x>EPA
United States
Environmental Protection
Agency
 October 2011
EPA 190-S-11-004
 ENVIRONMENTAL FINANCIAL ADVISORY BOARD:
  Providing Advice and Recommendations to EPA
      A Compendium of Reports 2001-2010

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                                                     Compendium ofEFAB Reports 2001-2010


                               TABLE OF CONTENTS


EFAB OVERVIEW	v

ABSTRACT 	vi

SUCCESS HIGHLIGHTS	vii

EPA STRATEGIC GOALS	x

SECTION 1 -TAKING ACTION ON CLIMATE CHANGE AND IMPROVING AIR QUALITY

Financing Mechanisms for Reducing Greenhouse Gas Emissions, and Other Air and
Water Pollution Problems	2

Voluntary Environmental Improvement Bonds (VEIBs): An Innovative, Local, Environmental
Finance Concept for Mitigation of Climate Change Risk; Air Pollution Reduction; and the
Reduction of Non-Point Source Water Pollution	4

Financial, Underwriting, Risk Mitigation and Consumer Protection Consideration for the
Adoption of Voluntary Environmental Improvement Bond (VEIB) Programs	6

Innovative Finance Program for Air Pollution Reduction	8

SECTION 2 - PROTECTING AMERICA'S WATERS

Financial Assurance for Underground Carbon Sequestration Facilities	11

Water Loss Reduction  Financing Mechanisms for Drinking Water Distribution Systems	12

Relative Benefits of Direct and Leveraged Loan Approaches for State Revolving
Fund Programs	14

Public-Private Partnerships in the Provision of Water and Wastewater Services:
Barriers and Incentives 	15

Public-Private Partnerships in the Provision of Water and Wastewater Services:
The Canadian Experience	17

Combined Sewer Overflows - Guidance for Financial Capability Assessment
and Schedule Development	18

EFAB Supports EPA's Private Activity Bond Initiative	19

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                                                      Compendium ofEFAB Reports 2001-2010


                           TABLE OF CONTENTS (Continued)

Sustainable Financing for Watersheds	20

Expanding the Definition of State Revolving Fund Financial Assistance	22

Establishment of a New State Revolving Fund Loan Guarantee Program	23

Application of Useful Life Financing to State Revolving Funds	24

Affordability Rate Design for Households	25

Maryland's Bay Restoration Fund Act	26

Combined Operations of the Clean Water and Drinking Water State Revolving Loan Funds	27

Useful Life Financing of Environmental  Facilities	28

Innovations in Watershed Financing	29

Findings from EFAB's Environmental  Management Systems Workshop	31

Workshop on Governmental Accounting Standards
Board Statement No. 34: Summary of Results	32

Coordination of USEPA/SRF and USDA/RUS Water and Sewer Loan Assistance	33

Expanding Lending for Non-Point Source Projects	35

Public Sector Initiatives to Increase Efficiency and Overall Performance in the Water and
Wastewater Industry	36

Conservation Savings Increment Loans: A Proposal Concerning the State Revolving Funds	37

Arbitrage Relief Would Increase Funds Available to Meet Critical Water
and Sewer Funding Needs	38

Private Sector Initiatives to Improve Efficiencies in Providing Public Purpose
Environmental Services	39
                                                                                   in

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                                                    Compendium ofEFAB Reports 2001-2010
                          TABLE OF CONTENTS (Continued)
SECTION 3 - CLEANING UP COMMUNITIES AND ADVANCING SUSTAINABLE DEVELOPMENT
           AND ENFORCING ENVIRONMENTAL LAWS

Financial Assurance: Commercial Insurance as a Financial Assurance Tool	41

The Use of Captive Insurance as a Financial Assurance Tool in Office of Solid Waste
and Emergency Response Programs	42

Use of the Financial Test and Corporate Guarantees to
Meet Financial Assurance Requirements Under RCRA Programs 	43

BrownfieldsTax Incentive Letter	44
SECTION 4 - CROSS-GOAL REPORTS

Environmental Management Systems and the Use of Corporate Environmental
Information by the Financial Community	46

Application of Innovative Finance Techniques in the Transportation Infrastructure and Financial
Innovation Act of 1998	48

Protecting America's Land Legacy: Stewardship Policies, Tools, and Incentives to
Protect and Restore America's Land Legacy	49

Small Business Innovative Research Topics	51

Acknowledgements	52
                                                                                IV

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                                                      Compendium ofEFAB Reports 2001-2010

                                  EFAB OVERVIEW

The Environmental Financial Advisory Board (EFAB) is an independent advisory committee
chartered in 1989 under the Federal Advisory Committee Act (FACA).  Committees under FACA,
which provide a role for the public to participate in the federal government's decision-making
process, allow the government to draw on the experience and points of view of committee
members, providing federal officials information and advice on a broad range of issues affecting
federal policies and programs.

EFAB members are appointed by EPA's Deputy Administrator and represent federal, state, and
local governments;  tribes;  the  finance  and banking  communities;  business  and  industry;
national and  regional organizations; and  all levels of government. EFAB produces policy and
technical reports on a wide range of environmental finance matters of interest to EPA, often
examining the impact of these issues on local governments and small communities.

EFAB  initiates projects when EPA  requests advice on  a specific  environmental  financing
question, or  when EFAB members identify  important environmental  challenges that they
believe the Agency should address.  Following the identification of work  projects, EFAB holds
public meetings, workshops, roundtables and working group sessions to gather information
used to develop advisories, reports, and  letters.  When work is complete on a project,  EFAB
issues its findings to EPA senior managers.

Each year the Board develops a  Strategic Action Agenda comprised of projects that supports
one or  more of  the  Agency's  major goals.  EPA's  FY 2011-2015 Strategic  Plan organizes
implementation of EPA's mission to protect human health and the environment around five
goals:

   1) Taking Action on Climate Change and Improving Air  Quality;
   2)  Protecting America's Waters;
   3) Cleaning Up Communities and Advancing Sustainable Development;
   4)  Ensuring the Safety of Chemicals and Preventing Pollution; and
   5)  Enforcing Environmental Laws.

In its work,  EFAB seeks to provide advice and recommendations to EPA that focus on:

   •   lowering costs;
   •   increasing public and private investment; and
   •   building state, local, and tribal financial capacity.

Over the years, EPA has adopted many of the Board's recommendations, contained in a variety
of environmental policy and technical reports, advisories, and  letters.  To view the Board's
current  Strategic Action Agenda and completed  work products, please visit  EPA's website at
www.epa.gov/efinpage/efab.htm.

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                                                       Compendium ofEFAB Reports 2001-2010

                                     ABSTRACT
This compendium of reports highlights the work of the U.S. Environmental Protection Agency's
(EPA) Environmental Financial Advisory Board (EFAB) over the past ten years. The compendium
contains summaries of all of the reports and recommendations that EFAB transmitted to the
Agency during this period.  It also includes  summaries of actions EPA took that relate to the
report recommendations.

The compendium has  been developed in response to requests from Board members and EPA
stakeholders  for  more  information  on  how   EPA  made  use  of  EFAB  research   and
recommendations. The expectation is that this additional information will inform future  EFAB
work.

The compendium is divided  into four sections relating to major EPA program areas and FY 2011-
2015  Strategic Plan goals.  Areas covered by these  EFAB reports include public and  private
partnerships, drinking  water and wastewater financing mechanisms,  solid  waste financial
assurance tools,  and air pollution reduction financing innovations. Examples of report topics
include investment options for state water financing authorities, financial assurance  issues
associated with  the long-term storage  of carbon dioxide in  underground wells, solid waste
financial assurance issues related to commercial insurance and cost-estimation, and financing
mechanisms to address the  reduction of greenhouse gas emissions and other air and non-point
source water pollution problems.

The compendium  reveals  that over  the  ten year period from 2001  to 2010,  EFAB was a
productive Federal advisory board for EPA.  During the period, EFAB produced thirty-six reports
covering  four of the five Agency's strategic goals1.  The thirty-six reports were distributed
among the following  EPA  media areas: twenty-four water-related  reports; four  air-related
reports; four solid waste/cleaning up  communities-related reports; and four reports that span
across all five of the Agency's strategic goals.

Of the twenty-four water  reports, ten involve the Clean  Water and Drinking  Water  State
Revolving Loan Fund (SRF) programs,  recognizing the significant nature of these programs. The
remaining fourteen water reports relate to the operations of local public-purpose utilities, the
use of public-private partnerships approaches and  tools, and watersheds and innovative finance
issues.
1 The safety of chemicals and preventing pollution goal was not addressed as the Board did not receive any EPA
requests in that area.
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                                                      Compendium ofEFAB Reports 2001-2010
           SUCCESS HIGHLIGHTS FROM EFAB REPORTS TO THE AGENCY
                                     2001-2010
The four EFAB projects described in this section represent just a few examples of the many
successful outcomes and follow-up actions taken by the Agency and others in response to the
thirty-six EFAB reports issued during this period. The projects selected provide a good overview
of the variety of important environmental media and finance issues examined by the Board in
response to specific Agency requests.

Report
Private Sector Initiatives to Improve Efficiencies in Providing Public Purpose Environmental
Services (July 2001) -  Page 39

Recommendations
EFAB recommended that EPA call publicly for  private activity bond reform to support urgent
environmental infrastructure needs. The Board urged the Agency to support the exemption of
private activity bonds (PABs) from state volume caps, whose proceeds finance public-purpose
drinking water and wastewater facilities.

Actions/Outcome of Report
In the FY 2007 President's  Budget, EPA proposed  to exempt PABs used to finance drinking
water and wastewater infrastructure from the state volume caps.

Report
Innovations in Watershed Financing (January 2005) - Page 29

Recommendations
EFAB  recommended  that EPA  sponsor a  roundtable involving  states, localities, financial
institutions, businesses, nonprofits,  and others to explore the full  range of possible financing
options  for watershed programs and  activities. The Board  further recommended  that EPA
expand  training for  watershed  groups using  innovative  financing  and  funding tools,  local
resources and networks to increase  knowledge about, and the potential use of, a wide variety
of financing and funding options.

Actions/Outcome of Report
On  March 9, 2006, EPA's Office of Wetlands, Oceans and Watersheds (OWOW) funded  a
watershed finance roundtable focused on diversifying funding options, utilizing private sources
of funding and building watershed organizations'  business strategies. The roundtable provided
a forum for discussion and the creation of action  items that participants could pursue. OWOW
also developed a number of online tools and training modules to help watershed organizations
prioritize activities that require funding and to learn about the basic steps involved in  obtaining
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                                                       Compendium ofEFAB Reports 2001-2010
                        SUCCESS HIGHLIGHTS (CONTINUED)

watershed funding.  Examples: The  University at Southern Maine and Boise State University
Environmental Finance Centers2 developed a watershed planning tool, called Plan 2 Fund, that
estimates the  costs of watershed plans, goals and objectives, assesses local resource match
needs, and determines the funds  needed to meet goals and objectives. Boise State developed
an EFC Financial Dashboard to help communities assess  the  financial status of their water
systems.

Report
Innovative Finance Program for Air Pollution Reduction (November 2005) - Page 8

Recommendations
EFAB  recommended that EPA encourage  States to create Air Quality Finance Authorities, or
empower existing environmental finance  authorities to finance certain types of air emission
reduction equipment; or at least, create a  state-wide or regional air emissions  reduction
program.

Actions/Outcome of Report
Congress appropriated funds for  FY  2008 to help reduce harmful emissions from heavy duty
diesel engines. With those funds, EPA's Office of Transportation and Air Quality  issued a $3.4
million grant solicitation as part of the SmartWay Clean Diesel Finance Program to establish
innovative finance projects, including air financing authorities.

