United States Environmental Protection Agency

           Office of the Chief Financial Officer
             Meeting Summary of the

Environmental Financial Advisory Board (EFAB)

                 August 4-5, 2008
                     held at the

              Hyatt at Fisherman's Wharf
               San Francisco, California
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                   Environmental Financial Advisory Board Meeting

                                 Meeting Summary
                                  August 4-5, 2008
                                 Table of Contents
Monday, August 4, 2008
Opening Remarks/Meeting Overview 	1
Welcome to San Francisco	1
Environmental Protection in 2020	2
EFAB Workgroup Reports	6
   Environmental Management Systems	6
   Public Private Partnerships	7
   Leveraging the State Revolving Funds	8

Tuesday, August 5, 2008
Opening Remarks	11
Clean Water Trust Fund	11
EPA Office of Water Issues	14
Environmental Finance Center Network	16
Update/Next Steps of OECA's National Financial Assurance Policy	18
EFAB Workgroup Report Outs:	22
   Financial Assurance-Cost Estimation	22
   Financial Assurance Commercial Insurance	23
Development of the Strategic Action Plan	24
Public Comments	31
Summary, Wrap Up and Next Steps	32

Appendix

Meeting Participants	33
Agenda	36
Handouts	38
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                    Environmental Financial Advisory Board (EFAB)

                               EFAB OPEN MEETING
                                   August 4-5, 2008

                                  Meeting Summary

Monday, August 4, 2008                                               (1:00p.m.)


Opening Remarks and Meeting Overview

StanMeiburg, EFAB Designated Federal Official (DFO) welcomed members and guests to the
Environmental Financial Advisory Board (EFAB or the Board) open meeting in San Francisco,
CA. He acknowledged the members who were not able to be present for personal and business
reasons: Scott Haskins, Helen Sahi, and Sonia Toledo, and the Environmental Finance Center
Directors, Mark Lichtenstein, Gerritt Knaap, and Heather Himmelberger.

James Barnes, EFAB Chair welcomed the Board members, EFCN Directors, and guests and said
that he was impressed with the work and commitment of the Board.

DFO Meiburg reviewed the meeting agenda.  On Monday, Robert Kerr, Managing Director,
Pure Strategies, will discuss Environmental Protection in 2020.  This would be followed by
EFAB Workgroup Report Outs on Environmental Management Systems, Public-Private
Partnerships, and Leveraging the SRFs.  On Tuesday, Kevin Shafer, Executive Director,
Milwaukee Metropolitan Sewerage District will discuss the Clean Water Trust Fund, Michael
Dean, Associate Assistant Administrator, Office of Water, EPA will discuss Office of Water
Issues, Jeff Hughes, President of the Environmental Finance Center Network will provide an
update of the Network's activities, MarciaMulkey,  Acting Director, EPA, Office of Site
Remediation Enforcement, OECA will discuss the EPA's National Financial Assurance Priority,
and EFAB Workgroup Report Out for Financial Assurance.  Discussion of the Strategic Action
Agenda would include proposed new projects, followed by public comments.

Welcome to San Francisco

Laura Yoshii, Deputy Regional Administrator, EPA, Region 9, was introduced by DFO Meiburg
as a strategic thinker, who has supported the Board and has been with EPA for 30 years. Ms.
Yoshii thanked the Board for helping EPA on financial matters because one of the most pressing
challenges is financing environmental protection at all levels of government. In the future, the
focus needs to be on financing creative solutions which go beyond regulation. Two successful
examples include diesel emission reduction to improve air quality and working with the private
sector. Two opportunities for the Board's advice and recommendations are on energy financing,
including green buildings and the diesel campaign,  and on inventory work that will require
trading. The diesel reduction program has the co-benefits of pollution reduction and greenhouse
gas reduction.

Ms. Yoshii  acknowledged the Board's help with the border region regarding the creation of an
institution to deal with transporter issues.  Strides have been made on infrastructure
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improvements in water and wastewater in the border area. Other media priorities were air
monitoring and tire removal and management.  Creative ideas provided by the Board about
innovative systems used by other states are also helpful.

Region 9 has jurisdiction over the outer Pacific Islands.  EFAB Board member Michael Curley
assisted them with financial mechanisms to advance infrastructure. In Guam, Region 9 has a
partnership with the Department of Defense.  A buildup offerees in Guam that transferred from
Okinawa presented leveraging opportunities to improve unmet infrastructure needs.

DFOMeiburg pointed out that Michael Curley gave a report on transport-related emission
reductions to the Office of Air.

Next, the Board members introduced themselves. DFO Meiburg noted that this was a time for
reflection and thinking about the future, since the Board would not receive any new charges from
EPA until the change of administration in January 2009.  Chuck Kent, from EPA 's Office of
Policy, Economics and Innovations, has been working on future directions and was asked to
introduce the next speaker. The ideas being presented are not to come up with a conclusion, but
to provide the context for ways in which the Board could be helpful to the EPA.

Chuck Kent introduced Robert Kerr of Pure Strategies, Inc., who consults on sustainability,
environmental market initiatives, strategic planning and pollutions prevention with state
environmental agencies, EPA, environmental advocacy groups and businesses.  He worked on
environmental policy and energy policy with U. S. House and Senate staff and worked at EPA on
the development of pollutant trading programs.

Environmental Protection in 2020

Robert Kerr, Managing Director of Pure Strategies, Inc., said that the genesis of this project was
not to figure out what environmental protection would look like in 2020, but about building a
tool to stimulate discussion. Contractors were asked to survey the literature and to develop
scenarios that would stimulate innovative thinking.  Four scenarios were developed:  Market
World, Open World, Asian World, and Security World, which posed a range of plausible, but
different futures. Different groups were brought together, such as EPA staff in December 2007;
state environmental offices and EPA staff in January 2008;  and business groups, state and EPA
staff at an Environmental  Summit in May 2008. The simulations brought people out of their
usual view and focused them on the prospective challenges that might be faced in the year 2020.

Each group was presented with different scenarios, and pretended they were a 2020 Presidential
Advisory Committee.  Each group presented  recommendations based on the specific scenario
and then looked for common conclusions across scenarios.  The exercises were effective in
provoking people's thinking about environmental institutions both nationally and internationally.
The main idea was to think about what EPA needs to change to meet the new challenges. The
business group was asked to think beyond their own business point of view.
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The environmental scenarios could not be solved without including the economic and business
aspects. The U. S. has done well in the world marketing scenario. Under the Market World,
environmental problems related to international fisheries, water shortages, and severe
environmental and economic impacts. The markets are focused on where to get creative solutions
using technology. Internationally, there are a lot of agreements and successes in dealing with
poverty, but each success derives a new set of problems.  Generating more jobs and more
demands means water scarcity and other problems. In an ideal world,  collaboration is needed
between governments, non-governmental organizations, and businesses to identify solutions.

In the Asian World, the Chinese have been racing ahead technologically, but this has produced
more pollution; however, this has spurred major investments in new environmental protection
technologies. A global infrastructure is needed.  In the Security World, terrorism could cause a
slowdown in production, but water shortages would still remain. EPA and state agencies are
limited by traditional methods.

After all four group discussions, the creative ideas that came up within the different scenarios
included early warning problem identification, sustainable relocator planning, an Eco-Corps, a
comprehensive national environmental offset program, an environmental WTO, and use of
advanced technologies to engage citizens in decision-making.  Common themes were to break
away from traditional thinking, leveraging governmental funds, new environmental legislation to
deal with future problems, and compensation for environmental impacts.

The outcomes for EPA included:

    >  Focusing on an array of potential longer-term challenges;
    >  Engaging audiences from diverse backgrounds in identification of robust long-term
        strategies;
    >  Raising issues important to institutional development for coping with future challenges;
        and
    >  Developing tools for engaging a wider audience in strategic thinking.

Mr. Kerr concluded by stating that the workshops were well received and that participants
thought the workshops should last longer.

Questions and Comments:

Q.     Did you think about projected existing trends vs. discontinuities that might occur or
innovation breakthroughs that could not have been anticipated? Mr. Kerr responded that they did
talk about some of those issues, but the main idea was to get at a range of problems.  A list of
other alternatives that could be used was developed.

Jim Tozzi commented that deficits in trade and finance are very bad and the new President would
have to  deal with the  devaluation of the dollar. Are there areas that the agency should be looking
at if these conditions  continue and should we ask the agency about their priorities? DFO


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Meiburg asked the Board to think about what they should be asking the agency and giving advice
on.

Steve Thompson wondered if EPA and the states are doing what they do best and whether they
need to look for duplication of efforts in a time of limited resources. If you look at enforcement
and the science of environmental protection, could duplication be eliminated? A survey of
duplicated efforts could be done.

DFO Meiburg thought that EPA could do more analysis in financial assurance and see what is
working and what is not. This would get the government more into the collection and analysis of
information than it is presently.

Lindene Patton: The agency is structured in a manner that looks at media separately. The
scientific community has moved beyond the agency, which needs to be re-structured. The way
regulations create and enforce structure does not meet the current reality. Climate change
requires a multi-media approach and interactions between state and federal agencies. The system
was developed to make rational solutions about current conditions.

Jennifer Hernandez responded that increasing efficiency should be reviewed. One example is
the need for environmental advocacy groups at the state level as in the federal level. If you want
to be systematic you could strip state and federal  governments from the enforcement role and
have a back-up public enforcement mechanism. It has to be recognized that environmental
stakeholder groups will not give up on the issues.

Another issue is the debt buildup from lack of taxation. In California, the Governor recently
signed a regulation, #80-811, that any city or county can create a non-contiguous assessment
district for the purpose of retrofitting private homes with energy efficiency, climate-change
technology. Homes can enroll voluntarily and can finance through their property tax assessment
district for retrofit improvements.  This could be applied to open space districts or storm water
management streams that have higher environmental value. There is acceptance of voluntary
spending using financing tools for existent homeowners for life values. The idea of selling to
home owners what they are willing to pay for and providing them with financing tools does turn
things over.

Jim Gebhardt said with climate change we have a new set of issues, which requires a national
mechanism to work with states and private entities and an international mechanism to work with
other countries. Radon is a case in point, because it trips detectors. With the lack of new money
from Congress, the people need to be educated, the private sector needs to be involved, and new
EPA staff may be needed.  Changes need to be made in the Clean Air Act and other national  acts
as well.

RachaelDeming commented that a major change is needed to address cross media issues, rather
than media by media and statue by statue. Another idea is to move away from the enforcement-
based mentality and try to promote and support innovation and new technologies. DFO Meiburg


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asked rhetorically: Can federal agencies afford risk-adverse behavior? Ms. Deming also noted
the importance of non-governmental organizations, but only one of the scenarios presented by
Mr. Kerr mentioned NGOs which are an important factor in the credibility of the system.

Sam Merrill stated that they have done scenario modeling in New England and have found that
film is the best communication method to use with local audiences.  Valleyfutures.org has spent
millions of dollars to get producers, directors, actors, and screen play writers to do professional
film productions on what the world would look like in future scenarios. Different kinds of
financial tools, instruments, and metrics could be displayed through the use of films.

Sarah Pesak noticed that research and development and environmental technology have
transcended all of the scenarios.  At USD A, a program called Ace Net, which was an equity
investment fund for agricultural  technologies failed. The Small Business Innovation Research
Program is the only EPA investment in environmental technologies that costs around $2 million
per year. For eight companies, it was a minor amount.  While most venture efforts are expected
to fail, if one in ten succeed it would be more than EPA could fund.

Terry Agriss noted that one area that was common to all the scenarios was the need for
international cooperation, both economically and at the policy level.  EFAB has had an
international committee in the past, so in the future we could look at international finance. One
topic could be the relationship between international development efforts and organizations and
EPA.

