in the record at this point.
    Mr. DUNCAN. We certainly can do that.
    [Ms. Tawil submitted the following:]

The most recent available annualized data from the Consumer Expenditure Survey cover the four quarters beginning in the third quarter of 1997 and ending in the second quarter of 1998. According to CBO's analysis, during that year 60 percent of U.S. households spent 1 percent or less of their personal income on water and sewer services; 83 percent of the U.S. households spent 2 percent or less of personal income. For cable TV or community antenna services, the numbers are very similar—65 percent of the U.S. households spent 1 percent or less of their personal income, and 85 percent spent 2 percent or less. In contrast, for electricity, 56 percent of households spent more than 2 percent of their personal income, and for nonmobile telephone services, 40 percent spent more than 2 percent.

    Mr. DUNCAN. Mr. Horn, thank you for some very fine comments and questions.
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    Governor Otter?
    Mr. OTTER. Thank you, Mr. Chairman. Mr. Chairman, prior to my asking some questions, I would like to associate myself with Chairman Young's comments. Having been the active Chief of State of Idaho for 14 years, it seems like I got an awful lot more problems than I did solutions out of Washington, D.C. And now being in Washington, D.C., I suffer I think from those folks back home talking about me the same way. So I guess I deserve that much.
    I would like to hear an expression from Mr. Tobey, do you agree or disagree with the EPA Director's suspension of the new arsenic rule on drinking water?
    Mayor TOBEY. Among the crosses I have borne in my years, Governor, was one of serving on not one but two Federal advisory committees working with EPA on drinking water regulations. My wife and children never want to hear the words ''microbial disinfection by-products'' again.
    Mayor TOBEY. And what I learned from that exercise is that there is no silver bullet piece of science that gives you the definitive answer. It is a matter of trying to pick the best evidence you can to reach the best consensus view you can to come to a bottom line that works for as many people as possible. And, by the way, not for nothing, EPA is willing to engage in a consideration of costs and assistance efforts so that their toolbox approach is to make things work. And on the MDBP side, which is the acronym for all that I just muttered, we succeeded.
    I am sure there is just as much discord and disharmony within the pool of evidence on arsenic as there was in MDBP and folks need to come to closure.
    Mr. OTTER. Would you venture a guess what it would have cost your community if that standard had gone through?
    Mayor TOBEY. I am the wrong guy to ask.
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    Mr. OTTER. Would you venture a guess what it would have cost WIN in the net for the entire Nation?
    Mayor TOBEY. I do not know the answer. It is not a Northeastern problem, so that my community would have dodged that bullet. But there are plenty of others hitting us.
    Mr. OTTER. Mr. Beider, could you venture a guess as to what that cost would have been?
    Mr. BEIDER. I am sorry, Congressman, we have not looked at that question.
    Mr. OTTER. I can tell you from Idaho's perspective it would have cost an awful lot, just with the natural occurring level, not from any mine, not from any horrendous private sector source, non-source pollution or any problem like that, just the natural occurring level.
    I have, Governor, 105 legislators, 57 county commissioners, 119 mayors, 714 city councilmen, and 655,000 people that I represent. Those first numbers that I talked about seem to have less to do in decisions to make with the quality of water and the sewage disposal in those 119 communities and those 19 counties than folks right here in Washington, D.C. do. Does that bother you, Mr. Tobey?
    Mayor TOBEY. Let me give you my example of where things collide. I hope it stands for the proposition that all these layers need to work better and more closely together. The City of Gloucester is America's oldest seaport. If you saw ''The Perfect Storm'' or read the book, you know that we have one fine and dramatic harbor with beaches and recreational opportunities. It is called the Outer Harbor and is the biggest shoreline area. We have one combined sewer that goes to the Outer Harbor and it represents about half the flow from that sewer when it overflows. We have five other overflow outfalls in a smaller reach of the inner harbor which is where our docks and all that marine activity is centralized. These five CSOs are collectively, where the other half of our overflow occurs. One of the wrestling matches I have been engaged in is how do we treat those two categories of CSOs.
