United States Offico of August 1989 Environmental Protection Water Agency (WH 556) xvEPA Rnancing Strong State Water Programs In New Ways Proceedings Of A National Workshop March 20-21, 1989 Denver, Colorado Co-Sponsored by: Association of State and Interstate Water Pollution Control Administrators Association of State Drinking Water Administrators Council of Infrastructure Financing Authorities Council of State Governments Government Finance Research Center National Conference of State Legislatures Proceedings Prepared by the National Academy of Public Administration Printed on Recycled Paper ------- The National Academy of Public Administration The National Academy is chartered by Congress to advance the effectiveness of government at all levels through sound management and counsel on the practical implications of public policy. In its extensive work program, the Academy conducts studies and performs services for state and local governments, and the three branches of the federal government. Fellows of the Academy are elected by their peers and consist of practitioners and scholars of public administration, members of Congress, cabinet officers, state government executives, city and county managers and mayors, and business and independent sector leaders with significant public service experience. The products of Academy studies repi 2nt the views of the participants and not necessarily the Academy as an institution. ------- PREFACE The National Academy of Public Administration agreed to prepare this summary of the proceedings of the workshop on "Financing Strong State Water Programs in New Ways" sponsored by the Office of Water, U.S. Environmental Protection Agency. The workshop took place in Denver, Colorado on March 20 and 21, 1989. It was co-sponsored by the : Association of State and Interstate Water Pollution Control Administrators Association of State Drinking Water Administrators Council of Infrastructure Financing Authorities Council of State Governments Government Finance Research Center National Conference of State Legislatures New requirements imposed by amendments to the Safe Drinking Water Act and the Clean Water Act coupled with a prospective reduction of 50 percent in federal funds available to states to support their ongoing water quality management programs made it imperative to review financing options available to states. The National Academy of Public Administration was pleased to assist in this important effort. ------- Proceedings Table of Contents Page Title i Glossary 1 Introduction 3 Summary of Recommendations for State and U.S. EPA Actions to Support Supplemental Funding Programs Presentations 9 State Keynote Address The Honorable Roy R. Romer Governor of Colorado 13 U.S. EPA Keynote Address Rebecca W. Hanmer Acting Assistant Administrator Office of Water U.S. Environmental Protection Agency 17 The Challenge of Financing Environmental Protection Charles L. Grizzle Assistant Administrator for Administration U.S. Environmental Protection Agency Panels 21 State Needs: New Money; New Solutions; New Partnerships 27 Designing and Adopting Fee Systems to Cover the Costs of State Services 35 Designing and Adopting Special Taxes 41 Designing and Adopting a System of Dedicated Fines and Penalties ------- Page Title 45 Management Funds - Once the Money is Available, Pooling and Managing It for Revenue Growth 53 Working with State Legislatures 59 Reducing the State Programmatic Burden 67 Collaborating with Other Agendes and Third Parties to Accomplish Water Program Goals 67 Session I 73 Session 2 Appendices 79 A. Official Conference Attendance List 89 B. Colorado Cash Fund Sources 91 C. New Jersey Pollutant Discharge Elimination System 93 D. Idaho Water Pollution Control Account 95 E. AWWA Recommended Funding Sources for Main Drinking Water Functions 97 F. Vermont Environmental Infrastructure Financing 103 C. Rural Community Assistance Programs 109 H. New York Technical Assistance Programs ------- Proceedings Glossary ASDWA Association of State Drinking Water Administrators ASIWPCA Association of State and Interstate Water Pollution Control Administrators AWWA American Water Works Association CDBG Community Development Block Grant Program CEM Office of Cooperative Environmental Management (U.S. EPA) CES Cooperative Extension Service (USDA) DEC Department of Environmental Conservation (Vermont and New York) DOJ U.S. Department of Justice EPA U.S. Environmental Protection Agency FMHA Farmers’ Home Administration (USDA) GAO Government Accounting Office HHS U.S. Department of Health and Human Services HUD U.S. Department of Housing and Urban Development ICC Iffinois Commerce Commission MTAS Municipal Technical Advisory Service (Tennessee) NARUC National Association of Regulatory Utility Commissions NEHA National Environmental Health Association NJPDES New Jersey Pollutant Discharge Elimination System NOAA National Oceanic and Atmospheric Administration NRWA National Rural Water Association NSF National Sanitation Foundation 0MB Office of Management and Budget PUG Public Utility Commission RCAP Rural Community Assistance Corporation Program SCS Soil Conservation Service (USDA) SOWA Safe Drinking Water Act SRF State Revolving Loan Fund USDA U.S. Department of Agriculture USGS U.S. Geological Survey UST Underground Storage Tank WPCA Water Pollution Control Account (Idaho) 1 ------- Proceedings Introduction The workshop was a product of the U.S. Environmental Protection Agency’s (U.S. EPA’s) Office of Water State Funding Study. Rebecca Hanmer, the Acting Assistant Administrator for Water, initiated the study in May 1988 as a result of her concern that States were facing growing financial problems in carrying out their water programs. States are crucial implementing arms of Federal policy as well as their own State agendas, and new resources must be found to sup- port State-based water management programs and new program responsibilities. The study is quantifying the need for increased funding to support State water programs, identifying possible solutions such as alterna- tive financing mechanisms and increased general revenues, and investigating ways to reduce the amount of resources needed in implementing the laws and regulations. States face an increasing financial shortfall in funding their water management programs. The shortfall is caused by two events - new legislative requirements and diminishing Federal funding for estab- lished Clean Water Act programs. New requirements of the amendments to the Safe Drinking Water Act (SDWA) in 1986 and the Clean Water Act in 1987 will demand new State resources that by 1994 could double the current State oper- ating budgets. In drinking water programs, States must promulgate 83 new and revised drinking water regulations over the next five years and 25 additional regulations every three years thereafter. States must also increase monitoring activities as well as establish more stringent enforcement programs, and regulate some 20,000 drinking water systems previously unregulated. In surface water programs, States must increase toxic and nonpoint source control, and add sludge management and stormwater control. At the same time, 50 percent of the Federal funds historically avail- able to States to support their ongoing water quality management programs will be greatly reduced by the end of fiscal year 1990 and terminated altogether by the end of fiscal year 1994. These funds are available through set-asides to the Federal construction grants pro- gram, which will end and be replaced by State revolving loan funds. I ------- Although necessary, increasing Federal and State funding of water management programs from general revenues is proving to be difficult, given the Federal deficit, tax reform changes, and the anti- tax climate in the nation. As a nation, we need to decide our policy on Federal support of State water programs, increasing State sup- port, and adopting supplemental financing mechanisms that will add new sources of revenue to those that traditionally fund water programs. This workshop sought to: (1) make known the severe problem facing States in managing their water programs; (2) share the “how to” information from States that are already successfully implementing alternative financing mechanisms; (3) help forge new partnerships among the water administrators, legislators, and the financial community to stimulate new financing opportunities; and (4) obtain recommendations from workshop participants on actions States and U.S. EPA can take to support implementation of alterna- tive financing mechanisms. The workshop was sponsored by U.S. EPA’s Office of Water, with cosponsorship by six other concerned organizations: the Association of State and Interstate Water Pollution Control Administrators • the Association of State Drinking Water Administrators • the Council of Infrastructure Financing Authorities • the Council of State Governments • the Government Finance Research Center • the National Conference of State Legislatures The National Academy of Public Administration prepared these proceedings of the two-day meeting, based on an edited transcript of the workshop and review of the proceedings by speakers and panel- ists from the sessions. Participants at the workshop included representatives from over 30 States, State and Federal legislators and staff, the financial industry, and private interest groups. Appendix A contains a complete listing. ------- Summary Recommendations for State and U.S. EPA Actions to Support Supplemental Funding Programs General Considerations U Water in the United States is cheap and underpriced; until we realize the true value of water, our economic problems will only become more severe. • There is no single revenue solution to the State funding gap, rather a number of partial solutions need to be undertaken. • We need to have better accountability to show what water pro- grams are producing and we should not be afraid to say what we cannot produce because of lack of resources. U Supplemental financing mechanisms should be pursued, but improved efficiencies, better financial management, and cost saving organizational or programmatic changes should receive equal attention. U Leveraging techniques should constantly be sought in the expen- diture of funds. • Utilities should establish reasonable reserve rates within the price of water to reflect depreciation of their existing facilities. • We need to try to protect our existing funding sources, recogniz- ing that others may want to use our methods, especially our sur- pluses, if any. U.S. EPA Actions U Develop a State/U.S. EPA consensus on how to move forward in Recommended partnership. U Promote better communications between States and U.S. EPA. U Re-examine the issue of Federal funding criteria, and the need for a Federal policy to determine how much support for State pro- grams should be provided at the Federal level. • Give explicit support to the Federal obligation to help pay an equi- table share of program operating costs. U Take the lead in defining what is affordable for environmental 3 programs. ------- • Set up a permanent water program financing task force. Fee Systems U States are using fees to support their core program. Fees can not, however, fill the entire funding void; there is an upper limit. U We need a balanced approach to funding with a major role for fees; do not fragmentize funding sources. U We need to be flexible, recognizing we will have a period of inno- vation and experimentation. • There are administrative complexities which must be recognized. • We could benefit from more technical transfer among the States. U.S. EPA Action U Develop a clearinghouse for collecting, analyzing, and sharing Recommended information on traditional and innovative ways of financing State water programs. Fines and Penalties U The primary purpose of fines should continue to be to ensure compliance, with the hope that fines eventually will not be neces- sary. • In the meantime, fines should be viewed as an opportunity to have the polluter pay back into the system. • This requires preparation of a system that can receive and use the fine revenues. The impetus and commitment to make the penalty work will affect the development of such a system. U.S. EPA Action U Play a strong clearinghouse role in sharing information on sizes of Recommended penalties for various violations, and uses of proceeds from penal- ties. Funding Allocations U We need to look at the allocation of Federal monies to States and perhaps tie these more strongly into needs and performance. Funds U If possible, revenues from fees and taxes should be combined into a single dedicated fund, not mixed with general revenues. Management U State and Federal governments need to be leaner and meaner, and think smarter. 4 ------- • We need to survey State water program needs on a regular basis. • We should encourage all possible efficiencies in program admini- stration. • In the drinking water program, we need to encourage regionaliza- tion, consolidation, and circuit riders. U There should be greater use of pollution prevention, water conser- vation and water demand management. U We should encourage greater use of pretreatment to reduce the amount of waste generated. • We should develop industrial incentives for cost reduction. • We should take some risks to “think smart” even if it is not busi- ness as usual. We could even be radical; for example, experiment with procurement. U.S. EPA Actions U Review the various Federal laws and regulations to give States Recommended more flexibility within the needed accountability. • Involve States and other interested parties in defining require- ments and promulgating regulations. • Remove legal impediments to public-private partnerships at the Federal level, and promote such partnerships at the State level. U Work to keep reporting requirements and programs simple to hold down costs so that U.S. EPA money can support public health pro- tection and not be used merely to report back to U.S. EPA. Priorities • Resources are short enough that we will have to compromise. Therefore, it is important to focus on water quality objectives and make decisions on what is most important to accomplish. U We need clearer separation of the “musts” from the “mays and mights.” U.S. EPA Actions U Recogi ize, because of their differences, the importance of flexibil- Recommended ity to the States in setting priorities and program objectives. U Allocate resources according to priorities. 5 ------- Public Support U We need to convince the public of the benefits of our water pro- grams, not just the need for additional people to run the programs; funding for administrative costs will follow with increased pro- gram funding. U We should encourage greater individual responsibility, commu- nity participation, and education of the legislatures and the public. U We must better present the benefits of water programs to gain public support. U.S. EPA Action U Do a better job of stimulating public and congressional awareness Recommended of the need for water programs and resources to support them. State Legislatures U Find and work with key State legislators as advocates for the pro- grams and needed resources. • Remember that if fees are set too high, without collaborative work with those who will pay them, legislative constituencies may protest. EPA Actions U Give strong assistance to State agencies in translating requirements Recommended and communicating the new needs to the State legislatures. • Recognize that departments of health are often the lead agency for water programs and are at a disadvantage competing with larger, more visible agencies. * Make dearer to State legislators that the Clean Water Act is going to raise administrative operating costs, since it may not be appar- ent that these are not infrastructure costs. Taxes U A new tax will require extensive consensus-building which must include private business and utilities. • In obtaining a new tax, it is important to keep the effort simple and focused. U.S. EPA Action U Develop model State legislation that deals with new taxes. Recommended 6 ------- Technical Assistance I Technical assistance organizations can accomplish goals and work in places that States cannot. I Technical assistance can reduce overall State and community costs. I At least one technical assistance agency, such as the Municipal Technical Advisory Service in Tennessee or a Rural Community Assistance Corporation, should be supported with additional funding, if necessary, in each State. • Relationships need to be strengthened between technical assistance organizations and the States. • Coordination can be improved between agencies. I Success stories should be publicized. U.S. EPA Actions U Make more of a hands-on outreach effort to ensure coordination by Recommended getting interested parties together and helping the States identify who needs assistance. I Form a team to help solve technical problems rather than put new money into programs. Third Parties I States could extend their resources by making better use of public health professionals who are available. • States could make better use of third parties such as the National Sanitation Foundation for things such as service and laboratory certification. U.S. EPA Action U Work with other agencies, local governments and third parties as Recommended well as States. ------- Excerpts from State Keynote Address Speaker The Honorable Roy R. Romer Governor of Colorado Ever since the Clean Water Act and the Safe Drinking Water Act were passed in the 1970s, Congress has incrementally added to the areas that State water quality programs are required to address. Controlling conventional water pollution and point sources has been successful; now we must implement programs to control toxics and nonpoint sources. Initially these new responsibilities were supported by set-asides from the Federal construction grants program. In 1987, Congress enacted a plan to replace the construction grants program with State revolving loan funds dedicated to constructing and expanding wastewater treatment plants. By 1995, U.S. EPA estimates that half of the federal funding formerly available to States for water quality will be gone. And what is left will not fully address the needs for which it is provided. This conference will be focusing on supplemental financing which we can use to fill the funding gap that will exist. In Colorado, more than 50 percent of the funds supporting the Health Department’s water quality programs come from the Federal govern- ment. Our commonly discussed options are new Federal or State ap- propriations, increased permit fees, tap fees, and pollution taxes or effluent fees. New Federal and State appropriations are likely to be few and selec- tive, given the Federal deficit and the prevailing political attitude concerning taxes in Colorado and many other States. While we can and should expect Congress to continue to refine and initiate water quality legislation, the States must continue to insist that the Federal government share the costs of the legislation. The nation’s governors have asked Congress not to create new State obligations without sufficient funding assistance to share the cost of those obligations. In no area is that request more important than in the area of water quality. In Colorado, talk of new appropriations from the State’s general fund gets about as good a reception as talk of wilderness water rights gets from western water developers. ------- Permit fees now provide about 22 percent of the revenues for the State program which is only slightly less than the 26 percent provided from the State’s general fund. But permit fees cannot be raised indefinitely, and we are thoughtful about how much more burden can be put upon the dischargers. Tap fees are appealing to some because they spread the costs across the broadest possible base, the consumers, who are also the beneficiar- ies of water quality programs. However, I have reservations. It could be argued that pollution is morally wrong, and that the pollutants rather than the consumers should pay. As an economist I must raise the flag of economic efficiency and talk about pollution taxes, or effluent fees. These can force polluters to recognize the cost of pollution as part of the cost of production. If tax rates are properly set, they can insure that those who encourage pollu- tion through buying the products which result pay for the conse- quences of that pollution. However, as a politician I recognize that the resulting burden falls largely upon large municipalities and large industries, who will take a long, hard look at pollution taxes and the alternatives. What this all means is that none of these solutions are without ad van- tages and disadvantages. Together, political leaders and water pollu- tion control experts will have to make some tough choices about these traditional options for filling the water quality financing gap. Any choice we make will require that we invest in a healthy amount of public education about the importance of environmental quality in general and water quality in particular. There is another way of addressing the funding gap. Let me challenge you to look beyond the revenue side and think more creatively about the ways we manage our water quality programs and the costs of those programs. These ways ought to be explored thoroughly before State water quality programs seek supplemental revenues. 1. Consider new ways of organizing and managing to gain greater efficiency. We have an obligation as public servants to take every dollar spent on water quality and stretch it as far as possible. • Recognize that managing financial resources requires close collaboration with other agencies and with the legislature. • Look closely at program organization and ask tough questions. Are there other ways of achieving water quality goals than the status quo? Rethink how we can do our jobs more efficiently. R Since personnel for enforcement are limited, one idea we will ------- be exploring is an outreach program for dischargers to train and certify operators to do their own comprehensive inspec- tions. 2. Actively promote water conservation which would increase the supply and leave less water to be treated, thus reducing treatment costs. Some possibilities would be requiring low-flow fixtures for consumers; and for agriculture, a big user in Colorado, setting up financial incentives to conserve, perhaps by selling the water savings to other users. 