H.R. 720

Purpose

Clean Water Act

Analysis

Amends §104(b) of the CWA to authorize grants to nonprofits to provide technical assistance to rural and small municipalities for planning, developing and acquiring of financing, for treatment works and decentralized systems to protect water quality and to disseminate information for disadvantaged communities.  Authorizes appropriations of $75 million for 2008 through 2012, though not less than 20% must be used for new authority.  Reauthorizes the small flows clearinghouse.  Adds a section for competitive procedures for awarding grants under §104.

This adds an authority to the 104(b) program.

Might increase the number of small borrowers for the CWSRF program due technical assistance provided to small communities. 

§102 State Management Assistance

Reauthorizes §106 of the CWA for $300 million per year from 2008 through 2012.

Reauthorizes §106.

No change to program. 

Amends the Wet Weather Watershed Pilot Projects program by removing the term “wet weather.”  Adds “low impact development technologies” to the definition of storm water best management practices.  Adds as an eligible category of wet weather discharge control, watershed partnerships and integrated water resource plans.  Authorizes approps through 2012 and requires a report in 10 years.

Reauthorizes and amends §121 of CWA.

This section was authorized in 2001 but no approps were ever made. 

Amends §211 of the CWA by adding a paragraph on exceptions.  A project will remain eligible for a title II grant if it is for replacement of rehab of a collection system existing on 1/1/2007.  Also allows grants for new systems for communities existing as of 1/1/2007.  However, the project must accomplish the goals of the CWA and address a condition in existence as of the time of passage of the bill.  Also removes the ban on funding separate storm sewer systems.

§211 originally acted as a prohibition on title II grants for sewage collection systems unless the grant was for replacement or rehabilitation of an existing collection system (as of the time of passage of §211) and is necessary for the total integrity and performance of the treatment works or is for new collection system in an existing community.

Essentially, the purpose of this amendment is to update the prohibition on new systems.  This bill will apply §211 to the CWSRF program in the same way as it was applied to the Title II grants program.  The change updates the dates within §211 to allow for funding of such projects for collection systems that exist today and for communities that exist today. 

§202 Treatment Works Defined

Amends §212(2)(A) by adding language that will include lands and interests in lands necessary for construction in the definition of treatment works.

Currently, the definition of treatment works includes land that will be an integral part of the treatment process or is used for the disposal of residues resulting from such treatment.

This expands the definition of treatment works. By doing so, the CWSRF program will be able to fund site acquisition for the placement of treatment works.  This has never been allowed in the past, including in the Title II program.  This will greatly amplify the cost of treatment works projects and decrease available funding for other important projects.

§203 Policy on Cost Effectiveness

Amends §218(a) by striking language that is redundant.

Currently §218(a) states a policy of Congress that treatment works undertaken with CWA assistance must be the most economical and cost-effective system.  The section restates the definition of “treatment works” from §212 instead of relying on the already defined term.

The amendment simply streamlines the section.

§301 General Authority for Capitalization Grants

Amends §601(a) by removing list of eligible projects and referencing §603(c).

§601(a) provides the general purpose and authority of Title VI

The amendment simply streamlines the language by referencing the list of eligible projects in §603(c).  This is done because the bill also amends §603(c).

§302(a) Reporting Infrastructure Assets 

Amends §602(b)(9) by adding a requirement for states to guarantee that loan recipients maintain project accounts in accordance with generally accepted government accounting standards including standards relating to the reporting of infrastructure assets.

Currently, §602(b)(9) does not require project accounts to include standards relating to the reporting of infrastructure assets.

This is an additional requirement for borrowers to follow.  It enforces GASB-34 through the CWSRF program.  This is not a requirement for borrowing from the market.  Therefore, this reduces the attractiveness of the CWSRF program.

§302(b) Additional Requirements

Adds a provision requiring a State, in order to receive a capitalization grant, to establish, maintain, invest, and credit the fund with repayments, so that the fund balance will be available in perpetuity.

This is a new provision for this section, however, §603(c) has the same requirement.

This does not appear to have any impact on the CWSRF program as currently operated.

Adds a provision requiring a State, in order to receive a capitalization grant, to use any fees charged by the State for the cost of administering the program or for eligible activities.

This is a new requirement.  Currently, fees charged to borrowers may be deposited into the fund to be used for eligible activities, or they may be held in an account outside of the fund to be used for other purposes.  If the fees are considered program income, it may be used for program activities such as match, loans or administration.  If it is non-program income it may be used for any water quality purpose, including grants.

This requirement will limit current uses of fees. States currently have flexibility and use the fees for a wide range of purposes.  These fees have always been considered outside of the scope of the program and only regulated by grant regulations dealing with program income.  State programs will particularly object to being prohibited from using these fees for match and for the funding of other delegated programs.