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    The City of Gloucester wants to deal with the CSO to the Outer Harbor, those are swimming beaches and areas where recreational activity goes on big time. But there is a funny thing. If we apply the same standard to the 5 CSOs to the Inner Harbor which involves a whole lot of money, I create an inner harbor that is fishable and swimmable and those are uses that State law prohibits there. It is illegal. So, why do it?
    That is an example from my world of the kind of areas where we need flexibility and rationality. Focus on the goal, identify that target, but give us at the local government level some discretion, since one size does not fit all. Boy, that would go a long way.
    Mr. OTTER. Mr. Chairman, my time is up. I certainly appreciate the response from the members of the panel.
    There are just two things that I have found in my short time in Washington, D.C., since January 3rd. One is, if you want money from Washington, D.C., expect rules, expect regulations, expect control. Otherwise, you are just not going to get it.
    The second thing is that if you want the Federal Government to continue to use its authority to tax people so then the Federal Government can turn around and give it back to you folks at the local level, you local mayors, you have to exercise then precious little responsibility in how you spend it because you did not collect it. That is the problem I have always had with Washington, D.C., and I always will have with Washington, D.C.
    I would just like to close, Mr. Chairman, by pointing out, in response to a question that was asked earlier about were grants good, that we in Idaho have always fought grants, especially in the nature of this, because we know we always get the little Davis-Bacon with it. We know that if we get that, with the $400 million that your organization has suggested, we are already in deficit and in need of in Idaho, that just adds $80 million to our cost. So that is one of the reasons that we stay away from grants. However, I will also note for the record, Mr. Chairman, that the House Resolution 668 already puts little Davis-Bacon in, and I think that is a mistake.
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    Thank you, Mr. Chairman. Thank you, members of the panel.
    Mr. DUNCAN. Thank you, Governor Otter. You talked about these arsenic standards and so forth. I remember a few years ago the Resources Committee held a hearing on some nuclear waste that had been lost. It was a big publicity thing, a big scandal until we held this hearing and the witnesses testified that actually there was more radiation in just a typical big room, or in that room we were holding the hearing in than had been lost, or there was more radiation in one banana than had been lost. And so that ended that. The publicity went away immediately. And with the arsenic, it sounds horrible to have arsenic in water. But what you are talking about when you are talking about 50 parts per billion is that the average person would spend the rest of his life full-time drinking water and never accumulate enough arsenic to have any effect on his or her health at all.
    So when you talk about trying to reach impossible standards on some of these things, what do you do? You double and triple the costs because there is water in everything that you drink—Gatorade, Coke, tea, milk is 97 percent water. You get it in everything. So you just have to have some balance and some reasonableness in some of these standards.
    I want to thank this panel. You have been a really outstanding panel and you have given us some very informative and helpful testimony. Thank you very much for being with us today.

    We will now proceed with the second panel. We will ask that they take their seats at the table. I will go ahead and introduce all of them while they are taking their seats. The National Association of Water Companies is represented here today by Dr. Janice A. Beecher, who is with Beecher Policy Research, Inc., from Indianapolis, Indiana; the National Utility Contractors Association is represented by Mr. Mark Accetturo, Vice President of Reynolds Inc., Fairburn, Georgia; and Clean Water Action is represented by Mr. Paul D. Schwartz, who is the National Policy Coordinator from Washington, D.C.
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    We are very pleased to have each of you here with us today. We do always proceed in the order the witnesses are listed on the call of the hearing. But, first, I want to call on Mr. Isakson to introduce one of our witnesses.
    Mr. Isakson.
    Mr. ISAKSON. Thank you very much, Chairman Duncan. As one who spent his life with local municipal government issues and the legislature in developing real estate, this is a critical issue and I commend you and the subcommittee on holding this hearing.
