Commonwealth of Massachusetts
Water Infrastructure Finance Commission Meeting
Approved Minutes February 8, 2011
In a meeting duly posted, the Massachusetts Water Infrastructure Finance Commission convened on February 8, 2011 at 10 am in Room 348 at the State House.
Senator Jamie Eldridge, Representative Carolyn Dykema, Bruce Tobey, Thomas Walsh, William Callahan, David Riedell (Treasurer’s designee), Peter Shelley, Phil Jassett, David Hanlon, David Terry (DEP Commissioner’s designee), Martin Pillsbury, Ned Bartlett, Paul Niedzwiecki; Michael Martin; Becky Smith; Thomas Tilas
Kara Keefe (Senator Donaghue’s office); Pam Heidell (MWRA); Mike Morris (MWRA); Marianne Connolly (MWRA); John Clarkeson (EEA); Leah Robins, Brendan Sullivan (Senator Rodridgues’ office); Representative Paul Schmid (Westport); Sally Schnitzer; Sharon Neely.
Senator Eldridge called the meeting to order.
The Commission voted to approve the minutes of October 26, 2010 and November 30, 2010.
The Senator thanked Mr. Jasset for his leadership in getting an article about the work of the Commission in Construction Outlook magazine, a publication of UCANE.
Reports of the Working Groups
Working Group One – current water infrastructure needs and long term challenges
Representative Dykema reported that a draft document is coming together in Working Group One but is not yet available to distribute to the Commission. But here are some of the headlines:
The big picture is that water is important for public health, public safety, economic vitality, national security, and environmental health
Informing the public as to why infrastructure investment is important will be critical.
Assessing the state’s financial needs is the biggest challenge and the biggest part of Working Group One’s charge. We view the gap as being the difference between ALL the costs (operating, maintenance, and capital) MINUS all the available revenues (rates, grants, loans, bonds, betterments). This information is very difficult to obtain for a variety of reasons. We met last week with Cadmus, who does the EPA Needs Survey each year, and who also worked with the State of Pennsylvania on their infrastructure report. We talked with them about how to answer this question, given that we don’t currently have money to undertake a detailed survey. We are still gathering info, but are looking for ways to express this gap that will make sense and be credible. We have a lot of information from Dave Riedell, which is very helpful. We also have information from the MWRA communities and from Tighe and Bond, which we are using. Another element will be to relate the costs of water and sewer utilities to the price that consumers pay for other, less essential services. These include phone, cell phone, cable, etc.
Stormwater estimates are a huge part of the equation. We know the number is large, and it probably exceeds water and waste water together. We will learn a lot in the coming months as RDA pilot in Franklin area develops. We are trying to sort out a way to approximate the need.
Our portion of the report will cover some broad themes that may be used to reduce the gap. These include:
- Innovative infrastructure
- Energy efficiency
- Asset management
- Increased use of technology
Regulation and the cost of meeting new regulations is something municipalities have mentioned repeatedly. We recognize that regulation is critical to preserve the environment and to maintain the public health. The question is, how do we regulate to get the most public benefit? In some ways, this is a question of timing the implementation. Towns want to be able to plan and manage their resources.
Another issue is Primacy. Massachusetts has primacy in drinking water, but EPA has the primacy for Clean Water. Is the state in a position to take on primacy, and if so, would this give us more control over the way towns have to meet mandates?
Conservation is an issue that affects the bottom line and therefore the funding needs for cities and towns. Conservation drives down water use, which then can drive down revenues, which towns depend upon.
Senator Eldridge: When the Tranportation Study Commission identified a huge number for the gap in transportation funding, it seemed overwhelming and therefore unapproachable. Is there some way in our report to prioritize parts of the gap? A: We can look at that.
Mr. Callahan noted that in the meeting with Cadmus, it is clear that the EPA Needs Survey is used to develop a nationwide, consistent number so that they can distribute the money available. The goal is NOT necessarily to capture all the costs that state and municipal utilities are facing. We can’t really use the Needs Survey data to answer that question, because to refine the number requires a level of data we don’t have.
