DRAFT 4-14-2011 Not for release! Analysis Paper Sweet Water the Southeastern Wisconsin Watersheds Trust, Inc.

. Implications of the Proposed 2011-2013 Wisconsin State Budget on Water Quality Programs This document was prepared to describe provisions proposed in Governor Walkers biennial budget, as submitted to the legislature in March 2011 and modified by a letter from the Governor to the Joint Finance Committee on March 31, 2011. These proposals will be debated in the legislature, and amendments may be adopted. Sweet Water, the Southeastern Wisconsin Watersheds Trust, Inc., has invested substantial effort in science-based planning for the Kinnickinnic, Menomonee, and Root watersheds. The region, also, has invested heavily in developing plans, specifically: the SEWRPC Regional Water Quality Plan Update (2007) and the MMSD 2020 Facilities Plan (2007). In each case, the base case for planning made certain assumptions about the status of state law concerning stormwater. Some of the proposed changes to state law and regulations would change/effect implementation activities that were included in plans as committed actions. Two areas within the proposed budget bill are particularly relevant to the work of Sweet Water: (1) changes in the phosphorus effluent rules and (2) changes in deadlines for municipalities to comply with stormwater requirements under NR 151. Additional items of relevance are also listed as part of this document. 1. Phosphorus Regulation: Background y Prior to the revision to NR 102.06, effective December 1, 2010, the language of NR 102.06 was brief and provided the DNR with broad discretion to regulate phosphorus through WPDES permits, based on the quality of the receiving waters: NR 102.06 Phosphorus. In addition to the requirements established in ch. NR 217, any wastewater discharger, regardless of population, volume or type of waste discharge, or geographic location, may be required to remove excess amounts of phosphorus. Effluent limitations for total phosphorus based on surface water quality may be established where, in the best professional judgment of the department, such limitations will result in an improvement in water quality, or preserve the quality of surface waters where long-term discharges may result in impairment of water quality. Such limitations for phosphorus shall include an evaluation of the discharges from point sources, nonpoint sources, background sources, tributaries, and a consideration of a margin of safety. y In accordance with the procedures of Chapter 227, Wis. Stats, revisions to Wisconsins Phosphorus Water Quality Standards for surface waters were developed. These revisions took effect on December 1, 2010 following the publication of chapters NR 102 and NR 217 in the Wisconsin Administrative Register, which occurred on November 30, 2010. Changes have also been proposed to chapter NR 151 to revise agricultural performance standards and prohibitions for phosphorus. These changes took effect January 1, 2010 following the publication of NR 151 in the Wisconsin Administrative Register. (Wisconsin DNR, Phosphorus Rules Revision, http://dnr.wi.gov/org/water/wm/wqs/phosphorus/). y The provisions of NR 102.06 of the new rule set specific phosphorus water quality standards for many specific water bodies in the state.

Phosphorus is a controlling factor in plant and algae growth in Wisconsin lakes and streams. Small increases in phosphorus can fuel substantial increases in aquatic plant and algae growth, which in turn can reduce recreational use, property values, and public health (Reducing Phosphorus to Clean Up Lakes and Rivers, Wisconsin DNR, http://dnr.wi.gov/news/mediakits/mk_phosphorus.asp) The rules that had been adopted by the Natural Resources Board permitted DNR to undertake an adaptive management approach (in particular, because recent statutory bans on phosphorus in lawn fertilizer and dishwasher detergent may achieve substantial progress toward achieving the water quality standards identified in the rule). In addition, the DNR and NR Board anticipated the development of water quality trading to reduce the costs of achieving the phosphorus reductions required by the rule. A DNR advisory committee has been meeting to expedite the development of trading guidelines or regulations.

