ENVIRONMENTAL FINANCE CENTER AT THE UNIVERSITY OF NORTH CAROLINA AT CHAPEL HILL SCHOOL OF GOVERNMENT REPORT 1

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1 ENVIRONMENTAL FINANCE CENTER AT THE UNIVERSITY OF NORTH CAROLINA AT CHAPEL HILL SCHOOL OF GOVERNMENT REPORT 1 Utility of Existing National EPA Needs Surveys for the Assessment of Future Water and Wastewater Infrastructure Needs in North Carolina March 2017 Report to the North Carolina State Water Infrastructure Authority and the North Carolina Department of Environmental Quality Division of Water Infrastructure This report is a product of the Environmental Finance Center at the University of North Carolina, Chapel Hill School of Government. Findings, interpretations, and conclusions included in this report are those of the authors and do not necessarily reflect the views of the NC Department of Environmental Quality, the University of North Carolina, or the UNC School of Government. Report authors: Trey Talley, Jordan Paschal, Shadi Eskaf, and Jeff Hughes.

2 Executive Summary This report provides a summary and assessment of the methodologies employed by the Environmental Protection Agency (EPA) to conduct both the Drinking Water Infrastructure Needs Survey and Assessment (DWINSA) and the Clean Watersheds Needs Survey (CWNS). These surveys are required every four years and the State of North Carolina has been active in collecting and submitting the data to EPA. The goal is to identify the types of investment needs that are or are not captured by these surveys and to evaluate their contribution to the development of a comprehensive view of future water and wastewater infrastructure needs in North Carolina. Toward that end, the EFC has reviewed the data and methodologies associated with the most recent versions of the DWINSA and CWNS and determined that they systematically underestimate total future investment needs at both the national and state levels. In general, we find that this underestimation is driven by a number of methodological features, including: (1) the application of survey-specific project eligibility criteria; (2) the imposition of strict project documentation requirements; and, (3) a misalignment between the infrastructure planning timelines adopted by different stakeholders. We conclude that the EPA needs survey estimates, which are calculated for very specific purposes for the EPA, cannot be directly used by the State for the purpose of understanding the full needs of all water and wastewater systems in the state for statewide planning and to assess the levels of funding required to maintain and expand infrastructure.

3 Contents Executive Summary... 2 Acronyms... 2 Introduction... 1 Drinking Water Infrastructure Needs Survey & Assessment... 1 Overview... 1 Methodology... 2 Eligibility Criteria... 5 Documentation... 7 Clean Watersheds Needs Survey (CWNS)... 8 Overview... 8 Methodology... 9 Eligibility Criteria... 9 Documentation Survey Limitations in Assessing Total Infrastructure Needs in North Carolina Eligibility Criteria Documentation Timing Issues Other Limitations Summary of Findings Needs Reported by National Surveys Needs Not Reported by National Surveys... 13

4 Acronyms BMP CIP CSO CWA CWNS CWSRF DWI DWINSA DWSRF EFC EPA GWUDI POTWs SCADA SDWA SDWIS SRF SWIA Best Management Practice Capital Improvement Plan Combined Sewer Overflow Clean Water Act of 1972, and subsequently enacted amendments Clean Watersheds Needs Survey Clean Water State Revolving Fund Division of Water Infrastructure, North Carolina Department of Environmental Quality Drinking Water Infrastructure Needs Survey & Assessment Drinking Water State Revolving Fund, established by the Safe Drinking Water Act The Environmental Finance Center at the University of North Carolina, Chapel Hill Environmental Protection Agency Ground Water Under the Direct Influence of Surface Water Publicly Owned Treatment Works Supervisory Control and Data Acquisition system Safe Drinking Water Act Safe Drinking Water Information System State Revolving Fund State Water Infrastructure Authority

