Water Infrastructure Finance Authority 2010 Intended Use Plan Arizona Drinking Water State Revolving Fund DWSRF Table of Contents I. INTRODUCTION..............................................................................................................1 A. History and Legislation B. Financial Status of the Arizona DWSRF C. Arizona’s Request II. TYPES OF PROJECTS TO BE FUNDED FROM THE VARIOUS DWSRF ACCOUNTS .......................................................................................................................2 A. The types of projects for which loan funds from the account for the revolving fund are intended include: B. Activities intended to be funded from the account for set-aside programs include III. DWSRF LOAN PROGRAM DESCRIPTION AND GOALS .......................................2 A. DWSRF Loan Program General Information B. Long-Term Goals C. Short-Term Goal IV. DWSRF SOURCES & USES ...........................................................................................5 A. Financial Assistance for Loans B. Drinking Water Program C. Very Small Systems D. Program Administration V. CRITERIA AND METHOD FOR DISTRIBUTION OF FUNDS................................5 A. Priority List (PL) B. Priority List Updates C. Project Readiness to Proceed D. WIFA Loan & Subsidy Rates E. Emergency Funding F. Binding Commitments VI. ASSISTANCE TO PUBLIC WATER SYSTEMS SERVING DISADVANTAGED COMMUNITIES................................................................................................................7 VII. U.S. ENVIRONMENTAL PROTECTION AGENCY STRATEGIC PLAN GOALS AND OBJECTIVES ..........................................................................................................7 VIII. PUBLIC REVIEW AND COMMENT ............................................................................8 Table of Attachments Attachment A 2010 Priority List Attachment B Fundable Range for Design Attachment C Fundable Range for Construction I. INTRODUCTION A. History and Legislation In August 1996 the Safe Drinking Water Act Amendments were passed by congress. This Act authorized the states to establish drinking water revolving funds for community drinking water infrastructure needs for the first time. Passage of H.B. 2304 by the Arizona Legislature April 22, 1997, transformed the Wastewater Management Authority of Arizona into the Water Infrastructure Finance Authority of Arizona (WIFA). The WIFA was charged with administering the Clean Water State Revolving Fund (CWSRF) for wastewater projects and the new Drinking Water State Revolving fund (DWSRF) for drinking water infrastructure needs. The Board of Directors was expanded from seven to twelve members. Title 18, Chapter 15 of the Arizona Administrative Code establishes detailed rules for the Water Infrastructure Finance Authority. The 2010 Intended Use Plan describes how WIFA intends to use available DWSRF funds for the year to meet the objectives of the Safe Drinking Water Act and further the goal of protecting public health. B. Financial Status of the Arizona DWSRF Since program inception, this will be the twelfth DWSRF Capitalization Grant from EPA for a total of $177,589,200. The WIFA Board of Directors is pleased to release Arizona’s Drinking Water State Revolving Fund (DWSRF) Intended Use Plan (IUP) for the 2010 funding cycle. The DWSRF IUP describes WIFA’s plan to utilize various sources of funds to finance drinking water infrastructure and support related program activities during the 2010 funding cycle from July 1, 2009 through June 30, 2010. C. Arizona Request This Intended Use Plan (IUP) is a required element of the grant application documentation to obtain the FFY 2009 grant award. Arizona herewith submits its IUP for the FFY 2009 funds available to Arizona for the purposes of continuing the development, implementation and administration of the DWSRF program in Arizona. The total available to Arizona from EPA's FFY 2008 allotment is $23,118,000. This allotment will be matched by the 20% state match requirement of $4,623,600 from WIFA bond proceeds. 