Commonwealth of Massachusetts
Water Infrastructure Finance Commission
Working Group Four

State and Federal Finance and Investment Practices

Minutes:  October 25, 2010

In a meeting duly posted, Working Group Four (State and Federal Finance and Investment Practices) convened at one pm in room 348 of the State House in Boston.

Members Attending:  Martin Pillsbury, Peter Shelley, Leah robins (for Rep Dykema), Sally  Schnitzer (for Senator Eldridge), Paul Niedzwiecki, Phil Jasset, Bruce Tobey, Tom Tilas

Guest:  Bob Ciolek -  former Executive Director of the Boston Water and Sewer Commission, and a former member of the Board of Directors of the Mass. Water Resources Authority (1985 -95).

Chairman Martin Pillsbury brought the meeting to order and noted that he was going to be unable to attend the full Commission meeting on October 26.  Paul Niedzwiecki agreed to report back to the Commission on behalf of Group Four.

The Working Group Four minutes of September 13 were approved with no changes.

Members brought up some additional information and suggestions, including:

• The 2008 bond bill has a 25 million dollar bond authorization for municipal water infrastructure.  There has not yet been an appropriation of any of these funds, but the Commission should look into this as a potential source.   Sally will find the language and circulate it.

• Mr. Niedzwieki noted that no town has yet taken advantage of the ten year zero percent interest rate program for nutrient reduction pollution abatement projects that was also authorized  in the 2008 environmental bond bill.  There are some high hurdles for towns to overcome in applying for the funds, including adoption of a local “flow neutral” bylaw.

• Federal bills.  If any of the reauthorization bills look promising, we may want to look more closely at the various provisions in each, particularly as they affect SRF funding.  One of the bills calls for doubling the authorization with a 20% set aside for green projects, and possibly a 30% principal forgiveness program.

The Working Group decided to revisit this after the election, when it may become clearer as to whether a bill may pass in Congress.

Governor Patrick made an election commitment in 2006 to rate relief.  Promised $28 million.  At its highest point, this program may have spent in the order of 61 million a year.  Many communities used it to reduce their debt. Can we circle back to understand what happened to this program and why?

• Mr. Jasset noted that there are many smaller capital improvements that are not being counted in the SRF needs survey.  As an example, he brought in a map from the Town of Norwood, outlining a long term project that will ultimately replace 134 miles of 1950’s  era cast iron pipes, either through relining or new installation.  The town is spending between $300,000 and $900,000 per year on this project through its capital improvement program, but is not seeking SRF financing.  How do we find out about these projects and how do they fit into our task?

This probably fits better in Group One, but Bruce Tobey mentioned that the Mass Municipal Association would be a good partner to send out a survey to ask towns to send in their CIP programs to see how large the problem is.

• Mr. Tilas suggested that an upcoming meeting take a look at two areas with potential for cost savings in large public works projects:

o   Impediments in the Chapter 149 approval process for design and design/build

o   The procurement implications for the operation and maintenance of plants once they are built.  (Purchase of power, chemicals, transportation, etc)

We might be able to find someone in the design build institute to come speak to the Working Group

• Mr. Shelley suggested that perhaps an upcoming meeting might focus on public private projects.  What is the state of this debate, and is there anything promising there?  What are the downsides?  A number of individuals might be invited to come address the group at the next session.  Start with John Betkowski, vice chair of the CT DPUC.

It was suggested to take a look at the GAO report on public – private funding

http://www.gao.gov/new.items/d0246t.pdf

• Don’t forget to look at larger scale sources of funding, like casino gambling (a portion of proceeds to go to infrastructure) or the bottle bill.

Issues on Cape Cod

Mr. Pillsbury introduced Bob Ciolek, who has been active in understanding the potential water infrastructure needs on Cape Cod.

He stated that the biggest need is grant funding.  Anything else is helpful, but palliative.

Mr. Ciolek then outlined some “broad strokes” analysis of the size of the potential Cape Cod wastewater capital improvement picture.

