U.S. Environmental Protection Agency
Environmental Financial Advisory Board
March 19-20,2007
Meeting Summary
Atlanta Hilton Hotel
Atlanta, Georgia
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EPA EFAB
March 19 - 20, 2007 2
CONTENTS
Opening Remarks and Introductions—Jim Barnes & Stan Meiburg 3
Workgroup Reports 3
Environmental Management Systems—Rachel Deming 3
Q&A 3
Smartway Transport Program—Michael Curley 4
Q&A 5
Update: Financial Assurance Compliance Reviews—Susan Bromm 6
Q&A 8
Workgroup Reports 10
Financial Assurance—Stan Meiburg for Mary Francoeur 10
Q&A—Letter to the Administrator 10
Q&A—Workgroup Continuation 11
Update: Environmental Finance Center Network—Sam Merrill 12
Q&A 13
Remarks from Administrator Stephen Johnson 14
Q&A 15
Workgroup Reports (Sustainable Water Infrastructure Projects) 16
Leveraging the State Revolving Funds—George Butcher 16
Q&A 16
Private-Public Partnerships—JohnBoland 17
Q&A 18
Q&A 18
Expanding the Definition of State Revolving Fund Financing—George Butcher 19
Sustainable Watershed Financing—Lang Marsh 19
Q&A 20
Ben Grumble 20
Financial Capability Guidance—Andrew Sawyers 20
Q&A 21
Sustainable Finance Policy—John Wise 22
Q&A 23
Public Comment 24
Closing Remarks and Next Steps—Jim Barnes & Stan Meiberg 24
Participants 25
March 19 25
March 20 25
EFAB Membership 26
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Tuesday, March 20, 2007
Opening Remarks and Introductions—Jim Barnes & Stan Meiburg
EFAB Chair Jim Barnes opened the meeting, noting that the Advisory Finance Board was
named EPA's outstanding advisory backup group. Designated Federal Official Stan Meiburg
announced that this is Billy Turner's last meeting as a member of the board—he has made
outstanding contributions and will be missed—and he welcomed three new board members:
• Jim Gebhardt, Chief Financial Officer for the New York State Environmental
Facilities Corporation;
• Scott Haskins, Executive Director of Seattle Public Utilities; and
• Lindene Patten, Senior Vice President and Counsel for Zurich North America.
Participants introduced themselves. Jimmy Palmer, Administrator for EPA Region IV,
welcomed the group to Atlanta and EPA Region IV. As the largest, most populous, and fastest
growing, Region IV suffers incredible stresses on its infrastructure. Meanwhile, many small,
declining, and disadvantaged communities could be destroyed by EPA requirements and
restrictions on discharges into the waterways, so the question of how to achieve sustainable
water infrastructure is very serious here. He noted that the Sustainable Infrastructure Meeting
and the Local Government Advisory Committee (LGAC) meeting, focusing on wetlands,
watersheds, and coastal issues, are also meeting at this time, and that all three meetings have
connecting threads.
Workgroup Reports
Environmental Management Systems—Rachel Denting
Members are planning a workshop in June (hopefully the 20th) in Washington, DC to discuss
valuation of environmental management systems, how financial sectors can assess them, and
how environmental performance can be measured. The workgroup has identified three
sectors—the equity market, the debt market, and the insurance market—and are convening
three panels, one for each market sector. Each panel will include three participants: one from
stock analysis (perhaps Inovest), one from an index that lists companies on a socially
responsible index with an environmental component, and one on the "buy side," i.e. a stock
analyst involved in analyzing environmental issues for stock picks. The insurance panel will
include someone from underwriting; the others will be discussed in the next conference call.
The panels will be given broad, but continually evolving questions, for example: Do you
assess environmental performance? How do you do it? What is the role of environmental
management systems? Additional questions will be developed in a second conference call, as
well as the banking or debt side panel. The Environmental Banking Association will have its
meeting in Washington, DC in June, and the workgroup hopes to have someone from that
group.
Q&A
• Stan Meiberg asked for clarification on reframing the charge from the narrow
question, how can EPA develop market value for implementation for environmental
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management systems? Ms. Deming explained the workgroup's rationale. Since many
people do not know what an environmental management system is, they have been
trying to "brand" systems and tease out those things that add value and that EPA could
measure. It is an interactive process centered around how the market perceives
environmental management and then what they do about it. They will assemble the
panels and then get a sense of the direction they should take from panel members. The
environmental component is becoming increasingly important across all sectors, and
the workgroup is trying to be broader about voluntary add-ons that might enhance
value. There is an environmental component to prominent financial deals and in
manufacturing. However, some reaction to that component seems to be cynical.
• John Wise endorsed this plan, saying that, notwithstanding the expertise on this board,
convening a workshop to reach out to a broader group has always enriched the
dialogue.
Smartway Transport Partnership—Michael Curley
Upgrade kits for trucks, also called retrofits, are devices that increase fuel efficiency and
capture emissions, but costs about $20,000. This workgroup discovered that there are millions
of small polluters who do not have superior credit. Furthermore, in construction, thereis no
financial benefit for the pollution devices 9only for long-haul trucking). The report on the
Smartway Transport Program has grown to be more aptly called the Financial Innovation
Programs for Air Pollution Abatement.
One productive idea is synthetic aggregation of small, independent truckers so they can get a
discount card to help pay for the Smartway. Cascade Sierra Solutions (Oregon) is an NGO
that serves as a go-between and acts as an agent to sell Smartway components. By
aggregating truckers, Cascade put together financing programs and negotiated volume
discounts. In response to the financial regime of small trucking companies, which is
negotiating three-year loans at 14%, Cascade brokered 10-year loans at 4%. For example, the
Port of Seattle could buy the trucks, and truckers could pay for them over 10 years, the
average life of a truck. It makes a huge difference. Another enormous discount results from an
aggregator's purchase of fuel futures by which truckers with annual contracts to companies
have a fixed price for fuel throughout the year. In addition, an opportunity may be offered to
the regional entities to take advantage of private activity bonds. Cascade Sierra may be
involved with this.
In sum, this workgroup recommends:
1. Because reduction of air pollution is as much in the public interest as removing
contaminants from water, the Agency should bring the power of tax-exempt financing
through public agencies to bear on the problem of air pollution.
2. The Agency should seek groups like Cascade Sierra to be intermediaries for forming
synthetic aggregations.
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Q&A
• In terms of public interest, there is no difference between air and water
pollution, but tax exemption was given for water because recipients were
primarily municipally owned. The report should address why reducing air
pollutants is in the public interest because it would be a move of tax
exemptions for public entities to private entities. There is a $15 billion
exemption from private activity bond exemptions in the Transportation Bill
that could easily be financed. The question is whether moving in this direction
will lead to stationary sources. If so, the report must provide the rationale for
that change.
• Tax-exempt bonds are attractive, but taxable will be acceptable because there
is only about a 2% difference. Allegedly, Congress is now on "pay-as-you-go,"
that is, if you recommend something that results in a tax expenditure, you also
recommend something to offset it. Nevertheless, the tax code is flexible, so the
board should not be inhibited.
• This is exciting because it is very different from what the Board has done
previously. But it seems that even without tax-exempt financing, aggregation
would provide significant benefits. The committee could look at the benefits of
aggregation both with and without tax exemption. The New York-New Jersey
Port Authority has a new executive director who may well be interested in this
idea.
• Ports are very interested in programs such as Smartway that help them address
the fact that they are air pollution sources. This is because they are concerned
about regulations from the EPA. Port financing for Smartway Upgrade Kits is
a good option to pursue. Ports can get better deals on loans than individuals.
