beyond rates: other finance strategies rates for local...beyond rates: other finance strategies...

Beyond Rates: �Other Finance Strategies

Glenn Barnes Environmental Finance Center Network 919-962-2789 glennbarnes@sog.unc.edu

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4/9/13    

Session Objectives •  Learn about other common sources of

water system revenue

•  Consider ways to control costs

•  Understand the debt market

•  Discuss available loan and grant programs

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Ways To Pay

•  Pay as you go (current receipts) •  Save in advance and pay •  Pay later (someone loans you money) •  Grants (let someone else pay)

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Grants Aren’t Completely �Free Money

•  Application for the grant can be expensive – staff time and money

•  Applications can take months to process

•  Often lots of strings attached

•  Often require a percentage match

•  Lots of competition

•  Difficult to sustain

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Quick Thought on Grants

•  This presentation is about sustainable program finance

•  Grants are not sustainable finance

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I Say This A Lot

“Grants  are  not  sustainable  finance”  

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Really, I Say This A Lot

“Grants  are  not  sustainable  finance,”  said  Glenn  Barnes  

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The Main Source: Your Revenue

•  Pay as you go (current receipts) •  Save in advance and pay •  Pay later (someone loans you money) •  Grants (let someone else pay)

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Assessments •  A recurrent charge to a sub-group of the

population

•  The sub-group receives benefits from an environmental service or improvement not enjoyed by others in the area

•  Close cost/benefit relationship à equity

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Impact Fees •  One-time charges to new users •  Typically assessed when building permits

are issued

•  Close cost/benefit relationship à equity

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Periodic Charges •  Deposits on new accounts

•  Penalties for late payment

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Innovative Funding Sources • For example, rent out your water tower for

cellphone receivers

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Control Costs •  Partner with other water systems to

arrange a bulk purchase of chemicals

•  Perhaps consider sharing staff or equipment with other water systems

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Control Costs •  Manage your energy expenses—the

largest controllable cost for water systems

•  Have an energy audit, change your processes, replace equipment with more efficient models

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Control Costs •  Merge with another water system—

regionalization allows systems to take advantage of economies of scale from larger-scale operations

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When You Need Cash Now: �The Debt Market

•  Lenders will look at your creditworthiness, your ability to repay the debt, in determining whether to loan to you and your interest rate

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Common Debt Options

G.O.  Bonds:  

Revenue  Bonds:  

Installment  Purchase/Cer:ficate  of  Par:cipa:on  

Advantage  

Low  RelaGve  Interest  Cost;  Lower  Issuance  Cost  

Greater  Flexibility  (Term,  AmorGzaGon);  No  Referendum;  Advantageous  for  Self  SupporGng  Systems  

No  Referendum;  Lower  Cost  of  Issuance  for  Private  Placements  

Disadvantage  

Referendum  Required  (PoliGcally  SensiGve);  Lower  Structuring  Flexibility  

Higher  Issuance  Cost    Higher  RelaGve  Interest  Cost;  Feasibility  Study  

Secured  by  asset,  Placement,  limits  future  opGons  

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The Debt Market •  Two types—Loans and Bonds

– Loans are universally available

– Bonds are typically only available to large systems with significant revenues and managerial capacity

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Loans •  Typically from a bank

•  Can be from a government-sponsored program such as the Drinking Water State Revolving Fund

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Bonds • A written promise to repay borrowed

money (on a definite schedule and usually at afixed rate of interest for the life of the bond)

• Different types exist:– General Obligation (GO)– Revenue

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Source:  beWermondays.com  

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Ratings

Source:  The  Bond  Market  AssociaGon  

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Moody’s Water & Sewer Rating Distributions 2006

Source:  Moody’s  Investor  Service  

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Ratings

Source:  Moodys  Municipal  Bond  RaGng  Scale,  November  2002  

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A Quick Aside On Debt... •  The only way “the bonds” pay for

anything is if one of these people lives in your community...

Source:  picasaweb.google.com/.../fLQy4iWz7ZNrMaDwZG13iA  Source:  commons.wikimedia.org/wiki/File:20060825_Barr...  

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Loan & Grant Programs

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Drinking Water State Revolving Loan Fund

•  The Environmental Finance Authority provides low-cost financial assistance to eligible public water systems to finance the cost of repair and replacement of drinking water infrastructure, maintain or achieve compliance with the federal Safe Drinking Water Act (SWDA) requirements, and protect drinking water quality and public health.

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NMEFA: Public Project Revolving Fund

•  The PPRF is used to finance public projects such as water system upgrades and other infrastructure improvements.

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NMEFA: Water Project Fund •  "Projects are recommended by the Water

Trust Board to the Legislature. Projects fall within five project categories: (1) water conservation or reuse, (2) flood prevention, (3) endangered species act (ESA) collaborative efforts, (4) water storage, conveyance and delivery infrastructure improvements, and (5) watershed restoration and management initiatives."

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NMEFA: Local Government Planning Fund

•  Formerly known as water planning fund •  Provides up-front capital (grants and

loans) necessary to allow for proper planning of vital water and wastewater projects, including master plans, conservation plans, economic development plans, infrastructure plans and energy efficiency audits.

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EDA: Public Works and Economic Adjustment Assistance Programs

•  Empowers distressed communities to revitalize, expand, and upgrade their physical infrastructure to attract new industry, encourage business expansion, diversify local economies, and generate or retain long-term, private sector jobs and investment.

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NM Enviro: Rural Infrastructure Program

•  Program serves any incorporated city, town, village, mutual domestic association, or water and sanitation district whose water supply facility serves a population of less than twenty thousand persons or a county that serves a population of less than two hundred thousand. Funding is available for eligible water, wastewater and water pollution control projects.

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USDA: Water and Waste Disposal Loans and Grants

•  Funds are available to public bodies and nonprofit corporations to develop water and waste disposal systems, including solid waste disposal and storm drainage, in rural areas and towns with a population not in excess of 10,000.

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USDA: Technical Assistance and Training Grants

•  Assistance may be provided to identify and evaluate solutions to water and waste disposal problems, to improve the operation and maintenance of existing water and waste disposal facilities, and to assist associations in preparing applications for water and waste disposal facilities.

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NMDFA: Community Development Block Grant Program

•  The DFA address local community development needs. Bureau staff members provide assistance and oversight to local officials with the implementation of needed infrastructure, public buildings, housing rehabilitation, economic development, planning and other critical projects.

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Did we miss any?

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A Favor & A Reminder •  Please fill out an eval form for us before

you leave

•  Contact us anytime for direct technical assistance on any finance and management topic of our project

Thank you!

Glenn Barnes Environmental Finance Center Network 919-962-2789 glennbarnes@sog.unc.edu