Report
Financial Assurance for Underground Carbon Sequestration Facilities (March 2010) - Page 11

Recommendations
The  Board  recommended  that  EPA use a  blend  of RCRA subtitle C financial assurance
requirements (substantial business relationship) and SDWA financial assurance  requirements
for Class I  wells.  Further,  EFAB  urged EPA to require a periodic review of the scope of
obligations covered by financial assurance as well as the  continued viability of the financial
instruments used.

Actions/Outcome of Report
EPA  referenced the EFAB report  findings and  recommendations in detail  in the final rule,
Federal requirements Under the  Underground  Injection  Control (UIC) Program for Carbon
Dioxide (C02) Geologic Sequestration Wells, published in the Federal Register on December 10,
2010.
 EPA supports ten Environmental Finance Centers around the country through a grant program.
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                   Compendium ofEFAB Reports 2001-2010
ERA'S STRATEGIC GOALS
                                   IX

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                                                           Compendium ofEFAB Reports 2001-2010
                                    EPA's Strategic Goals
Goal 1 - Taking Action on Climate Change and Improving Air Quality

         Reduce greenhouse gas emissions and develop adaptation strategies to address climate
         change and protect and improve air quality.
Goal 2 - Protecting America's Waters

         Protect and restore our waters  to  ensure  that drinking  water is safe,  and that aquatic
         ecosystems sustain fish, plants, and wildlife, and economic,  recreational, and subsistence
         activities.
Goal 3 - Cleaning Up Communities and Advancing Sustainable Development

         Clean up communities, advance sustainable development, and protect disproportionately
         impacted low-income, minority, and tribal communities. Prevent releases of harmful
         substances and clean up and restore contaminated areas.
Goal 4 - Ensuring the Safety of Chemicals and Preventing Pollution

          Reduce the risk and increase the safety of chemicals and prevent pollution at the source.
Goal 5 - Enforcing Environmental Laws

          Protect human health and the environment through vigorous and targeted civil and criminal
          enforcement. Assure compliance with environmental laws.
Cross-Goal Reports

          Reports in this category span across all five of the Agency's strategic goals and provide
          recomendations and solutions that can be used to advance work in all five of the goal areas.

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                  SECTION 1

TAKING ACTION ON CLIMATE CHANGE AND IMPROVING
                 AIR QUALITY

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                                                           Compendium ofEFAB Reports 2001-2010
Name of Report:      Financing Mechanisms for Reducing Greenhouse Gas Emissions, and Other Air
                     and Water Pollution Problems

EPA Program Offices:  Office of Air and Radiation and Office of Water

Date of Report:       March 2010

Summary

This report looked at ways to create finance mechanisms to address the reduction of greenhouse gas
emissions  and other air and  non-point source water pollution problems. The report  called for the
implementation of programs at the state and local levels to finance the installation of energy efficiency
and environmental improvement devices at public and not-for-profit facilities such as: local government
buildings; colleges and universities; hospitals; schools; and churches.

Recommendations

1.  The Agency urge the States to adopt programs as described in the report to facilitate the financing
    of  both energy efficiency and environmental  improvement projects for the  benefit of public
    agencies as well as nonprofit organizations.
2.  The Agency urge states to enact statutes that: a) create Air Quality Finance Authorities which,  as
    conduit  bond issuers, can access  the  municipal bond market to finance such  programs,  or  b)
    empower counties and other units of local government to issue bonds for such purposes.
3.  The Agency urge the  States to enact statues to enable localities to: a) enter into voluntary contracts
    with homeowners, farmers, local government agencies, and nonprofit organizations, to finance
    energy efficiency  and environmental  improvement projects on their  premises; b) finance  such
    projects through  the issuance of taxable or tax-exempt bonds, as applicable; and c) secure  such
    financings by liens and assessments against the program participants' real property.
4.  The Agency initiate discussions with the Departments of Energy, Housing and Urban Development,
    Transportation, Treasury,  Office of Management & Budget, and any other  relevant agency  to
    determine whether the Administration should recommend to the Congress that Section 503(b)(3) of
    the Internal Revenue Code be amended to recognize applicable tax credits for energy efficiency and
    environmental improvement projects.
5.  The Agency should work closely with individual states that are developing and implementing their
    own new and innovative programs  to finance energy efficiency,  air quality improvement, and  non-
    point source water pollution projects.

Outcomes

•   EPA is  encouraging  state and local air agencies to implement innovative financing options for
    homeowners who want to replace older biomass appliances with more efficient, less polluting units.
    The Agency knows  of suggestions to  explore  biomass as  an energy efficiency option  for the
    Department of Energy's Property Assessed Clean Energy (PACE) program. As states pass legislation
    to  allow the PACE program, EPA is encouraging them to broaden this legislation to  include other
    environmental projects.

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                                                          Compendium ofEFAB Reports 2001-2010

Financing Mechanisms for Reducing Greenhouse Gas Emissions, and Other Air and Water Pollution
Problems Outcomes (continued)
   EPA is exploring a Voluntary Environmental Improvement Bond pilot with a state air agency to help
   homeowners finance the replacement of older woodstoves along with improved weatherization.

   Note: This pilot was interrupted on July 6, 2010 when the Federal Home Finance Agency (FHFA),
   caretaker of Freddie Mac and Fannie Mae, announced that it would no longer honor mortgages with
   liens securing residential energy improvements. As a result of this, these residential pilots came to a
   halt.

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                                                           Compendium ofEFAB Reports 2001-2010
•htf
Name of Report:      Voluntary Environmental Improvement Bonds  (VEIBs):  An Innovative, Local,
                     Environmental Finance Concept  for Mitigation  of  Climate Change Risk; Air
                     Pollution Reduction; and the Reduction of Non-Point Source Water Pollution

EPA Program Office:   Office of Air and Radiation and Office of Water

Date of Report:       June 2009

Summary

In this  report,  EFAB discusses the concept of VEIBs, which produce long-term, low-cost incentives for
installing improvements to reduce green house gas emissions, improve air quality and reduce non-point
source water pollution.  The report urges EPA to encourage states and local governments to adopt VEIB
programs that embrace the types of environmental improvements needed across the nation.

Recommendations

1. The Administrator request the President of the United States create an inter-agency task force to
   examine security interest in property, specifically to define the characteristics of a Property Secured
   Obligation  (PSO) based VEIB program and encourage the adoption of such VEIB programs by state
   and local governments. The task force  could be composed of EPA, the Department of Agriculture,
   the Department of Housing and Urban Development, the Department of  Energy, the Department of
   Treasury and other agencies.
2. The Administrator encourage this inter-agency task force to study and recommend changes to the
   federal tax code and other initiatives to enable the issuance of tax-exempt bonds to finance energy
   efficiency  and environmental improvements owned  and operated  by property owners with
   appropriate linkages to the wider public good.
3. The Administrator create an intra-agency task force, with representatives from the  Offices of Water
   and Air and Radiation and regional offices, to educate and advocate the adaption of PSOs as the
   essential underlying security for VEIB programs throughout the country.
4. EPA reviews its discretionary grant and other authority in programs where properly designed VEIBs
   can create further financial incentives for communities to adopt their own VEIB programs.

Outcomes

•  EPA's Office of Air and Radiation (OAR) supports the VEIB  concept and  is exploring the program's
   potential to finance a variety of environmental and energy efficiency programs.

•  OAR has followed  with interest the  development  of the City of Berkeley's VEIB  program  to
   encourage  private adoption of greenhouse gas (GHG) reducing technology and is supporting the use
   of such finance tools to help communities with air pollution problems.

•  OAR is investigating ways to work with other federal agencies for promoting this sort of innovative
   financing option.

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                                                      Compendium ofEFAB Reports 2001-2010

Voluntary Environmental Improvement Bonds (VEIB):  An Innovative, Local,  Environmental
Finance Concept for Mitigation of Climate Change Risk; Air Pollution Reduction; and the Reduction
of Non-Point Source Water Pollution (continued)
Note: On July 6, 2010 when the Federal Home Finance Agency (FHFA), caretaker of Freddie Mac and
Fannie  Mae  announced that it would  no  longer honor mortgages with  liens securing residential
energy improvements, all future environmental and energy efficiency programs were halted.

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                                                           Compendium ofEFAB Reports 2001-2010
•htf
Name of Report:      Financial,   Underwriting,   Risk   Mitigation   and   Consumer   Protection
                     Considerations for the Adoption of Voluntary Environmental Improvement Bond
                     (VEIB) Programs

EPA Program Office:   Office of Air and Radiation and Office of Water

Date of Report:       June 2009

Summary

This report discusses specific underwriting and risk management considerations that should be followed
in the  implementation of properly designed VEIB programs to assure that the maximum public and
private environmental and economic benefits can be derived on a sustainable basis. The report details
the design structure and uses of VEIBs and contains specific recommendations about underwriting their
deployment  to achieve real environmental benefits. The seven recommendations below are suggested
to amend or  enact statutes to adopt Property Secured Obligations (PSO) authority for VEIB programs.

Recommendations

1. The statute must define public improvements  - such as energy efficiency and environmental
   improvements - to include those owned and maintained by individual property owners.
2. The statute must authorize as many types of such improvements as feasible.
3. The statute must enable sponsoring local governments  or special taxing  districts to distinguish
   between improved and unimproved properties.
4. The statute must  authorize  localities or special taxing districts to impose a discretionary special tax
   or assessment based on property improvements rather than on the property assessment.
5. The statute must authorize sponsoring local governments or special taxing districts to impose the
   discretionary  special  tax  or  assessment  on those improved properties  whose owners  have
   consented to the imposition of the special tax or assessment.
6. The statute must authorize  the issuance of  property  secured debt  by  the  sponsoring  local
   government or a special taxing district and authorize the execution of property secured debt.
7. The statue  must authorize, if a special taxing district is required, the sponsoring local government to
   accelerate  district formation by  petition of property owners requesting the improvements and
   consenting to the imposition of a special tax or assessment.

Outcomes

•  EPA's Office of Air and Radiation (OAR) supports the VEIB concept and is exploring the program's
   potential to finance a variety of environmental and energy efficiency programs.

•  OAR has followed with  interest  the development  of the City of Berkeley's VEIB  program to
   encourage  private adoption of greenhouse gas (GHG) reducing technology and is supporting the use
   of such finance tools to help communities with air pollution problems.

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                                                          Compendium ofEFAB Reports 2001-2010

Financial, Underwriting, Risk Mitigation and Consumer Protection Considerations for the Adoption of
Voluntary Environmental Improvement Bond (VEIB) Programs Outcomes (continued)

•   OAR is investigating ways to work with other federal agencies for promoting this type of innovative
    financing option.

    Note: On July 6, 2010 when the Federal Home Finance Agency (FHFA), caretaker of Freddie Mac and
    Fannie Mae announced  that it would no longer  honor  mortgages  with liens securing residential
    energy improvements, all future environmental and energy efficiency programs were halted.

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                                                            Compendium ofEFAB Reports 2001-2010
•htf
Name of Report:       Innovative Finance Program for Air Pollution Reduction

EPA Program Office:    Office of Air and Radiation

Date of Report:        November 2007

Summary

This report reviewed the SmartWay Transport program to determine which financing options could help
make diesel  truck retrofit kits more attractive. The Board examined a number of issues related to the
use of  the kits, including the possibility of parties receiving monetary credits for emissions reduction,
identifying or setting the values for credits, enabling national tradability of the credits, and the bundling
of credits for use by sources of financing for the kits.  During this examination, EFAB decided to expand
its review to include the impact of millions  of small polluting diesel engines, stationary or mobile.