Jim Tozzi posed the dilemma that when the economy goes down the regulators regulate less
across all levels of government.  If enforcement goes down,  can the Board come up with
alternative economic incentives to help EPA and the states do enforcement?

Keith Hinds added that in New Mexico the push is to fully price water. If water goes through
pipes or the river, regulations are needed on moving drinking water similar to regulations for
moving water downstream.  This would require interstate cooperation.

Langdon Marsh was concerned that many  of the problems discussed here are outside the purview
of EPA's jurisdiction.  One idea would be  to ask how to finance outcomes that people want in
climate, water, health,  transportation, etc.  Much of this is outside the Board's ability and
scientific advice is needed. We could look at ways to finance the early retirement of assets that
are contributing to the problem,  such as coal plants or flood control systems that are causing
damage.  EFAB is unique in the government advisory groups in looking at the broad perspective
over the next 20-25 years. We need to look at everything being done by the federal and state
governments in financing and how to do it more efficiently,  and take advantage of symbiosis
with different areas, such as transportation and the environment.

DFOMeiburg added that we ought to be looking at the kinds of skills the agency should be
recruiting for this board to fill vacancies to meet the new challenges.
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Jennifer Hernandez said she had spent several hours with a Silicon Valley billionaire on an
enterprise to structure a $10 million dollar prize for an energy-efficient house. Another
"hollywood" type idea was to build micro houses in New Orleans; and for this, $150 million
dollars was offered by some billionaire.  Money has been raised for micro-lending programs for
small projects just by asking people who want to help and want a direct connection with a project
that could be filmed to demonstrate the benefits. Perhaps EPA could collaborate with some of
these donors.

In response to Mr. Tozzi 's idea that governments pull back in times of recession, Steve Thompson
thought we could help states to use resources more wisely or differently to make more of an
impact.

Ms. Patton discussed water scarcity and  the need to use financing tools that have been used to
create heavily institutionally-driven, centralized water treatment to expand and leverage
financing old technology that is needed today, such as rooftops, forced green water recycling,
and re-injection to conform to the Clean  Water Act. In California, a forced green water program
was implemented. DFOMeiburg added that in the  area of grey water, state and local health
departments were seen as obstacles. Ms. Patton agreed and said that commercial interest have
asked if they could provide pollution coverage  for recycling and the barriers were state health
departments.  She would support a workgroup on promoting a dialogue between EPA and the
Center for Disease Control and Prevention (CDC).

Sarah Diefendorfsaid that they are working in  the Southern Congo in Mumbashi, a city of two
million people with a $900,000 annual budget and no infrastructure since the Belgians left the
country.  The question is how to set up and finance  infrastructure when there is no government in
the developing world.

DFOMeiburg closed the discussion by stating  that the objective of the exercise was thought
promotion on what things EPA might do in the future, and this objective had certainly been
achieved.

Project Report Outs

DFO Meiburg  stated that several of the EFAB reports had received favorable responses from
EPA, specifically Environmental Management Systems and Public-Private Partnerships.

Rachel Deming, Chair, Environmental Management Systems Workgroup, announced that EPA
followed up on recommendations from the EMS Report recommendations by sponsoring a
dialogue  in June on how to increase access to EPA databases. The questions were: What can we
do with EPA information and how to utilize the data to try to evaluate financial performance?
Major discussion topics included the following:

    1.  There was difficulty in compiling reliable facility identification and combining that into
       company-wide data. The financial markets evaluate financial data on a company-wide


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       basis, but most of EPA's data is based on a facility-basis. EPA made changes in the
       system over time, and the old data got put on the new system without being deleted or
       updated, so it was not reliable. There was no clear way to deal with changes in
       ownership as companies buy and sell divisions and plants.  The accuracy was a problem
       because there was no data overrides and poor quality control.
    2.  The use of the toxic release data was interesting. The question was: Does this provide
       useful information or is it because that is all we have?  EPA was surprised at the interest
       in this data for evaluation. EPA needs to determine what would be good information to
       collect.
    3.  The last idea was to create a new system similar to the EDGAR PC database.  SEC
       fought using EDGAR. They were looking into a privately financed system. EPA does
       not need to recreate what it collects, but determine how to take information it has and
       make it useful to others.

Chuck Kent, EPA, said that our role is to convene people that manage data for EPA to learn who
is using the data, how it can be better utilized, and the best possible intersection of data on
environmental financial performance. The Office of Environmental Information (OEI) is
working on this and we will continue to work with them.

Ms. Deming added that the MSRB, Municipal Securities Rule-Making Board, has launched a
pilot system which will work on government bonds and it will be called EMMA. The MSRB
website has information about municipal bonds with real-time data. EPA might want to review
how the system is set up to pull data from other systems and make it publicly available. The
system is free and available to the public to provide more information.

Public-Private Partnerships (PPP)

John Boland, Chair, said that EPA was very responsive to the PPP report that was approved at
the last meeting.  The EPA letter stated what was being done on several recommendations.  At
the last Board meeting, Scott Haskins suggested looking at policy innovations in the provision of
water and wastewater services in Canada. The Canadian experience is included as an Addendum
to the PPP Report.

Canada is an entirely different paradigm with different agencies and organizations involved. The
assumption is that a new major public infrastructure project is designed, built, and financed by a
PPP, unless it can be shown that the public sector can do a better job in terms of value or money.
Value includes the amount of risk and who bears the risk. They have developed models to
develop these comparisons.  We did not highlight water examples, because the projects were for
health, transportation and transit waste facilities.  We did not make recommendations because we
don't have a mandate to do this, and secondly, Canada has very different institutions than the
U.S.

Some things worth looking at include:
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    1.  The model is a Public Sector Comparator which is used to determine whether the public
       sector is better than a PPP and considers costs, benefits, and risk. It is complex and run
       by consulting firms. It would be labor intensive for the workgroup to investigate the
       model.
    2.  In the U.S. some states have PPPs and we could look at what states have done and
       compare them to the Canadian system.
    3.  DOT is also doing this and that might be a model for EFAB to review for specific aspects
       that would be applicable to EPA.  EPA's Office Water is looking at it.

Mr. Boland said he doesn't want to hold up the report, but the cover letter could mention that
EFAB is willing to look into these things.

Michael Dean added that this is an important topic and EPA needs to keep this on the front
burner.  The participation of private companies in delivery of public service in water and waste
water is very important for 2020. Mr. Dean urged the board to make recommendations to EPA
about this and not to wait for a mandate from EPA. EFAB could also work with the Department
of Transportation (DOT), which has worked well with PPPs.  DFO Meiburg noted that this could
be discussed tomorrow afternoon.

A member commented that DOT has made a huge commitment and asked if EPA was going to
set up the infrastructure for PPP or give this resource a priority. Mr. Dean responded negatively
for the present, even though he has been working on this for several years. Now EPA is dealing
with institutional barriers and deciding which programs could implement it.  It might take several
years, because of the lack of resources, but he urged them to keep up the pressure. DFO
Meiburg said it was similar to the Leveraging Report and the lack of public funds, which is an
institutional incentive to obtain support from the private sector.

Mr. Dean added that last week on Capitol Hill a water funding symposium was  hosted by the
Chamber of Commerce and the Conference of Mayors and included discussions about trust funds
and private activity bonds.

DFO Meiburg noted that tomorrow, Kevin Shafer from Milwaukee is going to talk about a clean
water trust fund.  There is some Agency interest, and if there are legislative proposals on trust
funds, EPA might want opinions from the Board.  The Board can decide tomorrow if they want
to pursue the idea of a trust fund. As for the PPP Workgroup, the Board and EPA have affirmed
its continuation. The actual action agenda and the composition of the workgroup would be
discussed the following day.

Leveraging the State Revolving Funds

George Butcher, Chair, reported that the workgroup expected to have a final product several
months ago, but now they have an approved version.  There was heavy involvement by a large
number of people. Greg Swartz took on the task of pulling together and analyzing the statistical
information, including additional analyses in the new draft. Jim Gebhardt and Jim Smith made


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substantial contributions, and Terry Agriss did the editing and compiling of the report.  Stan
Meiburg gave the report a careful read and made suggestions. At this morning's discussion,
some changes were made and the workgroup will meet during the lunch hour tomorrow to
finalize the report. The Report's conclusions and recommendations are as follows:

Conclusions:

    1.  SRF programs provide states with financial flexibility in the design of their programs.
    2.  The direct loan and leveraged loan programs have been successful in funding SRF
       programs with greater value than the amount of the federal capitalization grants.
    3.  If federal capitalization grants decline in the future, SRFs will have to depend more on
       the internal growth of equity to sustain their programs.
    4.  States will have to be able to sustain their SRF programs by leveraging, which allows
       them to meet current demands by using more of their earning on equity for loan
       subsidies.
    5.  Direct loan programs can take advantage of recent financial innovations developed by
       leveraging SRFs to fund the same amount of loans they currently would fund and also to
       grow their equity more than they currently can by using the direct loan approach alone.
    6.  EPA can facilitate the use of financial innovations to grow equity by allowing
       capitalization grants to be drawn without regard to the expenditure of SRF funds for
       project costs and could be more flexible by taking into account expected earnings over
       time, rather than on current earnings.
    7.  Arbitrage relief would have a greater impact  on SRFs to retain and grow equity and
       become  sustainable.
    8.  An area of future study by the Board is whether a different approach to investing SRF
       equity would enhance the ability of  SRFs to grow equity.

Recommendations:

    >  EPA should encourage direct loan states to improve SRF sustainability by showing states
       how leveraging can be used to increase retained earnings.
    >  EPA should assist states to develop  sustainable SRFs by administratively allowing states
       to accelerate draws of capitalization grants, modifying its interpretation of the Perpetuity
       Rule, and by advocating for arbitrage relief focused on SRF programs.
    >  EFAB should explore the benefits of developing more aggressive parameters for SRF
       equity investments and recommend  appropriate program changes to EPA.

DFO Meiburg said the report, entitled Relative Benefits of Direct and Leverage Loans in SRF
Programs, was the most extensive piece of analytical work in the history of the Board during his
tenure. The recommendations could be transformative.  Members need to be sure the report
conveys their ideas and will approve the final report so it could be sent to EPA.
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Questions and Comments

In response to a question about what could go wrong with leveraging, Mr. Bucher said that
leveraging has a tremendous track record with minimal risk.  Terry Agriss thought some risk was
not avoidable, but was worried that some people might see this as a way to get more retained
earnings into the SRF program so that the federal government would not have to fund it.  She
urged members to read the report despite its thickness, because Mr. Swartz has provided the best
background for the SRF programs and delineates how programs have been functioning.

DFOMeiburg Stan added that today's Environment Report states that the Inspector General's
report said that one of EPA' s challenges is to bridge the gap between the one trillion dollars
needed for the water and wastewater infrastructure over the next 20 years and five hundred
billion dollars that the utilities are expected to pay. The demand is still greater than the funds
even if you used everything available. Leveraging would not close this gap.

