Saving a National Treasure:

Financing the Cleanup of the Chesapeake Bay

A Report to the Chesapeake Executive CouncilFrom the Chesapeake Bay Watershed Blue Ribbon Finance Panel

A Report to the Chesapeake Executive CouncilFrom the Chesapeake Bay Watershed Blue Ribbon Finance Panel

he Chesapeake Bay Watershed Blue RibbonFinance Panel was formed pursuant toChesapeake Executive Council Directive No.

03-02, approved in December 2003. The Panel wasestablished to identify funding sources sufficient toimplement basinwide clean-up plans so that the Bay andits tidal tributaries would be restored sufficiently by 2010to remove them from the list of impaired waters underthe Clean Water Act.

The Chesapeake 2000 agreement, signed on June 28,2000, by the Chesapeake Executive Council, recognizesthat “improving water quality is the most critical elementin the overall protection and restoration of theChesapeake Bay and its tributaries.” To that end, theExecutive Council committed to a partnership effort thatwould correct the nutrient- and sediment-relatedproblems in the Chesapeake Bay and its tidal tributariesby 2010.

In December 2003, the Executive Council endorsednew ecologically based water quality criteria andstringent new loading allocations for the Bay’s primarypollutants: nutrients and sediment. The Bay Program’sleadership also committed to completing TributaryStrategies in 2004 that would meet these water qualitygoals and load allocations. Finally, the Executive Councildirected the Chesapeake Bay Program “to establish andconvene a Chesapeake Bay Watershed Blue Ribbon Panelto consider funding sources to implement the TributaryStrategies basin-wide and to make recommendationsregarding other actions at the federal, state and local levelto the Executive Council.” The Directive called for adetailed report of recommendations from the Panel inOctober of 2004.

The Panel is composed of fifteen distinguished leadersfrom the private sector, government and theenvironmental community. Members were appointed bythe governors of the states in the Bay watershed —Delaware, Maryland, New York, Pennsylvania, Virginiaand West Virginia — as well as by the Mayor of theDistrict of Columbia, the Chair of the Chesapeake BayCommission and the Administrator of the U.S.Environmental Protection Agency. Additional memberswere appointed to provide the full range of financial andstakeholder expertise.

The Formation ofthe Blue RibbonFinance Panel

TA B L E O F C O N T E N T S

ii The Formation of the Blue Ribbon Panel

1 Chairman’s SummaryWhy We Must Act Now

5 A Statement of the ProblemThe Challenge Facing the Chesapeake

8 Investing in a Restored Chesapeake Bay

8 A Brief History of the Chesapeake Bay

12 What We Have Learned About the Sources of the Bay’s Decline

12 AGRICULTURE

15 MUNICIPAL AND INDUSTRIAL

WASTEWATER

17 DEVELOPMENT

20 FORESTS

22 SEPTIC SYSTEMS

23 AIR DEPOSITION

24 RecommendationsA Bold Approach

26 Supplementary Recommendations

34 Members of the Panel

36 Directive

37 Agendas

40 Acknowledgments

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oday the Chesapeake Bayis at a turning point. Akey part of the region’s

heritage and economy, agriculture,is also the largest single source ofpollution into the Bay, andcurrent efforts to correct theseproblems are underfunded andpoorly coordinated. Forests,nature’s own pollution controlsystem, are disappearing at therate of 100 acres a day.

Meanwhile, population in thewatershed has grown to 16 millionresidents, increasing nutrientsfrom wastewater treatmentfacilities and adding new shoppingcenters, highways and housingdevelopments. The resultingrunoff of nutrients and sedimenthas polluted the Bay’s waters anddamaged its ecosystem.

Simply put, restoration effortsare being overtaken by currenttrends.

To save the Chesapeake, wemust act now and act boldly. Amajor financial investment isneeded, coupled with improvedcoordination of the restorationeffort on a watershedwide scale. Finally, we must secure apermanent source of funding for the restoration to be successful over time.

THE RESTORATIONEFFORT

Responding to a public outcry, in1983 the states of Maryland,Virginia and Pennsylvania, theDistrict of Columbia, theChesapeake Bay Commission andthe U.S. EnvironmentalProtection Agency committed toa historic Bay Agreement,creating the regionwidepartnership known as theChesapeake Bay Program.

For twenty years theChesapeake Bay Program hascoordinated Bay restorationefforts. Through a remarkablestate-federal partnership, theprogram has developed the mostsophisticated estuarine science inthe world. The partners have builtunparalleled cooperative effortsand pioneered clean-up strategiesthat have resulted in measurablegains in reducing the flow ofpollutants into the Bay.

In spite of its commendablework, the Chesapeake BayProgram is not fully equipped tomeet the future challenges ofrestoring the Bay. The reason issimple. It lacks a permanentfunding base that is sufficientlylarge to do the job.

The lack of adequate fundingand implementation has left theBay effort far short of its goals. In its current state, the Baysupports less than half theunderwater grasses that were herein 1950, and the estuary’s primaryfilter feeder, the oyster, has fallento two percent of mid-20thcentury levels.

The plight of the Bay has notgone unnoticed. Lawsuits havebeen filed calling for fullenforcement of the Clean WaterAct, and a 1999 consent decreeexecuted in federal court inVirginia has led the Bay Program to commit to a 2010deadline for removing theChesapeake Bay from the federallist of impaired waters. In itslandmark agreement, Chesapeake2000, the Chesapeake Bay Programhas produced a roadmap for therecovery of the Bay, outlining arange of programs meant to cutthe flow of pollutants and restorethe Bay’s living resources by 2010.

As described in this report,excess nutrients and sedimenthave identifiable sources —farms and feedlots, municipaland industrial wastewatertreatment plants, air deposition,

The ChesapeakeBay is America’slargest and mostbiologically diverseestuary, home tomore than 3,600species of plants,fish and shellfish.The United StatesCongress calls it “a national treasureand a resource of worldwidesignificance.”

Chairman’s SummaryWhy We Must Act Now

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The Chesapeakeis the largestestuary in theU.S. It has seenmassive increasesin the amount of nutrients and sedimententering itswaters, andmassive declinesin oysters andunderwatergrasses.

and runoff from cities andsuburbs. The difficulty hasbeen in dedicating adequatefunds to implement much-needed programs to controlthis pollution and reverse theBay’s decline.

THE WORK OF THE BLUE RIBBON FINANCE PANEL

In an effort to identify thefinancial resources essentialfor cleaning up the nation’slargest estuary, the ChesapeakeExecutive Council inDecember 2003 called for thecreation of a Blue RibbonFinance Panel to makerecommendations for theeffective funding andfinancing of the Bay clean-upeffort.

We have, during the pastseven months, been briefed onthe results of studies detailingthe causes of the Bay’sdegradation, and the level ofnutrient and sediment controlrequired to restore the Bay’swater quality and to removethe Bay from the Clean WaterAct list of impaired waters.

We have also receivedbackground reports prepared

for the Panel by ChesapeakeBay Program partners thatexamine the sources of waterquality impairment, includinginformation about the majorsources themselves andprojections of future growth.We were informed about thetypes of technologies that willneed to be employed, aboutprojected costs of achievingnecessary reductions bypollutant source, and aboutcurrent funding for nutrientand sediment control.

We have drawn someconclusions.First, we have concluded thatwhile it is difficult todetermine the full costs ofrestoring Bay water quality, itis clear that current fundingdoes not begin to meetfinancing needs for restoringBay water quality by 2010.What funding is availableremains insufficientlyprioritized and directed.

The state TributaryStrategies — the jurisdictions’plans for achieving nutrientand sediment reductions —are still being completed.Possibilities for reducing costsare also still being explored,

through innovative initiativessuch as trading and throughnew, more cost-effectivetechnologies. At the sametime, we face continual costincreases in our efforts toreduce nutrients andsediment, especially sincemore than 100,000 peoplemove to the Chesapeakewatershed every year, andeach day development in thebasin adds to urban andsuburban stormwater runoffand the disruption of naturalhydrology.

The restoration of the Baywill only become moreexpensive over time.

A second conclusion is thatit will be difficult to achieve afully integrated approach forfunding and implementation,given the number ofjurisdictions — six states andthe District of Columbia —along with the large presenceof federal facilities andoperations in the watershed.While the Chesapeake BayProgram has repeatedlyshown what can beaccomplished through astrong federal-statepartnership, the TributaryStrategies for achieving theSource: Chesapeake Bay Program Watershed Model

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01985 2000 2002

Nitrogen Loads to the Bay

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2010 water quality commitment —upon whose implementation thestate of the Bay will depend — are state-specific and do notincorporate the benefits ofinterstate or collective action.

A number of federal, state andlocal programs provide somefunding for reducing nutrientsfrom urban and agriculturalsources, and existing regulatoryprograms play a significant role incontrolling pollution, including airemissions, runoff from newdevelopment, and discharges fromwastewater treatment plants andother “point sources.” Existingprograms — and especiallyexisting funding — do not,however, begin to meet thefinancing needs for restoring Baywater quality by 2010. They leaveas yet a large financing gap.

The Panel presents, in thecontext of specific funding needs,a number of suggestions for moreeffectively implementing existingfunding programs and standingauthorities to restore Bay waterquality. The Panel reached an earlyand strong consensus, however,that simply improving existingprograms alone will provide toolittle and will take too long torestore Bay water quality by 2010.Something more substantive anddramatic will be required.

Keeping to the goal of restoring Bay water quality by2010, moreover, is fully consistent

with the commitment theChesapeake Executive Councilmade in Chesapeake 2000. It is also important from thestandpoint of the court-establisheddeadline for meeting water qualityrequirements (measured as totalmaximum daily loads, or TMDLs).But the Panel believes there isanother factor that makes the2010 goal so essential: with each

passing year, population growthand development in the watershedmake it more difficult and thusmore and more expensive toprotect Bay water quality.Financially, it is wise to make thisinvestment in the Bay now. Legally, it would be imprudent to ignore the consequences thatwould flow from failure to makethis investment.

The Panel’s deliberations havebeen guided by a set of principles.These guiding principles arefundamental to our approach and to any successful financinginitiative going forward. We list them here:

■ Immediacy — While long-term efforts are essential,programs must be put in placeimmediately to meet thedeadline of removing the Bayfrom the list of impaired watersby 2010.

■ Simplicity and Efficiency —Approaches must be simpleenough to be understood andaccepted by the public andeasily used by a broad range ofstakeholders. Throughcompetition and streamlining,jurisdictions should strive fornew levels of efficiency and costeffectiveness.

■ Innovation and Flexibility —Financing mechanisms shouldbe innovative and creative, andwhere appropriate should makeuse of trading, watershedpermitting and otherpromising concepts.Approaches should also beflexible enough to allowadaptations to local needs,priorities and preferences.

■ Cooperation andInclusiveness — For theChesapeake Bay cleanup tosucceed, high-level cooperationmust occur among a range ofstakeholders, including stateand federal agencies. The Panelrecommends also that theSecretary of the U.S.Department of Agricultureserve on the Executive Councilof the Chesapeake BayProgram. A successful regionaleffort must be an inclusive one.The Panel thereforerecommends that the governorsof the headwater states beinvited to serve on the BayProgram’s Executive Council.

■ Prevention, Regulation andEnforcement — Preventingpollution is much cheaper thancleaning up later, so pollutionprevention becomes a financialas well as an environmentalbenefit. Also, taxpayers shouldnot have to pay for clean-upefforts that result fromindividuals, companies orothers breaking the law. Lawsand regulations should bevigorously enforced, savingtaxpayer dollars and ensuringboth the protection of theenvironment and a level playingfield for all.

■ Education and Outreach —In the end, participation by awide range of stakeholders willprove essential to the successfulcleanup of the Chesapeake Bay.For example, lands that areforested, farmed or developedoften rest in private hands. Thebest means for gaining thecooperation and participationof these private landowners isthrough education andtechnical assistance. We mustpersuade such stakeholders tohelp keep nutrients andsediment out of our waterways,and then show them how. The Panel recommends thatone percent of all restorationfunds be set aside as a pool for competitive awards tononprofit organizations thatdemonstrate an expertise in outreach, education and assistance.

A 1999 consentdecree executed infederal court inVirginia has led theBay Program tocommit to a deadlineof 2010 to removethe Chesapeake Bayfrom the federal listof impaired waters.

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CHESAPEAKE BAYFINANCING AUTHORITY

The Panel believes that restoring theChesapeake Bay and its watersheddepends on a strong regionalfinancing mechanism aimed atcoordinated funding andimplementation of concrete clean-upplans, built on the state’s TributaryStrategies and based on coordinatedtiming and performance. Time is ofthe essence and we urge immediateaction.

To provide this regional fundingmechanism, the Blue Ribbon Finance Panelproposes that the six Bay watershed states andthe District of Columbia create a ChesapeakeBay Financing Authority, capitalized by thefederal and state governments, with thecapacity to make loans and grants.

The Chesapeake Bay FinancingAuthority would finance projectsaccording to an Intended Use Planconsonant with U.S. EPA guidelinesand built on each state’s TributaryStrategies. The U.S. EPA would workin collaboration with the Authority.The Financing Authority woulddirect funds toward efforts deemedthe most effective, efficient andinnovative, regardless of geography. Itwould leverage funds and unleashinnovation and efficiency throughcompetition.

An initial capitalization of $15billion will be necessary to launch theFinancing Authority, with a mix offederal and state matching funds. It isthe Panel’s firm conviction that ameaningful investment in the Baynow will be returned many times over

in an improved quality of life andthrough positive economic impacts onfishing, recreation, real estate, tourismand other regional businesses.

Although modeled after thesuccessful Clean Water Act StateRevolving Loan Fund, the FinancingAuthority would exist as a separateentity, and capitalization grants wouldbe provided in addition to existingState Revolving Loan Fund levels.

The Financing Authority would besimple and flexible, allowingjurisdictions in the watershed topursue a variety of concrete actions,and would recognize that all Bayclean-up efforts do not have the samepriority in every jurisdiction.

Given the enormity of the task,and to ensure that this fundingvehicle is sustained over the long

term, beyond the initial federal-statecapitalization, the FinancingAuthority should devise mechanismsfor a sustainable revenue stream. Thestates would collect this revenue andretain a portion of the funds tosupport state and local clean-upprograms. This revenue stream couldbe derived from various sources,including many of the proposalsadvanced by the Blue Ribbon Panelsubcommittees (e.g., surcharges onwater and sewer fees, septic fees, anddevelopment fees).

While the revolving loan structureof the Financing Authority remains inkeeping with current federalstrategies, the Authority must alsohave the capacity to make grants witha portion of its funds. This ability isespecially important in theChesapeake Bay clean-up effort,where the participation of theagricultural community, as well as at-risk urban communities, will be key toour success. Funds could be targetedto certain agricultural areas, forexample, providing both technicalassistance and the financial assistancenecessary for implementing bestmanagement practices.

As the jurisdictions work toestablish the Financing Authority, thegovernors of the states and the Mayorof the District of Columbia shouldcooperate to set up a voluntaryfunding coalition that would useexisting authorities, such as StateRevolving Loan Funds. This interimcooperative effort would becapitalized by federal, state and localgovernment, at a proposed ratio of80/20 — the same as that legislatedfor current State Revolving LoanFunds across the country. As ofJanuary 1, 2007, the interimcooperative would transition to apermanent Chesapeake BayFinancing Authority, which wouldgive loans and grants, as detailed in aseparate section below.

In the end, only an ambitiousfinancing partnership, withmeaningful investment by federal,state and local partners, willremove the ongoing threat to the Chesapeake Bay and ensure the rightful restoration of ournational treasure.

— The Honorable Gerald L. Baliles, Chair

The Chesapeake Bay Watershed

Courtesy of Woods Hole Research Center

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uring the past threedecades, research hassingled out the primary

cause for the Bay’s woes: excessnutrients. From farms, wastewatertreatment plants, septic systems,city streets, suburban lawns — evenfrom the sky — these nutrients haveturned the “faire bay” described byCaptain John Smith into a murkywaterbody where some areas of thebottom have as little oxygen insummer as the surface of the moon.Today, about 16 times as muchnitrogen and 30 times as muchphosphorus enter the Bay as whenJohn Smith explored the estuary.Much of that increase occurred inthe past half century, as airpollution, the watershed’spopulation and agricultural use offertilizer all rose sharply.

