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Drinking Water Needs and Infrastructure
Subcommittee on Environment and Hazardous Materials
Mr. Elmer Ronnebaum
SUMMARY:
The dynamics of small communities that we believe need to be recognized in
discussing funding policies are: that small communities make up the overwhelming
percentage of water and wastewater utilities; small town consumers often pay
high water rates and have a greater percentage of the poor households and a
lower median household income; small systems often have limited technical and
administrative resources to deal with compliance and navigate through funding
programs; and consolidation and privatization are limited solutions for small
systems -- federal policy that favors consolidation over the locally preferred
solution is a step in the wrong direction for consumers.
The 1996 Safe Drinking Water Act SRF was a monumental step in the right
direction. Its
flexibility and targeting of funds has made SRFs better and more responsive to
nearly every stakeholder. Many of our small systems are receiving large funding
packages from the SRF. States
have exploited the provisions in the SRF to invent one of the best local-state
partnerships in all of government. Key
elements for small and rural communities in considering any modifications to the
drinking water SRFs: Retain
the three legislative provisions that ensure communities in the greatest public
health and economic need receive prioritization in funding programs.
Review proposals for changes in the SRF with caution.
There has been no credible finding that the current SRF is not meeting
its mission of efficiently providing resources to the communities with the
greatest public health and economic needs.
There is no need to include additional requirements for applicants
including: environmental, land use planning, capacity, actual cost of water,
common industry practices, etc.
Consider including provisions guiding the percent of a project that can
be used for engineering/consulting services on projects.
Extend loan durations to 40 years loans to small communities or regional
systems. Limit
corporate water systems' eligibility for state revolving funding. Taxpayer
subsidies should be prohibited from profit generating companies or companies
paying profits for shareholders/investors. The
amount of money is needed for water infrastructure is dependent on EPA rules and
standards. The
regulations will force small towns to come up with millions in financing -
many systems will be stressed to comply.
The State Revolving Loan Fund is working.
Rural Water encourages Congress to consider that whatever changes are
considered, please make sure, first, that these Loan Funds target those most in
need; second, that the SRFs do not provide tax-payer supported loans to large
corporate systems; third, encourage guidelines to keep professional services
competitive as in other federal funding programs and last and possibly most
important, recognize that new regulations will place more and more demand for
further funding just for systems to maintain compliance. WRITTEN
TESTIMONY Mr.
Chairman and Members of the Subcommittee, thank you for the opportunity to be
here today to discuss small communities and their water funding concerns. My
name is Elmer Ronnebaum. I am General Manager of the Kansas Rural Water
Association. Kansas
Rural Water has more than 750 small community members that operate water
utilities and most operate wastewater utilities.
The Association is governed by the local communities. The mission of the
Association is to improve and protect water quality through grassroots technical
assistance of utility operation and maintenance and training.
Kansas Rural Water Association is an affiliate of the National Rural
Water Association which represents over 22,000 small and medium sized community
water and wastewater utilities. Every community wants to provide the best
possible water quality to their consumers. Rural Water provides the resources
and training to achieve this objective in a common sense, hands-on manner
systems can utilize. I am honored to speak on their behalf today. On
behalf of all small and rural communities, I would like to thank the Committee
for your efforts to assist small communities with compliance with the federal
Safe Drinking Water Act. Rural Water looks forward to working with you as you
consider the Safe Drinking Water Act and the State Revolving Loan Funds. Recently,
EPA announced they would provide direct grants to large communities to conduct
vulnerability assessment for security.
EPA has not provide any of the over $90 million appropriated by Congress
for small communities. However,
small communities are just as, if not more so, as risk than large communities.
Also, the cost of security plans in small communities will be greater per
household than in large communities.
Many small communities believe that they need to make security
improvements immediately. This
is another concern of small communities that is not being addressed in federal
funding programs. This
hearing is considering funding needs of water supply systems and how to improve
the State Revolving Loan Fund.
What water suppliers think their "needs" are, is different than
what the EPA or state regulators might think the "needs" of the water
suppliers are. If
water suppliers are to include, in their "needs", compliance costs
with all the existing regulations and upcoming regulations, then the water
suppliers "needs" must include more grant funds and loan funds to
comply with EPA regulations.
