U.S. Environmental Protection Agency
Environmental Financial Advisory Board
February 20-21, 2018
Held at
Willard Intercontinental Hotel
1401 Pennsylvania Ave., NW- Washington,
DC
EPA-800S18001
The minutes that follow reflect a summary of remarks and conversation during the meeting. The Board is not responsible for any
potential inaccuracies that may appear in the minutes. Moreover, the Board advises that additional information sources be
consulted in cases where any concern may exist about statistics or any other information contained within the minutes.
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¦se
The EPA's Environmental Financial Advisory Board ("EFAB") held a public meeting on February 21-22, 2018. EFAB is an
Environmental Protection Agency ("EPA" or "the Agency") advisory committee chartered under the Federal Advisory Committee Act
to provide advice and recommendations to EPA on creative approaches to funding environmental programs, projects, and activities.
The purpose of this meeting is to hear from informed speakers on environmental finance issues, proposed legislation, and EPA
priorities.
Attendees
EFAB Members
- Aurel Arndt, Lehigh County Authority
- Brent Anderson, RESIGHT
- Lori Beary, Iowa Finance Authority
- Janice Beecher, Michigan State University
- Theodore Chapman, S&P Global Ratings
- Rudolph Chow, City of Baltimore
- Edwin Crooks, Transurban
- Hope Cupit, Southeast RCAP
- Lisa Daniel, Public Financial Management
- Yvette Downs, Strategic Management Systems, LLC
- Heather Himmelberger, Southwest Environmental Finance Center University of New Mexico
- Jeff Hughes, Environmental Finance Center University of North Carolina
- David Kane, Portland Water District
- Daniel Kaplan, King County Washington
- Suzanne Kim, New Forests
- Pamela Lemoine, Black & Veatch Management Consulting, LLC
- Thomas Liu, Merrill Lynch, Pierce, Fenner, and Smith, Inc. (Interim EFAB Chairman)
- James McGoff, Indiana Finance Authority
- G. Tracy Mehan III, American Water Works Association
- Chris Meister, Illinois Finance Authority
- James "Tony" Parrott, Metropolitan Sewer District of Louisville
- Marie Roberts De La Parra, BMB Construction Properties
- Eric Rothstein, Galardi Rothstein Group
- Joanne Throwe, Maryland Department of Natural Resources
- Angie Virnoche, FCS Group
- Jeff Walker, Texas Water Development Board
- Richard Weiss, Morgan Stanley
- William Stannard, Raftelis Financial Consultants, Inc. (Expert Consultant)
- Carl Thompson, Infiltrator Water Technologies, LLC (Expert Consultant)
- David Zimmer, Infrastructure Trust (Expert Consultant)
EFAB Members and Expert Consultants unable to attend the meeting:
- Craig Holland, The Nature Conservancy
- William Cobb, Freeport-McMoRan Copper & Gold, Inc.
- Jennifer Wasinger, Freese and Nichols, Inc.
- Linda Sullivan, American Water
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Additional Attendees
Kristyn Abhold, EPA
- Glenn Barnes, Environmental Finance Center University of North Carolina
- David Bloom, EPA Deputy Chief Financial Officer
- Sonia Brubaker, EPA
- Dr. Elliott Campbell, State of Maryland Department of Natural Resources
- Jennifer Cotting, Environmental Finance Center at the University of Maryland
- Alecia Crichlow, EPA
- Khris Dodson, Syracuse University Environmental Finance Center
- Jim Gebhardt, EPA
- Alex Herrgott, White House Council on Environmental Quality, Executive Office of the President
- Chuck Job, National Groundwater Association
- Timothy McProuty, EPA
- Dan Nees, Environmental Finance Center at the University of Maryland
- John Paladino, United States Department of Agriculture
- Michael Patella, White House Council on Environmental Quality, Executive Office of the President
- Jim Proctor, McWane, Inc.
- Michele Pugh, Wichita State University Environmental Finance Center
- Dr. Andrew Sawyers, EFAB Interim Designated Federal Official
- Pamela Scott, EPA
- Mike Shapiro, Retired EFAB Designated Federal Official
- Martha Sheils, New England Environmental Finance Center
- Ellen Tarquinio, EPA
- Sandra Williams, EPA
- Members of the public and press were also welcome to attend
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Day 1 - I
Introductions & Opening Remarks
Dr. Andrew Sawyers
Tom Liu
Jim Gebhardt
The meeting began at 1:32 pm ET with Andrew Sawyers welcoming and thanking board members for coming to DC for the meeting.
Mr. Sawyers - thanked the EPA EFAB staff members for the hard work they put into planning the meeting. Mr. Sawyers introduced
himself as the interim Designated Federal Official (DFO) and declared the meeting open. As the director of the Office of Wastewater
Management, he oversees the Water Infrastructure and Resiliency Finance Center and EFAB as a part of that portfolio; WIFIA which
is in the process of moving forward with closing their first loan; and the state SRF programs. The agenda for the next few days
included exciting topics such as the national water infrastructure package which he is excited to explore with the board. Mr. Sawyers
shared that he felt fortunate to be back with the board as he was a board member when he worked with the state of Maryland. The
board has historically provided recommendations to the Agency for items to follow up on and focus on. There is a lot of urgency and
interest in dealing with significant financial issues and looking to the board to help move solutions forward. They are particularly
excited about the members' backgrounds and the mix of professionals and unique areas of expertise that they bring to the Agency.
Mr. Sawyers introduced Tom Liu, the Chair of the Board.
Tom Liu - continued introductions, welcomed attendees, and thanked everyone for taking the time to participate in work groups
and attend the meeting. He sat in on some work group sessions in the morning and shared that he could not remember a time when
the board was addressing so many relevant charges and thought-provoking challenges. Mr. Liu said he looks forward to their
recommendations and feels it is truly an exciting time to have five substantive charges at once. He added that everyone on the
board is appointed for a certain reason and they all volunteer to be here. He added that the board is here to roll up their sleeves and
develop these reports. He encouraged all board members to be part of the conversation, to join work groups, and to see where they
can be most valuable.
Mr. Sawyers - brought up a couple of housekeeping items. He shared that he would be at the meeting until around 3pm on the first
day and would delegate the rest of the meeting to Jim Gebhardt. Some members were not in attendance. The EFAB welcomed three
new expert consultants to the meeting, William Stannard, Carl Thompson, and David Zimmer. Mr. Sawyers also acknowledged the
press from Inside EPA in the room. He then went through the contents of the participant folders: speaker bios, member roster, list of
experts, EFAB Charter, the Federal Register notice, the work group charges, and recently completed reports. The board is addressing
five charges and it is important to make sure every member is part of a work group. EFAB has always been a working board and they
expect members who join the board to roll up their sleeves and join work groups. If members are not signed up for that level of
involvement they might need to find a different path forward. All the charges are important - Mr. Sawyers shared that
regionalization is particularly important to them for improving the sustainability of wastewater and drinking water. There are a few
other charges not discussed during this meeting that may be revisited during the August meeting. The dates for the next meeting
will be sent out in the next couple of weeks.
He thanked the work groups who recently completed their charges. Those reports provided a lot of value that was communicated to
EPA and they will determine which recommendations they can move on immediately and which they will need to develop a path
forward for. He asked members to look through the agenda to get a sense of the discussion over the next two days. Mr. Sawyers
also reminded everyone that the meeting is being recorded and asked people to speak clearly and identify themselves.
Mr. Sawyers acknowledged departing members of the board, specifically Mike Shapiro, the most recent DFO. Mr. Shapiro has been a
mentor to Mr. Sawyers at the Agency and, as DFO, provided significant value to the board and agency over the years. After
graduating from Harvard, he decided to become a public servant and has been the consummate public servant for more than 30
years. Mr. Sawyers personally thanked Mr. Shapiro for his contributions, saying that he went above and beyond to get the necessary
resources to help EFAB move forward.
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Mr. Liu - said that when he came on the board, he came because he had heard about the board's work and because he had some
colleagues who were previously on the board. When he joined, the current Board Chair and many of the board members were just
leaving. He started working with Mr. Shapiro and found that he really made people think and consider all the solutions. Mr. Shapiro
has overseen many important work products including recent charges on lead mitigation and decentralized wastewater. His impact
on the board includes not just the quantity of his efforts but the quality of his work and leadership.
Mr. Sawyers - provided some highlights about Mr. Shapiro's tenure with the board. Mr. Shapiro was the DFO from 2010 to 2017.
During that time, he worked under two administrations, supported three Board Chairs, and ran 14 EFAB meetings. Mr. Shapiro's
legacy at EPA included work in the Office of Land and Emergency Management, the Office of Air and Radiation, Region 1, and more.
He has provided support across the Agency and his experience has helped the board and the Office of Water. Mr. Sawyers then
handed Mike Shapiro a plaque commemorating his service to EFAB.
Michael Shapiro - shared that one of the most fun things you can be involved in at the Agency is EFAB. There are great people, great
experiences, and great recommendations. He barely had to think about it before accepting the position and it has been one of the
most rewarding experiences he has had at the Agency. He thanked everyone he had the chance to work with over the years,
including the excellent support of EFAB staff. He instructed the board to keep up the great work and said that it had been a pleasure
and honor to work with EFAB.
Mr. Sawyers - also wanted to acknowledge Tom Liu, EFAB Interim Chair, who is also leaving the board. He said it was a pleasure
working with Mr. Liu and that he has always provided great recommendations and the foresight to think about long term impacts. In
addition to his role as chair, he has also supported many work groups over the years. Mr. Sawyers thanked Mr. Liu for his service to
EFAB as the interim board chair, work group chair, and as someone relied on heavily by the whole group. He finished by thanking
Mr. Liu for his dedicated public service to EFAB.
Mr. Sawyers asked all the board members around the table to introduce themselves (see roster list above).
Mr. Sawyers introduced the first speaker, EPA CFO David Bloom. He shared that Mr. Bloom would talk about EPA's budget priorities.
Mr. Bloom has oversight of EPA's budget and financial plans. Mr. Sawyers acknowledged Mr. Bloom's ongoing support to EFAB, and
thanked him for all his contributions and for coming to provide thoughts about priorities in the budget.
Iget Priorities
David Bloom
David Bloom thanked the group for having him in to talk about the EPA budget and strategic plan. He echoed Mr. Shapiro's
comments about the EFAB staff who were part of his organization when EFAB was overseen by the CFO. The work they complete is
essential and gets done because of the work the EFAB staff do. He thanked everyone for their continued support and involvement in
EFAB and thanked new members for joining and for their service. The analysis EFAB conducts is important to the Agency so they can
think through how to get the work done with limited resources.
Mr. Bloom started by discussing the current EPA budget. He said that at this time, the federal government was moving from
continuing resolution to continuing resolution, that is their reality. Fortunately, they have only had two shutdowns, the first lasted
only for a couple days and the second just a few hours. The agency was able to continue operations during those shutdowns because
they had existing resources available that allowed them to stay open. The recent legislation keeps the government open until March
23rd. This sets the stage for the Agency coming to the end of this year's fiscal budget and sets the tone for fiscal year (FY) 2019.
Current funding will take the government through March 23rd and has established a 2-year deal for funding caps for FY18 and FY19.
It also put restrictions on overall budget levels. The caps provided an additional $63B and $68B in 2018 and 2019, respectively, for
non-defense funding above the current cap; now, the Appropriations Committee will determine the funding level for each agency.
Mr. Bloom stated that this process will happen in the coming weeks as they discuss and determine the budget. It leaves some
uncertainty about the final numbers but the Agency will have some information about what they can work with over the rest of the
year. It is just a matter of time and they will see where it lands.
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Mr. Bloom continued that the Agency recently rolled out a 2018 - 2022 strategic plan. It is the first strategic plan under the new
administration and sets a roadmap for EPA to better achieve its mission while improving processes and operational efficiency. The
new plan emphasizes the administration's back to basics agenda. There are three main goals that the strategic plan focuses on to get
the Agency back to its core mission:
1. Core work in air, water, and waste,
2. Cooperative federalism, and
3. Adhering to rule of law and improving processes.
They are setting ambitious targets with 27 strategic measures that go along with the plan. The goal of those measures is to shine a
brighter light on areas to achieve major milestones. For water, they are setting targets to modernize and update water
infrastructure. The plan calls on the Agency to leverage the SRFs to assist states and tribes. For air, the Agency is prioritizing activities
to achieve ambient air quality standards. The plan directs the Agency to work with state and tribal partners to approve projects to
improve air quality. For chemicals, the key area of focus is the Toxic Substances Control Act (TSCA) and EPA is working to meet
statutory requirements to make sure chemicals get to market quickly. For land, the plan prioritizes cleanup of Superfund sites and
the Agency will accelerate cleanup to reprioritize locations. He encouraged attendees to look on the EPA website to see specifics for
the strategic plan.
Mr. Bloom moved onto talking about the 2019 EPA budget, which was also recently announced. The proposal asked for $6.146B for
EPA, which is a 9% increase from the President's 2018 proposal and a 27% decrease from the 2017 budget. This amount reflects the
President's mission to reorganize the executive branch, incorporates a spending cap, and sustains funding at current levels for the
SRF and Superfund programs.
