Environmental Protection Agency Environmental Financial Advisory Board Full Board Meeting March 15-16 2005

ENVIRONMENTAL PROTECTION AGENCY
ENVIRONMENTAL FINANCIAL ADVISORY BOARD

FULL BOARD MEETING
WASHINGTON, D.C.

MARCH 15-16, 2005

The Environmental Financial Advisory Board (EFAB) of the Environmental Protection Agency
(EPA) held its winter meeting at the Radisson Barcelo Hotel in Washington, DC on March
15-16, 2005. EFAB is a federal advisory committee, chartered with providing analysis and
advice to the EPA Administrator and program offices on environmental finance.

EFAB hold two full board meetings annually with its winter meeting in Washington, DC and its
summer meeting in San Francisco, CA. EFAB's Chair is Lyons Gray of Winston-Salem, North
Carolina. The Designated Federal Official (DFO) and Executive Director is Stan Meiburg,
Deputy Regional Administrator in EPA's Region IV, Atlanta, GA. The Board has a website as
part of the Environmental Finance Program, which can be found at www.epa.gov/efinpage.

Tuesday, March 15, 2005

DFO Stan Meiburg called the meeting of the Environmental Financial Advisory Board (EFAB)
to order at 1:00 p.m. with introductory remarks and welcomed EFAB's newest members to the
Board and the public. The new members are John Boland, Helen Sahi, and Justin Wilson.
Jennifer Hernandez, also a new member, was introduced, but was not present at the meeting.
The returning Board members, staff, and others, in the room, then introduced themselves.
EFAB's Chair, Lyons Gray provided an overview of the meeting by going over the agenda.

Agency Priorities

Charlie Johnson, Chief Financial Officer for EPA, thanked the Board for having him again as a
guest speaker to talk about EPA's budgetary priorities and restraints that they will be facing in
the coming years. Mr. Johnson informed the Board that EPA is now issuing Mercury Rules.
This being a first for the United States. He stated that the Administrator has told them firmly
that results and measurements will dictate what we do in the future. His remarks about the
direction that the Agency will need to move to address the growing environmental and funding
challenges suggested that EFAB can continue to add value to the Agency priorities in exploring
new areas of interest in helping EPA accomplish its mission. Mr. Johnson also let the Board
know that the Agency continues to clean up the easy Superfund sites, but the ones that remain to
clean are very costly.

In his closing remarks, Mr. Johnson expressed that the Agency continues to need the Board and
its environmental, innovative ways of thinking to continue to address the important issues of
environmental financing.

Use of the SRF Guaranty Authority

Jim Gebhardt, Chief Financial Officer, New York State Environmental Facilities Corporation,

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addressed the Board on using the SRF as a loan guaranty authority. He stated that its time to
look at this authority as another means to finance problems and that there is existing statutory
authorities to use the guaranty. The concept on how the SRF could utilize the statutory
authorities contained in the Clean Water Act and the Safe Drinking Water Act to support credit
enhancements such as financial guaranties to local governments is very creative.

Some possible applications of the guaranty authority that Mr. Gebhardt spoke on were: (1) offer
local governments that opt to fund DW projects with 30 years financing; (2) offer local
governments and private water companies whose projects are SRF eligible but score below loan
line; (3) offer local government multi-purpose bond issues and contract with Aaa guarantor to
reinsure non SRF portions; and (4)credit enhance SRF bond issues in lieu of a SRF reserve
allocation providing assistance from SRF earnings.

In his closing remarks, Mr. Gebhardt gave specifics on what EPA and other parties would need
to do to make this SRF guaranty concept a reality. He also commended the Board for their
creative use of available financing tools.

U.S./Mexico Border Infrastructure Financing

Jane Moore, Deputy Director, Office of Wastewater Management spoke briefly to the Board
about the U.S./Mexico Border Facilities Construction Program which provides grant support to
communities in the U.S. and in Mexico to build environmental infrastructure to address water
quality problems. Ms. Moore stressed to the Board that their goal is to create a long term
sustainable funding program and to limit reliance on grant funds. Her main goal at the meeting
was to solicit help from the Board to obtain expert advice on how to chart a course for the future
of EPA's border program that would allow leveraging of financial resources in the most
productive manner to achieve water quality benefits for the environment and human populations
in the border.

The Board welcomed the opportunity to hear about the current initiatives, and agreed to consider
whether these initiatives can create some new opportunities for the Board to assist EPA with
recommendations on how to structure the border infrastructure program to optimize the full use
and accessibility of environmental resources to border communities.

