Order Code 98-323 ENR
Updated February 7, 2005
CRS Report for Congress
Received through the CRS Web
Wastewater Treatment:
Overview and Background
Claudia Copeland
Specialist in Resources and Environmental Policy
Resources, Science, and Industry Division
Summary
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 congressional
interest. This report will be updated as developments warrant.
Introduction
Waste discharges from municipal sewage treatment plants 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
(rivers and streams, lakes, and estuaries and coastal waters). Pollutants associated with
municipal discharges include nutrients (which can stimulate growth of algae that deplete
dissolved oxygen which is essential for 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), as well as
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 and desired use of a river, stream, or lake.
Congressional Research Service ˜ The Library of Congress

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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, essentially in its current form, in the Federal Water Pollution
Control Act Amendments of 1972 (P.L. 92-500). Since then Congress has appropriated
$75.6 billion to assist cities in complying with the Act (see Table 1). These provisions
were intended to help achieve the overall objectives of the Act: restoring and maintaining
the chemical, physical, and biological integrity of the nation’s waters.
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 need 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 grants 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. This program, authorized in Title VI of the Act, entirely replaced the
previous Title II program in FY1991. Monies used for construction will be repaid to
states to create a “revolving” source of assistance for other communities. Federal
contributions to SRFs were intended to assist in making 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
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 does not include appropriations for congressionally
earmarked water infrastructure project grants in individual communities, which have
totaled $6.5 billion from FY1989 through FY2005.)
Table 1. CWA Wastewater Treatment Funding
($ in millions)
Fiscal Year
Authorizations
Appropriations
1973-84
46,180
40,544
1985-89
12,000
10,747
1990-94
8,400
9,869
1995-99
6,657
2000-04
6,724
2005
1,901
Total:
66,580
75,632
Source: Budget of the United States Government, Appendix, various years.

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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 a range of loan assistance to communities, including project
construction loans made at or below market rates (interest-free loans are permitted by the
Act), refinancing of local debt obligations, and providing loan guarantees or purchasing
of 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, 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
requirements (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). In addition,
states 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. 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 considers the severity
of local water pollution problems. Financial considerations of the loan agreement
(interest rate, repayment schedule, the recipient’s dedicated source of repayment) are
additional key factors evaluated 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. Nearly one-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. Leveraged bonds today comprise about 27% of total SRF funds; loan
repayments comprise about 10%.
Small communities and states with large rural populations have had the largest
problems with the SRF program. Many small towns did not participate in the previous
grants program and are more likely to require major projects to achieve compliance with
the law. Yet many have limited financial, technical, and legal resources and have
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,

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nationally, 62% 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.) 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. In recent years, approximately 65% of loan funds and 57% of grant funds
have been obligated to water projects, the remainder to waste disposal projects. FY2005
appropriations total $548 million, sufficient to support more than $1.4 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.
FY2005 funds total $4.1 billion. Water and waste disposal projects
compete with many other funded public activities and are estimated to
account for 10 to 20% of CDBG obligations.
! The Economic Development Administration (EDA) of the Department
of Commerce provides project grants for construction of public facilities,
including water and sewer systems, as part of approved overall economic
development programs in areas of lagging economic growth. In FY2005,
EDA’s public works and economic development program is funded at
$166 million.
How Localities Pay for Construction Costs. Local governments have
primary responsibility for wastewater treatment; they own and operate more than 17,000
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 has 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: 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. Between 1968 and 1995, biological oxygen demand (BOD )
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pollutant loadings discharged from sewage treatment plants declined by 45%, despite
increased industrial activity and a 35% growth in population.

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The total population served by sewage treatment plants that provide a minimum of
secondary treatment increased from 85 million in 1972 to 208 million in 2000,
representing 75% of the U.S. population. However, about 6.4 million people are served
by facilities that provide less than secondary treatment, which federal law generally
requires. About 60 million people are served by well functioning on-site septic systems
and do not need centralized municipal treatment.
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 $75 billion in federal aid has been
provided since 1972, funding needs remain very high: an additional $181 billion
nationwide, according to the most recent Needs Survey estimate by EPA and the states,
published in August 2003. Needs for wastewater treatment are $57 billion, or 32% of the
total. The estimated cost to control combined sewer overflows is $51 billion, and control
of storm sewer overflows is estimated to be $88.5 billion. Total needs increased 21%
between 1996 and 2000, 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 renewal of existing infrastructure. About $16 billion is
needed for projects in small communities. 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 assesses the
difference between current spending for wastewater infrastructure and total funding needs
(both capital and operation and maintenance). EPA estimates 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 gap between current annual
capital expenditures for wastewater treatment and projected spending needs. The study
also estimates 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.
Outside groups, including a coalition called the Water Infrastructure Network (WIN),
have offered proposals which have attracted some congressional interest that seek a multi-
billion dollar investment program in wastewater and drinking water infrastructure.
Finding the revenues to support such a large spending increase is an important part of the
debate. Bush Administration officials have said that infrastructure funding needs go

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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).
Recent Legislative Activity and Issues
Authorizations for SRF capitalization grants expired in FY1994, making it a likely
issue of congressional interest. 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.
In the 105th and 106th Congresses, committees held hearings on water infrastructure
and considered proposals to extend CWA assistance. One focus was on projects needed
to control wet weather water pollution, overflows from combined and separate stormwater
sewer systems. The 106th Congress enacted a bill authorizing $1.5 billion of CWA grant
funding for wet weather sewerage projects (included in the FY2001 Consolidated
Appropriations bill, P.L. 106-554). In the 107th Congress, House and Senate committees
approved bills to extend the Act’s SRF program through FY2007 (H.R. 3930, S. 1961).
Neither bill received further action, in large part due to controversies over application of
the Davis-Bacon Act, which requires that contractors, engaging in certain federal contract
construction, pay workers on such projects not less than the locally prevailing wage for
comparable work, and over the formula for allocating SRF grants among the states.
The SRF program again received legislative attention in the 108th Congress. In
October 2004, the Senate Environment and Public Works Committee reported S. 2550.
It would have authorized $41.25 billion over five years for wastewater and drinking water
infrastructure programs, including $20 billion for the clean water SRF program. The
reported bill included a new formula for state-by-state allocation of clean water SRF
grants, renewal of the sewer overflow grant program, and provisions such as extended
loan repayments and subsidies for disadvantaged communities. In July 2003, a House
Transportation and Infrastructure subcommittee approved H.R. 1560; it also would have
authorized $20 billion for clean water SRF grants for five years. It included several
provisions intended to benefit economically disadvantaged and small communities, such
as allowing extended loan repayments (30 years, rather than 20) and principal forgiveness
and negative interest loans for communities that meet a state’s affordability criteria. It
would have required communities to plan for capital replacement needs and to implement
an asset management plan for the repair and maintenance of infrastructure. Neither bill
received further action for reasons including controversies over the Davis-Bacon Act,
differences over funding allocation formulas, and Administration opposition to funding
levels in both measures.
Meeting the nation’s wastewater infrastructure needs efficiently and effectively is
likely to remain an issue of considerable congressional interest. Issues debated recently
are likely to recur. These include extending SRF assistance to help states and cities meet
the estimated $181 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 managing wet weather pollutant runoff, which is the leading
cause of stream and lake impairment nationally.

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