STATE ALTERNATIVE FINANCING PROGRAMS
FOR WASTEWATER TREATMENT
Transition Towards Greater
Self-sufficiency in the 1980's
2nd Edition
Environmental Protection Agency
Office of Municipal Pollution Control
Policy and Analysis Division
Policy and Analysis Branch
January, 1986
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CONTENTS
I. INTRODUCTION Page 2
- New State institutions are being created for
financing wastewater treatment facilities.
II. MAP 3
- States with or considering alternative
assistance programs.
III. STATUS SHEET 4
- Existing programs and current proposals.
IV. MATRIX 5
- Overview of fifteen State revolving
loan fund and bond/loan programs.
V. SOURCES OF FUNDING AND NEEDS 8
- States with revolving loan fund programs.
VI. PROGRAMMATIC FLOW DIAGRAM 9
- State revolving loan fund:
capitalization and cash flow.
VII. SUMMARIES AND OUTLINES OF STATE PROGRAMS:
- Cal i form' a 10
- Col orado 16
- Fl ori da 20
- Georgi a 28
- Kentucky 34
- Massachusetts 39
- Minnesota 44
- New Jersey 48
- New Mexico 53
. - New York 56
- Ohi o 60
- Okl ahoma 67
- Tennessee 72
- Texas 79
- Utah 85
- Washi ngton 90
- West Virginia 95
- Wyomi ng 100
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INTRODUCTION
This report describes alternative financing programs in eighteen
States. These programs finance the construction of wastewater treatment
facilities, as well as many othertnfrastructure needs.
There are a variety of innovative approaches being taken to establish
these State-sponsored financial intermediaries. States have created
independent water and sewer authorities, and established State loan and bond
programs to improve local government access to credit. Each approach is
creatively tailored to the particular needs and statutes of the State.
The map (page 3) and the status sheet (page 4) highlight the intensity
of recent activity in the States to evaluate and establish alternative
financing programs. By the end of 1985, twelve States had operational
revolving loan programs and eleven more had operational loan or bond bank
programs. Ten States have the revolving loan concept under study, and in
1986, as many as twelve more States may propose legislation to create bond
banks and revolving loan programs.
The matrix (page 5) summarizes and compares the principal
characteristics of fifteen State programs. Some significant programmatic
similarities and differences observed include:
o The financial and technical operations were typically conducted in
separate State organizations, although there was a well-developed
working relationship between the organizations (particularly in the
older,"more experienced programs).
o Program capitalization varies from State to State. Legislative
appropriations are commonly used to initiate programs,-and to
subsidize a lower interest rate on loans. Bonding authority is
often extended to these programs to allow capitalization through
the issuance of general obligation and/or revenue bonds. Several
types of taxes, including dedicated sewer and water, excise, and
mineral severance taxes are also used.
o Several of the programs are designed to be self-sustaining, whereas
others receive periodic infusions of capital from legislative
appropriations, new borrowing authority, or taxes.
o The eligibility requirements for assistance range from programs
that only serve communities with poor credit ratings, to programs
that serve any community on a first-come, first-served basis.
o Most programs have considerable flexibility in how they package
their financial assistance. Some programs evaluate financial need
and provide grants or subsidized loans for hardship cases.
o Most revolving loan and bond/loan programs emphasize preventative
procedures to anticipate potential loan repayment difficulties, and
thus avoid loan defaults.
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ALTERNATIVE STATE ASSISTANCE PROGRAMS
FOR FUNDING WASTEWATER TREATMENT FACILITIES
Year Passed by Legislature
7=1=86
Q'j-under study/introduce
legislation(19 States)
-operational(16 States)
t .
Loan/Bond Programs
-operational(11 States)
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7-1-36
State
Alabama
Alaska
Arizona
Arkansas
Cal i form' a
Colorado
Connecticut
Del aware
Florida
Georgia
Hawai i
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Mi nnesota
Mississippi
Mi ssouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Current Status of States with
Regard to Alternative Financing Programs
Type of Program (Year started)
Under study—State Revolving Fund (SRF)
Bond Bank (1972)
SRF (1984)
Loan program (1985)
SRF (1986)
Under study—SRF
Loan/Bond program (1970)/Under study—SRF
SRF (1983)
Under study—SRF
Under study—SRF
SRF (1986)
Under Study — SRF
Loan Authority (1972)/Propose SRF leg. (1986)
Bond Bank (1972)
Propose SRF legislation (1986)
Reintroduce Bond Bank legislation (1986)
Bond Bank (1986)
SRF (1986)
Propose Bond Bank legislation (1986)
Propose SRF legislation (1986)
SRF (1981)
Under Study — SRF
Bond Bank (1981)
Bond Bank (1978)/Propose SRF leg. (1986)
SRF (1985)
SRF (1986)
Under study—SRF
Under study—SRF
Bond Bank (1977)
>SRF (1968)
SRFr(1979)
Bond Bank (1969)
Propose SRF legislation (1986)
Propose SRF legislation (1986)
Propose SRF legislation (1986)
Loan Authority (1978)/Under study—SRF
SRF (1957)
SRF (1983)
Bond Bank (1970)/Propose SRF leg. (1986)
SRF (1986)
SRF (1985)
SRF (1972)
Under study—SRF
SRF (1974)
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COMPARATIVE MATRIX OF STATE REVOLVING LOAN FUNDS AND BOND/LOAN PROGRAMS
STATE
CALIFORNIA
(Clean Water
Bond Law)
COLORADO
( I mp act
As sistance
Pr og r am)
FLORIDA
(flood Loan
Pr og r am)
GEORGIA
(Deve lopment
Au t ho r i ty )
KENTUCKY
(Pol lut ion
Aba t erne n t
Au thor i ty )
PROGRAM
STRUCTURE
Clean Water Bond
Fund for waste-
wa t ei t rea tment ,
small communities.
wa t e r reel ama t i o a ,
& wa ter conservation.
Provides financing
to local gov t s .
for any purpose ,
inc lud ing wa s t e -
wa ter and wa ter
supply.
Finances the
construction of
wa t e r supply , air
& wa ter pollution
cont ro 1 . and solid
wa ste disposal
facilities.
Provides loans for
cons t rue t ion and
expansion of water
& sewer facilities.
Finances the
constuction of
water and sewer
f ac i 1 i t i es .
STATUS
Establ ished
1984
Es t abl i shed
1982
Es tabl i shed
197O
Crea t ed unde r
a 1937 agricul-
tural develop-
ment authority.
Ant i c i pa t es
creation of
separate author i
in January 1986.
Es tabl i shed
1972
STAFF SIZE &
ANNUAL BUDGF.T
- 120 pe rsons .
- Budget not to
eiceed 5% of
fund balance.
- 6 persons
( pa r t - 1 ime
basis).
- Budge t data
not ava liable.
- 1.5 pe rsons
- Budge c i 3
entirely f r om
fee pa id by
local agenc i es
receiving
- 5 persons
- Budge t i s
approximately
J38O.OOO; paid
from 1 eg i s .
appropr i a t ion .
ty
- 3 persons
( pa r t - 1 ime )
- Annual admin.
costs average
approximately
$6O,OOO, which
is derived fr om
a charge of O.I?.
asses sme n t on
unpaid loan b ;i 1 .
FORMS OF
ASSISTANCE
Loans and grants.
Interest rate
offered is one -
half of the bond
issue interest rate.
Since 1982. grants
available for any
purpose . Loans
are available
(since 1985) for
wa s t ewa ter and
water supply proj.
Loans and grant s .
Interest rates on
loans mu s t be at
the bonds issued.
A separate grant
program (55%) was
initiated in 1985 .
The current
loins is set at
6.8%. The State
also admi n i a t e r a
grants and
e.conomi c/env i ron-
me ntal grants.
Loans are provided
at or near the rate
obtained on the
bond issuance.
CAPITALIZATION
Authorized to issue
S325 mi 1 1 ion in G.O.
debt .
Capitalized with
proceeds from the
mineral severance
tax. Annual amount
i s approzima t e ly
$14 mi 1 1 i on .
' Capi t«l i za t ion is
solely f r om the
proceeds of State-
control G.O. bonds.
The bonding authority
is $200 mi 1 1 ion/year .
Initial capitalization
( 1984) wa t $20 million
legislative approp.
Under the new author-
ity, the program will
have the capability
to issue G.O. bonds .
Capi t a 1 i za t i on is
solely from the
issuance of revenue
ELIGIBILITY
Treatment facilities
must be needed as
r e qu i r e d by the
Federal CWA , and
priority established.
Projects • a r e
prioritized based
on the improvement
needs of the
pa r t i c i pa t i ng
c ommun i I i e s .
Projects are
financed on a
f i r s t - c ome . first-
Financing is
first- come , first-
se rved basis.
Conmun i t i e s mu s t
s h ow the ability
to repay loans &
maintain adequate
user-fee system.
Projects are
funded on a
first- come . first-
DEFAULT/
ACTION
No experience
yet .
yet. No loans
given to date.
No defaul ts .
Slate ma y
take lega 1
BCtlOD tO
enforce loan
a g r e erne n t .
No e x pe r i e ac e
yet. Authority
to intercept
other State
aid & require
r Cv " s ions of
user charge
sys tern.
No defaults.
Ma ve powe r to
force us e r -
luring and
requea t that
State aid be
wi t hhe 1 d .
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STATE
MASSACHUSETTS
(MASS DANK)
NEW JERSEY
(Eav i ronmcn t a 1
1 nf ras t rue ture
Trus t )
Oil IO
(Wa t c r
De v e 1 o pme n t
Au tbor i t y }
OKLAHOMA
(Wa i e r
Resources
Uo a r d )
TENNESSEE
(Local
De v e 1 opme n t
Au thority)
PROGRAM
STRUCTURE
MASS BANK would
provide debt
financing for
wa t e r . wa a t ewa t e r
h i g hwa ys. bridges,
and tunne 1 s .
Trust authorized
to issue debt
for wa a t ewa t e r ,
resource r ecove ry ,
secured landfills.
and 1 andf i 1 1
closure .
Pi nances wa t e r ,
was t ewa t e r , and
solid wa s t e
facilities for
local govt.
agencies.
Wa ter Resources
Fund finances
wa atewater , wa ter
conservation and
and development
pro jec t s .
Prov ides financial
assistance lor t n e
cons t rue t i on of
wa s t ewa ter treat-
ment plants, water
projects, and solid
wa ste resource
recove ry facilities.
STAFF SIZE &
STATUS ANNUAL BUDGET
Proposed - Anticipate small
staff
- J25O.OOO start-
up budget;
increasing to
$ I .O million
annu ally.
Established - Anticipate small
198S staff
- Bud get not to
eiceed J2SO.OOO.
Established - 7 persons
1968; through - SO. 59 million
1984, mo re than budget capital-
Si. S billion i z e d froman
had be e a admin, fee
Allocated for (0.35%) charged
369 projects. to participating
govt . agencies.
Established - 5 persons
1979 - Budge t i s
a pp r o i ima t e 1 y
1 . 5% o f the
prog ram.
Established - 6 persons
1 •/ / u isomepart"
t i me ) .
- Bud get is
a pp r o i ima t e 1 y
$60,000.
derived fr om
interest
earnings .
1WMS OF
AA- I STANCE
Wi 1 1 pur cha se
local c OOZDU nicy
debt obligations
with proceeds
f r ora r e v e nue
bonds .
Loans at or
near the interest
rate on the mo s t
recent bond issue .
ma r k.e t rates.
Interest rates
may be subsidized
hardship cases.
1.04 n s and erne r gc ncy
grants. Interest
rate cha r ged i s
close to the State
bo r r owi ng costs on
the mo st recent
issue .
Loans and grants.
are subs id i zed on
loans tup to 10 0%
of costs). Grants
(5-35%) are given
to communi ties
dc t e rmi ned to be
less able to pay.
CAPITALIZATION
Start-up approp-
riation of $2 million.
Subsequent capital-
ization solely from
revenue bond proceeds.
Initial capitalization
is $190 mi 1 1 ion .
Sources include: G.O.
bond proceeds and
State appropriations.
f rom $100 million
State appropriation.
Subsequent capital t~
f r om revenue bond
proceeds .
Initial capitalization
wa s a $25 million
appropr i a t ion .
Subsequent capitali-
zation solely f rom
revenue bond proceeds.
Authorized to issue
$ 3 3 9 4 mi 1 1 i o n in
in revenue bonds.
ELIGIBILITY
Any gover nme n t a 1
unit wb i c h has
au thor i zed the
financing of a
local project.
Fa c i 1 i ly mus t be
on approved
priority list
( 1972 Ac t ) .
project costs
(up to 100%) may
be fund ed on a
served basis.
Financing provided
f i r s t - c ome , first-
se rved bas i s . Loca 1
c ommu n i t i e s mu s t
provide financial
info, to verify
their ability to
repay loans.
A 1 1 commun i t i e s
the project must
me et dept. stds.
and EPA eligibility
criteria.
PI-FAULT/
••-TION
No experience
yet. Ab i 1 i ly
to intercept
State aid.
No experience
yet. Loc a 1
a i-J- may- b«
intercepted
and applied
toward payment
default.
No defaults
Au thority to
serve a
cour t -orde r ed
to prevent
Jcfaul t .
No defaults.
Have the
power to
require a
increase.
No defaults.
Authority has
powe r to:
fees, withhold
State-share
taxes, and
collect ad
va 1 or cm t ax .
in the event
<> f a il r. f » u 1 I .
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STATE
TEXAS
UTAH
(Loan and
Gre(! i .
Enhanc erne n t
Prog r am)
WASHINGTON
(Publ ic
Works
Trust
Fund)
WEST VIRGINIA
(Wa let
Deve lopment
Au i ho r i t y )
WYOMINli
( I'a rm
Loa n
I'rog ram)
PROGRAM
STRUCTURE STATUS
Finance! w» • t e - Established
wa 1 1 r , wa t e r 1957
supply, and
reservoir projects.
The program Established
f inanccs waste- 1983
wa t e r , dr inking
wa te r . and water
projects through
the purchase of
local bonded debt.
Provides infra- Established
structure 1985
financing assis-
tance for streets.
bridges, water
supply , and a torm
& sanitary sewage
ays terns .
Finances waste- Established
water and drinking 1975
water facility
constructi on .
Finance* municipal Established
ileve lopmrnt 1974-75
including water
supply, wastewater
ays t eras , streets,
publ i c health
facilities and
recreational
facilities.
STAFF SIZE &
ANNUAL BUDGET
- 6 persons
- Budge t i s
over $1.0
m i t t i n n
mi i 1 ion,
funded by
legislative
app ropria-tion.
- 3 persons
- Budge t is 1%
of bond
proceeds .
Anticipated
to increase
to 2%.
- Sma 11 staff
- Budg e t not
de t e rmi ned ;
will mo s t
1 ike ly
correspond
(%age) to
magn i tude of
activity.
- 5 persons
- Budge t i s
a p p r o x i ma t e 1 y
$250.000; paid
from earnings
from bond and
loan program.
- 3 persons
- Ope rat i ona 1
costs paid
out of
State's
general fund.
FORMS OF
ASSISTANCE
Loans at or
near the rale
on the mo i t
recent G.O.
Loans , credit
enhancement, and
buy -down. Interest
rate on loans has
the rate on the
State bond issue .
Low interest loans.
a s 1 ow a s 0% for
for disaster or
hardship cases.
Loan guarantees
are also
avai lable.
Low- interest (10%)
supplemental loans
are g i ven by
blending 12%
interest bond
proceeds with 0%
appropriated funds.
Ha rdsh i p grants
are also offered.
'tin. • s and grants.
'ni-rest rate is
. .1 1 r e n t 1 y at 8.5%.
CAPITALIZATION
Authorized to issue
up to $980 mi 1 1 i on
in State of Texas
loan gua rant ees .
$50 million initial
capitalization from
appropr i a t ion .
Capitalized fr om
dedicated tax revenue
(water, sewer, refuse,
and conveyance taxes).
Expect $20.5 million
per year.
Initial capital-
ization fr om State
sppropr i c t ion .
Subsequent capital-
ization fr om revenue
bond proceeds and
State appropriations.
Loan program initially
capitalized from $ 1 OO
million appropriation.
Grant monies from coal
and mineral royalties
are approximately $15
and $ 1 8 mi 1 1 i on
respec t i ve ly . Have
authority to issue up
t o $60 million in
revenue bonds — has
never been used.
ELIGIBILITY
Projects are
dealt with on
a f i r s t - c ome .
basis. Commun-
i t i es mus t show
that they have
had difficulty
entering the
bond roa rk e t .
Projects
selected mu s t
repayment ability
cost effective-
ness, and health
benef i IB .
Eligible c om-
mu o i t 1 e s mu s t
ha ve tax
dedicated to
capi t a 1 purposes ,
a 1 ong - t e rm
financing plan. &
use all local
revenue sources
reasonably
ava i lable .
Prospec t i ve poo 1
of appl i can t s
served on a first-
c ome , first-served
basis.
Appl icant mu s t
be raun i c i pa 1 i t v
or district, and
demons t r a t e that
all local revenue
resou rces are
fully utilized.
DEFAULT/
ACTION
Have the powe r
to force a
uaer-c barge
a ppo i n t a
trustee to
own a nd
ope rate the
project .
No def aul t a .
Era powe red to
force a
user - cha r ge.
increase .
No
yet .
No monetary
defaults.
Have resolved
technical
def aul ta .
One default.
lisnpha s i 7. e
preventat ive
(adequate
assurances)
to avoid
pr ob 1 ems .
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Sources of Funding and the Needs of Each of
Twelve States With State Revolving Fund Programs*
(in millions of dollars)
State
California
Georgia
Montana
New Jersey
Ohio
Oklahoma
Texas
Utah
Virginia
State
Appropriation
$
0.0
20.0—Initial
0.0
0.0
100.0— .Initial
25.0--Initial
0.0
22.5—Initial
0.5—Initial
Washington 20.0--Annual
West Virginia 8.9—Initial
5.0—Annual
Wyoming
100.0—Initial
15.0—Annual
State**
thorization
$
250-G.O.
0
250— Rev.
5— G.O.
190— G.O.
0
52— Rev.
600— G.O.
300— G.O.
300— G.O.
0
0
60— G.O.
302— Rev.
705— G.O.
•wvw^v
1984
Eligible
Needs
$
4,140
989
61
4,562
4,400
395
2,733
377
1,305
2,888
1,903
36
Future ;
Unrestr
Needs
$
6,674
1,652
87
4,934
5,075
655
4,770
718
1,670
3,781
2,084
66
Subtotals: 276.9—Initial
4C.O—Annual
TOTALS: $ TTO $ 77W
*Funds are set up to serve several types of infrastructure needs,
including wastewater treatment systems.
**Total borrowing authorized since beginning of operation.
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STATE REVOLVING LOAN FUND:
Capitalization and Cash Flow
State
Appropriations
(and other $)
REVOLVING
LOAN FUND
Cn
\^
I
Local
Govt.
Bond Proceeds
Debt
Bond
Holders
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10
CALIFORNIA CLEAN WATER BOND LAW
Summary
The California Clean Water Bond Law of 1984, approved by the
voters in November 1984, established the 1984 State Clean Water
Bond Fund. The Law authorized the State to create a debt
(through the sale of general obligation bonds) in the aggregate
amount of $325,000,000 to capitalize this fund. In the fund are
four accounts: the Clean Water Construction Grant Account, the
Small Communities Assistance Account, the Water Reclamation
Account, and the Water Conservation Account. The Clean Water
Construction Grant Account and the Small Communities Assistance
Account are the subjects of this outline. The money in these two
accounts is used to make grants and loans to municipalities to
finance wastewater treatment facilities.
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11
CALIFORNIA CLEAN WATER BOND LAW OF 1984
Program Annotated Outline
I. Program Description
A. Organ!zat i on
1. Scope (eligible projects) - wastewater treatment facilities
B. Agencies Involved
1. The Clean Water Finance Committee - consisting of the
Governor or his designated representative, the Controller,
the Treasurer, the Director of Finance, and the Executive
Director of the State Water Resources Control Board -
manages the State Clean Water Bond Fund.