Governors Budget Proposal Related to Phosphorus Rules Below, Part A describes what was in the Governors original proposal; Part B reflects the language in the memo on errata sent to the Joint Finance Committe, dated March 31, 2011. Part A: Original Budget Proposal as Presented in SB 27 y See 2011 Senate Bill 27, Sections 2930 and 2931 y Section 2930 amends 283.11 (3) (am) as follows: 283.11 (3) (am) 1. Standards for phosphorous. Notwithstanding sub. (1) or (2), and except as provided in subd. 2.,the department shall promulgate by rule effluent limitations representing the best available demonstrated control technology, processes, operating methods or other alternatives concerning the discharge of phosphorous if the U.S. environmental protection agency [sic] has not promulgated an effluent limitation, effluent standard or prohibition concerning this type of discharge. y Section 2931 adds a new subd. 2 to 283.11 (3) (am): 283.11 (3) (am) 2. a. In this subdivision, region means the geographic region composed of the states of Illinois, Indiana, Michigan, Minnesota, or Ohio. b. The department may not promulgate or enforce any rule establishing an effluent limitation for the discharge of phosphorous if that effluent limitation is more stringent than the effluent limitation for the discharge of phosphorous that is established by any state in the region. Part B: Errata Memo y On page 9 of the memo to Joint Finance Committee , par. 11a states: The bill needs to be modified to remove reference to standards in other states and should instead delay the effective date of the phosphorus numeric water quality standards. No effective date or target date for promulgation of a revised rule is included in the language of the Errata Memo. What does this mean? The original budget proposal used the phrase effluent limitations, which would refer to the end-of-pipe standards applicable to point sources. The Errata Memo uses the phrase numeric water quality standards. NR 102.06 defines the water quality criteria for surface waters in Wisconsin. The new sections of NR 217, applying to phosphorus discharges from point sources, set technology-based effluent limits and water quality-based effluent limits.

The Errata Memo is unclear, but appears to call for the delay in implementation of all these numeric standards, not just to the effluent limits as originally proposed in the Governors budget. Impact on Sweet Waters Work In order to reduce the costs of achieving phosphorus reductions, the DNR is developing policy to facilitate water quality trading. Sweet Water provided to the DNR a white paper on water quality trading that was prepared as part of our Joyce Foundation grant scope of work. Members and partners of Sweet Water serve on the advisory committee convened by the DNR to work out the details for phosphorus trading. The proposed budget bill does not specifically address water quality trading. If the implementation date is delayed, Sweet Water will plan to continue to work with the DNR and other partners to develop and test water quality trading approaches to reduce the costs of meeting the new requirements, primarily NR 102 (water quality phosphorus standards for various water bodies) and NR 217 (effluent limits on phosphorus for point sources). Lack of clarity about the future of the phosphorus rules and the related opportunity for trading creates uncertainty for Sweet Water about how we should proceed. However, it is imperative for Sweet Water to continue to work towards establishing a water quality trading framework that can be applied to any pollutant that is of concern, both now and in the future. 2. Municipal Stormwater Runoff (Total Suspended Solids) Regulations: Background y The Greater Milwaukee watersheds and Lake Michigan suffer water quality, habitat, and recreational impacts caused by sediment, nutrients, and a variety of chemicals that wash in with runoff from urban sources such as parking lots, streets, roofs, and other impervious surfaces and rural sources such as erosion, barnyard runoff and farm field runoff. Current Policy y Under s. NR 151.13.(2), Wis. Adm. Code, a municipality subject to the municipal stormwater permit requirements of subch. I of ch. NR 216, Wis. Adm. Code, must, to the maximum extent practicable, implement a 20% and a 40% reduction in total suspended solids in runoff that enters waters of the state as compared to no controls, by March 10, 2008 and March 10, 2013, respectively (Memorandum, Russ Rasmussen, Bureau of Watershed Management, Wisconsin Department of Natural Resources, November 24, 2010, http://www.dnr.state.wi.us/runoff/stormwater/guidance/Guidance_TSS.pdf). The 20 and 40