    I am delighted to be able to introduce someone who is a resident of my district and whom I have represented for 24 years in one fashion or another, Mr. Mark Accetturo, a utility contractor from Smyrna, Georgia, which is close to my home of Marietta, Georgia, and in the same home county.
    He is the past president of the Utility Contractors of Georgia, and is currently Secretary of the National Utility Contractors of the United States of America, employed with the Reynolds Corporation out of Indiana, a company that has served for 45 years in this country in the utility contracting business, and he acts as their Vice President of operations at Reynolds in Atlanta. But probably most importantly of all, he is the first person that I have ever introduced that ever received the Ditch Digger of the Year Award. He received it in 1998 for his accomplishments and contributions to the safety and promotion of the utility contractor industry. And it is a delight for me to introduce him today and have him here. Thank you, Mr. Chairman.
    Mr. DUNCAN. Thank you, Mr. Isakson.
    We will now proceed, Dr. Beecher, with your statement please.
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    Dr. BEECHER. Thank you, Mr. Chairman. I am delighted to be here. It is truly an honor. My name is Jan Beecher, and I am an independent policy research consultant specializing in the structure and regulation of the water industry, for about 17 years now in the field of regulation. This testimony I am presenting today is based on my independent analysis of this most important subject, and I presented that analysis recently at a national conference on water infrastructure needs.
    Let me begin by emphasizing that my purpose here is not to dispute the fact that the water and wastewater industries face substantial and accelerating infrastructure needs associated with a variety of cost drivers. And it is important to understand some of the differences among those drivers. My purpose is to promote an informed dialogue about some of the assumptions behind the infrastructure funding gap and some of the presumptions about how to best address it. In some ways, I think my comments here echo some of the things that were raised in your initial remarks as well as in some of the questioning we have heard and in some of the comments in the CBO analysis.
    The $1 trillion, 20-year needs estimate for water and wastewater systems has become a focal point for discussion. But the $1 trillion estimate is imprecise and may be inflated. In particular, the estimates of the need seem to give little weight to the potential for lowering total costs through restructuring, innovation, operational efficiency, market, and integrated resource management. The gap is what I call a construct, not an inevitability. The projected cumulative shortfall will result if, and only if, the need estimate is accurate, and funding and expenditure levels are not increased.
    A number of interrelated myths have emerged in the context of this infrastructure funding debate. First, that a national crisis is looming, you might even say rolling flush-outs, I guess. I do not necessarily subscribe to that view, but it is an important need, nonetheless. Second, that the cost of water services cannot be supported through rates. A third myth is that a funding gap is inevitable. And fourth, is that Federal funding solutions are essential.
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    Some of the assumptions behind these beliefs can be challenged through further discussion. And to this end, I will highlight a few basic reality checks that come from my preliminary analysis.
    First, municipal finance data show that many water and wastewater utilities are not collecting sufficient revenues through rates relative to their expenditures. Some communities have deferred some investments and have deliberately maintained unrealistically low water and wastewater rates. This persistent underpricing of water contributes to the anticipated funding gap and also sends inappropriate signals to customers about the value of water, which can further lead to over-consumption and inefficient supply strategies to meet an inflated level of demand.
    Second, water services today are a relative bargain for many households, and I think we have heard a reference to that already. Water and other public services actually account for a relatively small share of the average household utility budget, less than $400 a year or 0.8 percent of total expenditures. And, again, I also recognize that there are variations in what people are paying. But on average, that is what our consumer expenditure data show. Consumers spend more than twice as much on electricity, even more so perhaps in this last round of rate increases for some customers, and they certainly spend at least twice as much on telecommunications services.
    On average, a four person household spends about the same each year on cable television and tobacco products as on water services. In addition, U.S. consumers pay much less for water services than consumers in many other developed countries. Water, again, is a bargain.
