United States Environmental Protection Agency
Office of the Chief Financial Officer
Center for Environmental Finance
Meeting Summary of the
Environmental Financial Advisory Board
August 9-10, 2010
Pare 55 Hotel Wyndham
San Francisco, California
The minutes that follow reflect a summary of what was conveyed during the course of the
meeting. The Board is not responsible for any potential inaccuracies that may appear in
these minutes as a result of information conveyed. Moreover, the Board advises that
additional information sources be consulted in cases where any concern may exist about
statistics or any other information contained within these minutes.
Prepared by: Neal R. Gross & Co., Inc.
1323 Rhode Island Avenue, NW
Washington, DC 20005
202 234-4433
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Environmental Financial Advisory Board (EFAB)
Meeting Summary
August 9-10,2010
Table of Contents
Day 1:
Opening Remarks and Meeting Overview 3
EPA Charge: Incentives for Financing Clean Air 3
Workgroup Report Out: Financing Clean Air Technology 5
Workgroup Report Out: Financial Assurance (Cost Estimation) 6
Public Comment and Adjournment 8
Day 2:
Opening Remarks 9
Workgroup Report Out: State Revolving Funds Investment Options 9
Discussion 11
Project Planning 13
Fleet Upgrade Financing Program 13
Discussion 14
Environmental Finance Center Network Proposal Projects 15
Discussion 17
Innovative Financing Tools 18
Funding Mechanisms for Tribal and Disadvantaged Communities 20
Leveraging Private Investments to Create Sustainable Communities 21
Discussion 21
Public Comment 24
Summary and Closing Remarks 24
Discussion 25
Adjournment 26
Appendix - Attendee List 27
Appendix - Agenda 30
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Environmental Financial Advisory Board (EFAB)
Meeting Summary
August 9-10, 2010
Tuesday, August 9, 2010
EFAB Board Meeting (1:30 p.m.)
Opening Remarks and Meeting Overview
Michael H. Shapiro, EFAB Designated Federal Official (DFO) called the meeting to
order at 1:30 p.m. He introduced himself as the new DFO and had the members
introduce themselves. Chairman Bradley Abelow said he is impressed with the Board's
work and introduced himself as the new chair. Mr. Shapiro gave some background on
himself. A 30-year EPA employee and Deputy Assistant Administrator at the Office of
Water, he has worked in many parts of the EPA. He said EFAB's work is unique and
influential, and this is an exciting time for EFAB. Many projects were completed just
before the last DFO stepped down, so there is an opportunity to identify new activities to
benefit the Agency and the environment. He said his job as DFO will be to move the
process along and provide support to the Board.
EPA Charge: Incentives for Financing Clean Air
Jim Eddinger of the Energy Strategies Group, Office of Air and Radiation, gave
background on two new rulemakings. Both rules deal with boilers in industrial,
commercial, and institutional facilities. The two rules cover large and small boilers in
industry, institutions, and commercial settings and set emission limits for all boilers
burning coal, biomass, and oil. There are no emission limits in the rules for gas-fired
units. EPA proposed the rules in June, and they have to be promulgated by December
2010. To meet the rules, facilities will have to put on control equipment at the cost of
millions per boiler. The Air Office is looking to see if there are incentives that can be put
out to have people install more energy-efficient and less-polluting boilers, such as
switching to cleaner fuels or retrofitting the units into a combined heat and power
systemresulting in greater efficiencies and less pollution. He asked if the Board is
interested in coming up with financial incentives to help the facilities and drive them
toward installing more efficient technologies rather than adding control equipment.
Member Lindene Patton said the implication is that businesses will not convert to more
efficient systems because the Maximum Achievable Control Technology (MACT) is
cheaper. She asked about identifying cost-benefit analyses, which will help frame out the
recommendations. Mr. Eddinger said there had been a cost analysis on the control
equipment. In most cases, the cost of changing the system (e.g., fuel switching) is higher
than the cost of adding control equipment. All facilities are required by the ruling to do
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an energy assessment to identify cost-effective energy reduction or conservation
measures, but the rule does not require them to implement the findings. Though it will
save money in the long run, many companies do not have the money to implement the
changes.
Member Rachel Deming asked if the Board should be identifying those benefits. Mr.
Eddinger said that in the long term, the MACT does not deliver the same benefits. There
was discussion on regulation having been on retrofits in the past, and the charge seems to
ask if there is a better way to encourage a different kind of compliance. The Board
should look to find benefits of a complete replacement or upgrade and figure out an
incentive related to that. Part of the work has to be narrowing the scope. EPA is looking
for a way to incentivize upgrades over retrofits without mandating it. The upgrades
would be a step beyond meeting the regulation. Since each industry has a different
structure, it would be helpful to know which industries EPA is most interested in hearing
from the Board about. The information could foster a communications package outlining
the near, medium, and long-term financial benefits to the industries. This initiative is
similar to green buildings, in which up-front cost is exchanged for long-term savings. It
is possible that information alone may be enough to make financial institutions willing to
finance the upgrades. It is important to consider who will be the beneficiary of the
information: the financial sector, the risk management sector, and environmental non-
governmental organizations (NGOs).
Mr. Eddinger said EPA is most interested in the most energy-intensive industries, such as
the pulp and paper sectors and institutions such as universities. Switching from coal
would improve emissions. Member Philip Johnson said some things may not require
financial incentives so much as synergy between EPA and Department of Energy (DOE).
He used the example of research and development of biomass technology by DOE that
may be compatible with EPA goals. Mr. Eddinger said EPA is limited by the Clean Air
Act but is talking with DOE.
There was discussion on whether or not the court cases on the Clean Air Act take into
account the evolving technology. The MACT program is based on the average emissions
of the best 12 percent of existing units. Courts have vacated rules when EPA has gone
outside of that, so EPA is looking for a way to develop an incentive rather than a rule.
Member Steve Thompson noted that the MACT standard is one of many air quality rules;
it is important for the Board to understand the complete context to avoid driving
decisions that conflict with other requirements. Mr. Eddinger said EPA is trying to
develop an approach that looks beyond a single rule and at the entire sector. Member
Steve Thompson said natural gas is often the solution. However, a fuel-switching
recommendation should not consider natural gas a silver bullet.
The members discussed limiting the scope of the charge. The Board can speak to the
array of issues and considerations involved in making the change. They also noted that
there may be an economic value to reducing energy usage, but there is no immediate
value to a company in reducing pollution. There should be a risk management analysis,
including reputational implications and other liability and risk issues. The issue must be
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framed appropriately, since financing won't fix what the authority cannot do. There has
to be an outreach program. The large major source facilities are aware of the MACT, but
the Area Source Rule may affect 90,000 facilities that may not know it is coming or what
to do about it. The larger impact may be on the smaller facilities, which may be unaware
the rule is coming.
A comment was made that it may be a matter of having a dialogue with EPA in the
framing context that says what kind of white paper is wanted, perhaps making the
facilities aware of the rules, how to go beyond them, and financing options. It is
important to narrow the scope. The Board's role is to define the cost/benefit analysis and
to identify the financing options. Mr. Eddinger asked if it was a large leap between the
cost/benefit analysis of compliance and going further toward energy efficiency, such as
industry subsidies. The question is what public policies do or can affect the decision.
The morning's discussion had touched on the decision being linked to what rules
facilities have to comply with. The analysis can be provided if the target companies are
narrowed down.
Work Group Report Out: Financing Clean Air Technology
Member Sharon Dixon Peay, Chair of the Work Group summed up the Group's
morning discussion. The scope and timeframe were primary concerns for the Work
Group, so they discussed what would be achievable and useful. She thanked the
members who joined the Work Group and Mary Francoeur for being co-chair. Mr.
Eddinger had given the Group a presentation on the different rules and whom they affect.
The Group drafted a few questions and a tentative schedule.
Different members were assigned to look at different topic areas before another meeting
in four to six weeks. The areas to research were: looking at the regulations affecting air,
both proposed and in effect; looking at economic benefits to boiler owners; looking at
what currently happens with the boilershow they are paid for, the cost of new ones; and
communicating with DOE and EPA about what's being done and where the money is.
