United States
Environmental Prote
Agency
Administration And
Resources Managemei
September 1989
Public-Private
Partnership
Case Studies

Profiles Of Success
In Providing
Environmental  Services
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Photos by Steve Delaney

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      A Letter from the Assistant Administrator
The goal of the Public-Private Partnerships initiative is to bring together public
and private interests to meet the demands of future environmental protection.
The success of our initiative, and the products which we are generating, is con-
tingent upon local governments' ability to provide the necessary environmental
services at a reasonable cost. Many of our efforts focus on providing tools for
local communities to determine how partnerships work to improve or expand en-
vironmental services in your communities.

This case studies report provides concrete examples to local officials of how
successful partnerships can be formed and work for the benefit of both the public
and private sectors. Many municipalities around the country already have ex-
tensive experience and expertise in the formation and implementation of public-
private partnerships.

Case studies can be used by localities and states to avoid the pitfalls experienced
by others.  We would like to hear from communities around the country about
other examples of successful partnerships.

Governments  must take steps now to meet the rising cost of environmental
services. There will be difficult struggles ahead, but we can  overcome these
obstacles by working together and sharing what we have learned.
                                                Charles L. Grizzle

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             PURPOSE OF THIS REPORT
The purpose of this report is:

•   To provide examples of how partnerships work and how they are
    developed.

•   To indicate lessons learned in implementing partnerships and why
    they are successful.

•   To provide local communities useful information on developing or
    choosing partnership options.
     WHO SHOULD READ THIS DOCUMENT
    Local  communities who have an interest in public-private partner-
    ships and how to implement them.

    State government officials who are interested in promoting or learn-
    ing about public-private partnerships at the local level.

    Leaders in business, finance, banking and industry who can pro-
    vide the necessary knowledge and technology for environmental
    infrastructure projects.

    Representatives of non-profit organizations, such as environmental
    groups, associations, foundations, and academia who are inter-
    ested in exploring this area further.

    EPA employees who are interested in public-private partnerships
    and want to understand what works and why.

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TABLE OF CONTENTS
Title

Executive Summary
Chapter 1:
A.
B.
C.
D.
E.
Chapter II:
Chapter III:
A.
B.









Chapter IV:
A.

B.








Introduction
The Cost of Environmental Protection
The Role for Public-Private Partnerships
What are Public-Private Partnerships
Types of Partnerships
Benefiits of Partnerships
Components of Successful Public-Private Partnerships
Solid Waste Management Case Studies
Private Involvement in Providing Solid Waste Management
Case Studies of Public-Private Partnerships for Solid Waste
Management
1 . Lee County, Alabama
2. Huntsville, Alabama
3. Bristol, Connecticut
4. Stamford, Connecticut
5. Hillsborough County, Florida
6. Millbury, Massachusetts
7. St. Cloud, Minnesota
8. Seattle, Washington
Wastewater Treatment Case Studies
Private Involvement in Providing Wastewater Treatment
Services
Case Studies of Public-Private Partnerships for Wastewater
Treatment
1. Auburn, Alabama
2. Chandler, Arizona
3. Escondido, California
4. Orlando, Florida
5. Mount Vernon, Illinois
6. Clinton, Kentucky
7. Edgewater, New Jersey
Page
V
3
3
3
3
4
6
11
17
17
19

20
24
27
31
35
39
43
47
53
53

55

56
60
64
68
71
75
79
in

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                   TABLE OF CONTENTS  (Cont.)
Title	Page


              8. Hood River, Oregon                                       83

Chapter V:   Drinking Water Case Studies                                     89

       A.   Private Involvement in Drinking  Water Supply                        89
       B.   Case Studies of Public-Private Partnerships for Drinking Water          90
           Supply
              1. Sabine Parish, Louisiana                                   91
              2. Belen, New Mexico                                       95
              3. Irving, Texas                                             99
              4. York County, Pennsylvania                                103
              5. Lititz, Pennsylvania                                      107
              6. Westmoreland County, Pennsylvania                        111
              7. Myrtle Beach, South Carolina                              115
IV

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EXECUTIVE SUMMARY
This report examines 23 case studies of public-private partner-
ships throughout the United States. They are organized by three
environmental service areas:  solid waste, wastewater treatment,
and  drinking water.  The introduction explains the types and
benefits of public-private partnerships and Chapter 11 lists the attrib-
utes of successful partnerships.  The  remainder of this report
emphasizes case study  examples in solid waste, wastewater
treatment, and drinking water. Individual chapters are devoted to
each of the three environmental service areas.

Each case study is presented in a similar format which provides the
reader with basic information on how the partnership was formed
and implemented, as well as characteristics of the community. The
following list summarizes the topics covered in each case study.
•   Characteristics of the community and the project including
     income, population, time frame, and cost;

•   Public decision-making process in the selection of a private
     partner;

•   Financing responsibilities of the public and private part
     ners;

•   Procurement arrangements used to secure private involve
     ment;

•   Division of responsibilities for project implementation;

•   Description of how the project was implemented;

•   Evaluation of why the project was successful;

•   Lessons learned and their applicability to other situations; and

•   Contacts for further information.

The major emphasis of this report is the case study examples. We
selected as many different locations and types of partnerships as
possible in our sampling of case studies. We discovered that many
successful partnerships exist and communities are experienced
participants in public-private partnerships.

Exhibit 1 presents a summary of all 23 case studies.
                                                        v

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                    CASE STUDIES
                     SUMMARY CHART
MEDIA
SOLID WASTE







WASTEWATER
TREATMENT







WATER SUPPLY






TYPE OF PARTNERSHIP
Merchant Facility
Landfill
Turnkey Contract
Resource Recovery Facility
Privatization
Resource Recovery Facility
Contract Services
Rail-Haul of Incinerator Ash
Turnkey Contract
Resource Recovery Facility
Merchant Facility
Resource Recovery Facility
Merchant Facility
Solid Waste Composting Plant
Contract Services
Curbside Recycling Program
Privatization
Wastewater Treatment Plant
Privatization
Wastewater Reclamation Plant
Developer Financing
Sewer Access Rights
Developer Financing
Impact Fees
Turnkey Contract
Wastewater Treatment Plant
Turnkey Contract
Wastewater Treatment Plant
Turnkey Contract
Wastewater Treatment Plant
Contract Services
Wastewater Treatment Plant
Contract Services
Public Water Systems
Developer Financing
Private Water System
Contract Services
Private Development of Wells
Privatization
Acquisition of Small Water Systems
Contract Services
Public Water Systems
Contract Services
Public Water System
Turnkey Contract
Public Water System
POPULATION
80,800
165,430
62,410
109,370
825,411
11,500
181,570
491,800
29,760
68,220
83,550
160,408
17,470
1,600
4,674
4,480
1,600
327
130,200
9,344
7,590
90,683
27,800
LOCATION
Lee County, AL
Huntsville, AL
Bristol, CT
Stamford, CT
Hillsborough County, FL
Millbury, MA
St. Cloud, MN
Seattle, WA
Auburn, AL
Chandler, AZ
Escondido, CA
Orlando, FL
Mount Vernon, IL
Clinton, KY
Edgewater, NJ
Hood River, OR
Sabine Parish, LA
Belen, NM
Irving, TX
York County, PA
Lititz, PA
Westmoreland County, PA
Myrtle Beach, SC
VI
                                              Exhibit I

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  CHAPTER I
INTRODUCTION

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           CHAPTER I   INTRODUCTION
               A. The Cost of
    Environmental Protection
Faced with the escalating costs of environmental protection and
the competing pressures of other public programs, governments
may be limited in their ability to finance all of the environmental
protection activities anticipated by Congress. The cost to EPA,
states and local governments of maintaining current levels of en-
vironmental quality is expected to reach $55 billion a year, by the
year 2000, compared to 1987 outlays of roughly $40 billion a year.

Thus, the public sector will have to spend an additional $15 billion
a year by the turn of the century to maintain current levels of
environmental quality. These figures are conservative since they
do not reflect any  of the environmental programs envisioned by
Congress beyond  1987, and none of the growing number of new
state and local environmental mandates.

This shortfall affects all levels of government.  But it is at the local
level that the budget crunch is most telling.  In 1981, for example,
all local governments combined paid 76 percent of the nation's bill
to comply with federal environmental mandates. By the year 2000,
local units could bear over 87 percent of the cost of environmental
programs.

The local decision-maker is going to  need to examine new and
innovative ways of delivering environmental services and in mak-
ing choices on how to spend that last  dollar.
              B. The Role for
 Public-Private Partnerships
In light of the serious budget constraints facing federal, state, and
local governments, EPA believes that public-private partnerships
have great potential to help meet the growing environmental and
resource challenges facing this country in the 1990's and beyond.
Greater private involvement can increase public resources avail-
able for environmental protection in at least two ways:

•  Private equity can free  municipal resources for other invest-
    ments, and

•  Properly designed and executed partnerships can provide
    improved environmental services at the lowest possible cost to
    the public.
                 C. What are
Public-Private Partnerships?
A partnership is a contractual relationship between a public and
private party that commits both to providing an environmental
service. The public and private partners generally share respon-
sibility for any one or more of the following activities:

•   Deciding to provide an environmental service in a community;

•   Financing the project using public and/or private funds;

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                                 Designing and/or constructing the facility;

                                 Operating and maintaining the facility or service.
D. Types Of Partnerships  Within this broad definition, each  public-private partnership is
                             unique, with transactions designed to meet the particular needs of
                             different communities.  Public-private partnerships generally fall
                             into five categories:

          Contract Services  Contract Services. In this type of arrangement, a private partner
                             is contracted to provide  a specific municipal service, such as
                             garbage collection, or to maintain and operate a facility, such as a
                             wastewatertreatment plant. The facilities are owned by the public
                             sector.

                             Communities typically turn to contract operations for two reasons:
                             limited ability to operate facilities properly under regulatory or
                             enforcement pressure to achieve minimum environmental stan-
                             dards, or escalating operating and maintenance costs.

                             Many communities  have found that contracting with the  private
                             sector is cheaper than public provision of services. This has been
                             confirmed in several surveys and studies. For example, a Colum-
                             bia University study of 2,060 cities around the country found that
                             refuse collection by private contractors costs from 28 to 48 percent
                             less than public delivery of the service.

          Turnkey Projects  Turnkey Projects. In turnkey projects, a private partner designs,
                             constructs, and operates an environmental facility that is owned by
                             the public sector.

                             In such arrangements, financing risk is generally assumed by the
                             public owner, with bond repayment secured by userfees of one sort
                             or another. Performance risk,  on the other hand, is  generally
                             assumed by the private partner, with written guarantees of mini-
                             mum levels of service and/or compliance with all applicable envi-
                             ronmental standards.

                             While no statistics have been collected on their frequency, turnkey
                             transactions have been relatively common for many years, espe-
                             cially for solid waste disposal and wastewater treatment facilities.

      Developer Financing  Developer Financing. In this type of arrangement, a private party
                             (usually private developers)  finances the construction or expan-
                             sion of an environmental facility in return for the right to build
                             houses, stores, or industrial facilities.

                             In atypical situation, a private real estate developer wants to build
                             new houses which would cause excess demand on the community's
                             wastewater treatment facilities.  The community then charges a
                             fee, or requires the  developers to purchase capacity  in the treat-
                             ment plant, which is used to  expand or upgrade the facility.

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      Privatization
Merchant Facilities
Developer financing arrangements, which are often called capacity
credits, sewer access rights, impact fees or exactions are most
commonly found in the wastewater treatment area.

While no statistics are available on the frequency of developer
financing, anecdotal reports suggest that this type of partnership is
growing.  For example, one recent national survey found 190 cities
with populations above 15,000 that used impact fees to finance
wastewater treatment plants.  They are used most frequently in
rapidly developing regions in states such as California, Florida,
Colorado, and Texas.

Privatization. In privatization, a private party owns,  builds, and
operates a facility.  They also partially or totally finance  the
operation.

The private ownership of environmental facilities was a popular
concept prior to the passage of the Tax Reform Act of 1986. As a
result of reduced tax incentives however, private interest in owning
facilities that provide public services has been reduced considera-
bly.

Where strict privatization continues to be pursued—in solid waste
management,  largely—government  is motivated by  the goal of
sharing the risks of high technology solutions to environmental
management.  The private profit incentive remains  where tax-
driven benefits have been replaced by higher payments for serv-
ices (higher user fees).   Frequently, privatized facilities provide
services to more than one government.

Merchant Facilities.  In this type of arrangement, not only does the
private sectorown and operate the facility as in privatization deals,
but they  also  make  the  decision  to provide an environmental
service to a community.  It is similar  in concept to  a fast food
franchise except that it involves environmental services. Merchant
plants are generally associated with the provision of  solid waste
management services: landfills, composting facilities, and recy-
cling plants.

For each type of partnership, the following chart characterizes the
relative roles of public and private partners in providing environ-
mental services.

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Public-Private Partnerships:
Division of Responsibilities
Activity
Decision to
Provide Services
Financing
Design
Construction
Ownership
Operation&
Maintenance
Contract
Services
Public
Public
Public
Public
Public
Private
Turnkey
Facility
Public
Public
Private
Private
Public
Private
Developer
Financing
Public
Private
Either
Either
Either
Either
Privat-
ization
Public
Private
Private
Private
Private
Private
Merchant
Facility
Private
Private
Private
Private
Private
Private


   Exhibit 2
E.  Benefits of Partnerships
When property structured and matched to local needs, public-
private partnerships offer benefits to all of their participants.  Ide-
ally,  they provide competitive  economic returns to the private
partners while delivering high-quality environmental services at
reasonable costs to users.  Municipalities have pursued a variety
of partnership arrangements for the following reasons:

•  Reduced costs.  Savings result from the freedom from com-
    petitive bidding and the paperwork associated with intergov-
    ernmental grants, as well as design/construct/operate efficien-
    cies and private access to new low-cost technologies. While
    the literature is more rhetorical than analytical, limited esti-
    mates of combined capital and operating cost savings com-
    pared to public provision of services vary from 5 percent to 40
    percent.

•  Rapid Project Completion. Faster start-up is due in large part
    to the avoidance of competitive bidding and contracting con-
    straints associated with intergovernmental grants. In Auburn,
    Alabama, for example, the first of two pre-1986 Tax Reform
    privatized plants was completed under budget and 50 percent
    ahead of schedule.

•  Guaranteed Performance. Any of the public-private partner-
    ship arrangements that involve  private operation generally
    shift from the public to the private sector the responsibilities for
    environmental permitting, proper operation and maintenance,
    compliance with all applicable environmental regulations, and
    adequate environmental sampling and effluent monitoring.
    This represents a primary benefit, particularly in small commu-
    nities.

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Preservation of Jobs. Many communities consider public-
private partnerships as a way to reduce high operating ex-
penses while maintaining jobs.  Under continued public own-
ership, the plant would cut staff. In most public-private  ar-
rangements, the private partner guarantees the jobs of existing
municipal staff. Hence, jobs that might have been lost to
cutbacks can be preserved under privatization.

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        CHAPTER II
COMPONENTS OF SUCCESSFUL
PUBLIC-PRIVATE PARTNERSHIPS

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       CHAPTER
COMPONENTS  OF SUCCESSFUL
PUBLIC-PRIVATE PARTNERSHIPS
    Attributes of Successful
Public-Private Partnerships
            Local Incentive
      Supportive Legal and
Institutional Environments
The case  studies suggest that  several attributes of public-
private partnerships contribute to their success.  Each of the
following components appears to be a prerequisite of success
in one way or another.

Local incentive to seek private assistance is a majorfactor in the
initiation of public-private partnerships. Typically this incentive
results from developmental pressure and/or poor environmental
performance coupled with limitations on access to federal or
state grants. For example, Mount  Vernon, Illinois was faced
with a  ban on new connections to its failing wastewater
treatment plant and, therefore, could not attract new industry.
City officials felt that they had to act quickly and could not wait
until they  received a federal grant.   To overcome  sewer
restrictions as soon as possible the city contracted with a
private company to design, construct, and operate an upgraded
and expanded wastewater treatment plant. Sewer restrictions
were lifted after the first phase of construction was completed.

Comfortable legal and institutional environments may make it
easier to foster partnerships. Seven states have enacted or
considered specific legislation that  encourages public-private
partnerships. Another 12 states have more general legislation
that gives  local units the authority to enter into privatization
agreements.

The Edgewater, New Jersey case study is a good example of
how favorable state laws can encourage partnerships.  Edge-
water, New Jersey was able to seek a private partner as a result
of a state law passed in 1986. The law enables local govern-
ments to contract with private companies for the  financing,
design, construction  and  operation of wastewater treatment
plants.

At the core of most privatization statutes are the  rights provided
local governments to enter into long-term service contracts with
private firms. Other provisions found in privatization statutes
include:

•   broad exceptions from competitive bidding;

•   requirements that either provide exemptions for privatiza-
     tion projects or do not require that the low bid be selected;

•   exemptions from some or all local taxes or usury laws;

•   authorizations to enter into take-or-pay agreements;

•   acknowledgements that  service contracts do not consti-
     tute debt;
                                                                               11

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                     Ability to Secure
           Reasonable Private Returns
                      Regionalization
                  Communication and
                       Public Support
•    powers granted to special authorities to issue debt; and

•    authorizations to assess service charges and to pledge them
     and other revenues to payment of debt obligations.

The private sector must be able to secure reasonable returns in
order to ensure the success of partnership arrangements. Proper
prices for water, wastewater treatment, and solid waste services
can help attract  private equity seeking  reasonable  returns on
investment.

By setting prices at their full economic costs and  committing
environmental revenues to the provision of their respective serv-
ices, communities can help ensure competitive financing, attract
private participation, encourage efficient use of resources, and
increase public awareness concerning the true value of environ-
mental services.  Proper rates for environmental services include
premiums for capital depreciation and  adequate revenues  to
support the lowest-cost  public debt. This may include funding a
reserve account for capital improvements in future years.

Willingness of the community to work together with other commu-
nities in providing environmental services, e.g., regionalization,
can lead to the success  of many types of partnerships. As stated
above, the private sector must have the expectation of receiving an
adequate return on their investment before it is feasible for them to
provide environmental services to a community. This  may not be
possible in small communities which have a limited revenue base.
However, if several communities join together, that is, they region-
alize the provision  of environmental  services, then  large scale
projects can become economically feasible.

For example, the towns of Millbury, Massachusetts  and Bristol,
Connecticut were able to construct resource recovery facilities by
joining together with other communities in a regional effort to solve
their solid waste  problems. In both cases, the agreements were
worked out  with a private company to serve the entire region.
Without regional cooperation, the  development of the resource
recovery facility would not have been possible.

Community support, public education, and communication are
also critical to the success of partnerships. For example, in Mount
Vernon, Illinois,  the mayor insisted  that negotiations with the
private partner be open to the public  and that  the public be kept
informed.  As a  result,  the community supported private sector
involvement in the project.

Public support and education were also instrumental in Lee County,
Alabama.  The private company established a citizen's committee
to encourage communication with the public.  During the process
of siting the landfill, the citizen's committee helped mitigate public
concern about the landfill.
12

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Equitable Allocation   Another factor in the success of partnerships is agreement on the
             of Risk   allocation of risks. The risks involved in providing environmental
                       services can make or break an investment decision.

                       The process of  allocating risk among  all of the  parties to a
                       transaction can be the most time-consuming element of a partner-
                       ship negotiation. It is not infrequent that once the real risks are fully
                       assigned, investment opportunities appear less attractive than
                       they originally did. Where this happens, the partners must revisit
                       the question of risk sharing and recalculate ways to adequately
                       distribute risk on both the public and private sides of the transac-
                       tion.

                       Most public-private partnerships in resource recovery systems find
                       a turnkey arrangement a comfortable way to balance the risks of
                       new technologies with long term  demand for services.   For ex-
                       ample, in Huntsville, Alabama the private partner assured that the
                       plant would be built on time and  would  meet or exceed certain
                       performance standards. The public partner provided most or all of
                       the financing and assured that all solid waste within the jurisdiction
                       would flow to the new facility.
                                                                               13

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       CHAPTER III
SOLID WASTE MANAGEMENT
      CASE STUDIES

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     CHAPTER
SOLID  WASTE MANAGEMENT
CASE STUDIES
  A. Private Involvement
in Providing Solid Waste
  Management Services
         Contract Services
Americans produce about 160 million tons of municipal solid waste
each year, 3.5 pounds a day tor each person. Experts estimate that
the amount of waste produced will increase by 20 percent by the
turn of the century. Eighty percent of the nation's solid waste is
currently sent to landfills, but one-third of them will reach capacity
within 5 years. Opposition to siting new landfills and rising costs of
land disposal have increased community interest in other alterna-
tives such as recycling, composting, and resource recovery (incin-
eration and co-generation of electricity).

Contract services are common for  solid waste  collection  and
disposal.  Today, over  80  percent  of the  nation's garbage  is
collected by private companies, either under contract to govern-
ments or working directly for residents. In recent years, private
companies have expanded their role  in solid waste management
to meet the new recycling and resource recovery needs that have
emerged as America's landfills  reach capacity.
                 Landfills   Private companies are involved in providing new landfills as well.
                            However, many landfills rely on large scale operation to balance an
                            adequate return and  low fees.  In the case of Lee County, for
                            example, unit costs of disposal were kept low because they could
                            accept waste from an adjacent state. As more states restrict the
                            movement of solid waste across borders, private interest in provid-
                            ing landfills could diminish.
            Recycling and
       Resource Recovery
Recycling and resource recovery are well-suited to private involve-
ment because of the potential profits from the sale of energy or
products from processed waste. Important benefits to local gov-
ernments include the access to sophisticated technical expertise
and the potential for attracting private equity with private company
involvement. The Seattle case demonstrates how one city worked
with two private partners to reduce its residential waste stream by
12 percent. Avoided disposal costs should reach $20 million over
a 20 year period. Four different case studies of public-private part-
nerships in  resource recovery—Bristol,  Hillsborough County,
Huntsville, and Millbury—demonstrate the attractiveness of this
type of arrangement.

