THE CLEAN AIR ACT OF  1990:
             A  GUIDE  TO
 PUBLIC  FINANCING
                   OPTIONS
U.S.  ENVIRONMENTAL  PROTECTION  AGENCY
  PREPARED FOH THE CLEAN AIR ACT ADVISORY COMMITTEE
PREPARED BY THE ENVIRONMENTAL FINANCIAL ADVISORY BOARD

-------
XlIT? T- rMVinnNMF\ITAl FlNATkFflAl AiMrtfrtnv nr»*nn
ItlL L.P) Y IHUfNfflllli 1/\L, I Li\AI\l^lAL j
Mr. Christian R. Holmes Hon. Anne MeaoherNonhap Mr. Roger D.FHdman.P.C.
Assistant AdtT'iiiistr&Gf
MJtea^JtouiBTB-
iraCtiilFawxalOliaf'
US Environmental
Protection Agercy

Mr. Richard Torkelson
OdpuyCorBRSi.'mer
Heti York State Department
ot Environmental Conservation
via CHHR
Ms. Frieda K.Wallison
ftaw
Jones, Day, Reavts & Pogua
Mr. Herbert Barrack
ftjrftl?fi'a/ioArjriM»7Hrf
U.S. Environmental
Protection Agercy. Region II

Hon PeleV Domemci
USfcaar
State ctNenMeiica
Hon. Beryl F. Anthony. Jr,
US. Rtormsafie
Stauct Arkansas
aaaugausr
Kentucky State Legislature
Hon. Stephen Goldsmith
M&W
Indianapolis. Indiana

Mr. J. James Ban
VicePi&hlintanlTrsasast
American Water
Works Company, Isc.
Mr. Philip. K. Beachem
Hew Jersey
Wanes ttr Action, Inc.
Mr. Joseph O.Blzir
tewrietacw
Massachusetts
lTdustrial Finance Agency
Mr.PeieBulkus
/WM Worts BBsrfi»f
Department ot
Cemmuni-y Development,
ing
Mr. Williim H, Craw

M imtapal Rnarxe Department
Standard i Poor's Corporation
Mr, Michael Curley
Hali.Curley&Co..mc.
nrixt
Me Demon. Will & Emery
Dr. Richard Femvick. Jr.
I'aftsrfW,
CffrcrKsfaamia
CoBank Naticnal Bank
torCooperjti.es
Ms, Deeohn Ferris
jEwKfK
ff!tf?QfyjWifJf Qwlily C/ws/Crt
NaMnalWilcSle Federation
Dr. William F. Fox
Assxo::Kncar
Unhtndyol Tennessee
Cenier for Business and
Economic Research
«r,SrcctoD.weri*f..fr,
£x£ClitfXt U-fOEtOf
Virgnii HesBjrees Autwray
Mr. Harvey Goldman
&m»« toftassn/
ilaW.'wAr/lf.T&jjCcJOfr
Air and Water Technologies
CcrptrJIM
,\u i u*ji\i uvn
Mr, John Gunyou
Cotrintis&QflBr
Minnesota
Dtpjrtmenlcf finance
Mr. Wiliam B.James
Mnigtyflrttra; PuKsFaive
Prudential Secunties
incorporated
Mr. David M. liek
Plitatr
Loomis, Ewen. Edcrer,
Parsley, Davis «Bottinn.P.C.
Mr. Robert F. Mabon, Jr.
letirrun Bros.
Mr.JolinC.-Mac'McCarlhy
SanBincta
U.S. Department olAnritjilure
Farmjts Home Administration
Mr.MarlinL.Mosby.Jr.
MwgingDirecter
Public Rnancial
Management, Inc.



Dr. Peggy Musgrave
Prolssof ot Public FitsnsB
University olCaStfomi]
at Santa Cna
Mr. Gerald Hevvtarmer
Ofltn&r
Cincinnati. Ohio
Mr.GeorgeA.Ranelis
flWw
Ernst S, Young
Ms. Heather L Ruth
eramea
Public Secunties Association
Ms. Roberta H. Sjvage
Associatioi of Stale and
Interstate Water Pollution
Control Admin.






Mr.JohnV.Scadulo
CouayteSfflr
Nassau County, tew York
Mr. Warren W. Tyler
vafteassa
Stal! Savings Bank

Ms. Jane G- Wither idge
VicePusHna
Waste Manatemeni Inc.
Ms. Elizabeth Yl«l
Simla.
EfniicfiffientzlSefYitxsOivsioa
Rural Comminity
Assistance Cortaraticn

"The

C^/JI/^l'CA/
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*/ \.jf

created by two
advisory groups working together
Mr. Roger G.Ackeiman
Coming, Incorporated

Mr. Martin Andreas
                       Mr. Ben Cooper
                       SenisrVetFtaiiUti
                                                                advisory groups  of this quality  —

                                                                                             is  really  team work
Archer Daniels Midland
Corporation

Mr. A. James Barnes
Indiana Unhtrsly

Mr. S. William Becker
tucauxtorKia
State ind Territorial Air Pollu-
tion Program Adminislralors
and the Association of Local
Air PoJution Control OHiCials

Mr.PelerA.A.Ber!e
                       Printing Industries ol America

                       Mr. Charles A. Cony
                       OumuntlneBa&i
                       nJC/w.'fani'vrCS»
                       USX Corporation

                       Dr. Ooruid A. Deisso
                       Prts&nt
                                             Mr. Georrje W.Haney
                                             ansaJWrapa;
                                             Hircsta Fef!t!iKrOfff3f.cns
                                             Farmland Industries, Inc.

                                             Mr.Ben.G.HeirakeJr.
                                             Ms. Helen 0, Petrauskas
                                                                    ForrJMjtorCompmy
Uilenil AudutOT Socitr/

Mr. Frank S. Blake
ira&asslCUKel
General Electric
Indusfialand Power Systems

Dr. F. Peter Boer
&t»l
eioouft
saCHcllaaiHaKfser
Sun Company. Inc.

Mr. Iran Ctioronenko
Research Cottrell Companies

Mr. David Dortiger
Sai:aMvrer
Natural Resources
Delense Council

Senator Vemon J. Ehlers
#>«tfcnt pro lets
Michigan State Senate

Or. Richard F. Eizember
[mvtirtttissttret
Mr. Marc HimmelsK it
totfor
National Environmenul
Strategies

Mr, Charles R,lmbrecht
                                                                                           Or. Bruce Strtm
                                                                                           «e.«waw«>
                                                                    Mr- Ernest Rosetirjen)
                                                                    KlKta'
                                                                    0eciMral Peuo8um
                                                                                           B"°" Corporation

                                                                                           u,r»™.«  •
                                                                                           MrGeorgo Surjiyama
                                                                                           ft*Br
                                                                                                                                   »
                                                                                                                   Williom K. Rdlfy
                                                                                                                     Aiiminuiraior EPA
                                                                                                                  Dr. Murray Weidenuaum
Enviioimental Protection
Commission ol Hlllsborough
County, FL

Mr. Lawrence R. Codey
PuSSe Service
Electric and Gas Comia-y
Eli Lilly and Company

Mr. Larry FeWcamp
feoet
Biter and Berts
Houston, Tens

Ms. Stephanie A. Foote
timta
Denver &t/ Council

Or. Thomas J.Godar.M.D.
PislPrtti&a
American Lung Association

Ms. Linda F. Gclcdner
Fnnofft
Itoorul Consumers League
                                             Mr. Raymond Lewis

                                             American Methanol insuutt

                                             Mr. Charles D.Mallo:h
                                             &rxXr, RiVuuZty f.tefiigcfpMt.
                                             ffiKamSirmxfSKi
                                             Morsanlo Company

                                             Ms.MaryMasu!la
                                                                    U.S.Erwronment»l
                                                                    Protection Agenty

                                                                    Mr. Jo.ln Rowe
                       am CKtlCtecutiiv QlScer
                       Hew England Electric System

                       Dr. Steven A. Sahn
                                              Mr. Lee Thomas
                                              (i\tt£na/.rtltJSttxt
                                              Law Environmental Group

                                              The Honorable
                                              Tommy G. Thompson
                                                                                           $uu ol Wisconsin
Ms.AlmaW.Uiarns
Kraut
Arizonans lor Clean Air Now

Mr.RobertA.Wyman
Flitter
LallumandWatklns
Lr» Angeles, California

Mr. Frank G.Zarb
   TOI FmUffi
                                                                                  .
                                                                    ft.«.«!c/ft*xBv
                                                                                                                  Smm Barney Harris Ifclum
                                                                                                                    -
                                              Dr. Roger O.McClellan      Mr.HeflryB.Sehach(
                                                                       '
                                                                                             , Rob(fl j. TnJn6l(
                                             Chemical Indjslry
                                             InsWuieol Toxicology
                       ml Creel EteuHteKfcu
                       Cummins Engine Co.. Inc.