Nutrients spur algae growth that,along with sediment, blots out the

sunlight needed by beds ofunderwater grasses that providefood and habitat for fish, shellfishand waterfowl. The loss of thesegrasses ripples through the Bay —juvenile blue crabs are 30 timesmore abundant in grass beds than inbarren areas. Too few crabs not onlyreduce the watermen’s commercialcatch but also alter the food web.And, unlike algae, underwatergrasses anchor the Bay bottom withtheir roots and capture driftingsediment.

Excess algae does further harm asit sinks to the bottom of the Bayand is decomposed by bacteriawhose high metabolism uses up theoxygen in the water. The result isoxygen-starved “dead zones” whichput huge amounts of habitat offlimits to fish, shellfish and otherBay dwellers each summer.

A Statement of the ProblemThe Challenge Facing the ChesapeakeThe Chesapeake Bay,the nation’s largestestuary, is in peril. Sincethe 1950s the Bayecosystem has sufferedmassive losses of habitatand declines of some ofits most importantspecies. The toll of anunhealthy Bay is felt infishing communitieswhere watermen canbarely make a livingfrom a Chesapeake thathas supported theirfamilies for generations.Boaters and tourists seea Bay covered in algaeblooms that can roboxygen from the water below. Ducks andwaterfowl struggle tofind enough food tosurvive a winter on theChesapeake. Swimmersencounter scum andsediment in today’sdegraded waters.

Each summeroxygen-starved“dead zones”put hugeamounts ofhabitat offlimits to fish,shellfish andother Baydwellers.

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Research has singledout the primary causeof the Bay’s woes —excess nutrients fromfarms, wastewatertreatment plants, septicsystems, city streets,suburban lawns, evenfrom the air.

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Today, problems can be seenthroughout the Bay ecosystem:

■ In the 1950s, oxygen depletionin the Bay was rare, but today itis an annual event. As much as40 percent of the Bay in someyears has either too little oxygento support fish and shellfish, ornone at all. Nutrient reductionsso far have been too modest toimprove the situation.

■ Major fish and shellfishpopulations have suffered seriousdeclines, and are at, or near, alltime lows, including shad, bluecrabs, menhaden and oysters.

■ Striped bass, the fish mostclosely associated with the Bay,has rebounded, but scientists sayas much as half the population isinfected with a potentially lethaldisease. Poor water quality and adisrupted food web are blamedfor making the fish susceptibleto infection.

■ Underwater grass beds coveronly about a third of the areathey did just a few decades ago.After modest improvements inthe late 1980s, total grass bedacreage in the Bay has remainedrelatively stagnant.

■ Large reefs of oysters oncefiltered the Bay’s waters andprovided important structuralhabitat. Now severelydiminished oyster stocks can nolonger provide that ecologicalfunction. With fewer Baygrasses and fewer oysters, theBay has lost its natural filters.

■ Natural filters havedisappeared on land as well.Wetlands and forests,especially those located alongrivers and streams, cover onlya portion of the area they didin pre-Colonial times.Modern development isadding greater amounts ofconcrete, asphalt and otherimpervious surfaces.

Under Chesapeake 2000, theChesapeake Bay Programoutlined an ambitious effort toreverse the Bay’s decline. BayProgram partners have agreedto reduce nitrogen pollutionfrom an estimated 285 millionpounds per year in 2000 to nomore than 175 million poundsby 2010. Similarly they havepledged to reduce phosphorusfrom about 19 million poundsper year to less than 13 millionpounds. The challenge is indeeddaunting — the region mustessentially quadruple the paceof the Bay cleanup to meet the2010 commitment.

To achieve these goals, thestates have developed TributaryStrategies — restoration plansdetailing the specific actionsneeded to reduce nitrogen andphosphorus in each river basin.These plans are still evolving asjurisdictions struggle to writeplans that will achieve their goals.

So there is much to be doneand not much time in which todo it. Action is required andexcuses are no longerdefensible.

The Chesapeake Bay Program is aregional partnership leading anddirecting protection andrestoration of the Chesapeake Bay.It was formed in 1983, with thefirst Chesapeake Bay Agreementsigned by the governors ofMaryland, Virginia andPennsylvania, the Mayor of theDistrict of Columbia, theChairman of the Chesapeake Bay

Commission (a tri-state legislativebody) and the Administrator of theU.S. Environmental ProtectionAgency, representing the federalgovernment. These officialsconstitute the ChesapeakeExecutive Council, which meetsannually to set policy direction andcall for specific actions. In 2002,the partnership welcomed thegovernors of Delaware, New York

and West Virginia, who joined thewater quality restoration effort.The statutory authorization for theChesapeake Bay Program iscontained in Section 117 of thefederal Clean Water Act.

The day-to-day work of thispartnership brings togetherscientific and technical expertsfrom all over the watershed. The Program works with

What is the Chesapeake Bay Program?

Source: Chesapeake Bay Program Watershed Model

Total =227,730,315 lbs/yr

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researchers, policymakers andresource managers from universities,conservation organizations, business and industry, and local,state and federal governmentagencies. Through committees,partners discuss actions and makedecisions by consensus. Toimplement the agreements, the Bay partners use a variety ofvoluntary and regulatory tools.

The most recent masteragreement, Chesapeake 2000,contains comprehensivecommitments that will guide Bayrestoration well into the 21stcentury. The agreement addressesfive key areas: protecting livingresources, restoring vital habitat,improving water quality, encouragingsound land use, and expandingcommunity stewardship.

What We Have Lost

From Secretary Murphy’s testimony to the House of RepresentativesCommittee on Government Reform on August 20, 2004.

"Let me give you a final perspective on what these programsmean to me personally and to Virginia. As some of you know, I am from Virginia’s Northern Neck, a peninsula bounded by the Potomac, the Rappahannock and the Chesapeake Bay. I was born there and have lived nearly all of my life on thebanks of the Potomac River. Since I began my career in publicservice as a member of the House of Delegates, I have seenchanges in the resources of the Bay.

In 1984 oyster harvests in Virginia were over 4 millionpounds; in 2003, the harvest of oysters yielded just over 77,000 pounds. In 1984 there were 200 oyster-shucking houses in Virginia; in 2003 there were 20.

In 1984 blue crab harvests in Virginia were over 50 millionpounds; in 2003 the harvest was down 58 percent to just over 21 million pounds. In 1984 there were 75 crab-pickinghouses in the Commonwealth; in 2003 there were 10.

When one considers these statistics there is small wonderthat those engaged in the fishing industry feel that they havepaid the cost of our neglect of their interest in water qualityand habitat protection. We are not talking simply about waterquality improvements for water quality’s sake; improved waterquality will contribute mightily to Virginia’s economy, whether it be commercial or recreational fishing or tourism."

– W. Tayloe Murphy, Jr., Secretary of Natural ResourcesCommonwealth of Virginia

Source: Adapted from Chesapeake Bay Program and Moore Et al. 2004

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0<1970s 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Submerged Aquatic Vegetation in Chesapeake Bay

Approximate early 20th-centurylevels before 1970s die-off. Currentrestoration goal set at 185,000 acres.

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t is no exaggeration to say thatan investment in therestoration of the Chesapeake

is an investment in America.The Chesapeake Bay Watershed

Blue Ribbon Finance Panel wascharged with developing new andinnovative ways to finance andsecure this extraordinary resource’sfuture as a vital and valuableecosystem.

ESTIMATING COSTS

The Blue Ribbon Panel found thatcalculating the shifting costs,available funds, and the resultingfunding gap for restoring waterquality was a difficult task, butultimately reached a consensus totarget $15 billion for the Bay.

Despite more than twenty yearsof a formal restoration effort, nosummary cost of all neededrestoration activities is available.Among the most comprehensivestudies was the 2003 Cost of a CleanBay, by the Chesapeake BayCommission, which was limited tojust three jurisdictions(Pennsylvania, Maryland andVirginia). Since then all of thejurisdictions have been developingdetailed clean-up plans, orTributary Strategies, and theyhave been calculating costs as theydo so. But the Tributary Strategiesare not complete and neither arethe cost estimates.

The most up-to-date cost ofimplementing all the actions

identified in the strategies is $28billion in total upfront capitalcosts, including some items thatare primarily for the benefit oflocal waters, not the Bay itself.The implementation strategiesalso require $2.7 billion in totalannual costs, which includesoperation and maintenance, landrental and incentives. The Panel’sanalysis of these cost estimatesrevealed the following:

■ These costs represent actionsnecessary to meet water qualitystandards watershedwide, not just Bay standards. Theseinclude those actions that arerequired under regulations, such as local compliance withexisting permits and erosionand sediment controls, as well as commitments madespecifically to addressChesapeake Bay water quality.

■ The basis for including costs wasnot consistent from state to state.For example, the cost of legally-ordered repairs of combinedsewer overflows is included forWashington D.C., but similarcosts are not included forBaltimore, Maryland.

■ Cost effectiveness was not thedriving force in developingrestoration strategies. Otherfactors, such as the pollutionreduction potential of practices,accommodating growth andsharing the burden across sectors,all came into play.

The Panel turned its attention toanswering the question – what is thefunding gap to be filled? Federal,state, local and private moniescurrently cover a portion of this cost,but current funding for Bay clean-upefforts in virtually every area remainshighly fragmented.

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About ten thousand years ago, whenthe rising seas finished flooding thevalley of the Susquehanna River, anew place was formed that becameknown as Chesapeake Bay. With itsextensive shallow areas and manywide tidal rivers, it marked out11,000 miles of shoreline, andreceived its fresh water from 110,000miles of creeks, streams and rivers.There was nothing else like it in theworld, and there still isn’t.

The mix of fresh and salt water atcountless salinities, the tidal flows,the rushes of fresh water fromupstream storms, the changes in

seasons and the shallowness of theBay combined to create near perfectconditions for fish and shellfish.Indeed, the name given to the Bay bythe Native Americans who settledalong its shores was Great ShellfishBay. Their footprints were not heavy— some clearing, some burning, somefishing, but little else to stress thenatural systems in place.

The Chesapeake has been thecenter of many of America’s keyhistoric moments since that time.Beginning with the first permanentEnglish settlement along the tidalJames River in 1607, a lot has

happened on these lands and waters.Captain John Smith explored as far asthe Susquehanna River at the top ofthe Bay and reported that there wereso many fish that his men caughtthem in frying pans.

The colonies grew around the Bayand along the rivers, which were thehighways of commerce andcommunication. But with thesesettlements came the first threats tothe Chesapeake’s natural resiliency.Cutting the forests and growing morecrops meant more erosion, and moresediment began to enter the Bay.Core samples taken by scientists

A BRIEF HISTORY OF THE CHESAPEAKE BAY

Investing in a Restored Chesapeake BayThe Chesapeake Bay hasprovided the foundation ofthe economic, cultural andsocial character of much of theMid-Atlantic region. But theBay is more than simply thepremiere regional economicasset in the Mid-Atlantic. TheChesapeake is home for everybranch of the United StatesGovernment, and virtuallyevery executive branchdepartment and agency has itshome office located within thewatershed. America’s historyand culture have taken shapewithin the expansive Baywatershed, from the distantheadwaters in Cooperstown,through the battlefields of theCivil War to the earliestcolonial footprints inJamestown. The Bay serves asthe center of the ecologicallyvital North American Flywayfor migratory birds, and it isthe spawning area for 90percent of all the striped bassin the Atlantic.

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today show a major increase in thesesediment loads beginning in themid-1700s, when tobacco became amajor crop and slave labor madelarge plantations possible.

For the next century, much ofAmerica’s history happened here.The Chesapeake basin became afamous battleground, even as itcontinued to develop as a center offishing, farming and forestry. Thesurrender of Cornwallis and hisBritish armies at Yorktown in 1781was made possible because theFrench fleet was in the Chesapeakefending off British ships with their

cargo of reinforcements. The Britishreturned in 1812 via the Chesapeake,cutting across from Marlboro on thePatuxent River to capture the newcapital on the Potomac, where theyburned the White House and theCapitol Building. Later, many of thegreatest battles of the Civil Wartook place in the Bay’s watershed,including Gettysburg and Antietam,culminating in the Confederatesurrender at AppomattoxCourthouse. Modern naval warfarealso began near the mouth of theBay, where the Monitor met theMerrimac.

The Value of the Bay

What is the Chesapeake Bay worth?

Though that question may be difficult to answer, variousstudies have come up with some estimates. In Maryland, forexample, economists have measured recreational boatingactivity at some $2 billion a year. In Pennsylvania, the estimateis $4.7 billion a year for fishing activities across the wholestate, resulting in 43,000 jobs outfitting, lodging and guidinganglers. A University of Maryland study completed 15 yearsago attempted to place a number on the value of the Bay andcame up with $678 billion. Today inflation alone would likelypush that number above a trillion.

Any way you calculate it, the economic value of the Bay andits rivers is enormous. Homes along the waterfront are oftenvalued in the hundreds of thousands or even in the millions ofdollars. Businesses in the region are able to attract top-notchtalent because of the lure of the Chesapeake. In fact, from realestate to shipping to seafood and tourism, it would be difficultto identify a major segment of the region’s economy that is notshaped and enhanced by the Chesapeake.

As well as bolstering economic activity, a clean environmentalso has direct benefits for human and ecological health.Economists have analyzed those benefits in connection withClean Air Act programs, and determined that by 2010 relatedbenefits will total some $110 billion. Similar calculations cansurely be done for the Bay, its watershed and its airshed.

In the end, however, the Chesapeake Bay is more than justa powerful economic engine for the region. The experience offishing, sailing, swimming, crabbing, or simply enjoying theBay’s timeless rhythms speaks of a value beyond dollars andcents. The historic and cultural values in the Bay watershedare also beyond calculation. From the time of the first NativeAmericans through the Revolutionary and Civil Wars, we havebuilt a country and spilled our blood on the Bay’s shores. Akey part of our American civilization was born in itswatershed.

So what is the Chesapeake Bay worth? Perhaps in excessof a trillion dollars to an economist. But to America, theChesapeake Bay is one of those rare jewels that really doesqualify as priceless.

This investmentwill pay back itsvalue many timesin restoredfisheries andhigher recreationaland scenic valuesof the Bay and itswatershed, and inpreserving thecultural heart ofthe region.

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■ Funding originates in an array ofstate and federal programs, withlittle coordination.

■ Local communities across thewatershed differ greatly in theirfinancing ability.

■ Even programs directed at asingle sector, such as agriculture,may require different forms,criteria and evaluations, placingan added burden on the user.

No overarching mechanismexists for collecting, distributing ortargeting funds across the

Chesapeake Bay watershed. In spite of the uncertainties, the

Panel was able to reach consensuson a target of $15 billion for itsdeliberations. The figure of $15billion ensures funding for the mostcost-effective areas of wastewatertreatment and agriculture, themajor areas of emphasis in thestates’ Tributary Strategies.Addressing these two sectors alonewill provide major benefits to waterquality. This amount also provideslimited funding for essentialstormwater and septic work.

Additionally, the Panel concluded

that $15 billion accounts for theapproximate costs for restorationcommitments outlined in theTributary Strategies that are uniqueto Chesapeake Bay restoration. Asmentioned above, the Panel foundthat a total cost of $28 billionincludes practices that are requiredby regulations primarily for local,not Bay, water quality benefits —though exact costs for complyingwith regulations remain uncertain.The Panel recognized thatChesapeake Bay water qualityrestoration will not occur withoutthese practices and that state andlocal governments are struggling tocover these costs. Indeed, severalPanel members took particularnote of the large national fundinggap in addressing waterinfrastructure needs.

THE PANEL’S APPROACH

The Panel started its work bylooking at the sources of massivenutrient and sediment loads to theBay that are so severely degradingwater quality and habitat. Theylooked at characteristics of eachsource sector, with projections forfuture growth and availablesolutions, and reviewed the currentsources of funding for clean-upactions. Extensive backgroundmaterials were provided to thePanel on the following areas:

■ Municipal and IndustrialWastewater

■ Agricultural Runoff

■ Runoff from Developed Landsand Air Deposition

The Panel also received a

briefing on the critical role offorests in maintaining Bay waterquality and natural habitat.

