A note on water rates and affordability: Water rates are on the rise; many customers are seeing increases in their water rates. The reasons are many—water system infrastructure reinvestment needs, the increased costs of treatment and pumping, demand outstripping supply, regulation, etc. What we pay for drinking water is significantly less than what the average consumer pays monthly for cable television, cell phones or even coffee. However, it is important to address emerging affordability issues for vulnerable populations in your community.
Low-income households may face affordability problems if prices continue to rise. In order to avoid and alleviate these hardships, communities can offer equitable pricing structures that mitigate impacts on low-income households such as tiered rates and affordability programs for those demonstrating need. Your utility should be implementing best practices to ensure everyone in your community is appropriately provided for.
Go Finance your capital improvement needs
Without reliable drinking water infrastructure, communities cannot maintain quality of life, economic vitality or a healthy ecosystem. Feasible funding streams to replace and upgrade outdated public water systems are critically needed. Good asset management, regularly updated capital improvement plans and appropriate water rates are critical to understanding what investments your drinking water infrastructure may require in any given year.
But where will the money come from to finance the upfront costs of infrastructure investments? To be sure, there is no one-stop shop for financing our water infrastructure needs. However, there are a variety of options for municipalities to finance drinking water infrastructure upgrades or replacement. The following options are viable ways to finance drinking water infrastructure investments; it is important to note that revenue will still need to be generated from local water rates in order to leverage and eventually pay off these financing options.
A municipal bond is a bond issued by a local unit of government to pay for public projects such as roads, schools, and water, wastewater and stormwater infrastructure. Bonds are not a revenue source; they are a means of borrowing money. Bonds allow expenditures—such as capital improvement projects for drinking water systems—that exceed a local government’s annual resources.
If a community is considering issuing bonds to pay for drinking water infrastructure projects, it must evaluate how much money is needed over what time period, and identify how the bond holders will be paid. Municipal bonds may be set up as general obligations of the issuer or secured by specified revenues. Either way, the community must have a reliable stream of future incoming funds to demonstrate its ability to pay back its investors.
In Illinois, additional state tax advantages may be available by issuing municipal bonds through the Illinois Finance Authority’s Local Government Revenue Bond Program. The Illinois Finance Authority also offers a municipal program for non-home rule units seeking to borrow up to $1.5 million for essential purpose public projects through its Local Government Direct Bond Purchase Program.
State revolving fund
The State Revolving Fund (SRF) is a federal, low-interest loan program designed to support water service infrastructure repair and replacement. Each year, Congress appropriates funds to the SRF, and the U.S. Environmental Protection Agency (USEPA) proportionally distributes these funds to each state based on a regular Needs Assessment. Illinois combines these federal dollars with required state matching funds, program repayments, bond proceeds (generated via the Clean Water Initiative bond sales administered by the Illinois Finance Authority and the Illinois Environmental Protection Agency) and interest on loans to generate a perpetual source of loan money for water infrastructure, which the Illinois Environmental Protection Agency (IEPA) administers.
With these SRF funds, the IEPA provides loans for drinking water mains, water meters, pump stations, storage facilities, treatment plants and just about any infrastructure related to a public water supply system through its Public Water Supply Loan Program (PWSLP). During fiscal year 2016–2017, the PWSLP provided just under $500 million in loans to municipal drinking water systems.
If a community in Illinois wishes to apply for a SRF loan, the Illinois Environmental Protection Agency requires the submission and approval of a complete financial package, including a dedicated revenue stream that is adequate to assure loan repayment. Thus, similar to municipal bonds, having a dedicated, established revenue stream is necessary for a community considering an SRF loan to raise capital for crucial infrastructure projects. For more information on how to apply for a State Revolving Fund loan, please see the program webpage on the IEPA’s website.