United States Environmental Protection Agency

              Office of the Chief Financial Officer
                   Meeting Summary
                     March 10-11, 2008
                American Institute of Architects
                      Washington, DC
                      Audio Associates

EPA, Environmental Financial Advisory Board Meeting
March 10-11, 2008
                Environmental Financial Advisory Board Meeting

                                 Meeting Summary
                                  March 10-11,2008
                                  Table of Contents

Day 1:
Meeting Participants	1
Introductions/Meeting Overview	3
EFAB Collaboration with NACEPT (Not Included)	3
EPA's National Enforcement Strategy Questions and Comments	4
Welcome from EPA Administrator	4
EFAB Workgroup Reports	
   Environmental Management Systems	4
   Leveraging the State Revolving Funds	6

Day 2
Opening Remarks	10
Environmental Finance Center Network Update	10
Sustainable Water Infrastructure	12
EFAB Workgroups Report Outs:
   Sustainable Watershed Financing	16
   Public-Private Partnerships	18
Region VII's Satellite EFC	20
Climate Change	21
EFAB Workgroup Report Outs:
   Financial Assurance-Cost Estimation	25
   Financial Assurance Commercial Insurance	27
   Innovative Financing Tools	28
Public Comments	29
Summary, Wrap-Up, and Next Steps	29
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EPA, Environmental Financial Advisory Board Meeting
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                 Environmental Financial Advisory Board (EFAB)

                            EFAB OPEN MEETING

                                   March 10-11,2008

                                Meeting Summary

EFAB Members Present:

   •  A. James Barnes, Chair, Professor of Public and Environmental Affairs, Indiana State
      University, Bloomington, IN
   •  Terry Agriss, President, TAgriss Advisory  Services, New York, NY
   •  John Boland, Professor Emeritus, The Johns Hopkins University, Baltimore, MD
   •  George Butcher, Managing Director, Municipal Finance, Goldman, Sachs & Co., New
      York, NY
   •  Donald Correll, President and CEO, American Water, Voorhees, NJ
   •  Michael Curley, Executive Director, The International Center for Environmental Finance,
      Towson, MD
   •  Rachel E. Deming, Partner, Scarola Ellis LP, New York, NY
   •  Kelly Downard, Chairman, Louisville Metro City Council, Louisville, KY
   •  James Gebhardt, Chief Financial Officer, NY State Environmental Facilities Corp., Albany,
   •  Steve Grossman, Executive Director, Ohio Water Development Authority, Columbus, OH
   •  Scott Haskins, Vice President, Global Water Business Group, CH2M Hill, Bellevue, WA
   •  Keith Hinds, Financial Advisor, Merrill Lynch, Albuquerque, NM
   •  Langdon Marsh, Fellow, National Policy Consensus Center, Portland State University,
      Portland, OR
   •  Gregory Mason, Assistant Executive Director, Georgia Environmental Facilities Authority,
      Atlanta, GA
   •  Karen Massey, Deputy Director, Missouri Environmental Improvement and Energy
      Resource Authority, Jefferson City, MO
   •  Lindene E. Patton,  Senior Vice President and Counsel, Zurich North America, Great Falls,
   •  Cherie Collier Rice, Treasurer and Vice-President of Finance, Waste Management, Inc.,
      Houston, Texas
   •  Helen Sahi, Director, Environmental Services Department, Bank of America, Hartford, CT
   •  Dr. Andrew Sawyers, Program Administrator, Maryland Water Quality, Financing
      Administration, MD Department of the Environment, Baltimore, MD
   •  James Smith, Environmental Finance Consultant, Bozeman, MT
   •  Steve Thompson, Executive Director, Oklahoma Dept. of Environmental Quality, Oklahoma
      City, OK
   •  Greg Swartz, Vice President, Piper Jaffray  & Co., Phoenix, AZ
   •  Dr. Jim J.  Tozzi, Director, Multinational Business Services, Inc., Washington  , DC
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   •   Justin P. Wilson, Partner, Waller Landsden, Nashville, TN
   •   John Wise, Environmental Finance Consultant, Middletown, CA

EFCN Members:
   •   Mark Lichtenstein, Director, Syracuse Center of Excellence in Environmental and Energy
       System, Syracuse, NY
   •   Gerritt Knaap, Exec. Director, National Center for Smart Growth Research and Education,
       College Park, MD
   •   Jeff Hughes, Director, EFC, U. of North Carolina, Chapel Hill, NC
   •   Kevin O'Brien, Executive Director, Great Lakes EFC, Cleveland State University,
       Cleveland, OH
   •   Heather Himmelberger, Director, EFC, New Mexico Institute of Mining and Technology,
       Albuquerque, NM
   •   Sarah Diefendorf, Director, EFC, Dominican University of CA, San Rafael, CA
   •   William Jarocki, Director, EFC, Boise State University, Boise ID

EPA/EFS Staff and Management and Expert Witness
   • Stanley Meiburg, EFAB Designated Federal Official (DFO), National EPA Liaison, Centers
       for Disease Control and Prevention, National Center for Environmental Health/Agency for
       Toxic Substances and Disease Registry Atlanta, GA
   • Vanessa Bowie, Director, Environmental Finance Staff, Washington, DC
   • Alecia Crichlow, Environmental Finance Staff, Washington, DC
   • Susan Emerson, Environmental Finance Staff, Washington, DC
   • Vera Hannigan, Environmental Finance Staff, Washington, DC
   • Timothy McProuty, Environmental Finance Staff, Washington,  DC
   • Pamela Scott, Environmental Finance Staff, Washington, DC

US EPA: George Ames, Jordan Dorfman, Kit Farber, Robert Hall, Bill Hanson, Chuck Kent, Greg
Madden, Bob Maxey, Marcia Mulkey, Dale Ruhter, Paul Shapiro, Diane Saenz

Other Guests:
   •   Sue Briggum, Waste Management
   •   Jack Kartez, EFC, Region 1
   •   Shellie C. McClary, Oklahoma, Dept. of Environmental Quality
   •   Casey Massino, ASRCMS
   •   Peter B. Meyer, EFAB Expert Witness
   •   David A. Miller, EFAB Expert Witness,
   •   Robert Montgomery,  Exponent, Inc.
   •   Nicollete Mueller, EFC, Syracuse University
   •   Sara Pesek, EFC, Syracuse University
   •   Richard Swanson, EFAB Expert Witness
   •   Joanne Throwe, EFC, University of Maryland
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   •   Charlotte Tuckes, BNA
   •   Robert Weaver, Kelly & Weaver
Day 1-Monday, March 10, 2008                                       (1:00p.m.)
Introductions/Meeting Overview

Stan Meiburg, EFAB Designated Federal Official (DFO) welcomed members and guests to the
Environmental Finance Advisory Board (EFAB or the Board) open meeting in Washington, DC.  He
acknowledged the members who were not able to be present for personal and business reasons.

James Barnes, Chair of EFAB, and Professor of Public and Environmental Affairs, Indiana
State University, welcomed Board members, EFCN members, and guests and said that he was
impressed with the work and commitment of the Board.

DFO Meiburg reviewed the meeting agenda. On Monday John Wise, Environmental Finance
Consultant, would discuss EFAB's collaboration with NACEPT. Granta Nakayama, Assistant
Administrator, Office of Enforcement and Compliance Assurance would review EPA's National
Enforcement Strategy, which would be followed by EFAB Workgroups Report Outs. On Tuesday,
reports would be given on the Environmental Finance Center Network Update, Sustainable Water
Infrastructure, Region VIFs Satellite EFC, Climate Change and EFAB Workgroups Reports for
Financial Assurance and Innovative Finance Tools.
EFAB Collaboration with NACEPT- John Wise
Over the years, NACEPT and EFAB have collaborated on several projects of mutual interest. These
collaborations have proved to be immensely valuable by enriching the substance of the reports; and
they have proved the utility of cross-collaboration among various Advisory Committees, thus giving
EPA enhanced value from its investment in the advisory process.

There are two examples of recent participation which illustrate the process. The first example
emerged when EFAB was attempting to examine sustainability work at EPA. We realized that such
an effort was pushing the boundaries of EFAB's charter in that much of the sustainability thesis did
not directly involve environmental finance.

However, NACEPT was doing a report on sustainability-related  stewardship work and Stan Meiburg
mad the connection.

Stan brokered a discussion with NACEPT and this led to an EFAB collaboration with NACEPT -
which has involved John Wise joining the NACEPT sub-committee marrying stewardship and
sustainability. EFAB's environmental finance expertise was infused into NACEPT's exploration of

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EPA, Environmental Financial Advisory Board Meeting
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stewardship. The result was a greatly enhanced report to the Administrator.  The report is
"Everyone's Business: Working towards Sustainability through Environmental Stewardship and
Collaboration ".

The second example involved an invitation from NACEPT for EFAB assistance on a report
involving venture capital and technology promotion.  John Wise has served as the liaison providing
EFAB input into the NACEPT sub-committee on environmental technology.

This NACEPT sub-committee has been pursuing/conducting a series of interviews with the venture
capital community looking at, among other things, how the venture capital community views EPA.
Bill Reilly, Hank Habicht, John DeVillars, Winston Hitchcock, Eric McPhee, and John Day are
among the experts who have been interviewed.

The project report is being authored by the NACEPT  sub-committee and will be rolled up through
the full NACEPT into a final product.

