Department of the Environment

Chesapeake Bay Restoration Maryland Bay Restoration Fund

Jag Khuman, Director

Maryland Water Quality Financing Administration

April 3, 2013

Presentation Overview

History of Chesapeake Bay Restoration Efforts

Federal/State Regulatory Initiatives

Maryland Bay Restoration Fund – Wastewater/Septic

Chesapeake Bay Restoration

The nutrients causing water quality impairments drain into the Chesapeake Bay via rivers from the entire watershed.

MarylandDelaware

New York

District of Columbia

Virginia

West Virginia

Pennsylvania

Chesapeake Bay Watershed

Chesapeake Bay Watershed Boundary

• The Chesapeake Bay watershed includes parts of six states -Delaware, Maryland, New York, Pennsylvania, Virginia and West Virginia, and the entire District of Columbia.

• Fresh water drains into the Bay from an enormous 64,000-square-mile watershed.

• There are about 150 major rivers and streams in the Bay watershed

• The Susquehanna River provides about 50 percent of the fresh water coming into the Bay—an average of 19 million gallons of water per minute.

• The Bay watershed is home to about 17 million people and growing.

Chesapeake Bay Watershed - Stats

• 1987: Maryland, Pennsylvania, Virginia, the District of Columbia, the Chesapeake Bay Commission and the U.S. Environmental Protection Agency formally agreed to reduce (by 40% of the 1985 levels) and control point and nonpoint sources of pollution to attain the water quality conditions necessary to support the living resources of the Bay.

• 1992: Reaffirmed commitment to achieve an overall 40 percent reduction of nitrogen and phosphorus entering the main-stem of the Chesapeake Bay by the year 2000. Also committed to tributary-specific reduction strategies to achieve this reduction.

• 2000: Continue efforts to achieve and maintain the 40 percent nutrient reduction goal agreed to in 1987. By 2010, 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.

Bay Agreements – History & Goals

Tributary Strategy – Nitrogen Load by State

Nitrogen Allocation(million pounds/year)

PENNSYLVANIA 74MARYLAND 39VIRGINIA 53

DISTRICT OF COLUMBIA 2NEW YORK 8DELAWARE 3

WEST VIRGINIA 5

SUBTOTAL 184Atmospheric 16

BASIN-WIDE TOTAL 202

1985 Baseline Load: ~370 million lbs/year

January 2009: The Chesapeake Bay Foundation (CBF) and its co-plaintiffs filed a lawsuit claiming that EPA had failed to take adequate measures to protect and restore the Chesapeake Bay under the Clean Water Act.

May 2010: EPA reached settlement agreement. EPA actions include establishing the stringent Chesapeake Bay total maximum daily load (TMDL), putting in place an effective implementation framework, expanding its review of Chesapeake Bay watershed permits, and initiating rulemaking for new regulations for concentrated animal feeding operations and urban and suburban stormwater. The agreement also includes a commitment to establish a publicly accessible tracking and accounting system to monitor progress in reducing pollution through the TMDL and two-year milestones.

Chesapeake Bay Foundation Lawsuit

TMDL: Total Maximum Daily Loading

• US EPA is enforcing the Federal Clean Water Act by establishing Bay-wide TMDL for Nitrogen, Phosphorus and Sediments.

• River and stream segments to have maximum pollution loading limits.

EPA Chesapeake Bay-Wide TMDL

Target Loads for Maryland’s Major Basins (10/2012)

(Million pounds per year)

Major Basin Nitrogen Phosphorus Sediment

Susquehanna 1.19 0.06 64

Eastern Shore 11.82 1.02 189

Western Shore 9.77 0.55 243

Patuxent 3.10 0.24 123

Potomac 15.29 0.94 731

Total 41.17 2.81 1,350

Maryland Chesapeake Bay Watershed Implementation Plan

Maryland Chesapeake Bay Total Maximum Nitrogen Loading Goal

Total Nitrogen (TN) Loading by Sector (WIP Phase-II - 03/2012)(million lbs per year)

Sector Progress Final Target % ReductionThru 2010 Load (2025) Needed

Stormwater 9.48 7.55 20% Agriculture 19.95 15.22 24% Septic 3.00 1.85 38% Forest 5.29 5.31 0%Atmospheric 0.66 0.66 N/AWastewater * 14.37 10.58 26%Total 52.76 41.17 22% MD1985 Baseline Load: 76.56 million lbs/year

* Maryland expects to achieve ENR upgrades at the major WWTPs by 2017, to meet the above wastewater target.