5 Introduction There are two national surveys designed to document capital needs for drinking water and wastewater systems across the United States: (1) Drinking Water Infrastructure Needs Survey & Assessment (DWINSA); and, (2) Clean Watersheds Needs Survey (CWNS). These surveys are both administered by the EPA on a recurring basis, but rely on different methodologies and inclusion criteria. This report provides a summary and analysis of each survey with the goal of assessing their utility for determining comprehensive true needs in the State of North Carolina. The first section describes the DWINSA and includes a brief overview of the survey along with a description of current methodology, eligibility criteria, and documentation requirements. The second section provides the same information for the CWNS. The third section examines the surveys limitations related to the assessment of true water and wastewater infrastructure needs in the State of North Carolina. The report concludes with a brief outline of the types of needs that are captured and are not captured by both national surveys. Drinking Water Infrastructure Needs Survey & Assessment Overview Under the 1996 Safe Drinking Water Act (SDWA), the EPA is required to conduct the DWINSA every four years in order to determine the 20-year infrastructure investment needs of all state- and triballyregulated water systems eligible to receive funding through the Drinking Water State Revolving Fund (DWSRF). The findings are used by Congress to allocate DWSRF capitalization grants such that states and regions demonstrating greater need are allotted a larger percentage of the total funding appropriated by Congress. The intent of both the DWINSA and the DWSRF is to help public water systems identify and finance improvements necessary to protect public health and ensure compliance with drinking water regulations. The most recent DWINSA report to Congress (2011) covers the infrastructure investment needs of approximately 52,000 community water systems and 21,400 not-for-profit non-community water systems nationwide. While more detail on methodology is provided in Table 1: Total National Need by System Size & Type System Size & Type Service Population Need (billions of 2011 dollars) Large Community Water Systems Over 100,000 persons $145.1 Medium Community Water Systems 3, ,000 persons $161.8 Small Community Water Systems < 3,300 Persons $64.5 Not-for-Profit Noncommunity Water Systems $4.6 Alaska Native Village Water Systems $0.6 American Indian Water Systems $2.7 Costs Associated with Proposed and Recently Promulgated Regulations $4.9 Total National Need $384.2 the next section of this report, it is worth noting that the estimates provided to Congress are derived through statistical sampling (n=3,165 in 2011) rather than a complete census. Through this approach, 1

6 the DWINSA produces a breakdown of needs estimates according to system size, ownership type, and infrastructure investment category. The DWINSA also has a separate category for costs associated with proposed and recently promulgated regulations. Table 1 provides the breakdown of national needs estimates by system size and type from the 2011 report to Congress. The DWINSA divides capital projects into five categories based on the kind of need they are intended to address. In general, these categories cover DWSRF-eligible investments related to the installation of new infrastructure and the rehabilitation, expansion, or replacement of existing infrastructure. The categories used in the most recent DWINSA are: 1) Distribution & Transmission. Projects in this category include replacing or refurbishing deteriorating pipes, installing new pipes to prevent stagnation, extending service to existing homes, installing/upgrading pumping stations, and replacing appurtenances. 2) Treatment. Treatment projects include the construction, expansion, and/or rehabilitation of infrastructure to reduce contamination, as well as improved treatment for secondary contaminants and the installation of systems to control coagulation, flocculation, sedimentation, filtration, and/or disinfection. 3) Storage. Storage projects may be to construct, rehabilitate, or cover finished water storage tanks, but cannot be related to dams and/or raw water reservoirs. 4) Source. The source category includes needs for the construction or rehabilitation of surface water intake structures, drilled wells, and spring collectors to address supply deficiencies for existing customers. 5) Other. This category includes needs related to installing system-wide telemetry equipment, supervisory control and data acquisition (SCADA) systems, and water security projects/measures not included in other categories. The DWINSA s investment needs estimates are intended to be comprehensive, and therefore incorporate expenses related to all phases of a project from engineering and design to final inspection. The DWINSA, however, does not include costs associated with DWSRF-ineligible needs such as dams, raw water reservoirs, or projects related primarily to population growth. This means that the estimates provided by the DWINSA do not provide a full view of all 20-year drinking water infrastructure investment needs at either the state or national level. The next DWINSA report to Congress is due in 2017 and will be based on data collected from participating states in Methodology The drinking water infrastructure needs for the states and country are estimated using a stratified statistical sampling methodology, combined with a census of the largest water system needs. In this context, stratified sampling means dividing the population of water systems into separate groups (i.e., strata) based on specific characteristics, such that the water systems within each stratum are similar to the other systems in their group. With each stratum, a random sample of water systems is selected and their average needs data are assumed to be representative of all of the water systems in that stratum. This approach of sampling water systems within strata not only saves time and money compared to 2