• John Wise: The notion of aggregation has power and also opens future
inquiries that might be useful for the board. The workgroup wants to explore
more sources. For example, ports are an enormous source of diesel emissions,
which creates enormous opportunity to improve air quality. Truck stops, where
thousands of trucks idle all night, are another source. Stan Meiburg: The
Agency has been pursuing the issue of trucks idling at truck stops; one in
Atlanta has been successful as a private sector issue. Mobile-source air
pollution is another issue: fleets of cars and small trucks turn over in a short
period, but not heavy-duty trucks, and anything that encourages retrofitting the
existing fleet will be beneficial. There seems to be continued scientific
pressure downward on the air pollution control standard for fine particles.
Michael Curley: The workgroup's conversation with other people at EPA has
been technical rather than policy-oriented. The reaction from the truckers has
been terrific. If truckers are aggregated, they could offer financing for new
trucks, as well. The workgroup wants to meet with the head of air quality in the
Maryland Water Quality Financing Administration (Mr. Sawyers' department).
• Bill Jarocki: For communities that are having trouble meeting the standard,
this could also offer an economic development opportunity. A community
could attract trucking firms to its area knowing they could offer a financial
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advantage even without a port. Michael Curley: But, we may be at the wrong
part in environmental financing to suggest that.
Kelly Downard: The components of this program are cheaper fuel, cheaper
products, and discounts. For the people involved in this industry, these are
foreign concepts, so the most important part of aggregation is a third-party
administrator. If someone does this, it will sell. The pieces are all there, but no
one has known how to put them together. The government has to teach
someone how to do this or be part of it.
Jennifer Hernandez: Facility-expanded permits have been successful in
California. Many people in the trucking fleet have bought the green principle
and want ideas about what to do. Leveraging vendors is one, and this would
just be added to the list of what would qualify as a green principle. Businesses,
such as Walmart and REI, are taking a public position on sustainability;
therefore, the price will go down and efficiency will go up. We need to explore
the private sector. For example, school buses are among the worst offenders,
and everyone can support the health of children, so tax-exempt financing
would be a politically easy place to start.
Lang Marsh: The marvel of Cascade Sierra is the collaborative approach
between truckers and local government—all are on the board, so they have
input into how things will work. It's a good model. And, there will be an
increase in this movement as a result of our expanding trade. EPA is looking
for ways to help communities disproportionately affected by added traffic.
Pollution is a particular challenge to communities near densely trafficked
areas, such as ports and distribution centers.
Using navigation facilities that are already in place with zillions of dollars of
investment could reduce the number of trucks on the road, which might
contribute to the end result if a number of trucks could be replaced with a
single barge.
Keith Hinds: Using the profit motive, we can eliminate the need to have ports
trained on these things. What about maintenance of the Smartway systems?
Michael Curley: The truckers' association says they are not a burden and do
not require additional maintenance; the user only has to clean the filter.
Another model Cascade uses is technical advisory committees to deal with
these issues.
Update: Financial Assurance Compliance Reviews—Susan Bromm
Mr. Meiburg introduced Susan Bromm, who is responsible for enforcement for EPA clean-up
programs. She assured everyone that financial assurance is a hot topic in the world of waste.
Ms. Bromm noted that the data being provided is not statistically representative, but comes
only from the facilities they have targeted. Chris McCulloch and Greg Madden began.
Chris McCulloch: Financial responsibility is a national priority, and it relates not only to the
Resource Conservation and Recovery Act (RCRA) and the Comprehensive Environmental
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Response, Compensation, and Liability Act (Superfund; CERCLA), but also to underground
storage tanks and the like. EPA wants to promote proper and safe management for handling
hazardous wastes, to prevent the taxpayer from having to pay the bill for closure or cleanup,
and to facilitate revitalization and reuse of contaminated properties. Since 2005, OECA has
been gathering information related to the priority. OECA believes it is in everyone's best
interest to provide viable financial responsibility mechanisms to inspire confidence among all
affected. The reviews EPA has conducted have provided a "snapshot in time." For this
"snapshot" in time, for closure/post-closure self-assurance mechanisms are used at 37% and
third party assurance are used at 64% of facilities. However, this snapshot also shows that
56% of costs are covered by self assurance mechanisms, and 44% are covered by third party
mechanisms. While this is less pronounced than an earlier snapshot, we continue to see a
trend toward self-assurance. For insurance, there is also the question of the number of
facilities vs the number of instruments. One insurance instrument may cover multiple
facilities in an "umbrella policy." The workgroup found that one instrument covered two to 24
facilities for amounts of money varying from a few thousand to several million dollars.
Greg Madden: The cleanup work has focused on facilities further along in the RCRA
corrective action and CERCLA clean-up process in order to target higher dollar facilities. For
RCRA corrective actions, generally focused on the 2008 Government Performance and
Results Act (GPRA) baseline facilities to identify targeted facilities for initial file reviews:
64% of those on the targeted list have had an initial file review. For facilities with an
identified cost estimate 43% of facilities, but 58% of the costs are covered by the financial test
and corporate guarantee (total costs of $535,000,000). For all instruments, average is $5
million per facility. Over a third of the total estimated costs are covered by the financial test
($7.6 million per facility); corporate guarantees are also a high cost per facility mechanism
($5.8 million). The costs for facilities with an insurance mechanism falls between those two
($6.4 million on average). For a small group of facilities, corrective action is estimated to cost
nearly $1 billion. Third-party secured mechanisms are at the lower end of the scale in average
cost per facility.
They approached CERCLA with the same philosophy of focusing on high dollar sites and saw
the same results: Have reviewed 82% of those targeted settlements and orders, $2.4 billion
of clean-up work is secured by these settlements and orders. In CERCLA even higher
proportion was covered by self-assurance. 82% of financial assurance was self insurance,
including annual reports. Some $971 million is spent on annual reports, and one facility has
about $700 million in costs covered by an annual report.
Susan Bromm: Cost estimates—how good are they? States and regions conclude that costs
are regularly underestimated. Lack of cost estimates and use of out-dated cost estimates are
both problems. Of facilities whose files they reviewed, 37% had no independent cost estimate;
and 19% had a cost estimate but it was outdated, and 12% had a cost estimate and a financial
instrument, but the costs did not match. These results do not necessarily equate to
noncompliance, but they do point to the need to ask more questions and delve further into the
world of cost estimation to determine whether cost assurance is meeting its goal.
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Chris McCulloch: A number of companies and facilities use insurance to provide financial
assurance. Of companies (vs facilities) using insurance for closure/post-closure assurance, 28
are privately held. This information is based only on 12 public companies. There were 13
commercial insurers, rated from A+ to A. Of the six "captive insurers," only one was rated; it
was good (B++). For RCRA closure/post-closure obligations, 28% were covered by captive
insurance, and there were two RCRA corrective actions. Using Altman z-scores for 18 to 24
months, three had less than 1.8, which would indicate that bankruptcy was likely.
Q&A
• Jim Barnes: Captive insurance is a subset of this analysis. Using A&M Best Ratings,
most captive insurers would fail the government test. Greg Madden: But, in fact, only
10% of the captives were rated. Lindene Patten: Everyone is focused on the
permittee, not the insurer. The people who bought the insurance are the ones at fault.
• Susan Bromm: If a company can pass the financial test, it will probably rely on that
because there is no cost associated with it, and those companies would not be
motivated to look for commercial insurance.
