VOLUME
ONE
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THE ECONOMICS OF CLEAN WATER
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2792
THE ECONOMICS OF
CLEAN WATER
VOLUME I
Detailed Analysis
U. S. Department of the Interior
Federal Water Pollution Control Administration
March 1970
For sale by the Superintendent of Documents, U.S. Government Printing Office
Washington, D.C. 20402 - Price $1.50
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UNITED STATES
DEPARTMENT OF THE INTERIOR
OFFICE OF THE SECRETARY
WASHINGTON, D.C. 20240
APR 31970
Dear Mr. President:
I am transmitting to the Congress the third report on the national
requirements and cost of water pollution control as required under
Section 16 (a) of the Federal Water Pollution Control Act, as amended.
The decade of the 1970's, a decade which will address itself to improv-
ing the quality of man's environment, will see great strides toward
the effort to abate water pollution. The enclosed report entitled
"The Economics of Clean Water" represents our current estimates of the
investment levels necessary to attain applicable water quality
standards.
This report, along with the two previously submitted, contributes to
closing the information gap in terms of the overall magnitude, geograph-
ical, and financial dimensions, all of which are essential to the
development of national policies and programs directed toward achieving
water quality standards in an efficient and effective manner.
The alternatives analyzed in the course of this study, especially
those aspects contained in Volume I, presented valuable background
for development of proposals on aid to municipal treatment works
presented to the Congress in the President's Environmental Message
and subsequent legislation.
There are four parts to this year's report. The first is a summary of
major findings and conclusions of the analysis. The second, Volume I,
contains the details of the analysis. The third, Volume II, is a
profile of animal wastes. The fourth and last section, Volume III,
is an industrial profile of the inorganic chemicals industry.
Sincerely yours,
Secretary 6f the Interior
Hon. Spiro Agnew
President of the Senate
Washington, D. C. 20510
Enclosure
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UNITED STATES
DEPARTMENT OF THE INTERIOR
OFFICE OF THE SECRETARY
WASHINGTON, D.C. 20240
APR 31970
Dear Mr. Speaker:
I am transmitting to the Congress the third report on the national
requirements and cost of water pollution control as required under
Section 16 (a) of the Federal Water Pollution Control Act, as amended.
The decade of the 1970's, a decade which will address itself to improv-
ing the quality of man's environment, will see great strides toward
the effort to abate water pollution. The enclosed report entitled
"The Economics of Clean Water" represents our current estimates of the
investment levels necessary to attain applicable water quality
standards.
This report, along with the two previously submitted, contributes to
closing the information gap in terms of the overall magnitude, geograoh-
ical, and financial dimensions, all of which are essential to the
development of national policies and programs directed toward achieving
water quality standards in an efficient and effective manner.
The alternatives analyzed in the course of this study, especially
those aspects contained in Volume I, presented valuable background
for development of proposals on aid to municipal treatment works
presented to the Congress in the President's Environmental Message
and subsequent legislation.
There are four parts to this year's report. The first is a summary of
major findings and conclusions of the analysis. The second, Volume I,
contains the details of the analysis. The third, Volume II, is a
profile of animal wastes. The fourth and last section, Volume III,
is an industrial profile of the inorganic chemicals industry.
Sincerely yours,
Secretary of the Interior
Hon. John W. McCormack
Speaker of the House of
Representatives
Washington, D. C. 20515
Enclosure
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CONTENTS
Introduction 1
Investment Trends 3
Development of Investment Needs 25
Federal Cost Sharing 67
Priority Systems 107
Public Treatment of Industrial Wastes 121
Regional Waste-Handling Systems 143
Appendix—The Facilities Evaluation Model 161
LIST OF FIGURES
1. States Classified According to Recent
Investment Behavior 8
2. Regional Definitions for Analysis of Comparative Unit
Investment for Incremental Waste-Hand11 no
Capabilities, 1962-1968 1 41
3. Investment Intentions Compared to Derived Needs 61
4. Growth of Public Waste-Handling Services 75
5. Public Investment in Waste-Handling Services
1952-1967 77
6. Relative Domestic and Industrial Loading Public
Waste Treatment Plants 128
7. Application of Economies of Scale Through Consolidation
of Waste Sources Producing 10 million gallons per
day of sewage 133
vii
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8. Unit Investment by Size of Place for Incremental
Waste-Handling Capabilities, 1962-68 154
9. Generalized Ranking of Unit Cost and Removal Efficiencies
of Conventional Waste Treatment Processes 158
LIST OF TABLES
1. Comparative Investment Outlays for Waste-Handling
Purposes, 1967 & 1968 3
2. Estimated Annual Public Investment for Waste Treatment
Plants and Ancillary Works, by State 5
3. Current Dollar Investment by States 1952-1968 6
4. Comparative Categorization of States by Recent
Investment Behavior 10
5. Declining Investment States: Relative Condition
and Past Performance 13
6. Per-capita Investment Associated with Attainment of
Water Quality Standards 1952-1969 15
7. Industrial Pollution Control Investments as Reported
by McGraw H111 18
8. Summary of Data Reported for the Petroleum Industries
by the American Petroleum Institute 19
9. Summary of Data Reported for the Chemicals Industrv
by the Manufacturing Chemists Association 21
10. Projected Cumulative Inorganic Chemical Industry Canital
Costs and Annual Operating Costs for Waste Treatment 23
11. Evaluation of Capital in Place and of Defined Needs 1969 27
12. Normative Assessment of Annual Capital Needs Generated
1n 1962 and 1968 29
viii
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13. Computed Values Associated with Various Categories of
Investment Needs ........................................ 30
14. Increase 1n State Government—Defined Waste Treatment
Needs Overtime .......................................... 32
15. Frequency of Major Plant Revisions ........................ 34
16. Escalation of the Cost of a $1,000,000 Waste
Treatment Plant, 1950-1969 .............................. 37
17. Constant Dollar Investment Per Unit of Capacity,
Activated Sludge Plant, 1961-63 and 1967-69 ............. 39
18. Normal Plant^ize Related to Relative Regional
Unit Cost r .............................................. 44
19. Wage Rates Related to Comparative Unit Costs .............. 46
20. Major Components of Construction Cost ..................... 47
21. Relative Urbanization Related to Unit
Waste-Handling Investments .............................. 48
22. Relative Construction Costs of an Activated
Sludge Plant ............................................ 49
23. Investment and Demand, Northeastern States ................ 50
24. Adjusted Investment Needs, Eight Northeastern States ...... 51
25A. Five Year Backlog Elimination Schedule, Water
Quality Standards-Related Public Investments ............. 53
25B. Stretchout Schedule, Water Quality Standards-Related
Public Investments .......................... •» .......... 54
25C. Deficiency Schedule, Water Quality Standards-Related
Pul Investe ....... , ............................ 54
26. Summary of Waste Treatment Facilities by Year Plant
Underwent Major Revision (or Began) ..................... 56
ix
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27. Comparison of State Intentions and Derived Value
of Needs ................................................. 59
28. Water Quality Standards-Related Manufacturers'
Investment for Waste Treatment
(Values in Millions of Current Dollars) .................. 63
29. Estimates of State and Local Governments' Needs
for Federal Financial Support ............................ 70
30. Relation of Federal Assistance to Total Estimated
Public Waste-Handling Expenditure ........................ 72
31. Dollars of Total Investment per Dollars of Federal
Construction Grants ...................................... 79
32. Federal, State and Local Share of Financing the Cost of
Water Pollution Control Facilites in New England ......... »i
33. Per Capita Expenditures of State and Local Governments
for Sewerage Services .................................... 83
34. State and Local Governments' Annual Expenditures for
Needed Public Water Pollution Control Facilities ......... 85
35. Per Capita Expenditures of State and Local Governments
Fiscal Year 1968 ......................................... 87
36. Per Capita Personal Income ................................. 89
37. General Revenue of State and Local Governments
Fiscal Year 1968 ......................................... 91
38. Relationship of State and Local Governments' Annual
Expenditures for Needed Water Pollution Control
Facilities to Total General Revenue and Property
Tax Capabilities ......................................... 92
39. Moody's Rating of New England States and Selected
Communities (December 1969) .............................. 95
40. Effect on Property Tax on a $20,000 Home 1n Financing
Waste Treatment Facilities ............................... 98
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41. Priority System Criteria 108
42. Numerical Rank of Criteria by General Categories 109
43. Distribution of FWPCA Grants by Size of Comunity
as of January 31, 1969 110
44. Metropolitan and Non-Metropolitan Distribution of
FWPCA Construction Grants, 1956-1968 Ill
45. National Summary - Elapsed Time (mos.) Between Grant
Offer and Construction Start 114
46. National Summary of FWPCA Grants Approved and Still
Pending as of 12/31/68 115
47. Unused Allotments by Fiscal Year 118
48. Pattern of Waste Discharges to Public Sewers by
Manufacturing Plants Using 20 Million Gallons
or More in 1964 123
49. Distribution of Industrial Loadings to a Sample Group
of Municipal Sewage Treatment Plants 125
50. Relative Domestic and Industrial Loading of Municipal
Waste Treatment Plants in 1968 127
51. Generalized Cost to Size Relationships of Basic
Waste Treatment Processes 132
52. Relative Prevalence of Indus try—Provided and Publicly
Provided Waste Treatment by Major Manufacturing
Sectors, 1963 136
53. Distribution of Waste Treatment Processes by
Size of Plant 157
XI
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INTRODUCTION
This is the third in a series of reports to the Congress on the
subject of the cost of treating liquid wastes that the Secretary of
the Interior is charged to deliver annually, under the terms of the
Federal Water Pollution Control Act.
The first report in the series attempted to draw together and
evaluate in gross fashion all available information on water-borne
waste sources, treatment technology, and control deficiencies. The
second report examined the processes of providing physical caoital for
waste treatment—the interaction of funds over time under the influ-
ence of develooing technology, shifting regulatory requirements,
rising demand, and normal replacement conditions.
This report combines the concept of investment processes developed
in the second report with the generally held concept of an investment
gap that was evaluated in the first report. Its product is the
definition of a rate of investment that will close the gap for munici-
pal and industrial waste treatment within a five year period, given
the continued pertinence of today's regulatory and technological
conditions. Detailed studies of the pollutional impact of the
inorganic chemicals industry and of concentrated animal populations
are submitted as separate sub-reports.
The report considers several issues germane to the policy decisions
required with the expiration of current municipal grants legislation.
The alternatives and conclusions reached in this report are intended
to be illustrative and suggestive, not statements of policy. Economic
analysis can provide insights into the consequences of alternative
actions, but the political process must in the final analysis mold
the necessary decisions within the context of total national interests
and values.
A number of subsidiary issues are considered, including the
influence of industrial waste discharges on public investment outlays,
the influence of location on unit investment, the status of broadly
integrated regional waste handling systems, the incidence of recapi-
talization, the influence of price levels on investment, and patterns
of change in the real cost (i.e., costs adjusted for price levels
changes) of waste treatment facilities. Consideration of these and
other sub-questions was consistently pointed to their relationship to
the problem of deriving a normative annual level of investment, one
aporopriate to five year attainment of an investment equilibrium in
the public waste treatment sector; and the force of Federal assist-
ance programs on investments is a minor theme that pervades the
report.
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INVESTMENT TRENDS
Recent Levels of Spending
Total Investment for liquid vraste handlinq facilities was little
changed in 196" from its 1967 level, due to pronounced declines in
indicated industrial waste treatment investments and in the rate of
installation of sewers.
Public investments amounted to 51,111.8 million, a more than
million increase over the previous year and a new high for the purpose.
That increase was concentrated in areas relating to vaste treatment--
public investments for collecting sewers were about 544 million lower
than in 1967, while spending for waste treatment, transmission, and
discharge facilities rose about 5102 million over the level of 1967.
Inflation, which exerted its pressures with increasing effect through
the course of the year, ate un most of the increase in oublic outlays.
Over 530 million of the $50 million increment in year to year public
spending is calculated to have been the consequence of higher prices.
Table 1
Comparative Investment Outlays for
'•faste-Handlinn Purposes , 1°67 £ 1968
Investment Category Investment (millions of current dollars)
1967 1968
New Waste Treatment Plants 14° IPO
Expansion, Upgrading, Replacement 213 189
Interceptors & Outfalls 138 M4
Collecting Sewers 606 550
Industrial Waste Treatment 564 5?9
Total Capital Outlay 1,7?0 1,73?
Although information for investment in 1?*? is not fully avail-
able, preliminary indications are that it maintained its upward course.
Projections that were made in the first quarter of industrial outlays
indicated that over $700 pillion would be spent for waste-handling
-------
facilities in 1969. (The value must be nresumed to be highly suspect,
in view of the wide divergence between projected and actual investment
in 1968, when first quarter orojections derived from industrial sources
suggested outlays approaching ^?W million for a year in which less
than $600 million was actually invested.) One may infer, too, that
expenditures for installation of sanitary sewers were little, if any,
greater than in 196P>. There is a nronounced secular downtrend in in-
vestments for oublic sewers; and the steep decline in new housing
starts experienced during the year suggests another drop in the level
of Drivately funded sewer installation, which is directly related to
subdivision development. But the segment of the market made us of
investments for waste treatment plants and ancillary works unquestion-
ably moved to a significantly higher level. The assessment is based
on projects receiving Federal construction grants that were actually
started through the first ten ninths of 19F9. The value of those
projects—about $740 million—is consistent with an 'sRPO million full
year investment. Table ?, that contrasts estimated 196° investments
for waste treatment plants and ancillary v.'orks with those of other
recent years, nay be distorted with resoect to tHe Interstate distrib-
ution of investment for 1%9, in that it assumes a constant relationship
between ten month and twelve month investment for every State, but
the total may be presumed to be approximately accurate.
Because of the acceleration of inflationary forces that vent on
through l°fi°, a very significant nortion of the year to.year increase
in investment was dissinated in price increases. Assuming a constant
exertion of inflationary effects through the year, $47 mil lien of the
$12?* million rise in spending was accounted for by higher factor costs.
Influences on Public Investment
New influences on the course of public waste handling investment
whose shape began to be discernible in 1967 and 196? took on sharper
outlines in 1^6°. The prime influence on the level of spending since
the Korean war has been the amount of federal financing assistance that
has been made available to local governments. When Federal grants in
aid were initiated in 19S6, the pace of public investment accelerated
noticeably. And as the amount of Federal assistance climbed in succes-
sive steps from ?50 million a year to $2^9 million a year, total
spending kept pace, in terms of direction and amount if not of pro-
portion. (See Table 3 for a State by State comparison of exnenditure
levels at oeriods marked by successive increases in the rate of Federal
financial assistance.)
In recent years, however, the imoact of the amount of Federal subsi-
dies has been modified by other forces. The maturity of the national
investment program has resulted in a sharply altered configuration
of capital needs. State financial assistance to local communities
has complemented and redirected the force of Federal assistance.
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Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawai i
Idaho
Illinois
Indiana
lovia
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyomi ng
Puerto Rico
Totals
Millions of dollars
TABLE 2
Estimated Annual Public Investment*
for Waste Treatment Plants and
Ancillary Works, by State
Average,
1962-66
6.6
0.3
5.8
6.4
34.0
7.4
8.2
2.2
6.8
10.6
8.7
5.5
0.9
30.9
16.8
7.3
5.3
7,0
11.2
3.3
7.7
12.4
21.1
10.4
4.3
21.1
1.3
4.8
3.5
3.1
15.9
3.4
40.6
14.8
0.8
23.5
4.0
5.5
23.8
2.8
5.2
1.5
10.5
17.5
2.8
3.4
10
20
6
18
0
1.8
508.9
1967
1968
12.6
0.1
5.4
10.7
43.0
3.0
17.7
_
13.6
9.4
13.2
4.4
1.3
45.3
24.4
8.2
5.2
4.0
7.6
1.4
20.2
6.7
7.6
8.6
2.7
15.2
0.5
4.5
3.4
2.0
30.0
4.0
33.3
18.7
0.8
26.1
6.5
3.2
42.6
1.0
4.6
2.9
5.1
14.9
1.9
1.8
20.9
3.8
1.2
13.4
3.8
542.4
4.3
4.0
2.9
3.2
34.9
4.6
7.9
1.0
3.2
16.8
4.5
-
0.7
33.5
27.1
13.1
11.1
4.4
4.5
5,7
17.3
13.4
30.4
13.3
2.7
26.5
1.3
2.0
0.4
6.0
10.5
0.4
115.0
10.8
0.3
35.1
5.5
3.3
65.3
1.2
10.5
0.2
19.9
17.1
0.1
2.4
10.4
20.9
3.0
17.1
-
652.1
1969 est.
18.5
0.2
5.9
10
41
10
71
1.4
G.4
.6
.7
.5
.9
.2
.3
29.
22.
0.
1.
33.
10.
H.6
4.5
10.9
11.0
10.0
31.0
28.1
5.7
13.3
2.4
12.8
1.3
3,0
.2
.9
.2
0,
1
40,
3.5
97.0
17.3
0.4
41.9
14.6
7.6
90.2
1.9
26.0
1.8
13.6
38.2
1.2
3.9
25.0
4.6
4.0
20.7
0.8
6.5
880.8
1967-69 flyge
1962-66 Avg
179%
478%
82%
127%
im
82%
395%
36%
114%
17555
155%
30%
144%
121%
123%
164%
131%
92%
69%
7732
297%
130%
69%
79%
66%
38%
106%
77%
201%
105%
63%
146%
222%
85%
277%
49%
263%
109%
138%
134%
38*
79%
175%
48%
44%
94%
133%
136%
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TABLE 3
Current Dollar Investment by States 1952-1968
(Millions of Current Dollars)
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Puerto Rico
Totals
1952-1955
11.4
1.1
2.8
46.8
3.6
4.6
4.9
2.0
39,2
6.3
0.
33.
59.
10.2
15.1
12.9
4.2
0.7
6.7
.3
.2
.5
14
34
16
1.7
8.6
0.8
1.4
2.5
0.9
81.1
3.0
66.7
12.2
1.0
61.5
9.5
10.5
51.1
5.5
3.4
1
24.
24.1
4.9
0.7
17.9
6.6
8.2
12.4
0.6
753.6
.7
.3
.2
.4
.7
.5
1956-1961
31.9
2.2
12.8
16.0
213.9
17.3
19.8
5.0
33.2
43.
32.
5.8
8.6
127.
97.
33.0
35.3
38.7
25.0
3.8
28.
31
83.
36.
IV
26.
8.
26.0
6.0
4.6
75.6
12.2
171.0
51.5
8.8
166.0
19.7
20.1
208.4
7.3
9.9
5.3
36.0
60.8
17.9
6.2
37.0
37.5
32.7
52.0
6.5
0.5
2107.8
6
.4
.6
.4
.3
.1
.2
.2
1962-1966
32.8
1.7
29,
32.1
170.1
36
41
10.8
33.9
53.0
1
.9
.1
43.
27.
4.7
154.6
84.
36.
26.
.5
.5
.2
.4
.6
35.0
55.9
16.6
38.7
62.0
105.6
52.
21
105.6
6.4
24.
17.
15.
79.
.2
.5
17.0
203.2
74.2
4.1
117.5
20.0
27.6
119.2
13.8
25.8
7.3
52.
87.
14.
.3
.6
.2
17.0
.3
.5
53.
102.
30.8
90.9
1.2
9.3
2544.3
1967-1968
16.9
4.1
8.3
13.9
77.9
7.
25.
0.
.6
.6
.9
16.8
.2
.7
26.
17.
4.4
2.0
78.8
.2
.3
.3
51
21
16
8.4
12.1
7.1
37.5
20.1
38.0
21
5.
41
1
6.
3.8
8.0
40.5
4.4
148.3
29.5
1.1
.9
.4
.7
.8
.5
.2
.0
61
12.
6.5
107.9
2.2
15.1
3.1
25.0
32.0
2.0
4.2
31
24.
4.2
30.5
.3
.7
3.8
1192.0
Total for
Period
93.0
8.0
51.3
64.8
508
65
91
21
85
161
99
37
7
,4
.1
,6
,9
.6
.9
.7
16.0
394.
292.
100,
93.
95.0
97
28
111
128.0
.2
.9
.7
.1
261
126.
39.
182.
17.2
58.0
30.0
29.0
276.9
36.
589.
167.4
15.0
406.
61
64.
486.
.6
.2
.2
.2
.7
.6
28.8
54.2
17.4
137.6
204.5
39.0
.1
.5
.3
28.
139.
171,
75.9
185.8
8.3
13.6
6597.7
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Public awareness of water quality problems has developed a sense of
urgency and a heightening of the investment effort in some cases. Out
of the inter-action of assistance programs, needs patterns, and local
preference, an alteration of the investment structure has emerged.
Where almost every State in the past moved its investment levels
uniformly upward from period to period (subject to year to year
lumpiness imparted by intermittent new starts on extremely large
projects), divergent trends have become evident over the last three
years. Some States continue to increase the amount of their investment-
some at fairly constant, some at accelerating rates—others appear
to have reached at least an interim equilibrium level with respect
to public investments for water pollution control, and still a third
group aopears to be deemphasizing public investment for protection of
the aquatic environment.
There is a rough correspondence between location and investment
behavior. If one considers the forty-eight contiguous States and the
District of Columbia (Alaska, Hawaii, and Puerto Rico are special
cases, quite different from the rest of the nation in the condition of
their water pollution control programs), he finds that thirteen of the
twenty-two States west of the Mississippi have maintained stable or
declining investment levels over the last three years, and only two of
the western States fall into a category composed of States whose
spending has increased fifty percent or more. (cf. Figure 1.)
Conversely, seventeen of the twenty-seven eastern States have increased
their capital outlays for waste treatment facilities; and the class
of States with the largest proportional increases are concentrated in
the extreme northeast and deep south. (Four northeastern States--
Connecticut, New Jersey, New York, and Pennsylvania—account for almost
seventy percent of the increase in average annual investments for the
period 1967-69 as compared to 1962-66.)
That geographic pattern fits generally, though not invariably,
the pattern of distribution of v/aste treatment amona the individual
States. That is to say, the more complete a State's waste treatment
services, the greater the probability that it is now reducing invest-
ment, relative to other States. The relationship is comforting, in
that it suggests that in some crude fashion—with, unfortunately, gaps
and overlays—investment has a configuration that matches the occur-
rence of needs, as well as in the implication that at. some point of
attainment to be reached in the future, every State will be able to
relax the comparative intensity of its investment effort.
There are also disturbing elements in the distribution of invest-
ment intensity. On the one hand there are the cases of apparent
laxness, States that show a pronounced relative deficiency in waste
treatment services with no corresoonding increase in investment effort.
On the other hand, there are indications of pronounced relative inef-
ficiency, in that the level of a State's nast effort may be related
-------
STATES CLASSIFIED'ACCORDING
TO RECENT INVESTMENT
BEHAVIOR
ua
(D
STATES INCREASING INVESTMENT 50% OR MORE
STATES INCREASING INVESTMENT 11-49%
STATES WITH STABLE INVESTMENTS
STATES WITH INVESTMENTS DECLINING 11-25%
STATES WITH INVESTMENTS DECLINING 25% OR MORE
-------
only slightly to its current status. Harked increases in expenditures
have been initiated in cases where per-caoita spending was equal to or
greater than that of States whose relative needs are slighter and whose
spending has been controlled or reduced in recent years.
The broad outlines of the developing investment structure come
into sharper focus if States are categorized according to their
recent investment behavior. Table 4 presents such a classification,
with all values reduced to relative terms—percentages or per-caoita
values—to provide an element of comparability. It should be stressed
that what is true of a class of States, as they are distinguished in
the table, is not necessarily true of every State within the class.
The only distinction recognized in setting up the groupings was invest-
ment behavior, and distinct differences may be found amonn units whose
investment behavior is similar. Thus in the group of States with
stable investment, Mew Hampshire, with only 4.5% of the sewered
population of the grouping, includes 50.3% of its population with
untreated wastes, 7.1% of its peculation V'/ith wastes receiving only
primary treatment, and 27% of the amount of its investment requirements.
Similarly, in the group of States with modestly declining investments,
the State of Vermont has only 2.9% of the group's population, but
contains 9.7% of its population without waste treatment, 8.5% of its
population with only primary treatment, and 15.7% of the value of
the group's investment requirements. Obviously, each group would
compare even more favorably with the other three groups if the atypical
component were removed. The intra-classification discrepancy is
acute in the case of the grouping of states whose investments in the
last three years have sunk below 75% of the rate of the previous five
years. That discrepancy is discussed below.
1) That group of States in which investments were being acceler-
ated most vigorously during the last three years--50% or more over the
average annual level of the five years before—includes more than a
third of the sewered ponulation of the United States. Those States'
emphasis on waste-handling investment will, then, have a strong influence
on the level of total investment.
The sharp acceleration of investment by these particular States
would appear to be desirable, in that the qrouo contains a relatively
large proportion of the waste treatment needs of the nation. No matter
how needs are viewed in comparison with the oonulation base—propor-
tionate discharge of raw sewage, prooortion of sewered population vn'th
only primary waste treatment, proportion of evaluated investment
needs--!t would aooear that these States, as a group, are behind the
rest of the nation and should be increasing their share of national
investment. That very general conclusion is supported by a review
of comparative investments: as a group, they have invested less,
on a per-capita basis, over most of the last fifteen years than most
other States.
-------
TABLE 4
Comparative Categorization of States
by Recent Investment Behavior
Percent of national Total
Sewered Sewered Pop. Sewered Pop.
Population w/o Treatment w/PMtnary Trtmt.
States with major Increases (ISOX or more of
1962-66 average) 1n Investment In 1967-69:
Alabama, Alaska, (Connecticut), Florida,
Georgia. Iowa, (Maine). (Maryland). (New
Jersey). (New YoHTTOklaHoma. (Pennsylvania) .
South Carolina, Virginia, Puerto mco 35.6 42.1 38.0
States with Increases (111-149% of 1962-66
average) 1n Investment In 1967-69:
Arkansas, California. District of Columbia,
Idaho, Illinois, (Indiana), Kansas,
(Massachusetts), Minnesota, Ohio, Tennessee,
Texas. Wyoming "" 42.6 30.2 38.1
States with substantially unchanged (90-110%
Of 1962-66 average) 'Investment In 1967-69:
Kentucky, New Hampshire. North Carolina,
south Dakota, Wisconsin 5.1 3.3 3.3
States with declining (75-89S of 1962-66
average) Investment 1n 1967-69:
Arizona, Colorado, Missouri, Montana,
(New Mexico), (Oregon"}, (Vermont) 5.3 1.8 3.9
States with sharply declining (74% or less
than 1962-66 average) Investment 1n 1967-69:
(Delaware), Hawaii, Louisiana, (Michigan),
Mississippi, Nebraska, Nevada, North Dakota,
(Rhode Island), UfaTi, (Washington),
West Virginia 12.6 20.0 17.5
United States Totals 100.0 100.0 100.0
Current
Investment Investment
1952-66 1967-69 Requirements
32.9 48.9 40.2
39.4 33.9 32.0
7.7 6.4 6.7
6.9 5.8 7.0
14.3 6.8 14.1
100.0 100.0 100.0
Average" Annual Per-Caplta InvesTmenT*
1952-55 1956-61 1962-66 1967-69
(1.95)
1.60
(1.64)
1.34
(1.77)
1.45
(1.21)
0.99
(1.34)
1.10
(1.67)
1.37
(2.40)
2.42
(2.57)
2.60
(3.63)
3.67
(2.37)
2.39
(2,56)
2.59
(2.54)
2.56
(2.88)
3.20
(2.85)
3.16
(5.82)
6.46
(6.02)
6.68
(4.50)
5.00
(3.33)
3.70
(5.37)
6.98
(3.11)
4.04
(4.91)
6.38
(4.29)
5.58
(2.12)
2.76
(3.91)
5.08
* Per-caplta Investment based on 1968 sewered population, Constant (1957-59) Dollars 1n Parentheses
Note: States which provide financial assistance are underlined and States with funded assistance programs are indicated by parantheses.
-------
That investment deficiency nay have been in part a result of
Federal policy. These are in many instances the high population, big
city states that, because of grant limitations, received effectively
less per-capita Federal assistance under the terms o* the Federal
V/ater Pollution Control Act as it VMS structured betvreen 1956 and 1966.
Though per-capita investment in these States shoved a response to the
availability of Federal grants after 1°56, tHe amounts of the increases
in per-capita expenditures were well below that of other qroups of
states before 1967. Those States now demonstrating the greatest
increase in investment are, however, the sane group that provided the
highest per-capita investment before Federal construction assistance
programs were initiated. In a sense, the major 1966 amendments of the
Federal Water Pollution Control Act tended to redress maldistribution
of Federally supplied resources and to allow these States to step up
their investments sufficiently to begin to close gaps that had opened
betv/een them and others.
But increased amounts of Federal assistance and less discriminatory
Federal allocation procedures have probably been of lesser moment in
levering investments of at least some States within this group upward
than has the initiation of State financial assistance for construction
of waste treatment facilities, fost of these States provide such
assistance, and have fully funded their assistance programs. In at
least two instances—New York and "aryland—State capital inputs over
the last three years have matched or exceeded the amount of Federal
assistance.
?.} Another group of States, one that contains over 40" of the
Nation's sewered population, is also undergoing a marked expansion of
capital emplacement rates. Almost four out of five Americans, then,
live in States that are still in the process of increasing public
expenditures for water nollution control.
The class of States in which investment is rising at rates that
approximate rather than exceed the degree of increase exoerienced in
the decade and a half before 1967 tend to have achieved far more
effective control of wastes than have the States that are undertaking
a more pronounced exoansion of investment. The group of States under
consideration have invested less, on a total and on a per-capita basis,
than the class of States whose annual expenditures are registering
a more marked increase, yet they display lower than proportional shares
of population without waste treatment or only primary treatment; and
evaluation of their waste treatment deficiencies shows them to be less
than proportional to population.
Relatively efficient use of capital, then, distinguishes them, in
that their per-capita expenditures have been consistently lower than
those in the other investment categories, while their indicated
deficiencies in level of service contrast favorably with the others. In
spite of those efficiencies, it has proved necessary for them to
11
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increase their level of investment continuously. These are, as a
group, States whose population growth is distinctly above the national
average. They are also States that have consistently provided an above
average level of waste treatment services. It would appear that
pressures of growth, recapitalization, and upgrading will continue to
operate on these States, and that their expenditures may continue to
rise—perhaps ultimately attaining a per-capita level somewhat closer
to the national average.
It is notable in this regard that the group of States character-
ized by moderately rising investment has in the past shared, at least
in some cases, the disadvantaged position with respect to Federal
financial assistance of the*States whose investments have been rising
most rapidly; and that—though some of the States involved provide
financial assistance to communities—their expenditures have generally
followed the regulator of investment intensity orovided by Federal
grants.
3) Federal grants would seem to have served as the principal
regulator in the case of the small number of States who have, on the
basis of investments during the last eight years, reached some sort
of equilibrium position for waste treatment investments.
They are States that have, as a grouo, achieved a high level
of control of public wastes. They are not, it would appear,
extremely efficient as compared to others. Though they have achieved
an interim equilibrium level of per-capita investment, it is at a
rate that has been consistently higher than that of other groups of
States until very recently.
Low population, non-metropolitan States, they have been so
structured as to achieve maximum per-capita assistance from Federal
construction grants. With Federal assistance at $100 million a year,
these States achieved a level of per-capita spending close to twice
that of more heavily populated States, and the rise in amount of Federal
grant allotments to $200 million a year induced no investment response
on their part.
4) The group of States whose investments ar» declining moderately
but perceptibly is in many respects much like the group whose invest-
ments are stable. These, too, are States with a relatively small
metropolitan population component who were able to materially accel-
erate their investment under federal assistance totalling $100 million
a year. Per-capita capital application in this group of States, too,
has been similar to that of States with stable investment—though their
investment is currently lower, it was somewhat higher in the previous
period; and over the eight year period 1°6?-F0, thp tv;o groups of States
mounted constant dollar per-capita investment efforts that were within
?." of one another in amount. The parallel investment experience of
12
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these two groups of States that have largely overcome their v/aste treat-
ment deficiencies is, perhans, indicative of v;hat the nation as a whole
can anticipate in terras of sustained investment needs. If so, annual in-
vestments of more than five 1957-59 dollars for each person receiving
sewer services may be sore sort of an underlying investment base for
a mature waste treatment sector.
5) States whose investments have declined steeply in the last
three years do not fall into a single pattern. They are widely dis-
tributed with respect to location; they include both industrial and
agricultural economies; some include predominantly snail town and rural
populations, others are metropolitan in character.
More significant with resnect to this discussion of investment
behavior is the relative prevalence of waste treatnent among the mem-
bers of the groun. There are twelve States whose waste treatment
investments have been cut back sharply over the last three years. Six
of these—Delaware, Nevada, North Dakota, Rhode Island, Utah, and
Washington—are much like the groups of States with stable or moderate-
ly declining investments in terms of past performance. The other six
a high pronortion of untreated or
low level of investment in the past.
States who are now increassing invest-
combine a drop in investment with
inadequately treated wastes and a
They are, in short, much like the
ments most sharply, (cf. Table 5.)
TABLE 5
Declining Investment States: Relative
Condition and Past Performance
I
Delaware, Nevada,
N. Dakota, Rhode
Island, Utah,
Washington
Percent of Nation's sewered population
Percent of Nation's sewered population
without waste treatnent
Percent of Nation's sewered population
with only orimary waste treatment
Percent of national investment: 1952-6?
1^67-69
Constant dollar per-capita investment:
1952-69
3.P
1.0
3.5
5.n
2.1
$64.34
II
Hawaii, La.,
Michigan,
Nebr., West
Virginia
o n
,. » V,-
19.0
13.9
9.3
4.7
M8.76
13
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The behavior of the first group is expectable i> terms of their
situation and nicht have been predicted; the decline in their activity
comes after a period of intense investment, and occurs in situations
marked by a high level of vaste control. The second group is an_
anomaly. Investments in the past have been near or below the national
average on a per-c?pita basis; they contain an abnormally laroe proportion
of the nation's population without waste treatment or with only primary
treatment; and their investment needs--in terms of physical facility
needs defined bv the States themselves—are disproportionately great.
Yet in circumstances that include thoso indications of likely to be
rising or at least stable outlays, and in the face of a doubling of
the level of Federal grant assistance, they have cut back on investments.
One may assume, perhaps, that there are special local circumstances
in every case that help to exolain the investment decline. And it is
not unreasonable to suppose that these particular States may simply
be demonstrating in extreme form the effects of high interest Crates and
constraints on the supply of money, and may in fact preview similar
investment declines in other areas as such financial constraints become
extensively operative. Another mechanism, too, nay be partially re-
sponsible for these States' declining investment. Removal of the
dollar limitations on Federal grants have made them applicable to com-
munities of all sizes, and where State financial assistance becomes
available to communities, the major portion of the financial load is
removed from their shoulders. I'nder those conditions, the amount of
Federal and State grants would constitute the principal limiting factor
in determining level of investment. Mo community could be expected to
begin a project in the absence of a full share of Federal and State
assistance. Thus the potential availability of assistance may«vhen
it is inadequate to conditions— serve to reduce rather than increase
the level of local effort. Inadequate Federal allocations, unfunded
State assistance programs, even the possibility of the introduction
in a State legislature of a bill to provide assistance, can have the
effect of limiting local investments: and sue* mechanisms may well be
operative in the cases of these six States. Arguing for such a
phenomenon is the fact that those States whose outlays are increasing
most rapidly include several cases where State government has agreed
to pre-finance the Federal share of local projects, thus eliminating
the level of Federal allocations as a constraint on investment.
Relative Efficiency and Public Investment
The data on per-capita investment by classes mcy offer some
inconclusive but useful insights into the relative efficiency of the
various investment groupings, as well as into the level of investment
to be anticipated under a condition of comolete treatment services.
14
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Table 6 'summarizes the constant dollar per-capita investment of
each of the classes of States for the period 1952 through 1969 and
contrasts that amount with the constant dollar value of current invest-
ment needs listed by each State, (cf. Chapter Two: Development of
Investment Needs for derivation.) It may very reasonably be concluded
that the eighteen year investment plus the value of the investment
remaining to be made provides an accounting of the per-capita burden
associated with attainment of water quality standards at this time.
TABLE 6
Per-capita Investment Associated with
Attainment of Water Quality Standards,
1952-1969
(All values in 1957-59 dollars)
Investment Status Per-canita investment Per-capita amount TOTAL
since 1952 of remaining needs
Sharply Increasing 49.23 32.25 PI.48
Increasing 45.56 20.98 66.54
Stable 59.63 36.88 106.51
Declining 62.03 37.10 00.13
Sharply Declining 49.5* 25.05 74.63
The values obtained by the exercise are extremely surprising. If
they are to be taken at face value, they suggest that there are extre-
mely wide variations in investment efficiency, that the least efficient
users of capital have'achieved the highest level of control of their
wastes, and that the less capital a State has provided in the past, the
smaller the burden waste treatment will mean to its citizens in the
future.
Although there are knovrn to be wide variations in investment
efficiency (the point is discussed later in this report), the
implications to be drawn from the values presented in the table seem
to be distorted, particularly when geography is taken into account.
