DRINKING WATER STATE REVOLVING FUND ANNUAL REPORT MISSOURI 2021 NATURAL RESOURCES TABLE OF CONTENTS I. Introduction ....................................................................................................................... 1 II. Executive Summary .......................................................................................................... 1 III. 2021 Binding Commitments ............................................................................................. 3 IV. Cumulative Binding Commitments ................................................................................... 4 V. Drinking Water SRF Applications and Loans Awarded ................................................... 4 VI. Objectives and Goals of the Drinking Water State Revolving Fund ................................ 7 Long Term Objectives and Goals .................................................................................. 7 Short Term Objectives and Goals ................................................................................. 8 VII. Progress Toward Achieving Objectives and Goals ........................................................... 8 Progress Toward Meeting the Long Term Objectives and Goals ................................. 8 Progress Toward Meeting the Short Term Objectives and Goals ............................... 10 VIII. Set-Aside Activities ......................................................................................................... 11 Administration and Technical Assistance Set-Aside (4 percent) ................................ 11 Small System Technical Assistance Set-Aside (2 percent) ......................................... 12 Public Water System Supervision Program Management Set-Aside (10 percent) ..... 12 Local Assistance and Other State Programs Set-Aside (15 percent) .......................... 13 IX. Maintaining Drinking Water SRF Financial Assistance Programs ................................. 15 Financial Assistance Programs .................................................................................... 15 Order of Priority for Distribution of Loan and Additional Subsidization Funds ........ 16 Project Reviews ........................................................................................................... 16 Small System Allotment .............................................................................................. 16 X. EPA Recommendations on Performance Evaluation Report/Annual Program Review . 19 XI. Proposed Improvements .................................................................................................. 19 XII. Policy Summary .............................................................................................................. 19 XIII. State Match ...................................................................................................................... 21 XIV. Details of Activities ......................................................................................................... 21 Fund Financial Status .................................................................................................. 21 Assembled Necessary Staff ......................................................................................... 30 Grant Conditions Compliance ..................................................................................... 30 XV. Management's Discussion and Analysis.......................................................................... 37 Financial Highlights .................................................................................................... 37 Overview of the Financial Statements ......................................................................... 37 Financial Analysis ....................................................................................................... 38 EXHIBITS 1. SRF Binding Commitments 32 2. Statement of Net Position 43 3. Statement of Revenues, Expenses and Changes in Net Position 44 4. Statement of Cash Flows 45 5. Statement of Fiduciary Net Position 46 6. Notes to the Financial Statements 47 7. Required Supplementary Information – Pension 79 8. Required Supplementary Information – OPEB 80 9. Drinking Water SRF Source and Distribution of Loan Administration Fees 81 I. Introduction Providing safe, abundant drinking water to Missourians requires almost continuous infrastructure additions and improvements. Since the program’s inception, the Drinking Water State Revolving Fund (SRF) has been one of Missouri’s primary funding sources for making investments in communities and the future of our state. The Drinking Water SRF program, managed by the Missouri Department of Natural Resources’ Financial Assistance Center (FAC), on behalf of the Safe Drinking