Financial Capability Summary Foldout: A Simplified Approach


                             United States
                             Environmental Protection
                             Agency
                      Office of Water
                      Program Operations
                      Washington DC 20460
xvEPA
Financial  Capability
Summary  Foldout
                              A  Simplified
                              Approach
Your community may be planning to construct, operate, and/or manage a wastewater treatment system or other community
facilities. Before a long-term commitment is made there are many questions which need to be addressed. If you are applying
for EPA construction grant assistance, you must demonstrate to the satisfaction of your State (or EPA for non-delegated
States) that your community has the legal, institutional, mangerial, and financial capability to construct and support the
planned system (please refer to the summary of financial requirements for EPA construction grants).

Whether you expect to obtain funding assistance or plan to go it alone, it is critical that your community's resources are
analyzed in light of the commitment being considered. This foldout provides an approach to analyzing financial capability,
and is intended to be used by the local officials who are best acquainted with their community: town manager, public works
director, planner, budget officer, or clerk. A more comprehensive analytical approach 'may be found in EPA's Financial
Capability Guidebook.

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To the Users of this Foldout

As a community official, your goal is to provide a level of service which will meet your community's needs and which your
constituents can afford. It is important to consider wastewater alternatives in light of what is needed to do the job, the cost
impacts on the community and the users, and the ability to manage the system.

There are alternatives for small community wastewater management that may be less costly and more appropriate than
centralized conventional treatment technologies (see EPA foldout "Less Costly Wastewater Treatment for Your Town").
Analysis of the technical aspects should be augmented by an evaluation of the financial and management consequences for
the community. During the planning process the following questions should be addressed:

1. What is proposed in the facilities plan?
2. What roles and responsibilities will local governments have?
3. How much will the facilities cost at today's prices?
4. How will construction, operation and maintenance of the facilities be financed?
5. What are the annual costs per household?

The process of developing the answers to these questions will help you assess which alternative is the best for your com-
munity from a technical, financial, and management viewpoint, and once a plan is selected, will help you show whether your
community has the financial and management capability to construct, operate, and maintain the facilities.

The information requested on this foldout provides the basic data needed to demonstrate financial capability in accordance
with the Financial and Management Capability Policy.Sources for this data include the facilities plan, community financial
records, planning and/or engineering studies. While some preliminary analysis may be required to develop the information
requested, the foldout is designed to be self-explanatory and easily completed by local personnel.

Your state will review this information and must approve it before they recommend that a construction grant be awarded.
The level of detail provided by the state review will depend on how your project compares to a screening procedure that
states must establish to identify projects that may encounter financial difficulties. The state will focus its attention on these
projects to ensure that any financial problems are resolved prior to construction. You should contact your state as early as
possible to find out if your project has been identified by the screening procedure.

Financial Capability-Summary

Note: The information requested in this foldout is intended to be self-explanatory. If further analysis is needed, please refer
to EPA's'Financlal Capability Guidebook. After completion, copies of these sheets can be distributed at a public hearing as a
basis for community decision making; they may also be submitted with the application for an EPA construction grant as a
means of fulfilling the financial capability demonstration requirement.
Agency
Date
Address
-Telephone.
Contact
A. What is Proposed in the Facilities Plan?
1. The proposed facilities will be:
new expansion
2. What type of system is planned?
Treatment:
. upgrade
Collection:
3. Entities to be served:
iVlunicipality(ies):
County:
Sewer District(s):
Industry(ies):
4. The facilities will serve (give percentages):
Residents now on sewers:
Residents now on onsite systems:
Existing commercial/industrial users:
Anticipated residential growth:
Anticipated commercial/industrial growth:_

5. Current population now on sewers:
Current population of proposed service area:
Design population (year ):
6. Average annual growth rate over last ten years (con-
sult Bureau of Census data, or State planning office):
Anticipated annual growth rate

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B. What Roles and Responsibilities Will Local Governments Have?

