11/01/2010

June 15th Minutes

Commonwealth of Massachusetts

Water Infrastructure Finance Commission Meeting

Final Minutes:  June 15, 2010

The Commission convened at 10 am in Room 348 at the State House.

Members Attending:

Senator Jamie Eldridge, Representative Carolyn Dykema, Bruce Tobey, Thomas Walsh, William Callahan, Robert Zimmerman, Grace Lee (Treasurer’s designee), Peter Shelley, Phil Jassett, David Hanlon, David Terry (DEP Commissioner’s designee), Martin Pillsbury, Ned Bartlett, Stephen Long (attending for Becky Smith), Jennifer Pederson (attending for Michael Martin),   Patty Daley (attending for Paul Niedzwiecki)

Further conversation on state and federal programs

Guest Speakers:

Jackie LeClair – EPA Manager Municipal Assistance Unit

Steve McCurdy — DEP Director Division of Municipal Services

Stephen Perkins – EPA Office of Ecosystem Protection

Michael Ochs – EPA- Congressional/State Liaison

The Committee welcomed officials from the Environmental Protection Agency and the Massachusetts Department of Environmental Protection who gave brief presentations on the recently released Needs Survey, the status of Clean Water and Drinking Water programs at the national level, and related topics.

Ms. LeClair reported that reauthorization of the Clean Water Act is pending in Washington D.C. but the feeling at EPA headquarters is that it is unlikely to pass.  Wage rates and allocations are the biggest stumbling blocks.  On balance, it is unlikely that there will be any increase in funding for Clean Water and Drinking Water Programs in Massachusetts over the next few years, and those levels may even decline.

EPA has just submitted to Congress the 15th Clean Watersheds Needs Survey report, which is a nationwide analysis of capital investments necessary to meet the wastewater and storm water treatment and collection needs of the nation over the next 20 years.  The corresponding report, Fourth Drinking Water Infrastructure Needs Survey and Assessment was released in February of 2009.

EPA is now preparing to work on the next round of Needs Surveys.  For the Clean Water Needs Survey 2012, states will have the option to use the traditional method, or to use a new ‘Gap Approach” method, which is modeled after an asset management needs assessment first used in Pennsylvania.  The way the new documentation works is that states would submit data on operation, maintenance, capital needs, and revenues for a sample of wastewater treatment plants, sewer systems and combined systems. This data is then extrapolated to provide estimates on a statewide basis.  This may allow a more detailed picture of the sustainability of systems and the revenues needed to support the true cost of the systems.

Ms. LeClair also reported on EPA’s sustainable water infrastructure initiative.  The purpose is to encourage self sustainability of utilities, and the initiative relies on a number of principles:  full cost pricing; energy efficiency; overall utility management, best practices; and watershed approaches to protection.

Ms. LeClair also reported on some of EPA’s efforts in our region to promote asset management.  Some of the efforts include a recent public forum, the development of a set of best practices tools for effective utility management, and work with the New England Chapter of the American Public Works Association. These initiatives are held back due to a lack of sufficient funds.

One encouraging outcome of these efforts is an emerging initiative with the dean of the college of engineering at UMA Lowell, who wants to work on an engineering curriculum based on the asset management approach.

There are other interesting ideas being tried around the region.  For example, Maine has proposed that for the next round of SRF funding, applicants must set up a reserve account, to get utilities into a mode to do forward planning and save for a rainy day. Maine is also using some of their subsidy money for energy efficiency.

New Hampshire has put together an infrastructure committee to get a handle on all their needs, including drinking water, storm water, dams, etc.  They are starting to develop a model for assessing drinking water systems.

Ms. LeClair answered some questions from the Commission.

Mr. Eldridge:  What is full cost pricing?  A. The definition is pricing that brings in sufficient revenues for operating and capital needs, reflecting the true costs of providing the services.  There are some structural issues with this for some communities, since accounting varies from town to town.  For example, in some towns, the energy costs are not paid by the utility.

Mr. Tobey: Are any systems looking at full cost accounting?  Are there any incentives to drive them to that?  A. I can look into that, but not aware of incentives.  North Carolina has done a lot with pricing incentives.  Mr. Terry:   Bruce Osborne from DPU has done some interesting work on this, and would be a good resource for the Commission.

