Report to EPA
FUTURE FUNDING OF MUNICIPAL
WATER POLLUTION CONTROL NEEDS
Prepared by the
Management Advisory Group to the
Construction Grants Program (MAG)
May 15, 1984
W."S. Environmental Protection Agency
Library, Room 2404 PM-211-A
401 M Street, S.W.
Washington, DC 20460
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MANAGEMENT ADVISORY GROUP TO THE CONSTRUCTION GRANTS PROGRAM
*Mr. Leon C. Asadoorian
President-Treasurer
Methuen Construction Company
*Mr. J. Edward Brown
State Water Coordinator
Iowa Dept. of Water, Air &
Waste Management
*Mr. John Foster, President
Malcolm Pirnie, Inc.
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Honorable Corinne Freeman
Mayor of St. Petersburg
***Mr. Walter E. Garrison
Chief Engineer and General Manager
County Sanitation Districts of
Los Angeles
*Ms. Karen Gifford, Vice President
Merrill Lynch
Mr. Albert F. Gutierrez, President
Gutierrez, Smouse, Wilmut
& Associates, Inc.
Ms. Terry Hoffman, Commissioner
Minnesota Public Utilities
Commission
Honorable Harry Kinney
Mayor of Albuquerque
**Mr. Joseph F. Lagnese, Jr.
Environmental Engineering Consultant
*Mr. J..Leonard Ledbetter, Director
Environmental Protection Division
Georgia Dept. of Natural Resources
*Mr. Kenneth Miller, Vice President
Division of Water Engineering
CH2M Hill
*Mr. Larry J. Silverman
Executive Director
American Clean Water Assn.
*Mr. Gerald H. Teletzke, President
Zimpro Incorporated
*Mr. F. Thomas Westcott, President
Westcott. Construction.Company
Mr. Gordon E. Wood
Vice President and Director
01 in Corporation
Federal Government Relations
*Member of MAG Task Force on Future Funding of POTWs.
**Chairman of MAG Task Force on Future Funding of POTWs.
***Chairman of MAG; Member of MAG Task Force on Future Funding of POTWs; Now
Vice President of James M. Montgomery, Consulting Engineers.
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EXECUTIVE SUMMARY
MAG REPORT: FUTURE FUNDING OF MUNICIPAL WATER POLLUTION CONTROL NEEDS
The Management Advisory Group (MAG) has been an official advisory group to
EPA's municipal wastewater treatment construction grant program for 11 years.
The 16-member MAG combines a diversity of professional backgrounds and
includes wastewater treatment engineering and management experts, equipment
manufacturers, financial specialists, local government officals, and
environmental and public representatives. MAG'members are appointed by the
EPA Administrator. Members are drawn from different parts of the country, and
serve without compensation for two year terms.
MAG's study on the future funding of municipal water pollution control needs
was initiated in the Fall, 1983 at the request of EPA. As Administrator
William Ruckelshaus stated, it was important to "tap the collective wisdom of
MAG" and obtain the group's best advice on the financing of wastewater
treatment for the country. A special 11-member MAG subgroup, the Publicly
Owned Treatment Works (POTWs) Funding Task Force, carried out much of the
work. MAG offers its thanks to Mr. Joseph Lagnese, Chairman of the POTW
Funding Task Force, and principal author of this report. The views expressed
in this report represent a consensus of MAG members, and are attributable to
them.
The MAG report is intended to provide guidance to EPA in its current study on
the fY 1986 Reauthorization • of^-Title U (the municrpa-1- wastewater- -treatment
construction grant program) of the Clean Water Act.* In the course of its
8-month deliberations, MAG heard from a variety of major public and private
sector organizations representing diverse interests, including the Water
Pollution Control Federation (WPCF), Association of Metropolitan Sewerage
Agencies (AMSA), American Consulting Engineers Council (ACEC) , National
Society of Professional Engineers (NSPE), Water and Wastewater Equipment
Manufacturers Association (WWEMA), National Governors Association (NGA),
National Wildlife Federation (NWF), Maryland League of Women Voters (MLWV),
Izaak Walton League (IWL), National League of Cities (NLC), and Association of
State and Interstate Water Pollution Control Administrators (ASIWPCA). MAG
also had the benefit of discussions with persons experienced in public
financing and Federal tax regulations, and drew upon past MAG and EPA studies.