• Lindene Patten: How many permitted facilities were looked at, and how many are
there nationwide? Since the data presented are not representative, we may be looking
at the worst of the worst. Chris McCulloch: There are more than 2600 treatment,
storage, and disposal (TSD) sites, and a priority for 2006 and 2007 will be 25 to 35%
of that universe. About a third has been studied so far. Greg Madden: For corrective
action, the workgroup did not target the ones they thought would have violations, but
targeted those that had big obligations, that is those with public exposure, the ones
that, if they did have problems, would have bigger consequences for the public. Susan
Bromm: It was intended to be the highest risk sites. Greg Madden: The universe in
corrective action is not nearly so large as closure/post-closure. Some facilities have
completed all their corrective actions, and no longer need insurance.
• Lindene Patten: For those who do not operate in this area, companies will use the
most efficient mechanism. The variance of distribution of customers is state
regulations that will permit various financial mechanisms. Rachel Deming: Many
TSD facilities are driven away from corporate guarantees and self-assurance. The
presumption is that companies will use the most economically effective means, but
many buy third-party insurance because the parent corporation does not keep the right
kind of records and wants to remain separate from the subsidiary.
• Jennifer Hernandez: Data are not complimentary to captives, but captives are not a
big segment of the market. Many captives are unrated. The board may want to suggest
that there be a rating system in place. Susan Bromm: It is very hard to know why they
are not rated and we cannot draw conclusions about that. Whether an objective was
facilitating reuse of these properties was not included in the analysis. You wind up
with situations where people are desperate to turn a bankrupt facility into a viable
situation for the community, rather than having the site unaddressed. The money has
been enough to make the deal economically viable for the new owner, but not enough
to really clean it up. Peter Meyer: An increase in the number of properties getting
reviews may lead to third-party assurance to make it possible for sites to be reused.
Cherie Rice: Captives may not be rated because they didn't need to be and it costs
money to do so. Altman z-scores were developed for manufacturers, so for the waste
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services industry (with little inventory), they may not be useful and we should identify
another method.
Susan Bromm: Although anecdotal information indicates that states are trying to
collect on financial assurance instruments and have had to litigate; state attorneys
general do not want to pursue such cases because the cost of pursuit is not merited in
light of the money that can be recouped. However, no valid analytical analysis has
been done on that.
Keith Hinds: Should we require costs estimates be updated for inflation to compensate
for underestimation of costs? Susan Bromm: Some cost estimates are already
updated for inflation. We can do a cost estimate early on in the corrective action
process, but it will be less accurate. As we progress in the process, the estimate will be
more accurate. The facilities we looked at were at the remedy select phase and quite
far along in the process. Dale Ruhter: The regulations for closure and post-closure
require the cost estimates to be updated for inflation. The idea behind the regulations
is that cost is based on a third party to perform the work when the facility would be
most expensive to close. They do not allow credits for waste that may have value as a
product. We have limited information about the cost to close a facility vs the estimate
of that cost.
Rachel Deming: Considering only the insurance component, could we gain
information to move forward by evaluating the identified failures for insurance
instruments, or letters of credit, or surety bonds? Is the problem the language of the
endorsement or policy, or the financial condition of the issuer? Chris McCulloch:
Only the states can provide that sort of information.
Jim Wise: Federal facilities are not required to do these estimates, so, although some
are bad actors, we have no data on them. EPA has no statutory authority, but as the
nation's environmental overseer, EPA must tell the Department of Defense and the
Department of Energy that they need to do these estimates because sometimes the
appropriations they rely upon do not materialize. Chris McCulloch: When they are
permitted, they give the estimate, but they don't have to have the financial mechanism
to pay for it because it is assumed the government will pay. Dale Ruhter: The
regulations exempt state and federal governments from the subpart regarding cost
estimates and requiring that they post a financial assurance instrument.
John Wise: Many things determine whether they make the financial test. Chris
McCulloch: Yes, but it's up to the government to verify. Dale Ruhter: At the Office
of Solid Waste, the reporting requirements are that you file within 90 days of the close
of the fiscal year. The filing includes a letter from the Chief Financial Officer of the
company listing how they pass the financial test and what environmental obligations
are covered, and a statement from an independent auditor. This goes to the state, but
an EPA regional office can review it. Chris McCulloch: EPA has not given this area
priority in the past. States say the reports are difficult to review because they do not
have the necessary expertise in house. John Wise: Perhaps the Board should
recommend that the federal government be required to do this and should study the
self-examination. Rachel Deming: Whether or not they get a shadow bond rating
(with the recommendation to further verify the financials), the Chief Financial Officer
has to verify the figures, under threat of perjury. Companies that want to self-assure
have to have audited financial statements. They then go to state agencies and project
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managers for review. Because of the Sarbanes-Oxley legislation, auditors evaluate this
closely; whether that is sufficient, is another matter.
Workgroup Reports
Financial Assurance—Stan Meiburgfor Mary Francoeur
Ms. Francoeur's report covers the letter and report to the Administrator on captive insurance,
and continuation of the workgroup. This workgroup worked on this draft of the letter for
about 6 months; the draft is in the packet previously distributed to the board members. It
recommends independent credit analysis to demonstrate financial strength of captive insurers,
e.g., as is done in Vermont. If a financially responsible affiliate uses a captive, the affiliate
should pass the financial test and must be formally reviewed by the rating Agency annually.
Guidance may be faster, but regulations provide more certainty. The letter recommends
strengthening the degree of independent evaluation, but there are three small changes: page 1,
page 5, paragraph 2, and page 5, the last sentence in that paragraph. The workgroup asks the
Board to approve the transmittal of this letter to the Administrator.
Q&A—Letter to the Administrator
• Michael Curley: Except for Lindene Patten, people on this Board have little
experience with commercial insurance; perhaps she could explain some of these things
during the next conference call.
• Jennifer Hernandez: The workgroup should think about breaking out of the RCRA
financial assurance category and ask whether other forms of financial assurance
warrant this group's attention, particularly Brownfield sites. The issue with
Brownfield and some postclosure RCRA sites is that there is no good mechanism.
Developing sites change ownership many times over; a viable real estate model would
be an obligation (assessment or trust) that tracks with the land, such as is used for
landslide repair. Any state with a master-plan community has the legal framework in
place for this kind of regime. The RCRA model, designed to apply to the land, is a
total breakdown from the real estate model, designed to apply to the owner or occupier
of the land. Lindene Patten: An assessment or accrual on a go-forth basis must be
discussed. Many mechanisms do not have the money now.
• John Wise: We need to inform ourselves about the insurance industry and its
changing nature. Many insurers are changing their risk paradigms because of natural
disasters and climate change. Can we continue to rely on insurance as the traditional
model for providing this kind of environmental liability assurance? We need to look at
alternatives, such as instruments that run with the land or with the title. There's a sea
change in the insurance industry about their accumulated liability. Lindene Patten:
This class of liability is serviced by a sub-sector of the industry, which may not be
directly and significantly affected by some of these issues. It may be the ultimate
repository of certain risk that cannot be accommodated under any other model. Often
the more catastrophic risks are moved into such a sub-category.
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• A $30,000 to $50,000 cost is an obligation; insurance is for an unknown risk. In the
post-closure world, where land is being managed over time, there is a need for a
known pot of money annually. Insurance does not quite fit this situation.
• Rachel Deming: Taking it back to corrective action and the Superfund context: the
RCRA financial assurance regime was built for operating facilities that have a lifetime
over which it would be closed, so during the operation of the asset you would
accumulate sufficient resources during its lifespan. Alternative paradigms to the
current RCRA regime include the regime as it applies to a sudden imposition of a
large liability for historical operations. RCRA regulations do not fit that.