To examine different sources offunding in depth, and to draftrecommendations, the Paneldivided into three subcommittees,each oriented toward a majorsource of funding:

■ Federal

■ State and Local

■ Nongovernmental

GENERAL FINDINGS ANDOBSERVATIONS

The Panel learned that theChesapeake Bay is at a turningpoint. Nutrients and sedimentflowing into the Bay have severelydamaged the capacity of the Bay’stidal waters to support thriving fishand shellfish populations. Thoughthere have been numerous effortsto reduce the flow of nutrients andsediment, the Bay remains severelydegraded. To restore the Bay,current nitrogen loads must be cutnearly in half, and phosphorusloads must be cut by one-third.

The legal deadline forChesapeake Bay tidal waterrestoration is 2010. With only sixyears to go, this is clearly animmense and daunting task tofinance and implement. But time isnot on the Bay’s side. Looking atthe future of the watershed, thePanel heard that if land usepractices continue at the currentrate, more than two million acresof farm and forest in theChesapeake watershed will beconverted to development over the

Beginning in the 19th century a newset of pressures began to influence theBay and its bounty. New canals andrailroads made it possible to bringmaterials to market and ship backmanufactured goods. Farming becamemore intensive and forests wereclearcut and floated down the rivers.With industrialization came expandedports and dredging, dams for electricityand pollution of the rivers. The Bayremained remarkably unaffected bythese changes, at least on the surface.While a few harbor areas in Baltimore,Washington and Norfolk becamedangerously contaminated, not only

the health, but even the bounty of therest of the rivers and the Bay itselfseemed to prevail.

It was in the 1950s and 1960s thatpeople first began to notice thechange. The water lost some of itsclarity, the crabs and oysters and otherfish seemed less easy to find andharvest, and the underwater grassesbegan to thin out. It took a while for aconsensus to emerge that somethingwas wrong, and when it did there weremany potential suspects. Was it toxicdischarges from industries along theBay’s rivers and shores? Was it all theraw sewage from growing cities?

Total PhosphorusReaching Chesapeake Bayfrom All Sources

Source: US Geological Survey

next 25 years. Without new programs in place,by the year 2030, development will add about35 million pounds of nitrogen a year to theBay’s nutrient load, erasing much of theprogress made since 1985. Restoring the Bay’secosystem once the natural hydrology is soradically altered could prove impossible. In anyevent, restoration efforts would be immenselymore costly than if undertaken now.

After a detailed review, the Panel came tothe conclusion that, while there were manyways to improve existing funding mechanisms(some of which are included as supplementaryrecommendations in this report), there is nopossibility that the huge funding gap for Baywater quality restoration can be filled simply byaugmenting or modifying existing programs.

As noted in the Chairman’s Summary, thePanel found that ultimately restoring the Bay’swater quality will require new institutions thatwill meet financing needs for years to come. Toalleviate the fragmentation and severelimitations found in existing funding, to fostera coherent regional structure for funding andimplementation of the Bay cleanup programs,to provide the means to leverage sustainablerevenue streams, and to establish the financingneeded to restore Bay water quality by 2010and maintain it thereafter, the Panelrecommends the establishment of a regionalChesapeake Bay Financing Authority.Described in greater detail in theRecommendations section, this structure wouldbe capitalized by federal and state government,and would provide essential funds for investingin a restored, productive Chesapeake Bay. Thisinvestment will pay back its value many timesin restored fisheries and higher recreational andscenic values of the Bay and its watershed, andin preserving the cultural heart of the region.

To set the stage for the Panel’srecommendations, the following sectionprovides a summary of what the Panel learnedabout each of the source sectors, existingsources of funding, and the need for financing.

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What was hurting the Bay?There then began an age of

scientific debate and discovery aboutthe Chesapeake Bay that wasunprecedented in the world.Eventually it led to the firstunderstanding of how estuarinesystems like the Chesapeake reallywork, and what affects them. Gainingan understanding of the physics of amixed salt and fresh water system likethe Chesapeake was a majorbreakthrough. It was here in the Baythat the interplay of the layers of saltand fresh and warm and cold watersand their impacts on the species living

there was first understood. And it washere that the cause of degradation ofthese estuarine systems was firstpinned, not on toxics or bacteria fromsewage, but on the excess of nutrientsand sediment being loaded to thesystem, primarily through the rivers.

This last conclusion came as a shock,not so much because it wasunsuspected, but more because of whatit meant had to be done. Two thingshave to be understood at this point.First, the Clean Water Act and EPAhad not placed much emphasis onnutrient and sediment reductionsbecause, unlike bacteria and toxics, they

did not directly affect human health.People and politicians reacted more tolead contamination and beach closuresthan they did to algae blooms, smellymarshes and dead fish. Much as theydidn’t like the latter, the priorities werethe perceived threat to children andothers. As a result, at the end of the20th century the single most significantremaining water quality problem in thecountry was nutrient overloads to lakes,rivers and estuaries. Understandingprecisely how these nutrients behavedin lakes and bays posed a difficultchallenge.

Second, nutrient reduction for the

Chesapeake was not a simple matterof cleaning up a few sewage treatmentplants that discharged high levels ofnitrogen and phosphorus. TheChesapeake watershed was unique inthe world for its extensive land areadraining into a very shallow system.As a ratio of land area to watervolume, it is nearly 10 times higherthan the next body of water on earth.This meant that enormous effortswould need to be undertaken toreduce agricultural nutrients andurban runoff as well as retrofithundreds of sewage treatment plants.The task would be Herculean.

AGRICULTUREMaintaining the watershed’sagricultural heritage whilerestoring the Bay

The agricultural heritage of theChesapeake Bay region is richand multifaceted. Farms providefood and fiber, but they alsoprovide significant open space,aesthetic and environmentalvalues for all of us. Conservingfarmlands in the watershed is agoal of the Chesapeake BayProgram that the Panelwholeheartedly supports.

But there is a problem.Agricultural operations remain thelargest single source of nutrientand sediment loads to the Bay. Itis apparent from the informationpresented to the Panel that of allfinancing choices, reducing excessnutrients and sediment runofffrom agricultural lands will yieldthe greatest return on investment.We are persuaded by theeconomic information thatfarmers in the watershed will needfederal and state financialassistance, on a sustained basis, toachieve the needed loadreductions.

What we have learned aboutagriculture as a source ofnutrients and sediment …

■ Agricultural lands account fornearly a quarter of thewatershed, and in totalcontribute more nutrients tothe Bay than any other land use.Agricultural operations produceabout 41 percent of thenitrogen and 47 percent of thephosphorus loads going to theBay. Agriculture alsocontributes about 63 percent ofthe Bay’s sediment.

■ Although significant effortshave been made to addressenvironmental impacts,especially nitrogen andphosphorus runoff frommanure, the Chesapeake Baywatershed ranks in the top 10percent in the United States interms of manure-relatednitrogen runoff, leaching andloadings from confinedlivestock and poultryoperations. In addition, areas insoutheast Pennsylvania and thesouthern Virginia coastal regionrank in the upper 10 percent ofwatersheds nationally in use ofcommercial nitrogen fertilizer.

■ Specialization, intensificationand concentration of

agricultural production,particularly poultry andlivestock, have continued tocreate field, farm-gate andregional nutrient imbalances.

What we have learned aboutengaging the help of theagricultural community torestore the Bay …

■ To restore water quality in theBay, all of the basin’s more than87,000 farms will need toimplement best managementpractices (BMPs) at levelsnever before seen in thiscountry. In fact, the states havecommitted to implement closeto 30 different agricultural bestmanagement practices as partof their restoration strategies.Some of these BMPs are newtechnologies that have not beenfully developed or field-tested.

■ Farming has a long and proudtradition in the region. Manyfarmers see themselves asstewards of the land and manyfeel that they have done quite abit to help with conservation.As private property owners,farmers are protective of theirprivacy and rights.

■ A large number of farms in theChesapeake watershed aresmall businesses, most part-

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In 1983, the Chesapeake Bay states, theDistrict of Columbia, the Chesapeake BayCommission and the federal governmentsigned the first Bay Agreement, a shortdocument setting out a set of broadobjectives for the restoration of the Bay’swaters and living resources. This wasfollowed by another Agreement in 1987establishing more far-reaching objectives,including the goal to reduce nutrientloadings by 40 percent by 2000.

By the latter half of the 1990s, it was clearthat the Bay’s restoration was struggling.Maryland listed the Bay on its 303(d) list —sometimes known as the “dirty waters list” —

for failing to meet the state standard fordissolved oxygen in the water. The statepointed to nutrients as the cause. In 1999,EPA concluded that the Virginia portion ofthe Bay also needed to be listed as animpaired water for failing to meet theVirginia dissolved oxygen and aquatic lifestandards because of nutrients.Environmental groups initiated lawsuits tocompel EPA to address water qualityproblems. In Virginia, settlement of a courtcase set a definite time frame for Bayrestoration efforts.

Citizens and experts alike felt that Bayefforts needed more specific goals and road

What We Have Learned About the Sources of the Bay’s Decline

Source: Chesapeake Bay Program Watershed Model

time, operating on slimeconomic margins. Beneficial qualities most highlyregarded by the public inpreserving farming operations,such as maintaining open spaceand providing rural ambiance,do not generate any farmincome, and thus register aseconomic constraints on thefarmer.

■ Understanding traditionalvalues about farming andproperty rights, and recognizingthe economic setting in whichthe farmers operate, is the keyto working with the agricultural

community to reduce runofffrom farms.

■ For all of these reasons, while anumber of programs exist toencourage practices aimed atreducing nutrient and sedimentpollution from farms, the vastmajority of these efforts remainvoluntary. The motivation forfarmers must be adequate toachieve the needed levels ofBMP adoption and loadreduction.

■ Education, outreach andtechnical assistance will beessential to enhance and expand

successful implementation ofprograms. Agriculturalinnovation and change aimed at nutrient balancing and sustainability will be critical.Business as usual will not beeffective or prudent in the long term.

■ Industry, landowners andgovernments alike must worktogether to achieve two equallyimportant goals: the protectionand restoration of theChesapeake Bay and theprotection of farms and theagricultural economythroughout the region.

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maps to implementation. The resultwas the Chesapeake 2000 agreement, withmany new or revised goals forrestoration and with a differentapproach to achieving necessary waterquality improvements. In order toretain the cooperative federal/stateapproach in the face of new regulatoryrequirements being enforced under theClean Water Act, the Program deviseda unique goal — to resolve the nutrientimpairments in the Chesapeake by2010, thus removing the Bay and itstidal rivers from the federal list ofimpaired waters.

This bold step has required resettingto realistic levels the entire system ofwater quality criteria and standards inthe Bay and its tidal rivers (for“designated uses”), an effort which is onschedule. It also required substantiallymore aggressive nutrient reductiongoals than set previously. To reachproposed water quality standards,nitrogen loads must be reduced by 110million pounds from 285 million in2000 to 175 million pounds annually,and phosphorus loads must be cut fromabout 19 million to almost 13 millionpounds annually.

As a result of these agreements, thestates and the federal government haveenacted laws and established programsto reach those goals, including a widerange of actions to support improvedagricultural practices and sewagetreatment plant upgrades. By 2002, anestimated 60 million pound reductionin nitrogen loadings to the Bay tookaverage year loads from 338 in 1985 to278 million pounds. Similar results wereachieved for phosphorus. The actualimpact of all this on the Bay has beencomplicated, however, by a series ofunusually dry and wet years that have

worsened algal and oxygen conditions.This has raised public concerns over thepace of the clean-up effort and theadequacy of funding support.

In response to these growingconcerns, at its 2003 meeting theChesapeake Executive Councilestablished the Blue Ribbon FinancePanel to examine the available meansto fund a clean-up effort at therequired pace to achieve the goals inthe Chesapeake 2000 agreement. Thisreport is the result of the deliberationsand conclusions of the Blue RibbonFinance Panel.

What areTributaryStrategies?

Tributary Strategies are riverspecific clean-up strategiesthat detail “on-the-ground”actions needed to reduce theamount of nutrients andsediment flowing into theChesapeake Bay. Thestrategies aim to reducepollution coming from allsources. They are aframework that will evolveover time to chart the mostefficient and effective courseto a clean Bay.

Each state independentlydevelops strategies for itsriver basins. TributaryStrategies are designed toaddress the unique land usecharacteristics of a riverbasin. By working withinterested stakeholders, such as farmers, localgovernments, urban planners,conservation and civicorganizations, states buildunderstanding and supportfor the strategies.

Combined, the 36strategies cover theChesapeake Bay’s entire64,000 square milewatershed with a clean-upplan. As blueprints for thefuture, the strategies showthe incredible magnitude ofthe actions needed to restorethe Bay. Their ultimatesuccess relies on thecollective will to put theseplans into practice.

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What we have learned aboutthe need for funding agriculturalincentive programs …

Cost estimates for achieving nutrientand sediment reductions fromagricultural operations by 2010 areover $2 billion for capital costs. Muchof the funding need forenvironmental practices onagricultural lands occurs on an annualbasis and is for operation andmaintenance, land rentals, andincentive payments to farmers. Thisannual cost is over $300 million, andwill continue year after year, unlessmore sustainable agriculture andconservation systems are adopted.

Although the federal cost-shareprograms generally offer 50 percentof the cost of BMPs, withopportunities for state supplements,these programs currently provideonly about 30 percent of the totalcost of implementing agriculturalBMPs. Therefore, 70 percent of theanticipated costs for agriculturalprograms requires additional funds.

To date, the USDA’s involvementin the Bay restoration effort hasbeen modest. Barriers between and

among federal programs thatimpede the most effective use ofavailable funding should be lowered.Authorized cost-share levels are notbeing used to their maximum levels,are not allowed to be geographicallytargeted, and do not include allcommodities or conservationpractices. USDA also has numerousprograms such as productionsubsidies that may reduce the focuson or, in some cases, compete withBay goals.

Along with paying forimplementation of current bestmanagement practices, governmentsubsidies and loans must alsoinvest in new, more efficientpractices. Innovative BMPs,programs or system changes thatstabilize farming incomes andeconomics, while at the same timecurbing nutrient and sedimentlosses from agricultural lands, holdthe promise over the long term ofenhancing farming operations,reducing costs and increasingfarmer adoption.

The challenge of financingexpanded conservation programs onagricultural lands is complex andwill require a combination offederal, state, local andnongovernmental financialresources. Clearly, given theeconomic constraints that manyfarmers face, a new assurance forincreased federal funding will benecessary to achieve Bay restorationgoals. In addition, closing thefunding gap will require improvingthe efficiency of current agriculturalprograms, along with leveraginginnovative programs such ascoupling implementation of bestmanagement practices with FarmBill commodity payments.

The estimated gap: Despite Farm Bill financing and very limited CleanWater Act grant and loan funding,there is an annual funding gap ofover $200 million for operation andmaintenance of BMPs, land rentaland incentives, plus $180 million forannualized capital costs. Given afarmer’s limited ability to pay, this gap will have to be financed largely by federal and state governments.The return on investment will be substantial, given the relative cost-effectiveness ofagricultural BMPs.

Total Nitrogen fromAgriculture ReachingTributaries

Source: US Geological Survey

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MUNICIPAL ANDINDUSTRIALWASTEWATER

Municipal and industrialwastewater plants throughoutthe watershed are operatingtreatment systems every daythat have substantiallyimproved water quality in theBay’s tributary streams andrivers. However, major newinvestment in nutrient removalat wastewater plants is neededto restore water quality in theChesapeake Bay. With morethan 100,000 new people inthe Bay watershed every year,the nutrient load that must betreated grows continually.Fortunately, newer and morecost-effective nutrient removaltechnology is available, butfinancing is needed.

What we have learned aboutwastewater as a source ofnutrients and sediment...

■ Municipal and industrialwastewater treatment plantsthroughout the watershed areresponsible for 21 percent of thetotal nitrogen pollution and 22percent of the total phosphoruspollution delivered to the Bay.They are not a major source ofsediment.

■ About 322 municipalwastewater plants and 68industrial wastewater plants aredeemed significant because oftheir size or location on the Bay,and these “significant” plantsaccount for 95 percent of allwastewater flows into theChesapeake Bay watershed.

What we have learned aboutsolving the wastewaterproblem…

■ Even though industrial sourceshave reduced their discharges of nutrients, and some level ofnutrient removal is beingapplied to about 56 percent ofthe flow from significantmunicipal wastewater facilities,the remaining nitrogen andphosphorus loads from almostall municipal wastewater plants must be reduced to far lower levels.

■ Nutrient loadings fromwastewater treatment plants are controllable.

■ Biological nutrient removaltechnologies have significantlydecreased the costs of removing nitrogen frommunicipal wastewater.

