Federal Water Requirements
Challenges to Estimating the Cost Impact on Local Communities
Gao ID: GAO-06-151R November 30, 2005
Under the Safe Drinking Water Act and the Federal Water Pollution Control Act, commonly referred to as the Clean Water Act, the Environmental Protection Agency (EPA) has responsibility for protecting public health and welfare, as well as the integrity of our nation's waters. Federal water requirements under these acts affect facilities providing the most basic services at the local level, including drinking water treatment plants and distribution systems; wastewater treatment plants and collection systems; and storm sewer systems, which collect storm water, or the runoff created by rainfall and other types of wet weather. For example, depending on the circumstances, local communities may have to pay for installing new treatment technologies or taking other measures so that community-based or regional facilities can meet applicable water quality standards. Nationwide, there are roughly 53,000 community drinking water systems, 17,000 municipal wastewater treatment plants, and 7,000 communities served by municipal storm sewer collection systems that may be affected by federal water requirements. While recognizing the public health and environmental benefits of federal water requirements, communities are increasingly voicing concerns about the financial burden imposed by these requirements--in particular, the projected costs of more recent regulations and their cumulative costs over time. Over the years, EPA, water and community associations, and other parties have developed various estimates of some of the different costs related to ensuring clean water and safe drinking water. Additionally, the Unfunded Mandates Reform Act of 1995 requires EPA to prepare a written statement identifying the costs and benefits of federal mandates contained in certain regulations. However, the act does not require EPA to identify the cumulative costs and benefits of multiple regulations. As the Congress considers legislation to provide more resources to communities to address regulatory costs and aging water infrastructure, it is seeking a more complete understanding of the federal water requirements affecting local communities and the cumulative costs associated with implementing them. In this context, Congress asked us to determine the cumulative cost of federal water requirements. In conducting this work, we identified some major methodological challenges to developing complete and reliable cost information. This report summarizes the information provided Congress during our November 17, 2005, briefing and formally transmits the charts presented during that briefing. As requested, this report provides information on (1) key federal water requirements that local communities are subject to under the Safe Drinking Water Act and the Clean Water Act, (2) the extent to which existing studies provide information on the cumulative cost of such requirements to communities, and (3) the methodological challenges to developing reliable cumulative cost estimates attributable to federal water requirements.
The key requirements of the Safe Drinking Water Act and the Clean Water Act that communities must meet focus on limiting the exposure of customers to contaminants in water supplied by community drinking water systems and ensuring that communities prevent pollutants from sewage and diffuse sources, such as streets and construction sites, from reaching surrounding water bodies. Under the Safe Drinking Water Act, EPA currently regulates over 90 contaminants, such as arsenic and lead, and is developing regulations on several more. Other regulations require water systems to notify the public when contaminant levels exceed established limits and provide annual reports summarizing the results of all water quality testing. The Clean Water Act requires wastewater treatment plants to meet minimum technology-based effluent limitations. Plants also may need to implement additional, more stringent limitations, including those necessary to meet water quality standards. In addition, EPA requires municipalities to develop and implement management programs that help prevent pollutants in runoff from reaching surrounding bodies of water. In developing these plans, communities must adopt certain minimum practices, such as controls to reduce or eliminate pollution that collects on streets. While many parties, including EPA, various water and community associations, and private consulting firms, have developed cost estimates for different aspects of maintaining safe, clean water, these estimates have not provided information on the cumulative costs of complying with federal water requirements, primarily because they were not intended to do so. Some studies focus on developing a broad estimate of the costs of providing safe drinking water or clean water, but do not attempt to separate the costs associated with meeting regulatory requirements from other costs. In addition, many studies have a narrower scope, focusing on estimating costs for a subset of regulatory requirements and particular time periods, or estimate costs to different entities (e.g., states, private sector). Several methodological challenges hinder new efforts to develop reliable cumulative cost estimates, including obtaining accurate and complete cost data, particularly for older requirements; accurately allocating costs (e.g., among jurisdictions that share costs); and establishing a causal link between community investments and federal water requirements. Information on the cumulative cost of federal water requirements is critical in determining the nature and extent of the financial burden on local communities. However, given the methodological challenges of obtaining accurate and complete cost data, accurately allocating costs, and establishing a causal link between community investments and federal water requirements, researchers face formidable obstacles in developing a reliable cumulative cost estimate.
