Bridging the Funding Gap

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Bridging the Funding Gap
Ken Kirk Executive Director National Association
of Clean Water Agencies 2nd Annual Mega-City
Water Forum Atlanta, Georgia

• The need for greater federal investment in
  wastewater infrastructure

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My Message Today

• The history of water infrastructure in the U.S.
  provides important lessons for countries
  worldwide.
• Success is based on a long-term
  federal-state-local partnership.
• As this partnership weakened in the U.S. a water
  infrastructure funding gap grew.
• Water infrastructure is a national priority and a
  public good.
• EPAs market-based solutions would help but a
  large gap would remain.
• The U.S. has committed to fund nearly every other
  type of critical national infrastructure through
  trust funds and dedicated fees.

America Deserves a Clean Water Trust Fund
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A Brief History of the Clean Water Act

• The Water Pollution Control Act of 1948
• No specific goals or requirements to the Act
• Only provided 5 million in grants and 22.5 in
  loans over five years for POTW construction and
  upgrading
• This is a minimalist federal approach
• Up to 1972, as few as 30-40 of our nations
  waterways met the most basic of water sanitary
  conditions.

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A Brief History of the Clean Water Act

• The Clean Water Act (CWA) of 1972 - A more
  focused law with better-defined goals and
  regulations.
• Within the CWA, the Construction Grants Program
  (CGP) was possibly the greatest success story
  in the history of environmental public works
• Provided an unprecedented 61.1 billion in
  dedicated funds appropriated to build upgrade
  clean water utilities from 1972-1991
• Established a federal commitment to clean water
  funding a 75 federal share making the
  federal government the primary revenue source for
  clean water projects

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Pre-Clean Water Act

• The Cuyahoga River caught on fire
• Lake Erie was declared a dead zone
• As many as 70-80 of our nations water bodies
  were impaired only about 30 would have met CWA
  regulations today!
• Only about 39 of clean water agencies had
  secondary treatment by 1968
• Pretreatment programs were in their infancy
• Biosolids was sludge

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Post-Clean Water Act

• States today report that 60-70 of assessed
  waters meet CWA water quality goals an increase
  of 100
• People are fishing again on the Cuyahoga
• Lake Erie is no longer a dead zone
• Now, all clean water agencies are at secondary
  treatment and 30-40 beyond
• Best industrial pretreatment program in the world
• Biosolids Management is the stuff of EMSs and we
  have the NBP
• As a direct result of the CGP, the U.S. now
  boasts the most advanced system of area-wide
  wastewater treatment facilities in the world.

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Todays Water Infrastructure Challenge

• Aging infrastructure in need of repair
• Additional regulatory mandates
• Endocrine disruptors, pharmaceuticals, crypto,
  etc.
• Advanced treatment for nutrients
• Increasing wet and dry weather mandates
• Stepped-up enforcement
• Overlapping CWA/SDWA issues
• Increasing number of lawsuits because of absence
  of regulatory clarity
• Global and workforce stressors
• Federal funding no longer readily available

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Funding Gap

• The cost of repairing, rehabilitating, and
  maintaining clean water infrastructure has risen
  dramatically while federal funding has been
  slashed
• EPA, GAO, and WIN report a 300 to 500 billion
  gap between what is being spent and what needs to
  be spent on our aging clean water infrastructure
• According to EPA, if left unaddressed, we could
  see a return to pre-Clean Water Act levels of
  impairment by as early as 2016

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Need Grows -- Federal Share Falls
Local Capital Spending
Federal Investment

• The 78 federal share in 1978 is only about 3
  today
• Municipalities spend 63 billion annually on
  clean water infrastructure second only to
  education

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But, What About All of EPAs Solutions?

• Lets look at each class of solution one by one
  and explore whether and how they narrow the
  funding gap

• Better utility management
• Customized financing tools and approaches
• More efficient water use
• Watershed-scale strategies

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Better Utility Management

• What Asset management, EMS, cost-effective
  technologies, design-build delivery,
  public-private partnerships
• Sure, all of these approaches can reduce costs of
  capital and/or OM
• But, much of the gains have already been captured
  and estimates of the gap already take OM
  efficiencies into account, whether delivered by
  public operators or private contract managers.
• If were generous, perhaps another 5-10 could be
  taken out of future costs from some combination
  of more efficient technologies, more efficient
  OM, and reduced costs of construction through
  design-build.
• 90 of the gap remains

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Lets Be Clear About Public-Private Partnerships
An efficient public wastewater utility reduces
total costs of service further and frees up more
capital for investment than an efficient private
utility
Inefficient Public
Efficient Private
Efficient Public
Profit
Capital
Taxes
Capital
Capital
OM
OM
OM
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Customized Financing Tools and Approaches

• What Full-cost pricing, SRF leveraging, private
  activity bonds, tax credits for private
  investments, tax-increment financing, tradable
  development rights, etc.
• Sewer rates already recover all OM and capital
  costs in current budgets. The only costs
  unrecovered are capital investments some
  communities cant afford.
• Leveraging SRFs further will increase funding, so
  within existing limits, lets do more of that.
• Reducing the cost of capital through boutique
  financial approaches could address specific
  needs, but mostly for cities with growing tax
  bases and estimates of funding gap do not include
  growth.
• 85 of the gap remains.