Many of the States that are found in the investment groupings that
represent increasing investment, as well as several among the six
poorer performing States in the category of sharply decreasing invest-
ments, are located in the regions where canital efficiency has been
demonstrated to be low. A more realistic analysis of the situation may
well be that there is a tendency for States whose deficiencies are
great to underestimate the extent, of these deficiencies. Evaluation
of waste treatment deficiencies may depend to some degree on relative
accomplishment, so that States with effective and well advanced pol-
lution control programs may list as needed improvements situations that
15
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less effective states would find quite satisfactory. If this is in
fact the case, then those States who are now increasing their invest-
ments—not to mention those whose investments should be increasing
when they are in fact declining—may find the .job that they have set
out to acconplish considerably more expensive than is indicated by
their view of current conditions.
Industrial Hater Pollution Control Expenditures
In sharp contrast to 1968, when the high degree of visibility
given to water pollution control by institution of water quality
standards caused a flurry of industrial analyses, information with
regard to industrial pollution abatement expenditures was scarce in
1969. The only available source of comprehensive data was the annual
McGraw Hill Survey of Business Plans for Plant and Equipment. According
to the Survey, industrial investments for pollution control in 1%8
were well below first quarter projections. And the planned investment
level for 1969, though higher than actual 1968 expenditures, was
significantly lower than the rate of spending initially projected for
1968, as shown in Table 7.
The report may—though it is not certain—be reason for concern.
Of the total $776 million of manufacturing investment, 50 to 55% may
be consigned to water pollution control, on the basis of past invest-
ment relationships. That amount—$390 to $4?5 million—represents a
sharp drop in the level of industrial v/ater pollution control invest-
ment from the $500 to $600 million of 1967, during a year of record
capital spending. Strong inflationary pressures during the year may
be thought to have reduced the effectiveness of the investment. The
amount—even without adjustment for the greater than expected inflation
of construction costs that occurred—is well below the mean goal of
$502.6 million for industrial waste treatment investments in 1968 that
was established in the first renort of this series.
Finally, the forty percent increase in investment planned for
1969 must be considered to be suspect, in view of the wide (49%)
difference between actual expenditures in 1968 and report plans.
Unfortunately, the area of certainty is so small with respect
to industrial v/ater pollution control that is is impossible to
evaluate the real significance of the indicated drop in investment
during 1968. Certainly, deviation from the targeted goal is not in
itself enough to cause concern. The range of target expenditure
levels—$328 million to $677 million—is so great as to indicate
that, in spite of the drop in spending, industry may still be making
acceptable progress toward the goal. The gap between projected and
actual expenditures in 1968 may well be traceable to slow deliveries
and extended construction schedules, problems that plagued all types
of construction in the super-heated capital spending atmosphere of
16
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TABLE 7
Industrial Pollution Control Investments,
as Reported by "cGraw Hill
(Millions of Dollars)
INDUSTRY Projected Actual Planned
1968 1968 1969
Iron * Steel $ 144 $ 123 $ 184
Monferrous net?Is 37 13 51
Electrical machinery 116 3« A 7
Machinery 41 5P 83
Autos, trucks ' Darts 66 29 4Q
Aerospace s 14 15
Other transp. equipment
(RR Equipment., shins) 3 12 17
Fabricated metals ?- instruments 41 40 57
Stone, clay ? glass 40 33 56
Other durables ?9 2° 93
TOTAL DURABLES 585 3RP 652
ALL INDUSTRY SI ,B5R
Chemicals 112 104 126
Paper ?< pulp 91 91 1°*
Rubber 6 6 11
Petroleum 1^2 157 160
Food ?. beverages 32 15 31
Textiles " 26 13 1°
Other nondurable 40 ? 10
TOTAL NONDURABLES 40Q 388
ALL MANUFACTURING °9^» 776 1,113
Mining 83 4° 71
Electric 5 oas utilities 481 223 ?M
17
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the last two years. Nor is it unlikely that a number of industrial
pollution control projects were revised to take advantage of public
waste handling facilities, a practice that anpears to be increasingly
prevalent. (The practice could conceivably have reduced the level
of industrial investment in two ways: 1) substitution of public
facilities for planned treatment plants would cause a positive shift
of investment to the public sector-, 2) delays encountered in public
investment would cause postponement of industrial investments for
connection and transmission facilities.)
The lack of reliable information on industrial water pollution
control activities might be considered to be intolerable, if the
nation had not become quite habituated to it. The guessing process
has gone on for so long that it is considered quite normal; and
every effort to initiate an industrial waste inventory has been
frustrated without noticeable public comment.
In an effort to reduce the area of uncertainty, FWPCA has
contracted with the National Industrial Conference Board to survey a
substantial number of manufacturing firms during 1970 with respect to
their water nollution control practices and expenditures. It is the
hope of the Federal Water Pollution Control Administration that the
use of a private contractor with an impeccable reputation for discre-
tion and accuracy will reduce management fears of disclosure—fears
based, apparently, on a desire to maintain intearity of proprietary
kinds of data as much as on the possibility of the use of such data
for enforcement purposes if Federally collected—and assure the aqency
of reliable information of a breadth and ooint beyond anything
previously attained for the industrial waste treatment activity. Given
industrial cooperation with the proposed survey, FVIPCA should be
able to report to the Congress in 1971 with authority beyond anything
previously attempted in connection with industrial waste treatment.
Special Studies
In late 1968 and early 1969, the American Petroleum Institute and
the Manufacturing Chemists Association published napers
on pollution control expenditures relating to broad surveys of their
memberships. Those reports, interesting in themselves, are also of
value for their corroborative properties. In general, they support
the findings of the 1968 report to Congress on The Cost of Clean Water,
as those findings relate to the specific industrial sectors; and the
investment rates indicated are of an order to magnitude that is compa-
tible with the estimates of capital emplacement rates presented in the
1969 report on The Cost of Clean '.-later and^Its^^gjnonr[c Jmpact.
The petroleum industry data summarized in Table 8 is based on
responses to questionnaires submitted to 39 firms, 35 of whom respond-
ed. The respondents are credited with 97% of refinery throughput of
18
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TABLE 8
Summary of Data Reported for the Petroleum Industries
by The American Petroleum Institute*
Thousands of Dollars
1966
1967
1968
1°66
1967
1968
1966
1967
cpendl turps Total
Charges
tive ?,
Report
in the
79,016 I/
133, 728 I/
122,679 4/
45,7°7 2/
53,246 2/
56,^00 4/
Research Exnonditures
20, "03
23,842
26,200 4/
Manufacturing
18,138 I/
40,000 V
IP,, 33° 2/
21 ,030 £/
12,75" 3/
14,681 3/
on Air «'• Hater Conservation Expendi turns
United States, Cross ley
S-D Survey, Inc.
Production
57,968
70,318
25/23
30,103
6,833
7,757
of The Petrol
Transportation
786
1,017
1 ,41°
1,377
82
101
euro Industry
Marketi nq
2,124
2,393
616
736
1,229
1,303
, New York, August 1%8.
*Source:
I/ Includes ^l,4nl,nno in 1966 and ^,770,000 in 1967 at chemicals plants
2/ Includes ^3,375,000 in 1°66 and ";3,nn9,nno in 1°67 at chenicals plants
3/ Includes environmental research and testing that cuts across functional lines.
V Estimated
-------
the Industry, so results may be considered to Include substantially
all of the manufacturing segment of the United States petroleum
Industry. Given the predominant integration of the industry, it may
be inferred that a majority of crude oil and gas production is also
represented. The data is unsatisfying in some respects. It fails to
provide an assessment of total value of capital in place, and it
provides no indication of the effectiveness of expenditures.
It does provide some very useful new insights into the total
industrial pollution abatement situation, however. Surprisingly,
expenditures in connection with petroleum extraction have exceeded
those in manufacturing activities. Another surprising relationship is
the high ratio of research and administrative charges to operating
charges. Even allowing for public relations motivated padding, it
would appear that hidden costs of pollution control are significant
enough to warrant considerable industrial interest.
The Manufacturing Chemists Association data summarized in
Table 9 are in several ways more useful than that available for the
petroleum industries. In addition to information concerning recent
investment and operating charges, it provides a comprehensive look
at total investment, water use, and investment efficiency that is
based on 987 plants operated by 129 firms that represent 90* of the
chemicals production capacity of the nation.
Interestingly, the industry's reduction of organic wastes—about
57%—is almost precisely the same as the 593 calculated for the
aggregate public waste treatment plant of the nation. The report
also notes that of the industry's total surface water discharge,
38% required no treatment, 45$ met all regulatory treatment require-
ments, and only 17? involved some kind of waste treatment deficiency.
In this connection, it should be noted that the limited reduction of
inorganic wastes—only 27%—does not take into account the effects
of neutralization, a widely used treatment technique that does not
involve actual materials reduction.
A detailed report on waste disposal in the inorganic chemicals
industry was prepared for the FWPCA under contract by Cyrus William
Rice Co. in cooperation with W. Wesley Eckenfelder, Jr., Resource
Engineering, Inc., and Datagraphics, Inc., (separately printed as
Volume III of this report). It presents a description of the industry,
and the costs it would incur in attaining various levels of pollution
abatement over a five year period through 1974. The cost estimates
have been based upon published data, general data derived from inform-
ation in the files of the Contractors' on industrial waste treatment
methods and costs, and specific data from 59 inorganic chemical plants,
some of which were supplied by the Manufacturing Chemists Association.
The inorganic chemical industry was defined to include establish-
ments producing alkalies and chlorine, industrial gases, inorganic
20
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TABLE 9
Summary of Data Reported for the Chemicals Industry
by the Manufacturing Chemists Association
Water Use (Gallons/Day)
Total 11,695,875,000
Cooling water only 9,301,262,^00
Water Discharged (Gallons/day)
Total " 11,192,385,000
Through public sewers 101,735,000
Inorganic Wastes (Pounds/Day)
Total 20<5,088,noo
Discharged to water 146,911,WO
Discharged to public savers 2,34P,000
Organic Wastes (Pounds/Day)
Total 11,481/100
Discharged to water 3,°43,000
Discharged to nublic sewers 1,005,000
Water Pollution Control Expenditures
Capital investment through 1966 5 385,268,^00
Onerating charges, 1966 $ 59,638,000
Average Annual investment, 1962-66 $ 28,128,000
Average Annual investment projected,
1967-71 5 47,140,000
Source: Toward A. Clean Environment. A 1967 Survey of the Members
of the Manufacturing Chemists Association.
21
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pigments, paints and allied products, fertilisers (excluding ammonia
and urea), inorganic insecticides and herbicides, exnlosives, and other
major industrial inorganic chemicals. The complex relationship which
exists between various products and industries, however, make it
extremely difficult to arbitrarily associate certain oroducts with one
category. The overall output of the industry, since its products
are used for a wide variety of purposes well removed fror the final
consumer, depends unon the level of total economic activity rather
than the economic activity in any one segment of the economy. Since
new mineral sources are discovered infrequently and usually involve
large development expenditures, wide fluctuations in the gap between
demand and readily available supply are quite common.
Total production in the inorganic chemical industry is estimated
to be 3??.7 billion nounds in 1969 and is projected to be ^55.5 billion
rounds in 197*-. While certain segments of the industry are growing
as raoidly as l°°o per year, the historical growth is 1.* to 2.r times
that of the gross national product. The overall irice index of in-
organic chemicals, however, has fallen ?.5 percent in the recent past.
Thus, expenditures for pollution control may be of greater relative
significance than in other industries where rising orices more readily
absorb increased costs.
Regional growth rates reflect a continuing trend to move produc-
tion facilities closer tc rav materials and markets. The industry,
as a whole, is tending to concentrate in the Midwest and Southwest.
Inorganic chemical plants vary greatly in size, level of tech-
nology, product mix, and age. The report presents in considerable
detail the description of the various production processes, the wast*
treatment methods practiced, and the possible imoact that changes in
processes might have on the volume and character of the wastes pro-
duced. A typical or average plant exists only in the statistical
sense. Total costs given in the resort are for the construction and
operation of waste treatment facilities for the industry as a whole,
and cannot be used to determine costs for individual plants. The
costs given are for the waste treatment facilities only, and do not
include costs entailed in process changes, restriction of plant
operations, or sever segregation. Treatment system construction and
operating costs for a particular olant can only be estimated by de-
tailed engineering studies.
Projections based upon the chemical industry data in the 1963
Census of Manufactures, the 1P67 wanufacturina Chemists Association
survey, the l°f^ FWPCA study of the organic chemicals industry, and
the costs of treatment for the two levels of ?7* (the current r?te of
removal, according to the VCA) and 100'!' removal of contaminants show
the following projected operating costs and cumulative capital invest-
ment for wastewater treatment.
22
-------
TABLE 10
PROJECTED CUMULATIVE INORGANIC CHEMICAL INDUSTRY CAPITAL
COSTS FOR WASTE TREATMENT
Costs in Millions of Current Dollars -
Removal 1969 1970 1971
27 299.3 325.4 359.9
100 1308.4 1964.0 2173.2
1072
400.1
2416.3 2689.0 2970.0
PROJECTED INORGANIC CHEMICAL INDUSTRY ANNUAL OPERATING
COSTS FOR WASTE TREATMENT
Costs in Millions of Current Dollars -
Removal
27
100
1969
82.0
157.5
1970
89.1
171.0
1971
1972
1973
1974
98.6 109.6 122.0 135.5
189.2 210.5 234.2 260.2
]_/ Based on an average 3.6£ annual
anticipated growth.
increase in the price level plus
Contaminated wastewater from the inorganic chemicals industry^
comes primarily from electrolysis and crystallization brines, washings
from filter cakes, spent acid and alkalies, and washings from raw
materials. These wastewaters are generally characterized by dissolved
solids and suspended solids. In addition to contaminated waste streams,
process cooling discharges occur, accounting for 40 to 30% of the total
discharge on the average. Treatment practices vary but involve in-
plant segregation of contaminated wastes from uncontaminated cooling
waters. Equalization, neutralization, sedimentation and lagooning
processes are most widely used. Biological treatment is not^applicable,
since the contaminants are primarily dissolved or suspended inorganic
materials. Plants with small discharges tend to employ only equali-
zation and neutralization, with total discharge to municipal sewer
systems for joint treatment. It is estimated that between 10 and 20?,
of the process wastewater discharge of the industry is to municipal
systems (4.2% of the total discharge). Mo significant percentage
changes in this regard are expected through 1974. The inorganic
chemicals industry has generally found that in-plant, separate treat-
ment has economic advantages, particularly when significant quantities
of wastewater are involved.
23
-------
Data *rom F° inorganic chemicals plants v.'ere obtained and for-
matted according to the Industrial Waste Treatment Practices Data
ronr, which was developed for the study "The Cost of Clean Water and
Its Economic Impact, Volume IV," United States Department of the
Interior, January, 1°6°. The data obtained are'given in some detail
in the report in terms of bar graphs and various calculated parameters
relating wastewater volumes, plant production, and costs.
Key parameters of interest, regarding waste treatment costs are
the following:
Average capital cost
Average operating cost/yr.
Average wastewater flow
Average capital cost
Average operating cost
gpd
grd
16.73 gpd/anrual ton of production
^3.74/annual ton of production
SC.°8 per year/annual ten of
production
An examination of the survey data showed that the reported bases
of waste treatment decisions were generally least cost, or minimum
compliance with pollution control regulations.
The costs of unit wastev/ater treatment methods were developed and
are presented in the report as a series of mathematical models and cost
function graphs. These data were used to calculate capital costs of
waste treatment facilities versus two levels of pollutant removal for
a series of typical plants. Treatment level I was chosen because it.
represents the reoorted average treatment employed in the industry
at this time and is judged to be eauivalent to '7 1 removal of
suspended and dissolved solids. Treatment level II represents complete
removal of contaminants. Only two levels were selected, because the
industry's wastes are principally inorganic solids t^at respond only to
physical treatment processes. Because there are no intervening
technologies, intermediate levels of efficiency are not distinguished.
The two levels, then, may be viev.'ed as a range bounded on the one
side by the current level of efficiency and on the other by universal
application of exotic treatment practices. An almost infinite number
of intermediate Positions are possible within the range, but only as
the conditions that ar>r>ly to individual units of the population change.
I'nlike the case of organic wastes, there is no series of technological
plateaus through which the whole population may progress.
The following summarizes the capital and operating costs in
dollars for the two levels of treatment choser:
Removal Contaminants
?7 (SS and Acidity)
100 (TDS)
Capital Cost
OOP gnd
300
21 ?5
Operating Cost
C/1000. gal
51.5
24
-------
DEVELOPMENT OF INVESTMENT NEEDS
It is widely recognized that the pollution control effort, in
spite of the advances made in the last fifteen years, is inadequately
funded, but there is a high level of uncertainty with respect to what
may be an appropriate amount of funding.
That uncertainty must be ascribed to two factors, an inadequate
grasp of the constituents of demand and failure to establish a time
frame. The question that is most often posed is "how much must we
invest?" That question cannot be answered unless we establish finite
terms of accomplishment—including both a time schedule and a pre-
vailing level of control of public wastes. It must be recognized,
too,"that the terms of accomplishment cannot be fixed indefinitely.
One time period is followed by another; and the necessities of control
levels will be dictated by successive economic and population situa-
tions, by the dynamics of technological capabilities, by the effective
public preference for unpolluted water; and these will--as they bear
upon investment—be conditioned by price level changes.
Recognizing that problems of definition have tended to obscure
every assessment of investment need that has been nade in the past, the
economic staff of the Federal Water Pollution Control Administration
devoted a major portion of its efforts during 1969 to isolating
and examining the major constituents of public waste-handling invest-
ment behavior. While subsidiary questions—notably the trend of real
construction costs over tine and regional variation in unit costs —
force themselves to attention, the prime focus of the study was the
rate of formation of demand for waste-handling capital.
The result of that year of study—which depended heavily on the
previous analyses reported upon in The Cost of Clean Hater (January,
1968) and The Cost of Clean Water and its Economic Impact (January,
1969) as well as upon supplemental studies conducted in the Federal
Water Pollution Control Administration and elsewhere—is the conclusion
that the nation is currently forming demands for public investment
capital at a rate very close to a billion dollars a year. Under the
existing set of technological competences and regulatory conditions,
the level of waste treatment required of local governments implies
the expenditure of about a billion dollars a year in addition to any
amount that must be invested to get the current stock of capital up
to the stipulated level of v/aste treatment.
25
-------
An Evaluation Model
The evaluation is significant enough to warrant a generalized
description of the analysis upon which its rests, even at the risk of
some tedium.
Two analytical procedures were conducted in parallel, one based
upon normative influences, the other upon recorded situations. The
basic analytical tool was, in either instance, the same, a mathematical
simulation of investment in public waste handling systems.
Extremely simple in concept, that mathematical modelling of the
value of physical capital has proved to be very complex in the con-
struction. Indeed, at this writing it remains a crude—but hopefully
reliable—evaluation technique that is still undergoing extensive
refinement. In its present form, the model correlates a series of
equations that define size to average cost relationships (in constant
dollars) for basic waste-handling procedures and equipment with the
current f-junicipal Waste Inventory. Two separate modelling programs
are employed. One involves scanning the inventory and assessing
for each recorded sewerage system the cost of constructing or installing
component elements—other than collecting sewers—of the size and
description of those included in the system. The second program
ignores—except for their sizing qualities—installed facilities.
It scans the inventory for the needs recorded by the State governments
who are the prime source of the Municipal Waste Inventory. For each
category of need, the program calculates the average cost of installing
or constructing the particular facilities—sized according to a normal
statistical distribution of capacity to indicated load.
The aggregated results for the two programs are presented in
both constant and September, 1969 dollars in Table 11.
The Analytical Procedures
The fact that $4.4 billion worth of needed improvements were
listed in the most recent compilation of public waste handling systems
is of less than conclusive importance, in that it does not reflect
the development of such needs. It does not mirror the formative
imperatives of time, change, economic growth; the fact that as one
set of conditions is met, new problems arise—or are created by the
resolution of the old ones.
The rate of formation of such needs must be understood if a pur-
poseful program of investment in water pollution control is to be
formulated. The evaluation model, with the introduction of the element
of time, provides enough information to define at least an order of
magnitude view of annual investment needs development.
26
-------
TABLE 11
Evaluation of Capital in Place and of Defined Needs, 1969
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Puerto Rico
Virgin Islands
Totals
Value of Works in Place
1957-59
Dollars
139.0
1.1
45.6
107.0
769.1
165.9
89.0
25.0
33.6
312.4
204.2
16.8
58.0
497.2
313.0
.3
.2
.3
.2
206.5
184.5
140.5
140.1
17.9
88.
102.
252.
205.
109.9
229.0
54.7
124.0
29.6
16.3
304.4
7.1.6
580.4
248.3
56.4
484,
171.
124,
424.2
38.1
113.1
58
168
639
87
20.8
166.
143,
73.9
254,
38.
34.1
8979.7
Current
Dollars
191.8
1.5
62.9
147.7
1061.4
228.9
122.8
.5
.4
.1
.8
.2
.0
34
46
431
281
23
80
686.1
431.9
285.9
254.6
193.9
193
24
121
141
348
283
3
7
9
0
2
2
151.7
316.0
75.5
171.1
40.8
22.5
420.1
98.8
801.0
342.7
77.8
.9
.9
.7
.4
.0
.5
668.
236.
171
585.
52.6
156.1
81,
232.
882.0
120.8
28.7
229.4
197.6
102.0
350.9
52.7
47.1
12392.0
Value of Needed Works
.2
.3
.3
.2
1957-59
Dollars
89.0
6.0
14.8
32
273
31
53
2.5
20.4
35.1
89.7
18.8
24.3
141.2
100.9
32.1
59.8
11.8
57.4
66
20
151
98
39
36
107.8
.4
.7
.3
16.
27.
12.
44.6
117.4
7.4
200.0
73.7
4.8
166.6
23.0
46.5
262.5
16.6
48.5
10.0
52.0
117.0
20.3
29.6
.5
.3
.3
.2
47.
65.
54.
90.
6.4
23.6
2.7
3201.1
Current
Dollars
122.8
8.3
20.
44.
377.2
43.2
73.4
3.5
28.
48.
123.8
25.9
33.5
194.9
.4
.6
.2
.4'
.2
,3
.5
.3
.2
.8
.3
.2
139.
44,
82.
16.
79.
91,
28.
209.
135.7
54.4
50.0
148.8
22.6
38.2
17.0
61.5
162.0
10.2
276.0
101.7
6.6
229.9
31,
64.
362.
22.
66.
13.8
71.8
161.5
28.0
40.8
65.6
90.1
74.9
124.5
8.8
32.6
3.7
4417.5
.7
.2
.3
.9
.9
27
-------
The first of the two procedures used to determine the rate of
formation of demand for investment capital consisted of a simple
comparision of recorded needs over time, applying the same modelling
procedures to the 1962 Municipal Waste Inventory that were used to
evaluate the 1968 Inventory, and taking into account the investment
that occurred between inventories. The analysis took the form:
A = (X - Y) + I
T
Where: A= average annual investment demand developed during the period,
X= investment demand, as defined by the Inventory at the begin-
ning of the period,
Y= investment demand at the end of the period,
1= actual investment, adjusted to base period prices, over the
period,
T= number of years between inventories.
It is recognized that there is a measure of over-simplification
in the equation. It implies an effective identity of replacement with
depreciation, not at all a good assumption in a period like the present
when most of the physical capital involved is of relatively recent
origin; and it neglects changes in real costs that have occurred be-
tween 1962 and 1968 by evaluating the earlier period's needs in terms
of current cost functions. The basic formula, however, is considered
to be logical; and adjustments are possible. Expressed numerically, it
provides a value of about 500 million (1957-59) dollars a year for the
capital requirements posed by depreciation, grov/th, and system improve-
ment:
(3201.1 - 3001.7) + 2759.3 = 493.2
6
The second analytical procedure involved the use of normative
standards (rather than regulatory/engineering determinations) in con-
junction with the evaluation model. Established rates of depreciation
were applied to the estimated replacement value of waste treatment
plants (4% based on a twenty-five year average life), and to the esti-
mated value of ancillary works such as interceptor sewers, outfalls,
pumping stations, and force mains (2%, based on a fifty year average
life—presumably somewhat greater than fifty years for the sewer com-
ponent, somewhat less for other facilities). In similar fashion,
growth of demand was assessed by projecting a continuation of the rate
of increase in the hydraulic loading of municipal waste-handling systems
that took place in the period 1957 to 1968, or 3.3% a year.
The exercise produced a set of values that were incredibly close
to those derived from point by point evaluation of recorded needs. As
presented in Table 12, they show a set of annual investment requirements
rising from $425 million in 1962 to $584 million in 1968. The average
28
-------
value for the period, $504 million, is within 2.3% of the mean value
developed by the first procedure, and well within the range lying
within one standard deviation about the mean.
Table 12
Normative Assessment cf Annual Capital Needs
Generated in 196? and 1968
Millions of 1957-59'Dollars
1%2 1968
Replacement Value of Trtmt. Plants 2975.2 4132.7
recapitalization at 4% 119.0 105.3
Replacement Value of Assctd, Works 3498.9 4347.0
recapitalization at 22 69.8 9G.9
Loading growth at 3.3% 213.3 296.3
incremental recapitalization
for plants to be upgraded at 4% 22.9* 25.5*
Annual Needs developed in year 425.0 534.0
*Value considered to be associated with primary treatment capacity
required to be upgraded to secondary treatment.
Elements of the Investment
Requirement
Table 13 summarizes, State by State, the computed value associated
with the various categories of investment needs, as these were listed
in the 196G Municipal Waste Inventory and assessed by the evaluation
model.
The most obvious needs for investment are posed by those 1500
sewered communities that discharge raw wastes to waterways. Given the
existing size distribution of those communities, normal design stand-
ards, and the assumption of treatment through the activated sludge
process, these plants pose a need for about $1.4 billion (1957-59 dollars)
of investment—about $950,000 per community, including the investment
in transmission facilities and in outfalls that is probably required
for these communities, on the basis of their size distribution and the
historical relationship between plant and ancillary costs for communities
of various sizes.
A second fairly clearly defined category of need occurs in those
approximately 2500 situations in v/hich only primary waste treatment
exists. Although primary treatment is permitted by water quality
standards in some cases due to the capacity of receiving waters to
assimilate wastes, the prevailing policy in the United States has come
to be one that requires secondary treatment. The consequences of that
policy in terms of investment, then, can be calculated on the basis of
29
-------
TABLE 13
Computed Values for Various Categories of Investment Needs by State
Millions of 1957-59 Dollars
New Plants Upgrading Enlargement Disinfection Connection to Other
Existing System Improvements
Al attama
Alaska
Ari zona
Arkansas
California
Colorado
Connecticut
Del aware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
Mew Hampshire
Hew Jersey
Hew Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Puerto Rico
Virgin Islands
$75.35
4.32
10.80
9.29
16.40
5.86
6.86
0.32
0.72
36.41
12.62
8.47
22.67
32.14
9.84
40.19
3.86
41.65
60.57
2.29
88.50
19.83
7.21
28.00
98.19
5.65
12.35
3.62
40.18
1.75
103.19
49.37
4.09
30.81
4.35
15.88
190.93
4.35
42.84
6.50
21.89
3.06
11.46
18.23
5.80
7.82
37.99
0.91
4.47
14.06
2.66
$5.95
1.66
0.20
10.54
61.44
5.40
39.22
2. IB
0.89
21.59
1.20
10.44
56.88
12.22
2.29
9.03
6.81
4.18
5.79
2.97
22.63
61.44
26.92
1.09
5.01
9.09
12.34
4.65
0.56
101.67
2.79
92.17
13.10
0.73
78.61
11.09
13.56
36.05
3.14
4.08
2.52
28.54
20.97
1.77
10.52
21.97
17.40
16.26
73.29
1.31
9.52
$7.62
3.76
6.89
181.47
19.96
4.45
20.38
33.46
22.81
0.61
4.63
49.52
46.43
16.07
10.33
1,04
11.53
12.37
12.46
12.30
2.44
7.13
4.28
1.49
2.94
4.06
3.87
15.73
2.87
4.65
9.94
48.55
6.05
14.50
33.48
2.55
1.61
0.32
1.56
93.01
7.04
0.83
2.51
14.21
9.36
0.48
$0.09
0.51
2.82
6.39
3.93
0.14
0.12
0.11
0.01
0.02
0.01
Totals
$U86.56 $965.67
$773.55
3.58
0.29
0.24
0.66
0.02
0.43
0.53
0.16
$20.06
$5.59
13.%
2.64
8.06
4.34
9.25
3.68
0.13
2.76
26.30
3.90
2.74
1.17
5,07
1.50
2.01
1.80
0.15
17.18
25.32
6.13
$143.68
$0.12
0.05
0.31
0.78
0,03
0.22
0.02
1.64
0,31
0.02
0.30
0.16
0.09
0.02
0.17
0.03
0.23
0.04
6.37
0.01
0.02
0.02
0.12
$11.60
Total
$89.03
5.98
14.81
32.32
273. 27
31.30
53.16
2.51
20.38
35.07
87.70
18.78
24. 3Z
141.15
100.86
32.14
57.77
11.84
57.38
66.49
20.51
151.64
98.29
39.35
36.23
107.78
16.40
27.12
12.33
44.61
117.41
7.42
200.01
73.72
4.83
166.62
23.02
46.46
262.52
16.57
48.54
10.00
52.01
117.04
20.27
29.58
47.51
65.30
54.25
90.23
6.42
23.59
2.66
One Standard
Deviation
313.44
1.40
1.99
7.77
17.41
5.14
6.45
0.43
11.37
4.94
10.20
2.86
3.18
15.36
8.92
4.32
20.75
3.63
19.25
19.17
7.54
37.01
10.95
10.14
9.55
31.85
3.34
4.08
1.54
10.38
15.59
0.95
50.67
9.00
0.48
14.51
3.08
5.63
57.25
2.33
5.77
1.04
11.97
7.62
1.84
4.94
6.24
9.85
8.81
7.76
2.14
6.10
1.26
$3201.12
$539.19
30
-------
historical cost factors to require an investment of about $900 million
of (1957-59) dollars, or an average of $360,000 per project.
Another $800 million worth of miscellaneous kinds of projects
completes the list of current needs. In total, they indicate a most
likely investment need of $3.1 billion in a range of $2.6 billion to
$3.7 billion constant dollars—or, in current dollar terms, a most
likely investment need for 4.4 billion September, 1969 dollars in a
range of $3.6 billion to $5.0 billion.
But this fixed, presumably diminishing with time, set of values
represents no more than a point on a scale. They are the cur-^t com-
bination of those dynamic elements that underlie basic demand ! ,r
capital in this economic sector. Those elements will persist; and even
a vigorous public effort to reduce the accumulatic of investment re-
quirements will not end the continuing need for capital. Indeed; as
the waste-producing qualities of our growing economy assert themselves,
the annual capital requirements of the waste-controlling activity may
be expected to increase.
It is not paradoxical that requirements expand as our level of
controls expand. Before a facility is constructed its need represents
a contingent liability: once built, it must be kept in operating
condition, modernized, expanded, upgraded to meet conditions. Such
investment requirements may be less obvious and less dramatic than the
need for a plant where none exists, but they are no less real--and are
often far less postponable. It follows, then, that as the level of
waste control grows, so does the magnitude of the annual investment
associated with waste control. There is no better means of demonstrating
the compounding effect of past investments'on future needs than to
review the recorded needs associated with sewer f/sterns at each of the
last three municipal waste inventories, (cf. Tab e 14.) While the
number of persons attached to sewers increased fo; ty-two percent
between 1957 and 1968, the raw number of recorded investment needs
increased ninety-two percent. A different kind of investment require-
ment was engaged—various major and minor ungrading projects steadily
replacing new plant needs over time—but both the total number of
needed projects and the number of persons affected has risen.
Rising investment demand, then, is not only consistent with the
general rules for a growing economy, but equally consistent with the
pattern of events in the particular economic sector under consideration.
Moreover, it is possible to distinguish the influences that form that
demand. They may, for purposes of discussion, be considered under four
general categories: 1) recapitalization, 2) growth, 3) prices, and
4) "changes in the rules of the game."
31
-------
GJ
ro
TABLE 14
Increase In State Government-Defined
Waste Treatment Needs Over Time*
Kind of Need
Number of Systems
1957 1962 19C8
New Plants
Replacement
Enlargement
Additional Treatment
Chiorination
Improved Operation
Connection
Total Mo. Needs
Total Systems
% w needs
New Facilities I/
Major Upgrading |/
Minor Upgrading ^/
*Source: Municipal Waste Inventory, 1957, 1962, 1968
!_/ New Plant, replacement, connection
2/ Enlargement, additional treatment
_3/ Chlorlnation, improved operation
2549
973
688
753
41
329
57
5390
10,511
51.3
3579
1441
370
2143
853
809
821
42
332
45
5045
11,006
45.8
3311
3071
374
1586
625
1003
2130
723
209
123
6399
13,849
46.2
2334
3133
932
1957
Population Served
(OOO's)
1962
1968
13,504.0
3,101.6
15,315.9
7,687.0
598.1
887.3
676.4
41,770.3
98,361.9
42.5
17,282.0
23,002.9
1,485.4
13,058.4
3,888.2
24,849.0
8,215.8
201.4
1,068.2
482.3
51,763.3
118,371.9
43.7
17,428.9
33,064.8
1,269.6
9,575.3
1,719.9
27,861.6
36,327.5
2,937.8
888.8
1,019.7
80,330.6
139,726.7
57.5
12,314.9
64,099.1
3,826.6
-------
Recapitalization
Table 12 presents an effort to quantify and evaluate the dimensions
of annual recapitalization needs as they exist in mid-1969. The
constant dollar replacement value of all public waste transmission
and treatment facilities is calculated to be about $3.9 billion.
In the real world, recapitalization needs tend to occur in staggered
fashion, so that investments for any particular system (except, perhaps,
for a few of the very largest) are characterized by a considerable
lumpiness. For the aggregate system of the nation, however, it is
reasonable to assume that recapitalization needs will reflect in
fairly precise measure normal design standards. The analysis, then,
has assigned a replacement factor of four percent for treatment plants
and two percent for ancillary works, adopting as points of departure
the twenty-five year and fifty year design lives that civil engineers
ascribe to such facilities. Basic physical capital, then, is depreciating
at a combined rate of about 2.9% a year. In 1969, the calculated
recapitalization need created amounted to about $260 million 1957-59
dollars.
Misconceptions often surround the theory of depreciation or
replacement. As these factors are viewed in this paper—and as they
occur in the real world—they apply as a series of intermittent invest-
ments that duplicate the original cost of an installed facility within
a given period of time. Recapitalization factors, then, are not
intended to reflect some theoretical wearing out or mere bookkeeping
transactions; they represent tangible outlays incurred in connection
with existing facilities.
(There may be some question about the accuracy of the assigned
depreciation rates. They depend on design factors rather than
empirical data. Information on replacement is scarce, and its inter-
pretation is obscured by the overlap of replacement, upgrading, and
improvement that, is involved in the usual project that involves an
installed facility. The information that we do have—covering just
over ten percent of all recorded sewerage systems--!ndicates that ten
percent of all plants undergo a major revision within five years of
their construction date; and that within fifteen years of their con-
struction, forty-five percent of all plants undergo some major revision.
(cf. Table TS.) On this basis, the four percent recapitalization
factor is, if anything, conservative.)
Growth
The growth rate built into the calculation of annual investment
need is high, indicating a demand for capacity that is compounding at
3.3 percent per year. The rate is based on recorded increases in
average daily flow between 1957 and 1968. It includes both the period
of maximum treatment plant construction in the nation's history, and
more recent intensive industrial connections to public facilities.
33
-------
co
TABLE 15
Frequency of Major Treatment Plant Revisions
Last
Revision
Since
1963
1958
1953
1948
1943
1938
1933
No. Of
Plants
Identified Plant Built
775
453
133
36
3
4
2
1964-68 1959-63 1954-58 1949-53 1944-48
78 153 118 67 21
30 51 42 15
9 11 4
2
1939-43
119
84
32
8
1
1934-38
103
85
27
8
2
1929-33
54
56
23
7
1
1928 or
before
62
90
26
11
4
1
TOTALS 1406 78 183 178 120 42 244 225 141 194
-------
It may be expected to moderate in the future. This paper, however,
relates only to needs to be anticipated over the next five to ten
years; and within that time frame, there is no reason to expect a de-
cline in the rate of growth. If anything, the trend toward broader
industrial connections may effectuate an interim increase in the
growth of demand.
There are three processes of accommodating growth. Newly sewered
communities or subdivisions—wholly new sewer systems—are the least
significant source of demand, though they are also the easiest to
quantify. On average, about 230 new sewer systems come into being in
the United States every year. The second, and more significant, growth
process involves an expanded demand on an existing system. In this
case, newly sewered residential areas or newly connected factories add
their demands to those of a system already in place. They can be
accommodated in either of tv/o ways, either through the construction of
new facilities or by taking up previously unused capacity provided to
accommodate just such growth. In either of these last two conditions,
growth will ultimately require construction. Indeed, the first case,
where additional capacity must be installed, is simply an extension in
time of the second. Growth can be accommodated in an existing plant
to the point that all capacity is taken up; at that point, an investment
need is created.
