Utility Infrastructure Financing

Bryan A. Mantz, CMC, CGFM

FGFOA School of Government Finance - November 2015

Public Resources Management Group, Inc.Utility, Rate, Financial and Management Consultants

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AGENDA Major Issues Affecting Florida Utilities

Establishing a Solid Business Foundation Based on Best Management Practices

Developing a Realistic Financial Plan

Grant Funding Options

Debt Financing Options

Some Final Thoughts

Questions and Discussion

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The Utility Is Usually a Local Government’s Largest “Business”

Provides Essential Service on a Continual Basis• Linked to Public Health and Safety

Major Objective of Utility Business: Customer Satisfaction• Consider Long-Term Interests of Customers

from Operational, Service, and Financial Perspective

Typically Accounted For in Enterprise Fund• Used for Business-Type Activities Where

Government Sells Goods or Services to General Public

• Usually Funded Primarily Through User Charges

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Utilities Are Highly-Regulated By Outside Agencies

Regulatory Agencies for Florida Utilities: Environmental Protection Agency Florida Department of Environmental

Protection Water Management Districts Department of Health Private Utilities: Florida Public Service

Commission

Consent Orders or Fines for Regulatory Non-Compliance or Pollution Consent Orders Can Negatively Affect Credit

Rating Florida Statute 401.121: FDEP Can Fine Up to

$10,000 Per Day for Major Violations

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Substantial Renewal / Replacement Needs• 50+ Year-Old Infrastructure• Often “Out of Sight, Out of Mind”• Costs to Replace Are Much Greater

Than Original Cost

Capital Costs Continue to Increase• Engineering News-Record (ENR)

Construction Cost Index Increases:1-Year = 2.1%5-Year = 2.5% Per Year10-Year = 3.1% Per Year

Major Issues Affecting Many Florida Utilities

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The Water and Wastewater Utility Industry Is One of the Most Capital-Intensive Industries!Substantial Capital Investment Required Per Dollar of Revenue

Historically Under-FundedAmerican Society of Civil Engineers 2013 Report Card on America’s Infrastructure: Grade of D (Poor) for Both Drinking Water and Wastewater Systems

Drinking Water Systems in Florida: Grade of C (Mediocre)• Projected $16.4 Billion Needed to Maintain and Upgrade

Systems Over Next 20 Years Both Wastewater Systems and Stormwater Systems in

Florida: Grade of C (Mediocre)• Projected $19.6 Billion Needed to Maintain and Upgrade

Wastewater Systems Over Next 20 Years

“If the nation fails to meet the investment needs of the next 20 years, it risks reversing public health, environmental, and economic gains of the past three decades.” – ASCE

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Alternative Water Supply• Limits on Withdrawals from Current Freshwater

Source of Water Supply– Existing Capacity May Need to Be Replaced

• Need to Invest in Additional (More Expensive) Treatment Facilities– Treatment Plants Withdrawing from Floridan

Aquifer (Brackish Water)– Expansion of Reclaimed Water Facilities• Portion of Potable Water Irrigation Required to

Be Replaced with Reclaimed Water

Elimination of Ocean Outfalls• May Require:

─ Reclaimed Water System Expansion─ Deep Injection Well Construction

Major Issues Affecting Many Florida Utilities (cont.)

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To Help Keep User Rates Reasonable and Affordable , and to Enable Utility to Look Its Best When Debt Financing, We Should Ensure That We Have…

Solid Utility Business Foundation Based on Best Management Practices

Realistic Financial Plan

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Establishing a Solid Utility Business Foundation Based

on Best Management Practices

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Utility Best Management and Financial Practices

Discussed in Publications from Rating Agencies Moody’s• “Rating Methodology for U.S. Municipal Utility

Revenue Debt”• “Moody’s on Revenue Bonds: The Fundamentals of

Revenue Bond Credit Analysis”

Standard and Poor’s• “Public Finance Criteria Book”• “U.S. Public Finance: Key Water and Sewer Utility

Credit Ratio Ranges”

