Cape Cod Times

By Doug Fraser
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May 30, 2010

Who pays?

That's the crux of Cape Cod's wastewater debate.

Cape taxpayers could spend a total of $3 billion to $8 billion to stem the tide of nitrogen, largely from septic systems, flowing into our harbors, bays, rivers and ponds. It's little surprise that the cost of treatment is dividing Cape towns.

The expense is so great that towns might have to carry the debt for 50 years — two generations. And that could threaten other town capital projects as well as future Proposition 21/2 overrides, some town officials say.

But those officials face this contradiction: Although the Environmental Protection Agency and the state Department of Environmental Protection require under the federal Clean Water Act that towns clean up nitrogen, there is little hope of significant government funds or loans to do it.

That leaves officials dependent on taxpayers' willingness to pay for wastewater treatment, along with innovative financing and occasional federal or state dollars. And officials must figure out how — or if — to divide the costs between all taxpayers and those connected to the system.

"It is an unfunded mandate," said Adam Krantz, the managing director of government affairs for the National Association of Clean Water Agencies, a trade association in Washington, D.C., representing public wastewater treatment agencies.

"The federal government has taken the position that their job is to regulate, but not to be a partner on the funding side," Krantz said.

Wastewater is by far the most expensive municipal project ever undertaken in any of the Cape towns. For instance, Falmouth's total municipal debt right now is $150 million. Under one possible wastewater financing scenario, that debt would more than double in 2016 by borrowing $200 million to finance just the first phase of the project. And that phase encompasses just 4,000 households, or less than one-quarter of the population. The town would need to borrow a second $200 million between 2027 and 2037 to treat waste from 4,000 more households and businesses.

Barnstable potentially has the most expensive cleanup costs on the Cape with $675 million in townwide sewer improvements. To put that in perspective, the town's financial advisory committee on wastewater estimated that Barnstable's $33,033 per household average cost was nearly seven times the $4,893 per household cost of the $4.2 billion Boston Harbor cleanup.


Federal funding fluctuates
Funding from the federal government for wastewater infrastructure can be hit or miss, said Mark Forest, chief of staff for U.S. Rep. William Delahunt, D-Mass. The amount of money varies widely year to year based on administrations and Congress, he said, but has improved slightly under the Obama administration and the current Congress.

Last year, for example, the U.S. Department of Agriculture announced that Chatham would receive $40 million in a grant and low-interest loans. The town had received $2 million from the USDA earlier in the year.

Additional funding for wastewater and drinking water projects for towns on the Cape and Martha's Vineyard was announced in January, including $30 million more in grants and loans from the USDA and $44 million in federal stimulus money through the state's revolving loan fund.

Although federal money for wastewater did increase from around $2 billion to $10 billion this year, thanks largely to stimulus money, the EPA estimates there is a gap of $150 billion to $400 billion between what is needed for clean water infrastructure and federal funding levels over the next decade.

The federal government used to be a better partner. After the Clean Water Act was passed in 1972, it spent around $60 billion over the next decade subsidizing up to 70 percent of construction costs for wastewater treatment plants nationwide. That changed in the 1980s when construction subsidies were phased out and funds were slashed and shunted to the states as low-interest loan programs instead of grants. Through much of the '90s, the annual total contribution was below $2.5 billion. That has recently improved to around $5 billion per year. And the program changed slightly for the coming year with the federal government now requiring that 30 percent of what is given to states be awarded in grants.

Jackie LeClair, the regional municipal assistance manager for the EPA argues that, thanks to federal contributions, state clean water revolving funds have been growing for 20 years, creating more lending power. The $1.9 billion that has flowed to the New England region over the years has been leveraged into $5.6 billion in low-interest loans to communities, she said. Recent Massachusetts legislation reserved $1 billion in zero-interest loans over the next decade for communities to deal with wastewater pollution of coastal waterways.

Still, as of June 2009, the main funding source for Massachusetts wastewater projects, the Clean Water State Revolving Fund, had provided a little less than $1 billion in the past two decades.

Town officials aren't holding their collective breath on federal or state aid.

"I guess I wouldn't bother gnashing my teeth over it. That seems to be a hopeless cause," said Peter Boyer, former Falmouth town manager, who has taken a leading role as vice-chairman of the town's wastewater plan review committee. He's been helping to figure out how the town will pay for as much as $450 million in wastewater infrastructure.

Like many involved in wastewater at the municipal level, Boyer is focused on how to reduce the burden on all taxpayers and those who connect to the sewer system. He walks a fine line between making these massive projects affordable and getting consensus from enough voters, including those who don't directly benefit.

Because two-thirds of Falmouth does not need wastewater treatment, Boyer thinks the town has to structure payments so that the one-third who will be served by a sewer system bear a significant portion of the costs by paying betterment fees. He knows the town will face several debt exclusions that will require a two-thirds vote to pass.

If the first $200 million phase of Falmouth's wastewater plan was covered solely by taxes, it would mean a 12-percent tax increase, or $350 a year added onto the tax on a $400,000 home. Boyer doesn't think that will fly with voters.

"It's a matter of developing that consensus of what is fair," he said.

But any financial scenario also has to sit well with those who will be required to connect to sewers. With the help of state legislation, and by extending the payback time to 50 years, Boyer hopes to get betterments under $1,000 a year. He thinks 90 percent of the 8,100 households that are likely to need treatment can afford that.

But $1,000 could still be a make-or-break amount for the remaining 800 or so households. And those who are connected to the system will have to pay a monthly fee based on usage, like a water bill.