1 TYPES OF PROJECTS TO BE FUNDED FROM THE VARIOUS DWSRF ACCOUNTS The types of projects for which loan funds from the account for the revolving fund are intended include: 1. The construction/upgrading of water treatment facilities; 2. Water efficiency, energy efficiency, water conservation, green infrastructure or other environmentally innovative activities; 3. Supplemental water source interconnect; 4. Arsenic treatment to meet public health standards and to protect public health; 5. Consolidation and interconnection of public water systems; 6. Planning and engineering associated with eligible projects; 7. Replacement/rehabilitation of transmission lines and storage facilities; 8. New water wells; 9. Water system expansion; 10. Other projects necessary to address compliance/enforcement or security issues. A. Activities intended to be funded from the account for set-aside programs include: 1. Administration of the DWSRF program from the 4% set-aside; 2. ADEQ banking $500,000 of the 10% set-aside to offset potential future year funding needs. II. DWSRF LOAN PROGRAM DESCRIPTION & GOALS A. DWSRF Loan Program General Information The Arizona DWSRF Loan Program funds publicly- and privately-owned community water systems and non-profit non-community water systems. Eligible projects include installation and replacement of failing treatment facilities, eligible storage facilities and transmission and distribution systems. Projects to consolidate water systems may also be eligible. Loans made under the program currently have interest rates of less than 4 percent (except in the case of a privately owned facility). Loan repayments to the State will provide a continuing source of infrastructure financing into the future. The program also places an emphasis on small and disadvantaged communities and on programs that emphasize prevention and sustainability as tools for ensuring safe drinking water. 2 Financial Terms of Loans for Public Water System Projects: 1. Subject to the limitation in paragraph 2 of this section, all loans for the financing of projects, will be for a term not to exceed 20 years from loan closing date, except that under some conditions, loans to disadvantaged communities for financing projects may be made for a period of up to 30 years from loan closing date; 2. Loan terms are not to exceed the useful life of the project; 3. Terms of financial assistance to public water systems serving disadvantaged communities are addressed in Section VI; 4. Repayment of loan principal must begin within 12 months of project completion based on the construction schedule available at the loan closing date or actual completion date or three years from the date of the initial principal advance, whichever is earlier; 5. Loans are to be made on a cost reimbursement basis; 6. Leveraging: The decision to leverage will be based on demand on the loan fund for projects to address health concerns, market conditions and long term impact to the fund; 7. WIFA has not implemented forgivable principal because WIFA is a leveraged program; 8. The Controller will allocate income from the Standard Combined Interest and Fee rate (CIFR) as either fee income or interest income in accordance with the table located on page 4. Combined Interest and Fee Rate (CIFR) Financial Structure CIFA Portion of CIFR Allocated as Fees 1.5% 3.0% Portion of CIFR Allocated as Interest Remainder of CIFR Remainder of CIFR Governmental Loan *Set in accordance Non-Governmental with Section 1 Loan of this Linked Deposit Determined on a case Determined on a case by Procedure Guarantees by case basis case basis *Government Loan – Tax Exempt AAA Bond Rate (times) Subsidy Rate *Non-Government Loans – Prevailing Prime Rate (times) Subsidy Rate DW Fee Income and Uses Fee Income Interest Income $4,362,910 $102,794 ADEQ Contractors $538,000 $80,000 3 B. Long-Term Goals For purposes of this IUP, long term goal is defined as the life of the program. The following are the long-term goals of the loan program: 1. Award WIFA’s resources in accordance with the needs of Arizona’s citizens; 2. Maintain the fiscal integrity of WIFA’s funds and assure continuous enhancement for future generations; 3. Facilitate access to and efficiently deliver financial and technical assistance to Arizona’s drinking water facilities; 4. Coordinate with other funding agencies through