Mr. Bloom then provided some specifics from the FY19 budget. EPA has made significant progress in the last 40 years in the water
arena. The budget for water is in line with an emphasis on infrastructure improvements. The budget includes $2.26B in funding for
the SRFs and WIFIA is funded at $20M. With the SRF utilization rates at 98% and 96%, the programs are well-utilized. DWSRF funding
has reduced lead exposure by replacing aging pipes and the Agency is looking for increased compliance with the Lead and Copper
Rule (LCR). EPA will partner with states and tribes to move this effort forward and will continue targeted technical assistance to
small and rural systems. They are also looking to improve protection from all hazardous events, and have a performance goal to
reduce the number of systems out of compliance down to 2,700 by the end of 2022. Investment in infrastructure is necessary for
growth and their efforts will support private and public investment. WIFIA, for example, is funded at $20M and can provide $2B in
credit assistance. When combined with other financing opportunities, it can spur a total of $4B in overall financing. They are also
requesting $84M for drinking water programs. In 2017, for the first time, 90% of tribal populations received drinking water from
systems in compliance. EPA will continue working with states and tribes on the Drinking Water Infrastructure Needs Survey and
Assessment (DWINSA) and Underground Injection Control (UIC) Program. The FY19 budget also includes $30M for the Great Lakes
and $73M for the Chesapeake Bay Program.
Beyond water, EPA is looking at providing categorical grants to state and tribal partners. The FY2019 budget includes increased
flexibility by reinstating the multi-purpose grant program, which will allow states and tribes the ability to better determine their own
needs. The Superfund task force recommended 42 actions to drive progress, which supports the goal to accelerate cleanup and to
focus enforcement efforts on actions not delegated to states. As of this time, none of the funding levels are final. The President
proposes a budget, then Congress acts and they determine the final budget levels. In 2018 and for 2019, EPA will wait to see the
final funding amounts for the Agency. Hopefully, the additional funding with the cap increases will impact the EPA budget positively.
The agency's reform plan efforts are also very important to the administration. The reform plan was developed in response to an
executive order for a comprehensive plan to reorganize the executive branch. EPA has 11 reform projects, including implementing
lean management systems at EPA. The reform plan also seeks to achieve organizational efficiencies and for the Agency to provide
better services to external customers. The plan states that this will in part be achieved by streamlining reporting along with other
efforts to manage programs at the Agency.
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Finally, the administration has a goal to support cooperative federalism. This is a key component of the vision for the Agency.
Environmental protection is shared between the federal government, the states, and the tribes. This relationship is embedded in
environmental laws that provide states and tribes responsibility for programs. The relationship affects not just who but how
decisions are made, and improvements cannot be achieved by single actors - efforts must be made in conjunction in the spirit of
trust, collaboration, and partnership. Effective environmental protection is best achieved when partners work from a place of
transparency, public participation, and shared accountability for outcomes. As the Agency focuses on this, they will strengthen
working relationships with states, tribes, and local communities. Mr. Bloom thanked the board for the chance to speak and for their
support.
Mr. Sawyers - thanked Mr. Bloom for speaking to the Board.
Discussion/Questions
Chris Meister - asked Mr. Bloom to go into a little more detail on the SRF programs. He said that it appears to him, from reading and
watching the news, that the SRFs are a funding priority for the administration. He asked Mr. Bloom to provide more detail on the
administration's perspective.
Mr. Bloom - said that Mr. Meister's comment was on the mark. The agency recognizes that the state SRFs are an avenue for
infrastructure improvement. He added that they will hear more about the plan for the SRFs in the infrastructure plan. The SRFs will
be supported at straight-line levels. With the overall budget coming down 20%, there is recognition that the SRFs are an important
aspect to help the country move forward with infrastructure planning and improvements.
Yvette Downs - said it was her understanding that the budget came down from the 2017 levels. She asked how that will impact
things.
Mr. Bloom - responded that the budget isn't down currently. The 2018 budget suggested a 30% reduction but Congress has not
finished approving that budget, so EPA is still operating under a continuing resolution at the same levels as 2017. If you look at the
House and Senate action on the 2018 budget, both proposed higher amounts than what the President requested but figures below
the 2017 budget levels. He added that, hopefully, a budget cap increase will increase the allocations but at the current time they are
still operating at 2017 levels. He added that the SRFs and Superfund program are straight lined and for 2019 there is a reduction
across all other program areas. They are looking at the best ways to do business. They are looking to lean management systems and
there is a focus for every employee at the Agency to be accountable and take a harder look at how they do the work they do to see if
they can do it more efficiently and effectively. They are looking at opportunities in areas where there will eventually be reductions,
but selecting the reductions where they can still achieve results for environmental protection.
Heather Himmelberger - asked him to clarify the goal for water system compliance. She asked if they want the number down to
2,700 and added that would maybe halve the current number. She added that the goal would be to cut non-compliant systems in
half by 2022. They had mentioned LCR specifically but, with that large decrease, she assumes the reduction goal is not just LCR-
related.
Mr. Bloom - responded that she was correct. The goal for reducing the number of non-compliant systems is part of the ambitious
goals for the Agency. The new EPA Chief of Operations thinks it is important to establish ambitious goals for the Agency. They will
see where they end up at the end of that timeframe, but there is a push to set stringent goals across all programs.
Ms. Himmelberger - replied that getting those systems compliant is tied into the budget discussion because it will require funding.
Mr. Bloom - said that it also gets into lean management and is not just about what EPA will do to help with compliance. They need
partners involved as well and the folks on the board are all representative of those partners, especially the EFCs who provide
important support to customers out there who need assistance.
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Janice Beecher- asked Mr. Bloom to provide information on the EPA workforce and how much reduction they have seen in staff and
how much they anticipate.
Mr. Bloom - replied that the Agency workforce has been decreasing for some time now. The cost per individual is going up and the
budget is going down. In the 2019 budget, they identified a workforce level of 12,250, which is down from current levels of a little
over 14,000. A lot depends on what Congress does, as the President's budget continues reductions, but they are waiting to see how
it plays out.
Eric Rothstein - said that he had heard about more private sector engagement in infrastructure. He asked if there were any
contemplated structural changes to the SRF or other major programs that are intended to incentivize private engagement.
Mr. Bloom - responded that the infrastructure plan speaks to that. In the WIFIA program, they include language about potentially
expanding from water to Superfund or other areas. Mr. Bloom concluded his session by thanking everyone for their questions and
their time.
Mr. Sawyers - thanked Mr. Bloom for his presentation. He also made an announcement that Joanne Throwe would take over for
Tom Liu as interim chair until a decision from the Administrator is made on the chair.
Mr. Sawyers introduced Jim Proctor, who was going to present on water technology. There is a lot happening in this space; if you
look at the President's infrastructure plan there are a lot of opportunities to focus on water technology and innovations. He added
that they are looking to EFAB to help them through some of the finance conversations about technology. Mr. Proctor in the Senior
Vice President and General Council from McWane Inc.
Water Technology and Infrastructure: Challenge " Solutions
Jim Proctor
Jim Proctor, Senior Vice President at McWane Inc., provided a summary of the work of an ad hoc coalition of water groups in water
technology and infrastructure, focusing on the package of policies that they compiled for the Presidential transition team. McWane
Inc. is one of the largest manufacturers of iron products in the U.S. and their portfolio includes basic building blocks for the country's
infrastructure. Some of its operations have served this function since the late 1840s and Mr. Proctor has worked in water
infrastructure for most of his career. He served on the transition team in late 2016 and was asked to come up with the policy
package for water infrastructure. In compiling the package, he reached out to many water advocacy groups and asked for their best
ideas on the topic. They collaborated and pulled together a package that was submitted to the administration. Very few of the ideas
were new but it was the first time that this group had come together to get behind a consensus package. During their conversations
in 2016, they started to pull together and wrap their arms around ideas that would make a difference. After the transition ended,
the group decided to stay together and advocate for some of the ideas they had outlined in the policy package. For the past year,
they have met with two House Subcommittees and a Senate Subcommittee and the administration's Council on Environmental
Quality. They hope to continue to move forward and are looking to include additional groups that want to engage and help move in
the same direction. They want to make sure they're including urban and rural systems, small and large systems, private and public
perspectives, and challenges and solutions.
Their proposed policy initiatives center around three concepts:
1. Scale, consolidation, and partnerships,
2. Funding, and
3. Innovation and better and more effective management techniques.
Rather than focusing solely upon the technological items, he wanted to illustrate how all three could come together to solve
infrastructure problems.
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Mr. Proctor stated that the problem is considerable. The need ranges from $650B to over $1T dollars to fix infrastructure in the
nation, which comes out to roughly $40B a year. In the context of budgetary scarcity, that is a huge nut to crack. The country cannot
meet that through federal sources of funding alone. We need new sources of funding and need to change how we approach
managing the work. The administration's package was released just before the meeting, and in the package, they want to get $1T for
all infrastructure, not just water.
One issue to highlight is the issue of non-revenue water. Roughly 80% of water system revenues come from rates, rates that are
charged for services the water system provides. However, 15-40% of water treated and sent into the system is either lost to leaks or
does not get billed for. That is a large waste of a precious resource and the funding used to produce the inventory. If those systems
were private, they would not remain in business very long with these rates of inventory loss. The estimates of the economic value of
non-revenue water are all over the map, but it could be as much as $8M per year. EPA estimates that about 75% of non-revenue
water could be recovered. That would be a potential $6M in additional revenue that could help fund the infrastructure crisis. There
are multiple types of non-revenue water. Real losses include water that leaks out of the system and unmetered water that is
unbilled under flat rate charges. Apparent losses arise from things like billing errors. There is also unbilled consumption from parks
or flushing the systems. Some of these significant costs are included in utility budgets, such as the high-energy costs associated with
pumping and treating water. Energy costs are typically the highest cost other than personnel for a water system. There are also costs
associated with searching for and then repairing leaks. On top of that there are regulatory concerns. On the clean water side, there
are something like 5,100 violators of various regulatory standards, with 4,000 serious violators. For wastewater, 66% of most major
systems are non-compliant in some form with 20% in serious violation. Those system compliance issues are associated with fees and
fines, and that money could go toward funding infrastructure instead.
Mr. Proctor added that there are opportunity costs as well. When funding is scarce, there is less in-house funding available to take
care of maintenance issues and systems have smaller debt coverage potential which restricts borrowing. When they want to bring in
private capital, the return on investment (ROI) is smaller so there is less interest in bringing that capital in the mix.
What can technology do to help the problem? A lot of the metering technology now in use was deployed in the 1950s, 60s, or 70s,
which is an eternity for technological advancements. New technology can help maximize revenues and reduce costs in several ways,
including proactive leak control, reduced energy costs, less wear and tear on the systems, and conservation. Overall management of
systems can also be made more efficient and they can get data and use it to better deploy scarce resources. For metering
infrastructure, sensors in the water system, deployed through valve boxes or hydrants in the distribution system can help locate and
reduce water losses from leaks. Making metering more precise will also help because if customers have a better sense of real-time
consumption, it incentivizes conservation which puts less stress on finding new sources and treating water. Capturing unmetered
usages increases revenue into the utility's pocket. Metering tech can also reduce costs by reducing the need for manual meter
reading. When you talk about conservation, you must be careful because encouraging conservation can also could drive lower
revenues. There are ways to counteract that tendency by looking at decoupling rates for consumption. As an example, DC Water has
two components to their water bills. The first is a flat fee and the second is a consumption fee. The flat fee covers infrastructure
rehabilitation and repair. There are self-healing wireless systems that prevent the system from going down. You can put wireless
nodes in caps, fire hydrants, or valve boxes and attach them to a sensor in or on the pipeline. It will detect leaks and save costs. By
detecting leaks early, systems can avoid a lot of water loss and reduce costs to repair leaks. Leak detection also helps utilities avoid
bacterial infiltration to treated water from line breaks, which reduces water loss from flushing out and disinfecting lines. Systems
can also use reverse wave pressure sensing to see where the leaks are and the magnitude of the leak to prioritize repairs and
replacement and mitigate the ultimate impact of leaks. Other technology, like satellite technology, can detect a unique green area in
a brown landscape which might mean water is leaking out in the ground, which can help pinpoint where the leak is. Also, robots can
be deployed in pipelines as an additional form of leak detection.
Another function where technology can be useful is in real-time water quality monitoring. In addition to detecting leaks there are
also sensors that can measure pH and alkalinity, which are markers for corrosive water which can cause situations like that in Flint,
Ml. If a measurement is outside certain parameters, the sensor would alert the operators that the water is becoming more corrosive
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and may create a problematic situation. Similar technology exists to detect residual chlorine, and these tools allow operators to
more effectively monitor and control water chemistry to head off potential problems.
Technology can help improve energy efficiency. Energy is the second largest cost incurred by utilities. As much as 20% of the energy
consumed in the country is related to the treatment and distribution of water. There also are opportunities to cogenerate electricity
and power to close the gap - examples include bio generation, solar panels in treatment and distribution facilities to help power
pumps, in-line hydroelectric power in gravity fed systems, and thermal power. Portland is an example of utilizing some of these
methods of powering water systems. Cogeneration is also another way to increase public-private partnership (P3) opportunities
because cogeneration opportunities increase the potential for increased ROI.
Utilities face barriers to innovation, including:
• Risk. Utilities are very risk adverse. They cannot afford to spend money just to find out that the project will fail. Other risk
related concerns include inadvertent interruption to water service, frequent absence of risk sharing with private partners,
cybersecurity and privacy.
• Costs. Most utilities struggle to budget for existing operational needs, making funding new investments and technology
difficult to achieve.
• The regulatory environment. Regulations are essential to protecting public health but many can also stand in the way of
technological investment. For example, overlapping state and federal regulatory regimes aren't always consistent. Thus,
one state might have one regulatory standard that has an impact on deployment and another state might have something
completely different. When there are competing regulatory regimes, you need a different solution for each state or local
utility where the standard is different. That lack of a consistent approval process across the systems can make it difficult to
cost-effectively deploy solutions.