Some of the concerns, comments, and suggestions by Board members were as follows:

    >   There is a possibility of risk and unrecorded delinquencies.
    >   The reaction of states that are reluctant to take leveraged funds, and who are dependent
        on direct loans needs to be considered.
    >   The report fails to address the demand.
    >   There is a risk that the program's success would imply that there is no need for federal
        contributions.
    >   A concern that every year, the President's budget cuts SRFs, whereas more funds are
        needed.
    >   The federal budget problems have  nothing to do with the value of the program, but there
        has been discussion about a post-capitalization grant plan. Yet,  85 percent of the states
        do not use SRF funds, so the pressure for re-capitalization is strong.
    >   States need the capitalization grants, but one argument is that they should  be supported
        by SRFs.
    >   Leveraging does not use the compensation model of Wall Street. Leveraging maximizes
        the value of finite resources and learning how to use them in innovative ways does not
        diminish the credit quality. EPA should make a case for SRF funding to supplement
        direct grants.
    >   Full cost pricing is valid, but in some small communities, people on low incomes cannot
        pay the full costs. Even grant money to small communities needs to comply with EPA
        standards.
    >   The report could be used to educate policymakers at the state level.
        The report assumes that the reader has a lot of knowledge about infrastructure and clean
        water. The report should have a paragraph about the need and the cost basis, which
        would give the reader the context to make choices.

Greg Swartz commented on the risk, because one company that was not familiar with how the
program should work ended up spending contributed capital to support debt service. The SRF


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program has many rules that should alert managers to problems before they get out of hand.  One
bias is that many states that could leverage want to remain undetected and some Governors do
not even know the program exists. His firm, Piper Jaffrey & Co., underwrites and advises SRF
programs. The product requires a hard sell, but is it a powerful statement that could transform
programs. The message has to be kept simple, so that Governors will ask their staff why they are
not increasing loans and increasing retained earnings. Mr. Swartz is willing to simplify and
strengthen the message, so that anyone can understand it. The Board responded to his strong
message with a round of applause.

DFOMeiburg stated that the universal consensus would not be as strong except for Mr. Swartz's
input. He understood that after the workgroup meets tomorrow, the report would be ready to
send to EPA. Michael Dean said that with some clarification the agency would be able to
understand it, but the report should be understandable for various audiences. When EPA
receives the report, EFAB members should be involved in the presentation. DFO Meiburg
requested a quick response and hoped that EPA would see that the report is discussed with many
different groups and venues.

Tuesday, August 5, 2008                                                   (9:15 a.m.)

Opening Remarks

DFO Stan Meiburg opened the meeting and reviewed the day's agenda.  Next, he introduced
Kevin Shafer, Executive Director, and Milwaukee Metropolitan Sewerage District, who is
responsible for the overall management, administration, leadership and director for the MMSD.
He has had 10 years in private industry in Chicago and 6 years with Army Corps of Engineers.
He received the 2001 individual merit award for Engineer in Public Service from the Wisconsin
Section of the American Society of Civil Engineers.

Clean Water Trust Fund

Kevin Shafer, Executive Director, Milwaukee Metropolitan Sewerage District (MMSD), will talk
about the Milwaukee financial picture and the National Clean Water Trust Fund. He provided a
handout and utilized slides for his presentation, which included a description of the MMSD
financial program and the Trust Fund.

Milwaukee is a regional utility that serves 28 satellite systems that treat the flow and discharge of
flood water and wastewater into Lake Michigan. In the 1980's, they implemented the water
pollution abatement program, which cost $3 billion dollars paid for by construction grants and
the SRF. The debt will be paid off in 2017.

By 2010, the MMSD would be investing $4 billion dollars for a community of 1 billion to reduce
combined and separate sewer overflows, which will be financed by municipal bonds and the SRF
program. Prior to 1994, they had  50-60 sewer overflows per year, and after the program, this
was reduced to 2.2 overflows.  Prior to 1994, there were 8 to 9 billion gallons of overflow, which


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has been reduced to 1.1 billion gallons. From 2010 to 2020, MMSD has a $1.6 billion water
quality improvement program programmed out and they need to know how to pay for this.
Wastewater treatment plants, sewers, and flood management are being improved.  By 2012 the
debt service payments will be higher than capital improvements.  These payments will require
funds from a water trust fund, municipal bonds, and private activity bonds.

Programs to remove pharmaceuticals and nutrients, and climate change events will need to be
paid for. Sustainable funding is needed from the federal government, because everything is
based on a watershed approach, which crosses state lines. A survey has found that 84 percent of
Americans would support long-term, reliable sources of funds form the federal government. The
major provider of funds for utilities is municipal bonds, but SRFs are a link by providing
insurance and guarantees for those bonds. Mr. Shafer posed the question for the Board of how a
trust fund could strengthen municipal bonds.

A National Clean Water Trust Fund is being proposed by Congressman Blumenhauer of
Wisconsin. About $10 billion annually is proposed for a trust fund, of which $8 billion is for
matching grants, and $2 billion for the SRF program.  The states would receive and administer
the funds.

Construction grant funds still need to be provided to help municipals. Funds are needed for
research and development, for EPA's Section  108, the Clean Lakes Program, and the Clean
Estuary Program.  Sources of funds could include flushable products, a container fee on bottled
beverages, industrial discharge penalties, a corporate environmental income tax, and an
agricultural products tax.  The major source of pollution in Milwaukee is from non-point sources,
such as  agricultural run-off.  Grants and loans to states could use the Clean Water and Drinking
Water SRF formula. A trust fund is needed because water is a national priority and it would
provide a stable and predictable source of funds. The U.S. has a trust fund for highways and
airports.

EFAB can help by focusing  on how a trust fund could support municipal bonds, the bond market,
and the  SRF.  The SRF formula is from the 1980s, and needs to be brought up-to-date for
changes in population and state revenues to the federal government.  The trust fund legislation is
being drafted, so this is a good time for discussion.

Questions and Comments

Jim Tozzi: How could the trust fund support the municipal bond market? Mr. Shafer responded
that the  trust fund would support SRF funding which provides guarantees to the bond market.

Justin Wilson: What is the objection to a user tax or water fee? Mr. Shafer said that Milwaukee
has a tax levee on users for water and wastewater, which covers 50% of the cost.
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Lindene Patton:  What is the district doing in terms of climate change, such as methane trapping,
and managing water and energy intersections? What about using SRF money for projects that
improve the water overflow and re-injecting it locally?

Mr. Shafer said that Milwaukee is investing $500,000 to $1 million in green approaches, such as
porous parking lots, green roofing, and installing mechanisms to keep storm water out of sewer
systems.  Other projects are solar panels on the treatment plant, wind power on Lake Michigan,
methane gas for energy, and looking at a landfill for methane that could be cleaned and used for
dry cleaning.

Other comments and concerns of members were as follows:

    >  Whether a corporate environmental tax would be national and raise the rates for
       everyone.
    >  Flushable taxes could be regressive for low-income people.
    >  A trust fund looks like free money and fiscal discipline could be lost.
    >  If there are $8 billion in grants, no one would go for the loans, so a formula would be
       needed.
    >  Whether the SRF would manage the whole $8-10 billion.
    >  Going from grants to loans to guarantees looks like we would be going backward in time.
    >  New science is needed and new requirements to go in a different direction.
    >  If a trillion dollars was available through the bond market, would the trust fund be
       needed?
    >  EFAB objectives are based on reducing the costs of financing infrastructure and creating
       incentives for private investment, and promoting public-private partnerships, so how
       would a trust fund, based mostly on government funding, meet our objectives?
    >  The board should look at what Milwaukee has done since they have done well by using
       financial markets.
    >  Most states are now looking at appropriateness to the need and this is slowing down over-
       spending.
    >  Small rural  states are laboring under regulations and they cannot afford the work.

Mr. Shafer responded to several of the questions, but left it up to the Board to see how a trust
fund could help communities. Milwaukee's 20-year plan was approved by the federal and state
governments. It is based on regulatory issues and population needs. SRF has to be a part of the
plan.  Utilities need to have some program in which trust funds could go directly into the SRF.

Kelly Downard added that in Louisville they have a 20-year plan that includes low income
assistance. Funds should be directed at places that need it, not for everyone.  However, a basic
principle is that you spend what you have, not what you need. Saying you can't pay for
something, reduced the need.
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EPA Office of Water Issues

Michael Dean, Associate Assistant Administrator, Office of Water, EPA, said that EPA
management is concerned about trust funds and grants which are subsidies that are over-used.
He noted the strong relationship between the Board and the Office of Water.  The Board's
reports on SRFs Leveraging, Private-Public Partnerships, and Affordability were noted as
important Board achievements. EPA believes that people should be willing to pay for what it
costs to protect and deliver clean water, and should play a role in sustainable infrastructure
financing.

As far as new projects are concerned, Mr. Dean urged them to look critically  at programs and
find things that EPA needs to know about financing. Two items are coming up between now and
the March EFAB meeting. The first item is the Office of Research and Development is working
on a 3-5 year, ecosystems services evaluation plan that should be completed in February 2009.
The second item is related to a climate change initiative on underground injection.  The Water
Office has proposed a rule for long-term carbon dioxide sequestration program as part of
greenhouse gas reduction and a new class of underground Class 6 wells. There are long-term
technical, safety, and financial issues for possible underground water contamination and for
release to surface water. Financial assurance would be needed for capping wells that have been
injected. The offices of Ground Water and Drinking Water are aware of the work EFAB has
done on financial assurance for Brownfield sites and wants EFAB to be involved. Some parts of
the proposed legislation are under RCRA.

EPA would like to assure EFAB's assistance in long-term financial stewardship and assurance.
The agency is asking EFAB to take up the following issues:

    >  Make recommendations on long-term financial stewardship of Class 6 geologic
       sequestration wells related to key provisions of post-site closure stewardship, appropriate
       liability stewardship mode—both indemnification and non-indemnification approaches
       and methodology—and key  factors in assessing the costs of stewardship.
    >  Supply recommendations for guidance for use with state and regional  implementers of
       Class 6 well programs, review state and federal underground financial assurance
       regulations and guidance, and recommend changes for a new class of geologic
       sequestration wells.
    >  Assess key differences in needs when designing Safe Drinking  Water  Act and RCRA
       financial assurance models.  RCRA staff is now evaluating existing Underground
       Injection Control (UIC) financial assurance programs. Make recommendations on
       designing the underground injection financial assurance program taking the uniqueness of
       the UIC program into account. Alternatively, confirm whether the RCRA model
       appropriately conveys use by the current UIC program.

EFAB priorities include water issues in the context of climate change.  EPA's Office of Water
released its proposed climate strategy on adaptation issues. Some of the issues in the Climate
Strategy are not aligned with the Safe Drinking Water and Clean Water Acts.  Green


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infrastructure financing is difficult and revenue sources are uncertain. Leaky pipes lose 5-10% of
water, which is an issue because the costs to produce the water are not recovered. Any models
that would make this easier to fix would be important.

Finally, re-use of water is important and financial models for water conservation metering are
needed. When you reduce water loss, you reduce energy. About 3% of the nation's energy is
used to produce, treat, and convey water. EFAB can come up with creative solutions to these
problems. Payment structures for water use are  now beginning to reflect the value of it, not just
the amount of use.  More variable payment structures are needed to reflect water value. For
example, bottled water is charging the full cost.  If re-used water treatment has a value, then the
consumer needs price signals to determine its value.

Questions and Comments

Langdon Marsh was concerned about EFAB's work on affordability and whether it should
continue and look at communities with affordability problems that might need grants and could
use education on affordability.  Mr. Dean agreed that there is a role for grants to communities
that cannot pursue viable water and wastewater programs without grants. Programs should be
targeted toward the greatest need. Rachael Deming thought that the work EFAB did on
affordability could be transferred to climate change issues.  Peter Meyer thought there was a
problem in extracting from RCRA because of the large financial responsibility in the event of
failure.

In looking at ecological damage, Lindene Patton, noted that the issues are interdependent and
regulations presume that there is an economic substitute in  damage calculations, which may not
be true due to over-population. For example, natural resource damage is calculated on replacing
something in-kind or paying a penalty, which assumes there is a compensatory valuation or an
economic substitute, which may not be true. Water is a case in point because it has distribution
costs that are unique. Ms. Patton suggested that when  Board vacancies are filled, or changes are
made, skills would be needed in economics and  damage calculations.

