Funding Options to Finance Small Municipal Infrastructure Projects

Municipal Finance OfficersAssociation of Ohio Conference

November 3, 2017

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OBJECTIVES

• Discuss Ohio’s infrastructure status and grades

• Discuss financing analysis

• Discuss financing programs available for infrastructure needs

• Discuss the Pros and Cons of the various financing programs

• Discuss which financing programs best fit a municipality’s needs

• Other

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AMERICAN SOCIETY OF CIVIL ENGINEERS REPORT CARD

• Every four years, the American Society of Civil Engineers’ Report Cardfor America’s Infrastructure depicts the condition and performance ofAmerican infrastructure

• Assign letter grades based on the physical condition and neededinvestments for improvement.

• Graded on the following Capacity: Does the infrastructure’s capacity meet current and

future demands? Condition: What is the infrastructure’s existing and near-future

physical condition? Funding: What is the current level of funding from all levels of

government for the infrastructure category as compared to theestimated funding need?

Future Need: What is the cost to improve the infrastructure? Willfuture funding prospects address the need?

Operation and Maintenance, Public Safety, Resilience,Innovation

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America's Infrastructure Scores a

D+

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HISTORICAL GRADES

CATEGORY 1988 1998 2001 2005 2009 2013 2017

Aviation B- C- D D+ D D DBridges – C- C C C C+ C+Dams – D D D+ D D DDrinking Water B- D D D- D- D DEnergy – – D+ D D+ D+ D+Hazardous Waste D D- D+ D D D D+Inland Waterways B- – D+ D- D- D- DLevees – – – – D- D- DPorts – – – – – C C+

Public Parks & Recreation – – – C- C- C- D+

Rail – – – C- C- C+ BRoads C+ D- D+ D D- D DSchools D F D- D D D D+Solid Waste C- C- C+ C+ C+ B- C+Transit C- C- C- D+ D D D-Wastewater C D+ D D- D- D D+GPA C D D+ D D D+ D+

Cost to Improve* N/A N/A $1.3T $1.6T $2.2T $3.6T $4.59T

* The 2017 Report Card’s investment needs are over 10 years. The 2013 Report is over eight years. In the 2001, 2005, and 2009 Report Cards the time period was five years.

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1,942 bridges (6.9%) are structurally

deficient and Ohio spent$388,533,469 on bridge capital

projects in 2013

5,288 miles of rail across the state, ranking #4 by mileage nationally

$12.2 billion in drinking water infrastructure needs over 20 years

$14.58 billion in wastewater infrastructure needs over 20 years

440 miles of inland waterways, ranking #20 nationally

155.8 trillion British thermal units of renewable energy produced, ranking #22 nationally

There are 362 high‐hazard potential dams and 72% of Ohio’s regulateddams have an Emergency Action Plan

122,926 miles of public roads, with 17% in poor condition

Key Facts About Ohio’s Infrastructure

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• On September 20, 2017, The Great Lakes Commission (GLC)endorsed a joint action plan to address the growing waterinfrastructure crisis in the Great Lakes region.

• The plan outlines actions to address a backlog in neededupgrades and repairs to water-related infrastructure in theeight Great Lakes states and two provinces over the next 20years — everything from wastewater treatment plants tostormwater pipes and drinking-water filtration systems.

• This backlog is conservatively estimated to cost $271billion, and many experts believe that figure is asignificant underestimate.

Source:Joint Action Plan for Clean Water Infrastructure and Services in the Great Lakes Region -The Great Lakes Commission

OHIO WATER INFRASTRUCTURE NEEDS

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OHIO WATER INFRASTRUCTURE NEEDS

Source:Joint Action Plan for Clean Water Infrastructure and Services in the Great Lakes Region -The Great Lakes Commission

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FINANCING INFRASTRUCTURE PROJECTS

Defining Infrastructure Project Size

• Small Projects - $0 - $2,000,000 Small road rehab, underground water

maintenance issues, etc.