Cooperative arrangements between participating entities may be required to meet the management needs of the
wastewater system. If this project is a part of regional facilities, an intergovernmental agreement may be required to
establish terms of cost allocation, financing, and management responsibilities. i
7. What agency(ies) will:

Own the facilities:
Operate/manage the system:

Finance the construction:
8. If capital and O, M, & R costs are to be shared, give
agency names and % shares:
9. Agreements have been established between the
operating agency and:

Participating Agencies

Industry(ies)

Other : ..
i
10. The participating agencies have reviewed:

Wastewater facilities plan

—= Population projections
. I .
11. A'sewer use ordinance has been established
which:

-Requires developed areas to connect to
the system.

Prohibits discharge of toxic substances to
the system.

;Establish.es connection,and extension
policies.

Other i .
C.
How Much Will The Facilities Cost At Today's Prices?
The following figures are total estimated costs for construction (includes construction related costs) and operation and
maintenance of the proposed facilities. Dollar amounts should be obtained from the facilities plan or consulting engineer
and updated to reflect today's prices. In some cases, costs of local collection lines or other non-systemwide facilities may
be borne by only a portion of the users, and should be separately accounted for in calculating total facilities costs financ-
ing methods, and household costs (column b). If all costs will be.shared among all users, only the systemwide costs must
be calculated (column a).
12. Estimated Construction Costs:
Treatment Plant
Interceptor Sewers
Pump Stations/Force mains
Collection Sewers
On-site Systems
Land Acquisitions
Construction-Related Costs
Other (_ _)
(a) Systemwide
"(b) Non-Systemwide
Total (a) $
(b)$
13. Estimated Annual Operation, Maintenance, and
Replacement (O, M, & R) costs for system:
Labor $

Utilities $

Materials $

Outside Services $

Equipment Replacement $
Miscellaneous $

Annual O, M, & R (new facilities): (a) $.

Existing O, M, & R (carried over): (b) $.

Total O, M, &R: (c) j $.

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D. How Will the Facilities be Financed?

   14. Amount to be Financed                  (a) Systemwide                       (b) Non-Systemwide
       Total Construction Costs:         (12a) $ _	         (12b)$-
       {-) EPA funding                —	
       {-} State funding:	
       {-) Other Grants	
       (-) Cash on Hand
        (e.g	)	

                        Local Share    (a) $	         (b) $
    15.  Long-term financing for local costs (consult capital recovery table to estimate annual payments):
Financing
Method
G O Bond
Rev Bond
Loan
Other



Interest Term of
Amount Rate Maturity
$ % 	
"C °/°
$ 0/° 	 _____
"R °/°
Total

urn*/ mnrh nf this tntal if? for non-svstemwide costs?
Annual Debt
Payment
yrs $
yrs $
yrs .$ .
----' — -'<•'•=' 	 *,[•-;:" •_;••;•-• -J ( - ,,• ...-.-:-
vrs $
$
15a $
15b $ '
     16. Total Estimated Annual Costs:
        Existing Debt Service:                    '
        Systemwide Debt Service (15a):          +
        Total Annual O,M,&R(13c):             +
        a. Total Systemwide Costs:
        b. Non-Systemwide Costs (15b):
     17. Sources  of Funding  for  Annual  Wastewater
        Facilities Costs
        User Charges
        Property Taxes
        Other (__
        Connection Fees:
        Surcharges:
        Total Estimated Annual Revenue:

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E. What are the Annual Costs Per Household? !
The average annual costs per household for wastewater service are not necessarily the same as the rates you will
establish/The cost to a "typical" household consists of a share of the residential system cost (O, M, & R and debt
service). Some households may have additional non-systemwide costs .(Sec. C above) and/or one-time costs for house
laterals and connection fees which should be added to the estimated annual household costs.
18. Systemwide annual cost per household: ;
o Total systemwide costs (16a): $
(-) Non-residential share of total:
= Residential share of total:
•+• Existing households to be served:
= Average annual systemwide cost per household: $
1-9. Non-systemwide household cost:
o Annual non-systemwide costs (16b): $
-t- Number of properties affected: ,
= Non-systemwide cost per household:
(+) Annualized one-time household cost (laterals,
etc.): (use capital recovery table to estimate an-
. nual amount)
•(+.) Average annual systemwide cost per household:
= Total non-systemwide household cost:
To calculate annual debt service payments, multiply the amount to be financed by the appropriate factor in the capital
recovery table. This method can also be used to annuaKze one-time household costs such as house laterals and connec-
tion fees.
Capital Recovery Table1
Rate of Interest
Length of Original Maturity 8 percent 10 percent ; 12 percent 15 percent
10
15
20
25
30
35
40
.149
.117
.102.
.094
.089
.086 ,
.084
.163
.131
.177
.147
.117 .134
.110 .128
.106
.124
.104 ! .122
.102
.121
.199
.17.1
.160
.155
.152
.151
.151
1See: Eugene L. Grant and W. Grant Ireson, Principles of Engineering Economy (New York: The Ronald Press Company,
1970). Table E provides compound hterest factors at various rates.