This project has been on a fast rack and will conclude at the end of March with a report to the EPA
Administrator. The report is  "EPA and the Venture Capital Community: Building Bridges to
Commercialize Technology". Again, value was added by the infusion of EFAB expertise into the
work of NACEPT.

EFAB members raised the question as to whether there were any cross-overs/connections between
this particular effort and EFAB work. Some EFAB members felt that the metrics (both hard and
soft) that drive venture capital decisions are/can be the same  as those used in making other financial
decisions, and saw a real relationship to the Board's EMS work.

Examples of metrics presented: 1) Hard Metrics - rate of return, economic value of production,
market size, market penetration, growth, breakthrough technology; 2) Soft Metrics - (used by public
entities),  transparency, Sustainability, social responsibility.

The EFAB concluded that based on these two successful  collaborations, further opportunities  for
cross-collaboration among advisory committees should be explored.
EPA's National Enforcement Strategy

DFO Meiburg or Chair Barnes introduced. Granta Nakayama, Assistant Administrator, Office of
Enforcement and Compliance Assurance, who would provide an overview to EPA's National
Enforcement Strategy.

OECA has 3400 employees across all of EPA - at headquarters and the ten Regional offices. OECA
manages its own FACA advisory committee, the National Environmental Justice Advisory
Committee (NEJAC). OECA responds to NEJAC reports and letters in writing and on its EPA
website. Regarding financial assurance-related issues, there have been a number of high profile

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bankruptcies, in particular, the ASARCO case and its $1 billion plus claim. There have been some
financial assurance success stories involving sites in Colorado and Virginia (Lucent). OECA
believes that strong financial assurance requirements provide incentives for companies and others to
operate in the cleanest possible manner.

It is important to remember that OECA does not make the regulations, it enforces them. The
importance of strong enforcement is that without it compliance often comes into question. The
Peoples Republic of China is an example of this fact. China has great regulations, but no
enforcement. This leads to poor compliance and serious pollution. China follows a 0,1 model. The
government either does nothing or it shoots the person at the top held responsible for the problem.

OECA has re-listed financial assurance as one of its  national enforcement priorities for the period
covering 2008 to 2010. There is a lot of support for this priority from the  States, especially from the
Association of State and Territorial Solid Waste Management Officials (ASTSWMO). OECA is
working hard on improving its staffs (EPA's) cost-estimation capabilities.

OECA has reviewed  1300 CERCLA facilities/sites in 28 States with over $2 billion dollars in
potential financial assurance obligations. For RCRA-related facilities, OECA has reviewed 278
facilities with $1.5 billion in potential financial assurance liabilities. Finally, OECA has reviewed
2000 RCRA TSDs with $2.8 billion in potential liabilities. OECA is working hard to deal with the
uncertainties associated with cost-estimations. His office's goal is predictable, stable, and strong
enforcement. OECA wants to create/inform, a level playing field for regulated entities. OECA
focuses on the regulations as written, it does not make regulatory policies. He is proud that the
Office has achieved over $ 40 billion in injunctive relief.

Questions and Comments Terry Agriss commented that some the members felt strongly about
enforcement and the national assurance tests. The agency has asked EFAB to assist them on how to
take advantage of the State Revolving Funds (SRFs). The key point is how to get people to take
advantage of the assurance that is available, and our  response is usually through enforcement.

Rachel Denting. What are the percentages of use among the various financial assurance

Lindene Patton. Would it be possible to get general  information on financial assurance use related
to bankruptcies? OECA is willing to share what they can re: information in the  public domain and
general overview percentages, gross dollar amounts, etc. There is a lot of confidential information
involved in OECA financial assurance-related work.

Cherie Rice.  Is there any variability between the States in EPA's 28 State review? Yes, some
States like Florida are already working on these issues, while others are lagging.

With respect to the infrastructure issue, Mr. Nakayama said he was surprised when he told
municipalities that they were out  of compliance and  needed to upgrade their sewer system and even
though they were aware of this, they had not thought about using SRFs or other available state funds.

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EPA, Environmental Financial Advisory Board Meeting
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Mr. Nakayama invited members to let him know, if they had some issues where the Agency was off
the track.

Welcoming Remarks

Lyons Grey, EPA Chief Financial Officer and former Chair of EFAB, introduced The Honorable
Stephen L. Johnson, EPA Administrator, by stating his admiration for difficult decisions made by
the Administrator's to do what was best for the Nation's health and the environment.

Administrator Johnson acknowledged the leading roles of EFAB in the Nation's' priorities including
paying for sustainable water infrastructure and helping EPA identify smart solutions to the Nation's
environment problems.  The capital costs of needs for clean water and safe drinking water amount to
$4-5 billion dollars. EPA's $7.1 billion dollar budget is not going to solve the huge problem. He
thanked the Advisory Committee, the staff, and DFO Meiburg for their time and efforts and their
portfolio projects.

One of EPA's priorities is the Nation's water infrastructure. At the budget hearings on Capitol Hill,
EPA discussed the importance of Private Activity Bonds or Water Enterprise Bonds as a way of
addressing the financial needs for infrastructure. EFAB has made an important contribution with the
emphasis on SRF loan funds to use dollars more efficiently.

The Administrator appreciated EFAB's work with local governments and groups. It is important
when the independent advisory committees, such as the NACEPT,  the Local Government Advisory
Committee (LGAC), and EFAB have been able to make connections with each other.  EPA works
hard to act on the advisory committee's recommendations. On a number of issues, such as
sustainable financial approaches, equitable cost allocations, collaborative governance models,
recommendations have been made by EPA advisory groups.  EFAB is helping EPA and the Nation
to accelerate environmental protection while maintaining economic competitiveness.

Administrator Johnson recognized the new EFAB Board members, Karen Massey and Steve
Thompson, who has had decades of experience with states. He thanked Steve Grossman, John Wise,
Jim Smith, for their service to the Board and provided them with plaques of appreciation.  He also
thanked two other members, who have helped EPA immensely, but who were unable to attend due to
illness: Steve Mahfood and Senator Pete Domenici.
EFAB Workgroups Report Outs

Environmental Management Systems (EMS)

Rachael Deming, Chair, {Not on microphone) said the report on Environmental Management
Systems is almost in final form. The Workgroup had been meeting for 2 1A years and had
determined the important questions that to help the agency move forward.  The EPA Office that

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EPA, Environmental Financial Advisory Board Meeting
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sponsored the workgroup, the Office for Policy, Economics and Innovation, has worked closely with
the workgroup.  The original charge was: How can we find the value of EMS to the financial
markets?  Since the financial markets did not know what an EMS was, education was needed on
some components of management systems, such as verification of environmental performance, and
identifying which components could be measured.  Based on comments from a workshop held in
June 2007 and Board discussions, a draft report was developed.  A copy of the report entitled
Environmental Management Systems and the Use of Corporate Environmental Information by the
Financial Community, was in the Board workbooks.

EPA's comments were received and reviewed by the Workgroup, the content of the report was
agreed upon, and the report would be transmitted to the agency within the next month. The EMS
report should be available at a EPA workshop being held in June 2008.  The next draft would
incorporate EPA's comments and the Workgroup's minor revisions. Recommendations would not
be changed, except for slight revisions in Recommendation 1, due to EPA's objections to a
leadership role.  The recommendation would state that the leadership role is not mandatory, but that
EPA should work with financial markets to identify categories of data for financial markets to

DFOMeiburg observed that the EMS Workgroup's purview had expanded to focus on how to
identify indicators that would be of value to those who do assessments of a wide variety of financial
instruments,  such as tools that leverage funds and reward companies engaged in good environmental
performance. There is some tension between evaluating corporate performance based on
environmental performance rather than solely on financial indicators. EPA should encourage
companies to look at the long-term benefits.

Comments and Questions

Board comments included the following:

    •   On recommendation #5, EPA's collaboration and coordination with other agencies, such as
        state environmental regulators, OSHA, and SEC is important.
    •   The focus has changed over time, so now we are looking at the return on investments and
        the monetary benefits of EMS.
    •   In the early days of environmental protection, there was a lot of fear in the agency about the
        cost-benefit  analysis, but the agency has found that the benefits far exceed the costs in many

DFOMeiburg said that after edits from the today's workgroup comments, the final version should
come to the Board by the end of the month.  He proposed that the Board receive the report by email
and indicate within a couple of weeks their approval, so he and Chair Jim Barnes can sign and send
it to EPA Administrator Johnson.
Leveraging the State Revolving Funds (SRF)

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DFO Meiburg stated that Report on Leveraging SRF funds was the most extensive piece of
analytical work that had come before the Board during his tenure. The Final Report entitled
"Relative Benefits of Direct and Leverage Loans in SRF Programs " is close to being ready.

George Butcher, Chair of the Leveraging SRF Workgroup, praised the work of Jim Smith and Jim
Gebhardt on the aggregation of the data; and Terry Agriss for the overview and executive summary.
The conclusions were on Page 11 of the Report. Both direct loan and leveraged loan programs have
been successful in making loans with greater value than the federal capitalization grants. Direct-loan
states can increase their retained earnings over time, if they use a separate portion of their capital to
make loans, leverage those funds, and allow retained earnings to grow capital over time. The federal
government can assist states to operate more efficiently by allowing more flexibility in the design of
individual state programs.  Another suggestion involved allowing draws of capitalization grants,
without regard to the expenditure of SRF funds, for project costs, and to interpret the perpetuity rule
in a dynamic, rather than a static way, based on annual year-end results.  This recommendation will
be clarified in the final report.

