Water Infrastructure Finance Authority of Arizona

2004 Annual Report

Governor Janet Napolitano
WIFA Chairman Stephen A. Owens
WIFA Executive Director Jay R. Spector

VISION

AND

MISSION STATEMENT

The Water Infrastructure Finance Authority of Arizona's vision is to guide our
resources to communities with the greatest need to maintain and enhance
Arizona's quality of life.
The Water Infrastructure Finance Authority of Arizona's mission is to
maintain and improve water quality in Arizona by providing financial
assistance and technical assistance for basic water infrastructure.

Table of Contents

Water Infrastructure Finance Authority of Arizona

Message from the Governor ...………………….………………………………………… 2
WIFA Chairman’s Message ...……………………...……………………………………… 3
2004 Revenue Bond Sale ………………………….…………………………................... 4
Goals and Performance Measures …….…………………………………………....……. 5
CWSRF Loan and Grant Awards ……………………...…………………………….......... 8
DWSRF Loan and Grant Awards ………………………...……………………………..… 9
Financial Assistance Activity ....................................................................................... 10
Technical Assistance Activity ...................................................................................... 11
Statement of Financial Position .................................................................................. 12

1

Governor’s Message
STATE OF ARIZONA
JANET NAPOLITANO
GOVERNOR

OFFICE OF THE GOVERNOR
1700 WEST WASHINGTON STREET, PHOENIX, AZ 85007

MAIN PHONE: 602-542-4331
FACSIMILE: 602-542-7601

December 2004

Dear Members of the Legislature and Citizens of Arizona:
Building the new Arizona economy and protecting our state's precious water resources are two of my top priorities as Governor. I affirmed my
commitment to these priorities when I signed Senate Bill 1062 into law earlier this year, which reauthorized the Water Infrastructure Finance
Authority of Arizona for 10 years until July 1, 2014.
The Water Infrastructure Finance Authority of Arizona plays an important role in protecting Arizona's water and helping communities develop the
water infrastructure they need to grow and prosper. Maintaining and improving water quality in Arizona through financial and technical assistance for
basic water infrastructure is WIFA's mission.
As a significant provider to Arizona's economy, WIFA is a premier financial institution both in Arizona and nationally, originating over $100 million
annually in community wastewater and drinking water investments. These investments translate to jobs in communities throughout our state, while
also addressing important infrastructure needs. As Arizona's water and wastewater funding source, WIFA offers a lifeline to many rural communities
and privately-held drinking water systems.
To build the new Arizona economy and protect our water resources, we must continue to support programs and agencies such as WIFA which
demonstrate measurable and proven effectiveness. Currently, the Clean Water State Revolving Fund monies which WIFA receives from the U.S.
Congress do not cover our clean water infrastructure needs as a state. We must urge the U.S. Congress to rectify the funding allocation disparity by
changing the funding formula. Arizona is entitled to its fair share of federal wastewater infrastructure dollars.
I wish to offer my sincere appreciation to WIFA Board Chairman Steve Owens, the WIFA Board of Directors and the WIFA staff for their outstanding
record of achievement and dedication to serving Arizona's communities. With appreciation of the key financial and environmental role it plays,
WIFA's programs will continue to benefit our citizens by maintaining and
enhancing Arizona's natural resources, public health and quality of life.

Yours very truly,

Janet Napolitano
Governor

2

WIFA Chairman’s Message
in publicizing the need for arsenic treatment, mentoring and
sharing the expertise and experiences of arsenic remediation
among public and private water systems, and assisting in seeking
loans, leasing arrangements and rate approvals for arsenic
compliance.