2. State Water Resources Control Board - operates the
grant/loan program that is funded by the Clean Water
Construction Grant Account.
C. Es tabli shment
1. Options initially considered
Many options were considered.
2. Political and legal considerations
Voter approval required
3. Statutory and constitutional restrictions
None d i s cus sed
4. Subsequent program modifications
None, so far
5. Future picture
In the absence of any new federal program, the State's
grant/loan program is expected to operate as described
herein.
11. Admini strat ion
A. Training Needs
No state staff training needed because have access to people
with expertise in other state offices; however,
workshops/seminars: to explain program to municipalities
might be helpful
B. Staff Size/Skill Mix
1. For a State Revolving Loan Program, such as that proposed in
H.R. 8, expect sufficient staff size would be approximately
one-quarter less than current staff size (current staff -
approximately 120)
2. Financial Expertise
None in-house, but have access to State Finance Dept.
staff
3. Accounting Expertise
Have one accountant on staff; could also contract out
to an accounting firm, if needed
C. Administrative Costs/Operating Budget
The legislation provides for not more than 5% of the money
deposited in the 1984 Clean Water Bond Fund to be used to
cover the costs of administration and any plans, surveys,
research, development, and studies conducted.
III. Ope rat i ons
A. Capitalization of Fund (funding sources)
1. $250 million (total) from State Clean Water Bond Fund
authorized by the Clean Water Bond Law of 1984 to be
deposited into the Clean Water Construction Grant Account
for grants and loans to municipalities to aid in the
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12
construction of eligible treatment works. From this, the
Board expects obligations of:
a. $20 million this year, and
b. $20 million next year
2. $40 million (total) from State Clean Water Bond Fund
authorized by the Clean Water Bond Law of 1984 to be
deposited into the Small Communities Assistance Account for
supplemental state assistance to small communities for
construction of eligible treatment works.
B. Leveraging Capability
None, at present. The size of the State's general
obligation bond issue (which is the source of money for the
Clean Water Bond Fund) is limited by the legislation because
retirement of these bonds represents a drain on the State's
general fund.
C. Forms of Assistance
1. Revolving Loans
a. New - Clean Water Construction Grant Account
i. loans for up to 12 l/2% °f eligible costs for
projects receiving federal grants
ii. for 25% of eligible costs if federal Title II
funding ceases
iii. payback period - up to 25 years, with payback
starting 1 year after completion of construction
iv. interest rate - half of that which the state paid
on general obligation bonds the previous year
b. Old - The State Water Quality Control Fund
i. old, small program that provides loans for the
local share of grant funded projects in severe
hardship cases (NOTE: This fund is not part of
the 1984 Clean Water Bond Fund)
ii. high interest rate (interest rate based on that of
the previous 5 years)
iii. local voter approval needed on case-by-case
basis
2. Grants
a. Clean Water Construction Grant Account
i. grants for at least 12 1/3% of eligible project
costs as long as the federal Title II program
continues (regardless of whether Title II funds
are available or not)
ii. no State grants if federal Title II funding
ceases
b. Small Communities Assistance Account
i. supplemental grants to small communities such that
the combined federal and state grant is an ammount
up to 97 /.% of the total estimated cost of
pollution studies, planning, design, and
cons t ruet ion.
ii. no supplemental grants if federal Title II
funding ceases
3. Rate Subs idies
None
4. Bond Insurance
Bill currently before the legislature
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13
5. Loan Guarantees
Bill currently before the legislature
6. Other Credit Enhancement
Loan pooling
i. State, acting on behalf of several communities,
buys all municipal bonds, and re-issues as State
bonds
ii. bill currently before the legislature
D. Evaluation of Applications (eligibility requirements)
1. Criteria for providing assistance
a. Clean Water Construction Grant Account grants & loans
i. treatment facilities must be needed to meet the
requirements of the federal CWA, and
ii. must be eligible for federal grant assistance
under the federal CNA., whether or not federal
funds are available, and
iii. must be certified by the board as entitled to
priority over other treatment works.
b. Small Communities Assistance Account grants
i. population - 5,000 or less
ii. total project cost - $2.5 million or less, unless
the Board finds that a higher cost project is the
most cost-effective solution to a water quality or
public health problem
iii. demonstrated financial need, based on a formula
developed by the Board
iv. community must also receive regular state and
federal grants
2. Conditions placed on forms of assistance
a. Clean Water Construction Grant Account grants
i. municipality must agree to proceed ezpeditiously,
complete the eligible project, and properly
operate and maintain the works
ii. municipality must agree to provide for the local
share of the project cost, and to make reasonable
efforts to apply for federal assistance
b. Clean Water Construction Grant Account loans
i. municipality must show adequate public
participation in the decision to seek the loan
ii. any election held regarding the loan must include
the entire municipality unless the loan is for a
specified portion of the municipality, in which
case the election will be held in that portion
only
E. Requirements on Loan Recipient
1. Local assurances
a. Financ ia1
The legislation states that no moratorium on
repayment of principal and interest shall be
allowed in the Water Reclamation Account loan
program. This requirement is not currently in the
legislation for the Construction Grant loan
program; however, the State Water Control Board
wants to have such a requirement inserted due to
the problems they have encountered with moratoria
in the State Water Quality Control Fund program.
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b. Env i ronmenta 1
Currently rely on federal requirements; no
decisions yet regarding how this would be handled
in the absence of federal requirements
2. Application of state procurement rules
not yet determined
3. Environmental review procedures
(see E.1.b., above)
4. Report filing requirements
not yet determined
F. Fund Accounts
1. Several accounts under one fund (see I .A. , above)
2. Interactions between accounts
a. The first $30 million in p-rincipal and interest
repayments from Clean Water Construction Grant (CWCG)
Account loans are deposited in the Water Reclamation
Account; remaining repayments are returned to the CftCG
Account for future loans
b. If CWCG Account depleted, Water Reclamation Account
funds may be used for CWCG loans; all repayments are
returned to the Water Reclamation Account
c. With the approval of the Clean Water Finance Conxai 11 e e ,
the Board may transfer moneys in the CWCG Account to
the State Water Quality Control Fund (see C.l.b.,
above
G. Evaluation of Program Effectiveness
State performs audits
H. Default Experience/Non-compliance with Requirements
1. No default experience; no penalties established
2. Re-financing option
The legislatively mandated formula for determining
the interest rate (i.e., half of what state paid the
previous year) for CWCG Account loans allows variable
interest rates. This is of concern to the Board
because it invites requests for refinancing from
communities that originally received loans at high
rates and want to re-finance each time interest rates
dec 1ine.
I. Private Sector Participation
1. 1983 study of privatization concluded that its likelihood of
success was highly uncertain due to state law requirements,
Public Utility Commission rate regulation, and uncertain
federal legislation
2. Not much thought given to privatization since 1983 study
J. Program Issues or Problems
General problem - several large communities with ocean
discharge waiver requests currently under review. Assuming
all waivers granted, estimated statewide needs - $1 billion;
if waivers not all granted, statewide needs will be much
greater .
IV. Relation to Federal Programs & Legislative Proposals
A. If the federal CWA. authorizes a federal loan program that
requires state matching funds, the Legislature may establish a
State Water Pollution Control Revolving Fund, and the Board may
transfer funds from the Clean Water Construction Grant Account to
this re'•o.lving fund, and may make loans in accordance with the
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CWA and state law. The Legislature may enact legislation that it
deems necessary to implement the state loan program. These
provisions were written into the Clean Water Bond Law of 1984.
B. If the federal CWA. authorizes a revolving loan program that
allows or requires leveraging of the federal capitalization
grant, the Board will not be able to begin leveraging until it
obtains the approval of the voters. (State law requires voter
approval for any increase in the size of the State's general
obligation bond issue). Issues can only be raised for voter
approval every two years. Also, the State does not currently
have the authority to issue revenue bonds; such authority must be
obtained from the legislature.
V. Re commendatiOQS to Other States
Seek legislation that gives maximum flexibility so can fine-tune
flexibility so can fine-tune program, as experience is gained,
without having to make legislative changes.
VI. Materials Available
A. Assembly Bill No. 1732 (Clean Water Bond Law of 1984)
B. Implementation Plan and Policy for Clean Water Bond Law of 1984,
May 1985
C. Privatization Report, prepared by the State Water Resources
Control Board, November 1983
D. Information and Instructions Pertaining to Application for
Construction Loan from the State Water Quality Control Fund
E. Application for Construction Loan from State Water Quality
Control Fund
VII. State Contact
Eric Torguson
State Water Resources Control Board
901 P Street
P.O. Box 100
Sacramento, CA 95801
(916) 322-2357
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COLORADO LOCAL GOVERNMENT SEVERANCE TAX FUND:
IMPACT ASSISTANCE GRANT AND LOAN PROGRAM
Summary
The Impact Assistance Grant Program was established in 1982 to provide
grants to local governments impacted by mineral fuel development. The
Program is entirely funded from severance tax proceeds. Grants may be
used for the planning, construction, and maintenance of any public
facilities. More recently, the Program has been modified to service
all communities, using eligibility criteria which assess improvement
needs. In 1985, the statute was amended to allow loans to be given
for wastewater and water projects (no loans have been given to date).
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COLORADO LOCAL GOVERNMENT SEVERANCE TAX FUND:
IMPACT ASSISTANCE GRANT AND LOAN PROGRAM
Program Annotated Outline
I. Program Description
1. Organization:
a. Scope (eligible projects):
The Impact Assistance Grant and Loan Program may provide a
grant to any local government for any purpose. The loans
are available only for wastewater treatment and water
supply projects.
b. Agencies involved:
- Dept. of Local Affairs (Division of Local Govts.)
- Dept. of Health
2. Establishment: 1932.
a. Options initially considered: Not discussed.
b. Political and legal considerations:
The Colorado legislature exerts a great deal of control
over program funding, and even re-authorizes the spending
of Federal funds in the State.
c. Statutory and constitutional restrictions: None.
d. Subsequent program modifications:
The Impact Assistance Grants Program was originally
created to mitigate the consequences of oil shale
development on communities. Current emphasis is now
directed towards the quality of improvement needs of local
governments.
3. Future picture:
There is a great deal of uncertainty about the level of future
funding, due to the reduction in mineral severance tax proceeds
and legislative politics.
II. Administrative
1. Training: None specified.
2. Staff size/skill mix:
Six people from the Division of Local Governments are directly
involved, on a part time basis, with administering the program.
3. Administrative costs/operating budget: Not available.
III. Operations
1. Capitalization of fund (funding sources):
The fund is capitalized with proceeds from the mineral
severance tax (oil, gas, and coal). The annual amount is
approximately $14 million.
2. Leveraging capability: None.
No bonds are issued under this program, however, the Colorado
Housing and Finance Authority has revenue bonding authority.
Colorado has a balanced budget amendment, which prohibits the
State from going into debt.
3. Forms of assistance:
a. Loans (terms):
The Program has the authority to make loans for wastewater
treatment and water projects, but has not to date. The
loans may be at interest rates as low as 5%, with all
repayments dedicated to the Program.
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b. Grants:
The bulk of the Program monies are dispursed as grants
given to local governments for any purpose. The State
also has a small Grants program ($500,000/year) for
communities under 5000 people, and ineligible for Federal
CG grants.
4. Evaluation of applications (eligibility requirements):
a. Criteria for providing assistance (e.g. financial need):
Although the Program initially funded projects in
communities which were impacted by energy product (mineral
fuel) development, the primary criteria now is the
improvement needs of communities. Only one of
approximately every 5-7 requests are funded. The
priorities are determined three times a year by the Local
Govt. Affairs Committee. The sequence of events leading
to an award are detailed below (see III.4.b.).
b. Conditions placed on forms of assistance:
Prior to receiving an award, the following actions must be
taken:
- The Community identifies its need.
- The County selects its funding priorities.
- If selected, the Community applies for funding.
- The Local Govt. Affairs Committee assesses the
applications and holds public hearings. Determination
of (a) whether to fund, and (b) grant or loan.
- The Committee makes an award recommendation to the
Director of the Local Govt. Affairs Program, who makes
the final decision on funding level and type.
5. Requirements on loan recipient:
a. Local assurances:
i. financial (e.g. dedicated repayment source):
The recipient must pledge a dedicated repayment stream
in order to get a loan.
ii. environmental: (see III.5.C. below).
b. Application of State procurement rules: Not discussed.
c. Environmental review procedures:
Under State law, the Dept. of Health (CG Staff) conducts
the construction review of all wastewater treatment
projects.
d. Report filing requirements:
Not yet established for the loan program.
6. Private sector participation:
The Dept. of Health is studying the privatization of wastewater
treatment projects, and is currently seeking a pilot project in
the State.
7. Program issues or problems:
Uncertainty of continued funding from severance tax proceeds is
a major concern.
IV. Relation to Federal programs and legislative proposals:
The Dept. of Health (CG Staff) believes that it has the authority
to administer a State Water Quality Revolving Fund, given the
proper mechanism.
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V. Materials Available:
- Senate Bill No. 35 (establishing the Local Govt. Severance Tax
Fund)
VI. State Contact Persons:
Seth Goldstein, Administrative Officer
Colorado Dept. of Health
Water Quality Control Division
4210 E, llth Ave.
Denver, CO 80220
(303) 320-8333
David 0. Edwardson, Supervisor
Division of Local Government
1313 Sherman St., Room 520
Denver, CO 80203
(303) 866-2156
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FLORIDA BOND LOAN PROGRAM
Summary
The Florida Bond Loan Program sells State bonds and makes loans
through joint authority of the Department of Environmental
Regulation and the Division of Bond Finance. The program sells
bonds as needed in response to loan applications from local
agencies. The bonds are general obligation but are also secured
by pledged revenues from the loan recipients. Loans can be made
only for the construction (including planning and design) of
water supply and distribution facilities, air and water
pollution control and abatement facilities, and solid waste
disposal facilities. Any municipality, county, district,
authority or State agency may apply.
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FLORIDA BOND LOAN PROGRAM
Program Annotated Outline
I. Program Description:
1. Organization:
a. Scope (eligible projects):
- water supply and distribution facilities
- air and water pollution control and abatement
- solid waste disposal facilities
b. Agencies Involved:
The Department of Environmental Regulation (DER) and the
Division of Bond Finance of the Department of General
Services jointly have authority to issue State pollution
control bonds. The State Board of Administration (SBA)
administers the debt service account on bonds.
2. Establishment:
a. Options initially considered:
The program was authorized by Constitutional Amendment in the
1970's to complement the Federal construction grants program
by making loans for the local share as well as to make loans
independent of the grants program. During the 1970's the
State also had a revolving loan program specifically created
to make loans for the planning, design and construction of
sewage treatment facilities and land acquisition for such
facilities.
b. Statutory and constitutional restrictions:
Section 14 of the State Constitution authorizes the use of
general obligation bonds to finance eligible infrastructure
needs. The bonds must also be secured by pledged revenues
collected all or in part from operation of the financial
facilities. The Bond Loan Program can issue up to $200
million of pollution control bonds each year. Under Section
14, the total principal of bonds issued cannot exceed 50
percent of the total tax revenues of the State for the 2
preceding years. No State oonds under this program can be
issued if the debt service requirement of the proposed issue
and outstanding bonds (of the loan recipient) is greater than
75 percent of the pledged revenues.
c. Subsequent modifications:
Enabling legislation for the revolving loan program provided
for its termination in July 1975 with all subsequent loan
repayments transferred to the general revenue fund. In 1985,
the State Water Pollution Control Trust Fund, as a grants
program, was the primary means of State assistance for the
construction of publicly owned treatment works. This program
was funded at $100 million for 1985 and was amended in part,
to require a 45 percent local share of eligible project costs
(reserve capacity is ineligible) and to establish a Small
Community Sewer Construction Assistance Trust Fund, providing
grant assistance to communities of less than 35,000.
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The State requires as a grant condition that the recipient
collect sufficient revenue to establish a self-supporting
facility including the amortized capital investment of the
cost of the grant funded facility.
d. Future picture:
The DER is considering proposed revolving fund legislation.
The legislation would have the same revenue requirement as
the State grant program and would have a provision to permit
use of Federal grants for capitalizing the fund: "Grants
awarded by the Federal government to fund revolving loans for
local governmental agencies' sewage treatment facilities
shall be deposited in the sewage treatment loan fund." This
proposed program would not directly affect the Bond Loan
Program; the prospects for the Bond Loan Program appear
mixed. In FY 1982, the program issued pollution control
bonds of approximately $80 million for loan purposes, but in
FY 83 the program sold no bonds (i.e., had no loan demand)
and in FY 84 only $5 million was issued (See program issues).
II. Administrative:
1. Training:
No formalized training program.
2. Staff size:
DER manages the program with 1.5 full time staff, performing
application reviews, administration of the project construction
trust fund, pay out of monies to local agencies, and receipt of
semi-annual repayments. Staff from other agencies involved
(SBA and the Division of Bond Finance) are available on an as
required basis primarily for review and approval of applications
and issuing and administering State bonds.
3. Administrative costs:
Local agencies receiving loans pay a fee calculated to reimburse
the State for costs incurred by the State in issuing the bonds.
Additionally, the local agency must pay each year a
proportionate share of the administrative expenses incurred by
the DER and SdA in administering the program and servicing the
bond issue. In any fiscal year, this payment cannot exceed .25
percent of the initial loan principal. However, the actual
amount required in recent years has been only 0.03 percent.
Costs of issuing State bonds are included in the bond amount.
The State has the following fee schedule which includes the cost
of bond counsel:
$28,000 $5 mil. or less issue
$28,000 plus 0.2% of
amount over $5 mil. $5-25 mil. issue
$28,000 plus O.U of
amount over $25 mil. over $25 mil. issue
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Additionally, any extraordinary expenses incurred by the
Division of Bond Finance for a particular bond issue may be
charged to the local agency. For example, when bond proceeds
will be used to refund prior bonds of the local agency, the cost
of an independent financial consultants' analysis and opinion
regarding the adequacy of the escrowed funds for the purpose of
paying debt service on the funded bonds, would be passed on to
the local agency.
III. Operations:
1. Capitalization:
The program is capitalized through the sale of State full faith
and credit pollution control bonds. The DER and Division of
Bond Finance may issue up to $200 million of such bonds each
fiscal year.
2. Leveraging capability:
a. Bond Rating:
Ratings may vary with each issue. Florida general obligation
bonds typically have a AA and Aa rating by Standard & Poor's
and Moody's rating agencies respectively.
b. Reserve Requirements and amount of coverage:
The State Constitution prohibits the issuance of these bonds
unless the debt service requirement of the proposed bonds and
all other bonds secured by the pledged revenues from the
local agency is less than 75 percent of the pledged revenue.
In practice, the 75 percent requirement requires the local
agency to collect pledged revenues 1 1/3 times the local
agency's proportionate share of the bond issue's annual debt
service.
The DER must approve bonds or notes issued by the local
agency in anticipation of the issuance of State pollution
control bonds.
c. Investment restrictions:
Bond Loan Program: Upon receipt of bond proceeds, DER
creates a project construction account or trust fund. These
monies may be invested by the State Treasurer until needed
for pay out of construction costs. Likewise, the SBA can
make investments from other accounts (e.g. debt service and
capitalized interest accounts), typically in U.S. Government
obligations.
Local agency: The local agency must establish an escrow
account to which monthly payments are made for pledged
revenues. Investment of monies in this account must be made
in U.S. Government obligations, instruments secured by U.S.
Government securities, deposits in Federally insured banks or
other deposits permitted by State law.
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3. Forms of assistance:
a. Loans (terms):
The program provides loans to local agencies to finance or
refinance construction of several kinds of infrastructure
facilities. Loans are typically made for 30 years but terms
may vary. The rates charged the loan recipient must be the
same as paid by the State on the bonds issued to make the
loan(s).
b. Grants:
The State had a large grant program in Federal fiscal year
1985 that made 55 percent grants to eligible communities.
This program also included a Small Community Sewer
Construction Trust Fund.
