Innovative Financial Strategies for Stormwater Programs

Transcription

1 Innovative Financial Strategies for Stormwater Programs Preconference Workshop: Southeast Stormwater Association 08/08/14 Stacey Isaac Berahzer, Senior Project Director Environmental Finance Center at UNC Keith Readling, PE, Vice President Raftelis Financial Consultants Jere Earlywine, Shareholder Hopping Green & Sams, PA

2 Dedicated to enhancing the ability of governments and other organizations to provide environmental programs and services in fair, effective, and financially sustainable ways through: Applied Research Teaching and Outreach Program Design and Evaluation How you pay for it matters 2

3 Evolution of Water Quality Management in the US Point source pollution management Examples: Wastewater treatments plants Factory outfalls Non-point source pollution (of larger, single-site projects) Examples: Detention ponds Constructed wetlands Non-point source pollution (of smaller, distributed sites) Examples: Rain gardens Permeable pavement Cisterns Photo by Stacey Isaac Berahzer: Cistern from 1980s, Grand Riviere, Trinidad 5

4 Green Infrastructure (GI) An array of products, technologies and practices that use natural systems or engineered systems that mimic natural processes to enhance overall environmental quality and provide utility services. - EPA Photo by Erin Weeks: Two cisterns located at the NC Botanical Gardens in Chapel Hill, NC

5 Challenges GI BMPs are by nature scattered across a jurisdiction Local governments have the main regulatory burden of addressing stormwater issues like CSOs, but Many of the most ideal sites for GI will be on PRIVATE property

6 Evolving Stormwater Finance 1. General government uses tax revenue to pay what it can to manage stormwater on public land 2. Regulations drive private property projects 3. Off-set fee programs/impact fees 4. Governments establish enterprises and stormwater fees to generate revenue 5. Rebates/cost share programs 6. Fees increase to level where crediting fees for on-site improvements becomes viable incentive 7. Loans 8. Tax incentives 9. Trading 10. Property Assessment Backed (e.g. PACE like)

7 P3s - Private Investment Necessary U.S. communities are facing a total of $106 billion in needed stormwater management and combined sewer correction upgrades or improvements Source: American Rivers et al Banking on Green: A Look at How Green Infrastructure Can Save Municipalities Money and Provide Economic Benefits Community-Wide.

8 P3 SWOT Analysis STRENTHS Alleviates constraint of limited public funds Uses private sector expertise More equitable responsibility and risk distribution Development in local green industry Discourages grey infrastructure by incentivizing GI WEAKNESSES Lack of coordination and communication Misalignment of motivations Low profit for private investor Complex agreements OPPORTUNITIES Ability to improve urban setting (and thus increase tax revenue) Growing public interest in sustainable practices Support from government agencies Urgency to address water quality THREATS Difficult legal framework Learning curve involved with site-specific GI examples Location-specific pricing makes cost estimates difficult Potentially expensive transaction costs

9 STORMWATER CREDITS

10 1. What is the first thing you think of when you hear 1. An unfair disguised tax 2. An essential method of allocating stormwater costs 3. A device for encouraging private investment 4. Time to look for a new job stormwater fee? 22% 72% 6% 0% An unfair disg... An essential m... A device for e... Time to look f...

11 6. What would happen if a lot of customers began to seek credits 1. My utility would go bankrupt 2. My CIP program would have to go on hold 3. My staff would get overwhelmed 4. Stormwater quality in my jurisdiction would improve dramatically 5. All of the above suddenly? My utility wou... 0% My CIP program... 16% 16% My staff would... 36% Stormwater qua... 32% All of the abo...

12 2. Does your local government have a stormwater utility? 1. Yes 2. No 22% 78% Yes No

13 3. For those with stormwater utilities, do you have a credit 1. Yes 2. No program? 36% 64% Yes No

14 4. How well subscribed to is your credit program? 1. Very popular more than 50% of eligible customers get credits 2. Somewhat popular More than 25% of eligible customers get credits 3. Not very popular a very small % of customers get credits 4. Almost no customers get credits Very popular... 79% 14% 7% 0% Somewhat popul... Not very popul... Almost no cust...

15 5. Does Your Utility Offer Any of the Following Incentive Programs? 1. Site assessment/bmp design assistance 2. Low-interest loans 3. BMP installation cost rebates 4. Other (to be specified) 5. None of the above 53% 35% 18% 12% 6% Site assessmen... Low-interest l... BMP installati... Other (to be s... None of the ab...