Compliance with EPA regulations is much more expensive (as measured as
price per gallon or cost per meter) for small suppliers due to the small
suppliers' lack of "economy-of-scale" The
compliance with upcoming Maximum Contaminant Levels (MCL's) of total
trihalomethanes (TTHMs) and haloacetic acids for surface water treatment systems
serving less that 10,000 persons is an example of small systems' compliance
costs. The "cost
of compliance" includes monitoring costs, recordkeeping costs, reporting
costs, engineering costs, capital improvements costs, and operation and
maintenance costs. This
is shown by the fact that there have been regulations for trihalomethanes on
systems serving more that 10,000 persons - but not for the systems serving
less than 10,000, for more than 15 years.
Why did EPA not have the same TTHM regulations on small systems?
It might be that it is due to the high unit cost that was judged to be
"politically" unacceptable.
Otherwise, why should citizens served by systems serving populations
greater than 10,000 receive drinking water with much lower risks? Aren't people
in small towns just as important? The
actual costs on any one supplier are not yet known.
But when those costs are known, that water utility will surely note that
the costs are considerable. What
benefits and costs are realized by compliance with each regulation are unknown
and debatable. The
nation has said through the EPA regulations that the nation wants a much, much
lower risk level from drinking water than many, many other things in our
society. And as with
many things, the costs of the ever-reducing the risks in drinking water results
in ever-increasing costs, especially to the small systems. The
five principle dynamics of small communities that we believe need to be
recognized in discussing funding policies are: ·
One, that small communities make up the overwhelming percentage of
water and wastewater utilities - over ninety percent of regulated communities. ·
Two, that due to a lack of economies of scale, small town
consumers often pay high water and sewer rates. Water bills of more than $50 for
5000 gallons of water are not uncommon in rural areas. This dynamic often
results in very high compliance costs per household in rural systems.
Simultaneously, the rural areas have a greater percentage of the poor households
and a lower median household income. This results in very high compliance cost
per household in rural systems coupled with a lesser ability to pay. ·
Three, small systems often have limited technical and
administrative resources to deal with compliance and navigate through funding
programs. In the smallest systems, one person may run both the water and sewer
system and in some cases communities can only afford a part-time or volunteer
operator. The more
complicated we make funding programs the more likely the small communities will
not be able to participate. This
dynamic is counter productive the objective of the SRF because small communities
are usually the entities which most need the funds.
The lack of resources also makes small systems a challenge for state
agencies - it takes less state agency resources to deal with large town versus
a smaller one who needs more "help" getting through the process. ·
Four, small community water systems have been the historical
solution to rural families living without water. Small water systems were ONLY
started to improve the public health. The result is dramatic improvements in
public health by providing an alternative for families from gathering their
drinking water from untreated streams, shallow and contaminated wells, roof
collection and cisterns. In 2001, there are hundreds of thousands of rural
families that still don't have piped water in their homes. Millions of rural
families still have water delivered to their homes. According to the USDA at
least 2.2 million rural Americans live with critical quality and accessibility
problems with their drinking water, including an estimated 730,000 people who
have no running water in their homes. About five million more rural residents
are affected by less critical, but still significant, water problems. ·
Five, consolidation and privatization are limited solutions for
small systems. Consolidation can work in some situations, but only for a small
portion of small systems and only when the systems are in close proximity and
the economics make sense. Rural Water is the lead proponent of consolidation
when it makes sense (when it results in better service for the consumer) and we
have consolidated numerous communities in all the states. Consolidation and
regionalization that is in the consumers' best interest will happen naturally
at the local level regardless of federal policy on issue. Federal policy that
favors consolidation over the locally preferred solution is a step in the wrong
direction for consumers (i.e. 42 U.S.C. Sec. 300g-3(h) Consolidation Incentive).