Fitch Ratings• “Water and Sewer Revenue Bond Rating Guidelines”• “Rating Criteria for Infrastructure and Project

Finance”

Conforming With Utility Best Management Practices Can Lead to Lower Rates Over the Long-Term Higher Credit Ratings and Lower Interest Rates

When Debt Financing

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How Do Rating Agencies Evaluate Your Utility

Business?FITCH MOODY'S STANDARD & POOR'S

10 C’s of Water / Sewer Revenue Bond Analysis [*]

Key Rating Factors Key Rating Factors

Crew (Management) Governance and Management Quality

Management

Community Characteristics Regulatory Risk Economic Considerations

Customer Growth and Concentration

Construction Risk Financial Data/Capital Improvement Plan

Capacity System Size and Assessment Base Rate Criteria

Compliance with Environmental Laws and Regulations

Local Economy and Customer Base Operational Characteristics

Capital Demands and Debt Policies Strategic Focus Legal Provisions

Covenants System Demand and Capacity

Charges and Rate Affordability Maintenance of Assets

Coverage and Financial Regulatory Compliance

Cash and Balance Sheet Considerations

Rates, Rate Structures and Ratemaking Flexibility

Liquidity

Water and Wastewater Revenue Bond Rating Considerations

profile and operating profile.[*] Subset of 4 general areas of revenue-supported rating criteria: governance and management, financial

Utility Managers Can Control or Influence Many of These Factors

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A Utility’s Credit Rating Is a Reflection of Utility Management (*)

(*) Utility Management Includes Governing Body

Assessment of Financial Risk

Utility Best Management Practices Help to Reduce Implied Financial Risk

What Are the Management Practices of Highly-Rated Utilities?

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Highly-Rated Utilities…Exhibit Practices That Maximize

Stability By Planning─ The More Written and Adopted

Policies, Procedures and Plans, the Better! (Rating Agencies Will Request Copies)

Anticipate Future Regulatory and Growth Demands

Reliably Implement Steady Rate Increases Over Time

Have Liquidity to Meet Unexpected Sales Shortfalls / Emergencies

It’s Never Too Late to Improve the Utility Business Foundation!

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Establishing the Utility Business Foundation

Establish Business Principles• Serve as Basis for Long-Term Decision Making• Examples:­Maintain Financial Creditworthiness­ Rates Affordable and Recover Full Cost of

Service­ Comply With Regulations­ Uninterrupted Service­ Customer Satisfaction

Adopt Long-Term Business Plan• Expansion Plans• Sustainability Plans• Updated Every Few Years

Adopt Formal Debt Management Policy

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Establishing the Utility Business Foundation (cont.) Adopt Financial Policies and

Performance Measures

• Debt Service Coverage­Should Exceed Minimum Required

(e.g., 150% “All-In” Coverage)

• Cash Reserve Policy­Working Capital (e.g., 120 Days of Operating Revenue)­Capital Replacement Deposits

Based on Asset Management Plan or % of Revenues

­Rating Agencies: Utility With Stronger Financial Profile Might Have Days Cash on Hand Equal to One Year or More

Days Cash on Hand = Unrestricted cash and investments divided by operating expenditures minus depreciation, divided by 365

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Establishing the Utility Business Foundation (cont.) Adopt Financial Policies and

Performance Measures (cont.)

• Cash Reserve Policy (cont.)­Could Establish Reserves for: Rate Stabilization

Anticipated Changes in Regulations

Alternative Water Resource Funding

Emergencies / Catastrophic Events

• Benchmarking­Medians By Rating, Location, Etc.

