2.а TOOLSааа

 

FOR

 

аACQUIRING CAPITAL

 

 

а2.а TOOLS FOR ACQUIRING CAPITAL

 

INTRODUCTION

 

 

In contrast to raising revenue through taxes and fees which are subsequently dedicated to environmental projects, this section presents the three major ways in which governments and the private sector acquire capital to invest in pollution prevention, environmental protection, and environmental improvements: bonds; loans; and grants.а Bonds and loans entail repayments of principal and interest, although interest rates may be governmentally subsidized.а In contrast, grants represent sums of money awarded by the federal government, States, and even the private sector for specifically designated purposes for which no repayment is required.а

 

Each form of acquiring capital, bonds, loans and grants, serves distinct purposes and have certain limitations.аа Grants are regarded as highly desirable by recipients, and are often crucially important in start-up situations.а However, since grants are designed by the awarding agency to meet ceratin, often specific, goals, they may carry additional mandates, require matching monies, involve difficult application procedures, and be piecemeal and small in size for individual recipients.а Grants, moreover, are hardly free in the sense that the ultimate sources of funds are tax dollars.а The redistribution of tax revenues to some communities and not others can be a very sensitive issue.а Historically, many grant programs have been somewhat unstable since they must be approved annually by legislative bodies whose memberships are ever changing.а The total amount of grant monies, moreover, is strictly limited by appropriation and competition for grants is very keen.

 

Government loan programs have similar limitations as do government grant programs, althoughа interest rates on the loans may be subsidized particularly for small communities.а In contrast, commercial loans are more flexible, but typically more expensive for public and private borrowers.а Commercial loans represent the greatest source of investment capital for private businesses, compared to grants and bonds.

 

At present, the tax-exempt municipal bond market remains the dominant source of governmental environmental financing in this country, even compared to grants and loans.а The federal wastewater treatment construction grants program has virtually ended, and even the Clean Water State Revolving Fund (SRF) loan program which has replaced it and the newer Drinking Water SRF, operate through the bond market .а Over half of the Clean Water SRFs issue bonds to leverage their wastewater loans.а By the end of 1997, these SRFs had issued almost $10 billion in revenue bonds out of a total loan pool of $24 billion.а Drinking Water SRFs also are beginning to issue bonds to

 

 

leverage their monies.а Furthermore, local debt obligations, both general obligation and revenue bonds, account for the greatest source of local capital for environmental improvements ranging from

pollution control to parks and open space.а Although the 1986 Tax Reform Act made it more difficult for the private sector to finance environmental infrastructure through State and local tax-exempt private activity bonds, these bonds are still widely used as are the more costly taxable bonds.

 

Although bonds represent the largest source of ready and expandable capital, they are the most complex and expensive way to borrow, with the exception of SRF bond-backed loans for which interest rates are subsidized.а The high expense results from the legal and other fees, administrative time, and in some cases the voter approval process required for issuing bonds.а Since small borrowers incur the same costs as large borrowers, loans may be more advantageous for small borrowers than bonds.а While grants are the cheapest source of funds, comparisons of government grant/loan equivalency ratios demonstrate that additional governmental mandates required under grants may substantially raise the costs and time of construction (lowering the effective value of the grant aid).

 

Bonds, loans and grants are presented separately in the following sections, with emphasis on recent bond innovations and the State Revolving Fund (SRF) programs.а While government loan programs are fewer in number, grant programs, particularly federal ones, are more numerous.а The grant narratives give some indication of the size and durability of these programs, but are not summarized in a comparison matrix.а Additionally, noted throughout this Section are government grants and loans made to and by the private sector, although these are presented in more depth in Section 8. Tools to Pay for Community-Based Environmental Protection and Section 10. Tools to Access Financing for Small Businesses and the Environmental Goods and Services Industry.ааа

 

 

2.A.а BONDS

 

 

 

 

2.A. BONDS

 

 

Description:а A bond is a written promise to repay borrowed money on a definite schedule and usually at a fixed rate of interest for the life of the bond.а Bonds can stretch out payments for new projects over a period of fifteen to thirty years.а State and local governments repay this debt with taxes, fees, or other sources of governmental revenue.аа As discussed in this section, it is the source of pledged security or repayment for bonds, or the type of collateral used, that defines the type of bond, for example, general obligation bonds, a myriad of revenue bonds, or hybrids.а

 

Since most government bonds are tax-exempt, bondholders are generally willing to accept a correspondingly lower rate of return on their investment than they would expect on a comparable commercial bond.а Bond financing, therefore, can often provide State and local governments with low-interest capital.

 

Some State and local governments are required by statute to seek voter approval for certain types of bond issues.а For example, most State and local governments cannot issue general obligation bonds without voter approval.а If achieving this type of approval is difficult or time-consuming, State and local governments may want to consider issuing bonds that do not require voter approval, or exploring other options for capital financing, even if interest costs may be higher.а

 

The Tax Reform Act of 1986 altered the tax-exempt status of some government-issued bonds.а The Act reclassified bonds into two categories, governmental purpose bonds and private activity bonds.а Governmental purpose bonds are automatically tax-exempt, but private activity bonds must meet certain criteria in order to be classified as tax-exempt.а To qualify as a governmental purpose bond, at least 90 percent of the bond proceeds must be used by a State or local government, and no more than 10 percent of the debt service on the bond may be derived from or secured by a trade or business.а If a bond does not meet these criteria, it is classified as a private activity bond.а Private activity bonds that are issued for specific public-purpose projects-- such as water supply facilities, sewage treatment plants, solid waste disposal facilities, and some hazardous waste plants--can be tax-exempt.а However, each State is limited to issuing private activity bonds in the amount of $50 per capita or $150 million each year, whichever is greater.

 

Advantages:а Bonds provide financing for immediate capital needs.а If the project qualifies, tax-exempt bonds can be a low-interest way of acquiring capital.

 

Limitations:а Certain types of bonds require voter approval.а Bonds only spread out costs of a project; an ultimate revenue source still needs to be identified.а There may be some competition for debt capacity at the State or local level.а Some State and local governments may also have statutory limitations on the dollar amount and/or number of bonds that can be issued.а Issuing bonds is an expensive and time-consuming process, and requires sound legal and financial advice.

 

аааааааааааааааааааааааааааааааааааааааааааааааааааааааааааааа LIST OF BONDS

(In Alphabetical Order)

 

 

ааа 1.а Advance Refunding Bonds

а *2.а Anticipation Notes

ааа 3.а Appropriation-Backed Bonds

ааа 4.а Asset-Backed Revenue Bonds

ааа 5.а Capital Appreciation and Zero Coupon Bonds

а *6.а Certificates of Participation

ааа 7.а Derivatives

а *8.а Double-Barrel Bonds

а *9.а General Obligation Bonds

а 10.а Mandate Bonds (Environmental)

а 11.а Mini/Baby Bonds

*12.а Moral Obligation Bonds

*13.а Mortgage Lease-Back Revenue

*14.а Private Activity Bonds

*15.а Revenue Bonds

*16.а Short-Term Municipal Bonds

*17.а Special Assessment Bonds

*18.а Special Tax Bonds

*19.а SRF Revenue Bondsааааааааааааа

а 20.а Structured Municipal Bonds

а 21.а Tax Increment Bonds

 

[Special Note: We received writeups for two innovative new bond tools after this section was completed.а Please see the write-ups for Better American Bonds and the EPA Environmental Bond Guarantee Program in Appendix A, onа pages A-2. and A-3, respectively.]

 

 

 

 

 

*а Stars indicate most highly rated mechanisms as described in the Comparison Matrix at the end of the narratives.а See Introduction to the Guidebook for a description of the criteria used.а Ratings of УHighФ, УModerateФ, and УLowФ are for comparison purposes only, as some ratings are necessarily subjective and data are incomplete.

 

 

 

 

ааааааааааааааааааааааааааааааааааааааааааааааа ADVANCE REFUNDING BONDS

 

а

Description:а Advance refunding is the refunding of an outstanding issue of bonds by the issuance of a newа bonds prior to the date (defined as more than 90 days before) on which the earlier bond can be redeemed or paid.а Advance refunding is undertaken for a variety of reasons, but primarily to take advantage of lower interest rates when general economic conditions permit, and/or to alter debt reserve requirements, such as to lower coverage requirements.аа For a period of time both the bond being refunded, or refinanced, and the new bond may be outstanding, although typically the indenture securing the earlier bond may be defeated by deposit of the new issue proceeds into an escrow fund for the earlier bond (See also Section 6: УRefinancing LoansФ).а

 

Actual Use:а Prior to the Tax Reform Act of 1986, advance refunding in the municipal market was a major source of bond activity, accounting for up to 40% of all new bond issues, and any bond issue could be advance refunded numerous times to adjust outstanding debt to current interest rates.а Actual use now is sharply curtailed as a result of the new tax code, which limits each governmental activity bond issue to one advance refunding if the original issue was issued after December 31, 1985. Thus, bond leveraged State Revolving Funds (SRFs),а are extremely limited in their use of advance refunding.а Advance refunding now is prohibited entirely for qualified tax-exempt private activity bonds, e.g., bonds financing private wastewater facilities, except for non-profit 501 (c)(3) issues.

 

Potential Use:аа Local government bondsа issued before 1985 may still advance refund these earlier bonds more than once, and SRFs often have given advice to communities on how and when to proceed with refunding.а

 

Advantages:а Significant savings in interest costs to lenders may be achieved as a result of advance refunding.а However, SRF issuers will have to carefully examine the interest rate trends to assure that the one-chance refunding nets the issuer the greatest benefit possible.а Advance refunding may reduce significantly the size of debt reserve funds (coverage) or other restrictive covenants.

 

Limitations:а Other restrictions are outlined in the 1986 Tax Reform Act, including complex technical specifications and requirements that apply to the temporary periods for refunded redemptions,а reserve funds and yield restrictions.а These restrictions have made it exceedingly difficult for SRFТs using the over funded reserve fund method of leveraging, to advance refund their bonds at all.а These SRFs need to seek the advice of their investment bankers on the handling of reserve funds and Guaranteed Investment Contracts (GICs) before considering advance refunding.

 

Reference for Further Information:а Council of Infrastructure Financing Authorities (CIFA), аState Revolving Funds Under Tax Reform, CIFA Monograph No. 2, William Graham, Paul Shinn and John Petersen, Washington, D.C., June 1989.

 

 

аааааааааааааааааааааааааааааааааааааааааааааааааааааааа ANTICIPATION NOTES

 

 

Description:а Anticipation notes are short-term bond instruments repaid with anticipated revenues from various sources.а They can be used to acquire immediate capital when other funding sources are delayed or unidentified.а For example, if a city anticipated a future federal grant for a project, the government might issue a Revenue Anticipation Note to meet interim construction costs.а

 

There are four primary types of anticipation notes: Tax Anticipation Notes (TANs) are issued in anticipation of tax receipts and paid from those receipts; Revenue Anticipation Notes (RANs)are issued in anticipation of other sources of future revenues, often federal or State aid; Bond Anticipation Notes (BANs)are supposed to provide financing until a future bond offering is made; General Obligation (GO) notes are not backed by any particular revenue source, but by the full faith and credit of the issuing government.аа

 

Actual Use:а Both State and local governments widely use anticipation notes to meet short-term capital needs while awaiting other sources of revenue.

а

Potential Use:а Anticipation notes can be used to meet short-term gaps in project finance, when the ultimate revenue source (grants, bonds etc.) has been delayed, or when suitable revenue sources have not been identified.

 

Advantages: Tax anticipation notes provide immediate funds for capital projects and other financing needs.

 

Limitations:а Interest rates for anticipation notes are typically higher than on longer-term securities.а They represent only a temporary funding source.а Ultimately, the final source of funding still needs to be identified.

 

Reference for Further Information: MoodyТs on Municipals: An Introduction to Issuing Debt, MoodyТs Investor Service, MoodyТs Public Finance Department, Inc., 1989 and subsequent additions, 99 Church St., New York, NY 10007; (212) 553-1658.аа Lamb, Robert, and Rappaport, Stephen, Municipal Bonds, McGraw-Hill Book Company, New York, NY, 1987.а Contain good basic introduction to anticipation notes.

 

 

 

 

аа

 

аааааааааааааааааааааааааааааааааааааааааааа APPROPRIATION-BACKED BONDS

 

 

Description:а Appropriation-backed bonds are State special obligation bonds using a pledge of future State direct appropriations, typically annual appropriations, as the form of pay back to the bondholders.аа Such bonds may be either tax-exempt or taxable, depending on what is being financed or how monies are managed, and constitute a specific type of State revenue bond.а State bond issuance is authorized by State legislatures, and the issuing authority may enter into a service contract or lease arrangement with the State or State agency undertaking the activity being financed.

 

Actual Use:а Many States use appropriation-backed bonds for special State projects which do not fall readily under any specific environmental program category, or when there is an anticipated need forа funds for subsequent outlay.а For example, the New York State Environmental Facilities Corporation, which houses the SRF program, has used appropriation-backed bonds for projects undertaken on behalf of the State, such as the construction of State park facilities, a State hospital wastewater treatment plant, and State Thruway Authority hazardous waste clean-up.а Some States have used appropriation-backed bonds to raise the 20% State match required under the SRF program, in which case taxable bonds may be issued to avoid expensive arbitrage rebate accounting.а However, in recent years appropriation-backed bonds have been challenged legally in a number of States, on the grounds that legislative appropriation of funds does not constitute adequate assurance for the bondholders and ties the hands of future elected officials.а Hence, current use of appropriation-backed bonds is less common.

 

Potential Use:а Appropriation-backedа bonds could be used to provide money for the State match required for the drinking water revolving fund program recently authorized by the Safe Drinking Water Act of 1996, because the 20% State match payments could be deferred until 1998.а Other potential uses are many, including open space acquisition and solid waste programs, and government air pollution control facilities.

 

Advantages:а Theseа bonds can be useful as a prompt and efficient financing device to cover special needs as they arise, and which may fall outside of the normal budgeting cycle of State legislatures.а In theory, they constitute a special obligation of the State.аа

 

Limitations:а The legal uncertainty surrounding appropriation-backed bonds has made States cautious about using them when other financing means are available.а In some States, use of such bonds is prohibited by the State constitution.

 

Reference for Further Information:аа The Bond Market Association (BMA), Fundamentals of Municipal Bonds,а Fourth Edition,а New York, NY, 1990.а The BMA updates this book periodically, but a fifth edition is not expected until 2000.а For information, call (212) 809-7000.

 

 

ааааааааааааааааааааааааааааааааааааааааааааа ASSET-BACKED REVENUE BONDS

 

 

Description:аа An asset-backed bond is a revenue bond backed by a pledge of collateral in the form of a very specific asset, usually a physical asset such as a building, facility or land, and income flow attached to these.а More recently, assets have been interpreted to include a specific revenue stream or portion of a larger revenue stream, such user fees.а Asset-backed bonds are somewhat similar to certificates of participation, except they are bonds not notes.а Bondholders do not have claim on all the assets of the bond issuer, but only the asset described in the legal bond covenants.а Typically, asset-backed bonds arise from local units of government and the private sector.

 

Actual Use: Asset-backed bonds are increasingly common, particularly for defined and limited funding purposes, and may be issued in smaller denominations and for shorter time periods (under ten years) compared to other revenue bonds.

 

Potential Use: Asset-backed bonds could be used to finance a wide range of environmental purposes, including land acquisition for parks and conservation, brownfields redevelopment, and air pollution control equipment as well as for water and wastewater projects.

 

Advantages: Using asset-backed bonds allows municipalities or private entities to structure bonds in a way which does not expose their full range of assets, or credit, to the market, but still borrow capital funds for a defined purpose.а They may enable businesses to proceed with specific environmental projects when their overall financial condition may not permit the issuance of larger bonds without extremely high interest charges or the or the use of costly bond insurance.

 

Limitations: Because these bonds are not backed by the full faith and credit of the issuer or all of the issuerТs revenue stream, they may be considered more risky and thus be more costly to the issuer in terms of increased interest costs and bond issuance costs including higher coverage for debt reserve funds.а The collateral pledged may bear little relationship to the project to be funded.а In some cases, certificates of participation may be preferable because bond issuance costs are avoided.

 

Reference for Further Information: Heide, Susan C., Klein, Robert A., and Lederman, Jess, editors, The Handbook of Municipal Bonds, Probus Publishing, 1994.

 

 

 

 

 

 

аааааааааааааааааааааааааа CAPITAL APPRECIATION AND ZERO COUPON BONDS

 

 

Description: Capital appreciation bonds (CABs) and zero coupon bonds (zeros) are used in the issuance of State and local general obligation and revenue-backed debt.а They both provide investors a guaranteed reinvestment rate, so they are most attractive to investors when interest rates are expected to fall.а CABs, also called compound interest bonds, accumulators or municipal multiplier bonds, are sold at face value (par) but the issuer makes no periodic interest payments.а Instead, theа interest component is held by the issuer and compounded at a stated rate so the investor receives a lump sum multiple of the principal and interest.а CABs result in more bond proceeds for the same use of debt capacity (total par value) than do zeros, which are the most extreme version of original issue discount bonds.а Zero coupon securities also make no periodic interest payments.а Instead, they are sold at deep discount from their face value.а At maturity date, the security is redeemed at face value.а The investor receives the rate of return based on the appreciation from the discounted price to the full face value.а Zero coupon bonds are also issued by corporations and may be created by a brokerage firm when it УstripsФ the coupons off a bond and sells the corpus and the coupons separately.а This latter technique often is used with Treasury bonds.а The Internal Revenue Service maintains that the holder of a taxable zero owes income tax on the interest that accrues, but not paid, each year, so such bonds tend to be bought for Individual Retirement Accounts and Keogh Accounts, where they are tax-sheltered.а Buying a tax-exempt zero frees the purchaser of paying taxes on imputed interest income.а Zeros are among the most volatile of fixed-income securities, falling more dramatically when interest rates rise and rising more rapidly when interest rates decline.

 

Actual Use: Both taxable and tax-exempt CABs and zeros have been used extensively.

 

Potential Use: These types of bonds can be used to finance virtually any type of physical project for environmental purposes.

 

Advantages: CABs and zeros tend to be attractive to investors who are interested in investing for a future need, such as retirement, or want the convenience of not having to deal with how to reinvest periodic interest payments.а Governments are able to delay interest payments until the final maturity.

 

Limitations: The issuer must have substantial funds available at maturity for what is effectively a balloon maturity.

