John Barton

Please see the attached document. xxxEND_PAGE:treasury01_b39_6977_7316_061 Department of Environmental Quality Flint Funding February 11, 2016 2016 Budget Supplemental 1: PA 143 of 2015 City of Flint Emergency Water Services * $ 6,000,000 Drinking Water and Environmental Health Staff 2 $ 300,000 Laboratory Services $ 1,000,000 Supplemental 1 Total $ 7,300,000 Supplemental 2: PA 3 of 2016 Water System Infrastructure Needs $ 2,000,000 Utility Payment Relief $ 3,000,000 Lab and Testing Costs $ 250,000 Corrosion Control Procedures $ 36,500 Infrastructure Integrity Study $ 500,000 Supplemental 2 Total $ 5,786,500 Supplemental 3: TBD City of Flint Water Bill Relief $ 30,000,000 Utility Assistance $ 25,000,000 City of Flint Emergency Water Services (Jul - Sept) $ 3,900,000 Water System Needs (KWA) $ 2,200,000 Response Team $ 2,250,000 Supplemental 3 Total $ 63,350,000 Total 2016 Supplemental Funding for DEQ $ 76,436,500 2017 Budget City of Flint Emergency Water Services (Oct - Dec) $ 3,900,000 Drinking Water Technical Expertise 10 $ 1,500,000 Total 2017 General Fund Request for DEQ $ 5,400,000 * The DEQ paid $6 million to the City of Flint for water connection services through June 2016. The total cost for the connection services was $12 million of which the Mott Foundation paid $4 million and the City of Flint paid $2 million State of Michigan Totals Supplemental 1 - PA 143 of 2015 $ 9,350,100 Supplemental 2 - PA 3 of 2016 $ 28,028,500 Supplemental 3 - As Introduced $ 156,690,000 2017 Budget - As Introduced $ 38,730,900 Total State of Michigan Funding for Flint $ 232,799,500 xxxEND_PAGE:treasury01_b39_6977_7316_062 Stanton, Terry A. (1 reasury)

There have been two deals for KWA. The first deal was done in 2013 by Genesee county at $35 million to finance the intake at Lake Huron. The other deal was done by KWA with Genesee, Lapeer and Sanilac Counties in 2014 at $220.5 million. The team on both deals were Miller as Bond Counsel with Dickson Wright as Underwriters Counsel. Stauder who is now with PFM was FA. [ believe they are currently working on a S60 million deal as well. Let me know if you need anything else. Thanks John xxxEND_PAGE:treasury01_b39_6977_7316_047 Stanton, Terry A. (T reasury)

Attached is the draft proposed emergency relief package summary for the City of Flint. Thank you John xxxEND_PAGE:treasury01_b39_6977_7316_154 Robert, Carla M. (T: reasury)

Just to keep you in the loop re: Flint media inquiry DEQ

| am not sure if you were on the call Steve mentioned, but | wanted to pass along Steve’s e-mail. Steve is the EPA contact | talked to last fall.

My notes from a call yesterday where your names came up. Let me know if questions. thanks Steve Marquardt USEPA Region 5 77 West Jackson Blvd Chicago, Illinois 60604 (312)353-3214 xxxEND_PAGE:treasury01_b41_7622_7971_142 January 24, 2015 Call Notes Call arranged by Emily Barson — HHS Included representatives from Michigan Governor’s office, MDEQ, USEPA headquarters and Region 5 On the call the Governor's office requested information regarding press related to $80M in infrastructure funds going to Michigan. USEPA responded that this was the annual appropriation of Clean Water State Revolving Funds {CWSRF) and Drinking Water State Revolving Funds (DWSRF) and these funds are awarded to the state as a grant and then state provide these funds to communities primarily in the form of low interest loans. It would be up to the state to determine the amount of funds provided to Flint. There was then discussion of the state revolving fund and options under the fund to provide resources to Flint. The State asked about the eligibility of lead service line replacement and USEPA responded that they were eligible. The state also asked about eligibility of items inside the home and USEPA indicated that this would be investigated. Options discussed for further investigation: - Old Debt - The Michigan Finance Authority holds approximately $20M in DWSRF Flint Debt. The state should examine any savings that could be provided to Flint on this old debt including lowering the interest rate which is at 2.5% and possible extending the term of the debt from 20 year to 30 year. The extended term may make the semi-annual payments more affordable but costs more in the long run. Also, the State could pay off a portion of the debt. The Michigan Finance Authority may also have other ideas of actions that could be taken. - New Funding - FY15 USEPA Funding — In September 2015, the MI DWSRF program identified $35M in projects they plan to fund in 2016 and provide $5.5M in principal forgiveness for those projects. The FY15 USEPA funding allowed stated to provide 20%-30% of the grant to the state as principal forgiveness to communities. This would be approximately $5.5M-S8M. The state should investigate the ability to award Flint a DWSRF loan that provides principal forgiveness up to the maximum allowed. - F¥16 USEPA Funding — FY16 CWSRF and DWSRF allocations to states have not yet been released. It is anticipated that MI would receive a similar allocation to FY15 — in FY15 USEPA awarded approximately S60M in CWSRF and $27M in DWSRF. If Flint applies for funding, the state could provide a loan to Flint and provide principal forgiveness up to the amount allowed under the FY16 appropriation language which is 20% of the DWSRF grant. The issue is that these funds would not be available for some time if the normal state SRF process is followed. The state normally applies for the funds in summer and provides funds to communities in the fall. All options for new funding are dependent on Flint providing detailed information on needs, prioritizing the needs, and applying for funds. Action items: - USEPA look into eligibility options for SRF related to internal home plumbing replacement — Peter Grevatt (USEPA) - USEPA, Michigan Finance Authority and MDEQ to investigate SRF funding options listed above and any other possible options. — John Barton (Michigan Finance Authority), Sonya Butler (MDEQ), Steve Marquardt (USEPA R5) o Look for most effective, economic and efficient way to approach needs - USEPA Finance Center offered assistance — Jim Gebhardt (USEPA) - Investigate the ability to transfer funds from the CWSRF to the DWSRF and the pros and cons of approach - MDEQ requested the formation of a Municipal Finance Team - The USEPA Region 5 representative is Steve Marquardt and the request was made by EPA to have Sonya Butler from MDEQ and John Barton from the Michigan Finance Authority. xxxEND_PAGE:treasury01_b41_7622_7971_143 Workman, Wayne (TREASURY)

