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APPENDIX II <br />SUMMARY OF CAPITAL FINANCING OPTIONS <br />Introduction <br />This summary of capital financing options available to the Metropolitan Wastewater <br />Management Commission (1VIWMC) has been prepared as part of the 2005 MWMC Financial <br />Plan. This summary includes the following: <br />1. Identification of capital fmancing options available to MWMC, <br />2. Summary of the prevailing capital financing options use in the industry, and <br />3. A general description of the advantages and disadvantages of each capital financing <br />option. <br />A large part of this summary is based on "PaYin~ for Sustainable Environmental Systems A <br />Guidebook ofFinancial Tools April 1999 Revision"; published by the Environmental Protection <br />Agency. The discussion of capital financing practices in the wastewater industry is drawn from <br />the 1999 Association of Municipal Sewerage Agencies (AMSAI Financial Survey. <br />Overview of Major Mechanisms for Capital Financing <br />There are two categories of capital financing mechanisms: <br />1. Debt Financing -The primary debt financing mechanisms available today are bonds and <br />loans. Bonds and loans involve borrowing and require repayment; however, interest rates <br />may be governmentally subsidized, in some cases. <br />2. Non-Debt Financing -The primary non-debt financing mechanisms are user rate revenue <br />and SDC revenue. Non-debt financing can come from current revenues or revenues <br />which have been accumulated over time in reserves. <br />Historically, wastewater agencies have utilized a variety of mechanisms to finance capital <br />improvements. During the late 1970s and 1980s, significant Federal grant funds were available <br />to support wastewater capital projects. Since then, grant funding has been dramatically reduced <br />and currently is not a viable option for capital financing. The Federal grant program has been <br />replaced by the State Revolving Fund (SRF) loans. <br />The current MWMC facilities were primarily constructed with $80 million in Federal grants and <br />$29.5 million in voter approved general obligation bonds. The last significant Federal grants <br />were received in the late 1980s. In recent years, the Commission has funded capital <br />improvements using "pay-as-you-go" sources, such as user rates and SDCs. <br />Each form of capital financing serves distinct purposes and has certain limitations. The sections <br />below provide a general overview of some financing tools. <br />Bozvns <br />A bond is a written promise to repay borrowed money on a definite schedule at a specified rate <br />of interest for the life of the bond--usually 15 to 30 years. State and local governments can repay <br />2005 MWMC Financial Plan - Appendix II Page 29 <br />