    Third, Americans are very concerned about the quality of their drinking water and the protection of water resources. But consumers are also more willing to pay for bottled water than for tap water. And this is an educational problem that we all have to be concerned about.
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    Conservatively, the average price of one gallon of community-supplied water, conveniently delivered to the tap, is less than one-third of one penny. Every other water alternative is no more safe, much less convenient, and astronomically more expensive. At $1.15 per gallon, what I call ''designer water'' is 347 times the price of tap water.
    Fourth, it is important for the water industries to have realistic expectations about future Federal funding for water programs in order to plan sufficiently to meet their infrastructure and service obligations. Federal health and environmental standards are not necessarily the primary cost driver nor rational for general revenue funding. There are differences I should note between the water and wastewater industries in terms of standards, the role of standards, but I think it is important to understand those.
    Massive Federal grant subsidies seem neither likely nor beneficial from an overall societal standpoint. Subsidies can perpetuate dependence, inefficiency, and technological stagnation on the part of the recipients. The argument for public subsidies should also be examined in the context of local funding priorities. The price tags for some of the municipal sports stadiums in some of our larger cities are actually comparable to the water and wastewater infrastructure needs.
    Finally, many systems can and do manage their assets effectively and support the cost of water services through rates. The transition to cost-based rates for water services can trigger rate shock and raise legitimate affordability concerns for both disadvantaged communities, as we have heard, and for low-income households. But I also would suggest that financing, rate design, and assistance methods can be used to mitigate these important affordability effects.
    I also would say that the regulatory, capacity development, and funding principles now embodied in the current Safe Drinking Water Act and the SRF programs provide the appropriate basis for addressing many of these affordability concerns.
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    In sum, the concept of a funding gap merits further consideration and debate, and certainly analysis. I will look forward, as you will, to the additional analysis on the subject. The need to invest in the Nation's water and wastewater infrastructure is real, but the funding gap is essentially a construct that I think we need to evaluate. The water industries themselves should take responsibility, provide leadership, and effectively manage their current and future assets on the public's behalf.
    Aggressive action can help close the projected funding gap from the top in terms of reducing total capital and operating costs. Funding for research development can play a role here as well, and I would encourage Federal consideration of that. The essential tool for closing the gap from the bottom is cost-based rates for water services. Subsidies should be used minimally, judiciously, and on a needs basis to address genuine affordability concerns and equity for safe and affordable water service. But I believe that the goal should be sustainable systems, not sustainable subsidies. Thank you very much.
    Mr. DUNCAN. Thank you very much. I am going to go to Ms. Kelly in a moment. But before I do, I do have to say, Dr. Beecher, that you hit one of my real hot buttons. I grew up as a really big sports fan. But I think it is disgusting that cities and States subsidize billionaire owners to pay millionaire players $5 and $10 million a year, building these huge stadiums when they could help many more people in a much more significant way by investing in their water infrastructure and some other things that need to be done. I guess I just had to get that off my chest. I am so turned off by these $10 million a year athletes or whatever.
    Ms. Kelly.
    Ms. KELLY. Mr. Chairman, I thank you very much for recognizing me, Mr. Chairman. I apologize for not being here earlier. There are several members of this committee who are not in these chairs because we are in the middle of a markup down in the Banking Committee and it happens to be my bill, which is why I was not able to be here. But I just wanted to make a brief statement on this issue because this is one that I have spent a lot of time on.
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    Our water infrastructure needs are immense. I think it is appropriate that this committee take a hard look at the reports that have come out to help us fully understand the enormity of our needs. That our needs are great is, clearly, not any new revelation to anybody. But it is also important that we focus on the ways in which the Federal Government can efficiently and quickly answer the call for assistance.
