United States Office of
Environmental Protection The Comptroller
Agency (H-3304)
June 1991
Public-Private
Partnerships
"Environmental Entrepreneurs
Changing Directions in the
1990s"
Region 3 Workshop Proceedings
Penn Harris Inn and Convention Center
Camp Hill, Pennsylvania ,
September 20.-1-990
PUBLIC
Solid Waste
Drinking Water
Wastewater
PRIVATE
EPA'
~'205V ,
1991.2
*!'<' M
I c.2
Printed on Recycled Paper
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Preface
These edited proceedings are from the U.S. Environmental Protection Agency
Region in conference entitled "Environmental Entrepreneurs: Changing Directions in
the 1990s", convened in Harrisburg, Pennsylvania on September 20,1990. This is
the first State level Public-Private Partnerships conference to be held in the
nation.
Several case studies are included here which document initiatives underway in
Region IE. These case studies were developed by interviewing both public
officials and their respective private partners. We ask that you provide us with
your views and comments on the ideas and suggestions presented during the
conference. As you explore the viability of public-private partnerships for your
community or environmental program, we hope you find the materials useful
and informative.
Charles L. Grizzle Edwin B. Erickson
Assistant Administrator Regional Administrator
Office of Administration and Resources Management Region III
U.S. Environmental Protection Agency U.S. Environmental Protection Agency
2 HEADQUARTERS LIBRARY
ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
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Table of Contents
Page
Preface
Welcome/Opening Remarks
Cathy Mastropieri
P3 Coordinator
Chief, Grants and Audit Management Branch
U.S. Environmental Protection Agency, Region III
Philadelphia, PA
Keynote Address
Financing Environmental Protection:
A National Challenge
John J.Sandy
Director, Resource Management Division ~ '
Office of Administration and Resources Management
U.S. Environmental Protection Agency
Washington, DC
What are Public-Private Partnerships? 7
Leonard Bechtel
Public-Private Partnership Staff
Resource Management Division
Office of Administration and Resources Management
U.S. Environmental Protection Agency
Panel #1: Privatization: The Myths and Realities 10
Panel #2: Affordability 18
Luncheon Speaker 27
The Honorable Stephen Reed
Mayor
City of Harrisburg, Pennsylvania
it
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Page
Case Study #1: 31
Berks County, Pennsylvania
Supporting the Operation and Maintenance of Drinking Water Systems
at Mobile Home Parks
Case Study #2: 38
Welch, West Virginia
Wastewater Collection System Turnkey Project to Tie-in with
Wastewater Treatment Merchant Facility
Case Study #3: 41
Mercersburg, Pennsylvania
Wastewater Treatment System Privatization
Case Study #4: 44
Downingtown, Pennsylvania
Wastewater Treatment Plant Partial Privatization
Case Study #5: 46
Conemaugh Township, Pennsylvania
Residential Recycling
List of Workshop Attendees 49
EPA Office of The Comptroller 53
P3 Staff Roster
Roster of EPA Regional P3 Coordinators 53
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Public-Private Partnerships Workshop: Camp Hill, PA September 20, 1990
Welcome/Opening Remarks
Cathy Mastropieri
Publk-Private Partnership Coordinator
Chief, Grants and Audit Management Branch
U.S. Environmental Protection Agency, Region III
Philadelphia, PA
Welcome to EPA's second Region HI Public-Private Partnerships (P3)
conference. Last year's conference, "Public-Private Partnerships for Environmental
Services: Solid Waste, Drinking Water, and Wastewater", outlined roles for key
players in P3 initiatives. It sought to promote public-private partnerships as
one of several available innovative approaches to financing environmental
protection.
This conference focuses on small communities and the benefits that
partnerships can bring as they seek to provide environmental services within
their financial and budgetary constraints. Public and private partners from
Berks County, Mercersburg, Conemaugh Township, and Downingtown, ,
Pennsylvania, and from Welch, West Virginia have brought their experiences
to share with us today on diverse projects involving water supply provision,
wastewater treatment, and recycling. Their approaches are likewise diverse,
including privatization, turnkey, and merchant facility methods to be discussed
in this morning's session on "What is a Public-Private Partnership?"
We are fortunate to have John Sandy, the official responsible for EPA's
Public-Private Partnership Initiative, offer our keynote speech today on
financing environmental protection. We are also pleased that Stephen Reed,
the Mayor of Harrisburg is with us today and will speak during lunch about the
experiences and prospects of public-private partnerships for Harrisburg and
similar communities. The conference includes three panels, discussing the
myths and realities of privatization, affordability of environmental services by
communities/ and five presentations on local experiences with partnerships.
We are pleased you have joined us today and we hope the discussions
are useful in helping you explore the viability of partnerships, especially in
communities seeking to provide environmental services in a period of fiscal
constraint.
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Public-Private Partnerships Workshop: Camp Hill, PA September 20, 1990
Keynote Address: Financing Environmental Protection
John J.Sandy
Director, Resources Management Division
Office of The Comptroller
U.S. Environmental Protection Agency
Washington, DC
Introduction
Public-private partnerships are really nothing new. What is new is that
EPA has taken the position of supporting these partnerships as a way to finance
environmental infrastructure projects. And what's also very new, is that EPA
is no longer pursuing only a "command and control approach."
Writing regulations and enforcing compliance is of course one of the
Agency's critical missions, but today, we're looking to get ahead of the curve
and provide whatever help we can to communities across America in the fight
against environmental pollution problems. The Public-Private Partnerships
Initiative, or P3, as we call it, was born in 1988, out of the conflict of two very
important national priorities:
Society as a whole his placed the protection of the environment on the
front burner in the political arena
The federal government is facing a period of necessary and real
budget cutting, leading to fewer and fewer federal dollars available
to help with environmental financing.
Perhaps the single most important factor of governing over the past
decade is the effort to limit spending at the Federal level. And environmental
protection has not been an exception. EPA's operating budget in real dollars
has not increased much since 1981 and Congress continues to authorize new
programs every year.
The United States is currently spending close to $85 billion each year on
environmental protection. That annual expenditure is expected to jump to
one hundred forty-six billion by the year 2000. And, what's more, a recent EPA
study has identified an environmental infrastructure "funding gap" of more
than twenty billion dollars annually in the year 2000. Most of this gap will be
experienced at the local level.
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Public-Private Partnerships Workshop: Camp Hill, PA September 20, 1990
We continue to see significant shortfalls between resources required to
protect our environment and human health, and the resources that will be
available for spending. As all of you face your own local budget problems, the
President and Congress are grappling with an enormous Federal budget deficit.
The effects of all of this are likely to ripple through all of our pocketbooks
before long. The problem is of such magnitude, that simply put, our needs go
beyond the reach of public revenues alone.
All over the country, new landfills need to be sited at a great cost. A
generation of waste treatment facilities are nearing the end of their useful life.
And many water works, some built a hundred years ago, function with archaic
distribution systems and are in severe need of upgrading. Repair or
replacement is inevitable.
The Problems of Small Communities
At the same time, there exists a very important subset of communities
that have yet to meet their existing regulatory obligations. And what must be
most frustrating is that we see new regulations and programs heaped on top of
the old. We hope that we can be of help to all communities, large and small,
but we are especially aware of the significant and sometimes overwhelming
problems that lie before the smallest of communities.
We are a nation of small communities. One-half of all of our local
governments represent fewer than 1,000 people and 63% represent fewer than
2,000. That's more than 25,000 governmental units. More astonishing is that
the average annual revenues of these governments are about $200,000.
And those annual revenues must go to pay for road and bridge repair,
police and fire protection, salaries, rents, maintenance and on, and on. And you
know who is running these small governments. Merchants, farmers,
housewives and more; citizen volunteers participating in the greatest political
experiment the world has ever known: representative democracy. I don't
think you'll find too many environmental research scientists or engineers or
financiers as part of these governments. I'm aghast when I think of how much
paperwork these citizens must have to pour over daily to assure compliance
with one regulation or another.
Well, we certainly don't have all the answers to help small communities
through their trials, but we do have the will and determination at the EPA to
try to be of assistance. One example of this is the recent appointment of a Small
Community Coordinator at the EPA in Washington. This coordinator serves as
an advocate for small community issues throughout the Agency.
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Public-Private Partnerships Workshop: Camp Hill, PA September 20, 1990
EPA's Public-Private Partnership Initiative
And another major response to these ever growing burdens has been the
Public-Private Partnership or "P3" Initiative. We have charted this course
because in the final analysis, financing is the engine that drives public policy
forward. Without proper financing in the environmental area, all the
regulations written in Washington will have little effect. The "P3" program
has several key objectives:
increase awareness about the potential for partnerships in the
environmental arena,
eliminate unnecessary the barriers to non-traditional financing
mechanisms, and
facilitate a dialogue between the public sector at the federal, state
and local levels and the private sector across the country.
Last year, we began a series of regional conferences designed to bring
together representatives from governments, industry, the legal and financial
communities, and academia to discuss what-it takes to create successful,
working partnerships. We hope to spark new public-private ventures through
these conferences and encourage the states to sponsor workshops for local
governments like this effort today.
We've held five regional conferences to date and more are planned in
the near future. Are these conferences having any effect? Well, a North
Carolina community recently formed a partnership after attending one of these
sessions and is well on the way to environmental compliance. Achieving
public acceptance of these partnerships takes a lot of work. So we at EPA have
become actively involved in a number of demonstration projects.
One such project is right here in Pennsylvania. A major objective of
these hands-on projects is to build a body of knowledge about public-private
partnership techniques and working experience in partnerships. We're also
increasing the pool of successful partnerships that can serve as examples for
other interested communities.
Our demonstration program consists of small one-time grants from the
EPA to help defray legal and financial expenses incurred when entering into a
public-private partnership. By the end of this month, we will have funded ten
such projects, and additional projects will be chosen annually beginning next
year. In exchange for these grants, the recipient agrees to act as a model for
other communities. This is an important requirement because we are looking
to replicate success through this active body of knowledge.
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Public-Private Partnerships Workshop: Camp Hill, PA September 20, 1990
The Environmental Financial Advisory Board ("EFAB")
The last element of our P3 program, though certainly not the least, is the
Environmental Financial Advisory Board or "EFAB" as we call it. It's made up
of elected and appointed officials from towns, cities, counties and states as well
as members from the federal government, industry, and the financial and
banking communities. Two of our members come from communities with
populations of fewer than five thousand people. This independent body is
charged with advising EPA on financial issues as they relate to environmental
management. We hope their recommendations will influence national policy
in the future. The Board has several important goals:
first, to study and recommend new ways to finance environmental
infrastructure and program needs,
A wide range of options are on the table including: environmental
infrastructure bonds, infrastructure banks, income tax check-offs and the
expanded use of state revolving funds. There is also some talk about an
environmental trust fund to help capitalize environmental needs.
The second goal is to review tax policy with an eye towards making
recommendations that would make environmental financing easier.
As you are all probably aware, many feel that the changes in the 1986 Tax
Reform Act set up barriers to innovative financing. We are looking at many
ideas, such as those proposed in Senator Pete Domenici's Environmental
Infrastructure Bill, which was introduced in the last session of Congress. The
Senator, who is a member of the Board, is recommending the creation of a new
class of tax exempt bonds to finance environmental projects as well as provide
other incentives for private involvement. The Board is also considering
advocating a new direction in tax policy - the use of tax incentives to
discourage polluting behavior.
