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WIFIA Panel/Webinar: Innovative Financing to Address Water Infrastructure Needs and Accelerate Investment in

Major Water Projects • Carolina Mederos, Moderator, Co-Chair, Transportation, Infrastructure and Local Government Practice,

Squire Patton Boggs • Andrew D. Sawyers, Ph.D., Director, Office of Wastewater Management, U.S. Environmental Protection

Agency • Tom Curtis, Deputy Executive Director-Government Affairs, American Water Works Association

• Aurel Arndt, Chief Executive Officer, Lehigh County Authority, Pennsylvania • Roddy Devlin, Of Counsel, Squire Patton Boggs

• Greg Usry, Principal, Rosemawr Management LLC

Questions? Email us at:

[email protected]

http://www.squirepattonboggs.com/

US Water Infrastructure: Time to Invest Tom Curtis American Water Works Association

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US Water Infrastructure

$1.7 trillion through 2050 Just for drinking water mains!


$1.7 Trillion

How did we get that number?


All it Takes is Data

When American drinking water systems were built… What kinds of pipe materials were used in each decade… Typical pipe life expectancies by material and decade of manufacture

AWWA Report


The Bottom Line

Needs in the trillions They are real… And will keep coming… As demographic echoes of our past investments


What About Wastewater?

WW needs are at least as great as drinking water… Another $1.7 trillion or so through 2050


Other Challenges

Storm water New Standards New water supplies Climate change / resilience


How Do We Pay forThis?

There is very limited direct federal support for municipal water and wastewater projects Water projects are primarily financed locally, through customer water bills


A Word About the SRFs

What’s wrong with the SRFs? Nothing – AWWA strongly supports them And seeks full funding for them


But…

WIFIA can do more…

Fund larger projects… And different types of projects… With far more leverage…

At far less cost to taxpayers…


What We Need ASAP

EPA to “stand up” WIFIA Congress to appropriate funds for FY2015 WIFIA to start funding a diversity of project types

Water Infrastructure Finance and Innovation Act (WIFIA) Program Implementation Andrew Sawyers Director of the Office of Wastewater Management US EPA September 17, 2014


Background

Water Resources Reform and Development Act (WRRDA) of 2014 was signed by the President on June 10, 2014

Title V of WRRDA contained the Water Infrastructure Finance and Innovation Act (WIFIA)

WIFIA is modeled on the Transportation Infrastructure Finance and Innovation Act (TIFIA) of 1998

TIFIA provides federal credit assistance in the form of loans, guarantees, or lines of credit for eligible transportation projects

TIFIA has provided over $16 billion in assistance since 1999 to projects costing nearly $60 billion


WIFIA Funding

No funding has yet been appropriated for WIFIA Authorization for Appropriations: Amounts:

• FY2015 $20,000,000 • FY2016 $25,000,000 • FY2017 $35,000,000 • FY2018 $45,000,000 • FY2019 $50,000,000

EPA may use up to $2,200,000 of the annual appropriation to cover administrative costs

EPA is also authorized to collect fees to cover services of expert firms and servicing of Federal credit instruments.


Development of WIFIA

Innovative financing mechanism for water-related infrastructure National or Regional significance Attempts to fill in a perceived gap left open by the SRF programs by

providing subsidized financing for large projects Funds are appropriated to provide a reserve subsidy for credit assistance,

not for direct outlays to projects (TIFIA averages 10:1) Credit assistance can be in the form of loans or guarantees


Development of WIFIA

Challenges ahead: Defining eligible projects Determining criteria Develop project ranking system Create subsidy model Develop method for determining creditworthiness Answering questions about tax-exempt status of certain types of complimentary

funding sources Contracting for expert services Rollout of guidance


Potential for Public Private Partnerships (P3)

Eligible recipients of WIFIA financing: Corporations Partnerships Joint ventures Trusts Federal, State, or local government entities, agencies, or instrumentalities Tribal governments or consortiums of tribal governments State infrastructure financing authorities.


Potential for Public Private Partnerships (P3)

Tax-Exempt Financing: Not allowed as part of the finance package Does taxable debt or private equity fill the gap?

49% of costs could be the maximum WIFIA involvement


The Role of State Resolving Funds (SRFs)

How will WIFIA interact with the SRFs Right of first refusal EPA must notify SRF programs about applications for project funding through WIFIA SRF programs have 60 days to respond showing intent to fund the project at or over

the amount requested from WIFIA SRF programs have 180 days to close the deal Rates and terms must be at least as favorable as WIFIA

Credit review of proposed WIFIA projects EPA responsible for credit review of applicants Will want to take advantage of lessons learned by state SRF programs


The Role of State Resolving Funds (SRFs)

WIFIA and SRF may be able to jointly fund a project Possible opportunities include: Co-fund WIFIA projects with EPA