WIP: Watershed Implementation Plan

• BNR: Nitrogen reduction in WWTP affluent from secondary treatment level of ~18 mg/l to 8 mg/l.

1987 – Present: Maryland implemented a cost share (50/50) BNR grant program (Funding: State GO bond appropriation).

• ENR: Nitrogen reduction in WWTP affluent from 8 mg/l (BNR level) to 3 mg/l.

2005+: Maryland implemented an up to 100% ENR grant program (Funding: Bay Restoration Fund).

• BNR/ENR Process: Converts nitrogen compounds in wastewater to nitrogen gas (Air is ~80% nitrogen gas).

Biological & Enhanced Nutrient Removal

Maryland Regulatory Initiatives Examples

• Major WWTP Upgrades to ENR Level Treatment

NPDES discharge permits for major WWTPs (> 0.50 MGD flow) that discharge to the Chesapeake Bay are being modified with numerical pound loading limits for Total Nitrogen. ENR capital upgrades must be completed by 2017.

• Stormwater Best Management Practices (BMP)

Maryland MS4 (Municipal Separate Storm Sewer Systems) permit jurisdictions must develop a dedicated Stormwater (SW) utility fee by July 1, 2013 (HB 987/2012). Local Governments will have reliable revenue source for SW infrastructure.

• Septic System Upgrades for Nitrogen Reduction Required for septic systems (new and repairs) in the Chesapeake Bay watershed (effective 1/1/13). An add-on TN removing system costs ~$14K and can reduce TN by 50% (or 10 lbs/yr per household).

Bay Restoration Fund (BRF)

The BRF was enacted into law in 2004, to create a dedicated source of revenue. The BRF is made up of two separate funds with specific uses under State law:

1. Bay Restoration (WWTP) Fund: Includes deposits of fees collected from users served by all wastewater treatment plants in Maryland.

2. Bay Restoration (Septic) Fund: Includes deposit of fees collected from users on on-onsite sewage disposal systems such as septic systems or holding tanks located in Maryland.

WWTP: Wastewater Treatment Plant

Bay Restoration (WWTP) Fund

BRF (WWTP) Fee Rate

• Effective 7/1/12, the BRF fee on users, where the WWTP discharges into the Chesapeake or Atlantic Coastal Bays, is $5.00 per month per household or equivalent dwelling unit (EDU) - businesses pay based on water consumption converted to EDU. Fee rate was $2.50/month/EDU from FY 2005 – 2012.

• $2.50 per month per household/EDU for users where the WWTP does not discharge to the Chesapeake or Atlantic Coastal Bay.

• Estimated fee revenue: Approx. $100 million/year (FY 2013).

• Fee reverts back to $2.50/month rate starting July 1, 2030.

Bay Restoration (WWTP) Fund Primary Purpose (Phase-I): To upgrade by 2017, the 67 major (design flow > 0.50 million gallons per day) Wastewater Treatment Plants that discharge to the Chesapeake Bay watershed, with Enhanced Nutrient Removal (ENR) technologies - nitrogen reduction from 8 mg/l (BNR level) to 3 mg/l.

Total Est. Capital Cost: = $1.26 billion (67 WWTP with total MD design flow ~700 MGD*).

The BRF provides up to 100% in State grant funding to WWTP owners for the capital cost of ENR upgrades.

BNR: Biological Nutrient Reduction

* Includes MD share of flow at Blue Plains WWTP (Washington DC)

Bay Restoration (WWTP) Fund Fee Collection

• The Bay Restoration Fee is collected by the for the water/wastewater billing authority on behalf of the State of Maryland.

• The local billing authority to use existing procedures for water/sewer billings to enforce the collection of the Bay Restoration Fee.

