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AGENDA II.a.
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AGENDA IV.
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METROPOLITAN WASTEWATER MANAGEMENT COMMISSION
RESOLUTION 23-09 ) IN THE MATTER OF CONTRACT WITH
) LEEWAY ENGINEERING FOR
) PRETREATMENT PROGRAM DOCUMENT
) AUDIT, PROGRAM UPDATES AND
) DOCUMENT DEVELOPMENT RELATED
) TO COMPLIANCE WITH MWMC NPDES
) PERMIT
WHEREAS, the Metropolitan Wastewater Management Commission (“MWMC”)
requires specialized consultant services to facilitate the fulfillment of the MWMC’s
responsibilities pursuant to the MWMC’s NPDES permit;
WHEREAS, on October 10, 2022, the Department of Environmental Quality
(DEQ) issued the MWMC a renewal NPDES permit with an effective date of November
1, 2022; and
WHEREAS, Schedule E of the renewal NPDES permit requires the Cities of
Eugene and Springfield to update their respective municipal ordinances to incorporate
the requirements of 40 CFR part 403 that will provide the legal authority to implement
and enforce the pretreatment program. Updated municipal ordinances for the Cities of
Eugene and Springfield must be submitted to DEQ for final approval by May 15, 2024;
and
WHEREAS, the Cities will need to update their pretreatment program documents
to ensure legal compliance with National Pretreatment Program requirements and the
updated Model Pretreatment Ordinance. The updated pretreatment program documents
would be submitted for DEQ approval alongside the updated Model Pretreatment
Ordinance; and
WHEREAS, pretreatment program document updates would audit the existing
pretreatment program and documents, and provide recommendations based on the
findings of the audit. The consultant would perform the necessary pretreatment program
document updates based on recommendations; and
Attachment 1
Resolution 23-09
WHEREAS, MWMC Rule 137-047-0285R (5)(i) authorizes the MWMC to award
a Personal Services Contract, as defined in MWMC Rule 137-046-0110 (24), without
competition if the consultant has “unique or specialized knowledge or expertise required
by the Commission” and “soliciting informal or formal proposals from others would not
be in the Commission’s best interests;” and
WHEREAS, Leeway Engineering Solutions (Leeway Engineering) has
specialized expertise as it relates to auditing and updating pretreatment program
documents in compliance with EPA and DEQ standards. Leeway Engineering has
experience developing and managing local water quality programs, is familiar with the
MWMC’s programs, and could perform the consultant services in compliance with the
DEQ’s required deadline for Model Ordinance final approval; and
WHEREAS, due to Leeway Engineering’s unique and specialized knowledge and
expertise, the criteria set forth in MWMC Rule 137-047-0285R (5) is satisfied;
NOW, THEREFORE, BE IT RESOLVED BY THE METROPOLITAN
WASTEWATER MANAGEMENT COMMISSION:
The duly authorized MWMC executive officer (or authorized designee) is hereby
authorized to: (a) designate qualified staff to negotiate and execute an agreement with
Leeway Engineering for a pretreatment program document audit, program updates and
document development related to compliance with the MWMC NPDES permit for an
authorized amount not to exceed $125,354; unless otherwise authorized by the MWMC;
and (b) delegate performance of the project manager functions and management of the
contract not to exceed a cumulative total of 10% ($13,928), as needed, to ensure
deliverables and services meet the contract requirements.
ADOPTED BY THE METROPOLITAN WASTEWATER MANAGEMENT
COMMISSION ON THIS 14th DAY OF JULY, 2023.
Digital Signature:
Digital Signature:
Digital Signature:
Attachment 1
Resolution 23-09
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AGENDA V.
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1 The OPCC is ranked as a Class 4 estimate having a -30%/+50% deemed range of accuracy.
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M E M O R A N D U M
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Attachment 1
January 2023 Communication Packet Memo - Class A Recycled Water Projects Update
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Attachment 1
January 2023 Communication Packet Memo - Class A Recycled Water Projects Update
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Attachment 1
January 2023 Communication Packet Memo - Class A Recycled Water Projects Update
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January 2023 Communication Packet Memo - Class A Recycled Water Projects Update
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AGENDA VI.
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METROPOLITAN WASTEWATER
MANAGEMENT COMMISSION
2019 FINANCIAL PLAN
MAY 10, 2019
Attachment 1
2019 Financial Plan - Financial Management Policies
Attachment 1
2019 Financial Plan - Financial Management Policies
TABLE OF CONTENTS
INTRODUCTION AND PURPOSE 1
SCOPE AND METHODOLOGY 2
MWMC FINANCING HISTORY 4
TWENTY YEAR CIP NEEDS 7
FINANCING OPTIONS EVALUATION/
FINANCING STRATEGIES 8
MWMC FINANCIAL SOUNDNESS AND FUTURE
FINANCING CAPABILITY 10
FINANCIAL MANAGEMENT POLICIES 11
TECHNICAL APPENDICES 19
Appendix I “Credit Worthiness in the U.S. Public Wastewater Sector” 20
Appendix II “Summary of Capital Financing Options” 25
Appendix III “GFOA Recommended Financial Policies” 34
Appendix IV “City of Springfield Investment and Portfolio Policies” 37
Appendix V “List of Acronyms” 44
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INTRODUCTION AND PURPOSE
The 2019 Metropolitan Wastewater Management Commission (MWMC) Financial Plan updates
goals and policies in the 2005 MWMC Financial Plan update, as originally set forth in the 2003
MWMC Financial Master Plan. This Plan, in conjunction with municipal, State, and Federal
law, is intended to guide the financial administration of the Eugene/Springfield Regional
Wastewater Program (RWP).
Financial administration of the RWP is directed toward achieving the following objectives as
required by Section 3.f. of the MWMC Intergovernmental Agreement (IGA):
1. Establishing revenue adequacy to provide for long-term health and stability of the regional
sewerage facilities through a program of monthly sewer user charges, and system
development charges that are imposed uniformly throughout the service area to achieve full
cost recovery;
2. Fully funding the needs for equipment replacement and major rehabilitation to address the
long-term preservation of the Regional Sewerage Facility capital assets;
3. Fully funding a program of capital improvements to address capacity, regulatory and
efficiency/effectiveness needs;
4. Ensuring equity between newly connected and previously connected users for their total
contributions toward the Regional Sewerage Facilities;
5. Ensuring equity among various classes of users based on the volume, strength and flow rate
characteristics of their discharges together with any other relevant factors identified by the
Commission;
6. Ensuring efficient and cost-effective financial administration of the Regional Sewerage
Facilities; and
7. Complying with applicable laws and regulations including those governing the
establishment of user charges and the establishment of system development charges
pursuant to ORS 223.297 et seq.
To address these objectives, this Financial Plan contains sections and appendices detailing the
financing history of the MWMC, financing options for the future, and financial strategies and
policies.
The financial policies and strategies in this plan provide guidance to the Commission and staff in
daily operations, annual budgeting and rate setting, and decision-making when considering
competing projects or revenue sources.
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SCOPE AND METHODOLOGY
The scope of the 2019 Financial Plan addresses the long-term stewardship of the Regional
Wastewater Facilities, as defined in the Intergovernmental Agreement. The 2019 Financial Plan
builds on the foundation established by the 2005 Financial Plan update, and the 2003 Financial
Plan. The 2005 Financial Plan update was developed by a team of Eugene and Springfield RWP
staff. The 2003 Financial Plan was developed by a team of Eugene and Springfield RWP staff
and senior-level financial analysts from the Lane Council of Governments (LCOG). The 2003
Financial Plan represented the first comprehensive effort to update MWMC’s financial policies
since 1992.
Major tasks undertaken in the 2003 Financial Plan included:
A. A review, re-evaluation and update of the issues that framed the 1992 MWMC Financial
Master Plan;
B. An evaluation of the financial condition of the MWMC RWP and its preparedness to
address future capital and operating financial needs; and
C. Development of financial policies to guide administration of MWMC finances and
budgeting for a ten-year period.
The foundation for the 2003 Financial Plan included:
A. Five, ten and twenty-year capital program projections (including Capital Improvement
Plan, Major Rehab, and Equipment Replacement projections);
B. Long-term MWMC revenue and expenditure forecasts;
C. Government Finance Officers Association (GFOA) Recommended (Financial) Practices;
D. Comparative analyses with other similar utilities and industry standards;
E. A comparison of MWMC against national indicators of financial health in utilities,
including those used by the major credit rating industries.
In 2004, the Commission completed and the Governing Bodies adopted the first comprehensive
regional facilities plan since the original “208 Plan”, which formulated the designs of the original
regional wastewater facilities. The 2004 MWMC Facilities Plan includes a 20-year Project List,
which will serve to guide MWMC’s Capital Improvement Program through 2025 to increase
performance and capacity of the facilities to meet regulatory and community growth needs.
Implementation of the 2004 Facilities Plan required strategic use of long-term borrowing and
careful management of revenues and reserves in order to maintain stable and competitive user
rates. Therefore, in 2005, the Commission’s Financial Plan was re-evaluated and updated with
the assistance of MWMC’s financial advisors and bond counsel. Again in 2019, the Financial
Plan was reevaluated and updated with the assistance of MWMC’s financial advisor (PFM).
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The 2005 and 2019 Financial Plan updates generally included:
A. An update of the financial planning objectives to clearly reflect the directives of the
Governing Bodies (as stated in the MWMC IGA).
B. A general review to bring the information contained in the plan up to date;
C. A review of the policies by financial advisors to ensure adequacy; and
D. An update of the information pertaining to financing mechanisms suitable for the
MWMC’s uses in Appendices I, II and III.
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MWMC FINANCING HISTORY
MWMC Formed In 1977
Prior to the 1970s, the cities of Eugene and Springfield operated separate sewage treatment
systems. The passage of the Clean Water Act in 1972 required wastewater management to be
done by communities on a regional, rather than local, basis as a prerequisite to qualify for
Federal grant funding. As a result, Eugene, Springfield, and Lane County formed the MWMC in
1977.
Relationship of the Regional Partners
MWMC was formed by Eugene, Springfield, and Lane County through an IGA in 1977 to
provide wastewater collection and treatment services for the Eugene-Springfield metropolitan
area. The MWMC is an “intergovernmental entity” as defined in the Oregon Revised Statutes
(ORS 190).
The seven-member Commission is composed of members appointed by the Lane County Board
of Commissioners (2) and the City Councils of Eugene (3) and Springfield (2). The three bodies
appoint one member each from their respective Board or Council. In addition, Springfield and
Lane County each appoint one citizen (non-elected) Commissioner, and Eugene appoints two.
Staffing and services needed to run and maintain the RWP have been provided in various ways
over the years of MWMC’s existence. Since 1983, the Commission has contracted with the
cities of Eugene and Springfield for all staffing and services necessary to maintain and support
the RWP. This arrangement is stipulated in the MWMC IGA. MWMC has no employees.
Through an intergovernmental services agreement, the City of Eugene provides staff and
materials necessary to operate and maintain RWP facilities. Through the same agreement, the
City of Springfield provides staff and materials necessary to perform the administration and to
construct RWP capital projects. Both cities are compensated for actual costs by the MWMC.