Solid waste composting is another example of recycling that is
amenable to private involvement.  In Saint Cloud, a private com-
pany owns and operates a co-composting facility (a mixture of solid
waste and sewage sludge) under an informal merchant agreement
with three counties in the area. A local market for the compost has
proven profitable to the private company and the volume of waste
going to landfills is expected to decrease by  15 to 20 percent.
                                                                                 17

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                   Rail Transportation   An interesting new area for private involvement in solid waste man-
                                         agement is rail transportation of waste from point of generation to
                                         point of disposal as exemplified in the case study of Stamford, Con-
                                         necticut. While this alternative faces political hurdles in the states,
                                         long-distance rail transport of waste may become more acceptable
                                         as disposal sites are sited farther from metropolitan regions.
18

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  B.  Case Studies of Public-Private Partnerships for Solid Waste
 SUMMARY CHART OF SOLID WASTE CASE STUDIES
   TYPE OF PARTNERSHIP
POPULATION
   LOCATION
           Merchant Facility
                   Landfill
               Privatization
   Resource Recovery Facility
           Turnkey Contract
   Resource Recovery Facility
          Contract Services
     Rail-Haul Incinerator Ash
           Turnkey Contract
   Resource Recovery Facility
           Merchant Facility
Solid Waste Composting Plant
           Merchant Facility
Solid Waste Composting Plant
          Contract Services
 Curbside Recycling Program
   80,800
  165,430
   62,410
  109,370
  825,411
   11,500
  181,570
  491,800
Lee County, AL
Huntsville, AL
Bristol, CT
Stamford, CT
Hillsborough County, FL
Millbury, MA
St. Cloud, MN
Seattle, WA
                                                                           19

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                                    SOLID WASTE

                                    Merchant Facility

                                          LANDFILL
                                   LEE COUNTY, ALABAMA
                     Lee County,
                     Alabama
  * A private company sited, constructed, operates, and owns
   a landfill in Lee County, Alabama

  • The company has separate agreements to accept waste
   from public and private customers in a multi-county area

  • Because of the large volume of waste disposed at the
   landfill, the company provides disposal services at low per-
   unit costs
SUMMARY
       In Alabama, counties are responsible for managing solid waste
disposal. Lee County has a dumpster system in its unincorporated area
and previously contracted with the City of Opelika to dispose of the
county's solid waste in Opelika's landfill.

       When the municipal landfill began to reach capacity and disposal
costs increased, the county investigated alternatives to meet its future
waste disposal needs. A private company, Waste Away, Inc., proposed
to site and build a new landfill in the county. The company selected and
purchased the site, financed, and built the new privately-owned landfill.  In
Lee County, the landfill's customers are the county, the City of Auburn,
the City of Opelika, Auburn University, and several large industries. The
landfill also serves customers in five other counties in Alabama as well as
three counties in Georgia.
PARTIES INVOLVED AND
TIMEFRAME
    Public Partner
    Private Partner (owner)
    Population
    Median Household Income
    Form of Government
    Project Initiated
    Project Completed
    Total Capital Cost
Lee County, Alabama
Waste Away, Inc.
80,800(1986)
$11,655 (1979)
County Commissioners
November 1984
November 1985
$4 million
20

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WHY WAS A PRIVATE PARTNER
CHOSEN/ALTERNATIVES
CONSIDERED?
       Citizens opposed siting an
       incinerator

       Another municipal-owned
       landfill was opposed

       County needed expertise of
       private partner
       A solid waste authority established in the early 1980's
studied the feasibility of an incinerator. Because local citizens
opposed an incinerator and the authority decided an incinerator
was too costly,  the authority was disbanded. The City of
Opelika then attempted to site a new landfill, but decided
against it after encountering strong citizen opposition.

       Because of a state law requiring counties to manage
solid waste disposal, the county assumed responsibility for
solving the problem. However,  the county did not have the
expertise to build a landfill and wanted to avoid the political
problems of siting a landfill. Waste Away, Inc. proposed to
permit and build a landfill in Lee County, and purchased an
acceptable site for the  landfill. The Lee County Commission
approved the site and provided support when citizen protests
occurred.
WHAT WERE THE FINANCING
ARRANGEMENTS?

    •  Private loan of $4 million
       financed the project
       The company financed construction of the landfill with
private financing. Based on its credit, Waste Away obtained a
$4 million bank loan.
WHAT WERE THE PROCUREMENT
ARRANGEMENTS?
       Company has a separate
       agreement with each customer

       Lee County has a 3-year
       agreement with Waste Away to
       dispose of the county's waste
       Waste Away has a separate agreement with 9achcf its
customers. The company uses two types of agieements,
disposal agreements and franchise agreements.  With a dis-
posal agreement, the customer collects and hauls waste and
the company  disposes of the waste at the landfill.   With a
franchise agreement, the company collects, hauls, and dis-
poses of waste at the landfill.

       The Lee County  Commission has a 3-year disposal
agreement with Waste Away. The agreement specifies a per-
ton tipping fee and outlines the process for instituting fee
increases. The company  agreed to a lower tipping fee for Lee
County. ln1988,thetippingfeeforLeeCountywas$11 perton
compared to the standard tipping fee of $16 per ton.

       The county has a 3-year agreement with the company
because state law prohibits local governments from entering
into contracts for more than 3 years.
                                                                                                 21

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WHAT WAS THE DIVISION OF
RESPONSIBILITIES?
Lee County Commission

     • Approve the site for the landfill

     • Pay a per-ton tipping fee for waste disposed at the
       landfill

Waste Away, Inc.

     • Find a site and purchase land for the landfill

     • Build, operate, and own the landfill

     • Secure a separate agreement with each govern-
       mental and industrial customer

     • Secure the environmental permits

     • Comply with environmental permit requirements

     • Secure performance bonds and insurance
HOW WAS THE PROJECT
IMPLEMENTED?

      • The company established a
       citizen's committee
       The company established a citizen's committee to en-
courage communication with the public. During the process of
sitingthe landfill, the citizen's committee helped mitigate public
concern about the landfill. Through meetings with company
officials and site visits, the committee has input into operation
of the privately-owned landfill.
WHY WAS THE PROJECT
SUCCESSFUL?


      • Private company has technical
       expertise

      I Economies of scale reduce
       tipping fees
       An important factor in the success of the project is that
Waste Away has the technical expertise to build and manage
a large landfill. Another factor is that the service area for the
landfill has grown to a multi-county area. As a result of the large
volume of waste, per-unit disposal costs have remained low
compared to other landfills in the state. In 1988, Waste Away
charged the county a tipping fee of $11 per ton, which is lower
than the  county's previous disposal costs at the  municipal
landfill. In 1984, the county's tipping fee at the municipal landfill
was $14  per ton and Opelika had notified the county that its
tipping fee would increase to $16 per ton in 1985.
22

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LESSONS  LEARNED
       Siting problems can be
       reduced if the public agency is
       not responsible for choosing
       site, only approval

       There is a trade-off between
       high volumes of waste
       reducing cost and reducing the
       life of the landfill
       Local governments can encounter serious political
difficulties siting landfills due to citizen opposition.  In Lee
County, after the company conducted the necessary environ-
mental tests and purchased a site, the county commission
only had to approve the site. Citizen protests still occurred, but
by approving the site chosen by the company rather than
choosing a site itself, the commission encountered fewer po-
litical problems.

       The company provides economical disposal serv-
ices to its customers because of the large volume of waste
disposed at the landfill. However, citizens in Lee County have
become concerned that by expanding to serve more custom-
ers, the company will reduce the life of the landfill.
CONTACT
  Hal Smith, Probate Judge
  and Chairman of Lee County Commission
  P.O. Box 666
  Opelika, AL 36802
  (205) 745-9761
                                                                                                  23

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                                       SOLID WASTE
                                     Turnkey Contract
  Huntsville, Alabama
                                 RESOURCE RECOVERY FACILITY
                                  (MASS-BURN  INCINERATOR)
                                     HUNTSVILLE, ALABAMA
                                      • The Solid Waste Disposal Authority of Huntsville signed a
                                       turnkey contract with Ogden Martin Systems, Inc. to
                                       design, construct, and operate a mass-burn incinerator
                                       owned by the authority

                                      • Steam generated from the resource recovery facility will
                                       be sold to the U.S. Army's Redstone Arsenal

                                      • Taxable bonds sold to finance the facility will be repaid
                                       from garbage tipping fees and the sale of steam

                                      • The private partner accepts responsiblity for performance
                                       and guarantees compliance with environmental permit
                                       requirements
SUMMARY
       Without enough acceptable land to site a large landfill, the City of
Huntsville decided to develop a resource recovery facility to reduce the
volume of waste to be land disposed.  Huntsville created a solid waste
disposal authority to implement a solid waste management plan and issue
bonds. The authority entered into a turnkey contract with Ogden Martin
Systems of Huntsville, Inc. to design, construct, and operate a mass-burn
incinerator. When operational, the facility will burn garbage and sewage
sludge, producing steam to be sold to the U.S. Army's Redstone Arsenal.
The Arsenal will be the sole purchaser of the facility's steam.
PARTIES INVOLVED AND
TIMEFRAME
  Public Partner (owner)
  Private Partner

  Population
  Median Household Income
  Form of Government
  Project Initiated
  Project Completed
  Total Capital Cost
Huntsville, Alabama
Ogden Martin Systems of Huntsville,
Inc.
165,430 (1987)
$27,182 (1986)
City Council/Strong Mayor
September 1988
Scheduled October 1990
$74.4 million
24

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WHY WAS A PRIVATE PARTNER
CHOSEN/ALTERNATIVES
CONSIDERED?
        Initial negotiations with U.S. Army to
        jointly own the facility failed

        A private partner was chosen to provide
        specialized technical expertise

        Public ownership was preferred to allow
        greater control over facility design and
        performance
        Early on, planners envisioned that the city and Army
would jointly own the facility, but higher Army officials rejected
this plan. The city created the Solid Waste Disposal Authority in
February 1985 to issue bonds and select a private partner to
provide turnkey  design, construction, and operation of the
resource recovery facility. A private company was chosen to
provide the specialized technical expertise required to build and
operate a mass-burn facility.

        The Solid Waste Disposal Authority decided that public
ownership of the facility offered many advantages over private
ownership, including greater control over facility design and
performance.
WHAT WERE THE FINANCING
ARRANGEMENTS?
       $112 million taxable bonds were issued
       by public partner

       Bonds are backed by tipping fees and
       sale of steam generated
       The Solid Waste Disposal Authority issued fixed-rate
taxable bonds of $112 million to finance the facility and associ-
ated roadway improvements.  Taxable bonds were sold be-
cause the 1986 Tax Reform Act prohibits tax-exempt status
when bonds  benefit federal agencies, in this case, the U.S.
Army, These 25-year bonds are backed by garbage tipping fees
and revenues from the sale of steam generated. The bonds
were insured, resulting in a bond rating of AM.  No private
equity was involved in the financing arrangements.
WHAT WERE THE PROCUREMENT
ARRANGEMENTS?

      • A contract was signed to design and
       construct the facility + 5-year operation
       (option for four 5-year renewals)
WHAT WAS THE DIVISION OF
RESPONSIBILITIES?
       In a competitively negotiated procurement process,
the Solid  Waste Disposal Authority  issued a Request for
Proposal (RFP) in 1988 and Ogden Martin Systems, Inc. was
selected to design, construct, and operate the facility. AS-year
service contract was signed with Ogden Martin to operate the
facility, with the option of four 5-year renewals at the discretion
of the Authority.

City of Huntsville

      • Create the Solid Waste Disposal Authority

Solid  Waste Disposal  Authority of Huntsville, Alabama

      1 Lease the site for the facility from Redstone Arsenal

      • Sell bonds to finance the facility

      • Secure environmental permits

      • Contract with Redstone Arsenal to purchase steam
       generated by the facility

      • Operate existing landfill for disposal of process
       residuals
                                                                                                    25

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WHAT WAS THE DIVISION OF
RESPONSIBILITIES? (Continued)
HOW WAS THE PROJECT
IMPLEMENTED?


     • DOE funded study of options

     • The city created the Solid Waste
       Disposal Authority
Ogden Martin Systems of Huntsville, Inc.

     • Design, construct, and operate the resource recovery
       facility

     • Comply with performance guarantees

     • Comply with environmental permit requirements

       A U.S. Department of Energy grant funded a study of
waste-to-energy options to solve the city's landfill capacity
problem. A low debt limit set by the state prevented cities from
financing large resource recovery facilities.  However, a state
law enacted in 1980 enabled cities to create solid waste disposal
authorities that can issue bonds and contract for the operation
of solid waste disposal facilities. In February 1985, Huntsville
created the Solid Waste Disposal Authority to issue bonds and
contract with a private partner to build and operate the facility.
WHY WAS THE PROJECT
SUCCESSFUL?

     •  Community involvement

     »  Independent advisors

     •  Local energy market
       Community leaders supported the project and worked
together to solve problems that occurred as the project devel-
oped. In addition, a Citizen's Advisory Committee was involved
throughout the process and continues to keep the public in-
formed. Several independent consultants provided valuable
technical, legal, and financial advice. Finally, the facility was
successful because there was a local market for the gener-
ated steam.
LESSONS LEARNED
       Partners must be flexible to adapt to
       changing circumstances
       Negotiating construction of a resource recovery facility
takes time and requires a commitment from the public partner,
private partner, and energy customer. Huntsville learned that
it was necessary to adapt to changes that may occur during
planning and negotiation. Initially, the city arranged to issue
tax-exempt bonds and selected a private partner under a 1984
RFP. However, the financial position of the company changed
such that it could not  procure performance bonds.  The
original agreement fell  apart after more than two years of
negotiations. Because the 1986 Tax Reform Act imposed a
January 1, 1987 deadline to sell the bonds with tax-exempt
status, new financing had to be arranged and the RFP process
had to be repeated.
CONTACT
Eddie Coker,  Director
Solid Waste Disposal Authority of Huntsville, Alabama
P. O. Box 308
Huntsville, Alabama 35804
(205) 535-4813
26

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                                         SOLID WASTE


                                           Privatization


                                   RESOURCE RECOVERY FACILFTY
                                     (MASS-BURN INCINERATOR)
                                       BRISTOL, CONNECTICUT
  Bristol, Connecticut
                                         Communities worked together to reach a privatization
                                         arrangement with Ogden Martin to design,  construct,
                                         operate, and own a resource recovery facility

                                         The facility was financed by tax-exempt revenue bonds
                                         issued by the Connecticut Development Authority

                                         Bristol receives tax revenues from the facility and fees from
                                         10 other communities using the facility; tipping fees are
                                         reduced by revenues from the sale of electricity generated

                                         Ogden Martin completed construction of the facility under
                                         budget and 2 months ahead of schedule
SUMMARY
       Connecticut communities worked together in a regional effort to
build a resource recovery facility. Eight communities entered into a priva-
tization agreementwith Ogden Martin Systems of Bristol, Inc. tobuild, op-
erate, and own the facility. Subsequently, three other communities joined.
The Connecticut Development Authority issued tax-exempt revenue bonds
to finance the project.  A bond trustee, the Connecticut Bank and Trust
Company, collects and disburses revenues from the facility.

       The communities formed the Bristol Resource Recovery Facility
Operating Committee (BRRFOC) to oversee operation of the facility. Par-
ticipants agreed to provide a minimum tonnage of waste each year. Their
tipping fees are offset in part by revenues from the sale of electricity to
Connecticut Light and Power.
PARTIES INVOLVED AND
TIMEFRAME
  Public Partner
  Private Partner (owner)
  Population
  Median Household Income
  Form of Government
  Project Initiated
  Project Completed
  Total Capital Cost
Eleven Connecticut communities
Ogden Martin Systems of Bristol, Inc.
62,410 (Bristol, 1988)
$19,357 (Bristol, 1979)
Semi-Strong Mayor (Bristol)
May 1984
May 1988
$66 million
                                                                                              27

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WHY WAS A PRIVATE PARTNER
CHOSEN/ALTERNATIVES
CONSIDERED?

     • Private partner had experience with
       sophisticated mass burn technology

     • Private partner was considered more
       efficient

     • Private partner accepted performance
       risks
       A study was conducted by independent consultants
who selected mass-burn  technology.  The City of  Bristol
agreed to provide a site near its landfill to build a resource
recovery facility, but was not interested in ownership.  The
communities chose private ownership because they decided
that an experienced private company would be more efficient
and accept performance risk for the project. The communities
worked together to select a private partner to build, own, and
operate the resource recovery facility located in Bristol.
WHAT WERE THE FINANCING
ARRANGEMENTS?
    $73 million tax-exempt revenue bonds
                             $2.5 million
                             bond redemption
                        $18 million private equity
       The Connecticut Development Authority issued $73
million in tax-exempt revenue bonds to finance the facility. The
29-year bonds are backed by revenues from the facility and
guaranteed by Ogden Martin.  Ogden Martin contributed $18
million. As the facility did not cost the full amount of the bond
issue, $25 million in bonds were redeemed after the facility was
completed.

       Revenues from the facility are deposited in a revenue
account with the Connecticut Bank and Trust Company, which
acts as bond trustee. Ogden Martin bills the BRRFOC monthly,
which then pays the bond trustee from payments received from
the participating communities.  The City of Bristol receivesafee
from each community through the bond trustee.
WHAT WERE THE PROCUREMENT
ARRANGEMENTS?
     • An RFP was issued and Ogden
       Martin was chosen through com-
       petitive negotiation
       The City of Bristol issued an RFP, and in conjunction
with the other communities, selected Ogden Martin through
competitive negotiation. The communities signed a contract
with Ogden Martin to build and operate the facility. Through an
interlocal agreement, each of the communities agreed to pro-
vide a minimum tonnage of waste per year.
WHAT WAS THE DIVISION OF
RESPONSIBILITIES?
City of Bristol

     • Sell the land for the facility to Ogden Martin

     • Operate a landfill for disposal of process residuals

Connecticut Development Authority

     • Issue bonds to finance the facility

Connecticut Bank and Trust Company

     • Collect and disburse revenues from the facility
28

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WHAT WAS THE DIVISION OF
RESPONSIBILfTIES?  (Continued)
HOW WAS THE PROJECT
IMPLEMENTED?

     • Bristol conducted a study to evaluate
       the potential for resource recovery

     • State legislation authorized the
       communities to issue contracts for solid
       waste management

     • The communities created the BRRFOC
Bristol Resource Recovery Facility Operating Committee

      • Set policy and oversee operation of the facility

      • Provide a minimum tonnage of waste per year
        through an interlocal agreement

Ogden Martin Systems of Bristol, Inc.

      • Design, construct, own, and operate the resource
        recovery facility

      • Secure environmental permits

      • Comply with environmental permit requirements

      • Contract with Connecticut Light and Power to
        purchase electricity generated

        Bristol hired independent consultants to evaluate the
potential for a resource recovery facility. Independent consult-
ants assisted in selecting and negotiating with the private part-
ner.

        The state passed special legislation in 1985 allowing the
communities to join together in a contractual relationship to
manage solid waste disposal.  The original eight communities
worked informally to sign an agreement with Ogden Martin.
After the project started, another three communities became
involved.  In September 1987, the communities agreed for-
mally to create the BRRFOC. The BRRFOC is made up of
community officials from the 11 communities and meets monthly
to oversee operation of the resource recovery facility.
WHY WAS THE PROJECT
SUCCESSFUL?

     • Independent consultants

     • Financial incentives to site facility

     • Citizen involvement

     m State law requiring public utilities to
       purchase electricity generated
        Independent consultants provided valuable technical,
legal, and financial advice.  Negotiating an agreement that
protects the interests of all parties involved facilitated coopera-
tion among communities. Included in the agreement are finan-
cial incentives for Bristol to locate the facility within its bounda-
ries. Bristol receives a fee from the other communities and
Ogden Martin is the second largest source of tax revenues for
the city.

        Another factor contributing to the success of the proj-
ect was citizen involvement. A Citizen's Advisory Committee,
formed during construction of the facility, distributed informa-
tion to the public and helped raise support for the project.

        A state law requires that public utilities purchase excess
energy from resource recovery facilities. As a result, there was
easy access to a market for the electricity generated by the
facility.
                                                                                                    29

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LESSONS LEARNED                                   Local governments can work together successfully for
                                               a regional solution to solid waste management. Careful nego-
     _ _  .         .  .                          tiation can result in an agreement that protects the interests of
     • Regional strategies for                           .          .   .    .. .   „    .  ..    „     .
       solid waste                                eacn PartV involved and provides financial benefits to the corn-
       management can be                         munities. Direct input by community officials kept the commu-
       successfui with careful                        nities closely involved and committed to the project.
       negotiation
CONTACT                                     John Leone, Mayor
                                               City of Bristol
                                               1111 North Main Street
                                               Bristol, CT 06010
                                               (203)584-7613
30

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                                        SOLID WASTE


                                  Contract Service Provision

                           RAIL-HAUL OF MUNICIPAL INCINERATOR ASH
                                    STAMFORD, CONNECTICUT
          Stamford, Connecticut
                                         The City of Stamford entered into a service contract with
                                         Interstate Bi-Modal, Inc. for long-distance transport and
                                         disposal of municipal incinerator ash

                                         Interstate Bi-Modal secured equipment and transportation
                                         contracts to implement the rail-haul system and contracted
                                         with a privately-owned landfill for disposal of the ash

                                         Rail-haul saves the city  25-30 percent over alternative
                                         truck  transportation and nearby  disposal options
SUMMARY
       A lack of landfill capacity and potential sites for new landfills led
Stamford to investigate alternatives for long distance transport and
disposal of incinerator ash. Because of the distance to landfills and lower
tipping fees at more distant landfills, rail-haul was the most economical
transportation alternative.

       The City of Stamford entered into a service contract with Inter-
state Bi-Modal, Inc. (IBMI) to provide long distance rail transportation and
disposal of its municipal incinerator ash.  IBMI leased equipment and
contracted with other private companies to provide truck and rail transpor-
tation. IBMI also contracted with a privately-owned landfill for disposal of
the ash.

       At the municipal incinerator, the ash is loaded into containers and
moved by truck to a rail terminal.  The containers are moved to the
disposal site by Conrail on rail cars leased by IBMI. The containers are
then moved by truck to a landfill.  Finally, the containers are returned by
rail to the Stamford facility for reloading.
                                                                                                31

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PARTIES INVOLVED AND
TIMEFRAME
   Public Partner
   Private Partner
   Population
   Median Household Income

   Form of Government
   Project Initiated
   Project Completed
   Operating Cost
Stamford, Connecticut
Interstate Bi-Modal, Inc.
109,370(1988)
$58,900 (1988, Stamford
SMSA)
City Council/Mayor
April 1988
September 1988
$2.5 million per year
WHY WAS A PRIVATE PARTNER
CHOSEN/ALTERNATIVES
CONSIDERED?
        Regional landfill would not accept
        incinerator ash except from a regional
        incinerator

        The city decided that long distance
        transport and disposal should be
        arranged by an experienced private
        partner

        Rail-haul of waste was chosen as the
        least costly mode of transport for long
        distances
       Because the City of Stamford has its own incinerator,
they were not able to dispose of residues in the regional landfill.
Use of the landfill is limited to cities that send their waste to the
regional incinerator. The state had closed many landfills in
Connecticut due to more stringent environmental regulations,
and without an environmentally acceptable landfill site in the
city, Stamford was forced to arrange long distance transporta-
tion and disposal.  Rail-haul was the least costly  mode of
transportation as a result of the long distance involved.  Stamford
chose a private partner because they were able to assemble
the range of companies and equipment necessary to provide
the service.
WHAT WERE THE FINANCING
ARRANGEMENTS?