                       Ms.Jananne Srarpless
                                                                                             .-
                                                                                           ARCO Products Company
                                             Ms. Rebecca McDonald
                                             WeffPisiOert. Ssav'tScFIj.^'^
                                             Tenr.KO Gas Company       Stile o! Calilqrna
American Federation ol Labor

Mr. Thomas Zosel
tospef.
                                                                                           Mr. Steve Wentv/crth
                                                                                           BaaactDiiaaas
                                                                                           KltioraiCcmGrar.trsAssoc.   3M Corporation
            THE CLEAN AIR ACT ADVISORY  COMMITTEE •
                                                                                        THE CLEAN AIR ACT OF 1990

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                   THE CLEAN AIR ACT OF 1990:
                      A Guide  To

        Public  Financing  Options

          The new Clean Air Act may be the most progressive
           and sensible environmental initiative ever enacted.

                       The new Clean Air Act
            can produce tremendous public health benefits.

        It also can be very expensive — but it doesn't have to be.

    Under the Clean Air Act of 1990, state and local governments are responsible
tor implementation and compliance activities. As EPA's partners, state and local
air quality agencies must expand many existing regulatory programs and add
new ones to implement fully and comply with the Clean Air Act,
    The benefits of the new Act are expected to be enormous — EPA esti-
mates that 56 billion pounds of pollution will be removed from the air  each
year. In human terms, these measures will significantly reduce lung disease,
cancer, and  other serious  health problems. The impact on the environment
will be equally significant — less acidic lakes, more abundant crops and forests,
and enhanced visibility.
    Clearly, the costs of achieving such health and environmental benefits will
be substantial. While the eventual cost is still unknown, air programs across the
nation currently are assessing the costs of these new and expanded regulatory
programs and compliance  actions, and the share of the financial burden that
will be borne by state and local governments.
    This guide examines opportunities both within the provisions of the Clean Air
Act and within current air program financing arrangements for state and local author-
ities to meet the funding requirements of the new Act. In the Act, Congress pro-
vided authority to all state and local air agencies to charge emissions fees at lev-
els sufficient to cover their  air permit programs. Even with this new authority,
state and local governments will need to explore alternative funding mecha-
nisms and other arrangements to cover program costs not associated with the
permit program. The financing mechanisms described in this guide may provide
additional funding for state and local air quality agencies and are intended to sup-
plement, but not replace, existing general revenues or federal grant assistance.
    The Clean Air Act aiso encourages several market-based programs, such as
an allowance trading program that enables utilities to buy and sell emission cred-
its and  mobile source trading between fleets of vehicles. While these and  other
innovative programs can reduce the overall cost of implementation to both the pub-
lic and private sectors, the focus of this guide is on public financing options to sup-
port implementation and compliance activities. By "working smart,* state and local
governments  can tower the costs and increase the results of implementing the Act.
   Thefinancing
mechanisms in this
guide are intended
  to supplement,
  but not replace,
  existing general
revenues or federal
 grant assistance.
   A GUIDE TO PUBLIC FINANCING OPTIONS

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  The strength of
the state programs
   is enhanced
  by relying on a
   diversity of
 funding sources.
                  Historical Sources Of Funds
          — Federal Grants, Permit Fees, and General Revenues —
    Historically, state and local air agencies have relied on three sources of rev-
enues to support air programs — federal grants available under Section 105 of
the Clean Air Act, a variety of fees and charges, and state and local general rev-
enues. On average, federal grants have funded some 35 percent of state and
local programs. The percentage of fees, charges, and general revenues that
make up the remaining balance  is as diverse as the hundreds of state and
local air agencies.

              Broadening Sources Of Funds  And
               Financial Arrangements To Meet
                    Clean Air Act Challenges
    While the Clean Air Act's new air emissions permit fees (under Title V) are
expected fully to fund direct and indirect expenses associated with running these
programs, these fees will not recover the costs of running many other air qual-
ity control activities, such as mobile and area source control. To finance these
and other air program responsibilities, state and local agencies may have to explore
a wide variety of approaches, including:
12 New Revenue Sources, such as fees other than Title V emissions fees, taxes on pollut-
  ing activities or on inputs thai cause air pollution, and fines and penalties,
n Regional Authorities and Special Districts that provide an  efficient means of
  implementing air programs because of their ability to consolidate administrative require-
  ments, capture economies of scale, target problem areas, and raise revenues through
  special assessmenls or serv ce charges.
0 New Institutional Approaches, such as revolving loan funds,  trust and enterprise
  funds, and bond banks, which help publicly owned sources comply with Clean Air Act
  requirements at low cost, and which match revenues to their intended uses.
a Public-Private Partnerships that may accomplish certain program elements at
  lower cost than can purely public alternatives, depending on the characteristics of the
  partnership. Possible candidates include mobile source emissions inspection, emissions
  inventories, and ambient monitoring.


                Matching Financing Sources To
                      Air Program Activities
    The alternative revenue sources and institutional arrangements discussed
in this guide demonstrate that there is an array of  options for financing state and
local regulatory programs and compliance activities. Individual revenue sources
may be more appropriate for some uses than others. When selecting revenue
mechanisms, program managers should consider the timing of revenues, total
revenue potential, reliability of revenues over time, and  fairness across those
who pay and those who either benefit or cause air pollution.
                                                                                 THE CLEAN .AIR ACT OF 1990

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   Similarly, financial management mechanisms should be carefully matched
with the uses of funds to be managed. Important considerations in structuring
such arrangements include local characteristics such as conventions for bal-
ancing intergovernmental powers, authority to raise revenues or manage funds
on behalf of the public, budgeting and accounting conventions, and political
willingness to delegate fiscal responsibility.
   Public financing is only one of the many challenges facing states and local
governments as they address the requirements of the new Act. The mechanisms
suggested here, while not the answer to all program needs, can provide the finan-
cial foundation for new and expanded state and local programs
                     Introduction
    Under the Clean Air Act of 1990, state and local governments must establish
an array of new and expanded programs to protect the nation's air quality. To be
sure, these programs will be costly, but the federal Environmental Protection
Agency is also taking a more flexible approach to implementing these laws, and
providing multiple options to clean the air. By "working smart," states and local
governments can help achieve clean air in a cost-effective way. Critical to the suc-
cess of the Clean Air Act is the development of adequate resources to implement
the  many new and  expanded requirements of the law. This paper examines
financing alternatives that can be used to support state and local implementa-
tion  activities. The financing mechanisms described in this guide may provide addi-
tional funding for state and local air quality agencies and are intended to supplement,
but  not replace, existing general revenues or federal grant assistance.
    This guide is intended to assist state and local authorities as they explore
alternative financing options  for implementation of the requirements of the
Clean Air Act. The sections below describe the requirements of the law and relat-
ed state and local program requirements, and introduce a range of financing
mechanisms and institutional approaches that state and local governments
can draw upon in establishing new program activities.
                   Requirements
                          Of The
               CLEAN AIR ACT OF 1990 —
   The Clean Air Act of 1990 will result in the single largest environmental
regulatory program initiated under a federal statute. The Act is comprised of 11
titles, covering a wide variety of air quality issues ranging from bringing nonat-
tainment areas into compliance with air quality standards to addressing the prob-
lems of acid rain and ozone depletion. The table located near the back of this
guide (page 20) presents the key provisions of the Clean Air Act by title.
   We must
have your help.
  The key to
  "lower-cost
  dean air"
 is a working
 partnership...
   A GUIDE TO PUBLIC FINANCING OPTIONS

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 While permit fees
(under Title V) are
 expected to fund
  the full expense
associated with the
 stationary source
 permit program,
   they  will not
 recover the costs
 of running other
  activities, such
as mobile and area
  source control.
    Under the Act, state and local regulators are on the front-line of imple-
mentation. To implement the new Act, state or local governments, where autho-
rized, will need to adapt and enhance basic programmatic and regulatory
activities as follows:

