Commonwealth of Massachusetts
Water Infrastructure Finance Commission Public Hearing
Wednesday, October 13th
State House, Room A-2
The Commission convened at 10am.
Commission Members Attending:
Dave Hanlon, Martin Pillsbury, Becky Smith, Bill Callahan, Phil Jassett, Representative Dykema, Bruce Tobey, Michael Martin, Tom Walsh, Dave Riedel, Sen. Jamie Eldridge
Senator Eldridge: Welcome, thank you for coming. The Commission is particularly interested in hearing specific policy recommendations that will help Massachusetts meet its future water infrastructure needs. Future public hearings will be in Westborough, Cape Cod on November 10th and Springfield on November 30th.
Notes from the Testimony (please note: what follows is not an official transcript)
John L. Daniels
American Council of Engineering Companies
John Daniels: I have years of experience working in Storm Water and Waste Water. I will be submitting an article that was published in March 2009 regarding future water infrastructure needs. I am speaking on behalf of ACECMA. This is an opportunity to bring diverse groups together to work on this issue. We expect to provide both written and oral testimony at upcoming hearings, as well.
I would like to make a few basic points:
- We believe that the EPA Needs Survey woefully under-reports the need for water and wastewater infrastructure, particularly stormwater needs. Needs surveys capture large needs, but reporting is low on local capital improvements. The list fails to capture many municipal level needs.
- The American Reinvestment and Recovery Act brought a green component to the funding process that should be looked to and continued. Congress put a 20% set aside in EPA Legislation. There was some potential to deal with storm water issues with that funding.
- The final wording of the federal regulations on Storm Water will have a significant effect on the needs inventory. This year’s grant program will improve data collection, but most communities do not report on capacity problems, long term economic development costs, deferred maintenance etc.
- MWRA has had three community programs and $720 million to satisfy needs not covered by the SRF, but non MWRA towns are left out.
- When ARRA was first considered, the LG asked for shovel ready projects. Hundreds of water projects were submitted. Only projects that were on the 2009 needs survey were funded but the whole list should be looked at.
- Future capacity and unreported areas are a big unknown. Many municipalities choose to finance outside the SRF because current low interest rates make the SRF low interest loans less attractive. The rates should be lower.
- We have allowed enterprise funds since 1986/1989 but very few towns have taken advantage of that. Citizens need to understand the value of water, enterprise funding should be encouraged and communities need to move towards full cost accounting. The real value of the provision of water must be recognized.
- Education as to the true cost of water delivery is essential.
Senator Eldridge: Why haven’t more towns adopted enterprise funds?
John Daniels: Enterprise funds are an accounting process. Towns sometimes see the surplus funds generated by rates into the enterprise funds as available to the general fund. It takes political will to use the rates for intended purposes. Enterprise funds also require accounting and managing expertise.
Commissioner Hanlon: Do you have suggestions as to how to inventory the true municipal capital needs?
Mr. Daniels: Look at Capital Improvement Plans.
Mr. Hanlon: How is the DEP Grant program going?
John Daniels: Guinea pig. Ongoing.
Mass Municipal Association Panel
Board of Selectmen
Town of Natick
Thank you for your ambitious work. There are two elements essential to civilization, time and water.
Regarding stormwater– existing permits include public education, best practices, etc. New draft permits will require additional phosphorous removal and record keeping. These are unfunded mandates. New requirements will have real costs to cities and towns, require new paperwork and new staff. These are critical issues we are being asked to address, but we need to do it collaboratively.
Requirements are sometimes difficult to implement and towns and cities get little guidance in advance of new requirements. Requirements frequently treat every community the same, with little flexibility and often have unrealistic time frames. Assistance needs to come along with mandates and we need to work more collaboratively.
Prevention is the way to go. We should evaluate the effectiveness of the first Npdes permits prior to moving on to the second. We shuld create a funding source for this program that is fair and transparent.
Stormwater is not necessarily a pollutant-it depends on land use. Tying the costs of mitigating storm water to land use should be looked at.
Town of Norfolk
We have 100,000 users including prisons. Our town has a municipal water system as well as an enterprise fund. It’s an excellent way to have the water system work. It takes the money out f the political debate. It’s self sustaining and we can build up reserves while using the state revolving fund to fix leaks.
We’re sending a proposal for a storm water enterprise fund to town meeting this year. We’re also bringing up a sewer enterprise fund for a small package plant. It is a very expensive proposition and there is not a clear source of funds for that project. As a result developers are working with the town on zoning changes to implement the new plan. We’ve had to pursue a public/private opportunities.