However, there are ways to help systems overcome these barriers, including:
• Partnerships and regional collaboration. These have been mentioned before and have been getting a lot more interest in
the past few years. When talking about consolidation, it doesn't necessarily mean ownership transfer. For example, it might
be a joint procurement agreement or a public-to-public, private-to-public, or private-to-private relationship; there are many
different options that could come into play. Few utilities can afford to deploy technology at a reasonable cost unless they
can achieve economies of scale. Consolidation can generate the scale necessary to reduce costs and facilitate participation.
Promoting consolidation and regionalization through incentives is important. The SRF and WIFIA funds should prioritize
regionalization projects and consolidation. It is referenced in the 13 prioritization criteria applicable to WIFIA applications
and the same criteria could be applied to the SRFs to encourage cooperative ventures.
• Providing technical assistance to rural systems, not just to implement technology but also for the process of regionalization,
can also help promote and enable partnerships. The process can be complex, unfamiliar and expensive. Providing assistance
with process and costs can help. For example, a legal bill of $100,000 to negotiate a joint venture for a large utility might
not be a big deal but even $10,000 for a small system can be a problem.
• Lifting the cap on the issuance of private activity bonds to increase private funding.
• Create Blue wave - a national program for collaboration and sharing of best practices. George Hawkins at DC Water has
talked about this for a long time.
• Expand the EPA cluster program can help develop more technology and facilitate regional collaboration.
• Remove barriers to P3s by passing enabling legislation to allow private partnerships for utilities, making private utilities
eligible for SRF funding, and removing constrains on assets sales.
• Empower and preserve local decision-making in the design and construction of utility systems.
• Creating regulatory safe harbors so that utilities that help get other systems into compliance are not negatively impacted by
that action.
• Incentivizing performance, such as by developing metrics and allowing utilities to compete for funding based on
performance. These could be based on improvement on performance measures and would provide utilities with incentives
to be more performance-based and tailor funding in that way will help utilities support one another.
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• Establishing a test-based network and prioritizing SRF applications that include deployment of new technology, including
some incentives for innovation. That process could also be tweaked to be specific to technology innovation.
• Undertaking comprehensive review of regulations to identify regulations that may stand in the way of technological
innovation. This could include maintaining a list of technologies that are already proven and approved.
• Encouraging states to adopt consistent and uniform permitting and certification programs.
In addition to technological innovation, we must change the management dynamic as well. One way to do this is to emphasize
effective utility management, a concept endorsed by EPA and the major water and wastewater associations. One of the key tenets is
financial viability, which includes full cost accounting. Effective utility management (EUM) requires understanding of the full costs of
system operations. SRF requirements include an EUM component, but it is frequently waived in the application process. In the
private sector, it is difficult to get a loan without understanding full costs. Taxpayers deserve that as well. We can drive utilities to
EUM by prioritizing SRF applications that demonstrate an understanding of full costs at a utility, by enforcing requirements, and by
providing technological and financial resources to comply with the requirement. It would go a long way to help utilities understand
their full costs. Full costs should then be publicized so, over time, the public can understand the costs associated with management
and operation of a system.
If customers are educated and systems can make a case for full cost accounting, that could lead to full cost pricing which can be a
politically sensitive topic. Across the country, as a percent of household income, we pay less for water than other developed
countries. Most utilities don't truly understand their full costs and, to provide a commodity reliably, the pricing of the commodity
must come into line with the full costs. Those include day-to-day operations and maintenance costs as well as capital investment for
long-term planning. If you look at the aggregate national level, moving to full cost pricing would do a lot toward solving our funding
problem. Just going from what the U.S. charges on average to what Canada charges could generate $17.8B in additional revenue
across the country. But there are two important considerations that must be addressed: one is affordability. If you move from
$1.50/m3 to $2/m3, that would be $20/month for a family of four. That is not much to a lot of us but to those who struggle
financially that can be a challenge. Some options to help address those challenges are: implement tiered pricing with increased use;
provide low-income water assistance programs; or have a charitable program like what some electrical programs do.
Mr. Proctor put all of this together saying that basic management reforms, increased use of technology, and a modest increase in
federal funding could go a long way to close the funding gap. He then showed some hypothetical numbers to the board and clarified
that estimates for non-revenue water and leak repairs are all over the map, so they will vary significantly by individual community
and that the numbers reflect national averages. Since water is delivered locally, the math won't work the same for every utility and
they need to tailor the process for individual circumstances and needs. He also added that it will take time to implement these
strategies but, in the abstract, they illustrate how a combination of what he had been talking about can go a long way to solving the
funding gap for water infrastructure improvements.
In a rough and aggregate sense, he walked through what it might look like if some solutions were implemented across the country.
They start with a $40B/year gap. A fully funded WIFIA, at $45M, could generate $2.9B capital at a 65:1 leverage. If you remove the
cap on private activity funds that would be $5B, per the Congressional Budget Office (CBO). Increasing funding for the SRFs from $1B
to $3B each would get to the remaining gap of $26B. You can get closer by reducing non-revenue water by 75%, reducing costs for
repairing breaks, and adding the cost of technological investment. Finally, employing full cost pricing gets an additional $17B each
year that can go toward funding these needs. The $40B perhaps becomes a much more manageable $1.7B number when you
implement these changes and solutions. That does not take into consideration that you have additional P3s and private investment,
and these are only a few of the issues and solutions that merit discussion.
He concluded with some key takeaways. The task is huge but, with forward thinking and creative responses, we can get close to
closing the gap. A fully funded WIFIA, lifting the private activity bonds, modestly increasing the SRFs, and tweaking programs to
incentivize regionalization, technology innovation, and EUM can make a difference in closing the gap. These are just gross aggregate
numbers and would have to be deployed and implemented locally. That implementation would also need to consider the needs of
consumers and communities. It isn't easy but those are some thoughts to start working with.
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Discussion/Questions
Suzanne Kim - made a comment that the last page of funding numbers currently ignores the cost of conservation. Conservation
would make the shortfall larger. What this is also ignoring is the cost of the technical assistance required to make these changes.
That is significant whether it is funded through private or public capital.
Mr. Proctor - agreed with Ms. Kim and said that if full cost pricing or tech solutions are implemented and they demonstrate to users
the cost of what they use, it could drive down consumption which could impact revenue. Some ways to reduce that impact are to
decouple, to some extent, rates and usage.
Joanne Throwe - pointed out that he had mentioned DC and Portland in the presentation. The need is there for smaller communities
when talking about collaboration. She asked if there had been any successful stories of regional small communities deploying
innovative technologies.
Mr. Proctor - said he didn't have an example. Small communities sometimes don't have the resources or the technological expertise
to overcome natural risk aversion. Some barriers can be eliminated by steps like increasing technical assistance available to small
communities, by collaboration with larger utilities or a white list of approved technologies. Collaboration and helping these utilities
develop the expertise, funding and scale are key ways to help overcome barriers.
Brent Anderson - asked if the assumptions considered the shift in demographics over time from rural to urban and that in that shift,
some systems would not be replaced but their areas covered by existing systems. In terms of risk, did they think about risk-sharing
mechanisms?
Mr. Proctor - responded that one way to share risk is through standardized contract that allocate those risks based upon
performance. Anyone who has done business with technology companies knows that it can be hard to negotiate these contracts. As
far as demographic shifts - it goes both ways. There is a migration from rural to urban areas, which depletes the rate base to fund
these efforts but that is one area where regional partnerships could help counteract those impacts. However, the opposite situation
is also occurring- people are moving away from once-large, robust urban areas into other cities or into rural areas. Those cities also
lose their rate base with infrastructure that is oversized for the current population. That is one of the problems that Flint faces.
Perhaps collaboration and innovation could help shrink the effective size of the system and thus address this over-capacity.
Mr. Meister - thanked Mr. Proctor for this presentation. He said he was curious about removing volume cap for private activity
bonds. They issue a broad range of private activity bond and he thought the last time there was an issue on behalf of a public
utilities commission it was right around the recession. As people may know the volume cap is not fully utilized now. There are over
$100M that have expired because it doesn't have the economic benefit in value it once did. At the moment, from agency
experience, the elimination of the volume cap would not have a big impact.
Mr. Proctor - responded that for the past several years he has advocated for this measure and understands the question about why
you would lift the cap if it is not fully utilized now. The answer is that when you have a cap on the number of bonds you can issue,
and that cap can fluctuate year to year, it can make it difficult for issuers to figure out if they will still have access to it in the future.
If you lift the cap, perhaps it would increase utilization by giving issuers and underwriters more certainty. There is an example of
how it might work: several years ago there was a shortage of landfills, which were subject to caps on private activity bonds. After the
cap was lifted, you saw full utilization and within a few years the funding gaps were eliminated by giving investors more certainty.
Mr. Meister - responded that the predictability point is a good one. He pointed out that there were some SRF experts in the room
and that was talked about a lot. It is elegant and harnesses the public sector but there are 15-20 states that don't appropriately
utilize the SRF as a tool to expand financing. Underscoring the point of the power in the SRF might help communicate to states to do
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what they need to invest more in fully using the program. Drawing the line between delivery fee and the usage fee also has potential
applications to water.
Mr. Liu - asked the board members to please limit their questions to just one so that they would have time for Mr. Proctor to
respond to members.
Rudy Chow- said that, as a utility, they are always trying to shift from reactive to proactive. They deploy advanced metering
infrastructure (AMI), replace their outdated billing system, conduct asset management, use GIS, and look at consumptive vs.
infrastructure billing. They're already doing all the right things but 25% of their population is below the poverty line. They have
tripled their rates and they're still only at $l/m3. Now people are concerned about affordability and privatization of their water.
There needs to be political will to march down this path because the practical side makes it hard to continue on course.
Mr. Proctor - agreed that everything Mr. Chow said was true. It is difficult to crack the political nut. One mayor said, "water never
got me elected but it got me fired." That risk is there and real. The first step is education- helping people understand the cost of
providing the essential commodity. That requires knowing those costs. As an interim step to full cost pricing, you can mandate
utilities understand their true costs, then make that information available to communities so customers understand the costs and
what we pay compared to other countries. That doesn't solve it all, but it helps get to a point where utilities can be self-sustaining.
Daniel Kaplan - brought up the topic of real-time pricing for water. He asked if there are communities here or outside the U.S. that
have adopted it and used it for drought management conditions.
Mr. Proctor - responded that he was not aware of real-time pricing vs. real-time monitoring examples. He added that you could
extrapolate from real-time monitoring to see what it would mean for ultimate pricing.
David Zimmer - stated that it looked like about $14B of funding in the example would come from debt. That would be about
$750M/year so the second year the customers have $1.5B to pay back and that would continue over 40 years. They would run out of
capacity. On paper the first year looks great, but the $14B disappears over time and doesn't become a funding venue over time
because they will run out. The other side of that is, in New Jersey, you look at savings from putting in new technology and that is a
significant number of the $750M so that would provide a cushion.
Mr. Proctor - put a different gloss on the problem. He said, when we talk full cost pricing, one question is what cost? As you deploy
technology, you can reduce costs to a point where affordability becomes less of a concern.
Mr. Zimmer - added that they have had cash flow positive products.
Ms. Himmelberger - said one point to discuss is flat rates as non-revenue water. It is a completely different issue. For some places
metering is very difficult, like in Alaska. They pay for the water, it just isn't accurate. Another is AMI - the manual read cost is
sometimes so low or even free in rural communities that you can't make the AMI argument on costs. It is difficult in rural small
communities to make the case for technology innovation and implementation. Non-revenue water savings to a 75% reduction will
involve a significant cost investment to implement programs, replace pipes, and more. She added that she shares the goal and thinks
it is great to reduce non-revenue water, but they need to look at all of it. The last page assumes the problem is access to capital. It
assumes that there is money people want and they just can't get it, but some aren't even asking for the funding or leveraging the
funds they already have.
Mr. Proctor - responded that, on the flat rate issue, there are a lot of communities that have per capita charges. If that is based on
6,000 gallons/month but they consume 10,000 gallons, then 4,000 of that is non-revenue water that is a loss. There are unique
issues for rural communities and some of the challenges are much more critical in rural areas. If you believe Verizon and AT&T, there
is cell signal all over the country now. For a large part of the country if you have a cell tower, you can deploy AMI.
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Ms. Beecher - added to Ms. Himmelberger's point. There are a lot of ideas here but they need to be careful with the math. With
non-revenue water, 75% is not only ambitious; it may be uneconomic. Additionally, these are static estimates for a situation that is
very dynamic, and they would view debt and repayment of debt as a liability. These are increasing revenue requirements by a
substantial amount and for something like AMI, water is not like electricity; that doesn't mean there isn't a place for it but it needs
to be done intelligently. This is a great set of issues but the mathematics here don't work for her.
Mr. Proctor - responded that these are just supposed to be high level, theoretical numbers. He agreed with Ms. Beecher that all
communities will be different. The point is, if you look at it in those broad terms, there are some things we can do to help get us
close to solving the problem.
Ms. Downs - said she liked the big concepts and discussions and added that there are some challenges in making this a reality in
many different municipalities. A lot of this is already implemented at large systems, like full cost pricing, and there are still financial
problems - it doesn't solve everything. Looking at affordability is important and there are some regulatory challenges like what Mr.
Chow was saying. Some states have regulations on how to create your rates. Even when you identify savings they're not money you
can now take and do something else with. These are great and important things you put in the report and it starts a great
conversation, but there is a lot more to do to make it a reality.
