Rev 7/27

The Water Infrastructure Finance and Innovation Act (WIFIA)

An Assessment of Applicability to Communities In New York State

July 2015___

A Student Independent Study under the auspices of the Cornell Program in Infrastructure Policy

Danielle Burgess, Kushan Dave, Maria Jiang, Aidan Renaghan and Veronica Zuluaga with assistance from CPIP directors

John Foote and Rick Geddes

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Background

The Water Resources Institute of New York State (WRI) is engaged in “increasing awareness of emerging water resources issues and assessing new water management technologies and policies. WRI connects the water research and water management communities.” (See http://wri.eas.cornell.edu/aboutus.html).

WRI is examining a piece of legislation that was passed by the US Congress in June 2014 called the Water Infrastructure Finance and Innovation Act (WIFIA). The purpose of WIFIA is to provide loan and loan guarantees to finance water infrastructure. Specifically, WRI would like determine, as part of this examination, how WIFIA might be applicable to New York State water and wastewater agencies. (Note: It is contemplated by Congress that WIFIA funds also be eligible for development projects for coastal harbor improvement, channel improvement, inland navigation, flood damage reduction, aquatic ecosystem restoration, and hurricane and storm damage reduction. This category of projects was not considered as part of the project described below.)

To assist WRI in this effort, five students listed below, undertook an independent study project during the Spring 2015 semester under the auspices of the Cornell Program in Infrastructure Policy and the direction of faculty members, John Foote and Rick Geddes.

Danielle Burgess Kushan Dave Maria Jiang Aidan Renaghan Veronica Zuluaga

The members of the independent study thank Sri Vedachalam, Postdoctoral Associate at WRI for his assistance and support.

The objective of this independent study was to explore how WIFIA could be used by New York State municipalities operating water and/or wastewater facilities and the advantages and disadvantages of the WIFIA program in the context of these municipalities. The project had the following components:

1. A briefing memo that describes WIFIA. 2. A description of the four communities selected as case studies and a financing

analysis for each community. These communities are:a. Village of New Paltzb. Town of Blooming Grovec. City of Yonkersd. City of Poughkeepsie

These communities were selected on the basis of two criteria: each is located in the Hudson Valley watershed, and each has filed with the New York State Environmental Facilities Corporation (NYS EFC) an Intended Use Plan (IUP) outlining a proposed water related capital project.

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This document is organized as follows:1. Description of the WIFIA program as it relates to water and wastewater projects.2. Description of New York State Environmental Facilities Corporation’s revolving fund

financing mechanism.3. A financial analysis that shows the debt service burden associated with three different

financing options available to the four municipalities included in this project, and observations. These three options are:

A financing using 100% NYS EFC (SRF) funds at NYS EFC’s AAA interest rate. A combination of a WIFIA loan and a NYS EFC (SRF) loan at NYS EFC’s AAA

interest rate. A conventional financing using tax-exempt municipal bonds.

4. AppendicesA. Financial analysis worksheetB. Write-ups on each municipalityC. Bibliography

The WIFIA Program

IntroductionOver the next 20 years, the United States predicts an estimated need of between $400 and $600 billion for safe drinking water and wastewater treatment infrastructure. This magnitude of this capital need coupled with financial pressures faced by local governments was the impetus for a pilot program called the Water Infrastructure Finance and Innovation Act (WIFIA) which is part of the Water Resources Reform Development Act (WWRDA) of 2014 passed by Congress in June 2014. The purpose of the following narrative is to describe the pilot program, including program qualifications and limitations, its relationship to existing funding mechanisms, and to identify open questions. It also should be noted that many of the rules governing the WIFIA program are still in the development and implementation stage. Conversations with EPA suggest that there is no firm timetable to issue the rules that will govern the implementation of the pilot program.

BackgroundWIFIA is designed to leverage non-federal funds for water infrastructure development.by providing loan guarantees and direct loans. These appropriations are not for loans and guarantees themselves, but to provide loss reserves against which loans and guarantees may be granted.. As water systems serve an essential function with a dedicated revenue source, WIFIA loans will be highly secure. The historical default rate on water and sewer loans is 0.04%, according to data from American Water Works Association.

WIFIA loans have terms may be up to 35 years, with no repayment obligation until 5 years after substantial completion of a project, or in the case of State Revolving Fund, (SRF) loans, the date of loan disbursement. Loans will be repaid entirely from localized payments, e.g., water bills, to maintain full local responsibility for water infrastructure development, while creating a mechanism to provide lower costs of capital.

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The Environmental Protection Agency (EPA) and the U.S. Army Corps of Engineers will jointly administer the pilot program and will serve as a key link between a borrowing agency and the U.S Treasury. Each of these authorities may spend up to $175 million each, starting at $20 million each in 2015 and increasing to $50 million by 2019 over the period of five years for wastewater and drinking water projects and the water control and resource projects respectively. However, Congress has not made appropriations and concerns surround efficient distribution and administration by the EPA and Army Corps, which will shift decision-making for financing of water infrastructure projects from the state to the federal level. These concerns and roadblocks have affected WIFIA’s implementation.