Tom, Below is the link to the Detroit News article from yesterday regarding Rep. Kildee push to forgive the DWRF loans. | have also attached is the information sent to EPA (Steve Marquardt Region 5) DEQ on Friday showing the outstanding balances of the Flint DWRF loans. pipes/76845170/ As we discussed, the fund simply cannot forgive the loans as they are pledged to bond issues. Further, any loan not collected will have an impact on future capacity. Thanks John xxxEND_PAGE:treasury01_b26_3730_4111_027 00'9EE'022'0Z O0'9t€'00S‘er 00've6'F69'01 SLOZ/L/OL yZOc/L/OL 00've6'786'SL ROGT v0-6L02 £002/S7Z/6 00'80r'9Sz'r SLOZ/L/OL CZ0C/LIP 00°80¢'LLe'6 K0G7 €0-6L02 LO0z/sc/6 00°000'S22'€ SLOZ/L/OL LZOZ/LiP 00°000'SE0's ROSS 20-602 o00z/8c/6 00'v66'erS'Z SLOZ/L/OL OZOZ/L/T 00'766'891'2 %OSS b0-61L02 6661L/0E/6 aauejeg Bujpueysing | quewAeg seq | Anew [eul4 | Junowy ueoT jeul4 JaquNN welosg | 3}eqQ anss| _ SLOZ/PIZL JO SY Jul] 40 AID puny Bulajoasy JayeAq Bupjuig xxxEND_PAGE:treasury01_b26_3730_4111_028 Pleyte, Beth (T: reasury)

Answered, Thanks, alll b Brad Wurfel Communications Director, Michigan Departrnent of Environmental Quality [email protected] cell

Can cither of you answer the question on Flint’s outstanding DWRF loan belance? Sonya may have it duc to recent distussions however Lihink sho may be tied up is a rneeting and the reporter was looking for an answer by 4pm. Thanks! Kelly Greew 517.284.5409

Do you know has DEQ done any more on this ? i.e., is someone looking at what is needed in terms of state legislation ?

Importance: High It looks like DEQ is mulling over changes to state law to allow for the financing of service lines with DWRF monies. Did you want me to respond? | think with a change in state law we can make the loans, but we would not be able to leverage them in future tax- exempt pools as they would be considered private activity; much like the SWQIF loans for footing drain disconnects. It is worth noting, we have not leveraged the drinking water program since 2007 and have approximately $50 million annual program resources for each of the next five years. Thanks John

Importance: High John I'm not sure you saw this. Would we be able to make loans to communities to replace private service line? Let me know what you think

Below is the response from the EPA regarding the replacement of lead service lines using DWRF loans. Please let me know if you need anything else.

Tom, Below is the e-mail Dan received from EPA regarding the use of SRF to replace lead service lines. | talked with Sonya Butler and she reached out to Susan and Steve below to obtain the actual cite in the EPA guidelines. | will follow up tomorrow. John

If this happened, who is next? Seems like we need to come with real world response about why this is crazy and really bad for the whole state Sent from my iPhone Begin forwarded message:

I think they would have concerns as to where it would stop; the slippery slope argument. The program tenants are based on sound business practice and are looked to as a program strength. If the path of principal forgiveness is opened up, they would view that as negative which would certainly impact the outlook, but maybe not the overall rating in the near term.

What would the rating agencies say about forgiveness?