As director of the Arizona Department of Environmental
Quality (ADEQ) I have had the opportunity to serve as
chairman of the WIFA Board of Directors during the past
two years. As Arizona’s water and wastewater funding source,
WIFA is an agency with a record of proven success for the
state. This annual report highlights some of our achievements
for 2004. ADEQ and WIFA enjoy a close working
partnership, and this partnership has enabled us to effectively
meet ongoing challenges, such as the federally-mandated
arsenic standards, sustainable growth and infrastructure
funding.
Meeting the Arsenic Standard
WIFA is committed to helping water systems meet the new
Environmental Protection Agency’s safe drinking water
standard for arsenic by January 23, 2006. Working together
with ADEQ and the Arizona Corporation Commission,
WIFA participated in workshops throughout the state this
year to help our state’s small and rural community water
systems comply with the new standard. The workshops were
focused specifically on the state’s 287 small water systems and
those in rural areas because the challenges they face in paying
for the compliance costs and because they rely primarily on
groundwater as their drinking water sources.
WIFA’s financial resources make it an important agency for
water systems to utilize to meet the arsenic standard. Earlier
this year, the WIFA Board of Directors authorized a grant to
help establish the Arsenic Remediation Coalition. The
coalition’s plan to help small water systems includes: assisting

Clean Water State Revolving Fund Allocation Disparity
Although Arizona has made significant strides in water quality,
our continued responsiveness to future water quality
requirements is highly dependent on revising the state revolving
fund formula which is based on outdated 1970s population
figures and infrastructure needs. Making this issue an even larger
challenge, the U.S. Congress has also sharply reduced federal
funding for clean water infrastructure projects in Arizona for
federal fiscal year 2005. The congressional action will result in a
cut of more than 19 percent in the funding that WIFA receives
from the federal government to support its loan program.
Arizona cannot continue to be a “donor state,” funding the
construction and expansion of clean water infrastructure in other
states, especially considering our rate of population growth.
WIFA, ADEQ and other strategic partners are proactively
addressing this funding allocation disparity to obtain a greater
and more equitable share of infrastructure funding for Arizona.
WIFA has provided communities throughout Arizona with
funding for critical drinking water and wastewater infrastructure.
WIFA plays an invaluable role in protecting Arizona’s precious
water supplies, ensuring safe drinking water and providing a
foundation for sound growth across the state. WIFA’s
accomplishments this past year point to continued progress for
the future.

Stephen A. Owens
Board Chairman

3

2004 Revenue Bond Sale
THE 2004 REVENUE BOND SALE CONTINUED RECORD LOW INTEREST RATES.
On April 7, 2004, the Water Infrastructure Finance Authority of Arizona sold a record $320 million in water quality
revenue bonds. The proceeds from the bond sale are used to satisfy the growing demand for both loan programs that
WIFA administers.
The 2004 bond sale came just a month after WIFA received the highest credit ratings possible from the three top Wall
Street rating agencies: Fitch Ratings (Fitch) - AAA and Moody's Investor Service (Moody's) - Aaa, and Standard &
Poor's (S&P) - AAA. This is the first credit rating for WIFA by S&P. Both Fitch and Moody's have provided ratings for
WIFA's previous bonds and have reaffirmed their assignment of AAA and Aaa ratings, respectively.
To date WIFA has provided Arizonans over $150 million in interest rate savings through WIFA’s clean water and
drinking water financial assistance revolving fund loan programs. The credit ratings allow WIFA to borrow money at the
best rates and pass on significant savings to communities throughout the state. WIFA holds the highest revenue bond
credit rating in Arizona.
The bond sale and the credit rating ranked as two very important achievements this year for WIFA and for the state of
Arizona. Both achievements are evidence of WIFA's sound management and fiscal policies as well as its strong
performance as a low-interest source of funds for Arizona communities.

4

Goals & Performance Measures
Goal 1: Award WIFA's resources in accordance
with the needs of Arizona's citizens.
As shown in Table 1, in Funding Cycle 2004, WIFA
continues to provide financial assistance to a diverse
number of communities with varying levels of water
quality and infrastructure needs. By balancing communities' relative environmental health and financial
needs, WIFA is able to prioritize and expedite project
funding in an efficient and timely manner.

