WASHINGTON - Municipal utilities urged federal lawmakers yesterday to follow up stimulus funds with increased funding for a water infrastructure program, which could result in increased debt issuance by utilities, according to an industry group.

The House Natural Resources subcommittee on water and power held a hearing yesterday on stimulus funding for certain water projects that fall under the jurisdiction of the Bureau of Reclamation, a branch of the Department of the Interior that oversees water projects in the West.

The Interior Department will provide $135 million of stimulus funding for "shovel-ready" water reclamation and reuse projects that are currently being evaluated by the bureau. The projects approved for funding are expected to be announced in the coming months, said J. William McDonald, acting bureau commissioner. He added that "many of the projects receiving funding under the recovery act may be included in the president's 2010 [budget] request."

The bureau also received $40 million in the fiscal 2009 federal budget to construct water recycling projects.

"The grant funds obviously help us a lot financially with our revenue bonds and [state revolving fund] loans," said Richard Atwater, chief executive officer of the Inland Empire Utilities Agency in California and president of the WateReuse Association, which consists of more than 175 public agencies that provide water supply, wastewater treatment, and water management.

State revolving funds provide low- or no-interest loans for water projects and are used in conjunction with bond financing. The federal government furnished the clean and drinking water SRFs with $6 billion through the stimulus act.

For the water recycling projects, federal matching funds are capped around 25% or $20 million of total project costs, Atwater said. The remaining 75% of funds needed for a water recycling project is typically provided through sources including tax-exempt debt, he said.

"You would expect us to collectively issue more debt" if federal funding for the projects continues to grow, Atwater said.

His own agency plans to cover its capital costs through 2013 with outstanding bond proceeds, in addition to SRF loans and commercial paper, according to its long-range finance plan. However, it assumed no additional bond issuance in the near future.

Atwater told the subcommittee that stimulus allocations "only begin to address" a $500 million backlog, and Congress should appropriate at least $100 million annually to the projects for the next five years.

"The federal investment of [water recycling program] assistance has been leveraged by a factor of approximately 5 to 1," Atwater said, adding that non-federal investment is more than $1 billion. "We do not know of any other federal water program that delivers such a significant investment by local communities."

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