Members will work on those topics and hold calls on the information. There will be
sessions with research staff and dovetailing with work already being done by the
Environmental Finance Centers (EFCs). The schedule is to have working meetings in
October and November to look at the analysis and the research and to brainstorm an
outline for recommendations. Member Sharon Dixon Peay had expected to have an
outline by mid-December, but that is ambitious. The problem is the size of the project, so
it is important to define the question narrowly.
The rule was scheduled to be finalized by December 16, but there may be an extension of
at most two months. Facilities will have three years from fmalization to be in compliance.
During this time, facilities will be making a lot of decisions. The Work Group could
prioritize the deliverables, such as rolling out the broad cost/benefit analysis first, since
that is what companies will do first. Financing alternatives can be second.
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Mr. Eddinger said the issue is not so much going beyond compliance but finding other
ways of complying with the standard, such as more efficient, lower-emitting boilers. The
incentive can be the built-in efficiency or some other benefit. EFAB can also look at
financing techniques such as bonds. The goal is to have the information in time for the
outreach program in the first year after the rule is published. EFAB can contribute
follow-on work after the publication. This rule covers electric utility boilers of less than
25 megawatts; so many municipalities with small generators will be subject to the rules.
The charge letter does address financing mechanisms. There was discussion on outreach
to air pollution control and technology venders. Mr. Eddinger said vendors will be doing
outreach to facilities and are already contacting EPA for information.
Member Sharon Dixon Peay said the initial step is cost/benefit analysis and the inputs
facilities should look at for long-range planning. The Board can provide analytical inputs
and considerations that would be more independent than those the venders will provide.
Members noted that IPCC and DOE has already done work on this and discussed holding
a workshop to gather that work. Finding a date will be tricky, but a web-enabled
approach will bring in more experts.
DFO Shapiro said Gina McCarthy has commented that industry will invest billions of
dollars due to the regulations, and that investment will lock them into certain
technologies. The choice is whether to invest in yesterday's technologies or technologies
that will be more sustainable and robust in the long run. The question is what will make
the industries make the latter decision? This issue can be a template to investigate the
nexus between environmental and energy finance issues, which will be coming up
repeatedly in the future. DFO Shapiro said it also reflects the theme for this
administration of the transformation to newer technologies that are more energy efficient
and more sustainable, achieve multiple benefits, and achieve breakthroughs in
environmental management. There is intense interest in bringing new technologies into
common usage. Another issue will be discussion with states regarding their role in it.
EPA has had discussions with state and local governments prior to the proposal.
Work Group Report Out: Financial Assurance (Cost Estimation)
Members Mary Francoeur and Cherie Rice reported for the group. Member Mary
Francoeur said the Office of Solid Waste and Emergency Response (OSWER) first asked
the Board to look at aspects of the financial assurance requirements in 2004. The charge
to the Board was multi-faceted and required an iterative approach to the questions. In a
series of reports to the EPA, the Group addressed the financial test as a financial
assurance mechanism, captive insurance, commercial insurance, and associated
questions. They have made recommendations to the Agency on how to improve the
efficacy and efficiency of those financial assurance instruments. The financial assurance
requirements were based on the cost estimates, so if the estimates were inaccurate,
financial assurance will be inefficient and ineffective. After the March meeting, there
was a discussion with state regulators on their concerns, which enabled the report to
make solid, reasonable, and implementable recommendations. The expectation is that the
recommendations will go to the Agency.
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Member Cherie Rice reviewed the recommendations. She said there are two sets of
challenges to deal with: substantive issues and procedural problems. Under substantive
issues, the first problem was incomplete estimates, often due to failure to include all types
of costs or too narrow a scope of work. There is a financial motivation to understate
costs to reduce the cost of financial assurance. Estimates for corrective and remedial
action will change over time, due to gaining more information about how to fix the
situation. Additionally, changes in technology and law affect the remedy. The two
procedural factors were availability of information and resources. There is no centralized
database for cost estimation data, and what data is out there has not been gathered in a
standardized format. Even definitions aren't standardized. There is a constraint of
resources to apply to cost estimation. Standardized tools like CostPro and RACER have
licensing fees, which state budgets often do not allow spending for. There must be
ongoing training for regulators so they can improve their expertise; funding for training is
often hard to get.
The recommendations focus on addressing the above factors. The first recommendation
was that the appropriate individuals from EPA headquarters participate in the quarterly
conference calls between regional staff and state representatives. Second, the Work
Group suggested that the Agency solicit input from private sector, Resource Conservation
and Recovery Act (RCRA), Superfund project owners, and project insurers who may
have valuable information on best practices and the best sources for cost data. The third
recommendation was for EPA to create standardized templates or checklists to be used in
the cost estimation process for a variety of types of projects. Some states have checklists
and templates that can be used as starting tools. The fourth recommendation was that an
ongoing body of knowledge regarding cost estimation be created and made available
online. To maximize usefulness and accuracy of the data, there should be analysis on the
eventual accuracy of the estimates. Some cost estimates that have had significant
shortfalls can be collectively reviewed for commonalities to use as future red flags. Fifth,
EPA should incorporate best practices and insights gained from the review activities into
further cost estimating training that can be provided to state estimating personnel on an
ongoing basis. The final recommendation was for EPA to issue guidance clarifying the
circumstances in which estimates should be updated because there is not consistency on
updating estimates. Projects with higher levels of complexity should have more frequent
cost estimating requirements. When a project moves from one phase to another, there
should be an updated cost estimate. In no case should reviews be done less than every
five years.
DFO Shapiro commented that the recommendations seemed obvious and that the Agency
should already be doing these things. Member Cherie Rice agreed that they should be
doing these things, but they are not. There was discussion on EPA's likely reception of
the recommendations. The Board adds value through its commonsense approach, and
things that may seem obvious are less obvious outside of the recommendation process.
The Agency has not been focusing on financial instruments the way the Board has been.
The Work Group engaged a number of stakeholders to reach these recommendations.
Much of this work is overseen by the state regulators, so coordination is an issue. DFO
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Shapiro commented that the Agency approach to cost estimating may be different from
industry practice. Member Cherie Rice noted that the cost estimates for financial
assurance may be different from estimates to actually complete the work. Part of the
report is intended to make the two cost estimates more similar. The fact that the projects
are unique makes this more complex. Member Mary Francoeur said the technology and
knowledge has developed considerably in the last 20 years. Cost estimating for RCRA
and Superfund is different from balance sheet estimating. The recommendations are
helpful to clarify and go back to the basic framework of what needs to be considered
going forward and to encourage greater utilization of the knowledge gained to date. DFO
Shapiro asked about applicability to other parts of the agency, such as the Gulf cleanup.
Member Mary Francoeur said the important thing is the idea of revisiting the situation as
more information becomes available. Cost estimation is not static.
The next steps are for the Board to review the recommendations and provide any
comments to the Work Group co-chairs by September 1. There was a question about the
scenario in which there would be five years between cost estimates. Member Mary
Francoeur said there are RCRA and Superfund provisions for revisiting. After
completion, when there is 30 years of operation and maintenance, there has to be regular
reporting, and if the parameters are in line with expectation, there can be five years
between re-estimates. There was discussion on monitoring of the cost estimate and
annual renewal of the financial assurance instrument. There could be a review and update
of the cost estimate at that time, but that is not the current practice. The recommendation
is to renew the cost estimate at least every five years and in many cases more frequently.
One other item from the Work Group was that earlier reports recommended use of
independent credit analysis of the insurer. The Financial Reform Act references use of
ratings by federal agencies. This may affect those recommendations, so the Work Group
recommends issuing a letter to the Agency suggesting that the Office of General Counsel
(OGC) look at the law and recommendations to address those issues. Some other
agencies have stopped using the rating agencies until they get clarification.
The last item was to go back to the OSWER to see whether the Agency wanted the Work
Group to continue on the existing charge or for the Work Group to sunset. To a question
on the public perception of rating agencies and the Work Group's recommendation,
Member Mary Francoeur said independent credit analysis has value, but the Work Group
does not yet have a position on that. They are valuable but limited tools.
Public Comment and Adjournment
DFO Shapiro called for public comment. Hearing none, he adjourned the meeting for the
day.
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Tuesday, August 10, 2010 (9:00 a.m.)