• Peter Meyer: This is a question of how much the Board wants to relate methods used
for RCRA and Superfund on one side with brownfields on the other. (The term
brownfield means real property, the expansion, redevelopment, or reuse of which may
be complicated by the presence or potential presence of a hazardous substance,
pollutant, or contaminant.) The issue of closure/post-closure in the RCRA context
reflects the increasing concern to risk-based, corrective action and long-term
stewardship (the brownfields context). From the point of view of managing these risks
and coming up with the finances to address issues in the future, there is a distinct
parallel. The original question came from us (brownfields) and it seems logical to
continue in this direction in the future.
Mr. Meiberg called for a vote, and the Board voted by acclaim to transmit the letter to the
Administrator.
Workgroup Continuation
Workgroup members would like to continue and to focus on commercial insurance and other
issues, such as cost estimation—a critical area, reporting obligations, the nature of policy
being issued for financial insurance, availability and reliability of insurance, or federal
facilities. Workgroup members would like to reflect on Ms. Bromm's presentation and get
input on what the Agency would like the workgroup to pursue next.
Q&A—Workgroup Continuation
• Lindene Patten: Best practices are a good concept to work on—today it was best
financial practices. There is an underlying need to have a level of technical expertise
and a set of best practices to have the best outcome, nor can we ignore best practices
for implementation. If we recommend an alternative, there must be best practices for
that. We must decide where the expertise stops in this group and where we need
outside input.
• Kelly Downard: Insurance is undergoing a paradigm change. We asked how someone
pays to fix something. With the real estate context, once someone fixes it and some
assurance puts in money, and there is a value left. The market is not looking at the
person who wants to use it next. We do this with designated historic properties. When
real estate changes, the value changes. The site ends up with the value of the real
estate. This is true also with military base closings. The next developer is another
person standing at the table with money. And we have not thought about that.
• Lindene Patten: There are a tremendous number of those transfers, which are
supported by structured financial instruments. Funds are set aside to address those
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issues. Successful models are available. We have to analyze them and take the pieces
we want.
• Terry Agriss: We need to know more about what has failed and what caused problems
in the past. Lindene Patten: Another thing we need to understand is where the
insurance regulations and environmental regulations intersect in terms of what has
worked and what hasn't. There is a lot of information and misinformation. However,
there will be limitations to evaluating this because much data is not public for a variety
of reasons, and we'll have to be extraordinarily skeptical about whatever data are
available. Terry Agriss: Insurance is an important tool, but not a tool to pay for
planned costs. We need to focus not on the developer, but on the land. Remediating a
landslide area involves planned costs; money for that can be borrowed and bonded.
There may be special assessment districts, community-based funds, or NGO-based
funds. They come with disclosures, fee requirements, and third-party enforcement
rights by public agencies. They are a robust, but different, set of tools, and it would be
valuable to understand them, both for planned costs and contingency funds. Lindene
Patten: In certain circumstances, insurance can be a funding tool for such expenses. It
is part of the financial services industry and to suggest that insurance is limited to
catastrophic risk or fortuitous events may result in inefficiencies. We need to look at
flexible structures.
• Jim Tozzi: The government gets all of these reports, which are audited. Therefore the
information is available to the public. Dr. Tozzi would like someone to take Mr. Dell's
forms and see if the system is working. Are people in fact paying?
• Stan Meiburg: Reporting is an issue for discussion. Our challenge is to not bite off
more than we can chew. Which would the Agency most like us to focus on?
Update: Environmental Finance Center Network—Sam Merrill
The nine universities represented (with nine different mission statements) discussed a diverse
set of activities and projects, a few of which are described:
Sam Merrill: The New Hampshire Department of Environmental Services wanted help
evaluating how to do infrastructure forecasting, building on Jeff Hughes' work in Region IV
in 2003. This group helped them think through top-down vs bottom-up approaches and cost
vs accuracy trade-offs and how to hybridize a plan for New Hampshire's particular needs.
The other project is a tool to help individual communities wrestle with how to take questions.
A huge portion of people has neither the level of sophistication in tools and approaches, nor
the economic level to adopt these methods. Many small, rural communities do not have tools
available to evaluate their own conditions. A few hundred are nearly unorganized townships
with no Internet access. To assess a water system's health, the Environmental Finance Center
created a 25-question, self-driving survey, e.g.: Does your system have a capital investment
plan and system to invest in capital projects? The questionnaire is scored and suggestions
made.
Heather Himmelberger: This workgroup used to be focused on how to get more cost
effective environmental management. Asset management was the common-sense way to do
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things better, but there is a need to blend what Steve Albee was doing. At a recent New
Mexico meeting, everybody was at the table except for state regulators and financial agencies.
New Mexico finances and regulate many water systems and is trying to adapt principles for
small systems and is doing a great deal of outreach to the New Mexico state agencies.
Systems that do asset management will get 10 points, as part of the community development
block grant (CDBG) application process, which will help them get funded. The Water
Investment Investigation Team (WIIT) looked at different aspects of management, which they
hope will lead to a requirement to do asset management. They asked the Environmental
Finance Center Network to look at three small communities' water systems, and the
workgroup put together a guide using Steve Albee's approach at a simpler level. They hope
this will tie them into the future and help get Region VI states moving into sustainability,
using tools such as asset management.
Jeff Hughes: The Environmental Finance Center Network partnered to try to get as many
rate structures and rate sheets as possible for water and wastewater from across Georgia; they
got 415, which accounts for 95% of the people served by centralized water and sewage in
Georgia. These figures are computerized so that for any place in Georgia, the rate can be
calculated, grouped, and mapped for all consumers. Pricing has huge effects on finance and
the message sent to consumers. Institutionally and regionally, some of the biggest battles have
been over pricing. Also, they want to promote responsible use of comparative data, and this
database could help people compare like data. Many state agencies use pricing for their
criteria for, e.g., preferential interest rate-based policies. This project was also an excellent
way for the Environmental Finance Center to partner with a number of other organizations. In
this way, other organizations will know who we are and what we can do for them.
In Georgia, unlike other states, the number of accounts and size of the utility had almost no
effect: Small utilities charge the same as large utilities because small utilities use groundwater
and large ones use surface water. In other states, the larger the utility, the lower the rate. In
Georgia, there is a big variation in high consumption amounts, but not in the average amounts
(the average user is assumed to use 6000 gallons per month), which has implications for
price-setting. We tried to determine the message a utility's rate structure sends their
customers: increasing-block rates promote conservation (the more water used, the higher the
rate), but there are also uniform rate structures (the user pays the same regardless of actual
use) and decreasing-block rate structures (the more water used, the less it costs). However, for
the decreasing-block rate structure, the base is so high, that the decreased cost actually has
little effect. The group intends to continue these analyses state by state in Region IV.
Q&A
• Private utilities are not included here, but, on the side, we did a little analysis. The
private sector has very small utilities serving maybe one community, and prices tend
to be higher. In North Carolina, we included not-for-profit water corporations, which
were in line with government, but it is difficult to make accurate comparisons for
investor-owned corporations because they are so small.
• Whether there is a trend toward privatization, reflected in the rate structure, will be
discussed in a session in the Paying for Water Conference.
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• John Wise: North Georgia is different from the rest of Georgia because of their
efforts to impose the increasing-block rate structure, but is the rate structure higher or
lower? Jeff Hughes: Of local utilities, with decreasing-block tariffs, 30% charged
higher marginal prices than those with increasing-block tariffs. John Wise: The
marginal price creates conservation, not the rate structure.
