www.efc.unc.edu
InnovativeEnvironmental Finance
Glenn Barnes & Stacey Isaac Berahzer
Delta Environmental SummitJuly 23, 2010
Agenda
• Overview of Sustainable Finance and Your Role as a Government
• Financial Tools and Examples
• Resources Available
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Dedicated to enhancing the ability of governments and organizations to provide environmental programs and services in fair, effective and financially sustainable ways
Serving EPA Region 4
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Who is the EFC
• The UNC Environmental Finance center is a non profit that reaches local communities through the delivery of interactive applied training programs and technical assistance. Their Primary focus is financial capacity building of environmental protection programs.
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Which of the following best describes your background?
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Engin
eerin
g/sc
ience Law
Fina
nce/
acco
untin
g
Gen
eral
man
agem
ent/
p...
Engli
sh Li
terat
ure/
Othe
r
31%
6%
13%
38%
13%
1. Engineering/science2. Law3. Finance/accounting4. General
management/ public administration
5. English Literature/Other
What is your current position?
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Elec
ted O
fficia
l
Loca
l Gov
t Man
agem
ent..
.
Loca
l Fin
ance
/ Bud
getin
g...
Loca
l Pub
lic W
orks
Stat
e/Fe
d Gov
t
Tech
nical
Assis
tanc
e O
ther
18%
0%
12%
29%
12%
24%
6%
1. Elected Official2. Local Govt
Management staff3. Local Finance/
Budgeting staff4. Local Public Works5. State/Fed Govt6. Technical Assistance7. Other
Thinking about your environmental services, what do
you need to pay for?
Just shout out your answers...
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Goals of Sustainable Finance
• You have the money you need to meet your program goals
• You are confident that you will have funding year after year, in spite of denied grants, economic downturns, and other unfortunate events
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As a government you are expected to...
• Use taxpayer dollars efficiently and effectively
• Provide good quality service
• Serve low-income residents regardless of their ability to pay
• Promote conservation and good environmental practices
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With so much expected of you...
• Inevitably, there are conflicts amongst the goals and expectations
• It’s important to understand the wide range of finance options available to you and how appropriate, effective and equitable they are
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Financial Tools
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Two Step Process
• First, learn about what funding opportunities exist for different environmental services
• Second, figure out which of those funding opportunities are appropriate for your community’s needs
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Topics Not Covered
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An excellent way to keep your IT staff employed
Also not recommended...
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Where does the money come from?
• Taxes• Loans• Bonds• User fees• Assessments• Impact fees• Grants
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Finance Principles
• Keep it simple• Connect the actions needed and their
costs to the beneficiaries and those responsible
• Share costs amongst broadest group• Seek sustainable sources of revenue• Gain support of key environmental and
advocacy groups
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Revenue source: Who does the money come from
• Taxpayer, ratepayer, consumers, businesses, investors?
• Beneficiaries, polluters, those who can afford, government?
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Taxes
• Charged against:– Income (federal/state level)
– Property (local level)
– Sales (state level, with surcharges at the local level)
• Local Sales Tax– Example: Special Purpose Local Option Sales
Tax in Georgia
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Taxes - SPLOST
• Special Purpose Local Option Sales Tax
• 1% county sales tax (municipalities may get involved as well)
• Example: 5 SPLOSTs in Athens-Clarke County generates about $25 million per year
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Taxes – Tax Increment Financing
• All “new” property taxes for an area are reinvested into the same area
• Particularly applicable to urban, blighted areas
• Example: Atlantic Station, Atlanta
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Loans
• Drinking Water and Clean Water State Revolving Funds– Water and Sewer capital needs– Stormwater, green stormwater infrastructure– Source water protection– Land conservation– Failing decentralized wastewater systems
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0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
1970
1975
1980
1985
1990
1995
2000
$ / Y
ear (
Bill
ions
Total (in 2000 Dollars)
CWSRF
EPA Line Item
Construction Grant
EPA Wastewater Spending (1970-2000)
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Bonds
• A written promise to repay borrowed money (on a definite schedule and usually at a fixed rate of interest for the life of the bond)
• Different types exist:– General Obligation (GO)– Revenue
Source: bettermondays.com
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Market-based programs – Ecosystem goods and services provided by healthy watersheds
• Water supplies for agricultural, industrial and urban-domestic uses
• Water filtration purification• Flow regulation• Flood control• Erosion and sedimentation
control• Fisheries• Timber and other forest products• Recreation and tourism
• Habitat for biodiversity preservation
• Aesthetic enjoyment• Climate stabilization• Cultural, religious, inspiration
values
Source: Postel, Sandra and Barton Thompson, 2005. Watershed protection: Capturing the benefits of nature’s water supply. Natural Resource Forum, 29, 2005, 98-108.