3. Encourage pretreatment programs. These are not only important for compliance, but can greatly reduce burdens on wastewater treatment plants and encourage waste reduction in the private sector. Industrial discharges to plants create some serious prob- lems including health hazards to the public and workers; interfer- ence with proper operation of treatment plants; increased expense of toxic pollutant disposal; damage to pipes and equipment; and the potential for explosion caused by highly volatile wastes. Re- ducing these problems through pretreatment saves municipal money. Shifting the costs to dischargers may also provide addi- tional incentives to implement cost-saving waste reduction tech- niques. 4. Promote individual responsibility and community participation. Increasing education on pollution prevention and cleanup prac- tices can make us all part of the solution and could include such activities as proper disposal of used engine oil, alternatives to sanding and salting techniques for de-icing, and proper land use decisionS. Let me wrap this up by summarizing what I think all this means. First, there is not likely to be a single solution to the water quality funding gap. There are only a number of partial solutions which, when combined in creative ways, may allow States to preserve a strong water quality program. Second, we cannot look only at supplemental financing mechanisms to bridge the funding gap. Improved efficiency, better financial man- agement, and cost-saving organizational or programmatic changes should receive at least as much attention from water quality manag- ers. Third, States may find that the best they can do is to preserve a strong core program of planning, standard setting, permitting, monitoring, and enforcement. Increased reliance on private sector and locally generated solutions will become increasingly important in the years ahead. :ii ------- Fourth, we must all remember that the primary goal of our efforts is to protect and enhance the quality of the water supplies upon which all life depends. There are at least as many ways to achieve that goal as there are creative minds devoted to the task. At all levels of govern- ment, and in the private sector, we need to appreciate that and pre- serve the flexibility to experiment with new approaches to meet the great challenges which lie ahead. ------- Excerpts from U.S. EPA Keynote Address Speaker Rebecca W. Hannier Acting Assistant Administrator for Water U. S. Environmental Protection Agency State water programs are heading very rapidly into a brick wall— greatly expanded legislative mandates to be met despite a funding shortfall which will hamper meeting even our current mandates. As we contemplate how to deal with this crisis, we need to ask ourselves a whole series of brand new questions. We need to think in a new and broader context than simply program funding levels. We need to be asking other questions, such as: How do we manage and run the water pollution control and drinking water programs more efficiently? How do we find ways to strengthen the involvement of local citizens and local governments in what we are doing? How do we engage citizens in an intelligent discussion on how those things should be paid for? How do we engage the private sector more effectively in terms of monItoring, permit conditions, and com- pliance? The State funding gap is large. In spite of all our great ideas on doing business differently, it will still be necessary, and, in fact, crucial, to find additional monies to fund strong State water programs ade- quately. Why do we care so much about administration costs of State water programs? We are constantly reminded that while the States are spending millions of dollars, this pales in comparison to the billions of dollars invested in infrastructure at the local and private levels. How- ever, without strong State programs, the billions of dollars we’re spending on infrastructure at the public and private levels may not be spent in a way that ensures healthy, clean water Statewide and, ulti- mately, nationwide. In fact, some of those billions of dollars might not be spent at all without the State’s regulatory role. But with all the money that has been invested, we have made very few of the inherent problems go away. In most areas, we have put huge systems of concrete, pumps, and electrical systems between us and a potential pollution deluge that is always there. Those systems have to be maintained all the time. Strong State programs are crucial. Not only do States perform a regu- latory role, but they set water quality standards and goals, and they 13 ------- ensure that priority problems are addressed first, that downstream jurisdictions don’t suffer from decisions made by upstream jurisdic- tions, that small communities which can’t afford to manage their infra- structure are assisted, and that we meet and maintain the bottom line of clean water and healthy drinking water. We believe that the States and their partner local governments are in the best position in this country to deal with the site-specific water problems as efficiently and as cheaply as possible. They have the site- specific knowledge, connections, and familiarity to get results most effectively and efficiently. In addition, States must meet multiple environmental requirements in other area besides water. They are therefore in a good position to evaluate all the individual environmental problems and requirements affecting their given areas, and to develop coordinated, prioritized, effective solutions that take into account the resources available at the State level. Also, much of the remaining water quality problems come from a vast universe of small, diverse, and complex pollution sources. These nonpoint sources are most effectively dealt with by State and local authorities because the solutions involve thousands of individual local decisions and local behavioral changes. The same principles apply in the welihead protection program in terms of protecting our ground water. We are not dealing with an easily regulated small universe of very large sources. Rather, we are dealing with millions of small problems that can only be assisted by people who are near those problems, their causes, and their solutions. The comprehensive new amendments to the Safe Drinking Water Act in 1986 and the Clean Water Act in 1987 present us with major new challenges, and give the States a tremendous new agenda to imple- ment. These amendments also clearly recognize the primacy of the States for responsibility for most of the remaining work to be done in water pollution control. If the States cannot give these new programs a solid start, it means that either U.S. EPA or the States will have to spend considerably more money down the line for enforcement and remediation, or suffer a return to the water quality conditions of the 1940s and ‘50s, which we thought we had grown well beyond. And it will be more expensive and difficult this time around because of the tremendous increase in our population and our economic activity since we began this trek 20 or 30 years ago. For all these reasons, I regard supporting and building State capacities as one of the main goals of the Office of Water and, indeed, of the U.S. Environmental Protection Agency. We sent this message to Lee Tho- mas, who authorized us to begin this study, and to Bill Reilly, our new Administrator, and we are going to be saying it even more forcefully in our 1991 planning sessions. ------- Financing is most of the name of the game, and it is also something that can never be taken for granted. These issues need to be shared constantly with the public. So, despite the fact that not all these ideas are new, they are new to a whole generation of leaders and people who will be expected to pay the cost. That is why we initiated and are publicizing our State Funding Study in every forum we can—in the news media, in mailings, in work with interest groups, and in brief- ings to congressional staff. We are serious. This is an urgent issue. We do not have much time, but we do have a lot of ideas. Now is the time to take those ideas and put them into an effective form that we can use to communicate at the national level. We have gathered information on alternative financing solutions and presented this information in appropriate forums. Of course, many States are well ahead of us at the Federal level in designing and imple- menting innovative solutions. We are lrying to help the States, pursu- ing common ends with not only them and with interest groups, but with other U.S. EPA program offices, such as the Office of Air and Radiation, which faces very similar problems, and with the financial community. We have a task force of Federal and State members who have been providing us with advice on how best to support the State efforts, and they will be meeting again after this workshop. We hope this work- shop will help publicize the State funding problem. We would like to provide a forum for States with successful alternative financing pro- grams to tell others how they did it. We would like to stimulate new partnerships between the various parties that need to be involved in this issue. And we would like to obtain recommendations from you, the participants, for actions the Office of Water could take to help the States solve the funding problem. The final element in the next couple of months will be to examine what the Federal role needs to be in supporting State environmental programs. There has been Federal funding for State water pollution control programs at least since the 1956 Federal Water Pollution Con- trol Act. At the time those Federal funding mechanisms were set up, there was a recognition on the part of the Congress that people were entitled to a certain minimum level of water quality and safe drinking water regardless of whether they lived in a poor or rich State. As a result, Congress set up an income redistribution mechanism by pro- viding State grants from the Federal tax base. In addition, States carry out national mandated water pollution con- trol or safe drinking water activities that go beyond what their own citizens would ask for, demand, and be willing to finance. Supporting 15 ------- this State role is an integral part of achieving the national goal for dean water. And the Federal taxpayer through the Federal tax system should, in fact, pay to support this goal. The final report from the State funding study effort will contain an implementation plan to help address the funding crisis. We have called our initial effort a funding “study,” but we have always in- tended it to result in an action plan to support State programs. I would like to mention some of the ideas we have received already about follow-up actions and the federal role. Some have suggested that U.S. EPA might act as a dearinghouse for information on innova- tive State financing mechanisms over time, to carry on the work we have been doing into future years, and that we might maintain a network of financial experts that the State and local governments could go to for assistance. We need to continue our public awareness campaign. We might partially fund personnel exchanges between State and U.S. EPA staff in the area of creative financing. We might work to remove unnecessary legal impediments to beneficial public and private partnerships and encourage States to do the same. We might consider increasing the private sector role in some areas of our regulatory activity by providing a certification for self-monitoring of certain activities. We might provide more technical assistance on financial mechanisms and other technical subjects. And we also should periodically examine our underlying regulations to see if we can develop less burdensome ways to reach our water quality goals in working with State and local governments. We are very eager to hear your recommendations at this workshop. In closing, I would like to note that we at U.S. EPA are well aware that we are not leading the parade in finding solutions to these financial problems. All we can do is help foster the parade that is already on its way. State water programs have been fashioning creative funding programs for some time. I’m very much looking forward to hearing from you the actions you want us to take and the leadership and support you want from us. Every time Congress has made major amendments to our clean water and drinking water laws, U.S. EPA, the States, and local governments have entered a new phase of our partnership in program manage- ment, in funding, and in ways to work together. Now, more than ever, we need a coalition. There is no way that we alone, at any level of government, are going to be able to ensure our citizens of dean drink- ing water, dean surface water, and diverse and healthy ecological systems. Clean water is necessary for all of us and it costs money. We are seeking new partnerships. We have new ideas. And we, at the Federal and State levels, are actively looking for ways to make our bureaucracy operate more efficiently and effectively. We are open to new ways of doing business and we are all in this together. ------- Excerpts from The Challenge of Financing Environmental Protection Speaker Charles L. Grizzle Assistant Administ rat orfor Administration and Resources Management U. S. Environmental Protection Agency The current environmental challenge is the result of two concurrent trends. Needs and expectations for environmental protection are growing. Legislation reauthorized or proposed by Congress has placed major resource requirements on States and communities, much of it to meet new water quality requirements such as toxic wastes, non- point pollution, sludge, degradation of wetlands, estuaries, coastal waters, and ground water. Federal budget constraints, changes in tax laws, and increasing demands in all service areas limit traditional funding sources. The resulting shortfall jeopardizes past, present, and future environ- mental improvements. We now estimate that the funding gap just to maintain existing environmental standards will reach $20 billion annually by the year 2000. This does not include new regulations or new problems such as ocean pollution, stratospheric ozone depletion, and the inability of high-density urban areas to meet U.S. EPA air quality standards for ozone. This shortfall affects all levels of government and, due to the Federal deficit, we can no longer rely on the Federal government to meet as great a share of environmental protection costs. For example, the amount Congress appropriated to U.S. EPA to implement the Clean Water Act falls significantly below what was authorized. You have heard about State problems. At the local level, to maintain todays level of service, environmental expenditures are expected to nearly double by the turn of the century. Communities will spend over $48 billion annually, about 65 percent of the national cost, while Federal support will drop from 12 percent to less than six percent by the year 2000, mostly due to phasing out of the Construction Grants Program as mandated by Congress. The problems at each level of government are interrelated. The inability of the Federal government to provide the necessary re- 17 sources places burdens on the States, and the difficulties that local ------- governments have in financing their infrastructure needs also place additional requirements on State administrative structures. As our environmental problems evolve and mature, it is dear that State and local governments are being called upon to take on more implementation responsibilities while U.S. EPA moves to a support role. Historically, shifts in Federal/State relationships are not so unusual. Roles have changed before in some of the more traditional government services such as housing, health care, and highways. But this is the first time environmental programs have been on the table. And despite the wisdom gained from experience, the process has not become any easier. The message that the State must assume more responsibility is some- times interpreted to mean that the feds are imposing significant new requirements without providing the means to implement them. I can well understand this perception. We at the Federal level must work with the states and municipalities to ensure that a broad range of alternative and effective financing strategies are available. The growing costs of environmental protection require a re- examina- tion of how the nation finances and pays for such investments. The gap between current and future needs and spending dearly calls for bold and innovative approaches at all levels of government — Fed- eral, State, and local. We are at a critical point in the history of the environmental movement, and we need to go beyond the traditional approaches. With all this in mind, U.S. EPA has developed several initiatives — traditional and non-traditional — to encourage whatever institu- tional and policy changes are required to meet the challenges of the future. These initiatives seek to promote greater cooperation and co- ordination between U.S. EPA and the environmental community, i.e., State and local governments, private industry, the financial commu- nity, associations, and academia. They also encourage the use of innovative techniques, procedures, and technologies to manage and meet environmental expectations. U.S. EPA is encouraging States to adopt: • Fees on State environmental services. • Taxes on products that contribute to pollution. • Fines on polluters. • Trust and revolving funds for administrative and infrastructure needs. 18 ------- At the Federal level, U.S. EPA is promoting: • The Superfund to finance cleanup of hazardous waste sites through a tax on oil and chemical manufacturers. • The State Revolving Fund for seed money for construction of wastewater treatment facilities. This may be extended to other areas. • Feeson- - pesticides registration; - toxic pre-manufacture notices; - ocean dumping; and - radon certification. In addition, U.S. EPA is seeking to enlist market place forces and in- genuity and the resources of the private sector by actively promoting public-private partnerships. These would not only attract private capital, but also help change the adversarial relationships between the regulating and regulated communities. Nineteen States have legislation which promotes these partnerships and other States are encouraged to adopt such legislation. Other U.S. EPA initiatives include: • A new unit within my office to serve as a national focal point for innovative financing and public-private partnerships. It is cross- media in scope, and will coordinate U.S. EPA efforts and develop national strategies to encourage Federal, State and local use of public-private partnerships and innovative financing. • A new U.S. EPA Office of Cooperative Environmental Manage- ment (CEM) to improve environmental results by creating a coop- erative climate in problem solving, shared knowledge, and tech- nology transfer through technical assistance, training and infor- mation dissemination. • A National Financial Advisory Board to serve the CEM’s National Advisory Board on Environmental Technology Transfer. The board would provide a nationally recognized body of experts that would advise U.S. EPA, States and local governments on finan- cial, tax and legal matters. The board will be composed of elected State/local officials, financial experts, bankers and industry officials. 19 ------- U A new Pollution Prevention Office to serve as a focal point for prevention activities. U A national outreach effort induding: - a new small community ombudsman; - a State/local roundtable; - the State/U.S. EPA committee; and - conferences such as this one. U.S. EPA is also aware that environmental legislation and its subse- quent implementation have tremendous impact on the finances of federal, State, and local governments, the private sector and the general population. Accordingly, the agency will review its ap- proaches to legislative and regulatory development to assure that the laws are fair, effective, flexible and, of course, affordable. 