the Rural Water Infrastructure Committee (RWIC). C. Short-Term Goal For the purposes of this IUP, a short-term goal is an activity intended to be initiated and, in some cases, completed within a year. 1. Make drinking water infrastructure loans more accessible and affordable to small communities by making $66,764,376 in funding available for below market rate interest loans; 2. Making drinking water infrastructure loans more accessible and affordable by using $2,000,000 of the 2009 DWSRF Grant for 1% interest loans to very small drinking water systems with 1,000 connections or less. III. DWSRF SOURCES & USES The SDWA § 1452(g) and 1452(k) allow States to set aside up to 31% of the capitalization grant for the activities described in Section II. B. The DWSRF account for set-aside programs includes four specific set-aside categories identified as the 2%, 4%, 10%, and 15% set-asides. If all of the set-aside funds within a set-aside activity are not expended, those remaining funds may be redirected to another set-aside activity as long as the maximum allowed for that activity has not been reached for the fiscal year from which the funds were derived. The sources and uses for the 2010 funding cycle shown in Table 1 are based on the FY 2009 federal budget, WIFA’s funding plan as of July 1, 2009. The 2009 DWRF federal budget allocation is $829,029,000 million, minus the national set-asides the funds available to states is $814,594,000 of which, Arizona received 2.84% or $23,118,000. 4 Table 1: Arizona DWRF Sources & Uses for 2010 Funding Cycle Federal Contributions State Contributions* WIFA Fee Revenue to ADEQ WIFA FEE Revenue $ 2009 Federal Funds 538,029 $ Financial Assistance Funds Totals WIFA Loan Accounts $ $ Financial Assistance Loans $ ADEQ Drinking Water Program $ Very Small Water Systems $ 4% Set-Aside Administration $ Totals $ *State Contributions WIFA Bond Proceeds 23,118,000 $ 23,118,000 $ 4,623,600 4,623,600 $ 538,029 $ 19,693,280 $ 500,000 2,000,000 924,720 $ 23,118,000 $ 4,623,600 $ $ - $ 538,029 - $ 4,623,600 $ - $ 538,029 $ Total 42,447,496 $ $ 42,447,496 $ $538,029 42,447,496 27,741,600 70,727,125 42,447,496 $ $ $ - $ 42,447,496 $ 66,764,376 1,038,029 2,000,000 924,720 70,727,125 A. Financial Assistance for Loans: $66,764,376 Eligible projects include installation and replacement of failing treatment facilities, eligible storage facilities and transmission and distribution systems. Projects to consolidate water systems may also be eligible (economic recovery funds not available for consolidation). B. Drinking Water Program: (WIFA Revenues& 10% Set-Aside) $1,038,029 WIFA revenues will fund $538,029 and the Drinking Water program will bank $500,000 of the 10% set-aside to offset potential future year funding needs. The Drinking Water program is federally mandated to ensure safe drinking water supplies for the public. Staff reviews water system construction plans, conducts compliance inspections on drinking water systems, reviews water quality monitoring data, initiates enforcement actions in response to continued or significant noncompliance, and conducts outreach to educate stakeholders on regulatory requirements. The program also evaluates source waters to ascertain their susceptibility to contamination, promotes voluntary community programs aimed at protecting aquifers for drinking water use, and administers the monitoring assistance program to assist public water systems in complying with monitoring requirements under the federal safe drinking water act. C. Very Small Water Systems 1% Interest Loans: $2,000,000 WIFA Board has directed staff to dedicate $2 million for very small drinking water systems, defined as serving less than 3,300 customers with less than 1,000 connections and to provide 20 year loans to these systems at a rate of 1% interest. Utilize WIFA’s standard review and ranking processes. As a project that is on the 2010 Master Priority List becomes ready to proceed with a loan, if it is identified as a very small system, it will be awarded a 1% interest rate until the $2 million in loss is identified. Private 3.25 + 2 x subsidy rate (75%) = 3.94 -1 = 3.94 % interest rate loss over 20 years Governmental 4.50 x subsidy rate (75%) = 