WIFIA funds cannot finance the entire capital cost of a project. WIFIA limits project support to 49% of a project’s cost, with an overall limitation of 80% for federal assistance in any project, except certain federally funded projects in Indian tribal communities. WIFIA disallows the uses of tax-exempt debt to pay the non-federal share (i.e. the 51% not financed by WIFIA) of project costs. This prohibition on using tax-exempt financing for the remaining 51% could affect WIFIA implementation given approximately 70 percent of United States water utilities rely on some level of tax-exempt bond financing.

Selection Criteria and Project Eligibility Section 5024 of WRRDA outlines eligible entities and projects for WIFIA, which include drinking and clean water projects. To determine project selection, borrowers must be deemed credit worthy at the discretion of the administrator where WIFIA will fund up to 49% of project costs. WIFIA is intended to assist financing for large, costly projects. Eligibility for projects is as follows:

For a small community water infrastructure project, i.e., areas with less than 25,000 people, cost threshold of the project must be greater than $5 million. 15% of total program funds will be set aside for small community projects.  

For large community projects, i.e., areas with more than 25,000 people, the cost threshold of the project must be greater than $20 million.

According to the EPA, the application process and selection criterion is not yet determined and additional information is unlikely to be disclosed until funds have been appropriated to the pilot program.

Alternative FinancingWIFIA funding may have a significant impact on existing forms of water and wastewater infrastructure financing, particularly tax-exempt municipal bonds and State Revolving Fund (SRF) funds. It is important to understand that WIFIA is a new financing option, rather than new funding, for water utilities. Each WIFIA project must have an underlying source of funding in order to obtain a creditworthy rating.  

As written in WRRDA legislation, WIFIA funds cannot be supplemented by tax-exempt municipal debt.  A possible consequence of this restriction is the utilization of taxable debt and/or private sector capital through public-private partnerships. (Note: As many of the water systems in New York State, including the four study municipalities, are municipally owned and operated, the opportunity to introduce private sector participation would require the sale and or lease of these systems.)

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Municipalities that do not have a AAA credit rating may be interested in the program as WIFIA interest rates (anywhere between 0% and the Federal Treasury Bond rate) are likely to be lower than their current tax-exempt borrowing rate.

WIFIA will also intersect with State Revolving Funds across the country.  Because appropriations for WIFIA loan money have not yet been made, there is potential that some or all of the appropriations made could come from funds otherwise allocated to SRFs. Until then, changes to SRF funding remain unclear. Additionally, SRFs will have right of first refusal for any project that WIFIA approves for financing, however if it decides to undertake the project itself, the SRF must match the WIFIA financing rate.  Current interest rates on New York SRF loans can range from as low as 0% (for hardship communities) to market rate, averaging at half the market rate. Whether WIFIA rates are likely to be lower than the SRF rates will depend on movement of market and Treasury rates. SRFs will also have the opportunity to apply for WIFIA funds (as they are state infrastructure financing authorities), which can then be applied to groups of projects.

Potential for co-financing of projects using both SRF and WIFIA funds exists; while SRF funds directly obtained from tax-exempt debt are ineligible for co-financing with WIFIA funds, SRF Funds that have been through at least one cycle of lending/repayment (“recycled monies”) may be eligible to be used in conjunction with WIFIA funds. (This final determination has yet to be made by the EPA.)

Similarly, direct federal allocations of funding to an SRF is eligible for co-financing, however, these funds are considered federal funds and will count toward the 80% maximum threshold of federal funding that a WIFIA project can have. If funds have been through at least one cycle of lending/repayment, they are considered state funds and do not count towards this cap.

SRF projects are likely to differ from WIFIA projects in the scale of target projects. SRF financing is generally for smaller projects whereas WIFIA projects must be $20 million or greater in order to be eligible for financing or $5 million or greater for rural communities with population less than 25,000.

FAQ’s What steps has the EPA taken to implement the WIFIA program? What are projected next steps?EPA has one full-time staff member, Jordan Dorfman, dedicated to the WIFIA program. The agency has developed a plan to implement the program by the end of FY16, and a contractor is providing assistance in the selection of a financial firm to help administer loans. They have begun developing loan selection guidelines and criteria, however, no further information will be released until Congressional appropriations have been made. EPA is developing a marketing plan to raise awareness along with the execution of a series of listening sessions across the country. They will meet next with SRF administrators and municipal stakeholders to begin developing a pipeline for WIFIA projects.

What are the EPA’s goals for the five-year WIFIA pilot?The EPA hopes to approve new, large-scale projects in the early stages of WIFIA to show strong proof-of-concept. Greatest potential is identified in partnering with SRF agencies to co-finance large projects. EPA believes best candidates for WIFIA loans include municipalities with AA or lower credit ratings, as significant debt service cost savings may materialize. By partnering with SRF agencies, EPA may be able to identify projects that may benefit from co-financing.

