•  ill  wt't  •  I •

-i"--"^ '—-—---i Miii-iT iT i "_."[.'  jtJti»i':j'*nfif':SWi
^Ti^^^SrS.*.^: sTniSsST-.szs^t??

      i^.'S. A'!r riKi'JSi. *^*»*

Purpose of this Casebook
The purpose of this casebook is to:

   ©  Provide communities with real-life models for financing environmental projects
   ®  Share lessons learned by local governments who implemented these models
      through their participation in EPA's Public-Private Partnerships (P3)
      Demonstration Program
   ®  Help communities, especially small and disadvantaged ones, learn from these
      examples and generate new ideas for financing their environmental facilities
      and services
   ®  Offer contacts and references from EPA's P3 demonstration projects and other
      sources to guide communities in meeting their environmental needs
Who Should Read This Document
   ® State and local officials who would like to fund an environmental project and want
      to know what financing options work, and why.
   ® Members of the private sector who are interested in working with the public sector
      on environmental projects.
   ® All who need to understand the challenges local governments face in complying
      with federal and state environmental mandates. This includes the legislative and
      executive branches of government as well as nonprofit organizations that are
      involved with issues concerning local government, environmental compliance,
      and financing infrastructure.
   ® Concerned citizens who are interested in options for financing environmental
      projects in their community.

Financing Models for
Environmental Protection
Helping Communities Meet
Their Environmental Goals

This report was developed by the International City /County Management Association
(ICMA) as part of a grant agreement with the U.S. Environmental Protection Agency's
Resource Management Division. The report was written and edited by June Beittel,
Environmental Program Manager, and CyntMa C. Kelly, ICMA's Environmental
Programs Director with contributions from Leah Benedict, EPA Management Intern;
Ellen Fahey, Program Analyst; and David Osterman, Deputy Division Director.

Central coordination of EPA's Environmental Finance Program comes from the Resource
Management Division of EPA's Office of Administration and Resources Management.
For questions concerning the program contact:

  Joanne Lynch (H-3304)
  Program Analyst
  U.S. Environmental Protection Agency
  401M Street, S.W.
  Washington, DC 20460
  202/2604459                                      .
This document has been funded by the United States Environmental Protection Agency,
under assistance agreement CX-816093-01-3.

Foreword -A Message from Christian R. Holmes,
Assistant Administrator	v
Executive Summary	....vi
  Map of Demonstration Projects	viii
  P3 Demonstration Projects at a Glance	ix
Parti   The Financing Models	1
Part II   Successful Approaches and Lessons Learned	9
Part III  Demonstration Case Studies	15
  A. Solid Waste	.	17
    1. Privatization: Contract Services
      Contract Handbook: University of Oregon	18
      Used Motor Oil Recycling Program: City of Westminster and
      Adams County, Colorado	26
    2. Regionalization
      Regional Partnership: The Southern Partnership for Managing Waste,
      Atlanta, Georgia	34
      Intergovernmental Cooperation: Stroud, Oklahoma	42

  B. Drinking Water	.49
    1. Cooperatives/Circuit Riders
      Mobile Home Park Cooperatives: Berks County, Pennsylvania	;	50
    2. Bond Pools
      Tax-Exempt Financing: Maine Rural Water Association, State of Maine ..... 56
  C. Wastewater	63
    1. Privatization and Small Communities
      Models for Unincorporated Areas: Elephant Butte, New Mexico	64
    2. Privatization and Economic Development
      Private Investment: Welch, West Virginia	72
PartIV  Appendices	79
  A. How to Apply for a Demonstration Grant	81
  B. Types of Privatization	82
  C. State Bond Banks	84
  D.EPA's Regional P3 Coordinators	86

                 hroughout my career in both the public and private sectors, I have
             JH  been struck by the power of models to influence improvement. This
                 is particularly true in the field of environmental protection. For this
reason, I am pleased to present this booklet showcasing the successes of EPA's Public-
Private Partnerships (P3) Demonstration Program.
•  The purpose of the program is to identify and promote innovative approaches to
financing environmental protection needs. By building bridges with the private sector,
we are helping to make environmental services more affordable.
  This casebook provides an array of financing models that can serve as prototypes for
local governments in planning and implementing environmental programs. We believe
that the right financing tool—whether it be a type of regionalization, a contract with the
private sector, the formation of a tax-exempt bond pool for small private drinking water
systems, or some other strategy—is critical for enabling all communities to meet increas-
ingly stringent environmental protection standards. The case studies highlight how these
models are used for individual projects and provide valuable lessons for others wishing to
replicate the approach.
  While we are delighted with the results so far, this is only the beginning of meeting
the environmental financing challenge. To do so effectively, we encourage you to share
this information with others who can use it. We would also like to hear from you about
your experiences with public-private partnerships. Collectively, we can ensure a better
environment for all.
                 Christian R. Holmes
                 Assistant Administrator
                 for Administration and Resources Management

                                                                           s u  m  m a r y
                                                     The P3 Program
                      In 1989, EPA launched the Public-Private Partnerships (P3) Program to bring together
                      public and private interests to meet the demands of future environmental protection. In
                      particular, the P3 program sought to help local governments provide affordable environ-
                      mental services. The program was designed to bridge the gap between environmental
                      requirements and available resources. Its initial focus has been to quantify this gap and to
                      put in place a framework to identify and promote innovative ways of financing environ-
                      mental infrastructure and services, including public-private partnerships.

                                        The Goals of the P3 Demonstration Program
                      The Public-Private Partnerships Demonstration Program, as the applied component of the
                      larger P3 initiative, was created to:

                         • Provide communities with real-life examples of models to finance                 !
                          environmental projects                                           ,
                         • Develop, test, and increase the awareness and acceptance of public-private
                          partnerships and other financing arrangements                             ,
                         • Compare different financial arrangements and obtain information concerning
                          the barriers to and incentives for establishing public-private partnerships
                         • Offer communities much-needed assistance

                                                  The Financing Models
                      Currently, the P3 program is testing six models that are applicable to a wide spectrum
                      of environmental programs. These models, described in Part One, are privatization,
                      regionalization, bond pools, pollution prevention partnerships, and market-based incen-
                      tives. Each of these financing arrangements, whether used separately or implemented  in
                      tandem, can lower costs for environmental services.

                                Success Stories
The P3 demonstration program has proven that successful partnerships can be formed
that work for the benefit of both the public and private sectors. With the help of P3 coordi-
nators and program staff in every EPA Regional Office, and the International City/County
Management Association (ICMA), we have undertaken 22 projects to improve or expand
environmental services.
  The P3 projects provide valuable lessons learned so that other localities can replicate
their successes and avoid the pitfalls experienced by them. For example, in Colorado a
popular used-oil recycling program provides outlets for do-it-yourself mechanics to dis-
pose of their used motor oil in an environmentally safe way. As in most P3 projects, the
active role of a private partner—the oil recycler—and committed local governments
helped this regional program take off. This casebook examines when regional solutions to
solid waste disposal and drinking water improvements make sense and how partnerships
opened up new wastewater management options for small communities. Other innova-
tive approaches discussed:

   • Offer insights into the contracting process for local governments
   • Describe bond pool financing, cooperatives, and circuit-rider programs that
     are helping to bring small drinking water systems into compliance
   • Relate how partnerships have formed for disposing of agricultural chemical
     wastes and other toxics

                                Lessons Learned
Lessons are drawn from the P3 projects completed in the first years of the program and
from new financing mechanisms now being  tested. The major lessons that have been
evidenced in the demonstrations projects are these:

   • The type of financing model chosen must be tailored to the needs of the community.
   • Public goals can frequently be met by encouraging private sector entrepreneurs.
   • Regional cooperation between smaller communities may be the only way to meet
     new regulatory and infrastructure demands.
   • Partnerships involving small communities often require multiple parties in a
     collaborative relationship with the private sector.
   • The implementation of partnerships is a multistage process.
   • Small communities need more information to make their environmental
     financing decisions.

                                   Next Steps
This is the first of several reports on the demonstration program. As additional projects
are implemented, their experience will be documented and made available through subse-
quent reports.


     University of Oregon

                City of Westminster and Adams County, CO

       LJmon, CO
St. Paul, WIN
     Barbara, CA
       Los Angeles, CA

      Sanpete County, UT

                  Park City, UT
                          Elephant Butte, NM
                     State of Maine
  State cif Kentucky

          Brooklyn, NY
                                    Marion, TX   Stroud, OK
                                                                            State of
                                                                            New York
                                                                         Colchester, CT
                         Berks County, PA

                        Mercersburg, PA
                                                                       Welch, WV
                      iouthern Partnership
                     for Managing Waste
                     Atlanta, GA
                                                                 Venture Fund
                                                                 Puerto Rico

P3 Demonstration Projects at a Glance


  Market-based Incentives

St. Paul, MN       , $45,000
              Innovative utility rate policy to reward conservation
Drinking Water

Colchester, CT       $35,000
                                    Marion, TX
                                    Puerto Rico
              Regionalization to lower costs for private drinking
              water systems

              Regional authority to be formed by 25 drinking water systems
              to share resources and expertise

              Drinking water program to bring rural, nonaffiliated water
              systems into compliance with federal drinking water standards
  Bond Pools
State of Maine1       $55,000
                                    State of New York    $30,000
              Formation of a tax-exempt bond pool for small private drinking
              water systems

              Formation of a tax-exempt bond pool for small private
              drinking water systems
Berks County, PA     $55,000
              Establishment of a cooperative/circuit-rider program for
              drinking water improvements

State of Kentucky     $40,000
              Collection and disposal of agricultural chemicals
Solid Waste

University of Oregon  $40,000

City of Westminster   $40,000
and Adams Co., Co
              Development of Solid Waste Contracting Handbook

              Creation of a joint city/county/private used-oil
              recycling program
  Pollution Prevention Partnership      Santa Barbara, CA    $35,000
                                  Partnership among the county, the state, and the private sector
                                  to develop programs to divert materials from landfills
Atlanta, GA          $25,000        Creation of a 16-state information network initiated through a
                                  public-private coalition

Stroud, OK          $10,000        Initiation of regional integrated solid waste management
                                  authority and plan
 1 Program to assist several community and non-community drinking water systems serving rural areas in Maine.


  Pollution Prevention Partnership
Wichita, KS
33/50 partnership of local officials and industry to reduce the
release of toxics
Elephant Butte, NM   $50,000
and Limon, CO
                                     Park City, UT

                                     Mercersburg, PA

                                     Welch, WV


                                                                       Partnership options for small rural communities
               Test federal grant barriers to public-private partnerships

               A turnkey partnership to construct a waste-treatment spray
               irrigation system
               The use of private facilitie's to meet public needs
  Pollution Prevention Partnership
Brooklyn, NY
                                     Los Angeles, CA      $25,000
                                     Los Angeles, CA      $36,800
Pooling of resources by small businesses to reduce industrial
pollution at its source

Development of a corporate guide to help businesses establish
"green" programs such as in-house recycling or ride-share

Development of native-language videotapes for Korean dry
cleaners to help them comply with new rules for air pollution
and hazardous waste
  Cooperative/Circuit Rider
Sanpete County, UT  $25,000
               Circuit-rider program to help ten rural towns comply with
               environmental regulations



                Ihe Public-Private
                 Partnerships (P3)
                 Demonstration Pro-
gram develops and tests models that
communities can use to provide needed
environmental services and facilities in a
cost-effective way using creative financing
arrangements with the private sector.
The program documents successful
approaches so that communities across
the nation can replicate them.
  Currently, the P3 program is testing six
models that are applicable to a wide spec-
trum of environmental programs. The
models are privatization, regionalization,
bond pools, pollution prevention partner-
ships, and market-based incentives.
  While these financing models are pre-
sented separately, in reality projects will
frequently involve some kind of financial
arrangement with the private sector
(privatization) and may also be a multi-
community venture, such as a materials
recovery facility serving several communi-
ties (regionalization). Thus, the models
described may be used in combination
with one another.
Privatization refers to financial and legal
arrangements between the public and
private sectors, especially those that repre-
sent a shift toward a greater private sector
role. Specifically, it entails a contractual
relationship between public and private
partners that commits both to providing
an environmental service. Accordingly, the
private sector participant is usually from
the environmental services industry.
  There are five basic types of arrange-
ments: contract services, turnkey projects,
developer financing, private ownership
(meaning private ownership and opera-
tion), and merchant facilities. For details
on these terms, see Appendix B.
  Several of the partnerships funded by
the P3 program illustrate privatization.
Cities have found contracting with the
private sector can increase efficiency and
lower costs. Westminster, Colorado,
established a successful countywide oil-
recycling program in which private
participation was key in collecting and
processing oil for reuse as industrial fuel.
Another project, with the University of
Oregon, produced a handbook to guide
cities through the negotiation of solid
financing models

waste contracts. An ongoing project in the
State of Kentucky will document how a
private nonprofit organization is working
with the private owner of a hazardous
waste incinerator to handle and dispose
of agricultural chemical wastes that previ-
ously threatened groundwater.
  In Mercersburg, Pennsylvania, a local
company will design and build an alter-
native wastewater treatment facility.
This turnkey partnership will allow
Mercersburg to buy the 300,000-gallon-
per-day treatment plant while the com-
pany will continue to operate the facility.
  Other partnerships have examined the
barriers to privatization, especially for
smaller towns without the on-staff
expertise to work out complex deals
with private sector providers.