Opening Remarks
DFO Shapiro called the meeting to order and ran over the highlights of the agenda. After
the report out on State Revolving Funds Investment Options, the main theme of the day
would be project planning, which is an active topic.
Work Group Report Out: State Revolving Funds Investment Options
Member Jim Gebhardt, Work Group Chair, said the report has been long in the making.
It grows out of the 2008 leveraging report and the conclusion that the investment side of
the SRF equation is not being looked at by the states as much as they should be to
maximize the value of the state revolving fund (SRF) efforts. The Work Group's report
was lengthy but not exhaustive, since it does not contain the Excel Model that was vetted
by Bank of America and Merrill Lynch, but the back of the report was built out with this
model in mind.
There is a continuum of modeling for funding used at the state level, from the direct
financing model to various leveraged models. Under direct funding, federal and state
contributions are lent directly to local governments and the money is recycled after
repayment. In leveraged models, the federal equity is invested in a reserve and the state
borrows money on the marketplace. In another model, both equity dollars and bond
proceeds are used to make loans. In other iterations, there is a sinking fund from the
federal and state equity that is paid out as financial assistance to local governments. Both
the money and interest are paid out, so the fund diminishes over time. The amount of
money allocated to a sinking fund is less than what would be allocated to a reserve model
to deliver the same level of financial assistance. The difference could go into a long-term
investment account to grow back the sinking fund dollars over 20 or 30 years. New York
and Connecticut have been the first to use this leveraging strategy.
The investment authority works on what they do with the dollars between project stops,
and the focus is mostly on short term investments. Most authorities have not progressed
beyond treasuries and other high-quality instruments. In 60 percent of the cases, the
investment is done by state treasurers or investment boards. In the remaining cases, the
SRF administrator chooses the investments. The investments focus on safety, not
performance.
The leveraging model investments try to expand funding capacity to fund more projects
with the tradeoff of investment earnings growing more slowly, as opposed to an interest-
charging loan program. In the blend rate models, both the equity and bond sides go into
program funding. The reserve model side has more considerations: safe investments and
being able to invest in instruments that synchronize with the cash flow on the bond issue.
About 13 states operate on the reserve model and rely on an investment agreement
relationship to drive the interest earnings that delivers a subsidy to the communities. The
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model structure worked well, but the investment market was spotty at times. Many
providers did not want to collateralize the investments. With the drop-down of federal
appropriations, capacity constraints grew. Facing reduced appropriations, they modified
the reserve model to the sinking fund mode, in which recycled dollars were invested in a
sinking fund at the time of the bond sale, and future cash flows were immunized by the
sinking fund that matched interest subsidies to be paid out over 20 or 30 years. The
remaining dollars were invested long term or thrown back into the next year's intended
use plans (IUP). The report looks broadly at the SRF in the context of a wider authority,
recognizing the properties of the SRF and what it has become: an environmental
endowment designed to operate in perpetuity. Thinking of investing beyond high-quality
fixed income asset classes can raise concerns and political cross-currents.
The report looked at New York and Connecticut as examples and looked for proxies
similar to SRFs, such as the Texas School Permanent Fund, the Nature Conservancy and
the Great Lakes Protection Fund. All of these funds use both fixed income and total asset
class investments to maximize long term returns. The report contains SRF investment
models using leveraging model 2.0, a sinking fund, looking at a model investing solely in
treasuries. Using only treasuries, the yields are lower and there is a high degree of safety.
There are capital savings that can be reallocated in real time. Another model was to mix
treasuries and taxable municipals AA or better. There, the savings ranged from 26 to 28
percent on a per-deal basis. With a small allocation to equities of less than 5 percent, the
value of the returns escalated dramatically from 1990-2010. A fixed income investment
is a known quantity, and equities are volatile. The report assumed volatility, but the
equity is not tapped until it is time to return it to the fund, so time in the market reduces
volatility.
There were ten findings:
The broad SRF investment authority established by the federal Clean Water and
Safe Drinking Water Act is largely underutilized;
All state SRFs manage their investments in accord with local statutory investment
authority;
The majority of states limit investment considerations to short term instruments
that compliment direct or blend rate funding models. For most of these states
investment authority is limited to short term instruments that are used when
investing idle funds;
States managing leveraged programs based on the reserve model operate with
broader investment authority with respect to permitted investment horizons and
long term structured investments;
Twenty one states have statutory authority to broadly invest in taxable municipal
securities. It is not clear the extent to which maturity limits govern investment in
these securities;
Only two states, the states of Connecticut and New York, have utilized their
investment authority to manage long term investments outside of specifically
pledged reserves;
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Integrating long term investment strategies and a state-of-the-art funding model
has resulted in a life-to-date capital savings rate of greater than 25% for the New
York SRFs;
The integrated funding and investment models adopted by Connecticut and New
York have attributes of well established endowment and pension fund models
which are responsible for investing for both current income and fund growth;
SRF Investment authority and funding models are designed to sustainably manage
contributed federal and state dollars with minimal consideration for the time value
effects. No mechanism currently exists to sustain fund operations based on
endowment or pension based investment strategies. Adopting such strategies will
require U.S. EPA, stakeholders, and state policy makers to re-think the asset side
of SRF balance sheets and give serious consideration to the role of the investment
function in growing the capital base of the program to provide the resources to
sustain fund operations by preserving monetary time value by authorizing long
term investments that include asset classes that can deliver meaningful real
returns; and
The results of investment scenarios developed for analysis and incorporated in the
body of this report suggest that SRFs can develop new funding and investment
models that can capture higher returns that can raise SRF returns. These scenarios
further demonstrate that inclusion of investments that can deliver higher total
returns than fixed income assets can be added to the investment mix on terms that
are consistent with current SRF income requirements and which can boost fund
sustainability by making investments capable of generating meaningful real
returns.
Based on these findings, the Work Group offered three Board recommendations:
That U.S. EPA identify and promote SRF state-of-the-art investment practices
that support more productive utilization of SRF funds among headquarters and
regional SRF staff;
U.S. EPA staff work with stakeholders and SRF administrators to model language
changes to the Clean Water and Safe Drinking Water Acts that broaden
investment authority to include both fixed income and capital growth asset classes
to the stable of permitted investments that SRF administrators can utilize; and
U.S. EPA develops model regulatory language that would establish the
parameters that would effectively govern SRF investment among asset classes.
Discussion
There was discussion on EPA seeking changes to the Acts. EFAB has urged EPA to seek
changes to laws in the past, but EPA does not commonly seek such statutory changes.
DFO Shapiro asked if recommendation three should occur if two is not adopted.
Member Jim Gebhardt said the model language could still be guidance to the states.
There are many other types of investment that can be investigated outside of the scope of
earned interest.
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There was discussion on broadening the statute with a less prescriptive approach so that
changes to the state programs would be allowed, not prescribed. However, since each
state has its own investment parameters, they are still limited by their own statures and
regulations. Member Andrew Sawyers said the concept is innovative, but there are
parameters working against doing it in other states. There are nearly 28 states where the
fund is invested directly by the state treasurer, who will not want to relinquish that
authority. Member Mary Francoeur observed that highlighting how to invest those
dollars will draw attention to the fact that the SRFs have this money. When governments
try to raise money by investing, there are dangers. When there are investment losses,
there is the question of who is responsible. Member Jim Gebhardt said retained earnings
could be considered a buffer for investing beyond fixed income.
Member Thomas Liu commented that the report is not meant to address investment issues
in all 50 states, only opportunities that currently exist in a handful of states, especially
larger states that have the staff to manage an investment portfolio. Interest rates are
currently low, and many providers of guarantee investment contracts face financial
problems. SRF programs are victims of their own success because many are running
against leveraging ceilings. By growing assets, the states can expand leveraging
capacity. Member Sharon Dixon Peay said the SRFs have a long track record and should
look to ways to increase the self-sustainability of the programs. This is an area SRF
managers need to pay more attention to. States will be called upon to use the funds more
efficiently and to provide more funding over time.
There was debate on market investments rather than projects. Under the current Act, the
retained earnings are viewed as part of the funds, so they are limited. While there is a
need for flexibility, nontraditional sources of funding can be a red flag to some. Member
Jim Gebhardt said the point of the investments was to bring greater value to the
programs. This is a way of making the SRF perform with less assistance, which is a
future possibility. There was an inconsistency in risk appetite among the members.