Published By Rating Agencies

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Some Key Financial Ratios Used By Credit Rating Agencies When Evaluating Utilities

All-In Debt Service Coverage

• Definition: Revenues Available for Debt Service Divided By Total Debt Service (Senior Plus Subordinate Lien)

• Measures Financial Margin to Meet Debt Obligations

• Fitch 2015 Water and Sewer MediansAAA-Rated AA-Rated A-Rated All Credits

All-In Debt Service Coverage:Without Impact Fees 2.6 1.8 1.9 1.9With Impact Fees 2.8 2.0 2.0 2.1Net of Transfers Out 2.5 1.8 2.0 2.0Minimum Projected 2.3 1.6 1.3 1.63-Year Historical Average 2.8 2.0 1.5 2.1

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Some Key Financial Ratios Used By Credit Rating Agencies When Evaluating Utilities (cont.) Senior Lien Debt Service Coverage

• Definition: Revenues Available for Debt Service Divided By Senior Lien Debt Service

• Measures Financial Margin to Meet Senior Lien Debt Obligations

• Fitch 2015 Water and Sewer Medians

AAA-Rated AA-Rated A-Rated All CreditsSenior Lien Debt Service Coverage:

Without Impact Fees 4.0 2.3 2.1 2.4With Impact Fees 4.4 2.5 2.4 2.4Net of Transfers Out 3.7 2.2 2.3 2.4Minimum Projected 3.6 1.9 1.5 2.03-Year Historical Average 4.3 2.5 2.0 2.6

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Some Key Financial Ratios Used By Credit Rating Agencies When Evaluating Utilities (cont.) Days Cash on Hand

• Definition: Unrestricted Cash and Investments Divided By Operating Expenditures Minus Depreciation, Divided By 365

• Measures Financial Flexibility to Pay Near-Term Financial Obligations­Utilities With Stronger Financial Profiles:

Days Cash on Hand Equal to One Year or More

• Fitch 2015 Water and Sewer Medians

AAA-Rated AA-Rated A-Rated All CreditsDays Cash on Hand 481 442 366 432

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Some Key Financial Ratios Used By Credit Rating Agencies When Evaluating Utilities (cont.) Outstanding Long-Term Debt Per Customer

Outstanding Long-Term Debt Per Capita

• Definition: Principal Amount of Debt Outstanding Divided By Number of Customers; Principal Amount of Debt Outstanding Divided By Number of Persons in Service Area

• Measures Debt Burden for Ratepayers

• Fitch 2015 Water and Sewer MediansAAA-Rated AA-Rated A-Rated All Credits

Long-Term Debt Per Customer:Current $1,259 $1,934 $2,218 $1,836Projected Year 5 1,341 2,049 2,423 1,997

Long-Term Debt Per Capita:Current $349 $521 $473 $491Projected Year 5 323 520 741 522

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Some Key Financial Ratios Used By Credit Rating Agencies When Evaluating Utilities (cont.) Free Cash as Percent of Depreciation

• Definition: Current Surplus Revenues After Payment of Operating Expenses, Debt Service, and Operating Transfers Out Divided By Current Year Depreciation

• Measures Annual Financial Capacity to Maintain Existing Infrastructure at Current Level of Service from Existing Cash Flows­Utilities With Stronger Financial Profiles:

Free Cash as Percent of Depreciation ≥ 100%

• Fitch 2015 Water and Sewer MediansAAA-Rated AA-Rated A-Rated All Credits

Free Cash as Percent of Depreciation 117% 94% 126% 102%

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Consider Revenue Stability• Most Utility Costs Are Fixed• Rating Agencies Prefer Greater Than 30% Cost

Recovery Through Base Charges• HOWEVER, Raising Base Charges Does Not

Encourage Water Conservation─ Supported By Studies Sponsored By Water

Management Districts─ Florida Public Service Commission (FPSC), When

Evaluating Rate Applications From Private Utilities, Does Not Usually Approve User Rates Under Which the Base Charges Recover More Than 40% of System Costs

• In Florida, Water Management Districts Typically Require Conservation Rate Structure Before Issuing Consumptive Use Permits

Establishing the Utility Business Foundation (cont.)

Utility Rates

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Consider Affordability (Hot Topic in Utility Industry)• Rating Agencies: Affordable = Monthly Utility Bill for

Combined Water and Wastewater Service Not Higher Than 2% of Median Household Income of Service Area─ 1% If Only One Service (Water or Wastewater)

• Median Household Income Metric Has Been Challenged as Underestimating Effects of Rising Utility Bills on Low-Income, Fixed-Income and Renter-Occupied Households

Establishing the Utility Business Foundation (cont.)

