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                                                      PRINTER'S NO. 3994

THE GENERAL ASSEMBLY OF PENNSYLVANIA


HOUSE BILL

No. 2654 Session of 2008


        INTRODUCED BY HANNA, HERSHEY, STURLA, BARRAR, BELFANTI, BUXTON,
           CAPPELLI, CLYMER, CONKLIN, DALEY, DePASQUALE, GEORGE,
           GOODMAN, HALUSKA, HARHAI, HESS, JOSEPHS, KORTZ, KULA,
           LONGIETTI, MAHONEY, McILHATTAN, R. MILLER, M. O'BRIEN,
           READSHAW, ROCK, SIPTROTH, STERN, SWANGER AND THOMAS,
           JUNE 18, 2008

        REFERRED TO COMMITTEE ON AGRICULTURE AND RURAL AFFAIRS,
           JUNE 18, 2008

                                     AN ACT

     1  Establishing the Fair Share Nutrient Reduction Program;
     2     providing funding for wastewater treatment plants and
     3     agricultural operations to meet nutrient reduction mandates;
     4     creating a Nutrient Reduction Trading Board and Program and
     5     providing for its power and duties; providing for an increase
     6     in the Resource Enhancement and Protection Program; and
     7     providing supplemental funding for the Department of
     8     Agriculture and the State Conservation Commission.

     9     The General Assembly of the Commonwealth of Pennsylvania
    10  hereby enacts as follows:
    11  Section 1.  Short title.
    12     This act shall be known and may be cited as the Fair Share
    13  Nutrient Reduction Plan Act.
    14  Section 2.  Legislative findings.
    15     The General Assembly finds and declares as follows:
    16         (1)  The Federal Water Pollution Control Act (62 Stat.
    17     1155, 33 U.S.C. § 1251 et seq.), Chesapeake Bay 2000
    18     Agreement and total maximum daily load watershed water


