1 u.s. epa state revolving fund: providing affordable financing george ames u.s. epa iadf conference...
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U.S. EPA State Revolving Fund:U.S. EPA State Revolving Fund:Providing Affordable FinancingProviding Affordable FinancingU.S. EPA State Revolving Fund:U.S. EPA State Revolving Fund:Providing Affordable FinancingProviding Affordable Financing
George AmesU.S. EPAIADF Conference on Financing Municipalities and Sub-National Governments, September 30, 2004
2CWSRF “SIGNS”
SEE NEXT SLIDE
!!$1 b Funds$.5 b Loans
1989
$11 b Funds$8 b Loans
$26 b Funds$23 b Loans
$47 b Funds$43 b Loans
1993
1998
2003
WHERE WE HAVE COME
FROM ...
3CWSRF – FUTURE “SIGNS”
$100 bFUNDS
NEXT STOP!!
$47 b Funds$43 b Loans
2003
$68 b Funds$64 b Loans
$92 b Funds$86 b Loans
2007
2011
WHERE WE ARE
GOING ...
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EPA and State Financial Partnership Has Evolved Over the Last 30 Years
From 1972 to 1990, EPA provided assistance through project grants for wastewater treatment capital improvements- More than $50 billion in direct grants to communities
- Significant benefit for improving water quality but it did not allow
flexibility to address state priorities
Since 1987, most of the federal government’s assistance has been in the form of capitalizing wastewater State Revolving Loan Funds
- EPA has provided more than $20 billion in capitalization grants
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Foundation of the SRF Program
Clean Water Act of 1987 authorized the SRF program
Goal: provide a sustainable source of funding for water quality projects
Move from Construction Grants program to SRF Loan program
Expanded use of monies from municipal sewage systems to include nonpoint source and estuary activities
The revolving nature of the SRFs means that funds will be available for the foreseeable future.
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Features of the SRF Program
Federally and state provided “seed money”
State programs are allowed great flexibility
State implemented and operated
Public participation is encouraged
Federal involvement is limited
State funds17%
Federal funds83%
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An SRF Functions As An Infrastructure Bank
Each state operates its own SRF that makes loans for wastewater treatment and nonpoint source projects; including agricultural and urban runoff, leaking storage tanks, septic systems, and protecting drinking water sources
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SRFs Can Provide Security for Bonds Issued in the Market
27 states issue bonds (leverage) to obtain additional
funds for projects
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SRFs Provide Several Different Forms of Financial Assistance
Loans
Refinancing existing local debt
Credit enhancements for local debt:
- Purchase local debt
- Bond insurance for local debt
- Guarantee of local debt
- Guarantee of debt for sub-state revolving loan funds
Leveraging - Source of revenue or security for issuing bonds
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SRF Financial Terms Are Attractive
Cover 100% of eligible cost – no local matching share
Only capital-type projects are eligible
Interest rates- Range from 0 percent to market rate- States set rates based on their cost of capital, state law, or
borrower’s financial ability to repay the loan
Loan repayment- Up to 20-year term- Begins up to 1 year after project start-up- Wide flexibility in repayment sources- All repayments of loan principal and interest return to the SRF
to make future loansCWSRF Loan Volume: Annual, typical ....... $4 billion Total, 1988 - 2003 ... $43.5 billion
CWSRF Loan Volume: Annual, typical ....... $4 billion Total, 1988 - 2003 ... $43.5 billion
11*Market rate is measured as the Bond Buyer 20-bond general obligation index.
Savings with SRF Loan Averages 21% Over Market Rate Loan
4.13.6 3.8
3.2 2.9 3.1 3.0 2.9 2.6 2.6 2.6 2.4 2.5 2.2
5.3 5.1 4.8
7.26.7
6.0 6.35.8 5.7 5.8
5.2 5.1
7.2
5.6
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 2000 '01 '02 '03
Market Rate*
CWSRF Interest Rate
23% 26% 22% 21% 21% 24% 22% 22% 21% 20% 25% 23%
Savings With CWSRF Loan
21% 21%
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The Flow of Funds From Many Sources Results in a Larger Poolof Money for Projects
Cumulative 1988-2003
$47 Billion
Federal Capitalization Grants
State Match
Net Leveraged Bonds
Net Loan Principal Repayments
NetEarnings
*Total is net of transfers with DWSRF and amount for administration.
$20.8
$4.4
$13.7
$5.5$3.6
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0%
20%
40%
60%
80%
100%
1988 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 2000 '01 '02 '03
Over Time, Non-Federal Sources Are More Important
Annual
Federal Capitalization Grants
State Match
Net Leveraged Bonds
Net Earnings
Net Loan Principal Repayments
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SRFs Finance 2 Times the Federal Capitalization
0
10
20
30
40
1988 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 2000 '01 '02 '03
$
Federal Capitalization Grants
$43.5
$20.8
SRF Assistance Provided
Billions of Dollars (Cumulative)
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SRFs: 15 Years of Successful Experience in Water Quality Financing
$43.5 billion in projects funded over 15 years (14,200 loans) $4.7 billion funded in 2003 (1,400 loans) Permanent source of infrastructure financing Loans fund significantly more projects than one-time grants Subsidy provided by low interest rates makes financing affordable State flexibility in directing funds to greatest environmental and public
health priorities Continuous innovation by states
– Projects – agricultural cropland and animals, drinking water source protection, leaking storage tanks, septic systems, habitat protection, wetlands
– Sources of funding – leveraging bonds, use SRF with other federal, state, and non-governmental funds
– Funding mechanisms – partner with banks, local governments In 1996, Safe Drinking Water Act authorized a similar SRF program for
financing drinking water projects ($6.4 billion in projects funded)
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Governmental Controls Safeguard the Use and Fiscal Health of the SRFs
Federal controls on state programs
– Clean Water Act, regulations, and program guidance
– EPA conducts annual reviews of state programs
– Noncompliance sanctions – withhold funds from states
– State must have financial, managerial, and technical capability
– Restrictions on use of SRF funds (wastewater treatment, nonpoint source, estuaries)
– Cash is transferred to state only as costs are incurred
– SRF monies must be kept separate from other state funds
– Payments of loan principal and interest must return to the SRF
– Expeditious use of funds by states is required
– State annual reporting, accounting, and auditing requirements
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Governmental Controls Safeguard the Use and Fiscal Health of the SRFs, Continued
State controls on SRF and borrowers– State laws, regulations, and operating procedures follow federal
requirements– State Attorney General’s opinion on operation of fund– Public participation – review of state Intended Use Plan and other state
documents– Financial capability assessment of loan applicant before loan is made– Dedicated source of loan repayment by borrower is required– Review of project plans and specifications before construction begins– Ongoing monitoring of project construction and repayment capability of
borrower– Project performance certification by borrower when construction is
completed– Withhold other state aid to borrower in case of non-repayment of loan
Borrower controls– Accounting and auditing requirements– Desire to maintain credit rating for future borrowings
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For More Information onClean Water State Revolving Fund:
George AmesChief, State Revolving Fund Branch
U.S. EPA
www.epa.gov/owm/cwfinance/cwsrf