4. Evaluation of loan applications:
a. Loan application process:
The processing of applications begins with the filing of a
loan application with DER, Bureau of Accounting and
Budgeting. When determined to be complete, the application
is forwarded to the appropriate technical bureau within DER
to assess the technical and environmental aspects of the
project. DER may return the application for technical
reasons, requesting referral to an independent consultant.
From here, the application goes to the Division of Bond
Finance and then for approval to the Secretary of DER,
Governing Board of the Division of Bond Finance and the
Governing Board of the SBA. Following their approvals, the
State executes an agreement with the applicant. State bonds
are validated and sold based on the loan agreements. The-DER
loans the bond proceeds from the project construction account
to the recipient as they certify that the costs have been
incurred and payment is due. Loan repayments are made on a
semi-annual basis to DER which transfer them to the SBA for
deposit into the bond interest and sinking fund.
5. Requirements on loan recipient:
a. Local assurances:
i. Financial/As part of the loan application, the local agency
must provide:
1) The local agency's attorney's written opinion that pledged
revenues would be legally available. Where the outstanding
bonds of the local agency represent liens on the pledged
revenues, the attorney must have served as a bond counsel
on a prior bond issue.
2) Information regarding the basis for revenue and expense
projections.
3) A recent statement of receipts and expenditures for each
pledged revenue source.
4) Official statements and bond resolutions for any bond
issues or anticipation notes having a prior lien on pledged
revenues.
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5) Documentation on all other notes and obligations having a
prior lien on pledged revenues.
ii. Financial/State agencies involved execute a loan agreement
with local authority requiring that:
1) The local agency must maintain rates for use of the project
that are sufficient to generate net revenues together with
any other pledged revenues at least 1 1/3 times the annual
loan payment (equal to their proportionate share of the
debt service coming due each year on the State bond issue).
2) The local agency may not pledge or encumber the pledged
revenues without consent of the State.
3) The local agency must provide the DER each year an annual
budget showing amount of pledged revenues anticipated to be
received, project expenses and provisions for "renewal and
replacement" of the project. If the anticipated pledged
revenues are insufficient to make the annual loan payment,
the local agency must show in the budget where the
additional funds are coming from.
4) The local agency must require contractors to post
performance bonds. Once operational, the project must be
insured.
c. Environmental review procedures:
No separate environmental assessment is required as part of
the loan application. A construction permit is required from
DER and the project must be in compliance with all DER rules.
d. Report filing requirements:
The local agency must use a registered professional engineer
to oversee construction of the project. The engineer must
certify to the DER that the project is being built according
to design. These reports must be submitted at least every 3
months. Annual audit by a certified public accountant, as
noted in item G. If the pledged revenues were from revenues
generated by operation of the project, the local agency must
provide an inspection report signed by a licensed
professional engineer at least every 3 years certifying that
the project is being operated to achieve design requirements.
6. Fund accounts:
Once bonds are sold to provide loans for one or more
projects, the following accounts are established in the State
Treasury:
1) Project Construction Trust Fund (source of loan
payments, administered by DER).
2) Bond Interest and Sinking Fund (receives loan repayments
for interest and principal).
3) Capitalized Interest (for the amount of interest the
State must pay until loan repayments begin).
4) Debt Service Reserve Fund (source of monies in event of
default).
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a. Dispersal of monies from fund/repayments of monies to fund:
Upon receipt of a written requisition from the local agency
and a certification that the payments requested are a valid
obligation of the local agency, the DER provides a loan
payment to cover the incurred costs. The local agency must
establish an escrow account with a bank. The account will
receive the pledged revenues as they are earned except when
the amount on deposit exceeds or equals the sum of the next
two semi-annual installments on the loan. The local agency
pays DER one half of the annual loan payment 1 month before
the State pays the semi-annual interest on the bonds.
7. Evaluation of program effectiveness (audits):
a. Project: The local agency must have a certified public
accountant annually audit the project's operation and the
receipt and disbursement of the revenues for the previously
submitted annual budget.
b. Program; The program prepares an annual report on loan
status and activity and the status of all accounts.
8. Defaults:
Default includes failure to make adequate loan payments,
failure to comply with any provisions of the agreement or
failure to construct the project.
a. Penalties and legal recourse:
The State may take whatever legal actions necessary to
enforce the loan agreement including legal proceedings to:
1) Establish rates and make the local agency collect
adequate pledged revenues.
2) Require the local agency to carry out other provisions
of the agreement.
3) Require the local agency to account for all monies
received from the State agencies and from the use of the
project.
4) Require the local agency to account for the receipt, use
application or disposition of the pledged revenues.
5) Appoint a receiver to take charge of and manage the
project and to apply income from the project (and other
sources of pledged revenues) to the debt obligation.
6) Sue for all amounts due the State, plus interest on
overdue payments and all legal costs.
10. Program issues or problems:
General issue is under utilization of the Bond Loan Program by
local agencies. Loan activity is very low compared with
previous years; yet needs remain high, especially in fast
growing areas (120 communities are on sewer moratoria).
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Potential reasons for under utilization include:
a) Lack of information/awareness of the program
b) Existence of Federal/State grant programs
c) Perception that municipalities can sell their own bonds
more efficiently.
d) Perception that the program has too much red tape.
IV. Materials Available:
- Informational pamphlet on State Bond Loan Program
- Informational booklet on State Bond Loan Program
- Application procedures sheet for State Bond Loan Program
- Application packet for State Bond Loan Program
- Annual Report—Bond Loan Program
V. Contact: David W. York, Ph.D., P.E.
Department of Environmental Regulation
Bureau of Wastewater Management and Grants
Twin Towers Office Building
2600 Blair Stone Road
Tallahassee, Florida .32301
(904) 488-8163
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GEORGIA DEVELOPMENT AUTHORITY (GDA)
Summary
The Georgia Development Authority (GDA) provides loans to municipalities,
counties and water/sewer authorities for construction and expansion of public
water and sewer facilities to encourage economic development. The program is
using 1984 and 1985 appropriations totalling $20 million. The program pro-
poses to seek an amendment to the State Constitution to allow the issuance of
GO bonds, the proceeds of which would be used for additional loans. All loan
repayments go to capitalize the loan fund. The current interest rate is 6.8%
based on the State's five year rate on GO bonds. The Authority administers the
loan program with technical assistance from the Environmental Protection
Division of the Department of Natural Resources.
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GEORGIA DEVELOPMENT AUTHORITY (GDA)
Program Annotated Outline
I. Program Description
1. Organization:
a. Scope (eligible projects):
Provides loans to muncipalities, counties
and water/sewer authorities for construction
and expansion of public water and sewer
facilities to encourage economic development.
Estimate of 5 year need for water and sewer
improvements is perceived to be approximately
$1.65 billion (1984 dollars) according to our
inventory survey report prepared by the staff
of the GDA.
b. Agencies involved:
- GDA administers loan program with technical
assistance from the Environmental Protection
Division of the Department of Natural Resources
(EPO).
- Members of Board of the Authority include:
Commissioner of the Department of Community
Affairs; Commissioner of Agriculture;
Commissioner of the Department of Industry
and Trade; State Auditor; and six members
appointed by the Governor including local
government elected officials.
?.. Establishment:
a-c: Original Options/Legal/Constitutional Considerations:
- Created under a 1937 agricultural development
authority in an attempt to comply with a
Constitutional requirement for the utilization
of State GO bond proceeds.
- 1984 Legislature approved the sale of 5 year
State GO bonds. An appropriation of $7.5
million was approved to cover the first years
debt service on $30 million in GO bonds, the
proceeds of which would be used for low interest
program loans.
- 1984 State Superior and 1985 State Supreme
Courts ruled it unappropriate for old authority
to issue GO bonds to support economic develop-
ment. Therefore, GDA cannot issue GO bonds for
water/sewer construction.
- 1985 Legislature appropriated an additional
$12.5 million, for a total of $20 million for
loans. Insufficient time to get Legislative
approval of concept of using State or Authority
revenue bonds. Also, possible political concerns
involving conflicts with private sector financial
businesses.
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d-e Subsequent program/future picture:
- January 1986—Legislature will propose a bill
to create a new authority separate from the
agricultural aspects of the current GDA, which
will be able to receive grants from the Federal
government and additional state appropriations
for more loans to capitalize the fund. They
also will propose amendment to the Georgia
Constitution which would allow the State to
issue GO bonds on behalf of the Authority, the
proceeds of which would be re-issued as program
loans.
- It is intended that the amendment to the
Georgia Constitution also withdraw the require-
ment to hold fee simple title on the
environmental facility improvements financed
by the Authority, for the life of the loan.
II. Administrative
1. Training:
Done on the job, use of contractual and other State,
agencies technical assistance expertise.
2. Staff:
Executive director State and Local government
expertise
Assistant director Local government expertise
Special assistant Local government expertise
Accounts clerk
Clerical
(Temporary Special Projects Coordinator the
Environmental Facilities Project)
3. Budget:
$380,000 (FY 1985) currently from operating
budget. EPD staff under their own budget.
- No longterm net change in staff of GDA and
EPO seen.
III. Operations
1. Capitalization of fund:
Currently using $20 million appropriation;
intend to issue bonds retired by appro-
priations with repayments going to capitalize
fund.
2. Leveraging capability: Not specified.
a. Marketing:
Build local leadership/capability to develop
strategy for economic development. Identify
role of sewer needs, then contact authority
directly or through EPD.
b. Bond Rating: Aaa
c. Reserve requirements: No State reserve
required for appropriations or GO bonds
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d. Investment restrictions:
Federal arbitrage limitations, investment in
Federally guaranteed instruments or as speci-
fied in Legislation.
3. Forms of Assistance:
a. Loans:
Current Board policies limit loan to $1.0
million per jurisdiction at 6.8%* for 20
years; may be mixed with other loans or grants
or for 100% of project costs.
*Governor would have approved 0% rate for
loans but a GDA Advisory Committee composed
of members of the Georgia Municipal
Association, County Commissioner of Georgia',
and other special interest groups wanted the
GDA to establish a rate which would aid in
the development of the program fund. For
program year one, the State's five year rate
on GO bonds was identified and the GDA interest
rate tracked that rate, and was set at 6.8%.
b. Grants (two separate State programs):
Environmental Protection Division's Emergency
Grants have a 1:1 match requirement. Funding
has been stable since 1974 at about $1 million
per year. Funds are only awarded for
emergency improvements. Second, Ecomonic /
Environmental Grants are made to local govern-
ment by the EPD. Typically, funds have only
been awarded to communities which have firm
commitments from industry or business. Funding
has been stable since 1979 at about $5 million
per year. Also requires 1:1 match, adequate
user fee system, and 20 year recovery of
grant from benefitted industry for use OM&R.
c. Others:
No other forms of financial assistance
offered at this time, but may be considered
for future. GDA works to provide full range
of technical (financial) advice. Will work
with communities and develop their
financial capabilities to support economic
development.
4. Evaluation of applications (First year Program):
a.- Show ability to repay the loan (will work with
all applicants to have them move towards
requiring that the user charge system be
appropriate to pay for system improvements
and 04M).
- Project certified by EPD as able to meet
environmental standards, and in a limited
number of instances, removes the local
government from a moratorium or ban on tap.
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- Applicant able to initiate design in sixty
days, and schedule for initiation of con-
struction in loan contract.
- Document any creation or retention of jobs.
- First come/First served.
h. Conditions placed on forms of assistance
(see 3.a. above).
5. Requirements on loans recipients:
a. Local Assurances
Must have user charge system to cover
OM&R, and debt service.
Must have certification from EPD that
project is able to meet environmental stand-
ards. (If not also construction grants
funded, review limited to engineering
feasibility not cost-effectiveness or
other EPA requirements.)
b. No additional State procurement regulations.
c. Environmental procedures: (see 5.a. above).
d. Report filing requirements:
State law requires that all local governments
file annual audits with the Auditor's Office.
All program participants were required to
complete the GDA Environmental Facilities
Inventory Questionnaire which provided the
Authority with data on water and sewer system
needs as well as financial management
capability. In addition, rate structure
information was requested. Approximately 66%
of the State's local governments responded to
the survey. This survey data may be updated
periodically by Authority staff for review by
the legislature.
6. Fund accounts:
a. Dispersal of monies from fund/repayments
of money to fund.
Fund monies are deposited in an account
for the project and paid out on a reimbursible
basis. EPD reviews construction.
b. Payments to fund due quarterly.
7. Evaluation of program effectiveness:
Annual reports anticipated.
8. Default experience: none.
a. Penalties - can intercept other State
payments, and can require revision of user charge
system.
b. Refinancing: No. Only offer permanent
financing.
9. Private sector participation:
Not eligible for grants or loans. Did not discuss
privatization.
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10. Program issues or problems:
- Need new legislation and constitutional amend-
ment to create program with authority to issue
debt (GO or Authority Revenue Bonds).
- Want to be able to offer a program interest
rate at less than 9%.
- Want all communities eventually to operate
their environmental system only with enter-
prise fund revenue.
- Need to get public to understand that clean
water is currently underpriced.
IV. Relation to Federal Legislative proposals:
- Like to see the flexibility shown in the
House bill without the state match require-
ment.
- Proposed State bill will enable use of SRF
grant if created by Congress.
V. Suggestions for other States:
- Carefully resolve constitutional and
statutory issues.
- Line up capitalization funds early.
VI. Materials Available:
- First Year Funding Criteria
- Official Board Policies
- Environmental Facility Inventory Report
- Environmental Facility Inventory Questionnaire
- Year Two Preapplication
VII. Contact: Ross King
Special Assistant
40 Marietta Street, N.W.
Suite 1616
Atlanta, Georgia 30303
(404)656-0938
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THE KENTUCKY POLLUTION ABATEMENT AUTHORITY
Summary
The Kentucky Pollution Abatement Authority (KPAA) was created in 1972 to
issue project revenue bonds on behalf of local communities. The KPAA pools
loan demand, issues tax-exempt municipal bonds, and then loans the money to
local entities at a reduced rate from what each could get individually. In
order to be eligible to receive financing through the KPAA, the local entity
must adopt a user rate charge that will cover the costs of debt service on the
loan and operation and maintenance expenses. The State of Kentucky does not
provide grants for the construction of wastewater treatment facilities.
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KENTUCKY POLLUTION ABATEMENT AND
WATER RESOURCE FINANCE AUTHORITY
Program Annotated Outline
I. Program Description:
The Kentucky Pollution Abatement Authority (KPAA) is an independent
public corporation and agency of the Commonwealth of Kentucky.
Funds loaned to communities are derived from tax-exempt revenue
bonds issued by the Authority.
1. Organization:
a. Scope (eligible projects):
-water pollution control
-solid waste pollution control
-water distribution systems
b. Agencies involved:
-Department of Environmental Protection
-Department of Finance
2. Establishment: 1972.
a. Options initially considered:
Loans originally available only to projects that had already
been approved for EPA or FmHA grants. Program has since been
expanded to include other projects.
b. Political and legal considerations:
Kentucky does not have a grant program to assist in funding
construction of wastewater treament facilities.
c. Statutory and constitutional restrictions:
State assembly meets biennially. Preparation now for Jan.
1986. Next assembly does not meet until 1988.
d. Future picture:
The State is considering legislation to provide additional
-uture picture:
The State is considering legislation to
funding for the Authority.
II. Administrative:
1. Training:
No organized training. Personnel receive on the job experience
as they work with the program.
2. Staff size/skill mix:
Small professional staff—one person part-time (25-30$ of time).
Support staff includes accounting and secretarial staff (20%) and
bookkeeping and clerical staff.
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3. Administrative costs/operating budget:
A charge of 1/10 of 1% is annually assessed to unpaid loan balances
to cover administrative costs. Annual administrative costs for the
KPAA averages approximately $60,000.
III. Operations:
1. Capitalization of fund (funding sources):
Funds are derived from the authority's issuance of tax-exempt
municipal revenue bonds. There are no appropriations from the
general assembly.
2. Leveraging capability:
a. Marketing:
The Authority issues bonds on behalf of the borrower. With a
higher bond rating, the KPAA is able to obtain a lower rate of
interest than a single community could receive.
b. Bond rating:
Bonds issued by the KPAA carry an "A" rating by Standard and
Poor's. While they do not carry the State's "full faith and
credit" guarantee, the KPAA does have the authority to do the
following:
1) Force a restructuring of user fees.
2) Request that another agency withhold State aid money if
community goes into default.
3) Impose a two percent tax on all water services in the State.
c. Reserve requirements and amount of coverage:
The equivalent of one-year's debt service for each loan is
required. In the case that the reserve fund becomes monetarily
deficient, the KPAA shall submit a formal request to the
Secretary of Finance, the Administration Cabinet, and the
Governor, asking that they ask the legislature to replenish the
fund.
d. Investment restrictions (e.g. limits on interest earned):
There are no restrictions on investment. Interest earned from
the reserve fund is the KPAA's only source of working capital.
Money is loaned put prior to the issuance of bonds, and refunded
at time of bond issue.
3. Forms of assistance:
a. Loans (terms):
Primary function of the KPAA is to pool loans, providing the
localities with lower interest loans. Larger, better rated
bonds yield lower costs to the borrower through lower interest
costs.
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37
b. Grants:
The State does not give grants for the construction of
wastewater treatment facilities.
c. Rate subsidies:
Only form of subsidy is through the reduction of interest rates
through an improved bond rating.
d. Bond insurance:
Insurance has been used twice, but it was found to be
ineffective in reducing the rates greatly. Insurance not worth
the costs of obtaining it.
f. Other credit enhancement:
Interim loans given from cash fund formed from the interest off
of debt reserve funds. Loans can be used to finance the study
of a proposed plants eligibility.
4. Evaluation of applications (eligibility requirements):
a. Criteria for providing assistance (e.g. financial need):
No specific criteria or needs list to determine which projects
get funded. Demand for loans not great enough to warrant such
activities. Borrower must be able to repay loan.
b. Conditions placed on forms of assistance:
Borrower must adopt user rate structure that will cover debt
service requirements on the loan, and operation and maintenance
costs before the KPAA will approve the loan.
5. Requirements on loan recipient:
a. Local assurances:
i. financial (e.g. dedicated repayment source)
Must have dedicated repayment source (user fee).
ii. environmental:
No environmental assurances other than those already in
place to meet permit requirements.
b. Application of State procurement rules:
No State regulations.
c. Report filing requirements:
Loan recipients are required to submit a copy of their annual
audit report to the KPAA.
6. Fund accounts:
a. Dispersal of monies from fund/repayments of monies to fund:
Financing arrangements similar to FmHA regulations. Payment of
interest due semi-annually while principal is due annually.
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7. Evaluation of program effectiveness (e.g. audits): ;
a. Program/project:
Audit reports must be filed annually by cities and sanitation
departments. No State auditing procedures on annual basis.
State review at time of loan application.
8. Default experience/non-compliance with requirements:
a. Penalties and legal recourse:
KPAA has not had a default and they are not sure what actions
they would take if a default did occur. In the event of
default, the Authority has the power to do the following:
1) Force a restructuring of user fees.
2) Request that another agency withhold State aid money if
community goes into default.
b. Refinancing option:
No specific process to refinance. KPAA will loan money from
their interest cash reserve to help community over crisis.
9. 'Private sector participation:
None
1U. Program issues or problems:
The KPAA has a minimal on-site inspection capability. EPA funded
projects have their own inspection personnel. Projects funded by
the KPAA require certification of the construction process by the
borrower's consultant engineer.
IV. Relation to Federal programs and legislative proposals:
State statutes allow the authority to receive funds from other
government sources, such as the Federal government. Modification to
allow revolving fund concept may be necessary. State .could have a
problem meeting the State match requirement, as is required in both
Congressional bills.
V. Materials Available:
-overview of KPAA financing program
-summary of KPAA water and sewer construction loan program
-Pollution Abatement Authority legislation
-KPAA loan application
-overview of KPAA multiple projects and interim construction
financing program
VI. State Contact:
Mr. N. Donald Morse II, Secretary
Kentucky Pollution Abatement and Water Resources Finance
Authority.