This division of duties has provided nearly seamless administration and operation of the RWP.
Lane County’s partnership has involved participation on the Commission and providing support
to the Lane County Metropolitan Wastewater Services District (CSD), which managed the
proceeds and repayment of the RWP general obligation bonds issued to construct the RWP
facilities. These bonds were repaid in full in 2002.
MWMC Facilities Construction
Construction of the MWMC Regional Wastewater Facilities (RWF) began shortly after MWMC
was formed. The new facilities became operational in 1984, with most of the RWF projects
being completed in the late 1980s. The primary sources of funding for the RWF projects were
approximately $80 million in Environmental Protection Agency (EPA) grants. In May 1978,
voters authorized the issuance of $29.5 million in general obligation (GO) bonds by the Lane
County Metropolitan Wastewater Service District (CSD) to fund the local share of the RWF.
Environmental Protection Agency grants funded approximately $80 million in additional project
costs. The GO bond authorization was issued in its entirety in four separate series of bonds sold
between 1978 and 1982. A fifth series of bonds was issued in October 1989 for refinancing a
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portion of the CSD’s Series 1980 and 1982 bonds. This refinancing resulted in approximately
$615,000 in debt service savings. All GO bonds were retired in September 2002.
Since the late 1980s, a number of projects have been completed using a combination of funds
remaining from the GO bonds, user fee revenue, and system development charges (SDCs). CIP
budgets were primarily composed of projects identified by the 1996 Eugene/Springfield Water
Pollution Control Facility (WPCF) Master Plan, the Biosolids Master Plan, and the Wet Weather
Flow Management Plan (WWFMP). The 1996 Master Plan provided an assessment of facilities
improvements needed to enable regional wastewater treatment facilities to meet their intended
design capacity and regulatory requirements, address system deficiencies, and improve safety
and operational performance. The Biosolids Management Plan and the WWFMP resulted from
recommendations included in the Master Plan. The Biosolids Management Plan remains the
basis for most of the biosolids-related CIP projects.
The WWFMP provided the basis for wastewater treatment facility performance improvements
related to wet weather peak flow that were to be constructed over an eight to ten year period. In
order to identify the impacts of these projects on other treatment facility processes, a Wet
Weather Flow Pre-Design Project was initiated in FY 02-03. As work proceeded on the Pre-
Design Project, it became apparent that, due to increased environmental performance required by
the wastewater discharge permit and updated projections of population and capacity needed
through 2025, a comprehensive facility planning effort was needed. The 2004 MWMC Facilities
Plan was a result of this effort and was adopted by the Commission and partner agencies in June
of 2004.
The 2004 Facilities Plan revealed several process areas which are at or near capacity and
identifies projects which will assure that all process areas will have sufficient capacity to meet
the needs of current and future users through the year 2025. The 2004 Facilities Plan also
identifies alternative future uses of the Seasonal Industrial Waste Facility and addresses possible
regulatory compliance issues that may arise in the coming years. The needs identified in the 2004
Facilities Plan and anticipated permit standards, resulted in additional funding needs and the
subsequent issuance of the 2006 and 2008 revenue bonds.
The 2014 Partial Facilities Plan Update describes the regulatory landscape, provides an interim
assessment of wastewater treatment capacity requirements, and recommends incremental
changes to the 2004, 20-year CIP schedule through the year 2025.
MWMC User Rates
The MWMC's user fee system was developed and implemented in 1985. State and Federal
regulations require that MWMC’s system of charges and rates generate sufficient revenue to pay
the total operation and maintenance costs necessary to fund the proper operation and
maintenance (including replacement) of the treatment works. Annual allocations are made to an
Equipment Replacement Reserve from user fee revenue. Funds from this reserve are used to pay
for timely replacement of equipment, with an original cost over $10,000, and with a useful life
expectancy greater than one year. User fee revenues are also used to fund capital projects.
MWMC System Development Charges
MWMC’s original SDC, which was known as a Facilities Equalization Charge was first
implemented in 1991. In today’s terms, the Facilities Equalization Charge was a reimbursement
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SDC. In 1997, MWMC adopted a major revision to its SDC methodology. The new
methodology included, in addition to the reimbursement SDC, an “improvement” SDC based
upon a 5-year CIP. In 2004, MWMC completed a comprehensive update of its SDC
methodology. The SDC methodology was updated again in 2006, and most recently in 2009.
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TWENTY-YEAR FINANCING NEEDS
MWMC maintains a Capital Improvements Program (CIP) and a Capital Financing Plan in order
to facilitate short-term and long-term budgeting and rate making decisions. The revenue or fund
forecast projects revenues available from user rates, SDCs, interest earnings and other
miscellaneous income, and contains inflationary assumptions. The expenditure forecast is based
on projected Operating budgets, with inflationary assumptions, and Capital budgets based on the
2004 Facilities Plan 20-Year Project List and projected equipment replacement and major
rehabilitation needs.
A 5-year CIP is maintained and supports the long-range expenditure/revenue forecasting process.
The 5-year CIP includes projects identified in the 2004 Facilities Plan 20-Year Project List.
Projects remaining from the Facilities Master Plan (1997), the Biosolids Management Plan
(1998), and the Wet Weather Flow Management Plan (WWFMP) (2000), were included in the
2004 Plan. In addition, projects are included that extend the life of the RWF and/or help meet
new National Pollutant Discharge Elimination System (NPDES) permit requirements. The 5-year
CIP is based upon engineering cost estimates and identifies funding for each project. The 2004
Facilities Plan 20-Year Project List contains budget level estimates of project costs (in 2004
dollars) and approximate timing of projects. Since 2006, the NPDES permit has been
administratively extended by the Department of Environmental Quality (DEQ).
Since the original grant and GO bond proceeds have been exhausted, MWMC has met annual
operating expenditure needs, including budgeted contributions to Capital Reserves (which fund
the majority of the CIP) through user rate revenues. From 1996 through 2003 these revenue
requirements were met with only modest increases to user rates over time. However, the
combination of decreased per capita water consumption (through conservation programs and
improved plumbing fixtures) increased operating expenses at greater than inflationary rates, and
the estimated $144M - $160M (in 2004 dollars) in capital project costs associated with the
facilities plan 20 year project list, has led to the need for a combination of capital financing and
increased user rates. Subsequently, the MWMC issued revenue bonds in 2006 and 2008 to fund
capital project costs. These two revenue bonds were refunded and replaced, with the Series 2016
Revenue Bonds. SDCs and Clean Water State Revolving Fund (CWSRF) loans, other sources of
revenue to support the Capital Improvement Program, are providing a portion of the funding for
the projects in the 20-Year Project List.
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FINANCING OPTIONS EVALUATION/
FINANCING STRATEGIES
Over the long term, MWMC must reinvest in infrastructure and equipment to maintain the value
of existing assets and, when feasible, to prolong the useful life of those capital investments. The
Commission must also ensure that the Regional Wastewater Facilities have capacity to keep pace
with new development and meet regulatory requirements. How the Commission funds these
investments is critical to the timing, scope, and cost of the MWMC CIP, and the stability of
regional sewer user rates.
Based on the projected declines in Capital Reserves and user rate availability to fund capital
programs over the next several years (assuming rate increases match inflation only), a capital
financing strategy needs to be employed that will result in adequate funding without significant
rate spikes and instability. Therefore, the most cost-effective mix of “pay-as-you go” and debt-
financing strategies should be applied.
A comprehensive review of available financial tools, including an evaluation of their
appropriateness to MWMC was conducted. Bonds, loans, grants, SDCs and user fee revenues are
all common methods of funding capital projects in the wastewater industry. The type of
financing a wastewater management agency would use in a given set of circumstances depends
on the type of project, the size of the project, any statutory requirements and the financial health
of the utility. In examining the available financing options, staff has tried to identify and
segregate financial tools by the size of projects for which they are appropriate, administrative
ease of implementation, degree of risk, customer equity, and cost.
After a thorough evaluation of funding opportunities for capital projects, the mechanisms
described below were determined to be the most appropriate in the circumstances provided. A
complete discussion and analysis of these financing tools is found in Appendix II.
Grants – Whenever possible, state and federal grant funding will be sought to pay for projects
identified in the CIP.
User Fee Financing and System Development Charges – For short-lived assets and relatively
small capital expenses, these pay-as-you-go options should be used. These revenues should be
accumulated in and drawn from dedicated reserves to avoid significant impacts to user rates. If
capital expenditures from these sources would cause significant changes in rates, other options
will be explored.
Debt Financing – In situations where grant funding is not available and pay-as-you-go
alternatives are either not appropriate or not available, the Commission will consider debt
financing options, including:
Internal Loans – Internal borrowing from reserve funds is an excellent use of the
Commission’s cash resources for relatively small capital requirements and should be
considered prior to seeking loans from outside sources unless depletion of reserves would put
the RWP at risk of having insufficient cash to satisfy debt obligations or address
unanticipated needs. Strategic use of internal borrowing from the equipment replacement
reserve will allow the commission more control over the timing and sizing of debt issuance
by providing temporary funds.
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State Revolving Fund (SRF) or other Loans - Loans from outside sources, such as SRF
loans are considered appropriate when it is not practical, in terms of timing, magnitude or
equity, for the Commission to finance large capital projects on a pay-as-you-go basis.
Revenue Bonds – Revenue bonds also are considered appropriate when it is not practical, in
terms of timing, magnitude or equity, for the commission to finance large capital projects on
a pay-as-you-go basis.
Any incurrence of debt, whether a loan or a bond sale, should be timed and structured to ensure
optimal rates and terms, by timing, phasing, and/or combining capital projects as appropriate. In
all cases where debt is incurred, the projected life of the asset financed must meet or exceed the
life of the debt instrument. Prior to issuing any debt, the Commission shall determine the
source(s) of repayment (i.e., user fees, system development charges, and/or other revenues).
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MWMC FINANCIAL SOUNDNESS AND FUTURE
FINANCING CAPABILITY
Introduction
MWMC may need to use some form of debt financing in the future, based on anticipated NPDES
permit requirements, to fund capital improvements. It is important for the utility to have ready
access to the capital financing markets in order to keep open various options for securing debt
funding. Appendix I provides an overview and assessment of both qualitative and quantitative
credit worthiness indicators used in the wastewater industry.
Financial Soundness and Financing Capability
The financial industry uses a variety of financial ratios to quantify a utility’s financial soundness.
Examples of these financial ratios are:
Debt service coverage;
All-in coverage;
Debt to operating revenues;
Days cash on hand;
Debt to capitalization; and/or
Asset condition.
Appendix I describes a number of the most common financial ratios used. It is clear from the
quantitative analysis in Appendix I that MWMC is positioned well financially. Both MWMC’s
current financial situation and the future debt-financing scenarios result in performance on the
quantitative measures that exceeds (in a good sense) the national medians and the financing
industry’s guidelines. MWMC’s financial ratios perform very well under the scenarios analyzed.