    •   Private partner arranged rail-haul system
        so city avoided up-front costs

    •   The city pays per-ton fee to the private
        partner

    •   The city's payment is guaranteed by a
        letter of credit and backup funds in a
        special account
       The city avoided up-front costs by contracting with
IBMI to assemble the necessary partners for the rail-haul
system. The city pays a per-ton fee to IBMI for transport and
disposal of incinerator ash. Payment is due immediately after
delivery of the incinerator ash to the disposal site. IBMI re-
quired the city to secure a $300,000 letter of credit and deposit
the money in a bank account to guarantee timely payment of
IBMI. The letter of credit provides that the bank will pay IBMI
from that account if the city cannot pay on time.
WHAT WERE THE PROCUREMENT
ARRANGEMENTS?

    •   An RFP was issued in a competitive
        negotiation process

    •   The city signed a 1 -year service
        contract with IBMI with an option
        for yearly extensions
        In competitive negotiation, the City of Stamford issued
an  RFP and selected IBMI to transport and dispose of its
incinerator ash.  The city and IBMI signed a 1-year service
contract with an option for yearly extensions. The city required
IBMI to secure a $1 million performance bond.
 32

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WHAT WAS THE  DIVISION OF
RESPONSIBILITIES?
City of Stamford

      • Own and operate the municipal incinerator

      • Contract with an independent laboratory to test the
       incinerator ash

      • Provide for alternative disposal of incinerator ash
       that does not pass test requirements

      • Load ash into containers at the incinerator

Interstate Bi-Modal, Inc.

      • Contract for truck transportation of the containers,
       both in Stamford and at the disposal site

      • Own and maintain a short-line railroad for rail
       transportation from  a transfer station to the IBM! rail
       terminal

      • Contract with Conrail for long distance rail
       transportation

      • Supply containers and container-handling equipment

      • Comply with environmental regulations for
       transportation of municipal incinerator ash

      • Contract with a privately-owned landfill at the
       disposal site
HOW WAS THE PROJECT
IMPLEMENTED?

     • The project was managed by the Public
       Works Department
       The director of capital projects of the Stamford Public
Works Department supported the rail-haul option and worked
to gain the support of city officials. Meetings were organized to
investigate rail-haul options.
WHY WAS THE PROJECT
SUCCESSFUL?


      • Rail-haul saves the city 25 - 30 percent

      • "Dedicated transportation equipment"
       lowers health and environmental risks
       The rail-haul system saves the city 25-30 percent over
alternative truck transportation and local disposal options.
More economical long distance  transportation by rail and
lower tipping fees at the disposal site help to lower costs.

       Transporting incinerator ash in "dedicated transporta-
tion equipment" lowers risk to public health and the environ-
ment. Containers and rail cars are used exclusively for solid
waste, as opposed to using the same equipment to transport
different materials on the return trip. Use of dedicated transpor-
tation equipment for solid waste is required by Conrail.
                                                                                                   33

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LESSONS  LEARNED

    •  Rail-haul less costly with long distance
       transport of waste

    •  Trucking waste to the rail terminal is
       expensive
       Without access to a landfill, transportation costs be-
came the most significant factor to consider in finding a solu-
tion to Stamford's solid waste disposal problems. Rail was
more economical than  truck  transportation for the long
distance haul required.

       The city could lower its disposal costs further if the ash
did not have to be trucked to the rail terminal. Attempts to work
with the railroad to provide rail service directly to the municipal
incinerator have not yet been successful.
CONTACT
Norman Liu, Director of Capital Projects
Department of Public Works
City of Stamford
888 Washington Blvd.
Stamford, CT  06904-2152
(203) 977-4138
34

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                                        SOLID WASTE
                                      Turnkey Contract
                                 RESOURCE RECOVERY FACILITY
                                   (MASS-BURN INCINERATOR)
                                HILLSBOROUGH COUNTY, FLORIDA
       Hillsborough County,
       Florida
  i Hillsborough County entered into a turnkey arrangement with a
   private partner for the design, construction, and operation of a
   resource recovery facility owned by the county

  "Tax-exempt bonds sold to finance the facility are backed by
   revenues from the county-wide solid waste disposal system

  •The sale of electricity generated by the facility to Tampa Electric
   Company provides revenues to the county
SUMMARY
       Prompted by a state law requiring counties to prepare resource
recovery management plans and growing awareness of problems associ-
ated with solid waste landfills, Hillsborough County instituted a compre-
hensive solid waste disposal system. The county entered into a turnkey
contract with Ogden Martin Systems, Inc. to design, construct, and
operate a resource recovery facility owned by the county. The county
agreed to guarantee delivery of a minimum tonnage of solid waste each
year and to develop a new landfill for disposal of residuals. Ogden Martin
agreed to comply with a set of performance guarantees for facility
operation.
PARTIES INVOLVED AND
TIMEFRAME
                                      Public Partner (owner)
                                      Private Partner

                                      Population
                                      Median Household Income
                                      Form of Government
                                      Project Initiated
                                      Project Completed
                                      Total Capital Cost
                                Hillsborough County, Florida
                                Ogden Martin Systems of
                                Hillsborough, Inc.
                                825,411 (1988)
                                $14,868(1979)
                                County Commissioners
                                January 1985
                                June 1987
                                $108 million
                                                                                              35

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WHY WAS A PRIVATE PARTNER
CHOSEN/ALTERNATIVES
CONSIDERED?
           Private partner had
           specialized technical
           expertise in mass-burn
           technology
       An interlocal committee was formed between Hillsbor-
ough County and the three incorporated cities in the county
(Tampa, Plant City and Temple Terrace) to investigate solid
waste disposal options. They chose mass-burn technology as
the best resource recovery alternative. Tampa and Hillsbor-
ough County separately developed  plans for their own re-
source recovery facilities.

       Because the technology required sophisticated techni-
cal expertise, the county decided to contract the design, con-
struction, and operation to a private partner.  However, the
county preferred public rather than private ownership of the
facility to retain greater control over design and performance.
WHAT WERE THE RNANCING
ARRANGEMENTS?

                 $144 million Industrial
                 Revenue Bonds
                         $3.6 million equity from the
                         county
       The county issued $144 million in tax-exempt industrial
revenue bondsto finance the resource recovery facility and the
landfill. The AAA-rated bonds are backed by revenues from the
entire county solid waste system. Hillsborough County contrib-
uted another $3.6 million. No private equity was involved.
WHAT WERE THE PROCUREMENT
ARRANGEMENTS?

        •  Ogden Martin agreed to
           design and construct facility
           + operation for 20 years


WHAT WAS THE DIVISION OF
RESPONSIBILITIES?
       As part of a competitive negotiation process, the county
issued an RFP for the resource recovery facility. Ogden Martin
Systems of Hillsborough, Inc. was selected to design and con-
struct the facility. A separate service agreement was reached
with Ogden Martin to operate and maintain the facility for 20
years.

Hillsborough County

      • Acquire the site for the facility

      • Sell bonds to finance the facility

      • Guarantee that a minimum tonnage of solid waste is
       delivered to the facility each year

      • Secure environmental permits

      • Acquire the site, design, and construct the landfill to
       accept process residue from the facility, to serve as a
       backup disposal site, and for disposal of solid waste
       that cannot be processed at the facility

      " Contract with Waste Management, Inc. to operate the
       landfill

      • Contract with Tampa Electric Company to purchase
       the electricity generated by the facility
36

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WHAT WAS THE DIVISION OF
RESPONSIBILITIES?  (Continued)
Ogden Martin Systems of Hillsborough, Inc.

      • Design, construct, and operate the resource recovery
       facility in accordance with contract specifications

      • Comply with environmental permit requirements

Tampa Electric Company (TECO)

      • Design, construct, and operate electricity
       interconnection facilities required totransmit
       electricity generated by the facility to TECO
HOW WAS THE PROJECT
IMPLEMENTED?
        EPA grant helped fund
        studies of options

        Special state legislation was
        passed

        New public partners became
        involved
WHY WAS THE PROJECT
SUCCESSFUL?
       Independent advisors

       Contract performance
       guarantees
        A grant from the U.S. Environmental Protection Agency
and matching funds from the four local governments in Hillsbor-
ough County  paid for studies conducted by the interlocal
committee to evaluate solid waste disposal options.

        The state passed special legislation in 1983 granting
Hillsborough County contractual powers to finance and operate
the resource recovery facility.  The  legislation also requires
that all persons in the unincorporated area of the county use
the county's solid waste  disposal system.  As a result, the
county can guarantee delivery of a minimum tonnage of solid
waste to the facility each year.

        Planning for the resource recovery facility initially con-
cerned only the unincorporated area of Hillsborough County.
Later, during construction of the facility, the three incorporated
cities in Hillsborough County requested use of the facility for
waste disposal. Plant City and Temple Terrace now send all
their solid waste to the facility, and the City of Tampa sends
waste in excess of its facility's capacity.


       The county selected a private partner with the technical
expertise to build and operate a resource recovery facility. In
addition, the county hired an independent engineering consult-
ing firm to evaluate the technical and financial feasibility of the
project,  help choose the contractor,  and assist with contract
negotiations. The consultant also inspected and monitored
compliance with the contract during construction of the facility.

       The contract provided incentives to Ogden Martin to
maximize the efficiency of the resource recovery facility. Per-
formance guarantees were established for both construction
and operation of the facility along with penalties if Ogden
Martin failed to meet their performance guarantees.  Bonus
incentives to the contractor for early completion led to opera-
tion 7 months ahead of the contract date.
                                                                                                    37

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LESSONS LEARNED                                   Hillsborough County's experience shows that careful
                                               negotiation between public and private partners can result in an
     I Differences in local                          agreement that is profitable to both parties.  But, it may be
       preferences should be                        difficult to reach an agreement between several governments
       addressed early in the                        because of political problems.  Hillsborough County and the
       planning for reg.onal feoilitaea                   ^ Qf Tampa |njt|a||y attempted tQ WQr|< joint|y but CQu|d nQt
                                               reach an agreement on their respective roles, and each built a
                                               separate facility.
CONTACT                                     Thomas G. Smith, Executive Manager
                                               Department of Solid Waste
                                               Hillsborough County, Florida
                                               P.O. Box 1110
                                               Tampa, FL 33601
                                               (813)272-6674
38

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                                      SOLID WASTE


                                     Merchant Facility


                                RESOURCE RECOVERY FACILITY
                                  (MASS-BURN INCINERATOR)
                                 MILLBURY, MASSACHUSETTS
   Millbury, Massachusetts
    In a merchant agreement, communities in the Worcester,
    Massachusetts area accepted Wheelabrator's offer to build,
    own, and operate a resource recovery facility

    The Town of Millbury offered to site the merchant facility, and
    in exchange, Millbury receives free tipping for 20 years for a
    specified amount of waste and receives "host community
    fees" from other towns that use the facility

    Reduced tax benefits of ownership after the 1986 Tax Reform
    Act led Wheelabrator to sell the facility, but they continue
    operation, leasing the facility from the current private owner
SUMMARY
       Communities in the Worcester, Massachusetts area formed a
committee to develop a regional solution to solid waste management.
When Wheelabrator offered to own, finance, build, and operate a resource
recovery facility, the Town of Millbury offered to site the facility within its
boundaries and lease the land to Wheelabrator.  In exchange, Millbury
enjoys free tipping from Wheelabratorfor 20 years for a specified amount
of waste and receives "host community fees" each month from the 35
other communities providing waste to the facility. Wheelabrator sold the
facility to the Ford Motor Credit Company after tax benefits of ownership
were reduced by the 1986 Tax Reform Act, but Wheelabrator continues
to operate it, leasing the facility from Ford.
PARTIES INVOLVED AND
TIMEFRAME
                                       Public Partner
                                       Private Partner (owner)
                                       Population
                                       Median Household Income
                                       Form of Government
                                       Project Initiated
                                       Project Completed
                                       Total Capital Cost
                                Millbury, Massachusetts
                                Wheelabrator Millbury, Inc.
                                11,500 (1985)
                                318,634(1979)
                                Board of Selectmen
                                September 1985
                                September 1987
                                $140 million
                                                                                               39

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WHY WAS A PRIVATE PARTNER
CHOSEN/ALTERNATIVES
CONSIDERED?


     • Wheelabrator identified
       market potential in the area

     • A regional committee
       pressured to find a solution

     • Wheelabrator offered to meet
       needs quickly
WHAT WERE THE FINANCING
ARRANGEMENTS?
       Private debt financed
       purchase of land and facility
       construction

       In a sale lease-back
       transaction, Millbury bought
       land and leased it back to
       Wheelabrator

       In a leveraged lease
       transaction, Wheelabrator
       sold the facility to another
       company because tax
       benefits of ownership were
       reduced in the 1986 Tax
       Reform Act
WHAT WERE THE PROCUREMENT
ARRANGEMENTS?

      • The contract was awarded
        through a noncompetitive bid
        process

      • Service agreements were
        signed between Wheelabrator
        and each participating
        community

      • Millbury would receive free
        tipping
       Wheelabrator's market studies identified the Worcester,
Massachusetts area as having unmet solid waste disposal
needs and an energy market. They approached the Central
Massachusetts Resource Recovery Committee and offered to
build and operate a resource recovery facility.

       The committee was interested in finding a private partner
to hasten development of the project. While the committee had
planned  to issue an RFP,  negotiations  with the State to
purchase the site were moving slowly. Landfills were approaching
capacity in several towns and the City of Worcester was under
astateorderto close its landfill. They accepted Wheelabrator's
offer because it corresponded with the area's needs and could
be  implemented quickly.

       Wheelabrator obtained private financing for purchase
of the land and construction of the facility.  Taxable private
financing was preferred to take advantage of the investment tax
credit.

       In order to increase their control, Millbury purchased
the land for the facility from Wheelabrator and then leased it
back to Wheelabrator (sale lease-back). By state law, bonds to
purchase land must be taxable so the Millbury Industrial Devel-
opment Finance Authority sold $325,000 of taxable industrial
revenue bonds to purchase the land. The non-rated bonds are .
backed by revenues from the facility.

       The 1986 Tax Reform Act reduced the tax benefits of
ownership for Wheelabrator, while ownership offered tax advan-
tages for Ford Motor Credit Company.  Even after tax reform,
owners of waste-to-energy facilities  can take advantage of
certain tax provisions, such as shorter depreciation schedules
relative to other types of investments, making them an attractive
investment for  companies with large amounts of capital to
invest. As a result, Wheelabrator undertook a leveraged lease
transaction in which they sold the facility to the Ford Motor
Credit Company and then leased the facility back.

       When Wheelabrator offered to build a privately-owned
and operated facility, the committee agreed to their offer through
a non-competitive bid process. It was necessary to secure
approval  of the noncompetitive  bid by the  Massachusetts
Inspector General.

       The regional committee developed a service  agree-
ment that required communities to provide minimum tonnages
of waste each year and contained performance guarantees
from  Wheelabrator. Each participating community signed a
separate service agreement. The service agreement between
Wheelabrator and Millbury providesthe town free tipping for up
to 11,315 tons of solid waste per year. Beyond that amount,
Millbury will pay Wheelabrator's current per-ton rate.
40

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WHAT WAS THE DIVISION OF                  Town of Millbury
RESPONSIBILITIES?
                                                    • Createthe Millbury Industrial Development Finance
                                                      Authority to issue bonds

                                                    • Purchase land for the facility

                                                    • Lease land for the facility to Wheelabrator

                                              Wheelabrator Millbury, Inc.

                                                    • Build and operate a resource recovery facility

                                                    • Secure a separate service agreement with each
                                                      community, including a guarantee from each
                                                      community to provide a minimum tonnage of waste
                                                      per year

                                                    • Comply with performance guarantees in service
                                                      agreements

                                                    • Secure environmental permits

                                                    • Comply with environmental permit requirements

                                                    • Contract with New England Electric to purchase
                                                      electricity generated by the facility

                                                    • Contract with privately-owned ash monofill for
                                                      disposal of process residue from facility

                                                    • Pay "host community fees" to Millbury from tipping
                                                      fees of other communities
HOW WAS THE PROJECT                             The regional committee received a state grant to de-
IMPLEMENTED?                              velop a strategy for solid waste management for the area.
                                              Independent consultants provided valuable technical and finan-
                                              cialadviceintheirnegotiationswithWheelabrator.
       for solid waste management
                                                     Two state laws facilitated the agreement; a state statute
       independent technical and                    enabling municipalities to create industrial development finance
       toassi'st theregionT6                       authorities to issue bonds and a 1981 state law that requires
       committee                               payment of a "host community fee" for waste processed through
                                              a resource recovery plant. Communities delivering waste to a
                                              ^°^ mUSt p3y 3 P6r'tOn fate tO the c°mmunity '" which the
                                              facility is located. The additional cost of "host community fees"
                                              and free tipping for Millbury are built into the tipping fees of the
                                              other participating communities.
                                                                                                 41

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WHY WAS THE PROJECT
SUCCESSFUL?

     • Incentives to Millbury to site
       the facility

     • Favorable market conditions
       for Wheelabrator
       Free tipping and the receipt of "host community fees"
were important incentivesforMillbury to agreeto site the facility
within its boundaries. For Wheelabrator, the market was favor-
able and private control allowed the project to be completed
ahead of schedule and below budget.
LESSONS LEARNED


     • Financial incentives to the
       host community are
       important

     • Careful estimation of
       solid waste generated
       can lead to more
       beneficial agreement
       for community
       Financial incentives to communities to locate a re-
source recovery facility can increase community support for
siting regional projects. Wheelabrator first offered to build and
operate a resource recovery facility in the City of Worcester,
Massachusetts.  A citizen's group successfully opposed the
Worcester location.

       Millbury discovered that a community must have a
good estimate of the amount of solid waste it generates before
entering into an agreement with a privately-owned resource
recovery facility. Wheelabrator requires each community to pay
for a minimum tonnage of solid waste per year and also sets a
maximum tonnage beyond which the facility could deny waste.
Millbury's estimation was low and the town now must be careful
not to exceed its negotiated amount for free tipping.
CONTACT
Earl W. Chase, Jr., Administrator
Town Hall
127 Elm Street
Millbury, MA 01527
(508)865-4710
42

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                                      SOLID WASTE


                                     Merchant Facility


                               SOLID WASTE COMPOSTING PLANT
                                    ST. CLOUD, MINNESOTA
                                       A private company bought an existing solid waste
                                       composting facility and upgraded it to accept both solid
                                       waste and sewage sludge from a three-county area
                                       (Stearns, Benton, and Sherburne counties)

                                       In an informal merchant agreement, the counties provide
                                       waste to the composting facility

                                       The composting facility is expected to reduce the volume of
                                       waste going to landfills by 15 to 20 percent
                  St. Cloud, Minnesota
SUMMARY
       A private company (RECOMP, Inc.) saw an opportunity to make
a failing composting plant profitable by upgrading it for co-composting (a
mixture of solid waste and 20-25 percent  sewage sludge). They fi-
nanced redesign and upgrading with private debt and formed a partner-
ship with the private owners of an adjacent waste transfer facility. The
company is now called the St. Cloud Transfer and Recycling Corpora-
tion.

       The Tri-County Solid Waste Management Commission included
a commitment to provide waste to the composting facility in the region's
solid waste management plan. The company has an informal merchant
agreement with the Tri-County Solid Waste Management Commission to
process waste collected in the area.

       Recently, the City of St. Cloud issued industrial revenue bonds
to finance expansion of  the facility. The  bond issue was carefully
structured so that it does not add to the city's debt or involve any financial
responsibility for the city.
                                                                                            43

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PARTIES INVOLVED AND
TIMEFRAME
 Public Partner

 Private Partner (owner)
                                                Population
                                                Median Household Income
                                                Form of Government
                                                Project Initiated

                                                Project Completed
                                                Capital Cost of Facility
                                                  Upgrade and Redesign
Tri-County Solid Waste
Management Commission
St. Cloud Transfer and Re-
cycling Corporation and
RECOMP, Inc.
181,570(1987)
$17,000(1979)
County Commissioners
October  1987 (upgrade and
redesign)
January 1989
$4 million
WHY WAS A PRIVATE PARTNER
CHOSEN/ALTERNATIVES
CONSIDERED?
     • The private partner demonstrated an
       ability to operatethe composting
       facility efficiently
       A private company upgraded the region's composting
facility and offered to accept solid waste from an adjacent
transfer station for composting, After the company demon-
strated its reliability, the regional commission incorporated a
commitment to composting in its solid waste management plan
as an alternative to land disposal and incineration.
WHAT WERE THE FINANCING
ARRANGEMENTS?

     • Original construction and upgrading
       was privately financed

     • Tax-exemptindustrial revenue bonds
       for plant expansion do not entail any
       financial responsibility for the city
       The original private ownerfinanced construction of the
composting facility with private debt. RECOMP, Inc., the sec-
ond owner, privately financed the redesign and upgrade of the
facility.

       Recently, the City of St.Cloud issued $4 million of tax-
exempt industrial revenue bonds to finance expansion of the
composting facility and adjacent transfer station. The bonds
are backed by revenues from the project and do not involve any
financial responsibility for the city.  St. Cloud  Transfer  and
Recycling Corporation is responsible for payment of the debt.
WHAT WERE THE PROCUREMENT
ARRANGEMENTS?

     • The Commission entered into a
       10-year service contract with St. Cloud
       Transfer and Recycling Corporation to
       accept and process solid waste
       The Tri-County Solid Waste Management Commis-
sion has a 10-year contract with St.  Cloud Transfer  and
Recycling Corporation that requires the transfer station to
accept all residential solid waste from the City of St. Cloud and
three surrounding counties. The contract requires the transfer
station to send 150 tons of solid waste per day to a waste-to-
energy facility and  send the remainder to the landfill or the
composting facility.

       The City of  St. Cloud also has an agreement with St.
Cloud Transfer and Recycling Corporation to provide sewage
sludgefor co-composting.
44

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WHAT WAS THE DIVISION OF
RESPONSIBILITIES?
Tri-County Solid Waste Management Commission


     • Contract with St. Cloud Transfer and Recycling
       Corporation to accept solid waste and transfer waste
       to the facilities in the solid waste system


St. Cloud Transfer and Recycling Corporation


     • Own the transfer station and the composting facility

City of St. Cloud

     • Contract with the St. Cloud Transfer and Recycling
       Corporation to supply sewage sludge for co-
       composting

RECOMP, Inc.


     • Operate the transfer station

     • Operate the composting facility

     • Market the compost in compliance with state
       environmental  regulations
HOW WAS THE PROJECT
IMPLEMENTED?

      • A state agency encouraged
       composting

      • The private party upgraded the plant
       and demonstrated its reliability

      • The Commission agreed to include
       composting in their solid waste
       management plan

      • The counties agreed to send waste to
       the composting facility
WHY WAS THE PROJECT
SUCCESSFUL?

     • The improved compost was more
       marketable

     • Operation of compostingfacility in
       conjunction with transfer station
       provided financial stability
       A state agency encouraged solid waste composting as
an alternative for solid waste management. New state solid
waste regulations allow for land application of  solid  waste
compost.

       RECOMP, Inc. saw an opportunity to make the existing
compostingfacility profitable by upgrading the plant to handle
co-composting. After the company gained the support of the
solid waste commission, the commission included a commit-
ment to composting in the regional solid waste management
plan.