• This information is extremely useful. In Maryland, the question is how we know the
number of gallons used per month. In Georgia, we did not ask what customers actually
used; past experience is that it would be 4500 to 7500 per month. Much depends on
the weather, which varies greatly every year.
• Greg Madden: Arizona has surveyed all 1200 utilities in the state every year since
1999, and they have found that privately owned utilities are more likely to charge full-
cost rates, whereas publicly owned utilities are living off depreciation and deferring
maintenance and investments. These statistics are now used by USEPA to score their
utilities.
In conclusion, regarding data collection problems for rate structure Mr. Merrill shared a quote
they received: "The city is being abolished and things are in disarray right now. The city
clerk has left and we are completely confused by this matter. We cannot find records to
compare and we are looking for them.
Remarks from Administrator Stephen Johnson
Joe Dillon introduced and thanked Administrator Johnson, saying that he is a major supporter
of EFAB. The Administrator thanked the Board members for their service and dedication, and
especially he thanked Mr. Barnes for his willingness to chair the Board, and Mr. Meiburg for
continuing to serve as Designated Federal Official.
The decisions EPA makes can affect the entire nation and the world, so EPA needs
information to make the best decisions. The President's charge to Mr. Johnson was to
accelerate the pace of environmental protection while maintaining our country's economic
advantage—not one or the other, but both. The Board plays a critical role in helping to fulfill
this charge. There are many common grounds on global climate change and biodiversity, and
neither can be considered in isolation. And, they have to be part of sustainable economic
development. So the question is how to do that?
One of Mr. Johnson's priorities is to leave EPA a stronger place than he found it 26 years ago.
He supports senior executive service (SES) rotations as a way to break up "stovepipes" across
the Agency and the federal government, particularly the parts EPA interacts with. Mr.
Meiberg has begun a two-year detail at the Centers for Disease Control (CDC), and in only
two months has learned of opportunities to collaborate. Another priority is our nation's water
infrastructure. A recurring theme in the 2008 budget hearings was the significant challenge of
how to take on an aging infrastructure. Financing issues are an important part, which could
include lowering debt-servicing fees, or leveraging state loan funds. The 2008 budget includes
the private activity bonds, something this Board worked through. The bonds will have a short-
term effect on taxes, but will bring great benefit. When the RCRA cap was removed, they saw
increased investment (from $1 billion to $3 billion per year). The Board will be asked for
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advice and counsel on approaches to dealing with combined sewage overflows as part of our
guidance.
Mr. Johnson welcomed the three new members (James Gebhardt, Scott Haskins, and Lindene
Patten). He paid tribute to Mayor Girardy, a member of the board, and expressed condolences
to his wife. The Administrator honored Billy Turner with an award, acknowledging his seven
years' service on the Board, during which he contributed more than four decades of
experience.
Q&A
• John Wise & Terry Agriss asked Mr. Johnson to expand on his four priorities. Mr.
Johnson had begun with a list of 80 or 90, from which he winnowed four: sustainable
infrastructure, homeland security, a stronger EPA, and clean air.
A $7 billion to $8 billion budget leaves a $300 billion shortfall for infrastructure,
which must be addressed from a financial, technological, and public policy standpoint.
Homeland security for water is EPA's responsibility, as are emergencies on land, such
as oil spills. EPA has a critical role in detection and response to weapons of mass
destruction.
For a stronger EPA, we must think of human capital and of the fact that in the next
five years, 50% of senior managers are eligible for retirement. We must be prepared
by being sure we attract the brightest and the best. The intersection between energy
and the environment is manifested particularly in air.
We need to clean up the air and at the same time make sure we have affordable
energy. The United States has been criticized for not signing the Kyoto Protocol, but
Mr. Johnson reminded critics that no other country has done as much as we have to
address global climate change. Since 2001, we have spent $29 billion on this and are
continuing to do so. The Energy Star Program saved $12 billion in 2005 on
greenhouse gas emissions. We have an aggressive, yet practical program with China
and India. The Alternative Fuel Standard, which will raise the standard for auto
efficiency, was just sent to Congress. Efforts for clean air will focus on working in
collaboration with others to have clean and affordable energy. EPA needs to see that
we in the United States are meeting or exceeding our standards. Improving the
permitting process would help accelerate that process. EPA is responsible for writing
the renewable fuel standard, overseeing its implementation, and making sure that we
meet the first legislative mandate—7.5 billion gallons by 2012. Myriad opportunities
will occur by working with agencies, such as the Department of Commerce and the
Treasury. We need to get off the treadmill of dependence on foreign oil. This is a
national security, energy security, environmental, and economic issue.
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Workgroup Reports (Sustainable Water Infrastructure Projects)
Leveraging the State Revolving Funds—George Butcher
A more precise charge is the review and commentary on the relative effectiveness from a
financial perspective of the leveraging approach. This will be done in two phases: data
collection and data analysis. A one-page summary comparing clean water and drinking water
had been distributed to board members; the data, which were not available until December,
are overwhelming. Mr. Butcher thanked Kit Farber of the EPA for providing information on
state programs.
States are groups according to financing structure: direct loans, hybrid states, and leveraged
states. Hybrid states issue bonds to leverage federal and state contributions, but issued only
25% of loans and capitalization grants. Leveraged states (which originated 60% of all loans)
within the clean water revolving fund have received half of the total federal contributions in
state or federal loans. In clean water revolving funds, 16 states are above average. There is
20% growth in federal capitalization grants, and in the drinking water revolving fund, 14%.
For a final report, the workgroup also looked at a finance agency's role. Direct loan states are
far less likely to be assisted by a finance agency or authority; the opposite is true for leveraged
states. The workgroup will compile comparative data for both clean water and drinking water.
Q&A
• Jim Smith: The Office of Management and Budget (OMB) has indicated that by
2018, there will be no more federal money. Given the reality of diminishing capital
into this program, it might be useful to review what the Administrator asked the
workgroup to do. The question put to us is, what can you do with the financing you
have and expect to receive to multiply that and get the most efficient use possible? It
was not to support leveraging as the best way. Leveraging is borrowing, but it gives
more money to make more loans. Mr. Butcher: In the next conference call we will
discuss various conclusions. We expect to have a completed report by the August
meeting.
• Jim Tozzi: Why are retained earnings from leveraged states for both mechanisms
about the same as retained earnings? Decision criteria would be helpful to see the
objective function you're maximizing; the criteria are not obvious from these
numbers. Mr. Butcher: More retained earnings result because the money is not being
used to the fullest extent—not making as many loans or not providing as much
subsidy as you could. You can't draw inferences between direct and leveraged loans.
EPA's goal is to know how they can most effectively utilize the federal dollars; that is
what we need to articulate. Leveraging is not robbing the fund of future capacity.
• John Wise: How much money is evolving for the two funds annually? Mr. Butcher:
Earnings in 2006 are about 1.7% annualized. Whether it's revolving old capital or
whether it's new capital, it's an earning capacity of the fund. The hope is that the
facility will become sustainable.
• Andrew Sawyers: Planners in Maryland thought they had enough coming in that they
could supply the demand for the foreseeable future, but that is no longer true.
Leveraging is available, but it is not for everyone. Some states receive the minimum
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allocations, which probably should not be leveraged under any circumstances. Greg
Swartz: Whether a state should leverage may not depend on its having a minimum
allocation; it has much more to do with the presence of a finance agency to guide them
through the process. There are ways the state can fund itself to support leveraging,
such as charging an annual fee on the loan. Furthermore, states are distrustful of
financial people, and in some states, a finance agency is told to stay out of it.
