Water Infrastructure Finance Commission
Working Group 1: Current Water Infrastructure Needs and Long Term Challenges
Wednesday June 22, 2011, 2:30 pm
State House, Room 167

In a meeting duly posted, Working Group One (Current Water Infrastructure Needs and Long Term Challenges) convened at 2:30pm in Room 167 of the State House.

Members attending: Rep. Carolyn Dykema, Chair; Bill Callahan, David Riedell, Phil Jasset and David Terry.

Also attending: Fred Laskey, Joe Favaloro and Richard Hornbrook of MWRA; John Sullivan of Boston Water and Sewer; Leah Robins from Rep Dykema’s office; Brendan Jarboe from Sen. Eldridge’s office.

Representative Dykema, Chair opened the meeting at 2:40pm and welcomed members and guests with request to hear their thoughts on the methodology being used to calculate the gap and to see if it reflects their needs.

Bill Callahan began a powerpoint presentation using Lee Murphy’s of PN as a guideline and including MA specific information. Presentation is included in notes.

Gap Analysis  and Alternatives  Presentation Notes

• Gap analysis needed since EPA needs survey & SRF funding does not cover all existing need.
• Gap defined as:                 [Capital, O&M and Deb Service] – [Revenue]
• PA gathered gap data using a time and cost intensive method, propose modeling data in MA
  • PA gap was about $40M
  • Modeled options for gap reduction as rates increase, shows that small and large sized system have largest gap
  • KeyPA recommendations are focuses on asset management, reliance on user charges, and regionalization of staff/ideas rather than pipes
• Modeling using existing data requires several assumptions:
  • Annual revenue from T&B = current O&M
  • existing debt service will be replaced—will be a constant
  • O&M + det service will increase 3% annually
    • Not an accurate picture for MWRA—current debt service peaks at 2024, rate projections planned
  • Using the assumptions suggested by Lee Murphy’s presentation, was able to calculate cost of water rates as a percentage of household income: .68% currently (document to be posted)
    • BUT Median household income was calculated by county since numbers by town weren’t available on DOR website, compared against current cost by community
    • BUT Does not take into account need or future expectations
• Stormwater methodology is large concern and could end up larger amount that W and WW combined, burden may be more focused on property owner, rather than street/pipes
• General thoughts on modeling
  • Fast and low cost, but no statistical reliability

The following information was covered during discussion that followed Mr. Callahan’s presentation:

Debt

• $60m/year in the mid 90s when last MWRA restructured rates
  • $150-200 m in capital spending; 80% in order to comply with consent order
• Expect in 2034 for debt costs to begin coming back down to today’s levels, does not fit with designed model
• Deer Island replacement coming down the line along with nutrient control regulations, so more debt will come down the line
• Note that sewer is twice as expensive as DW
• Propose MWRA + Upper Blackstone + Worcester to create a solid picture of debt
  • Boston is starting from a good place, so not a fair example

Rates

• Not everyone does full cost recovery with pricing of rates
• Public perception is against rate increases, belief that its high enough already
• Agreement that education on required foundation funding or  MHI level is vital for success
• For MWRA:
  • Current rates = approx 60% debt + 1/3 operations
  • Given rates, debt and capital costs, future expectations are
    • FY11 –$575m annually
    • FY20–$900m annually
• Maybe ½ systems within MWRA have enterprise funds BUT: not every system is filling the fund on schedule and they all operate very differently
• Note in some cities like Boston, hospitals and universities are large users and pay huge extras that cover the cost of many homes.  Bedroom communities are different

Waste Water Primacy

• Only 4 states don’t have WW primacy
• Some concern that a regulator is a regulator
• Does ease of relationship with DEP justify the additional cost to DEP?
• Huge numbers of permits currently required and time adds significant cost to projects
• Even without EPA Primacy, still open to EPA and CLF lawsuits

Revenue

• No definitive answer
• MWRA suggestion to NOT do a tax per gallon because it puts communities like Boston that have taken care of needs at a disadvantage—asking communities to cover costs of others they perceive as having not done a good job historically is a potential third rail
• Need a global approach that recognizes the vast disparity in communities and doesn’t put full burden on rate payer
  • Suggestion to look holistically at housing, energy, bottle tax, toilet paper, anything statewide
  • Look at NACWA –WIN program
  • Active ports?  Would be money from elsewhere
• Capital gains %?
• Line item taken away in the 90s, tough to protect

Cost of doing nothing to meet gap

• Agreement that its important addition to conversation
• Either rate revolt if they rocket too high, or “so sue me” push back on federal requirements
• Treatment system crashes would be among worst case scenarios
• Average age of pipes in MWRA is already +50 years, remarkable that rate of breaks is only 35/year

Stormwater

• No estimates yet in Boston, studies alone take 7-9 years
• Even though no firm answers from EPA, construction permits are requiring it to be addressed
• John Galt’s research suggests a 1in storm will cost $50,000/impervious acres for a total of about $17.8B

Role of Innovation

• Note that while its important to look to tomorrow, but maintenance of current system is vital
• Need to consider cost of maintenance of innovation (easy to build rain garden, but how much to maintain for 50 years)

Meeting adjourned at 4:30 pm.