Identify financing solutions for small communities
This third goal is perhaps the most ambitious. As we are painfully
aware, there are communities which lack the basic environmental services. In
this category are the smallest of communities which have found it impossible
to meet their environmental needs. The Board is tasked here to find financial
arrangements that have worked in the past or could work at the smallest
community level. A special subcommittee has been formed to address this
most pressing of issues and we are looking forward to its recommendations.
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Public-Private Partnerships Workshop: Camp Hill, PA
September 20, 1990
Finally, the Board will be examining ways to encourage greater
private investment in environmental infrastructure projects and
environmental services.
We have a number of private interests represented on the Board, so I'm
sure we'll be seeing a wide range of proposals. Some of the ideas the Board is
presently reviewing are changes in government procurement practices,
regulatory provisions which discourage competition, and ways to mitigate risk
for private investors.
Priorities do change, especially in the environmental arena. But what
has not changed is the continued growth in environmental protection
programs. To meet those demands, EPA must become ever more responsive to
state and local officials who are on the front line. To do so, we must be
innovative. We need to support new ideas that bring groups together, so that
lasting answers are found.
The problem of infrastructure financing will only be solved by actions
taken in every community across the country. Public-private partnerships are
one solution. I think this conference will bring us a little closer to realizing
how these partnerships can help our communities.
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Public-Private Partnerships Workshop: Camp Hill, PA September 20, 1990
What are Public-Private Partnerships?
Leonard Bechtel
Public-Private Partnersh
Resources Management Division
Office of The Comptroller
U.S. Environmental Protection Agency
Washington, DC
The purpose of my presentation is to provide some background
information on what a public-private partnership is and to define the different
types of public-private partnerships. This afternoon's panel will review case
studies that exemplify several forms of partnerships. In each of those case
studies we hope to describe: implementation of the partnership; selection of the
private partner; financing and procurement arrangements; and advantages and
disadvantages associated with the partnership.
Partnership Definitions
"A public-private partnership is a contractual relationship between a
public and private party that commits both to providing an
environmental service."
At least five types of public-private partnerships exist. They involve
varying amounts of private involvement. The key features of each type of
partnership are as follows:
Contract Services
In this type of partnership, the private sector is contracted to provide a
specific municipal service, such as garbage collection or to maintain and
operate a facility such as a waste treatment facility. The facilities are owned by
the public sector. Contract services are most common in the solid waste area;
the primary advantage is lower costs, or improved service delivery. The
municipality also loses some control over operations.
Turnkey Projects
In this type of arrangement the private sector designs, constructs, and
operates an environmental facility. The facility is still owned by the public
sector. The private sector assumes more risk, and cost savings may result by
working with only one contractor for design, construction and operation rather
than two or three. These partnerships are pursued mostly in waste-to-energy
and recycling facilities.
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Public-Private Partnerships Workshop: Camp Hill, PA September 20, 1990
Developer Financing
In this type of arrangement, the private sector (usually private
developers) finances the construction or expansion of an environmental
facility in return for the right to build residential or commercial facilities. This
type of partnership works best in growing communities since those responsible
for growth pay for the expansion of the facility.
Privatization
In this type of public-private partnership, the private sector owns, as well
as builds and operates the facility. They also partially or totally finance the
facility. Private investment reduces public need for capital, but the
municipality has reduced control over policy objectives.
Merchant Facilities
In this type of arrangement, the private sector makes a business decision
to provide an environmental service to a community with the expectation that
they will profit from the service provided. In merchant facilities not only does
the private sector own and operate the facility as in privatization deals, but it
also makes the decision to provide an' environmental service to a community.
Merchant facilities are usually 100% financed with private sector funds; this
type of financing, however, will not work for all types of environmental
services.
The chart (on the following page) depicts the general division of
responsibilities between the public and private partner for potential activities
according to each type of partnership. Note that as private involvement
increases, two things happen: }
the private sector invests more of its funds; and
the private sector assumes more of the risk for the effective operation of the
facility,
Conversely, the greater the private involvement the less control the
municipality has over the delivery and cost of the service. In deciding what
kind of partnership is most appropriate, communities have to make trade-offs
between these three factors: private investment, risk, and control. Partnerships
have to be tailored to the needs of communities. Certain types of partnerships
will work more effectively than others, depending on the requirements and
needs of the community.
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Public-Private Partnerships Workshop: Camp Hill, PA
September 20,1990
Activity
Decision to
Provide Services
Financing
Design
Construction
Ownership
Operation &
Maintenance
Contract
Services
Public
Public
Public .
Public
Public
Private
Turnkey
Facility
Public
Public
Private
Private
Public
Private
Developer
Financing
Public
Private
Either
Either
Either
Either
Privat-
ization
Public
Private
Private
Private
Private
Private
Merchant
Facility
Private
Private
Private
Private
Private
Private
In summary, there are three considerations to keep in mind:
there are many different types of public-private partnerships;
a partnership must be tailored to meet the needs of a community; and
advantages to public-private partnerships include lower cost,
greater expertise, improved performance, and faster completion.
As we listen to the case studies later today, we should seek to
understand, first, what makes these partnerships successful, second, what was
the advantage in using the private sector (reduced costs, speedier project
completion, access*to specialized expertise) and, third, what were some of the
barriers that had to be overcome in implementing the projects.
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Public-Private Partnerships Workshop: Camp Hill. PA September 20, 1990
Panel #1: Privatization: The Myths and Reality
Moderator:
Stephen Allbee
Director, Planning and Analysis Division
Office of Municipal Pollution Control
U.S. Environmental Protection Agency
Washington, DC
The purpose of this panel is to discuss the value and role of privatization
in supporting public sector goals to provide environmental services. What and
how much can be expected of the private sector to carry out publicly mandated
services? Privatization may have much to offer in the provision of such
service innovation, creativity, and flexibility in planning and carrying out
projects are primary among them.
It is a myth, however, to think that the public sector no longer plays a
role in providing environmental services once they have been "privatized."
Although the public sector may not be involved in daily operations, it must
continue to work with the private partner to ensure that performance and
policy goals are achieved.
The panelists this morning will discuss the important roles that both
public and private parties fulfill in order to ensure that partnerships occur as
often as they can meaningfully contribute to environmental protection.
Panelist:
Cynthia C. Kelly
Director of Environmental Programs
International City Managers Association (ICMA)
Washington, DC
There is much to be said for public-private partnerships from the
community's perspective. However, there are a number of considerations that
local officials should keep in mind while exploring partnerships options.
First, you need an impetus for action.
In some cases this may be a strong and sustained crisis, such as lack of
adequate wastewater treatment or drinking water supplies. Alternatively, there
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Public-Private Partnerships Workshop: Camp Hill, PA September 20. 1990
may be the threat of penalties for failure to provide a specific service or
pressure from the public for action.
Second, a sound, flexible plan to achieve its goal is critical
The key here is good data and analysis. Planning for environmental
services should involve an advisory group of stakeholders such as
environmental interests, other public agencies, the private sector, affected
interests and the public. Planning should seek to learn from the past, deal with
political changes, and borrow sblutions from others.
Third, communities should look for affordable solutions.
They should understand there is no free lunch. Small communities are
especially shackled by high per capita costs and should identify cost savings like
using staff more and consultants less, seek out peer exchanges, and again,
capitalize on the solutions others have found rather than reinventing them.
Fourth, public involvement is important in order to prevent future
surprises and to limit unanticipated costs.
Survey the public in advance and ask exactly how much they are willing
to pay and what they are willing to do. Present some options and use the input
to refine the choices. And finally, open the decision making process to gain
ideas and encourage participation, leadership, and responsibility on the part of
the public.
Fifth, projects work when there is strong project leadership.
Find a leader and obtain a professional team with technical, financial,
legal, and political expertise. And make sure the team can and does work
together with a common purpose.
Sixth, communities should use the media.
It's a powerful tool for shaping public opinion. There is always the
potential for opposition to the services that a community provides. The media
can help educate and raise the awareness of the public and decision makers to
enhance the debate and improve the prospects for informed decision making.
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Public-Private Partnerships Workshop: Camp Hill, PA September 20, 1990.
Finally, all these things should take place in the context of
considering the long-term needs of the community.
Immediate and pressing problems need to be resolved. But they are best
solved by thinking through the long-term implications rather than by a short-
term fix.
Panelist:
James F. Hopkins
Director of Marketing
PSC Engineers & Consultants, Inc.
No longer can the Federal government principally support the efforts to
maintain our environment. Considering the fact that the current level of
environmental protection programs will require the local public sector to
spend an additional $20 billion per year by the year 2000; there is clearly a
substantial need for utilization of the private sector in public-private
partnerships.
EPA's "Self-Help Guide for Local Governments" contains a matrix chart
showing various types of partnerships and the roles of the public and private
partners. The myth is that tax law changes have taken the attractiveness out of
the business. While the impact is real, the fact is there are still many other
potential arrangements.
"Why Undertake a Public-Private Partnership?"
Again, referencing the Self-Help Guide, there are five basic reasons to
consider entering into a public-private partnership. As we review these
reasons today, I'd like to provide some insight into the realities associated with
these reasons. These insights are based upon personal experiences with
successful P3 cases. As we do this it is important to understand the relationship
of the private and public sector. All too often the ways of the private sector are
dismissed as not appropriate because they are profit driven. Yet all the goods
and services purchased by the public sector have a private sector source.
In effect, what we are saying is while the ideology of the private and
public sectors are different and perhaps incongruent, the real goal of EPA's
Public-Private Partnership Initiative is to utilize the methodology of the
private sector, which is tried, proven and constantly refined to satisfy a major
need of the public sector.
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Public-Private Partnerships Workshop: Camp Hill, PA September 20, 1990
There are a number of reasons for undertaking public-private
partnerships:
Access to more sophisticated technology
As local officials, part-time volunteers in most cases in Pennsylvania,
your awareness and access to technology may be limited. The private sector has
greater capabilities, understands the limits of various technological
applications, and is able to predict more accurately the costs and benefits.
For example, the private sector was able to identify the utility of a wastewater
treatment system with biological nutrient removal requirements.
In Kerrville, Texas, Air Products was able to install its A/O process into
an existing wastewater facility upgrading its performance levels from a 30/30
(BOD/TSS in mg/1) permit to 5/5 with seasonally varying NH^ and P limits
and an increased plant capacity from 2.2 to 3.5 MGD. The alternative proposals
using more traditional technology all proposed installing a second parallel
facility. The project which included significant collection work was awarded at
$6.5 million versus over $10 million for their competitors' more traditional
approaches.
In Upper Saucon Township (Lehigh County) Pennsylvania, again Air
Products utilized its A/O technology for a new grass roots facility which
provided the lowest cost alternative to the Township in response to a
privatization bid in early 1988. All proposals were lower than the engineer's
estimate for a design, bid, construct approach.
On the drinking water side in Howell Township, New Jersey, PKF-Mark
in was the successful bidder in a design/build or turnkey project for a 4.0 MGD
water treatment facility. Utilizing the Krofta process, PKF Mark ffl provided
the lowest cost alternative to the Authority.
Kerrville and Upper Saucon are in operation and have been meeting
permit requirements for over a year. Howell Township has not yet initiated
operations.
Cost effective design, construction, and/or operation
The private sector offers several advantages to the public sector here,
including an awareness for "the bottom line", experience, and timeliness. For
example, municipalities and small utilities are often subject to the belief that "it
costs what it costs", and so there is little desire to properly manage costs.