Room 318
New Capital Annex
Frankfort, KY 40601
(502) 564-2924
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MASSACHUSETTS: MASS8AHK
Summary
I'lassBank is a proposed revenue bond authority supported with a
dedicated tax, to be an independent State agency in, but not under
supervision of, the Executive Office for Administration and
Finance. It would assist those communities which have difficulty
borrowing funds from any other source by purchasing their debt
obligations. MassBank legislation would allow communities to issue
revenue bonds for local revenue-producing infrastructure projects.
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MASSACHUSETTS: MASSBAMK
Program Annotated Outline
I. Program Description:
1. Organization:
a. i-iassBank will be authorized to provide the debt financing for the
following categories of infrastructure programs:
-water supply systems
-sewerage systems
-state highways
-bridges and tunnels
b. Agencies involved:
-Dept. of Environmental Quality Engineering (DEQE)
-Dept. of Administration and Finance
-Dept. of Public Uorks
-Dept. of Communities and Development
-Dept. of Environmental Management
-State Treasurer
-Others agencies empowered to carry out infrustructure
projects
2. Establishment: FY 1935, pending legislative approval
a. Options initially considered:
W/A
b. Political and legal considerations:
Proposition 2 1/2 created the need for an alternative revenue
source for infrastructure projects by prohibiting property tax
increases of greater than 2.5% over the previous year's level.
c. Statutory and constitutional restrictions:
MassBank proposal was court tested and received approval-. It's
debts would not constitute obligations of the Commonwealth.
II. Administrative:
1. Training: None specified
2. Staff size/skill mix:
Small staff anticipated, to include a special assistant for
affirmative action. MassBank may engage the services of
consultants and independent contractors as needed. Support
services provided by other agencies are to be reimbursed.
The chairuan of the 5 member board of directors is to serve as
chief executive officer of MassBank.
3. Administrative costs/operating budget:
Immediate appropriation of $250,000 for program start-up and 1%
(i.e., $1 million) of dedicated funds annually, thereafter.
hassBank has the authority to issue debt obligations to cover the
cost of operation, including payment of consulting, advisory and
legal fees, as necessary, to carry out its purposes.
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III. Operations:
1. Capitalization of fund (funding sources):
Start-up appropriation of $2 million, after which MassBank is to
operate from proceeds of its bond issues and an Infrastructure
Development Assessment. The assessment will be paid by business
corporations subject to the corporate excise. It is to be capped at
$100 million per year with any excess transferred to the local aid
fund (4u%) and the general fund (60%).
2. Leveraging capability: Anticipate $100 million/year to support $1
billion in new borrowing.
a. Marketing:
-MassBank enhances the marketability of its participating
governmental units by pooling a mixture of small debts and then
issuing special obligation bonds backed by a dedicated revenue
stream (corporate excise pledged by the Commonwealth).
-Municipalities may form service districts and MassBank will
provide technical assistance in structuring revenue sources so
they can successfully participate in the market. MassBank will
also underwrite local bond issues.
b. 8ond rating:
MassBank must obtain its own rating, independent of the State's
rating.
c. Reserve requirements and amount of coverage:
Separate debt service reserve fund, to be not less than. 1/2 the
maxiuuni amount of principle and interest maturing and becoming
due in any succeeding calendar year on outstanding debt
obligations.
d. Investment restrictions (e.g. limits on interest earned):
After meeting refunding terms, any balance may be used by
MassBank in any lawful manner.
3. Forms of assistance: MassBank shall provide assistance by
purchasing dabt obligations issued by local governments (to be a
lender of last resort).
a. Loans:
MassBank has the capacity to make loans, however this is not a
significant element of the program.
b. Grants:
Ho grant program proposed, though legislative authority exists.
c. Rate subsidies:
Not available.
d. Bond insurance:
Available.
e. Local guarantees:
MassBank will underwrite debt issuances of municipalities and
service districts.
f. Other credit enhancement:
-letters of credit
-credit insurance
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Evaluation of applications (eligibility requirements):
a. Criteria for providing assistance (e.g. financial need):
Any governmental unit which has authorized the financing of a
local project may request assistance. Certification factors
include the following:
-project is consistent v/ith needs of a town and will meet a
substantial state interest.
-project will have significant economic impact, including
long term employment (priority to low income neighborhoods).
-lack of alternative financing (i.e., poor credit rating;
certification will include a recommendation of the level of
financing assistance to be provided).
b. Conditions placed on forms of assistance:
Mo change in current capital project selection process for state
projects. Other conditions include:
-UEQE priority list subject to legislative approval.
-Mecessary government approvals must be in place to the
extent possible so that project can be completed in a timely
fashion.
-repayments of debt obligations to HassBank will not
adversely effect a governmental unit's ability to provide
all other essential public services.
Requirements on loan recipient:
a. Local assurances:
i. Financial (e.g. dedicated repayment source):
MassBank has the authority and responsibility to obtain
satisfactory assurances from municipalities before
purchasing their debt. MassBank will provide technical
assistance to municipalities in evaluating financing
alternatives. A local assurance of final resort is the
State aid intercept provision whereby a community would be
allowed to pledge its local aid payments as additional
security on its bond issues.
ii. Environmental:
MassBank does not require environmental assurances; instead,
existing State programs, including the construction grants
program, would continue to manage priority setting and apply
environmental controls on what gets funded and when.
b. Application of State procurement rules:
None specified.
c. Environmental review procedures:
The same review procedures as now exist with construction grants
program would remain in effect, except as may be modified by
Federal legislation. MassSank has no role in the execution of
these procedures.
d. Report filing requirements:
MassBank is to file annual reports with Governor and Legislature,
to include municipalities' project statements, MassBank's
evaluation of State infrastructure programs or projects, and
recommendations regarding their condition and maintenance.
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6. Fund accounts:
MassBank is given broad authority to establish fund
accounts consistent with its purposes and to include the following:
a. State Infrastructure Fund- to receive and disburse financial
assistance from MassBank for infrastructure projects.
b. Debt service reserve funds- for payment of principle, interest
and premiums on debt obligations issued by HassBank; source of
funcis to be project revenues and revenues from the investment of
reserve funds not required for immediate disbursement.
c. Trust account- holds capitalization revenues and is dedicated to
corporate purposes.
7. Evaluation of program effectiveness (e.g. audits):
Governmental units receiving financial assistance from MassBank must
submit a statement of the general condition of the project financed,
plus any statements of the financial condition of the unit itself.
MassBank would also annually evaluate State infrastructure programs
receiving financial assistance. Each year, MassBank would file a
report with the Governor, summarizing findings and making
recommendations. Additionally, MassBank must file operating and
financial statements, certified by independent CPAs, with the
Governor. MassBank would also undergo- an annual audit by the
Commonwealth's auditor, plus the secretary-treasurer would conduct
an annual audit through an independent CPA.
3. Default experience/non-compliance with requirements:
No experience, but the proposed approach stresses preventive
techniques (e.g., sound loans, dedicated local revenue streams and
the aid intercept provision).
9. Private sector participation:
None specified in program proposal.
10. Program issues or problems:
a. Source of capitalization funds (i.e., seed money).
b. Operating budget, limited to ]% of annual seed money, may be too
restrictive.
c. Considerable concern with how construction grant program will be
phased out, stressing the need for a gradual transition so that
communities can adjust in an efficient and effective manner.
IV. Relation to Federal programs and legislative proposals:
Legislation is written to utilize Federal revolving loan fund
capitalization grants.
V. Materials available:
-proposed legislation
-legislative outline
-HassBank: A Proposal to Rebuild and Expand the Commonwealth's
Economic Infrastructure (source: Governor's office)
VI. State contact:
Ms. Linda Simio
Administrative Services
Dept. of Environmental Quality
1 Winter St. 9th Floor
Boston, MA 02108
(617) 292-5553
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THE MINNESOTA WATER POLLUTION CONTROL FUND (NfiVPCF)
Summary
The NfiVPCF, established in 1984, provides communities with 50%
grants for the construction of wastewater treatment works. The
funds may be used for broader eligibilities than allowed under the
Federal construction grants program and targets assistance to
small, rural communities in particular. The source of funding for
this independent grants program is a 4 cent cigarette tax. An
exceptional feature is the CSO loan program for the State's
largest metropolitan area.
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45
THE MINNESOTA WATER POLLUTION CONTROL FUND (MvVPCF)
Program Anno tated Outline
I. Program Description
A. Organization
1. Scope (eligible projects)
Eligibilities parallel those in the Federal CG
program, plus:
- reserve capacity for 20 years
- land acquisition for ponds (targets
small/rural communities)
- collection systems
- reimbursement
2. State agency involved:
- Minnesota Pollution Control Agency (MPCA)
B. Establishment: 1984
1. Options initially considered:
In a study prepared for MPCA by Peat Marwick, with
MFOA, the following alternative state aid programs
were considered:
- grants programs (straight, directed,
sliding scale, variable)
- loan and interest subsidy programs
(State guarantee, interest subsidy, bond
bank, revolving loan, and combinations
of these)
Crystal Waters Act of 1969: authorized $1.5
million for interest subsidy program with
reimbursement provision.
Not attractive to communities at that time; none
applied.
2. Political and legal considerations:
Strong public and legislative sentiment that
communities required to comply with wastewater
permits were entitled to grants led to the
establishment of an independent 50% State grants
program.
3. Statutory and constitutional restrictions
None
4. Subsequent program modificat ions:
Added CSOs as eligible for funding (grant/loan mix
for Twin Cities; grant only for So. St. Paul).
II. Program Administrat ion:
A. Staff: same staff as work on Federal CG program
B. Administrative funds: Because Fund uses same staff as
Federal CG program, delegation agreement stipulates that
205(g) money may be used to cover Fund administrative
costs .
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46
III. Operat ions
A. Capitalization of Fund
1. The first year of funding was through a $12 million
appropriation derived from general obligation bonds.
2. In 1985, the legislature changed the funding source to
a 4 cent cigarette tax.
B. Leveraging Capability: None
C. Forms of Assistance
1. Grants: 50% grants for eligible projects (See
I.A.I.)
2. Grant/loan mix for St. Paul/Mpls CSO projects
- no interest loans, repayments not to begin for 10
years, loans have not been made at this time
- dedicated WPCF account for loans has ability to
r eVQ1ve
- $6.75 million allocated for combination loan/grant,
cities must provide match
3. 15% add-on grant for AT projects
4. 0-30% financial need grant, based on a community's
me.dian household income, assessed property values, and
median per connection cost of projects bid in all
communities in the previous two years. Used for State
and Federal program.
D. Eligibility Requirements
1. Same as for Federal CG program, plus:
- reserve capacity (20 years)
- land acquisition for ponds
- collection systems
- reimbursement
E. Requirements on grant recipients:
1. Financial: At least 10% of eligible costs must be
locally funded (6% for I/A and AT projects prior to
1985).
2. Environmental: Same as those that apply to the
Federal construction grants program
F. Program Effectiveness:
Program too new to have results available
G. Pr ivat i zat ion
1. Private sector expresses interest, activities will
depend on Federal tax reform and favorable State
legislation (unspecified).
IV. Comments Regarding Federal Programs and Legislative Proposals
1. What are limits on eligible projects after the first
round?
2. Would like to see Regional office expand technical
assistance role, (eg, provide guidance regarding
screening and approving technologies for I/A systems).
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47
V. Materials Available:
- Evaluation of Alternative State Aid and Other Programs for
Financing Construction of Wastewater Treatment Facilities
(for MPCA by Peat Marwick and MFOA 1O/83)
- State and Federal Wastewater Treatment Facilities
Construction Grants Programs (MPCA 8/85)
- MPCA Plan of Operation Review Checklist
- Procurement (A/E) Requirements
VI . State Contact:
Duane Anderson, CG Section Chief
Division of Water Quality
Minnesota Pollution Control Agency
1935 W. County Road B2
Roseville, MN 55113
(612) 296-72O5
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NEW JERSEY ENVIRONMENTAL INFRASTRUCTURE TRUST
Summary
The New Jersey Environmental Infrastructure Trust is an independent
State authority for the purpose of providing financial support for
environmental infrastructure projects. The Trust operates a revolving
loan fund capitalized by dedicated revenues and could receive any
Federal appropriations specifically for capitalizing revolving loan
funds. The Trust is authorized to issue bonds and other obligations to
provide financial support for the local share of costs of environmental
infrastructure projects. Forms of support include grants and revolving
low or no interest loans from State bond proceeds.
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49
NEW JERSEY ENVIRONMENTAL INFRASTRUCTURE TRUST
Program Annotated Outline
I. Program Description
1. Organization:
a. Scope (eligible projects): Categories eligible for assistance
from the Trust include:
-wastewater treatment projects
-resource recovery facilities
-secure landfills
-closure of landfills
b. Agencies involved:
-Dept. of Environmental Protection (houses the trust, develops
priority lists)
-uept. of Treasury (approves financing proposals)
-Dept. of Community Affairs (reviews all municipalities annual
budgets)
-Legislature (confirms project priority list/appropriations bills)
-Governor's office (can line-item veto specific projects)
2. Establishment: 1985.
a. Options initially considered:
New Jersey Infrastructure Bank- to aid in financing a broad
spectrum of infrastructure projects. Subsequently separated
transportation and established the Transportation Trust which is
supported through gas taxes, highway tolls and commercial vehicle
registration/license fees.
b. Political and legal considerations:
Wrote legislation to enable applying existing state funds toward
state share in the event of Federal revolving fund legislation.
c. Statutory and constitutional restrictions:
None, though bond issues will be worded carefully in order to
give the Trust adequate flexibility and protection.
d. Subsequent program modifications:
N/A.
e. Future picture:
Will depend on Federal tax reform legislation (re: bond issues)
and reauthorization of the Clean Water Act.
II. Administrative
1. Training:
None specified. The Trust will receive support from state
agencies and retain experts as necessary.
2. Staff size/skill mix:
Seven member board of directors (to serve without compensation).
Executive director and any other employees as required. The
Trust may engage the services of attorneys, engineers,
accountants, financial experts and other advisors and determine
their compensation. Small staff anticipated.
3. Administrative costs/operating budget:
Annual expense not to exceed $250,000. The Trust may charge fees
for costs incurred in connection with its financings and
establishment and maintenance of reserve or other funds.
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III. Operations
1. Capitalization of fund (funding sources):
Initially plan for $300 million to go into the Trust with $100
million for wastewater treatment projects. [$50 million from an
appropriation, $50 million from a new general obligation bond
(GOB) issue].
Equity sources - Federal construction grant funds
- Federal appropriations specifically for
capitalizing State revolving loan funds
- G.O. bonds
- Additional revenues and private contributions
2. Leveraging capability: 4:1 anticipated by using part State equity
monies and part bond issues in a secured account.
a. Marketing:
Not specifically limited in enabling legislation.
b. Bond rating:
The Trust will be used as security in going to the market. While
it lacks the "full faith and credit" of the State, it does carry
tiie respected status of a State agency. It will have to earn its
own rating.
c. Reserve requirements and amount of coverage:
Mot specified. The Trust can create and adjust funds as needed
to obtain the best bond rating at minimal cost.
d. Investment restrictions (e.g. limits on interest earned):
Limited by rules of the State Investment Council.
Interest earned on loans or temporary investments are returned to
the fund.
3. Forms of assistance:
a. Loans:
Low or no interest loans for 65-1002 of local share of costs.
Terms flexible, interest rates variable.
b. Bonds:
The Trust is authorized to guarantee payment on bonds issued by a
governmental unit to finance the cost of an environmental project.
c. Grants:
The Trust is authorized to make grants and a program is under
consideration for depressed areas.
d. Bond insurance:
The Trust may procure insurance to secure the payment of its
bonds, guarantees and loans. This is not viewed as normally
necessary, given other security features of the program.
f. Other credit enhancement:
-bond pooling
-debt refinancing
4. Evaluation of applications (eligibility requirements):
a. Criteria for providing assistance (e.g. financial need):
-fJo stress test to qualify.
-Facility must be on approved project priority list.
-Additional criteria will be addressed in implementing
rules and regulations of the Trust.
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51
b. Conditions placed on forms of assistance:
-Governmental unit must prepare an infrastructure facility master
plan to guide investment decisions.
-Governmental unit must waive entitlement to Federal construction
grants.
-Governmental unit may not have outstanding defaulted loans.
Requirements on loan recipient:
a. Local assurances:
i. financial (e.g. dedicated repayment source):
The Trust would receive broad authority to define rules and
procedures directing the submission of loan, grant or
guarantee requests, and to establish criteria for evaluation
of requests. These may include:
-a rate covenant pledging that the local unit will
charge/levy sufficient fee/taxes to cover 0&M amd debt
service.
-a dedicated loan repayment and debt service schedule to be
included in a municipality's annual budget proposal.
-State aid intercept provision, whereby local aid may be
withheld and applied toward any defaults on payments.
ii. environmental:
Dept. of Environmental Protection (DEP) maintains control
over project ranking criteria and develops the annual
priority list for submission to the Senate and General
Assembly. While it is possible that the initial project
list may subsequently be modified in the appropriation
process, the current environmental requirements still apply
in the development of the list.
b. Application of State procurement rules:
Left to the discretion of the trust.
c. Environmental review procedures:
DtP would retain responsibility for project reviews. The State's
program would likely be similar to current Federal procedures.
d. Report filing requirements:
The Trust is required to make annual activities report to the
Governor and Legislature. This report would include operating and
financial statements, financial assistance activity and a summary
of projects.
Fund accounts:
a. Dispersal of monies from fund/repayments of monies to fund:
The Trust has broad authority to establish accounts and
accounting systems it deems necessary to achieve statutory
intent. Of note is the provision for a covenant between the
Trust and bond-holders, and generally to create reserve accounts
for other purposes. Also, repayments of loans from the Trust
would be made to "general equity funds" as would all revenues and
receipts. (Unless required to be otherwise applied pursuant to
law). This means that new loans from this account could be made
for any environmental infrastructure project covered by the
authority of the Trust.
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52
7. Evaluation of program effectiveness (e.g. audits):
a. Program/project:
An annual audit of books and accounts of the Trust by a CPA would
be required. The State auditor may also audit the Trust. In
addition,the Trust would prepare every two years, a project
inventory to include, in part:
-A listing of all projects having received assistance,
specifying location, type, capacity, utilization and future
utilization, life expectancy, condition and effectiveness;
-An evaluation of repair, rehabilitation and expansion needs
for projects on the priority list approved by the
Legislature, plus the need for new projects for 10 years out.
3. Default experience/non-compliance with requirements:
a. Penalties and legal recourse:
State aid intercept provision combined with annual budget
planning is expected to prevent defaults quite effectively.
9. Private sector participation:
New Jersey recently enacted an alternative to its existing Local
Public Contracts Law that allows up to 40 year municipal service
contracts and permits an RFQ/RFP approach which gives municipalities
flexibility in collecting and reviewing bid proposals.
The extent of private sector involvement will depend on proposed
changes in Federal tax law. To date, it has been popular in
resource recovery projects in New Jersey.
10. Program issues or problems:
The Legislature must act on the Trust proposal which is a central
piece of the Governor's legislative package.
The earlier issue for some municipalities, regarding the exchange of
a grant for a loan, may be resolved by the "hold harmless" provision
in the enabling act that would retain Federal grant eligibility for
projects scheduled for grants in FY 85.
IV. Relation to Federal programs and legislative proposals:
New Jersey is eager for supporting Federal legislation and has
written its own legislation with language that would allow use of
Federal revolving loan fund capitalization grants.
V. Examples of materials available:
-copies of legislation
-legislative outline
-Priority System and Project Priority List for FY 1935
VI. State contacts:
John W. Gaston, Director, Nicholas G. Binder, Asst. Dir.,
Div. of Water Resources CG Administration Element
Dept. of Environmental Protection
CN029
Trenton, New Jersey 08625
(609)292-1637 (609)392-8961
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NEW MEXICO ENVIRONMENTAL IMPROVEMENT DIVISION (NMEID)
Summary
A 20% State matching grants program for wastewater treatment projects is
funded from severance tax proceeds. The legislature has also provided
special State appropriations in 1984 and 1985 for wastewater treatment. The
NMEID is planning to propose legislation to create a State-financed
revolving fund (SFRF). The fund is anticipated to be used to provide
financing where it is needed most, primarily for reserve capacity and
second-track funding.