7 Medium Large conducting a census of all water systems in the country, but also offers certain advantages over simpler random sampling techniques. Most notably, stratified sampling allows researchers to ensure that an adequate number of water systems of each size and type are included in the survey sample. This improves the reliability of both the national and state needs estimates, and the needs estimates reported for each stratum. The DWINSA uses two sets of criteria to divide water systems into 12 strata: (1) the service population; and, (2) the water source type. Both characteristics are identified for every water system in the Safe Drinking Water Information System (SDWIS) and is reviewed by state representatives. The water source for each system is categorized as either surface water or ground water. A system is classified as surface water if it has at least one water source that is surface water or ground water under the direct influence of surface water (GWUDI). If a system does not have a surface water or GWUDI source, then it is classified as ground water. Systems that purchase treated water are also included in the ground water category because their needs were determined to more closely resemble those of ground water systems (since the purchased water is already filtered and only requires further disinfection). Since the needs of the largest water Table 2: DWINSA 2015 Strata systems are so large and unique, the Population DWINSA samples every water system > 100,000 with a service population above 100,000 and gives it a weight equal to 50, , This means that each large water 25,001 - system only represents its own needs in 50,000 or the survey, and the DWINSA essentially 10,001-50,000 10,001 - creates a census of needs of these large 25,000 water systems. For water systems 3,301-10,000 serving between 3,301 and 100,000 people, random sampling occurs within the different strata as shown in Table 2. Surface Water Ground Water Census - All systems receive questionnaire State-specific samples for participating states Wholesale water systems are classified based on the customer base of their own system plus the customer base of the systems to which they sell water. For example, a wholesale system that has 1,000 retails customers and sells water to a water system with 50,000 customers would be classified as having 51,000 customers. For water systems with a service population between 3,301 and 100,000, the survey uses 10 possible strata. This total includes the possible combination of systems serving 10,001-50,000 people into one stratum in states where such an approach is sufficient to achieve precision targets. Within each stratum, the sampled systems are assigned a weight that is equal to the total population in that stratum divided by the sample size of the stratum. For example, if the 3,301-10,000 stratum has 100 total systems in it, and the DWINSA takes a sample of 30 in that stratum, a sampled system that serves 4,500 people with needs equal to $10 million would have a weight of 100/30=3.33 (i.e. that one system represents 3.33 water systems in that stratum). That system s $10 million needs estimate is then multiplied by the 3

8 weight to estimate a total of $33.3 million for the 3.33 water systems it represents in its stratum. The total need for each stratum is estimated by aggregating the weighted needs for each system in the sample. Each stratum is sampled so that the EPA can be 95 percent confident that the true needs of the water systems in that stratum is within plus or minus 10 percent of the estimated need. The total national need is also estimated with a 95 percent confidence level for a confidence interval of plus or minus 10 percent confidence interval. Each time the DWINSA is administered, the consultant alters the sampling frame for water systems with service populations between 3,301 and 100,000. Seventy-five percent of the sample is drawn from a sampling frame (i.e. list of systems from which to sample) that is the same survey after survey. Although these water systems are randomly selected, many of the same systems are included each time that the survey is conducted. This approach fosters consistency and allows for continuity and comparability between surveys, but must be supplemented in order to account for change over time. Toward that end, the consultant sets aside 25 percent of the sample for new water systems, water systems that have moved between strata, and water systems that were unselected in the last survey. This ensures that the DWINSA is responsive to changes in the field and not sampling from the same list of systems every four years. For the 2011 DWINSA (and the 2015 version), the EPA did not collect new data on the needs of small systems serving up to 3,300 people, not-for-profit non-community systems, American Indian water systems, or Alaska Native Village water systems. Instead, for systems that serve up to 3,300 people, the DWINSA used data already collected from a nationally representative sample of small systems developed for the 2007 DWINSA. For each state, the researchers took the average need of small systems in the 2007 survey and multiplied it by the number of small systems recorded in SDWIS at the time of the survey. They then adjusted these figures to present dollars to account for inflation. Not-for-profit non-community systems needs were estimated by taking the needs found in the 1999 DWINSA data and adjusting them to present dollars. The tribal systems needs were determined in 2011, and re-used in the 2015 DWINSA after adjusting to present dollars. Many of the states that received the minimum 1 percent allotment of DWSRF funds guaranteed by law chose not to participate in the state-specific statistical portion of DWINSA. For these non-participating states, all of the needs for water systems with service populations above 100,000 are reported, but the needs for medium-sized systems (3, ,000) are estimated based on data from participating states and the inventory of water systems in each state. Since this method fails to meet DWINSA s data quality requirements, the needs of non-participating states are included in the EPA s estimate of total national need, but are not reported individually by state. The State of North Carolina participated in all of the DWINSAs over the years and conducted its own sampling of medium sized systems in the state. 4

