WIFIA Panel/Webinar: Innovative Financing to Address Water Infrastructure Needs and Accelerate Investment in Major Water Projects

Transcription

1 WIFIA Panel/Webinar: Innovative Financing to Address Water Infrastructure Needs and Accelerate Investment in Major Water Projects Carolina Mederos, Moderator, Co-Chair, Transportation, Infrastructure and Local Government Practice, Squire Patton Boggs Andrew D. Sawyers, Ph.D., Director, Office of Wastewater Management, U.S. Environmental Protection Agency Tom Curtis, Deputy Executive Director-Government Affairs, American Water Works Association Aurel Arndt, Chief Executive Officer, Lehigh County Authority, Pennsylvania Roddy Devlin, Of Counsel, Squire Patton Boggs Greg Usry, Principal, Rosemawr Management LLC Questions? us at:

2 US Water Infrastructure: Time to Invest Tom Curtis American Water Works Association

3 US Water Infrastructure $1.7 trillion through 2050 Just for drinking water mains! 3

4 $1.7 Trillion How did we get that number? 4

5 All it Takes is Data When American drinking water systems were built What kinds of pipe materials were used in each decade Typical pipe life expectancies by material and decade of manufacture 5

6 AWWA Report

7 The Bottom Line Needs in the trillions They are real And will keep coming As demographic echoes of our past investments 7

8 What About Wastewater? WW needs are at least as great as drinking water Another $1.7 trillion or so through

9 Other Challenges Storm water New Standards New water supplies Climate change / resilience 9

10 How Do We Pay forthis? There is very limited direct federal support for municipal water and wastewater projects Water projects are primarily financed locally, through customer water bills 10

11 A Word About the SRFs What s wrong with the SRFs? Nothing AWWA strongly supports them And seeks full funding for them 11

12 A Word About the SRFs What s wrong with the SRFs? Nothing AWWA strongly supports them And seeks full funding for them 12

13 A Word About the SRFs What s wrong with the SRFs? Nothing AWWA strongly supports them And seeks full funding for them 13

14 A Word About the SRFs What s wrong with the SRFs? Nothing AWWA strongly supports them And seeks full funding for them 14

15 But WIFIA can do more Fund larger projects And different types of projects With far more leverage At far less cost to taxpayers 15

16 What We Need ASAP EPA to stand up WIFIA Congress to appropriate funds for FY2015 WIFIA to start funding a diversity of project types 16

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18 Water Infrastructure Finance and Innovation Act (WIFIA) Program Implementation Andrew Sawyers Director of the Office of Wastewater Management US EPA September 17, 2014

19 Background 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 19

20 WIFIA Funding No funding has yet been appropriated for WIFIA Authorization for Appropriations: Amounts: FY2015 $20,000,000 FY2016 $25,000,000 FY2017 $35,000,000 FY2018 $45,000,000 FY2019 $50,000,000 EPA may use up to $2,200,000 of the annual appropriation to cover administrative costs EPA is also authorized to collect fees to cover services of expert firms and servicing of Federal credit instruments. 20

21 Development of WIFIA 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 21

22 Development of WIFIA Challenges ahead: Defining eligible projects Determining criteria Develop project ranking system Create subsidy model Develop method for determining creditworthiness Answering questions about tax-exempt status of certain types of complimentary funding sources Contracting for expert services Rollout of guidance 22

23 Potential for Public Private Partnerships (P3) Eligible recipients of WIFIA financing: Corporations Partnerships Joint ventures Trusts Federal, State, or local government entities, agencies, or instrumentalities Tribal governments or consortiums of tribal governments State infrastructure financing authorities. 23

24 Potential for Public Private Partnerships (P3) Tax-Exempt Financing: Not allowed as part of the finance package Does taxable debt or private equity fill the gap? 49% of costs could be the maximum WIFIA involvement 24

25 The Role of State Resolving Funds (SRFs) How will WIFIA interact with the SRFs Right of first refusal EPA must notify SRF programs about applications for project funding through WIFIA 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 Credit review of proposed WIFIA projects EPA responsible for credit review of applicants Will want to take advantage of lessons learned by state SRF programs 25

26 The Role of State Resolving Funds (SRFs) WIFIA and SRF may be able to jointly fund a project Possible opportunities include: Co-fund WIFIA projects with EPA Maximum WIFIA participation generally 49% (limited opportunity to go to 80%) WIFIA funded projects cannot use tax-exempt debt Can repayments or funds from SRF corpus be used in conjunction with WIFIA? Hopefully Does the 80% cap on federal involvement prevent use of SRF funds to reach 100% of project costs? Probably not SRFs are eligible to borrow from WIFIA to finance a combination of projects under a single application These approaches could allow SRFs to reach borrowers and/or help finance projects they might not otherwise be able to 26

