Status and Challenges

1

• Status and Challenges
• for
• Alternative Contracting/ Service Agreements
  (AC/SA) Pilot Rule
• Relating to
• Chapter 173-98 WACUses and Limitations of the
  WaterPollution Control Revolving Fund (SRF)

2
Outcomes for Today

• Review Pilot Rule Making Process,
• Consider provisions of the Alternative
  Contracting /Service Agreement (AC/SA) Pilot
  Rule,
• Develop strategy to move forward

3
What are Pilot Rules?

• Pilot rules are draft rules that are field tested
  as part of rule development per RCW 34.05.313,
  Feasibility studies Pilot projects.
• Field testing occurs before formally proposing
  and/or adopting a formal rule.
• Representative sampling of volunteer businesses
  (public bodies) likely to be affected by proposed
  rule.

4
Rationale for Pilot Rule Making

• Generate first hand knowledge and information re
• How well the rule works
• How well the rule will be implemented and
  administered
• Pilot rule making provides an opportunity to
• Assess regulatory impacts, identify
  implementation administration costs
• Review and analyze results to see if the rule
  will meet expectations in ways that are least
  intrusive and costly.

5
Ecologys 2002/03 Effort

• In 2002, public bodies requested a test of
• Alternative Contracting Service Agreement
• Processes.
• Goal
• Use pilot rulemaking to test possibly adopt
  formal amendments to Chapter 173-98 WAC, (Uses
  and Limitations of the Water Pollution Control
  Revolving Fund), to
• Allow public bodies to use Alternative
  Contracting processes for completion of
  wastewater facilities

6
Key Elements of Alternative Contracting/Service
Agreement (AC/SA) Rule

• Step process not needed for SRF loan
• Deviation from standard procurement.
• SRF ceiling loan amounts pertain.

7
Key Elements (Continued)

• AC/SA Participants
• Provide 12 eligibility documents to Ecology,
  e.g. A cost and time-to-complete estimate for
  AC/SA versus conventional design/bid/construct.
• Submit applications during funding cycle.
• Prioritized and ranked the first year they apply
  for funding.
• Assigned to top of the funding offer list each
  year until the project is funded.
• Each year submit detailed cash flow projection,
  for the year.
• (yearly cash flows to gear loan allocations).

8
Issues Identified in 2003

• AC/SA projects may need established ceiling(s),
• Highest priority public health and small hardship
  projects should be funded above listed AC/SA
  projects
• Readiness to proceed and cost increasesBUT
• For several reasons, provisions proposed three
  years ago not included.

9
Why Issues Were Deferred

• SRF portfolio was relatively robust,
• Anticipated stable federal capitalization,
• AC/SA projects initially caused no impacts on
  other applicants, therefore...
• A wait and see approach was employed.

10
Challenges Experiences (2003 2006)

• Recession kept interest rates very low, but..
• Demand for SRF became considerably higher,
• SRF was weakened by zero interest early
  repayment of high interest loans, and
• Declining SRF capitalization.

11
Federal Capitalization Grants

• FY 2006 and 2007 grant projections based on
  Presidential budget
• requests (2007 budget not yet passed)

12
AC/SA Projects Background Status

• Tacoma
• Original SRF request 52 million in 2003.
• Amount of loan spent 15.8 million as of 2/6/06.
• Cost increase 20032006 42 million to 94
  million.
• Ecology Action Committed to 52 mil. original
  loan.
• Latest loan request (Competitive FY 2007) 42
  mil.
• Priority on Preliminary List Below funding
  cutoff.

13
AC/SA Projects Background Status (Continued)

• Spokane
• Original SRF request 73.4 million in FY 2004
  cycle.
• Loan Signed August 16, 2004 - 8.5 million (with
  provisions for increases up to 73.4
  million).
• Ecology NPDES action Pending TMDL stalled
  project, 8/18/04.
• Amount of loan spent 66,321.
• Cost increase 20032006 Unknown.

14
Lessons Learned from Pilot Rule

• SRF requests now limit available funds - all
  projects,
• No safeguards for all higher priority projects
• No provisions for small disadvantaged communities
  (per match RCW),
• Inadequate readiness to proceed provisions, e.g.
  costs and time for procurement of AC/SA
  contractor.
• Congress may not continue to capitalize SRF.

15
Major Issues as of 2006

• Amount allocated to any one project or public
  body
• Provisions for non AC/SA communities higher
  priority, e.g. public health hazards, and
  hardships
• Readiness to proceed i.e. technical
  prerequisites, cost, project duration controls,
  etc
• Short and long-term interest rates set for
  perpetuity.

16
SRF Loans Funds Available 2007 2017 With NO
Federal Capitalization
17
Rule Revision Schedule Options for Alternative
Contracting

• Update pilot rule now for FY 2008 Funding Cycle.
• Continue pilot rule through FY 2008, implement
  changes to Chapter 173.98 WAC (SRF rule) for the
  FY 2009 Funding Cycle.
• Meet existing commitments, discontinue pilot rule
  now, and implement changes for the FY 2009
  Funding Cycle (Defer new FY 2008 AC/SAs).

18
Third Option is Recommended

• Meet existing commitments, but end the
• pilot rule now, and consider changes for
• the FY 2009 Funding Cycle.
• Provides more funds for new projects,
• Financial conditions better known,
• Provides more thorough review,
• Easier to incorporate all lessons learned without
  new AC/SA commitments.

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CYCLE TIMING OVERVIEW

• We are now in the FY 2007 (July 1, 2006 - June
  30, 2007) Funding Cycle
• Application Period September 1, 2005 - October
  31, 2005
• For Funds Available in July 2006
• Regulation Changes Effective in August 2007
• Affect the FY 2009 (July 1, 2008 - June 30, 2009)
  
• Funding Cycle
• Application Period September 1, 2007 - October
  31, 2007
• For Funds Available in July 2008