Utility Rates (cont.)

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Best Management Practice Per Rating Agencies:Limit Nonutility-Related Transfers to General

Fund• Utility Industry Is One of Most Capital-Intensive

Industries─ Substantial Amount of Capital (Often Secured Through

Debt Financing) Is Required to Provide Service─ Should Reinvest in System

Minimize Dependence on Fees Charged to New Growth to Pay Debt

Address Liabilities Associated WithOther Post-Employment Benefits(OPEB)

Establishing the Utility Business Foundation (cont.)

Other Financial Considerations

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Developing aRealistic Financial Plan

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Developing a Realistic Plan

Establish Criteria to Prioritize Capital Program

Sample Criteria in Order of Priority:• Public Health and Safety

─Project Addresses Working and Public Health / Safety Issues

• Regulatory Compliance─Project Promotes Regulatory and Contractual

Compliance• System Reliability

─Project Reduces Risk and Consequences of Asset Failure and Addresses Other Attributes of Asset Management (Redundancy)

• Community / Customer Benefit─Project Addresses Service Issues Such as Pressure,

Taste / Odor and Customer Satisfaction• Sustainability

─Project Will Result in Long-Term Cost Efficiencies and Has Environmental “Green” Benefits

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Developing a Realistic Plan (cont.)

Is the Utility’s Capital Program:• Necessary?• Reasonable?

­Consider Capacity Utilization;Unused Capacity Is Most Expensive

Capacity• Attainable?

­IRS Arbitrage Rules: All Bond Proceeds Must Be Spent Within 3 Years

­Historical Capital Spending Levels (Especially for R&R Projects) Often a Good Indicator of How Much Capital Program Can Actually Be Executed

• Fundable?

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Developing a Realistic Plan (cont.)

Typical Capital Program Funding Sources:

• Issuance of Debt

• Revenues­Charges for Service / Rates­Reserves

• Capacity / Impact Fees, Assessments, and Other Charges Collected from Growth

• Contributed Capital (e.g., Grants, Legislative Budget Appropriation), Facilities, and Property

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Grant Funding Optionsfor Utility

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Grant Opportunities in Florida –Small or Economically-Disadvantaged Communities

Florida Department of Environmental Protection (FDEP) Small Community Wastewater Facilities Grant

PURPOSE: Planning, Designing, and Constructing Wastewater Collection, Transmission, Treatment, or Disposal Facilities

WHO CAN APPLY:Incorporated Municipality, Total Population ≤ 10,000,Per Capita Income < State Average

CONSIDERATIONS:Highest Priority to Projects Addressing Most Serious Risks to Public Health, Are Necessary to Achieve Compliance, or Assist Systems Most in Need Based on Affordability Index

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Grant Opportunities in Florida –Small or Economically-Disadvantaged Communities (cont.)

United States Department of Agriculture (USDA)Rural Development Water and Waste Disposal Grants

PURPOSE: Water and Wastewater Infrastructure

WHO CAN APPLY:Rural Areas and Municipalities With Total Population ≤

10,000

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Grant Opportunities in Florida –Small or Economically-Disadvantaged Communities (cont.)

Florida Department of Economic Opportunity Florida Small Cities Community Development Block

Grant (CDBG) Program

PURPOSE: Housing and Community Development Activities, Including Water and Wastewater Improvements, That:– Provide Benefit to Low- and Moderate-Income Persons– Eliminate Slum and Blight; or– Address an Urgent Need (Serious or Immediate Threat to

Local Population)

WHO CAN APPLY:Cities That Have Not Accepted Special Entitlement Status or Have Opted Out of Urban Entitlement Program

Counties With < 200,000 Residents

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Grant Opportunities in Florida – All Communities

Water Management Districts Cooperative Funding Program (Up to 50% of Cost)

PURPOSE: Projects Related to Water Supply, Alternative Water Supply (Including Reclaimed Water), Water Conservation, Water Quality (e.g., Septic Tank Removal), Stormwater / Flood Protection