Table 1
Projects Funded by Priority List Ranking
Clean Water Revolving Fund Drinking Water Revolving Fund
Priority List Rank
FY03
FY04
FY03
FY04
Projects in Top 10
# of Projects
2
3
4
1
$ of Projects
$3,217,670
$10,425,446 $4,061,938
$306,000
Projects in Top 25
Cumulative # of Projects
6
5
5
2
Cumulative $ of Projects $33,400,245
$25,623,889 $4,601,938
$1,356,000
Projects in Top 50
Cumulative # of Projects
7
9
11
5
Cumulative $ of Projects $36,400,245
$48,495,441 $14,616,858
$9,135,030
Remainder of List
Cumulative # of Projects
0
0
0
1
Cumulative $ of Projects
$0
$0
$0
$36,414,920

During Funding Cycle 2004, WIFA dedicated its resources to improving the water and wastewater infrastructure of cities,
towns, and tribes of all sizes throughout Arizona. Table 2 illustrates how WIFA dollars were disbursed to loan recipients
by population.
A vital measure of the benefit WIFA loans provide to communities throughout Arizona is the savings to tax/rate payers
when compared to traditional market financing. In Funding Cycle 2004, WIFA's below market interest rates and
reduced closing costs will save Arizona communities an estimated $26,000,000 over the term of the loans. Since the
inception of the Authority, WIFA conservatively estimates total savings of $172,000,000 to tax/rate payers.

Table 2
Projects Funded by Population Category
Clean Water Revolving Fund Drinking Water Revolving Fund
Population Category
FY03
FY04
FY03
FY04
Less than 2,500
# of Projects
2
2
5
1
$ of Projects
$2,631,530
$1,225,446 $4,601,938
$1,050,000
Between 2,501 & 5,000
Cumulative # of Projects
1
3
0
2
Cumulative $ of Projects
$3,000,000
$9,656,333
$0
$3,638,280
Between 5,001 & 10,000
Cumulative # of Projects
1
2
1
1
Cumulative $ of Projects
$4,400,000
$16,598,443
$100,000
$1,946,750
Above 10,001
Cumulative # of Projects
3
2
5
2
Cumulative $ of Projects $26,368,715
$21,015,219 $8,788,080
$38,914,920

5

Goals & Performance Measures
Goal 2: Maintain the fiscal integrity of WIFA's
Funds and assure continuous enhancement for
future generations.
In addition to maintaining fiscal integrity, WIFA
invests its monies to ensure growth in the fund keeps
pace with inflation. WIFA loan interest revenues
decreased by 43% from the previous year; shown in
Figure 1. Loan servicing fees increased 24%. Total nonprogram earnings decreased over $2 million, or approximately 2% during Fiscal Year 2004.

Figure1

Figure 2 reflects an increase in WIFA's investment portfolio, which provides
security to loans and generates interest earnings. The increase is a result of the
WIFA 2004 series bond issue and the resulting increase of cash invested during
Fiscal Year 2004.
Goal 3: Facilitate access to and efficiently deliver financial and technical
assistance.

$ in Millions

Further evidence of WIFA's commitment to preserve and grow the funds is
shown in WIFA's Statement of Financial Position (see page 10.)

Figure2

$ in Millions

$ in Millions

The number and amount of loan disbursements made by WIFA is shown in
Figure 3. The number and amount of disbursements increased by 21% and
32%, respectively, as compared to the prior year.

Figure 3
6

Goals & Performance Measures
During Funding Cycle 2004, WIFA provided finances to
a diverse portofolio of borrowers. The presence of
strong borrowers within the portfolio benefits all program participants. As show in Figure 4, WIFA provided
fewer loans in Funding Cycle 2004 to borrowers with
strong credit ratings than those who were not rated.
However, in monetary terms, the total amount loaned to
strong credit borrowers exceeded the amount loaned to
those whoe were not rated.

Funding Cycle '04 Loans by Rating Category
$94,045,391
Millions
$70
$60
$50
$40
$30
$20
$10
$0

A Rated Loans
6 Loans
$63,430,133

B Rated Loans
13 Loans
$24,615,252

Figure 4

Operating Expenditures FY04 $1,548,877

Goal 4: Efficiently administer WIFA within a
positive work environment.

Equipment Overhead
2%
4%

WIFA seeks to reduce operating expenses and secure
services from those qualified to provide that service at
the least cost. Figure 5 shows the allocation of operating
expenditures.

Operating
19%

Personnel
49%

Travel
2%
Contracts
13%

Benefits
11%

Figure 5

In Fiscal Year 2004, WIFA increased its budget to accommodate growth and expenditures levels increased accordingly.
WIFA continues to expend at levels substantially below its budget authority as indicated in Figure 6.