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Are agencies that administer SRF loans eligible for WIFIA funds?Agencies that administer SRF loans, e.g. the New York State Environmental Facilities Corporation, may utilize WIFIA loans to fund additional SRF-eligible projects. Agencies may not use WIFIA loans, however, to co-finance projects with tax-exempt bond revenues.

The WRRDA Act mandates that a project be creditworthy to receive WIFIA loans. How will creditworthiness be determined and considered in the selection process?Projects applying for WIFIA loans must demonstrate creditworthiness in the same manner as for TIFIA. Each application must have a preliminary rating opinion letter from a major rating agency. Two final rating opinion letters must be submitted prior to financial close of a WIFIA loan. Senior credit obligations on a project must also have received investment grade rating.

Can WIFIA funds be used to refinance existing water infrastructure projects?The WRRDA Act does not specifically prohibit the use of WIFIA funds to refinance eligible water infrastructure projects built or in construction, but EPA has indicated refinancing projects will likely be given less weight in the WIFIA selection criteria.

Open Questions Will WIFIA loans be subordinate to other debt obligations, including SRF loans if a project is co-

financed with both?

How will the WIFIA application process differ from the SRF revolving process? Will the application timeline match the SRF timeline to prevent project delays? Will efforts to be made to reduce application duplication and keep application costs low (such as a single environmental review rather than environmental reviews at the state and the federal level)?

How will the selection criteria contained in the WRRDA Act be weighted in the application process?

Will the WIFIA application process be single stage or multi-stage? Will it be tiered in a similar way to TIFIA to prevent extensive application work for unfeasible projects?

Will selection of projects be done in a transparent way with feedback?

What are rules around combining projects to meet the $20 million project minimum for WIFIA loans? Will this threshold be met by cumulative value of projects or will each individual project have to satisfy WIFIA requirements?

The New York State Environmental Facilities Corporation (NYS EFC)

A key question in the WIFIA program is how it can and or may be used in conjunction with existing state revolving funds that have been active pin the US since the late 1980’s to assist municipalities in financing water and wastewater projects. The following narrative describes state revolving funds (SRFs), with a particular focus on the SRFs run by the New York State Environmental Facilities Corporation (NYS EFC).

What is an SRF?

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An SRF is a fund used finance infrastructure projects. Typically, an SRF is capitalized at the state level using Federal grants as well as State matching contributions. These State contributions are typically appropriated on an annual basis (although the Legislature has no legal obligation to make these appropriations). These funds are used as the corpus of the SRF, with loans and loan guarantees being made by the entity that administers the SRF against this pool of funds.

There are two primary SRFs in use across the US in relation to water infrastructure. The Clean Water State Revolving Funds (pursuant to the Water Quality Act and deals with wastewater projects), and the Drinking Water State Revolving Fund (pursuant to the Safe Drinking Water Act and deals with water projects).

New York State Environmental Facilities Corporation The New York State Environmental Facilities Corporation (NYS EFC) is a public benefit corporation that is tasked with co-administering the two SRFs that are used to provide low-cost financing to water related projects, along with administering a number of other grant programs.

There are two SRFs that are administered by the NYS EFC. The first is the Clean Water SRF (CWSRF). This is jointly administered with the NY State Department of Environmental Conservation (DEC), and covers projects related to water quality protection e.g. sewer, wastewater treatment, and stormwater.

The second SRF is the Drinking Water SRF (DWSRF), which is co-administered with the State Department of Health (DOH). This SRF operates in almost exactly the same way as the CWSRF, but in cases of severe financial hardship can also issue grants. Both publically and privately owned systems are eligible to apply for DWSRF funding.

How are the SRFs funded in New York?Financial assistance for projects under the two SRFs can be made from Federal grant funds, State matching contributions, investment income, recycled State and Federal funds, or bond proceeds. As financings from the SRFs are repaid, the money is made available for new projects. See Figures 1 and 2 for a visual representation of the cash flows associated with the SRF’s.

The NYS SRFs are the biggest and most-active SRFs in the country. The CWSRF and DWSRF have received Federal grants of over $4.6 billion and $1.2 billion respectively since inception. Under the American Recovery and Reinvestment Act of 2009 (ARRA), the CWSRF and DWSRF were granted by the Federal government an additional $432.6 million and $86.8 million, respectively. In 2014, the SRFs also received appropriations of $339.8 million and $67.8 million respectively under the Disaster Relief Appropriations Act, which are to be used to benefit communities affected by Hurricane Sandy.

The role of the EFC in administering these SRFs is to receive applications, provide financing and receive repayments. The co-administrating agencies generally undertake the technical review of the projects in order to come up with a list of viable projects for financing.

Funding cannot be moved between the two revolving funds, and separate accounts are held for each.

Additionally, the Federal and State funds used to capitalize the SRFs have been augmented through the issuance of bonds by the NYS EFC; $16.1 billion of bonds have been issued with

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$5.7 billion in bonds still outstanding as at September 2014. The NYS EFC issued bonds sporadically during the 1990s, however have issued bonds almost every year since 2000.

