WG4 June 8 2011

Commonwealth of Massachusetts
Water Infrastructure Finance Commission
Working Group Four
State and Federal Finance and Investment Practices

Approved Minutes:  June 8, 2011

In a meeting duly posted, Working Group Four (State and Federal Finance and Investment Practices) convened at 10am in room 413 of the State House in Boston.

Members Attending:  Tom Tilas, Brendan Jarboe (for Senator Eldridge), Representative Dykema, Bill Callahan, Martin Pillsbury, Peter Shelley, David Riedell, Becky Smith, Leah robins (for Rep Dykema), Phil Jasset, Sally Schnitzer (for Senator Eldridge)

Guest: Jennifer Petersen, Alan Cathcart, Valerie Nelson, John Clarkson, Terra Friedrichs

Chairman Martin Pillsbury brought the meeting to order.  Representative Dykema noted the ongoing work of group 1 to detail what the process for estimating the gap between projected revenues and needs.  In addition, she noted the difficulties of projecting precise cost estimates for stormwater costs based on impervious surface areas but indicated that the experience of the mystic river communities should be informative.

Bill Callahan noted that the Pennsylvania study that evaluated the cost gap included debt service, operation and maintenance costs and capital needs.  Within that study the total need was calculated with the assistance of arranged interviews with individual systems.  The study also calculated that 1.5% of a community’s median household income for water costs and an additional 1.5% for wastewater costs was a reasonable level of expenditure.

The method for calculating the gap assumes that rates should cover operation and maintenance costs as well as debt service but that as a benchmark it’s fair to assume that rates will increase 3% from current levels over a 20 year period.

Based on data made available by Tithe and Bond, Mr. Callahan also built into his projections an estimated 70k gallon per year rate of use and based on current rates it is fair to assume that in the status quo most households expend .25% of their income on water and .75% on wastewater.

The EPA needs survey suggests a $7.9 billion for wastewater and $6.79 for drinking water over 20 years, but based on Mr. Callahan’s model those numbers are closer to $11.2 billion for wastewater and $10.3 billion for drinking water.

Mr. Callahan noted that additional data from the MWRA and a number of other systems would help to refine those estimates.  In addition, raising rates to .75% of median household income dramatically reduces the scope of the problem in most communities.  Small communities have challenges that are harder to reduce with rate increases because of issues related to density and population and because capital costs represent a larger part of the overall costs faced by those systems.

It was suggested that gathering additional data from the larger water systems in the Commonwealth would greatly refine the estimates.  It was noted that addressing the perception of many practitioners on the ground is to adjust expenses to get by rather than properly maintain everything and that the cost of deferred maintenance and emergencies was exceptional.

With regard to projected stormwater costs, given the state’s significant amounts of impervious surfaces and accounting only for storms that produce less than 1 inch of rain, and assuming regulatory standards that produce a cleanup cost of $50k per acre of impervious surface, the state can project a $17 billion dollar need over 20 years.

That projection will hopefully be refined dramatically once additional data about actual costs incurred by municipalities already confronting stormwater cleanup costs along the Mystic becomes available.  Moreover, an emphasis on green technology and alternative infrastructure could further reduce that cost significantly.

It was noted that many of the costs incurred by those communities involve additional street sweeping, wet weather monitoring of outfalls, and retrofitting current infrastructure to meet TMDLs.

The group then discussed the proposed elements of a legislative effort to raise additional revenues to confront these challenges, called the “blue act,” for short.  Examining the 2008 data from the EPA on water use was suggested.

The group discussed whether or not including debt service and debt relief in the list of potential uses for any additional revenues raised had merit.  For many larger systems debt makes up a tremendously significant part of overall costs.

The group further discussed potential permutations of policy options aimed at cover the projected water infrastructure needs of the Commonwealth.

Guests of the meeting emphasized the importance of local control and the costs associated with expanded current systems.

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