A Matter of Trust

Our roads and airports have dedicated funding sources, why not do the same for water with a national clean water trust fund?

• By Ken Kirk
• May 01, 2004

Americans demand that their water be safe and clean. And polls and surveys find that Americans are willing to pay their fair share to guarantee the quality of their water. The message to the U.S. Congress is both new and compelling -- if highways and airports are worthy of multi-billion dollar trust funds, so are the nation's waterways. The problem is no longer someone else's; it belongs to each and every one of us -- just as the nation's rivers, lakes, streams, beaches, bays and estuaries belong to us all.

Water infrastructure needs in our country are comparable in scope and importance to those facing our nation's highway and aviation infrastructure. While these transportation programs have received federal funding in the hundreds of billions of dollars over the years, there is no permanent federal contribution to build or sustain water and wastewater infrastructure. Clean water is essential to our public health and economy and is the second largest infrastructure program on our local government balance sheet (see Graph 1). In fact, local government expenditures for water and wastewater infrastructure exceed local expenditures for highways and aviation combined.

According to the U.S. Environmental Protection Agency (EPA), water quality in America will return to pre-1972 Clean Water Act levels absent a massive infusion of funds for America's clean water infrastructure. To achieve this, all levels of government -- federal, state and local -- must develop a lasting partnership to meet this challenge.

As the graphs and pie charts in this article detail, local governments have done the heavy lifting on behalf of clean and safe water as federal investment has ebbed to under five percent of total clean water infrastructure funding (see Graph 2). The solution is clear: if dedicated funding sources have made the nation's roads and airports the best in the world, certainly we should do the same for water. As the dialogue regarding solutions to meet the nation's clean water infrastructure needs progresses, we should ask ourselves one question: if it's important enough for roads and airports, why not water?

The Growing Funding Challenge
Cities and communities nationwide need to repair, replace and rehabilitate their aging and failing pipes and plants and build new infrastructure to comply with increasingly complex regulations to protect public health and safeguard the environment. The funding gap between what is now being spent and what is needed for capital projects in our communities -- and the potential consequences of further inaction -- is in the hundreds of billions of dollars. This gap is well documented in recent reports issued by EPA, the Water Infrastructure Network (WIN), the Congressional Budget Office (CBO) and the U.S. General Accounting Office (GAO).¹ The Association of Metropolitan Sewerage Agencies' (AMSA) most recent survey data shows a $17.6 billion current annual capital investment need for publicly owned treatment works (POTWs) (see Graph 3). Simply stated, there is an unprecedented consensus that the nation's rivers, lakes and streams will face irreparable harm if we fail to act now.

The U.S. Congress made a landmark decision in 1972 when it passed the Clean Water Act (CWA), instituted to clean up and ensure the safety of the nation's waters for public use. The CWA was, and continues to be, a success -- in large part because of the Construction Grants Program (CGP) and Clean Water State Revolving Fund (SRF), which have provided $61.1 billion and $43.5 billion, respectively, to build and upgrade wastewater treatment facilities. In 1987, Congress eliminated the CGP and amended the CWA to include the SRF loan program. Graph 4 best demonstrates the marked decrease in federal funding and the increased share of local funding from 1977 through 2000.

Costly Regulatory and Enforcement Challenges
Despite this drastic decrease in funding from the federal government, the nation's POTWs continue to face increasing regulatory challenges and mounting federal mandates. EPA is in the process of reviewing and ruling on several water treatment mandates that could potentially cost the nation hundreds of billions of dollars. The agency is currently reviewing nearly 100,000 comments received in response to its blending guidance, initially published in the Federal Register on Nov. 9, 2003. The proposed guidance would clarify the agency's longstanding acceptance of this practice used by POTWs to cope with high flows during periods of wet weather. If this guidance does not move forward, and blending is prohibited as a de facto matter, the estimated cost to the nation could be over $200 billion.