• Maximum WIFIA participation generally 49% (limited opportunity to go to 80%) • WIFIA funded projects cannot use tax-exempt debt • Can repayments or funds from SRF corpus be used in conjunction with WIFIA? Hopefully • Does the 80% cap on federal involvement prevent use of SRF funds to reach 100% of

project costs? Probably not SRFs are eligible to borrow from WIFIA to finance a combination of projects under a

single application

These approaches could allow SRFs to reach borrowers and/or help finance projects they might not otherwise be able to


Appropriations Process

House and Senate committee markups do not mention WIFIA House committee report includes the following request: Recognizing that these new authorities will require resources prior to

implementation, EPA is directed to submit to the Committee a detailed plan for how full funding of the WIFIA provisions would be implemented

The plan shall discuss all aspects of implementation, including: • Agency personnel and expertise needs • Types of eligible projects • Criteria for selecting specific projects for financing • The steps and general schedule of a potential application process • Expected administrative costs


Next Steps

Listening Sessions: EPA is hosting listening sessions across the country through December To hear stakeholders’ views on numerous topics, present EPA ideas as they

develop and market the program Dates:

• Chicago: 7/22 • New York: 9/22 • Los Angeles: 10/17 • Atlanta: 10/29 • Dallas: 10/30 • San Francisco: 11/17 • Washington: December

Develop guidance including critical documents Barriers: Limited resources No appropriations/funding uncertain


“Subsidy Level” Reflects Default Rates


20-Bond Buyer Index Compared to 20 Year Treasury Bonds


Municipal market Data Index 20th year Maturity by Rating Grade


For More Information

Contact: Andrew Sawyers [email protected] [email protected]

mailto:[email protected]

mailto:[email protected]


Aurel Arndt Chief Executive Officer

Lehigh County Authority September 17, 2014

CASE STUDY – WIFIA FINANCING OF A P3-LIKE INFRASTRUCTURE PROJECT


LEHIGH COUNTY AUTHORITY / CITY OF ALLENTOWN CONCESSION LEASE

A Public to Public Partnership (P2P)

What is it? A 50-year lease of the Allentown Water and Wastewater systems


LEHIGH COUNTY AUTHORITY / CITY OF ALLENTOWN CONCESSION LEASE


CONCESSION FINANCING

Sources and Uses of Funds



Overview – Bonds sold July 31, 2013 • Three Series - $307,684,000 $ 245,590,000 – 2013 A Bonds – Fixed Rate Bonds $ 43,359,000 – 2013 B Bonds – Capital Appreciation Bonds $ 18,735,000 – 2013 C Bonds – Taxable Bonds • Series A & B Summary Average Life – 28.7 years Yield – 5.4486%



Series 2013A - $ 245,590,000 Series 2013B - $ 43,359,000 Series 2013C - $ 18,735,000



Other Market Rates (July 31, 2013) 30-yr Treasury Bond – 3.64%


HYPOTEHTICAL WIFIA FINANCING

Finance Immediate Capital Improvements $ 31,850,000 Assume 30-year life (or longer) WIFIA Annual Interest Costs: 49% of $ 31,850,000 at 3.64% = $ 568,077 Replacing 2013 A Bonds Annual Interest Cost 49% of $ 31,850,000 at 5.28% = $ 824,023 Annual Savings $ 255,946 (31%)


HYPOTEHTICAL WIFIA FINANCING

Other WIFIA Possibilities a. Replace 2013B Series Bonds 2038 Maturity - 6.21%

• Annual Savings $56,417 (26% incremental) b. Include Portion (10.35%) of Debt Service Revenue Fund

• Annual Savings $23,363 (31%) c. Increase WIFIA Funding of Capital Improvement Cost to 80% Level

• Annual Savings $161,925 (31%) d. Include portion (10.35%) of Issuance Costs

• Annual Savings $4,439 (31%) Total Enhanced Annual Savings: $ 246,144 (40%)


HYPOTHETICAL WIFIA FINANCING

Closing Comments • Source of matching funds

• Assumes reserves and/or SRF Funding is available; If not, taxable municipal bond (est. 7% rate)

• Apples to Apples Comparison Challenging

• Reflective of a P3 Financing



Major Water Projects • Carolina Mederos, Moderator, Co-Chair, Transportation, Infrastructure and Local Government Practice,

Squire Patton Boggs • Andrew D. Sawyers, Ph.D., Director, Office of Wastewater Management, U.S. Environmental Protection

Agency • Tom Curtis, Deputy Executive Director-Government Affairs, American Water Works Association

• Aurel Arndt, Chief Executive Officer, Lehigh County Authority, Pennsylvania • Roddy Devlin, Of Counsel, Squire Patton Boggs

• Greg Usry, Principal, Rosemawr Management LLC

Questions? Email us at:

[email protected]


Carolina Mederos, Co-Chair, Transportation, Infrastructure and Local Government Practice, Squire Patton

Boggs [email protected]

202-457-5653


For further information contact:


Major Water Projects
