State Revolving Fund Loan Programs

1. State Revolving Fund Loan Programs Presentation for the American Council of Engineering Companies 3rd Annual Environmental Business Conference September 17, 2008

2. Federal 1987 - Congress established the Wastewater SRF Program as part of the Clean Water Act Amendments. 1996 - The Drinking Water SRF Program was established as part of the Safe Drinking Water Act Amendments. Indiana 1989 - Indiana legislature created a Pollution Control Revolving Fund Program with IC 13-18-13. 1997 - Indiana legislature created a public drinking water system program with IC 13-18-21. Program History - Legislative

3. Federal Wastewater (1988-2008) EPA Cap Grants $25 Billion Required State Match $5 Billion Net leveraged Bonds $22 Billion Drinking Water (1997-2008) EPA Cap Grants $8 Billion Required State Match $2 Billion Net leveraged Bonds $3 Billion Indiana Wastewater (1989-2008) EPA Cap Grants $631 Million Required State Match $126 Million Net leveraged Bonds $1.5 Billion Drinking Water (1997-2008) EPA Cap Grants $136 Million Required State Match $27 Million Net leveraged Bonds $273 Million Program History - Capitalization

4. Fundable Projects Wastewater Projects: • Treatment plants • Collection systems • Decentralized systems • Combined Sewer Overflow remedies • Infiltration/Inflow • Non-point source water pollution abatement Drinking Water Projects: • Treatment plants • Distribution • Storage • Supply facilities

5. SRF Program Results SRF is one of the largest wastewater and drinking water infrastructure financing sources in Indiana. • 285 Wastewater loans closed • 112 Drinking Water loans closed • Over 260 communities served • Over $2.1 billion of loans closed • Over $1.8 billion disbursed to communities • Over past 3 years, $116M Interest Savings

6. Closed Loans – Wastewater Total Loans Closed

7. Closed Loans – Drinking Water Total Loans Closed

8. Question to be Discussed • How Will SRF Address the Funding Gap? • Is there a Funding Gap? -or- • Is there a reluctance to raise rates?

9. Estimated Need: Wastewater The 2004 EPA CW Needs Congressional Report identifies over $5.8 Billion in CW infrastructure needs over the next 20 years in Indiana. The most substantial needs occur in: • Combined Sewer Overflows • Sewer Rehabilitation and Replacement • Advanced Treatment and • Secondary Treatment

10. Estimated Need: Drinking Water The 2003 EPA DW Infrastructure Needs Report identifies over $4 Billion in DW needs over the next 20 years in Indiana. The most substantial needs occur in: • Transmission and Distribution • Treatment • Storage • Source

11. SRF 2009 Priority List The SRF 2009 Project Priority Lists identify $1 Billion in infrastructure needs. • Drinking Water • $116,530,000 • Wastewater • $870,186,000 Large Systems • $75,008,000 Small Systems To view the Project Priority Lists www.in.gov/ifa/srf/

12. Possible Funding Sources • State Revolving Fund Loan Programs (“SRF”) • U.S. Rural Development (“RD”) • Office of Community and Rural Affairs (“OCRA”) • Open Market: • Investment Bank/Securities Firm • Local Bank

13. Estimated Funding Provided Wastewater & Drinking Water Financing for the Past 3 Years -------- • SRF Loan Programs ---- $680 Million • U.S. Rural Development ---- $102 Million • OCRA ---- $46 Million • Open Market ---- $1 Billion

14. Is there a Funding Gap? • Projected 20-year Need ---- $10B • Est. Funding Provided last 3 yrs ---- $2B • Avg. Funding Provided last 3 yrs ---- $650M/yr • Projected Funding Available, next 20 years (650 * 20) ---- $13B _____ Possible Funding Gap <$3B>

15. Current Utility Rates • WW 1 (347 Communities surveyed) • Range: $8 to $78 • Average: $18 to $31 • DW 1 (307 Communities surveyed) • Range: $3 to $60 • Average: $11 to $22 ____ 1 Umbaugh Comparative Rate Study – Feb. 2008

16. Grant/Loan Assistance • Grant Funding • Rural Development • OCRA • SRF (limited) • Reduced Interest Rate loans • SRF • Rural Development

17. SRF Interest Rates • 3-tier structure based on User Rates and Median Household Income (MHI) • SRF Program interest rate (“base rate”) is based upon 90% of the average 20-year Municipal Market Data (MMD) for a AAA-Rated Community • Resets Quarterly

18. SFY 2008 SRF Loan ProgramQuarterly Interest Rates MHI = Median Household Income

19. Additional Interest Rate Reductions • SRF Projects which include NPS and/or Sustainable Components will be eligible for up to a .05% Interest Rate Reduction. • (See SRF Web page for Checklist and SI Guidance Document) • www.in.gov/ifa/srf/

20. Available SRF Funds SFY 2009 Wastewater SRF • $100 Million Large Systems • $50 Million Small Systems Drinking Water SRF • $50 Million for all Systems

21. SRF vs. Open Market • Estimated cost to prepare a PER required for SRF financing. • Open Market costs of issuance expense; e.g., Underwriter’s Discount, Bond Insurance, etc. This does not include additional costs associated with the preparation of an offering circular or public bidding.

22. Contacts Programmatic Information Bill Harkins Technical Review Manager 317/234-4862 wharkins@ifa.in.us Shelley Love Wastewater Administrator 317/233-4396 slove@ifa.in.us Sarah Hudson Drinking Water Administrator 317/232-8663 shudson@ifa.in.us Finance-related Information Matthew Martin Finance Manager 317/234-1278 mmartin@ifa.in.gov Emma Kottlowski Financial Analyst 317/234-1463 ekottlow@ifa.in.gov Jim McGoff Indiana Finance Authority Director, Environmental Programs 317/234-2916 jmcgoff@ifa.in.us