By joining together through regional-
ization, local governments can increase
their clout at the bargaining table or pur-
sue a regional strategy to address their
common concerns. Intergovernmental
cooperation is a key strategy for success
in municipal government today. Faced
with budget constraints and revenue
shortages, local governments are turning
to one another to share costs and provide
services efficiently.
  Private companies also are becoming
involved in the regionalization process.
Not only do businesses derive benefits
from better quality public services, but
companies may find a regional govern-
ment partner more financially attractive
than a single city going it alone.
  Regionalization through water district
and solid waste management authorities,
for example, can achieve significant
economies of scale. Given the growth of
federal environmental mandates in solid
waste, drinking water, and other areas,
small communities must find alternatives
to trying to provide these services alone.
Private-multigovernmental cooperation
is becoming an important model for small
and medium-sized communities.
  The P3 program has supported region-
alization to respond to the drinking water
and solid waste needs of small communi-
ties. Sixteen southern states are benefiting
from a regional coalition given seed
money under a P3 grant. The Southern
Partnership for Managing Solid Waste
was organized in 1990 to provide rural
communities with unbiased technical
and financial information on solid waste
issues. On a smaller scale, a regional
solid waste authority to serve a number
of small towns in central Oklahoma was
launched with P3 demonstration grant
funds. Presently, small communities
clustered around Marion, Texas, and
Colchester, Connecticut, have joined forces
to investigate the best regional approach
to drinking water treatment and delivery.
                                 financing models for  environmental protection

              Bond Pools
Bond banks provide communities access
to the national bond market that would
otherwise be unavailable to them or avail-
able only at higher rates. Acting as an
intermediary, the bond bank's primary
purpose is to assist cities and towns in
financing their capital improvements
through the issuance of bonds. Through
state bond banks, the state may sell its
own bonds in the national bond market
and use the revenues to purchase bonds
from individual communities within the
state. Alternately, the state may package,
or pool, several small bonds into a single
large issue that the state then markets
through national channels.
  The participants in a bond pool enjoy
several advantages, including lower front-
end costs for bond marketing, under-
writing, and bond counsel, as well as for
financial fees and reserve requirements.
Through a pooled effort, communities can
spread these costs over a greater number
of borrowers. Moreover, with the state's
involvement, communities can benefit
from tax exemptions, lower interest rates,
and increased ease of obtaining credit.
  With P3 grants, EPA has encouraged
the formation of two bond pools to
finance water supply system improve-
ments. The first involves the State of
Maine in collaboration with the Maine
Rural Water Association. The second
involves the State of New York.
      Cooperatives/Circuit Riders
Cooperatives and circuit-rider programs
are two strategies that small, rural com-
munities can use to enhance their ability to
cope with complex modern infrastructure.
These two strategies can sometimes work
together to overcome the financial and
technical difficulties that communities
must address in maintaining structures
and extending the lif e of their environ-
mental equipment.
financing models

  In a cooperative, several individual
entities come together so they can jointly
buy, sell, or take better advantage of
shared services. Cooperatives allow
smaller communities to pool their re-
sources and give them the same purchas-
ing power as larger communities. Circuit
riders are itinerant experts who move
from town to town to fix systems and train
local operators how to clean, operate, and
maintain their own systems. They are well
versed in current environmental standards
and can recommend the quickest and
most cost-effective way for a small com-
munity to meet its responsibilities.
  For example, small communities and
rural towns frequently lack adequate
personnel to operate and maintain
their •water and wastewater sys-
tems.  Water quality requirements
have become more rigorous with
the implementation of the Safe
Drinking Water Act. Part-time
personnel who are unfamiliar with
the latest EPA requirements will not
be able to keep systems operating in
  With a P3 grant, a mobile home
cooperative was started in Berks
County, Pennsylvania, that motivated
participating mobile home park
owners to bring their drinking
water systems into full compliance
with state and federal regulations. Techni-
cal assistance was provided to each of the
mobile home parks by a circuit rider from
a private engineering company. Many
benefits have been derived from coopera-
tive maintenance scheduling and group
purchasing as a result of this drinking
water cooperative's efforts.
  A multimedia circuit-rider program
was funded in 1991 with a P3 grant to
serve five communities in rural Utah with
populations of 3,000 or less. The program
focuses on each community's needs by
conducting an environmental audit and
                                financing models  for  environmental protection

seeks solutions using available resources.
It provides a way to work on a regional
basis to solve a number of compliance
problems in the areas of drinking and
waste water, solid and hazardous wastes,
pesticides, air quality, and radiation.

   Pollution Prevention Partnerships
In this type of model, the community
engages the private sector in an effort to
take a preventive approach to environ-
mental problems. In this case, the private
sector partner is from the regulated
   Pollution prevention techniques encom-
pass a variety of methods to manage
toxics and other environmental risks in
the workplace and reduce pollution at its
source by adopting new methods in the
production process. Under this model,
the private and public sectors combine
resources and talent to prevent pollutants
from reaching the environment. Fre-
quently, the private sector contribution
is on a voluntary basis.
   In Los Angeles, California, two pollu-
tion prevention partnerships showcase the
benefits of collaboration between local
government and industry. A guide is
being written with  the participation of
several large corporations that illustrates
effective ways to assist businesses and
local governments to manage the environ-
ment. The benefits include a "greener
image" for the cities, counties, and corpo-
rations that adopt the guide's suggested
practices, which range from how to set up
a car pool to onsite toxic waste reduction.
  Another project in the Los Angeles area
will educate dry cleaner owners and
operators in ways to meet air and hazard-
ous waste standards. Through videotapes
in English and Korean, the techniques for
compliance will be presented.
financing models

       Market-based Incentives
This model relies on market incentives to
bring about environmental protection.
Through various policy mechanisms, both
consumers and producers come to realize
the true costs of activities that affect the
environment. Market-based incentives can
motivate businesses to implement more
effective and efficient pollution-control
technologies arid encourage consumers
to adopt conservation practices. For ex-
ample, in Germany, workers are rewarded
for energy conserving practices and are
paid up to 20% more than their U.S. coun-
terparts because of the energy savings
they produce.
  This approach has been used exten-
sively in utility pricing, such as the pricing
of drinking water or electricity. When
electricity is  priced in a way that actually
reflects the tine marginal costs of energy
(including environmental costs), then
there is a greater possibility that consum-
ers and producers will make wiser deci-
sions about their use of the resource.
  A P3 grant was awarded to the Energy
Resource Center in St. Paul, Minnesota, to
develop a rate policy that rewards energy
conservation. The first step in this project
is to demonstrate performance-based
criteria for public and private investments
in energy conserving measures such as the
purchase of  energy-efficient lighting and
home appliances. With this information,
the electric utility can adjust rates so that
investments in energy conserving tech-
nologies are rewarded.
  This partnership involves the utility
working closely with a community group
to lower energy demand. Residents are
provided with incentives to install energy
conserving equipment. The utility benefits
because it is encouraging conservation.
Modified rate structures will allow the
utility to continue to realize a level of
profit while using fewer kilowatt hours of
electricity, thus lowering demand for new
power plant construction and reducing
the release of greenhouse gas emissions
through decreased energy production.
  The financing models described here
constitute a good beginning for providing
financing options to local communities.
Of course, they are not the only ones that
communities can use. EPA will be testing
additional innovative financing tech-
niques as the P3 program matures. ^
                                 financing models for environmental protection

 nd lessons


                                      A ft
               he lessons learned
            Ifi from the projects
            IB  under SEA'S Public-
Private Partnerships Demonstration Pro-
gram contribute to an understanding of
new ways to finance and manage a
community's environmental protection
needs. Fundamentally, the projects show
that partnerships between public and
private parties can provide safe drinking
water, reliable ways to handle solid waste,
and better wastewater management. Local
governments can benefit from collabora-
tion with the private sector to deliver
environmental services that are reliable
and affordable.
  The major lessons learned from the
EPA-fostered partnerships can be summa-
rized as follows:
                         nd  lessons
The type of financing model chosen must be
tailored to the needs of the community.
No magical solution or single f ormula
exists to determine the type of partnership
that can best deliver affordable and de-
pendable services for a particular commu-
nity. Financing models that work for
one locality may not be appropriate for
another. For instance, regionalization is
an effective strategy when communities
are located reasonably close together.
However, such a strategy may not succeed
in the West, where independent rural
communities are separated by consider-
able distances. Similarly, an unincorp-
orated community does not have the same
options available for financing environ-
mental programs or infrastructure as do
incorporated cities and other legally recog-
nized jurisdictions. Each community
must assess its financial capabilities, level
of public support, and state and federal
requirements to select the right partner-
ship model.
successful approaches and  lessons learned

                        Public goals can frequently be met by
                        encouraging private sector entrepreneurs.
                        Several partnerships described in this
                        booklet illustrate how the public sector
                        can attract entrepreneurs in providing
                        environmental services. A pollution pre-
                        vention partnership in Kentucky demon-
                        strated how the public and private sectors
                        can collaborate to address the problem of
                        harmful agricultural pesticides contami-
                        nating groundwater because of improper
                        disposal. On two roundup days, over 100
                                barrels of pesticides were col-
                                    lected from farms in two
                                      rural counties. The key
                                        private partner, Liquid
                                         Waste Handlers, owns
                                          a hazardous waste
                                        \  incinerator that was
                                           used to dispose of
                                           the agricultural
                                          chemical wastes.
                                            Another successful
                                         innovation comes from
                                       a demonstration project
                                     in Pennsylvania. A local
                                  company approached the
                             Borough of Mercersburg with an
                       alternative wastewater treatment pro-
                       posal. The company will design and build
                       a sewage treatment plant to handle the
                       Borough's sewage and will use the efflu-
                       ent for spray irrigation in agricultural
                       fields and groundwater recharge.
   For its part, the private sector must be
flexible when working on behalf of the
public. For example, the community of
Welch, West Virginia, has benefited from a
partnership with a private company for
providing inexpensive solid waste facili-
ties and wastewater treatment in return
for the right to build and operate a large
landfill. The firm's vigorous outreach
effort in Welch and nearby communities
has been instrumental in building support
for the public-private venture.