Water Commission (SDWC), makes low-interest loans to communities to help them meet their drinking water needs. The Department is committed to protecting Missouri’s water resources that are so important to public health and its economy. This report details the activities undertaken to reach the goals and objectives set forth in the Intended Use Plan (IUP) developed for 2021. It also describes progress made toward long and short term program goals, the sources and uses of all funds, financial status of the Drinking Water SRF program, and compliance with federal requirements. II. Executive Summary This report addresses operation of the Drinking Water SRF program during the reporting period from October 1, 2020, through September 30, 2021, Federal Fiscal Year (FFY) 2021. Missouri’s Drinking Water SRF program was awarded $19,394,000 in Environmental Protection Agency (EPA) capitalization grants during the reporting period. Missouri made three direct loans totaling $7,162,000 and twelve SRF grants totaling $3,003,000 during the reporting period. During this reporting period, no pooled leveraged loan closings occurred. The Water and Wastewater Loan Revolving Fund (Fund 0602) was established to receive loan repayments, which are then used to make new loans. As of September 30, 2021, the Water and Wastewater Loan Revolving Fund had a balance of $90,906,450. The Drinking Water SRF capitalization grant balance for Drinking Water SRF projects was $37,499,414 as of September 30, 2021. The EPA capitalization grant balance related to the Drinking Water set-asides was $12,057,643 as of September 30, 2021. The Drinking Water SRF capitalization grant balance total was $49,557,057. Since inception, Missouri’s Drinking Water SRF program was awarded a total of $436,116,331 in EPA capitalization grants and amendments through September 30, 2021. This amount includes an in-kind amount of $1,444 on the FS997629-00 grant and an in-kind amount of $100,000 for each of the FS997629-06 and FS997629-08 grants, and $74,397 on the FS997629-11 grant. During State Fiscal Year (SFY) 2013, $18,500,000 of Drinking Water SRF capitalization grant funds were transferred to the Clean Water SRF program. FS997629-07, FS997629-08, FS997629-09 and FS997629-10 Drinking Water SRF capitalization grants were amended to reflect this transfer of capitalization grant funds. In FFY 2014, $5,000 was rescinded from the Drinking Water SRF capitalization grant. These amounts are not available to be drawn. The Drinking Water SRF program has contributed state match of $75,772,591, which included $15,504,549 of state appropriations, $42,276,597 of revenue bonds, $7,085,242 of funds 1 contributed through rural water grants and a transfer of $10,906,203 from the administration fee fund. Since inception of the program, the State of Missouri has made 73 leveraged loan commitments totaling $250,735,000; 83 direct loan commitments totaling $188,346,200; and 69 grant commitments totaling $58,357,334. Following is a list of all the Drinking Water SRF capitalization grant awards from the inception of the program through the 2021 reporting period. Drinking Water SRF Capitalization Grants Drinking Water SRF Award Federal Fiscal Year Amount Cumulative 1997 $21,856,417 $21,856,417 1998 $9,572,970 $31,429,387 1999 $10,034,771 $41,464,158 2000 $10,429,700 $51,893,858 2001 $10,472,900 $62,366,758 2002 $11,702,600 $74,069,358 2003 $11,633,700 $85,703,058 2004 $12,066,800 $97,769,858 2005 $12,041,273 $109,811,131 2006 $15,978,200 $125,789,331 2007* $15,978,000 $141,767,331 2008* $15,816,000 $157,583,331 2009* $15,816,000 $173,399,331 2010* $26,234,000 $199,633,331 ARRA $37,862,000 $237,495,331 2011 $18,204,000 $255,699,331 2012 $17,348,000 $273,047,331 2013 $16,277,000 $289,324,331 2014** $17,850,000 $307,174,331 2015 $17,738,000 $324,912,331 2016 $16,781,000 $341,693,331 2017 $16,637,000 $358,330,331 2018 $19,582,000 $377,912,331 2019 $19,399,000 $397,311,331 2020 $19,411,000 $416,722,331 2021 $19,394,000 $436,116,331 *The original grant amount is listed in this table. These grants were amended. **This grant amount reflects the federal rescission. 