U.S. ENVIRONMENTAL PROTECTION AGENCY
  ENVIRONMENTAL FINANCIAL ADVISORY BOARD
                                  JUL  1 8  2003
Honorable Marianne L. Horinko
Acting Administrator
U.S. Environmental Protection Agency
Washington, D.C. 20460

Dear Acting Administrator Horinko:

      In June 1999, the Governmental Accounting Standards Board (GASB) established new
financial reporting standards that have fundamentally changed the way State and local
governments report their financial results. Among other provisions, GASB "Basic Financial
Statements - and Management's Discussion and Analysis - for State and Local Governments,"
requires that major infrastructure assets acquired or having major additions or improvements in
fiscal years beginning after June 15, 1980, be capitalized in financial statements. In addition, the
cost of using the assets must be reflected.

      EPA has the opportunity to promote aspects of GASB 34 requirements that would lead to
improved financial reporting by environmental utilities to regulatory agencies. In addition,
compliance with GASB  34 will encourage utilities to better maintain environmental
infrastructure; provide increased assurance to citizens that environmental needs  are more
effectively being addressed; provide for better benchmarking of environmental infrastructure
operating and capital costs among agencies; and provide improved asset and cost information for
EPA and regulatory agencies to award financial assistance  to requesting agencies.

      To understand the implications of GASB 34 and EPA's role related to GASB 34, the
Environmental Financial Advisory Board (EFAB) sponsored a workshop in Washington, DC
early last year.  The workshop was facilitated by EFAB member Mr. George Raftelis and
included opening remarks Mr. Michael Deane, Chair of the Cost-Effective Environmental
Management Workgroup of EFAB and myself.  Panelists included Mr. Tom Allen, Chairman of
the Government Accounting Standards Board, and representatives of utility management, EPA
and state regulatory agencies, financial and lending institutions, bond rating agencies,
Environmental Finance Centers, the Government Finance Officers Association,  and public
accounting representatives.  Results from the workshop were summarized and documented
(attached), and have provided a basis for recommendations in this Summary.

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     The major provision of GASB 34 that provides EPA with an opportunity to promote the
benefits of regulated agencies deals with the method of accounting for and reporting
infrastructure.  Specifically, GASB 34 allows governments to account for infrastructure using
one of the following methods:

          Depreciation Approach
          Modified Approach

     The modified approach is attractive in that it allows governments, in lieu of depreciating
their assets, to adopt a systematic approach to managing those assets that, at a minimum, meets
the following four requirements:

          Having a current inventory of eligible assets
          Documenting the condition of those assets via a reproducible assessment procedure
          Demonstrating that assets are being preserved at level predetermined by the
           government
          Estimating the actual cost to maintain and preserve the assets

The modified approach requires governments to develop asset management systems, and assure
that proper investment is made to maintain environmental  infrastructure in an appropriate
condition. Regulatory agencies benefit through improved  reporting of infrastructure  information
and assurance that federal and state dollars used for infrastructure are being optimized by
agencies receiving financial assistance. Utility customers  benefit by being assured that user fees
are effectively maintaining their systems.

       Associations in the environmental industry tend to  favor the modified approach in that
this approach provides a tool to government utilities to better plan for and maintain its
infrastructure.  Specifically, asset condition is carefully monitored and the cost of maintaining
infrastructure at appropriate levels is identified. Already the American Public Works
Association has endorsed the modified method as the preferred approach to infrastructure
reporting for its member agencies.

     EPA stands to benefit if agencies it regulates adopt the modified approach, and implement
an asset management system.  EFAB encourages EPA to take an active role in promoting GASB
34 and developing asset management systems.  Initiatives  that EPA might consider include:

          Providing incentives to reward those environmental utilities that have developed
           effective asset management systems compliant with GASB 34. Incentives might
           include:
           - -economic payments for implementation of  asset management compliant with
             GASB 34
           - -recognition by state and/or federal environmental agencies
           - -easier accessibility or more favorable terms to SRF funding for environmental
             infrastructure

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        *  Providing full or partial grant funding for the development of asset management
           systems, particularly for small, disadvantaged communities
          Partnering with environmental associations in developing asset management
           guidance materials
          Expanding Capacity, Maintenance, Operations and Management (CMOM) as a
           vehicle to promote asset management
          Serving as a clearinghouse for the compilation and dissemination of asset
           management materials
          Preparing case studies of environmental utilities that have successfully implemented
           asset management systems.

