Water Infrastructure Finance Authority SFY 2015 Clean Water Intended Use Plan Arizona Clean Water State Revolving Fund INTRODUCTION The WIFA Board of Directors is pleased to release Arizona’s Clean Water State Revolving Fund (CWSRF) Intended Use Plan (IUP) for the State Fiscal Year (SFY) 2015 funding cycle. The CWSRF IUP describes WIFA’s plan to utilize various sources of funds to finance clean water infrastructure and support related activities during the SFY 2015 funding cycle from July 1, 2014 through June 30, 2015. This IUP is a required element of the grant application documentation to obtain the FFY 2014 grant award. Arizona herewith submits its IUP for the FFY 2014 funds available to Arizona for the purposes of continuing the development, implementation and administration of the CWSRF program in Arizona. The Arizona CWSRF Loan Program provides funds for publicly-owned municipal wastewater systems. Eligible projects include planning, design and construction of new wastewater treatment plants, improvements and upgrades to existing wastewater treatment plants, sewer collection systems, water reclamation and reuse facilities, and stormwater infrastructure. The program places an emphasis on small and disadvantaged communities and on projects that promote sustainability through water efficiency, energy efficiency, green stormwater infrastructure or other environmentally innovative activities. Loans made under the program currently have interest rates of less than 4 percent. Loan repayments to the State will provide a continuing source of infrastructure financing into the future. Section 1: Short Term Goals 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.  WIFA will make wastewater infrastructure loans more accessible and affordable to small communities by subsidizing all loans and providing below market rate interest.  WIFA will provide additional assistance to communities who are identified as disadvantaged.  WIFA must provide between 20% and 30% of the Capitalization Grant amount as additional subsidization in the form of forgivable principal. However, this requirement only applies to the portion of the CWSRF Capitalization Grant appropriation that exceeds $1 billion nationally.  WIFA will provide 10% of the Capitalization Grant amount (as required by the terms of the Capitalization Grant) for sustainable construction efforts such as water efficiency, energy efficiency, green stormwater infrastructure or other environmentally innovative activities. Section 2: Long Term Goals For purposes of this IUP, long-term is defined as the life of the program. The following are the long-term goals of the loan program:  Award WIFA’s resources in accordance with the needs of Arizona’s citizens;  Maintain the fiscal integrity of WIFA’s funds and assure continuous enhancement for future generations;  Facilitate access to and efficiently deliver financial and technical assistance to Arizona’s wastewater facilities; and  Coordinate with other funding agencies through the Rural Water Infrastructure Committee (RWIC). Section 3: Important Program Changes WIFA plans to adjust the interest vs. fee ratio of the Combined Interest and Fee Rate (CIFR) during SFY 2015. WIFA will document a new policy providing guidance on the application of additional subsidies which will include how communities that cannot otherwise afford projects (including disadvantaged communities), and projects that qualify for Green Project Reserve will receive forgivable principal. 1 Section 4: Agreement to Enter Data into CBR and NIMS WIFA agrees to enter data into CBR and NIMS. WIFA is currently working with Northbridge Consulting to improve the historical data in NIMS. Section 5: Description of Public Notice Process and Actions Taken to Address Public Comments Public review and written comment period of this IUP will be conducted from June 2, 2014 through June 16, 2014. WIFA will solicit public review and comment on the draft SFY 2015 CWSRF IUP and Project Priority List (PPL) according to the following schedule: June 2, 2014 Distribution and Web posting of the draft CWSRF IUP and PPL to all interested parties. June 16, 2014 Public Hearing – 1110 West Washington, Room 130, Phoenix, Arizona 85007 from 1:00 P.M. to 2:00 P.M. June 16, 2014 June 18, 2014 July 1, 2014 Deadline for public comments on the draft CWSRF IUP and PPL. The WIFA Board of Directors to adopt the final draft CWSRF IUP and PPL. IUP will then be sent to EPA for final approval. Begin implementation of the Approved CWSRF IUP and PPL Section 6: Assurances and Specific Proposals WIFA intends to comply with the following:  WIFA will comply with its Environmental Policy as approved by EPA;  WIFA will notify its borrowers of the requirement to comply with the Davis-Bacon requirements outlined in the Capitalization Grant Terms and Conditions;  WIFA will notify its borrowers of the requirement to comply with the American Iron and Steel requirements outlined in the Capitalization Grant Terms and Conditions;  WIFA will make every effort to comply with EPA’s guidance for timely and expeditious use of funds; and  WIFA agrees to the remaining required