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Market-based programs
• Trading and offset programs• Fiscal incentives• Purchasing and transferring development
rights• Voluntary programs• Payment for ecosystem services
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User Fees
• Charged regularly to all customers: industrial, commercial and residential
• Customers’ bills relate to their consumption (usually)
• Utilities can develop rates based on their expected costs
• Example – stormwater utility fees
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Raleigh, NC Interactive Tool
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Flush Fee: Chesapeake Bay Restoration Fund, MD
• Added $2.50/month “flush fee” to the utility bills of property owners of public sewer system AND septic tanks
• Public sewer customers $65 million/year (for WWTP upgrades)
• Septic tanks $12.6 million/year (for septic tank repair/cover crops)
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Assessments
• A recurrent charge to a sub-group of the population
• The sub-group receives benefits from an environmental service or improvement not enjoyed by others in the area
• Close cost/benefit relationship equity
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Impact Fees
• One-time charges to new users
• Typically assessed when building permits are issued
• Close cost/benefit relationship equity
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Grants
• Grants are available for virtually any environmental service, in particular watershed protection
• Catalog of Federal Funding Sources for Watershed Protection
–http://cfpub.epa.gov/fedfund/
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Grants
• Private Foundations
• Southeast Watershed Assistance Network Funding List
• http://watershed-assistance.net/resources/categories.asp?catid=136
Image Source: Utah DEQ
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Grants Aren’t Completely Free Money
• Application for the grant can be expensive – staff time and money
• Applications can take months to process
• Often lots of strings attached
• Often require a percentage match
• Lots of competition
• Difficult to sustain
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Putting MultipleFunding Sources Together
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Renaissance Park, Constructed Wetland – Chattanooga, TN
Funding came from:• Federal earmarks
• State grants (Tennessee Wildlife Resources Agency, Federal/state road funds)
• Issuance of Bonds (against hotel/motel room tax)• Over $100 million in private investment adjacent to the
park
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Diverse Revenue SourcesFunding Sources for Eno River Association, North
Carolina
Grants20%
Contributions21%
Festival for the Eno15%
Rental13%
Membership Dues19%
Calendar Income6%
Other Misc. Income3%
Interest Income3%
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Source Water Protection• Limiting development in the reservoir
watershed
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Example: OWASA and Orange County
Source: Ed Holland, OWASA
OWASA’s Adopted Approach
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No public water or sewer extensions.
Acquire 1,265 acres of additional land(Reduce future P loading by 260 kg/yr).
Local Supplement to State Ag-BMP cost-share program.Modified water intake structure.
Large-lot (5-ac minimum) re-zoning.
Restricted in-lake recreational activities.Source: Ed Holland, OWASA
In-Depth Example:
Drinking Water andWastewater Rates
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Do you have a water and/or wastewater utility?
1. Yes2. No
Yes
No
8%
92%
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Water 101
• Public water utilities are enterprises under generally accepted accounting principles
• Raise bulk of their revenues generally from bills and other fees
• High percentage of fixed costs
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“Utility” in eye of the beholder1) Utility serves an important
environmental and health purpose -- protecting community’s water resources and supplying community with highest quality drinking water.
2) Utility serves an important public service– providing community with basic services that everyone in the community can afford.
3) Utility serves as a well managed public enterprise – putting into practice forward-thinking sustainable business practices.
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How do you primarily view utilities?
1. Serves environmental and public health purpose
2. Public service3. Enterprise
Serv
es en
viron
men
tal a
..
Publi
c ser
vice
Ente
rpris
e
18% 18%
65%
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In an Ideal Pricing World• Prices cover full “costs” of service• Prices send and reinforce strategic
messages• Prices follow State’s laws and policies• Beneficiaries pay for their benefits• Polluters pay for their pollution• Ability to pay is recognized and addressed • Simple
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What is your top rate-setting priority?
1. Financial Stability/ Cost Recovery
2. Affordability3. Conservation4. Fostering
business-friendly environment
Fina
ncial
Stab
ility/
Cost.
..
Affo
rdab
ility
Cons
erva
tion
Foste
ring b
usin
ess‐f
rien.
..
56%
17%17%11%
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A Utility’s Pricing World –Rate Setting Priorities
Financial Stability/Cost
Recovery79%
Other3%Affordability
18%
Source: EFC & NCLM 2005 Rate Practices Survey (277 Utilities)
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Rate Setting Objectives
Full cost recovery/ revenue stability
Encouraging conservation
Fostering business-friendly
practices
Maintaining affordability(keeping rates
low – to whom?)
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Affordability
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How do you measure affordability?
• Water rates seem high• Customer cost/median household income• Customer cost/household income• Willingness to pay??
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When are Rates Unaffordable?
• Above 2.5%• More than what your neighbor charges? • People complain?• Your collection rate plummets?