Recommendations

1.  EPA should encourage states to create Air Quality Finance Authorities (AQFAs) or empower existing
    environmental finance authorities to finance certain types of air emission reduction equipment or,
    at least, create a state-wide or regional air emissions reduction financing program.
2.  EPA should encourage state AQFAs to offer long-term, low-rate financing to small private owners of
    pollution equipment to upgrade their equipment or, if applicable, to retrofit it to reduce emissions.
3.  EPA should  encourage state AQFAs be  the nominal  purchasers  of such pollution  reduction
    equipment for the purpose of achieving volume discounts which can be passed on to end users.
4.  EPA should encourage state AQFAs to negotiate fleet fuel discounts on behalf of those companies
    who use their programs.
5.  EPA should encourage state AQFAs to acquire the rights to the emission reduction credit on each
    transaction and use or sell those emission credits to further reduce the cost of the program.
6.  EPA should review all of its funding programs that have a nexus to air emissions with a view to,
    wherever possible, using them as an incentive to encourage states to take the above actions.
7.  EPA should approach the  Department of Transportation  regarding the use of a portion  of the
    untapped $15 billion in  private activity bonds to underwrite mobile source air emissions  reduction
    efforts.
8.  EPA should form  regional task forces in each EPA region to facilitate dialogue with states on these
    matters, bearing in mind differences in state laws and differences in state priorities with respect to
    air emission reductions.
9.  EPA should consider: a)  undertaking the development of new rules which would permit the trading
    of mobile emission reduction credits (MERCs)  generated through financing programs such as those
    described  herein;  b) obtain advice on generic questions such  as bond counsels'  opinions on the
    questions of tax-exempt bond issuance that are raised above; c) coordinate the work of the

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                                                           Compendium ofEFAB Reports 2001-2010

Innovative Finance Program for Air Pollution Reduction Recommendations (continued)
    respective  Regional  Task Forces;  and  d)  disseminate information  about  advances made  in
    developing innovative financing programs among them.

Outcomes

•   Under the Energy Policy Act (2005), Congress appropriated funds for fiscal year 2008 to help reduce
    harmful emissions from heavy duty diesel engines. With those funds, EPA's Office of Transportation
    and Air Quality (OTAQ) issued a $3.4 million grant solicitation as part of the SmartWay Clean Diesel
    Finance Program to  establish innovative finance  projects. OTAQ also entered into a cooperative
    agreement with  the Environmental  Finance  Center at Cleveland State  University to conduct
    demonstration projects on the issuance of bonds, financial  and tax incentives, and other financial
    mechanisms to support clean diesel projects.

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                         Compendium ofEFAB Reports 2001-2010
            SECTION 2
PROTECTING AMERICA'S WATERS
                                            10

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                                                            Compendium ofEFAB Reports 2001-2010
Name of Report:       Financial Assurance for Underground Carbon Sequestration Facilities

EPA Program Offices:   Office of Water and Office of Air and Radiation

Date of Report:        March 2010

Summary

This report identifies and examines financing issues related to implementing a carbon dioxide (CO2)
underground injection control program. Such a program would  include the provision of the financial
assurance needed to address potential  current and future liabilities associated with the underground
injection of CO2 in storage wells for the purpose of carbon capture and long-term sequestration.

Recommendations

1.  EPA should use a blend of the  RCRA subtitle C financial assurance requirements and the SDWA
    financial assurance requirements for Class I wells as the model for establishing financial assurance
    for new Class VI wells.
    •   EPA should extend the RCRA acceptance of a party with a "substantial business relationship" to
       the guarantee provisions for SDWA.
    •   EPA should allow the  SDWA Class I bankruptcy notification provision be applied to the Class VI
       wells.
    •   EPA should allow the SDWA Class VI regulations extend the RCRA  provisions to include
       bankruptcy or loss of authority of the trustee.
    •   EPA should consider adding a new category of financial assurance to the Class VI program that
       provides the Agency with the flexibility to approve a "functional  equivalent" to the established
       RCRA financial tests.
2.  EPA should periodically review the scope of obligations covered by financial assurance as well as the
    continued viability of financial  instruments being used. (The Agency could  link the amount of
    financial assurance required to cost estimates that  are upgraded on a regular basis; e.g., every five
    years.)

Outcome

The Board's findings informed EPA's Office of Water's guidance document, "Financial Responsibility for
Underground Injection Control Program Class VI Geologic Sequestration Wells." The guidance included
the Board's  recommendations and was  published  with  the geological  sequestration  rule  after
completion of the public comment period.
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                                                           Compendium ofEFAB Reports 2001-2010
Name of Report:      Water Loss Reduction  Financing Mechanisms for  Drinking Water Distribution
                     Systems

EPA Program Office:   Office of Water

Date of Report:       March 2010

Summary

This report addresses the current scope of water loss; practices, benefits, and obstacles to implementing
water loss control programs; case studies of successful water loss control programs, and an overview of
funding mechanisms available. EFAB examined financing alternatives to detect and reduce leaks and to
improve water and energy conservation in water distribution systems.

Recommendations

To make water loss programs  effective and encourage water utilities to  implement these programs,
EFAB made the following recommendations:

1.  EPA should encourage utilities to initiate practices  to improve asset management and implement
    environmental management systems.
2.  Increased utility funding will be necessary to initiate, implement, and continue water loss control
    programs.  This can be accomplished through existing funding mechanisms such as user  charges;
    federal, state, public, and private grant and loan programs; and revenue bonds.
3.  Obstacles to implementing utility full cost rate pricing should be addressed.  By maximizing the use
    of  reasonable financing  mechanisms and incorporating  a household affordability  rather  than
    community affordability focus to rate making practices,  communities can better meet their capital
    requirements and minimize the cost burden on their low  income residents.
4.  EFAB  endorses  water audit and asset management  programs as excellent tools  to assist in
    decreasing water losses.  However, whether a  state mandates or  provides incentives  to  perform
    water  audits  and asset  management programs  as part of the SRF  funding  process  should  be
    determined on a state by state basis. EFAB noted that  where Green Project Reserve  qualification
    requires that a  business case for improved efficiency be demonstrated, a water audit and  an
    ongoing  asset management program are the best  means to accomplishing  a  successful  business
    case.  States may consider ranking strategies for SRF funding applications that provide an incentive
    for projects that include implementing water loss control and for systems with existing, successful
    water  loss control programs.
5.  States should be encouraged to implement or clarify requirements for water loss reporting and
    control. Further, state regulatory agencies  should provide assistance for implementing water  audit
    practices, especially for small water supply systems.
6.  Water projects that do not automatically meet categorical criteria for "green project" status should
    still be able to qualify for the Green  Project Reserve program provided that sufficient business case
    for improved efficiency is established.
                                                                                           12

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                                                            Compendium ofEFAB Reports 2001-2010
Water Loss Reduction Financing Mechanisms for Drinking Water Distribution Systems
Recommendations (continued)
7.  Where feasible and appropriate, regulatory agencies should facilitate small utility consolidation or
    other  service provider relationships, usually with  larger neighboring utilities that can  provide
    infrastructure management and financing more efficiently.

Outcome

The recommendations provided support EPA's ongoing efforts for water loss reduction and substantiate
the need for water loss reduction projects.
                                                                                           13

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                                                           Compendium ofEFAB Reports 2001-2010
Name of Report:


EPA Program Office:

Date of Report:

Summary
Relative Benefits of Direct and Leveraged Loan Approaches
for State Revolving Fund (SRF) Programs

Off ice of Water

August 2008
This report provided guidance on leveraging the Clean Water and Drinking Water State Revolving Fund
(SRF). EFAB conducted a detailed analysis of National Information Management Data for both the Clean
Water and  Drinking Water SRF  programs and  supplemented the analysis  with  EFAB members'
experience working with the state SRFs.  Based on its analysis, the Board concluded that state programs
that leverage their SRF funds  have provided greater assistance as a  percentage of their capitalization
grants than those that use the direct loan approach.

Recommendations

1. EPA should encourage direct loan states to improve SRF sustainability by showing those states how
   leveraging can be used to increase their retained earnings.
2. EPA should assist states  in developing sustainable SRFs by administratively allowing states to
   accelerate capitalization grant draws, modifying its interpretation of the perpetuity rule, and by
   advocating for arbitrage relief focused specifically on SRF programs.

Outcome

EFAB's recommendations have been shared with states and representatives from communities that rely
on SRF  assistance  and other  stakeholders. The recommendations may require changes  in  law and
regulation. The Agency continues to work on a number of ideas and proposals to further enhance the
purchasing power of the SRF programs.
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                                                            Compendium ofEFAB Reports 2001-2010
Name of Report:       Public-Private Partnerships in the Provisions of Water and Wastewater Services:
                      Barriers and Incentives

EPA Program Office:    Office of Water

Date of Report:        April 2008

Summary

This report examined how  public-private partnerships could, where appropriate, address wastewater
and drinking water infrastructure needs over the next five to ten years. EFAB identified the barriers and
incentives to successful partnerships and examined successful partnership models. This work involved a
review of past public-private partnerships work untaken by the Board and EPA, as  well as ongoing
partnership developments in infrastructure areas, particularly transportation.

Recommendations

For Action by the U.S. Congress
1.  Eliminate  the  state-level caps  on  public-purpose  Private  Activity  Bonds (PABs) issued  for
    construction of drinking water and clean water infrastructure.
2.  Modify or terminate the federal interest in clean water facilities constructed  with assistance from
    the former EPA Construction Grant Program so that communities are free to consider Public Private
    Partnership (PPP) in connection with these facilities.
3.  Make  privately-owned,  public purpose clean  water facilities eligible for loans and grants from the
    Clean Water State Revolving Fund (SRFs) on the same footing as government-owned systems.

For Action by EPA

State and Federal Subsidies
4.  EPA should conduct and publish a survey of state and local programs, linked to or separate from the
    SRFs, that offer grants  or other forms  of subsidy to government-owned drinking water or clean
    water agencies, but which deny such assistance to privately owned, public purpose systems.

State-Level Statutory Barriers
5.  Conduct and publish a survey of existing state statutes which  restrict or prohibit various forms of
    PPPs, either through procurement policies or other means.
6.  Assist the  states in identifying and correcting these restrictions,  including the preparation of draft
    model  legislation, similar  to the  U.S.  Department of Transportation  (DOT) efforts  on highway
    projects.
7.  Monitor the results of this initiative.
8.  Examine the initiative undertaken at the U.S. DOT with respect to PPPs as a model for  federal
    agency activity in this arena. EPA should adapt/adopt those activities that would advance the use of
    such partnerships where beneficial for environmental utilities.
                                                                                            15

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                                                            Compendium ofEFAB Reports 2001-2010

Public-Private Partnerships in the  Provision  of  Water  and  Wastewater Services:  Barriers and
Incentives - Recommendations (continued)
Tax Policy Barriers
9.   Conduct and publish a survey of existing state and local taxing policy with respect to government-
    owned vs. investor-owned drinking water and clean water utilities. The survey should address
    access to state-tax-exempt bond financing, real and personal property taxes, inventory taxes, gross
    receipts, etc.
10. Assist the States in identifying and correcting tax policy distinctions which discourage consideration
    of some kinds of PPP.
11. Monitor the results of this initiative.

Information Barriers
12. Continue to disseminate information  on  PPPs, including case studies which document specific
    situations in which these arrangements were beneficial to the community. In particular, describe the
    process of tailoring a PPP to a community's needs, so that it:
    •   Is cost-effective
    •   Protects the interest of all parties
    •   Avoids unacceptable impacts on customers including  low income households, and
    •   Maximizes gains to the community as a whole.
13. Disseminate information on structural reform of government-owned utilities, as an alternative or as
    adjunct to PPPs. The EPA should encourage state and local initiatives to regionalize water and sewer
    utilities where cost reductions and operational improvement are likely to result.