The qualitative measures assessed in Appendix I also indicate that MWMC is in a strong position
with respect to its credit worthiness. MWMC’s sound financial management, long-term financial
forecasting and planning, stable operations and a host of other qualitative indicators all indicate
that MWMC has perform well in recent credit rating agency assessments (Aa2/AA by Moody’s
and S&P, respectively).
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FINANCIAL MANAGEMENT POLICIES
Introduction
The following policies are intended as guidance for the financial administration of the RWP.
These policies address all areas of the Government Finance Officers Association (GFOA)
Recommended Financial Policies. When circumstances warrant, the Commission may waive one
or more provisions as necessary. Such waivers shall not be considered a violation of the
MWMC Financial Plan.
MWMC Financial Policies are grouped into the following categories:
Financial Forecasting and Budgeting,
Investment of Liquid Assets,
Capital Planning and Financing,
Sewer User Rates and SDC’s, and
Asset Management.
Financial Forecasting and Budgeting
Financial forecasts and budget policies are intended to guide the Commission in prudent
financial forecasting and budget planning, and are included to ensure the financial security and
bonding capacity of the RWP, as well as meeting minimum legal budget requirements. This set
of policies also addresses the Commission’s legal and contractual commitments regarding the
use of sewer revenues to pay for sewer expenses.
Policy F1 The purpose of the RWP is to protect public health and safety and the
environment by providing high quality wastewater management services to the
Eugene/Springfield metropolitan area. The MWMC and the regional partners are committed to
providing these services in a manner that is effective, efficient, and meets customer service
expectations. In order to achieve its purpose, the Commission shall establish and maintain key
outcomes upon which RWP work plans and budgets will be focused.
Discussion – Indicators of performance and targets shall be identified for each key outcome.
Performance relative to identified targets shall be tracked over time, in order to determine
whether the desired results have been achieved.
Policy F2 The Commission shall maintain annual budgets that balance operating expenses
and transfers with user fees and other current operating revenue.
Discussion – Long-term financial stability can only be assured if each year’s budget is fully
funded and balanced. The budget is considered balanced when:
Expected annual operating revenues meet anticipated operation and maintenance
expenses,
Budgeted capital outlays are funded in full from a combination of operating revenues,
capital reserves, accumulated SDCs, and debt proceeds,
Annual operating statements show a positive net income on a budgetary basis; and
The debt service coverage ratio is at or above that required by any applicable bond
covenants.
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Policy F3 The Commission will monitor revenues and expenditures, and maintain a
balanced budget through an appropriate combination of cost-saving measures, budget transfers,
supplemental budgets and/or user rate adjustments as needed.
Policy F4 The Commission shall maintain a capital planning and financing system for use in
preparing a multi-year CIP for consideration and adoption by MWMC and ratification by the
partner agencies’ governing bodies as a part of the Commission’s budget process. This system
shall include preparation of a rolling CIP (described in Policy C1) and a Capital Financing Plan
(CFP).
Discussion - Each year, staff shall update its CFP based on the multi-year CIP and assumptions
and projections related to increased operational requirements, inflation, and other cost factors.
The CFP will support staff’s analysis and development of revenue requirements, budgeted
expenditures, and user charges. The CFP shall contain a ten-year projection of revenue
requirements from all revenue sources, and resulting user rates needed to fund operating budgets,
capital budgets, and debt service.
Policy F5 The Commission shall establish and maintain prudent minimum cash reserves,
including, but not limited to Contingency Reserves and the reserves discussed below, as needed.
F5a) The Working Capital Reserve shall be sufficient to fulfill operating and capital
cash flow needs. The Working Capital Reserve is set at a minimum of $200,000 for the
City of Springfield, and $700,000 for the City of Eugene. The reserves are sized to
provide the cities with cash to pay expenses until the sewer user fees are received. The
size of the reserve is reviewed annually and may be adjusted as needed to ensure that it is
sufficient and that neither city experiences negative cash flow.
F5b) The Operating Reserve shall be maintained to minimize the impact of
unanticipated revenue shortfalls. In the operating budget, the guideline for establishing
the Operating Reserve, when preparing annual budgets, is set at two months of the
operating expenditure budget.
F5c) The Capital Reserve accumulates revenue to help fund capital projects (including
major rehabilitation). The Capital Reserve is funded by annual contributions from user
rates and is used to fund capital projects as determined through the annual budget
process. In no year shall the Capital Reserve be allowed to fall below $1 million in the
adopted budget.
F5d) The Equipment Replacement Reserve is intended to accumulate funds necessary
to provide for the timely replacement or rehabilitation of equipment, and may also be
borrowed against to provide short-term financing of capital improvements. An annual
analysis is performed on the Equipment Replacement Reserve. The annual contribution
is set so that all projected replacements will be funded over the expected life of the assets,
the reserve will contain replacement funds for all equipment projected to be in use at that
time. Estimates used in the analysis include interest earnings, inflation rates and useful
lives for the equipment.
F5e) A Rate Stability Reserve shall be maintained as necessary to protect ratepayers
from volatility in user rates and to enhance credit-worthiness. The intent of a Rate
Stability Reserve is to set aside funds to provide stable rates over a period of years.
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Establishing user rates with an anticipated contribution to the Rate Stability Reserve
smooths out the financial impact of required rate increases on customers over time, and
hedges against potential rate spikes when assumptions about the future prove to be
incorrect. Revenue is allocated to the Rate Stability Reserve only after budgeted
Operating Reserve and Capital Reserve transfer targets are met.
F5f) The Reimbursement SDC Reserve accumulates revenues derived from the
“reimbursement fee” component of SDCs charged to new development along with
accrued interest. Expenditures of these funds is limited to support capital projects and
debt service payments in accordance with ORS 223.311.
F5g) Improvement SDC Reserve accumulates revenues derived from the
“improvement fee” component of SDCs charged to new development along with accrued
interest. Expenditures of these funds are limited to support capacity-enhancement capital
projects and debt service payments in accordance with ORS 223.311.
F5h) A Bond Reserve if/when required by investors, shall be sufficient to provide
assurances to bondholders that adequate revenue coverage will be provided for future
debt-service payments.
F5i) The Rate Stabilization Reserve contains funds to be used at any point in the future
when the net revenues are insufficient to meet the bond-covenant coverage requirement.
The Commission shall maintain the Rate Stabilization account as long as bonds are
outstanding. Money in the Rate Stabilization account may be withdrawn at any time and
used for any purpose for which gross revenues may be used. Earnings on the Rate
Stabilization Account shall be credited to the sewer fund.
F5j) The Insurance Reserve is intended to accumulate funds necessary to provide for
payments of the self-insured amount and/or deductible of any insured loss and payments
for losses that are either uninsured or uninsurable. The Insurance Reserve is set at a target
at $1,500,000 in the adopted budget.
Discussion – Each reserve has specific sources and uses, and the order in which the reserves are
accessed to meet operating and capital needs follows:
In the operating budget, in the event of a revenue shortfall, funds will first be transferred from
the Rate Stability Reserve. If additional funds are necessary, the Operating Reserve will then be
used. If additional funds are still needed, the budgeted transfer from the Operating Fund to the
Capital Reserve will be reduced.
Funding for capital projects will come from a combination of SDC reserves, Capital reserves,
and debt financing. During each year’s budget process, staff will consider reserve levels,
reporting requirements, arbitrage considerations, and debt issuance costs associated with
borrowed funds and cash flow needs to determine the specific funding source for each project in
the budget.
Policy F6 MWMC funds are dedicated for the exclusive benefit of the RWP including
operating expenses, debt service payments, and the associated capital program.
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Investment of Liquid Assets
The liquid assets of the Metropolitan Wastewater Management Commission (MWMC) are
managed by the City of Springfield, in the City’s capacity as the MWMC’s administrative
agency.
As part of its MWMC administration functions, the City of Springfield manages MWMC funds
in compliance with the Springfield Investment and Portfolio Policies (Appendix IV) as
updated and amended from time to time. These policies are consistent with the local government
investment requirements defined in Oregon Revised Statutes (ORS 294), and are substantially
similar to the public funds investment policies of Eugene and Lane County.
Policy I1 Cash on hand that is not invested is kept in a local bank. Because the balance is
usually in excess of the FDIC insured amount of $250,000, the bank must participate in the
Oregon Certificate of Participation Collateral Pool. This protects depositors from loss in the
event of bank failure.
Policy I2 MWMC funds are invested based on the following criteria: Safety, Legality,
Liquidity, Diversity, and Yield. For purposes of investing, MWMC and Springfield funds are
co-mingled, but are tracked separately.
Policy I3 For day-to-day investing purposes, the City of Springfield uses the State of
Oregon Local Government Investment Pool (LGIP). The LGIP provides a modest rate of return
with nearly immediate liquidity. In addition to the LGIP, the City of Springfield can invest in
U.S. Treasury Obligations, U.S. Government Securities, Bankers’ Acceptances, Corporate
Bonds, Repurchase Agreements, Oregon and Local Government Obligations, Regional Debt
Obligations, and Time Certificate of Deposits. With the exception of the LGIP, no more than
25% of the portfolio can be invested with any one financial institution, and there are limits to the
amount that can be invested in any one type of instrument. For instance, a maximum of 25% of
the portfolio can be invested in corporate bonds.
Discussion – Guidelines were created to ensure adequate liquidity. For instance, at least 10% of
the short-term investments must be in instruments with a maturity of less than 30 days, 25%
must mature within 90 days and, with certain exceptions, all investments in this portfolio must
have a maturity date of 18 months or less. Longer maturities are allowed with approval of the
Finance Director and when matched to a specific cash flow. The City of Springfield Finance
Director also serves as the MWMC Chief Financial Officer.
The investment policy requires that internal controls for cash and investment activity be
established and followed. The policy also requires that the financial condition of the
broker/dealers and financial institutions involved in the investment program be reviewed
annually and that monthly cash and investment reports be issued and reviewed to demonstrate
compliance with the limits outlined in the policy (Appendix IV contains the full text of the City
of Springfield Investment Policy).
Capital Planning and Financing
Capital planning and financing policies direct those necessary future capital improvements be
identified together with the financial resources needed to complete them. These policies also
direct that major capital costs be spread over time to stabilize user rates and to provide equity
among current and future ratepayers for long-lived capital improvements.
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Policy C1 The Commission shall maintain a capital planning and financing system for use in
preparing a multi-year CIP for consideration and adoption by MWMC and ratification by the
partner agencies’ governing bodies as a part of the Commission’s budget process. This system
shall include preparation of a rolling CIP and a Capital Financing Plan (described in Policy F4).
Discussion – Each year, staff will prepare a 5-year CIP made up of new capital projects, major
rehabilitation projects, and equipment replacement. The 2004 Facilities Planned 20-Year Project
List, as updated from time to time, shall be a primary tool for long-range capital planning, along
with the long-term list of major rehabilitation and equipment replacement needs, which are
updated annually.
The CIP shall contain a comprehensive description of the capital projects, sources of funds, the
timing of capital projects, and the amount expected to be expended in each year for future
operating and capital budgets.
Policy C2 The Commission shall establish and maintain a list of approved finance
mechanisms.