20 ------- Panel State Needs: New Money; New Solutions; New Partnerships Introduction As U.S. EPA and the States move into a new phase of water program management, it appears that an increasing share of the funding bur- den will fall on the States. Several factors contribute to this. New requirements under the Clean Water Act and the SDWA place addi- tional responsibilities on the States. At the same time, 50 percent of the Federal funds that States used to support their water quality base programs in 1988 will disappear by 1995 due to the termination of U.S. EPA’s construction grants programs and the set-asides from them. The Federal deficit makes new Federal funds from other sources difficult to obtain, and the 1986 Tax Reform Act changed the attractiveness of some infrastructure financing mechanisms. To fill the financial gap, we need new money, new solutions, and new partner- ships to support State efforts in protecting water resources. New money is necessary, because State needs for water programs are expanding, while Federal funds are diminishing. States need funds from new sources, as well as increased general revenues (the tradi- tional form of environmental program financing) to support these programs. New solutions are critical to respond to a State’s expanding and increasingly complex program because of the inflexible and some- what uncertain future of general revenue funding due to budget deficits. Supplemental financing mechanisms not only provide new revenue sources, they can also creatively link the type of financing approach taken to the specific environmental programs it supports. New partnerships are important because States do not operate their programs in a vacuum: U.S. EPA and municipalities play obvious supporting or direct operational roles with State water programs. The private sector can also have much to contribute, not only as a regu- lated interest, but as a creative partner in solving environmental problems. Moderator Mr. Michael Quigley Director Office of Municipal Pollution Control U. S. Environmental Protection Agency 21 ------- Key Points by Panelists Ms. Linda Eichmiller Deputy Director Association of State and Interstate Water Pollution Control Administrators (ASIWPCA) An AS1WPCA survey of 50 State administrators (43 responded) showed: I Present water programs are underfunded by 24 percent ($76 mil- lion). • Fifty percent of existing funds come from State general revenues, 21 percent from Section 106, 14 percent from Clean Water Act set- asides, and 15 percent from alternative financing and miscellane- ous funds. I The funding gap will increase from $116 million in 1988 to $439 million in 1992. These estimates will increase as we learn more about how we will implement the requirements. For example, State estimates to imple- ment pretreatment were very high, and that was not a 1987 amend- ment requirement, but an existing requirement whose resource de- mands are now becoming clear. Inflation is eroding the base such that, in real dollars, funding for water programs is not much ahead of 1972. In looking at what a Federal fair share would be, at 25 percent, which is conservative, it would more than double the 1990 Section 106 State grant program above FY 89 levels. To implement the Clean Water Act, not only will more resources be necessary, but the national program must be made more efficient and effective through streamlining re- quirements. Mr. Frederick Marrocco Chief, Division of Water Supplies Department of Environmental Resources Pennsylvania Past President, Association of State Drinking Water Administrators (ASDWA) An ASDWA survey responded to by 34 States and one territory cover- ing 71 percent of all community water systems showed: • $96 million being spent currently on State public water supply programs (two-thirds State and one-third Federal); • $32 million shortfall to implement current drinking water program responsibilities; 22 ------- S $131 million in new requirements annually by 1992; and S $200 million in initial one-time costs between 1987 and 1992. • The rules that have the biggest resource implications for States are disinfection, volatile organics, radionudides, surface water treat- ment and lead. Because of the funding shortages which will exist, U.S. EPA is going to have to be flexible in negotiating what can not be done with the States and aggressive in going back to Congress with the results. Fourteen States surveyed employed some form of user fees, and eight others are contemplating it. Fees included: S Annual fees paid by public water suppliers based on population served or water production volume. S Laboratory fees. S Operation permit/licensing fees. S Plan review fees. Eight States indicated fees were totally dedicated to drinking water; four indicated less than half were dedicated; two indicated that all fees go into the State’s general fund. Greater recognition and visibility is needed for drinking water pro- grams and cooperative work with the constituencies of the National Governors’ Association and the National Conference of State Legisla- tures on the importance of a safe thinking water program. U.S. EPA should be more flexible to allow States to deal with their unique needs. We should not be afraid to say what we cannot accom- plish due to lack of resources. Defensiveness will not get new money. Mr. Thomas Looby Assistant Director for Health and Environmental Protection Department of Health Colorado In Colorado, about 17 percent of the funds for the Office of Health and Environmental Protection are devoted to water quality control. Forty- two percent is financed by the State and 58 percent by the Federal government. A listing of Colorado Cash Fund Sources is contained in Appendix B. 23 ------- By 1991, about $1 million now provided by the Federal government must be made up by the State to maintain current services. The shift is too big for such a short time period. States cannot pay for all the new programs alone. Cutbacks in State services will be necessary. One of the most troubling is cutbacks in monitoring. The Federal government needs to provide more funds, at least during the transition period. Colorado is convening a task force this summer to examine methods of alternative financing. Colorado is already using fees extensively. Additional fees are being considered induding a toilet paper tax. In the early 1980s, the State adopted a “pay as you go” policy for environmental programs, and now they are beginning to feel a backlash against fees, which are regarded as hidden taxes. We may have gone too far with the “pol- luter pays” principle, and need to get back to the “beneficiary pays” principle. Sixty percent of the 60,000 community water systems (36,000) have less than 500 people in them. This suggests that consolidation could improve efficiency. We need more comprehensive solutions to reach our environmental goals. U.S. EPA should help States set priorities among requirements and should allow flexibility in meeting water programs goals. We need to engage major municipal institutions in solving our problem, and also put greater emphasis on assistance to small systems. We need to col- lectively start to set priorities in water quality programs and make judgments to how to best allocate available resources. As a society, we need to have more comprehensive financial solutions for environmental capital improvements for the next 30 to 50 years, as well as dealing with the programmatic requirements. U.S. EPA and the States need to take a stronger leadership role in identifying major financial issues and solutions, and engage financial institutions in the dialogue. We need broadened partnerships as well, with local govern- ments and the private sector. Mr. Charles Sutfin Water Division Director U. S. Environmental Protection Agency, Region V To adequately fund State water programs, we must know what the needs are and explain them in terms that speak directly to health and environmental quality for citizens. We must also address Federal and State responsibilities, which are a partnership; neither has the re- sources or expertise to carry out its roles independently. U.S. EPA’s 24 ------- position must be one of leadership; support will never come where leadership is lacking. Inadequate funding never stopped Congress or U.S. EPA headquar- ters from demanding more from Regions or States. But Regional U.S. EPA officials must recognize the resource limitations of State pro- grams and explain to headquarters how to produce the best results. A six-part strategy would help us solve the resource problems. • Instituting an institutionalized consistent approach to estimating environmental and public health needs which should be reviewed every two or three years. • Formulating a strategy to obtain the needed resources. The strat- egy should include: - maintaining the base program; - avoiding compartmentalized funding needs, which restrict our flexibility; and - showing willingness to start new programs, even though fund- ing may be insufficient. This would help demonstrate the needs and engender local support. • Agreeing on an appropriate Federal-State mix of support resources and the level of Federal control expected and desired. U Allocating Federal funding for States using formulas which recog- nize need and State performance and are updated to be compatible with the periodic needs survey. U Agreeing on meaningful measures of environmental results, not just “bean counting” activities. U Being willing to be held accountable, including frank discussion of what we cannot accomplish because of insufficient resources. Ms. Rebecca Hanmer Acting Assistant Administrator for Water U. S. Environmental Protection Agency The Office of Water will continue to have as a major priority the sup- port of strong State water programs. U.S. EPA wants to improve the effectiveness of State partidpation in the rule-making process. The existing rules should be re-examined every four or five years as tech- nology and institutions change, and new ideas come to us. 25 ------- We need to: • Separate “must” requirements from “shoulds” and “mays” in policies, guidance and recommendations. • Develop better ways to advise Congress and State legislatures on the costs of their proposed programs, not just when new laws are passed, but in periodic updates of costs. • Continually reexamine the proper balance between general reve- flues and user fees. • More effectively involve citizens as well as dischargers in such activities as ambient monitoring. • Mobilize others such as the U.S. Department of Agriculture’s many local employees. The National Estuary Program is a model for involving all parties in water programs. • Set up an overt system at U.S. EPA to continually ask provocative questions that could lead to new ways of doing business. • Publicize the water quality gains and the benefits from new invest- ments. • Be flexible in issuing regulations. Some State regulations are more stringent than the Federal model, thereby restricting public-private partnerships. Participants were asked what criteria the Federal government should use to fund State water programs. Suggestions ranged from 50 percent to 40 percent (the current percentage for drinking water programs) to allowing a range of options and alternatives rather than a fixed per- centage. 26 ------- Panel Designing and Adopting Fee Systems to Cover the Costs of State Services Introduction Fees — a charge for a specific activity or service — establish a direct link between the demand for services and the cost of providing them. The validity of the fee often rests on the relationship between the fee itself (who pays and how much) and the service rendered in return for the fee. An important issue involves the amount of the service cost that the fee covers. If the full cost is not covered, then the program which is ostensibly fee-based for revenue is not self-reliant and will require subsidies from elsewhere. Yet an inordinate amount of time and energy may be required to gain support of a fee high enough to cover the full cost of the service. In either case, it is important to include all relevant program elements in estimating program costs to ensure all needs are funded. Many State water programs conduct activities that can be supported by a fee for service. These fees are levied on private parties (citizens or businesses), or on municipalities. Businesses and municipalities often pass the costs on to other parties. Other fees may represent the cost to society of an action taken by a municipality or private entity or indi- vidual. Another issue relates to the efficiency of operating a variety of fees and fee structures, each one adjusted to the specifics of an individual State service. It can be administratively burdensome and potentially frustrating to the regulator as well as the regulated or serviced com- munity to initiate, collect, or pay many small fees. Thought should be given to an integrated fee schedule or one larger fee, rather than several small fees. Moderator Ms. Linda Eichmiller Deputy Director Association of State and Interstate Water Pollution Control Administrators (AS1WPCA) Key Points by Panelists Ms. Eichmiller, as moderator, polled the States represented in the audience and announced the results. Seventeen had alternative fund- ing mechanisms, fourteen had fees, and four were considering changes. 27 ------- Mr. Arnold Schiffman Assistant Director Ground Water Quality Management Division of Water Resources Department of Environmental Protection New Jersey The fee system which supports the New Jersey pollutant discharge elimination system (NJPDES) is one of the most complex in the coun- try. The fees are: • Established by regulation, not the legislature; • Deposited in the general fund and must be annually appropriated back to the program. However, they are earmarked only for the program. • Collected through, permits which can be revoked for non-payment. (The penalty is $50,000 per day.) • Based on the estimated cost of the program, not the service cost of individual permits. The State keeps track of program costs to establish a budget but not to justify an individual permit fee. Shortly after the fee system was established, the courts overturned the New Jersey fee system because it purported to, but in actuality did not, indude environmental risk, e.g., a pound of sand discharged would cost as much as a pound of dioxin. This court ruling for the first time clearly established the polluter pays principle - that those who do the most to create injurious conditions should bear a greater share of regulatory costs. The court went on to say that if the chal- lenged regulation actually scaled the fee structure proportionate to the degree of harm threatened by the permittee’s discharge, the court would have no problem sustaining the validity of the regulation. The fees are now proportional to the degree of risk threatened by the discharge, and this has been upheld by the New Jersey Supreme Court. The fees are assessed on the public and private sectors, except- ing only schools and religious organizations. The fee schedules cover fringe and indirect costs, whereas general revenue funds do not di- rectly indude these costs in the agency budget. New Jersey has about 2,000 permittees and fees are relatively large. The average annual fee is about $8,000; however, permit fees over $250,000 have been assessed. By contrast, when the Underwater Storage Tank (liST) Program was established, a large universe of permittees was available (25,000). Therefore a small fee, $100, was set. At $100, 25,000 registration fees brings in $2,500,000 annually. 28 See Appendix C for details. ------- Mr. Barker Hamil Chief, Bureau of Safe Drinking Water Division of Water Resources Department of Environmental Protection New Jersey While the polluter pay principle works for surface water, it does not work as well for drinking water. New Jersey drinking water programs are funded from four different sources, which makes for a balanced funding program totalling about $4.5 million: • General appropriations, which indude a relatively fixed amount that they have been able to hold onto, part of which go directly to the State laboratory to do analytical work. • A relatively fixed EPA grant which has had only very small in- creases since the 1970s. $ A water tax, one penny per 1,000 gallons, collected by the Treas- ury, which provides the bulk of their program funding. • Fees increased over the last year and a half. They include: - annual operating fees based on the size of the system, ranging from $120 to $3,280; - construction permit fees ranging from $100 to $1,200 per per- mit; and - physical connection permits, about $200 each, which raise only a small amount of money and do not appear to be too helpful. New Jersey also is looking at a system whereby local agencies collect and use fees without State involvement. This would lessen the burden on the State and provide incentives for local agencies to handle their portions of the program. A tax provides a broad base and adds minimal collection costs. While taxes are difficult to raise, much of the populace is not greatly op- posed to a tax base to support these programs. Fees are easier to change. In requesting additional fees it is very useful to add additional services at the same time. New Jersey’s combination of support has provided a fairly good funding source. 29 ------- Mr. Stuart F. Bruny, P.E. Chief, Division of Public Drinking Water Ohio Environmental Protection Agency Our annual drinking water budget is about 2.95 million dollars with about 33% of 1 million dollars coming from our Federal grant and the remainder through State general revenue funds. Ohio EPA has had a program of fee generation since 1980. All fees are returned to the general revenue fund. Civil penalty assessments gen- erated through agency enforcement actions are also returned to the State’s general revenue fund, although some hazardous waste fines are returned to an Ohio EPA rotary account to be used for emergency deanups. There is no direct correlation between the amount of fees deposited in the State’s general revenue fund and the amount of money returned to the agency’s operating budget. In other words, if a particular fee program generates $300,000 per year, it doesn’t mean we get that $300,000 back to Ohio EPA. Other than perhaps the solid waste pro- gram, none of the agency’s programs are self supporting through the fees they generate. Specific fees charged in the drinking water program include: 1. Plan review; 2. Lab certification; and 3. Operator certification. Ohio has required public water systems to perform their own drinking water analysis for the last several years. During 1988, our fees generated a total of $361,000 dollars. This repre- sented about 1/6 of our total drinking water budget. Considering the 3 programs individually, the plan review and operator certification programs were nearly self sustaining, but there was a major shortfall in the lab certification program. Now, let’s look at our recent proposal for generating additional funds through a supplemental financing mechanism. In the drinking water program, we sat down and tried to determine how much additional staff we would need in the next two years to maintain our existing programs and to continue implementation of the SDWA Amendments of 1986. Since many of the drinking water regulations are not yet final, there was a lot of guessing in figuring out how many additional people we might need. Our estimate represented a 26% increase in staff over the next 2 years. ------- Our Office of Budget and Management (OBM) told us there would be no tax increases. We then examined various alternatives to general supplemental funding, including: 1. Increased Federal funding, 2. Increased fee generation, which included: a. raising the fees for services we currently charge b. establishing new fees for existing services such as sanitary surveys or new site inspections c. or a combination of these 2 options; 3. Establishing a water user’s fee which included several options, including: a. a user fee based on the amount of water used by customers of community water systems. b. a flat fee plus user’s fee c. a flat fee per service connection at community water systems. 4. A straight increase in general revenue funds even though our OBM said this wasn’t likely to happen; and 5. A cut in existing programs. Analyzing these five alternatives, we didn’t see much hope for in- creased Federal funding, or State general revenue funding. We also felt it very inappropriate to cut existing programs, as we are not con- ducting any unnecessary or unneeded activities. The alternatives of raising our existing fees and charging new fees for current services was discounted because some of the fees turned out to be exorbitantly high in order to support the proposed expansion of our program. There are also obvious administrative problems in charging different fees for each service provided. We therefore focused our attention on the water user’s fee alternative (Alternative 3). Our proposal included a proposed fee of 1.5/1000 gallons charged to users of community water systems; this would affect 1600 water systems in Ohio. Of those 1600 systems, about 900 are unmetered systems; for these we proposed a flat fee of 75/quarter for each active service connection; resulting in a 3.00/year charge. To the average metered homeowner using 300 gpd, the 15/1000 gallons would mean a fee of $1.64 per year. As you can see, the unmetered customer would pay a higher rate. We did this to encourage installation of water meters at these 900 systems. 31 ------- Our goal was to improve water conservation through the installation of meters as unmetered customers typically use much more water. Our proposal also included a $1000.00 per year cap on large water users, meaning that any one using more than 180,000 gpd would benefit from the cap. We did this hoping that the large water users would not band together to fight this proposal. The fee does not apply to water sold by one community water system to another for resale to customers. We proposed that the water systems collect the fees as part of their normal billing process and then make quarterly returns to the State. In an effort to have our water systems support the proposal, we allowed the water system to keep one-half of what they collected. The water system’s share could be used to cover the cost of collection of the fees and disbursement to the State, and in some cases, provide funds to help pay for increased monitoring requirements under the SDWA. We estimate the proposed fee would generate $6 million per year, of which 3 million would go to the State and 3 million to the water sys- tems. This proposal is currently being debated in our legislature. The House Finance Subcommittee has recommended that the fee be deleted from the budget process and perhaps be considered in separate legislation. Ms. Lydia Taylor Administrator Management Services Division Oregon Department of Environmental Quality • Oregon’s environmental quality budget is funded: - 25 percent from State general revenues; - 30 percent from Federal revenues; and - 45 percent from other fee sources. I The fee portion is being moved up to 64 percent this year. • To obtain greater flexibility and larger amounts of money, Oregon has been adding fees which depend on products or on volumes of solid or hazardous waste. Examples include: - $1 per tire, 85 percent of which goes for recycling programs and waste tire cleanup; 32 ------- - $20 a ton on hazardous waste disposal; and - $2 a ton on solid waste disposal. • Fees are not expected to cover 100 percent of the costs; most pro- grams have two or three funding sources, which gives advantages in cash flow management because Federal grants and fees don’t always arrive on the first of the month. U To control administrative costs of collecting fees, Oregon intends to add additional fees on groups who are already registered with the State for other reasons. U Fees are written so the revenues can be used flexibly in a variety of environmental programs. U Revenue from fees has increased from $6 million to $41 million since 1979. Oregon now has 29 fees. This has been accomplished through a program of: - getting interested parties to agree there is a problem to be solved (not that “we need more money” for current programs); - forming a representative advisory group of all interested par- ties with a strong voluntary chairperson; - providing the group with ample information and analysis and listening to their advice and recommendations; and - keeping the group advised throughout the implementation phase. This process provides an excellent political base for recommendations for the legislature. • Establishing equity in fees tends toward complexity in the number of categories, and does not take into account the ability to pay. • If fees are dedicated to fund specific activities, as they are in Ore- gon, complex budgeting and recordkeeping can result. • Fees can also lead to over-dependency, which can work against you in recessions, or in a perceived danger of yielding to the pres- sures of those regulated (who also can lobby against your fees). N Fees also do not solve the problem of how to fund nonpoint source programs. Funding such programs will take new relationships, e.g., with agriculture. 