By Judy Sheahan and Rich Anderson
March 5, 2012

Senate Environment and Public Works Water and Wildlife Subcommittee, and the House Transportation and Infrastructure Water Resources and Environment Subcommittee held separate hearings on the same issue of water and wastewater infrastructure financing on February 29. The Conferences of Mayors Water Council Co-Chairs were invited to give testimony. Baltimore Mayor Stephanie Rawlings-Blake testified on behalf of Baltimore, and Indianapolis Mayor Gregory A. Ballard testified on behalf of the Conference of Mayors.

Senator Ben Cardin (MD), Chairman of the subcommittee, opened the hearing by citing the Conference of Mayors Water Council study that said over the next 20 years local government spending on water and sewer infrastructure may be 1.5 times to three times what was spent over the last 53 years with annual spending estimated to range between $189 and $421 billion. Cardin also said that “water infrastructure is equally important to transportation infrastructure.”

“I applaud the mayors for coming forward with financing options,” Cardin said. “We can’t just give you mandates without partnering with you.”

Senator Jeff Sessions (AL), Ranking Member of the subcommittee, added, “The United States loses one-third of its water through leaks and yet in the stimulus package only a small fraction was spent on water, sewer, and transportation infrastructure. We should be investing now and enjoy the benefits of that investment in the future.”

Rawlings-Blake briefed the Senators on the dire fiscal situation that mayors find themselves as it relates to the cost of crumbling infrastructure and unfunded mandates. “Over the next 20 years an estimate $4 trillion will be spent nationally for water and wastewater projects, 90 percent of which will be funded locally. Even with our large capital program, Baltimore has a $4 billion gap in funding over the next six years. And that figure does not include the $2 billion needed to replace existing stormwater pipes.”

“Having to direct our investment toward meeting federal mandates has had dire consequences on the condition of our water infrastructure,” Rawlings-Blake said, “It’s hard to convince your citizens and ratepayers to accept annual increases in water and sewer rates to comply with federal mandates when the basic infrastructure is crumbling.”

“If you would come to one of our Mayor Water Council Meetings, you would see frustration that is beyond belief,” Rawlings-Blake said. “We simply cannot do it on the backs of ratepayers. It requires us to think differently.”

Rawlings-Blake outlined a number of different financing options that could be utilized including revenue bonds, the State Revolving Loan Fund programs, stormwater fees, establishment of a clean water trust fund, and the creation of a Water Infrastructure Financing and Innovation Act (WIFIA) type program modeled after the Transportation or TIFIA program.

“A WIFIA program could provide secured direct loans and loan guarantees, a standby line of credit for infrastructure, annual federal funding to budget for credit defaults, and it would make a project more attractive for private capital and lower interest rates on private lending,” Rawlings-Blake said. The mayor pointed out that since water utilities have existing revenue streams which they can use to repay federal credit assistance, this investment is even more financially sound than the widely supported TIFIA program.

Rawlings-Blake discussed other ways, besides financing, that would provide financial relief to cities. “We need flexibility with the Clean Water Act and Safe Drinking Water Act because our resources are finite,” Rawlings-Blake said. “But I am happy to report that EPA has heard our message and they are willing to work with us to develop a more flexible and tailored program to achieve a cleaner environment without bankrupting us in the process…this concept is called integrated planning.”

The mayor outlined the concept of integrated planning where a city will be able to look at all of their environmental projects, determine the environmental, social, and health benefits of each, and prioritize the projects with the greatest benefits to the top of their capital investment plans.

The mayor also pointed out that, as of now, EPA’s Integrated Plan did include Safe Drinking Water Act requirements but she was hopeful that it would.

“Baltimore, like many other cities, is responsible for metropolitan drinking and wastewater systems, and stormwater controls, and treatment within their borders,” Rawlings-Blake said. “Our citizens and ratepayers pay for these systems, and all three utilities run under the same streets. An integrated plan for Baltimore must address all three systems.”

Subcommittee Chair Bob Gibbs (OH) held the first of two hearings entitled “A Review of Innovative Financing Approaches to Community Water Infrastructure Projects” to seek input on how to finance the growing need and cost for water and wastewater systems in the United States. Gibbs acknowledged the financial difficulties faced by local government in meeting the needs of a growing population, and complying with “regulatory priorities that are placing additional burdens on communities”. He quoted estimates that solving sewer overflows will cost communities over $1.5 trillion. Gibbs also acknowledged that despite the great financial burden placed on communities new and additional investments will have to be made to provide and protect water resources. The question he asked is, “...where is the money coming from?” The point of the hearing is to gather information on a variety of financing tools that could be made available, and what role Congress could play in adding these to the local government financing tool box.

Ballard focused his testimony on three areas that the Conference of Mayors Water Council has deliberated for several years. First, he confirmed the need to re-establish a partnership between the nation’s cities, Congress and the EPA to achieve clean water goals. He stated, “It is important to recognize that everyone wants to do the right thing with regard to the environment. In the last decade public spending on water and wastewater grew by 65 percent to over $855 billion, during that same time local government long term debt grew by 82 percent to $1.6 trillion. Clearly, this is an unsustainable problem. It is one reason the Conference of Mayors is calling on Congress to more sensibly and flexibly achieve our shared clean water goals.”

Ballard emphasized that Congress shed financial responsibility for clean water goals but did little to check the Administration’s aggressive advancement of unfunded mandates. The result is that many local governments “...now shoulder significant long-term debt to finance water and wastewater plans that they have had little say in developing.”

The second point Ballard made is that there are several financing tools that can provide some financial relief to communities, even if they do not fully improve the long-term debt problem. For example, he stated that removing state volume caps for private activity bonds (PABs) used to finance public water and wastewater projects would be very helpful. They have the advantage of harnessing private sector capital in financing projects that would ordinarily be carried as long-term debt by the city. Also, accessing PABs has the advantage of lowering overall capital cost of projects because the interest rate on bonds is equivalent to government obligation and/or revenue bonds, and projects can be completed in a condensed time frame. Current legislative efforts (H.R. 1802 and S. 939) to remove state volume caps for water PABs are being considered by Congress right now.

He also cited Conference of Mayors policy in support of “WIFIA” type legislation. This legislation mimics transportation legislation in that it would create an infrastructure bank from which water and wastewater projects can apply for loans and loan guarantees to move projects forward. The advantage would be the lower than market rate interest made available. This could lead to a 16 to 22 percent savings on projects.

The mayor’s written testimony stated Conference of Mayors support for Public Private Partnerships (PPP). Partnerships recognize that cities can harness private sector capital and expertise to achieve water and wastewater goals and provide significant cost savings.

The third point made by Ballard is that “The proliferation of federal regulatory mandates has drastically increased local water and wastewater spending requirements.” He cited that over 780 cities and utilities have or will experience sewer overflow enforcements, “We are calling on Congress to require EPA to set clean water priorities and reasonable expectations on affordability.” He explained how in Indianapolis he worked with his Administration to amend a sewer overflow consent decree, lower costs by $740 million, and achieve better environmental results for the city ten years ahead of schedule. The message to Congress is clear, in addition to providing more financial tools that help cities but also increase local long-term debt, Congress can require EPA to be more flexible and avoid setting unnecessarily expensive unfunded mandates.