Wastewater Treatment: Overview and Background
Overview and Background
Specialist in Resources and Environmental Policy
Resources, Science, and Industry Division
The Clean Water Act prescribes performance levels to be attained by municipal
sewage treatment plants in order to prevent the discharge of harmful wastes into surface
waters. The act also provides financial assistance so that cities can construct treatment
facilities in compliance with the law. The availability of funding for this purpose
continues to be a major concern of cities and states. This report provides background
on municipal wastewater treatment issues, federal treatment requirements and funding,
and recent legislative activity. Meeting the nation’s wastewater infrastructure needs
efficiently and effectively is likely to remain an issue of considerable interest.
Waste discharges from municipal sewage treatment plants into rivers and streams,
lakes, and estuaries and coastal waters are a significant source of water quality problems
throughout the country. States report that municipal discharges are the second leading
source of water quality impairment in all of the nation’s waters. Pollutants associated
with municipal discharges include nutrients (which can stimulate growth of algae that
deplete dissolved oxygen, a process that harms aquatic ecosystems, since most fish and
other aquatic organisms “breathe” oxygen dissolved in the water column), bacteria and
other pathogens (which may impair drinking water supplies and recreation uses), and
metals and toxic chemicals from industrial and commercial activities and households.
The Clean Water Act (CWA) prescribes performance levels to be attained by
municipal sewage treatment plants in order to prevent the discharge of harmful quantities
of waste into surface waters, and to ensure that residual sewage sludge meets
environmental quality standards. It requires secondary treatment of sewage (equivalent
to removing 85% of raw wastes), or treatment more stringent than secondary where
needed to achieve water quality standards necessary for recreational and other uses of a
river, stream, or lake.
Federal Aid for Wastewater Treatment
In addition to prescribing municipal treatment requirements, the CWA authorizes the
principal federal program to aid wastewater treatment plant construction. Congress
established this program in the Federal Water Pollution Control Act Amendments of 1972
(P.L. 92-500), significantly enhancing what previously had been a modest grant program.
Since then, Congress has appropriated $76.5 billion to assist cities in complying with the
act and achieving the overall objectives of the act: restoring and maintaining the
chemical, physical, and biological integrity of the nation’s waters (see Table 1).
Title II of P.L. 92-500 authorized grants to states for wastewater treatment plant
construction under a program administered by the Environmental Protection Agency
(EPA). Federal funds are provided through annual appropriations under a state-by-state
allocation formula contained in the act; the formula (which has been modified several
times since 1972) is based on states’ financial needs for treatment plant construction and
population. States used their allotments to make grants to cities to build or upgrade
categories of wastewater treatment projects including treatment plants, related interceptor
sewers, correction of infiltration/inflow of sewer lines, and sewer rehabilitation.
Amendments enacted in 1987 (P.L. 100-4) initiated a new program to support State
Water Pollution Control Revolving Funds (SRFs). States continue to receive federal
grants, but now they provide a 20% match and use the combined funds to make loans to
communities. Monies used for construction are repaid to states to create a “revolving”
source of assistance for other communities. The SRF program replaced the previous Title
II program in FY1991. Federal contributions to SRFs were intended to assist a transition
to full state and local financing by FY1995; SRFs were to be sustained through repayment
of loans made from the fund after that date. The intention was that states would have
greater flexibility to set priorities and administer funding in exchange for an end to federal
aid after 1994, when the original CWA authorizations expired. However, although most
states believe that the SRF is working well today, early funding and administrative
problems, plus remaining funding needs (discussed below), delayed the anticipated shift
to full state responsibility. Congress has continued to appropriate funds to assist
wastewater construction activities, as shown in Table 1. (This table excludes
appropriations for congressionally earmarked water infrastructure grants in individual
communities, which totaled $7.0 billion from FY1989 through FY2008.)
Table 1. CWA Wastewater Treatment Funding
($ in millions)
1973-1984 46,180 40,544
1985-1989 12,000 10,747
1990-1994 8,400 9,869
Total: 66,580 78,292
Source: Budget of the United States Government, Appendix, various years.
How the SRF Works. The SRF program represents a major shift in how the
nation finances wastewater treatment needs. In contrast to the Title II construction grants
program, which provided grants directly to localities, SRFs are loan programs. States use
their SRFs to provide several types of loan assistance to communities, including project
construction loans made at or below market rates (interest-free loans are permitted),
refinancing of local debt obligations, and providing loan guarantees or purchasing
insurance. Loans are to be repaid to the SRF within 20 years, beginning within one year
after project completion, and the locality must dedicate a revenue stream (from user fees
or other sources) to repay the loan to the state.
States must agree to use SRF monies first to ensure that wastewater treatment
facilities are in compliance with deadlines, goals, and requirements of the act. After
meeting this “first use” requirement, states may also use the funds to support other types
of water quality programs specified in the law, such as those dealing with nonpoint source
pollution and protection of estuaries.