Mr. Proctor - responded that Congress could not pass a bill to make this happen this year and he understands that it will take a lot
of time to get there, but there are things they can do now to help drive it in the right direction. For example, on state and local
regulations, groups of states on a regional basis could come up with consistent approval and regulatory compliance schemes.
Aurel Arndt - said the comment most important to point out here is that there are a lot of difficulties cited in the small system
arena, which is 80% of the systems in the country. They lack access to capital and they also lack the technical, managerial, and
financial capacity to be sustainable. Even if they can find the capital, they would not utilize it to the fullest value or would wear out
at an accelerated pace. For that part, on the drinking water side, the SRFs are vitally important for them to access the capital they
need. However, the DWSRF is focused on compliance so you cannot do a lot of investments through SRFs for that part of the
industry. To make inroads in small systems, you need to greatly expand funding above the level here or alternatively try to motivate
and incentivize partnerships and collaborations, so they can partner with more sustainable entities.
Mr. Proctor - responded that there are 55,000 utilities in the U.S. In contrast, Australia has four. Somewhere between four and
55,000 would be more effective in managing systems. Partnerships is how to get there. It doesn't help to make cash available if
utilities cannot use it effectively. The only way to get the right expertise needed is through consolidation or collaboration to get the
skills needed.
John Paladino - said that when they say they don't have enough money as a country, that is wrong. We choose not to spend it on
our infrastructure. As a former operator, he added that generalizing that small systems lack capacity is not right. They have a lot of
skills and capacity and we need to continue investing in them. We need to keep trying to help private entities invest in water but it
has been tried before and it has not necessarily worked.
Mr. Proctor - responded that the package included additional training and programs to train the workforce of the future. There are
lots of good programs filling that need out there but when you talk about a project to deploy AMI across a system, that is a level of
skills and expertise that are not covered in those training programs. Technical assistance to help them with those situations is
important.
Mr. Liu - thanked Mr. Proctor for his time. He reminded the board members and other attendees to sign in at the registration desk
so that the staff have a record of everyone who attended the meeting.
Jim Gebhardt reassembled the group at 4:12 pm and introduced Heather Himmelberger from the Region 6 EFC.
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C 11 n r ¦¦ ¦ i ii i II ¦"silience: A Critical Environ men trail Fiinano~ ¦ II ik II Ik i rge
Heather Himmelberger
Ms. Himmelberger - thanked the board for having them speak. Ms. Himmelberger informed the board that she was passing the role
of President of the EFC Network to Khris Dodson. She thanked Mr. Shapiro and Mr. Liu for their involvement and support of the EFCs
over the years. Ms. Himmelberger turned to the topic of resiliency, a major environmental challenge facing the country in rural and
urban areas, in big and small ways. She added that everyone will face resilience challenges going forward. She turned the mic over to
Khris Dodson to present resiliency as an environmental justice issue.
Khris Dodson - introduced himself as the associate director of the Syracuse EFC. They have been working in resiliency for a while in
rural communities, looking at roadway asset management to help mitigate flooding in upper watersheds. They look at resiliency as
an environmental justice issue and highlight flooding in the St. Lawrence River and Lake Ontario, both of which experienced
prolonged flooding this year. They are thinking about urban and rural resiliency and looking at it through an environmental justice
lens.
Jeff Hughes -added that the EFC at UNC has used Hurricane Matthew as an example. Hurricane Mathew came through and led to
flooding and property damage in a segment of North Carolina with existing economic problems. The state treasurer is concerned
about default and the Department of Environmental Quality (DEQ) was concerned about health. They are trying to stress test areas
of the state to see how they can deal with storms that impact water and wastewater during and following storms. A lot of places in
the state are losing 5-10% of their population per year and are just hanging on. Then with housing stock issues, there is another 20%
reduction. Funders are looking at demographics like these and are running stress tests about future storms to see how
demographics could be impacted.
Ms. Himmelberger - said they are also working with declining populations in rural and urban areas. The infrastructure doesn't shrink
as the population shrinks, there are just fewer people to pay for it. She asked, what about the people who are left in the
community? Looking at the maximum efficiency of infrastructure, there is a need to maximize efficiencies if we're going toward
smaller populations. We should also think about the changes to climate and those impacts on tourism in rural areas. For example,
consider a New England ski resort town without snow, how are they going to be impacted with changing climate? How can you
make the community more resilient to those types of issues? As we go forward we need more investigation into addressing
resiliency in those communities.
Martha Shield - shared that there is a Vermont project nudging resiliency forward in urban and rural areas. The New England EFC is
addressing non-point source pollution all over Vermont, particularly in Lake Champlain watershed. A 2017 Treasurer's Clean Water
Report identified funding gaps in stormwater needs and at the same time they have a surplus of unused SRF funding in Vermont.
Vermont is trying to form a sponsorship program but they need legislative approval in the state. That program would allow green
infrastructure projects, wetlands restoration, and would also allow private entities to borrow from the SRF in the future. From a
Clean Water SRF perspective, the utility will borrow principal interest and an administrative fee. In Vermont there is no interest but
there is an administrative fee. In the sponsorship program, the utility borrows for capital and non-point source projects. With a
reduced administrative fee, they don't pay back any more than they would for capital alone so they get two projects for the
administration of one. Iowa has done this and it is not insignificant. It is a great way to nudge forward resiliency. A lot of nonpoint
source programs are designed to be watershed or river corridor based and are well set up because they think holistically about
watersheds. There is a political aspect because in some places you can't really talk about green infrastructure. The economics make
it a compelling option especially for SRFs with excess underutilized funds and clean water needs.
Jennifer Cotting - said trends are rooted in community based work in capacity strapped communities. They need help assessing
capacity to implement and fund resilience projects. They try to help them understand the level they're at now and to take a step
back and holistically understand their built infrastructure and existing systems. Water systems, stormwater systems, energy
networks, economic systems at play - understanding those systems and their conditions and repair needs. In terms of resilience, it is
determining where there will be opportunities to improve efficiencies. It is not just limited to physical systems but also policies and
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planning. Are the right codes and ordinances in place? Are the ordinances hindering or incentivizing resilience? Are other policies
needed? Is there integrated planning to support communities? What are the funding and financing systems? Are they sufficient? Can
we better use the dollars? Recognizing the scale is significant and public land availability can be limited. Where are the opportunities
to engage the private sector as investors or just private property owners? This is where the EFCs play a key role in development of
tools to assess the ability to address resilience issues and make sure things happen on the ground.
Ms. Himmelberger - concluded that a lot of the things the EFCs do will help in the resilience space. They need to find better ways to
reach the people that need the support. Coming out of the resilience work group session this morning, there might be opportunities
for the EFCs to engage in some things to help and collaborate between EFCs and EFAB. This is a huge challenge and it will take time
to address it but we need to head in that direction.
Discussion/Questions
Ms. Throwe - said she understood and could directly see the value of the EFCs. Looking at investment, she said there will be $100M
invested directly into communities in 2018 and the focus they're seeing is on resilience planning and activities. They don't want to
put state investment in a community if it will be wasted money. She said they utilize the EFCs and consider them to be a great
resource.
Jeff Walker - asked how the EFC Network defines resiliency.
Ms. Himmelberger - consider a population that has been cut in half over the past 20 years. They are faced with issues that any
community in a similar predicament would face. But climate change is even more of a concern in a community with a shrinking,
aging population and infrastructure to maintain. How do you do it in an efficient way given how communities shrink? Switzerland
replaces pipes very quickly, which helps them adjust for changing demographics. We haven't had a chance to dig into it yet but they
look at the size of the pipes when they change it and they're addressing demographic changes overtime as they make replacements.
It is a hard problem to solve when they face other stressors and are also shrinking. The question is how to deal with both at the
same time.
Mr. Rothstein - said there are different parties also working on environmental justice issues and declining population issues but he
wasn't sure how they could coordinate their efforts. Detroit, an area with declining population issues, has profound environmental
justice issues as well.
Ms. Himmelberger - responded that it is something they want to investigate as a network. They do separate projects, collaborate,
and are looking for resilience issues and opportunities to collaborate. They will see the EFCs putting their heads together moving
forward on this topic.
Ms. Downs - asked them to consider challenging methodologies as they think about resilience and population changes. They have a
community using a model assuming population increase means consumption increase from the 80s but consumption was decreasing
due to improvements in efficiency - they need to have accurate data and models to help communities prepare for the future.
Ms. Himmelberger - said that she completely agreed. She finished her presentation thanking Mr. Shapiro and Mr. Liu.
Jim Gebhardt - turned the floor over to Ted Chapman to provide the first work group report out of the meeting.
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EIFAIB Report Out: Pre-Disast ilience Investment
Jennifer Wasinger
Ted Chapman
Ted Chapman thanked everyone for giving them the floor. They had a call a couple weeks ago to understand the charge and what
each member would bring. They followed that up with a session during the morning with a fantastic discussion. Right now, the
charge could go in many different directions. They want to frame the discussion so this becomes a useful product for everyone. First,
do they need to redefine resiliency? They would build on the FEMA MOU that defines it. There is a lot towards flood control and
stormwater but they should not ignore other events like drought and fire. The result would be like an insurance policy and getting
the communities to think forward about investment. Most goes on at local or municipal levels and it is often the case that they go
fiscal year to fiscal year. Maybe a larger community has more resources and can do more planning but it is often not conducive to
think beyond the next 12 months. There are areas of opportunity, like using traditional municipal financial reports to plan for the
future. They can get into the nuts and bolts but there are other ways to encourage that mindset and it would be inclusive of making
sure grant programs are also aligned and collaborative across agencies like the Army Corps of Engineers, EPA, and FEMA. Also, it
could promote tools from EPA and AWWA. They could dust off the Vulnerability Self-Assessment Tool (VSAT) and tweak it to be used
to calculate the economics of projects and whether they make sense. For most projects, they won't be able to pay as you go; they
will be capital intensive and will involve borrowing. Generally, Wall Street is interested in yield and preservation of capital but others
are also looking at environmentally responsible investing. There are additional areas of opportunity that could be a carrot opposed
to a stick. In New Jersey, municipal utility authorities are encouraged to have asset management. It is important to encourage them
to lead and change their mindset. We had a deep discussion about financing and funding and the gap and where it would come
from. We feel it will be incumbent on local leaders to have forward looking discussions. There is a lot of research already done.
There was some discussion about affordability and looking beyond the U.S. For example, in New Zealand the World Bank has done
research, and in the U.S., there are politically palatable projects like those following Superstorm Sandy. Regionalization must come
into the discussion. We're not saying the disparate systems need to become one system but there needs to be coordination and
collaboration. Getting back to financial reporting, utility assets are greatly undervalued. The municipal model may not fully give
credit to the systems for how much those assets are worth. Next steps for this work group are to parse out aspects of the charges
and have follow-up discussions. They have had good discussions about the scope so far and they could go in a lot of different
directions with this right now. They can be more focused and will have the steps underway to take the charge and run with it and
provide feedback very soon.
Discussion/Questions
Ms. Kim - said, regarding socially responsible investing, that the SRI investors don't just invest because it's a good thing. It is
primarily for yield.
Mr. Chapman - agreed and said there are those who want to be able to represent in their portfolio in a section that is socially
responsible.
Summary of ID ay One
Jim Gebhardt
Tom Liu
Mr. Liu - started the summary and closeout discussion for Day One. He said they started off strong and it was great to see Mr.
Shapiro back with the group. He added that they had a good discussion with David Bloom and Mr. Liu was interested to see how the
administration impacts the budget. It was also good to hear about the 2019 budget, which is on the website if attendees haven't
seen it yet. They also had a productive discussion with Jim Proctor. It was good to talk about barriers and overcoming barriers to
investment. He thanked the EFCs for providing their update and for all the work they have done in the regions. He also thanked Mr.
Chapman for providing a work group summary.
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Mr. Gebhardt - said that, although they just had one report out, the work group meetings this morning were very productive and
the composition of charges directed towards water - resiliency, regionalization, Chesapeake Bay economic drivers, and linking in P3
- had a lot of linkages. The Alaska backflow charge is unique, and there will be a report out on that tomorrow.
Alecia Crichlow - provided some logistical information about the group dinner.
Mr. Gebhardt - let people know that the board roster was in their folders. He asked the members to look at their contact
information and double check the accuracy. If anything is amiss, let someone at the finance center know.
Ms. Crichlow - added that people should also let someone at the finance center know if they want to be on a work group that they
are not currently not assigned to.
The meeting adjourned at 4:53 pm.
Day 2 -
Opening Remarks
Dr. Andrew Sawyers
Tom Liu
The Board reconvened on Wednesday, February 21st at 9:05 am.
Mr. Sawyers - began the meeting and said he was sorry to have missed the discussions the previous afternoon. He thanked the
board members for attending the dinner and said he hoped they all had a good time. He said he would pass the mic to Mr. Liu and
then share some thoughts about the priorities within the Office of Water and the Office of Wastewater Management. Some of those
priorities will adapt or change based on the President's infrastructure agenda but he would not get too much into that. He also told
the board that Alex Herrgott would provide the President's perspective in his talk as he played a critical role in that agenda including
many principles that EPA will follow. Mr. Sawyers said he would talk more about brownfields, Superfund, and utilizing the SRFs to
advance those types of projects and programs.
Mr. Liu - said there were some good, insightful sessions the day before and that dinner was enjoyable as always. He thanked the
EFAB staff for organizing the meeting and dinner. He added that they would also have additional report outs from the working
groups later in the day. Mr. Liu introduced Tracy Mehan and Ed Crooks, who were unable to join the board during the first day of
meetings.