    I have placed before the subcommittee a bill that will strengthen a program that has already proven its effectiveness in helping State and local governments meet their wastewater infrastructure needs. It is the Clean Water Infrastructure Financing Act, H.R. 668, authorizing a Federal funding level of $3 billion a year for the Clean Water State Revolving Fund, which is more than double the funding levels the program has received in recent years. As some recent reports have shown, perhaps even this level of funding is not enough. But it does represent a step in the right direction as we start a renewed effort to try to strengthen the Federal commitment to our water infrastructure needs.
    I look forward to working with you, Chairman Duncan, and Ranking Member DeFazio, and the other members of this committee because we really must get this bill done, and the quicker the better, as far as I am concerned. And I am glad to hear you mention it and I understand you to be supportive of it. I really appreciate that. I yield back the balance of my time.
    Mr. DUNCAN. Thank you very much, Ms. Kelly. Thank you for being with us.
    We now turn to Mr. Accetturo.

    Mr. ACCETTURO. Thank you, Mr. Chairman, and members of the subcommittee. As my Congressman Isakson so kindly introduced me, my name is Mark Accetturo. I am the Vice President of a company called Reynolds, Incorporated. We are a utility construction company that is located in Fairburn, Georgia, which is a suburb of Atlanta. I am grateful for the opportunity to participate in these hearings on behalf of the National Utility Contractors Association, or NUCA. NUCA is a family of about 2,000 companies from across the Nation that build, repair, and maintain water, wastewater, gas, electric, and telecommunications systems.
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    I am here today to tell you about the sewer crisis in America. Take this from someone who has witnessed the atrocious conditions of America's failing wastewater infrastructure facilities that threaten the public health and environment.
    I will also talk about the Clean Water State Revolving Fund, an extremely effective financing program that provides the capital resources to build and rehabilitate this infrastructure.
    Finally, I would like to describe legislation the utility contracting industry supports that would provide immediate resources to the SRF program to boost our efforts to address this growing problem.
    Recently, the American Society of Civil Engineers released its annual Report Card on America's Infrastructure. The wastewater and drinking water categories earned ''D'' grades. Aging wastewater systems are failing in every State. Each year, 400,000 homeowners find sewage backing up in their basements and backyards. Another 40,000 municipal sanitary sewers overflow into the Nation's streets, waterways, and beaches, dumping potentially deadly pathogens which directly threaten our quality of life and the already sensitive wildlife ecosystems.
    In my business, we build and repair America's unglamorous but vital water infrastructure systems. What is out of sight and out of mind to most people is clearly visible to utility contractors every day. I see firsthand the devastation caused by failing wastewater systems. We routinely uncover rotting pipes with gaping holes that spill raw sewage into the surrounding ground of residential neighborhoods. This leakage can go undetected for months, even years in some cases. And to make matters worse, these conditions are often within yards of waterways where we fish, beaches where we swim, and playgrounds where our children play.
    In my hometown of Atlanta, on June 14, 1993, the unthinkable happened. In the parking lot of the Midtown Marriott, shortly before dawn a 28-year old maintenance man was walking to his car after his shift. He fell into a sink hole that was caused by the failure of a 70-year old, 11 foot diameter sanitary sewer line. His body was found several blocks away. Within minutes after, a 26-year old housekeeper was leaving the parking lot in her car. Unknowingly, she drove her car into the hole some 30-foot deep created by this sewer failure. Two fatalities. This, of course, is extreme. But there are countless events such as this around the country that have resulted in property damages, personal injuries, and environmental disasters.
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    While no one disputes that America is facing a water infrastructure crisis, there is no consensus on how much it will cost to repair and replace our sanitary and stormwater sewer systems. Independent studies indicate that the total wastewater infrastructure needs will exceed $300 billion over the next 20 years. Some report a $23 billion gap in Federal investment when taking drinking water needs into consideration. But $200, $300, even $400 billion does not really matter when the current Federal contribution to remedy this situation is continually less than 1 percent of either figure per year.
    The Clean Water State Revolving Fund program (SRF) is a concise, pragmatic, and efficient program that provides States resources to address their wastewater infrastructure needs. It has been hailed by high-ranking public officials as the most successful federally sponsored infrastructure financing program ever.