Discussion – Appendix II contains the listing and discussion of approved financing mechanisms.
Policy C3 The Commission shall rely on the advice of its independent financial advisor and
bond counsel, as well as GFOA guidance, to structure bond covenants.
Policy C4 Commission debt should be structured to match the expected useful life of the
assets to be funded, preferably not to exceed 20 years, however recognizing there may be some
instances where a longer period is warranted.
Policy C5 Long-term bonding shall be structured to maximize its cost effectiveness.
Policy C6 Before seeking to incur new debt, all available grant programs shall be evaluated
for their potential to offset targeted program costs.
Policy C7 Consideration shall be given to the overall level of debt financing that can be
sustained over the long-term given the size of the future capital programs, potential impacts on
credit ratings, and other relevant factors such as intergenerational rate equity, overlapping debt,
and the types of projects appropriately financed with long-term debt.
Policy C8 The Commission shall annually target at least 2% of the RWP asset value for
capital reinvestment. This includes the amounts to be budgeted for major rehabilitation and
equipment replacement, and includes regular scheduled maintenance and CIP.
Discussion – This will allow the target for annual infrastructure maintenance to increase as the
size of the asset base increases.
Policy C9 The maximum bonded debt burden shall be determined by comparing the debt
service to the user rate revenues. Budgeted debt service shall not exceed 25% of budgeted user
rate revenue.
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Sewer User Rates and System Development Charges
User rate and SDC policies are intended to guide the Commission in establishing annual rate
structures and approving RWP capital improvement and operating budgets. User rate and SDC
policies shall be directed towards achieving the requirements of IGA Section 3.f.1. - .7.
Policy R1 Monthly sewer user rates, which are the primary source of revenue for the RWP,
are to be equitably allocated to all users based on a cost of service assessment that considers,
among other factors, the volume, strength, and flow rate characteristics of their discharges.
Policy R2 Existing and new sewer users shall equitably contribute to recovering all costs
associated with the RWP. To implement this policy, user rate and SDC methodologies will
consider wastewater quantity, quality, and strength, consistent with State law.
Discussion: “New users” means users produced from
1. New connections to the existing collection system, including:
a. new single family and multiple unit residential connections; and
b. new commercial or industrial connections;
2. Expansions in activity from existing connections, including:
a. conversion of residential units (single or multiple) to include additional users or
equivalents, or both; and
b. expansions in commercial or industrial activity; and
3. Septic to sewer conversions.
Policy R3 MWMC rate structures shall be sufficient to fully fund reserves, comply with
bond covenants and cover the costs of constructing, operating, rehabilitating, maintaining, and
improving the MWMC assets, while maintaining an un-enhanced credit rating of A+ or higher
for the Commission’s bonds.
Discussion – A rate sufficiency covenant is a standard provision in municipal utility bond
contracts. The covenant requires that rates and charges be set at a level that is high enough to
pay the costs of operating and maintaining the utility. The intent of this policy is to assure that
MWMC rates and charges will be maintained at a level consistent with maintaining an un-
enhanced credit rating of A+ for the Commission’s bonds.
MWMC should strive to maintain rates and charges that provide sufficient financial flexibility to
accomplish strategic objectives for long-term water and biosolids quality, customer satisfaction,
and community support.
Policy R4 The Commission will attempt to adopt user rates that provide multi-year stability.
Discussion – A multi-year rate schedule establishes user rates that are applicable over several
years. They may be the same each year, or change at some frequency. A Rate Stability Reserve
shall be maintained to ensure that adequate funds are available to sustain the rate through
completion of the rate cycle.
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The General Manager shall prepare and submit to the Commission a report in support of the
scheduled or proposed monthly sewer rates for the next year, including the following
information:
key financial assumptions such as inflation,
bond interest rates,
investment income,
size and timing of bond issues,
the considerations underlying the projection of future growth in residential customer
equivalents,
all key projections, including the annual projection of operating and capital costs, debt
service coverage, cash balances, revenue requirements, revenue projections and a
discussion of significant factors that impact the degree of uncertainty associated with the
projections, and
a discussion of the accuracy of the projections of costs and revenues from previous recent
budgets.
Policy R5 Costs of existing and future capacity for new customers shall be recovered by
SDCs that are based on the cost of existing and required new capacity in conformance with the
Commission’s SDC methodology.
Discussion – The Commission should periodically review the SDCs to ensure that equity is
established between newly connected and previously connected users for their total contributions
toward the Regional Sewerage Facilities.
Policy R6 Costs of services (direct and indirect) provided to any public or private
organizations by the RWP shall be recovered through appropriate fees or charges.
Discussion – Costs for administering the mobile waste hauler program are recovered through
rates set on a cost of services basis, including a statewide market comparison.
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Asset Management
Asset management policies are intended to guide the Commission in protecting and safeguarding
the investment in regional facilities and equipment. Capital assets shall be kept in sound
working condition. Replacement, maintenance, and rehabilitation shall be provided for, so that
total system costs are minimized while reliable, high quality service and high water quality
standards are maintained.
Policy A1 MWMC assets shall be insured for replacement value so that, in the event of a
loss, plant and equipment could be restored to working condition.
Policy A2 The Commission shall maintain a fully funded Equipment Replacement Reserve
so equipment may be replaced or rehabilitated when needed, without creating volatility in the
operating budget.
Policy A3 Equipment provided for by the Equipment Replacement Reserve shall include all
fleet equipment, and other equipment, with an original cost over $10,000, and with a useful life
expectancy greater than one year.
Discussion – The equipment list shall be reviewed annually and estimates of replacement cost
and life expectancy adjusted. The analysis shall make use of other estimates, such as inflation
and available resources, such as interest earnings on the reserve balance.
Before equipment is replaced, an analysis shall be done to determine if it should be kept in use
longer, rehabilitated to extend its life, replaced with similar equipment, or replaced with different
equipment. Equipment that outperforms projections in useful life expectancy may be replaced
with funds accumulated in the reserve.
Policy A4 Major Rehabilitation work shall be funded from the Capital Reserve and
appropriated annually into a budget line item called Major Rehabilitation.
Policy A5 The Major Rehabilitation work shall be capitalized if it extends the useful life of
the asset beyond the original estimate. If the Major Rehabilitation work does not extend the life
of the asset, but enables the asset to reach its originally estimated useful life, then it will be
considered major maintenance work and not capitalized.
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TECHNICAL APPENDICES
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APPENDIX I
CREDIT WORTHINESS IN THE U.S. PUBLIC WASTEWATER SECTOR
Background
The wastewater utility industry in the United States is very capital intensive. In addition to
adding capacity necessary to accommodate population growth, sewer utilities must also reinvest
in capital assets to extend the life of the facilities, and to maintain compliance with
environmental and other regulatory requirements. Even the smallest wastewater utilities must
spend millions to preserve, upgrade and expand their plant facilities. In order to meet new and
ongoing capital needs, it is essential for the wastewater utility industry (including MWMC) to
have ongoing access to capital financing markets.
In the 1970s and 1980s, Federal grants were available to build and upgrade facilities. For
example, MWMC was awarded more than $80 million in Federal grants to construct the
Eugene/Springfield wastewater facilities. In the years since, a significant portion of the
wastewater industry’s capital needs have been met using current revenues (also known as pay-as-
you-go). However, among water and wastewater utilities, debt financing is becoming
increasingly necessary and common: Moody’s 2019 outlook for water and sewer utilities
indicates that “capital needs are large relative to revenue, and the rate of reinvestment is expected
to remain low.” Debt financing – through state or Federal loan programs or public bond
offerings – is the likely mechanism to fill that gap.
Demonstrating and maintaining creditworthiness in the eyes of the capital financing markets is
critical to obtaining bond financing at the lowest possible interest rate. Establishing policies,
practices and other terms of operation that confirm and enhance creditworthiness should be a
primary goal of the MWMC Financial Plan, and guide the management of the utility.
Measuring Credit Quality
While capital debt may be structured in numerous ways, revenue bonds and general obligation
bonds are the most common instruments used by the public sewer industry in the United States.
For example, MWMC matched the Federal grant funds with $29.5 million in general obligation
bonds to fully-finance construction of the regional wastewater facilities.
Public sewer utilities are generally viewed favorably by credit rating agencies and bond
investors, because they tend to be very stable with minimal risk of default. They are highly
regulated, essential to the public good, and often operate with a natural monopoly. The
regulatory bodies for wastewater utilities typically have the authority to establish user fees and
charges necessary to cover debt obligations.
The wastewater industry, as a whole, has an extremely good credit history. However, individual
wastewater utilities are still subject to close scrutiny when issuing large amounts of debt. When
assessing the credit quality of a wastewater utility, a credit rating agency will generally examine
several specific areas, including:
Financial ratios and other indicators of fiscal health,
Management quality and practices,
Non-financial system characteristics,
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Size and diversity of the customer base and other customer characteristics, and
Local economic health and other community characteristics.
In January 2016, S&P Global Ratings (“S&P”) published its most recent U.S. Public Finance
Waterworks, Sanitary Sewer, And Drainage Utility Systems: Rating Methodology and
Assumptions. The rating methodology incorporates two components:
1) The Enterprise Risk Profile, including:
a. Economic fundamentals
b. Industry risk
c. Market position
d. Operational management assessment
2) The Financial Risk Profile, including:
a. All-in coverage (coverage of both debt service and ongoing operational expenses)
b. Liquidity and reserves (days cash on hand)
c. Debt and liabilities (debt to capitalization)
d. Financial risk management
Moody’s Investors Service (“Moody’s”) published its most recent rating methodology for US
Municipal Utility Revenue Debt in October 2017. This methodology utilizes a “scorecard”
approach, focused on the following key factors:
1) System characteristics, including:
a. Asset condition (remaining useful life)
b. Service area wealth (median family income)
c. System size (O&M budget)
2) Financial strength, including:
a. Annual debt service coverage
b. Days cash on hand
c. Debt to operating revenues
3) Management, including:
a. Rate management
b. Regulatory compliance and capital planning
4) Legal provisions of the debt being issued, including:
a. Rate covenant
b. Debt service reserve requirement (if any)
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The Qualitative Analysis
Many of the factors listed in the analytical frameworks outlined above are qualitative indicators;
that is, they are not objectively measurable. While credit rating agencies cannot readily compare
qualitative measures against national benchmarks or averages, these indicators can and do
provide general information about the characteristics credit agencies prefer to see in the utilities
they rate highly, including:
The presence of long-term financial forecasting and planning by the utility – MWMC
typically projects revenues and expenses 10 years into the future during the annual
budget process.
Strength and diversity in the local economy and customer base, and other local
socioeconomic characteristics – MWMC is the sole provider for wastewater services in
the Eugene/Springfield Metropolitan area. The local economy has diversified in recent
years.
Regular financial reporting – Budget compliance reports are presented to the Commission
monthly and audited financial statements are presented to the Commission annually.
Attention to customer relations, including an open rate-setting process – MWMC always
conducts a public hearing prior to budget adoption.
An independent Board of Directors with seasoned management - The Commission is
independent (not paid by or stockholders of the utility). Commission members are a
combination of experienced, knowledgeable elected officials and citizen representatives.