• Medium Projects - $2,000,000 - $10,000,000 Municipal Building renovation, larger water

system rehab/replacement, etc.

• Medium Projects – Greater than $10,000,000 New water treatment or stormwater systems,

new building construction, etc.

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FINANCING SMALL INFRASTRUCTURE PROJECTS

Considerations

• Timing – How quickly are the funds needed?

• Term – Pay off quick or amortize over a longer period

• Collateral – Primary source of repayment, Secondary?

• Structure – Note, Bond, Lease, Loan

• Interest Rate – How long?

• Repayment – Flexibility?

• Costs – Upfront costs

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GENERAL COMPARISON OF FINANCINGS

Note Bond Lease Loan

Timing 60 days 90 - 120 days 60 Days 45 – 60 days

Term 1 year or less Long-term (30 years) Flexible Flexible

Collateral Varies (Taxes, Revenues)

Varies (Taxes, Revenues) Flexible

Flexible but usually mirrors capital markets

execution

Interest Rate Fixed Fixed Flexible Flexible

Repayment Principal at maturity Some Flexibility -Usually Mortgage-Style

Mortgage-Style or tailored to project

Mortgage-Style or tailored to project

Costs Lower Highest Low Low

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In an effort to assist a municipality in navigating the available loan programs,below is a list of some of the state programs for infrastructure projects:

• The Alternative Stormwater Infrastructure Loan Program – Ohio DevelopmentServices Agency (“ODSA”) / Ohio Water Development Authority (“OWDA”).http://www.owda.org/summary-list

• The State Capital Improvement Program (SCIP) - Ohio Public WorksCommission(“OPWC”). http://www.pwc.state.oh.us/default.html

• Small Government Program – OPWC. http://www.pwc.state.oh.us/default.html

• Fresh Water Loan Program – OWDA. http://www.owda.org/summary-list

• OWDA Community Assistance Loan Program. http://www.owda.org/summary-list

• State Infrastructure Bank Program. http://www.dot.state.oh.us/Divisions/Finance/Pages/StateInfrastructureBank.aspx

OHIO FINANCING PROGRAMS

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• The Alternative Stormwater Infrastructure Loan Program offers below-market rate loans for the design and construction of greeninfrastructure as part of economic development projects.

• Up to $5,000,000 in loan funds per project are available togovernmental entities through the program.

• The funds can pay for design, demolition, construction, materials andadministrative costs associated with the green infrastructure project.

• This program targets a specific challenge of redevelopment projects byreducing the cost to businesses and communities that need tominimize both the financial and environmental impact of theirstormwater runoff.

OWDA/ODSA - ALTERNATIVE STORMWATER INFRAS. LOAN PGRM

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OPWC - STATE CAPITAL IMPROVEMENT PROGRAM

• The State Capital Improvement Program (SCIP) was created in 1987.• Allows the State to use its general revenues as debt support to issue

general obligation bonds up to $175 million in fiscal years 2017 to2021 and $200 million in fiscal years 2022 to 2026.

• Eligible applicants are counties, cities, villages, townships, and waterand sanitary districts.

• Eligible projects are for improvements to roads, bridges, culverts,water supply systems, wastewater systems, storm water collectionsystems, and solid waste disposal facilities.

• Funding is provided through grants, loans, and loan assistance or localdebt support. There is no minimum or maximum loan amount.

• The term of the loan cannot exceed the useful life of the project, orthirty years, whichever is less. The minimum term is one year.

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OPWC - STATE CAPITAL IMPROVEMENT PROGRAM – SMALL GOVT.

• Of the annual State Capital Improvement Program allocation, $17.5million is set aside for the Small Government Program.

• The Small Government Commission provides grants and loans tovillages and townships with populations in the unincorporated areas ofless than 5,000 in population.

• Project applications are selected from those not funded through theDistrict Integrating Committees for funding and are submitted by theDistricts to compete on a statewide basis.