    The SRF program provides badly needed resources for communities across the country to address problems similar to the ones we have in my State. The SRF program plays a key role to enhance public health and safety, protect the environment, and maintain a strong economic base. It increases labor productivity, creates jobs, rehabilitates old neighborhoods, and ensures that safe, clean water, lakes, shorelines will be available for not only your children, but your children's children.
    In 1999, Representatives Sue Kelly of New York and Ellen Tauscher of California introduced the Clean Water Infrastructure Financing Act, which would reauthorize the Clean Water SRF at $3 billion per year for the next five years. The legislation gained the bipartisan support of over 100 cosponsors from over 30 States. Twenty-four members of the Transportation Infrastructure Committee were on board, including several members of this subcommittee.
    On February 14, as Ms. Kelly spoke earlier, they reintroduced the legislation in the current Congress as H.R. 668. It is identical to H.R. 2720 and would reauthorize the Clean Water SRF at $3 billion per year for five years. There are currently 53 cosponsors of this legislation.
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    The math is simple. The past several years have shown a decline of Federal investment in wastewater infrastructure. At the same time, while the existing infrastructure continues to age, failure rates continue to grow. This has created a major financial gap that will only get worse if a commitment is not made and continual Federal resources are not provided.
    In a final note, I am sure everyone remembers from science class that water, simple, taken for granted water cannot be manufactured. As much as our kids want to think that the bottled water you bring home is made in some factory somewhere, it is the same water that has been around since Day One. Let's make our agenda to have plenty of clean water for everybody in the future. Thank you for the opportunity to speak.
    Mr. DUNCAN. Thank you very much, Mr. Accetturo.
    Mr. Schwartz?

    Mr. SCHWARTZ. Thank you, Chairman Duncan, for being part of the few and the proud, being here still surviving this long and extended set of remarks. I will try to keep my remarks short and note that I do have extended remarks which will be part of the record.
    Clean Water Action, as one of the only environmental organizations sitting here at the table, would like to recognize that really across the board here today in the testimony we had members of governments and their associations, contractors, and other folks all speak to the need to maintain public health and to clean up the environment and to comply with the regulations that I would clearly say are to demanded, not by the Federal Government but are demanded by the public. And that is why we pass laws and move things forward here in Washington at the behest of people in communities.
    We do have, as we have heard, out of date and declining sewer and drinking water infrastructure. And not only do we have old plumbing and treatment in place, but we have new threats that we are really just beginning to identify, such as cryptosporidium which killed 100 people, sent 4,000 to the hospital, and made 400,000 ill in only one outbreak in Milwaukee, Wisconsin, in the spring of 1993. And cryptosporidium is widely available in the supply of our drinking water here in the Nation's Capital and in the supply of drinking water all over the country, and that is for surface water systems.
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    We also have controversial problems, like arsenic, which you mentioned, Chairman Duncan. EPA's own cost estimates in the rule they came out with to address the current and topical discussion, in a rule that underestimated benefits by only looking at one or two cancers and not the other health effects of arsenic, and in a rule that overestimated cost by not taking into account currently available cheap technologies, like ferrous hydroxide which would precipitate out and clean up the arsenic problem even for some of our small systems at low costs, says that for 90 percent of the people who drink arsenic in their drinking water, it would cost only $3 per year in additional costs. For the other 10 percent where the costs would be a lot higher, arguably, we would suggest following the lead of Senators Enzi and Reid of Nevada in supporting the type of funding that they are looking for for tribes and small communities in S. 503, the Small Communities Safe Drinking Water Funding Act.
    I am here today representing an organization that is in 14 States working at the community level. I am also here today because I am a father. My son, Rory, on spring break, is the reason why the American public cares about these issues, because we are thinking about the future.
    We call on Congress to do four things that are fundamentally different than what you have heard from the other witnesses here before.
