Chapter 11. FUNDING METHODS A. Introduction

1 FM-1 Chapter 11. FUNDING METHODSA. IntroductionFunding is more than just securing financing to build a project. FUNDING a project should beconsidered a process that has distinct steps and does not end when construction is completed and allbills are agencies are encouraging applicants to develop their plans for FUNDING concurrently withtheir preliminary engineering report and environmental reports. FUNDING plans encompass financingconstruction, paying for the operation and maintenance of a system, FUNDING required reserves,maintaining financial viability, and preparing for future community seeking FUNDING for a wastewater or other type of utility improvement project isunique.

2 Therefore, it is not possible to have a standard recipe that communities can follow to acquirefunding for their project. Funders in Kansas often remark the easy community wastewater projectshave been funded and built. Future wastewater projects in our state most likely will deviate fromthe standard model used to finance and build community-wide centralized collection and treatmentsystems. The standard model to finance and build a traditional central gravity collection and treatment systemhas worked well for many communities where there is an adequate population base to feasiblysupport such a system.

3 Typically, a large diameter gravity flow collection system is used wherepossible, and when gradient problems occur they are overcome by using lift-stations. In Kansas, thechoice of treatment has been the use of discharging wastewater lagoons. This type of collection andtreatment system is often the first choice of governmental leaders because it is a system that is simpleto operate, easy to maintain, protects the environment, and is long lasting. While some communitieshave the capacity to issue bonds to acquire FUNDING , most communities have to seek financing fromstate and federal FUNDING agencies.

4 The majority of funds for these projects come from several keypublic FUNDING agencies. These FUNDING agencies provide low-interest loans that are repaid over along period of time by the applying community or county. Monthly rates for customers are increasedin order to generate enough revenue to make regular principle and interest payments to the financingagency as well as pay for operation and maintenance cost, and required reserves. Occasionallyfunding agencies will provide grant funds for a project too. Grant funds that are used do not haveto be repaid.

5 Grants are used to help less prosperous communities afford to build new committee with representatives from major FUNDING agencies in Kansas has been developedwhich can assist small communities in sorting through these FUNDING issues. Coined the KansasInteragency Advisory Committee (KIAC), its purpose is to provide better guidance and directionto communities seeking FUNDING for water and sewer projects. The committee facilitates bettercoordination and communication between agencies and organizations involved in water andFM-2wastewater projects and issues as it counsels those communities.

6 A fact sheet and summary of thecommittee can be found at the end of this agencies and communities are finding they are faced with a new set of circumstances thatwill require finding new ways to finance and build community wastewater systems for ruralcommunities, especially very small communities. There are a growing number of small communitiesthat cannot feasibly afford a traditional centralized collection and treatment system. Alternativecollection and treatment METHODS including managed onsite and cluster systems must be evaluatedto reduce costs to the point that the system is available for low interest loans and grants are limited, and demand is greater than the amountof funds available.

7 Every year there are a few communities in Kansas, even with the full amount ofassistance that funders can provide, that cannot afford to build an improvement project to correctserious environmental problems caused by poor wastewater are being asked to contribute more of their own funds to a project if they want to becompetitive for FUNDING from FUNDING agencies. Communities are being scrutinized more todetermine if they have the technical ability to manage, operate, and maintain a wastewater use of managed decentralized systems will present a challenge for funders.

8 It is sometimesdifficult to determine which agencies can be involved with what part of a project if a combinationof centralized, cluster and/or on-site systems is used to address the wastewater treatment needs ofa community. Certain components of these combination systems can be owned privately by thehomeowner, and some FUNDING agencies will only fund facilities owned by a public AffordabilityAffordability is the standard used by funders to determine what size and scope of project acommunity can feasibly develop.

9 Affordability encompasses three basic concepts: (1) costs for theend consumer, (2) adequate design, and (3) cost-effective protection of the Cost for End ConsumerWhat an improvement project will eventually cost the end consumer (families, businesses,and public bodies like school districts) when completed is an important part of theaffordability evaluation. Monthly user charges are typically used to determine if end usercosts are too high. Funders do not want monthly user rates to be so high that an averagecustomer cannot pay all of their utility bill.

10 If enough customers cannot pay their bills, thecommunity can get behind on making their required debt payments or, worse, default and notbe able to make any debt payments. Monthly user rates pay for operation and maintenance (O&M) costs as well as debtpayments, and if required, debt service reserves. Adequate revenues have to be available topay for the proper operation and maintenance of a system. Extremely high O&M costs canFM-3push monthly user rates to very high levels. If monthly rates become too high, a communitymay not be able to pay for the proper care of their system; system failures concern regulatoryagencies.