33 ------- All the panelists agreed that there could be pressures to provide cost accounting to justify fee amounts. This could be a burden which would be very expensive and is best resisted by emphasizing that fees were supporting a program for the State, not individual services for each fee payer. Other Points Included: I Do not introduce a fee system at budget time - it will be seen as a hidden tax. I Greater equity leads to greater complexity, though it is hard to determine equity, i.e., who is what percent of the problem. • If a fee generates a great deal of revenue, have a cap beyond which it flows to the general fund. This can avoid backlash against the fee or toward the program. • Try to dedicate fees to the program - it lessens support if the reve- nue goes to the general fund. • Programs supported only by fees often have cash flow problems. 34 ------- Panel Designing and Adopting Special Taxes Introduction Taxes to fund water programs are typically used when program funding needs are large and when the benefits of an activity are widespread. Unlike fees, there may be less of a direct relationship between the tax and the use of the funds. Taxes are generally charged from either sales, income, or property bases and can be universally levied or targeted to those who have an impact on or gain a benefit from the service. Consideration of equity - who should pay - is an important element in the nature and applica- tion of a tax to support water programs. General taxes may be more appropriate to support general water program costs. Specific taxes can be most useful to fund activities where benefits are clearly tied to the individual or entity paying the tax. Taxes dedicated to environmental programs and, in particular, to water programs are less common than dedicated fees. State legisla- tures have tended not to dedicate tax revenues from a particular source to a single program, although some environmental examples do exist. Moderator Mr. Steve Brown Director Center for Environment and Natural Resources Council of State Governments Mr. Brown noted the public has expressed support for environmental programs, even if this has meant more taxes. Key Points by Panelists Ms. Mary Ann Dickinson Acting Director of Planning Connecticut Department of Environmental Protection Connecticut attempted to expand its conveyance tax on land transfers as a way of funding open space purchases and affordable housing. The process is instructive for those considering taxes to fund water programs. I Disappearing open space in Connecticut is perceived to be of crisis proportions - one half to one percent of the State’s total land area each year. There has not been a major State land acquisition effort since the 1950s. 35 ------- U Interest groups got together and the Governor agreed to support a $100 million bond issue over a five year period for State acquisition of land. U To support local land acquisition they decided to use a conveyance tax of half a percent on all land transactions, paid by the buyer, based on experience in Nantucket. Nantucket in 1983 put a two percent tax on all land transfers, paid by the buyer. Charitable donations, gifts of property, and the first $100,000 for a first time home buyer were exempt. The tax was intended to be simple and effective and to raise about $80,000 a week. U The tax revenues would keep pace with development, and there- fore are inflation proof, and would harness the vigor of the market for the goal of open space preservation. U The Connecticut tax was supported by a lobbying effort of 1,500 organizations, induding 97 land trusts and paid professional lobbying. U In the end, it failed for several reasons. First, it was enabling legis- lation rather than a mandatory tax, so a community had to choose to adopt it. Second, it tried to do too much and was too complex. In this case, the tax revenues would have been used for two purposes: affordable housing and open space purchase, with some additional discretionary use of part of the revenues. There were complexities of required open space and housing plans, and also required actions once funds reached a certain level in the community. Eq- uity considerations also appeared - a town with expensive real estate would have much greater revenues than a small, less wealthy town. A summary report, after the proposal failed, listed seven main objections: - it gave the towns power to levy a new tax; - it set up a dedicated fund, which the legislature did not like; - it tapped a potential State revenue source, which could go to reducing the deficit; - it had the potential to drive up land and housing costs, which concerned the real estate industry; - - it did too much or too little for open space or affordable housing, depending on your perspective; - - it combined housing and open space. 36 ------- I Suggestions for future attempts to adopt a new tax indude: - dearly identify the funding need; - design a program that is easy to understand and therefore supportable; - make it a bipartisan effort and get the governor’s support, if possible; and - build a prairie fire of support and create unusual alliances. The water funding situation in Connecticut is grim. The money re- quired is for more than that proposed for open space. The Federal government should not forget that water is often a regional resource of multi-State concern, and should not shirk the Federal responsibility to help support water pollution and drinking water programs. • Connecticut is also considering a three cent tax on each roll of toilet paper and any other products which go down the drain including laundry detergent, chemical drain unpiuggers, etc. • Connecticut is also considering a public trust lands leasing pro- gram, with a minimum $1,250 fee for new activities (such as a dock) in public trust lands. Mr. Alan Stanford Senior Water Quality Analyst Bureau of Water Quality Idaho • In 1969, with great foresight given today’s financial crisis, the Idaho legislature created the tax-based water pollution control account (WPCA) to be used to correct point and nonpoint sources of pollution. It was originally created to match Federal grants and to assist communities throughout the State to install waste water facilities while maintaining reasonable fees. The account was originally funded from a $1.5 million bond issue in 1970. Since then, it has received 100 percent of the tobacco tax, 6.7 percent of the cigarette tax, 80 percent of the inheritance tax, and $4.8 million annually of the sales tax. Legislation was introduced in 1988 to give the account three percent of the sales tax as well. The Idaho economy is good; the fund may provide quite a lot of money. U In 1980, the WPCA had such a surplus that the legislature decided to create a separate State grant program for wastewater facilities, and 75 percent grants for agriculture pollution control projects in 37 conjunction with soil conservation districts. ------- I The account has been so successful that it has been used for a number of related and unrelated purposes over the years. This is another example of a supposedly dedicated fund “robbed” by other interests when revenues accumulate. Administrative costs for the grants program have been induded. Six percent of the account revenues also support special water quality studies. Two years ago, the legislature decided to fund not only the water qual- ity but the hazardous waste bureau budget as well. Account money has also funded prison riot cleanup, forest fires, medicaid shortages, etc. I Management of the fund has changed over the years, and the SRF matches will also affect the WPCA. • Idaho cities have realized the WPCA is an important financial resource, and the legislature now continuously demands explana- tion about why the account should stay intact and be used solely for its original purposes. • A summary of the growth in revenues and expenditures for the Idaho Water Pollution Control Account is included in Appendix D. Mr. Jon G. DeBoer Director Technical and Professional Department American Water Works Association • From the point of view of the consumer and the industry, the difference in impact between a tax and a fee is not important, though if you call it a fee it should relate to the cost of a service. • The water industry is not concerned with whether taxes are gen- eral fund or special use taxes. I If you take the ASDWA needs figures and apportion needs across the country, the amount per household would not be great, com- pared to the costs of operating water systems nationwide. • The industry believes that taxes or fees collected from it should be used for water programs and not raided for other purposes. I From the point of view of the water industry, revenues from gen- eral fund taxes might best be used for broad-based functions such as enforcement, regulatory development, data management, pro- gram management and public education. 38 ------- - Special use taxes could support survey and inspections, train- ing and assistance, enforcement correction and plan review. - Fees might most equitably support specific programs such as laboratory services, permitting, plan review, certification, and training. • The water industry recognizes the problems of ability to pay, particularly in small systems. • On the other hand, large utilities do not feel they should be as- sessed the full cost impact on a per user basis. • Utilities and States should be involved in developing U.S. EPA regulations. Utilities want to see fee or tax systems that are simple to implement and flexible to allow a utility to operate its program in the most effective way. The water industry recognizes the State financing problem and is ready and willing to accept new taxes, but would like to be involved in designing them, and in designing the U.S. EPA regulations that States must implement. • Utilities are also interested in seeing State agencies maintain pri- macy and be funded so as to operate effectively and efficiently. I A list of recommended funding sources associated with functions to be supported is induded in Appendix E. Other Points Included: I National polls continue to indicate that the general public supports environmental programs, even if that means they will personally be taxed to support a cleaner environment. • The Council of State Governments analyzed all State budgets for fiscal year 1986 and aggregated funding into 17 environmental categories. States spend more on water than on any other program. 39 ------- Panel Designing and Adopting a System of Dedicated Fines and Penalties Introduction Fines and penalties are imposed primarily for violations of laws, regulations, or permit stipulations. Fines and penalties may be im- posed for civil or criminal offenses and may be levied administra- tively or judicially. Whereas fees and taxes may be collected in every- day activities, fines and penalties do not typically provide a steady stream of revenues for program operations. If they are dedicated to support operating programs, which would include enforcement costs, conflicts of interest could ensue. However, if they are dedicated to a separate program that benefits State water quality, this problem could be avoided. Fines and penalties may — through a large, one-time fine or penalty or through accumulation over time — provide the initial capital that can form the basis for a fund that can be used to implement specific water programs which benefit the State. A plan that can be imple- mented in the event of such a windfall could ensure that a large fine would specifically benefit designated water programs. Fines and penalties create positive incentives by encouraging im- proved compliance within the regulated community. Over the long run, the goal would be to eliminate fines and penalties through coop- erative programs to address water quality problems proactively rather than retroactively. Moderator PaulShinn Manager Government Finance Research Center I Fines and penalties differ from other funding sources in three major ways: - they are paid only on an exception basis — when things go wrong; - they are one- time payments; and - in the long-term they should disappear as violations disappear. ------- • In the short run it is appropriate that fines and penalties be used for the environment. However, three elements are essential to de- veloping them as a funding source: - there have to be laws, rules, and regulations which clearly establish what constitutes a violation; - there has to be enforcement; and - there has to be a process to bring violators to judgment, which can be administrative or judicial. I Fines and penalties can go into: - the general fund; - the general fund on a reservation basis for specific programs; or - a restricted fund managed by a State or third party. I Advantages of fines and penalties are: - “polluter pays” is appropriate and equitable because everyone can choose to comply with the law and avoid the fine; - fines are flexible and can be tied to ability to pay and the seri- ousness of the offense; - they have public approval; and - they create the proper incentive. • Disadvantages include: - much effort and expense in the enforcement process; and - sporadic revenue which is therefore unreliable for operating costs. • In operating the system: - keep the fines reasonable — we want compliance, not bank- ruptcy; - be prepared to prove that they are reasonable; - try to find a prime mover who will help to push a program to use fines through all the obstacles; 42 ------- - identify the beneficiary of the fine, which may make it more acceptable to the judge and the violator; - identify who should manage the revenue, perhaps a third party; and - identify what the money will be used for and in doing so, avoid even the appearance of conflict of interest. • According to a GAO report Water Pollution, Stronger Enforcement Needed to Improve Compliance at Federal Facilities, these facilities are twice as likely to be in noncompliance as municipal facilities. Mr. William Nuzzo Chief, Office of Water Program Coordination U.S. Environmental Protection Agency, Region I The Massachusetts Bay Credit Project/Massachusetts Bay Trust Fund was created as part of a settlement in which the Commonwealth of Massachusetts agreed to pay $2 million to establish a new trust fund and a $425,000 fine to the Federal Treasury for the discharge of pollut- ants into Boston Harbor over a long period of time. The Massachusetts Bay Credit project is an example of a dedicated fine or settlement being used to directly support environmental cleanup efforts; the Massachusetts Bay Trust fund is an example of a management mecha- nism needed to direct the use of the penalty funds. The Trust Fund would be used to coordinate and fund projects dedi- cated to restore and protect Boston Harbor. Remedial projects include the restoration of impacted beaches and salt marshes. In addition, the Trust Fund provided seed money to develop a Massachusetts Bay Estuary Project that would eventually lead to nomination for the National Estuary Program. U.S. EPA ‘s penalty policy under the Clean Water Act does allow for flexibility in using penalty revenues for beneficial mitigation projects, rather than just payments to the U.S. Treasury. Mitigation projects must be in addition to all regulatory environmental compliance obli- gations and provide benefits of full compliance, and should closely address the environmental effects of the defendant’s violation. Before the settlement could be reached, there were protracted negotia- tors within U.S. EPA, and between U.S. EPA and the U.S. Department of Justice (DOD over the proposed use of the fine. DOJ was looking for implementation of concrete remedial action, and did not favor “stud- ies” unless they would dearly lead to implementation. 43 ------- I There are some guidelines for using penalty funds to establish environmental credit projects and environmental trust funds: - the projects should be dearly related to effects of the violator; - the projects should provide benefits beyond benefits of full compliance; - the activity must be in addition to all regulatory compliance obligations; and, - the project should have dearly defined milestones and comple- tion dates. I One good use of fines is for studies which would not otherwise be conducted, or support for activities in high priority resource areas such as Vermont’s Lake Champlain. Other Points Included: During discussion it was noted that in Nevada some polluters would prefer to provide equipment, conduct studies, or provide erosion control work rather than have on the record payment of a big cash penalty. This could help the local environment in lieu of fine revenues, which the law requires be placed in the general fund. The usefulness of third party involvement was stressed. This was the case in the kepone incident on Virginia’s James River. In lieu of partial fines, the company gave money to a third party to establish the Virginia Envi- ronmental Endowment. I Other points which arose during the question period included: - Settlements should insure that corrective action is taken on the problem; a fine is not enough. - Fines should be high enough to ensure that people install pollution correction equipment rather than merely pay a low fine. - Part of the enforcement procedure should include additional fines for not correcting the problem within an agreed upon time. - The fine should never be less than the cost of proper behavior. 44 ------- Panel Management Funds: Once the Money is Available, Pooling and Managing It for Revenue Growth Introduction Fund management is as important as raising revenues. Financial management mechanisms aggregate sources of funds, link them with their intended uses, and can be used to increase the value of resources between the time they are collected and disbursed. The traditional, most commonly used financial management mecha- nism is the budget process through which general revenues are col- lected and funds are appropriated to government programs on a regular basis. The issues of continuity and flexibility in the receipt and use of general revenue funds under current economic conditions call for independent financial management mechanisms such as trust funds, environmental endowments, and enterprise funds. All of these are designed to channel specific sources of revenue to particular places. Management funds require careful tailoring to an individual State situation. Among the elements to address are the time period over which funds may be drawn down, the connection and trade-off be- tween management funds and general revenues, and the impact of surcharges on existing funds. Moderator Mr. George Ames Executive Director Council of Infrastructure Financing Authorities Key Points by Panelists Ms. Carol Jolly Assistant Director Water and Shorelands Department of Ecology Washington This workshop is an ideal way for U.S. EPA to help States move into the future. Washington State has a wide variety of fees, several new taxes, and a proposal now before the legislature to use fines and penalties. Revenues are used in all environmental programs. The State still relies on State and Federal general funds to support much of the base program. It would be a mistake to rely too far on specialized funds. 