The final recommendation for future study by the Workgroup is whether a different approach to
investing SRF equity would enhance the ability of SRFs to grow equity, meet long-term program
demands, and become sustainable.  Some additional work is needed on the report in terms of the
discussion of the data, the characteristics of states that made SRF loans, and the perpetuity rule. Mr.
Butcher added that the changes could be completed so that a final plan could be circulated by the end
of the month.

Greg Swartz said the data on the characteristics and commonalities of states that make a lot of SRF
loans needs to be summarized.  For example, there is a direct correlation between how many loans a
state is producing and the presence of a finance authority in the day-to-day decision-making.
Language would be added regarding a new measure, termed the benefit/capital ratio, comparing the
percentage of financial  assistance to the percentage of capital allocated to derive that financial
assistance.  With some of the SRF innovative financing techniques, they could break the one-to-one
ratio and actually generate benefits at a higher rate than the percentage of capital committed.

Questions and Comments

Jim Tozzi commented that this version of the report was more understandable than the last version
and provides  a good idea of how leveraging works. The EPA transmittal letter should focus on the
4th recommendation because it states an explicit action by EPA and addresses closing the gap. John
Wise commented that this report should be sent to the House Committee on Transportation and the
Accounting Office that  advised on the creation of a Clean Water Trust Fund.

DFO Meiburg noted that the report language has shifted from recommendations to conclusions. The
statements that we have collected a tremendous amount of data, given thorough review to the types
of programs,  and have concluded that compared to direct loan programs, leveraged programs have
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the benefit of permitting more loans to be funded with the same amount of equity, are a very
important, but need to be stated more strongly.  The Board discussed this issue further as follows:

    •  EPA could take more of a catalytic role in pushing the idea of leveraging funds than they
       have in the past.
    •  Talking to the Environmental Council of States (ECOS) might bring about a dramatic policy
       change, rather than talking to the state governors' staffs via the Regional offices.
    •  For state programs that have not been leveraging, the language should be stronger in stating
       the efficiency of SRF leveraging.
    •  The focus could be on environmental groups and regulators, associations of state finance
       officers and state legislatures, who would look at the SRF as a financial program, not just an
       environmental program.
    •  This report provides the impetus for state directors to ask staff members to provide them with detailed
       analyses of why leveraging would be or not be appropriate for their state.
    •  To people who run the non-financial programs this information could be intimidating.
    •  EPA should deal with this at the state level instead of at national level, because there are several states
       that need to be encouraged to do leveraging.

Jim Tozzi asked who would be presenting the report to the groups just mentioned. Does the agency have the
time and personnel to do this?  Would the people who wrote this report be available on a continuing basis to
EPA staff as they make presentations?

An extensive and complex discussion ensued on leveraging ratios and subsidies. Michael Cur ley said that in
a healthy bond market and in well-run water and wastewater utility programs, the leverage ratio  for financial
guarantees from insurance companies was 100 to 1. So theoretically Rhode Island's ratio of 4.94 could be
multiplied by 100 to leverage their equity. Mr. Curley thought that there is more than enough money in the
leveraging program to finance all the gaps. However, as long as local governments pressure the state
legislatures not to give up subsidies, the subsidies will never go away and there will always  be a gap.

Jim Gebhardt said if you do a guarantee you do not have to give up subsidies.  Money in equity
accounts is growing. Earning and  subsidies to communities are still being provided. For example, in New
York the money in the equity account of about $300 million is growing. Using the financial ratios that apply
to bond insurers, which exceeds 100 to 1, this equity money could do $30 billion of guarantees with an AAA
rating. However, this is limited by statute.

Jim Gebhardt added that the feature of the SRF program that buys political inducement is low-cost loan
approval. New York is rolling out financial guarantees to water and sewer programs. Communities are
offered AAA financing in the market, with the power of the SRF guarantee.  The community projects would
be kept on the intended use plan where they could compete in future years for additional assistance.

DFO Meiburg noted that in the past the Board did not take a position on the issue of the amount of
capitalization grants, because this was a political position;  even though the Board's objective is to help EPA
and the Nation to make sure that Federal dollars are working as hard as they could.  This report did not
attempt to address the full range of instruments,  such as guarantees, that might have increased the leveraging
rations per se, but was rather a more modest, empirical approach of looking at the past experience of
leveraging of funds and see what could be learned.  Dr. Tozzi's question was: How forceful does the Board

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want to be in suggesting particular strategies to EPA to adopt?  The question for the Board is whether to
adopt the report as it is or make a stronger statement to EPA.

Other ideas brought out in the discussion included the following:

    •   In the performance partnership agreements with states, they could put an analysis of leveraging in
       their work plans of why leveraging does or does not work.
    •   Regional Directors, after reviewing the report and seeing the amount of leveraging that is being used,
       could talk to the State Directors and point out the differences between states, especially if they are
       complaining about the amount of their allocation under the Clean Water Trust Fund.
    •   The report goes to the heart of how we  can take existing resources and use them more effectively.
       However, SRFs are not a sustainable source of revenue.
    •   For states that do not leverage their credit, more discussion of the options and tools that work would
       be helpful.
    •   One of the best parts of the SRF legislation is that it gives great latitude to the states on how the  SRFs
       could be designed. EPA cannot tell the states how to operate the SRFs.

In regard to the tone of the report and strength of the language to EPA,  there were differences of opinion, as

    •   The report should be stronger in telling EPA what the Board's position is on a financial
       matter, because it may be hard for EPA to advise us on what they want because the Board is
    •   EPA should use its authority to recommend or disseminate the information.
    •   EPA's role would be to get information into the hands of people who want the information,
       not to tell them what they ought to be doing.
    •   The report should state that this is basically a financial program or tool, not an environmental
       program per se.
    •   An education program is needed for state legislators, who do not understand the concept of
    •   From the states' perspective, the message would be better received if coming from the Board
       than from EPA.
    •   The intrinsic tension between subsidies and leveraging needs to be explained in the report.
    •   The document could point out the ratios and relationships between grants and the tax-exempt
       status of SRF bonds and the differences between private and publicly-owned water treatment
    •   The gap is real and if states do not leverage, then they would ask  for more appropriations
       from the federal government.
    •   The report should strengthen EPA's understanding of leveraging, especially the regional
       grants  management staff.

DFO Meiburg asked whether the subsidy issue was something to  address as a follow up action to
this report or to include this issue in the report which did not seek to cover the relative merits of
subsidies. Several members responded that subsidies should not be part of the report.
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John Boland summarized the discussion in that everyone agrees that this report needs to be put into
the hands of decision-makers at the federal, regional, state, and local levels. In the discussion of
why some states leverage and some do not, we imply that it is either they don't know how or don't
want to do it, but they may not need to leverage. It could be that the capitalization grant is too large
or that there is not enough demand for the money, which is a bigger problem.

DFOMeiburg summarized the discussion as follows:

    1.  There is consensus that the report needs to be disseminated.
   2.  The report has great value and compiles very important information that is not pulled
       together in other reports.
   3.  The real debate is how firmly the Board wants to make its recommendation to EPA. The
       main idea is that EPA should not appear to be heavy-handed in the ways that the federal
       statute does not support.
   4.  The message of the report should be clear that there are ways to make the existing funds
       work harder than they do now.

Ms. Agriss said that changes from their workgroup and today's discussion would be incorporated in
the next version. The revised version would be electronically circulated to the Board, ask for last
comments, incorporate them as necessary, and complete the final report by the end of the month.
DOFMeiburg added that if the electronic process was not workable, they would try another
mechanism,  such as a conference call.

Several members suggested that the cover letter could deal with some of the differences and discuss
the policy items. The cover letter could suggest to the Administrator that the insights from the Board
could be of use to him in explaining to various audiences how to use leveraging to obtain more funds
for infrastructure financing.

BillJarocki commented he would like to take  the report straight to the state administrators for the
EFC.  Boise State University  has some credibility and has been teaching communities that the SRF
is the  first place to look before trying to get earmarked funds or grant funds which are diminishing.
He has four states in his region that do not leverage, and their expectations of getting grants need to
be lowered.

DFO Meiburg asked for other comments.  He  commended the workgroup for the hours they spent
and making the report more understandable. He commended John Wise for suggesting how the
Board could work with other  federal advisory  committees. After hearing from Granta Nakayama,
Assistant Administrator,  about enforcement and from Administrator Johnson, it should be  obvious
that the financial aspects of infrastructure have been receiving a lot of attention at EPA.

Session ended at about 4:00 p.m.

              Environmental Financial Advisory Board Open Meeting
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March 10-11, 2008
Day 2 - Tuesday, March 11, 2008                                         (9:15 a.m.)
EFAB /EFC Members Present: The same Board members were in attendance as on Day 1.

EPA: Robert Hall, Chuck Kent, Bill Hanson, Greg Madden, Marcia Mulkey, Dale Ruhter, Bob
Maxey, Mike Galbrith

Other Attendees: Sue Briggum, Waste Management; Brenda Groskinsky, EPA Region VII; Jack
Kartez, EFC-University of Southern Maine; Jeff Kinney, BNA; Casey Massino, ASRCMS; Peter
Meyer, EFAB Expert Witness; David Miller, EFAB, Expert Witness; Robert Montgomery,
Exponent; Nicollete Mueller, EFC- Syracuse University; Shellie McClary, Oklahoma Dept. of
Environmental Quality; Sara Pesek, EFC- Syracuse University; Tom Purcell, PI; Joanne Throwe,
EFC- University of Maryland
Opening Remarks

DFO Stan Meiburg opened the meeting and reviewed the day's agenda including, an EFC Network
Update, Region VIFs Satellite EFC, Climate Change, and EFAB report outs.  The microphone
problem of the previous session was noted.
Environmental Water Infrastructure (EFC) Network Update

Jeff Hughes, President, EFC Network and Director, EFC University of North Carolina, provided
an update on the EFC Network including activities, methods of operation, and the relationship to
Universities. The Network budget varies from $4 to $5 million dollars a year, depending on external
projects.  EPA's core grants have not increased over the last few years, so these funds have to be
supplemented from outside sources.  The Network competes for grants with other national
associations. Many EFCs have contracts with state and local governments.