GAO-06-151R, Federal Water Requirements: Challenges to Estimating the Cost Impact on Local Communities
This is the accessible text file for GAO report number GAO-06-151R
entitled 'Federal Water Requirements: Challenges to Estimating the Cost
Impact on Local Communities' which was released on December 1, 2005.
This text file was formatted by the U.S. Government Accountability
Office (GAO) to be accessible to users with visual impairments, as part
of a longer term project to improve GAO products' accessibility. Every
attempt has been made to maintain the structural and data integrity of
the original printed product. Accessibility features, such as text
descriptions of tables, consecutively numbered footnotes placed at the
end of the file, and the text of agency comment letters, are provided
but may not exactly duplicate the presentation or format of the printed
version. The portable document format (PDF) file is an exact electronic
replica of the printed version. We welcome your feedback. Please E-mail
your comments regarding the contents or accessibility features of this
document to Webmaster@gao.gov.
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed
in its entirety without further permission from GAO. Because this work
may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this
material separately.
United States Government Accountability Office:
Washington, DC 20548:
November 30, 2005:
The Honorable James M. Inhofe:
Chairman, Committee on Environment and Public Works:
United States Senate:
The Honorable Mike Crapo:
United States Senate:
Subject: Federal Water Requirements: Challenges to Estimating the Cost
Impact on Local Communities:
Under the Safe Drinking Water Act and the Federal Water Pollution
Control Act, commonly referred to as the Clean Water Act, the
Environmental Protection Agency (EPA) has responsibility for protecting
public health and welfare, as well as the integrity of our nation's
waters. Federal water requirements under these acts affect facilities
providing the most basic services at the local level, including
drinking water treatment plants and distribution systems; wastewater
treatment plants and collection systems; and storm sewer systems, which
collect storm water, or the runoff created by rainfall and other types
of wet weather. For example, depending on the circumstances, local
communities may have to pay for installing new treatment technologies
or taking other measures so that community-based or regional facilities
can meet applicable water quality standards. Nationwide, there are
roughly 53,000 community drinking water systems,[Footnote 1] 17,000
municipal wastewater treatment plants, and 7,000 communities served by
municipal storm sewer collection systems[Footnote 2] that may be
affected by federal water requirements.
While recognizing the public health and environmental benefits of
federal water requirements, communities are increasingly voicing
concerns about the financial burden imposed by these requirements--in
particular, the projected costs of more recent regulations and their
cumulative costs over time. Over the years, EPA, water and community
associations, and other parties have developed various estimates of
some of the different costs related to ensuring clean water and safe
drinking water. Additionally, the Unfunded Mandates Reform Act of 1995
requires EPA to prepare a written statement identifying the costs and
benefits of federal mandates contained in certain regulations. However,
the act does not require EPA to identify the cumulative costs and
benefits of multiple regulations. As the Congress considers legislation
to provide more resources to communities to address regulatory costs
and aging water infrastructure, it is seeking a more complete
understanding of the federal water requirements affecting local
communities and the cumulative costs associated with implementing them.
In this context, you asked us to determine the cumulative cost of
federal water requirements. In conducting this work, we identified some
major methodological challenges to developing complete and reliable
cost information. We subsequently briefed your staffs on these
challenges. This report summarizes the information provided to your
staffs during our November 17, 2005, briefing and formally transmits
the charts presented during that briefing (see enc. I). As requested,
this report provides information on (1) key federal water requirements
that local communities are subject to under the Safe Drinking Water Act
and the Clean Water Act, (2) the extent to which existing studies
provide information on the cumulative cost of such requirements to
communities, and (3) the methodological challenges to developing
reliable cumulative cost estimates attributable to federal water
requirements.