• John Wise: In New York, the maximum leverage with no delinquencies in 20 some
years is about 100 to 1. Total capitalization grants total $24 billion—what is the
financial assistance benefit going to be? That is the driver to how you use your capital.
For hardship cases, they offered 0% loans. Every state uses bits and pieces of a
number of instruments. For two-thirds of the market rate, you can leverage your
program three times. In New York, they are capitalized to the extent that they could go
into the bond market and get a AAA rating. Special reserve funds (SRF) are under-
mortgaged from a financial point of view. Andrew Sawyers: The real issue is political
will and making political judgments. Michael Curley: Interest rate and hardship
assistance are two critical drivers. We have a meeting with the governor to discuss
raising interest rates. The connection between useful life analysis and this is also
important. The ability to make 30-year loans makes the SRF competitive. Greg
Madden: The relationship between the interest rates and what a community could do
on its own should be considered. Some compliance costs are not absorbed when you
go on your own. It takes more principle to borrow from an SRF, but at a lower
interest rate, it could equal the cost of a loan with less principle at a higher interest
rate. There seems to be no direct relation between interest rate and leveraging.
• Bill Jarocki: What is happening to all the federal funding they are used to? States
where Mr. Jarocki works are very rural, and the biggest program from these states is
the SRF. He expects increased demand because it's the cheapest money available.
Another issue is the lack of enforcement in the drinking water area. It might be useful
for EFAB to add information about what is happening to other money and what is
likely in the near term. People in the legislature don't know what is going on. Dave
Miller: Federal allocations in New York have decreased from $44 million in 2001, to
less than $10 million last year. Many rural states have been focusing on the value of
the utility, and that's the educational piece. It is sustainable to lend at the rate of 70%,
and leave 30% to grants. And, it will never be cheaper than today with construction
costs doubling monthly. The demand for SRF will increase, and anything we can do
to explain that will be helpful. Terry Agriss: If some communities have been
borrowing through SRF, they could borrow on their own and we should let them do
that. In the City of Baltimore, multiple projects need to be done, so we can help them
get more projects done. Subsidized financing extends how far their available money
will go.
Private Public Partnerships—John Boland
Eliminating the State Cap on Water Bonds
The workgroup drafted a letter to the Administrator on the proposal to eliminate the state cap
on water activity bonds. The workgroup was concerned that anyone would interpret this as
reducing the need for SRF, or that it would be interpreted as solving the infrastructure
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financing gap problem. However, there is a potential source of capital in the private sector
that could be brought to bear on water and wastewater.
Q&A
• Privately owned facilities should be addressed for clean water, but there is as yet no
paradigm or model to address this.
• John Boland: You don't know how much capital will flow if the cap is lifted. Input
the workgroup received was that, if they had the same advantages as the public sector
in the bond market, then they would invest more. So this might bring more capital into
the market. An enormous amount of private equity money is looking for investment
opportunities. It would be interesting to investigate what the barriers are to this
investment. The workgroup is talking about that; Bill Riley may be a resource for this.
• Terry Agriss suggested deleting "unfortunately" in second paragraph.
The group voted by acclaim to send the letter to the Administrator.
Potential for Public Private Partnerships
Public private partnerships range from outsourcing minor activities to investor ownership of
the entire utility. The workgroup wanted to find out whether barriers (real or imagined)
impede otherwise desirable partnerships. Every partnership is situation-specific. EPA has
published documents and handbooks on the subject, and EFAB has published a few reports on
it. Formerly it was policies concerning long-term contracting. To get up-to-date, they
conducted informal surveys among their peers asking what has been done lately. Were they
successful? If not, why not? What were the failure modes and barriers? So far, they have
collected successes, but no barriers. Continuing this learning process, Scott Raskins gave an
overview of what the City of Seattle has done with water treatment plants with two different
vendors. They are not ready to convene a workshop and are continuing to collect information.
Q&A
• Steve Grossman: The Milwaukee example doesn't go to ownership. A possible
obstacle may be that there are buyers, but a limited number of sellers. Andrew
Sawyers: An important discontinuity occurs when you transition from contractor
ownership. There is plenty of money to be spent on the down-side, but not for
consolidation. Smaller systems are being gobbled up and consolidated.
• Andrew Sawyers: Perhaps the workgroup should also be thinking about public
corporations to consolidate small systems. Billy Turner: There is opposition to
consolidation on the private side, although many are consolidated in Australia and
Europe. We have 160,000 drinking water facilities that are permitted by EPA and
16,000 wastewater facilities. It is too many, especially now that we have electronics
that allow us to monitor from 50 or so miles away. But, this is a political issue.
Jennifer Hernandez: More package plants serve new communities, so there are many
smaller and disaggregated units, typically owned or operated by a public utility
district, but more often privately constructed in a new-town model.
• Jeff Hughes: A few sessions during the week discuss these issues. In other sessions,
there are discussions about alternative roles for the private sector. There are a painful
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number of facility ID numbers to deal with: in North Carolina one private utility owns
700 systems. Although it has one rate system, one front office, and one staffer, all 700
come in as disaggregated system. They are often the small ones nobody wants. The
barrier has always been obvious with private equity firms wanting to buy colonial
waterworks. Existing equity totals billions and billions of dollars in this state. Public
policy in the United States comes into play. Local owners don't ask for a rate of return
on that equity. The problem seems to be that equity companies do want a return on
their investment. We could have an influx of capital, but if you handed it over to your
customer base, they would want a rate of return. Heather Himmelberger: New
Mexico tried to consolidate its water utilities two years ago. (There are 100 water
systems within the boundaries of Albuquerque.) Now, when they try to consolidate,
there's a bill to abolish them, and two bills to block eminent domain.
• Scott Raskins: There is a backlog of infrastructure problems, rising rates, and
providing high service at low cost. Ownership, governance, and service provision can
be different strategies. Regionalization, which implies consolidating debt, is one
option, but there are others, e.g., high-performing utilities could offer their services to
other utilities. Lindene Patten: We should focus on technology with point-of-service
delivery, which is done in other places, but not the United States.
• Greg Madden: At least for private utilities, invariably every state has a public utility
commission. If a single owner owns multiple systems that are not contiguous, one
cannot be used to subsidize the others—why would a private utility have rates higher
than need be to subsidize rates of another utility? Andrew Sawyers: Public utility
commissioners are sensitive to issues of fairness and equity and will see uniform rates
as a positive.
• John Boland: The abominable failure of "package plants" was one of the things that
pushed passage of the 1972 Clean Water Act. Package plants were popping up
everywhere and were then abandoned. The state may not be able to capably monitor
many small facilities. Terry Agriss: They are not likely to be owned or operated by a
private entity, but are likely to be operated as a piece of equipment managed by the
district so it becomes more like a satellite.
• Jennifer Hernandez: Telling people where their water comes from when it is
reclaimed water can be a problem. This moves into wastewater as a water source
where aggregation will not be a trend.
• George Butcher: The workgroup will have survey results ready for discussion at the
August meeting.
Expanding the Definition of State Revolving Fund Financing—George Butcher
This report represents a novel approach, but, as indicated in the report, it would require new
legislation to implement. Mr. Butcher expressed appreciation for the addition to the portfolio
of alternative ways to bolster financial resources and promote sustainability.