However, if the private company wishes to survive it must properly control
and manage costs. In addition, the private sector possesses substantial
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Pubiic-Private Partnerships Workshop: Camp Hill, PA September 20, 1990
experience. Its employees are specialists who offer a variety of expertise, whose
skills are available on an as-needed basis.
For instance, the Borough of Lititz, Pennsylvania was concerned about
increasing problems with quality and reliability of their water and wastewater
treatment facilities, a 3.0 MGD and a 3.5 MGD facility, respectively. Lititz
investigated several contracting operations and maintenance services and
selected PSC Environmental Services, Inc. Since then, O&M costs have been
reduced, and the community has been able to project costs more accurately.
The wastewater treatment plant was recently awarded EPA Region III
Operations Excellence Award.
Finally, through a sole responsible party, the time between design
completion and procurement of a construction contractor is minimized. Also,
it may be possible to reduce the amount of review time required by regulatory
agencies through the efforts a public-private partnership. In both Kerrville,
Texas and Upper Saucon Township, the facilities were designed, permitted,
constructed, and operating in less than 16 months.
Flexible financing, including the use of private capital
A third reason for investigating the viability of a partnership is the
potential for flexible financing. Although most believe that financing
advantages departed with the Tax Act, there is still room for the private sector
to offer the public sector significant benefits. An obvious example of this is the
use of private capital to fund environmental facilities.
The private sector can also assist communities that have multiple capital
financing needs, particularly those with insufficient debt capacity to pursue
financing on its own. For example, PSC/ES is considering financing a water
system for a county that wants to reserve its bonding capacity to support school
and other community projects.
Delegation of responsibility and risk
Designing, constructing or operating new environmental facilities may
far exceed the expertise of your municipal organization. The establishment of a
public-private partnership can offer the capacity to have these skills and still be
focused on (mutually) desired goals. These risks could include delay, plant
performance or compliance, liabilities for costs, reliability of equipment and
services, and future needs.
Contract operations services traditionally include protection from fines
for permit violations, back-up personnel and equipment for emergencies and
technical services to address changing situations. Risk sharing options are
available to offset contingencies for costly yet rarely expected occurrences. A
risk issue on the Kerrville/ Texas project was the location of the collection
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Public-Private Partnerships Workshop: Camp Hill, PA September 20, 1990
system since there were no studies made for certain potential expansion areas.
The final contract included a listing of units and costs for piping allowances
which would be finalized after a review of City needs.
Guaranteed cost
Finally, a fifth reason for partnering with a private firm is the cost
guarantee for the development, construction, and operation of a facility.
"Bottom-line" accountability for a major undertaking can be obtained from the
private sector. By eliminating or reducing contingencies, it also simplifies the
budget process.
Panelist:
Donald Rugh
Planning and Analysis Division
Office of Municipal Pollution Control
U.S. Environmental Protection Agency
Washington, DC
Partnerships between the Federal, State, and local governments already
exist in the environmental protection field. Those of us at the Federal level
acknowledge, however, that serious problems exist in financing our projects
and programs. Something needs to be done. States and municipalities across
the country face new Federal regulatory requirements, particularly in the
surface water and drinking water areas.
The partnership between EPA and communities in the Clean Water
Act's Construction Grant program is evolving. Despite the phase-out of the
Title II program and implementation of the State Revolving Fund program,
the Federal government continues to be ready to lend its expertise and
experience to the funding problem in order to protect its investment in the
wastewater field. In addition, environmental projects and programs must
compete with education, police, health care and other public programs for a
shrinking piece of the public dollar. The Federal budget deficit continues to
occupy the attention of Congress.
Back to our topic today public-private partnerships. Changes to the
Federal Tax Code Tax in 1986 and 1988 have made P3s more complicated.
Rather than being involved because of the tax benefits granted to this class of
projects, private companies must now consider the viability and profitability of
each project. Let me assure you, opportunities still exist.
To respond to constituent concerns about cuts in Federal aid to State and
local governments, Congressman Beryl Anthony of Arkansas formed the
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Public-Private Partnerships Workshop: Camp Hill, PA
September 20,1990
Anthony Commission on Public Finance in January of 1988 to review the
effects of the 1986 Tax Reform Act on the ability of State and local governments
to finance their growing responsibilities particularly in the infrastructure
area. While the Commission's October, 1989 report applies to all infrastructure
investment, it is particularly applicable to environmental infrastructure.
The Commission recommended that tax provisions designed to prevent
abuses to the system be re-examined. For example, bonds should be treated as
tax-exempt if the facility to be financed is publicly-owned or the benefits from it
accrue to the community at large. Limited exceptions to the arbitrage rebate
requirements were also proposed. To encourage investment in these types of
bonds, the Commission endorsed eliminating the tax-exempt interest
preference for private activity bonds under the individual and corporate
minimum taxes, eliminating tax-exempt interest from adjusted current
earnings, and increasing the $10 million small-issuer exemption to $25 million
to ease the placement of tax-exempt debt with banks.
Pending federal legislation which is of interest to those of us in the P3
community include:
S700 (Senator Domenici): would create accelerated depreciation and
volume cap exemptions^
HR3138 (Representative Anthony)
SI036 (Senator Leahy): the Private Partnerships Act would establish a
local revolving fund with grants.
S1296 (Senator Burdick): the Rural Water Assistance Act.
S1331 (Senator Bentsen): the Farm Rural Development Act would direct
State Revolving Fund loans and grants to economically disadvantaged
communities.
S1514 (Senator Bradley): includes provisions pertaining to Title n
construction grant-funded property and the Title VI State Revolving
Fund program, as well as expansion/upgrade of Title n-funded
facilities by a privatizer.
S2184 (Senators Baucus, Mitchell Byrd, Bentsen, Sasser, Aschel, Cohen,
Jeffords, and others): the "Super bill" with three titles: (I) establishes a
State Revolving Fund for small communities; (n) establishes a U.S.
Corps of Engineers grant program for economically disadvantaged
small communities; and (in) includes provisions from the Bradley bill
(S1514) pertaining to encumbrance and title issues.
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Public-Private Partnerships Workshop: Camp Hilt, PA September 20,1990
EPA is identifying and attempting to remove impediments at the Federal
level to public-private partnerships. We've focused our attention on three
areas: (1) federal tax policy; (2) the cost of proposed federal environmental
legislation; and (3) new federal environmental regulations. Specific activities
include:
holding or participating in workshops like the one here in
Pennsylvania.
preparing and distributing publications, such as "P3s in Wastewater
Treatment," as well as guidebooks and other self-help guides.
coordinating our efforts with the Environmental Financial Advisory
Board, the independent board of prominent representatives charged
with suggesting innovative environmental financing techniques, as well
as working to identify legislative and regulatory barriers to alternative
financing.
establishing an Environmental Finance Information Network to
promote discussion of environmental finance issues.
preparing case studies (like those we'll discuss later today).
funding demonstration projects.
Currently, the private sector is not permitted to own a facility in a
partnership arrangement if the facility was financed with EPA Construction
Grant funds. With the assistance of the Rural Community Assistance
Commission (RCAC), EPA is trying to document how this grant restriction has
hampered the ability of communities to deliver environmental services in the
most cost effective manner. We hope that a more in-depth analysis will focus
attention on the problems surrounding the definition of public ownership.
In conclusion, a major objective of these hands-on projects and case
studies is to build a body of knowledge about partnership techniques and
working experience in partnerships. As John Sandy noted earlier, we're also
increasing the pool of successful partnerships that can serve as examples for
other interested communities.
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Public-Private Partnerships Workshop: Camp Hill, PA September 20, 1990
Panel #2: Affordability
Moderator:
Paul Marchetti
Executive Director
Pennsylvania Infrastructure Investment Authority
(PENNVEST)
Introduction
The purpose of this panel is to highlight methods used to analyze and
evaluate the overall financial condition of a community, focusing on the
ability to "afford" or assume additional debt for new environmental projects or
services. From their unique perspectives, panelists from the U.S. EPA and the
Pennsylvania DER will discuss criteria used to analyze affordability as well as
programs available to provide financial assistance to small communities for
new environmental projects. Before I introduce the other panelists, I'll
provide a brief overview of my organization, the Pennsylvania Infrastructure
Investment Authority or "PENNVEST".
How PENNVEST Views Affordability
PENNVEST was created some two and one-half years ago to make water
and sewer projects affordable. The PENNVEST board of directors approves
low-interest loans (1-6 percent interest) and some grants to owners and
operators of sewer and water systems for infrastructure improvements. The
awards are for design and engineering, feasibility studies (water only) or
construction. Ceiling interest rates, the highest rates charged by PENNVEST
within each county, are set by a formula in the 1988 enabling legislation.
Loan interest rates are determined by county unemployment rates and
the interest rate of the most recent Commonwealth General Obligation Bond.
Counties with the worst unemployment receive the lowest interest rates.
Using a computer model, PENNVEST staff further refines the interest rates
charged to applicants. Staff use a computer model that calls for about 15 pieces
of data. The most significant are:
cost of the project,
number of residential connections, and
18
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Public-Private Partnerships Workshop: Camp Hill, PA September 20, 1990
present average annual residential user rate (i.e., the system's
annual billing from residential customers divided by number of
residential connections).
If the proposed project will raise the average annual residential user rate
significantly above the affordable level for that community, interest rates are
lowered from the county ceiling. If a one-percent loan still results in rates
above the affordable, the project may be eligible for some grant funding.
Through September, 1990, the PENNVEST board of directors had approved 454
projects for funding. They included $615 million in loans and $35 million in
grants. The maximum grant that the agency awards is $250,000 for water
projects and $500,000 for wastewater. Grant funding can be no more than 50
percent of total PENNVEST funding.
In the course of providing assistance to Pennsylvania communities,
we've discovered that there are two perspectives concerning affordability that
we must address the borrower's and the lender's.
The borrower's primary concerns include total project costs, increases in
user rates, and ultimately whether or not the community can afford the new
project Our challenge is to make community leaders understand that
PENNVEST can provide capital financing assistance to make a project more
affordable than it would have been with traditional municipal debt
mechanisms.
The other aspect of affordability comes from the people who are going to
lend us money to capitalize our fund. PENNVEST is also designed to have
revolving funds, not only through the Clean Water Act's State Revolving
Fund (SRF), but also with State money, that we can use to borrow and issue
revenue bonds. Consequently, when we were structuring our first revenue
bond issue during the summer of 1990, we realized that affordability is a very
big issue to the bond rating agencies. These groups want to know what
PENNVEST will do to make projects affordable so they won't go into default.
We explained to them how we look at affordability, how we look at project cost,
how we try to tailor our interest rate so that user rates are within a
community's ability to pay. One of the rating agencies even asked as us to
provide a detailed description of the models and criteria we use to determine
affordability.
In conclusion, affordability is a very central issue to PENNVEST. Our
ability to answer the questions of our distinct clients will obviously determine
how we borrow money now and in the future.
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Public-Private Partnerships Workshop: Camp Hill, PA September 20, 1990
Panelist:
Thomas O. Maher
Professional Engineer
Water Management Division, Region 3
U.S. Environmental Protection Agency
Philadelphia, PA
Many of the lessons learned about community "affordability" in the
Clean Water Act Title II Construction Grants Program are still useful for
municipal and State officials today. The purpose of my presentation, therefore,
is to review the benchmark "screening" criteria used in the Title n program to
identify high cost projects, look at various affordability criteria, and examine
the methodology used to translate construction costs to user costs.