  4 Prepare and implement State Implementation Plans (SIPs);

  4 Implement permit programs for stationary sources:

  4 Create economic incentives programs, including emissions fees
    and marketable permits;

  4 Improve monitoring of emissions from stationary sources;

  4 Create new inventories of ozone-causing emissions;

  4 Enforce Stage II control programs at gasoline stations;

  4 Adjust inspection and maintenance programs for mobile sources to
    comply with the basic and enhanced provisions of the Act;

  4 Take the Clean Air Act into consideration in transportation planning,
    including the creation of new transportation control programs under the
    1991 Intermodal Surface Transportation Efficiency Act; and

  4 Bring state and local public facilities (including stationary sources and
    state fleets) into compliance.

    Implementation of these activities will increase the size, scope, and cost
of state and local air programs over the next several years. The costs of these
new or expanded  programs, and the share of the financial burden that will be
borne by state and local governments, is currently being assessed by gov-
ernments across the nation.
                                                           Meeting The
                                                Financial Needs Of The
                                                — CLEAN AIR ACT OF  1990 —
                                         Historically, states have relied on three sources of revenues to support air pro-
                                      gram activities — federal grants (and in particular §105 funds), state permit fees,
                                      and general revenues. In the past, federal grants have comprised as much as 35
                                      percent of state and local program funding. A significant portion of state and
                                      local air program funding also has come from state general revenues. In Maryland,
                                      for example, general fund revenues accounted for 36 percent of the total expend-
                                      itures of the Air Management Administration in 1991 (total expenditures of $5.5
                                      million). Federal grants provided 35 percent of funding needs, with permit fees
                                      accounting for 18 percent, and 11  percent coming from reimbursements and other
                                                                            THE CLEAN AIR ACT OF 1990

-------
sources. As of 1990, at least 24 states and 25 local air authorities had air permit
programs that were supported at least in part with permit fees
    Title V of the Cfean Air Act requires that states impose emissions fees on sta-
tionary sources at levels sufficient to finance the Title V permit program. States
must charge at least $25 per ton per regulated pollutant unless they can prove
that a smaller charge will cover the full direct and indirect costs of the permit pro-
gram. This program will greatly augment states' financial resources to admin-
ister pollution control programs by requiring sources of pollution to pay their share
of the costs of states' air pollution programs. While this helps, it will not meet all
of the new program requirements outlined above  because: (1) fee revenues
can be used only for the Title V permit program (which covers primarily sta-
tionary sources); and (2) fees are not likely to cover the full cost of the program,
especially in the interim period before full implementation, since a number of states
are choosing to phase-in full cost recovery fees over several years.
    Even with increased permit fees, it is clear that states will need to do more
to meet the increased costs of the Clean Air Act Four categories of possible
actions are described here:

       •  New revenue sources;

       •  Regional authorities;
       •  New institutional approaches; and

       •  Public-private partnerships.

    Financing mechanisms and institutional arrangements within  these four
categories build on opportunities in the provisions of the Clean Air  Act and in
current air programs so that state and local authorities can meet the funding require-
ments of the new Act. The following matrices summarize these options and
offer a framework for assessing the relevance of options to particular funding
needs at the state and local levels.
    The first matrix lists the revenue options available to state and local air
pollution programs and assesses the applicability of each revenue option at both

                  Summary Of Revenue Options
Programs
Sources Ot Revenue
Federal Grants 	
Fees . ., »
Taxes 	 	
Fines/Penalties . .
Privatization
State Loans and Credit
Enhancements . ....

State-Administered
Capital Costs Program Costs
0 •
9 •
0 w
« w
Locally-Administered
Capital Cosls Program Costs
8
8
«
0
w
•
                                       ...state
                                    environmental
                                  programs cannot,
                                    and probably
                                     should not,
                                      be totally
                                    dependent for
                                    funding on fee
                                   based revenues.
                       Fully Applicable   w Martially Applicable
Not Applicable
    A GUIDE TO PUBLIC FINANCING OPTIONS

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the state and local level. It delineates between capital and programmatic costs
because a revenue source is often more appropriate for one or the other clas-
sification of cost. Applicability is assessed based on the timing of revenue col-
lection versus the timing of the costs being incurred and the availability of the
various revenue sources, along with their relative reliability.
   The second matrix summarizes relevant fund management mechanisms,
identifying the revenue source with which they are commonly associated, the
level of government most likely to use the mechanism, and the level of government
benefiting from or receiving the funds.

           Summary Of Fund Management Mechanisms
     Management
     Mechanisms
   Associated
Source Of Revenue
                                         Fund
                                      Administered By:
Manages Funds
 On Behalf Of:
Annual Appropriations	

Revolving Funds	    Loans

Bond Banks	    Debt

Enterprise Funds	

Trust Funds...
                                           State
                                          or Local

                                           State
                                           Stale

                                           State
                                          or Local
                                           Slate
                                          or Local
                                 State
                                or Local

                                 Local

                                 Local

                                 Slate
                                or Local
                                 State'
                                or Local
            New Revenue Sources

   While the Title V permit fee program provides an important funding source
to states, it is only one source and its applicability is limited. In addition, it will take
a number of years for states to implement permit fee programs because, in most
cases, new state legislation is needed and because EPA must approve all per-
mit programs. Each state must submit a permit program to EPA for approval by
November 15,1993. EPA then must approve or disapprove the program within
one year of its submittal. Within one year after a state has an approved program,
it must have collected applications from sources. All permits must be issued
within three years of program approval (by November 1997, at the latest). Some
states will implement a program and collect fees earlier, but other states may not
collect fees until the end of this implementation period. Some states are col-
lecting interim fees prior to full implementation to help cover the start-up costs asso-
ciated with establishing the new permit program, but these fees do not necessarily
exactly match the federally mandated permit fees; nor are they set to recover the
full cost of implementation.
   States will need to identify alternative funding mechanisms to cover new air
program costs not associated with the permit program and to fund the short-
term costs of implementing new permit programs before  the fees are fully
                                        THE CLEAN AIR ACT OF 1990

-------
implemented. Possible funding mechanisms include fees (other than the Title
V permit fees), taxes, and fines and penalties.
    Not every financing mechanism will be appropriate for every state or local
program. Within each jurisdiction, political, administrative, and legal charac-
teristics will influence the selection, design, and implementation of a financing
mechanism. The accompanying box lists eight key factors that can be used to
evaluate the merits of each mechanism in the context of the program it is
designed to finance. In general, no single financing mechanism will completely
satisfy all criteria. Equity considerations, for example, may be qualified by
concerns over administrative costs, economic impacts, and incentive effects.
Taken together, however, these criteria form the basis for selecting an appro-
priate financing mechanism for a specific program activity


                            Criteria For
              Evaluating Financing Mechanisms
   • Equity reflects the fairness of the
    distribution of the funding burden
    among individuals. Equity in clean
    air programs can be approached
    from two directions — those who
    create or contribute to environmen-
    tal problems should bear the fund-
    ing burden (the "polluter" pays) or
    those who benefit from program
    activities should bear the funding
    burden (the "beneficiary" pays),

   • Legislative acceptability
    reflects the political attractiveness*
    of a financing mechanism. There
    are unique legislative predisposi-
    tions in each state that often influ-
    ence the choice of a financing
    mechanism.

   • Public acceptability reflects
    the willingness of those subject to
    a fee or tax to pay, or the willing-
    ness of the public to make a partic-
    ular sector pay.

   • Flexibility reflects the ability to
    use revenues from alternative
    financing mechanisms as needed
    for a variety of program activities.
Revenue potential
is measured by the amount
of money that can be raised
with a particular financing
mechanism, and whether
a mechanism provides a
one-time or continuing
source of revenues.

Feasibility relates to the
legal authority to impose a fee
or tax as well as to factors
that affect the workability of a
financing mechanism

Administration require-
ments  relate to the effort
needed  to implement an alter-
native financing mechanism,
including start-up costs and
on-going collection and man-
agement of funds.