Because it is customary to design plants to provide for the
growth of service anticipated within the life of the plant—normally a
period of twenty-five years—most of the $300 million a year need for
expansion is currently being met out of existing capacity. Since the
age composition of the nation's stock of treatment plants is con-
ditioned by high investment in the last decade, the nation has been
able to continue to extend its total level of waste control over the
last few years. It should be noted, however, that not all of the
capacity now available for growth will be usable within the normal
life of the present stock of plants. Almost all waste treatment plants
are built to accommodate enlarged demands, but not all communities
grow. The naive projection techniques employed by consulting engineers
have tended to create a pool of excess capacity that will never be used
in small, static communities. Conversely, treatment plants built to
conventional sizing standards in other places have proved entirely
inadequate to meet the demands of recent industrial connections. The
aggregate supply of treatment services probably exceeds the aggregate
demand for such services. Unfortunately, the supoly is not entirely
located at the same places as is the demand; and with time, the dis-
location will become more significant. That fact is one of the
pressing reasons for increasing the level of investment in public waste
handling facilities at the earliest possible date.
35
-------
Prices
One of the central economic perceptions of the last five years.
has been grov/ing discomfort caused by price increases; prices have
been rising at accelerating rates.
For municipalities, with their ultimate responsibility for instal-
ling and operating waste handling systems, increased prices have
entailed a more direct constraint on pollution abatement activities
than have more substantive national economic problems. Business cycle
fluctuations, structural unemployment, and accommodation of a grov/ing
labor force have impinged on the operations and finances of local
government, but only indirectly. But the resumption of the rate of
price increases experienced in the nineteen-fifties has had an enormous
impact on local government funding capacities. Even during the rela-
tive respite from inflationary pressures experienced from I960 through
1064, county and municipal governments were unable to meet out of rela-
tively inflexible tax bases increasing pressures of real demand for
social and environmental services. In that context of inadequacy,
rising prices have had a serious effect. Throughout the economy,
the only sector that has suffered more from price increases than local
governments is probably the very poor; and even their difficulties
stem in part from State and local governments' losing struggle
to maintain their share of welfare services.
It is customary to consider the problem of rising prices rather
offhandedly as "inflation". Cut for local waste handling needs, the
problem has three aspects; and of these, inflation has probably not
been as serious in itself as through its effects on the cost and
availability of money. While the prices of labor and materials consumed
in constructing and operating a waste handling system have advanced
quite steeply, the advance in the cost of monies has had an even more
pronounced effect on expenditures, and the scarcity of funds--
even at advanced prices—has constrained capital outlays for treatment
and collection systems even where willingness to construct was strong.
Mot inflation so much as the money rationing procedures of financial
markets have reduced local government's ability to come speedily
to grips with its waste handling problems.
It is difficult to document the observation except by example,
since there is no register of bond issue cancellations or deferrals.
Examples are plentiful, however. At the close of its 1969 fiscal year,
the State of California reported deferral of a billion dollars of
voter-approved bond issues--80£ of then for financing of water resource
projects. Federal Water Pollution Control Administration regional
offices have reported a number of instances of postponement of munic-
ipal financing of treatment works in cases in which a Federal grant
has been solicited. The June 8, 1969 issue of The New York Times (1:2)
mentioned in a feature article on the effect of interest rates no less
than fifteen cases of municipal projects cancelled or delayed by
36
-------
financial constraints—and these apparently represented not an attempt
at comprehensive reporting, but simply random examples, probably chosen
for their dramatic nature. In many cases, the absolute shortage of
funds is reinforced in its impact on local financing by statutory
interest rate ceilings or limitations on indebtedness.
While reduction of the relative supply of funds may be the most
serious source of inflationary constraints on pollution abatement,
direct effects are not to be slighted. Over the last twenty years,
the cost of constructing a waste treatment plant—as measured by factor
costs—has almost doubled. Opportunity costs, as measured by interest
rates, have nearly quadrupled—which, working on the inflated construc-
tion cost base, has increased the cost of financing a plant more than
six-fold. In combination, these factors have caused it to cost three
times as much to finance and build a waste treatment plant today as the
same plant would have cost in 1950; and half of that increase in cost
has taken place in the last five years, (cf. Table 16).
TABLE 16
Escalation of the Cost of A $1,000,000
Waste Treatment Plant, 1950-1959
Year Interest Const. Cost Cost Rise over Previous Period Total Cost
Rate* Index** Interest Construction (25 yrs.)
1950
1955
1960
1965
1967
1968
1969
1.
2.
3.
3.
3.
56
18
26
16
74
4.28
5.91
69
89
105
113
120
124
132
148,350
276,050
28,400
165,650
149,550
448,000
Cumulative Cost Increases $1,216,000
* Moody's State and Local Aaa, June 30.
** Sewage Treatment Plant Cost Index, FWPCA
$260,000
260,000
120,000
100,000
60,000
110,000
$910,000
$1,195,000
1,603,350
2,139,400
2,287,800
2,553,450
2,763,000
3,321,000
$2,126,000
Those increases can be quantified and projected for our evaluation
model. The $3.2 billion evaluation of current year investment require-
ments amounts to $4.4 billion when base year costs are escalated to
September, 1969 price levels, and it is only reasonable to assume
further increases in prices. Over the last five years the annual in-
crease in factor costs has amounted to 3.2% to 3.7%; and this paper
will project future costs to include a 3.5% annual cost increase co-
efficient.
Changes in The Rules of the Game
The area of evaluation that presents the greatest difficulty is
37
-------
the problem of definition. The evaluation model, and the proposed
investment schedule developed at a later point in this paper, rest
upon a given set of conditions, the rules of the game as it is general-
ly played today. But there is nothing sacred about those rules^-today's
are very different than those of five years ago, for example—and any
basic change must have a fundamental effect on investment conditions.
Some possible changes are almost predictable. There is, for
example, a very pronounced tendency to require treatment of sewage for
removal of phosphate. No price tag has been attached to that type of
treatment in this paper for two reasons: at this time, phosohate
removal is a specialized and localized kind of requirement; and there is
no preferred—or even accepted—technique of accomplishing it. The most
likely treatment methods appear to involve very slight incremental
investments, but extremely large increases in operating costs for
purchase of chemical additives. Should a capital-intensive method of
treatment become available, should phosphate removal become a universal
requirement, investment requirements might be expected to shift power-
fully upward. Conversely, if soap producers were to find an acceptable
alternative for phosphorus-based detergents (and there is increasing
pressure in western Europe to require such a course), then this partic-
ular influence on costs might diminish.
An example of the way in which a shift in the rules of the game
has already influenced costs may be adduced by reference to Table 14.
Between 1957 and 1962, the total number of needs associated with public
sewerage systems declined, in spite of an increase in the number of
systems. Between 1962 and 1968, however, needs increased sharoly,
even though investments were much greater between those years than in
the preceding period. Interposition of water quality standards and
application of the secondary waste treatment requirement, a major
change in the rules, created an entirely new definition of what might
constitute a need, forcing required investment levels sharoly upward.
Nor are changes always determined administratively, or applied
across the board. The internal pressures of engineering practice
condition the rules of cost; and local preference may dictate specialized
sets of rules.
Engineering practice has certainly been changing as money has be-
come increasingly available for water pollution control investments.
There has been a growing tendency to use the more expensive of the
secondary waste treatment processes, to construct plants of larger
size relative to current loading demand, and to utilize additional
mechanical operating components. Treatment plants that are being
built today are quite different from those of a decade ago in a number
of ways. The underlying technology is the same, including a mixture
of physical and biochemical reactions that take place in a series of
tanks connected by piping and pumping; but there has been a strong
effort to improve the engineering of those reactions, to build into
38
-------
facilities greater reliability and longer life. More stages are
automated. Monitoring has become more sophisticated. More durable
materials are being employed. Much more attention is being paid to
sludge handling and incineration is being employed in a growing number
of instances. As a result, the cost of treatment systems has been
going up, quite apart from price level increases. Indeed, the increase
in real costs has matched or exceeded the increase suffered as a result
of inflation over the last five or six years, judging from a statistical
study of comparative pricing patterns in 1961-63 and in 1967-69. (R.L.
Michels: Construction Costs of Municipal Wastewater Treatment Plants,
1967-69 .) In terms of construction put in place between 1962 and 1968,
those increases in real costs are estimated to have added about $400
million to the investment associated with waste treatment plant
construction.
TABLE 17
Constant Dollar Investment Per Unit Capacity
Activated Sludge Plant, 1961-63 and 1967-69
Capacity of Plant Investment/P.E. Capacity ($1957-59)
(Pop. Eqvlts.) 1961-63 1967-69
1,000 66.00 87.50
10,000 29.50 43.00
100,000 13.00 21.50
The effects of local preference can result in substantial differ-
ences in waste treatment investment. The water quality standards
adopted by the State of Indiana call for the construction of 45 advanced
waste treatment plants—representing the majority of the standards-
required advanced waste treatment needs for the entire United States.
In the western States, waste stabilization ponds are the most prevalent
treatment measure; and the low cost installations serve to reduce
unit costs to a fraction of the amount required by mechanical treatment
plants. In the Northeast, however, such facilities are almost unknown.
In the Southwest, the treatment of industrial wastes in municipal
facilities is a rarity; in the Pacific Northwest, and increasingly
in New England, it is becoming standard practice. New York and New
Jersey, in connection with their extremely vigorous pollution control
programs, seem to be engaged in major rehabilitation of sewerage
systems already in place, scheduling very large sums for replacement
and integration of existing facilities. Without casting judgements
on the relative effectiveness of these or other expressions of differing
local interpretations of the rules of the game, one can conclude
that they have an enormous power to influence investment totals.
39
-------
Locational Influences on Plant Cost
Reported investment data, when related to municipal waste treat-
ment inventories, indicate that there are enormous differences between
regions of the United States in the capital efficiency of public
waste-handling.
Setween 196? and 1%8, local governmental units invested, on
average, about $120 for each person reported to be added to a public
sewer system. About $187 more was invested in waste treatment and
transmission for each additional population equivalent of biochemical
oxygen demand from domestic sources that was reduced in wastn handling
systems. (The figures are not adjusted for additions or subtractions
from excess capacity. They wore derived by dividing total investments
made in the period 1962 to 1967 by the incremental waste collection
and reduction calculated to be achieved during the same period. To the
extent that total capacity was increased beyond the level of actively
utilized capacity and to the extent that wastes from industrial sources
were added to the system, unit investments are overstated. They do,
however, provide an adequate measure for comparison of regional expend-
itures, since they weigh on a consistent basis the investment
associated with an homogeneous incremental product.) Application of
the technique to investments made by blocks of States thought to be
economically, politically, and goonrnphically similar produced results
that point to wide regional variations in waste handling costs. At the
extremes, it cost $2.75 in the highest cost area to buy the incremental
v/aste handling effectiveness purchased for a dollar in the lowest.
The numerical results of the analysis are not reproduced here for
several reasons. It is recognized that the basic data are not in all
respects compatible or reliable. The analysis concerns itself with
total costs but incremental efficiencies in a situation where much
of the investment that was made is recognized to have been for purposes
of replacement rather than for new or upgraded facilities. Differing
regional propensities to treat industrial wastes have a distorting
effect on results. And by the very nature of the analysis, regions
with high rates of population growth tend to appear distinctly more
efficient, in that their more rapid uptake of excess capacity has the
effect of applying a lov/er apparent rate of discount. To describe
unit cost differences under these conditions might be thought to stig-
matize unfairly the regulatory or construction competencies of the
higher cost areas; and the results of the analyses are felt to be too
hazy in detail to be presented in quantitative forms. However, the
conclusion that unit costs vary substantially with location is too
firmly founded to be doubted, regardless of definition difficulties.
Moreover, the pattern of difference is quite clear. Cost rises as one
moves eastward and northward: they tend to be highest in New England
and States bordering the Great Lakes, lowest in the southwestern and
Gulf Coast States. (Groups of States are ranked according to relative
costs at several points in the discussion that follows, and the com-
position of the various groupings is defined in Figure 2.)
40
-------
Figure 2
Regional Definitions for Analysis of
Comparative Unit Investment for Incremental
Waste-Handling Capabilities, 1962-1968
GREAT LAKES
SOUTHWEST
SOUTHEAST
ENGLAND
NORTH ATLANTIC
Q
rMIDDLE ATLANTIC
1* **' •
-------
Examination of investment programs on an aggregate basis has
failed to produce satisfactory explanations of cost differentials of
the magnitude indicated. A number of possible explanations have been
adduced by the analytical staff and by observers in Federal Water
Pollution Control Administration regional offices, State government,
and the consulting engineering industry. In some cases, information
was available to allow a proposed explanation to be tested in broad
fashion. In some cases, the reason proposed for cost differences was
so intangible or so illogical (e.g., criminal domination of construc-
tion activities) as to allow it to be discarded, even when investigation
could not be attempted. A number of very reasonable propositions
remained after preliminary consideration eliminated the obviously
misdirected and the intangible; but whether any of these, or any combin-
ation of them, accounts fully for the spread in observable returns on
investment remained a problem. The array of proposed explanations of
unit investment differences presented from various sources included
all of the following:
(1) Data deficiencies. Information on the prevalence and methods
of waste treatment and on population connected to public sewers is re-
ported individually by the States. Although a common format is utilized,
there is great variation in estimating techniques employed and in the
completeness of reports. Similarly, investment data is gathered direct-
ly from State agencies, as well as from various economic reporting
services, so variation in reporting practices may influence results. It
should be noted, however, that unit cost variation within any of the
groups of States considered was consistently found to be less than
between the various groups, so that anomalies attributable to data
variability must be presumed to include regionally consistent reporting
deviations.
There is, in addition, independent analytical work that suggests
that regional cost differences are a very real phenomenon, and not the
result of reporting freaks. The State of New York, through the operations
of its grant programs, has compiled a great deal of information on the
capital cost of waste treatment facilities. The State's analysis of that
information indicates that construction costs in New York State are
consistently above national costs—and in the same general magnitude
indicated by FWPCA's investigation of regional cost variation.
(2) Institutional constraints. It has been suggested that design
practices that result either from administrative requirements or local
habit strongly influence the relative cost of facilities in some loca-
tions. The concept must certainly receive some credence. Those States
adhering to the "Ten State Standards"--i.e., States bordering the Great
Lakes, Iowa, and the New England States—do include the groups that
account for high unit investment requirements.
Unfortunately, it is not possible to come to any meaningful judge-
ment as to the ultimate affect of such procedures on cost. While those
42
-------
responsible for their development will defend the long term economy of
"high standards", the economist will generally deplore rigid standards
in any field as being conducive to formalism and a barrier to innovation
or improvement.
If one can conclude that institutional constraints do in fact add
to costs in States of the Northeast* it is nonetheless impossible to
assign more than a contributory effect to them. The effective range of
technical alternatives is simply not so great as to account for the
gross disparity found in regional unit costs.
(3) Industrial Loadings. Authorities in New England have suggested
that one of the principal factors influencing per-capita construction
costs in their region is the high incidence of public agency responsi-
bility for treating wastes of industrial origin.
There is certainly a rough logic to the explanation, and the figures
tend to bear out the assertion that industrial requirements tend to in-
flate per-capita costs in some areas more than in others. Because the
capital requirement associated with industrial wastes is influenced by
the quantity of wastewater involved more than by qualitative differences
in treatment procedures, the major impact of addition of manufacturing
wastes to the system can be measured through its impact on plant size.
Table 18 bears out the fact that treatment plants tend to be larger
with respect to population served in New England than in other areas,
and to be smaller in the Gulf and Southwest areas, v/here unit investments
have been lowest. However, the table also indicates that greater cap-
acity per unit of population served can by no means be considered the
only—or even a principal—source of higher costs. While the smallest
capacity to population served ratios occur in the areas of lowest
per-capita costs, the Pacific Coast and Southeastern States combine low
unit costs with a large median capacity; moreover, these States have
a very significant component of plants in the largest size to populatior
served categories. In fact, half of the regional groupings (Pacific
Coast, Southeast, Middle Atlantic, North Atlantic and Ohio-Tennessee)
demonstrate a precisely inverse correlation in a plotting of unit
capacity ranking vs. unit cost ranking. It is clear, then, that larger
construction costs per person can be only partially explained on the
basis of construction of greater capacity per person.
(4) Wage Rates. It has also been suggested that regional labor
cost differentials have a strong impact on unit costs. The proposal
has a certain attraction that is dispelled pretty thoroughly
by a review of relative costs and of wage rate differentials. About
18% of the cost of the average sewer project is attributable to direct
labor (Sewer and Sewage Treatment Plant Construction Cost Index,
Table VI, p. 28); and for the hypothetical waste treatment plant, the
labor cost component amounts to about 25.3% (p. 12). From the region
of highest labor wage rate to that of lowest wage rate, there is
-------
TABLE 18
Normal Plant Size Related to Relative
Regional Unit Costs
Regions, Ranked in
Order of Ascending
Unit Cost
1 Southwest
2 Gulf
3 Pacific Coast
4 Southeast
5 Middle Atlantic
6 Plains
7 North Atlantic
8 Ohio-Tennessee
9 Great Lakes
10 New England
Median Design Size
Percent of Plants
to Population Served
Multiple
1.0 -
1.0 -
1.8 -
1.8 -
1.6 -
1.4 -
1.4 -
1.4 -
1.6 -
2.0 -
1.2
1.2
2.0
2.0
1.8
1.6
1.6
1.6
1.8
2.5
2.5 X Pop.
Requirement
14.3
6.2
38.5
36.3
31.9
15.2
26.5
22.0
24.3
41.3
4 X Pop.
Requirement
6.8
3.2
13.4
14.1
9.5
4.5
7.3
4.6
4.9
8.5
-------
a variation of some 50% in unit charges, or enough to explain about
a nine to twelve percent variation in final costs, assuming equal
productivity in all parts of the nation. Not only is the variation
in labor compensation rates of several orders of magnitude less than
the variation in unit costs, the relative ranking of high wage and
low wage regions has only a slight correlation with high and low
unit investment rankings, (cf. Table 19). At any rate, it is impossible
to ascribe to wage scale differentials the kinds of cost variation
that exist among the various parts of the nation unless there are
also differences in labor productivity and labor application rates
far more profound than has been imagined.
(5) Climate and Geology. One of the more likely explanations of a
part of the cost differences centers upon the basic physical conditions
found in the several regions of the nation. High unit costs cluster in
areas where severe winters reduce the effective period of construction.
Furthermore, grade and soil type may be expected to exert a heavy impact
on ultimate costs—certainly there can be no parity betv/een excavation
requirements in the flat, sandy soils of the Southwest and in the granite
hills of New England.
(6) Industry Diseconomies. It is, perhaps, not surprising, but
explanations for unfavorable relative cost position advanced from the
northeastern cluster of States have in no case included engineering
or contractor deficiences. Rigid administration, political corruption,
and union wage scales have all been indicated by engineers; but no one
has seen fit to suppose that unfavorable cost comparisons may trace to
the groups ultimately responsible for system design and construction.
Yet design and overhead charges make up a significant portion of the
total cost of any project (cf. Table 20). Moreover, sharp increases
in national allocation of resources to waste handling—in 1957, in
1961, in 1963, in 1967--have in every case resulted in a marked inflation
of project costs that most authorities agree to be traceable to con-
straints on the supply of engineering and construction services.
Professional qualification standards, trade groups, and other mechanisms
intended to restrain supply—either for the purpose of controlling the
quality of services or v/ith the deliberate (if unstated) intent to re-
duce competitive market operations—may conceivably be regionalized to
a degree that costs are affected.
45
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TABLE 19
Wage Rates Related to Comparative Unit Costs
Region
Southwest
Gulf
Pacific Coast
Southeast
Middle Atlantic
Plains
North Atlantic
Ohio-Tennessee
Great Lakes
New England
Index, Total !/
Cost Per
Unit Reduction
43.1
58.1
68.8
72.2
81.9
102.6
132.9
141.1
159.3
455.2
City Measured
Denver
Dallas
New Orleans
Los Angeles
San Francisco
Seattle
Atlanta
Birmingham
Baltimore
Kansas City
St. Louis
New York
Pittsburgh
Philadelphia
Cincinnati
Cleveland
Chicago
Detroit
Minneapolis
Boston
Bldg.
Labor
.881
.674
.811
1.176
1.316
1.236
.751
.764
.868
.951
1.231
1.503
1.070
.997
1.101
1.321
1.166
1.238
1.075
1.075
Cstcn.
Labor
.868
.684
.718
1.195
1.336
1.255
.763
.776
.805
.968
1.250
1.526
1.055
1.000
1.087
1.303
1.184
1.258
1.105
1.013
Strctl .
Iron
Workers
.887
.807
.878
1.172
1.176
1.010
.885
.854
1.003
.857
1.000
1.362
1.016
1.087
1.031
1.123
1.122
1.157
.913
1.043
Elec-
trical
Workers
.879
.696
.830
1.067
1.228
.987
.906
.831
.889
.968
1.094
1.221
1.039
1.008
.943
1.050
1.034
1.077
.955
1.092
Steam-
Fitters
.909
.828
.865
1.209
1.453
1.026
.883
.878
.869
.919
1.138
1.170
.920
.994
.899
1.016
,981
1.081
,903
1.057
Power
Shovel
.767
.750
.864
1.139
1.220
1.093
.855
.758
.965
.838
1.005
1.362
1.035
1.109
.944
1.060
1.102
1.090
.963
1.055
Mean Wage *
Cost Index
(Rank)
.865 (3)
.784 (1)
1.183 (10)
.825 (2)
.899 (4)
1.018 (5)
1.137 (9)
1.073 (7)
1.078 (8)
1.056 (6)
y Base Hourly Rate and Fringe Benefits for Indicated Classification as Reported In Engineering News Record, 2-29-68:
U
U.S. - 100
Subsidiary Indices/No, values Included
$3.86
$3.80
$5.7$
fig N
$5T
6
$6.16
$5.67
-------
TABLE 20
Major Components of Construction Cost
PERCENT OF TOTAL COST
Contractors Overhead
Material Labor PI ant and Profit
Sewage Treatment Plants 54.5 25.3 6.5 13.7
Sewers 35.5 18.5 31.3 14.7
(Source: Sewer and Sewage Treatment Plant Construction Cost Index p. 32)
(7) Urban Complexity. Urbanization and consequent concentration
of population have been proposed as explanations of both high relative
regional costs and low unit costs. On the one hand, population concen-
tration is presumed to provide economies of scale that diminish unit
investment needs. On the other, it has been asserted that urbanization's
effect—in creating transmission difficulties and requiring higher
degrees of treatment—is to push unit costs upward.
There is good logic on either side of the argument; but ranking
relative costs against relative urbanization suggests that the actual
effect is neutral—see Table 21. One might conjecture that the
arguments for the effect of urbanization rest in large measure on mis-
apprehension. The simplistic contrast of vast western areas of small
population with the mass of persons concentrated along the Atlantic
Coast and Great Lakes gives a distorted view of the nature of population
concentrations. Constraints on development imposed by land forms and
water availability reduce western utilization of land for urban purposes
and make the effective rate of population concentration in the
western United States much like that of the Northeast and somewhat
more pronounced than that of the South and the plains; so that the
actual effects of urbanization on waste handling costs are probably
quite similar through the Nation.
Engineering studies confirm without explaining the higher rela-
tive cost of Northeastern sewage treatment plant construction. Exami-
nation of specifications forwarded in connection with applications for
Federal grants produces—almost invariably—an unfavorable comparison
of estimated plant costs in New England, New York, and Pennsylvania
with similar facilities in other parts of the Nation. Sufficient
samples were not available over the last three years to provide statis-
tically valid cost correlations for all waste treatment processes on a
regional basis, but enough examples of the most common waste treatment
method in the Northeast—that is, the activated sludge process—occur
to provide comparative construction cost to size statistics. The
analysis (cf. Table 22) revealed a sharply adverse cost situation in
the area through the range of sizes, with costs becoming progressively
less representative as size of plant increased.
47
-------
TABLE 21
00
Regions, Ranked 1n
Order of Ascending
Unit Cost
Relative Urbanization Related to
Unit Waste-Handling Investments
Urban Population
Number Percent
Rank, Degree
of Urbanization
Rural Population
Number Percent
1
2
3
4
5
6
7
8
9
10
Southwest
Gulf
Pacific Coast
Southeast
Middle Atlantic
Plains
North Atlantic
Ohio-Tennessee
Great Lakes
New England
3
11
16
9
7
7
27
11
21
8
,757
,479
,937
,440
,318
,452
,810
,053
,436
,033
,000
,000,
,000
,000
,000
,000
,000
,000
,000
,000
72.
67.
80.
56.
57.
57.
81.
60.
71.
76.
5
7
6
4
1
4
4
8
6
4
4
6
2
10
9
8
1
7
5
3
1
5
4
7
5
5
6
7
8
2
,426
,474
,072
,284
,504
,534
,361
,121
,501
,478
,000
,000
,000
,000
,000
,000
,000
,000
,000
,000
27.5
32.3
19.4
43.6
42.9
42.6
18.6
39.2
28.4
23.6
-------
TABLE 22
Relative Construction Costs of
an Activated Sludge Plant
Mortheast
Million Investment Per Million Gals/Day as a
Gals/Day Capacity ($1957-59) Percent of
Capacity Northeast*U. S. (Including Northeast) U. S.
0.5 $893,000 $516,000 173
1.0 758.000 404,000 188
2.5 611,000 286,000 214
5.0 519,000 229,000 227
10.0 441,000 179,000 246
* Six New England States, Pennsylvania, New York.
Whatever the reasons, the high capital cost of waste handling in
the Northeast would seem to be documented adequately enough to be
accepted as a fact. And the fact that real costs are significantly
higher in the Northeast has serious implications for Federal policy.
Quite apart from the obvious questions of equity and efficiency, major
allocational problems are inherent in the particular composition
of regional cost differences that exist in the nation.
(1) Investment needs are strongly concentrated in the Northeast.
The six New England States, New York and Pennsylvania contain just over
20% of the Nation's population but 52°' of the sewered population that is
not provided with waste treatnent services. Moreover, the region's
per-capita investment in waste handling facilities has--at least in
recent years--been well below that of the rest of the nation.
(2) Although the normalized rate of annual depreciation accruals
is lower on a per-capita basis than in other parts of the nation, as a
result of the region's deficient capital base, many of the physical
facilities found in the Northeast are quite old and command a high
effective rate of recapitalization. This, together with a relatively
low rate of capital formation in the area, indicates that the Northeast
has been borrowing against its real replacement and growth requirements
in recent years.
(3) The rate of local investment in waste handling facilities is
strongly conditioned by the level of Federal assistance. The allocation
formula that has been used has not reflected the particular difficulties
of the Northeastern situation; and the failure of appropriated Federal
funds to meet promised authorizations has effected a mechanism that has,
49
-------
perhaps, made matters worse. In Northeastern States, pollution abate-
ment programs have been conducted in keeping with d logic that would
have the community needing a work proceed to finance that facility and
to construct it in anticipation of future Federal (and sometimes State)
assistance payments. The process might have been successful had all
other things been equal; but there is a vast difference between the
ability of communities and of the nation to command funds in financial
markets. As money has become progressively tighter over the past five
years, the ability of local government to finance needed projects has
become weaker, so that the pace of construction has not kept up with
growth of demand. As a result, the Northeast—in spite of a declining
share of total population—has sustained a constant share of the national
need for waste handling facilities, even without adjustment for the high
prices that prevail in the area.
TABLE 23
Investment and Demand, Northeastern States
(Millions of Dollars)
State "Needs" Investment "Needs" "Needs" Developed
1962* 1962-67 1968* 1962-67
Connecticut 29.9 52.6 53.2 75.9
Maine 77.3 16.2 66.5 5.4
Massachusetts 145.4 61.3 151.6 67.5
New Hampshire 49.1 15.6 44.6 11.1
New York 215.1 211.2 200.0 196.1
Pennsylvania 239.5 144.6 262.5 167.6
Rhode Island 6.0 13.1 16.6 23.7
Vermont 28.9 16.9 29.6 17.6
Northeast Total 791.2 515.9 824.6 549.3
(Percent of National
Total) (26) (19) (26) (19)
*Based on national average unit costs
Although the use of average costs in modelling investment require-
ments may be an acceptable technique for evaluating most of the nation,
dimensions of the Northeastern States' deviation from the mean in the
past suggest the need for adjustment. The range of variation elsewhere
is relatively slight, and the sample structure on which costs were
determined is well distributed. It is entirely conceivable, for example,
that use of mean costs overstates South Dakota's or Mississippi's
needs, in effect shifting the accounting of investments that take place
in Michigan or Tennessee. But the shift involved is not believed to
be highly significant and—more important—to be such that offsetting
effects produce a reliable national total.
50
-------
The situation is otherwise for the highest cost States. Not only
is the difference in investment that may be involved of potentially
radical significance, but the inadequate sample of Northeastern plants
going into the calculation of mean costs suggests that total costs may
be understated.
Though an entirely reliable set of calculations is not attainable
until a complete set of regional cost coefficients is derived, a partial
adjustment to reflect the added burden of the Northeastern States is
possible. The adjustment presented in Table 24 utilizes the relation-
ship between costs of an activated sludge plant in the Northeastern
States and in the United States as its base. Sewered populations of
the eight Northeastern States, distributed by community size, were
divided by total sewered population to obtain the segment affected by
a particular cost relationship. The decimal values obtained were
weighted by the indicated cost relationship for the particular size of
community, and the product applied to the value of the State's need,
as that value had been determined by the evaluation model.
TABLE 24
Adjusted Investment Needs
Eight Northeastern States
Millions of 1957-59 Dollars
State Unadjusted Adjusted Increase
Connecticut 53.2 97.6 44.4
Maine 66.5 97.1 30.6
Massachusetts 151.6 254.9 103.3
New Hampshire 44.6 68.8 24.2
New York 200.0 374.4 174.4
Pennsylvania 262.5 457.9 195.4
Rhode Island 16.6 31.2 14.6
Vermont 29.6 41.8 12.2
Total 824.6 1423.7 599.1
The effect of the adjustment is to increase the scale of indicated
national needs by 599 million base year dollars, or 827 million current
dollars—twenty-six percent. For the eight State region concerned,
it amounts to a 73% escalation of costs. Even that amount falls well
short of the dimensions of the cost increase that might be anticipated
on the basis of unit investment differences encountered during the
1962-67 period. The adjustment method is consistent with the modelling
process, however; so the technique may be considered valid. While a
larger incremental investment may actually be necessary in the North-
east, it is possible that the uncalculated amount may be accounted for
by the inter-regional displacements known to occur as a consequence
51
-------
of average cost modelling. In any event, no better procedure of adjust-
ment has been suggested. In consequence, the regional investment
increment presented here has been used in scheduling analyses that follow.
Alternative Investment Schedules
For the period immediately ahead it is possible to determine with
some precision, by application of the evaluation models, the investment
that will be required on a national scale to obtain the level of treat-
ment of public wastes that has been determined to match in a general
fashion the requirements initially associated with water quality stand-
ards. We know the approximate rate at which investment requirements are
accumulating, and we know the amount of the current accumulation of
needs. The matter, then, resolves to a simple scheduling problem: to
find the annual rate of investment that will sustain existing physical
capital, meet expansion requirements, offset inflation, and eliminate
the accumulation of investment requirements that currently exists.
To simply project past rates of need accumulation would be the
simplest method of determining an acceptable rate of investment. It
is unlikely, however, that the bulge in rate of development of needs
caused by imposition of the secondary waste treatment standard will be
repeated. For that reason, the projection process might be expected
to overstate the rate of development of investment needs to be antic-
ipated during the early 1970's. *
A more reasonable projection procedure is thought to be one which
takes into account both the existing capital base and prevailing rates
of demand formation for constituent elements of the investment complex—
i.e. growth, recapitalization, and the backlog of accumulated
demands—under a series of capital supply assumptions.
* For those who wish to review the general dimensions of requirements
under such a procedure, the elements are:
1) base current needs, in millions of 1957-59 dollars = 3201.1
2) incremental needs associated with higher costs in Northeastern
States =599.1
3) Rate of development of needs, 1962-68 =
(X + I) - Y
Y = R = 12.1% oer year
4) projected rate of inflation =3.5% per year
5) current construction cost index = 138% of 1957-59 (Over a five
year period, needs would amount to $11,031.3 current dollars,
indicating an annual investment requirement of $2.2 billion.)
52
-------
To effectuate the procedure, a computer program was developed to
apply varying amount of capital against combinations of demand constit-
uents. The program assumed a constant 3.5% rate of inflation, and a
constant 3.3% rate of growth. Recapitalization, capital in place, and
backlog were derivatives of investment. The program dealt with recap-
italization as a prime element that had no effect on other elements of
the model. (The condition in which total outlays failed to match
recapitalization requirements was not programmed.) Growth needs were
calculated to amount in any year to 3.3% of capital in place, and were
allotted the second segment of a postulated investment: to the extent
that the investment covered growth requirements, the value was trans-
ferred to capital in place to serve as an element to calculate the
following year's recapitalization requirement, and values exceeding
available investment were accumulated as additions to the backlog of
unmet needs. The backlog itself was reduced by any amount that avail-
able investment exceeded recapitalization and growth elements, or
increased as prior demands on a hypothesized investment exceeded the
amount of the investment.
Repetitions of the exercise, applying a schedule of investments
increasing in $100 million increments from $1 billion to $2 billion a
year, indicated that a $2 billion annual outlay is required to reduce
accumulated needs within a five year period, (cf. Table 25A). Lesser
outlays, of course, increase the time required to attain control con-
ditions that approximate current interpretations of water quality
standards requirements. Investments of less than $1.5 billion a year
not only postpone attainment, they are insufficient to keep pace with
the requirements of recapitalization, growth, and inflation, so that,
after an interim period of reduction, the backlog increases rather
than declines, (cf. Tables 25B and 25C).
TASLE 25
A-Five Year Backlog Elimination Schedule,
Water Quality Standards-Related
Public Investments
(Values in Millions of Current Dollars)
Year "Backlog" at Growth Recapitalization Investment
year end
1969 4438.4
1970 3441.8 437.2 410.9 2,000
1971 2489.5 467.4 459.9 2,000
1972 1584.5 499.7 503.1 2,000
1973 730.0 534.3 555.7 2,000
1974 0 571.2 602.5 1,929.3
1975 610.7 648.4 1.259.1
Total Indicated Investment, 1970-1974: 9929.3*
"Backlog" 4882.3
Growth 2509.8
Recapitalization 2537.1
*Includes an Inflation Component of: 928.8
53
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TABLE 25 Continued
*B-Stretchout Schedule, Water Quality
Standards Related Public Investments
(Values in Millions of Current Dollars)
"Backlog" at
Year year end
1969 4438.4
1970 3741.8
1971 3091.0
1972 2489.0
1973 1939.0
1974 1444.3
1975 1008.5
1976 635.3
1977 328.9
1978 93.4
1979 0
Growth
437.
467.
499.
534.
571.
610.
653.0
698.1
746.4
798.0
,2
,4
,7
,3
.2
,7
Recapitalization
410.9
450.8
490.1
528.6
566
602
638
673
706
,2
,9
,6
,2
,6
738.8
Investment
1700.0
1700.0
1700.0
1700.0
1700.0
1700.0
1700.0
1700.0
1700.0
1630.2
*C-Deficiency Schedule, Water Quality
Standards Related Public Investments
(Values in Millions of Current Dollars)
"Backlog" at
Year year end Growth
1969 4438.4
1970 4041.8 437.2
1971 3692.5 467.4
1972 3393.5 499.7
1973 3148.0 534.3
1974 2959.3 571.2
1975 2831.0 610.7
1976 2767.0 653.0
1977 2847.9 698.1
Recapitalization
410.9
441.8
472.0
501.4
529.9
557.4
583.9
609.2
Investment
1400.0
1400.0
1400.0
1400.0
1400.0
1400.0
1400.0
1400.0
*Note: Due to the inescapable pressures of growth and recapitaliza-
tion the investment results achieved with $2 billion a year in five
years can only be attained in ten years with a reduction in spending
to $1.7 billion a year and at that level no decrease in investment
pressure is experienced; indeed by 1981, demand again reaches the
$1.7 billion a year level and a backlog begins to accumulate by 1982.
At a level of $1.5 billion a year or less, the backlog is never elim-
inated.
54
-------
Within the terms of the analysis—which approximates reality, in
that any failure to maintain physical caoital or to meet new demand will
inescapably add to the accumulation of unmet requirements—a critical
relationship may be found between the current level of investment, $500
to $900 million a year, and the rate of formation of requirements under
the pressures of growth and recapitalization.
We are already beginning to borrow heavily against the future
when we install new plants today. The immediate effects are probably
not too serious, given the age composition of plants in place, most of
which were built fairly recently, (cf. Table 26, that lists by periods
the approximate date of most recent major improvement or of initial
operation of all known municipal waste treatment plants. Of those for
which information is available, over seventy-five percent were construct-
ed or reworked within the last ten years, more than eighty-eight percent
within the last fifteen years.) But with each passing year, the poten-
tial seriousness of the current under-capitalization of public waste
handling becomes greater. Twenty percent of the sewered population
of the United States is now served by over-loaded plants, and another
twenty-six percent of the sewered population is served by plants that
need major upgrading.
