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Company Whose Subsidiary Is In Default Of $7.8 Million PennVEST Loan Again Pushes Bill To Get More State Funding

Representatives of Colorado-based Bion Environmental Technologies, whose subsidiary Bion PA1, LLC is still in default of its 2009 $7.8 million loan from the PA Infrastructure Investment Authority (PennVEST), has again been shopping draft legislation around Harrisburg like they did in 2013, 2015 and in 2016 to “establish appropriate public policies which will create regulations and funding mechanisms” for Bion Environmental Technologies, Inc, and other companies.

That legislation was introduced last Friday-- Senate Bill 799 (Alloway-R-Adams)-- as an initiative of the Coalition for Affordable Bay Solutions, a nonprofit advocacy group whose founding members include Bion and related companies.

Sen. Richard Alloway, one of Pennsylvania’s representatives to the interstate Chesapeake Bay Commission, introduced the bill he said as a way to get a conversation started on needed funding for the Chesapeake Bay cleanup and new methods to meet Pennsylvania’s obligations.

He said he knows there are flaws in the bill and is soliciting comments from various interest groups and said the bill is not on a fast track.

This article includes background on--

-- Bion Environmental Technologies in Pennsylvania

-- A summary of Senate Bill 799 as drafted

-- An outline of 8 concerns with Senate Bill 799 as drafted

-- A Description Of Many Other Solutions That Work

-- Spotlighting The Need For Dedicated Clean Water Funding

-- PA Already Has $65 Million/Year For Clean Water Projects

-- Increase/Broaden REAP Farm Conservation Tax Credit

-- Institute A Pay-For-Success Public/Private Investment Program

-- Encourage Incorporating BMP Construction In Local Development

-- Double-Down On Recreation Investments By Incorporating Stormwater BMPs

-- Local Stormwater Management Fees

-- Chesapeake Bay Success In PA Depends On A Fully Participating Federal Partner

It concludes by saying, there are lots of innovative solutions out there that do NOT involve throwing everything we’ve done up until now out the window and that encourage truly cost-effective and efficient ways to reduce nitrogen, phosphorus and sediment.

All we need is some creative leadership.

Background On Bion In PA

This bill makes at least the fourth attempt by Bion Environmental Technologies, Inc. to “establish appropriate public policies which will create regulations and funding mechanisms” for Bion Environmental Technologies, Inc. and other companies.

The bill would tax municipalities statewide, many of whom in the Chesapeake Bay Watershed area have already complied with nutrient reduction requirements, to let companies like Bion bid on funding projects to reduce nutrient discharges only in the Chesapeake Bay drainage area.

According to lobbying expense reports submitted to the Pennsylvania Department of State, the Coalition for Affordable Bay Solutions spent $137,121 on lobbying activities between April 1, 2016 to March 31, 2017. (Click Here to search for these reports with the Coalition as the principal name.)

In 2009, the PA Infrastructure Investment Authority approved a $7.8 million loan to Bion PA1, LLC to construct a manure treatment facility on the Kreider Farm in Lancaster County.

Bion PA1, LLC has not made a payment on its PennVEST loan since January 2013, the same year Bion Environmental Technologies, Inc. first began seeking state funding for its operations. Bion PA1, LLC still owes PennVEST $7,754,000 on its $7.8 million loan, according to PennVEST.

On September 25, 2015 PennVEST sent a letter of default to Bion PA 1, LLC, in care of Bion Environmental Technologies, Inc., which said in part, “... Bion abandoned the project in the Commonwealth.”

According to the March 31, 2017 10-Q filed by Bion Environmental Technologies, Inc. with the federal Securities and Exchange Commission, the Lancaster manure treatment project is valued at $0 on its books.

Bion Environmental Technologies, Inc. further stated in that 10-Q report, “A significant portion of Bion's activities concern efforts with private and public stakeholders (at local and state level) in Pennsylvania (and other Chesapeake Bay and Midwest and Great Lakes states) and at the federal level (the Environmental Protection Agency ("EPA") and the Department of Agriculture ("USDA") (and other executive departments) and Congress) to establish appropriate public policies which will create regulations and funding mechanisms that foster installation of the low cost environmental solutions that Bion (and others) can provide through clean-up of agricultural waste streams.