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OWDA – FRESH WATER LOAN PROGRAM

• The Ohio Water Development Authority created the Fresh Water LoanProgram to provide financial assistance for planning/design and/orconstruction of drinking water, wastewater, and storm water projects

• Eligible projects include but are not limited to development oracquisition of potable water sources, construction/expansion of waterand wastewater treatment facilities, installation or improvement ofwater distribution and wastewater collection systems

• Eligible borrowers include departments, divisions, or other units ofstate government, municipal corporations, counties, townships, andother political subdivisions, or any other public corporation or agencyhaving the authority to acquire, construct, or operate waste water orwater management facilities.

• Loan Amount - No minimum or maximum limit• Construction Loans - Minimum 5 years, Maximum of 30 years

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• Local government agencies may qualify for low-interest financing underthe OWDA Community Assistance Loan Program

• The program is designed to help communities maintain affordablewater and wastewater rates. To be eligible, the project can be either awater or wastewater project causing an economic hardship to thecommunity and meeting the following criteria: population less than 5,000 or residential users less than 2,000

Small road rehab, underground water maintenance issues, etc.• Eligible projects include but are not limited to, construction/expansion

of water and wastewater treatment facilities, installation orimprovement of water distribution and wastewater collection systems,or storm water management facilities

• Eligible borrowers – Same as other OWDA program• Loan Amount - No minimum or maximum limit• Construction Loans - Minimum 5 years, Maximum of 30 years

OWDA – FRESH WATER LOAN PROGRAM

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OHIO DEPARTMENT OF TRANSPORTATION (“ODOT”)STATE INFRASTRUCTURE FINANCING PROGRAM

ODOT maintains a loan and bond program for the purpose of developingtransportation facilities throughout Ohio. The State Infrastructure Bank(SIB) is used as a method of funding highway, rail, transit, and othertransportation facilities and projects which produce revenue to amortizedebt while contributing to the connectivity of Ohio's transportationsystem and further the goals such as economic development,competitiveness in a global economy, and quality of life.

Highway or transit project eligible under Title XXIII, as well as aviation,rail and other facilities, is eligible for loan funding under the SIB.

ODOT's objective is to maximize the use of federal and state funds inorder to make direct loans to eligible projects. Repayments will be madeto ODOT and then re-loaned to subsequent projects, hence creating a SIBrevolving loan program.

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OHIO DEPARTMENT OF TRANSPORTATION (“ODOT”)STATE INFRASTRUCTURE FINANCING PROGRAM

• Qualified borrowers include any public entity such as politicalsubdivisions, state agencies, boards, or commissions, regional transitboards, and port authorities. The loan must go to a public entity and bepledged to be paid back with public funds.

• Qualified projects include public transportation projects including anyproject involving the maintenance, repair, improvement, orconstruction of a public or highway, road, street, parkway, or transitproject, any related right-of-way, bridges, tunnels, railroad-highwaycrossings, drainage structures, signs, guardrails, or protectivestructures.

• Costs that are not eligible project costs include preliminary engineeringand design, environmental studies, major investment studies, andinterchange justification analysis.

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OHIO DEPARTMENT OF TRANSPORTATION (“ODOT”)STATE INFRASTRUCTURE FINANCING PROGRAM

• Qualified borrowers include any public entity such as politicalsubdivisions, state

• The interest free period is months 1-12 following the loan closing date.The interest accrual (capitalization) period is months 13-24 followingthe loan closing date.

• The interest rate is set by the SIB loan committee and approved bythe Director.

• Loan requests greater than $5,000,000 may be referred to the SIBbond program.

• The term of the loan will not exceed the useful life of the asset beingfinanced. The maximum term for a loan will be 10 years. Current rateis 3.25% - 3.50% (Bond).

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ALTERNATIVE FORMS OF FINANCING FOR SMALLER PROJECTS

What if I don’t have the:

Time,

Manpower or

Industry Knowledge

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ALTERNATIVE FORMS OF FINANCING FOR SMALLER PROJECTS

• There are financing alternatives for small municipal projects that maybe more applicable to the size and type of project.