 

Reference for Further Information: Government Finance Officers Association, 180 North Michigan Ave., Suite 800, Chicago, IL 60601, Phone: 312-977-9700, Internet: www.gfoa.org; Internet Debt Reference Guide: www.window.texas.gov/localinf/debtguide/. MoodyТs on Municipals: An Introduction to Issuing Debt, MoodyТs Investors Service, Public Finance Department, 99 Church St., New York, NY 10007, Phone: 212-553-1658.

 

ааааааааааааааааааааааааааааааааааааааааааааааааааааааааааааааааааааааааааааа

CERTIFICATES OF PARTICIPATION

 

 

Description:а Certificates of participation (COPs) are financial instruments used to finance capital projects, which are backed by the leasing of real property,а physical assets, such as wastewater plants or equipment.а The assets are held by a trustee, and the certificate issuer pays yearly lease payments to the certificate holders until the debt is repaid.а If the certificate issuer should default on the lease payments, the trustee is responsible for selling the physical assets and using the proceeds to reimburse the certificate holders.а Certificates of participation are similar to mortgage bonds and asset-backed bonds, but are not legally classified as such, meaning that State and local governments can issue them without voter approval and without affecting their overall bonding capacity.

 

Actual Use: COPs are used primarily by local governments, but sometimes a State, to finance purchase of property or physical assets, such as mass transit buses, sports facilities, or parks.а COPs have been widely used in California where bond financing through the ballot box is not always a viable option.аа For example, San Diego recently issued COPs to help pay for renovation of Balboa and Mission Bay Parks, and the COPs were guaranteed by city golf course fees and hotel tax revenues.а Washington State issued COP for park redevelopment backed by park fees.а COPs were used in Olathe, Kansas to purchase on historic site and in Arlington, Texas for a municipal golf course.а COPs also may be repaid by annual legislative appropriation.

 

Potential Use:а A wastewater treatment or solid waste management facility might be financed through certificates of participation.а A certificate of participation can also provide opportunity to structure a public-private partnership (See Section 4 on Public-Private Partnership Tools).

 

Advantages:а Certificates of participation do not require voter approval, and do not count against debt capacity limits, but allow governments to pay back year-by-year.а In some States, special districts cannot issue bonds but may issue certificates backed by equipment.аа COP payments to private investors are tax-exempt, an attractive feature.

 

Limitations: These certificates can only be issued to finance capital projects where a real asset

exists that is suitable as collateral, and only in jurisdictions in which local authorities are allowed to negotiate long-term leases.а COPs cost 20-35 basis points more than conventional or bond financing.

 

Reference for Further Information: The Trust for Public Land, Green Sense: Financing Parks and Conservation, Spring and Autumn, 1996, Spring 1997, Phyllis Myers, Editor, San Francisco, CA, Telephone: 800-714-LAND, Internet: http://www.tpl.org/tpl.

ааааааааааааааааааааааааааааааааааааааааааааааааааааааааааааааааааааааааааааа

 

DERIVATIVES

 

 

Description: A derivative product is a financial instrument whereby the value of the instrument is УderivedФ from the value of a specific, underlying market or index.а For example, a bond paying an interest rate based on changes in the stock market, may be referred to as a derivative because the value of the bond changes in response to a market, which may be measured by an index such as the Standard and PoorТs 500.а In this particular case, the УunderlyingФis the Standard and PoorТs 500.

 

A wide range of financial instruments have been classified in a generic sense as derivative products.а These instruments include swaps, caps, options, puts, calls, and collars.а The common theme of all of these products share is that their value is derived from the performance of specific indices or cash markets.а From an accounting perspective, a derivative is defined as having two characteristics: 1.) the holder has the right to participate in some or all of the price change experienced by the underlying; and 2.) the instrumentТs value at maturity can be settled in cash as opposed to taking ownership of the underlying.

 

Actual Use:а Many States and medium to large municipalities have used derivatives as a way of reducing financial risk, either interest rate risk or other related risks.а The most common type of derivative used is the interest rate swap which provides savings to municipal issuers by permitting them to exchange floating or fixed-rate payments or vice versa.а Standard and PoorТs recommends that municipal issuers should generally minimize risk by limiting swaps based on markets other than municipals, since many of these other markets can be highly volatile.

 

Potential Use:а Derivatives can be a useful tool to help States and larger, financially healthy, municipalities (with financially sophisticated managers) reduce their interest rate risks and to a lesser extent, maximize financial results.а In general, SRFs have avoided use of derivatives as unnecessarily complicated for their programs, including for arbitrage considerations.аа

 

Advantages: ааDerivatives can be an excellent way to manage interest rate risks.

 

Limitations: Derivatives are a sophisticated tool for the sophisticated investor.а Some can be quite volatile and financially risky.а They should not be undertaken lightly or without professional financial advice, which may be quite costly.а There are other financial tools that should be examined/used before considering derivatives.

 

Reference for Further Information: Standard and PoorТs Structured Municipal Finance Criteria, McGraw Hill, 1993.а Standard and PoorТs Corporation, Municipal Finance Department, 25 Broadway, NY, NY 10004.а Goldman Sachs & Co., 85 Broad Street, New York, New York 10004.а

 

 

ааааааааааааааааааааааааааааааааааааааааааааааааааааа DOUBLE-BARREL BONDS

ааааааааааааааааааааааааааааааааааааааааааааааааааааааааааааааааааааааааааааа

 

Description:а A double-barrel bond is a revenue bond secured by a pledge of two (or more) sources of payments, typically a user fee and, secondarily, byа the credit of the issuing government through ad valorem taxes (See writeup on УGeneral Obligation BondsФ later in this section).а Occasionally, a general obligation bond may also be backed by a specific revenue.а

аа

Actual Use:а Both State and local governments increasingly have used double-barrel bonds to finance environmental improvements, including renovation of wastewater treatment plants and start-up capital for stormwater districts.аа The revenue stream pledge may be in the form of multiple taxes, such as the real estate transfer tax or special assessment taxes.

а

Potential Use:а Double-barrel bonds can provide cheaper capital than conventional revenue bonds for projects that generate revenues, such as solid waste landfills, wastewater treatment plants, drinking water utilities, or stormwater management districts.

 

Advantages:а Double-barrel bonds are a good way for States or localities, particularly those withа low credit ratings or low debt capacity,а to obtain lower interest rates on bond issues compared to conventional revenue bonds.аа The pledge of a special tax or fee to a visible environmental project may enhance the acceptability of the tax or fee, and increase leveraging potential.а Double-barrel bonds are also useful in situations where the public benefit, for example, from improved water quality achieved by increased wastewater treatment is broader than the population base paying the user fee.

 

Limitations:а Some State or local governments may have statutory limitations on the issuance of double-barrel bonds, or they may subject these bonds to the same statutory limitations as General Obligationа bonds.

 

Reference for Further Information:а Lamb, Robert, and Rappaport, Stephen, Municipal Bonds, McGraw-Hill Book Company, New York, 1987.а Contains a good basic introduction to double barrel bonds.

 

 

ааааааааааааааааааааааааааааааааааааааааааааааа GENERAL OBLIGATION BONDS

 

 

Description:а General Obligation (GO) bonds are bonds backed with the guarantee that the issuing government will use its taxing power to repay the bond.а For State GO bonds, the income and sales taxes secure the debt, while for localities it typically is the property tax.а There are two primary types of GO bonds: unlimited ad valorem tax debt and limited ad valorem tax debt.аа Unlimited ad valorem tax debt occurs when the government pledges its full faith and credit with no limitations on possible property tax rates.а Limited ad valorem tax debt occurs when the government pledges its full faith and credit, but with a cap or restriction on possible property tax rates to repay the bond.а This is regarded as less secure than an unlimited bond if the tax limits could conceivably be reached within the term of the bond, or if other tax revenues are not available for debt service.а

а

Actual Use:а Both State and local governments have used GO bonds to finance capital projects related to environmental programs and activities, including natural lands purchase.а State referendum environmental bonds, which often are very large, are GO bonds paid for by a variety of sources of revenue including appropriations.

а

Potential Use:а GO bonds are suitable for financing any project that requires large amounts of capital up-front.

 

Advantages:а GO bonds backed by full taxing power are regarded as safer than bonds backed by a single revenue source, and generally command lower interest rates and lower reserve fund requirements.а GO bonds also have structural flexibility since the issuing government can repay the bond with a variety of revenue sources.

 

Limitations:а Voter approval is frequently required for GO bonds. Many States and cities also place statutory limits on total GO debt, or on GO debt as a percent of property valuation.а The private bond rating agencies consider the amount of a governmentТs GO debt, or its debt ceiling, in rating bonds, even though water and sewer are theoretically not included, the rating agencies generally make note of water and sewer GO debt in establishing bond ratings.

 

Reference for Further Information:а Lamb, Robert, and Rappaport, Stephen, Municipal Bonds, McGraw-Hill Book Company, New York, 1987.а Contains good basic introduction to GO bonds.

 

MANDATE BONDS

а(Environmental)

 

 

Description:а The Government Finance Officers Association (GFOA) several years ago proposed the creation of a new category of tax-exempt bonds called "Mandated Infrastructure Facility Bonds" (MIFs) for which many of the federal restrictions on tax-exempt financing would be eased.а The proposal suggests that private activity bonds used to finance facilities built, acquired, renovated, or rehabilitated due to a requirement in a federal statute or regulation should receive the same orа more favorable tax treatment as governmental bonds.а Specifically, an MIF bond would ease the following restrictions contained in the 1986 tax act:

 

╖ааааааааа The private business use and payment test would be 25 rather than 10 percent;

 

╖ааааааааа The 5 percent private business or disproportionate use test would not apply;

 

╖ааааааааа Arbitrage rebate requirements would not apply, except that yield restrictions would govern investments, and arbitrage earnings would be used for the project;

 

╖ааааааааа Interest earned on the bonds would not be subject to either individual or corporate minimum alternative taxes; and

 

╖ааааааааа Financial institutions would be allowed to deduct 80 percent of the cost of purchasing and carrying the bonds without regard to issuance limitations.

 

By targeting the proposal to mandated infrastructure and requiring that property be governmentally owned, the GFOA hopes to allay fears that creation of this new bond is a return to pre-1986 bonds.а

Actual Use:а Mandate bonds are still only proposed.а There have been other similar proposals from environmental interest groups and various Congressional Representatives.

 

Potential Use:а Mandate bonds could be used by State and local governments to finance federally-mandated construction, renovation, expansion, and upgrade of environmental facilities.

 

Advantages:а Mandate bonds would allow State and local governments to retain tax-exempt status for bonds used to finance capital projects that involve greater private participation than is currently allowed for tax-exempt governmental bonds.а

 

Limitations:а Creating mandate bonds would require federal legislative action.

 

Reference for Further Information: GFOA, Chicago, Illinois, Internet: www.gfoa.org.

 

 

MINI/BABY BONDS

 

 

Description:аа Mini Bonds, also called baby bonds for their smaller-than-normal face or par values (generally less than $1000, usually $100 to $500, or even $25), are characterized by direct marketing from issuers to investors.а Modeled after federal savings bonds, they bring segments of the bond market within reach of small investors and open a source of funds to issuers who lack entree to the large institutional market.а Other than their small denominations and direct marketing, baby bonds have diverse characteristics designed for investors with different objectives.а For example, some are structured as capital appreciation bonds so investors do not have to worry about reinvesting periodic interest earnings (See write up on УCapital Appreciation and Zero Coupon BondsФ earlier in this section).

 

Actual Use: In 1997, the Lower Colorado River Authority issued both capital appreciation bonds and current interest bonds in $500 increments to a maximum of $10,000 per owner, with varying maturities of 3, 5, 11 and 12 years.а The City of Tacoma, Washingtonа Solid Waste Utility sold $2 million in $1000 par value, 3 and 5-year bonds as part of a $71 million debt refinancing ratedа A by both MoodyТs and Standard and PoorТs.а Baby bonds have experienced widespread use at state and local levels since the late 1970's.

 

Potential Use: ааMini/baby bonds could be used to finance relatively small, targeted environmental investments, such as non point source pollution control measures.

 

Advantages:а Lower costs of issuance and flexibility are the chief advantages.а

 

Limitations: Mini bonds generally entail higher administrative costs for distribution and processing,а relative to total money raised, and they lack a large and active market that ensures liquid for bond holders.

 

Reference for Further Information: Petersen, John and Hough, Wesley,а Creative Capital Financing for State and Local Governments, Government Finance Research Center , 1983; Internet Debt Reference Guide: www.window.texas.gov/localinf/debtguide/.

 

 

 

 

 

 

 

 

 

MORAL OBLIGATION BONDS

 

 

Description:а A moral obligation bond is a bond secured from revenues from a financed project, as well as a non-binding pledge that any deficiency in pledged revenues will be reported to the State legislature, which may appropriate State monies to make up the shortfall.а Under most State laws, if a draw down of the bond's debt reserve occurs, the bond trustee must report the amount used to the governor and the State legislature.а The State legislature is then authorized to appropriate the requested amount to repay the bondholders, although there is no legally enforceable obligation to do so.

 

Actual Use:аа Since 1960, over 20 States have issued moral obligation bonds.а The first State to issue this type of bond was New York, which issued moral obligation bonds to finance a housing authority.а In most cases, moral obligation bonds have been self-supporting, and no State financial assistance has been required.а In all recorded instances to date in which the moral pledge was actually called upon, the respective State legislatures responded by appropriating the necessary amounts of monies.

 

Potential Use:а Moral obligation bonds can be used to acquire project capital at lower rates than revenue bonds.а Since they generally do not count against debt issuance limitations, they are particularly useful for governments that are approaching debt limits.

 

Advantages:а Typically, moral obligation bonds do not count against debt limitations.а Moral obligation bonds can obtain interest rates almost as low as general obligation bonds because they are backed by the pledge of repayment.

 

Limitations:а The process required to issue moral obligation bonds may involve legislative action in some States.а Because the pledge of repayment is not legally enforceable, debt holders may expect (demand) slightly higher rates of return on moral obligation bonds as compared to general obligation bonds.

 

Reference for Further Information:а Raftelis, George A., Comprehensiveа Guide to Water and Wastewater Finance and Pricing, second edition, CRC Press/Lewis Publishers, Chelsea, Michigan, 1989.а Contains a basic introduction to bonds, including a description of moral obligation bonds.а

 

 

 

MORTGAGEа LEASE-BACKа REVENUEа BONDSа

 

 

Description:аа Mortgage lease-back bonds are revenue bonds issued by a State or local authority where the revenue stream underlying the bonds are lease payments by another public entity, for example, a municipal unit of government.а Such bonds typically are used for land or other real property transactions.а Lease or mortgage payments to retire bond investor debt are made through annual budget appropriations, which may be supplemented by fees generated by the use of the leased property.а At the end of the lease or mortgage terms, theа governmental entity assumes ownership.а Bonds typically are tax-exempt.

 

Actual Use: Conventional mortgage-backed bonds have been used extensively by the housing industry, such as Fanny Mae and State housing authorities, as well as for school and hospital construction.а For environmental purposes, mortgage lease-back revenue bonds have been used in instances where the public agency, usually a local government, lacks the capital funds or debt capacity to make an outright purchase of land or real property, and thus leases the item from the capital provider which typically is a nonprofit entity, such as a 501(c)3 foundation, set up by the local government.а For example, a park foundation may purchase land and then lease it to local government, typically a special park district, such as was the case in Johnson County, Kansas.

 

Potential Use: Mortgage lease-back bonds could e used more widely for land purchases, such as for brownfields, land on which an environmental facility is to be constructed, open space, historic sites and buildings, trails and bikeways, and other lands.а Similarly, nonprofit foundations and land trusts could make land acquisitions through the use of these bonds, as long as the governmental entity promises to make timely lease or mortgage payments through appropriations or specific revenue dedication.а Some redevelopment costs could be financed through the bond.

 

Advantages: Benefits pertain mainly to be the ability of local governments to proceed with land acquisitions or project construction when they do not wish to use condemnation powers or general obligation bonds, but have insufficient funds to make such purchases in a timely manner, particularly when land is threatened by potential development.а The revenue bonds are less often subject to voter approval than general obligation bond.

 

Limitations: Using a bond is always more complicated and expensive that an outright purchase.а Local support must exist to help ensure lease payments.

 

Reference for Further Information: The Trust for Public Land, Greensense: Financing Parks and Recreation, Spring 1997, Phyllis Myers, editor, San Francisco CA, Telephone: 800-714-LAND, Internet: http://www.tpl.org/tpl.

 

PRIVATE ACTIVITY BONDS

 

 

Description: УPrivate activityФ or УExemptФ is a term now used to describe industrial development and similar bonds which meet one of a number of test under federal tax law measuring private involvement in a bond financing.а The most commonly used definition includes bonds which meet both the private business use test and the private payment definition.а The private business use test is met when no more than ten percent of bond proceeds are used by entity other than a State or local government unit.а The private payment test is satisfied when no more than ten percent of debt service on the bonds is directly or indirectly paid or secured by a private entity.а Most of these restrictions flow from the 1986 Tax Reform Act.

 

Actual Use: State and local bonds meeting the definition of private activity bonds may be issued on a tax-exempt basis if issued for specifically identified purpose and a myriad of specific rules are satisfied.а Tax-exempt private activity bonds (qualified or exempt bonds) may be issued for the following purposes: airports; аdocks, and wharves; water andа sewerage, certain solid waste disposal, and qualified hazardous waste facilities; certain public housing; facilities for the furnishing of local electric energy or gas, local district heating and cooling facilities;а mass commuting and high-speed intercity rail facilities; certain improvements to hydroelectric generating facilities; student loans, certain redevelopment and industrial development activities; facilities for use by 501(c)(3) charitable organizations; and enterprise zone facilities.а In addition, small-issue IDBs may be issued to finance, manufacturing facilities and farming property.

 

Potential Use: Private activity bonds also could be used for financingа brownfields cleanup and redevelopment activities.

 

Advantages:а Qualified private activity bonds provide funding at tax-exempt rates of interest which should be lower than most alternative financing mechanisms.а Although interest on such bonds is exempt from the regular income tax, interest on the bonds (other than for bonds issued for 501(c)(3) charitable organizations) is an item of Уtax preferenceФ for purposes of the alternative minimum tax.

 

Limitations: Bonds meeting the definition of private activity bonds may only be issued on a tax-exempt basis if, among other requirements, room is available under the particular StateТs volume cap.а Federal law imposes a limit on qualified private activity bond issuance for each State of $50 per capita or $150 million, whichever is greater.а Private activity bonds issued for airports, docks, wharfs, municipally-owned solid waste disposal facilities, and facilities used by 501(c)(3) charitable organizations do not require a volume cap allocation.

 

Reference for Further Information: Heide, Susan C., Klein, Robert A., and Lederman, Jess, editors, The Handbook of Municipal Bonds, Probus Publishing, 1994.