• The Fees must be remitted to the State Comptroller quarterly as follows:

Fees Collected Deposit to State Comptroller by

Jan – March April 20

April – June July 20

July – Sept Oct 20

Oct – Dec Jan 20

• The Comptroller may retain up to 0.5% of the Bay Restoration Fees deposited for its administrative expenses, and reimburse up to 5% of the fee deposited, back to the billing authorities for administrative expenses.

• The remaining balance must be deposited into the Bay Restoration Fund held by the MWQFA. Annual Revenue: ~$100 million.

Projected ENR Grant FinancingBay Restoration Fund

ENR Grant Awards

$-

$50

$100

$150

$200

$250

$300

$350

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Mill

ion

s

FY

Total ENR Capital Funding (67 WWTP): ~$1.24 billion (March 2013 estimate) Source of Funding: BRF Cash and Revenue Bonds

Revenue Bond Indenture Provisions

• State Law permits only up to 15-year amortization

– Because of the general application of this BRF fee, for debt issuance purposes, the State is restricting bond repayment to 15-years, thereby limiting it to the same constitutional limitations of a tax

• Additional Bonds Test at 1.10 times coverage

– Target minimum coverage of 1.20 times

• Tax-exempt Bonds will be used to provide grants to local Governments for the capital cost of ENR upgrades

• No Debt Service Reserve Fund

– Reflective of the fact that the Bay Restoration Fee is collected statewide from users of wastewater treatment facilities at a flat rate of $60 per year for most households. The variable usage component (Per EDU usage for businesses) is estimated to account for less than 25% of the fee revenue

• Balance in Program Fund Equity Account (not a pledged revenue for bonds) provides additional security for debt service, if needed

Flow of Funds

Accounts Held by TrusteeMust FundMay Fund

Program Fund

Senior LienDebt Service Fund

Subordinate Lien Debt Service Fund

Comptroller(Up to 5.5% of BRF Fee may be

retained for administrative expenses, 0.5% for the Comptroller and 5.0%

for each Billing Authority)

Semi Annual Required Transfers - 100% I & 50% P

Collections of BRF Fee at Local Level

MWQFA

1.5%98.5%

Equity Account

Current Revenues AccountGrants

Project Fund(Bond Proceeds)

Administration Expenses Account

Pledged Revenue Fund

Revenue Bond Debt Issuance Plan     (Dollars in Millions)    

Fiscal Year Bond Issues Debt Outstanding at 6/30 Debt Service for FY Revenue (Cash)

2008 $ 50.000 $ 50.000 $ - $ 55.068

2009 $ - $ 46.825 $ 4.655 $ 53.356

2010 $ - $ 44.185 $ 4.710 $ 54.818

2011 $ - $ 41.560 $ 4.616 $ 54.598

2012 $ - $ 38.820 $ 4.614 $ 55.144

2013 $ 50.000 $ 85.995 $ 4.617 $ 99.021 Fee Inc.

2014 $ 150.000 $ 230.738 $ 9.431 $ 100.011

2015 $ 160.000 $ 378.279 $ 23.884 $ 101.011

2016 $ 100.000 $ 457.806 $ 39.297 $ 102.021

2017 $ 20.000 $ 451.726 $ 48.902 $ 103.041

2018 $ - $ 423.455 $ 50.788 $ 104.071

2019 $ - $ 393.813 $ 50.746 $ 105.112

2020 $ - $ 362.613 $ 50.858 $ 106.163

2021 $ - $ 329.858 $ 50.859 $ 107.225

2022 $ - $ 295.471 $ 50.856 $ 108.297

2023 $ - $ 259.370 $ 50.856 $ 109.380

2024 $ - $ 226.096 $ 46.244 $ 110.474

2025 $ - $ 191.158 $ 46.244 $ 111.579

2026 $ - $ 154.471 $ 46.244 $ 112.695

2027 $ - $ 115.951 $ 46.244 $ 113.822

2028 $ - $ 75.500 $ 46.244 $ 114.960

2029 $ - $ 37.841 $ 41.427 $ 116.110

2030 $ - $ 12.780 $ 26.976 $ 117.271

2031 $ - $ 1.843 $ 11.561 $ 59.222 Fee Dec.