16 Does Your Utility Offer Any of the Following Incentive Programs? Source: 2012 Stormwater Utility Survey, Black and Veatch

17 Credit/Discount on Stormwater Utility Fees A reduction in (monthly) fee due to installation of BMPs BENEFITS: Allow rate payers to control and reduce their service fee Improve legality of a stormwater utility fee Encourage private property owner participation in both water quality and flood relief improvements Reduce public expenditures on the stormwater management program

18 Does Your Utility Have a Stormwater Credit Program? No, 31% Yes, 69% Source: EFC at UNC, 2012 Georgia Stormwater Survey; Source: (National) 2012 Stormwater Utility Survey, Black and Veatch

19 Credit Programs: Subscription Rates Question: Of the total number of stormwater utility accounts, how many receive credits? Conservative interpretation of the results: 0.03% % of the accounts take advantage of credit programs Source: 2013 Southeast Stormwater Utility, 2013; SESWA

20 CASE STUDIES

21 Stormwater Management Incentives Program Grant PHILADELPHIA

22 Philadelphia - Suite of Programs Stormwater Management Incentives Program Grant Stormwater Management Incentives Loan Program Stormwater Management Credits Green Roof Tax Credit

23 Philadelphia - Stormwater Management Incentives Program (SMIP) Grant Effort of City, Water Department, and Industrial development Corporation Eligibility: non-residential, non governmental property owners who are customers of Water Department Project must be designed to capture at least the first inch of runoff No grant request minimum or maximum, but to be COMPETITIVE, $100,000 per impervious acre or less is recommended PWD anticipates that there will be $5 million available for SMIP Grants

24 Philadelphia - Stormwater Management Incentives Program (SMIP) Grant Grantees eligible for stormwater credits after installation Must complete Economic Opportunity Plan with the City of Philadelphia s Office of Economic Opportunity Will not pay for standard stormwater management requirements, only for portion that goes above requirements

25 Philadelphia - Stormwater Management Incentives Program (SMIP) Grant Water Commissioner Howard Neukrug: By working with customers who can manage stormwater from many acres of hard surfaces and ideally public runoff from streets we can transform pockets of our combined sewer areas into green acres in a cost effective way. This is the best example of a public/private partnership.

26 Philadelphia - Stormwater Management Incentives Loan Program Loan Amount: $75,000 - $1,000,000 Interest Rate: 1.00% fixed rate Term: depends on the payback period of the stormwater BMP, up to 15 years Equity: Applicants are expected to make at least a 10% equity contribution Legal Fee: Approximately $1,500 - $2,500 payable upon settlement

27 Philadelphia - Hypothetical Parking Lot Commercial Customer Characteristics 20,000 square feet of impervious area Installing BMPs that retain 10,362 gallons Installation cost is $50,000 O&M costs between $1,000 and $3,000 per year Benefits Current stormwater monthly fee = $ $38,000 in installation funded by a SMIP grant; Parking lot owner pays $12,000 New fee after credits = $72.95 Annual avoided fee cost of $1,578 each year

28 Stormwater Charges Billing Class Non-Residential Meter Info Meter Size R 5/8" Number of Accounts 1 Parcel Info Gross Area Gross Area Credit (estimated) Billed Gross Area Impervious Area Impervious Area Credit (estimated) Billed Impervious Area 20, sq ft sq ft 7,000 sq ft 20, sq ft sq ft 7,000 sq ft Excel Models like this one from Philadelphia help customers weigh the benefits. Start Date 7/1/2009 7/1/2010 7/1/2011 7/1/2012 1/1/2013 7/1/2013 7/1/2014 Fiscal Year FY10 FY11 FY12 FY13 FY13 FY14 FY15 Meter-Based - Full Meter Charge Billing and Collection Total Meter-Based Meter-Based Weighting 100% 75% 50% 25% 25% 0% 0% - Weighted Meter-Based Charge Parcel-Based - Full Parcel Charge Minimum Charge Applies No No No No No No No - Account Parcel Charge Parcel-Billing Charge Total Parcel-Based Parcel-Based Weighting 0% 25% 50% 75% 75% 100% 100% - Weighted Parcel-Based Charge Total Stormwater Charge $13.22 $27.09 $41.03 $54.72 $51.82 $72.95 $76.89

29 Philadelphia - Green Roof Tax Credit Green roof must cover at least 50% of building Provides City of Philadelphia tax credit of 25% of installation cost Up to $100,000 per building

30 DISTRICT OF COLUMBIA

31 Suite of District Department of the Environment Programs Riversmart Homes River Smart Communities DDOE Stormwater Fee Discount (RiverSmart Rewards) Green roof rebate program ($7 to $10 per sf of green roof) Stormwater Retention Credit (SRC) Trading Program