My initial experience at U.S. EPA in the mid-1970's was to perform a
function that wasn't very popular ... to eliminate high cost projects in the
Construction Grants Program. In the heyday of the construction grants
program, many municipal officials and others deferred answering the
"affordability question", choosing first to select a treatment technology/facility
design and then calculate project costs. Over the past few years, the declining
role of the Federal government in financing wastewater treatment facilities has
altered that attitude. Most communities now begin assessing their funding
sources earlier in the process, asking "what funds are available and what can
we afford to build?".
I put an analysis together a few weeks ago to help a planning group that
was working with 60 small communities in West Virginia that were facing
enforcement action for operating in violation of the Federal Clean Water Act to
build a sewer project. I used this to show them the screening criteria
traditionally used to define a high cost project. Over the years, getting
agreement on this definition has not been easy. At U.S. EPA, we traditionally
use 1.5% user charge versus median household income as a benchmark
indicator. As the Construction grant program began to wind-down over the
last few years, many grant projects were coming in at 3% to 4% versus median
household income.
Consequently, I examined a randomly selected group of projects to test
our 1.5% benchmark. The exhibit (on the following page) shows the "normal
curve" for about 80 projects. What it tells us is that the mean of those projects
is 1.0% and the mean plus one standard deviation is 1.5%. Our benchmark
was accurate. Incidentally, West Virginia also uses the 1.5% benchmark;
multiplied by the state-wide median household income, the State arrived at a
figure of $240 as the maximum annual cost per household. (PENNVEST uses a
rate of 1.3% to 2.6%.)
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Public-Private Partnerships Workshop: Camp Hill, PA
September 20,1990
E.P.A. REGION HI
ANNUAL USER CHARGE PERCENTAGE
VS
MEDIAN HOUSEHOLD INCOME
$10,000- $17,000
(16 PROJECTS)
f
1"
10
«=IO%=MEAN
«= Iv = 13% = MEAN = STANDARD
DEVIATION
10%
LS%
2.0%
ANNUAL USER CHARGE PERCENTAGE OF MEDIAN
HOUSEHOLD INCOME (NORMAL CURVE)
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Public-Private Partnerships Workshop: Camp Hill, PA
September 20, 1990
Supplemental Information Sheet
This Supplemental Information sheet may be used by your community as the basis for an in-
depth evaluation of financial condition. It outlines a method for assessing a community's relative
financial strengths and weaknesses.
What Is The Community's Debt History?
Bonds Rating*
Community'* mo«t recent general obligation bond rating
Community1* mo*t recent revenue bond rating
Outstanding Debt
General Obligation Bond*
Rating
Rating
Date of rating
Date of rating
<500)
D.
Revenue Bond*
Gross Direct Debt
Direct Met Debt
Overlapping Net Debt
Overall Nat Debt
Other Debt
New Debt lor Other Capital Improvement*
Debt Repayment Schedule
Total Overall Net Debt Due
Onctudng new Iwue) within next 5 yew*
Debt Limits
Briefly describe any limit* on debt that apply to your community.
|S04)
(S05)
(508)
(507)
(508)
(SIS)
What % of your debt limit I* currently used?.
(SIT)
What Is The Community's Financial Condition?
MlOKtof nuny
Indicator
Indicatoi1
Slmng
1. Annual rale of change In population
2. Current surplus a* a % of total
current expenditures
3. Real property tax coHecdon rate
4. Property t» revenues a* a % of lull
market value el reel property
5. Overall net debt as a % of full nutrket
value of real property
8. Overall net debt outstanding as % of
pamonal tocorm
7. Direct net debt per capita t
8. Overall net debt per capita $
9. % direct net debt outstanding due
within next 5 year*
10. Operating ratio
11. Coverage ratio
% Below -1%
% Below 0%
% Below 96%
% Above 4%
% Above 5%
% Above 12%
Above (750
'Above $1.000
% Below 10%
% Below 100%
% Below 120%
-1% to 1%
0%to5%
6% to 98%
2% to 4%
3%taS%
4% to 12%
*250 io*750
1450 to S1.000
«0%fo30%
100% to 120%
120% to 170%
Above 1%
Above 5%
Above 08%
Below 2%
Below 3%
Below 4%
Be)ow*2»
Below $450
Above 30%
Above 12O%
Abov*17O%
(602)
<*«!
(816)
1620)
(621)
(630)
(631)
L
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Public-Private Partnerships Workshop: Camp Hill, PA
September 20, 1990
This analysis is flexible. It's hot carved in stone. We've done other
studies over the years, both in the Regional Office and at U.S. EPA
Headquarters in Washington. This is not the only indicator that should be
used. Other "red flags" that should pop-up when looking at project cost
include:
annual cost of operation and maintenance ... try not to let that exceed
$100 per year per household
total project cost per household ... try not to let that get above $4,000 to
$9,000 per household depending on how big (you) are ana other
circumstances
plant size ... try not to let plant costs exceed $4.50 of MGD size
try not to let the user charge per household exceed $250 to $350 per year
depending on the a community's wealth, population, and other variables.
With information on benchmarks and screening criteria as a backdrop,
let me now talk about some issues that pertain to communities that are able to
borrow funds to construct a water project. The chart (on the previous page) is
page 52 from U.S. EPA's Financial Capability Guidebook. The other 75 pages of
the book explain how to complete it.
The top of form enables a community to look at its debt history and get a
feel for whether it has the ability to take on additional debt to fund a project.
Generally, communities in Pennsylvania with a population of 25,000 or greater
have debt limits. Much of the information to complete this section is gathered
from mandatory annual audits and financial statements submitted by
communities through the Commonwealth's Department of Community
Affairs (DCA). If it's smaller than 25,000, we rely on other sources, such as
annual reports and audits, accounting records, and bank statements.
The bottom half of the form assesses community financial condition.
This portion, which the Government Finance Officers Association (GFOA)
helped us design, represents a simplified Moody's - Standard and Poors bond
rating methodology and asks a series of questions to determine the financial
strength of a community. The responses to these questions are placed into one
of three categories: weak, average, and strong.
In summary, this form allows a community to quickly assess its financial
condition, determine if it has the ability to grow, and get an indication of
revenue sources available to the community.
Now, a brief word about how to work backwards to project cost and
calculation of annual user charge rates. If a community, for example, has a
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Public-Private Partnerships Workshop: Camp Hill, PA
September 20, 1990
$4 million project, and let's assume that includes engineering, and bonding,
and legal costs, and overhead, and profits, I use a factor of 10% to figure put the
debt service on that. With a 20 year repayment term, that's:
10% x $4 million Project Cost = $400,000 Debt Service
You then take that figure, plus your operation and maintenance costs
(which you may have to estimate) and divide it by your customer base (I use
the number of dwelling units or homeowners) to calculate the annual user
charge rate needed to generate enough revenues to retire this loan and operate
the facility.
($400,000 Debt Service) + (Annual O&M Costs)
"Customer Base"
= User Charge Rate
In conclusion, wastewater treatment facilities are a major infrastructure
investment for any community. The average cost for a new or upgraded
treatment plant varies markedly with community size and its financial make-
up. Read the U.S. EPA brochure, Less Costly Wastewater Treatment for Your
Community, which contains a lot of information about technologies available
and project costs, specifically the range of project costs.
Panelist:
Ted Fasting
Chief, Planning & Management Section
Department of Environmental Resources (DER)
Commonwealth of Pennsylvania
Harrisburg, PA
The Pennsylvania Department of Environmental Resources works
closely with PENNVEST in evaluating projects and identifying projects both
for State and Federal funding. The purpose of this presentation is to discuss the
recent user cost affordability surveys performed by DER, as well as the
affordability model employed by the Commonwealth that tells you basically
what interest rate you need to charge given the cost of the project in order to
make it fall within the 1.0% to 1.5% user rate ranges discussed earlier by Tom
Maher.
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Public-Private Partnerships Workshop: Camp Hill, PA
September 20, 1990
I'd like to make a couple of general observations or statements about
affordability at the outset of my presentation:
what's affordable varies for each community;
many of the percentages used in the Pennsylvania model are based
on nation-wide statistics, as well as historical data from EPA's Title
II Construction Grants Program-, and
affordability issues have been addressed too late in the Title II
program, usually after the project planning phase.
For the past year or so, one of the DER's primary goals has been to
develop and implement our State Revolving Fund Program authorized under
Title VI of the Federal Clean Water Act. During this process the Department
began looking for community affordability indicators to replace those used, as
Tom Maher has described, in the Title n Construction Grants Program. DER
hoped these new indicators could also be used to assign affordable interest rates
for the new SRF Program.
In 1988 and 1989, the DER conducted community affordability survey
within Pennsylvania which, in the final analysis, yielded results similar to the
nationally-based U.S. EPA values or "user cost indicators". Our goal was to use
those indicators to assess affordability and financial capability very early in the
project planning process.
As a result of our survey and U.S. EPA's Financial Capability Handbook,
we created a computer model which essentially looks at a municipality's
financial capability and "back calculates" a project cost that would fall within
normal affordability criteria. Given the financial well being of the community
and knowledge of the project scope (i.e., attain secondary treatment, collection
system, etc.), a conscientious municipality can do a very thorough job through
the planning process to come up with a viable project. In terms of interest
rates, we are continuing to 'expand our use of the model to determine
affordable interest rates for each assistance applicant, and recommend an ideal
total project cost for the community.
In conclusion, municipalities can take a number of actions to improve
their affordability picture:
address project funding at the project scoping phase;
be more frugal in estimating project costs than (you) were in the
construction grants program;
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Public-Private Partnerships Workshop: Camp Hill, PA
September 20, 1990
re-evaluate project options which call for use of innovative/
alternative technologies. (Under new Title VISRF program there is
no financial incentive to use them like there was under the
Construction Grants Program. Communities will save construction
costs and O&M costs with a less fancy treatment technology): and
look for opportunities in regionalization and cooperatives. (Look
beyond project design/construction to facility management, pooling
services/resources, and other cost sharing arrangements. This will
be a challenge in Pennsylvania which has a very decentralized local
government system.)
Our evaluation of DER's affordability criteria showed that in
Pennsylvania the indicators are a little bit higher than what the national
numbers were. In fact, under the Grants Program, the median UCI (User
Charge Indicator) number as a percentage of median household income was
1.32%, with some projects as high as 5.0%. These figures are based on survey
responses from approximately 200 projects. In the non-grant cases, the average
UCI was 1.1%, with some projects again as high as 4% and 5%. The most
significant difference we observed as a result of our survey was that operation
and maintenance costs were significantly higher for Construction Grant-funded
projects. Why the difference? Some communities may not be maintaining
their facilities as well as they should; conversely, Construction grant projects
appear to be more expensive to operate and maintain than non-grant facilities.
Results of the DER affordability survey indicated that costs for publicly-
owned and operated facilities were similar to privately-owned. Our survey,
however, was limited by a lack of data on "merchant" (privately-owned)
facilities. Downingtown is probably the only such facility in the State.
Preliminary results from a Auburn University study had similar findings. It
should be released shortly.