A point must be made here. There is nothing precise about any of
the numbers relating to investment. They are presented to the nearest
hundred thousand dollars only to preserve mathematical integrity, not
because they are felt to quantify reality with the exactness that such
a level of detail might be thought to imply. The evaluations presented
in this report are to b_e viewed only as_ order of_ magnitude extrapolatjons
of existing conditions. There are opportunities to reduce the weight
of the burden by enlightened planning and administrative policies.
Though technological innovations may be expected to have slight, if any,
impact on costs over so short a planning horizon as five years, the
existing technology does offer capital-saving expedients. If the design
and construction industry of the northeast could reduce its costs to
national average levels, well over half a billion dollars might be
saved within the projection period. If the rate of inflation could be
rolled back to that obtaining in the first half of the last decade,
another three quarters of a billion dollars might be saved within the
period. Use of more dependable sizing techniques, optimal design
engineering, and more intensive application of regional concepts might
all save hundreds of millions of dollars. Conversely, if inflation
accelerates, design standards become more rigid, and local jealousies
intensify, the nation can expect an even larger bill to be delivered.
Comparison of the investment schedules indicates the powerful
influence of time. Not needs as such, but the rate at which needs
develop and are met becomes the prime question in evaluating national
progress in providing facilities to control water pollution. The
point is as true for each State as for the United States.
55
-------
TABLE 26
1968 Municipal Waste Inventory
Summary of Haste Treatment Facilities by Year Plant Underwent Major Revision (or Began)
State
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawai 1
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Puerto Rico
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Virgin Islands
Washington
West Virginia
Wisconsin
Wyoming
Date
Unknown
95
7
35
28
541
30
17
4
0
420
31
2
25
79
75
37
23
56
85
8
4
68
79
224
40
289
6
15
8
10
184
27
47
96
5
92
168
3
480
74
3
123
14
79
628
12
4
44
0
208
29
26
25
1900 and
prior
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1901-
1910
0
0
0
0
0
0
1
0
0
0
0
0
0
1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
3
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1911-
1920
0
0
0
0
0
1
1
0
0
0
0
0
0
0
1
19
1
0
0
0
2
0
1
0
0
0
3
0
0
0
1
0
11
0
4
1
0
2
0
0
0
0
1
0
0
0
0
0
0
0
0
0
0
1921-
1930
2
0
0
0
0
0
3
0
0
0
0
0
0
7
2
20
6
1
1
0
0
0
4
0
0
0
1
6
0
0
12
0
21
1
3
3
0
2
0
0
0
0
4
0
0
0
0
7
0
0
0
0
0
1931-
1940
5
0
0
0
0
5
13
0
0
1
21
0
2
30
7
32
25
4
0
1
9
0
10
0
0
1
2
26
2
0
5
0
79
9
5
26
0
5
0
0
0
0
9
0
0
1
0
7
0
0
7
40
0
1941-
1950
4
0
0
0
0
5
9
0
0
1
17
0
1
35
10
27
38
5
0
0
3
1
5
0
2
0
8
20
3
0
3
0
20
5
16
13
0
n
0
0
i
0
16
1
0
4
0
12
0
0
3
46
0
1951-
1957
2
0
4
2
1
25
10
0
0
1
34
0
12
64
47
62
107
21
3
1
6
1
20
0
13
9
25
44
3
0
14
4
55
20
52
99
2
31
0
0
4
18
35
12
2
9
1
27
0
0
0
95
5
1958-
1962
33
0
8
57
4
48
14
3
0
31
36
5
22
167
66
109
116
34
35
6
17
9
51
55
61
96
45
93
2
7
24
16
99
58
86
134
86
47
1
6
2
31
56
46
105
12
12
65
0
0
25
103
30
1963-
1968
63
0
22
116
0
90
15
11
1
55
168
14
31
246
94
193
119
118
49
17
49
15
98
132
99
95
35
180
11
10
74
33
172
160
40
169
114
66
6
11
6
52
55
62
176
26
21
91
0
0
54
130
18
Totals
204
7
69
203
546
204
83
18
1
509
307
21
93
629
302
499
435
239
173
33
90
94
268
411
215
490
125
384
29
27
318
80
507
349
211
537
370
167
487
91
16
224
190
200
911
64
38
253
0
208
118
440
78
U.S. Totals
4,712
49
106
389
345 1,002 2,274 3,682 12,565
56
-------
Equally significant is the intention of the potential investor—how
does the community rate pollution control in its ranking of all needs
for funds? How does the pressure of State programs express itself at
the local level? What is the variance of local practice from National
average standards? All of these questions will affect the distribution
of investment effort. To provide a broad estimate of the magnitude of
investment facing individual States if indicated treatment standards
are to be met, the scheduling process has been applied. Recognizing
that variations in design practice, growth rates, and effective
recapitalization rates may be distorted by the application of nationally
derived coefficients, decision-makers at the State level may neverthe-
less find the values useful in formulating financial plans in the
field of water pollution control.
Because the reliability of the assessment of investment
requirements declines with the size of the element evaluated (a single
atypical project will have a more pronounced effect on results for a
smaller than for a larger element), five year requirements for States
are presented in terms of a range—one standard deviation about the
mean—rather than an expected value. The principal variable affecting
the breadth of the range is plant size, so it would be unwise to infer
that a State's ultimate investment need will be to the low or high side
of the range on the basis of the generalized influence of location
on cost discussed earlier in this paper. Rather, five year investment
requirements would be expected to occupy a mid-point in the range,
deviating to one side or the other according to the size of particular
projects that must be scheduled within the period.
A similar problem of disaggregation is responsible for use of
five year lump sums rather than annual schedules. Where the total
system of the nation might be expected to sustain a constant annual
rate of investment under any given level of funding, subsystems may
be expected to demonstrate a certain lumpiness in allocation, according
to scheduling of particular projects. (An exception to the rule might
be anticipated in the case of the six to ten most populous States.)
The exigencies of scheduling will, of course, affect gross investment
over the period, due to the varying effects of inflation, replacement,
and growth factors under different sets of time conditions.
These projections of investment levels are considered to be
compatible with existing definitions of requirements, current unit
costs, a moderating inflationary influence, a five year time period,
and a situation in which financial or resource constraints permit
achievement. A number of other estimates for the individual States
exist, and these may be very different in their details than those
presented in this report.
Most of the States have compiled lists of needed works. In
particular, the FWPCA requires that such a list be a part of the
description of the State program in submission of applications for
57
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program grants. Such independent estimates differ from the values
assessed here in that they are situation-dependent and time-independent.
Nevertheless, they have tremendous value and pertinence, in that they
are compiled by men on the scene and represent the influence of both
subjective and objective local factors. In particular, such estimates
may be considered to provide surveys of intention. They represent an
evaluation of State and local planning response to conditions.
Recognizing those values, one must nevertheless approach at
least some such estimates with reservations. In some cases they must
be interpreted to be saying either 'this is what we should like to
do in the absence of any constraints,1 or the direct opposite -- 'this
is all we think we can do, given existing constraints.1 In distinc-
tion, the assessment provided in this report says substantially that
'if we are to achieve presently defined national goals in a five year
time span, the conditions that exist today indicate that we must
invest about $2 billion a year.1 Unlike the other evaluations, the
one presented here is stringently constrained by time and observed
conditions. It is not, however, adjusted for either local practice
or local intentions. While it is felt to be the best possible asses-
sment of national circumstances, its local relevance is less defensible.
Table 27 presents the model-derived five year investment range
applicable to each of the fifty States, the District of Columbia,
Guam, Puerto Rico, and the Virgin Islands. Each of the fifty-four
values is contrasted with the most recent (to January 29, 1970)
estimate by a relevant organ of State or other government of the
value of the projects that it anticipates can occur within its juris-
diction over the next five years. While the two sets of estimates
are not strictly comparable, in that there are substantial variations
at either end of the time frame in the case of a number of State
estimates — some run through 1975, and a few include stages of 1969
projects -- the SI0.2 billion summation tends to support very
strongly the validity of the $9.9 billion, five year estimate devel-
oped in this report.
But while the order of magnitude validity of a $10 billion
program would seem well documented on a national scale, there are
very troublesome differences on a State by State basis. Only eighteen
States -- one third of the total -- fall into the indicated range
on the basis of their own assessments of investment requirements.
Fully half of the States have provided estimates that fall below the
low value in the range. These apparently low estimates are not for the
most part considered to be inconsistent with the terns of the national
scheduling procedure for four reasons: 1) The modelling procedures
are intended to cover statistically probable value of projects that
in many cases will not reasonably be foreseen at the tirce^of a particular
survey, but that will, in a world that behaves normally, occur within
the period. 2) The lumpiness factor in investment may push a major
58
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TA^LE 27
Comparison of State Investment Intentions and Derived Value of Needs
(Millions of Dollars)
State Intentions
Programmed
Needs
Intentions Fall
Within Rantie
Intentions
Exceed Range
Intentions
Below Range
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
Mew Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Guam
Puerto R1co
Virgin Islands
TOTAL
35.0
12.0
86.0
33.0
651
133.0
280.5
28.0
355.0
200.0
150.0
14.4
0.5
437.
152.6
33.3
61. n
62.6
140.0
140.9
236.9
438.0
253.7
136.3
40.0
390.0
13.5
62.0
28.6
138.0
880.0
9.9
1900.1
69.3
22.0
432.5
65.3
135.0
432.0
51.5
75.0
27.0
105.5
525.0
11.7
70.0
151.0
160.0
44
243.7
12.0
6.2
28.9
15.4
10217.1
224.3
12.2
46.1
118.6
838.5
143
187
17
68
209
250
44
75
493
165.5
7.6
35.1
72.6
738.1
103.
147.
12.
19.
157.
198.3
32.4
58.1
396.9
337.6 - 282.8
160,
250.
102.
206.
206,
63,
586.
311.
193.
141
359.1 -
122
118
54.4
104.1
114.2
29
356
249
114
82
195
63.7 - 42.1
119.0 -
38.6 -
150.4 -
343.4 -
50.1 -
1323.6 -
254.5 -
38.9 -
511.8 -
123.0 -
146.1 -
1122.8 -
96.7 -
121.8 -
48.2 -
184.9 -
502.9
82.4
117.5
152.8
198.5
140.3
275.0
38.3
88
30
93
262
38
788
199.1
31.9
429.8
94.0
114.5
720.8
72.9
96
39
115
441
68
83
- 117.4
146,
101,
231,
19.1
61.3 - 36,1
4.4 - 2.6
11960.9-8473.7
X
X (a)
X (a)
X
39.9
> 10.3
>173.2
> 30.9
>536.6
>576.5
> 22.1
6.2
11.0
>130.5
>. 39.6
> 86.3
^48.3
i 18.0
£ 57.6
^130.2
i 89.0
I 57.3
i 42.2
i 28.6
E 26.4
> 1.4
>, 28.8
>129.8
i 9.9
^28.7
i288.8
E 21.4
^21.0
i 12.2
L 10.2
>.56.9
> 13.9
L 56-8
i 7.1
> 7.2
(a) Programmed needs adjusted for recent accelerated level of starts or state intentions, excluding year 1975,
bring two sets of estimates into agreement.
59
-------
project or projects that are normalized by the statistical method
wholly into or out of the five year time frame — as in the case
of the District of Columbia, where 80% of announced spending is scheduled
for 1975. 3) The modelling procedure depends on uniform application
of high cost methods. The choice of the high cost method was deliberate,
intended to account for the observed tendency of real costs to increase
as conditions make it progressively more necessary to orovide waste
treatment efficiencies at the extreme end of the scale for secondary
treatment processes. Those States whose intentions to invest fall
below the low value in the range tend to be the more economically
efficient in their conduct of the waste-handling activity, and to
employ lagoons and other low unit cost methods. The propensity of
real costs to rise — and in many cases, the simple fact of inflation --
are not often taken into account. 4) A final reason for variation
in estimates of State liability traces to an essential weakness in
the estimating model. A uniform rate of loading growth has been
applied for every State, but States do not grow at equal rates.
Unfortunately, the components of growth are so randomly distributed --
rate of population increase, rate of connection of water using industries,
infiltration, and urbanization all bear on the matter — that it
has not proved possible at this time to derive appropriate rates
of growth for each State. Unquestionably, however, the effect of
the modelling procedure is to create interstate transfers of growth.
(Investment staging, or lumpiness, has a bearing in this regard.
States with a good deal of newly installed excess capacity will exper-
ience growth of service that does not necessarily require an investment
within the five year time frame.)
Some of the same factors explain higher than anticipated invest-
ment intentions. Lumpiness in investment allocation is a reasonable
explanation of the relationship of the two sets of values in the
cases of Missouri, Delaware, Guam, Texas and the Virgin Islands; and
in the case of Arizona, both lumpiness and rapid growth come into
play. In a sense, these jurisdictions expect to begin at an early
stage projects whose utility will extend well into the future. These
are, then, exoectable offsets to some of the States whose intentions
fall below the normalized range established by the model.
Nine States, however, do not fall within an explainable range
of variability. On the low side, Alabama, Hawaii, Idaho, New Mexico,
Pennsylvania, and West Virginia report intentions so far below the
statistically probable that the difference between statistical proba-
bility and pragmatic observation, the lumpiness factor, the difference
between costs derived from regional practice and normal application
of the high cost method, or the effects of varying growth patterns
provide no explanation. Equally difficult is the high divergence of
expressed intentions from the normal range in the cases of New Jersey,
60
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INVESTMENT INTENTIONS
COMPARED TO DERIVED NEEDS
n
INEXPLAINABLY LOW, 6 STATES
'EXPECTABLY" LOW, 21 STATES
EXPLAINABLY HIGH, 6 STATES
INEXPLAINABLY HIGH, 3 STATES
WITHIN RANGE OF ESTIMATE, 18 STATES
Figure 3
-------
New York, and Maryland. (The latter may to some extent reflect
double counting with the District of Columbia for projects in the
Washington, D. C. metropolitan area.)
One can only conjecture that reporting discrepancies or
specialized influences make some aspects of the States' situations
abnormal. At any rate, in comparing the values, the reader may obtain
some grasp of the plasticity of the situation, the extraordinary
variety of conclusions that may be reached where the rules of the
game are largely unspecified.
The rules of the game, as it is ultimately to be played, are
all important. There are sizeable dimensions of uncertainty relating
to plant scale, regional cost differences and timing of investment.
Actual treatment needs to meet water quality standards may vary markedly
in many situations from preliminary assumptions because of local con-
ditions. Changes in the rate of industrial connections to municipal
plants, improvements in technology, greater use of regional treatment
facilities will all have an impact on actual costs, and these can only
be accommodated by the analytical method with a set of projection
assumptions that may finally prove to diverge in several respects from
the eventuation of conditions. Perversely, even Federal policy and
legislation based on a level of need will tend to make any estimate
self-fulfilling by imposing external stimuli on local decision making.
A Compatible Industrial Schedule
Because the same elements apply to the industrial sector—i.e.
investment rates represent the interaction of technological requirements,
capitalization, growth, replacement, and price levels over time—the
same scheduling techniques may be utilized to determine investment norms
for manufacturers.
We have a fairly good grasp of the dimensions of those elements in
terms of the definitions presented in the first report of this series.
It is recognized that there are significant weaknesses in that assess-
ment, weaknesses that derive principally from data deficiencies.
Because no significant new information has come to light in the two
years since the issuance of that report (and because such information
as industrial sources have provided tends to corroborate the values
reported), no attempt has been made to refine the estimates presented.
In the absence of information that might alter the earlier estimates
in some substantive fashion, they have been fitted into the scheduling
equation.
Because the input variables were originally presented as a range
(whose bounds may be thought to represent technological possibilities
frontiers) a mid-point value is used to present the results of the
scheduling effort in Table 28. The elements of the table include 1)
the mid-point investment requirement increased by two years' estimated
62
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TABLE 28
Water Quality
Standards-Related Manufacturers' Investment
For Waste Treatment
(Values in Millions of Current Dollars)
Year "Backlog" at Growth Recapitalization Investment
Year End
1969 1513.2
1970 1129.5 139.4 118.5 650.7
1971 817.3 150.8 138.0 650.7
1972 526.4 163.1 156.9 650.7
1973 258.0 176.4 175.2 650.7
1974 — 190.8 192.8 650.7
1975 -- 206.3 209.7 416.0
Total indicated Investment * = 3253.5
"Backlog" 1651.6
Growth 820.5
Replacement 781.4
* Includes an Inflation Component of 330.0
63
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normal growth and recapitalization requirements and decreased by reported
1968 investment and projected 1969 investment; 2) annual growth assessed
at 4.5%; 3) annual recapitalization assessed at 4%; 4) annual inflation
assessed at 3.5%. The dynamics of industrial waste treatment are
considered to include significantly higher growth and recapitalization
functions than is true of municipal v/aste treatment, so that industrial
investment requirements are climbing faster than are municipal. This
traces to the fact that the major part of the public investment is for
transmission facilities that are replaced at a slower rate than waste
treatment plants, and that industrial production is increasing at
distinctly more pronounced rates than population.
Given the data set and the assumptions that underlie it, the
situation that emerges is one in which manufacturing industries must
invest about $650 million a year over the next five years to achieve an
equilibrium level of capitalization, one in which investments are re-
quired only to meet the exigencies of annual recapitalization and
growth. The current level of investment appears to be comfortingly
close to the target amount. Unless some significant changes in the
rules of the game become necessary, industrial facilities may be
expected to come on stream according to the hypothetical schedule
that reflects current national policy.
Water Pollution Control Needs at Federal Installations
In order to correct existing water pollution control needs at
Federal installations, an estimated $246.5 million dollars will be
required. Sources of information from which this cost is derived
include Bureau of the Budget Circular A-81 and a recent questionnaire
from the Bureau of the Budget to Federal Agencies entitled "Status of
Water Pollution Projects at Federal Facilities-FY 1968-1970."
Circular A-81 is a budget process developed in 1967 for the
purpose of a phased and orderly plan to correct water pollution
problems that exist at Federal installations. Its original intent did
not cover estimated treatment facilities for new construction or
expected future needs at existing facilities. Each agency submits
to the Bureau of the Budget an estimate of cost for each installation
where proposed treatment facilities are tentatively scheduled for a
given annual budget. Also included in the submission are summaries,
programming all projects planned by each agency by fiscal year.
FWPCA has assumed that estimates do not include cost escalation factors
for projects in fiscal years other than the one reported on. Each
year FWPCA is called upon by the Bureau of the Budget for advice and
recommendations as to the seriousness of the proposed projects. From
the time estimates of cost are prepared by the agency to the time of
submission of the annual budget to Congress, cost figures sometime
change considerably. The Agency's experience is that revisions are
invariably upward. Final cost figures are not usually made available
to FWPCA, therefore any representation of these costs made by FWPCA can
only be interpreted as a rough approximation.
64
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The status questionnaire asked for information in regard to
pollution projects programmed and funded from FY 1968 through FY 1970.
In FY 1968 and FY 1969 a total of $108.8 million was programmed of
which $76.3 million has been appropriated creating a deficit of
$32.5 million. In addition when the questionnaire was compared v/ith
Circular A-81 submissions for the same years, it was also discovered
that some projects were not included. These omissions further qualify
the reliability of the $246.5 million dollars. What is available,
then, is no more than a tentative schedule of appropriation requests
over a ten year period. The proposed schedule as originally programmed
was:
Fiscal Year * Estimated Expenditure
1968-1969 $ 32,500.0
1970 47,500.0
1971 43,000.0
1972 97,000.0
1973-1978 26,500.0
Totals $ 246,500.0
* Originally programmed but not yet funded.
65
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FEDERAL COST-SHARING
Nature of Grant Programs and the Reasons for Cost-Sharing
To properly evaluate Federal cost-sharing it is necessary to
trace the recent history of how cost-sharing developed, and to
define the concept with respect to the Federal Water Pollution
Control Act.
Intergovernmental fiscal relations have increased since the
1930's. There are several reasons for this increased activity.
Increased urbanization and a faster pace of economic growth have
created more demands for services provided by local governments.
While the demands have been felt at the local level, the availability
of increased revenues has been at the State and particularly at the
Federal level. Through fiscal participation an equilibrium of supply
and demand for public funds can be obtained often. This amounts to
a direct pass-through of Federal funds to strapped local coffers.
Another reason for the growth of payments from Federal to
State and local governments has been the desire of groups to
influence both the level and nature of public expenditures. The
rationale for these intergovernmental expenditures is that the
quality of activity of one area will affect outside areas. Further-
more, the higher levels of government will be better able to direct
a uniform performance as compared with local governments working
toward their own particular ends. Financial participation serves
as an incentive to local governments and as a means of adjusting
financial inequities that might develop.
Another rationale for intergovernmental financial cooperation is
provision of relief to poorer regions and to lower income levels. The
justification for this financial aid rests upon the belief that this
can best be accomplished by larger rather than by smaller units of
government. For if income redistribution were accomplished on a local
basis, some communities would have a greater burden per capita than
others. The justification for this type of financial aid rests on the
given national objective concerning income equilization,, and on the
many benefits which do not accrue solely to the individuals in these
economic conditions but which accrue also to the nation.
In light of these considerations Federal financial architects
have designed numerous methods of cost-sharing. Included among the
methods are: income equilization—allocating relatively more grants
67
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to poor areas than to prosperous ones; optimizing—using functional
cr categorical grants to increase efficiency in performing-specific
objectives; and block grants—passing via unconditional grants Fed-
eral ponies to State and local governments. For each alternative
thf irpact of fiscal Federalism varies. What alternative or combin-
ation of alternatives should be chosen depends on the purpose of the
grant and the social welfare function, the objectives of the decision
maker.
To establish the nature and level of P/JPCA cost-sharing programs,
the objectives and rationale for the program first must be considered.
Is the program a means of redistributing income and/or a means of
collecting and distributing tax dollars? Does the program have a
specific optimizing function? The basis for distributing the grants,
allocation formulas, can be established only after those questions
are answered.
The stated purpose of the construction grant program is to prevent
untreated or inadequately treated sewage and waste from being dis-
charged into water (Federal Water Pollution Control Act as amended
Section 8a). The desirability of the grant is based on the propriety
of the Federal aid, the public necessity for the work, the relation-
ship of total system costs to benefits, the benefits received from
the work, and the ability to maintain physical capital (Section oc).
Judging from these provisions in the Act, it appears that the grant
program is directed to accomplish a specific objective, and may be
classified an optimizing grant.
Level of Federal Hrant Support
There are a number of persuasive reasons why Federal financial
support for State and local pollution abatement efforts may be con-
sidered to be appropriate. Ultimately, these devolve upon two consid-
erations, equity and financial necessity.
The equity argument may be set forward very briefly. It holds
that pollution control is an expression of a national priority (which
may often conflict with local priorities that would put industrial
development, lower taxes, or alternative use of public funds well
ahead of pollution control); and that the benefits of improved water
quality extend in tire and place well beyond the point of the action
that results in improvement, so that they are most often regional or
national in nature. Thus the community should in equity bear the
cost of reducing the damages it creates, but there is equal equity
in requiring that the beneficiaries of such actions —in essence,
the nation at large—bear some costs. Cost-sharing between Federal
and local governments, then, represents a rough and ready accommod-
ation to the principles of levying charges against both the
occasioners of damage and the recipients of benefits. The same
68
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considerations of equity argue strongly for State participation in
costs, since State- government has a nore proximate relation to
than does Federal government, and more directly represents benefitted
population than does local government.
The financial necessity argument extends f?r beyond the area
of pollution control. It is directed to the f?ct that fiscal demands
on State and local governments are increasing faster than the growth
of their revenues—at least as these are derived from traditional
sources—or faster than gross national product. Cut while State and
local governments face a responsibility to provide an increasing share
of the goods and services produced in the national economy, the
Federal governnent holds the most efficient taxing mechanisms in its
powers. Further, the disparity between State and local means and
requirements is increased in practice by the fact that those services
provided by such governments are n;cst needed in precisely the places
where financial resources are most limited. Under such conditions,
Federal financial assistance becomes a necessary precondition to the
conduct of the expanding program requirements of State and local
government.
The situation has been too adequately analyzed and documented
elsewhere to require further discussion in this place, (cf.
especially Revenue Sharing and Its Alternatives: '-/hat Future for
Fiscal Federalism, Subcommittee on Fiscal Policy of the Joint
Economic Committee, °0th Congress, July 1G67, and Fiscal Balance in
the American Federal System, Advisory Commission on Intergovernmental
Relations, Washington, P. C., October 1967). The question is not
the necessity of Federal financial assistance, but the amount of
such assistance that is required to achieve particular national goals.
Some guidelines as to amount are offered in the form of studies
by specialists in governmental fiscal matters. (Detailed citations
may be found in sources cited above). Joseph Pechman, Richard
Netzer, and Selma t'ushkin and Gabrielle Lupo have provided some very
generalized assessments of an appropriate overall mix of Federal
and local financial efforts, based on the fiscal gap created by the
difference between the rate of growth of State and local revenues
and their outlays. The estimates agree fairly closely, suggesting
the need for a 17 percent to 21 percent Federal financial participa-
tion in local government programs by 1970. The developing situation
is one in which expansion of local government services can only take
place with a substantial increase in the Federal share of the cost
of such services. (See Table 29).
Significantly, Joseph Pechman's estimate of the situation
assumes that financial constraints will cause a reduction in the rate
of increase in production of State and local governmental services.
Where the other authorities assume that economic growth, new revenue
sources, and increased borrowing can sustain growth of local govern-
ment services, Pechman projects a revenue supply that has a low
69
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TABLE 29
Estimates of State and Local Governments
Needs for Federal Financial Support
(Billions of Dollars)
Mushkin
Pechman Netzer &Lupo
Demands on State & Local
Governments, 1965 74 74 74
Local Taxes & Borrowing 63 63 63
Federally Supplied 11 11 11
Demands of State & Local
Governments, 1970 103 121 122
Local Taxes & Borrowing 80 100 100
1965 Level of Federal Support 11 11 11
Fiscal Gap 12 10 11
Percent Federal Participation, 1965 15% 15% 15%
Percent if Gap is to be
Federally Closed, 1970 21% 17% 18%
Indicated Federal Participation
in Incremental Outlays 41% 21% 23%
70
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elasticity, and a slowing in the growth of this sector of the economy
even with a relatively larger input to the Federal share of total
revenue. In view of the events of the past two years--when markets
for State and local bond issues have consistently failed to meet
needs, even at constantly increasing price levels, and when taxpayer
revolt has stifled new revenue measures at the polls—the Pechman
view of the world seems to have been the more accurate one.
At any rate, the sources seem to agree that we are in a
situation where continuation and extension of pollution control
efforts will require that of every five dollars expended by some
level of government, at least one dollar must come from Federal
sources. Given the fact that the national priority system probably
holds water pollution control somewhat higher in its ordinal rank-
ing than do at least those communities which have failed to provide
needed treatment works, a higher level of Federal financial assis-
tance may actually be required to achieve needed controls.
At this time the Federal input to public waste handling
activities approximates the relative share projected by the autho-
rities on governmental finance who have been cited. Currently, the
combination of grants through the Department of the Interior,
Housing and Urban Development, and Agriculture amounts to something
over a quarter of a billion dollars a year; while total State and
local spending for waste handling is estimated to exceed $1.4 billion
annually. (See Table 30). Federal spending in this area has in-
creased tremendously, both in absolute terms and relatively to the
outlays of local government. Yet constraints upon local finances
have forced many States to provide supplemental assistance to local
government in the waste handling area.
The reason is not difficult to determine. Although Federal
outlays have increased at a much greater rate than those of local
government, the amount of the Federal increase has been well below
that which local government has had to meet. Federal outlays for
capital investment purposes have been about $170 million greater
this year than they were in the first five years of the Federal waste
treatment construction grants program. But total capital outlays
are almost $400 million a year higher, indicating a $230 million a
year incremental burden on local governments. Indeed, annual
replacement costs for the systems constructed since initiation of
the grant program are estimated to have increased by about $235
million a year, which combined with about $105 million a year increase
in operating costs, means that one of the effects of the level and
nature of Federal assistance in the pollution control effort has been
to directly add a third of a billion dollars a year to the financial
burden of American local governments.
The fact, taken in the context of the continuing financial
crisis of local government, does much to explain the very slow
71
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TABLE 30
Relation of Federal Assistance to Total Estimated
Public Waste-Handling Expenditures
(Millions of Dollars)
Annual Average
Outlay for Period
Investments Operating Charges
Treatment Collection Treatment Collection
Works Works Works Works
Total
1956-61, Total
Federal Share
1962-66, Total
Federal Share
1967, Total
Federal Share
339
45
515
105
551
203
317
375
504
50
95
135
170
170
195
200
921
45
1210
105
1424
253
Percent Federal in
Period
1956-61 13
1962-66 20
1967 37
10
5
9
18
72
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incremental reduction of pollution abatement needs in recent years.
Local government must spend as much today to hold its own in terms
of pollution abatement activities as it was spending to increase
those capabilities a few years ago. Overhead expenditures for opera-
tion, maintenance, and replacement largely cancel the effects of
Federal grant assistance. Larger Federal funding is necessary to
extend the reach of public waste handling and pollution abatement
capabilities.
The appropriate level of funding over the short run depends
upon several factors, specifically, the degree of cost-sharing on
each project, the method of allocating funds among States and the
time period in which all untreated wastes from sewered communities
are to be treated and an upgrading and replacement posture is to be
reached.
The impact of the degree of Federal participation must be
appraised. The rate at which a stable investment posture is to be
attained is a function of the residual funds available after
existing facilities are expanded, maintained or replaced. The
concept expressed here is that failure to adequately sustain exis-
ting capital automatically creates an investment need, and adds to
the national backlog. Thus, the sooner it is desired to achieve a
zero "backlog" level the higher the amount of total and Federal
investment shares. But the increase is by no means likely to be
greater than the marginal limits of expansion and contraction around
the historical level of investment. Accelerating construction too
steeply will tend to increase costs more than proportionately
through sectoral inflation caused by bottlenecks in design capacity,
construction industry capacity and equipment manufacturing capability.
In addition, significant changes in investment levels may conceiv-
ably drive up interest costs in the already high municipal bond
market. Another impact may well be poorer quality works, in terms
of both design and construction, resulting from less stringent
quality control and the attraction of engineers and contractors
with lesser skills in the waste treatment field.
While a program is considered more effective if it results in
more pollution control in a shorter time than another, the time
shrinking may cause that program to be less efficient. The tradeoff
between these two factors is difficult to predict.
A Retrospective View
Whether viewed as an urban development program or as an invest-
ment in natural resource protection, the wave of .treatment systems
construction that has taken place since the end of the Korean war—
most of it with the assistance of Federal grants—has profoundly
changed the conditions and the attitudes that characterize waste
handling procedures in American urban areas. And it is those changes,
73
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the result of the program's operation, which have made the present
alignment of grants unsuitable for today's conditions.
The dimensions of change are Illustrated 1n Figure 4. In
1940 just before the United States entry into World War II, one
American 1n two was served by a sewer system and little better than
one 1n four—or about half of those connected to sewers—was served
by a waste treatment facility. A decade later, the relationships
had scarcely changed. The exigencies of war, of industrial restruc-
turing, of recovery from the after effects of the Great Depression,
had shaped a set of national priorities in which the complexities of
waste disposal were relegated to a low position. The proportion
of the national population connected to sewers was still 53 percent—
just what 1t had been 1n 1940. Waste treatment was provided to 60
percent of the sewered population, as compared to 53 percent in 1940;
but the gain was due in larger measure to accidents of location than
to new construction—cities with waste treatment tended to be in
relatively fast growing areas.
But with the end of the Korean War and the eventual saturation
of the repressed demand for consumer goods that accumulated during
the long years of war and depression, the United States turned its
attention toward a number of broad public investments—highways,
education, urban renewal, and waste disposal among them—that began
to rework the face of the nation. By 1957 when Federal grants for
construction of waste treatment works were initiated, 57 percent of
the total population was connected to sewers—20 million persons
more than in 1950—and more than three quarters of those sewered
were supplied with waste treatment, an addition of 28 million persons
1n seven years. The great Increase in public works expenditures
involved In that expansion of facilities was probably the principal
source of the construction grants mechanism, which was initially
viewed as a financial assistance measure. In the twelve years in
which such grants have been available, sewered population has
Increased by 37.5 million persons, and now amounts to almost seventy
percent of the population of the United States. Population served
by waste treatment has increased by more than 51 million to account
for more than 92 percent of those presently served by sewers. In
twenty-eight years the population of the United States increased by
about 65 million, the sewered population increased slightly more in
absolute numbers but far faster in relative terms—a 94 percent
Increase as opposed to a 48 percent Increase—and the population
served by waste treatment increased by more than 88 million or
almost 240 percent. Of those totals, more than half of the Increase
In sewering and more than three-fifths of the Increase in application
of waste treatment have occurred since the Inauguration of Federal
waste treatment plant construction grants.
The transformation in waste handling procedures has been
qualitative as well as quantitative. Considerably more money has
74
-------
Figure 4
GROWTH OF PUBLIC
WASTE HANDLING
SERVICES
Unsewered Population
Secondary Treatment
1940
1950
1960
1968
75
-------
been spent to extend, expand, replace, and upgrade facilities than
has been spent for Initial Installation. As a result we may presume
that treatment facilities in operation 1n 1969 were more efficient
than those 1n operation a decade before.
We know that there 1s a great deal more capacity for expansion
In today's plants, so that a good portion of population Increase
that occurs in the future can be Included in currently operating
systems for minimal additional Investment. Perhaps most significant,
expansion of treatment capabilities has Induced a great change in
treatment procedures. Where plants in place in 1940 and 1950 were
Intended to treat sanitary wastes, current thinking dictates that In
most cases the municipal waste treatment plant treats all of the
wastes generated within the municipal jurisdiction, so that public
waste handling services are far more comprehensive; and their exten-
sion has been a major means of mediating the polluting effects of
Industrial waste discharges, as these have been progressively In-
corporated in municipal systems.
Figure 5 which graphs public expenditures since 1952 for
liquid waste handling capital demonstrates fairly clearly that
each Increase In the level of Federal appropriations for waste
treatment plant construction grants has moved total public spending
to an Irregular, new plateau. Particularly sharp peaks in 1963 and
1967 reflect the effects of complementary Federal assistance
programs, the Accelerated Public Works Program In 1963 and Initiation
of Department of Housing and Urban Development sewer grants in 1966-67,
The overall shape of the expenditures line 1s not, however,
as significant In mirroring the Impact of Federal financial assistance
as 1s the configuration of Us consitituents. Investments in collec-
tion sewers, which ascended at roughly the same slope as others types
of waste handling capital expenditures prior to the Initiation of
the grants program, tended to flatten at the time that the grant
provision (which does not Include collection sewers) was enacted.
Availability of Federal assistance, combined with a certain degree of
substitutablllty between collection sewers and other types of waste
handling Investment, acted to channel funds into the treatment plants
and ancillary works that do qualify for FWPCA grants.
Just as the emphasis on treatment-related Investments to the
relative disadvantage of collection facilities demonstrates the
ability of Federal policy to Influence local decisions, the rela-
tively minor Investments made for new treatment plants Indicates the
ability of local recipients to utilize Federal funds In ways that
relate to local needs. Less than a third of the total monies ex-
pended for purposes that qualify for the grant assistance has been
used 1n the construction of new plants. The less dramatic, but very
real, need to equip, expand, improve, automate, and replace plants
76
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Figure 5
1500
1350
1200
1050
900
o
o
"S
M
750
600
450
300
150
PUBLIC INVESTMENT IN
WASTE-HANDLING SERVICES,
1952-1967
Waste Transmission, System Expansion,
Replacement & Upgrading
BIUII, .
V
-
New Waste
Treatment Plants
/v/ \ i
Collecting Sewers
Accelerated Public Worksi
I I I
Fed'l Construction Grant Appropriations
I I • ' ' '., i i i i i i i i i
1952
1956
1960
1965
1969
77
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has been the source of the principal portion of local government's
demands on the grants program. Each expansion of Federal funding
has been translated into an increase in expenditures of the miscel-
laneous sorts required for system rationalization; and the level
of new plant expenditures for previously untreated wastes has scarcely
changed over more than a decade of experience.
Federal intention and local need, then, have interacted to
shape the instrument, the Federal grant for construction of waste
treatment works. Application of that instrument has taken forms
that neither level of government might have foreseen.
The Federal Share
It is, of course, difficult to say just how much money the Federal
government should provide to achieve "adequate" waste treatment. The
amount would be a function of the cost-sharing formula (assuming local
ability to provide necessary matching funds) and of time.
Economic theory provides no real insight into some optimum level
of Federal funds, leaving the political process to decide upon that
level which reflects national interests and values. But economic
theory can provide insights into the potential for matching by State
and local governments, the time to eliminate non-current unmet needs
and the potential success in mustering necessary resources at various
dollar levels of Federal program. The potential inflationary impact
and incentive effects can also be evaluated for these alternative
levels.