32 DC - RiverSmart Rewards DDOE Stormwater Fee Discount Program Up to 55% off DDOE stormwater fee Non-residential/multi-family Residential (simplified application) Reapplication every 3 years

33 DC - Hypothetical Customer 20,000 Sf Property Billed 20 ERUs = $53.40 BMPs on site retain 10,362 gallons (equivalent to 14.6 ERUs) Credit 14.6 *.55 = 8.1 ERUs ($21.63) Net cost $31.77 per month Avoided expenses $260 per year

34 DC - Stormwater Retention Credit (SRC) Trading Program Through the Stormwater Retention Credit (SRC) trading program, projects that trigger stormwater regulations may buy and use SRCs or pay an in-lieu fee to meet their requirements for retaining stormwater. Other District properties generate SRCs by exceeding their own regulatory requirements or voluntarily installing retention practices such as green roofs and rain gardens. The SRC market provides flexible and cost-effective compliance options for the regulated community as well as financial incentives to voluntarily increase stormwater retention in the District.

35 Other Program Examples Property Assessments/Liens (modeled after energy PACE programs Reverse auction (Durham) Multi-prong (Minnesota)

36 Durham Slide Source: Laura Webb-Smith, City of Durham

37 Slide Source: Laura Webb-Smith, City of Durham

38 Slide Source: Laura Webb-Smith, City of Durham

39 RAMSEY-WASHINGTON METRO WATERSHED DISTRICT, MN

40 Maplewood Mall Project 35 acres of parking lot impervious 70 acres including building 55 Rain gardens 375 Trees in Trenches 5700 Gallon Cistern Sand Filters Pervious Pavers Educational Signage Slide Source: Cliff Aichinger, RWMWD

41 Stay in Touch to Learn More Subscribe to our Environmental Finance Blog Tools, trainings, assistance and resources for small water systems from the EFCN Follow us on

42 Questions/Comments Stacey Isaac Berahzer Senior Project Director EFC at UNC (770) efc.sog.unc.edu Related information on search for innovative finance for green infrastructure

43 Acknowledgements EFC Project Team: Jeff Hughes, Stacey Isaac Berahzer Input from staff of: DC Water, RWMWD, City of Durham, Philadelphia RiverSmart programs Funding: EPA Hosting today s event: SESWA 45

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45 7. Are you familiar with a project where stormwater facilities were financed using a special district? 1. Yes 2. No 30% 70% Yes No

46 8. If yes, what was the most common method used by the special district for financing? 1. Special Assessments 2. Tax Increment Financing 3. User Fees 4. Other 30% 20% 50% 0% Special Assess... Tax Increment... User Fees Other

47 9. Are you aware of the use of special districts in your jurisdiction being used to avoid a local general purpose government tax? 1. Yes 2. No 22% 78% Yes No

48 10. Are you aware of any projects in your state where stormwater facilities had to address multiple goals such as flood control, environmental protection, water supply and recreation? 1. Yes 2. No 10% 90% Yes No

49 11. Are you aware of any projects in your state where the local community would be interested in having greater control of their stormwater and other community infrastructure? 1. Yes 2. No 36% 64% Yes No

50 The Increasing Need for Funding NEED FOR FUNDING New development Aging infrastructure Planning for climate change Changing regulatory standards Long term maintenance MULTIPLE PURPOSES Flood control Water resource management Environmental concerns Recreational aspects

51 Common Financing Methods METHODS General Governmental Appropriations Impact Fees User Fees Special Assessments Bonding for Capital Improvements (General Obligation / Revenue) In Lieu of Construction Fee Grants, Loans & Cooperative Programs AUTHORITIES City or County Stormwater Utility Dependent District Independent District

52 What Are Special Districts? Historic background Limited purpose unit of government Created by State or local general purpose government Established for special purpose Limited geographic scope Variety of financing mechanisms

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55 What Makes Them SO Special? Allows growth to pay for itself (i.e., those who benefit from the services pay for them) Frees city/county resources Avoids city/county limitations Doesn t count toward debt capacity Avoids politically unpopular taxes / fees Can cross city/county boundaries Flexible funding mechanisms Revenue bonds Special assessments Tax increment financing User fees Conduit / Public-Private Partnership opportunities

56 What Makes Them SO Special? Cost savings - Tax exempt bonds - Purchases free from sales tax - State term contracting Multi-purpose districts have flexibility to achieve multiple SWM goals Special district can be responsible for construction services Good long-term maintenance entity that protects property values (e.g., stable revenue, professional staff, sovereign immunity, etc.) Special districts empower citizens to govern their own community