Adds a provision requiring a State, in order to receive a capitalization grant, to include as a condition of providing assistance to a municipality or agency, that the recipient certify that it has studied and evaluated the cost and effectiveness of innovative and alternative processes, materials, techniques, etc., and has selected to the extent practicable, the project or activity that may result in greater environmental benefits.  Also must consider the cost and effectiveness of other design, management, and financing approaches, etc.

This is a new requirement.  There is no equivalent in the current program.

This requirement is burdensome for borrowers. It will require studies prior to construction that will have to be paid for by the CWSRF program thereby increasing the cost of projects. Because these requirements are not applicable to borrowing from the market, the CWSRF will be less attractive to potential borrowers.  Additionally, there is no de minimus provision exempting projects below a certain size from having to meet these requirements.  This will be particularly burdensome to small communities.  

§302(b) Additional Requirements

Adds a provision requiring a State, in order to receive a capitalization grant, to ensure that it will use at least 15% of each cap grant to provide assistance to small, disadvantaged communities, to the extent there are sufficient applications.

This is a new requirement.  There is no equivalent in the current program. 

A set-aside for small, disadvantaged communities is antithetical to provisions requiring the establishment of integrated priority lists for the program.  This requirement will artificially bump projects for small, disadvantaged communities above projects with a greater environmental impact simply because those communities apply for funding.  This requirement also takes the decision making process away from states and removes some flexibility from the program.

§302(b) Additional Requirements

§511(c)(1) - NEPA

This is a new requirement.  These sections of the CWA do not currently apply to the CWSRF program, however, they did apply prior to 1995.

These requirements will add a significant burden to borrowers.  §204(a)(6) will apply federal procurement rules to the CWSRF program in place of local rules. The provision might chill innovation, since communities may find it difficult to specify the types of equipment that might be needed for unique processes. §204(b)(1) and §218 will put in place costly requirements that each community will have to comply with that increase the cost of borrowing from the CWSRF program and add a significant burden to borrowers.  This will cause a shift from borrowing from the CWSRF program to the market.  These requirements were part of the title II grants program and will bring federal government intrusion into the local decision making process. §211 places an unnecessary restriction on States.  States should be responsible to decide the priority of project funding.  §511(c)(1) appears to apply NEPA reviews to all treatment works projects.  However, prior to 1995, this requirement was met by state environmental review procedures (SERP), modeled to reflect the federal NEPA procedures.  If Congress intends to remove the SERP process from the program, all NEPA reviews will be done by EPA, slowing down the pace of the program dramatically.

Requires contracts for architectural and engineering services using funds made available directly by the cap grant to be negotiated in the same manner as federal construction contracts under the Brooks Act or an equivalent State qualifications based requirement

This is a new requirement.  There is no equivalent in the current program.

States already have architectural and engineering services procurement requirements for the SRF program that ensure fair and open competition.  The specific requirements of the Brooks Act, which were not part of the Construction Grants program, are likely to be different than what is currently required by the States for SRF assistance recipients.  Given that States already have procurement procedures to ensure competitive procurement under the SRF program, we believe that the increased burden for States and loan recipients to comply with these additional procedures would not provide significant additional benefit.  In fact, we are not aware of any problem that exists within the current program that this provision would solve.

§302(b) Additional Requirements

Applies Davis-Bacon requirements to the construction of treatment works.

This is a new requirement.  There is no equivalent in the current program.  However, this requirement did apply prior to 1995, though only for projects funded with funds made available directly by the cap grant

The Administration strongly objects to inclusion of this requirement in the program.

§303(a) Projects and Activities Eligible for Assistance

(9) for the development and implementation of watershed projects meeting the criteria set forth in §122

Currently, §603(c) allows assistance for (1) any municipality or intermunicipal, interstate, or state agency for construction of publicly owned treatment works, (2) for the implementation of a management program under §319, and (3) for development and implementation of a plan under §320.

While there are many new eligibilities in the bill, most of them are for projects that were already eligible under Title VI.  However, paragraph (7) may expand CWSRF eligibility to public water utilities.

§303(b) Extended Repayment Period

Amends §603(d)(1) by striking the 20-year limitation for loans and inserting “the lesser of 30 years or the design life.”

Title VI limits loans to 20 years.  However, under §603(d)(2), EPA policy allows the purchase of local debt with terms exceeding 20 years, limited to the design life.

This change would increase flexibility in the program and allow greater access by communities that cannot now borrow at 20 years.  The program would be more competitive with market loans.

Amends §603(d)(1) by conditioning all loans for treatment works proposed for repair, replacement, or expansion, to require the recipient to develop and implement a fiscal sustainability plan focusing on that portion of the treatment works

This is a new requirement.  There is no equivalent in the current program.