Comment [SARUP1]: If the implementation date is not specified as is the case in the errata letter to Joint Finance then it may never be implemented should we not at least get clarification on this Second point there is a big assumption that the current rule will not be changed just delayed we should seek clarification on that as well. My comment to Toms point is not that SWWT cannot do anything in the interim but more along the lines that we understand what pollutant(s) we are talking about and what targets we are talking about and where we had some of this discussion with the Policy Committee quite awhile ago and the DNR has our issues paper to address some of the critical points on what needs to be in a workable framework for tradingsome of it by the way assumed their would have to be some adjustments in the rule or with legislative changes.

percent TSS reductions apply to the load from existing development as of October 1, 2004 (http://legis.wisconsin.gov/rsb/code/nr/nr151.pdf). New development is required to achieve 80 percent control of TSS, and the 80 percent control cannot be applied toward the 20 and 40 percent reductions.
y A provision in the new phosphorus rules also extended the deadline for achieving the 40% TSS reduction. The rule changes give some municipalities more time to meet a 2013 deadline to reduce particulate pollutants in stormwater by 40 percent. Municipalities asked for more time, saying the economic recession made it difficult for them to make the needed investments or to ask their ratepayers to absorb higher fees. (http://dnr.wi.gov/news/mediakits/mk_phosphorus.asp)

Governors Budget Proposal Related to Stormwater Runoff Part A, below, describes the provisions related to stormwater runoff rules that were in the Governors original budget proposal. Part B describes the changes to that proposal found in the Errata Memo.

Part A: Original Budget Proposal as Presented in SB 27 y See 2011 Senate Bill 27, Section 9135 y The bill requires the Wisconsin Department of Natural Resources to repeal and recreate Ch. 151 of the Wisconsin Administrative Code to accomplish the following outcomes: 1) The regulations may be no more stringent than federal law and 2) The DNR must waive any deadlines for municipalities if the regulated municipality determines that compliance with the deadline would have a significant adverse economic impact on that municipality. SECTION 9135.0Nonstatutory provisions; Natural Resources. (1) NONPOINT SOURCE WATER POLLUTION RULES. (a) The department of natural resources shall promulgate rules under section 281.16 (2) of the statutes that repeal and recreate chapter NR 151, Wisconsin Administrative Code, in effect on the effective date of this subsection. The repealed and recreated rules shall take effect 90 days after the effective date of this paragraph and shall be no more stringent than the requirements under the federal Water Pollution Control Act, 33 USC 1251 to 1387, and regulations adopted under that act. In particular, par. 2 of Section 9135 states: 2. To the extent allowed under federal law, if the rules promulgated under paragraph (a) establish a deadline by fixing a date by which a covered municipality must develop and implement a storm water management program, the rules shall also provide that the deadline for developing and implementing a storm water management program does not apply to a covered municipality that determines that compliance with the deadline would have a significant adverse economic impact on that municipality. Part B: Errata Memo The memo to Joint Finance Committee states: The budget repeals and recreates the municipal separate storm sewer systems stormwater standard that requires communities to reduce total suspended solids by 40 percent by 2013. The bill should be modified to repeal the 40 percent standard. What does this mean? The Errata Memo appears to eliminate the 40 percent TSS reduction requirement, rather than directing the DNR to promulgate new regulations. Consequently, municipalities would not be

required to prove adverse economic impact to get a waiver of the deadline. The deadline is simply eliminated.
Impact on Sweet Waters Work Sweet Water has been working with the municipalities in the Menomonee River watershed to pilot a watershed-based permit to allow municipalities to more easily undertake collaborative strategies achieve TSS reductions in the watershed. The budget proposal does not address watershed-based permitting. Currently, 11 MS4s (10 municipalities and State Fair Park) within the Greater Milwaukee watersheds have not yet achieved the 20 percent reduction requirement that had been required by 2008. Accordingly, Sweet Water should focus efforts on assisting these municipal entities with compliance with the 20%, or focus on efforts to partner with them on their efforts to achieve 20% and piggyback our interests to achieve an even higher standard.