The reality is that there will be little aid for most of those households, and any relief will likely be limited to low-income elderly, Boyer said.

"Will some people get driven out of town?" Boyer asked. "Unfortunately, that is going to happen."

Additionally, Boyer assumes that in light of such a massive investment, there will be no operational budget overrides in Falmouth for at least 20 years.

"Something could happen. An upgrade of a water system, a bridge collapse, a hurricane washes out town roads," Boyer said. But the days of going to the well for routine overrides are over, he said.


Situations vary across cape
He fears the town risks taxpayer revolt if taxes go up too steeply, so Falmouth will hold off on construction and borrowing for another five years until the town pays off enough debt to take on the first installment of the massive loans.

Chatham is more fortunate because the town has paid off a number of projects in the past decade and cut its debt payments in half. Even if the town replaces the police station at an estimated $16.9 million and the fire station for $8 million, tax bills will still drop steadily over the next 20 years by as much as 75 cents per thousand valuation.

That was one reason Chatham chose to go forward with the first phase of a $266 million wastewater project, including a $60 million expansion of the treatment plant and installation of pipes to one section of town. It was easier in Chatham than in Falmouth for town officials to decide that the burden should be shared equally by all taxpayers. Nearly all the town will ultimately be connected to the sewer system, although for some properties it may take decades.

Even without factoring in the debt drop-off, the impact on a median-priced $535,000 home is considerably lower than in Falmouth and is estimated at $22,879 over 50 years, with an average yearly cost of $438. With the combination of debt reduction and excess revenues generated by new sewer system customers, Chatham taxpayers could see as little as $60 per year added taxes on a median-priced home.

Compare that with Falmouth, where the combination of betterments and the tax increase for more than 8,000 homes could be much as $3,000 per household per year in the worst-case scenario and around $1,200 in the best.

Meanwhile, the town of Barnstable learned this year what happens when officials try to pass the check only to those who directly benefit.

Residents of the Stewarts Creek neighborhood in Hyannis vehemently protested when the town decided that a new $3.1 million sewer system would be paid for only by those who connect to the system. The result was an unpalatable $22,000 assessment per household. The town is now working out a way to ease their burden with some of the cost borne by other taxpayers.

Stewarts Creek is small potatoes compared to the rest of Barnstable's project. The town has the largest, most expensive, wastewater project of any Cape town, at $675 million, affecting nearly 12,000 households and businesses, or 43 percent of the town. Officials are also proposing to do a $209 million road improvement project at the same time. They are working on ways to fund both projects.

Escalating user fees, the cost to connect, combined with the property tax increase and a betterment charge makes Robert Ciolek, the former chief operating officer for the MWRA, who now works on Barnstable's financial wastewater advisory committee, skeptical of those who say they shouldn't have to pay for someone else's sewer.

"The average (sewer) fee in Barnstable right now is $350 (a year), but that could go up by 200, 300, 400 percent," cautioned Ciolek.

The increases are likely because sewer commissions tend to go to ratepayers to finance future capital expenses or to bridge shortfalls in funding. The MWRA's average yearly fees went from $400 at the start of their cleanup to $1,200 at the end, Ciolek said. And there usually is no financing available for the cost to connect to the system and to decommission septic tanks, which, combined, could range from a few thousand dollars up to $10,000 or more.

"If you make the case that everyone benefits equally from clean water then there should be a contribution from everyone in the town," he said.

Barnstable Finance Director Mark Milne thinks towns should consider a more regional approach. Milne would like to see at least some of the cost of cleaning up Cape waters encompass all Cape taxpayers, regardless of whether their town has a wastewater problem. He, and others, envision a countywide trust, a water bank similar to the former Cape Cod Land Bank, that helped towns to purchase open space.


Regionalizing infrastructure
A regional funding source could also encourage regionalization of infrastructure, such as new wastewater treatment plants, which can reduce costs by as much as one-third.

"Every homeowner would pay into the tax. Everyone pays the same amount. We all share the same aquifer, the same water and we all share the same economy," Milne argued.

The federal government also might be more willing to contribute to wastewater projects if the region were able to raise money through a countywide funding source, said Forest.

But Boyer, from Falmouth, doesn't believe that Sandwich, for instance, which has little or no wastewater problems, would be interested in paying to sewer his town.

"When you get a county program, who decides who gets what money?" asked Boyer. "I wouldn't want that job."

But that is essentially what Maryland did to help finance its portion of the Chesapeake Bay cleanup. In 2004, the state created the Bay Restoration Fund and assessed each home and home-equivalent unit such as hotels and motels an annual $30 fee. That steady revenue stream of around $70 to $80 million a year helps leverage between $600 million and $1 billion in loans each year for wastewater projects, as well as grants to upgrade major wastewater treatment plants, sewage distribution systems and failing septic systems.

There are other innovative ideas on the horizon, such as a National Infrastructure Bank, championed by Sen. Chris Dodd, D-Conn., and Rep. Barney Frank, D-Mass., and endorsed by President Obama and some big-city mayors. The idea is to create a bank that would provide low-cost loans to finance infrastructure such as roads and wastewater, said Jeffrey Hughes, director of the Environmental Finance Center at the University of North Carolina.

But Krantz is skeptical that money from such a bank would ever make it to rural areas like Cape Cod. Instead, he would like to see a national clean water trust fund similar to the national highway trust fund. He hopes that $10 billion a year could be raised largely by taxing industries highly dependent on clean water.

"The federal government has come back into the game," Krantz said, but needs to establish a steady funding source to pump at least $10 billion a year into projects.

"Help is on the way."