Fiscal sustainability plans (FSP), as well as other innovative and comprehensive management approaches can help improve efficiency at wastewater treatment works and reduce the overall cost of service.  However, requiring these plans and procedures as conditions for receiving assistance will damage the effectiveness of the CWSRF program by reducing loan pace and therefore reduce the amount of loan assistance provided.  Imposition of these requirements will result in significantly increased costs to borrowers thereby decreasing the attractiveness of borrowing from the CWSRF program relative to other alternatives.  The bond market does not require FSPs.  As defined FSPs bear no direct relation to projects being financed.  Without a de minimis provision, FSPs would be required for all types and sizes of projects ranging from septic tanks to lift stations, to bar screens to clarifiers to aeration basins to chlorinators to 1,000 feet of reinforced concrete pipe.

§303(d) Administrative Expenses

Amends §603(d)(7) by changing the calculation for the amount of funds allowed to be used for administration to 4% of all grant awards, $400,000 per year, or 1/5% per year of the current valuation of the fund, whichever is greatest, plus fees collected by the State.

Currently, paying for costs of administration is limited to 4% of all grant awards.

The importance of this provision is the ability of state programs to disengage the ability to administer the fund from the total cap grant award.  Size of the cap grant does not, for many states, have a direct relationship with workload on a year-to-year basis, particularly if a state is leveraged.  Additionally, should cap grants end, programs will still need to administer the program.

§303(e) Technical and Planning Assistance for Small Systems

Amends §603(d) by adding an additional type of assistance, to provide owners and operators of treatment works that serve a population of 10,000 or less with technical and planning assistance, etc., not to exceed 2% of the total grant awards.

This is a new requirement.  There is no equivalent in the current program.

Recent interviews with State CWSRF programs have indicated that the lack of funding for technical and planning assistance is often a hindrance for small communities looking to take advantage of the CWSRF program.  This new provision may open up CWSRF funding to more small communities.

§303(f) Additional Subsidization

The amount of additional subsidization is limited to 30% of the total grant awards.

This is a new requirement.  There is no equivalent in the current program.

This section would not allow additional subsidization for a private borrower.

§303(f) Additional Subsidization

Paragraph (4) adds a set-aside for additional subsidization.  In any fiscal year in which more than $1 billion is appropriated, each state must provide, to the extent there are sufficient applications, an amount equal to at least 25% of the amount equal to the difference between the amount that would have been allotted had the appropriation been $1 billion, and the amount actually allotted. 

This is a new requirement.  There is no equivalent in the current program.

Mandatory set asides undermine the flexibility of the CWSRF program, as we learned from the construction grants program.  Required grants pose a real risk of undermining long term sustainability of the fund.  States should have the option to use additional subsidization as they see fit.  Additionally, forcing funds through a mandatory set-aside to be used for disadvantaged communities will have the effect of bumping projects that may be low on a state’s priority list to a higher position in order to receive funding, thereby blocking funding for a project with potentially greater environmental benefits. 

§304 Allotment of Funds

Amends §604(b) by changing the set-aside for planning assistance from 1% to 2%.

Currently, all CWSRF appropriations are allotted in accordance with §205(c) of the CWA.

§305(a) Integrated Priority List

In determining which projects and activities will achieve the greatest degree of water quality improvement, the state shall consider §303(d) and §305(b), §303(e), §319 plans, and §320 plans.

Currently, states must develop a priority list for treatment works only, under §216.  A state may only fund treatment works project that are on this list, though not in priority order.  Nonpoint source and estuary projects are not listed on a priority list.  States are encouraged by EPA to develop integrated priority lists, though with broad discretion to determine how the list is developed.

States are in the best position to determine what gets funded and when.

§305(b) Intended Use Plan

Amends §606(c) by requiring intended use plans to include assurances on how the state will meet the requirement of §204(a)(6), §204(b)(1), §211, §218, §511(c)(1), and §513 (Davis-Bacon), in addition to those assurances that were already required.  Also would require an explanation to be published if projects or activities were not funded in priority order.

Currently, the intended use plan must include the list of projects developed under §216, and eligible activities under §319 and §320, a description of short-term and long-term goals, information on activities to be supported, assurances under §602(b), and the criteria and method established for distribution of funds.

Requiring an explanation of why a change in funding order was appropriate is needless and time consuming.  EPA can and does ask for this information when necessary.

§306 Annual Reports

Amends §606(d) to require in the states’ annual reports, the eligible purpose of the loan after listing the loan amount

Currently, only the loan amount is required, though the purpose is often listed as well. 

Assume this change is needed because of the expansion of the list of eligible categories of projects.

§307 Technical Assistance

Inserts a new section into title VI requiring EPA to assist states in establishing simplified procedures for treatment works to obtain assistance, to publish a manual to assist treatment works in obtaining assistance, and at the request of any state, to assist in developing criteria for a state to determine compliance with §602(b)(13) and §603(d)(1)(E).

These are new requirements.  There is no equivalent in the current program.

§308 Authorization of Appropriations

$5 billion for 2011