Sweet Water is collaborating with municipalities in securing funding for and implementing stormwater Best Management Practices (BMP) projects to improve water quality and habitat and to assist municipalities in meeting their obligations to reduce TSS by 40 percent. The proposed change is likely to reduce the number of municipalities that will be interested in working as partners with Sweet Water on these efforts. Sweet Water may want to partner with municipalities who are now focused on improving drainage and making flood control improvements (e.g. detention ponds) to incorporate storm water quality elements into these projects. This proposal does not affect municipal requirements related to finding and fixing illicit connections to storm sewers and exfiltration from sanitary sewers into storm sewers. Sweet Water may want to explore ways of putting additional emphasis on collaborative efforts in this area. Sweet Water will need to explore both policy and technical innovations that would reduce the costs and increase the effectiveness of find and fix programs to reduce the risk of human pathogens entering waterways through storm sewer illicit connections or exfiltration. For municipalities that have not set up stormwater utilities that set fees independent of property tax levies, the municipalities may have difficulty allocating sufficient budget to pursue this work because of the reductions in shared revenue and the limit on property tax levies. 3. State erosion control authority transferred to new Department of Safety and Professional Services: This bill transfers the responsibility for administering the erosion control laws with regard to commercial building construction sites from DNR [Department of Natural Resources] to DSPS [Department of Safety and Professional Services], formerly called DRL [Department of Regulation and Licensing] (SB 27 (2011), p. 20). Impact on Sweet Waters Work This provision would have no direct impact on Sweet Waters work, but could affect the effectiveness of future construction site erosion control. As with the proposed changes to the TSS rules for stormwater, the plans that Sweet Water is committed to implementing assumed that construction site erosion control was part of the baseline of measures already committed to. 4. Bill Increases Capital Improvement Debt Limits for some DNR-administered programs related to water quality, including: Section 782 amends 20.866(2)(tf) of the statutes relating to DNRs capital improvement fund for nonpoint source water pollution abatement: Section 784 amends 20.866(2)(th) of the statutes relating to the DNRs cost-sharing grants to municipalities for urban stormwater management, increasing the debt limit for this purpose from $35,900,000 to $41,900,000. Section 785 amends 20.866(2)(ti) of the statutes relating to the DNRs fund removal of contaminated sediment under s. 281.87, increasing the debt limit for this purpose from $22,000,000 to $27,000,000. Impact on Sweet Waters Work These provisions could potentially make additional funding available for nonpoint and sediment removal projects that Sweet Water might facilitate or collaborate in if the state elects to incur additional public debt up to the new, higher ceiling. Sweet Water should remain flexible and

Comment [SARUP2]: Several questions here for clarification and not to point fingers but how many of the municipalities within the Menomonee Watershed are not yet at 20%, which ones and how far do they have to go? Given the original thrust of the Administrations thinking on all of this is it clear that the 20% standard is still in force? If Tom thinks he can partner with these communities to get them above 20% I would encourage him to do so but the question there is from a scientific point of view what would be accomplished in terms of improvements to the water quality if we are going to construct this new partnership folks should know what they are getting. And, GIVEN LEVY LIMITS what are the incentives that the new partnership can put on the table so that the communities that currently cannot even meet the 20% will be able to pay for the improvements say through a cost effective trade. Would SWWT entertain the idea of asking the legislature to allow communities to go beyond their levy limits to pay for such a deal?