 

аааааааааааааааааааааааааааааааааааааааааааааааааааааааааааа REVENUE BONDS

 

 

Description:а Revenue bond is a broad term used to describe bonds on which the debt service typicallyа is payable mainly from revenue generated from the operation of the project being financed, or from other non-property tax sources.а They may be issued by States or local governments, or by an authority, commission, special district or other unit created for the purpose ofа issuing bonds for facility construction, and typically are tax-exempt.а State Revolving Fund (SRF) bonds and private-activity industrial development bonds are types of revenue bonds, as are others which derive their basic characteristics from revenue bonds, such as mortgage lease-backed bonds.

 

Actual Use:а Revenue bonds now account for the clear majority of municipal bonds used to finance infrastructure in this country, including for water, sewer, and solid waste.а Issued by all levels of government, revenue bonds may be preceded by the creation ofа a special district defining the geographical boundaries, as well as a public authority issuing and responsible for the bonds.а Because the bond paymentа is secured mainly by the revenue pledge, additional covenants and mortgages may be used and feasibility studies required.а Bond interest rates may be slightly higher for revenue compared to general obligation bonds, and even higher for taxable revenue bonds.

 

Potential Use: These bonds may finance construction of any environmental facility which generatesа future payments from its use, such as user fees, tolls, concession fees, and rental or lease-back payments.

 

Advantages:а Revenue bonds have grown in popularity primarily because they are free from the requirements of general obligation bonds, which must be approved by voters, are subject to debt ceiling limitations, and may carry other restrictions covering principal and interest repayments.а In contrast, revenue bonds are issued by special authorities and districts,а created by local legislative bodies, and do not count against debt ceilings, although the national rating agencies take this into account in financial capability analyses. аRevenue bonds can be issued in a timely manner, and debt can be specifically structured to meet project needs.а Level annual debt payments ensure that future as well as present users of the new facilities will pay, thus enhancing equity.

 

Limitations:а For some jurisdictions, the issuance of revenue bonds is more complicated.а Inа New York, special revenue authorities must be created by the State legislature, and the State comptroller approves revenue bonds over a set amount.а Public authorities remove direct control over spending (including approval of user fees) from local legislative bodies.а Thus, political control is exercised indirectly via the appointment of board and authority members.а Some localities strongly resist the creation of revenue authorities and special districts.

 

Reference for Further Information: The Bond Market Association, Fundamentals of Municipal Bonds, Fourth Edition,а 40 Broad Street, New York, New York,а 10004, 1990.

 

SHORT-TERM MUNICIPAL BONDS

 

 

Description: Historically, the phrase Уshort-term municipalsФ referred toа short-term municipal bonds and to short-term securities known as notes.аа There are two main types of notes, anticipation notes and general obligation notes.аа Both types of notes are often used for the same purposes.а All of these instruments generally have maturities ranging from a few months to a few years, have fixed interest rates, and are issued in anticipation of a bond issue, grant proceeds, or tax collections.а

 

In the 1980s a new, broader class of Уshort-term municipalsФ were developed to address high interest rates and interest rate volatility -- and the resulting investor worries about fluctuations in the value of portfolios and issuer concerns about the increasing costs of borrowing capital.а These new Уshort-term municipalsФ are known as demand obligations or variable rate demand obligations.а They are based on a simple idea.а Governments issue long-term bonds, but they have yields determined as if they are short-term notes.а The bond holders can demand purchase of their bonds at par (the principal due at maturity) , plus accrued interest at regular predetermined intervals.а Bond demand periods can be daily, weekly, monthly, quarterly, semiannually, or annually.а In addition, the interest rate varies at predetermined intervals.ааа Tax-exempt commercial paper represents another new type of short-term instrument.а This is simply a short-term promissory note issued for up to 270 days.а It is often used instead of anticipation notes because of greater flexibility in determining and setting both maturities and rates.а

 

Actual Use:а State and local governments issue billions of dollars a year in Уshort-term municipalsФ of all types, traditional and new, to meet short-term capital needs for design and initial construction while waiting for long term funding revenues.а These short-term instruments are issued to fund many different activities.а Examples include housing and urban renewal, water and wastewater project start-ups, transportation projects, school district operations, and temporary agency operating deficits caused by seasonal variations in tax collections.аа

аа

Potential Use: Short-term municipals can be used to meet short-term gaps in project finance and operations when they occur, and until the final sources of funds become available.

 

Advantages: Short-term municipals bonds provide issuers with immediate funds for capital and operating needs.

 

Limitations:а Short-term municipals have higher interest rates and funding is temporary.

 

Reference for Further Information: Fundamentals of Municipal Bonds, Fourth Edition, issued by the The Bond Market Association, 40 Broad Street, New York, NY 10004-2373.

 

 

SPECIAL ASSESSMENT BONDS

 

 

Description:а Special assessment bonds are bonds issued by local governments and/or special authorities that are secured by some type of special taxes, charges, or fees.а The bonds are sold to finance specific public infrastructure improvements that directly benefit the property owners in limited, identifiable areas.а Assessments are levied on properties in the areas in direct relation to the benefits received from the projects.а The assessments are based on property measurement systems related to the benefits such as street front-footage or square footage owned.а The system for collecting assessments is usually tied to the collection of ad valorem property taxes.аа Most special assessment bonds have maturities of 15 years or less (see page 2A-21, Special Tax Bonds).

 

Actual Use: Examples of projects commonly funded by special assessment bonds include the construction maintenance, and/or repair of water and sewer lines, storm drains, sidewalks, roadways, and lighting improvements.а However, special assessment bonds have also been sold by communities and/or authorities to finance public improvement ranging from parks to bicycle paths to majorа landscaping work to parking lots.аа

 

Potential Use: аSpecial assessment bonds could be used more widely to finance local or even regional public-purpose projects that benefit specific areas.аа They could be anа excellent tool to fund projects that provide improved environmental services and benefits, especially ones that are community- and ecosystem-based.

 

Advantages: The great attraction of special assessment financing is that it is very equitable.а Only those individuals, private firms, and other groups who directly benefit from the specific public improvements through improved services, quality of life, and/or increased property values are responsible for paying for them.а

 

Limitations: аSpecial assessment bonds are normallyа used only for the construction of a project and not for maintenance, which can prove to be quite expensive in its own right over the long-term.а These bonds have speculative elements which can be mitigated through backup measures such as limited tax increase authority, utility revenue pledges, and cash flows.а Because only those who benefit from the projects must pay, these bonds may require high assessments which small and economically disadvantaged communities may not be able to afford.

аа

Reference for Further Information:аа Standard and PoorТs Municipal Finance Criteria, аStandard and PoorТs Corporation, 25 Broadway, New York, NY 10004.а Telephone Number: 212-208-1146.аа

 

 

аааааааааааааааааааааааааааааааааааааааааааааааааааааааа SPECIAL TAX BONDS

 

 

Description: A special tax bond combines some of the characteristics of both revenue bonds and general obligation bonds.а Such bonds, usually issued by local governments to finance a particular type of facility, are backed by the pledge of proceeds from a specific tax source.а However, they differ from УSpecial Assessment BondsФ described previously since tax rates are a flat percentage or rates as opposed to being proportional to the benefit being received from the new project by individuals paying the tax.

 

Actual Use: Special tax bonds have long been issued by highways authorities to finance highways, roads and bridges and are paid for out of highway taxes.а For environmental purposes, particularly the financing of parks and open space, localities recently have used special tax bonds financed out of local sales tax surcharges, or even property tax surcharges.а Such surcharges may be approved for a limited time period or to collect a specified amount of money.

 

Potential Use: The potential for environmental financing from special tax bonds is growing, particularly when used for local parks, nature facilities, greenways and trails, natural lands acquisition, and similar land-based projects.а This growth is primarily because ofаа the increased local popularity of such environmental projects.

 

Advantages: The advantages of special tax bonds are that they may have strong local support, in fact they have to be popular for a municipality to go through the steps of seeking State approval and local voter agreement to the special tax to begin with.а Community-based environmental protection is greatly enhanced by the use of these bonds.а Bond proceeds sometimes have been dedicated to local land trust to purchase natural lands on a revolving basis and have been further leveraged through State and private sector matching grants.а When the local sales tax is used, local residents benefit from non-residents paying the tax as well.а When taxes are temporary, to collect a fixed sum of money, the cost/benefit relationship is close.

 

Limitations: Gaining State and local agreement to tax add-ons is anything but a foregone conclusion, and often has proven impossible.а The taxes usually are highly regressive.

 

Reference for Further Information: See write ups in Section 1 on УProperty TaxesФ andа УLocal Sales and Use TaxesФ and in Section 8 on Community-Based Environmental Protection.а Special sales taxes are described in the Bond Markets AssociationТs Fundamentals of Municipal Bonds, Forth Edition, New York, 1990.

 

 

 

 

 

ааааааааааааааааааааааааааааа STATE REVOLVING FUND (SRF) REVENUE BONDS

 

 

Description: ааSRF revenue bonds are issued to expand, or leverage, loan funding sources for local projects which meet the eligible project criteria under the Clean Water and Drinking Water SRFs (CWSRF and DWSRF).а SRF tax-exempt revenue bonds, issued under the bond leveraging approach are secured first by local GO or revenue bond pledges as collateral and loan recipient repayments, and by SRF debt reserve funds underlying the revenue bond.а The two basic leveraging approaches used by SRFs are described in Section 3: Enhancing Credit, УSRFФBond LeveragingФ.а SRF revenue bonds also may be issued to provide for the required 20% State match to federal capitalization grants, and sometimes are issued on a taxable basis to avoid complicated arbitrage rebate requirements.а

 

Actual Use: To date, over half of the CWSRFs have bond leveraged their funds with SRF revenue bonds.а Typically this has occurred through bond pools, and over five CWSRFs have received AAA bonds rating.а Single issue revenue bonds may be issued to very large municipalities, such as New York City.а The bond leveraging approach has resulted in 2-3 times more loans being made in the near term compared to the direct loan approach, and has enable many CWSRFs to meet municipal wastewater treatment demands and thus fund other projects such as stormwater, solid waste landfills, and source water protection as well as estuary and agricultural non-point source improvements.а Several States already have leveraged their DWSRFs.а The SRF model has been adopted by Congress in the National Highway System Designation Act of 1995, which establishes a State infrastructure bank program for transportation projects, and has been discussed in Congress for school construction.

 

Advantages: Revenue bond leveraging allows for more projects to be funded in the near term compared to the direct loan approach.а Although SRF revenue bonds are issued at market rates, local borrowers receive loans at below market interest rates, subsidies provided in part by investments of the large bond debt reserve funds.а Because of their high asset to liability ratio, SRF revenue bonds are high quality credits and provide market access to borrowers regardless of their individual credit ratings.

 

Limitations: SRF borrowers must comply with national SRF program requirements, such as Davis Bacon and a limit of 20 years for loan repayments, unlike other revenue bonds which may extend to 30 years.а Bond leveraging over the long run does not result in loan repayment interest earnings to the SRF fund, unlike direct loans.

 

Reference for Further Information: Merrill, Lynch & Co., Guide to State Revolving Fund Revenue Bonds, by Christopher Mauro, December 1995.

 

STRUCTURED MUNICIPAL BONDS

 

 

Description: All municipal (State and local government) debt issues have a particular structure. However, the structuring of bonds has come to refer to new financing techniques and credit substitutions where the financing objectives of the issuer and the investment requirements of the purchaser can be achieved simultaneously.а In this context, structured municipal bonds can provide the issuer cash-flow oriented debt financing.а This approach uses loan pooling, cash flow allocation and credit enhancement to create multi-class municipal bonds with differing characteristics designed to attract investors with different needs.а Although federal tax and securities laws limit the nature of the application of structured financing techniques in the design of municipal bonds, the principles are clear.а Securitization of diverse municipal cash flows from various user fees, tax levies, and other payments is similar to residential mortgage-backed securities.а Structured municipal bonds rely on multiple tranches (pieces of an asset) for structuring principle and interest payments into different classes.а They also may have credit enhancements provided by letters of credit (LOC).а An example of structured municipals is a collateralized bond obligation (CBO), which is an asset-backed securityа with a portfolio of bonds as collateral.а The sponsor transfers the collateral into a special purpose vehicle, such as a trust or corporation, which has no other assets.а A typical CBO has more than one tier or tranche and the senior tranche has first claim on the collateralТs cash flows to cover itТs payments.а The junior tranche, which has more risk of default, has second claim.а The equity tranche claims the residual that is left over after satisfying all other claims against the underlying cash flow.

 

Actual Use: The structuring of pools of previously issued tax-exempt bonds has been practiced for some time now.а More recently, pools of municipal property tax liens have been securitized and sold with relatively high ratings.

 

Potential Use: Securitization of State Revolving Loan fund portfolios for sale to private investors increases the availability and lowers the cost of capital.а With securitization, loan repayments are

sold to a trust that finances the purchase by selling securities to investors.а Returns to investors in these securities could be structured by maturity, risk, and flow of funds priorities.

 

Advantages: Structured municipal bonds offer opportunities for more efficient means of raising capital for environmental projects.

 

Limitations: Structured debt transactions tend to be complex, reflecting the challenge of mitigating risk to investors while still providing financial benefits to the issuer.

 

Reference for Further Information:а Government Finance Officers Association, 180 N. Michigan Ave., Suite 800, Chicago, IL 60601; Phone: 312-977-9700; Fax: 312-977-4806; Standard and PoorТs Public Finance, Structured Finance Group, 25 Broadway, NY, NY 10004; Phone: 212-208-8000; Fax: 212-412-0475.аа Getting Secure by Jane Katz atа www.bos.frb.org/economic/nerr/katz97_3.htm.

 

TAX INCREMENT BONDS

 

 

Description:а Tax increment bonds, which differ slightly from special assessment bonds, are local tax-exempt bonds issued for special assessment or improvement districts where the benefit from the project being financed is specifically manifested through higher property values.а The tax increment financing, termed TIF, generates revenue for bond repayment from the incremental change in property values caused by the financed improvement.а After creating a special district, two set of tax records are maintained - one that reflects the property's value before the enhancement, and a second that reflects growing assessed values (and payments) after the enhancement and serves as the source of bond repayment.

 

Actual Use: аTIF has been most frequently for local urban redevelopment and sporting facilities, but water, stormwater and wastewater treatment have become more common uses in recent years.а For example, tax increment bonds for environmental improvements have been used frequently in rapidly growing States such as Florida and Arizona.а These bonds have not been used by States and, indeed, often are prohibited for State use by State constitutions.

 

Potential Use:а Tax increment financing could be used more widely for the acquisition of for park and open spaces, lake and estuarine protection, for recycling facilities and brownfields clean-up and redevelopment.а

 

Advantages:а TIF has the advantage of being able to define specifically the geographical boundariesа and benefits of an environmental improvement.а It ensures that those individuals or businesses actually benefitting from the improvement will help pay for it, thus increasing equity. TIF bonds for revitalization projects bonds may be backed by revenue pledges in addition to anticipated increases in property value, called "value capture", which makes them highly leveraged.

 

Limitations:а TIF requires the ability to pass local ordinances and create special financing districts, which often has proven difficult.а Tax increment bonds require effective administrative systems for property value tax accounting that may be costly and complicated to manage over time.а Property tax assessments are somewhat subjective since they are based on predictions, and assessments must be fully documented, subject to strict record-keeping, and periodically reassessed.

 

Reference for Further Information:а Report from The Governor's Panel, Financing Alternatives for Maryland's Tributary Strategies, University of Maryland Sea Grant College, University of Maryland Environmental Finance Center, August 1995.

 

 

 

OTHER

 

 

Description:а

 

 

 

 

 

 

Actual Use:а

 

 

 

 

 

Potential Use:а

 

 

 

 

Advantages:

 

 

 

 

Limitations:а

 

 

 

 

Reference for Further Information:а

 

 

 

 

 

 

 

 

ааааааааааааааааааааааааааааааааааааааааааа COMPARISON MATRIX FOR BONDS

 

 

Criteria/ Bond	Actual Use	Revenueа Sizeааааааа	Revenue Cost/ Savings	Admini-strativeаа Ease	Equity	Financialа Leverag-ing	Environ-а mentalааа Benefits
а Advanceааааааа Refunding	High	High	High	Low	Low	Mod.	Low
*Anticipa-аааа tion Notes	High	High	High	High	Mod.	High	High
аAppro-аааааааа priation-ааааа Backed	Low	Low- Mod.	Low	Mod.	Low	Mod.- High	High
аAsset- аBacked	Mod.	Mod.	Mod.	Mod.аааааа	Mod.	Mod.	High
аCapital аApprecia- аtion/Zero аCoupon	High	High	High	Mod.	Low	Mod.	Mod.
*Certifi- аcates of аPartici- аpatio/n	High	Mod.	Mod.	Mod.-High	High	High	Mod.- High
Derivatives	Mod-а а	High	High	Low	Low	Mod.-	Low
*Double- аBarrelа	Mod.	Highаааааааааааааааааааа	High	Mod.	Mod.	High	High
*General аObligation	High	аHighааааааааааааааааааааа	High	Low	Mod.	Low	High
аMandate	N.A.	N.A.	High	Mod.	High	Low	High
аMini/Baby	Low	Low	High	Low	High	Mod.	High

 

 

ааааааааааааааааааааааааааааааааааааааааааааа COMPARISON MATRIX continued

 

 

Criteria/ааа   Bond	Actualаа Use	Revenueаа Sizeаааааааа	Revenueаа Cost/ааааааа Savings	Admini-strativeааа Ease	Equity	Financialа Leverag-а ing	Environ- mentalа Benefits
аMoral аObligation	Mod.	High	Mod.	Mod.	Mod.	Mod.	High
аMortgage аLease - аBacked	Mod.	Mod.	Mod.	Mod.	Mod.	High	High
аPrivate аActivity	High	Mod. - High	High	Mod.	Mod.	Mod.	High
аRevenue	High	High	Mod.	Mod.	Mod.	Mod.	High
*Short-ааааааааа Term	High	High	High	Mod.	Mod.	High	High
*Specialаааааа Assessment	High	High	Mod.	Mod.	High	Mod.	High
*Specialааааааа Tax	Mod.	Low-Mod.	Mod.	Low	Mod.- High	High	High
*SRF а Revenue	High	High	High	Mod.	High	High	High
аStructured аMunicipal	Low	Mod.	Mod.	Low	Mod.	Mod.	Low
аTaxаааааааааааааа Increment	Low	Low	Mod.	Low	High	Mod.	High

 

High -а High Use (over 25 States, many localities or private sector); revenue over $2 billion annuallyа nationwide; criteria score well (low interest rates, straight forward, flexible, specific)

Mod. - Moderate use (10-25 States, many localities/private); criteria score in medium range

Lowа - Low or rare usage; criteria score poorly

 

*а Star indicates best rated mechanisms

2.B.а LOANS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2 B.а LOANS

 

 

Description: A loan is the temporary provision of a specific amount of funds up-front for an expenditure, that must be repaid in a set amount time, typically with interest.а The rate of interest is established prior to the loan or, in the case of commercial loans, determined through negotiations.а

Private loans, typically made by banks and other financial institutions, provide capital for a wide variety of environmental projects within a range of market interest rates.а Typically, larger and more financially secure customers receive the best interest rates, compared to smaller borrowers.а However, environmentally risky projects, such as those involving hazardous waste, also carry higher interest costs.а At present, commercial loans account for the largest portion of private sector capital financing and, depending on economic conditions, are a highly expandable source of funding.

