FIVE YEAR STRATEGIC PLAN. December 2014

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1 FIVE YEAR STRATEGIC PLAN December 2014

2 INTRODUCTION The staff of Rhode Island Infrastructure Bank (the Bank) have participated in the development of its first five (5) year Strategic plan. It provides the Bank with a roadmap for action. OUR VISION To steer a course for our stakeholder to use our resources (low income financing) to benefit the health and welfare of our residents and the environment ultimately improving the quality of life in Rhode Island. MISSION STATEMENT The Bank is a quasi-public corporation established to administer certain federal and state lowinterest loan programs relating to wastewater, safe drinking water, and road and bridge infrastructure projects. Through the operation of the Clean Water State Revolving Fund, the Drinking Water State Revolving Fund, the Road and Bridge State Revolving Fund, and other loan programs, the Bank is able to assist our Borrowers by providing low-interest loans and other forms of financial assistance. The Bank s stakeholders include municipalities and quasi-public agencies that seek to utilize its programs to fund infrastructure projects. Our stakeholders also include the Environmental Protection Agency and State of Rhode Island both of which provide funding for various programs and the Rhode Island Department of Environmental Management, the Rhode Island Department of Health, and the Rhode Island Department of Transportation, each of which provide programmatic support to Bank s various programs. Our stakeholders expect that the Bank will be transparent and forthcoming with information, will provide loan terms that are more favorable than the market at the time the loan closes, and will conduct its activities prudently and professionally. The Bank s success is measured by maintaining its AAA bond rating for its principal loan programs. Additionally, the Bank s success is measured by receiving unqualified opinions from our auditors, program administrators from the Environmental Protection Agency, and following the implementation of Chapter of the Rhode Island General Laws, the Bank s success will also be measured by the results of the performance audit conducted by the Bureau of Audits every five (5) years. ANALYSIS (SWOT) The staff has made the following observations about the Bank: STRENGTHS The Bank has a strong Chair and Board of Directors, 2

3 Bank staff are very capable and experienced with the majority of the staff serving twelve years or more, The Bank has an effective team of consultants in place (Legal Counsel, Financial Advisor, Bond Counsel & Auditor), The Bank is AAA rated, Strong Internal Controls, and Bank has local legislative support. WEAKNESSES The Bank is dependent on Congress for authorization of capitalization grants, Access to historic Bank information is limited as the Bank moves to a paperless system, With a small staff financial controls over programs are hard to set, and Capacity issues are more common. OPPORTUNITIES Use of the operating funds balance as an investment vehicle, Staff and the Executive Director willing to expand the role of the Bank to administer additional programs for the State, Need to increase/diversify loans for infrastructure Increased demand, Sell Green Bonds, and Congress has increased our eligibilities. THREATS Regulations becoming more burdensome which affects borrowers interest to borrow through the Bank. No further authorizations of cap grants, Major staff turnover or exodus, The Bank needs to enhance its IT security systems for records and Banking operations. CURRENT AND PENDING ELIGIBILITIES The Bank was established in It is governed by a five-member board of directors, four appointed by the Governor and the fifth member is the State Treasurer or their designee. The present Chair of the Bank has been a member of the board for 22 years and the current Executive Director was appointed in July Collectively the staff has over 65 years of experience. The Bank administers capitalization grants provided by EPA for several programs of value to local government and other state agencies. DRINKING WATER STATE REVOLVING FUND (SRF) This SRF provides financial assistance to public and private drinking water suppliers for approved 3