Staffing includes engineers, a geographer, a sociologist, an ecologist, an economist, and several
public administration officials. There are 45-50 full-time employees across the Network. The way
university students and EFC staff are integrated varies from Center to Center, but includes project
staffing, teaching academic programs, and providing experience for future employment in
environmental finance. Affiliations can include inclusion in large national programs, such as the
Centers of Excellence and the National Center for Smart Growth. Mr. Hughes then asked EFC
Directors to report on some EFC projects.

Sarah Diefendorf, Director, EFC, Dominican University of California, reported that the San
Francisco bio-diesel or bio-fuels program was initiated without having to deal with sustainability
issues, such as virgin feed stock and agricultural land use, because they were looking at how to take

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waste oils from restaurants and convert them to fuels for use in city automobiles. However, San
Francisco was not able to overcome the barrier of bio-diesel being categorized as "diesel."  This is a
problem because of the multiple agencies involved in regulating storage, flammability, hazardness,
waste water issues, and transportation and collection of diesel fuels. EPA asked EFC-SF to hold a
roundtable of all the interested parties to discuss the problems. The issues included the development
of bio-diesel standards, a non-partisan information clearing house, a cost effective business model,
and how to increase financial resources.

William Jarocki, Director EFC, Boise State University, discussed a new tool described in: A
Direct Response to Demand for Training.  The tool was developed in response to demand from very
small communities. Over the years, training on the same subject was requested repeatedly, so the
EFC decided to use the Internet where people could get training-on-demand by appointment. There
is little expense to the EFC, because there are no travel costs. The web site has registered users, so
they can broadcast the training to people all over the U.S,  and the training can be recorded and
replayed.  Other trainers can use the mechanism as well, and EFAB members can make

Mark Lichtenstein, Director of EFC, Syracuse Center of Excellence in Environmental and
Energy Systems, said student activity is essential at the Centers.  Students brought together the
business, public administration, and environmental schools to discuss sustainability. In the Lake
Ontario coastal zone, the Center is working with the USDA on the Four Pillars of Sustainable
Infrastructure for water and wastewater. A new concern is about the pharmaceuticals in the drinking

In his dual role as the Chief Operating Office for the Syracuse Center of Excellence, he reported that
the CE leverages resources for building a program of sustainable development in communities.  The
Center helped to write the $5000 grant for a program with the American Institute of Architects: A
Sustainable Design Assessment Team Program. A national team goes to the community and
evaluates the situation based on sustainability issues. The Center facilitates the Steering Committee
and other meetings for the program.

One outcome is a $100 million-dollar schools project that transforms each building  into green
buildings and involves the public in decision-making.  The U.S. Green Building Council was
involved in the process and applied for grants for Leadership on Energy and Environmental Design
(LEAD), which involves rating an entire community as a green community.  Another program is a
Low-Income, Green, Affordable Housing  Summit, which  brings in code enforcement officers and
builders to learn how to build this type of housing.  Syracuse has a serious problem  with storm water
and the city is looking at green infrastructure solutions rather than facilities.  The Mayor of Syracuse
has said he would offer a property  tax amnesty program, so if people re-model or build a house using
LEAD standards, depending on the rating, then could receive several years of tax amnesty.

Questions and Comments
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Jim Barnes, Chair, noted that each EFC was pioneering a whole new portfolio of EFC activities.
He asked: What are the EFCs relationships to the EPA regional offices?
The responses from the Network Director and EFCs varied by Center:

    •   Overall EPA's core grant goes to regions and then to the Centers.
    •   The Region 9 EFC Center in California is located in the Waste Division.  They work closely
       with the Region in terms of the projects funded by grant money.
    •   In Region 10, the project officer is an advocate for the EFCs and explains EFCs activities to
       the agency staff.  The EFC is geographically far from the headquarters.
    •   For Region 7's satellite office, discussions involve activities in the region, and the project
       manager is invited to all of their events.

DFOMeiburg thought that some missionary work still needs be done in some Regional Offices,
even though the awareness of the EFCs and the power of the Network have increased over time. Jeff
Hughes described tomorrow's workshop as a dialogue with EPA. Requests have come from various
EPA divisions and headquarters that have an environmental finance challenge and they want to learn
more about the EFC Network.

Lindene Patton  thought that all of the EFCs should be encouraged to leverage the resources by using
Internet training-on-demand. From her industry's perspective,  a LEAD-certified building is not
necessarily sustainable, even though it may be green.  From a climate perspective, there is a missing
link in the dialogue in terms of the economic and financial analysis. The questions are: How do you
make buildings  disaster-resilient? And how can we get LEAD to agree that points should be given
for disaster-resilience? Short-term expenses are very high, and a sustainable community that
survives extreme weather events needs to be evaluated on a long-term basis. She asked if the EFCs
could participate in that dialogue in a different way  from private insurers.

Mark Lichtenstein said he was going to meet this afternoon with the President of the U.S.  Green
Building Council and he would bring up this issue.  In New Orleans, we will evaluate the  building of
the lower 9th ward in terms of LEAD. Ms. Patton suggested a dialogue  with Mr. Lichtenstein,
because there are many possibilities, such as roof attachments and restructuring, that improve both
energy efficiency and the structure. Zurich North America has data on the building in that region
that could be shared.
Sustainable Water Infrastructure

DFO Meiburg introduced Ben Grumbles, Assistant Administrator, Office of Water, EPA, who had
asked for the Board's recommendations in the area of SRFs, water use, sustainable infrastructure and
watershed management and finance. Mr. Grumbles has worked with congressional and
intergovernmental relations on water resources, clean water, and other environmental issues.

Mr. Grumbles underscored the Administrator's priority for sustainable water infrastructure, financial
management, and security. The Administrator wants to change the way Americans view and

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manage their water infrastructure.  In EFAB's report on Leveraging, he is looking for aggressive
recommendations about advancing leveraging. Michael Deane is working on state-matched bonds
with the Office of Budget and Management and the Office of the Inspector General.

EFAB's engagement with private-public partnerships is important. His office has worked with
Congress and the public to remove obstacles to private water enterprise bonds.  It is time to review
the 1992 executive order to see how EPA could remove potential barriers for communities that want
to promote private grants or public-private partnerships. Jim Hanlon 's office has developed options
for the Administrator about innovative financing.  Discussions have been held with the Treasury
Department on private activity bonds. The Treasury is supporting revisions to the tax code and will
work with Congress to remove the state volume cap on private activity bonds.

Questions  and Comments

In response to a question about green initiatives, Mr. Grumblse noted that in mid January EPA held a
national forum on green infrastructure research as a component of the green movement, because this
is a priority area related to climate change. A broad partnership was initiated by the Administrator
with a MOU last year with state and local water agencies, low-impact development centers, and the
National Resources Defense Council (NRDC).  Ideas included mimicking natural processes through
vegetation, rain gardens, and rooftop gardens to reduce sewer overflows to better manage  storm
water.  A strategy on building partnerships for green infrastructure financing was a key element. Mr.
Grumblse also was interested in EFAB's position on watershed financing.

Sustainable water infrastructure actions  require the enactment by Congress of the water enterprise
bonds and the continuance of the green infrastructure movement. The EPA Wastewater
management office is broadening its purview beyond storm water permitting and sewer overflow
control. The concept is unifying, but it needs better definition and specificity. Everyone sees the
value of green infrastructures in protecting the wetlands and watersheds by using alternative or softer
path approaches. The government is interested in removing barriers to green infrastructure, whether
they are national or local.

Comments from Board members included the following:

    •  In the Southwest, the topic of climate change and water includes water reclamation and re-
       use, surface water and ground water conjunctive use, storm water as a resource, water-
       trading, water-banking, water transfers, etc. which are not a part of EPA's mainline agenda of
       pollution control.  The EPA Office of Water should assume a leadership role around
       sustainable water infrastructure future that can accommodate water resources.
    •  Private company products need to be developed to improve resiliency relative to power and
       independence in support of off-road structures. Off-road mechanisms are needed to create a
       level of resiliency to minimize business interruption in the event of severe weather. Water is
       different because there are unmanageable derailments and demand surges from severe
       weather events. Also, there may be a potential redistribution challenge. Financing is needed
       to encourage people to design new approaches related to  distribution challenges.

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    •   In the past, EFAB reviewed the use of tax credit bonds for water infrastructure financing, but
       did not favor this idea.
    •   Regulations on green infrastructure alternatives need to go beyond permits and consent
       degrees that focus on short-term outcomes and look at long term solutions.
    •   One aspect of being able to restore watersheds and provide coastal resilience is being able to
       pay for the ecosystems services that the natural systems provide. There may be a need for
       utilities and others to pay for land owners to provide ecosystem services as the farm
       programs do on conservation lands.