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Lets Be Clear About Private Activity Bonds
There is no evidence that state volume caps on
private activity bonds have restricted issuance
of exempt facility bonds, of which wastewater
is one type
Volume of PABs (billions)
Source The Bond Buyer
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More Efficient Water Use

• What household, commercial, and industrial water
  conservation and use efficiency programs
• Great idea to cut OM costs in the short run,
  freeing up capital to fund more infrastructure
• But its a short-run adjustment,
  which reduces need to invest
  today in
  growth-related infrastructure
  but, estimates of the gap do
  not include a
  component for growth
• 85 of the gap remains

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Lets Be Clear About Water Conservation
By reducing demand on treatment plants, water
conservation can at best, defer investments in
capacity expansion, but in the long run, nothing
else changes
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Watershed-Scale Solutions

• What Watershed scale NPDES permitting, tradable
  discharge rights, source water protection, smart
  growth, valuing ecosystem services.
• Great idea, lets do more of these things.
• But applications are limited across the country
  and potential to reduce investments at wastewater
  utilities limited to perhaps 2-3 based on the
  number of water-quality limited stream segments
  that contain POTWs.
• 82 of the gap remains.

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Lets Be Clear About
Watershed-Scale Solutions

• EPA identified only 17 states as having a
  high-potential for watershed-based NPDES
  permitting
• Watershed solutions including tradable permits do
  not address the majority of wastewater
  infrastructure needs

82 of the gap remains!
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Recap

• Better Utility Management Potentially addresses
  another 10 of gap.
• Customized Financing Tools Potentially addresses
  another 5 of gap.
• Watershed Solutions Maybe addresses 3 of gap.
• 82 of funding gap remains.
• Where do we go from here?

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A Clean Water Trust Fund

• Since 2001, the WIN coalition has supported a new
  Clean Water Trust Fund, modeled after the highly
  successful transportation trust funds and
  capitalized with a series of federal taxes on
  activities that contribute to the problem or
  benefit from the solution

Transportation trust funds have been enormously
successful in creating stable, dependable revenue
streams for funding transportation infrastructure
projects Water infrastructure projects deserve
no less
Jack Schenendorf, former Chief of Staff, House
Transportation and Infrastructure Committee
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Why a Federal Trust Fund?
Looking at 17 successful Federal Trust Funds,
Congress has consistently found strong arguments
for federal action because

• Where investments deliver public goods,
  financing at the federal level delivers
  nationally preferred and sustainable levels and
  types of investment compared to local or state
  financing
• Infrastructure networks are national priorities
  with social and environmental equity implications
  when provided unevenly
• Investment demands are of national proportion and
  well matched to the unique financing position of
  the Federal Government
• Federal funding can enhance local revenue-raising
  capacity

An overwhelming majority of Americans (84) would
support legislation in the U.S. Congress that
would create a long-term, sustainable and
reliable source of federal funding for clean and
safe water infrastructure.
Frank Luntz, President Luntz Research
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OK, How Would We Capitalize a Federal Clean Water
Trust Fund?

• Essential Criteria
• Fair Equitable
• Minimize Burden
• Funds Are Firewalled

• Options
• Fees on flushable products
• Fees on corporate income across sectors
  discharging to wastewater treatment plants
• Fees on bottled beverages

Thinking about only one option, target revenues
could be raised with a fee of less than one half
of one percent on flushables, bottled beverages,
and corporate income, with negligible effects on
the US economy. This would raise approximately 8
billion/year.
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What Would the Trust Fund Finance?

• The long-term viability of the Clean Water State
  Revolving Loan Fund (CWSRF)
• High priority projects with the greatest water
  quality bang for the buck
• Technical assistance to small/rural communities
• Utility management initiatives
• Research and technology projects
• Protection of key national waterways/watersheds

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Advantages of Direct Federal Funding
Virtually every study comparing direct to
indirect delivery of federal funds concludes that
direct funding is more effective, more efficient,
and more equitable

• Direct federal funding can be targeted to known
  and high-priority needs, tax subsidies are
  diffuse
• Direct federal funding benefits households
  dollar-for-dollar, tax subsidies increase
  corporate profits
• Congress can control direct federal spending
  levels, federal tax subsidies are less
  controllable
• Direct federal funding can be allocated to those
  that need it most, delivering equitable effects
  nationwide, indirect tax subsidies will gravitate
  primarily toward wealthy communities
• Direct federal funding is transparent, indirect
  federal tax subsidies far less so.

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Thoughts on Achieving Sustainability

• What is the timeframe needed to achieve
  sustainability?
• Can we achieve sustainability under the existing
  regulatory structure?
• What is the cost of sustainability?

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The Growing Challenge

• Current U.S. population is 300 million
• By 2025 350 million
• By 2050 420 million
• Increased industrial output/stressors
• Emerging Issues will test our capabilities
• Nonpoint Source Pollution
• Global Warming
• Emerging Contaminants
• Anticipated stricter regulatory requirements
• Compliance costs will escalate at same time that
  . . .
• The federal funding commitment is dwindling

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Where Do We Go From Here?

• First Wave Construction Grants
• Passed over Presidential Veto
• Second Wave Loan Program (SRF)
• Passed over Presidential Veto
• Third Wave To Be Determined
• Debate is focused on entitlement versus
  right/necessity of clean water
• Federal Government Must Be Part of the Third Wave
  Solution

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Questions?