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FINANCING OPTIONS EVALUATION/ <br />FINANCING STRATEGIES <br />Over the long term, MWMC must reinvest in infrastructure and equipment to maintain the value <br />of existing assets and, when feasible, to prolong the useful life of those capital investments. The <br />Commission must also ensure that the Regional Wastewater Facilities have capacity to keep pace <br />with new development and meet regulatory requirements. How the Commission funds these <br />investments is critical to the timing, scope, and cost of the MWMC CIl', and the stability of <br />regional sewer user rates. <br />Based on the projected declines in Capital Reserves and user rate availability to fund capital <br />programs over the next several years (assuming rate increases match inflation only), a capital <br />financing strategy needs to be employed that will result in adequate funding without significant <br />rate spikes and instability. Therefore, the most cost-effective mix of "pay-as-you go" and debt- <br />financing strategies should be applied. <br />A comprehensive review of available financial tools, including an evaluation of their <br />appropriateness to MWMC was conducted. Bonds, loans, grants, SDCs and user fee revenues are <br />all common methods of funding capital projects in the wastewater industry. The type of <br />financing a wastewater management agency would use in a given set of circumstances depends <br />on the type of project, the size of the project, any statutory requirements and the financial health <br />of the utility. In examining the available financing options, staff has tried to identify and <br />segregate financial tools by the size of projects for which they are appropriate, administrative <br />ease of implementation, degree of risk, customer equity, and cost. <br />After a thorough evaluation of funding opportunities for capital projects, the mechanisms <br />described below were determined to be the most appropriate in the circumstances provided. A <br />complete discussion and analysis of these financing tools is found in Appendix II. <br />Grants -Whenever possible, grant funding will be sought to pay for projects identified in the <br />CIP. <br />User Fee Financing and System Development Charges -For short-lived assets and relatively <br />small capital expenses, these pay-as-you-go options should be used. These revenues should be <br />accumulated in and drawn from dedicated reserves to avoid significant impacts to user rates. If <br />capital expenditures from these sources would cause significant changes in rates, other options <br />will be explored. <br />Internal Loans -Internal borrowing from reserve funds is an excellent use of the Commission's <br />cash resources for relatively small capital requirements and should be considered prior to seeking <br />loans from outside sources unless depletion of reserves would put the RWP at risk of having <br />insufficient cash to satisfy debt obligations or address unanticipated needs. Strategic use of <br />internal borrowing from the equipment replacement reserve will allow the commission more <br />control over the timing and sizing of debt issuance by providing temporary funds. <br />2005 MWMC Financial Plan Page 8 <br />