57 Comparison of Financing Mechanisms Structure Free from City/County Debt Limits? Long Term Maint. Conduit Financing Available Multi- County Entity? Growth pays for itself? City / County General Appropriation NO YES NO NO NO SWM Utility YES YES NO DEPENDS NO Impact Fee N/A NO NO NO YES Dependent District DEPENDS YES YES DEPENDS YES Independent District YES YES YES YES YES

58 Process - Establishment Varies by district type not all steps required in all cases Petition to establish the district Consideration by establishing government Public/landowner notice Public hearing Public/landowner vote or consent Establishing government adopts appropriate legislation

59 Process - Financing Assemble Financing Team (e.g., underwriter, trustee, bond counsel, issuer s counsel, etc.) Validation/Approval Prepare Bond Documents Establish Security for Repayment Special Assessments User Fees Other Options Sale of Bonds/Closing

60 Process Construction & Operation Constructing and/or acquiring infrastructure Special district responsible for construction Maintenance services Funding from special assessments or fees Community establishes the level of service Tax exempt bonding can be used to refurbish aging infrastructure

61 How do Southern States Compare? Alabama Florida Georgia South Carolina Size 52,419 sq. mi. 65,755 sq. mi. 59,425 sq. mi. 32,020 sq. mi. Population 4,833,722 19,552,860 9,992,167 4,774,839 Rainfall 58.3 inches 54.5 inches 50.7 inches 49.8 inches Counties Special Districts 548 1,

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63 Commonly Used Independent Special Districts in Florida Community Development Districts Stewardship Districts

64 Community Development Districts Statute: Chapter 190, Florida Statutes Creation: Depending on size, created by state administrative rule or an act of the local general-purpose government, in either case upon petition by landowners Governing Body: Supervisors are elected initially by landowners and later by residents Authority: Broad range of infrastructure can construct and maintain stormwater systems, flood control structures, roadways, recreation facilities, etc. Revenue: Revenue bonds typically secured by special assessments (though broad range of options)

65 Stewardship Districts Statute: Chapter 189, Florida Statutes Creation: Created by Legislative Act Governing Body: Supervisors are elected initially by landowners and later by residents Authority: As set forth in applicable statute, but typically broad range of infrastructure Revenue: Revenue: Revenue bonds typically secured by special assessments (though broad range of options)

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67 Commonly Used Independent Special Districts in South Carolina Home Rule Act Improvement Districts Special Act Districts

68 Municipal Improvement Districts Statutes: Title 5, Chapter 37 Creation: Must be established by governing body (e.g., the city council) after hearing and based on certain findings that improvements would be beneficial and tax base would be maintained or improved, and that it would be fair and equitable to finance improvements by assessment. Authority: Broad range of projects can be financed, including stormwater management infrastructure. Revenue: Assessments, bonds, etc. (TIFs); debt does not count toward city s debt limits Governing Body: Municipal council

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70 How Do They Compare? Georgia Community Improvement Districts Local Development Authorities

71 Community Improvement Districts Statute: Article 9, Section VII, Georgia Constitution Creation: Created by an act of the local general-purpose government upon petition by landowners. Authority: Broad range of improvements. Revenue: Can levy ad valorem taxes up to 2.5% of property value, which can be pledged for payment of bonds. Taxes can only be imposed on non-governmental, non-residential property. Governing Body: Election of directors and composition of the board is determined by the legislation creating the district.

72 Local Development Authorities Statutes: Sections et seq., et seq., et seq., Georgia Code Creation: Created by general enabling acts of the Georgia legislature or by specific locally-applicable acts of the Georgia legislature. For authorities created by general enabling acts, local governments activate the authority by resolution. Revenue: Cannot independently impose taxes or assessments but can receive program revenues or general tax revenue collected by local generalpurpose governments, both of which can be pledged to pay bonds. Governing Body: Varies by the type of authority, board but is usually between 7-9 members. Members are appointed by the local generalpurpose governments in which the authorities are located. Notes: Include Development Authorities, Downtown Development Authorities and Urban Redevelopment Authorities, respectively. The primary difference among the authorities is the type of area served. Specifically intended to promote the revitalization of downtown and urban areas.

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74 How Do They Compare? Alabama Improvement Districts Capital Improvement Cooperative Districts

75 Improvement Districts Statute: Chapter 11-99A, Alabama Code of 1975 Creation: Created by an act of the local general-purpose government upon petition by landowners. Revenue: Assessments can be levied to secure the bonds and must be approved by landowners and the local general-purpose government. Governing Body: Directors are appointed by the local general-purpose government.

