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Capital Finance Plan Overview for Metropolitan Council Environmental Services (2011-2016)

The Capital Finance Plan for the Metropolitan Council Environmental Services has been presented to the Environment Committee, highlighting a projected capital spending of $579 million for 2011-2016, a significant reduction from previous plans. The report includes historical spending trends, outlines sources of capital funding such as PFA loans and grants, and examines the impacts of debt service adjustments and projected expenditures. It also compares debt service as a percentage of the budget with other peer agencies, providing a comprehensive overview of the financial landscape for clean water initiatives.

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Capital Finance Plan Overview for Metropolitan Council Environmental Services (2011-2016)

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  1. Metropolitan Council Environmental Services Capital Finance Plan Presented to the Environment Committee August 24, 2010 Jason Willett, ES Finance Director A Clean Water Agency

  2. Capital Improvement Plan 2011-2016 Capital Spending Total projected spending: $579 million (reduced 23% from prior CIP) (millions) 2

  3. Capital Spending History and projections CIP (millions) Adjusted to 2010 $s 1991-2009 Actual, 2010 Estimated, 2011-2016 Projected CIP 3

  4. CIP Comparison Next 6 years: 97 114 Last 10 years: 109 129 Last 40 years: 62 117 Average Annual Capital Spending: $M 2010 $M 4

  5. Sources of Capital Funding PFA Loans Council Bonds Pay-as-you-go Grants Local Financing (CVC & Cost Sharing) 5

  6. PFA Loans(Actual and Projected) (millions) Projected Actual through 2009, projected thereafter 6

  7. PFA Clean Water State Revolving Loan Program • 19 wastewater loan agreements 1989-2009 totaling $1.1 billion • Interest rates from 2.54% to 6.42% (2009 BAB loan rate was 1.84% after federal rebate) • PFA normally offers below market interest rates (150 basis points or 1.5% for $50M borrowed) • PFA pays underwriters’ discount (Council pays none) • Council pays limited costs of issuance 7

  8. Impact of Typical PFA Subsidy Typical $50 million loan ($ millions) Total Debt Present Service Value 4.0% Council bond $73.6 $50.0 2.5% PFA loan 64.1 43.6 Savings to ratepayers $9.5 $6.4 Bond underwriters discount $0.5 Cost of issuance saved $0.1 Total Present Value Savings $7.0 8

  9. PFA 2010 Refunding • PFA recently refunded 5 bonds for present value savings of $19.8 million • Part of bond proceeds was used for 5 MCES loans • Negotiated loan agreements provide that MCES gets a portion of savings • Savings to Council is $5.5 million present value • PFA will pay savings to Council by crediting debt service payments: • $2.4M in 2010 • $2.4M in 2011 • $0.9M in 2012 9

  10. Council Wastewater Bonds (millions) Actual & Projected Projected Actual through 2010, projected thereafter 10

  11. Council 2010 Refunding • PFA’s 1996 $40 million loan to Council had $16 million of principal remaining • Council issued G.O. bonds to refund this PFA loan in February 2010 • Original interest rate of 3.8% reduced to 1.2% • Total present value savings of $1.58 million was achieved; half ($790,883) credited to PFA 11

  12. Pay-As-You-Go (millions) Projected Favorable Variance Annual Budget SAC (Service Availability Charge) CRF (Capital Revolving Fund) 12

  13. Grants • ARRA: $8.2 million in 2009 • State Phosphorus: $0.5 million in 2009-2010 13

  14. Current Value Credits (CVCs) • CVCs are payments to local governments for wastewater facilities Council assumed ownership of, per MN Statute 473.511 • Balances owed after 7/1/10 payment: • Mendota Heights $131,878 • New Brighton $367,204 • Shoreview $13,360 • TOTAL $512,442 • 2016 is last year for payment of CVCs • 4.0% interest is paid on this debt • Existing CVC may be paid off: Council action pending 14

  15. Cost Sharing $ in thousands Brooklyn Elko New Maple Lakeville Park Market * Plymouth Grove Total 2010 $173 $123 $462 $78 $836 2011 $123 $18 $141 2012 $123 $18 $141 * $239,000 to be repaid over 20 years at 4.07% interest ($17,695/year). 15

  16. Summary Information • Summary of MCES Capital Finance Plan • Debt Service and Debt Outstanding • Comparative Data • Conclusions 16

  17. Pre-funded Debt Service • In prior years, some operating funds were transferred to a Debt Service Reserve Fund • Balance of $6.5 million at year-end 2009 • Fund not allowed to drop below 5% of annual debt service, which is currently $4.5 million 17

  18. Debt Service Adjustments Debt Existing Pre-funded Budgeted Service CVCs D.S. D.S. Increase 201090.0 .1 2.0 92.1 1.8% 201192.4 .1 0 92.5 .4% 201294.9 .1 0 95.0 2.7% 201398.9 .1 0 99.0 4.2% 2014 105.4 .1 (1.5) 104.0 5.1% 2015 112.4 .1 (1.5) 111.0 6.7% 2016 119.4 .1 (1.5) 118.0 6.3% ($ millions) 18

  19. Budgeted Debt Service History and projections 2001-2009 Actual Debt Service, projected thereafter 2010 Debt Service with 3% inflation (2010 dollars) (millions) Projected 19

  20. Debt Service Projections As a percent of annual budget* *Includes portion of debt service paid by SAC transfer; assumes O&M portion of budget increases 3% per year. 20

  21. Peer Agencies Debt Service as a % of budget* Washington, DC 19% Rochester, NY 21% Kansas City 25% Denver 26% Chicago 30% Memphis 32% Philadelphia 33% Indianapolis 34% San Diego 37% Cincinnati 37% Cleveland 40% Phoenix 40% Honolulu 41% Detroit 44% MCES 44% Columbus 48% Sacramento 52% Austin 53% Milwaukee 54% Trinity River TX 55% Nashville 58% King County WA 58% Louisville KY 58% New York 61% Miami 70% *2007 data from 2008 NACWA survey 21

  22. Outstanding Debt 2008 and 2009 are actual; other years projected Wastewater Council Bonds PFA Loans (millions) $1042 $1041 $1035 $1035 $1024 $993 $991 $958 $946 22

  23. Peer Agencies Debt per capita (person)* San Diego $43 Denver $79 Memphis $139 Chicago $279 Kansas City $283 MCES $343 Phoenix$354 Dallas/Ft Worth $415 Washington, DC $480 Philadelphia $530 Cleveland $543 Milwaukee $725 Miami $734 Detroit $738 Nashville $768 Cincinnati $789 Austin $1,085 Sacramento $1,154 New York $1,287 Columbus $1,572 Seattle $1,593 Honolulu $1,861 Louisville $1,872 *2007 data from 2008 NACWA survey 23

  24. Conclusions • Financing load is reasonable • Projected next financings needed: • $50M-$70M PFA loan late 2010 • $45M Council bonds late 2010 or early 2011 • PFA subsidies are important • Continued financing needs mean Council’s “Aaa” bond rating and G.O. backing also very important 24

  25. Next Steps • Today: Committee information & discussion • Sept-Oct: Council approves preliminary unified capital budget, authorized capital program and CIP (including Capital Financing Plan) • November: Public hearing • December: Council adoption 25

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