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54
NEW MEXICO ENVIRONMENTAL IMPROVEMENT DIVISION (NMEID)
Program Annotated Outline
I. Program Description
1. Organization:
a. Scope (eligible projects):
State matching grants (2Q%) for wastewater treatment are
provided. Since 1977, the legislature has also made special
State appropriations for wastewater treatment. In 1984 and
1985 these appropriations exceeded the EPA grant program by
a factor of three. 100% grants are also available for
special projects (any infrastructure) from the NM Community
Assistance Program.
b. Agencies involved:
- NMEID administers the EPA/EID wastewater construction grant
program and is anticipated to administer the SFRF if
enacted (as the State's water pollution control agency).
- New Mexico Local Governments Division (L6D): Administers the
NM Community Assistance Program. The LGD reviews and
approves the annual budgets of municipalities in the State.
The LGD also assists municipalities in budget preparation.
- Hew Mexico Municipal League: Advisory role to
municipalities.
2. Establishment: State matching grants since the late 1950's.
3. Future picture:
Proposed legislation is planned for the creation of a
State-financed revolving fund (SFRF), for introduction to the
legislature in February, 1986, whether the Clean Water Act is
reauthorized or not.
II. Administrative
1. Training:
Plan to train the NMEID staff extensively for ro^es in
implementing and operating the revolving fund.
2. Staff size/skill niix:
Currently, the NMEID program is administered by 12 people, and
that number is anticipated to change if the revolving fund is
adopted. Staff includes: one manager, four engineers, two
administrators, two fiscal accountants, and support staff.
III. Operations
1. Capitalization of fund (funding sources):
The 2Q% State match is funded by the legislature from severance
tax dollars (coal, uranium, oil, gas, minerals). The legislature
also provided a special State appropriation (severance tax) for
wastewater treatment ($43 million in 1984 and $13 million in
1985).
2. Evaluation of applications (eligibility requirements):
a. Criteria for providing assistance (e.g. financial need):
The FmHA financial capability test is used.
3. Application of State procurement rules: Do apply.
4. Private sector participation: No current privatization projects.
None anticipated.
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55
5. Program issues or problems:
- Extraction levels are falling in the State, thus there is
reluctance to use revenue from severance taxes indefinitely. The
SFRF would provide revenue for much needed reserve capacity and
second-track funding. It is thought that general revenue funds,
possibly 1/4% gross receipts tax or other funding sources (not
severance monies), would be needed to capitalize the SFRF, due to
the restrictions on arbitrage.
- Survey of all communities in Fall, 1984 revealed $268 million in
all wastewater needs for next fiscal year regardless of funding
sources. Only $100 million may be eligible for EPA funding,
thus, major need is for second-track funding source (loan or
grant) with a separate priority list to address needs not
eligible for EPA program.
- 1986 enabling legislation will probably address just wastewater.
If successful, in 1987 or beyond may expand to address water,
solid waste, or other infrastructure.
- Note: Schedule calls for public meetings in August-September,
1985 to gather ideas, and draft possible bills in
October-November. Thus, details of the SFRF are subject to
change.
IV. Examples of materials available:
- State Statute: NM Uater Quality Act
State Statute: NM Environmental Improvement Act
List of Major NM Municipal and Industrial NPDES Permittees
-- NM Water Quality Control Commission Regulations
NM Water Quality Standards for Interstate and Intrastate Streams
V. State Contact Person:
Dave Manna, Program Manager
Environmental Improvement Division
Construction Grants Section
P.O. Box 968
Santa Fe, NM 87504
(505) 984-0020
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: NEW YORK STATE ENVIRONMENTAL QUALITY BOND ACT
Summary
The enactment of the New York State Environment Quality Bond Act
of 1972 authorized the creation of a State debt of $1.15 billion
to provide moneys for the preservation, enhancement, restoration
and improvement of the quality of the State's environment. A sum
of $650 million was dedicated to assist communities in
constructing new sewage treatment facilities. Bond proceeds are
used by the New York State Department of Environmental
Conservation to provide assistance to municipalities in the form
of grants. Environmental Quality bonds are backed by the full
taxing power of the State.
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57
NEW YORK STATE ENVIRONMENTAL QUALITY BOND ACT
I. Program Descr ipt i on.
A. Organization
1. Scope (eligible projects):
-sewage treatment facilities
-solid waste recycling
-air pollution abatement from public facilities
-acquisition of forest preserve land, wetlands,
and other unique lands
2. Agencies involved
-Dept. of Environmental Conservation (determines
cash needs to implement program)
-State Comptroller's Office (markets bonds)
-State Legislature (appropriates funds for bond
p r o g r am)
B. Establishment: 1972
1. Options initially considered:
Pure Waters Bond Act of 1965 provided $1 billion
in 30% grants to municipalities for construction
of POTWs. In addition, the shortfall in Federal
grants was prefinanced to 1 immit the local share
to 40%. Program ended in 3/72.
2. Political and legal considerations:
Voter approval required. Need for bond act due
to inadequate Federal assistance, higher
subsequent treatment standards, inflation, and
capacity requirements raised to meet 1990 flow
e s t ima t e s .
3. Statutory and constitutional restrictions:
None .
4. Subsequent program modifications:
Beginning 1984, the State will pay 1/2 of the
nonFederal share of 75% Federally funded projects
and 2/3 of the nonFederal share of 55% Federally
projects. Total assistance not to exceed 30%
total eligible project costs.
C. Future picture:
Environmental Quality Bond Act is under consideration
for 1986.
Revolving Loan program is currently under study.
II. Administrative:
Technical support and program administration is provided
by the Construction Grants staff in the Deptartment of
Environmental Conservation.
Administrative costs and operating budget are provided
through the agency's annual budget.
III. Ope rat ions :
A. Capitalization (funding sources):
$1.15 billion in State debt authorized by the State
legislature with passage of the Environmental Quality
Bond Act ($650 million targeted to providing
assistance to communities for construction of new
sewage treament plants).
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B. Leveraging capability: None
1. Marketing:
The State Comptroller typically borrows the bond
money for up to 2 years through issuance of bond
anticipation notes. This period allows the State
Comptroller's financial experts to take advantage of
the best possible market conditions before longer
term bonds are sold. Sale is through competitive
bidding to assure the State the lowest possible
interest rates.
2. Bond rating: AA
3. Reserve requirements:
An amount equal to 7.4% of debt issued must be
maintained in a contingency fund to cover inflation
costs .
C. Forms of Assistance:
1. Grants to communities for construction of new
projects. Total assistance not to exceed 30% of the
el igible cost.
With 55% Federal grants, municipalities must provide
15% of project cost (Local share of I/A projects is a
minimum of 7.5%).
D. Evaluation of applications (eligibility requirements):
1. Criteria for providing assistance:
a. project must be approved for Federal construction
grant s as s i s tance
b. bond funds are allocated according to priority
list
c. projects are rated and entered into the project
priority list based on the following criteria:
1. the nature of existing conditions which
require correction;
2. the value of the natural resource in need of
protection and/or improvement, the severity
of impairment to the quality and use of the
resource and the probable results of the
proposed project in terms of restoration of
beneficial uses and/or protection of public
health;
3. the need to maintain an on-going and
progressive water quality program;
4. the needs of communities statewide in various
population size categories.
2. Conditions placed on forms of assistance:
a. municipality must agree to proceed expeditiously,
complete the project according to approved plans
b. operate and maintain according to law, and not to
discontinue service without approval of the
commissioner
c. to provide for the payment of the local share
E. Requirements on loan recipient:
1. Local assurances:
N/A (I.e., loans are not involved.)
2. Applicability of State procurement rules:
All New York State procurement rules apply.
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59
3. Environmental review:
Projects must meet Federal construction grants
program environmental requirements and State
Environmental Quality Review Act requirements.
4. Report filing requirements:
The commissioner must keep adequate records of the
amount of Federal and State assistance received by
each municipality.
F. Fund accounts (disbursaI/repayment):
Other than the contingency fund, every dollar goes
toward construction. The commissioner makes payments
to a municipality as construction progresses. Total
State assistance is subject to final determination of
actual project cost upon completion.
G. Evaluation of program effectiveness: $8.6 billion worth
of assistance has been provided to date.
H. Default experience/non-compliance with requirements: N/A
I. Private sector participation:
Very little activity to date; privatization
has not been competitive with Federal construction
grant s.
J. Program issues and comments on legislative proposals:
1. Program planning is difficult given the unknown
impact of the Administration's tax reform package.
' 2. Concern with scope of new federal requirements if
proposed legislation becomes law (Assure
flexibi1i ty).
3. Concern with limitations on use of SRF loans; for SRF
to be effective for New York, eligibilities must be
broadened (The majority of the State's needs involve
CSOs).
IV. Materials Available:
A. Fact Book: Environmental Quality Bond Act of 1972
B. Amendments to the Environmental Conservation Law in
relation to the State share of eligible costs (Chapter 82
of 1984 Amendments)
V. State Contact:
W. F. Esmond, Jr . ,P.E.,
Director, Bureau of Program Management
New York State Department of Environmental Conservation
50 Wolf Road
Albany, New York
(518) 457-6252
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OHIO WATER DEVELOPMENT AUTHORITY (OWDA)
Summary
The Ohio Water Development Authority (OWDA) enters into Cooperative
Agreements with Local Government Agencies (LGA's) to finance the
construction of water supply and wastewater treatment facilities. These
agreements set the interest rate and the period of years over which the LGA
must repay the OWDA for the non-grant or local share of project costs.
Initial funding was provided from a $100 million State appropriation from
proceeds of the 1968 bond issue, and subsequent capitalization has been
solely from the sale of Water Development Revenue Bonds. In 1983, the
Hardship Program was initiated to provide low-interest loans to eligible
LGA's. Through 1984, the OWDA funded a total of 369 projects, having a
total project dollar-value in excess of $1.5 billion.
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61
OHIO WATER DEVELOPMENT AUTHORITY (OWDA)
Program Annotated Outline
I. Program Description
1. Organization:
a. Scope (eligible projects):
The OUDA administers the Local Government Agency (LGA)
Program, which provides loans for wastewater and water
supply construction projects. In addition, the OWDA's
Industrial Program finances (through IDB's) the
construction of pollution abatement facilities for
industry.
b. Agencies involved:
Ohio Environmental Protection Agency (OEPA)
Ohio Dept. of Natural Resources
Ohio Development Agency
2. Establishment: 1968.
a. Options initially considered:
Loans to LGA's were considered superior to grants. The
repayments provide capital for new loans and ensure the
longevity of the OWDA program.
b. Political and legal considerations: (see I.2.c. below)
c. Statutory and constitutional restrictions:
No constitutional provisions precluded the formation or
operation of the OWDA.
d. Subsequent program modifications:
The Pollution Abatement Program, initiated in 1969 by the
OWDA, provided loan financing for the local share of
projects that received Federal Grant (CG) monies. It
expired in 1974, and was replaced by The Clean Water
Program, which provided loans for State sewer and water
projects, as well as the local share of Federally funded
projects. In 1979, the Clean Water Program expired, and
was replaced by the Safe Water Program. In addition to
providing loans for the local share of project costs, the
OWDA funds the Federal share from the proceeds of Safe
Water Federal Grant Advance Notes. The Federal Grant
(CG) payments are pledged to the payment of principal of
the Advance Notes.
In 1983, the OWDA initiated the Hardship Program to
provide low-interest loans (2% and up) to LGA's unable to
finance at market interest rates.
e. Future picture:
Continue to offer loans at or near market rates, except
for the hardship cases. This strategy is necessary to
ensure long-term fund solvency.
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II. Administrative
1. Training: None specified.
2. Staff size/skill mix:
The OWDA is composed of a seven person staff; an executive
director, a chief engineer, a comptroller (CPA), a local
government agency representative (CPA), an administrative
assistant, a processer of payment requests, and a secretary.
The OWDA retains outside bond counsel and financial advisor
for market and investment expertise.
3. Administrative costs/operating budget:
A one-time administrative fee of 0.35% of total estimated
project costs is charged to the LGA. The 1984 operating
budget was appproximately $0.59 million.
The OWDA has eight board members; five appointed by the
Governor, and three voting ex-officio members from the Ohio
Environmental Protection Agency, Ohio Dept. of Natural
Resources, and Ohio Development Agency.
III. Operations
1. Capitalization of fund (funding sources):
The initial capitalization was from a $100 million State
appropriation from the proceeds of the November, 1968 bond
issue. There have been no further appropriations to the
fund. Revenue bond issues were as follows:
1971 - 74 $155 million
1975 - 78 $115 million
1979 $268 million (refunder)
1981 $ 40 million
1982 $ 72 million
1983 . $135 million
1984 $ 40 million
1985 $221 million (refunder)
The 1979 refunder freed-up $85 million which was used to
start the Safe Water Program in 1980. The current bond issue
(1985) is a refunder of the 1979 refunder. It is anticipated
to free-up approximately $55 million in funds. The released
monies come from the following sources:
- reduction in coverage required.
- reduction in debt service reserve.
- bonds bought back at less than face-value.
- monies now recoverable under new IRS rules.
2. Leveraging capability:
a. Marketing:
Bond counsel, Squire, Sanders, and Dempsey, provide
guidance on legal aspects of LGA program including bond
issues. The Ohio Company serves as financial, advisor for
each of the various bond issues and advises on bond
market conditions for the OWDA. The trustee bank handles
all payments from the OWDA (including constuction
contractor, LGA, and paychecks).
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63 -
b. Bond rating:
Prior to the 1985 bond issue, the OWDA had an A rating.
The 1985 issue has an Aaa rating, being the first OWDA
issue to carry bond insurance (AMBAC).
c. Reserve requirements and amount of coverage:
Adequate debt service reserve funds, dedicated to
principal and interest payments on the bonds, are
required by the market place. Historically, coverage
requirements to permit the issuance of additional bonds
necessary to keep the construction fund revolving, has
been 120% of maximum annual debt service requirements for
the first 10 years after bond issuance and 110% of
maximum annual debt service thereafter. There is no
local coverage requirement on the payback from LGA's to
the OWDA.
There is no "moral obligation" provision in the Ohio
statute.
d. Investment restrictions (e.g. limits on interest earned):
Federal restrictions on arbitrage must be observed.
3. Forms of assistance:
a. Loans (terms):
The contract interest rate is determined quarterly, by
adding 15 basis points to the "Bond Buyer's" 20 Bond
Index. Loan terms can be from 10 to 25 years (LGA
discretion).
b. Grants: None.
c. Rate subsidies:
A $15 million Hardship Program was established in 1983
from surplus funds. These monies are used to subsidize,
through blending, the contract interest rate to levels as
low as 2%. Loan terms are 25 to 30 years. Only LGA's
that are determined by the OEPA to be unable to afford
market rate loans are considered. Typically, eligible
LGA's have projected sewer rates that exceed $20 per
month. The OEPA determines affordable loan terms and
interest rates for eligible LGA's. Subsequently,
eligible LGA's enter into Cooperative Agreements with the
OWDA under the subsidized terms.
d. Bond insurance: None.
e. Loan guarantees: Not available.
f. Other credit enhancement: None.
4. Evaluation of applications (eligibility requirements):
a. Criteria for providing assistance (e.g. financial need):
A prospective pool of applicants is served on a
first-come, first-serve basis. The OWDA will fund any
legitimate project costs (up to 100%). The cap for LGA
financing from the OWDA cannot exceed $100 million or 10%
of the total (water and wastewater) loans outstanding
from the OWDA, for any applicant whose notes or bonds are
rated below investment grade. The OEPA is responsible
for assessing the eligibility of LGA for participation in
the low-interest loan Hardship Program (see II.3.c.
above).
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64
b. Conditions placed on forms of assistance:
The LGA must enter into a Cooperative Agreement with the
OWDA prior to receiving a loan (see III.5.a.i. below).
5. Requirements on loan recipient:
a. Local assurances:
i. financial (e.g. dedicated repayment source):
The OWDA will not approve a Cooperative Agreement
with a LGA until the following criteria are met:
(1) Bids have been received and contract awards have
been tentatively approved.
(2) Legislation passed authorizing the signing of the
Cooperative Agreement.
(3) Completed any necessary assessment, tap-in, and/or
rate legislation.
(4) Prepared an amortization schedule projecting
revenues, debt service obligations, and 0 & M
costs, over the contract term of years repayments
are made to the OWDA.
(5) Received notification by U.S. EPA of grant (CG)
award (if any).
ii. environmental:
All projects must be approved by the OEPA, and those
receiving Federal (CG) funds must have U.S. EPA
approval. The applicant agrees to comply with all
Federal and State requirements for construction and
operation and maintenance of the project.
b. Application of State procurement rules: Do not apply.
c. Environmental review procedures: (see IH.S.a.ii. above)
d. Report filing requirements:
Loan repayments must be made to the OWDA according to the
dedicated schedule detailed in each Cooperative
Agreement. No other report are required of the LGA.
6. Fund accounts:
a. Dispersal of monies from fund/repayments of monies to fund:
The OWDA pays all construction costs directly to the
contractor. All other project costs are reimbursed
directly to the LGA. The money is dispersed monthly
during the construction period. The interest rate
charged during construction is 4% below the contract
interest rate (in order to compete with short-term note
financing).
If the project is eligible for a Federal (CG) grant,
payments are made from two separate accounts; (1) OWDA
Construction Fund (interest charged), and (2) Grant
Advance Fund (no interest charged).
Semi-annual repayments from LGA's to the OWDA
typically begin immediately after the anticipated date of
project completion. Repayments may be made on an equal
annual basis, or an equal annual principal basis (as
specified in the Cooperative Agreement).
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65
7. Evaluation of program effectiveness (e.g. audits):
a. Program/project:
Semi-annual financial audits of the OWDA program are
conducted by Peat, Marwick, Mitchell, & Co.
8. Default experience/non-compliance with requirements:
a. Penalties and legal recourse:
The Cooperative Agreement signed by the LGA and the OWDA
specifies that the user rates must be sufficient to cover
loan repayments. The OWDA has the power to force the LGA
to raise user rates through a court order. Only one LGA
has been served a court-ordered rate increase. Interest
is charged on late payments.
b. Refinancing option:
Not available once a LGA has signed into a Cooperative
Agreement. However, with prior arrangement, the OWDA
will allow the LGA to finance with short-term debt, and
arrange for long-term financing after the construction is
completed.
9. Private sector participation:
No privatization projects have been undertaken in Ohio.
The OWDA Industrial Program offers tax-exempt financing
(IDB's) for installation of pollution control facilities
(water and solid waste) by industry. The credit of the
industry involved must be sufficient to secure the bond
sale. Treatment plans must receive approval from the OEPA
prior to initiation of the bond sale. Through 1984, a total
of 104 Industrial Agreements had been signed, with a net
value of $1.2 billion.
10. Program issues or problems:
- The proposed Federal tax reforms may disallow tax-exempt
financing for non-public uses, which would affect the
OWDA Industrial Program.
- The OWDA is concerned that the 1984 Deficit Reduction Act
will affect the ability of the OWDA to issue Grant
Advance Notes. The OWDA has chosen not to issue any more
Grant Advance Notes until the regulations relating to
indirect guarantees are promulated.
IV. Relation to Federal programs and legislative proposals:
In the event of a Federal role in capitalizing SRF's, the
mechanism for implementation exists within the OWDA program.
V. Recommendations for other States considering similar programs:
Several key points central to the success of the OWDA program:
(1) An initial legislative appropriation for capitalizing the
fund.
(2) Simplicity of the Cooperative Agreements between the
LGA's and the OWDA (no reports to file, no necessity to
approach the bond market).
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66
(3) Charging at or near market interest rates to ensure fund
solvency. The OWDA is reluctant to subsidize the
interest rate below the market level, due to the threat
to long-term fund solvency.