assurances and proposals in the grant application or the IUP. Section 7: Disadvantaged Community Program WIFA is committed to providing assistance to wastewater systems serving Disadvantaged Communities. The Board may designate an applicant as a Disadvantaged Community if the applicant satisfies one of the following: 1. The community is a designated “colonia” community through the federal government, or 2. The community received 60 or more Local Fiscal Capacity points on the CWSRF PPL. WIFA intends on providing the 20% additional subsidy as forgivable principal to communities who cannot otherwise afford projects (including disadvantaged communities). WIFA’s Disadvantaged Policy allows for extended term, reduced interest or a combination. WIFA may choose to provide additional subsidization to ‘fix it first’ projects if they are identified on the PPL and move into the ‘ready to proceed’ category. 2 Section 8: Criteria and Methods for Distribution of Funds (Priority Setting Criteria)  Project Priority List and Fundable Range o Project Priority List (PPL): On an annual basis, WIFA develops a statewide priority list of projects. Currently, WIFA’s CWSRF PPL has five project priority list applications totaling $59,951,268.00. o Fundable Range: The Fundable Range includes the applicants ready to receive design or construction financial assistance.  Project Priority List Updates The WIFA Board of Directors may update the CWSRF PPL by adding or deleting projects or adjusting the fundable range for design or construction projects. The decision to update the CWSRF PPL may be based on a project’s readiness to proceed, refined project cost estimates, availability of other funding sources or other new information affecting the expansion or contraction of the PPL and Fundable Range. The WIFA Board of Directors adopts the updated CWSRF PPL at a public meeting and the updates are posted on the WIFA website.  Project Readiness to Proceed Applicants accrue readiness to proceed points based on the following criteria: o Approved debt authorization has been submitted to WIFA. o Plans and specifications are complete. o Local and state permits have been obtained. o The bid or solicitation process has been initiated. Section 9: Bypass Procedures The Fundable Range process is used to bypass projects that are not ready to proceed. As part of this process, readiness to proceed points are awarded for each of the criteria identified above, with a project needing to accrue at least 40 points out of 100 possible. Projects which have not received at least 40 points are bypassed, allowing projects which are ready to proceed to move forward with obtaining financing. Section 10: Sources and Uses Table Arizona CWRF Sources & Uses for SFY 2015 (FFY 2014) Federal Contributions WIFA Revenues WIFA Loan Accounts Total Funding Sources Estimated fund balance as of 7/1/2014 New funds expected in SFY 2015 $ $ - $ 9,466,000 $ 1,909,400 350,000 $ 64,912,455 $ $ (39,699,158) $ Total Funding Sources $ 9,466,000 $ 2,259,400 $ 25,213,298 $ 36,938,698 Funding Uses Financial Assistance Loans Clean Water Programs (ADEQ) $ 9,087,360 $ 1,893,200 $ 25,213,298 $ $ 36,193,858 - $ 378,640 $ $ 170,000 107,360 $ $ 170,000 486,000 $ 9,466,000 $ 2,170,560 $ 36,849,858 Technical Assistance Administration 66,821,855 (29,883,158) Forgivable Principal $515,118 Green Project Reserve $946,600 (10%) Total Funding Uses $ 25,213,298 State match can be WIFA bond proceeds, WIFA CW fees or state general fund monies. WIFA may sell water quality revenue bonds; proceeds will be used to increase WIFA's lending capacity 3 Financial Assistance Funds for Loans Eligible projects include planning, design and construction or replacement of wastewater facilities, sewer collection systems, reclamation, and recharge, and stormwater infrastructure. A minimum of 10% of the federal grant will be used to finance sustainable projects that emphasize water efficiency, energy efficiency, green stormwater infrastructure or other environmentally innovative activities. See the Arizona CWSRF Sources & Uses for SFY 2015 (FFY 2014) Funding Cycle Table for detail. Section 11: Identify Types of Assistance Provided and Terms (Principal Forgiveness, Extended Terms) Technical Assistance Technical Assistance available from WIFA includes planning and design assistance and professional assistance. 1. Planning and Design Technical Assistance Program WIFA will use up to $150,000 for planning and design assistance. WIFA solicits applications from Arizona’s political subdivisions and Indian communities. The purpose of WIFA’s Planning and Design Technical Assistance Program is to help prepare systems for construction of capital improvement projects. Typically, awards are made to facilities with limited resources that need assistance in completing the planning and/or design phase of an infrastructure project. WIFA has also placed high priority on projects that improve water or energy efficiency. The request for applications issued for each cycle establishes the scoring criteria on which the applications are evaluated. Awards are capped at $35,000 per project. 