45 ------- • Washington has about 15 fees for its environmental programs induding: - a vehicle emissions fee that funds inspection and maintenance; - a wood stove fee, based on the sales of wood stoves, which funds educational programs about the air hazard of wood burning; and - a grass seed fee used to study alternatives to burning grass fields. The fee programs specify they should cover the cost of the service. • The Centennial Clean Water Fund was created in 1986. It is based on an eight cent tax on cigarette and tobacco products supple- mented by: - an additional sales tax on pollution control equipment for projects funded from the account; and - a general fund complement to provide a revenue floor. Essentially, all the revenue (about $45 million/yr.) is passed through to local governments. I In addition, Washington has: - a laboratory certification program, passed in 1987, with fees to make it self-supporting; - a wastewater operator certification program, passed in 1987 and containing a fee structure to make it self-supporting by 1991; and - a wastewater permit fee program for all State and Federal permit holders, passed in 1988, with fees ranging from $100 to $100,000 per permit per year. This will raise about $3.6 million a year. Fees will not cover all program costs. There is a conscious effort to maintain a balance in the agency budget, which is currently 40 percent State general funds, 20 percent Federal funds and 40 percent alterna- tive funding mechanisms. I All alternative funds are in dedicated accounts to be used for the specific purpose for which they were created. Funds revenues are specifically excluded from supporting the enforcement part of the 46 ------- water program. All funds must be appropriated before they are available. However, for management purposes, the treasurer’s office handles them as a pool. U Funds are invested in government securities and low risk invest- ments, 60 percent with maturity dates of less than a year. • The Treasury Office is role is to maximize investment return and monitor cash flow. • Eighty percent of investment return is prorated to dedicated ac- counts based on their percentage of the total pool where it is treated as direct revenue; 20 percent goes to the general fund. The Centennial Fund generates $4 million a year in interest but cannot invest in corporate debt. Operating accounts are expected to zero out at the end of each biennium; others do not have to. I Disadvantages: - substantial administrative complexity — the State had to totally revamp its accounting system due to complex hazardous waste cleanup fees; - there is a danger of perception that general fund support is not needed anymore, this must be avoided at all costs; and - danger of client overload, particularly as several fees begin to hit the same clients. U In establishing a fund, it is important to focus on flexibility and creativity. Washington legislature is now looking at bills to charge those responsible for spills or illegal discharges for pollution dam- age. The monies would go to a special account to restore the envi- ronment to its previous condition, or to pay for damages. If State staff has to clean up damage, they could be funded by these special monies instead of drawing on base programs. This financing mechanism has the advantage of serving as a disincentive to unde- sirable behavior. Mr. William Brierley Director of Public Facilities Department of Environmental Conservation Vermont • In 1987, Vermont introduced legislation to create three revolving funds — pollution control, water control and solid waste. Only pollution control is funded at this time. 47 ------- • All funds would be operated jointly by the Department of Environ- ment Conservation and the Vermont Municipal Bond Bank, which would be the financial manager. • The Bank would make loans, collect repayments, chase delinquent accounts, and invest unused balances. Vermont Bond Bank can invest unused balances in the same manner as the State treasurer can invest State balances. U Loans were to be for 20 years, equal annual payments, interest rates set by the treasurer between zero and 80 percent of State’s interest rate. • Vermont felt it could finish all necessary sewage plant and com- bined sewer overflow projects by 1994, the date of the last Federal grant appropriation. But the State anticipates growing needs for water supply revenues, and faces major new mandates in solid and hazardous waste as well as water quality management. This led the State to assess its overall needs over 10 years and the resulting shortfall. This turned out to be $208 million. (Details are in Appen- dix F.) • $56.7 million of that total is expected from the following dedicated revenue sources: - gas tax of one cent per gallon generating $3 million a year; - hazardous waste generation of 7 cents per gallon or 9 cents per pound; - petroleum tank assessment of $200 per tank; - solid waste tipping fee $2.40 per cubic yard, or $6.00 per ton; and - annual appropriation from the transportation fund to handle hazardous waste. • The agency brought together the Bond Bank, the Vermont League of Cities and Towns, and other parties to discuss how to deal with the needs. The group considered creation of a Vermont Environ- mental Assistance Financing Fund, a free standing authority of five people (Secretary of Vermont DEC, State Treasurer, two bankers, one municipal representative). I Each year the agency would request all capital appropriations from the fund. The authority would determine what they could fund and request the balance from the legislature, which would 48 ------- appropriate funds back to the authority. The authority would determine how much of the funds would be loans, and how much used for other purposes, and define the terms of the financial assistance. • This would equalize financial stress among recipients. For in- stance, the authority might say no project could generate an annual costs in excess of one percent of the median family income, and tailor the grant or loan to achieve that. • The governor decided to ask for a year’s study on the proposal. Political constraints: - the treasurer doesn’t like dedicated funds; - the legislature has mixed feelings about dedicated funds, and doesn’t like authorities; and - the Bond Bank feels it must be kept simple. • However the decision goes, Public Facilities would like to expand its financing programs to include land acquisition and wellhead protection. Mr. Steven Binder First Vice President Prudential-Bache Capital Funding I Water (and pollution) cultures vary from State to State and this influences the funding mechanisms that can be used. • We have made an error in this country for at least 75 years in how we view the financing of water, and the financing and cost of pollution. • Water has been badly underpriced historically both in what is charged the consumer and in the calculation for true depreciation and replacement of facilities. Compare a $55 monthly television cable hook-up with a $12 monthly water fee, or a 60 cent municipal discharge limit with the cost of a pizza. Yet imagine the public outcry if the $12 monthly water bill were raised to $18. The public has come to believe that drinking water is safe and cheap and subsidized, so the real value of water has been obliterated. The primary cause of today’s problem is old, wrong ways of financing. 49 ------- • We need to recognize that we have government expenditures for activities that are revenue-producing. We have underfunded, underpriced, and abused a precious commodity. Until we can have a grass roots educational system as to what this commodity is really worth, all of the political discussion on alternative finandng will be obscured. • We are merely rearranging the deck chairs on the Titanic; we cannot manage our way out of this crisis. We need a massive educational campaign on the value of water. The argument must be framed in a different manner. The main argument is “what is clean water worth.” There is an economic value to water which is not that difficult to calculate. • Funds management is as important as raising the revenue. The more complex the program, the greater is the potential for disaster. Many government agencies do not have the expertise for fund management. • Funds management: - requires that all fund sources be identified; - must integrate funding sources and State needs on a time- certain basis; - may have to be managed privately; - will have to recognize that it is necessary to subsidize small communities; - may best be run on a segregated trust account basis. Do not allow it to be commingled with the general revenues of the State. - will not be favorably viewed by investment bankers because they will view them as able to be manipulated by State legisla- tures; and - could generate a large surplus in 15 or 20 years if funds are properly managed and local residents realize they will have to pay their fair share. • Putting projects through the U.S. EPA process can add around 30 percent to the costs (primarily because of the Davis-Bacon Act). I The Tax Reform Act literally takes the power of good fund man- agement and arbitrage out of the hands of local government and was disastrous for the water financing partnership. SRFs that are leveraged offer the best long term “bang for the buck.” 50 ------- U The bottom line is we are not going to manage our way out of this crisis. The general public is going to have to support clean water and pay. Regarding infrastructure: U Depreciation has been unfunded. Governments typically run on an income, rather than on a balance sheet basis, do not take into ac- count the physical depredation of plants and equipment. Because of this, we will face a huge infrastructure cost over the next 30 years, to build new facilities to replace those built between the De- pression and the Korean war. Other Points Included: Mr. Ames summed up panel recommendations for U.S. EPA to help States: U Basic principles suggested for U.S. EPA include: - be flexible; - preserve local choice for the States on setting priorities; - promote simplicity in designing and managing alternate fund- ing mechanisms; and - recognize that the Federal government has an obligation to help fund State costs to achieve national objectives. This should be a central covenant of a Federal-State partnership. Then we can debate the percentage of funding for each. • Two basic roles U.S. EPA could fill are: - becoming a clearinghouse and focal point to collect, analyze, and share information on financing of State water programs; and - sustaining a base line of funding and technical assistance. ------- Panel Working with State Legislatures Introduction The establishment of new funding mechanisms in the States requires close coordination with State legislatures. New programs compete with existing ones for funding, expertise, and legislative commitment, three commodities much in demand by other sectors. Effective working relationships with State legislatures depend on constructive involvement of all affected interests and comprehensive identification of the problems and solutions in funding State water programs. Moderator Mr. Larry Morandi Program Director for Natural Resources National Conference of State Legislatures Announced that the panel would look at: • Substantive policy issues; for example, current and expected sources of revenue and strategies to obtain them. • Political issues - whether the budget is a Governor’s or a legisla- tive budget, and the relationships of the legislative policy commit- tees to the fiscal committees. When you work with administrative costs, you may be working with the fiscal committees only, which changes your budget strategies. You may have a more receptive audience for your needs with program committees than for fiscal committees. Key Points by Panelists The Honorable Fred W. Finlinson, Senator Chairman, Utah Natural Resources Council Caflister, Duncan, and Nebeker • Basically we are proposing to move from “soft” to “hard” money, i.e. from Federal dollars to State tax dollars. • Looking at drinking and wastewater infrastructure costs, Utah foresaw a $4 billion need through the year 2000. In 1983, Utah used a number of leveraging techniques to create a fund to meet these needs. These techniques included insurance, repurchasing plans, remarketing, tenders, hooks, interest buy downs, letters of credit and grants. They refined the fund in 1985, 1987, and 1988 to include increased leveraging. All leveraging was an attempt to 53 guard and use their most precious resource - - public funds. ------- • To originally implement the fund, Utah put together a coalition of irrigators, safe drinking water people, transporters, waste treat- ment people and city officials. This is important because legisla- tures can work well with agreed-upon bills and goals, but not with mixed signals. • Basically, administrative costs should not be funded from bond issues, and Utah’s 1983 legislation prohibited this, but some moth- fication to this position may be required . The Senator’s 1989 bill would have allowed some of the bond proceeds to fund adminis- trative costs of the projects — however the bill did not pass. This is a risky area. The State needs to face up to the fact that it needs ongoing revenue to administer programs, not just set-asides from the capital dollar. From a legislator’s point of view, several points emerge: I Do not have your bill come up first. • Avoid one-page bills; everyone will read them. • Encourage legislators to become advocates, not remain as judges of competing interests. If the legislator is a judge, not an advocate of your bill, you have a problem. • Keep the legislature advised and informed so they are able to be an advocate. Potential advocates can be identified through the com- mittee structure. Mr. Marion Fannaly Administrator Water Pollution Control Division Department of Environmental Quality Louisiana • Louisiana started with a $900,000 fee program in 1981 which has grown to $7 million (63 percent of requirements) today. • The State’s fee program growth was largely forced by reduced general revenues from oil. When oil prices dropped, the State economy did too. In 1988, the State faced a deficit of around $900 million. • When this happened the State’s dedicated funds, of which the environment trust fund was one, were used to meet the general shortfall and the dedicated funds were abolished. The funds were dedicated by account, but not in a separate bank account. ------- U Water program fees went up 50 percent in 1985,30 percent in 1987, and 75 percent in 1988. U Other programs saw the water program able to fund itself in spite of the deficit, seized the idea, and started addlitional fees. Many of the facilities regulated by water programs pay other fees to other programs. It is becoming a significant economic burden. As a result, the system has been subject to legal and political attacks. • There is an argument on whether the fees are really taxes. In Lou- isiana, the fee has to be related to service and cannot exceed the cost of service. However, detailed cost accounting has not been provided to permittees; the State argues that the fee is for mainte- nance of the entire program. If the State collected more revenue than the cost of the program, and that excess money could be traced as going back to the general fund for some other purpose, it would be the “kiss of death” for the fee. You can win the legal battle and still lose the political one. • The fee limit that public will bear may have been reached. • The State agency can set the fee based on assigning a dollar value to assessed points such as toxicity and major or minor status, and can change the fee fairly easily. However, it is subject to legislative review. Ms. Pauline Bouchard Assistant Director Division of Environmental Health Department of Health Minnesota • Minnesota has been fairly generous to environmental programs, but mostly those unrelated to drinking water. So the State is con- sidering a legislative proposal to create a fee to fund the entire safe drinking water program. • Historically, State funding has been low. The current Federal share of the program exceeds 50 percent, but the Safe Drinking Water Act amendments have focused the demand for additional funds. U The State decided to continue to pay for public water supply laboratory work rather than chase after the utilities not complying with monitoring regulations. • Opinion polls showed that the public was willing to pay more for safe water. 55 ------- • Minnesota formed a broad-based advisory task force, including a hand-picked environmentally interested State legislator. That effort alone has been worth many times over the amount of staff work put into it. It was a 15-member task force representing many communities including the League of Women Voters, environ- mental, water well contractors, and large and small water utilities. The charge was specific — they were presented with a program outline which required $2.9 million over the next five years, asked to evaluate the program and recommend how it should be funded. • The task force recommended that financing should be through a tax, because the program benefitted all citizens, and therefore revenues should come from the general fund. However, the gover- nor had a position that new services should pay for themselves by fees where possible, so the staff proposed a service connection fee of $3.20 per year for community water supply hook-ups. • They took the proposal to the legislature in an off budget year. The policy committee approved the scope of the program. The finance committee approved the program in concept, as well as dollars to get started, but said to return in a year with a report on alternative funding mechanisms, that the program must be largely self-sup- porting. So the Task Force began again. In the meantime, there was a tremendous groundswell of interest in a broader water initiative, fueled partly by pesticides contamination of some water supplies. • The agency’s bill has now been incorporated in a much larger comprehensive bill on environmental interests — it is a quarter of a page in a 120-page bill totalling $24 million. There are House and Senate versions. • The original legislator has left, and the agency feels it is very im- portant to maintain close contact with the legislators. The agency tries to call legislators once a week to see what constituents are saying. The Governor’s staff does not usually like this but blessed the procedure in this case. The agency has offered to prepare additional briefing papers, and feels it has the best working rela- tionship with the legislature in 10 or 15 years. • Industrial revolts against fees can be forestalled by a cooperative discussion about the funding needs of the program and the amount of industry support needed. • A State might consider going directly to the voters with an initia- tive to raise funds, but it is hard to sell the need for more adminis- trative costs - public initiatives work better for project costs. 56 ------- Other Points Included: A panel discussion on the budget process followed: U In Utah, the Governor prepares the budget, but so does the legisla- ture’s analyst, and perhaps also a State agency, and the final budget results from working with all proposals. There is also a split between policy issues and budget issues and standing and appropriations committees. In Louisiana, the Governor dominates the budget process. In Minnesota, the legislature tends to pass the Governor’s budget, but the process of drafting the Governor’s budget is long and inclusive. 57 ------- Panel Reducing the State Programmatic Burden Introduction Supplemental financing mechanisms can help close the funding gap in State water programs. Another approach toward closing the gap involves changes in State institutional arrangements. Three options for States to consider are: technical assistance to forestall future en- forcement or clean-up costs; legal and regulatory arrangements to promote use of supplemental financing by other sectors in the State; and third party (local and private sector) participation. Technical assistance and advice by States to their local jurisdictions, particularly their small communities, can help communities plan for and implement drinking water and water pollution control activities cheaply and efficiently. Investment of State monies up front for tech- nical assistance can also save money by negating the need for costly clean up or enforcement programs. State legal or regulatory arrangements can enable third party arrange- ments and save costs for others who implement water quality and drinking water activities in the State. Such arrangements include streamlined regulatory or permitting processes, allowing the use of alternative or innovative technologies, allowing turnkey projects where appropriate, encouraging economies of scale in planning and operations, where feasible, and exploring the potential of regionaliza- tion for some small systems. Local and private sector participation can increase if States make such changes to laws and regulations to allow others to use innovative financing mechanisms. For instance, States may revise bidding proce- dures or enact privatization laws to allow municipalities to use pub- lic-private partnerships more effectively. Moderator Mr. Wade Miller Executive Director Association of State Drinking Water Administrators Five elements can reduce the State administrative burden: • Engage in preventive activities such as the use of technical assis- tance, to avoid more costly activities, such as formal enforcement at a later date. • Leverage resources at every opportunity, for instance, using serv- ices of the National Rural Water Association or the Rural Commu- nity Assistance Projects to reduce State case loads. 59 ------- * Examine existing State legal or regulatory arrangements for pos- sible modification to achieve efficiency or cost savings, for in- stance, using a third party such as the National Sanitation Founda- tion to evaluate drinking water additives, which is a very resource- intensive operation, or streamlining engineering plan review or permitting processes, or exploring the potential for regionalization or consolidation of small systems to reduce noncompliance. • Encourage privatization where appropriate, for instance, a State public utility commission could allow a larger entity to purchase a small investor-owned utility. U Explore wholesale changes to the way in which we do business. For example, during World War II, Britain found it had inadequate water supplies to fight fires. So after the war it passed the Water Act which reorganized all existing water management activities (approximately 1,600 separate water, sewage, and river basin management bodies) into ten hydrologically based water region authorities with authority over all water activities in their bounda- ries. Highlights of the dilemma of small water systems: U There is a major small systems problem; 51,400 of the 58,500 com- munity water systems serve less than 3,300 people; 124,000 non- community water systems receive little attention. 20,000 noncom- munity water systems are being reclassified as nontransient, which means they will have to comply with many more regulations. • Many small community systems are “nonviable operating units”, that is, they probably cannot raise water rates high enough to cover the full cost of service without making water totally unaf- fordable. Most do not have a full or even a part-time operator. There are no economies of scale possible, little financial or techni- cal management, and often no accountability. When a State goes to take regulatory action, it may not be able to find the responsible party. • There will always be systems too remote to be merged and too poor to repay a loan or hire an engineer. Since they are needed and cannot be dosed, technical assistance is the only viable answer. But whatever the States do, it’s never enough. That’s why NRWA and Rural Community Assistance Programs (RCAPs) are so important — they will go where State and private parties cannot. 