(4) Consistent and long-term involvement with outside
expertise (bond counsel and financial advisor).
VI. Materials Available:
Brief overview of OWDA program
State statute: Ohio Water Development Authority Act
OWDA 1984 Annual Report
- July 1, 1984 OWDA Bond Issue
- April 1, 1985 OWDA Bond Issue
Fact sheet on OWDA Industrial Program
Regulations for Sewer and Water Supply Systems
Regulations for Hardship Program
Sample Amortization Schedule
Cooperative Agreement for Construction, Maintenance, and
Operation of State Water Project
Cooperative Agreement for Construction, Maintenance, and
Operation of State Sewer Project
Cooperative Agreement for Construction, Maintenance, and
Operation of Title II Project
Cooperative Agreement for State Planning Project
VII. State Contact Person:
E.B. Ransom, Executive Director
Room 1425
50 W. Broad St.
Columbus, OH 42315
(614) 466-5822
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67
OKLAHOMA WATER RESOURCES BOARD (OWRB)
STATEWIDE WATER DEVELOPMENT REVOLVING FUND
Summary
A Water Resources Fund (WRF) was created in 1979 from which loans could be
made for water resource development projects. The Oklahoma Water Resources
Board (OWRB) was given the authority to determine the interest rate required
of borrowers, and the repayment term of the loan. The bill was amended in
1982 to establish a Statewide Water Development Revolving Fund (SWDRF),
which was capitalized with a $25 million appropriation from the general
revenue fund. The interest earned in the SWDRF is earmarked to maintain a
small grant program at $5 million to help alleviate local emergencies. All
other interest income and Fund monies will serve as collateral for
investment certificates (bonds) issued to finance loans to local entities.
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68
OKLAHOMA WATER RESOURCES BOARD (OWRB)
STATEWIDE WATER DEVELOPMENT REVOLVING FUND
Program Annotated Outline
I. Program Description
1. Organization:
a. Scope (eligible projects):
Projects eligible for OWRB loans and grants include wastewater
treatment (since 1980) and surface or subsurface water
conservation or development (segregated accounts).
b. Agencies involved:
- Oklahoma Water Resources Board
- State Treasurer's Office
2. Establishment: 1979 (first bond sale 1982)
a. Options initially considered:
The 1979 legislation limited loans to a maximum of $1.5M; this
limit was removed in 1982. Grants were limited to $50K per
community per year by 1980 legislation; in 1982 this limit was
raised to $100K, or not exceeding 20% of grant funds available
during any fiscal year. The 1979 legislation limited loans to
partially Federally funded projects; the 1980 legislation
eliminated that requirement.
b. Political and legal considerations (see I.2.c. below).
c. Statutory and constitutional restrictions:
A constitutional amendment authorizing use of the Revolving
Fund appropriation for security and collateral for debt
issuance was passed in 1984, overruling the Oklahoma Supreme
Court finding that the statute was unconstitutional. An
Attorney General's opinion determined that competitive bidding
was required to retain services of an underwriter, trustee
bank, bond insurer and financial consultants.
d. Subsequent program modifications: None required.
e. Future picture:
Anticipate future bond issues to maintain lower cost financing
to communities; intend to make fund self-supporting.
II. Administrative
1. Training:
Attended seminars sponsored by private sector; OJT.
2. Staff/skill mix:
The staff to the SWDRF is expected to comprise 3 engineers, 1
financial analyst, and 1 secretary. The Board retains outside
bond counsel and financial consultants.
3. Administrative costs/operating budget:
The operating costs are approximately 1.5% of the program, not
including costs for the technical review by construction grants
staff in the Department of Health, prior to their issuance of
construction permits. The objective of the OWRB is to keep the
interest rate charged to loan recipients as close to the State's
cost of money as possible (i.e. no more than 8.95% based on
current issue costs of 8.68%). The OWRB has a nine-member Board
which meets once a month.
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69
III. Operations
1. Capitalization of fund (funding sources):
The 1982 legislation appropriated $25M from the State general
revenues to be used as security and collateral. The interest from
this fund 1s used to maintain the grant fund. Additional
interest, exceeding $5M in the grant fund, is used to increase the
collateral for investment certificates (bonds). There have been
no further appropriations.
Revenue Bond issues were as follows:
1982 $1,160,000 (project specific)
1985 $50,000,000 (blind pool)
2. Leveraging capability: 1:6.7
a. Marketing:
Guidance on market conditions and coordination of sale for
current issues provided by: Bond Counsel - Fagin, Brown, Bush,
Tinne, Kiser & Rogers; Financial Advisor - Stifel, Nicolous &
Company, Incorporated. Both are located in Oklahoma City, OK.
b. Bond Rating: AAA
c. Reserve requirements and amount of coverage:
Reserve requirement: 15% (i.e., $7.5M. on $50M). The current
issue is insured by the Municipal Bond Insurance Corporation.
As a condition of the insurance policy, only $7.5M of the
issue can be backed by loans to communities that do not
receive an investment grade rating of BBB or better (Standard
& Poor's). A collateral fund from the $25M reserve had to be
created to cover dollar for dollar loans to these.communities
as additional security. The coverage requirement is for local
cash flow equal to 125% of O&M and prinicipal and interest.
d. Investment restrictions (e.g. limits on interest earned):
An arbitrage certificate which details the Federal limitations
on investment earnings accompanies each bond issue. State >aw
limits State from charging more than 15% interest. All of the
bond proceeds must be loaned within three years or the Federal
arbitrage limits start to apply.
3. Forms of assistance:
a. Loans (terms):
For loans from the current $50M issue, the interest rate will
be no more than 9%. The board may defer repayment of
principal or an installment on such assistance for a total
cumulative period not to exceed five years. Two loans were
made from a 1982 bond sale totalling $674,189. Loans may be
made to projects partially funded by Federal funds.
b. Grants:
Emergency grants are limited to a maximum of $100K per
community per year, not to exceed 20% of the Grant fund
balance. Since July 1983 and ending by fiscal year 1985, 83
communities received grants totalling $5,971,333. Loans and
grants can be combined.
c. Rate subsidies: Not available from the State.
d. Bond insurance: Not available from the State.
e. Loan guarantees: Not available from the State.
f. Other credit enhancements: Not available from the State.
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4. Evaluation of applications (eligibility requirements):
a. Criteria for providing assistance (e.g. financial need):
For loans, applicant must provide information on the ability
to finance the project without Board assistance, and ability
to repay loan. Loans under current issue will be made on a
first-come, first-serve basis. For grant applications, the
applicant must provide a local declaration of emergency,
relative needs, availability of revenues to finance the
project without assistance, significance of need, per capita
indebtness, income, and other financial information.
b. Conditions placed on loans:
Security on loan: mortgage on project, lien on revenues, and
additional security as required by Board.
5. Requirements on loan recipient:
a. Local assurances:
i. Financial (e.g. dedicated repayment source):
Loan recipient must demonstrate they will have adequate
revenues to meet repayments on schedule (see also III.4.b.
above).
ii. Environmental/technical:
Loan recipient must meet requirements of the State
Department of Health, and (if Federally funded) any
applicable Federal requirements.
b. Application of State procurement rules:
State rules apply but do not require competitive bidding on
selection of engineering services.
c. Environmental review procedures: (see Ill.S.a.ii. above).
d. Report filing requirements:
While the assistance is outstanding, the Board has the right
to inspect the project.
6. Fund accounts:
a. Dispersal of loan monies from fund/repayments to fund:
Loan dispersals are based on project specific agreements; may
include advance, but can not be total lump sum payment. Board
may require documentation prior to any disbursement. Not more
than 9Q% disbursed until Board has approved the project as
constructed. Grant funds may be disbursed in a lump sum.
Grant disbursements are based on the bid and sent to a
separate account within the grantees accounting system.
Unused or reserved funds are returned to the fund.
7. Evaluation of program effectiveness (e.g. audits):
a. Project:
Upon completion, applicant must notify Board which will
conduct inspection and audit.
b. Program:
Annual OWRB report to Legislature.
8. Default experience/non-compliance with requirements:
No monetary default has occurred in program. Non-compliance with
requirements has not been a problem.
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a. Penalties and legal recourse:
Can require community to raise user charges; can reamortize
loan; can use interest earned on fund to cover temporary late
payments; can call on insurance. Trustee bank monitors and
advises Board if potential problem. No forgiveness of loans.
9. Private sector participation:
Oklahoma City has service contract for operation of wastewater
treatment works.
10.Program issues or problems:
None since constitutional issue resolved.
IV. Relation to Federal programs and legislative proposals:
If unable to leverage capitalization grant and if Title II
requirements apply, would not be able to operate on a self-sustaining
basis and State loans would be less competitive with private sector.
May have to amend law to restrict use of Federal grant to only
wastewater projects.
V. Recommendations for other States:
- Carefully research State law, constitution, case law, Attorney
General opinions; look for issues such as prohibition on State
assumption of local debt, use of general obligation bonds,
limitations on interest earned or charged, use of competitive bidding
requirements.
- Consider benefits of leveraging and ability to operate without
regular appropriations.
- Insure that the agency administering the revolving fund can meet
legal and market requirements to assure successful bond issues.
VI. Examples of materials available:
-State Statutes
-Legislative history, article on program
-Oklahoma Supreme Court decision
-Chronology
-Administrative regulations
-Grant priority system
-Grant and loan application forms
-FY85 Report to Legislature (Proposal for FY86)
-Notice of Sale for Series 1985 Bond issue
-Article on successful bond issue
-Pamphlet on program
VII. State Contact Person:
Wai id Maher, Chief
Planning and Development Division
Oklahoma Water Resources Board
1000 N.E. 10th Street
P.O. Box 53585
Oklahoma City, OK 73152
(405) 271-2555
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THE TENNESSEE LOCAL DEVELOPMENT AUTHORITY (TLDA)
Summary
The Tennessee Local Development Authority (TLDA) was created during the
1978 session of the General Assembly and had its first bond issuance in
1981. This is an expanded version of a loan program created in 1970 to
provide the 25% match for the EPA grant program. The Authority provides
financial assistance for the construction of wastewater treatment plants,
water projects, and solid waste resource recovery facilities. The TLDA has
a legislative authorization of $339.4 million, of which $139.025 million is
for wastewater treatment facilities.
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TENNESSEE LOCAL DEVELOPMENT AUTHORITY
Program Annotated Outline
I. Program Description:
The Tennessee Local Development Authority (TLDA) is a bond bank that
is authorized to issue loans to provide financial assistance for the
construction of wastewater treatment plants and solid waste resource
recovery facilities. The TLDA pools local bond issues in order to
improve the marketability of the loan offerings.
1. Organization:
. a. Scope (eligible projects)
-wastewater treatment plants
-water projects
-solid waste resource recovery facilities
b. Agencies Involved:
-Safe Growth Team (Governor's office)
-Dept. of Health and Environment
-Comptroller of the Treasury
-Office of Water Management
2. Establishment:
a. Options initially considered:
Original loan program, set up in 1970, was financed
through the issuance of State general obligation bonds and
bond anticipation notes. Though the program worked well,
the large future needs threatened to adversely effect the
State's strong credit rating.
b. Political and legal considerations:
There is strong political support to clean up water
resources in the State. This has allowed a strong State
supported financing program to develop.
c. Statutory and constitutional restrictions:
Annual debt service on loans to local governments can not
be larger than twice the annual State-share of taxes.
State-shared taxes consist of taxes collected at the State
level and appropriated and allocated by law to local
governments.
d. Subsequent program modifications:
Change in 1978 away from State G.O. bonds to revenue bonds
in order to protect the State's high (AAA) credit rating.
Authority had to establish its own credit rating.
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e. Future picture:
Authority will continue current program, with the
possibility of a larger loan authority. The authority is
considering a combination of grants and loans to fund
small communities that are unable to afford a straight
loan program.
II. Administrative:
1. Training:
No training program. Authority recieves assistance, expert
advice from other State offices, bond counsel etc.
University of Tennessee runs a municipal technical advisory
(MTAS) program that helps communities set up appropriate user
fees (rate structure manual)
2. Staff size/skill mix:
State Finance Board oversees program (includes State Treasurer,
Secretary of State, Comptroller, Commissioner of Finance, and
the Governor).
An accouriiant, two clerical staff members, and a secretary spend
approximately 30% of their time working on business for the
Authority, while a staff attorney spends 15% of her time on
TLDA business. The Authority also has use of the Attorney
General's office. Construction grants personnel do technical
review work.
3. Administrative costs/operating budget:
Administrative costs run approximately $60,000 annually for
staff salaries. Funds to pay administrative costs are derived
from interest earned from funds awaiting disbursement to
construction projects.
III. Operations:
1. Capitalization of fund (funding sources):
Total legislative authorization of $339.4 million, of which
$139,025,000 is for wastewater treatment.
List of debt offerings:
1981 — $90,675,000
1982 ~
92,250,000
1983 — $78,280,000
1984 - $68,850,000
1985 -- $21,350,000
Level of outstanding bonds is currently $58,662,000 (10%
interest).
Authority is not near appropriation limit. If limit is
reached, Authority would approach legislature for an increase
in funding level limits.
2. Leveraging capability:
7:1. Use of State appropriation and State moral obligation to
obtain a more favorable bond rating.
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a. Marketing:
Two bond issues in 1985, both through:
Bond Counsel ~ Wood Dawson Smith and Hellman, NewYork.
Underwriter — Prudential-Bache.
b. Bond rating:
The TLDA has a bond rating of: AA — Standard and Poor's
A+ — Moody's
Factors that determine rating include: 1) State moral
obligation, 2) control of user fee structure, and 3) debt
service requirements, 4) State-share taxes, and 5) power
to increase local property taxes to cover repayment costs.
c. Reserve requirements and amount of coverage:
There is a one-year debt service requirement for revenue
bonds. The debt service, until 1984, could not be larger
than a community's portion of State-share taxes. To
increase leveraging capability, the authority reduced the
debt service requirement to 50% of State-share taxes
(doubled borrowing capability). State set up statutory
reserve fund to cover the other 50% of debt service. The
Governor has a moral obligation to refill statutory
reserve fund if it is depleted.
d. Investment restrictions (e.g. limits on interest earned):
No restrictions on investments. Interest earned on monies
in fund in excess of 200% reverts back to the general
State fund.
3. Forms of assistance:
Assistance only given with assurances of user rate discipline.
In addition to repayment and operation and maintenance costs,
user fees must also cover replacement costs.
a. Loans (terms):
Size of loan varies with need and ability to repay. Can
be as high as 100% of construction costs.
Loans received through the TLDA have lower interest rates
than rates communities can get on their own. This occurs
through pooling mechanism and by the authority subsidizing
interest rates.
b. Grants:
Program originally set up to supplement EPA grant
program. Authority uses "Index of ability to pay,"
which rates financial capability of all communities.
Towns on the top half of the list are ineligible for
grants while the lower 50% are eligible for grants ranging
from 5-35%, depending on list ranking (lower ranking
cities can receive larger grants).
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c. Rate subsidies:
Indirect rate subsidies result from the authority's
ability to obtain lower interest rates on bond yields.
Communities receive direct subsidies if the authority
offers a reduced interest rate or grant to offset
pressures on user charge fees.
d. Bond insurance:
Not used.
e. Local guarantees:
None.
4. Evaluation of applications (eligibility requirements):
a) Criteria for providing assistance (e.g. financial need)
Local Development Authority, along with the Dept. of
Health and Environment, reviews and approves loan
applicants if:
1) The project is technically feasible.
2) The project can be operated with the department's
environmental standards.
3) The project meets EPA eligibility criteria (sewage
treatment only).
5. Requirements on loan recipient:
a. Local assurances:
Municipalities must establish a user fee to provide debt
service repayment on loans, operation and maintenance, and
depreciation costs.
Municipalities must promise to levy appropriate user fees,
increase property taxes if necessary and agree to a
cut-off of State-share taxes if community goes into
default.
b. Application of State procurement rules:
No state regulations.
c. Environmental review procedures:
Abide by same environmental regulations that apply with
the construction grants program.
d. Report filing requirements:
Each community must file an audit report to the State
Auditor's Office every year. This is reviewed by the
local Municipal Finance Division to determine whether user
charge fees are adequate to pay off all costs associated
with the facility.
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6. Fund accounts:
a. Dispersal of monies from fund/repayments of monies to fund:
Local .Development Fund ~ funds derived from bond issues
are dispersed to communites. A main goal of the
Authority is to have the ability to issue long-term loans
at fixed interest rates under 10%. Authority maintains
watch over borrowing communities to ensure continued
ability to repay loans.
7. Evaluation of program effectiveness (e.g. audits):
a. Program/project:
The State requires annual audits of each community. Those
with outstanding loans are reviewed to see whether user
charge rate structure is adequate to repay debt service,
0 & M, and depreciation costs. Audits are undertaken by
the Division of Municipal audits.
8. Default experience/non-compliance with requirements:
a. Penalties and legal recourse:
Under the current program, there have not been any
defaults. If a borrowing community does go into default,
the authority has several options to recover the funds.
They include:
1) increasing the user fees of the community.
2) withholding State-share taxes.
3) collection of an ad valorem tax.
b. Refinancing option:
The Authority does not allow refinancing of loans. Policy
is that refinancing is not a solution to a problem -- it
only extends it. Monitoring communities allows for
resolution of problems before they become major ones.
9. Private sector participation:
Larger communities, which do not receive grants from the
Authority, may opt for privatization. The Authority does not
get involved with these projects, and they are not eligible for
loans.
10. Program issues or problems:
-There is no ongoing review of past loan recipients to
determine whether communities are maintaining adequate user
fees.
-Current Federal programs (particularly FmHA) do not promote
self-sufficiency. There should be provisions in grant
programs that user fees must be adequate to cover
depreciation, operation and maintenance, and debt service
costs.
-Engineers on construction sites are given too much
responsibility. They are often called upon to make important
decisions outside of their field, due to lack of trained
professionals.
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IV. Relation to Federal programs and legislative proposals:
The Authority is working diligently to have wastewater treatment
facilities in compliance by the July 1, 1988 deadline. The Local
Development Authority could use Federal funds and would be able to
comply with a State match. The Authority would like the
flexibility to use the funds as a reserve fund to obtain lower
interest rates on bond issues.
V. Materials Available:
-overview of the Tennessee Local Development Authority.
-TLDA: State Loan Program, General Bond Resolution.
-legislation of program.
VI. State Contact:
Mr. Ben L. Smith, Executive Director
Safe Growth Team
State of Tennessee
Suite 1600
James K. Polk Building
Nashville, TN 37219
(615) 741-5732
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TEXAS WATER DEVELOPMENT FUND (TWDF)
Summary
The TWDF has financed the construction of wastewater treatment and
water supply projects since 1957. Loans are provided to Political
Subdivisions from the proceeds of TWDF general obligation (G.O.)
bonds. A bill recently passed by the legislature and signed by the
Governor, will provide an additional $980 million G.O. bonding
authority to the TWDF. In addition, a proposal to create a Revenue
Bonding Authority, controlled by the TWDF, is currently under
consideration.
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TEXAS WATER DEVELOPMENT FUND (TWDF)
Program Annotated Outline
I. Program Description
1. Organization:
a. Scope (eligible projects):
The Texas Water Development Fund (TWDF) provides loans for
wastewater (Water Quality Enhancement Account) and water
supply (Water Development Account) projects. The TWDF has
dealt primarily with Political Subdivisions (PS) unable to
enter the bond market due to either poor or overextended
credit.
b. Agencies involved:
- Texas Dept. of Water Resources
- Texas Municipal Advisory Council
2. Establishment: 1957.
a. Options initially considered: Not discussed.
b. Political and legal considerations:
None in current program, although the State legislature
examined some of the restrictions under the proposal
described below (see 1.3. below).
c. Statutory and constitutional restrictions: (see I.Z.b. above)
d. Subsequent program modifications:
The Water Conservation and Development bill passed the
State legislature and was signed by the Governor this
year. The voters approved the bill by a 3 to 1 margin in
November, 1985. The package provides $980 million bonding
authority to the Texas Water Development Board (TWDB),
which governs the TWDF (see II.3. below). The $980
million is to be divided in the following manner:
Water (Water Development Account) $190 million
Sewer (Water Quality Enhancement Account) $190 million
Water Reservoir Purchase $400 million
Flood Control $200 million
In addition, the legislature authorized loan guarantees
from the TWDF of up to $500 million, backed by $250
million full faith and credit of the State. A 2:1
leveraging ratio is achieved from this loan guarantee
provision.