“The Company anticipates that such efforts will continue in Pennsylvania and other Chesapeake Bay watershed states throughout the next 12 months and in various additional states thereafter.”

Bion Environmental Technologies, Inc. stated further, “There is no realistic likelihood that funds required during the next twelve months (or in the periods immediately thereafter) for the Company's basic operations and/or proposed Projects will be generated from operations. Therefore, the Company will need to raise sufficient funds from external sources such as debt or equity financings or other potential sources.”

All this information is available in public records and quoted here from the company’s filings with the federal Securities and Exchange Administration. Click Here for the most recent 10-Q and 10-K reports.

Summary of Senate Bill 799

This summary follows the language in Senate Bill 799, promoted by Bion, but unfortunately, the language of the bill has holes and gaps. Those gaps are noted where appropriate.

Senate Bill 799 would require any municipality (not public authorities that hold the permits for wastewater plants required to make reductions) and public stormwater authorities anywhere in the state (there are fewer than 10) that discharge nitrogen or phosphorus into the waters of the Commonwealth to pay, in aggregate, $50 million annually for 10 years to raise $500 million.

The funds are used, according to the bill, to pay for practices that reduce nitrogen and phosphorus pollutants going into rivers and streams that make up the Chesapeake Bay Watershed drainage area in Pennsylvania, about half the state.

In return, DEP is required to transfer the total nutrient reduction mandates (met and unmet, it is not clear) from the municipalities or public stormwater authorities statewide to the competitive bidding program established in the legislation.

The municipalities and stormwater authorities in turn are “absolved” of any further responsibility for implementing those reduction requirements forever.

As drafted, there is no funding for projects to reduce nutrient discharges in the other half of Pennsylvania outside of the Chesapeake Bay Watershed area, so DEP is left on the hook for the reductions with no funding source.

The bill requires the State Conservation Commission to administer the overall bidding program outline in the bill and adopt regulations to implement it.

The first task for the Commission is to determine the unmet nitrogen and phosphorus reductions required by the more than 400 TMDL (Total Maximum Daily Load) Plans statewide over three years. The program in the bill is a 10 year program.

Based on that number for the Chesapeake Bay Watershed, the PA Infrastructure Investment Authority is to put out a Request for Proposal to solicit project proposals to meet the unmet nitrogen and phosphorus reductions in the Chesapeake Bay Watershed drainage area.

Proposals can only be solicited from vendors approved under the Commonwealth Procurement Code administered by the Department of General Services, which municipalities are not authorized to participate in, so they are excluded from bidding, even if they have eligible reductions.

The bid process and effective dates of the nutrient credits must also specifically account for “the time frame necessary for the permitting and development of public or private credit generator facilities.” Which apparently means 10-year credits are not really 10-year credits, but something a whole lot less.

Presumably, the Commission (or it could be PennVEST since it puts out the RFP) then makes awards of grants based on the bids for practices to reduce nitrogen and phosphorus in the Chesapeake Bay Watershed to be paid for from the fund financed by municipalities and stormwater authorities from across the state.

The bill contains a very vague provision that requires any load reduction activity to meet “the requirements of any applicable offset program in force regarding the Chesapeake Bay.”

The bill provides a set aside of 20 percent of the winning bid credits so small sources (unclear who or what that is) that install best management practices can sell credits for those practices at the winning bid price.

The bill outlines a 10 year program, but does not address what happens after that time. Chesapeake Bay and TMDL legal obligations to reduce water pollutants continue into the future.