SRFs and WIFIAThe SRFs are one of the major financing sources used for water and wastewater projects in New York State, and will be impacted to some extent by WIFIA in the event that WIFIA funds are used to finance municipal water and wastewater projects. Further, there is initial concern that WIFIA will be funded by the Federal government at the expense of SRF funding across the country.

One area in which the SRFs differ from WIFIA is the scale of projects they target. SRF financing is generally used for smaller projects, while WIFIA projects must be $20 million or greater in order to be eligible for funding ($5m for rural communities with population less than 25,000). The SRFs will also have a right of first refusal for any projects that are proposed for WIFIA financing, however if they choose to finance a project that is also eligible for WIFIA financing, the SRF must match the WIFIA interest rate.

There is potential for co-financing of projects by both WIFIA and an SRF, however this may be complicated by the financing structure used by the NY SRFs. As the WIFIA legislation forbids co-financing any project using tax-exempt bonds, any financing from an SRF must come from either Federal or State contributions, recycled monies, or investment income. If co-financing is undertaken using Federal money, these funds are considered Federal funds (even though they are allocated at the State level). This is an important distinction to make, as no WIFIA project can be more than 80% federally financed. However once funds have been recycled at least once, they are considered State funds, and no longer count against this cap.

Figure 1

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Source: Annual Information Statement 2014-2015, New York State Environmental Facilities Corporation, October 2014, pg. 6.

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Figure 2

Source: Annual Information Statement 2014-2015, New York State Environmental Facilities Corporation, October 2014, pg. 13.

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Financial Analysis

A key question asked by the study group was whether the introduction of WIFIA financing could lower the cost of capital borne by the municipalities. Each of the municipalities studied have utilized the tax-exempt municipal bond market in the past to finance its water–related capital projects. These borrowings have been executed using tax-exempt general obligation bonds (as opposed to revenue bonds).

To assess the impact of WIFIA financing, two other financial options were considered: 1) using a NYS EFC (SRF) 30 year loan at NY EFC’s AAA tax-exempt interest rate, and b) using a combination of a WIFIA loan (49%) (at the 30 year US Treasury rate) and a NYS EFC (SRF) 30 year loan at NYS EFC’s AAA tax-exempt interest rate.

The three financing scenarios are summarized below. Scenario 1: A financing using 100% NY EFC (SRF) funds at NY EFC’s AAA interest

rate. Scenario 2: A combination of a WIFIA loan and a NY EFC (SRF) loan at NY EFC’s

AAA interest rate. Scenario 3: A conventional financing using tax-exempt municipal bonds.

Table 1 Scenario 1 Scenario 2 Scenario 3Assumptions 100% EFC WIFIA + SRF MunicipalProject Cost (sample) 20,000,000$ 20,000,000$ 20,000,000$ WIFIA Loan Amt (49% of Project Cost) n.a. 9,800,000$ n.a. WIFA loan rate (= to 30 yr US Treasury rate) n.a. 2.50% n.a. WIFIA loan term (years) n.a. 30 n.a.NYS EFC (SRF) Loan Amt 20,000,000$ 10,200,000$ n.a. SRF Loan rate 3.10% 3.10% n.a. SRF Loan term (years) 30 30 n.a.Municipal Bond Amt n.a. n.a. 20,000,000$ Municipal Bond rate n.a. n.a. (a) Municipal bond term (years) n.a. n.a. 30(a) Based on community's rating and an average bond issue life of 20 years.

Assumptions1. Each of the water or wastewater systems included in this analysis are municipally owned

and operated as a department of the municipality.2. Each of systems has been financed historically as part of the respective municipality’s

overall capital program using tax-exempt general obligation bonds.3. The NY EFC (SRF) funds used in Scenario 2 (WIFIA + SRF) are assumed to be recycled

monies, i.e. not direct proceeds from a tax-exempt bond issuance by EFC and/or a Federal appropriation.

4. It is assumed that the four municipalities do not qualify for EFC’s Long-Term Subsidized Financing program. Scenarios 1 and 2 assume the EFC’s Long-Term Market-Rate Financing program. http://www.efc.ny.gov/Default.aspx?tabid=114#moduleB

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5. All scenarios contemplate 30 year debt obligations, amortized on a level debt service basis.

6. All debt is parity debt. 7. Interest rates-The interest rates for each project and each scenario are based on the

respective municipality’s credit rating and the Treasury and municipal (tax-exempt) yield curve as of April 6, 2015, shown below. The NY EFC (SRF) rate is the tax-exempt AAA 30 year rate. The tax-exempt interest rate used for each municipalities’ municipal bonds is the 20 year rate coinciding with the average life of a 30 year bond issue.

