State-sponsored Financing and the Costs of Low-Interest: Results when comparing SRF to Traditional Revenue Bonds

摘要

When looking to build a new water treatment plant to serve a growing community and replace aging infrastructure, the City of Grand Forks, ND needed to evaluate how to finance the local portion of the project not covered by existing replacement reserves. Two methods were investigated: 1) traditional tax-exempt revenue bond financing and 2) state-sponsored low-interest loans through the Drinking Water State Revolving Fund (DWSRF). Through bidding multiple project alternatives, the City was able to detennine the exact amount the project costs would increase due to the increased regulatory requirements of the DWSRF loan. The analysis showed that even though there were considerable cost increases, the reduced interest costs more than made up for cost increases and saved the ratepayers money in the long run. Key themes of the paper include: 1 "Regulatory Requirements" can increase the cost of using state-sponsored financing options, but 2 "Lower Interest" rates can offset the increased costs of compliance.