Mr. Grumbles responded to the various suggestions as follows:

•   The National Water program at EPA is very much a part of the climate change discussion. One
    year ago, we set up a Task Force within headquarters and regions to develop a strategy for the
    national water program in response to climate change as related to other actions in the area of
    climate by the Office of Air Pollution, the Research Office and the Administrator's office.
•   At a meeting with the directors of USD A, Interior, Army Corps of Engineers, and NOAA the
    role of water in climate change was about how we could change programs to mitigate
    greenhouse gases, adjust infrastructure sustainability and resiliency in coastal areas, and change
    water quality standards and wetlands permitting.
•   In the Task Force  Strategy, the key components are infrastructure, water efficiency, and
    advancing EPA's water-sense program, modeled on Energy Star, which focuses on the
    connection between water availability and water quality.
•   The main idea is to take reasonable, scientific, and proactive steps regarding climate change,
    which won't require dramatic changes in the national water program, by working with water
    utilities on how they should be adjusting their programs related to climate change.
•   When it comes to water quantity, availability and use, EPA is not a major player, but should be
    part of the discussion.  In this era of increasing pressures on water supplies, we need a three-
    pronged approach to water such as the 3 Rs: reduce, reuse, and restore: Reduce through
    efficiency; reclaim and reuse water, such as re-charging aquifers and reclaiming grey waters, and
    indirect potable reuse; and the restore watersheds.
•   Because of technical, management, and financial sustainability, states need work with their
    utilities to ensure that smaller rural ones that aren't sustainable on their own begin to  consolidate.
    The agency just released a strategy on capacity development: Providing Tools to Drinking Water
    Utilities on the technical, managerial, and financial capacity development analysis that may lead
    them to consolidate with other utilities in the state.
•   Under the Clean Water Act, the agency embraced the concept of centralization for secondary and
    advanced treatment, but in terms of wastewater, decentralization might work better.
•   The Administrator's other priority  in the water infrastructure arena over this year is to make the
    connection between water and energy efficiency to help utility managers by providing tools so
    they can do energy audits at the utilities to see how they can reduce energy consumption while
    still meeting the requirements of the Drinking Water Act.
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In reference to tax credit bond, long-term solutions, and payments for green infrastructure, Mr.
Grumbles responded that:

    •   The Senate Banking Committee is having a hearing on a proposal of Senators Dodd and
       Hegel on a national infrastructure bank which has a tax credit financing for projects of
       national import over $75 million dollars. There is a tax credit bond proposal for municipal
       utilities interested in desalinization, but private activity bonds are less expensive than tax
       credit bonds.
    •   On long-term solutions, the storm water permit writers on MS-4, Municipal Separate Storm
       Sewer Systems, are reaching out to work with states on developing MS-4 permit programs
       that accommodate green infrastructure approaches.
    •   EPA's Enforcement Office and the Office of Water collaborated on a memo to Regional
       Offices that the use of green infrastructure approaches could be a part of long-term
       compliance control plans and enforcement settlement agreements. For example, flexibility is
       needed in the schedules to implement green infrastructure. More time is needed for some
       communities to meet the Clean Water standards related to green infrastructure.  The long-
       term strategies for sustainability for sewer overflows or storm water infrastructure are often
       the most expensive ones for communities.
    •   A new final rule is being issued with the Army Corps of Engineers on Wetlands Mitigation
       Banking that uses a market-based approach to help ensure ecologically successful
       compensatory mitigation for unavoidable adverse impact to wetlands. The concept of
       mitigation banks would allow credits and debits, in advance of the project, that will ensure
       ecologically sound wetlands restoration and protection.
    •   Market-based conservation is the concept at USDA.  EPA supports the need for ecosystem
       services and the need to facilitate a market for them. Full-cost pricing is part of the pillar of
       sustainability.  Ecological protection and restoration could have some system that embraces
       ecosystem services.

DOFMeiburg added that specific recommendations on some of EFAB's reports would include
administratively allowing early withdrawals  of capitalization grants to modify the federal interest in
some clean water facilities.  The Board is available to discuss their recommendations with Mr.
Grumbles at any time.

EFAB Workgroups Report Outs

Sustainable Watershed Financing

Langdon Marsh, Chair, said they do not have an agreed upon charge from the  Office of Water.
Discussions have been held with EPA staff on  specifying EPA involvement. Both Ben Grumbles
and the Administrator made good cases on why we need to think more about ecosystems and  how to
finance them.  Some of the $400-600 billion dollar gap could be reduced by green infrastructure and
activities, such as payment for ecosystem services that are not connected with green infrastructure.
An example is a swale or a wetland that provides services like flood control or water purification and
retention. Other ecosystems services are performed by plots of land that are not infrastructure, such

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as riparian buffer strips for planting certain crops and forests that absorb water that flows into urban
areas and prevent floods.  Retaining and restoring ecosystems services is an economic good in itself.

In the last few years, discussion by the Forest Service and climate control advocates about measuring
and marketing ecosystem services have not involved EPA, even though they involve replacing
infrastructure investments. New York City is an example of reducing the gap by $6 million dollars
by not having to build a big drinking water treatment plant. The country is going to have to figure
our how to implement the TMDLs that have been established by court action or permitting over the
last 10-15 years. Infrastructure by itself will not do it.

Some of the items discussed in the workgroup yesterday included:

    •   A way to structure permitting and enforcement actions to make long-term investments. For
        example, a Seattle guidebook puts all large investments to the test of triple-bottom line life
        cycle assessments to see if the best way is through infrastructure.
    •   Smart Growth decisions could include ecosystem services.
    •   There is no good  way of measuring or valuing ecosystem services.
    •   Three possible issues for the Workgroup were listed in a handout.

Questions and Comments

Lindene Patton said she does not necessarily value a resource for upfront allocation, but rather
comes up with natural resource damages on the inverse side to value the restoration. She observed
that EPA has in their contract a highly qualified group, the Industrial Economics Group that has
done an extensive amount of study on natural resource damage valuation that might be applied to
these problems.  She has a copy of their latest review of these types of valuations, and the
Workgroup could incorporate that data.

DFO Meiburg said an organizing principle for the charge would be to look at what are the financial
aspects  to green infrastructure that may or may not be being captured by existing financial programs.
Mr. Marsh agreed and said that wetlands litigation might be one method for paying for ecosystems
services, and green infrastructure is another way, both of which could be financed by traditional
means.  DFO Meiburg added that every building ought to be treating its own water and waste water.

John Wise made a suggestion on item # 3 about the establishment of an Ecosystem Marketplace for
the creation and exchange of credits in Federal and State programs.  He suggested looking at the
Chicago Climate Exchange and the protocols they have developed for measuring and determining
available credits that could be traded and how this market itself sets a price for carbon credits.  Mr.
Marsh added that the Willamette River Partnership is trying to bring markets together and develop a
unitary  or a common unit of measurement that could be traded across programs.

Michael Curley said that the State of Pennsylvania is working on the trading of effluent credits. The
use of SRF funds or guarantees with respect to effluent credits is not yet completed, but there is un-
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invested cash available that could be invested in credits, so the State Treasurer would be buying
effluent credits.

Scott Raskins asked if there were gaps and barriers relative to financial management practices or
valuation and allocation of costs and benefits to different parties.  EPA's policies, metrics and
methodologies, enforcement and regulation, and environmental reporting could be reviewed to see if
there are financial incentives that could be used to generate better behavior.

DFO Meiburg added that a solid proposal could be discussed at EFAB's August meeting.

Public-Private Partnerships

John Boland,  Chair, said the workgroup has reached unanimity on the conclusions of the report.
There are situations in which public-private partnerships are beneficial and some in which they are
not.  Private sector participation in the clean water sector has worked for over 200 years.  The
problem is the barriers in laws, regulations, policies, and perceptions.  There are model applications
and many successes.

The report entitled Public-Private Partnerships in the Provision of Water and Wastewater Services:
Barriers and Incentives, March 10-11, 2008, has recommendations that state: "Congress should"
take certain actions and others are for implementation by EPA.  The problem is that EPA acting
alone cannot fix this problem.  EPA has to work through the states, with Congress, using
commitment and sustained leadership. The Executive Summary is the first draft and may need some
editing. Mr. Boland asked the Board first to approve of the report as written.  The second action
would be to  decide whether the workgroup should continue on to  review the Canadian framework
for considering public-private partnerships in a mandatory way. After the review, a letter report
could be issued to EPA by next summer.

Questions and Comments

Jim Tozzi thought the report was very understandable, but was concerned about the degree of
transparency, whether privately-owned entities should receive SRF loans or grants, and whether that
recommendation would close the gap.

Mr. Boland responded that whereas drinking water facilities are eligible for SRF loans and grants,
wastewater treatment plants are not eligible, which precludes private ownership of wastewater
treatment plants. There may be situations where a design/build/finance alternative would be
beneficial, but is ruled out. When the Clean Water Drinking Act was passed, the drinking water
industry pressured  Congress to allow private entities to receive federal funds. The Workgroup
thought the best solution was to remove the prohibition on the wastewater side.  This proposal is
probably a minor one in terms of closing the gap.

