SanfordHolshouser. SanfordHolshouser 3/1/2017. Emerging Water and Wastewater Public Finance Issues

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1 Emerging Water and Wastewater Public Finance Issues What s New, Evolving and Emerging in the World of Water Finance Robert M. Jessup Jr. SanfordHolshouser Sanford Holshouser LLP Starting with a few practical notes on borrowing money The project drives the financing Talk with LGC staff If you know what you re getting into, and how you re going to pay for it, you won t have trouble with the LGC Bids in hand, audit blackout Get some help financial advisor, bond counsel Picking a lender 1

2 Installment financings v revenue bonds Revenue bonds promise to generate and apply net system revenues to the repayment; no physical collateral Installment financing pledge of physical collateral but no further recourse; payments can come from any source [How to finance automated water meters? This is coming up frequently] Increasing use of revenue bonds unfamiliar, but not any more difficult. Flexible Tack on borrowings for an installment financing Special obligation bonds for W&S improvements for both cities and counties Concerns about changes in the laws, especially tax laws (and two related issues) The past is not coming back. Weakening environmental rules for example upstream or in system watershed protection. Also, urban rural divide playing out in legislatures Tax laws Attack on the municipal interest exemption all together Reduction of marginal corporate tax rates means tax exempt interest is less attractive, so relative Could be expanded opportunities for public private partnerships Rising interest rate environment especially when coupled with concerns about tax rates, leads to reduced terms on bank loans. On the other hand, substantially reduced importance of bank qualified status for bank loans Political pressures to move away from the strict business enterprise model even Wal Mart gives stuff away 2

3 The March of Science and Sustainability New technologies Pender Commerce Park plant also goes to total cost of ownership Distributed systems including rain barrels, green roofs, closed systems within building Changes to the rating agency methodologies that test economic sustainability coming to a bank near you Green bonds You can label just about any borrowing for water, wastewater or other environmental purpose as a Green Bond. At this point it s probably not going to save you money, but there may be other benefits Special assessment revenue bonds Levy assessments against specially benefitted property owners to recover costs of capital projects outside the rate structure. Use these assessments to support revenue bonds with consent of majority of owners (majority by parcels, two thirds by value). 3

4 Leveraging local option sales tax for economic development for related water and sewer projects Will be treated as a water and sewer project by lenders and LGC, which can have some advantages, even if the special sales taxes are your intended source of repayment Stormwater utilities and revenue bonds as combined financing with more traditional water and sewer Your water and sewer system is making money, but that $10 stormwater fee won t take you very far... So combine the systems and leverage their combined strength LGC rules on USDA refundings it s a mess... and has been for some time. So learn about this if your plan is to start with USDA financing and re finance a few years in. Thanks! Robert M. Jessup Jr. SanfordHolshouser Sanford Holshouser LLP Follow the 4

5 URLs for referenced articles Trouble with private investment in public water systems equity water.html?_r=0 The Pender wastewater treatment plant building green wastewater treatment plan Subsidizing rates, through the rate system an EFC post assistance people without water account/ From our Firm blog, on green bonds whats all this about green bonds/ 5