In a pending sanitary sewer overflow rule, if EPA moves forward with its proposed "zero-discharge" standard -- an absolute prohibition on any sanitary sewer overflow -- POTW collection systems would need to be significantly upgraded at an additional cost of billions of dollars nationwide. EPA continues to bring wet weather enforcement actions against POTWs, which also come with a multi-billion dollar price-tag. Implementation of additional regulatory requirements associated with the total maximum daily load program, mercury-related issues and nutrient removal are adding escalating costs to POTWs. Graph 5 shows EPA's estimate of the infrastructure funding needs for wet weather and other related clean water challenges, such as nonpoint source pollution.

It has become increasingly difficult for wastewater treatment plants to fund the growing number of federal regulations without the federal government's full financial commitment. Utilities must take on expanding debt burdens to address capital needs, while also having to continuously raise rates to service the debt load and comply with growing regulatory requirements. AMSA's data show that POTWs have increased residential charges by more than 2 percent above inflation over the past 15 years (see Graph 6) to deal with these challenges.

Given the trends of increasing municipal expenditures and decreasing federal funding, it should come as no surprise that, according to the latest figures from the U.S. Census Bureau, local government expenditures for water and sewer service rank second -- only behind education. More significantly, water and sewer expenditures exceed all other categories of local government spending, including police, hospitals, fire protection, housing and community development, highways and air transportation. As seen in Graph 1, this municipal investment in water infrastructure has escalated sharply in the last few years.

The Watershed Perspective
In many ways, the looming national clean water crisis is most easily understood when viewed not in the abstract financial context, but from a regional watershed perspective. This article only touches on some of the more public examples of imperiled watersheds to illuminate the growing national clean water funding challenge.

The Great Lakes contain one-fifth of the world's fresh water and provide water to 40 million people in the United States and Canada, yet they face serious challenges that range from extensive urban development, invasive species, altered water flows, nutrient loadings and agricultural/nonpoint source pollution. The Great Lakes support over $8 billion annually for the fishery and boating industries alone. Demonstrating the symbolic nature of federal involvement in clean water issues, the administration has dedicated $45 million in its fiscal year 2005 budget to clean up sediment in the Great Lakes, despite its own estimate of a $7.4 billion need to clean up 26 "Areas of Concern" located on the U.S. side of the Great Lakes Basin.²

Similarly, the Chesapeake Bay, despite benefiting from a multi-stakeholder voluntary cleanup initiative, has experienced growing problems due to increasing nutrient loads. These loads lead to increased algal blooms and hypoxic conditions in which abnormally low levels of oxygen in the water result in fish kills and shellfish bed losses. According to recent estimates, the Chesapeake Bay provides $1.3 billion annually to the bay watershed's economy. If the health of the bay continues to decline, so will the economies of the various states that rely on it.

The Chesapeake Bay Foundation estimates that $4.4 billion will be needed just to pay for nutrient removal technology for the bay's POTWs alone. This estimate is enormous, despite the fact that nonpoint source pollution, not POTWs, is the dominant polluter of the bay. Of interest is also the Maryland Assembly's recent adoption, and Republican Governor Robert Ehrlich's decision to pass, a Maryland "flush tax" on residential water bills. The nearly $80 million raised will go primarily to upgrade POTWs to further improve the quality of the bay. This shows, at least on a state level, the type of bipartisan support that the trust fund concept should garner at the national level.

The Gulf of Mexico has suffered similar hypoxia problems, also known as "dead zones." The gulf's hypoxic zone is an expanse of oxygen-depleted water, located off the coast of Louisiana, which cannot sustain most marine life due to excessive amounts of nitrogen pollution entering the gulf via the Mississippi River. The hypoxic zone reached a record of 7,728 miles in 1999 and puts at direct risk the livelihoods of thousands of people who rely on the gulf. The fisheries provide more than $5 billion per year to the region and contribute 200,000 jobs. Together, the cities, suburbs and farms in the Mississippi River watershed contribute an estimated 90 percent of the nutrient flow into the Gulf of Mexico. The Mississippi River has contributed three times as much nutrient loading to the gulf since the 1950s, yet, without significant new funding, little will be done to reverse this trend.

Long Island Sound, the Colonias region where the United States and Mexico share their borders, Narragansett Bay and many other areas face similar clean water challenges. The record of receiving significant federal funding on a region-by-region basis is extremely poor, and mobilizing congressional support for high-cost regional projects competes for all-too limited clean water funding dollars. National, regional and municipal organizations must act now and act together to refocus the federal government on its clean water obligations.

