Volume 5 Issue 1
U.S. Environmental Protection Agency
Office of the Chief Financial Officer
March 2005
Mr. Stan Meiburg, Executive Director and
Designated Federal Official
EFAB Membership
Mr. Lyons Gray, Chair
Honorable Pete Domenici
Honorable Vincent Girardy
Ms. Terry Agriss
Ms. Julie Belaga
Mr. A. James Barnes
Mr. John Boland
Mr. George Butcher
Mr. Michael Curley
Mr. Kelly Downard
Ms. Mary Francoeur
Mr. Steve Grossman
Ms. Jennifer Hernandez
Mr. Stephen Mahfood
Mr. Langdon Marsh
Mr. John McCarthy
Ms. Helen Sahi
Dr. Andrew Sawyers
Mr. James Smith
Ms. Sonia Toledo
Dr. Jim Tozzi
Mr. Billy Turner
Mr. Justin Wilson
Mr. John Wise
Inside This Issue
Financing the Clean-up
of the Chesapeake
EFAB Reports
Privatization of
Non Core Activities
Missouri's Energy
Loan Program
Member's Corner
Upcoming Events
Cover Story
page 2
pages
pages
page 4
page 4
INVIRONMENTAL FINANCIAL
ADVISORY BOARD
providing advice on "how to pay" for environmental protection
Financing the Cleanup of the Chesapeake Bay
r Jack Greer, Maryland EFC
More than twenty years ago the federal government joined with the juris-
dictions of the Bay region to sign the historic Chesapeake Bay Agreement
of 1983. Since that time the signatories have directed a region-wide
Chesapeake Bay Program, which receives $20 million a year through the
U.S. Environmental Protection Agency. Despite ambitious efforts to detail
the environmental threats facing the Bay, and ongoing programs that draw
on an elaborate system of multi-jurisdictional committees and technical
experts, key indicators of Bay health have not improved. Underwater
grasses remain at a third of their historic abundance, oyster and crab
populations are down, and low oxygen zones still plague large areas of the
Bay.
Confronting the reality that twenty years of restoration efforts have not
significantly reversed the decline of the Chesapeake Bay, the nation's larg-
est estuary, in December 2003 the Chesapeake Executive Council created
a panel of experts to recommend financing strategies for making Bay res-
toration a reality.
Forming the Blue Ribbon Panel
To address the current stalemate in the clean-up effort, the Chesapeake
Executive Council, comprised of the governors of the Bay states (Virginia,
Maryland and Pennsylvania), the mayor of the District of Columbia, the
chair of the Chesapeake Bay Commission and the head of the Environ-
mental Protection Agency sought a select group of experts from business,
government and conservation to form a Blue Ribbon Panel on the Chesa-
peake Bay Watershed. These included former Virginia Governor Gerald L
Baliles, who chaired the Panel, as well as former Governor (and former
Secretary of the Interior) Bruce Babbitt, Mr. Jim Purdue, of Purdue contin-
ued on page 2
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Financing the Clean-up of the Chesapeake Bay continued...
Farms, Mr. Will Baker, President of the Chesapeake Bay Foundation and other leaders, including both current and former represen-
tatives from federal, state and local governments.
The Bay Program chose the Environmental Finance Center (EFC) in Region 3, located at the University of Maryland, to provide back-
ground, facilitation and synthesis, and to assist with the preparation of the final report.
The Chesapeake Bay Watershed Blue Ribbon Finance Panel heard from a range of experts about the challenges currently facing
the Chesapeake Bay. The Panel learned that:
• Nutrient and phosphorus levels — from waste treatment plants, storm water runoff, agricultural operations and even air deposi-
tion — all remain too high and continue to damage the Bay.
• A range of actions set forth by the Bay jurisdictions will require billions of dollars, with current estimates based on those
"Tributary Strategies" reaching nearly $30 billion.
• No current mechanisms exist for effectively directing large sums of money to the most critical areas.
As Panel Chair Baliles made clear, business as usual will not succeed in cleaning up the Chesapeake Bay.
After months of deliberation, the Panel released a set of recommendations, chief among them the establishment of a new region
wide financing mechanism, the Chesapeake Bay Financing Authority.
The Financing Authority would give loans and grants, directed at actions deemed most important for the reduction of nutrient and
sediment pollution, regardless of geography. This would allow the targeting of funds toward the most effective restoration activi-
ties, across jurisdictional lines. The Panel recommended that the federal and state governments capitalize the Financing Authority
in the same manner as State Revolving Funds (SRF) across the country, with an 80/20 federal-state split. Noting that the Bay is
not only regional but a national treasure, the recommendation called for the federal government to capitalize the Authority over the
next six years with $12 billion and for the states to match this with $3 billion.
