Water Environment Federation (WEF)

Financing the Clean Water Atlanta Initiative

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Courtesy of Courtesy of Water Environment Federation (WEF)

Over approximately a 15-year period, the City of Atlanta will invest nearly $4 billion in its water and wastewater infrastructure, in part to ensure compliance with Consent Decrees entered into in the late 1990s related to Combined Sewer Overflows (CSOs) and Sanitary Sewer Overflows (SSOs). This investment has occasioned execution of a strategic financial plan integrating a variety of rate and capital financing measures, including:

  • implementation of system-wide rate increases and new rate structures,
  • adoption of a Municipal Option Sales Tax (MOST),
  • enhanced use of available State Revolving Fund loans, and
  • implementation of a Tax-Exempt Commercial Paper program.

These measures are being implemented to ensure the availability of funds to maintain compliance with a herculean capital improvement construction schedule, equitably distribute revenue responsibilities, and minimize the cost of capital financing. In combination, they represent an innovative and effective approach to major program financing that holds lessons for other communities faced with substantial capital investment needs. This paper will review the City of Atlanta’s experience and capital financing strategy, highlighting key considerations related to individual financing measures that may be instructive for other communities’ strategic financial planning efforts. It will also provide projections of the impact of the City of Atlanta’s financing program, in terms of both financial performance metrics and prospective water and wastewater bills.

Over several decades preceding the administration of Mayor Shirley Franklin, the City of Atlanta severely under funded its investments in its water and wastewater system infrastructure, leading to significant performance challenges. The City’s wastewater system is subject to two related Consent Decrees into which the City entered to resolve alleged violations of the Federal Clean Water Act and the Georgia Water Quality Control Act. The plaintiffs in the precedent lawsuit alleged that the City violated the terms of its NPDES permits, which authorize discharge of wastewater from the City’s CSO control facilities and its wastewater treatment facilities.

  • In 1998, the plaintiffs and the City agreed to the entry of a Consent Decree relating to improvements to the City’s CSO facilities to meet water quality standards by 2007. The initial estimated capital cost of these improvements, following submittal of the Long Term CSO Control Plan in 2001, was $1.1 billion.
  • In 1999, the First Amended Consent Decree relating primarily to the City’s SSOs was entered, requiring the City to eliminate all sanitary sewer overflows in its separated sewer system by 2014. The initial estimated capital cost of these improvements in 2001 was $1.0 billion.

By 2004, updated cost estimates and refinements to the required scope of improvements required under the Consent Decrees provided for prospective costs of $2.4 billion for Consent Decree compliance alone. Subsequent updates of cost estimates developed in 2006, taking account of recent construction cost trends as well as adjustments to the program scope, have pushed total estimated costs for Consent Decree compliance to over $2.6 billion.1 In combination with additional prospective costs for drinking water system improvements of approximately $0.8 billion and wastewater system requirements not contemplated in the Consent Decrees of approximately $0.3 billion, as estimated in 2006, total prospective costs of the entire Clean Water Atlanta initiative were estimated in 2006 to be approximately $3.5 billion.2 The magnitude of required capital improvements to be constructed through 2014 will more than double the City’s wastewater infrastructure asset value in less than 15 years; it also was projected to require a tripling of wastewater rates absent external funding assistance.

These challenges were exacerbated somewhat by the structuring of program financing in the years immediately following the City’s entry into the wastewater consent decrees. In 2001, the City issued a $1 billion revenue bond to refinance nearly all of its outstanding debt and raise approximately $600 million for prospective capital expenditures, most of which were required for compliance with the Consent Decrees. This bond issue was structured such that interest on the borrowing was capitalized in the first years of scheduled debt service, leading to a $25 million increase in debt service requirements in 2004. In combination with lower-than-projected revenues, increased operations and maintenance (O&M) expenses, and continuing capital financing requirements, the City faced an acute financial management challenge.

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