11/17/2011

Oct 3, 2011 Minutes

Commonwealth of Massachusetts
Water Infrastructure Finance Commission Meeting

Approved

In a meeting duly posted, the Massachusetts Water Infrastructure Finance Commission convened at ten am on October 3, 2011 in the Senate Reading Room at the State House.

Members Attending: Senator Jamie Eldridge, Representative Carolyn Dykema, Martin Pillsbury, William Callahan, Thomas Walsh, Enrique Zuniga, Michael Martin, David Terry (DEP Commissioner’s designee), Becky Smith; Ned Bartlett,  Philip Jassett,

Guests: Nate Keenan (WPAT); Bruce  Maki, Who Decides Gloucester;  Linda Maki, Who Decides Gloucester;  John Clarkeson (EOEEA);  Jennifer Pederson (MWWA); Stephen Estes-Smargiassi (MWRA); Maggie Atarasov (MWRA); Justin Backal-Balik (MAPC); Tyler Soleau (Rep. Smizik’s office); Valerie Nelson; Pat Landers; Leah Robins, Sally Schnitzer; Thomas Philbin

Senator Eldridge called the meeting to order, welcoming members and guests.  Announced that our colleague, Mr. Robert Zimmerman, is currently in Australia where the Charles River Watershed Association has just won a prestigious prize for its work.  The Senator extended congratulations to all of the Watershed Association.

Minutes

The minutes from July 20, 2011 were unanimously approved.

The minutes for Working Group Two meeting of September 29, 2011 were approved.  (This is expected to be the last meeting of the Working Group).

Drafting Update

Representative Dykema discussed that a rough draft for commission review was targeted for mid November and encouraged all members to forward data and thoughts for inclusion as soon as possible.

Sally noted that a redraft of the recommendations presented on July 20th had been included in the day’s packet.  All recommendations are included, but the format has changed to hopefully aid in understanding the materials presented.

Group One

Rep Dykema reported that Group One is working on an addendum for the final report discussing their gap analysis.  A meeting will be scheduled in 1-2 weeks to discuss in greater detail.

Group Two

Mr. Walsh reported that Group 2 met recently to discuss public/private partnerships and project delivery which has resulted in a consensus document included in the day’s packet.  Mr. Walsh explained the group’s thinking that a project needs the proper foundation which comes from its consulting engineer and designer.  Their method would be to send RFPs for engineer qualifications, and then once a short list of engineers has been created to discuss pricing.  Engineers are usually only a small percentage of the total project cost, but the right design or use of new technology can save an overwhelming amount.

Mr. Callahan summarized that you would be procuring intellectual services not just a commodity.  Confirmed that similar qualification based project deliver is already done in many places

Senator Eldridge invited Stephen Estes-Smargiassi of the MWRA to comment.  Mr. Estes-Smargiassi explained that at MWRA they include qualifications and price into one envelope, rather than two separate selection processes.  There is a concern that doing otherwise encourages decision makers to think that price isn’t important or to hire overqualified firms.

Rep. Dykema: What would be different under Group Two’s proposal?  Mr. Walsh:  Discussion of scope of work would be done by both sides would be at the beginning.  Concern is that once cost is on the table, it always attracts the most attention.

The topic and Working Group Two’s recommendations will be further considered at the Commission’s next meeting.

Group Four

Mr. Pillsbury began a discussion of the “Blue Community Act” Recommendation that Group Four has been developing, encouraged members and guests to turn to page 4 of the day’s packet to read along.  The goal was to raise funds and ensure the best outcomes happen.

A number of options for raising revenues were considered.  These are still included in listing for commission’s consideration. However, Working Group Four recommends that the primary funding source be a 1 mil per gallon surcharge on water used; with revenues sent to a dedicated fund managed by the WPAT side by side with the SRF.  Based on the 10 year water withdrawal average statewide, applying 1 mil (after taking out 13% unaccounted for water) this would fund approximately $230 million annually.  There would be no charge for self-supply well water.

The funds would flow into the Water Pollution Abatement Trust, where they would be administered separately from the SRF Funds.

Communities would be encouraged to meet minimum best practice standards and become “Blue Communities” and would then be eligible to have 20% of the “mil” retained by the local enterprise fund.  “Blue Communities” would also be eligible for grants and loans administered by the Fund.

Mr. Martin: Broad based statewide approach makes sense, but MWWA would prefer to see an “opt in” plan with some incentives for funds to be leveraged.  Otherwise, the burden is just falling on the communities all over again.

Mr. Jasset: Unsure that the level of rules and regulations to become a Blue Community make sense for all communities, there may be too many regulations and best practices required to get to funds.  Mr. Jasset stressed that he wanted some options that can happen more quickly, that can give relief soon for communities.  Otherwise, we need to wait for the passage of the Blue Communities Act.