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SummajryLofFinancial Requirements for EPA Construction Grants
In order to receive construction grant funding for a wastewater fac.ility, your community must:
Demonstrate the financial and management
capability needed to build and operate the
facility.
The demonstration entails answering five ques-
tions (see previous page) regarding the project
and how it will be financed; executing an inter-
municipal service agreement if necessary (see
below); and submitting a signed statement certi-
fying that your community can finance and
manage the system. (Financial and Management
Capability Policy; 40 CFR 35.2030 and .2104)
Submit an intermunicipal service agreement.
This agreement is needed if more than one town
is participating in the project. This agreement
must include: the basis upon which costs are
allocated, the formula by which costs are allo-
cated, and the manner in which the allocation
system will be administered. The requirement for
this agreement can be waived by the Region or
delegated State under certain conditions. (40 CFR
35.2107)
Submit a draft plan of operation.
This plan outlines all the steps needed to ensure
successful start-up and efficient operation of the
plant. The draft plan must discuss development
of: an instruction manual for running the plant,
a program .to follow in case of emergencies, e.g.,
power outages or severe weather; personnel train-
ing; an adequate budget; reports on how well the
plant operates; and a program of routine
operating and maintenance procedures. (40 CFR
35.2106)
Develop a user charge system.
This system must produce enough revenue for
proper operation and maintenance of the plant,
pump stations and collection system, and for
replacement of equipment when it wears out. It
must be based either on actual use, ad valorem
(property) taxes or a combination of the two. It
must also include a financial management system
which accurately accounts for revenues generated
by the user charge system and expenses for
operation, maintenance, and replacement of the
treatment system. (40 CFR 35.2122, .2140 and
.2208)

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Certification of Financial Capability

Your community must certify that it has the capability to finance and manage the proposed facility.

The answers to the preceding questions will provide useful information regarding the cost of the proposed facility, how it will
be financed, and what this means in terms of costs to the typical household user. In order to evaluate effectively the true
impact of the proposed treatment system, however, this information must be viewed within the overall context of the com-
munity's financial capability, which is the measure of its existing financial condition, financial resources, legal constraints,
and local public policy.                                                         j
Listed below are additional elements relating to a community's overall financial condition and its ability to pay the local costs
of constructing and operating the treatment system. These factors should be considered before signing the financial and
management capability certification.                         *


                     •  reasonableness of  population projections relative to historic trends
                        (if new population growth is needed to help finance  the proposed
                        system)


                     •  total current outstanding indebtedness                !
                                                                             ]

                     •  state finance laws and legal debt limits


                     •  historical trends in your community's revenue sources  (e.g., changes
                        in taxable assessed property valuation with respect to population)
                     • current bond rating and its historical trend
 If your community would have difficulty financing the proposed project, it should consider alternative methods of financing to
 mitigate the adverse impacts, re-evaluate the project alternative and scope, or consider staging implementation to spread
 out financing to future users. When certifying your project, the community should be fully satisfied that both the users and
 the community as a whole have the capability to finance and manage the facility as proposed.


 Statement of Certification                                            |

 I hereby certify that we have analyzed the local share of the costs of the proposed wastewater treatment facilities, including
 their financial impact on this community and the residents of the service area. As a result of these analyses, I have found
 that we have the legal, institutional,  managerial,  and  financial capability  to ensure adequate construction, operation,
 maintenance, and replacement of the wastewater treatment works.
                        (Signature of elected official or officer authorized to commit funding)
 Name:

 Title:

 Location:

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