The Blue Ribbon Panel made it clear that it did not favor policies that could erode the viability of agriculture in the watershed, espe-
cially the small family farm. Trends show that when agricultural lands are lost, they are usually lost to development, a change that
brings additional burdens in terms of transportation and infrastructure costs, an increase in impervious surfaces, and radical altera-
tion of natural hydrology. By offering mostly loans and some grants, the Financing Authority would:
• Recoup most of its outlay, thereby assuring its sustainability over the long term.
• Take advantage of creative financing and leveraging strategies that have been tried and tested by
SRF's around the country.
• Employ a mix of loans and grants where necessary to help farmers or cash-strapped urban areas im-
plement best management practices.
• Use a coordinated funding and financing approach to urge cooperative implementation efforts across
jurisdictional boundaries.
• Create a vehicle for the collection of revenue streams, perhaps along the lines of the recent Maryland
sewer surcharge or other creative revenue generation techniques.
As well as the call for a new Chesapeake Bay Financing Authority, there are nearly two dozen "Supplementary Recommendations"
presented in the Panel's final report. These include increasing and improving existing agriculture cost-share programs, exploring
possibilities for point-to-point trading among wastewater treatment facilities, and offering selected tax incentives or disincentives
(including a tax on lawn and garden fertilizer).
All these recommendations, as well as the 44~page report, Saving a National Treasure: Financing the Clean-up of the Chesapeake
Bay can be found on the web site of the Chesapeake Bay Program (www.chesapeakebay.net) and the University of Maryland EFC
(www.efc.umd.edu). Also on the web are background materials prepared for the Panel, including several matrices of financing al-
ternatives.
The governors of the Bay states and other regional leaders are now considering the Panel's recommendations and are expected to
set in motion plans to outline precisely how a Chesapeake Bay Financing Authority could be set up and how it might function.
EFAB Releases Two Reports
In January 2005, EFAB released two advisories to the Agency for consideration and comment:
Innovations in Watershed Financing: There is potential for maximizing available financing for watershed management by
informing and training watershed managers, coordinators, and others to overcome the multiple financing challenges they
face in getting coordinated projects underway. This letter presents the Board's advice on innovative ways to build the ca-
pacity of watershed organizations by developing and implementing finance strategies to obtain and leverage funding.
Useful Life Financing of Environmental Facilities: This report examines the advantages and disadvantages of amortizing
bonds issued for environmental facilities over longer periods of time. The recommendation would extend the loans to
match the useful life of such facilities, as opposed to the more typical practice of amortizing debt over periods much
shorter than the useful life. The Board believes this this report is timely and pertinent to the financial climate that is chal-
lenging communities nationwide and encourages EPA to support this concept and distribute the paper widely.
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Missouri's Energy Loan Progra
By Larry Archer, Missouri Department of Natural Resources
When a late spring hail storm rolled through north-central Missouri in May, it left behind broken shingles, dented car hoods and signifi-
cant damage to the 102 year old Grundy County Courthouse in Trenton, MO. "It damaged the roof, broke 16 windows, dented gutters,
air conditioners and more," said Grundy County Presiding Commissioner Kenneth Roberts. The total cost of the damage was estimated
at $143,000. For officials in this rural community of 6,200, the storm damage represented a potentially significant drain on the county
budget. It was then that county officials remembered a letter they had received months earlier from the Missouri Department of Natu-
ral Resources (MDNR). The letter promoted the department's Energy Loan Program, which offered a funding avenue to help replace all
of the building's 82 windows—broken or not—with energy-efficient windows.
Working with the department's Energy Center, the county secured a $40,000 low-
interest loan to fund the upgrade. The county will use the estimated $3,300 in
annual energy savings to repay the loan.
Since 1989, the department has made almost 400 such energy loans totaling
nearly $60 million to local governments, school districts, colleges and universi-
ties. The projects funded by the loans have resulted in estimated cumulative h
energy savings of $62 million.
"This program works well for us on several levels," said Steve Mahfood, former •
director of the Department of Natural Resources. "We get to support energy effi-1
ciency and conservation, and the communities save significantly on their energy I
costs."
After the loan is repaid, the continuing energy cost savings can be placed toward whatever priorities local officials choose, Mahfood
said. "In 2001 it became clear that the demand for these loans was soon going to exceed the funds available. In tight budget times,
we needed to look at creative alternatives to provide more loans without general revenue from the State, so we asked the Environ-
mental Improvement and Energy Resources Authority (EIERA) to work with the Energy Center to develop a new financing structure."