 

Government loan programs provide capital funds to a select number of governments, non-profit organizations, and private businesses.а Like grants, government loans are made with very specific goals in mind, often are accompanied by specific mandates, may be less than 100% of total project costs, and are limited by legislatively appropriate dollar amounts.а Unlike commercial loans, government loans often are made available at subsidized (lower than market) interest rates for projects that meet eligibility criteria, or may be interest-free, e.g., some State Revolving Fund (SRF) loans.а Many government loan programs are targeted to small, economically distressed, and/or rural areas, which need the most assistance in acquiring project capital.а In general, small, disadvantaged borrowers receive the lowest interest rates, compared to the reverse for commercial loans.

 

The SRF program is clearly the largest government environmental infrastructure loan program available today, far surpassing and sometimes eclipsing other State loan programs.а While the SRF program is capitalized by a federal capitalization grant (like a block grant), it is presented in here as a State loan program.а With the exception of the federal Department of Agriculture and Small Business Administration (discussed in Section 10) loan programs, direct federal loan programs are few in number.

 

Advantages: Government loan programs frequently provide loans at lower interest rates than those that are available for commercial loan and bond financing.а Loans involves fewer and lower transaction costs than bonds, and may be acquired without voter approval.а Smaller, disadvantaged communities may fund government loans an easier and less costly route than bonds or commercial loans.а Moreover, loans from different sources may be co-mingled, including with grant funds.а Loans requiring matching funds are highly leveraged.а Both SRF and commercial loans are especially flexible as to application deadlines and cost overruns.

 

 

 

Limitations: Government loans are subject to the availability of approved funds, and competition between borrowers can be keen.а Such loans may carry onerous governmental mandates, such as SRF loans for which borrowers must comply with federal Уcross-cuttersФ such as Davis Bacon.а Most federal loans have complicated application procedures and deadlines.а Small, disadvantaged communities may be unable to borrow even at zero interest.а Other than SRF loans, government refinancing and short-term loans are rare, and recipients may not be able to finance pre-construction costs on their own.а Commercial loans, while widely available and much more flexible, generally will have higher interest costs than tax-exempt bonds.

 

Summary: Government loans, particularly SRF loans, are a large source of infrastructure capital, and monies appropriated for that purpose, and may carry specific government requirements and limitations.а Small, disadvantagedа communities receive the most favorable interest rate treatment, and primarily by the private sector are a large source of both construction and operating capital, and loan terms can be highly flexible and tailored to meet specific needs, including short-term needs.а However, commercial loans are expensive particularly for small projects.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIST OF LOANS

(In Alphabetical Order)

 

 

ааа 1.а Agriculture: Rural Business-Cooperative Service - Economic Development Loans

ааа 2.а Agriculture: Rural Housing Service - Community Facilities Loans

ааа 3.а Agriculture: Rural Housing Service - Housing Site & Self-Help Housing Land Development

а аааааааLoans

ааа 4.а Agriculture: Rural Utilities Service - Water and Waste Disposal Systems Loans

а *5.а CoBank (National Bank for Cooperatives Loan Program)

а *6.а Co-Funding

а *7.а Commercial Loans

ааа 8.а Direct Source (Equipment) Financing

а *9.а EPA: State Revolving Funds - Clean Water

*10.а EPA: State Revolving Funds - Drinking Water

а 11.а Federal Financing Bank

а 12.а Federal Loan Programs

*13.а North American Development Bank (NADBank)

*14.а Private Investment

а 15.а State Loan Programs

*16.а SRF Pre-Financing and Short-Term Loans

*17.а SRF Private Beneficiary Loans - Clean Water

 

 

 

 

 

 

 

 

*а Stars indicate most highly rated mechanisms as described in the Comparison Matrix at the end of the narratives.а See Introduction to the Guidebook for a description of the criteria used.а Ratings of УHighФ, УModerateФ, and УLowФ are for comparison purposes only, as some ratings are necessarily subjective and data are incomplete.

 

 

 

 

 

 

DEPARTMENT OF AGRICULTURE

RURAL BUSINESS-COOPERATIVE SERVICE -

ECONOMIC DEVELOPMENT LOANS

 

 

Description: These zero interest loans are used to promote rural economic development and job creation projects.а Loans may fund project feasibility studies, start-up costs, incubator projects, and other related reasonable expenses.а Eligible applicants include electric and telephone utilities with current rural electrification or rural telephone bank loans or guarantees outstanding.

а

Actual Use:а Examples of projects funded include the establishment or expansion of factories or businesses, medical facilities, water and sewer industrial development parks, business incubators for rural economic development activities, and other jobs projects.а Most of the environmental projects funded involve water or wastewater systems.

а

More than $12,275,000 in loans were obligated in Fiscal Year (FY) 1997 with assistance ranging from $10,000 to $750,000 and averaging $375,000.а Projected loan obligations for FY 1998 and 1999 are approximately $25 million and $15 million respectively.а Between May 1989 and September 30, 19976, 474 economic development loans totaling $83.2 million were made.аа

 

Potential Use: These loans could be used to help finance directly and leverage other capital for additional wastewater and drinking water utilities, and to fund non-point source improvements.а Depending on interpretation of authorizing legislation and regulations, they might also fund solid waste and waste-to-energy facilities, as well as brownfields cleanup and redevelopment.аа

 

Advantages: The loans are inherently equitable since they fund projects that would not otherwise be funded for an often needy segment of society.а Federal funding for this program has been relatively stable and loan application procedures are not difficult.

 

Limitations: The maximum loan amount is $750,000.а The maximum loan term is ten years at a zero interest rate.а Loan recipients must provide supplemental funds totaling 20 percent of the assistance received.а Environmental projects compete with many other types of projects for loans.

 

Reference for Further Information: U.S. Department of Agriculture, Rural Business - Cooperative Service, 14th & Independence Avenues, SW, Rm. 5405-South Building, Washington, D.C. 20250, Internet web site at http://www.rurdev.usda.gov/rbs/index.html.а Information on this loanа program can also be found in the Catalog of Federal Domestic Assistance and its World Wide Web site at http://aspe.os.dhhs.gov/cfda/ideptagr.htm.

 

 

DEPARTMENT OF AGRICULTURE

RURAL HOUSING SERVICE -

COMMUNITY FACILITIES LOANS

 

 

Description: The Department of AgricultureТs Rural Housing Service provides loans to help finance community facilities that provide essential services to rural residents.аа Eligible applicants include city, county, and State agencies; political and quasi-political subdivisions of States, associations and corporations; Tribes; and private nonprofit corporations.

 

Actual Use: These loans are used to build, enlarge, extend, or otherwise improve community facilities providing safety, transportation, community, social, cultural, and health benefits; industrial parks; access ways; and utility extensions.а They have been used to buy fire fighting equipment, renovate hospitals, and build rural health clinics, municipal buildings, and schools.а

 

In Fiscal Year 1997, 468 direct loans and 80 guaranteed loans were made totaling approximately $130 million and $64 million, respectively.а Direct loan amounts ranged from $50,000 to $2,500,000а and averaged $447,521.а Guaranteed loans ranged from $100,000 to $2,500,000 and averaged $905,594.а Rural Housing Service estimates for Fiscal Years 1998 and 1999 are for direct loans of about $206 million and $200 million and for guaranteed loans of $153 million and $210 million.

 

Potential Use: аDepending on interpretation of applicable legislation and regulations, these loans could be used to finance brownfields cleanup and reuse costs relating to the redevelopment of contaminated community facilities.а They might also be used to pay for encapsulating and/or removing asbestos during the renovation of community facilities.а Water and wastewater line extensions could potentially be funded using these loans.ааа аа

 

Advantages: These loans are at zero interest and targeted to areas that are often economically disadvantaged.а Equity and leveraging potentials are high, since State revolving funds, as well as HUD and EDA grants or loans, could be combined with these loans.

 

Limitations: Even with a zero interest rate, these loans must be repaid.а Assistance is limited to community facilities in rural areas.а The loans can be used to fund all development costs related to the community facilities, not just environmental costs. The competition for funding from the many different types of non-environmental projects is great.аа

 

Reference for Further Information:а U.S. Department of Agriculture, Rural Housing Service (RHS), 1400 Independence Avenue, SW, Washington, DC 20250, Telephone: 202-690-1727, RHS home page is on the World Wide Web at http://www.rurdev.usda.gov/agency/rhs/rhs.html.а Information on this loanа program is also available in the Catalog of Federal Domestic Assistance and its World Wide Web site at http://aspe.os.dhhs.gov/cfda/ideptagr.htm.

 

 

DEPARTMENT OF AGRICULTURE

RURAL HOUSING SERVICE -

HOUSING SITE & SELF HELP HOUSING LAND DEVELOPMENT LOANS

 

 

Description: The Department of AgricultureТs Rural Housing Service provides this assistance toа public or private non-profit organizations that provide developed housing sites to qualified borrowers in open country and towns with less than 10,000 people (or under certain conditions in areas up to 25,000 people). The housing sites must be sold on a cost development basis to low income families, cooperatives, nonprofit organizations, and public agencies.

 

Actual Use:а Loans are used to purchase and develop adequate housing sites in rural communities, including any needed equipment which becomes a permanent part of the development.а Loan funds may be used to pay for water and sewer facilities, if unavailable; needed engineering, legal fees, and closing costs; and landscaping and related facilities such as walks, parking areas, and driveways.а Three loans were made in Fiscal Year 1997 and loan obligations totaled $1,192,334.

 

Potential Use: The U.S. Department of Agriculture projects that this loan program will grow dramatically.а The Department estimates that loan obligations for Fiscal Years 1998 and 1999а will be $1,187,000 and $10,000,000 respectively.

 

Advantages: These loans could be more aggressively used to ensure that adequate water and wastewater (sewer) services are provided when housing is developed in lower population areas for use by low-income residents.

 

Limitations: Loans can be used to fund all development costs related to housing, not just for environmental facilities.а Land purchase costs eat up a significant portion of funds and there is competition for funds use for other non-environmental purposes. All housing developed with these loans must be used by low and very low income families in generally rural areas.а Finally, the program is a relatively small one.ааа

 

Reference for Further Information:а U.S. Department of Agriculture, Rural Housing Service (RHS), 1400 Independence Avenue, SW, Washington, DC 20250, Telephone: 202-690-1727, RHS home page on the World Wide Web is at http://www.rurdev.usda.gov/agency/rhs/rhs.html.а Information on this loan program can also be accessed in the Catalog of Federal Domestic Assistance and its World Wide Web site at http://aspe.os.dhhs.gov/cfda/ideptagr.htm.

 

 

 

 

DEPARTMENT OF AGRICULTURE --

RURAL UTILITIES SERVICE

WATER AND WASTE DISPOSAL SYSTEMS LOANS

 

 

Description: These loans provide assistance for meeting rural water and waste disposal needs.а Funds may be used to install, repair, improve, or expand water and waste disposal facilities.а Eligible applicants include political subdivisions of a State (municipalities, counties, districts and authorities), associations, cooperatives, nonprofit corporations, and federally recognized Tribes.аа

 

Actual Use: аProjects have included construction of water systems involving lines, wells, pumping stations, storage tanks and treatment plants; improvements to water systems such as new lines, wastewater facilities and booster pumps; renovation of water systems including distribution lines, wells and pressure tanks; construction of wastewater collection and treatment systems; replacement of wastewater plants and upgrade of collection lines; repair of wastewater lines and construction of lift stations; and purchase of landfill sites and trucks/equipment for solid waste disposal.а Loan obligations in Fiscal Year (FY)1997 totaled $480,000.а FYs 1998 and 1999 loan obligations are projected at $0 with program funds being limited to grant awards (see page 2C-15, Department of Agriculture -- Rural Utilities Service Water and Waste Disposal Systems Grants).

 

Potential Use: Loans could be used to acquire capital to finance additional wastewater, drinking water, and solid waste facilities.а Depending on interpretation ofа legislation and regulations, the grants might finance waste-to-energy and recycling facilities, and non-point source programs.аа

 

Advantages: Equity and leveraging possibilities are high, since State revolving funds, as well as HUD and EDA grants or loans, can be combined with these loans. State revolving funds can pre-finance these loans (and/or grants), thus covering up-front design and initial construction costs.

 

Limitations: Loans are paid out only after construction is completed.а Projects cannot service areas in towns of over 10,000 people.а Grants, as opposed to loans, are made only if needed to reduce user charges to a reasonable level, and only after loan funds are expended.а For a grant of up to 70 % of eligible costs, service area median household income must be below the poverty level or below 80%t of the State non-metropolitan median household income (whichever is higher).

а

Reference for Further Information:а U.S. Department of Agriculture, Rural Utilities Service (RUS), Stop 1548, 1400 Independence Ave., SW, Washington, DC 20250-1548, RUS home page is located on the World Wide Web at http://www2.hqnet.usda.gov/rus/water/programs.htm.а Information on the loans is also available inа the Catalog of Federal Domestic Assistance, and at the Catalog's Web site, http://aspe.os.dhhs.gov/cfda/ideptagr.htm.

 

 

 

COBANK

(NATIONAL BANK FOR COOPERATIVES LOAN PROGRAM)

 

 

Description:а CoBank is a federally-chartered and regulated private financial institution that serves the approximately 2,400 local, regional and national agricultural cooperatives and rural utilities systems across the country.а CoBank operates as a financial cooperative and is part of the Farm Credit System, a government-sponsored enterprise to assist agriculture and other business in rural areas. CoBank's customers capitalize the bank by providing equity capital based on borrowings.а Earnings of the bank are distributed in the form of patronage refunds based on loan usage.

 

Actual Use:а CoBank offers a broad range of flexible loan programs and specially tailored financial services.а For environmental projects, it provides long-term, interim, and refinancing loans at competitive rates to credit-worthy water and wastewater systems in unincorporated areas or communities with less than 20,000 people.а Loans issued by CoBank have terms extending up to 20 years, with fixed or variable interest rates.а In cooperation with CoBank also provides a cash investment service.а In cooperation with the National Association of Water Companies, CoBank operates a Small Loan Program that provides loans of $50,000 to $500,000 through a streamlined application process.

 

Potential Use:а Loans are available for interim construction or long-term financing of plant and equipment of water and waste disposal systems.а

 

Advantages:а CoBank is a national cooperative(s) bank with very competitive interest rates and flexible terms.а

 

Limitations:а Loan applicants must meet eligibility requirements (population of 20,000 or less) and a test of acceptable credit quality.а CoBank provides funding for many types of projects, not just environmental ones.

 

Reference for Further Information:а The U.S. EPA Environmental Financial Advisory Board (EFAB) advisory: Small Community Financing Strategies for Environmental Facilities, August 9, 1991 contains a description of the CoBank loan program.а EFAB can be reached via USEPAТs Environmental Finance Program at 401 M Street, SW, Washington, DC 20460, Mail Code: 2731R. Contact: Alecia Crichlow at crichlow.alecia@epa.gov.а For direct information on CoBank and applications for its loan programs, contact: CoBank National Bank for Cooperatives, P.O. Box 5110, Denver, CO 80217, Phone: 303-740-4051 or 1-800-542-8072.

 

 

CO-FUNDING

 

 

Description:а Localities may combine federal and State loans in the same project, including grant funded projects.а Project financing may be arranged by the locality or the State.а Co-funding opportunities are particularlyа applicable and advantageous to small communities, for wastewater, drinking water, nonpoint sources and other environmental projects.

 

Actual Use:а All States and many localities co-mingle sources of funds, both loans and grants.а One of the most prevalent uses is SRF-arranged wastewater project co-financing for small, disadvantaged communities.а This approach takes advantage of the SRFsТ flexibility to pre-finance loans prior to construction, which federal agencies cannot, as well as act as a financial coordinator.а For example,а Waverly, New York, facing a $2.7 million wastewater treatment plant and collection sewer project, qualified for a $900,000 SRF interest-free loan and received commitments from the federal Rural Utilities Service for a $1.3 million grant and $50,000 loan, and from HUD for a $400,000 grant.а With these commitments, the town obtained a short-term, interest free, $2.7 million SRF loan, which will be paid off by long-term SRF, RUS and HUD financing.аа Other federal dollars that could be combined in similar projects include economic development assistance grants, and State monies may be available from environmental bonds and legislative appropriations such as for solid waste.

 

Potential Use: The potential use of co-funding for environmental projects is large, especially, if an agency is willing to take the lead in organizing and harmonizing different funding sources, cyclesа and procedures.а This may require regular inter-agency meetings as done in New York.а It may be possible to pre-qualify applicants (which solves problems caused by different agenciesТ application time periods), and to consolidate or simplify individual grant/loan applications.а It is expected that the Drinking Water SRF program also will use the co-funding approach for small localities.

 

Advantages:а Co-funding can make project implementation possible, and increases access and equity for clients, particularly smaller communities.а The total number of communities that can be served is also increased.а Co-funding overcomes specific restrictions which apply to individual programs, for example, federal agencies rarely provided money up-front, and have funding restrictions (e.g., RUS rarely award grants over $1 million and loan interest rates do not vary with affordability factors; HUD grants are capped annually at $400,000).а Co-funding helps overcome uncertainties in individual agency annual budget fluctuations.

 

Limitations:а Co-funding may be beyond the ability of a single community to arrange, since financing procedures differ so radically and the application process is tedious.а Thus, without a lead agency at the State level to take charge, funding windows may close.а

 

Reference for Further Information:а Localities should consult State Self-Help programs, and Rural Community Assistance Programs, for more information.а

 

 

COMMERCIAL LOANS

 

 

Description: Most commercial banks and/or financial institutions in the United States have public finance departments that operate to provide State, local and other governments with loans to finance a wide variety of capital projects and purchases.