       Each of the three counties passed a "designation ordi-
nance," effective July 1,1989, requiring all solid waste haulers
to deliver solid waste to the transfer station. The transfer station
agreed to supply waste to the composting facility.

       RECOMP, Inc. redesigned the composting facility to
produce an improved compost.  As a result, RECOMP was in
a better marketing position than the previous owner and could
offer composting as a cost-competitive alternative for solid
waste disposal. Because the composting facility is owned and
operated in conjunction with the transfer station, it receives
revenues from tipping fees and does not have to rely entirely on
marketing compost or recyclables.
                                                                                                  45

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LESSONS  LEARNED
       Because composting technology is
       new, public acceptance may be
       difficult

       Regulatory requirements for land
       application of compost limit potential
       markets
       Many uncertainties are associated with developing a
new technology such as solid waste composting. Initially, the
composting facility in St. Cloud experienced difficulties devel-
oping a market for its compost. Changes in the composting
technology were necessary to produce a product that was
acceptable to the public. The facility now markets the co-
composted product to Christmas tree farms, with plans to
market it in bulk for highway landscaping and distribute it in
bag form for horticulture.

       Environmental regulations restrict the land application
of compost. Changing to co-composting resulted in a better
compost, but required complying with the more restrictive state
regulations for land application of sewage sludge in addition to
the regulations for land application of solid waste compost The
company initiated discussions with the state regulatory agency
to develop a marketing plan that would satisfy regulatory re-
quirements.
CONTACT
Jerry Johnson, Coordinator
Tri-County Solid Waste Management Commission
P.O. Box 615
St. Cloud, MN 56301
(612)259-3610
46

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                                       SOLID WASTE


                                 Contract Service Provision


                                CURBSIDE RECYCLING PROGRAM
                                     SEATTLE, WASHINGTON
    Seattle, Washington
    Seattle contracted out city-wide  curbside recycling
    service to private partners

    Garbage  collection charges are  structured to
    encourage waste reduction and  recycling, with fees
    based on the number of cans picked up and on the
    choice of backyard or curbside  service

    The city avoided upfront costs, as the private partners
    purchased collection  and processing equipment; the
    city's  avoided cost of solid waste collection and
    disposal  slightly outweigh the program costs over  a
    twenty year  period
SUMMARY
       When Seattle's landfill was closed, the city contracted to use the
county's landfill. But Seattle had to pay a tipping fee that increased with
their entry into the system from $11/ton to $31.50/ton, and pay $8.50 of
the tipping fee into a fund earmarked for planning future disposal systems.
Seattle had to come up with a long-term disposal solution.  As a way to
reduce the volume of waste disposed in landfills, the city sought private
companies to provide curbside recycling services and selected Waste
Management, Inc. to provide the service for the northern half of the city
and Rabanco for the southern half. With Pacific Rim port facilities handy,
contractors have easy access to strong paper markets in the Orient.
Curbside recycling has reduced the residential waste stream by 12 per-
cent in its  second year of operation. Avoided disposal costs should
reach $20 million over a 20-year period just offsetting program costs over
that same period resulting in a cost effective program for the citizens of
Seattle.
                                                                                               47

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PARTIES INVOLVED AND
TIMEFRAME
  Public Partner
  Private Partner
                                                  Population
                                                  Median Household Income
                                                  Form of Government
                                                  Project Initiated
                                                  Contract Start Date
                                                  Total Operating Cost
Seattle, Washington
Waste Management, Inc.
(Recycle America) & Rabanco
(Recycle Seattle)
491,800(1988)
$33,000 (1988)
Mayor/Council
January 1987
February 1988
$1 million annual contractor
payments and $200,000 for
promotion (1988)
  WHY WAS A PRIVATE PARTNER
  CHOSEN/ALTERNATIVES
  CONSIDERED?

    •   Positive experience with
        private solid waste collection
        led to selection of a private
        partnerfor recycling

    '   Building an incinerator was
        considered but the community
        preferred recycling
       Traditionally, Seattle contracted with private compa-
nies for the provision of solid waste collection and disposal
services.  As a result of Seattle's positive experience with
private solid waste management in the city, it was expected that
a private company would also provide recycling services.

       City officials considered constructing an incinerator
but citizens raised strong opposition.  They wanted the oppor-
tunity to try voluntary recycling to reduce the volume of waste
going to landfills. It was expected that public support for recy-
cling and  a new rate structure,  with charges based on the
number of containers collected, would minimize waste sent to
landfills.
WHAT WERE THE FINANCING
ARRANGEMENTS?
        Necessary equipment was
        purchased by private partners

        A fee is paid to contractors
        based on tons collected
       Waste Management, Inc. and Rabanco purchased the
collection and processing equipment. The city pays Rabanco
$49.02 per ton of recyciables collected and shares recyclable
revenues should market prices fluctuate by a specified percent-
age. Waste Management, Inc. is paid $49.43 per ton and has
a minimum payment built into the contract for 8,000 tons per
year.  While $49 per ton is more than the $31.50 for landfill
tipping fees, the city also saves half of the garbage collection
fee for each diverted ton as well as most transfer station and
long distance hauling costs. The total perton savings amounts
to roughly $80 perton but only 60to 75 percent of the collected
tons are diverted from the landfill. Some tonnage has merely
been transferred from other recycling activities. This reduces
the savings to $50 to $60 per ton.
 48

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WHAT WERE THE PROCUREMENT
ARRANGEMENTS?


     • The RFP was issued for four
       sectors of the city

     • Five-year contracts were
       awarded to two companies
WHAT WAS THE DIVISION OF
RESPONSIBILITIES?
        The metropolitan area was spirt into four sectors in the
Request for Proposal.  Up to four firms could have been
awarded contracts, but no contractor could provide curbside
recycling service in more than half of the city. Five-year con-
tracts, with 2-year renewal clauses were issued to two contrac-
tors, Waste Management, Inc. and Rabanco.  The 5-year con-
tracts provide a larger initial commitment by Seattle than most
cities have made. Generally, curbside recycling is phased in
slowly.

Seattle

      • Contract with private companies to provide recycling
        services

      • Assist in promotion of recycling

      • Pay service providers per ton of recyclables

Private  Partners

      • Provide bins and regular pickup of  glass, metal
        containers,  newspaper,  and  mixed  paper, and
        provide any necessary processing of   materials
        (Waste Management, Inc. provides weekly pickup
        and three stackable containers for source separation.
        Rabanco provides one large 90 gallon wheeled tote
        for commingled collection with monthly  pickup.)
        Plastic soda bottles  (PET) are to be added in late
        1989.

      • Market and promote recycling services

      • Develop mitigation program for any small drop-off
        sites or businesses that might be negatively affected
        by the curbside program
HOW WAS THE PROJECT
IMPLEMENTED?
       Recycling is part of broad solid
       waste management strategy

       The recycling program was
       preceded by rate increases for
       disposal
       Curbside  recycling  services are part of a broader
strategy that Seattle is implementing to encourage waste
reduction and improve management of solid waste.  Seattle
began the process by introducing rate increases corresponding
with new costs of disposal at a neighboring landfill. The next
step was to introduce recycling, involving the public throughout
the planning process.

       Seattle conducted environmental impact studies on
several landfill and  incineration options to determine how
much waste to recycle and how to dispose of the remaining
waste that is not recycled. While incineration was determined
to be a viable option, the public supported recycling and the
city chose a long  range goal of 60 percent recycling.  As a
result, the city has now issued an RFP for a private company to
transport and dispose of the remaining 40 percent of the mu-
nicipal solid waste in a landfill outside of the metropolitan area.
                                                                                                  49

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WHY WAS THE PROJECT
SUCCESSFUL?


     • Cost pressure

     • Comprehensive plan

     • Public involvement
       Pressure from rapidly rising costs of solid waste
management encouraged the city to act quickly. A comprehensive
plan for improving solid waste management enabled the city to
combine recycling efforts with measures, such as the variable
rate structure, to encourage waste reduction. Public involvement
in planning the new strategy and general support for recycling
were important elements of success.

       With over 74 percent of Seattle's 150,000 customers
signed up for the voluntary program, the city has reduced its
residential waste stream by 12 percent.  If, as city officials ex-
pect, participation reaches 80 percent in the near future, its
residential wastestream could be reduced by 23 percent.
LESSONS LEARNED
       Marketing and promotion are
       important
       Seattle's successful experience with solid waste man-
agement through contractual service provision provided a
framework for private provision of curbside recycling services.
A strong promotional and marketing campaign, along with
volume based fees for solid waste collected, helped enlist
public involvement in the program.
CONTACT
Ginny Stevenson
Public Information Coordinator
Seattle Solid Waste Utility
710 2nd Avenue, Suite 505
Seattle, Washington 98104
(206) 684-7688
50

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      CHAPTER IV
WASTEWATER TREATMENT
     CASE STUDIES

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                                       WASTEWATER  TREATMENT
                CHAPTER  IV  CASE STUDIES
A. Private Involvement in Providing
   Wastewater Treatment Services
                         Contract services and turnkey arrangements are the most common
                         types of public-private partnerships for the provision of wastewater
                         treatment services. At least 200 wastewater treatment plants na-
                         tionwide are under private service contracts.    Private compa-
                         nies can often construct and operate wastewater treatment facili-
                         ties at a lower cost than public entities, reducing costs to taxpayers
                         and users. Estimates of combined capital and operating cost
                         savings associated with the private provision of wastewater treat-
          Cost Savings  ment services as compared to public provision, range from 15 to 40
                         percent. According to a recent report by a prominent investment
                         banking firm, overall savings attributable to a properly structured
                         privatization transaction (prior to tax reform) may reduce user fees
                         by 15 to 40 percent, compared to conventional Construction Grants
                         funding.  (See  Dean,  Witter,  Reynolds,  Inc., Privatization:  A
                         Financing Alternative for State and Local Governments, October
                         1986).  In Mount Vernon,  Illinois, for example, a private turnkey
                         contract cost the city 32 percent less than the estimated cost of
                         public financing and construction of their wastewater treatment
                         plant.

Tax Reform Act of 1986  Privatization and merchant facilities are less common for wastewa-
                         ter treatment since the Tax Reform Act of 1986. Auburn, Alabama
                         was able to arrange a privatization  agreement to provide their
                         wastewater treatment  plant because  it  took place before  tax
                         reform.  However,  the wastewater treatment plant in Mount Ver-
                         non, Illinois, that was initially planned to be privatized, had to be
                         reconfigured as  a turnkey project after the law changed.

                         With tax-driven benefits unavailable, private partners contemplat-
                         ing privatization must seek other sources of revenues such as user
                         fees or site-specific opportunities. In Chandler, Arizona, for ex-
                         ample, a private  company built and operates a tertiary wastewater
                         treatment plant under a privatization arrangement.  The effluent
                         can be sold for irrigation, thereby increasing its return. In addition,
                         initial costs of the plant were lowered by a private company donat-
                         ing land for the plant in exchange for receiving treated effluent free-
                         of-charge.

                         Even in cases where the private partner does not own the facility
                         or contribute equity, they may be instrumental in arranging financ-
                         ing for the public partner. In Clinton, Kentucky the private partner
                         was more experienced in arranging financing for large capital
                         projects and helped Clinton secure a low interest rate on the
                         issuance of bond anticipation notes.

   Developer Financing  One source of private  equity that was not affected by the Tax
                         Reform Act is developer financing.  Developer financing can be
                         voluntary as with the purchase of sewer access rights in Escon-
                                                                                             53

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                                         dido, California or involu ntary as in the case of impact fees imposed
                                         in Orlando, Florida. The sale of sewer access rights in Escondido
                                         was so successful that the city put aside a portion of the cash it
                                         raised for future rehabilitation of the treatment plant.
54

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    B.  Case Studies of Public-Private Partnerships for Wastewater Treatment
SUMMARY CHART OF WASTEWATER TREATMENT CASE STUDIES
           TYPE OF PARTNERSHIP
                                      POPULATION
              LOCATION
                      Privatization
         Wastewater Treatment Plant
                      Privatization
        Wastewater Reclamation Plant
                Developer Financing
               Sewer Access Rights
                Developer Financing
                      Impact Fees
                  Turnkey Contract
         Wastewater Treatment Plant
                  Turnkey Contract
         Wastewater Treatment Plant
                  Turnkey Contract
         Wastewater Treatment Plant
                  Contract Services
         Wastewater Treatment Plant
                                         29,760
                                         68,220
                                         83,550
                                        160,408
17,470
 1,600
 4,674
 4,480
            Auburn, AL
            Chandler, AZ
            Escondido, CA
            Orlando, FL
Mount Vernon, IL
Clinton, KY
Edgewater, NJ
Hood River, OR
                                                                                  55

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                               WASTEWATER TREATMENT


                                          Privatization

                                 WASTEWATER TREATMENT PLANT
                                        AUBURN, ALABAMA
                                         • The City of Auburn entered into a privatization
                                          agreement with Metcalf & Eddy to design, construct,
                                          operate, and own two wastewater treatment plants

                                         " The city created the Governmental Utility Services
                                          Corporation to issue tax-exempt bonds to finance
                                          the project

                                         • Through privatization, the city built its new
                                          wastewater treatment plants at a substantially lower
                                          cost and in less time than if they had financed the
                                          project with federal construction grants
                    Auburn, Alabama
SUMMARY
       In the early 1980's, the City of Auburn's two wastewater treatment
plants were operating at capacity and experiencing compliance prob-
lems.  To replace the aging facilities, the city decided to build two new
wastewater treatment plants but they were low on the state priority list to
receive federal grants.  Faced with the need to act quickly to provide
additional capacity and solve its compliance problems, Auburn investi-
gated privatization options. When the state passed a new law enabling
local governments to enter into privatization agreements and create
special authoritiesto issue bonds, the city contracted with Metcalf & Eddy
to design, construct, operate, and own two new wastewater treatment
plants.
PARTIES INVOLVED AND
TIMEFRAME
                                          Public Partner
                                          Private Partner (owner)
                                          Population
                                          Median Household Income
                                          Form of Government
                                          Project Initiated
                                          Project Completed
                                          Total Capital Cost
                                   Auburn, Alabama
                                   Metcalf & Eddy, Inc.
                                   29,760(1986)
                                   $8,707 (1979)
                                   City Council/Manager
                                   July 1984
                                   June 1986
                                   $26 Million
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WHY WAS A PRIVATE PARTNER
CHOSEN/ALTERNATIVES
CONSIDERED?

      • Federal grants were unavailable so
       Auburn sought a private partner,
       both to reduce costs and to attract
       private equity
        After 12 years of waiting for federal construction grant
money, the city was still low on the state priority list. Even if the
city had been awarded grant money, it would not be enough to
finance the needed facilities.  As a result, the city investigated
options for privatization by issuing an RFP and hiring consult-
ants to study state legal restrictions on privatization.  The city
felt that a private partner could construct the plants at lower cost
and could make an equity contribution.
WHAT WERE THE FINANCING
ARRANGEMENTS?
       Special authority issued $36
       million of 25-year floating/fixed
       rate tax-exempt industrial
       development bonds

       Bonds are backed by plant
       revenues

       Private partner contributed $10
       million
       For the purpose of issuing bonds, the city established
the Governmental Utility Services Corporation (GUSC), a three
member board appointed  by the City Council. The GUSC
issued 25-year floating/fixed rate tax-exempt industrial devel-
opment bonds of $36 million to finance the project. In the case
of floating/fixed rates, the city pays a fixed interest rate on debt
service. The floating interest rate is based on an index selected
when the bonds are issued.  If the floating rate goes below the
city's fixed rate, the company pays the difference. The bonds
are backed by revenues from the two treatment plants.  The
AAA-rated bonds were insured.

       Metcalf & Eddy contributed $10 million which  was
used for bond redemption when construction was completed.
The bond redemption substantially reduced outstanding debt
and lowered debt service payments for the city.
WHAT WERE THE PROCUREMENT
ARRANGEMENTS?
       City issued an RFP and
       created a committee to review
       proposals

       Auburn signed a25-year
       contract with Metcalf and Eddy
       to design, construct, operate,
       and own the plants
       The city issued an RFP and established a review
committee to evaluate the proposals received. The review
committee selected Metcalf & Eddy through competitive nego-
tiation.

       The City of Auburn signed a 25-year contract with
Metcalf & Eddy to design, construct, operate, and own two
wastewater treatment plants. The city agreed to pay a monthly
service fee to Metcalf & Eddy. The monthly service fee has
two components,  a base service charge and an operation &
maintenance (O&M) fee.  The base service charge is set to
cover debt service. The O&M fee is adjusted yearly and is re-
negotiated every 5 years.
                                                                                                   57

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WHAT WAS THE DIVISION OF
RESPONSIBILITIES?
City of Auburn

     • Lease the land for the wastewater treatment plants to
       Metcalf & Eddy

     • Create the Governmental Utility Services Corporation

     • Establish and collect user charges

     • Pay monthly service fee to Metcalf & Eddy

Governmental Utility Services Corporation of the City of
Auburn (GUSC)

     • Issue bonds to finance the project

Metcarf & Eddy, Inc.

     • Design, construct, operate, and own two new waste-
       water treatment plants

     • Secure the environmental permits

     • Comply with environmental permit requirements

     • Guarantee performance of the new wastewater treat-
       ment plants

     • Operate the city's old wastewater plants during con-
       struction of the new plants, and close down the old
       plants when the new facilities are operational
HOW WAS THE PROJECT
IMPLEMENTED?

      • City studied state restrictions
       on privatization

      • State passed law authorizing
       privatization agreements and
       creation of special authorities
       to issue bonds

      • Private company hired city
       employees at existing
       treatment plant
       The city hired consultants for a study that identified re-
strictions on privatization in state law. Auburn's state senator
and representative introduced a bill in the state legislature
allowing local governments to enter into privatization agree-
ments. As a result, the state enacted a law in 1984 enabling
local governments to enter into long-term contracts with private
companies and to create special authorities to issue bonds.

       Metcalf & Eddy hired the municipal employees who
worked at the city's wastewater plants.  The company trained
the municipal employees   during  construction  of the new
wastewater treatment plants.
58

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WHY WAS THE PROJECT
SUCCESSFUL?

     • Tax benefits encouraged plant
        ownership by the private
        company and lowered cost of
        the plants

     • Leadership by Auburn's City
        Manager was important

     • Public information diffused
        oppositionto increased rates
        Because the project was finished before the 1986 Tax Reform
 Act, Metcalf & Eddy benefitted from the tax advantages associated with
 private ownership that were available before the act. The tax benefits
 allowed the company to provide the facilities at a lower cost to the city.

        Auburn's City Manager took a leadership role to solve legal prob-
 lems and gain support for privatization from city officials. The city held
 public hearings to inform the community of its wastewater problems and
 build community support for privatization.

        Sewer charges doubled because of the project, but the city es-
 timated that sewer charges would have tripled with traditional municipal
 bond financing.  Because the city informed the public about the alterna-
 tives and the need for new facilities, they accepted the increased charges.
LESSONS LEARNED
        Important for city to have
        good advisors and work
        with experienced private
        partner

        Careful negotiation can
        produce agreements
        beneficial to all parties

        Public education is
        important
        Auburn found that developing a privatization agreement that
 minimized risks to the city required using experienced technical, legal,
 and financial advisors.  It was also important to select an experienced
 private partner interested in long-term operation and maintenance of the
 wastewater  plants.  Careful negotiation can result in a privatization
 agreement that protects the interests of both the public and private
 partner.  Finally, the public education process organized by the city helped
 increase community support for the project.
CONTACT
Douglas Watson, City Manager
City of Auburn
P.O.  Box 511
Auburn, AL 36830
(205) 887-4900
                                                                                                     59

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                            WASTEWATER TREATMENT

                                       Privatization

                            WASTEWATER RECLAMATION PLANT
                                    CHANDLER, ARIZONA
  Chandler,
  Arizona
SUMMARY
                                       The City of Chandler hired an engineering consulting firm,
                                       Malcolm Pirnie, to design a new tertiary wastewater
                                       treatment plant and entered into a privatization agreement
                                       with Parsons Municipal Services, Inc. to construct, operate,
                                       and own the new wastewater plant

                                       The Chandler Industrial Development Authority issued tax-
                                       exempt industrial development bonds to finance the project

                                       The private partner constructed a plant to accomodate the
                                       growth of Chandler; the plant discharges a high quality
                                       effluent that can be used for irrigation
       The City of Chandler, a fast growing suburb of Phoenix, wanted to
build a new wastewater treatment plant to meet future needs. The city's
existing wastewater treatment plant was on the Gila River Indian Reser-
vation and expansion was not allowed by the tribe. Because the city
could not get a discharge permit, they decided to build a tertiary treat-
ment plant that would provide a high quality effluent for water reuse.

       Chandler hired an engineering consulting firm to design a tertiary
wastewater treatment plant for 5 mgd, which could be expanded in
stages to 20 mgd. The city contracted with Parsons Municipal Services,
Inc. (PMSI) to construct, operate,  and own the  plant.  The Chandler
Industrial Development Authority issued tax-exempt industrial develop-
ment bonds to finance the project.

       A development company, the Ocotillo Group, donated the land
for the plant to the city. In return, the city and the Ocotillo Group have an
agreement for Ocotillo to use treated effluent from the plant. The treated
effluent goes into a 90-acre lake system in a major development and is
used for landscape and agricultural irrigation.
PARTIES INVOLVED  AND
TIMEFRAME
   Public Partner
   Private Partner (owner)
   Population
   Median Household Income
   Form of Government
   Project Initiated
   Project Completed
   Total Capital Cost
Chandler, Arizona
Parsons Municipal Services, Inc.
68,220 (1986)
$17,813 (1979)
City Council/Manager
October 1983
November 1985
S22 million
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WHY WAS A PRIVATE PARTNER
CHOSEN/ALTERNATIVES
CONSIDERED?

      • Federal grants were
       unavailable and Chandler did
       not want to issue bonds that
       would incur debtforthe city


WHAT WERE THE FINANCING
ARRANGEMENTS?

      • The Chandler Industrial
       DevelopmentAuthority issued
       25-year tax-exempt industrial
       development bonds of $23
       million, backed by Parsons
       Corporation

      • The Bank of America issued a
       $23 million letter of credit to
       guarantee the bonds

      • After construction, there was a
       $1 million bond redemption
       The city was low on the state priority list for federal
grants and did not want to increase taxes or user charges to
cover debt service for traditional municipal financing. Also,
Chandler had other infrastructure needs to accommodate its
rapid growth and wanted to avoid using its bonding capacity for
the wastewater plant. Chandler decided on privatization in order
to finance the project without incurring debt for the city.

       The Chandler Industrial Development Authority issued
25-year floating rate, tax-exempt industrial development bonds
of $23 million to finance the project. The AA-rated bonds are
backed by Parsons Corporation, the parent company of PMSI.
The  Bank of America issued a $23 million letter of credit to
guarantee the bonds. There was a bond redemption of $1 million
after the plant was completed.