60 ------- • Full-cost pricing ought to be a requirement of all systems including establishment of a reserve fund to cover replacement costs. We have an opportunity under Section 14.16 of the SDWA, the excep- tion provisions, to mandate full cost pricing as one of the mini- mum requirements for receiving an exemption. We must do everything we can to encourage private sector involve- ment. In the past 12 months Mr. Miller has been approached by U.S. and foreign banks and companies interested in buying water systems. Key Points by Panelists Mr. C. L. Overman Executive Director Municipal Technical Advisory Service (MTAS) University of Tennessee • Technical assistance is part of the broad spectrum of actions needed to support water programs, and a way to maximize dollars invested at the local level. U MTAS, a creature of the legislature, the University of Tennessee, and the Tennessee Municipal League, has been providing services to Tennessee communities for about 40 years. The returns have been very good, a ratio of at least 10 to 1. • In 1984, the Tennessee Department of Health and Environment asked MTAS for help in providing technical assistance to 250 publicly-owned wastewater treatment plants. Over three years of the program they have invested $700,000 for the department in technical assistance and seen $22 million in savings. This is a re- turn of 30 to I on their investment. MTAS provided: - technical assistance; - management development for systems managers; - financial analysis assistance; - grants and loan assistance; and - project coordination and go-between services between the State, the engineers, and the local officials. U The project staff consists of two civil engineers and a finance per- son. ------- The department uses MTAS rather than its employees for technical assistance so as not to confuse the regulating and technical assis- tance functions. • The full MTAS staff has 31 professional people including nine former city managers and 14 support staff. They are financed by: - $1 million from the university budget; - $1 million from 3/4ths of 1 percent of the cities’ share of the State sales tax; and - about $500,000 from contracts. MTAS does not teach or do research. It provides hands-on manage- ment and technical assistance to 336 Tennessee municipalities. MTAS provides - management assistance - ordinance codification - public works consulting - budgeting and accounting - information and data processing • MTAS conducts about 1,200 major projects each year, and 5,000 smaller ones. • MTAS’ basic goal is to develop self-sufficiency and internal man- agement capabilities for Tennessee cities, to help solve short term crisis and aid long-term planning. U.S. EPA and the States can help by: 1) promoting similar programs; 2) helping to fund at least one technical assistance organization in each State; and 3) helping local governments to understand that infrastruc- ture is a local government responsibility, and they must have the proper tools to manage it. Ms. Elizabeth Ytell Director, Water/Wastewater Division Rural Community Assistance Corporation (A summary of the Rural Community Assistance Corporation pro- grams with specific examples of technical assistance is contained in Appendix G.) 62 ------- • RCAPs are field-based regional training and technical assistance organizations that grew out of the Department of Health and Human Services (HHS) that originally funded them to give on-site water and wastewater assistance to rural communities. • RCAPs are based in six regional offices, each of which has about $800,000 in resources. They leverage about $136 million with that investment. For example, last year the Midwest Assistance RCAP worked with 120 communities and leveraged $6.5 million on local projects. • Mapleton, Oregon hired an engineer to draft plans for a wastewa- ter treatment plant and got a million dollar proposal. The RCAP engineer designed one for $500,000. • Deer, Arkansas saved $135,000 on a well project. • Funding is now received from HHS, the Farmer’s Home Admini- stration, foundations, the Public Welfare Foundation, and U.S. EPA and the RCAP program has expanded to include solid waste and groundwater issues. • In the western (10 State) RCAP (Ms. Ytell’s) more than half the funds are contracted out to 22 different organizations such as the Environmental Training Center, the Northeastern Council of Gov- ernments in Colorado, community colleges, and community action agencies. Groups vary from State to State depending on the local politics and situation. • Typical activities indude: - information dissemination including newsletters, educational materials, video training materials, and one page fact sheets; - outreach programs in which they try to get interested parties together; - training conferences and workshops on such topics as financial management, budgeting, planning, rate setting, or hiring an engineer; - financing, induding helping apply for grants and loans, sug- gestions on leveraging and working with multiple funding sources; - third party assistance for small systems, much of which re- quires building trust over a period of time; and - leveraging funding sources. 63 ------- RCAI’s often end up working with cases no one else will deal with. The community must want the project. • Suggestions for U.S. EPA and the States include: - improving interagency coordination at the State level; - documenting success; - encouraging proactive rather than reactive (firefighting) techni- cal assistance — prevention vs. crisis management; and - supporting RCAP links with States. Mr. Fred Esmond Assistant Director Division of Construction Management Department of Environmental Conservation (DEC) New York New York State has a self-help support system, developed by the Renseleerville Institute, which works in partnership with the New York Department of State, DEC. and small communities. The Ford Foundation also provided some seed money for low interest project loans. The basic requirement is local initiative — recognition and ownership of the problem. The Self Help Program provides guidance and advice with a goal of at least 30 percent cost savings. Usually the savings are more like 50 to 60 percent. Often the way to get money for these proj- ects is to need less of it, and that is the route Self Help tries to take. The community builds the project. The effort is not a program with special funding — it is a tool, a way to work with communities. It counts on individuals to make it go. Overwhelming problems become overwhelming opportunities. Mr. Esmond presented a case study involving Seward, New York, a community of 44 homes. Seward had a problem involving a storm drain running along the State highway which backed up, leaving sewage in ditches, surround- ing wetlands, backyards, and basements. Land values were destroyed and mortgages unobtainable. • An engineer hired by the community projected a cost of $530,000 to correct the situation, which would cost $1,200 per homeowner. 64 ------- • The current estimate after the Self Help Program is $165,000. They reduced the costs by: - developing a set of worksheets (Appendix H) which outline all of the tasks which have to be performed. - reviewing each step to see if there is someone in the community or available in a State office who can do the job at no cost or a nominal cost. For example, the County Health Department did a no cost sanitary survey. The required archeological survey was done by a local professor and his student for $300. Every- body restores their own lawn. • One of the major payoffs is the goodwill which developed out of the projects between the community and the government. At present, New York’s Division of Construction Management is limited by resources to about 14 projects at a time. The demand ap- pears to exceed that. Illinois is interested in the program, and the New York Self Help Program is working on a pilot case with Elkart, Illinois. Other Points Included: Audience discussion pursued how small communities can stay on an independent course once helped over their crisis. One recommenda- tion would be for SRFs to require financial capability and manage- ment responsibility plans and guarantees at the front end. On the question of whether technical assistance generated conflict with the private sector, panelists agreed the problems such assistance usually addressed would not provide good business for the private sector, or they’d have to do it free anyway. 65 ------- Panel Collaborating with Other Agencies and Third Parties to Accomplish Water Program Goals Introduction State agendes that operate drinking water and water quality manage- ment programs can work with other agencies as well as with regu- lated interests and the private sector to accomplish their environ- mental goals. Resources of other agencies and organizations with shared goals can augment those available to the State agency. Joining resources can produce more “bang for the buck” to accom- plish mutual goals and programs. “Third party” arrangements can result where the other agency or organization performs a task that the State would otherwise have to do. SESSION 1 Moderator Mr. Paul Shinn Manager Government Finance Research Center Key Points by Panelists Ms. Judy Kelly Assistant Regional Manager Gulf/South Atlantic Region Coastal Programs Division Office of Ocean and Coastal Resource Management National Oceanic and Atmospheric Administration (NOAA) NOAA programs can assist States with water program information needs, and in particular with programs in coastal areas. More and more, NOAA is recognizing the connection between upstream water quality impacts and NOAA responsibilities. • NOAA has two major databases which NOAA, U.S. EPA and States jointly use in U.S. EPA’s National Estuary and Near Coastal Water Programs. • The National Estuarine Inventory contains preliminary informa- tion on land use, wetlands, classified shellfish waters, and toxic pollutant discharges in over 120 estuaries. • The National Coastal Pollution Discharge Inventory indudes discharge estimates for all point, non-point and riverain resources 67 and pollutants in the United States. ------- • Using this data, NOAA has developed a preliminary estuarine classification system based on pollution susceptibility. U.S. EPA has used this scheme to help prioritize estuaries nominated for the National Estuary Program. • The wastewater treatment component contains over 3,000 facilities; data is contained in a report Publicly Owned Treatment Works in the Coastal Areas of the United States. • A major innovative effort is underway both to make this data accessible to State officials on a MacIntosh computer, and to incor- porate State data into the data base. They are looking for States to participate in a pilot project for data use. • NOAA wants to develop closer working relationships among State coastal management programs and water quality management programs. NOAA also has water quality research and manage- ment efforts funded through sea grant programs, research oppor- tunities and habitat studies and data available through the Na- tional Marine Fisheries Service. • Congress has called for a renewed and systematic review of the links between the coastal zone and water quality programs with State-by-State recommendations. • Most coastal States have coastal zone management programs, sharing an annual congressional appropriation of $34 million. U Examples of CZM funded program activities which addressed water quality issues include: - The State of Washington developed a prototype of a coastal watershed program aimed at correcting bacterial pollution in six major coastal watersheds; - South Carolina updated Section 208 plans to improve stormwa- ter management and develop stormwater guidelines; - Florida spent well over a million dollars to develop watershed management plans; and - On the Federal level, U.S. EPA and NOAA signed a memoran- dum of understanding to implement the National Estuary Program, and the Coastal Zone Management Act will be reau- thorized in 1990. U NOAA is looking for innovative programs that address coastal water quality issues. State coastal management funds may be available for such projects. Water quality managers are encouraged to renew CZM contacts and seek out opportunities to work coop- 68 eratively on these important issues. ------- Dr. Jim Loftis Associate Professor Department of Agriculture and Chemical Engineering Colorado State University U To produce a nonpoint source assessment report and management plan, a multi-agency task force with subcommittees on agriculture, silviculture, mining, urban and construction mn-off, and hydro- logic modification was formed under the auspices of the Colorado Department of Health. This was stimulated by Section 319 of the Clean Water Act. U The task force produced an assessment report concentrating on surface water conditions; streams which have problems, where they are, and the extent of the problems. There is not much ground-water data for Colorado. • The management plan consists of best management practices for dealing with the problems and a hope that agencies and individu- als will adopt them voluntarily. Some construction grant money has been directed to local organizations for pilot or demonstration projects. I One such project by the Northern Colorado Conservation District is managing nitrates in the South Platte River Basin. • The Cooperative Extension Service (CES) and the Soil Conserva- tion Service (SCS) signed a Memorandum of Understanding on the national level, which is filtering down to the State level. SCS will incorporate water quality into conservation plans. CES and SCS staff meet regularly and both include water quality in work with farmers. Work on pesticides and nitrates is particularly important. The Cooperative Extension is also working with the Department of Health, Water Quality Control Division, on safe drinking water clinics, and with several agencies about starting a ground-water data base. Mr. Laurence Bowman Chief, Program Development Branch Water and Waste Disposal Division Farmers Home Administration (FmHA) Department of Agriculture • FmHA started its water loan program in the 17 western States in 1937. They have made $9.7 billion in loans and $3.1 billion in grants for water and waste disposal facilities. 69 ------- • Presently, FmHA can make grants and loans, mostly for water and sewer systems as a lender of last resort, to public bodies and non- profit associations in towns under 10,000; they like to concentrate on those less than 5,500. • They prefer to improve, enlarge or modify water and sewage facilities as compared to building new ones, and give priority to low-income and truly rural communities. • Current interest is market rate (7.5%), poverty (5%) for those meet- ing the guidelines, and an intermediate rate (6.25%). Loans are granted for a maximum of 40 years, or the life of the facility, or in conformance with State law whichever is less. Security is required. • Grants are also available to reduce user rates to a reasonable level. Grants can only be made to communities if the median household income is less than the State non-metropolitan median household income. Grants can be as high as 75 or 55 percent depending on the income and need of the community. • In the loan program, FmHA experience is to structure the loans so there is reasonable security and chance for the borrowers to repay. The repayment rate has been good for communities. An effort is made not to be too divergent in the objectives of the loans. • A circuit rider program is available in all 48 continental States under contract with the National Rural Water Association. FmHA will put about $2.9 million into it this fiscal year. Circuit riders provide day-to-day operational, management, financial assistance and advice to rural water systems. • Starting last year, one to two percent of FmHA’s funds have been available for technical assistance and training. Mr. Charles Kreiman Director of Program Operations Community Planning and Development Denver Regional Office Department of Housing and Urban Development • Community Development Block Grants (CDBG) funds go directly to cities (70 percent) — generally to those over 50,000; 30 percent of the funds go to States, which then make grants to local govern- ments under State-specific priority systems. Over $2 billion was available in fiscal year 1989. The money is available for building any public facility except buildings for the general conduct of gov- ernment. The money has generally been used for housing and also for water projects. 70 ------- • Virtually all of South Dakota’s funds between 1982 and 1986 were spent to improve water facilities in rural parts of the State. • Funds spent must meet the national objectives of the Act, the most important being that a majority of users be low and moderate income users. Beyond this, the funding process can be quite broad. States often give priority to water projects based on health issues, coastal zone projects, or ground-water policy. • Communities must make local environmental analyses of the projects to see if a full scale environmental impact analysis under the National Environmental Policy Act is required. They also must comply with other Federal laws such as the Davis-Bacon Act. Ms. Janice A. Beecher Research Specialist National Regulatory Research Institute Ohio State University • While Public Utility Commissions (PUCs) don’t have money to give, they do have information and expertise that will help in the financial crisis. • Forty-five State PUCs regulate the rates of 4,500 private water utilities. Nearly 10,000 water utilities fall under PUC jurisdiction. • Revenue is under $15,000 for half of the regulated water utilities, and under $100,000 for 75 percent. Forty-three percent of PUC rate cases are water utility cases. Therefore, PUCs share the concern over small water utilities. • The basic principle that “regulation should be in the public inter- est” leads to a careful balancing act between investors and rate- payers. PUCs have experience in rate setting and in the legal chal- lenges which can occur, e.g., one legal case challenged an assess- ment on railroads for the cost of regulation because they felt it was a tax, not a fee, and because it was discriminatory in not being applied evenly to different corporate entities. • There are a number of opportunities for cooperation between PUCs and State water agencies, e.g., in California the PUC and the Department of Health Services agreed to: - monitor regulatory water systems; - identify contaminants and determine system improvements, including alternatives; ------- - select improvement projects after reasonable alternatives have been defined and cost analyses performed; and - establish mutually agreed upon priorities for improvements. • Duties defined for each organization include: Department of Health Services: - Evaluate public water systems to identify health deficiencies; - Identify alternative, cost-effective corrective actions; - Review and approve plans and specifications for water quality improvements; - Inspect water quality improvement projects during and after construction; - Share project expense reports with the PUC; and - Participate in appropriate commission public meetings and hearings. Public Utility Commission: - Determine the type of rate relief needed to finance water qual- ity improvement projects; - Arrange for and publicize public meetings and hearings; and - Provide an analysis of the financial impacts of water systems improvements. • There are ten benefits for State water agencies in coordinating with their PUCs: - Optimizing mutual expertise; - Avoiding duplicate effort; - Ensuring equity and developing informed policy decisions, e.g., fairness among municipal and private interests; - Sharing regulatory clout, and providing checks and balances; - Preventing small utilities from falling through the regulatory cracks; 72 ------- - Avoiding conflicting signals; - Avoiding confrontation between the PUC and State water agencies; - Supporting each other politically, e.g., in State budget proc- esses; - Providing less fragmented, and more efficient and effective water program management; and - Ensuring better quality water at rates that meet public interest standards; Two suggestions for U.S. EPA, which came out of the audience partici- pation, were that U.S. EPA should: • Work with other agencies and utilities to reconcile the need and affordabililty issues of the SDWA by using existing formulas such as those of HUD’s CDBG program, or the FmHA to establish new standards. • Become more involved in the nitty-gritty of State problems to insure States better apply U.S. EPA directives and to help put coalitions together. SESSION 2 Moderator Mr. Michael Cook Director Office of Drinking Water Environmental Protection Agency Key Points by Panelists Mr. Nelson E. Fabian Executive Director National Environmental Health Association (NEHA) The consensus of local environmental professionals on the ideal State- local relationship is: U State activities should include: - regulation development; - technical assistance and consulting; - maintenance of an expertise base that the local professional 73 could access; ------- - education and training; - management of the general permit process; - maintenance of an information clearinghouse; - compilation of centralized data management; and - general program oversight. • Local activities should include: - most enforcement monitoring (local political concerns might make this difficult, so there should be a provision to refer sticky situations to the State level); - inspection up through revocation; - sampling; - local consulting; - public education; - compilation of data for local and State use; and - generally those functions which require interaction with the public in the field. • Local officials contend they know the problems and should be con- sulted first. They believe State and Federal staff have slower re- sponse rates and higher costs and generally know less about local problems. If this division of responsibilities were maintained, water programs would be more effective and efficient and less costly. However, this arrangement is not possible in many States. For ex- ample, Colorado statutes specifically describe the activities for which permit fees may be used — in effect, State program administration. The State can not subcontract to local communities for the kind of assistance they are capable of giving. State legislatures seem to be ambivalent to changing this - they may fear losing control if such powers were granted to the locals. County and local health professionals are willing and interested in helping; the tremendous resources they offer are in place. States seem interested in using them. We need State legislative changes to allow ------- this to happen. Clearing away State legislative requirements which require action at the State level would allow more efficient use of resources at the local level, giving more effective service for the same amount of money. Dr. Nina McClelland President and Chief Executive Officer National Sanitation Foundation (NSF) NSF, a private consultant, has been in business for 45 years, operating programs in every U.S. State and 26 foreign countries. NSF certifies products and services conform to NSF and other recognized stan- dards. Work is done on a fee for service basis. • Public dollars will not be enough to fill the financial gap. Private sector funding must be added. Third party services are a way to do this. U Third party providers are private, independent organizations called upon to bridge the communications and confidence gap that exists between a regulatory agency and those regulated, or be- tween a manufacturer and a user of a product. U Sometimes third party providers develop standards and some- times they test, evaluate, and certify products for conformance with standards and accredit laboratories. In many cases, States actually certify laboratories based on NSF recommendations. U Usually they work on a fee-for-service basis and authorize a regis- tered mark that authenticates the service. U Success of third parties depends on their competence, credibility, confidence of others in their processes, confidentiality, communi- cations, and ability to build consensus. • Specifically for water, NSF provides: - standards and certification for point of use and point of entry drinking water treatment units. Standards include carbon filters, ion exchange, water softeners, reverse osmosis, and soon, ultraviolet disinfection, distillation, and drinking water vending machines. (23 companies and 250 products with 35 applications pending). - certification of bottled water for compliance with U.S. EPA and U.S. EPA regulations (30 bottlers and 210 annual plant inspec- tions). 