With more than100,000 newpeople in the Baywatershed everyyear, wastewatertreatment plantswill require majornew investments innutrient removal ifwe are to restorewater quality in theChesapeake Bay.

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■ Wastewater treatment plantdischarges are highly regulatedthrough Clean Water Act permits,and monitoring requirements makeit easy to verify pollutionreductions.

■ With growing populations to beserved by municipal wastewaterfacilities, “cap” limits on totalnutrient loads can and must beemployed. Where state TributaryStrategies set loading caps at thecurrent design limits of wastewaterfacilities, there is some room toaccommodate population increases.In the future, however, even moreeffective and innovative wastewatertreatment technologies will beneeded to maintain those caps.

What we have learned about theneed for funding wastewatertreatment technologies…

Approximately $6 billion is needed toupgrade wastewater treatment plantsto meet the state Tributary Strategies.One-half of the estimated cost for thissector is for upgrades to the BluePlains wastewater treatment plant(the largest point source of nitrogenin the watershed, which servesWashington, D.C., much of NorthernVirginia and the Maryland suburbs);for combined sewer system controls inD.C.; and for controlling sedimentdischarges from the drinking waterplant which serves Washington, D.C.and several Northern Virginia areas.Given existing and expected funds,the funding gap watershedwide isestimated to be close to $4 billionneeded for capital improvements.

Since wastewater discharges areregulated and new permit limits fornutrients will apply wherever neededto meet Chesapeake Bay water qualitystandards, local jurisdictions have theresponsibility to address this issue.Because municipal wastewatertreatment plants are service providers,they have a user base to pay forupgrading treatment facilities and foroperations and maintenance.

According to the U.S. EPA’s 2003analysis, the costs of meeting nutrientremoval requirements are “affordable”for many communities whenmeasured by the impact of projectedsewer rates on median householdincome and assuming the capacity toborrow (e.g., from a Clean WaterState Revolving Loan program).

However, achieving nutrient removalrequirements will likely requirefederal-state financial assistance in theform of grants in impoverishedcommunities and in areas where thereare very high competing costs to meetlegal requirements for correctingcombined sewer overflows andsanitary sewer leaks.

The removal costs vary widely fordifferent wastewater treatment plants,depending on the size andconfiguration of the plant. Thesevariations in cost present theopportunity for saving millions ofdollars through nutrient trading acrossthe basin or within sub-basins such asthe Potomac watershed.

There exist funding sources forboth loans and grants to helpmunicipal wastewater facilities meettreatment needs. The Clean WaterState Revolving Loan Fund programsprovide loans for wastewatertreatment projects, and in FY 2003were the source of about $27 millionto facilities in the Chesapeakewatershed. There are several otherfederal programs that provide smallamounts of grant funds (for example,USDA’s Rural Development program,the Appalachian RegionalCommission, and the Department ofHousing and Urban Development).

In a major recent development, theState of Maryland enacted in 2004 auser fee or sewer surcharge for allhouseholds and businesses connectedto the state’s wastewater facilities andto septic tanks. This fee is projected togenerate about $60 million annuallyand to provide, with leveraging, almost$1 billion to support construction andoperation of advanced nutrientremoval in the state’s 66 largestwastewater treatment plants. TheVirginia Legislature recentlyappropriated approximately $37million for the Commonwealth’sWater Quality Improvement Fundover the next two years, and theCommonwealth of Pennsylvania willfund some nutrient removal projectsat wastewater treatment plants fromits Growing Greener program.

The estimated gap: Currentprograms still leave a substantialfunding gap, estimated at $4 billion,for the capital improvementsneeded to achieve the nutrientreductions required from municipalwastewater sources.

Total Nitrogen fromPoint Sources ReachingTributaries

The costs for moving from second-stage biological nutrient removal (BNR) are relatively small, but moreadvanced BNR upgrades will require significant funding.TP = total phosphorus and TN = total nitrogen

Source: Chesapeake Futures, 2003.

Source: Chesapeake Bay Program Watershed Model

Source: US Geological Survey

DEVELOPMENT A Growing Footprint

Funding and implementing theTributary Strategy requirementsfor reducing nutrient andsediment runoff fromagricultural operations and fortreating nutrients at wastewaterplants will go a long way towardachieving load reductions by2010 to restore Chesapeake Baywater quality. But what aboutthe future?

The Panel received very disturbinginformation about the impact ofland development patterns in thewatershed. Not only isdevelopment in the watershedamplifying nutrient and sedimentloads from urban and suburbanareas, but with the rapid pace offorest and farmland conversionand the hardening of thelandscape, the natural hydrology ofthe watershed is being radicallyaltered. Therefore, in addition toreducing today’s nutrient andsediment loads, support must begiven to preventive strategies suchas “low impact development”methods for stormwatermanagement, conservation offorests and open lands, andpreservation and restoration ofriparian forest buffers.

What we have learned aboutdevelopment’s increasingcontribution to nutrients andsediment in the Bay …

■ Though developed landsrepresent nine percent of thewatershed’s land area, runofffrom suburbs, cities, industrialparks, commercial lands androads contributes 11 percent ofthe total nitrogen and 16percent of the total phosphorusloads to the Bay — and more insome sub-watersheds. Sedimentrunoff from construction areascan be very significant, but it issupposed to be controlled bylocal governments throughsediment and erosion controlordinances.

■ During the past thirty years,population in the ChesapeakeBay watershed has increased byover a million people every tenyears. Based on recentpopulation projections, thistrend is likely to continue forthe next thirty years.

■ As the population of thewatershed grows, so does itsfootprint on the landscape. The size of that footprintdepends upon land use patternsand lifestyle choices. Forexample, while the populationof the watershed increased byabout eight percent in the pastdecade, the amount of

watershed land covered byimpervious surfaces — surfacesthrough which water cannot flow — increased by about 41percent. Such trends areencouraged by consumerpreferences for large houses nearopen space, jobs and good schools;and by commercial preferences forless expensive office and parkingspaces and for maintainingeconomies of scale through largevolume “big box” retail outlets.

■ As the number and size of roads,parking lots and rooftopsincrease, and forest and openlands are replaced by industrial,commercial and residentialdevelopments, the capacity ofthe terrain to soak up rainwaterdecreases dramatically —illustrated by the fact that a one-acre parking lot produces about16 times the volume of runoffthat comes from a one-acremeadow.

■ Parking lots and other types ofimpervious surfaces increaseboth the volume and the rate ofsurface water runoff as it makesits way into stream and riversystems. These hydrologicchanges alter the streams byscouring the bottom sedimentsand eroding stream banks. Suchimpaired streams carry largeamounts of sediment andattached nutrients to the Bay.

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While the populationof the Bay watershedincreased by abouteight percent in thepast decade, theamount of watershedland covered byimpervious surfaces —surfaces throughwhich water cannotflow — increased byabout 41 percent.

Parking lots and othertypes of impervioussurfaces increase boththe volume and therate of surface waterrunoff as it makes itsway into stream andriver systems. A one-acre parking lotproduces about 16times the volume ofrunoff that comesfrom a one-acremeadow, and about40 times the runofffrom an acre ofmature trees.

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■ EPA ranks urban stormwaterrunoff as the second mostprevalent source of water qualityimpairment in the nation’sestuaries. Whether they originatefrom air deposition, lawnfertilizer, or other sources,keeping excess nutrients out ofthe waterways requires effectivemanagement of stormwaterrunoff.

What we have learned about controlling stormwaterrunoff …

■ The best time to preventstormwater problems is to planwell for the location and designof new development in the first

place. The best time to installcontrols for stormwater runoff isduring construction of newbuildings and developments.Most local jurisdictions havelocal erosion and sedimentcontrol ordinances, but overalldevelopment in the watershed isnot controlling stormwaterrunoff of sediment, nutrients andother pollutants effectively.Stormwater pollution preventionprograms need to be supportedand strengthened.

■ The Chesapeake Bay Program ispromoting new stormwater runoffcontrol methods that usedecentralized infiltration inlandscaping and building design

under the general category of “lowimpact development.” This is verypromising. Continued BMPdevelopment is needed becauseeven the best current BMPs donot prevent 100 percent of thepolluted stormwater runoff, nordo they preserve the naturalhydrology. Each new developmentin the watershed, even using thebest current technology, adds tothe nutrient and sediment load.This underscores the need foreffective land use planning upfront and for retaining or restoringa buffer of forest vegetation alongstream banks and shorelines.

■ The Clean Water Act recognizedthat pollutants from stormwater

runoff were a problem, but theywere not federally regulated untilthe 1990s. Maryland,Pennsylvania and the District ofColumbia had begun stormwaterprograms in the 1980s. Now,Clean Water Act permitrequirements for municipalseparate storm sewer systemscover a large part of theChesapeake Bay region, and newfederal construction permitrequirements apply everywhere.These regulatory programs offeroutstanding opportunities toreduce nutrients and sedimentfrom stormwater runoff, both inalready developed areas and fromnew development.

0

2

4

6

8

10

1900

Num

ber

of P

eopl

e (m

illio

ns)

Population Growth inthe Chesapeake Bay Watershed

12

14

16

18

1910

1920

1930

1940

1950

1960

1970

1980

1990

2000

2010

2020

2030

20

Courtesy of Woods Hole Research Center

Source: Chesapeake Bay Program Watershed Model

Source: Chesapeake Futures, 2003

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■ Even in urban areas withlongstanding stormwatermanagement programs, fewactions have been taken to installBMPs retroactively (or“retrofitting”) in alreadydeveloped areas. Generally, landand building owners in previouslydeveloped areas are not requiredto address stormwater unlesssignificant redevelopment of theland occurs.

What we have learned aboutthe need for fundingmanagement of stormwater …

The Panel learned that currentstate and local strategies to addressall stormwater pollution will costapproximately $15 billion toimplement. About 60 percent ofthis cost estimate, or around $9billion, is for retrofittingstormwater management facilitiesin already developed areas. Thislarge cost is another reminder thatinvestments in prevention reallypay in stormwater management,compared to the costs of repairingthe damage once it’s caused.

Retrofit costs vary from place toplace based on land costs,operation and maintenanceassumptions, staff, materials andcost of doing business. It’s alsoimportant to look at costs basedupon new development,redevelopment and retrofit ofenvironmental technologies inolder urban areas.

The least costly solution is toplan for growth in appropriateplaces ahead of time, and then toincorporate stormwater controlsinto construction plans for newdevelopment or redevelopment.Control measures are much moreeconomical as part of newconstruction. A buyer willgenerally absorb these expensesas part of the overall constructioncost, thereby minimizing thecosts to the local government.Even in this case, however,operation and maintenance mayfall to the local government.

Areas developed prior tostormwater managementrequirements must deal withoutdated systems. As the $9billion cost estimate shows,stormwater retrofitting can bevery expensive because of the highper-acre cost compared to

strategies for controllingstormwater on new development.

Responsibility for financingstormwater management programsfalls largely on local jurisdictionsand even on local landowners.Stormwater management isprimarily a local water quality andinfrastructure management issue,although there are Bay restorationbenefits. Stormwater managementprograms require funding forcapital, operations andmaintenance, and administrativecosts such as monitoring,inspections and enforcement.Local governments typically turnto local property taxes, generalrevenues or user fees.

Local tax revenues orstormwater fee systems generallyare expected to cover the costs ofadministering a program toregulate new development forstormwater management andsediment and erosion control.Local revenues should also coveroperation and maintenance costsand a variety of routinemanagement services such as catchbasin cleaning, storm sewermaintenance, street sweeping andmanagement of stream banks.

Funding urban retrofits hasgenerally remained beyond thefunding capability of local generalrevenues and fee systems, however,because of the expensiveconstruction and displacement ofother structures. Stormwatermanagement projects are eligiblefor funding under the Clean WaterAct (both the State RevolvingLoan Fund program and theSection 319 Nonpoint-SourceProgram), but the funds are solimited compared to funding needs

that they are woefully inadequate.The Panel noted a legislativeproposal, introduced in Congressas the “Wet Weather WaterQuality Act of 2000,” whichauthorized federal grant funding of$1.25 billion over a five-year periodfor combined sewer overflow andstormwater projects. Such funding,if enacted, would be helpful forreducing the stormwater fundinggap in the Chesapeake Baywatershed.

Given the magnitude of theChesapeake Bay restoration fundingchallenge, it is essential thatcommunities take full advantage offinancing trends and innovationsfor securing sustainable revenue andfunding sources at the local level.Successful long-term financing willrequire implementing programssuch as stormwater utility fees, taxbreaks and other financialincentives.

The estimated gap: Developersand buyers can absorb the capitalcost of incorporating stormwatercontrols to control nutrient andsediment runoff, and to protectnatural hydrologic patterns, intonew development. Localities canimplement programs such asstormwater utility fee systems toenforce stormwater pollutionprevention requirements and toinspect, operate and maintainBMPs. However, no clear fundingsource exists for capitalimprovements for stormwaterretrofits. Given that retrofitsaccount for roughly 60 percent ofthe estimated stormwaterpollution control costs, theestimated funding gap is about$9 billion.

The least costlysolution is to planfor growth inappropriate placesahead of time, andthen to incorporatestormwater controlsinto constructionplans for newdevelopment orredevelopment.

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FORESTSThe Watershed’s NaturalFilters

The Chesapeake Bay Programand the U.S. Forest Service havepioneered the science andpractice of restoring forestbuffers along streams andshorelines, and the TributaryStrategies call for a dramaticexpansion of this program. Aswith agriculture, the Panel wasimpressed by the relativelymodest costs of riparian forestrestoration compared to itsmultiple benefits for waterquality and habitat. Forests areessential for protection of theChesapeake Bay watershed. The rate of land conversionmakes it urgent to addressriparian forest preservation andrestoration on lands beingconverted to development, aswell as buffer restoration onagricultural lands.

What we have learned aboutthe importance of forests …

■ Though forests once covered 95percent of the Chesapeakewatershed, today they accountfor only 58 percent of the basin’s

land cover. With a land-to-waterratio in the Chesapeake basin ofroughly a thousand square milesof watershed for every one cubicmile of water, what happens onthe land greatly influences waterquality. Forests are by far themost beneficial land use in thewatershed in terms of protectingwater quality. To achieve ahealthy Bay, the watershed needsto preserve and replant much ofits tree cover.

■ Trees are important because theydo a great deal to filter the airwe breathe and the water wedrink. Forests in the Baywatershed retain up to 85percent of the nitrogendeposited on them from the airand capture and storeprecipitation, allowing it to seepinto the soil. By contrast, urbanareas retain only about 20percent of the nitrogendeposited from air emissions,and a one-acre parking lotproduces 40 times the volume ofstormwater runoff that comesfrom one acre of mature trees.

■ Particularly noteworthy forwater quality benefits areriparian forests, those trees alongstreams and shorelines. Withnearly 200,000 miles of streambanks and shorelines, riparianforest buffers are essential for

protecting waterways by filteringpollutants and sediments fromrunoff and groundwater.

■ Riparian forests take upnutrients and water throughtheir root systems and supportprocesses of denitrification inthe soil. They stabilizefloodplains and reduce erosion.In addition to improving waterquality, streamside forestssustain the health of fisheriesand other aquatic species byproviding food, habitat, shade,and instream processing ofnutrients not provided by othertypes of buffer vegetation. Theshade from trees cools thestream, keeping more oxygen inthe water. Riparian buffers alsoprovide important habitat andcorridors for wildlife.

■ To protect the ecologicalintegrity of the Chesapeake Bayand its watershed for the longterm, the Chesapeake ExecutiveCouncil has established ascientifically based goal ofrestoring riparian forest buffersto at least 70 percent of allstream and shoreline miles.

■ The state Tributary Strategiescall for the restoration of over40,000 miles of riparian forestbuffers. This is to be a net gain;yet, forests are being destroyed

in the watershed at a rate ofover 100 acres a day. Preventingloss of forest buffers andrestoring riparian forests onagricultural and urban lands isimperative for restoring theBay’s water quality.

What we have learned aboutfunding the greening of thewatershed …

The estimated cost for tree plantingto meet water quality restorationlevels is about $781 million in totalor $112 million per year (based on costs in theUSDA Conservation ReserveEnhancement Program or CREP).Technical assistance for reachinggoals in strategies could be as muchas $300 to $500 million in total, oran additional $45 to $70 million peryear.

