 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
Drinking Water Needs and Infrastructure
Subcommittee on Environment and Hazardous Materials
Mr. David M. Walker
Mr. Chairman and Members
of the Subcommittee: I am pleased to be testifying
before you today as you consider the infrastructure needs facing the nation's
drinking water systems. As
you know, the U.S. Environmental Protection Agency (EPA) is required to conduct
an infrastructure needs assessment every 4 years to estimate the future capital
investment needs of local drinking water systems. In its most recent national survey, EPA estimated that nearly
$151 billion will be needed over the next 20 years to repair, replace, and
upgrade the nation's 55,000 community water systems. The needs assessment survey, which EPA uses to estimate
infrastructure needs for each state, serves as the basis for EPA's grants to
the states under the Drinking Water State Revolving Fund (DWSRF) program.
This program helps communities finance the infrastructure projects needed
to comply with federal drinking water regulations and protect public health.
EPA requests annual appropriations to capitalize the states' revolving
loan funds and then makes specific allotments to each state.
The states, which are required to match a portion of the grants, use the
funds to make low-interest loans to their local water systems; as the loans are
repaid, the states' funds are replenished, enabling them to make loans to
other eligible drinking water projects. For
projects located in communities that qualify as "disadvantaged," the states
may extend loan repayment periods or use a portion of their grants to provide
additional subsidies. In addition to EPA, a number of
federal agencies provide financial assistance for drinking water facilities
through a variety of grant and loan programs, some of which also may be used for
wastewater facilities. Further,
some states sponsor their own financial assistance programs for local drinking
water and wastewater facilities. My testimony today discusses
several issues critical to assessing the nation's drinking water
infrastructure needs: (1) the precision of EPA's most recent estimate of
drinking water infrastructure needs, (2) states' use of EPA's drinking water
state revolving funds to aid disadvantaged communities, and (3) the amounts and
types of drinking water infrastructure funding EPA, other federal agencies, and
the states have made available. The
information provided in this testimony is based on two recently-issued reports:
our January report for this subcommittee and committee[1]
and our November 2001 report on federal and state financial assistance for water
infrastructure.[2]
We focused on certain aspects of EPA's methodology in reviewing the
agency's needs assessment, specifically the impact of sampling on the
estimate's precision. In
addition, we surveyed all 50 states to determine how they use their drinking
water state revolving loan funds to assist disadvantaged communities.
Finally, we obtained information on federal and state drinking water and
wastewater infrastructure funding over a 10-year period (fiscal years 1991
through 2000) by collecting data from the nine federal agencies responsible for
the majority of the federal assistance and, using a detailed questionnaire,
surveying the states to collect information on state-sponsored programs.
Forty-six states responded to our funding survey.
We converted the annual amounts reported by the federal agencies and the
states to constant year 2000 dollars. In summary, our work has shown
the following:
Background
Under the 1996 amendments to
the Safe Drinking Water Act, EPA is required to conduct an infrastructure needs
assessment every 4 years to estimate the future capital investment needs of
water systems eligible for assistance through the DWSRF program.[3]
Of the estimated $150.9 billion capital investment needed according to
EPA's most recent survey, 80 percent ($119.7 billion) is linked to projects
involving the installation, upgrade, and replacement of the basic infrastructure
needed to deliver safe drinking water to the public.
The remainder of the estimated needed investment--$31.2 billion, or about
20 percent-will go to projects directly associated with existing, proposed, or
recently issued regulations. Water systems vary in size,
which is often measured by the number of customers they serve.
In its most recent survey, EPA obtained information from 100 percent of
the largest 1,111 community water systems (those serving more than 40,000
people) and samples of the remaining 7,534 medium systems (those serving from
3,301 to 40,000 people) and 44,373 small systems (those serving 3,300 or fewer
people). Small water systems
represent over 80 percent of all community water systems, but they only account
for about 22 percent of the estimated infrastructure needs.
In contrast, the largest water systems represent about 2 percent of the
community systems and account for nearly 44 percent of the needs.[4] Subsidized loan assistance
is an integral part of the DWSRF program in that the interest rates that states
offer to local water systems must be at or below the current market rate.[5]
In addition, the Congress has authorized states to use an amount equal to
up to 30 percent of their DWSRF capitalization grants to provide additional
subsidies to communities that qualify as "disadvantaged" under state-defined
affordability criteria. States with
disadvantaged community programs may opt to forgive a portion of the loan
principal or issue a loan at a negative interest rate.