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Public-Private Partnerships Workshopi: Camp Hill, PA
September 20, 1990
Luncheon Speech
The Honorable Stephen Reed
Mayor
Harrisburg, PA
Welcome to the Greater Harrisburg area and thank you for the
opportunity to speak to you. I'd like to begin my talk by highlighting some of
the increasing financial pressures placed on local governments during the
1980's and their projected impact for the 1990's.
In the early 1980's, Federal budget constraints forced cuts and the
elimination of many programs near and dear to local governments. Deep cuts
were made in the Community Development Block Grant (CDBG) program;
revenue sharing was eliminated; and pressures to improve rapidly
deteriorating public infrastructure continued to grow. New Federal and state
mandates have increased local governmental costs. Tax increases at the local
level have occurred throughout the nation.
More tough times are ahead. Many experts predict the Savings and Loan
scandal will cost taxpayers hundreds of billions of dollars, with bailout costs
coming principally from domestic programs. New Federal/State mandates in
the environmental and other areas have been placed on the doorstep of local
governments, particularly urban areas, along with the responsibility to find
revenues to fund these efforts.
The challenge for those of us at the local level is to balance the desire to
improve the "quality of life" in our communities, while holding the line on
the cost of public services, "the do more with less" struggle. These tough times,
however, also present entrepreneurial opportunities for public managers.
Now I'd like to talk about what we've been doing here in Harrisburg to
address these challenges and turn them into opportunities.
Eight years ago, Harrisburg, the capital city of Pennsylvania, was
bankrupt. We had seriously diminished sources of funding, millions of dollars
in unpaid bills, and had lost our credit rating. Federal funds were shut-off due
to our poor financial management. "Out" migration of businesses and people
(our population dropped from 90,000-50,000 between 1950-80) meant loss of
needed tax revenues. Loss of tax-paying businesses and families was
particularly devastating, as 50% of all real estate in Harrisburg is tax-exempt
because of county or State-owned property. Significant declines in revenues,
population and businesses, coupled with increasing legislative and regulatory
burdens led the U.S. Department of Housing and Urban Development in 1981
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Public-Private Partnerships Workshop: Camp Hill, PA September 20, 1990
to list Harrisburg as the second most distressed city in the United States under
Federal distress criteria.
We rebuilt this city through public-private partnerships. We realized/
for example, that to pay the compliance costs associated with Federal and State
laws, Harrisburg needed to undertake a serious economic development
initiative to create business incentives, promote job growth, and rebuild our tax
base. We discovered that these goals can and should be addressed
simultaneously.
We created a tax abatement/deferral program. A two-tiered millage rate
system was implemented which taxed vacant land at a three-times higher rate
than buildings as an incentive to development. Historic districts were named
which allows a 20% investment tax credit for the rehabilitation of income-
producing structures. A mortgage tax credit program was also instituted.
Lets look at the results ...
the number of businesses in the city increased from 1,905 to 3,738 between
1981 and 1990;
available living units increased from 14,903 in 1981 to 20,028 in 1990;
property values increased from $212 million to $758.4 million between
1982 and 1990;
the number of vacant lots has dropped from 3000 to 700 over the past 8
years;
the crime rate has fallen 24%;
' 6,442 new full-time jobs were created between 1985 - 1990;
fti unemployment, which reached a high of 10% in 1982, currently stands at
5%; 'and
the city has been able to attract over $850 million in new investments.
Environmental Issues
Harrisburg ho longer landfills its trash, we burn it along with the solid
waste of many other communities at our resource recovery and cogeheratibh
plant, the plant is currently operating at capacity. The two furnaces are
surrounded by tubes of superheated water; the steam that is created is sbl'd to
Bethlehem Steel> and to Harrisburg's downtown heating system. Electricity is
generated from steam-driven turbines and sold to Pennsylvania Power arid
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Public-Private Partnerships Workshop: Camp Hill, PA
September 20, 1990
Light Co. for use in homes, offices and plants. The (regeneration system creates
new energy sources (steam/electric), ultimately reducing the cost of solid waste
incineration, and avoiding use of foreign oil and non-renewable fuel sources.
Further, methane gas from sludge processing at our wastewater plant, which
used to be vented into the atmosphere, is now burned to generate electricity,
also sold to PP&L. Heat from this process is recaptured and used to heat plant
buildings, thus saving on fuel.
have:
In summary, resource recovery and cogeneration efforts in Harrisburg
solved environmental problems by creating revenue sources from their by-
products (trash, sludge, and wastewater effluent),
created long term stability in the community energy source (steam,
electricity),; and
reduced our reliance on fossil fuels and foreign fuels.
In conclusion, public-private partnerships are a win-win situation in
Harrisburg. The public earns additional revenues for capital improvements.
While Federal tax code limits don't make private ownership of this facility
attractive right now, the private sector in Harrisburg gets a reliable, long-term
supply of energy and solid waste and wastewater disposal. In conclusion, my
key message is: "Economic development and environmental protection go
hand-in-hand. Be creative!"
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Public-Private Partnerships Workshop: Camp Hill, PA
September 20, 1990
Panel: Case Studies
Moderator:
Cathy Mastropieri
P3 Coordinator
Chief, Grants and Audit Management Branch
U.S. Environmental Protection Agency, Region 3
Philadelphia, PA
Each of the following public-private partnership case studies seeks to
identify how the partnership was implemented, why the private partner was
chosen, what the financing and procurement arrangements were, and what
advantages and disadvantages were associated with the partnership.
As was noted this morning, we have much to gain from these
experiences by seeking to: first, understand what makes them successful;
second, determine the advantage gained by involving the private sector (e.g.,
reduced costs, speedier project completion, access to specialized expertise); and
third, identify the barriers that had to be overcome in implementing the
projects. The five case studies are:
Case Study #1:
Case Study #2:
Case Study #3:
Case Study #4:
Case Study #5:
Supporting the Operation and Maintenance of Drinking Water Systems at
Mobile Home Parks in Berks County, Pennsylvania
Dale Long, U.S. EPA, Region 3, Philadelphia, PA
Michael Barsotti, PA Department of Environmental Regulation, (city)
Dale Kratzer, PSC Engineers, (city)
Wastewater Collection System Turnkey Project to Tie-in with the local
Wastewater Treatment Merchant Facility in Welch, West Virginia
Martha Moore, Mayor, Welch, W
Formation of a Public-Private Partnership to Upgrade a Wastewater
Treatment System in Mercersburg, Pennsylvania
Judith Chambers, Borough Manager, Mercersburg, PA
Partial Privatization of Wastewater Treatment in Downington,
Pennsylvania
Edward G. Conroy, Solicitor, Downingtown, PA
Privatization of Residential Recycling in Conemaugh Township of Cambria
County, Pennsylvania
Rudy Galyda, Township Supervisor, Conemaugh Township, PA
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Public-Private Partnerships Workshop: Camp Hill. PA September 20, 1990
Case Study #1: Supporting the Operation and Maintenance of prinking
Water Systems at Mobile Home Parks in Berks County/
Pennsylvania
Co-presenter: Dale Long, U.S. EPA,Water Management Division, Region 3, Philadelphia, PA
Region 3 of U.S. EPA became involved with the Public-Private
Partnerships Program, particularly the Berks County mobile home parks
project, due to our interest in small drinking water systems. Because many are
in violation of drinking water standards, we wanted to see if the P3 approach
would generate interest in finding solutions to their problems. The project was
designed as a model for water systems to combine their resources in order to
overcome the barrier of economies of scale. By sharing the costs of goods and
services, including a trained system operator as a "circuit rider", the mobile
home parks were able to improve their systems and return to full compliance
with drinking water standards.
Eleven mobile home parks were selected for this pilot program. At the
end of the six-month program, all of the participating parks were in compliance
with Safe Drinking Water Act (SDWA) standards. They worked together to
achieve compliance with drinking water standards, learn more about current
and future SDWA regulations, and provided a model for other groups of small
systems.
The U.S. EPA and American Water Works Association (AWWA)
funded this public-private partnership to provide a training program and a
circuit rider to a cooperative of mobile home park owners in Berks County.
Pennsylvania's Department of Environmental Resources (DER), along with the
Pennsylvania Manufactured Housing Association (PMHA) led the effort by
meeting with the participating system operators and obtaining their
cooperation. PSC provided the technical expertise and the licensed circuit rider
to carry-out the program.
This type of cooperative program could be transferred to other small
drinking water systems in the state and nation. It must be cautioned, however,
that it is important to assess the needs of each prospective community, taking
into account their willingness to cooperate, and the economic and legal
incentives to do so. Involving all of the participants in the planning or
feasibility study is critical to the success of the project.
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Public-Private Partnerships Workshop: Camp Hill, PA
September 20, 1990
Co-Presenter: Michael Barsotti, PA Department of Environmental Regulation, Harrisburg, PA
I'm glad to be here to talk about the lessons learned, from the DER
perspective, in the Berks County mobile home park cooperative. All parties
involved in the project face the same dilemma: how to achieve compliance
with the Safe Drinking Water Act (SDWA) with limited funds. Let's look at
how the lessons learned in the Berks County project can help meet this
challenge. The project setting is as follows:
2,500 community water systems in Pennsylvania,
54% are small (serving less than 3,000 people),
32% are mobile home parks, and
all mobile home parks serve less than 3,300 people; 95% of the parks serve less
than 500 people.
Conditions at the small systems (particularly those serving less than 500
people), include: break even rates, limited reserves, diseconomies of scale,
marginal operation and maintenance, and limited training time.
Consequently, mobile home parks experience one or more of the following
deficiencies:
source problems (contamination or inadequate yield),
inadequate treatment and disinfection,
insufficient storage for emergencies,
aging and leaking distribution systems, and/or
poor operation and maintenance practices.
These conditions and deficiencies lead small systems and mobile home
parks to violation of SDWA regulations. For example, 1 of 10 small systems
(and 1 of 5 mobile home parks) violate the bacteriological regulations. For
these reasons, mobile home parks warrant a significant portion of the State's
program effort.
We at the State level face several administrative barriers to helping the
small systems achieve compliance. Limited Federal and State budgets continue
to be stretched by additional Federal regulations, and drinking water programs
are in direct competition with other priorities, such as transportation. In
addition, there are thousands of small water systems in the Commonwealth
(85% serve less than 3,300 people).
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Public-Private Partnerships Workshop: Camp Hill, PA September 20, 1990
To return to the Berks County cooperative, there are several lessons we
learned that I'd like to briefly present.
Owner's Attitude
Initially, the owners adopted an "ostrich attitude" to the SDWA
regulations, thinking of themselves as providers of rental home spaces, not as
water suppliers. They are reluctant to incur new costs mandated by the
regulations, and are especially wary of pending Public Utility Commission
(PUC) rate control.
Cooperative forum
The cooperative provides a supportive forum for presenting and
discussing drinking water issues and regulations, and for changing mobile
home park owner attitudes. A monthly meeting was a vehicle for sharing
information. Meeting locally at night increased the likelihood of attendance as
it provided time outside their busy schedules to learn about the SDWA
regulations. Owners learned from their peers, who have more credibility than
a government official. This setting also gave State regulators the opportunity
to collectively address drinking water issues and educate the owners reducing
travel costs.
Compliance Costs
Operational compliance costs at mobile home parks centered around:
source improvements; monitoring and treating for contaminants; providing
certified system operators; updating operation and maintenance plans; and
updating emergency response plans.