• Considerations - Timing, Term, Collateral, Structure, Interest Rate,Repayment Flexibility, Closing Costs

• Used for: Capital Improvements/ Infrastructure Refinancing of existing debt Equipment Purchase or Lease Real property construction/acquisition Building renovations Furniture, fixtures and equipment

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ALTERNATIVE FORMS OF FINANCING FOR SMALLER PROJECTS

• Specialty Lenders, Bank Government or Public Sector Lenders,Municipal Lease Financing should be considered.

• Timing – Quicker than a capital markets issue• Term – Better option for shorter amortizations• Collateral – Typically same as bond issue• Structure – Note, Bond, Lease, Loan• Interest Rate –Similar to capital markets• Repayment – Ability do structure modified amortization (I/O periods,

lower principal in early years, etc.)• Issuance Costs – Lower than capital markets

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FINANCING COMPARISON

Alternative Financing Traditional FinancingTax-Exempt Rates Tax-Exempt RatesFaster Closing: 45-60 days Closing: 90-120 daysFixed or Floating rates Typically Fixed

Flexible terms/amortizations More stringent for traditional institutional investors

More flexible lockout period Standard lockout periodMinimal closing costs Higher issuance costs

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FINANCING COMPARISON - $2,000,000

Alternative Financing Traditional Financing

Placement/Underwriting Fee $10,000 $20,000

Bond & Placement Agent Counsel $10,000 $50,000

Trustee Origination Fee None $2,500

Trustee Administration and Tender Agent Fee None $4,000

Rating Agency Fee None $10,000

Issuing Authority Fee Same Same

Bond Insurance Fee None $15,000

Total $20,000 $101,500

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PROJECT EXAMPLE - COMBINING MULTIPLE NEEDS

• Municipality had current underground infrastructure need forapproximately $300,000.

• Municipality forecasted additional rehab of $750,000 over the next two(2) years.

• Municipality had enough funds on hand to finance the $300,000 needbut not enough for the additional work.

• Signet introduced alternative financing structure to the municipality.

• Municipality was able to finance the completion of all three (3) years’work.

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PROJECT EXAMPLE 2

Project Information

1. Complete priority system rehabilitation and maintenance work in anaccelerated timeframe from previously budgeted scope of work.

2. Priority problem areas can be tackled in shorter period of time, eliminatingissues to comply with department goals and or state agency complianceitems.

3. By addressing all of the planned and budgeted rehabilitation work, there willbe treatment plant cost savings by not treating groundwater entering thesystem over the extended time period.

4. Take advantage of economies of scale on larger amounts of work rather thansplitting work into smaller pieces, as well as larger volumes of materials.

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• $2,500,000 in estimated rehabilitation costs to be allocated over a 5 yearperiod.

• $97,500 would be the approximate material increases over the five yearperiod figuring a 3% annual price increase.

• $52,500 would be the approximate labor and fuel increases over the fiveyear period figuring a 3% annual cost increase.

• $80,000 would be the additional costs to prepare bid specifications, biddingdocuments and drawings for separate annual contracts.

• $230,000.00 would be the approximate additional costs of splitting thebudgeted work into smaller annual contracts, or 9.2% more.

• Same committed budget could be invested and total anticipated work couldbe accomplished in a single contract and financed over the 5 year (or longer)period.

PROJECT EXAMPLE 2, CONTINUED

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SIGNET

S i g n e t i s a p r e m i e r p r o v i d e r o f t u r n k e y d e v e l o p m e n t ,f i n a n c e , a n d m a n a g e m e n t s e r v i c e s w i t h a w i d e r a n g e o fe x p e r i e n c e d e l i v e r i n g c r e a t i v e s o l u t i o n s f o r j o i n tv e n t u r e d e v e l o p m e n t s a n d p u b l i c - p r i v a t e p a r t n e r s h i p s .