Commission members have staggered terms to protect the utility against periods of
unseasoned leadership.
Political will to increase rates when needed – The Commission has repeatedly
demonstrated their will to increase rates when the need was demonstrated.
Anticipation of capital requirements due to new regulations – MWMC staff work
proactively with Federal and State personnel to keep well informed on upcoming new
regulations. MWMC maintains a 20-year list of capital improvements that is reflective of
anticipated new regulations.
A comprehensive financial policy structure, including:
Established debt policies and practices
Established budgetary policies and practices
Established reserve policies and practices
A CIP and other asset management tools that address system maintenance, upgrades and
capacity enhancement – MWMC maintains 5-year, 10-year, and 20-year CIPs.
Intergovernmental cooperation and coordination – The Commission has a goal of
intergovernmental cooperation and has worked hard to maximize the benefits of that
cooperation. MWMC is generally thought of as an example of successful
intergovernmental cooperation.
Healthy employee relations and sound staffing practices – Staff turnover is low. Staffing
levels are reviewed annually. High qualification standards are required of all new
personnel.
Successful litigation history (or a history of little litigation) – MWMC has little in the
way of litigation history but what there is has been successful.
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Exposure to growth-sensitive revenue sources – MWMC’s major revenue source, user
fees, is somewhat sensitive to conservation efforts, but is not growth sensitive. SDC
revenue is growth sensitive. This revenue plays an important role in MWMC capital
financing.
Long-term operational capacity planning and creation – The Intergovernmental
Agreement (IGA) under which MWMC was formed requires planning for new capacity
to begin at the point 85 percent of present capacity is being used.
Compliance with environmental laws and regulations – MWMC has an outstanding
record of environmental compliance.
The common element of many of these qualitative factors is the capability of management and
their practices and policies. S&P states, “The ability of a utility’s management team to
implement measures on a timely basis that will in our opinion proactively shape the utility’s
financial and operating condition can be crucial to maintaining credit stability.”
The Quantitative Analysis
Quantitative measures are performance factors that can be expressed in numbers or ratios. They
are useful for comparing an agency with other agencies or with an objective standard. When
assessing a sewer utility’s creditworthiness, the quantitative measures focus primarily, but not
exclusively, on financial indicators. Among the key quantitative factors are the following:
Income statement and balance sheet components and ratios (see additional detail
below),
Current bond ratings,
Reserve levels,
Rate structure, including rate competitiveness,
Account and collections history,
Outstanding capital needs and asset condition,
Affordability (i.e., sewer service rates no more than 2 to 4 percent of local household
income), and
Non-debt equity in total plant assets and in capital projects to be financed
Perhaps the most significant quantitative factors are the income statement and balance sheet
components and ratios. These financial measures provide a uniform basis by which the credit
rating agencies may assess the fiscal strength of a utility.
As alluded to above, the most significant income statement and balance sheet ratios include the
following:
Moody’s Investors Service:
Asset condition: net fixed assets divided by annual depreciation
Annual debt service coverage
Days cash on hand
Debt to operating revenues
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S&P Global Ratings:
All-in coverage: net revenues divided by debt service and other fixed costs
Days cash on hand
Debt to capitalization: total debt divided by debt plus net position (the closest
approximation of “equity” for a municipal utility)
Recent Rating Evaluations
The MWMC was most recently reviewed by both Moody’s and S&P in March 2016, in
connection with the issuance of its Wastewater Revenue Refunding Bonds, Series 2016. The
resulting credit rating reports provide the best indicators of how MWMC fares when judged by
the criteria described above.
Moody’s assigned the MWMC a rating of “Aa2,” the third-highest rating available. Credit
strengths included the Commission’s very healthy cash reserves, strong debt service coverage,
and low levels of outstanding debt. Credit challenges included a relatively small system size,
limited remaining useful life of assets, and modest wealth levels of the customer base.
S&P assigned the MWMC a rating of “AA” (equivalent to a Moody’s “Aa2”), with a rating
outlook of “stable.” S&P noted the following characteristics of the MWMC’s “strong enterprise
risk profile”:
Stable and primarily residential customer base, part of the broader Eugene metropolitan
statistical area
Moderately high rates given the service area’s income levels
Overall good operational management with sufficient treatment capacity and long-term
planning
S&P noted the following characteristics of the MWMC’s “very strong financial risk profile”:
Very strong coverage metrics
Very strong liquidity levels
Moderate debt-to-capitalization ratio
Good overall financial management
Summary
MWMC currently enjoys a very favorable position based on the identified quantitative and
qualitative measures, and as affirmed by the rating agencies directly as recently as 2016. Prudent
planning and financial management are large contributors to the creditworthiness of the utility.
This report is intended to summarize the more significant qualitative and quantitative measures a
credit agency uses to assess the utility’s creditworthiness, as applied in connection with the 2016
MWMC revenue bonds and which would be applied in connection with any new issuance of
revenue bonds. This report is not meant to present a comprehensive assessment of the scrutiny
MWMC would incur when issuing revenue debt, but can act as a valuable tool in identifying
policies and practices where MWMC could bolster its standing in the eyes of potential creditors.
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APPENDIX II
SUMMARY OF CAPITAL FINANCING OPTIONS
Introduction
This summary of capital financing options available to the Metropolitan Wastewater
Management Commission (MWMC) has been prepared as part of this update to the 2005
MWMC Financial Plan. This summary includes the following:
1. Identification of capital financing options available to MWMC,
2. Summary of the prevailing capital financing options use in the industry, and
3. A general description of the advantages and disadvantages of each capital financing
option.
Overview of Major Mechanisms for Capital Financing
There are two major categories of capital financing mechanisms:
1.) Debt Financing – Bonds/Loans
a. Bonds
A bond is a legally enforceable contract to repay borrowed money on a definite
schedule at a specified rate of interest for the life of the bond--usually 15 to 30
years. State and local governments can repay this debt with taxes, fees, or other
sources of governmental revenue. It is the source of repayment, or the type of
collateral used, that defines the type of bond (e.g., general obligation bonds or
revenue bonds). General obligation (“GO”) bonds require voter approval and are
payable from a new, excess property tax levy outside typical constitutional and
statutory limitations. They are not commonly used by municipal utilities.
Revenue bonds, as described further below, are payable from net revenues of an
enterprise such as a wastewater utility, and are much more common among
municipal utilities in Oregon and nationwide.
The tax-exempt nature of many government bonds attracts bondholders who are
generally willing to accept a correspondingly lower rate of return on their
investment than they would expect on a comparable commercial bond. As a
result, bond financing 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 (e.g. general obligation bonds). If achieving
voter approval is difficult or time-consuming, state and local governments may
consider issuing other types of bonds that do not require voter approval, or
exploring other options for capital financing, even though interest costs may be
higher. Some State and local governments have statutory limitations on the
dollar amount and/or number of bonds that can be issued. Issuing bonds is a
costly and time-consuming process, and requires sound legal and financial
advice.
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b. Loans
A loan is similar to a bond issue, and loans are generally treated as “bonds”
under Oregon Revised Statutes. A “loan” typically refers to credit extended by a
commercial or governmental lender, whereas “bonds” are sold to a variety of
investors in the public capital markets.
Commercial loans are typically made by banks and other financial institutions.
Commercial loans generally will have higher interest costs than tax-exempt
bonds, but may provide more flexibility and/or lower up-front costs.
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 depend on legislative appropriation. 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, or
SRF, loans). Many government loan programs are targeted to small,
economically distressed, and/or rural areas, which need the most assistance in
acquiring project capital.
The SRF program is the largest government environmental infrastructure loan
program available today, far surpassing other state loan programs. While the
SRF program is funded by a Federal capitalization grant (like a block grant), it
effectively operates as a state loan program.
Loans involve fewer and lower transaction costs than bonds, and may be
acquired without voter approval. In addition, grants and loans from different
sources may be commingled. Government loans are subject to the availability of
funds, and competition among borrowers can impact project timing. Such loans
may carry governmental requirements, such as the prevailing wage provisions
from the Davis-Bacon Act. Most Federal loans have complicated application
procedures and deadlines.
2.) Non-Debt Financing
Other than grant funding, the primary non-debt financing mechanisms applicable to
MWMC are user rate revenue and SDC revenue. Non-debt financing can come from
current revenues or revenues that have been accumulated over time in reserves.
Historically, wastewater agencies have utilized a variety of mechanisms to finance capital
improvements. During the late 1970s and 1980s, significant Federal grant funds were available
to support wastewater capital projects. Since then, grant funding has been dramatically reduced
and currently is not generally a viable option for capital financing. The Federal grant program
has been replaced by the State Revolving Fund (SRF) loans.
The current MWMC facilities were primarily constructed with $80 million in Federal grants and
$29.5 million in voter approved general obligation bonds. The last significant Federal grants
were received in the late 1980s. In recent years, the Commission has funded capital
improvements using “pay-as-you-go” sources, such as user rates and SDCs.
Each form of capital financing serves distinct purposes and has certain limitations. The sections
below provide a general overview of various financing tools. It should be noted that this review
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is not meant to eliminate other mechanisms (e.g., general obligation bonds) from consideration
for specific uses.
Debt Financing
1. Revenue Bonds and Variations
2. State Revolving Funds - Clean Water Loans
3. Short-Term Financing
4. Internal Borrowing
Non-Debt Financing
5. Systems Development Charges
6. User Fees (aka pay-as-you-go)
7. Grants
DEBT FINANCING INSTRUMENTS
Revenue Bonds
Description: A revenue bond is issued by a government to finance a specific project (or
projects) and is supported (repaid) by the revenue generated by the project (or the utility system
as a whole), or from other non-property tax sources. Revenue bonds are secured by the net
revenues of an enterprise system, a debt service reserve funds, and additional covenants. Net
revenues are generally defined as gross revenues of the system less operating expenses.
In Oregon, issuers, upon adoption of a resolution or a non-emergency ordinance authorizing the
issuance of bonds in accordance with ORS 287A.150, may issue revenue bonds. While revenue
bonds do not require voter approval, they are subject to referendum.
Advantages: Revenue bonds can be issued fairly rapidly, and debt can be specifically structured
to meet project needs. Level annual debt payments ensure that future as well as present users of
the new facilities will pay, thus enhancing equity. Revenue bonds are commonly used by
utilities, as they are free from the requirements of general obligation bonds, which must be
approved by voters.
Limitations: Revenue bonds generally require covenants and ongoing reporting requirements
associated with those covenants, including debt service coverage. Revenue bonds may also
require a reserve fund, increasing the size of the bond issue.
Applicability: This is the most appropriate financing tool for MWMC. With the exception of
“pay-as-you-go” financing, general obligation bonds or subsidized state/Federal loans, revenue
bonds generally offer the lowest interest rate. If the project being funded is popular and/or
necessary, the risk of a referendum is low. Staff is also familiar and experienced with the
administrative tasks common to revenue bonds. MWMC’s only outstanding debt consists of
revenue bonds, originally issued in 2006/2008 and refinanced in 2016.
