User Charge Revenues for Wastewater Treatment Plants--Insufficient To Cover Operation and Maintenance

CED-82-1: Published: Dec 2, 1981. Publicly Released: Dec 2, 1981.

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Billions of dollars in federal grants have been made to municipalities throughout the nation to construct publicly owned wastewater treatment plants. Once the plants are constructed, municipalities are responsible for raising sufficient monies from system users to properly operate and maintain these plants. GAO made a review to determine whether user charge revenues collected by municipalities are sufficient to properly operate and maintain the treatment plants; whether such costs are fairly and equitably distributed among system users; and whether sufficient revenues are being generated to pay for replacing major capital items in the plants.

GAO found that half of the 36 municipal treatment plants randomly selected for review were not charging users enough to cover operation and maintenance costs and were relying on other municipal revenue sources for funds. Also, 40 percent were not charging all users their fair and equitable share of costs. Thus, the future successful operation of the costly treatment facilities may be in jeopardy, and the nation's clean water goals may not be achieved. Replacing the thousands of federally funded plants will require billions of dollars. Current federal legislation is silent on the sources of funds for plant replacement. Only three of the municipalities reviewed are now setting aside replacement funds. Twenty-three indicated that they would return to the federal government for replacement funding. The need to eventually replace major equipment items can significantly strain local financial resources. Inequitable user charge systems allow a few users to benefit while many users pay excessive charges. GAO believes that such subsidies violate a basic intent of the user charge concept, equity. Fifteen of the 36 municipalities had not met the grant requirement of making a periodic review and of updating their user rates and classes to meet increased costs or changing operating conditions. Neither the Environmental Protection Agency nor the states have follow-up programs to verify a municipality's compliance with user charge grant conditions, and no enforcement program exists under which penalties could be assessed for noncompliance.

Matter for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: Proposed legislation before Congress would phase out the Construction Grants Program.

    Matter: Congress should consider whether there will be further federal participation in treatment plant replacement or whether plant replacement will become the responsibility of state and/or local governments. If Congress should decide that state and/or local governments are to be held responsible, these governments must be made aware of this requirement so that they can begin planning for such future expenditures.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: Action has been completed and an accomplishment report has been prepared.

    Recommendation: The Administrator of the Environmental Protection Agency should incorporate, as part of the financial management guidance package, instructions to the municipalities that clearly state: (1) the purpose of the user charge program; (2) that, except for ad valorem taxes, direct user charges are the only source of funding authorized for financing treatment plant operation and maintenance expenses; (3) the need to review and revise the user charge system in accordance with federal regulations and the grant agreement; and (4) the need to maintain the treatment plants' financial integrity and self-sufficiency as envisioned by Congress.

    Agency Affected: Environmental Protection Agency

  2. Status: Closed - Implemented

    Comments: EPA told GAO that it will review user charge adequacy as part of its routine operation and maintenance inspections rather than as part of its grant closeout audits as recommended by GAO. GAO does not feel this action will be effective due to large amounts of work during such inspections.

    Recommendation: The Administrator of the Environmental Protection Agency should incorporate, as part of existing operation and maintenance inspections and closeout financial audits of construction grants, a review of user charge system adequacy, including a review of the adequacy of reserve accounts for replacing major pieces of equipment considered essential for continued plant operations.

    Agency Affected: Environmental Protection Agency

  3. Status: Closed - Implemented

    Comments: EPA action did not conform precisely to the recommendation, however, the implementation of the compliance improvement program will result in some corrective action.

    Recommendation: The Administrator of the Environmental Protection Agency should incorporate the user charge system requirements under the National Pollutant Discharge Elimination System permit program.

    Agency Affected: Environmental Protection Agency

 

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