Another issue brought forward by Mr. Dean and several members was the loss of water due to
leaky pipes. Ms. Patton said that some European communities have systems in place that require
replacement and there is true value in fixing leaky pipes. Mr. Dean suggested that water lost
before it reaches the home is a problem for utilities  and some states require an audit of the
system by local utilities. Peter Meyer related water leakage to energy and air implications and
green infrastructure. Terry Agriss added that private businesses are putting together a program to
address this. Business could set a price and take their pay out of the savings. Technology can be
mixed with financing ideas.

John Boland said that unaccounted for water has three  parts: metered use, leaks, and meter mis-
registration. The amount of leakage may not be knowable. Metered maintenance is important to
utilities, more than to governments.
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Mr. Dean responded that AWWA is aware of this non-revenue water and has done some small
studies. Related utilities probably have some idea of lost water. Don Correll said that in New
Jersey there was 75% leakage in some pipes. On the regulated side, there are PUCs that enforce
this in some cities. The rule of thumb is when leakage goes above 15% the problem is
investigated.

Jennifer Hernandez said performance enhancement could be measured in terms of water and
energy saved.  Clients have bought new meters because they are more efficient. Weather-
sensitive devices could be installed on agricultural fields. Leaky pipes could be identified easily
and costs determined.  Environmentally-conscious dairies might be interested, which would be
outside government and quite measurable. The Agency needs to determine the metrics of saved
water and the costs of fixing the problem.

David Miller added that in world  development, water systems are the most vulnerable when it
leaves the public right of way and goes into houses.  It is up to local municipalities to inspect
those connections.

Mr. Dean concluded by alerting members to two films coming to PBS stations in  October:
Liquid Assets on aging infrastructure, and Running Dry regarding water management issues in
the Southwest.  People need to understand better water management issues. Board members
clapped in appreciation, after DFO Meiburg thanked Mr. Dean for his support over the years.

Environmental Finance Center (EFC) Network Update

Jeff Hughes, President, EFC Network and Director,  EFC @ University of North Carolina,
provided an update on the EFC Network and focused on four projects. The EFCs have become
more diversified, focused on multimedia approaches, and rely more on partnerships, such as state
agencies and universities. Relationships have been developed with professional and national
associations, such as the Clean Building and the Council of Infrastructure Finance Authority
(GIF A).  A number of EFCs have promoted innovative financing. Using visual aids, Mr. Hughes
reviewed four areas: air, land, water, and the atmosphere. EFC Directors who provided updates
were Lauren Heberle,  University  of Louisville; Joanne Throw, University of Maryland; William
Jarocki, Boise State University; and Sam Merrill, University of Southern Maine.

Lauren Heberle, Director, EFC @ University of Louisville, reported that they serve states in
Region 4 and produce practice guides, policy reports, serve on task forces,  and run workshops on
issues related to sustainability.  The EFC produced 21 guides on land use revitalization and
cleanup, environmental insurance, construction debris recycling, green construction incentives,
and energy efficiency financing, which were meant for local and  state officials and the private
and non-profit sectors.

Ms. Heberle described three initiatives to assist communities in climate change, air quality, and
land use. The EFC is working with Metro Louisville to develop a community-based, action
transportation plan in cooperation with the green city partnership to reduce emissions. The task


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force is open to the public, so a wider range of expertise is available. The Metro Air Pollution
Control District is involved and an anti-idling regulation has three task forces including business,
health experts, environmentalists, and advocates. There needs to be community buy-in, so the
program will be accepted and implemented.

Another initiative is the development of a land-based community survey to help them make
environmentally-informed decisions about land use related to land development. The EFC
assists mid-size and small communities to think about air quality and climate change. Policy
solutions and financial incentives are developed that work in specific localities.  Innovative
solutions need to be specific to cultural and political contexts.  Innovative finance structures are
needed to reduce greenhouse gas emissions and resource consumption and to respond to climate
change.

Joanne Throw, Director, EFC @ University of Maryland, provided a brochure on a graduate
certification program launching in the fall of 2008.  In Maryland, there was a conflict between
environmentalists and the agricultural community regarding the use of poultry manure and
pollution of the Chesapeake Bay. The EFC formed an agricultural collaborative with farmers,
environmental groups, businesses, and state agencies. An Agricultural Trader organization was
created and put on-line to inform people of all the farm resources.  Similar to Craig's List, she
developed a buy, sell, and trade for manure. About 90 farms are  registered and they
communicate and trade with each other for different resources.

Food items are separated  from non-food items in a Food Traders on-line trading system.  There
is also a category for charity, so the Maryland Food Bank is included. The Maryland Restaurant
Association sent out messages to its 2600 members.  The City of Baltimore has purchased 60%
of locally grown produce. Using locally grown produce keeps trucks off the road and reduces
emissions.

William Jarocki, Director, EFC @ Boise State University, discussed a new tool  described in:
Training on Demand. The tool was developed in conjunction with the University of Maryland,
Cleveland State University, and Boise  State University. The dashboard system was developed in
response to demand from very small communities to help them obtain better information on
sustainable water infrastructure. The system will run on the World Wide Web.  Data will be
loaded and communities can get immediate output of financial information based on different
models, such as capitalization and leak prevention.

The final prototype would be available very soon. The  gauges used are affordable for residential
use, a measured system investment, and a total budget.  Mr. Jarocki explained the details of the
dashboard system. As the user changes the income, the pie charts change, so the decision-maker
can see what happens if they change the rates on the revenue page. The expense page shows
operation, maintenance and administrative costs, and capital expenses. The forecast tab allows
users to change the customer base over time and the changes are reflected in charts.  This is  a
water model, and they will soon have a sewer model.
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Mr. Jarocki then explained an operational dashboard that city councils can use if they want to
know if they have enough water for a new development.  The chart shows consumption by
groups over time and excess capacity.  A strategic tab shows major sources of capital, facilities,
storage, treatment, etc. EPA has a system and the goal is to have their data file automatically
loaded in the Dashboard system. The three dashboards together will show the risk associated
with actions, the current value of capital, replacement costs over a period of years, cost indices
and changing 10 years of history on construction and material costs.  Several states are using the
model and public works agencies are using it for rate changes.  In Georgia,  there was a 95%
response rate.

Sam Merrill, Director, EFC @ University of Southern Maine, is working on climate change
issues, starting with the Regional Greenhouse Gas Initiative (REGI) for the State of Maine.  The
focus is on how to use $30 million dollars in auction credits. Communities need to develop
funding sources for sea-level rises. A report of the Union of Concerned Scientists showed the
Carolinas and Florida being overflown by storm surges.  For the city of Boston, the EFC  created
four financial models showing the costs over 30 years if they do nothing about storm surges.

The EFC is also working with small coastal communities using the SLOSH model, which is a
tool of polygons that shows what a Category 2-5 hurricane would do, and how many businesses
are at risk from an increased storm surge. The tool will be used to educate people in New
England with infrastructures at sea level. The focus is on local  financial adaptation to climate
change, such as installation of regeneration capacity, solar on rooftops, wind turbines, etc.
Climate change requires a mind shift through consensus  projects.

Questions  and Comments

In response to several questions, Mr. Jarocki and  others  responded that:
   >  The model was shown on an ICMA webcast, and will be shown to CIFA and EPA.
   >  Oklahoma is sending out teams to small communities to train them on the use of the tool,
       so they can compare their financing with other communities.
   >  Some small communities don't have asset data.
   >  The program is free to users and the front-end costs of development have been covered
       by grants from EPA and on-going costs are covered by grants and university support.
   >  The USD A, the RCAP, and the World Waters Association should be using the same
       template.
   >  Consulting firms that want to download the data  are charged $50.00.
Update/Next Steps ofOECA 's National Financial Assurance Policy

DFO Meiburg introduced Marcia Mulkey, Acting Director, EPA, Office of Site Remediation
Enforcement, OECA, who is responsible for the enforcement aspects of EPA's Superfund and
other site remediation programs. She was the Director of the National Enforcement Training
Institute, which was established by the Pollution Prosecution Act to provide education and
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training services for the National Environmental Enforcement and Compliance Program. Much
of the data the Board has on financial assurance has come from the OECA office.

Marcia Mulkey praised the Board for its valued comments to the EPA. The Office of Site
Remediation has responsibility for the Superfund and RCRA and oil pollution response
enforcement. She provided an overview of the Board's work that is making a difference, such as
the 2006 recommendations on financial risk and corporate guarantee and the on-going cost
estimation investigation. Granta Nakayama, Assistant Administrator, Office of Enforcement and
Compliance Assurance, asked her to respond to two questions from the Board. The first is about
the percentage of use of various financial instruments; and the second was regarding the cross-
connection between financial insurance and bankruptcy. Ms. Mulkey would first discuss
OECA's financial assurance national priorities and then look forward to the future.

The first phase of our financial assurance enforcement priority is focused on building EPA and
state competency through capacity building.  The capacity gap is important to states. OECA is
inspecting site-specific CERCLA/RCRA, closure/post-closure and RCRA corrective action
targeted universe files  to understand the nature of the compliance picture.

The second phase is implementing jobs and focusing on non-compliers.  The 2010 long- term
goals are focused on RCRA closure and post-closure programs and aiming for 50% compliance.
The RCRA universe includes facilities that require cleanup that we hope to achieve by 2020. We
are going to expand to the Carbon Dioxide (CO2) Underground Injection Control (UIC) and
RCRA Subtitle I underground storage tank programs. As we look at facilities base program and
corrective action, we will also look at those aspects of the same facilities.

Ms. Mulkey then used  a series of slides to depict the present state of enforcement.  Key elements
included the following:
    >  In 221 CERCLA settlements, there were 51 violations, some of which did not require
       financial assurance, but non-compliers in violation amounts to $376 million.
    >  In the RCRA universe, OECA has looked at 1500 files and found violations that would
       require significant enforcement, but it is difficult to validate statistically the non-
       compliance rates.
    >  The handout on file reviews does not cover all the non-compliers and  is not a statistical
       sample,  but is targeted at the most important.
    >  In the base program, about 38% are using financial assurance and corporate guarantees,
       but this represents 55% of the total costs, because the percentage of dollars is greater for
       the larger cleanups.
    >  The corrective  action universe shows that the dollars per site are higher because of
       expensive cleanups.  There are not definitive regulations governing the financial
       assurance in the corrective action universe as there are in the base Subtitle C area.
    >  A full 70% of the dollar amount is covered by the two mechanisms of financial assurance
       and corporate guarantee.
    >  Cost estimation is more difficult, because there is more corrective action required than in
       the post-closure program. CERCLA could inform cost estimation of corrective action.


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    >  Market conditions change and affect cost estimation. This data is not longitudinal.
    >  The content of the settlements is being improved to depict the financial mechanisms used.
    >  CERCLA enforcement instruments are judicial and administrative and the regions are
       being given the tools they need to improve.
    >  Publicizing settlements is used as a stimulus to obtain voluntary enforcement.
    >  The next steps are to continue working on the special cases and to improve the overall
       performance of industry in the cleanup universe.

One of the major problems is keeping in tune with financial developments such as bankruptcies.
New legislation or rule-making might be needed to look at the risk indicators sooner. EFAB's
expertise is needed to ascertain what tools are needed, such as consent decrees and permit
decrees.

