Multi-funding Workshop for Small Water Systems in Colorado

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1 Multi-funding Workshop for Small Water Systems in Colorado Glenwood Springs, CO 06/02/2015 Facilitator: Stacey Isaac Berahzer, Environmental Finance Center at UNC This program is made possible under a cooperative agreement with EPA.

2 About the Environmental Finance Center Network (EFCN) The Environmental Finance Center Network (EFCN) is a universitybased organization creating innovative solutions to the difficult howto-pay issues of environmental protection and improvement. The EFCN works with the public and private sectors to promote sustainable environmental solutions while bolstering efforts to manage costs. The Smart Management for Small Water Systems Program This program is offered free of charge to all who are interested. The Project Team will conduct activities in every state, territory, and the Navajo Nation. All small drinking water systems are eligible to receive free training and technical assistance. What We Offer Individualized technical assistance, workshops, small group support, webinars, elearning, online tools & resources

Areas of Expertise Asset Management Fiscal

3 Areas of Expertise Asset Management Fiscal Planning and Rate Setting Energy Use and Efficiency Financial Regulatory Compliance Communications and Decision-making Multi-funding Coordination Water Loss Reduction Partnering with Other Water Systems Managing Small Systems in Drought

4 Who We Are Project Team Environmental Finance Center at University of North Carolina at Chapel Hill Southwest Environmental Finance Center Syracuse University Environmental Finance Center Environmental Finance Center at Wichita State University EFC West Environmental Finance Center at University of Maryland, College Park Environmental Finance Center at University of Louisville Great Lakes Environmental Finance Center at Cleveland State University New England Environmental Finance Center at University of Southern Maine American Water Works Association

5 Housekeeping CEU Approval: Board Approval 15-OS-0289 SU: 0.6 (supplemental hours)

6 Start Time Topic 8:30 Introductions Agenda 9:15 The Spectrum of State-Level Funding Coordination Efforts 9:45 Rate Setting, Benchmarking and Capital Planning Impressing the Funder 10:15 Break 10:30 Presentations from Individual Funding Programs (USDA, DWSRF, CBDG/EIAF) 12:00 Lunch 1:00 Presentations from Individual Funding Programs Cont d NRWA, Local Assistance Unit) 1:30 Coordinating Funding in Colorado 2:00 Existing Financial and Utility Management Tools 3:00 Wrap Up

7 1. Name? 2. Organization? 3. Responsibility? 40 Second Introductions 4. One thing I hope to get out of this workshop is 7

8 Which of the following best describes your background? 42% 1. Engineering/science 2. Law 3. Finance/accounting 4. General management/ public administration 5. Other 0% 8% 31% 19% Engineering/sc... Law Finance/accoun... General manage... Other

9 What type of system do you represent? 1. Local Government 2. Tribal 3. Private 4. Non-profit 5. Other/Not a System 52% 0% 12% 12% 24% Local Governme... Tribal Private Non-profit Other/Not a Sy...

10 Workshop Objectives Understand the spectrum of financing options for water infrastructure needs in the state Learn how to plan for and finance your water system now and into the future Compare and contrast grants vs loans and other more sustainable funding sources Understand options for developing a rate structure for your utility

11 Background There are several potential funding sources for water projects It can be hard for small systems to navigate these different programs Applying for funding for one project from multiple programs can be complicated Some states have developed unified funding committees to help small water systems in navigating the process

12 General Coordination Objectives For Funders - Support funding program goals and efforts For applicants- Improved customer service experience For citizens - Stretches public funding dollars

13 Example of a Multi-Funded Project - Nevada Source: Adele Basham, Nevada Bureau of Administrative Services NWWRC

14 Smart Management for Small Water Systems NATIONAL EFFORTS AT COORDINATION

15 EPA-USDA Memo of Agreement Signed in June 2011 A standard Preliminary Engineering Report is also currently being used in some states for EPA and USDA applications.

