Drinking Water Program Response to Public Comments Provided for the American Recovery and Reinvestment Act of 2009 (ARRA) Intended Use Plan

3/17/09

A statement was made indicating the program was instituting a loan only policy, with a need to increase debt to access ARRA funds.

The 2009 ARRA requires that 50% of the $19,500,000 stimulus capitalization grant (50% = $9,750,000) is given as principal forgiveness (grant) to public water systems. In order to provide stimulus funds to all projects that had not drawn funds before October 1, 2008 (an ARRA condition) the Drinking Water Program (DWP) determined that $9,750,000 was enough to allow 30% forgiveness for all eligible projects. With 30% of each project allotment as forgiveness, the remaining 70% must be loan. As an additional benefit to public water systems, the remaining loan portion will be issued at 0% interest. These loan/forgiveness characteristics were chosen to maximize the number of projects funded while providing attractive rates within the requirements of the ARRA. Given the level of interest lost on these loans over a 20 or 30 year period the remaining ARRA money will assist in maintaining the corpus of the revolving loan fund. The program blended repayment monies, the 2009 capitalization grant and the ARRA funds to maximize benefit more projects. Disadvantaged community assistant was apportioned in the same manor instituted in the past with 45% and 75% forgiveness.

The methodology utilized by the DWP forced many water systems to apply for rate increases.

Given the conditions accompanying the ARRA funds and subsequent decisions made by the DWP to fund as many eligible projects as possible, it is understood that applying for a rate increase may be required in order to obtain funding at the favorable rate of 30% forgiveness and 0% interest. Spreading the benefit across several projects equates to more jobs created and preserves the intent of the ARRA.

Why is the program drawing down the 4% administration set-aside on the ARRA funds in addition to the 4% set-aside on the 2009 capitalization grant?

The 4% Administrative Set-Aside is $780,000 (ARRA Portion). Thirty percent ($234,000) of this set-aside is used by the Maine Municipal Bond Bank for the administration of project loans. The DWP will be utilizing 35% ($275,000) for contract employment to assist in the program administration and oversight of the ARRA and SRF funds. The program will not need the entire, allowable, 4% set-aside and remaining funds (30%) will be allocated for project funding. The program will only utilize what is necessary for administering the 60 projects versus a typical 20, in order to provide a higher level of project tracking per the requirements of the ARRA funds.

The deadlines presented in the Intended Use Plan seem unrealistic for large projects

The ARRA requires stimulus funds to be committed (under construction contract) by 2/16/2010. Given the reality that some projects will not proceed due to a variety of reasons, time needs to be allotted for a backup project to engage to the point of signing a construction contract before 2/16/2010. All Maine DWSRF project funds that are not committed by 2/16/2010 will be re-allocated to another State. To ensure that Maine does not lose any available funding, the time table has been compressed to allow enough time for a back up project to proceed, if a primary project is not able to proceed in a timely manner. The DWP reserves the right to by-pass projects or exercise judgment on enforcing deadlines to be assured progress towards construction is being maintained.

Critical Conditions of the funding

The ARRA funding came with many conditions, two more significant conditions are: 1) All funds must be under contract by 2/16/10, and 50% of the ARRA grant must be provided as principal forgiveness (grant) to the water systems. The DWP determined that by blending various funds and setting deadlines for project progress, the funds will encourage advancement towards construction in a timely manor. Timelines were developed for re-allocation of funds if project do not advance to construction

A statement was made that DHHS is the only winner regarding how the ARRA money was divided between project funding and administration.

EPA was clear that ARRA funding was not be use to increase the corpus of the DWSRF program, but to utilize in the best way possible to advance ready to proceed projects. By providing loans at 0% interest, the ARRA funds will not generate any additional money for the Drinking Water State Revolving Fund; repayment of principal will simply be returned to the DWSRF account as payments are received, with no earnings. Offering 0% loans on the various funds within the 2009 IUP will offer additional subsidization above typical methods of disbursement.

A statement was made that better coordination should have been accomplished between MDOT and the DWP.

The DWP recognizes that water projects completed in conjunction with a MDOT road reconstruction should be prioritized. Every year efforts are made to coordinate drinking water projects with the MDOT, some years are more successful than others, depending on MDOT and DWSRF project timelines. Road efforts (town or MDOT) and other funding agency involvement are ranked at a higher priority because there are more stakeholders involved. Annual funding agency meetings are held between MDOT, DECD, DEP, MMBB and Rural Development to coordinate funding support to projects moving forward. Projects need to be identified on the various agencies lists to be considered. The DWP can not entertain late submissions. All systems are encouraged to apply for projects in anticipation of other State or Town efforts.

Funding some projects will impose debt on systems that may potentially outlive the planned improvement (for example the Searsport Well Rehabilitation project).