Mr. Tilas noted that many cities and towns have good capital plans, as does the MWRA, and other operating information. Can we collect a representative sample and then generalize? A: That is essentially what Pennsylvania did using Cadmus as the consultant.
Mr. Hanlon noted that most towns have an operating budget that is voted on, but to the extent that the budget is constrained by budget guidelines and tight fiscal situations, the operating budget may not necessarily reflect the needed expenditures. However it is certainly the case that many of the larger towns have developed 5 or 10 year Capital Improvement Plans with good numbers.
Mr. Callahan said that Cadmus uses a cross section of towns, but goes out to collect the information to make sure that it is complete. The issue is that it needs to be investigated and surveyed and compiled.
Mr. Niedzwiecki asked how the Working Group is dealing with expansion of infrastructure when expressing the gap. The expected need for infrastructure on Cape Cod alone may dwarf the Need Survey. Using the TDMLs that have been certified, we can get an idea of the size of the problem. We need to develop a methodology to estimate for system expansion on the Cape.
Representative Dykema said that the Needs Survey does not reflect expansion needs. She also added that expansion costs are an issue in Metrowest for reasons of growth.
Mr. Jasset pointed out that the Cape is a crucial income generator for the state.
Ms. Smith noted that the Working Group makes an important point that innovation can reduce costs in some cases. This is especially true in the storm water realm.
Mr. Pillsbury urged that we look more closely at the MS4 permits for nearly 200 communities. Even more than the RDA, this may give us a glimpse at the costs that most communities will face for storm water compliance. Some consultants have looked at rough costs for MS4 level compliance.
Mr. Shelley proposed that there were three categories that might face different problems, and perhaps the report could group them accordingly.
- First, existing systems that are up and running and generally in compliance. They have sunk investments.
- Second, Cape Cod and other special circumstance systems that have unique problems and solutions.
- Third, New statewide stormwater capital investments.
Working Group Two – Municipal utility and water district financing
Mr. Walsh summarized the work of Working Group Two. There are some areas of overlap with Group One, which is encouraging. Some of the things we are looking at include the following:
Relative to the State Revolving Fund: What if any, requirements for SRF loans might be relieved or modified? Should towns be required to have a capital improvement plan or an enterprise fund in order to qualify for SRF funding? Should the interest rate for SRF loans be tied to the market rate, with a cap? Could a statewide infrastructure tax enhance the SRF program?
- Looking more closely at municipal utilities and water districts, what can we learn from the Tighe and Bond rating system about rates and costs? What innovative ways are towns funding water infrastructure? Look at the impact of DEP permitting to see if we can lessen the financial impact. Look at regionalization, enterprise funds, the identification of cost centers, and ideas to reduce costs.
- Relative to rates and pricing, we are looking at whether it is advantageous to decouple water rates, using a fixed rate for fixed costs and variable rate for water use. We see a need for education and outreach so that customer understand the true cost of providing clean water and sewer services.
- Relative to storm water utilities, we are looking at the new storm water EPA requirements and at possible models for financing those. Some other states have storm water utilities, and we are looking at what can be learned from them. In Massachusetts, a handful of towns have established the storm water utilities and we are looking at the way those are financed.
- Finally, we are looking at the primacy issue. Massachusetts is one of only a few states that does not administer the federal Clean Water Act. We do administer the Safe Drinking Water Act, and fund it through an assessment fee paid by all water districts and matched by the federal government. Are there any efficiencies or opportunities if we were to take on the Clean Water Act portion?
Mr. Shelley asked if this group or any other group will be looking at the role of private systems, privatization, etc.
Mr. Shelley also noted that from his point of view there is great value in taking the politics out of utility management. These utilities should be professionally managed, and decisions made for the long term, and this is often difficult when the decision-makers are elected officials.
Working Group Three Innovative Water Systems, Technologies, and Infrastructure
Mr. Bartlett reported on the progress of Group Three.
This subcommittee is focusing on developing a framework to evaluate the role of and the challenges in implementing innovative technologies and green infrastructure. These developing opportunities offer great promise, but also have inherent “risks” because the technologies are less known or tested. However, there is the potential that innovation may offer economic returns over the life of the asset, move forward environmental, energy, ecological or social values, or increase the ease and efficiency of operations.
