Streamline - Spring 2015 - (Page 29)

Debt Refinancing: An Alternate Source of Capital BY ANTHONY HESS, SUSTAINABILITY COORDINATOR, VDH - OFFICE OF DRINKING WATER GIVEN THE BUDGETARY CONSTRAINTS most waterworks have in today's economy, they have a responsibility to take advan- tage of every opportunity available to lower expenses. Fortunately the same market conditions causing waterworks to tighten their belts have provided an opportunity for savings in the municipal-bond market. According to an article in the Wall Street Journal, investors realized their "longest string of monthly gains in more than two decades in 2014" from Municipal-Bonds. (Kuriloff, 2014) Municipal-Bonds provide tax advantages to investors in certain tax brackets, which allow their lower interest rates to be comparable to some higher interest rate investments without these advantages. (Bodie, Kane, & Marcus, 2010) A surge of investors into the municipal-bond market has come at the same time municipalities are pinching pennies and borrowing less, leaving fewer opportunities available for those investors. (Kuriloff, 2014) Interest rates paid on Municipal-Bonds have been lower over the past few years than they were for many earlier years. (Rates Over Time - Interest Rate Trends, 2015) This market demand coupled with the low interest rates available to municipalities, has created an excellent opportunity for utilities to refinance older municipal debt secured at higher interest rates, at today's lower rates. Some waterworks have chosen to take advantage of this situation to refinance capital improvement debt. Doing this has lowered their annual expenses and put more revenue into the operating budget. One such example is Arlington County, Virginia. They refinanced $100 million dollars through the Virginia Resource Authority (VRA) in 2014 to save $147,000 annually. (Arlington County Homepage, 2014) Although this is a significant savings, the impact may be much greater for smaller communities for which debt service represents a much larger proportion of their operating budget. The Russell County Public Service Authority refinanced $3.64 million dollars in 2014 through the Virginia Department of Health's Drinking Water State Revolving Fund (DWSRF), resulting in an annual savings of $64,470. This amount is equivalent to 5.8 percent of the annual drinking water operations budget for the Russell County PSA. However, waterworks sometimes have to pass up opportunities for savings in order to remain flexible enough to weather the financial storms of today's economy. The Town of Dublin, Virginia, chose to decline an offer from VRA to refinance waterworks debt that would have saved $110 thousand dollars in interest over the 23 year life of the bond, and $733 thousand dollars by reducing the length of the debt. The Town of Dublin wisely passed on this offer because the reserve requirements would have left their "rainy day" fund too small to adequately respond to unexpected emergency expenses. The new debt would have also had higher payments in future years due to the backloading structure of the debt. This would have forced the Town to restructure or 29

Table of Contents for the Digital Edition of Streamline - Spring 2015

From the President: Power Failure
From the Executive Director: Highlights from 2014
The Sustainability Managed Utility
Communication… Say What?
Flushing Away the Ebola Threat
Hazard Communication Standards – Guidelines for OSHA Compliance
State Water Control Board Approves Controversial Permit
VRWA Said Goodbye to Past Executive Director
USDA Rural Development
The RATES Program
Adequate Rates versus Affordability
NRWA Recap
Debt Refinancing: An Alternate Source of Capital
How the Cloud is Revolutionizing the Future of Water Utility Management
Southern Corrosion Supports Victory Junction
Throwing My Loop: Call Me Anytime
Wastewater Math
Booster Club
eLearning Benefits
Membership Application
Do You Know What Your VRWA Benefits Are?
VRWA Mailbag
New Members
Board of Directors
VRWA Committees
Index to Advertisers/

Streamline - Spring 2015