Demonstrate Benefits
In order to be successful, cooperative members must see the problem, the
worth of solving it, and the dollars saved. Formal extension of the Berks
County cooperative did not occur at the completion of the six month study for
several reasons: the owner's immediate problems were solved; and the owners
had sufficient resources and didn't need joint lab contracts, shared operators, or
collective purchase agreements. We believe that mobile home parks in other
areas of the State may be less financially secure and better motivated to
continue such a cooperative.
Cooperative Size
Eleven members is probably too small for a successful cooperative.
There is greater likelihood of continued benefits if the cooperative concept is
moved to a larger group, regional area, or higher level organization.
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September 20, 1990
Involve Other Groups
An entrepreneur could also be valuable in facilitating development of a
larger group. An organization such as the PMHA or an entrepreneur could
provide support functions such as: newsletters; regional meetings; water
system needs assessment; interface with regulatory agencies; and contracts with
laboratories, operators, and engineering firms. The key is to find and involve
these groups and individuals.
Ownership Characteristics
The Berks County cooperative also taught us about the needs and
capabilities of mobile home park systems. Before the project, we believed many
owners were in marginal financial condition. Over the course of the study, we
learned that the owner's mortgages are paid off, the average lot rent was
$175/month; a 100 lot park generates approximately $200,000 annually.
Consequently, these owners should be able to comply with current SDWA
requirements, but other areas of the State may be different.
Coordinate Enforcement and Support
There is also a need to balance enforcement actions with technical
assistance and support. Systems under compliance orders were motivated to
participate in the cooperative. The provision of technical assistance and
education as part of the enforcement process increased owner acceptance of the
regulations.
In summary, the Berks County project demonstrated that Pennsylvania
will need a wide array of approaches to bring about small system compliance
with SDWA regulations. An entity such as the Small System Coordinating
Committee established by DER's Division of Water Supplies and the
Pennsylvania Section of the American Water Works Association (AWWA)
can be used to coordinate and manage these approaches.
The final product of this cooperative project is a "How To" guidebook
which will summarize the findings and provide steps for others to follow in
forming a cooperative. It is available through the AWWA.
The Bottom Line
Improvement in compliance is the bottom line measure of success for
the Berks County Mobile Home Cooperative Project. By the end of the six
month pilot program, there were no remaining violations of the SDWA and
operational requirements. Without the project many notices of violations,
consultations, and follow-up actions would have been needed to provide the
same level of compliance. In addition the mobile home park owners increased
their understanding of the regulations and the need for them.
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September 20, 1990
In conclusion, Pennsylvania DER's Division of Water Supplies view of
this project is that a cooperative can provide many valuable functions that all
contribute to improved SDWA compliance. These include:
owners learn of SDWA requirements;
owners help each other understand and accept the new regulations;
owners can share their experience; and
costs can be reduced for, operators and key laboratory monitoring.
Administrative lessons for future cooperatives include:
use localized activities;
identify cost savings for participants;
keep the group large enough to be self-maintaining;
link the effort with a large facilitating support organization or entrepreneur;
keep a balance between enforcement and assistance; and
have someone coordinate the efforts.
In another setting, this form of cooperative has the potential to work.
Regulators and the water supply industry should consider providing services
through cooperatives because various techniques must be applied to meet the
challenges of the 1990's. Using public-private partnerships such as this one
between DER, U.S. EPA, AWWA, and the water supply industry is an efficient
use of limited funds to provide safe drinking water to the public.
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Public-Private Partnerships Workshop: Camp Hill, PA
September 20, 1990
Co-Presenter: Dale Kratzer, PSC Engineers, Limerick, PA
The purpose of my talk this afternoon is to provide additional
background information and discuss some of the project highlights from the
private perspective.
When James Moore, Executive Director of Pennsylvania Manufactured
Housing Association (PMHA), began looking at small system drinking water
compliance, he took up the cause on behalf of his constituents because of the
concern about stepped-up enforcement efforts by the DER. While enforcement
activity has picked up quite a bit recently, mobile home park owners still
haven't gotten the word. Their attitudes haven't changed.
A couple of findings:
All conversations with the mobile home park owners had to be kept
simple. Most of the systems we worked with were small, with lot sizes ranging
from 20 to 150 lots per park. They typically consisted of wells, some sort of
disinfection unit, and a couple thousand feet of distribution piping. Yet when
the DER and U.S. EPA talked with them in simple terms about industry-
standard technologies, they seemed totally lost. As we explained and re-
explained ourselves, one of the more pleasant things we found was that the
owners really wanted to comply with the applicable SDWA regulations. The
problem is that they have quite a bit to comply with today.
Earlier, Mike Barsotti pointed out that the mobile home park owners
don't think of themselves as community water suppliers. They need to face
the facts ... if they don't have a water system, they don't have a mobile home
park. Tie this together with a strong sense of independence and self-sufficiency,
one can see that we had a lot of barriers to overcome to get the cooperative to
work properly. Once we accepted these barriers and started looking at ways to
overcome them, things became a lot easier.
Over the course of the project, we identified two types of needs that have
to be satisfied:
one-time activities which related primarily to administrative compliance with
SDWA requirements, things like permitting, operation and maintenance
programs, and emergency response plans, and
routine operation and maintenance of a very small drinking water system.
Relating to an earlier observation, almost every one of the owners was a
very astute businessman, but they really didn't understand small water systems
or what was expected of them as operators. They were also very handy
mechanically or electrically, and took care of many problems themselves, or
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Public-Private Partnerships Workshop: Camp Hill. PA September 20, 1990
had access to someone who could. Most had a very close relationship with
their tenants and wanted to see them satisfied.
Services Provided by PSC
Some of the services we anticipated doing in this project included:
helping the owners obtain the necessary training to become certified
water system operators. Five of the six owners obtained this certification.
another activity related to DER reporting requirements; we helped them
create reports to keep track of what they were doing with their drinking
water systems. This proved to be a difficult task, as most of the systems
had one master meter for the entire park.
In terms of the circuit rider services, we found that that tied-in very well
with another service we anticipated we would provide: training the
operators on the SDWA and compliance with it. A large portion of the
circuit rider's time was spent educating the owners, for example, on why
it is necessary to disinfect their water supply with chlorine.
The consensus on the Berks County project is that there is much greater
State agency awareness of the mobile home park situation. There are lots of
nice people out there who want to do the right thing, but need guidance on
how to do it.
There were a number lessons learned. One of the key ones was the
importance of having a facilitating organization, the PMHA. This group
helped the owners determine exactly what they needed to do to comply with
SDWA regulations. Another important lesson learned was that the technical
and programmatic conversations among U.S. EPA, the DER, and AWWA were
"Greek" to the mobile home park owners. We needed to continually simplify
our discussions and educate the owners about what they needed to do.
Finally, the end results of the project were that none of the systems were
out of compliance, 5 or 6 of the owners became certified drinking water system
operators, they all had operation and maintenance plans, and they all had a
greater understanding of the SDWA requirements. All of this was
accomplished in the context of a cooperative approach between regulators,
private industry, and owners wanting to tackle their own problems.
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Public-Private Partnerships Workshop: Camp Hill, PA
September 20, 1990
Case Study #2: Wastewater Collection System Turnkey Project to Tie-in
with the local Wastewater Treatment Merchant Facility in
Welch, West Virginia
Presenter: Martha Moore, Mayor, Welch, VW
Good afternoon. For those of you in the audience that were able to hear
the Mayor of Harrisburg speak at lunch, and were possibly touched by the
remarks he made about the plight of the city, you might want to get your
handkerchief out for my story. I need to thank the EPA for allowing me the
opportunity to speak with you today to tell you about what I think is a very
unique and compatible partnership which the City of Welch has with Capels
Resources.
Historically, the City of Welch has tried to install a wastewater treatment
system. For one reason or another that project has simply not become a reality.
I could probably bore you today with a lot of excuses. However, there are a few
points that should be established for you to better understand the situation that
we face in our city.
As we understand the situation, Welch is the largest city in the State of
West Virginia without sewage treatment. We're not proud of the claim, and
we're most anxious to give this title to another deserving community so that
we can get on with a more positive claim.
For those of you who are not familiar with Welch, I'd like to tell you a
little about our town. Welch is a small town with beautiful people located in
the mountains of southern West Virginia. Our topography is rather severe,
with high steep mountains and low narrow valleys, with rivers at the base of
every mountain. Many, many stone walls built with natural stone by Italian
immigrants who came to work in the coal fields in the early 1900's, literally
hold up almost every street, highway, home, or building in town. This sounds
like a very attractive, picturesque setting until you try to design and organize a
collection system. Then you better be prepared to pay for that lovely setting.
As of this date, we have spent over $1 million dollars and presently owe
our local bank $600,000. We're not even off the drawing board yet. This is due
to "what looks good on paper, does not necessarily materialize into a feasible
construction project". Our facilities plan indicated the vacuum system to be the
most cost effective, thereby allowing us the opportunity to receive 75%
funding. The system was designed, approved, and put to bed. To make a long
story short, our project was a proposed $9.3 million doliar project, and the bids
came in at $22.3 million. Needless to say, this was not an affordable project,
and it meant back to the drawing board. Many changes were made, lines and
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Public-Private Partnerships Workshop: Camp Hill, PA September 20, 1990
pump stations deleted, entire sections of town were cut out, and the project was
again put to bid. This time the bids came in at $16.7 million. We were getting
nowhere fast. Reality told us it was time to abandon the vacuum system and
evaluate alternative means to develop an affordable wastewater system.
And keep in mind we're talking about McDowell County, West Virginia,
where the only industry as of this date is coal mining. Now if all of this isn't
bad enough, and I think we were also one of the first cities in the entire country
to be put under Federal court action to install a wastewater treatment facility,
around 1985 the largest coal company in McDowell County pulled out, leaving
thousands unemployed. Revenue sharing monies were halted, and the City of
Welch had hit rock bottom. We led the nation for several years in
unemployment, with rates in the 30's and 40's. There was nowhere to go but
up, and the city had to make some very tough decisions.
In order to keep the doors open at City Hail, truly innovative thinking .
was put into action. We laid-off the entire 14 member paid civil service fire
department, while being reminded that our homes would burn, our babies
would be in them, and the fire truck would go into a ditch on the way to the
fire. Metermaids were laid-off; street department personnel were laid-off;
police officers were laid-off; and spending and hiring freezes were placed into
effect. Simply speaking, every money-saving method known to mankind was
utilized for some time.
During this period, most of our energies went into getting back on our
feet financially. A model volunteer fire department was formed which put our
paid fire department to shame. Monies were raised at Saturday night bingo .
games. We now own two new fire trucks, completely paid for, and all
equipment is up to date. Our fire readiness has been reduced to a 6, and our
response time, out of the State, is 3 to 4 minutes. Keep in mind also that these
volunteer firemen have to come from their jobs to the station in order to get to
the trucks. Our paid firemen received $350,000 per year to sit around the
station just in case there was a fire, and their response time was not as fast as
the volunteer department's is now. The message to this story is: they said it
couldn't be done, it is being done, and has been for the last 5 years. It's a real
success story.
Of course our laid-off fireman filed suit against the city, as did the
metermaids, but the city prevailed. Once the city's financial status began to
stabilize, we continued our ongoing efforts on the sewer system, only to have
the Federal Government realize that they too had to cut back some money.
The newer concept, without vacuums, went from 75% to 55% Federal funding.
This only added to our design limits. Our partnership began to develop at this
point.