Mr. Jassett:  Regarding reauthorization, I had heard that the major obstacle to moving forward in the Senate was that states might lose some of their flexibility.  I do agree that it is unlikely the bill will pass this year.   A.  Headquarters thinks the major issue is the allocation formula.

Mr. Tobey:  Has EPA taken any position on bills to create a water tax?  These have been filed.

Ms. LeClair introduced Mr. McCurdy of DEP, who discussed the results of the Massachusetts portion of the Needs Survey.

We have 2% of the nation’s population, and currently we get about 2% of the Drinking Water dollars and slightly greater proportion (slightly less than 3%) of the Clean Water Fund, as these are based on 1989 allocations that favored Massachusetts.  We will do better proportionally if the bill is just refunded rather than reauthorized which may change our relative allocation.

For Clean Water, Massachusetts should be in pretty good shape, considering the gap between needs and funding.  The case can be made that Massachusetts is keeping up relatively well with the capital needs on the Clean Water side.

For drinking water, the story is very different.  At the rate we are going, we are never going to approach the need.  Massachusetts does a great job at leveraging the federal dollars we do get.  We got approximately 69 million in 2010 and we lent out $350 million.  It is important to keep in mind that in today’s market, the difference between our 2% loan and the interest rates available at market is significant but not especially generous, so our ability to use SRF incentives to drive policy is not necessarily realistic.  The borrower often has other options.  Money follows policy, it does not set it, and that is an important point.

Under the federal statute, you can’t use the SRF to fund any operations and maintenance gap.  This is not a role for SRF, and you can’t lend money for that.

One of the issues for us is collecting data from water suppliers, who do not always have time to respond to our requests.  We are working on that.

Mr. McCurdy answered some questions.

Mr. Shelley – Can you talk about definition of need?  A. Documentation criteria are set at the federal level.  There are seven CWNS documentation criteria, for example. To meet the criteria, the applicant must provide a description and location of the problem, as well as site specific pollution abatement measures and detailed cost information.  Needs submitted that did not meet the criteria are classified as unofficial cost estimates.  Because of these criteria, storm water need is dramatically under-reported.

Another area of need that is likely underreported includes our estuary program, which includes most of the cape.  DEP and EPA have funded 5000 septic systems, and decentralized systems and will be doing more.  Comprehensive waste water survey work needs to be completed.  But what used to be acceptable documentation is now much more regularized.

Ms. Pederson:  What is planned for next needs assessment? A.  A common question is use of the DWSRF to maintain pressure.  If you mention it as a public health issue, a municipality might get funding for that, but if you mention fire pressure, you don’t.

Mr. Zimmerman:  In these estimates, is there a built-in bias for more traditional needs?  A:  The majority of SRF money goes to rehab of existing infrastructure, including nutrient removal and upgrades of existing plants.  In part this is driven by the efficiencies of spending money for bigger systems. It is tough when a project benefits only a small majority of folks, even if that project is very important.  Perhaps these smaller systems need to use rate-setting in a different way.

Mr. Zimmerman – Green solutions can address multiple problems.  It is easy to overestimate the cost of these fixes, if we are stuck in a traditional estimate process.  I suggest a pilot program on estimating the life cycle basis of green infrastructure at treatment plants, for example.

Mr. Jassett:  We do have conventional categories, but category 6 is green infrastructure.  It is interesting that New Jersey moved up in the rankings because they requested a lot of money in that category.  We know that green infrastructure is not cheap, and storm water management is not easy.  The result of New Jersey’s initiative is that results may have been skewed, with New Jersey moving to a higher need category, while seven states reported zero in this category.

Mr. Eldridge: How could that occur?  Are the guidelines being met consistently across the states?  Mr. Jassett:  There are federal guidelines, but differences in the way states submit.  In this case, it could mean a billion dollars for New Jersey over ten years.  For me, this raises serious questions.

Mr. Eldridge:  Other than storm water, what should Massachusetts be focused on in terms of undocumented needs?

Mr. Pillsbury:  Storm water is the orphan.  Those states that put down zero are underestimating.  We need only look at the next generation of MS4 permitting to see that we will have greater and greater costs.  These are not captured or estimated at this time – we need a way to have a placeholder to get that on the accounts.

Mr. Jasset- This is true, but it is also true that there are no guidelines yet.