     We hope that you will find the recommendations constructive and useful.  The Board is
prepared to take any follow-up actions  that are consistent with its charter. The members of
EFAB appreciate the continuing opportunity to advise and assist EPA on important priorities.  If
you would like to discuss our findings and recommendations in more detail, we would be happy
to meet with you and/or other members of Agency management you deem appropriate.
                                       A. Stanley Meiburg
                                       Executive Director
Enclosure
       Stephen L. Johnson, Acting Deputy Administrator
       Tracy Mehan, Assistant Administrator for Water
       Linda M. Combs, Chief Financial Officer
       Joseph L. Dillon, Comptroller
       Steve Allbee, Project Director
        Office of Water
       Juliette McNeil, Director
        Financial Management Division, OCFO

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        WORKSHOP ON GOVERNMENTAL ACCOUNTING
              STANDARDS BOARD STATEMENT NO. 34

                               MARCH 4,2002
                              National Press Club
                               Washington, DC
                                                              r
Introduction

The  Environmental  Financial  Advisory  Board's  Cost   Effective  Environmental
Management Workgroup  held a public workshop on March 4, 2002 to discuss the
Governmental Accounting Standards Board (GASB) Statement No. 34. This workshop is
the fourth in a series of workshops to highlight a variety of techniques and strategies, in
both the public and private sectors that can lead to greater efficiencies and lower costs in
providing public-purpose environmental and public health protection.  George Raftelis,
EFAB  member,  facilitated  the  workshop  and  along  with  Michael Deane and  Stan
Meiburg provided an overview of GASB 34 and the Workgroup's and EFAB's interest in
GASB  34.

In June 1999, the GASB established new requirements for the annual financial reports of
state and local governments. The Statement 34 was developed to make annual reports
easier to understand  and more useful to the people who use governmental financial
information  to make  decisions  (or who may  do so in the future).   Among other
provisions,  Statement 34 requires Basic Financial Statements; Management Discussion
and Analysis; and Required Supplementary Information.

The  following summary  reflects the views and  perspectives of the workshop panel
members in their various roles and responsibilities (regulators, local utilities, financial
services industry).

GASB Overview

Mr. Tom Allen, Governmental Accounting Standards Board

The Governmental Accounting Standards Board (GASB) is a  private, nonprofit body that
is responsible for  establishing and improving  accounting  and  financial reporting
standards  for  governmental units  in the  United States (not  including the  federal
government).   These  units  include  general  purpose   governments, public  benefit
corporations and authorities, public  employee  retirement systems,  utilities, hospitals and
other healthcare providers, and colleges and universities.

GASB Statement 34 establishes new requirements for the annual financial reports and
was developed to make annual reports easier to understand and more useful to the people
who use governmental financial  information to make decisions. These decision-makers
include legislators, members of oversight  bodies, investors, creditors and others who
provide resources to governments and citizen groups and the general public.

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GASB has received very positive  reactions  from over  100 governments that  have
implemented early.  Of these, fifteen to twenty-five percent have chosen the alternative
method. There has also been much interest from engineering groups and associations.

Local Utility User Panel

Mr. Buddy Morgan, Montgomery Water Works and Sanitary Sewer Board

    -   Believe  GASB 34  is  long overdue;  that governments should  account for
       everything
       Already looking at life-cycle accounting
    -   Has a copy of GASB 34 and can comply but it will cost
    -   Doing a condition assessment of all infrastructure (CMOM arising out of ISSO
       rule)
    -   Will take a while to implement; most cities don't have detailed maps of their
       pipes, streets, etc.
       Have a GIS system; every manhole, fire hydrant, valve
       Looking at line segments
    -   Chose the modified approach; requires you to look at everything
    -   GASB 34 gives us what the cost is and forces government to report to the public
    -   Need an infusion of money  to get government's back and GASB-34 will not
       allow systems to slip back
       Advice to government - - don't panic; involve everyone (engineers, accountants,
       computer techs, etc.)
    -   GASB-34 is a lot of work

