Additional Subsidization

Transcription

1 Additional Subsidization Jeff Hughes Environmental Finance Center University of North Carolina at Chapel Hill (919)

2 Additional Subsidization To Do List Shall do s Should do s Can do s Planning to do s 2

3 2010 EPA Appropriations Law (P.L ) That not less than 30 percent of the funds made available under this title to each State for Clean Water State Revolving Fund capitalization grants and not less than 30 percent of the funds made available under this title to each State for Drinking Water State Revolving Fund capitalization grants shall be used by the State to provide additional subsidy to eligible recipients in the form of forgiveness of principal, negative interest loans, or grants (or any combination of these), except that for the Clean Water State Revolving Fund capitalization grant appropriation this section shall only apply to the portion that exceeds $1,000,000,000 3

4 Additional Subsidization (FY 10_11) Required Lower Threshold CWSRF $ 299,074,500 DWSRF $ 396,998,400 Total $ 696,072,900 4

5 Present Value of Interest Rate Subsidization Distributed in 2008 (Rough Estimate**) $1.3 Billion relative to tax-exempt market rate $2.4 Billion relative to taxable market rate ** Based on 2008 Binding Commitments (5.6 Billion CWSRF, 2.05 Billion) assuming lending rate of 2.5% approximately 200 basis points below market (4.5%) and 400 basis points below taxable 5

6 H. Rpt , at 166 The conferees believe that priority for additional subsidies should be given to projects in communities that could not otherwise afford such projects and directs the Agency and the States to track how these subsidies are used and by what types of communities. 6

7 Proposed New Cap. Grant Agreement Language (EPA Implementation Guidance) Additional Subsides should be directed to: 1) repair, replacement, and upgrade of infrastructure in existing communities; 2) investigations, studies, or plans that improve the technical, financial and managerial capacity of the assistance recipient to operate, maintain, and replace financed infrastructure; and/or 3) preliminary planning, alternatives assessment and eligible capital projects that reflect the full life cycle costs of infrastructure assets, conservation of nature resources, and alternative approaches to integrate natural or green systems into the built environment. 7

8 State Practices Survey Blue Drinking Water Response Green Clean Water Response Blue/Green Hashed Both Source: CIFA/UNC EFC Survey, March,

9 Key Findings Principal forgiveness is king among additional subsidization techniques ARRAization 2/3rds of respondents will offer programs that look a lot like their ARRA programs Greenness, MHI, and Rates have biggest impact on the amount of additional subsidies borrowers receive Programs tend to vary additional subsidization more than interest rate subsidies 9

10 Why Different Levels of Subsidization Will be Offered DW(N =31) All Same Subsidy Green ness Regionalization MHI Water/Wastewater Pop. Water quality problem Other Source: CIFA/UNC EFC Survey, March,

11 Allocating Subsidization 11

12 Varying Subsidy Allocation (DWSRF) (n=33) Variation of interest rate No variation of interest rate Variation of principle forgiveness No variation of principle forgiveness

13 Multi-facetted Subsidy Programs Example 1: Minnesota Created wastewater project financing program for high-cost projects, targeting small borrowers that lack economies of scale; CW: Subsidy determined by first calculating the average system cost (debt service and O&M) per household. The subsidy will be 80% of the capital costs over 1.4% of MHI, up to a max of $4 million. DW: Same, except threshold reduced to 1.2% of MHI 13

14 Multi-facetted Subsidy Programs Example 2: Montana Additional subsidy is either 30% of SRF assistance or a $500k cap; Reduces interest rate by 1% for disadvantaged communities for the first $500k - this is a longstanding policy in DW & CW programs in Montana 14

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16 ADDITIONAL SURVEY RESULTS 16

17 Are DW and CW Subsidization Policies Likely to be the Same or Different? 17

18 What Will Your State's Process for CWSRF Look Like? (n=32) Similar to ARRA subsidization process with similar subsidization levels 19% Fundamentally different to how we did it for ARRA 37% Similar to ARRA subsidization process but subsidies are lower 44% Source: CIFA/UNC EFC Survey, March,

19 What Will Likely be Available to Borrowers DW (n=31) Partial Complete principal principal forgiveness forgiveness Source: CIFA/UNC EFC Survey, March, 2010 Partial grants 100% grants Don t have any idea Negative interest rates 19

20 What Will Likely be Available to Borrowers CW (n=32) Partial principal forgiveness Complete principal forgiveness 0 Partial grants % grants Don t have any idea 0 Negative interest rates Source: CIFA/UNC EFC Survey, March,

21 Why Different Interest Rates Will be Offered DW (N = 31) All Same Subsidy Green ness Regionalization MHI Water/Wastewater Rates Pop. Water quality problem Other Source: CIFA/UNC EFC Survey, March,

22 Comparison of Different Methods of Delivering Subsidies for DWSRF Programs (N = 31) All Same Subsidy Green ness Regionalization MHI Water/Wastewater Rates Subsidy Interest Rate Pop. public health problem Other Source: CIFA/UNC EFC Survey, March,

23 Why Different Levels of Subsidization Will be Offered CWSRF(N = 32) All Same Subsidy Green ness Regionalization MHI Water/Wastewater Rates Pop. Water quality problem Other Source: CIFA/UNC EFC Survey, March,

24 Why Different Interest Rates Will be Offered CW(N = 32) All Same Subsidy Green ness Regionalization MHI Water/Wastewater Rates Pop. Water quality problem Other Source: CIFA/UNC EFC Survey, March,

25 Subsidy Paradox: Where Does it Go? Will it be this household: Or this one? 4,000 gals/mo. vs. 222,900 gals/mo. 25

26 Tools and Resources Webinar and webinar documents Subsidization Resource Site Subsidization calculators EFC Pennvest EPA affordability criteria 26

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