3.38 – 1 = 2.38 % interest rate loss over 20 years 5 D. Program Administration (4% Set-aside) $924,720 This set-aside will be used to pay salaries and associated expenses of programs personnel devoting time to the administration of the funds as well as the necessary ancillary services performed by other agencies. These funds will also be used to procure equipment and training necessary for the adequate performance of staff. Expenses for DWSRF-related public meetings, workshops and conferences will also be paid for out of this set-aside. Funds not used immediately will be revised for use in future years. V. CRITERIA AND METHOD FOR DISTRIBUTION OF FUNDS A. Priority List (PL) Exhibit A – On an annual basis, following a statewide solicitation for projects, WIFA develops a statewide priority list of water projects. For funding cycle 2009 WIFA receive 39 project priority list applications totaling $158,344,467. Fundable Range for Design, Exhibit B – Includes the highest ranking applicants ready to receive design assistance during the funding cycle. Fundable Range for Construction, Exhibit C – Includes the highest ranking applicants ready to receive construction assistance. B. Priority List Updates The WIFA Board of Directors may update the DWRF-PL by adding or deleting projects or adjusting the fundable ranges for design or construction projects. The decision to update the DWRF-PL may be based on a projects’ readiness to proceed, refined project cost estimates, availability of other funding sources or other new information affecting the expansion or contraction of the PL and fundable ranges. The WIFA Board of Directors will adopt the updated DWRF PL at a public meeting and the updates will be posted on the WIFA web site as per R18-15-305, R18-15-306, R18-15-307 and R18-15-308. All projects must meet the applicable requirements under the Safe Drinking Water Act, 42 U.S.C. § 300f to 300j-25. C. Project Readiness to Proceed: WIFA considers a project “ready to proceed” when the following criteria are met: 1. Approved debt authorization has been received by WIFA 2. Plans and specifications are received by WIFA 3. All local and state permits are issued 4. Construction bid/bids awarded D. WIFA Loan & Subsidy Rates – The WIFA Board of Directors has established a target interest rate ranging between 70% and 95% of tax-exempt AAA Bond Rate for government entities and 70% to 95% of the prevailing prime rate for nongovernment entities. The subsidy rate is based on the local fiscal capacity which is measured by the area’s median household income, user rates and charges, the 6 community’s outstanding and proposed debt and cost effectiveness of project. Interest rates/subsidies on individual loans will be set pursuant to the criteria below: 9 Priority of the project; 9 Local fiscal capacity of the area served by the system requesting assistance; and, 9 Lending capacity of Arizona’s DWRF. E. Emergency Funding WIFA can provide up to $250,000 for emergency funding under the criteria set forth in Policy 1.019 below: Eligible Applicants Cities Towns Tribes Counties Municipal Improvement Districts Required Conditions ● The term of the loan does not exceed one year. ٔ● The dollar amount of the loan does not exceed two hundred fifty thousand dollars ($250,000) per borrower, per emergency event. ● The purpose of the loan is to provide assistance for designing, redesigning, engineering, reengineering, constructing or reconstructing water or wastewater systems that have failed as the result of a disaster, a natural disaster or a catastrophic event. ● The disaster, natural disaster or catastrophic event is memorialized in a declaration of emergency by the governor or the federal emergency management agency. F. Binding Commitments – If the WIFA Board of Directors approves an applicant’s financial assistance request, WIFA staff will prepare and circulate financial assistance (loan) documents to evidence the binding commitment in accordance with applicable federal and state requirements. VI. ASSISTANCE TO PUBLIC WATER SYSTEMS SERVING DISADVANTAGED COMMUNITIES A. Disadvantaged Community WIFA Policy 1.012: The WIFA Board may designate an entity a “Disadvantaged Community” if the entity fails to meet the 1.2 debt service coverage, and • The applicant’s project is above the 50 percentile on the DWRF or the CWRF Project Priority List, and • WIFA awarded the applicant 50 or more Local Fiscal Capacity points on the DWRF or the CWRF Project Priority List, or • The Community is a designated “Colonia” Community through the federal government. • WIFA may reduce the combined interest and fee rate (CIFR) and/or extend the loan term up to 30 years for a “Disadvantaged Community.” 