Ignoring for the noment inflationary side-effects and the more
difficult problem of incentives, let us consider the matter of optimum
Federal participation in financing facilities: There is a pressing
need to elicit an average annual investment rising from a current value
of about a billion dollars a year, plus a need to eliminate a "backlog"
of about $4.4 billion worth of required works. There is a definite re-
sistance on the part of some of the local governments who must finance
this investment, a resistance due to expression of local priorities and
to financial constraints, concomitant with a very strong Federal in-
terest in maintaining and increasing the rate of investment. All com-
ponents of the investment deficiency are not of equal immediacy: Some
facilities needs are quite pressing, in terms of alleviating stresses on
the aquatic environment; some are little more than administrative re-
quirements. It must be recognized that each dollar invested creates an
immediate charge on local government to expend additional dollars to
operate and maintain the function created by the investment. Finally—
and a most significant consideration in determining meaningful Federal
policies—the need will never be fully met: its nature will change, its
geographic distribution will shift, the means of dealing with it will
fluctuate; but human activities will always create wastes, and society
will always be forced to ameliorate the environmental stresses implicit
in waste disposal. The task is a continuing social and technological
78
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TABLE 31
Dollars of Total Investment
Per Dollar of Federal Construction Grants
Year
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
Total
Investment
11.54
13.40
13.24
13.78
9.54
8.92
10.04
8.62
6.40
6.13
5.20
Sewer
Investment
4.94
6.20
6.72
7.18
4.75
3.55
4.05
3.P6
2.74
2.66
2.49
Treatment Plant
Investment
6.60
7.20
6.52
6.60
4.79
5.37
5.99
4.66
3.66
3.47
2.71
79
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Imperative, and society can only redistribute financial stress over
time, not eliminate the task by any massive, short term investment
program.
Of importance in this decision too is the multiplier effect of
Federal funds which is shown historically in Table 31. The recent
history shows a decrease in the multiplier, which may be partially a
result of increased cost sharing ratios beginning with the 1965 legis-
lation and the institution of HUD grants for sewers in 1966.
Whatever the level of Federal participation and the method of
allocation their impact will be felt at the State and local level. The
effects of an illustrative program have been examined for New England
and they are presented in the following case study.
CASE STUDY
Financial Impact of Constructing Hater Pollution Control
Facilities in New England
Introduction
The purpose of this case study is to investigate and evaluate the
financial aspects, arrangements and impact of constructing water pol-
lution control facilities in New England. For illustrative purposes
only, it evaluates the financial impact a 50 percent Federal grants
program might have on each of the New England States. The major
emphases on case study was to show the distribution of costs among
the levels of government, and more specifically the burden on the
municipal sector. For this purpose a hypothetical level of Federal
funds was selected. The case study assumes that adequate Federal funds
will be forthcoming to provide a 50% Federal investment in the "ew
England States. The state, local and Fedora1 shares predicated on this
assumption are shown in Table 32. Other aspects considered in the study
are: (1) past sewerage expenditures relative to needs; (?) expenditures
of State and local governments for education, highways, public welfare,
etc.; (3) the fiscal capacity and tax effort of State and local govern-
ments; and (4) alternative financial arrangements.
The case study first considers the impact at the State level then
the impact at the community and homeowner levels. Alternative means
of financing the program at the local community level are evaluated in
Examples I & II.
Cost of Water Pollution Control Facilities
The cost of providing treatment facilities and interception (exclu-
sive of collection systems) for municipal and some industrial wastes in
New England is estimated to be approximately $1.12 billion for the next
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TABLE 32
FEDERAL, STATE AND LOCAL SHARE OF FINANCING
THE COST OF WATER POLLUTION CONTROL FACILITIES IN NEW ENGLAND
State
Connecticut
Total Cost
Federal
State
Local*
Massachusetts
Total
Federal
State
Local
Rhode Island
Total Cost
Federal
State
Local
Maine
Total Cost
Federal
State
Local
New Hampshire
Total Cost
Federal
State
Local
Vermont
Total Cost
Federal
State
Local
New England
Total Cost
Federal
State
Local
Percent
Share
100.0
50.0
30.0
20.0
100.0
50.0
25.0
25.0
100.0
50.0
25,9
25.0
100.0
50.0
30.0
20.0
100.0
50.0
40.0
10.0
100.0
50.0
30.0
20.0
100.0
50.0
29.0
21.0
Amt. In
$M11lions
$280.5
140.3
84.1
56.1
438.0
219.0
109.5
104.5
51.5
25.7
12.9
12.9
140.9
70.5
42.2
28.2
138.0
69.0
55.2
13.8
70.0
35.0
21.0
14.0
1,118.9
559.5
324.9
234.5
*Refers throughout to local government, metropolitan or regional
districts
81
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Estimated Cost*
State ($ Million)
Connecticut $ 280.5
Massachusetts 438,0
Rhode Island 51.5
Maine 140.9
New Hampshire 138.0
Vermont 70.0
New England $1,118.9
Impact at the State Level
The financial impact that construction of water pollution control
facilities will have on the New England area will vary from State to
State and from community to community. Individual communities within
each State will have varying degrees of financial difficulties depend-
ing on such factors as present waste treatment facilities, per capita
income of the community, the property tax base, competing claims on
community resources, and credit rating.
In general, the financial impact of water pollution control facil-
ity costs on the States as a whole will depend largely on: (1) the
amounts of Federal aid available to communities within each State for
the construction of water pollution control facilities, (2) past sewerage
expenditures relative to needs, (3) expenditures of State and local
governments for education, highways, public welfare, etc., and (4) the
fiscal capacity and tax effort of State and local governments.
Past Sewerage Expenditures: Another important factor that has
significant bearing on the financial impact is past expenditures of
State and local governments for sewerage systems to meet needs. In
other words, has past construction of water pollution control facili-
ties of each New England State kept pace with needs? In general, the
States have not constructed the needed facilities in the past. How-
ever, some of the New England States have kept pace with their needs
more than the other States, as indicated by the per capita expendi-
tures in Table 33.
Table 33 shows the per capita expenditures for capital outlay,
operation and maintenance for sewerage services of State and local
governments for 1957, 1962, 1966 and 1968. Although the figures include
expenditures other than those for treatment and interceptor sewers,
* The costs utilized in this case study are the State investment
estimates as presented in Table 27, page 59.
82
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TABLE 33
PER CAPITA
EXPENDITURES OF STATE AND LOCAL GOVERNMENTS
FOR SEWERAGE SERVICES
00
CJ
State
Connecticut
Massachusetts
Rhode Island
Maine
New Hampshire
Vermont
New England
Capital Expenditures
Total Expenditures
(Capital, Operation and Maintenance)
1957
$4.39
2.25
4.65
1.36
1.89
0.91
2.57
1962
$8.40
3.83
2.08
2.80
1.65
3.72
3.75
1966
$8.84
3.61
5.92
2.76
4.08
5.14
5.06
1968
$9.97
2.88
3.41
6.33
5.71
11.70
6.67
^ — -, p, .
1957
$6.01
3.65
6.33
2.11
2.53
1.59
3.70
1962
$10.80
5.38
4.72
3.76
2.65
4.86
5.36
1966
$11.35
5.27
8.68
4.25
5.18
6.88
6.94
1968
$13.13
4.98
6.37
7.71
7.56
14.08
8.97
Source: "Census of Governments, 1957 and 1962", Bureau of the Census, Washington, D.C,
"Governmental Finances in 1965-1966", Bureau of the Census, Uashinnton, D.C.
"Governmental Finances in 1967-68", Bureau of the Census, Washington, D.C.
-------
they serve to Indicate the approximate and relative level of past spend-
ing for water pollution control facilities for each New England State.
For example, in 1957 the per capita capital expenditures varied greatly
from one State to another with a high of $4.65 for Rhode Island compar-
ed to a low of $0.91 for Vermont. The data further indicate that in
1957 the northern States (Maine, New Hampshire and Vermont) spent con-
siderably less than the southern States (Connecticut, Massachusetts
and Rhode Island). However, in 1968 the capital investment of the
northern States was on the average 50 percent more than the southern
States. In 1968, all the New England States, except Rhode Island,
spent more on capital outlay than in 1957 with Vermont having spent
the most of the six States.
Needed Expenditores: Even more significant than past expenditures
for sewerage services are the expenditures needed in the near future
to construct water pollution control facilities in each of the six
New England States. By way of comparison, the needed investments on
a per capita basis for constructing water pollution control facilities
for each New England State are:
Connecticut $95 Maine $144
Massachusetts $80 New Hampshire $197
Rhode Island $56 Vermont $166
The above figures are based on the cost estimates presented in
Table 32 and 1968 population.
On the average, the per capita costs of needed facilities in the
northern States are double those of the southern States. The cost of
needed investment in Vermont and New Hampshire are the highest, on a
per capita basis, of all New England States.
A further analysis of the needed investments of each New England
State is presented in Table 34 to evaluate the impact that financing of
water pollution control facilities would have on State and local gov-
ernments. The annual per capita amounts are based on capital costs
estimates amortized for 25 years at 5.0 percent and 1968 population.
Also included are the per capita amounts as a percent of total per
capita expenditures of State and local governments (1968). (The
total per capita expenditures of State and local governments are shown
in Table 35.) In addition, an estimate of the annual per capita amounts
and percentages for operation and maintenance as well as total annual
per capita costs and percentages are given in Table 34 for each New
England State.
With Federal aid amounting to 50 percent grants to all projects,
all of the New England States, will be required to commit (based upon
1968 expenditures rates) 1.6 percent of their total funds
84
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TABLE 34
STATE AND LOCAL GOVERNMENTS' ANNUAL EXPENDITURES
FOR NEEDED PUBLIC WATER POLLUTION CONTROL FACILITIES
(Based on 50 Percent Federal Grants)
oo
en
State
Connecticut
Massachusetts
Rhode Island
Maine
New Hampshire
Vermont
Annual Equivalent*
Capital Outlay
Annual
Operation and Maintenance
Total
Annual Cost
Per
Capita
Amounts
$3.36
2.86
2.16
5.10
6.98
5.88
Percent
of 1968
Expend.
0.6
0.6
0.4
1.1
1.6
0.9
Per
Capita
Amounts
$4.74
4.03
2.83
7.20
9.83
8.29
Percent
of 1968
Expend.
0.9 '
0.8
0.5
1.5
2.2
1.3
Per
Capita
Amounts
$8. 1C
6.89
4.99
12.30
16.81
14.17
Percent
of 1968
Expend.
1.5
1.4
0.9
2.6
3.8
2.2
Note: These columns indicate the per capita amounts (based on capital cost estimates amortized for
25 years at 5.0 percent and 1968 populations) and the percent of 1968 expenditures (based on
the per capita amounts and the total 1968 per capita expenditures for State and local governments
in Table 35).
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to such facilities. The annual per capita Capital outlay would range
from a low of $2.16 for Rhode Island to a high of $6.98 for New
Hampshire. Annual expenditure required for the operation and mainte-
nance of such facilities could amount to 0.5 to 2.2 percent of 1968
expenditures of State and local governments. The total annual per
capita cost (capital, operation and maintenance) would range from a
low of $4.99 for Rhode Island to a high of $16.81 for New Hampshire.
In summary, Table 34 shows that the burden will be relatively
greater for Maine, New Hampshire and Vermont than for the other New
England States.
Comparison of Other State and Local Government Expenditures: The
financial impact that the construction of water pollution control faci-
lities will have on the States as a whole will depend to a degree on
expenditures of each State for other public functions, such as educa-
tion and highways, relative to the capacity of States to meet these
requi rements.
A comparison of per capita sewerage expenditures and other State
and local government expenditures for fiscal year 1968 is shown in
Table 35. Shown are per capita total expenditures, as well as those
for education, highways, public welfare, local parks and recreation,
sanitation other than sewerage and sewerage for each New England State
as well as the United States averages. New England sewerage expendi-
tures for fiscal 1968 amounted to $5-14 per capita, or 1-3 percent of
the total expenditures for State and local governments. In contrast,
education, highways, and sanitation amounted to $163-206, $58-182, and
$1-6 per capita or 32-40, 11-28, and less than 1 percent of the total
expenditures, respectively. The United States average expenditures
for sewerage amounted to approximately 2 percent of the total, compared
to education and highway expenditures at 40 and 14 percent of total
expenditures, respectively. In 1968, over 50 percent of all expendi-
tures of State and local governments was for education and highways,
while sanitation and sewerage amounted to less than 3 percent.
The past expenditures for sewerage services in relation to the
total expenditures of State and local governments have not been appre-
ciable in comparison to those for education and highways. Futhermore,
the amount the three southern States may be required to spend annually
for the needed facilities (on a per capita basis) is about the same
or less than in the past, while the three northern States will need
to spend considerably more annually for capital outlay than they did
in the past.
Fiscal Capacity of State and Local Governments: A factor that is
equally or perhaps more important than those already mentioned is the
86
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TABLE 35
PER CAPITA EXPENDITURES OF STATE AND LOCAL GOVERNMENTS
FISCAL YEAR 1968
State
Total
Expendi-
tures Education
Local Sanitation
Public Parks and Other than All
Highways Welfare Recreation Sewage Sewerage Others
00
Connecticut
Massachusetts
Rhode Island
Maine
Mew Hampshire
Vermont
New England
United States
$531
510
555
467
446
649
526
512
$198
163
187
206
178
260
199
206
$73
58
no
89
100
182
102
72
$46
65
70
39
30
55
51
49
$8
5
4
2
4
2
4
7
$5
6
4
2
2
1
3
5
$13
5
6
8
8
14
9
9
$188
208
174
121
124
135
158
164
Partial Source: "Governmental Finances in 1967-68"
Bureau of the Census, Washington, D.C.
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fiscal capacity of State and local governments. The Advisory Commis-
sion on Intergovernmental Relations defines fiscal capacity as follows:
"... a quantitative measure intended to reflect the
resources which taxing jurisdiction can tax to raise
revenue for purposes. There are many factors that
determine the capacity of a community or State to pay
for public services including the population's income,
wealth, business activity, etc., the demands made on
these resources, and the quantity of governmental
services.11'
The economic indicator of most general applicability is income.
Therefore, the economic indicator that will be used here as a measure
of fiscal capacity is the per capita personal income of each of the
New England States. Since taxes are generally paid out of current
Income, a community's income is a measure of its capacity to meet both
public and private needs. As fiscal capacity is difficult to evaluate
in absolute terms, only a relative measure will be considered in com-
paring one State with another.
The per capita personal income of each of the New England States
for 1950, 1960 and 1967, as well as New England and the United States
averages are shown in Table 36. In 1967, Connecticut had the second
highest per capita personal income of the 50 States and the District
of Columbia. In 1967, the States of Connecticut, Massachusetts and
Rhode Island ranked above the median income State of the Nation while
the other three New England States ranked below. Maine's per capita
personal income, which was the lowest of all the New England States
in 1967, amounted to only 67 percent of the per capita personal income
of Connecticut.
It is evident that the financial impact of constructing waste
treatment facilities will be greater in the northern New England States
based on the following two factors: (1) the per capita personal
income is less and is projected to be less in the future for the three
northern States than for the southern States2, and (2) the estimated
per capita cost of needed water pollution control facilities in the
northern New England States is considerably greater than in the south-
ern New England States.
1 "Measures of State and Local Fiscal Capacity and Tax Effort," The
Advisory Commission on Intergovernmental Relations, p.c.
2 "Protective Economic Studies of New England," Corp of Engineers,
Waltham, Massachusetts, Part II, Appendix G.
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TABLE 36
PER CAPITA PERSONAL INCOME
State 1950 1960 1967
Connecticut
Massachusetts
Rhode Island
Maine
New Hampshire
Vermont
New England
United States
1,875
1,633
1,606
1,185
1,323
1,121
1,601
1,496
Statistical Abstract of
2,807
2,459
2,211
1,844
2,143
1,841
2,425
2,215
the United States,
3,969
3,541
3,328
2,657
3,053
2,825
3,229
3,159
1967
™«n
"Governmental Finances in 1967-68" Bureau of the
Census, Washington, D.C., p. 52
89
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Tax Effort: The extent to which a State makes use of its fiscal
or taxable capacity is defined as tax effort. For example, if State
X and State Y have the same fiscal capacity, but State X collects more
taxes than State Y, then State X is making a greater tax effort than
State Y.
A comparison of revenue of State and local governments for each
of the six States is used as a relative measure of the tax effort in
New England. Table 37 indicates the per capita general revenue, of
State and local governments for fiscal 1968, including total general
revenue, revenue from the Federal government, all revenue from own
sources, and revenue from property taxes.
The per capita total general revenue in fiscal 1968 ranged from
a low of $400 for Maine to a high of $579 for Vermont. However, the
per capita revenue from the Federal government was $74 for Maine com-
pared to $158 for Vermont. A more realistic economic indicator in
evaluating tax effort is the revenue collected from State and local
governmental sources. For example, in 1968, Massachusetts collected
the highest per capita revenue ($456) of all six States and Maine the
lowest ($326). The United States average for the same year was $420.
The States of Connecticut, Vermont and Massachusetts were the same or
above the United States average while the other three States were below,
Per capita revenue collected from property taxes ranged from a high of
$204 in Massachusetts to a low of $129 in Maine compared to a United
States average of $139.
The relation of State and local governments' revenue per $1,000
of per capita personal income is also included in Table 37. On this
basis, Rhode Island and Vermont had the highest tax effort of the six
States in fiscal 1968, being greater than the United States average.
Table 38 presents the relationship of State and local governments'
annual expenditures for their share of needed water pollution control
facilities to total general revenue and property tax capabilities.
Also shown in Table 38 are the per capita amounts as percent of total
general revenue and property tax revenue of State and local governments
for 1968.
With Federal aid amounting to 50 percent of construction cost,
all of the New England States will be required to commit (based upon
1968 revenue rates) 1.7 percent or less of their total general revenue
to such facilities. The annual capital expenditures for needed water
pollution control facilities as a percent of property tax revenue would
amount to 1.8 percent or less for the southern States compared to 4.2
percent for the northern States. The additional percentages for annual
operation and maintenance for the needed facilities range from 0.6 to
2.4 percent of total general revenue compared to 1.9 to 6.0 percent
of property tax revenue.
90
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TAPLE 37
GENERAL REVENUE OF STATE AND LOCAL GOVERNMENTS
FISCAL YF.AR 1968
(Per Capita)
All Revenue
From Own
Sources
Relation of
State & Local
Gov't. Revenue
Connecticut
Massachusetts
Rhode Island
Maine
New Hampshire
Vermont
United States
Total
General
Revenue
$50k
534
492
400
412
579
506
From
Federal
Gov't.
$81
78
103
74
79
158
86
Including
Property
Taxes
$421
186*
456
204*
389
146*
326
129*
333
165*
421
138*
420
139*
Per $1 ,
Persona
Income
$126
151
164
151
135
205
160
Partial Source: "Governmental Finances in 1967-68," P-ureau
of the Census, Washington, D.C., p. 31-33
*Figures represent revenue from property taxes
91
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VO
rvj
State
Connecticut
Massachusetts
Rhode Island
Maine
New Hampshire
Vermont
TABLE 38
RELATIONSHIP OF STATE AND LOCAL GOVERNMENTS' ANNUAL EXPENDITURES
FOR NEEDED WATER POLLUTION CONTROL FACILITIES TO TOTAL GENERAL
REVENUE AND PROPERTY TAX CAPABILITIES
(Based on 50 Percent Federal Grants)
Annual Equivalent*
Capital Outlay
Per
Capita
Amounts
$3.36
2.86
2.16
5.10
6.98
5.88
Percent
of 1968
Total
General
Revenue
0.7
0.5
0.4
1.3
1.7
1.0
Percent
of 1968
Revenue
from
Property
Taxes
1.8
1.4
1.5
4.0
4.2
4.2
Annual
Operation and Maintenance
Per
Capita
Amounts
$4.74
4.03
2.83
7.20
9.83
8.29
Percent
of 1968
Total
General
Revenue
0.9
0.8
0.6
1.8
2.4
1.4
Percent
of 1968
Revenue
from
Property
Taxes
2.5
2.0
1.9
5.6
6.0
6.0
Per
Capita
Amounts
$8.10
6.89
4.99
12.30
16.81
14.17
Total
Annual Cost
Percent
of 1968
Total
General
Revenue
1.6
1.3
1.0
3.1
4.1
2.4
Percent
of 1968
Revenue
from
Property
Taxes
4.3
3.4
3.4
9.6
10.2
10.2
Note: *These columns Indicate per capita amounts (based on capital costs amortized for 25 years
at 5.0 percent and 1968 populations) and percentages (based on the per capita amounts and
total general revenue and property tax revenue of State and local qovernments for 1968,
Table 37).
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In summary, the financial impact of constructing water pollution
control facilities certainly will be relatively greater for the States
of Maine, New Hampshire and Vermont, than for Connecticut, Massachusetts
and Rhode Island, based on per capita construction costs of waste treat-
ment facilities, per capita personal income, and State and local govern-
mental expenditures and revenues.
Impact at the Community and Homeowner Levels
Quite apart from any assumptions with respect to the availability
of Federal and State aid, local communities in New England will face
varying degrees of difficulties in financing their share of the total
cost of waste treatment and collection facilities. Once they know
what their share of the cost is and proceed with bond issues to
finance it, they face alternative means of recapturing these costs,
i.e., repayment of bond issues. These problems may be intensified
by the fact that, in many New England communities, an industry domi-
nates the local econ4my, thus raising the very important question of
whether repayment should be in the form of a sewer service charge or by
means of general taxation, or a combination of both.
In general, the financial impact of water pollution control
facilities at the community level will depend largely on the existence
of present water pollution control facilities, per capita income of
the community, property tax base, competing claims on community
resources and credit ratings.
The percentage of the local share that will be shouldered directly
by homeowners will depend on the alternative means of repayment of bond
issues used by a community, i.e., whether repayment is in the form of
a sewer service charge or by means of general property taxation. It
is important to realize that, in the final analysis, the cost of sewer-
age facilities is paid for directly and indirectly by all taxpayers,
but the impact on property owners will vary with the method of
financing.
In order to evaluate the financial impact at the community and
homeowner levels, a number of alternative financial arrangements will
be considered.
Alternative Financial Arrangements:
The Funding Problem: Although Federal and State grants are
available to local communities for water pollution control facilities,
the communities must finance their share of the cost. In general,
most of the cities and towns in New England will depend on municipal
bond issues to finance the local share, but they will have varying
degrees of difficulties in financing, due to municipal credit ratings,
legal bonded debt limits and market conditions.
93
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Bond Issues and Municipal Credit Rating: The two types of
bonds most widely used to finance water pollution control facilities
are general obligation and revenue bonds. In the case of general obli-
bonds, the town or city pledges its full credit for repayment of the
debt from the general tax fund or service charges. Such bonds in effect
constitute a tax lien on all assessable property in the community. In
contrast, a revenue bond is an obligation issued to finance a revenue
producing enterprises, payable exclusively from earnings of the enter-
prise, in this case service charges. Since the repayment of revenue
bonds is dependent on the earnings of the enterprise, these bonds usual-
ly carry an interest rate that is 1/2 to 1 percent higher than general
obligation bonds.
An important factor In determining the interest rate a community
must pay for municipal bonds is the credit rating of the community.
Credit ratings are determined by such national firms as Moody's Inves-
tors Service, Inc. and Standard & Poor's Corporation and indicate the
community's ability and willingness to repay the bonds. Investors
charge communities interest rates that are commensurate with their
credit ratings.
Moody's rates the bonds of communities that have $600,000 or more
of debt. Their credit ratings are as follows:
Aaa - Best Quality
Aa - High Quality (generally known as high grade bonds)
A-l - Upper Medium Grade
A - Upper Medium Grade (elements exist that suggest suscepti-
bility to impairment)
Baa-1 - Lower Medium Grade
Baa - Lower Medium Grade (Neither highly protected nor poorly
secured)
Ba - Some Speculative Elements
B - Speculative
Caa - Poor Standing
Ca - Very poor Prospects of Payment
C - Lowest Rated Class
Many characteristics of a community are evaluated to arrive at a
credit rating. The most important elements used by Moody's In deter-
mining a rating for a community are, (1) management (the policies of
the community in regard to fiscal matters), (2) the economy of the com-
munity (the presence of industry and commercial establishments within
the municipality as well as its capital program), and (3)the bonded
debt. Several other tangibles and intangibles influence a rating.
Moody's rating for the New England States and a number of selected
communities are given in Table 39. The State of Rhode Island has an
A-l rating, Massachusetts, an Aa rating and the other four States, Aaa
94
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TABLE 39
MOODY'S RATINGS
OF
NEW ENGLAND STATES AND SELECTED COMMUNITIES
(December 1969)
State and Community Ratlnq
Connecticut Aaa
Groton A-l
Hartford Aaa
Plainfield A
Maine Aaa
Bangor Aa
Caribou Baa-1
Massachusetts Aa
Amesbury A
New Bedford A
New Hamoshire Aaa
Concord Aaa
Hudson A
Rhode Island A-l
Barrinqton Aa
Warwick Baa-1
Woonsocket Baa
Vermont Aaa
Brattleboro Aa
Montpelier Aaa
95
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ratings. In general, the communities In New England have a lower rat-
Ing than their respective States.
In November 1969, the interest rates for Aaa, Aa, A and Baa ratings
were 6.05, 6.34, 6.65 and 6.83 percent, respectively. In general, a
difference of 0.1 percent In the interest rate on a $1 million bond
issue (20 year maturity) would cost taxpayers or users $20,000 more.
For instance, the State's share of the cost of waste treatment facilities
for Massachusetts is estimated to be $110 million. Based on the present
trend in interest rates and 20 year maturity, it would cost taxpayers
or users approximately $6 million less to repay the State's share if
the State of Massachusetts had a credit rating of Aaa instead of Aa.
Legal Bonded Debt: Another factor that may create a
funding problem for local communities In financing water pollution
control facilities is their legal bonded debt limit. All communities
have a legal debt limit for public works construction, but in all New
England States, except Maine, water pollution control facilities and
school construction are not included under the debt limit specified by
law.
Although water pollution control facilities may be exempt from the
legal debt limit there is a question as to what extent a community
should exceed its legal debt limit. As a general guide, the Interna-
tional City Manager's Association suggests that (1) the ratio of in-
debtedness to full taxable value should not exceed 10 percent, and
(2) debt retirement should be so scheduled that at least 25 percent
of the principal is always due for amortization within a five year
period. Moody's Investors Service, Inc. suggests that a total debt
service requirement (interest and retirement of principal) which is
more than 15 percent of the community's normal annual budget may be
considered high, but also points out that no strict rule of thumb can
be applied since in communities with financial difficulties, even 10
percent may be too high.
In summary, the funding problem will vary from community to com-
munity as reflected by the type of bond issues, credit ratings and
legal bonded debt limits of each community.
The Repayment Problem:
General Property Taxation: Many communities in New
England are repaying municipal bonds, including those issued for water
pollution control facilities out of revenue collected from property
taxes. To evaluate the impact of financing waste systems on the local
community, the increase in property taxes on a $20,000 home (market
value) under various conditions of aid availability will be considered
for several communities in each of the New England States. Each
community was selected to represent various magnitudes of investment.
96
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It was assumed that the method of financing would be general obli-
gation bonds (25 year maturity). An interest rate of 5.0 percent was
used for all communities although the actual interest rate each commu-
nity will pay depends upon its credit rating and market conditions.
The capital costs used are preliminary estimates and may not reflect
the actual costs to each community.
Table 40 indicates the effect on property taxes for a $20,000 home
(market value) for each of the selected municipalities under conditions
of (!) 50 percent Federal aid and 25-40 percent State aid, (2) no
Federal aid and 25-40 percent State aid, and (3) no Federal and State
aid. The annual tax increase is attributable to the cost of water
pollution control facilities, i.e., annual amortized capital cost plus
the estimated annual cost of operation and maintenance. The three
chosen to evaluate the financial impact on the selected municipalities
under extreme conditions (full aid and no aid) and under an intermediate
condition (State aid only). Even though the second and third assumptions
may not be realistic, they serve to measure the financial impact.
The total 1968 property taxes on a $20,000 home for the selected
communities ranged between $360 and $1061. The new annual property
taxes ranged between $413 and $1095 under conditions of maximum aid
available; $440 and $1146, State aid only, and $453 and $1168, no aid.
These figures include the annual capital, operation and maintenance
costs of waste treatment facilities and are based on 1968 assessed
valuations, assessment ratios and tax rates.
The annual increase in property taxes needed to finance the
facilities ranged between $11 and $75 under maxmum aid; $20 and $126,
State aid only; and $28 and $160, no aid. Of the 16 selected commu-
nities, all had an annual tax increase of $75 or less under conditions
of maximum aid compared to 11 communities with State aid only, and 9
communities without Federal or State aid.
It is important to emphasize that these figures do not include
the cost of a collection system, and, to estimate more accurately
the impact on a homeowner not served by a sewer system, an annual
cost for a collection system must be added to the above figures. An
average annual cost of $50-$75 per household for a collection system
would result in a total annual cost of $61 to $150 under maximum aid
for a $20,000 home for the collection and treatment of sewage. The
total annual cost of collection and treatment per $20,000 home would
range between $70 and $201 under State aid only, and between $78 and
$235 under conditions of no aid for the selected communities.
Service Charges: A number of New England communities
use a sewer service charge, also called a rental charge, use charge or
sewer use tax as a source of revenue to repay general obligation, or
revenue bonds used to finance waste treatment facilities and/or to pay
97
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TABLE 40
EFFECT ON PROPERTY TAX ON A $20,000 HOME IN FINANCING WASTE TREATMENT FACILITIES
(MARKET VALUE)
State and Conmunlty
Connecticut
Groton
Canton
Plalnfleld
Maine
Banqor
Caribou
Farmlngdale
oo Massachusetts
Amesbury
New Bedford
Rockport
New Hampshire
Concord
Conway
Dover
Hudson
Rhode Island
Jamestown
Woonsocket
Vermont
Brattleboro
Windsor
1968
Taxes
$570
564
360
668
609
388
1020
1061
455
877
440
691
620
380
737
747
721
Increase 1n Annual Taxes
Max.
Aid
$25
20
53
36
49
49
75
16
16
54
21
11
68
34
21
26
33
State
Aid
Only
$48
40
96
60
81
80
126
34
30
94
30
20
120
60
38
46
59
No
Aid
$ 60
49
120
76
101
100
148
39
36
128
37
28
160
73
45
58
76
New Annual Taxes
Max7
704
658
437
931
461
702
688
414
758
773
754
State
Aid
Only
728
690
468
971
470
711
740
440
775
793
780
No
Aid
$595 $618 $630
584 604 613
413 456 480
744
710
488
1095
1077
471
1146
1095
485
1168
1100
491
1005
477
719
780
453
782
805
797
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for the cost of operation and maintenance of the system. Other commu-
nities use a combination of service charges, general taxes and better-
ments. For example, in Brockton, Massachusetts, 50 percent of sewerage
revenue is from service charges, 25 percent from betterments and 25
percent from general taxation.
The sewer service charges can be based on one or a combination of
factors such as the following: metered volume of water used, flat
rates, sewage flow and/or strength, property frontage or area, value
of property or number of rooms.
Basing the service charge on the metered volume of water use is
one of the most frequently selected methods, since 85 percent of the
water distributed in the Nation is metered. With this method, the
charge can be based on a uniform metered volume of water used, sliding
scale of metered water used, block ratio of water used, percentage of
water bill or by the size of the water meter.
Flat rates, which are used in areas where metered water service
is not available, can be based on the number of equivalent dwelling
units, number of persons residing or working on the premises, number
of plumbing fixtures, and/or the number of sewer connections. The
disadvantage of the flat rate basis is the users are not charged in
terms of quantity or quality discharged into the system.
The metered sewage charge is usually limited to industry and
commercial establishments and some inter-municipal arrangements be-
cause of the cost and technical difficulty in metering the quantity
and quality if it were feasible to meter on a widespread basis.
Example I which is presented later compares a service charge with
general taxation for a large industry within a small community.
The Problem of Joint or Separate Facilities
Explanation of Distinction: For the purpose of this report, a
separate facility is defined as one where the wastes are from municipal
sources which include domestic, commercial, and a small amount of in-
dustrial wastes while a joint facility is one that receives domestic,
commercial, and a large amount of industrial wastes. However, in both
cases, the facilities are constructed as well as owned and operated
by the municipalities. The first example to follow was selected to
compare the impact of a service charge with that of general taxation
1n the case of a joint treatment system.
In a number of the smaller towns in Northern New England, one
major industry produces exceptionally large pollution loads compared
to the total load discharged. In such town, the waste load from the
community mav have a biochemical oxygen demand (BOD)* load of 500 -
l!ooO Ibs/dtJ while the industry's load may be 60,000 to 100,000 Ibs/day
* Biochemical Oxygen Demand - The amount of oxygen required by living
micro-organisms in the decomposition of organic matter in water.
99
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By law, the Industry Is required to treat its waste, but 1t may do
this by (1) building Its own treatment facility, or (2) having the
community build a treatment facility which the industry and the commun-
ity can use jointly. However, the latter alternative has prompted some
to question whether the amount of Federal and State assistance to a
community constructing a joint facility serving a dominant industry
should be reduced. ABT Associates in their report to the FVIPCA, sub-
sequently transmitted to the Congress, on incentives to industry
recommended:
"...it does not seem desirable to continue to give grants
to municipalities to construct industrial treatment faci-
lities. Instead, the current practice should be changed
so that grants are only given for the percentage of
capacity which is actually used to treat domestic wastes.
Towns should be required to allocate costs between indus-
trial and other wastes according to standarized procedures."!
The report further mentions that:
"The present value to the firm of the tax savings for
pollution control spending under the current tax law is
30% to 45% of the cost of the capital investment and 50%
of any operating costs. The very substantial size of
this aid should be kept in mind when considering the
argument often made for additional tax assistance, namely,
that the community as a whole ought to assume part of the
costs for abating pollution. Whether it should or not,
the community is already In fact assuming much of the
burden to industrial pollution control." 2
Example I illustrates the costs to both the industry and the town
if a joint facility is constructed compared to separate facilities.
Example I
A small community with a large paper company located in the town
is used for this example. It is estimated that the cost of required
water pollution control facilities, including collection and treatment,
for the town alone is $500,000 while a system that could accommodate
both the industry and the town is estimated to cost $6 million. For
the purpose of this analysis, the following assumptions were made:
1 ABT Associates Inc., "Incentives to Industry for Water Pollution
Control: Policy Consideration," December 1967, p. 54.
2 Ibid., p. 41
100
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Federal aid 50 percent and State aid 30 percent of construction costs,
25 year amortization period, 5.0 percent interest rate on general obli-
gation bonds, and annual costs of operation and maintenance as 5 percent
of capital costs. Total costs eligible for State and Federal assistance
are approximately $5.9 million for the joint facility.
The waste characteristics for the town and the industry are as
fol1ows:
Waste Characteristics Town Industry
Flow-mgd. 0.25 10.7
Biochemical Oxygen Demand (BOD) - 500 63,100
Ibs/day
Suspended Solids - Ibs/day 500 292,4000
This means that the industry's average daily flow is approximately
43 times that of the town, 5 day BOD is 126 times, suspended solids is
585 times and the cost approximately 11 times. What financial arrange-
ment would be most equitable for the industry and the town? Should the
town pay 1/43, or 1/126, or 1/585 of the annual cost of the joint
facility and the industry the remainder? The following analysis will
consider the cost to the town and to the industry based on general prop-
erty taxes, cost distribution, flow, BOD and suspended solids. It is
not the intent of this example to develop a scheme for equitably distri-
buting costs of a joint facility between the town and industry, but
to present a number of possible alternatives that can be used in deter-
mining an equitable cost-sharing arrangement. The financial
arrangement is shown as follows:
Joint Facility
Total Cost of Joint Facility $ 6,000,000
Eligible Costs 5,900,000
Federal Share - 50% 2,950,000
State Share - 30% 1,770,000
Local Share - 20% 1,180,000
101
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Total Local Share (Includes
$100,000 ineligible costs for
collection system) - $ 1,280,000
Annual Capital Cost (amortized
25 yrs. 95.0X) 90,800
Annual Operation and
Maintenance Costs - 300,000
Total Annual Cost - $ 390,800
Cost Sharing
General Property Taxes
If the annual cost of $390,800 were to be financed from property
tax revenue, then an increase in the tax rate would necessary:
Total assessed value of all property (1969) $18,943,060
Total assessed taxes (1969) 1,006,733
Tax rate (per $1,000 valuation) 53
New Taxes ($1,006,733 + 390,800) 1,397,533
New Tax rate (per $1,000 valuation) 74
Increase in Tax Rate ?!
