1. Beyond Rates: Other Finance Strategies
Shadi Eskaf
Environmental Finance Center at the University of North Carolina, Chapel Hill
Environmental Finance Center Network

2. Session Objectives
Learn about other common sources of water system revenue
Consider ways to control costs
Understand the debt market
Discuss available loan and grant programs

3. Ways To Pay Pay as you go (current receipts) Save in advance and pay
Pay later (someone loans you money)
Grants (let someone else pay)
Which of these do you like best?
Which of these does your board like best?

4. 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
But the thing about grants, is that they’re not exactly free.

5. Quick Thought on Grants
This presentation is about sustainable program finance
Grants are not sustainable finance

6. The Main Source: Your Revenue
Pay as you go (current receipts)
Save in advance and pay
Pay later (someone loans you money)
Grants (let someone else pay)

7. Assessments A recurrent charge to a sub-group of the population
The sub-group receives benefits from an environmental service or improvement not enjoyed by others in the area
Close cost/benefit relationship  equity
Description: Special assessments are recurrent charges levied by local jurisdictions on a sub-group of population. The sub-group receives benefits from an environmental service or improvement not enjoyed by others in the area. – getting to the challenge of watersheds that I discussed earlier….
For example, if a community wants to finance treatment plant improvements that contribute to lake clean-up,
residents with waterfront property, or residents not hooked up to the central sewerage facility but enjoying
recreational benefits from clean water, could be assessed a special surcharge. When benefits accrue to residents outside the improvements area, the benefits typically must be shown through some measure, such as higher property values, increased business activity, or frequent use of recreational sites. Special assessment/ improvement districts could be used to define the geographical boundary of any environmental improvement, e.g., a sewer or stormwater management district.
Advantages: The advantages of this tool relate to the potential revenue yield, which could be stable, and to
increased equity and an improved cost/benefit relationship. Extending revenue requirements to suburban residents, who may have lower infrastructure costs and greater ability to pay, can relieve the burden on inner city residents. Asking inner city residents to pay for suburban developments may prove inequitable. Incentives recognizing the true costs of environmental services is important.
Limitations: Although total equity my not be entirely possible with assessments alone – there may be no ability to collect, for example, from downstream users benefiting from upstream water quality improvement. Assessments based on predictions of property value increases, and documentation of results, requires strict record-keeping and periodic reassessments which may require special management tools unavailable to communities.

8. Tap & Impact Fees One-time charges to new users
Typically assessed when building permits are issued
Close cost/benefit relationship  equity
Impact or development fees are one-time charges to new users of government services, to pay for the expansion of the services that they require or impact
Impact fees typically are assessed when building permits or certificates of occupancy are issued.
Advantages:
For development purposes-predictable up-front costs
Close cost-benefit relationship
Disadvantages
-could be criticized for deterring development and creating inter-jurisdictional competition
-if the fee is being directly turned around into capital needed for the development – there is a not a lot of time. It may be hard for localities to ascertain capital needs and thus size fees.

9. Periodic Charges Deposits on new accounts Penalties for late payment
Cutoff/reconnection fees
Meter re-reading fees

10. Innovative Funding Sources
For example, rent out your water tower for cellphone receivers or put ads on the tower itself

11. 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

12. The Debt Market Two types—Loans and Bonds
Loans are universally available
Bonds are typically only available to large systems with significant revenues and managerial capacity

13. Loans Typically from a bank
Can be from a government-sponsored program such as the Drinking Water State Revolving Fund
Another avenue would be to apply for loans. Loans allow you take action today rather than tomorrow. Which can mean that the action is cheaper, this is especially the case when you’re talking about land acquisition.
The most common loans for watershed protection projects are the EPA’s Clean Water and Drinking Water State Revolving funds, created as tools to provide local governments with low-interest loans for water infrastructure projects.
Continuing the precedent set under the American Recovery and Reinvestment Act in 2009, Congress set aside 20% of the $3.5 billion designated for both funds in 2010 to be used for a “green project reserve.” This green reserve funding must be spent solely on green infrastructure, water and energy efficiency and environmentally innovative projects. In 2010, an estimated $414 million from the Clean Water SRF and $273 million from the Drinking Water SRF will be available in the form of low-interest loans and grants for these environmentally beneficial projects.
Eligible recipients for funding under the Clean Water SRF (CWSRF) include Publicly Owned Treatment Works (POTWs), communities, citizen groups, and non-profits.
Under the Drinking Water SRF (DWSRF), eligible recipients include publicly and privately owned community water systems and non-profit non-community water systems.
Some of the projects that have already been funded with the ARRA funding include
Green roofs, swales, and other bioinfiltration projects
Retrofit or replacement of water using fixtures, fittings, equipment, appliances, including incentives such as rebates
Projects that identify and quantify the benefits of using integrated water resources management approaches
Wet-weather management systems for parking areas
Installation of water meters
Projects that facilitate adaptation of clean water programs to climate change
Green streets projects
Reclamation, recycling, and reuse of existing rainwater, stormwater, etc.
Projects that incorporate differential uses of water based on level of treatment (purple pipes)

14. 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
Bonds are a attribute brought to the watershed protection table by state and local governments.
Description: A bond is 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. Bonds can stretch out payments for new
projects over a period of fifteen to thirty years. State and local governments repay this debt with
taxes, fees, or other sources of governmental revenue.
MANY different types of bonds exist, but:
It is the source of pledged security or repayment for bonds, or the type of collateral used, that defines the type of
bond, for example, general obligation bonds, a myriad of revenue bonds, or hybrids.
Advantages: Bonds provide financing for immediate capital needs. If the project qualifies, tax-exempt
bonds can be a low-interest way of acquiring capital.
Limitations: Certain types of bonds require voter approval. Bonds only spread out costs of a
project; an ultimate revenue source still needs to be identified. There may be some competition for
debt capacity at the State or local level. Some State and local governments may also have statutory
limitations on the dollar amount and/or number of bonds that can be issued. Issuing bonds is an
expensive and time-consuming process, and requires sound legal and financial advice.

15. Ratings Source: The Bond Market Association Moody’s uses 1,2,3
Fitch and S&P use +, -
These ratings are for investors for particular securities, but they have a lot to say about the financial management of a utility. They will influence the cost of your capital and are influenced by how you manage your finances.
Source: The Bond Market Association

16. Moody’s Water & Sewer Rating Distributions 2013
Source: Moody’s Investor Service

17. Available at http://www. nhhefa
Source: Moody’s “U.S. Municipal Bond Defaults and Recoveries, ”

18. A Quick Aside On Debt...
The only way “the bonds” pay for anything is if one of these people lives in your community...
Source: picasaweb.google.com/.../fLQy4iWz7ZNrMaDwZG13iA
Source: commons.wikimedia.org/wiki/File: _Barr...
Baseball: Barry Bonds.
Singer: Gary U.S. Bonds.

19. Loan & Grant Programs

20. Did we miss any?

21. A Favor & A Reminder
Please fill out an evaluation form for us before you leave
Before picking up certificate for CEUs, please sign form
Contact us anytime for direct technical assistance on any finance and management topic of our project

22. Thank you! Shadi Eskaf Environmental Finance Center Network