Impacts relate to whether a
financing mechanism creates
incentives for desirable (or
possibly undesirable) behav-
ior, and  whether it places an
undue financial burden on
industry or general taxpayers.
       By
"working smart,"
 state and local
governments can
  help achieve
   clean air in
 a cost-effective
      way.
      Source: Discussion Paper on Alternative Financing Mechanisms for State Water Programs.
         Prepared by Apogee Research, Inc., tor EPA's Office ot Water. November 1989.
    A GUIDE TO PUBLIC FINANCING OPTIONS

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                               Fees

      A Ice is generally a charm- lor a particular activity or scivicc.
        1-ci's lor public services arc intended to establish a dim i
               link between the demand lor services and
                      the cost of providing them.
    Many of the activities conducted by states as part of their air quality pro-
grams could be supported by a "fee for service." For example, fees may be charged
for issuing permits, inspecting facilities, discharging or disposing of materials,
monitoring, and sampling, or for the incremental burden (or "impact") placed
on public services by new development. This could include fees imposed on
non-Title V sources, such as small boilers and area sources. Examples of new
fees for mobile sources include additional vehicle inspection fees, registration
fees, and new vehicle fees.
    In Maryland, for example, the Air Management Administration (AMA) has
imposed an Asbestos Contractors' License fee of S75-S450 (depending on
the number of employees engaged in asbestos projects). The fee is charged
to businesses, contractors, and public entities who engage in an asbestos
project. Other fees funding the AMA's budget include permit-to-construct fees,
fees for new emission-generating facilities operating in a non attainment area,
and permil-to-operate fees. Oregon has instituted an emission-based motor vehi-
cle fee of $2 for pre-1980 cars and $1 for newer cars levied at the time of reg-
istration. The estimated $3.5 million in annual revenues will go to a special
Departmenl of Transportation fund to be used for alternative transportation
projects to mitigate motor vehicle air pollution.
    New York is considering a broad array of new or increased fees to finance
both stationary and mobile source requirements, including an emissions fee of
$250 per emission point for non-title V sources (e.g., small boilers), increased
inspection and registration fees, a new vehicle fee, and fees on "excess" vehi-
cle miles travelled (VMT). In addition to raising revenues, several of these
options are intended to create incentives to reduce air pollution.  For example,
the "excess" VMT fee might encourage drivers to be more efficient in using their
vehicles (e.g.. by combining trips) or to shift to an alternative mode of transportation.
    Surcharges on existing mobile source fees could also provide support for
state and local air pollution programs. For example, Florida finances state and
local air programs through a $1 surcharge on auto license tags. If a county has
a local air pollution control program that the state has declared eligible for fund-
ing, it receives $0.75 of the surcharge from the automobiles registered within the
county. If the county does not have such a program, the entire amount is ded-
icated to the state's air pollution control program. As of March, 1992. over seven
Florida counties had programs which were partially supported by this license fee.
    In many cases, fees are set to recover the full cost of the service for which
they are being collected. Indeed, this is a requirement of the Title V permit fee
programs by the time they are fully implemented. One way to ensure maxi-
                                         THE CLEAN AIR ACT OF 1990

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mum utilization of a financing mechanism such as the Title V permit fee is to ensure
that all of the activities related to the permit program are included in the costs
to be recovered through permit fees. For example, a comprehensive Title V per-
mit program would include not only the cost of issuing a permit, but also the indi-
rect costs of administering the program, such as monitoring emissions, inspect-
ing facilities, developing and maintaining new source inventories, and planning-
related activities, as well as indirect departmental overhead costs.
                             ADVANTAGES
    A fee is often the most equitable means of matching program costs with those
parties responsible for or benefiting from program activities. Both legislatures
and the public are increasingly comfortable with charging "fees for service." Fees
can generate substantial revenues, at relatively low rates where the base is
fairly large. In addition, fees can be designed to tap  "new" sources of rev-
enues that do not overlap or compete with existing sources of program fund-
ing or general revenues. Finally, fees can induce desirable changes in behav-
ior (such as reduced air emissions).
                            DISADVANTAGES
    Many state legislatures are reluctant to set fees high enough to recover pro-
gram costs. Historically, states and localities have charged only a nominal
amount for services, with the remaining costs financed with general revenues.
As a result, "fees" that are acceptable to the public today are relatively low. This
creates a dilemma for state programs that rely on fees to support their pro-
gram activities but that cannot raise fees to cover full cost without encounter-
ing public resistance. Another potential disadvantage  of fees is that where
they fall on the same parties, materials, or activities as another assessment, there
may be competition from other programs that already rely on that source of funds
(e.g., many vehicle-related charges may compete with highway or transit pro-
grams). Finally, if fees are perceived as too high, they could create incentives
to avoid payment through relocation, noncompliance, or other means.
                              Taxes
      A tax is generally a charge against sales, income, or property.
        Taxes are typically used when program funding needs are
       large and when the benefits of an activity are widespread.
          Unlike fees,  there may be less of a direct relationship
                 between the tax and the use of funds.
    Taxes are the primary source of general fund revenues. Sales and income
taxes comprise the majority of state general revenues, while property taxes
are the primary source of revenues for local governments (exclusive of revenue
sharing from the state). The mix of revenues from different taxes varies signif-
icantly from state to state, reflecting factors such as the level of manufacturing
   A GUIDE TO PUBLIC FINANCING OPTIONS

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    ... we need
  more flexibility.
 The job is simply
too big/or any one
 sector or level of
   government.
or industrial activity, political predispositions, and historical preferences.
    Air programs have two options for using taxes to support their programs. They
can seek financial support from legislatures in the form of increased appropria-
tions from general revenues or seek dedication  of specific tax revenues. As
states and localities face increasing demands on their general funds, environmental
programs are experiencing decreased appropriations even as new regulatory require-
ments are driving program costs up. In the face of such competition, it may be
more constructive to look for new and dedicated taxes, rather than attempt to cap-
ture a greater share of general fund appropriations from year to year.
    For state or local air quality programs, taxes on  sales or income provide some
opportunity for establishing a dedicated revenue source. A sales tax could be
levied on products or activities that contribute to air poilution, such as gasoline
or automobiles. An income tax or tax surcharge could be imposed on those busi-
nesses whose industrial activities contribute to air pollution. New York is con-
sidering an excise tax on automotive parts to help finance its  mobile source pro-
gram. In California, the Sacramento Air Quality  Management District is par-
tially funded by a local option sales and use tax on retail sales in the county, a
share of which is dedicated to the local air authority. Other examples include
severance taxes on coal and oil, tolls, a value-added tax (VAT) on certain man-
ufacturing processes,  and property transfer taxes.
                              ADVANTAGES
    Depending on the base, a tax can build directly on the principle that the pol-
luter or beneficiary pays. For example, a tax on products that contribute to
pollution problems (such as pesticides or gasoline) falls on "polluters," while
a tax on protected resources falls on "beneficiaries." Where the tax base is
broad (e.g., sales or income), a tax at even a low rate can generate substan-
tial revenues. Imposition and collection of taxes may be relatively straightfor-
ward — generally, the commodities on which a tax is levied have value and the
point of transaction (e.g,, sales) can be clearly identified. Further, the mecha-
nisms of existing state agencies may be used to  collect revenues. Finally,
taxes can be designed to avoid state-to-state and international competitiveness
concerns by targeting consumers as opposed to producers of products, thus
avoiding possible relocation by industry to avoid the tax.
                                                                    DISADVANTAGES
                                            A major disadvantage to using taxes to fund state air programs is public and
                                        legislative opposition. In particular, many legislatures resist dedicating tax revenues
                                        to particular programs; instead, they may reserve their taxing authority (and tax
                                        revenues) for the general purposes of the state, and insist that state air programs
                                        compete with other public programs for revenues. In today's tax climate, public
                                        resistance to new taxes is also high. Also, where a clear opportunity for dedicat-
                                        ed taxes exists (such as an automobile excise tax) there may be competition from
                                        other programs or from the state's general fund for those revenues (e.g ,  in
10
                                         THE CLEAN AIR ACT OF ] 990

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Washington, an auto manufacturer's tax. which was initially proposed to support
cleanup of Puget Sound, was diverted by the legislature to the state's air pro-
gram). A further objection to taxes for specific program funding is that the relationship
between the tax base and target populations (polluters or beneficiaries) is some-
times tenuous. Some taxes may be difficult to justify beyond the fact that they
raise needed program funds. Finally, taxes may be regressive, imposing greater
costs on low income households relative to higher income households.
                   Fines and  Penalties
        Fines and penalties are imposed primarily for violations
             of federal or state requirements or regulations.
    Whereas fees and taxes may be collected on everyday activities, fines
and penalties are collected only on the exceptions to normal operations. As such,
fines and penalties typically do not provide a steady stream of revenue. More
often, fines and penalties have been used to create positive incentives (e.g..
improved compliance).
                             ADVANTAGES
    Fines and penalties adhere closely to the principle of "polluter pays," As a
result, they enjoy both public and legislative acceptability. They also may be
an effective means of creating incentives for desired behavior, if violations
can be detected and the resulting fine is higher than the cost of the desired behav-
ior (such as installing a preventative measure). Finally, states may exercise
considerable discretion in the use of revenues from fines and penalties.
                            DISADVANTAGES
    The feasibility of fines and penalties is dependent on the enforcement
authority's ability to detect potential violations. This may require extensive
inspection, monitoring, and enforcement activities. Without such enforcement
activities, the value of fines and penalties as a source of funds or as an incen-
tive is lost. Revenues from fines and penalties may be sporadic, and do not pro-
vide a steady and predictable stream of revenues for program operations.
Finally, reliance on fines or penalties as the only source of funds for program
activities could create perverse incentives for the state agency to pursue
unnecessary enforcement actions.
    A GUIDE TO PUBLIC FINANCING OPTIONS
11

