EPA Stimulus Sewer/Water Infrastructure Funds Flow Slowly

Members of Congress are raising concerns about the prospective failure of cities and counties to spend appropriated stimulus funds for wastewater and drinking water projects, a concern top Environmental Protection Agency (EPA) officials say is justified.

The clock is ticking with a deadline of Feb. 17, 2010, for localities to sign contracts for construction that involves the $4 billion and $2 billion in one time federal grants approved for the Clean Water and Drinking Water State Revolving Funds (SRFs) by the American Recovery and Reinvestment Act (ARRA), which Congress passed to much fanfare last February. The ARRA stimulus bill allocated the water funds to states based on a formula. The states then sent priority lists of potential projects to the EPA for approval.

At hearings on Nov. 4, Rep. Eddie Bernice Johnson (D TX), chairman of a key subcommittee, said the EPA “needed to take a greater role in Recovery Act expenditures.” The hearings focused only on the Clean Water SRF, over which the committee has jurisdiction. Statistics prepared for the hearing showed work has begun on 394 sewer stimulus projects in 36 States, totaling $872 million, representing 23 percent of the total available formula funds.

The ARRA funding is especially useful because it is in the form of grants to states that do not have to be repaid. The regular, annual SRF appropriations from Congress, on the other hand, are dispensed to the states as loans which must be repaid. Moreover, the ARRA specifies that the states must use at least 50 percent of the amount of its grants to subsidize eligible recipients in the form of forgiveness of principal, negative interest loans, or grants, or any combination of these. Just to take one example, when Illinois Governor Pat Quinn announced that state’s ARRA water projects on Oct. 29, many of them were financed by 20 year loans at no interest, with 25 percent of the principal forgiven. In Georgia, projects in areas with less than 50,000 people and a poverty rate of 10 percent or higher, get 20 year loans at 3 percent interest with 70 percent of the principal forgiven. Projects that don’t meet those criteria qualify for 40 percent loan forgiveness.

Congressional concern
With U.S. unemployment remaining stubbornly high and even increasing, members of Congress are starting to look askance at the EPA’s statistics, which, for the end of October, report that about 15 and 20 percent of the DW and CW ARRA funds respectively have been put under contract. Funds not under contract by Feb. 17 are lost. The EPA actually dispenses the water funds only after the contracts have been let, the work has been done and the city or town presents an invoice to the agency. It then makes the outlay. Therefore, not only are the number of “let contracts” small, the dollar outlays are smaller still. As of Oct. 20, for example, EPA outlays for all its stimulus programs totaled $264 million, just 3.7 percent of EPA’s $7.2 billion in ARRA funds, which besides the SRF grants, include grants for Superfund and other programs. At hearings in water resources and environment committee, Johnson noted, “Outlays are a lagging indicator.” However, of the CWSRF stimulus funds awarded to Texas (Johnson’s home state) based on the formula, only four percent were under contract by the end of October. For Arkansas, the percentage was zero.

Nancy Gelb, a top EPA official in charge of the stimulus sewer and drinking water funds, cited at the hearing progress the EPA has made in approving applications. But she didn’t shy away from admitting significant problems had hobbled the program. “I have concerns about the ability of some states to meet the Feb. 17 deadline,” she admitted. The National Governors Association has similar concerns. Its representatives met with Craig Hooks, Gelb’s boss and the EPA assistant administrator at the office of administration and resources management, to voice their concern with EPA’s failure to approve applications in a timely fashion. Hooks at about the same time sent an e mail to lead ARRA officials in every state offering assistance in overcoming whatever problems they were facing in getting stimulus funds committed to drinking water and sewer projects.

Gelb didn’t offer to take the blame for the small amount of construction projects which have gotten underway so far. She did admit that requirements in the ARRA, which pertain to water infrastructure projects, “did take a little bit of a learning curve.” She meant for applicants, not the EPA. The two ARRA provisions she was alluding to are the Davis Bacon Act and the Buy American requirement. The first requires cities and towns to pay union wages on any sewer or water project; the second prohibits use of foreign steel components and manufactured goods, unless the EPA issues an exemption, which it has done for nearly 25 projects.

Another possible reason for the slow letting of stimulus water construction contracts was advanced by Michael Gritzuk, director, Pima County (Arizona) regional wastewater reclamation department. He said states were doing everything they can today to quickly get stimulus funds to agencies like his. But he added, “It is critical that these efforts be guided by the goals of job creation and shovel readiness rather than just pre existing priority criteria or single indicators such as affordability and median household income.” Gritzuk was testifying on behalf of the National Association of Clean Water Agencies (NACWA). Susan Bruninga, director of public affairs for NACWA, explains the association did an informal survey of members a year prior to the stimulus bill being passed. That survey turned up $17 billion in shovel ready wastewater projects. Many of those apparently did not make it on to state “priority lists,” which the states sent to the EPA with prospective ARRA projects enumerated. Moreover, some states were anxious to spread their ARRA wastewater and drinking water funds around the state to as many communities as possible. As a result, some larger cities, with the largest projects and biggest job creation potential, got slighted. Bruninga says that St. Louis and Kansas City got very little funding out of Missouri’s clean water stimulus money, for example.

Green barrier

The EPA also had to face a third restriction of sorts, besides the Davis Bacon and Buy American provisions. There was the requirement that 20 percent of the $4 billion and $2 billion be devoted to “green” projects. Gelb told the House committee that so far only 14 states had met that requirement. “We fully expect the other states to meet it,” she added.

That “green” requirement may have stood in the way of towns getting either stimulus funds or even conventional, regular SRF funds for long delayed shovel ready wastewater projects. Pueblo, CO, had been waiting for a number of years to get CWSRF funding for a $22 million wastewater project. Gene Michael, director of wastewater in Pueblo, says Pueblo’s$22 million project was always an SRF project and never eligible for ARRA funding. “But we were in line to receive at least partial SRF funding in 2009, and lost that opportunity because SRF funds were siphoned off for projects that could show a green component,” he explains. “I’m told that without using that strategy, Colorado likely could not have met its 20 percent green reserve and might have had to give back some or most of the ARRA funds.”

In the end, Pueblo received $1.5 million to fund a solar photovoltaic array located at the Water Reclamation Facility. Michael notes that besides the $22 million project, the city also wanted to upgrade its chlorine disinfection system to UV radiation. The conversion would have made it possible to end the bulk storage of toxic gasses, improve safety for the public and eliminate the potential for a chlorine gas release. That high priority project was not funded either.”Limiting ARRA eligibility almost exclusively to solar or wind projects made the qualification process very difficult,” he states.

Rep. John Boozman (R AR), top Republican on the Johnson subcommittee, asked Gelb whether red tape was the reason local projects were moving to construction too slowly. Boozman had a particular reason for concern. His state, as of the end of October, had no construction contracts signed. Sara Lasure, Boozman’s spokeswoman, when queried, did some checking and reported back that Arkansas’s problems stemmed from the state’s painstaking writing of its applications. She said that when Arkansas reports its wastewater and drinking water statistics at the end of November, it will show considerable activity in terms of contracts let.

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