Variation: Revenue “Obligations.” Borrowers may instead choose to rely on ORS 271.390,
which authorizes Oregon governmental units to enter into contracts for the financing of real or
personal property. These contracts may be called various names such as full faith and credit
obligations, certificates of participation, financing agreements, revenue obligations, or other
names that would describe the security provided. Unlike revenue bonds, such “obligations” are
not subject to a referendum. However, they require more complex documentation, and certain
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investors are unwilling to purchase “obligations” in lieu of “bonds,” even with a similar (or
identical) revenue pledge.
Variation: Revenue-secured Loans/Leases. Under either ORS 287A.150 or 271.390, the
MWMC may choose to work directly with a single lender (i.e., a commercial bank or equipment
vendor). Although commercial loans are not a separate type of debt in terms of security or
treatment under state law, they may provide greater flexibility than publicly-offered revenue
bonds or obligations. Commercial loans or equipment leases may also offer less onerous
ongoing disclosure requirements than would be required under the securities laws applicable to
public bond issues.
Variation: WIFIA Program. In 2014, Congress passed the Water Infrastructure Finance and
Innovation Act, authorizing the US Environmental Protection Agency (EPA) to provide long-
term, low-interest loans to water and wastewater projects throughout the country. The program
was first funded in 2017. Borrowers are selected through a competitive application process. The
WIFIA loan program is currently being utilized by several borrowers in Oregon; such loans are
similar to revenue bonds, albeit with a single investor (the EPA). If funding continues to be
appropriated, MWMC may consider such a program as a means of reducing interest costs for a
project that would otherwise utilize revenue bonds sold on the public bond market.
Short-term Municipal Notes
Description: Short-term municipal notes are generally considered “bridge financing,” providing
short-term cash until a larger source of committed funds is received. They are often known by
their acronyms, such as Bond Anticipation Notes (BANs), Grant Anticipation Notes (GANs),
and Revenue Anticipation Notes (RANs.) These instruments generally have maturities ranging
from a few months to a few years, may have fixed or variable interest rates, and are issued in
anticipation of a bond issue, grant proceeds, or revenue/tax collections.
Actual Use: State and local governments issue billions of dollars a year in short-term notes of
all types, to meet immediate capital needs for design and initial construction while waiting for
long-term funding revenues. Short-term financing may be used for housing and urban renewal,
water and wastewater project startups, transportation projects, school district operations, and
temporary agency operating deficits caused by seasonal variations in tax collections.
Potential Use: Short-term notes 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 notes provide issuers with immediate funds for capital and operating
needs.
Limitations: Short-term notes generally require a take-out financing which results in higher
financing costs and funding is temporary.
Applicability: Short term notes could be an appropriate tool for MWMC under certain
circumstances; however internal borrowing would generally be a preferable method for short-
term financing. As with long-term revenue bonds, MWMC could structure short-term notes as a
public offering or work directly with a single investor (financial institution such as a bank).
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State Revolving Funds - Clean Water Loans
(General program descriptions are followed by italicized descriptions of the specific State of
Oregon CWSRF program. Substantial additional detailed information on the Oregon program is
available upon request. Although SRF loans are similar in some respects to revenue bonds/loans
described above, they are unique enough to warrant additional discussion.)
Description: Under Title 6 of the 1987 Clean Water Act, states receive Federal monies to
capitalize Clean Water State Revolving Loan Fund (CWSRF) programs. States must provide a
20 percent match to the Federal funds. CWSRFs are authorized to make loans to localities to
finance wastewater treatment facilities, nonpoint source pollution control activities and estuary
program activities. Loans are made at low interest rates (zero percent to market rate) for up to 20
years. 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. States may use up to four 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.
The CWSRF Loan Program offers below market interest rate loans to public agencies for
planning, design, and construction of three kinds of water-pollution abatement projects:
1. Wastewater collection, treatment, water reuse and disposal systems,
2. Nonpoint source water pollution control projects, and
3. Development and implementation of management plans for federally designated
estuaries.
Specific project types that may be eligible for CWSRF funds include:
Wastewater system facility plans and studies
Secondary treatment facilities
Advanced wastewater treatment facilities
Sludge disposal and management
Interceptors, force mains and pumping stations
Infiltration and inflow correction
Major sewer replacement and rehabilitation
Combined sewer overflow correction
Collector sewers
Stormwater control
Estuary management
Nonpoint source control
Loans are available at rates based on the municipal bond rate with an annual fee of 0.5% paid
during a repayment period of up to twenty years. Interest rates charged on specific loans depend
on the repayment term, and range from 25% of the average bond rate for a five year loan to 65%
of the bond rate for a twenty year loan. To assist communities through the planning stages of a
project, planning loans are offered at the lowest interest rate, with a five-year repayment period,
and are not charged the annual fee. Communities must pledge loan security adequate to satisfy
the CWSRF Loan Program, such as general obligation bonds, other general obligation pledges,
or user charges.
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LONG TERM PROGRAM GOALS
Goal #1: To protect public health and the waters of the state by offering financial assistance
for water pollution control projects.
Goal #2: To provide financial support for water quality improvements to all waters of the
State.
Goal #3: To administer the CWSRF to ensure its financial integrity, viability, and perpetuity
as a source of financial assistance.
SHORT TERM PROGRAM GOALS
Goal #1: To continue to maintain the revolving nature of the Fund and to maintain an
active pace of disbursements in conjunction with the receipt of new funds and
loan repayments.
Goal #2: To provide funding to local communities to the maximum extent possible within
the constraints of sound financial management, law and regulation.
Goal #3: To increase the number of loans for both non-point source and estuary
management projects.
Goal #4: To make the CWSRF loan program more accessible to a wider range of water
quality projects statewide.
Goal #5: To continue our participation with other State and Federal programs in providing
financial assistance to Oregon communities.
Projects that are ready to proceed are funded in priority order. Although allocating funds only to
projects that are ready to proceed does result in some projects being funded ahead of higher
priority projects, the high level of demand has continued to make the process competitive. All
funded projects have been critical to the protection or restoration of water quality in Oregon.
Actual Use: All states have CWSRFs, and they increasingly are making loans for non-traditional
wastewater projects. 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. Some states have
already used their own funds to finance revolving programs to assist localities with various
capital projects. At least two states have made loans to acquire land or conservation easements to
protect source water.
Potential Use: States are starting to apply the revolving loan fund concept to other needs, such
as biosolids reuse.
Advantages: The CWSRFs are able to provide localities with extremely low-interest loans at
favorable terms. 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.
Limitations: The competition among applicants for access to revolving loan funds is intense in
some states. Project costs can be increased, due to Federal “cross-cutting” requirements that
apply in using CWSRF monies. Some small communities may not be able to afford any loan.
Loan terms are currently limited to 20 years, although there have been legislative proposals to
extend them to 30 years.
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Applicability: This could be an appropriate financing tool for MWMC because it would be
simpler to administer than a revenue bond and there would not be the requirements of a bond
indenture to monitor. Availability of funds on a timely basis would be the biggest concern.
Internal Borrowing
Description: Internal borrowing occurs when funds are borrowed from a reserve account in
another fund, department, or agency of the local utility or government.
Potential Use: Internal fund borrowing is a viable option only if an analysis of the affected fund
indicates sufficient funds are available and the use of these funds will not impact the fund’s
operations in the short term. Given those conditions, internal fund borrowing may be
implemented for a variety of purposes.
Advantages:
1. Better financing rates are often obtained through internal borrowing, compared to
borrowing from outside the organization or having third parties borrow on behalf of the
utility.
2. Internal funds can be made available at low or no interest. They involve fewer
transaction costs.
3. Funds are usually available when needed.
4. All savings are returned to the entity.
5. The entity can choose to do as much or as little external financing as required.
6. Riskier projects, or those that have lower rates of return, can still be funded from capital
budgets.
7. With internal support and recognition for the work that needs to be done, it can be much
easier to secure commitment, resources and support for internally funded work.
Limitations:
1. Using internal funds may delay or defer implementation of other projects.
2. Internal funds could be invested in financial vehicles that may provide a better rate of
return.
3. Monitoring and verification of the savings and repayment schedule are needed.
4. Bond rating agencies may downgrade an entity’s bond rating due to the presence of an
“internal deficit.”
Applicability: MWMC will make use of internal borrowing to provide interim financing for
projects and allow the Commission to sell bonds at the optimum time, considering the current
economic environment, interest rate and issue size.
NON-DEBT FINANCING INSTRUMENTS
Systems Development Charges
Description: SDCs, also known as Impact Fees, are fees collected by local governments to offset
the costs of public improvements associated with new development. SDCs are not a tax. They
are one-time fees collected for a specific purpose and, in Oregon, may only be used for capital
improvements.
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Actual Use: Under Oregon law, SDCs can be charged for capital improvements associated with
a) water supply, treatment and distribution; b) wastewater collection, transmission, treatment and
disposal; c) drainage and flood control; d) transportation; e) parks and recreation. Certain SDC
revenues may only be expended on capacity-increasing capital improvements, while other SDC
revenues may be used for capital improvements in general. An administrative fee may also be
collected with SDCs and expended on the administration and accounting of the SDC program.
Advantages: New users of services purchase an increment of existing and new capacity. This
results in enhanced equity between current and new users. It also reduces the cost burden on
current users.
Limitations: SDCs do not provide capital much in advance of development. Capital
improvements often add capacity that will be consumed over an extended period of years. SDC
revenue is dependent on the rate of development which can be highly dependent on many factors
and tends to fluctuate from year to year. SDCs are criticized for deterring development and
increasing new housing costs, and resulting in interjurisdictional competition. Developers may
pass on SDCs to residents. Communities may change their policy preferences depending on
economic and political conditions, for example, implementing or discontinuing SDC
exemptions/credits to stimulate or discourage development.
Applicability: SDC revenue is an important financing tool. Reimbursement SDC revenues may
be expended for capital improvements in general. Improvement SDC revenues may be used on
capacity-increasing capital improvements only.
User Fee Financing
Description: User Fee Financing is also known as “pay-as-you-go” financing. As the name
implies, current revenues and reserves are used to fund the capital program, either in whole or in
part.
Actual Use: This method has been the preferred mechanism for funding MWMC capital projects
in the past 10 years.
Potential Use: User fee revenue can be used for virtually any legitimate MWMC purpose,
including funding of operating expenses, capital expenses, and debt service as allowed by law.
Advantages: Funding capital projects from user fee revenue avoids the cost, risk, and
administrative complexity of debt financing. Current users directly support required
infrastructure, creating no impact on future users or Commissions.
Limitations: Capital projects funded from user fee revenue must either be relatively small, or
staged in small increments to avoid large spikes in user rates. Alternatively, reserves can be
accumulated to fund a large project in the future.
Applicability: User fee financing will continue to be an important financing tool for MWMC;
however, to be most effective, it must be one of several options available to the Commission and
used strategically.
Grants
Description: Grants are financial resources made available to utilities (or others) to fund
specific desired activities or outcomes. Depending on the program, grants can be created to
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support operating or capital programs, or both. Wastewater grants are usually generated by State
or Federal programs. Most require an application process, and some require a level of matching
local funding.