9 Viewed in combination with the other estimation methods discussed above, this means that the total national need is calculated by the following equation: National Need = Census of Needs of all Water Systems Serving More than 100,000 People + Sum of Weighted Totals of all Medium Water Systems in Participating State + Sum of Approximated Totals of Medium Water Systems in Nonparticipating States + Small Water Systems Needs (adjusted and inflated from 2007) + NotForProfit Noncommunity Water Systems Needs (adjusted and inflated from 1999) + American Indian & Alaskan Native Village System Needs (inflated from 2011) + Cost of proposed or recently promulgated regulations (added separately by EPA) Eligibility Criteria The DWINSA is intended to assess water systems capital improvement needs related to projects that: (1) are eligible for SRF funding; (2) promote the public health goals of the SDWA; and, (3) will occur within the 20-year period beginning January 1 st of the survey year. For example, for the 2015 DWINSA, individual capital projects had to begin, or planned to begin, between January 1, 2015 and December 31, 2034 to have its needs considered eligible for the survey. Allowable projects those which may be included in the survey must be designed to enable a water system to continue providing existing customers with safe drinking water. Such projects might include the construction of new or expanded/upgraded infrastructure, and/or the replacement/rehabilitation of existing undersized or deteriorated infrastructure. Eligibility for SRF funding is necessary but not sufficient to qualify a project for inclusion in DWINSA s needs calculations. Instead, a project may be excluded from DWINSA if it falls into any of the following categories defined by the EPA: (1) Projects not eligible for SRF funding; (2) Projects not for capital needs; (3) Projects not in furtherance of public health goals of SDWA; and, (4) Other unallowable project types. These categories are outlined in Table 3 below. Projects that are ineligible for SRF funding are excluded because the purpose of DWINSA is to inform the allocation of federal DWSRF capitalization grants. Infrastructure intended to accommodate or encourage new growth/development is excluded because it is considered unrelated to the provision of safe drinking water to existing customers. Projects that address fire protection or source water protection needs are also excluded. Fire protection needs do not qualify because they are considered unrelated to public health, while source water protection needs are funded through SRF set-asides. The only condition under which fire protection needs may be included in DWINSA is if they are addressed as part of a project that meets multiple needs. For example, if a water system needs a new storage tank to meet minimum required pressure, then the project can be included even if the storage tank will also provide fire suppression. Raw water reservoir and/or dam-related needs are excluded because these projects are ineligible for DWSRF funding. 5

10 Table 3: Unallowable Project Categories Category Projects not eligible for SRF Funding Projects not for capital needs Projects not in furtherance of public health goals of SDWA Other unallowable project types Unallowable Project Types Projects substantially to accommodate future growth Projects substantially driven by fire protection needs Projects for source water protection Raw water reservoir or dam-related need Operation & maintenance costs Projects solely for conducting studies Water rights or fee payments Computer software for routine operations Employee wages & salaries & other administrative costs Sample collection or analysis fees Projects solely for improving appearances Infrastructure demolition Buildings & parking facilities not essential to providing safe drinking water Acquisition of land not required for an allowable project Projects to connect existing homes that currently have an adequate drinking water supply Projects for which construction has begun by January 1, 2015 Recurring infrastrcuture needs within the 20-year survey period Multiple projects meeting the same need Projects for compliance with proposed or recently promulgated regulations Projects driven solely by a non-water-related issue Acquisition of existing infrastructure Acquisition of most vehicles & tools Projects that are not the responsibility of the public water system Since DWINSA is intended to only cover needs for capital improvement projects, projects that are not for a specific, tangible capital infrastructure need are also excluded from needs estimates. These projects not for capital needs include some types of expenses that are essential to the effective management of a water system. For example, operating and maintenance expenses represent a significant cost center for water systems, but they are mostly considered unallowable by DWINSA. One exception is for painting water storage tanks and projects to remove lead-based paints. Other important expenses that are excluded as non-capital needs include employee salaries, sample collection, internal studies, and the acquisition of computer software for routine operations. Computer software purchases are only allowable as part of a project for a new SCADA system. DWINSA also excludes costs for projects that are not considered to be in furtherance of the public health goals of the SDWA. This includes aesthetic upgrades like landscaping or remodeling, as well as certain facility expansion projects like the construction of parking or garage structures solely for the use of employees or the public. Costs related to new buildings and building improvements are only allowable when they are necessary to provide safe drinking water. A similar exception applies to land acquisition and infrastructure demolition projects, as these costs may only be included if they are an integral component of another allowable project. For example, demolition costs might be included for a project that involves tearing down an old storage tank in order to accommodate construction of a new tank at 6