A Clean Water Trust Fund
Perhaps most important is what the above financial and water quality information means to the American public. Simply stated, the American people perceive clean water as a federally protected right rather than a privilege. They also believe a trust fund is a fitting solution to ensure a steady and reliable source of funding to keep our waters clean. AMSA commissioned the services of Frank Luntz, a prominent pollster and communications expert, to conduct two surveys, one in May 2003 and the other in February 2004, to gauge the public's support for a national clean water trust fund.³ The results are enlightening:

• 91 percent of Americans are concerned that the nation's waterways will not be clean for future generations.
• 90 percent of Americans agree that if the nation is willing to invest billions annually in highways and airports, the same should be done for our waterways.
• 90 percent of Americans support a dedicated funding source for clean and safe water.
• 84 percent agree that "when it comes to clean water, the federal government has an obligation to do a lot more."
• 83 percent would support a bill introduced in the U.S. Congress that would create a long-term, sustainable and reliable trust fund for clean water infrastructure.
• 80 percent of Americans agree that if we can invest billions to help bring Iraq clean water, we should invest at least as much in the United States.
• 75 percent of Americans disagree with the statement "clean water is a local problem that requires a local solution. There is no need to spend more money on this issue."
• 70 percent of Americans would support a 1 percent tax increase if they were assured that 100 percent of those funds would go to the clean water trust fund.
• 66 percent believe it is unfair and unjust that the federal government pays for just 5 percent of the cost to maintain clean water in America.
• 62 percent believe clean water is in the greatest need of a dedicated trust fund, as opposed to only 25 percent for highways and 5 percent for airports.
• 54 percent believe clean water is a right, not a privilege.

The Benefits of a Trust Fund
While Americans support the concept of a trust fund and are prepared to pay for it themselves through higher taxes and/or fees, it is also the best way to guarantee that Americans get their money's worth. According to the Aug. 5, 2003, independent economic analysis titled A National Clean Water Trust Fund: Principles for Efficient and Effective Design, there are a number of reasons why clean water infrastructure deserves its own trust fund: ⁴

• Clean water infrastructure is a national priority that provides the fundamental underpinning to the entire domestic economy, which relies on clean water not just for survival, but for manufacturing processes, tourism and the fishing industry, to name but a few areas.

• Investment demands are of federal proportion, meaning that although they may appear daunting at the local or state level, funding requirements can appear small in comparison to the total federal budget.

• The federal government has a unique financing position because fiscal and tax policies position the federal government uniquely to act on behalf of the nation as a whole, rather than on behalf of one region or group.

• The federal government has a long investment horizon, which allows a federal program to invest today and wait for that investment to accrue broadly to the nation.

• Federal investment can enhance local revenue-raising capacity by requiring a state matching component or enhancing the political viability of further rate increases at the local level.

• A trust fund is more secure in difficult economic times than the annual appropriations process -- where priorities change on a whim and surpluses quickly turn into deficits, as we have recently learned.

• A trust fund also does not require robbing Peter to pay Paul. This means that money for clean water need not compete, for example, with money for the space program or veterans affairs because specific funds outside the general revenue stream are set aside for a trust fund.

• For every billion dollars spent for infrastructure investment, approximately 47,000 long-term jobs are created.

Why Not Water?
Like highways and airports, which enjoy multi-billion dollar trust funds, our nation's water infrastructure provides individual, local, state and national benefits. If the funding mechanism is constructed carefully, with the principles of equitable distribution fully adhered to, Americans nationwide would benefit greatly on virtually all fronts, from public health, the environment and natural beauty to economics and job growth. But if the federal government continues its path of zeroing out funding for clean water infrastructure, and refuses to be a full partner with local and state governments, then the nation's clean water funding gap will only continue to escalate.