The draft on the table today is very preliminary, but indicates the direction the conversation is headed. We are putting together some working principles.
- Watershed Management Approach. The planning and management of water infrastructure should be done on a watershed basis, rather than along political boundaries.
- Decentralized Infrastructure with Centralized Management. In order to increase economies, decentralized infrastructure should be managed centrally on a regional or watershed basis.
- Risk. Greater adoption of innovative technologies require managing regulatory compliance and third party litigation to eliminate economic risk to the regulated community in the instance of failure.
- Economic Value of innovative or “green technologies”. While environmental and public health benefits are very important, the economics of a transition to innovative or “green technologies” will result in widespread adoption if it can be demonstrated that these technologies have value and are more reliant.
- Systematic approach to demonstration projects. Financial assistance to evaluate and test demonstration projects may be the most cost-effective way to remain open to innovation.
- Challenges of home rule. Massachusetts home rule and perhaps other commonwealth laws may impede these goals.
Mr. Shelley suggested that the working group look at the role of building codes and subdivision regulations. Are they barriers or incentives?
Ms. Smith noted that Clean Water Action will be funding an intern in Washington to look at the fate of federal funding to green projects.
Representative Dykema wondered if the procurement process in Massachusetts is seen as an impediment to innovation? Are towns required to take the low bids?
Mr. Martin responded that the procurement laws ARE important, as are the Chapter 149A design-build statutes.
Working Group Four – State and Federal Financing
Mr. Pillsbury referred to a February 3, 2011 DRAFT report from Working Group Four in making his remarks. This draft is preliminary.
The State Revolving Fund (SRF) has been the principle source of infrastructure capital investment funding since 1989. Through the year 2010, these federal grants have provided $1.59 billion to the state. By leveraging the federal dollars with state funding, the MA Water Pollution Abatement trust has multiplied the grants by an average factor of 3.4, translating the $1.59 billion into $5.44 billion in project financing.
These are all low interest loans, which eventually the community repays into the fund.
In 2009, the state received a one-time $185 million dollar grant from ARRA, that represents nearly 12% of the total federal funding since 1989.
There have also been some one-time Congressional “earmarks” to specific projects, most notably Boston Harbor.
Due to uncertainties in the federal budget, it is difficult to anticipate what funding we might receive in the next few years.
The take-home message is that we have received a significant federal investment, have leveraged it well, but even so face much greater needs than we can address.
Working Group Four has been putting together an outline for a potential new funding mechanism, which we are calling the “Water Preservation Fund”. This mechanism mirrors the existing Community Preservation Act which raises funds for open space, historic preservation, and affordable housing.
The proposed fund would be structured to:
- better reflect the true cost of water and waste water service,
- provide incentives for municipalities to adopt best management practices,
- provide incentives to address regional or watershed solutions,
- build on the existing SRF program.
- Use broad based sources of funding that are connected to the problem
- Retain decision making and spending at the local level
- Encourage cost/benefit analysis of innovative solutions, green technologies
- Spread the cost of water infrastructure to the entire community
Right now this proposal is in a very preliminary framework, but the plan is for a state match that would be paid from a dedicated revenue source. There are a number of good ideas for what purposes to use the match funds, including grants or reducing the SRF interest rate for participating towns.
The municipal match could come from a property tax surcharge, local rooms or meals tax, or general revenues. Municipalities who participate would be required to have or undertake a capital improvement plan, best management practices, an enterprise, and full cost accounting.
There are a lot of details to work out, but the ideas are intriguing.
Mr. Bartlett asked whether towns with private wells could participate.
Mr. Shelley suggested that communities on septic systems should be able to participate, as well. Many of them are in crisis.
The Commission discussed some ideas of how the proposal might be framed so that these municipalities might be able to participate.
Senator Eldridge asked if there were any additional comments. He thanked the Working Groups, and especially the Chairs for their hard work. It is hoped that the Groups will continue to refine their reports and drill down on the details prior to the March first meeting.
The meeting was adjourned.