11 the same site. DWINSA may deduct costs that qualify for exclusion under these criteria from a project s total cost estimate if the rest of the project is allowable. Other limitations include the requirement that a project cannot be recurring. For example, a system cannot list rehabilitation projects that extend the life of an asset more than once in a 20-year period. Moreover, if a system rehabilitates an asset, then it is prohibited from listing the replacement of that asset in the same survey. A system is also prohibited from listing rehabilitation projects for new assets. Multiple systems may not claim the same shared project and the EPA will subtract costs for unallowable portions of projects addressing multiple concerns. For instance, if a community is planning concurrent water and wastewater upgrades, costs that are shared by both projects (e.g. mobilization) are adjusted so that only the portion associated with the water project is included. Finally, DWINSA excludes interest payments and loan origination fees, and the EPA will replace submitted needs with cost-model-based estimates if these expenses cannot be easily identified and deducted. These eligibility criteria restrict the inclusion of drinking water needs in DWINSA only to a subset of needs that specifically address the purpose of the survey assessment. Thus, by design, DWINSA is not a comprehensive assessment of all true needs of drinking water infrastructure costs for the next 20 years, but focuses only on what is eligible for funding by the DWSRF. Documentation Water systems that report a capital need must provide supporting documentation to justify its inclusion in DWINSA s needs estimates. Simply stated, each project must be accompanied by documentation of need and adequate information to assign a cost estimate. This approach both improves the credibility of EPA s report to Congress, and helps ensure a fair allocation of the state, American Indian, and Alaska Native Village total needs. The two categories of acceptable documentation are: (1) Independent; and, (2) Survey-generated. Independent documentation is generated through a process other than DWINSA and could include a Master Plan, Capital Improvement Plan (CIP), or Facilities Plan. Such documentation may be used to justify the need and/or cost of a given project. Survey-generated documentation is written documentation that is prepared specifically for DWINSA by the water system or state representative. This type of documentation is based on the best professional judgment of the person completing the survey questionnaire, and may be informed by interviews or the representative s general knowledge of the water system. Survey-generated documentation may only be used to justify the need for a project, as survey-generated cost estimates are not permitted. A water system may submit a combination of independent and survey-generated documentation to justify the need and costs for a single project. For example, a CIP could be submitted to provide systemspecific and project-specific information and costs, but it might not include an adequate description of why the project is needed to provide safe drinking water. In this case, the system would submit both the CIP-based information, and a separate, survey-generated documentation of need. DWINSA requires 7