EPA staff assisted in answering discrete technical and financial questions
posed by MAG.
In preparing its recommendations, MAG relied on the EPA 1982 Needs Survey and
the requirements outlined by Congress in the 1981 Amendments to the Clean
Water Act. However, in outlining funding options and recommendations, MAG
considered the total water quality needs and financial capabilities of local
communities. Options examined by MAG ranged from a substantially decreased to
increased Federal presence. These options included local programs and private
financing arrangements, and State and Federal alternatives. Below are
summarized MAG's major findings and consensus recommendations.
*EPA's study, entitled "Federal Role in Municipal Wastewater Treatment," is
outlined in the Federal Register. 49 FR 6009, February 16, 1984.
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Summary of MAG Findings
1. Although there has been measured improvement in the condition of our
waterways, water pollution control efforts by municipalities are
incomplete and significant abatement needs remain.
2. The goals of the national program to restore and maintain the
integrity of the nation's waterways must remain consistent with the
intent of the 1972 Act.
3. Federal regulatory and technological "strategies should be improved
to fit the prevailing political climate and to employ resources in a
more cost-effective manner. There is a critical need for more
applied and demonstration research on technology.
4. Innovative Federal enforcement programs are needed to ensure.adequate
operation and maintenance of completed systems and to provide
localities with the impetus to establish innovative methods- to
finance construction. The National Municipal Policy is a step in the
right direction, but fails to recognize the need for more effective
means such as connection bans and cross-compliance sanctions.
5. The 1988 deadline for municipal water pollution compliance should be
retained. Individual "consent decree" agreements should establish
the deadlines for municipalities not in compliance.
6. Local operating agencies and users must be totally -self-sufficient"in
terms of operating and maintaining their POTWs and for capital
improvements to satisfy growth.
7. The Federal government must consider the full range of water
pollution control needs facing communities, and the possibility of
meeting these within a desired time frame. Since a large portion of
these needs cannot be federally funded, some criteria of afford-
ability and implementability will be needed to compare different ways
of reducing the municipal burden to a feasible level.
8. A dual approach is required to assist municipalities in meeting water
pollution control needs in a reasonable time frame.
- Some type of Federal aid is needed to enable
municipalities to meet current eligible needs.
- Indirect Federal assistance that involves tax
advantages and incentives will be required to attract
private sector funding for noneligible costs.
9. States should be given discretionary authority to devise
innovate funding mechanisms which accommodate differences
between communities in terms of size, revenue requirements,
water quality, and private investment potential.
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10. The Federal program must establish consistent and reliable
long-term goals and commitments so municipalities can be
certain of what is required of them.
Suroary of MAS Recommendations
1. In a transition period over the next 10 years,
municipalities should have access to Federal grants to
States of $35 billion.
2. During this transition period, States should be permitted
to use Federal funds as grants, revolving loans, and/or
interest subsidies within prevailing Federal program
requirements for project priorities and planning review/
approval.
• For large-city projects already committed to a phased
construction schedule and financing plans based "on
grant approach, conventional grant assistance might be
most beneficial.
- For States with modest current needs but extensive
anticipated growth, the revolvingloan approach might
assureresidual funds for the period following
termination of the Federal'grant program.
- For States with large and immediate needs that require
• expedient project implementatii
approach might be most useful.
expedient project implementation, the interest subsidy
it
3. Implementation of the above-recommended funding program
should be pursued in a manner which assures an orderly
transition with minimum interference with the ongoing
municipal construction program. A State should be
committed to the direct grant approach until it has
provided the means and methods to utilize the revolving
loan and/or interest subsidy approach.
4. States should be given discretionary authority over
eligibility and priority for Federal funding to assure
optimum water pollution control in differing municipal
water pollution conditions.
5. The existing tax incentives for private sector involvement
in municipal water pollution control—such as investment
tax credits and accelerated cost recovery—should remain
available.
6. Industrial development bonds with their tax-free interest
features should remain available for private sector
financing of water pollution control projects.
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ENVIRONMENTAL PROTECTION AGENCY'S
MANAGEMENT ADVISORY GROUP TO THE CONSTRUCTION GRANTS PROGRAM
EVALUATION AND RECOMMENDATIONS
POLLUTION CONTROL NEEDS
GENERAL
It is the intent of the Management Advisory Group to the Construction Grants
Program (MAG) to develop guidance for the Environmental Protection Agency
(EPA) in its development of recommendations to the Congress for the future
funding of the remaining publicly owned treatment works (POTW) construction
needs of the national water pollution control program.