Members felt that issue had to be addressed if the Board was to support the report. With
risk assumption comes accountability, and the actions of the SRFs must be within the
law. Member Andrew Sawyers said most states will not attempt these riskier funding
mechanisms. DFO Shapiro said there were a limited number of scenarios in the report,
and they might want to run a scenario in which the investment does not do well. The
years 1990-2008 was a time of special growth, so there should be a worst case scenario to
offset that. Member Jim Gebhardt said the model is designed for the equity to be
harvested after 20 or 30 years, and even tax-free bonds can show negative returns.
Member Greg Swartz said many states are not even aware that they have an SRF. He
commented that there are many people who may make mistakes with this approach. He
expressed concern that locking up the money in equities means there will not be cash to
originate loans, meaning more leveraging. Expectations must be managed, and most
states do not have the time or resources to do this.
Member Jim Gebhardt requested comments by September 1 so there can be a redline
version and a submission in October. Commenters were requested to provide solutions,
especially regarding the third recommendation. EPA counsel will be contacted on the
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idea of sharing and providing tools, but the recommendations as written may not fit
within that goal.
Project Planning
DFO Shapiro directed the members to the established criteria for projects, which are six
questions to ask about a proposed project:
Does it fit with EPA goals and priorities?
Is there a client?
o EPA
o EPA partner (e.g., state/local government)
Is the project within the Board's capacity?
Can the Project be completed in one year?
Are specific recommendations likely?
How strongly does the Board support the project?
Is there an opportunity for partnering with the Environmental Finance Center
Network?
Is there a need?
Chairman Abelow reiterated that they are guidelines, not scoring criteria. DFO Shapiro
introduced a number of project proposals so the Board could think about which ones to
pursue and begin to form work groups. EPA is eager to use the Board's expertise and to
define cross-cutting themes, including technology innovation to support the environment
in energy, water, air pollution control, efficient operations, technologies that achieve
multiple benefits, technologies that help sustain economic growth while addressing
environmental issues, and getting those technologies out of the lab and into
implementation. The EPA charge on incentives for financing clean air technology is an
example of this interest. The second theme is the notion of equal access to environmental
equality. There are still groups within society that for historic reasons have not kept pace
with environmental benefits, such as rural and tribal groups, as well as some urban
groups. It is important to engage these groups. The third theme is the notion of how to
use the tools and authorities within the Agency to incentivize and complement trends
toward sustainable development, using the EPA, Housing and Urban Development
(HUD) and Department of Transportation (DOT) partnership to coordinate
environmentally and economically sustainable development and redevelopment patterns.
Fleet Upgrade Financing Program: Expansion of the Clean Water SRF
Operating Model to Mobil Air Source Contaminant Mitigation
Member Jim Gebhardt said the SRF Work Group had discussed eight proposed projects:
(1) making more efficient use of SRF funds for land conservation; (2) undertaking a
comprehensive review of cross-state border funding opportunities, such as watersheds;
(3) looking at the SRFs from the standpoint of sub-pooling arrangements; (4) capturing
the value of the SRF guarantee authority; utilizing surplus SRF credit capacity to expand
the scope of SRF finance beyond the traditional SRF footprint: air deposition remediation
and energy finance; (5) looking at designing a basket of SRF standardized performance
measurements that EPA can use to make SRF policy decisions; (6) the issue of green set-
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asides and how states are addressing the mandates out of ARRA and the 2010 grant
awards; (7) and to look at the SRF changes coming out of the ARRA statute; and (8) to
make sense regarding what is and what is not working. The topics of greatest interest
were the cross-state border opportunity; the sub-pooling arrangements; looking at surplus
SRF credit capacity and moving beyond the traditional SRF footprint; and land
conservation. The Work Group will follow up the discussions in September.
One of the primary focuses in New York is a climate action plan being assembled to
define what a 2050 low-carbon New York economy would look like. The Governor has
directed state resources in that area, and there is supposed to be a report in autumn.
Transportation is a large issue, particularly moving private haulers toward state of the art
vehicles. The Environmental Facilities Corporation saw that the SRF could be a partner
on this. Private guarantors not weighed down by residential mortgage exposure have
been successful providing guarantees in the municipal market because they have a
balance sheet of long and short investments to address payment claims that arise for
insurance policies they have underwritten. Using leveraging 2.0, there is a stable source
of dollars to support other kinds of credit exposure. New York has half a billion dollars
of long term investments on the balance sheet, which re-grows the capital base and can be
drawn upon to stand behind risk exposures to further SRF objectives.
EPA has identified the classes of projects eligible under the statute as interpreted by the
agency. One of those items was air deposition remediation, since the emissions fall into
water bodies. That creates a nexus with vehicles. New York crafted a new indenture that
flattens the reserve requirements, making more resources available, creating credit
capacity to make guarantees for those the SRF cannot give subsidies and to address other
issues. New York plans to provide AAA financing to the fleet vehicle community,
working with vendor financiers and other lenders. The clean water SRF can be a partner
for those in New York working on air emissions problems, using the SRF for fleet
enhancement by providing access to better financing terms and a payment period closer
to the life of the vehicle. This is in a conceptual stage; it might be introduced is the 2012
intended use plan at earliest.
Discussion
Member Jim Gebhardt said EFAB can define the financial investment architecture
available to SRFs, perhaps including this as part of the toolkit. The subject is researched,
so it would not be an extensive effort. Member Karen Massey had mixed feelings on this,
since New York's SRF program is so different from any other SRF and may not be
applicable to most states. Member Jim Gebhardt agreed but said all states should be
looking at how to make the most of the resources they have. Joanne Throwe, from the
Maryland EFC said that in Baltimore vehicles that are made in 2007 are not widely
available for purchase due to mandates in California and now, New Jersey/New York
Ports that are trying to get all their old trucks off the roads. She wondered whether Mr.
Gebhardt's effort is for long haul or short haul trucks because they are separate clients
with different needs. She said it was very difficult to attract short haul clients without
covering up to fifty percent of the cost of the truck in the form of a grant along with a low
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interest loan on the amount remaining. That wouldn't necessarily be the case for the long
haul trucking industry. In addition, truckers tend to have low credit scores making it very
difficult to get a loan. Another difficulty is that truckers don't seem to be very interested
in retrofits, and they want to keep their trucks as long as possible. It is a hard sector to
penetrate but it can be done if the program is specifically designed to meet the needs of
the owner/operator.
Member Doug Scott raised two points. His SRF is over-subscribed with ARRA fund
requests at 18 to 1. Part of his concern was that SRF funds can be cut, and it cannot be
the funding source for everything. Combined Sewer Overflows (CSOs) alone can eat up
the whole fund. The 2007 guidance can be used to retrofit coal-fired power plants. The
state has not run out of the traditional things they have to use SRF for. In the discussion,
use of SRF funds for this project was questioned. Those who own the assets will roll out
new vehicles over time without the program, and there are many other needs to be met.
Member Jim Gebhardt said this effort does not subtract from SRF efforts due to the
abundance of credit capacity for offering market access at preferred rates, which comes
from repositioning the SRF. No SRF dollars are allocated to support the program.
Member Andrew Sawyers said it is an eligible activity under SRF, but it is unlikely to
make a fundable range. It is unclear what the Board can do on the subject. There was
concern that if the Board approved of that method, EPA would pressure other SRF funds
to do the same. Other states have other priorities. Ms. Joanne Throwe added that New
York and New Jersey Ports are phasing in a mandate for newer trucks going into the port,
so an incentive exists there that do not exist in places that have no mandate but want to
develop a voluntary program. Member Leanne Tobias suggested that the Board
recognize that its recommendations are advisory and that all recommendations are
options, not edicts. A report on fleet upgrades is not a mandate to all SRFs and states,
just an option that can be considered.
Member Jim Gebhardt said there have been credit enhancements in the past. Ohio has
used SRF money to finance brownfield cleanup and used credit enhancement. The
brownfields were over aquifers and along riverbanks with direct implications to water
quality. SRFs jump started the infrastructure for brownfield financing. The Clean Ohio
Program started as a result of the SRF funding. DFO Shapiro did not ask for a closure
vote.