    First, make sure that the dollars that we use, whatever limited pool we pass, whether it is the Kelly-Tauscher approach or something bigger that approaches the WIN numbers, that we spend the dollars on core needs, not for sprawl. One of the problems that we have had in the past, whether it is a grant program or a loan program, is that a lot of these monies have gone for sewer interceptors and drinking water lines that have not been about current needs but have been about ''goldplating'' and subsidizing growth for development purposes. We are all for growth and development. We just do not think these dollars coming out of the Federal Government should be used for that. We think there should be clear affordability indexes, that we ought to look at helping our strapped communities and rural areas and in the cities.
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    Second, we want to protect ratepayers and taxpayers. We have heard a lot today about where pools of money could come from an where they might be. We suggest that there is one pool of money that nobody is talking about that is available to our States and that the Federal Government should encourage our States to use. That is that there is already a mechanism in place through the permitting of discharges that we could put a fee structure to based on volume and toxicity of those discharges. And if you did that, and some States do but most do not, you could raise literally billions of dollars to fund current needs.
    Third, we think that a grant program does make sense. There are some communities that cannot afford loans no matter how low. Currently, under the drinking water SRF account, we have in effect a grant program for some of the small communities. The fact that our States are not choosing to exercise that set aside and use it perhaps means that we have to be a little bit more prescriptive. But we would suggest that if there is a grant program that is overlaid on top of our current loan programs, that we have a match locally, even if it is very small, that is graduated by an affordability index.
    Last, we need to invest money now because, if we do not, the cost of replacing the infrastructure that we have heard is aging and out of date is only going to grow higher. We need to make sure we do it in a way that is responsible and that does not defer maintenance and defer true cost accounting. And the way to do that is to make sure that the money is flowing to our small communities and our inner-city communities where the population has gone away and the rate base does not exist to bill for making the upgrades of the old systems.
    I am going to end by suggesting that the biggest fault and the biggest problem that we have had historically in our program is that the public has been very little invested in this program because they have not been part of determining where the money goes. The State intended use plans, the SRF systems have been politically wired by the most powerful stakeholders in the process.
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    And so I think what we need to invest the public in any new pot of Federal funds is much more public participation, much more transparency. We need people in communities to be part of determining where the dollars flow, from the Federal level to the State level and from the States to the local communities. Thank you very much.
    Mr. DUNCAN. Thank you very much, Mr. Schwartz.
    Mr. Accetturo, you may have heard me say earlier that I think the Federal Government has an important role and should do more. You and others have said we are at a water crisis, a sewer crisis, an infrastructure crisis. When we have spent so much money, and spent so much more than we ever spent before in the last 20 or 30 years, why is it such a crisis now after all those expenditures? I am curious as to how you would respond to that.
    And secondly, is there anything we can do to reduce these infrastructure costs or hold down these infrastructure costs so that we do not face a trillion dollar price tag for some of these improvements?
    Mr. ACCETTURO. Well there are two issues here. I spoke more to the wastewater issue and the previous panel seemed to talk more to the clean water issue. But I would say in either case, the comments that the Mayor from Gloucester made, I think in response to your question, about how is all this pipe failing at the same time, I think it may sound like that but it is really not. For years and years, people have been ''Band-aiding'' and trying to make do with the pipes they have. And now it is just total failure. You have nurtured that line for as long as you can, and you probably got more than its useful life. Obviously, I was not around in the early days to hear these statements made about 120-year life spans on pipe. But I personally know there is no pipe made out there that I would put my name on for 100 or 120 years.
    I think that is maybe part of the answer to your question. Yes, you have been spending a lot of money. But the investments toward the regulations that these cities and counties and municipalities are having to make now to meet governmental guidelines is also costing a lot of money. I think that has increased some of the spending out there.
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    Mr. DUNCAN. Mr. Schwartz?