2032 $ - $ - $ 1.927 $ 59.814

ENR Status (Feb. 2013)

Grant Awards to WWTP Owners: $704 million

Grant Payment Expenditures: $359 million

Payments are made based on work completed

# of ENR WWTP

ENR Completed: 26

Under Construction: 22

Under Design/Planning: 19

Total (Phase-I) 67

Bay Restoration (Septic) Fund

BRF (Septic) Current Fee Rate

• Effective 7/1/12, the BRF fee on users of OSDS/septic systems located in the Chesapeake or Atlantic Coastal Bays, is $5.00 per month per user ($60 per year).

• $2.50 per month per user for OSDS/septic systems located outside the Chesapeake or Atlantic Coastal Bay. (portions of Garrett and Cecil Counties).

• Estimated fee revenue: Approx. $27 million/year (FY 2013).

• Fee reverts back to $2.50/month rate starting July 1, 2030.

Bay Restoration (Septic) Fund

Primary Purpose

A. To upgrade individual Onsite Sewage Disposal Systems/Septic Systems with Best Available Technology (BAT) for nitrogen reduction (60% of the BRF septic fee). The BRF program by policy provides between 25% and 100% of the BAT capital cost as grants, based on homeowner income. Businesses are eligible for up to 25% of BAT cost as grant.

B. To provide funding to farmers for Cover Crops (40% of BRF septic fee).This program is managed by the Maryland Department of Agriculture (MDA). Per MDA, in FY 2012, over 600,000 acres were enrolled and MDA spent 19.8 million on cover crops of which $5.6 million came from the BRF septic fee. In FY 2013, the BRF fee revenue for cover crops is estimated around $10.8 million.

• Failing septic systems in the Chesapeake and Atlantic Coastal Bays Critical Area.

• Failing septic outside the Chesapeake and Atlantic Coastal Bays Critical Area.

• Other septic systems in the Chesapeake and Atlantic Coastal Bays Critical Area, including new construction.

• Other septic systems outside the Chesapeake and Atlantic Coastal Bays Critical Area, including new construction.

Bay Restoration (Septic) FundProject Prioritization

a) The cost to upgrade an existing septic system with the best available technology (BAT) for the removal of nitrogen (~$13K/unit)

(b) The cost difference between an existing conventional septic system and a new system utilizing BAT for the removal of nitrogen (~$10K/unit)

(c) The cost of replacing multiple septic systems located in the same community with a new community sewerage system that is owned by a local government, and that meets enhanced nutrient removal standards. Grant not exceed the sum of the cost difference between conventional septic system and new system that uses BAT for removal of nitrogen (~$10K/unit x #)

(d) The cost to connect septic systems to an existing WWTP at ENR treatment. Grant not exceed the sum of the cost of septic systems that include BAT for removing nitrogen (~$20K/unit x #). WWTP with ENR (TN: 3 mg/l) discharges ~2.3 lbs/yr nitrogen per household, while a traditional septic system discharges ~20 lbs/yr.

Bay Restoration (Septic) FundEligible Uses of Funds

Septic BAT Upgrade Status (as of 12/31/12)

Grant Awards: $63 million

Grant Expenditures: $50 million

Since FY 2011, grants are awarded to Counties to implement the BAT upgrades

# of BAT

Septic BAT Installed: 3,758

a. Critical Areas: 2,362

b. Other Areas: 1,396

Bay Restoration (WWTP) Fund Future: FY 2018 and Beyond

• Estimated $50M/year of fee revenue available (net of revenue bond debt service) for other uses.

• Statute expands the uses of the BRF (WWTP) Fund to provide grants in priority order for:

ENR upgrade of minor WWTP (design flow less than 0.5 million gallons per day)

Transfer funds to the BRF (Septic) Fund for permitted uses (BAT upgrades; sewer extension etc.)

Stormwater BMPs where the entity has established local stormwater fees

1800 Washington Boulevard | Baltimore, MD 21230-1718410-537-3000 | TTY Users: 1-800-735-2258

www.mde.state.md.us

Maryland Department of the Environment

Maryland Water Quality Financing Administration1800 Washington Boulevard

Baltimore, MD 21230 410-537-3119

www.mde.state.md.us/wqfa