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                                                    Regional  Authorities

                                                A regional authority is an independent agency created
                                                  through an intergovernmental agreement among
                                                          participating local jurisdictions.
                                                      The authority generally is governed by a
                                                board of directors comprised of representatives from
                                                          the participating governments.
                                           In some states, implementation of air programs may be better managed at
                                       a sub-state level. At  the same time, the county or local level of government
                                       may be too small to capture the geographic aspects of air emissions and dis-
                                       persion of pollution. In response, some states have allowed for the creation of
                                       regional authorities to deal with the problem. Regional authorities may offer a
                                       cost-effective means of implementing program requirements.
                                           Several states have long-standing regional air pollution control authori-
                                       ties. In Oregon, state law expressly allows cities and counties to form region-
                                       al air pollution control authorities by adopting local ordinances. If the state
                                       Environmental Quality  Commission determines that  the boundaries of the
                                       authority are reasonable and the proposed financing is sufficient,  the state
                                       delegates its air permitting activities to the regional entity. There is currently one
                                       such regional authority in Oregon, which is financed through a combination of
                                       state and federal grants, permit fees, local funding, and enterprise activities.
                                       Because the local authorities are ultimately responsible for their own financing,
                                       the cost of air permit implementation to the state may be reduced.
                                           Special districts  offer another means of forming a sub-state or regional
                                       entity that encompasses several local jurisdictions. Special districts are limit-
                                       ed-purpose local governments created as separate entities, often with substantial
                                       independence from general-purpose local governments (e.g., counties, munic-
                                       ipalities, and townships). A special district can be created by state law to pro-
                                       vide environmental program services. Characteristics  of special district gov-
                                       ernments differ widely among the states, with varying degrees of  administra-
                                       tion and fiscal autonomy provided for by state legislative provisions. Special dis-
                                       trict governments are known by a variety of titles, including districts, authori-
                                       ties, commissions, and boards. Options for sources of revenue include special
                                       fees or taxes, special assessments, and tax increment financing.  Of the spe-
                                       cial districts in the United States, 43 percent  have the power to impose district-
                                       wide property taxes, 24  percent impose service charges, and 14 percent have
                                       the power to impose special assessments.
                                           The state of California has created independent local air pollution control
                                       districts to implement air quality programs.  The principle sources of revenue
                                       for these districts are permit fees, automobile registration surcharges, and
                                       local special taxes. For example, the Sacramento Air Quality Management
                                       District, which has been in existence since  1975, finances its $8 million bud-
                                       get  through a combination of local sales taxes, county automobile registra-
                                       tion fees, permit fees, and federal and state grants.
12
THE CLEAN AIR ACT OF 1990

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                            ADVANTAGES
    Regional authorities can consolidate administrative and other activities in
a single agency, eliminating duplication of effort among local agencies. Due to
economies of scale, a regional authority often can perform required air pollu-
tion monitoring and permitting activities more cost-effectively than individual
local agencies. Since the regional authority sometimes is financed by contri-
butions from the local governments involved, it can reduce the burden on the
state budget and increase the chances that the costs of air pollution control will
be shared equitably among local governments.  Regional air pollution districts
allow states to target air pollution efforts to a particular area, implementing
more stringent regulations and monitoring only where necessary, thus direct-
ing funds where the needs are greatest.
                          DISADVANTAGES
   State governments may be concerned about loss of state control over
regional air programs that have been entirely delegated. Since the regional author-
ities are smaller, the state program may be able to achieve greater economies
of scale. If the regional authority is financed by local funds, it may be vulnera-
ble to local budget problems, intergovernmental financial disputes, or region-
al economic downturns. Local politics may hinder regulation of economically
important industries and cause uneven implementation across regions, even
where conditions are similar Regional authorities also may encourage a nar-
rower focus on the problems of a particular area, while decreasing focus on wider,
interstate air pollution concerns.
                New Institutional

                     Approaches

    In addition to implementing new administrative programs to ensure pri-
vate compliance with the Clean Air Act, state and local entities will have to
bring their own facilities into compliance with the Act. This will mean that
increased investment at the state and local level will be required to ensure
compliance of publicly-owned stationary sources of air pollution as well as
mobile sources, such as state or local fleets.
    There are several institutional initiatives states can develop to facilitate
public capital investments. These include:
       • Revolving loan funds;
       • Trust and enterprise funds; and
       • Bond banks.

    These institutional approaches offer several advantages to states. Trusts
and enterprise funds can ensure that revenues from specific sources (such as
   ...significant
opportunities exist
 for all levels of
 government and
 the private sector
  to improve the
   efficiency of
  environmental
   finance and
  to boost levels
   of investment
 needed to ensure
that environmental
  goafs are met.
   A GUIDE TO PUBLIC FINANCING OPTIONS
                 1 (

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                                       a fee or special tax) are dedicated to their intended uses. Dedication through
                                       a trust or fund also may enhance public acceptability of a new fee or tax,
                                       because it reinforces the link between the revenue and its intended use.
                                       Revolving loan funds and bond banks may lower the cost of raising capital, there-
                                       by making it easier for states and local governments to finance needed capi-
                                       tal investments in air pollution control measures.


                                                        Revolving Loan Funds

                                                        Revolving loan Funds provide loans to
                                                      local governments for capital investments.
                                                  The repayment of these loans over time allows the
                                                   fund to revolve its lending ability in perpetuity.
                                           The State Revolving Loan Fund (SRF) program established to replace the
                                       construction grants program in wastewater treatment could provide a model for
                                       the development of an air quality loan institution. The revolving loan fund (RLF)
                                       concept could be applied to air programs to help local governments meet the
                                       anticipated need for capital investment to bring public facilities, such as munic-
                                       ipal incinerators or public transit systems, into compliance with the Clean Air
                                       Act. A revolving loan fund could be capitalized with a grant from the federal gov-
                                       ernment or with state bond proceeds.
                                           Revolving loan funds can be designed to provide assistance based on
                                       environmental needs and/or financial need. The current SRF program bases loan
                                       applications on the former, but several states also take into account a community's
                                       ability to pay. Interest rates can be fixed or flexible. For example, very poor com-
                                       munities could be offered loan terms at a lower or zero rate of interest. Revolving
                                       loan funds could even provide grants.
                                                                    ADVANTAGES
                                           The primary advantage of a revolving loan fund is that it is a self-sufficient
                                       source of capital for capital investments. SRFs also are flexible in that they
                                       can be structured to offer subsidies where needed.
                                                                   DISADVANTAGES
                                           Creating a revolving loan fund requires a sizeable investment of capital. With
                                       federal grant funds diminishing and state bonds increasingly extended, it may
                                       be difficult to capitalize a revolving loan fund for a new program area such as
                                       air pollution control. Several problems could arise if revolving loan funds are not
                                       administered or designed carefully. The most obvious concern is the potential
                                       for depletion of the fund corpus, either because interest rates are set too low,
                                       or because default rates are too high. A second concern is whether particular
                                       states have sufficient demand for such an institution. Without a sufficient vol-
                                       ume of lending activity, a revolving loan fund may not provide a cost-effective
                                       means of financing public investments.
14
THE CLEAN AIR ACT OF 1990