     1     quality plans are mandating wastewater treatment facilities
     2     and farmers reduce nitrogen and phosphorus discharges going
     3     into Commonwealth streams and rivers.
     4         (2)  In the Chesapeake Bay Watershed alone, 184
     5     wastewater treatment facilities will be required to upgrade
     6     treatment systems at an estimated cost of more than
     7     $1,000,000,000, and the Department of Environmental
     8     Protection has estimated the cost to farmers of complying
     9     with reduction mandates to be nearly $600,000,000.
    10         (3)  In order to meet the mandates, local wastewater
    11     treatment facilities will have to dramatically increase their
    12     cost of service to ratepayers. If no help is provided by
    13     State government, rate increases, will exceed 100% in some
    14     communities. Farmers, who cannot pass along costs through
    15     increased prices for farm commodities, will face crippling
    16     increases in operating costs.
    17         (4)  Technical assistance provided to farmers by county
    18     conservation districts, the State Conservation Commission and
    19     the Department of Agriculture is vital to the success of
    20     reducing nutrient and sediment losses from agricultural
    21     sources. State budget allocations to these agencies have
    22     fallen well behind maintenance level, at a time when their
    23     services are most needed by farmers.
    24         (5)  One promising tool to reduce the cost of compliance
    25     with these mandates for both wastewater treatment facility
    26     operators and farmers is the Nutrient Credit Trading Program.
    27     However, potential users of the program have identified flaws
    28     that present significant risks for participation by buyers
    29     and sellers of credit alike, which have had the effect of
    30     inhibiting the level of credit generation needed to make the
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     1     program a viable nutrient reduction option while allowing for
     2     future growth and development.
     3         (6)  Federal and State Government, local wastewater
     4     system ratepayers and farmers must all do their fair share to
     5     finance the costs of measures necessary to meet nutrient
     6     reduction mandates and support their successful
     7     implementation, because the environmental and economic
     8     benefits of clean water will accrue to all citizens of this
     9     Commonwealth.
    10  Section 3.  Definitions.
    11     The following words and phrases when used in this act shall
    12  have the meanings given to them in this section unless the
    13  context clearly indicates otherwise:
    14     "Agricultural nutrient and sediment reduction project."  A
    15  project undertaken in conjunction with an agricultural operation
    16  to establish, implement or improve a best management practice
    17  recognized by the Environmental Protection Agency or the
    18  Department of Environmental Protection to reduce the levels of
    19  nitrogen, phosphorus or sediment entering surface water or
    20  groundwater from farms in this Commonwealth. The term includes
    21  design, construction, reconstruction, erection, equipping,
    22  expansion, improvement, installation, rehabilitation, renovation
    23  or repair of infrastructure, buildings, structures, equipment
    24  and fixtures to facilitate nutrient or sediment reduction.
    25     "Authority."  The Pennsylvania Infrastructure Investment
    26  Authority.
    27     "Best management practice."  A practice or combination of
    28  practices recognized as effective and practical in the
    29  management or reduction of nutrients or sediment to protect
    30  surface water or groundwater, considering technological,
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     1  economic and institutional factors.
     2     "Board."  The Nutrient Reduction Credit Trading Board.
     3     "Commission."  The State Conservation Commission.
     4     "Conservation district."  A public body as defined in and
     5  created under the act of May 15, 1945 (P.L.547, No.217), known
     6  as the Conservation District Law.
     7     "Department."  The Department of Environmental Protection of
     8  the Commonwealth.
     9     "NPDES."  The National Pollutant Discharge Elimination System
    10  established under the Federal Water Pollution Control Act (62
    11  Stat. 1155, 33 U.S.C. § 1251 et seq.)
    12  Section 4.  Agricultural Nutrient Reduction Program.
    13     (a)  Establishment.--The Agricultural Nutrient Reduction
    14  Program is established to provide financial assistance in the
    15  form of single-year or multiyear grants or tax credits for
    16  agricultural nutrient and sediment reduction projects and to
    17  provide tax credits for legacy sediment remediation projects in
    18  this Commonwealth.
    19     (b)  Dedication to Conservation District Fund.--In addition
    20  to any appropriations annually made, a total of $10,000,000
    21  annually shall be deposited in the Conservation District Fund
    22  from funds transferred under subsection (f). Money to be
    23  deposited under this section shall be distributed by the
    24  commission to conservation districts for their use in
    25  undertaking activities as defined in the act of May 15, 1945
    26  (P.L.547, No.217), known as the Conservation District Law. The
    27  commission shall adopt criteria and procedures for allocation of
    28  money deposited under this subsection to conservation districts.
    29     (c)  Financial assistance for agricultural nutrient and
    30  sediment reduction projects.--For fiscal years 2008-2009 through
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     1  and including fiscal year 2012-2013, a nonlapsing appropriation
     2  of $15,000,000 annually shall be made to the commission for the
     3  purpose of awarding grants to farmers for agricultural nutrient
     4  and sediment reduction projects. Grants to be provided by the
     5  commission for any agricultural nutrient and sediment reduction
     6  project shall not exceed 50% of the cost of the project, except
     7  that no more than $150,000 in total grants may be awarded to a
     8  single agricultural operation.
     9     (d)  Resource enhancement and protection tax credit.--For
    10  fiscal years 2008-2009 through and including fiscal year 2012-
    11  2013, a total of $35,000,000 in tax credits annually shall be
    12  made available to eligible applicants in accordance with the
    13  provisions of Article XVII-E of the act of March 4, 1971 (P.L.6,
    14  No.2), known as the Tax Reform Code of 1971, for agricultural
    15  nutrient and sediment reduction projects and for legacy sediment
    16  remediation projects. Authorization for tax credits and the
    17  extent and limitation of eligibility, receipt and transfer of
    18  tax credits shall be as provided in Article XVII-E of the Tax
    19  Reform Code of 1971.
    20     (e)  Administrative expenses.--The commission may annually
    21  dedicate not more than $350,000 of funds provided under
    22  subsection (c) for administrative expenses incurred by the
    23  commission in awarding grants and authorizing tax credits under
    24  subsections (c) and (d).
    25  Section 5.  Wastewater treatment plant nutrient reduction
    26                 program.
    27     (a)  Establishment.--The Wastewater Treatment Plant Nutrient
    28  Reduction Program is established to provide financial assistance
    29  in the form of single-year or multiyear grants to municipalities
    30  or municipal authorities to construct, expand or improve the
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     1  nutrient reduction capabilities of wastewater infrastructure and
     2  which are subject to new nitrogen and phosphorus limits imposed
     3  in NPDES permits issued after January 1, 2008.
     4     (b)  Application.--A municipality or municipal authority may
     5  submit an application to the authority requesting financial
     6  assistance for a nutrient reduction project. The nutrient
     7  reduction project may be a proposed project, a project currently
     8  under construction or a project completed within three years
     9  prior to the effective date of this section. The application
    10  shall be on the form required by the authority and include or
    11  demonstrate all of the following:
    12         (1)  The name and address of the applicant.
    13         (2)  A statement of the type and amount of financial
    14     assistance sought, provided that the amount does not exceed
    15     50% of the cost of the nutrient reduction project.
    16         (3)  A statement describing the nutrient reduction
    17     project, including a detailed statement of the cost of the
    18     nutrient reduction project.
    19         (4)  A financial commitment from a responsible source for
    20     any cost of the nutrient reduction project in excess of the
    21     amount requested. The financial commitment may not be in the
    22     form of a grant from a Commonwealth agency.
    23         (5)  Proof that the wastewater system is required to
    24     reduce nutrient discharges and that the wastewater system has
    25     a current NPDES permit limiting pounds of nitrogen or
    26     phosphorus in its discharge.
    27         (6)  Confirmation through plans certified by a
    28     professional engineer registered in this Commonwealth that
    29     the nutrient reduction project is designed for the necessary
    30     upgrades to remove nutrients.
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     1         (7)  Information regarding current user rates and a
     2     projection of how rates may be impacted as a result of the
     3     addition of the nutrient reduction project.
     4         (8)  Any other information required by the authority.
     5     (c)  Review and approval of grant application.--
     6         (1)  The authority, in conjunction with the department,
     7     shall review the application to determine all of the
     8     conditions under the subsection (b) are met.
     9         (2)  The authority shall conduct, as part of the
    10     application review, an affordability analysis to determine if
    11     current and future user rates meet affordability criteria
    12     established by the authority.
    13         (3)  Upon being satisfied that all program requirements
    14     have been met, the authority may approve the application
    15     consistent with all of the following:
    16             (i)  The grant may not exceed $10,000,000 per
    17         nutrient reduction project.
    18             (ii)  The aggregate amount of grants awarded under
    19         this subsection shall not exceed $500,000,000 over a
    20         seven-year period.
    21             (iii)  The authority has received notice from the
    22         Secretary of the Budget that the nutrient reduction
    23         project satisfies the Federal tax status requirements of
    24         any bonds used to fund the grant.
    25         (4)  The authority shall make a determination of the
    26     completeness of an application within 30 days of its receipt.
    27     If the authority deems the application complete, it shall
    28     render a decision on funding the application within 60 days
    29     of the receipt of the completed application.
    30         (5)  An applicant shall, within 30 days of a
    20080H2654B3994                  - 7 -     