To obtain the advice and counsel of those directly concerned with the
implementation of the municipal water pollution control facility planning and
construction program, major organizations that represent the interests of such
individuals and institutions were invited to present their views to the
Conmittee. The organizations that participated in this concensus effort
include the Water Pollution Control Federation (WPCF), Association of
Metropolitan Sewerage Agencies (AMSA), American Consulting Engineers Council
(ACEC), National Society of Professional Engineers (NSPE), Water and
Wastewater Equipment Manufacturers Association (WWEMA), National Governors
Association (NGA), National Wildlife Federation (NWF), Maryland League of
Women Voters (MLWV), Izaak Walton League (IWL), National League of Cities
(NLC), and Association "of State " and- :Interstate :^atBr_"^oHirt1x)n.ii'ControT
Administrators (ASIWPCA).
We also had benefit of discussions with persons experienced in public
financing of municipal sewerage projects and in the Federal tax regulations
relevant to the use of private sector financing of these projects.
A special MAG task force was set up to perform the initial inquiries and
evaluations. The task force also reviewed other recent MAG task force efforts
in this area, as well as EPA staff-prepared fact sheets relating to the
funding question. The MAG reports reviewed include "Self Financing of
Wastewater Treatment," January 1983, and "Alternative Methods of Financing
Wastewater Treatment," January 1982. Also reviewed were EPA's outline of its
on-going evaluation of "POTW Self-Sufficiency/Compliance: Appropriate Federal
Roles" and EPA's notice in the February 16, 1984 Federal Register entitled
"Federal Role in Municipal Wastewater Treatment: Study"."
In addition, the task force utilized the input of all the MAG members who are
also representative of the many disiplines involved in the municipal waste
pollution control program, as well as those concerned with the public impact
of the program.
BACKGROUND
Since 1972, approximately $40.34 billion has been appropriated for
construction of POTWs. Currently, $2.4 billion per year is authorized through
fiscal year 1985. Based on the EPA 1982 Needs Survey and original (1972)
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eligible funding categories, there remains a total backlog of $92.6 billion of
construction to serve the 1982 needs (with no allowance for growth to serve
future needs) as follows:
Category Billion Dollars
I Secondary Treatment 20.1
IIA Advanced Secondary Treatment 3.3
IIB Advanced Treatment 0.5
IIIA Infiltration/Inflow 2.6
1IIB Replacement and/or Rehabilitation 4.7
IVA New Collector Sewers 16.8
IVB New Interceptor Sewers 8.9
V Combined Sewer Overflows 35.7
Total 92.6
Under the 1981 Amendments to ,the_CJean_Watec-:J\c±^,_the...eVigible..categories,for
Federal grants are generally limited Jto -secondary/.~tr^tment^4.)^- -advanced-
secondary treatment (IIA), advanced treatment (IIB), infiltration/inflow
(IIIA), and new interceptor sewers (IVB). These account for $35.4 billion of
the total. The Federal grant share as of October 1984 will be reduced from 75
percent to 55 percent, and capacity for growth will no longer be eligible for
Federal funding. Based on these eligibilities, approximately $35.4 billion of
backlog requires funding, and on the basis of a 55% Federal share, total
Federal appropriations of at least $19.47 billion will be required. However,
because of those phased/segmented projects which retain the prior 75% share
through their completion and "set-aside" allowances for State discretionary
•jse, the Federal potential exposure for construction grant funding will be
iomewhat greater than this minimum projection. At the present $2.4 billion
vter year funding rate and disregarding inflation, it will take approximately 8
'ears to fund the minimum projected needs of $19.47 billion.
PA has also determined that by the year 2000, the needs of all categories
will increase from $92.6 billion to $118.35 billion with the current eligible
ategories increasing from $35.4 billion to $57.3 billion. At 55%
participation, the Federal share • increases to a minimum of $31.5 billion.
Again, at $2.4 billion per year, this would equate to about 13 years of
funding to meet minimum needs, without respect to inflation, remaining
phased/segmented projects, and the State "set-aside" allowances.
