SEP 28 SOI
Dr. James Gallup, PE
SBIR Program Manager
National Center for Environmental Research (8722R)
1200 Pennsylvania Avenue, NW
Washington, DC 20460

Dear Dr. Gallup:

      Thank you for your letter of July 11, 2001, requesting the assistance of the
Environmental Financial Advisory Board (EFAB) and the Environmental Finance Centers

      The full EFAB met in mid-August and discussed your request to review the current Small
Business Innovative Research (SBIR) program research topics and suggest additional topics that
meet EPA's mission or a stated Agency need. As you know, Sarah Diefendorf, the EFC Director
from California State University, Hayward has been involved with the SBIR program, serving on
the project review panel for several years. The EFC Directors regularly attend EFAB meetings
as expert witnesses to the Board. Ms. Diefendorf thus was able to provide EFAB members with
additional insight into the SBIR solicitation process at the August EFAB meeting.

      The EFAB and EFC members generally agreed that there is a need to encourage "soft"
technologies in the marketplace, particularly with respect to the significant benefits they offer in
the cost-effective management of public-purpose environmental utilities.

      A specific, and very important example, is that all  municipalities will be required to meet
the GASB (Government Accounting Standards Board) 34 provisions by 2005. GASB 34 is an
accounting standard which will require that municipalities provide more comprehensive
information about the true and total costs of governmental services.  It requires municipalities to
create an asset inventory, review the condition of these assets, establish a financial plan to
sustain the assets at a specific level, and report this information to the public. There is a clear
market need for professional advisory services to municipalities in this area which currently is
unmet. Larger municipalities either have in-house accounting and asset management expertise
or have the financial resources to hire large consulting firms to assist in this process.  Most
smaller municipal environmental systems (serving less than 50,000) have neither option.

      Smaller municipalities may need consulting firms  with affordable fees to help them
comply with the mandatory asset management requirements of GASB 34. There are currently
several small consulting firms such as EMA, Inc. which assist small communities in complying

with environmental requirements; however, it is our understanding that nationwide few firm*
offer these kinds of services to this segment of the market. Municipalities are already working to
comply with the GASB 34 requirements and are looking for this expertise. For example, the
First Annual Conference on Infrastructure Priorities is scheduled to be held in Washington, B.C.
on October 24-26. This Conference will provide a forum to discuss valuing and financing
environmental infrastructure, institutional change, and community involvement.  All these topics
are part of the GASB 34 process.

       Recommendations:  We recommend that the 2002 S8IR solicitations include strategic
management tools for the public and private sectors in its list of eligible research topics. In
addition to GASB 34 compliance assistance, other examples of soft technologies include:
Capita] asset management strategies, system optimization techniques, condition assessments,
utility rate setting in support of full cost pricing, benchmarking and management information
systems.  We also recommend supporting development of innovative environmental accounting
techniques, lifecycle analyses, environmental management systems and other techniques and
systems that  support the environmental industry and/or promote cleaner business. Small
consulting businesses that have begun development of promising tools and techniques in these
areas should  be encouraged because they are the most likely vendors of such services to smaller
municipalities and small businesses, a niche market not presently well served in this regard.  We
also recommend that the SBIR review panels include individuals with appropriate experience to
review soft technology proposals.

       We appreciate very much your offering this opportunity to  make suggestions to the SBIR
program and hope that you find these recommendations useful. Both  EFAB and the EFCs would
like to continue working with  your Office, especially in the area of commercialization of
promising environmental  technologies.  Please let us know if you  are interested in further
collaboration by contacting George Ames at (202-564-4998).

Robert O. Lenna,                               A. Stanley Meiburg
Chair, EFAB                                  Executive Director
cc:    EFAB Members
       EFC Directors
       Mike Ryan, Deputy Chief Financial Officer
       Joe Dillon, Comptroller