3. Future picture:
A proposal to create a Revenue Bonding Authority
(non-profit), controlled by the TWDB, nearly passed the
legislature in 1984. This "Portfolio Asset Restructuring"
proposal is a form of advance refunding. The TWDB would
sell its portfolio of loans to the Authority, and use the
proceeds to purchase US Treasury investments with
scheduled maturities corresponding to future debt service
requirements on outstanding TWDB Bonds. The Authority
would issue insured revenue bonds, which would be
collateralized solely from loans purchased from the TWDB.
The Portfolio Asset Restructuring is anticipated to
defease all outstanding TWDB debt, thus reducing the State
of Texas general obligation debt.
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II. Administrative
1. Training: None specified.
2. Staff size/skill mix:
The TWDF has a six member staff; a fund manager, a project
monitor, three accountants, and a secretary.
3. Administrative costs/operating budget:
The annual operating budget is approximately $215,000, which is
funded by an appropriation from the legislature. The Water
Conservation and Development bill (see I.2.d. above), increases
the operating budget to over $1 million. The TWDF is governed
by a nine member board (TWDB). The board reviews fund
activity, including permit issuance and enforcement.
III. Operations
1. Capitalization of fund (funding sources):
Initial capitalization occurred in 1957, when the TWDF was
given the authority to issue $100 million State of Texas
general obligation (GO) bonds. Since then, the TWDF has been
authorized to issue a total of $600 million in bonds, of which,
$118 million bonding authority remains.
2. Leveraging capability:
The fund has not been leveraged (see Ill.S.e. below).
a. Marketing:
Rely on bond counsel and investment advisor for matching
future projections with debt service schedules.
b. Bond rating:
All bonds issued are State of Texas GO, which carry a Aaa
rating.
c. Reserve requirements and amount of coverage:
The financial status of each PS is evaluated to determine
how much (if any) coverage and debt service reserve will
be required in the bond resolution.
d. Investment restrictions (e.g. limits on interest earned):
Federal limitations on arbitrage earnings.
3. Forms of assistance:
a. Loans (terms):
The TWDF provides loans to political subdivisions with
local bond ratings of Baa or lower. These loans are made
to each PS by purchasing the PS's locally bonded debt.
The terms of the loan are negotiated with each PS, and
outlined in a legally binding bond resolution. The loan
funds are provided from the proceeds of the TWDF bonds.
Loans may cover up to 100% of project costs. The interest
rate offered to the PS is usually about 0.5% above the
rate on the most recent State bond issue. Loan terms may
be up to 20 years, with the average maturity being 11-13
years. Long-term loans (30-40 years) were given in the
past, but are considered unsatisfactory from a market
perspective.
b. Grants: Not offered.
c. Rate subsidies: No subsidies are offered.
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d. Bond insurance:
Not used in current program. However, under the proposed
Revenue Bonding Authority (see 1.3. above), bond insurance
would be utilized to obtain the highest possible credit
rating and therefore lowest interest cost on revenue bonds.
e. Loan guarantees:
The current program has no loan guarantees, but the bill
passed in November 1985 (see I.Z.d. above) allows the TWDF
to provide loan guarantees of up to $500 million, backed
by $250 million full faith and credit of the State of
Texas (providing 2:1 leveraging).
f. Other credit enhancement: None.
Evaluation of applications (eligibility requirements):
a. Criteria for providing assistance (e.g. financial need):
Projects are dealt with on a first-come, first-serve basis
(no priority list). Political subdivisions judged
eligible usually have had difficulty entering the bond
market on their own. Thus, the TWDF primarily services PS
with poor or overextended credit (Baa rating or lower).
Reports from the Texas Municipal Advisory Council are
utilized for assessment of PS financial soundness.
b. Conditions placed on forms of assistance:
Political subdivisions must demonstrate on the Application
for Financial Assistance that they can make scheduled
repayments to the TWDF, or the loan will not be given.
Requirements on loan recipient:
a. Local assurances:
i. financial (e.g. dedicated repayment source):
The required pledge of revenues for loan repayment from
the PS does not have to be user-charge based. The PS
may use any form of tax or revenue stream to satisfy
their repayment requirement.
ii. environmental:
All projects are reviewed by the Texas Dept. of Natural
Resources, and those receiving Federal funds are
subject to US EPA approval.
b. Application of State procurement rules: Do not apply.
c. Environmental review procedures: (see Ill.S.a.ii. above)
d. Report filing requirements:
An Application for Financial Assistance must be filed with
the TWDF in order to be considered for a loan. As long as
payments are made to the TWDF on schedule, no further
reports are required. The financial condition of all PS's
with outstanding loans is regularly monitored. The TWDF
uses this preventative approach to ensure early detection
of PS financial problems which could affect loan
repayments. The TWDF may require monthly operating
statements from a PS having difficulty meeting payments.
Fund accounts:
a. Dispersal of monies from fund/repayments of monies to fund:
Loan funds are dispersed to PS in one lump-sum payment.
Repayments from the PS are deposited into an I&S (reserve)
fund, which is dedicated to debt service on the
outstanding bonds. Any remaining repayment monies are
deposited in TWDF accounts for providing new loans.
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7. Evaluation of program effectiveness (e.g. audits):
a. Program/project:
The TWDF requires an annual audit of every project by a
CPA.
8. Default experience/non-compliance with requirements:
The TWDF has had no defaults in its history.
a. Penalties and legal recourse:
The TWDF has the power (authorized in the bond resolution)
to force the PS to raise user-rates through a court
order. A forced increase has been used at least once to
prevent a default. If a PS is unable to remedy its
repayment obligations, the TWDF can have a court-appointed
trustee take over the ownership and operation of a project.
b. Refinancing option:
Not typically a part of operations. If a political
subdivision's user-charges and other revenue sources are
severely strained, the TWDF may consider, as a last
resort, some adjustment of the loan terms.
. 9. Private sector participation:
No major municipal projects have been privatized. Many
builders and developers in the State have constructed and
operated plants in newly developed areas.
10. Program issues or problems:
The proposed Federal tax reforms may disallow advance refunding
schemes, including the "Portfolio Asset Restructuring" proposed
by the TWDF (see 1.3. above).
IV. Relation to Federal programs and legislative proposals:
In the event of a Federal role, some changes to the TWDF statute
would be necessary.
V. Recommendations for other States considering similar programs:
A system for assessing a political subdivision's ability to meet
future debt service obligations is necessary to ensure loans will
be repaid on schedule.
VI. Examples of materials available:
- Chapter 313: Rules Relating to Financial Programs
- Water Conservation and Development Act (November, 1985)
- Report on TWDF "Portfolio Asset Restructuring"
- List of all projects financed with TWDF loans
- Sample of Texas Municipal Advisory Council Report
- Official Statement of Texas Water Development Bonds, Series
1985A and 1985B
- Summary of Procedures to Close a Loan for a Water Quality
Project
- Procedures for Implementation of the Water Quality Enhancement
Loan Program / Water Loan Assistance Program
- Plans and Specifications Review Worksheet
- Sample Application for Loan Assistance
- Bond Resolution Checklist
- Sample Bond Resolution
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VII. State contact person:
M. Reginald Arnold II
Development Fund Manager
Texas Water Development Fund
P.O. Box 13037
Capitol Station
Austin, IX 78711
(512) 463-7367
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UTAH WASTEWATER LOAN, CREDIT
ENHANCEMENT AND INTEREST BUY-DOWN PROGRAM
Summary
A Loan and Credit Enhancement Program for municipal wastewater projects has
been operational for two years. The proceeds from $20 million in State bonds
were used to subsidize interest rates by allowing loans at the same rate that
the State paid to issue bonds (7.324%). The repayments are allotted to a Fund
which is available for financial assistance to local governments. All
communities are required to develop a financial plan and a plan for
maintaining/achieving compliance. A Report to the Legislature on the first
year of the program resulted in modifying the legislation to include revolving
loans with variable interest rates.
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UTAH WASTEWATER LOAN, CREDIT
ENHANCEMENT AND INTEREST BUY-DOWN PROGRAM
Program Annotated Outline
I. Program Description
1. Organization:
a. Scope (eligible projects):
Projects eligible for loans, credit enhancement and
interest buy-down agreements include wastewater treatment,
drinking water, and water development projects.
b. State Agencies involved:
- Department of Health (wastewater, drinking water)
- Division of Water Resources (water development).
2. Establishment: 1983.
a. Options initially considered:
Loans and credit enhancement agreements. The program will
continue to make credit enhancement agreements which loan
or grant money to purchase bond insurance, but will
probably not use letters-of-credit.
b. Political and legal considerations:
Goal of legislature—maximize leveraging, fully consider
private sector for contractual and financial assistance.
c. Statutory and constitutional restrictions:
Agreements do not constitute a pledge or charge against the
general revenues, credit or taxing powers of the State.
d. Subsequent program modifications:
Expanded non-loan provisions to include interest buy-down
agreements and provisions for variable interest rates for
loans.
e. Future picture:
Appropriations for future loans unlikely. Preliminary
discussions of central infrastructure bank, but no
legislative initiation yet.
II. Administrative
1. Training:
None used. Experience with construction grants delegation and
older water resource loan program.
2. Staff size/skill mix:
Program administrator, .25FTE accountant .50FTE accounting
technician, technical review by existing construction grants
staff. Contract services: bond counsel, financial advisors.
3. Administrative costs/operating budget:
Currently operating with insufficient funds (at 1% bond
proceeds). Optimal level estimated at 2% of program. Closing
costs are charged to community on an actual time basis and
overhead, technical review by construction grants staff not
charged for.
III. Operations
1. Capitalization of fund (funding sources):
Initial capitalization of loan fund ($20M in 1983) was from
$50M State general obligation bond ($30M used for drinking
water and water resources). In addition the legislature
appropriated $5.0M for credit enhancement agreements, $2.5M
for wastewater and $2.5M for drinking water. Repayments of
loans are paid into that account.
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2. Leveraging capability (of credit enhancement program): 39:1
a. Marketing:
Special Counsel: Sutter, Axland, Armstrong and Hanson (Wm.
Prater)
b. Bond rating:
State bond rating: Aaa. Under credit enhancement
agreements, a bond insurance policy generally results in a
Aaa rating for local bonds.
c. Reserve requirements and amount of coverage:
Community given 6 years to build up a reserve of one year's
principal and interest. Coverage: must show local revenue
stream that is 125% of 04M and principle and interest
payments.
d. Investment restrictions (e.g. limits on interest earned):
Federal arbitrage limits apply to funds from the original
general obligation bond issue not used in the construction
of projects within three years. Possible extention to five
years if lack of use of funds due to physical limitations.
3. Forms of assistance:
a. Loans (terms):
All available loan funds ($20M) have been committed. Loans
are evidenced by the issuance of local bonds to the State
with the loan funds deposited in a supervised escrow
account. Interest rates on the loans were the same as the
cost of the original bond issue to the State (i.e. 7.3%).
The term set by the Committee is no greater than 20 years.
Future loans can be made at other than the States cost of
money. Loans can only be made after credit enhancement,
interest buy-down agreements, and private sector
involvement have been evaluated.
b. Grants: Not made under this law.
c. Credit Enhancement agreements:
- Bond insurance -- several no-interest loans have been made
for the purchase of municipal bond insurance payable at the
end of the bond maturation period. A bond issuance policy
generally yields an Aaa bond rating, and may achieve a one
to two percent savings on interest rates (beneficial mainly
to medium to larger communities with projects of $1.5M or
larger).
- Letter of Credit - One no-interest loan made ($125K) to
purchase a letter of credit. Pay back period = 10 years.
Difficult to do in Utah; bond insurance seems better.
d. Interest buy-down agreements:
- State loan at low interest rate is blended with best bond
terms available in private market to achieve target level
of subsidy.
- Legislation allows consideration of other unspecified
mechanisms.
- Trust account (invested sinking fund), though evaluated,
has not shown to be the cost effective solution due in part
to arbitrage limits on the account. Future purchasing
power of repaid loans make these approaches less attractive
to the program.
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4. Evaluation of Applications (eligibility repayments):
a. Criteria for providing assistance:
Needs; ability to obtain funding from other sources
including use of privatization; ability to repay loan;
whether project is cost effective; whether the project
protects against present or potential health; a water
pollution control problem (State or Federal); financial
impact on community; readiness to proceed; and other
criteria the Committee may deem appropriate. State uses
financial capability guide book published by EPA. To set
the target level of subsidy, the annual user charge should
not exceed 1.5% of the. annual median household income and
should be comparable to user charges for other recent
projects. After evaluating financial options that will
provide equal subsidy to the community, the options are
compared to identify the one which, given the program
portfolio and finances, will best leverage available funds
and maintain the purchasing power of the program.
b. Conditions placed on forms of assistance:
Because the State purchases local bonds rather than making
loans, a more formal and public evaluation of the
transaction occurs, and a more thorough review of project
ownership (e.g. land or easement ownership). In addition,
a supervised escrow account is established for all project
funds (except in the case of very small State financial
involvement in the project). A bond must be provided for
the local staff handling repayment reviews. Additional
conditions may be required by the committee.
5. Requirements on loan recipients:
a. local assurances:
i. Financial: • •
Community can secure loan with revenue, general obligation
or assessment bond. Must present opinion from legal
counsel that the agreement represents a valid and binding
obligation (see III.7.a. and VI.4.b.).
ii.Environmental:
Environmental reviews similar to those done under
Construction Grants program, thrugh less detailed. Focus
on issues that would affect facilities ability to function
and effects on water quality.
b. Application of State Procurement rules: Yes, they apply.
c. Environmental review procedures: (see III.a.11).
d. Report filing requirements:
Simpler than Construction Grants. Program prepares annual
report to State Legislature.
6. Fund accounts:
a. Dispersal of monies from fund/repayments to fund:
After review by program staff, Trustee bank makes dispersal
from escrow account. Repayments go into State security
account for reuse in loans, credit enhancement or interest
buy-down agreements.
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89
7. Evaluation of program effectiveness:
Project inspections are conducted monthly. Audits are
conducted under normal State procedures.
8. Default experience/non-compliance with requirements:
No default experience. No forgiveness provisions.
a. Penalties and legal recourse:
State can charge late penalty, require acceleration of
payments, require community to raise user charges.
b. Refinancing options:
Possible to spread out payments (not done yet).
9. Private sector participation:
Privatization was hoped for when legislation originally
passed. Little activity expected in the future.
10. Program issues or problems:
Narrow range of communities can use credit enhancement
agreements. More loan funds are needed, particularly in light
of the Clean Water Act requirements. Many projects cannot be
sufficiently funded with credit enhancement or interest
buy-down agreements alone.
IV. Relation to Federal Programs and Legislative Proposals:
In the event of a Federal SRF program, the State Legislature would
need to allow leveraging of Federal funds. Based on the FY 85
allotment, Utah could probably use 20 percent of the FY 86
allotment for loans, 50 percent in FY 87, and 100 percent in FY
88.
V. Recommendations for Other States:
- Authorize multiple year funding in the beginning of the program.
Line-up projects before the bond issue.
- Start early (8-10 months to implement legislation — given prior
experience with State Loan program).
- In Utah, financially able projects on the construction grants
priority list elected to take only a loan. This enabled the less
financially able projects to move up on the list.
VI. Examples of materials available:
-Statutes
-Policies and Procedures (regulations)
-Application package (includes feasibility report format)
-Loan authorization letter
-form letters for fund transfers
-Construction phase report formats
-Progress report
VII. State Contact Person:
Don Ostler
Utah Bureau of Water Pollution Control
Room 4108, State Office Building
P.O. Box 45500
Salt Lake City, UT 84145-0500
(801) 533-6121
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90
WASHINGTON PUBLIC WORKS TRUST FUND
Summary
The Washington Public Works Trust Fund is a new program being
designed to address a statewide need for infrastructure financing
assistance, particularly in the areas of facility rehabilitation
and repair. Development of the trust fund was preceded by a
detailed inventory process that documented local government
financing capabilities and shortfalls throughout the State. The
trust fund operates as a revolving loan fund, and is capitalized
from dedicated tax revenue. The State legislature must approve
the fund's proposed project funding list and make an
appropriation for each approved project. The fund is intended to
be self-sustaining and readily adaptable to new Federal
requi rements.
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91
WASHINGTON PUBLIC WDRKS TRUST FUND
Program Annotated Outline
I. Program description
A. Organization
1. Scope: planning, acquisition, construction, repair,
reconstruction, replacement, rehabilitation, and
improvement of streets, bridges, water supply, storm
and sanitary sewage systems (focus is on repair and
rehabi1i tation).
2. Agencies involved
a. Public Works Board - 13 members appointed by
gove rnor
b. Department of Community Development (DCD)
provides staff support for Public Works Board
B. Establis hme n t
1. Options initially considered: dedicated
appropr i at i on
a. Invest monies that would otherwise be used for
bond fees.
b. State legislature did not believe this was
realistic.
2. Political/legal considerations
a. Source of capitalization monies
b. How to accomplish goal without stepping on turf
of any other state agency
3. Statutory/constitutional restrictions
a. Debt ceilings on general obligation bonds for
muni cipalities
b. Re-financing not permitted
c. Board is prohibited- from pledging credit on
taxing power of the state.
d. State legislature must approve project funding
list.
4. Economic consideration: State's bond rating is lower
than that of many of its local communities due to:
a. Unstable tax base
b. Cyclical economy
c. Washington Public Power Supply System (WPPSS)
default
d. State economy is changing (timber industry in
depression; agriculture uncertain; aerospace
industry expanding)
5. Subsequent program modifications: N/A
6. Status (as of 10/85): in middle of first funding
cycle
II. Administration
A. Training: none planned
B. Staff size/skill mix
1. Sma 11 staff
2. Expect to bring people on board who have some
financial expertise
3. No capacity in-house for conducting engineering
reviews; local applicants do their own engineering
reviews, which must be approved by the appropriate
regulatory agency (for wastewater projects, this is
the Department of Ecology through existing channels
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92
C. Administrative costs/operating budget: Staff support
costs are currently paid out of state's general fund; DCD
would like to change this to a percentage of the
Assistance Account so that staff funding would correspond
to program magnitude.
III. Operat ions
A. Capitalization: dedicated taxes
1. 60% of the monies collected via water, sewer, and
refuse collection taxes are deposited in the Public
Works Assistance Account.
2. 46.5% of the monies collected via conveyance taxes
are deposited in the Public Works Assistance
Account.
3. Expect $20.5 million per year from these dedicated
taxe s.
B. Leveraging capability: none
C. Forms of assistance
1. Loans
a. Low interest (up to 3% in first funding cycle);
zero interest for natural disaster or hardship
cases
b. Repayment monies are returned to the Public Works
Trust Fund
c. Term of loan: up to 20 years
d. Minimum local share: 10%
2. Loan guarantees: Board may pledge monies in the
account or to be received by the account to the
repayment of all or part of the principal of or
interest on obligations issued by local governments
to finance public works projects.
D. Eligibility requirements
1. The applicant city or county must be imposing a tax
of at least one quarter of one percent (This refers
to a real estate excise tax, the first quarter of
which must be dedicated to capital purposes.)
2. The applicant must have developed a long-term plan
for financing public works needs.
3. The applicant must be using all local revenue sources
that are reasonably available for funding public
works, taking into consideration local employment and
economic factors.
E. Requirements on loan recipient
1. Local assurances
a. Financial: Not yet determined
b. Environmental: As required by existing State
environmental protection law
2. Applicability of State procurement rules: Any
project for which a loan is received must be put out
for competitive bids.
3. Environmental review procedures: State environmental
laws, which DCD believes are generally more stringent
than NEPA, apply.