Industry's Share of Joint Facility
(1969 industry's assessed evaluation,
$12,185,400) $251,700 64.4%
Town's Annual Share of Joint Facility
(1969 assessed valuation, commercial
and residential $6,757,660) 139,100 35.62
Service Charge
1. If the cost-sharing were to be based on flow, then:
Town's Annual Share - $ 9,000 2.3%
Industry's Annual Share - $ 381,800 97.7%
2. If the cost-sharing were to be based on 5 day BOD, then:
Town's Annual Share - $ 3,100 0.8%
102
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Industry's Annual Share - $ 387,700 99.2%
3. If the cost-sharing were to be based on suspended solids, then:
Town's Annual Share - $ 800 Q.2%
Industry's Annual Share - $ 390,000 99.8%
The cost to the town will vary greatly depending on whether or not
general taxation or a service charge based on flow, BOD or suspended
solids is used to repay the general obligation bonds for a joint faci-
lity. A summary of the total annual costs (capital, operation and
maintenance) to the community and the industry is tabluated below:
Joint Facility
(Total Annual Costs)
General Taxes Service Charge Based On
Flow Bod Suspended Solids
Cost Percent Cost Percent Cost Percent Cost Percent
in in in in
$1,000 $1,000 $1,000 $1,000
Town
$139.1 35.6 $ 9.0 2.3 3.1 0.8 0.80 0.2
Industry
$251.7 64.4 $381.8 97.7 387.7 99.2 $390.0 99.8
It is evident with a joint facility that the town would pay a
higher percentage of the total annual cost if general taxation were
used to raise revenue than if a service charge were used based on flow,
BOD or suspended solids. However, a more reasonable financial arrange-
ment would be one in which the total annual cost to the industry and
the town is determined by construction and operation costs that are
attributable directly to each. A detailed analysis of these costs would
then be required to arrive at a more accurate and equitable service
charge for each.
Separate Facility: A further comparison is considered in this
example to evaluate the total annual costs to the town if a separate
facility were constructed instead of a joint system.
Separate Facility
Total Cost of Town Facility $ 500,000
Eligible Costs 400,000
103
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Federal Share 50% 200,000
State Share 30% 120,000
Local Share 20% 80,000
Total Local Share 180,000
Annual Capital Cost
(25 yr. @ 5.0%) 12,800
Annual Operation and Maintenance Cost 20,000
Total Annual Cost 32,800
The total annual cost for the town would amount to $32,800 if
the town constructed and maintained a separate facility. On the other
hand, if the industry constructed and maintained its own facility,
then its total annual cost would be $642,800 based on no Federal or
State financial assistance. This would result in our annual reduction
of profits of approximately 4.6$ per share before taxes (1968 proce
range per share, $44 - 29 1/2) based on the number of common shares
outstanding as of December 31, 1968. The company earned $2.48 per share
in 1968 while dividends amounted to $1.40 per share.
With a joint facility, the town's annual share would range from
$800 to $139,100 or from 0.2 to 35.6 percent respectively depending on
the method of financing. In contrast, the industry's annual reduction
of profits for a joint facility would range from 1.8 to 2.8£ per share
before taxes depending on the method of financing and based on full
Federal and State financial assistance.
If general taxation were used to raise revenue to finance the
annual cost of a joint facility, then the town would pay more than if
the town had its own separate facility. However, if a service charge
were used, based on flow, BOD, suspended solids or a combination of
these for a joint facility, the town would pay less annually than having
its own facility. The reduction in profits to stockholders would not
be that significant if the industry were to construct and maintain its
own facility. However, the amount of Federal and State aid for a joint
facility would amount to approximately $4.7 million compared to $320,000
for a separate municipal plant.
Example II
In the final analysis, part of the cost of financing water
pollution control facilities is borne directly by homeowners and otherr
users and the remainder, namely the Federal and State share, is borne
indirectly by all taxpayers. The impact on the homeowner can be
evaluated, but the impact on the taxpayers in general cannot. To
illustrate the impact on the average homeowner, the following example
is presented.
104
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A particular community in New Hampshire was selected because
there is virtually no industry in the town, and the cost of water
pollution control facilities will be borne directly by homeowners.
Although the 1960 population of the town was 3,650, it has nearly
tripled in the past nine years to a present estimated population of
10,000. The building boom will not continue, however, because of the
town's new zoning regulations. Presently, only a small percentage
of the population is sewered, and there are no treatment facilities.
The estimated cost of interceptors and water pollution control
facilities is $1.8 million and the cost of lateral sewers is $1.48
million. The Federal and State aid programs can provide 90 percent
of the cost of treatment facilities and interceptors, leaving approx-
imately $0.18 million plus $1.48 million or a total of $1.66 million
to be financed by the community.
In the analysis to follow, the estimated cost of water pollution
control facilities for the average homeowner in this town will be
compared to the average cost of other utilities such as water,
electricity and telephones.
The cost of water pollution control facilities to the average
homeowner will vary depending on the funds available and method of
financing used, i.e., general taxes or service charge. Based on 50
percent Federal aid and 40 percent State aid, the cost to the average
homeowner ($20,000 market value) would amount to approximately $25 per
year compared to $50 per year if only State aid were available. If a
service charge were used, based on a percentage of the water bill,
then the cost for waste treatment facilities for a family of 4 would
amount to approximately $50 per year with full aid and $100 per year
with State aid and no Federal aid.
In addition, homes that are not presently sewered will have an
additional betterment charge that may amount to $50-75 per year for
20 years. For these homeowners, the annual cost of a collection and
treatment system may range from $75 to $175 depending on available
funds and the method of financing.
By way of comparison, the monthly average utility charges for
a family of four are electricity, $10; water, $7; and telephone, $8
(with toll charges $11.50). These compare to $7 to $15 for waste
treatment and collection, depending on the availability of funds.
105
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PRIORITY SYSTEMS
The Federal Water Pollution Control Act stipulates that no
grant shall be approved for any project unless the project (1) con-
forms with the State's water pollution control nian, and (2) has
been certified by the appropriate State agency as entitled to
priority over other projects on the basis of financial as well as
water pollution control needs.
From a national point of viev/, it may be assumed that the R'!PCA's
primary objective is pollution abatement and control. Secondary
objectives include providing financial assistance to local communities
and preserving the State role in pollution control. With these
objectives and a frame of reference that assumes sufficient monies
are not available to assure that all projects will be funded, the
need for a priority system overrides all arguments against one.
The discussion of priority systems here is within the context of
the only alternative that makes such systems meaningful--scarcity
of funds. Priority systems assume their greatest significance
when the abatement program must be stretched out over time because
of a scarcity of funds whether local or federal. With sufficient
funds available to assure a massive clean-up over a relatively
short time frame (e.g., New York State Pure Waters Program) the
significance of priority systems would diminish.
In general, development of a priority system is a means by which
critical needs or problems can be identified. In most cases this is
accomplished by applying several criteria to a group of projects which
permits them to be ranked in order of desirability. The Act only
requires that each project financially assisted be entitled to prior-
ity over the other projects on a financial need as well as a pollution
control basis. (This could be interpreted that, between two eligible
projects, only the project with the greater financial need would
receive assistance; and the other project could proceed without
Federal assistance.)
In Table 41 the various criteria the States use have been
identified. They generally fall in three broad categories, (a) water
pollution control needs, (b) financial needs, and (c) state of plan-
ning and readiness. In some instances, criteria within a category^
have been aggregated. These should be interpreted as identifying in
a general sense what types of criteria are used. For example, under
the heading abatement needs, an X indicates the criteria employed
was either a court order or project to eliminate the discharge of
inadequately treated wastes, or eliminate a nuisance, etc.
107
-------
TABLE 41
PRIORITY SYSTEM CRITERIA
00
POLLUTION ABATEMENT
Cwnp, Health
Plan Hazard
Alabama
Alaska
Arizona X
Arkansas X
California X
Colorado
Connecticut
Delaware X
District of Columbla(a)
Florida X
Georgia X X
Hawaii
Idaho
Illinois
Indiana X
Iowa X
Kansas X
Kentucky X
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoml ng
Puerto R1co
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
Trtrnt.
WQS Reqd,
X
X X
X
X
X
X X
X
X
X
X
X
X X
X
X X
X
X
X
X
X
X X
X
X X
X
X
X
X
X
X X
X
X
Abatmt.
Needs
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
l.'ater Vol. Inter/
Uses Waste Intra
X
XXX
X X
X X
X
X
X
X
X
X
X X X
X
X
X
X
X
X
X
X X
X
X
X X
X
X
X
X
X
X
X X
X
X X
X
X
X
X
X
X
X X
X
FINANCIAL
F1nan. Inc- Const.
Status one Cost
X
X X
X X X
X X
X
X
X
X X
X
X
X X
X
X
X
X
X
X
X X
X X
X
X
X
X X
X X
X
X
X
X X
X
X
X
X
X
X
X X
X
X
X
X X
X X
X
Pss. Rond.
Val. Debt Poi>, Other
X X
X X
X X X
X X
X
X X
X
X
X X
X
X
X
X
X X X
X
X X
X
X
X X
X
X
X
X
X X
X
X
X
X
X
X
X X
X
X
X X
X
X
X X
PLANNING/READINESS
Site Enqr. Plans
Acqd. Rept. Apprvd.
X X
X X
X
X
X X
X
X
X X
X X
X
X
X
XXX
X
X
X
X X
X
X
X
X
X X
X X
X X
X , X
X X
X X
X X
X X
Flnacng. Contract implmntn. iirant
Arrangd. Awarded Plans Appl.for
X
X
X
X
X X
X
X
X
X
X X
X X
X
X
X X
X
X
X
X
X
X
X
X X
X
X X
X
X
X
X
X
X
X
Priorities Assessed
Independent of
Rrant Applications
Yes No Unk.
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
„
X
X
(a) Priority system not applicable
-------
TABLE 42
Numerical Rank of Criteria by General Categories
Need
Alabama
Alaska
Ari zona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri (a)
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico (b)
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Puerto Rico
(a) Not Numerical (b) Single Formula
Pollution
1
3
1
1
1
1
1
1
1
1
1
3
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
2
1
1
1
1
1
1
2
1
1
1
2
1
1
1
Financial
2
1
2
2
3
2
2
2
2
3
3
1
2
2
2
2
2
1
2
2
2
2
2
3
2
2
2
2
2
2
1
3
2
1
3
2
2
3
3
3
2
2
1
1
2
1
2
Status of
Plans
3
1
3
2
2
1
2
2
2
3
3
2
3
3
3
3
2
2
2
1
2
3
3
2
2
1
3
2
3
2
109
-------
With the exception of the State of Missouri, each State's
criteria system adoots a numerical formula w.ith the project receiving
the highest point total assuming the highest priority. By grouping
criteria into three categories, and considering the numerical values
of each category, it is possible to assess which group of needs
assumes the most importance in a State. (See Table 42). From
this, it can be seen that the patterns are not uniform. Some States
olace more weight on water pollution needs, others give greater
weight to financial needs. In a few instances, readiness to proceed
produces the highest numerical ooint score.
On paoer, the criteria which the States apply appear to be
effective with respect to the agency's prime objective—water
pollution control and abatement. For most States, pollution control
needs are assigned the highest numerical values and thereby receive
the most weight. In a few instances, they share equal weight with
a financial need or the planning and readiness category. However,
as far as the construction grant application is concerned, there is
no assurance that the particular project for which assistance is
requested is the project with the most critical pollution need in that
interdependence with other pollution sources is seldom, if ever,
explicitly considered. In most States, and oerhaps in all, the criteria
are actually aoplied only to those projects on which applications are
filed. This results in ranking the applications in the priority they
stand in relation to each other, rather than to some absolute standard
of pollution abatement effectiveness. Even if priorities are assigned
to all projects that can be identified, onl.y grant applications are
considered as the effective priority list.
A review of grants approved through January 31, 1969
where construction is complete or under way reveals the following
distribution among communities by population size:
TABLE 43
Distribution of FWPCA Grants by Size of Community
as of January 31, 1969
Population Size $ Million % of Grants
Less than 2,500 173.1 15.3
2,500 - 5,000 128.1 11.3
5,001 - 10,000 155.9 13.7
10,001 25,000 215.7 19.0
25,001 50,000 150.6 13.3
50,001 125,000 143.9 12.7
125,001 250,000 62.5 5.5
250,001 500,000 36.2 3.2
500,001 and over 68.8 6.1
TOTAL $1134.8 100.0
no
-------
It would appear that the existing State criteria systems tend
to favor small communities rather than large ones. This was certainly
true in the State of Ohio which only in recent years has amended its
procedures so that the city of Cleveland is now eligible to receive
Federal assistance from the construction grant program. However,
the State priority systems are not entirely the cause for this
prohibition. Earlier versions of the Act carried a stipulation
against Federal funding for communities whose population exceeded
125,000, but this restriction no longer has an effective application.
TABLE 44
Metropolitan & Non-Metropolitan Distribution
of FWPCA Construction Grants,
1956-1968
Grants Offered
$Millions Percent
Communities within SMSA's 659.4 59.7
Communities outside SMSA's
Less than 2,500 111.2 10.1
2,500 - 4,999 74.0 6.7
5,000 - 9,999 78.5 7.1
10,000 - 24,999 103.0 9.3
25,000 - 49,999 77.9 7.1
TOTAL 1103.9 100.0
Though not analyzed here it could also be argued that smaller
communities are easier to convince in proceeding to overcome their
waste treatment deficiencies. Or perhaos they are more financially
stable than the large metropolitan central city. In any event it
cannot be said that Federal assistance has not served the metropoli-
tan areas of the nation. Since the beginning of the construction
grants assistance program through December 31, 1968, 59.7% of the
total grant dollars has been applied in metropolitan areas. By
comparing Tables 43 and 44 it can also be shown that small communi-
ties (within metrooolitan areas) i.e., those under 50,000 population,
received 32% of the total grant dollars approved.
The fact that most criteria systems are applied only to grant
applications, and that some States impose an additional requirement
which stipulates that construction begin within a specified time
(usually the fiscal year of the application), nullifies the effec-
tiveness of criteria systems. They become ineffective, because they
do nothing to assure that critical pollution needs are served. It
is, in fact, the accident of readiness that causes such critical
needs to be fulfilled, nothing in the application of priority systems
contributes to that end.
Ill
-------
The efficiency of State criteria systems appears difficult
to assess. Not one State applies a specific test to measure the
efficiency of investments in terms of water pollution control. But a
pragmatic view of the operation of the systems, one that questions
whether a particular investment results in greater pollution abate-
ment benefits than a similar investment elsewhere, will give the
answer that chance, not formal priorities, is responsible for any
efficiencies resulting from the use of construction grants. All
investments may reduce the discharge of untreated wastes, but there
is no assurance that the critical problem affecting the quality
of a waterbody is attacked. (For example, if two communities discharge
their wastes into the same stream, State grant entitlement criteria
would be applied independently to the application received from
either. If only the downstream community applied because it was
"ready to proceed," in all probability the application would be
certified without considering the impact of the other's waste.)
The existing system discourages any State agency from refusing
to certify a particular application. Each year certain monies are
allocated to each State, and to deny applications is to lose
Federal assistance. Applications tend to be routinely certified
where the benefit from the investment nay not be fully realized
until additional problems are brought under control. While this
approach may in time improve the quality of the stream, it is far
less efficient than allocating scarce resources to where they are
most needed.
Equity by definition requires that costs be borne by those
who receive the satisfactions derived from such costs (at a minimum
in the case of water pollution abatement, the residents of a water-
shed or all the residents of a State) or by those responsible for
the cost-imposing damage.
The priority systems as they are applied must be considered
to be a source of aggravated inequity. (This may be tacitly
recognized in the formal criteria of the States: none includes an
explicit recognition of an equity principle.) The failure to assure
a measure of equity is attributed to the ultimate reduction of
priority to the matter of willingness to proceed. If ineffective,
the system must be inequitable, since it both denies the intended
recipients the assurance of the benefits of the most necessary
works, and it denies those damagers who do construct or intend to
construct treatment works the assurance of the preconditions for
attainment of physical benefits from those works.
The State criteria systems provide a technique by which proj-
ects can be evaluated. From an administrative point of view, they
eliminate most of the work which otherwise would be required to
approve the particular applications. Once a project is approved by
the State as eligible for Federal assistance and entitled to priority
over other projects little else needs to be considered.
112
-------
From the standpoint of the grant aoplications the priority
system assures minimum delays in the processing of projects that
are ready to proceed. In theory at least, the"n»ost important aspect
of utilizing criteria as a basis for establishing priorities is the
fact that it tends to guide State agencies to those projects where
the greatest need occurs or exists. This would be particularly
valuable if the States employed their criteria and established
priorities independent of applications being made for assistance,
but in most cases the criteria systems indicate that priorities are
assessed only on grant applications. (In some States the "one-year
list" identifies more projects than can be funded. This may be done
to assure that no matter when the application is made during the
fiscal year, it will be accepted, since the project has previously
been identified, assigned a priority and the "one-year list" does
not have to be amended.)
Though not specified by every State, the readiness to proceed
concept controls. Almost all approved grants are under construction
at least by the second year following the grant. (See Tables 45
and 46).
Table 45 shows that of the WPC grants approved, which were
completed or under construction as of January 30, 1969, 90 percent
of them were under way within 24 months. The remaining projects
which took anywhere from 27 to over 72 months of elapsed time to
begin construction, tied up about $40 million in grant funds. While
this represents a small percentage of the total grant funds involved
there is no logic in tying up the funds, particularly in view of the
scarcity of available resources. This same logic prevails in defense
of the practice of grants only to communities ready to proceed.
Table 46 shows the age of grants approved but still pending
and not yet under construction as of December 31, 1968. Here again
the evidence is strong that most projects begin construction within
two years. For those orojects whose grants have been approved
beyond two years, approximately $38 million in funds are tied up.
For the grants approved and still pending after two years and
those which took more than two years to begin construction, the
priority rating is meaningless. Since most States certify each
application and identify its priority, it would be reasonable to
assume that the projects would be under construction soon after they
are approved. Given that this condition is possible under the exist-
ing system and does in fact exist, the practical aspects of the
criteria system are suspect. Projects are delayed for a variety
of reasons, but the undesirability of freezing funds and the strict
application of the "readiness to proceed" principle should result
in a reassessment if not real location.
113
-------
TABLE 45
National Summary—Elapsed Time (Mos.) Between Grant Offer and Construction Start
Months
Size of Place 0 6 9 12 15 18 21 24 27 30 36 42 48 54 60 72 >72
Under 2500 36.9 47.5 49.4 50.0 51.5 51.1 48.8 55.3 63.0 45.0 55.4 52.1 28.6 59.1 50.041.7 60.3
2,501- 5,000 14.1 13.4 16.3 15.9 16.2 14.7 15.3 12.3 21.2 23.3 12,5 25.0 25.7 4.5 10.0 33.4 12.6
5,000- 10,000 14.0 12.7 12.3 11.5 13.9 10.4 13.5 14.0 4.9 10.0 8.9 9.4 21.4 13.6 10,0 16.7 10.1
10,001- 25.000 13.8 11.6 10.9 12.4 8.4 11.4 11.8 8.8 6.2 10.0 7.2 6.2 7.1 4.5 20.0 8.3 9.4
25,001- 50,000 6.8 6.2 4.6 5.7 5.3 4.3 5.3 3.5 1.2 0.2 8.9 6.2 - 4.5 10.0 - 3.2
50,001-125,000 5.2 4.1 2.6 2.4 3.3 3.9 1.8 2.6 2.5 0.3 1.8 - 4.5 3.4
125,001-250,000 2.2 1.8 2.3 0.8 1.0 1.8 2.9 0.9 - 0.3 5.4 4.5
250,001-500,000 1.6 1.3 0.7 0.5 - 1.1 0.6 2.6 - - 7.1 - 0.2
500,001 and over 5.5 1.5 0.7 0.8 0.5 1.4 - 0.2 0.9
% Grants 1n each
time period 9.4 47.0 14.8 7.7 4.8 3.4 2.1 1.4 1.0 0.7 0.7 0.4 0.2 0.3 0.1 0.1 5.7
Source: FWPCA Project Register, January 31, 1969
-------
TABLE 46
NATIONAL SUMMARY OF FWPCA GRANTS APPROVED AND STILL PENDING AS OF 12/31/68
(in millions of dollars)
TOTAL
# $
ALABAMA
ALASKA
ARIZONA
ARKANSAS
CALIFORNIA
COLORADO
CONNECTICUT
DELAWARE
DISTRICT OF COLUMBIA
FLORIDA
GEORGIA
GUAM
HAWAII
IDAHO
ILLINOIS
INDIANA
IOWA
KANSAS
KENTUCKY
LOUISIANA
MAINE
MARYLAND
MASSACHUSETTS
MICHIGAN
MINNESOTA
MISSISSIPPI
MISSOURI
MONTANA
NEBRASKA
NEVADA
NEW HAMPSHIRE
NEW JERSEY
NEW MEXICO
NEW YORK
NORTH CAROLINA
NORTH DAKOTA
OHIO
OKLAHOMA
OREGON
PENNSYLVANIA
PUERTO RICO
RHODE ISLAND
SOUTH CAROLINA
SOUTH DAKOYA
TENNESSEE
TEXAS
UTAH
VERMONT
VIRGINIA
VIRGIN ISLANDS
WASHINGTON
WEST VIRGINIA
WISCONSIN
WYOMING
TOTALS
~5?
1
g
20
16
15
11
5
3
18
23
1
1
15
18
19
7
31
43
20
10
40
10
5
23
60
21
13
26
4
9
1
9
61
17
17
41
50
5
58
17
5
34
15
25
40
11
7
13
1
18
26
10
4
1009
T371
2.7
2.7
4.1
6.8
1.8
1,4
1.9
3,6
3.8
7.8
0.8
0.7
1.5
5.9
6.2
2.3
1.5
4.9
3.1
2.4
2.2
1.9
1.7
4.5
7.3
2.0
0.8
2.5
0.4
1.8
0.2
0.6
6.6
5.5
0.3
11.1
3.8
1.8
8.9
5.2
4.1
4.8
0.4
5.0
6.2
0.9
1.8
3.0
1.8
1.8
7.4
4.6
0.2
190.1
1968
» $
~re
7
12
15
14
11
1
1
15
20
1
1
4
15
16
7
30
24
14
4
32
10
2
20
28
15
9
14
4
6
7
45
17
8
25
26
4
55
5
3
19
10
17
28
4
4
7
1
15
g
6
684
TQT2
2.7
3.6
6.4
1.4
1.4
(a)
2.3
3.0
6.3
0.8
0.7
0.2
4.6
5.5
2.3
1.5
3.4
1.6
1.2
1.2
1.9
0.4
4.4
3.8
1.3
0.7
1.0
0.4
1.1
0.4
3.4
5.5
0.2
&.S
2.7
1.7
8.5
1.5
1.1
2.6
0.2
4,0
3.9
0.1
0.4
2.6
1.8
1.5
1.2
2.3
129.2
1967
» $
~T
5
1
1
3
1
3
2
1
1
13
4
4
4
1
21
4
3
8
2
9
6
12
10
1
7
5
3
6
5
2
1
2
1
5
3
3
170
~OT5
0.2
0.4
1.3
0.8
0.8
0.5
0.1
0.2
(a)
1.1
0.2
0.1
0.5
0.1
1.2
0.1
(a)
1.4
0.2
2.0
0.1
2.0
0.5
Ca)
2.4
0.3
0.2
0.3
1.9
(a)
0.3
0.2
0.2
2.1
1.1
0.1
23.4
1966
* $
T
1
2
1
2
1
5
3
1
1
1
2
2
7
1
1
3
1
1
3
3
2
14
2
1
1
1
2
1
6
5
I
1
2
7
1
93
~274
2.7
0.1
0.4
0.3
0.3
0.2
0.2
0.6
0.5
(a)
1.3
0.1
2.0
0.5
0.1
0.1
0.3
0.2
0.3
(a)
0.3
0.6
0.4
0.2
2.3
(a)
(a)
0.2
0.4
0.8
0.7
0.1
0.1
2.2
0.1
21.0
1965 1964 1963 1962 1961 1960 1959
»$#$»$#$#$#$»J
1
1
1
2
1
1
1
2
2
1
1
1
1
2
2
1
1
5
1
3
1
32
(a)
0.2
0.3
1.3
0.4
(a) 1 0.2 1 0.3
1.2
0.7
n.2 1 (a)
1 0.7
1 0.6
0.2 1 0.1 1 0.2
1 (a)
0.2 2 0.1 1 (a)
0.1
1 (a)
0.1 1 0.3
0.3 1 0.1 1 0.5
0.3
0.1
4 1.1
0.7
1.1 1 0.1 2 0.1 1 0.6
1 0.5
1 (a)
1 0.4
(a) 2 0.1
1.6 2 0.2 1 0.1
1.2
10.2 15 3.6 8 0.8 4 1.1 1 0.1 1 0.2 ] 0.5
(a) less than $50,000.
Source: FWPCA Project Register 12/31/68
-------
Looking at the criteria in another manner, they are very
comprehensive because they address themselves to a variety of
categories. Therefore, if many communities in a State were compet-
ing for Federal assistance, the priority system would screen'them
very effectively. However, communities do not generally compete
to construct this type of public investment. To the contrary, the
State of Maryland perhaps expresses the attitudes of communities
in this respect. The following excerpt was taken from the FY 1968
Maryland State Program Plan:
"...Almost without exception, every sewerage project
in Maryland has been undertaken at the suggestion,
urging, insistence, formal orders, and, when administra-
tive procedures are exhausted, by court action initiated
by the Health Department and the Board of Health and
Mental Hygiene.
"...Because the application for a grant is made only
after the community agrees to proceed with the con-
struction of the project, a hard and fast listing of
the priority in which applications will be considered
is ill-advised if not unworkable...In Maryland's
situation it would be the height of folly to tell
some community, after a long and bitter struggle to
get them to act, that they would have to wait for
financing not because the money wasn't available,
but because someone higher on the predetermined
priority list has not yet caved in.
"In Maryland, we have not reached the ooint where
applicants are eager and competing for grants to build
sewage treatment works. There are too many other
competing needs....making demands on their limited
capacities to borrow and spend to do anything that
is not necessary. They build only what they are
forced to build and only then if there are rederal
and State grants immediately available "
The above quote perhaps covers most State/community relations
in this regard. It indicates that it may be illogical to require
State priorities on each application. In this instance the State
treats applications on a first come first served basis. One might
assume from the statement that the State devoted its efforts to
those pollution problems deemed most critical and that they treat
them on some oriority basis in the first place, so that their
success might likely follow the priorities originally determined.
A more realistic interpretation, however, would take the view that
bargaining power would prevail in such a situation. All other
things being equal, the larger unit has more bargaining clout and
is the greater polluter. Thus, action flows from the least impor-
tant to the most important element--a reversal of logical priority
operation.
116
-------
However, since State political leverage en a community may
be presumed to be inversely related to cost effectiveness of
investment, it is not difficult to see why the small community
often builds its plant first. Then, because of inadequate improve-
ment in stream quality, its weight is added to pressures for action
by the larger community or industry. However obvious the situation
the way to implementation of the most cost effective investments
first has not been so obvious.
Perhaps this insures—assuming the pattern is the same in
every State—that the majority of the aoolications received will
come from those communities which are ready to proceed. They
represent the communities who have been worked over, so to speak,
and who have "caved in." If this is the real world, the need for
a priority system with an elaborate set of criteria does not exist.
VJhat is needed is simoly more direct and immediate attention paid
to the benefits derived from the project, i.e., improved water
quality, or stream standards satisfied. Furthermore, unless these
conditions or benefits are oresent, no grant should be ar>oroved.
It would appear, as in Maryland, communities are not compet-
ing for grants to build sewage treatment works. Table 47 shows that
year by year there are unused allotments of the construction grant
funds. Yet, the total grant applications and funds requested are
always greater than the monies available for grants.
Although the total amounts may be small when comoared to
entire allocations for each year, it is interesting to note that
several of the States have large deficiencies as far as waste
treatment is concerned. There may be many reasons for the monies
remaining unused, but an obvious one is that in those States,
communities are not competing for funds made available to them.
In practical terms, the criteria used to develop priorities
among projects obviously has worked and has allocated funds;
however, it must be concluded that the systems as currently
constituted cannot be made workable with respect to establish-
ing priorities on the basis of abatement need because of the
inherent bias toward readiness to proceed as a dominant criterion.
Although desirable, the State priority systems as a basis
for establishing oriorities among construction projects for
receiving Federal assistance do not satisfy any of the four tests
used to evaluate them. They are neither effective, efficient,
equitable, nor practical as far as the agency's water pollution
control objective is concerned.
117
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TABLE 47
States
Alaska
Delaware
Hawaii
Idaho
Maine
Mississippi
Montana
Nevada
New Hampshire
New Mexico
North Dakota
Rhode Island
South Carolina
South Dakota
Utah
Vermont
Wyomlng
Guam
Puerto R1co
Virgin Islands
Federal Water Pollution Control Administration
Division of Construction Grants
Analysis Branch
Unused Allotments by Fiscal Year
(In millions of dollars)
1957-58
$0.85
0.26
0.77
0.20
0.22
(a)
1959
$0.18
0.13
0.43
0.17
0.11
0.07
0.60
0.23
1960
$0.30
0.37
0.09
0.22
0.51
0.43
0.06
1961
$0.42 !
0.08
0.37
0.11
0.18
0.42
0.02
0.23
0.31
0.11
0.44
(Not eligible under program until
0.39
1.65
0.47
0.81
1.10
0.82
0.83
0.82
1962
& (a)*
0.01
0.58
0.12
0.56
FY 1963}
0.64
1.25
1963
$0.39
0.13
0.20
0.27
0.80
0.10
0.54
0.45
1.38
0.04
1.38
1964
$0.68
0.89
0.11
0.88
1.28
0.14
1.21
0.49
0.41
0.88
1.52
0.54
1.35
1965
$0.75
0.95
1.26
0.99
0.10
0.80
0.85
0.46
0.93
1.51
1.71
1.51
1966
$
0.25
0.90
0.85
0.48
0.77
0.90
0.89
0.79
1.50
1.90
1.48
1967
$
0.64
0.98
0.91
0.69
0.79
1.49
1.47
*(a) Less than $10,000
-------
The overriding force which causes this failing is the "readiness
to proceed" concept. It must be concluded that in most instances
Federal construction grants have been awarded on a "readiness/willing-
ness to proceed11 basis, and apparently no systematic effort has been
made to maximize benefits from assisting in the construction of
municipal waste treatment facilities.
On the other hand, it is equally true construction grant funds
should not be approved and set aside for a community to use whenever
it decided it was ready to proceed. From the agency's point of view,
the.optimum condition requires that the monies be put to use as
quickly as possible to assist in solving or bringing under control
particularly critical pollution problems not necessarily within one
State but perhaps over a wider area.
119
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PUBLIC TREATMENT OF INDUSTRIAL WASTE
The Situation
There is increasing evidence that a very substantial—if not a
major—portion of the recent pressure on public v/aste treatment capital
originates in the form of demand for capacity to handle wastes of
industrial origin.
The dimensions of that demand can not be measured precisely. The
Municipal Waste Inventory contains an incomplete description of hydrau-
lic loading of the nation's public waste treatment plants; it does
not include an assessment of the contributions of wastewater by source
of discharge. There is no inventory of industrial wastes. The
nearest thing to such an accounting is the very generalized set of
estimates for factories using 20 million gallons or more of water a
year that is published at five year intervals by the Census Bureau under
the title Water Use in Manufacturing.
There are inescapable weaknesses involved in any assessment of the
extent of industrial waste treatment that may be made through use of
public systems on the basis of the Bureau of Census data. The most
recently published information concerns the year 1964. It is, then,
over five years old; and the five years involved are those in which it
is felt that industrial use of public waste treatment facilities experi-
enced its most marked increase. Moreover, Census information involves
only about 10,600 establishments of the more than 300,000 water-using
factories in the United States. While the surveyed plants account for
more than 97% of estimated water use by manufacturers, it is suspected
that the small plants that are excluded have been the ones which his-
torically have been most apt to use municipal facilities. The estimated
434 billion gallons of water used by such small plants in 1964 must, in
large part, have been discharged to public sewers and may be thought
to account for an indeterminate portion of the 100 gallons per-capita
per day that is often assumed to be the normal municipal loading rate
to waste treatment plants.
A hazy assessment of the over-all impact of industrial loadings
on municipal systems is, however, possible. We can establish—imper-
fectly, and lacking detail—that factories and people make approximately
equal demands on public facilities for transmitting and treating liquid
wastes.
121
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Water Use in Manufacturing, with Its aggregate estimates of water
use by the largest industrial users, Is the source of Table 48 that pre-
sents the regional distribution of major water-using manufacturers'
discharges to public sewers, as they are accounted for in that document
for 1964. (The regions are the blocks of States used in discussion of
locational influences on cost: See Figure 2.)
The table indicates that twenty percent or more of the water that
passed through public sewers in 1964 was the discharge of major manu-
facturing plants. One of the problems in comparing aggregate domestic
and industrial discharges is the basic uncertainty that exists with
regard to per-capita domestic waste discharges. While one hundred
gallons per-capita per day is a common rule of thumb, the number is
conceded to include some sort of "normal" industrial-commercial com-
ponent. Measurements of loadings to individual septic tanks, houseboat
discharges, and largely residential communities suggest that per-capita
domestic loadings tend to be well below the accepted 100 gallons,
falling in a range of roughly 45 to 65 gallons. To accommodate both
traditional sizing standards and more recent measurements, the compari-
son of municipal and major manufacturers' discharges to public sewers
was calculated on the basis of a municipal loading of both 100 and 65
gallons per capita per day.
The table does not, however, sufficiently describe the impact of
Industrial wastes on municipal treatment requirements. Annual volume
of wastewater discharged to sewers fails to reflect significant aspects
of waste treatment, notably timing and concentrations.
Domestic waste loadings tend to vary on an hourly basis, with
morning and early evening peaks. There is also a weekly bias—that is
lessening over time—imparted by the tradition of Monday washdays.
But, over the course of a year, loadings are homogenous for most com-
munities. Some industrial discharges, on the other hand, have
pronounced cyclical patterns. Seasonal operations occur in many indus-
trial sectors and the five day work week is still the standard for
industry. Significant in this regard is the fact that food processing,
which accounted for a quarter of estimated industrial discharges to
public sewers in 1964, is highly seasonal in at least some of its forms.
Because waste treatment plant design is scaled of necessity to
daily peak loading rates rather than average annual loadings, the effect
of industrial operating fluctuations is to place a multiplier upon capa-
city requirements.
The higher average materials concentrations of industrial wastes
also serves to move municipal costs away from the level indicated by
average annual hydraulic volume. Industrial waste concentrations tend
to vary widely. A study by FMPCA of seventy-seven municipal waste treat-
ment plants that recorded industrial waste data revealed influent
concentrations that ranged from 9400 milligrams of standard biochemical
oxygen demand (BOOs) per liter of water down to 20 mg/1. The mean value
122
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Table 48
Pattern of Waste Discharges
To Public Sewers By Manufacturing
Plants Using 20 Million Gallons Or More In 1964
Region
New England
Northeast
Oh1o-Tenn.
Great Lakes
Middle Atlantic
Southeast
Gulf
Plains
Southwest
Pacific Coast
Total
Discharges Percent
Billion Gallons To Public
Total To Public Sewers Sewers
488
2439
2129
2483
986
851
2350
291
96
1452
13,56ol/
49
204
172
297
39
32
28
64
22
151
10581/
10.1
8.4
8.1
12.0
4.0
3.8
1.2
22.0
22.9
10.4
7.8
For Comparison Domestic
Wastes Billion Gallons
@65G/Cap1ta (3100G/Capita
157
653
243
514
158
181
260
185
89
356
2796
242
1004
374
790
243
279
400
285
137
547
4301
Manufactu
Discharge
Percent o
24-17
24-17
41-32
37-27
20-14
15-10
10-7
26-18
20-14
30-22
27-20
— Exceeds reported U.
of State figures.
S. total, apparently due to effects of rounding in the Census Bureau's reporting
-------
(weighted for volume) of the industrial influents to the seventy-seven
treatment plants was 535 mg/l--more than two and a half times that of
domestic wastes; and the median value was 350 mg/1. Cost modifying
effects of the diffuse concentration pattern is by no means uniform.
Higher concentrations, to the extent that the nutrient balance of the
influent is proper, accelerate biological productivity of the life
forms that accomplish the treatment effect. In such cases, a given
level of efficiency is obtained with a reduction in time of detention,
and a consequent easing of costs. Higher or lower concentrations may
require longer detention, recirculation or dilution, thus jacking
capital requirements upward.
It is, of course, impossible to accurately assess the impact of
these conditions on physical capital, but the total estimated industrial
discharge to public sewers in 1964 can be weighted by aoprooriate adjust-
ment factors to give a generalized view of the relative demands on
facilities posed by domestic and industrial wastes, both in terms of
hydraulic loading and of biochemical oxygen demand. Such adjustment
suggests that, on the basis of an indicated 11 billion gallons a day
of actively utilized waste treatment capacity, almost 40? was taken up
by industrial wastes. !_/ When the focus shifts from volume of water
to gross volume of oxynen demanding materials, industrial wastes treated
in municipal plants accounted for 53/£ to 63^ of the total. 2/
I/ The statement assumes 1) a 260 day average ooprating year for
Tactories 2) 65 gallons oer capita per day of municioal waste loadings,
3) availibility of treatment capacity to sewered industrial wastes in
the same proportion as to sewered domestic wastes, 4) half of the wastes
of minor manufacturing plants discharged to oublic sewers. Percentage
industrial utilization was computed:
I = C+D
C+D+ABE
Where
A = sewered population of United States (118.5 million)
B = daily per-capita waste discharge (65 gallons)
C = annual sewered wasteflow of major manufacturing plants
(1058 billion gallons)
D = annual sewered wasteflow of minor manufacturing plants
(50% of 434 billion gallons)
E = average number of manufacturing days per year (260 days).