Regional cooperation among smaller communities
may be the only way to meet new regulatory and
infrastructure demands.
Many partnerships suggest this lesson.
In the small communities near Sixoud,
Oklahoma, where a regional partnership .
was launched in 1989, local governments
could not cope individually with their
solid waste and disposal problems. Only
by agreeing to pursue a regional plan, did
the communities formulate a solid waste
program large enough to attract the pri-
vate sector to invest and thus make the
project affordable.
                                                        financing models for environmental protection

  New Safe Drinking Water Act require-
ments have made compliance prohibi-
tively expensive for many small drinking
water systems. As the result of a P3
project in Colchester, Connecticut, a water
company proposed privatization of
Colchester's drinking water operations
and those of several small satellite sys-
tems. Each of the smaller systems
serves between 50 and 100 customers.
The regional approach will help bring all
the systems into compliance.
  Another example comes from Colo-
rado, where a two-year oil-recycling
program has demonstrated that rural
communities will respond to recycling
programs if collection sites are made
accessible. A regional program was
needed to make collections depots with
convenient hours of operation a reality for
more remote towns.
Partnerships involving small communities
often require multiple parties in a collaborative
relationship with the private sector.
Successful partnerships in smaller com-
munities often require multiple rela-
tionships with other public partners.
Collaboration among all levels of govern-
ment—city, county, state, and federal—
with the private sector is usually essential
to the success of major projects.
  For example, a multijurisdictional
partnership was formed among the City
of Westminster and Adams County Colo-
rado, in partnership with Approved Oil,
Inc., an oil-recycling company. The city
and county manage and publicize the
program and provide collection sites and
storage facilities. Approved Oil, Inc., picks
up the used motor oil free of charge and,
after cleaning it, resells the oil as industrial
fuel. The key to this very popular program
is cooperation between the city and
county and the private sector. It would
have been difficult for any one of the rural
communities served by the program to
develop a recycled-oil program, because
the volume of oil collected would not have
been economically attractive for a private
company to process. The private sector
frequently finds a regional cluster of mu-
nicipalities a more financially viable part-
ner than individual smaller communities.
successful approaches and  lessons learned

                       The implementation of partnerships is a
                       multistage process.
                       There are many phases to forming a part-
                       nership. Each phase must be built on a
                       strong foundation of sound expectations
                       and trust. For example, in Elephant Butte,
                       New Mexico, a partnership was being
                       considered by a community of 1,800 resi-
                       dents situated by a reservoir. Town mem-
                       bers knew that their septic tank systems
                       had been failing for some time and that
                       leachate was draining into the lake. A
                       demonstration project provided the com-
                       munity with some alternatives that would
                       end the pollution and solve their sewage
                       treatment problem.
                         Most of the public and private financ-
                       ing options presented to Elephant Butte,
                       however, required that the community
                       incorporate so it would become capable of
                       entering into a contract or receiving loans
                       or grants. With this in mind, the commu-
                       nity launched a campaign to incorporate,
                       only to discover the town's population
                       density was not high enough under state
                       law for incorporation. The  town petir
                       tioned the state legislature  to change this
                       requirement and has since  held a referen-
                       dum. As an incorporated community,
                       Elephant Butte could have taxing author-
                       ity and establish user fees, a prerequisite
                       for financing a wastewater treatment
           Small communities need more information: to make
           their environmental financing decisions.
           Local officials need to be educated about
           key environmental financing issues. In
           particular, there is not enough information
           readily available to smaller communities
           on initiating partnerships and on manag-
           ing contracts with private providers.
           Many communities reject the P3 option
           because they do not trust the private
           sector. Most of the time, communities
           know the disadvantages but not the
           advantages of a public-private partner-
           ship, such as flexible financing options;
           cost-effective design, construction, and
           operation; highly trained staff; reduced
           time needed to construct facilities; and
           potential cost savings from innovative
             Special emphasis should be placed on
           informing local governments of the steps
           to consider before entering into an agree-
           ment with a private company. An excel-
           lent source of information on solid waste
           contracts is the negotiations handbook fop
           local officials described in the next chapter.
           This volume, produced by the University
           of Oregon with an EPA grant, can help
           local government managers avoid costly
           errors and time-consuming research by
           evaluating the techniques and model
           contracts that have worked for other
           communities. &*&
financing  models for environmental  protection

          case studies
 University of Oregon
 Westminster and Adams County, CO
 3phant Butte, NM
          ite of Maine
     Berks County, PA



             Solid Waste Privatization: Contract  Services
             The Solid Waste Contract Negotiations
             Handbook for Local Officials
             — University of Oregon
             Contracting to hdld, operate, or maintain a solid waste facility has become an
             increasingly complex undertaking. Contractual arrangements should reflect
             the technical, economic, and legal liabilities associated with these facilities.
             Local officials frequently lack the expertise to negotiate effectively.
             Through a P3 grant, tk University of Oregon interviewed numerous county
             and municipal officials—those who needed more information and those who had
             successfidly negotiated contracts—to develop a handbook on how to negotiate
             solid waste agreements with the private sector and with other puttie agencies.
             Local government managers can avoid costly errors and time-consuming
             research when they know their options, the risks and benefits of different types
             of agreements, and techniques that have worked for other communities.
                        i • •-.! £ .'  • ,* * "^^-^£«s3*»JU'iiiwjuMmjii •' • 7>» ~ . /t* ^"WKm?™,, $
                        rfotaljtoject Ow^'-^v- •  -H
financing models  for environmental protection

  What financing concept
    was demonstrated?
Contracting with the private
sector or other governments
can offer advantages such as
economies of scale, access to
new technology, more sophis-
ticated technical and manage-
ment expertise, risk sharing,
and operational flexibility. This
demonstration project exam-
ined the alternatives available
and produced a handbook for
local governments for negoti-
ating solid waste contracts. In
times of fiscal austerity or
when increasing regulatory
requirements make the costs
of continuing operations too
high, communities can take
advantage of contracting with
the private sector.
    What environmental
 challenge was addressed?
The growing complexity of
solid waste management
practices has prompted many
local governments to enter
into new types of contractual
arrangements. Since the late
1970s, the number of cities
and counties that contract for
environmental services has
increased substantially. In
addition to the usual specifi-
cations concerning the
quality and timeliness of the
contractor's performance,
solid waste contracts should
address potential health and
environmental risks, as well as
unforeseen conditions. For
example, who is responsible
for upgrading the facility or
service to meet future state or
federal requirements? Who
will accept the risks of fluctu-
ating markets in the case of a
materials recovery facility?
In general, the more risks the
private sector accepts, the
more costly the project will
become to the public sector.
solid waste

             Many communities have
           been approached by large
           waste management companies
           to accept a solid waste land
           disposal or.other facility. These
           communities often are negoti-
           ating with parties whose
           expertise far outstrips their
           own. Lack of a dear under-
           standing of the economic or
           legal complexities of these new
           arrangements often results in
           agreements that unfairly favor
           the private companies.

                   How was this
              project implemented?
           The Bureau of Governmental
           Research and Service at the
           University of Oregon con-
           ducted an extensive review
           of existing literature, surveys
           of local governments, and
           numerous interviews to pre-
           pare this handbook. EPA
provided funds to piublish and
distribute the book to help
communities across the United
States negotiate intergovern-
mental agreements and solid
waste contracts with the pri-
vate sector. EPA also devel-
oped a brochure, presented in
a question-and-answer format
that summarized the more
comprehensive handbook.
 I Involvement in
   *%-i.i --*i-'
    id Waste
  What was accomplished?
The easy-to-read Solid Waste
Contract Negotiations Handbook
for Local Officials provides a
framework for communities
negotiating solid waste con-
tracts. It provides guidance
on such issues as the costs of
different options, risk sharing,
financial assurance, and long-
term liability. Specifically, the
handbook addresses:
            financing models for environmental protection

   • Issues encountered in
     developing public-
     private contracts or
     agreements for solid
   , waste management,
   • Logistics behind competi-
     tive bidding, including
     Requests for Proposals
    : (RFPs) and Invitations
   .  for Bid (IFBs)
   • Steps to adequately
     safeguard the public
   • Examples of contractual
     arrangements that incor-
     porate the major trends
     in the solid waste field,
     such as
     -Integrated solid waste
     management practices
     -Regional facilities and
     -Compliance with new
     environmental and pub-
     lic health protection
Case studies can be found in
the handbook's appendices

   • The diversity of solid
     waste agreements
   • Examples of ordinance
     provisions regulating
     solid waste services
   • A model landfill-
     operation agreement
     that includes instructions
     to bidders
   • A model contract
       What were the
      lessons learned?
This project produced many
important recommendations
for developing contracts for
solid waste programs and
facilities. These are all pre-
sented in the handbook, which
is available as described below.
A few of the lessons learned
are highlighted here.

Small communities may work
most effectively to solve their
individual solid waste problems
through regional cooperation.
There is an opportunity to
benefit from economies of
scale when solid waste
projects are designed to serve
an entire region or when two
or more governmental units
jointly own facilities or pro-
vide services. Communities
should consider this important
cost-cutting measure as an
alternative early on.
solid  waste

                                              Contracts must anticipate new regula-
                                              tory requirements and specify how
                                              the costs of compliance will be borne.
                                              Structure contracts to assure
                                              compliance with both existing
                                              and potential regulations. If
                                              a landfill does not have ad-
                                              equate liners or leachate con-
                                              trol systems to meet future
                                              requirements, it could be shut
                                              down at the public's expense.
                                              Carefully scope out what
                                              regulations might be coming
                                              and provide for who will be
                                              responsible for any modifica-
                                              tions necessary in the future.
                      Build flexibility into your contract to
                      reduce long-term financial ;risks.
                      Provide for flexibility to ac-
                      commodate long-term cost.
                      recovery and market uncer-
                      tainties associated with many
                      solid waste contracts. For
                      example, during the initial
                      period of operation, the public
                      sector may have to subsidize
                      a materials recovery facility
                      until markets are sufficiently
financing models for  environmental  protection

 Risks should be divided fairly with
 cost considerations in mind.
 Allocate tort, contract, and
 financial liability among
 public agencies and private
 contractors to reflect the rela-
 tive exposure and potential
 benefits. In landfill projects
 and waste-to-energy plant
 operations, for example, liabil-
 ity for contamination or dam-
 ages because of pollution  ,
 needs to be clearly assigned.
 The contractor needs to realize
 a reasonable return for the
 risks the company will accept.
 Some risks should remain
 with the public sector to keep
 costs in check.
All contracts should provide a legal
way out if obligations are not met.
Don't forget to include an
escape clause in your contract
and require appropriate insur-
ance by the party providing
the service. As in any business
field, a certain percent of new
ventures are bound to fail.
Make sure to anticipate and
provide for that possibility.

       Where can this
        model apply?
Any community considering
contracting with a private firm
or other local government to
deal with a solid waste issue
would find this handbook
Whom do I contact for more
information on this project?
To obtain a free copy of EPA's
Solid Waste Contract Negotia-
tions Handbook for Local
Officials, prepared by the
University of Oregon, contact
the Public Information Center
at EPA Headquarters,
202/260-7751. Also available
from the same office is a brief
question-and-answer brochure
on solid waste contracting that
summarizes the findings of
the larger handbook. Paula
vanHaagen in EPA Region
10's solid waste management
office coordinated this project.
She can be reached at
206/553-1847. Matt Coco,
regional P3 coordinator, is
at 206/553-0705.  &
solid waste

Contracting for Services (Washington, DC: National Association of College
and University Business Officers [NACUBO], 1982).
Ferris, James, and Elizabeth Graddy. "Contracting Out: For What?
With Whom?" Public Administration Reviezv (July/August 1986): 332-344.
Interlocal Service Delivery: A Practical Guide to Intergovernmental Agreements/
Contracts for Local Officials (Washington, DC: National Association of Counties
Research Foundation, 1982).
Rehfuss, John A. Contracting Out in Government (San Francisco, CA:
Jossey-Bass, Inc., 1989).
Sharfsten, Howard. "Procurement and Contract Issues for Recycling Facilities."
BioCycle (November/December 1988): 37-39.
Wisniewski, Stanley C. "Analyzing the Contracting-Out of Government
Services: Relevant Cost-Benefit Considerations." Public Budgeting & 'finance
(Summer 1991): 95-107.
                                                      financing models for environmental protection


            Solid Waste Privatization:  Contract  Services
            Used Motor Oil Recycling Program
            — City of Westminster and Adams County, Colorado
            Most used motor oil generated hi km mecknks is improperly disposed of in
                             o        t/                   '  I   «/   '      )
            landfills and sewers, ultimately causing surface and groundwater contamination.
            The City of Westminster and Adams County jointly began a countyidde used-oil
            recycling program. They contracted with a private company to haul and sell tk
            used oil, while tk local governments took responsibility for marketing and gaining
            public support for tk program.
            Tk project has prevented about 2,500 gallons of used oil from being discarded
            each month, and program participation levels continue to rise. In several Colorado
            communities, private investment in used-oil recycling ks increased and interest
            in this project has spread to other states.
                                                                                      was the time fume?
                       " '"        "    • *-ve«"•»"»'« -  •  -  '
financing  models  for environmental protection