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INFLUENCING FACTORS IN MAG DELIBERATIONS
.In trying to evaluate all the considerations relating to th'e continued Federal
participation of the municipal construction program, four aspects appear to
have benefit of general agreement:
• Significant progress has been made in the improvement of the
nation's waterways as a result of the accelerated national
program since 1972.
• A major factor limiting the completion of program goals is
the substantial level of municipal water pollution control
needs that remain unresolved.
0 Public support for completing the national program and
achieving the original goals remains at a high level.
• The continued commitment of the Federal government to
municipal water pollution control is required because of the
interstate and international nature of water pollution.
There is also agreement that the unresolved municipal water pollution control
needs stem from both the need for new facilities and the need to improve the
performance of existing facilities. Continuing pollution appears to result
from:
- Untreated sewage-discharges.--^;-- ~
^
- Treated sewage discharges which do not meet enhanced
water quality criteria for receiving streams.
- Incomplete projects of large cities being implemented
within phased segmented programs.
- Inadequate performance of existing treatment facilities
due to insufficient capacity, excessive
infiltration/inflow, excessive or incompatible
industrial loading, improper technology application,
and inadequate operation and maintenance.
- Unsatisfactory sludge/solid waste management practices.
- Inadequate control and/or treatment facilities for
combined storm-sanitary overflows.
However, remedial measures, particularly those relating to continued Federal
funding, provoke differing responses from the many interested and concerned
parties. For the most part, all agree to some continued Federal funding but
disagree on the extent and duration. Generally, three perspectives appear to
influence the positions:
• The major impetus for reduced Federal funding assistance
relates to concerns for the prevailing large Federal
deficits and the suggested need to subject the water
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pollution control program to the seme financial scrutiny
imposed on all Federal programs. Further argument on behalf
of this position comes from those who suggest that the
Federal grant program has not been effective and remains a
deterrent to the type of local self-sufficiency considered
essential for long-term achievement and compliance.
The concern for fairness and equity strongly influences the
position in favor of continued Federal funding. Those
municipalities and regional agencies who have not yet
received the Federal funding required to meet all the
statutory requirements imposed upon them question the
fairness of Federal policy that threatens to deprive them of
equal treatment only because of their "position in line".
,They contend that such a policy exacerbates the problem that
all local governments, particularly large cities, face in
satisfying increasing responsibility for other burgeoning
social and infrastructure needs resulting from reduced
Federal participation. Fairness suggests to these
proponents that all the unresolved needs of POTWs should be
funded to the same extent as provided to those who preceded
them with higher priorities. They also suggest that without
Federal assistance for their POTW needs, competition for
limited revenues and funds available to the municipalities
will adversely impact their water pollution control efforts
and significantly delay implementation.
In between these two perspectives are compromising proposals
that attempt to accommodate some of both concerns. These
include:
- Reduce effluent standards, both at the secondary
treatment level and at the higher levels dictated by
water quality considerations.
- Reduce eligibility and extent of Federal participation.
- Extend time frame for compliance.
- Provide other Federal funding approaches.
- Develop new non-Federal funding and/or financing
approaches.
The major interest at this time appears to be directed toward the alternative
Federal and non-Federal funding/financing possibilities. The most notable
considerations, in these areas include the following:
Local Options
Use of private sector to take advantage of accelerated
depreciation/investment tax credits and industrial
development bonds, referred to hereafter as "private
financing."
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• Use of depreciation allowance in user charge determination
to provide funds for future capital improvements and
replacements.
• Use of tax exempt municipal bonds.
• Use of special revenue sources such as sewer availability
fees and connection charges, and sale of treatment
byproducts (methane and soil conditioners) and reuse water.
• Use of ad valorem taxes to finance capital needs to provide
subsidy to the . POTW user in the form of Federal tax
deduction.
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State Options
• State grant program funded by State revenues for capital
improvements.
0 State loan program funded by State bond issues and/or
Federal seed money.
• State subsidy program for annual O&M costs funded by State
revenues.
• State loan guarantees7 to increase-l-ocal-credit ra-tings,-:-^
• State operation of POTWs, with uniform user costs across the
State.
Federal Options
• Categorical grants, altered from current program in terms of
eligibility, participation, and term.