75 ------- - drinking water program compliance e.g. in Michigan accredit 140 microbiology and eight chemistry laboratories. These accreditations provide a cost effective way for States and EPA to have laboratories evaluated, either in a single State or against several State standards. - standards and listings for on-site wastewater treatment devices, recyde and reuse systems, and items such as package wastewa- ter treatment plants. U NFS also undertakes a variety of research and development proj- ects under contract such as characterizing residuals in waste sludges from drinking water facilities or determining the feasibility of point of entry treatment to reduce radon. U The goals are to optimize and measure performance, measure costs. and develop procedures for monitoring maintenance and waste disposal. U Use of these private sector services offers a good alternative to the burdens of greatly increased regulation requirements. Mr. Paul Foran Commissioner Vice Chairman, Water Committee National Association of Regulatory Utility Commissions (NARUC) U In providing resources for drinking water programs, the role of PUCs is somewhat limited. U Extends only to private and investor-owned utilities. U They usually do not have money to offer drinking water programs. U Nonetheless, PUCs can be helpful to State and to U.S. EPA. U PUCs’ primary responsibility is to regulate rates and conditions of service for all investor-owned gas, electric, water, and sewer utili- ties, with a statutory obligation to see that services is safe and reliable. The PUC Act mandates that PUCs ensure water is potable. U In practice, PUCs rely on the expertise of others, such as U.S. EPA and the States, to develop health and safety standards. U However, expertise in rate-making, financial, and economic mat- ters can make them valuable in the program by: - determining affordability of various treatment methods and how that relates to grant exceptions and variances; 76 ------- - combining their expertise in local companies and financial and rate-making with State and Federal officials’ knowledge in these areas to provide optimal decision-making; - determining the effect on the customer rates of large plant additions to comply with the SDWA amendments; - discouraging the formation of small, marginally underfunded water systems; and - insisting on adequate capitalization of water systems. U For at least the last 15 years the illinois Commerce Commission (ICC) has had a dual policy with small water systems. First, they have tried to discourage them or steer them to other means of providing water. They have even denied certificates on lack of financial viability. This has reduced the number of regulated small water companies from approximately 150 to under 80. Second, if a small system is the only alternative, the ICC helps them with technical assistance, recordkeeping, streamlined rate case filings, and time and rate relief. U Public utilities provide effective hearing processes and other proce- dures which provide for conflict resolution and balancing different interests and abilities to pay. Such mechanisms will be essential if SDWA funding will come from a variety of Federal, State, local, and private sources. In answer to a question, Mr. Foran said he was not aware of any States or PUCs that have formal standards for financial viability. Though these would be useful, they would probably have to go through for- mal rulemaking and be expensive. The more informal case by case way used allows more flexibility though the success has not been total. NARUC has come up with general guidelines on how to judge water rate increases. But every time you come up with a standard you come up with an exception. NARUC tries to write standards that are flexible but empirical. Perhaps they can look at median national income in comparison with county income statistics, or unemployment rates to establish affordability in an area. Mr. Donald L. Coffin Program Officer, Central Region United States Geological Survey (USGS) Department of the Interior The Geological Survey’s role is to understand the water resources of the nation and collect data to describe the resource. USGS conducts 77 three broad programs in the area of water: ------- • A Federal program with its own budget appropriated by Congress induding: - research and development on cause-effect relationships in water such as analysis of toxic substances; - data collection, e.g. on the water quality in the nation’s rivers; and baseline monitoring in areas not greatly affected by man’s activity, the benchmark program; - examination of agricultural chemical runoff; and - the National Water Quality Assessment. • Other programs funded by other Federal agencies such as a review of waste disposal practices at Air Force bases. • The water effects of Federal/State cooperative program which is funded 50-50 between USGS and the State or local agency con- cerned. The program is negotiated between the USGS district chief and the State or local agency. Current projects include: - ground-water vulnerability in Colorado and Utah; - data on estuaries in Texas; - water resources of eastern South Dakota; - water quality and quantity in the Black Hills; - quality of reservoirs for drinking water in Kansas and Texas; and - effect of mining activities in western Montana. • There is also a nationwide water-use program based on county aerial appraisals to inventory who is using what water. We will do county aerial appraisals as well. • There is always a trade-off between costs and need in the USGS’ methodology on pollution detection techniques. However, the water quality laboratory which is usually used operates under U.S. EPA -approved methods. • Federal money cannot be used to match other Federal money, e.g. U.S. EPA 106 grant funds with those of USGS. 78 ------- Appendix A Official Conference Attendance List Financing Strong State Water Programs In New Ways A March 20-21, 1989 Denver, Colorado Mr. Stephen Ailbee Director, Planning and Analysis Division U.S. Environmental Protection Agency 401 M Street, SW Room 1209, East Tower Washington, DC 20460 Mr. James Allison Vice-President, CoBank P.O. Box 5110 Denver, CO 80217 (303) 740-4035 Mr. Marc Alston Chief, PWS Program Section U.S. EPA Region VIII 999 18th Street (8WM-DW) Denver, CO 80202 (303) 293-1424 Mr. George Ames Executive Director Council of Infrastructure Financing Authorities P.O. Box 39187 Washington, DC 20016 Ms. Laurel M. Andrews Director Apogee Research, Inc. 1425 Fourth Avenue, Suite 705 Seattle, WA 98101 (206) 447-9938 Mr. Michael Annarummo Deputy Director for Regulations RI Dept. of Environmental Management (Environmental Quality Study Commission) 291 Promenade Street Providence, RI 02908 (401) 277-2808 Ms. Constance P. Ashcraft Environmental Program Planner Environmental Protection 18 Reilly Road Frankfort, KY 40601 (502) 564-3410 B Mr. James Bailey Director, Arkansas Environmental Academy SAU Tech Camden, AR 71701 (501) 574-4550 Ms. Kelly Beard Environmental Engineer U.S. EPA Region VII 726 Minnesota Avenue Kansas City, KS 66101 (913) 236-2813 Ms. janice A. Beecher Research Specialist National Regulatory Research Institute Ohio State University 1080 Carmack Road Columbus, OH 43210 (614) 292-9404 Mr. Jerry Biberstine Section Chief, Drinldng Water Section Colorado Department of Health 4210 East 11th Avenue Denver, CO 80220 (303) 320-8333 79 ------- Mr. Steven D. Binder First Vice President Public Finance Department Prudential-Bache Capital Funding 100 Gold Street New York, NY 10292 (212) 776-3963 Ms. Pauline Bouchard Assistant Director Division of Environmental Health Minnesota Department of Health 717 Delaware Avenue, SE Minneapolis, MN 55440 (612) 623-5331 Mr. Laurence Bowman Chief, Program Development Branch Water and Waste Disposal Division USDA, Farmers’ Home Administration 14th and Independence Avenue, SW Washington, DC 20250 (202) 382-9637 Mr. Donald J. Brady Chief of Regional Operations Programs Support Branch U.S. Environmental Protection Agency 401 M Street, SW Washington, DC 20460 (202) 382-5392 Mr. William C. Brierley Director of Public Facilities Dept. of Environmental Conservation 103 South Main Street - Building 9 South Waterbury, VT 05676 (802) 244-8744 Mr. Walter Brodtman Chief, Operations Branch U.S. Environmental P-” 401 M Street, SW Washington, DC 20460 (202) 382-5843 flFW ULflI Agency Mr. Brad Brogren District Engineer, Division of Water Supply Michigan Department of Public Health 3423 North Logan P.O. Box 30195 Lansing, M l 48909 (517) 335-8311 Mr. Steven Brown Director, Center for the Environment and Natural Resources Council of State Governments Iron Works Pike P.O. Box 11910 Lexington, KY 50578 (606) 231-1866 Mr. Stuart Bruny Chief, Division of Di-inking Water Ohio Environmental Protection Agency 1800 Water Mark Drive Columbus, OH 43266-0149 (614) 644-2752 C Ms. Janet Cain Assistant Division Director Minnesota Pollution Control Agency 520 Lafayette Road St. Paul, MN 55126 (612) 296-7354 Mr. Raymond Cantor Associate Counsel Office of Legislative Services Statehouse Annex CN-068 Trenton, NJ 08625 (609) 292-7676 Ms. Ann D. Carey Project Manager ICF Incorporated 9300 Lee Highway Fairfax, VA 22031-1207 (703) 934-3229 Mr. Stuart P. Castle Chief, Ground Water Bureau Health and Environment Department 1190 St. Francis Drive, Rm. S2063 Santa Fe, NM 87503 Mr. Conny Chandler Financial Analyst Water Management Division U.S. EPA, Region W 345 Courtland Street NE Atlanta, GA 30365 (404) 347-3633 80 ------- Mr. John Chase Project Administrator Colorado Department of Health Water Quality Control Division Field Support Section, Grants Unit 4210 East 11th Avenue Denver, CO 80220 (303) 331-4569 Mr. Rick Claggett Chief, Water Quality Management Section U.S. EPA Region VIII 999 18th Street, Suite 500 Denver, CC) 80202 (303) 293-1573 Mr. Donald L. Coffin Program Officer, Central Region U.S. Geological Survey P.O. Box 25046 Mail Stop 406 Denver Federal Center Lakewood, CO 80225 (303) 236-5929 Mr. Michael Cook Director Office of Drinking Water U.S. Environmental Protection Agency 401 M Street, SW Washington, DC 20460 (202) 382-5543 D Mr. Jon DeBoer Director Technical and Professional Department American Water Works Association 6666 West Quincy Avenue Denver, CO 80235 (303) 794-7711 Ms. Mary Ann Dickinson Acting Director of Planning Department of Environmental Protection 165 Capitol Avenue Hartford, CF 06106 (203) 566-2711 Mr. Max Dodson Director, Water Management Division U.S. EPA Region VIII 999 18th Street Denver, CO 80202-2405 Ms. Debra Downs Public Works Specialist Colorado Division of Local Governments 1313 Sherman Street, Room 520 Denver, CO 80203 (303) 866-2156 E Mr. John Eckstein Calkins, Kramer, Grimshaw & Honing Special District Association of Colorado 1700 Lincoln, Suite 3700 Denver, CO 80202 (303) 839-3804 Mr. Brian Ehrle Project Administrator Colorado Department of Health Water Quality Control Division Field Support Section, Grants Unit 4210 East 11th Avenue Denver, CO 80220 (303) 331-4537 Ms. Linda Eichmiller Deputy Director Association of State and Interstate Water Pollution Control Administrators 444 South Capitol Street, NW Washington, DC 20001 (202) 624-7782 Mr. Steve Eldredge Michigan Dept. of Natural Resources Surface Water Quality Division P.O. Box 30028 Lansing, MI 48909 (517) 335-4177 Mr. Fred Esmond Assistant Director Division of Construction Management NY Dept. of Environmental Conservation 50 Wolf Road Albany, NY 12233-3750 (518) 457-6674 Mr. Dave Evans Program Analyst U.S. Environmental Protection Agency 401 M Street, SW Washington, DC 20460 (202) 382-4221 ------- F Mr. Nelson E. Fabian Executive Director National Environmental Health Association 720 South Colorado Blvd. South Tower, Suite 970 Denver, CO 80222 (303) 756-9090 Mr. Marion T. Fannaly Administrator Water Pollution Control Division Department of Environmental Quality P.O. Box 44091 Baton Rouge, LA 70804-4091 (504) 342363 Mr. Ted Fasting Acting Chief, Planning & Evaluation Section Pennsylvania Dept. of Environmental Resources 3rd & Locust Streets Harrisburg, PA 17120 (717) 787-3481 Mr. Edward C. Feddemen Professional Staff Committee on Public Works and Transportation U.S. House of Representatives Annex 2, Room 588 Washington, DC 20515 Mr. John S. Files Division Director 11 Bureau of Pollution Control Mississippi Dept. of Natural Resources P.O. Box 10385 Jackson, MS 39289-0385 (601) 961-5171 Mr. Lonnie Finkel Program Analyst Office of Water U.S. Environmental Protection Agency 401 M Street, SW Washington, DC 20460 (202) 475-6790 The Honorable Fred W. Finlinson, Senator Chairman, Utah Natural Resources Council Callister, Duncan, and Nebeker Suite 800, Kennecott Building Salt Lake City, UT 84133 (801) 530-7353 Ms. Mary B. Fleming Environmental Quality Program Analyst II Dept of Environmental Quality Water Pollution Control Division P.O. Box 44091 Baton Rouge, LA 70804-4091 (504) 342-6363 Ms. Jane Fontenot Chief, Issuance Section Permits Branch, Water Management Division U.S. EPA Region VI 1445 Ross Avenue Dallas, TX 75202 (214) 655-7190 Mr. Paul Foran Commissioner, Illinois Commerce Commission Vice Chairman, NARUC Water Committee 100 West Randolph Street Suite 9-100 Chicago, IL 60601 (312) 917-4790 (217) 442-4386 G Ms. Peggy Galligan Project Administrator Colorado Department of Health Water Quality Control Division Field Support Section, Grants Unit 4210 East 11th Avenue Denver, CO 80220 (303) 248-7151 Ms. Ciaire Gesalman Roy F. Weston, Inc. 955 L’Enf ant Plaza, SW Washington, DC 20024 (202) 646-6800 Mr. Rick Giardina Consultant 707 17th Street, Suite 3800 Denver, CO 80202 (303) 297-9500 Mr. Seth Goldstein Fiscal Officer, Water Quality Control Division Colorado Department of Health 4210 East 11th Avenue Denver, CO 80220 (303) 320-8333 82 ------- Mr. Tom Goodwin Natural Resource Administrator Dept. of Natural Resources Division of Water 617 Broad Street Charleston, WV 25301 (304) 348-0641 Mr. Charles L. Grizzle Assistant Administrator for Administration and Resources Management U.S. Environmental Protection Agency 401 M Street, SW Washington, DC 20460 (202) 382-4600 H Mr. Barker Hamill Chief, Bureau of Safe Drinking Water Division of Water Resources NJ Dept. of Environmental Protection 401 East State Street, CN029 Trenton, NJ 08625 (609) 292-5550 Ms. Karen Hamilton Life Scientist U.S. EPA Region VIII 999 18th Street, Suite 500 Denver, CO 80202 (303) 293-1576 Ms. Rebecca W. Hanmer Acting Assistant Administrator Office of Water U.S. Environmental Protection Agency 401 M Street, SW Washington, DC 20460 (202) 382-5700 Mr. Robert Hardaker Director of State and Educational Programs Staff Environmental Management Division 499 South Capitol Street SW Washington, DC 20460 (202) 475-9741 Ms. Karen Harder Environmental Scientist U.S. EPA Region VIII 999 18th Street Denver, CO 80202-2405 (303) 293-1702 Mr. Ray Hartung General Manager Lower Platte North Natural Resources Department P.O. Box 258 David City, NE 68632 (402) 367-3103 Mr. Stephen Hogye Office of Municipal Pollution Control U.S. Environmental Protection Agency 401 M Street, SW Washington, DC 20460 (202) 382-7284 Mr. David Holm Director, Water Quality Control Division Colorado Department of Health 4210 East 11th Avenue Denver, CO 80220 (303) 320-8333 Mr. Emile Honle Business Development Manager Bechtel Environmental, Inc. P.O. Box 3965 San Francisco, CA 94119 (415) 768-1265 Mr. Charles Jarik, Esq. Chapman & Cupler 111 West Monroe Street Chicago, IL 60603 (312) 845-3795 J-K Ms. Carol Jolly Assistant Director, Water and Shorelands Department of Ecology Mail Stop PV-11 ARH Room 180 Olympia, WA 98504-8711 (206) 438-7494 Ms. Judy Kelly Associate Regional Manager Gulf/South Atlantic Region Coastal Programs Division Office of Ocean and Coastal Resource Management National Oceanic and Atmospheric Administration 1825 Connecticut Avenue Washington, DC 20035 (202) 673-5138 83 ------- R. Jerrad King President Environmental Management Corporation 689 Craig Street St. Louis, MO 63141 (314) 432-8070 Mr. Ray Kijajic Vice President Drexel Burnham Lambert, Inc. I South Wacker Drive, Suite 1500 Chicago, IL 60606 (312) 977-1290 Mr. Charles Kreiman Director of Program Operations Community Planning and Development Denver Regional Office Dept. of Housing and Urban Development 1405 Curtis Avenue Denver, CO 80202 (303) 564-4666 Mr. Ron Kreizenbeck Deputy l)irector, Water Division U.S. EPA Region X 1200 Sixth Avenue Seattle, WA (206) 442-1086 L Ms. Trudie Lay Small Systems Program Manager American Water Works Association 6666 Quincy Denver, CO 80202 (303) 794-7711 Mr. William Leonard Rural Utilities Management Specialist Midwest Assistance Program P.O. Box 1456 White Fish, MT 59937 (406) 862-3600 Ms. Dana Letourneau Director, Policy Management Support Staff Office of Marine and Estuanne Protection U.S. Environmental Protection Agency 401 M Street, SW Washington, DC 20460 (202) 475-8580 Ms. Michelle LeVette Shorthand Reporter Attorneys Service Center 2135 South Cherry, Suite 222 Denver, CO 80222 (303) 691-2278 Dr. Jim Loftis Associate Professor Dept. of Agriculture and Chemical Engineering Colorado State University Room 100 Clover Fort Collins, CO 80523 (303) 491-5252 Mr. Thomas Looby Assistant Director for Health and Environmental Protection Colorado Department of Health 4210 East 11th Avenue Denver, CO 80220 (303) 331-4510 Ms. Nancy Lopez Chief, Office of Water Data Coordination U.S. Geological Survey 417 National Center Reston, VA 22092 (703) 648-5014 Mr. Tom Lucas Sr. Environmental Specialist Dept. of Environmental Quality 811 SW 6th Avenue Portland, OR 97204 M Mr. Emerson Markham National Academy of Public Administration 1120 C Street, NW, Suite 540 Washington, DC 20005 (202) 347-3190 Mr. Frederick Marrocco Chief, Division of Water Supplies Department of Environmental Resources P.O. Box 2357 Harrisburg, PA 17120 (717) 787-9035 Mr. Charles Massie RLF Program Coordinator Virginia Revolving Loan Fund Virginia Resources Authority P.O. Box 1417 Richmond, VA 23211 (804) 644-3100 84 ------- Ms. Catherine Mastropieri Chief, Grants Management Section 3PM-71 U.S. EPA Region III 841 Chestnut Street Philadelphia, PA 19107 (215) 597-6166 Dr. Nina McClelland President and CEO National Sanitation Foundation P.O. Box 1468 Ann Arbor, Ml 48106 (313) 769-8010 Mr. Robb McCracken Administrative Officer Community Technical Assistance Program Department of Commerce Cogswell Building, Room C-211 Helena, MT 59620 (406) 444-4479 Mr. Wendell D. McCurry Water Quality Officer Nevada Division of Environmental Protection 201 South Fall Street Carson City, NV 89710 (702) 885-4670 Mr. Robert K. McDonald Section Manager OEPA Grants Administration Program Ohio Environmental Protection Agency 1800 WaterMark Drive Columbus, OH 43215 (614) 644-2832 Richard McVay Director of Special Programs Texas Water Commision Office of Policy And Research P.O. Box 13087 Austin, D( 78711-3087 (512) 463-8103 Mr. C.R. Miertschin Director, Construction Grants Division Texas Water Development Board P.O. Box 13231 Capitol Station Austin, TX 78711 (512) 463-7853 Mr. Wade Miller Executive Director Association of State Drinking Water Administrators 1911 North Fort Meyer Drive Arlington, VA 22209 (703) 524-2428 Ms. Elizabeth Miner Manager, State Funding Study Office of Water U.S. Environmental Protection Agency 401 M Street, SW Washington, DC 20460 (202) 382-5818 Mr. Steve Minick Head Receivable & Fee Unit Texas Water Commission P.O. Box 13087 Austin, TX 7871 1-3087 (512) 463-8041 Mr. Larry Morandi Program Director for Natural Resources National Council of State Legislatures 1050 17th Street, Suite 2700 Denver, CO 80265 (303) 623-7800 Ms. Jocelyn Mortensen Bear Sterns, Inc. 245 Park Avenue New York, NY 10167 (212) 272-2171 Mr. Robert L. Munari Manager, Field Services Section Arizona Dept. of Environmental Quality 2655 East Magnolia Phoenix, AZ 85034 (602) 392-4002 N Ms. Chris Noah-Nichols Chief, Municipal Facilities Branch U.S. EPA Region X 1200 Sixth Avenue, WD-133 Seattle, WA 98101 (206)442-1230 Mr. William Nuzzo Chief, Office of Water Program Coordination Water Management Division U.S. EPA Region I JFK Federal Building Boston, MA 02203 (617) 565-3480 85 ------- 0-P Mr. David Osterman Branch Chief Public-Private Partnership Office U.S. Environmental Protection Agency 401 M Street SW Room G013 NEM Washington, DC 20460 (202) 475-8227 Mr. C. L. Overman Executive Director Municipal Technical Advisory Service University of Tennessee 891 20th Street Knoxville, TN 37996-4400 (615) 974-5301 Ms. Sue Patnude Circuit Writer Program Management Dept. of Community Development (State Dept.) 9th and Columbia Building Olympia, WA 98504 (206) 753-2621 Ms. Martha Prothro Director, Office of Water Regulations and Standards U.S. Environmental Protection Agency 401 M Street, SW Washington, DC 20460 (202) 382-5400 Q-R Mr. Michael Quigley Director Office of Municipal Pollution