     1     determination by the authority that the application was
     2     deficient, provide to the authority the necessary information
     3     to complete the application. The authority shall not be
     4     required to make a determination under paragraph (3) if the
     5     applicant fails to provide the required information.
     6         (6)  If the authority approves the application, the
     7     authority shall notify the applicant of the amount approved
     8     and enter into a contract with the applicant.
     9  Section 6.  Implementation schedule for Chesapeake Bay
    10                 Watershed.
    11     (a)  Establishment.--The department shall establish a
    12  multiphased nutrient reduction compliance schedule for
    13  wastewater treatment facilities required to reduce nutrient
    14  levels within the Chesapeake Bay Watershed that meets the
    15  following requirements:
    16         (1)  All plants identified by the department with flows
    17     over 400,000 gallons per day which are not presently under
    18     annual nutrient load limits as part of their operating permit
    19     shall be given annual nutrient load limits based upon an
    20     average of 6 mg/l total nitrogen and 0.8 mg/l total
    21     phosphorous at the annual average design flow of each
    22     wastewater treatment facility.
    23         (2)  In an effort to achieve nutrient reduction
    24     compliance levels, a three-tiered compliance schedule shall
    25     be used. Wastewater treatment facilities shall be placed in
    26     one of three tiers to ensure all facilities will be deemed in
    27     compliance over a seven-year period beginning on July 1,
    28     2008, and ending June 31, 2015.
    29     (b)  New construction.--
    30         (1)  A new wastewater treatment facility, where
    20080H2654B3994                  - 8 -     