    Mr. Dan Leahy, City ofPeoria, Arizona

       Did not become involved until after it was implemented
    -   Decided to early implement
       Made early decision to seek an outside consultant to help implement (took eleven
       months to implement)
    -   1st statement: July 2001
    -   Peoria had historically capitalized infrastructure  ; found that infrastructure was
       undercapitalized - W&S enterprise fund
    -   Recommend beginning process at least a year before issuing financial statement
    -   Look at accounting systems/structure before reporting year begins
    -   3 main benefits: 1. GASB-34 is now the generally accepted accounting system; it
       demonstrates responsibility to bond ratings.  2.  The addition of management
       discussion and analysis provides  useful information.   3.   Overall  financial
       information useful to the government
       Peoria uses the  depreciated approach on all systems
    -   Do not have GIS, but are implementing now (public works  people fully supported
       the modified approach)
    -   Believe GASB-34 process was fair and included everyone

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-  Infrastructure one of government's largest assets and needs more attention
-  Still trying to capture land value
-  City council reaction - glad the accounting professionals could deal with this -
   just had to make them understand this (net assets do not translate into spending
   dollars)
-  First tier 1 city to implement - - other cities are very interested
-  Advice:  start early, work closely with auditors (still  took twice as long), not
   likely to be easy but is a good learning process

Mr. Ed Wagner, CH2MHUI

   Recognizes Steve Allbee's work on renewal and replacement
-  Competitiveness - good  asset management program will help  public systems in
   this area
-  Utility managers heard about it from their financial people
   Know the  frustration involved in  communicating with decision makers to  get
   funding for renewal and replacement
-  By asset management mean infrastructure for water and wastewater
   What do we mean by asset management? Good program minimizes the total cost
   of owning and operating  assets while giving adequate service at acceptable levels
   of risk
-  Idea of a life cycle view must be recognized (used)
   Must benchmark the system to get started and support good decisions
-  Need to look at asset management as a core business process
-  Anecdotal information is  not good for an asset management program
-  Information needs are greater
-  Timeframe is long-term (up to 50 years)
   Integrate this view into organization's planning structure
   Commitments at the highest levels and a structure that allow this to be a core
   business structure
-  Supports  the modified  approach   because  it is  more closely  tied  to  asset
   management
   Public implications  if you can't meet your commitment to preserve assets you will
   have to shift to depreciation
-  Stovepipe approach could lead to an evolutionary approach
-  Suggest strategic approach includes more upfront work
-  GASB-34 has  highlighted the need  to do  utility asset management modified
   approach
-  Realities: 1. aging infrastructure; 2.  customer service demands
-  Long-term commitment required