The Drinking Water State Revolving Fund has conditions that describe what is a fundable project. It can be argued that some fundable projects, such as well rehabilitation or storage tank painting, are more maintenance related than “capital” in nature, but regardless, if the project is eligible for DWSRF funding, it is up to the water system to decide how they want to pay for the project on the asset management level. The DWSRF also reserves the right to limit the loan period to the life of the asset funded. Therefore, some loans will be for a term less than 20 years.

How were the funds distributed and why wasn’t a cap put on systems for a maximum amount, or limit on multiple projects?

There are two ways we have looked at adding a cap to the ARRA funds. The first involves the cap that we have had on DWSRF funds for several years which limits a water system to a maximum loan of half of the capitalization grant. For past years, this limited the maximum loan size to approximately $4M. This year, with the ARRA capitalization grant being $19.5M, a cap of 50% of this grant would be $9.75M; no single project on the primary project list reaches this maximum value. The second cap consideration was for 10% of the money that we have available for 2009 projects. When including projects that have not drawn funds before October 1, 2008, and in the interest of providing the ARRA funding to as many eligible water systems as possible, $40M worth of funds are available for 2009 projects. 10% of $40M is $4M and this is roughly equal to the maximum amount funded for any one Maine public water system. If a 10% cap was utilized it would not change the primary list. Additionally, if the program considered not fully funding these projects, in an effort to spread the benefit, more systems would need a higher level of loan match to move projects forward. Our primary objective was to identify public health ranking and readiness to process criteria to advance as much work as possible.

Funding Large Utilities that have a depreciation account, unfair to small utilities

All community and non-profit, non-community public water systems are eligible to receive DWSRF funds. The same conditions apply to the ARRA funds. As a result, whether or not a public water system has a depreciation account does not factor into the system’s eligibility to receive ARRA funds. More priority points are allocated to smaller systems and/or disadvantaged systems.

There were claims of applications falsely reporting information to rank higher on the priority list.

It is essential that we apply the same scoring method to all public water systems applying for ARRA funds. With 145 project applications submitted, scored, and reviewed manually, it is not feasible to verify each entry on every application. But, if we find that a water system engaging in the project process provided information on the original application that was false or inaccurate, the project would be rescored accordingly and reentered on the primary or backup project list, as determined by the new score.

There were claims of a faulty scoring system to rank projects, and that the industry is losing faith in the DWP.

The 2009 ARRA project scoring method includes two major components: one is the “Type of Project”, which uses the numerous health based categories that have been part of the DWSRF project scoring for many years, and the second is a set of criteria that describes a project’s “readiness to proceed”, a project condition that was of significant importance in the implementation of the ARRA funds. These two scoring components combine the health characteristics of a project with how quickly a project will put the ARRA funds to use. As a result, the projects that had the highest health benefit and were the most ready to proceed rose to the top of the priority ranking.

Claims that it was unfair to issue discretionary bonus points without giving the applicants knowledge of how to utilize it to their advantage to rank more favorably.

One of the two major components of project scoring was “readiness to proceed”. Every water system was given the same form to evaluate readiness to proceed, yet some systems provided additional documentation to demonstrate their readiness to proceed even more clearly than what was asked for. With 145 project applications submitted, it was necessary to provide further distinction between projects than initially planned. To that end, discretionary bonus points were allotted to those projects that provided additional documentation or information that clearly showed their readiness to proceed. No system knew about the use of discretionary points in the scoring process in advance.

Why didn’t the DWP spread the wealth amongst non-profit systems and devise a better way to spread the wealth amongst all counties in Maine.

One of the major conditions for use of the ARRA funds was “readiness to proceed”. To this end, those projects that were the most ready to proceed ended up with the highest scores. The ARRA funds have not come with a condition to spread funds across non-profit systems or geographical areas. Neither of these criteria was considered because they were not included as conditions of funding by the EPA. A brief visual assessment was made to be certain the ARRA funds were being dispersed amongst a reasonable population.

It is unfair to subsidize AquaMaine (for profit water company). A statement was made that the profit of the subsidization goes to the shareholders.

Aqua Maine’s capital funding method is set up such that 50% of a project is funded by shareholders and the other 50% is funded by rate payers. The ARRA subsidization will decrease rates to Aqua Maine’s customers. In this case, the rate payers will benefit from forgiveness (grant) provided through the ARRA funds; Aqua Maine shareholders do not profit from the forgiveness portion of the financing package.

There were concerns that both Portland and Berwick received funding for multiple projects.

Given the emphasis on “readiness to proceed”, projects that showed the combination of highest health benefit and readiness to proceed received the highest ranking, independent of which system the project was for. This meets the intent of the ARRA “stimulus” funds as provided by the EPA.