       Parsons Corporation backed the bonds in order to
complete the financing arrangements before the end of 1983. It
would have taken longer to issue bonds backed by system
revenues and company officials were concerned that tax law
changes might occur in 1984, reducing the tax advantages of
privatization.

       The floating interest rate is set monthly and is based on
an index selected when the bonds were issued. The bond issue
is structured so that if bond holders want to sell their bonds when
the rate changes, the bond underwriter must buy them.
WHAT WERE THE PROCUREMENT
ARRANGEMENTS?

     • Chandler reached a long-term
       agreement with a local
       development company to
       accept the treated effluent; it is
       free for the first 15 years
       because the company donated
       land forthe plant

     • The city used two companies:
       one for design and the other
       for construction/operation of
       the plant
       First, the city negotiated a 50-year agreement for water
reuse with the Ocotillo Group, a development company which
owns land near the  wastewater plant.  The Ocotillo Group
donated the land for the plant to the city. In return, Ocotillo gets
the treated effluent free of charge for the first 15 years and,
thereafter, gets the first 5 million gallons-per-day free. The city
can exercise an option to use 10 percent of the treated effluent
in the first 10 years  and, thereafter, the city's  option is 20
percent.

       The city issued  an RFP for design of the plant and
selected a company after evaluating professional qualifications.
The city contracted with Malcolm Pirnie,  Inc. to design a new
tertiary wastewater treatment plant, which would provide treated
effluent for water reuse.
                                                       Afterthe engineering consultant completed the design,
                                                the city issued another RFP. Through competitive negotiation,
                                                the city contracted with PMSI to construct, operate, and own the
                                                wastewater plant.  PMSI also agreed to reimburse the city for
                                                the costs of designing the plant. The agreement with PMSI is a
                                                1 -year service agreement with provisions for the city to auto-
                                                matically renew the agreement yearly for a total period of 25
                                                years. State law prohibits local governments from entering into
                                                long-term contracts.
                                                                                                     61

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WHAT WAS THE DIVISION OF
RESPONSIBILITIES?
City of Chandler

    •  Lease land for the plant to PMSI

    •  Collect user charges and pay a monthly service fee to PMSI

    •  Establish a fund to pay for capital improvements

Chandler Industrial Development Authority

    •  Issue tax-exempt bonds to finance the project

Malcolm Pirnie, Inc.

     • Design the plant

     • Monitor the performance of PMSI during construction

Parsons Municipal Services, Inc. (PMSI)

     • Own the wastewater treatment plant

     • Reimburse the city for design costs

     • Review and approve the design

     • Construct, operate, and maintain the wastewater treatment
       plant

     • Secure the environmental permits

     • Comply with environmental permit requirements

     • Guarantee performance of the plant

Ocotillo Group

     • Donate the land for the plant to the city

     • Contract with the City of Chandler to receive treated effluent
       from the plant
HOW WAS THE PROJECT
IMPLEMENTED?

      • Chandler could not get a
       discharge permit, so chose to
       build a tertiary treatment plant
       to provide a high quality
       effluent
       When Chandler decided to build a new wastewater treatment
plant to accommodate expected growth, the city could not get a
discharge permit because there was no place to discharge the effluent.
As a result, the plant had to be designed for water reuse and Chandler
chose to build a tertiary wastewater treatment plant to provide a high
quality effluent. The Ocotillo Group played an important role because
it agreed to accept treated effluent for reuse.
62

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WHY WAS THE PROJECT
SUCCESSFUL?
       Tax advantages reduced cost
       to the city

       A bonus was provided to the
       company for early completion

       New plant promotes water
       conservation because effluent
       can be used for irrigation
        PMSI was able to utilize tax advantages available for
privatization before the 1986 Tax Reform Act. Ownership of the
plant provided tax benefitsto PMSI and reduced the cost forthe
city. The city did have to  increase user charges, but user
charges would have increased more without the tax advan-
tages.  Also, privatization allowed the city to provide the plant
without using its bonding capacity.

        Construction was completed for  $1.5  million below
budget. The city's contract with PMSI provided a bonus to the
company if the plant was completed below budget. The savings
also allowed a $1 million bond redemption, reducing the out-
standing debt.

        Water conservation  is an important benefit of the proj-
ect.  The Ocotillo Group is  using 100 percent of the treated
effluent and through water reuse can avoid using groundwater.
The treated effluent goes into a 90-acre lake system built by the
development company.  Ocotillo uses the treated effluent pri-
marily to irrigate a golf course and residential areas. Some of
the treated effluent is used to irrigate agricultural land.
LESSONS  LEARNED

     • Experienced and technically
       capable partner was
       necessary

     • It was useful to have an
       engineering consultant,
       independent of thefirm
       constructingthe plant, to
       monitor their performance
       Because the city chose an advanced technology, it was
important to have project design and oversight by an experi-
enced and technically capable partner. The city hired an engi-
neering consultant to design the plant and assist with contract
negotiation. The consultant also monitored project construction
by providing performance reviews and inspections.  Because
the city completed the design before issuing an RFP, they had
more control over technical aspects of the project and could
better compare costs among companies bidding on the project.
CONTACT
Alfred E. Pfahl, Assistant Public Works Director for
  Development/City Engineer
City of Chandler
200 East Commonwealth
Chandler, AZ 85225
(602) 786-2788
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                            WASTEWATER TREATMENT


                     Voluntary Developer/Municipal Partnership

                                  SEWER ACCESS RIGHTS
                                  ESCONDIDO,  CALIFORNIA
    Escondido, California
     The City of Escondido sold rights to future sewer capacity
     as a way to finance construction of waste water facilities to
     provide that capacity

     in return for sewage access that is necessary for
     development, developers supplied funds to expand sewage
     capacity

     The city's sewer access rights program provided
     incentives, including guaranteed rates of return, to
     encourage purchase of access rights by developers and
     local citizens

     The program was so successful that funds raised from the
     sale of sewer access rights financed the full cost of the
     planned expansion, with ample reserves for future
     rehabilitation
SUMMARY
       Located in an area of rapid growth, the City of Escondido's
sewage treatment plant was operating at capacity. In addition, the city
faced enforcement ordersfrom the state toimprove operation of the plant
and a lawsuit from neighboring San Diego for non-performance on a
sewer services contract. Escondido developed a program in which rights
to future sewer capacity were sold to finance construction of wastewater
facilities to provide additional capacity. In 3 months, the sale of sewer
access rights to developers and local citizens raised funds to finance the
entire cost of construction with funds left over to finance future rehabili-
tation.
PARTIES INVOLVED  AND
TIMEFRAME
                                         Public Partner (owner)
                                         Private Partner
                                         Population
                                         Median Household Income
                                         Form of Government
                                         Project Initiated
                                         Project Completed
                                         Administrative Cost
                                         Total Capital Cost
                                     City of Escondido
                                     Developers
                                     83,550(1986)
                                     515,258(1979)
                                     City Council/Manager
                                     April 1982
                                     June 1982
                                     $30,000
                                     S16million
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WHY WAS A PRIVATE PARTNER
CHOSEN/ALTERNATIVES
CONSIDERED?

      • Citizens were against
       increasing public debt, user
       fees, and conventional forms
       of privatization

      • Developers purchase access
       rights to provide funds for
       additional capacity
        As a result of conflict over growth policies in the commu-
 nity, voter referendums had eliminated the use of bond financ-
 ing, user fees, and conventional forms of privatization.  With
 limited options and the need to act quickly, Escondido devel-
 oped a plan to sell sewer access rights to finance additional
 sewer capacity. Through purchase of rights to future sewage
 treatment capacity,  developers and local citizens provided
 funds for construction of the additional capacity before it was
 built.
WHAT WERE THE FINANCING
ARRANGEMENTS?
        San Diego paid $4 million for
        its share of the planned
        capacity

        $12 million was raised through
        sale of access rights
       The city needed $16 million to finance the planned ex-
pansion in sewer capacity. Because Escondido provides sew-
age treatment for northern San Diego, the City of San Diego
contributed $4  million  to finance its share of the planned
capacity. In 3 months, Escondido raised the other $12 million
through the sale of sewer access rights.  The city originally
planned to sell 50 percent of the planned capacity, but raised
the necessary funds by selling only 40 percent of the planned
capacity.

       The price of sewer access rights is based on an "equiva-
lent dwelling unit" (EDU). An EDU is 270 gallons-per-day, rep-
resenting the capacity  required for an average single family
residence.  The city established a price schedule for sewer
access rights that provided a 30 percent discount on sewer
access rights purchased during a 3-month sale. Buyers during
the 3-month sale were exempted from any future increases in
connection fees.  When the 3-month sale began in April 1982,
the price of sewer access rights was $1,650 per EDU and at the
end of the sale in June 1982, the price became $2,150 per EDU.
Subsequently, the price of sewer access rights increased ac-
cording to the price schedule established by the city.  In April
1989, sewer access rights sold for $3,300 per EDU.
HOW WAS THE PROGRAM
DESIGNED?
       Access rights could be
       purchased by property owners,
       renters, and lessees

       Each purchaser has a
       separate contract with the city
        Sewer access rights could be purchased by any prop-
 erty owner, renter, or lessee in the incorporated area or in the
 general plan area outside city boundaries. In the incorporated
 area, buyers are guaranteed sewer service up to the limit of the
 capacity purchased, regardless of when the sewer connection
 is made. Outside the city boundaries, sewer connection is not
 guaranteed because annexation is a condition for access to
 sewer facilities.

        Each purchaser of sewer access rights has a separate
 contract with the city, specified in terms of the number of EDU's
 requested. Buyers can pay in cash or use letters of credit and
 not make payments for 2 years.
                                                                                                   65

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HOW WAS THE PROGRAM
DESIGNED?  (Continued)
     • Access rights could be bought
       in advance during the three-
       month sale, but land-use
       approvals were not guaranteed

     • City guaranteed return on
       resale of access rights, they
       could only be resold through
       the city
       The 3-month sale allowed  buyers to purchase guaranteed
sewer capacity in advance of a building permit, but land-use approvals
were not guaranteed. After the 3-month sale, sewer access rights could
be purchased only if the city had  excess capacity or sewer rights
available for resale, and only in relation to a building permit.

       Sewer access rights can be resold only through the city. The
city guaranteed a return on resale of sewer access rights, reimbursing
sellers according to the established price schedule.
WHAT WAS THE DIVISION OF
RESPONSIBILITIES?
City of Escondido

      • Administer the sewer access rights program

      • Require developers to purchase access rights to secure
       sewage capacity

      • Contract with the City of San Diego to provide sewage
       treatment for northern San Diego

City of San Diego

      • Pay a share of capital costs representing its share of
       capacity

Private Sector

      • Purchase access rights
HOW WAS THE PROJECT
IMPLEMENTED?

      • A public relations firm
       promoted the program

      • An ordinance authorizing the
       program was not necessary as
       each purchaser has a
       separate contract with the city
       The city hired a public relations firm to identify potential
customers and develop promotional materials. Wide distribution of
notices in the service area helped to encourage participation in the
program.

       The city did not pass an ordinance to authorize the program.
Instead, the city has a contract with each buyer. Individual contracts
allow the rights  and obligations to be clearly defined.
WHY WAS THE PROJECT
SUCCESSFUL?
      • Rapid growth

      • Administrative costs of the
        program were lower than the
        cost of debt service

      • City guaranteed return on
        resale of access rights
        Because Escondido was growing rapidly and there was strong
demand for new treatment capacity, sales were higher than expected.
Through the sale of sewer access rights, the city financed its sewer
expansion at a much lower cost than paying for debt service. Admin-
istrative costs of the 3-month sale were only $30,000. While an esti-
mated $6,000 connection fee would have been necessary to cover
debt service, the city raised funds by selling sewer access rights at a
price of only $1,650 during the 3-month sale.
66

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WHY WAS THE PROJECT
SUCCESSFUL?  Continued)
       The program guaranteed a return on resale of sewer
access rights, providing an incentive to purchase them as an invest-
ment. The city guaranteed a 33 percent return for the first year. For
sewer access rights held 5 years, the city guaranteed an 18 per-
cent return.  The city did not guarantee how soon it would find a
buyer, but so far interested buyers have outnumbered sellers. To
date, about 20 percent of the access rights have been resold.

       The city raises additional income through repurchase and
resale of sewer access rights. By early 1989, the city had raised
approximately $3 million.
LESSONS  LEARNED

     • Sale of access rights is an
       effective way to raise money in
       a growing city

     • Participation should be limited
       to property owners, renters,
       and lessees

     • Importantto require resale of
       rights through the city

     • Risk can be limited by
       reserving the rightto rescind
       the sale if response is
       insufficient
       With high demand for development in a rapidly growing
area, Escondido learned that the sale of access rights to the private
sector can raise funds necessary to meet new sewage capacity
needs. Escondido limited the purchase of sewer access rights to
property owners, renters, or lessees. Also, it reserved the option to
refuse any contract so that an outsider could not buy a large share
of sewer access rights and potentially exert monopoly control over
the city's capacity.  By requiring resale of sewer access rights
through the city, they could completely control the market for sewer
access rights.

       Escondido limited risks to the community from allocation of
nonexistent future capacity by reserving the right to rescind the sate
and refund the proceeds if the response was insufficient to  fund
most of the planned expansion.
CONTACT
Roderick J. Wood, Assistant City Manager
City of Escondido
100 Valley Boulevard
Escondido, CA 92025
(619)  741-4631
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                           WASTEWATER  TREATMENT


                           Involuntary Developer Financing


                                       IMPACT FEES
                                    ORLANDO,  FLORIDA
   Orlando, Florida
       To finance expansion and improvement of its
       wastewater treatment system, the City of Orlando
       issued revenue bonds backed by impact fees and user
       charges

       Because impact fees paid by developers back the
       expansion portion (72 percent) of the wastewater
       capital program, the city avoided taxing existing users
       to accommodate new growth
SUMMARY
       The City of Orlando planned significant expansion of its wastewa-
ter treatment system to accommodate rapid growth. Also, the city's waste-
water system needed improvements to comply with state and federal en-
vironmental regulations. To finance expansion and improvements, Orlando
issued $230 million of tax-exempt revenue bonds. Impactfeeson new de-
velopments were dedicated to repaying the capital costs of expansion.
Existing users also helped pay for upgrading the system through higher
sewer fees. Orlando paid for their wastewater facilities by combining
impact fees on private developers, which paid for the new capacity they
required, plus increased fees on current users, which paid for upgrading
existing services.
PARTIES INVOLVED AND
TIMEFRAME
   Public Partner (owner)
   Private Partner
   Population
   Median Household Income
   Form of Government
   Project Initiated
   Project Completed
   Total Capital Cost
Orlando, Florida
Developers
160,408(1988)
519,362(1979)
Mayor/City Council
May 1984
June 1988
$230 million
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WHY WAS A PRIVATE PARTNER
CHOSEN/ALTERNATIVES
CONSIDERED?

     • Wastewater treatment system had to
       expandto accomodate growth

     • City decided new development
       should pay capital costs of
       expansion through impact fees
       and user charges
       Orlando decided that the primary beneficiaries of ex-
panding the wastewater treatment system should bear the
cost. They instituted impact fees on new developments to back
the expansion portion of the bond financing. Part of the monthly
user fees paid by new customers is also dedicated to repaying
debt associated with expanding the system.
WHAT WERE THE FINANCING
ARRANGEMENTS?
       72% Capital for System Expansion
                      28% Capital for System
                      Improvement
       $230 million tax-exempt
       revenuebonds
WHAT WAS THE DIVISION OF
RESPONSIBILITIES?
       To finance a $230 million wastewater capital program,
the City of Orlando issued tax-exempt revenue bonds,  The
bonds were insured, raising the rating to AAA. Capital needs to
improve existing facilities constituted 28 percent and the other
72 percent of the capital program was for expansion of Orlando's
wastewater treatment system.

       The city counted customers of the wastewater treat-
ment system in 1983 and considers them "old customers."
Orlando assesses a monthly user charge, which increased 25
percent in 1984. The monthly user charge has two components,
an O&M rate and a capacity  charge.  For old customers, the
capacity component goes toward debt service for facility im-
provements.

       "New customers" are those requesting services  after
1983.  In 1984, the city began charging each new development
a one-time impact fee under the wastewater capital program.
The per-gallon impact fee is calculated by a formula based on
315 gallons-per-day for a single family residence. The charge
per gallon is adjusted yearly and in 1989 was $7.55 per gallon.
For new customers, the capacity component of the monthly user
charge funds debt service on capital borrowed to expand the
system.

       In addition to the $230 million wastewater capital pro-
gram, federal construction grants of $55 million financed im-
provements in the wastewater system.

City of Orlando

     •  Provide an improved and expanded wastewater
        treatment system

Developers/New Customers (1984 and after)

     •  Pay an impact fee

     •  Pay a monthly user charge for wastewater
       treatment services; the capacity component for new
        customers pays debt service on capital borrowed to
        expand the system
                                                                                                69

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WHAT WAS THE DIVISION OF
RESPONSIBILITIES? (Continued)
Old Customers (1983 and before)

     • Pay a monthly user charge for wastewater treatment
       services; the capacity component for old customers goes
       toward debt service for facility improvements
HOW WAS THE PROJECT
IMPLEMENTED?

     • Implemented as part of a long
       range plan for growth

     • State court ruled that impact
       fees can only be used to pay
       for expansion of the
       wastewater system
       Before implementing the present wastewater capital program,
Orlando collected an impact fee to raise capital, but on a pay-as-you-go
basis. The city budgeted for its wastewater capital needs based on
revenues collected each year from impact fees. Orlando's present
wastewater capital program has a different philosophy of long-range
planning for expansion whereby the city commits anticipated impact
fees as payment for planned expansion.

       A state court decision in the 1970's required that cities use
impact fees only to pay for expansion to accommodate growth, not for
improvements. Orlando hired engineers to certify the percentage of its
total wastewater capital program that is for purposes of expansion.
WHY WAS THE PROJECT
SUCCESSFUL?

     • Growth pays for itself by using
       impactfees and user charges
       to back bonds
       The City of Orlando made growth pay for itself by using impact
fees and user charges for new customers to support bond financing.
Expansion of the city's wastewater treatment system to accommodate
new growth is paid for by new developments and eventually by new
residents responsible for the growth.
LESSONS LEARNED
       Involves risk because
       community depends on growth
       to generate revenues

       Impactfees may not deter
       development in a rapid-growth
       When financing depends upon growth to generate funds, the
public partner must considerthe risk that growth and revenues may not
meet expectations. Although Orlando expects continued rapid growth,
the city established a special account with funds to be available if impact
fees received in any year are not sufficient to pay bondholders.

       Orlando's total wastewater connection fees (including impact
fees) are high for single family residences compared to other growing
urban areas in Florida.  However, Orlando's monthly user charge is
lower than in other growing areas.  With a long waiting list for sewer
connections, impact fees assessed by Orlando have not deterred
development.
CONTACT
                                       Robert R. Garner, Comptroller
                                       City of Orlando
                                       400 South Orange Avenue
                                       Orlando, FL  32801
                                       (407) 849-2200
70

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                              WASTEWATER TREATMENT


                                      TVirnkey Contract

                                WASTEWATER TREATMENT PLANT
                                    MOUNT VERNON, ILLINOIS
Mount Vernon, Illinois
                                         Mount Vernon entered into a turnkey agreement with
                                         Environmental Management Corporation to design,
                                         construct, and operate an upgraded and expanded
                                         wastewater treatment plant owned by the city

                                         The city issued tax-exempt and taxable general
                                         obligation bonds to finance the project, which were
                                         guaranteed by a letter of credit from a Japanese bank

                                         The private partner completed  the upgrade and
                                         expansion in substantially less time and saved the city
                                         approximately $3 million (32 percent) compared to the
                                         city's initial pay-as-you-go plan
SUMMARY
                                           The area around Mount Vernon was experiencing rapid growth
                                    due to the location of new automobile manufacturing plants.  The auto
                                    plants attracted a large number of associated businesses interested in
                                    locating in Mount Vernon. It was necessary for the city to act quickly to
                                    take advantage of the opportunity for growth. However, the city was
                                    under a 1986 sewer connection ban because of compliance problems at
                                    its wastewater treatment plant.

                                           To overcome sewer restrictions quickly, Mount Vernon con-
                                    tracted with Environmental Management Corporation (EMC) to design,
                                    construct, and operate an upgraded and expanded wastewater treat-
                                    ment plant. Sewer restrictions were lifted after the first phase of con-
                                    struction was completed.  Within 18 months, the city attracted approxi-
                                    mately $300 million in private investment.
PARTIES INVOLVED AND
TIMEFRAME
Public Partner (owner)
Private Partner

Population
Median Household Income
Form of Government
Project Initiated
Project Completed
Total Capital Cost
Mount Vernon, Illinois
Environmental Management
Corporation
17,470 (1986)
$13,171 (1979)
City Council/Manager
June 1987
October 1988
S6.5 million
                                                                                             71

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WHY WAS A PRIVATE PARTNER
CHOSEN/ALTERNATIVES
CONSIDERED?
       Considered pay-as-you-go
       and federal grants but timing
       was critical

       Private partner proposed to
       complete the plant more
       quickly than public
       alternatives

       The city and EMC decided
       against private ownership
       Mount Vernon contracted with EMC in 1984 to operate
its wastewater treatment plant and to bring it into compliance
with environmental regulations.  However, the city needed to
upgrade and  expand the plant to come into full compliance.
Mount Vernon passed a sales tax increase to finance a pay-as-
you-go upgrade and expansion to be completed by 1994. The
city also began working to obtain federal grants.  However, the
options chosen by the city could not be implemented quickly,
so when EMC proposed to upgrade and expand the plant in a
shorter time, the city accepted.

       The city and the company jointly decided against the
company's original proposal for private ownership, because of
reduced tax benefits of private ownership after the 1986 Tax
Reform Act and the potential that federal funds previously
spent on the  wastewater plant would have to  be refunded.
Public ownership allowed much of the cost of the project to be
financed with  tax-exempt bonds.
WHAT WERE THE FINANCING
ARRANGEMENTS?


      Total Capital Cost: $6.5 million
        $5.8 million
        tax-exempt
        G.O. bonds
                              $240,000
                              private
                            $420,000
                            taxable
                            G.O.
                            bonds
       To finance upgrading and expansion of its wastewater
treatment plant, the City of Mount Vernon issued 20-year tax-
exempt general obligation bonds of $5.8 million and $420,000
of taxable general obligation bonds to pay project costs not
eligible for tax-exempt financing.  A Japanese bank issued a
$6 million letter of credit to guarantee the bonds, raising the
bond rating to AAA. EMC contributed $240,000 to finance the
project.

       The bonds are backed by the City of Mount Vernon,
which pledged its full faith and credit and dedicated sales tax
revenues to pay off the bonds. A previous 1/2 cent sales tax
increase that the city passed for a pay-as-you-go upgrading of
the wastewater plant now provides revenues to backthe bonds.