    What environmental
 challenge was addressed?
An estimated 80% of used
motor oil generated by do-it-
yourself mechanics is improp-
erly disposed of in landfills or
sewers, or on the ground to
control weeds and dust. This
dirty oil is laced with toxic
substances from car engines,
including benzene and lead,
which  can ultimately contami-
nate rivers, lakes, and ground-
water. If all the motor oil now
being thrown away in this
country were recycled, it
would save the United States
1.3 million barrels of oil per
day. Recycling used oil trans-
forms it from an unusable
waste to a marketable re-
source, avoids contamination
of surface waters and ground-
water, and provides a source
of energy when reused as
industrial fuel.
  When this project was
implemented, only one Colo-
rado community offered a
means of recycling used motor
oil, and mounting legal liabil-
ity problems were
prompting many car
mechanics and
quick-lube dealers
to stop accepting
  What financing concept
    was demonstrated?
During this project, the public
sector achieved its goal by
capitalizing upon the entrepre-
neurial interests of the private
sector. Under a three-way
cooperative agreement with
the county and city, a private
entrepreneur agreed to haul
and recycle the used oil for no
                 other than
                   the oil
solid waste

           Willing to risk uncertainties
           with supply, cost of hauling,
           and markets for used oil, the
           company has been able to
           sell the recycled used oil for
           a profit. The city and county
           collected the oil and were able
           to contract out the hauling of
           the oil at no costs except for
           forgoing the potential returns
           from the sale of the used oil.
               How was this project
           The City of Westminster,
           Colorado, had a used-oil
           recycling program in place.
           When EPA's Region 8 office
           became interested in starting
           a broader oil-recycling effort
           and put out a request for
           proposals, both Westminster
           and Adams County responded
           individually. At the suggestion
 An oil collection site run by Adams County and located in
 Commerce City, Colorado
of the regional office, the two
jurisdictions decided to enter
into a joint agreement to tackle
the challenge of expanding the
city's program to include hard-
to-reach rural areas.
  Through a cooperative
agreement, the City of
Westminster, Adams County,
and Approved Oil, Inc.,
began a countywide used-oil
recycling program for do-it-
yourself mechanics. The pri-
vate partner collects, hauls,
and processes the used oil and
then resells it as industrial fuel,
while the communities man-
age and publicize the program
and supply the oil storage
tanks and collection locations.
The oil collection is done  -
for the most part by skilled
mechanics from the city and
county .who know the proper-
ties of good used motor oil.
This minimizes the possibility
of collecting a hazardous
waste. All donated oil, how-
ever, is screened on site for
chlorinated solvents as a
further safeguard.
            financing models for environmental protection

  What was accomplished?
This is a "win/win" program
that is simple, easy to imple-
ment, and relatively low-risk.
As a result of this effort:

   • On average, 2,500 gallons
    of used motor oil from
    over 500 donors are
    diverted from improper
    disposal every month,
    and participation is
    steadily increasing.
   • The project has stimu-
    lated citizen participation
    at all levels. To respond to
    numerous citizen inquir-
    ies, Westminster opened
    a hotline that provides
    information on the city's
     own program as well as
     other local used-oil
• Bilingual promotional
 flyers were developed to
 reach the Hispanic com-
 munity, and the program
 was promoted in city
 utility bills.
• Promotional information
 at motor oil sales outlets
 offered another unique
 way of alerting the
• Twelve radio stations
 and four local television
 channels generated a lot
 of interest by providing
 free publicity about the
• Private investment in
 used-oil recycling has
 increased in other com-
 munities in Colorado.
 For example, the private
 recyder is now offering
 the same terms to haul
    and process used oil to
    others outside the county
    and will continue to
    serve the program in
    Adams County for free
    as long as it operates.
    Amoco has started a
    major collection effort
    at its full-service gas
    stations in Denver.
       What were the
      lessons learned?
Used-oil recycling programs
are viable in rural communities.
Citizens living in more remote
areas will participate if collec-
tion sites are accessible and
hours of operation are conve-
solid waste

            Public goals can be met by
            encouraging private sector
            The public sector can induce
            private investment in projects
            that are essential to meeting
            public goals. Through a coop-
            erative agreement, the city and
            county enabled Approved Oil,
            Inc., to realize a profit through
            the sale of the recycled oil they
            hauled free of charge. This
            approach is commonly used in
            setting up material recycling
            facilities, waste-to-energy
            projects, and other environ-
            mental infrastructure.
Public involvement in any recycling
program is the key to success.
Publicity and participation
rates are directly relatted. This
project was a feature story on
a Colorado nightly news
program and the television
talk show Denver Showcase.
The local utility company
highlighted the project in its
newsletter, newspapers pro-
vided coverage, and motor-oil
retailers distributed flyers.
Through these and other out-
reach efforts, the project has
enjoyed high levels of partici-
  Programs should capitalize
on existing local resources.
In this project, the city and
county opened their vehicle
repair facilities for community
drop-off sites and provided
oil-storage tanks.
Successful recycling of one material
can stimulate interest in recycling
programs in other areas.
Adams County and neighbor-
ing Jefferson County, building
on the response to Operation
Oil Recycle, held day-long
household hazardous chemi-
cal roundups. At each event,
used-oil recycling drop-off
sites were available.  ,
            financing models for  environmental  protection

  Where can this
   model apply?
Local governments
across the country
are beginning to
contract more for
services and infra-
structure projects.
As illustrated in this
project, contracting
with private sector
entrepreneurs can be an eco-
nomical way for communities
to meet their recycling goals.
Because these projects involve
removal of a salable product,
frequently a cooperative agree-
ment can be reached without
monetary costs to the public
sector. The hauler is simply
entitled to profits from the
sale of the product while the
community benefits from
collection and removal.
  In negotiating these con-
tracts, the public sector must
consider the expense of having
the goods collected and dis-
posed of and the risks of
selling the products in a
fluctuating market. Each
contract should balance the
risks and potential costs and
benefits to both the public and
private sectors.
Whom do! contact for more
information on this project?
Frank Grasmugg, Project
Coordinator of Operation
Oil Recycle, is eager to share
information with other local
governments on how to set up
used-oil recycling partner-
ships. He is Fleet Manager
with the City of Westminster
and can be reached at
303/430-2400, extension 2511.
The initiator and manager of
this project, EPA Program
Analyst Sharon Childs, can
be reached in Region 8 at
303/293-1471. The regional
P3 Coordinator, David Warm,
is at 303/293-1621.  **
solid waste

City of Newark, New Jersey. Is Contracting the Answer? The Newark Experience,
Clearinghouse Report #40178 (Washington, DC: International City/County
Management Association).

EPA's newsletter Used Oil Recycling. (Subscriptions to this quarterly newsletter
are available free from the EPA's RCRA Docket Room in Washington, DC.
Call 202/260-9327.)

Haw to Set Up a Local Program to Recycle Used Oil, EPA/530-SW-89-03S'A
(Washington, DC: Office of Solid Waste and Emergency Response of the U.S.
Environmental Protection Agency, May 1989). (To order, call the RCRA/
Superfund hotline at 800/424-9346.)
Manchester, Lydia D., and Geoffrey S. Bogart. Contracting and Volunteerism in
Local Government: A Self-Help Guide, Special Report #40177 (Washington, DC:
International City/County Management Association,  1988).
financing models for environmental protection


             Solid Waste  Regionalization
             Regional  Partnership:
             The Southern Partnership for Managing Waste
             — Atlanta, Georgia
             local government officials across 16 southeastern states from Maryland to Texas
             said they needed unbiased information to help them in evaluating technical and
             financial information from the waste management  industry.
             A coalition of agencies organized a regional nonprofit organization, The Southern
             Partnership for Managing Waste. The Southern Partnership draws on resources
             from municipal and county associations, the corporate community, and academic
             This public-private network serves over 6,000 communities throughout tk
             South (approximately 35% of the U.S. population), providing them with technical
             training and education.
financing models for  environmental protection

    What environmental
 challenge was addressed?
Many American communities
face serious solid waste dis-
posal problems. Landfills are
rapidly reaching capacity .or
closing, while cities and towns
continue to produce more
solid waste. Despite aggressive
programs to reduce the mu-
nicipal waste stream, there
remains an urgent need to
build new solid waste facili-
ties. Rural towns and counties
in particular lack the technical
and financial expertise to
evaluate their solid waste
  The Southern Partnership
for Managing Waste has
responded to this need
through a public-private
network funded by private
sponsors, EPA Headquarters,
and Regions 3,4, and 6. The
Southern Partnership provides
educational resources to local
governments in 16 southern
states.1 The goal of the
Partnership is to promote
economically and environ-
mentally responsible waste
management decisions that are
sensitive to the region's long-
term interests.
  What financing concept
    was demonstrated?
A regional partnership was
created to provide a center of
expertise on solid waste man-
agement. With private sector
support, it provides communi-
ties with impartial advice on
technical issues and offers
several public education pro-
grams. Through the Partner-
ship, local governments within
the 16 contiguous states have
an important opportunity to
benefit from expert advice on
the financial, technical, and
managerial aspects of waste
management and improve the
quality of the region's solid
waste infrastructure.
                                 1 The partnership serves local officials in the following 16 states: Alabama, Arkansas,
                                 Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, New Mexico, North
                                 Carolina, Oklahoma, South Carolina, Tennessee, Texas, Virginia, and West Virginia.
solid waste

              How was this project
           The Partnership was formed
           in October 1990 as a program
           of The Conference of Southern
           County Associations, Inc.,
           which represents 1,413 coun-
           ties. In workshops around the
           South, county officials identi-
           fied solid waste as their most
           pressing challenge. A survey
           reinforced the finding that
 local governments needed an
  independent and reliable
     source of advice. The
     Partnership was con-
   ceived as a clearinghouse
    for waste management
    expertise to serve both
  county and municipal
officials and the general public
through their state associa-
  The success of the Southern
Partnership rests with its
strong support from the pri-
vate sector and academic
community. Private sponsors
have volunteered experts'
time, cosponsored publica-
tions, and provided other
resources. For example, the
groundwork has been laid to
broadcast a series of telecon-
ferences focused on how to
comply with EPA's new land-
fill regulations under Subtitle
D of the Resource Conserva-
tion and Recovery Act and
other issues. This is just one
example of corporate sponsors
underwriting a Partnership
program that reaches a tar-
geted audience in the southern
region. As the Partnership
expands its services, similar
educational and training
opportunities will be pursued.
            financing models  for  environmental protection

  What was accomplished?
The Southern Partnership has
been established to serve over
6,000 local governments.
Among its accomplishments
in the first year since its found-
ing, the Partnership has:
      .             i . .    • .
   • Made contacts at the
    state level and formed
    working groups. The
    Partnership conducted a
    resource and needs sur-
    vey of its 16 member
    states to set priorities
    and assess the status of
    state legislation.
   • Published a brochure,
    The Ten Commandments
    for Developing State Solid
     Waste Policies, with assis-
    tance from the Carl
    Vinson Institute of Gov-
    ernment at the University
    of Georgia. This brochure
    provides a guide to local
    government officials for
    drafting state solid waste
• Cosponsored three
  regional workshops
  and proposed a series
  of teleconferences that
  will allow elected and
  appointed public officials
  to exchange information
  on technical solid waste
  issues. •  •
• Prepared case studies
  describing the outcome
  of solid waste public-
  private partnerships
  launched in southern
  communities. These
  studies focus on areas
  such as project financing
  and the development of
  regional facilities and
1 Edited and distributed
 Municipal Solid Waste
 Management in the 1990s:
 A Summary of Key Issues
 and Alternatives. This
 booklet addresses the
 impact of new federal
 solid waste regulations,
 explains how to imple-
 ment waste reduction
 programs, and answers
 other questions com-
 monly asked by local
 Launched a program to
 finance the Partnership
 on a sustainable basis.
 If successful, the future
 goals of the Partnership
 are to create financing
 and accounting manage-
 ment models, build state
 capacity through train-
 ing, and continue to
 expand and develop
 technical assistance
solid  waste

                                                     What were the
                                                    lessons Seamed?
                                              Every program partner must make
                                              a financial investment toward the
                                              continued livelihood of the network.
                                              Private sector contributions must be
                                              aggressively pursued.
                                              A geographically far-reaching,
                                              16-state coalition cannot sur-
                                              vive on the fundraising activi-
                                              ties of a small central staff.
                                              While initial funding came
                                              from EPA and a few private
                                              donations, future Partnership
                                              programs will depend on
                                              corporate, foundation,
                                              quasigovernmental, and
                     other private sources. Local
                     government associations must
                     assist with reaching out into
                     the private sector in their
                     region to solicit both in-kind
                     and financial support.