Privatization is rarely a less costly solution for very small communities. In
the very small communities it is, perhaps, more common to see private systems
being transferred to public bodies so they can obtain better financing and local
governmental control. The missions of private water and rural water systems are
fundamentally different, the reason being the lack of profitability in sparse
rural populations. In
1996, this Committee lead by Congressmen Bliley and Dingell, made a significant
policy change in the Safe Drinking Water Act. At every opportunity, they
ameliorated the Act by including as much flexibility as possible. Nowhere is
this more apparent than in the state revolving fund section. Under this approach
states were given all sorts of discretion on how to spend the money to meet
their local priorities. For example, a state can make grants, can fund
set-asides, expand technical assistance efforts, create new prevention programs,
increase state staff, or choose to do none of these and retain the traditional
low interest loan focus. Small
communities' message here today is that this was a monumental step in the
right direction. This flexibility has made state SRFs better and more responsive
to nearly every stakeholder. Small systems have seen a level of inclusion and
benefits from the drinking water SRF that we could not imagine based on our
experience with the wastewater SRF that does not include these flexible
provisions. Some
state rural water associations have not been impressed with the way their state
has chosen to utilize their discretion. Some states have steered funds to larger
systems with less urgent needs, in their opinion, to make fund administration
easy and keep bond ratings high. However, this is not a complaint that is
appropriate for this committee. Those concerns are best handled in the states
and each year locals have a better chance to improve their own state's
program. Kansas
is an exemplary case for success in Drinking Water SRF implementation. Many of
our small systems are receiving large funding packages from the Drinking Water
Loan Fund. The state
has made small system funding a priority in Kansas and Kansas has expanded
technical assistance to small systems. Assistance is also provided to help small
systems through the funding process.
The Kansas application for drinking water funding is streamlined and
simple enough for a small system operator (with too little time and too much to
do) to complete. Kansas
has received $50 million in EPA capitalization grants from 1997 to 2001.
Rural Water in Kansas worked for legislative support to add $5 million in
state funds to the new program. Kansas has the highest leveraged program in the
nation at 1:4 thereby creating a loan fund of nearly $212 million.
The technical assistance set-aside of 2% have provided $1,129,000 towards
small system technical assistance of which about $500,000 has been utilized.
The EPA grants have also provided approximately $2.4 million towards
Capacity Development which is now beginning to be implemented. The EPA grant has
also provided $2.6 million in state program administration.
From 1997 to the present time, the Kansas Dept. of Health &
Environment has made a total of 75 loans totaling $150,131,845.
Fifty-one of these loans, or $67,252,924, were made to systems serving
less than 5000 population. The interest rate for the Kansas Drinking Water Loan
Fund is set at 80% of the 3 month average of the 20 Bond Buyer for both large,
taxing entities and the non-rated rural water district participants. Loan demand
through applications received, exceeds available funding by 100%.
Why such demand for funding?
First, new regulations drive demand for funding and second,
infrastructure of the systems in many cases is obsolete and in a deteriorated
state because the materials used 40, 50 or 80 years ago did not have the life
expectancy of materials often used today. There is also demand for additional
capacity. Again though, while bricks and mortar, pumps and pipes are important,
the set-asides are also there to provide assistance, particularly to small
systems. The Kansas drinking water administration has exploited the provisions
in the SRF to invent one of the best local-state partnerships in government. In
Kansas, our state's drinking water administration has exploited the provisions
in the SRF to invent one of the best local-state partnerships in all of
government. As any
new legislation may be considered, small and rural communities urge you to
include a few key provisions dealing with flexibility and targeting of funding
that have made the drinking water program more responsive to small systems.
The Kansas application for drinking water funding is streamlined
and simple enough for a small system operator (with too little time and too much
to do) to complete. Mr.
Chairman, I would like to summarize the key elements for small and rural
communities in considering any modifications to the drinking water SRFs as
follows: ·
We urge you to retain the three legislative provisions that ensure
communities in the greatest public health and economic need receive
prioritization in funding programs. One, the communities exhibiting the greatest
need should receive funding first. Second, programs should not be limited to
making loans because in many situations, small communities will not have the
ability to pay back a loan - even with very low interest rates. Third, a
minimum portion of the funds should be set-aside for small systems. This ensures
that a state must set up a process for dealing with small communities. Once
established, local pressures and priorities will determine the actual portion
directed to small systems, which we expect will often be greater than the
minimum prescribed. All of these provisions were included in some manner in the
drinking water SRF - balancing the federal priorities with the state's
flexibility to tailor individual programs and discretion on implementation of
each these programs. ·
We urge you to review proposals for changes in the SRF with
caution. There has
been no credible finding that the current SRF is not meeting its mission of
efficiently providing resources to the communities with the greatest public
health and economic needs. Why
would we entertain changes to the SRF when it is not broken? ·
We have been told that large system groups believe too high a percentage
of the present drinking water SRF funding is going to small communities.