An extensive discussion on the content and strength of the recommendations included the following

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       The recommendation on state and federal subsidies might be inconsistent with full-cost
       pricing and the EFAB Leveraging Report. In one report, EFAB is asking that the state
       finance people change leveraging from an elective course to a required one. (Dr. Tozzi)
       SRF loans to private entities, if allowed, need to include a statement that the private
       companies are regulated and that the money would be used for infrastructure and not taken as
       profit.  Some states prohibit grants to private entities. (Ms. Agriss)
       If the grant is given as a tax-exempt bond, then it is difficult to provide this to a private
       entity.  There is some ability to finance private activity under the Clean Water Act, but there
       are limitations. Making the Clean Water Act consistent with the Drinking Water Act would
       not necessarily resolve the issue of funding private activity. (Dr. Sawyers)
       There are two ways to make a level playing field between drinking water and wastewater in
       terms of providing loans or grants to private entities. You can make the subsidies available
       to the private sector or you can abolish them in the public sector.  Some prohibitions in state
       constitutions are outdated and were never designed to prohibit funds going to private entities
       delivering a public service. As long as the subsidies exist, there should be a level playing
       field, because in terms of service there is no difference. (Mr. Curley)
       Although there are many restrictions in federal and state regulations that prohibit this, there
       are some opportunities that are currently available on the Clean Water side to  fund private
       activities. Even thought the State of Maryland has not funded any private projects within the
       state, they have funded some community systems and would probably finance private
       projects for wastewater facilities. (Dr. Sawyers)
       Leveling the playing field was an argument that the trade association for the private drinking
       water associations made when the drinking water SRF went into effect. (Mr. Mafood)
       There is a long history of providing government subsidies to private organizations.  If the
       private company is the only potential provider, then this is the best way. If you compare
       private funded to affordable housing, then the people who are against the use of public funds
       for private companies are on the other side. (Mr. Downard)
       Most subsidies are not sustainable and do not contribute to closing the gap. (Dr. Tozzi}
       In relation to private utilities, the concept is that these are public service corporations and the
       subsidy is to the  rate payers. (Mr. Swartz)
       If public water utilities convert to private water utilities through contracting, the process
       should avoid unacceptable impacts on customers, especially low-income households. A
       cross reference could be made to the language in the Affordability Report. (Mr. Wise}
       The inclusion of grants to private companies is an  appropriate tool. In the Clean Water Act
       and other grants, it is framed in a hardship context. In reference to the regulated private
       companies and rate setting by a public service commission, clearly the grant can pass through
       to the rate payer, because the PSC will set the rates and it won't set it rates to provide a profit
       for the private company. (Mr. Gebhardt)
       Offering grants is not inconsistent with full-cost pricing.  If you want full-cost pricing, it has
       to be modified by the question of affordability. The goal is to address the clean water and
       public health needs, so grants should be included within the hardship framework. (Mr.
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    •   Under the regulated utility model, the grant or subsidy is controlled by the rate-making
       process.  When American Water Association talks to municipalities where private companies
       are providing the drinking water service, the cities are wondering why they are still in the
       clean water business. There is no industry group representing the wastewater side.
       Regarding the 4 pillars, this issue could be dealt with by placing it in the reference of a tool
       box. (Mr. Correll)

Terry Agriss reiterated that it was not sound public policy to provide grants to private companies.  It
is really only hardship grants that are provided under the SRF  program.  From experience in New
York, the private companies did not actually have the capability of providing the service on a
sustainable basis. If the report leaves grants in, then the language needs to be strengthened based on
the fact that these are highly regulated utilities and that there is reasonable assurance that the funds
would go to rate payers rather than to increase profits of private companies.  Editorial points include
beefing up the introduction for the rationale for PPP and emphasizing the idea of sharing risk.

DFOMeiburg commented that this was the kind of debate on  a critical issue that should take place
on the Board where there is a variety of view points. To frame this, he said that there were three
choices:  1) Leave the recommendation as it is; 2); Delete the recommendation or 3) Modify it.
Because  EFAB operates by consensus, he asked John Boland to get a caucus group together to
discuss this further and to report out after lunch.

Further discussion included whether SRF loans were grants; the use of design/build/operate
contracts, which are a public-private partnership to reduce the gap; the elimination of all subsidies
including SRF funds to level the playing field; and forwarding this discussion to the Administrator.
DFOMeiburg asked for a showing of hands on the three choices and the preponderance of votes was
to leave the recommendation as written. Those who wished to modify the recommendation were
asked to  meet with Mr. Boland in the Wright Room.

Public-Private Partnerships Discussion {Note: This was reported on after Climate Change.}

John Boland reported that in the luncheon discussion, it was decided to leave the recommendation as
written:  To recommend that Congress remove the prohibition for the Clean Water SRF on loans or
grants to private entities. To accommodate members concerns, it was decided to insert words to the
effect that although  this removes the constraint at the federal level; states could continue to have
their own policies consistent with their own laws. The federal grants would be for hardship cases.
The other recommendation was that "affordability" be cross-referenced with EFAB's report on
Affordability and stated in a footnote. DFO Meiburg thought  the preponderance of opinion was to
approve the recommendations, so with these edits the report would be finished and could be reported
Region VII's Satellite Environmental Finance Center
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DFO Meiburg introduced John Askew, Regional Administrator, EPA Region VII, who has been a
champion for the EFCs and has pioneered innovative ways to deliver financial services. Mr. Askew
leads the oversight of federal environmental program throughout Iowa, Kansas, Missouri, Nebraska,
and nine tribal nations.  He has promoted collaborative partnerships in his region where farming is a
particular stakeholder.

John Askew said the Region VII area is the biomass producer of the country.  These products, such
as soybeans and switch grass, are grown in a sustainable manner—environmentally, ecologically,
and economically.  The EFC is helpful in providing ideas of how programs could be financed and
how to work with states and localities.  Because the wireless Internet provides farmers a way to gain
access to information, it was decided to use the Internet to reach farmers and Indian nations.

The program was started at an EPA satellite center and was tied into the Administrator's priorities of
water infrastructure. The large cities of St. Louis and Kansas City that have infrastructure problems
had asked the EPA Regional Office how they could finance programs that were mandated by the
States' Department of Natural Resources. He worked with Boise State University and used RGI
funds for climate change to start the program. The states' response for the BSU Model has been
phenomenal, especially in Kansas.  The program is web-based and requires training.

Each state used a different method  of initiating and funding the program. William Jarocki,  Regional
10 EFC Director at Boise State University used the Sustainable Infrastructure Forum to provide
information on the BSU model. In Kansas City, they worked with local utility boards. In Northwest
Missouri,  they met with water planning meeting members. In one state's rural areas, water structure
and fiber optic wires were put in the same trenches.

The On-Demand-Training was successful and even reached into Maine in Region I. The program is
being introduced to other Regions and to EPA Headquarters. The web-based tools can be used to
reach people. EFAB's work in the future could be well represented in the field. DFO  Meiburg
added that a forum would take place the next day, and 80 people had signed up with EPA.

Questions and  Comments

In response to questions and comments, Mr. Askew or Mr. Jarocki stated the following:

   •  EFCs  could be placed in land grant universities. The Region and the EFC works with
       collaborative partners in the universities.
   •  Funds have been expended  by the Region and some states to  input data.
   •  Funding is needed for the EFCs to enable access to expertise from the Internet at remote
   •  The best approach would be to integrate with state agencies'  activities into one cohesive
       program that could be used with local communities.
   •  The focus needs to be on how the EFC and the program add value to the states' work,
       without  reinventing the wheel.
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    •   Training-on-Demand has been done with state administrators, senior managers, and local
       community staff about how the technology and the asset management software work.
    •   The leveraging model would soon be added to the program.

Jeff Hughes commented on the evolution of the EFC model over the last few years from being seen
as part of a regional office to a national EFC Network. Each EFC staff does a lot of work outside the
region. Moving forward we could be called national EFCs rather than regional ones.  We have to
decide between EPA and the EFCs what the model would be in the future. There are advantages to a
state-by-state model.  Providing services to every state from a regional office is difficult due to
budgetary limitations.  We could collaborate with state agencies using the Boise State University
Climate Change

DFO Meiburg introduced Brian McLean, Director, Office of Atmospheric Programs, Office of Air
and Radiation, EPA, whose Office is the focal point for climate change;  designs and implements
the emissions "cap-and-trade" programs; runs EPA's voluntary climate protection programs, such as
Energy Star; and implements the stratospheric ozone protection plans. Mr. McLean led the EPA
efforts to develop the Clear Skies legislation to reduce power plan emissions of 862, NOx, and

Brian McLean said the climate issue has been evolving over the last several decades. Progress has
been slow, but the next few years EPA should develop a comprehensive response. Mr. McLean
would discuss some areas of mutual endeavors in the area of climate change and provide an
overview of climate change activities, which  are very broad and complex and address most segments
of our society.

The Climate Change issue emerged in the 1980s. In 1992, the United Nations framework
convention on climate change was signed and ratified by the U.S. Some later events were the 1995
Berlin Mandate and the 1997 Kyoto Protocol, which was signed but not ratified by the U.S.
Domestically, there has been no comprehensive climate change legislation, but there have been a lot
of actions taken at the federal, state, and local levels and in other countries.  The recent Energy
Legislation would provide some mandates and regulatory actions related to climate.

Up until a year ago, we  divided climate change activities into science, technology development,
voluntary programs, and international efforts, but in the last year since the Supreme Court Ruling,
the Energy bill and the EPA appropriations in December, several mandatory actions were approved.
Last year, the Intergovernmental Panel on Climate  Change (IPCC) came out with a series of reports
on the status of science, implementation, and costs  relative to climate change.  The science is global,
but the U.S. has been the single, largest contributor to scientific effort.  The IPCC scientific
documents laid the foundation for a scientific discussion of technology  development.
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One voluntary EPA voluntary program, Energy Star, has been done for years.  Two billion Energy
Star products have been sold to date. The EPA has reached out to Climate Leaders in 150
corporations who have set goals and targets.