Program INFORMATION Rules and Policies Download Documents Licensing DWP Services Financial Services Resources, Guidance and Water Information	Home > Economic Stimulus > Public Comment Response Drinking Water Program Response to Public Comments Provided for the American Recovery and Reinvestment Act of 2009 (ARRA) Intended Use Plan 3/17/09 A statement was made indicating the program was instituting a loan only policy, with a need to increase debt to access ARRA funds. The 2009 ARRA requires that 50% of the $19,500,000 stimulus capitalization grant (50% = $9,750,000) is given as principal forgiveness (grant) to public water systems. In order to provide stimulus funds to all projects that had not drawn funds before October 1, 2008 (an ARRA condition) the Drinking Water Program (DWP) determined that $9,750,000 was enough to allow 30% forgiveness for all eligible projects. With 30% of each project allotment as forgiveness, the remaining 70% must be loan. As an additional benefit to public water systems, the remaining loan portion will be issued at 0% interest. These loan/forgiveness characteristics were chosen to maximize the number of projects funded while providing attractive rates within the requirements of the ARRA. Given the level of interest lost on these loans over a 20 or 30 year period the remaining ARRA money will assist in maintaining the corpus of the revolving loan fund. The program blended repayment monies, the 2009 capitalization grant and the ARRA funds to maximize benefit more projects. Disadvantaged community assistant was apportioned in the same manor instituted in the past with 45% and 75% forgiveness. The methodology utilized by the DWP forced many water systems to apply for rate increases. Given the conditions accompanying the ARRA funds and subsequent decisions made by the DWP to fund as many eligible projects as possible, it is understood that applying for a rate increase may be required in order to obtain funding at the favorable rate of 30% forgiveness and 0% interest. Spreading the benefit across several projects equates to more jobs created and preserves the intent of the ARRA. Why is the program drawing down the 4% administration set-aside on the ARRA funds in addition to the 4% set-aside on the 2009 capitalization grant? The 4% Administrative Set-Aside is $780,000 (ARRA Portion). Thirty percent ($234,000) of this set-aside is used by the Maine Municipal Bond Bank for the administration of project loans. The DWP will be utilizing 35% ($275,000) for contract employment to assist in the program administration and oversight of the ARRA and SRF funds. The program will not need the entire, allowable, 4% set-aside and remaining funds (30%) will be allocated for project funding. The program will only utilize what is necessary for administering the 60 projects versus a typical 20, in order to provide a higher level of project tracking per the requirements of the ARRA funds. The deadlines presented in the Intended Use Plan seem unrealistic for large projects The ARRA requires stimulus funds to be committed (under construction contract) by 2/16/2010. Given the reality that some projects will not proceed due to a variety of reasons, time needs to be allotted for a backup project to engage to the point of signing a construction contract before 2/16/2010. All Maine DWSRF project funds that are not committed by 2/16/2010 will be re-allocated to another State. To ensure that Maine does not lose any available funding, the time table has been compressed to allow enough time for a back up project to proceed, if a primary project is not able to proceed in a timely manner. The DWP reserves the right to by-pass projects or exercise judgment on enforcing deadlines to be assured progress towards construction is being maintained. Critical Conditions of the funding The ARRA funding came with many conditions, two more significant conditions are: 1) All funds must be under contract by 2/16/10, and 50% of the ARRA grant must be provided as principal forgiveness (grant) to the water systems. The DWP determined that by blending various funds and setting deadlines for project progress, the funds will encourage advancement towards construction in a timely manor. Timelines were developed for re-allocation of funds if project do not advance to construction A statement was made that DHHS is the only winner regarding how the ARRA money was divided between project funding and administration. EPA was clear that ARRA funding was not be use to increase the corpus of the DWSRF program, but to utilize in the best way possible to advance ready to proceed projects. By providing loans at 0% interest, the ARRA funds will not generate any additional money for the Drinking Water State Revolving Fund; repayment of principal will simply be returned to the DWSRF account as payments are received, with no earnings. Offering 0% loans on the various funds within the 2009 IUP will offer additional subsidization above typical methods of disbursement. A statement was made that better coordination should have been accomplished between MDOT and the DWP. The DWP recognizes that water projects completed in conjunction with a MDOT road reconstruction should be prioritized. Every year efforts are made to coordinate drinking water projects with the MDOT, some years are more successful than others, depending on MDOT and DWSRF project timelines. Road efforts (town or MDOT) and other funding agency involvement are ranked at a higher priority because there are more stakeholders involved. Annual funding agency meetings are held between MDOT, DECD, DEP, MMBB and Rural Development to coordinate funding support to projects moving forward. Projects need to be identified on the various agencies lists to be considered. The DWP can not entertain late submissions. All systems are encouraged to apply for projects in anticipation of other State or Town efforts. Funding some projects will impose debt on systems that may potentially outlive the planned improvement (for example the Searsport Well Rehabilitation project). The Drinking Water State Revolving Fund has conditions that describe what is a fundable project. It can be argued that some fundable projects, such as well rehabilitation or storage tank