Alaska Clean & Drinking Water Funds Financial Capacity Assessment Mike Lewis Program Manager Municipal Grants & Loans Municipal Grants & Loans Alaska Department of Environmental Conservation Asset Management; Grants and Loans Sustained Compliance for Public Water Systems – Chapter 2 September 29 – 30, 2011 Anchorage, Alaska

Alaska Clean & Drinking Water Funds Financial Capacity Assessment Topics of Discussion Matching Grants & Loans ServicesMatching Grants & Loans Services Alaska Clean Water & Drinking Water ProgramsAlaska Clean Water & Drinking Water Programs Loan Program Eligible Project TypesLoan Program Eligible Project Types Loan Program Funding Timeline ProcessLoan Program Funding Timeline Process Financial Capacity Process – Input & OutputFinancial Capacity Process – Input & Output Financial Capacity Analysis ReportFinancial Capacity Analysis Report Presentation ReviewPresentation Review

Municipal Grants & Loans Serves (MG&L)... 1st Class1st Class 2nd Class2nd Class Home Rule CitiesHome Rule Cities Organized BoroughsOrganized Boroughs Eligible Private UtilitiesEligible Private Utilities

Potential MG&L Projects Drinking Water Drinking Water Wastewater Wastewater Solid Waste Solid Waste Water Quality Enhancement Water Quality Enhancement Non-Point Source Pollution Non-Point Source Pollution

Programs Municipal Matching Grants Alaska Clean Water Fund Alaska Drinking Water Fund Programs Municipal Matching Grants Alaska Clean Water Fund Alaska Drinking Water Fund

Loan Programs - Financing No Up Front Fees No Up Front Fees Interest Only on Used Funds Interest Only on Used Funds Low-interest Low-interest 1.5% for year term 1.5% for year term 1% for under 5 year term 1% for under 5 year term

Alaska Clean Water Fund Loan Projects Point Source wastewater – studies, design, collection, treatment and discharge wastewater – studies, design, collection, treatment and discharge Non-Point Source solid waste - closures, leachate collection & treatment solid waste - closures, leachate collection & treatment water quality enhancement water quality enhancement

Alaska Drinking Water Fund Loan Projects drinking water – studies, design, source, treatment, distribution and storage drinking water – studies, design, source, treatment, distribution and storage some private water systems are eligible to receive funding. These systems must be economically regulated by the Regulatory Commission of Alaska some private water systems are eligible to receive funding. These systems must be economically regulated by the Regulatory Commission of Alaska

MG&L Loan Timeline JanuaryMG&L mails or begins accepting electronic questionnaires Februaryquestionnaires are due and scored March-Aprileach loan programs’ Intended Use Plan (IUP) is public noticed May-June upon completion of the public notice, each IUP is finalized and priority listed projects are then eligible to receive a loan

Loan Questionnaire Criteria Submit eligible projects, check with MG&L Submit eligible projects, check with MG&L Fund advance planning / design Fund advance planning / design ACWF key criteria (PS) – public health, water quality, local initiative, and funding coordination ACWF key criteria (PS) – public health, water quality, local initiative, and funding coordination ACWF key criteria (NPS) – prevention, restoration, stewardship, local initiative, NPS strategy ACWF key criteria (NPS) – prevention, restoration, stewardship, local initiative, NPS strategy ADWF key criteria – public health, compliance, affordability, and other considerations ADWF key criteria – public health, compliance, affordability, and other considerations