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Regulatory Panel

Mr. Steve Allbee, Environmental Protection Agency

   -   Fair disclosure - does not bring a regulatory focus.  EPA has sponsored financial
       management handbook for AMSA and other workshop,series
       Bottom line future: 1. fiscal partnerships 2. Asset management (include GASB-
       34) 3. innovation
   -   How did we get where we are now?  Put in  a lot of pipe; changed performance
       standards; major growth over the past thirty years
       1A  capital outlays  will have to go to replace those/that system(s) maintaining,
       replacing restoring
   -   GASB-34 - management problem not an accounting problem - have to figure out
       how to manage your assets over time at the lowest possible cost
       Gut instinct  biased toward modified approach but does not expect it to  be
       chosen much (accountants will choose depreciation as-the path of least resistance)
   -   Water and sewer assets are generally of well managed as depreciated accounts
       (too long service life)
   -   Face the issue; make management choose
   -   Modified approach are more effective way to disclose
       Underlying  problem:   poor understanding of  what it takes to provide these
       services/functions
   -   30 years without adequate disclosure of true costs
   -   Weaknesses of  GASB-34:  1.  easy  to finesse the rule  if you want to (via
       depreciation  choice of modified approach  is a management one); 2.  Idea of
       only going back twenty years is not adequate (for water and sewer must go back
       further); 3. Do not think GASB-34 is rigorous enough in the small systems; 4.  In
       cities there may not be a full airing of the decision (picking and choosing is not
       well understood);  5.   Huge lack  of  understanding re: choice(s) (finance and
       engineer people don't talk); 6.  do need to come to terms with consistencies in
       classification systems re: grading standards; 7. sees as a stronger tool if we dealt
       with replacement values not depreciation values
   -   For water and  sewer, replacement would give a more real figure(s)
   -   Things feds could do:  push the industry to these types of tools; if communities
       used the modified approach and some disclosure  related to replacements, does not
       think the feds would need much more; someone has to say that something is
       wanted/makes a difference; tie strict GASB-34 requirement to funding; finally, it
       seems there is the potential to improve the regulatory process if you have better
       information
       Accounting mechanisms we have now are not predictive tools  need to go over
       and beyond modified approach to get f??
       GASB-34 takes use a huge step but thinks another further one is needed
   -   People can choose depreciation and move to the modified approach
       Engineer and finance people need to work together more

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Mr. Kevin O 'Brien, Great Lakes Environmental Finance Center

   -   Mayors of Cleveland did not manage infrastructure assets
       In 1970's Cleveland lost infrastructure (transit and water treatment)
   -   Did not invest in capital replacement(s) in systems
       1978 city defaulted on $3 million in bonds
       New mayor, S&P/Moodys told the city they had to do capital improvement plans,
       financial plans, reate structures if they ever wanted to issue a bond again
   -   Infrastructure number one key to economic/private growth
   -   Build  up greater Cleveland - Cleveland state reporting system (brought in $7
       billion)
       Brought  in systems of management  infrastructure and  accountability  public
       private partnerships
   -   Had GASB-34 been in place, the problem might have been avoided
       Rating agencies would have had more information
       Terrible for government to be subjected to the dictates of this non-electoral group
       GASB-34 requires a wide range of multi-disciplinary knowledge
       Does  GASB-34 apply  to  every  government  in  Ohio?  (State auditors stated
       townships out)  How many modified? All public works directors.  How many
       talks? None.  In many cities raising rates is a political decision
  ; -   Benefited from a state auditor who has set out a timeline and basic expectations in
       gap accounting
   -   Problems in Ohio:  Who own roads?  Auditors haven't ruled  on this (everyone
       says that towns and cities own  everything).  Ohio Public Work Commission
 -"     Board decides no one  would get grants without a five year capital plan.  It
  s     increased level of public finance quality
  *% -   EFC Network banded together on a project called CAP Finance created at Boise
       State
   -   Software model allows  small  local governments to develop capital planning
       system that is  GASB-34 compliant
       State regulatory people hard to involve. Don't know if they are  interested
   -   Second tier project for small organizations - - translate that into a useful tool for
       small governments
   -   WERF meeting -#1 topic:  asset management
       There is a whole lot going  on everywhere but we need different groups to talk to
       each other

Financial Services Industry Panel

Mr. James Williams, Ernst & Young

       Clearly GASB-34 is the greatest change in government finance reporting - mainly
       with general purpose governments
       With utilities, the changes are much more modest
   -   New financial reporting is a statement of net assets and cash flow

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   -   Enterprise fund requirements:  management  discussion and analysis; net asset
       format; direct method for cash flows; disclosures: defining what is operating or
       non-operating assets
   -   GASB-34 - keyed in on alternatives to do the retroactive reporting - all options
       are valid and acceptable to auditors but auditors will want documentation for any
       option; retroactive is the stickler
   -   General purpose governments - streets and highways are a big issue
   -   Surprising number of early implementers did the retroactive  simultaneously
       implementing GASB-34
   -   Major decision must be made: 1. geographical approach; 2. like systems
   -   New Orleans, Miami Date, Atlanta - infrastructure need about $3 billion each
       Incentive structure must occur at the state level
       In Ohio, depreciation is the way because it was given to the finance guy and  the
       interest was compliance
   -   GAAP?
   -   Anything new, different and non-routine, the auditor will spend more time on
   -   Recommend GASB website