Figure 6
7

CWSRF Loan & Grant Awards
Funding Cycle 2004 Activity
Bullhead City$12,918,443 (FA)

Overgaard DWID $300,000 (FA)

Bullhead City $35,000 (FA)

Pima County $18,015,219 (FA)

Eloy $17,371 (TA)

Pinal County $5,775 (FA)

Florence $20,000 (TA)

Raven Ridge CFD $925,446 (FA)

Gila Resources $35,000 (TA)

Somerton $4,400,000 (FA)

Kingman $12,500 (TA)

Taylor $156,333 (FA)

Lake Havasu $3,560,000 (FA)

Tucson $3,000,000 (FA)

Lake Havasu $5,940,000 (FA)

Yuma County Housing Department $3,750 (TA)

Funding Cycle 2003 Activity
Alpine Sanitary District $10,000 (TA)

Raven Ridge CFD $1,217,670 (FA)

Bisbee $20,000 (TA)

Seligman Sanitary District $26,000 (TA)

Bullhead City $16,149,535 (FA)

Somerton $22,000 (TA)

Clifton $10,000 (TA)

Taylor $10,000 (TA)

Coolidge $25,000 (TA)

Virgin River DWWID $20,000 (TA)

Holbrook $15,000 (TA)

White Mount Apache Housing Authority $2,000,000 (FA)

Nogales $35,000 (TA)

Wickenberg $3,000,000 (FA)

Pima County $9,001,510 (FA)

Williams $35,000 (TA)

Quartzsite $15,000 (TA)

Yuma County $4,000 (TA)

Financial Assistance Loans - (FA)

Technical Assistance Grants - (TA)
8

DWSRF Loan & Grant Awards
Funding Cycle 2004 Activity
Avra Water Co. $1,946,750 (FA)

Mt. Lemmon DWID $1,050,000 (FA)

Benson $3,750 (TA)

Picacho Water Improvement Corporation $22,014 (TA)

Carefree $3,332,280 (FA)

Picacho Peak Water Company $24,907 (TA)

Chandler Heights ID $306,000 (FA)

Ponderosa Park DWID $12,000 (TA)

Flowing Wells Irrigation District $5,750 (TA)

SoHi Domestic Water Improvement District $18,000 (TA)

Golden Valley County Improvement District
$2,000 (TA)

Walden Meadows Community Co-Op $18,000 (TA)

Graham County Utilities $35,000 (TA)

Tucson $2,500,000 (FA)

Mountain Glen Water Service, Inc. $20,000 (TA)

Yuma $36,414,920 (TA)

Funding Cycle 2003 Activity
Abra Water Company $163,888 (FA)
Chloride DWID $800,000 (FA)
Chloride DWID $15,000 (TA)
Cottonwood $10,000 (TA)
Eager $13,000 (TA)
Eager $100,000 (FA)
Frank Lloyd Wright Foundation Taliesin West
$35,000 (TA)
Fredonia $35,000 (TA)
Keaton Development Co. $35,000 (TA)
KEW Water Development Board $30,000 (TA)
Marana DWID $12,000 (TA)
Mayor DWID $30,000 (TA)
Mt. Lemmon Water Co-op $540,000 (FA)

Financial Assistance Loans - (FA)

Mt. Lemmon Water Co-op $35,000 (TA)
Rincon Water Company $15,000 (TA)
St. Johns $35,000 (TA)
Show Low $20,000 (TA)
Silverbell Irrigation & Drainage District $12,000 (TA)
Tucson Water $2,500,000 (FA)
Water Utility of Greater Tonopah $5,000 (TA)
Wenden DWID $25,000 (TA)
West End Water Co. $13,000 (TA)
White Mountain Apache Housing Authority
$3,000,000 (FA)
Yuma $2,500,000 (FA)
Yuma $2,410,000 (FA)
Yuma $1,126,840 (FA)
Yuma $1,378,080 (FA)

Technical Assistance Grants - (TA)
9

Financial Assistance Activity
Funding Cycle 2004 Activity *
* This includes financial assistance activity for funding cycle 2004 only.

Mohave
$21,698,443

Navajo
$456,333

Maricopa
$3,638,280

Yuma
$40,814,920
Pima
$26,511,969

Key
l
l
l
l

$40,000,000+
$20,000,000 to $40,000,000
$2,000,000 to $20,000,000
$450,000 to $2,000,000
10

Technical Assistance Activity
Funding Cycle 2004 Activity *
* This includes financial assistance activity for funding cycle 2004 only.