7 VII. U.S. ENVIRONMENTAL PROTECTION AGENCY STRATEGIC PLAN GOALS AND OBJECTIVES The Arizona DWSRF program supports the National USEPA Strategic Plan Goal 2 (Clean and Safe Water), Objective 1 (Protect Human Health), Sub-objective 1 (Water safe to Drink). Arizona established and is managing the revolving loan fund to make low cost loans and other types of assistance to water systems to finance the cost of infrastructure projects to achieve or maintain compliance with Safe Drinking Water Act requirements. VIII. Public Review and Comment Public review and written comment period will be conducted from June 9, 2009 thru June 22, 2009. WIFA will solicit public review and comment on the draft 2009 DWSRF IUP and PL according to the following schedule: June 9, 2009 June 22, 2009 June 22, 2009 June 25, 2009 July 1, 2009 Distribution and Web posting of the draft DWRF IUP and PL to all interested parties. Public Hearing – 1110 West Washington, Room 130, Phoenix, Arizona 85007 from 1:00 P.M. to 2:00 P.M. Deadline for public comments on the draft DWSRF IUP and PL is 5:00 P.M. The WIFA Board of Directors adopts the draft DWSRF IUP and PL. Final DWSRF IUP and PL become effective. Distribution and Web posting of final DWSRF IUP and PL. 8 Exhibit A: 2010 Funding Cycle Priority List Arizona’s Drinking Water Revolving Fund Arizona's Drinking Water Revolving Fund 2010 Funding Cycle - Priority List for Drinking Water Revolving Fund Prepared Date: 6/9/2009 Rank Applicant Amount Requested Subsidy Rate Index Population Project Title Thunderbird Farms DWID Arsenic Removal 1,550 and Additional Storage Project Project # 039 2010 $3,801,036.00 70% 90 Holiday Hills Improvement Project 027 2010 $200,000.00 70% 001 2010 $250,000.00 70% 011 2010 $440,000.00 70% 025 2010 $400,000.00 75% 022 2010 $4,000,000.00 70% 021 2010 $4,000,000.00 70% 1 Thunderbird Farms DWID 2 Holiday Hills DWID 3 Valley Utilities Water Co. Inc. 4 Joseph City Utilities 5 Sunland Water Company 6 Surprise, City of 7 Surprise, City of 8 Shepard Water Company, Inc. 9 Mammoth, Town of 10 Surprise, City of 11 Surprise, City of 12 Sulger Water Co. #2 13 Lake Havasu City, City of 14 Indiada Water Company 15 Marana, Town of 16 Mt. Lemmon Water District 17 Yuma, City of 18 Congress DWID 1,850 Congress DWID Capital Improvement 19 Marana, Town of 12,000 Hartman To Cortaro Ranch Interconnect 018 2010 $500,000.00 80% 20 Seven Ranches DWID 038 2010 $482,340.00 75% 21 Clear Springs Utility Company 003 2010 $1,912,472.00 75% 22 East Slope Water Co. 80 Water Tank, pump and main additions Clear Springs Utility Consolidation & 1,180 Upgrades East Slope Water - Consolidation & 2,877 Upgrades 23 Antelope Run Water Company 24 Yuma, City of 25 Yuma, City of 26 Yuma, City of 27 Marana, Town of 28 Phoenix, City of 29 West Village Water Company 30 Marana, Town of 31 Marana, Town of 32 Southland Water Company 33 Phoenix, City of 34 Sunrise Water Co. 35 Marana, Town of 36 Dateland Water LLC 37 Phoenix, City of 38 Phoenix, City of 39 Phoenix, City of Total: 5,000 Arsenic Treatment Facilities 1,700 Joseph City Utilities Reservoir Add back up well to system to bring system 271 into arsenic compliance Rancho Gabriela Water Supply Facility 40,420 Arsenic Treatment System Ashton Ranch Water Supply Facility Arsenic 40,420 Treatment System 008 2010 $112,100.00 75% 1,762 Water Systems Improvements Roseview Water Supply Facility Arsenic 40,420 Treatment System Asante/Desert Oasis Water Supply Facility 40,420 Arsenic Treatment System 222 Arsenic Remediation Treatment Plant 010 2010 $35,000.00 70% 019 2010 $2,200,000.00 75% 017 2010 $3,000,000.00 75% 50 Sulger Water Co. #2 WWSE - Water Service Line Replacement / 56,348 Water Main Replacement Indiada Water Compamy System 