16 Smart Management for Small Water Systems

17 The Small Community Water Infrastructure Exchange (SCWIE) A network of water funding officials Under the auspices of the Council of Infrastructure Financing Authorities (CIFA) Lists Contacts by State 17

18 The Small Community Water Infrastructure Exchange (SCWIE) List of existing coordination efforts 18

19 Funding Coordination at the State Level THE SPECTRUM

20 The Universe of Funding Coordination ~ 34 states report some level of coordination In ~ 27 states, federal funders participate In ~ 6 states applicant MUST apply to coordinating body ~ 5 states have staff positions for coordinating ~ 3 states have a distinct budget for coordination efforts Source: EFC at UNC research from 2007

21 Funding Coordination Practices Common Structured Committed participants USDA participation Strong leadership Focus on a few services Uncommon Require funders to fund projects contrary to their funding objectives Significant staff resources Comprehensive Resemble neighboring states

22 Structural Differences Among State Coordination Models Enabling documents Institutional framework and glue Membership/participation Meetings Organization of work efforts/staffing

23 Additional Resources on Coordination EPA Handbook of Coordinating Water and Wastewater Funding ( de_dwsrf_funding_infrastructure.pdf) UNC EFC Funding Coordination Resource Page ( oordination.htm)

24 What are the Funding Programs in Colorado? ng-sources-by-state/ 24

25 APPLYING TO A FUNDING PROGRAM 25

26 BACKGROUND 26

27 How the Payments are Made For Infrastructure Projects Save in advance and pay Pay as you go (current receipts) Pay afterwards (someone loans you money) Grants 27

28 About Grants NOT a good way to find a grant! 28

29 Grants Aren t Completely Free Money Application for the grant can be expensive staff time and money Applications can take months to process Often lots of strings attached Often require a percentage match Lots of competition Difficult to sustain 29

30 In the Old Days... Water systems took advantage of the federal government s ambitious construction grants program of the 1970s and 1980s It seemed like free money

31 Capital Finance Today The money never really was free it came from tax dollars Today, the financial burden has been shifted away from federal and state tax dollars (grants) to funds raised by the water system itself (customer sales and loans). For example...

32 Grants Have Been Replaced by Loans EPA Wastewater Spending by Type (billions of dollars) $14 $12 $10 $8 $6 $4 $2 $0 Total (in 2000 Dollars) CWSRF EPA Line Item Construction Grant

33 Loans Typically from a bank Can be from a government-sponsored program such as the Drinking Water State Revolving Fund 33

34 The Debt Market Why Borrow? Water infrastructure has a long useful life. You may wish to amortize the loan over the life of the equipment so that the people who benefit from the system pay for it

35 Bonds A written promise to repay borrowed money (on a definite schedule and usually at a fixed rate of interest for the life of the bond) Different types exist: General Obligation (GO) Revenue Source: bettermondays.com 35

36 When You Need Cash Now: The Debt Market Lenders will look at your creditworthiness, your ability to repay the debt, in determining whether to loan to you and your interest rate Certain best practices can increase your chances of funding

37 Impressing the Funder RATE SETTING AND BENCHMARKING 37

38 Systems Love Low Rates, but... Once again, the [City s] Water Department proved to have some of the lowest water and sewage rates in the state.

39 Are we following the applicable laws? Will it provide sufficient cost recovery? What exactly does this include? Will revenues be resilient to changing water demands? Are we allocating the costs to the right customers? Do these rates send the right signals to our customers, based on our objectives? Will our customers understand these rates? Will our customers be able to pay these rates?

40 Full Cost Pricing Operations & maintenance expenditures Taxes and accounting costs Contingencies for emergencies Principal and interest on long-term debt Reserves for capital improvement Source water protection

41 Rates & Monthly Charges What type of rates and monthly charges do you levy? Charges based on metered usage? Flat monthly charges? Something else? Nothing?

42 Rank Your Rate Setting Objectives Full cost recovery/ revenue stability Fostering businessfriendly practices Encouraging conservation Maintaining affordability (keeping rates low to whom?) Refer to this list and focus on the highest ranked objectives when following the guidelines for selecting the appropriate rate structure design.

43 Elements of Rate Structure Designs 1. Customer classes/distinction 2. Billing period 3. Base charge 4. Consumption allowance included with base charge 5. Volumetric rate structure 6. (If applicable) Number of blocks, block sizes and rate differentials 7. (Optional) Drought Rates 8. Frequency of rate changes

44 Designing Rate Structures That Support Your Objectives Free guide written for system managers Available at:

45 Rates in Colorado 2012 Water & Wastewater Utility Charges & Practices Survey by the Colorado Municipal League and Corona Insights 215 Utilities 82 survey questions Municipalities and special districts Self-reported data

46 Rates in Colorado Residential Water Rate Structures (n=66) Decreasing Block 2% n=1 Fixed Rate 3% n=1 Increasing Block 56% N=37 Uniform Rate 39% n=26 Data analyzed by the University of North Carolina Environmental Finance Center using Colorado Municipal League, self-reported survey results.