Comment [SARUP3]: I would point out several years ago that there was a major point of contentions about enforcement i.e., the state agency and the local governments were not enforcing the law I will try and track down the study that argued for changing where the program should be administered.

adapt to the opportunities that present themselves with funding and policy changes so as to achieve storm water quality improvements, wherever we may find them. 5. Knowles-Nelson Stewardship Fund: The budget proposes to eliminate payments for aids in lieu of taxes and require local governments to pass a resolution in support of the easement. In addition, it would prohibit the purchase of development rights except for preserving logging rights or trails. The budget also eliminates the program to preserve farmland and purchase conservation easements on agricultural lands. Impact on Sweet Waters Work: Sweet Water is not a land trust. However, Sweet Water does partner with land trusts to implement green infrastructure, riparian buffers, and other land-based initiatives to reduce nonpoint source pollution and improve habitatas well as producing other benefits. Other organizations, such as the League of Conservation Voters, are concerned that these changes will remove or impede tools that our land trust partners have used to conserve land in ways that directly affect implementation of green infrastructure and riparian buffers. 6. Clean Water Revolving Loan Fund (CWFP) program changes: The proposed budget increases the interest rate for these loans from 60-70% of market rate (rate varies depending on the purpose of the loan) to 80% of market rate for all loans within the program. Wastewater treatment facilities rely greatly on this funding to upgrade infrastructure. This change would substantially increase borrowing-related costs to municipalities. This funding shift, coupled with the Governors proposed levy limits on local governments, can be expected to result in currently budgeted wastewaterrelated construction projects and other system improvements being delayed, reduced, and/or eliminated. In addition, larger entities with higher credit ratings and easier access to the financial markets (like Madison, Green Bay, and Milwaukee) will likely seek other funding sources, such as issuing their own general obligation/revenue bonds. If financially strong entities leave the CWFP, it is possible that smaller entities with less access to the financial markets will face higher market rates and thus incur higher interest costs, in addition to the reduced subsidy. On the other hand, if the budget efforts are successful in improving the states bond rating, the effect could be to lower the interest rate on the Clean Water Revolving Loan Fund for the longer term. These factors could influence future wastewater project decisions affecting Sweet Water efforts. 7. Local government levy limits As noted above in relation to changes to the stormwater regulations proposed in the budget bills, municipalities that rely on the property tax to implement their stormwater programs are likely to find that the cuts to shared revenue, combined with the levy limit, will reduce their capacity to implement stormwater programs, even those that are not affected by the repeal of the deadline for achieving the 40% reduction in TSS. Some municipalities may choose to implement a stormwater utility as another funding source to achieve their goals. Others will make decisions to prioritize services so it will be imperative for Sweet Water to ensure that the programs we want implemented are considered to be of value to the municipalities and bring about both quality of life and economic return, to make them attractive enough to fund. Im offering this editorial point to you (Jeff and Nancy)Im not assuming that even a more nuanced version would be offered. In theory this makes sense but realistically the challenges to SWWT in putting together such a story have grown enormously-- certainly in the short term, one needs to consider in addition to cuts in shared revenues and levy limits there are many other cuts that many municipalities and citizens are facing including to transit, and schools and the 500 million in Medicaidmoving from the platitudes to a strategy that might work will take some very creative thinking and commitments of time and resources.

In addition, wastewater treatment within the MMSD service area is partially funded through the property tax. Again, given the cut in shared revenue and the restriction on increasing the tax levy, municipalities and MMSD will need to cut programs in relation to wastewater treatment operations, including programs related to reducing Inflow and Infiltration, which are critical to avoid sewer overflows and basement backups. These factors could influence local government water quality investment decisions, affecting Sweet Water efforts. 8. Cuts in DNR Staffing Levels At this time, staffing cuts by program are not yet understood. Sweet Water has a number of initiatives underway, however, that will require substantial investments of time by DNR staff, specifically: water quality trading, watershed permitting, the Root River Watershed Restoration Plan, and development of TMDLs in the Menomonee, Kinnickinnic and Milwaukee Rivers and the Milwaukee Estuary. These Sweet Water initiatives are designed to reduce the costs of achieving water quality improvement, but developing these new tools and approaches will require the intensive involvement of DNR staff, both within the Southeast Region and at the DNR Central Office. Sweet Water will need to convince the DNR to prioritize their work force to address the issues that will save time and money for all involved which leads to greater efficiency and efficacy.