Drinking water infrastructure involves treatment  plants, distribution pipelines, and other equipment needed to take water  from natural sources, such as rivers, lakes, and groundwater aquifers,  treat it, and then provide it to households, businesses, and others for  drinking and other uses. The issue of how the federal government should help to finance the  nation’s water and wastewater infrastructure involves several  considerations. EPA’s Clean Water and Drinking Water State Revolving Funds Capitalize State- Managed Revolving Funds

EPA’s Clean Water and Drinking Water SRF programs are the largest  sources of federal assistance to states and local communities for funding  drinking water and wastewater infrastructure. EPA receives federal  appropriations that are then, in turn, granted to states to use in  conjunction with state funds to provide loans for improvements at  communities’ water and wastewater treatment systems. From  these federal and state funds, states then typically provide assistance in  the form of low- or no-interest loans to communities or utilities, repayment  of which replenishes the funds and provides the ability to fund future  loans for additional projects. Stakeholders Identified Issues to Consider in Designing a Clean Water Trust Fund, a National Bank for Wastewater Infrastructure, and Public-Private Partnerships

A variety of approaches have been discussed to pay for the nation’s  water and wastewater infrastructure needs. In May 2009 and June 2010,  we reported on the views of stakeholders, including individuals and  groups from the wastewater industry and federal, state, and local  governments with knowledge of water and wastewater infrastructure  issues, of what is needed to create three of these financing approaches. Clean Water Trust Fund

A clean water trust fund would provide a dedicated source of federal  funding for wastewater infrastructure, similar to federal trust funds such  as the Highway and Airport and Airways Trust Funds, which are used to  account for funds that are dedicated for spending on a specific purpose. Stakeholders concluded that a number of issues need to be addressed in  creating a clean water trust fund.administration and use of the trust fund, (2) the type of financial  assistance that should be provided for projects, and (3) the activities  eligible for funding. A majority of  stakeholders (15 of 20) expressed the view that a trust fund should be  administered through an EPA-state partnership like the current Clean  Water SRF program. Stakeholders had mixed views on how a trust fund should be used. A majority of stakeholders supported the  creation of a bank, but their views varied on its mission and administrative  structure. Stakeholders differed in their views of what projects to  fund through a national infrastructure bank but they agreed on how the  projects should be prioritized, such as whether a bank should be used  exclusively for large projects. Public-Private Partnerships for Wastewater Infrastructure

A third approach for financing wastewater infrastructure is to encourage  private investment in projects, including through public-private  partnerships at the municipal level. The challenge most often cited by municipal and company officials  was public and political opposition. Issues with Efficiently Financing Water Infrastructure

As the nation faces limited budgets and funding for federal programs, the  importance of targeting federal funds to communities with the greatest  need and spending funds efficiently increases. In October 2012, we reported on the three largest sources of federal  funding for rural water infrastructure and identified opportunities for these  programs to coordinate and lower the costs to communities applying for  funding from more than one program and agency. As we reported in March 2004, comprehensive  asset management is an approach that could give utilities the information  and analytical tools they need to manage existing assets more effectively   Using asset management concepts, utilities  and to plan for the future.and other organizations responsible for managing capital infrastructure  can minimize the total costs of designing, acquiring, operating,  maintaining, replacing and disposing of capital assets over their useful  lives. Our 2004 report recommended various actions that EPA could take to  promote asset management, and EPA has taken those actions, including  holding workshops for utilities and coordinating its ongoing initiatives. In  addition, in its SRF sustainability policy, EPA supports asset management  as an approach to increase the longevity of infrastructure.
Why GAO Did This Study

The nation faces costly upgrades to aging and deteriorating drinking water and wastewater infrastructure. Frequent and highly publicized incidents of combined sewer overflows into rivers and streams, as well as water main breaks in the nation's largest cities, are the most visible manifestations of this problem.
A variety of approaches have been proposed to help bridge the potential gap between projected infrastructure needs--estimated by EPA as almost $335 billion for drinking water infrastructure and $298 billion for wastewater infrastructure--and current funding. GAO has conducted recent work on three of these approaches. In addition, GAO's recent work has addressed rural water infrastructure funding and economic recovery, as well as utilities' use of asset management, an approach to planning for and managing infrastructure costs.
This testimony is based on a body of work from August 2002 through October 2012 and focuses on (1) EPA's Clean Water and Drinking Water State Revolving Fund programs; (2) stakeholders' views on creating a clean water trust fund, a national wastewater infrastructure bank, and public-private partnerships for wastewater infrastructure; and (3) issues in financing drinking water and wastewater infrastructure. GAO's testimony summarizes the results of issued reports.
GAO made recommendations in past reports to strengthen utilities' use of asset management and coordination of rural water infrastructure funding. EPA generally concurred with the recommendations, taking action on some and beginning action on others.

What GAO Found

The Environmental Protection Agency's (EPA) Clean Water and Drinking Water State Revolving Fund (SRF) programs are the largest sources of federal assistance to states and local communities for funding drinking water and wastewater infrastructure. In fiscal year 2012, EPA funded the Clean Water SRF program $1.5 billion and the Drinking Water SRF program $918 million from congressional appropriations. EPA grants capitalization funds to states, which in turn provide low- or no-interest loans to local communities or utilities to pay for water distribution pipelines, treatment plants, sewer lines, and other similar infrastructure.
GAO reviewed three of the approaches proposed to pay for the nation's drinking water and wastewater needs, each of which offers a different means to fund and finance projects. To understand these approaches as they apply to wastewater infrastructure, GAO surveyed stakeholders, including industry representatives and associations and federal, state, and local government officials. GAO's reports identified the following issues with each approach:
A clean water trust fund would provide a dedicated source of funding, such as an excise or other tax, for wastewater infrastructure. Stakeholders identified three main issues that would need to be addressed in setting one up: how a trust fund should be administered and used, what type of financial assistance should be provided, and what activities should be eligible to receive funding. A majority of stakeholders said that a trust fund should be administered through EPA in partnership with the states, but they differed in their views on how a trust fund should be used.
A national infrastructure bank would use public and/or private funds to finance infrastructure projects through a variety of loans, loan guarantees, and other mechanisms. A majority of stakeholders supported the creation of such a bank but also identified three issues that should be considered in designing a bank: mission and administrative structure, financing authorities, and project eligibility and prioritization.
Public-private partnerships encourage private investment in infrastructure projects. GAO identified seven municipalities that have entered into privately financed partnerships for wastewater infrastructure. Municipal and company officials identified advantages to these partnerships, such as having access to sources of financing other than traditional sources, but also identified challenges to using partnerships. Local opposition is one challenge, as is the complexity and difficulty of contracting involved.
GAO's work on asset management, among other things, highlights the importance of targeting federal funding to communities with the greatest need and spending funds efficiently. For example, in 2004, GAO identified opportunities for EPA to improve its promotion of asset management to utilities-- an approach that could give utilities the information and analytical tools they need to manage existing assets more effectively and to plan for the future. Since then, EPA has implemented GAO's recommendations on asset management by, among other things, holding workshops and coordinating initiatives to provide asset management information.