EFAB's charge on financial assurance focuses on four items; the financial test and the corporate
guarantee which have been completed; and  commercial insurance and cost estimation which are
underway. Cost estimation  is problematic for CERCLA sites and for sites that are not required
to have financial assurance,  the solution has not been determined, but law-making is
fundamental.
Three agency activities that go beyond enforcement are:
    1.  Evaluation of the financial test by OSW in January 2009 in the context of the RCRA
       program.  Options under consideration include targeted rule-making, a ratings
       requirement, or financial test criteria as in Subtitle D.
    2.  The OECA rule on sequestration, which is based on EFAB's work, and was published in
       the Federal Register on July 25, 2008.
    3.  On-going litigation attempts to have the agency do rule-making under CERCLA. The
       Sierra Club filed a mandatory duty suit against the agency in the District Court in the 9th
       Circuit. A negotiated timetable for the agency is a likely outcome.

A new area is the UIC on carbon sequestration, which would be the main action instead of
RCRA or CERCLA.  This is almost as challenging as nuclear waste disposal, because it could
require a long-term financial assurance of a 100-year horizon or more. An analysis of financial
assurance for even 30 years might not be valid now.  The providers of financial insurance and the
providers of cleanup have a long-term responsibility. The responsibility could run with the land,
rather than the current operator or owner.

In response to a question about whether the corporate test would be Test 1 or 2, Ms. Mulkey said
the data had not been collected in that way. Mary Francoeur said that some states don't allow
for the use of the financial test, and wanted to know whether this affected the data collection.
Ms. Mulkey responded that some of the file reviews were done by states, but she did not think
there was any large bias in the data even though it was not random or stratified. One problem is
that enforcement officers are nervous about revealing the findings of investigations; however, the
data is aggregated which protects the sites.


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Rachael Deming asked whether they were gathering statistics on the results of enforcement
efforts to collect financial assurance; whether they were having difficulties with different
instruments; and what happens to the proceeds.  Ms. Mulkey and a staff member responded that
they deal with the liable party and it is their problem to collect from the insurer or the guarantor.
The letter of credit has not been a problem. In one case in Region 5, the company filed for
bankruptcy, but they were able to get a letter of credit. In another case, they worked out a
payment schedule. In Chapter 11, we would have an administrative  expense, because we
preserve the integrity of the settlement.  In cost recovery the money can be put into a site-specific
account for future work. In the Libby settlement, it was a combination of past costs and a
liquidation of their future obligations. The $250 million will be used at the Libby site to clean it
up. If there is no future work, the money is returned to the  Superfund Trust Fund.

Jennifer Hernandez brought forth a problem with financial  assurance in re-use and
redevelopment of RCRA sites in terms of the type of financing. Under RCRA regulations, the
facility owner-operator is the responsible party but in redevelopment, different types of financing
are needed that have foreclosure rights.  Property owners will change over time. There are
robust tools in both the real estate sector and the regulatory sector. The main problem is leaving
financial assurance in the remedy document rather than in the institutional post-control, post-
remedy document, which is more flexible in terms of financial assurance. The line between the
tail end of the remedy and the beginning of 1C redevelopment is not well-defined. Different
types of income maintenance could be a remedy or an 1C. What is a remedy and what is not
needs to be determined.

Ms. Mulkey said she was not aware of any rigid requirement.

Ms. Hernandez added that in terms  of financial assurance tools in the 1C world, there are two
regulatory models that are robust examples that EPA could review:

    1.  The Fish and Wildlife  Services Long-Term Maintenance Habitat Obligations, related to
       habitat management plans that require a 50-year financial  assurance plan.
    2.  The storm water management plan that requires self-financing with perpetuity to meet the
       financial responsibility for storm water systems as water leaves the property boundary.

In California, some special assessment districts finance through a tax assessment of the property
owners, which is similar to a condo association, except it is public agency enforcement and
taxation.  The states know how to do standard rules against perpetuity, regulate property
transactions, record covenants against property, and impose financial burdens.
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EFAB Workgroups Report Outs

Financial Assurance - Cost Estimation

Kelly Downard, Co-Chair, said the workgroup needed to continue to try to improve data
collection and follow up and to improve data on success and failure in cost estimation.

Bob Stewart, Region 4, said that in Region 4, they looked at all eight states and gathered and
analyzed data on financial assurance and data on closure  and post-closure plans and cost
estimates. Over the years, cost estimates were found to be on the low side. Cost estimates
ranged from $25,000 to $60 million. The Region also looked at enforcement cases that were late
for several years.  In general, the cost estimates increased. In one case, the estimate increased
from $600,000 to $2.2 million. Over time, the Region wants to collaborate with the states
because they review cost estimates.

Mr. Downard reported that the outcome of yesterday's meeting was that they did not agree. The
discussion issues in the paper (Handout) included:

       •  How to make the cost estimate accurate. The goal is 95% accurate. Counting the cost
          estimates is not as important as counting the dollars.
       •  Cost estimates on closure and post-closure are more accurate because there is more
          knowledge about the cost of activities, it is better regulated, and not as flexible.
       •  On corrective action, there are more variations.  One idea was a "SWAT" team  of 5-
          10 experts to determine the cost estimate.  The SWAT team would include experts
          from EPA,  states,  and industry. Experiences could be shared and the group would
          operate as a consultant and educator, not a regulator. A threshold would be needed to
          limit the states from coming to the group with everything
       •  Timing is an important factor, because things  change continually.  A five-year review
          is not enough. The implementer and the regulator need to find out what has changed.
       •  The workgroup needs to talk to state representatives to find out what they think. A
          workshop is needed to gain some answers followed by a report. The workshop  could
          have three parts:

       (1) A technical process of cost estimation with EPA staff, state staff and people from
          industry to  discuss about pitfalls, bottle necks, and the cost estimate numbers.
       (2) An administrative process to form a SWAT team in terms of how to do it, who to
          involve, what threshold to set, how to manage  it, and how is it paid for.
       (3) Under risk  management, we need to know that the 5% inaccurate estimates are not
          the biggest ones.

Mr. Downard concluded by stating that the workgroup did not have an agreement, but they know
what direction to take. The workgroup is not through, because several issues have not been
approached.
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Questions and Comments

Ms. Deming suggested looking at an OSHA consulting group or the National Remedy Review
Board, which is on top of the major Superfund decisions.  The Board has a representative from
each of the 9 regions and special expertise on risk assessment. They convene to review for
consistency and other alternatives. Companies have to account for changes in prices on their
balance sheets, but this does not always get into a consent decree. Cost re-evaluation happens on
a rolling basis and is revised upward, if needed.

In response to a query about the doubling of cost estimates, Mr. Downard said that was primarily
for post-closure sites.  In one corrective action case, the cost went from $7 million to $11 and !/2
million dollars.

Another comment was on the legal advice for the "SWAT" team, because when you have agency
officials there will be legal problems and the responsibility for accuracy needs to be determined.
There is some risk for all participants.

DFOMeiburg added that the leadership should come from persons with a financial background
who are not biased by involvement.

Financial Assurance - Commercial Insurance

Justin Wilson, Co-Chair, reported that in June 2008, the committee held a workshop that
provided them with areas of agreement including:

       •  Insurance is a valuable tool for financial assurance.
       •  If we make changes, we need to think about the consequences.
       •  Proof of financial responsibility is needed for the insurer. Exact language is needed
          on how to do that.
       •  The idea of a mandatory policy requiring specific language was considered a negative
          idea.

The workgroup is not finished yet, because there are unanswered questions. Most of these arise
from the characteristic of insurance being a contract between the insurance company and the
regulatory community, which is a different relationship than most financial assurance programs.
A fundamental issue of what their obligations might be needs to be addressed.

The current plan is to circulate  drafts, have conference calls, and one face-to-face meeting.  The
main issue is that many of the parties, including the regulatory agencies, is the belief that
insurance for financial assurance is a guarantee.  Others contend that insurance is not a guarantee
and is contrary to the whole idea of insurance.
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DFOMeiburg stated that because of the unresolved issues the workgroup would need to
continue with these complex issues. While the Board is not the legal counsel for the EPA,
characterizing the issue is valuable to the Agency.

Development of the Strategic Action Agenda

DFOMeiburg opened the session by stating that two new proposals had been submitted for the
2009 Strategic Action Plan for the Board.

Michael Curley proposed a follow on of the report that called for the creation of state air finance
authorities. There are two parts to this proposal. The first is to identify state incentives to assist
in financing of air pollution reduction projects.  Three incentives are state tax credits, issuance of
special district bonds,  and issuance of assessment bonds.  A tax credit does not need to be a
blanket credit and can be limited by size and eligibility. Specific subsidies are preferred over
general subsidies, because limits can be made on individuals, such as income level or a time
limit.

Second, is the issuance of special district bonds, which are used for roads, sewers, and  sidewalks.
This type of bond could be issued for air pollution reduction.  For example, bonds could be
issued for the replacement of diesel vehicles on farms and roads. Dry cleaners  could change to
organic dry cleaning products.  The principle problem in dealing with small sources of pollution
is their access to credit, which is limited in time and has high interest rates, so a three-year pay
back at 18% is not feasible,  but the state could issue loans paid back over 10 years at 5% interest.

The other project idea is an  assessment bond being pioneered by the City of Berkeley, which is
pioneering to reduce air pollution by providing solar panels to individual homes.  The panels are
purchased by the state and then they issue a bond for the service life. This is paid for by a tax
assessment against the property of the home owner receiving the solar panels. Only those who
benefit will pay for the bond. Ms. Patton 's company has a list of energy-saving environmental
improvement applications, some of which could be funded with assessment bonds.  Another idea
was to issue tax-exempt bonds for truckers, but this proved to be difficult, so the bonds would be
taxable.

Questions and Comments

John Boland thought this would be a public good like a hospital or school. A private school can
issue tax-exempt bonds, so why couldn't clean air and clean water companies do the same?

Michael Dean thought that companies like DOW Chemical should not be able to use tax money,
but should put the cost of pollution abatement into the price of the chemicals.

Ms. Hernandez reported that new legislation in California, called 8B-811, has expanded the
Berkeley tax assessment idea and allows any city or county to offer the program. It is set up at a
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consumer level for small businesses and homes and includes a broad list of sustainable
technologies, not just solar.  She co-sponsored the bill and is on a legislative workgroup.

Keith Hinds added that in New Mexico, if you buy a low-flow toilet, you get a rebate on your
water bill. A solar panel on the roof might be able to receive a rebate on the electric bill.

DFO Meiburg announced that after hearing the report from George Butcher on the leveraging
report, they would discuss the new projects further.

Leveraging the SRFs Report

George Butcher stated that the Leveraging Report on SRFs was completed, and he received a
hand of applause from the Board. The workgroup has agreed unanimously.  Ms. Agriss will
make the edits and circulate the edited report. In the report, the board identified  an area of
further study to see whether the change in investment of SRF equity would be beneficial. The
workgroup will undertake this investigation.

Both Greg Swartz and Karen Massey observed that many states do not invest their funds
efficiently even in relation to existing, allowed investments. Mr. Butcher identified other areas
of further work: (1) The estimate of 1  and !/2 percent as a potential benefit is quite conservative;
(2) the benefits and risks of an endowment-like approach; and (3) the regulatory  issues and
impediments to new approaches, such as debt issuance.

Questions and Comments

Peter Meyer asked if they were looking at investments by individual states or would several
states pool their resources. Mr. Butcher responded that both could be done.  States have pension
funds that could be managed individually, but smaller states could take advantage of the larger
SRFs.

Ms. Deming suggested that the workgroup look at ratings agencies which have standards for the
rating process, because to deviate from the standards might be risky. Mr. Butcher said that
would be a constraint that needs to be considered.  The new approaches would only be applied to
one-half the funds.

Don Correll said there is bond money and non-bond money and the workgroup needs to sort out
where the rating issues arise vs. the bond issues with respect to investments.