States also have the option of extending the loan repayment period from
the standard 20 years to up to 30 years, provided that the repayment period does
not exceed the expected design life of the project. U.S. drinking water and
wastewater systems encompass thousands of treatment facilities, collection
facilities, and related works and well over a million miles of pipes and
conduits. While the investment, made over decades, in these facilities is
enormous, even more funds will be needed in the future to support efforts to
maintain clean and safe water. The
Water Infrastructure Network-a consortium of industry, municipal, and
nonprofit associations-recently estimated needs of up to $1 trillion over the
next 20 years for drinking water and wastewater systems combined, when both the
capital investment needs and the cost of financing are considered.
User rates serve as the major source of facilities' financing, but both
federal and state government agencies offer financial support as well.
In the 107th Congress, legislation has been introduced in both
the House and the Senate that would increase the amount of federal assistance
available through EPA's revolving loan fund programs. EPA Took Steps to Validate Needs Data, But Did
Not Calculate the Precision of Its Estimates
The
1996 amendments to the Safe Drinking Water Act require EPA to use the results of
its most recent needs assessment survey to allocate the amount of each state's
annual DWSRF allotment. EPA
allocates the DWSRF funds on the basis of each state's share of the total
estimated national need, except that each state receives a minimum share of 1
percent. According to EPA, its
periodic surveys are therefore intended to provide "statistically precise"
estimates of the needed capital investments, not just in total for the nation,
but within each state. EPA
took a number of steps to ensure that it collected valid information about
infrastructure needs at local water systems, and the cost of addressing those
needs. For example, EPA took the following measures: ·
For large and medium-sized systems, EPA used a questionnaire to collect
information on capital projects needed to protect the public health.
According to EPA's report to the Congress,[6]
the agency asked the surveyed water systems to provide detailed information on
each project including documentation explaining (1) why it is needed, (2) the
basis for the project (e.g., whether it addressed a current or future need), and
(3) the project's estimated cost (or enough information on the design
capacities so that EPA could use a model to estimate the cost.) ·
For the smallest water
systems, EPA sent trained water system specialists on site visits to collect
data after deciding that specialists would provide better information than a
questionnaire because small systems generally have neither the data nor
personnel to complete a questionnaire of this type. In
the case of the large and medium-sized systems, EPA obtained information from a
sufficient number of systems to estimate infrastructure needs on a
state-by-state basis. (EPA
surveyed 100 percent of the largest water systems-those serving populations of
more than 40,000-and a statistical sample of medium-sized systems, which
amounted to about one-third of the systems serving populations from 3,301 to
40,000.) For
these systems, which typically
comprise the majority of a state's needs, EPA set a precision target of plus
or minus 10 percent, at the 95 percent confidence level.
This means that EPA wanted a 95 percent likelihood that its estimate of
the needed capital investment in a particular state would fall within 10 percent
of the actual or "true" need for that state. For
the small systems, the agency's precision target for the national-level
estimate was similarly set at plus or minus 10 percent at the 95 percent
confidence level. EPA officials
explained that the agency did not have the resources to send specialists to
enough small systems to get an accurate picture of small-system needs on a
state-level basis. (Specifically,
EPA estimated that it would have to conduct site visits at approximately 22,000
small water systems to collect enough data to estimate needs on a state-by-state
basis.) Instead, EPA selected a
sample of about 600 small water systems for these site visits.
EPA used the results of these visits to calculate a national-level
estimate of small system infrastructure investment needs.
EPA then apportioned this estimated total among the states on the basis
of the number of each state's small systems, categorized by population served
and type of water source. In
an effort to assess the precision of EPA's needs estimates, we performed a
limited review of EPA's methodology, focusing on the impact of sampling on the
estimate's precision. We concluded that EPA probably did not achieve its intended
level of precision. More
specifically, we found indications that the level of uncertainty, or sampling
error,[7]
was higher than EPA's target level of precision, possibly by a considerable
amount. For example, we found that: ·
The agency's approach did not account for the fact that it extensively
used average costs estimated from models when calculating its sample size.[8]
Thus, EPA's sample sizes were probably too small, and it is likely that
EPA did not collect data from enough systems to achieve its precision target. ·
Even though EPA's technical experts believed that a simple random
sample[9]
would be required to achieve the target level of precision for small-system
needs, EPA deviated from this sampling methodology in two important ways.
