Commonwealth of Massachusetts

Water Infrastructure Finance Commission Meeting

FINAL Minutes:  May 5, 2010

The Commission convened at 2 pm in Room 350 at the State House.

Members Attending:

Senator James Eldridge, Representative Carolyn Dykema, Martin Pillsbury, Michael Martin, David Terry (for Commissioner Burt), Thomas Walsh, Ned Bartlett, Dave Hanlon, Phil Jassett, Thomas Tilas, William Callahan, Peter Shelley, Becky Smith, Robert Zimmerman, Paul Niedzwiecki, Tom Philbin (for Bruce Tobey).

Introductions:

Committee members introduced themselves, and gave some brief remarks on their perspective or interests.  Many diverse issues were raised.  Some mentioned the need for innovation – suggesting decentralized systems or innovative water rate systems and permits.  Some commissioners stressed the need to make funding and technical assistance more accessible to municipalities.  Others mentioned the need to support economic growth and development in the Commonwealth.  The importance of pending federal action on a number of fronts was stressed. Nutrient issues were mentioned, as were the requirements to deal with storm water.  One member spoke of the need to recognize the sunk cost of previous investments.

Charge:

The Commission was formed pursuant to Outside Section 145 of Chapter 27 of the Acts of 2009, and the Committee’s charge is based on that Section.

Protocol:

Senator Eldridge proposed that the Commission operate on a basis of mutual respect, with the goal of building consensus.  When a vote is necessary, it is suggested that a quorum be considered to have been met if a majority of members is present. It is suggested that members be allowed to send a designee for the purposes of a meeting.  The Senator hopes to meet approximately once a month.  We may schedule some hearings in various parts of the state.  It is expected that work will also be done by smaller working groups bringing information and recommendations to the larger group. The report is due in June of 2011 unless an extension is granted.  The members are reminded to take the oath of office.  The Committee will vote on these points at the next meeting.

Guest Speaker:

The Senator introduced Scott Jordan, Deputy Secretary for Capital Finance and Intergovernmental Affairs in the Executive Office for Administration and Finance.

Mr. Jordan spoke at some length about the State Revolving Fund, a principal tool used by municipalities to finance their water infrastructure projects.  SRF is a loan program administered jointly by DEP and the Treasurer’s office through the Water Pollution Abatement Trust.  The loans must be paid back at a 2% rate. Approximately 274 of the 351 cities and towns have participated in the program. SRF works like a bank, and leverages money from the federal and state government.  So far, the program has made $4.7 billion in infrastructure investments.

Scott ended with several comments for the consideration of the Commission:

1. Recognize the system we have for what it is – a rate payer funded system.  This is good for covering things that can be paid for through rates, but has limitations
2. Although we have reason to be impressed with the standards at our water and wastewater facilities in Massachusetts, we tend not to do things regionally, except for MWRA.  Most of our facilities are within individual towns.
3. Residents confuse taxes and rates.  It is hard to set effective rates that capture the true cost of water.
4. There are particular challenges in communities that do not already have any municipal water or wastewater systems, but are growing.  There is not a lot of capacity for starting infrastructure from the bottom up.
5. Conservation versus revenue.  Enterprises are heavily capital intensive and have debt loads.  When you encourage water conservation (which we want to do) it can negatively impact the income to finance debt.
6. Federal issues – the Clean Water Act is up for reauthorization.  This program controls a lot of the funding that comes to Massachusetts, and sets the conditions for use of the money.  If the Clean Water Act gets reauthorized, Massachusetts may lose out on the portion of funding we get relative to other states.  And, there may be new priorities for the program that could have a big impact on the revolving fund.

The Commission engaged in questions and discussion with Mr. Jordan.

1. Regarding the challenges of financing systems from scratch and funding less traditional projects – can SRF be reoriented?  What can the program do to encourage new environmentally innovative solutions and new techniques?  A: The fund does have some flexibility and has funded some alternative approaches, but must weigh the financial risks as well as the cost/benefit.  Many alternative programs serve small numbers of customers which makes the payback difficult.
2. There will be increased pressures on municipal bond ratings due to the state’s fiscal crisis.  Going forward, could this affect how much money is available through SRF?  A:  No, SRF is well insulated because it is a portfolio of loans, spreading out the risk.  Also, SRF has cash reserves.
3. Can we find a way to help cities and towns get money for projects or parts of projects not funded by SRF?  A:  Not the way program is currently structured.
4. Several comments were offered about the requirements cities and towns must meet to apply for SRF funds.  Are they too onerous, making it difficult for towns to apply?  Conversely, are they stringent enough, making towns satisfy requirements for best practices before being awarded SRF funds?   A:  Massachusetts has to balance federal and state requirements and has tried to make the program accessible while making sure the money is used wisely.  EPA does have some standards for capital planning, rate structure, etc.
5. How much variation is there in how states run their SRF programs?  A.  Many regional and state differences exist.  We can learn from other states.  Vermont and Chesapeake Region were mentioned.

Senator Eldridge asked for suggestions of topics and/or speakers for upcoming meetings.  Some of the suggestions:

• EPA:  the federal situation and the gap between funding requests and funding capability
• stormwater programs
• DEP:  how projects get screened and scored for SRF

The Commission adjourned at 2:55 and will meet again in June.