Environmental Finance Center Network Proposal Projects
Heather Himmelberger, President of the Environmental Finance Center Network and
Director of the New Mexico Institute of Mining and Technology EFC, distributed a
handout from the EFCs describing activities. EPA's Environmental Finance Program
webpage now has a link to all the EFC pages. She provided feedback on potential
collaborative efforts.
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Jeff Hughes, Director of the University of North Carolina EFC, said he has been working
with communities, states, and local governments to develop financing programs with
ARRA money. One thing state and local governments were going to use the money for
was voluntary environment improvement bonds (VEIB) and deployed under Property
Assessed Clean Energy (PACE) programs. The recommendations on VEIB are outdated
due to a ruling from the Federal Housing Finance Authority. Communities are using
alternatives to PACE, such as credit enhancements for unsecured loans backed by loan
loss reserve funds. Many states, especially Pennsylvania, have become involved. The
Pennsylvania state treasurer has moved into a warehouse role with the investment funds
to support the programs. Member Jim Gebhardt commented that New York is having a
conversation with the energy agency to provide credit capacity out of the SRF under the
investment authority.
Joanne Throwe, Director of the EFC at the University of Maryland, spoke about Ports
and stormwater. There are opportunities in the port communities to work on air
deposition, environmental justice, climate change, and energy by greening the Ports.
Beyond trying to improve air quality with securing newer trucks that service the Ports,
there are other sectors that should be considered, including the harbor crafts, cargo
handling equipment, and locomotives. The Ports are very receptive to new ways to green
their Ports but are in need of innovative financing to make that happen. The communities
that surround Ports are in dire need of help to improve their air and water quality. Ms.
Throwe proposed that EFAB look at ways to assist with that.
In regards to stormwater, some of the smaller communities that are not a Phase 1 or 2
community but still have stormwater management issues, need assistance with financing
their stormwater management programs. These communities are the ones who do not
have access because of their small size to state revolving loan money. Financing
stormwater management issues is done piecemeal through small grants and is not
sustainable. Getting a stormwater fee passed in the community is often very difficult.
Communities often reach out to the EFCs for help and it is a very hands-on effort and
could be a great opportunity for EFAB to help.
Sam Merrill, Director of the EFC at the University of Southern Maine, commented that
Maine had a working group write a policy and analysis piece looking at equity and
efficiency tradeoffs of different models of setting up regional stormwater utilities,
looking at who bills, who pays, and where the service is provided. There is a nexus
between the financial realms and the local political realities. There is an opportunity for
EFAB to educate local elected officials who are trying to do this.
Ms. Heather Himmelberger said one of the largest issues related to sustainability is the
engineering community, which is stuck in an old business model. Solutions should be
incentivized in a different way to encourage sustainability over size. EFAB can start a
dialogue on this.
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Kevin O'Brien, Director of the EFC at Cleveland State University., said his Center and
the University of Maryland EFC have been working through different projects in the
Mid-Atlantic to create a nitrogen trading market to rid the Chesapeake Bay of high
nitrogen content. There are many aspects on the table for a discussion that may not
become a full recommendation to the EPA. It may be related to third party funding and
loan guarantees to ensure that the credits have value. Mr. Kevin O'Brien will put
together a one-page request for EFAB assistance that will be circulated soon to expand on
the request to EFAB.
Discussion
Ms. Heather Himmelberger opened the floor for discussion. Member Leanne Tobias said
there was interest in working on the VEIB follow-on in the Innovative Finance
Committee. She said if there is support in EPA to address the subject, there is
tremendous need for a broad-based discussion of energy efficient underwriting standards
and what a mortgage holder has to know to determine whether to grant permission for the
loan to be underwritten. Another area was the issue raised by the California lawsuit that
questioned Fannie Mae and Freddie Mac's right to challenge the standing of the local use
of tax assessments. She said if EPA is receptive, EFAB could do some short term good
on the VEIB issue.
Member Andrew Sawyers said one of the problems with stormwater is getting the projects
to rate high enough. The SRF is working with municipalities on MS4 permits to separate
stormwater and sewer systems and asked them to come to them with an MS4 permit. The
states have an interest in funding such projects. Municipalities without MS4 permits are
not being helped unless they are needy communities that rank highly in terms of need to
the state. He added that, regarding nutrient trading, the SRF tends to finance offsets. He
noted that Virginia has a nutrient exchange program and Pennsylvania is going through
the legislative session trying to work out their program. There was discussion on the lack
of a single strategy on the Chesapeake Bay.
Member Karen Massey suspected that the Fannie and Freddie issue will be finished
before EFAB can do anything. However, she has been working on best practices for
PACE programs. Missouri is looking at underwriting criteria and best practices on those
types of areas. There already are best practices out on residential underwriting criteria.
There was discussion on the Board's charge, which is to address how to pay, but how to
pay for what is part of the question. Members said the meeting had been full of individual
projects to fund but no linking to a sponsoring section in the EPA or to a citation to
specific statutory authority. There was concern about the use of leveraged federal
government money to pay for things that will never raise capital. More information and
is needed to make recommendations. For innovative technologies, there is a tremendous
supply side push, but essential services are bounded by consumer price protections.
When prioritizing the how to pay question, the Board must be cognizant of social
limitations.
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Member Mary Francoeur said of the VEIBs that she is put off by the Fannie Mae and
Freddy Mac determination. When people vote for local bonds, they are creating a lien on
their properties. She asked if the Board wanted to address that fact as a follow-on
comment to their recommendation on VEIB and their use for PACE programs.
Member Eric Draper said stormwater funding is a large issue in small communities.
There is a strong response in the local governments on how to finance water treatment to
meet the new criteria. There will be a need to work with local governments to meet the
new standard. Regarding PACE, many things have been financed based on the
assumption that property values would continue to rise. The decrease in property values
requires that governments rethink how to finance water quality improvements. The point
was raised that there is a client within EPA. After permits are issued, municipalities have
a limited time to build the projects, and they are having difficulty financing the
improvements. This is an area for EFAB to work on.
Member Sharon Dixon Peay commented that Connecticut has been doing nitrogen
trading for several years. It is important to know what EPA wants to find out about
nutrient trading to support that effort and link it to the processes already in place.
Member Keith Hinds said the Board meetings usually have roundtable discussions
applying the criteria to projects, including having a client who needs the work, followed
by a vote. He said he was pleased to see Fanny and Freddie's response to the VEIB,
since it is a ridiculous way of financing an environmental project. He said municipal
bond financing does not put a first lien on a mortgage.
Member Philip Johnson said the uneasiness around the table is going on throughout the
government. Many of these unusual ideas may have merit, and the Board will have to
wade through them and see how to fit them to a client and the Board's role.
Ms. Heather Himmelberger said there are clients for anything in the environmental
finance arena when EPA partners are taken into account and thanked the Board for its
feedback. DFO Shapiro thanked the EFCs for their presentation. He said none of the
ideas under consideration have a sponsoring office at EPA. The ideas presented will be
narrowed down to a number that they can engage potential clients with. The Board broke
for lunch until 1:30 p.m.
Innovative Financing Tools
Member Leanne Tobias said a number of ideas from the Committee had already been
discussed by people from the EFCs. There had been a suggestion that the Innovative
Financing Tools Work Group build on its report on VEIB to issue recommendations and
clarification on the PACE controversy. There was division on the Committee as to
whether taxing authority is appropriately applied in the context of PACE and the
California lawsuit and whether Fanny and Freddie have the right to object to a program
that would impose a superior lien on a first mortgage. There are controversial issues
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involved with doing a report on PACE, but EFAB is uniquely qualified to do so, since it
has already done two.
Second, there are several proposals to work on issues that are nontraditional for the
Board, including a proposal from the Office of Solid Waste asking them to look at
brownfield sites to determine whether there is an EPA role in upgrading the sites. They
noted that EPA's Office of Underground Storage Tanks is partnering with DOE's
National Renewable Energy Lab to determine the economic feasibility and environmental
benefits of sitting alternative fuel infrastructures such as electricity, natural gas,
hydrogen, ethanol, and biodiesel at former gas stations. EFAB might wish to assess the
financial barriers and feasibility of these efforts.