Monitoring Progress
14. EPA should consider funding a governmental organization to track progress in eliminating barriers to
    PPPs, at both federal and state levels, and to monitor the  results of these changes.

Outcome

EPA continues to examine the period of federal interest to determine potential limits and reexaminethe
definition of public ownership. The Agency regularly examines the initiatives taken by the DOT that may
be useful in the water industry.
                                                                                            16

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                                                           Compendium ofEFAB Reports 2001-2010
Name of Report:


EPA Program Office:

Date of Report:

Summary
Public-Private Partnerships in the Provision of Water and Wastewater Services:
The Canadian Experience

Off ice of Water

August 2008
This report considered the potential for public-private partnerships (PPPs) to alleviate chronic funding
problems in the drinking water and clean water industries. The Board approached this task by examining
the role of PPPs in the U.S. water sector, the kinds of PPPs that had been implemented or proposed, and
the barriers that may discourage or prevent implementation. The Board offered lessons learned about
certain government initiatives in Canada designed to promote PPPs. Canadian initiatives have been
innovative and aggressive and have succeeded in expanding the role of the private sector in providing
public infrastructure.

Recommendations

This brief report contains EFAB's observation and summary of the innovative PPPs in Canada. The Board
offered no formal recommendations to the Agency.
                                                                                          17

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                                                           Compendium ofEFAB Reports 2001-2010
Name of Report:      Combined Sewer Overflows - Guidance for Financial Capacity Assessment
                     and Schedule Development

EPA Program Office:   Office of Water

Date of Report:       May 2007

Summary

This  report  assessed EPA's 1997  Combined  Sewer Overflows (CSO) guidance in order to provide
comments on necessary revisions and updates. The guidance outlines a two-part test to determine the
financial capability of the CSO system, with one part addressing household  impact indicators and the
second part  addressing system-wide  impact indicators. While EFAB found the existing guidance to be
fundamentally sound, the Board suggested a number of improvements to the indicators used in both
parts of the guidance.

Recommendations

1.  EPA develops a residential  indicator which considers actual  household  expenditures based  on
   average  water use,  using the rate structures expected to be in effect after the combined  sewer
   overflow (CSO) improvements are implemented, rather than  assume that the entire cost of controls
   is spread evenly across households.
2.  EPA considers both the cumulative impact of pollution control  services as well as the incremental
   impact of CSO control initiatives.
3.  EPA revisit the portions of the Financial Capability Assessment (FCA) guidance which discuss system
   financial  capability and include additional  management indicators to better reflect advances since
   the document was written  in 1997. Areas recommended for improvements include debt indicators,
   bond ratings, socioeconomic indicators, and financial management indicators.

Outcomes

•  EPA is reviewing the assessment of the FCA guidance and is considering revising it in the near future.

•  EPA decided to table further consideration of updating  and revising the 1997 Combined  Sewer
   Overflows-Guidance for Financial Assessment and Schedule Development policy.
                                                                                         18

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                                                           Compendium ofEFAB Reports 2001-2010
Name of Report:      EFAB Supports EPA's Private Activity Bond Initiative

EPA Program Office:   Office of Water

Date of Report:       April 2007

Summary

This letter reasoned that the unified state volume caps were constraining tax-exempt financing in a way
that was limiting the supply and/or increasing the cost of investment funds for environmental facilities.
Accordingly, the Board recommended that bonds for environmental purposes be either (1) reclassified
as government bonds or (2) specifically exempted from the state volume caps.

Recommendation

EFAB supports the President's budget proposal for Fiscal Year 2008 to exempt, from the unified state
volume cap, qualified private activity bonds (PABs) used to finance the "furnishing of water" and/or
"sewage facilities."

Outcomes

•  EPA included in the President's FY 2008 budget a proposal to exempt PABs used to finance drinking
   water and wastewater infrastructure from the unified state volume cap.

•  EPA's senior management from the Office of Water acknowledged receipt of the letter and thanked
   the EFAB for its public support of the Administration's efforts.
                                                                                          19

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                                                           Compendium ofEFAB Reports 2001-2010
Name of Report:      Sustainable Financing for Watersheds

EPA Program Office:   Office of Water

Date of Report:       January 2007

Summary

This report addressed issues involving the capacity of local governments and groups to finance actions
and projects to implement watershed plans, including Total Maximum Daily Loads (TMDLs). EFAB held a
roundtable with environmental experts  to discuss  sustainable financing approaches,  equitable cost
allocations, and collaborative governance  models.

Recommendations

1.  EPA should  foster use of collaborative governance approaches for achieving sustainable finance in
    all  watersheds, using the many forums that EPA hosts or participates in. EPA should disseminate
    success stories that demonstrate the use of collaborative governance principles and techniques in
    achieving successful financing outcomes.
2.  EPA should  designate an  Environmental Finance Center (EFC) to maintain a  directory of  innovative
    finance and market  techniques. EPA and the EFCs  should disseminate information  about  these
    successes and model techniques.
3.  EPA should  partner with university research centers and others to determine whether and to what
    extent ecosystem service values can be used to make local taxing,  fee or other revenue  raising
    systems more equitable,  fair and  acceptable to  payers. EPA should work with the  Department of
    Agriculture  and  other organizations  which are  exploring how to pay for  and make markets in
    ecosystem services to determine how loans and grants from both agencies can be used to leverage
    payments for markets in these services.
4.  EPA should  continue to review its  existing financing tools under the Clean and Safe Drinking Water
    Acts to determine how they might be leveraged with  local efforts to obtain additional  funds and
    markets to help close the funding gap.
5.  EPA should, with the assistance of the EFCs  and EFAB, develop  a compendium of the potential
    entities that would be appropriate to implement whole watershed finance strategies agreed upon.
6.  EPA should fund or otherwise  assist  several watershed scale  demonstration projects  that
    incorporate sustainable finance techniques and that use collaborative approaches.

Outcomes

•   Through its  National  Estuary Program (NEP) and other  programs, EPA's Office of Wetlands, Oceans
    & Watersheds (OWOW)  fostered collaborative  governance that  achieved  sustainable watershed
    finance and disseminated examples of this funding via the internet and workshops. For  example,
                                                                                          20

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                                                            Compendium ofEFAB Reports 2001-2010

Sustainable Financing for Watersheds - Outcomes (continued)
   the San Juan Bay NEP worked collaboratively with stakeholders to establish the San Juan Bay Estuary
   Special Fund.  The fund will receive voluntary donations from  an income tax check off, a license
   plate program, and voluntary donations from cruise ship passengers with these sources expected to
   generate $100,000-$200,000 annually.

•  OWOW conducted  numerous  finance training workshops  and webinars that provided strategies
   from the  NEP and other collaborative governance organizations to help watershed  organizations
   create funding policies, goals, and objectives in a transparent and inclusive manner.  OWOW posted
   examples  of  successful  funding  efforts   undertaken  by   the   NEPs  on  its  website  at
   www.epa.gov/owow/estuaries/fundexamples.html.

•  OWOW developed a watershed finance website that complements and  links to the Office of the
   Chief  Financial  Officer's  Environmental  Finance  Program  website  with   a  compendium  of
   environmental finance tools. The site is accessible at www.epa.gov/owow/funding.html.

•  OWOW explored the idea of developing a compendium of entities which would be appropriate to
   implement watershed finance  strategies. While valuable, OWOW concluded that a more effective
   approach would  be to develop a watershed  finance  Request  for  Proposals to broadly solicit
   proposals from such  entities. This announcement, published in the Federal Register, made available
   $40,000 to federal, state, and local entities interested in pursuing watershed finance strategies on a
   watershed basis.

•  OWOW is supporting a watershed-scale demonstration project that incorporates sustainable finance
   techniques. The Charles River Watershed Association  (CRWA) developed an online stormwater
   permit trading system to  generate funds and reduce  costs related to phosphorus stormwater
   controls. The trading system lists potential buyers and sellers of phosphorus reduction credits so
   that the most effective stormwater controls are financed at the lowest possible price. The system
   was developed in coordination with a general stormwater permit that EPA Region 1 issued for large
   impervious  surfaces  in the upper Charles River  watershed. The pilot online trading program  for
   stormwater was developed for two towns - Franklin and Bellingham - in the watershed.  The online
   system is equipped with a Geographic Information System (GIS) for limited mapping of discharge
   points and towns/basins boundaries. The pilot online trading system was designed to be a flexible
   and cost-effective alternative to traditional regulatory approaches for mitigating stormwater.
                                                                                           21

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                                                            Compendium ofEFAB Reports 2001-2010
Name of Report:
Expanding the Definition of State Revolving Fund Financial
Assistance
EPA Program Office:    Office of Water

Date of Report:        January 2007

Summary

This EFAB report examined how more funding might be made available to meet environmental goals
and objectives by allowing the Clean Water and Drinking Water State Revolving Funds (SRFs) to provide
a form of financial assistance to  eligible projects that would  not be yield-restricted  under the IRS
arbitrage regulations.  EFAB examined how this new form of SRF assistance to eligible projects (funding
capital and operating costs) could  provide support equivalent to that which is currently provided as a
debt service  subsidy without triggering the IRS rules restricting yields on arbitrage earnings.  EFAB's
report summarized this approach and the programmatic changes that would be necessary to implement
these recommendations.

Recommendation

The EFAB recommends EPA permit SRF assistance to eligible projects for capital or operating costs.

Outcome

The Agency has undertaken an ambitious effort in collaboration with states, the water utility industry,
and many other stakeholders to develop innovative ways to  bolster limited financial  resources and
promote  the sustainability  of local water  infrastructure. One important part of this effort was the
conference on Paying for Sustainable Water Infrastructure in Atlanta, GA March 21-23, 2007. The
conference brought together stakeholders from  all  levels of  government  and  the private sector  to
explore creative methods to pay for sustainable water infrastructure today and into the future.
                                                                                           22

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                                                           Compendium ofEFAB Reports 2001-2010
Name of Report:      Establishment of a New State Revolving Fund Loan Guarantee Program

EPA Program Office:   Office of Water

Date of Report:       May 2006

Summary

In this report, EFAB explored the potential benefits of creating a new guarantee program, as contrasted
with what can be achieved under existing legislation. In evaluating the potential incremental benefit of a
new loan guarantee program, the primary consideration was whether or not a new program would
stimulate or accelerate environmental protection activities. A secondary consideration was whether or
not a new program would increase the amount of private money involved in supporting environmental
programs. Any benefits that could be achieved through the creation of a new loan  guarantee program
could also be achieved using the existing loan guarantee programs.

Recommendations

Although EFAB has not identified an  area in  which a  significant benefit would  be realized from the
establishment of a new loan guarantee program, two areas may warrant further study.

1.  Consideration might  be given as to whether existing loan guarantee authority for environmental
    programs could be more effectively leveraged; and
2.  Consideration might  be given  as  to whether a new loan guarantee program targeted  at  small,
    unrated borrowers could accelerate environmental activity in that sector.

Outcome

EPA agreed with the recommendations of EFAB that these areas warrant further study and asked EFAB
to further assist the Agency in developing/researching these topics.
                                                                                         23

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                                                            Compendium ofEFAB Reports 2001-2010
Name of Report:       Application of Useful Life Financing to State Revolving
                      Funds

EPA Program Office:    Office of Water

Date of Report:        May 2006

Summary

In a previous report,  EFAB concluded that the use of extended amortization periods, corresponding to
the useful life of the financed facility, is a reasonable approach both to making environmental facilities
more affordable and to allocation of costs of environmental facilities among various generations of
taxpayers or ratepayers that benefit from such facilities. In this report,  EFAB reports  that making
extended term financing of environmental facilities available through the State Revolving Loan Funds is
just as applicable. The  extended term of useful life financing can result in  lower annual debt service.
While this benefit accrues at the  community level, the resulting reduced rate structures also benefit
households, thereby facilitating household  affordability. For further reference, please see Affordability
Rate Design for Households on page 25 and  Useful Life Financing of Environmental Facilities on page 28.

