HOUSE BILL NO. 178 "An Act relating to village safe water and hygienic sewage disposal facilities." 2:56:58 PM Co-Chair Foster relayed that the committee would hear an introduction on HB 178. PAUL LABOLLE, STAFF, REPRESENTATIVE NEAL FOSTER, introduced HB 178. The bill would provide statutory guidance to the Commissioner of the Department of Environmental Conservation (DEC) in administering the Village Safe Water Program (VSWP) and direct the commissioner to prioritize VSWP projects based on need. Historically, the amount of funding available for sanitation improvements in rural Alaska had been inadequate to meet the identified needs. As a result, funding agencies had developed a criteria to determine eligibility and priority for the limited resources available. The Best Practices Score (BPS) was created as the metric through which to determine eligibility. Mr. LaBolle continued that now that Infrastructure Investment and Jobs Act (IIJA) had provided adequate funding, HB 178 would ensure that the communities with the worst water and sewer infrastructure would be the first communities served by VSWP. Based on the Spring 2023 scoring cycle, 95 of 196 communities in the state did not meet the minimum threshold for funding through VSWP. If the BPS continued to be used to determine eligibility and priority, the state ran the risk of IIJA funds expiring or being reallocated elsewhere before projects could be confirmed. He relayed that BPS remained an effective tool to identify the strengths and weaknesses of a community and to identify ways to assist a community. It was an assessment tool to ensure that the state was doing its job and to identify communities in need, but not as a barrier to deny funding to communities in need. He shared that Section 14.20 of VSWP required the state to develop a capacity development strategy for the Environmental Protection Agency (EPA) that outlined the methods used to identify and prioritize communities in need. He emphasized that VSWP did not indicate that assessment should be used as a hurdle to eligibility. Co-Chair Foster commented that rural legislators had expressed frustration over the years regarding the way in which smaller communities received funding for water. Some communities had no piped water or sewer and were considered unserved communities. He clarified that the bill mandated that a community's need be placed as a higher priority than a community's capacity to maintain a system. Some communities did not score well on maintenance abilities, but the need for water and sewer was high. He understood that it was a problem that some communities could not maintain a system, but accessibility was more important. He emphasized the importance of capturing the incoming federal IIJA funds. 3:02:33 PM Co-Chair Edgmon asked Mr. LaBolle to provide information about the crafting of the bill. Mr. LaBolle responded that Co-Chair Foster's office had collaborated with Co-Chair Edgmon's office as well as the Alaska Municipal League (AML) and Alaska Native Tribal Health Consortium (ANTHC) to find a workable way to change the metrics that determined project prioritization. There were presently three main portions that went into prioritization: needs, BPS, and the affordability framework. The bill would make needs the highest priority rather than considering it equally amongst two other elements. Co-Chair Foster added that awarded funds were based on a Rural Utility Business Advisor (RUBA) scoring system. If a community received a low score, it would not be awarded funds and would not be able to afford a water and sewer system. Mr. LaBolle commented that testifiers were available for questions. 3:04:45 PM Representative Hannan understood that RUBA left out communities that were most in need and the bill would change the way in which funds were awarded to be based on need. She asked how need was defined or measured. Co-Chair Foster responded that need could be determined by whether a community had a piped water system. Some communities had part of a water or sewer system, but the area was not fully serviced. He thought the easiest way to determine need was whether there was a fully operational water and sewer system. Mr. LaBolle responded that the department conducted a needs assessment which was already part of the ongoing prioritization process. The bill would move the existing needs metric to the top. Representative Hannan asked if need was on the scoring rubric already. She asked how the high need areas would be distinguished from one another. She clarified that she supported the bill. Mr. LaBolle responded that the needs assessment was not included within BPS. He explained that BPS was a separate sheet that dealt with managerial capacity. Representative Hannan replied that she presumed that the department would know that she wanted to see the needs assessment and ensure that the least served villages would be the highest priority. Co-Chair Foster noted that he would provide at the next meeting a list of served and unserved communities in order to provide members with a sense of the needs in the state. Representative Coulombe commented that her concern was that the department had shared that it had experienced difficulty changing the scoring system because of the requirements of the federal government. She wanted to ensure that the changes would not be in conflict with federal requirements. Mr. LaBolle deferred the question to the department. 