To respond to the first objective, we identified key federal water
requirements and verified the accuracy and completeness of the list
with EPA. Under the Safe Drinking Water Act, we included key
regulations directed at local drinking water systems and excluded
regulations that focused on analytical methods or provided
clarification to existing requirements. For the Clean Water Act, we
included key regulations that typically affect local wastewater
treatment plants and municipalities with combined or separate storm
sewer systems and excluded regulations that are specific to particular
locations or involve technical clarifications. In addition, we met with
representatives from more than 10 associations representing water and
community interests to obtain their views on which requirements have
had, or will have, the most significant cost impacts on local
communities. In responding to the second objective, we conducted
Internet searches and held discussions with EPA, the Congressional
Budget Office, the Congressional Research Service, associations, and
others to identify studies that estimated some aspect of costs
associated with federal water requirements. Overall, we reviewed over
25 studies published between 1988 and 2005 and summarized their scope,
methodology, and findings. For the third objective, we conducted site
visits to four communities, which we selected on the basis of three
criteria: diversity in community size and level of complexity,
community willingness to participate, and diversity of geographic
location. During these site visits, we met with community and system
managers to determine what information was available to support
cumulative cost estimates, identify challenges to developing such
estimates, and obtain perspectives on the federal water requirements
that have had the most significant impact on their communities. We
supplemented this information with examples of methodological
challenges identified in existing cost studies and perspectives
gathered in interviews with EPA, associations, and others. We conducted
our review from February 2005 to October 2005 in accordance with
generally accepted government auditing standards.
Summary:
The key requirements of the Safe Drinking Water Act and the Clean Water
Act that communities must meet focus on limiting the exposure of
customers to contaminants in water supplied by community drinking water
systems and ensuring that communities prevent pollutants from sewage
and diffuse sources, such as streets and construction sites, from
reaching surrounding water bodies. (See enc. II for a list and brief
description of these federal water requirements.) Under the Safe
Drinking Water Act, EPA currently regulates over 90 contaminants, such
as arsenic and lead, and is developing regulations on several more.
Generally, as required by the Safe Drinking Water Act, EPA's
regulations establish a limit, or "maximum contaminant level," for
specific contaminants and require water systems to test the water
periodically to determine if the quality is acceptable. If contaminant
levels are too high, water systems must install new treatment
technologies or take other measures to address the problem, such as
finding a new water source. However, if it is not economically or
technically feasible to ascertain the level of a contaminant, EPA may
instead establish a treatment technique to prevent known or anticipated
health effects. Other regulations require water systems to notify the
public when contaminant levels exceed established limits and provide
annual reports summarizing the results of all water quality testing.
The Clean Water Act requires wastewater treatment plants to meet
minimum technology-based effluent limitations. Plants also may need to
implement additional, more stringent limitations, including those
necessary to meet water quality standards. In addition, EPA requires
municipalities to develop and implement management programs that help
prevent pollutants in runoff from reaching surrounding bodies of water.
In developing these plans, communities must adopt certain minimum
practices, such as controls to reduce or eliminate pollution that
collects on streets.