Recommendations

1.  To the extent that a financing period  beyond 20 years  is  currently authorized by statute, EFAB
    recommends that EPA approve requests  by State  Revolving Funds (SRF) for approval  of useful life
    financing up to 40 years.
2.  To the extent  that an extended financing period  is not currently authorized by statute, EFAB
    recommends that EPA be supportive of a statutory amendment specifically authorizing useful life
    financing up to 40 years.
3.  To the extent that  an extended financing period may benefit small or disadvantaged  communities
    manage loan repayment schedules, EFAB  recommends that EPA give full  consideration to affordable
    rate designs when granting approval of state requests for extended financing periods.

Outcome

EPA's Office of Wastewater Management is considering drafting a rule that would  amend the current
Clean Water SRF regulations in order to further clarify  the ability of a state to offer useful life financing.
EFAB's valuable analysis of alternative SRF structures, as well as its recommendation to grant states the
broadest flexibility to determine appropriate  amortization periods without requirements relating to the
pace of recycling, will be taken into consideration during the rulemaking process.
                                                                                           24

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                                                             Compendium ofEFAB Reports 2001-2010
Name of Report:       Affordability Rate Design for Households

EPA Program Office:   Office of Water

Date of Report:        February 2006

Summary

This report explored ways to help state and local governments, the private sector, and the general
public address the costs  of water and sewer services by examining issues such as bottom  line costs,
uneven costs and cost distributions, affordability criteria, the needs of  low-income households, utility
losses, and consumer concerns.  The Board held a workshop featuring knowledgeable speakers from the
utility industry, consumers,  and local  governments. Based  on the workshop and other discussions,
EFAB's report suggests an ideal  approach for dealing with household affordability problems  and utility
viability issues through the careful design of utility policies involving subsidies, collections and financial
assistance.

Recommendations

1.  EPA  should consider disseminating these  findings to states and utilities since  it encourages an
    effective  method of dealing with affordability that is important because  it may assist in removing
    existing political and economic  barriers to achieve  full  cost recovery, while minimizing negative
    effects on fiscal accountability.
2.  EPA should consider developing an affordability  handbook that can  assist utilities in structuring an
    effective  affordability program.  The  handbook  should  include a special focus  on  household
    affordability through proper diagnosis, sound rate design,  and the development of an effective
    subsidy program combined with an appropriate collections policy.
3.  EPA should work with states to assess  how information  on effective affordability strategies can be
    disseminated through State  Revolving Fund (SRF) programs.
4.  EPA should continue to work with other groups and/or agencies to develop more detailed proposals
    for addressing the significant complexities of affordability policies in a utility environment.

Outcome

EPA made this report available to its state partners, including the SRF programs, and to utilities dealing
with affordability issues in late 2006.  EPA will also consider whether there would be additional value in
developing a handbook for utilities to further assist them in structuring effective affordability.
                                                                                            25

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                                                            Compendium ofEFAB Reports 2001-2010
Name of Report:

EPA Program Office:

Date of Report:

Summary
Maryland's Bay Restoration Fund Act

Off ice of Water

December 2005
EFAB focused on innovative finance mechanisms for environmental projects such as the case of the 2004
statute in the State of Maryland called "The Bay Restoration Fund Act." Per the Board, certain provisions
of the statute constitute one of the most innovative approaches  to environmental finance legislation
since the Congress amended the Clean Water Act in 1987 to create the Clean Water State Revolving
Funds.  With the help of experts, EFAB hosted a roundtable discussion in March 2006 to examine a wide
variety of financing tools that will enable watershed managers and groups to leverage federal and state
grants  with  locally  raised resources.  Participants  highlighted   Maryland's  restoration  fee  at the
roundtable as a potential source of local financial resources.

Recommendations

EPA should encourage States and other jurisdictions to review the provisions of the Bay Restoration
Fund Act and consider adopting similar legislation tailored to their own needs.

Outcome

At the  national Conference for Paying for Sustainable Water Infrastructure: Innovation for the 21st
Century held in March 2007, EPA's Assistant Administrator for Water cited the State of Maryland's Bay
Restoration "flush fee"  as his leading example of the type of new and innovative state environmental
funding ideas or  tools that are  needed to help  address the nation's environmental  infrastructure
challenge.
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                                                           Compendium ofEFAB Reports 2001-2010
Name of Report:      Combined Operations of the Clean Water and Drinking
                     Water State Revolving Loan Funds

EPA Program Office:   Office of Water

Date of Report:       May 2005

Summary

This report examined whether there is an advantage - financially, administratively or otherwise - to
giving states the option to operate their Clean Water and Drinking Water Revolving  Loan  Funds as a
single program.  EFAB developed a list of questions about joint operations that explore positives and
negatives,  barriers, and changes needed for federal and state staffs. The Board also examined to what
extent the statutory, regulatory and program policy histories of the two State Revolving  Fund (SRF)
programs provide insights into why they are separate programs.

Recommendation

EPA should undertake an examination of the Clean Water SRF and the Drinking Water SRF programs to
determine what opportunities and advantages exist for combined SRF operations.

Outcome

•  EPA sent this  report,  along with instructions to further study  the  possibilities of combined
   operations,  to the State/EPA Workgroup. Membership includes representatives from  State  Clean
   Water and Drinking Water SRF programs, EPA regional coordinators  for both programs, and EPA
   headquarters representatives.

•  At  EPA's invitation, an  EFAB representative presented the report and its findings to the Office of
   Water's State/EPA Workgroup at its semi-annual meeting in  Chicago, IL on  November 2,  2005.
   Following the presentation and a  formal vote, the State/EPA Workgroup recommended to EPA that
   EPA (with  the Workgroup's participation) undertake  an examination  of the opportunities and
   advantages that exist across a broad array of alternatives for combined SRF operations.

•  The State/EPA Workgroup subsequently conducted a survey of all 51 State SRF  programs,  37 of
   which  responded with detailed information on the management and operations of their programs.
   The final results of the State/EPA Workgroup survey, entitled "Review of Joint of Clean  Water
   Revolving Loan Fund  and Drinking Water Revolving Loan Fund  Programs," were presented to EPA's
   Office  of Water on March 27, 2007.
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                                                            Compendium ofEFAB Reports 2001-2010
Name of Report:       Useful Life Financing of Environmental Facilities

EPA Program Office:    Office of Water

Date of Report:        January 2005

Summary

In examining how environmental goals and objectives might be made more affordable by using debt
management practices that reduce the current budgetary impact of funding capital expenditures, EFAB
analyzed how extending the period over which the costs of environmental facilities are amortized to
more closely match their useful life can lower current debt service costs (also see "Application of Useful
Life Financing to State Revolving Funds" from May 2006 on page 24). Attention was given to considering
the costs, benefits, and fairness of this approach over the entire useful  life of the environmental facility.

Recommendation

EFAB recommends that EPA examine the  potential benefits  of amortizing debt for such facilities over
periods that are reflective of the useful lives of the financed facility, in place of the traditional method of
amortizing debt over a shorter period of time. The use of amortization periods consistent with the useful
life of the facility can make financing such facilities more affordable in the short-term, reducing annual
debt service costs by 10 percent to 34 percent. These savings can be used to fund asset management or
other capital projects resulting in even greater savings for current and future ratepayers.

Outcomes

•   EPA is working in partnership with states, the water utility industry and other stakeholders to ensure
    sustainability of water and wastewater systems. This includes promoting water efficient products,
    full-cost pricing of water and wastewater services management techniques for reducing long-term
    costs and improving performance and expanding watershed approaches to identify effective local
    infrastructure solutions.

•   In 2005, EPA proposed that EFAB convene a conference of industry representatives to  examine  in
    greater detail the situation on the ground, how a more efficient system of financing infrastructure
    can be implemented, and how this can be  dovetailed with the four  pillars of sustainability.

•   EPA issued a Policy Statement on March 17, 2006 affirming the current policy on extended term
    financing for Clean Water State Revolving Fund assistance. The policy  allows some borrowers the
    option to have an assistance repayment term that is greater than 20 years, resulting in lower annual
    payments.
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                                                            Compendium ofEFAB Reports 2001-2010
Name of Report:       Innovations in Watershed Financing

EPA Program Office:    Office of Water

Date of Report:        January 2005

Summary

EFAB  looked at innovative ways to  finance the  wide variety of improvements needed to restore
watershed health because financing infrastructure and related natural resources projects to improve
and restore watershed health presents a major  challenge for EPA, the states, municipalities, and
watershed management groups.  EFAB believes that there is a  huge potential for maximizing available
financing for watershed management by informing and training watershed managers, coordinators and
groups to overcome  the multiple financing challenges  they face  in  getting coordinated projects
underway.

Recommendations

1.  EPA should  sponsor a roundtable involving states,  localities, financial institutions, businesses,
    nonprofits, and others to explore the full range of possible financing options.
2.  EPA should  expand training for watershed groups and others in the use of innovative financing and
    funding tools and of local resources and networks to increase financing and funding options.
3.  EPA should develop  additional case studies  to provide watershed groups with finance lessons
    learned. Solicit the Environmental  Finance Centers and other university watershed  and finance
    centers to contribute case study materials.
4.  EPA should encourage or require recipients of its watershed grants to complete watershed financing
    training, such as EPA's Watershed Academy finance module.

Outcomes

•   EPA's Office of Wetlands Oceans and Watersheds (OWOW) funded a  watershed finance roundtable
    in Washington, DC on March 9, 2006 that focused on diversifying funding options, utilizing private
    sources  of  funding and building watershed  organizations'  business  strategies. The roundtable
    provided a forum for discussion and created action items that participating entities could pursue.

•   OWOW  has undertaken numerous actions to implement the development of: (1)  Online tools and
    training  modules to help watershed organizations prioritize activities that require funding and learn
    about    the  basic   steps    involved   in    obtaining   watershed   funding.   Please   visit
    www.epa.gov/watertrain/sustainablefinance for more  information;  (2)  Workshops in  Maryland,
    Pennsylvania, Virginia, and West  Virginia on  innovative approaches to funding non-point source
    projects; and (3) Webcasts  that conveyed innovative watershed  finance solutions to watershed
    leaders  across the country (e.g.,  Watershed Financing - Moving  Beyond Grants and Sustainable
    Financing for Watershed Groups).
                                                                                           29

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                                                           Compendium ofEFAB Reports 2001-2010

Innovations in Watershed Financing Outcomes (continued)
    OWOW developed  additional watershed finance case studies  that  feature innovative  funding
    mechanisms, such as inter-local agreements and real estate transfer taxes.  Please visit the following
    website to view the case studies: www.epa.gov/owow/estuaries/fundexamples.html

    OWOW is considering encouraging  EPA Water Grants recipients  to complete the  Watershed
    Academy  Module  on Finance  Planning  as a  grant  condition.  Please  visit  the  module  at
    www.epa.gov/watertrain/sustainablefinance.
                                                                                          30

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                                                           Compendium ofEFAB Reports 2001-2010
Name of Report:      Findings from EFAB's Environmental Management Systems Workshop

EPA Program Office:   Office of Water

Date of Project:       July 2003

Summary

EFAB,  EPA's  Office of Water,  and  EPA Region  9 co-sponsored  a  workshop  on  environmental
management systems (EMS) that was  designed to  examine the possible financial implications  of
adopting an  EMS.  The Board wanted to find out what the link is, if any, between EMS implementation
and improved  financial performance. The workshop explored  whether or not the financial  services
industry considers EMS and EMS certification as a factor in its decision-making; if so in what way(s) and,
if not,  what measures, incentives or other factors might encourage organizations to  take EMS into
account. This report provides an overview of the workshop.