 

Actual Use: States and local governments tend to use commercial loans where lower-interest financing is unavailable and/or to fill short-term financing needs in anticipation of revenues from other sources (i.e., so-called bridge loans).а Commercial loans are usually provided at set costs keyed within a range of market-based interest rates.а

 

Commercial lenders such as banks are very low-risk lenders and usually seek to protect themselves and their loans by securing collateral in one or more of three ways: primary collateral in the form of assets (preferably liquid), secondary collateral such as guarantees, and cash flow.а For governments, some portion of future revenues or taxes often represents the ultimate security for commercial loans.ааа

а  ааа

Potential Use:а Commercial loans could also be used to finance privatized public-purpose environmental facilities and equipment that are ineligible for governmental bond financing, or for governments whose bonding capacity has been exhausted.а

 

Advantages:а The application process for commercial loans can be much faster than for government loan programs.а Commercial lenders usually have no set eligibility criteria in the way that government loan programs do and may have no predetermined limits on the total amount of loan capital available.

а

Limitations:а Generally, commercial loans have higher interest rates and less favorable payback terms than government-funded loan programs.а

 

Reference for Further Information:а Most commercial banks have public finance departments that will assist with inquiries on loan programs.аа Those that do not, can either handle inquiries from their general finance/loan operation or refer inquiries to bank that have public finance departments.

 

 

 

 

 

 

 

 

DIRECT SOURCE (EQUIPMENT) FINANCING

 

 

Description: With direct source financing the tax-exempt borrower receives equipment financing directly from the investor.а This approach tends to streamline the borrowing process, simplifying documentation and minimizing intermediary involvement.а In particular, it is not subject to the municipal securities disclosure requirements of Securities and Exchange Commission (SEC) Rule 15c2-12.а Certain large institutional investors have public finance arms which work with tax-exempt borrowers to design financing programs to meet specific equipment needs at tax-exempt interest rates with flexible payment terms.а Generally, reserve funds are not required and prepayment options are available throughout the term of the loan, rather than only on set call dates.а Public bond offerings generally involve a more time consuming documentation process as well as the obligation to provide both continual notices of material events regarding the securities and annual financial information.

 

Actual Use:а Equipment purchases are often accomplished with direct source financing, which is also called equipment financing.а However, leasing has proven to be a very competitive alternative financing technique (see page 4A-17, Tax-Exempt Lease).а Direct lenders often securitize equipment loans.

 

Potential Use: Direct source financing could be used to acquire equipment needed for environmental protection or production of environmentally friendly goods.

 

Advantages: Because it eliminates underwriter and rating agency fees, printing costs, and time-consuming documentation and disclosure processes, direct source financing can reduce front-end and total costs.

 

Limitations: Direct source financing is not practical for major facility projects, which require longer term funding due to the amounts needed.

 

Reference for Further Information: Government Finance Officers Association (GFOA), 180 North Michigan Avenue, Suite 800, Chicago, IL 60601, Phone: 312-977-9700; Fax: 312-977-4806,а Internet: www.gfoa.org. General Electric Capital Public Finance, 8400 Normandale Lake Boulevard, Suite 470, Minneapolis, MN 55437; Phone: 800-346-3164; E-mail: gecapinfo@corporate.ge.com; Internet address: www.ge.com/ capital/public/pf2.htm.

 

 

 

 

ENVIRONMENTAL PROTECTION AGENCY (EPA)

STATE REVOLVING FUNDS - CLEAN WATER

ааааааааааааааааааааааааааааааааааааааааааааааааааааааааааааааааааааааааааааа

 

Description:а Under Title 6 of the 1987 Clean Water Act, States receive federal monies to capitalize clean water revolving loan fund (CWSRF) programs.а States must provide a 20 percent match to the federal funds.а CWSRFs are authorized to make loans to localities to finance wastewater treatment facilities, nonpoint source pollution control activities and estuary program activities.а Loans are made at low interest rates (0 percent to market rate) for up to 20 years.а States can use loan funds to refinance previously executed debt obligations, guarantee local debt obligations, buy bond insurance for local debt obligations, or guarantee bonds issued by municipal and inter-municipal revolving funds.а States may use up to 4 percent of the federal funds for administrative costs. States may set the criteria for determining which municipalities can access the loans and other fund uses each year.а

Actual Use:а All States have CWSRFs, and they increasingly are making loans for non-traditional wastewater projects.а By mid-1997,fifteen States were funding nonpoint source pollution projects (including direct loans to farmers), six were funding stormwater projects, nine were funding landfill projects, five were funding septic system rehabilitation and replacement, six were funding estuary wetlands, stream restoration, and wellhead protection, many were funding sludge projects, and over half were funding combined sewer overflow projects.а Some States have already used their own funds to finance revolving funds to assist localities with various capital projects.а At least two States have made loans to acquire land or conservation easements to protect source water.

аа

Potential Use:а States are starting to apply the revolving loan fund concept to other media such as hazardous waste remediation, Superfund cleanups, brownfields redevelopment, biosolids reuse, highway and airport cleanups, and solid waste finance.а USEPA has indicated the potential eligibility of wetlandsа acquisition, watershed protection, habitat restoration, and other newа types of projects.а

Advantages: The CWSRFs are able to provide localities with extremely low-interest loans at favorable terms.а They can be considerably more flexible than commercial banks, as States can adjust interest rates and other loan terms to suit localities' ability-to-pay.а

 

Limitations: The competition among applicants for access to revolving loan funds is intense in some States.а Federal Уcross-cuttingФ requirements that apply in using CWSRF monies can increase project costs.а Some small communities may not be able to afford any loan.а Loan terms are limited to 20 years, although there have been proposals to extend them to 30 years.а

 

Reference for Further Information:а U.S. General Accounting Office: Water Pollution:а States' Progress in Developing State Revolving Loan Fund Programs, March 1991.а Ohio Water Development Authority, 1995 Annual SRF Survey. аU.S. EPA, Office of Water, Annual U.S. Clean Water SRF Assistance for Wastewater Treatment, 1997.

ENVIRONMENTAL PROTECTION AGENCY (EPA)

STATE REVOLVING FUNDS - DRINKING WATER

 

 

Description: The 1996 Safe Drinking Water Act Amendments authorize the funding of Drinking Water State Revolving Loan Funds (DWSRFs) to assist drinking water systems in financing the infrastructure costs of complying with the Act and to protect public health.а The DWSRFs provide low cost loans to publicly and privately owned water systems, as well as nonprofit non-community ones, for up to 20 years (30 years for small, disadvantageds).а Statesа provide a 20 % match, and may use 4% of federal funds for administration.а Refinancing (except for privates), loan guarantees, and principal subsidies (grants for small, disadvantageds) also are permitted.а Eligible projects include expenditures to upgrade or replace drinking water infrastructure, distribution or storage facilities, integral land acquisition, planning and design, and systems restructuring (e.g., regionalization).а Although States have considerable flexibility and may use up to 31% ofа federal capitalization grants in special set-asides, they must use 15% of that money for systems serving less than 10,000 people.а States also must take steps such as local capacity building programs to receive certain federal dollars.

 

Actual Use: By the end of 1997, all States had set up DWSRFs and most had begun making loans.а Because drinking water has never been funded to this extent, the demand has been very high.а Some SRFs, such as in New York, are taking advantage of provisions permitting the transfer of up to 33% of clean water capitalization grants to drinking water.а A number of States already have issued combined CW/DW bond pools to increase the pace of funding and to lower costs.

 

Potential Use: The DWSRF has great potential for pollution prevention. They are increasingly financing watershed protection andа land acquisition, as well as making conservation easement loans. The DWSRFs are still working out tax issues pertaining to leveraged loans for the private sector, and credit issues for private and small borrowers, for whom loan guarantees may be used instead.а

 

Advantages:а DWSRFs can support any local water system via low-interest loans and technical assistance.а Their funds are more flexible and less costly than commercial loans or private activity bonds.а They have great flexibility in directing funds to pressing compliance and public health needs.

 

Limitations: Competition for DWSRF money is intense.а Many federal restrictions apply to the program, such as cross-cutting requirements, planning and other work, and set-asides.а Some States still prohibit private and non-profit sector funding.а Operations and maintenance funding is banned.а Loans cannot finance growth or development (i.e., entirely new facilities), or dams.

 

Reference for Further Information:а U.S. EPA-DWSRF 1997 guidance, Office of Water, Office of Ground Water and Drinking Water, 401 M Street, SW, Washington, DC 20460, Mail Code 4601;а Phone: 202-260-5522;а Fax: 202-260-4383.а U.S. EPA Environmental Financial Advisory Boardа (EFAB) report, Funding Privately Owned Water Providers through the SDWA SRF, July1998.

 

FEDERAL FINANCING BANK

 

 

Description:а The Federal Financing Bank was established by Public law 93-224, the УFederal Financing Bank Act of 1973".а The purpose of the Act is to assure that federal and federally assisted borrowing programs are coordinated with federal economic and fiscal policies to reduce the costs of these borrowings, and to assure that they are financed in a way that least disrupts private financial markets and institutions.а Accordingly, the Bank is intended to be the vehicle through which most federal agencies finance programs involving the sale or placement of credit market instruments, including agency securities, guaranteed obligations and the sale of assets.а

 

Actual Use: The Bank borrows all funds from the Treasury and matches the terms and conditions of its borrowings to the terms and condition of its loans.а Obligations issued by the Bank are subject to federal taxation and are classified as exempt securities.а Since 1975, the Bank has lent funds at a rate one-eighth percent above the new issue curve of U.S. Treasury securities.а Federal agencies using the Bank have included the Departments of Health and Human Services, Defense, Housing and Urban Development, Agriculture (Rural Utilities Service), and Commerce; and the Export-Import Bank, the Resolution Trust Corporation, and the General Services Administration.а Federal Financing Bank obligations issued, sold or guaranteed by other federal agencies totaled $58.2 billion on December 31, 1996.

 

Potential Use: If EPA or other federal agencies sought and obtained the authority to issue environmentally-related securities to pay for their environmental activities, the Bank could be used to handle the financing.а Such securities might take the form of green or environmental bonds and might be used in a wide variety of programs including (but not necessarily limited to) brownfields cleanup and redevelopment, ecosystem and watershed protection, environmentally sustainable community development, and pollution prevention/recycling.

а

Advantages: When federal agencies use the Bank to finance activities instead of using general appropriations, this contributes to deficit reduction.а In addition, the use of the Bank is inherently a more sustainable way of financing agency activities.аа

 

Limitations: Use of the Bank would be more expensive in the immediate term, thus reducing the amount of assistance provided to program recipients or increasing the cost of that assistance.

 

Reference for Further Information: Federal Financing Bank, U.S. Department of the Treasury, 1500 Pennsylvania Avenue, NW, Washington, DC 20220.а Phone Number: 202-622-2470.

 

 

 

 

 

FEDERAL LOAN PROGRAMS

 

 

Description:а Federal loan programs generally lend funds to State or local governments or nonprofit organizations at fixed or variable rates of interest.а The loan programs exist to fund various types of activities and projects.а

 

Actual Use:а Generally, federal funds are lent for the purpose of financing a particular activity and/or facility in many areas, including environmental ones.а The scope of the federal funds' use for financing the activity and/or facility can be broadly or narrowly defined depending upon the governments desired role.

 

Potential Use:а Loan programs could feasibly be used to fund a broad number of environmental protection priorities and to leverage a considerable expansion in the long-term impact of federal environmental assistance.

 

Advantages:а Unlike grants, larger projects can be undertaken with loans, and subsequently the repaid capital and any interest can be relent to others for additional projects.а Properly managed loan program funds can be recycled indefinitely.а Many federal loan programs have very low interest rates and/or very favorable loan terms.

 

Limitations:а Some low income areas may find that they are unable to meet the repayment requirement for any type of loan assistance without imposing an undue economic hardship on their community.а Federal loan programs may require assistance recipients to meet specific eligibility requirements and/or a test of acceptable credit quality that may disqualify many communities, including even the most needy.

 

Reference for Further Information:а Information on the wide variety of federal loans and loan programs is available in the Catalog of Federal Domestic Assistance and on its World Wide Web site located at http://aspe.os.dhhs.gov/cfda/index.htm ‑ at which point there will be links to Programs listed by: Alphabetic Listing of Programs, Subject or Topic, Target or Beneficiary Group, Agency within Department, Independent and Other Agencies. There are also links to an Appendix with Agency Contact Information. The U.S. Department of Agriculture's Rural Business‑ Cooperative Service and Rural Utilities Service are examples of federal loan programs which may be applicable to small and disadvantaged communities.

 

 

 

 

 

 

NORTH AMERICAN DEVELOPMENT BANK

 

 

Description:а The North American Development Bank (NADBank) was created within the North American Free Trade Agreement (NAFTA) process.а Its principal purpose is to finance (primarily through loans) environmental infrastructure projects along the United States-Mexico border, with an emphasis on municipal solid waste management, wastewater treatment, and the supply of potable water.а The NADBank is equally capitalized by the governments of the United States and Mexico.а Ten percent of the NADBankТs capital is to be used for community adjustment and investment program development and financing.аа

 

Actual Use: The NADBank and its sister NAFTA institution, the Border Environmental Cooperation Commission (BECC), are still in the early stages of implementation.а The BECC, which must review, approve and refer proposed projects to the NADBank for funding, has developed the necessary criteria and begun to fulfill this responsibility.а The NADBank has announced financing packages for an $830,000 water supply and wastewater facility in Naco, Senora, and a $1.1 million wastewater plant for the Fraccionadora Industrial del Norta, S.A. (FINSA) industrial park in Matamoras, Tamaulipas.ааа

 

Potential Use: Growing populations and trade have increased stress along the border region between the United States and Mexico. The lack of regional infrastructure to handle these growth patterns manifests itself in large backlog of municipal, environmental and public health, transportation, and educational needs.а Accordingly, the region can absorb as many environmental projects as the BECC can certify and the NADBank finance.

 

Advantages: The NADBankТs strong private sector and loan orientations represent clear leveraging strengths, and enhances equity of access to loans for hard-to-finance projects.ааа

 

Limitations: Only projects certified by the BECC can be financed by the NADBank.а NADBank does not provide equity funding.а Many border communities may not be able to afford to repay loans in any form.а Projects financed by the NADBank must address environmental issues within 100 kilometers of either side of the United States-Mexico border.а NADBank capitalization may fluctuate in the future.

 

Reference for Further Information: аThe North American Development Bank (NADBank), 700 North MaryТs Street, Suite 1950, San Antonio, Texas 78205, Phone: 210-231-8000, Fax: 210-231-6232, Internet site at http://www.nadbank.org/.а

 

 

 

 

PRIVATE INVESTMENT

 

 

Description: Private investment is defined herein as loan and other financial assistance originating from sources other than commercial banks and/or finance companies.а Sources ofа private investment can include, but are not limited to, insurance companies, pension funds, venture capital funds, individual venture capitalists, corporation partners, general capital investors, and even family and friends.а

 

Actual Use: Private investment funds an overwhelming percentage of the new business start-ups in the United States each and every year.а The amount of such investment is not calculated in the hundreds of millions of dollars, but rather in the billions.а The entrepreneurial ventures funded with this private investment range across the entire spectrum of American private sector activities.а It includes, of course, the environmental goods and services sector as well as all environmental-related activities.

а

Potential Use:а The potential uses of private investment for supporting environmentally-related businesses and/or activities is only limited by the degree of profit associated with them.а If an idea or activity will make money, or if it even looks like it will, then private investment can be found to support it.

 

Advantages:а The application process for private investment can be much faster than for government loan programs and even faster than that for commercial loans.а Private investors usually have no detailed set eligibility criteria in the way that government loan programs do and may have no predetermined limits on the total amount of loan capital available.

 

Limitations:а Private investors will want a significantly higher rate of return on their money than will other sources of capital.а They may demand a significant piece of the business itself as a potential reward for risking their money.

 

Reference for Further Information:а Funding information on venture capital funds is available in directories such as, WhoТs Who in Venture Capital (third edition, 1986), published by John Wiley and Sons, Inc.а Many sources of information on venture capital and private investment are readily available on the World Wide Web and can be accessed using public search engines such as Lycos, Yahoo, Infoseek, Excite, etc.а See Section 10, Tools To Access Financing for Small Businesses and the Environmental Goods and Services Industry.

 

 

 

 

STATE LOAN PROGRAMS

 

 

Description: Numerous States have loan programs that provide assistance to localities forа financing infrastructure or other projects.а Many of these loan programs operate as revolving funds, meaning that the programs are at least partially financed by repayment of earlier loans.

 

Actual Use: аCurrently, seventeen States administer water-related programs independent of EPA- funded State revolving loan programs (SRFs).а The Washington Public Works Trust Fund operates as a revolving loan fund, providing low interest (1 to 3 percent) loans for critical public works projects.а Texas created a Water Development Fund to make loans to political subdivisions forа constructing dams, reservoirs, and water supply systems.а Among other programs, the Kentucky Infrastructure Financing Authority provides low cost loans for drinking water facilities.а Connecticut operates a loan program and voluntarily pledges loan repayments to the SRF. аSome States operate loan programs for landfills.

 

Potential Use:а State loan programs can be used to assist localities in financing environmental facilities.а In some cases, State programs might be able to enable project financing by providing subordinated loans for part of a project.а These loans would be the last to be repaid in the event of default, while any commercial investors who participated in the financing would receive their repayments first.а For example, if a solid waste facility needed $30 million in overall financing, and the private sector were willing to come up with $15 million, a subordinated loan from a State loan program could fill the gap.а The private sector would have the assurance that it would be the first loan repaid in the event of default, and that the entire project would be fully financed.а

 

Advantages: They can often provide low interest loans with favorable terms.а States can target investments to specific project types, encouraging localities to build particular facilities.аааа

 

Limitations: Loan programs may have significant start-up costs; need a source of revenue for capitalization.аааа

 

Reference for Further Information: Council of Infrastructure Financing Authorities (CIFA), Washington, DC, CIFA Monograph No. 8: State Revolving Loan Fund Survey, by the Ohio Water Development Authority, May 1996.а Washington Department of Community Development, Public Works Trust Fund 1992 Priorities Legislative Report, 1992, describes the Trust Fund's revolving fund program.а Government Finance Research Center (GFRC), Government Finance Officers Association (GFOA), Credit Pooling to Finance Infrastructure: An Examination of State Bond Banks, State Revolving Funds and Substate Credit Pools, September 1988.