27 Appropriations Process House and Senate committee markups do not mention WIFIA House committee report includes the following request: Recognizing that these new authorities will require resources prior to implementation, EPA is directed to submit to the Committee a detailed plan for how full funding of the WIFIA provisions would be implemented The plan shall discuss all aspects of implementation, including: Agency personnel and expertise needs Types of eligible projects Criteria for selecting specific projects for financing The steps and general schedule of a potential application process Expected administrative costs 27

28 Next Steps Listening Sessions: EPA is hosting listening sessions across the country through December To hear stakeholders views on numerous topics, present EPA ideas as they develop and market the program Dates: Chicago: 7/22 New York: 9/22 Los Angeles: 10/17 Atlanta: 10/29 Dallas: 10/30 San Francisco: 11/17 Washington: December Develop guidance including critical documents Barriers: Limited resources No appropriations/funding uncertain 28

29 Subsidy Level Reflects Default Rates 29

30 20-Bond Buyer Index Compared to 20 Year Treasury Bonds 30

31 Municipal market Data Index 20th year Maturity by Rating Grade 31

32 For More Information Contact: Andrew Sawyers 32

33 CASE STUDY WIFIA FINANCING OF A P3-LIKE INFRASTRUCTURE PROJECT Aurel Arndt Chief Executive Officer Lehigh County Authority September 17,

34 LEHIGH COUNTY AUTHORITY / CITY OF ALLENTOWN CONCESSION LEASE A Public to Public Partnership (P2P) What is it? A 50-year lease of the Allentown Water and Wastewater systems 34

35 LEHIGH COUNTY AUTHORITY / CITY OF ALLENTOWN CONCESSION LEASE 35

36 CONCESSION FINANCING Sources and Uses of Funds 36

37 CONCESSION FINANCING Overview Bonds sold July 31, 2013 Three Series - $307,684,000 $ 245,590, A Bonds Fixed Rate Bonds $ 43,359, B Bonds Capital Appreciation Bonds $ 18,735, C Bonds Taxable Bonds Series A & B Summary Average Life 28.7 years Yield % 37

38 CONCESSION FINANCING Series 2013A - $ 245,590,000 Series 2013B - $ 43,359,000 Series 2013C - $ 18,735,000 38

39 CONCESSION FINANCING Other Market Rates (July 31, 2013) 30-yr Treasury Bond 3.64% 39

40 HYPOTEHTICAL WIFIA FINANCING Finance Immediate Capital Improvements $ 31,850,000 Assume 30-year life (or longer) WIFIA Annual Interest Costs: 49% of $ 31,850,000 at 3.64% = $ 568,077 Replacing 2013 A Bonds Annual Interest Cost 49% of $ 31,850,000 at 5.28% = $ 824,023 Annual Savings $ 255,946 (31%) 40

41 HYPOTEHTICAL WIFIA FINANCING Other WIFIA Possibilities a. Replace 2013B Series Bonds 2038 Maturity % Annual Savings $56,417 (26% incremental) b. Include Portion (10.35%) of Debt Service Revenue Fund Annual Savings $23,363 (31%) c. Increase WIFIA Funding of Capital Improvement Cost to 80% Level Annual Savings $161,925 (31%) d. Include portion (10.35%) of Issuance Costs Annual Savings $4,439 (31%) Total Enhanced Annual Savings: $ 246,144 (40%) 41

42 HYPOTHETICAL WIFIA FINANCING Closing Comments Source of matching funds Assumes reserves and/or SRF Funding is available; If not, taxable municipal bond (est. 7% rate) Apples to Apples Comparison Challenging Reflective of a P3 Financing 42

43 WIFIA Panel/Webinar: Innovative Financing to Address Water Infrastructure Needs and Accelerate Investment in Major Water Projects Carolina Mederos, Moderator, Co-Chair, Transportation, Infrastructure and Local Government Practice, Squire Patton Boggs Andrew D. Sawyers, Ph.D., Director, Office of Wastewater Management, U.S. Environmental Protection Agency Tom Curtis, Deputy Executive Director-Government Affairs, American Water Works Association Aurel Arndt, Chief Executive Officer, Lehigh County Authority, Pennsylvania Roddy Devlin, Of Counsel, Squire Patton Boggs Greg Usry, Principal, Rosemawr Management LLC Questions? us at:

44 WIFIA Panel/Webinar: Innovative Financing to Address Water Infrastructure Needs and Accelerate Investment in Major Water Projects For further information contact: Carolina Mederos, Co-Chair, Transportation, Infrastructure and Local Government Practice, Squire Patton Boggs