HOUSE BILL REPORT

HB 2605

As Reported by House Committee On:

Capital Budget

Title: An act relating to establishing a water pollution control revolving administration fee.

Brief Description: Establishing a water pollution control revolving administration fee.

Sponsors: Representative Dunshee; by request of Department of Ecology.

Brief History:

Committee Activity:

Capital Budget: 1/24/12, 1/31/12 [DPS].

Majority Report: The substitute bill be substituted therefor and the substitute bill do pass. Signed by 11 members: Representatives Dunshee, Chair; Ormsby, Vice Chair; Warnick, Ranking Minority Member; Zeiger, Assistant Ranking Minority Member; Asay, Jinkins, Lytton, Pearson, Smith, Tharinger and Wylie.

Staff: Meg Van Schoorl (786-7105).

Background:

The State Water Pollution Control Revolving Fund (SRF) Loan program and the Centennial Clean Water Grant program are managed jointly by the Department of Ecology (Ecology). Together, the programs provide low interest loans and grants to local governments and federally-recognized Indian tribes primarily to plan, design, construct, and improve water pollution control facilities such as wastewater treatment plants, main sewers, and storm water control projects.

The SRF was established by Congress under the federal Clean Water Act and is funded annually through an Environmental Protection Agency (EPA) capitalization grant based on congressional appropriations, state matching funds, and principal and interest repayments. Ecology may use up to 4 percent of the EPA capitalization grant to cover its SRF administrative costs. Federal law prohibits the use of repayment principal and interest for SRF administration.

The current SRF loan portfolio is in excess of $1 billion, and has 255 loans in repayment and 98 loans in the disbursement and negotiation phase. The interest rate on a standard 20 year SRF loan is calculated annually based on 60 percent of the average market rate for tax-exempt municipal bonds. The interest rates charged over the past few years have ranged from 2.5 percent to 2.9 percent.

The 2011-13 capital budget appropriation to the SRF is $184 million, of which $102 million is from loan principal and interest repayments, and $82 million is from the federal capitalization grant and a required 20 percent state match.

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Summary of Substitute Bill:

Administration Fee Authorized.

Ecology is authorized to charge an administration fee for loans issued under the SRF program, solely for the purpose of predictably and adequately funding Ecology's administrative costs. The administration fee applies retroactively to July 1, 2007, and is to be charged as a portion of the debt service on each loan, except for loans carrying an interest rate of less than 0.5 percent which are to be exempted. "Debt service" is defined as the total of all principal, interest, and fees associated with an SRF loan that must be repaid to Ecology by a public body.

Account Created in the State Treasury.

All receipts from the administration fee are to be deposited in a Water Pollution Control Revolving Administration Account (Account) created in the State Treasury. Moneys from the Account may be spent only after appropriation and only in a manner consistent with the bill. In addition to the administration fee receipts, the Account will consist of any other revenues pledged to the state for administering the SRF. The State Treasurer is authorized to invest and reinvest Account revenues and must credit the Account with its proportionate share of investment earnings based on its average daily balance.

Expenditure of Moneys in the Account.

Moneys in the Account are to be used for: (1) staffing the management of the SRF loan program; (2) administering loans and collecting loan repayments; (3) information and data systems used to track and manage the SRF; and (4) other associated costs of SRF loan program administration.

Each biennium, Ecology may spend from the Account an amount that is no more than 4 percent of the new capital appropriation. Ecology must determine its administrative costs including an adequate working capital reserve and taking into account the 4 percent expenditure cap. If Ecology determines that there is an excess balance in the Account, it must request in its subsequent budget submittal that the balance be transferred to the SRF.

Accountability.

Ecology is required, beginning with its 2017-19 biennial operating budget submittal and thereafter, to compare its SRF program's administrative costs with the administration fee income, and adjust the fee rate to ensure adequate funding of the program. By December 1, 2016, Ecology is required to submit a report on implementation of the fee, including information on fee income generated since inception, its administrative uses and adequacy, any excess income balances transferred to the SRF, and additional funding sources used for program administration.

Substitute Bill Compared to Original Bill:

Ecology is required to adjust the administration fee rate to ensure adequate program funding and to submit a report on implementation of the administration fee.

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Appropriation: None.

Fiscal Note: Available.

Effective Date of Substitute Bill: The bill takes effect 90 days after adjournment of the session in which the bill is passed.

Staff Summary of Public Testimony:

(In support) Ecology has historically used a percentage of an annual EPA Capitalization Grant to fund its SRF program administration. Because grant amounts vary year to year and are estimated to phase out entirely in the next few years, the EPA has urged Ecology to join 42 other states and institute an administrative fee as a more stable revenue source. Ecology will charge local governments 0.5 percent on the declining balance of loans in repayment, and will reduce the interest rates charged on the loans by 0.5 percent, resulting in no net increase in debt service owed. Ecology needed to make this fee apply to loans that entered repayment beginning in 2007 in order to avoid an anticipated near-term gap in administrative resources. Controls on Ecology's administrative spending include requiring transfer of excess Account balance to the SRF, capping administrative costs at 4 percent of the new capital appropriation, and having the Account be appropriated. Our group is concerned about Ecology's dilemma, we support this solution, and we believe that this is one of the best programs in state government.

(With concerns) Collecting interest on loans is a form of stealing. Large wastewater treatment plants will be replaced in the future by villages designed like forests in which water and wastewater will be used on site.

(Opposed) None.

Persons Testifying: (In support) Don Seeberger and Jeff Nejedly, Department of Ecology; and Ed Thorpe, Coalition for Clean Water.

(With concerns) Yoshe Revelle.

Persons Signed In To Testify But Not Testifying: None.