 

 

STATE REVOLVING LOAN FUND PRE-FINANCING AND SHORT-TERM LOANS

 

 

Description:а аSome State Revolving Fund (SRF) clean water loan programs make short-term loans for planning, design and initial construction in localities which may be later receive long-term SRF loans.а Some SRFs pre-finance the loans or grants of other federal and State programs which pay on a reimbursement or other less timely basis.а SRF pre-financing loans have been used for Rural Utility Service wastewater loans (paid out after construction is completed), HUD wastewater grants (paid on a cost-incurred basis), and specifically authorized State loans and grants, such as for landfill closure and hazardous waste site clean-up.а SRF pre-financing loans may be taken out later by federal or State payments, in whole or in part, based on specific SRF funding choices.

 

Actual Use:а A few SRFs , such in New York, are making short-term, no-interest, clean water loans to regular clients for design and initial construction costs.а Others, such as in Texas and Wisconsin, regularly pre-finance other grants or loans, and in theory, most States could do likewise.а The Texas SRF uses variable interest rates when pre-financing other loans.

 

SRF pre-financing and short-term financing depend on the availability of funds and management decisions.а For example, since the New York SRF makes some non-point source landfill-related loans,а it can pre-finance State landfill grants and loans provided for under a recent environmental financing bond act.а The extent of SRF pre-financing also depends on the degree and quality of SRF coordination with other program funders.а

 

Potential Use: Since SRFs usually offer prompt funding and seek a wide range of clients by offering one-stop-shopping financing services, pre-financing possibilities are large.а Drinking water SRF loans also may be used to pre-finance other federal or State drinking water loans or grants.а States like New York are moving to a common, simplified loan application form, and federal and State funders meet regularly to review joint projects.

 

Advantages: Prompt up-front funding increases the chances that facility construction will move forward in a timely way, or at all.а It enhances equity for smaller communities which may not have the resources to plan, design and construct facilities while waiting for reimbursement.а SRFs can sometimes fund design work or land acquisition which other federal or State programs cannot.

 

Limitations: Successful SRF pre- and short-term financing depend on State-specific factors, such as coordination with other agencies, flexibility and/or breadth of funding choices, availability of funds, and State priority lists.а If SRF managers are unaware of the intentions of other agencies, or if funding cycles and loan procedures differ greatly,а pre-financing opportunities may be limited.

 

Reference for Further Information:а New York State Environmental Facilities Corporation, 50 Wolf Road, Room 547, Albany, NY 12205; Phone: 518-457-4100;а Fax: 518-485-8773.

аSRF CLEAN WATER PRIVATE BENEFICIARY LOANS

 

 

Description:а The Clean Water SRF program (CWSRF) for wastewater is statutorily limited to publicly-owned projects only, unlike the Drinking Water SRF (DWSRF) program which erases the distinction between the public and private sectors.а However, on occasion loans have been made through a municipal lease arrangement that allow private sector use of the funds, as defined under the federal tax code.а Under this arrangement, the SRF makes a loans to a publicly-owned entity, State or municipal, which has leased a facility to the private sector.а The private project is not part of a shared municipal facility.а The public entity acts as a conduit for loan funds to the private beneficiary, who makes lease/loan payments to the public entity through an operating lease or service agreement.а The private party serves as the first source of loan repayment.

 

Actual Use:а The New York SRF has made two CWSRF loans to private beneficiaries, including a food processing wastewater treatment facility and a proposed newspaper recycling facility. The funds used for CWSRF private beneficiary lending, called economic development loans,а are derived only from SRF "retained earnings", comprised ofа direct loan interest repayments and investment earnings on recycled dollars, as opposed to federal capitalization grant dollars.а Thus, the number of such loans is automatically capped by the amount of retained earnings annually, over $60 millionа in New YorkТs case.аа Loans may be made at taxable interest rates to retain the option of refinancing on a leveraged loan pool basis, i.e., so as not to compromise the tax-exempt status of the pool.

 

Potential Use:а The potential uses of CWSRF loans to private beneficiaries is large, and could fund brownfields, solid waste and nonpoint source projects as well as standard wastewater facilities.а

 

Advantages: аIn terms of the environmental benefits achieved, there is no difference between the public and private sectors.а Accessibility to financing and equity considerations are enhanced by extending SRF loans to private beneficiaries, as is authorized under the DWSRF program.аа Becauseа SRF interest subsidies typically are offered, SRF loans are less expensive than the alternative of tax-exempt private activity bonds or commercial debt, and the uncertainty of accessing State volume cap is eliminated.а Including such projects in bond pools further may reduce costs to private borrowers.

 

Limitations:а Loan repayments are directly dependent on the economic health of the private beneficiary.а Thus, CWSRFs considering this option must examine carefully the credit of the private beneficiary.а Policies and procedures most be adopted to ensure the publicly-owned projects ready for funding are not sacrificed by excessive private beneficiary funding, and that SRF solvency is not affected.а Direct competition on priority lists between the public and private sectors would be opposed by the private sector, and circumvent the statutory mandate of the CWSRF.

 

Reference for Further Information:а SRFs should consult their EPA Regional Offices before undertaking private beneficiary loans.а

 

 

OTHER

 

 

Description:

 

 

 

 

Actual Use:

 

 

 

 

Potential Use:а

 

 

 

 

Advantages:

 

 

 

 

 

Limitations:а

 

 

 

Reference for Further Information:а

 

 

 

 

 

 

 

 

 

 

 

COMPARISON MATRIX FOR LOANS

 

 

Criteria/     Loan	Actualааа Use	Revenueа Size	Revenueа Cost/ааааааа Saving	Admini-strativeааа Ease	Equity	Finan-cialаа Lever- agng	Environ-mentalаааа Benefits
аAgriculture: аRB-CSаааа аEconomic аDevelopment	Low	Low	Mod.	Mod.	High	High	Low-ааааааа Mod.
аAgriculture: аRHS аCommunity аFacilities	Low	Low	High	Mod.	High	High	Low
аAgriculture: аRHS Housingааа Site & Self- аHelp Housing	Low	Low	Mod.	Mod.	High	Mod.	Low
аAgriculture: аRUS Water/ аWaste аDisposal	High	Mod.	High	Mod.	High	High	High
*Co-Bank	Mod.	Low	Mod.	Mod.	High	High	High
а Co-Funding	Low	Low	High	Low - Mod.	High	High	High
*Commercial а Loans	High	High	Low	High	Low	Mod.	High
*Direct а Source а Financing	High	High	Mod.	High	Mod.	High	High
*EPA: SRF аWastewater	High	High	High	Mod.-аааааа High	High	Mod.	High

 

 

COMPARISON MATRIX continued

 

 

Criteria/ааа     Loan	Actualа Use	Revenueа Size/ааа Stability	Revenueа Cost/ааааа Savings	Admini-strativeаа Ease	Equity	Finan- cialа Lever- aging	Environ-mentalааааа Benefits
*EPA: SRF а Drinking а Water	High	High	High	High	High	Mod.	High
а Federal а Financing а Bankааааа	Low	High	Low - Mod.	Mod.	Mod -High	Low	Low
а Federal а Loan а Programs	Low	Low	Mod.	Low	Mod.	Mod.	Low
*NAD-Bank	Low	Low	Mod. -аааааа High	Low -аааааа Mod.	High	High	High
*Private а Investment	Mod.	Mod. -High	Low	High	Low	High	High
а State Loan а Programs	Low	Low	Mod.	Mod.	Mod. - High	Mod.	High
*SRF Pre-аааа аааFinancing	Low	Low	High	Low-ааааааа Mod.	High	Mod.	High
а*SRF CW аа Private аа Beneficiary	Low	Low	High	Mod. - High	Mod.	High	High

 

High - High use (over 25 States, many localities/private sector); criteria score high (low cost, accessible, flexible, project specific)

Mod.- Moderate use (10-25 States, many others); criteria score in medium range

Low - Lowа or rare use (under 10 States, few localities and private sector); criteria score poorly

 

*а Star indicates best-rated mechanisms

2.C. аGRANTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2.C.а GRANTS

 

 

Description:а A grant is a sum of money awarded to an eligible entity without a demand for repayment.аа Typically, grants are awarded by the federal government to State or local governments, or by States to local governments, for the purpose of financing a particular activity or facility.а The grant award represents a monetary transfer payment from one organization to another for a purpose deemed necessary or desirable by the awarding organization.ааа Grants also can be made by or to the private sector, particularly non-profit organizations.а Matching grants, for example,а on a one-to-one basis, are now being used both the public and private sectors.

 

Advantages:а The primary advantage of grants is that State and local governments and other eligible recipients do not have to use their own resources to pay the specific eligible costs that the grant monies cover.а In cases where grant recipients do not have the needed resources, grants enable valuable work to move forward.а In other cases, grants make it possible for recipients to pursue additional environmental and/or other activities or to forgo expenditures entirely.аа Grants can be highly equitable when they address affordability concerns, and may be the only way that some recipients, such as smaller communities, can proceed.аа Furthermore, grants can leverage additional resources through matching funds.

а

Limitations:а Applying for grants can be costly, time-consuming, and problematical.а It requires trained staff on the part of the grantee to determine grant opportunities and submit often detailed grant applications.а These grant applications can often take months for the awarding organizations to process and award.а Even then, due to the intense competition at both the State and the local levels for the limited pool of grant funds, State and local governments and other recipients may find it increasingly difficult to acquire funding for many projects.а

 

Due to grant project eligibility limitations, only a percentage of the total project costs may be eligible for project assistance.аа Providing matching funds, often ranging from 5 to 50 percent, may be difficult.а Even when grant funding is approved, the grantee may need to seek short-term debt instruments to cover cash shortages while awaiting the arrival of the funds.а

 

Grant funds often have conditions that affect the scope, intent, nature or cost of the project or program in question.а For example, USEPA Section 105 grants are negotiated grant agreements which obligate State air programs to use the funds to perform certain activities that may or may not coincide with the State's own priorities for its air program.а Certain grant conditions, such as mandatory grant reviews and production of detailed reports, may increase the overall cost of the project.а Most federal grants also require that grantees comply with other federal laws and regulations regarding a range of factors such as wage rates, anti-discrimination and environmental requirements.а In recent years, grant funding has been increasingly unstable, making it difficult to plan ahead.

 

Summary: Grants remain the cheapest way for grant recipients to fund environmental work, and may be the only way to get a project moving, particularly those of smaller, disadvantaged entities.а Federal grants are still the largest source of environmental grant monies compared to States, communities, and then non-profit sector.аа Grants clearly demonstrate the federal commitment specific environmental priorities.а However, federal grants have many limitations.а These grant monies tend to be unstable, slow-moving, highly competitive, and not readily expandable, compared to other financing tools such as bonds.а Because of the large number of different federal grants and constantly changing requirements, grants are not summarized in a Comparison Matrix at the end of the section.а Potential grant recipients should, and need to, consult the Catalogue of Federal Domestic Assistance available from the U.S. General Services Administration.а The catalogue also can be accessed electronically on the World Wide Web at http://aspe.os.dhhs.gov/cfda/index.htm.аа The catalogue has its own one-page write-up in the Guidebook in Section 5.B. Electronic Services at page 5B-5.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIST OF GRANTS

(In Alphabetical Order)

 

а 1.а Agriculture:а Forest Service Ца Cooperative Forestry Assistance

а 2.а Agriculture:а Forest Service Ца Economic Action Programs

а 3.а Agriculture:а Forest Service Ца Landowner Assistance Programs

а 4.а Agriculture:а Forest Service Ц Urban and Community Forestry Program

а 5.а Agriculture:а NRCS Ц Environmental Quality Incentives Program

а 6.а Agriculture:а Rural Business-Cooperative Service Ц Business Enterprise Grants

а 7.а Agriculture:а Rural Business-Cooperative Service Ц Economic Development Grants

а 8.а Agriculture:а Rural Utilities Service Ц Distance Learning and Telemedicine Grants

а 9.а Agriculture:а Rural Utilities Service Ц Water and Wastewater Disposal Systems Grants

10.а Appalachian Regional Commission Supplemental Grants

11.а Commerce:а EDA Ц Public Works and Infrastructure Development Grants

12.а Commerce:а EDA Ц Special Economic Development & Adjustment Assistance Grants

13.а Commerce:а NOAA Ц Coastal Services Center Cooperative Agreements

14.а Commerce:а NOAA Ц Coastal Zone Management Administration Implementation Awards

15.а Defense: Army Corps of Engineers Ц Civil Works Projects

16.а EPA:а Program Grants

17.а EPA:а Performance Partnership Grants

18.а EPA:а Sustainable Development Challenge Grants

19.а EPA:а Environmental Education and Training Grants

20.а EPA:а Environmental Justice Grants to Small Community Groups

21.а EPA:а Environmental Monitoring for Public Access & Community Tracking Grants

22.а EPA:а Section 319 Nonpoint Source Pollution Control Grants

23.а EPA:а Superfund Technical Assistance Grants

24.а EPA:а Underground Storage Tank Trust Fund Program Grants

25.а EPA:а Wetlands Protection Development Grants

26.а Environmental Technologies Initiative

27.а FEMA:а Flood Mitigation Assistance

28.а FEMA:а Hazard Mitigation Assistance

29.а Foundation and Corporate Giving

30.а HUD:а CDBG Ца Economic Development Initiative Grantsа

31.а HUD:а CDGB Ца Entitlement Grants

32.а HUD:а CDGB Ца Small Cities Program Nonentitlement Grants

33.а HUD:а CDGB Ца StatesТ Grants Program Nonentitlement Grants

34.а Interior:а Fish and Wildlife Service Ц National Coastal Wetlands Conservation Grants

 

 

 

 

LIST OF GRANTS Continued

 

 

35.а Interior:а Fish and Wildlife Service Ц North American Wetlands Conservation Act Grants

36.а State Grant Programs

37.а State Revolving Fund Drinking Water Principal Subsidies

38.а Transportation:а Federal Transit Administration Ц Livable Communities Initiative

39.а Transportation:а Transportation Equity Act for the 21^st Century (TEA-21)

 

 

 

[Special Note: We received a writeup for an innovative new grant tool after this section was completed.а Please see the write-up for the Clear Air Partnership Fund in Appendix A onа page A-4.]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

а

 

 

 

 

 

 

 

 

 

 

 

DEPARTMENT OF AGRICULTURE -- FOREST SERVICE

COOPERATIVE FORESTRY ASSISTANCE

 

 

Description:а Cooperative Forestry Assistance provides formula grants to State forestry agencies to assist in the advancement of forest resource management with respect to non-federal forests and other rural lands.а Among the programТs objectives are encouragement of the production of timber, control of insects and diseases affecting trees and forests, control of rural fires, improvement and maintenance of fish and wildlife habitat, planning and conduct of urban and community forestry programs, and efficient utilization of wood and wood residues, including the recycling of wood fiber.а State agencies can use the assistance to provide funds to owners of non-federal lands, rural communities, urban municipalities, nonprofit organizations, and State and local agencies for programs which help to achieve ecosystem health and sustainability by improving wildlife habitat, conserving forest land, reforestation, improving soil and water quality, preventing and suppressing damaging insects and diseases, wildfire protection, expanding economies of rural communities, and improving urban environments.

а

Actual Use:аа In Fiscal Year 1997, cooperative forestry grant obligations totaled $91,629,000, with individual grant amounts ranging from $25,000 to $6 million.а Almost sixteen thousand landowners and 2.15 million acres were enrolled in forest stewardship programs.а Approximately 1,800 rural and 8,000 urban communities were being assisted.

 

Potential Use:а State forestry agencies can support a wide range of environmental protection and enhancement activities.а Sound forestry practices can be essential to watershed protection and preservation of streams, lakes and wetlands. The Forest Service estimates that program grant obligation totals in each of Fiscal Years 1998 and 1999 will be about $104,000,000. The Service projects that more than 4,000,000 acres will be enrolled in forest stewardship programs by the end of the year 2000.

 

Advantages:а This program provides State forestry agencies with resources they would not otherwise have to promote and support environmental protection and remediation.

 

Limitations:а Some cooperative forestry assistance is restricted to owners of non-industrial private forest land.

 

Reference for Further Information:а Contact U.S. Department of Agriculture, Forest Service, State and Private Forestry Division, Cooperative Forestry Staff, P.O. Box 96090, Washington, DC 20090-6090, Telephone:а 202-205-1657,а Fax: 202-205-1174, Internet: аwww.fs.fed.us/spf/.

 

 

DEPARTMENT OF AGRICULTURE -- FOREST SERVICE

ECONOMIC ACTION PROGRAMS

 

 

Description:аа The Economic Action Programs framework under Cooperative Forestry Assistance includes a set of programs aimed at helping communities to diversify and strengthen their local economies through a whole range of forest-based resources.а It focuses on integrating economic development and environmental protection concerns in the context of sustainable community development goals.а The three major program components are Rural Community Assistance, Forest Products Conservation and Recycling, and Market Development and Expansion.а Rural Community Assistance focuses on helping the whole community capitalize on available local human and natural resources to improve the quality of life and the social and economic situation.а Communities are helped to organize, plan, and implement actions that are community-based, comprehensive, and partnership oriented.аа Forest Products Conservation and Recycling encourages and facilitates more efficient use of forest resources to enhance economic development and promote better stewardship of the forest resource.а Emphasis is on stimulating public and private sector innovation.а Opportunities include new uses for wood and other forest based resources through recycling and value-added secondary manufacturing, and alternative goods and services.а Market Development and Expansion is meant to strengthen local and regional economies through the creation of domestic and international markets for forest resources.

 

Actual Use: The Michigan Forest Management Division emphasizes employment retention through sustainable economic activities in the forest products industry. The New Mexico Forestry Division has initiated a forest health/rural wealth partnership to assist forest-based communities to utilize forest products in ways that help improve the health of forest ecosystems.

 

Potential Use: State foresters can promote conservation and recycling of forest resources in conjunction with the production and marketing of environmentally friendly goods.

 

Advantages:а Economic Action Programs focus on integrating economic development and environmental protection concerns.а They can help organize diverse community interests for renewable resource based economic development and conservation.

 

Limitations: State forestry agencies must participate meaningfully in the program if it is to provide needed environmental assistance while promoting forest-based economic development.

 

Reference for Further Information: U.S. Department of Agriculture, Forest Service, State and Private Forestry Division, Cooperative Forestry Staff, P.O. Box 96090, Washington, DC 20090-6090, Telephone: 202-205-1657, Fax: 202-205-1174, Internet: www.fs.fed.us/spf/.