The result was a bond financed program, the first of its kind in the nation to be used for energy efficiency projects, that would allow
existing funds to provide twice as many loans as the previous direct loan program. The EIERA, having financed nearly $5 billion Envi-
ronmental projects over the years, structured the new Energy Efficiency Leveraged Loan Program using a pooled financing reserve fund
model that has received an Aa2 Rating from Moody's Investors Services.
The two agencies have worked hard to make the leveraged program seamless to the borrowers. MDNR originates the loans and pro-
vides funds for construction. Once construction is complete, the loans are assigned to EIERA which issues bonds, the proceeds of
which reimburse MDNR for the construction outlays. The borrowers make repayments to a trustee bank that uses the repayments to
pay off the EIERA bonds. Additional security is provided by MDNR placing an amount equal to 50% of the bonds outstanding in a re-
serve fund securing the bonds in case of default. As the bonds mature, reserves are released back to MDNR to be loaned for new con-
struction.
"In the leveraged program, rather than having the entire loan amount tied up until repaid, now only the reserve amount, or 50% of the
loan, is tied up. This allows the other 50% to be reloaned to projects that could not have been funded otherwise," said Mahfood.
"Leveraging these dollars helps us provide energy savings to more communities than we could before and energy savings provide
stimulus in other areas as well."
In addition to lowering energy costs, the windows will extend the life of the building and contribute to the general economic health of
Trenton's downtown commercial area. As they had in the early days of such communities, courthouses remain an important part of
the economic environmental of small-town commercial districts, according to Mark Miles, director of the department's State Historic
Preservation Office.
"In many cases the courthouse is the single most architecturally significant building in a community, and they are usually in the down-
town area," Miles said. "By promoting preservation of these buildings, we hope it can be a spark to stimulate downtown preservation
and economic revitalization."
In fact, a recent study conducted by Rutgers University estimated that historic preservation in Missouri contributes slightly more that $
1 billion annually to the gross state product and generates nearly 28, 000 jobs.
Roberts hopes the window replacement in Grundy county is the start of improvements financed through the Energy Loan Program.
Once the window loan is repaid, the county would like to use the same program to help fund the purchase of high-efficiency heating
and air conditioning systems to replace the building's current boiler and radiator heating and window-unit air conditioning systems.
Privatization of Non-Core Activities
v Riliv fi Turner PnlumhiiQ Watpr
In response to a 1991 Presidential executive order the Department of Defense is required to privatize non-core activities. A major non-
core area is utilities, i.e. water, sewer, electric & gas. While it was probably assumed that most privatization would occur via transfer to
private companies, it is an important area for public utilities to consider. Recently, Columbus Water Works (CWW) completed arrange-
ments to assume ownership and operation of all water and wastewater services for Fort Benning (F.B.) GA , Home of the Infantry. The
contract is for 50 years with a value of $722 million. CWW plans call for initially operating the existing CWW system, thereby eliminat-
ing the deteriorating base treatment plants. The DOD estimated a $1.4 million per year savings via the contract. EFAB member Billy
Turner is the President of CWW and retired board member George Raftelis served as financial advisor to CWW during contract negotia-
tions.
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Contributors
Vanessa Bowie, Editor
EPA, Environmental Finance Program
Sandra Keys, Co-Editor
EPA, Environmental Finance Program
Jack Greer
Environmental Finance Center
@ Maryland University
Billy Turner, President
Columbus Water Works
Larry Archer
Missouri Department of Natural Resources
Comments, suggestions or articles are welcome.
Address correspondence to bowie.vanessa@epa.gov
2005 Information Management & Technology
AWWA/WEF/Conference and Exposition/Center, CO/April 17-20, 2005
2005 Joint Residuals and Bio-Solids Conference
WEF/AWWA/KY-TN WEA/Nashville, TN/April 17-20, 2005
National Clean Water Policy Forum/Marriott Metro Center
WEF/AMSA/Washington, DC/May 03-04, 2005
2005 CIFA Federal Policy Conference/Wyndham Hotel
Washington, DC/May 12-13, 2005
EPA Community Involvement Conference and Training
Buffalo, NY/July 12-15, 2005
2005 Watershed Management Conference
EPA/ASCE/Reston, VA/July 19-22, 2005
EFAB Summer Meeting
San Francisco, CA/August 15-16, 2005
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