Mr. Jim Wiemken, Standard and Poor's

   -   GASB 34 standardizes things
   -   GASB-34 has the potential to make review clearer and more efficient
   -   Don't expect to see immediate massive rating changes anytime soon
       Rating is  a credit opinion of an issuer's willingness and ability to repay debt
   -   GASB-34 will not impact too much n systems that already have good asset
       management practice
       When viewed from the water and sewer industry as a whole, they are pretty stable
       and generally have good debt repayment histories
   -   Debt service  coverages not being called allows for reduction in this from S&P,
       Moodys, Fitch
   -   GASB-34 rating agencies care about timely implementation
   -   GASB-34 raises the bar for what constitutes good management - tie to municipal
       credit analysis? Even though 60+ revenue debt are separate, frequently the local
       management is the same  taking a more whole government approach
       Budget pressures concept - credit analysts watch this closely
       Infrastructure and capital assets in gov't credit  analysis 1. Current condition; 2.
       future needs;  3 future plans  ideally have a CIP
       Rated a  lot  of local governments/utilities - -  a  lot do not  have an asset
       management plan
       They get points for strong management and the ability to clearly identify needs
       going forward.  There are six AAA rated utilities.  Management discussion and
       analysis  - 3  sets of audits and information on the utility.  What are  the trends,
       issues and problems going forward?
       S&P surveillance process has less information available to it
       From the investor perspective, GASB-34 is great information

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      Effects on smaller issuers? Should be interesting to see how this plays out. Small
      issuers may be moved to the SRF. What is the SRFs reaction to GASB-34?
   -  SRF loan requires recipients must follow EAPP and general auditing standards

Mr. John Petersen, School of Public Policy, George Mason University

      Skeptical about GASB-34  governmental accounts area of concern re: valuation
      of fixed assets and how they came on the balance sheet
      Been in mind that public perception is cynical about politicians and governments
   -  Revenues bonds less worrisome; 6.0 bonds more of a political problem
   -  3rd politics not always easy or a straight flow - How will GASB-34 apply to East
      St. Louis?
   -  Occasionally there will be real problem areas; there are places where the situation
      doesn't work
   -  GASB-34 hard numbers will be showing some government accounting systems
      going down the toilet
      Why shouldn't we show the disasters?  Real political time bomb
   -  Government wide reporting model - real users are the rating agencies
   -  Raters increasingly focused on willingness and management factors (ability to pay
      not as important as in the past)
   -  Not going to improve water and sewer bond ratings
  - -  Depreciation can be looked at in a variety of ways - accounting system, pay taxes,
      issue securities, capital return
  - -  Engineers concern is maintenance
  '"" -  Economists are concerned with allocating intert    equities
   -  Not as concerned as GASB-34 impact on enterprise funds concerned about impact
  >   of general governments; not likely to have a big ratings impact
      Defining depreciation conflict between engineer/economist/finance
      Worry about misperception of value by the politicos
    -  Impact of GASB-34 on rates, tax bases?
      As the community sees its valuation go up, what can it sell to realize the value of
      its assets?
    -  Will  GASB-34 hurt development?
    -  Ability of political establishment to cause disadvantage
    -  Making bad out of the good - worries about the public making the good out of the
      bad

 Roundtable Discussion and Recommendations

       Enterprise funds not that impacted, more general governments
       Define what is and is not infrastructure
    -   Value of retroactive reporting
       Depreciation approach = just getting by
       Committed governments - modified approach
    -   GASB-34  does some standardization
    -   Don't look to see a lot of rating changing