WHO CAN APPLY:Local Governments or Nonprofit Utilities in Applicable Jurisdiction

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Grant Opportunities in Florida – All Communities

Environmental Protection Agency 319(h) Clean Water Act Federally-Funded Grant 40% Match Requirement Can Take Up to 2 Years to Receive Funds

PURPOSE: Nonpoint Source Pollution Abatement

WHO CAN APPLY:State Agencies, Local Governments, Colleges / Universities, Nonprofits, Public Utilities, State Water Management Districts

Contact FDEP for More Information

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Grant Opportunities in Florida – All Communities

Environmental Protection Agency Total Maximum Daily Load (TMDL) Grant Match Amount Must Be > Grant Amount 25% of Match Must Be from Local Government

PURPOSE: Reduce Pollutant Loadings from Urban Areas

WHO CAN APPLY:Local Governments and State Water Management Districts

Contact FDEP for More Information

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Developing a Realistic Plan (cont.)

For Remaining Capital Needs, Should Balance Between Debt Financing and Pay-As-You-Go Capital Funding Debt Financing

• Most Appropriate for Assets With Longer Service Lives (e.g., 15 Years or More)

• As Part of Analysis, Consider Any Refinancing or Retirement Opportunities for Existing Debt That Could Lead to Cost Savings

Pay-As-You-Go Capital Funding• Appropriate for Assets With Shorter Service Lives

(e.g., Less than 15 Years) • Routine Capital Expenditures

and Annual Renewals /Replacements

• Ideally: Accrue Funds Basedon Asset ReplacementSchedule

DEBTCASH-FUND

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Annual Cash Flow Reduced to Level of Debt Service Over Debt Term• Can Help Prevent “Rate Shock” to Existing

Customers

Funding Available Immediately

Recovery of Capital Project Costs Spread Over Life of Debt Instrument to Match Asset Utilization

(e.g., 30-Year Repayment Schedule, 30-Year Asset Service Life)

• May Be Greater Fairness to Ratepayers

If Utility Has Growth-Related Fees Such as Impact Fees, Can Allow More Time for “Growth to Pay for Growth”

Developing a Realistic Plan (cont.)

Why Debt Finance?

Advantages:

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Debt Financing Optionsfor Utility

(to be discussed with Utility’s Financial Advisor)

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How Much Does the Utility Need?

How Soon Does the Utility Need It?

Single Project / Program to Be Funded or Multiple Projects?

  Administrative Costs – Staff Time Required to

Address Reporting Requirements• Could Also Outsource Reporting

Availability of Funding and Probability That Financing Could Be Secured Under the Desired Terms

Level of Complexity of Debt Instrument• Ease in Projecting Debt Payments for Financial

Planning Purposes• Ease in Calculating Historical Coverage

 

Considerations

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Borrowing Costs• Interest Rate• Issuance Costs• Life Cycle Costs (Total Amount Paid During

Debt Term) 

Political Climate for Raising Rates to Support Debt (Could Consider Wrapping Debt Service, Capitalized Interest, Line of Credit With Future Refinancing, Etc.)

Considerations (cont.)

20-Year 30-Year 20-YearClean Water SRF Loan Revenue Bonds Revenue Bonds

Amount Borrowed $10,000,000 $10,000,000 $10,000,000

Issuance Costs (% of Principal) 2.00% 4.00% 4.00%

Interest Rate 0.70% 4.06% 3.67%

Term (Years) 20 30 20

Annual Debt Service $537,562 $582,521 $714,477

Life Cycle Costs $10,751,230 $17,475,640 $14,289,547

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Adopt All Rate Increases Needed During Forecast Period• Shows a Commitment By Regulators to Raise Rates

When Needed• Many Debt Financing Options Require

Demonstration That Utility Can Repay Debt

Consider Adopting Rate Indexing / Pass-Through Clause to Annually Adjust Rates Automatically for Inflation Without Formal Hearing• Gives Rating Agencies More Assurance That Rates

Will Keep Up With Inflation

To the Extent Possible, Incorporate Utility Best Management and Financial Practices Into Any Bond Resolution / Ordinance• Binding Agreement Between Regulators and