However, a significant portion of the funding should flow toward small systems
because, generally, they need it more. Rates are often much higher per household
in small communities - often from compliance requirements. EPA rules on the
horizon will likely triple water rates in rural systems. Also, rural communities
often have lower median household incomes. The SDWA axiom in rural areas is:
much higher cost per household with much lower income. No large system is facing
cost increases on a per household basis comparable to what is facing small
systems. It only makes sense that federally subsidized funding would flow toward
the communities with the greatest need - that is to small systems. ·
There is no need to include additional requirements for applicants
including: environmental, land use planning, capacity, actual cost of water,
common industry practices, etc. We urge you to exercise caution for increasing
demands on applicants as each new demand makes the process too complicated for
small systems and therefore less attractive. We believe that the current review
process is fully adequate to ensure repayment of loans, progressive
environmental planning, and long-term capacity of applicants. Nationalizing
policy industry practices and determining actual cost of water could lead to
gold plating of water utility practices which is not in the best interests of
consumers. ·
We urge the Committee to limit the ability of any portion of a
water system to be eligible for disadvantage type subsidies or other special
treatment. To assist any portion of a system moves the effort from an
environmental-public health program to a social program. If particular
low-income consumers are having problems paying their water bills, we don't
think the SRF should be used as the solution. That may be an issue for agencies
other than the EPA. It is important to note that a state can determine a large
system disadvantaged as well as a small system. Funding a portion of a system
seems to be a way to skirt the current process which is working so well at
prioritizing systems most in need. Also, this moves the SRF in a direction
contrary to the SDWA's regulatory structure which only applies on a
system-by-system scope. ·
We urge the Committee to consider including provisions guiding the
percent of a project that can be used for engineering/consulting services on
projects. USDA has such a provision [PART 1780 - WATER AND WASTE LOANS AND
GRANTS, §1780.39(b) Professional services and contracts related to the
facility]. In Kansas, our research shows that engineering fees are sometimes
charged at twice as much in programs that don't have such guidance on
engineering fees. ·
We urge the Committee to consider allowing states the discretion
to extend loan durations to 40 years loans to small communities or regional
systems. Due to
scarcity of population in regional systems this additional loan time can be the
determining factoring in making water affordable in regional projects.
Also, this will make the fund consistent with the USDA grant and loan
program which includes such authority. ·
A change that may improve the SRF ability to meet its mission would be to
limit corporate water systems' eligibility for state revolving funding.
Taxpayer subsidies should be prohibited from profit generating companies or
companies paying profits for shareholders/investors. Private companies argue
that they have to comply with the same regulations. However, they voluntarily
chose to get into this "business" and compliance is not the
over-riding principle that should be considered in this discussion. We believe
that the distinction in mission between public and private is the core principal
that should be considered. Private systems are in the business to maximize
profit. Public water utilities were and are created to provide for public
welfare (the reason why public water continues to expand to underserved and
non-profitable populations). This is a significant difference. And while we
believe that maximizing profit is a noble virtue and as American as safe water,
we do not think that taxpayers should help the cause of privately owned systems.
In addition, the needs of less affluent public water systems and families with
no piped water dwarf the current SRF allocations. The state of Florida has a
novel compromise to this issue. Florida limits SRF funds to private water
systems less than 1,500 people - ensuring funds are limited to the class of
private water systems that did not get into the business as a corporate
enterprise. Also, this group of private systems could be included in the
state's needs assessment which determines allocations under the bill. How
much money is needed? That
is completely dependent to Congress' answer to the question: What are the new
EPA rules and what are the standards going to be? For example, the coming
arsenic rule will increase the number of small systems facing funding
challenges. Dozens of
small systems in Kansas (thousands across all the states) will need funding to
comply with the arsenic regulation. One
municipality in Kansas that will be greatly affected by Arsenic Rule,
established at 10 ppb, is the City of Atwood (population of 1,300) surrounded by
farmland and an agricultural economy. Past
arsenic water quality results for the City of Atwood has shown a range of 12 to
18 ppb in the three currently used municipal wells.
The proposed arsenic MCL of 10 ppb allows the City two general feasible
options to attain the MCL. The
community has an option to develop new well fields in the Ogallala formation
located several miles from the community. However, while Ogallala formation
generally provides better water quality and perhaps an arsenic concentration
below the 10 ppb, it is a much more cemented and finer formation.