     1     construction commences on or after January 1, 2008, shall
     2     meet nutrient load limits based upon an average of 4 mg/l
     3     total nitrogen and 0.3 mg/l total phosphorus at the annual
     4     average design flow. A new system constructed to the limits
     5     in this section shall make a one-time monetary assessment to
     6     the nutrient reduction credit bank as established under
     7     section 7(d)(3). The assessment contribution shall be
     8     determined by the board. The assessment shall, at a minimum,
     9     be based upon the difference in the treatment level between 4
    10     mg/l of nitrogen and 0.3 mg/l of phosphorus and the zero net
    11     discharge limit applied to new facilities through the
    12     department under the strategy.
    13         (2)  The purchase of nutrient credits shall be recognized
    14     as an alternative method to meet the zero net discharge limit
    15     applied to new facilities that do not meet the criteria of
    16     this section. The purchase of nutrient credits shall also be
    17     recognized as an alternative method to meet the zero net
    18     discharge limit applied to expansion of existing plants.
    19         (3)  In the event of an addition, expansion or
    20     modification to a wastewater treatment facility, the mass
    21     discharge limits contained in this subsection shall apply
    22     only to the increase in the annual average design flow,
    23     resulting from the addition, expansion or modification.
    24     (c)  Limitation.--Nothing in this section shall be construed
    25  to prohibit the right of appeal to NPDES permit conditions by a
    26  permittee.
    27  Section 7.  Nutrient Reduction Credit Trading Program.
    28     (a)  Establishment.--The Nutrient Reduction Credit Trading
    29  Program is established within the authority and is designed to
    30  enhance the nutrient reduction credit trading program
    20080H2654B3994                  - 9 -     

     1  established by the department by adding an alternative method of
     2  nutrient credit trading.
     3     (b)  Board.--The following shall apply:
     4         (1)  The Nutrient Reduction Credit Trading Program Board
     5     is established. The purpose of the board shall be to manage
     6     and provide oversight to the Nutrient Reduction Credit
     7     Trading Program.
     8         (2)  The board shall consist of the following:
     9             (i)  The Secretary of Environmental Protection, or a
    10         designee.
    11             (ii)  The Secretary of Agriculture, or a designee.
    12             (iii)  The executive director of the authority, or a
    13         designee.
    14             (iv)  One representative from county conservation
    15         districts appointed by the commission.
    16             (v)  One representative from municipal authorities
    17         representing wastewater treatment facilities chosen by
    18         the Pennsylvania Municipal Authorities Association.
    19             (vi)  One representative of the housing industry
    20         chosen by the Secretary of Environmental Protection from
    21         a list submitted by the Pennsylvania Builders
    22         Association.
    23             (vii)  One water quality engineer appointed by the
    24         chair of the Joint Legislative Air and Water Pollution
    25         Control and Conservation Committee.
    26             (viii)  One representative from the agricultural
    27         sector appointed by the Secretary of Agriculture.
    28             (ix)  One representative from an environmental
    29         organization representing an environmental organization
    30         appointed by the Secretary of Environmental Protection.
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     1             (x)  Three representatives of local government; one
     2         representing boroughs, one representing townships and one
     3         representing cities. These representatives shall be
     4         chosen by their respective Statewide organizations.
     5             (xi)  One representative from the Pennsylvania
     6         delegation to the Chesapeake Bay Commission appointed by
     7         members of the Pennsylvania delegation to the commission.
     8             (xii)  One representative from the United States
     9         Department of Agriculture's Natural Resources
    10         Conservation Service appointed by the State
    11         Conservationist of this Commonwealth.
    12     (c)  Chairperson.--The board shall elect a chairperson from
    13  among its members.
    14     (d)  Powers and duties.--The board shall adopt policies and
    15  implement programs necessary to manage the Nutrient Reduction
    16  Credit Trading Program and shall have the following specific
    17  duties and responsibilities:
    18         (1)  The board shall purchase nutrient reduction credits
    19     from wastewater treatment facilities, agricultural or other
    20     sources. Credits shall be available for purchase only after
    21     department certification that nutrient and sediment
    22     reductions have occurred or will occur upon implementation of
    23     the proposed nutrient reduction project. The board shall
    24     cooperate with the department and the Department of
    25     Agriculture, or their agents, to verify credits from
    26     wastewater treatment facilities, agricultural and other
    27     sources.
    28         (2)  The board shall offer for sale nutrient reduction
    29     credits to wastewater treatment facilities, developers,
    30     municipalities, nonpoint source entities and others required
    20080H2654B3994                 - 11 -     

     1     to meet nutrient reductions.
     2         (3)  The board shall establish a nutrient reduction
     3     credit bank to provide for the purchase and sale of credits
     4     within the Nutrient Reduction Credit Trading Program. The
     5     board shall establish procedures and set monetary assessments
     6     to generate a system of nutrient credits that can be used by
     7     wastewater treatment facilities and others to reach
     8     compliance with nutrient reduction requirements identified by
     9     the department and to allow for new growth. Nothing within
    10     this paragraph prohibits the private purchase and sale of
    11     credits within the trading market.
    12         (4)  (i)  For wastewater treatment facilities, the board
    13         is authorized to establish phased payment schedules,
    14         provided the payment amounts will fund all annual
    15         reductions that are necessary to meet nutrient reduction
    16         requirements identified by the department. For new
    17         facilities, the payment amounts shall be sufficient to
    18         fund all necessary annual reductions, given the
    19         facility's design flow and connection schedule, so that
    20         zero net discharge requirements are met. The bank shall
    21         use these funds to provide grants to the agricultural
    22         sector to support projects that will implement the
    23         highest value nutrient reduction best management
    24         practices. Preference will be given to those nutrient
    25         reduction best management practices that provide the
    26         greatest nutrient reductions for the least amount of cost
    27         and that, once implemented, generate credits on a
    28         continual annual basis.
    29             (ii)  Excess credits generated from the transactions
    30         shall be made available for purchase by wastewater
    20080H2654B3994                 - 12 -     