2. Professional Assistance Professional assistance includes studies, surveys and other types of reports that provide benefit to a range of wastewater systems statewide. This year, WIFA will provide $20,000 for the wastewater portion of the annual Water and Wastewater Residential Rate Survey. This effort includes a survey of approximately 500 utilities, updates to the Rates Dashboard by the University of North Carolina’s Environmental Finance Center, survey analysis and final report. Throughout the Funding Cycle and as circumstances require, WIFA may fund additional Professional Technical Assistance projects. The Board will act to add Professional Technical Assistance projects at a public meeting of the Board. Program Administration (4% Set-Aside plus WIFA Fees) Four percent of the Capitalization Grant and clean water fees will be used to pay salaries and associated expenses of program personnel devoting time to the administration of the funds. Forgivable Principal Based upon the FFY 2014 Additional Subsidization Table provided by EPA, WIFA is required to provide a minimum amount of additional subsidization of $515,118. WIFA will provide this additional subsidization in the form of forgivable principal for up to 90% of the loan amount, based on financial need and/or projects eligible under the green project reserve. Financial Terms of Loans 1. Subject to the limitation in item 2 of this list, all loans for the financing of projects will be for a term not to exceed 20 years from loan closing date, except that under certain conditions 4 2. 3. 4. 5. 6. 7. 8. 9. 10. including loans to disadvantaged communities project financing may be made for a period of up to 30 years. Loan terms are not to exceed the useful life of the project. Terms of financial assistance to publicly-owned wastewater systems serving disadvantaged communities are addressed in Section 7. 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. Loan disbursements are to be made on a cost reimbursement basis. The decision to leverage will be based on demand on the loan fund for projects to address public health concerns, market conditions and long-term impact to the fund. A minimum of $515,118 and a maximum of $772,676 of the FFY 2014 Capitalization Grant funds will be provided as forgivable principal. A minimum of $946,600 will be provided for green projects (water efficiency, energy efficiency, green stormwater infrastructure or other environmentally innovative activities), unless these numbers are adjusted by EPA. All contracts for construction financial assistance will require the borrower to comply with the Davis-Bacon Act regardless of the source of funding if required as part of the FFY 2014 Capitalization Grant. All contracts for construction financial assistance will require the borrower to comply with the Use of American Iron and Steel as described in WIFA’s Capitalization Grant regardless of the source of funding if required as part of the FFY 2014 Capitalization Grant. WIFA will assess income from the Standard Combined Interest and Fee Rate (CIFR) as either fee income or interest income in accordance with the following table. Combined Interest and Fee Rate (CIFR) for 20 Year Loans Financial Structure CIFR Governmental Non-Governmental Municipal Market Data Index (MMD) multiplied by the Subsidy Rate Prime Rate plus 200 basis points multiplied by the Subsidy Rate Section 12: State Match Sources As demonstrated in the Sources and Uses Table, WIFA revenues will provide match for the FFY 2014 Capitalization Grant. Section 13: Identification of Overmatch Through April 2014, WIFA has overmatched the federal grants when viewed in a cumulative perspective by $33,442,371. Section 14: Anticipated Cash Draw Ratio (proportionality) or Statement of Match Drawdown then Federal With the overmatch, WIFA will draw 100% federal funds until the overmatch is depleted. Once the overmatch is depleted, WIFA will draw the state match equivalency prior to drawing federal funds. Section 15: Estimated Disbursement Schedule First Quarter Second Quarter 20% 35% Third Quarter 35% Section 16: Identification of any Intended Transfers between Funds WIFA currently has no planned transfers between the CWSRF and the DWSRF. 5 Fourth Quarter 10% Section 17: Identification and Explanation of any Cross Collateralization The Authority maintains the CWSRF and DWSRF as separate and distinct programs. Revenues generated by either program will remain within that program. Any transfers between funds will be temporary in nature and done only to alleviate short term cash shortages. Section 18: Combined Interest and Fee Rate (CIFR) For 20 year term loans, the WIFA Board of Directors has established a target CIFR ranging between 70% and 95% of the tax-exempt AAA MMD Rate for governmental entities and the Prime Rate plus 200 basis points for non-governmental entities. CIFR/subsidies on individual loans will be set pursuant to the criteria below:  Total Priority Value Points;  Local fiscal capacity of the area served by the system requesting assistance; and,  Lending capacity of Arizona’s CWSRF. Section 19: Fees Charged if Applicable and Uses of Fees The Sources and Uses