Concerns With Senate Bill 799

Senate Bill 799 has several fatal flaws that have been pointed out by the PA Environmental Council and other groups--

1. Taxes Municipalities/Ratepayers Twice To Meet Nutrient Reduction Requirements;

2. Municipalities/Ratepayers, MS4 Communities Across The State Will Be Taxed, But Will Not See Any Benefit;

3. Does Not Address The Most Significant Chesapeake Bay Pollution Obligation, Does Not Cover All Of Pennsylvania’s 3 Major Sources Of Water Quality Impairment;

4. No Guarantee Practices Funded Will Count Toward Chesapeake Bay Obligations;

5. Lacks Taxpayer Safeguards;

6. Process Freezes Out Family Farmers From Funding Opportunities;

7. Process Favors High-Cost Solutions Over Cost-Effective Ones; and

8. No Funding Provided To Implement The Program.

Here are the details--

1. Taxes Municipalities/Ratepayers Twice To Meet Nutrient Reduction Requirements. As drafted, the legislation requires municipalities statewide to pay $500 million over 10 years to fund the installation of practices to reduce nitrogen and phosphorus discharges in the Chesapeake Bay drainage area.

In most cases, municipalities and wastewater treatment system ratepayers have already increased their rates and made the investments necessary to meet these requirements in the Bay Watershed area of Pennsylvania.

This proposal to double tax municipalities and ratepayers is unfair and PEC believes untenable.

In addition, MS4 stormwater program communities are very far along in making the decisions about the investments they need to make to meet their stormwater management obligations. Plans are due to DEP in September which lay out the steps they plan to take to meet these requirements.

There are about 775 communities across the state who need to comply with the MS4 stormwater program.

Many of these communities are also under compliance orders from the U.S. Environmental Protection Agency to submit these plans.

Taxing them again for the same obligation is unfair, especially given the fact that many counties, authorities and other groups of municipalities have developed innovative ways to meet these requirements and install the needed green infrastructure.

The Wyoming Valley Sanitary Authority is leading an effort to help the 30+ communities it serves in Luzerne County to save them 50+ percent in MS4 stormwater compliance costs.

In Lycoming County they have adopted their own local nutrient credit trading program to promote cost-effective solutions to nutrient and sediment reduction. York County has also taken a county-wide approach and created an Integrated Water Resources Plan to comply with not only MS4 Stormwater requirements, but to comply with all Chesapeake Bay and local TMDL impaired stream nutrient and sediment reductions.

The City of Lancaster established a Green Infrastructure Program to install stormwater pollution reduction measures throughout the City. A similar green infrastructure plan is being finalized by the Capital Region Water Authority for the City of Harrisburg.

The Philadelphia Water Department’s Green City, Clean Waters Program is now into its sixth year of implementing its green infrastructure program and the City of Pittsburgh is now proposing its own green infrastructure program along with the 3 Rivers Wet Weather Project to promote green infrastructure on a regional basis.

What do all these approaches have in common? Low-tech, cost-effective best management practices that work to prevent pollution from stormwater and reduce nutrients and sediment getting into our rivers and streams.

These kinds of initiatives should be supported and should not be thrown out to start over in a new process.

2. Municipalities/Ratepayers, MS4 Communities Across The State Will Be Taxed, But Will Not See Any Benefit. As drafted, the legislation would raise $500 million over 10 years to pay for the installation of nitrogen and phosphorus discharge reductions in only the Chesapeake Bay Watershed in Pennsylvania.

While the Bay drainage area represents about half the state, this also means the other half receives no benefit from the funds they pay in.

It is vital that any mechanism developed to address water quality impairments should help fund projects across the entire state, because the 19,000 miles of polluted streams occur in each and every county.

3. Does Not Address The Most Significant Chesapeake Bay Pollution Obligation, Does Not Cover All Of Pennsylvania’s 3 Major Sources Of Water Quality Impairment. As drafted, the legislation addresses only a portion of one of the three major sources of water quality impairment in Pennsylvania-- nitrogen and phosphorus-- and leaves unaddressed the other major water quality problems.

The top three sources of water pollution in the state are-- runoff and discharges from abandoned coal mines, agricultural lands runoff (nitrogen, phosphorus and sediment) and pollution from stormwater runoff (nitrogen, phosphorus and sediment).

The bill leaves unaddressed Pennsylvania's obligation to reduce sediment pollution by hundreds of millions of pounds-- 328 million pounds in the Bay Watershed just to meet the 2017 milestone alone-- and Pennsylvania’s number one water pollution issue-- abandoned mine drainage.

It is vital that any mechanism developed to address water quality impairments should help fund projects across the entire state.