Sustainable Watershed Financing—Lang Marsh
An important issue is the Agency's financing for watershed restoration, a complex subject
that generates much interest. Most responses called for EPA to do internal adjustment. The
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Non-point source workgroup met this morning, and Mr. Marsh will follow-up with Craig
Cooks to offer further assistance and cooperation. Then the workgroup will report to the
Board in August. They intend to stage operation for the March meeting and have another
discussion with the Agency some time before that. Region IV will meet with the workgroup
to discuss whether they can offer some demonstration areas as a follow-up, and they are
thinking about the possible use of the model in the Great Lakes states. Outreach continues,
e.g., River Network (an NGO) participants have invited Mr. Marsh to speak with them. The
workgroup will issue a report to the National Policy Research Center to the governor and state
agencies and possibly others. After another year's work, they will review whether they can
continue to be helpful.
Q&A
• Julie Belaga: We have identified a number of troublesome watershed areas. It's an
attractive arena for organizations and NGO's that deal with this area. We need to
analyze at least for a year and see what EPA does and how we can be helpful.
Another participant concurred with the request for more time. The current finance
capability of watershed coordinators is at best at kindergarten level, while EPA talks
about more sophisticated things. He has asked colleagues in his state to react.
• The National Academy of Public Administration is completing a report (the Agency
has a draft of it) for the Office of Management and Budget (OMB) and EPA that
focuses on the challenges of environmental protection in the future. This workgroup
gets strong and favorable mention for dealing with financing challenges, so these ideas
are being further disseminated.
• Andrew Sawyers: The Maryland Greenfund, in response to discharges into the Bay,
levies $2/square foot for new impervious surfaces, e.g., parking lots, driveways. In
new development areas, it levies $0.25/square foot.
Ben Grumble
Mr. Grumble dropped by to say "hello" and "thank you." He said the Administrator is
committed to EFAB and its usefulness and looks forward to hearing more about sustainability
and financing.
Financial Capability Guidance—Andrew Sawyers
Mr. Sawyers discussed the Financial Capability Guidance with Jim Hanlon, who has a copy
of the document. (A copy of the guidance had been distributed to board members.) Having
gotten input before the meeting, Mr. Sawyers hoped the board could endorse the guidance at
this meeting.
Financial Capability Guidance addresses a community's economic condition and the
investments needed to make water quality improvements. It demonstrates how EPA will
evaluate ability to pay, which will determine time frame for the municipality in a 2-phase
process of determining a residential indicator, and then a series of financial indicators. Lastly
these 2 are combined.
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Jeff Hughes summarized the main recommendations. EPA wants an easy-to-explain,
quantifiable, quantitative scale for utilities facing significant implementation costs. They want
to be able to summarize their financial capability to implement assessments of combined
sewer overflows (CSO). The working group started with the premise of customer impact and
system impact, and the difference between system-level affordability and household-level
affordability. The premise is that a local utility will implement CSO, and the burden placed on
them will be a function of the impact of their customers and the overall health of their utility.
This work was done in 1996 before the "4 pillars," which may influence the current work.
To summarize: Residential impact is a single indicator, whereas systems impact is multiple
indicators. We should consider having 2 to 4 separate indicators to assess the impact on
customers (right now they only collect residential data). The residential indicator is cost per
median income, done on pure cost, not household expenditure. But, we should consider the
rate structure, rather than household cost derived by dividing household cost by expenditures.
The 1997 factors omit some things we now consider important, e.g., depreciation. Therefore if
a utility wants to invest in asset management, cost per household would not give enough
information. The biggest issue is whether use cost or rate impact indicates incremental cost of
rate implementation or cumulative impact of CSO. Since all analyses are done with a billion
dollar investment, cumulative impact may make more sense. However, if it is done
cumulatively, where does it stop? If it is done incrementally, does that take into account the
community burdened with other regulations? The workgroup concluded that it might be
possible to do both, so the workgroup does not recommend doing one or the other.
On the financial systems side, comments mainly addressed updating the approach now that
we have a different framework for finance. Few utilities now depend on property tax to
finance activities, as was prevalent in the 1990s. It is more like a bond-rating process. They
look at bad debt rather than tax collection rate and then convert the figure to debt per
customer or per capacity. Greg Madden suggested ratings language.
Q&A
• Andrew Sawyers: The National Water Quality Assessment Program (NAQUA) has
other creative suggestions, but is in agreement with this.
• Jim Barnes: Mr. Barnes thanked the workgroup for complying with an aggressive
schedule. It is time to look at the 1997 report, and these recommendations will serve
well for considerations to go into the process. The board received 2 white papers on
methodology from NAQUA and the Senate Environment Committee. We will be
beginning a process, although the process in not yet clear. On January 25, the Federal
Register gave notice of new and invasive OMB guidance, and how the Agency will
implement that is under discussion. Mr. Barnes hopes the board will be available for
telephone advice and counsel; the Agency does not have this expertise. Stan Meiberg:
This has been a different model for the Agency's work, and he commended the
workgroup for pulling it together in such a short time.
• Jim Tozzi: The report is substantive and aggressive, but the letter is wimpish and
should be rewritten to encourage people to read the report. Accumulative vs
incremental cost pricing is a basic issue, however, Dr. Tozzi interprets the report to
say that cumulative is of secondary ranking, so incremental is primary; therefore, the
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workgroup is not truly neutral. Of all the issues addressed, is not the issue of capturing
cumulative vs incremental so large that it dwarfs all the others? Andrew Sawyers: The
letter is "wimpish" to communicate that we thought the original document was good
and that this group just wanted to highlight the recommendations. The matter
engendered much discussion. They wanted to look at both incremental and
cumulative, and to a certain extent it is unresolved.
• Jeff Hughes: It might be good to rephrase it with a multi-indicator metric. Terry
Agriss would vote for "cumulative." We need to make a decision in a report being
provided to the Agency with recommendations. She is uneasy about saying members
of EFAB are decided if they have not come to consensus. Ms. Agriss recommends
giving the Agency 2 options along with the benefits and disadvantages of each. Dr.
Tozzi: Few people really understand this very complex issue. Therefore, this board is
not likely to come to a conclusion in a reasonable time. John Wise: "Incremental" and
"cumulative" are entirely different. The incremental method asks, if we do this, what
is the cost? The cumulative method asks the ability to pay and is related to
affordability rather than to the project per se. Incremental financial is primary; but
cumulative is neither irrelevant nor unimportant. Mr. Wise agrees with the sentence as
Jeff wrote it. Mr. Sawyers summarized the workgroup's position: The way it is
written expresses our meaning, but discussion might be expanded to incorporate Mr.
Wise's comments. We are not in disagreement; there are 2 different approaches, but
they get at 2 different things. NAQUA has not proposed using incremental, but we can
show that there are benefits to both. Stan Meiberg: The workgroup will revamp the
paragraph and, in the next couple of weeks, circulate it by e-mail for comment; silence
will mean agreement with the revision.
Sustainable Finance Policy—John Wise
Across the landscape of America—companies, local and state government, student activism,
new curricula and degrees, and the military—we see convergences of thinking and practices
about the issue of sustainability. In San Francisco last August this workgroup was established,
its purpose being: to build on this convergence of activity and thinking on sustainability and
to urge EPA to embrace sustainability as a strategic management agenda, fulfilling in part
some of Administrator Johnson's priorities; to focus on ecosystem assets as well as pollution
control; and to use the Agency's resources wisely to move the agenda forward. With the first
draft of a report (in the packet distributed to board members), the workgroup tried to identify
the notion of sustainability in terms the Agency can grasp and to identify the ecological
imperative. It is not enough to control pollution to meet public health goals; we must attain an
environmental objective to compliance endpoints and then reach beyond that to protect
ecosystems and the things they provide.