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National Affordability Guidelines• Safe Drinking Water Act established special
assistance in those communities that have an average residential bill of over 2% of MHI
• USDA has a program to provide funds for water and sewer systems. Loans are made for projects where the residential water bills are 1.5% of MHI.
• National “Water Affordability Programs” report: affordability programs should be based on a measure of 2% of income for poor households, rather than using MHI.
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Affordability Concerns
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Making the Case for Considering Affordability
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Altruistic Reasons
• Wanting to help folks!• Caring about your customers
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Your Bottom Line
When customers have trouble paying their bills, there is a cost to the utility, in the form of:– Arrearages– Late payments– Disconnection notices– Terminating the service– Fielding calls from the delinquent customers
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Affordability Examples
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www.efc.unc.edu
Concept of Lifeline Rates
• “Providing a minimal amount of water, at a reduced cost to all customers, regardless of income level or ability to pay”
– Source: AWWA Manual M1
• Often some consumption is included in the base charge
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Case Study: Taste of Hope -OWASA
• Customers can have their monthly bills rounded up to the nearest dollar
• Proceeds assist lower income people who cannot start or continue service
• Administered by a local non-profit organization, NOT the utility itself
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Partnerships and Inter-Local Agreements
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Partners for Environmental Services
• Local, state, federal, and tribal governments
• Utilities and authorities
• Non-profits
• For-profit corporations and businesses
• Private citizens
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Looking in the next 5-10 years, which local government services will most require
increased inter-local cooperation? Water Supply 82%
Economic Development 44%
Transportation 35%
Environmental Protection 26%
Land Use Planning 25%
Emergency Management 25%
Solid Waste Disposal 19%
Energy Conservation 12%
K-12 Education 9%
Law Enforcement/Jails 7%
Other (Please Specify) 4%
Social Services 3% Source: SOG COG/Regionalism Survey Preliminary Data as of 8/8/08 130 responses
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If you manage a utility, how important is it for you to maintain control in the future?
Very67%
Somewhat22%
Not somuch5%
Happy to be rid of the
thing6%
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Water/Sewer partnerships
• Handshakes about cooperation
• Emergency mutual aid agreements
• Bulk sales agreements
• Joint ownership of facilities
• Joint management/ownership entities (authorities)
• Find someone to take over the business68
Watershed Partnerships• Mountain Island Lake, NC• Formal Partnership with MOU & “Work Group”• Partners include:
– Centralina Council of Governments– Mountain Island Lake Marine Commission– Town of Huntersville– City of Charlotte– City of Gastonia– City of Mount Holly– Mecklenburg County– Lincoln County– Gaston County
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Rate Setting Resource
• Concise rate setting guidelines to assist utilities in designing rate structures that take into consideration state and local policy goals and objectives
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Rate Analysis Model
• Easy-to-use, simplified cash flow model
• Computes net profit/losses for multiple years based on your rate adjustments
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Finance Scenarios Tool
• Assisted Corinth, MS Gas and Water Department with cash flow analysis for their plan to replace their groundwater source with surface water
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Customer Assistance Tool
• Estimate the direct program costs of a customer assistance program for water and wastewater utilities
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Inter-Local Water Agreements
• Tips relating to issues you may not have thought of or were hoping to avoid regarding water system partnerships
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Sustainable Water Systems
• Policy recommendations on the future of America's water and wastewater infrastructure
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Capital Improvement Tool
• Easy-to-understand predictions on:– Financial reserves – Rate increases – Capital Investment
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Watershed Fee Dashboard
• Visualize how changing water rates can generate revenue for watershed protection
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Loan Analysis Tool
• Finance your next project with a loan
• Determine the cost for each user
• Compare different loan terms
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Technical Assistance Providers
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Environmental Finance Center at University of Louisville
• http://cepm.louisville.edu/
• Has created practice guides on various environmental areas including:– Smart Growth/Sustainability/Green Practices– Utilities– Environmental Justice– Brownfields
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In Mississippi
• Mississippi Rural Water Association
• Mississippi Water & Pollution Control Operator's Association
• Alabama/Mississippi AWWA
• Mississippi Water Resources Research Institute
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In Mississippi
• Mississippi Association of Conservation Districts, Delta area
• Mississippi-based USDA (Greenville office)
• South Delta Planning and Development District
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In Mississippi
• Mississippi Municipal League
• Mississippi Association of Supervisors
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Centers of Excellence for Watershed Protection
• Stakeholder need for low-cost services and tools
• More visible and understand local issues
• Faster response and newer technology
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Questions?
Stacey Isaac BerahzerAtlanta Office770-509-3887 [email protected]
Glenn BarnesChapel Hill Office
edu
UNC Environmental Finance Centerhttp://www.efc.unc.edu
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