4. Report filing requirements: Biennial reports to
legislature and governor on the activities of the
Board.
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93
F. Fund accounts
1. Proposed project funding list must be prepared by
February 1st (at least for first funding cycle); all
applications reviewed at same time.
2. Legislature must approve the proposed funding list
(may delete, but not add, projects, and may not
(change priorities) and must appropriate funds for
each approved project.
3. Repayments are returned to the public works
assistance account to be used for new loans.
4. The Board may create subaccounts within the public
works assistance account.
G. Evaluation of program effectiveness
1. State auditor may audit program account records at
any t ime .
2. State auditor also audits individual projects
H. Default experience
1. No experience; not yet determined how to handle
a. Interception of other aid was rejected as an
option because such action threatens the rating
of all bonds.
b. Insurance may be good if interest rate is low
enough.
2. Thorough examination of local financial capability is
expected to minimize defaults
3. Washington is not a home-rule state, (i.e., all local
governments, districts, etc. serve at the pleasure of
the State)
I. Privatization/Joint Development
1. State legislature has appropriated $75,000 for a
study,expected to be completed in late November 198S,
on alternative financing mechanisms.
2. DCD is concerned about impact of the Administration's
proposed 1% restriction on tax exempt financing.
J. Program issue yet to be resolved: best way to pay for
staff support
IV. Compatibility with federal programs and legislative
proposals
A. Washington Public Works Trust Fund is a revolving loan
fund.
B. Board has authority to segregate accounts within the Fund
for dedication of repayments to specific infrastructure
categories, but has decided not to do so.
C. May require legislative action to allow re-finane ing,
etc .
D. Department of Ecology is currently examining the
possibility of establishing a separate revolving fund for
wastewater treatment facility construction only, in the
event of a Federal capitalization program
V. Recommendations for other states considering similar
p r o g r ams
A. Do an inventory of needs first.
B. Establish early collaboration between local governments
and the state.
C. Obtain bi-partisan support.
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D. Obtain support of at least one powerful legislator.
E. Obtain support of the governor.
F. Obtain broad private sector support.
VI. Materials Available
A. The Washington State Public Works Report, December 1983
B. The Washington State Public Works Report, Appendix,
December 1983
C. The Washington State Public Works Report, Executive
Summary, December 1983
D. Financing Public Works: Strategies for Increasing Local
Investment, December 1984
E. Substitute [State] Senate Bill No. 4228, effective date:
7/1/85
F. Substitute [State] House Bill No. 461
G. Application package
VII. State contact:
Stephen Hodes, Community Program Developer
Public Works Project
Department of Community Development
Ninth and Columbia Building
MS GH-51
Olympia, WA 98504-4151
(206) 753-32O5
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95
WEST VIRGINIA WATER DEVELOPMENT AUTHORITY (WVWDA)
Summary
The WVWDA initiated a low-.interest revolving loan program in 1975 and 1976
to cover the local share o'f planning (Step I) and design (Step II) costs.
The program funded 237 projects with loans totalling $8,651,264. In 1981, a
basic grant program that provided 5% grants for construction of wastewater
facilities was replaced with a hardship grant program. The hardship grants
are limited to $1 million and are based on an average user charge of
$19.75. Also in 1981, the statute was amended to expand WVWDA loan and
grant activities into the area of drinking water facilities' construction.
In 1982, a bond issue providing loans at 12% interest (the Sewage Systems
Loan Program) was blended with 0% loans (Supplemental Loan Program) from
state funds to enable the award of 10% loans to participating local
government entities (LGE's). In June 1985, a $46,320,000 bond issue
initiated the concept of a "prospective pool" to provide up-front, long-term
financing for unspecified water and sewer facilities' construction.
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96
' WEST VIRGINIA WATER DEVELOPMENT AUTHORITY (WVWDA)
Program Annotated Outline
I. Program Description
1. Organization:
a. Scope (eligible projects):
Projects eligible for WYWDA loans and grants include wastewater
treatment and drinking water (since 1981). Local government
entities (LGE's) using the WYWDA must meet requirements for
Federal grants and State regulatory provisions.
b. State agencies involved:
West Virginia Dept. of Natural Resources
West Virginia Public Service Commission
Governor's Office of Economic and Community Development
Municipal Bond Commission of West Virginia
State Tax Dept.
2. Establishment: Formed 1972, initiated operations 1974.
a. Options initially considered:
The WVWDA initially provided low-interest loans (from State
appropriations) to cover the local share of Step I and Step II
costs.
b. Political and legal considerations: (see I.2.c. below)
c. Statutory and constitutional restrictions:
No constitutional or statutory provisions precluded the formation
or operation of the WVWDA. LGE's are allowed to market bonds
under West Virginia law. These bonds are then purchased by the
WVWDA with proceeds from revenue bonds and State appropriations.
d. Subsequent program modifications:
The WVWDA program has evolved to provide low-interest loans and
grants for the local share of construction costs for wastewater
treatment and drinking water projects.
e. Future picture:
Continue low-interest loan program using bond proceeds blended
with State appropriations. The WVWDA may try to achieve
desirable lower interest rates (around 5%) for entities receiving
55% grants, but expresses concern that this will accelerate fund
depletion.
II. Administrative
1. Training: None specified.
2. Staff size/skill mix:
The WVWDA is composed of a staff of five persons; a director, an
engineer, an accountant, an administrative assistant, and a
secretary. The WVWDA retains outside bond counsel and investment
bankers for financial and market expertise.
3. Administrative costs/operating budget:
The annual operating budget is approximately $250,000, which is paid
from earnings from the bond program and the Step I and II loan
program. The WVWDA is governed by the seven-member West Virginia
Water Development Board, which meets several times a year.
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97
III. Operations
1. Capitalization of fund (funding sources):
Initial capitalization was from State appropriations, from which Step
I and II loans and grants were made. Subsequent annual appropriations
have averaged $4-5 million, and have been used essentially in the
grant programs. In 1977, the legislature appropriated $3.25 million
for a special reserve fund. The revenue bond issues were as follows:
1978 $ 8.1 million
1982 $14.2 million
1985 $46.3 million
The current bond issue includes an advance refunder of the 1978 and
1982 issues. In addition, ten projects ($19 million) with short-term
local notes were refinanced on a long-term basis. An allowance
(estimated loan amount) is also included for, but not limited to,
prospective participants that requested a loan, but have not yet
received grants from the US EPA.
2. Leveraging capability:
a. Marketing:
Lee 0. Hill, bond counsel from Jackson, Kelly, Holt, & 0'Parrel 1,
' and Harry Moore, investment banker from Young, Moore & Co., Inc.,
provide guidance on bond market conditions and coordinate sales
after approval by the West Virginia Water Development Board.
b. Bond rating:
The State of West Virginia had held a AA+ rating (Standard and
Poor's), but dropped to an AA- rating recently. Subsequently,
the WVWDA rating fell from A+ to A- (Agencies within the State
typically hold a.rating 1-step below the State rating).
c. Reserve requirements and amount of coverage:
In 1977, the legislative appropriation of $3.25 million was used
for a debt service reserve fund. The monies in the debt service
reserve account must always be adequately maintained. The
statute contains a "moral obligation" provision which provides
backing (although no legal obligation) of the bonds by the
State. If the reserve funds are ever used to pay off WVWDA
bonds, then the Chairman of the WVWDA will advise the Governor to
request the legislature to replenish the reserve fund.
Required coverage had been 130% for previous bond issues,
although the coverage required on the current (1985) issue was
reduced to 115%.
d. Investment restrictions (e.g. limits on interest earned):
An arbitrage certificate which details the Federal limitations on
investment earnings accompanies each bond issue.
3. Forms of assistance:
a. Loans (terms):
Since 1982, low-interest supplemental loans have been given at
10%, by blending (interest-rate buy down) bond proceeds at 12%
interest with 0% WVWDA funds. Loan terms are 40 years. The 1985
bond issue provides for loans at an interest rate of 9.75%.
b. Grants:
Hardship grants are limited to $1.0 million. A total of 35
hardship grants (over $13.6 million) have been made to date.
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98
c. Rate subsidies:
Use of blending to achieve 10% interest rates on supplemental
loans (see III.3.a).
d. Bond insurance: Not available from the State.
e. Loan guarantees:
The LGE must meet loan agreement requirements in order to receive
a WVWDA loan (see III.5.a).
f. Other credit enhancement: None.
Evaluation of applications (eligibility requirements):
a. Criteria for providing assistance (e.g. financial need):
In the current (1985) bond issue, a prospective pool of
applicants will be served by the WVWDA on a first-come,
first-serve basis. Previous bond issues have specified the LGE's
to receive loans from the bond issue.
b. Conditions placed on forms of assistance:
Prior to the current bond issue, LGE's were required to have
received a federal Step III grant in order to receive a WYWDA
loan. This requirement no longer applies, however, each LGE must
satisfy the loan agreement assurances (see III.S.a.i.K
Requirements on loan recipient:
a. Local assurances:
i. financial (e.g. dedicated repayment source):
The loan recipient must demonstrate to the WVWDA that they
will have adequate revenues to meet the repayments on
schedule. The user charges must be adequate to cover 0 & M,
principal and interest on the loan, and debt coverage. The
required coverage is 115% for 10 years. The coverage may be
reduced to 110% if the LGE borrows for its debt service
reserve up front. An additional account for
renewal/replacement, capitalized with 2.5% of gross annual
revenues, is included within the 110% cover.
ii. environmental:
The loan recipient must meet the requirements of the State DNR
and the U.S. EPA (for CG funded projects) prior to
consideration for a loan from the WVWDA.
b. Application of State procurement rules: Do not apply.
c. Environmental review procedures: (see Ill.S.a.ii. above)
d. Report filing requirements:
- Full financial statements
- Project tracking (monthly) during construction, developed from
cash flow projections.
- Recordkeeping procedures following construction.
Fund accounts:
a. Dispersal of monies from fund/repayments of monies to fund:
Loan funds are dispersed in one initial payment. Repayments from
LGE's go into a State sinking fund (invested in the name of the
entity), which holds the monies until the semi-annual (April 1,
October 1) payment dates. Interest is paid twice a year and
principal is paid annually.
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7. Evaluation of program effectiveness (e.g. audits):
a. Program/project:
State statute requires an annual audit of the WVWDA program.
Project audits are required by the WVWDA and the Public Service
Commission.
8. Default experience/non-compliance with requirements:
No monetary default has occurred in current program, however, one PSD
has been unable to meet the closing requirements for long-term
financing under the WVWDA program. Another PSD experienced a
technical default that has now been resolved.
a. Penalties and legal recourse:
Interest is charged on late payments.
b. Refinancing option:
Not typically a part of operations. Short-term notes held by
several local governments have been converted by the WVWDA into
long-term debt (see III.I).
9. Private sector participation:
No involvement yet, but there has been some corporate interest.
10. Program issues or problems:
Issue: How' to make the bond package taken to market attractive to
buyers?
The initial bond issue (1978) for wastewater treatment could have been
difficult to market. It did sell well, given the $3.25 million
legislative appropriation for debt service reserve and the required
130% coverage.
IV. Relation to Federal programs and legislative proposals:
In the event of a Federal role, the WVWDA does not foresee many
implementation difficulties or delays.
V. Recommendations for other States considering similar programs:
An initial legislative appropriation is highly desirable for capitalizing
the fund. It is very difficult to market bonds without established
reserves and a repayment schedule.
VI. Examples of materials available:
State statute: West Virginia Water Development Act
Administrative Regulations (WVWDA)
WVWDA Program Summary
WYWDA Financial Tracking Manual
WVWDA Annual Report FY 1983-1984
- 1982 WVWDA Bond Issue
Sample Loan Agreement
Sample Report of Examination of Financial Statements
VII. State Contact Person:
Ed Henry, Director
West Virginia Water Development Authority
1201 Dunbar Ave.
Dunbar, WV 25064
(304) 348-3612
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100
WYOMING FARM LOAN PROGRAM
Summary
The Wyoming Farm Loan Program is a state grant and revolving loan
program, capitalized from three separate sources, and established
to assist local governments with financing a variety of
infrastructure projects. The Farm Loan Board (FLB) consists of
the top five elected officials of the state (Governor, Secretary
of State, State Auditor, State Treasurer, and Superintendent of
Public Instruction), with the Farm Loan Commissioner serving as
Secretary to the Board. The loan program operated by the FLB is a
revolving fund in the sense that loan repayments are made
available for new loans for eligible facilities, rather than being
deposited in the state's general fund. There is, however, no
separate account for using repayments solely for wastewater
treatment/sewer facilities.
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101
WYOMING FARM LOAN PROGRAM
Program Description
A. Organization
Scope (eligible projects)
including streets, water
systems, other public health
facilities, etc.
Agencies involved
a. Farm Loan Board
muni c ipal
supply and
facilities,
development,
wa s t ewa t e r
recreat iona1
11
Composed of the top 5
Governor, Secretary of
Auditor, Superintendent of
Assistance to the Board
making process on applications
provided by the Farm Loan
elected officials:
State, Treasurer,
Public Instruction
in the decisi on
to be funded is
Board staff.
B
Various state agencies are consulted in their
respective areas of expertise; such agencies
include the Department of Economic Planning
and Development, Water Development Commission,
Department of Environmental Quality, Highway
Commission, and the Attorney General's
Office.
b. Department of Environmental Quality (DEQ)
Es tablishment
1. Grants and loans to cities, counties, and other
political subdivisions of the state provided for under
three statutes:
a. Joint Powers Act of 1974 (loans)
b. Coal Tax for Impact Assistance Act of 1975
(grants)
c. Government Royalty Impact Assistance Act of 1977
[Mineral Royalty] (grants)
2. Political and legal considerations - none discussed
3. Statutory and constitutional restrictions
a. State constitution prohibits state from going into
debt by issuing general obligation bonds
b. Statute imposes a $160 million ceiling on coal tax
revenue; this limit is expected to be reached in
1987
4. Future picture
a. Coal tax program expected to end in 1987 due to
statutory ceiling on funds
b. Future of mineral royalties from the Federal
government is uncertain.
II. Administration
A. Training - not needed; program is well established
B. Staff size/skill mix
1. Direct staff support provided by Farm Loan Impact
Assistance Division of the Department of Public Lands
and Farm Loans.
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102
Staff composed of:
a. Grants (and loans) coordinator - reviews
applications, ability to pay, etc.
b. Bookkeeper/accountant - handles repayments
c. Aud i t o r
2. Technical support provided by the Construction Grants
staff in the Department of Environmental Quality
C. Administrative costs/operating budget - operational costs
are paid out of state's general fund
III. Operations - Approximately 170 grants and loans made per year
A. Capitalization and forms of assistance
1. Joint Powers Act of 1974
a. Initial appropriation of $100 million
b. Loans made only for projects that will generate
revenue (i.e., water systems, wastewater
systems, recreational facilites with membership
fees, etc.)
2. Coal tax grants: annual capital - approximately $15
mi 11 ion
3. Mineral royalty grants: annual capital - $18 million
B. Leveraging capability
1. The FLB has the authority to issue up to $60 million
in revenue bonds; however, to date, it has not used
this author i ty.
2. State constitution prohibits issuance of general
obiigat ion bonds.
C. Terms of Assistance
1. Loans (under Joint Powers Act)
a. Interest rate currently =» 8.5%
b. Only for projects that generate revenue
c. Term of loan based on life of system; usually
30-35 years, but may be as long as 40 years
2. Grants
a. Coal tax
i. Grants for capital construction in areas
directly or indirectly impacted by the
production of coal
ii. At least 50% of the $$ granted must be for
streets and roads; remainder may be used for
water and sewer systems.
b. Mineral royalty
i. Grants for capital construction in areas
adversely impacted by energy development
within the state
ii. Grants for water and wastewater systems,
public health needs, streets and roads;
water and wastewater are high priorities
iii. Grants are generally for 50% of project
costs, but may vary, depending on need.
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D. Evaluation of applications (eligibility requirements)
1. Criteria for providing assistance
a. Joint Powers loan
i. Applicant must be a municipality or legally
formed district of the state
ii. Applicant must demonstrate that all local
revenue resources are being fully utilized,
but are insufficient.to finance project
b. Coal tax and mineral royalty grants
i. Applicant must demonstrate that it is
directly or indirectly impacted by the
production of coal (for coal tax grant) or
by the development of minerals (for mineral
royalty grant)
ii. Applicant must show that it is making
diligent effort to finance project as much
as possible from local sources
2. Conditions placed on forms of assistance
a. For a joint powers loan, project must be
revenue-gene rat ing.
b. For a water or sewer project, the assistance
recipient must obtain a permit to construct from
DEQ.
E. Requirements on loan recipient
1. Local assurances
a. Financial
i. For a joint powers loan, before any loan
proceeds are paid out, the recipient must
transfer to the Farm Loan Board title to the
property upon which the facility is to be
constructed and/or whatever interest the
loan recipient possesses in that property.
The value of such property or interest must
be at least equal to the amount of the loan.
All such titles and interest transferred to
that Board must be secured by title
insurance (with Board named as primary
beneficiary), which must be paid by the
joint powers loan recipient.
ii. For joint powers loans which are to be
repaid from revenue generated, disbursement
of loan fund is contingent upon passage of
ordinances supporting the requisite fee
s trueture.
b. Environmental - none required
2. Applicability of state procurement rules: Separate
state statutes, not administered by the FLB, apply
directly to the entity receiving financial
assistance and procuring engineering and contractor
services.
3. Environmental review - only that which is conducted
by DEQ in the course of reviewing an application for
a permit to construct
4. Report filing requirements: Loan recipients are
required to submit annual reports, and the FLB may
inspect any project during or after construction.
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H.
Fund accounts (disbursal/repayment)
1. Board meets three times per year to disburse
grant/loan funds; may also make loans at monthly
meet ings
2. Grant/loan monies only disbursed after costs
incurred
3. Grant monies only disbursed for costs incurred after
date of grant award; fewer restrictions on use of
loan funds
4. Joint powers loan repayments are dedicated to the
Joint Powers loan account.
Evaluation of program effectiveness (audits)
royalty grants
requi rement s
Separate state
for every grant
1. Coal tax and mineral
s tatutes set audi t
rec ipi ent.
2. Joint powers loans: Farm
time, call for an audit of
the borrower, and has the authority
construction or other operation of
which the loan is made; audit is at
the Farm Loan Board.
Default experience/non-compliance with requirements
Loan Board may, at
the books and records
to
the
the
monitor
project
expense
any
of
the
for
of
Only one default to
preventive measures,
assurances of the
and ability to repay
Re-financing option:
loans may be made for
date. Emphasis is placed on
primarily by obtaining adequate
recipient's financial condition
the loan.
grants not available, but
this purpose
Private sector participation: not much interest in, or
use for, privatization, given the extensive state and
Federal assistance programs available
Program issues and comments on federal legislative
proposals
Impact of the Administration's tax reform
use of tax exempt financing - requested
by EPA on this topic, with emphasis on
restrictions proposed on the use of
municipal debt
General concern with small communities
over their heads" with technologies
capabi1i t i es
Concern with scope of new federal requirements
proposed legislation becomes law
Concern with limitations on use of SRF loans once
core needs are bought out
package on
an analysis
any further
tax ex emp t
"getting in
beyond their
if
IV. Materials Available
B.
C.
D.
Wyoming Farm Loan Board Rules and Regulations re:
1. Coal Excise Tax Grants
2. Government Royalty Impact Assistance Account
Grants and Loans
3. Joint Powers Loans
'Doming Administrative Procedure Act
Wyoming Statutes Section 39-6-305, Disposition of revenue
collected
Wyoming Statutes Section 9-4-604
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105
E. Annual Report of the Department of Public Lands & Farm
Loans, 1984
F. Agreement Between Political Subdivision and Wyoming Farm
Loan Board (boilerplate)
V. State Contact:
G. Alan Edwards, P.E., Water Quality Engineering Evaluator
Department of Environmental Quality
Water Quality Division
Herschler Building
Cheyenne, Wyoming 82002
(307) 777-7781
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