4. No Guarantee Practices Funded Will Count Toward Chesapeake Bay Obligations: As drafted, the legislation contains no guarantee practices funded under the program will, in fact, count toward Pennsylvania’s obligations toward the Chesapeake Bay milestones.

For example, the Lancaster manure treatment facility has never been approved as counting toward meeting the Chesapeake Bay milestones, even though the Bay Program adopted a process recently for evaluating manure technology reductions last year.

The Bay Program process for evaluating manure treatment technologies and determining the amount of reductions that would count toward Bay milestones uses a scientifically valid mass-balance approach that compares the nutrients left after the treatment process to untreated land application of manure.

This scientific process, however, significantly reduces the amount of these reductions that count from what high-tech, high-cost solution companies may expect. DEP is working on specific procedures to go through this process.

Despite having preliminary approval from DEP for nutrient reduction credits for trading for non-Chesapeake Bay purposes at its Lancaster facility, Bion Environmental Technologies, Inc. never submitted any scientific data with a certification request needed to actually be awarded a single nutrient credit by DEP.

Bion Environmental Technologies, Inc.'s preliminary DEP credit approval expired on September 30, 2016 and Bion Environmental Technologies, Inc. never replied to the most recent letter from DEP on April 7, 2017 on the credits.

Any practice included in the program outlined in the bill should have to demonstrate upfront they have been approved by the Chesapeake Bay Program, and for manure treatment technologies, gone through the approved evaluation process before their “credits” could accepted in the program.

5. Lacks Taxpayer Safeguards: The legislation contains no provision that prevents companies or their owners, principals or operators, declared in default of paying back previous state loans or financing or who are in violation of a Pennsylvania environmental law or regulation from participating in the program outlined in the bill.

The bill also does not prohibit paying off old state loans with any new state money they receive.

These kinds of financial and compliance history checks are part of every major state environmental program from air quality, to waste management and mining and should be part of this legislation as well.

6. Process Freezes Out Family Farmers From Funding Opportunities: As drafted, the bidding process established in the legislation freezes out family farmers who want to install cost-effective on-farm conservation practices like stream buffers and other measures.

They would find it difficult to be part of the program because of the high threshold for participating.

Yet, family farmers have the largest demonstrated need for financial assistance for conservation practices in Pennsylvania.

The process in the legislation favors companies which could theoretically deliver tons of reductions for just two pollutants-- nitrogen and phosphorus-- at one time, and having the wherewithal to participate in the bid process outlined in the bill.

The bill also “absolves” municipalities and stormwater authorities of any obligations to meet nitrogen and phosphorus reduction requirements forever, but does not provide any similar protection for family farmers who are obligated to reduce nitrogen, phosphorus and sediment as well.

While the Senate Bill 799 contains a set aside for 20 percent of the winning bidders’ credits for “small sources,” it is not at all clear what “small sources” are or who could participate. It would also be up to the company (winning bidder) to decide which “small sources” can sell them credits.

There is also no guarantee the “small sources” would be installing practices that count toward Pennsylvania’s Chesapeake Bay obligations.

In addition to all these provisions, the bill requires all bidders to be approved as vendors under the Commonwealth Procurement Act, which represents another bureaucratic and paperwork hurdle for family farmers.

7. Process Favors High-Cost Solutions Over Cost-Effective Ones: As drafted, the legislation favors high-cost solutions to nitrogen and phosphorus reductions, as noted in point 6, and even though practices go through a bidding process, the threshold for participation is much too high financially and in terms of red tape.

Pennsylvania has had a competitive bidding auction for nutrient credits since 2010. It is operated by the Pennsylvania Infrastructure Investment Authority which generally has auctions four times a year.

The most recent auction was on June 7 where a pound of nitrogen credits sold for $2.25 and phosphorus $7.90. A second round of phosphorus credits the same day were sold the same day for $4 per pound.

Some companies, like those promoting manure treatment technology, likely to provide bids under the process in the bill require from $8 to $12 per pound of reduction (or higher) [June 30, 2016 10-K report from Bion] to be profitable.