 

 

DEPARTMENT OF AGRICULTURE -- FOREST SERVICE

LANDOWNER ASSISTANCE PROGRAMS

 

 

Description:аа Cooperative Forestry Assistance includes technical and financial assistance to help private landowners create sustainable forest land management plans and implement their forest stewardship objectives.а The Forest Stewardship Program (FSP) uses cooperative agreements with State forestry agencies to deliver professional natural resource management advice to non-industrial private forest (NIPF) land owners.а It provides technical and planning guidance to landowners who agree to maintain the land under a detailed natural resource management plan for at least ten years.а A completed Forest Stewardship plan is required of landowners seeking cost share assistance via the Stewardship Incentives Program (SIP).а This program supports a wide range of forest management activities to develop and implement Forest Stewardship plans.а Eligible activities beyond plan development include reforestation and afforestation, forest and agroforest improvement, soil and water protection and improvement, riparian and wetland protection and improvement, fisheries habitat enhancement, wildlife habitat enhancement, forest recreation enhancement, and windbreak and hedgerow establishment, maintenance and renovation.а Preference is given activities designed to attain multiple objectives, such as forest and agroforest improvements which enhance wildlife habitat or create recreation opportunities.а Federal reimbursement of approved landowner expenses may be up to 75%, to a maximum of $10,000/year, in exchange for landowner agreement to maintain and protect SIP-funded practices for at least ten years.а The Forest Legacy (FL) Program supports State acquisition of partial interests (e.g., conservation easements) in privately owned forest lands to restrict development of environmentally sensitive areas.

 

Actual Use:аа Landowner assistance programs have been a basic component of cooperative forestry and typically involve thousands of landowners and millions of acres.

 

Potential Use:а аThese programs can improve environmental management of privately owned non-industrial forest land and can induce landowners to replant and maintain private forests.

 

Advantages:аа Federal funds help states provide otherwise unaffordable technical assistance and cost sharing to private land owners.

 

Limitations:а Participation by private forest owners is voluntary and the limit on federal reimbursement reduces the attractiveness of the program while program accomplishment standards may promote emphasis on larger parcels within the pool of eligible lands.

 

Reference for Further Information:аа U.S. Department of Agriculture, Forest Service, State and Private Forestry Division, Cooperative Forestry Staff, P.O. Box 96090, Washington, DC 20090-6090, Telephone: 202-205-1389, Fax: 202-205-1271, Internet: www.fs.fed.us/spf/.

аа

 

 

DEPARTMENT OF AGRICULTURE -- FOREST SERVICE

URBAN AND COMMUNITY FORESTRY PROGRAM

 

 

Description: The Urban and Community Forestry Program is implemented through Forest Service Regional/Area Offices working with State Foresters and key cooperators such as Soil and Water Conservation Districts, state forestry associations, and city foresters/arborists.а Each State Forester is required to establish a State Urban Forestry Advisory Council and a full-time Urban and Community Forestry coordinator position.а The State advisory councils recommend program and funding priorities and assist the State foresters in preparing State Urban and Community Forestry Strategic Plans.а Projects must include community volunteerism as a major element and must have the objective of solving some specific, described problem.а States may use no more than twenty percent of their annual funding for purchasing, planting, or maintaining trees in communities.а Direct funding grants for the purchase and planting of trees or for maintenance activities are on a 50/50 matching basis.

 

Actual Use:а The Ohio Department of Natural ResourcesТ Division of Forestry works with the Ohio Environmental Protection Agency and Attorney GeneralТs Office to use air pollution fines for pass-through grants to communities for targeted tree planting projects.

 

Potential Use:а State forestry agencies can support restoration of urban watersheds and help preserve forest lands threatened by residential and commercial growth, in coordination with related environmental projects.

 

Advantages:а The program explicitly promotes ethnic and cultural diversity in urban and community forestry efforts.

 

Limitations:а Grants to communities and nonprofit urban forestry organizations require a 50% match, potentially eliminating participation by low-income communities.

 

Reference for Further Information: U.S. Department of Agriculture, Forest Service, State and Private Forestry Division, Cooperative Forestry Staff, P.O. Box 96090, Washington, DC 20090, Telephone: 202-205-1389, Fax: 202-205-1271, Internet: www.fs.fed.us/spf/.а Ohio Department of Natural Resources, Division of Forestry, 1855 Fountain Square Court, Columbus, Ohio 43224, Telephone: 614-265-6694, Internet: www.hcs.ohio-state.edu/ODNR/Forestry.htm.

 

 

 

DEPARTMENT OF AGRICULTURE --

NATURAL RESOURCES CONSERVATION SERVICE (NRCS)

аааааааааааааааааааааааааа ENVIRONMENTAL QUALITY INCENTIVES PROGRAM

 

 

Description:а The Environmental Quality Incentives Program (EQIP), authorized by the Federal Agricultural Improvement and Reform Act of 1996, is a single, voluntary conservation program, that replaces the Agricultural Conservation Program, Agricultural Water Quality Incentives Program, Great Plains Conservation Program and Colorado River Basin Salinity Control Program.а It provides technical, financial, and educational assistance to farmers and ranchers through the NRCS.а In line with maximizing the overall environmental benefits, the NRCS may designate a watershed, an area or a region of special environmental sensitivity as a priority area and give special consideration to applicants who have conservation plans that address the natural resource concern(s) for which the priority area was designated.а Half of the programТs assistance is targeted to livestock-related natural resource concerns and half to general conservation priorities.а It includes cost-share assistance for up to 75% of the cost of conservation practices such as grassed waterways, filter strips, manure management facilities, capping abandoned wells, and wildlife habitat enhancement.а Incentive payments can be made for up to three years to encourage livestock and agricultural producers to adopt land management practices such as nutrient, manure, irrigation water, wildlife, and integrated pest management.а Total cost-share and incentive payments are limited to $10,000 per person per year and $50,000 for the contract term of 5 to 10 years.а Cost-sharing assistance may not be given to construct animal waste storage or treatment facilities serving large confined livestock operations.

 

Actual Use: In Fiscal Year 1997, EQUIP made $171,000,000 in grants and provided $5,066,644 in educational assistance.а The NRCS estimates that EQUIP will make $156,000,000 and $174,000,000 in grant obligations in Fiscal Years 1998 and 1999, respectively.

 

Potential Use:а This program is expected to have a static funding level through fiscal 2002.а It can be used for a wide range of water quality protection measures.

 

Advantages: The effective consolidation of programs can make it easier to use for both the clients and the administering agency, but the cost-share limit may retard participation.

 

Limitations: If a federal income tax deduction is taken for agricultural soil and water conservation expenses, cost-sharing payments cannot be excluded from gross income.а The program has a $200 million/year authorization but annual funding could be less.

 

Reference for Further Information: U.S. Department of Agriculture, Natural Resources Conservation Service, Conservation Operations Division, POа Box 2890, Washington,а D.C. 20013, Telephone: 202-720-1845; Fax: 202-720-1838; Internet: www.nhq.nrcs.usda.gov/CCS/FB96OPA/ EQIPfinal.html.

 

DEPARTMENT OF AGRICULTUREа

RURAL BUSINESS - COOPERATIVE SERVICE

аааааааааааааааааааааааааааааааааааааааааааааа BUSINESS ENTERPRISE GRANTS

 

 

Description:а These grants (also called Rural Development Grants) provide assistance for developing private business, industry, and related employment to improve the economy in areas and communities of less than 50,000 population.а They help finance revolving funds, provide operating capital and finance to industrial sites in rural areas, give technical assistance, pay fees, and refinancing.а Public bodies and nonprofit corporations serving rural areas are eligible applicants.

а

Actual Use: Typical project activities include acquiring and developing land; construction; converting, enlarging, repairing or modernizing buildings and equipment; transportation infrastructure; utility extensions; needed water supply and waste disposal facilities; and pollution control and abatement incidental to site development.а Most of the environmental projects traditionally funded with these grants involve water and/or wastewater systems.аа In Fiscal Year (FY) 1997, more 369 grants were made with assistance averaging $160,000 and obligations exceeding $47 million.а Grant obligations of $38 million and $40 million are projected for FYs 1996 and 1997, respectively.

 

Potential Use:а These grants could be used to finance and/or help acquire capital for developing drinking water, wastewater treatment, solid waste disposal, non-point source and other environmental facilities.а They also might be used to help fund the cleanup and redevelopment costs associated with the redevelopment of brownfields properties and facilities, and to promote the beneficial uses of sludge on agricultural land.а

 

Advantages: аBoth public and private entities may be supported.а The projects supported may have specific and significant environmental impacts.

 

Limitations:а Priority for the grants is given to rural areas having a population of 25,000 or less.а Other priorities include projects located in communities with a large proportion of low-income population; projects located in areas with high unemployment, projects that will retain existing jobs, and projects that will create new jobs.а Many projects may not have an environmental focus.

 

Reference for Further Information: U.S. Department of Agriculture, Rural Business - Cooperative Service, 14th & Independence Aves., SW, Room. 5405-South Bldg., Washington, D.C. 20250, Telephone: 202-720-1400.а Detailed information on these grants can also be accessed through the ServiceТs World Wide Web site at http://www.rurdev.usda.gov/rbs/busp/rbeg.htm.

 

 

 

DEPARTMENT OF AGRICULTURE

RURAL BUSINESS - COOPERATIVE SERVICE

ECONOMIC DEVELOPMENT GRANTS

 

 

Description:а Provides financial assistance promoting rural economic development and job creation projects.а Grant funding may be used for project feasibility studies, start-up costs, incubator projects, and other related reasonable expenses.а Eligible applicants include electric and telephone utilities with current rural electrification or rural telephone bank loans or guarantees outstanding.

а

Actual Use:а Examples of projects funded include the establishment or expansion of factories or businesses, medical facilities, water and sewer industrial development parks, business incubators for rural economic development activities, and other jobs projects.а Some grants have been used to establish revolving loan funds.а Most of the environmentally-related projects funded involve water or wastewater systems.

а

Approximately $11million in grants were obligated in Fiscal Year (FY) 1997 with assistance ranging from $10,000 to $330,000 and averaging $260,000.а Grant obligations are projected at approximately $11 million per year in FYs 1996 and 1997.а

 

Potential Use: These grants could be used to help finance directly and/or acquire capital for additional wastewater and drinking water utilities, and to fund non-point source improvements.аа Depending on interpretation of authorizing legislation and regulations, they might also fund solid waste and waste-to-energy facilities, as well as brownfields cleanup and redevelopment.аа

 

Advantages: The grants are inherently equitable since they fund projects that would not otherwise be funded for an often needy segment of society.а When revolving loan funds are created, leveraging is very high.

 

Limitations: The maximum grant amount is under $500,000.а The maximum loan term is ten years at a zero interest rate.а Grantees must provide supplemental funds totaling 20 percent of the assistance received from this program.ааа

а

Reference for Further Information: U.S. Department of Agriculture, Rural Business -Cooperative Service, 14th & Independence Avenues, SW, Room. 5405-South Building, Washington, D.C. 20250, Telephone: 202-720-1400, Internet: http://www.rurdev.usda.gov/rbs/index.html.а Detailed information on these grants is also available in the Catalog of Federal Domestic Assistance and its World Wide Web site at http://aspe.os.dhhs.gov/cfda/ideptagr.htm -а which has links to these grants and a wide range of federal assistance.

 

 

DEPARTMENT OF AGRICULTURE -- RURAL UTILITIES SERVICE

DISTANCE LEARNING AND TELEMEDICINE GRANTS

 

 

Description: The Rural Utilities Service (RUS) awards grants and loans to schools, libraries, or other eligible organizations that use a telecommunications, computer network, or related advanced technology system to provide educational benefits to rural residents (See page 5B-10, Long Distance Learning).а This does not include the purchase of land and buildings or construction of buildings.а Nor does it include salaries, wages, or employee benefits of personnel providing educational services or administrative expenses of the applicant.а Grant funding can be for up to 70% of eligible project costs and applications must include funding commitments from other sources for the remainder.а Grant applications may be submitted at any time and there is no restriction on the length of time to spend grant funds, which are advanced monthly or as needed to reimburse disbursements for approved grant purposes.аа Audit reports are required for the years in which grant or loan funds are received.а RUS will assist in preparing the preapplication form, OMB Standard Form 424.а Also, the Office of Telecommunications and Information Applications of the Department of CommerceТs National Telecommunications and Information Administration administers the Telecommunications and Information Infrastructure Assistance Program (TIIAP).а It awards matching grants to non-profit organizations to buy equipment for connection to networks, to buy software, to train staff and users, to purchase communications services, and to evaluate projects and disseminate findings.аааааааа

 

Actual Use:а During fiscal 1993 through 1997а RUS awarded 192 grants totaling $52 million.

 

Potential Use: Estimated program volume for Fiscal Year 1998 is $21 million for grants and $150 million for direct loans.а Otherwise unavailable environmental education and training in rural areas could be provided and existing effort could be expanded through distance learning.

 

Advantages: Grants and loans for required equipment can make distance learning efforts feasible in rural areas where costs per student would otherwise be unaffordable.

 

Limitations: Beneficiaries must be people living in rural areas and projects must improve rural opportunities, particularly in education and training.

 

Reference for Further Information:а Assistant Administrator, Telecommunications, Rural Utilities Service, Room 4056, South Building, U.S. Department of Agriculture, 1400 Independence Avenue, SW, Washington, DC 20250-1500, Telephone: 202-720-9554, Internet: www.usda. gov/.а U.S. Department of Commerce, Office of Telecommunications and Information Applications, National Telecommunications and Information Administration, 1401 Constitution Avenue, NW, Room 4096, Washington, DC 20230, Telephone:а 202-482-2048, Fax: 202-501-5136, E-mail: tiiap@ntia.doc.gov; Internet:а www.ntia.doc.gov/otiahome/tiiap/.

 

DEPARTMENT OF AGRICULTURE -- RURAL UTILITIES SERVICE

WATER AND WASTE DISPOSAL SYSTEMS GRANTS

 

 

Description: These grants provide assistance for meeting rural water and waste disposal needs.а Funds may be used to install, repair, improve, or expand water and waste disposal facilities.а Eligible grant applicants include political subdivisions of a State (municipalities, counties, districts and authorities), associations, cooperatives, nonprofit corporations, and Indian Tribes.аа

 

Actual Use: Projects have included construction of water systems involving lines, wells, pumping stations, storage tanks and treatment plants; improvements to water systems such as new lines, wastewater facilities and booster pumps; renovation of water systems including distribution lines, wells and pressure tanks; construction of wastewater collection and treatment systems; replacement of wastewater plants and upgrade of collection lines; repair of wastewater lines and construction of lift stations; and purchase of landfill sites and trucks/equipment for solid waste disposal.

 

In Fiscal Year 1997, $518 million was obligated to 617 projects.а Assistance ranged from $3,000 to $4.147 million and averaged $677,198.а Estimates for the next two years are for 850 and 800 plus grants, and obligations of $522 million and $500 million, respectively.а

 

Potential Use: These grants could be used to acquire capital to finance additional wastewater, drinking water, and solid waste facilities.а Depending on interpretation of applicable legislation and regulations, the grants might also finance waste-to-energy and recycling facilities, and non-point source programs.аа

 

Advantages: Equity and leveraging possibilities are high, since State revolving funds, as well as HUD and EDA grants or loans, can be combined with these grants. State revolving funds can pre-finance these grants (and/or loans), thus covering up-front design and initial construction costs.аа

 

Limitations:а Projects cannot service areas in towns of over 10,000 people.а Grants (as opposed to loans) are made only if needed to reduce user charges to a reasonable level.а For a grant of up to 70 % of eligible costs, service area median household income must be below the poverty level or below 80% of the State nonmetropolitan median household income (whichever is higher).

а

Reference for Further Information:а U.S. Department of Agriculture, Rural Business-Cooperative Service, 14th and Independence Avenues, SW, Room. 5405-South Bldg., Washington, DC 20250, Telephone: 202-690-2670, Internet: http://www2.hqnet.usda.gov/rus/water/programs.htm.аа Information on these grants is also available in the Catalog of Federal Domestic Assistance, and at the CatalogТs World Wide Web site,а http://aspe.os.dhhs.gov/cfda/ideptagr.htm.

 

 

APPALACHIAN REGIONAL COMMISSION (ARC)

SUPPLEMENTAL GRANTS

 

 

Description: ARC supplemental grants are awarded to States, public bodies, and private non-profit organizations for projects that create opportunities for self-sustaining economic development and improved quality of life for the people of Appalachia.а The program seeks to stimulate investments in public services and facilities that attract private sector investments and accelerate social and economic development.

аа

Actual Use: In fiscal year (FY) 1997, more than $60 million in grants supported 353 projects, including water and sewer systems, industrial parks, revolving loans, training and education, and business incubators. Grants fundedа in FY 1997 ranged from $2,150 to $1,500,000 with an average of $170,402.а Funding estimates in FY 1998 and 1999, were $104,305,000 and $55,994,000, respectively.

а

Potential Use: The types of physical infrastructure projects supported could include more water and wastewater treatment systems and could be extended to include solid waste facilities, recycling facilities, waste-to-energy facilities, small business air pollution and waste audits, and recreation.а Project resources might also be devoted to brownfields cleanup and redevelopment activities.а

 

Advantages: Funding for the Appalachian Regional Commission has been quite stable over the years, and highly equitable given the economic need of the region as a whole.а Project funding is specific and remains an opportunity.

 

Limitations: Grants are limited to counties in all or part of the States comprising Appalachia -- including Alabama, Georgia, Kentucky, Maryland, Mississippi, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Virginia and West Virginia.а The program generally only supplements other federal grants and 20 percent of eligible costs must come from sources other than the federal government.а ARC supplemental grant assistance is limited to 50 percent of total project costs except in distressed counties where assistance is limited to 80 percent.

 

Reference for Further Information: U.S. Environmental Protection Agency (EPA), Environmental Financial Advisory Board (EFAB) Advisory, Small Community Financing Strategies for Environmental Facilities, August 9, 1991(this report contains a general description of the ARC supplemental grant program).а Additional information on these grants and ARC programs can be found in the Catalog of Federal Domestic Assistance and at its World Wide Web site: http://aspe.os.dhhs.gov/cfda/index.htm - wherein there the assistance programs of all federal departments and agencies can be accessed via various organizational and topical formats..

 

 

DEPARTMENT OF COMMERCE

ECONOMIC DEVELOPMENT ADMINISTRATION

PUBLIC WORKS AND INFRASTRUCTURE DEVELOPMENT GRANTS

 

 

Description: These grants support projects that promote long-term economic development and help construct public works/development facilities needed to encourage job creation and retention in economically distressed areas.а States, cities, counties, other political subdivisions, Indian Tribes, Commonwealths, the Federated States of Micronesia, the Republic of the Marshall Islands, and U.S. territories, and public and private nonprofit organizations are eligible recipients.

