Item 3: Ratification of MWMC Budget

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Metropolitan Wastewater Management Commission Capital Improvement Program CIP Financial Planning and Policy Overview The RWP CIP is funded primarily through proceeds from revenue bond sales, system development charges, and transfers from the operating fund to Capital Reserves. Project financing is also available through the Clean Water State Revolving Fund (SRF) loan program. In 2008, staff applied for a construction SRF loan, and in 2009, staff applied for a planning SRF loan. As a result, the MWMC entered into loan agreements with the State of Oregon Department of Environmental Quality (DEQ) in 2008, 2009, and 2010 that allows the MWMC to borrow up to $20.8 million over the next five years for qualified projects. Through the construction SRF loan program, $8,000,000 of financing was approved for the Tertiary Filtration—Phase 1 project, $7,500,000 approved for Odorous Air Treatment—Phase 1, and $4,000,000 approved for Primary Sludge Thickening. Of the $7,500,000 approved for the Odorous Air Control project, $4,000,000 was funded through the American Reinvestment and Recovery Act (ARRA, or “Stimulus”). This funding was part of the federal government’s economic stimulus program, with loans issued under favorable conditions to stimulate infrastructure and capital project investment. The ARRA funding agreement provided that 50% of the loan’s principal would be forgiven, and the remaining 50% of principal to be repaid at 0% interest. This resulted in $2,000,000 of net revenue to the CIP. Additionally, $1,279,200 in SRF financing was made available to the MWMC for RWP planning efforts. Loan payments on both construction and planning efforts began October 2010. In the long term, staff anticipates that, while SRF funding will remain available in the future, the ARRA funding program was a one-time opportunity resulting from federal stimulus spending, and will not be available in the future. The operating fund derives the majority of its revenue from wastewater user charges that are collected by Eugene and Springfield from their respective customers. Transfers from the operating fund are budgeted annually consistent with the MWMC Financial Plan to meet the financial needs of the capital projects. The RWP uses these transfers to reduce the amount of borrowing necessary to finance the capital program. For each fiscal planning cycle, only one year of budget authority is appropriated. The remaining four years of the CIP are important and useful for fiscal and work planning purposes, but the funds in the outer years of the CIP are only planned for, not appropriated. The full amount of obligated multi-year project costs is typically appropriated in the first year of the project, unless a smaller subset of the project, such as project design, can be identified and funded without budgeting the full projected project cost. For these multi-year contracts, unspent funds from one fiscal year will be carried over to subsequent fiscal years until the project is completed. The RWP CIP reflects projected price changes over time that affect the cost of materials and services. Until about 2003, the 20-year average Engineering News Record (ENR) inflationary factor for construction served as a good predictor for future inflation and was used for projecting the MWMC costs. Initial cost projections for projects included in the Facilities Plan were included in the Plan based on January 2004 construction costs. In the period 2004 through 2008, construction inflation accelerated Page 38 DRAFT FY 11-12 BUDGET AND CIP