Richard T - Council of Infrastructure Financing Authorities

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Rick Farrell
Executive Director
Council of Infrastructure Financing Authorities
Before the
Subcommittee on Interior, Environment and Related Agencies
Committee on Appropriations
March 16, 2006
Mr. Chairman, I am pleased to provide testimony to the Subcommittee requesting an increase to
$1.35 billion for the Clean Water State Revolving Fund (CWSRF), a program within the
Environmental Protection Agency that supports State and tribal efforts to improve water quality.
The CWSRF provides grants to States to capitalize their state revolving funds, giving
communities access to capital to finance wastewater infrastructure needs.
In the past two decades, few federal programs have proven as effective in realizing their intended
goal as the Clean Water State Revolving Fund. The CWSRF provides a sustainable source of
funding to protect and restore rivers, streams and other water bodies. This assistance amounts to
more than double the Federal investment as funding is increased through state match, bonds, loan
repayments and interest earnings.
The numbers tell the story. Total assistance to communities from 1988 to 2005 was $52.7
billion. CWSRF below-market interest loans have saved communities on average 21% in costs
for a total of $18.4 billion in interest savings. For a typical $10 million project with a CWSRF
loan, the saving is $3.3 million and this saving is often what makes it possible for a community
to move forward with a project.
The benefits to the environment are compelling. CWSRF-funded projects reduce the flow of
pollutants to water bodies thus keeping them clean and safe for swimming, fishing, and drinking
water supply. CWSRF financing most often helps communities maintain aging sewage treatment
infrastructure. The affordable financing provided by the CWSRF allows communities to address
their most pressing water pollution problems. CWSRF loans have safeguarded water quality and
public health for over 100 million utility customers.
By any measure, the CWSRF is an outstanding success story. However, the need for water
infrastructure far outstrips what the CWSRF can accomplish at current funding levels. Costs are
increasing while available resources are decreasing. Assuming a modest 3 percent annual
inflation rate, the annual gap in clean water infrastructure financing is projected to reach $21
billion by 2025.
In the face of this escalating shortfall, funding support for the CWSRF has been declining. The
current and previous Administration singled out the CWSRF for large cuts and, unfortunately, in
the past two years Congress has agreed to significant reductions. FY 2005 saw a $250 million
decrease and in FY 2006 a cut of another $200 million. FY 2007 threatens another funding
reduction with the Administration proposing a funding level of $688 million. This represents a
22% reduction from the previous year and, if approved, would result in CWSRF funding having
been cut nearly 50% over the last three years.
Reductions of this magnitude have severe implications for the CWSRF program and the
continued realization of its goals. To illustrate what the CWSRF will be unable to fund due to
reduced capacity, a telling comparison can be made between the Administration’s FY 2007
budget proposal of $688 million annually ending in FY 2011 and steady-state funding in nominal
dollars at the FY 2003 level - $1.35 billion annually. The following chart shows the number of
projects that would not be able to access CWSRF funding each year as a result of the proposed
budget reductions.
Annual Projects Lost
600
500
400
300
200
100
0
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
The cumulative effect over this same ten year period is displayed in the next chart. At the end of
this time period,, over four thousand projects nationwide will have been turned away from the
CWSRF.
Cumulative Projects Lost
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
This loss of CWSRF financing translates into a future bill being handed to consumers of around
$9.7 billion. This is a bill that they will continue to pay over the next twenty to thirty years.
Small states and smaller communities are especially hard hit by reductions in CWSRF funding.
For small population, rural states, CWSRF low cost financing is critical to water infrastructure
development. Almost two-thirds of CWSRF assistance agreements have been to small
communities – populations of less than 10,000. If funding is not available, these communities
often lack other realistic options and cannot address their water quality needs. The population is
usually too small to fund the cost of a project through the rate structure and these communities
do not have ready access to the bond markets and cannot command competitive rates. The
CWSRF is a very important tool for less populated states and communities and the impact of
CWSRF cuts particularly detrimental.
Any cutback in CWSRF funding also has a disproportionate effect on the States that leverage.
Leveraging is very beneficial for States in which loan demand outpaces available capitalization
grants. It can increase the amount of upfront loan capacity by two to three times to meet current
demand and accelerate project funding. When combined, SRF capitalization grants and
borrowed funds can significantly increase near term loan capacity and allow more projects to be
funded sooner.
Leveraging is possible because of the availability of capitalization grants that do not need to be
repaid. To the extent that capitalization grants are cut, the ability of States to leverage, and meet
their funding demands, is hampered. The negative impact for leveraging states, in terms of funds
available to commit to projects, will be two or three- fold since the level of funds a State can
raise in the bond market is a function of the amount of capitalization grant it receives. States
seeking to keep pace with rising demand through leveraging will see these efforts significantly
curtailed if the contemplated cut in CWSRF funding is enacted.
With the huge documented need for water infrastructure, that will only increase in the future, it is
critically important that funding for the CWSRF be restored at least to the $1.35 billion level. It
is difficult to see how the CWSRF can continue as the primary financing mechanism for
wastewater infrastructure if funding levels continue the drastic decline experienced in the last
two years and proposed for this fiscal year. I would urge the Subcommittee to signal its
continued commitment to clean water by restoring funding for this invaluable program.
Thank you.
The Council of Infrastructure Financing Authorities is a national association representing state
and local government organizations involved in the financing of water infrastructure.
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