       The city could not use revenues from sewer charges to
back the bonds because sewer charges were dedicated through
1994 to pay off bonds issued in 1975 to finance construction of
the existing plant.
WHAT WERE THE PROCUREMENT
ARRANGEMENTS?


      • The city negotiated with a
        private partner in a sole-
        source procurement

      • Fixed-price contract signed to
        upgrade and expand plant +
        20-year service agreement
        Through a sole-source procurement, the city signed a
fixed-price contract with Environmental Management Corpora-
tion (EMC) to design and construct an upgraded  and ex-
panded wastewater treatment plant.  When construction was
completed, the city's contract with EMC to operate the existing
plant was changed to a 20-year service agreement for EMC to
operate and maintain the upgraded and expanded plant.
 72

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WHAT WAS THE DIVISION OF
RESPONSIBILITIES?
City of Mount Vernon

     • Own the wastewater treatment plant

     • Issue general obligation bonds to finance the project

     • Collect sales tax revenues and make monthly payments to
       EMC through a bond trustee

     • Secure the environmental permits

Environmental Management Corporation (EMC)

     • Design, construct, operate, and maintain the upgraded and
       expanded wastewater treatment plant

     • Guarantee compliance with environmental permit
       requirements

     • Guarantee performance of plant equipment

     • Dispose of sludge

     • Operate the city's existing wastewater plant during
       construction
HOW WAS THE PROJECT
IMPLEMENTED?
      • Mt. Vernon avoided conflicts
       with state procurement rules
       by voting for home rule

      • EMC made preliminary
       proposal to Illinois EPA to
       avoid permitting delays


WHY WAS THE PROJECT
SUCCESSFUL?
      • Strong leadership by the
       mayor and public information
       campaign were important
       factors

      • Sewer restrictions were lifted
       quickly

      • City was not responsible for
       costs of change orders
       Because the city voted for home rule in 1986, it avoided
conflicts with state procurement rules.

       EMC  worked with Illinois EPA before the agreement was
signed to prove that its design would meet effluent requirements. As
a result, the company helped the city avoid delays in permitting the
project.
       Strong leadership by the mayor was important to the success
of the project.  The mayor insisted that negotiations be open to the
public and that the public be kept informed. As a result, the community
supported private sector involvement in the project.

       Timing was critical for Mount Vernon because the city needed
to solve its compliance problems quickly to accommodate new indus-
try. Through negotiations with Illinois EPA, sewer restrictions were
lifted after the first phase of construction was completed. By compari-
son, the city's initial plan to upgrade and expand the plant on a pay-as-
you-go basis was estimated to cost $9.5 million and not be completed
until 1994.

       The fixed-price contract for design  and construction guaran-
teed that the city would not pay costs that exceeded the initial bid
(change orders), which had added 20 percent to the bid cost for plants
in nearby communities. EMC absorbed the cost of change orders.
                                                                                                  73

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LESSONS LEARNED
       Mount Vernon learned that it
       is important to find a partner
       that will accept responsibility
       for all aspects of the project
       Mount Vernon learned that it is important to negotiate
a public-private partnership that places  responsibility  for
design, construction and operation with a single company.
When problems occur, EMC  has full liability. The city wanted
to avoid the difficulties it experienced with an earlier expansion
of the plant, when serious problems could not be resolved be-
cause  none of the different  private partners involved would
accept responsibility.
CONTACT
James Bassett, City Manager
City Hall
1100 Main Street
Mt. Vernon, IL 62864
(618)242-5000
74

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                            WASTEWATER TREATMENT


                                    Turnkey Contract

                              WASTEWATER TREATMENT PLANT
                                    CLINTON, KENTUCKY
     Clinton, Kentucky
     The City of Clinton entered into a turnkey agreement with
     Aqua Corporation to upgrade and operate a wastewater
     treatment plant owned by the city

     Clinton issued tax-exempt bond anticipation notes to
     finance the project

     The  private partner completed the project for 30
     percent less than the estimated cost of public
     construction and grant financing
SUMMARY
       Under an order from EPA to upgrade its wastewater treatment
system since 1981, Clinton faced fines from EPA if its treatment plant did
not meet the secondary treatment standards of the Clean Water Act. The
city was not high enough on the state priority list to be eligible for federal
grants, so Clinton investigated alternatives. After the state passed a pri-
vatization act in 1986, Clinton contracted with a private company to
upgrade (designand construction) and operate its wastewater treatment
plant.  The city  retained ownership of the plant in order to obtain tax-
exempt financing.
PARTIES INVOLVED AND
TIMEFRAME
                                       Public Partner (owner)
                                       Private Partner
                                       Population
                                       Median Household Income
                                       Form of Government
                                       Project Initiated
                                       Project Completed
                                       Total Capital Cost
                               Clinton, Kentucky
                               The Aqua Corporation
                               1,600 (1988)
                               $13,080 (Hickman County, 1979)
                               Mayor/City Council
                               September 1987
                               July 1988
                               5950,000
                                                                                            75

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WHY WAS A PRIVATE PARTNER
CHOSEN/ALTERNATIVES
CONSIDERED?
     • Private partner had the
       expertise to upgrade and
       operate the plant

     • Clinton retained ownershipto
       obtain tax-exempt financing
       A small town with limited resources, Clinton was un-
able to raise the capital necessary to upgrade their wastewater
plant.  While plant expansion can often be financed from
additional revenues generated by growth, plant upgrades often
require large capital investments without any new sources of
funds. Also,  construction and operation of the new plant
required technical expertise beyond that of the municipal staff.

       The city had planned to finance the project with federal
construction grants but when that was not possible, they began
to look for a private company with the resources and technical
expertise to construct and operate the plant. Clinton decided
to retain ownership of the plant in order to obtain tax-exempt
financing.
WHAT WERE THE FINANCING
ARRANGEMENTS?
       Clinton issued tax-exempt
       bond anticipation notes backed
       by user fees

       The notes are for 3 years and
       can be renewed or long-term
       bonds can be issued upon
       maturity

       The city implemented a new
       rate policy to increase
       revenues
       Clinton issued 3-year, fixed-rate bond anticipation
notes totalling $950,000 at a 6.95 percent interest rate to
finance the project. To comply with state law, Clinton passed
an ordinance declaring that ultimately they intended to issue
bonds. Clinton chose to issue short-term notes because they
wanted the security of a fixed rate.  The purchasing bank
agreed to a fixed rate  for the short-term notes, but the bank
would not offer a fixed  rate for long-term bonds. Also, Clinton
could issue short-term notes with lower upfront costs than long-
term bonds.

       Liberty Bank of Louisville purchased the notes, and in
return, receives tax-exempt interest income.  The  1986 Tax
Reform Act provides that if a municipality issues less than $10
million a year in securities for public facilities, the interest is tax-
exempt when they are purchased by a bank.

       The notes are  backed by user fees, which were set to
pay off the debt  over a 15-year period. Each time the 3-year
notes are renewed, the city and the bank can negotiate an
interest rateto renew the notes through the bank, orthecity can
find another purchaser. Revenues from userfees allow Clinton
to reduce the dollar amount of the notes when renewed.

       The city implemented a new rate policy in October
1987.  Previously,  revenues for wastewater treatment were
drawn from property  taxes and a $36 yearly charge per
customer for sewer service. Under the new system, sewer
charges increased to a flat rate of $15 per month for residential
customers. Commercial customers pay $15 per month for the
first thousand gallons and $3.25 for each additional  thousand
gallons.
76

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WHAT WERE THE PROCUREMENT
ARRANGEMENTS?
        Clinton negotiated with Aqua
        Corporation in a sole-source
        procurement process
        Because of prior experience in working with engineers
from Aqua Corporation, the city decided to negotiate with them
in a sole-source procurement process.  Clinton signed a
contract with Aqua Corporation for the design and construction
to upgrade the plant and a 5-year service agreement for op-
eration and maintenance.
WHAT WAS THE DIVISION OF
RESPONSIBILITIES?
City of Clinton

      • Own the wastewater treatment plant

      • Issue bond anticipation notes to finance the project

      • Collect user fees to cover debt service

The Aqua Corporation

      • Assist Clinton to secure financing for the project

      • Design, construct, and operate the wastewater plant

      • Secure the environmental permits

      • Comply with environmental permit requirements

      • Guarantee performance of equipment
HOW WAS THE PROJECT
IMPLEMENTED?

      • State law authorized local
       governments to enter into
       turnkey contracts with private
       companies
       The state legislature passed an act in 1986 enabling
local governments to contract with private companies to own
and/or operate water and wastewater treatment facilities.
Clinton's project was the first wastewater system to be up-
graded by a private partner pursuant to the law.
WHY WAS THE PROJECT
SUCCESSFUL?
     • Private construction and
       tax-exempt financing
       reduced the cost of the
       project
       Clinton conducted a study as part of the process of
apply ing for EPA construction grantsthat estimated the project
cost at $1.3 million. Aqua Corporation upgraded the wastewa-
ter plant for only $950,000. Through upgrading the plant and
private operation, Clinton solved its effluent quality problems.
                                                                                                  77

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LESSONS LEARNED
       Clinton could keep user
       charges down because of low
       cost of capital
       Although sewer charges for residential customers in-
creased to $15 per month, Clinton's user charge is low com-
pared to similar sewer systems in the state.  This was an
important objective in Clinton because many of the residential
customers are retired and on fixed incomes. By financing the
project with short-term notes at a low fixed rate of  interest,
Clinton could keep sewer charges low. The city is considering
lowering sewer charges at the beginning of 1990.
CONTACT
Bob Yates, Mayor
City of Clinton
P.O. Box 178
Clinton, KY 42031
(502) 653-3621
78

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                           WASTEWATER   TREATMENT
                                    Turnkey Contract
                              WASTEWATER TREATMENT PLANT
                               EDGEWATER,  NEW  JERSEY
 Edgewater, New Jersey
                                        The Borough of Edgewater created the Municipal Utility
                                        Authority to issue tax-exempt bonds for improvement of its
                                        wastewater treatment system

                                        The authority entered into a turnkey agreement with
                                        Lotepro Corporation to design, construct, and operate a
                                        secondary treatment plant, owned by the authority

                                        Through  tax-exempt bond financing  and private
                                        construction, the project was completed for
                                        approximately 25 percent less  than the estimated cost
                                        of financing the project with federal grants
SUMMARY
       After years of waiting for federal grant money to upgrade its
wastewater treatment plant, grant money was no longer available in New
Jersey.  The Borough of Edgewater faced the July 1988 Clean Water
Act deadline to provide secondary treatment. In addition, a state con-
struction ban prevented new development in Edgewater until its waste-
water system was improved,  Edgewater's long-term contract to treat
sewage from the neighboring Borough of Cliffside Park required Edge-
waterto ensure capacity to meet Cliffside Park's needs in addition to its
own.

       Edgewater created the Municipal Utility Authority to own the ex-
isting wastewater treatment plant and issue bonds to finance construction
of a secondary treatment plant. Following competitive negotiation, the
authority entered into a turnkey agreement with Lotepro Corporation to
design, construct, and operate the secondary treatment plant.
PARTIES INVOLVED AND
TIMEFRAME
                                        Public Partners
                                        (owner)
                                        Private Partner
                                        Population
                                        Median Household Income
                                        Form of Government
                                        Project Initiated
                                        Project Completed
                                        Total Capital Cost
                                Edgewater, New Jersey
                                Municipal Utility Authority
                                Lotepro Corporation
                                4,674 (1987, Edgewater)
                                $20,737 (1979, Edgewater)
                                Mayor/City Council
                                January 1986
                                Scheduled July 1989
                                $16 million
                                                                                             79

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WHY WAS A PRIVATE PARTNER
CHOSEN/ALTERNATIVES
CONSIDERED?
     • Federal grants were no longer
       available

     • Cost of bond financing was
       comparable to cost of state
       loans

     • Chose to create municipal
       utility authority to contract with
       a private partner
       Edgewater planned to use federal grants to construct
a secondary treatment plant, but when they finally neared the
top of the state priority list, federal grant money was no longer
available in New Jersey. Edgewater decided that the cost of
bond financing was comparable to the cost of financing the
project with state loans, which had replaced grants.  Under a
new state privatization law, Edgewater created the Municipal
Utility Authority to issue bonds and contract with a private
company to design, construct, and operate a secondary treat-
ment plant owned by the authority.
WHAT WERE THE FINANCING
ARRANGEMENTS?


     • $16 million of tax-exempt
       general obligation bonds were
       issued to finance the project,
       backed by Edgewater and
       Cliffside Park

     • A sewer connection fee of
       $2,000 was instituted by both
       boroughs to help pay debt
        The Municipal Utility Authority issued $16 million in 30-
 year, tax-exempt general obligation bonds to finance the proj-
 ect. The bonds are backed by the full faith and credit of the
 Boroughs of Edgewater and Cliffside Park. The bonds were
 insured, raising the rating to AA.

        The debt will be paid by property taxes, user fees, and
 sewer connection fees from new developments in both bor-
 oughs. Revenues from Cliffside Park are deposited in Edge-
 water's general fund.

        For this project, Edgewater and Cliffside Park insti-
 tuted a $2,000 sewer connection fee for new developments.
 Because the sewer connection fees are dedicated for payment
 of  the  bonds, those revenues are deposited  in a special
 account.
WHAT WERE THE PROCUREMENT
ARRANGEMENTS?
        Private partner chosen through
        competitive negotiation

        Signed agreement with
        Loteprotodesign and
        construct plant + 20-year
        service agreement, renewable
        every 5 years, for operation
        and maintenance
        The authority issued an RFP and selected Lotepro
 Corporation through competitive negotiation. The authority
 signed a contract with Lotepro to design and construct the
 plant and a 20-year service agreement consisting of an initial
 5-year contract with the option for three, 5-year renewals at the
 discretion of the authority. The contract also requires Lotepro
 tooperatethe existing plantduring construction.

        A 50-year contract, signed in 1955, between the Bor-
 ough of Edgewater and the Borough of Cliffside Park requires
 Edgewater to treat one-half of Cliffside Park's sewage through
 2005. The contract was extended to 2017 to coincide with the
 length of the bond issue.  Cliffside Park pays a per-gallon
 user fee for sewage treated at the Edgewater plant.
 80

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WHAT WAS THE DIVISION OF
RESPONSIBILITIES?
Borough of Edgewater

      • Create the Municipal Utility Authority

      • Back the general obligation bonds with the full faith
        and credit of the borough

Municipal Utility Authority

      • Purchase the existing primary treatment plant from
        the Borough of Edgewater

      • Sell revenue bonds to finance upgrading the primary
        treatment plant and construction of a secondary
        treatment plant

Borough of Cliffside  Park

      • Back the general obligation bonds with the full faith
        and credit of the borough

      • Pay user fees to Edgewater for treatment of one-half
        of its sewage, under a long-term contract

Lotepro Corporation

      • Operate the existing plant during construction

      • Design, construct, and operate a secondary
        treatment plant

      • Secure the environmental permits

      • Comply with environmental permit requirements

      • Guarantee performance of plant equipment
HOW WAS THE PROJECT
IMPLEMENTED?

      • State law allowed local
       governments to contract with
       private companies to build and
       operate wastewater treatment
       facilities

      • Because of their low debt
       limit, Edgewater created a
       special authority to issue
       bonds
       Edgewater was able to seek a private partner as a
result of a state law passed in 1986. The law enables local
governments to contract  with private companies for the fi-
nance, design, construction, and operation of wastewater
treatment plants.

       Edgewater created the Municipal Utility Authority to
issue bonds because the bonding capacity of an authority is not
limited by the state. The Borough of Edgewater did not have
adequate bonding capacity because of its low debt limit set by
the state.
                                                                                                   81

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HOW WAS THE PROJECT IMPLEMENTED?
(Continued)

     • Municipal employees kept their jobs at
       the plant and maintain benefits as local
       government employees
       The contract required Lotepro to retain the treatment
plant's municipal employees.  The employees maintain their
benefits because they are still employees of Edgewater. The
authority reimburses Lotepro for their salaries and benefits.
WHY WAS THE PROJECT
SUCCESSFUL?
       Tax-exempt bond financing
       was faster and less
       expensive than alternatives

       Strong demand for
       development assured
       adequate revenues from
       user fees
       Edgewater saved approximately 25 percent of the
estimated cost of financing the project with federal grants. With
private construction and  bond financing, the project could
proceed more quickly and they did not have to meet procure-
ment and wage rate requirements associated with the federal
grant process.

       Edgewater had a large amount of valuable land ready
for development upon completion of the new wastewater
system. With strong developer interest, the authority could
anticipate sufficient revenues from  user fees.
LESSONS  LEARNED
        Control over operating costs
        was strengthened by a
        20-year service agreement,
        with option for renewal every
        5 years
       The authority increased their control over operating
costs by negotiating the 20-year service agreement with the
option for renewal every 5 years at the discretion of the author-
ity. While the agreement is a 20-year commitment for Lotepro,
the authority is committed for only 5 years.  If the authority
decides it can operate the plant at a lower cost than Lotepro, it
can take over operation at  the  end of any of  those 5-year
periods.
CONTACT
 Bryan Christiansen
 Mayor and Chairman of Municipal Utility Authority
 Borough of Edgewater
 916 River Road
 Edgewater, NJ 07020
 (201)592-1100
82

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                            WASTEWATER TREATMENT


                         Contract Operation and Maintenance


                            WASTEWATER   TREATMENT   PLANT
                                  HOOD RIVER,  OREGON
    Hood River, Oregon
    The City of Hood River contracted operation and
    maintenance of its wastewater treatment plant to a private
    company

    Private operation solved the plant's effluent quality
    problems  and saves the  City of Hood River
    approximately 10 percent a year  compared to the costs
    of public  operation

    The private operator contracted with a nearby city to treat
    its sewage sludge at the Hood River plant, utilizing some of
    the plant's excess capacity and providing revenues to Hood
    River
SUMMARY
       The wastewater treatment plant in Hood River, Oregon was built
with the capacity to accommodate waste from a food processing com-
pany. The food processing company, which helped finance the plant,
accounted for one-half of the waste treated by the 3.5 mgd secondary
treatment plant. When that company closed, the city had difficulty scaling
down the plant and began to have problems maintaining effluent quality.
To solve these problems, the city contracted with Operations Manage-
ment International, Inc. (OMI) to operate and maintain the plant.

       Also, OMI negotiated a service agreement with the nearby City
of Gresham to treat its sewage sludge at the Hood River plant, providing
benefits to both cities. Gresham could close its problem-ridden sludge
treatment system until completion of their new sludge treatment facility.
Gresham's sewage sludge uses some of the excess capacity at the
Hood River plant, for which Hood River receives a fee.
PARTIES INVOLVED AND
TIMEFRAME
    Public Partner (owner)
    Private Partner

    Population
    Median Household Income
    Form of Government
    Project Initiated
    Project Completed
    Operating Cost
                                                                    Hood River, Oregon
                                                                    Operations Management
                                                                    International, Inc. (OMI)
                                                                    4,480(1986)
                                                                    $15,175 (1979)
                                                                    Mayor/City Council
                                                                    June 1983
                                                                    Contract through 1990
                                                                    5225,000 per year
                                                                                             83

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WHY WAS A PRIVATE PARTNER
CHOSEN/ALTERNATIVES
CONSIDERED?

     • Hood River sought a private
       partner with the expertise to
       improve and operate their
       treatment plant
WHAT WERE THE FINANCING
ARRANGEMENTS?
     • Hood River collects user fees
       and pays OMI monthly
       When the local food processing company closed,
Hood River's wastewater treatment plant had excess capacity
and lost two-thirds of its operating revenues. The city had
limited technical resources to effectively scale down the plant
and they began to have problems maintaining effluent quality.
To maintain compliance with environmental regulations and
operate the plant more efficiently, the city contracted with a
private company with the expertise to operate and maintain its
wastewater treatment plant.

       Under the service agreement, the City of Hood River
pays OMI a yearly fee in monthly installments.  Hood River
collects user fees to pay OMI. After the contract was signed,
user fees remained stable and in fact, the city was able to delay
a pending rate increase for several years.
WHAT WERE THE PROCUREMENT
ARRANGEMENTS?

     • OMI was selected in sole
       source procurement process

     • OMI negotiated separate
       agreement with a nearby city
       to treat sludge
WHAT WAS THE DIVISION OF
RESPONSIBILITIES?
       Hood River knew of OMI from the company's work in
neighboring communities.  OMI submitted a proposal to the
city and was selected through a sole source procurement
process.  Originally, the city signed a 1 -year service agree-
ment with OMI to operate and maintain the wastewater treat-
ment plant. The city then signed a 3-year agreement with OMI,
but halfway through that agreement, a  2-year extension was
negotiated. The service agreement requires OMI to operate
and maintain the wastewater treatment plant in compliance with
all environmental regulations.

       OMI negotiated a service agreement with the City of
Gresham to treat its sewage sludge at the Hood River plant.
Through a separate contract between OMI and Hood River,
OMI pays the City of Hood River $24,000 peryear for treatment
of Gresham's sewage sludge.

City of Hood River

     • Own the wastewater treatment plant

     • Secure the environmental permits

     • Make monthly payments to OMI

     • Responsible for capital improvements to the plant

Operations Management International, Inc. (OMI)

     • Operate and maintain the plant

     • Guarantee compliance with environmental
       regulations within the plant's design capability

     • Secure a separate contract with the City of Hood
       River to treat sewage sludge from the City of
       Gresham at the Hood River plant
84

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WHAT WAS THE DIVISION OF
RESPONSIBILITIES? (Continued)
Operations Management International, Inc. (OMI)
(continued)

     • Contract with the City of Gresham to treat its
       sewage sludge at the Hood River plant

     • Make payments to the City of Hood River for
       treatment of Gresham's sewage sludge
HOW WAS THE PROJECT
IMPLEMENTED?


      • Agreement signed between
       OMI and Gresham while new
       plant constructed in that city

      • Sludge used for land
       application at nearby farms
       The City of Gresham's sludge treatment facility had
high operating costs as well as odor and compliance problems.
The agreement between OMI and Gresham provides for treat-
ment of Gresham's sewage sludge at the Hood River plant until
Gresham's new facilities are completed. OMI spent $20,000 to
rehabilitate equipmentto treat Gresham's sludge, using funds
from Gresham's payments to OMI.

       Sewage sludge from both cities is used for land appli-
cation at approximately 100 nearby farms. OMI hauls the
sludge using a sludge truck owned by the City of Hood River.
OMI distributes the sludge according to a sludge manage-
ment plan it produced for the city to comply with the strict state
regulations for land application.
WHY WAS THE PROJECT
SUCCESSFUL?

     • OMI operates the plant at
       lower cost due to technical
       expertise and ability to shift
       staff to meet needs between
       five plants they operate in the
       area
LESSONS LEARNED


     • Private company can provide
       management and technical
       expertise not otherwise
       availableto small community
       Private operation solved the plant's effluent quality
problems. Due to the private partner's technical expertise, the
plant operates more efficiently than it had under public manage-
ment. In addition, because OMI operates wastewater treat-
ment plants for five cities in the area, OMI can transfer staff
between plants to meet peak work demands or provide special-
ized expertise. Each city avoids the costs of hiring additional
personnel or consultants.