painting, are more maintenance related than “capital” in nature, but regardless, if the project is eligible for DWSRF funding, it is up to the water system to decide how they want to pay for the project on the asset management level. The DWSRF also reserves the right to limit the loan period to the life of the asset funded. Therefore, some loans will be for a term less than 20 years. How were the funds distributed and why wasn’t a cap put on systems for a maximum amount, or limit on multiple projects? There are two ways we have looked at adding a cap to the ARRA funds. The first involves the cap that we have had on DWSRF funds for several years which limits a water system to a maximum loan of half of the capitalization grant. For past years, this limited the maximum loan size to approximately $4M. This year, with the ARRA capitalization grant being $19.5M, a cap of 50% of this grant would be $9.75M; no single project on the primary project list reaches this maximum value. The second cap consideration was for 10% of the money that we have available for 2009 projects. When including projects that have not drawn funds before October 1, 2008, and in the interest of providing the ARRA funding to as many eligible water systems as possible, $40M worth of funds are available for 2009 projects. 10% of $40M is $4M and this is roughly equal to the maximum amount funded for any one Maine public water system. If a 10% cap was utilized it would not change the primary list. Additionally, if the program considered not fully funding these projects, in an effort to spread the benefit, more systems would need a higher level of loan match to move projects forward. Our primary objective was to identify public health ranking and readiness to process criteria to advance as much work as possible. Funding Large Utilities that have a depreciation account, unfair to small utilities All community and non-profit, non-community public water systems are eligible to receive DWSRF funds. The same conditions apply to the ARRA funds. As a result, whether or not a public water system has a depreciation account does not factor into the system’s eligibility to receive ARRA funds. More priority points are allocated to smaller systems and/or disadvantaged systems. There were claims of applications falsely reporting information to rank higher on the priority list. It is essential that we apply the same scoring method to all public water systems applying for ARRA funds. With 145 project applications submitted, scored, and reviewed manually, it is not feasible to verify each entry on every application. But, if we find that a water system engaging in the project process provided information on the original application that was false or inaccurate, the project would be rescored accordingly and reentered on the primary or backup project list, as determined by the new score. There were claims of a faulty scoring system to rank projects, and that the industry is losing faith in the DWP. The 2009 ARRA project scoring method includes two major components: one is the “Type of Project”, which uses the numerous health based categories that have been part of the DWSRF project scoring for many years, and the second is a set of criteria that describes a project’s “readiness to proceed”, a project condition that was of significant importance in the implementation of the ARRA funds. These two scoring components combine the health characteristics of a project with how quickly a project will put the ARRA funds to use. As a result, the projects that had the highest health benefit and were the most ready to proceed rose to the top of the priority ranking. Claims that it was unfair to issue discretionary bonus points without giving the applicants knowledge of how to utilize it to their advantage to rank more favorably. One of the two major components of project scoring was “readiness to proceed”. Every water system was given the same form to evaluate readiness to proceed, yet some systems provided additional documentation to demonstrate their readiness to proceed even more clearly than what was asked for. With 145 project applications submitted, it was necessary to provide further distinction between projects than initially planned. To that end, discretionary bonus points were allotted to those projects that provided additional documentation or information that clearly showed their readiness to proceed. No system knew about the use of discretionary points in the scoring process in advance. Why didn’t the DWP spread the wealth amongst non-profit systems and devise a better way to spread the wealth amongst all counties in Maine. One of the major conditions for use of the ARRA funds was “readiness to proceed”. To this end, those projects that were the most ready to proceed ended up with the highest scores. The ARRA funds have not come with a condition to spread funds across non-profit systems or geographical areas. Neither of these criteria was considered because they were not included as conditions of funding by the EPA. A brief visual assessment was made to be certain the ARRA funds were being dispersed amongst a reasonable population. It is unfair to subsidize AquaMaine (for profit water company). A statement was made that the profit of the subsidization goes to the shareholders. Aqua Maine’s capital funding method is set up such that 50% of a project is funded by shareholders and the other 50% is funded by rate payers. The ARRA subsidization will decrease rates to Aqua Maine’s customers. In this case, the rate payers will benefit from forgiveness (grant) provided through the ARRA funds; Aqua Maine shareholders do not profit from the forgiveness portion of the financing package. There were concerns that both Portland and Berwick received funding for multiple projects. Given the emphasis on “readiness to proceed”, projects that showed the combination of highest health benefit and readiness to proceed received the highest ranking, independent of which system the project was for. This meets the intent of the ARRA “stimulus” funds as provided by the EPA.

Program INFORMATION

Drinking Water Program Response to Public Comments Provided for the American Recovery and Reinvestment Act of 2009 (ARRA) Intended Use Plan