3:09:52 PM RANDY BATES, DIRECTOR, DIVISION OF WATER, DEPARTMENT OF ENVIRONMENTAL CONSERVATION, relayed that the department did not take a position on the bill. He emphasized that the department wanted to ensure that communities had the opportunity to take advantage of IIJA funds. It was important to assist rural communities in any way possible. Although the department did not take a position on the bill, it recognized the desire to prioritize needs for eligible communities. He did not think that the bill as worded would accomplish the desired goal. Representative Coulombe asked if the state's ability to utilize federal funds would be impacted if the bill were to pass. Mr. Bates responded in the negative. The department intended to use all of the available funds. He did not think any community would be left behind. It was also the desire of the department to ensure that the communities would be able to safely maintain and operate the facilities in the long term. Representative Coulombe asked if the score card required by the federal government came from the federal government itself or from the department. Mr. Bates replied that SDWA required that there be a capacity assessment in place prior to the construction and operation of a facility. The department had utilized BPS as one of the assessment tools that would predict whether a community could safely maintain and operate a facility. If the department were to abandon BPS and eliminate a capacity assessment, certain funding would be jeopardized. 3:14:18 PM Representative Stapp thought it was a smart idea to ensure that high needs communities received important utility systems. He was concerned that the facilities would not be maintained after the IIJA money had lapsed if certain assessments were abandoned. Mr. Bates responded that the existing scoring system was necessary to determine capacity. It determined whether a community could safely maintain and operate a facility and would give the state the opportunity to assist a community to build its strengths and work towards developing the capacity to maintain and operate a facility. 3:16:02 PM Co-Chair Edgmon referred to Section 14.20 of VSWP which detailed state authority for new systems. There was a requirement to comport with respect to each national primary drinking water regulation in effect. He asked Mr. Bates if the bill would make it easier for the department to compete for federal funding and make Alaska more competitive. He relayed that in the past, he had worked as a regulator in a state agency and the power of regulatory authority allowed a regulator to take a simple sentence in statute and derive significant meaning through the regulatory process. He asked if the VSWP could be expanded upon to meet the frustration and concern about lack of facilities through the regulatory process. Mr. Bates asked Co-Chair Edgmon to restate the second portion of his question. Co-Chair Edgmon responded that he understood that the statutory addition to VSWP would give the department some additional tools to enhance the scoring mechanism. He thought that the scoring mechanism needed to advance to the "next level" in order to take advantage of potential federal funding. He asked if his understanding was correct. Mr. Bates responded that the department recognized that the common denominator was BPS and the managerial and financial scores were particularly on a decline. The department had been working on a plan to reverse the declining scores. In 2022, the Division of Community and Regional Affairs (DCRA) gained two additional staff, $500,000 in additional funding, and a federal grant recognizing that DCRA needed to approve service to the communities specific to addressing declining scores in the managerial and financial categories. There was a new grant awarded to AML that was also dedicated to addressing the declining scores. He emphasized that the department had recognized BPS challenges and the state had committed resources to address the problems. It was not the intention of the department to keep systems at bay, but to help communities become eligible under the scoring rubric. The department had affirmed its commitment to evaluating the scores in a transparent and public manner by soliciting input, evaluating information, and determining the efficacy of the scores. He emphasized that the department intended to take full advantage of the IIJA funding; however, communities had to be in a position to accept infrastructure projects in order for the facilities to operate safely and sustainably. 3:23:06 PM Co-Chair Edgmon thought the discussion was important. The circumstances in some smaller communities in the state were challenging. He thought there were several requirements that went beyond the letter of the law. He was not hearing whether the bill would provide more statutory "cover" to evolve the scoring system. He wanted to make sure that the bill would provide a tool to the department that would help it better serve communities in need. He wanted to give constituents the assurance that the issue was being taken seriously. CARRIE BOHAN, FACILITIES PROGRAM MANAGER, DIVISION OF WATER, DEPARTMENT OF ENVIRONMENTAL CONSERVATION, noted that the description of the project evaluation criteria described previously [by Mr. Bates] was not fully accurate. She would be happy to provide the correct information to the committee. The first category upon which the department determined priorities was potential health benefits, and the second looked at the current level of service in a community. The first two categories made up 50 percent of project scoring. The third category was capacity. She clarified that affordability was not an eligibility or scoring criteria, but a simple tool to help inform the department on the anticipated fees. The department would also discuss with a community its plan for sustaining the system and determine whether the community could partner with entities to compensate for higher costs that citizens could not afford. Co-Chair Edgmon commented that there were communities that could not currently meet the criteria and it was important to help the communities meet the criteria. He asked whether the bill would make it more difficult to achieve the goal. Mr. Bates responded in the negative. The bill would not hurt the department's process or prevent it from achieving the goal of helping communities meet the criteria. It would affirm much of the process that was already in place. 