       Asmall community with limited resources can save op-
erating costs and solve compliance problems by contracting
plant operation and maintenance with a private  company.
Private companies can  provide management and technical
expertise not otherwise available to the community.

       The city arranged for monthly meetings of city officials
and OMI at the plant,  which helped improve communication
between the public and private partner.
CONTACT
Gene McAdams, City Administrator
City of Hood River
P.O.  Box 27
Hood River, OR 97031
(503) 386-1488
                                                                                                  85

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   CHAPTER V
DRINKING WATER
  CASE STUDIES

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     CHAPTER  V   DRINKING WATER  CASE STUDIES
A. Private Involvement in
   Drinking Water Supply
A key advantage to public-private partnerships for drinking
water supply is the opportunity to develop regional strategies to
meet water needs. Therefore, many partnerships for water supply
are designed to regionalize provision of the service.
           Regionalization   Partnerships can introduce economies of scale to groups of small,
                             inefficient water companies. On their own, small water utilities are
                             often undercapitalized and cannot collect adequate user fees to
                             covercosts. These companies (both publicly and privately-owned)
                             often have difficulty complying with environmental standards. In a
                             privatization arrangement in York County, Pennsylvania, a large
                             private company with the resources and expertise to upgrade a
                             number of inefficient small water companies, integrated the water
                             supply systems.  In Westmoreland County, Pennsylvania, the
                             private  partner manages but does not own the water supply
                             system. Because of its effective management of this system, the
                             county acquired seventeen other small water systems in the area.

             Cost Savings   A similar problem was addressed in Sabine Parish, Louisiana, by
                             a contract service arrangement. The customer base of the water
                             system was too small to be financially viable and the parish could
                             not secure a loan to expand the system because of past operating
                             problems. So, they entered into a contract with a private company
                             for the operation and maintenance of the system. Operating costs
                             fell by 60 percent and the parish was able  to secure a loan to
                             finance expansion of the system. Lititz, Pennsylvania, decreased
                             operating costs by contracting with a private partner to provide both
                             water supply and wastewater treatment  services.

                             Irving, Texas required a supplemental source of water but could not
                             afford to pay for their own wells. They contracted with a private
                             company to drill new wells and provide water to the city. The private
                             partner paid to drill the new wells so the town only paid a per-gallon
                             cost for pumping and delivery of water.

         Private Expertise   Communities also seek private partners to provide the specialized
                             technical expertise required for water supply.  For example, Myrtle
                             Beach, South Carolina needed a treatment plant that could provide
                             a new and innovative pre-treatment process because their water
                             supply contained high levels of organics and color. They entered
                             into  a turnkey contract with a private company to design and
                             construct an ozone treatment plant.  Myrtle Beach was able to
                             benefit from the sophisticated plant while avoiding the investment
                             risk because of the turnkey arrangement with the private partner.
                                                                                  89

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         B.  Case Studies of Public-Private Partnerships for Drinking Water
        SUMMARY CHART OF DRINKING WATER CASE STUDIES
             TYPE OF PARTNERSHIP
POPULATION
     LOCATION
      Contract Operation & Maintenance
                 Public Water System
                 Developer Financing
                     Private System
                   Contract Services
          Private Development of Wells
                        Privatization
     Acquisition of Small Water Systems
                   Contract Services
                 Public Water System
                   Contract Services
                 Public Water System
                    Turnkey Contract
                 Public Water System
      1,600
       327
    130,200
      9,344
     7,590
    90,683
    27,800
Sabine Parish, LA
Belen, NM
Irving, TX
York County, PA
Lititz, PA
Westmoreland County, PA
Myrtle Beach, SC
90

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                                    DRINKING WATER
                          Contract Operation and Maintenance

                                    PUBLIC WATER SYSTEM
                                  SABINE PARISH, LOUISIANA
     Sabine Parish, Louisiana
SUMMARY
PARTIES INVOLVED AND
TIMEFRAME
      Faced with imminent foreclosure for not paying bond
      debts and a possible enforcement order for non-
      compliance with EPA safe drinking water standards,
      Ebarb Water Works District (EWWD) entered into a
      contract with the Utility Data Service Corporation
      (UDS) to operate and maintain the water system

      UDS provided a viable plan for operation and
      maintenance of the system necessary to secure a loan
      from the Farmers Home Administration (FmHA) to
      expand the plant

      Private operation and maintenance lowered operating
      costs by 60 percent
       After 3 years of poor water quality and customer service, non-
compliance with EPA and FmHA regulations, and mounting indebted-
ness, the water system was effectively bankrupt. Ebarb Water Works
District (EWWD) contracted with UDS to operate and maintain the water
system.  To improve the financial viability of the system, a plan was
also implemented to expand the plant and customer base through ac-
quisition of a federal loan by EWWD.

       The plan for expansion of the system also included an agreement
by UDS to operate with a negative cash flow until the expansion plans
were implemented and to provide additional water supplies through an
agreement with a neighboring water authority.  These actions lowered
the operating cost of the system from 80 cents per 1000 gallons to 30
cents per 1000 gallons. The Ebarb system is now a financially sound
public utility.
                                      Public Partner (owner)
                                      Private Partner
                                      Population
                                      Median Household Income
                                      Form of Government
                                      Project Initiated
                                      Project Completed
                                      Total Cost
                               Ebarb Water Works District I
                               Utility Data Service Corporation
                               1,600
                               512,000
                               Board of Supervisors
                               December 1987
                               December 1989
                               $2.0 million
                                                                                             91

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WHY WAS A PRIVATE PARTNER
CHOSEN/ALTERNATIVES
CONSIDERED?

     • EWWD chose UDS because
       they could operate the plant
       efficiently and raise resources
       to expand the plant

     • Impracticality of pay-as-you-go
       for such a large project led
       EWWD to seek a private
       partner
       The EWWD operated the system within tight budget
constraints. They did not have additional sources of funding to
continue operation or to consider expanding the distribution
system. In light of continuing poorwater quality, management,
and customer service, public faith in the EWWD's ability to
continue operation was low.

       The EWWD considered pay-as-you-go to expand the
system  but, due to the large amount of capital necessary to
start the project, this approach was not practical. Further, the
system improvements would not have been in place until 1997.
WHAT WERE THE FINANCING
ARRANGEMENTS?
     • FmHA provided a grant of
       $30,000 and a loan of $1.9
       millionto expand the system;
       UDS's plan for operation and
       maintenance was key to
       securing the loan

     • Increased user fees and a
       larger customer base will
       provide funds to repay the
       loans

     • FmHA agreed to waive all
       pay ments until the expansion
       was complete and UDS
       agreed to operate with a
       negative cash flow
       The service contract includes a list of fees for various
activities performed by UDS in the operation of the district's
water treatment and distribution system.  The contract also
includes a provision that EWWD can only cancel the agreement
if they do not owe money to UDS.

       FmHA provided a grant of $30,000 and a loan of $1.9
million to EWWD to expand the water system. A primary goal
of the FmHA loans is  to  turn small  troubled  utilities into
financially viable entities. The operation and maintenance plan
provided by UDS was key to securing the loan.

       EWWD is relying on the increased customer base to
pay the existing bond indebtedness and interest owed as well
as provide funds for continued operation and reserve funds. It
is not necessary to raise additional funds from taxes or other
sources. However, user fees will increase by 20 percent.

       FmHA agreed to waive all bond, reserve, and sinking
fund payments until the expansion was complete on the condi-
tion that the loan be used to initiate the expansion  (i.e., add
customers on existing lines, solicit customers for future expan-
sion, and improve operation of the existing system). To fund
immediate needs for reporting and compliance, UDS set aside
$25,000 and agreed to operate with a negative cash flow until
the expansion plans were implemented.
WHAT WERE THE PROCUREMENT
ARRANGEMENTS?

     • EWWD chose UDS without a
       formal procurement process
        EWWD entered into a contract with  UDS without
issuing an RFP.  UDS accepted the financial risks of  the
project and presented  an acceptable operation and mainte-
nance plan.
92

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WHAT WAS THE DIVISION OF
RESPONSIBILITIES?
Ebarb Water Works District I

      • Contract with UDS to operate and maintain the
       water system

      • Apply for a loan from FmHA to expand the system

Utility Data Service Corporation

      • Operate and maintain the water system

      • Comply with environmental permit requirements

      • Market water to expand number of connections

      * Contract with neighboring water authority to provide
       additional supplies
HOW WAS THE PROJECT
IMPLEMENTED?
       UDS began a marketing
       campaign to expand the
       customer base and to
       increase public confidence
       in the utility
       To provide immediate cash flow, UDS marketed water
to several local industries. The success of this effort immedi-
ately raised  revenues by 10 percent. UDS also contracted
with the Sabine River Authority to provide  additional water
supplies for immediate expansion of their customer base.

       To increase public confidence in the utility, UDS dis-
tributed flyers and mounted a local advertising campaign to
promote the new plans for the water system.
WHY WAS THE PROJECT
SUCCESSFUL?
       Local support and information-
       sharing were important

       UDS provided money to
       cover up-front costs

       FmHA grant was available for
       plant expansion
       As the EWWD was in default on bonds, immediate
action was required. A strong local police jury supported the
project and the public was kept informed through active news
campaigns.   UDS also provided all initial  up-front costs
($100,000) that otherwise, would not have been available.
Availability of federal funds, along with a viable plan for opera-
tion and maintenance of the system, were also majorfactors in
the success of the project.   Underscoring the potential for
private involvement in improving water systems is the fact that
FmHA recently sold a portion of its loan portfolio to a private in-
vestment group led by G.E. Capital Corporation.
                                                                                                  93

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LESSONS  LEARNED

     • Important to have a partner
       with experience and technical
       expertise

     • Small water districts must
       ensure that their customer
       base is large enough to be
       financially viable
       A private partner with experience and technical exper-
tise may  be able to improve a publicly-owned and operated
system.  UDS was able to turn it around to be a successful
public utility. An important lesson for small water districts is
that the customer base must be large enough to ensure that
the system is financially viable.
CONTACT
Jeff Pruitt
General Manager
Utility Data Services
2800 North 7th Street
West Monroe, Louisiana 71291
(318) 397-2835
94

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                                      DRINKING WATER


                                Voluntary  Developer Financing


                                      PRIVATE WATER SYSTEM
                                        BELEN, NEW MEXICO
                                       •A private developer formed a water company to serve a
                                         new development that could not be served efficiently by
                                         the public system

                                       • Because the developer absorbs the short-term costs of
                                         the system not operating at capacity, users do not share
                                         the risk that development may not meet expectations
                   Belen, New Mexico
SUMMARY
                                           Due to an insufficient customer base, the City of Belen was
                                     unable to extend their public water system to a new development in the
                                     outlying areas of the city.  A developer formed the Monterey Water
                                     Company (MWC) to provide drinking water service to residents of a new
                                     community.
                                           Traditionally, such developer-owned systems have been plagued
                                     by poor water quality and inadequate finances stemming from an inade-
                                     quate customer base. As a result, developer-financed water systems are
                                     often frowned upon by state public utility commissioners and state
                                     drinking water regulatory agencies. The New Mexico Public Service Com-
                                     mission (NMPSC) allowed the MWC to install a plant contingent upon the
                                     institution of an innovative rate structure that would significantly improve
                                     the financial viability of the project. Under that approach, a water system
                                     was installed sufficient to service the entire project when fully developed.
                                     User charges, however, were established on the basis of providing service
                                     to current customers. The difference between the revenues that would be
                                     collected if the system were complete and actual revenues, was subsi-
                                     dized by the developer. The resulting system is financially sound and
                                     meets  water quality standards.
PARTIES INVOLVED AND
TIMEFRAME
Public Partner
Private Partner (owner)
Population
Median Household Income
Form of Government
Project Initiated
Project Completed
Total Capital Cost
Belen, New Mexico
Monterey Water Company
327
$16,928
City Council
March 1987
October 1988
S327,000
                                                                                              95

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WHY WAS A PRIVATE PARTNER
CHOSEN/ALTERNATIVES
CONSIDERED?

     • The city could not extend
       water supply to the Monterey
       development

     • The developer established a
       water company to serve the
       new development

     • An innovative rate-making
       structure was instituted
WHAT WERE THE FINANCING
ARRANGEMENTS?
       Monterey's rate-making
       structure, with rates based on
       the cost of serving current
       customers, requires the
       developer, instead of the
       customers, to bear additional
       costs of water supply before
       the area is fully developed
       The City of Belen was unable to extend drinking water
service to the new development due to the small customer base.
The Monterey Water Company was formed by the developer to
provide that service. However, such developer-owned systems
often encounter serious financial difficulty, particularly if the
developer does not sell all the lots on which the capacity of the
system was based. Many developer-financed systems have
been abandoned to homeowners' associations that are left
without the means to meet safe drinking water requirements.
Developer financing was permitted by the NMPSC in this case
because the developer agreed to an innovative rate design.
The rate structure assured long-term financial viability by re-
quiring the developer to subsidize the costs of unused capac-
ity during the early years of the development, while lots are still
being sold.

       Several alternative plant sizes and rate-making struc-
tures were  considered.  Under one alternative, current  cus-
tomer rates would have  been based on a fully completed
water system.  This approach would have resulted in higher
rates for current customers until the project was completed.

       Under another  alternative  considered,  the water
system would have been scaled down to a level sufficient to
meetthe needs of current customers. As additional customers
were added and charges increased, the system would have
been upgraded.  This rate-making structure however, would
not have allowed the developer to reasonably determine the
probable rate of recovery for capital expenditures made for the
system, due to the engineering difficulties in  upgrading the
existing systems.
       Under the rate-making approach  adopted for the
Monterey Water  Company,  the plant and system installed
form the basis for setting the number of connections that can
be served by the company when fully developed. The cost to
serve the entire development was estimated  along with the
potential consumption  of each service  connection.  Rates
were designed based  on the cost of serving the current
number of customers.

       The resulting rates allow the recovery of variable costs,
as the number of customers increase, while eventually permit-
ting the recovery of the  company's total fixed costs. Until the
number of connections grows to where it can generate reve-
nues sufficient to cover the total fixed costs, the  difference
between the fully developed rate revenues and the actual cost of
service is absorbed by the developer.
96

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WHAT WAS THE DIVISION OF
RESPONSIBILITIES?
Monterey Water Company (MWC)

     I Apply for Certificate of Public Convenience

     I Design, build, finance, own, and operate a water
       system to serve the new development

     • Secure and comply with environmental permits

New Mexico Public Service Commission (NMPSC)

     • Approve water rates for the Monterey Water System

     I Secure an agreement from Monterey obligating it to
       support the water system throughout its development
HOW WAS THE PROJECT
IMPLEMENTED?
     • Monterey Water Company
       secured a Certificate of Public
       Convenience
       As a new utility, the Monterey Water Company was
required to apply for a Certificate of Public Convenience from
the New Mexico Public Service Commission. As part of that
process, rates and  rate justifications were proposed by the
water company. The justifications were reviewed by the com-
mission and an engineering inspection of the plant and cus-
tomer base was undertaken. The project was contingent upon
MWC's agreeing to  a plan that assured NMPSC a financially
viable water system  would result.
WHY WAS THE PROJECT
SUCCESSFUL?


     • Strong support from the New
       Mexico Public Service
       Commission

     • Water rates remained low
       Strong support forthe rate-making approach from the
New Mexico Public Service Commission was a significant factor
in the success of the project.   Water rates remained low
enough to ensure continued success of the development.
This also enhances the developer's prospects forthe success
of the development. The customers were not required to carry
the burden of higher rates that, in effect, causes the customer
to share in the risk of development. Since the resulting system
is financially sound, it is better able to meet water quality stan-
dards.
                                                                                               97

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LESSONS LEARNED
       If proper financial controls are
       applied, developer financing
       can be a successful means of
       providing water to sparsely-
       populated areas
       Developer financing can be a successful means of
building small water systems if proper financial controls are
applied. The NMPSC has demonstrated how such controls can
be made to work within the existing regulatory process.
CONTACT
Allen Girdner
New Mexico Public Service Commission
224 East Palace Avenue
Santa Fe, New Mexico 87503
(505) 827-6940
98

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                                    DRINKINGWATER


                                Contract Service Provision

                   PRIVATE DEVELOPMENT OF WELLS TO SUPPLEMENT PUBLIC
                                        WATER  SUPPLY
                                         IRVING, TEXAS
                    Irving, Texas
    Faced with high costs of water supplied by an
    adjacent community and an expanding customer
    base, the City of Irving signed a contract with
    Whalen Corporation  to develop new wells and
    supply a portion of the city's water

    Whalen Corporation  provided  up-front costs of well
    development so that Irving only  paid a per-gallon
    cost for pumping and delivery of water

    The supplemental water supply  developed by
    Whalen was cheaper and so slowed the rise in
    water  rates
SUMMARY
       The City of Irving, Texas required a  supplemental source of
water to meet demands during peak periods. Because of limited debt
capacity and the procedural complexity of issuing bonds to finance their
own wells, the city entered into a contract with Whalen Corporation to
develop new wells and supply water. Under thetermsof the contract, the
city was not  responsible for any capital costs. At the end of the 7-year
service contract, the wells become the property of the city after payment
of a small transfer fee. Costs of pumping and delivery of water are
included in the per-gallon fee paid by Irving to Whalen Corporation for
water supplied.
PARTIES INVOLVED AND
TIMEFRAME
   Public Partner
   Private Partner (owner)
   Population
   Median Household Income
   Form of Government
   Project Initiated
   Project Completed
   Total Cost
Irving, Texas
Whalen Corporation
130,200
$12,344
Mayor, City Council
February 1978
February 1988
S420,000
                                                                                            99

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WHY WAS A PRIVATE PARTNER
CHOSEN/ALTERNATIVES
CONSIDERED?

      • The private partner could
       provide water more cheaply
       than the existing supplier

      • Lack of capital and bonding
       capacity ruled out public
       alternatives
       Irving sought a private partner as a way to lower the
cost of water and to meet peak period demands.  Whalen
Corporation provided water more cheaply than the primary
source of the city's water, Dallas Water Utility.  By combining
purchases of water from the City of Dallas with a supplemental
supply from privately-owned wells, Irving reduced the cost of
water to the community and expanded the supply to accom-
modate growth.

       The alternative to private water supply was to increase
purchases from Dallas or for Irving to develop their own wells.
However, neither Dallas Water Utility nor the City of Irving had
the necessary bonding capacity or capital to  undertake the
projects.
WHAT WERE THE  FINANCING
ARRANGEMENTS?

      • Development of wells was
       financed privately

      • Irving pays per-gallon fee for
       water used
       Whalen Corporation secured private financing to de-
velop the wells.  Irving agreed to purchase water from Whalen
Corporation for 7 years, with no financial responsibility for the
initial investment. The city is responsible for paying a per-
gallon fee for the water they need, including the cost of pump-
ing and delivery. At the end of the contract, the wells become
the property of the city for a small transfer fee.
WHAT WERE THE PROCUREMENT
ARRANGEMENTS?

      • Whalen agreed to drill wells
       in accordance with city
       specifications

      • City agreed to provide site and
       purchase water

      • Irving only pays for water used
       The City of Irving entered into a 7-year contract with
Whalen Corporation, agreeing to provide a drilling site accept-
able to a qualified hydrologist provided by Whalen and to
purchase water to meet peak period demands.  In return,
Whalen agreed to drill wells in accordance with city specifica-
tions and guarantee production  of 1 mgd over the 7-year
period. If  the wells fail  to  yield the minimum guaranteed
amount  of water, the city pays only for the water actually
delivered. The cost is lower for water supplied over the mini-
mum guaranteed amount (1 mgd).
 100

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WHAT WAS THE DIVISION  OF
RESPONSIBILITIES?
City of Irving

     • Provide the well drilling site

     • Purchase water to meet peak demands

Whalen Corporation

     • Drill wells in accordance with city specifications

     • Guarantee minimum water supply of 1 mgd

     • Secure the environmental permits

     • Comply with environmental permit requirements

     • Own wells until the end of the 7-year contract
HOW WAS THE PROJECT
IMPLEMENTED?


      • City treasurer searched for
       suitable company

      • City council approvedthe
       contract
       The city treasurer conducted an extensive search to
find an oil and gas exploration firm and a well-drilling company
willing to undertake the project.  The  only bid submitted in
response to their RFP was from Whalen Corporation. As no
otherfirms submitted bids, the procedural requirements for im-
plementation of the project were minimal. No public notice was
required however, city council approval took almost 3 months.
Since signing the first contract in 1987, four additional contracts
have been signed to increase the amount of water the com-
pany supplies.
WHY WAS THE PROJECT
SUCCESSFUL?

     • The city did not incur any
       financial responsibility with the
       project
       As the project did not require an initial investment by
the city, Irving did not incur any financial responsibility with the
project.   In contrast, development  of water supplies using
bond money would have cost the city twice the amount bor-
rowed by the time the bonds matured. In addition, the  private
company implemented the project much faster than Irving
could have issued bonds to finance the project.
                                                                                                101

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LESSONS  LEARNED

    •  The city should have included
       contingencies in the contractto
       protect against high costs of
       water pumping and delivery

    *  Private water supply to
       supplement supply from
       publicly-owned company
       reduced the overall cost of
       water to the city
        Costs to the city were significantly higher than ex-
pected because Irving agreed in the contract to pay costs of
pumping and delivery of water. It was necessary to drill more
deeply than anticipated and so pumping and delivery costs
were higher. The lack of flexibility in the contract regarding
these costs reduced the benefits to the city.

        The City of Irving reduced overall costs of  drinking
water by contracting with a private company to develop wells
and supplement their existing water supply.  In  addition, the
water supply was expanded to accommodate growth.
CONTACT
Ron McCuller
Water Division
City of Irving
P.O. Box 152288
Irving, Texas 75015
(214)721-2411
102

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                                    DRINKING WATER


                                        Privatization

                 ACQUISITION OF SMALL WATER SYSTEMS WITHIN A REGION BY
                                 A LARGER, PRIVATE COMPANY
                                 YORK COUNTY, PENNSYLVANIA
     York County, Pennsylvania
     The Borough of Loganville sold its water system to
     York Water Company because it lacked the
     resources to make the substantial investments
     necessary to upgrade and improve the  system

     York purchased other small water systems that
     were  having problems  supplying adequate quality
     or quantity of water in the region (Mid-Penn and
     West  Manchester)

     The company bought the systems at attractive
     prices and made substantial investments for
     improvements  and upgrades
SUMMARY
       York Water Company acquired  several small water systems
(private and public) with histories of poor water quality and quantity. In
each case, the transaction was initiated by the small water system.
Financial arrangements were favorable to York, in one case allowing a
purchase price significantly below the depreciated book value of the
facility. Supportive regulatory treatment by the state public utility com-
mission was a significant factor in the success of the projects.
PARTIES INVOLVED AND
TIMEFRAME
  Public Partner

  Private Partner

  Population

  Form of Government
  Project Initiated

  Project Completed

  Purchase Price

 1 Developer-owned watersystem
Borough of Loganville
West Manchester
Mid-Perm1
York Water Company (owner)
(Loganville) 8,775
(Mid-Penn/West Manchester) 569
Borough Council
Loganville -1976
Mid-Penn/West Manchester -1985
Loganville -1980
Mid-Penn/West Manchester -1988
Loganville - 545,000
Mid-Penn/West Manchester - $110,000
                                                                                            103

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WHY WAS A PRIVATE PARTNER
CHOSEN/ALTERNATIVES
CONSIDERED?
       Customers were dissatisfied
       with the service

       The customer base was too
       small to raise necessary
       capital and grants were
       unavailable

       York was approached because
       of their reputation in improving
       small water systems
       The water system in the Borough of Loganville had sig-
nificant  problems maintaining adequate water quality and
quantity due to the age of the system and the high nitrate
content in the wells. Customers were dissatisfied with the serv-
ice and pressured the borough to make improvements. With a
customer base too small to raise the funds and state grants not
available to finance the project, Loganville turned to a private
company to acquire the system. As York Water Company had
a reputation for buying and improving small water systems in
the region, they were approached by the Borough of Logan-
ville to purchase their system.