12 documentation of need to: (1) Provide sufficient information for EPA to review the allowability of the project; (2) Provide adequate data to check the accuracy of the data entered on the questionnaire; and, (3) Be dated and be less than four years old. The level of documentation required to demonstrate need differs depending on the type of need and whether the project is for new infrastructure, replacement of existing infrastructure, expansion/upgrade of an existing complete plant, or rehabilitation of existing infrastructure. For example, certain projects that must meet the weight of evidence documentation requirements are only accepted if the water system submits independent documentation. Documentation of all other projects may also include independent reports, but their inclusion is not explicitly required by DWINSA. Project-level costs are primarily assigned through either the provision of an independent cost estimate or through the use of EPA cost curves based on the project parameters submitted by the water system. Independent cost estimates must include all aspects of the project including design, engineering, labor, materials, and contingencies, and may not be survey-generated. They must also be dated and exclude or enable EPA to deduct the relevant types of unallowable costs discussed above. If a cost estimate is provided in the form of an expected range, then the EPA will select and include the lower end estimate. Clean Watersheds Needs Survey (CWNS) Overview The EPA is required to conduct the CWNS every four years in order to estimate the total amount of capital investment necessary for the nation s publicly owned treatment works (POTWs) to meet the water quality objectives of the Clean Water Act (CWA). The total needs it reports cover capital investments for up to a 20-year period and are largely based on state and local planning documents. These planning documents often take the form of CIPs, and typically only include shorter-term projects (around 3-5 years) that fit within local budgetary constraints. This approach has the advantage of relating needs estimates to projects with a higher likelihood of completion, but contributes to a significant underestimation of longer-term needs. Unlike the DWINSA, the CWNS findings do not impact appropriations for the Clean Water State Revolving Fund (CWSRF). The most recent CWNS report to Congress is based on data collected in 2012 on more than 27,000 wastewater facilities and water quality projects nationwide. In order to be included, these facilities and projects had to address water quality or water quality-related public health problems that either already existed at the beginning of 2012, or were expected to arise in the next 20 years. Individual projects were also required to be supported by documentation that meets the strict criteria developed by the CWNS 2012 National Workgroup. For the 2012 CWNS report to Congress, the EPA divided total state and national needs into seven categories according to project type. Each category includes projects designed to address needs related to either wastewater treatment and collection, or wet-weather water management. The official CWNS needs categories are: 8

13 I. Secondary Wastewater Treatment. This category includes projects necessary to meet the minimum level of treatment that must be maintained by all treatment facilities. II. Advanced Wastewater Treatment. The projects in this category are necessary to attain a higher level of treatment or produce a significant reduction in nonconventional or toxic pollutants in the water treated by a facility. III. Conveyance System Repair. Projects in this category are classified as either: (A) Inflow/infiltration correction; or, (B) Sewer replacement/rehabilitation. IV. New Conveyance Systems. This category includes two subcategories: (A) New collector sewers and appurtenances; and, (B) New interceptor sewers and appurtenances. V. Combined Sewer Overflow (CSO) Correction. CSO correction projects are listed as either: (A) Traditional infrastructure; or, (B) Green infrastructure. Needs and costs associated with flood control or drainage improvement, or the treatment or control of stormwater in separate storm systems are not included. VI. Stormwater Management Program. Stormwater management programs are separated into four subcategories: (A) Stormwater conveyance infrastructure; (B) Stormwater treatment systems; (C) Green infrastructure; and (D) General stormwater management. X. Recycled Water Distribution. This category covers needs and costs related to the conveyance of recycled wastewater, including associated rehabilitation/replacement needs. The needs and costs arising from additional processes related to the treatment of recycled water are reported in Category II. Methodology The needs reported by the CWNS are based on data collected through a collaborative effort among the States, the District of Columbia, U.S. Territories, and the EPA. Unlike the DWINSA, the CWNS is prepared using a census survey method. This means that the CWNS does not utilize an intentional sampling strategy, but instead seeks to capture data on relevant needs from all of the nation s POTWs. This approach is pursued through the use of a centralized data entry portal that allows states to submit detailed information about each POTW within their jurisdiction. Data submitted through the portal includes facility descriptions, funding needs, locations, levels of treatment, and service populations. Eligibility Criteria CWNS needs figures represent the unfunded capital costs of treatment works projects that address a water quality or water quality-related public health problem that either already existed at the beginning of 2012, or was expected to arise in the next 20 years. In order to be included in either state or national totals, individual projects had to be supported by documentation that provided: (1) a description and location of a water quality or water quality-related public health problem; (2) a site-specific solution to the problem; and, (3) detailed cost information to implement the solution. 9