Restoring forest buffers onagricultural, urban or otherdisturbed lands requires a significantup-front investment in plantmaterials, technical design, planting,pest control and several years ofmaintenance until established. Onceestablished, forest buffers canfunction with minimal managementfor 75 years or more. In otherprograms across the country, 80percent or more of buffers plantedwith trees were retained beyond theend of incentive program contracts.

The responsibility ofconserving trees to helpmaintain water quality andreduce impacts of growth anddevelopment may be largelyborne by developers, privatecommunities, individuals or localmunicipalities. Education andtechnical assistance are essentialto gain cooperation andparticipation. Enactment andenforcement of tree and riparianforest buffer ordinances serve asanother tool, as do requirementsto restore riparian forestvegetation when formeragricultural lands are convertedto development. Facilitatingsustainable management offorests, especially in rural areas,may also help serve as aneconomic deterrent towardconversion and fragmentation of remaining forestlands.

Agricultural lands are widelyavailable for riparianreforestation. CREP hassupported over 90 percent ofthe riparian forest bufferrestoration completed to date in the Chesapeake Baywatershed. Currently approvedCREP programs are not,however, sufficient toaccomplish the forest buffergoals in the state TributaryStrategies and do not optimizeincentives for planting trees.

Long-term reliable fundingmechanisms are needed to

provide a portfolio that canensure sufficient financialresources for conservation andrestoration of forests and forestbuffers. It is unlikely that theextensive planting programneeded to achieve the Bayrestoration can be completed by2010 without a significantincrease in available funds andtechnical assistance resources.Accelerating the pace ofrestoration would require anintensive program of plantingriparian forest buffers followedby a maintenance phase.

While CREP addressesagricultural lands, a combinationof voluntary buffer reforestationon currently developed land andrequirements for buffers on newdevelopment would need to beimplemented to maximizeriparian buffer reforestation.This initiative would require the implementation of newordinances or regulations inmuch of the watershed toaddress the new development. A programmatic funding source would need to be createdto facilitate volunteer bufferrestoration in existing developed areas.

The estimated gap: Plantingriparian forest buffers requiresabout $160 million per year formaintenance, land rental andincentive monies.

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Trees are importantbecause they do agreat deal to filter theair we breathe andthe water we drink.

Source: Chesapeake Bay Program Watershed Model

Note that per acre, forests are the least polluting land use.

If recent trendscontinue, by 2030 the Chesapeakewatershed will seesome 2 million acresof resource landsconverted todevelopment, abouttwo-thirds of which are forests.

SEPTIC SYSTEMSTaking Advantage of BetterTechnology

The Panel noted the costlinessof replacing existing septictanks in the watershed. Wewere informed, however, aboutnitrogen-removing technologythat should be used in newdevelopment, and learned thatthe unit costs of using thistechnology should go downwith greater demand. Strategiesfor targeting septic tankreplacement to areas of greatestvulnerability, such as developingwaterfront communities, willalso improve cost-effectiveness.

What we have learned aboutseptic systems as a source ofnitrogen …

■ Septic systems are estimated toaccount for about 4 percent ofthe region’s nitrogen load to theBay, though their impact ismuch larger in localized areas.Septic systems have alloweddevelopment — bothcommercial and residential —to occur beyond the reach ofwastewater treatment plants.They have become a growing

source of nitrogen to the Bay insome areas, as wastes drain intogroundwater.

■ On-site septic systems of alltypes and ages are a source ofnitrogen to the Chesapeake Bay.Conventional septic systems arenot designed to removenitrogen (although some isremoved by biological processesin the soil). Depending on howclose the system is to awaterbody, the nitrogendischarge per household can behigh compared to that of awastewater facility operatingwith biological nutrientremoval. Special problems existwhere septic systems are oldand failing, and where they areplaced too close to streams and shorelines.

■ In critical areas experiencinggrowth, communities may needto consider the potential forconnecting to new or existingwastewater treatment facilitiesor else replacing failing septicsystems with newer, moreadvanced systems.

What we have learned aboutthe need for funding …

Although septic systems accountfor only 4 percent of the nitrogen

load, costs for addressing theseptic issue are estimated to be$4.6 billion, about 16 percent oftotal restoration costs. To placethe cost estimates in perspective:to date there has been littledemand for state-of-the-artnitrogen-removing septic systems,so the equipment price remainsquite high. As demand increases,technological improvements andeconomies of scale should reducecosts significantly.

Overall, the most cost-effectiveapproach would be first to addressnew development, requiringnutrient removal adaptations atthe front end as part ofdevelopment and constructioncosts. These costs would likely bepassed on to the homebuyer.

The State of Maryland hasprovided an important model byassessing septic system owners a$30 per-year fee to create a long-term revenue stream for financingseptic system upgrades.

Septic systems are not a focusof federal programs. To helpaddress the funding gap, the Panelbelieves that other states shouldfollow Maryland’s example, andestablish state fee systemsthroughout the region forreplacing failing septic tanks incritical areas with new, nitrogen-removing technology.

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Septic systems ofall types and agesare a source ofnitrogen to theChesapeake Bay.Nitrogen movesfrom the septicsystem throughthe soil intogroundwater andeventually tostreams, rivers andthe Bay.

AIR DEPOSITIONBenefiting from Clean AirRegulations

The Panel was impressed bythe amount of nitrogen that airemissions, deposited on thewatershed, add to the Bay’snutrient load. Enforcement ofClean Air regulations cantherefore contributesignificantly to water qualityrestoration, without adding toTributary Strategy costs. Theimpact of land use on howmuch deposited nitrogenactually reaches the tidal watersof the Bay served as anotherreminder of the benefit offorest buffers and good urbanstormwater management.

What we have learned aboutair as a source of nitrogen …

■ Modeling indicates that at least25 percent and possibly a thirdof nitrogen entering the Baycomes from air deposition. Theprincipal sources of emissionsare power plants, cars andtrucks, and off-road sourcessuch as construction equipment,lawn mowers and aircraft.

■ The Bay watershed receivessignificant levels of nitrogenoxides and other airbornepollutants from the far reaches

of its large airshed (which isabout six and a half times thesize of the watershed), as farwest as Ohio and Indiana. Airdeposition of nitrogen on theland adds to the burden thatmust be dealt with by farmers,local governments and otherlandowners.

■ While population increasedabout eight percent during thelast decade, vehicle milestraveled rose 26 percent.

■ Land uses in the watershed playa major role in determininghow much of the nitrogen fromair deposition reaches the tidalwaters of the Bay. Forests in theBay watershed retain a highpercentage of the nitrogen,while developed areas exhibithigh levels of runoff of nitrogendeposited from the air.

What we have learned aboutthe solution …

■ To date, Bay Program partnershave relied on theimplementation of Clean AirAct (CAA) regulations toreduce air deposition. TheTributary Strategiesincorporate a total nitrogenreduction of 11 million poundsto be achieved by 2010, basedon CAA regulations already ineffect. An additional reductioncan be expected by 2020.

Because the costs of thesereductions will be borne by theair emission sources, they arenot included in the costestimates for restoring Baywater quality and will be a“free” contribution.

■ Given the significant role thatland use plays in the rate atwhich airborne deposits ofnitrogen reach Bay waters, themost effective mechanisms inthe state Tributary Strategiesfor controlling runoff resultingfrom air deposition are forestcover and improved stormwatermanagement. Forests absorb airdeposition at a rate four timesgreater than developed lands.Effective stormwatermanagement approaches alsoencourage infiltration and helpto improve water quality.

■ Even where air emissionsources are controlled byfederal regulations, states inthe watershed can adoptmeasures such as financialincentives to accelerate therate at which these controlsare realized. Given the rapidincreases in vehicle milestraveled, financial incentivesand disincentives could beused to encourage greater fuelefficiency and cleanertechnologies in vehicles (cars,buses, SUVs and trucks).

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Modeling indicatesthat at least 25 percent andpossibly a third of nitrogenentering the Bay comes fromair deposition.

While populationincreased about eight percent during the last decade,vehicle milestraveled rose 26 percent.

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THE CHESAPEAKEBAY FINANCINGAUTHORITY

The Blue Ribbon Finance Panelrecommends the establishment ofa new Chesapeake Bay FinancingAuthority that uses funding on aregional basis to address criticalneeds throughout the watershed.We offer here a rationale for sucha Financing Authority and aconceptual explanation of how itwould function.

WHY A NEW FINANCINGAUTHORITY?

Business as usual will notaccomplish the task before us.Current efforts to control nutrientand sediment pollution are toomodest and too fragmented, andlack the kind of directedcoordination required for aregionwide strategy. While thestates should be applauded for theactions they have taken so far,much-needed nutrient andsediment controls require movingthe clean-up effort to a higherlevel. There must be a means forguiding significant resources to themost critical and cost-effectiveactions in the watershed, whereverthey may be.

The need for a new regionalFinancing Authority for theChesapeake Bay and the principlesunderlying its fundamentalstructure are based on thefollowing premises:

■ Cleaning up the ChesapeakeBay will cost many billions ofdollars, requiring a renewedcommitment from federal, stateand local governments, privateindividuals and industry.

■ We must secure the resourcesneeded to fulfill the obligationto clean up the Chesapeake Bay— and to remove it from theClean Water Act list ofimpaired waters — by 2010. Aregional Financing Authoritymust be capable of filling the

funding gap between existingprograms and the cost of aclean Bay.

■ To ensure the meaningful andsustained commitment by alllevels of government, theFinancing Authority mustreceive new significant federalfunding that is secured inpartnership with increased stateand local funding. It must beable to sustain itself, and itmust also direct funds towardthe highest priority needs in theChesapeake Bay watershed.

■ The Financing Authority mustbe simple and flexible, adaptingto local needs and approachesand to the realization thatcleaning up the Chesapeake Baywill not have the same priorityin every jurisdiction.

■ The Financing Authorityshould, to the extent possible,use structures and mechanismsthat are familiar and mayalready be in place.

■ Federal leadership to protectthis national treasure is key, as isstate and local governmentalpriority toward sustainingconcrete clean-up actions andproviding the neededaccountability for implementingtheir plans.

CONCEPTUALFRAMEWORK

The Chesapeake Bay WatershedBlue Ribbon Finance Panelrecommends the followingconceptual framework forestablishing a new regionalFinancing Authority in a mannerthat makes much-needed fundsavailable as soon as practicable andthat secures and leverages funds,using competition to unleashinnovation and efficiency. Thejustifications for establishing aFinancing Authority arecompelling and the logic is sound,but many details will need to bedetermined by the members of the

Bay partnership — the states, theDistrict of Columbia, the federalgovernment and the ChesapeakeBay Commission.

The Panel recommends:

The creation of a Chesapeake BayFinancing Authority, capitalized byfederal funds over a six-yearperiod, as follows:

2005 $1 billion2006 $2 billion2007 $2 billion2008 $2 billion2009 $2.5 billion2010 $2.5 billion

■ The proposed ratio of federal tomatching funds would be80/20, the same as thatlegislated by current StateRevolving Loan Funds acrossthe country.

■ The states’ match should be $3billion, apportioned among thestates and funded by whatevermeans the states choose,bringing the total capitalizationto $15 billion.

■ Working together, the six Baywatershed states and theDistrict of Columbia shouldfirst commit to establishing aChesapeake Bay FinancingAuthority as soon as possible,but no later than January 1,2007. The governors, mayorand other leaders shouldappoint experts as necessary todesign both an interim strategyfor the immediate future and aconcrete strategy for theregional Financing Authority.

■ Immediately, the federalgovernment and the six statesand the District Columbiashould develop a shared senseof funding priorities. Theyshould use existing authoritiesand structures, such as StateRevolving Loan Funds (SRFs),to create a voluntary fundingcoalition. This fundingcoalition could begin to receivefunds immediately from federal,

Recommendations: A Bold ApproachControlling theunremitting flow ofnutrients and sedimentinto the ChesapeakeBay will require a boldnew approach. Costsfor new programs willrange in the billions,and conventionalmechanisms that couldraise $100 million,$200 million or even $1billion or $2 billion aresimply not adequate tothe challenge before us.The Panel concludedthat, while a range ofsmaller programs canplay a key role,restoring theChesapeake Bay willrequire a large-scalenational and regionalapproach, capitalized by federal and stategovernments anddirected according to awatershedwide strategy.

The Panel’srecommendationsfollow.

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state and other sources, allowingthe distribution of loans andgrants in the near future. Notethat the Clean Water SRF,unlike the Drinking Water SRF,cannot currently give grants,only loans. The Panel stronglyrecommends that a structure bedevised that has a grant-givingcomponent, such as the 30percent allowed under theDrinking Water SRF.

■ The Authority should becomprised of representatives ofthe U.S. EnvironmentalProtection Agency EPA, theChesapeake Bay watershed states, the Chesapeake BayCommission, the advocatecommunity and importantstakeholders, includingagriculture, wastewater treatmentplant officials and business.

■ The Financing Authority shouldidentify and develop projectsand programs to remediate theBay on the basis of “best”project funded, according toeffectiveness, efficiency andinnovation, regardless ofgeography. The FinancingAuthority should implement aregional Clean Bay IntendedUse Plan (IUP) built upon thestates’ Tributary Strategiesincluding full implementationplans, and consistent with EPAguidelines. (The IUP is arequirement of the Clean WaterAct for administration of StateRevolving Loan Fund programs,and has proven to be a veryeffective mechanism fordirecting the funds.)

■ In recognition of the enormityof identified Chesapeake Bayclean-up costs, there must besustainable, dedicated state andfederal funding for theAuthority. Accordingly, theFinancing Authority shoulddevelop a mechanism for thecreation of a sustainable revenuestream, collected by the states.The states in turn should bepermitted to retain a portion ofthe revenue to support state andlocal clean-up programs. Thisrevenue stream could be derivedfrom a range of sources,including many of the proposals

advanced by the Blue RibbonFinance Panel subcommittees(e.g., surcharges on sewer fees,septic fees and developmentfees) and included in theSupplementaryRecommendations below.

■ The Authority should beempowered to issue grants aswell as revolving loans. Thiscomponent is particularlyimportant to the ChesapeakeBay, since the greatest impactwill result from the activeparticipation of the agriculturalcommunity and of cash-strapped urban areas, neither ofwhich is likely to embrace theprogram if it relies solely onrevolving loan structures.

The Authority will requireidentifying and leveragingsustainable revenue streams. Thiswill mean floating bonds (alreadyunderway in some cities and states)but also identifying new revenuestreams, such as sewer surcharges,and — especially for economicallydistressed areas or largeconstruction projects — publicgrants and loan funds as well. Suchcombined revenue sources arenecessary given the large sums ofmoney that must be raised. Theyare also logical in that the benefitsare both local (e.g., for thecommunity floating the bonds)and regional (e.g., for an entirestate or region, which benefitsfrom improved water quality).

The FinancingAuthorityshould identifyand develop thebest projects toremediate theBay regardlessof geography.

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During the interim period, asthe Financing Authority is takingshape, the Panel recommends anapproach called “co-funding." Co-funding involves formalcooperation and coordination ofvarious federal and state agenciesto allow the funding of a projectthat might not have otherwisebeen possible. For example, theState of New York has establisheda formal Water and SewerInfrastructure Co-FundingInitiative to better streamline andcoordinate the process of providingfunding to a project from multiplefunding sources (EPA, USDA,HUD, etc.). These co-fundedprojects are generally targeted tosmall communities that meeteconomic hardship standards.

Programs already operationaland available within theChesapeake Bay watershed statesthat could be involved in such aCo-Funding Initiative include: theSRF program, USDA’s RuralUtilities Service Water and WasteDisposal Loan and Grant Program,HUD’s Non-Entitlement

Community Development BlockGrant Program, the AppalachianRegional Commission, the U.S.Department of Commerce’sEconomic DevelopmentAdministration Public Works andInfrastructure DevelopmentProgram, USDA’s Partnerships andCooperation provision in the FarmBill, and various stateenvironmental programs.

The Panel also recommendsdeveloping a way for the federalgovernment to address cases whereimproving infrastructure, such aswastewater treatment plants andurban stormwater retrofits, couldcause economic hardship incommunities. This issue is addressedin the recommendations below.

In summary, the ChesapeakeBay Financing Authority shouldhelp to direct the financing ofChesapeake Bay restoration. It isdifficult to see any other way toassure the necessary money will beraised and applied to restore thispriceless national asset.