20 Year Credit Rating (Moody’s) Tax Exempt Interest Rate

a. Village of New Paltz Aa3 3.50%

b. Town of Blooming Grove Aa3 3.50%c. City of Yonkers A3 4.00%d. City of Poughkeepsie Baa3 4.15%

Note: Moody’s Rating Symbols--Gradations of creditworthiness are indicated by rating symbols, with each symbol representing a group in which the credit characteristics are broadly the same. There are nine symbols used to designate least credit risk to greatest credit risk: Aaa Aa A Baa Ba B Caa Ca C. Moody's appends numerical modifiers 1, 2, and 3 to each generic rating classification from Aa through Caa (with 1 being less credit risk).

8. It is assumed that the transaction costs associated with the three scenarios are approximately the same. This assumption, as discussed below, warrants further investigation.

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The annual debt service costs that would be borne by each community under the three financing options are shown below. (Details for the financing of each municipality’s project are included in Appendix A.) Table 2

MunicipalityCity of

PoughkeepsieTown of

Blooming GroveVillage of New Paltz City of Yonkers

Moody's G.O. Bond Rating Baa3 Aa3 Aa3 A3Water/Wastewater drinking water wastewater drinking water wastewaterProject Cost (a) 44,221,241$ 31,028,000$ 5,675,916$ 28,444,000$ Annual Debt Service Scenario 1: 100% NYS EFC 2,285,396$ 1,603,557$ 293,337$ 1,470,013$ Scenario 2: 49% WIFIA + 51% NYS EFC 2,200,817 1,544,212 282,481 1,415,610 Scenario 3: 100% Municipal 2,604,098 1,687,034 308,607 1,644,919 Annual Debt Service Savings (Percent) Associated with Scenario 2 Scenario 1: 100% NYS EFC 3.8% 3.8% 3.8% 3.8% Scenario 2: 49% WIFIA + 51% NYS EFC n.a. n.a. n.a. n.a. Scenario 3: 100% Municipal 18.3% 9.2% 9.2% 16.2%

(a) Based on the Intended Use Plan filed with the NYS EFC by each community.

Observations1. Scenario 2 (49% WIFIA and 51% NYS EFC) has the lowest cost of capital as a

consequence of the WIFIA loan being priced at the US Treasury rate. 2. The debt service savings associated with Scenario 2 (on a percentage basis) is greater in

the case of lower credit ranked communities (owing to the spread between US Treasury rates and the tax-exempt rates for weaker credits).

3. The difference in the debt service associated between Scenario 1 and 2 is very small (less the 4% difference in annual debt service). This difference will increase, however, if the spread between US Treasuries and tax exempt rates widens.

4. As noted above it is assumed that the transaction costs (both out of pocket and non-monetary, e.g., time) are the same among the three scenarios. In the event the costs associated with a WIFIA loan are significant, the difference between the debt service associated with Scenarios 1 and 2 is likely to be de minimis. (Note: The scenario with the lowest transaction costs is in most cases Scenario 3 since borrowing for a water project, in the case of the municipalities in the study, is included in larger multi-purpose general obligation bond issues.

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Appendix A: Financial Details City of Poughkeepsie (Moody's Baa3)

Scenario 1 Scenario 2 Scenario 3Assumptions 100% EFC WIFIA + NYS EFC Municipal

Project Cost 44,221,241$ 44,221,241$ 44,221,241$ WIFIA Loan Amt (49% of Proj. Cost) n.a. 21,668,408 n.a. WIFA loan rate (= to 30 yr Treasury rate) n.a. 2.50% n.a. WIFIA loan term (years) n.a. 30 n.a.NYS EFC (SRF) Loan Amt 44,221,241 22,552,833 n.a. SRF Loan rate 3.10% 3.10% n.a. SRF Loan term (years) 30 30 n.a.Municipal Bond Amt n.a. n.a. 44,221,241

Municipal Bond rate (a) n.a. n.a. 4.15% Municipal bond term (years) n.a. n.a. 30

WIFIA annual debt service n.a. $1,035,265 n.a.SRF annual debt service 2,285,396$ $1,165,552 n.a.Municipal Annual Debt Service n.a. n.a. 2,604,098 Total Debt Service 2,285,396$ $2,200,817 2,604,098$ Annual Savings with WIFIA 84,579$ n.a. 403,280$ Percentage Savings 3.8% n.a. 18.3%(a) Based on community's rating and an average life of 20 years.

Town of Blooming Grove (Moody's Aa3)Scenario 1 Scenario 2 Scenario 3

Assumptions 100% EFC WIFIA + NYS EFC MunicipalProject Cost 31,028,000$ 31,028,000$ 31,028,000$ WIFIA Loan Amt (49% of Proj. Cost) n.a. 15,203,720 n.a. WIFA loan rate (= to 30 yr Treasury rate) n.a. 2.50% n.a. WIFIA loan term (years) n.a. 30 n.a.NYS EFC (SRF) Loan Amt 31,028,000 15,824,280 n.a. SRF Loan rate 3.10% 3.10% n.a. SRF Loan term (years) 30 30 n.a.Municipal Bond Amt n.a. n.a. 31,028,000 Municipal Bond rate (a) n.a. n.a. 3.50% Municipal bond term (years) n.a. n.a. 30

WIFIA annual debt service n.a. $726,398 n.a.SRF annual debt service 1,603,557$ $817,814 n.a.Municipal annual debt service n.a. n.a. 1,687,034 Total Debt Service 1,603,557$ $1,544,212 1,687,034$ Annual Savings with WIFIA 59,345$ n.a. 142,822$ Percentage Savings 3.8% n.a. 9.2%(a) Based on community's rating and an average life of 20 years.

