SRF/WIFIA. An Overview of Infrastructure

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1 SRF/WIFIA An Overview of Infrastructure Financing Financing Options for Capital Improvements for municipal water and wastewater systems. SRF/WIFIA An Overview of Infrastructure Financing 1 Objective Provide an overview of the options for financing capital improvements to water and wastewater systems. Special Thanks: Gary Bingenheimer, P.E, IEPA John Donohue, CEO, North Park Water Dist. 2 1

2 Financing Options 1. Cash Reserves 2. Private Loan ( Bonds) 3. IEPA Revolving Loan Fund 4. Water Infrastructure Finance and Innovation Act (WFIA) 3 Cash Financing Accumulate funds from your ratepayers to fund a project from cash reserves. 1. Least administrative hassle- 1. Only approval required is the governing body of the water and wastewater system. 2. Requires sufficient rate revenue to accumulate reserves 4 2

3 Private Loan(Bonds) Municipalities have the authority to borrow funds through the issuance of municipal bonds. The basic elements of the process follow: 1. Identify the purpose of the project 2. Identify the proposed solution and estimated cost 3. Demonstrate the ability to repay the bonds(loan) 4. Have experts prepare the bond issuance documents 5. Sell the bonds (sales can be competitive or negotiated) 6. Execute documents and receive funds at closing These are the same activities that IEPA already has done to provide the funding for the State Revolving Loans 5 Planning Required 1. The project must be well defined 2. Financial statements must demonstrate the ability to repay the loan 3. The governing board must commit the municipality to repaying the loan. 4. Documents must be prepared that demonstrate all the ability to repay. 6 3

4 Bond Ratings Aaa Obligations rated Aaa are judged to be of the highest quality, subject to the lowest level of credit risk. Baa Obligations rated Baa are judged to be medium-grade and subject to moderate credit risk and as such may possess certain speculative characteristics. Caa Obligations rated Caa are judged to be speculative of poor standing and are subject to very high credit risk. The Bond Rating impacts the interest rate for borrowing funds. 7 Illinois Environmental Protection Agency State Revolving Fund (SRF) Loan Programs Financing Option for Wastewater/Water Infrastructure Illinois EPA - Bureau of Water Infrastructure Financial Assistance Section 8 4

5 State Revolving Fund (SRF) Loan Programs Water Pollution Control Loan Program (WPCLP) Public Water Supply Loan Program (PWSLP) Infrastructure Financial Assistance Section Acting Section Manager Gary Bingenheimer Pre-Construction Unit Manager: Heidi Allen Planning Report Review, Environmental Clearances, Plan/Specification Review, Project Loan Eligibility Issues, Loan Application Package, Financial Information Package, Bid Package Review, Loan Agreements Post-Construction Unit Manager: Ellen Perry Executed Contracts, Disbursements, Change Orders, Billing/Repayments, Loan Amendments/Repayment Amendments/Loan Closing Financial Capability Analyst: Mike Layden Dedicated source of revenue review/approval, financial capability analysis of loan applicants, post loan award financial monitoring of loan receipients Finance Manager: Kevin Bryant Monthly/Annual Financial Statements, Coordinate Leverage Bond Activities, Cash Flow/Financial Analysis/Modeling, Manage Financial & Single Audits 9 Historical Funding - Combined WPCLP & PWSLP Loan Programs Loans - $175 M Loans - $582 M (ARRA 16 months) Loans - $289 M (4 months) Loans - $532 M Loans - $260 M Loans - $ Loans - $502 M Loans - $396 M 10 5

6 State Revolving Fund Programs Interest Rates Interest Rate for FY % (Former Minimum) Interest Rate for FY % (ARRA) Interest Rate for FY2010 and FY % Interest Rate for FY % Interest Rate for FY % Interest Rate for FY % Interest Rate for FY % Interest Rate for FY % Fiscal Year Interest Rate established annually October 1 and is based on the mean interest rate of the 20 General Obligation Bond Buyer Index from October 1 through September 30 of preceding fiscal year. No longer a minimum rate. 11 IEPA SRF Basics I Fiscal Year begins October 1 st Fiscal Year loan interest rate established October 1 st Loan Agreement can be executed at any time throughout the year Planning Report can be submitted ANY time Wastewater projects Facilities Plan per loan rules Drinking water projects Project Plan per loan rules Planning Report should be accompanied by a Pre-Application 12 6

7 IEPA SRF Basics II * Planning Report Key document that begins the Agency working with loan applicant towards funding. Can be submitted at ANY time. Wastewater Facilities Plan. Drinking Water Project Plan. * Submit Three (3) Copies of Planning Report along with the Planning Submittal Checklist. Checklist is a cheat sheet for what needs to be in a Planning Report. * If construction or NPDES permit application(s) have been submitted, please noted in planning submittal cover letter. * Final design NOT needed at the time of Planning submittal! 13 Obtaining Funding Full and Complete Loan Application Approved Facilities Plan or Project Plan - Requires environmental sign-offs from the appropriate state and/or federal agencies. IDNR, IHPA, Corps of Engineers. Also requires public notification process. Approved construction permit(s) Certification of Plans/Specifications Compliance with Loan Rules Final design plans and specifications Loan Application Form and supporting information Financial Information Checklist and Program Financial Requirements and supporting information/ordinances Approved engineering agreements for design and construction services (if loan funded). 14 7

8 Elements of Project/Facilities Plan 1. Water Supply Description 1. Source 2. Treatment 3. Storage 4. Distribution 2. Existing Violations? 3. Needs addressed by proposed project 15 Basis of Project Selection Required Considerations Technical Financial Managerial Environmental 16 8

9 17 Operational Requirements 1. New personnel required? 2. Method of control 3. Waste disposal requirements 18 9

