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Rural Development Underwriting Program Consulting Engineers Training June, 2012.

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Presentation on theme: "Rural Development Underwriting Program Consulting Engineers Training June, 2012."— Presentation transcript:

1 Rural Development Underwriting Program Consulting Engineers Training June, 2012

2 LOAN DETERMINATION All applicants can afford 100% loan if you raise the rates high enough. Our goals and objectives are to start with a reasonable user rate comparable to similar systems, maximize loan, and only put enough grant funds in to achieve positive cash flow.

3 Underwriting Program

4 Number of users, both residential and commercial along with usage. Number of vacant parcels Bulk Users This information is obtained from the PER and User Information Sheet (Form A). Both need to agree. Information Needed for Underwriting

5 Other Operating Income (Monthly) Non-Operating Income O&M (Less Interest & Depreciation) Replacement Reserve - Short Lived Assets Other Annual Expenses Debt Service & Reserve Additional Information Needed for Underwriting

6 Project Cost Applicant Contribution Other Funding Sources Contribution Connection/Tap Fees Once we have all the needed information we can begin to complete the underwriting screens. Additional Information Needed for Underwriting

7 Monthly Cost Per EDU A minimum of three similar systems must be used. The systems should be located in the area of the proposed project. RUS Instruction 1780.10 (b) states grant funds may not be used to reduce EDU costs to a level less than similar system cost.

8 Estimating Target Cost Per EDU for Towns MHI % of MHI Monthly Cost/EDU Annual Cost/EDU $ 20,000.00 1.7% $ 28.33 $ 340.00 $ 25,000.00 1.7% $ 35.42 $ 425.00 $ 30,000.00 1.75% $ 43.75 $ 525.00 $ 35,000.00 1.8% $ 52.50 $ 630.00 $ 40,000.00 1.85% $ 61.67 $ 740.00 $ 45,000.00 1.9% $ 71.25 $ 855.00 $ 50,000.00 2.0% $ 83.33 $ 1,000.00

9 Estimating Target Cost Per EDU for Villages MHI % of MHI Monthly Cost/EDU Annual Cost/EDU $ 20,000.00 1.4% $ 23.33 $ 280.00 $ 25,000.00 1.4% $ 29.17 $ 350.00 $ 30,000.00 1.45% $ 36.25 $ 435.00 $ 35,000.00 1.5% $ 43.75 $ 525.00 $ 40,000.00 1.55% $ 51.67 $ 620.00 $ 45,000.00 1.6% $ 60.00 $ 720.00 $ 50,000.00 1.7% $ 70.83 $ 850.00

10 EDU’S DEFINED Equivalent Dwelling Units (EDU’s) are based on the average consumption per day /month/year for the residential customers. Average Consumption is used to convert the commercial users to an equivalent number of residential users.

11 Number of EDU’s Residential users and usage is entered into CPAP. Information obtained from Form A and the PER. Commercial and other users usage is entered into CPAP. CPAP automatically calculates the number of EDUs based upon the residential usage.

12 Calculating EDU’s Residential Average Consumption –All Residential Users –110 users use a total of 15,090 GPD –15,090/110 EDU’s = 137 GPD/EDU

13 Calculating EDU’s Commercial Users –All Commercial Users –7 users use a total of 5,162 gallons/day –5,162/137 GPD for residential = –38 EDU’s

14 Calculating EDU’s Vacant Parcels –Each vacant parcel will be charged ½ EDU for debt service –14 vacant parcels = 7 EDU’s

15 Calculating EDU’s Total EDU’s for O & M –All Residential 110 –All Commercial 38 –Total EDU’s 148

16 Calculating EDU’s Total EDU’s for Debt Service –All Residential 110 –All Commercial 38 –Vacant Parcels 7 –Total EDU’s 155

17 Wholesale Cost/Wholesale Income Income from the sale of water or treatment services to a bulk user. Not large volume commercial or residential users CPAP calculates income based upon Wholesale Cost per 1,000 gallons.