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Village of New Paltz (Moody's Aa3)Scenario 1 Scenario 2 Scenario 3

Assumptions 100% EFC WIFIA + NYS EFC MunicipalProject Cost 5,675,916$ 5,675,916$ 5,675,916$ WIFIA Loan Amt (49% of Proj. Cost) n.a. 2,781,199 n.a. WIFA loan rate (= to 30 yr Treasury rate) n.a. 2.50% n.a. WIFIA loan term (years) n.a. 30 n.a.NYS EFC (SRF) Loan Amt 5,675,916 2,894,717 n.a. SRF Loan rate 3.10% 3.10% n.a. SRF Loan term (years) 30 30 n.a.Municipal Bond Amt n.a. n.a. 5,675,916 Municipal Bond rate (a) n.a. n.a. 3.50% Municipal bond term (years) n.a. n.a. 30

WIFIA annual debt service n.a. $132,879 n.a.SRF annual debt service 293,337$ $149,602 n.a.Municipal annual debt service n.a. n.a. 308,607 Total Debt Service 293,337$ $282,481 308,607$ Annual Savings with WIFIA 10,856$ n.a. 26,126$ Percentage Savings 3.8% n.a. 9.2%(a) Based on community's rating and an average life of 20 years.

City of Yonkers (Moody's A3)Scenario 1 Scenario 2 Scenario 3

Assumptions 100% EFC WIFIA + NYS EFC MunicipalProject Cost 28,444,000$ 28,444,000$ 28,444,000$ WIFIA Loan Amt (49% of Proj. Cost) n.a. 13,937,560 n.a. WIFA loan rate (= to 30 yr Treasury rate) n.a. 2.50% n.a. WIFIA loan term (years) n.a. 30 n.a.SRF Loan Amt 28,444,000 14,506,440 n.a. SRF Loan rate 3.10% 3.10% n.a. SRF Loan term (years) 30 30 n.a.Municipal Bond Amt n.a. n.a. 28,444,000 Municipal Bond rate (a) n.a. n.a. 4.00% Municipal bond term (years) n.a. n.a. 30

WIFIA annual debt service n.a. $665,904 n.a.SRF annual debt service 1,470,013$ $749,707 n.a.Municipal annual debt service n.a. n.a. 1,644,919 Total Debt Service 1,470,013$ $1,415,610 1,644,919$ Annual Savings with WIFIA 54,403$ n.a. 229,309$ Percentage Savings 3.8% n.a. 16.2%(a) Based on community's rating and an average life of 20 years.

A. Municipal Case Studies

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Appendix B: Descriptions of Study Communities

City of Poughkeepsie

Community OverviewThe City of Poughkeepsie, New York is located in Dutchess County in New York State in the Hudson Valley. According to the 2013 U.S. census, Poughkeepsie has an estimated population of 31,172.1 The mean income for households is $57,392 and the city has an unemployment rate of 14.3%.2 24.9% of residents exist below the poverty line.3 The central industries in Poughkeepsie are educational services and health care services.4 The City of Poughkeepsie has two college campuses (Adelphi University’s Hudson Valley Center and Ridley-Lowell Business and Technical Institute) located in the city limits, along with a number of other higher education institutions located in the nearby Town of Poughkeepsie including Marist College and Vassar College. Poughkeepsie also has two large hospitals in the city limits (Vassar Brothers Medical Center and Midhudson Regional Hospital). Poughkeepsie is located on the MTA Metro-North railroad line, and is a roughly two-hour train ride to Grand Central Terminal in New York City.5

The City of Poughkeepsie has a current credit rating of Baa3 from Moody’s with a negative ratings outlook. This rating reflects a continued trend of negative reserve fund balances along with a declining population and tax base. The city has experienced significant fiscal stress in the last 10 years, with continued budget imbalances and increasing levels of municipal debt.6 The City of Poughkeepsie has seen its credit rating decrease from A2 in 2005 to Baa3 in 2015.7

Project DescriptionsThe city is undertaking a number of major drinking water upgrades. They have submitted $40 million worth of project requests to the New York State Drinking Water State Revolving Fund (DWSRF) Intended Use Plan. All of these projects have been listed in the New York State Annual Project Readiness List for 2015.

