Water Pollution

By amending the Clean Water Act in 1987, Congress dramatically changed the federal role in financing wastewater treatment. Responsibility for financing more than $83.5 billion in wastewater treatment needs was shifted to the states and, in exchange, the federal government was authorized to provide $8.4 billion in capitalization grants for state revolving funds over 6 years. GAO concludes that although the state revolving fund program is structurally sound, several provisions of the 1987 amendments as well as administrative problems may impede the efficiency and effectiveness of its implementation. These include (1) statutory restrictions on using the funds to buy land on which to build wastewater treatment plants; (2) a shortage of Environmental Protection Agency staff with enough financial expertise to assist and oversee state programs effectively; and (3) a maximum loan term that, in many cases, can be shorter than the design life of the plant and equipment financed through the funds. GAO is concerned that the program will not generate enough funds to close the tremendous gap between wastewater treatment plant needs and available resources. States estimate that the funds will meet only a small percentage of their needs and will pose particular problems for small communities. Many small communities cannot repay loan assistance at any interest rate and cannot compete with larger communities for loans.

GAO found that although the SRF Program is structurally sound, a number of statutory provisions and administrative problems may impede efficient and effective implementation, including: (1) restrictions on using SRF to purchase land necessary for a wastewater treatment facility; (2) a lack of financial expertise in EPA regions to assist and oversee state programs; (3) limitations on using SRF to cover states' administrative costs; and (4) a maximum loan term that, in many cases, can be shorter than the estimated design life of SRF-financed plants and equipment. GAO also found that: (1) even if EPA made such statutory and administrative modifications, states could only expect to meet about 31 percent of the nation's wastewater treatment needs through SRF by 2001; (2) the overall percentage of treatment needs that the states will meet is actually much lower than 31 percent because EPA does not include many SRF-eligible needs in its survey; (3) because of limited SRF funds for meeting large investment needs, few states are using the funds to meet nonpoint-source pollution control and estuary protection needs; (4) some SRF statutory requirements increase costs disproportionately for small communities, making it more difficult for them to qualify for SRF assistance; and (5) provisions of the Tax Reform Act which limit the issuance of tax-exempt bonds and competition for limited resources significantly affect the ability of state and local governments to finance wastewater treatment plants.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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