EPA's Office of Solid Waste and Emergency Response suggested that EFAB help EPA
explore the cost of cleaning and converting abandoned gas stations and other small scale
brownfield properties into community health centers, training centers, and other critical
social facilities. They note that the EPA Office of Environmental Justice is starting to
explore Highway to Healthcare Initiative to convert small brownfield sites into healthcare
centers for underserved communities. Several such projects have been undertaken in
Florida. There is a substantial leveraging opportunity in the form of ARRA money, and
EFAB can help by determining the cost differential between using brownfield sites for
such facilities versus clean sites and determining what financial barriers might deter
investment in such facilities. A third proposed area centered on the challenges facing
community development organizations and small scale developers in lower income areas
who have trouble securing pre-development and construction financing. Increasingly,
finance depends on private/public partnerships that involve sophisticated tools such as
New Market Tax Credits, Low Income Housing Tax Credits, and other vehicles. EFAB
can help small and community banks by providing them with information and examples
to help them navigate the market and take advantage of these financing sources.
The Office of Sustainable Community Partnership (OSCP) also proposed several
projects. The first was a study of the use of the Redfield to Greenfield concept, which
converts brownfields into parkland and sells the remaining high-value land, utilizing the
return to replenish the fund set up for the purpose. A second project might be to look at
the possibility of public facilities financing equitable development, creating financing
infrastructures that can serve the needs of specific underserved markets. Third, they
asked EFAB to look into ways to create infrastructure funds and financing mechanisms to
promote sustainable community development, including energy efficiency activities.
Specific additional issues posed by the OSCP in the contest of financing mechanisms
included the following:
Suitability of classifying sustainable real estate as a special asset class;
Identifying what types of patient capital vehicles exist to support sustainable
development, which are best suited for today's capital sources, how long-term
debt structure can achieve more equitable development, transit oriented
development, and other types of mixed use development or repurposing;
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Considering the role of equity financing criteria in private and joint public-private
development, especially for sustainable uses;
Identification of federal limitations on commercial square footages as an obstacle
to sustainable community development and economic development. OSCP
suggested looking into whether those commercial restrictions should be revised;
How New Market Tax Credits can be better used to foster sustainable community
development; and
How best to design and apply the creation of water utility fees for sustainable
community development and how water utility fees can be used or combined to
promote and enhance green infrastructure practices associated with sustainable
development.
Together, the two memos identify a wide array of financing structures for EFAB to look
at. Both offices have asked for recommendations that would provide a roadmap as to
how best to deploy the broad assembly of financing structures for brownfield
redevelopment and sustainable community development. There was disagreement among
Board members as to whether or not they were proper areas for EFAB to address.
Member Leanne Tobias noted that EPA offices have expressed interest, but there has to
be support on the Board if the recommendations are to go forward. She recommended
seeing whether there is enough agreement to undertake the projects and create an
actionable report. Work group members also expressed support for a possible VEIB
follow-on study. Two members suggested proposals that fit into the use of financial
mechanisms to support underserved communities and tribal communities. Member
Leanne Tobias suggested also discussing those proposals and appropriate targets for the
Innovative Financing Work Group to work on. The Board might also consider
establishing a new committee to deal with community issues and underserved
communities and social justice issues.
Funding Mechanisms for Tribal and Disadvantaged Communities
Member Debbie Livesay, who works with a tribe in Southern California, said SRFs are
not an option for tribes. First, they don't take money from states, being sovereign
nations. Nongaming tribes have a lot in common with disadvantaged communities. Most
nongaming tribes live well below the poverty level in homes they don't own. On her
reservation, most of the homes are on septic tanks and wells. The water is high is arsenic
and ammonium perchlorate. Her question was how to pay for infrastructure to resolve
issues of tribal and disadvantaged communities. There is no structural basis for
repayment of a loan and no economic basis on which to give a tribe a loan. She is
working projects such as solar power and algae farming for biofuel and pharmaceutical
algae, but the concepts need seed money. If the projects happened, they could pay back
the loans on infrastructure projects. She wanted to see the Board figure out ways to pay
for infrastructure. She has been working with United State Department of Agriculture
(USDA) and the local Resource Conservation & Development Council (RC&D), which
gives loans and writes grants to pay them back. The Bureau of Indian Affairs (BIA),
EPA, Indian Health Services, HUD, and other agencies have to work together to get
something done. She asked for the Board to look into funding mechanisms for tribes.
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Leveraging Private Investments to Create Sustainable Communities
Member Philip Johnson said no community is sustainable if it cannot produce jobs and
wealth and has no access to food, transportation, clean water, and clean air. The
community has to participate in the process. Most brownfields exist in low-income
communities, which also have issues of clean air and water. The new administration
seems to understand sustainability. The question is how to achieve the level of
sophistication in the communities to help them access capital to finance development.
Brownfields represent an opportunity to create jobs, eliminate blight, and create green
spaces. One barrier is that nonprofits, like community organizations, are not eligible for
revolving loan funds. He has been trying to get nonprofits into sustainable activities.
Funding at a community level is extremely difficult. He said there is work to be done on
developing brownfields and that the definition of brownfields should include closed big
box stores, abandoned parking lots, old shopping centers, and vacant housing. He
commented that stimulus money did not reach a sufficient number of low-income urban
and rural areas, though they had shovel-ready projects. He said there is a need for a
sustainability fund that allows community-based groups and organizations to have access
to flexible money to develop projects and create private/public partnerships to clean up
communities of brownfields and other problems.
Such a sustainability fund might allow five-year loans at a reasonable rate. He suggested
creating partnerships across communities for brownfields development. Member Philip
Johnson asked the Board to consider studying the creation of an entity to give
communities to access to financing not from revolving funds. He said it would be useful
to listen to the community-based groups to understand their funding issues. He noted the
sophistication of the community organizations and their need for capital.
Discussion
When asked about the last EFAB report on VEIBs, Member Leanne Tobias said there are
residential underwriting issues to be addressed in the context of the PACE controversy.
EFAB's input may or may not be needed, depending on whether Fannie Mae, Freddie
Mac and their regulator, Federal Housing Financing Authority (FHFA), develop
underwriting criteria and on whether the California lawsuit against FHFA is settled in a
reasonably short time frame. There was general consensus that EFAB's previous reports
had comprehensively addressed the use of VEIBs for PACE programs and other
purposes. One big issue of concern was risk management criteria. The compromise was
that it is a risky tool that requires a high level of skill. Whether or not to undertake
additional reporting by EFAB should be reviewed by EPA. Member John Boland
commented that DOE and other agencies are pushing for the program while FHFA is
opposing it. EPA will have to decide whether or not to get involved. DFO Shapiro said
the Board is unlikely to reach a consensus at this meeting. Reporting on this subject will
depend on EPA's interest.
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Officials at Fannie Mae and Freddie Mac have discussed the development underwriting
criteria for PACE loans. Some of the data is contained in EPA's Energy Star database. It
would be useful to investigate some of the issues on a short-term basis. EFAB and EPA
can develop recommendations that will be helpful to the industry, DOE, the
Administration, and to Fannie Mae and Freddie Mac. Member Mary Francoeur said
addressing the PACE bonds is an appropriate role for the Board, since circumstances
have changed since the release of EFAB's recommendations. The Board is in a position
as an independent advisory board to say things the government cannot say. Mr. Jeff
Hughes clarified that commercial PACE is something people he is working with are
curious about. The LBL lab is doing a lot of technical research work on this and will
release a report on the status of commercial PACE across the country. One idea was that
it is not necessary to weigh in for or against the current debate, but in light of the debate,
EFAB can look at how the concept can be improved, given the concerns all parties have.
Member Greg Swartz said the notion of using property to secure a public benefit is not
new. Mechanisms to do it exist, but they must be modified to make them work. One
thing to discuss is how to pencil out clean energy technology. He suggested that the
standard for tax exempt bonds be not who owns the project but who benefits from it,
since privately owned improvements can have public benefit.
DFO Shapiro summarized the discussion that EFAB might provide an update to the
report, but it would be nice to know who the agency clients would be and whether they
want the feedback. There was discussion on there being interest unofficially expressed
by the Office of Air and that there is a core group of members who would like to do the
project. DFO Shapiro nominated Member Leanne Tobias to lead the effort, and five
members volunteered to look into a charge and who in the Agency would be interested.