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Should EPA take an active role in asset management? Yes, even without GASB-
34
Do it through partnership with utilities not through regulations (reg structure
would demand uniformity
Will EPA give some recognition/credit? What kind?  Should EPA recommend
either   the   depreciation  or   the  modified   approach.      Point  out
advantages/disadvantages of each
Financial reporting - depreciation approach
Asset management - modified system can be compatible
EMS models  heavily voluntary, general framework more comfortable with the
help approach back up by the regulatory hammer
Relationship  between  GASB-34  and  asset  management.    EPA  support
communication  of both and between  both  CMOM  (Capacity, Maintenance,
Operations and Management)
NPDES Permit - - CMOM program gives you an affirmative approach
Outreach to state partners  AWWA & WERF state partnership approach
EFAB should  encourage asset management/GASB-34 but not mandate
Partner with various industry groups and work through them
Smaller communities  TMDLs will drive them
Check DOT model
EPA should take an active role in promoting asset management.  CMOM will
make them do it; look to CMOM and other program models for flexibility
Looking from the management standpoint,  EPA should endorse the "modified"
approach
The relationship between GASB 34 and asset management should be linked (asset
management supporting financial reporting and vise versa)

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                 UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
                                WASHINGTON, D.C. 20460r_   '  >r'< rro,'~;.,

                                                                     ';
                                       AUG  2 7  2003      ?              ^
                                                             " ~ '   '~
                                                                             OFFICE OF
                                                                              WATER
Mr. A. Stanley Meiburg
Executive Director
Environmental Financial Advisory Board
61 Forsyth Street, S.W.
Atlanta, (Borgia 30303-8960

Dear^

       Thank you for your July 18, 2003, letter to Acting Administrator Marianne Horinlco
transmitting the Environmental Financial Advisory Board's (EFAB) recently completed report
(EPA-EFAB-CEEM-03-01) on the importance of the Governmental Accounting Standards Board
Statement Number 34 (GASB 34). We appreciate the leadership of the EFAB in hosting a
workshop on GASB 34. The workshop was instrumental in improving understanding among the
Environmental Protection Agency (EPA) staff, and in facilitating a dialogue with stakeholder
organizations about the impacts of implementing the new standard.

       We  agree that GASB 34 provides new and improved financial reporting standards for
State and local governments that will be an extremely important step toward better management
of our environmental infrastructure.  The modified approach offers some distinct advantages in
the context  of environmental infrastructure.  The greatest benefit is that it provides a much-
improved tool for utilities to better plan for and maintain infrastructure.

       The Office of Water has taken steps in the past couple of years to highlight the challenges
brought about by aging infrastructure.  I know  that the members of EFAB are aware of our report
entitled The Clean Water and Drinking Water Infrastructure Gup Analysis that was issued in
September 2002. One of the major reasons we prepared the report was a growing sense that our
environmental infrastructure systems were aging, and that the public health, environmental and
economic implications are a matter of serious concern. GASB 34 has the potential to be an
important tool in developing solutions.

       We  generally agree with the broad aims of the EFAB recommendations and  have
undertaken  several projects in general accord with the intent of the recommendations. Our
efforts to date have been focused on the development of tools and techniques of asset
management. Our strategic approach is based on the premise that the industry and the States
strongly advocate an industry driven framework and significantly oppose command and control
or regulatory  initiatives concerning asset management. We are making good progress but much
remains to be done.
                             Internet Address (URL)  http://www.epa.gov
           Recycled/Recyclable  Printed with Vegetable Oil Based Inks on Recycled Paper (Minimum 30% Postconsumer)

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       I am enclosing a brief overview of the most significant aspects of the work we have
underway.  Of course, there are resource implications associated with several of the EFAB
recommendations, and we may find it necessary to consider the resource requirements in
framing our activities in support of this important initiative.

       Thank you for sharing your report with the Office of Water.  If you would like to discuss
further how we might be able to work together on GASB 34 or asset management, please feel
free to contact Sheila Frace at (202) 564-1153.
                                        Sincgrely,
                                        G. TraeyMeh in, III
                                        Assistant Administrator
Enclosure

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                 The Office of Water's Overview of Asset Management

For water utilities, few concerns can be larger than managing infrastructure assets to minimize
the total cost of ownership and operations while meeting established service levels. Much of
our activity in this area over the past couple of years has been about bringing best practices in
asset management to the forefront. The process that guides the acquisition, use and disposal of
assets with a focus on managing assets to minimize the cost of owning and operating them,
while continuously delivering the desired or required level of service is commonly referred to
as asset management.