    Mr. SCHWARTZ. I would like to be real direct about it as well, Chairman. A couple things. One is that five years ago in this committee we had a fight over the Clean Water Act Reauthorization and there were a lot of intellectual capital joined around that fight. The American public stood up and they said they want those regulations, they want those protections. And having had that fight, the contractors associations, the cities, the counties, environmental and public health groups, labor have all come together in coalition and said let's see if we can fund the priorities. That is where we are at right now.
    I think it is very important to understand that these are not unfunded mandates from an agency called EPA working independently. They are mandates that come from Congress, that were brought to Congress by people in their communities who do not want sewage in their backyards, who do not want to drink dirty water, and who want to be able to recreate in waters that are clean, or have industries that can use clean water. The fundamentals of our economy and public health are dependent on this.
    So we have lost the struggle to deal with the problems by weakening the standards and hoping that they do not go away. That means we have to come to terms and fund the problem. That does mean increasing rates. That does mean having more in terms of State matches. But it also means the Federal Government putting in a slug of investment now so that we can meet the terms of the debate.
    Mr. DUNCAN. We are short on time because of another vote. But Dr. Beecher, of the 54,000-plus community water systems, how many are investor or privately owned?
    Dr. BEECHER. I have tried to estimate that, Mr. Chairman, on the past. I do not have current numbers in front of me, but it is approximately 20 percent of the systems come under the purview of the commissions. And there is actually I think about half again are investor owned. So a few commissions have some jurisdiction beyond the investor owned.
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    Mr. DUNCAN. I remember seeing Dateline or 20/20 or a 60 Minutes program about how the bottled water was really just almost identical to the tap water. Is that true?
    Dr. BEECHER. I am not a water scientist, but that is my understanding based on studies that have been done.
    And on the investor-owned, let me also just add that EPA counts systems. Investor-owned utilities are somewhat different because they are a corporate organization. They may actually manage multiple systems. So in Indiana, for example, you have got multisystem utilities. It gets a little complicated that way.
    But on your point about safety, that is my belief. I do believe this is why we need to engage the public on the value that they get at the tap.
    Mr. DUNCAN. Let me go very quickly in another direction. That is, what would you say in response to the question of how can we hold down these costs on these water infrastructure needs? Is there a way to do that?
    Dr. BEECHER. I think that is the critical question. I believe, as a participant in this water business, that we need a new science of infrastructure management, asset management. We do not build new systems any longer, really. And, frankly, I believe growth should pay for growth. I think that is an operating principle in the business and that should almost be off the table. This is now a business about maintaining and upgrading systems into the future for the young man's grandchildren. And how do we allocate those costs appropriately? Should he pay for the whole thing? Probably not. We need to figure out a way to do that. But you are absolutely right, we need to drive hard to bring those costs down.
    The good thing about a problem or even a crisis, if you want to call it that, is that it does tend to bring innovators out. I am a firm believer in innovation and technology and markets, as appropriate. And the amount of dollars we are talking about, I think people will scramble, hopefully, to find new technologies, new ways of doing things. There is a competition to be more efficient. The public and the private sectors compete to be better. So this already I believe has started to drive innovative technology. At our water infrastructure conference we saw new management techniques, geographic information systems, and so on, new treatment methods. I think technology and innovation and simple market economics will help us tackle this.
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    We need incentives, though, too. And that is why, again, the Federal role should be very conscious of what kinds of incentives it is providing in terms of the appropriate mix of subsidies and leveraging and using multiple solutions for this problem, but being ever conscious of the kinds of incentives that it is providing.
    Mr. DUNCAN. I apologize, but I have got a vote going on and so I have to leave. I am not going to hold you. If you have additional information or thoughts, I wish you would submit them so we can place them in the record.
    I want to thank each of you for being here. You have been very helpful and informative.
    That will conclude this hearing.
    [Whereupon, at 12:26 p.m., the subcommittee was adjourned, to reconvene at the call of the Chair.]