Recommendations

1.  EPA should partner with environmental trade and industry organizations to develop materials and
   conduct workshops for development and implementation of EMS in the water industry.
2.  EPA should provide incentives to regulated entities that implement proven, cost-effective EMS (e.g.,
   point savings in SRF loans).
3.  EPA should monitor existing pilot programs for results and try to identify direct financial benefits.
4.  EPA should prepare case studies  of tangible examples of the value (financial benefits) of EMS and
   the relationship between EMS and finance.
5.  EPA should support and promote third party evaluation and certification of EMS.
6.  EPA should support  development  of a national  database that provides  sufficient  data  for
   benchmarking the financial value of effective EMS.

Outcome

EPA continues to  play a major role  in promoting EMS adoption with public entities, especially local
governments, and demonstrating the tangible costs savings and other financial benefits, in addition to
the environmental benefits, that these systems foster.

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                                                          Compendium ofEFAB Reports 2001-2010
Name of Report:      Workshop on Governmental Accounting Standards Board  Statement No. 34:
                     Summary of Results

EPA Program Office:   Office of Water

Date of Report:       July 2003

Summary

This report clarified the implications of Government Accounting Standards Board (GASB) 34 and EPA's
role; therefore, EFAB sponsored  a workshop in Washington, DC in March  2002  on the new GASB
requirements covering  capital  asset  inventories and management of public utilities. The  GASB 34
requirements are controversial because they will change, in many instances, previous practices affecting
capital asset management. Results from the workshop were documented and provide the basis for the
recommendations in this report.

Recommendation

EPA should provide incentives to reward those environmental utilities that have developed effective
asset management systems compliant with GASB 34.  Incentives might include: 1) economic payments
for implementation of asset management compliant with GASB 34;  2) recognition by state  and/or
federal environmental agencies; 3) easier accessibility or more favorable terms to State Revolving Fund
(SRF)  funding  for environmental  infrastructure; 4)  partnering with  environmental associations in
developing asset management guidance materials; 5) expanding capacity, maintenance, operations and
management as  a  vehicle to  promote  asset management;  and  6)  preparing  case studies  of
environmental  utilities that have successfully implemented asset management systems.

Outcomes

•  EPA's  Office of Water continues to work with wastewater and  water  utilities to promote the
   adoption of innovative management system approaches to ensure organizations are sustainable into
   the future.  Effective  utility management   contributes  to  infrastructure  sustainability by
   institutionalizing management systems and other innovative approaches which can lead to reduced
   infrastructure costs and improved performance across a full range of utility operations.

•  In 2005, EPA prepared profiles of eight leading utilities to document the types of  management
   systems in  place at these utilities, the drivers  to implement those systems, costs and benefits,
   successes and challenges,  and roles that various  stakeholders can and do play in  the process of
   developing and implementing the  system.
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                                                          Compendium ofEFAB Reports 2001-2010
Name of Report:      Coordination of USEPA/SRF and USDA/RUS Water and Sewer Loan Assistance

EPA Program Office:   Office of Water

Date of Report:       August 2003

Summary

In this report, EFAB examines the operations and interactions of EPA's Clean Water and Drinking Water
State Revolving Loan Fund Programs (SRFs) and the United States Department of Agriculture (USDA)
Rural  Utility Service (RUS) Water and Environmental Programs. These  programs provide significant
financial assistance in the form of loans and/or grants for small rural communities to use in developing
water-related environmental infrastructure.  In  essence, the report evaluates coordination  between
these programs and considers whether improved coordination would result in more efficient use  of
federal resources and improved environmental and public health protection.

Recommendations

1. EFAB   recommends   that  the   Agency   pursue   a  national-level   commitment   from
   USDA/RUS to achieve closer coordination between the  SRF  Programs and the RUS Water and
   Environmental Programs (WEP).
2. EFAB recommends that the Agency invite USDA/RUS input on integrating small community water
   infrastructure funding into the broader planning and development concerns of rural areas.
3. EFAB recommends that the Agency work with USDA/RUS  on setting WEP interest rates that mesh
   with SRF interest rates to achieve greater affordability for communities with the most need.
4. EFAB recommends that the Agency include one or more experts from the state-based RUS programs
   as members or expert witnesses to the Board.

Outcomes

•  EPA has undertaken  unprecedented efforts to work with the USDA on a  number of water-related
   issues, including our recent Combined Animal Feeding Operations (CAFO)  rule and implementation
   of the Wetlands Reserve Program and the Environmental Quality Incentives Program of the Farm Bill
   of 2002.

•  In  September  2003,  EPA  sent letters  to  each state  environmental director and  agriculture
   commissioner calling attention to the opportunities  to address sources of pollution at agricultural
   operations with both the Drinking Water and Clean Water SRF.

•  EPA has encouraged states to integrate their SRF  practices and policies with  development and
   planning. An  estimated 19 states have developed "one-stop  shopping"  initiatives  that  steer
   applicants to the full range of funding options, including RUS, available for water quality solutions.
                                                                                         33

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                                                       Compendium ofEFAB Reports 2001-2010

Coordination of USEPA/SRF  and  USDA/RUS  Water  and Sewer  Loan Assistance Outcomes
(continued)
The Office of Water's Clean Water State Revolving Fund Branch (CWSRFB) is working with a network
of water funding officials, including the RUS, interested in coordinating environmental infrastructure
funding efforts.

EPA has included interest rates as part of its discussions with RUS.

EPA supports appointing someone familiar with RUS to the board.
                                                                                      34

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                                                          Compendium ofEFAB Reports 2001-2010
Name of Report:      Expanding Lending for Non-Point Source Projects

EPA Program Office:   Office of Water

Date of Report:       April 2002

Summary

This report provided a proposal to expand lending of the Clean Water State Revolving Fund (CWSRF)
program for projects designed  to prevent or reduce  pollution from non-point sources. The proposal
envisions a cooperative arrangement between  a CWSRF and a municipality where the latter borrows
from the SRF and in turn passes the loan funds  on, in a subsidiary lending arrangement, to a non-point
source discharger to finance implementation of best management practices.

Recommendation

EFAB  recommends that  EPA support the demonstration of municipal conduit lending for non-point
source projects with one or more SRFs and selected municipalities.

Outcome

EPA's Office of Water subsequently issued a CWSRF Activity update on innovative uses of CWSRF funds
for non-point source pollution, highlighting the use of pass-through loans or conduit lending.
                                                                                         35

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                                                           Compendium ofEFAB Reports 2001-2010
Name of Report:      Public Sector Initiatives to Increase Efficiency and  Overall Performance in the
                     Water and Wastewater Industry

EPA Program Office:   Office of Water

Date of Report:       April 2002

Summary

This report provides a "summary of key points" from a workshop on public sector initiatives to promote
cost-effective environmental management. It highlights for the Agency a variety of techniques and
strategies  in both the public and private sectors that can lead to greater efficiencies and lower costs in
providing public-purpose environmental and public health protection. The report argues for a significant
increase in long-term,  reliable federal funding of drinking water and wastewater facilities and greater
State flexibility in making grants and loans.

Recommendations

1. EFAB believes that there is as much potential to reduce the costs of environmental and public health
   protection  as there is to increase the volume of investment in it. EPA's Innovation Council would be
   an  excellent forum to  undertake a comprehensive attempt to identify cost saving  measures and
   what more EPA might do to encourage their adoption by the public sector.
2. EFAB  recommends that  demonstration grants be expanded  aggressively to  identify,  document,
   evaluate, and  ultimately encourage the adoption  of, cost-effective management techniques and
   strategies. An excellent example is the use of demonstration grants for environmental management
   systems by the Office of Water,  resulting in major advances in expanding  the knowledge and
   application  of  environmental  management  systems  in  the  water industry. Case  studies were
   emphasized in the workshop as effective communication tools. They should be prepared for each
   demonstration project and be presented collectively on an easily accessible Agency webpage.

Outcome

In 2002, EPA  released a  comprehensive  strategy to drive  innovation in environmental programs.
Innovating for Better Environmental Results: A Strategy to Guide the Next  Generation of Innovation at
EPA builds upon past successes with innovative approaches to  environmental protection and lays out
how EPA will continue to advance new ideas to improve the quality of their work. The report provides
EPA with a practical roadmap for encouraging innovative solutions to environmental challenges and for
making sure those solutions are available to everyone  who shares our common goal of  protecting the
environment and safeguarding public health.
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                                                           Compendium ofEFAB Reports 2001-2010
Name of Report:      Conservation  Savings  Increment  Loans: A  Proposal  Concerning the  State
                     Revolving Funds (SRFs)

EPA Program Office:   Office of Water

Date of Report:       September 2001

Summary

In this  report EFAB examines ways in which existing environmental facilities, programs, and  activities
might be improved to better support the goals  of the President's plan. The report also identifies energy
conservation  improvements  at  municipal drinking  water and  wastewater systems throughout  the
country.

Recommendations

1. EFAB recommends that  EPA's Drinking Water and Clean Water State Revolving Fund programs
   should be mobilized to help finance significant energy conservation improvements at drinking water
   and wastewater systems nationwide.
2. EFAB recommends that EPA should consider expanding the Energy Star program to explicitly include
   drinking water and wastewater systems as a priority focus.  Many wastewater and  drinking water
   systems have conducted energy audits as a  cost cutting measure, and their experiences would serve
   as a useful blueprint to identify worthwhile  energy conservation projects.
3. EFAB recommends that the  EPA should provide  states the greatest latitude possible in structuring
   state-designed ways to meet national goals  that would provide the greatest opportunity for success.

Outcomes

•  EPA produced a new guidance  in January 2008, Ensuring a  Sustainable Future:  An Energy
   Management  Guidebook for Wastewater and Water Utilities, to help utilities systematically assess
   energy  costs  and practices, set measurable performance  improvement  goals,  and monitor and
   measure progress overtime.

•  A fact sheet  on  Energy  Conservation is available  to assist  municipal and  utility  managers and
   operators in evaluating ways to  reduce energy consumption  within  wastewater treatment plants.
   For a copy of the fact sheet, visit the Energy Conservation and Management section of EPA's website
   at: http://epa.gov/owm/mtb/mtbfact.htm.

•  In 2009, the American Recovery and Reinvestment Act (ARRA) funding enabled the Arizona Water
   Infrastructure  Finance Authority to expand its traditional technical  assistance package to include
   energy  audits, as part of promoting EPA's Sustainable Infrastructure Initiative.  General Energy
   Audits collect information  about drinking  water facility operations via a detailed  evaluation of
   facility  operations and opportunities  for  energy  conservation  improvements.   The audits also
   identify energy conservation measures appropriate for a facility based on its operating parameters.
                                                                                          37

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                                                           Compendium ofEFAB Reports 2001-2010
Name of Report:


EPA Program Office:

Date of Report:

Summary
Arbitrage Relief Would Increase  Funds  Available  to  Meet Critical Water and
Sewer Funding Needs

Off ice of Water

September 2001
This report examined the idea of removing Internal Revenue Code arbitrage restrictions on federal and
state dollars used to fund the Clean Water and Drinking Water State Revolving Funds.