This fine formation decreases production of wells.
Thus to develop a sufficient municipal water supply, more area for wells
is required since they must be a greater distance apart.
The estimated cost of this option would be $2,200,000 based on a
five-mile transmission main with four wells to meet daily water demand.
A second option available is treatment of the existing water supply
sources. The
city presently does not have a single point of entry into the distribution
system. Each well is
directly connected into the distribution system.
All wells are located in separate areas of the existing system. Over
3,000 feet of distance exist between the two farthest wells.
In order to implement a point of use treatment plant, a new dedicated
transmission main would have to be constructed between the wells.
Land and easements would have to be procured to build a treatment
facility. Atwood's
sulfate concentrations in the range of 90 to 309 mg/L will affect treatment
efficiencies in an ion exchange process requiring frequent regeneration. This
creates higher operation and maintenance cost (O&M).
The estimated treatment facility cost would range from $1,300,000 to
$2,100,000 depending on the Best Available Technologies (BAT) selected.
Atwood could experience a budget increase of $50,000 to $75,000 per year
with the incorporation of a treatment plant.
These budget increases are due to operation and personnel requirements.
Special by-product disposal requirements could require more operation
costs. In
order to provide funding for capital construction and O&M assuming a 5%
interest rate and 20-year loan period that corresponds with the life of a
treatment facility with 700 connections, the monthly water rate would have to
increase by $18 to $29 per connection.
Again, please keep in mind this does not include the current water rate
and upgrades currently necessary to keep the system in compliance. This analysis
has been made by the city's consultant, Miller & Associates Consulting
Engineers, P.C., McCook , NE. This
is a conservative estimate and does factor in all the costs for compliance. Rate
increases on this type of a community could be devastating. However,
Mr. Chairman, while no system will be in greater need for federal assistance
than Atwood, KS the challenge is how to craft a funding program that will work
for those most in need. Cost
estimates of the funding needed to sustain a healthy U.S. water supply are
staggering. The Water
Infrastructure Network, of which Rural Water is a member, estimates an $11
billion annual funding gap over the next 20 years.
This estimate is over 4 times the current combined federal contribution
in the USDA, EPA Drinking Water, and EPA Wastewater programs. While it is not
essential for all systems to obtain financing through a federal or state
program, the fact is that much of the funding needs are caused by ever stringent
regulations. The question for Atwood, KS is what is the benefit of reducing
naturally occurring arsenic by 2 parts per billion? Rural
Water is not the type of organization that can present an accurate cost figure
on the future need for funding.
However, we can acknowledge the extreme shortfall in both EPA SRF and the
USDA water programs, as indicators that the current needs are not being met.
The USDA program, which is the core-funding program for small water and
wastewater projects, is currently experiencing a $3.2 billion backlog.
We believe this is the most accurate indicator of need because all of the
systems in USDA's backlog have applied for funding.
They have met the requirements of USDA's strict needs requirement
(including lack of commercial funding availability and high ratios of median
household income to water rates). As
stated earlier, in addition to this current need, EPA is proposing more
regulations. Many of
the regulations will force small towns to come up with millions in financing -
many systems will be stressed to comply. I think it is significant to observe a
new dynamic in EPA regulations: the regulation of naturally occurring
contaminants and the regulations of operations and maintenance in utilities.
The result of this new effort by EPA will be to greatly expand the number
of systems forced into costly compliance with EPA rules.
For example, very few systems were required to treat for EPA's previous
rules on organic contaminants, many with anthropogenic origins. However, the
forthcoming arsenic rule could capture as many as 4,000 communities; this will
greatly drive the demand for additional funding resources.
Upcoming EPA rules that may be expensive in thousands of rural
communities include: standards for certification of operators, filter backwash,
radon, surface water treatment rules, arsenic, disinfection byproducts, ground
water disinfection, and others. The State Revolving Loan Funds are working. Rural Water encourages Congress to consider that whatever changes are considered, please make sure, first, that these Loan Funds target those most in need; second, that the SRFs do not provide tax-payer supported loans to large corporate systems; third, encourage guidelines to keep professional services competitive as in other federal funding programs and last and possibly most important, recognize that new regulations will place more and more demand for further funding just for systems to maintain compliance.
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