Mr. Sawyers - reinforced that there would be important conversations during the second day of the meeting. He was particularly
looking forward to the report outs. Regionalization is important and would also be covered in Mr. Sawyers' remarks about agency
priorities. WIRFC would share what they're working on as there is a lot happening in that space right now. They are looking to align
work in WIRFC more closely with EFAB and want to get a deeper dive with some of the charges. EFAB must have the ability to
provide a deeper dive on some issues and to help the Agency with a path forward. WIRFC is helping with that as well. Hopefully,
some of the current EFAB charges will also do that. Regarding the metrics conversation on the Chesapeake Bay, there is a lot of
applicability there for Headquarters and Region 3. They spend a lot of time on P3s and there will be a report out on the most recent
work there. There is also a recent product developed by UNC that looked at nine P3 projects in private and public sectors and the
criteria that made them successful or not so successful. They will talk about that when they get into P3s. The Alaska revenue model
is one we've spent time thinking about over the years, and any infrastructure project in Alaska is difficult based on location and
geography. They need to think about how to help move some projects forward. Finally, they will also go over the lead risk and
recycling reports. Mr. Sawyers opened the floor for anything anyone wanted to reflect on from the previous day.
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Office of Water Priorities
Dr. Andrew Sawyers
Mr. Sawyers thanked the attendees for joining them and as indicated they were at a critical time for water infrastructure
investment. He added that he had talked to a lot of the board members and some of them also talk to Congress and others about
next steps. Particularly important is the collage of ideas, that there is no single mechanism to structure the path forward. There
needs to be a holistic strategy with critical pieces that are implementable. He appreciated the broad diversity of interests from
associations, states, customers, and other stakeholders and added that they're at a place with an opportunity to provide critical
advice to the Agency to charter a path. The administration has been engaged in infrastructure issues and they're thinking big about
opportunities to change the landscape and incentive.
As David Bloom mentioned during his presentation, a key focus of the administration is on cooperative federalism and engagement.
In addition, David Ross, the Assistant Administrator of EPA's Office of Water, has similar focus areas: infrastructure, LCR, PFOA,
PFOS, nutrients, and engagement. He added that when they think about what is happening in the Office of Water, there are seven
major areas to focus on:
1. The issue of assessment and communication of needs, specifically on the clean water side. For drinking water, there is
SDWIS, but they haven't done a clean water needs survey since 2011 due to resource constraints. They need to do that and
will look to associations to help identify the actual needs so the Agency can focus efforts. The have developed the Water
Finance Clearinghouse, which provides information on available resources and funding resources. When they talk about
wastewater, it is about the number of systems. They need more information about those systems. In addition, they need to
refine the information they have about drinking water utilities. As they focus on infrastructure efforts, they need to account
for and communicate accurate needs.
2. Partnership collaboration and alliances. This is often referred to as the issue of regionalization but it is more than that.
There are currently 53,000 drinking water systems and close to 16 or 17,000 wastewater systems in the country. Often you
hear there is a need to collapse them into a smaller footprint and adopt models from elsewhere. There are a lot of issues to
consider when thinking about that. It is necessary going forward to streamline and make more effective management of
drinking water and wastewater systems, but we need to look at opportunities to expand how they're managed. When we
think about governance, we think about a structural or operational approach but there is a need for both. Given the
number of systems we have, it will be difficult for them to operate sustainably long-term. It will be important to show and
highlight physical reductions and/or efficiencies in the number of systems and policies that promote long-term
sustainability of the sector, and incentives to make the changes happen. They need to continue to think about technical
assistance and opportunities for small and mid-size systems that need assistance. They need to bring federal and state
partners into the conversation because there is a lot that needs to happen in the space to share best practices across
organizations. Regarding the idea of alliances, that is an area EFAB will help the Agency with and it is also an area they
cannot afford to not focus on. The concept of partnerships, collaboration, and alliances is critical for this group and the
whole sector to make sure they have the appropriate management for drinking water, wastewater, and stormwater in the
country.
3. Asset management. The board has focused on asset management over the years and, when you think about infrastructure
challenges, typically difficult challenges are in low-income or smaller capacity communities. They move forward with a fail
and fix approach and that is not the right way to operate. Many systems also have inadequate maintenance and they need
to start doing a better job in mid-size and small communities. Many large systems are doing a good job with asset
management but we need to do more to support smaller and medium-size communities. Life cycle analysis of the assets
and how they're valued over time is needed. This is not an area with a current charge for the board but the Office of Water
continues to focus attention on asset management. Teams in the Office of Ground Water and Drinking Water and the Office
of Wastewater Management are helping through technical assistance-type work to move the asset management
conversation forward.
4. Data and technology. Here there are two things to focus on. The first is issues of addressing data gaps, determining what
the actual need is for sanitation and access. They need to determine what the financial and operational gaps are. The
second is the idea of implementing new technology. Having talked to technology providers and analysts, this is a critical
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path forward to implementing new technology. There is a lot of capacity to operate more sustainably and technology will
help them do that. More importantly, new technologies out there will help smaller communities address revenue gaps,
operational gaps, and ultimately not just improve public health and water quality but also help them grow their local
economy. Analytics, sensors, GIS - there are a lot of ways to move the needle forward in terms of technology and to help
the larger infrastructure conversation and assist smaller marginalized communities.
5. Resource models and markets. There has been a fair amount of conversation on the team about this, specifically on the
wastewater side but there is also interest in examples from the drinking water side. Many big or mid-size cities and
communities have declining populations and revenues. There are circumstances that get them to the point where they
don't have the revenue. How do you become sustainable without adequate revenue from customers? What other ways are
there to generate revenue? Many systems are actively generating additional revenue from profitable waste products,
generating new markets, and resource recovery. What is the capacity to help here? Also, this is something to think about
for small and mid-size communities. The capacity may not be there but there is opportunity to explore this area specifically
with green infrastructure in their office and resource recovery and governance models. There is an example in Chicago with
investor-owned utilities and cooperatives from an environmental justice model. They have six or eight communities that
own the systems and sit on the board and they could expand that where residents or customers own the system, the
interest in responding to issues significantly increases. This is an opportunity area to explore going forward - the idea of
generating additional revenues and generating new markets in the sector. There is a lot happening here now and they need
to galvanize and focus it to develop models that can be shared.
6. Affordability. Again, many systems are fully leveraged. Often they find challenges, like resource constraints and concerns
around affordability, difficult to overcome. There are many issues in smaller communities and concern about the obligation
to finance. How do you finance with limited resources? An October report for EPA focused on a new definition for
affordability and a framework to utilize for affordability going forward. Once the report was complete, it was clear how
complicated the issue is. Looking at full cost pricing, there are different models to create revenue for communities at a
disadvantage. Key things it highlighted were: the need to have publicly available data, the need to clearly define and
understand affordability issues, the need to be simple, direct and consistent, and the need to use valid and reliable
measures/metrics. When talking about affordability metrics, they need to measure to validate and utilize not just on
broader scale but measure to potentially cut across boundaries. They should be able to compare metrics and data across
different permits. In addition, it is important for EPA to talk about the aggregate cost of water. The October National
Academy of Public Administration (NAPA) report said that drinking water costs should focus on income, vulnerable users,
and how to identify households, not just communities. One question is whether to focus on revising the 1997 guidance
revision on CSOs. Consensus on their team is that they should go beyond the CSO guidance and revision and start thinking
about affordability from an integrated framework perspective going forward. Drinking water and stormwater need to be a
part of the conversation. It isn't just CSO affordability issues and as they expand beyond CSO, they must broaden and
change the framework. They need a lot of support within the Agency to see what an integrated affordability framework
would look like. There is a lot in the 1997 guidance and from some EFAB reports. Those will be the foundation for the
framework going forward and the Agency will look to EFAB to think through what is possible.
7. Workforce and labor. When you think about the water sector and moving the infrastructure agenda forward, for utilities
you work with you need to introduce new thinking. Not a lot of new professionals are gravitating toward working in water
systems. They need to drive interest in those areas. The SRFs and the financial arm is well developed but on the operations
side, there is a need for adequate reserves going forward.
Mr. Sawyers concluded that those were the important ideas for a path forward for the drinking water and wastewater sectors.
Discussion/Questions
Ms. Beecher - wanted to second the point about data and that it works across sectors. When they want energy information, they go
to EIA. They've been seeing some struggle for data collection and they only have EPA for the drinking water and wastewater sector.
They talk about how they define and understand these problems and understand the need to step up needs assessments and data
collection because it is a huge public service and benefit.
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Mr. Hughes - said that he wanted to support the idea of taking affordability beyond the CSO financial capacity guidelines. In their
work, those guidelines are referenced as if they were written for them specifically. They are looking at a 1997 guideline for CSOs
when it isn't the right fit. That narrow construct is being used for many policy questions so it would be good to start from scratch
and have a wider perspective.
Mr. Sawyers - responded that the question is should they start from scratch? Could they use some of the 1997 guidance and other
existing materials to develop the new product or products? They need to get started in the next few months and we hope to have
some form of a product in about 18 months.
Mr. Hughes - clarified that they don't need to start from scratch but they do need to clarify that the CSO guidance was for a narrow
policy audience. Many are using that guidance document for making decisions on subjects it was not meant for. If they do nothing
more than expand and clarify that, it would be helpful.
Marie Roberts De La Parra - said that, for communities that don't have access to parent systems until they become broken, they
could create workforce development programs in those communities so they can implement and design systems that can be
maintained on an ongoing basis. That would also be something the administration would buy into promoting for self-help in those
communities.
Mr. Rothstein - turned the conversation back to the affordability guidance. He has been involved in some negotiations using the
affordability guidance for utilities. If the systems have any level of sophistication they just blow past the existing guidance. They do it
and give it to EPA to satisfy the requirement and then go on to develop different information to meet their own needs. Consent
decree negotiations he has been involved in have been with large utility communities with legal staff or NACWA members who know
the drill. The existing guidance is acceptable as a gate keeper and for all the other folks who don't have a big legal staff and
sophistication, they're looking at the guidance and using it in different ways. The steps some big utilities are using to negotiate
adequate consent decrees are notable in that they are the same practices we would ask utilities to do for basic utility planning work.
It is just good basic financial management practices. It is fundamentally what is required to go forward, to show evidence, and to
issue debt and meet obligations. Starting from scratch is not the central point. Issues of affordability are centered in basic sound
financial management practices. If they can change that paradigm, small systems who need capacity development, they should focus
on that. They will then have a base of knowledge and financial planning to address affordability issues.
Mr. Sawyers - responded that one thing he wants to focus on is the 1997 guidance focused on CSO communities and trying to figure
out the level of relief necessary. It was designed to be a simple framework. As they start to expand this into a broader integrated
framework, it becomes more complicated. Medium and small size communities across the country that don't have a legal budget -
how do they use a more complicated framework? They want to make something useful for all utilities but it needs to have utility to
the small systems. EFAB is a financial board but it is something he struggles with, to make sure it has relevance for all communities
that need it.
Mr. Chow - added that affordability is a focus based on his market and it is connected to other points raised, like regionalization. If
you want to incentivize regionalization, you need to recognize affordability of neighborhoods or systems varies. Having an average
number doesn't work. Having flexibility in the definition and recognizing that some communities vary in how much they can afford,
is vital. The practical side needs to be taken into consideration. He added that he was encouraged to hear they are looking at a truly
integrated approach.
Mr. Sawyers - responded that Mr. Chow had pointed out another complicated thing, that many systems are starting in entirely
different places. There is no single approach to address needs for all systems so they will be looking at a customized effort. These are
issues they need to think about because a single simple framework, which is ideal, may not be practical.
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Tony Parrott - said there is a Senate bill sponsored by Senator Booker and Senator Capito for workforce development. It would set
aside funding for utilities interested in community education to encourage youth to seek career paths with utilities. It would make
sure people are there and trained to do the work. The bill has been endorsed by many organizations and the legislation has been
filed.
Mr. Sawyers - said there was also an effort in USDA to provide something similar. Generally, EFAB doesn't take positions on those
things but they might provide advice to the agencies involved.
Mr. Chapman - said that as far as affordability issues go, whether it is a redo or clarification, that the credit rating agencies would
welcome that and they do use it. When they revised their approach, they used USDA country-wide poverty levels. But you can't just
look at one rating factor. Take poverty, for example; there might be hypersensitivity to rate adjustment decisions based on the
customer base. Something to consider could be potentially introducing deferred maintenance. That is relevant to credit in the view
of the credit agencies. They took the 1997 guidelines and use it absent better information. Adding on the additional poverty layer is
relevant but if there was something newer and better they would incorporate that into their process.
Mr. Sawyers - said that they would have a conversation about that aspect as they develop what the framework is.
Ms. Throwe - added that there is an opportunity with the workforce piece that Mr. Parrott mentioned. That is not a direct charge
for EFAB but is something EPA could consider. Maryland launched a workforce development program for environmental activities
and they have seen overwhelming response from people applying and companies interested in the program.
Mr. Liu - asked Mr. Sawyers if there was a way for him to share the National Academy study on affordability with the board via email
to help them get up to speed on the recent efforts.
Mr. Sawyers - responded that it was publicly available and that he would provide a link to it.