W e p a r t n e r w i t h m u n i c i p a l i t i e s , g o v e r n m e n t a g e n c i e s ,u n i v e r s i t i e s , h e a l t h c a r e p r o v i d e r s , a n d p r i v a t e l a n do w n e r s t o c r e a t e i n n o v a t i v e d e v e l o p m e n t , f i n a n c e , a n do w n e r s h i p s t r u c t u r e s t h a t a l s o p r o v i d e o u r c l i e n t s w i t hu n i q u e o w n e r s h i p b e n e f i t s w i t h o u t d i r e c t c a p i t a li n v e s t m e n t o r d e v e l o p m e n t a n d f i n a n c e r i s k s .

O u r c o m p r e h e n s i v e j o i n t v e n t u r e a n d p u b l i c - p r i v a t ed e v e l o p m e n t e x p e r i e n c e i n c l u d e s s t r u c t u r e d p a r k i n gp r o j e c t s , s t u d e n t h o u s i n g , s p e c i a l t y m e d i c a l f a c i l i t i e s ,a t h l e t i c s t a d i u m d e v e l o p m e n t , o f f i c e b u i l d i n g s , a n dt r a n s i t s t a t i o n s . W e c r e a t e c u s t o m i z e d d e v e l o p m e n ts o l u t i o n s i n d i r e c t r e s p o n s e t o e a c h p r o j e c t a n d c l i e n t .

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PUBLIC PRIVATE PARTNERSHIPS

S i g n e t ’ s P 3 A p p r o a c h R e s u l t s i n F a s t e r E x e c u t i o n , B e t t e r C o m m u n i c a t i o n & E a r l i e r C o s t C e r t a i n t y

RFP/RFQ Process Design Engineer Legal Finance Construction Delivery

Typ i c a l Mun i c i p a l P r o cu remen t App roa ch

RFP/RFQ Process Design Engineer Legal Finance Construction Delivery

S igne t ’s P3 Ve r t i c a l l y I n t eg ra t ed App roa ch

Signet & Municipality Agree on Project Terms

DesignEngineer

LegalFinance

Construction Delivery

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D. FUMI BIO

David Fumi is Managing Director with Signet Capital, LLC and Signet Securities, LLC. Mr.Fumi’s focus at Signet is to grow its current lines of business and overall firmcapabilities. Mr. Fumi has executed over $5.5 billion in financings utilizing various capitalmarkets structures.

Mr. Fumi has structured Tax Exempt Bonds for a large and diverse group of public entitiesand 501(c)(3) organizations including municipalities, universities and health care systems aswell as structuring Tax Increment Financing Bonds and traditional Municipal Bondtransactions.

Prior to joining Signet, from May 2003 through May 2008, Mr. Fumi was a Managing Directorwith a large regional bank’s Investment Banking Group. Mr. Fumi focused on the structuringof variable and fixed rate Tax Exempt and Taxable Bond transactions.

In addition, Mr. Fumi created a MAP-approved FHA lender that was a wholly-ownedsubsidiary of the regional bank that focused on multifamily and health care projects financedthrough the U.S. Department of Housing and Urban Development.

Mr. Fumi graduated from Ohio State University and holds FINRA Series 24, Series 53, Series7, Series 79 and Series 63 Licenses.

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CONCLUSION

• There are multiple financing options for municipalities for small, medium andlarge infrastructure projects.

• As with any project, a municipality should explore all types of funding options,including grants.

• Always compare the following: Timing, Term, Collateral, Structure, InterestRate, Repayment Flexibility, Closing Costs

• Signet has a model to compare financing options and it is available to anyonein attendance.

Thank You!

Contac t Us

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250 Civic Center Dr. Suite 300 Columbus, OH 43215

David FumiSignet Capital, LLCOffice: (614) 961-4616Mobile: (614) 545-8920Email: dfumi@signet-capital.com