                     Strong linkages with universities and
                     other centers of technical expertise are
                     vital in forming a reliable clearinghouse
                     of solid waste  information.
                     Local governments turn to the
                     Southern Partnership when
                     they make their solid waste
                     decisions because they have
                     confidence  in the resources
                     provided. The Partnership
                     draws on public and private
                     talent from colleges and uni-
                     versities in  the region, the
                     business community, and EPA
                     and other public agencies.
financing models  for  environmental protection

Regional traditions of working
together to solve common problems
can be an asset.
Government associations in
the South have a long tradition
of working within a regional
framework, as demonstrated
by the Southern Municipal
League, the Conference of
Southern County Associations,
and the Southern Legislative
Conference. Drawing on these
strong and positive traditions
is a good strategy for handling
persistent and widespread
problems like rural waste
       Where can this
        model apply?
This type of coalition can be
formed in any region where
resources exist and local gov-
ernment associations are
motivated to work together
and pursue a partnership with
the private sector. Replication
of a program of this size, while
challenging, is possible. Con-
sider the nationwide program
development of Keep America
Beautiful, Inc. (KAB), a non-
profit public-private partner-
ship dedicated to public
education for improving
waste-handling practices in
American communities. For
more information about how
the coalition works, call
Marjorie Forbes, KAB's
director of national training
services, at 203/323-8987.
Whom do I contact for more
information on this project?
To discuss this project,
contact EPA Region 4's P3
Coordinator, Tom Moore,
at 404/347-4728. ^
solid  waste

                                                                 a d i n  g  s
Callahan, Jeff. "Composting Coalition Created." New Jersey Municipalities
Commonwealth of Pennsylvania, Department of Community Affairs.
Intergovernmental Cooperation Handbook, Clearinghouse Report #40607 (Washing-
ton, DC: International City/County Management Association, April 1990).
Curbing Waste inaThroiuaway World: Report of the Task Force on Solid Waste
Management (Washington, DC: National Governors' Association, 1990).
Dodge, William R. "Regional Problem Solving in the 1990s: Experimentation
with Local Governance for the 21st Century." National Civic Review
(July/ August 1990): 354-356.
Intergovernmental Approaches to Solid Waste Management (Washington, DC: Solid
Waste Management Office of the U.S. Environmental Protection Agency, 1971).
(To order this document, call National Technical Information Service [NTIS],
at 703/487-4650 and request document # PB-214-448.)
Keep America Beautiful, Inc. Changing Attitudes in American Communities. (This
pamphlet is available free from KAB headquarters in Stamford, Connecticut,
at 203/323-8987.)
Solid Waste Management: Exploring Regional Roles, Special Report No. 143 (Wash-
ington, DC: National Association of Counties, June 1988). (For a copy, contact
the National Association of Regional Councils, 1700 K Street, NW, Washington,
DC 20006; phone 202/457-0710.)
financing models for environmental protection


            Solid Waste Regionaljzation
            Intergovernmental  Cooperation
            — Stroud, Oklahoma

            Tlie City of Stroud and neighboring communities face a solid waste disposal
            problem with the area's only kndfill reaching capacity. Drawing on its recent
            successful experience with a public-private partnership, Stroud initiated a
            multigovemmental approach to tk region's long-term solid waste needs in
            collaboration with tk  private sector.
            Timty-five neighboring municipalities joined Stroud on a solid waste task
            force to develop an integrated sohd waste management plan and a regional
            imste authority.
            The ejort to develop a preventive regional approach to solving waste problems
            attracted stateioide attention as well as financial and legisktive swpport from
            tk Oklahoma legislature.
tate  •
 ''^    ***  -^ '***"' u* "u^" 5 ,,rf ,
       "   "'''''
                                                                 finadicing models  for environmental protection

    What environmental
 challenge was addressed?
Stroud is a small rural town
in central Oklahoma with the
only working landfill site
within a 20-mile radius and a
state-of-the-art medical waste
incinerator. Stroud faced two
problems. First, within seven
years Stroud's landfill would
reach capacity, leaving it and
most nearby towns with no
cost-effective alternative.
Second, Stroud needed to find
a place to dispose of the ash
generated by the medical
waste incinerator. Partyka
Resources, the company that
owns the incinerator, had a
prior agreement: the company
would burn the town's solid
waste if, in exchange, the
town's landfill would accept
the ash.
  In 1990, the state's laws
changed to require that all ash
landfills be lined. Stroud had
to develop a cost-effective
strategy for disposing of
the ash and of its own non-
burnable solid waste. Because
the medical waste incinerator
built by Partyka Resources
was widely viewed as a
success, local leaders were
convinced that any new solid
waste solution should involve
the private sector.
  What financing concept
    was demonstrated?
Regionalization offers a chance
for communities not only to
combine local governments'
resources but also to leverage
the private sector's technical,
financial, and management
resources. The regional frame-
work adopted in Stroud en-
compassed six counties and
more than a quarter of a mil-
lion residents. The regional
authority planned to contract
with the private sector to
design and construct a new
regional landfill and waste-
to-energy facility.
solid  waste

              How was the project
          The city manager in Stroud
          and other members of nearby
          local governments were con-
          sidering the formation of a six-
          county solid waste authority.
          The regional authority would
          site a waste incinerator and
          new landfill in Stroud as well
          as establish recycling and
          composting programs. How-
          ever, the local leaders lacked
          expertise in developing such a
          plan and needed resources for
          implementation. Furthermore,
          the state of Oklahoma had
          limited experience with creat-
          ing and delegating authority
          to a regional waste organiza-
  A demonstration grant
provided by EPA through the
International City/County
Management Association
(ICMA) allowed for a special-
ist from a solid waste author-
ity in New York State to visit
Stroud. This manager spent
three days on a "peer ex-
change" discussing with
members of a newly formed
task force how to set up and
run a regional waste; authority.
The task force, composed of 30
members, represented Stroud
and 25 surrounding towns.
In February 1990, ICMA
organized a three-day
conference in Oklahoma City
in conjunction with EPA's P3
program. The conference
highlighted regional solid
waste approaches and
financing alternatives using
public-private partnerships.
 What was accomplished?
The Oklahoma City confer-
ence sponsored by this
demonstration grant drew
over 60 local government
officials from the six-county
region around Stroud and
from other cities in Oklahoma,
Kansas, and Texas.The confer-
ence sparked regional and
state interest in solid waste
management and produced
the following results:

   • Nationally recognized
    planners and technical
    experts helped local
    officials prepare a strate-
    gic plan. The solid waste
    task force became the
    Central Oklahoma Solid
    Waste Planning Council
    and began to file for
    status as a regional
            financing models for  environmental  protection

    Representatives from the
    Oklahoma State Legisla-
    ture who attended the
    conference became ad-
    vocates for the regional
    plan. The Oklahoma
    State Legislature voted to
    help subsidize Stroud's
    integrated solid waste
    management plan and so
    support the implementa-
    tion of the proposed
The Stroud project
prompted a spate of
legislative activity on
solid waste issues.
Legislation that has
spun off from this project
includes a recycling law,
a measure to reduce
packaging to limit land-
fill wastes, and a procure-
ment law mandating
government purchase
of recyclable products.
       What were the
      lessons learned?
Regionalization requires
leadership, commitment, and
continual education of community
decision makers and the public.
Stroud's experience orchestrat-
ing a regional waste disposal
plan demonstrates the impor-
tance of effective leadership.
Every project needs a dedi-
cated, energetic leader who
can win broad-based support
and sustain it through
   Bringing all the stake-
holders together at the
outset to learn about the costs
and benefits of alternative
approaches ensures a strong
sense of commitment to the
solid waste

           selected approach. After a
           vigorous education effort on
           the Stroud project, each com-
           munity was asked to demon-
           strate its commitment to the
           project with a ten-cents-per-
           capita levy. This commitment
           was as important psychologi-
           cally as it was financially in
           the early stages.
              To the extent possible, key
           community leaders from local
           businesses, churches, and
           other groups should play an
           important role in formulating
           regional programs. These
           leaders will be instrumental in
           educating the community and
           garnering critical support for
           bond issuances, user fees, or
           rate increases.
Regional efforts are ways for smaller
communities to meet new regulatory
and infrastructure demands.
The small communities
around Stroud had little ability
to cope with their solid waste
collection and disposal prob-
lems. The regional approach
can make state-of-the-art
solutions affordable to many.

       Where  can  this
       model apply?
Thousands of communities
could benefit from better
services and lower costs by
taking a regional approach to
environmental services. Com-
munities can share expertise,
pool their marketing; efforts,
negotiate more effectively for
contract services, and enjoy
economies of scale essential to
many environmental projects
such as landfills and waste-to-
energy facilities.
Whom do I contact for more
information on this project?
CaU ICMA's Conference and
Communications Director,
Russell Hawkins, who
managed this project, at
202/962-3671. Tom Moore,
Region 4's P3 Coordinator, can
be reached at 404/347-4728. g%
            financing models for environmental  protection

                                                                      a dings
Carolan, Milou. "Regional Approaches to Environmental Manage-
ment." Public Management, Vol. 72, no. 2 (March 1990): 15-20.
Ewel, Dexter, and Frank C. Shaw. "Risk Allocation in a Changing
MRF Industry." BioCyde (April 1990): 64-67.
Green, Cheryl. "Lee County Unites to Solve Disposal Problems."
World Wastes, Vol. 33, no. 1 (January 1990): 36-38.
Shanahan, Eileen. "Going It Jointly: Regional Solutions for Local
Problems." Governing, Vol. 4, no. 11 (August 1991): 70-76.
So, Frank S., Irving Hand, and Bruce D. McDowell, eds. The Practice
of State and Regional Planning (Washington, DC: American Planning
Association and International City/County Management Associa-
tion, 1986).
Vasuki, N. C. "Solid Waste Authorities: Getting Movement on
Needed Projects." Solid Waste & Power (August 1991): 20-28.
 solid waste



Drinking Water Cooperatives/Circuit Riders
What parties were involved
     what was the time
Mobile Home Park Cooperatives
—Berks County, Pennsylvania
Because of inadequate resources and the kck of trained personnel for monitoring
and maintenance, many small water systems are out of compliance with federal
and state regulations.
Eleven mobile home park in Berk County, Pennsylvania, formed a drinking
mter cooperative to bring their small systems up to standard. The cooperative
contracted a private firm as a circuit rider to kip train operators bring Mr
systems into compliance.
W/f/i regular visits from a technkally trained circuit rider and monthly meetings,
cooperative members received the education and practical assistance necessary for
achieving water quality standards.
At the cotnpletion of this project, all partkipating water systems met federal and
state standards and their operators knew how to operate and maintain them.
                                                                          ;,; "home parks
                                                                          ""' „ ~^Z, *'"£*'•*" "^"'/'{

                                                  financing models for environmental protection

    What environmental
 challenge was addressed?
Small water systems—defined
as those with fewer than 3,300
customers—account for 90%
of all systems in the United
States. Many of the smallest
water systems, such as those
found in mobile home parks,
are out of compliance with
federal and state regulations.
Because of their limited size,
such systems do not generate
enough revenue to support
qualified operators, let alone
necessary improvements and
extensive monitoring. As long
as there are no outbreaks of
illness or other obvious prob-
lems, ensuring compliance
with drinking water require-
ments is generally not a prior-
ity of mobile home park
 What financing concept
  was demonstrated?
A cooperative can be
formed whenever a
group of individual enti-
ties has similar needs. The
entities work together so they
may more efficiently buy, sell,
or improve their product and
take advantage of economies
of scale. Through a drinking
water cooperative, members
may find they can achieve
savings by jointly buying
chlorine and other supplies or
contracting for testing and
monitoring services from one
firm. In this instance, small
water system owners collabo-
rated to educate themselves
about water treatment stan-
dards, to learn how to bring
their systems into compliance,
and to control costs in the
    How was this project
The operators of 11 mobile
home parks organized into a
cooperative. By combining
their efforts and resources,
they were able to become
more knowledgeable, jointly
receive engineering and man-
agement services, and secure
monitoring and treatment
contracts. A water quality
expert serving as a circuit rider
conducted field services such
as routine system testing and
drinking water