1,958 Consolidation & upgrades Tangerine Replacement Intercharge Water 12,000 Project Middle Sabino 6" Main Line and Refinance 350 $1,050,000.00 existing loan 40th Street Water Transmission Line, Phase 103,000 II 026 2010 $80,000.00 75% 040 2010 $6,018,345.00 75% 005 2010 $360,707.00 75% 016 2010 $15,000,000.00 80% 007 2010 $250,000.00 70% 041 2010 $5,200,000.00 70% 029 2010 $2,500,000.00 70% 004 2010 $5,416,973.00 80% 585 Antelope Run Consolidation & Upgrades 24th Street Water Storage Tanks & Booster 103,000 Pump Station 002 2010 $1,093,208.00 80% 042 2010 $18,000,000.00 75% 103,000 16th Street Tanks Interior Recoating Main Street Water Treatment Plant 103,000 Rehabilitation Project Purchase of Tucson Water within Town of 12,000 Marana Drilling of Aquifer Storage and Recovery Well 1,631,287 #300 043 2010 $1,550,000.00 75% 045 2010 $10,250,000.00 75% 014 2010 $40,000,000.00 85% 035 2010 $4,000,000.00 80% 030 2010 $843,944.00 80% 12,000 Camino De Manana Waterline Project 012 2010 $3,400,000.00 80% 12,000 Silverbell Well 112 Well and Distribution System Improvement 020 2010 $1,000,000.00 80% 1,958 Southland Water Company system upgrades 006 2010 $1,728,342.00 85% 1,631,287 Citywide Automatic Meter Reading Installation 034 2010 $8,000,000.00 85% 4,200 Drill And Equipment Well 12,000 Twin Peaks/Bluebonnet Waterline 75 Water Quality Improvement 1,631,287 Rehabilitation of 10 Steel Tanks Water Main Replacement Hope VI Project 1,631,287 Area Reservoir Optimization: Solar Powered 1,631,287 Mixers 024 2010 $800,000.00 80% 013 2010 $6,300,000.00 85% 009 2010 $60,000.00 85% 037 2010 $2,600,000.00 85% 036 2010 $2,000,000.00 85% 032 2010 $560,000.00 85% $158,344,467.00 Exhibit B: 2010 Funding Cycle Fundable Range for Design Arizona’s Drinking Water Revolving Fund Arizona's Drinking Water Revolving Fund 2010 Funding Cycle - Fundable Range for Design Financial Assistance Prepared Date: 6/9/2009 Fundable Range Rank MPL Rank Applicant Population Project Title Project # Amount Requested No borrowers requested design assistance for their projects as of the date of this report. Subsidy Rate Index Exhibit C: 2010 Funding Cycle Fundable Range for Construction Arizona’s Drinking Water Revolving Fund Arizona's Drinking Water Revolving Fund 2010 Funding Cycle - Fundable Range for Construction Financial Assistance Prepared Date: 6/9/2009 Fundable Range Rank MPL Rank Applicant 1 1 Thunderbird Farms DWID 2 4 Joseph City Utilities 3 3 Valley Utilities Water Co. Inc. 4 11 Surprise, City of 5 8 Shepard Water Company, Inc. 6 7 Surprise, City of 7 6 Surprise, City of 8 10 Surprise, City of 9 16 Mt. Lemmon Water District 10 13 Lake Havasu City, City of 11 18 Congress DWID 12 28 13 Population Project Title Thunderbird Farms DWID Arsenic Removal 1,550 and Additional Storage Project Project # Amount Requested Subsidy Rate Index 039 2010 $3,801,036.00 70% 011 2010 $440,000.00 70% 5,000 Arsenic Treatment Facilities Asante/Desert Oasis Water Supply Facility 40,420 Arsenic Treatment System 001 2010 $250,000.00 70% 017 2010 $3,000,000.00 75% 222 Arsenic Remediation Treatment Plant Ashton Ranch Water Supply Facility Arsenic 40,420 Treatment System Rancho Gabriela Water Supply Facility Arsenic 40,420 Treatment System Roseview Water Supply Facility Arsenic 40,420 Treatment System Middle Sabino 6" Main Line and Refinance 350 $1,050,000.00 existing loan WWSE - Water Service Line Replacement / 56,348 Water Main Replacement 008 2010 $112,100.00 75% 021 2010 $4,000,000.00 70% 022 2010 $4,000,000.00 70% 019 2010 $2,200,000.00 75% 007 2010 $250,000.00 70% 040 2010 $6,018,345.00 75% 029 2010 $2,500,000.00 70% Phoenix, City of 1,850 Congress DWID Capital Improvement Drilling of Aquifer Storage and Recovery Well 1,631,287 #300 035 2010 $4,000,000.00 80% 33 Phoenix, City of 1,631,287 Citywide Automatic Meter Reading Installation 034 2010 $8,000,000.00 85% 14 38 Phoenix, City of 1,631,287 Water Main Replacement Hope VI Project Area 036 2010 $2,000,000.00 85% 15 39 Phoenix, City of 1,631,287 Reservoir Optimization: Solar Powered Mixers 032 2010 $560,000.00 85% 16 37 Phoenix, City of 1,631,287 Rehabilitation of 10 Steel Tanks 037 2010 $2,600,000.00 85% Total: 1,700 Joseph City Utilities Reservoir $43,731,481.00