Most of the time when public sector officials meet EPA representatives at conferences, a standard opener includes a question followed by a strong assertion.  The question is -- Don't you know how costly it is to meet water regulations?  The assertion -- You don't know how much it really costs!  This is known as "gap analysis", the dialogue whereby public officials at the local and federal level talk about how much investment is needed to comply with state and federal water quality standards, and the shortfall in infrastructure investment.  In a stunning reversal of the table, EPA has begun to study the "gap", and also has begun to take the message to local officials.

Michael B. Cook, EPA's Director of the Office of Wastewater Management, addressed mayors at the Urban Water Summit in San Juan, Puerto Rico with a review of trends in water infrastructure investment in the U.S.  While the review was comprehensive, covering up to 5 decades of data on infrastructure investment, the message was disappointing.  Cook summarized a number of disturbing findings in the EPA review:

• Looking at new debt for water and wastewater infrastructure since 1970, capital spending appears to be less than what is required to replace the deterioration of existing water systems.

• Over the next two decades we will not be making enough investment to keep up with existing plant, let alone making new capital investment to comply with new regulations.

The EPA's review indicates that combined Local, State and Federal total spending on wastewater infrastructure rose from around $5 billion in 1956 to $25 billion in 1991.  Capital spending was around $4 billion in 1956, and rose only to $9 billion in 1991.  The real growth in total spending, according to Cook, has been in operation and maintenance (O&M), rising from $1 billion in 1956 to around $16 billion in 1991.  The 5 to 6% growth per year in O&M spending has compounded over time resulting in a dramatic shift above capital spending.

Mr. Cook stated that some of the information used in the EPA study came from a Congressional Budget Office report, (Trends in Public Spending, CBO, May 1999).  The CBO report looked at total infrastructure spending in the U.S. from 1956 to 1998.  Spending categories included highways, mass transit, rail, aviation, water transportation, water resources, water supply and wastewater.  Overall infrastructure spending, according to the CBO report, was about $200 billion per year by the mid 1990s.  The Federal capital expenditure, however, has remained relatively flat at about $50 billion per year from 1977 to 1998, or about 2 percent of the total Federal budget.  Cook emphasized that Local government has taken on the lion's share of spending since the late 1950s.

Another disturbing trend identified by Mr. Cook involved the issue of "affordability".  EPA looked at mean household income trends, and user charges in Ohio, where good documentation exists for water user charges.  Households were divided into quintiles (20% categories) based on household income.  While the highest income families experienced a 30% growth in income in 1997 adjusted dollars; the lowest quintile experienced a 2% decline in income from 1978 to 1997.  Cook explained that EPA uses an affordability benchmark of 2% of mean household income spent on sewer or water user charges.  In Ohio the experience has been that 18% of all households had combined water and sewer charges that exceeded 4% of household income.  Cook added that the relative higher sewer and water cost to the lower income households in Ohio might be the same around the nation.

Conclusions on the gap analysis:  "The gap is large and growing", stated Cook.  Capital spending is slowly declining, while O&M costs continue to rise.  There is a question concerning affordability for individuals whose user charges exceed 4% of their household income.

Current Federal spending is in the area of $2-3 billion per year, primarily through the State Revolving Fund (SRF), and Congressional earmarks, (see Box).  Mr. Cook indicated that an annual increase of 5% in water infrastructure investment is needed, but is wildly optimistic.

When queried by Mayor Sills of Wilmington, Co-chair of the Urban Water Council as to whether Congress was knowledgeable of this situation, and what was their attitude, Cook replied that he thought there was not enough detailed understanding, and that more education was needed.  Cook mentioned that other organizations, like AMSA, have put together a coalition to explore establishment of a Trust Fund to finance water infrastructure investment.  Congress, he said, can't seem to find the money now.