SupplementaryRecommendations

During the Panel’sdeliberations, a number ofrecommendations weredeveloped by the Panel’ssubcommittees to improveexisting funding programs,expand financing opportunitiesand generally improve theability of the Chesapeake BayProgram to restore the Bay. A number of these concepts can and should be coordinatedwith the proposed FinancingAuthority, and others arediscrete recommendations for tax savings or otherincentives. Theserecommendations wereendorsed by the Panel, and are presented on the following pages.

Without aChesapeake Bay FinancingAuthority, it is difficult tosee any otherway to assurethe moneynecessaryto restore this pricelessnational asset.

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Improve coordination andcooperation among federalagencies with programs in theChesapeake Bay watershed.

The Panel endorses the call forcooperation articulated in TheChesapeake Bay Restoration Act of 2000.Section (f )(3)(A) states,

As part of the annual budgetsubmission of each federalagency with projects or grantsrelated to restoration, planning,monitoring or scientificinvestigation, the head of theagency shall submit to thePresident a report that describesplans for the expenditure of thefunds under this section...Theheads or designees of each federalagency — including, but notlimited to the EPA, theDepartment of Defense (DOD),the U.S. Department ofAgriculture (USDA), and theDepartment of the Interior(DOI) — with applicableprograms should meet semi-annually to identify priority-funding issues and coordinateprogram implementation. Theresults of these meetings will bean annual funding strategy reportsubmitted to the ExecutiveCouncil of the Chesapeake BayProgram (CBP).

Establish state surchargeprograms throughout theChesapeake Bay watershed.

Recently, the State of Marylandenacted one of the most innovativeand progressive water qualityfunding programs in the country.The Chesapeake Bay WatershedRestoration Fund will support threewater quality efforts, includingupgrading Maryland’s 66 largestwastewater treatment plants,addressing failing septic systems,and supporting cover crop programsfor agriculture. The Fund will befinanced with a $2.50/monthsurcharge on sewer bills and a$30/year fee on septic systemowners. The State of Marylandanticipates raising over $60 millionper year with this initiative, arevenue stream that is beingleveraged to some $980 millionthrough state bonds. This programprovides a model to other Bay statesto fund wastewater treatmentupgrades and other efforts.

We note that the Governor ofPennsylvania has proposed a Growing

Greener II Bond Issue which wouldbe funded by dedicating wastedisposal fees to finance the bonds.Additional fees would be imposed onmunicipal waste, residual waste, andToxic Release Inventory releases. The$800 million bond would, over afour-year period, fund $80 million toimprove the health of Pennsylvania’s83,161 miles of rivers and streams.

Total revenue of state surchargeprograms throughout thewatershed could raise as much as$200 million per year in support ofBay restoration efforts. Thesefunds could then be leveraged, asthrough use of state bonds.

Expand participation of theheadwater states in the CBP.

The headwater states of Delaware,New York and West Virginia arenow participating actively in theChesapeake Bay Program’s waterquality restoration initiatives. Theyare equal partners in this endeavor,and have a major role to play. ThePanel recommends that thegovernors of the headwater states beinvited to join the ChesapeakeExecutive Council.

Set aside a portion of funds foreducation, outreach andtechnical assistance toimportant stakeholders.

The actions of builders,homeowners, businesses, farmers

and individuals all have played a rolein the Bay’s water quality problems,and now must play a vital role in theBay’s restoration and futureprotection. In order to achieve thereductions needed in nutrient andsediment loads to the Bay fromfarm fields, developed lands andother sources, the Chesapeake BayProgram partnership must work withprivate property owners and otherstakeholders to help themunderstand the importance of theiractions and the methods for applyingbest management practices. TheProgram also needs to reach a broadpublic, to educate them about thenature of the problems facing theBay and the means for solving them.

There are groups andorganizations with special skills inreaching out to these importantaudiences, and their assistance isneeded in ambitious outreach andeducation efforts. The Panelrecommends that one percent of allrestoration funds be set aside as apool for competitive awards to publicand private nonprofit organizationsthat demonstrate an expertise indeveloping and delivering outreach,education and technical assistance. Inaddition to nonprofit organizations,such agencies as County Soil andWater Conservation Districts andCounty Cooperative ExtensionOffices (or their state associations),would be eligible to compete for thispool of funds.

The actions ofbuilders,homeowners,businesses,farmers andindividuals allhave played arole in the Bay’swater qualityproblems, andnow must play avital role in theBay’s restorationand futureprotection.

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SupplementaryRecommendations

for the Agriculture Sector:

To help close the funding gap, inaddition to the funds madeavailable through the FinancingAuthority, the Panelrecommends …

Increase Farm Bill Funding forthe Chesapeake BayWatershed and Improve theEfficiency of Federal Cost-Share Programs.

A primary cause of the “efficiencygap” in federal cost-shareprograms is the need by farmersto keep land in production. Manyof the most effective and efficientbest management practicesrequire removing land fromproduction and instead usingthem as forest and grass buffers orreturning them to their historicwetland functions. When facedwith the prospect of lost income,cost-share levels can becomeprohibitive. Therefore, any newfederal funding must address thisefficiency issue. The Panelrecommends:

■ Allow federal cost-share toincrease to the maximum allowedby law (for example, increasing thecost-share level of theEnvironmental Quality IncentivesProgram [EQIP] to 75 percent).

■ Develop a program thataggregates Chesapeake Baywatershed or state block grants forpackages of USDA programscustomized to meet the uniquecircumstances of the region’sfarmers and Bay nutrient goals. Allfarms, crops and animals in theChesapeake Bay watershed shouldbe made eligible for these funds asappropriate for nutrient reductiongoals, and the programs shouldallow more flexibility andinnovative departures from currentNatural Resources ConservationService (NRCS) guidelines whenlinked to performance-basedmanagement. This watershedwideapproach should be integrated intothe financing and implementationplans overseen by the ChesapeakeBay Financing Authority.

The Chesapeake Bay regionhistorically has received relativelyless Farm Bill funding than otherregions of the country. Moreover,the vast majority of that fundinghas been targeted to a small

fraction of the region’s farmerswho produce commodity crops.Therefore, the Panel noted thatFarm Bill funding for theChesapeake Bay region needed tobe increased to better meet theneeds of local farmers and providesufficient funding to meet theBay’s nutrient needs.

The Panel emphasizes the needto support innovation in farmingpractices. Farm Bill funds shouldbe available for expandinginnovative programs such as yieldreserve and manure management.

Fully Implement theConservation SecurityProgram (CSP) under the2002 Farm Bill and PlaceGreater Emphasis on CSP inthe next Farm Bill.

The 2002 Farm Bill included aninnovative new program, theConservation Security Program(CSP), to encourage greater landand water stewardship and to builda financial support mechanism thatapplies to all types of farms.Because current farm subsidyprograms in the Farm Bill arebeing scrutinized due to bothbudgetary concerns and tradeissues, a broad range of interestsare voicing support for increasingfunding for CSP or a CSP-likeprogram that is consistent withWorld Trade Organization rules,provides necessary financialsupport to America’s farmers, andimproves environmentalconditions on farmland. To date,implementation of CSP has beenlimited relative to its authorizationin the 2002 Farm Bill.

The Panel recommends fullimplementation of the CSP in theremainder of the 2002 Farm Billand greater emphasis on CSP in thenext Farm Bill authorization. Underfull implementation, CSP couldbring $42 million to the ChesapeakeBay watershed states. Much of thisfunding would be for incentivepayments to encourage moreconservation rather than forconventional crop or commoditypractices. This effort should becoordinated with and become partof the watershedwide application offunds, as guided by the ChesapeakeBay Financing Authority.

The ChesapeakeBay regionhistoricallyhas receivedrelatively lessFarm Billfunding thanother regions of the country.

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Include ComprehensiveNutrient Management Plansas Part of Compliance forFarm Bill CommodityPayment Programs.

The greatest amount of publicfunding going to farmers in theChesapeake Bay watershed isthrough commodity subsidies inthe 2002 Farm Bill. Thesepayments are roughly five times theamount of conservation paymentsgoing to farmers in the watershed.Consequently, commoditypayments are much more likely toinfluence farmer behavior. Arecent analysis by USDAEconomic Research Service(Number 832, June 2004)concludes that substantial potentialexists to address nutrientmanagement and streamsidebuffers through commodityprograms.

Much progress can be madethrough implementation ofcomprehensive nutrientmanagement plans and/or bufferpractices as part of conservationcompliance for Farm Billcommodity programs. This actioncan leverage the $275 million incommodity payments made to Baywatershed farmers to increaseadoption and implementation ofthese key agricultural practices. Aswith the previousrecommendations, this effortshould be coordinated with thenew Financing Authority, to assurethat the full range of funds is beingused to the best effect throughoutthe watershed.

The Secretary of Agricultureshould be invited to join theChesapeake ExecutiveCouncil.

Given the overwhelmingsignificance of agriculture in theChesapeake Bay restoration effort,it is the recommendation of theBlue Ribbon Panel that theSecretary of the Department ofAgriculture should be invited tobecome a permanent member ofthe Chesapeake Bay ExecutiveCouncil.

SupplementaryRecommendations for the Municipal

and IndustrialWastewater Sector:

To help close the funding gap, inaddition to the funds madeavailable through the FinancingAuthority, the Panelrecommends …

To reduce the hardship levelwhere necessary, the federalgovernment should develop aHardship and Innovation Fundto be used to supplementClean Water State RevolvingLoan Fund programs (SRF).

Though the Bay states have beenvery successful in leveraging SRFfunds for wastewater treatmentupgrades, one issue facing state andlocal officials is the economichardship associated with upgradingwastewater treatment plants insome communities. EPA gaugeshardship by comparing, for a givencommunity, its wastewater usercharge to its median householdincome. One issue facing statemanagers is the need to lowerhardship levels in impoverishedcommunities.

To reduce the hardship levelwhere necessary, the federal

government should develop a $200million Hardship and InnovationFund (the Fund) to be used tosupplement Clean Water StateRevolving Loan Fund programs(SRF) for the Chesapeake BayWatershed. (This Fund should beadditional federal funding, as it isnot the Panel’s intent that existinglevels of SRF grant funds shouldbe shifted for this purpose.)

The Fund would be usedexclusively for biological nutrientreduction and enhanced nutrientreduction upgrades and newconstruction that incorporatesthese technologies. The Fundwould be used in thosecommunities where costsassociated with wastewatertreatment upgrades create a truefiscal hardship. The goal of theFund would be to serve as a “gapfinancing” tool to reduce costsassociated with specific wastewatertreatment upgrades to belowhardship levels, as measured by thepercent of median householdincome represented by the localwastewater user charge.

Once established, this Fundshould be incorporated into theChesapeake Bay FinancingAuthority to address hardship andinnovation in its grant and loan-making policies. The Panel doesnot intend to recommend doubleappropriations.

The Clean Water State Revolving Loan Fund(SRF) program, created by the 1987 Amendmentsto the Clean Water Act, has become the primarytool for financing wastewater treatment plantupgrades and other water pollution controlactivities throughout the Chesapeake Baywatershed. SRF programs around the countryhave helped local governments reduce the cost ofraising capital to finance wastewater treatmentconstruction projects by allowing localgovernments to borrow money at lower ratesthan available from other lenders.

The federal seed money in the SRF can extendstate and local dollars and finance more projectsthan either state or local sources could on theirown. Repayments to the revolving funds allow fora relatively stable source of financing for waterquality projects over the long term.

In addition to providing states with an effectivetool for financing infrastructure improvements,

SRF programs often are the most effective way tointernalize costs associated with environmentalmitigation activities. Borrowing money at below-market interest rates significantly reduces thecosts to communities for implementing waterquality initiatives.

Even though costs are reduced, however,communities must still repay borrowed funds.Therefore, the ultimate cost for reducingpollution is borne by the polluters themselves —the utility customers. By using SRF programs,communities are implementing two vitalcomponents of fiscal sustainability — they areemploying sustainable revenue streams andapplying the costs of cleanup to the source of thepollution.

The Blue Ribbon Panel acknowledges that theSRF is a proven and effective tool andrecommends that it be leveraged and expandedthroughout the watershed.

State Revolving Loan Fund

30 Develop a pilot program thatwould allow Bay states todisseminate 30 percent of newSRF appropriations in theform of grants.

One impediment facing stateClean Water State Revolving Fund(SRF) managers is the currentClean Water Act restriction ondisseminating SRF program fundsin the form of grants. As a result,states are restricted in their abilityto effectively fund priority projectsin communities in need.

The federal government shoulddevelop a pilot program that wouldallow Bay states to disseminate 30percent of new SRF appropriationsin the form of grants. These grantswould be in addition to theproposed Hardship and InnovationFund and would apply to eligiblepoint and nonpoint-sourceprojects. For the Bay states, thiswould be a total of approximately$510 million between 2004 and2010, or approximately 10 percentof the expected value of Bay states’revolving loan funds. This pilotprogram would be melded into theChesapeake Bay FinancingAuthority, adopting the sameconcept of mixing loans and grants.

Create a Nutrient TradingProgram for Municipal andIndustrial Wastewater Plants.

Establish cap and trade permits thatinclude municipal and industrialwastewater plants with nutrientlimits adequate to meet TributaryStrategy allocations for this sector.In the Potomac River basin, this

could allow for trading acrossjurisdictions. Cap and tradeprograms reward innovation andcould save an estimated $1 billion inwastewater treatment costs if fullyleveraged. Because the benefits ofsewer surcharges are not dependenton the presence of cap and trade, orvice versa, the use of one need notdictate the other — althoughcombining the two offers thegreatest potential for increasingfunds and efficiencies.

The Panel did not see a modelof point/nonpoint-source tradingwhich it could endorse at this time,although it was informed that somejurisdictions are interested indeveloping such a program.

Establish Tax-exemptFinancing for IndustrialWastewater Facilities at theState Level.

Tax exempt financing can providean affordable method for owners ofindustrial wastewater facilities tocomply with wastewater standards.The State of New York hasestablished an innovative programthat provides such financingopportunities. The NYS IndustrialFinance Program (IFP) providestax-exempt and taxable conduitfinancing to private entities. TheIFP lends the proceeds of tax-exempt bonds to borrowersseeking financing forenvironmental facilities includingsolid waste handling, wastewatertreatment, drinking water supply,and privatization of municipal orstate environmental facilities.

The use of tax-exempt bondsallows IFP clients to borrow fundsat a lower rate of interest than wouldotherwise be available in the market.For projects or portions of projectsthat do not qualify for tax-exemptionunder the federal tax code, the IFPcan provide taxable conduitfinancing. The minimum size of anIFP financing is approximately $1.5million. Several projects at one ormore sites owned by one or moreborrowers may, however, befinanced with a single IFP bondissue. IFP financing can be used toprivatize certain exempt facilities.

Each of the Chesapeake Baywatershed states should considerestablishing a program to providetax-exempt financing to owners ofindustrial wastewater facilities.

SupplementaryRecommendations for

Development:

To help close the funding gap,in addition to the funds madeavailable through the FinancingAuthority, the Panelrecommends …

Ensure State Revolving FundCapacity Through IncreasedFederal Capitalization.

Perhaps the most important use ofpublic money right now is toincrease the capacity ofcommunities to plan, implementand fund best managementpractices through programs likestormwater utility fees. One of themost effective tools foraccomplishing this is the CleanWater SRF. If used in conjunctionwith federal grant programs andlocal utility fees, sustainablerevenue streams can be leveragedto manage upfront capital costs aswell as long-term operations andmanagement costs.

Although the SRF program mayhave sufficient capacity to handlecurrent demands, it is not at all likelythat state SRF programs would besufficient to fund the majority ofurban stormwater needs in the region,as well as other nonpoint-sourceprograms such as land preservation or the implementation of agricultural BMPs.

NutrientTrading

Nutrient trading is thetransfer of nutrient reductioncredits, specifically those fornitrogen and phosphorus,between buyers (entities thatpurchase nutrient reductioncredits) and sellers (entitiesthat offer nutrient credits forsale). Often referred to as“cap and trade,” a well-designed nutrient tradingprogram will reveal thelowest unit costopportunities for reducingnutrient loadings fromwastewater treatment plants,and thus achieve the lowestoverall cost of compliance.