Running a water company is hard. The day of “mom and pop” small water systems is over. Towns need to regionalize. The state could provide incentives to encourage that. A great example of a policy where this approach worked is the stretch code in the Green Communities Act. We should work to develop progressive rates. Encouraging efficiency is dicey because rates are volumetric. The state should give towns incentives to innovate.
City Engineer, City of Gloucester
Gloucester’s water system is between 100 and 130 years old. Our treatment plants are about 40 years old. Recently our 20 day boil water order drove home the importance of maintaining that infrastructure.
During the boil water order the city faced serious challenges with hospitals and nursing homes, bringing in tanker trucks of water to meet the needs of those places. Fish processing plants had to be shut down. All in all fixing the problems cost about $10 million.
In 1995 water rates were about $2.70 per thousand gallons. Right now water rates are about $8.75 per thousand gallons. It may be as high as $15 in less than 5 years. We got around proposition 2 ½ by shifting debt to the city’s general fund.
Looking ahead we have about 80 million dollars in additional improvements that will need to be made. That would add 40% to 50% to our rates.
Regarding the MS4 phase II stormwater permits, my fear is that it will require changes mid year that haven’t been budgeted for. The time table for compliance may be unreasonable and ratepayers and taxpayers can’t sustain those additional costs. To deal with those new costs the city will have to consider laying off employees, deferring maintenance, raising new revenues or some combination of all three.
The SRF is great but it has some significant costs associated with it. Grant financing or 0% loans would be very helpful.
Vice Mayor of Cambridge
The SRF program can be confusing and a 2% interest rate on the loans is insufficient to incent the use of the SRF. There are occasionally delays in issuing bonds and there should be some process for expedited bond approval.
Cambridge applied for $38 million in funding for projects under the stimulus but did not receive any assistance. We have hundreds of millions of dollars worth of projects in line. Cities and towns have made enormous investments in water and wastewater and our infrastructure is an essential foundation for everything else that we do.
Regarding the nitrogen problem, the Mass Estuary project was a 6 year project, from 2002 through 2008, that was supposed to produce a number of reports. There are 29 estuaries in Buzzards Bay and so far only two have had reports issued two years late.
You’ve got to know where we’ve been and we need answers in order to make good policy judgments.
Thank you. There were some very good points made. We need to think about what the impact of new regulations will be on economic growth, particularly on the waterfront and in the fishing industry. Raising rates to cover the cost of depreciation is very politically difficult.
Mr. Riedell: Regarding the timing of bond sales and reimbursement, the SRF interim loan fund works to resolve those issues and anyone who has questions about that program can speak with me.
Mr. Pillsbury: Regarding regionalization, perhaps there should be a bonus for regionalizing to help combat the enormous up-front costs of consolidating assets.
Mass Water Works Association Panel
Water and Sewer Engineer
Town of Concord
Alan Cathcart: I applaud the commission for its works. Concord has an enterprise fund for water and sewer. The town has approximately $18 million in assets. We rely on both groundwater and surface water. We’ve been a system since 1872.
Generally the pipes are as old as the neighborhoods in town so we look at the age of neighborhoods to help develop our maintenance plans.
Our customers are very supportive in most cases. We make an effort to educate our customers in order to maintain that support. People are willing to pay for good services when they understand what they’re getting. There is a huge void in understanding the true cost of services. We account for depreciation in our rates.
There is an expectation of service 24/7. Customers will accept an occasional upset but that undermines the sense of confidence people have in the system and their water. Those disruptions can hurt the faith people have in the system for years.
We make an effort to educate students in 4th and 8th grade and there is a lot of value in that. Basically consumers have no idea how local infrastructure works and the environmental impacts of their water use.
There’s a gap between the value of water and the demand on costs. I hope that the commission will work to inform and educate the public about the value of water.
City of Worcester
Worcester’s drinking water system includes reservoirs from the 1880’s, more than 600 miles of pipe and it is maintained with an enterprise fund. Our treatment facility for our wastewater was completed in 1997 and it is regional. For stormwater we have 300 miles of infrastructure as well as 1,300 catch basins. All the specifics will be included with written testimony.
Communities want and need reliable water, safe and sanitary sewers and clean rivers and lakes as well as recreational opportunities. We have spent $3 to $4 million a year for about 30 years and all our improvements in that time have been, ultimately, locally funded.
New regulatory demands can cause problems. The Upper Blackstone system was built in the 1970’s with state and federal funding. The system had a huge impact on the river. In 2001 new nutrient limits were imposed and the system was improved. The improvements for wastewater treatment in 2004 were about $2.9 million. This year it will be about 16 million. That is a huge cost increase.
In 2008 the EPA’s regulations would require an additional $200 million in investment and add $15 million to our annual costs in debt service and operation and maintenance.