  At monthly group meet-
ings, the park owners dis-
cussed the development of
the cooperative and received
updates on regulations and
compliance issues. State regu-
lators had the opportunity to
present compliance problems
and answer owner questions.
State officials also provided
assistance on administrative
requirements such as the de-
velopment of operation and
maintenance plans. The own-
ers were informed about
systems permitting and
operator certification and
received training in water
quality monitoring. :   .
 Water testing at a participating mobile home park
 What was accomplished?
After the six-month pilot
period, no violations of drink-
ing water laws or regulations
remained in the 11 participat-
ing parks. Other project
achievements include:

   • Issuance of five
     additional permits
   • Preparation of eight
     operation and mainte-
     nance plans
   • Development of eight
     emergency response
• Certification of two
 operators with four
 others in process
• Source metering by two
 mobile home parks
• Disinfection added to one
 water treatment system
                                           financing models for environmental protection

       What were the
      lessons  learned?
A "spark-plug" leader is needed to
motivate others to join a cooperative.
In the mobile home project
and others, a motivated leader
or "spark plug" is necessary to
get others interested in form-
ing a cooperative and to keep
members focused on their
common goals.
Cooperative members exhibited a
strong bias for independent operation.
The incentives for cooperation
have to be compelling. Many
owners were interested in
joining only if the cooperative
would save them significant
amounts of money or help
them achieve compliance
where there was a threat of
Active participation in a cooperative
will depend on attitudes and external
Motivation for joining a coop-
erative depends on a park
owner's attitude toward the
importance of maintaining
water quality as well as the
owner's often competing
financial interests. The threat
of enforcement actions by
regulatory agencies as well as
opportunities presented by
entrepreneurs or trade asso-
ciations in providing better
services are often important
factors. As in the Berks
County, Pennsylvania, project,
external factors may be the
impetus for a cooperative but
its success will almost always
rest on whether there are real
or perceived benefits for the
drinking water

                 Where can this
                  model apply?
          The cooperative formed in
          this demonstration project
          addressed drinking water
          concerns and involved mobile
          home park owners and opera-
          tors. However, the same con-
          cept may be applied to other
          needs. In Florida, small waste-
          water systems have adopted a
          similar cooperative approach.
          Other possibilities include ,.
          campgrounds, small business-
          es, subdivision associations,
          small municipalities and
          investor-owned systems. Co-
          operatives can provide a range
          of services, including routine
          operations, special compliance
          upgrades, education and
          training, and cooperative
Whom do I contact for more
information on this project?
Jay Africa of the Pamsylvania
Department of Environmental
Resources, who monitored
this project, can be reached at
717/787-5017. Dale Long,
Small Drinking Water System
Specialist in EPA's Region 3
(215/597-3427), and Cathy
Mastropieri, regional P3
Coordinator (215/597-4149),
can provide additional infor-
  Copies of the workbook for
the Berks County project are
free from the EPA's Public
Information Center. Call
202/260-7751 and request
Quality Drinking Water through
Cooperatives: A Hozv-to Worfc
book for Small Water Systems.
For a copy of a more detailed
report, write the EPA Drinking
Water Resource Center, U.S.
EPA, Office of Ground Water
and Drinking Water, WH-550,
401M Street SW, Washington,
DC 20460. fa
                                                      financing models for environmental protection

                                                                         ,a d i n g s
 Circuit Riders: Providing Technical Assistance to Rural America
 (Duncan, OK: National Rural Water Association, 1991.)
 Hall, Bruce E, and Lana Hall. "The Potential for Growth of Con-
 sumer Cooperatives: A Comparison with Producer Cooperatives."
 Journal of Consumer Affairs, Vol. 16, no. 1 (Summer 1982): 23-45.
 Kohrell, Mary, and Gary J. Olson. "Whaf s the Future of Coopera-
 tive Marketing?" Resource Recycling, Vol. 9, no. 6 (June 1990): 34-37.
 Yancey, Jim. "Rural Concerns in the Wastewater Field."
 Missouri Water Pollution Association Newsktter, Vol. 30, no. 3
 (Summer 1991): 6. (In this short article, Yancey advocates the
 development of rural wastewater cooperatives and welcomes
 inquiries at 314/751-1602. For information on a working model
 of the use of a circuit rider for drinking water and wastewater,
 contact J. Stephen Schmidt, Vice President of American Common-
 wealth Management Services Company, at 717/312-2721.)
drinking water

           Drinking Water Bond Pools
           Tax-Exempt Financing:
           Maine Rural Water Association
           —State of Maine
           Many small private drinking water suppliers will fa unable to comply with
           the 1986 amendments to tk Safe Drinking Water Act (SDWA) for economic
           reasons. They are ineligible for government subsidies and, without access to
           tax-exempt financing, may not be able to pay commercial rates to finance needed
           The Maine Municipal Bond Bank and tk Maine Rural Water Association are
           working with tkse suppliers to form a bond pol, enabling tk suppliers to
            form funds at favorably low interest rates.
            Tim project is demonstrating ejective ways to work with interested suppliers,
            bond agencies, underwriters, state legislators, and bond bank officers. The project
            will also produce model legal and financial documents for creating similar bond
            pools in other states.

" ,/'
rfl.j-rl*Asr--"  .

                                                               financing models for  environmental protection

     What environmental
  challenge was addressed?
 The State of Maine is dotted
 with small water systems
 serving rural communities.
 These facilities sorely lack the
 resources to pay for the drink-
 ing water improvements now
 required under the SDWA.
 Traditionally, small water
 suppliers have been frequent
 violators of drinking water
 standards, especially the
 reporting and monitoring
 requirements. The goal of this
 partnership is to assist small
 private water systems serving
 the public in securing tax-
 exempt financing for system
 modifications required by
 the SDWA. The amendments
 of 1986 require monitoring of
 over 100 different contami-
 nants, effective wellhead
 protection, corrosion control
 programs, and filtration to
 meet surface water treatment
   What financing concept
     was  demonstrated?
Bond banks, like the Maine
Municipal Bond Bank, provide
communities access to the
national bond market. A
bond bank's primary purpose
is to help finance public infra-
structure projects through the
issuance of bonds. In this case,
tax-exempt financing will
enable small private utilities
to afford improvements for
drinking water supplies.
  A bond pool is formed
when several local govern-
ments or utilities
get together to
share front-end
costs, reserve
requirements, and related
expenses and also combine
their individual loan requests
into one bond issue. By work-
ing together in this project,
small private water companies
are able to access tax-exempt
financing, borrow funds at
more favorable interest rates,
and significantly
reduce other
related costs of
drinking water

                               —e-."—rr—V-- 	.m"-«-^"^°fJ.»y
required. The program coordi-
nated by MRWA will help
these small, private water
companies secure tax-exempt
loans through participation in
a bond pool. Thus, the water
suppliers will lower the costs
of borrowing money and
make needed improvements
more affordable.
  Fourteen private commu-
nity systems are potential
participants in the bond pool-
Serving as a liaison, MRWA
will coordinate activities
among the state regulatory
agencies, the underwriter, and
the borrowers. The association
is taking the following steps:

    • Establishing a work
     group of the relevant
     players, including the
     MRWA, the Maine Mu-
     nicipal Bond Bank, and
     the underwriting firm
   • Conducting educational
     activities on the use of \.
     tax-exempt financing ;
   • Identifying potential  ;.
    - bond pool borrowers •
     and having an under- .
     writer perform a finan-
     cial review of each
   • Conducting site visits
     and coordinating a pre-
     engineering review and
     a cost analysis for all the
     projects              .
   • Assisting utilities with'.
     securing new rate struc-
     tures to pay back their j
     indebtedness to the bond

Upon completion of these
steps, the Maine Municipal
Bond Bank is planning to issue
the bonds for investors to buy
in November of 1992.
  What was accomplished?
This project will help small
drinking water utilities afford
to comply with EPA standards
by providing low-interest tax-
exempt financing. The public
will receive the benefits of
better-quality water, more
reasonable water bills, and
continued service by the small,
private water enterprises.
drinking water

                  What were the
                 lessons learned?
           While not yet complete, the
           project's first phase of activity
           has suggested the following

           Private utilities serving the public can
           access tax-exempt financing to meet
           environmental mandates.
           If successful for drinking
           water utilities, this project
           could be an important national
           model for keeping regulated
           utilities serving smaller juris-
           dictions viable.

           Uncertainty over future regulations
           is frequently a cause of delay in
           proceeding with environmental
           infrastructure projects.
           Progress on this project has
           been delayed as potential
water-pool borrowers must
wait to learn whether they will
be exempt from the new sur-
face water filtration require-
ments. MRWAhas continued
to counsel affected communi-
ties on the options available to
them and assist local decision
makers with ways to meet the
other new requirements under
the Act.

Bridge financing to bring all
borrowers into the same time frame
for bond issuance may be needed.
It is difficult to keep* all
potential borrowers—water
suppliers of different sizes
and capacities—on the same
schedule. After the initial
feasibility study, each utility
must complete a full engineer-
ing design of the proposed
modifications. The engineer-
ing firms that borrowers select
will differ and it is unlikely all
the assessments will be com-
pleted in concert.

Even with tax-exempt financing, some
method of credit enhancement will be
Small utility bonds are usually
unratable, and even with tax-
exempt financing borrowers
will pay a premium on interest
rates. Interest rates can be
reduced through credit en-
hancement such as purchasing
insurance or having the moral
obligation of the state behind
the bonds.
                                                          financing models  for  environmental protection

 Not only do utilities have to
 be educated, but so do the
 regulatory officials.
 Presentations to the public
 utility commission and other
 state regulatory bodies may
 be necessary to keep public
 officials abreast of the actual
 circumstances and financial
 constraints faced by most
 small utilities.
            Where can this
             model apply?
          The bond pool
          model demon-
          strated in this
          project can be repli-
          cated by any pri-
          vately owned water
system that is regulated. Both
public and private environ-
mental infrastructure can be
financed by working through
a bond bank. Fifteen state
bond banks (see contact list in
Appendix C) now help rural
communities that are without
access to capital for infrastruc-
ture improvements. With
enabling legislation, any state
can form an entity to sell tax-
exempt revenue bonds under
the federal tax code  and repli-
cate Maine's ongoing experi-
ment in drinking water
      How can I get more
  information on this project?
  The bond pool financing
  concept is transferable to
  other utilities striving to pay
I for system modifications. To
| discuss this project, contact
 |Steve Levy, Executive Director
 •pf the Maine Rural Water
 %ssociation, at 207/729-6569.
 For additional information,
 contact Joanne Lynch
 (202/260-1459) at EPA
 Headquarters.  £b
drinking water

          Allison, Barney A., and Keith D. Curry. 'Tax-Exempt Bond
          Financing for Waste-to-Energy Facilities." Financing Public Works
          0uly/ August 1991): 17-19.
          Hoffman, Michael J. R., William G. Mister, and Jerry R. Strawser.
          "The Tax Reform Act of 1986 and Tax-Exempt Financing: Analysis
          and Speculation." The Government Accountants Journal (Winter
          Quarter 1989): 43-51.
          Julian, Arthur J. "The Pooled Government Loan Program: An
          Infrastructure Financing Alternative." New Jersey Municipalities
          (November 1987): 18,46.
          Municipal Bonds. MIS Report #40074, Vol. 19, no. 6. (Wasliington,
          DC: International City/County Management Association, June
          Peterson, John, et al. Credit Pooling to Finance Infrastructure,
          Research Report, Government Finance Research Center
          (Washington, D.C.: Government Finance Center, 1988.)
                                                     financing models for environmental protection


            Wastewater  Privatization and
            Small Communities
            Models for Unincorporated Areas
            —Elephant Butte, New Mexico

            Small communities with limited financial resources face numerous difficulties
            in trying to met wastewater treatment requirements.
            Tliese communities nave a narrower range of available options for managing and
            financing environmental infrastructure than larger municipalities that can take
            advantage of economies of scale and have greater access to capital markets.
            The purpose of this demonstration project was to explore how various puUic-
            private partnerships might kip small communities of less than 2,500 residents
            meet their ivasteivater needs.
            Several financing strategies were developed for the unincorporated torn of
            Elephant Butte, New Mexico. To use these strategies, the community first
            needed to consider several institutional options such as annexation,
            incorporation, expanding an existing sanitan/ district, or regionaliwtion.
                        • •^^ammaSfti-.,-. .-' - •«•
                        What parties were
financing  models  for environmental  protection