In addition, states must agree to ensure that communities meet a range of
specifications (such as requiring the applicant to study innovative and alternative
treatment technologies in project design and requiring that locally prevailing wages be
paid for wastewater treatment plant construction, pursuant to the Davis-Bacon Act).
States also must comply with “cross-cutting” requirements associated with receipt of
federal grants, such as promotion of equal employment opportunities and participation by
minority-owned businesses in construction projects. These requirements, which promote
a variety of national policy goals, also applied under the Title II program.
As under the previous Title II program, decisions on which projects will receive
assistance are made by states using a priority ranking system that typically considers the
severity of local water pollution problems, among other factors. Financial considerations
of the loan agreement (interest rate, repayment schedule, the recipient’s dedicated source
of repayment) are also evaluated by states under the SRF program.
All states have established the legal and procedural mechanisms to administer the
loan program and are eligible to receive SRF capitalization grants. Some with prior
experience using similar financing programs moved quickly, while others had difficulty
in making a transition from the previous grants program to one that requires greater
financial management expertise for all concerned. More than half of the states currently
leverage their funds by using federal capital grants and state matching funds as collateral
to borrow in the public bond market for purposes of increasing the pool of available funds
for project lending. Cumulatively since 1988, leveraged bonds have comprised 31% of
total SRF funds available for projects; loan repayments comprise 24%.
Small communities and states with large rural populations had the largest problems
with the SRF program. Many small towns did not participate in the previous grants
program and were more likely to require major projects to achieve compliance with the
law. Yet many have limited financial, technical, and legal resources and encountered
difficulties in qualifying for and repaying SRF loans. These communities often lack an
industrial tax base and thus face the prospect of very high per capita user fees to repay a
loan for the full capital cost of sewage treatment projects. Compared with larger cities,
many are unable to benefit from economies of scale which can affect project costs. Still,
small communities have been participating in the SRF program: since 1989, nationally,
63% of all loans and other assistance (comprising 23% of total funds loaned) have gone
to assist towns and cities with less than 10,000 population.
Other Federal Assistance. While the Clean Water Act is the principal federal
program of this type, some other assistance is available. (For additional information, see
CRS Report RL30478, Federally Supported Water Supply and Wastewater Treatment
Programs.) For example, the Department of Agriculture (USDA) operates grant and loan
programs for water supply and wastewater facilities in rural areas, defined as areas of not
more than 10,000 persons. FY2008 appropriations totaled $535 million, sufficient to
support more than $1.6 billion in program activity (counting both appropriations and
repaid loans). Two other programs are:
!The Community Development Block Grant (CDBG) program
administered by the Department of Housing and Urban Development
(HUD). FY2008 funds totaled $3.6 billion. Water and waste disposal
projects compete with many other funded public activities and are
estimated by HUD to account for less than 20% of CDBG obligations.
!The Economic Development Administration (EDA) of the Department
of Commerce. EDA provides project grants for construction of public
facilities, including but not limited to water and sewer systems, as part of
approved overall economic development programs in areas of lagging
economic growth. In FY2008, EDA’s public works and economic
development program was funded at $146 million.
How Localities Pay for Construction Costs. SRFs fund 10% to 20% of the
nation’s annual wastewater treatment capital investment. Cities, states, and other federal
programs provide the remainder. Local governments have primary responsibility for
wastewater treatment; they own and operate 16,000 treatment plants and 24,000 collection
systems nationwide. Construction of these facilities has historically been financed with
revenues from federal grants, state grants to supplement federal aid, and broad-based local
taxes (property tax, retail sales tax, or in some cases, local income tax). More recently,
cities and counties have turned to fees or charges levied on users of public services to
cover all or a portion of local capital costs.
Shifting the Clean Water Act aid program from categorical grants to the SRF loan
program had the practical effect of making localities ultimately responsible for 100% of
project costs, rather than less than 50% of costs. This has occurred concurrently with
other financing challenges, including the need to fund other environmental services, such
as drinking water and solid waste management; and increased operating costs (new
facilities with more complex treatment processes are more costly to operate). Options that
localities face, if intergovernmental aid is not available, include raising additional local
funds (through increased user fees, developer charges, general or dedicated taxes),
reallocating funds from other local programs, or failing to comply with federal standards.
Each option carries with it certain practical, legal, and political problems.
Water Quality Improvements. Over the past 35 years, the nation has made
considerable progress in controlling and reducing certain kinds of chemical pollution of
rivers, lakes, and streams, much of it because of investments in wastewater treatment.
Between 1968 and 1995, biological oxygen demand (BOD) pollutant loadings discharged
from sewage treatment plants declined by 45%, despite increased industrial activity and
a 35% growth in population. EPA and others argue that without continued infrastructure
improvements, future population growth will erode many of the CWA achievements made
to date in pollution reduction.
The total population served by sewage treatment plants that provide a minimum of
secondary treatment increased from 85 million in 1972 to 223 million in 2004,
representing 75% of the U.S. population. However, about 3.3 million people are served
by facilities that provide less than secondary treatment, which is the basic requirement of
federal law. About 69 million people are served by on-site septic systems and not by
centralized municipal treatment facilities.