Bondholders• Can Require Annual Renewal and Replacement

Funding• Can Make Utility System Closed-Loop

Before Issuing / Incurring Debt:

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Term Loans• Term Up to 20 Years• Fixed or Variable Interest Rates• Various Structuring Options

Line of Credit• Common Draw Period of Up to 5 Years

Conventional Financing: Bank Loans

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Revenue Bonds• Repayment Pledged from Revenues of

System• Rate Covenant and Other Requirements• Many Structuring Options

– Wrapped Debt– Capitalized Interest– Interest-Only Payments

Conventional Financing: Revenue Bonds

Index Current Previous High LowRev. Bond 4.06% 4.10% 5.40% 4.06%20-Bond 3.67% 3.71% 5.03% 3.29%11-Bond 3.19% 3.23% 4.75% 3.14%

Source for Bond Rates: Weekly Indexes, http://www.bondbuyer.com

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G.O. Bonds• Repayment Pledged from Full

Faith and Credit of Local Government

• Lower Interest Rates Than Revenue Bonds

• Many Structuring Options• Transfers from Enterprise

Funds Could Be Used to Make Bond Payments

• Typically Requires Referendum

Conventional Financing: General Obligation (G.O.) Bonds

Source for Bond Yields: http://www.fmsbonds.com/Market_Yields/index.asp

AAA-RATED

Maturity LastRange Week

National 10 Year 2.05% 2.10%National 20 Year 2.80% 2.85%National 30 Year 3.00% 3.05%Florida 30 Year 3.00% 3.00%

AA-RATED

Maturity LastRange Week

National 10 Year 2.25% 2.30%National 20 Year 3.15% 3.20%National 30 Year 3.50% 3.55%Florida 30 Year 3.50% 3.50%

A-RATED

Maturity LastRange Week

National 10 Year 2.75% 2.80%National 20 Year 3.40% 3.45%National 30 Year 3.65% 3.70%Florida 30 Year 3.65% 3.65%

ISSUE Today

ISSUE Today

ISSUE Today

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Flexible, Low-Interest Program• Minimum $5,000,000; No Maximum• Term Up to 5 Years• No Prepayment Penalty• Current All-In Interest Rate: 1.22%

PURPOSE: Finance Infrastructure and Capital Needs, Including:─ Water and Wastewater Facilities─ Landfills

WHO CAN APPLY:All Florida Local Governments

Short- to Intermediate-Term: Florida Local Government Finance Program

Administered by Florida Association of Counties

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Affordable Funding to Communities Unable to Secure Commercial Credit on Reasonable Terms• Term Up to Useful Life of Facility; Maximum 40 Years• Current Interest Rate: 3.625%

PURPOSE: Finance Acquisition, Construction, or Improvement of:─ Drinking Water Sourcing, Treatment, Storage and

Distribution─ Sewer Collection, Transmission, Treatment, and Disposal─ Solid Waste Collection, Disposal, and Closure─ Stormwater

WHO CAN APPLY:The Smaller and or More Financially-Distressed the Community, the Higher the Prioritization Score

Small and Economically-Disadvantaged Communities: Water and Waste Disposal Loan Program

Administered by USDA

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Very Good “Default” Debt Financing Option• 20-Year Standard Term• Up to 30-Year Term If Financially Disadvantaged

Community

Drinking Water Program• Eligible Projects:

─ New Water Treatment / Supply Facilities─ New Transmission and Distribution Facilities─ Rehabilitation or Upgrade of Existing Facilities

Clean Water (Wastewater and Stormwater) Program• Eligible Projects:

─ New Wastewater Treatment / Disposal Facilities─ New Collection and Transmission Facilities─ Rehabilitation or Upgrade of Existing Facilities─ Reclaimed / Reuse Water Facilities─ Stormwater Projects Resulting in Water Quality

Improvements

State Revolving Fund (SRF) Loan Program

Administered by FDEP

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Very Low, Below-Market Interest Rates• Drinking Water: 60% of 20-Year G.O. Bond Index• Clean Water: Affordability Factor Applied to 20-Year G.O.