2/ The statement rests on a comparison of "normal" domestic waste
strength of 1/6 pound of BOD5 oer person oer day and normal water dis-
charge of 65 gallons per person oer day with industrial concentrations
of 350 mg/1 of 800$ (median for the seventy-seven communities measuring
industrial waste strength) to 535 mg/1 of BODs (average for the 77
communities.
124
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TARLE 49
Distribution of Industrial
Loadings to a Sample Group of
Municipal Sewage Treatment Plants
BOD5
Concentration
of Industrial
Influent, mg/1
No. of
Plants
Hydraulic
Total Volume
1n Million
Gals./Day
Percent
of Total
Volume
Total Pounds
BODs of
Industrial
Influents
Percent
of Total
BOD5 to
Plant
ro
in
100 or less
101-200
201-300
301-400
401-500
601-700
701-800
801-900
901-1300
1501-1900
2100-3000
4000
9000
7
13
8
9
7
6
4
4
6
4
7
1
1
6.70
28.36
05
61
37
88
6.27
2.76
10.27
.40
.04
.01
.01
8.1
34.3
7.3
5.6
11.3
2.3
7.6
3.3
12.4
5.3
2.5
0.1
0.1
2,770
39,190
12,700
13,590
33,510
10,530
38,340
19,550
91,310
63,830
41,460
670
1,560
0.7
10.5
3.4
3.6
9.0
2.8
10.3
5.2
24.4
17.
11
0.
1
.1
,2
0.4
TOTAL
77
82.73
374,010
-------
Even in 1964, then, industrial waste discharges appear to have
been a significant, if not a preponderant, source of demand for munici-
pal waste treatment capacity. The 1968 municipal waste inventory pro-
vides enough information on plant size and hydraulic loadings to lead
to the inference that the volume of industrial loadings has increased
substantially. Total hydraulic loadings of the municipal waste treat-
ment system may be calculated to have increased to something over 15
billion gallons a day, on the basis of average daily flows. Of that
total, 37% to 59% (the spread is due to the 65 to 100 gallons per/capita
day standards used to assess domestic loadings) may be estimated, on the
basis of connected populations, to be due to industrial influents.
The details of the information on which that assessment is based
are presented graphically in Figure 6. The figure contrasts the median
size of municipal waste treatment plants according to community popu-
lation with the median hydraulic loading in each population size group.
On the basis of the observed relationships, it seems clear that
per-capita volume of sewage rises with size of community population.
The a priori assumption made here is that the reason for the condition
is industrial wastes, and the rising availability of factories to
discharge their wastes in larger communities. The assumption fits
industrial location probabilities, and such limited specific informa-
tion as we possess with respect to occurrence of industrial use of
municipal systems.
Policy Aspects
There can be no question that any effort at water pollution con-
trol that does not accept as a minimum condition the treatment of
industrial wastes will be a failure. The estimated volume of oxygen
demanding materials discharged from manufacturing plants amounts to
three times that of sewered sanitary wastes—before treatment in each
case; and the estimated volume of solids discharged from manufacturing
plants is roughly two and a half times that of sanitary sewage, again
before treatment. Moreover, the volume of industrial v/aste is growing
several times as fast as that of sanitary sewage as a result of growing
per capita output of goods, progressively declining raw materials con-
centrations, and progressively increasing degrees of orocessing per
unit of product.
On the broadest quantitative levels, then, control of industrial
wastes assumes a critical position for pollution control programs. A
community that maintains effective treatment of its sanitary sewage can
still be a polluter if industrial waste discharges from its borders are
uncontrolled. In the interest of effective community action, both sewage
and industrial wastes must be dealt with in the conduct of local pol-
lution control programs. Many communities—probably not a majority,
126
-------
ro
Community
Population
Cateqory
under-500
500-999
1,000-2499
2,500-4999
5,000-9999
10,000-24,999
25,000-49,999
50,000-99,999
100,000-249,999
250,000-500,000
over 500,000
TABLL 50
Relative Domestic and Industrial
Loadinn of Municipal Waste Treatment Plants in
1400
1600
2400
1300
1000
800
300
160
85
28
24
Million Gallons Per Day
Gross
Indicated
Loading
64.0
156.0
588.0
682.5
1050.0
2010.0
1637.5
2040.0
2677.5
2100.0
2700.0
Domestic
3 100 G/C/D
19. 0
120.0
420.0
487.5
750.0
1400.0
1125.0
1200.0
1487.5
1050.0
1800.0
Comnonont
0 65 G/C/D
32.0
78.0
273.0
317.0
487.5
910.0
731.0
780.0
967.0
682.5
1170.0
Industrial
Remainder
5.0- 2.0
36.0- 78.0
168.0- 315.0
195.0- 366.0
300.0- 562.5
610.0-1100.0
562.5- 956.2
840.Q-1260.0
1190.0-1710.0
1050.0-1417.5
900.0-1530.0
23-50
23-50
29-54
29-54
29-54
30-55
33-57
41-62
44-64
50-68
33-57
TOTAL
9100
15,756.0
9890.0
6430.0
5870.0-9325.0
37-59
-------
Figure 6
II
'
1.5
1.4
1.3
!;
••
1.0
0.9
0.8
0.7
0.6
05
0.4
0.3
0.2
0.1
0
RELATIVE DOMESTIC AND
INDUSTRIAL LOADING
PUBLIC WASTE TREATMENT
PLANTS
Median Capacity Available
Median Loading Rate
Indicated Industrial Utilization
of Capacity
normal Municipal Loading
Normal Industrial Loading Component
Domestic Loading Requirement
05 1.0 2.5 50 10.0 25.0 50.0 100.0 250.0 500.0
SIZE OF PLACE (OOO'S)
128
-------
for the simple reason that factories tend to be concentrated—have
accepted the simple technique of treating all, or most, of the wastes
occurring within their jurisdiction, v/ithout regard to its source.
That practice, taken for granted for many years in the case of
inner city fabricating plants and aoplauded as a progressive innovation
when extension to major peripheral or waterside factories was initiated
on a large scale, has recently come under attack on grounds of equity
or propriety. Antagonists have questioned the suitability of applying
public resources and public funds to the solution of the problems of
profit making industries. In particular, the General Accounting Office,
in a preliminary report to the Congress on the administration of Federal
waste treatment plant construction grants, cast doubt on the validity
of the practice of extending Federal assistance on the basis of total
construction cost rather than restricting the scope of Federal assis-
tance to capacity intended to serve domestic users only. (It is,
perhaps, significant that the GAO's final report to the Congress con-
tained almost no mention of the subject, and had no recommendations with
regard to the matter. Established usage, economy and efficiency may
have been such persuasive arguments for current Federal assistance
practice in this regard as to change the reviewers' first reactions—or
they may simply have despaired of developing procedures for resolving
the enormous problems of definition involved in determining what is in
fact a "municipal" waste source and what is properly industrial.)
The estimates of investment need presented earlier in this study
presume—through application of sizing standards and projections of
rate of increase in loadings—continuation of current tendencies toward
broader public responsibility for industrial waste treatment. As has
been noted, industrial sources presently sustain a rough parity^with
domestic and commercial sources in demand on oublic waste handling
sources, and maintenance of trends in full force today will soon give
factory wastes a predominant position. Industrial needs, then^must be
considered to be a central matter in determining investment policy.
The remaining portion of this section of our study attemnts to qualify
the economic impacts of public treatment of industrial wastes in terms
of effectiveness (or contributions to water pollution control), effi-
ciency (approach to maximum output derived from anticipated resource
inputs), equity, in its economic sense of assessing costs on the basis
of benefits received and/or damages incurred, and of technical and
institutional practicability.
Effectiveness
Public treatment of industrial wastes is effective in insuring the
utility of the treatment of sanitary wastes, since it guarantees that
the results of treatment for the domestic pooulation will not be nulli-
fied by the effects of untreated industrial wastes. It is effective,
too, in that it locates resoonsibility for the operation and mainten-
ance of the local waste handling activity within a single authority
with a clearly defined responsibility for the operation and maintenance
129
-------
of the local waste handling activity that is assigned to a group of
professional operators. In substance, it puts the municipal or other
public agency into a public utility status with resoect to an industry
segment or group of factories—a posture not afall unlike one that
it normally accents on behalf of a group of residential and commercial
customers, and often for other public jurisdictions or agencies as well.
An element that enters strongly into consideration of the effec-
tiveness of that relationship, but one which is difficult to quantify,
is the weakness of industry's incentives to treat wastes adequately.
Waste treatment is a collateral and profitless activity from the stand-
point of the firm. Subjective though it may be, the general opinion of
professionals in the field of water oollution control is that factory
management often views waste treatment as an imposed responsibility that
may most conveniently be discharged for form's sake by constructing a
facility—which may then be operated very indifferently. This opinion
assumes a critical importance, in view of the industrial tendency to
reject capital intensive waste treatment methods, even where a con-
siderable increase in ooerating costs is incurred thereby. (The low
capital, high operating cost formula is rational from the standpoint of
the firm, both because it frees capital for alternative and profitable
applications, and because of the quite separate effects of corporate
tax provision for operating expenses and capital depreciation.) Given
that set.of conditions, there is relative assurance of effective waste
treatment where industrial wastes are channeled through a public system.
Responsibility is passed to an instrumentality with a strongly developed
set of incentives to operate and maintain the system in an acceptable
fashion. Even where the cost to industry is equal on an annual basis,
it has an incentive to adopt the use of public facilities, both because
operational problems are removed from its purview and because the full
amount of any sewer charge becomes a tax deductible expense in the year
incurred, without the interposition of deferred depreciation requirements
Efficiency
That is efficient in an economic sense which increases the output
of products from a given input of resources. Efficiency, then, is a
relative and not an absolute test. But if the task of the public admin-
istrator is to maximize the satisfactions available from the resources
available to him, efficiency must always be a prime goal.
There is no question that in a majority of cases public treatment
of industrial wastes is more efficient than separate treatment of muni-
cipal and industrial wastes, in that it commonly costs less per gallon
of water processed or per unit of pollutant removed to treat waste
from several sources at a single point.
There are two reasons for the cost advantage. On the one hand,
economies of scale are attained by construction and utilization of
larger plants that are required when a number of independent waste
130
-------
sources are collected at one point for treatment: on the other,
staging capabilities and complementary characteristics of sewage and
industrial wastes often permit operational economies.
The order of magnitude in which economies of scale occur is
indicated in Table 51 which lists cost to size relationships for the
principal waste treatment processes. Though the cost of the incremental
unit placed into operation varies according to the treatment process
employed, the savings that accrue through consolidation and use of
larger plants are substantial in every case.
Perhaps the principle may best be presented through use of an
example. Consider the situation of a community that develops 10 million
gallons a day of liquid wastes in some combination of savage and indus-
trial discharges and—for the sake of illustration—assume that it is
physically convenient to provide treatment 1) through construction of
ten equally sized plants, five operated by municipality for the use of
residential and service industry users, five operated by individual
factories, 2) through use of two equally sized plants, one operated by
the community and the other by the factories in consortium, 3) through
use of a single large plant serving the needs of all waste producers in
the community. Assuming a twenty-five year useful life of plant, a
five percent rate of interest and serial amortization in each case, and
equal transmission costs, the alternative solutions would entail dif-
ferential costs on the order of those presented in Figure 7.
Over the life of the system, average annual costs would amount to
about $584,000 in the case of the ten plant solution, $451,000 in the
case of the two plants, and $332,000 for the single plant solution.
Obviously, it is to the benefit of the community and its residents to
utilize the single plant solution—if the consequent cost savings can
be shared equitably among the various categories of waste producers.
Not so obvious, but equally true, is the fact that it is to the
benefit of the national economy to seek the single plant kind of solu-
tion whenever it is possible. By doing so, the Nation frees for other
purposes resources that might otherwise be utilized for waste treatment.
In practice, scale economies may in many—perhaps a majority—of
cases be supplemented by operational economies derived from the char-
acteristics of wastes from disparate sources. Complementary daily flow
cycles of manufacturing and of domestic activities can be utilized to
reduce demands for peaking capacity. Many industrial wastes are
deficient in nitrogen and/or phosphorus that are required to sustain
effective bacterial action in the treatment process. Such wastes must
be fertilized by the addition of those nutrients. Sewage, on the other
hand, characteristically contains both nitrogen and phosphorus in excess
of bacterial needs. By combining sewage and industrial wastes, the
nutrient deficiency characteristic of the latter may be supplied, with
an absolute reduction and often elimination of need for chemical addi-
tives. And because nitrogen and phosphorus residuals of sewage
131
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TABLE 51
Generalized Cost To Size Relationships of
Basic Waste Treatment Processes
PROCESS
Million Halions Per Day Capacity
CO
ro
Primary
Primary, Separate Sludge Digestion
Activated Sludge
Trickling Filter
Lagoons
•
11.
6.
Ol_
7
2
.10 J[
Construction Cos
58.7
85.2
70.8
101.8
23.4
Annual Operating
Primary
Primary,
Activated
Trickling
Lagoons
*Source:
**Source:
Separate, Sludge Digestion
Sludge
Filter
Modern Sewage Treatment Plants,
Treatment Plant Cost Index for
0.
How
1
Much
4.5
5.5
6.3
5.1
0.6
Do They
308
305
417
288
88
i£
t, $1000
.6
.1
.3
.9
.0
's
1,
1,
2,
1,
& Maintenance Charges
19
20
31
18
3
.7
.6
.3
.3
.0
10
*
247
092
458
374
330
i2
.7
.2
.9
.4
.3
TOO
6,559
3,084
14,487
5,045
1,080
JJ
.0
.0
.6
.2
.0
, $1000's**
172
83
.3
.3
Cost and Sewage
June 1969
R, L. Michels, et al "Operation and Maintenance of Municipal Waste
Treatment Plants," Journal of the Water Pollution Control Federation
»
March 1969. 1962-64 dollars raised to 1968-69 conditions by use of BLS
Craftsmen's median earning, 1968 * craftsmen's median earnings, 1963 X
table value
-------
.^ 1.000,000
CD OJ
LT5 Q-
(-=3
100,000
10,000
10 plants
2 plants
1 plants
Un'tCn
10 Plants
($1,000,0001
:ffSu!3ECC;:°
2 Plants
-a
CD
OO
C-D
Plant
100,000 1,000,000
Capacity in Gallons Per Day
10,000,000
Construction
Cost
$4,200,000
$3,200,000
$2,500,000
Interest
Charges
$2,600,000
$2,000,000
$1,500,000
Fiqure 7
25 Years
Operation
$7,800,000
$6,000,000
$4,300,000
CT
CD
CO
i
oo
C/D
Lifetime
_Costs_
$14,600,000
$11,300,000
$ 8,300,000
-------
treatment are in themselves a serious source of pollution, the incre-
mental reduction of those nutrients in the ultimate discharge that
occurs when they are incorporated in sludges derived from the industrial
wastes means that the waste treatment may often be more complete and
effective than conventional secondary sewage treatment. A final source
of potential economy and enhanced effectiveness should be noted. The
temperature of industrial wastes is often higher than the sewage. In
those cases where the volume and temperature of wastes from industrial
sources is sufficient to increase meaningfully the temperature of the
total volume of wastes being treated, the effect is to accelerate the
life processes of the bacteria that effect the decomposition processes.
That metabolic acceleration produces an efficiency increment, in that
a given degree of waste stabilization can be attained with a reduction
in detention time—and thus a reduction in capacity requirements—or
a higher degree of reduction is achieved where there is no change in
the period of detention.
It should be noted that the indicated operational efficiencies are
quite apart from, and additional to, those derived from scale economies.
Because the practical effect of the two biochemical mechanisms—higher-
average temperature effects and takeup of sewage nutrients by industrial
sludges—is more complete waste treatment, absolute pollution abatement
benefits as well as relative cost reductions are apt to flow from muni-
cipal-industrial joint waste treatment arrangements.
Technical & Institutional Practicability
It is probable, as indicated earlier, that industrial wastes are
currently the major source of loadings discharged into public waste
treatment plants. (The statement presumes application of a correct
definition of "industry," but it may well be true even if the idiomatic
substitution of "industry" for "factory" is made). The textbook stan-
dard that dates back to the 1920's specifies that per-capita waste
production is 100 gallons per day; but even traditional sizing standards
reflect some assumption of the existence of a "normal" industrial
requirement above the capacity that must be installed to handle produc-
tion of domestic sewage. In fact, however, 100 gallons per capita per
day fails completely to measure the inflow to modern sewage treatment
plants. Hydraulic demand rises consistently with community size; and
in even the smallest size class, the median loading level is 110 gallons
per capita.per day.
Some authorities have attempted to explain a higher than normal level
of loadings on the basis of increased per capita use of water that is
presumed to have accompanied rising living standards. There is prob-
ably validity in the observation; but it cannot be used to upset the
conclusion that public treatment of industrial wastes accounts for
more than half of capacity utilization in present day waste treatment
plants. Both the fact that relatively recent studies are responsible
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for the assessment of residential sewage production of 40-65 gallons
per capita per day and the fact that one in four sewage treatment plants
presently handles 75 gallons per capita per day or less—with no appre-
ciable increase in incidence of reported overloading among such plants-
tends to support the statement that industry and not rising individual
use of water is responsible for most of the incremental need for public
waste treatment plants.
Thus, there is nothing either novel or exciting about the practice
of accepting industrial wastes in municipal treatment plants. It is
simply a continuation of established practice. As cities have instal-
led sewers, they have customarily attached commercial and service
establishments to the sewer network, and in many cases manufacturing
establishments were connected as well. When, under the pressure of
events, the sewered waste streams came to be collected and passed
through a v/aste treatment plant, all recipients of the sewer service
became customers of the treatment service. In point of fact, there is
little option for many firms. Location may constrain any establishment
located within a city to utilize public sewers to carry away its liquid
wastes.
What is significant is the fact that a definite change in the
composition of industries using public facilities has occurred. Until
fairly recently factories that made heavy use of water in their pro-
cessing tended to take advantage of waterside locations to discharge
wastes directly, rather than through the intermediary of public sewers.
Where the small plant located within the built-up area of the city
customarily used the sewer, the large plant located on the periphery
discharged independently. But the situation has been changing radically
with the imposition of more stringent and more broadly applied pollution
abatement requirements. With increasing prevalence, Jarge water-using,
peripherally located factories have attempted to satisfy publicly
imposed operating demands through the use of public facilities.
Host of the wastes of the group of food processing industries that
receive treatment get it in public waste treatment plants. It is
becoming more and more common for paper mills, and even pulp mills, to
discharge wastes into public sewers. Chemical, pharmaceutical, plastics,
textile and rubber plants wastes have been successfully incorporated
into public treatment systems. In six of eleven major manufacturing
sectors! the prevalence of treatment through public systems in 1964
equalled or exceeded prevalence of treatment in industry-operated
plants. In spite of the fact that the three manufacturing sectors that
make most abundant use of process water (primary metals, chemicals and
allied products, and paper and allied products) are often precluded
from use of pub lie treatment facilities by reason of discharge volume
or waste characteristics, a fourth of the gross volume of factory waste
?nVt was treated passed through public facilities in that year.
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(See Table 52.) The proportion is probably greater today. And it is
safe to assume that in almost all cases, waste treatment provided to
commercial and service industries depends upon use of public facilities,
TABLE 52
Relative Prevalence of
Industry-Provided and Publicly-Provided Waste
Treatment by Major Manufacturing Sector, 1964
PERCENT OF WASTE TREATED
BY INDUSTRY BY PUBLIC SOURCES
Food & Kindred Pdts. 34.9 65.1
Textile Mill Pdts. 38.4 61.6
Paper 5 Allied Pdts. 91.4 8.6
Chemical & Allied Pdts. 88.0 12.0
Petroleum & Coal 90.9 9.1
Rubber & Plastics 50.0 50.0
Primary Metals 95.8 4.2
Machinery 20.6 79.4
Electrical Machinery 16.5 83.5
Transportation Eqpt. 34.0 66.0
Other Mfg. 58.9 41.1
All Mfg. 75.2 24.8
Generally speaking, there are no technological impediments to
common use of treatment facilities by manufacturers and by households.
The treatment processes are basic and simple, applicable to most kinds
of waste. There are some wastes that require processing other than, or
additional to, the screening, sedimentation, flotation and the biochem-
ical stabilization employed in conventional municipal waste treatment
systems. In such cases, industry must either provide pretreatment
measures or supply its own treatment facilities.
A variety of institutional and procedural practices have been
developed to extend treatment to factory wastes. The nature of the
arrangement between public agency and factory tends to be decided on
a local level, though some regionally consistent trends may be noted
with respect to financing treatment.
With respect to physical facilities, the common method is to treat
both sewage and industrial wastes in a single plant in order to attain
the economies of scale and complementarities available from the practice.
On many occasions, the pressure on capacity imposed by such an arrange-
ment has created a need for major plant expansion or even plant
replacement; and there can be little doubt that the availability of
Federal
136
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construction grants has made such arrangements far more attractive to
industry. It is unusual, but the practice of providing separate
facilities for the use of industrial customers, or even a single custo-
mer, is not unknown. Though owned and operated by a public agency,
such a facility must be regarded as an extension of the factory in
point of fact. Such arrangements have been viewed as a subterfuge to
obtain public funds for the use of a private interest. The generali-
zation is, perhaps, too sweeping. Each situation should properly be
reviewed in the context of its financing and its place in the total
public system. But there can be no question that the few arrangements
of this sort—no more than half a dozen were uncovered in a superficial
review of Federal grant awards—are responsible for much of the opposi-
tion that has been raised to providing Federal grants for construction
of the portion of a treatment facility that will be used to treat
industrial wastes.
Financial mechanisms that have been applied to fund the capacity
requirements associated with wider public treatment of industrial wastes
probably have a large effect on the favor or disfavor with which the
practice is generally evaluated. An increasingly favored method of
obtaining revenues is the use of the sewer service charge. Its pre-
valence has grown with expansion of public treatment of factory wastes;
and the existence of some very complex charge formulae based on volume,
strength, and characteristics of wastes argues strongly that industrial
wastes, rather than domestic swage with its homogenous character, is
a factor contributing to the extension of sewer charge systems. User
charges are not, however, universal. In some cases, particularly in
the Northeastern States, there is a tendency to continue to rely on
general taxation to finance treatment works. It is often the case
that where user charges exist they tend to be scaled to provide for
plant and sewer operation and maintenance, with general taxes often
covering capital costs—the typically higher coupon rate of local reve-
nue bonds may account in part for this. Where capital and debt
servicing charges are built into the scale of user fees, the practice
is to establish them at rates that cover only local participation in
the investment. (Cases may exist where the amount of Federal assist-
ance is also charged back to users, but we are unaware of them.)
User charges, general taxes, Federal and State grants are the
usual means to finance and service the elements of industrial waste
treatment that use public facilities, but specialized kinds of finan-
cial relationships have also been developed on the local level. There
have been instances where the firms that propose to share in the use of
a municipal treatment system have advanced a proportion of the funds
required for construction, have contributed land for the purpose, or
have purchased the bonds issued to finance construction. Nor is factory
construction of a plant in which capacity is provided for an adjoining
communitv unknown, though the few such situations that come to mind ante-
date availability of Federal assistance for plant construction.
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Operational procedures would seem, on the basis of the information
that is available, to have involved no undue prpblems. Contrary to the
generally held engineering opinion of a decade ago, when communities
were cautioned against the operating problems that industrial v/astes
would impose, treatment seems generally to take place with little or no
more difficulties as the proportion of industrial wastes in the influent
has increased. It would seem that discharge conditions are usually
stipulated with some precision in order to forestall malfunctions, and
that factories generally install the equipment and procedures necessary
to meet those requirements.
Operational failures are not unknown, however; and when they occur,
they may be spectacular; as in the case of the Michigan plant where
bacterial action was short-circuited by a change in the characteristics
of a paper mill's discharge, so that sludge drying beds emitted powerful
odors of putrefaction; or the case of the Ohio waste treatment plant
that literally burned down, presumably as the result of ignition of an
accidentally discharged and volatile industrial waste.
Review of the literature provides few serious examples of opera-
tional failures. More common is the sort of damage that results from
inadequate design applications or loss of an industrial waste source.
Where a treatment plant is designed in substantial part to accommodate
the wastes of a factory, and that factory stops its operation, a signi-
ficant loss of sunk capital is inescapable. Similarly, the application
of sewer service charges that embody incentives to reduce waste dis-
charges through in-plant modifications has on occasion proved too
successful. Factories have succeeded in reducing the volume or strength
of their discharges to the point that a significant portion of the
capacity of the treatment plant is not utilized, with the result that
system users find themselves in the unfortunate position of paying for
a good deal of unnecessary capacity.
Equity
It would seem that the central difficulty that exists with respect
to the practice of treating industrial wastes in public systems is the
ethical problem of the propriety of supplying out of public facilities
and public funds a service to assist a private interest. The problem
becomes particularly pointed when Federal construction grants are in-
volved, for the simple reason that the Congress has evinced a disin-
clination to provide general subsidies for industrial waste treatment
purposes.
Yet there is something specious about the ethical question and
the terms in which it is phrased. The distinction between a municipal
waste and an industrial waste is an artificial one, wholly dependent on
definition. The prevailing pattern of opinion has been to accept all
commercial and service industries as legitimate contributors to the
municipal waste streams, and even to accept small factories or "dry
process" industries as the "normal industrial component" of "municipal"
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wastes. Where, then, does one draw the line? Commercial laundries and
restaurants nay logically be considered to be only extensions of domes-
tic activities, as may hotels and motels. But v;hat of the grocery store
and the department store? Do warehouses and marshalling yards generate
municioal wastes or industrial wastes? What about the airport, the
shopping center, the industrial park?
These questions may be valid, but they must be admitted to be
somewhat beside the point. The real distinction involved is not one
of source, but of relative magnitude. Certain manufacturing industries
characterized by very large plants and marked use of water per unit of
output are generally accepted to be the exclusive source of "industrial"
v/aste. Not the fact that the waste comes from a factory, but that the
amount of v/aste approaches or exceeds the amount generated by the
population dependent on that factory causes its discharge to be so
distinguished. It is in the case where incremental costs imposed by
the necessity to treat the industrial wastes are significant that the
equity question is posed.
The distinction on the basis of relative magnitude may well be a
valid one. The damages occasioned by the major water-using industries
are generally recognized to exceed those of all other waste-discharging
sources. Similarly, the incremental abatement costs posed by factories
in such industries are so much greater than the incremental cost of
providing for the retail establishment or the dry process industry,
that it would appear that the general public's interest is affected in
a significantly different manner when it is asked to bear that cost.
Conversely, the benefits—in terms of potential water quality enhance-
ment—are also disproportionately great vfhen such a factory's wastes
receive treatment. Moreover, the water quality benefit is received by
the oublic at large. There would seem, then, to be considerable logic
in support of Federal or State grants in such a situation.
Nor is the equity question a simple matter of the apparent
injustice of using public funds to remove the burden of waste treatment
from a private interest to whom that burden will represent a significant
incremental cost. If Federal grants were to be withheld or reduced to
certain communities that treat a significant amount of industrial wastes,
then the community that takes a broad view of its environmental protec-
tion responsibilities—seeking in an enlightened fashion to ensure
their effectiveness and efficiency over time—will be penalized, and
the community that takes the narrow view of its responsibilities will
achieve a relative advantage. Cities generally would be penalized by
such a policy, since a large portion of a city's waste come from in-
dustrial sources that have no other place of discharge than the public
savers while suburban settlements would receive an advantage. Given
orevailing income distribution in metropolitan areas, the policy would
tend to favor the relatively affluent and hurt the poor Moreover, _
the substantially arbitrary distinction between municipal and industrial
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wastes would tend to produce inter-sectoral inequities. Some industrial
sectors would receive the benefit of Federal assistance, others would
be cut off from it. V
Finally, it should be considered that there are elements of
regional discrimination implicit in a policy of limiting grant assis-
tance for public treatment of industrial wastes. Not all industries,
but the heavy water-using, first-stage processors are, as has been
noted, presumed to be the source of industrial wastes. To exclude such
waste sources from Federal assistance would be to inflict a distinct
penalty on the far West and on the Southeast where a disproportionate
share of industrial activity is based on such processing, and where the
propensity to provide public treatment of industrial wastes is histor-
ically well established—in the far West, at least, the policy antedates
the. Federal assistance program by at least a decade.
Potential inequities inhere, then, in any public posture that may
be assumed with regard to broad public treatment of industrial wastes.
The efficiency and practicability of the practice are established be-
yond question. It contributes to effectiveness of pollution abatement
efforts by establishing public control of wastes from all sources; and
in heavily industrialized urban areas it is the most practical way to
achieve effective water pollution abatement. Yet in the case of certain
heavy industries, its effect is to shift from industry to the public
sector an economic burden of very sizeable dimensions.
The essential question of equity arises out of the opportunities
for cost avoidance that the practice provides manufacturing industries;
and objections to Federal assistance have been magnified by the exist-
ence of certain cases where a local government's application for a
grant amounts to a thinly masked effort to obtain public assistance for
what is essentially an industrial facility. Moreover, the inequities
V This report has been produced in a building that is part of a
recently constructed complex of office, retail, and residential units,
populated during the day by persons brought in from more than a fifty
mile radius, and with a probable waste discharge equal to about one
sixth of that of the city on whose outskirts it lies. There is no
objection to public treatment of the wastes of this paperwork factory
or to Federal construction grants to provide the plant expansion and
the transmission facilities needed to accomplish it. Yet the effect
of those grants is to benefit the real estate, construction, retail,
and financial sectors just as surely as the capacity to handle a
New England town's tannery wastes benefits the factory owners.
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that are relatively slight in the context of the Federal program become
enormous on the local level, in the case where general tax revenues
are utilized to construct and operate such a treatment system.
The equity questions assume a legal coloration when viewed from
the standpoint of Section 8(a) of the Federal Water Pollution Control
Act, which provides that:
The Secretary [of the Interior] is authorized to make grants
to any State, municipality, or intermunicipal or interstate
agency for the construction of necessary treatment works to
prevent the discharge of untreated or inadequately treated
sewage or other waste into any waters. . .
The section is specific in limiting the availability of Federal
construction grants to governmental units; and the legislative history
suggests very clearly that there was no Congressional intent to extend
such grants to industrial treatment of wastes; yet the Act provides
that the grants extend to plants whose purpose is to treat not only
sewage but "other wastes," so long as it is a governmental agency that
intends to construct—and presumably to operate—the works in question.
Nor does the Water Pollution Control Act's exposition of the discretion-
ary powers and the responsibilities of the Secretary of the Interior, as
they apply to the award of Federal Construction Grants, suggest that a
policy of excluding communities for treating industrial wastes should
be observed.
There is, then, ambiguity with respect to the degree to which admin
istrative procedures should interpret the intent of the Congress with
regard to municipal treatment of industrial wastes in awarding construc-
tion grants. There is also an obvious disparity between the way in
which municipalities approach their waste treatment responsibilities
and the way in which the Congress viewed those responsibilities when
the act was formulated over a decade ago.
Given the conflicting demands of the situation, it would appear
that the Federal policy should continue to be one that supports effec-
tiveness and efficiency inherent in the strengthening of local and
regnal waste handling programs that are comprehensive n their reach.
From the national point of view, the fact that availab ity of Federal
assistance has led to an indirect use of grants by public agencies to
f nance industrial waste treatment works.by inducing «"£«*"•* .J1
to connect to enlarged municipal system is not in the east bad. It
entirely consistent with the purposes of the Water Pollution Control
Act si nee it increases the degree of treatment of untreated or inade-
quately tretei wastes, and adheres to the subsidiary Active of
contributing to planned regional or metropolitan pollution control
systems.
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Because cost-sharing v/ould seem to lie at the root of the diffi-
culty, remedies might be applied most efficaciously by locally
established requirements to ensure that projects be financed in a fashion
that provides an equitable correspondence between costs occasioned and
payments made. The simplest and most prevalent procedure to make the
occasion of cost compatible with financial burden is the use of a sewer
service charge scaled to the volume and/or strength of the wastes derived
from each user (or class of users). Ideally, such a requirement v/ould
be placed by applicants for Federal waste treatment construction grants,
since its overall effect would be to place a price upon waste treatment
that fully reflected the costs of the service, (Use of general tax
revenues is thought to subsidize inefficiencies by masking costs, and
reducing users' ability to control his costs by limiting his production
of pollutants). Cut if the only concern is to guard against industrial
exploitation of public resources, charge requirements might be placed
only by systems handling more than 100 gallons per capita per day—or
some other acceptable figure to characterize presumption of a greater
than "normal" industrial loading.
Admittedly, the imposition of such a requirement v/ould only reduce
the cost-sharing contradictions at the local level. Federal contribu-
tions to some heavy industry sectors v/ould continue to be greater,
relative to taxes collected, than to others which are less categorized
by liquid waste production. But to exclude heavy v/aste producers from
participation in Federal programs would only reverse, not eliminate,
the fact of disadvantaged industrial sectors. The main burden of
Federal relations with industry throughout the nation's history has
been a steady struggle to evolve a pragmatic balance between the public
interest and the characteristic external damages imposed by a given
industry. There seems to be no reason to depart from that policy in
the case of industries whose characteristic problems include a high
measure of production of water-borne pollutants. The public interest
would seem best served by including such industries in the enforcement
provisions relating to water pollution, and by providing the States and
municipalities in which they are located a full measure of the assistance
provided to all municipalities for the purpose of pollution abatement.
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REGIONAL WASTE HANDLING SYSTEMS
The Water Pollution Control Act was framed to favor and support
establishment of regional waste handling systems. The ostensible
values of regional cooperation and regionally directed orograms underlie
a number of provisions of the Federal Water Pollution Control Act
including ones that 1) directed comprehensive river basin studies,
2) required that Federal grants for construction of waste treatment
works adhere to the conclusions of comprehensive programs developed
under the Act, 3) provided a ten percent incremental grant av/ard for
construction that is certified to be included in a metropolitan or
regional olan, and 4) encouraged interstate compacts.
It is probably significant that the same law that requires that
a community be included in a comprehensive plan augments the amount
of grants to communities that are certified to be included in some
kind of plan. The fact that the incentive postdates the requirement
suggests either that the rate of plan development has not matched
expectations, or that there has been some meaningful gap between the
planning process and its practical results. To a certain extent, both
explanations are true descriptions of events. Planning has been a
painfully slow process. More relevant to this discussion, however, is
the fact that river basin planning has failed almost entirely to
produce pollution control programs founded on basin systems.
The argument for the river basin based regional system is well
founded. A regional system provides a means to adjust administrative
institutions, capital investment, and abatement practices to the over-
riding physical imperatives of streamflow, temperature, and water
chemistry—and to do so in a manner that effectuates economies of scale
and allows selective application of effort. To obtain these practical
benefits, it shifts the focus of attention from the series of specific
sources of pollution, with their unequal and interlocking impacts, to
the river basin and to the physical conditions and chemical reactions
that take place in the stream. In concept, it is the most effective
and the least costly means to insure water of given desired quality.
But the river basin pollution control system can not be found in
the United States; and it shows no evidence of coming into full scale
existence in the near future. There are, however, variants that
flourish with more or less vigor and public acceptance.
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The problems of implementing regional oollution abatement systems,
then, seem to fall under the heading of practicability. Their
potential effectiveness, efficiency and equity are unquestioned; but
there seems to be something in the idea that conflicts with American
views of the way that things should be done. Political realities and
institutionalized procedures collide powerfully with the concent at
a number of olaces; and where a regional solution to a problem has
been adopted after a collision has taken place, regionalism has been
subtly adapted to the needs of pre-existing institutions. The emphasis
of this discussion, then, will be not upon the theoretical benefits
of regional systems, but upon the difficulties of implementing them,
and on the modifications that theory has experienced as it has been
translated into fact. If basin systems with all their nresumed
virtues are inconsistent with other values that Americans prefer, it
may be worthwhile to consider the evolutions of the concept that have
been considered to be acceptable, and to devise incentives to organize
in forms that preserve something of the efficiency and effectiveness
of basin planning, but that adhere to politically acceptable modes of
action.
To undertake that kind of comparison, it is necessary to distin-
guish between three characteristic forms of regional organization.
The river basin system is the purest form of the regional pollu-
tion control system. It places all sources of pollutants under a
common regulatory authority with an independent financial base. The
authority may undertake remedial measures on the basis of need and
natural requirements imposed by stream conditions. The field of
regulatory action is considerably broadened to include measures
other than waste treatment—streamflow augmentation, waste storage,
waste transmission, in-stream settling, artificial reaeration,
zoning, assessment of penalties—and the intensity of treatment
requirements can be varied to take advantage of natural conditions.
The closest approach to this idealized system is to be found in
Germany, where the Ruhr and Emser Gennosenschaften have for almost
a century administered a program of environmental controls that
includes area-wide regulation geared to natural conditions, autonomous
financing derived from user and effluent charges, stream classifica-
tion, and application of in-stream as well as sewerage engineering.