There is a great debate over whether there will be measurable improvement to the river as a result of these changes. Is this money well spent? We need to ask if these changes are in fact the most appropriate use of finite resources.
The improvements made to the system in 2001 were 97% funded with SRF money. The costs are high and financial sustainability is critical.
The commission should look at the regulatory system. Cost effectiveness and a cost benefit analysis of new requirements should be included or funds will be squandered.
There should be a grant program and the SRF should be made less burdensome. Large cities with good bond ratings can often leverage better rates on their own without going through the burdensome paperwork associated with the SRF.
The 2008 Environmental Bond bill included $25 million for water infrastructure grants but that money just sits there. Authorizing the expenditure of those funds would be a good start.
The state should also use incentive based programs like the “go with the flow” program. Having ordinances that encourage low impact development and an integrated water resource management plan should be rewarded with lower SRF rates and access to state grants.
Senator Eldridge: Could you point towards specific regulations that are burdensome in the SRF process?
Mr. Guerin: We will be more specific in our written testimony.
Representative Dykema: Could you comment on the cost of energy?
Alan Cathcart: Balance between energy cost and other tradeoffs including shipping. In sum energy is a variable cost but probably no greater than 10% of our total costs.
Corporate Accountability International
Think Outside the Bottle
Kristin Urquiza: Thank you. Massachusetts is very fortunate to have strong public water systems. The rise of the bottled water industry has had a number of costs associated with it. The industry uses marketing to create demand for bottled water and undermine people’s confidence in public water systems.
Corporate Accountability International believes that the time has come to cut state spending on bottled water and instead use that money to improve our public water systems and spread the word about the need to invest in our water infrastructure.
Senator Eldridge: Thank you for your testimony. Education is absolutely critical.
Terrence Sullivan, DPW City of Fall River
Water and Sewer Divisions
Terrence Sullivan: Money is the underlying issue. Fall River has a combined sewer outfall system. Improvements were required by the federal clean water act. Completion of the improvements is still some time away, but there will be a dramatic rise in the sewer fee and storm water fees.
There will be public outcry over storm water utility fee. Model ordinances that institute a fee based on impervious surfaces with different rates for commercial properties, again based on impervious surfaces, could impose significant costs. Fees should be used for stormwater infrastructure.
Even when customers understand why rates are going up, they can be unhappy.
Interim loans from the SRF can be great, but we need more. SRF loans also impose high debt costs.
We’re in the process of implementing a 20 year capital plan to replace cast iron water mains that date back to the late 19th century. Our division is also responsible for dams so regulations regarding dam upgrades come out drinking water rates.
A few suggestions– first, the SRF should offer zero percent loans. Second, cities and towns with loans from the SRF should be able to refinance to zero. A lot of our infrastructure was built in the 70’s with federal and state grants. We need to return to that idea.
Water Pollution Control Association and
New England Water Environmental Association
Joseph Witts: Thank you for letting me speak. We’ll be submitting written testimony. Thanks to ARRA there were some excellent one time infusions of funds but that was ultimately inadequate.
Federal support needs to be a sustained effort. Nationally there is probably a funding gap of over $300 billion over 20 years.
In recent years, Federal support has been cut. The difference has been shouldered by rate payers and municipal governments. Aging infrastructure and complex regulations pose challenges to providing water services and threaten future growth.
Federal funding is necessary. I hope the commission will work with Congress to restore and increase federal funds.
DPW Director,Town of Spencer
Spencer is a small community. Our water system dates to the late 1800’s and about one third of our residents are on the system. We have about 33 miles of pipe, an enterprise fund and some problems with low pressure. We recently completed an $8 million system upgrade, the SRF helped and we got some ARRA funding.
We also had a 100% rate increase over two years. Growth should follow capital planning and enterprise funds. Our community is too large to be eligible for USDA grants but too small to get much attention from the SRF.
Outreach to get small systems into the SRF would be helpful and the commission should reexamine the list of projects submitted to the administration for ARRA funding.
Educating the public is absolutely critical because people don’t see the pipes and sometimes don’t understand the value of improving that infrastructure. There should be a public education component that goes along with any grants.
DPW Water and Sewer Department
James Marshall: 75% of the residents of Plainville are on the municipal water system. 35% of town is sewered and we’re members of a regional wastewater system. Water supply is a big economic question.
I’m worried about how we’re going to meet the new needs of growth. Capital improvements are built into our rates so people can see where their money is going.
It would be helpful to have a 0% option on the SRF and if we freed up the $25 million in bond money that hasn’t been spent.
Because of the economy, people have a difficult time paying even minor bills. The cost of new mandates should be evaluated.