First, to avoid the travel costs associated with visiting about 600
randomly selected systems located throughout the country, EPA used statistical
sampling to select 100 geographical areas and then chose six systems within each
area. Although an acceptable
approach, such a statistical sampling technique can require a considerably
larger sample size than when simple random sampling is used to achieve the
desired level of precision. EPA did not increase its sample size to account for the
change in technique. Second, based
on recommendations from an advisory workgroup,[10] EPA intentionally selected at least one area in
each of the 50 states, Puerto Rico, and the U.S. Virgin Islands.
Such geographical constraints had the potential of increasing the
sampling error, thereby reducing the level of precision of EPA's estimate. Although EPA has calculated and
reported the actual precision levels for other surveys, EPA officials told us
that doing so for the most recent drinking water needs assessment would not be
worthwhile, because it would not affect the allocation of DWSRF funds to the
states. In addition, according to
an EPA official responsible for managing the periodic needs surveys, EPA has
already invested approximately 4 years and $3.6 million to implement its most
recent assessment and summarize the results.
The official said that calculating the actual precision of the cost
estimates would cost at least an additional $30,000 to $40,000.
Moreover, actually achieving the precision target could cause the agency
to incur further costs, depending on how many additional site visits were
needed. On the other hand, there are
arguments in favor of calculating the precision of EPA's estimates.
A number of leading survey research associations advocate for the
calculation and reporting of the precision level to fully inform users of a
sample's limitations.[11] More
importantly, determining the precision level of its estimates could help EPA
identify any needed changes in its survey methodology-for example, larger or
differently selected samples designed to minimize sampling error-to improve
the future surveys required by the Safe Drinking Water Act.
In commenting on a draft of our January report, EPA agreed that the
calculation of confidence limits would confirm whether the survey met its
precision targets. EPA also stated
that it would fully consider our recommendation and that it would revisit the
issue in the design of the 2003 survey. States Have Made Limited Use
of the Optional DWSRF Provision to Assist Disadvantaged Communities Under
the 1996 amendments to the Safe Drinking Water Act, the Congress authorized
states to use an amount equal to up to 30 percent of their DWSRF capitalization
grants to provide additional subsidies to communities that qualify as
"disadvantaged." The subsidies
may take the form of forgiving a portion of the loan principal or issuing a loan
at a negative interest rate.[12]
States have the flexibility to develop their own criteria to define a
disadvantaged community. States with disadvantaged community programs typically use
some measure of household water rates relative to the community's median
household income, allowing the states to assess the impact of capital project
debt on the community's water rates and measure the project's affordability. According
to our state survey: ·
Thirty-one states have adopted a disadvantaged community program and
offer assistance in the form of loan subsidies or extended loan terms. Three more states reported plans to offer such assistance as
part of their DWSRF programs within the next 3 years. As of December 31, 2000, 25 of the 31 states had provided
assistance to qualified communities. ·
Of the 31 states with a
disadvantaged community program, 27 have adopted criteria that consider local
water rates, often in conjunction with a community's median household income.
In total, 21 states use median household income as a criterion in
determining whether communities qualify as disadvantaged.[13]
·
Most states that have a
disadvantaged community program offer principal forgiveness or extended loan
terms for capital improvement projects. States
rarely offer negative interest rate loans to disadvantaged communities.
(According to state DWSRF officials, they find this option difficult to
explain to local communities and difficult to administer.) ·
Of the 14 states that had
provided loan subsidies,[14]
only Maine, which had used 23 percent of its grants for assistance to
disadvantaged communities, came close to reaching the 30 percent cap. In
our survey, we asked the states that had not adopted a DWSRF program for
disadvantaged communities to report the reasons why.
Of the 19 states without disadvantaged community programs, ·
16 states cited concerns about maintaining the body of the fund or the
long-term viability of the fund as a major (12) or moderate (4) reason for not
establishing a disadvantaged community program; ·
14 states cited the fact that their DWSRF program already offers loans at
below-market interest rates as a major (9 states) or moderate (5 states) reason
for not offering additional assistance to disadvantaged communities; and ·
12 states cited the availability of other federal or state programs to
address the needs of disadvantaged communities as a major (5 states) or moderate
(9 states) reason for not providing assistance through the DWSRF.[15] Non-DWSRF
financing from other federal and state sources is available to help
disadvantaged communities, and many states coordinate with these sources to help
disadvantaged communities secure the funding they need.
According to the state drinking water officials we interviewed,
disadvantaged communities often receive a combination of DWSRF and non-DWSRF
funding to finance their drinking water projects.
