Indiana Finance Authority IFA Environmental Programs March 6

Indiana Finance Authority (IFA) Environmental Programs March 6, 2020 IU Mc. Kinney School of law Environmental Symposium

Data/Information Collection • 2011 – Indiana Chamber of Commerce Vision 2025 • 2012 – Water Utility Annual Report Compiled by the IURC • 2013 - Water Utility Annual Report Compiled by the IURC • 2014 – Indiana Chamber – “Modernizing the State’s Approach to a Critical Resource – Water and Economic Development in Indiana” • 2015 - IFA Study – “Evaluation of Water Utility Planning in Indiana” • 2016 – IFA Study – “Evaluation of Indiana’s Water Utilities” 2

Findings • 2016 – IFA Study – “Evaluation of Indiana’s Water Utilities” • $2. 3 Billion is needed to immediately remedy Indiana’s aging infrastructure • $815 Million is needed annually to maintain infrastructure upgrades • Over 50 Million gallons of water is lost each year at a cost of over $54 Million • A new water infrastructure program needs to be funded • Replacement of water service mains needs to be prioritized • Better water agency coordination is needed • Regional authorities / management should be considered 3

Sources of Funding for Water Projects ü Indiana Finance Authority’s State Revolving Fund ü Office of Community and Rural Affairs ü United States Rural Development ü Municipal Bond Market ü Local Bank ü Utility funds 4

Environmental Programs Indiana Finance Authority Staff Indiana Dept. of Environmental Management Staff Non-Environmental Programs Indiana Finance Authority Staff Indiana Dept. of Environmental Management Staff 5

SRF Mission Statement ü To provide low-cost financial assistance; ü to construct necessary and environmentally-sound drinking water and wastewater infrastructure; ü to facilitate statewide compliance with state and federal drinking water and water quality standards; ü to maintain a fiscally self-sufficient program as a continuing source of funding for improvement and protection of public health and water quality; and ü to conduct any other activity permitted by the Safe Drinking Water Act or the Clean Water Act. 6

Indiana SRF Accomplishments As of June 30, 2019 Overview of Participants § 559 loans closed in the Clean Water Program § 266 loans closed in the Drinking Water Program § Over 390 Communities Served § Over $5. 2 Billion in loan closings § Over $4. 6 Billion disbursed to communities § Estimated over a Billion in savings to borrowers, over the last ten years (compared to market) 7 Source: IFA State Revolving Fund Programs. Represents all projects closed since 1992

Indiana Finance Authority State Revolving Fund Loan Programs SRF 2020 Project Priority Lists (PPLs) document the funding need for infrastructure projects in Indiana surpasses our ability to fund through the traditional SRF program. TOTAL DW Q 1 PPL $388 M WW Q 1 Large System PPL $898 M WW Q 1 Small System PPL $195 M $1. 4 B + 8

Indiana Finance Authority State Revolving Fund Loan Programs SRF Program History Federal Capitalization Grants Historical Federal Capitalization Grants Federal Grants by Fiscal Year Federal FY 1989 -1998 Clean Water $343, 374, 848 Drinking Water $34, 059, 306 1999 32, 454, 299 9, 105, 300 2000 35, 916, 531 8, 989, 850 2001 33, 645, 988 9, 159, 460 2002 32, 128, 866 8, 955, 100 2003 31, 919, 976 9, 398, 2004 31, 939, 281 9, 749, 300 2005 25, 969, 581 11, 201, 850 2006 21, 135, 427 12, 166, 734 2007 25, 793, 856 11, 484, 000 2008 16, 472, 652 11, 367, 000 2009 16, 399, 548 11, 367, 000 2009 ARRA 94, 447, 500 27, 212, 000 2010 49, 104, 000 22, 638, 000 2011 35, 588, 000 15, 709, 000 2012 34, 061, 000 14, 970, 000 2013 32, 176, 000 14, 046, 000 2014 33, 790, 000 14, 348, 000 2015 33, 617, 000 14, 253, 000 2016 32, 200, 000 13, 484, 000 2017 31, 952, 000 13, 368, 000 2018 38, 610, 000 16, 978, 000 2019 38, 292, 000 16, 819, 000 Total $1, 100, 988, 353 $330, 828, 100 9