Financing applications for two of these projects have been submitted to the New York State Environmental Facilities Corporation. The first project (IUP Project #18120) is an $11.6 million project to upgrade the water distribution for the City of Poughkeepsie. This includes the rehabilitation of an existing $5 million water tank, construction of a new $4 million water tank, and improvements to the water distribution system. The second project (IUP Project #18080A/B) is a $17 million water treatment facility upgrade project to meet new EPA surface water

1 U.S. Census – DP05 ACS Demographic and Housing 5-year Estimate 2009 - 20132 U.S. Census – S1902 Mean Income in the Past 12 Months ACS 5- year Estimate 2009 - 20133 Ibid.4 U.S. Census – DP03 Selected Economic Characteristics ACS 5-year Estimate 2009 - 20135 http://web.mta.info/mnr/html/planning/schedules/6 https://www.moodys.com/research/Moodys-affirms-Baa3-on-Poughkeepsie-NYs-GO-bonds-outlook-remains--PR_3176067 https://www.moodys.com/research/Moodys-affirms-Baa3-on-Poughkeepsie-NYs-GO-bonds-outlook-remains--PR_317606

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treatment rules. This facility managed by the City of Poughkeepsie and shared with the Town of Poughkeepsie.8

The City of Poughkeepsie also has three projects listed on the IUP annual list for which they have not yet submitted applications for NYS DWSRF financing. The first project (IUP Project #17420) is a $4.2 million project to upgrade the drinking water distribution for city residents by replacing antiquated distribution water mains. The second project (IUP Project #17421) is a $6.7 million project to replace the 100-year-old College Hill water reservoir tank. The third is a $4.3 million project (IUP Project #18028) to replace residential water meters to meet new EPA requirements. New residential water meters will be wireless and allow the city to transition to a vehicle-based meter reading system.9

Existing Water and Sewer DebtThe City of Poughkeepsie has issued approximately $19 million of sewer and water debt since 2012 of which approximately $14 million is outstanding. This final maturity of this indebtedness is 2031. A schedule of these debt payments compiled by using available information on past official bond statements is in [Table 3.1]. The 2012 City of Poughkeepsie Sewer Bonds are not included in this table; this project was financed using an Environmental Facilities Corporation loan, the payment schedule of which is not public. Additionally, the City of Poughkeepsie issued $5.7 million in bond anticipation notes for water projects. It is likely that these notes will be paid using a serial bond issuance in 2016 but as this has not yet been done, the bond anticipation notes are listed as a liability for 2015 on the table.

Current Water/Sewer RatesAccording to the 2013 Annual Drinking Water Quality Report, the current water and sewer rates for the City of Poughkeepsie are $3.00 per 100 cubic feet of water (or 748 gallons). In 2013, the City of Poughkeepsie delivered 1,782,109,668 gallons of potable water. Of this total, 601,095,968 gallons was delivered to 3rd party customers and 806,853,388 gallons was delivered to city residents.  Unaccounted water loss was 374,160,312 gallons.10

8 New York State Drinking Water State Revolving Fund 2013 Intended Use Plan (http://www.efc.ny.gov/Default.aspx?tabid=108)9 Ibid.10 http://www.cityofpoughkeepsie.com/wp-content/files/PWTF_Right_to_Know_2013_4-2-14.pdf

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Town of Blooming Grove

The Town of Blooming Grove is located in Orange County, NY and has a population of 18,028. 11 The Town’s general obligation bonds have a Moody’s rating of Aa3.

The Town of Blooming Grove is covers 35.3 sq miles. The town receives water from the Village of Washingtonville, the United Water Company and private wells. Sewer collection and disposal is provided by municipal and owner maintained systems. There are three-wastewater treatment district that provide services in the Town of Blooming Grove: Orange County Sewer Dist. No. 1 (OCSD1: Located outside the town boundaries), Tappan Hill Development, and Glenwood.

The following table summarizes the wastewater treatment facility within Town of Blooming Grove Planning Area and their respective capacities:12

Name Service Capacity (per day) Houses ServedTappan Hill Sewer District 150,000 gallons (currently

treating only 62,000 gallons)156

Glenwood Sewer District 12,000 gallons per day 40Orange County Sewer District No. 1 (includes South Blooming Grove SD 1, Washingtonville STP)

480,000 (this is TBG’s share) X

(For a detailed location of the sewer plant locations, see map below.)

11 American Fact Finder. United States Census Bureau. Retrieved 2015-04-612 Section4: Town Profile, under Section4: Regional Profile: Town of Blooming Grove

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Description of ProjectUnder the Clean Water State Revolving Fund for Water Pollution Control (2015), the following projects are being considered based on Final Intended Use Plan’s (IUP) ranking criteria:

Name Description Amount IUP # Score1. Tappan Hill Infiltration and Inflow

Correction$1,020,000 C3-5324-05-

0049

2. Mountain Lodge Park (Glenwood sewer district)

Addition of Collector/Sanitary Sewers

$30,008,000 C3-5324-04-00

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Total Funds $31,028,000

Both the projects are under the multi-year list and are not on the annual list – they are assumed to be ready for a future financing period.