47 Rates in Colorado Monthly Base Charge for Residential Customers Among 67 Water and 64 Wastewater Utilities Number of Utilities Water Utilities Wastewater utilities 0 $1-$5 $6-$10 $11-$15 $16-$20 $21-$25 >$25 Monthly Base Charge Data analyzed by the University of North Carolina Environmental Finance Center using Colorado Municipal League, self-reported survey results.

48 Rates in Colorado

49 Rates in Colorado Check out our Colorado Rates Dashboard and our 2012 Colorado survey blog post significance-of-the-colorado-continental-divide-in-the colorado-water-and-wastewater-rates-dashboard/

51 CAPITAL PLANNING

52 Three Types of Costs Operating Costs what you need to run the system day in and day out Capital Costs repair and replacement of existing infrastructure and new infrastructure Debt Service what you owe on loans and bonds

53 Two Types of Revenues System Revenues Money from rates, tap fees, impact fees, grants, other sources Note: To be a true enterprise fund, not taxes! Debt Money from bonds and loans

54 Many Types of Reserve Funds Capital Reserve Fund Infrastructure rehabilitation and replacement Repair Fund Known, ongoing maintenance issues Emergency Fund Unknown, unanticipated maintenance issues Rainy Day Fund Unexpected revenue shortfalls

55 How Much Do You Need In Your Reserves? It depends Enough to pay for your most expensive piece of equipment? Enough to cover your costs if you had no revenue for two months? Enough to cover the projects in your capital improvement plan?

56 Long Term Funding This is where capital planning comes in Once you figure out how to get the longest life out of your assets, plan to have the money you need to replace them when necessary

57 Long Term Capital Plan An official multi-year document that identifies and prioritizes capital projects, identifies funding sources, and sets timelines

58 Capital Improvement Program Identify regulatory deficiencies (discuss with regulatory agencies, look at proposed regulations, talk to consultants), in a year window Identify growth needs, expansion 58

59 Capital Improvement Program Identify deferred maintenance problems or where current service is inadequate Prioritize based on need realizing that hidden infrastructure tends to be ignored 59

60 Capital Improvement Program - Timelines Use Asset Management Plan to plan for capital expenses in the long term (~20 years) 60

61 Capital Improvement Program - Timelines Create a Capital Improvement Plan with a narrower timeline (~5 years) in more detail. Specify the projects and accurate estimates of cost. Plan where money will come from. 61

62 Capital Improvement Program - Timelines Create a Capital Improvement Budget with an even narrower timeline (1 2 years) committing funds for the planned capital projects. Get it approved/adopted. 62

63 Example Capital Improvement Plan (CIP) 63

64 Where Can You Find the Prices? Call a vendor. Actually, call a few. Ask other systems Look at past expenses but adjust for increases in costs

65 Measures of Inflation Consumer Price Index (CPI) measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services Construction Cost Index (CCI) average prices for labor and key construction materials from 20 cities across the United States

67 Reminder: Life Cycle Costing Purchase Price Total Price

68 Capital Investments are Just the Tip of the Iceberg 35-40% Acquisition 60-65% Refurbish Refurbish Cost Maintenance Disposal Asset Life Source: Adapted from Steve Allbee, USEPA

69 Has your system had a Drinking Water Revolving Fund 47% Loan/Grant? 1. Yes 2. No 3. I don t know 24% 29% Yes No I don t know

70 Has your system had a USDA Rural Development 56% Loan/Grant? 1. Yes 2. No 3. I don t know 19% 25% Yes No I don t know

71 Has your system had a CDBG Loan/Grant? 53% 1. Yes 2. No 3. I don t know 21% 26% Yes No I don t know

72 Has your system had a EIAF Loan/Grant? 67% 1. Yes 2. No 3. I don t know 33% 0% Yes No I don t know

73 Has your system had a NRWA Loan/Grant? 56% 1. Yes 2. No 3. I don t know 17% 28% Yes No I don t know

74 Break then PRESENTATIONS FROM SPECIFIC FUNDERS 74

The Role of Asset Management in Rates and Finance of Small Drinking Water Systems

The Role of Asset Management in Rates and Finance of Small Drinking Water Systems 05/18/17 Dalton, GA www.efcnetwork.org This program is made possible under a cooperative agreement with the U.S. EPA. Uh