Capels Resources, Inc., a West Virginia corporation, had already entered
into an agreement with McDowell County communities for the construction
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Public-Private Partnerships Workshop: Camp Hill, PA
September 20, 1990
and operation of a solid waste facility. As part of that agreement, Capels will be
required to treat its leachate, a liquid produced by landfills, by diluting it with a
county community's wastewater stream. With these thoughts in mind, I
approached Capels Resources about handling the wastewater from the Welch.
Capels was receptive to our thinking, and a real partnership was formed. The
entire project was based upon need; we need Capels, and Capels need us.
Environmentally speaking, we are very grateful to each other. Capels
will build a treatment plant which we could not afford, and treat our
wastewater at no cost to us. We will also benefit Capels in several ways. First,
the cost for treating their leachate will be reduced when it is diluted with our
wastewater. In addition, we will continue to provide Capels with good will,
support, legitimacy, and respect.
The benefit to us will not only be having a new plant built, but we would
also be relieved of the annual financial burden of operating such a plant. We
believe it will be a state of the art project, and feel that it will also be something
that will lead to economic development in McDowell County. The plant will
also be capable of treating all wastewater in the county. Even after we
developed this concept, we still did not have the funds to continue our design.
This is when Cindy Kelly and the International City Managers
Association came on the scene. Through their efforts we were able to receive
funding to proceed with the new engineering study. This is the first step in
developing a gravel-type wastewater collection system. This plan has not
transpired over night, nor has it come about by sitting behind a desk. It has
taken a very sincere effort on all partners. I've spent many days in Charleston
lobbying our cause. We believe this plan is beneficial for all parties concerned,
and will serve the environmental needs of our community. Quite frankly, for
a partnership to work, it has to foster mutual trust, mutual dependence, and
mutual need. We, the City of Welch, need this plant in order to grow
economically and gain that more positive claim which we feel we so richly
deserve.
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Public-Private Partnerships Workshop: Camp Hill, PA September 20, 1990
Case Study #3: Formation of a Public-Private Partnership to Upgrade a
Wastewater Treatment System in Mercersburg,
Pennsylvania
Judith Chambers, Borough Manager, Mercersburg, PA
This afternoon I'd like to give you a brief description of Mercersburg, talk
about the history of our wastewater project, tell you where we are today, and
identify some of the biggest barriers we encounter today.
Mercersburg is in Franklin County in south-central Pennsylvania, about
an hour and a half from Harrisburg. Our population is about 1,700. Our
community is stable and very self-contained. We have industry, a good retail
trade, and although the county seat is nearby, we seem to have enough of our
own banking and downtown institutions to keep us going. We're also one of
the most polluted sites along the Texas-eastern gas transmission pipeline
project. We are home to Mercersburg Academy which is a very prestigious
prep school, as well as the lovely Mercersburg Inn. We are the boyhood home
of President James Buchanan.
Mercersburg is also under a schedule for compliance in both water and
wastewater. We're looking at, by the time we get done, over $3 to $4 million of
construction. This may not seem like a lot, but when you're looking at a town
of 1,700 people, with a significant number of fixed income elderly, it starts to hit
pocketbooks pretty quickly. We are also a council-manager form of
government. This is significant for two reasons as it relates to this project: it
got us to International City Managers Association (ICMA) very quickly; and we
had some of the resources in place to try to move ahead with the project. Our
community originally had a .22 MGD trickling filter plant which we were going
to upgrade to a .30 MGD activated sludge plant to accommodate a minimal
projected increase in our population over the next 20 years.
Just as we were about to award a contract for the design of our activated
sludge plant, the Borough Council was visited at a public meeting by a scientist
who designs land treatment spray irrigation wastewater systems. He was
accompanied by citizens of the community who claimed the Borough hadn't
given adequate consideration to other more cost-effective treatment systems,
such as land treatment. The Borough had not heard of land treatment spray
irrigation before, and consequently was led to believe it was cutting edge
technology (which it is not).
The Borough Council then decided that land treatment spray irrigations
was a viable treatment technology after reviewing a feasibility study. This
study was financed by a $2,500 anonymous donation through the Mercersburg
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Public-Private Partnerships Workshop: Camp Hill, PA
September 20, 1990
Academy. We also had both our sewer engineers (who developed the original
activated sludge plant design) and the hydrologists from our well drilling
program take a look at the study. Since Mercersburg is located in the middle of
limestone territory, both groups opposed the spray irrigation system because of
the potential for ground water contamination.
At this point, Mercersburg turned to the Pennsylvania Department of
Environmental Resources (DER) to review the land treatment spray irrigation
plan for feasibility. The DER sent out people to review the proposed project
and after a long delay told us that a spray irrigation indeed could work in
Mercersburg, and that limestone was not a problem. At that point we decided
to break out the two issues that were before us:
choice of technologies, and
the concept of privatization.
Our next step in this long journey was to get involved with ICMA and
U.S. EPA Region 3, where we received a lot of hands-on technical assistance to
look at the spray irrigation wastewater system technology. We eventually
decided to go ahead with it, and chose to pursue privatization as well.
The private partners consisted of the scientist based in Chicago (who had
initially proposed the land treatment option to the Council), as well as a team
of local construction contractors and land developers in Mercersburg. While
the local parties were familiar to the Board, they were just as inexperienced as
the Council was in entering into a public-private partnership. This led to a bit
of confusion at the negotiating table about how to structure the deal.
Ultimately, Mercersburg basically did what we should have done earlier.
We hired some financial and legal consultants to help structure the
partnership. Consequently, we have moved from a completely privatized
facility (which would be built, operated, and owned by the privatizer), to a
partnership which has a mix of public and private involvement (such as a
turnkey facility, and lease-purchase arrangement, etc.). We haven't selected the
specific partnership format yet.
In terms of what we've learned form this process so far, we found that
while both partners appeared to be committed to the project, it was a different
story when it became time to "put money on the table". Consequently, our first
lesson learned is that you need to find some way to gauge the level of
commitment on both sides of the table.
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Public-Private Partnerships Workshop: Camp Hill. PA
September 20, 1990
In summary, our critical keys to success:
getting a level of commitment from all the parties involved,
having Borough Council consider a broader range of technologies, including
spray irrigation,
separating the technological issues from the financial/privatization issues allowed
us to build momentum as we entered into the partnership discussions,
involving local companies (Because we were familiar with them we had a greater
level of comfort about the entire project), and
working to find the most cost effective options (Although the route we pursued
might not have been the easiest, we are secure that it will be the best choice in the
long run).
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Public-Private Partnerships Workshop: Camp Hill, PA
September 20, 1990
Case Study #4:
Partial Privatization of Wastewater Treatment in
Downing town, Pennsylvania
Edward G. Conroy, Solicitor, Downingtown, PA
Good afternoon. I appreciate the opportunity to talk with you about our
experiences in the Downingtown area.
In the early 1980's, the existing wastewater treatment facility servicing
the Borough of Downingtown and the surrounding cities of Cain, East Cain,
Uwchland, and West Whiteland was near capacity. Located in southeastern
Pennsylvania, the five communities range in population from 8,530
(Downingtown) to 12,101 (Uwchland). Median household income falls
between $20,963 (Downingtown) and East Cain ($30,778).
A task force of representatives from the five communities worked
together to explore alternatives for meeting the area's increased water demand.
We eventually joined together in 1985 to form the Downingtown Area
Regional Authority (DARA), to arrange for the financing, construction, and
operation of an expanded and upgraded wastewater treatment plant.
Downingtown considered undertaking the facility's expansion and
upgrade itself. Obtaining the financing needed for a project this size, however,
was difficult given the small size of the municipality. As a result, we
determined that there was a definite advantage to partially privatizing the
wastewater treatment plant. Such an approach would not only help finance
the project, it was thought that it would also result in improved operation and
maintenance of the facility.
Consequently, in a competitively negotiated procurement process,
DARA issued a Request for Proposals (RFP). After reviewing the ten bids that
were submitted, DARA selected and entered into a limited partnership
(Parsons Downingtown Associates) with Parsons Municipal Services to design,
construct, and operate the wastewater treatment facility. The responsibilities of
Parsons Municipal Services were itemized in a twenty-year service agreement.
Parsons later subcontracted the operation and maintenance of the facility to
Engineering-Science, Inc., one of their affiliates.
The capital costs associated with the expansion and upgrade of the
wastewater treatment plant were financed by issuance of $10.4 million dollars
of tax-exempt industrial revenue bonds. The limited partnership of Parsons
Downingtown Associates was able to issue the bonds because they pledged
anticipated user charge revenues from the system as collateral. Several
financial advantages were obtained by using the limited partnership to issue
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Public-Private Partnerships Workshop: Camp Hill, PA September 20, 1990
the bonds, including accelerated depreciation, tax-free borrowing privileges,
and tax credits.
In summary, then:
DARA retains ownership of the existing wastewater facility and is
responsible for compliance with environmental permits;
the limited partnership of Parsons Downingtown Associates owns the
expanded part of the facility, issues industrial revenue bonds to finance the
project, and is also responsible for compliance with environmental permits;
Parsons Municipal Services designed and constructed the facility's
expansion and upgrade; and
Engineering-Science, Inc. operates and maintains the facility
Before any construction could begin, however, DARA had to assure the
U.S. EPA that the new operating arrangement with Parsons Downingtown
Associates would not violate any of the terms of Construction Grants (issued
under Title II of the Federal Clean Water 'Act) that were used to build
Downingtown's existing wastewater treatment facility.
Favorable Federal tax laws contributed to this project's success because
they affected construction bids. Because Parsons Municipal Services entered
into a limited partnership they were able to lower their "bottom-line" costs, as
this arrangement offered them cost savings derived from accelerated
depreciation, tax-free borrowing, and tax credits.
In conclusion, the biggest lesson we learned from this project is that
combining the responsibility for facility construction with facility operation
helps to lower the project's overall costs, and increases the quality of the
services delivered. I believe that because DARA was able to contract with one
firm that possessed extensive expertise, they were able to provide a public
service at a more reasonable cost than if they had undertaken the project
themselves.
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Public-Private Partnerships Workshop: Camp Hill, PA
September 20. 1990
Case Study #5: Privatization of Residential Recycling in Conemaugh
Township, Cambria County, Pennsylvania
Rudy Galyda, Township Supervisor, Conemaugh Township, PA
Thank-you and good afternoon. I guess I'm the last one up here so I'll
try to be brief. I appreciate being given the opportunity to again talk about the
residential curb-side recycling program we began in Conemaugh Township
back in 1988 as a public-private partnership with Total Recycling, Inc. Our
community is located in Cambria County which is in south-central
Pennsylvania. Our latest population figures tell us we have approximately
5,220 residents, with an annual household income of $24,000.
Escalating landfill fees forced us to look for ways to decrease the volume
of waste we send to our landfills. In order to direct the Township in its waste
reduction efforts, a recycling task force comprised of Township Supervisors was
formed. The task force worked to pass an ordinance that empowers the
Township to enforce compliance with the residential recycling program.
Two obvious options were then considered for providing this
environmental service:
provide the service ourselves, and
contract for the service
Conemaugh Township decided that we would not operate the
residential recycling program because the private sector would probably be
better at marketing the recycled materials and had more experience in this
particular industry.
The initial capital costs associated with the curb-side recycling program
were covered by Total Recycling and a grant we received from the
Pennsylvania Department of Environmental Resources (DER). The company
estimates it spent approximately $8,400 to develop and implement the
program. The Township received nearly $6,900 from the DER to purchase the
residential recyclable containers.