A question was raised about the amounts of funds involved. The report states that a significant
portion of the $38 billion could be set aside and not recycled into a lending capacity.  This would
depend on the structures and how they change over time. Another member said the time frame is
important in achieving more than the treasury yield.  Another member thought that this approach
has about five different potential audiences and could be a powerful tool.
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Mr. Butcher responded that this was more like an endowment than a pension fund, because it is
in perpetuity and follows the perpetuity rule; however there is an expectation of a higher return.

Strategic Action Agenda for New Projects

DFOMeiburg reviewed the Criteria for EFAB Projects listed on a handout.  Mainly, the project
should fit into EPA's goal; have a client; be within the Board's capability; be completed in one
year; have specific recommendations; have strong Board support; and have an opportunity for
partnering with the EFCN. DFOMeiburg thought it was unlikely that new projects could be
started now. Some projects cannot be completed in one year. Board support is tested by whether
members sign up for the workgroup. Financial assurance is one project that is unique to EFAB.

Two projects that are on-going are Commercial Insurance and Cost Estimation. In two others
EFAB has had significant milestones: SRF Leveraging and Public-Private Partnerships. Mr.
Dean has urged EFAB to continue making effort with EPA on these recommendations. Several
new projects were those of Michael Cur ley's and George Butcher's ideas for further work by the
Leveraging workgroup, but it could be a different project. The third one was related to the
discussion of carbon dioxide injection and financial assurance, but this is a new area and raises
new issues.  It is not financial assurance under RCRA, but it is a significant issue, which the
Board should take on.

Next, there is the Clean Water Trust Fund on which the agency has no position. If legislation
should be developed, the way it could operate efficiently and effectively might be an issue for
the Board.  The Board does not take political positions, but the Board could assist the agency in
how the funds could be used most effectively, similar to how SRF funds were  studied.

A new proposal from Bob Hall, Office of Solid Waste, is related to an Agency  report on the
analysis of financial assurance as provided by independent third parties and captive insurance
companies for municipal solid waste landfills. The Office of Solid Waste would like EFAB to
review a draft report prepared in response to a 1991 appropriations bill. Mr. Hall thought EFAB
could provide expert insight before it goes through the final agency review and administrative
review processes. This would be a short-term project.

Board members raised questions about Municipal  Solid Waste related to post-tax revenue for
achieving financial assurance and how many municipalities use  third party insurance. Mr.  Hall
replied that there are regulations that allow a state to use a tax mechanism that meets specific
criteria, and not many municipalities use third party insurance. A board member responded that
municipalities use escrows and set aside a portion of their rates to fund closures and post-closure
responsibilities. Another member said the report is dealing with the use of owners and operators
of municipal solid waste landfills and it might be privately owned waste. DFOMeiburg added
that some cities used firms that used captive insurance companies for solid waste landfills.

DFOMeiburg listed several ideas for projects as follows:
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       •  The issue of long-term financial assurance beyond 30 years that would tax property
          rather than the operator
       •  Obsolete technologies, related to climate change, some of which would have to be
          retired
       •  The financing of grey water projects, which will receive more emphasis and have to
          be financed
       •  Creation of climate-change recompense in property taxes.
       •  Financing for ecosystem services—looking at different options for wetlands
          preservation and how to manage storm water run-off

For the next hour, Board members voiced their opinion on the various topics on the list and other
ideas brought up during the two-day meeting. These topics included review of a report on
municipal solid waste and financial assurance, water shortages, carbon dioxide sequestration,
evaluation of EFAB recommendations, international financing systems, leaky pipes
infrastructure,  a Clean Water Trust Fund, land-based financial  assurance, innovative financing,
grey water financing, and ecosystem services. On-going workgroup topics were SRF investment
options, commercial insurance, cost estimation, and innovative financing tools.

Review of a Report on Municipal Solid Waste and Financial Assurance

Members' comments and concerns included the following:

       •  Municipal landfills have to have closure and post-closure financial assurance.
       •  Federal regulations are  in place for municipal landfills.
       •  A separate workgroup could be set up to review this or it could be a subgroup of
          Financial Assurance.
       •  EFAB  is the administrator's advisory board and his delegates have asked for our
          advice.
       •  EFAB  should respond with a small group that has expertise in this area, but it cannot
          be done in two months.
       •  A subset of the Board could make comments back to the Board.
       •  The Board does not have to take a position on the report, but could provide technical
          insight and questions to look at.

Water Shortage

Board comments included the following:

       •  New technologies need to be reviewed and new rules promulgated. New
          technologies, such as ethanol, could be merely a trade-off for other energy sources.
       •  One member offered to give a high-level overview of the new technologies.
       •  Water  conservation  is a major future issue and EPA has some purview.
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       •  EFAB could look at the financial mechanisms to manage water scarcity, but the first
          barriers are legal, not financial.
       •  Water scarcity is not clearly within EPA's purview.  States would say it is their issue.
       •  Water shortage may or may not lead to water failure, which depends on management
          and infrastructure and this is within the Agency's purview.
       •  The differences between the East and the West need to be understood.
       •  The concern that we are stepping on the toes of other agencies to look at water
          shortages is also true of climate change.
       •  Water supply falls outside the range of EPA and is a property rights issue.
       •  Water supply should be looked at from the standpoint of issues about expenditures
          and financing of mechanisms that collect stormwater, wastewater, and run-off which
          is within EPA's purview.
       •  Programs that collecting rainwater, such as in Bermuda, and re-induction programs in
          Riverside, California, keeps water locally and would have energy and air pollution
          benefits.
       •  Re-injection and the use of grey water are related to standards, not financing, but if
          financing tools were available, projects might move forward

Ms. Patton said that decisions will be made about centralized treatment, leveraging and financing
local re-injection or finding alternatives that don't have long-term impacts on climate. It is
important to think about centralized treatment because if you don't re-inject, then you don't
recharge and it is a water supply issue.  Water shortages could increase if wastewater is not re-
charged into the system.

Members seemed to agree that water supply shortages should be a subject for a briefing at
EFAB's meeting in March in Washington, DC.

Carbon Dioxide Underground Sequestration and Financial Assurance

Members brought up the following issues:

       •  The problems are between the states and the federal government as to who would set
          the rules.
       •  The oil industry thought the states should take over financial assurance  in Oklahoma.
       •  Eminent domain and mineral owners' interest are other complex issues.
       •  Carbon Sequestration involves more than UIC technology.
       •  EFAB could start out narrowly.
       •  Underground sequestration seems like a short-term solution.
       •  If EFAB gets involved, the issues need to be defined broadly.
       •  Risk-sharing would be required, because the polluter could not be made wholly
          responsible for something that happens 50 years later.
       •  EFAB could provide advice on the financial consequences, but not on the geological
          mechanism.

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       •  There is a lot of information on CC>2 and CS, which would have to be reviewed. We
          would need an overview first and then look at the economics, the solutions, and the
          risks.
       •  Decisions will be made regarding centralized treatment or whether to leverage and
          finance local injection or alternatives that don't have long-term impacts.

Evaluation of EFAB Recommendations

A board member thought that EFAB should ask EPA what has happened to all of the
recommendations, as a self-regulation mechanism, and to review whether some
recommendations ought to be revised. DFOMeiburg said this was done in the past, but this can
be updated.  This might be a task for the new administration.

International Financial Systems

Ms. Agriss brought up the four scenarios from yesterday's presentation and one them was the
benefit of global coordination and cooperation on financing.  EFAB could look at what kinds of
innovative financial programs are going on internationally and suggest some technology transfer;
however, we seem to have quite a few workgroups.

Leaky Pipes Infrastructure Financing

Several members supported the issue of leaky pipes in terms of infrastructure, but not from the
standpoint of water shortages, which may be the purview of the Army Corps of Engineers.
There are  some international models that don't follow the U.S. model.  Leaky pipes are a huge
bang for the buck. Ms. Francoeur strongly favored the study of leaky pipes as a very significant
issue for systems that would have a material impact on U.S.  When she does credit analyses,
agencies are asked where their water leaks are and what their collection rates are.

Clean Water Trust Fund

The Clean Water Trust Fund is a difficult issue because it would have to be better defined. A
broader charge to discuss the pros and cons of the concept would be more relevant, and in that
context, discuss loans and grants. John Boland stated that there is an obscure provision in the
original Water Pollution Control Act of 1972 that requires an agency to submit a report on the
viability of a trust fund for the construction grant program. The report  said that the Trust Fund
was not a good idea, but a revolving loan fund was a great idea. The report was not accepted by
EPA and has disappeared, but as one of the authors of the report, he would be concerned about
getting into the Trust Fund issue.  Ms. Francoeur thought it would be difficult to come to any
consensus on the Trust Fund because of different perspectives. Andrew Sawyers agreed that it
would be difficult, but it ought to be kept open. Under no circumstance should $8 million be
given for grants as that would put SRF out of business. Ms. Agriss agreed that some issues under
the Trust Fund might be relevant to EFAB, even to say that they do not endorse. If more funds
could be put into SRF and less into grants, then EFAB's comments would have some relevance.

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Land-Based Financial Assurance

The long-term financial assurance vs. the remedy-based for RCRA sites is one issue. The land-
based financial assurance is broader that CERCLA and RCRA. It is a different financial
mechanism for environmental enhancement.  The two ideas are very complementary. It is the
next generation for financial assurance for sites and the RCRA proposal is more EFAB's type of
project. The purview of financial assurance can be broadened.

At this point, DFOMeiburg summarized the discussion in the following ways:

       •  A lot of interest was expressed in carbon dioxide sequestration and the potential for
          financial assurance.
       •  Interest in the Trust Fund appears to be minimal.
       •  A small group could work on financial assurance.
       •  A briefing is needed on long-term financing for grey water and retrofits.
       •  Ecosystem services could include some combination of Michael Curley 's and
          Langdon Marsh's work.
       •  EPA should be asked to evaluate their responses to EFAB's recommendations.
       •  International grants have some support, but no project has been identified.
       •  A briefing on water shortage at the EFAB March meeting is indicated.
       •  A study of leaky pipes and long-term financing has support.
       •  Carbon dioxide sequestration and financial assurance needs more discussion.
       •  The present workgroups of SRF Leveraging, Innovative Financing, and Financial
          Assurance with the subgroups of Commercial Insurance and Cost Estimation should
          continue.

Discussion ensued as to the various issues and their distribution under the present workgroups.
The financial risk mechanisms would be similar, but CO2 sequestration and water supply re-
injection issues have both narrow and broad issues.  The fundamentals are the same, but the
applications would be different.  The project could start broadly with the long-term  financial
assurance and then be split into two  subgroups.  A member of the Financial Assurance
workgroup said they had decided to  defer consideration of 30-year, long-term financial assurance
until the cost estimation or commercial insurance subgroup was completed.

DFOMeiburg added that for CO2 underground injection; there is a proposed set of regulations
that could be used to structure the issue. A member commented that the regulatory  framework
would exclude the development of risk management options.  The issue looks forward compared
to RCRA that looks backward, so general principles could be developed and then bring them to
bear on the UIC.  The issue is similar to radiation issues and it would be good to look toward
perpetuity beyond our lifetimes.
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At this point, DFOMeiburg asked members to indicate by a show of hands their interest in
several workgroups. The voluntary assignments were as follows:

Innovative Financing: Jim Gebhardt, Lindene Pattern, Terry Agriss, Michael Curley, Co-Chair,
Andrew Sawyers, Greg Swartz, Karen Massey, George Butcher, Jennifer Hernandez, Peter
Meyer, Sarah Diefendorf and Langdon March Co-Chair.

