WELCOME INNOVATIONS IN SRF

SRF Trends: How Programs are Evolving, Adapting and Innovating Over the last 25 years, SRF Programs across the country have been models of evolution and innovation as programs’ fiscal resources have strengthened and environmental challenges and community needs have increased over time.  Four state SRFs (Illinois, Indiana, Massachusetts and Wisconsin) will discuss how they have responded with different program initiatives and financial incentives to address multiple challenges including funding for: Longer term (35 year) loans Non-traditional technologies Providing incentives for green infrastructure Funding construction loans and interim financing Strategies to address concentration issues with large borrowers Using cashflow funding to size and structure debt financings Tackling affordability issues among different communities Addressing critical health needs such a lead service line replacement Join the conversation as we all seek to learn from one another to identify Best Practices in the field.. 2

PANELISTS Gary Bingenheimer, Illinois Environmental Protection Agency Kevin Bryant, Illinois Environmental Protection Agency Jim McGoff, Indiana Finance Authority Nate Keenan, Massachusetts Clean Water Trust Robin Schmidt, Wisconsin Department of Natural Resources Diana Hamilton, Sycamore Advisors (Moderator) 3

Wisconsin Department of Natural Resources Robin Schmidt Deputy Director Picture taken by Jeanne Cargill, Environmental Loans Program, near Ashland Drinking Water Project

Making SRF Relevant to Today’s Needs Identify needs Close collaboration with regulatory programs Human Health/Environment Challenges Sufficiently significant to justify workload? Legal language Database reprogramming Outreach Policy/Guidance development/public comment Assess Programmatic Limitations and Opportunities Federal and State Statutes, Regulations and Codes CWA/SDWA/WRRDA/WIIN Review State/EPA Operating Agreement/Intended Use Plan Confer with Regional EPA Program Manager 5

Private Lead Service Line Replacement Program WI Public Service Commission: Rate payer funds cannot be used to pay for work done on private property Need: Significant number of lead service lines and knowledge that partial replacement increases lead levels in water Mechanism for assisting with replacement of private LSLs Opportunity: If private LSL funds are awarded solely as principal forgiveness, then they are not a debt incurred by the municipality and rate payer fees are not used on private property 6

Private Lead Service Line Replacement Program Program Requirements Project must result in full lead line replacement No reverse partial replacements Municipality must qualify as “Disadvantaged” per Affordability Criteria Federal requirements – Davis Bacon not applicable on properties owned by individual homeowners Used previous unused PF authority 2010/2011 allowed 100% of cap grant to be awarded as PF WI chose to award a subset of that amount Re-opened cap grants to designate ~ $20 million as PF Determined sufficient funding for 2 year program 35 participating municipalities - SFY 2017 $13.7 million awarded 30 municipalities eligible - SFY 2018 $13 million available for allocation 7

Milwaukee Metropolitan Sewer District 2035 Vision Zero basement backups, zero overflows, and improved water quality 2035 Vision Goal Capture the first 0.5 inch of rainfall on impervious surfaces, the equivalent of 740 million gallons of stormwater storage. MMSD Planning Area Seven Unique Watersheds • 411 Square Miles • 91 Square Miles of Impervious Area • 6 Percent Combined Sewer Area • 94 Percent Separate Sewer Area 8

MMSD Green Infrastructure Need: Reduction of stormwater Opportunity: Making SRF funding relevant for MMSD Challenges Term of loan (design life of projects) BMP Public vs private ownership Application uniqueness Disbursement processes/timelines 9

Massachusetts Clean Water Trust Nate Keenan Deputy Director

Massachusetts Clean Water Trust Use of Equity Funds to provide 0% Construction Funding for communities 30 year Loans EPA approval process Focus on funding larger projects Project Useful life measure Addressing concentration issues with largest borrower (MWRA) 11