Progress of Board Projects

The remainder of the afternoon consisted of reports to the full board by workgroup chairs and
selected EFAB members on the status of Board projects.

Combined Operations of the SRF Programs: Jim Smith, workgroup member of the Joint
Operations project, reviewed with the Board the results of the state survey where several EFAB
members held informal discussions with a number of States to identify the benefits and issues
inherent in the joint operation of the Clean Water and Drinking Water SRFs. Mr. Smith

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revealed that several states already manage the funds jointly and they see the benefits in that
they: (1) have greater flexibility; (2) significantly enhance their investment returns, and (3) save
on staff resources. EFAB, in turn, has drafted a paper urging EPA to undertake a
comprehensive review of the operations of the SRF program in terms of its own management, to
determine if moving toward a joint operation of the two loan programs might achieve a more
efficient and effective use of resources and improved financial management techniques. The
workgroup will circulate the draft paper to the full board for review and comments. All
comments should be submitted by the middle of April.

Non-Point Source Financing: Lang Marsh, Chair of the Non-Point Source Financing project,
summarized the letter sent to the Agency in support of the activities of the Sustainable Finance
Team in the Office of Wetland, Oceans, and Watersheds(OWOW). In the letter, EFAB offered
to provide advice, support and assistance as appropriate, since OWOW's efforts parallel EFAB's
planned work. The letter also included four recommendations for the Agency to consider: (1)
have a roundtable on exploring the full range of possible financing options and partnerships
available to those confronted with the challenges of financing projects; (2) expand training for
watershed groups & managers; (3) urge EPA to continue to work with interest groups; and (4) do
more case studies of successful projects and activities that have moved in a position direction to
restore watersheds to good health. From these recommendations, an OWOW representative
indicated that the Office of Water would be interested in funding part of the
roundtable/workshop possibly at the next EFAB meeting in San Francisco. The workgroup
agreed to have a teleconference to develop the scope of the workshop and the goals that it wants
to accomplish for interested parties.

Affordabilitv: John McCarthy and Andrew Sawyers, Co-Chairs of the Affordability project,
gave a brief report out of the Affordability Workshop that took place at the last EFAB meeting in
San Francisco. The question before the workgroup now is what do we do with what we learned
from the workshop and where to go from here. The group has identified several areas to pursue:
(1) provide guidance to states regarding loan forgiveness; (2) refund bonds and share proceeds
with consumers; (3) provide better information on needs and ability to pay from the customers;
(4) SRF set-asides; and, (5) focus subsidies on people, not systems. The workgroup agreed to
prepare a paper on its findings, recommendations, and lessons learned from the workshop and
present it at the next EFAB meeting in August. The objective of the paper will be to submit it
to the Agency asking for EPA to play a significant role in finding ways to help low income users,
as well as system operators.

After a brief summarization of the next day's agenda, DFO Stan Meiburg adjourned the meeting
at 5:00 pm.

Wednesday, March 16, 2005

DFO Stan Meiburg opened the meeting at 8:30 am with a brief overview of the previous days
activities. Mr. Meiburg then introduced Mr. Jag Khuman, Director, Water Quality Financing

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Administration, Maryland Department of the Environment. Mr. Khuman presented an
information discussion with the Board on the issues related to the creation and implementation of
the State of Maryland's new Bay Restoration Fund. The key purpose of the Fund is to create a
dedicated source of State funding to undertake Enhanced Nutrient Removal (ENR) upgrade at
Maryland's major wastewater treatment plants discharging into the Chesapeake Bay.

Mr. Khuman stated in his presentation that the goal of the Bay and River Water Quality
Committee is to correct the nutrient and sediment related problems in the Chesapeake Bay and
its tidal tributaries sufficiently to remove the Bay and the tidal portions of its tributaries from the
list of impaired waters under the Clean Water Act by 2010. Ways in which they plan to achieve
nutrient reductions are by: (1) providing grants to upgrade wastewater treatment plants
(WWTPs) with ENR technologies; (2) providing grants/loans to upgrade onsite septic systems in
the critical areas with nitrogen removal technologies; and (3) providing grants to farmers for
planting cover crops on agricultural land.

Chairman Gray commented that the Board found Mr. Khuman's presentation very insightful
about the innovative uses of the dedicated user fee financing mechanism that will help capitalize
the Fund, as well as other sources of funding that may be used in the future. He offered Mr.
Khuman the Board's assistance in moving ahead with their goals.