Mr. McCurdy:  We know that storm water utilities may be a way to get at this issue

Mr. McCurdy introduced Mr. Perkins from EPA to talk about storm water.  He stated that storm water is the poor stepchild at the table.   EPA is the clean water act permitting authority in this state, and so they write the MS4 permits.  These deal primarily with nutrient pollution.  It is really important to deal with storm water as locally as possible.  It is critical NOT to solve storm water problems with large infrastructure.

Mr. Perkins encouraged the Commission to think about ways to incentivize treatment of storm water at the local level, and to consider how to pay for this – storm water utilities are a possibility, but there will not be a “one-size fits all” solution.

Mr. Perkins encouraged the Commission to think about the impacts of climate change on these equations. Memories of March rainfalls are in our minds, and they remind us that it is  important to look at more than the traditional rain levels, in order to understand what may come.  We need to educate people about this as we reorient our investment strategy.

Finally, Mr. Perkins mentioned that EPA and DEP have worked on energy efficiency and renewables at treatment plants.  ARRA was used to fund approximately 14 pilot projects.  Moving forward, we need to think creatively.

Mr. Zimmerman mentioned a ribbon cutting for a green energy project.

Mr. Hanlon requested that we get information on what is going on in other states, especially Pennsylvania (Philadelphia) and Kansas City.

Senator Eldridge thanked all the guest speakers for their remarks and for supporting the Commission.

The Commission voted to approve the Minutes from the May 4, 2010 meeting.

The Commission voted to approve the Commission Protocol dated June 15, 2010.

The Commission discussed the proposed report outline and suggested several changes.

Comments:

Mr. Eldridge and Mr. Shelley:  Report should provide a context for the importance of water to Commonwealth, and emphasize sustainability.

Mr. Zimmerman:  The report should recognize the unique opportunity we have in the water rich northeast, especially as other parts of the country have difficulties with water.  Agriculture is moving north due to drought and water problems elsewhere in the US.  We can be a viable alternative.  The Ohio River Valley and northeast are parts of the country with reliable water.

Mr. Long:  The report needs to consider ways to reduce the need for costly infrastructure when possible, so we make our investments wisely.  Consider the use of land protection and watershed management.

Ms. Pederson.  Please be consistent with nomenclature between drinking and clean water.  The conversation about green systems is important, but don’t forget the needs of the traditional systems.

Mr. Walsh:  The time frame of our report is 25 years.  Looking long term is important, but we will need to revisit every five years. Also, suggest a bullet on recommended changes to the regulatory framework.  We are governed by NPDES permits that are five years, and other issues that set the regulatory framework.  In order to look at these issues in creative ways, we may need to suggest changes in that framework.

Mr. Tobey noted that John Kerry has been working on that since at least 1991.

Mr. Walsh:  We should look what is being done in the Chesapeake bay to expand on the Clean Water act.  We need to look seriously at point and non point sources.

Mr. Zimmerman:  I don’t believe there is a true non point source.  There is always a source.

Rep Dykema – One of the ways to better manage our water is to take a look at new technologies.  For example, I would like to look at the use of smart grid infrastructure for pricing and for regionalization.

Assignment of working groups:

Senator Eldridge stated that it is his intent to create working groups to do some of the work of the Commission. He asked the group to indicate areas they would like to include in the working groups.

Suggestions:

1. Innovative Water technology

2. Smart Grid

3. Water Rates/Pricing

4. Long term financing/broad based taxes

5. model asset management

6.  Role of enterprise funds

7.  Regionalization

8.  Storm water utilities and regionalization

9.  Breaking out of standard ways of thinking about water

10.  Legislative recommendations

11.  Districts, public private partnerships, privatization, governmental divestiture

12.  federal legislation

13.  Implications of Climate change

14.  Wall Street and financing the debt.  Financial leveraging; municipal debt; public financing products that might become available

15.  Operations and Management costs – are there ways to reduce?

16.  Reuse of Water

17.  Workforce training and expertise

18.  Understanding the municipalities

19.  Watershed based planning

Mr. Eldridge stated that he would take this input and issue a revised Report Outline and suggest a half dozen or so Subcommittees to be voted on at the next meeting.  He will then ask members to sign up to work on these issues.

The Commission voted to adjourn shortly before noon.

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