       Mid-Penn was a small developer-owned water system
and West  Manchester was a small publicly-owned system
adjacent to Mid-Penn.  Extensive problems with the systems
included water quality, insufficient quantity and poor distribu-
tion design, lack of water pressure, and poor service. System
customers requested that the systems be sold to York.
WHAT WERE THE FINANCING
ARRANGEMENTS?

     • Low price made it possible to
       invest in improvements

     • Beneficiariesoftheimproved
       water supply invested in the
       company
       In Loganville, the financial arrangements of the pur-
chase made the transaction very attractive for York.  The
original cost of the system was $200,000, with depreciation
calculated over 125 years  but  the system was sold  for
$45,000.  The public utility commission allowed rates to be
based on the original cost ($200,000 less accumulated depre-
ciation).  York spent an additional $125,000 on system up-
grades and improvements.

       A unique financial arrangement was also a factor in the
Mid-Penn/West Manchester acquisition. Mid-Penn and West
Manchester were small  systems that were inadequate to
service the needs of residents and the expanding local indus-
try. Both systems requested acquisition by York but, apart, the
systems were not financially viable due to the small customer
bases. As a result, an arrangement was concluded whereby
YorMJounty supplied a $61,000 block grant, a local industry
supplied $500,000 and York supplied the remaining $110,000
to purchase the two systems.  The  arrangement provided
needed supplemental water for the industry and brought reli-
able water service to county residents.
WHAT WERE THE PROCUREMENT
ARRANGEMENTS?

     • Fixed-price contracts
       In each case, the York Water Company entered into
fixed-price contracts to purchase the systems.
104

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WHAT WAS THE DIVISION OF
RESPONSIBILITIES?
York Water Company

     • Own, operate, and maintain the water systems

     " Collect user fees directly from customers

     • Secure the environmental permits

     • Comply with environmental permit requirements

     • File Certificate of Public Convenience
                                              Small Water Systems (Loganville, Mid-Perm, & West
                                              Manchester)

                                                   • Initiated sale of the systems to York Water Company
HOW WAS THE PROJECT
IMPLEMENTED?

      • Public notice of sale and
       purchase was provided

      • Company filed a
       Certificate of Public
       Convenience
       The purchase of the Loganville and Mid-Penn/West
Manchester water systems required that a notice of public sale
be issued and a Certificate of Public Convenience filed with the
Pennsylvania  Public Utilities  Commission  (PPUC).   State
regulations also require public notice of the purchase. If public
opposition is raised, the PPUC  decides if the purchase is in
the public interest. No public opposition was received in any of
these sales.
WHY WAS THE PROJECT
SUCCESSFUL?
       Support of the public utilities
       commission was important

       Public information campaign
       raised support for the project
       In the  Loganville and Mid-Penn/West Manchester
acquisitions, support from the PPUC was cited as a major factor
in the projects' success.  The PPUC encouraged the York
Water Company to acquire these small, troubled systems.
Another important factor in both transactions was an exten-
sive effort to increase public awareness of the projects. Letters
were sent to the affected  public outlining the scope and
details of the transactions.  The Loganville Borough Council
conducted open sessions when considering the project.
                                                                                                105

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LESSONS LEARNED
       Support of the Public Utilities
       Commission canfacilitate the
       process
       The Chairman of the PPUC was supportive of the
project and of large regional water systems in general. PPUC
support was instrumental to achieve fast approval of the
Certificate of Public Convenience.
CONTACT
William Morris
President
York Water Company
130 East Market Street M-89
York, Pennsylvania  17405
(717) 845-3601
106

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                                    DRINKING WATER


                          Contract Operation and Maintenance

                                     PUBLIC WATER SYSTEM
                                      LITITZ, PENNSYLVANIA
                    Lititz, Pennsylvania
    • Due to increasing  problems with water quality
      in the wastewater and drinking water systems
      and a lack of qualified personnel, the Borough of
      Lititz contracted with  PSC Engineering to
      operate and maintain their water supply system

   •  Unlike most operation and maintenance agreements,
      the contract combined services under one contract
      for both utilities

   •  The partnership of PSC and the borough led to
      improved water quality and cost-effective operation of
      both utilities
SUMMARY
       The Borough of Lititz, Pennsylvania contracted with PSC Engi-
neering to operate and maintain both the drinking water supply and
wastewater treatment  systems. The systems were experiencing in-
creasing water quality problems and lacked the necessary technical
personnel to deal effectively with those problems. Combining operation
and maintenance of both utilities under one contract contributed to the
success of the project.  The arrangement increased efficiency and
minimized duplication of efforts, water quality problems were solved and
operating costs were held within 1 percent of those incurred under
public operation.
PARTIES INVOLVED AND
TIMEFRAME
                                         Public Partner (owner)
                                         Private Partner
                                         Population
                                         Median Household Income
                                         Form of Government
                                         Project Initiated
                                         Project Completed
                                    Lititz, Pennsylvania
                                    PSC Engineering Services
                                    7,590
                                    $13360
                                    Borough Council
                                    June 1988
                                    Ongoing
                                                                                             107

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WHY WAS A PRIVATE PARTNER
CHOSEN/ALTERNATIVES
CONSIDERED?
       Lititz needed a private
       partner with technical
       expertise to ensure that
       water supply and
       wastewater services met
       environmental standards
       Due to the continual upgrading of federal, state, and
local health and sanitary requirements, the Borough of Lititz
was experiencing difficulty maintaining water quality in both
the drinking water supply and wastewater treatment systems.
The costs of maintaining the systems (which included a 3.5
mgd wastewater treatment plant and aS.Omgd drinking water
plant) were straining the financial resources of the borough as
increasingly sophisticated engineering expertise was required.
The ability of the borough council to properly respond to utility
problems was also difficult due to the highly technical nature of
modern water systems. The options for the borough council
were to upgrade  the relatively small systems with expensive
equipment/expertise and seek substantial rate increases to pay
for the improvements, or hire a private firm to provide efficient
operation and maintenance services.
WHAT WERE THE FINANCING
ARRANGEMENTS?
      • The private partner is
       paid a monthly fee and
       is reimbursed for certain
       costs above that amount
       The drinking water supply and wastewater treatment
systems are owned by the Lititz Sewer Authority which leases
the systems back to the borough. The borough entered into a
3-year contract with PSC Engineering for operation and mainte-
nance of the drinking water and wastewater systems.  The
contract calls for  paying PSC a standard monthly fee that
remains constant throughout the life of the contract.  PSC is also
paid a monthly "reimbursable" fee for costs incurred above
those covered by the standard fee. The cost structure for the
reimbursable fee is based on increases in pollutant strength,
water volume, and power costs. When additional costs have
not been incurred, the reimbursable fee must be returned to
the borough.
WHAT WERE THE PROCUREMENT
ARRANGEMENTS?
       The Borough Council
       issued an RFP
        PSC  Engineering   approached the Lititz  Borough
Council with a proposal for operation and maintenance of the
two water systems. The council agreed originally to contract
directly with PSC however, after consultations with the union
representing plant personnel, they decided to issue an RFP.
Although several firms responded to the RFP, PSC was deemed
the most qualified and competitive in cost. The agreement
with PSC included retention of several of the original plant per-
sonnel.
 108

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WHAT WAS THE DIVISION OF
RESPONSIBILITIES?
PSC Engineering

     I Operate and maintain both the water and
       wastewater systems

     • Provide chemicals and other supplies

     * Provide power for system operations

     I Hire and pay employees

     • Comply with all permits and applicable regula-
       tions (PSC is liable for fines up to $20,000 if
       non-compliance is due to PSC negligence;
       system must be back in compliance within 30
       days of non-compliance detection)


Borough of Lititz

      I Make capital improvements

      I Read meters and bill customers

      • Determine the rate structure
HOW WAS THE PROJECT
IMPLEMENTED?

     • Formal state approval was not required but
       personnel must be licensed by the state
WHY WAS THE PROJECT
SUCCESSFUL?

     •  Combining operation and maintenance of
        both utilities under one contract contributed
        to the success of the project
                                              Lititz Sewer Authority

                                                    I Own the drinking water and wastewater
                                                     systems (lease back to the borough)

                                                    I Issue revenue bonds to finance system
                                                     upgrades and improvements
       Requirementsfor implementation of the contractwere
minimal. All PSC presentations to the borough council were
conducted in open sessions in accordance with state law. No
formal state approval of the contract was required however,
all operation and maintenance personnel were required to be
licensed by the state.

       The provision of both drinking water and wastewater
operation and maintenance services under one contract was
cited as a factor contributing to the success of the project.
The arrangement increased efficiency and minimized dupli-
cation of effort as PSC technical personnel could be respon-
sible for both of the relatively small systems. The arrange-
ment  also enhanced interaction  and cooperation with the
borough since management of the utilities was conducted by
one borough department.
                                                                                                109

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WHY WAS THE PROJECT SUCCESSFUL?               Retention of several members of the original staff was
 (Continued)                                   also cited as a factor contributing to the project's success. The
                                              presence of those personnel eased the sometimes difficult tran-
      • Retaining some municipal personnel eased        sition from public to private operation and management Finally,
       the transition to private operation and             the Support Of the borough Council for the project W3S high-
       maintenance                              lighted as a major success factor.
LESSONS LEARNED                                  It is important to find an experienced partner.  As PSC
                                              had numerous contracts with other water systems, a broad
      • it is important to work with an experienced         range Of technical expertise could be called on to respond to
       private partner                             any prob|emtnat arose
CONTACT                                    Peter Low
                                              Vice President
                                              PSC Engineering Services Inc.
                                              649 North Lewis Road
                                              Limrick.lowa 18468
                                              (215)495-0303
110

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                                DRINKING WATER


                       Contract Operation and Maintenance


                                 PUBLIC WATER SYSTEM
                        WESTMORELAND COUNTY, PENNSYLVANIA
 Westmoreland County, Pennsylvania
                                        The Westmoreland County Municipal Services Authority
                                        contracted with American Commonwealth Management
                                        Services for operation and maintenance of the county
                                        drinking water system

                                        Effective management by the private partner has led to a
                                        significant expansion of the water system and industrial/
                                        residential growth in the county

                                        Higher bond ratings resulting from American
                                        Commonwealth's participation facilitated acquisition
                                        of 17 small  water systems
SUMMARY
       Under contract  to  the Westmoreland County Municipal
Services  Authority, the  American  Commonwealth Management
Services operates and manages the drinking water system serving the
general Pittsburgh area. American Commonwealth's scope of duties far
exceed the routine services provided to drinking water systems in most
contract operation and maintenance agreements. Those duties include
the supervision of all  departments, maintenance of accounts and
records, arranging for purchases of  supplies, development of rate
schedules, and assistance with long-range planning and expansion.
The partnership of the county authority and American Commonwealth
has led to an unprecedented growth in the water system. Since the
formation of the authority and completion of the management agreement,
17 separate small water systems have been acquired. In the past 5
years, an average of 62 miles  of waterlines have been installed and
1,000 new service connections have been added.
PARTIES INVOLVED AND
TIMEFRAME
   Public Partner (owner)

   Private Partner

   Population
   Median Household Income
   Form of Government
   Project Initiated
   Project Completed
   Total Capital Cost
Westmoreland County Municipal
Services Authority
American Commonwealth
Management Services
90,683
$15,937
County Commissioners
April 1943
Ongoing
$31 million
                                                                                           111

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WHY WAS A PRIVATE PARTNER
CHOSEN/ALTERNATIVES
CONSIDERED?
       Private partner was chosen to provide
       experienced personnel and technical guidance
       on plant expansion
       The primary reasons for creating the Westmoreland
County Municipal Services Authority were to regionalize local
systems, acquire small troubled water systems, and extend
water service to those areas of the county without service. A
critical factor in the acquisition of additional water systems was
the need for qualified personnel to manage the plants and
pumping stations, and to provide technical guidance on system
expansion. The authority considered using existing personnel
however, the members concluded that they did not have the
necessary engineering experience. In response, the county
entered into  a  contract  with  American Commonwealth
Management Services to provide operation and maintenance
services.
WHAT WERE THE FINANCING
ARRANGEMENTS?
       Fees paid to the private partner are a
       percentage of user charges collected

       The authority financed purchase of additional
       water systems with revenue bonds; bond
       ratings increased due to private partner's
       excellent operating record
       Under the contract with American Commonwealth,
fees paid to the firm are a percentage of total revenues received
from user charges by the authority. Properly planned expansion
of the water system was therefore, in the best interest of both
the authority and American Commonwealth.

       Efficient operation  and maintenance by American
Commonwealth were also critical  in securing financing to
acquire additional water systems. The authority issued revenue
bonds to pay for the systems.  American Commonwealth's
good record  in operating the water systems significantly
increased the ratings of the bond issues.
WHAT WERE THE PROCUREMENT
ARRANGEMENTS?
       Aformal procurement process did not take
       place
       When  the  partnership  was  created,  American
Commonwealth  was the only firm in the area with the
necessary expertise to successfully participate in the project.
No formal  Request for Proposal was  issued.  The  newly
formed  authority  contracted  directly  with  American
Commonwealth.
 112

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WHAT WAS THE DIVISION OF                 American Commonwealth Management Systems
RESPONSIBILITIES?
                                                   • Supervise all departments

                                                   • Maintain accounts and records

                                                   • Provide routine engineering services

                                                   • Hire/discharge work force

                                                   • Apply for and comply with appropriate permits

                                                   • Purchase supplies

                                                   • Develop and implement rate schedule

                                                   • Review records, policies, and procedures

                                                   • Assist with planning acquisitions and expansions

                                                   • Community relations

                                                   • Follow trust indentures

                                             Westmoreland County Municipal Services Authority

                                                   • Collect user charges

                                                   • Oversee American Commonwealth operations

                                                   • Approve acquisitions and arrange financing
HOW WAS THE PROJECT                            In 1943, the lack of an integrated county-wide water
IMPLEMENTED?                              system was seriously hindering industrial and  residential
                                             development in Westmoreland County, Pennsylvania. Scattered
     • The Westmoreland County Municipal            water systems were providing limited service and large areas
                 Cr6ated * provl
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WHY WAS THE PROJECT
SUCCESSFUL?

     I The Westmoreland County Commissioners
       provided strong support and administrative
       assistance

     I With participation of American
       Commonwealth in the project, bond ratings
       increased to AAA
       A significant factor in the success of the project was
the strong support received from the Westmoreland County
Commissioners. They provided the necessary administrative
assistance, particularly in the early stages, for the formation of
the authority. Another significant factor was the high bond
ratings resulting from American Commonwealth's participation
in the project. The AAA bond ratings facilitated the authority's
acquisition of other local water systems.
LESSONS  LEARNED
     I Effective management by a private partner
       can be a force for growth and expansion of
       water systems
       Effective overall management of the water system
through a public-private partnership was the critical force
behind the growth of the water system.  That growth was
evidenced by an increasing investment in water services from
$2 million in assets when the authority was formed to over
$200 million today.
CONTACT
Robert Harner
Vice President
American Commonwealth Management Services
800 West Hershey Park Drive
Hershey, Pennsylvania 17033
(717)533-5000
114

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                                   DRINKING WATER


                                     Turnkey Contract

                                    PUBLIC WATER SYSTEM
                               MYRTLE BEACH, SOUTH CAROLINA
        Myrtle Beach, South Carolina
  • Infilco-Degremont Inc. designed, constructed, and main-
    tained an ozone treatment plant for Myrtle Beach, South
    Carolina on a turnkey basis, agreeing to construct a system
    that would meet explicit performance specifications set by the
    city

  • Construction of this innovative form of treatment plant has
    resulted in the provision of high quality drinking water to
    Myrtle Beach customers

  • The turnkey arrangement allowed the city to reap the benefits
    of applying a sophisticated and innovative technology without
    taking the risk of investing hi a system that might not
    measure up to performance expectations
SUMMARY
       To address a severe water quality problem in the drinking water
system, the City of Myrtle Beach decided to construct an ozone pre-treat-
ment plant. As ozone treatment  is a new and innovative technology
requiring specialized expertise, the city contracted with Infilco-Degremont
Inc. (IDI) to design,  construct, and maintain  the plant.  Due to its
innovative nature, the city gave IDI significant flexibility in the design and
construction phases of the project.  To ensure  construction of an
effective treatment system however, the city required IDI to meet specific
"start-up" and performance specifications for the plant. The agreement
between Myrtle Beach and IDI resulted in the provision of high quality
drinking water to residents of Myrtle Beach.
PARTIES INVOLVED AND
TIMEFRAME
                                        Public Partner (owner)
                                        Private Partner
                                        Population
                                        Median Household Income
                                        Form of Government
                                        Project Initiated
                                        Project Completed
                                        Total Capital Cost
                                Myrtle Beach, South Carolina
                                Infilco-Degremont Inc.
                                27,800
                                $16,298
                                Mayor/City Council
                                July 1985
                                Ongoing
                                S2.2 million
                                                                                                115

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WHY WAS A PRIVATE PARTNER
CHOSEN/ALTERNATIVES
CONSIDERED?
       The city needed a treatment plant that could
       provide ozonation; the private partner had
       the technical expertise to design and
       construct such a plant
       In 1985, the Myrtle Beach area was experiencing severe
water quality problems in their drinking water system.  The
water, which was pumped from a local aquifer, contained high
levels of fluoride and sodium. As these levels exceeded both
state and federal drinking water standards, the city was issued
a state enforcement order to bring the system into compliance.

       To comply with the order, the city considered removal
of the contaminants in the aquifer. Preliminary studies how-
ever, indicated that the cost of such a project  would be pro-
hibitive. In addition,  the studies revealed that the aquifer had
become severely depleted, only having enough capacity to
last until the year 2010.

       As a more cost-effective solution, the city decided to
use fresh water from the intercoastal waterway as the drinking
water source. Although in abundant supply, studies indicated
that the water contained high levels of organics and color and
would require circulation through a pre-treatment plant. Ozona-
tion, a pre-treatment process using ozone, was found to be the
only form of treatment capable of removing the undesirable
organic substances and high color.  Ozonation is an innova-
tive and  technically complex process. The city lacked the
necessary expertise to design, operate, and maintain such a
plant. Accordingly, Myrtle Beach contracted with IDI to design,
construct, and maintain the system.
WHAT WERE THE FINANCING
ARRANGEMENTS?
        Construction was financed with revenue
        bonds; increased operation costs were paid
        by a 20 percent increase in user charges
        IDI was first awarded a fixed price contract for design
and construction of the plant, with services remunerated on a
performance basis. IDI was subsequently awarded an op-
tional 3-year contract for maintenance services, with payment
for these services based on an annual payment schedule.

        Construction of the ozone treatment plant was financed
through the issuance of revenue bonds. Operation and mainte-
nance of the plant was financed through a 20 percent increase
in user charges.
WHAT WERE THE PROCUREMENT
ARRANGEMENTS?
        City issued an RFP with broad specifications
        for design of a treatment plant
        A standard RFP was issued by the city for the con-
tract. With regard to the design of the system, offerers were
given very broad specifications as to  need for an ozone
treatment system, but were allowed to utilize their own exper-
tise in designing details of the system. To ensure construction
of an effective treatment plant, the contract also required that
the plant  meet  specific start-up and performance specifica-
tions. Use of such performance specifications implied that the
private  partner shared in  the financial risk inherent in the
construction of such an innovative system.
 116

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WHAT WAS THE DIVISION OF
RESPONSIBILITIES?
City of Myrtle Beach

     I  Own the plant and pre-treatment system

     I Operate the ozone pre-treatment system

     • Operate the water plant

     I  Issue bonds to finance the system

Infilco-Degremont Inc. (IDI)

     •  Design the system

     I Construct and start-up the system to demonstrate
       performance

     • Maintain the ozone system
HOW WAS THE PROJECT
IMPLEMENTED?


      I The state was only involved in licensing plant
       personnel

      • The city undertook a public information
       campaign
       Formal state approval of the contracts was not required.
All maintenance personnel required state licensing. The Cfty of
Myrtle Beach undertook a massive public information campaign
to relay information about the new system, outline reasons for
rate increases, and respond to early technical problems that
caused poor tasting water.
WHY WAS THE PROJECT
SUCCESSFUL?
      1 Cooperation between the public and private
       partners

      I The city provided IDI with independence and
       flexibility in design as long as performance
       specifications were met

      I Public relations campaign raised support
       Outstanding cooperation between the City of Myrtle
Beach and IDI was cited as the most significant contributor to the
project's success.  The city was dedicated to ensuring the
success of the project and to the provision of high qualitydrink-
ing water to the public.  As the ozone system was a new and
innovative technology, the city also provided IDI with sufficient
independence to modify the design where needed during the
construction process.

       The extensive public  relations campaign by the city
concerning the plant's  importance and impact on residents
was also cited as an important factor for the success of the
project.
                                                                                                   117

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LESSONS LEARNED
       Contract flexibility and performance
       specifications were important for the
       success of the project
        Contract flexibility allowed IDIto utilize their own exper-
tise early in the process, while  performance specifications
ensured construction of an effective system. The RFP issued for
construction of the ozone plant outlined broad specifications fa
the plant, but allowed the individual contractors to develop the
specific design. This flexibility in design specifications was in
contrast to the traditional approach where a contractor bids on
construction of a specifically designed plant.
CONTACT
Mike Dimitriou
Product Managerfor Ozone Systems
Infilco-Degremont Inc.
P.O. Box 29599
Richmond, VA 23229
(804) 756-5000
118

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For More Information or Additional Copies Contact:
                         U.S. Environmental Protection Agency
                         Office of the Comptroller
                         Resources Management Division
                         (H-3304)
                         401 M. Street, S.W.
                         Washington, DC 20460

                         Telephone:  (202) 245-4020

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