Indiana Finance Authority State Revolving Fund Loan Programs Program History Loans Closed by State Fiscal Year Wastewater Drinking Water 1993 -1998 $225, 839, 097 $- 1999 161, 569, 000 8, 600, 000 257, 849, 020 89, 222, 000 2001 179, 135, 000 28, 542, 500 2002 106, 410, 000 20, 940, 000 2003 105, 183, 200 19, 158, 369 2004 45, 956, 000 26, 533, 750 2005 188, 851, 498 13, 631, 000 2006 266, 274, 000 30, 957, 000 2007 153, 229, 000 61, 478, 000 2008 145, 924, 000 22, 017, 000 2009 105, 975, 000 27, 282, 600 2010 376, 148, 218 79, 590, 684 2011 128, 114, 800 39, 675, 862 2012 139, 956, 000 58, 737, 612 2013 304, 541, 000 36, 627, 000 2014 88, 885, 400 14, 755, 401 2015 208, 504, 910 24, 902, 000 2016 70, 150, 112 38, 270, 000 2017 359, 453, 600 13, 746, 000 2018 276, 606, 839 45, 333, 000 2019 402, 186, 453 168, 799, 788 Total $4, 304, 055, 391 $880, 495, 556 10

Indiana Finance Authority State Revolving Fund Loan Programs Water Infrastructure Finance and Innovation Act (WIFIA) WIFIA is a federal credit program administered by EPA for eligible water and wastewater infrastructure projects. • The Authority entered an agreement with EPA on September 6, 2019 in an amount not to exceed $436 m. • First Draw = $164, 000 • This is the first WIFIA loan to a State. 11

Water Infrastructure Assistance Fund – Proposed Funding • HB 1406: Proposes $20 M annually to create a leveraged loan program: “State Water Infrastructure Assistance Program” Would be operated in partnership with the State’s Revolving Fund (SFR) Loan Program. • Would utilize a leveraging structure similar to the current SRF Loan Program. • Over time leveraging would provide results similar to the current SRF Loan Program model. • Fund Projects not eligible for SRF-federal funding. • 12

Water Infrastructure Assistance Fund – Proposed Structure ________________________ Assumptions For Structure • $20 M Annual Appropriation $18 M- Bonding revenue source • $2 M- Other Financial Assistance Anticipated Results • • • Bond funds will provide immediate funding for shovel ready projects • Projects funded provide capacity for more funding of future projects Ratings: AA+ (Anticipated) Similar to other IFA Lease Appropriation Bonds • Strong demand from marketplace • Initial bond proceeds: $290 M Fund loans for next 2 years New loans provide additional funds to finance new projects via: Leveraging funds through future bonding • Excess coverage • • Future: 25 years from now $1. 3 B: Leveraged loans • $830 M: Coverage loans • $2. 1 B total Loans •

Water Infrastructure Assistance Fund – Eligibility Requirements • 40% of funding used for utilities serving fewer than 3, 200 customers • Asset Management Program required for life of loan or useful life • Utility must have a plan for “regional participation. ” • Subject to an IFA developed Prioritization System: • • • Public heath and safety Effect on user rates Regional Collaboration Plan to measure and monitor non-revenue water Over time leveraging would provide results similar to the current SRF Loan Program model. 14

SRF Loan Program – Incentives (To encourage the State’s environmental priorities) • Lead Service Line Replacement Incentive Program • Green Project Reserve Sustainability Incentive Program Green Infrastructure • Water Efficiency • Energy Efficiency • Environmentally Innovative • • Brownfield Incentive Program • Nonpoint Source Incentive Program • Financing to Encourage Regionalization