The President's IIinfrastructure Initiative & Str d Permitting Processes
Alex Herrgott
Alex Herrgott introduced himself and thanked the board for inviting him to speak. Michael Patella, on detail from the EPA's Water
Finance Center, is currently a senior advisor on infrastructure to the White House. Mr. Herrgott is currently the White House Council
on Environmental Quality's associate director for infrastructure. Prior to that position, he was deputy staff director for the U.S.
Senate Committee on Environment and Public Works. During his 13 years in the Senate, his principal responsibility was all water
sector resources and had a hand in drafting several pieces of infrastructure legislation. He said he felt like he was in the right room,
recognizing that this group was infrastructure's key constituents.
One exciting thing right now is that infrastructure is one of the three principal activities that the White House thinks that it can make
immediate progress on. The three are health care, tax reform, and infrastructure. The White House is in the middle of their rollout of
the large-scale infrastructure package. Mr. Herrgott noted that, as a staffer, he struggled with the way industries look at funding
streams; they were stove-piped by asset class and jurisdiction. We have the highway and transit bill, the SRF bill, and the WIFIA
program, but we didn't allow for the use of municipal bonds because there would be a lost score for joint-community tax so we had
to fix that two years later. Instead, this approach attempted to figure out how to holistically fund infrastructure as it relates to the
federal programs. As a result, the infrastructure team noticed incongruencies when it comes to talking to asset owners. A very eye-
opening experience was that, while Congress was trying to pass the Water Resources Reform and Development Act (WRRDA), they
had the situation in Flint, Michigan. The next day he flew up to Flint to tell them they needed to ask the federal government for
support so that he could put something close to $100M into direct response money to meet their needs. Those are things that
happened to an EPA program on an Army Corps bill. This administration wants to be asset neutral and look at all infrastructure in a
rational way that attempts to smash the stovepipe framework. At the core, that will be a tremendous opportunity to step back from
existing programs and discuss how to fix the 53,000 community drinking water systems in the country that are far beyond their
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useful life. Support is being provided now but it is only triage. They're working with the 13,000 clean water systems that have a
different funding stream and who are working within 5 or 10-year windows. Mr. Herrgott said that we are the greatest country in
the world and we look at infrastructure as a public good that is hidden from the users. We have not connected the true costs of
these assets to the user. In a room in Boston with 6,000 legislators, he asked people to raise their hand and answer what unit of
measure they pay for water. Only three people raised their hands. How can we begin, at the federal level, to talk about how we will
explain the true cost of infrastructure and public use if no one knows that they're paying now? We find ourselves in these silos about
what is or is not affordable and appropriate. So, how do we fix the problem? How do we take a step back and figure out what makes
the most sense? He added that he doesn't want to fight with Rural Water or about WIFIA cannibalizing the SRF. He doesn't know if it
is the best approach to pump $5M into the SRF but we need a new way to do business and one way to do that is to harness
ingenuity in the private sector. We can allow them to have a more outsized role in how we fix the estimated $50B in deferred
maintenance at drinking water systems. We hear all different numbers and stories as we try to fit a square peg into a round hole.
What the President wants to do is give a discretionary grant program to EPA through the incentives pot, the largest part of the plan,
and have project applicants take stock of what they own and what they need. Maybe it could be regionalization/consolidation or
maybe it is a P3 model. Hopefully, there will be 500 different permutations of the model. The bottom line is that there needs to be
new opportunities for asset owners to come to the federal government and be treated like customers and get the tailored help they
need without worrying they are wasting precious resources. That is what they are talking to authorizers and appropriators about
establishing. With a couple of targeted statutory reforms in the bill and the money piece tied in with the One Federal Decision MOU,
which they're working on as part of the executive order from last year, they have all three pieces to help honor the promise the
President made. This will help them find a tremendous amount of funding to help increase the pie to fix the problem. They will
remove statutory impediments that handcuff asset owners and figure out how the federal family can transform the status of asset
owners as adversaries to one of customers in the environmental relief process. If they can do all three of those objectives, that
would be one of the most important things this Administration could do. The legislative piece is something that they are working
around the clock to try to implement and work with the Hill on. No matter who you are, there is a tremendous paradigm shift that is
happening with the infrastructure package. It is basically saying, bring us your projects with primary objective criteria and tell us:
How much revenue are you bringing? Are you considering operations and maintenance and rehabilitation costs for the asset? In the
old regime, there are permissive and suggestive materials in the SRF pushing philosophical and managerial preferences onto the
asset owner. There is no real accountability. In this model, they are pulling philosophical and behavioral changes out. Also important
to note, this is a supplemental program that sits on top of the existing programs to create a policy outcome with a supplemental
infrastructure funding component that does different things for different asset classes.
Mr. Herrgott opened the floor for questions.
Discussion/Questions
Mr. Zimmer - commented that in the beginning it sounded like Mr. Herrgott was emphasizing the supply side but it isn't the supply
side on the ground, it is the demand side. All water is local and there are local elected officials putting money into systems that no
one sees or cares about, because if they raise rates they won't have a job in the next cycle. Unless you're giving those funds away for
free, most of those people aren't focused on the right way to optimize.
Mr. Herrgott - responded that this isn't about adjusting rates. They have found themselves at conferences having conversations
with people about the concepts of fixing the problem and they understand that those people need political cover. The existing
federal regime creates a grant mentality that is a substitution for raising state and local revenue. Those are local decisions at the end
of the day; they aren't pushing them but they are providing an incentive. There is a pot of money at DOT, EPA, and other agencies to
see holistic programs - not just one project but a program of projects. They're not playing in the traditional sphere. This is
supplemental to increase the overall pie. They now get to take a step back and fix the problem by getting the policy right and selling
it. Then they will sell it on the Hill. They aren't asking people to pay more for what they get for free, they're asking the asset owners
to be honest about what things actually cost. They can then be honest with the state legislatures. There is an opportunity with WIFIA
to provide support programs matched up next to WIFIA to give flexibility in deals with those trying to fix the problem on their own.
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Ms. Throwe - said she thinks there is an opportunity here. For the past day and a half, they have focused on regionalization
opportunities. Consider that as you move forward with a discretionary grant program, to push that regionalization approach. There
is a need for technical assistance in order to provide the opportunity for a grant program. If you ask them to take stock of their
assets, they will need better and stronger technical assistance options.
Mr. Herrgott - asked how many underwriters there were at WIFIA.
Mr. Sawyers - responded that there are currently three and they are in the process for hiring additional underwriters.
Mr. Herrgott - added that regionalization needs technical assistance and motivation. From a philosophical approach, they are seeing
an influx of interest in infrastructure development from states. They will start in some states, such as Illinois and Ohio, with a lab
taking a strong first step. It will come from the states and they'll come forward. It is on their radar.
Carl Thompson - asked Mr. Herrgott what they think about this relative to small onsite wastewater treatment systems. Twenty-five
percent of the systems in the U.S. fall under this category and, at some point, a legacy system needs to be modernized. Doing it one
by one and focusing on how populations move up and down, that makes sense.
Mr. Herrgott - responded that by taking some bigger projects off the list, it allows the SRFs to be more used for those smaller
projects. They can help free up capital in existing programs. For example, Los Angeles Water is unable to assess a user fee for
modernization and maintenance - they want to make it easier for additional fees to be attached to rate structure but not get into
the weeds at their level.
Mr. Parrott - expressed his interest in how the incentive carrot would reach the ground and what was being done to inform and
influence on-the-ground people and governors.
Mr. Herrgott - responded that, at the end of the day, no elected official wants to ask constituents to pay more. Water is more
sensitive than most, but there are ways to figure out policies to address capital needs and affordability. Now that the package is out,
they're scouting it out. At the end of the day, no one can tell how they will address a $25M backlog and the 5-10 immediate
risks/threats to human health. That is a conversation that needs to be had because people just don't have the money. They're trying
to be rational in fixing the problem while educating people about the trouble the country is in and what needs to be done. They have
this speech at the Conference of Mayors and others but they need money behind the speech.
James McGoff- was encouraged at the suggestion that customer service would be a component. Indiana's experience is important
for the metrics as to how customer service is being delivered. When they transitioned to the SRF program, that helped their
programs grow and deliver to vulnerable communities.
Mr. Herrgott had to leave the meeting early due to other commitments.
Mr. Sawyers - asked the board members if there was anything else they wanted to discuss related to the presentation.
Tracy Mehan - asked for Mr. Sawyers' take on what the administration was proposing. He clarified that he was having a hard time
putting it in plain English, but it seemed to hinge on whether the states wanted to play the game. He also asked for clarification
about why WIFIA was being used for the Superfund program.
Mr. Sawyers - said he was hoping to hear more in-depth information from Mr. Herrgott, but that one point he made that is a big
part is around the discretionary grant program incentivizing new ideas and activities. Also, the willingness to operate in a full cost
environment, the willingness to incentivize asset management, and other things that Mr. Sawyers touched upon like technology are
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all key points. Based on the conversations he has had with Mr. Herrgott and Mr. Patella, there is a fair amount of confidence that
their plan will have traction on the ground and they have been testing it.
Mr. Mehan - asked if the central thrust was the incentivizing programs that the states will have to play into to make it work.
Mr. Sawyers - responded that he was not sure that it was the central piece but that it is one component.
Mr. Gebhardt - said that it struck him that there are three or four program elements in the infrastructure plan. The major one is TIP.
The basic premise is that they are running it as a reverse auction. The goal is to see how few federal dollars are needed to match
non-federal revenue to pay for a given project. When they talk about bringing non-federal money to the table, that is a proxy and
they're looking at lifecycle; of course, the projects that the federal government can agree to put money against will be the projects
bringing the most non-federal dollars in and showing enough revenue to deal with the capital expenditure component and the
operational expenditure component. At a high level, that is how he understood it. For the rural infrastructure program, he thinks
that is the state federal capitalism program. There will be criteria developed by the states that the federal government will weigh in
on that deal with state priorities.
Mr. Arndt - added that he looks at it as a toolkit. Most systems know what those tools are and how to mix and match to develop
workable finance programs. When you look at existing financing tools, those are all low single digit costs of capital items. The
conversations they've had with folks in the P3 arena, they're not suggesting that it is the fantasy, but the feedback they've gotten is
that the cost of capital is high single or double-digit. To the extent you take a 20% or 50% grant and reduce your overall capital costs
by that grant component, you are offsetting at 10% P3 cost of capital, you have only reduced capital 8% but that is well beyond what
systems can obtain with other tools. There should be ways to promote that and P3s. His sense is that the approach to drive down
capital cost through grants will not be very effective based on water system tools already available to work with. He said that he
would like to believe otherwise but it seems this needs to be examined closely and possibly rethought and restricted to reflect
realities of the water space.
Mr. Sawyers - said the details about what the configuration will look like have not been finalized yet. He added that they may be
able to engage the board in that discussion. EPA will think about it a lot and they're not at the landing spot yet. He added that, with
how Mr. Arndt explained it, there is an element that is appropriate and it could still change and they are still working on details.
Richard Weiss - said that one other aspect is looking at private activity bonds and P3s. His observation is that it would be a
significant expansion. Given the debate last year on tax reform about private activity funds, it would be interesting to see if this can
proceed. He is interested to seeing how the debate progresses in implementing some of this.
Mr. Chapman - added that he had read the proposal and would agree with that representation. There is a scorecard component and
if they can demonstrate that after the federal bucket is gone, they still have federal capacity to cover operational expenditure and
capital expenditure, you will score more favorably. That introduces lifecycle costing, and in that is a P3 message. Anyone expecting
the second coming of the Works Progress Administration is going to be disappointed. The federal share will not be increasing. There
are nine states with negative outlooks largely because of revenue vs. expenditure. The question is whether they will be able to come
up with state match. Local communities are probably similarly situated, to figure out a way to get it done if it is high value critical. As
far as cost of borrowing, it will be different. That is part of the plan's take-away message. It isn't just about the funding, it is about
changing the message. What we have been doing for decades, it will take a long time to get out of it and address it. His take-away is
that state and local governments need to think differently - not just about the dollars and brick and mortar. This isn't business as
usual.
Mr. Sawyers - responded that there is a lot in there about transformation and new thinking. He said that his big take-away is to find
a new way of doing business and to incentivize it. There are a lot of questions about capital but that is the overarching message.
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Mr. Anderson - added that his take-away was that these issues are not new, it is just another possible solution for them. He asked
what EFAB's role would be in this and how they could advance the discussion. It is a complex issue, having 50 years of different
programs that bring us to where we are today. The idea of full cost pricing is a common thread as well as sustainability defined by
technology, environmental, or economic means. If it isn't economically sustainable, it isn't sustainable. Government is the lowest
cost longest-term form of investment. Where does that fit? There are also circumstances, such as regionalization, to consider.
Demographics change and some systems won't have sustainable paths. There are programs with phenomenal leverage, and how do
we take those and carry those lessons learned to other programs? Also, what do we expect out of the people who participate? There
is nothing wrong with ensuring people are effectively using funding.
Mr. Sawyers - responded that this could be a much longer conversation. Something to think about is the board's role going forward.
We invited Mr. Herrgott to talk about the infrastructure package to help frame the charge going forward. Having implementable
recommendations is important and over time there will be focus on what the board can support.
Mr. Walker - commented that the bond market is not saturated. In Texas, they have been planning for water supply for 50 years and
until 4 years ago, it was nipping at the edges. Now they have done $7B in projects since the drought. They are at the edge with
resiliency and green infrastructure and need to drive the key problem. They have people in Texas with arsenic issues and they think
it is a regulatory arsenic problem in the system. They need to drive demand from changing these systems.
Mr. Sawyers - said that, in their shop, they are spending time on marketing because there is money out there. The idea of how to
incentivize and better focus on how to get projects to access the money is key.