18 Other Operating Income The applicants Audit or Annual Financial Statement Update Document (AUD) filed with NYS will be reviewed to determine if there is other operating income such as Interest/Penalties that needs to be included.

19 Non-Operating Income The applicants Audit or AUD will be reviewed to determine if there is any non- operating income such as Interest/Dividends that needs to be included.

20 Operation & Maintenance (O&M) The proposed O&M expenses (less Interest & Depreciation) are entered into underwriting. The O&M expenses should be realistic. For existing Districts or Villages, the O&M expenses will be compared to previous years actual operating expenses.

21 Replacement Reserves- Short Lived Assets (SLA) Does not include items that are budgeted in O & M as normal repairs or maintenance. Breakdown into 5, 10 or 15 year replacement. The items should be realistic and supported by the replacement schedule in the preliminary engineering report.

22 Other Annual Expenses This could be anything not accounted for in the budget.

23 Debt Service & Reserve Existing Debt Service for the water or sewer facility will be included. For Towns only the water or sewer debt for that district will be included. For Villages all water or sewer debt will be included. Proposed Debt Service for other loans such as co-funding with EFC will be included.

24 Commercial Credit Applicants must certify in writing and the Agency shall determine and document that the applicant is unable to finance the proposed project from their own resources or through commercial credit at reasonable rates and terms.

25 Project Costs Obtained from the preliminary engineering report or addendum. The Form E should match the PER. The project cost should be rounded to the nearest thousand

26 Applicant Contribution Based on the latest AUD or Audit Capital Reserve or Enterprise Funds must be identified Unrestricted excess cash is required to be used towards project cost

27 Other Funding Sources Any proposed other funding sources should be identified in the preliminary engineering report. Other funding will reduce the demand for loan and grant from RD

28 Contribution Connection/Tap Fees This should be included in the preliminary engineering report. Any net income from connection fees will be contributed to the project cost and reduce the amount of RD funds needed.


30 Determining Interest Rate MHI of Service Area Per 2000 Census Data Meets Criteria for Health or Sanitary Concern Interest RateMaximum Percentage of Grant Eligibility <$40,447YesPoverty Rate75% <$40,447NoIntermediate Rate45% $40,447 to $50,559 N/AIntermediate Rate45% >$50,559N/AMarket Rate0%

31 Determining proposed Loan and/or Grant Determine the target EDU cost based on similar systems and estimated cost per MHI. From this target rate, deduct the annual cost per EDU for O&M, water purchase/sewer treatment, existing debt, proposed other debt and short lived assets. This will leave the amount available for debt service.

32 Example $855 Target Rate - $ 210 O&M - $ 140 Cost of Water - $ 120 Proposed Other Debt - $ 12 Short lived assets $373 Balance available for debt service/EDU/year

33 This example shows that each user can afford $373 per year for the proposed RD debt service. If the applicant qualifies for the poverty interest rate of 2.0% and there are 140 EDU’s, this would equate to a $1,380,000 loan from our Agency.

34 Underwriting Program Calculates: USDA (Maximum Loan Amount) Total USDA Grant Needed Maximum W&W Grant Amount

35 USDA (Maximum Loan Amount) A 38 year repayment period is used. The correct interest rate is determined. The Underwriting program will calculate the maximum loan amount based on all input information.

36 Total USDA Grant Needed This amount is based on the project cost less other funding sources. If the grant needed exceeds the maximum grant limits, it will be necessary to reduce the overall project scope and cost, or increase the cost per user.

37 Maximum W&W Grant Amount Cannot exceed the actual cash flow needs based on reasonable user rates, or the maximum percentage (45% or 75%) of eligible project cost, whichever is less. Grant funds may be further limited subject to the availability of funding.

38 Current Maximum Grants MHI of $30,000 or less = maximum $1,000,000 grant MHI of $30,000 to $35,0000 = maximum $750,000 grant MHI over $35,000 = maximum $500,000 grant


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