WASHINGTON -- The Senate yesterday overwhelmingly approved legislation that would create a revolving loan program that states can use to finance construction and modernization of drinking water treatment systems.

The bill, which passed 95 to 3, would reauthorize the Safe Drinking Water Act for the next six years and authorize $1 billion a year for the state revolving loan program starting in fiscal 1995, which begins Oct. 1, and running through fiscal 2000.

Final congressional passage, which could come later this summer, would also release $599 million for the new loan program that was set aside in the current fiscal year.

Even though the program calls for spending $1 billion for the loan program next year, President Clinton's fiscal 1995 budget requested only $700 million. Due to the tight budget situation, Congress is expected to agree to provide only the $700 million and wait until fiscal 1996 to bump up funding to the full $1 billion that is authorized.

The drinking water revolving fund program would permit states to leverage their federal dollars by issuing tax-exempt bonds, much as they do now with wastewater treatment revolving loan funds authorized by the Clean Water Act.

Despite overall support for establishing a revolving loan fund program under the drinking water legislation, the bill still faces hurdles in the House over proposed standards for contaminant testing, which state and local officials have complained are unreasonably tight and too expensive to meet.

In 1986 Congress enacted a number of strict regulations for testing water contaminants. "Today we know that, despite our good intentions and the many improvements made by the 1986 act, it was flawed ... We pushed the pendulum back too far in the direction of regulation," said Sen. Max Baucus, D-Mont., chairman of the Environment and Public Works Committee.

On the House side, however, Rep. Henry A. Waxman, D-Calif., chairman of the Energy and Commerce Committee's Health and Environment subcommittee, supports the stricter standards, and said earlier this year he would not allow a bill that loosens standards through his committee.

Baucus, whose Senate committee has jurisdiction over the legislation, worked with environmental groups and state and local representatives to strike a compromise that, he said, "reduces regulatory burdens while fully protecting public health."

The Senate bill "is not the bill we would have wanted in our heart of hearts," but it is a "considerable improvement" over the current law, said Tom Curtis, director of natural resources at the National Governor's Association.

Environmental groups have accepted the compromise legislation even though they worked to stop the loosening of standards and regulations.

Anticipating an "uphill battle," a coalition of groups, including associations representing state and local elected officials and public and private water suppliers, plan to lobby House members to write a bill resembling the Senate version, said Carol Kocheisen, counsel to the National League of Cities.

The stringency of the contaminant testing regulations is the big issue for state and local officials, and it will be the most difficult compromise to agree to on the House side, Kocheisen said. "[The compromise] must be in the realm of reasonableness," or there will be no bill, she said.

The funds for the state revolving loans "are not going anywhere" unless the House version of the bill has the same flexibility allowing the Environmental Protection Agency to take into account contaminant testing costs versus health benefits, Curtis said.

Once the House acts on the safe drinking water legislation, the two versions will have to be reconciled. Thus, it is wise for groups supporting the Senate version to begin working on House members now because it will be a lot easier to get a workable bill when the House drafts its version rather than wait until the House-Senate conference, said James N. Smith, executive director of the Council of Infrastructure Financing Authorities.

The Senate bill is seen by state and local officials as a fair compromise, but Waxman will just have to be convinced that the bill doesn't threaten the public health in order to get the measure through the House, Smith said. "I'm guardedly optimistic" the bill will become law this year, he said.

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