Obviously, the competitive process now in place is resulting in much lower-cost solutions that count toward Pennsylvania’s Chesapeake Bay reduction milestones than some of the companies likely to bid under the process in the bill.

8. No Funding Provided To Implement The Program. As everyone knows, state funding to environmental programs has been cut significantly over the last decade, leaving some on the verge of not being able to fulfill their state or federal obligations.

This legislation imposes significant costs on both the State Conservation Commission and the Pennsylvania Infrastructure Investment Authority which already have had their staff reduced to accomplish their existing responsibilities.

Without significant new funding to administer this very complex program, this program could not even start.

Many Other Solutions That Work

Pennsylvania does not have to start from scratch and throw out everything communities have done to date to comply with water pollution reduction obligations.

New legislation should support initiatives that address all three primary sources of water quality impairment in Pennsylvania. There are already programs, like Growing Greener, that provide the necessary channels through which to deliver funding for these purposes.

Spotlighting The Need For Dedicated Clean Water Funding

What the Chesapeake Bay, MS4 Stormwater and TMDL compliance programs need, above all, is a viable, ongoing source of significant additional state funding to ensure their success.

On January 24, 2017, the bipartisan Pennsylvania members Pennsylvania of the Chesapeake Bay Commission Tuesday wrote to all members of the Senate and House to outline the need to address the state’s water pollution cleanup problems and propose a potential solution - a dedicated Clean Water Fund for Pennsylvania.

The letter proposes, as one solution, a water use fee to finance Pennsylvania’s water pollution cleanup effort that would raise an estimated $245 million. They note water fee proposals were introduced last session in Senate Bill 1401 (Alloway-R-Franklin) and House Bill 2114 (Sturla-D-Lancaster).

The letter to members was signed by Sen. Gene Yaw (R-Lycoming), Majority Chair of the Senate Environmental Resources and Energy Committee, Sen. Rich Alloway (R-Franklin), Rep. Garth Everett (R-Lycoming), Rep. Keith Gillespie (R-York) and Rep. Mike Sturla (D-Lancaster).

PA Already Has $65 Million/Year For Clean Water Projects

Of course here’s a simple solution that will not increase the state budget one penny-- use the $65 million a year now going to one-time movie, TV and video game productions in Pennsylvania and buy something useful-- clean water that stays clean.

That’s right Pennsylvania, your legislators spend $65 million a year to help fund one-time movie productions like Zack & Miri Make A Porno-- a real movie, subsidized with your tax dollars.

And this incentive for one-time movie and TV productions is due to increase to $65 million in FY 2017-18 (page D13 of the Executive Budget book).

And we don’t have to create a new program to provide this funding. The Growing Greener Program, created in 1999, can be used without making a single change to fund mine reclamation, watershed improvement and stormwater management project.

Which do you think is a better investment? (Click Here for more.)

Increase/Broaden REAP Farm Conservation Tax Credit

In 2007 the Resource Enhancement and Protection (REAP) Farm Conservation Tax Credit Program was established to provide $10 million in tax credits to farmers installing best management practice.

Each year this program is oversubscribed with $11.2 million in eligible requests for the $10 million appropriation.

This public-private initiative could easily be expanded to allow other taxpaying companies and individuals fund on-farm conservation practices just like another successful initiative-- the Education Improvement Tax Credit Program.

Private taxpayers would use their money to fund the practices and in return they receive a public tax credit benefit; a true public-private partnership.

Institute A Pay-For-Success Public/Private Investment Program

The Pay-For-Success model for putting farm conservation on the group that allow municipalities to satisfy stormwater pollution reduction requirements and return profits to private capital investors who pay for those practices is gaining ground.

Recently, the National Resources Conservation Service awarded a Conservation Innovation Grant to the Chesapeake Bay Foundation-PA to develop a pilot Pay-For-Success Program with partners Red Barn Consulting of Lancaster, RETTEW Associates Consulting of Lancaster, Land O’Lakes, Inc., and Quantified Ventures of Washington, D.C.

This program has the potential to bring millions of dollars to Pennsylvania to pay for farm conservation practices. (Click Here for more.)