Mr. Meister - suggested to Mr. Walker and Ms. Throwe that the direction outlined by the administration about infrastructure
recognizes that the way we funded and financed infrastructure in the 50 years since World War II has broken down. He applauded
them for pointing in a new direction and said that the two of them are a real asset, with the experience and expertise between their
successful stewardship of the SRFs and WIFIA's big promise of success. It is the difference between a feasibility study and
retrospective review. There is an asset here to allow them and their colleagues to play a larger role and have a voice in discussion
with the White House. He heard the administration talk at a briefing last year and they are square in his priorities in a good way.
Thinking of these systems as assets rather than liabilities can help. That is square within the context of the developing narrative and
conversation.
Mr. Sawyers - agreed and said that WIFIA is huge and will close the first loan in the next couple of months.
Mr. Zimmer - said he wanted to keep the supply/demand topic alive. There is an opportunity with this focus on infrastructure
because everyone is talking about it. They go to state conferences and cannot spend enough time marketing but they are still behind
the 8-ball on getting the projects into the pipeline. Mr. Herrgott pushed that they are not talking about the full cost or full cost
accounting. They all know that they aren't paying what it costs, but their neighbors don't know. They are woefully underfunding
water infrastructure nationwide. If they do communicate that full cost message, it would be easier for the mayor to increase rates
and communicate that.
Mr. Sawyers - responded that he made a great suggestion. It is an authentic message but few take it seriously. To a sector is an issue
and they need to address it, but they're not sure how well that message resonates right now. They should communicate it and it is a
struggle for a lot of them to communicate that appropriately.
Lisa Daniel - asked Mr. Sawyers a question. Mr. Herrgott made the statement that WIFIA is successful and Mr. Sawyers said there
was a promise of success. From her perspective there have been four applications and they have not closed on any yet, although
they are going to close on one soon. Conversely, there is an SRF application handed over with an environmental review and the
applicant is still waiting on approval but now the rates have gone up. She said that she just doesn't feel the momentum everyone
else appears to feel and she wanted some comfort that this is going to save the day.
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Mr. Sawyers - responded that she had an interesting take on it. The idea of the interest rate going up is the first he heard of that.
WIFIA is more than a promise and is based on conversations and negotiations. The first loan - King County, WA- is scheduled to
close on March 23, for about $120M. They are aiming to close a few more in the following quarter. They have done a lot to
streamline the NEPA process and are working hard to streamline the requirements but there is no getting around all those
requirements. Based on analysis and categorical exclusion, they think they have created a path forward. He added that her
questions are legitimate but as someone who has oversight, if he thought there were concerns, he would be worried. Much of Mr.
Herrgott's excitement is based on the information the WIFIA program has been providing him. Based on where they are in the office
with negotiations they have an incredible program and envision nothing but success. The SRFs have a very long history and WIFIA
will be going forward as well. With any new program, it takes time to move ahead.
Mr. Kaplan - pointed out that the King County WIFIA project had been discussed several times. He was impressed with Mr.
Herrgott's commitment to address a major problem but was trying to relate emphasis on full costing and life cycle analysis to our
CSO water treatment facility project - the Georgetown project - which is closing soon for WIFIA. They evaluated four alternatives in
the process. The operating cost is $800,000 out of $11M. There will be portions of the project replaced over time but the idea is to
present a capital financial plan governing 20-30 years in the future. They have uncertainty on that. It is one thing to do it for the
project, but it is one project for an entire system. He added that he was trying to process what Mr. Herrgott said and it is not
resonating what would be done differently for their project or practices. Another aspect is desire for more capital investment from
the utility industry. In King County, they looked at their capital plan and the major issue is manpower. Their portfolio has 100
different capital projects and that requires manpower. If they want to do more, how do they? Is it an increase in personnel in the
capital department? It is outsourcing? How do you begin the outsourcing process? Those are the fundamental issues they're dealing
with and he wondered how the program could help with that.
Mr. Rothstein - said that from the perspective of domestic and democratic communities, he worries about recategorization with this
program that basically says: communities that can come to the table with significant resources and those that can provide the
adequate funding can access the federal funding. What about the communities that are left behind? This seems set to exacerbate
the income inequality issues. The federal government's role needs to recognize that there are communities out there, like Detroit,
with 40% under the national poverty line that will not be able to provide matching assurance needed to qualify. He added that he
feels as though they have the potential to leave people behind.
?port Out: Financing System Regionalization
Eric Rothstein
Linda Sullivan
Mr. Rothstein began the report out on financing system regionalization. He co-chairs the working group with Linda Sullivan. They
held a brief initial call to get their arms around the topic and then met earlier in sessions mostly to think about how to frame the
problem. He anticipates that they will be working towards a report that, first, looks at defining the problem. They see their situation
relative to the international stage and fragmentation. The conversations they have had clearly recognized that regionalization and
consolidation are terms being thrown at a number of different problems. They will look at urban and suburban regionalization,
which is fundamentally different from regionalization of very small rural systems. There are also problems in defining non-
compliance and they recognize that there is a fundamental issue in overpopulation of utilities and structure in this country. They had
a good discussion about why things are the way they are and people have raised the notion that it is part of being American.
Sometimes communities are defined by having their own water and there is a concern about losing community identify in losing
your own water system. One question is how to honor that sense of community while addressing fundamental capacity and
sustainability issues. They will also talk about the reasons for fragmentation to help recognize the situation we're currently in.
There is a challenge in going against the status quo and there are a lot of people who benefit from that fragmented structure. When
there are 15 issuers issuing debt as opposed to one, you get 15 fees. Reframing that is challenging and there are other factors, from
the mayor's cousin being on the water utility board to investment banking to different providers to think about. Based on this
incentive structure - control and economic incentive - it is not a surprise that we're in this situation. They are going to think about
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unravelling some of those and providing adequate incentives that overwhelm existing incentives but it is a huge challenge. No one
had immediately apparent solutions but there are some important options out there. They talked financial incentives but also
fundamentals of trust and distrust. For example, if it is my cousin running the water utility, I trust them, but a private provider with
offices 150 miles away, there may be trust issues because I don't know them.
Mr. Rothstein noted interesting discussions they had about different governance structures. There is a whole spectrum of
partnership arrangements and he anticipated that the report would look at deciphering and categorizing problems, existing
incentive structures, a variety of governance structures, advantages and disadvantages, changes that need to be made, and barriers
to making change. They will use some case studies and templates to show how different communities have tried to surmount those
issues. There is a host of interesting case study material around how communities have been successful in accomplishing various
forms of regionalization. He said he would anticipate they will use the case studies and some templates - templates for creating an
MOU, cooperative purchasing agreements, tools, guidance - and hopefully have recommendations for legal and financial incentives
to help define some new models.
Some people have asked to join the working group and they welcome anyone new who wants to contribute. The work group's next
steps are to put together an annotated outline and hopefully start flushing out what they need for data collection and information
about different templates and options. Then they will develop writing assignments. They are shooting for a draft in 9 months and
will hold monthly conference calls.
Discussion/Questions
Mr. Sawyers - said he thought the deliverable date was the summer, not a full year.
Ms. Crichlow - clarified that they should have something in draft to share by the August meeting.
Mr. Kaplan - said he was talking to a colleague and was surprised to find that there is no legislation to form joint agencies. He
suggested that highlighting that in the report would be helpful.
Mr. Hughes - said that a lot of people are looking at regionalization right now. The WRF and AWWA just launched research on this
topic. The Aspen Institute and Duke University are also planning to hold a discussion on this topic, and the Water Alliance is
undertaking a related initiative. There should be a lot of information and ideas around so he urged the working group to focus on
very specific things EPA could do so the recommendations help EPA with their next steps. For example, the formula EPA follows to
provide grants is tied directly to the number of systems because they get more money to regulate in the state if there are more
regulated systems.
Mr. Sawyers - reported that he is currently working on the efforts through the Alliance and WRF.
Ms. Beecher - said they see synergies among these projects in Michigan. She provided a couple of quick notes - there were 66,000
water systems when they started consolidation efforts, now there are fewer than 50,000 and she has been working with SDWIS to
break this down by the numbers. Close to 25% of the population is served through a wholesale provider. EPA counts systems but
they count utilities, and utilities can operate multiple systems so it is important to get an accurate profile. Part of the reason system
numbers came down was the capacity development tools from EPA.
Mr. Parrott - added onto Mr. Beecher's comments, saying that historically water supply has driven regionalization. There has been
more progress on water than on wastewater in a lot of states and they are looking specifically at failing systems. Kentucky recently
introduced legislation to eliminate barriers to regionalization in local agreements and to make it easier for utilities to work within the
state to provide support for or purchase failing systems. That is something to think about and watch as well.
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Ms. Downs - added that she does not want to lose sight of regionalization vs. contracting options. Contracting options may be
options to get economies of scale and should be seen differently from consolidation or regionalization.
Update on The Water Infrastructure and Resiliency I :e Center's (WIRFC) Activities
Jim Gebhardt
Sonia Brubaker
Kristyn Abhold
Mr. Gebhardt kicked-off the Update on the Water Infrastructure and Resiliency Finance Center by sharing that the Water Finance
Center (WFC) had been around since January 2015. Sonia Brubaker was the first WFC employee. He wanted to underscore the
concept of leveraging not as much in the context of dollars but in expertise. The WFC sits at the core of the conversation about
expertise in the water sector. At the Agency, the WFC builds relationships within the federal family and, beyond that, they have a
working relationship with the EFCs and work critically with EFAB. They understand it is not all about water but water is a core
element of the EFAB charge on behalf of the Agency. They also work with the wider stakeholder community in the water sector
including associations, foundations, other NGOs, and states. They have been particularly energized post-Flint about the critical value
of water and the role they can play to deliver resources for technical assistance and how to partner their available capital in the seed
capital money to energize new solutions. They are also still working on providing finance forums in the regions. The next one will be
in April in Wyoming and will have a focus on small systems. The final forum will take place in early June in Region 5 in Ohio. He also
wanted to draw attention to the Water Finance Clearinghouse and highlighted that Sonia's remarks would update the board on
where they are with that product.
Ms. Brubaker - is the program manager for the WFC. She thanked Jim for his overview of the program and said that in addition to
overseeing the board and grants to EFCs that they have also been developing products including the WaterCARE technical assistance
program, customer assistance programs, and the drought report. Her remarks focused on the water infrastructure financial
leadership efforts from the past year. They started with a national dialogue about affordability in summer 2016; a lot of topics came
out of that discussion and they were thinking about where to go from there. There was a regionalization effort that came out of that
but it was to tease out communities in need and what they need. They worked with the Environmental Council of States (ECOS) to
host a smaller meeting of experts picked from national water associations. They wanted it to be a small group that met once to talk
about issues and from the 1.5 days of discussion they had a lot to unpack. After that, it really came down to local decision makers
and board member training. They know there is a lot of information that has been published over the past two decades and they
wanted to highlight that work at a level where a local leader could look at the information and be able to navigate the process and
make decisions. The document helps determine what is needed, how to fund projects, and how to protect investments. They
developed a 60-page document where the first 30 pages were 1-page high level topic reviews and the second 30 pages were case
study examples. There were three key steps outlined in the document - preparing the community, how to bring capital in, and
maintaining strong financial leadership practices. The document is intended for local decision makers in any community at any level
in the process. It can work for communities starting the process or those who are already in the process, but the document does
emphasize communities in need.
Ms. Brubaker continued, stating that the first question is: what is a community in need? There are definitions already out there like
"disadvantaged communities" from places like the Safe Drinking Water Act but people also don't always want to fit into that box. A
community could be resource constrained, have high unemployment, a declining rate base, low bond credit rating - really anyone
who self-identifies as a community in need could be considered one. There are key questions in the document to help leaders walk
through the process which is broken into three categories - asset management, financial planning, and stakeholder engagement.
Step two is to determine how to bring capital into the community. It is important to define funding vs. financing. The document
made a point to talk about the two separately and how to pair them together to get your needed outcomes. The document also
touches briefly on creative ways to generate revenue, engaging in system partnerships, governance models and regionalization, and
how to find funding and financing.
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The third step is maintaining the financial leadership practices. That could be how to contribute to community's economic
development. The document includes information on affordability and assistance programs and regularly checking up on the
system's health. Communicating the importance or value of water to the community and being able to take out a loan and repay it is
also included. The customers need to know and understand what they have to pay and why for all of the services delivered.
There are over 20 community examples in the document. There are various topic areas so different communities can relate to the
examples. Most of the examples are co-funded. In one co-funded example from Maryland, they estimated that they could save
annually by building a wind turbine. A second example is for Detroit green infrastructure. This was also a co-funded example but not
as traditional. They were given a Great Lakes EPA grant and two foundations provided additional grants to do a stormwater project.
Another example was to open a winery to bring in new jobs and build tourism. They used local grapes and in addition to funding the
facility it spurred a housing development to be built for workers as well as tourists. EPA did not fund the winery but it was part of a
larger coordinated effort. The next example is traditional revenue generation from leasing space on water towers to generate
funding to avoid a high rate increase. There are a wide range of examples in the toolbox that communities can use and build from.
The Water Finance Center wanted to show communities these different examples and what they could do to finance their needs.
Ms. Brubaker turned next to the Water Finance Clearinghouse. Kristyn Abhold gave a presentation to the board in August following
the launch. The clearinghouse has a lot of information in it and it has gotten a lot of attention and visits since the launch in July 2017.