While many parties, including EPA, various water and community
associations, and private consulting firms, have developed cost
estimates for different aspects of maintaining safe, clean water, these
estimates have not provided information on the cumulative costs of
complying with federal water requirements, primarily because they were
not intended to do so. Some studies focus on developing a broad
estimate of the costs of providing safe drinking water or clean water,
but do not attempt to separate the costs associated with meeting
regulatory requirements from other costs. For example, EPA's 2000 Clean
Watersheds Needs Survey presents the cost of projects needed,
nationwide, to address water quality and public health problems,
which EPA estimated to be $181.2 billion.[Footnote 3] The study
includes the costs of adding capacity to accommodate population growth,
replacing aging infrastructure, and complying with requirements in its
estimates, among other costs, but it does not distinguish the portion
of the total costs that are associated with meeting federal water
requirements. In addition, many studies have a narrower scope, focusing
on estimating costs for a subset of regulatory requirements and
particular time periods, or estimate costs to different entities (e.g.,
states, private sector). For example, EPA's 2003 Drinking Water
Infrastructure Needs Survey and Assessment presents an estimate of
current and projected costs, for the time period of 2003 to 2022, for
drinking water infrastructure investment needs, which totals $276.8
billion.[Footnote 4] While EPA did distinguish the portion of the total
cost attributable to compliance with regulatory requirements ($45.1
billion),[Footnote 5] the estimates do not include expenditures prior
to 2003, and only cover regulations under the Safe Drinking Water Act.
(See enc. III for an abbreviated description of the studies we
reviewed.) Similarly, although EPA is required to develop cost
estimates for some individual regulations, by definition, these
estimates are narrow in scope. While the estimates provide a measure of
potential costs to comply with individual regulations, which EPA has
estimated may reach into the hundreds of millions of dollars for some
regulations,[Footnote 6] the estimates have been subject to criticism
for both overestimating and underestimating actual implementation
costs. Moreover, adding the projected costs of individual regulations
together to obtain an estimate of actual cumulative cost impacts to
communities would not provide a meaningful result because, among other
reasons, the regulatory estimates are prospective, the range of
uncertainty surrounding them is compounded as they are added together,
and, in any event, estimates do not exist for all relevant federal
water requirements.
Several methodological challenges hinder new efforts to develop
reliable cumulative cost estimates, including obtaining accurate and
complete cost data, particularly for older requirements; accurately
allocating costs (e.g., among jurisdictions that share costs); and
establishing a causal link between community investments and federal
water requirements. Therefore, any estimate of the cumulative costs of
federal water regulations should be viewed in light of the following
challenges and consequent data limitations.[Footnote 7]
* Local communities often lack the institutional knowledge or
historical records on the costs of treatment technologies or other
operational changes. As a result, local officials may not be able to
provide information on the costs associated with installing new
treatment technologies or making other operational changes, when such
changes occurred, or why they were made.
* Even when data on the costs of treatment technologies or other
operational changes are available, local officials often have trouble
allocating costs attributable to federal water requirements partly
because accounting systems generally track costs by project rather than
by federal requirement. Cost allocation is especially difficult when
costs are shared by multiple, overlapping jurisdictions or when
communities make system or program changes for multiple reasons, such
as installing a new treatment technology that both meets federal
requirements for safe drinking water and improves the water's aesthetic
quality.
* Establishing a causal link between community investments and federal
water requirements is also problematic in developing cost estimates.
First, in some instances, there is no good measure of what communities
would have done in the absence of federal water requirements that can
be used as a baseline in developing cost estimates. Second, some
investments are made in anticipation of potential federal requirements
rather than in response to finalized ones. Consequently, because of the
subjective judgments that would have to be made, it is difficult to
reliably determine how far in advance of a requirement an investment
can be made and still be attributed to that requirement. Third, because
some states or regional entities may exercise their authority to
establish requirements that are more stringent than the federal
standards, some community investments may include costs beyond those
fairly attributable to federal requirements. Identifying the federal
portion of the costs is often not feasible because the authority and
requirements of the multiple levels of government overlap.
Information on the cumulative cost of federal water requirements is
critical in determining the nature and extent of the financial burden
on local communities. However, given the methodological challenges of
obtaining accurate and complete cost data, accurately allocating costs,
and establishing a causal link between community investments and
federal water requirements, researchers face formidable obstacles in
developing a reliable cumulative cost estimate.
