Upgrade Urged for Old Water, Sewer Systems : Cities: Projects would cost up to $500 billion. Current federal funding role is criticized by public policy group.

To comply with federal clean water regulations, aging and obsolete municipal water and sewer systems need modernization projects that will cost $400 billion to $500 billion over the next 20 years, according to a public policy group that is urging more federal aid for the work.

Already, the National Water Education Council said in its report, rising water and sewer rates are having a devastating effect on the poor, threatening the survival of small businesses and confronting local officials with revenue crises.

The biggest problem, the group suggested, is not stringent clean water requirements imposed over the years of heightened environmental consciousness, but the federal government’s retreat from its role in helping finance water and sewer projects.

What has developed, said Jonathan Kaledin, executive director of the council, is “a clean water funding crisis.”

In its report, the newly organized council made no specific recommendation for obtaining increased funding. But it promised to produce a strategy while lobbying Congress to take a larger role.

Alluding to President-elect Bill Clinton’s pledge to use modernization of the national infrastructure as an instrument to create jobs, Audubon Society vice president Brock Evans called the upgrading of outmoded sewer systems and water treatment plants “a golden opportunity . . . to serve twin goals of economic growth and environmental cleanup.”

In the 1960s and 1970s, federal funding to help localities meet requirements of the Clean Water Act and the Safe Drinking Water Act rose to a high of $6 billion to $7 billion annually, a figure that has dropped to about $3.5 billion this fiscal year.

That level, which would amount to about $24.5 billion if continued for the remainder of the decade, “is woefully insufficient,” the report said.

Three cities alone--New York, Los Angeles and Cincinnati--need a total of $17.9 billion for clean water projects in that period--$10.4 billion for New York, $5.3 billion for Los Angeles and $2.2 billion to $2.5 billion for Cincinnati.

In addition, Sacramento, San Diego, Seattle and Boston all have multibillion-dollar water problems.

The list of municipalities with multimillion-dollar problems, the report added, runs into the dozens, including Atlanta ($460 million); Bellingham, Wash. ($35 million); Honolulu ($800 million) and Portland, Ore., ($500 million).

And beyond that “are literally thousands of small communities . . . that are not in compliance with either the Clean Water Act or the Safe Drinking Water Act and that cannot build the clean water projects necessary to come into compliance with these acts without substantial financial assistance,” the report said.

Within communities as diverse as New York City and Pineville, Ky., are an estimated 1,100 systems in which the same sewer pipes carry both storm water and waste water, meaning that they discharge raw sewage into lakes, rivers and coastal waters during wet periods--and, in some cases, during dry times as well.

Estimates vary widely on how much it will take to address that problem alone.

A group of municipalities working on the problem has estimated the bill at $100 billion to $110 billion, while the Environmental Protection Agency has put the tab for controlling overflows from 464 of the 1,100 systems at $20 billion.

The impact is clearer when viewed in the context of the burden on individual communities.

Lowell, Mass., for example, estimates that it will take $80 million to $90 million to bring its sewer system into compliance.

The burden of fending off obsolescence and moving toward compliance with federal law falls with increasing weight on customers and particularly hurts low-income communities and poor households.

In New York, water and sewer rates are up 20% this year, in Atlanta 30%. Since 1990, the Los Angeles Department of Water and Power has provided discounted services to low income households. After a 1992 sewer rate increase of 28.5%, annual increases of 10%-plus are due in each of the next three years in Los Angeles.