Lead Service Line Replacement Financing Project Example • Utility develops plan to replace distribution mains and service lines in service area • Identify lines and secure easements • Complete lead service lines only (no partials) 16

Illustration of SRF Lead Service Line Replacement Incentive Utility’s Proposed Financing Cost Original Loan New SRF Loan Interest Rate Debt Service Amount available for lead line project $10, 000 2. 25% $12, 500, 000 Loan Structured with Lead Line Rate Reduction Debt Service $12, 500, 000 0. 00% $12, 500, 000 $ 2, 500, 000 • Interest rate savings will allow Utility to apply $2, 500, 000 towards costs associated with lead line replacement project at no additional costs to rate payers. 17

Indiana Finance Authority State Revolving Fund Loan Programs SEA 4 Senate Enrolled Act 4 requires utilities to: • Study water related needs of State by region • Coordinate regional meetings of utilities • Repository for Non Revenue Water Audits 18

Indiana Finance Authority State Revolving Fund Loan Programs SEA 4 Coordinate regional meetings of utilities • Purpose / Goal of meetings • Promote regional utility cooperation and assistance • Determine water and wastewater priorities • Facilitate investment • Est Prudent and coordinated management of water resources • Important dates • March 1, 2021 (and ea. odd year thereafter)– Utility report due • Nov 1, 2021 (and ea. odd year thereafter) – IFA summary report • Participation required for State financial assistance 19

Indiana Finance Authority State Revolving Fund Loan Programs SEA 4 Repository for Non Revenue Water Audits Annual Water Audit required – AWWA on line Tool • Validated audit due Aug 1, 2020 and ea. even numbered year • IFA req. to compile results and submit to LSA by Dec 15 • • Participation required for State financial assistance 20

SRF Interest Rates October 1, 2018 to December 31, 2018 Wastewater SRF Interest Rates Tier III (MHI: under $40, 346) Tier II (MHI: $40, 347 to $50, 432) Tier I (MHI over $50, 433) Drinking Water SRF Interest Rates Tier III (MHI: under $40, 346) Tier II (MHI: $40, 347 to $50, 432) Tier I (MHI over $50, 433) • Matrix Updated Quarterly • Term 20 -35 years • MHI based on 2011 -2015 ACS for SFY 2018. User Rates (Over $50) User Rates ($30 to $50) (Under $30) 2. 00% 2. 25% 2. 00% 2. 50% 2. 00% User Rates (Over $45) 2. 25% 2. 75% User Rates ($25 to $45) (Under $25) 2. 00% 2. 25% 2. 00% 2. 50% 2. 00% 2. 25% 2. 75% Additional Rate Reductions • Climate/Extreme Weather • Green/Sustainable Projects • Non-Point Source • Lead Line Removal 21

Indiana Finance Authority State Revolving Fund Loan Programs SRF Savings 2016 -2019 Clean Water SFY 2019 SFY 2018 SFY 2017 SFY 2016 29 21 20 15 Total Amount 400, 137, 453 276, 606, 839 366, 766, 844 65, 650, 112 Savings 101, 919, 265 35, 279, 310 65, 953, 858 28, 204, 380 Number of Loans Drinking Water SFY 2019 SFY 2018 SFY 2017 SFY 2016 16 10 11 11 Total Amount 168, 278, 383 45, 333, 000 25, 442, 000 38, 270, 000 Savings 28, 181, 218 13, 993, 425 10, 285, 731 10, 244, 168 Number of Loans Grand Total SFY 2019 SFY 2018 SFY 2017 SFY 2016 45 31 31 26 Total Amount 568, 415, 836 290, 600, 264 377, 052, 575 103, 920, 112 Savings $130, 100, 483 35, 279, 310 65, 953, 858 38, 448, 548 Number of Loans 22