A significant amount of funding is available for local drinking water
projects from other federal agencies and through state-sponsored grant and loan
programs. In our survey on
assistance to disadvantaged communities, more than half the states indicated
that they provided some type of financial assistance for drinking water
projects. Six of the 19 states without DWSRF-related disadvantaged
community programs had state grant or loan programs intended specifically to
help economically distressed communities to finance drinking water improvement
projects. Because
providing additional loan subsidies to disadvantaged communities can affect the
rate at which states' revolving funds are replenished-and therefore
potentially the extent to which future federal funds will be requested-we
attempted to determine the proportion of the nation's community water systems
that might qualify as "disadvantaged" and thus be eligible to receive
special assistance. According to
EPA officials, the vast majority of systems serving disadvantaged communities
are likely to be small systems.[16]
Therefore, we used the same statistical sample of small water systems
that EPA had selected for its infrastructure needs assessment.
(A statistical sample allows generalizing the results to the universe of
small systems, thereby obtaining a national estimate.) We
identified the specific systems included in EPA's sample-from 5 to 34
systems in each state-and as part of our survey asked the states to determine
which of those systems they would consider to be disadvantaged.
We asked states that were able to apply their own criteria to determine
whether each system initially qualified as disadvantaged or qualified as a
result of the additional costs needed to improve it.
Other states were asked to use GAO surrogate criteria (i.e., to qualify
as "disadvantaged," a community's water rates would have to exceed 1.4
percent of its median household income). Our
effort met with limited success for several reasons.
The primary reasons were that some states did not have the information
necessary to readily make a determination about a system's disadvantaged
status or they lacked the time and resources to collect the information for us.[17]
In total, we obtained information on a portion of EPA's sample
representing 24,334 systems, or nearly 55 percent of the 44,373 small community
water systems in the United States. On
the basis of EPA's sample and the states' determinations, we estimated that
6,925 systems, or about 28 percent of the 24,334 small systems reflected in the
results of our survey, qualified as "disadvantaged."[18]
However, the high non-response rate associated with this analysis left us
without information on the systems representing the remaining 45 percent of the
universe. As a result, we could not
determine whether our findings matched the actual percentage of systems that
would qualify as disadvantaged. Specifically,
we had no way of determining whether the systems for which we had information
were systematically different from those systems for which we lacked information
in a way that would make the estimated percentage of disadvantaged communities
higher or lower. Federal Agencies Made About
$44 Billion Available for Drinking Water and Wastewater Infrastructure, While
States Provided About $25 Billion From fiscal years 1991 through 2000, nine federal agencies made about $44 billion in financial assistance available for drinking water and wastewater infrastructure projects. Of this amount, EPA provided about $3.7 billion in drinking water state revolving loan fund grants and about $16.6 billion under a similar program for wastewater facilities. EPA's assistance, combined with that of three other agencies-the Departments of Agriculture, Housing and Urban Development, and Commerce-accounted for about 98 percent of the total federal assistance. About 11 percent of the federal aid was specifically for drinking water facilities and another 40 percent was for either drinking water or wastewater facilities. Over 82 percent of the total assistance was provided in the form of grants; the remainder consisted of loans and loan guarantees. Although the programs differed in terms of eligibility criteria, allowable uses, and funding priorities, for the most part, the financial assistance was available to a broad range of entities. We use the term "made
available" to encompass several forms of federal funding.
Because of differences in the programs and in the ways that federal
agencies account for their financial assistance, the information that best
reflected the amounts made available for drinking water and wastewater
facilities came from data on appropriations, obligations, or expenditures,
depending on the agency and the specific program in question.
For example, EPA's data include appropriated amounts for the revolving
loan fund capitalization grants to the states for each year; the states may not
have loaned the funds (i.e., actually made them available) to local water
systems until after the end of the fiscal year in which they were appropriated.
In contrast, the data for HUD and Commerce consist of obligated
amounts-that is, the amounts of funds allocated by the agencies to drinking
water and wastewater infrastructure projects during the fiscal year.
For the loan programs of the Small Business Administration and USDA's
Rural Utilities Service, the amounts represent the face value of the loans or
loan guarantees that were available to be made for the fiscal year; however,
because most of these loans are repaid, the ultimate cost to the federal
government is significantly less than the face value. More specifically:
The
remaining federal assistance, which totaled about $1.1 billion over the 10
years, was provided by the Appalachian Regional Commission, the Federal
Emergency Management Agency, the Department of the Interior's Bureau of
Reclamation, the Small Business Administration, and the U.S. Army Corps of
Engineers. In
addition to the assistance available to disadvantaged communities under EPA's
DWSRF program, other federal programs give priority to projects in economically
distressed areas. For example, to
be eligible for USDA assistance, facilities generally must serve rural areas
with populations of 10,000 or less and must be unable to finance their needs
from their own resources or obtain credit at reasonable rates and terms.