• Block grants to States for Federally subsidized needs, with
States having full responsiblity for the funding
delineation. In expanded form (megablock grants), this
represents the "New Federalism" proposal.
• Federal loan program, with interest subsidy costs borne by
Federal treasury from general revenues.
• Federal loan guarantee program, with loans from private
sector guaranteed by Federal Government and default costs
being Federal burden.
• Federal trust fund, with Federal costs subsidized by
specific revenue sources.
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Federal tax subsidy which is, in fact, the Federal burden
and/or contribution resulting from the Federal tax
incentives involved in the local option types of private
financing.
The extent of opinion divergence on the Federal grant approach is found in the
positions taken by the organizations who met with MAG on this issue.
WPCF favors a specific phaseout of the Federal funding program, with the
national program relying hereafter on other alternative financing methods,
extension of program deadlines, and greater reliance on water quality
considerations for setting treatment standards. The Federation suggests
Federal funding phaseout by 1992, reducing annual total grants from $2.4
billion currently to $0.4 billion in 1992, and limiting Federal participation
to 55%. ,
ACEC favors the stabilization of the Federal grant program, with at least
another 5 years authorization at the current $2.4 billion annual level. NSPE
proposes a combination of Federal loan guarantees and Federal interest
subsidies, with Federal grants limited to the remaining phased segmented
projects.
AMSA, however, is quite emphatic in its position that Federal funding should
•be continued, and at much greater than present levels. They maintain that the
funding should be adequate to permit ^the large cities to complete the
originally mandated programs for which they have made large commitments in
plann i ng -and^f inancingv '---^lO^year- period "of^l^era^gr^ntr^und'wg' a^«aF^Tev e^
of $2.4 billion per year with 75% participation is indicated to" be required to
meet just the needs of their constituent cities and regional agencies to
satisfy compliance requirements. AMSA further suggests that a total Federal
funding level of $5 billion per year would provide $2.6 billion per year for
all other communities of the nation. As to grant eligibility, AMSA favors the
exclusion of growth expansion but the inclusion of combined sewer overflow.
WWEMA also favors increased funding levels and the retention of 75% Federal
participation.
Most of the other organizations appear to favor continued Federal grant
funding until the municipal needs are satisfied, but at a 55 percent
participation level.
The National League of Cities, however, suggests that if Federal funding is
not continued, the timetables for meeting the requirements of the Act should
be postponed or delayed. The National Governors Association proposes that the
States be permitted to adapt Federal grants to a State loan program and that
inflation be recognized in the continued Federal grant program.
Although both organizations favor continued Federal funding of POTWs, the
Izaak Walton League and the National Wildlife Federation prefer that long-term
funding issues be postponed until other important changes in the Clean Water
Act are effected, hopefully not later than FY 1985.
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SUMMARY OF FINDINGS
As a result of our deliberations with representatives of organizations having
diverse interests in water pollution control, with EPA officials, with
financial specialists, and with each other, MAG has come to a better
understanding of the difficult and complex aspects of the important national
issues on future funding of the municipal water pollution control program.
From this we have been able to develop a general consensus on the delineation
of the major factors involved in developing a national policy.
First, opinion is unanimous that although there has been measured improvement
in the condition of our waterways, the water pollution control effort by
municipalities is incomplete and significant abatement needs remain.
Second, there is agreement that the goals of the national program to restore
and maintain the physical, biological, and chemical integrity of the nation's
waterways should not be compromised but should remain consistent with the
intent of the 1972 Act and its amendments.
Third, there is strong feeling within MAG, however, that many of the
regulatory and technological strategies followed in the initial program should
be altered to better fit the prevailing political climate and to benefit from
previous experiences. The strategies must now take into account that the
competition for financial assistance at all levels of government is more
intense, that the public support is more rational, and that public policy is
more directed to decentralization of governmental authority. These strategies
must ?,lso- .recognize_.,tbe-.-.experiences,., that--have . dramatically revealed the
differen.ee .between a technology^ -capab.iliiyr^and -its_"-ACh_iev.abi>ii:y;.^and_jthe-
critical relationship of this difference to the commitment of resources for
the development and operation of the technology. More than ever, applied and
demonstration research by universities, manufacturers, and municipal operating
agencies is required and is deserving of the highest priority for Federal
assistance and encouragement.