Actual Use: MWMC relied heavily on Federal grants to build the current treatment plant and
other facilities.
Potential Use: When funding is available, grants can be powerful tools in the hands of the
granting agency. Grants can be used to provide incentives to local utilities to meet governmental
standards or goals.
Advantages: Grants often provide the opportunity to leverage substantial capital resources with
minimal local investment. When available, grants enable utilities to complete specific capital
projects earlier than would otherwise be possible, leaving reserves and local funds for other
ventures.
Limitations: Grants for wastewater-related projects have become appreciably less common in
recent years. Grant funding can be unpredictable and requires significant administrative and
reporting coordination. There can be strong competition among agencies for limited grant funds.
Applicability: Grant opportunities will be accessed whenever feasible. Grants are an important
mechanism for MWMC to finance specific projects.
Summary
As discussed above, there are a variety of options available in the market to finance capital
projects. The type of financing a utility would use in a given set of circumstances depends on
the type of project, the size of the project, any statutory requirements and the financial health of
the utility. MWMC will work with its advisors to determine the most appropriate financing
mechanisms for a given project in light of the project timeline, purpose, and goals, and in the
broader context of MWMC’s overall financial policies and health.
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APPENDIX III
GOVERNMENT FINANCE OFFICERS ASSOCIATION (GFOA) – BEST PRACTICE
Adopting Financial Policies (2012)
Background:
Financial policies are central to a strategic, long-term approach to financial management. Some
of the most powerful arguments in favor of adopting formal, written financial policies include
their ability to help governments:
1. Institutionalize good financial management practices. Formal policies usually outlive
their creators, and, thus, promote stability and continuity. They also prevent the need to
re-invent responses to recurring issues.
2. Clarify and crystallize strategic intent for financial management. Financial policies
define a shared understanding of how the organization will develop its financial practices
and manage its resources to provide the best value to the community.
3. Define boundaries. Financial policies define limits on the actions staff may take. The
policy framework provides the boundaries within which staff can innovate in order to
realize the organization's strategic intent.
4. Support good bond ratings and thereby reduce the cost of borrowing.
5. Promote long-term and strategic thinking. The strategic intent articulated by many
financial policies necessarily demands a long-term perspective from the organization.
6. Manage risks to financial condition. A key component of governance accountability is
not to incur excessive risk in the pursuit of public goals. Financial policies identify
important risks to financial condition.
7. Comply with established public management best practices. The Government Finance
Officers Association (GFOA), through its officially adopted Best Practices endorsement
of National Advisory Council on State and Local Budgeting (NACSLB) budget practices
and the GFOA Distinguished Budget Presentation Award Program, has recognized
financial policies as an essential part of public financial management.
Recommendation:
GFOA recommends that governments formally adopt financial policies. Steps to consider when
making effective financial policies include (1) scope, (2) development, (3) design, (4)
presentation, and (5) review.
Scope: There are some basic financial policy categories (but not limited to) that all governments
should consider adopting.
1. General fund reserves. Policies governing the amount of resources to be held in reserve
and conditions under which reserves can be used.
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2. Reserves in other funds. Policies for other funds (especially enterprise funds) that serve a
similar purpose to general fund reserve policies.
3. Grants. Policies that deal with the administration and grants process.
4. Debt. Policies that govern the use of government debt, including permissible debt
instruments, conditions under which debt may be used, allowable levels of debt, and
compliance with continuing disclosure requirements.
5. Investment. Policies that provide guidance on the investment of public funds, including
permissible investment instruments, standards of care for invested funds, and the role of
staff and professional advisors in the investment program.
6. Economic development. Policies that address a local government’s use of subsidies or
other incentives to encourage private development.
7. Accounting and financial reporting. Policies that establish and guide the use of an audit
committee, endorse key accounting principles, and that ensure external audits are
properly performed.
8. Risk management and internal controls. Policies that address traditional views of risk
management and internal control, as well as more modern concepts of "enterprise risk
management."
9. Procurement. Policies that are most essential for adoption by the governing board in order
to encourage efficient, effective and fair public procurement.
10. Long-term financial planning. A policy that commits the organization to taking a long-
term approach to financial health.
11. Structurally balanced budget. Policies that offer a distinction between satisfying the
statutory definition and achieving a true structurally balanced budget.
12. Capital. Policies that cover the lifecycle of capital assets, including capital improvement
planning, capital budgeting, project management, and asset maintenance.
13. Revenues. Policy guidance through the designing of efficient and effective revenue
systems that guarantee the generation of adequate public resources to meet expenditure
obligations.
14. Expenditures. Policies addressing a range of issues around how the money is expended,
including personnel, outsourcing, and funding long-term liabilities.
15. Operating budget. Policies that describe essential features of the budget development
process and form, as well as principles that guide budgetary decision making.
Development: The following steps should be considered in the development of effective
policies.
1. Define the problem the policy will address.
2. Draft the policy. Be aware of legal requirements and consider public comments. Look at
the experience of peer governments.
3. Review and present the policy to government officials.
4. Formally consider and adopt policy.
5. Implement policy making sure that staff and government officials are aware of policies.
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Design: Effective polices have a number of design features in common.
1. Policies must exist in written form.
2. Policies should be expressed in a manner that is understandable to the intended
audiences.
3. Policies should be made available to all stakeholders, and be published in more than one
medium with multiple means of access.
4. Policies should address all relevant issues and risks for that specific policy in a concise
fashion.
Presentation: Effective financial policies share some of the following traits.
1. All of the financial policies are placed in the same section of the budget document.
2. The original and revision dates are shown on the individual policies.
Review: Financial policies are most successful when they are reviewed after being enacted.
1. Policies should be monitored, reviewed, and updated as needed in a systematic way.
2. Analyze the reasons if specific policies are not being followed.
References
GFOA Best Practice, “Recommended Budget Practices from the National Advisory
Council on State and Local Budgeting,” 1998.
GFOA Publication, “Financial Policies,” 2012 (Shayne Kavanagh).
Approved by GFOA's Executive Board: September 2015
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APPENDIX IV
CITY OF SPRINGFIELD
INVESTMENT AND PORTFOLIO POLICIES
NOVEMBER 1997
Date of Last Adoption: 12/01/1997
SCOPE
This investment policy applies to all cash-related assets included within the scope of the City of
Springfield’s audited financial statements and held directly by the City. The City’s portfolio,
excluding bond proceeds, is currently $41 million. The average monthly balance of funds
invested, excluding bond proceeds, is about $42.5 million.
Funds held in trust for the Pension Portfolios and deferred compensation funds for the
Employees of the City of Springfield, which have separate rules, are excluded from these
policies. In addition, funds held by trustees or fiscal agents are excluded from these rules;
however, all funds are subject to regulations established by the State of Oregon.
Funds will be invested in compliance with the provisions of, but not necessarily limited to the
Oregon Revised Statutes (ORS), Chapter 294, other applicable statutes and this policy.
Investment of any tax exempt borrowing proceeds and any related debt service funds will
comply with the arbitrage restrictions in all applicable Internal Revenue Codes.
INVESTMENT OBJECTIVES
The City will limit investment activities in order to ensure safety, legality, liquidity, diversity,
and yield:
Safety: Preservation of capital and the protection of principal.
Legality: Conformance with federal, state, and other legal requirements.
Liquidity: Maintenance of sufficient liquidity to meet operating requirements.
Diversity: Avoidance of imprudent credit, market, and speculative risk.
Yield: Attainment of a market rate of return throughout all economic and fiscal cycles.
The City will not assume unreasonable investment risk to obtain investment income.
DELEGATION OF AUTHORITY
The Deputy Treasurer is the designated investment officer of the City of Springfield and is
responsible for investment decisions, under review of the City of Springfield’s Council. The
day-to-day operation of the investment process program is handled by the Budget/Treasury
section.
The investment officer is responsible for setting investment policy and guidelines subject to
review and adoption by the City Council and, if required, review and comment by the Oregon
Short-Term Fund Board. Further, the Deputy Treasurer is the portfolio manager and makes
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investments, under the general direction of the Finance Director, and is responsible for the day-
to-day operations of the investment process which includes, but is not limited to, choosing what
to buy or sell, from whom investments will be purchased, executing the buy/sell orders,
producing necessary reports, and supervising staff. In addition to the active management of the
investment portfolio, the Deputy Treasurer is responsible for the maintenance of other written
administrative procedures consistent with this policy and the requisite compliance. To further
optimize the total return of the investment portfolio, the Deputy Treasurer will administer an
active cash management program, the goal of which will be to maintain historical cash flow
information, i.e. debt service; payroll; revenue receipts; and extraordinary expenditures.
In order to optimize total return through active portfolio management, resources will be allocated
to the Budget/Treasury’s cash management program. This commitment of resources will include
financial and staffing considerations.
PRUDENCE
The standard of prudence used by the investment officer and staff in the context of managing the
overall portfolio shall be the prudent investor rule, which states: “Investments shall be made
with judgment and care, under circumstances then prevailing, which persons of prudence,
discretion and intelligence exercise in the management of their own affairs, not for speculation,
but for investment, considering the probable safety of their capital as well as the probable income
to be derived.”
MONITORING AND ADJUSTING THE PORTFOLIO
The Deputy Treasurer will routinely monitor the contents of the portfolio, the available markets,
and the relative values of competing instruments and will adjust the portfolio accordingly.
If, due to unanticipated cash needs, the investment in any security type or financial institution
exceeds the limitations in this policy, or if the credit rating of a security type or financial
institution is lowered after an investment is purchased, the Deputy Treasurer is responsible for
bringing the investment portfolio back into compliance as soon as practicable.
INTERNAL CONTROLS
The Deputy Treasurer will maintain a system of written internal controls which will be reviewed
annually by the independent auditor or upon any extraordinary event, i.e. turn-over of key
personnel, the discovery of any inappropriate activity. The controls will be designed to prevent
loss of public funds due to fraud, error, misrepresentation, or imprudent actions.
PORTFOLIO DIVERSIFICATION
The City will diversify investments across maturities, security type, and institution to avoid
incurring unreasonable risks.
Except for the Local Government Investment Pool, no more than 25 percent of the City’s total
investment portfolio will be invested with a single financial institution.
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Maximum Percentage
Diversification by Instrument of Portfolio
U.S. Treasury Obligations 100%
(Bills, notes, bonds, strips)
State of Oregon Investment Pool 100%
U.S. Government Agency and Instrumentality Securities
of Government Sponsored Corporations 50%
Time Deposit and Savings Account 50%
Bankers’ Acceptances (BA’s) 25%
Issued by a qualified financial institution whose short-term letter of
credit rating is rated in the highest category by one or more nationally
recognized rating organizations.
Corporate Indebtedness A1 or AA or better by S & P; or P1 or Aa or better
by Moody’s, or an equivalent rating by any nationally recognized rating agency. 25%
Oregon Issuers: A1 or A or better by S & P; or P1 or Aa or better by
Moody’s, or an equivalent rating by any nationally recognized rating
agency.