4 safe drinking water projects. Borrowers are subsidized approximately 25% of what market interest rate would be if they borrowed on their own. The Department of Health provides a project priority list (PPL) from which the Bank funds water suppliers. Through June 30, 2014 the Bank has made $357.9 million of drinking water loans. Currently the Bank is working towards a $15 million bond that would be combined with the federal cap grant, state match, and revolved capital for over $26 million in drinking water projects. SMALL SYSTEMS PROGRAMS The Department of Health and the Clean Water Finance Bank established a program to recruit small water supply systems (less than 10,000 populations) to provide principal forgiveness loans (up to $50,000) for their water projects. EPA requires that 15% of capitalization funds are directed to small systems. This program should move forward in CLEAN WATER STATE REVOLVING FUND (SRF) This program provides financial assistance for local government units to finance approved wastewater infrastructure projects. The Department of Environmental Management prepares a project priority list from which projects are chosen to be funded. Communities receive a subsidized interest cost which is approximately 66.6% of the stated interest rate based on what their market rate would be. The Narragansett Bay Commission (NBC) is our largest borrower. The Bank was called upon to finance the treatment of the deicing fluid that enters the storm water system at Green Airport. Through June 30 of 2014 the Bank has made $1.118 billion of clean water loans. Currently the Bank is working towards an $81 million bond for wastewater abatement projects. FACILITY PLAN LOAN PROGRAM This program allows the Bank to make low-interest loans to municipalities for sewer facility planning and updating of facility plans which are a prerequisite for funding through the clean water state revolving fund. $375,000 in loans have been made to date. These loans are capped at $150,000 with an interest rate of 1%. Repayment is over a three-year period. SEWER TIE-IN LOAN FUND The sewer tie-in program provides zero interest loans of up to $150,000 to communities so that they can then direct these funds through Rhode Island Housing to individual homeowners. The homeowners pay a subsidized interest rate of 2% on loans of up to $10,000 for the ability to tie into existing sewer lines. Through June 30, 2014 the Bank has made loans totaling $600,000. COMMUNITY SEPTIC SYSTEM LOAN PROGRAMT This program established under the Clean Water Act so that communities could borrow funds to address nonpoint source wastewater abatement issues. Communities without wastewater treatment facilities can access low interest loans similar to the sewer tie-in program. Zero interest loans to communities of up to $300,000 are made so that communities in conjunction with Rhode Island Housing can lend to individual homeowners. To date over $11 million in septic system loans 4

5 have been provided to Rhode Island homeowners. RHODE ISLAND MUNICIPAL ROAD & BRIDGE REVOLVING FUND Authorized in 2013 by the General Assembly, this program provides assistance to local governments for road and bridge construction and reconstruction programs. The Department of Transportation provides a project priority list from which projects are chosen. Borrowers pay a subsidized interest cost which is 33 1/3% discounted from their market interest rate if they borrowed on their own. Through September 30, 2014, the Bank has made $10.2 million in road and bridge loans. The fiscal 2015 State budget has an allocation of $5 million to continue this program. In addition to the state allocation, the Bank will be able to leverage funds from repayments of the first-year loans and generate an additional $5 million for road and bridge projects. ADDITIONAL CLEAN WATER FINANCING CAPACITY On the ballot for the November 2014 elections was question seven which was a bond issue for $53 million for Healthy Communities. The Bank was listed as the recipient of $20 million to increase clean water lending capacity. The Bank, because of its leveraged program, over time, is able to generate four dollars of funding for every one dollar received. Voters approved this bond issue by more than 70%. GREEN BONDS There has been discussion within the Bank of issuing Green Bonds in order to increase investor interest and ultimately lower cost. It is anticipated that the clean water issue referenced above for $81 million will become a green bond. CLEAN WATER ACT AMENDMENTS 2014 During the year Congress enacted changes to the Clean Water SRF program. While these changes encompassed programmatic and financial items, there was an increase in eligible activities. While these eligibilities are related to wastewater abatement projects they are easily transferable to a general program of interest to cities and towns. New eligibilities expand the ability of states to fund storm water projects, energy and water efficiency initiatives, new decentralized systems, work with private borrowers, and offer technical assistance. A brief itemization generalized of the eligibilities is as follows: 5 land purchases decentralized systems: for the construction, repair, or replacement of decentralized wastewater treatment systems that treat municipal wastewater or domestic sewage. storm water: privately owned projects can now be funded including urban storm water projects in MS4 areas (examples include rebate programs and or funding for private homeowners or businesses to implement green infrastructure and public-private