    What environmental
 challenge was addressed?
Wastewater treatment systems
often require access to signifi-
cant capital. Because many
small communities do not
qualify for long-term fixed rate
or other favorable financing
terms, the lack of affordable
financing can be a significant
barrier for them. The situation
has become increasingly acute
since the passage of the 1986
federal tax law amendments
that reduced the amount of
tax-exempt financing available
for environmental projects.
The phasing out of federal
construction grants has added
additional pressure to locate
new resources. With weak
local economies and declining
populations, many rural com-
munities cannot afford signifi-
cant utility rate increases.
  With grant assistance from
the P3 program, the unincorp-
orated community of Elephant
Butte, New Mexico, set out to
resolve a sewage treatment
problem. All of the town's
1,800 residents are on indi-
vidual septic tank systems or
small cluster systems. The
failure of several of the sys-
tems had threatened to con-
taminate local surface and
groundwater sources—includ-
ing the town's lake, which
is one of the few water
recreation areas in New
Mexico. A lot-size build-
ing moratorium on new
construction has been
enacted, limiting com-
mercial growth in the
view of town business
  What financing concept
    was demonstrated?
An analysis was performed
for Elephant Butte of the
public-private options for
planning, financing, construct-
ing, managing, and operating
their own wastewater treat-
ment system. The options for
contracting with a private
company to meet the town's

           wastewater needs, however,
           were limited because Elephant
           Butte is not an incorporated
           town. Coping with this institu-
           tional barrier became the first
           phase of developing a partner-
           ship to meet Elephant Butte's
   How was this project
The objective of the project
was to explore workable
financial and management
options for small community
wastewater systems seeking
to comply with federal water
quality standards. This was
done through an analysis
conducted by the Rural Com-
munity Assistance Corpora-
tion (RCAC) with assistance
from CoBank, a federally
chartered bank that makes
loans to agricultural coopera-
tives and rural utilities. Steps
taken included performing
site assessments, developing
a framework to assist local
officials in analyzing their
options, and conducting an
evaluation of available alter-
  RCAC identified each
financing option and its key
components. An evaluation
was conducted to determine
the annual cost to the commu-
nity, institutional and manage-
ment impacts, risks and legal
constraints, and the effect on
project scheduling associated
with each option. Meetings
with local community mem-
            financing models  for environmental protection

bers were organized with
participation from CoBank,
representatives from a local
rural electric cooperative, a
sanitation district, and county
officials to assess public sup-
port for the various financial
and institutional options. As
one of the most promising
solutions, Elephant Butte
could install 11 new cluster
systems, each at a cost of
$395,000 excluding the pur-
chase of the land.
  What was accomplished?
First, the community was
presented with an analysis
of its options. Next, the com-
munity had to make some
institutional changes before
financing its wastewater treat-
ment improvements. Without
a legal entity, Elephant Butte
was not eligible to obtain any
type of financing, public or
private. The residents had to
decide which type of institu-
tional arrangement was most
appropriate given the legal,
geographic, political, and
financial conditions of the
  The analysis by RCAC
highlighted four alternatives:
annexation, incorporation,
expansion of the existing
sanitary district, and region-
alization. As a prerequisite for
incorporation, Elephant Butte
received an exception from
state law on the population
density required to incorpo-
rate. However, when in-
corporation went to a vote,
the community did not sup-
port it. Public ambivalence
about being annexed to a
nearby town or becoming a
separate legal entity through
incorporation raised fears
about taxes. As Elephant Butte
grows and its wastewater
problems persist, however, the
town may elect to incorporate
as its best option.

             Other alternatives required
           approval by the governing
           boards of existing legal
           entities such as the local sani-
           tary district or the rural
           electric cooperative located
           in Elephant Butte. The Rural
           Economic Development loan
           and grant program allows
           rural cooperatives to borrow
           from the Rural Electric Admin-
           istration at no interest for rural
           development initiatives. If
           approved, me community
           could finance their wastewater
           facility through the local rural
           electric cooperative using no-
           interest funds, or it could work
           through the local cooperative
           to obtain a private loan from
           CoBank. Another possibility is
           collaboration with other towns
           in the region to construct a
           regional wastewater treatment
       What were the
      lessons learned?
Small communities need greater
expertise to make informed decisions.
Faced with complex financial
and legal alternatives, small
communities often need out-
side advice to make informed
decisions. They frequently lack
the expertise to conduct a
technical analysis of public-
private partnership develop-
ment and financing options.
To ensure that they under-
stand the true costs and
benefits of each option, local
governments should consider
hiring legal and technical
Developing financing alternatives
is a multiphase process.
Before deciding on specific
financing arrangements,
small communities often
need to consider the more
fundamental issue of how
they will organize them-
selves. In Elephant Butte, for
example, institutional changes
needed to be made before the
town could have access to
affordable financing. Public
consensus is needed for
pursuing any of the following
alternatives: annexation, incor-
poration, joining an existing
sanitary district, or region-
alization. Small communities
frequently decide to adopt
such changes slowly. The first
attempt to incorporate in
Elephant Butte may well set
the stage for later approval
of this option.
            financing  models  for environmental protection

 Incorporation may be the simplest way
 for some small communities to finance
 their environmental needs.
 To finance a facility,
 unincorporated communities
 may have to establish a sepa-
 rate legal entity that can as-
 sume debt (i.e., issue bonds),
 have taxing authority, and
 charge user fees. Integral to
 deciding how to finance a
 project is determining what
 institutional arrangement will
 best meet a community's
 needs from a legal and politi-
 cal perspective as well.
Public support is essential for success.
Citizens often do not act until
there is a crisis. Educating
them about the consequences
of not taking action to provide
for wastewater treatment, and
explaining the financing alter-
natives early on, are essential
elements of any strategy to
win public support.

Rural electric cooperatives are
a resource.
Rural electric cooperatives are
potential vehicles for facilitat-
ing public-private partner-
ships in small communities.
With the 1987 amendments
   to the Rural Electrification
      Act, the Rural Electric
        Administration can
         provide zero-inter-
           est loans to pro-
           mote rural
           economic devel-
            opment and job
              creation. These
loans must be handled
through a rural electric or
telephone cooperative that
will bear responsibility for
repayment of the loan.

Private lenders can be a source
of capital.
Private lenders like CoBank
will become a more significant
option to small communities
as federal grants and state
loans are limited or no longer

                Where can these
                  models apply?
          Although this project focused
          on wastewater treatment, the
          lessons learned are relevant to
          other rural communities pur-
          suing environmental financing
          options for drinking water
          and solid waste facilities. The
          major barrier facing Elephant
          Butte in obtaining financing is
          its unincorporated status. In
          some cases, another entity
          may be able to apply for pub-
          lic funds on behalf of an
          unincorporated community.
   Whom dp I contact for
     more  information?
Elizabeth Ytell, Director of the
Environmental Sendees Divi-
sion of the Rural Community
Assistance Corporation, man-
aged this project. She can be
reached in Sacramento, Cali-
fornia, at 916/447-2,854.
Marlene Regelski of EPA's •
Office of Wastewater Enforce-
ment and Compliance can
provide further information at
202/260-7284. Bob Carson, P3
Coordinator for Region 6, can
be reached at 214/655-6530. 4*
                                                      financing  models for environmental  protection

                                                                           a  d  i  n  g  s
Clarkson, Kenneth W. "Privatization at the State and Local Level."
In Privatization and State-Owned Enterprises. Edited by Paul W.
MacAvoy, W. T. Stanbury, George Yarrow, and Richard J.
Zeckhauser. (Rochester, NY: Kluwer Academic Publishers, 1989):

Feinbaum, Robert. "Climate Right for Creating New Cities."     •
California Journal (October 1987): 497-499.

Funding Environmental Programs: An Examination of the Alternatives
(Washington, DC: National Governors' Association, July 1989).
Giraudo, John P. "Breaking Free of Federal Grant Restrictions:
Making Infrastructure Privatization a Real Option." Policy Insight,
no. 127 (Santa Monica, CA: Reason Foundation, February 1991).
"Through the Revolving Door: An Evaluation of Rural Wastewater
Financing." The Rapoza Report (Washington, DC: Center For Com-
munity Change, 1991).

Trends and Issues in the Use of Intergovernmental Agreements and
Privatization in Local Government, Baseline Data Report #40311,
Vol. 21, no. 65 (Washington, DC: International City/County
Management Association, 1990).

            Wastewater Privatization  and
            Economic Development
             Private Investment
             —Welch, West Virginia
             Welch is a coal mining community in West Virginia in violation of state
             wasteimter standards and under a federal court order to construct a sewage
             treatment plant.
             This project assisted Welch in solving its sewage treatment crisis byf\mding a
             feasibility study for a gravity-fed wastewater collection system that would tie in
             with a privately owned wastewater treatment facility.
             Under a P3 agreement, Capels Resources, Inc., proposed to construct a large
             landfill in  Welch that would accept out-of-state solid wastes as well as municipal
             solid waste from nearby communitks. In exchange for permission to site the
             landfill, Capels agreed to treat sewage from Welch in the wastewater facility it
             had to Mid to treat the landfill leachate.
             Wastewater treatment costs for Welch will be lowered by about one-third by the
             tie-in to Capels' wasteivater facility. Welch will avoid building a new wastewater
             treatment plant, a savings of about $3 million dollars, and, can reduce its annual
             operation and maintenance costs by an estimated $50,000.
financing models for  environmental protection

    What environmental
  challenge was addressed?
The City of Welch is out of
compliance with West Virginia
state wastewater standards
and is under a.federal court
order to construct a sewage
treatment plant. Welch, a poor
rural community which still
discharges untreated sewage
into local rivers, does not have
enough money to build a
wastewater plant. The unem-
ployment rate is around 30%
and the town has come close
to bankruptcy. A private firm,
Capels Resources, has pro-
posed to build both a landfill
for out-of-state solid waste and
a wastewater treatment facility
to treat leachate from the land-
fill. Capels will grant use of
these facilities to Welch in
exchange for the right to
build the proposed environ-
mental facilities. A partnership
between Capels and Welch
offered a way to meet two
critical needs—sewage treat-
ment and waste disposal—
and, in the long run, to spur
local economic growth.
  What financing concept
    was demonstrated?
Capels Resources, Inc., needed
a location to construct a for-
profit landfill that could accept
a large volume of nontoxic
solid waste from northeastern
cities. Welch offered a strip-
mined site of about 5,000 acres
and signed an agreement with
Capels in 1988. The agreement
outlined the terms for the
company's investment. In
return for a location to site
the landfill, Capels would
construct a private waste-
water facility that would treat
Welch's municipal sewage.
This project demonstrates
the types of conditions that
encourage a company to in-
vest and some of the benefits
a community can expect to
negotiate under privatization.
Such public-sector benefits
frequently include lower user
fees, more rapid project com-
pletion, and reduced long-
term costs.

              How was the project
          The city received grant sup-
          port from EPA to perform an
          engineering design study to
          explore joint use of the pro-
          posed Capels wastewater
          facility. Based on the study's
          findings, the city planned to
          achieve compliance with
          environmental regulations by
          linking the community's open
          sewer lines to the privately
          owned wastewater treatment
Wastewater discharge pipe terminating in Elkhorn Creek, a small side
creek in Welch. This is a typical set-up for a cluster of six to ten families,
and there are about 100 similar arrangements in town.
  The tie-in would reduce
construction, operation, and
maintenance costs to Welch
by about one-third. With a
state-approved design study
in hand, Welch can gain access
to $5.6 million in EPA con-
struction grant momes to
build the wastewater collec-
tion system. In return for the
city's approval of the landfill
site, Capels would provide
free solid waste disposal, and
 a percentage of the revenues
from the landfill would go into
a county improvement fund.
Capels' landfill operation
alone would provide up to
150 permanent jobs for local
  In the fall of 1991 after
the EPA-funded project had
ended, legislation was passed
in a special state legislative
session that placed a volume
cap on West Virginia landfills.
Extensive lobbying by Welch
and McDowell County offi-
cials produced an exception
allowing counties the option
                                                       financing  models  for  environmental protection

to vote by referendum to raise
this cap. However, this higher
landfill size limit still falls
short of the planned 300,000-
ton-per-month capacity that
Welch and Capels Resources,
Inc., had envisioned in their
1988 agreement.
   While some reformulation
of the Capels/Welch project
has been necessary, it is
apparent an even stronger
partnership has developed
in response to this latest chal-
lenge. Capels Resources has
made considerable investment
in the landfill site's design and
preparation, and the public
support in Welch and sur-
rounding McDowell County
remains strongly in favor of
this project.
  What was accomplished?
Through this project, Welch
gained momentum toward
solving its long-standing
sewage treatment crisis. The
grant-funded report helped
the city avoid a greater penalty
for its wastewater violations—
for which it had been fined
since 1986—and demonstrate
a good faith effort in meeting
state and federal wastewater
treatment requirements.
   To further strengthen the
Welch/Capels partnership,
ICMA conducted a conference
in July 1990 in Charleston,
West Virginia, on affordable
alternatives for drinking water
and wastewater systems.
Welch Mayor Martha Moore
received an award for her
exceptional leadership of this
complex project. The partner-
ship between Capels and
Welch was recognized for
potentially saving the commu-
nity the expense of building a
new treatment plant and for its
contribution to the develop-
ment of the county's economic
  The citizens of Welch view
the project as a boon to the
local economy. There has been
virtually no opposition to the
construction of the state-of-
the-art facilities proposed by
Capels. The many external
challenges—such as state legal
reviews, technology and site
approvals, and the most recent
volume cap restriction—
have only served to reinforce
the original partnership

                    were the
            lessons learned?
A carefully negotiated agreement is the
basis for a successful partnership.
In 1988, Welch and Capels
Resources, Inc., negotiated
 an excellent agreement that
bound the parties despite the
political and economic chal-
lenges that have occurred
throughout the life of the
The private partner can make an
important contribution toward
public education.
In this project, broad public
support can be credited in part
to the private firm's strong
outreach campaign to win
backing for its partnership
with Welch from the outset.