Recommendations

1. EFAB recommends that EPA consider naming a senior Agency headquarters official with financial
   expertise as a permanent liaison with the Department of the Treasury.  This individual could meet
   regularly with Treasury and Internal Revenue Service officials to communicate and represent EPA's
   interests across all of its environmental programs.
2. EFAB also believes that some federal support will  be necessary if these state governments are to
   continue in this role and assure that water and sewer rates remain affordable across the nation.
3. EFAB  urges that EPA  support amending the Internal  Revenue Code to provide that monies
   contributed to the federally-created Clean Water and Drinking Water State Revolving Funds be freed
   from the arbitrage earnings restrictions.

Outcome

Beginning in 2006, senior EPA managers were publicly speaking about exploring the idea of lifting IRS
arbitrage restrictions on SRF funded reserves to permit arbitrage investments in SRFs.
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                                                            Compendium ofEFAB Reports 2001-2010
Name of Report:       Private Sector Initiatives to  Improve Efficiencies in  Providing Public Purpose
                      Environmental Services

EPA Program Office:    Office of Water

Date of Report:        July 2001

Summary

In this  report, EFAB examined some practical alternatives to established management approaches that
offer cheaper, better, faster ways of providing cost-effective environmental services in this report. They
recognized the need for more EPA attention and public education regarding the many innovative and
cost-effective public-private partnerships operating and owning public-purpose environmental projects
across the nation.

Recommendations

Procurement Practices
1.  At  minimum, EPA should educate communities about successful and more efficient ways to deliver
    environmental services.
2.  EPA should consider taking a more proactive position by issuing  a policy statement supporting
    broader forms of service delivery and competition where it is judged most cost-effective in terms of
    meeting environmental goals.

Private Activity Bonds
3.  EPA should  call  publicly for  private activity  bond  reform  to  support urgent environmental
    infrastructure needs.
4.  EPA should support  the  exemption  of  private  activity  bonds from  state volume caps,  whose
    proceeds finance public-purpose drinking water and wastewater facilities.

Information Services
5.  EPA should create an information service on public-private partnerships for environmental services
    as part of the Environmental Finance Program website. This site should include extensive hotlinksto
    related websites within and outside government.

Outcome

EPA has begun compiling an  inventory of innovative financing options at the state and local levels.
These  innovations  will  bring in  new ideas about sustainability and encourage greater private sector
participation. In  the President's  FY08  Budget  request, EPA proposed  an  important tool - Water
Enterprise Bonds - to accelerate and increase investment in the nation's water infrastructure.  Water
Enterprise Bonds will enhance access and flexibility for utilities to issue private activity bonds for public-
purpose drinking water and wastewater facilities.
                                                                                           39

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                          Compendium ofEFAB Reports 2001-2010
               SECTION 3

CLEANING UP COMMUNITIES AND ADVANCING
       SUSTAINABLE DEVELOPMENT
                  AND
     ENFORCING ENVIRONMENTAL LAWS
                                          40

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                                                            Compendium ofEFAB Reports 2001-2010
Name of Report:       Financial Assurance: Commercial Insurance as a Financial Assurance Tool

EPA Program Offices:   Office of Solid Waste and Emergency Response and Office of Enforcement and
                      Compliance Assurance

Date of Report:        February 2010

Summary

This report addresses the use of commercial insurance as a financial assurance tool by examining the
strengths and pitfalls of insurance, the value of minimum  ratings and capitalization requirements for
insurers, and the feasibility and advisability of standard policy language for insurance used to provide
financial assurance.

Recommendations

1.  EPA should augment the existing minimum requirement that an insurer who provides policies for
    finance assurance be licensed in one or more states with a requirement for an objective third-party
    analysis of the  insurer's  capacity to meet its obligations.  In  this  regard, EPA should consider
    minimum requirements to evidence the strength of an insurer providing financial assurance such as
    the use of a minimum acceptable rating from AM Best or a similar national rating agency. The Board
    did not agree on an appropriate minimum acceptable threshold rating.
2.  EPA should not  require  mandatory  language  for  insurance policies for purposes  of  Resource
    Conservation and Recovery Act (RCRA) financial assurance. The Board supports insurance policies
    that contain specifically negotiated provisions that meet the characteristics of each insured party
    and each insured facility.
3.  EPA should adopt procedures that encourage all involved parties (the insured, the insurer, and the
    regulator) to explicitly express their expectations when using insurance as a financial assurance tool.
    In  particular,  the  Agency  should  adopt procedures under which the regulatory authority  can
    specifically  agree to or reject limitations  contained in the  insurance  policy before the  carrier
    becomes legally obligated to issue the policy.

Outcome

The Agency  is currently  developing  financial  responsibility rules  under Section  108(b) of  the
Comprehensive Environmental Response, Liability, and  Compensation  Act  (CERCLA).  The Charge
specifically states that EFAB limit its evaluation to financial  assurance  as provided under the  Resource
Conservation and Recovery Act (RCRA).  However, since  many  of the  same  questions concerning
commercial insurance as a financial assurance tool will arise in developing the CERCLA 108(b) rules, EPA
plans to also consider these recommendations in developing these rules.
                                                                                           41

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                                                            Compendium ofEFAB Reports 2001-2010
Name of Report:      The Use of Captive Insurance as a Financial Assurance Tool  in Office of Solid
                     Waste and Emergency Response Programs

EPA Program Offices:  Office of Solid Waste and Emergency Response and Office of Enforcement and
                     Compliance Assurance

Date of Report:       March 2007

Summary

This report looked at the use of financial assurance mechanisms such as financial tests, corporate
guarantees, insurance, bonds, and trust funds to help the Agency ensure that adequate resources are
available to address the environmental consequences of industrial and business activities.  EFAB held an
informational workshop with governmental and financial community representatives who oversee and
evaluate  the  captive  insurance  industry,  users  of  captive  insurance,  and  state  government
environmental representatives familiar with the use of captive insurance. EFAB's recommendations in
this report address the strengths and weaknesses  of the use of  captive insurance by corporations to
demonstrate that they have the capacity to meet their financial assurance obligations.

Recommendations

With respect to captive insurance as a financial assurance tool, EFAB recommends that EPA require that:

1.  The financially responsible affiliate uses a  captive insurance  policy to provide financial assurance
    that the affiliate either (a) pass the financial test and unconditionally guarantee the obligations of
    the captive or (b) possess investment grade rating.
2.  The captive entity issuing the insurance policy have a rating of "secure" or better by AM Best or a
    comparable rating agency.
3.  The rating of the captive must be formally reviewed by the rating agency annually, at a minimum,
    and the  rating report must be furnished to those states where a captive policy is being  used for
    financial assurance. Further, states must be notified within 30 days of a ratings change, an outlook
    change, or a rating being placed under review.

Outcome

Based on EFAB's recommendations on the financial  test, EPA's Office of Solid Waste and Emergency
Response initiated EPA's  Action Development Process (ADP) in  2007 to more fully analyze possible
regulatory options concerning the RCRA Subtitle C  financial test. By entering into the ADP,  EPA is
acknowledging that the current financial test  presents  issues that need to be explored. One  of the
options that will be analyzed through this process is the Board's recommendation that EPA include an
independent ratings requirement to Alternative I of the current financial test.
                                                                                           42

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                                                           Compendium ofEFAB Reports 2001-2010
Name of Report:


EPA Program Office:


Date of Report:

Summary
Use of the Financial Test and Corporate Guarantees to Meet Financial Assurance
Requirements under RCRA Programs

Office of Solid Waste and Emergency Response and Office
of Enforcement and Compliance Assurance

January 2006
EFAB's report provided an initial analysis of the strengths and weaknesses of the current financial test
used by corporations  to  demonstrate that they have the capacity to meet their financial assurance
obligations. The financial test mechanism relies on  an evaluation of the financial viability of the
regulated entity; the regulated community prefers this method since all other mechanisms require an
additional cost.

Recommendations

1.  EPA and the states should consider the  financial assurance requirements from  the view of a
    potential creditor when evaluating financial assurances.
2.  EPA should consider that all companies using the Alternative I test to meet their obligations receive
    an independent third-party assessment of their credit  position  using methodologies currently
    employed by the credit rating services and other financial institutions, which is already being done
    for the companies  using Alternative II.

Outcome

EPA has asked EFAB to continue to offer assistance should the Agency move forward with changes to
the financial test. With respect to the corporate guarantee or the cost estimate elements of the financial
test, EFAB transmitted a  separate report to EPA covering these topics. The report can be viewed at
http://www.epa.gov/efinpage/efabpub.htm. The name of the Report is Financial Assurance: Report on
Improving Cost Estimation and Letters on the Use of Credit Ratings.
                                                                                           43

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                                                            Compendium ofEFAB Reports 2001-2010
Name of Report:       Brownfields Tax Incentive Letter

EPA Program Office:    Office of Solid Waste and Emergency Response

Date of Report:        April 2001

Summary

This report examined financially  sound ways to pay for Brownfields cleanup and redevelopment. The
core conclusion of EFAB's findings is that any wide-scale and long-term success must be sustainable in
the private sector. This report recommends that the Agency place a greater  priority on actions that
facilitate private sector  involvement and that EPA emphasize initiatives that enhance the private sector's
ability to manage site related environmental problems while limiting and facilitating interaction with
governments.

Recommendations

1.  Create  a transferable  tax  credit  equal  to the  cost of  the environmental  investigation  and
    remediation incurred on a "qualifying site." This would enable cities to assess and clean up property
    and transfer the credits to the next purchaser.
2.  Define "qualifying site"  as contaminated property within an urban area as defined by the census.
    This definition includes most Brownfields but, importantly, precludes greenfield sites.
3.  The tax credit be available only after certified commencement  of redevelopment to avoid claiming
    the credit and then  "warehousing" the property without actually starting the cleanup.
4.  Define  Property "redevelopment" to  include open spaces, parks, residential  living  spaces,
    commercial use,  schools and any other uses that are of benefit to the community. Irrespective of
    other programs, an  open space component should be included in new tax incentive proposal.
5.  "Qualifying  remediation  costs" should include the  capitalized  costs of ongoing remediation,
    including pump and treat systems.  The board  urges this definition be established in legislation or
    regulation to avoid  the  unnecessary progress-inhibiting uncertainty that would accompany leaving
    this to after-the-fact, case-by-case determination by IRS.
6.  Insurance premiums covering post-remediation liabilities should qualify for the tax credit.

Outcome

Congress renewed the  Brownfields Tax Incentive on October 3, 2008, retroactive to the start of 2008,
and extending to December 31, 2009. With regard to the recommendation to include a transferable tax
credit equal to the cost  of the environmental legislation and remediation incurred on a "qualifying site,"
a bill  was introduced in Congress  but did not  pass. Insurance premiums covering  post-remediation
liabilities now qualify for tax credits if the qualifying costs relate to cleanup liabilities.
                                                                                            44

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                   Compendium ofEFAB Reports 2001-2010
      SECTION 4
CROSS-GOAL REPORTS
                                      45

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                                                           Compendium ofEFAB Reports 2001-2010
Name of Report:      Environmental Management Systems and the Use of Corporate Environmental
                     Information by the Financial Community

EPA Program Office:   Office of Policy, Economics, and Innovations (currently Office of Policy)

Date of Report:       August 2008

Summary

This  report  provided advice in identifying organizations and  people  in the  financial and  business
communities with a potential interest in Environmental Management  Systems (EMS), environmental
performance improvement,  and  financial risks/rewards.  EPA's  Office of Policy,  Economics,  and
Innovations  (OPEI) asked the Board to help provide it with a better understanding of current financial
services, industry beliefs, practices, conventions, and challenges with  regard to the consideration of
environmental performance and systems. EFAB undertook  an extensive dialogue with EPA on these
topics and held a workshop with representatives of the insurance and equity sectors.