The Office of Research & Development will facilitate the measurement and assessment of
how we are doing. To enhance EPA's agenda, we need more emphasis on processes to use as
tools, such as life-cycle assessment, full-cost pricing, and rate structures. There are
geographic ways to organize around watersheds and air-sheds that could be important
vehicles for organizing and delivering financial services. We need more emphasis on
emerging market places for ecosystem assets, carbon markets, water rights, and conservation
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banking, keeping in mind EFAB's purpose to make recommendations to the Administrator.
We need to delineate the issue, as we did when we addressed how to pay for environmental
protection. In sum, if we think ecosystems are important, how will we pay for them?
Q&A
• Jim Tom: The board has to look at the role of the board. Innovative financing I
understand, but this paper goes to doctrine, ideology, and moral obligations, which
seem too broad for this board. Keith Hinds: The report is well written as a thought
piece, but it is much broader than a finance paper and should be narrowed to matters to
which you can assign a dollar value. John Wise: On the other hand, the Administrator
encouraged talking about sustainability.
• Rachel Deming: It is completely outside government. Ms. Deming sees the potential
value as a vision of the Agency that gets away from the traditional compliance role to
incentives for sustainable environmental performance. We should strengthen the idea
that it is continuing in a direction in which has already been going—e.g.,
environmental management systems are not mandated by any statute—not that the
direction is so different from what the Agency has been doing. This should be
presented as an action by the Agency to seek enhanced environmental performance, to
give incentives to reach the next level, to go beyond typical compliance and the
regulatory role to suggest overarching ideas that go across the silos.
• X: It goes well beyond the role of advisory board. We should focus solely on
financing issues. The speaker looks forward to next draft and urges caution that we
recognize our mandate.
• Bill Jarocki: We have to look at the paper to understand the bigger context of
sustainability. In a financial context, it is part of the environmental goods and
management and how you bring that into the calculation. We need to look more at
environmental economics. Values, judgment, and measurement come into play
although they may not be measurable in a dollar amount.
• John Boland: Both times the Administrator has spoken to this group, he used the
word "sustainability" a number of times. We will not define sustainability for the
Agency, but we have to understand it for ourselves. This paper will inform us and
stimulate discussion. The paper shows linkages. John Wise: The previous paper Dr.
Boland wrote was about stewardship, which is a bold proposal. We should initially
consider it as a policy piece for our own edification.
• Peter Meyer: Many people think sustainability is a moral issue, but it is also an
economic one. A particular remediation approach can minimize financial cost in an
economic system, so we should take a broader look at the economics of incorporating
the issue of sustainability and whether it leads to more efficient policies. This whole
issue is central to the mission of the Environmental Advisory Boards.
• To submit practical suggestions and things the Administrator can and cannot do in his
remaining time, we should separate it into 2 pieces: one is big picture policy, and the
other is suggestions that are practical and do-able. That is, we continue to look at the
paper as a policy piece for internal use by the board, but we extract specific ideas for
the administrator. Finally, we aim for a paper that would be a board product on any
issue. The board as a whole has no competence for the first paper—what sustainability
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is and how it affects our work. From that paper we extract things we want the board to
review.
Public Comment
No comments.
Closing Remarks and Next Steps—Jim Barnes & Stan Meiberg
The next meeting will be convened August 15 and 16, 2007 in San Francisco at the Nikko
Hotel (in response to an overwhelming vote).
Mr. Meiberg thanked everyone and adjourned the meeting.
Meeting Adjourned 5:15
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Participants
March 19
Sue Breggum, Waste Management
Susan Bromm, EPA OECA
George Faison, EPA OSW
Greg Mason, GEFAEFAB
David Miller, USD-Rural Development
Dale Ruhter, EPA
Dick Swanson, ASTSWMO
Larry Zargon, EPA
March 20
Stacey Berahzer, UNC, EFC
Jenny Bielanski, USEPA
Sue Breggan, Waste Management
Cynthia Dougherty, EPA OGWDW
John Duffy, Mat-Su Borough, AK
George Faison, EPA
Alan Farmer, EPA Region 4
Kevin Garon, DuPont
Robert Hall, USEPA
Shana Harbour, USEPA
Greg Madden, USEPA
Chris McColloch, USEPA
Kevin Mathews, AIG
Peter Meyer, NKYU
David Miller, USDA
Cara Norton, EFC
Matt Robbins, EPA Region 4
Dale Ruhter, EPA
Bob Stewart, N-RC
Dick Swanson, ASTSWMO
Barney Turney, BNIA
Maria Vichen, EPA
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EFAB Membership
Chair
James Barnes
Designated Federal Official
Stanley Meiburg, National EPA Liaison,
CDC
Congressional
Pete Domenici, U.S. Senate
State & Local
Kelly Downard, Chairman, Louisville
Metro City Council
Jamed Gebhardt, Chief Financial Officer
for the New York State Environmental
Facilities Corporation
Steve Grossman, Executive Director, Ohio
Water Development Authority
Scott Haskins, Deputy Director, Utility
Systems Management, Seattle Public
Utilities
Gregory Mason, Assistant Executive
Director, Georgia Environmental
Facilities Authority
Andrew Sawyers, PhD, Program
Administrator, Maryland Water Quality
Financing Administration
Billy Turner, President, Columbus Water
Works
Business & Industry
Terry Agriss, Vice President, Energy
Management, ConEdison
Donald Correll, President and CEO,
American Water
Rachel Deming, Partner, Scarola Ellis LLP
Stephen Mahfood, President, Mahfood
Associates, LLC
Lindene E. Patton, Senior Vice President
and Counsel, Zurich North America
Cherie Collier Rice, Treasurer and Vice
President of Finance, Waste
Management, Inc.
Jim Tozzi, PhD, Multinational Business
Services, Inc.
Banking, Finance, & Legal
George Butcher, Managing Director,
Municipal Finance, Goldman, Sachs, &
Co.
Michael Curley, Executive Director,
International Center for Environmental
Finance
Mary Francoeur, Director, Financial
Guaranty Insurance Co.
Jennifer Hernandez, Partner/Co-Chair,
National Environmental Team, Holland
and Knight, LLP
Keith Hinds, Financial Advisor, Merrill
Lynch
Helen Sahi, Director, Environmental
Services Department, Bank of America
Greg Swartz, Vice President, Piper Jaffray
&Co.
Sonia Toledo, Managing Director, Merrill
Lynch
Justin Wilson, Waller Lansden
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Associates, Organizations, Academia,
and Public Interest Groups
Julie Belaga, Co-Chair, Connecticut
League of Conservation Voters
John Boland, Professor Emeritus, Johns
Hopkins University
Langdon Marsh, Fellow, National Policy
Consensus Center, Portland State
University
Environmental Finance/Independent
Consultants
James Smith, Bozeman, Montana
John Wise, Hidden Valley Lake, California
Sam Merrill, PhD, University of southern
Maine
Mark Lichtenstein, Syracuse University
Dan Nees, University of Maryland
Jeff Hughes, University of North Carolina
Lauren Heberle, University of Louisville
Kevin O'Brien, Cleveland State University
Heather Himmelberger, New Mexico
Institute of Mining and Technology
Sarah Diefendorf, California State
University
William Jarocki, Boise State University
Environmental Finance Staff
Vanessa Bowie, Director
Alecia Crichlow, Analyst
Vera Hannigan Senior Analyst
Susan Emerson, Analyst
Pamela Scott, Analyst
Timothy McProuty, Senior Analyst
Sandra Keys, Admin Assistant
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