Massachusetts Clean Water Trust Green Bonds: MA Trust was an early adopter New investors; pricing advantages? Tracking Proceeds and Disclosure Issues Use of Third Party Certifiers: ICMA, S&P, Moody’s Funding Non-Structural Non Point Source Projects Project Risk in Alternative Technologies 12

Indiana Finance Authority Director of Environmental Programs Jim McGoff COO & Director of Environmental Programs

New Financing Programs Lead Service Line Replacement Program Interest Rate Reduction to provide additional principal for LSLR projects School Lead Testing Program DW Set Aside funds to provide fixture testing at all Indiana Public Schools Water Infrastructure Finance and Innovation Act (WIFIA) Letter of Interest Accepted and invitation to apply for $436 Million Extended Term Financing 35 year loans recently approved by US EPA for both Drinking Water and Clean Water 14

Extended Term Financing Loan Terms 35 year amortization Limited to pipe replacement infrastructure projects Available for both wastewater and drinking water projects EPA Approval Process EPA Guidance (3-17-2006 Memo for CW & 4-14-2014 Memo DW) Letter / Memo requesting EPA approval Coverage Calculations (DW and WW require a different analysis) 15

WIFIA April 2017 IFA submitted a Letter of Interest to US EPA July 2017 IFA was notified that it was one of 12 invited to formally apply Application Amount - $436 Million How determine application amount? Capacity and Coverage Application of funds? 16

Illinois Environmental Protection Agency State Revolving Fund (SRF) Loan Programs Kevin Bryant Water Revolving Fund Finance Manager & Gary Bingenheimer Manager - Infrastructure Financial Assistance Section

Illinois EPA SRF Financial Issues Financial issues Illinois SRF Loan Programs needed to address: Large Cash Balance in the Programs Program was being too conservative ULO issue with Federal Grants Issue was the result of the State not providing Match from sources outside of the Loan Funds 18

Results of Financial Changes at Illinois EPA Loan Programs Annual Loan Commitments have ramped up: FY13-16 – Average - $547M 2017 – 79 Loans - $914 M 2018 – 75 Loans - $900 M Projected Disbursements Grant Receipts FY13-16 – Avg. $553M - $152M 2017 – $739M - $130M 2018 – $855M - $90M Projected 19

Results of Financial Changes at Illinois EPA Loan Programs Cash Balance of Treasury Held Fund at June 30: 2013 $258M 2014 $307M 2015 $269M 2016 $ 4.7M 2017 $73.5M 2018 $110M Projected 20

Wastewater and Drinking Water SRF Interest Rate Tiers and 30 Year Loans Reduced interest rates/Max 30 year loan term Public Loan Applicant’s Only Small Community Rate - 75% of Base Rate Must have service population less than 25,000 and satisfy one of the three following criteria: MHI less than state average Unemployment rate greater than state average Monthly User Charges greater than 1.0% of MHI Hardship Rate – 1.0% Interest Rate Must have service population less than 10,000 and satisfy one of the three following criteria: MHI less than 70% of state average Unemployment rate 3.0% greater than state average Monthly User Charges greater than 1.5% of MHI 21

Wastewater SRF Principal Forgiveness Strategy Focus on smaller (customer base) and economically disadvantaged communities Affordability Criteria – “Points” awarded based upon criteria established in administrative rules Median Household Income Service Population Unemployment Population decline Principal Forgiveness 0-60% of loan amount 22

Lead Service Line Replacement Focus on smaller/economically disadvantaged communities and lead service line replacement Disadvantaged Communities (DC) - Defined in administrative rules as applicants qualifying for the “Small Community” or “Hardship” rate. Principal Forgiveness offered to subset of DC Population < 25,000 and MHI < state average Population > 25,000 with MHI < 70% state average Maximum of $500,000 or 50% of project Lead Service Line Replacement Max of $1,000,000 or 50% of project Max of $2M if MHI < 70% of state average MHI 23

Summary of Select SRF Loan Rates & Fees 24

Contact Information 25