Recommendations

1. EPA should take a leadership  role in working with the  financial sector  and companies to better
   understand the relationship between environmental management  systems (EMS), environmental
   performance and financial value.
2. EPA should work with companies and the three financial market  segments already identified in
   developing environmental metrics  or categories of data that would be of value to the financial
   markets  for both operational and legacy environmental concerns.
3. EPA should make sure that the Steering  Group identifies all the relevant  information collection
   systems  within the Agency, including information that may reside in the regions, so that any  new
   system considers all the information available within the Agency.
4. EPA should consider contacting environmental regulators and organizations in Europe, Japan  and
   Australia, which are geographical regions that  have been identified  as more advanced in collecting
   environmental performance information that  is of interest to  the  financial markets. Examples of
   such information include energy use, water use, and carbon footprints.
5. EPA should coordinate the development and use of environmental metrics with other agencies, such
   as  the Securities  and  Exchange  Commission (SEC) and  the Occupational Safety and Health
   Administration (OSHA), and  state environmental regulators.

Outcomes

•  Concurrent with the  completion  of  EFAB's work, EPA  sponsored  a dialogue with  the financial
   community to  explore how to improve  corporate access to,  and the understanding of,  EPA
   information and databases. A number of recommendations were incorporated in the Office of
   Environmental Information's database access strategy issued in Fall 2008.
                                                                                          46

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                                                          Compendium ofEFAB Reports 2001-2010

Environmental Management Systems and the Use of Corporate Environmental Information by the
Financial Community Outcomes (continued)
•  OPEI  subsequently funded the development of a report analyzing  Europe's progress to date in
   making environmental criteria a more standard part of decision-making.  EPA released this report,
   "Environmental, Social, and Governance Investing in Europe: A Review and Analysis" in April 2009.

•  In the late Summer/Fall of 2009, senior management from OPEI met with senior officials from the
   Securities and Exchange Commission to discuss corporate environmental reporting issues related to
   climate, materiality, and metrics.
                                                                                        47

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                                                           Compendium ofEFAB Reports 2001-2010
Name of Report:
Application  of  Innovative   Finance   Techniques
Infrastructure Finance and Innovation Act of 1998
in   the  Transportation
EPA Program Office:   Office of Water and Office of Solid Waste and Emergency Response

Date of Report:       March 2005

Summary

This report examined the provisions of the Transportation Infrastructure Finance and Innovation Act of
1998 (TIFIA) to determine if any of the innovative financing techniques authorized therein could  be
adapted to environmental  statutes to  help finance infrastructure. EFAB identified the TIFIA provision
relating to "backloading" as potentially useful in  financing smart growth,  Brownfields cleanup and
redevelopment, and rural water/wastewater facilities.

Recommendations

1.  As  the Agency  reviews its core legislation and  its action programs in the  water, wastewater,
    Brownfields and smart growth areas, it should give consideration to the use of financial mechanisms
    such as guaranties and direct loans that will accommodate back loaded financing.
2.  EPA seeks to obtain TIFIA-like authority as a complement to its infrastructure assistance programs.
    EPA should consider developing  the  means to  deploy backload repayments schedules and  to
    implement various guarantee mechanisms.

Outcome

EPA acknowledged that  the use  of "back-loading" in water infrastructure  financing  programs is  an
option that will remain available to future borrowers, in cases where it is appropriate.
                                                                                          48

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                                                           Compendium ofEFAB Reports 2001-2010
Name of Report:       Protecting American's Land Legacy: Stewardship Policies, Tools, and Incentives
                      to Protect and Restore America's Land Legacy

EPA Program Office:    Office of Policy, Economics, and Innovation (now known as the Office of Policy)

Date of Report:        February 2002

Summary

This report sets forth principles and a broad policy framework, along with the tools and incentives, to
guide the  long-term process of  conserving our land legacy and restoring the vital functions that the
lands may support. The report further sets forth the strategic direction to instill the ethic and practice of
stewardship on our public and private lands.

Recommendations

1.  EPA should embrace stewardship as a core value of the Agency and as a foundation for the Strategic
    Plan.
2.  EPA should perform  an internal  review  of  its authorities, programs, and initiatives  to identify
    contributions to  individual, community, and corporate stewardship. This review would be the basis
    to advance stewardship as a coherent and central theme of EPA's Strategic Plan and annual budget.
3.  EPA should realign  its grant  assistance programs to states and communities to foster and support
    stewardship practices.
4.  EPA should create an  internet-based  clearinghouse dedicated to  stewardship to promote  the
    exchange of ideas, provide benchmarks of successful practices, and inform and educate.
5.  EPA should work with the Council on  Environmental Quality (CEQ) and the Departments of Interior,
    Education, and Agriculture to organize and convene a national dialogue on stewardship to engage
    stewards and practitioners in development of a national framework for stewardship.
6.  EPA should vigorously implement the  Clean Water Action Plan (CWAP) as a model  for federal
    interagency cooperation on  watershed  management.  EPA should support implementation of the
    Farm Bill and its  compelling stewardship incentives for farmland conservation, wetlands restoration,
    and habitat protection.
7.  EPA should reconsider EFAB's prior recommendation for a new financing vehicle for stewardship in
    the form of an Environmental State Revolving Fund (ESRF) for sustainable financing of stewardship
    practices.

Outcomes

•   In September 2003, Environmental Stewardship was introduced as an Agency goal in the 2003-2008
    EPA Strategic Plan. The agency retained this goal in the 2006-2011 EPA Strategic Plan.

•   In  August  2004, an Executive Order was issued on Environmental Conservation, an  important
    component of environmental stewardship. This Order directed EPA to work with CEQ and  the
    Departments of Interior, Agriculture, Commerce and Defense to integrate cooperative
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                                                           Compendium ofEFAB Reports 2001-2010

Protecting American's Land Legacy: Stewardship Policies, Tools, and Incentives to Protect and Restore
America's Land Legacy Outcomes (continued)
    conservation approaches in implementing laws relating to the environment and natural resources.

    In November 2005, the Administrator asked the EPA Innovation Action Council to better define
    stewardship  in  the  future  of environmental  protection, assess the  Agency's  environmental
    stewardship activities and opportunities for improvement, and  recommend how EPA, in partnership
    with states and tribes, could encourage stewardship to address  priorities and achieve results.

    In May 2006, the Administrator asked the National Council for Environmental Policy and Technology
    (NACEPT) to conduct the assessment of Agency environmental stewardship efforts (as well as
    cooperative conservation activities) and make recommendations on how EPA can best pursue these
    priorities. NACEPT issued its  report entitled: "Everyone's Business: Working Towards Sustainability
    through Environmental Stewardship and Collaboration" in March 2008.
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                                                           Compendium ofEFAB Reports 2001-2010
Name of Report:      Small Business Innovative Research Topics

EPA Program Office:   Office of Research and Development

Date of Report:       September 2001

Summary

In this  report, EFAB reviewed the current Small  Business Innovative Research (SBIR) program research
topics and suggested  additional topics that meet EPA's mission or a stated Agency need. EFAB agreed
that there is a need to encourage soft technologies in the marketplace, particularly with respect to the
significant benefits they  offer in the cost-effective management of  public-purpose environmental
utilities.

Recommendations

1. EFAB recommends that EPA's 2002 Small Business Innovative Research (SBIR) solicitations  include
   strategic management tools for the public and private sectors in its list of eligible research topics.
2. EFAB  recommends that  EPA  support  development  of innovative  environmental accounting
   techniques, lifecycle analyses,  environmental management systems  and  other  techniques and
   systems that support the environmental industry and/or promote cleaner business.
3. EFAB recommends that the SBIR review panels include individuals with appropriate experience to
   review soft technology proposals.

Outcome

EPA's SBIR Program has provided approximately $100 million through more than 700  awards to small
businesses to translate their innovative ideas into commercial products that address environmental
problems.  These innovations are  the primary source of new technologies that can provide improved
environmental  protection at lower cost with  better performance and effectiveness. Companies  have
shown  innovation in addressing current and emerging environmental issues by developing technologies
that monitor, treat, and prevent pollution, providing significant public health benefits.
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                                                          Compendium ofEFAB Reports 2001-2010
                                  ACKNOWLEDGEMENTS

We would like to thank the Environmental Financial Advisory Board Chairs and the Designated Federal
Official from 2001 to 2010 for their leadership in producing the products in the compendium.

Lyons Gray, Board Chair 2001-2005
A. James (Jim) Barnes, Board Chair 2006-2010

A. Stanley Meiburg, Designated Federal Official 2001-2010

We also want to thank all the members of the Board who contributed to the reports.
Terry Agriss
New York, NY

John Boland
Baltimore, MD

George Brewster
Cupertino, CA

George Butcher
New York, NY

Pete Butkus
Sammamish, WA

Donald Correll
Voorhees, NJ

Michael Curley
Parkton, MD

Rachel Deming
Ann Arbor, Ml

Michael Deane
Washington, DC

Hon. Pete Domenici
Washington, DC

Kelly Downard
Louisville, KY

Mary Francoeur
New York, NY
Michael Finnegan
New York, NY

James Gebhardt
Albany, NY

Hon. Vincent Girardy
Gladstone, NJ

Steve Grossman
Columbus, OH

Scott Haskin
Belluvue, WA

Jennifer Hernandez
San Francisco, CA

Evan Henry
Irvine, CA

Anne Pendergrass-Hill
Portland, OR

Keith Hinds
Albuquerque, NM

Martin Kamarck
New York, NY

Mary Kelly
Austin, TX

Robert Lenna
Augusta, ME
John McCarthy
Winchendon, MA

Mathilde McLean
New York,  NY

Stephen Mahfood
Jefferson City, MO

Langdon Marsh
Portland, OR

Gregory Mason
Atlanta, GA

Karen Massey
Jefferson City, MO

Lindene Patton
New York,  NY

Sharon Dixon-Peay
Hartford, CT

George Raftelis
Charlotte,  NC

Cherrie Collier Rice
Houston, TX

Arthur Ray
Columbia,  MD

Helen Sahi
Hartford, CT
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                                                           Compendium ofEFAB Reports 2001-2010
Dr. Andrew Sawyers                Leanne Tobias                     Mary Ellen Whitworth
Baltimore, MD                     Bethesda, MD                     Houston, TX

Douglass Scott                     Sonia Toledo                      Justin Wilson
Springfield, IL                      New York, NY                      Nashville, TN

James Smith                       Dr. Jim Tozzi                       John Wise
Bozeman, MT                      Washington, DC                   Berkeley, CA

Gregory Swartz                    Chiara Trabucchi                   Joseph Young
Phoenix, AZ                       Cambridge, MA                    Vesper, Wl

Steve Thompson                   Billy Turner
Oklahoma City, OK                 Columbus, GA
We also wish to acknowledge the work of the Environmental Finance Centers (EFCs). While the EFCs
provide services and advice directly to communities on how to finance environmental protection, they
also advise EFAB on what works and what does not from in-the-field experience.

EFC at University of Southern Maine
EFC at University of Syracuse
EFC at University of Maryland
EFC at University of North Carolina/Chapel Hill
EFC at University of Louisville
EFC at Cleveland State University
EFC at New Mexico Institute of Mining and Technology
EFC at Wichita State University
EFC at Dominican University of California
EFC at Boise State University
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                                                    Compendium ofEFAB Reports 2001-2010

   The material in this document has been prepared by EPA's Center for Environmental Finance in the
   Office of the  Chief  Financial  Officer and  approved for  publication as an EPA  report.  The
   recommendations outlined by the Environmental Financial Advisory Board, however, are the Board's
   own and do not necessarily reflect those of the U.S. Environmental Protection Agency.
SEPA
      United States
      Environmental Protection
      Agency
                                                                EPA-190-S-11-004
                                                                SEPTEMBER 2011
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