Control U.S. Environmental Protection Agency 401 MStreet,SW Washington, DC 20460 (202) 382-5850 Mr. Mohammad Razzazian Environmental Engineer 999 18th Street Denver, CO 80202-2405 (303) 293-1556 Ms. Marlene Regeiski Office of Municipal Pollution Control U.S. Environmental Protection Agency 401 M Street, SW Washington, DC 20460 Dr. Bill Roach Director Oklahoma Environmental Training Center Rose State College 6420 SE 15th Street Midwest City, OK 73110 (405) 733-7364 Mr. Bill Rogers Financial Assistant Water Management Division U.S. EPA Region N 345 Courtland Street NE Atlanta, GA 30365 (404) 347-3633 The Honorable Roy R. Romer Governor of Colorado 136 State Capitol Denver, CO 80202 (303) 866-2471 Mr. Barry Royals Chief EE Administrator Bureau of Pollution Control Mississippi Dept. of Natural Resources P.O. Box 10385 Jackson, MS 39289-0385 (601) 961-5171 Mr. Kenneth Rubin President Apogee Research, Inc. 4350 East West Highway Suite 600 Bethesda, MD 20814 (301) 652-8444 S Mr. Steven M. Sandier Small Communities Outreach Coordinator Water Management Division U.S. EPA, Region IV 345 Courtland Street Atlanta, GA 30365 (404) 347-4491 Ms. Stephanie Sanzone Oceanographer Office of Marine and Estuarine Protection U.S. Environmental Protection Agency 401 M Street, SW (WH-556F) Washington, DC 20460 (202) 475-7137 86 ------- Mr. Joe Sarcone Environmental Scientist U.S. EPA Region Vifi 8WM-DW 999 18th Street Denver, CO 80202-2405 (303) 293-1424 Mr. Bernie Sarnoski Chief of Program Control Section Construction Branch U.S. EPA Region III 841 Chestnut Street Philadephia, PA 19107 (215) 597-9794 Mr. Arnold Schiffman Assistant Director Ground Water Quality Management Division of Water Resources NJ Dept. of Environmental Protection 401 East State Street, CN029 Trenton, NI 08625 Mr. John T. Schira Chief Engineer Ohio Water Development Authority 50 West Broad Street, Suite 1425 Columbus, OH 43215 (614) 466-5822 Mr. Franklin Schutz Outreach Director EPA Small Flows Clearinghouse 258 Stewart Street Morgantown, WV 26506 (304) 293-4191 Mr. Peter E. Shanaghan Mobilization Manager U.S. Environmental Protection Agency WH-550E 401 MStreetSW Washington, DC 20460 (202) 382-5813 Ms. Evelyn Shields Policy Analyst on Public Finance National Governors’ Association 444 North Capitol Street Suite 250 Washington, DC 20001 (202) 624-5384 Mr. Paul Shinn Manager Government Finance Research Center 1750 K Street, NW Suite 200 Washington, DC 20460 (202) 429-2755 Mr. Gayle J. Smith Director, Bureau of Drinking Water Utah Dept of Health Salt l.ake City, UT 84116 Mr. Robert Sonnek Managing Director Piper, Jaf fray and Hopwood, Inc. 222 South 9th Street Minneapolis, MN 55402 (612) 342-6656 Mr. Michael K. Sposit Rural Utility Management Specialist P.O. Box 688 Green River, WY 82395 (307) 875-4200 Mr. Alan Stanford Senior Water Quality Analyst Dept. of Health and Welfare Idaho Bureau of Water Quality State House Mail Boise, ID 83720 (208) 334-5859 Ms. Carol Stanzak Office of Water U.S. Environmental Protection Agency 401 M Street, SW Washington, DC 20460 (202) 382-5822 Mr. Charles Sutfin Director, Water Management Division U.S. EPA Region V 230 South Dearborn Street Chicago, IL 60604 (312) 353-2147 Ms. Jane Swallow Supervisor Rhode Island Department of Health 75 Davis Street Providence, RI 02908 (401) 277-6867 87 ------- T Ms. Lydia Taylor Administrator Management Services Division Department of Environmental Quality 811 SW 6th Avenue Portland, OR 97204 (503) 229-6485 Ms. Gina Terry Washington Department of Ecology Mail Stop PV-11 Olympia, WA 98504 (206) 438-7084 Ms. Christine Tirpack Professional Staff Committee on Public Works and Transportation U.S. House of Representatives Annex 2, Room 588 Washington, DC 20515 (202) 225-5504 U-v-w Mr. Charles 1. Unseld Planning Specialist Colorado Division of Local Governments 1313 Sherman Street, Room 520 Denver, CO 80203 (303) 866-2156 Mr. Wally Venrick Head, Public Water Supply Branch State of North Carolina P.O. Box 2091 Raleigh, NC 27602 (919) 733-2321 Mr. Paul Walker Director, Water Management Division U.S. EPA Region V I I 726 Minnesota Avenue Kansas City, KS 66101 (913) 236-2812 Ms. Donna Wessel Project Administrator Colorado Department of Health Water Quality Control Division Field Support Section, Grants Unit 4210 East 11th Avenue Denver, CO 80220 (303)331-4572 Ms. Linda B. Wilbur Chief of Regional Operations Program Support Branch U.S. Environmental Protection Agency 401 M Street, SW Washington, DC 20460 (202)382-5392 Ms. L.ori Williams State Programs Coordinator Office of Wetlands Protection U.S. Environmental Protection Agency 401 M Street, SW Washington, DC 20460 (202) 382-5084 Mr. Hal Wise Nonpoint Source Branch U.S. Environmental Protection Agency 401 M Street Washington, DC 20460 (202) 382-7109 Mr. Kenneth Wiswall Project Director Roy F. Weston, Inc. 955 L’Enfant Plaza, SW Washington, DC 20024 (202) 646-6800 Y Mr. James R. Yancey Water Specialist Missouri Department of Natural Resources P.O. Box 176 Jefferson City, MO 65102 (314) 751-1602 Mr. Bryan Yim Chief Construction & Technology Section U.S. EPA Region X 1200 Sixth Avenue, WD-133 Seattle, WA 98101 (206) 442-8575 Ms. Elizabeth Ytell Director, Water! Wastewater Division Rural Community Assistance Corporation 2125 19th Street, Suite 203 Sacramento, CA 95818 (916) 447-2854 88 ------- Appendix B Colorado Cash Fund Sources PROGRAM TYPE FEE AMOUNT Air Stationary sources Permit $96/hour Annual Inspection $60/emission point Asbestos $55-825 Mobile sources Vehicle Registration $1.50/registration Solid Waste Landfill Application $50/hour/$5,000 Cap. Review Hazardous Waste Permits and Closure Plans Superfund Solid Waste User Fee $.15-.25/cubic yard Radiation Control Radiation Services- $67/hour Licenses X-Ray Inspections Water Quality Discharge Permit $220-$11,000/year Annual Fee Consumer Protection Food Service $50/year* Inspections $30-to locals Dairy Products $10/licenses Manufacturing Drug & Medical $25/year Devices Dairy Plant $10/application Mattress & Bedding $5-$25/license Manufacturing License Kennels & Pet Shops $50/year* *$30to locals Psittacine Bird $15/year 89 Breeder License $15/year ------- NJPDES Pollutant Discharge Elimination System Program 1982 - 1988 Total Program Cost and NJPDES Fees Appendix C (Page 1) FY87 FY88 Fiscal Years STATE FUNDS c-o I ’ 0 tI 0 Cl ) 0 .— 16 14 12 10 8 6 4 2 0 P FY82 FY83 FY84 FY85 FY86 NJPDES FEES ------- NEW JERSEY POLLUTANT DISCHARGE ELIMINATION SYSTEM FINAL NJPDES PERMITS ISSUED 1982-1987 Appendix C (Page 2) I — 1983 1984 1985 1986 1987* MUNICIPAL GROUND WATER • INDUSTRIAL * PROJECTED I 800 600 400 200 0 H 1982 FISCAL YEAR ------- IL)AHU WATER POLLUTION CONTROL ACCOUNT 1987 1988 Appendix D (Page 1) REVENUES FY 80-88 10 8 6 4 2 P P 0 SALES TAX INHERITANCE TAX CIGARETTE TAX • TOBACCO TAX 1980 1981 1982 1983 1984 1985 1986 FISCAL YEAR ------- IDAHO WATER POLLUTION CONTROL ACCOUNT EXPENDITURES Appendix D (Page 2) 1980 1981 1982 1983 1984 1985 1986 1987 1988 18 16 14 12 10 8 6 4 2 0 SPECIAL APPROPRIATIONS O ADMIN&OPERTNG • AGRICULTURAL GRANTS • CONSTRUCTION GRANTS FISCAL YEAR ------- Appendix E AWWA Recommended Funding Sources for Main Drinking Water Functions General Fund Taxes Enforcement Regulatory Development Data Management Program Management Public Education Special Use Taxes Survey and Inspection Training and Assistance Enforcement Correction Plan Review Fees Laboratory Permitting Plan Review Certification Training 95 ------- Appendix F Vermont: Environmental Infrastructure Financing Page 1 A. ASSISTANCE PROGRAMS Pollution Control Aquatic Nuisance Control Water Supply Underground Storage Tanks Solid Waste Hazardous Waste Dam Maintenance B. Total Estimated Need $481 Million C. Current Rate of Progess Too Slow D. Federal Financial Support Declining E. Anticipated State Capital Appropriations Don’t Allow Program Acceleration F. Annual State Capital Bonding Limited to 90 Percent of Bonds Retired That Year 97 ------- Appendix F Vermont Estimated Environmental Financial Assistance Need Page 2 _______________________________________________ PROGRAM DESCRIPTION NATURE OF ASST. AUTHORiTY ESTIMATED NEED MUNICII’AL WASTEWATER TREATMENT PROJECTS Engineering Interest Free Loans! 10 VSA 1593 Cony. to Grant Treatment Facilities 35% Grants or 100% 10 VSA 1625 $ 36.0 Million Loans 24 VSA 4754 CSO Projects 50% Loans/25% Grants 10 VSA 1624 $120.0 Million 24 VSA 4754 Job Zone Projects 50% Loans /50% Grants 10 VSA 1625 MUNICIPAL WATER SUPPLY FACILITIES Engineering Interest Free Loans! 10 VSA 1593 Cony, to Grants Treatment/Trans. 35% Grants or 100% 10 VSA 1624 $120.0 Million Loans 24 VSA 4754 SOLID WASTE MANAGEMENT Regional Planning/Eng. 100% Grants 10 VSA 6603b $ 12.0 Million Minor Munic. Facilities 40% Grants or 100% 10 VSA 6603c $ 10.0 Million Grants 10 VSA 6603f 24 VSA 4754 Major Munic. Facilities 100% Loans 10 VSA 6603c $80.0 Million Closures 100% Grants 10 VSA 6618 $ 38.0 Million Recycle/Waste Reduction 100% State effort 10 VSA 6618 $ 10.0 Million AQUATIC NUISANCE CONTROL Municipal Assistance 25% Grants 10 VSA 922 $ 0.2 Million State Projects 50% State Effort 10 VSA 922 $ 2.8 Million CWA 314 UNDERGROUND STORAGE TANKS Cleanup Projects 100% State after $IOK 10 VSA 1941 $ 30.0 Million Replacement Loans 100% Loans 10 VSA 1944 $ 1.0 Million Emergency Spill Cleanup 100% State effort 10 VSA 1941 HAZARDOUS WASTES Emergency Spill Cleanup 100% State effort 10 VSA 1283 Superfund Match 50% non-Fed. Match CERCLA $20.0 Million DAM MAiNTENANCE Dept. Owned/Flood 100% State effort Agreements w/ $ 1.0 Million Control Corps. of Eng. TOTAL $481.0 Million 98 ------- Appendix F Vermont: Dedicated Revenue Estimate Page 3 Source of Revenue Millions Gas Tax 1 cent/gallon $3.0/year Hazardous Waste Generation $0.4/year Tax 7 cents/gallon or 9 cents/lb. Petroleum Tank Assessment $0.4/year $200/Tank Solid Waste Tipping Fee $1.5/year $2.40/cy or $6.00/ton Transportation Funds $0.37/year Yearly Total $ 5.67 10 Year Total $56.7 mu 99 ------- VERMONT PROJECTED 10 YEAR NEED Appendix F (Page 4) Aquatic Nuisance Control ($3 Million) Underground Storage Tanks ($31 Million) Hazardous Waste Superfurtd ($20 Million) Dam Maintenance ($1 Million) $150 Million Solid/Hazardous Wastes $120 Million $156 Million Municipal Water Supply Municipal Pollution Control 500 400 — 300 — 200 — 100 — Source: Department of Environmental Conservation (12/88) ------- VERMONT PROJECTED 10 YEAR NEEDS AND SOURCES OF FUNDS Appendix F (Page 5) Local & Private Funds Federal Programs > Vermont Statute Commits to $265 Million Reserved State Funds Tipping Fee Gen & Transportation Funds Gas Tax UST Tax Haz Waste Generator Tax 500 $165 Million $51 Million 400 — 300 — 200 — 100 — 0 N $208.3 Million Minimum Shortfall $56.7 Million / Source: Department of Environmental Conservation (12/88) ------- VERMONT PROJECTED CAPITAL APPROPRIATIONS TO SATISFY 10 YEAR NEED 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 Year Appendix i: (Page 6) • PC, WS, SW Only • $13M Surplus NJ 0 25 20 15 10 5 0 • Projected Source: Department of Environmental Conservation (12/88) ------- Appendix G Rural Community Assistance Programs - Progress in FY 88-89 Page 1 _____________________________________________ RURAL COMMUNITY NUMBER OF DOLLARS ASSISTANCE PROGRAMS COMMUNITIES LEVERAGED Southeast Rural Community Assistance Program 201 communities $36.307 million Rural Community Assistance Corporation 112 communities $8.2 million New England Rural Community Assistance Corporation 72 communities $ 2.786 million Midwest Assistance Program 120 communities $ 6.634 million Great Lakes Rural Network 100 communities $78.0 million Community Resource Group 99 communities $4.0 million 103 ------- Appendix G Rural Community Assistance Programs Resources and Assistance for Small Systems Page 2 ________________________________________________ Fairfield, Vermont New England RCAP worked with the community on negotiating an agreement with the Vermont Department of Environmental Conser- vation to perform the preliminary engineering study for their new system. Saving the community between $15,000 and $20,000. Geiger, Alabama Community Resources Group (RCAP agency) obtained an agreement from the ChemWaste Corporation to dig the trenches and construct the mounds for Geiger’s on-site wastewater system. Firm agreed to donate $40,000 in labor and equipment toward the completion of this project. Deer, Arkansas Community Resources Group worked with the community on obtain- ing the services of a local geology professor to perform resistivity tests at no charge. The community was able to drill a well at a depth of 200 feet instead of 2,500 feet. The estimated cost for drilling a well at 200 feet was $15,000 versus $150,000 for drilling at 2,500 feet. Saving the community $135,000. Mapleton, Oregon A 1975 engineering estimate projected the cost for Mapleton’s sewer project at $1.0 million. The community had to forego the project because they could not afford it. Western RCAP engineer provided the community with a second preliminary engineering estimate for a treatment system with a proposed cost $450,000 - $500,000. The WRCAP’s field agency assisted the community in obtaining the fi- nancing for the project with Community Development Block Grant funds and their local share. They will break ground in March, 1989. The cost of Mapleton’s wastewater system is $500,000 less than the original estimate. 104 ------- Appendix G Rural Community Assistance Corporation Cost Savings - At the Local Level Page 3 Cindy Mann Community Housing Improvement Program, Western RCAP Chico, California Water and wastewater problems in small, unincorporated areas often go unattended due to resource constraints at the local levels of gov- ernment. Residents who volunteer their time lack the expertise to initiate and maintain ongoing efforts to solve water quality problems. Using technical assistance funds are a cost-effective option that states can use to address public health problems in small, rural communi- ties. Gerber - Surfacing effluent threatened the health of residents in the low-in- A Case Study come community of Gerber in Tehama County, California (population 970). The problem is being addressed through the provision of techni- cal assistance funds for ongoing project development services. The Western Rural Community Assistance program field agency, Commu- nity Housing Improvement Program (CHIP) is working with the Background Gerber-Las Flores Community Services District and Tehama County to: apply for state funding to conduct a pollution study; prepare a facilities plan; develop an environmental impact report, and the plans and specifications for a conventional gravity sewage collection sys- tem, treatment plant, and land application system. CHIP prepared all funding applications, acted as a liaison to obtain loan/grant funds, ensured compliance with state and federal regultions, hired engineers and legal counsel as needed, established and maintained record keep- ing systems for audits, and provided all other assistance critical to the successful implementation of project activities. In this instance, Gerber is benefitting from these services at little or no cost to the low-income residents. The median income in Gerber is $11,500. Over the life of a project like Gerber, this translates to a substantial savings to the residents in monthly user fees. This also results in lower costs of the project and makes additional funding available for others. As part of the Western RCAP network, CHIP is able to provide man- agement and technical assistance at a substantially lower cost than for-profit firms. Rural Community Assistance Corporation (RCAC) provided funds and assistance through the Western RCAP to CHIP for this project. From 1985 through 1988, CHIP has received $21,600 ------- in funding to provide technical assistance in Gerber. CHIP services cost $20 per hour, plus travel. In comparison, the fee a consulting firm would charge the community may range from $45 per hour to $75 per hour. At the billed rate of $20 per hour, the 1,078 total hours of CHIP’s services resulted in a savings of nearly $59,291. The following figures explain how this savings is computed. 1985 $ 7,459 State Facilities and Technical Assistance Funds 1985 3,000 RCAC’s Western RCAP Funds 1986 6,600 California Rural Development Assistance Program Fund 1986 2,000 RCAC’s Western RCAP Funds 1987 2,500 RCAC’s Western RCAP Funds TOTAL $21,559 $21,599 divided by $20/hr = 1,080 hours CHIP Services 1,078 hrs X $75/hr = $80,850 private consulting fee minus $21,559 (CHIP’s fee) equals a TOTAL SAVINGS to date of $59,291. CHIP anticipates that there will be an additional $40,000 saved in the construction phase for a total project savings of $99,291. 106 ------- Appendix G Rural Community Assistance Program Agencies Page 4 _______________________________ Community Resource Group 2705 Chapman Road Springdale, Arkansas 72764 (501) 756-2900 John Squires, Executive Director and RCAP Director Great Lakes Rural Network A WSOS Community Action Commission Program 109 South Front Street Box 568 Freemont, Ohio 43420 (419) 334-8911 Oroville Burch, RCAP Director Don Stricker, WSOS Chief Executive Director Midwest Assistance Program 318 East Main Box 81 New Prague, Minnesota 56071 (612) 758-4334 Ken Bruzelius, Executive Director Northeast Rural Community Assistance Program A Rural Housing Improvement Program Box 370 Winchendon, Massachusetts 01475 (508) 297-1376 Earnie Baresh, RHI Executive Director John McCarthy, RCAP Director Rural Community Assistance Corporation 2125 19th Street, Suite 203 Sacramento, California 95818 (916) 447-2854 William French, Executive Director Elizabeth Ytell, RCAP Director Southeast Rural Community Assistance Program A Virginia Water Project Program Box 2868 Roanoke, Virginia 24001 (703) 345-6781 Wilma Warren, Executive Director 107 Jackson Hall, RCAP Director ------- Appendix H New York Technical Assistance Program Page 1 Self-Help Partnership The Renssealerville Institute NYS Department of State NYS Department of Health NYS Department of Environmental Conservation The Ford Foundation ------- Appendix H New York Technical Assistance Program Page 2 Self-Help • Target - Small communities (<1000) • Requirements - Local initiative and determination • Method - Guidance to locals (technical/managerial) • Goal - Cost savings (at least 30%) • Result - Makes projects possible • Benefits - Community pride - Enhanced state/local relationship :110 ------- Appendix H Innovation in Government Page 3 INTER-AGENCY PARTNERSHIP A TOOL / NOT A PROGRAM COUNTS ON PERSON - “SPARK PLUG” - In the Bureaucracy - Locally LOCAL OWNERSHIP OF PROBLEM / LOCAL SOLUTIONS SAVES MONEY / MAKES SOLUTIONS POSSIBLE OVERWHELMING PROBLEMS BECOME OPPORTUNITIES 111 ------- Appendix H NYS Self-Help Support System Chronology of Implmentation Page 4 _____________________________________ Spring 1984 Workshop introduces concept Fall 1984 2-day workshop to develop implementation strategy Late Fall 1984 Commissioners commit to concept Winter 1985 Pilot projects selected Spring 1985 Pilot project in work plan Workshops for field staff Fall 1985 Prop. to Ford Foundation 2nd round workshops for field staff Spring 1986 Ford loan to TRI 2-day workshop with program directors Self-Help in work plan (1 person yr.) Summer 1986 Presentation to EPA Fall 1986 Loan Review Committee formed Summer 1987 Construction starts on Pilot Project Fall 1987 Regional workshops Program staff doubled from I to 2 Spring 1988 Program staff increased to 10 112 ------- Appendix H Self-Help Support Section Page 5 Central Office: (7 filled before budget freeze) Section Chief 3 Engineers Environmental Specialist Senior Account Clerk Keyboard Specialist Regional Staff: 1 each in Regions 5,6 & 8 113 ------- Appendix H Hamlet of Seward, New York Cost Savings Techniques: Planning Page 6 ITEM TECHNIQUE COST Sanitary Survey County Health -0- Soils Testing County Backhoe 4- SCS Geologist Treatment DEC/Sewer -0- Alternatives Committee District Tax Maps -0- Boundaries Surveying Resident -0- Environmental Local Official -0- Assessment W/DEC Archaeology Local $300 Professor Sewer District Residents Petition; $500 Formation Attorney Review :114 ------- Appendix H Hamlet of Seward, New York Cost Savings Techniques: Design Page 7 ITEM TECHNIQUE COST Engineering Report Engineer -4 pages $2,500 Design and Plans Engineer $4,500 Materials List Residents Prepared -0- User Charge System and Local Official -0- Sewer Use Ordinance w/DEC Easements Residents $ 100 Generic Easement Treatment Site Land Donated -0- 115 ------- Appendix H Hamlet of Seward, New York Cost Savings Techniques: Construction Page 8 ITEM TECHNIQUE COST Access Road Highway Crew $ 500 Pipe Bedding Town Highway $ 250 Sand Crew Hauled Sand and Bid; Handled by $ 6,000b Gravel County Truck Construction Comparison Shop $32,084b Materials Bid Construction Town Gradeall $12,800 Equipment Purchased Backhoe Bulldozer Donated by Local Official Construction Town Crew, a Engineer Trains Highway DOT Assistance a Crossing Lawn Residents -0- Restoration Recordingkeeping Local Official -0- a Final Cost Unknown - Project Under Construction b Cost to Date - Final Cost Unknown 116 ------- Appendix H Financing the Seward Project Page 9 PROJECT COST: $165,000 SYSTEMS USERS: 44 Short Term Financing: State Grant - $60,000 Self-Help Loan - 100,000,3 yrs. @ 0.5% BAN’s - 5,000, 3 yrs. @ 5.0% Long Term Financing: Balance - Bonds @ 8% for 20 yrs. or SRF @ 5.33% for 20 yrs. 117 ------- Appendix H Seward Project Costs Page 10 1985 Construdion Grants Estimate: $530,000 1987/88 Self-Help Project: Planning $ 800 Design 7,000 Construction 157,000 TOTAL $165,000 118 ------- Appendix H Loan Repayments Page 11 U Begins prior to beneficial use U Yearslthru3: $9,150 = $208/yr/user 44 U Estimated balance to bonds: $79,620 U Years 4 thru 24: Bonds (8%) $9,555 = $217/yr/user 44 SRF (5.33%) $7,429 = $169/yr/user 44 I 19 ------- Appendix H Total User Charges PàgeTI2 0 & M cost estimate: $1,433 = $33/yr/home 44 Year 1 (capital only) $208/yr/user Years 2 & 3 $241/yr/user Years 4 thru 24 $250/yr/user (bonds) or $202/yr/user (SRF) Traditional financing: (no grants or loans) $1,250/yr/user 120 ------- Appendix H Page 13 “I never thought I could trust or respect a DEC representa- tive, but after the Self-Help experience, I’m grateful to that person. I didn’t get a dime of money, but I did get assis- tance encouraging me to work harder for my community.” Carl Barbic Supervisor Town of Seward 121 ------- |