3:29:47 PM Co-Chair Edgmon asked what it would take to help the department and if it would need any statutory assistance. There was about $250 million available in federal funding for which the state would not qualify under the current system. Mr. Bates replied that it was important to know that the $250 million in funding was not VSWP funding, but was in the capital budget as Indian Health Service (IHS) funding. He relayed that IHD did not consider capacity in awarding funding for infrastructure to communities in need. The department needed help with assisting the community in developing managerial and technical capacity in order to become eligible through the scoring metric. It would require the community and the department to collaborate to ensure that the community would be able to independently operate and maintain a water and sewer system. He emphasized that the department was making changes and was looking for support in its continued efforts towards making additional changes on the delivery of service. Communities needed to know what the required steps were to become successful and it was the department's responsibility to educate the communities. Co-Chair Edgmon explained that the frustration he was feeling was directed towards not having a larger picture. He was aware that the problem was capacity-driven in rural Alaska. He suggested that the bill contain a larger context. There were many communities in the state that needed water and sewer systems and millions of dollars would soon be available to construct the system and he had not heard enough conversation about it. He thought there was much more to be discussed. Co-Chair Foster commented that he wished that everyone could spend time in a village to understand the desperate need for safe water systems. He thought that if state workers were subjected to a honey bucket system, all workers would immediately push for implementing water and sewer systems in villages. He thought that everyone was trying to accomplish the same thing and he thought that the bill would do a lot of good. He thought that people were beginning to understand the level of frustration felt about the system. It had been popular to say that honey buckets belonged in museums for over thirty years and nothing had changed. He thought some progress was being made but many people were frustrated that the progress was not substantial enough. A lack of water and sewer was a third- world situation, and he thought it was an important issue in the state. It was prudent to take advantage of IIJA money and he did not want to miss the opportunity. He understood the need for capacity and suggested that it might be the responsibility of the state to help communities reach capacity. He relayed that life, safety, and health were three of the most important constitutional priorities. Co-Chair Foster noted that Mr. Bates mentioned that IHS did not consider capacity. He would like Ms. Francine Moreno to provide additional information on the topic. He asked what the legislature could do to help the department. He wondered if need was placed above capacity by ANTHC. 3:38:10 PM FRANCINE MORENO, DIRECTOR, RURAL UTILITY MANAGEMENT SERVICES, ALASKA NATIVE TRIBAL HEALTH CONSORTIUM (via teleconference), responded that the IIJA funds included a criteria for capacity based on needs. Co-Chair Foster thought that Mr. Bates had said that IHS did not consider capacity. He asked Mr. Bates to explain what he meant in more detail. Ms. Bohan responded that it was her understanding that IHS used the Sanitation Deficiency System (SDS) to evaluate projects. She was a member of the scoring committee along with IHS, EPA, and other federal agencies that was responsible for determining eligibility for both VSWP funding and IHS money. There was a capacity indicator included in the efforts of the committee which was developed in collaboration with the agencies. The tool was stripped of its indicators about a year prior and as a result, all communities received the same score from the capacity indicator and what remained was scoring based on need. Representative Galvin was interested in the capacity building element. She had read that at least $3.5 billion would be available to develop new infrastructure. She relayed that when the state was building its educational system, there were no schools, teachers, or housing for teachers and that many people would agree that it was a capacity issue. She emphasized that the state made education happen because it was important and it was in the state constitution. She was unsure if the word "need" had to be included in the bill in order to stress the importance. She asked Mr. Bates if any of the IIJA funds bound for the state would assist in building capacity in order to initiate projects. If the funds would not assist in building capacity, it needed to be addressed as soon as possible. 3:42:36 PM Mr. Bates responded that ongoing education and support was a subsidized system and it was a different process than community infrastructure. He shared that $2.1 billion of the $3.5 billion in IIJA funds for new infrastructure were allocated to Alaska. Once the water and sewer systems were built, the federal money would cease and it would be the responsibility of the communities to maintain and operate the systems sustainably. The state would not provide subsidies for the ongoing maintenance and operation of the systems nor would the federal government. He wondered if the 142 residents of Wales, Alaska would be capable and willing to pay the required fee of over $300 per month to maintain a new water and sewer system. He thought it would be a challenge to the community to pay for the service on a monthly basis. The department did not have appropriations for the ongoing operation and maintenance for community systems. Representative Galvin asked if there were suppositions being made about what the citizens of Wales would or would not do. She suggested there might be other ways to pay for the system, such as through tribal organizations. She did not think it should be a barrier to building a system. Mr. Bates responded that the department was not making suppositions or guesses. The department would ensure that the system would be supported by the community and that the residents were willing and able to financially support the system. He shared that the Wales residents had been surveyed and Ms. Bohan could speak to the results of the