Systematic financial planning
Financing options for …
If yours is one of the thousands of departments that applied for but didn't receive American Recovery and Reinvestment Act of 2009 funding, you're not alone. The numbers bandied about while the legislation was negotiated raised more expectations than will be met.
Arizona received 300 applications totaling $1 billion in shovel-ready water and wastewater projects, but only $80 million in related stimulus funds. Based on the priority of applications, the state expects to be able to provide funding for only 51 projects.
Virginia received 240 applications totaling $20.1 million in drinking water funding and can afford to fund only 20.
Such shortfalls come just as the industry was hitting its stride in terms of proactive financial planning. Over the last decade, many departments had seriously begun addressing their backlog of renewal and replacement needs while providing for the infrastructure necessary to support regulatory and growth-related needs. It would be very unfortunate to lose this momentum.
The problem is bigger than any one player: Creative solutions are needed at the federal, state, and local levels. As illustrated on the next page, ensuring that financing is available for long-term needs is going to require multiple sources.
Fortunately, you can take steps to move the most important capital projects forward while minimizing the risk of negative financial fallout. Over the next year, PUBLIC WORKS will profile operations that are proactively managing their communities' infrastructure needs so you can identify elements relevant to your operation.
Future stimulus bills or other grant programs may emerge, but the nation's needs far outweigh what Washington, D.C., can provide in direct funding. But other federal action can help turn plans into reality. PUBLIC WORKS will be providing updates on these as well, both through this publication and a blog at www.pwmag.com.
Support for borrowing programs. Rep. Barney Frank (D-Mass.), chair of the U.S. House of Representatives' Financial Services Committee, is sponsoring several bills to help cities secure reliable access to the municipal bond market at affordable rates.
In particular, the Municipal Bond Insurance Enhancement Act of 2009 would provide up to $50 billion in reinsurance funds to help utilities that can't get private bond insurance. The theory behind the proposed legislation is that investors will be more confident about buying bonds from issuers with less-than-stellar credit ratings if the federal government provides an additional layer of insurance for the loan.
Raising caps on private activity bonds (PABs) to facilitate public-private partnerships. Instead of financing facilities for general public use, such as a bridge or courthouse, this type of municipal bond is issued for the benefit of, or due to the substantial participation of, a nongovernmental entity.
Certain types of private-activity bonds, including those issued to fund solid waste, water, and sewerage facilities, are tax-exempt but “qualified,” meaning they're subject to volume caps identified for each state. Since most states use them to support real estate projects instead of infrastructure, less than 2% has been spent on water and sewer projects nationwide.
Raising or eliminating the caps would encourage more private investment in public projects.
Extending stimulus loan provisions. Preliminary drafts of the federal state revolving loan program emulate provisions of the American Recovery and Reinvestment Act's water and sewer funding — such as dedicating a portion for principal forgiveness or negative interest opportunities — and add new provisions that would help with the financial crunch by, for example, extending the maximum repayment period from 20 to 30 years.