Town IndebetnessThe Town of Blooming Grove issued Various Purpose Serial Bonds (GO Bonds) in 2011 in the amount of $2,056,392. 13 The official statement for the bond issuance states:

Additionally, the 2015 adopted budget suggests that Tappan Hill Sewer District has existing debt obligations of $2.78 million from bond issuances in 2006 and 2014, and the Glenwood Sewer District has outstanding debt obligation of $53,700 from bonds issuances in 2003 and 2011.14

13 Town of Blooming Grove, New York Various Purposes Serial Bonds – 2011, Souce: EMMA.14 Town of Blooming Grove, New York Various Purposes Serial Bonds – 2011, Souce: EMMA.

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The Village of New Paltz

The Village of New Paltz is located in Ulster County, New York. The nature of the area is rural and has a population of 6,924.The Village’s general obligation bonds are rated by Moody’s as Aa3.

The Village’s water supply to be shut down for a 10-week period in 2016 as New York City repairs the Catskill Aqueducts. Currently the Village uses between 700,000 to 1-million gallons a day and without a back-up supply, New Paltz would only have enough water reserves for five days. New York City plans to shut down the aqueduct for repairs in 2016, but also for 10 weeks in 2017 as well.

The purpose of this planned project implemented is the construction of a 1.5 million gallon drinking water storage tank, and to replace water mains. The estimated cost of the project $5,675,916 (IUP identifier: 17626).

The Village has outstanding indebtedness of $4,851,849 with $331,006 and $124,005 apportioned for water and sewer, respectively.

Household water/sewer rates:

(http://ecode360.com/7238235)

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City of Yonkers

The city of Yonkers is responsible for the maintenance of 400 miles of sewers in addition to 11,500 catch basins and 25,000 manholes. According to Yonkers’ Department of Public Works, the sewer infrastructure in Yonkers is outdated, as it was built in the early 1900s. The City responds to approximately 200 sewer blockages annually and must clean approximately 2000 catch basins annually. The city of Yonkers is divided into six water districts which are billed two times a year the current sewer rate is $0.63/ft3 [1].

In the final CWSRF 2015 IUP, the City of Yonkers requested $28,444,000 for the project that involves the “Elimination of combined sewer overflows, sewer replacements, sewer separation, and installation of storm sewers to improve water quality in the Hudson and Saw Mill Rivers” [7]. The City of Yonkers is responsible for the maintenance of public sewers in the City, but the treatment plant is owned by The Westchester Department of Environmental Facilities. [2]

As of 2014, Moody’s assigned an A3 credit rating to the Series C Bonds, the new money bonds that will provide financing for capital projects, including sanitary/storm water improvements. S&P assigned a credit rating of A for the City’s GO bonds. [2]

One of Yonkers’ Special Revenue Funds is the sewer fund. It is a nongovernmental special revenue fund that has, as of June 30, 2014, a $409,115 deficit due to insufficient revenues [3].

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Figure 1 Source [4]: City of Yonkers FY 2014 Official Statement

[1] http://www.cityofyonkers.com/government/departments/public-works/sewer-department

[2] City of Yonkers Official Statement 2014. http://emma.msrb.org/ER804082-ER625908-ER1027494.pdf

[3] City of Yonkers Comprehensive annual financial report Fiscal Year 2014. http://www.cityofyonkers.com/home/showdocument?id=11362

[4] City of Yonkers Capital Budget-FY 2015. http://www.yonkersny.gov/home/showdocument?id=10710

[5] Restored River a Boon to Yonkers. http://www.nytimes.com/2012/08/12/realestate/westchester-in-the-region-restored-river-a-boon-to-yonkers.html?_r=0

[6] 2015 Clean Water SRF Intended Use Plan.

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Appendix C: Bibliography

Water Infrastructure Finance and Innovation Act (WIFIA)—Title V, Subtitle C of P.L.113-121. (This legislation can be found at http://www.gpo.gov/fdsys/pkg/PLAW-113publ121/pdf/PLAW-113publ121.pdf --see pp. 130-153.)

“Water Infrastructure Financing: The Water Infrastructure Finance and Innovation Act”, Congressional Research Service Report, December 22, 2014. http://biblio.pennyhill.com/water-infrastructure-financing-the-water-infrastructure-finance-and-innovation-act-wifia-program-r43315-2/

“WIFIA: What Is It? How Does It Work? What Projects Qualify?” Roger Rosendahl, Water Utility Infrastructure Management, December 2014. http://uimonline.com/index/webapp-stories-action/id.1322/title.wifia-what-projects-quality

“Key Issues in WIFIA Implementation: The Water Utility Perspective”, American Water Works Association, Association of Metropolitan Water Agencies (AMWA), the National Association of Clean Water Agencies (NACWA), and the Water Environment Federation (WEF), June 2014. http://www.awwa.org/Portals/0/files/legreg/documents/KeyWIFIAIssuesPaper.pdf Organizations contacted:

New York State Environmental Facilities Corporation http://www.efc.ny.gov/AboutUs.aspx

EPA http://www2.epa.gov/aboutepa/about-office-water American Water Works Association—New York Section (http://www.nysawwa.com/) NYS Conference of Mayors and Municipal Officials http://www.nycom.org/ Association of Towns of the State of New York http://www.nytowns.org/

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