Agency Comments and Our Evaluation:
We requested comments on a draft of this report from the Administrator
of the EPA or his designee. On November 9, 2005, we obtained oral
comments from officials with EPA's Office of Water, including the
Director of the Office of Ground Water and Drinking Water, the Deputy
Director of the Municipal Support Division of the Office of Wastewater
Management, and the Associate Director of the Water Permits Division of
the Office of Wastewater Management. They generally agreed with our
findings and provided some technical comments, which we have
incorporated into this report where appropriate.
We are sending a copy of this report to EPA. Copies will be made
available to others upon request. This report will also be available at
no charge on GAO's Web site at http://www.gao.gov.
If you have any questions about this report or need additional
information, please contact me at (202) 512-3841 or by e-mail at
stephensonj@gao.gov. Contact points for our Offices of Congressional
Relations and Public Affairs may be found on the last page of this
report. Key contributors to this report include Ellen Crocker, Mark
Braza, Nancy Crothers, Laura Gatz, Alyssa Hundrup, Richard Johnson, and
Mehrzad Nadji.
Signed by:
John B. Stephenson:
Director, Natural Resources and Environment:
Enclosures - 3:
Enclosure I: Federal Water Requirements: Challenges to Estimating the
Cost Impact on Local Communities: A Briefing for Congressional
Requesters:
[See PDF for images]
[End of slide presentation]
[End of section]
Enclosure II: Key Federal Requirements Local Communities Are Subject to
under the Safe Water Drinking Act:
[See PDF for image]
[End of table]
Key Federal Requirements Local Communities Are Subject to under the
Clean Water Act:
[See PDF for image]
[End of table]
[End of section]
Enclosure III: Summary of Selected Cost Studies:
[See PDF for image]
[End of table]
[End of section]
FOOTNOTES
[1] There are also roughly 107,000 noncommunity water systems that may
be affected by federal drinking water requirements. About 19,000 of
these systems are located at facilities such as schools, factories, and
hospitals, which regularly serve at least 25 of the same people at
least 6 months per year. The remaining noncommunity water systems are
located at facilities, such as gas stations and campgrounds, which
serve transient populations.
[2] Some municipalities have separate collection systems for wastewater
and storm water, and some have combined collection systems. Both types
may be affected by federal requirements and are included in this
figure.
[3] The estimate includes current and projected abatement costs, in
2000 year dollars, for projects needed to address water quality or
public health problems eligible for funding under the Clean Water State
Revolving Fund. According to EPA, the quality of data informing the
estimate was affected by the variation in the level of effort states
put forth in reporting the cost data. We did not independently evaluate
the estimation methodology for any of the EPA estimates discussed in
this report, nor did we evaluate the validity or the reliability of the
survey and other data used to develop these estimates.
[4] The estimate includes costs, in 2003 year dollars, for projects to
protect public health, preserve the physical integrity of water
systems, convey treated water to homes and commercial and industrial
establishments, and ensure continued compliance with specific Safe
Drinking Water Act regulations. According to EPA, there is some
uncertainty in the estimates due to sampling error and the use of
statistical cost models and regulatory economic analyses.
[5] The estimate includes costs, in 2003 year dollars, for projects
directly attributable to specific Safe Drinking Water Act regulations.
According to EPA, there is some uncertainty in the estimates due to
sampling error and the use of statistical cost models and regulatory
economic analyses.
[6] Estimated costs for individual rules can vary widely, and in some
instances, reach into the hundreds of millions of dollars. For example,
EPA estimated that the Arsenic Rule would cost public water systems
between $190 million and $227 million annually (in 1999 year dollars,
annualized over 20 years using a commercial discount rate, which
approximates 5 percent).
[7] Two previous GAO reports, Regulatory Burden: Measurement Challenges
and Concerns Raised by Selected Companies, GAO/GGD-97-2 (Washington,
D.C.: November 18, 1996), and Unfunded Mandates: Views Vary About
Reform Act's Strengths, Weaknesses, and Options for Improvement, GAO-05-
454 (Washington, D.C.: March 31, 2005) presented similar limitations
and concerns regarding the accuracy and completeness of regulatory cost
estimates.