Despite improvements, other water quality problems related to municipalities remain
to be addressed. A key concern is “wet weather” pollution: overflows from combined
sewers (from sewers that carry sanitary and industrial wastewater, groundwater
infiltration, and stormwater runoff which may discharge untreated wastes into streams)
and separate stormwater sewers (sewers that carry only sanitary waste). Untreated
discharges from these sewers, which typically occur during rainfall events, can cause
serious public health and environmental problems, yet costs to control wet weather
problems are high in many cases. In addition, toxic wastes discharged from industries
and households to sewage treatment plants cause water quality impairments, operational
upsets, and contamination of sewage sludge.
Remaining Needs. Although more than $78 billion in federal aid has been
provided since 1972, funding needs remain very high: an additional $221 billion
nationwide, according to the most recent Needs Survey estimate by EPA and the states,
published in January 2008. Needs for wastewater treatment and collection are $134
billion, or 61% of the total. In this survey, total needs increased 9% between 2000 and
2004, in part reflecting costs of improvements needed to meet increasingly stringent water
quality standards for treatment plants, as well as correction of storm sewer overflows, and
repair of aging infrastructure built decades ago. Needs for small communities represent
about 9% of the total. The largest needs in small communities are for improved
secondary treatment and new collector sewers. These estimates do not include potential
costs, largely unknown, to upgrade physical protection of wastewater facilities against
possible terrorist attacks that could threaten water infrastructure systems, an issue of great
interest since September 11, 2001.
In September 2002, EPA released a study called the Gap Analysis that assessed the
difference between current spending for wastewater infrastructure and total funding needs
(both capital and operation and maintenance). EPA estimated that, over the next two
decades, the United States needs to spend nearly $390 billion to replace existing
wastewater systems (including for some projects not eligible for CWA funding, such as
system replacement) and to build new ones. According to the Gap Analysis, if there is
no increase in investment, there will be about a $6 billion annual gap between current
capital expenditures for wastewater treatment and projected spending needs. The study
also estimated that, if wastewater spending increases by 3% annually, the gap would
shrink by nearly 90%. At issue has been what should the federal role be in assisting states
and cities, especially in view of such high projected funding needs.
Interest groups, including a coalition called the Water Infrastructure Network (WIN),
have offered proposals that have attracted some congressional interest for a new multi-
billion dollar investment program in wastewater and drinking water infrastructure through
a federal trust fund. At issue is these groups’ interest in developing new mechanisms to
help localities pay for water infrastructure projects, beyond federal grants or SRFs, which
appear insufficient to fully meet the nation’s funding needs. Legislation to establish such
a trust fund was introduced in the 109th Congress (H.R. 4560), but was not enacted.
Finding consensus on the revenues to support such a large spending increase is a
challenge that has eluded proponents so far. Bush Administration officials have said that
funding needs go beyond what the federal government can do on its own, and they
advocate a combination of strategies including utility management practices (improved
rate structures, system consolidation) and efficiencies (asset management to better
anticipate future needs).
Authorizations for SRF capitalization grants expired in FY1994, making this an issue
of congressional interest. (Appropriations have continued, as shown in Table 1.) In the
104th Congress, the House passed a comprehensive reauthorization bill (H.R. 961), which
included SRF provisions to address problems that have arisen since 1987, including
assistance for small and disadvantaged communities and expansion of projects and
activities eligible for SRF assistance. However, no legislation was enacted, because of
controversies over other parts of the bill.
One recent focus has been on projects needed to control wet weather waterth
pollution, overflows from combined and separate stormwater sewer systems. The 106
Congress passed a bill authorizing $1.5 billion of CWA grant funding for wet weather
sewerage projects (in P.L. 106-554). Authorization for these “wet weather” project grants
expired in FY2003 and has not been renewed. No funds were appropriated.
In three successive Congresses (the 107th, 108th, and 109th), House and Senate
committees approved bills to extend the act’s SRF program and increase funds to
capitalize SRF grants, but no legislation was enacted. The issue also received attentionth
in the 110 Congress, but again, no bill was enacted. In March 2007, the House passed
H.R. 720, a bill to reauthorize the clean water SRF program with $14 billion in funds
through FY2011. In September 2008, the Senate Environment and Public Works
Committee reported S. 3500, a bill authorizing $20 billion for grants to capitalize the
Clean Water Act SRF program. (See CRS Report RL33800, Water Quality Issues in the
110th Congress, for information.) Issues debated in connection with these bills include
extending SRF assistance to help states and cities meet the estimated $221 billion or more
in funding needs; modifying the program to assist small and economically disadvantaged
communities; and enhancing the SRF program to address a number of water quality
priorities beyond traditional treatment plant construction, particularly the management of
wet weather pollutant runoff from numerous sources, which is the leading cause of stream
and lake impairment nationally.
Meeting the nation’s wastewater infrastructure needs efficiently and effectively isth
likely to remain an issue of interest in the 111 Congress.