They will review the prior reports and suggest improvements to meet emerging needs.
Member Leanne Tobias said the proposals on tribal communities and sustainable
communities had interest from the Solid Waste Office and the Sustainable Communities
Office. Member John Boland commented that the discussion on abandoned gas stations
did not take into account what is generally found under gasoline stations. Both of the
proposals drew on skills the Board does not have, such as estimating costs and benefits of
remediation. Those are not finance issues but engineering issues. The ideas are unlikely
to be successful due to the cost of remediating the stations is usually very high. Member
Mary Francoeur agreed that the Board cannot provide financing for a business plan that
does not work on an economic/real estate basis, since there is no mechanism for
repayment. She noted that gas stations are where they are because that is where people
need gas. With a different type of vehicle, the needs may be different. DFO Shapiro said
there is a fund to clean up underground storage tanks, and some of these sites may be
economically viable. There was a question as to whether those controlling the fund want
EFAB advice.
Member Steve Thompson said he is familiar with non-gaming tribes struggling with
technical assistance, due to the sovereignty issue. He commented that there are funding
sources that are not well coordinated and communicated to tribal communities. It is
within the Board's purview to ask what funding sources are available to tribes from the
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federal government and what the mechanism for coordination is. The coordination issue
is common for community-based financing. Member Greg Swartz suggested that if tribal
communities are not sustainable the communities can be relocated, as is sometimes done
with other unsustainable communities. He said tribal loans and State Revolving Funds
are exceedingly difficult, both in working with the tribes and with having a reliable
source of repayment for non-gaming tribes. There are several public funding programs,
and he said the criteria for grants should be based on the ability to do the project and the
sustainability of the project. Member Greg Swartz said the grant criteria are too complex
and under too many authorities.
In discussion, EFCN members hoped the project would not show tribes how to piece
together funding sources but to look at developing LLC/NGO hybrids to attract private
financing. There was strong opposition to moving the tribes but rather that the tribes
should be assisted in staying and prospering on their native lands, and that financing
mechanisms should be used to this end.
The project may be more about economic development than financing, and a small
workgroup should discuss the issue to come up with a good question for the report.
Tribes are different from other communities, with different funding mechanisms
available to them due to being on trust lands and not being able to sell the land. The
programs are all piecemeal, making things difficult. Member Debbie Livesay suggested
that in-lieu-mitigation can pay for projects. There are many projects in place to help
tribes become self-sufficient, but the seed money is still needed. Member Leanne Tobias
suggested that the Board might look not only at existing tribal models, but also at relevant
international models that can be imported.
Member Andrew Sawyers asked how a sustainability fund would be paid back. Member
Philip Johnson said the project or projects must be viable. There have to be studies and a
business model. He said the sustainability fund could be used to lend money to plan
around or acquire a brownfield. Once the brownfield is owned by the community or a
community organization, money would need to be obtained to remediate the brownfield
and make it viable for development. Finding a user for the site takes money. The
sustainability fund should be patient money and should set forth a repayment process so
the borrowed money is a quasi-equity situation because there is a long-term ability to
repay the money. Once the project is developed, there can be a structured situation so the
underwriting of the project can structure the payment. There are many pots of money
from different federal agencies with no environmental component, and the development
fund can get an environmental component attached to some of these funds to buttress the
sustainability fund. He said tribes should be able to access the sustainability fund.
Member Mary Francoeur said the Board can add value by identifying the issues that
become important to lenders when contemplating lending to tribes or for community
development. She did not see how the Board could establish a sustainability fund.
Member Chiara Trabucchi suggested that the Board analyze the needs of tribes and
underserved communities more carefully to determine appropriate questions for the
Board to address. She suggested that EFAB members interested in tribal and sustainable
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community issues engage appropriate EPA offices to formulate a question or questions
that the Board might be able to address.
Member Leanne Tobias suggested either establishing a new committee to look at these
issues or that a subcommittee of the Innovative Finance Group meet with the Agency and
develop a charge that falls within the purview of EFAB. DFO Shapiro said in the past
there was a small community workgroup that discussed similar issues and produced
reports. There are also small community programs, so it would be useful for the new
committee to read through those reports. It was noted that one issue facing small
communities is that there are communities in the states that SRFs cannot get to because
they isolated or remote. A work group can formulate a more detailed agenda and develop
answers to questions of how to pay and best uses of funds for tribal and underserved
communities.
Ms. Heather Himmelberger said EPA's interest in sustainable communities is holistic,
while past EFAB work has focused on particular issues such as wastewater or
brownfields. She said EPA would like to see EFAB take a more holistic approach, which
would also produce a more consistent message from the Board.
Member Lindene Patton said the Board has identified a vast group of economic
development challenges. For this Board, the best focus is to determine where the primary
drivers of or impediments to economic development are actually environmental or natural
resource impairment that could benefit from an appropriately-designed environmental
finance solution. If the issues are not driven by environment or natural resource
impediments that can be solved by an environmental finance solution, the issue may not
belong in the Board. Trying to make a tool fix too many different problems increases the
chance of the financial instrument's failure.
Public Comment
DFO Shapiro called for public comment. Hearing none, he recessed the meeting until
4:15.
Summary and Closing Remarks
DFO Shapiro called the meeting back to order. Though the Board was not ending the
meeting with projects, he said this was appropriate at this stage.
Chairman Abelow summarized where the Board was and made some proposals about
going forward. He said the challenges being faced are affected by the fact that it is still a
new administration. The Board started with the proposal that came to it, which was an
explicit charge on clean air, but the Board is not completely comfortable with everything
the charge asks. The Board understands what the Agency is looking for, the Board has a
client, and the Board has a group of people willing to lead on this. The challenge is the
Board's discomfort with the scope. The Board is willing to go forward, with the caveat
that there is more work to be done on limiting the scope and making sure it asks
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questions the Board can answer. This project has importance in terms of the theme of
how to finance emerging environmental technologies. If the Board can address this
problem, the solutions will be applicable in other circumstances as well.
There was a robust discussion on SRF. The report discussed merits comment, and there
will be some revision to the report, integrating comments and bringing the report to
conclusion. There was a list of other projects going forward, and the next step is to
review those with the agency and figure out if they can prioritize the proposed projects
and figure out what to take on. On the VEIB, there is a workgroup in place and a
meeting will be scheduled, with the intent to figure out whether to reissue or comment on
the already-issued reports.
The discussion on tribal and sustainable communities is at least two different topics. The
first topic is tribal and rural issues, and one possible question is how to finance
environmental services in communities that do not have the capacity to finance them.
Since the Board does not have consensus on the problem, there is not consensus on the
question the Board can take on. There must be further discussion with the Agency on
shaping this into a project the Board can pursue. The same observations could be made
about sustainable communities, where there are several proposals but none specific
enough for the Board to agree on what the project is. Again, more work is needed to
determine what can be addressed.
DFO Shapiro raised another item: the Cost Estimation Group. The work group requests
comments on its final draft by September 1st. These are important issues for the Agency
and the nation. His final point was that people are thinking of new ideas for EFAB, so he
may soon contact the members with new ideas to bring in.
Discussion
Member Debbie Livesay said figuring out who the client might be is still an issue, but
many members want to work on tribal issues. She volunteered to chair the group. A
member commented that tribal issues should not be combined with rural or any other
category due to the unique tribal situation, though problems of tribal communities and
low-income rural communities may look similar.
A member commented that combined sewer overflow falls between water and
wastewater issues. If EPA is interested, the Board might want to look at a revenue stream
that can fund infrastructure improvements in that area of need. Beyond access to SRF
money, there is the question of how they will repay the loan. Member Mathilde McLean
commented that for CSOs and sanitary sewer overflows (SSOs) security is not an issue.
They have resources to finance the project. There are properties creating infrastructure
needs that do not pay water or sewer bills, such as vacant parking lots. She suggested
trying to find mechanisms to apply fees for stormwater collection from those not
currently targeted. Members discussed what group should address it. It can he handled
under the SRF platform, and the Office of Water would be the client. The SRF group
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will reconvene to look at the questions before them and will communicate with the Office
of Water.
Member Philip Johnson said members had been interested in trying to find out about
sustainable communities. He volunteered to lead that effort from the point of view of
smart growth and similar issues. He will meet with the Agency. The issue is close to the
Administration's concerns. The question is how to create a process.