14 It is important to note that certain water quality or water quality-related public health needs are excluded from the CWNS. Costs that are not covered by the CWNS include: Known water quality projects that do not yet have documented solutions or cost estimates; Projects for which unofficial cost estimates approximate needs without acceptable documentation; Privately owned wastewater facilities or those that serve privately owned industrial facilities, military installations, national parks, or other federal facilities; Operation and maintenance projects; Nonpoint source pollution control projects; Projects on tribal lands and Alaskan Native Villages; and, Projects in South Carolina, American Samoa, and the Northern Mariana Islands, which did not participate in the 2012 CWNS. Some of these costs are excluded from CWNS needs estimates because they are related to projects that did not meet documentation criteria, while others simply fall outside of the intended purview of the survey. For example, projects on tribal lands and Alaskan Native Villages are excluded because they are captured by a separate survey conducted by the Indian Health Service. Nonpoint source pollution control projects were previously included as Category VII and reported in an appendix to EPA s report to Congress, but they are not included in the 2012 report. Documentation The 2012 CWNS applied rigorous documentation requirements for both the demonstration of need and the estimation of costs for each submitted project. These requirements were based on seven criteria established in consultation with the CWNS 2012 National Workgroup. For the 2012 survey, all projects were required to submit: 1) A description of the current or potential water quality impairment and information on its potential source. The problem description needed to include specific pollutant source information and/or specific threats to the waterbody. A general statement about water quality impairment or threat did not meet this criterion. 2) The location of the problem had to be identified as a single latitude/longitude point, a polygon, or a county, watershed, or town. 3) The solution to the problem. One or more specific pollution control measures or best management practices (BMPs) needed to be identified. 4) The cost for each solution. The cost to implement each pollution control measure or specified BMP had to be provided. General estimates for the problem area were not permitted; only sitespecific data were acceptable to generate costs. 5) The source of the cost. Documentation (e.g., engineer s estimates, costs from comparable practices, estimates from equipment suppliers) of costs for each solution needed to be identified. 10

15 6) The total cost. The total cost of all pollution control measures and BMPs documented for the facility or project had to be provided. 7) Current documentation. For records with total needs greater than $30 million (January 2012 dollar base), the documentation date of all documents needed to be January 1, 2006, or more current. For all other needs, the documentation date had to be January 1, 2003, or more current. In order to ensure quality and consistency from state to state, the CWNS identified a list of 47 preapproved document types for estimating needs and costs. A full list is available on the CWNS website, but the most prevalent document types are CIPs, Facility Plans, Intended Use Plans, and CSO Long-Term Control Plans. Collectively, these four document types were submitted as support for over $190 billion in project costs, representing slightly more than 70 percent of the 2012 CWNS total reported need. States were permitted to develop and submit documentation outside of the 47 pre-approved types as long as it was determined to meet the seven criteria listed above. If the documentation did not contain adequate cost estimates, then cost curves were available for use within the data entry portal. In order to account for the resource constraints that often affect small communities, the EPA developed additional documentation options for systems serving fewer than 10,000 people. Under this approach, eligible communities were able to submit a simplified survey form signed by suitable local and/or State officials that included a description of the proposed project, an explanation of why it is necessary, and (if available) an estimate of needs. Initially implemented for the 2008 CWNS, this streamlined process is intended to help counteract a previously recognized underestimation of needs for small communities. Survey Limitations in Assessing Total Infrastructure Needs in North Carolina Neither the DWINSA nor the CWNS provides a comprehensive view of the total 20-year infrastructure investment needs in the State of North Carolina. The gap between the State s true needs and the needs reported by these surveys is driven by: (1) the application of survey-specific project eligibility criteria; (2) the imposition of strict project documentation requirements; and, (3) a misalignment between the infrastructure planning timelines adopted by different stakeholders. The survey estimates are also affected by inconsistent participation and inherent uncertainties about the condition of certain assets at the system level. Taken together, these factors lead to a significant underestimation of total 20-year infrastructure investment needs that the EFC estimates to be between $2.9 and $10.8 billion below true needs in 2015, as shown in Report 2. Eligibility Criteria The eligibility criteria applied by the national needs surveys exclude multiple types of projects from final estimates. Some of these projects may, however, still be necessary to ensure the provision of adequate service going forward. For example, both the DWINSA and the CWNS exclude needs related to community growth. Since North Carolina is one of the most quickly growing States in the nation, excluding these needs contributes to an underestimation of required future infrastructure investment levels. Other ineligible needs include those related to fire protection, source water protection, and nonpoint source pollution. Again, it is likely that multiple systems in the State will face needs related to 11

