Local Government Water and Wastewater Debt in North Carolina

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Felicia Wheeler
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Center at the University of North Carolina www.

edu Housed at the UNC School of Government.

governments and other organizations to provide

1 Local Government Water and Wastewater Debt in North Carolina Jeff Hughes Environmental Finance Center at the University of North Carolina Housed at the UNC School of Government. Dedicated to enhancing the ability of governments and other organizations to provide environmental programs and services in fair, effective and financially sustainable ways. 1

2 Presentation Overview Share findings of recent debt study 2

3 Paying for the Big Stuff Someone else pays (grants) Save and pay later (reserve funds) Pay as you go Borrow and pay it back later Debt and Debt Trends in NC Local government utility debt has been increasing steadily over time: $6.7 billion outstanding debt in 2008 $8.1 billion outstanding debt in 2013 In 2013, local NC governments had $32 billion of outstanding debt for all capital 3

4 Characterizing Debt By collateral/securitization method By funder By borrower Types of Utility Debt General Obligation Requires a majority vote in a bond referendum Sold as general obligation bonds on the commercial capital markets Utilities issuing general obligation debt pledge their tax raising authority Most utilities rely on revenues from rates to retire debt, even if they have legally pledged their tax authority 4

5 Types of Utility Debt Revenue Bonds The security behind this type of debt consists of the utilities legal authority to generate (and if needed raise) user fees and rates Utilities pledge their rate setting authority This type of debt is becoming more common as utilities increasingly turn away from general obligation debt Types of Utility Debt Installment Purchases Utilities are allowed to pledge their assets as security for loans More typical for smaller utilities May interfere with ability to use other types of debt in the future 5

6 NC outstanding water and sewer debt by bond type as of June 30, 2012 Revenue & General Notes $87,529,000 1% Purchase Agreements $414,064,391 5% General Obligation Backed (includes USDA) 19% Revenue Backed State Revolving Programs $783,081,699 10% Revenue Bonds (includes USDA) $5,265,859,581 65% Data analyzed by the University of North Carolina Environmental Finance Center. Data Source: North Carolina Department of State Treasurer State and Local Government Finance Division USDA Rural Water and Waste Disposal Grant and Loan Program January 2014 Source: USDA Number of outstanding borrowers 186 Number of outstanding loans 342 Outstanding principal balance - $563,187,1142 6

7 Percent of Outstanding Debt by Bond Value 3/26/2014 Issuance Type Trends for NC Water and Wastewater Utilities 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% State Revolving Loans & Bond Loans Purchase Agreements Revenue & General Notes Revenue Bonds General Obligation Bonds Data analyzed by the University of North Carolina Environmental Finance Center. Data Source: North Carolina Department of State Treasurer State and Local Government Finance Division Debt Issuance Trends Revenue bonds accounted for 57% of new debt issuances in 2011 Installment purchases became increasingly popular beginning 7

8 Outstanding Debt Billions /26/2014 Debt Issuance Trends: Subsidized Debt Public infrastructure funding is also moving towards subsidized debt: Drinking water state revolving fund (DWSRF) Clean water state revolving fund (CWSRF) Federal government s USDA Rural Development Water and Waste Disposal Loan and Direct Grant Program Projected reduction in debt for existing debt issuances as of 6/30/ Year Data analyzed by the University of North Carolina Environmental Finance Center. Data Source: North Carolina Department of State Treasurer State and Local Government Finance Division 8

9 NC water and sewer debt allocation among local government owned utilities as of June 30, 2012 City of Charlotte 22% All Other Utilities 54% City of Raleigh 10% City of Winston Salem 6% City of Greensboro 4% Cape Fear Public Utility Authority 4% Data analyzed by the University of North Carolina Environmental Finance Center. Data Source: North Carolina Department of State Treasurer State and Local Government Finance Division. North Carolina State debt not included in debt totals. NC Outstanding Debt Charlotte-Mecklenburg Utilities carries nearly 25% of the state debt, but are far from having the largest long-term debt per account 23% of the 498 NC water utilities have no outstanding debt as of June, 2012 Of the 308 NC utilities with available debt data, 8 have monthly water bills for 5,000 gallons over $50 9

10 Long-term Debt per Account Thousands 3/26/2014 Long-term debt per account in 2012 vs. water bill at 5,000 gallons for 308 NC water utilities $10 $8 $6 $4 $2 $0 $0 $10 $20 $30 $40 $50 $60 $70 Water Bill at 5,000 gal Data analyzed by the University of North Carolina Environmental Finance Center. Data Source: North Carolina Department of State Treasurer State and Local Government Finance Division and the U.S. Environmental Protection Agency SDWIS Local Government Water and Wastewater Debt in North Carolina Jeff Hughes Environmental Finance Center at the University of North Carolina 10

Local Government Water and Wastewater Debt in North Carolina

Local Government Water and Wastewater Debt in North Carolina Jeff Hughes Environmental Finance Center at the University of North Carolina www.efc.unc.edu Infrastructure Needs $384.2 billion in U.S. water