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Actual Use: This method has been the preferred mechanism for funding MWMC capital projects <br />in the past 10 years. <br />Potential Use: User fee revenue can be used for virtually any legitimate MWMC purpose, <br />including funding of operating expenses, capital expenses and debt service as allowed by law. <br />Advantages: Funding capital projects from user fee revenue avoids the cost, risk, and <br />administrative complexity of debt financing. Current users directly support required <br />infrastructure, creating no impact on future users or Commissions. <br />Limitations: Capital projects funded from user fee revenue must either be relatively small, or <br />staged in small increments to avoid lazge spikes in user rates. Alternatively, reserves can be <br />accumulated to fund a lazge project in the future. To a certain extent, MWMC rates can drive the <br />capital improvement program, if this is the only funding option presented. <br />Applicability: User fee financing will continue to be an important financing tool for MVVMC; <br />however, to be most effective, it must be one of several options available to the Commission and <br />used strategically. <br />Grants <br />Description: Grants are financial resources made available to utilities (or others) to fund <br />specific desired activities or outcomes. Depending on the program, grants can be created to <br />support operating or capital programs, or both. Wastewater grants are usually generated by State <br />or Federal programs. Most require an application process, and some require a level of matching <br />local funding. <br />Actual Use: MWMC relied heavily on Federal grants to build the current treatment plant and <br />other facilities. <br />Potential Use: When funding is available, grants can be powerful tools in the hands of the <br />granting agency. Grants can be used to provide incentives to local utilities to meet governmental <br />standards or goals. <br />Advantages: Grants often provide the opportunity to leverage substantial capital resources with <br />minimal local investment. When available, grants enable utilities to complete specific capital <br />projects earlier than would otherwise be possible, leaving reserves and local funds for other <br />ventures. <br />Limitations: Grants for wastewater-related projects have become appreciably less common in <br />recent yeazs. Grant funding can be unpredictable and requires significant administrative and <br />reporting coordination. There can be strong competition among agencies for limited grant funds. <br />Applicability: Grant opportunities will be accessed whenever feasible. Grants are an important <br />mechanism for MWMC to finance specific projects. <br />Summary <br />As has been demonstrated, there are a variety of options available in the market to finance capital <br />projects. The type of financing a utility would use in a given set of circumstances depends on <br />the type of project, the size of the project, any statutory requirements and the financial health of <br />the utility. <br />~ __ <br />~,'' <br />2005 MWMC Financial Plan - Appendix II Page 39 <br />