Metropolitan Council Environmental Services A Clean Water Agency Presented to the Environment Committee August 25, 2009 Capital Finance Plan Jason Willett, ES Finance Director

Capital Improvement Plan Capital Spending Total projected spending: $1.3 billion (millions) 2

CIP Comparison 10 years was $1.4 billion 9 years was $1.3 billion 9 years is $1.1 billion 10 years is $1.3 billion 3 Proposed CIP Current CIP

Key Assumptions 2009 capital spending of $99.5 million CIP of $1.3 billion $80M PFA loan 2009 and $8M principal forgiven from ARRA funds, $50 million/yr PFA $ available thereafter Interest rates: 2.07% weighted average for 2009 PFA loan (2.45% for ARRA portion and 1.83% for BAB portion net of 35% IRS rebate) $1 million Pay-as-You-Go financing from operating budget in 2010 and 2011 increased $2M/year thereafter New Reserve Capacity methodology as proposed Council bonds and PFA loans all secured by general obligation of region 4

Capital Spending History and projections (millions) Adjusted to 2009 $s Actual, 2009 Estimated, Projected CIP CIP 5

Budgeted Debt Service Actual Debt Service, projected thereafter 2009 Debt Service with 3% inflation History and projections (millions) Projected 6

Pre-funded Debt Service In prior years, some Operating Funds were transferred to a Debt Service Reserve Fund Balance of $8 million at year-end 2008, and forecast at $6.7 million at year-end 2009 Fund will not be allowed to drop below 5% of annual debt service, or approximately $4-$5 million 7

Current Value Credits (CVCs) CVCs are payments to local governments for wastewater facilities that Council assumed ownership of, per MN Statute Balances owed as of 12/31/08: Burnsville$79,683 Columbia Heights $56,051 Mendota Heights $177,808 New Brighton $471,621 Shoreview$17,156 TOTAL $802, is last year for payment of CVCs 8

DebtExistingPre-fundedBudgeted Service CVCs D.S.D.S.Increase (1.6) % % % (0.4) % (0.6) % (1.0) % % $ in millions Debt Service Adjustments 9

(in millions) Actual through 2009, projected thereafter PFA Loans (Actual and Projected) Projected 10

PFA Clean Water State Revolving Loan Program 19 wastewater loan agreements totaling $1.1 billion Interest rates from 2.54% to 6.42% (prior to the 2009 loans) PFA normally offers below market interest rates (150 basis points or 1.5% for $50m borrowed). PFA pays underwriters discount (we pay none) We pay limited costs of issuance 11

Impact of Typical PFA Subsidy Typical $50 million loan Total DebtPresent ServiceValue 4.5% Council bond$76.9$ % PFA loan Savings to ratepayers$ 9.7$ 6.3 Bond underwriters discount saved$ 0.5 Cost of issuance saved$ 0.1 Total Present Value Savings$ 6.9* ($ in millions) 12 *Savings = $8.3 million for an $80 million conventional loan.

Projected Savings NPV NPV Proposed Funding: Cost* Savings $8.2 million of principal forgiveness $0 $30.6M ARRA $49.4M $88.2M cost (in Net Present Value*) $65.1 Cost of conventional PFA loan for $88.2m: (102.5 basis point discount, or 3.305%) $80.5 $15.4 Cost of $88.2M Council $88.2 $23.1 *At 4.33% discount rate.

(in millions) Actual through 2008, projected thereafter Council Wastewater Bonds (Actual and Projected) Projected 13

(in millions) SAC (Service Availability Charge)CRF (Capital Revolving Fund) Favorable VarianceAnnual Budget Pay-As-You-Go Projected 14

Outstanding Debt Wastewater Council Bonds PFA Loans $967 $888 $1086 $1150 $1208 $1220 Projected ( and 2007 and 2008 actual) $ (in millions)

As a percent of Annual Budget* *Assumes the O&M portion of the budget increases 3% per year. Includes the portion of debt service paid by SAC transfer. Debt Service Projections 17

Debt per capita (person)* *2007 data from 2008 NACWA survey 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 Peer Agencies 18

Conclusions Financing load is reasonable Projected next financings needed: $50M PFA loan late 2010 or early 2011 $60-80M Council bonds late 2009 or early 2010 PFA subsidies are quite important Continued financing needs mean that Councils Aaa bond rating is also important 19

Next Steps Today:Committee information & discussion September:Council approves preliminary Unified Capital Budget, Authorized Capital Program and CIP (including Capital Financing Plan) November:Public hearing December:Council adoption 20