He started with a broad comparison of costs, population, area, and authority between the MWRA and Cape Cod.  Sharing the costs of anticipated infrastructure investments on the Cape is going to be problematic for a number of reasons, including:

• The lack of regional entities or authorities
• Smaller population to share the costs on a per capita basis
• The Cape has never had shared infrastructure
• See attached chart.

Cape Cod has relatively little public wastewater infrastructure, but Mr. Ciolek anticipates that this will become a significant financial and political issue over the next decades.

The demographics of Cape Cod are part of the problem.  The Cape is actually losing permanent full time residents.  Much of the population is retirees and work force or service sector families.  While there is a substantial “seasonal” population of nearly 70,000, rapid growth is not really happening on the Cape anymore.   There are “high end” properties on the coasts, but there is also a substantial segment of homeowners who can’t afford betterments, who may be living on pensions or modest salaries.  Seasonal home owners pay substantially in taxes, but infrastructure improvements will be a hard hit for workforce/retirees and inability to pay may lead to economic dislocation that could last a generation.

Cape Cod has a single, vulnerable ground water aquifer.  Pollution from septic systems and other sources has threatened the aquifer, particularly in terms of nutrient loading. Despite the fact that the most recent EPA needs assessment did not list major wastewater treatment needs, Mr. Ciolek presented estimates that over the next few years, at least $3 billion will be required in waste water infrastructure investments on the Cape.

From a regulatory and health perspective the issue is becoming imperative.  Moreover, CLF has given a 60 day intent to sue EPA over enforcement.

There are independent water districts, often organized around fire stations;  all water supplies are ground water.

Three of the larger Cape towns have initiated public projects for infrastructure improvements, while many of the smaller towns have yet to grapple with the anticipated costs.   One of the issues on the Cape is organizational:  there are many smaller governments, but the aquifer supports everyone.  Regional solutions may be efficient and effective, but there are obstacles, including home rule.  Regionalizing might relieve some of the local political pressure.

One of the key questions is:  who should pay, and how much?  Should the burden be borne by the rate payers alone, or should taxpayers across the Cape who will benefit from cleaner groundwater also share in the investment through taxes or another mechanism?   What about the state and/or federal role?  The town of Barnstable is proposing sharing of the investment split among ratepayers through a betterment, local option excise tax, and a debt exclusion, but it is likely not to pass muster with voters.

Recommendations:

1. Encourage Regional Solutions. Look at what is impeding such arrangements and fix state law.
2. Take a hard look at the betterment law.  There have been some creative home rule petitions to change the calculations of the betterment fees (Chapter 80) that might be applied statewide.  For example, should betterments be partially factored on home value?  Look at the Essex home rule that allows payment before the project is completed.
3. Look at “benefits assessment” idea, to capture infrastructure investment payments from governments and non-profits who benefit, but that are exempt from property taxes.
4. Consider allowing CPA funds to be used for water and wastewater capital projects
5. Look at the recently eliminated “rate relief” line item, Chapter 59 Section 21N.  Could this be funded again?  Could it be tweaked in order NOT to require the offset of rates?  Could be a way to avoid Prop 2 ½ overrides.
6. Rent and utility rates are deductible on state and federal income taxes.  Make water and sewer rates also deductible.  Look at low income eligibility and raise the threshold.
7. Look at what Barnstable is doing through its home rule petition (S. 2603) now in the legislature.  This will set aside the new local option excise tax (meals and/or rooms) and earmark for capital sewer fund.    Can this be set up for statewide enabling?
8. Tax on bottled water.
9. Is  there any role for private capital?
10. A regional water authority for Cape Cod?  Compare to what MWRA has been able to do with similar issues. This authority might, for example, be given authority to privatize some services and/or to accept responsibility for Title V septage removal on a regional basis.
11. Have the Commonwealth on the bonds
12. Privatizing some portions of the overall picture?

Mr. Pillsbury thanked Mr. Ciolek for sharing his perspectives with the Working Group.

Mr. Pillsbury asked the members of the working group what to cover at the next meeting.   It was agreed to try to meet on November 30 at one pm if possible, and to ask John Betkowski of the Connecticut DPU to come speak with the group about the issues with public private partnerships.