Can the Water Industry Afford the WIN Solution?

March 1, 2001
A coalition of 20+ industry organizations has been meeting in Washington, D.C., over the past four months to discuss the funding needs facing the nation's water and wastewater systems.

By Dawn Kristof

A coalition of 20+ industry organizations has been meeting in Washington, D.C., over the past four months to discuss the funding needs facing the nation's water and wastewater systems. This coalition - known as the Water Infrastructure Network (WIN) - represents an eclectic group of interests, including industry associations, municipal sewerage agencies, investor-owned water utilities, engineers, contractors, private operators, state administrators, equipment manufacturers, city and county officials, and the U.S. EPA.

What unites this broad spectrum of interests is the desire to close the gap that exists between current investments in water and wastewater systems and the additional $23 billion needed each year - for the next 20 years - to comply with statutory requirements and replace aging and failing infrastructure.

The solutions that should be employed to fill this gap, and the role the Federal government should play in funding future water and wastewater infrastructure needs, was the subject of debate during four negotiated sessions of the WIN coalition. The result of these negotiations was the issuance of a report containing a series of policy recommendations for presentation to the 107th Congress.

The WIN report - Water Infrastructure Now - contains a number of new federal initiatives and program funding recommendations. It calls for creation of an Institute of Technology and Management Excellence to promote the development and use of new management techniques and technologies. It provides for grants to local governments for stormwater management R&D projects. It petitions for increased funding for states to implement the Clean Water Act and Safe Drinking Water Act, as well as additional funding for technical assistance programs.

Lastly, it calls for the replacement of current state revolving fund programs with state-administered Water and Wastewater Infrastructure Funding Authorities. The Federal government would give these state authorities $57 billion over a five-year period for use in issuing grants, loans, subsidies and credit assistance to help close the gap on funding needs for water and wastewater systems.

While there are a number of recommendations contained in the WIN report that WWEMA can embrace, it is unable to endorse the report as a whole due to some serious differences between WWEMA policy positions and those of WIN.

Excessive Reliance on Unrestricted Grants

WIN proposes the creation of a new federal bureaucracy - WWIFAs - to administer the 5-year, $57 billion funding request and recommends that 75 percent of that amount be allocated in the form of grants or grant-like assistance. WWEMA believes this would represent a step backward for an industry that has already evolved away from dependency on Federal grants to reliance on state revolving funds. The SRF programs were designed to ensure that an affordable source of funds would remain available in perpetuity to assist in meeting future water and wastewater system needs. Federal grants are a one-time handout and will only serve to deplete the financial corpus of these state revolving funds.

Furthermore, states are in the best position to determine the appropriate funding mechanism to meet the needs of their communities. Placing an artificial floor and cap on what percent of the funds should be allocated in the form of grants takes authority away from the states and could result in the inappropriate allocation of limited federal funds.

Finally, there is no justification for having to replace existing SRF programs with new Federal and state bureaucracies - WWIFAs - to administer these funds. It would be cumbersome, costly and time consuming with no apparent gain. If modifications need to be made to the existing SRF models to accommodate more flexibility in funding authority, that would be a better place to expend industry's resources while, at the same time, ensuring continuity and stability in the marketplace.

Lack of Eligibility Criteria

WWEMA believes that grants and grant-like subsidies should only be used when the economic circumstances of a community are so dire that an additional subsidy is needed beyond that already provided through reduced loan rates and extended loan terms under the SRF program. The WIN coalition rejected an appeal by WWEMA and others that only communities with a financial need be eligible for receiving grants and loan subsidies. Failure to link government subsidies to "affordability" standards will politicize the award process, halt projects while communities wait in line for federal handouts, and discourage utilities that are capable of become self-sustaining from having to move in that direction.

Lack of Specified Terms and Conditions

To minimize the drain on the Federal treasury over the long run, WWEMA believes that water and wastewater systems receiving assistance should be expected to meet terms and conditions that move them toward self-sufficiency. All assistance programs should support the long-term goal of water and wastewater systems becoming self-sustaining through their rate structure. The WIN report remains silent on this subject except to state that any terms and conditions associated with federal assistance should be "reasonable." Failure by the WIN coalition to acknowledge that self-sustainability is the ultimate goal of the industry is viewed by WWEMA as a de facto rejection of this premise and one that cannot be ignored.

Water and sewerage services in the United States remain under priced in comparison to other services. This discourages conservation, prevents proper maintenance of facilities, and thwarts investment in innovative techniques that could offer greater value over the long run by reducing costs of operating and maintaining these facilities. Until water and wastewater systems charge full cost of service rates, they will never achieve economic independence. Access to Federal subsidies without expectations that the recipient will become viable with the assistance will ensure that this goal will never be attained.

There's Room for Hope

As previously stated, there are aspects of the report that WWEMA fully supports, including the recommendation that water and wastewater systems use value-based procurement policies within an asset-management framework. WWEMA believes that a condition to receiving a grant or grant-like subsidy should be a requirement that the recipient adopt an asset-based management strategy that tracks the conditions of capital assets and develops estimates of O&M, replacement and rehabilitation costs. Once these estimates are determined, the utility should establish a capital replacement account to meet their current and projected needs, and set a rate structure to meet their total estimated current and future costs.

In addition, any assistance program should accommodate value-based procurement policies with the objective of maximizing value, not minimizing merely one element in the value formula - price. Managers of water and wastewater systems should have the authority to embrace innovation and life-cycle benefits of superior technology and equipment which can yield substantial savings in the long run by extending the life of a plant, reducing operating costs, or enhancing plant performance.

There is one thing we all agree on. There is a real need for fixing our infrastructure and meeting more stringent environmental statutes. Congress and the new Administration will ultimately determine how we go about funding these needs, and what guiding principles will be incorporated in future assistance programs. WWEMA will continue working on the political scene, in cooperation with other colleagues in the industry, to find equitable solutions for meeting our water-related infrastructure needs.

About the author: Dawn Kristof is president of the Water and Wastewater Equipment Manufacturers Association, a non-profit trade association based in metro Washington, D.C. Since 1908, WWEMA has informed, educated and provided leadership on issues that shape the future of the water and wastewater industry.

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