They have had about 35,000 visits since the launch. Something useful with the clearinghouse is the user's ability to save information
and for states and other funders to update their own information. There are general users, contributors, and people providing
information to the clearinghouse. They will continue to provide updates to the board and are now looking forward to updating the
clearinghouse to capture some of the discussions and data discussed at the EFAB meeting. Right now, their big project is developing
the water finance learning modules. They will have learning modules for the states and local leaders to take deep dives into P3s, the
SRFs, and other topical areas like financing water loss, decentralized wastewater systems, resiliency financing, and more. Ms.
Brubaker told the board that the draft content for the learning modules is currently being put into an interactive format using Adobe
Captivate and if they are interested in helping develop or review draft content to let her know.
Mr. Sawyers - thanked Mr. Gebhardt and Ms. Brubaker for the update and made a couple of announcements. First, that Ed Chu, the
Deputy Administrator for Region 5, would be playing an integral role in EFAB going forward and that Bill Cobb would be moving on
from the board and they wanted to recognize him before the end of the day.
The board broke for lunch and the meeting reconvened at 1:37 pm.
?port Out: Chesapeake Bay Performance Metrics
Suzanne Kim
Craig Holland
Ms. Kim provided the report out for the Chesapeake Bay Performance Metrics working group as Craig Holland was sick. The board
got the charge at the last meeting. The charge is to come up with finance metrics to use in the Chesapeake Bay and then to expand
to other watersheds. They had a call a couple of weeks ago. Mr. Holland and Ms. Kim come from the private sector and the only real
metric is internal rate of return (IRR). They reframed the charge so the problem is more than just looking at finance metrics and
what defines success for private capital. The larger problem is insufficient public financing and grant availability to implement and
complete water quality projects at a scale necessary to meet water quality goals. The problem is more how to access private capital
markets in general. The idea is to understand how to attract private capital while meeting other stakeholder needs of states and
local officials. After the working group discussion, they expanded the charge based on an understanding that it is not just regulated
markets but the unregulated markets as well.
They are trying to reframe the charge in two ways. The first is how to bring private capital into regulated markets. Within that, it is
providing investment cash flow and understanding how that cash flow works - where is the funding coming from? Is the capital
source stable? What is the risk to IRR? They want to look at the exit value and what the potential cost is for projects like opportunity
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for economies of scale and the revenue supply and demand benefits. For investment cashflow, it is also mitigating risk to cash flow.
Defining the product, what is being specified, and the influence of TMDLs is important. It is also about how well it is being tracked,
how predictable purchasing forecasts are, indirect and direct costs for the project, and ongoing costs. It is important, through all of
that, to ensure the goals of the municipality and state are met. That includes looking at public lenders and how they want to
maximize their dollars. The second part is an analysis of supply and demand to see recommendations on regionalizing and
standardizing. They also need to determine how the unregulated parts factor in. How can they incentivize agricultural polluters to
clean up their pollution? Maybe there are subsidies that are already out there. They need to explore that side of it more. It is also
critical for municipalities to meet TMDL obligations.
They plan to come up with an updated charge in a week or two with a document draft or outline by August. The work group still
needs to run the revised charge by those who provided the original charge.
Mr. Sawyers - agreed that the charge needed to be redefined and wanted to better understand the issue.
EIFAIB Report Out: Public-Private Partnerships Predevelopment Protocols for Water Projects
Lisa Daniel
Richard Weiss
Ms. Daniel - thanked the working group for their input on the new P3 charge for predevelopment protocols for water projects. The
P3 working group has been assembled for the past couple of years and has been an advisory committee instead of a deliverable-
focused group. This is their third charge and it allows for some output. In a nutshell, it is to help the state predevelopment processes
that have been used and can be considered by decision makers. For example, when the mayor comes back from the Conference of
Mayors and he wants to conduct a P3 project, what are the questions that follow? This is this piece that helps them answer those
initial questions. They want to create a matrix that is not advocating for anything but providing a thought process as to whether it is
optimal for that situation. First, it will consider the objectives of the people considering a P3. Second, it is important to think about
the feasibility, such as the legal authority or procurement processes. Is there a political will, public will, and does it affect credit?
What resources are needed for executing and monitoring the project? Are the right external parties involved? What are the
accountability measures? There is a need in any contract for key performance indicators (KPIs) to make sure all parties are held
responsible for what they have agreed to on the front end. The last piece is cost. That is to educate decision makers about what cost
means in relation to a P3 project. We talk about building finance and maintenance, long term planning and costs - those are not
independent to P3s but there is an opportunity to emphasize that when thinking about utility planning.
She added that there is also an opportunity to talk more about the innovative models that have to do with environmental impact
bonds or outcome-based performance and performance contracts that can shift risks onto third parties and pay them if they do
what they say they'll do. That was the basis of the charge, and next they will work on an outline. The outline will be drafted for this
group by the August meeting.
Discussion/Questions
Mr. Sawyers - asked for clarification about the deliverable and whether they would provide a draft outline, a well-developed
outline, or a draft report before the August meeting.
Ms. Daniels - clarified that they would provide a well-developed outline.
Mr. Anderson - added something else to consider. P3s are typically used in contractual circumstances. They need to understand
where they're going and how to make it happen. The work group is also seeking ways to align those interests because, over time,
they aren't allocating risk but rather putting bumpers up to correct direction as necessary.
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Mr. Rothstein - shared that he has been involved in P3s for a while and finds that this group has a unique perspective and level of
expertise and credibility to broach the subject. The National Council for Public-Private Partnerships (NCPPP) folks have an agenda to
move forward with other players in the game but there is an important opportunity to take advantage of this group's expertise and
understanding to tell a credible story about the role of P3s.
Ms. Downs - agreed that the board is in a unique position but having a compendium would be invaluable. There are many different
materials that people have published, but real examples would be valuable for people.
Mr. Weiss - added that the matrix deliverable they develop will be comprehensive.
Mr. Sawyers - concluded that, in the context of conversations from the morning sessions, that as they develop the report together,
they should think about things EPA and the federal family can put in place to respond to P3 issues. It is critically important that the
board doesn't necessarily take a single position but touches on the several issues the Agency and others should be considering. They
need something more than a skeleton approach and would appreciate a draft report by August.
EIFAIB Report Out: Backhaul Alaska Revenue Model Assessment
Hope Cupit
Joanne Throwe
Heather Himmelberger
Hope Cupit started the report out for the Backhaul Alaska Revenue Model Assessment charge. The group met to discuss the project
during the work group sessions on Day One. Ms. Cupit provided some background and history about the project - EPA funded
development of a program for stakeholders throughout Alaska to develop self-sustaining programs in the state. The statewide
backhaul plan consolidated input from the last three to four years representing tribes, recyclers, and non-profits. Untreated waste
burning is legal in Alaska and, due to the nature of transportation and geography, engineering logistics to maintain a landfill to
national standards is not feasible. Leeching of hazards or burning toxics are real issues in Alaska and it is a harsh reality of living in
these conditions. They established the SWAT program - Solid Waste Alaska Transport - which aims to find a way to make a
sustainable backhaul program. They also started developing an approach to get the private sector to pay to remove waste from
Alaska. The work group had a call with Gabriela Carvalho from EPA Region 10 to gather more information about how much backhaul
costs and who could pay for the program. The Indian Environmental General Assistance Program (IEGAP), enacted in 1992, is funding
the effort right now. IEGAP helps tribal governments manage local environmental programs through EPA. EPA was the first agency to
help Indian groups with waste systems. By 2000 there was pressure from tribal leaders to include a wider array of activities under
their support, so in 2002 Congress said IEGAP could be used for backhaul and waste programs. In 2013, IEGAP guidance was released
for how the funding could be used. That included direction that it could no longer be used for the operations and maintenance of
solid waste. EPA urged tribes to develop self-sustaining programs with other funds by 2017. They currently have a 3-year pilot
program to test but they only have funding for one year. In 2015,170 tribes received grants in amounts from $75,000 to $125,000
and totaling $225M.
The charge is to develop revenue options for waste service programs for rural Alaska. EPA Region 10 requested EFAB's support in
reviewing revenue programs for backhaul to reduce leaching and open-air burning risks to public health. The charge includes
developing a 10-year business plan and reviewing revenue options. In the work group's first meeting, they discussed trucks taking
materials with them when they leave. Backhaul refers to the more remote locations so the waste is usually transported by airplanes
or barges and can sit for over a year before being shipped. It is also important to recognize that there is no gross regional
coordination at this stage. They want to have a control tower to coordinate transportation, a network of coordinators between
villages and state agencies, uniform training to perform the work, commodity brokering to recycle items to offset the costs, and
volunteer support from the impacted villages to help reduce total costs.
Ms. Throwe - restated the pitch for this work group: this is a very interesting and unique project. They usually support a lot of water-
related topics but this is unique in that it looks at a logistics issue, it is a specific need, and they are looking to the board to provide
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several options to consider. When they consider what is happening in Alaska, the team assigned to this work group know very little
about backhaul but they are pulling together ideas. Ms. Throwe asked the board members to consider joining their team. The team
is very small and there are a lot of items to unpack, like that the unemployment rate in Alaska is on average 35%. It is difficult to
think about fees per household for people in rural villages that are subsistence hunters and fishermen. Some areas have a waste
collection fee but the fees are very low even when they do exist. Region 10 is looking to EFAB to consider what type of fees to
recommend for households by looking at income, population, and other metrics. They have found it interesting to look at case
studies because they have found that some of the coordinators in the hub areas that do exist are relying on cousins, other family
members, and volunteers to keep costs low. From a sustainability perspective, how do you approach that element? What they want
is a 10-year business plan for this. The team is not sure they can deliver that but they're going to try. They are also considering
legacy waste in Alaska and what kind of services are or should be paid by the government. What is the federal government's role for
legacy waste and projects on the ground that have left landfill waste? They also want to talk about the recycling opportunities to
recycle aluminum and other materials of value. The board recently had the recycling charge and they could put together some ideas
from that and other past charges. Another area is the producer's responsibility. If you have products coming in cradle to grave, what
is the producer's responsibility for this waste? Things like lightbulbs, used batteries, and other products they could consider and
determine responsibility for.
The team asked the client, Gabriela from EPA Region 10, about the state's involvement and she said the state isn't very involved.
They provide some technical assistance but no funding. She wasn't sure, based on that relationship, how far they would be able to
get in engaging the state. They will lose the IEGAP money that has been paying for the backhaul thus far and they need a sustainable
program by 2021. There is an opportunity for EFAB to come up with revenue ideas, options for success, and input on what won't
work. They have some great villages working together on the pilot and the board could use that as a resource. The session at the
beginning of this board meeting was their first group meeting so they are open to new group members and ideas. The team expects
to have a final report by the August meeting.
Discussion/Questions
Mr. Sawyers - said it is a difficult issue but is very important. They have a small Alaska program in his shop and it attempts to
address many similar difficult issues in rural Alaskan communities.
Ms. Downs - asked for clarification about whether the waste is generated by the villages in Alaska or outside entities. She suggested
they might be able to have input from an environmental justice perspective as well.
Ms. Throwe - responded that the waste is generated by the villages but there is also legacy waste that exists and they aren't sure
where all of that came from.
Ms. Cupit - added that they have thought about the legal issue with the waste but they're not sure if it is their call.
Ms. Downs - said there might be language they can use to help set the tone for how some recommendations look in the report.
Ms. Throwe - added that she does feel they have a responsibility to bring up questions like environmental justice.
Responses to Decentralized, Lead Risk and Recycling Reports
Tom Liu
Mr. Liu noted that the board had been very busy since their last meeting in August 2017. Three reports had been passed onto the
administration, on lead risk, recycling, and decentralized wastewater. They have already heard back about the lead report and are
looking forward to hearing on the remaining two reports soon. They received a letter from Administrator Pruitt on the lead report.
Mr. Pruitt appreciated the board's effort and acknowledged their unique perspective, which is critical to public health challenges in
this area.
Mr. Liu said the report was very comprehensive and that it would now go onto additional offices for comment. He thanked the
group for getting three reports out in a short timeframe.
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Mr. Sawyers - added that the Agency has already had some conversations about ways to utilize portions of the report and that he
appreciated how comprehensive the final product was.
Public Comment
The public comment period was opened at 2:20 pm.
Heather Cannon - an Alaskan native and rural tribal member who works for the Rural Community Assistance Corporation (RCAC)
and the EFC for Region 10 made a comment during the public comment period. She indicated that her comment was not associated
with her background or positions with RCAC, the EFC, or her tribe. She said that for the state of Alaska backhaul is a major issue, the
state does not support tribal people or sovereignty and that is where the issue starts with the backhaul program.
Next Steps & Adjourn
Mr. Sawyers - thanked everyone for coming to the meeting. He added that he hopes everyone was actively participating in the work
groups and asked them to consider being on more than one work group. The board is critical and the contributions they provide will
support what the Agency thinks about going forward. He added that other federal agencies are also interested in the board's
perspective and insights and that USDA may ask the board to support charges in the future. He thanked the members for their
continued support and said he hoped that by August they would have five completed, or close to completed, reports. It is likely they
will have new charges presented during the August meeting and Dave Ross and Mr. Sawyers had already had a conservation about
having the board think through challenges. He concluded that the August meeting would be critical for setting up a timeline for the
next couple of years.
Mr. Sawyers thanked Tom Liu again for his leadership on the board and told the returning board members that he looked forward to
seeing them in August. Preliminary information about the August meeting would be sent out in the next couple of weeks.
The meeting adjourned at 2:28 pm.
EPA-800S18001
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