Members had discussed the water finance issue for infrastructure that is sustainable in the
form of landscape architecture improvements. That is a specific subsection of water
management that intersects with sustainability. DFO Shapiro said green infrastructure is
fundable through the SRFs he suggested discussions on whether there are specific
questions in that area. One member discouraged Board involvement, since the states are
already working on the issue. There are a lot of cross currents in this area on the mandate
aspects, the cost-effectiveness of green projects, and a sense that there is a lot of work
going on in the states. There are a lot of other people doing investigative research on this
and testing pilot financings that occurred over the last couple years. DFO Shapiro said it
is a high priority for the Deputy Administrator, so EFAB should continue to discuss it.
Member Mary Francoeur said the Financial Assurance Group will draft a letter as a
follow-up to the issues related to the Financial Regulatory Reform Act. The last item will
be to go back to the Agency and confirm that they are finished. DFO Shapiro said a
question was raised as to whether a consultation with the Office of Resource
Conservation and Recovery on whether some limited conservation may be valuable. He
will check back with the Office of Solid Waste. He said the volunteer chairs are in place
but that the tribal group may be separated from rural, and members interested in working
in these areas should contact staff. These are not new workgroups but exploratory teams
to see if there is a project they can adopt. The charges should be reframed and brought to
the next Board meeting. The tentative dates for the next meeting are March 8 and 9,
2011 in Washington DC. The day's agenda completed, he adjourned the meeting.
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Appendix
Attendee List
EFAB Members Present:
Chairperson:
Bradley Abelow, NewWorld Capital Group, New York NY
State and Local:
James Gebhardt, Chief Financial Officer, NY State Environmental Facilities
Corporation, Albany, NY
Gregory Mason, Chief Operating Officer, Georgia Environmental Facilities
Authority, Atlanta, GA
Karen Massey, Deputy Director, Missouri Environmental Improvement and
Energy, Jefferson, MO
Mathilde O. McLean, Treasurer, New York City Water Board, New York, NY
Sharon Dixon Peay, Financial Administrator, Hartford, CT
Andrew Sawyers, Program Administrator, Maryland Water Quality Financing
Administration, Baltimore, MD
Douglas P. Scott, Illinois Environmental Protection Agency, Springfield, IL
Steven Thompson, Oklahoma Department of Environmental Quality, Oklahoma
City, OK
Business and Industry:
William Cobb, Vice President, Freeport-McMoRan Copper & Gold, Inc.
Lindene Patton, Zurich Financial Services, Chief Climate Product Officer, New
York, NY
Cherie Collier Rice, Treasurer and Vice President of Finance, Waste
Management, Inc., Houston, TX
Leanne Tobias, Principal, Malachite, LLC, Bethesda, MD
Chiara Trabucchi, Principal, Industrial Economics, Incorporated, Cambridge, MA
Banking, Finance, and Legal:
Rachel Deming, Partner, Scarola Ellis LLP, New York, NY
Mary Francoeur, Managing Director, Assured Guaranty Group, New York, NY
Ann Jennifer Grodnik, Assistant Vice President, Public Finance, Seattle-
Northwest Securities, Seattle, WA
Keith Hinds, Financial Advisor, Merrill Lynch, Albuquerque, NM
Thomas Liu, Managing Director, Bank of America Merrill Lynch, New York, NY
Jay Spector, Financial Officer, Wells Fargo Advisors, LLC, Scottsdale, AR
Greg Swartz, Vice President, Jaffray & Co., Phoenix, AZ
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Associations, Organizations, Academia, and Public Interest Groups:
Scott Anderson, Consultant, Senior Policy Advisor, Environmental Defense Fund,
Austin, TX
Dr. John Boland, Professor Emeritus, John Hopkins University Department of
Geography and Environmental Engineering, Baltimore, MD
Eric Draper, Deputy/Policy Director, Audubon of Florida, Tallahassee, FL
Philip Johnson, Director of Programs, Sustainable Community Development
Group, Washington, DC
Deborah, Livesay, Water Resources/ Wetland Managers, Salton City, CA
Designated Federal Official:
Michael Shapiro, Deputy Assistant Administrator, Office of Water,
Environmental Protection Agency, Washington, DC
Environmental Finance Center Network:
Joanne Throwe, President EFCN, University of Maryland, College Park, MD
Sam Merrill, Director, EFC, University of Southern Maine, Portland, ME
Sara Jade Pesek, Director, EFC, New York, NY
Jeff Hughes, Director, EFC, University of North Carolina, Chapel Hill, NC
Lauren Heberle, Director, EFC, University of Louisville, Louisville, KY
Carol Norton, Assistant Director, EFC, University of Louisville, Louisville, KY
Kevin O'Brien, Director, EFC, Cleveland State University, Cleveland, OH
Heather Himmelberger, Director, EFC, Albuquerque, NM
Angela Buzard, Director, EFC, Wichita State University, Wichita, KS
Sarah Diefendorf, Director, EFC, Dominican University of California, San Rafael,
CA
EPA/EFAB Staff:
Joseph L. Dillon, Director, Center for Environmental Finance, Washington, DC
Vanessa Bowie, Staff Director, Center for Environmental Finance, Washington,
DC
Aileen Atcherson, Analyst, Center for Environmental Finance, Washington, DC
Alecia Crichlow, Analyst, Center for Environmental Finance, Washington, DC
Susan Emerson, Analyst, Center for Environmental Finance, Washington, DC
Sandra Keys, Analyst, Center for Environmental Finance, Washington, DC
Timothy McProuty, Analyst, Center for Environmental Finance, Washington, DC
Pamela Scott, Analyst, Center for Environmental Finance, Washington, DC
USEPA Presenters: Jim Eddinger, EPA, Energy Strategies Group, Office of Air and
Radiation
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Other Guests:
Leigh Herrington, USEPA, Office of Air and Radiation, RTF North Carolina
Cari Shiffman, USEPA, Office of Enforcement and Compliance Assurance,
Washington, DC
Bob Stewart, USEPA, Region IV, Atlanta, GA
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ENVIRONMENTAL FINANCIAL ADVISORY BOARD
August 9-10, 2010 Public Meeting
Pare 55 Hotel - San Francisco, CA
DRAFT AGENDA
MONDAY, AUGUST 9, 2010
1:30 PM Opening Remarks and Introductions
~ Bradley Abe low, EFAB Chair
~ Michael Shapiro, EFAB Designated Federal Official
2:00 PM EPA Charge: Incentives for Financing Clean Air Technology
-Peter Tsirigotis, Director, Sector Policies and Programs Division
Office of Air Quality Planning and Standards
Office of Air and Radiation
2:45 PM Work Group Report Out: Financing Clean Technology
~ Sharon Dixon Peay
3:30PM BREAK
3:45 PM Work Group Report Out: Financial Assurance (Cost Estimation)
~ Mary Francoeur and Cherie Rice
4:30 PM Public Comment
4:45 PM First Day Summary/Action Items
5:00 PM Adj ourn for the Day
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ENVIRONMENTAL FINANCIAL ADVISORY BOARD
August 9-10, 2010 Public Meeting
TUESDAY, AUGUST 10, 2010
9:00 AM Opening Remarks
~ BradAbelow and Mike Shapiro
9:15 AM Work Group Report Out: State Revolving Funds Investment Options
~ Jim Gebhardt
10:00 AM Project Planning
Fleet Upgrade Financing Program: Expansion of the Clean Water SRF Operating
Model to Mobil Air source Contaminant Mitigation
~ Jim Gebhardt
11:00 AM BREAK
11:15 AM Environmental Finance Center Network Project Proposals
~ Heather Himmelberger
12:15PM LUNCH
Project Planning (continued)
1:30 PM Financing Structures and Systems in Sustainability Districts
~ Leanne Tobias
Funding Mechanisms for Tribal and Disadvantaged Communities
~ Deborah Livesay
Leveraging Private Investments to Create Sustainable Communities
~ Philip Johnson
4:00 PM Public Comment
4:15 PM Second Day Summary/Action Items/Closing Remarks
~ BradAbelow and Mike Shapiro
5:00 PM EFAB ADJOURNS
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