Repurchase Agreements 25%
Oregon State and Local Obligations 25%
Obligations of the agencies and instrumentality’s of the State
of Oregon and its political subdivisions that have a long-term
rating of A or better, or rated in the highest category for short-term
municipal debt.
Regional Debt Obligations 25%
Obligations of California, Idaho and Washington and political sub-divisions of
those states if obligations carry a long-term rating of AA or better or are rated
in the highest category for short-term municipal debt.
Time Certificate of Deposit (TCD)
Commercial Banks 25%
Savings and Loan Associations 10%
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Diversification by Institution
U.S. Government Agency and instrumentality Securities of Government Sponsored
Corporations
No more than 20 percent of the total portfolio with any one security.
Bankers’ Acceptances (BA’s)
Issued by a qualified financial institution located and licensed to do business in Oregon; or a
financial institution located in Washington, California or Idaho that is wholly owned by a bank
holding company that owns a financial institution licensed to do business in Oregon. No more
than 10 percent of the total portfolio with only one financial institution.
Corporate Indebtedness
Subject to a valid registration statement on file with the SEC or must be issued under section
3(a)(2) or 3(a)(3) of the Securities Act of 1933 (ORS 294.035(9)(a)). Must be issued by a
commercial, industrial, or utility business enterprise, or by a financial institution or bank holding
company owning a majority interest in a qualified financial institution.
Oregon Issuer: Business enterprise or holding company headquartered in Oregon having
more than 50 percent of its permanent work force, or tangible assets, in Oregon; or is issued
by a holding company owning not less than a majority interest in a qualified financial
institution as defined for bankers’ acceptances.
No more than 5 percent of the total portfolio with any one corporate entity.
Time Certificate of Deposit (TCD)
FDIC or FSLIC insured to $100,000, and in accordance with ORS Chapter 295, the financial
institution must hold with the Oregon Certification of Participation Collateral Pool eligible
securities pledged to secure not less than 25% of the aggregate amount of the City’s funds held
in deposit, less the insured $100,000.
Commercial Banks: No more than 15 percent of the total portfolio with any one financial
institution.
Savings & Loan Associations: No more than 10 percent of the total portfolio with any one
institution.
Repurchase Agreements
A signed master repurchase agreement is required. Only treasury securities described in ORS
295.035 (1) shall be used in conjunction with the repurchase agreement. No more than 10
percent of the total portfolio with any one institution.
Oregon State and Local Obligations
No more than 20% of the total portfolio.
Regional Debt Obligations
No more than 20% of the total portfolio.
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Time Deposit and Savings Accounts
FDIC or FSLIC insured to $100,000, and in accordance with ORS Chapter 295, the financial
institution must hold with the Oregon Certification of Participation Collateral Pool eligible
securities pledged to secure not less than 25% of the aggregate amount of the City’s funds held
in deposit, less the insured $100,000.
State of Oregon Investment Pool (LGIP)
With the exception of pass-through funds (in and out within 10 days), no more than the state
annual maximum amount invested as detailed in ORS 294.810(2).
INVESTMENT MATURITY
Maturity limitations will depend upon whether the funds being invested are considered short-
term or long-term funds. All funds will be considered short-term except those reserved for
capital projects. Except for special situations, as directed by the Finance Director, investments
will be limited to maturities not exceeding 18 months (ORS 294.135).
Short-Term Portfolio (under 18 months)
Funds considered short-term will be invested to coincide with projected cash needs, taking into
account large routine expenditures (bond payments, payroll) as well as blocks of anticipated
revenues. The primary objective is to avoid incurring the market risk associated with the forced
liquidation of a security prior to its maturity date. Maturities in this category will be timed to
comply with the following guidelines:
Under 30 days 10% minimum
Under 90 days 25% minimum
Under 270 days 50% minimum
Under One year 80% minimum
Under 18 months 100% minimum
Commercial paper will have a maximum maturity of 270 days (ORS 294.035)
Long-Term Portfolio (over 18 months)
Instruments and diversification for the long-term portfolio shall be as for the short-term portfolio.
Maturities of over 18 months must be invested to coincide with a specific anticipated need
(capital project funds, contractor payments, bond payment dates) and may be utilized with the
approval of the Finance Director.
Unless matched to a specific cash flow (ORS 294.135), the City will not invest in securities
maturing more than three years from the date of purchase. Investment of capital project funds
will be timed to meet projected contractor payments.
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COMPETITIVE SELECTION OF BIDS OR OFFERS
Before the City invests funds or sells securities prior to their maturity, competitive offers or bids
need to be obtained. Ideally, bids or offers from three different sources should be obtained.
Records will be kept of the investment transactions by completing the Security Quote Form -
Exhibit One. If a specific maturity date is required, either for cash flow purposes or for
conformance to maturity guidelines, offers or bids will be requested for instruments which meet
the maturity requirement.
The City will accept the offer or bid which provides the best price within the maturity required
and within the parameters of this policy.
QUALIFIED INSTITUTIONS
The investment officer will maintain a list of all security brokers/dealers and financial
institutions which are approved for investment purposes or investment dealings. The City will
limit all investment activities to the institutions on this list.
Written procedures and criteria for selection of financial institutions and securities dealers will
be maintained by the investment officer. Securities dealers not affiliated with a bank are
required to have an office in Oregon. Any firm is eligible to make application to provide
investment services to the City, and will be added to the list if the selection criteria are met.
Additions or deletions to the list will be made at the City’s discretion.
At the request of the City, the firms performing investment services will provide their most
recent financial statements or Consolidated Report of Conditions (call report) for review. The
City will conduct an annual evaluation of each firm’s credit worthiness to determine if it should
remain on the list. Further, there should be in place, proof as to all the necessary credentials and
licenses held by employees of the broker/dealers who will have contact with the City of
Springfield as specified by but not necessarily limited to the National Association of Securities
Dealers (NASD), Securities and Exchange Commission (SEC, etc.)
SAFEKEEPING AND COLLATERALIZATION
Purchased investment securities will be delivered by either Fed book entry, DTC, or physical
delivery, and held in third party safekeeping - registered to the City of Springfield - with a
designated custodian. The trust department of a bank may be designated as custodian for
safekeeping securities purchased from that bank. The purchase and sale of securities will be on a
delivery versus payment basis. The custodian shall issue a safekeeping receipt to the City listing
the specific instrument, selling broker/dealer, issuer, coupon, maturity, cusip number, purchase
or sale price, transaction date, and other pertinent information.
Demand and time deposits shall be collateralized through the state collateral pool as required by
statute for any excess over the amount insured by an agency of the United States government.
The Deputy Treasurer is responsible for maintaining sufficient collateral with each financial
institution.
Delivery versus payment will be required for all repurchase transactions and with the collateral
priced and limited in maturity in compliance with ORS 294.035 (1). ORS 294.035 (11) requires
repurchase agreement collateral to be limited in maturity to three years and priced according to
Attachment 1
2019 Financial Plan - Financial Management Policies
2019 MWMC Financial Plan - Appendix IV Page 43
percentages prescribed by written policy of the Oregon Investment Council or the Oregon Short-
Term Fund Board. On March 12, 1996, the OSTF Board adopted the following margins:
US Treasury Securities 102%
US Agency Discount and Coupon Securities 102%
Mortgage Backed and Other 103%
ACCOUNTING METHOD
The City of Springfield shall comply with all required legal provisions and Generally Accepted
Accounting Principles (GAAP) as applicable to governmental units. The Governmental
Accounting Standards Board (GASB) is the accepted standard-setting body for establishing
governmental accounting and financial reporting principles.
REPORTING REQUIREMENTS
The Deputy Treasurer will generate monthly reports for management purposes which will
include an analysis of investments by financial institution, type of security, rate of interest and
maturities. Any deviation from the Investment Guidelines must be authorized by the Finance
Director.
INDEMNITY CLAUSE
The City will indemnify the investment officer, staff and city officials, from personal liability for
losses that might occur pursuant to administering and while acting in accordance with this
investment policy.
Staff acting in accordance with this policy and exercising due diligence, will not be held
personally responsible for a specific security’s credit risk, market price changes, or loss of
principal if securities are liquidated prior to maturity, provided that these deviations and losses
are reported as soon as practical and action is taken to control adverse developments.
PERFORMANCE EVALUATION
The performance of the City’s portfolio will be measured against the performance of the “S & P
Rated LGIP Index” as reported monthly in the Public Investor, a monthly subscription newsletter
of the Government Finance Officers Association. The index is comprised of local government
investment pools that are rated AAA or AA by Standard & Poor’s and represents pools that
strive to maintain a stable net asset value.
INVESTMENT POLICY ADOPTION
The investment policy will be reviewed by the Finance Committee and the Oregon Short-Term
Fund Board, prior to being submitted to the City Council for adoption on an annual basis, in
accordance with ORS 294.135a.
Adoption of this policy supersedes any other previous Council action or policy regarding the
City’s investment management practices.
Attachment 1
2019 Financial Plan - Financial Management Policies
2019 MWMC Financial Plan - Appendix V Page 46
APPENDIX V
ACRONYMS
AMSA Association of Metropolitan Sewerage Agencies
BANs Bond Anticipation Notes
CIP Capital Improvement Program
COP Certificates of Participation
CSD County Service District
CWSRF Clean Water State Revolving Fund
EPA Environmental Protection Agency
ER Equipment Replacement
GANs Grant Anticipation Notes
GO General Obligation (bonds)
IGA Intergovernmental Agreement
I/I Infiltration and Inflow
LCOG Lane Council of Governments
MR Major Rehabilitation
MWMC Metropolitan Wastewater Management Commission
RWF Regional Wastewater Facilities
RWP Regional Wastewater Program
SDC Systems Development Charge
SEC Securities and Exchange Commission
SRF State Revolving Fund
TANs Tax Anticipation Notes
TIF Tax Increment Financing
URBA Unified Revenue Bond Act
Attachment 1
2019 Financial Plan - Financial Management Policies
User fees,
Septage fees
Interest income
Other Operating Revenues
Opera ng
Reserve $5.5M
Rate Stability
Reserve $2M
Working $900K
Capital Reserve
Insurance
Reserve $1.5M
Capital
Reserve $13.6M
Equipment $12.2M
Replacement Rsrve
SDC
Reserves $6.7M
SDC reimbursement fees
SDC Improvement fees
Interest earnings
To cover cash flow needs between receipts
To cover expenses for 2
months in unforeseen
circumstances.
For use to avoid major rate swings
Required by bond covenants, it’s only use
is to increase net revenues if ever we are
in danger of not mee ng our coverage
ra o.
Required by DEQ loan documents to
guarantee payment of debt service on
SRF loans.
Toward high deduc ble in the event of major claim.
To fund capital projects as determined by
the Commission in the CIP plan.
Funded by opera ng revenues to save for recurring replace-
ment of equipment and vehicles as determined by the asset
management team.
Used for capital projects that qualify for use of SDC revenues per ORS
223.307 including debt service repayment.
Rate Stabiliza on
Reserve $2M
SRF Loan
Reserves $50K
Reserves as of 6/30/23
Attachment 2
Reserves Flowchart