Fourth, one required new strategy directly related to funding initiatives is
municipal enforcement. We all agree that the Federal government must improve
its enforcement programs and efforts. This essential element of the national
program will, in our judgment, not only encourage the local initiative to
operate and maintain the completed systems at a proper level of performance
and physical integrity, but it will also provide the impetus to create the
type of imagination and innovation necessary for the municipalities to
complete the needed facilities.
The National Municipal Policy recently released by EPA is a beginning to this
needed effort, at least with respect to the rescheduling of noncomplying
municipalities. However, it still fails to deal with the need for more
effective elements of enforcement, such as connection bans and cross
compliance sanctions. This aspect of the enforcement program has plagued the
national program from its inception and fails to encourage the type of
self-reliance necessary for the desired Federal disengagement from
construction funding.
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Fifth, it is also obvious to MAG that time is a critical factor and an
important variable in the consideration of funding for municipal water
pollution control. We do not believe that a useful or meaningful analysis of
funding needs can be achieved without the imposition of time constraints.
Accordingly, we strongly urge that time be an element of analysis and
comparison for all financial assistance options and financial capability
evaluations. As both a matter of enforcement and time consideration, the 1988
deadline for municipal compliance is now deserving of special concern. It is
quite obvious that the deadline cannot and will not be met, and there appears
to be a range of strategies which can be considered.
One approach is to extend the deadline again and pace it with considerations
of feasibility and affordability. However, the sense of national commitment
would be lost by such a strategy. While the original deadlines focused
attention on the need for national commitment, continued extensions do not.
Thus, another approach is to allow the 1988 deadline to stand as a milepost
and reminder. For those municipalities who have satisfied their commitment,
it can serve as a measure of satisfaction and accomplishment, with possibly
special national recognition. For those municipalities who will not have
completed their commitment, the deadline date will remain as a reference from
which eventual accomplishment can be measured in terms of "how soon after"
compliance was achieved. Individual "consent decree" agreements could then be
the vehicle by which EPA and the States would establish deadlines for each
municipality not in compliance by 1988, as appears to be the intent of the
recent National Municipal Policy. MAG believes there is merit in the latter
approach, particularly if a program of incentives could be conceived to reward
expeditious compliance. Realistically, however, the MAG suspects that it will
require until the "end of the century" to accomplish the original objectives
of the Clean Water Act, and it is probably in terms of improvement o"h this
time frame that all funding alternatives should be evaluated.
Sixth, there is full concurrence within MAG that improved operation and
maintenance of POTWs must remain the full responsibility of the local
operating agency. These agencies, and the users they serve, must become
totally self-sufficient in terms of maintaining and preserving their POTWs.
Further, we are in agreement that they must also be responsible for the
capital improvements required to satisfy growth needs. Neither O&M nor growth
within the system should ever be a component of Federal assistance or subsidy.
However, as the total burden on municipalities for satisfying water pollution
control needs are evaluated, the contribution of these local costs to this
total burden should be fully taken into account.
Seventh, we believe strongly that the achievement of the water pollution
control goals requires that all the needs be satisfied. Therefore, the
Federal government must be equally concerned with all needs, particularly as
relates to their affordability and implementability within the desired time
frame of achievement. Based on the 1982 Needs Survey, this concern represents
a cost burden, uncorrected for inflation, of over $118 billion through the
year 2000. Based on current eligibility and Federal participation, Federal
assistance will be limited to approximately $20 billion or about 17% of the
total needs, .leaving nearly $100 billion to be funded .by the municipalities.
We do not have a basis at this time to judge whether this magnitude of unaided
needs can be achieved within the funding options now available to
municipalities. It is, however, our intuition that they cannot and that a
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large of portion the total municipal needs will be unaffordable and
unfeasible. To permit a rational policy development in this area, some
criteria of affordability and implementability will be needed as a basis for
determining and comparing the different ways and means of reducing the
municipal burden to a feasible level. The price of water pollution control
service is likely to rise and probably should. Nonetheless, the greatest
challenge of the national program is to keep clean water affordable.
Eighth, we believe the Federal concern that the municipalities satisfy all
water pollution control needs in any reasonable timeframe will require a dual
approach. One effort will have to continue to deal with the assistance needed
to permit municipalities to satisfy the current eligible needs; this is
presently being satisfied by the Federal grant program. The second effort
will need to find ways to assist in the satisfaction of the far greater costs
relating to the presently noneligible needs as well as growth capacity and
inflation. If municipal pollution abatement is to be achieved by the year
2000, the two efforts will have to be pursued concurrently.
