V
\ UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
e WASHINGTON, D.C. 20460
OFFICE OF
CHIEF FINANCIAL OFFICER
AUG -2 2006
EPA Headquarters Library
Room 3340 EPA West Building
MC: 3404T
Washington, DC 20460
Dear Sir/Madam:
Enclosed are two copies of the Environmental Financial Advisory Board's (an
EPA Federal Advisory Committee), report titled, "The Bay Restoration FundAcf for
your records. If you have any questions, please call me at 202-564-5 1 86.
Sincerely,
Vanessa Y. Bowie, Director
Environmental Finance Staff
Enclosures
Internet Address (URL) • http //www epa gov
Recycled/Rebyclable • Printed with Vegetable Oil Based Inks on 100% Postconsumer. Process Chlonne Free Recycled Paper
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ENVIRONMENTAL PROTECTION AGENCY
ENVIRONMENTAL FINANCIAL ADVISORY BOARD
DEC - 5 2005
Honorable Stephen L. Johnson
Administrator
U.S. bnvironmental Protection Agency
1200 Pennsylvania Avenue, NW.
Washington, D.C. 20460
Dear Administrator Johnson:
The Environmental Financial Advisory Board (EFAB) has formed a workgroup to
investigate and report on innovative finance mechanisms for environmental projects. In the
course of its work, the workgroup has reviewed and reported to the Board on the provisions of a
new statute in the State of Maryland called "The Bay Restoration Fund Act," certain provisions
of which constitute one of the most innovative pieces of environmental finance legislation since
the Congress amended the Clean Water Act in 1987 to create the Clean Water State Revolving
Funds.
The Board would like to commend this legislation to you and to appropriate officials in
the Office uf Water, not foi the purpose of altering any Agency policy, but rather for use in your
TviWjr nronrmncements and other statements, wherever appropriate, to encourage other States
and other jurisdictions to review the provisions of this new law and to adopt similar legislation
taliened to their own needs.
Let us briefly summarize the relevant provisions of the Maryland law.
In its 2003 session, the Maryland General Assembly adopted a bill, which was signed by
Governor Robert B. Ehrlich, establishing a 'The Bay Restoration Fund" (the Fund) and imposing
a "restoration fee" to capitalize the Fund. This is a very innovative piece of legislation for three
lemons. Firui, u envisions the secuntization of the future income from the majority of the bay
restoration fees. Second, for the first time in our Nation's history, we believe, it imposes a
statewide lee on septic tanks at pcisonal residences. And, third, it dedicates the income from the
fees on septic tan^s to suppcrt specific non-point source pollution programs within the State.
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The Maryland law imposes the restoration fee, which is a flat fee of $2 50 per month, on
each home in the state served by a wastewater treatment plant or septic system1. However, the
law then divides up the proceeds of these fees into two separate funds. Revenues from those
using wastewater treatment facilities will be paid into a special fund managed by the Maryland
Water Quality Finance Administration (MWQFA) and can be used for grants, loans or to pay off
br/.d:^ :/.^c!;.::d-r,c3S. It is the understanding of the General Assembly and Governor Ehrlich's
office that, in fact, for the first few years, until the revenue stream can be reliably predicted, the
MWQFA may well use the funds for grants or loans, but that once the revenue stream has
«;toKjiiTefj th? MWQFA will issue tax-exempt municipal bonds collaterahzed by the pledge of
the future revenue stream of this portion of the restoration fees (i.e., the fees collected from users
of waste treatment facilities).
Tne Governor's office estimates this portion of the restoration fe«» at $65 million per year.
The fiscal note accompanying the bill suggests that the securitization o:' ihese revenues will
support the issuance of over $700 million of bonds.
The proceeds of these bonds will be used as grants to 66 previously identified major
wastewater treatment facilities2 to upgrade their abilities to remove nitrates and pliosphates from
wastewater to Enhanced Nutrient Removal levels3. There are provisions in the bill for including
other facilities as well.
The most innovative part of the legislation, however, arises from the same $30.00 per
year restoration tee on the users of septic tanks and sewage holding tanks. There are an
cauiiiui-J 42G,CGO such users in Maryland. Thus, these facilities should generate some
$12.6 million of additional revenue.
The Mar/land !aw specifically says that 60 percent of the proceeds of these restoration
fees shall be reserved by MWQFA for grants to owners of "failing septic systems." Priority
must be given to upgrading failing septic systems located in the Chesapeake and Atlantic Coastal
Bays Critical Area4. The other 40 percent of the proceeds of this portion of the restoration fee
revenue stream will be paid into the Maryland Agricultural Water Quality Cost Share (MACS)
Program within the Maryland Department of Agriculture (MDA) to provide financial assistance
to farmers for cover crops. Under MACS, MDA provides grants to farmers to cover up to
87.5 percent of the cost to install besi management practices (BMPs). Cover crops planted after
the fzll harvest to absorb unused fertilizers is one of the BMPs currently eligible for cost-share
assistance.
1 Commercial and industrial users of wastewater treatment facilities will also pay the $2 SO per month for every
EquwakJihwelling Unit1 (EDU) up to 3,000 EDUs, $1 25 per month for each EDU between 3,000 and 5,000,
where it is capped at a maximum of 5120,000 per year per site.
2 Those with desi»n flows in excess of 500,000 gallons per day.
3 Three milligrams per liter of nitrogen and 3 milligram: per liter of phosphorus.
" 7Hf Cbesarv-nke ?nd Vantic Coastal Bays Critical Area is defined as being within 100 yards of any tributary of
ir.e Cn
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Administrator, as you well know, the imposition of any type of charge on the people is
never politically popular. It took great courage for the State of Maryland to enact this law.
Moreover, the Board believes that this is truly one of the most innovative environmental finance
laws to have been enacted anywhere in the United States in well over a decade. We commend it
to you and your colleagues in the Office of Water to encourage other States to examine the
provisions of this Act and to adopt similar legislation in their own jurisdictions according to their
own needs.
In making this recommendation, we note that non-point-source pollution is a highly
intractable problem. Its causes are diffuse, as are the funding sources for its remedies. Public
awareness leading to behavioral change is a major tool in addressing this issue. The efforts of
you and your colleague to highlight this innovative statute may well inspire other areas to enact
oihei similar laws to address this issue.
Finally, since this statute also addresses the broader issue of sustainable watershed
financing, we would like to inform you that the Board will be hosting a roundtable on this issue
in March 2006 where, with the help of experts, we will examine a wide variety of financing tools
that will enable watershed managers and groups to leverage federal and state grants with locally
raised resources. Maryland's restoration fee will be highlighted at this gathering as a potential
source of local financial resources.
If the Board may be of any further assistance on this matter, please do not hesitate to
ccntdd "us
Sincerely,
A. Stanley Meiburg
Executive Director
cc: Ben Grumbles, Assistant Administrator
Office of Water, MC 4104M
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