The Subcommittee on Water Resources and Environment, chaired by U.S. Rep. Bob Gibbs (R-OH), held a hearing this morning to review innovative approaches for financing community water infrastructure projects. This morning's hearing was the first in a two-part series of hearings on the subject, the second of which is tentatively scheduled for March.
The Subcommittee focused on potential innovative financing tools, including public or private funding and investment mechanisms, to better enable local communities to finance wastewater and drinking water facilities mandated by state and federal environmental laws and regulations. Local governments continue to be concerned about the impacts unfunded federal mandates have on their ability to meet compliance obligations, especially given municipalities' dwindling revenues due to the economic downturn.
"Our nation's water and wastewater infrastructure is aging, deteriorating, and in need of repair, replacement, and upgrading. This has resulted in frequent leaks, blockages, and inadequate treatment of pollutants," said Chairman Gibbs. "The needs are especially urgent for hundreds of cities and towns around the nation trying to remedy the problem of combined sewer overflows and sanitary sewer overflows, and for communities lacking sufficient independent financing ability.
"Numerous regulatory priorities are placing additional burdens on communities," Gibbs continued. "For example, many of our nation's wastewater utilities are being forced to install extremely expensive advanced waste treatment to remove the next increment of pollutants, including nutrients. In addition, EPA has initiated a controversial national rulemaking that could lead to communities facing the prospect of substantially increased costs for controlling pollutants from stormwater runoff. These initiatives are adding additional layers of regulatory requirements and economic burdens that our communities are having to somehow deal with."
Chairman Gibbs also addressed the high cost of meeting the nation's clean water infrastructure needs: "According to studies by EPA, the Congressional Budget Office, and others, the cost of addressing our nation's clean water infrastructure needs over the next 20 years could exceed $400 billion, roughly twice the current level of investment by all levels of government. The needs for drinking water infrastructure drive this figure even higher. That is a staggering amount of money.
"A large portion of the Federal, not to mention State, regulatory mandates are going unfunded by the Federal and State governments," Gibbs continued.
"Rather, local governments are being forced to pay for more and more of the costs of these mandates, with the result that local communities and ratepayers are increasingly getting economically tapped out. Increased investment needs to take place, which leads to the question -- where is the money going to come from? There is no single answer to that question. Rather, we need to make a variety of financing "tools" available for the infrastructure financing "toolbox.'"
Gregory Ballard, Mayor of Indianapolis, IN, testified to the ways in which we can build these financing tools: "I think it is important to recognize that everyone wants to do the right thing related to the environmental condition of our communities. As a Mayor, my job is to be a steward for my citizens. I want them to have the best, safest water. So do my peers around the country. So does EPA, so do environmental groups, so do community representatives, and so do our businesses. We are all in agreement on this. But we can find a better way forward to reach this shared goal.
"First and foremost, water and wastewater infrastructure serves to protect public health, support the economy, and protect the aquatic ecosystem," Ballard continued. "In 2009 alone, local governments invested $103 billion in such infrastructure investments. As a result, American cities provide some of the safest, cleanest, most affordable water in the world. America's cities have long ago put out the fires on the Cuyahoga River, and continual improvement of water quality has been achieved over the last 40 years."
Thaddeus Wilson, Vice President of M3 Capital Partners, added: "M3 is currently forming a North American water infrastructure fund that we anticipate will be initially capitalized by a U.S. public pension plan as the "cornerstone' sponsor. It is expected that the fund will focus primarily on offering an innovative Design-Build-Operate-Finance (DBOF) approach to municipal water infrastructure project delivery. We believe this approach offers a robust form of public-private partnership (PPP) to municipalities to capitalize their water infrastructure improvements, which may include the repair, upgrade or replacement of drinking water and wastewater treatment facilities and, in some cases, their related distribution and collection systems.
"We believe M3's fund will be an attractive partner for municipalities given the common need for long-term investments in critical Water Facilities," Wilson concluded.
David Williams, Elected Board Member of the Central Contra Costa Sanitary District Board of Directors, also testified: "As the federal government seeks how, under severe budget constraints, to help the Nation's clean water agencies, NACWA believes the types of innovative financing mechanisms being contemplated here -- and others yet to be identified -- can be very helpful for use by agencies engaged in this transformational shift. NACWA also believes that this Subcommittee can play a unique role in ensuring that clean water agencies have the maximum flexibility under the CWA to address water quality challenges based on site-specific affordability determinations and choosing projects that maximize water quality "bang for the buck.' Finally, to the extent the CWA cannot accomplish these goals, NACWA hopes we can continue to work with this Subcommittee to consider targeted changes to the Act so that it can effectively address 21st century challenges and ensure another four decades of water quality improvement and unrivaled utility leadership."