 

Actual Use:а Eligible projects include water and wastewater treatment systems, industrial park infrastructure improvements, industrial access roads, railroad siding and spurs, port facilities, tourism facilities, and vocational schools. A basic grant covers up to 50 percent of project costs, but severely depressed areas may get supplementary grants bringing the federal share to 80 percent of project costs.а Designated Indian reservations may receive up to 100 percent assistance.ааа In Fiscal Year (FY) 1997, more than $160 million was obligated for these grants covering 188 projects.а Obligations are projected to exceed $160 million per year in FYs 1998 and 1999.

 

Potential Use: These grants could be used to acquire capital for renovating wastewater and drinking water utilities to bring them into compliance with the Clean Water and Safe Drinking Water Acts. They also might be used to help fund brownfields cleanup and redevelopment costs associated with the redevelopment of the types of eligible public facilities listed above.

 

Advantages:а аThe program has had a significant environmental focus.а Grants have on occasion been combined with State revolving fund loans and rural utility grants/loans for water and wastewater.а Aid to the private non-profit sector enhances leveraging opportunities.

 

Limitations: Grants are limited to communities experiencing severe economic distress. Also, communities must generally provide matching funds of up to 50 percent. Further, grant funds are disbursed for costs incurred only after all construction contracts have been awarded.а EDA grants have historically been somewhat unstable.а

 

Reference for Further Information: U.S. EPA Environmental Financial Advisory Board (EFAB) Advisory, Small Community Financing Strategies for Environmental Facilities, August 9, 1991. A program description is also available in the Catalog of Federal Domestic Assistance and its World Wide Web site, http://aspe.os.dhhs.gov/cfda/ideptdoc.htm- which has links to these Department of Commerce Grants, under ECONOMIC DEVELOPMENT ADMINISTRATION.

 

 

а

DEPARTMENT OF COMMERCE

ECONOMIC DEVELOPMENT ADMINISTRATION

SPECIAL ECONOMIC DEVELOPMENT & ADJUSTMENT ASSISTANCE GRANTS

 

 

Description: These grants help State and local areas to develop and/or implement strategies addressing problems caused by sudden and severe economic dislocation such as business closings, military base closures and natural disasters, or resulting from long-term economic deterioration.а Eligible recipients include States, cities, counties, other political subdivisions of a State, groups of political subdivisions, and public or private nonprofit organizations.

 

Actual Use:аа The grants are used to develop economic adjustment strategies and fund projects that implement such strategies, including the construction of public facilities, financing (including revolving loan funds), business development, technical assistance, training or other activity that addresses the economic adjustment problem. A 25 percent local share is required for all grants.

 

In Fiscal Year (FY) 1997, more than $300 million in funds obligated to 268 projects (includes funds for defense adjustment, hurricanes and the Midwest floods).а Grant obligations for FYs 1998 and 99 are estimated to beа $167 million and $175 million, respectively.

 

Potential Use:а These grants could be used to renovate or build, or acquire the capital to renovate or build, many types of environmental facilities (including water, wastewater treatment, solid waste, waste-to-energy, and/or recycling facilities). They might also finance, or generate financing for, brownfields cleanup and reuse costs associated with the redevelopment of public facilities and businesses.аааааа

 

Advantages: The potential to use grant monies for environmental improvements in disaster areas is high, as improved environmental services are crucial.а Equity and leveraging potential are also strong.

 

Limitations:а Grants are limited to areas experiencing sudden economic distress or long-term economic decline.а Communities participating in the program must provide matching funds equal to 25 percent of the grant received.а The program supports many non-environmental projects, and funding had varied considerably over the years.аа

 

Reference for Further Information:а A description of this program, as well as other EDA programs, can be found in the Catalog of Federal Domestic Assistance and also at the CatalogТs World Wide Web site, http://aspe.os.dhhs.gov/cfda/ideptdoc.htm- which has links to these Department of Commerce Grants, under ECONOMIC DEVELOPMENT ADMINISTRATION.

 

 

DEPARTMENT OF COMMERCE

NATIONAL OCEANIC AND ATMOSPHERIC ADMINISTRATION

COASTAL SERVICES CENTER COOPERATIVE AGREEMENTS

 

 

Description: The National Oceanic and Atmospheric AdministrationТs (NOAAТs) Coastal Service Center supports projects aimed at developing creative, multi-dimensional, science-based solutions to coastal management issues that will allow maintenance or improvement of natural resources while also allowing for economic growth.а State and local governments, public non-profit organizations, and other public institutions (e.g., colleges) are eligible for project grants (or cooperative agreements).а In fiscal 1998 the Center will support activities in landscape characterization and restoration, coastal change analysis, coastal remote sensing, development and integration of geographic and tabular information, training and meeting facilitation, administration of the Coastal Management Fellowship program, commercialization of environmental technologies, and special projects.

 

Actual Use:а Among others, cooperative agreements have been awarded to the University of Texas at Austin to develop a Coastal Technology Institute and North Carolina State University for commercial technology development, starting with an inventory of technologies.а Global markets for four sectors of environmental technologies have been assessed and a technology business incubator has been staffed and opened.

 

From FY 1996 through FY 1998 twelve awards were made to twelve States.а Grant obligations totaled $2 million in FY 1997 and are estimated to be $2 million and $1.7 million in FY 1998 and 1999, respectively.

 

Potential Use:а This program can be used for coastal watershed protection and to support efforts to foster environmental technology businesses.

 

Advantages: The programТs recognition of a need to allow economic growth distinguishes it from narrower efforts.

 

Limitations:а This is a very small program (approximately $2 million) limited to projects to improve or maintain environmental quality in coastal areas.

 

Reference for Further Information: U.S. Department of Commerce, National Oceanic and Atmospheric Administration, National Ocean Service, Coastal Services Center, 2234 South Hobson Avenue, Charleston, SC 29405-2413, Telephone:а 843-740-1200, Fax: 843-740-1224, E‑mail: csc@csc.noaa.gov, Internet site: www.csc.noaa.gov/

 

 

DEPARTMENT OF COMMERCE

NATIONAL OCEANIC AND ATMOSPHERIC ADMINISTRATION

COASTAL ZONE MANAGEMENT ADMINISTRATION/

IMPLEMENTATION AWARDS

 

 

Description:а The Coastal Zone Management Program, authorized by the Coastal Zone Management Act of 1972, assists coastal states and island territories, including Great Lakes states, in implementing and enhancing coastal zone management activities approved by the Secretary of Commerce.а Formula grants, which are based on population and miles of coastal shoreline and require a non-federal match, can be used to support assessment of the impacts of coastal growth and development, as well as projects in coastal wetlands management and protection, natural hazards management, reduction of marine debris, special area management planning, siting of coastal energy and government facilities, and ocean resource planning.аа No match is required for Coastal Zone Enhancement Program grants (cooperative agreements), which are meant to induce states to improve special area management planning, government and energy facility siting, ocean governance, public access to the coast, wetlands protection, and measures to deal with coastal hazards, marine debris, and cumulative and secondary impacts of development.

 

Actual Use:а Management grants average $1.3 million and range from $500,000 to $2 million.а Supported coastal zone management programs have included protection of wildlife and fisheries habitats and regulation of land use impacts on water quality.а Grant obligations exceeded $48 million in Fiscal Year (FY) 1997, $49 million in FY 1998, and are projected to be $5.5 million in FY 1999.

 

Potential Use: Implementation funds can support marine wetlands and watershed protection and other important environmental measures in coastal areas.

 

Advantages: Federal actions that are reasonably likely to affect any land or water use or natural resource of the coastal zone must be consistent with the enforceable policies of a coastal StateТs or territoryТs federally approved coastal zone management program.

 

Limitations:а The programs are limited to oceanic and Great Lakes coastal areas.а The governor of the state or territory must designate an agency to participate and the Secretary of Commerce must approve the stateТs coastal zone management program.

 

Reference for Further Information: U.S. Department of Commerce, National Oceanic and Atmospheric Administration, National Ocean Service, Office of Ocean Resources Conservation and Assessment, Coastal Programs Division, 1305 East-West Highway, Silver Spring, MD 20910, Telephone: 301-713-3155x195, Fax: 301-713-4012, E-mail: juravitch@coasts.nos.noaa.gov, Internet site: www.nos.noaa.gov/ocrm/czm/.

DEPARTMENT OF DEFENSE

ARMY CORPS OF ENGINEERS

CIVIL WORKS PROJECTS

 

 

Description: The Army Corps of EngineersТ Civil Works Directorate has numerous environmental responsibilities.а Not only is the Corps the largest provider of water-based recreation facilities, it also administers a major environmental permitting program and operates hydropower facilities which provide 24 percent of the nationТs electricity.а Now among the CorpsТ responsibilities is management of the Formerly Used Sites Remedial Action Program (FUSRAP), which was transferred from the Department of Energy in 1997.а Although major projects require congressional approval, the CorpsТ Continuing Authority projects, which must cost under $5 million, can take care of emergency repairs to streambanks and shorelines, small beach erosion control projects, Section 107 Small Navigation Projects, projects to mitigate shore damage at federal navigation projects, small flood control projects, and snagging and clearing for flood control.а Some types of projects have federal cost limits of $500,000.а Depending upon the type of project, cost sharing may be 50 percent federal, 80 percent federal, or potentially more complicated.а For most assistance, preapplication consultation and coordination is essential and the application is simply a letter to the District Engineer, indicating clear intent to provide all required local participation.

 

Actual Use:а The Corps spends about $500 million a year on environmental activities.а The Continuing Authorities Program had $50 million for Fiscal Year 1998 and the PresidentТs budget requests $47 million for Fiscal Year 1999.а Recent projects include work to prevent Judsonia, ArkansasТ, sewage lagoon levee from collapsing into the Little Red River and plans to combine structural flood control with creation of fish and wildlife habitats in New JerseyТs Raritan River Basin.

 

Potential Use:а State and local governments can work with the CorpsТ District Engineer to define environmentally sensitive project objectives and identify realistic sources of the non-federal share of costs.

 

Advantages:а The Continuing Authorities Program eliminates the need for project-specific congressional authorizations for relatively small projects and the federal share of costs can make such projects affordable for state and local governments.

 

Limitations: Projects must be engineering feasible, economically justified, and complete within themselves.

 

Reference for Further Information: Contact U.S. Army Corps of Engineers, Directorate of Civil Works, 20 Massachusetts Avenue, NW, Washington, DC 20314-1000; Phone: 202-272-1975; Internet: www.usace.army.mil/.

 

 

ENVIRONMENTAL PROTECTION AGENCY (EPA)

PROGRAM GRANTS

 

 

Description:аа Federal grants for various purposes including State and local program research, demonstrations, development, and implementation.а The amount available, application criteria, and requirements differ from grant to grant, depending on Congressional authorization and internal EPA grant policies.а Some grant programs are specifically authorized for a particular purpose, while other grant programs give significant discretion to the supervising EPA office.

а

Actual Use:а The table on the following page provides a partial list of EPA grants, organized by the office that administers the grant.а This list is provided only as an example; it is not necessarily comprehensive or current, since grants change from year to year according to Congressional authorization.а Historically, EPA grants have funded both State and local programs in all environmental media.а A number of grants are targeted to research and demonstration projects; other grants provide support for State and local program activities that coincide with federal environmental quality priorities.

 

Potential Use:аа State and local governments could use EPA grant funds to cover the costs of whatever program activities and/or capital purchases meet the applicable grant criteria.

 

Advantages:аа Federal grants provide State and local governments with the means of meeting national environmental quality goals. They may also provide funds otherwise unavailable to State or local programs, thus enhancing equity, environmental incentives, and financial leveraging considerations.а

 

Limitations:аа Funds may be targeted to specific statutory goals.а Programs must compete for limited funds and sign EPA grant agreements to perform activities.а Each grant is very specific, thus limiting State and local flexibility.

 

Reference for Further Information: U.S. EPA grants can be accessed on the AgencyТs Web Page under: Grant Programs Administered by EPA at http://www.epa.gov/ogd/grants.htm.а The respective EPA program offices will also have information on the grant programs that they oversee.а In addition, the Catalog of Federal Domestic Assistance contains descriptions of all federal grant programs, including EPAТs, and can be obtained at the Government Printing Office.а EPA grant programs can also be accessed in the Catalog electronically through its Internet Website at http://aspe.os.dhhs.gov/cfda/ideptaa.htm - which is the section for Independent Agencies.

 

 

 

PARTIAL LISTING OF EPA PROGRAM GRANTS BY OFFICE, 1995
Office of Water	Water Pollution Control State and Interstate Program Support Grants (Section 106)   Water Quality Control Information System Grants   State Public Water System Supervision Grants   State Underground Water Source Protection Grants   Water Pollution Control -- Lake Restoration Cooperative Agreementsаааа   National Estuary Program Grants   Nonpoint Source Planning Grants   Nonpoint Source Set-Asides (under Title VI of the CWA)   Wetlands Protection -- State Development Grants
Office of Research and Development	Solid Waste Disposal Research Grants   Water Pollution Control -- Research, Development and Demonstration Grants   Toxic Substances Research Grants   Safe Drinking Water Research and Demonstration Grants   Environmental Protection -- Consolidated Research Grants   Air Pollution Control Research Grants   Pesticides Control Research Grants
Office of Administration	Environmental Protection Consolidated Grants -- Program Support
Office of Prevention, Pesticides, and Toxic Substances	Consolidated Pesticide Compliance Monitoring and Programааааааааааааааааааа   Pollution Prevention Grants Program   Cooperative Agreements   Toxic Substances Compliance Monitoring Program Grants   Asbestos Hazard Abatement (Schools) Assistance   Toxic Release Inventory Data Quality Assurance Program
Office of Solid Waste and Emergency Response	Hazardous Waste Management State Program Support   Superfund State Core Program Cooperative Agreements   Hazardous Substance Response Trust Fund (Superfund)   State Underground Storage Tank Trust Fund Program   Solid Waste Management Assistance Grants   Superfund Innovative Technology Evaluation Program

 

 

 

 

ENVIRONMENTAL PROTECTION AGENCY (EPA)

PERFORMANCE PARTNERSHIP GRANTS

 

 

Description:аа Performance Partnership Grants (PPGs) are multi-program grants made to State or Tribal agencies by EPA from funds allocated and otherwise available for categorical grant programs.а They are voluntary and provide States and Tribes the option to combine funds from two or more categorical grants into one or more PPGs.а PPGs are authorized by the 1996 Omnibus Consolidated Rescissions and Appropriations Act (PL 104-134).а The authority covers the following sixteen program grants funded from EPAТs State and Tribal Assistance Grants appropriation:

 

1.аааааааа Air pollution control (CAA section 105);

2.аааааааа Water pollution control (CWA section 106);

3.аааааааа Nonpoint source management;

4.аааааааа Water quality cooperative agreements (CWA section 104(b)(3));

5.аааааааа Wetlands program development CWA section 014(b)(3));

6.аааааааа Public water supervision (SDWA sections 1443(a) and 1451(a)(3));

7.аааааааа Underground water source protection (SDWA section 1443(b));

8.аааааааа Hazardous waste management (Solid Waste Disposal Act section 3011(a)):

9.аааааааа Underground storage tank (Solid Waste Disposal Act section 2007(f)(2));

10.аааааа Radon assessment and mitigation (TSCA section 306);

11.аааааа Lead-based paint activities (TSCA section 404(g));

12.аааааа Toxics compliance and monitoring (TSCA section 28);

13.аааааа Pollution prevention incentives for States (PPA section 6605);

14.аааааа Pesticide cooperative enforcement (FIFRA section 23(a)(1));

15. ааааа Pesticides and program implementation (FIFRA section 23(a)(1))

16.аааааа Pesticide applicator certification & training/pesticide program (FIFRA section 23(a)(2)); and

17.аааааа General Assistance Grants to Indian Tribes (Indian Environmental General Assistance Act).

 

Actual Use: States began to seek PPG authority and negotiate with EPA in FY 1997.

 

Potential Use: All fifty States and the Tribal agencies could negotiate and implement PPGs allowing them increased flexibility in implementing and funding environmental priorities. $169,900,000 in grants were obligated in Fiscal Year 1997.

 

Advantages:а PPGs give States and Tribes more flexibility to address their highest environmental priorities, thus increasing equity and environmental incentives.а They provide incentives to States and Tribes to improve environmental performance and links between program goals and outcomes.а PPGs also cut administrative burdens/costs for recipients and EPA by reducing the numbers of grant applications, budgets, work plans and reports.а EPA will build partnerships with States and Tribes via shared goals and division of responsibilities.

 

Limitations: No extra funds are available via use of PPGs.а States and Tribes must first develop environmental indicators and performance measures to ensure progress is made to agreed on goals.

 

Reference for Further Information: U.S. EPA, Office of the Administrator, Office of Regional Operations and State/Local Relations, 401 M Street, SW, Washington, D.C. 20460, Mail Code:1501.

 

 

 

 

 

ENVIRONMENTAL PROTECTION AGENCY (EPA)

SUSTAINABLE DEVELOPMENT CHALLENGE GRANTS

 

 

Description:а This EPA grant program is designed to encourage people, organizations, governments and businesses to work cooperatively to develop flexible, locally-oriented approaches that link place-based environmental management with sustainable development and revitalization.а The program funds projects that improve the environment, build sustainable futures for communities, help local economies and encourage partnerships among community groups, businesses, government and others.а It looks for projects yielding the greatest environmental and economic benefits, and leverage the most community investment and resources.

 

Actual Use: The Sustainable Development Grant Program solicits project proposals for grants of up to $250,000.а Proposals are received from public entities, agencies, institutions and organizations (such as State and local governments, and federally recognized tribes and regional entities), and non- profit private agencies, institutions and organizations.а

 

The Program obligated $5 million in grants in Fiscal Year 1997.а Projects funded have ranged from better forest management practices in New Hampshire to a network of 26 community supported organic farms in the Mid-Atlantic region to a mid-city green projects building materials exchange in Louisiana to a smart wood certification program in Washington.

 

Potential Use:а The program could potentially fund the demonstration of a wide variety of environmentally and economically sustainable projects in all environmental media and program areas.а These projects could help identify those practices which show promise of being truly sustainable and those which are not and should be avoided.а EPA estimates that the program will have grant obligations in Fiscal Years 1998 and 1999 of $5 million and $9.3 million, respectively.

 

Advantages:а Funding authorities are broad and the program supports an unusually wide range of creative and innovative approaches, and provides support to segments of the private sector.а Project support represents seed funding and successful grantees leverage substantial additional public and private resources.аа Environmental incentives are very high and built into the program.

 

Limitations: The program requires a nonfederal match of 20 percent of a projectТs total budget and federal assistance may not exceed $250,000.а

 

Reference for Further Information: U.S. EPA, Office of Air and Radiation, 401 M Street, SW, Washington, D.C. 20460. Telephone Number:202-260-2441, Contact: Pamela Hurt.