Over time all assets deteriorate.  Many water assets are underground and not easily observable.
Just because an asset is old, does not guarantee that the asset is failing to meet its performance
purpose, but the aging of the assets should bring about a shift in approach to the management
of the asset. The primary challenge is to improve the capacity of the  organization to understand
the nature of how assets fail and by gaining a better understanding of the failure modes
improving the ability of the organization to prevent failure when the consequences of failure
are unacceptable. The key steps in the asset management process include;  an information
system, asset identification, condition and criticality assessment and the resulting prioritization
and decision making process.

Although our focus has been on tools and techniques and best practice in asset management,
these efforts will work very much in tandem with implementation of GASB 34 by utilities. We
have been trying to move the wastewater industry toward broadly adopting asset management
as a foundation approach to life cycle facility and cost management of water and wastewater
infrastructure. We have also found that Asset Management is fundamentally compatible with
the principles and concepts found in Environmental Management Systems (EMS). What
follows is a brief description of the projects that we have initiated and considered  over the last
couple of years.

* We initiated and sponsored a project with Association of Metropolitan Sewerage Agencies
    (AMSA) and the other key municipal and professional associations to  prepare a first
    generation  Asset Management Handbook. The handbook was finalized in February 2002
    and four (two-day) workshops were held for utilities between March and June 2002. You
    can obtain a copy of the handbook by contacting AMSA at http: //ww w. amsa-
    cleanwater.org/. This  handbook is a very helpful reference for communities that are trying
   to get a better understanding of what assets they have and a point of reference on how to
    initiate an asset management process.

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*  We sponsored a project with The Water Environment Research Foundation (WETF) to
   conduct a research oriented needs assessment on Asset Management. This workshop included
   by invitation a relatively select group of researchers and practitioners who had significant
   experience and expertise in the field of Asset Management.  Attendees included experts from
   the U.S. and several other countries. The product from the workshop is a well-informed list
   of projects for improving the tools and support activities associated with implementing Asset
   Management.

*  We have utilized contractor support to prepare materials and present "hands on" workshops
   for utilities on advanced asset management. The initial set of workshops was held in
   November 2002. The workshops are built around case studies and participant exercises that
   demonstrate the concepts, techniques and tools. Three workshops were held in the fall of
   2002 and we have scheduled five more workshops for utilities this fall, at various locations.
   See more information at the EPA Website: http://www.epa.gov/owrn/pdfs/workshop-
   announcements.pdf.

4  We have issued an Asset Management fact sheet focused on collection system management.
   If you are interested in looking at a brief example of the application of Asset Management at
   a more detailed level look at the SSO Fact Sheet Asset Management for Sewer Collection
   Systems on the EPA Office of Water Website www.epa.gov/ow/owm. The fact sheet
   contains a discussion of the relationship between Asset Management, CMOM, GASB34 &
   EMS. We also have underway a project with the Water Environment Federation to examine
   the linkages between these initiatives and the evolution of a  more holistic model for
   sustainable utilities. A report on improving the integration of these initiatives is expected out
   this fall.

*  We have underway a Cooperative Agreement is with the Maryland Center for Environmental
   Training to prepare for smaller communities a product (handbook, tools, etc.) similar to the
   AMSA prepared handbook, but appropriate for small utilities.

+  Most of the projects that were identified in the March WERF workshop were in the area of
   tools and techniques. We included Asset Management is a priority area in the 104(b)(3)
   guidance. As a result the WERF received funding to proceed with a work on condition
   assessment protocols which was the highest rated need coming out of the March research
   needs assessment.

4  We are providing technical assistance on a series of Asset Management startup projects in
   places like the Orange Country Sanitation District in California and the Seattle Public
   Utilities Commission in Washington State and the Regional District in Sacramento,
   California. As these projects become further developed we expect to work with the particular
   districts to make case studies and supporting information available on the experiences of
   these organizations. An example of a Strategic Asset Management Plan is available at the
   Orange County  Sanitation District Website
   http://www.ocsd.com/civica/filebank/blobdload.asp ?BlobID=2557.