Carbon Dioxide Sequestration (VIC) and Financial Assurance: Lindene Patton, Steve
Thompson, Sarah Diefendorf, Rachel Deming, Justin Wilson, Mary Francoeur, Jim Barnes, and
Cheri Rice (volunteered by Sue Briggum.) Chair not selected.

Leaky Pipes Infrastructure: Kelly Downard, Don Correll, Jim Gebhardt,  Greg Mason, Bill
Jarocki, Lauren Heberle, Scott Raskins, Rachel Deming, Justin Wilson, John Boland, Mary
Francoeur, Keith Hinds,  Greg Mason, Dave Miller, Greg Swartz, Langdon Marsh, and Terry
Agriss, Chair.

SRF Investment Options: George Butcher, Chair, Keith Hinds, Jim Gebhardt, Andrew Sawyers,
Karen Massey, Greg Swartz, Greg Mason, and Terry Agriss.

DFOMeiburg stated that there were enough volunteers to support the four workgroups and then
asked for volunteers to chair the workgroups.  Jim Tozzi was volunteered for the Leaky Pipes
Infrastructure group, but Terry Agriss offered if he could not do it. George Butcher would chair
the investment options group.

Public Comments

Paul Lusty of Lusty Structures, Los Altos, California, indicated a concern about the policy issue
of shifting financial responsibility from the private parties to insurance vehicles and a public shift
from the responsible parties to the government or the general public. He suggested this trend
should be explored further.

Dave Miller, Department of Agriculture., talked about the impact of the 2008 Farm Bill, passed
on May 22, 2008, that would impact on world development. Section 6029 proposed funding of
backlog projects and $120 million was appropriated in the farm bill to address backlog projects.
Section 6011 talks about a restructuring of interest rate methodology.  Prior to May 22, the
poverty rate was 4 !/2 percent and the market rate changed every three months based on the
treasury bonds buyers index, and there was an intermediate rate. The Farm Bill now sets the
market rate the same way, but  the poverty rate would be 60% of the market rate, and the
intermediate rate would be 80% of the market rate and change every quarter.  The term is 40
years and this has an impact on buying of properties.  The grant is being used to subsidize the
rates, but there will be more project volume.

Under Section 6002, the  SEARCH grant provides special evaluation assistance for the rural
communities with population areas less than 2500, and it is a 100% grant program. Up to 4% of


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state grants could be used for this program for preliminary engineering, asset management, and
strategic planning.

Mr. Miller suggested that the area of affordability, sustainability, and underwriting ought to be
re-visited by the Board. Metering and unaccounted lost water are addressed in USDA's
engineering studies for loans.  On the wastewater side, some of the leakage is into sewer
treatment collection pipes, so water leakage adds to costs.

Wrap Up and Next Meeting Date

DFO Meiburg said that for new members on the Board, skills were needed in accounting for
Public-Private Partnerships, and someone from electric utilities to help with carbon sequestration
and clean air issues.  A member said that some projects don't fit into one of the silos, like air or
water, but there might be a great project dealing with Combined Sewer Overflow (CSO) issues.
DFO Meiburg thought those projects might be eligible for SRFs.

DFO Meiburg brought up the issue of people on federal advisory boards who should only serve a
six-year term.  He prefers a mixture of long-term and new members to retain institutional
memory and get new skills and insights. He thanked the new members for their contributions
and the long-term members for their experience and insights.

Jim Barnes, Chair, thought that the four years he has been on the Board was a very productive
period and EPA senior managers and the Board have worked together very well.  Of all the
advisory boards, EFAB is outstanding and was so designated by the Agency.

The next meeting date is March 15-16, 2009, in Washington, DC.

Adjournment: The meeting was adjourned at 5:00 p.m.
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                                       Appendix

EFAB Members Present:

    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, Environmental Finance Consultant, 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
    Mary Francoeur, Managing Director, Assured Guaranty Corp. New York, NY.
    James Gebhardt, Chief Financial Officer, NY State Environmental Facilities Corp., Albany,
       NY
    Jennifer Hernandez, Partner/Co-Chair, National Environmental Team, Holland and Knight,
       LLP, San Francisco, CA
    Keith Hinds, Financial Advisory, 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,
       Virginia
    Dr. Andrew Sawyers, Program Administrator, Maryland Water Quality, Financing
       Administration, MD Department of the Environment, Baltimore, MD
    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
    Justin P. Wilson, Partner, Waller Landsden, Nashville. TN

EFCN Directors:
    Sarah Diefendorf, Director, EFC, Dominican University, San Francisco, CA
    Lauren Heberle, Director, EFC, University of Louisville, Louisville, KY
    Jeff Hughes, Director, EFC, University of North Carolina, Chapel Hill, NC
    William Jarocki, Director, EFC, Boise State  University, Boise ID
    Kevin O'Brien, Director, EFC, Cleveland State University, Cleveland, OH
    Sam B.  Merrill, Director, EFC, University of Southern Maine, Portland, ME
    Sara Pesek, Assistant Director, EFC, Syracuse University


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   Joanne Throwe, Assistant Director, EFC, University of Maryland

EPA/EFAB Staff and Management
   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
   Staff Analysts: Alecia Crichlow, Susan Emerson, Pamela Scott, Timothy McProuty

Expert Witnesses:
   Peter B. Meyer, Director, EFC, University of Louisville, KY
   David A. Miller, USD A, Rural Development

EPA: Amanda Aldridge, Office of Air and Radiation; Michael Dean, Office of Water; Joe
Dillon, OCFO/OETI; Jordan Dorfman, Office of Water; Robert Hall, Office of Solid Waste;
Chuck Kent, Office of Policy, Economics, and Innovation; Bruce Kulpan, Office of Enforcement
and Compliance Assurance; Bob Maxey, Office of Solid Waste; Marcia Mulkey, Office of
Enforcement and Compliance Assurance; Len Pardee, Region 6; Dale Ruhter,  Office of Solid
Waste, Bob Stewart, Region 4; and Nena Shaw, Office  of Enforcement and Compliance
Assurance.

Other Guests:
   Sue Briggum, Waste Management, Inc.
   Julia Giddy, University of Michigan
   Meghan Hemenway, EFC Boise State University
   Bob Kerr, Pure Strategies
   Shellie C. McClary, Oklahoma Dept. of Environmental Quality
   Paul Lusty, Lusty  Structures, Los Altos, CA
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               ENVIRONMENTAL FINANCIAL ADVISORY BOARD
                  ENVIRONMENTAL PROTECTION AGENCY
                       SAN FRANCISCO, CALIFORNIA
                             AUGUST 4-5, 2008

	AGENDA	

 AUGUST 4, 2008

  8:00 AM -
 12:00 PM    Project Group Meetings

 12:00 PM-
  1:00 PM    LUNCH

  1:00 PM    REGISTRATION

  1:15 PM    Opening Remarks	Jim Barnes, Chair
                                                         Stan Meiburg, DFO

  1:30 PM    Welcome to San Francisco	Laura Yoshii
                                       Deputy Regional Administrator, Region 9

  1:45 PM    Future's Presentation	Robert Kerr
                                                        Pure Strategies, Inc.

  3:15PM    BREAK

  3:30 PM    Projects Report Out

            Environmental Management Systems	Rachel Deming
            Sustainable Watershed Financing	Lang Marsh
            Public-Private Partnerships	John Boland
            Innovative Financing Tools	Michael Curley

  4:45 PM    First Day Summary	Jim Barnes/Stan Meiburg

  5:00 PM    ADJOURN
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              ENVIRONMENTAL FINANCIAL ADVISORY BOARD
                  ENVIRONMENTAL PROTECTION AGENCY
                      SAN FRANCISCO, CALIFORNIA
                            AUGUST 4-5, 2008

                             DRAFTAGENDA
August 5, 2008

 8:30 AM   Registration

 9:00 AM   Opening Remarks	Jim Barnes and Stan Meiburg

 9:15 AM   Environmental Finance Center Network	Jeff Hughes
                                                          President, EFCN

 9:45 AM   Office of Water Priorities	Michael  Deane
                                               Senior Advisor, Office of Water

10:15 AM   Project Report Out

           Leveraging the SRFs	George Butcher
           Financial Assurance	Mary Francoeur
                Cost Estimation	Kelly Downard
                Commercial Insurance	Justin  Wilson

12:00 PM   LUNCH

 1:30 PM   Clean Water Trust Fund	M. Shaffer

 2:15PM   BREAK

 2:30 PM   Development of Strategic Action Agenda 2009-2010	Full Board

 4:30 PM   Public Comment	Stan Meiburg, Facilitator

 4:45 PM   Wrap-Up	Stan Meiburg

 5:00 PM   ADJOURN
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Environmental Protection
          in 2020
     Scenarios & Simulations
            Bob Kerr
          Pure Strategies

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                      ^2020?
In 2020, EPA turns 50
 - What challenges could government face in protecting
   environment a dozen years from now?    ^^^^

 - What can EPA do to better anticipate potential V
   challenges?
    • To develop sufficiently flexible, adaptive institution?
    • To develop robust approaches applicable to a wide range of
      possible future conditions
Most planning shorter-term., but emerginj
problems complex, long-term

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         Why Scenarios?
Pose a range of plausible but different futures
                                ^
 - Based on alternative extrapolations/projecti
   possibilities from current situations/data

 - NOT predictions
Stimulate strategic thinking about longer-term
problems
Help people think about/see world more broadly

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    Purpose  of Simulations
Simulations place people in the 'future' - the
hypothetical world of a scenario
 - The 'present' for the simulation is the world of the
   scenario (2020)                    ^

 - Conversations from the perspective of the '
   strictly prohibited

Engage participants actively in thinking aboui
prospective challenges we may face by 2020

 - Brainstorm potential robust solutions
   Create opportunity to address future needs outside
   context of own current positions/responsibilities

   Facilitate new perspectives so (post-simulation) look at
   current events more broadly

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   Workshops/Participants

3 workshops
 - EPA staff (December 2007)
 - Innovations Symposium: state environment;
                                 ^^^1
  agency staff & some EPA staff (January 2008)
 - Environmental Summit: businessmen, state
  agency staff & a few EPA staff (May 2008)
Participants immersed for 1A day in 4
alternative/hypothetical worlds in year 2020

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Workshops/Participants (con.)
  All participants posed as experts to post-election
  2020 Presidential Advisory Commission on
  environment                      1
   - Needed bold solutions to recommend to Preside	
   - Nothing out of bounds
  Group divided - assigned to 4 different 'worlds'
  (scenarios)
  Each scenario group developed recommendations
  At end, groups compared recommendations.,
  looked for 'robust' recommendations applicable to
  3 or 4 scenarios

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    4 Scenarios
Market World
Open World



Asian World



Security world

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            Market World
   Decade of extraordinarily rapid growth"
   Efficient capital markets, flexible labor mar
   Increased wealth, but growing rich/poor gap
   U.S. thrives in intensely competitive markets
Continued minor terrorism; not major focus
Government
 - Markets dominant force
   Some states more aggressive regulators than EPA/feds

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 Market World:  Environment
Atmospheric concentration of CO2 has just passed old
IPCC tipping point of 450ppm         ^
Decline of ocean fisheries
Severe water shortages for agriculture, drinking
Desertification
Severe environmental/economic impacts of unconstrained
growth -> fall of China's government
Markets focused on visible/profitable environmental
issues, not 'beneath the radar problems (e.g. ecosystem
services)

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                  en  World
   Rapid worldwide growth & U.S. competitive
 - Major success in alleviating poverty, with explosive
   demand for increased goods, services
 - Dynamic high-tech innovation in efficient,
   environmentally-superior technologies

Security - Terrorism diminished., limited concern

Government - Unprecedented collaboration
   Between government, business, NGOs to tackle
   national & international challenges
 - Between governments

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 Open World>^nvironment
High level cooperation in problem-solving,
technological progress, but growth faster
Problems created by success
 - Increased food demands/shortages
 - Water scarcity
 - Energy demand -> climate change
We're doing the right things, but...