There are some non CO2 programs, such as Methane from coal mines, landfills, agriculture, natural
gas pipelines leaks and other global warming gasses.  The captured methane, which is 23 times as
potent as CO2, can be used as a fuel. Methane emissions have been reduced by 11 percent since
1990. Now 23 countries are involved in similar programs, including China, which has the largest
coal-derived methane recovery program in the world.

In the past, on the international front, such programs as Methane-to-Markets and the Asia Pacific
Partnership were developed by EPA. In the last year, the U.S. is working through the G8 trying to
get the 15 or so largest economies in the world, which make of 70-80 percent of the carbon and non-
carbon emissions that affect climate, to set up framework that could be used in the other countries.

In the last year, after the Supreme Court decision in April, EPA began working on greenhouse-gas
rules and Congress passed an Energy bill, which included a 35 MPH standard for automobiles.  One
of the other features was low-carbon or renewable fuel standards, which EPA had been charged with
developing. The 2005 program was updated, so instead of 7 1A billion gallons, the U.S. now has to
generate 36 billion gallons in a strict time frame.  Another program in cooperation with the Office of
Water, was the underground injection program, which set a framework for people to be able to do
carbon capture and storage from power plants.  This would allow the U.S. to continue to use coal,
but to reduce the CO2 emissions.

A third area is to develop a common set of data across the economy with mandatory reporting of
greenhouse gases emitted by all major sectors of the U.S. economy. By working with the Office of
Air and Radiation, a proposed rule could be completed by September.  This information would  be in
support of legislation to enforce measurement of emissions from facilities and upstream emissions,
such as estimating the carbon content of refined gasoline.

Mr. Mclean reported  in several other EPA efforts in the area of climate change including:

    •   Tracking state and local activities in data collection, action plans, legislation and rules to
       reduce emissions through energy efficiency and other actions. For example, the regional
       greenhouse gas initiative in the Northeast involves a mandatory cap and trade program for
       the power sector, and the Western states created the Western Climate Initiative.
    •   In California,  Mr. McLean was invited to be on the Market Advisory Committee to help CA
       develop initiatives on market-based mechanisms to deal with climate.
    •   In the area of legislative activity, EPA is doing the economic analyses of the legislation, such
       as the costs to the economy. The modeling is very complex, global in nature, and beyond
       anything EPA has done in the past. On the House side, Congressman Dingell's  committee
       has written a series of White Papers on climate change. EPA has talked to Congressional
       staff about various aspects of bills on climate change including international aspects and
       market oversight.

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    •   In preparation for the new administration, EPA is working on Cap-and-Trade, market
       mechanisms, a National Plan for Energy Efficiency, adaptation to climate change in the area
       of building codes, water supply, financing, and auctioning of allowances.

DFOMeiburg described EFAB's role in paying for activities especially in the area of SRFs for water
programs. EFAB has expended in the last few years into the transportation sector which is related to
climate change. For example, the CC>2 injection program would require financial assurance, if
something goes wrong in the clean up.  EFAB has been working with the Office of Solid Waste and
the Office of Enforcement over financial assurance related to Resource Conservation and Recovery
Act (RCRA).

Questions and Comments

Dr. Tozzi asked if EPA has taken a position on the tax credits and subsidies on ethanol and the effect
on farmland and citizens of the increase in the production of corn to produce ethanol? Mr. McLean
said EPA's position would be that of the administration.  The hope is to move into cellulostics to
reduce environmental and food consequences.

Mr. Wise asked if the states' initiatives would conform to the national program.

Mr. McLean said the states' rain laws were subsumed under the federal law when it was passed,
because the federal law was as strong as the state laws. If the federal law is weaker, than the state
law would be a problem. Some actions, such as building codes, are appropriate for localities.
Individual state and local actions that are appropriate action would remain. In a national cap
program, which would interact with other nations, it would be hard to have many different caps.

Mr. Curley said that they had difficulty with the small diesel program because they didn't understand
the marketing of emissions.  Do you have staff in your office that could help them with how the
markets work and how pricing is done?

Mr. McLean responded that EPA has been looking at feasible alternatives to marketing.  It is
necessary to analyze the  costs until the market takes over and gives you the real price, which is
usually lower.  Technology tends to lower the price over time. In the Knox programs, some states
did not get their legislation passed in time for the program to start,  so the demand caused the market
price to rise dramatically, because the supply for the emission reduction was not available.  The
pieces of the program have to be put in place by the federal and state governments to avoid

Mr. Curley said they were looking at Special Assessment Districts to help with emissions.  Whether
this is reducing emissions from lawn mowers or power plants, the overall costs need to be related to
the amount of emissions. Where can we get data like that?

Mr. McLean said that there were cost curves or prices for the first ton for each sector.  The models
are based on a compilation of all of the curves and would allocate the reductions to where the costs

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are cheapest based on the number of tons.  On Friday, 200 pages of data would be available.  In
some areas, we do not have the data. We have data in the utility and transportation sector, but not
lawn mower data. In the future, local air quality source categories that are very specific could
include lawn mower emissions.

Other issues brought forward by EFAB members included the following:

    •  The framework has to be flexible in assuming state activities, because managing and working
       in a patchwork of regulations is relatively inefficient. (Pattori)
    •  A project at Syracuse University, Cornell University, and Hubbard Brook is developing a
       tool for local governments to facilitate calculations of local scale carbon budgets and the
       costs for various carbon mitigation options.  The tool could serve as the basis for local
       decision-making and strategies for reducing greenhouse gas emissions and could be of use in
       future carbon  trading and offset programs. (Lichtenstein)
    •  The purchase  of goods from other countries without looking at the carbon price would
       undermine our national efforts.  Some kind of offset is needed. (Gebhardt)
    •  To what extent are the federal government, states or European governments doing thorough
       life cycle of assessment of the various solutions, programs, and systems being proposed for
       addressing the problem? (Marsh)
    •  In Australia and New Mexico, they are discussing adaptation of infrastructure for water and
       wastewater facilities due to climate change.  Is EPA working on adaptation?  (Himmelberger)
    •  The European Economic Union (EEU) trading program has a provision about carbon
       emissions and trade, which if implemented it would require the EEU to ban imports from the

In response to these concerns and questions, Mr. McLean responded as follows:

    •  EPA has developed global models, such as the Global Cost of Carbon, in trying to put a price
       on the benefits or reducing a ton of carbon.  Last year, the DOT vehicle bill was struck by the
       9th Circuit Court because they had no benefit to the carbon emission reduction from vehicles.
       EPA is providing DOT with information.
    •  Trade practices are being discussed, which might require a tariff if the exporting company
       does not reduce emissions for the same products.  It is a very contentious issue with
       companies and unions to prevent shifts in manufacturing to other countries. Legislation is
       more responsive to generous financing for companies that are more likely to  move than those
       that are not.
    •  There is a requirement in the legislation that was passed that EPA do an analysis of the life
       cycle of the renewable fuels, because depending on the type of fuel, there may be more
       emissions from the creation of the fuel than the fuel itself.  For example, Canada's use of oil
       sands may emit more carbon than crude oil because of the processing. We do not want to
       invest in products that will cause more problems.
    •  Two years ago EPA worked on the underground injection issue and last year the Office of
       Water was discussing the climate change impact on water supply. Overseas, the Himalayan
       mountains supplies over 40 percent of the water to the world and much of this will be lost.

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       The Office of Atmospheric Programs and the Office of Water have given international issues
       some attention.
    •   The U.S. is opposed to the EEU provision. {Note: This needs clarification}

At this point, DFO Meiburg offered the expertise of the EFAB members to help his office regarding
these issues.
EFAB Workgroup Report Outs

Financial Assurance - Cost Estimation

Kelly Downard, Co-Chair began actively serving as project chair as of the January 23, 2008
meeting. At this time, members did not have a lot of trust in the costs estimates and feared that costs
would be greatly underestimated.  The focus was on how to protect against underestimated or
overestimated cost estimates.  A level of trust is needed before you can go the assurance level.

On February 22, 2008, a conference call was  held to discuss several items after which the summary
was sent and was corrected by the group. In the past, the Financial Assurance Workgroup had
discussed the positive and negative aspects of various instruments.  The success or failure of
instruments depended on the situation and the attributes of the instruments themselves.  The
instruments were bonds, letters of credit, insurance and trusts. If the cost estimate is correct then
those items will fail or succeed on their own merits, based on their ability to handle a particular type
of assurance.  If the cost estimate is wrong then all the items will fail.

The focus was on an analysis of why the product was used and would it be able to accomplish an
accurate cost estimate.  The critical issue was to recommend a methodology so that people can place
trust and confidence in the cost estimate, because everything else depends on a reliable cost estimate.

At the Workgroup discussion yesterday, it was thought that the estimates for closure, post-closure,
and the Superfund had more confidence, because the regulations are detailed and there is historical
context for most of the situations.  The negotiating process helps to keep these estimates more
accurate. The most reliability problems were with corrective action, because the written regulations
are more limited to accommodate brand new  situations where flexibility is needed. Flexibility
means there is no framework. Prices may change over time so the cost estimates would be wrong.
Continuity and the ability to adjust on a five-year basis are necessary.