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            Trust and Enterprise Funds
           Financial management mechanisms link sources
        of funds with their intended uses, and also can be used
          to increase the value of resources between the lime
                  they arc collected and disbursed.
   Three mechanisms are summarized here. Trust funds are created by states
to receive revenues generated by a specific tax or other funding mechanism
and disburse funds for the purposes to which the revenues are dedicated. A
variation on this concept is an environmental endowment, which can be created
to promote state air quality goals. In general, an endowment is an independent,
incorporated legal entity that directs funds toward a variety of research and pro-
gram activities. Endowments may receive revenues from a number of sources,
including dedicated taxes,  fines or legal settlements, or  voluntary contribu-
tions. Enterprise funds are used to manage the finances of government activ-
ities that are largely self-supported through user fees or another specified rev-
enue source. An enterprise fund is realty no more than an accounting mecha-
nism to separate the financing of a particular activity from the general fund. As
a result, income and outlays can be segregated from the general government
budget. For instance, state and local air programs may wish to establish enter-
prise funds to segregate the income and expenditures associated with the
Title V permit fee program to guarantee that the use of these funds is for Title
V-related activities.
                            ADVANTAGES
    The major advantage of funds, and the primary reason for using them, is to
ensure that revenues from specified sources are used only for their intended
purposes. Funds also help insulate program activities from the vagaries of the
appropriations process. Funds help preserve program revenues by prevent-
ing them from reverting to the general fund at the end of the budget period. Finally,
where interest on fund  balances accrues directly to the fund, revenues can
grow through good financial management.
                           DISADVANTAGES
    Funds place an additional administrative burden on the state, and may
only be cost-effective where program revenues are substantial. There may be
legislative opposition to the use of funds because of the loss of control over dis-
bursements of state revenues. Finally, where fund balances may be subject to
interfund transfers to meet other funding needs of the state, they may provide
only limited security for program revenues. In Connecticut, the legislature
recently transferred $4 million from the Auto Emissions Fund and $6 million
from the Leaking Underground Storage Tank Fund to cover increased expen-
ditures for a low-income energy assistance program.
    A GUIDE TO PUBLIC FINANCING OPTIONS
I

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                         Bond Banks

              Bond banks assist local governments, and
    especially small communities, in gaining access to the municipal
        debt markets and in lowering the cost of debt Financing.
    Currently, at least 13 states have bond banks. Smalt and economically
disadvantaged communities frequently do not have established credit ratings,
making it difficult and costly for them to issue bonds for capital projects. Those
communities that can issue bonds pay high costs of capita! because the fixed
costs of issuance impose a greater burden when spread over a smaller bond
issue and may pay a higher yield because of their credit risk. Communities
without sufficient credit experience may be required to secure bond insurance
that raises the cost of capital further. A bond bank can help lower the cost of
capital for local communities and can be of special assistance to small or eco-
nomically disadvantaged communities. It will either sell bonds in the bond
market and use the proceeds to purchase bonds from local communities, or it
may purchase local issues, pool them, and sell the debt as one large bond
issue. Proceeds from the pooled bond sale are loans to the participating local
communities, which repay the loan from facility revenues or from other local rev-
enue sources. The costs of capital are lowered because pooling lowers the asso-
ciated risk of default, similar to the way insurance  policies operate.
                            ADVANTAGES
   The primary advantage of a bond bank is that it helps communities gain access
to otherwise inaccessible municipal debt markets. It also lowers the cost of
debt financing for communities.
                           DISADVANTAGES
    Unlike a revolving loan fund, a bond bank must constantly go back to the
bond market for new capital because loan repayments from local governments
are used to pay debt service on previous bond issues. Thus a bond bank's
ability to assist local governments will fluctuate with the general level of bond
activity. In addition, because bond banks rely on the sale of bonds backed
solely by loan repayments, they cannot offer the  interest rate subsidies of
revolving loan funds.
                                       THE CLEAN AIR ACT OF 1990

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                    Public-Private
                     Partnerships
      Public-private partnerships can be defined as private sector
      involvement in historically public sector activities, ranging
      from performing contract labor for a public agency to private
         ownership and operation of a public purpose facility.
   Through public-private partnerships in the performance of Clean Air Act
mandated activities, state and local governments may be able to reduce the pub-
lic capital and operating costs involved in the implementation of the Clean Air
Act, thereby reducing the need for state funds. The Act requires state and local
governments to undertake numerous activities, including,  but not limited to,
inspection,  inventory, and monitoring of air quality and emissions. In  addition,
states will be required to bring their own emission sources into compliance with
the Clean Air Act requirements. Depending on each state's situation,  it may be
cost-effective for state and local governments to consider employing private sec-
tor resources, in lieu of stale resources, for some or all of the required activities.
   Public-private partnership arrangements fall into two broad categories: cap-
ital and operating; and operating only. Capital arrangements involve some form
of private ownership and operation of a public facility. By permitting private own-
ership, capital costs can be shifted to the private sector, eliminating the need to
acquire public capital and relieving the burden on public debt capacity. In addi-
tion, cost savings can be achieved because private capital construction costs are
often lower than public construction costs, in part because the private design, pro-
curement, and decision-making processes are often faster than the public con-
struction processes, and in part for the same reasons listed below for operating
costs. Private operating costs often can be lower because: (1) a private company
may be more responsive to competitive pressure; (2) a private company may expe-
rience lower labor costs; and (3) a private company can achieve economies of
scale by operating multiple facilities, even in multiple states. As an example, in
other environmental programs such as solid waste removal and wastewater
treatment, the private sector often has been 15 to 20 percent more cost-efficient
than  its public counterpart in both capital and operating costs,
   One area where public-private partnerships already have been applied in
a number of states is vehicle emissions inspection. Stricter vehicle emissions inspec-
tion requirements in the Act will involve capital expenditures for new inspection
equipment and facilities. If the final EPA regulations require the  more  intensive
l/M-240  emissions test, many states may have to invest in new equipment and
facilities. For example, New Jersey estimates that its 30 state-run inspection
facilities  will need to expand from 3-4 inspection lanes per facility to 10  lanes per
facility. The state currently is exploring the option of having a private company
build, own, and operate the new facilities. New York also is considering centralizing
its emissions inspection program by contracting out to private, non-repair auto
maintenance companies. Such arrangements have already been successfully
applied to emissions inspection programs in many states. For example, inspec-
tion facilities in Maryland were sited, built, and operated by a private company
after a competitive bidding process. Here, part of the fee paid to the operator
  Public-private
   partnerships
 can find creative
 ways to leverage
available resources
    to achieve
  environmental
  quality goals.
    A GUIDE TO PUBUC FINANCING OPTIONS
                 17

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                                        is dedicated lo state oversight and data collection, so that the cost to the state
                                        of operating the program is limited. North Carolina has recently added emissions
                                        testing to the annual inspection program operated by private gas stations.
                                        Slates will need to consider the tradeoffs between centralized and decentralized
                                        programs in their consideration of privatization options.
                                            When capital facilities are not involved or when private ownership arrange-
                                        ments are not the best option, operational savings still can be captured by
                                        contracting out certain activities to the private sector, e.g., monitoring and
                                        inventory activities called for in the Act. The Wisconsin Bureau of Air Management
                                        is beginning a pilot program to contract out to private companies certain per-
                                        mitting and information and education activities required by the Clean Air Act.
                                        This pilot program resembles an existing state  program using a private labo-
                                        ratory to monitor permitted wastewater discharges, and is another example
                                        of a public-private partnership in environmental compliance activities.
                                             Public-private partnerships already have  been successfully applied to
                                        public facilities and services in the areas of wastewater treatment and solid waste
                                        management. To reduce the cost of bringing government-owned facilities into
                                        compliance, state and  local governments may  also want to take a similar
                                        approach for those public facilities subject to Clean Air Act requirements. For
                                        example, selling a municipal incinerator to a private company might allow a munic-
                                        ipal government to avoid the capital cost of emissions controls needed to bring
                                        the facility into compliance with Clean Air Act requirements.
                                            Under any public-private partnership arrangement, it is important to recognize
                                        that the ultimate responsibility for the provision of public services remains with
                                        state and local government  officials  As such, there are a number of consider-
                                        ations that should be examined before undertaking any form of public-private
                                        partnership Two of the more important issues  to explore are the cost-effec-
                                        tiveness of the arrangement and the potential impacts on public employees.
                                            Since cost savings is often one of the first reasons to consider a public-private
                                        partnership, there must be a careful accounting of all costs associated with the pro-
                                        posed operation. A full accounting of costs should include both short-term and long-
                                        term needs, pricing factors, and the distribution of economic risks. The full cost of
                                        providing comparable services under public or private arrangements can then
                                        be compared to determine whether a public-private partnership is cost-effective.
                                            Public officials must also consider the potential impact on public employ-
                                        ees. There are steps that can be taken to mitigate the potential impacts on
                                        public employees, including agreements by the private sector to hire public employ-
                                        ees and honor existing labor agreements, early retirement options, and education
                                        and retraining programs.
                                                                      ADVANTAGES
                                            Private sector efficiency may lead to cost savings in both construction and
                                        operation of facilities. State officials surveyed in 1991 cited higher quality ser-
                                        vices, the provision of services that would otherwise be unavailable, and short-
                                        er implementation time as primary advantages of public-private partnerships.
                                        The shorter implementation time might be a significant advantage for states required
•;•
                                                                                  THE CLEAN AIR ACT OF J 990