Mohave
$67,500

Navajo
$20,000
Yavapai
$30,000

Pinal
$90,067

Yuma
$3,750
Pima
$5,750

Key
l
l
l
l

$84,000+
$52,000 to $83,999
$20,000 to $51,999
$3,750 to $19,999

Graham
$70,000

Cochise
$3,750

11

Statement of Financial Position
WIFA's Assets -- $ 479.2M
FY 03
Receivables &
Capital Assets
2%
Reserves
15%

Cash &
Investments
12%

WIFA's Assets -- $ 716.5M
FY 04
Cash &
Investments
32%

Receivables &
Capital Assets
1%

Loans
57%

Reserves
10%

Loans
71%

Assets
During Fiscal Year 2004, WIFA's assets grew by $237.3 million, as compared to the previous year. In the last
three years, WIFA assets have increased from $237.5 million to $716.5 million. This growth is attributable to
increases in the loan portfolio, additional capitalization by the sale of water quality revenue bonds, and
additional federal and state contributions.
WIFA's Liabilities -- $ 240.5M
FY 03

WIFA's Liabilities -- $444.8M
FY 04

Short Term
Liabilities
6%

Long Term
Liabilities
96%
Long Term
Liabilities
94%

Short Term
Liabilities
4%

Liabilities
WIFA's liabilities increased from the previous year by $204.3 million, primarily due to an increase in bonds
payable. These liabilities are directly linked to the Authority's leveraged loan portfolio and are also secured by
investment reserves managed by WIFA.
WIFA's Net Assets -- $ 238.7M
FY 03

WIFA's Net Assets -- $ 271.7M
FY 04
Unrestricted
Net Assets
14%

Unrestricted
Net Assets
17%

Restricted Net
Assets
83%

Restricted Net
Assets
86%

Net Assets
WIFA's net assets are still growing rapidly. In 2002, its net assets were $226.6 million; by Fiscal Year 2003, net
assets were $238.7 million, and this year net assets increased to $271.7 million. The equity growth rate for
2004 was almost 14%. The overall growth rate since 2002 is almost 20%.
12

Statement of Financial Position
STATEMENT OF NET ASSETS

ASSETS
Cash
Investments
Accrued Interest Receivable
Capital Assets (net of depreciation)
Debt Management Fees Receivable
Loans
Deferred Bond Issue Costs
Deferred Loss On Retirement Of Bonds
TOTAL ASSETS

FY03
$57,803,870
73,458,184
5,325,044
25,120
1,384,707
338,555,406
1,509,469
1,145,070
$479,206,870

FY04
$232,328,770
68,081,810
3,437,416
15,638
880,331
409,169,550
2,579,427
0
$716,492,942

LIABILIT I E S A N D N E T A S S E T S
LIABILIT IES
Accounts
AccountsPayable
Payable
Accrued
AccruedPayroll
Payroll
Compensated
CompensatedAbsences
Absences
Interest
InterestPayable
Payable
Bonds
BondsPayable
Payable
Unamortized
UnamortizedBond
Bond
Premiums
Premiums
Deferred Amount on Retired Bonds
Deferred
DeferredAdministrative
AdministrativeFunds
Funds(Loaned)
(Loaned)
Loan
LoanReserve
Reserve
TOTAL LIABILITIES

$12,517
16,110
58,655
3,806,903
230,280,000
4,672,665
0
490,875
1,201,977
$240,539,702

$0
20,310
52,798
5,105,470
417,400,000
29,887,221
(9,190,263)
0
1,568,195
$444,843,731

NET ASSETS
Net
Retained
assets Earnings
invested in capital assets
Restricted for capitalization grants
Unrestricted
TOTAL NET ASSETS

25,120
199,180,304
39,461,744
$238,667,168

15,638
232,602,952
39,030,621
$271,649,211

T O T A L LIABILIT I E S A N D N E T A S S E T S

$479,206,870

$716,492,942

The financial statements for WIFA for the year ended June 30, 2004 have been audited by an independent certified
public accounting firm, Henry & Horne, P.C. Copies of the complete audited financial statements are available upon
written request to WIFA, 1110 W.Washington #290, Phoenix, Az 85007.