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We see several additional needs that are valuable and we expect to initiate additional work, as
funding becomes available. Some of the ideas that have been advanced include:

*  Preparing a model of information source and management plan for how to obtain the initial
   critical information in doing a regional gap analysis or undertaking a Nessie Curve
   assessment as part of the initial stages of an asset management process.

+  Preparing materials that would be oriented toward local elected officials and presenting these
   material as part of a workshop format at national association meetings for organizations such
   as the League of Cities, National Association of Counties, Mayors Associations and similar
   elected official forums. The idea is to create a much simplified overview of Asset
   Management that would be appropriate for elected officials and assure that these elected
   officials get exposed to these approaches when they attend their national meetings.

In addition, there are  case studies and work activities that are underway in the water sector that
are being undertaken by a number of local governments and associations that should offer a fairly
extensive set of case studies and models as the projects become more advanced. For the most
part these projects do not have direct EPA involvement, but we are collaborating with the
originating organizations to gather information on lessons learned.

*  A few communities have undertaken exchange programs with other utilities to foster transfer
   technology on asset management. These utilities believe that there is potential to "jump-start"
   new asset management programs and raise performance by learning from the experience of
   other utilities or even other industries. The Seattle PUC has had a major effort underway and
   early reports are that time and money can be saved by drawing on the experience of peers
   from outside as well as inside the US. The transfer of lessons beyond the participating
   utilities has been limited, but we are working with the utilities to develop approaches to
   sharing the lessons learned.

*  There has been some exploration in the industry about alternate models to meet technical
   assistance research and tools development needs associated with implementing asset
   management over the long term. One of the prominent ideas is further develop thinking on
   how to establish a Center of Excellence model.

*  We know that there is a continuing need to engage our state counterparts in the Asset
   Management discussion. To date, the resource issues within most States have prevented them
   from becoming more actively engaged.

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*  There may be significant benefit in integrate asset management broadly into EPA's every day
   activities and possibly areas where our work could change if we use Asset Management as a
   basic driver in our own programs. The asset management principles could have significant
   implications not only for areas like SSO's and collection system management, but also effect
   the approaches to regulatory and compliance activities as the life cycle cost and benefits
   approaches become more advanced.

Finally, it is our view that an asset management program does not have to be complex to be
effective. Properly targeted, a basic program can be developed around existing systems, with
new systems being  added as the program progresses. For organizations with relatively small
systems, complex asset management systems may not be needed to meet organizational
objectives. More advanced asset management systems are justified for systems that have high
value, such that asset management decisions will have a large financial impact, or complex
systems in terms of the size, design, or location.

           GASB 34 has a pretty extensive period of time for implementation

Communities with greater than $100 million or more total annual revenue were required to
begin GASB 34 reporting in their first financial statement following June 15, 2001.
Communities with total annual revenues between $10 million and $100 million are required to
meet the new standards in financial statements issued after June 15, 2002. Governments with
less than $10 million annual revenues should begin GASB 34 reporting after June 15, 2003.

Once a community  has made the transition to GASB 34 reporting, any system components that
are acquired, rehabilitated, or significantly improved should be recorded as new assets on the
financial statement  for the same fiscal year. Capital reporting of existing assets is also
encouraged at the date of transition, but a four-year grace period is provided. Governments
with revenues in excess of $10 million are required to go back in time and  record asset
investments over the past twenty-five (25) years. Governments with less than $10 million in
annual revenues are not required to go back in time and record capitalized assets acquired
before the date of transition to the new financial reports.

Although its not required to demonstrate compliance with GASB 34, water and wastewater
utilities may choose to adopt approaches to establishing inventories that go back much further
than the periods outlined in GASB 34. We are in a light handed technical assistance manner
encouraging them to make this choice. For many utilities the oldest portion of the system is
where data and information are most meaningful for short term and near term asset
management decisions. Even though the new infrastructure capitalization requirements won't
take effect until 2005 or 2006, asset management practices should be implemented now so that
necessary data will  be  available when the reporting requirements take effect.

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