Overview of State Revolving Fund Loan Programs for Indiana's Water Infrastructure Needs

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