Staying abreast of political and
legislative developments can be crucial.
Every effort should be made
to maintain a favorable institu-
tional environment for a pub-
lic-private venture that will
benefit both parties. Welch's
mayor and other local officials
worked hard on this project's
behalf to lobby the state and
prevent the enactment of
inhibiting legislation. As a
precaution, the study funded
under this EPA demonstration
project looked at various
options for financing Welch's
sewer treatment needs, not just
the possibility of tying in with
Capels' treatment plant. The
pre-engineering study,. ,.—
findings remain relevant to
whatever solution is finally
adopted. Moreover, legislation
that passed along with the
state volume cap will tax
landfills, and these new rev-
enues will go toward financing
sewage treatment and other
public infrastructure in low-
income communities like
                                              financing models for environmental protection

Local expertise is needed to guide
complex, technical projects through
to completion and ensure that all
decisions made in the process meet
the community's goals and objectives.
The Welch project has been
fortunate to have two real
"spark-plug" leaders with
local influence and knowl-
edge. One was the mayor of
Welch, elected in 1986, and the
other is an experienced engi-
neering consultant on retainer
to the city who also served as
project coordinator.      '
       Where can this
        model apply?
Rural towns like Welch in
many parts of the country are
regularly approached by the
private sector with solid waste
and other infrastructure  pro-
posals that may or may not
benefit the community.
Welch's experience shows that
partnerships can serve a rural
community well if the initial
agreement is carefully negoti-
ated and the risks and benefits
are fairly divided. Such a
contract sets the stage for a
close working relationship
between partners, one that is
built on good communication
and trust.
    Whom can I contact
    for more information
       on the project?
Project Coordinator Frank
Sampson works on a part-time
basis for the City of Welch
and has tracked this initiative
since its beginnings. Contact
him at Sampson & Associates,
304/733-2648, or Welch Mayor
Martha Moore at 304/436-3113
for more information about
this partnership. ICMA's
Public-Private Partnership
program manager, June
Beittel, can be reached at
202/962-3615.  fa

          Achieving Economic Development Success: Tools That Work, Special
          Report #40468 (Washington, DC: Interhational City/County
          Management Association, 1991).
          Developing Public/Private Approaches to Community Problem Solving.
          MIS Report #30724, Vol. 14, no. 7 (Washington, DC: International
          City/County Management Association, July 1982).
          Farr, Cheryl. "Encouraging Local Economic Development: The
          State of the Practice." In The Municipal Yearbook 1990 (Washington,
          DC: International City/County Management Association, 1990).
          Guzek, Robert S. "The Economics of Privatizing Wastewater
          Treatment Facilities." The Privatization Review, Vol. 5, no. 3
          (Summer 1990): 7-12.
          Kane, Matt, and Peggy Sand. Economic Development: What Works
          at the Local Level (Washington, DC: National League of Cities,
          December 1988).
          Monteilh, Richard, and William H. Tremayne. "The New
          Necessity for Public-Private Partnership." Financier, Vol. 14, no. 10
          (October 1990): 43-47.
          "The Partnership Works in Riverside." Waste Age, Vol. 18, mo. 3
          (March 1987): 34-40.
financing models  for environmental protection



How to Apply for a

Demonstration  Grant

The selection process begins in the spring
with the regional P3 coordinators' solici-
tation of proposals for P3 grant projects.
Applicants complete a questionnaire
addressing specific selection criteria. The
coordinators review the applications and
forward them to EPA Headquarters with
their recommendations for funding.
  An external advisory committee,
consisting of prominent professionals
from both the public and private sectors,
reviews all the proposals submitted to
headquarters and recommends the best
projects for funding. Based on the com-
ments of this committee and on input
from the program and regional offices
within EPA, the Assistant Administrator
for Administration and Resources Man-
agement selects the projects to be invited
to make formal grant applications.
  A person in each EPA Regional Office
is designated the project officer for each
successful proposal and is the primary
person responsible for monitoring that
     Criteria for Selection

• Demonstration projects should test
 and demonstrate innovative or alter-
 native financing.
• The private sector should have some
 investment in the project.
• The project should be easily repli-
 cated by other communities.
• The grant funding request should
 not exceed $50,000.
• Grants should be used not to
 construct or design a facility, but
 rather to provide a community
 with needed legal, financial, and
 technical expertise.
• The project should help one or
 more economically disadvantaged
 communities meet an environ-
 mental goal.
• Part of the grant funds should be
 used to prepare a how-to guide or
 other documentation of the project
 so others may replicate it. &%

                      Types of Privatization
                      The typology below is taken from EPA's
                      previously published guide Public-Private
                      Partnership Case Studies: Profiles of
                      Success, September 1989.

                      Contract Services. In this type of arrange-
                      ment, 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 wastewater
                      treatment 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 regula-
                      tory or enforcement pressure to achieve
                      minimum environmental standards, or
                      escalating operating and maintenance
                        Many communities have found that
                      contracting with the private sector is
                      cheaper than public provision of services.
                      This has been confirmed in several sur-
          veys 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%
          less than public delivery of the service.

          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 user fees
          of one sort or another. Performance risk,
          on the other hand, is generally assumed
          by the private partner, with written guar-
          antees of minimum levels of services and/
          or compliance with all applicable environ-
          mental standards.
            While no statistics have been collected
          on their frequency, turnkey transactions
          have been relatively common for many
          years, especially for solid waste disposal
          and wastewater treatment facilities.
financing models for environmental  protection

Developer Financing. In this type of
arrangement, a private party (usually a
private developer) finances the construc-
tion or expansion of an environmental
facility in return for the right to build
houses, stores, or industrial facilities.
  In a typical 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 treatment plant, which is
used to expand or upgrade the facility.
  Developer financing arrangements,
which are often called capacity credits,
sewer access rights, impact fees or exac-
tions, are most commonly found in the
wastewater treatment area.
  While no statistics are available on the
frequency of developer financing, anec-
dotal reports suggest that this type of
privatization 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.
Private Ownership. In private ownership,
a private party owns, builds, and operates
a facility. The party also partially or totally
finances the operation.
  The private ownership of environmen-
tal facilities was a popular concept prior to
the passage of the Tax Reform Act of 1986.
As a result of reduced tax incentives, how-
ever, private interest in owning facilities
that provide public services has been
reduced considerably.
  Where strict privatization continues to
be pursued—in solid waste management,
largely—government is motivated by the
goal of sharing the risks of high-technol-
ogy solutions to environmental manage-
ment. The private profit incentive remains
where tax-driven benefits have been re-
placed by higher payments for services
(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
sector own 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. Mer-
chant plants are generally associated with
the provision of solid waste management
services: landfill, composting facilities,
and recycling plants. £b

                     State Bond Banks
                     Alaska Municipal Bond Bank Authority
                     Judith M. Brady, Executive Director
                     601 West 5th Avenue
                     Suite 430
                     Anchorage, Alaska 99501

                     Illinois Development Finance Authority
                     Ronald Bean, Executive Director
                     Suite 980
                     Chicago, Illinois 60602

                     Indiana Municipal Bond Bank
                     James C. Snyder, Executive Director
                     251 North Illinois Street
                     Suite 970
                     Indianapolis, Indiana 46204
         Louisiana State Bond Commission
         Rae W. Logan, Director
         P.O. Box 44154
         Baton Rouge, Louisiana 70804

         Maine Municipal Bond Bank
         Robert Lenna, Executive Director
         EO. Box 2268
         Augusta, Maine 04338-2268

         Michigan Municipal Bond Authority
         Sarah Ward Eubanks, Executive Director
         Treasury Building, Second Floor
         425 West Alleghan Street
         Lansing, Michigan 48922

         State of Mississippi Bond Bank
         Thomas Brooks HI, Bond Advisory Director
         P.O. Box 267
         Jackson, Mississippi 39205

         State Treasurer's Office
         Robert L. Seale
         101 North Carson Street
         Carson City, Nevada 89701
         702/687-5200                :
financing  models for environmental  protection

New Hampshire Bond Bank
Hoyt Haney, Executive Director
10 Park Street
Concord, New Hampshire 03301

Dormitory Authority, New York
John Egan, Executive Director
161 Delaware Avenue
Delmar, New York 12054

New York State Municipal
Bond Bank Agency
3 Park Avenue, 33rd Floor
New York, New York 10016

North Dakota Municipal Bond Bank
Bank of North Dakota Building
Bismarck, North Dakota 58501

Division of Bond Finance
Ann Butterworth, Director
James K. Polk State Office Building
Suite 1600
Nashville, Tennessee 37219-5050

Vermont Municipal Bond Bank
Malcolm Rode, Executive Director
P.O. Box 1219
Montpelier, Vermont 05602
802/223-2717  **

          Public-Private Partnerships
          Regional Coordinators
          George Mollineaux
          EPA-Region 1
          John R Kennedy
          Federal Building
          Boston, MA 02203
          (617) 565-9442

          Janet Sapadin
          EPA-Region 2
          26 Federal Plaza
          New York, NY 10278

          Cathy Mastropieri
          EPA-Region 3
          841 Chestnut Street
          Philadelphia, PA 19107
          (215) 597-4149

          Tom Moore
          EPA-Region 4
          345 Courfland Street, N.E.
          Atlanta, GA 30365
Paul Lee
EPA-Region 5
77 West Jackson Boulevard
Chicago, IL 60604-3507

Bob Carson
EPA-Region 6
1445 Ross Avenue
Dallas, TX 75202-2733
(214) 655-6530

Ray Hurley
EPA-Region 7
726 Minnesota Avenue
Kansas City, KS 66101

David Warm
EPA-Region 8
Suite 500
999 18th Street
Denver, CO 80202-2:405
Marsha Harris
EPA-Region 9
75 Hawthorne Street
San Francisco, CA 94103
(415) 744-1635

Matt Coco
EPA-Region 10
1200 Sixth Avenue
Seattle, WA 98101
          financing models for environmental protection

           EPA Regions
.  5
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Rhode Island
South Carolina
South Dakota
 6   —   Texas
 8   —   Utah
 1   —   Vermont
 3   —   Virginia
10   —   Washington
 3   —   West Virginia
 5   —   Wisconsin
 8   —   Wyoming

 9   —   American Samoa
 3   —   District of Columbia
 9   —   Guam
 9   —   Northern Mariana
 9   —   Pacific Trust Territories
 2   —   Puerto Rico
 2   —   Virgin Islands

                      For Additional Copies, Contact:
                      Public Information Center
                      US. EPA
                      401M Street, SW
                      Washington, DC 20460
                      Telephone: 202/260-7751

                      For ICMA Publications Cited in the Case
                      Studies of This Document, Contact:
                      ICMA Distribution Center
                      P.O. Box 2011
                      Annapolis Junction, MD 20701
                      Telephone: 800/745-8780
financing models  for environmental protection