Bond Index

Disbursements as Needed During Period of Construction

Payments Begin 6 Months After Project Is Online• Capitalized Interest Through Period of Construction• Allows More Time to Phase-In Rates to Level Needed to

Support Debt Subordinate Lien (Typically 115% Net Revenues

Coverage Requirement)

State Revolving Fund (SRF) Loan Program (cont.)

Advantages:

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Administrative / Reporting Requirements• Can Outsource If In-House Resources Are Limited

Available Funding May Be Limited (Fluctuates)

Limited Debt Structuring Options

Segment Caps May Not Be High Enough to Accommodate Cash Flow Needs• HOWEVER, Interim Financing Options Are Typically

Available (e.g., Florida Rural Water Association Financing Program)

State Revolving Fund (SRF) Loan Program (cont.)

Disadvantages:

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File Request for Inclusion Form• Can Include Multiple Projects (Multiple SRF Loans

Upon Approval)

File Facilities Plan / Business Plan / Planning Document / Capital Financing Plan With Supporting Documentation• Financial Information to Determine Ability to Repay

Loan and Meet Coverage Requirements

After Being Placed on “Fundable” List, Submit Complete Loan Application

State Revolving Fund (SRF) Loan Program (cont.)

The Process:

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Minimum Loan Size: $3 Million• Fixed Rate With Term Up to 30 Years• Economies of Scale Can Result in Lower Interest

Rates and Lower Issuance Costs Eligible Projects:

• Capital Projects• Renovations• Fixed Asset Additions• Refinancing of Existing Debt

All Local Governments Can Apply

Florida Municipal Loan Program (Bond Pool)

Administered by Florida League of Cities

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Most Practical Loan Size: ≥ $10 Million• Projects Must Be Ready for Bidding When Loan

Requested• Proceeds Available on Cost-Incurred Basis

Eligible Projects:

• Water Supply and Distribution Facilities• Stormwater Control and Treatment Projects• Air and Water Pollution Control• Solid Waste Disposal Facilities

Repayment of Bonds Pledged from Full Faith and Credit of State

Repayment Term Generally Representative of Project Useful Life

State Bond Loan Program (Pollution Control Bonds)

Administered by FDEP and State Board of Administration

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Advantages: Possibly Lower Interest Rate Than What Local

Government Could Secure Low Issuance Costs Sizeable Loans Available

Disadvantages: Coverage Requirement of 1.33 Time to Arrange for Loan: Financial Analysis,

Bond Validation, and Bond Marketing Activities Require More Than Six Months to Complete

State Bond Loan Program (Pollution Control Bonds) (cont.)

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Developing Financial Plan: Many Possibilities(No Single “Right Answer”)

Should Make Sure Any Financial Advice Is Objective

Debt Financing Programs and Opportunities Continue to Evolve

May Not Be Able to Solve All Financial Issues at Once,

Especially If Utility Is “Playing Catch Up”• May Need to Take Small Steps Over Time to

Gradually Build the Financial Position to an Optimal Level

Financial Plan Should:• Be Reasonable and Affordable• Allow Utility to Accomplish Objectives• Promote Sustainability• Enable Utility to Meet Financial Targets (Without

Significantly Exceeding Them)

SOME FINAL THOUGHTS:

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Should Ideally Build / Establish Long-Term History of Following Plan and Meeting Targets

For the Long-Term Interests of Customers, Operational and Financial Planning – Including Ratemaking – Should Be Proactive, Not Reactive• Lower User Rates Over the Long-Term• Balanced Debt Risk• Higher Credit Rating When Debt Financing

SOME FINAL THOUGHTS (cont.):

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QUESTIONS AND DISCUSSION

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Thank You! If You Have Questions Regarding This Presentation or Would Like Additional Information, Please Contact:

Bryan A. Mantz, CMC, CGFMPublic Resources Management Group, Inc.

341 North Maitland Avenue, Suite 300Maitland, Florida 32751Phone: 407-628-2600Email: bmantz@prmginc.comWebsite: www.prmginc.com