This type of arrangementhas numerous advantages.One, ratepayers equallyshare the statewide cost.Two, those wastewaterplants with the lowest costswould be encouraged tomost aggressively reducenitrogen pollution. Three, allratepayers benefit whencosts are reduced. Four, Baystates could establish trade“zones” that are designed toensure needed reductions ofnitrogen for all rivers and/orregions of the state. Five,there would be no need forthe state to decide centrallywhere and when wastewaterplants should be upgraded;instead wastewater plantmanagers would make thosedecisions locally.

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In the Chesapeake Bay region,increased funding should bededicated to nonpoint-sourcefunding priorities — includingstormwater management. While thePanel felt that there is logicaljustification for the development of aseparate SRF program, specifically forstormwater, the creation of theChesapeake Bay Financing Authoritywould be able to assume this functionand direct some loans and grants tostormwater management projects.

Establish Stormwater UtilityUser Fees At The Local Level ToFund Stormwater ManagementPrograms.

Localities have the basic legalresponsibility to establish and enforcegood stormwater requirements fornew development andredevelopment. They must operateand maintain stormwatermanagement BMPs, monitorstormwater quality, and implement avariety of local stormwater retrofitand stream restoration projects. Forthis, a sustainable local revenuestream is needed.

Stormwater utility fee systemsshould be put in place throughout thewatershed to insure the integrity oflocal stormwater managementfunctions. These fees could be basedon the amount of impervious areacreated by the various types ofdevelopment. Fees on a sliding scalewould encourage the reduction ofimpervious surfaces created inhousing construction or commercialdevelopment. Using severalassumptions regarding the number oflocal governments that may enactsuch a fee and the type of feeschedule they may adopt, estimated

revenue generated within thewatershed is between $115 millionand $229 million annually.

Develop Financial IncentivesThat Would Be Used To ReduceCost Of Urban Retrofits.

These incentives, as part of a Baypilot program, should be in the formof grants, negative interest rate loans,or principal buy-back programs.Incentives would be used inconjunction with SRF funds and onlyin communities with current orplanned stormwater utility programs.The goal would be to fund upfrontcapital costs for urban retrofits, whileusing stormwater utilities to fundoperations and maintenance. Inaddition, only those communities thathave upgraded stormwatermanagement plans in place would beeligible to participate in the program.The program should be developed aspart of one of the traditional fundingprograms, or could be a new programmanaged by the EPA SRF program.It should be developed immediatelyand then transferred to the newChesapeake Bay Financing Authority.

Establish A Residential LawnAnd Garden Fertilizer SurchargeAt The State Level.

As more people move into theChesapeake Bay watershed, individualimpacts on the Bay from everydayactivities become magnified. Throughseemingly harmless activities such aslawn care, each citizen in thewatershed begins to impact waterquality in the Bay and its tributaries.One way of mitigating these impactsis to levy appropriate fees on thoseactivities that contribute excessnutrients to the Bay.

As one Panelist put it, “Every successfulenvironmental effort in this country has depended ona combination of appropriate regulation and adequatefunding.”

In Chesapeake 2000, the Chesapeake ExecutiveCouncil recognized the importance of integrating thecooperative approaches of the Bay Program with theregulatory requirements of the federal Clean WaterAct to speed the cleanup of the Bay. Since more thana quarter of the nitrogen entering the Bay comesfrom the air, cutting air emissions through federalClean Air Act regulations will help clean the water as well as the air.

Several Clean Air Act regulations have establishedcontrols on nitrogen oxide emissions from powerplants and other sources, and EPA has proposed aClean Air Interstate Rule that would add substantiallyto these controls. These regulations are aimed atimproving air quality nationwide — or over a largeregion — but there are great side benefits for Bayrestoration. If these regulations are well enforced, airemissions will drop, reducing the amount ofatmospheric deposition in the Chesapeake Baywatershed. Less air deposition of nitrogen means lessto control on the ground, and therefore lower costsfor Bay restoration.

Water pollution is regulated by the Clean WaterAct. Administered by EPA and the states, the CleanWater Act regulates discharges of pollutants from“point sources” such as wastewater treatment plants,industrial plants and large concentrated animal feedingoperations through permits called National PollutantDischarge Elimination System (NPDES) permits.Regulatory requirements are also being applied tourban stormwater drainage, through a phasedapproach.

Looking ahead, the segment of Bay pollution that ison the increase comes from urban and suburban landdevelopment. NPDES permits will cap loads fromwastewater treatment plants, but state and localregulations will prove essential if we are to protectsensitive land uses and control pollution from newdevelopment.

New Chesapeake Bay tidal water quality standards,now being adopted by the states, strengthen thescientific basis for establishing nutrient and sedimenteffluent limits in Clean Water Act permits. Setting andenforcing Bay-specific nutrient and sediment reductionrequirements in NPDES permits will provide asubstantial incentive for reducing municipal, industrialand stormwater loads to the Bay by 2010.

In the end effective regulation will channelinvestments toward reducing nutrients and sedimentfrom regulated sources, and speed Bay restoration. Atthe same time, regulation without adequate fundingwill not get the job done. Regulation and financingmust go hand in hand.

Regulation and Bay Cleanup

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At the state level, establish aResidential Lawn and GardenFertilizer Tax/Surcharge. Such asurcharge could be placed onfertilizers sold for use within theChesapeake watershed. Theproceeds from the surcharge couldbe used to fund residential areanonpoint-source pollution controlprograms. One initiative could be aneducational program forhomeowners to highlight LowImpact Development (LID)techniques that can reduce runofffrom residential properties. Suchtechniques include, among otherthings, planting of trees and shrubs,using porous pavement and creating“rain gardens” to better soak uprainwater. Total estimated revenue: $6 million annually.

Use Approaches Such AsTransfer Or Purchase OfDevelopment Rights To FundProtection Of Green Spaces AtCommunity Level.

Concern over the rapid andincreasing loss of farmland and openspace has led to the development ofinnovative policies to protectvaluable land resources. Two suchpolicies are called the transfer ofdevelopment rights (TDR) and thepurchase of development rights(PDR). These policies refer to amethod for protecting land bytransferring — or purchasing — therights to develop from one area andgiving them to another. What isactually occurring is a consensus toplace conservation easements onproperty in undeveloped areas whileallowing for an increase in

development densities or bonuses in other areas targeted fordevelopment. The costs ofpurchasing the easements arerecovered from the developers whoreceive the building bonus.

The Panel recommends that localcommunities use approaches such asthe transfer of development rightsor the purchase of developmentrights to help fund the protection ofgreen spaces while guiding growthto areas targeted for development.The economic impact of suchmeasures will depend entirely onthe degree to which they areadopted, but the potential for costefficiencies is significant.

Enact and ImplementSAFETEA.

Highways and roads are hugesources of stormwater runoff andalso alter the natural hydrology inthe watershed. Improving thecapacity of highway programs toremediate stormwater pollution istherefore essential. Currently, theHouse and Senate are working ona reauthorization of the existingTransportation Equity Act (TEA-21). The Senate version of the newact, called the Safe, Accountable,Flexible and EfficientTransportation Equity Act(SAFETEA) has a provision thatincludes stormwater mitigationfunding. If the Act is passed andsigned into law by 2005 (it iscurrently in a House-SenateConference Committee), morethan $100 million could be madeavailable to basin states over sixyears.

The Panel strongly recommendsthat the stormwater provisions inthe Senate’s version of the lawSAFETEA be passed and that thisnew program be fully appropriated.

SupplementaryRecommendations for

Forest Restoration:

To help close the funding gap,in addition to the funds made available through theFinancing Authority, the Panelrecommends …

Increase Funding forConservation ReserveEnhancement Program(CREP).

The Conservation ReserveEnhancement Program (CREP)has supported over 90 percent ofall riparian forest buffer restorationcompleted to date in theChesapeake Bay watershed.Currently approved CREPprograms in the Chesapeakewatershed are not sufficient toaccomplish the forest buffer goalswithin the restoration strategies. Tomake CREP more effective inreaching these goals would requireadditional funding commitments,refocusing existing CREPprograms to more effectively targettrees (rather than grass bufferstrips), increasing approvedprogram acreage limits, andexpanding technical assistance.Additionally, to reach TributaryStrategy commitments, newprograms would have to addressneeds on lands that do not qualifyfor CREP. Finally, CREP must beexpanded to meet bufferimplementation goals for suburbanand urban lands.

The Panel recommends anincrease in CREP funding by$60 million per year. This is inaddition to the increase inagriculture cost-share programsrecommended as part of theagricultural recommendations. The funding should be targetedtowards forest buffers installationand technical assistance. The Panel believes the benefits of thesebuffers well outweigh the costs.

EducatingHomeownersOn the Use of Fertilizer

To help educateconsumers about theimportance of properuse of fertilizer and itspotentially negativeeffects on the Bay ifapplied improperly, alabel could be placed onthe bag.

Language currentlyused by the SouthernStates Cooperativecould serve as a model.Their label reads,“Fertilizer appliedincorrectly orexcessively can run offyour property and harmyour local waters. As amember of Businessesfor the Bay, SouthernStates Cooperativeencourages responsibleuse. Here are sometips for using thisproduct responsibly:never apply fertilizerwhen rain is in theforecast or grass isdormant (brown); keepfertilizer off pavedareas; test your soilbefore applyingfertilizer; and storeunused fertilizer in adry area.”

One of the most effective tools forestablishing forest buffers throughout thewatershed has been the ConservationReserve Enhancement Program (CREP).CREP is a voluntary land retirement programthat helps agricultural producers protectenvironmentally sensitive land, decreaseerosion, restore wildlife habitat, andsafeguard ground and surface water. Theprogram is a partnership among landownersand state and federal governments. CREP is

an offshoot of the country’s largest private-lands environmental improvement program —the Conservation Reserve Program (CRP).

By combining CRP resources with state,tribal and private programs, CREP providesfarmers and ranchers with a sound financialpackage for conserving and enhancing thenatural resources of farms. Over 90 percentof all riparian forest buffer restorationcompleted to date has been accomplishedthrough support provided by CREP.

Conservation Reserve Enhancement Program

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SupplementaryRecommendations for Air Deposition:

Enforce Federal and StateClean Air Laws.

Reducing air emissions of nitrogencompounds is extremely importantfor restoring water quality in theChesapeake Bay watershed. (It isalso noteworthy that air emissionsare the largest continuing sourceof mercury in the watershed.)The Panel recommends thatfederal regulations under theClean Air Act, and related stateregulations, be enforcedvigorously. This will pay doubledividends — by contributingsubstantially to nitrogenreductions required to remove theBay’s tidal waters from the CleanWater Act impaired waters list,and by improving air quality forhuman health protection.

Extend Vehicle Tax Incentives.

A significant contribution of thenitrogen entering the ChesapeakeBay comes from millions of mobilesources within the watershed —cars, SUVs, buses and trucks. Thecombination of increasingpopulation and rapidly increasingvehicles miles traveled has

drastically increased loads fromthese sources in recent decades.One way to reduce the impact ofmobile sources is to use financialincentives to encourage greater fuelefficiency and cleaner technologies.Tax incentives can be an effectiveway to accomplish this goal.

The federal government has inthe past offered tax incentives andcredits to encourage the purchaseof vehicles that incorporateadvanced automotive technologies.As a result of these tax credits,hybrid vehicles have moved fromthe laboratory to the highway.These vehicles significantly reducecarbon dioxide, ozone and NOxemissions. Under current law, a 10percent credit is provided for thecost of qualified electric vehiclesand fuel cell vehicles up to amaximum of $4,000. Themaximum amount of the creditbegan to phase down in 2002 andphases out completely in 2005.

The Panel proposes extendingthe tax credit in the Bay states at its $4,000 maximum levelthrough 2010.

Amend 2003 Tax Act toRestrict EquipmentDeduction.

Just as tax credits and other financialincentives can be used to encourage

sustainable behavior, these same toolscan result in harmful incentives asthey relate to protecting naturalresources like the Chesapeake Bay.For instance, as a result of the federal2003 Tax Act, many small businessescan instantly deduct up to $100,000worth of new and pre-ownedequipment such as SUVs and smalltrucks in the year the equipment isfirst placed in service ($102,000 for2004 after adjusting for inflation).

The new $100,000 allowance isfor tax years beginning in 2003through 2005. The name of thisgenerous break is the Section 179depreciation deduction, and it canreduce both federal income tax andself-employment tax bills. Withoutit, businesses would have todepreciate most equipment over fiveto seven years. (Before the 2003 Act,the maximum Section 179 write-offfor tax years beginning in 2003 andbeyond was only $25,000).

Aided by this tax break, sales oflarge SUVs and trucks haveskyrocketed. We do not oppose suchdeductions when large vehicles arerequired for businesses, butrecommend that the 2003 Tax Actbe revised to restrict the equipmentdeduction to business uses ratherthan personal uses, and, further,provide the same business tax breakfor the purchase of hybrid andelectric vehicles.

A significantcontribution ofthe nitrogenentering theChesapeake Baycomes frommillions ofmobile sourceswithin thewatershed —cars, SUVs, busesand trucks.

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The Honorable Gerald. L. Baliles, Chair Gerald L. Baliles is the formerGovernor and Attorney General ofVirginia. As Governor, he signedthe 1987 Chesapeake BayAgreement on behalf of theCommonwealth. He is author ofthe book Preserving the Chesapeake Bay.In 1993, President Clintonappointed him to chair theNational Commission to Ensure a Strong and Competitive AirlineIndustry. More recently, GovernorBaliles assisted the U.S. innegotiating an “open skies” airtransport agreement with Japan.Governor Baliles is currently apartner in the law firm of Hunton& Williams in Richmond. He wasdesignated to the panel by VirginiaGovernor Mark R. Warner.

The Honorable Bruce Babbitt Secretary Babbitt is a resident ofthe District of Columbia and is OfCounsel at the law firm of Latham& Watkins. He served as theSecretary of the Interior duringthe Clinton administration and isformer Arizona Governor andAttorney General. He currentlyserves as a Director of the WorldWildlife Fund and Chair of theDistrict of Columbia Mayor’sEnvironmental Council. SecretaryBabbitt is a graduate of theHarvard University Law School.He was designated to serve on thepanel by District of ColumbiaMayor Anthony A. Williams.

William C. Baker Mr. Baker is a native of Baltimoreand is President of the ChesapeakeBay Foundation, where he hasworked for the past 28 years. Heserves on a number of boards,many of which are ChesapeakeBay-related, and is a foundingmember of the Living ClassroomsFoundation, the MetropolitanWashington Smart GrowthAlliance, and the Institute for theVenice Lagoon. Mr. Baker is agraduate of Trinity College.

Phyllis M. Cole Ms. Cole is a resident ofPetersburg, West Virginia, and is aspecial project consultant to localgovernments. She served as seniorstaff to the governor and was theproject manager for local floodprotection projects, including thecoordination efforts following theflood of 1985. She has served onthe Interstate Commission on thePotomac River Basin since 1986.Ms. Cole was designated to serveon the panel by West VirginiaGovernor Bob Wise.

Members of the Chesapeake Bay Watershed Blue Ribbon Finance Panel

The Chesapeake Bay Blue Ribbon Finance Panel, from left to right: Joseph Corrado, James Patrick Muldoon, John McNeil Wilkie, Phyllis M. Cole, William C. Baker, James D. Wilkins, II,The Honorable Gerald L. Baliles, F. Henry Habicht, II, The Honorable Penelope A. Gross, Terry L. Randall, Thomas J. Kelly, The Honorable Bruce Babbitt. Not shown: NicholasDeBenedictis, The Honorable James W. Hubbard, Jim Purdue.

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Joseph Corrado Mr. Corrado is President of theCorrado American constructionfirm and is Chairman of theDelaware Department of NaturalResources and EnvironmentalControl’s Wastewater FacilitiesAdvisory Council. He also serveson the Board of Directors ofDelaware State University. Mr.Corrado attended St. Joseph’sUniversity and was designated tothe panel by Delaware GovernorRuth Ann Minner.

Nicholas DeBenedictis Mr. DeBenedictis is Chairman ofAqua America, Inc and is formerSecretary of the Department ofEnvironmental Resources andDirector of the Office ofEconomic Development for theCommonwealth of Pennsylvania.He serves on several boards forregional economic andenvironmental organizations. Mr. DeBenedictis has an M.S.from Drexel University, and wasdesignated to serve on the panel by Pennsylvania GovernorEdward G. Rendell.

