Managing the Cost of Clean Water:
An Assessment of Michigan's Sewer Infrastructure Needs
August 2000

Prepared for
Clean Water Michigan

Executive Summary

Michigan has made substantial progress in controlling water pollution over the last 35 years. Beginning in the late 1960s, state and federal grants provided generous financial assistance to local agencies to construct sanitary sewers and treatment plants. Little thought was given at the time to the dollars needed to upgrade and replace these facilities as they reached the end of their useful life. Since 1988, state and federal assistance for capital improvements to wastewater systems, with some exceptions, has been limited to subsidized loans from the state revolving fund (SRF). Local capital investments in and operating costs for sanitary waste systems have increased steadily since 1970. The federal and state government share of these costs has continued to diminish since the early 1980s.

Many of the facilities constructed to correct the pollution problems evident in the 1960s are reaching the end of their serviceable life. Faced with limited financial resources, many communities are deferring the investments needed to maintain, rehabilitate, and/or replace older wastewater infrastructure in order to afford the cost of correcting combined sewer overflow (CSO) and separate sanitary sewer overflow (SSO) problems. Deferred expenditure on existing infrastructure, however, increases the risk of major system failures. National studies predict an unprecedented demand for sewer infrastructure upgrading and replacement over the next 20 years. This study confirms that a majority of Michigan sanitary sewers and many waste treatment facilities, like those in the rest of the nation, will soon be more than 50 years old. Without a major investment, sewer maintenance costs will continue to rise, and frequent system failures are inevitable.

In the last decade statewide expenditures for CSO controls alone have been approximately $1 billion. An estimated $1.7 billion will be required to address remaining CSO problems over the next 12 years. New reporting and compliance initiatives at the state and federal level for SSOs in the state will substantially increase local costs. The full magnitude of the SSO problems in Michigan is unknown, but preliminary information indicates that several hundred million dollars will be needed to address known problems over the next decade. Federal storm water regulations will require most urban areas in Michigan to meet additional water pollution control requirements within the next three years, including identification and remediation of failing on-site disposal systems (septic tank/tile fields).

The burden for capital improvements to sanitary sewer infrastructure has fallen disproportionately on older urban areas in the state, which can least afford them. In many of these, the population and tax base are shrinking, and average household income is below the state average. For the residents who remain, the cost of pollution control is becoming unaffordable. In some communities, the costs of sanitary sewer service or special assessments for wastewater capital improvements are already so significant that residents are moving to the suburbs, where such costs are, at least for now, lower. Urban sprawl increases the need for sanitary sewer infrastructure and ultimately raises the cost per household for maintenance of systems that serve less dense populations in the suburbs. Many communities are also facing new costs associated with the new storm water regulations.

Phase II of the new federal storm water regulations will require most communities in urbanized areas of Michigan to obtain a storm water discharge permit by March of 2003. Under Michigan's unique watershed alternative, local agencies can use a cooperative approach to meet the federal requirements. Under the state watershed approach, local governments have more flexibility in establishing priorities and timetables for implementing storm water pollution control programs.

Adequately designed, sited, and maintained on-site disposal systems (OSDSs) can provide a safe and effective alternative for disposal of human waste. There is mounting evidence throughout Michigan, however, that many of the 1.2 million homes served by OSDSs are causing surface and groundwater contamination that threatens public health. A comprehensive program is needed to ensure proper design, siting, operation and maintenance of OSDSs, which are increasing at an annual rate of more than 10,000 new systems in Michigan. In places where sanitary sewers are impracticable, local health agencies are being pressed to permit alternative OSDSs, even though natural soil and water table conditions do not meet standards. Some of these alternative systems have failed within the first few years of operation. State standards for the design, siting, and maintenance of OSDSs must be upgraded to prevent future problems.

Without a renewed commitment at the national level and concurrent support at the state level to increase appropriations for wastewater infrastructure, Michigan and many other states will face a severe funding crisis within the next decade. Local governments simply cannot afford to meet the projected needs without more financial assistance and an improved, cooperative management of infrastructure costs.

The SRF loan program has been very successful, but the capitalization of this fund must be substantially increased in order to assist local governments with wastewater infrastructure projects. This report calls for at least a doubling of annual federal and state appropriations to capitalize the Michigan SRF over the next five years and a realistic assessment of SRF needs beyond 2005.

Without a secure funding source at the federal level, appropriations for wastewater infrastructure will become an annual battle in Congress, and the outcome will be uncertain, particularly in lean economic times. This report challenges Michigan to become the advocate for a national trust account to fund wastewater infrastructure projects, similar to that in place for transportation infrastructure.

Local governments are faced with the difficult task of funding both new water pollution control priorities and maintenance of existing wastewater infrastructure. Without cooperation among state, federal, and local agencies on the appropriate schedules, opportunities to maximize federal and state financial assistance for required capital improvements can be lost. This report recommends that Michigan adopt a new strategic approach to the management of wastewater infrastructure assets that will maximize the combination of funding sources to meet water pollution control objectives. It also recommends that the SRF funding criteria be altered to reflect priorities established through this new strategic management approach.

As this report points out, there are alternatives available that can help prevent future water pollution problems from the state's 1.2 million OSDSs. It is recommended that a comprehensive program for design, siting, operation, and maintenance of OSDSs be implemented in stages in Michigan. The first steps are a new education initiative targeted at OSDS households and a statewide requirement for inspection and certification of OSDSs at the time property is sold.

Finally, this report concludes that the local governments should not be subject to a strict liability standard for basements that flood with sewage from overloaded systems when steps are underway to correct the problems. Action is urged to limit liability to actual damages when local governmental units are in compliance with corrective action schedules mandated under state law. This change in the liability standard will allow local agencies that are working on solutions to SSO problems to invest local resources in correction, rather than in the payment of punitive damages.

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