Financing for Environmental Compliance
Planning Process Step Seven: Select Financial Options
The four main financing options are
System privatization is another option available to communities.
Communities can generate revenue through the assessment of taxes fees, special charges and fines. Information about each of these revenue-generating tools can be obtained. The municipal authority Web page explains several ways a community can raise capital.
Grants are transfers of money to a specific legal entity that does not need to be repaid. Cities can apply for grants with federal, state, corporate and non-profit organizations by submitting proposals or funding requests. EPA provides grant information to help communities fund air, waste and water environmental assets.
A loan is the temporary transfer of a specific amount of money that must be repaid in a set amount time, typically with specified interest rate. It is helpful to evaluate loan options as loan terms can vary by rate, time and reporting requirements. If the project costs will be less than $5 million dollars it is usually financial prudent to use loans rather than bonds.
There are several types of loans including:
Government – These loans have consistently lower than market interest rates but may require significant application procedures and requirements. Some examples of government environmental loan programs include the EPA Clean Water State Revolving Fund, the EPA Safe Drinking Water State Revolving Funds (SRF) and the EPA Brownfields Program. Communities who have entered into a binding enforcement agreement have priority for SRF funding.
EPA’s Brownfields Program provides direct funding for brownfields assessment, cleanup, revolving loans, and environmental job training.
Commercial – These loans usually have higher interest rates but may have more flexible terms.
A bond is a written promise to repay borrowed money on a definite schedule and usually at a fixed rate of interest for the life of the bond. It is the largest source of environmental infrastructure financing. It is also the most complex and expensive way to acquire funds but money is available for immediate capital needs. Legal and administrative fees can be costly and voter approval may be required. This tool is usually more cost effective for projects costing more than $5 million because the fees are the same for large or small bond issue.
The bond market matches governments and corporations that need to borrow money with investors who have funds to lend. Bond dealers at securities firms and banks act as intermediaries, buying from issuers and selling to investors in the primary market.
The following sections provide information about the types of available bonds and the roles and responsibilities of firms usually involved in the bond transaction.
Next Step: Create and Communicate the Financing Plan
Previous Step: Complete a Community-Wide Financial Analysis