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to meet the deadlines set out in the Act for state program implementation.
Private investment in needed capital facilities also will reduce the amount of pub-
lic capital investment needed and reduce the impact on public budgets.
                          DISADVANTAGES
   Statutory or regulatory changes may be needed in order to arrange public-
private partnerships, which might delay implementation of the activity in ques-
tion. Cost savings and other benefits of private sector involvement may not
always outweigh other financial and administrative costs associated with a par-
ticular public-private arrangement. Governments also may be concerned about
the potential loss of government control in a partnership. Finally, some govern-
ments may face significant political opposition from government workers who fear
the transition to private sector employment, or from hostile public opinion.


                         Additional
               Sources Of Information
   The information presented here provides a starting point for state and local
governments to explore possible financing mechanisms  for implementing the
requirements of the Clean Air Act.


           We welcome your comments and suggestions on
              how EPA can provide additional assistance.
                         Please contact:

      The Environmental Financial Advisory Board
              clo: U.S. EPA, Office of Administration and
                      Resources Management
           H3304,401 M Street,  S.W., Washington, D.C. 20460
                       Phone:(202)260-1020
                        Fax:(202)260-0710

              For questions concerning implementation of
          the Clean Air Act and other guidance, Please contact:

           The Clean Air Act Advisory Committee
               c/o: U.S. EPA, Office of Air and Radiation
         ANR-443.401 M Street, S.W., Washington, D.C. 20460
                       Phone: (202) 260-7400
                        Fax:(202)260-5155

      For additional information see the back cover for a listing of federal,
   state, and local air program organizations and the inside back cover for
   a bibliography of relevant sources on financing air programs.
  "The key
to lower cost
 clean air is
 a working
partnership."
   A GUIDE TO PUBLIC FINANCING OPTIONS
              19

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                                                              Key Provisions of the  Clean  Air Act of 1990
         The new
     Clean Air Act
   mary be the most
   progressive and
         sensible
     environmental
     initiative ever
         enacted.
                                        Title 1
                                        Nonattainment
                                        Areas

                                         Ozone
                                          (1993-20101

                                         Carbon Monoxide
                                          (1995&2000)

                                         Paniculate Matter
                                          (1395 S 2002)
                       • Technological control requirements
                         lot major and minor sources;
                       • Emission offset requirements at
                         new/mod! lied sources;
                       • Enhanced motor vehicle inspection
                         an 
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           Bibliography Of Relevant Sources
              On Financing Air Programs

 • ABB Environmental, Inc. for U.S. Environmental Protection Agency.
  Summary of State and Local Operating Permit Programs. Chapel
  Hill. North Carolina: September, 1990.

 • Cordes, Joseph.  State Environmental Taxes and Fees: An
  Overview. Washington, D.C.: Department of Economics, George
  Washington University, 1991 (presented at National Tax Association
  Conference on State Taxation of Business).

 • Eisenlohr, Gainor  Overview of Current Work on Alternative Sources
  of Funding for Environmental Programs. Washington, D. C.: U.S.
  Environmental Protection Agency, Office of Policy, Planning and
  Evaluation, Office of Management Systems and Evaluation, Program
  Evaluation Division, July 20, 1984.

 • Porter, Douglas R., et al. Special Districts: A Useful Technique for
  Financing Infrastructure. Washington, D.C.: Urban Land Institute,
  1987.

 • Shields, Evelyn.  Funding Environmental Programs: An Examination
  of Alternatives. Washington, D.C.: National Governors' Association,
  1989.

 • U.S. Environmental Protection Agency, Office of Air and Radiation,
  Office of Program Management Operations. Air Resources Study.
  Washington. D.C., September 1988.

 • U.S. Environmental Protection Agency, Office of Administration and
  Resources Management. Agency Task Force on Fees: Interim
  Report. Washington, D.C.. 1986.

 • U.S. Environmental Protection Agency, Office of Administration and
  Resources Management. Paying for Progress: Perspectives on
  Financing Environmental Protection. Washington, D.C.. Fall 1990.

 • U.S. Environmental Protection Agency, Office of Administration and
  Resources Management. Public-Private Partnerships for
  Environmental Facilities: A Self-Help Guide for Local Governments.
  Washington, D.C., May 1990.

 • U.S. Environmental Protection Agency, Office of Policy, Planning
  and Evaluation, Office of Management Systems and Evaluation,
  Program Evaluation Division. Stefe Use of Alternative Financing
  Mechanisms in Environmental Programs. Washington, D.C.. 1988.

 • U.S. Environmental Protection Agency, Task Force on Permit and
  Emission  Fees. State and Local Air Pollution Permit Fees — Briefing.
  Washington, D.C., November 23, 1987.

 • U.S. Environmental Protection Agency, Office of Air and Radiation.
  Outreach and Economic Incentives Staff.  Task Force Report on
  State and Local Permit Fees. Washington, D.C., Novembers, 1987.
B

•^
A GUIDE TO PUBLIC FINANCING OPTIONS

-------
 Slate Air
 Quality Agencies

 Oepirtmefll ol Environ-
 mental Maugenunl
 ArDmSion
 1751Ccn>W.LDU»nonOi.
 Montgomery, Al 36130
 let (205)271-7861
 Fa. (205)271-7950

 DeiurtmtnlotfjnrirOB-
Junou, AK 99601-1795
Tel. (900465 5101
Fax: (907) 465-5129

Department Dl
EmriroamenUI Ouilily
POBO>600
Phoenix A2 85001-0600
Tel  1607)25723*
FK (602) 528-5945

Department ol Pollution
Control and Ecology
AitDntsm
SBIHattjrBlDr.PO Bx9583
Division ol Environ-
menlil Onilily
Air OtaM/ Bureau
1410 N. Hilton, 3rd Fir.
Boise. ID 83706
T* (208)334-5898
Fax (208)334-0417

Environmental
Prol«ll«*»t«CT
                         2200 Churchill ROM
                         P 08oxt9276
                         SprinahelrUL 62794-9276
                         Fax (217(782-2465
Tel  (501)562-7444
Fax: (5011562-4632

Air Re*o«rt*l BoanJ
PO. Box 2815
Sacramento. CA 95812
Tel  (916)4454333
Fax:(916)3226003

Oepartmeol ol Heallk
Air Pollution Control Division
4210 East 11th Awnue
Oenva.CO 80220
Tel-  (3031331-8500
Fax. (3031320-4079
                         mental MuigimMt
                         0":oe ol A t A'rjOOTenf
                         P.O.Box 6015
                         lOSSorJhlMdtaSml
                         Indianapolis, IN 46206-6015
                         Tel: (31 7) 232-8384
                         Fax : (317) 232-5539
                         DesMoines.lA 50319
Dftnrtwriol             Tel  (515)281-8852
SiIiDiumUl Protocllta    Fat (515) 781-8895

vSwEET**    Department o( H,,ltl,
                         and Environment
K.'kS          SsSv
f*s*ss          a«sLi«
Dtttrtaniol             Tc(«kj.KS666;
Nannl RciMirtn a<4      Tel:  (913)296-1533
MnmnM CMtnl       Fix  (913) 2964247
Division ot Air and Waste Man-
 Ternert*r/tesoutTwSetfion Oepirtment lor
 [Kings H*y. P 0 Box 1401   Environmental Protection
Dover. OF.  19903            Division lor Air Ouj'ily
Tel:  (302)7394791          315 St. CUr Mail
Fax: (302) 739-5060          Frankfort. KY 40601
                         315 St. CUr Mall
                         Franklort. KY 40601
                         lit (502IS54-3382
                         Fax (502)564-3787
OtpartmetX ol Connmtt     Fax. (502) 5M-3
and Regiialory Attain
Environmsntjl Ccrttol Division OeturtnttH o(
tit Otalitf Control aid       EmrtroHiwilal
Monitoring Brandt           Oltice ot Ail QIC
21 COM Luther Kirn AVC..SE
VVashinQlon. DC 20020
Tel:  (202)404-1120
F«-  (202)404-1183