     1         treatment facilities, upon request, if needed, to meet
     2         nutrient effluent limits.
     3         (5)  The board shall offer for sale excess credits held
     4     by the bank as set forth under paragraph (3), but shall hold
     5     a minimum percentage of credits as a reserve balance to
     6     offset any failures or loss of nutrient reduction credits
     7     within the bank. In addition to this reserve, the board shall
     8     hold a minimum percentage of credits in reserve for new
     9     growth. The board shall set these reserves at percentages it
    10     deems necessary, but in no instance shall the reserve for new
    11     growth be lower than 5% of all credits held by the bank.
    12         (6)  The board shall process credits on a continual
    13     basis. The board shall establish and update, as necessary,
    14     the selling price of nutrient reduction credits and post the
    15     information regarding cost and methods of purchasing and
    16     selling credits on the Internet website. The board shall post
    17     on the Internet website a list of those projects that have
    18     been certified to generate credits by the department.
    19         (7)  The board shall establish overall time frames for
    20     the use of nutrient reduction credits purchased through the
    21     bank necessary to meet the compliance requirements
    22     established by the department. The board shall develop and
    23     implement a process that allows credits to be purchased in
    24     advance of when they may be needed to ensure compliance with
    25     the requirements established by the department.
    26         (8)  The board shall establish a technical subcommittee
    27     to provide technical assistance to entities proposing credit
    28     generating projects. Members of the subcommittee shall be
    29     appointed by the board and shall have appropriate technical
    30     training and experience. One of the members of the
    20080H2654B3994                 - 13 -     

     1     subcommittee shall be a representative from the Water
     2     Planning Office in the department who has demonstrated
     3     familiarity with the department's nutrient reduction credit
     4     trading program. The subcommittee shall conduct a technical
     5     review of such proposals consistent with the department's
     6     existing guidance on credit proposal reviews, and make a
     7     recommendation regarding credit certification. Proposals that
     8     have undergone technical review by the subcommittee and are
     9     recommended by the subcommittee for certification shall be
    10     submitted by the board to the department for review. For such
    11     proposals, the department shall render a decision on the
    12     proposal within 60 days of receipt of the submission from the
    13     board. Proposals on which the department fails to act within
    14     this time period are deemed approved.
    15         (9)  The board shall establish procedures to allow the
    16     nutrient reduction credit bank to act as a clearinghouse and
    17     make available information on the availability of nutrient
    18     reduction credits from public and private sector
    19     organizations other than the nutrient reduction credit bank.
    20     (e)  Regulations.--The authority, the department and the
    21  Department of Agriculture may jointly develop regulations as
    22  necessary to implement the provisions of this act. The
    23  regulations shall be promulgated in accordance with the act of
    24  June 25, 1982 (P.L.633, No.181), known as the Regulatory Review
    25  Act.
    26     (f)  Administration.--The authority shall provide all
    27  necessary administrative and technical support to the operation
    28  of the Nutrient Reduction Credit Trading Program and the board.
    29  The authority is authorized to acquire staff, enter into
    30  contracts to assist in administration of the bank, provide
    20080H2654B3994                 - 14 -     

     1  technical assistance to entities proposing credit generating
     2  projects and provide other necessary technical and
     3  administrative support to the board.
     4  Section 8.  Funding sources.
     5     Programs established under this act shall be funded through
     6  an interfund transfer from The State Stores Fund. The Secretary
     7  of the Budget shall transfer from The State Stores Fund an
     8  amount of $170,000,000 annually for fiscal years 2008-2009
     9  through 2010-2011, $120,000,000 annually for fiscal years 2011-
    10  2012 through 2012-2013, and $70,000,000 annually for fiscal
    11  years 2013-2014 through 2014-2015.
    12  Section 9.  Effective date.
    13     This act shall take effect immediately.












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