Ordinarily, Total Recycling would charge a community a weekly
operations fee for collecting waste. Because the company considers this
partnership to be a pilot program (the first they've implemented), no fee is
levied against the Township. Revenues that the firm receives from the sale of
collected recyclable materials are used to cover operating expenses. Total
Recycling also receives a small amount of money from Conemaugh's State ,
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Public-Private Partnerships Workshop: Camp Hill, PA September 20, 1990
grant. The amount of money received is a function of or is based on the
volume of waste that is diverted from the landfills.
The Township signed a contract with Total Recycling stating that as long
as residential recydables were collected on a weekly basis, they are entitled to
any profits generated from the sale of the collected materials. In addition, the
contract remains valid as long as both parties wish to participate. Either party
can unilaterally break the contract by giving 90 days notice to the other party.
We work with Total Recycling, Inc in a number of ways to build public
support. The Township's Board of Supervisors holds open meetings to
encourage public participation. Educational outreach programs which
demonstrates the benefits of recycling are held in our schools.
In summary, the division of responsibilities is depicted below:
Total Recycling, Inc.
owns the recycling facility and the land on which it is located,
arranged for facility financing prior to this contract,
* operates and maintains the recycling facility,
assisted in preparing the Township's DER grant application, and
* assisted in promoting residential recycling by providing public,
educational materials and presentations.
Conemaugh Township
assists in promoting residential recycling,
entered into a contract to provide residential recycling services, and
* assisted in preparing the DER grant application.
By contracting with Total Recycling for curb-side collection of residential
recyclables, the township has been able to reduce the the total volume of waste
they send to landfills by approximately 50 percent, and reduced our landfill
tipping fees by approximately $24,000 per year. The decline in the volume of
waste that the township needs to transport to landfills has been so significant
that we now collect trash for an adjacent community. Collecting trash for the
other community yields Conemaugh Township approximately $60,000 per year.
Since this additional trash collection effort does not require staff increases, the
revenue Conemaugh Township receives can be directly added to the
township's budget.
In conclusion, this project was successful because of the high
participation rate of Township residents. A survey conducted by Total
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September 20, 1990
Recycling, Inc., revealed that nearly 96% of all residents participated in the
program. Without the support of the public, the volume of waste reduced and
the associated reduction in landfill tipping fees would not have been as
dramatic.
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List of Workshop Attendees
A-B
Steven Allbee (*)
U.S.EPA .
Office .of Water
401 M Street, SW (WH-546)
Washington, DC 20460
Kim D. Barnes
Northern Tier RPDC
507 Main Street
Towanda,PA 18848
Michael Barsotti (*)
PA Dept. of Environmental Resources
101 S. 2nd Street
P.O. Box 2357
Harrisburg,PA 17105
Leonard Bechtel (*)
U.S. EPA, Ofice of Administration and
Resources Management
401 M Street, SW (H3304)
Washington, D.C. 20460
Dennis E. Black
Dennis E. Black Engineering, Inc.
2400 Philadelphia, Avenue
Chambersburg, PA 17201
Michael Burda
Blythe Township Water Authority
375 Valley Street
New Philadelphia, PA 17959
Ms. Judith K. Chambers (*)
Borough Manager
113 South Main Street
Mercersburg, PA 17236
Charles L. Clark
Borough of Boyertown
100 S. Washington Street
Boyertown, PA 19512
Mr. Edward Gerard Conroy (*)
999 West Chester Pike
P.O. Box 885
West Chester, PA 19381-8865
C (cont.)
Edward Corriveau
PA Dept. of Environmental Resources
One Ararat Boulevard
Harrisburg,PA 17110
Robert Crum
Center Regional Planning Commission
131 South Fraser Street
State College, PA 16801
D-E
Paul Direnzo, Jr.
R.D.#4Box4060
Pottsville, PA 17901
Mr, Fred E. Esmond
New York State Dept. of Environmental
Conservation
50 Wolf Road
Albany, NY 12233-3750
Ellen Fahey
U.S. EPA, Office of Administration and
Resources Management
401 M. Street, SW (H-3304)
Washington, D.C. 20460
Tom Fairchild, Manager
Towanda Municipal Authority
724 Main Street
Towanda, PA 18848
Ted Fasting (*)
PA Dept. of Environmental Resources
P.O. Box 2063
15th Floor, Fulton Bank Bldg.
Harrisburg, PA 17105-2063
Paul Fosko
PA Dept. of Environmental Resources
90 East Union Street, 2nd Floor
Wilkes-Barre, PA 18701
49
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K
Mr. Rudy Galayda, Jr. (*)
R.D. #2 Box 183
Kimberly Drive
Johnstown, PA 15904
Vincent G. Gallo
U.S. EPA-Reg. Ill (3WM26)
841 Chestnut Bldg.
Philadelphia, PA 19107
Christopher Gibbons
Public Financial Management, Inc.
2101 North Front Street
Suite 200
Harrisburg,PA 17110
H
Roger K. Hepner, P.E.
Mid-Penn Engineering Corp.
P.O. Box 51
2033 West Market Street
Lewisburg,PA 17837
James T. Hockensmith
L. Robert Kimball & Associates
615 West Highland Avenue
Ebensburg,PA 15931
Ellen Hoffa
U.S. EPA, Office of Administration and
Resources Management
401 M Street, SW (PM-216F)
Washington, D.C. 20460
James P. Hopkins (*)
PSC Engineer & Consultants, Inc.
649 North Lewis Road
Limerick, PA 19468
Ralph M. Hutchinson
Millersville Boroughs
10 Colonial Avenue
Millersville, PA 17551
J
Kathleen Jerioski
National Solid Waste Management
Association
340 N. 3rd Street, Suite 208
Harrisburg,PA 17101
Rick Kainry
PA Dept of Environmental Resources
1012 Water Street
Meadville,PA 16335
Cynthia C. Kelly (*)
Director of Environmental Programs,
International City Managers Association
777 North Capitol Street, NE "
Washington, DC 20002-4201
Arthur Kiholski
Lake Engineering
140 Meadville Street
Edinboro,PA 16412
Dale Kratzer (*)
PSC Engineer & Consultants, Inc.
649 North Lewis Road
Limerick, PA 19468
L-M
Dale E. Long (*)
U.S. EPA, Reg. Ill (3WM41)
841 Chestnut Bldg.
Philadelphia, PA 19107
Albert Lubinsky
Blythe Township Water Authority
375 Valley Street
New Philadelphia, PA 17959
Tom Lyglio
EG & G - Dynatrend
312 Highland Lane
BrynMaus,PA 19010
Roxann N. MacAvoy
Prince & Rhoads
Twenty North Market Square
Harrisburg,PA 17101
Thomas O. Maher (*)
U.S. EPA, Reg. HI (3WM23)
841 Chestnut Bldg.
Philadelphia, PA 19107
William Malinich
200 Pine Street
Williamsport, PA 17701
50
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M (cont.)
R
Paul Marchetti, Executive Director (*)
PA Infrastructure Investment Authority
(PENNVEST)
22 S. 3rd Street
Harrisburg,PA 17101
James McSweeny
PSC Water Service
190 S. Warner Road
Wayne, PA 19087
Dale Mills
PA Dept. of Environmental Resources
Highland Building, 6th Floor
121 S. Highland Mall
Philadelphia, PA 15206
Ms. Martha Moore, Mayor (*)
City of Welch
Welch Municipal Building
88 Howard Street
Welch, WV 24801
N-O
Don Niehus
U.S. EPA (WH-546)
Office of Water
401 M Street, SW
Washington, D.C. 20460
Bill Niess
American Mangement Systems, Inc.
1777 North Kent Street
Arlington, VA 22209
Margaret P. O'Malley
Winsor Associates
Box 432
Ardmore,PA 19003
David Osterman (*)
U.S. EPA, Office of Administration and
Resources Management
401 M. Street, SW (H-3304)
Washington, D.C. 20460
Jacqueline Pine
U.S. EPA (3WM23)
841 Chestnut Bldg.
Philadelphia, PA 19107
Stephen R. Reed, Mayor (*)
City of Harrisburg
10 N. Market Square, Suite 202
Harrisburg, PA 17101-1678
Charles Rehm
1875 New Hope Street
Norristown, PA 19401
Joseph Rontty
Blythe Township Water Authority
375 Valley Street
New Philadelphia, PA 17959
Edward Ruch
PA Dept. of Environmental Resources
One Ararat Boulevard
Harrisburg, PA 17110
Donald Rugh {*)
U.S. EPA, Office of Water
401 M Street, SW (WH-546)
Washington, DC 20460
Mr. John J. Sandy (*), Director
Resource Management Division, Office of
Administration and Resources Management,
U.S. EPA.
401 M Street, SW (H-3304)
Washington, DC 20460
J. Erick Schaeffer
Attwoods Env. of Penna.
1851 McGuckian Street
Annapolis, MD 21401
Frank Schutz
West Virginia University
National Small Flows Clearinghouse
P.O.Box 1071
Morgantown, WV 26507-1071
William Seigel
Dan Helwig
SEDA - Council of Governments
R.D. #1, Timberhaven
Lewisburg,PA 17837
Gerald C. Smith
Vice-President
American Water Works Service Company
800 West Hersheypark Drive
Hershey, PA 17033
51
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S (cont.)
Marie Sotak
Charles Kuder
PA Dept. of Environmental Resources
15th Floor, Fulton Building
Harrisburg, PA 17105-2063
Tina L. Spangler
City of York
50 West King Street
Box 509
York, PA 17405
George Steese, Manager
Borough of Miffinburg
333 Chestnut Street
Miffinburg,PA 17844
Ralph Sullivan
1004 Loxford Terrace
Silver Spring, MD 20901
w
William T. Wisnieuski
U.S. EPA-Reg. Ill (3WMOO)
841 Chestnut Bldg.
Philadelphia, PA 19107
52
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Public-Private Partnerships Workshop: Camp Hill, PA
September 20, 1990
EPA Office of The Comptroller
Public-Private Partnerships Initiative Staff
John J. Sandy
Director
Resource Management Division
(202)382-4425
David Osterman
Chief
Resource Planning and Analysis Branch
(202) 382-8227
Staff: George Ames
Leonard Bechtel
Margaret Binney
Alicia Crichlow
Ellen Fahey
Kim Lewis
Joanne Lynch
Timothy McProuty
LaShon Pierce
Eugene Pontillo
Ann Watt
EPA Regional Offices
P3 Coordinators
Region 1
Region 2
Region 3
Region 4
Region 5
Region 6
Region 7
Region 8
Region 9
Region 10
Boston
New York
Philadelphia
Atlanta
Chicago
Dallas
Kansas City
Denver
San Francisco
Seattle
George Mollineux
Alice Jenik
Cathy Mastropieri
Tom Nessmith
Rosalie Day
Bob Carson
Gene Ramsey
Kathleen Anderson
Marsha Harris
Matt Coco
(617) 565-9442
(212) 264-9860
(215) 597-4149
(404) 347-4728
(312) 353-6324
(214) 655-6530
(913) 551-7365
(303) 293-1454
(415)454-1635
(206) 442-0705
53
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Public-Private Partnerships Workshop: Camp Hill, PA
September 20, 1990
For More Information:
U.S. Environmental Protection Agency
Region III
841 Chestnut Building
Philadelphia, PA 19107
(215) 597-4149
54
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