10 Environmental Impacts Construction impacts Storm water control Air pollution impacts Continuing impacts Disposal of treatment plant wastes Mitigation of impacts 19 Comparison of Alternatives Is there more than 1 solution to the problem Consider each alternative in light of the required considerations Technical Financial Managerial Environmental 20 10

11 Detailed Description of Selected Alternative 1. Preliminary Engineering Data 1. Flow diagrams 2. Unit Process Descriptions 3. Detention Times 4. Flow rates 5. Unit capacities All information must be provided in sufficient detail to demonstrate compliance with IEPA regulations 21 Required Reviews 1. Illinois Historic Preservation Agency 2. Illinois Department of Natural Resources- Endangered Species 3. Illinois Department of Natural Resources- Water Resouces (when applicable) 4. Other Federal, State, interstate, regional or local agencies when applicable 22 11

12 Implementation Plan 1. Project Schedule 2. Financing Plan 1. How operating costs will be funded 2. How loan repayment will be funded 3. Impact of these costs on users of the system (User Cost Study) 23 Obtaining Funding Full and Complete Loan Application Executive Compensation Data ( 5 Officer Form ) Verify registration of loan applicant with Central Contractor Registry guidance available on Agency website If applicable, executed legal and/or intergovernmental agreements necessary for project implementation Bid Certification Form and all associated required information 24 12

13 Important Reminders Davis-Bacon Act wage rates and rules will continue to apply to all assistance agreements. Engineers and Contractors must comply with Disadvantaged Business Enterprise (DBE) requirements which have replaced MBE/WBE requirements. Similar, but some changes in how to comply. Guidance available on Agency website. 25 Need Help with the Process? The Illinois EPA Website is periodically updated with new program information and links to important program documentation. Forms and documents needed to execute a full and complete loan application are also there. Financial Assistance Section

14 Water Resources Reform and Development Act (WRRDA) of 2014 was signed by the President on June 10, 2014 Title V of WRRDA contained the Water Infrastructure Finance and Innovation Act (WIFIA) WIFIA is modeled on the Transportation Infrastructure Finance and Innovation Act (TIFIA) of 1998 TIFIA provides federal credit assistance in the form of loans, guarantees, or lines of credit for eligible transportation projects TIFIA has provided over $16 billion in assistance since 1999 to projects costing nearly $60 billion 27 Innovative financing mechanism for water- related infrastructure National or Regional significance Attempts to fill in a perceived gap left open by the SRF programs by providing subsidized financing for large projects Funds are appropriated to provide a reserve subsidy for credit assistance, not for direct outlays to projects (TIFIA averages 10:1) Credit assistance can be in the form of loans or guarantees 28 14

15 15% percent set-aside for small communities Population no greater than 25,000 After June 1 of the year of appropriation set-aside expires Maximum amount of loan may not exceed 49% of eligible project costs Up to 25% of the funds available may be used for projects to fund in excess of 49% of the project costs Projects must have a dedicated source of revenue Davis-Bacon and American Iron and Steel apply in the same manner as under the SRF programs 29 Right of first refusal CWSRF and DWSRF programs have the first chance to provide funding EPA must notify SRF programs about applications SRF programs have 60 days to respond showing intent to fund the project at or over the amount requested from WIFIA SRF programs have 180 days to close the deal Rates and terms must be at least as favorable as WIFIA 30 15

16 EPA must consider the following criteria when selecting projects: The extent to which the project is nationally or regionally significant with respect to the generation of economic and public benefits The extent to which the project has additional public or private financing in addition to WIFIA funding The likelihood that WIFIA will allow the project to proceed faster than without WIFIA The extent of new or innovative approaches The amount of budget authority required The extent to which the project protects against extreme weather events or helps maintain or protect the environment 31 EPA must consider the following criteria when selecting projects Cont. - The extent to which the project serves regions with significant energy exploration, development, or production areas The extent to which the project serves regions with significant water resource challenges The extent to which the project addresses identified municipal, state, or regional priorities The readiness of the project to proceed including the likelihood that the contracting process will commence no later than 90 days after the issuance of the credit instrument The extent to which assistance from WIFIA will reduce the contribution of federal assistance to the project 32 16

17 Interest rate is no less than the yield on Treasury securities of a similar maturity to the loan in question on the date of execution Loans may be for 35 years or the useful life of the project, whichever is less WIFIA loans may be used to meet the non-federal share requirement of project costs Total amount of federal assistance shall not exceed 80 percent of the total project costs Repayments must begin no later than 5 years after substantial completion of the project Loan guarantees are allowed if the budgetary cost of the guarantee is substantially the same as that of a loan Guarantee requirements are the same as loan requirements except for interest rates which are negotiated between the borrower and lender 33 EPA may charge fees on the loan to cover the cost to the government of making the loan EPA may charge fees, separate from the fee to cover costs to the government of making loans, to cover the costs of retain expert firms and to cover the cost of servicing the assistance agreements EPA may retain $2.2 million per year for administrative expenses or to aid project sponsors EPA may appoint a financial entity to service the assistance provided and may hire outside expertise 34 17

18 WFIA Summary 1. Regional Project 2. Not able to be fully funded by SRF 3. Willing to provide the additional funding source (cannot fund 100% of project) 35 Summary of Financing Alternative Interest Rate 1. Cash 0.0% 2. Private Loan ( Bonds) 3.0% 3. IEPA Revolving Loan Fund 1.86% 4. WFIA 2.50% The interest rates listed are from a comparison on October 7,

19 What Can You do to aid in project financing? 1. Develop a project description and cost estimate 2. Gather the information that is necessary for a Project Plan a) The information will be helpful if private financing is selected b) The information is required for SRF or WFIA funding 3. Educate elected officials on the processes of financing projects 37 19