13

Statement of Financial Position
S T A T E M E N T O F R E V E N U E S , EXPENSES,
AND CHANGES IN FUND NET ASSETS

PROGRAM REVENUES
Interest
InterestIncome
Income
Debt
Debt Management
Management Fees
Fees
TOTAL PROGRAM REVENUE

FY03
$9,228,422
3,284,787
$12,513,209

PROGRAM EXPENSES
Interest
InterestExpense
Expense
Depreciation
Administration
Administration&&Set
SetAsides
Asides
Hardship
HardshipGrant
GrantExpense
Expense
Financial
Financial Assitance
Assitance
Technical
TechnicalAssitance
Assitance
TOTAL EXPENSES

$11,881,633
27,306
2,208,994
83,648
35,642
295,200
$14,532,423

$12,876,283
29,032
2,405,960
3,179
188,475
625,080
$16,128,009

N E T INCOME

($2,019,214)

($6,820,203)

NONPROGRAM REVENUES
Adminstrative Grants
Investments
InvestmentsEarnings
Earnings
Total Nonprogram Revenues

$2,260,484
6,418,515
$8,678,999

$1,696,915
4,966,405
$6,663,320

INCOME BEFORE CONTRIBUTIONS

$6,659,785

CONTRIBUTED CAPITAL - FEDERAL
CONTRIBUTED CAPITAL - STATE
CHANGE IN NET ASSETS

FY04
$5,240,954
4,066,852
$9,307,806

($156,883)

$3,325,469
1,971,325
$11,956,579

$30,503,773
2,918,875
$33,265,765

T O T A L N E T A S S E T S - Beginning of Year
Cummulita v e e ffe c t of cha nge in accounting principa l
P rior Period Adjustment

$226,658,163
0
52,426

$238,667,168

T O T A L N E T A S S E T S - Beginning of Year- Restated
T O T A L N E T A S S E T S - End of year

226,710,589
$238,667,168

238,383,446
$271,649,211

(283,722)

The financial statements for WIFA for the year ended June 30, 2004 have been audited by an independent certified
public accounting firm, Henry & Horne, P.C. Copies of the complete audited financial statements are available upon
written request to WIFA, 1110 W.Washington #290, Phoenix, Az 85007.

14

WIFA Board of Directors
WIFA Board of Directors
Stephen A. Owens, Chairman
Director, Arizona Department of Environmental Quality
Paul T. Gardner, Vice Chairman
Water Systems >500 Customers
Gerald Flannery
Cities>50,000
William M. Garfield
Water Systems <500 Customers
Ron Gray
Representative of the Department of Water Resources

WIFA Staff
Jay R. Spector, Executive Director
Jon Bernreuter, Environmental Program Specialist
Frank Castro, Controller
Julie Flores, Accountant
Christopher R. Inghram, Financial Analyst
Angelica Martinez, Assistant to the Executive Director
Yolanda Mendoza, Administrative Secretary
Mark A. Ramirez, Sr., IT Specialist III
Antonio Sotelo, Financial Analyst
William "Tony" Taylor, Director of Information Technology
Angie Valenzuela, Director of Administration and Operations
Brad Whitmore, Network Administrator
Adam G. Williams, Chief Financial Officer
Christina J. Worden, Communications Director

Gail Hackney
Sanitary Districts from Counties <500,000 Customers
Joseph A. Hughes
Cities <50,000; Counties<500,000
Steve Olea
Representative of the Corporation Commission
Cynthia M. Seelhammer
Counties >500,000
E. Blaine Vance
Representative of the State Treasurer’s Office

August 20, 2004: Governor Janet Napolitano signs SB 1062
into law, reauthorizing the Water Infrastructure Finance
Authority of Arizona for 10 years until July 1, 2014.

Joe F. Yuhas
Representative of the Department of Commerce

15

Water Infrastructure Finance Authority of Arizona
“Arizona’s water and wastewater funding source”

1110 W. Washington Street, Suite 290
Phoenix, AZ 85007
Phone: (602) 364-1310
Fax: (602) 364-1327

Toll free: (877) 298-0425
Web site: www.azwifa.gov