survey. Ms. Bohan added that there was planning document created which detailed the potential expenses for a water and sewer system in Wales. The survey asked community members about their willingness to pay over $300 per month for a new system and none of the respondents were willing to pay the amount. Similar planning documents included a section related to sustainability and the department found that it could often come to a logical engineering solution, but the sustainability solution was often marginalized. The department decided to separate engineering from sustainability and consider the two separately. The department would collaborate with the community on potential sustainability plans and determine if there were regional partnerships available to assist it in paying the rate for the new systems. Representative Galvin appreciated the response. She presumed that the idea of a monthly fee must feel foreign to some communities. She thought there was a clash of cultures, and the fees might seem impossible to some citizens, particularly if the community was not cash-based. She had visited many villages in the state and often slept on the floor of a library or another public building because there was no housing available. She thought that villages were being set up to fail by demanding capacity prior to the approval of a project. The issue needed to be approached in a different way. Mr. Bates responded that one of the challenges experienced by many rural communities was that there was not an industry in the local area. There were opportunities for other regional partners to subsidize the rates to operate and maintain a new water and sewer system. Without subsidies, community members would be responsible for the entire cost of a system. He assured the committee that there were regional programs that could assist in some areas. 3:51:05 PM Representative Hannan noted that there were a few letters in the committee packet detailing the opinions of several rural communities. There was a letter from the community of Bethel (copy on file) that described a potential "bureaucratic nightmare" involving significant score reductions from one year to the next despite submitting a nearly identical plan. She wondered if the department had the opportunity to respond to Bethel and whether it would include the committee in its correspondence. She understood that Bethel had the capacity for a system and was still struggling with receiving a passable score within the scoring rubric. There was an additional letter in the packet (copy on file) from DEC Commissioner Jason Brune to the Alaska Bush Caucus that stated that in the Spring 2023 scoring cycle, 95 of 196 communities did not meet the minimum threshold; however, not all communities were seeking funding for water and sewer infrastructure. She asked why a community would be scored even if it were not seeking funding. Mr. Bates responded that the department's responses to the letters were included in the packet as well (copies on file). The letter from the city of Bethel included a particularly significant amount of information. The department had a draft response specific to one of Bethel's projects and it had responded to many of Bethel's concerns largely related to the managerial and financial components of the scoring tool. He shared that DEC had not yet coordinated a response with its sister agency, the Department of Commerce, Community and Economic Development (DCCED). He relayed that he would share the final draft of the response with the committee once it was drafted. 3:54:58 PM Ms. Bohan responded that previous to 2015, the similar but more arduous capacity assessment tool RUBA was in place and the scoring took place after funding was awarded. The tool created some issues in that communities often took years to work with RUBA to demonstrate the minimum capacity to release the funds, which generally had a limited lifespan of around five years. The funds were then held up by one community which prevented another community that had the capacity to move forward from utilizing the funds. The department intentionally changed the order of operations so that the scoring effort would occur in advance of allocating funding. The new ordering would also provide a more current idea of a community's capacity and the ways in which it could use assistance from the state. The program was voluntary and a community could choose to sit out if was not interested in participating. The department was concerned that if the data were collected only once a year, there could be a drastic decline in capacity before the next assessment. The department thought that scoring communities twice a year would be more helpful and accurate than scoring communities once a year. The department would conduct one assessment for informational purposes and the other would be to determine eligibility. If a community had met the minimum score, it could submit an application. It was possible for the department to see only 10 to 20 applications for construction every year. Mr. Bates thought it was important for the department to recognize and own that there were areas of improvement. He was happy to provide additional comments or have additional conversations with committee members. He emphasized that it was a goal of the department to provide excellent service to the state's rural communities. Co-Chair Foster understood that the issue was challenging. He thought that food and shelter were top priorities for human beings and the following priorities were sanitation and clean water. He realized that it was important to ensure that systems were being maintained for the long term and that it could be difficult. He found it concerning that many community members did not have basic water and sewer. He went to 27 villages in the prior summer and many people washed their hands repeatedly in the same bucket of water for days on end. He thought that need was more important than the capacity to maintain a system. 4:00:12 PM HB 178 was HEARD and HELD in committee for further consideration. Co-Chair Foster reviewed the agenda for the following day's meeting.