It Was Worth It : How A Small Water Utility Successfully Acquired a Loan from the Drinking Water State Revolving Fund

By Sapna Mulki, Water Savvy Solutions

Background:
A small public water system located south of Austin, Texas, Creedmoor Maha Water Supply Corporation (CMWSC) serves an estimated population of 7,500 customers or 2,500 connections in Creedmoor-Maha. Like most Texas water utilities, CMWSC faces increasing pressure from ongoing costs associated with maintaining an aging system.

The majority of CMWSC’s 170 miles of water lines date back to the 1960’s and are therefore reaching the end of their service life. As a result, the system is constantly being fixed for major leaks and pipe bursts, which has become costly and unsustainable – “It was like a whack-a-mole effect,” said CMWSC Board President Bennie Bock, “when one [pipe] broke, another needed repair.” In addition to increased maintenance costs, CMWSC faced expenses associated with water loss – at times over 25% of the water purchased and pumped for the system was lost to leakage.

Other challenges include anticipated population growth and increasing demand. Creedmoor-Maha is situated in the center of the south  I-35, SH 45, and 130 corridor – one of the fastest-growing areas in the country. Likely development in CMWSC’s service area would result in additional strain being placed on the system, for which, CMWSC knows they need to prepare for.

Exploring Financial Options:
The cost of replacing leaking pipelines was overwhelming, but necessary. CMWSC estimated that approximately $9 million would be needed in the first phase of replacing some of the major pipelines in Creedmoor-Maha. Thus, in 2016 CMWSC embarked on a journey to explore financing options to replace and upgrade their system.

With help from engineering, financial, and legal partners, and the Texas Water Development Board (TWDB), CMWSC evaluated the costs and benefits of various financing options. These options included private loans, the State Water Implementation Fund for Texas (SWIFT), and the Drinking Water State Revolving Fund (DWSRF), and federal loans. After evaluation, CMWSC decided to pursue a loan from the DWSRF issued through TWDB.

A DWSRF loan was identified as the ideal financing vehicle because it:

• Provides multi-faceted financial assistance for planning, acquisition, design, and construction of water supply and infrastructure.
• Allows CMWSC to cover the costs associated with obtaining the loan with the financing.
• Applications are accepted year-round.

The project identified for improvements included the replacement of leak-prone, undersize water piping with new, correctly-sized piping and the addition of a new booster station. In order for CMWSC to be eligible for the DWSRF funds they had to propose an amendment to include their projects in the Region K and State Water Plans, which delayed the application process by a few months. The Amendment was accepted in March 2017 and in May 2019 CMWSC closed on the loan.

The formal TWDB loan process can be accomplished in 12-15 months with an engineering firm and financial analysts who have successful experience working with utilities on the TWDB loan process.

Lessons Learned:
Over the past two years CMWSC has made great strides, from consolidating financial services, hiring the right personnel at the utility, and identifying a solution to the issues facing the utility as a result of its aging infrastructure. “We are more in faith than disbelief that something can get done.” – Bennie Bock, Board President of CMWSC.

1. Have the right people on the utility board.It was essential to have an active board that was willing to recognize that times were changing and that steps needed to be taken to provide a stable base for future operations. Furthermore, the board needed to have the right kind of expertise, experience, and foresight to help guide CMWSC through the process. According to Bobby Buckland, a CMWSC board member, “Board members were willing to accept change and adapted accordingly; this is because the right people were on the Board working together. Furthermore, having a Board that is involved helps to ensure that there is accountability throughout the process.”

2.  Update systems and operations consistently.One of the challenges to preparing the loan application was the lack of necessary financial, engineering, and legal information. From this, leadership realized the importance of ensuring finances and systems were constantly and consistently recorded and updated with adherence to industry standards. “It is necessary to keep up with the times. For the most part we can get by for a while but government regulations will catch-up with you” – Carl Urban, Board Member.

3.  Hire the right talent. Applying for a DWSRF loan required specialized engineering and regulatory knowledge that did not necessarily exist in CMWSC in the beginning stages of the application process. Finding and hiring the right talent such as a general manager, engineers, lawyers, financial advisors, and communications experts helped make the application and implementation process more streamlined.

4.  Be well informed before going into the application process.As CMWSC was evaluating financial options and timelines there were many detailed discussions on the processes and requirements. Having several conversations with TWDB staff and contractors about the application details was essential to fully understanding and managing expectations. Creedmoor General Manager John Steib advises that, “Teaming with an experienced engineering firm that has worked with the TWDB on similar loan activities can reduce the learning curve dramatically and save significant time”.

5.  Maintain control of all required document submissions and closing activity requirements.Water suppliers that are involved with the TWDB for the first time should initially develop a good working relationship with their project engineer and their point of contact at TWDB.  Throughout the application process as well as the loan closing process, the water supplier needs to have a complete checklist of all required actions and documents.  This list needs to be developed and shared with all participants , and updated constantly.  Mr. Steib says, “It is critically important to set up and maintain bi-weekly meetings or conference calls with all the participants to avoid surprises and missed deadlines. With good controls, cooperation, and information flow, the entire process from submission of your application to the loan closing may only require about 4-6 months!”