There are tools, such as CostPro, a program that allows cost estimators to update the evaluations for
closure and post-closure, such as construction costs. Another program, Remediation Action
Selection Reports (RASR), is used to deal with uncertainties in corrective action situations.
Problems noted were the inconsistent utilization of the tools by different parties which led to less
than optimum results.  There are legal issues, such as, bankruptcy and fraud, and how they would
affect assurance and the number of assurors wanting to provide assurance. For example, in one case
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when someone defrauded a person providing assurance, the assuror was responsible for the fraud.
The goal is to avoid these situations to encourage more assurors.

When you are dealing with post-closure, the price of many items could change due to inflation.  The
question is how to change the cost estimate to accommodate the price changes over time. Since
about 40 states regulate these activities, the Workgroup would be reviewing their regulations. The
assurance estimate tools have to be trustworthy and then make it more attractive to the states. The
question is: If the corrective method doesn't work, then who is responsible?

The main issue may be a structural change to move the body of knowledge to the people and not
people to the knowledge.  Experienced and knowledgeable teams regarding the tools could train
others.  Consistency in the cost estimate process needs to be strong so everyone would end up with
the same kinds of numbers. The states need to participate and adopt the tools as their own idea.

Mr. Downard closed by saying that ideas from the meeting would be distributed for comments and
re-comments, which would then be followed by a phone conference. The Workgroup is close to
their goal, and three or four critical issues need to be solved.

Ms. Deming commented that bankruptcy  should not be placed in the category of arbitrary events or
legal impediments.  If the company has the resources then the cost-estimating is not an issue,
because the company is paying for the clean up. It is an issue when the company does not have the
resources or there is a bankruptcy, then the cost estimates are examined more closely.

Mr. Downard agreed that if the cost estimate is valid then the next step is to determine whether the
operator needs assurance, which relates to credit and financial risk. If they do not need financial
assurance and the company defaults, then this is the difficulty. In the banking industry, his bank puts
in a clause that says if the borrower's equity goes below a certain level then renegotiation is
necessary.  If the cost estimates are reviewed more often, then rising prices and bankruptcy might be
forewarned. Financial assurance should be requested before it is needed.  Mr.  Downard reiterated
that their Workgroup's focus is on cost estimation, not the financial risk, which is related to the

DFO Meiburg summarized the Workgroup session by saying that there was general agreement that
cost estimates are critical  regardless of the financial instrument involved.  With any of the
instruments, the first question is: How do you deal with uncertainty? The second question is how to
deal with fraud with all of the instruments.  The third question is: What should be done with
secondary assurance? An issue for EPA is whether there needs  to be a more formal process
especially where there a lack of guidance existing on corrective action cost estimation.  The fourth
question is whether there  are structural issues for EPA and the states. A more  centralized set of foci
could be developed rather than a decentralized system, which would require some type of structural
recommendation to promote consistency.

DFO Meiburg pointed out the differences between the RCRA and the Super Fund, because
historically when EPA derived the cost estimate, then that became the number, whereas in RICRA,

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which is a state-delegated program, it is more difficult for states to maintain the expertise for
corrective action estimates. In terms of next steps, another workgroup session is needed in the fall to
continue to frame the questions in this very complex issue. Active participation in the Workgroup is
needed to determine what can be done about uncertainty, fraud, secondary assurance, and structural

Financial Assurance — Commercial Insurance

Justin Wilson reported that the Workgroup is working on financial assurance for closure, post-
closure and corrective actions situations. At the June 17, 2008 workshop in New York, the
workgroup wants to address three aspects:
    1.  What is insurance? What can it do? What can be expected?
    2.  When is insurance the applicable tool for financial assurance and when is it not?
    3.  To address the advantages and disadvantages of standardized policies or terms needed
       without making insurance commercially unavailable.

The New York workshop will include an overview and panel discussions with a wide variety of
viewpoints that would be directed towards the workgroups goal. Names for presenters were
requested from the Board.  An outline of the discussion issues has been circulated. The Workgroup
should have a first draft of their report by the August meeting.

DFO Meiburg said that the group has advanced and is  focused on insurance as an instrument. The
workshop will focus on an overview of insurance as a  financial assurance tool, and then have a
group that will discuss the  strengths and weaknesses of insurance. States have adopted different
policies with regard to insurance as a financial assurance tool. One of the purposes would be to get a
group to test specific proposals, one of which is standard policy language.

The challenge is to produce a directed conversation that allows/accommodates all points of views
leading to some production conclusions/determinations.

Innovative Financing Tools

Michael Curley, Chair, said the Workgroup is going to review some basic ideas in the Report on Air
Pollution in which a principle recommendation was a call for the EPA to encourage States to create
Air Quality Finance Authorities. The City of Berkeley is establishing a program to purchase solar
systems for electricity for individual houses to reduce greenhouse-gas emissions. They would
recover those costs in real estate assessments over 20 years. The Workgroup would like to know
how Berkeley is paying for this with tax-exempt bonds, since the  proceeds go to private individuals.

John Wise will contact the City of Berkeley and ask them to host  a delegate of EFAB members to
seek an answer to that question. The answer they come up with will be for the full Board's
discussion at the August meeting.  Special districts have been used in many states to provide
infrastructure development, usually for new developments such as roads, sidewalks,  sewers, water,
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etc., but these have not been used for air. The plan is to investigate the use of special assessments
and special tax districts for air pollution reduction.

The costs of gasoline can vary within a state depending on the requirement for additives. Also, the
frequency of vehicle emissions varies within a state. If you live in an attainment county, you are not
required to get a vehicle emission test every two years. Attainment districts could be co-terminus
with the EPA attainment districts.  The districts could also cross jurisdictional lines and the funds
could be used to pay for many things like truck stop electrifications as in the Port of Baltimore.

Lindene Patton added that her company is looking at issues related to aqua-powered generation.
Private companies are offering to install these types of facilities on people's rooftops on a limited
lease basis in exchange for the income that is generated off the power generation. Ms. Patton was
concerned about the use of solar panels, because the technology is likely to be surpassed in a two-
five years span. She suggest the use of a program similar to that used with computers to obtain
incremental technology improvements through leasing programs,  plus subsequent re-use and
recycling, when people could not afford the new technology.

Mr. Curley said that the goal is to have a good draft in the hands of Workgroup members and review
and revise it to have a draft report for the Board review at the August EFAB meeting.
Public Comments

Dave Miller, USDA Rural Development, reported that the USD A recently awarded a training and
technical assistance (TAT) grant for $124,000 to look at the near shore water quality of Lake
Ontario.  This grant allows Syracuse University and the Lake Ontario Coastal Initiative group review
water quality issues that affect their drinking water supply.  An application is pending for Phase II of
the project that will investigate personal care products and pharmaceuticals.

Mr. Miller reviewed the programs in which USDA-RD and the EFC worked together. For example,
EFC's Public Management and Finance Program (PMFP) bring together technical assistance staff
for peer networking, leadership capacity development, and asset management. They use BSU's rate
setting and management system software.  We bring in politicians to educate them on the water
problems in New York State.

Last year, Rural Development leveraged 50 percent of their allocations.  The USDA-RD has
leveraged heavily in making projects affordable including working with the SRF funds with the NY
State Environmental Facilities Corporation. If the Farm Bill passes, there is $136 million dollars to
address the backlog of water and waste water projects and for energy renewal projects. The bottom
line is about adding value, sustainability, and leveraging resources to address the needs in rural
America and finding ways to reduce the funding gap.

Robert Montgomery, Exponent, Inc. works at the Inter-American Development Bank (IDB) was
involved in financing environmental projects, such as water infrastructure in Latin America. His

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question was to what extent the Board is using all of this knowledge to work with EPA's
International Office. The IDB had discussions with EPA's International Office on promoting
technology transfer in the area of water financing. The primary problem is providing potable water
outside the United States, which requires subsidies.

Ideas about PPPs, ecosystem services, and adaptation are emerging in Latin America. Mr.
Montgomery's area was financing of large infrastructure projects and the whole issue of using EMS
in project financing. For companies who want to go beyond compliance, how can you give them a
financial incentive?  For financial assurance, if a problem occurs, we could use different types of
tools. This Board could propose to EPA that this information could be used by the International
Office of EPA. DFO Meiburg responded that in the last few years they have taken their issues from
EPA, but EFAB could be interested in international affairs and information transfer.
Meeting Summary, Wrap-Up and Next Steps

DFO Meiburg stated that two themes have emerged; 1) that there is continued EPA interest and
support for the Board and 2) support for positive collaboration with NACEPT. Three reports on the
verge of being approved: The Leveraging Report, the Public-Private Partnerships Report, and the
Environmental Management Systems Report. The robust debate over the Leveraging and the PPP
reports and the strong language in the recommendations will be of help to EPA.

This meeting focused on the EFCs because of Jeff Hughes and John Askew's reports. We will have
to work on National EFCs because the Network has become stronger.  We are seeing continual
progress on Financial Assurance in the two reports. Two themes emerged that would require more
work by EFAB: climate change and sustainable finance of green infrastructure.  On the Innovative
Finance side, the workgroup has given us ideas about using concepts developed elsewhere and
seeing how they could be used in other areas.

Chair Jim Barnes added that this was a very productive meeting in terms of the energetic exchanges
in the workgroups and Board sessions, and the ideas and challenges for the Board in the future.
DFO Meiburg said they would be receiving the final versions of the reports on Leveraging,
Environmental Management and Finance reports. In San Francisco, we will be laying down plans
for the next year.

The meeting was adjourned at 4:50 p.m.
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