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

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

Capital Spending History and projections (millions) Adjusted to 2010 $s Actual, 2010 Estimated, Projected CIP CIP 3

CIP Comparison Next 6 years: Last 10 years: Last 40 years: Average Annual Capital Spending: $M 2010 $M 4

Sources of Capital Funding 1.PFA Loans 2.Council Bonds 3.Pay-as-you-go 4.Grants 5.Local Financing (CVC & Cost Sharing) 5

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

PFA Clean Water State Revolving Loan Program 19 wastewater loan agreements 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

Impact of Typical PFA Subsidy Typical $50 million loan Total DebtPresent ServiceValue 4.0% Council bond$73.6$ % PFA loan Savings to ratepayers$9.5$6.4 Bond underwriters discount$0.5 Cost of issuance saved$0.1 Total Present Value Savings$7.0 ($ millions) 8

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

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

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

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

Grants ARRA: $8.2 million in 2009 State Phosphorus: $0.5 million in

Current Value Credits (CVCs) CVCs are payments to local governments for wastewater facilities Council assumed ownership of, per MN Statute Balances owed after 7/1/10 payment: — Mendota Heights $131,878 — New Brighton $367,204 — Shoreview$13,360 — TOTAL $512, 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

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

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

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

DebtExistingPre-fundedBudgeted Service CVCs D.S.D.S.Increase % % % % (1.5) % (1.5) % (1.5) % ($ millions) Debt Service Adjustments 18

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

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. Debt Service Projections 20

Cincinnati37% Cleveland40% Phoenix40% Honolulu 41% Detroit44% MCES 44% Columbus48% Sacramento52% Austin53% Debt Service as a % of budget* *2007 data from 2008 NACWA survey Washington, DC 19% Rochester, NY21% Kansas City25% Denver26% Chicago30% Memphis 32% Philadelphia 33% Indianapolis34% San Diego37% Milwaukee54% Trinity River TX 55% Nashville58% King County WA58% Louisville KY58% New York61% Miami70% Peer Agencies 21

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

San Diego $43 Denver$79 Memphis$139 Chicago$279 Kansas City$283 MCES$343 Phoenix$354 Dallas/Ft Worth$415 Washington, DC$480 Debt per capita (person)* *2007 data from 2008 NACWA survey 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 23

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

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