Innovative Financing Tools: Michael Curley, Chair of the Innovative Financing Tools project,
submitted to the Board, the workgroups final report, "Application of Innovative Finance
Techniques in the Transportation Infrastructure & Financial Innovation Act of 1998 to
Environmental Finance Issues". The report has been approved by EFAB's Chair and DFO and
ready for signature and distribution to the Agency. The report recommends that the Agency
seek to obtain TIFIA-like authority as a complement to its infrastructure assistance programs.
The workgroup also recommends that EPA should consider developing the means to deploy
backload repayment schedules and implement various guaranty mechanisms. By doing so,
these mechanisms could enable EPA to address immediate environmental needs while
structuring the solutions to financial issues to a later stage of the project. Mr. Curley expressed
that EFAB would be happy to provide additional assistance with this innovative financing tool.

EFCN Update

Peter Meyer, President of the Environmental Finance Center Network (EFCN), gave a brief
summary to the Board on the Network's accomplishments in providing financial outreach
services to various communities. Some of the work being done are: (1) the University of
Southern Maine is preparing a self guided online course on smart growth; (2) the University of
Maryland is working on a series of sustainable financing workshops. They are also doing some
follow-up work on the Blue Ribbon Panel; (3) the University of North Carolina at Chapel Hill is
working with the University of Southern Maine on financial management planning for water
utilities. They are also launching a disadvantaged communities database for North Carolina; (4)
Cleveland State continues to work on lead abatement and brownfields issues; (5) California State
at Hayward is coordinating the "green business" efforts in Region 9; and (6) Boise State
University continues to develop new tools on watershed issues.

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After giving a report out on the work of the Network, Mr. Meyer informed the audience that his
tenor as President would be ending, and Sarah Diefendorf, from California State would be the
new President. Chairman Gray and DFO Meiburg thanked the Network for their hard work and
encouraged them to continue to work side-by-side with EFAB.

Useful Life Financing of Water Facilities: George Butcher, Chair of the Useful Financing
project, briefly went over the "Outline for Application of Useful Financing Concept to State
Revolving Funds". This paper will describe general recommendations regarding useful life
financing; history with respect to 30 year loans for clean water; discussion of EPA concerns with
30 year loans; history with respect to 30 year loans for disadvantaged communities; arguments
advanced by SRFs to support 30 year financing; and, discussion and recommendations, if any, as
to making 30 year loans more generally available for SRF borrowers. The workgroup will make
revisions to the outline based on comments received from board members and redistribute to the
group before putting it in final.

The Future of Superfund and RCRA

Next, Barry Breen, Principal Deputy Assistant Administrator, Office of Solid Waste and
Emergency Response, spoke to the Board on the future outlook for the Superfund and RCRA
programs, as well as the status of current and ongoing Superfund projects. The Superfund
program operations are funded by appropriations from the general revenue fund and the
Superfund trust fund. The trust fund continues to receive revenues in the form of cost
recoveries, interest on the fund balance, fines and penalties, and general revenue fund
appropriations that supplement the trust fund balance. Mr. Breen informed the Board that
Superfund has a negative equity balance due to a $90 million tax return to a corporation for
overpayment. In FY '04, 19 sites could not start cleanup because of a lack of funds. To make
the money stretch, Mr. Breen suggested that they don't list new sites until existing sites are
completed. He also believes that Superfund is broken and will not recover unless they make
sure that Superfund taxes begin collecting again and applied them to the fund.

DFO Meiburg thanked Mr. Breen for his comments and assured him that the Boards current
partnership with OSWER relating to financial assurance will continue and be fully supported.

PFNAS-Financial Assurance: Jim Barnes and Mary Francoeur, Co-Chairs of the Financial
Assurance project, gave a brief status on the draft letter, that is almost ready for finalization, to
the Administrator regarding financial tests. The goal of the tests is to ensure that an obligated
party has the financial capacity to meet its obligations under law. In particular, the workgroup
has focused on the financial tests and corporate guarantees for closure and post-closure care. A
panel of experts have been assembled to discuss the effectiveness of the tests for predicting an
obligated party's ability to fulfill its obligations. The workgroup will also commence an
examination of other financial assurance mechanisms, such as insurance, as well as the more
fundamental issue of the adequacy of the cost estimates in the coming months. The Co-Chairs
have asked the full board for a final review and comment period not to exceed thirty days. The
general consensus of the group is to push this as a policy options paper with strong
recommendations to the Agency.

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After final comments and board members and the public were addressed, DFO Meiburg
adjourned the meeting at 3:30 pm. The next full board meeting will be in San Francisco,
California on August 15-16, 2005.

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