6 partnerships, P3 storm water initiatives) water conservation, efficiency and reuse: watershed projects: examples include integrated water resources planning, storm water management planning, whether climate related resilience planning projects energy initiatives: for measures to reduce the energy consumption needs for publicly owned treatment works recycled water and water reuse examples privately owned water reuse treatment plants BROWNFIELDS REMEDIATION Staff at the RI Department of Environmental Management (RIDEM) has asked the Bank to consider administering the EPA funded Brownfields loan remediation program they fund through Commerce Rhode Island. One meeting to discuss issues has already taken place. The program is not very large and well within the staff capacity of the Bank to perform and perform well. These would be short term loans ultimately rolled into permanent financing for a remediation/development project. ENERGY EFFICIENCY INIATIVE The Executive Director has initiated discussions with the Commissioner of the RI Office of Energy Resources to discuss energy efficient loans for homeowners for items such as home HVAC systems. A program similar to the tie in or septic system models is being explored by the Bank. PROGRAM STRENGTHS The Bank as part of its surveillance of borrowers has a complete credit analysis performed on each borrower before a loan is granted, loans are approved by the board after the credit review presentation, and borrowers are required to submit annual financial information to the Bank and lastly the board reviews the portfolio and borrower ratings on a regular basis. Unique provisions to the Bank program includes 1) a step up provision: in each loan agreement the Bank determines a stated interest rate for each loan; the rate represents an estimated interest cost that the borrower would pay if it issued debt on its own; in the case of a loan default by any borrower the Bank loan agreements authorized it to require borrowers to pay a higher interest rate up to their stated interest rate to help cure the default, 2) cross investment: this provision permits the de-allocated list funds from either SRF program to be used to make an investment in the other program in order to prevent a payment default. The cross investment would only be used after all remedies including the step up provision has been exercised, 3) statutory lien legislation: in July 2011 the General Assembly amended Section of the Rhode Island General Laws to provide a statutory lien on ad valorem taxes and general fund revenues for the benefit of general obligation debt of cities and towns, and 4) state aid intercept: RI General Laws section creates a mechanism to enhance the credit worthiness of cities and towns in fiscal stress by providing for a 6

7 state aid intercept mechanism to pay general obligation bonds and notes. The Bank has never had a default. BANK MONITORING The Bank in the normal course of business has completed an annual financial report which is posted on its webpage (The fiscal year 2014 report is submitted as a GFOA CAFR report), a single audit as required by federal regulations, quarterly audit reviews and lastly is reviewed by EPA on an annual basis for its drinking water and clean water SRF program. For the year ending June 30, 2013 Piper Jaffay has ranked our Clean Water Program as #1 in the nation in the amount of loan funds disbursed per Federal dollars at $5.81 and ranked our Drinking Water program 8th at $2.25. GOALS 1. Work with the Legislature to adopt the additional eligibilities adopted by Congress for the Clean Water program. Promote the new storm water eligibility as it relates to private entities and homeowners. 2. Pursue organizational/legislative change to make the Bank a bond Bank/ infrastructure financing Bank and other legislative changes to effectuate other goals listed. 3. Commence leveraging of repayments in the Road and Bridge Program as well as seeking increased state funding for the program. 4. Starting in 2015 market Bank bonds as Green Bonds. 5. Continue discussions with the Department of Environmental Management (RIDEM) on administering their Brownfields remediation SRF program. 6. Pursue with the Office of Energy Resources a new program for Energy Efficient projects with residents similar to our Sewer tie in and septic system program. 7. Coordinate with the Department of Health their identification of small drinking water systems eligible for Principal Forgiveness. 8. Continue with technology changes in the operation of the Bank. The Bank is the most mature, experienced, successful loan program for infrastructure in Rhode Island developed with the aim of sustainability and perpetuity. Infrastructure projects are varied and of value to communities, NBC and homeowners. The Bank is the only leveraged SRF program in the State which increases project funding over time and the only triple AAA rated program (Fitch and Standard & Poor). 7

Rhode Island Infrastructure Bank (A Component Unit of the State of Rhode Island and Providence Plantations)

Rhode Island Infrastructure Bank (A Component Unit of the State of Rhode Island and Providence Plantations) COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Fiscal Year Ended June 30, 2016 Table of Contents