It is our intuition that some type of direct Federal funding in the form of
grants and/or loans will still be required to meet current eligible needs. To
keep the needs within feasible and affordable levels, it is our further
intuition that indirect Federal assistance involving tax advantages and
incentives will be required to attract a large amount of private sector
funding. This intuition is further premised on the idea that with proper tax
incentives the private sector will provide an efficient and economic way to
satisfy a portion of the costs of the .remaining needs. It is, however,
discouraging that at the present time the Congress,'in its zeal to control
-past abuses" of ihese • taxr "provis ions-* is-'considertng- proposals'^ toeTd€rny —tax%vsc"
incentives to private investment in municipal water pollution control
projects. Unless these efforts are redirected, an important alternative to
the Federal grant approach for completing the municipal water pollution
control program in our nation will be lost. The avoidance of this possiblity
should be a very high priority for EPA and the Administration.
Ninth, MAG recognizes that the municipal need for assistance in completing
water pollution control programs will vary extensively, depending upon size,
prevailing revenue requirements, water quality needs, private investment
potential and other similar factors. There is concern in MAG that some effort
must be made to accommodate the gross disparity in municipalities' financial
and management capability, and, unless addressed, the opportunity for private
sector assistance will be impaired. Insofar as direct Federal assistance
programs of transition are involved, MAG favors the concept of discretionary
assistance opportunity, so long as the discretion authority rests with the
States.
Tenth, MAG strongly supports the need to establish consistency in the Federal
program, in terms of reliable, uniform, and long-term goals and commitments
upon which municipalities can then determine without uncertainty what is
expected of them.
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RECOMMENDATIONS
We have attempted in the previous section to provide insight that might help
guide EPA in establishing the most productive role for the Federal government
in assuring that adequate funding will be available to complete the municipal
water pollution control program. In most cases, the direction which we have
given requires further research and evaluation far beyond the scope of our
time and resources but which hopefully EPA will be able to satisfy in its
financial capability evaluation now underway.
We do feel that it is appropriate, however, to make firm recommendations on
some aspects of both the direct Federal assistance and the indirect Federal
assistance programs, which we believe represent the most critical and pressing
matters now requiring the attention of EPA and the Administration.
For the transitional grant program effort which we believe is essential, we
recommend that:
• Federal grants of $35 billion (in constant dollars) should
be made available to States for municipal POTW needs during
a transitional period over the next 10 years, with the
intent that thereafter, responsibility for the program will
remain with municipalities and the States.
• During the transitional period, the States should be
permitted to use the Federal funds as grants, loans, and/or
interest subsidy,-'*!:! witfiiri^tb^pi^aiiing^^ '.'.?-.
requirements for project priorities and planning review/
approval. The conventional grant assistance approach might
be most beneficial for large city projects already committed
to a phased construction schedule and a financing plan based
on the grant approach. For States with modest current needs
but extensive growth potential, the revolving loan approach
could assure residual funds for the periods following the
termination of the Federal grant program. The interest
subsidy approach might be useful for those States with a
large and immediate need requiring expeditious project
implementation.
• Implementation of the above-recommended funding program
should be pursued in a manner which ensures minimum inter-
ference with the ongoing municipal construction program. A
State should be committed to the direct grant approach until
it has provided the means and methods to make a transition
to or utilize the revolving loan and/or interest subsidy
approach.
• The eligibility and priority for Federal funding should be
flexible, with the States being given sufficient discre-
tionary authority to assure optimum control of the differing
municipal water pollution conditions throughout the nation.
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For the indirect Federal assistance and incentives needed to encourage private
sector involvement in municipal water pollution control unaided by the
transitional Federal grant program, we recommend that:
• The existing tax incentives, such as investment tax credits
and accelerated cost recovery system, for private investment
in water pollution control facilities remain available.
• Industrial development bonds, with their attractive tax-free
interest features, remain available for private sector
financing of water pollution control projects.
It is strongly recommended that the administration make known to the Congress
the importance of these provisions to the water pollution control needs of the
nation and the potential they provide to increase private sector participation
in the program and to decrease direct Federal funding.
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