As communities struggle to address their aging infrastructure needs, the national debate must focus on a full, national re-commitment to a long-term, sustainable funding source for clean water infrastructure. The federal government decided our highways were important enough for a dedicated funding source. The same decision was made for the nation's airports. Yet no single resource is as critical to every American as clean water. It is time to make sure this most fundamental resource is secured for generations to come and to ask ourselves one question -- why not water?⁵

References
1. See the U.S. Environmental Protection Agency's report The Clean Water and Drinking Water Infrastructure Gap Analysis at www.epa.gov/safewater/gapreport.pdf, the Water Infrastructure Network's report Water Infrastructure NOW at www.win-water.org/win_reports/pub2/winow.pdf, the Congressional Budget Office report Future Investment in Drinking Water and Wastewater Infrastructure at www.cbo.gov/showdoc.cfm?index=3983&sequence=0, and the Government Accounting Office report Water Infrastructure; Information on Federal and State Financial Assistance at www.gao.gov/new.items/d02134.pdf.

2. See the Northeast-Midwest Institute Web site, www.nemw.org/greatlakes.htm#summaryeconval.

3. See the 2003 Luntz Survey at www.amsa-cleanwater.org/advocacy/co/2003-05luntz.pdf and the 2004 Survey at www.amsa-cleanwater.org/advocacy/releases/2004-02-09survey.pdf. The surveyed public included approximately 800 individuals with a near-even breakdown between those who voted for George W. Bush and Al Gore in the 2000 presidential election and those who did not vote.

4. A National Clean Water Trust Fund: Principles for Efficient and Effective Design is available at www.amsa-cleanwater.org/advocacy/co/2003-08-05TrustFundPrinciplesV5.pdf.

5. The Why Not Water publication can be accessed at www.amsa-cleanwater.org/pubs/2003-05WhyNotWater.pdf.

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Graph 1. Federal Investment Declines... Local Government Spending Rises on Water and Wastewater

According to the U.S. Census Bureau's latest statistics on local governmental spending, water and sewer expenses ranked second behind education in total outlays in 2000. Annual local government spending for water and sewer exceeded all other categories of spending. Large increases in capital needs and expenditures for water and sewer infrastructure could hamper local government's ability to provide other critical services and could threaten the 30 years of progress that have been made in ensuring safe and clean water for the public and the environment.
SOURCE: U.S. Census Bureau

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Graph 2. Over The Last Decade... Federal, State and Local Contributions to Wastewater Infrastructure
AMSA's data showed that its member utilities have collected more than 95 percent of their capital investment and operating funds from local sources for the past seven years. The General Accounting Office estimated a flat level of federal and state funding from 1991 to 2001 for wastewater investment at $2 billion to $2.5 billion per year. However, as local expenses continued to escalate, the percentage of costs covered by federal assistance has dropped to well under 5 percent for surveyed AMSA utilities.
SOURCE: 1990-2002 AMSA Financial Survey

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Graph 3. Costs Continue to Escalate... Estimated Annual Capital Investment Needs -- $17.6 Billion

There is little disagreement that the national needs for sewer infrastructure are high. Data from the 140 respondents to AMSA's Financial Survey estimated a national average annual capital investment need of $17.6 billion. The needs reported in AMSA's Survey represent committed projects, projects underway and projects scheduled to begin during the next five years. Data also indicated that needs for combined sewer overflow mitigation, as well as repair and rehabilitation of treatment plants and sewers, have risen sharply.

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Graph 4. Municipalities Shoulder a Growing Share... Local vs. Federal Wastewater Expenditures

Federal government spending on wastewater peaked in the late 1970s, and rapidly diminished during the early 1980s. While federal spending has remained flat during the past 10 years, local costs have escalated well beyond the rate of inflation.


NOTE: Chart shows figures in 2000 dollars.
SOURCE: 1999 Cost of Clean, U.S. Census, Government Accounting Office

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Graph 5.

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Graph 6. Utilities Continue to Raise Rates... Household User Fees Rise Above the Rate of Inflation

Over the past 17 years, the AMSA Index has shown that while the consumer price index (CPI) has risen at an average rate of 3 percent per year, the AMSA Index (the average residential user service charge) has risen at an average rate of 4.9 percent per year, or 1.9 percent above the rate of inflation.

This article originally appeared in the 05/01/2004 issue of Environmental Protection.