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                vsian World
   Asian (especially Chinese) economy has raced ahead;
   leading in technological innovation  \
 - U.S. less competitive - little investment in R&D
   education, basic science
 - Severe U.S. budget constraints

Security - rise of the rest reduces terrorism
Government

 - Internationally, strong competitors; while U.S. still
   strong militarily, needs to take more collaborative role

 - Domestically, weakened investment in infrastructure,
   science, education

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 Asian World>£nvironment
                               x.
China's continuing massive growth, air & water pollution
spurring investments in innovative environmentally-
superior technologies                   ^^^
EPA/state agency roles limited by budget to enforcing
traditional regulation
U.S. facing challenge of promoting resurgence of
technology innovation & education - looking to build
research capabilities of private universities.

U.S. also faces challenge of being "second banana

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                 ecurity  World
Economy                     \,
 - Global slowdown, increased poverty   ^^w
 - Terrorism damages infrastructure, leads to escalating energy, food
   prices
 - Restricted trade & travel; reduced immigration to U.S.
Security - major increase in terror in U.S. & worldwide
after 2010, slowing by 2020
Government
 - Low trust in government
 - Security investments crowd out other expenditures
   EPA valued for emergency response
 - Increased international anti-terrorism collaboration

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Security World:  Environment
Environment low priority; problems ignored
Economic contraction reduces some impacts, but
climate change, water scarcity still increasin

EPA/state agency roles limited by budget to
traditional enforcement - but even implementation
of this role is erratic

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      Robust Strategies
"Apollo Project" for environme
advanced technologies & economic/
technological revitalization

A "new start" in environmental legislation
Market-based regulatory incentives to
address market failures

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     Robust Strategies  -  2
                              ^^
Collaborative international approaches to
environmental challenges
Government/business/NGO collaboration t(
promote/develop breakthrough network leadersh
strategies
     1
 - Conditions changing far more rapidly than
   governmental (or internationals) institutions can adap
Education/support for changes in consumer
behavior

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     Robust  Strategies -  3
                             •v
Integrate environmental education into all grade
levels, university programs & professional training
Government program to develop new tools,
use of new technologies, environmental threats
Collaborative international programs to address
poverty/gaps in wealth as critical component of
addressing environmental challenges

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                         Jdeas
                                 •^
Examples of ideas that emerged from just 1 or 2
scenario groups                     ^^"
 - Early warning problem identification
 - Sustainable relocation planning
 - Eco-Corps
 - Sustainable relocation planning
 - Comprehensive national environmental offset program
 - Environmental WTO
 - Use of advanced technologies to engage citizens in
   goals/decisions

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    Participant n^sponses
Overwhelmingly positive/enthusiastic
 - Credible portraits of potential futures
 - Able to tackle problems outside of context of ow
  concerns/positions
 - Brainstorming -> creative problem solving
 - Valuable approach to strategy/goals for their own
  organizations
Single most common recommendation: workshops
should be longer

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       Outcomes for EPA
Focus on an array of potential longer-term
challenges                      ^

Engage audiences from diverse background
identifying potential robust long-term strategic

Raise issues important to institutional
development for coping with future challenges
(e.g., staffing, organization, resources)

Develop tool for engaging wider array of
audiences in collaborative strategic thinking

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e Nation s Clean Water Utilities
   EPA Environmental Finance Board 2009 Planning Meetin
           San Francisco, August 4-5, 2008

-------
managem
Serves 1.1 millio
customers in 28
      411 sq
ov

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     Mil
         's Investment
in Cleaner Water
1980's through 199
- $3 Billion Capital
  Investment
- Approximately 45%
  Construction Grant
  Program
  A    •   « I
            J
   \later Fund Loans(SRF).
  This debt will be paid off
   12017.

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                  's Investment
         in Cleaner Water
1994 throuah 2010
- Water Pollution Abatement Program (WPAP)
- $1 Billion Capital Investment
- Entirely financed through cash financing, bonds and
             expenditures
            VPAP
                           f
   debt payments.

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       'hat has been t
        on the Environmen
                                    r:r
10.DW
fr.UCD
o
J
s
              MMSD OVERFLOW VOLUMES
                        3.61.1
              "Ifflffl
        I9W
             1995 19% 1997 1WB 1999 2000 2001 2W2 2003 2004- 2005 2HK SW7 200E-

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                          • ^m
         in Cleaner Water
How will Milwaukee pay for this ???

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        ilwaukee's Financial
5140,000
5120,000
$100,000
580,000
$50,000
$40,000 -
520,000
     2008   2009   2010  2011  2012   2013   2014  2015  2016   2017   201S   2019  2020
         Plants  • Conveyance  H Watercourse  • Other projects  H Debt service

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  Where is t
  fhs Nation
How w/7/ tf?/s Nation pay for this ???

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              Ariel.,.
Clean Water Utilities face new challenaes

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         National Fu
  % of Americans would support federal
legislation that would create a long-term,
Tl jrir IjTf
j ~>j j j v_>j j j j -^
in siria SHITS wsitsr.  L

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           Munici
  Local public debt - secure private investment
  Has been and will be princii
                s turmoil in ths
BCJLliiy/
••BE!

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Private Investors invest in municipal bonds which provide a good investment
           y are backed by "full faith and credit," paid by a stable revenue
stream, and enjoy a federal tax deduction.  We need to look ahead to ways
to stabilize and stren<
Local governments will continue to bear most of the burden for clean water
 - Clean Water utilities are becoming more efficient through asset management
   NACWA index reports recent rate increases of 6% annually above inflatior
State ao
s provide "full faith and credit" for local debt and some
                   historically has provided grant funding and currently
utilizes the SRF loan program as a helpful supplement but will not replace
municipal bonds

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     tional Clean I/I/
 Ml Americans benefit from clean water, so a
                      :" requir"1
               lly for clean \ ^^^^^^^
          	leeds would double thisx
  Approximately $8 billion annually for matching grants
  $2 billion for SRF loans, insurance, guarantees
  Balar mm     •••••••••••••
States would administer this funding and woul
be authorized to lew an increment of thr
Fiinding

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       tional Clean  I/I/
Grant funding, financed by new national revenue, is a real-
$500 million would be targeted for advanced research and
development in wastewater treatment technologies for:
   new aquatic pollutants
   human health-critical pollutants
   energy efficiency and advanced renewable energy delivery
   climate change
And provide sustainable funding for EPA's
 - Section 106 State Management Grants
   "" '   Quality Management Planning  Sec. 303(e) and 208
   Section 319 Nonpoint source program
 - Section 320 National Estuarv Proaram
 - Clean Lakes Proar

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  tional Clean I/I/
Potential revenue so
- Flushable
  Container fee on b
- Industrial discharg
 •••••••   V*
           envii
                     s include:
                         r. etc.
                      ^eigss
                    income tax
           JiuraJ chemicals
venue wo
       to the states u
                      r
                     formula

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           D
                          ;ture networks are
                                lomic
Infrastructure and infrs '    '       '    '
national priorities for jc
develoi
When renewed by Congress, national trust fu
have a long-history of stable and predictab1
sources of fundin
                a national priority and well
  atched to th<
rr
riaiionsu i\
  ustsunsiDJs nsraon
                                        r:
and en
          :ust funds can
age local revenue raising actions

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     Finance Board help
EFAB could assist the National Cleai
Water Trust Fund discussion by focusing
 m how the trust fund can
future problems for Joca
covsrnrrjsm

-------

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  Update on OECA Financial
  Assurance National Priority
  Marcia E. Mulkey
  Acting Director
  Office of Site Remediation Eriforcemcn
Priority Update - First Phase


* First phase of priority focused on two key
  areas:
  j Increasing EPA and state core competency
    through capacity building; and
  j Conducting Preliminary Financial Assessments on
    CERCLA, RCRA closure/post-closure and RCRA
    corrective action targeted universes.
Priority I Update — Second Phase
  Second phase focuses on compliance.
  2010 Goals:
  j 50% of the RCRA Closure/Post-Closure universe
    in compliance or on the path to compliance; and
  -i 50% of the RCRA Corrective Action 2020
    universe in compliance or on a path to
    compliance.
  Expand to include DIG and RCRA Subtitle I
  Underground Storage Tank programs.

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I Understanding National Compliance
Trends - CKRCJ,A
  In FY06/07 the Regions reviewed 221
  CERCLA settlements and determined that 51
  settlements (23%) were not in compliance.
  Regions are currently working to bring these
  CERCLA settlements into compliance
  Total value of settlements approximately
  $376 million.
Understanding National Compliance
Trends - RCRA

  EPA has conducted over 1500 RCRA
  Preliminary File Assessments.
  .j Some violations uncovered are minor.
  j Some violations are more egregious and will
   result in enforcement; some will have Federal
   involvement.
* EPA will work with states and EPA Regions
  to better understand national compliance
  trends.
Use of Financial Mechanisms
RCRA Subtitle C Closurc./Posi-Closurc

RCRA Subtitle C Closure/Posl-Closurc
Financial Instrument
Financial Test
Corporate Guarantee
Letter of Credit
Trust Fond
Insurance
Surety Bond
Total
Number of
Instruments
288
225
435
in
125
87
1330
Value or FA Instruments in
aggregate
3895,730,824
$1,211,665,497
$810,064,813
$146,768,607
$659,183,074
$102,024,989
$3,825,437,803
— xs±r-


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Use of Financial Mechanisms
RCRA Subtitle C Closure/Post-Closure

Financial Instrument
Financial Test and
Corporate Guarantee
Number of
Instruments
38%
Value of FA Instruments
Aggregate
n
$1,107,396,321
or
55% of total

Use of Financial Mechanisms
RCRA Corrective Action
RCRA Corrective Action
Financial Instrument
Financial Test
Corporate Guarantee
Letter of Credit
Trust Fund
Insurance
Surety Bond
Total
Nnmber of
Instruments
66
62
71
26
26
8
257
Value of FA Instruments In
aggregate
$560,986,226
$261,413,506
$171,482,450
SI 1,083,665
$161,381,170
$2,612,700
$1,168,959,717
ttatl aaa&ttt ut pn!imui*y tad u>
IllbJKI 10 (hlnp-

Usi- of Financial Mechanisms
RCRA Corrective Action
UCRA Corrective Action
Finaucial Instrument Number of Value of FA
Instruments Aggregate
Financial Test and 50% $822
Corporate Guarantee
•nl,** w th^gr.

^nstmments in i
,399,732
or
70%


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Key Messages Regarding Data


  Financial Test and Corporate Guarantee are
  extremely important mechanisms.
  Cost estimate is central to success of the
  financial assurance program.
  Market conditions can affect cost and/or use
  of any one particular mechanism.
Capacity Building - CERCI.A
Enforcement Tools

-  OSRE has developed enforcement tools and
  training to help EPA Regions ensure
  adequate financial assurance is in place in all
  future CERCLA settlements.


  We have tightened our model RD/RA consent
  decree language for financial assurance, and
  developed a tool box of sample documents.
Overall Key Messages
   EPA is exploring ways to collaborate
   with the states to develop enforcement
   cases.
   EPA is looking at ways in which we can
   be more aware of developing financial
   news and more adaptive in our
   response.
   EPA is working to improve future
   compliance with the financial assurance
   requirement.

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National Priority Next Steps


  EPA will continue to collect financial
  assurance information and follow-up from
  the file reviews completed in the first
  phase.
  Explore opportunities to address issues
  identified in file reviews.

-------