Creative Financing Opportunities

July 31, 2018

By Wade Knapper

Funding capital improvement projects is often a top priority for utility districts and municipalities.  Especially if the system is experiencing growth.  Large districts benefit from municipal bond ratings, providing access to bond markets with a relatively low cost of borrowing.  However, many smaller utility districts may find the process of obtaining a bond rating to be cost-prohibitive.  Additionally, the prospect of increasing utility rates at a pace fast enough to fund large capital projects demands multiple levels of stakeholder buy-in that require large amounts of time and resources.  So, what other alternatives are available to fund those necessary capital projects?

To begin with, the State of Tennessee provides low interest and principal forgiveness loans through the State Revolving Loan Program, which administers the Clean Water State Revolving Loan Fund (CWSRF) and the Drinking Water State Revolving Loan Fund (DRSRF).  Sometimes referred to as SRF, this multi-million-dollar program is available to applicants for planning, design, and construction phases of wastewater and drinking water capital projects.  Focused on large capital projects, the SRF program requires the utility or municipality to submit their prospective project for priority ranking.  If selected, applicants can expect interest rates that are currently between 2% and 4%: applicants would also be eligible for principal forgiveness.

In addition to the SRF funds, the Tennessee Department of Environment and Conservation and the Tennessee Department of Transportation offer multiple grant programs for development of parks in rural areas, including the Local Parks Land Acquisition Fund (LPRF), Safe Routes to Schools and Rails to Trails.  These programs provide qualifying municipalities access to grant funding for capital projects improving connectivity for bike trails, walking and hiking trails, and other greenspace development. Like many loan programs, these grants require a minimum financial commitment by the applicant; matching funds may be required as well, depending on the grant.

Small communities seeking re-development of downtown areas can also benefit from public-private partnership financing sources.  Communities with strong leadership and stakeholder buy-in can reap the benefits provided by tax incremental financing programs (TIF), community development block grants (CDBG), and Appalachian Regional Commission (ARC) grant programs.  These capital resources are subject to various local economic conditions and require stakeholders to champion the effort through private partnership and investment.

In all the above cases, the utility or municipality will need guidance and support from their engineering consulting firm to help prepare grant applications and conduct analyses of the positive impact the project provides the local community.  In our subsequent blog series on creative financing, LDA Engineering will discuss more information about funding opportunities noted above and will provide examples of how our firm has assisted owners in securing various types of funding that have helped build strong, happier, communities.