Department ol
Environmental Regulation
A: Fa3u\tl Afjr.jp'.-TitTrf
2600 Bin Stone rind
MTtMmOtoBufkr
Tailahassn.Fl 32399-2
Tel.  (904)488  1344
Fax:(904)4874933
     ilRrtootcti
Eminmiittil
P CM on D vrt on
Office (X Air Quality I
Radiallon Protection
Air Quality Division
P.O. Box 82135
Baton flooos. LA 70884-2135
Tel." (504) 765-0110
Fax; (504) 765 0222

Departmnlol
20SBuderS).Sf.Rm1162
MUfi. CM 30334
Tel  («H) ES6-6900
Fix  (404JK1-9425

State DetarmwntolHejmi
Uboraloties Division
1270 Qaa Enrni a, SX OT
HonoUu. HI 96813
W-.  (808|5»6-40t9
       )5863983
State House. Station 17
Augusta. ME  04333
Id  (207)26024)7
Fax: (207) 249-7641

Dtptrtmtnl
of the EnvlnHmtBt
AirUuagentnt
AtMnbnDon
2500 iiiocn-^o H q'lijy
BaHirore. WO 21224
Tel: 130116313255
Fa* (301)631-32tt2

Oeiarlm«nl ol
EniiiDnmtntal Prolf cllon
Dnislonol
Air Duality Control
One Winter Slrrt. 8ft Floor
Boston. MA 02108
Td: (617)2925630
Fax: (617) 556-1049
Department ol
Natural Resource!
Air Qotily Division
P.O Box 30328
Ursing. Ml 48909
Tel  (517)373-7023
F» (517) 373 KB

Polutloa
CoitTDl Agency
Air Quality Division
520 Lalayelte Road Norm
Si. Paul. MN 55155
Tel. (612)296-7331
Fai (612)297-1456

Dep»rtrtnBlol
EntranmttiUI OuRhj
Otfice ol Po! ut.O'i Ccntrol
AUDivaion
P.O Box 10385
Jackson, MS 39289
W 16011961-5171
Fax. (601)961-5190

Department ol
Mahral HeiwrcM
Oivisonol
EnvuonmenUl Quality
AJ fl-/u-.in Centicl fnyrnti
POBi
Jeflerson City. MO G5102
lei  (314).
Fa. (314)751-2706

Departroenl ol Heillh and
Environmental Sciences
Air Quititr Bureau
Cogswell Budding. Rn.A116
Heiena. MI 59620
Tti  (406)444-3454
Fax: (4061444-1374

Department ol
Environmental Control
Air Quality CiMial
301 Centennial Mall Soulh
Box 98922
Lincoln. NE 68509-8822
Tel  (402)47I-21B9
Fax. (402)471-2909

Division ol
Environments! Protection
Buieau ol All Quality
123 West Nye Lane
Carson City. HV 89710
Tel  (702)6875065
Fan i702)885-fl«8

Air Hetoiirefi DlvWen
64 N Main Si. Caller 6x2033
Concord. HH 03301
Td  (SB)27I-1370
Fan. 1603)271.1381

Departmenl ol
Environmental Protection
Division Dl [nrironmeiM
QottfAitPngnai
401 Easl State St. 2nd Floor
TrentDn. NJ OB62S
Tri  (609)2926710
Fax (6091633 6198
                                                   Region 1
                                                   COT*
                                                    • '  • •
                                                   ffw*4»«: Huso*
                                                   Emironmntal
                                                   PnUctlon Aimer
                                                   JottiF. Kennedy
                                                   FeOerj) Building
                                                   One Congress Street
                                                   Boston, MA 02203
                                                   Tel  (617) 565-3420
                                                   NwMiilcoEntroii-
                                                   muni Dtoirtm»l
                                                   Enviroiimontal
                                                                            *c Duality Unison
                                                                            Harok) RurmeSBidg,
                                                                            Hm S2100
                                                                            PO Bo« 26110
                                                                            Santa Fe.NM 87502
                                                                            ttl (505)82/0070
                                                  Hew York Slili
                                                  Depirtminl ol Environ-
                                                  mental Conservation
                                                  OiviSiOn Dl Aa Resources
                                                  MWoltfload
                                                  Atony. HY 12233-3250
                                                  TH  (518)457-7230
                                                  FB (518)457-0794

                                                  Dvplrtmtnl 01
                                                  Envlronmtnl, H«ltln,
                                                  ind Nitunl (Isiourco
                                                  All Qullih
                                                  P.O BOX 2/687
                                                  Raleigh, NC  27611
                                                  Tel  (919) 73} 3340
                                                  FIT (9I1| 733 5317

                                                  Kanh Ditota Stile
                                                  Departmint ol Heilth
                                                  Division ol [rniroan&ial
                                                  Cnainsetina
                                                  1200 Missouri Avenue.
                                                  Dm 304, P.O. Box 5520
                                                  Bismarck. NO 58502-5520
                                                  Tel  (701)221-5118
                                                  Fai (roiiai-SMO
                                                                            PralidlM AtjMcy
                                                                            Dwsiw ol
                                                                            Ait Ptflulion Control
                                                                            1 800 Watermark Drive
                                                                            Columbus. OH 43266-0149
                                                                            Tel (614) H4 2270
OktokMntMt
Depjrtmenl ol Hejllh
A:r ttu'..V AVI ,v
IfJOOWIOmSlraet
P.O BM 53551
Oklahoma Cknl Retottrcet
                                                                                                                   Virfftujflfll
                                                                                                     623 IjslCifiilol Avenue,
                                                                                                     J» Foil Building
                                                                                                     Pmre.sn 57501
                                                                                                             .'/3-33S1
                                                                                                     Fax (605) 773 6035

                                                                                                     Tenneiste Dipiritnenl
                                                                                                     ol Environment and
                                                                                                     Conservation
                                                                                                     Divisional
                                                                                                     Air Pollution Control
                                                                                                     Customs House, 4lh Floor
                                                                                                     701 Broadway
                                                                                                     Nashville. TH 37243-1531
                                                                                                     Tel (615)7413531
                                                                                                     Fn (615)741-4666

                                                                                                     TuatWrCtittilBoiriJ
                                                                                                     12124 Piik 35 Crete
                                                                                                     Austin. IX 78753
                                                                                                     Id l51S)908-tOX)
                                                                                                     Far (51!) 908-1212
                                                                                                                              Oeaartniettl ol
                                                                                                                              Emrlronmtiiui Oojlily
                                                                                                                              Tel: 801)5364000
                                                                                                                              Fa. 801)^38-4099

                                                                                                                              Ajeneto!
                                                                                                                              Njlucjl ResoartK
                                                                                                                              Air PoIlMxt Coefiol DivttJon
                                                                                                                              1D3S  Wjm St. BWg 3 South
                                                                                                                              '(Vstcrbury.VT 05676
                                                                                                                              Id. (802)244-8731
                                                                                                                              Fax. (802) 244-5141
                                                                                                                              P 0 Box 10069
                                                                                                                              MchimLVA 23240
                                                                                                                              TH. (IB«) 786-2378
                                                                                                                              fax IKW22S-3933

                                                                                                                              Washington Stan
                                                                                                                              Depirtment ol Ecology
                                                                                                                              Aiiriorjrm
                                                                                                                              P.O BOX47600
                                                                                                                              Olympo.WA 98504-7(500
                                                                                                                              Id  (20614596632
                                                                                                                              Fix (206)438-7484
                                                                                                                                                       Cheyenne. WY 82002
                                                                                                                                                       TH (307) 777-7391
                                                                                                                                                       F« 13071777-5973

                                                                                                                                                       Department o) Planning
                                                                                                                                                       and Natural Resources
                                                                                                                                                       Divisional
                                                                                                                                                       Erwr&vnefite! Protection
                                                                                                                                                       WatetaulHomeslllS
                                                                                                                                              ,
                                                                                                                              ChKlestcn.VrV 25311
                                                                                                                              lei  (304)348-2275
                                                                                                                              Fax- (304J 348-3287

                                                                                                                              Wuoraui Department
                                                                                                                              D! Materal Resources
                                                                                                                              BwauolAiiUarogemenl
                                                                                                                              MMwy
                                                                                                                              P.O. B
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