Water and Wastewater Infrastructure Funding Strategies

Jeff HughesUNC School of Government

Environmental Finance Center919.843.4956

jhughes@sog.unc.eduwww.efc.unc.edu

Workshop Acknowledgements

• UNC School of Government• Public Water Supply Section, Division of

Environmental Health, NC Department of Environment and Natural Resources

• US Environmental Protection Agency– Region 4– Environmental Finance Program, Office of Chief

Financial Officer

Workshop Objectives

1. Promote proactive capital funding planning and analysis

2. Improve understanding of funding sources and strategies

3. Improve understanding of the role of rates and fees in infrastructure investment

4. Provide forum for sharing capital funding perspectives, ideas, and experiences

Water and Wastewater Infrastructure

• Serving current “unserved” residents• Serving growth• Regulatory requirements• Modernization/efficiency improvements• Protecting source water• Replacement and rehabilitation

What types of projects are in your utility's current CIP? (n=172)

Rehabilitation or replacement of existing assets (e.g. replace water lines, pumps, etc.)

Meeting a regulatory requirement (e.g. changing treatment technology due to quality requirements, etc.)

Extension of water/sewer lines to currently unserved customers

Expansion of treatment or collection facilities to increase current capacity

Interconnection to another system

Watershed protection (land acquisition)

Reservoir construction

Other (please specify)

Don't know

None of the above

Largest component

59%

5%

9%

20%

3%

0%

0%

2%

2%

1%Preliminary results

Who is in the room?

1. Utility management2. General

management3. Finance Office4. Consultants/

Community Advisors

5. Others Utili

ty man

agem

ent

Gen

eral m

anag

emen

t

Finance

Offic

e

Con

sulta

nts/C

ommun

ity A

dv...

Othe

rs

40%

12% 9%

23%16%

Questions and…

….Burning Issues

Do you have an approved set of water/wastewater finance policies?

1. Yes2. No3. Workin’ on

it…31%

46%

23%

Yes No Workin’ on it…

Do you have an approved CIP?

1. Yes2. No3. Workin’ on

it…59%23%

18%

Yes No Workin’ on it…

46) Does your utility have a Capital Improvement Plan (CIP)?

n = 258

67%

20%

8%5%

YesNoNo, but we are creating oneDon't know

Preliminary results

53) What is included in your utility's CIP?

n = 172

A detailed estimate of your utility's future capital project costs

A list detailing what sources of revenues (rates, loans, bonds, grants, etc.) would pay for the projects

The estimated effect of your utility's future capital project costs on your utility's actual rates

Other

Don't know

None of the above

0% 20% 40% 60% 80% 100%

Preliminary results

47) Is your utility's CIP approved by your Governing Board (City Council / County Commissioners / Board of Directors)?

n = 174

84%

14%2%

YesNoDon't know

Preliminary results

32) Does your utility have a "finance policy" that sets financial targets and goals, such as reserve balance, debt service ratios, etc.?

n = 256

42%

46%

12%

YesNoDon't know

Preliminary results

What period does your CIP cover?

1. < 3 yrs2. 3 - 5 yrs3. 6 - 10 yrs4. > 10 yrs5. Don’t know

3%

24%

7%

28%

38%

48) How many years does your utility's CIP cover?

n = 164

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 >200%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2% 1% 1% 1%

42%

2% 2% 1% 0%

23%

0% 0% 0% 0%4%

0% 0% 0% 0%

21%

1%

Years

Preliminary results

How do the majority of projects make it on to your CIP?

1. Pass rigorous business case evaluation

2. Too complicated to explain

3. I don’t know

0%0%0%

Pass rigorous bus... Too complicated t... I don’t know

Do you have a multi-year approved Capital Improvement Budget (CIB)

1. Yes2. No3. Workin’ on

it…

0%0%0%

Yes No Workin’ on it…

51) Does your CIP include a multi-year budget (i.e. your elected officials have approved a BUDGET for MORE THAN ONE YEAR)?

n = 174

16%

76%

5% 3%

YesNoDon't knowOther

Preliminary results

What period does your CIB cover?

30%

4%

41%

26%

0%0%

1. 1 yrs2. 2 yrs3. 3 yrs4. 4 yrs5. 5 years or greater6. Don’t know

Do you have a multi-year finance model that shows projected revenues and expenditures?

1. Yes2. No3. Workin’ on

it… 39%

52%

10%

Yes No Workin’ on it…

Is your CIP integrated with a finance plan and/or rate model?

1. Yes2. No3. Workin’ on

it… 40%

50%

10%

Yes No Workin’ on it…

Water and Sewer Projection Summary 8 Year Financial Plan

$ 1,739,213 $ 1,806,785 $ 1,419,245 $ 1,483,201 $ 1,233,752Total outstanding debt(2)

40%42%41%41%40% As % of op. exp. and DS

$ 110,313

$ 105,581

$ 102,346 $ 95,503 $ 90,626

Debt service/operating fund bal.

1.27 1.32 1.191.22 1.16 DS coverage - total1.72 1.92 1.852.13 2.11 DS coverage - revenue bonds51%48%52%50%53%DS as % of total revenue

$ 162,209 $ 142,575 $ 146,109 $ 131,560 $ 129,047 Total DS42,45744,544 52,186 56,325 57,941 Total G.O. and other DS

$ 119,752 $ 98,031 $ 93,922 $ 75,235 $ 71,106Total revenue bond DS(1)

$ 205,891 $ 188,260 $ 173,903 $ 160,486 $ 149,851 Net income available for DS113,976109,141 104,516 100,09195,858 Total operating expenditures

$ 319,867 $ 297,401 $ 278,419 $ 260,577 $ 245,708Total revenue1.00%1.00%1.00%1.00%1.00%% incr. in water sales volume6.50%6.50%6.74%6.05%6.25%% incr. in avg. residential bill

268,195 260,383 252,799 245,436 238,287 Number of water customers

$ 448,700 Revenue bond issues

$ 379,300 $ 190,400 $ 448,700 $ 215,800 $ 309,440Commercial paper balance (6/30)

$309,440

17%18%8%10%16% PAYGO as % of total

$ 229,700

$ 234,700

$ 255,700

$ 242,100

$ 181,360 Total

38,950 42,450 20,950 24,050 28,850 PAYGO1,850 1,850 1,850 2,2505,050 Debt - equipment L/P

$ 188,900

$ 190,400

$ 232,900

$ 215,800

$ 147,460 Debt - CP/revenue bonds

Capital program 2012 20112010 2009 2008

www.efc.unc.edu/tools

How have you funded most of your W&S capital during last five years?

1. Grants2. Debt3. Pay-go (current

year receipts)4. Capital Reserves5. We’re still looking

for funds…….

Percentage of capital needs in your CIP you are confident you can fund?

1. <10%2. 10%-25%3. 25%-50%4. 50%-75%5. >75%

0% 0% 0%0%0%

44) Based on your experience, how often is your utility able to fund all of the necessary capital improvements?

n = 254

10%

35%

29%

22%

4%

All the timeMost of the timeSometimesRarelyDon't know

Preliminary results

Acquiring Funds for Capital Infrastructure (Day Covered)

1. Save and spend later 2. Spend/pay as you go Spend borrowed funds

and pay later 3. Spend grant funds and get “someone else” to

pay