Financial Assessment Overview Financial Assessment of a potential borrower begins with a loan application. Financial Assessment of a potential borrower begins with a loan application. A preliminary assessment by MGL is done to decide if adequate financial capacity exists or a more thorough evaluation is needed. A preliminary assessment by MGL is done to decide if adequate financial capacity exists or a more thorough evaluation is needed. MGL will initially look at last financial capacity assessment completed, ratio’s from past and current financial statements, single audit report for any findings and total debt of the community. MGL will initially look at last financial capacity assessment completed, ratio’s from past and current financial statements, single audit report for any findings and total debt of the community. For a thorough or comprehensive evaluation, MGL has an agreement with the Division of Community & Regional Affairs (DCRA) to do these type of assessments. For a thorough or comprehensive evaluation, MGL has an agreement with the Division of Community & Regional Affairs (DCRA) to do these type of assessments. If upon completing an assessment, if DCRA finds questionable items with the borrowers finances that could impact loan repayment, MGL may seek additional advice through contracted financial expert. If upon completing an assessment, if DCRA finds questionable items with the borrowers finances that could impact loan repayment, MGL may seek additional advice through contracted financial expert. The financial expert is an individual with many years of experience in doing these type of reviews and can offer recommendations for special loan conditions to ensure adequate loan security. The financial expert is an individual with many years of experience in doing these type of reviews and can offer recommendations for special loan conditions to ensure adequate loan security.

Comprehensive Financial Assessment - Input Upon MGL direction to DCRA to perform a comprehensive assessment, DCRA will contact the borrower and request the following (but not limited to) information: Upon MGL direction to DCRA to perform a comprehensive assessment, DCRA will contact the borrower and request the following (but not limited to) information: Community Information – population, residential customers, medium household income, poverty rate, and unemployment rate. Community Information – population, residential customers, medium household income, poverty rate, and unemployment rate. Financial Management Information – audited financials statements, annual & capital budgets, capital improvement plan, bond rating, billing cycle, user charges, and rate setting. Financial Management Information – audited financials statements, annual & capital budgets, capital improvement plan, bond rating, billing cycle, user charges, and rate setting. Loan Information – description of project, loan amount, loan term, and interest rate. Loan Information – description of project, loan amount, loan term, and interest rate. Other Items – current and proposed user rates, user rate ordinance. Other Items – current and proposed user rates, user rate ordinance.

Comprehensive Financial Assessment - Output Once all data is collected to do the comprehensive assessment, the data is put in to a computer model titled “State of Alaska Water/Wastewater Revolving Fund Financial Capacity Analysis.” The output of this model is broken down into five main areas: Once all data is collected to do the comprehensive assessment, the data is put in to a computer model titled “State of Alaska Water/Wastewater Revolving Fund Financial Capacity Analysis.” The output of this model is broken down into five main areas: Current financial condition and affordability Current financial condition and affordability Financial trends and future affordability Financial trends and future affordability Financial management criteria Financial management criteria Economic factors Economic factors Project overview Project overview From the output of the model, DCRA will put together a draft report to the borrower and MGL for review and comment. Once all comments are collected a final report will be issued. From the output of the model, DCRA will put together a draft report to the borrower and MGL for review and comment. Once all comments are collected a final report will be issued. Based on findings and recommendations made in the report, MGL will either draft a loan offer agreement or follow up with the financial expert to offer further guidance. Based on findings and recommendations made in the report, MGL will either draft a loan offer agreement or follow up with the financial expert to offer further guidance.

Example Financial Analysis Report

Example Financial Analysis Report (Cont’d)

Alaska Clean & Drinking Water Funds Financial Capacity Assessment Presentation Review: MGL provides three funding programs: Municipal Matching Grant, and the Alaska Clean & Drinking Water Fund loan programs. MGL provides three funding programs: Municipal Matching Grant, and the Alaska Clean & Drinking Water Fund loan programs. MGL loan fund programs provide an inexpensive alternative for project financing. MGL loan fund programs provide an inexpensive alternative for project financing. Financial capacity assessments are key for consideration of MGL making a loan offer to a potential borrower. Financial capacity assessments are key for consideration of MGL making a loan offer to a potential borrower. Financial capacity assessments are also a good tool for a borrower to address weak areas in how it utilizes it’s financial operations. Financial capacity assessments are also a good tool for a borrower to address weak areas in how it utilizes it’s financial operations.

CONTACT US MG&L Web Page Links:  Municipal Loan Program:  Municipal Grants Program:

Mike Lewis Program Manager, MGL Anchorage, Alaska Frank Toth Project Engineer, MGL Juneau, Alaska Susan Start Project Engineer, MGL Anchorage, Alaska Beth Verrelli Project Engineer, MGL Anchorage, Alaska