table demonstrates how fees will be used for SFY 2015, providing match to the federal grant and administration of the SRF. Section 20: Overview of Program Financial Status and Management With the FFY 2014 Federal Capitalization Grant, WIFA will have received 25 Capitalization Grants (including ARRA) totaling $259,139,273. In addition WIFA has received and passed through three SAAP grants totaling $9,621,347 for a total federal investment of 28 grants totaling $268,760,620. The Arizona CWSRF program supports the National USEPA Strategic Plan Goal 2 (Clean and Safe Water), Objective 2.2 (Protect Water Quality), Sub-objective 2.2.1 (Improve Water Quality on a Watershed Basis). Specifically, Arizona established and is managing the revolving loan fund to finance the cost of infrastructure improvements which will achieve or maintain compliance with the Clean Water Act requirements. Arizona CWSRF activities support USEPA Program Reporting Measure WQ-17 Fund Utilization. All planned and prior year loans have assisted public wastewater systems in meeting the federal and state clean water compliance requirements. Details of Arizona’s CWSRF activities supporting the National USEPA Strategic Plan will be included in the CWSRF Annual Report as well as in the Clean Water Benefit Reporting system (CBR) and the Clean Water National Information Management System (CW NIMS) and the Federal Funding Accountability and Transparency Act (FFATA) Reporting System. The CWSRF Fund Utilization is calculated by dividing the cumulative funds provided (CWNIMS Line 110) by the cumulative CWSRF Funds available as of June 30 2014 (CWNIMS Line 283). WIFA’s actual CWSRF Fund Utilization rate will be submitted in the annual report. Measure WQ-17 Measure Text Fund utilization rate [cumulative loan agreement dollars to the cumulative funds available for projects] for the Clean Water State Revolving Fund (CWSRF). 6 National Target Region 9 Target Arizona Target 94.5% 95% 100% Section 21: Leveraging Plan As a matter of practice, WIFA pays close attention to its cash position and lending capacity. This practice includes reports to the WIFA Board of Directors at each Board meeting defining WIFA’s current cash position and lending capacity. As a result of slow loan demand and prepayments, it appears that WIFA’s next Bond Issue won’t be needed until late in the year or early next year. Section 22: Binding Commitment Schedule When the WIFA Board of Directors approves an applicant’s financial assistance request, WIFA staff prepares and circulates financial assistance (loan) documents to evidence the binding commitment in accordance with applicable federal and state requirements. Based on the PPL, WIFA expects to enter into binding commitments at 633% of the federal cap grant amount (dollars on PPL vs the federal cap grant). Section 23: Grant Payment Schedule WIFA will receive all payments in the first quarter available. NOTE: Sections 34-43: These Sections are for DWSRF, not applicable to CWSRF. 7 Sections 24-33: Fundable List Arizona combines the Fundable and Comprehensive lists into one list. WIFA applies all crosscutters to all projects with the exception of FFATA. FFATA is treated on an equivalency basis. WIFA is evaluating moving the state’s NEPA like process also to an equivalency basis. See yellow highlight below. It is unknown at this time which projects will be awarded forgivable principal. Projects which qualify for the GPR are highlighted in green. Arizona’s Clean Water Revolving Fund Project Priority List – 2015 Funding Cycle PPL Rank 1 2 Applicant *Tri-City Regional Sanitary District Show Low, City of Population County AZPDES Permit Number 4,014 Gila 10,700 Navajo AZ0023841 Project Name Description Globe-Miami Regional Wastewater System Wastewater is currently being disposed into septic systems and cesspools that have caused the introduction of raw wastewater into the environment. Proposed project would benefit the area and residents by disposing and treating wastewater in a central facility. Wastewater Treatment Plant The City's existing WWTP is not able to attain new standards for selenium and ammonia and is currently under a consent decree. The City's method of treating wastewater must be improved in order to comply with the consent decree and to renew its AZPDES permit. The City is currently in the design phase for a bio-lac type facility which will replace the existing wastewater ponds in the same location. 8 Project Number Amount Requested / Probable Green Amount Subsidy 001 2015 $45,685,204.00 80% 002 2015 $3,000,000.00 / Categorical $600,000.00 80% 3 Total: *Chino Valley, Town of 5,100 Yavapai The Town suffers from a lack of infrastructure along its major transportation corridor. Additionally, the Town desires to acquire a privately-owned WWTP that serves Extension of the Town. This project will extend Sewer along 12" and 8" sewer lines along SR 89 SR 89 between between Road 2 North and Road 3 Road 2 North North and will remove hundreds of and Road 3 residential and commercial septic North systems. * Eligible for disadvantaged community designation 9 003 2015 $6,142,500.00 $54,827,704.00 75%