The Honorable Penelope A. Gross Supervisor Gross has served as anelected official to the FairfaxCounty Board of Supervisors since1996. She chairs the MetropolitanWashington Council ofGovernment’s Water Supply TaskForce and was recently elected tothe Potomac WatershedRoundtable. Supervisor Gross hashad a long career of public serviceat the federal and local levels. Sheis a graduate of the University ofOregon.

F. Henry Habicht, II Mr. Habicht has served as DeputyAdministrator of the U.S.Environmental Protection Agency,and as Assistant Attorney Generalfor the U.S. Department of Justicewhere he directed theEnvironmental and NaturalResources Division. He is ChiefExecutive Officer of the GlobalEnvironment & TechnologyFoundation and is a foundingprincipal of Capital E, LLC. Hecurrently serves on numerousboards and advisory councils andis a graduate of PrincetonUniversity and the University ofVirginia Law School. Mr. Habichtwas designated to the panel byEPA Administrator MichaelLeavitt.

The Honorable James W. Hubbard Delegate Hubbard is a resident ofBowie, Maryland, and has been amember of the Maryland Houseof Delegates since 1992. He has along history of communityinvolvement and currently serveson the Metropolitan WashingtonCouncil of Government’s AirQuality Committee, Children’sEnvironmental Health andProtection Advisory Committee,and the Chesapeake BayCommission. Delegate Hubbard isa graduate of the University ofMaryland.

Thomas J. Kelly Thomas J. Kelly is President ofthe New York StateEnvironmental FacilitiesCorporation (EFC), a publicbenefit corporation that promotesenvironmental quality byproviding low-cost capital andexpert technical assistance tomunicipalities, businesses andstate agencies for environmentalprojects in New York State. UnderMr. Kelly’s leadership, EFC’sfinancing activity has reachedunprecedented volume, gainingthe Corporation nationalrecognition as one of the top bondissuers in the country in 2003.Much of this activity has beenaccomplished through a majorrefunding Mr. Kelly initiatedwhich resulted in a total presentvalue savings of approximately$133 million for municipalborrowers. Mr. Kelly’s professionalbackground includes experience inreal estate, environmental andmunicipal law, as well as municipalfinance, land use and zoning, laborrelations and corporate law. Untiljoining EFC, Mr. Kelly operatedhis own law firm in Brewster, NewYork. Thomas J. Kelly wasdesignated to the panel by NewYork Governor George E. Pataki.

James Patrick Muldoon Mr. Muldoon is a resident of theDistrict of Columbia and has beenthe CEO of METCOR since1979. He is a founding member ofthe Washington First Bank andserves as chairman of the board ofseveral business and professionalorganizations. Mr. Muldoon is agraduate of the GeorgetownUniversity School of Law.

Jim Perdue Mr. Perdue is a resident ofSalisbury, Maryland and is theChairman of the Board of PerdueFarms Inc., the family poultrybusiness founded by hisgrandfather. He is active inpoultry industry organizations andis a member of the board ofseveral community organizations.Mr. Perdue has a M.S. in marinebiology from the University ofMassachusetts and a Ph.D. infisheries from the University ofWashington. He was designated toserve on the panel by MarylandGovernor Robert L. Ehrlich, Jr.

Terry L. Randall Mr. Randall is a Certified PublicAccountant from Williamsport,Maryland and serves as Presidentand CEO of Mellot Enterprises,Inc. He is former ManagingPartner of the Global Group forWolpoff & Company, LLP,Accountants and Consultants. Mr.Randall serves on the boards ofseveral professional and civicorganizations. He is a graduate ofShepherd College.

John McNeil Wilkie Mr. Wilkie is Managing Directorof Davidson Capital Group. He isthe former President of Eurotech,Ltd. and former Vice Chairman ofthe Morgan GuarantyInternational Bank. He is theDistrict of Columbia’srepresentative to the CitizensAdvisory Committee to theChesapeake Bay Program. Mr.Wilkie is a graduate of HarvardUniversity.

James D. Wilkins, II Mr. Wilkins is a farmer andbanker from Circleville, WestVirginia. He has a history ofservice to the community throughmembership on a number ofboards. He is currently the Co-Chair of the North ForkWatershed Association. Mr.Wilkins has a B.S. from EasternMennonite University.

The Commonwealth of Virginia

The State of Maryland

The Commonwealth of Pennsylvania

The District of Columbia

The United States of America

The Chesapeake Bay Commision

The State of Delaware

The State of New York

The State of West Virginia

CH E S A PE A K E EX E C U T I V E CO U N C I L

December 2, 2003

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37

Meeting Agendas

AGENDA

Meeting 1: Introduction to the IssuesMarch 30, 2004

Funding Nutrient and Sediment Controls in the Chesapeake BayRachel Carson Room, Ariel Rios Building, Washington, D.C.

8:30 Coffee

9:00 Chair calls meeting to order and introduces Panelmembers

9:10 Welcome: EPA

9:30 Executive Council’s charge to the Blue Ribbon Panel

9:45 Plans for today’s meeting and general prospectus

10:00 The Problem: What Are We Trying to Fix?Rich Batiuk, US EPA Chesapeake Bay Program• Discussion: Is the problem clearly defined? Facilitator: Jack Greer

11:30 Lunch

12:15 The Funding Gap: Current Costs and Revenue Sources• Cost of a Clean Bay & the gap

Ann P. Swanson, Executive Director, Chesapeake Bay Commission

• Breakdown by costs & economic impacts Eloise Castillo, SAIC

• Discussion: Are the funding needs clear?

1:45 Action Strategy for the Blue Ribbon Panel• Addressing the funding gap by need:

Wastewater, agriculture, stormwater• Forming recommendations: A stepwise process• Clarifying next steps and between-meeting activity• Approving dates and plans for the entire process• Identifying information needs

3:30 Adjourn

AGENDA

Meeting 2: Municipal and Industrial WasteMay 5, 2004

Washington Council of Governments Executive Board RoomWashington, D.C.

9:45 Coffee and refreshments

10:00 Chairman Baliles calls the meeting to orderWelcome, and introduction of members not at the first meetingA summary of the panel’s action plan:• By sector (municipal & industrial waste, agriculture,

urban & air)• By funding source (federal, state & local,

nongovernmental)

10:10 Reviewing the Problem: Municipal and Industrial Waste inthe Chesapeake Bay Watershed

Review, questions and comments related to backgroundmaterial previously provided to the panel on the strategicimportance of point sources and funding required to meetnutrient goals

10:25 Toward Funding Alternatives and a Financing Matrix• Introduction to funding matrix and case studies, Jack

Greer• Traditional financing mechanisms: federal, state, local

and nongovernmental • Technological advances & impacts, Dr. Clifford Randall • Market-based techniques, Robert Rose

11:20 Panel Discussion: Financing Alternatives Matrix andStrategy

12:00 Lunch for Panelists (opportunity for informal discussions)

12:45 Subcommittee meetings• Federal• State/local• Nongovernmental

1:45 Break

2:00 Preliminary Reports from the Subcommittees• Federal • State/local • Nongovernmental

2:45 Final Synthesis of Discussion and Clarification of NextSteps• Refining conclusions• Plans for next issues, next meetings

3:30 Adjourn

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AGENDA

Meeting 3: AgricultureJune 30, 2004

Washington Council of Governments Executive Board RoomWashington, D.C.

9:30 Welcome from Chair

9:45 Reports from Subcommittees on Ideas for Financing Wastewater TreatmentEach subcommittee will have 20 minutes.

Purpose: To provide Panel members with an opportunityto hear and understand the subcommittees’ initial ideasfor financing wastewater treatment.

10:45 Break

11:00 Highlights and Discussion of Background Material Briefly highlight and discuss the materials in the mailing. Presenter: Tom Simpson, University of Maryland, withother expertsFacilitator: Jack Greer

Purpose: (1) To help the Panel members understand thebreadth of agricultural issues in the Chesapeake Baywatershed and how these issues affect opportunities forfinancing. (2) To allow Panel members to ask questionsand discuss the materials with a team of experts.

12:15 Lunch

1:00 Generating Ideas for Financing Bay Restoration Related toAgricultureEngage the entire Panel in a facilitated brainstormingsession to generate ideas for further analysis by thesubcommittees.Facilitators: Jack Greer & Diana Esher

Purpose: (1) To allow the Panel as a whole to freelygenerate ideas about financing related to agriculture. (2) To develop initial ideas for the subcommittees to explore.

2:00 Conclusion of General Session Chair closes general Panel session and directs membersto meet in subcommittees to discuss work for theagriculture sector.

2:15 Subcommittee MeetingsConvene meetings of the subcommittees to plan andengage in further work. Subcommittees will adjourn at the discretion of theSubcommittee Chair.

AGENDA

Meeting 4: Air & Developed LandsAugust 3, 2004

Washington Council of Governments Executive Board RoomWashington, D.C.

9:30 Welcome from Chair

9:45 Reports from Subcommittees on Ideas for Financing Agricultural ActivitiesEach subcommittee will have 20 minutes. (10 for report and 10 for questions)

Purpose: To provide Panel members with an opportunityto hear and understand the subcommittees’ initial ideasfor financing agricultural activities.

10:45 Highlights Background Material Briefly highlight and discuss the materials in the mailing.(15 minutes of presentation and 60 minutes of facilitatedquestions and answers)Speaker: Rebecca Hanmer, U.S. EPA Chesapeake Bay ProgramFacilitator: Jack Greer

Purpose: (1) To help the Panel members understand theremaining activities identified in the tributary strategiesfor water quality restoration and how these issues affectopportunities for financing. (2) To allow Panel members toask questions and discuss materials with a team ofexperts.

12:00 Lunch

12:45 Generating Ideas for Financing Bay Restoration Engage the entire Panel in a facilitated brainstormingsession to generate ideas for further analysis by thesubcommittees. Facilitators: Jack Greer & Diana Esher

Purpose: (1) To allow the Panel as a whole to freelygenerate ideas about financing related to air, developedlands, and cap maintenance. (2) To develop initial ideasfor the subcommittees to explore.

2:00 Next Steps & Conclusion of General SessionDiscuss next steps and preparation for upcoming meetingin Annapolis. Chair closes general Panel session anddirects members to meet in subcommittees to discussremaining work.

2:15 Subcommittee MeetingsConvene meetings of the subcommittees to planremaining work. Subcommittees will adjourn at thediscretion of the Subcommittee Chair.

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AGENDA

Meeting 5: Reaching Consensus on RecommendationsSeptember 14-15, 2004

Annapolis, MD

Note that all times are estimates and will depend on the will of the Panel.Unfinished items may be carried forward, and discussions continued as needed. Ingeneral, the first day will focus on Findings and the second day onRecommendations.

September 14, 2004Location: Chesapeake Bay FoundationPhilip Merrill Environmental Center

5:00 Welcome to the Chesapeake Bay Foundation

5:30 Tour of the Philip Merrill Environmental Center

6:00 Dinner

6:45 Discuss and Approve Acceptance of Findings Briefly review the major findings regarding Bay waterquality impairments.

Purpose: To gain formal acceptance from the Panel to usethe facts/findings as the context for the final recommendations — that is, the facts drawn from thesector discussions and reports regarding the contributionof wastewater treatment, agriculture, developed lands,forests and air to the Bay’s water quality problems.

7:15 Finalizing the Cost of Restoration for Consideration Present the new cost estimates for implementing tributarystrategies. The Panel will have an opportunity to discussand determine the final target for its recommendations.

Purpose: (1) To allow the Panel to discuss and understandthe estimated cost of state tributary strategies. (2) Togain consensus on a final target for the Panel’srecommendations.

8:15 Setting the Stage for the Report – What’s compellingabout the Bay?Discuss the importance of funding restoration for the Baynow; the rationale for a federal share; and othercompelling reasons to fund restoration efforts.

Purpose: To provide ideas for the final report on why theBay restoration warrants funding to help market therecommendations.

8:45 Preview of September 15th AgendaPreview the agenda and desired outcomes for September15th.

9:00 Adjourn

September 15, 2004Location: Chesapeake Bay Program Office

8:00 Continental Breakfast

8:15 Call the Meeting to OrderReview the agenda and the desired outcomes for themeeting.

8:30 Developing a Portfolio of Recommendations Present a framework for discussing and evaluating therecommendations. Discuss recommendations in thecontext of specific sectors and across the entire Bay.

Purpose: To reach consensus on the finalrecommendations.

10:00 Break

10:15 Developing a Portfolio of Recommendations ContinuedContinue to develop consensus on the recommendations,with an emphasis on near-term, mid-term and longer-termstrategies — from more effective use of existing programsto legislative changes and new initiatives (building towardthe “Big Idea”).

12:00 Lunch

12:45 Developing the “Big Idea”Engage the Panel in discussion of the big, overarchingproposals. Further develop ideas into a recommendation.

Purpose: To develop and reach consensus on a “big”recommendation which provides the size, strength andflexibility needed to finance Chesapeake Bay restoration.

2:30 Writing the Final Report Provide the Panel with a time frame and process forwriting the final report.

The following people dedicatedtheir time and energy to supportthe work of the Panel:

EPA Chesapeake Bay Program:Rebecca Hanmer, DirectorCarin BislandLaura BodtkeMichael BurkeDiana EsherLois GartnerLynda GriffinLori MackeyReggie ParrishBob RoseKim ScaliaKelly ShenkNita SylvesterAllison WiedemanLois WoodwardKyle ZiebaHank Zygmunt

University of MarylandEnvironmental Finance Center:Jack Greer, EFC and Maryland Sea GrantMichelle LennoxDan NeesStephanie NovelloMichelle O’Herron

Russ Baxter, Office of the VirginiaSecretary of Natural Resources

Sheila Besse, DC Department of Health

Steve Bieber, Metropolitan WashingtonCouncil of Governments

Karl Blankenship, Bay Journal, Alliance for the Chesapeake Bay

Bill Brannon, WV Department ofEnvironmental Protection

Dwight A. Brown, NYS EnvironmentalFacilities Corporation

Patricia Buckley, PA Department ofEnvironmental Protection

Mark Bundy, MD Department ofNatural Resources

Eloise Castillo, SAIC

Chris Conner, Alliance for theChesapeake Bay

Frank Dawson, MD Department ofNatural Resources

Kevin Donnelly, DE Department ofNatural Resources and EnvironmentalControl

Bruce Gilmore, Office of SenatorSarbanes, Maryland

Verna Harrison, Keith CampbellFoundation

Hamid Karimi, DC Department ofHealth

Wyetha Lipford, MetropolitanWashington Council of Governments

William Matuszeski, SpecialConsultant

Matt Monroe, WV Department ofAgriculture

Connie Musgrove, EPA/University ofMaryland

Tom Simpson, University of Maryland

Ann Swanson, Chesapeake BayCommission

Jeff Sweeney, University of Maryland

Al Todd, U.S. Forest Service

Acknowledgments

For their experience, vision andguidance to the Panel, a specialword of appreciation goes toMichael Finnegan of J.P.Morgan Securities, Inc., NewYork, New York; WalterCraigie of Morgan Keegan andCompany, Inc., Richmond,Virginia; and Greg Principatoof Hunton & Williams, LLP,Washington, D.C.

Graphic Design: DILWORTH DESIGN

Editorial Consultant: NINA FISHER

PublishedOctober 2004

40

Photography: DREW MCMULLEN: The Schooner Sultana (page 8)

JEFF VANUGA: USDA NRCS (pages 14 and 20)

KEITH WELLER: USDA NRCS (page 21)

JACK GREER: EFC and MD Sea Grant (page 5)

All other photographs provided by the Chesapeake BayProgram and the Chesapeake Bay Gateways Network.

This is to acknowledge all of the following people who worked to assurethe successful outcome of the Blue Ribbon Finance Panel:

Maps and Charts: WOODS HOLE RESEARCH CENTER: Land Cover map (page 4)and Impervious Surfaces map (page 18). Goetz, S.J., C.A. Jantz, S.D.Prince, A.J. Smith, D. Varlyguin, and R. Wright (2004). Integrated analysis of ecosystem interactions with land use change: the Chesapeake Bay watershed. In Ecosystem Interactions with Land Use Change. eds. G.P. Asner, R.S. DeFries and R.A. Houghton. AGU Geophysical Monograph Series.

CHESAPEAKE BAY PROGRAM WATERSHED MODEL: The Watershed Model uses monitored data, facility reports and estimated pollution reductionefficiencies of various best management practices.The Model results are estimates of nutrient andsediment reductions that are expected over time in an average rainfall year.