Several approaches to a basin system have been made in the U.S.; but
these efforts have been of the nature of voluntary federations that
include an administrative superstructure substantially without
enforcement powers (other than those of the separate constituencies
entering into the agreement) or the resources to engage in investment
programs.
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Note that this discussion is framed in the context of the short
run future. Historical develooments portend a more distant future in
which the basin-wide authority will have the powers needed not only for
water quality management but total water resource management. The
Delaware Commission and others constructed in its pattern give insights
into v?hat may evolve; but this cannot be expected as a viable mechanism
in most cases in the period of interest. How such authorities evolve
will depend upon Federal DO!icy, among other factors, and most
significantly on Federal policy in the water resource field as a
whole rather than in the field of water quality management. The
Water Resources Council has given attention to this matter, as will
the recently constituted National Water Commission.
The Metropolitan Sanitary District is a form of the regional
oollution control system where the operational base is not the water
body, but the social and economic focus provided by the urban area.
Where the river basin system has been neglected, the metropolitan
system is by now the generally accepted approach to waste handling
in and around major American cities. Almost without exception, large
cities serve as the nodes of vast collection systems that reach well
beyond the city's legal boundaries to bring wastes into one or more
waste treatment plants. It speaks, perhaps, to the profoundly urban
orientation of Americans that they have rejected organizations based
on the natural elements of the watershed, but have almost instinc-
tively created sets of local systems based upon core cities. The
character of such arrangements varies to include informal associations
in which the central city accepts and treats the waste of its
satellites for a fee (Portland, Oregon), the county-wide or multi-
county sanitary district composed of a group of contributing
communities (Allegheny County, Pennsylvania), several separately
organized and funded collection systems lying within or cutting across
legal boundaries to conform to physical configurations of a metropolitan
area (Los Angeles County, California), and highly concentrated unit
systems with independent funding and a high degree of regulatory and
operational autonomy (Chicago, Illinois). The form of the arrangement
may be dictated by local preferences, but the function of the
city as the foundation of metropolitan waste handling is generally
accepted.
The State-wide system is a recent development that is founded
upon several evolving influences—some provisions of the Clean Water
Restoration Act that provide strong Federal incentives to State plan-
ning and financial assistance, rivalry between State and local
governments, the entry of States into financial assistance programs for
local waste handling, the growing bureaucratic strength of the
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technicians who administer State pollution control programs, and an
advanced level of pollution abatement capabilities that in most
States has created a need for disciplined and orderly system main-
tenance postures in the conduct of environmental control policies.
As with metropolitan systems, the emerging State-wide systems appear
to be taking on separate configurations that reflect the political
institutions and traditions of States, as well as the regulatory
philosophy of the individuals or groups designing the system.
Maryland, New York, and Ohio have all proposed to enter with great
vigor into the conduct of local waste handling programs, obtaining
their sanction and effectiveness from the use of State funds for
investment purposes and at least modest operating assistance to
communities. Less formal or less fully formed systems would appear
to be developing in an almost organic fashion in New Jersey, Rhode
Island, and Delaware, where the limited geographic reach of the State
and highly developed pollution control capabilities create a
situation requiring staged, coordinated extensions of pollution
control activities.
Effectiveness
Existence of an organized regional waste handling system provides
no assurance of effective pollution control, but effectiveness of the
systematic processes is their chief theoretical merit. The core of
the concept is recognition of the fact that not all discharges are
equally polluting: relative magnitude of discharge, characteristics
of receiving waters, and nature of discharge all play a part in
determining the polluting potential of an effluent. The regional
strategy for pollution abatement depends upon a simple process of
reasonable allocation. Resources gathered from all elements of the
system are applied in the fashion that reflects the ordinal signifi-
cance of the elements of a given set of conditions. The most
pollutional influences are controlled first in point in time, the
more critical situations are more closely controlled.
Minimum conditions for effectiveness, then, are comprehensive
application of controls to sources of pollution, and discriminating
application of those controls. Unless the functional powers of the
system managers include the ability to draw resources from all
constituents and to apply them selectively, the potential to effect
desired water quality goals is dissipated. Effectiveness, in the
final analysis, depends uoon an abrogation of sovereignty by contri-
butors to the system. They must forego local choice as to whether
and to what degree they will treat their wastes, and they must supply
revenues that may be made available to other elements of the system.
The effectiveness of regionalism can not be divorced from politi-
cal considerations. To operate as a system, reqionalisn requires that
technical decisions over-ride local political distinctions. Either
voluntarily or through statutory coercion, all significant sources of
146
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pollutants must adhere to and share the costs of systematic conditions
if the organization is to be of more than ceremonial consequence.
Both metropolitan system and proposed State systems diverge from
the effectiveness requirement in that each accepts somewhat more
limited goals. The intent of the metropolitan system is in most cases
to provide a means to most conveniently dispose of the liquid wastes
of an urban area. The prime purpose of the State system is to extend
State control over community actions in the sphere of waste handling,
and to insure the responsible use of State funds advanced to remedy
local financial deficiencies. Pollution control is almost a collateral
goal; and area or regional cooperation is no more than organizational
technique utilized to facilitate accomplishment of another purpose.
The voluntary nature of the typical metropolitan system testifies to
the fact that the prime concern is satisfying an imposed—from what-
ever direction—requirement for waste treatment. Given a voluntary
situation, pollution may continue through failure of a significant
waste source to join the system, which then does no more than satisfy
the formal regulatory requirement imposed upon participants.
Similarly, the fact that State systems largely exclude major sources
of industrial waste, except as these are brought into the system
through the instrumentality of a community, suggests that the prime
purpose is to amplify the extent of State control over local govern-
ment in the area of waste handling. These expedients may be extremely
effective in terms of their own limited goals, but they are by no
means to be considered directly effective in reducing water pollution.
But if State and metropolitan arrangements provide no direct
promise of an increase in capital effectiveness, due to their lack of
comprehensive authority and inability to impose abatement priorities
related to streamflow and other natural conditions, both hold the
promise of incremental operating effectiveness. By imposing operat-
ing standards and by supplying financial support, the State or the
metropolitan system should invariably result in an overall increase
in the effectiveness with which waste treatment plants are operated.
Moreover, such systems become large enough to employ specialized
skills and to satisfy internally their need for trained operators
through normal processes of apprenticeship and promotion, something
that no small-scale waste treatment organization can do.
The potential effectiveness of regional systems will become an
increasingly critical matter as the pollution control effort matures;
and there is good reason to predict that over the long run, attainment
of water quality standards will not be possible in many places in the
absence of basin-wide or State-wide regulatory and olanning
institutions.
Authority for the conclusion may be found in those watersheds
whose water quality has been intensely studied—the Willamette, the
147
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Snake, the San Joaquin, the Colorado, the Arkansas, the Ohio, the
Potomac, Lake Erie, and Lake Michigan. Without exception, investi-
gators have found that sewage treatment is only a part of a body of
pollution abatement requirements. Industrial waste treatment is another,
slightly larger, piece. A host of land management and water management
practices contribute to the presence of pollution; and these must be
adjusted and monitored if pollution abatement is to be accomplished.
Comprehensive reach, technical virtuosity, and flexible resource
allocations will become increasingly necessary as water oollution
control efforts extend in time and intensity. Where attention begins
and ends at the sewage outfall—as is likely with local responsibility
for pollution abatement and even with the use of metropolitan waste
treatment systems—pollution will probably be only slightly and locally
diminished.
In terms of effectiveness of national programs over the near
future period, it is apparent that such programs must be related to
existing, viable political organizations, not framed in terms of a
conceptual apparatus which can be arranged only with considerable
time and expense if at all. A key to a large prooortion of the
pollution problems rests in the larqe urban area. Programs directed
to this unit of government might well prove to be the most effective.
Efficiency
Sizeable efficiencies have been attributed to regional pollution
control systems; but these have rested on the assumption of flexible,
watershed-based applications. Failure to translate the theoretical
organizational pattern into practice has largely short-circuited
attainment of the particular efficiencies that are thought to be
peculiar to regional systems.
Efficiency considerations, however, must be thought to underlie
the most vigorous form of regional pollution control organization to
be found in the United States. Development of metropolitan waste
handling procedures has stemmed largely from the economies of scale
that the practice affords. Larger plants involve lower unit costs. A
high ratio of transmission facilities to treatment facilities provides
a longer average life for the body of physical capital employed.
System size permits greater labor specialization, more complete
worker utilization, and continuity of staffing. A broader financial
base reduces lumpiness in capital allocation and tends to ameliorate
impacts of money market and other financial constraints. All of these
scale advantages adhere in theory to any broad-based regional system;
but they are most closely associated with metropolitan areas because
of the geographic and administrative coherence of such a region.
Economies of scale are not, however, the kind of savings that
are distinctive to regional systems. The unrealized economies of
148
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flexibility and oertinence are the ones that proponents of such
systems systems had hoped would develop from application of reqional
principles.
Such economies had been expected to flow from attention to
underlying physical imperatives and from aoplication of least cost
solutions. The formulation techniques are straightforward and
relatively undemanding. Development of computer technology has
enhanced their breadth and flexibility enormously, though the
technical concepts were applied on a limited basis well before the
general availability of computer techniques.
Unfortunately, all such solutions have two things in common.
They require some waste sources to treat to a much higher degree
than others—and usually such waste sources are factories. And they
include some in-stream measures for which no community can be assessed
responsibility under existing regulatory procedures. Unequal imposi-
tion of controls, with no direct increase in benefits obtained by
those whose costs are increased thereby, would create such obvious
problems of administration that it is not at all difficult to see
why optimizinq systems have not been utilized. In the absence of
a method for sharing the savings among all components of the system,
the promised efficiencies of river basin pollution control programs
are unlikely to be obtained.
Equity
Equity considerations are, in theory, served more completely by
a full-fleshed river basin system of pollution control that includes
proportional user charges than by any other approach that has been
devised. The broadening of the financial base to include all inhabi-
tants of a watershed is consistent with the unassignable nature of
benefits conferred and with the inter-related nature of damages
occasioned. (In large measure, the same judgement applies to State-
wide systems, and for the same reasons.) By assigning costs on the
basis of least cost solutions, the basin system comes as close as is
humanly possible to establishing an equitable cost of pollution
control.' By distributing locational and scale advantages as well as
by reducing the charges (50-75% of the total, judging by FWPCA model
studies) atributable to institutional and organizational resistance,
the basin system is intended to balance actual pollution control
costs with remedial charges, and so to reduce the inequities occasion-
ed by uneconomic behavior of those interests seeking to avert or shift
costs as well as by the diseconomies incurred by the self-interested
behavior of pollution control groups seeking to increase their
portion of national income.
149
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Practicability
We are presented with the anomalous situation of a means to
organize for pollution control that is apparently superior to any
existing procedure in terms of equity, efficiency, and effectiveness,
and yet one that is used only on a very limited scale and with
modifications that seem to detract from, rather than add to its
virtues.
There are no technological constraints. Limitations on applica-
tion that trace to deficient knowledge of physical conditions in
waterbodies can be remedied. The method is wholly consistent with
Federal policies, as contained in the Federal Water Pollution Control
Act.
Yet Americans have shown no inclination to pursue the policies
required to develop river basin pollution control systems. To the
contrary, the main thrust of State policy, and of Federal policy as
outlined in the guidelines for adoption of interstate water quality
standards, has been to go down the line of uniform waste treatment
requirements, local rather than regional responsibility, State regu-
lation, and adversary enforcement proceedings rather than cooperation
and acceptance of technically induced courses of action.
The operative element 1n determining public acceptance of river
basin pollution control systems would seem to be the fact that such
systems relate to few, if any, of the existing procedures of
American governments. They represent a foreign accretion, a perhaps
functional but isolated additional layer in the structure of inter-
governmental relations. And when it is considered that independent
financial status is one of the prime essentials for effective opera-
tion of such systems, it becomes clear that their implementation
would take pollution control out of reach of normal local government
decisions, and set it apart from discussion of the hierarchy of
total public needs for resources.
American State and local government is generally strong, attuned
to public demand, and sanctioned by tradition. Quite reasonably—
since they have a working, well understood, and reasonably efficient
method of doing things—citizens and established powers tend to
resent the interposition of independant authorities that reduce
citizen participation in public processes, and that receive funds
that local preference might wish to consign to schools or hospitals
or roads or police powers. In the nation's value system, citizen
participation and citizen control would appear to offer satisfactions
well worth the price of some minor technological diseconomies.
150
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Similar political and cultural value mechanisms impede industrial
participation in regional systems. It has been demonstrated aqain and
again in water quality studies that industrial waste discharges are of
pivotal importance, so that the effectiveness of any pollution control
scheme must hinge upon industrial oarticipation. Indeed, the success
of the Ruhrverbaende may be ascribed entirely to industrialists, who
devised and initiated the system in the nineteenth century and have
adhered to its requirements ever since. The behavioral mode was—
and is—quite consistent with the cooperative, cartelized organization
of German industrial activity, just as German municipal adherence
to the system conforms to a pattern of routine acceptance of centra-
lized, technical administration.
American industrial behavior, on the other hand, is conducted
with a considerable degree of competitive activity—and its ritual
code of values places a premium on competition that is even greater
than the degree of real competition would suggest. Rather than
cooperating to reduce the impact of external diseconomies, the
American business manager will attempt to evade the conseauences of
such actions on his costs or failing that, to insure that his
competitors will bear at least an equal cost. Regulation, negotiation,
the competitive interposition of public interest and private interest
that marks the American system of countervailing cowers—these prevail
in the conduct of water pollution control activities. They are not
conducive to establishment of rationalized regional systems; but it
would be rash to contend that the total and long run productivity
that results from the opposition of countervailing powers is not well
worth the intermediate diseconomies that the system generates.
Perhaps it is an indication of the innate flexibility generated
by our political and industrial practices that the regional systems
concept has been adapted—or is in the process of adaptation—to
fit American conditions. The central function of the city and the
established pattern of local public utility services have accepted the
general outline of regionalism in developing the metrooolitan sanitary
district. State control and the interpenetration of State and local
government activities are apparent in the development of State-wide
systems, as in Maryland or New York, where cost-sharing, planning,
and efficiency standards are evolving from processes that a decade
ago were directed exclusively to the obvious and^lirrited ends of
control of contagion and adoption of "good nractice".
It would seem that regionalism and systems engineering based on
watershed conditions are not practicable in the United States at this
time The institutional mechanisms to implement them generally do not
exist and may even be inimical to some very strong social Deferences.
Qn the other hand, existing institutions are evolving to Incorporate
many of the desirable features of watershed systems. The major
forms of regionalisn that are emerging are, at this time, oerhans
less efficient than the river basin system. But they are not only
151
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more comfortable in terms of compatability with existing institutions,
they exhibit a rich variety that tends to conform to local conditions.
Over the long pull, the flexibility of interrelated State-wide and
metropolitan systems may prove to have an effectiveness of a high order.
Economies of Scale
One of the principal inducements to regional waste-handling
systems—particularly when viewed in the context of the metropolitan
system rather than the broader terms of the river basin or State-wide
system—is their presumed ability to activate substantial economies
of scale.
Analysis of recorded investments since 1962 raises the possibility
that the particular advantage is not a constant virtue. There appear
to be significant discontinuities in application of economies of
scale, at least as these relate to investment. The dimensions and
findings of that analysis are presented here, but it must be emphasiz-
ed that it would be premature to base policy decisions upon those
findings. They are incomplete, in that they deal only with initial
construction costs and are not time-phased. Interpretation of the
interplay of investment and operating costs, the long run implications
of the difference in effective life of treatment and transmission
components of a system, and consideration of the effects of interest
rates may indicate that the inferred discontinuities of scale
economies in initial investment may be reduced, eliminated, or rein-
forced by more comprehensive consideration of cost factors.
In theory* the unit costs of waste handling should decline as
size of the system increases. A generally accepted economic concept
holds that each incremental unit of product spreads fixed costs over
a larger base, so that unit costs invariably decline with size; and--
also in theory—there is no point at which increasing size should
result in an upward shift in unit costs: at the point at which
returns to size become negative, the rational manager will begin to
replicate a system rather than expand it. (The logic of the latter
argument is somewhat debatable. If there is some physical or other
limit to effective optimum size that dictates replication rather
than expansion, the second and succeeding units may be viewed as
subsystems of a multi-unit system; in which case, unit costs might
properly be calculated on the basis of costs and output of the
aggregated components.)
The theory rests on physical as well as financial and organization-
al aspects of cost. The general terms of the physical relationship
are expressed by the engineering rule of thumb called the six-
tenths-power rule, a convention that holds that in the design of a
system the cost of an incremental unit of capacity is equal to
152
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approximately sixty percent of the cost of an anterior unit of the
same dimensions. (More precisely: if X capacity costs Y dollars,
then 3X will cost SY^-6): 30th the economist's and the engineer's ex-
pression of the concept of economies to scale imply a continuous
assertion of those economies. The economist will usually have at the
back of his mind a general view of marginally diminishing returns to
size, while the six-tenths-nower rule suggests a constant rate of
continuous accretion of such returns; but the principle is a fixed
feature of either practitioner's view of the world.
Investigation of the cost of incremental waste handling services
provided through investments made between 1962 and 1968 suggests
very strongly, however, that there is a significant discontinuity in
the expression of waste handling economies to scale. Figure 8,
presents the results of the analysis, v;hich related unit investment
to size of place.
The procedure followed in developing the relationship was an
exercise in aggregation. Total expenditures that were made for
sewers by communities of a given size class were divided by additional
population reported to be connected to sewers in communities of the
same size class (line A). Total expenditures for waste handling
investments in all categories other than sewers were divided by a
factor equal to 8Q% of all persons added to secondary waste treatment
systems plus 3Q% of all persons added to primary waste treatment
systems in each size class during the period (line B). (The factor
is intended to provide a measurement of incremental waste reduction
based on a rough measure of waste strength—one person equal to one
population equivalent of biochemical oxygen demand—and a broad
estimate of the average efficiency of the basic waste treatment
processes.) Finally, the mean contribution to municipal waste dis-
charges imposed by industrial effluents in towns of each size class
was taken into account by multiplying increased population served by
a loading factor proper to the size of the community and then by the
appropriate treatment factors and dividing investments other than
those for sewers in each size class by the products (line C). (The
multipliers, which even and extend the observed pattern of the
relationship of waste concentrations to persons served in places of
a niven size were: 0.85 for towns equal to or less than 1000, 0.95 for
towns of 1000 to 2500, 1.15 for towns of 5000 to 10,000, 1.40 for
towns of 10,000 to 25,000, 1.67 for towns of 25,000 to 50,000, 1.9 for
towns of 50,000 to 100,000, and 2.05 for towns of 100,000-250,000.
These were determined by an analysis of operating records for treatment
plants built with the aid of Federal grants, c.f. R. Michel et al
"Plant Operation and Maintenance," Journal of the Water Pollution
Control Federation, March 1969.)
Subject to the reliability of the data and the uncertainties of
cost and population distributions within population size classes-
the lines connect the juncture of population class midpoints with
153
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Figure 8
UNIT INVESTMENT BY SIZE OF PLACE, FOR INCREMENTAL
WASTE-HANDLING CAPABILITIES
1962-68
500
450
400
350
III
250
200
150
100
50
D
C-Investment in Treatment Plants & Ancillary
/ Works Per Unit Waste Reduction. Adjusted
for Typical Industrial Loading Pattern
A-Investment in Sewers Per
Person Added
B-lnveslment in Treatment
Plants 8 Ancillary Works
Per Unit of Incremental
Domestic Waste Reduction
1000
10DOO
Units Processed
100,000
WUIOll
-------
unit investments—the Figure may be thought to provide a fairly good
estimate of what it has cost to connect one more person to a sewer
system (line A), to treat the wastes of one more person to the average
level provided by a community of the size in which he lives (line B),
and the cost to provide that same average degree of treatment to an
additional population equivalent of wastes from either domestic or
industrial sources (line C). There may be significant divergences
between actual unit costs and the indicated costs at any point along
the curves, but their general shape must be considered to be accurate
if the data is accurate.
The graphed lines indicate clearly, if somewhat imprecisely,
that unit investment requirements drop off initially as size of place
increases; but as population reaches about 10,000, a rather sharp
increase in unit waste handling costs may be anticipated.
Although the pattern of discontinuous application of economies
of scale may seem to conflict with theory, there is no reason to
doubt that the phenomenon exists. With respect to waste treatment,
there are well defined explanations for the increase in unit costs
for larger towns and for cities. (These are discussed below.) For
sewers, however, we can only conjecture about the influences that
press costs upward for towns of a given size.
Possible explanations for rising incremental sewer costs in
larger places include higher excavation costs and other disruption
charges in built up areas, greater likelihood of the interposition of
terrain problems as area expands with population, more complex systems
in larger areas, lower population density in outlying areas that may
be served by larger towns, and need to include within the system
substantial areas that are locations for commercial or industrial
development and so provide limited additions to the body of users
relative to the area of additional service. Should such factors,
indeed, be responsible for the increase in unit sewer investments for
towns of ten to twenty-five thousand, it is not unreasonable to
infer a second discontinuity in expression of economies of scale that
may occur in very large cities, where the same complexities of size
exist in an enlarged fashion as compared to cities in the upper size
classes considered in the analysis. (While the additional discontin-
uities may be inferred, it has proved impossible to document them.
Reporting procedures are such that it is not possible to distinguish
between investments made by cities and those made by large consolidated
sanitary districts—the basic reason that unit investment calculations
were not made for places of more than 250,000 population.)
Reasons for the apparent intermediate diseconomies of scale are
far easier to assign with some authority in the case of waste treat-
ment. One very significant factor—the relative rise of industrial
wasteloads with increasing size of place—has been considered in the
analysis by assigning multipliers to account for the indicated
155
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prevalence of industrial wastes at each population size class. The
effect of the adjustment is to sharply reduce dimensions of indicated
diseconomies. It is obvious that to assign costs entirely on a
per-capita basis is to exaggerate unit costs when a significant
portion of capacity is utilized for industrial wastes. Because the
proportion of industrial wastes handled by a system typically
increases with population, the exaggeration becomes increasingly
operative as population increases.
Also significant to the pattern of unit costs is distribution of
treatment processes by size of place. As hydraulic loading increases,
a shift in the factors of production occurs from land-intensive treat-
ment processes to capital-intensive methods. Because construction
costs alone enter into the calculation, the interaction of land and
construction costs is not reflected in the curves of Figure £ .
(Land costs are highly variable, but tend to rise with population
concentration; so it is unlikely that consideration of land costs would
make any significant change in the shape of the cost to size curves.
If land prices did not characteristically increase at multiples
greater than demand for land for waste treatment needs, then the shift
to facilities-intensive treatment methods would be unlikely to occur.)
The manner in which increased demand for Vv'aste treatment capacity
influences preferences among treatment methods is indicated very
clearly in Table 53, which lists the relative prevalence of treat-
ment processes in 1968 by size of plant. In some cases, the "normal"
construction cost for a 1 million gallon per day plant as presented
in -lodern Sewage Treatment Plants, How Much Do They Cost? is indicated
in the table. In other cases, statistical analyses of the correlation
of plant size and construction costs are not available. The general
ranking of costs, however, is known to follow the pattern presented in
Figure 9.
Figure 9 is not calibrated for relative unit costs and removals
except in the most elementary sense. The position of a process
simnly indicates that under noroal conditions it costs more per unit
of capacity than processes that aopear below it in the figure and less
than processes that appear above it. Degree of waste removal, too, is
presented only in a "more than" or "less than" sense. It should be
understood, too, that the indicated relationships are by no means
invariable. The less costly "post-secondary" processes may sometimes
conveniently be substituted for secondary treatment by small towns,
in which case they might be little, if any, more costly than biological
filters. The basic principle that capital replaces land as size of
place increases definitely limits the application of septic tanks,
lagoons, and land disposal, to relatively snail communities.
The relationships embodied in Figure 9 help to explain the
discontinuities that have been found to exist in application of
economies to scale in waste treatment. Table 53 indicates that the
156
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TABLE 53
Distribution of Waste Treatment
Processes by Size of Plant
Type of Treatment
Percent of Plants of Size Class by Type of Treatment
Design Flow, Million Gallons Per Day
.25- .50- 1.0-
Imhoff & Septic Tanks 13.3 7.2 4.8
Primary Treatment
Chemical Treatment
01 Biological Filters
Activated Sludge
Lagoons
Extended Aeration
Other Secondary
Land Disposal
Intmt. Sand Filters
Tertiary Treatment
Number of Plants
Percent of Total
(a) = Less than 0.1
NA = Not available
V 1957-59 Dollars
0.1 0.3 0.6
22.0 41.5 43.1
6.2 11.9 13.3 17.5
39.5 20.4 15.4
8.8 5.6 4.5
1.2 1.5 2.1
1.4 0.4 0.6
3.0 1.0 0.7
(a) (a) (a)
6973 1677 1279 1832
56.3 13.6 10.3 14.8
Expectable
.0-
.999
2,1
10.3
1.7
'5.7
7.5
8.0
1.8
1.6
0.4
0.4
0.4
832
4.8
5.0-
9.999
0.7
28.6
1.7
35.0
25.5
4.1
1.7
1.7
1.0
294
2.4
10.0-
29.999
34.7
4.2
23.5
31.5
1.4
0.9
2.3
0.5
0.5
0.5
213
1.7
30.0-
49.999
4.3
30.4
2.2
17.4
32.6
2.2
2.2
6.5
2.2
46
0.4
50.0-
99.999
34.5
13.8
6.9
41.4
3.4
29
0.2
100.0-
199.999 200.000
4.0
28.0 33.3
12.0
36.0 50.0
4.0
16.0 16.6
25 6
0.2 0.1
Percent of
All Plants
9.3
9.9
0.6
30.6
10.6
27.9
6.6
1.5
1.0
2.0
0.1
12374
100.0
Cost Per M(
Capacity !_/
$237,000
235,000
235,000
288,000
321,000
68,000
NA
NA
NA
MA
NA
-------
Fiqure 9
GENERALIZED RANKING OF
UNIT COST AND REMOVAL
EFFICIENCIES OF CONVENTIONAL
WASTE TREATMENT PROCESSES
REMOVAL
PRIMARY TREATMENT
PROCESSES
SECONDARY TREATMENT PROCESSES
TERTIARY
TREATMENT PROCESSES
158
0
-------
likelihood that a high construction cost treatment method v.'ill be
applied increases directly with size of olant.
Time, as well as land availability and required treatment effec-
tiveness, plays a part in the nix of treatment methods. Iiuhoff tanks
and community septic tanks represent hangovers of an obsolescent
technology; it is seldom that a community would install either of then
today. Similarly, it is extremely unlikely that any small community
west* of the Mississippi or south of the i'ason-Dixon line would install
a primary treatment plant of any description. The much higher removal
efficiencies and much lower costs available with the use of lagoons
have made them standard technology for small communities in most of
the nation during the last ten years. Indeed, the point at which the
investment cost to size function for treatment plants and ancillary
works turns upward in Fiqure 8 corresponds very closely with what
has generally served ?s the effective limit of application of lagoons--
that is, a town of about ten thousand persons, or an hydraulic capacity
of a nil lion gallons per day.
159
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APPENDIX
THE FACILITIES EVALUATION MODEL
The mathematical modeling technique employed as part of the
cost analysis for municipal waste treatment plants was devised
to calculate the following, based on the 1962 and 1968 Municipal
Waste Inventory data supplied by the States and municipalities:
1. current replacement value of facilities in place
2. value of recognized improvements needed in treatment or
operation of waste treatment systems as stated in the
1962 and 1968 Municipal Waste Inventory
The scope of answers attainable using this technique has
answered questions as to how much money would have to be spent
to replace treatment plants that are still in existence; what the
current inventory (backlog) of needs is, and what it was in 1962.
The technique can also evaluate the additional treatment costs
needed in future timeframes, based on current facilities.
The current replacement value of facilities in place was cal-
culated on the basis of costs experienced in building facilities
with similar design flow and removal efficiencies. This analysis
included a measure of variability in the cost per unit treated.
The costs associated with the stated needs in the 1962 and 1968
inventories included both variability in projected design flow
and in cost per unit treated. This modeling approach, in addition
to incorporating variability as indicated, provides a mechanism
to handle a large amount of data with the ability to vary conditions
parametrically to determine the effect of the change of one variable
on the stability of the outcome.
The results of these analyses are presented in the body of
this report.
A diagram of the calculation scheme follows.
161
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FACILITIES EVALUATION MODELS
GENERALIZED LOGIC
en
ro
6399 KEEPS
1 NEW PLANT
2 REPLACE PLANT
3 UPGRADE PLANT
4 ENLARGE PLANT
5 DISINFECTION
6 CONNECTION
7 OTHER
CURRENT
REPLACEMENT
VALUE
(12.4 BILLION)
/ COST I! \
—-{ SIZE V
V FACTOR J
-------
MAI
k |
N i
!
1
AVG & SD of FLOW '
._ .„.._... i
, t i
each pass or r«. J
* I
'- - ~ 1 |
time regional COST [ «
costs are
calculated
di i cuninun i Lies i
in region i
i i
1 SAVE COST in _] i
| TOTAL AREA i
M« M . *
1
1
i
i
i
• i
i
each region
i
FIND AVG & SD of '
TOTAL COSTS '
END
The solid blocks
indicate the basic
work units to be
explained after the
diagram. The dashed
lines indicate the
program flow with the
number of times each
box is entered listed
with the dashed lines.
1. MAIN:
Main reads and selects the data to be manipulated and totalled
in succeeding portions of the program.
2. AVG & SD of FLOW:
This routine calculated the average and standard deviation of
actual per capita flows observed at the existing waste treatment
facilities by size of place (1-10). These values are used later in
the program in the cost calculations. Let us refer to these flows
as AQ and SDQ for average and standard deviation of flow.
3. COST:
This portion of the program calculates treatment plant costs
(on an individual basis but aggregated by type of need and region
studied). These costs were calculated basically as follows for each
plant:
a. Calculate a population served for 25 years from the present
based on growth factors by size of place (1-10). This yields a 25
year design population. Parametrically varying the growth rate by
size of place by +2B% of the expected growth changed the cost answers
less than
10%.
163
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b. Calculate the total flow from the plant based on (a) and
the average and standard deviation of the flow per capita as cal-
culated in AV & SD of flow by using a normal (0,1) random deviate
(RN) as follows:
Total Flow = population projection x (AQ + RN x SDQ).
Bounds were set on the flow value. The calculated flow value
was then used to determine a cost as follows:
Using a cost curve which represents the average unit cost per
total flow in a plant calculate the cost...but recognize that the
average cost curve also has variability. So using the average and
standard deviation of costs for that particular flow calculate costs
in much the same manner as the total flow by using a normal (0,1)
random deviate. Pictorially the process looks like this...
$
avq per capita
flow
multiplied by
population
where the shaded
area would repre-
sent the possible
value of cost if
both flow and costs
were restricted to
say one standard
deviation (a) about
the mean.
avg unit cost
curve
FLOW
At this point, it is appropriate to interject one paragraph
relative to the calculation of in-place facilities value. The dia-
gram above can best be used for this purpose. Assume that the
abscissa FLOW represents design flow at present facilities as listed
in the Municipal Waste Inventories. We can then use the average
plant flow line on the diagram with no deviation for a representation
of design flow which is given. We still must, recognize the variability
of costs. Therefore, instead of having an area over which the costs
can vary, we recognize only a variability along the design flow line.
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We return now to the discussion of backlog costs. A cost is
calculated for each community expressing a need. The cost functions
relate to the specified needs and where necessary include a factor
for ancillary works. The costs for each community in a region are
summed, and when all the communities in the region have been analyzed
a total cost for the region is obtained. Each region was simulated
either 10 or 25 times on a community by community basis and the 10
or 25 total cost values were analyzed to determine the mean and
standard deviation of total costs likely from the region. Increasing
the number of iterations for simulation of total regional costs from
10 times to 25 times produced almost no cost change (about 3 to 4%).
On this basis, 10 analyses per region were used for most calculations.
The mean cost was used as the indicator of the regional cost. The
standard deviation is an indicator of the stability of the mean and
generally followed the trend in the variance of the flow values in
the regions.
There are seven basic needs categories reflecting the needs
recognized by States and municipalities and included in the 1962
and 1968 Municipal Waste Inventories. Costs were calculated for
each need, based on costs determined by analysis of unit costs for
projects receiving Federal grant assistance and estimates of maximum
reasonable costs where other information was not available. The num-
bers obtained can be challenged, but the orders of magnitude of these
values are believed to scope the problem. It is noted that this
approach is not applicable to reliable costing for the design of any
particular plant, but rather provides valuable aggregate values.
The seven needs categories follow, with an explanation of the method
of analysis and the basic rationale:
New Plant
New plant indicates the need for construction of a facility
where none presently exists.
Where the plant analyzed was noncoastal, secondary treatment
was used as the need in the form of an activated sludge plant with
a multiplicative factor for ancillary works included in the costs.
The basic equations for cost are:
a. Log(cost) = 5.6062 - 0.3537 x log(flow)
b. log (random component of cost) = RN x 0.175
Total cost = 10(a+b) x Flow x factor for ancillary works + 1.0)
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Where the discharge was to a coastal outfall,primary treatment
was assumed to be adequate under current water quality standards.
The multiplication factor was used again in this calculation for
ancillary works.
The basic equations follow:
a. log (cost) = 5.3704 - 0.44604 x loq (flow)
b. log (random component of cost) = RN x 0.188
The total cost equation is the same as above.
Enlarge Existing Facilities
These costs were based on primary treatment plant costs for
coastal discharges with the ancillary factor set to zero; and
secondary treatment plant costs with zero ancillary factor for non-
coastal discharges. The rationale here was that it would cost more
to enlarge facilities than to just add on the component of the plant,
because existing facilities would have to be worked around during
construction and provisions would have to be made to keep the plant
in operation for as much of the time as possible.
Upgrading
These costs for upgrading facilities based on construction grants
costs for similar activities was formulated as follows:
a. log (cost) = 5.450 - 0.4073 x log(flow)
b. log (random component of cost) = RN x 0.231
Total cost = lo(a+b) x Flow
Replacement of Existing Plant
These costs are the same as for a new plant, except that no
factor has been added for ancillary works. In the instances where
the plant discharges to a coastal zone the treatment is primary;
where discharge is to a non-coastal zone, treatment is secondary.
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ChTorination Costs
Chiorination costs were calculated from: A Compilation of
Cost Information for Conventional and Advanced Wastewater Treatment
Plants and Processes. FWPCA, Cincinnati, 1967.
a. log (cost) = 3.958 + 0.469 x log(flow)
b. log (random component of cost) = RN x 0.030
Total cost = io(a+b) x Flow
Improved Operation or Better Use of Existing Facilities
The cost here was considered basically administrative in nature,
with some possibility of minor modification of treatment methods.
Chlorination, a minor capital modification, was used as a surrogate
for all investment in this category. Therefore, the chlorination
costs were used as explained previously.
Connection to Adequate Existing Sewer System
This cost was considered to be no greater than building a
new facility with the associated ancillary works. Therefore, these
costs were used. The rationale was that if the cost were less,
a rationally administered community would choose to build its own
plant.
Scheduling Procedures
Values derived from the procedures described above are the
basic inputs to the investment scheduling model, which takes the
derived current replacement value of facilities together with the
derived value of needed facilities (the "backlog"), and calculates
their condition under any chosen assumption about amount of invest-
ment.
The scheduling procedure utilized to develop this report
depended largely on trial and error applications of investment
amounts over a series of time frames. (Subseguently, a more
sophisticated procedure was developed in which the program was
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calibrated to Increase or decrease amount of investment, according
to the degree to which a schedule attained established success
boundaries—defined in terms of backlog reduction. Such a search-
ing program proved to be necessary to deal with the time-consuming
calculating problems involved in dealing with a range of require-
ments for fifty-four individual investment units.)
The calculations performed are, in order:
1. Before each set of passes, increase the value of both
plant in place and backlog to 1.035 of its previous
value—to account for the assumed level of inflation.
2. Establish .029 of the value of capital In place as the
amount of the annual recapitalization requirement.
3. Establish .033 of the value of capital in place as the
amount of the annual growth requirement.
4. Reduce the amount of the assumed investment by the
amount of the recapitalization requirement.
5. Reduce the amount of the assumed investment by the amount
of the annual growth requirement: if the amount of the
investment remaining after sten (4) is equal to or
greater than the amount of the annual growth requirement,
the value is transferred entirely to the value of capital
in place; if the amount of investment remaining after
step (4) is less than the amount of the annual growth
requirement, the value of investment remaining after
step (4) is transferred to capital in place, and the
difference between that amount and the total growth
requirement is transferred to the backlog.
6. If a positive value remains after the investment amount
has been reduced by step (4) and steo (5) that amount
is transferred as a negative value to the backlog and
as a positive value to the amount of capital in nlace.
The procedure is then repeated, using the newly established
values of capital in place and backlog, until the backlog is either
eliminated or begins to increase.
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•s U. S. GOVERNMENT PRINTING OFFICE : 19TO O - 384-036
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