Encourage Incorporating BMP Construction In Local Development

Thousands of new developments go in every year all across Pennsylvania. Encouraging those developments to incorporate stormwater BMPs to reduce nutrient and sediment loads.

The American Water Resources Association recently highlighted the Rock Lititz Floodplain Restoration Project in Lancaster County as an innovative private-public partnership to reduce sediment and nutrient loads going to the Chesapeake Bay without using any taxpayer money.

Lead authors Mark Gutshall and Lindsey Freidly from LandStudies, Inc. describe how the world-famous entertainment technology company Clair Global planned its new 93.3 acre Rock Lititz campus in Warwick Township, Lancaster County to house 13 companies supporting live entertainment production.

Over 3,100 feet of Santo Domingo Creek runs through the site and offered an opportunity to maximize land area for development, reduce long-term site costs and employ best management practices to permanently reduce flooding and water pollution coming from the site.

Rock Lititz committed an estimated $755,000 for the floodplain restoration initiative because they recognized the environmental, community and economic benefits of using the floodplain restoration technique. (Click Here for more.)

One of the hangups, was the length of time it took to get a DEP permit.

Expedited, priority permit review times for these sorts of public-private, no-cost-to-the-taxpayer projects would be a huge help in encouraging these types of projects.

Double-Down On Recreation Investments By Incorporating Stormwater BMPs

Communities all across the state are starting to realize that local and regional parks and recreation facilities can be fully integrated into helping those communities comply with MS4 stormwater pollution reduction requirements.

Parkland is often leftover land, land with environmental constraints such as wetlands, floodplains, and steep slopes, or land a developer did not want or could not develop. Parks and underutilized open space offer settings that help to address these challenges.

Instead of single-purpose solutions that may address one aspect of environmental challenges, solutions that consider all of a municipality’s assets, including parks and underutilized lands, may yield multiple benefits in stormwater management and reduced flooding.

In fact, both the Department of Conservation and Natural Resources and EPA have step-by-step guides and other resources to help communities realize these benefits. (Click Here for more.)

Again, expediting permits, changing grant award criteria to encourage multiple benefit projects, could encourage more of these projects to more effectively use the scarce resources we now have.

Local Stormwater Management Fees

Legislation recently passed by the House and sponsored by another member of the Chesapeake Bay Commission-- Rep. Garth Everett (R-Lycoming)-- allows local governments of all types to adopt local stormwater fees to support MS4 Plan implementation.

The bills include House Bill 913 providing for the adoption of stormwater fees by incorporated towns, House Bill 914 providing for the adoption of stormwater fees by boroughs, House Bill 915 providing for the adoption of stormwater fees by first class townships and House Bill 916 providing for the adoption of stormwater fees by Cities of the Third Class.

Chesapeake Bay Success Depends On Fully Participating Federal Partner

The success of the Chesapeake Bay Program in Pennsylvania depends significantly on a fully participating federal partner.

Proposals now being considered to zero out federal funding for the Chesapeake Bay cleanup must not be allowed to stand. In fact, there is significant bipartisan support to restore the cuts proposed by the Trump Administration.

Lots Of Creative, Public/Private Solutions

There are lots of innovative solutions out there that do NOT involve throwing everything we’ve done up until now out the window and that encourage truly cost-effective and efficient ways to reduce nitrogen, phosphorus and sediment.

All we need is some creative leadership.

For more information on Pennsylvania’s Chesapeake Bay efforts, visit DEP’s Phase III Chesapeake Bay Watershed Implementation Plan webpage. Learn more about stormwater management, visit DEP’s MS4 Stormwater Program webpage. To learn more about TMDLs, visit DEP’s TMDL Priorities and TMDL Plans webpages.

Another Helpful Link:

PA Environmental Council Opposes Senate Bill 799 As Currently Written

NewsClips:

York County Stormwater Projects Get $613K From State

Trump’s Budget Cuts Wide, Deep Swath Through Chesapeake Bay-Related Programs

Chesapeake Bay Dead Zones Fading, But Proposed EPA Cuts Threaten Success

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Analysis: PA Already Has $65 Million A Year for Clean Water, Just Stop Giving Money To Folks Like Johnny Depp