76 Capital Improvement Cooperative Districts Statute: Chapter 11-99B, Alabama Code of 1975 Creation: Created by an act of the local general-purpose government upon petition by landowners. Revenue: Can charge rent or fees for usage of the improvements it constructs or acquires. The rent or fees can be pledged for the payment of bonds. Governing Body: Directors are appointed by the local general-purpose government. Notes: See above.

77 Special Districts Past, Present & Future Historic perspective CDDs as a financing mechanism Special districts performed as designed during the economic downturn Going forward

78 Legislative Efforts Georgia Infrastructure Development Districts In May 2007, Governor Perdue signed the Georgia Smart Infrastructure Growth Act. A constitutional amendment was required to implement the Act. If successful, the initiative would have created districts very similar to Florida CDDs. The accompanying ballot initiative, SR 309, was defeated 51.6% to 48.4% in November Tennessee Public Improvement Districts Act

79 Questions? Presented By: Jere Earlywine With Assistance From (and thanks to) Chuck Bowen & Katie Ibarra

80 Maybe We Can Borrow the Money Keith Readling, PE Raftelis Financial Consultants SESWA Innovative Stormwater Funding City of October Thousand 8, 2014 Oaks

81 12. Thinking of the stormwater program you represent, would you say the priorities are? 1. Mostly Operations 2. Mostly Capital Projects 3. Fairly Equal Measure of Both 42% 13% 46% Mostly Operations Mostly Capital Projects Fairly Equal Measure of...

82 13. Thinking of capital project needs for your stormwater program, would you say that executive or elected leaders wish the capital projects could be completed faster? 1. Yes 2. No 19% 81% Yes No

83 14. Thinking in broad terms about your stormwater program, how strongly do you identify with this statement as part of it s mission: Our stormwater program builds and maintains critical stormwater infrastructure that allows for continued growth. 1. Very Strongly 2. Fairly Strong 3. Somewhat 4. Very Weak or Not at all 30% 26% 26% 17% Very Strongly Fairly Strong Somewhat Very Weak or Not at all

84 15. To your knowledge, how often has your community or program issued voter-approved general obligation bonds for stormwater improvements? 74% 1. Never 2. Once or twice 3. More than twice 22% 4% Never Once or twice More than twic...

85 16. Has your program or community issued revenue bonds for stormwater projects in the past? 1. Yes 2. No 26% 74% Yes No

86 Discussion of Turning Point Answers Varying program focuses Varying ways to describe program mission Varying attitudes about debt SESWA Innovative Stormwater Funding City of October Thousand 8, 2014 Oaks

87 What s Your Mission? SESWA Innovative Stormwater Funding City of October Thousand 8, 2014 Oaks

88 The Basics on Debt How types of debt differ Variations in policy and law by state Major definitions Coverage ratio (or coverage) Official statement (OS) CAFR SESWA Innovative Stormwater Funding City of October Thousand 8, 2014 Oaks

89 A Simple Financial Plan SESWA Innovative Stormwater Funding City of October Thousand 8, 2014 Oaks

90 A Simple Financial Plan SESWA Innovative Stormwater Funding City of October Thousand 8, 2014 Oaks

91 Debt Coverage Ratios SESWA Innovative Stormwater Funding City of October Thousand 8, 2014 Oaks

92 Issuing Debt The OS SESWA Innovative Stormwater Funding City of October Thousand 8, 2014 Oaks

93 Issuing Debt The OS SESWA Innovative Stormwater Funding City of October Thousand 8, 2014 Oaks

94 Issuing Debt The OS SESWA Innovative Stormwater Funding City of October Thousand 8, 2014 Oaks

95 Issuing Debt The OS SESWA Innovative Stormwater Funding City of October Thousand 8, 2014 Oaks

96 Debt Coverage Ratios - Amended SESWA Innovative Stormwater Funding City of October Thousand 8, 2014 Oaks

97 Debt Coverage Ratios What Happened? NEW PLAN OLD PLAN SESWA Innovative Stormwater Funding City of October Thousand 8, 2014 Oaks

98 Bond Ratings SESWA Innovative Stormwater Funding City of October Thousand 8, 2014 Oaks

99 Bond Ratings SESWA Innovative Stormwater Funding City of October Thousand 8, 2014 Oaks

100 Bond Ratings SESWA Innovative Stormwater Funding City of October Thousand 8, 2014 Oaks

101 What s Your Mission? SESWA Innovative Stormwater Funding City of October Thousand 8, 2014 Oaks

102 What s Your Mission? Should We? Could We? Will We? SESWA Innovative Stormwater Funding City of October Thousand 8, 2014 Oaks

103 Contact Keith Readling, PE Raftelis Financial Consultants SESWA Innovative Stormwater Funding City of October Thousand 8, 2014 Oaks