He is also concerned that communities that have been doing the work all along see benefit as well as those that are in serious need.  Raising all revenue from one source, the user, is concerning and Mr. Jasset urged more consideration for other choices.

Mr. Pillsbury: Encouraged Mr. Jasset and any others with solutions that can do more immediate good bring them forward, stressed that revenues would be leveraged through WPAT.

Mr. Terry: The Best Management Practices listed are what we should have had thirty years ago, so to ask these things of the communities is not unreasonable.  It is reasonable that it be incentivized.

Mr. Pillsbury:  While the rates of all water users statewide will be affected, communities will need to meet eligibility criteria included in packet to be able to apply for statewide funds/grants.  Similar to the Green Community Act with energy rates being affected.

Mr. Martin: What about communities without any infrastructure?  Mr. Pillsbury: At the bottom of the page is a proposal for such communities; it is included in packet.  Basically, these communities could temporarily assess a 1-3% surcharge on their local property tax , to be deposited into a special revenue fund, in order to assist them in their planning needs.

Mr. Pillsbury wraps up conversation with invitation to all commission members to attend upcoming Group Four meetings to continue discussion.  The aim is to provide a framework and work with DEP further.

Water Pollution Abatement Trust

Senator Eldridge introduced Enrique Zuniga, Executive Director of the Water Pollution Abatement Trust to provide an overview of the Trusts’ work and how some recommendations proposed in July would impact that work.  A powerpoint included in the day’s packet provides additional details.

Mr Zuniga: The SRF was created in 1987 as a series of block grants that the US provided to states to turn into loans.  It is about 30% of the EPA budget.  The program was designed to sunset in 20 years at which point the original loans would come back to states.  But this design does not provide for increasing needs, construction inflation or new regulations.  There is concern that within President Obama’s Jobs bill there is a proposal that would limit tax exempt bonds from high income, this could decrease the demand for bonds like those offered by WPAT.

In 1989, Massachusetts received $61 million in grants to cover an estimated $2-3 billion need.  In that year Massachusetts began the leveraged model of placing the grant in reserve, and going out for a loan.  $61 million became $239 million. WPAT loans to cities and towns are, even at 2% above the average level of subside compared to other states.

While called a “water bank,” WPAT charges a lower rate than the rate it borrows at, is not allowed to make a profit, is not guaranteed by the State, and the hole in its operating costs caused by charging a lower rate is covered by contract assistance from the State.

WIFC Proposal Impacts on WPAT

Mr. Zuniga has participated in the Working Group Four conversations about the Blue Community Act.  In addition to using those dollars for new programs of loans and grants, he suggests that those “new” dollars also be available to preserve existing programs if and when federal dollars decrease.  He is pleased to see the proposal include a provision that the money be administered through the WPAT.  This may also allow the new programs to enjoy the benefits of  the AAA rating of the WPAT.

As for other recommendations that have been made by the Commission at the July meeting, Mr. Zuniga has concerns about several of them.

Most importantly, the Commission should realize that the recommendation to reduce all 2% loans to 0% would result in a huge reduction in the capacity of the SRF.  If loans are at 0%, there is the potential to halve the program—recently, WPAT provided an estimate for a certain bill currently in the legislature that would have reduced loans just for Gateway Communities only, and that estimate alone was that it would cost $150 m yearly to go to a 0% loan model just for the loans to Gateway communities.

A second recommendation that concerns the WPAT is that of floating interest rates.  There was a proposal to let them float with the market, within some limits.  Mr. Zuniga notes that they are very likely to increase from today’s historic lows.  City/Town Treasurers appreciate long term, fixed rate.  Would likely not go over well at local level.

On the recommendation to reduce paperwork, the WPAT is sympathetic, but notes that many requirements are driven by federal regulations.  We can do some things but may not meet everyone’s needs. WPAT is working to encourage electronic funds transfer, but 20% still pay by check.  Loan management database is forthcoming—log in to see payment plans and updates.  WPAT is already working hard in this area.

About the recommendations for affordability, Mr. Zuniga urged that members remember that a 2% interest rate is already a large benefit toward affordability.  This particularly benefits cities and towns that have the lowest credit ratings.

There is a recommendation about using SRF for design and engineering.  Please remember that designed projects do not always move forward into construction.  WPAT has traditionally preferred to fund construction, so that we see the most work on the ground.  This also requires towns to step up and do the planning.  I would like to see if there is a way to fund A/E retroactively.

Senator Eldridge noted that the Commission will have to deal with these issues in its final list of recommendations and urged the Commission to think about Mr. Zuniga’s remarks.

Voter Referendum

Senator Eldridge shared copies of Petition 11-10 A Petition for a Law Limiting the Amount by which Water and Sewer Rates May be Raised which was recently certified by the Attorney General’s office.  This petition would cap water and sewer rate increases at 2 ½ percent annually or require voter approved overrides in communities looking for larger increases.

The meeting was adjourned shortly before noon.

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