Below is the response from DEQ: Here’s information that you can share with Amy Hovey, staffer for Congressman Dan Kildee, regarding how Michigan has used principal forgiveness in the Revolving Loan Programs. EPA has talked with Congressman Kildee on this issue at least twice. Principal forgiveness came around with the American Recovery & Reinvestment Act (ARRA). All of Flint’s drinking water loans were prior to ARRA. In May 2009, Flint submitted a project plan that comprised various projects the city wanted to pursue. Flint had 2 projects on the project priority list to receive funding in 2010 thru 2013. Initially the projects did not rank high enough to receive funding. When funding became available for Flint, the city declined to move forward with the projects. Some principal forgiveness was offered as part of the funding. Annually EPA requires the state to describe how principal forgiveness will be used (Intended Use Plan) and then report at the end of the fiscal year (Annual Report) how the funds were allocated. EPA audits the data during their annual visit. In Michigan, we have used principal forgiveness to assist disadvantaged communities and for projects that are water or energy efficient (i.e. green) consistent with EPA guidance. There is no provision to randomly provide principal forgiveness to a project or use it to refinance a prior loan, The purpose of the funds are to revolve in perpetuity (as stated in federal statute) so that communities can continue to receive financial assistance. Michigan has never completely forgiven an entire loan as it would greatly reduce the capacity of the fund to offer assistance to future projects. 1 xxxEND_PAGE:treasury01_b31_4719_5108_368 For a succinct statement I would suggest: There is no provision or program capacity to provide principal forgiveness outside the scope mandated by the EPA for disadvantaged communities (populations less than 10,000) or green infrastructure projects. The purpose of the funds are to revolve in perpetuity (as stated in federal statute) which allows communities to receive financial assistance in the future. Further, DWRF loans are pledged as security to various bond issues which provide the up-front capital to fund projects. Without a dollar-for-dollar replacement of revenue due to the loss of principal, the bonds could default.

Ke does, Thank you. [did not want to speak for DEQ.

Date: Friday, March 27, 2015 12:46:31 PM It does. Thank you. | did not want to speak for DEQ.

Tohn xxxEND_PAGE:deq21_b238_0784_0786_2 Here's information that you can share with Amy Hovey, staffer for Congressman Dan Kildee, regarding how Michigan has used principal forgiveness in the Revolving Loan Programs. EPA has talked with Congressman Kildee on this issue at least twice. Principal forgiveness came around with the American Recovery & Reinvestment Act (ARRA). All of Flint's drinking water loans were prior to ARRA. Tn May 2009, Flint submitted o project plan that comprised various prajects the city wanted to pursue. Flint had 2 projects on the project priority list to receive funding in 2010 thru 2013, Initially the projects did not rank high enough to receive funding. When funding became available for Flint, the city declined to move forward with the projects. Some principal forgiveness was offered as part of the funding. Annually EPA requires the state to describe how principal forgiveness will be used (Intended Use Plan) and then report at the end of the fiscal year (Annual Report} how the funds were allocated. EPA audits the data during their annual visit. In Michigan, we have used principal forgiveness to assist disadvantaged communities and for projects that ore water or energy efficient (Le. green) consistent with EPA quidance. There is no provision te randomly provide principal forgiveness to a project or use it to refinance a prior loan. The purpose of the funds are to revolve in perpetuity (as stated in federal statute} so that communities can continue to receive financial assistance. Michigan has never completely forgiven an entire loan as it would greatly reduce the capacity of the fund te offer assistance to future projects. T hope the above helps. [f there are additional questions, please let me know. Sonya T. Butler, Chief Revolving Loan Section Office of Drinking Water & Municipal Assistance Michigan Department of Environmental Quality 525 W. Allegan | Lansing, MI 48933 @ 517.284.5401 xxxEND_PAGE:deq21_b238_0784_0786_3

Date: Friday, March 27, 2015 12:45:18 PM John Here's information that you can share with Amy Hovey, staffer for Congressman Dan Kildee, regarding how Michigan has used principal forgiveness in the Revolving Loan Programs. EPA has talked with Congressman Kildee on this issue at least twice. Principal forgiveness came around with the American Recovery & Reinvestment Act (ARRA). All of Flint's drinking water loans were prior to ARRA. In May 2009, Flint submitted a project plan that comprised various projects the city wanted to pursue. Flint had 2 projects on the project priority list to receive funding in 2010 thru 2013. Initially the projects did not rank high enough to receive funding. When funding became available for Flint, the city declined to move forward with the projects. Some principal forgiveness was offered as part of the funding. Annually EPA requires the state to describe how principal forgiveness will be used (Intended Use Plan) and then report at the end of the fiscal year (Annual Report) how the funds were allocated. EPA audits the data during their annual visit. In Michigan, we have used principal forgiveness to assist disadvantaged communities and for projects that are water or energy efficient (i.e. green) consistent with EPA guidance. There is no provision to randomly provide principal forgiveness to a project or use it to refinance a prior loan. The purpose of the funds are to revolve in perpetuity (as stated in federal statute) so that communities can continue to receive financial assistance. Michigan has never completely forgiven an entire loan as it would greatly reduce the capacity of the fund to offer assistance to future projects. T hope the above helps. If there are additional questions, please let me know. Sonya T. Butler, Chief Revolving Loan Section Office of Drinking Water & Municipal Assistance Michigan Department of Environmental Quality 525 W. Allegan | Lansing, MI 48933 @ 517.284.5401 xxxEND_PAGE:deq04_b324_4501_4501_1

Thanks