Innovative Financing for Resilient Water Infrastructure

1. Financing Climate ResilientWater InfrastructureSanjiv K. Sinha, P.E., Ph.D.Webinar – Great Lakes and St. Lawrence Cities Initiative & Mayors Innovation Project February 21, 2019

2. P3GreatLakes: A Team Focused on Alternative Delivery/Financing Frameworks www.P3GreatLakes.Org

3. Outline • Status and needs • Status of water infrastructure • Past funding levels • Needs • Resilience impacts • Federal programs: SRF and WIFIA • Alternative financing frameworks • Rating agencies, Environmental, Social and Governance (ESG) criteria, resilience, and the future

4. Water Infrastructure:Diversity and Needs

5. Water Sector Diversity Water Resources • Sector Challenges and Considerations • Funding sources • Affordability issues • Aging infrastructure/deferred maintenance • Resiliency • Operational efficiency • Regulatory requirements • Life-cycle asset management • New technologies and green infrastructure • Financing and delivery constraints

6. ASCE’s Infrastructure Report Card • Estimated needs at over $3.6 Trillion by 2020 ($4.7T by 2025) just to keep pace with GDP (OECD/WEF). • Every dollar of deferred maintenance costs taxpayers $4-5 in future capital expenditures. Source: ASCE Infrastructure Report Card,2017

7. Clear Need for Investment in Resilient Water Infrastructure • $472.6 billion • 20-year capital need for drinking water • EPA’s 2015 Drinking Water Infrastructure Needs Survey and Assessment (2015$) • $448 - $994 billion • needed to prepare water infrastructure for the impacts of climate change • 2009 estimate from the National Association of Clean Water Agencies (NACWA) and the Association of the Metropolitan Water Agencies (AMWA) • $271.0 billion • 20-year capital need for wastewater • EPA’s 2012 Clean Watersheds Needs Survey (2012$)

8. Infrastructure Investment Gap is Growing Public Spending on Transportation and Water Infrastructure, by Level of Government, 1956 to 2014

9. And the Challenges Go Beyond Funding . . . • Infrastructure delivery system is flawed • Limited life-cycle asset considerations • Lack of incentivized performance • Taxpayers and ratepayers deserve a better deal • Alternative finance and delivery options • Pay for performance • Community co-benefits Of all of the world’s megaprojects, 9 out of 10: Overrun their budget Are delayed Don’t deliver the expected benefits Source: Bent Flyvbjerg, University of Oxford Said Business School

10. Climate Resilient Water Infrastructure

11. Climate Reality Source: “The Midwest Is Getting Drenched, And It’s Causing Big Problems” by Ella Koeze, fivethirtyeight.com

12. Design Challenge • National Oceanic and Atmospheric Administration’s Atlas 14 • Provides widely used precipitation estimates for most of the country • How much rain qualifies a storm as a “10-year,” “50-year” or “hundred-year” rainstorm in each area — that is, storms that might be expected to occur only once in each of those timespans • Water infrastructure in Minnesota • Atlas 14 was updated in and released for Minnesota in 2013 • Until then the most recent estimates available for Minnesota had been last updated in the ’70s => Problem

13. Water Infrastructure Funding/Finance: State Revolving Loan Funds

14. Drinking Water & Clean Water State Revolving Funds: Eligible Projects • Drinking Water SRF • Drinking water treatment • Transmission & distribution • Source water • Finished water storage • System consolidation or creation • Water security • Water infrastructure energy & water efficiency • Clean Water SRF • Wastewater treatment • Stormwater management • Agricultural best management practices • Watershed management • Pollution prevention • Wastewater infrastructure energy & water conservation • Aquifer recharge • Desalination

15. Cumulative SRF Assistance Agreements $126Bcumulative CWSRF assistance $35B cumulative DWSRF assistance Source: Natural Resources Defense Council, 2018 Presentation at Great Lakes Adaptation Forum.

16. Cumulative SRF Assistance Agreements $473B drinking water need $271B wastewater need CWSRF DWSRF Source: Natural Resources Defense Council, 2018 Presentation at Great Lakes Adaptation Forum.

17. Water Infrastructure Finance: WIFIA

18. The Water Infrastructure Finance & Innovation Act (WIFIA) • Operation since 2017 • Provides long-term, low-cost, supplemental credit assistance to creditworthy water and wastewater projects • Can lend money to corporations, trusts, partnerships, joint ventures, Clean Water SRF and Drinking Water SRF programs, and local, state, tribal, and federal government entities, • Limits support to 49% of project cost, with exemptions for certain projects, such as those built in Indian tribal communities

19. Authorized & Appropriated Funding Each Fiscal Year Source: “What we have learned in the two years of WIFIA’s existence” by Vedachalam & Lindquist, March 2018, Journal AWWA

20. WIFIA’s Strategic Objectives as Identified by U.S. EPA Are Evolving Source: “What we have learned in the two years of WIFIA’s existence” by Vedachalam & Lindquist, March 2018, Journal AWWA

21. Distribution of WIFIA Criteria Weights Are Also Evolving 15% 5% 32% 34% 80% 34% Source: “What we have learned in the two years of WIFIA’s existence” by Vedachalam & Lindquist, March 2018, Journal AWWA

22. WIFIA • 12 projects selected in first year of program • Median cost for large community project = $253 Million • Only one small community project • Some examples: • City of Baltimore planned to receive $200 Mil in WIFIA funds for wastewater treatment upgrade/repairs, and stormwater management systems • Indiana Finance Authority used use SRF balance of $453 Mil, and was able to issue $890 Mil in projects across the state

23. 2019 Omnibus Appropriations Bill

24. Appropriations for U.S. Department of Interior & U.S. Environmental Protection Agency • Clean Water State Revolving Fund — $1.7 billion • Equal to the 2018 enacted level and $300 million above the President’s budget request • Direct 10% of funds to be used for green infrastructure, water & energy efficiency improvements, or other environmentally innovative activities • Safe Drinking Water State Revolving Fund — $1.2 billion • Equal to the 2018 enacted level and $300 million above the President’s budget request • Direct 10% of funds to be used for green infrastructure, water & energy efficiency improvements, or other environmentally innovative activities Source: Feb 14-2019 Stormwater Newsletter, Water Environment Federation.

25. Appropriations for the U.S. Department of Interior & the U.S. Environmental Protection Agency • Water Infrastructure Finance and Innovation Act (WIFIA) Grants — $68 million • $5 million above the FY 2018 enacted level and $48 million above the President’s budget request • Forecasts total potential loan capacity at greater than $7 billion in water infrastructure projects • Directs the EPA to prioritize funding to address lead and emerging contaminants, including PFOA and PFAS Source: Feb 14-2019 Stormwater Newsletter, Water Environment Federation.

26. Conclusions • There is a massive funding gap • Funding gap is only part of the problem • Climate change is exacerbating the challenge of the funding gap • SRF and WIFIA can be further enhanced to address climate resiliency needs • Rating agencies will have a say in how it all plays out • Alternative sources of finance are needed, and are rapidly emerging

27. Water Infrastructure Finance: 2.0

28. ssinha@ectinc.com734-272-0859www.P3GreatLakes.Orgwww.twitter.com/P3GreatLakesssinha@ectinc.com734-272-0859www.P3GreatLakes.Orgwww.twitter.com/P3GreatLakes