innovative environmental finance · community’s water resources and supplying community with...

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

2

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

3

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.

4

Which of the following best describes your background?

5

 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?

6

 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...

7

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

8

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

9

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

10

Financial Tools

11

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

12

Topics Not Covered

13

An excellent way to keep your IT staff employed

Also not recommended...

14

15

Where does the money come from?

• Taxes• Loans• Bonds• User fees• Assessments• Impact fees• Grants

16

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

17

Revenue source: Who does the money come from

• Taxpayer, ratepayer, consumers, businesses, investors?

• Beneficiaries, polluters, those who can afford, government?

18

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

19

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

20

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

21

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

22

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)

23

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

24

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.

25

Market-based programs

• Trading and offset programs• Fiscal incentives• Purchasing and transferring development

rights• Voluntary programs• Payment for ecosystem services

26

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

27

28

Raleigh, NC Interactive Tool

29

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)

30

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

31

Impact Fees

• One-time charges to new users

• Typically assessed when building permits are issued

• Close cost/benefit relationship equity

32

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/

33

Grants

• Private Foundations

• Southeast Watershed Assistance Network Funding List

• http://watershed-assistance.net/resources/categories.asp?catid=136

Image Source: Utah DEQ

34

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

35

Putting MultipleFunding Sources Together

36

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

37

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%

38

Source Water Protection• Limiting development in the reservoir

watershed

39

Example: OWASA and Orange County

Source: Ed Holland, OWASA

OWASA’s Adopted Approach

40

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

41

Do you have a water and/or wastewater utility?

1. Yes2. No

 Yes

 No

8%

92%

42

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

43

“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.

44

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%

45

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

46

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%

47

A Utility’s Pricing World –Rate Setting Priorities

Financial Stability/Cost

Recovery79%

Other3%Affordability

18%

Source: EFC & NCLM 2005 Rate Practices Survey (277 Utilities)

48

Rate Setting Objectives

Full cost recovery/ revenue stability

Encouraging conservation

Fostering business-friendly

practices

Maintaining affordability(keeping rates

low – to whom?)

49

50

Affordability

51

How do you measure affordability?

• Water rates seem high• Customer cost/median household income• Customer cost/household income• Willingness to pay??

52

53

When are Rates Unaffordable?

• Above 2.5%• More than what your neighbor charges? • People complain?• Your collection rate plummets?

54

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.

55

Affordability Concerns

56

Making the Case for Considering Affordability

57

Altruistic Reasons

• Wanting to help folks!• Caring about your customers

58

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

59

Affordability Examples

60

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

62

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

63

Partnerships and Inter-Local Agreements

64

Partners for Environmental Services

• Local, state, federal, and tribal governments

• Utilities and authorities

• Non-profits

• For-profit corporations and businesses

• Private citizens

65

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

66

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%

67

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

69

Tools and Guides

All are free at:http://www.efc.unc.edu

70

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

71

Rate Analysis Model

• Easy-to-use, simplified cash flow model

• Computes net profit/losses for multiple years based on your rate adjustments

72

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

73

Customer Assistance Tool

• Estimate the direct program costs of a customer assistance program for water and wastewater utilities

74

Inter-Local Water Agreements

• Tips relating to issues you may not have thought of or were hoping to avoid regarding water system partnerships

75

Sustainable Water Systems

• Policy recommendations on the future of America's water and wastewater infrastructure

76

Capital Improvement Tool

• Easy-to-understand predictions on:– Financial reserves – Rate increases – Capital Investment

77

Watershed Fee Dashboard

• Visualize how changing water rates can generate revenue for watershed protection

78

Loan Analysis Tool

• Finance your next project with a loan

• Determine the cost for each user

• Compare different loan terms

79

Technical Assistance Providers

80

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

81

In Mississippi

• Mississippi Rural Water Association

• Mississippi Water & Pollution Control Operator's Association

• Alabama/Mississippi AWWA

• Mississippi Water Resources Research Institute

82

In Mississippi

• Mississippi Association of Conservation Districts, Delta area

• Mississippi-based USDA (Greenville office)

• South Delta Planning and Development District

83

In Mississippi

• Mississippi Municipal League

• Mississippi Association of Supervisors

84

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

85

Questions?

Stacey Isaac BerahzerAtlanta Office770-509-3887 isaac@sog.unc.edu

Glenn BarnesChapel Hill Office

919-962-2789glennbarnes@sog.unc.

edu

UNC Environmental Finance Centerhttp://www.efc.unc.edu

86