Proposed projects must be located in economically distressed areas to
obtain funding under Commerce's program, and projects in severely distressed
areas are eligible for higher funding levels. According
to our state funding survey responses, state governments made a total of about
$25 billion in state funds available for water infrastructure programs from
fiscal years 1991 through 2000. Specifically,
the states reported that they collectively:
In
addition, the states reported that they contributed about $1.4 billion from
state appropriations, interest earnings, and other state sources for purposes,
such as matching non-EPA federal funds and financing state-designated specific
drinking water or wastewater projects. Mr.
Chairman, this concludes my prepared statement.
I would be happy to respond to any questions that you or other Members of
the Subcommittee may have at this time. Contact
and Acknowledgments For
further information, please contact David G. Wood at (202) 512-3841.
Individuals making key contributions to this testimony included Ellen
Crocker, Karen Bracey, Les Mahagan, and Jonathan McMurray. (360197) [1]U.S. General Accounting Office, Drinking Water: Key Aspects of EPA's Revolving Fund Program Need to Be Strengthened GAO-02-135 (Washington, D.C.: Jan. 24, 2002) [2]U.S. General Accounting Office, Water Infrastructure: Information on Federal and State Financial Assistance GAO-02-134 (Washington, D.C.: Nov. 30, 2001) [3]Eligible systems include community water systems and not-for-profit noncommunity water systems. Community systems serve at least 25 people or 15 connections year-round. Noncommunity systems serve at least 25 people for more than 60 days but less than year-round. [4]For both large and small systems, these percentages are calculated excluding the estimated $9.3 billion in needs associated with proposed or recently promulgated regulations. [5]According to EPA, the weighted average interest rate of DWSRF loans in 2001 was 2.4 percent, or about 3 percent lower than the market rates reported by the states. [6]U.S. Environmental Protection Agency, Drinking Water Infrastructure Needs Survey Second Report to Congress EPA 816-R-01-004 (Washington, D.C.: February 2001), p. 58. [7]Sampling error is a measure of the amount of uncertainty that exists about the true cost when costs are estimated from a sample of systems rather than from data collected from all systems. [8]For example, in its current needs assessment, EPA had to rely on modeling-and substituted the average costs generated by the models-for 67 percent of the capital projects identified in its needs survey, including over 80 percent of the projects associated with small water systems. Modeling was necessary because project-specific documentation was not available in many instances. [9]In a simple random sample, each system has an equal chance of being included in the sample. [10]The workgroup consisted of state, American Indian, Alaskan Native Village, Indian Health Service, and EPA representatives. [11]The American Association for Public Opinion Research, "in the spirit of upgrading current survey practice," has promulgated a list of best practices that includes reporting a measure of each estimate's precision along with the estimate, rather than reporting only the statistic itself. In addition, the Council of American Survey Research Organizations' code of standards and ethics requires that estimates of sampling error be calculated and "available." [12]States may also extend the loan repayment period from the standard 20 years to up to 30 years, provided that the repayment period does not exceed the expected design life of the project. While an extended loan term makes financing a project more affordable to a community by reducing the amount of monthly payments, it is not considered a loan subsidy. [13]The state of Utah also reported an income-based criterion, but the state uses the median adjusted gross income rather than household income. [14]Although 21 states offer subsidy assistance in their disadvantaged community programs, only 14 states have actually forgiven a portion of the loan principal or reduced the loan interest rate below zero percent. [15]Our responses do not add to 12 because some states cited the availability of both federal and state funding as reasons for not using their DWSRF to assist disadvantaged communities. [16]Among other problems, small water systems often lack the economies of scale that make infrastructure projects more affordable at larger systems. [17]Determining which systems might fall into the disadvantaged category because of the high cost of a project, for example, would require a case-by-case analysis. [18]Another way of looking at this is to compare the number of systems estimated to be disadvantaged (6,925) with the total number of small systems (44,373). Using this approach, we could conclude that "disadvantaged" systems comprised a minimum of about 16 percent of small systems. [19]Approximately $1.8 billion of the state-sponsored loan programs were available for other local projects, such as solid waste disposal facilities, in addition to drinking water and wastewater infrastructure.
|
|||||||||||
|