16 these issues that are not captured in the survey estimates. The application of survey-specific project eligibility criteria means that the needs surveys only report a subset of total 20-year water infrastructure investment needs in North Carolina. Documentation The needs surveys documentation requirements limit their coverage to projects that are: (1) expected in advance; (2) well documented; and, (3) considered feasible under local budgetary constraints. This introduces several sources of uncertainty to reported needs estimates. First, needs related to unexpected infrastructure problems are not captured. While some unexpected needs arise from unforeseeable events, others are likely excluded because of inadequate and/or inconsistent asset management practices at the system level. Second, both the DWINSA and CWNS exclude projects that are not properly documented. This means that some recognized needs may be excluded from estimates due to inadequate paperwork. In such cases, the needs disappear from survey estimates, but not reality. Third, planning documents may exclude projects that are considered too expensive to fit within local budgets. Again, these needs still exist and will require additional investment, but they are not captured by the national needs surveys. The impact of these mechanisms can be substantial. For example, the most recent CWNS reports that national Secondary Wastewater Treatment (Category I) needs decreased by $15.6 billion between 2008 and In their report to Congress, the EPA attributes this decrease to reduced budgets and inadequate documentation, not a decrease in actual needs. It should be noted that documentationdriven uncertainties disproportionately affect systems with less capacity to produce, share, and/or support detailed information on future investment plans. In North Carolina, the EFC s analysis in Report 2 indicates that smaller systems were more likely to be excluded from 2012 CWNS needs estimates than larger systems. Timing Issues Both the DWINSA and the CWNS rely heavily on local CIPs as a means of identifying future projects and determining their associated costs. Since these documents often only include capital expenditures for the next 3 to 5 years, needs beyond that point may be entirely omitted or significantly underrepresented. Moreover, planning documents become less reliable over longer time horizons, so even those that do cover more than 5 years are not always a reliable source for determining long-term needs. As mentioned in prior sections, CIPs and other local planning documents represent a significant portion of all submitted documentation, so the impacts of these factors on needs estimates for North Carolina may be significant. Other Limitations Like all surveys, the results of the DWINSA and CWNS are heavily affected by participation rates. The DWINSA is comparatively less exposed since it both already enjoys a higher participation level and uses a statistical sampling means of estimating needs for systems that do not participate. The CWNS simply does not report needs for non-participating systems. The effect this exclusion may have on total needs 12

17 figures is substantial. For example, national Stormwater Management (Category VI) needs decreased by $28.7 billion or 60 percent between 2008 and 2012 due to declining State participation, including North Carolina. Obviously, this decrease represents an artifact of survey design, not an actual decrease in Stormwater Management needs. The use of cost curves to estimate costs associated with specific projects also contributes to differences between the true and reported needs figures in North Carolina. To the extent that cost curves are based on national data, they may fail to account for regional, state, or local economic differences. Depending upon the local economic context, this could result in either an understatement or an overstatement of project costs. After removing cost curve estimates from the list of eligible documentation types, the CWNS showed a decrease of $24.1 billion or 33 percent in national CSO Correction (Category V) needs. Again, this decrease is driven by changes to survey implementation, not necessarily changes in actual infrastructure investment needs. Summary of Findings By design, the national needs surveys only capture a portion of total water and wastewater infrastructure investment needs at the state and national levels. They therefore do not provide a comprehensive view of all infrastructure investment needs in the State of North Carolina. That said, the surveys do provide useful information that may contribute to the development of such a view. A summary of what is and what is not included in these surveys is provided below. Needs Reported by National Surveys The infrastructure investment needs covered by the national surveys include those related to projects that are: For government-owned water and wastewater systems (and privately-owned water systems); Eligible for DWSRF or CWSRF funding; Well-documented; Scheduled to begin within 20 years of the survey date; Designed to advance the goals of the SDWA or CWA; and, Currently recognized as necessary and/or feasible by local officials. Needs Not Reported by National Surveys The infrastructure investment needs not covered by the national surveys include those related to projects that are: For privately-owned wastewater systems; Ineligible for DWSRF and CWSRF funding (including projects to accommodate growth); Inadequately documented for purpose and/or cost; Not currently expected or scheduled to begin within 20 years of the survey date; 13

18 Designed to meet goals not outlined by the SDWA or CWA; Planned by non-participating systems or states; and/or, Not included in local budgetary or capital improvement plan documents. The 2011 DWINSA estimated that drinking water infrastructure needs in the State of North Carolina totaled nearly $10 billion for the next 20 years. The 2012 CWNS estimated the state s wastewater infrastructure needs (excluding stormwater needs) to be approximately $5.3 billion. As explained above, these estimates are cost projections of a subset of infrastructure projects. The true comprehensive needs of the systems in the state are higher than these estimates. In Report 2, we calculate the total needs for the state using the needs surveys as starting points. 14