2 Following is a summary of Drinking Water SRF binding commitments. The cumulative total of Drinking Water SRF binding commitments as of September 30, 2021, is $497,438,534. The Drinking Water SRF program has never had a recipient default on any loan. Binding Commitment Summary Cumulative Binding Commitments Amount Leveraged Loans $250,735,000 Direct Loans (excludes Loans Paid with Leveraged Loans) 188,346,200 ARRA Grants 18,948,152 SRF Grants 39,409,182 Total Binding Commitments $497,438,534 III. 2021 Binding Commitments The Department entered into three direct loan commitments as well as twelve grant commitments totaling $10,165,000 during the reporting period. Missouri typically provides additional subsidization as grant due to the state's statutory requirement that municipalities utilize bond authority to accept principal forgiveness or negative interest subsidies. However, after passage of the America’s Water Infrastructure Act (AWIA) in 2018, the Department is required to make additional subsidies available through principal forgiveness rather than grant with a specified percentage of its capitalization grant, beginning with the 2019 capitalization grant. During this reporting period, program funds were committed to eligible projects through a combination of up to 50 percent grant and the remaining portion as a loan with a maximum grant of $2,000,000 per recipient. Disadvantaged communities were eligible for additional subsidization in an amount up to 75 percent of the project with a maximum grant of $2,000,000 per recipient. Drinking Water SRF Direct Loans and Disadvantaged Grants for FFY 2021 Total Loan Grant Recipient Amount Amount Amount Award Date Project # Carrollton $4,181,000 $4,181,000 $ - 11/10/2020 DW291368-01 Pierce City 4,736,000 2,736,000 2,000,000 11/13/2020 DW291345-01 Centertown 978,000 245,000 733,000 02/24/2021 DW291337-02 2021 Total $9,895,000 $7,162,000 $2,733,000 3 Drinking Water SRF Engineering Report Grants for FFY 2021 Grant Recipient Amount Award Date Project # Osage Co. PWSD No. 3 $ 17,000 07/01/2021 DER-101-21 Anderson 30,000 07/29/2021 DER-102-21 Highlandville 24,000 07/29/2021 DER-107-21 Sullivan Co. PWSD No. 1 24,000 07/29/2021 DER-110-21 Jasper 30,000 08/03/2021 DER-108-21 Galt 30,000 08/10/2021 DER-103-21 Shelby Co. PWSD No. 1 30,000 08/11/2021 DER-104-21 Strafford 30,000 08/30/2021 DER-106-21 Westboro 25,000 08/30/2021 DER-105-21 Belle 30,000 09/21/2021 DER-100-21 2021 Total $270,000 IV. Cumulative Binding Commitments Exhibit 1 provides a listing of the binding commitments since the inception of the program. The cumulative total Drinking Water SRF binding commitments on September 30, 2021, was $497,438,534. Since the inception of the Drinking Water SRF program, 225 binding commitments have been made. Of the 225 binding commitments entered into, 73 were leveraged loans, 83 were direct loans and 69 were grants. Three interim direct loans, which are not included in the binding commitment totals, were repaid and replaced with a leveraged loan. The innovative financing provided through the Drinking Water SRF program allows communities to save a considerable percentage of the interest cost of conventional loans. To date, Missouri’s Drinking Water SRF program has saved communities an estimated $135,448,760 in lower interest compared to the higher interest rates of conventional financing. Additional subsidization through the Drinking Water SRF program has saved communities an estimated $58,357,334. V. Drinking Water SRF Applications and Loans Awarded Following is a summary of the number of new and carryover Drinking Water SRF applications for the 2021 reporting period. This information was taken from the IUP for FFY 2021. 4 Drinking Water SRF Applications Projects Accepted FFY 2021 Number of New Projects 13 Number of Carryover Projects 7 Total Number of Projects 20 Total Amount Requested of New Projects $33,123,258 Total Amount Requested of Carryover Projects $18,572,218 Total Amount Requested of Projects $51,695,476 Total Population Served for New Projects 28,545 Total Population Served for Carryover Projects 5,251 Total Population Served 33,796 The table below summarizes the number of projects approved, the amounts of the loans, grants and the total population served for those projects. Drinking Water SRF Loan Projects Approved and Loans Awarded FFY 2021 Number of Projects Approved 13 Total Amount of Loans Closed $7,162,000 Total Amount of Grants Closed $3,003,000 Total Population Served 21,486 5 The following table shows the cumulative Drinking Water SRF leveraged loan closings since the beginning of the program. Cumulative Drinking Water SRF Leveraged Loans Bond Number of Total Loan Average Subsidized Interest Cumulative Pool Loans Amount Rate + 0.5 Administration Fee Amount 1998A 2 $28,795,000 3.58% $28,795,000 1999A 1 $2,315,000 3.57% $31,110,000 1999B 2 $4,320,000 4.07% $35,430,000 2000A 6 $20,490,000 4.01% $55,920,000 2000B 4 $6,810,000 3.87% $62,730,000 2001A 4 $6,295,000 3.43% $69,025,000 2001C 7 $23,400,000 3.95% $92,425,000 2002A 4 $10,370,000 2.93% $102,795,000 2002B 4 $26,705,000 2.93% $129,500,000 2003B 4 $11,445,000 2.68% $140,945,000 2003C 5 $11,290,000 2.20% $152,235,000 2004B 2 $3,605,000 2.13% $155,840,000 2004C 5 $9,720,000 2.13% $165,560,000 2005A 3 $28,105,000 2.27% $193,665,000 2005C 4 $29,780,000 1.84% $223,445,000 2006A 3 $2,000,000 2.05% $225,445,000 2006B 1 $2,295,000 2.08% $227,740,000 2007A 6 $11,805,000 1.83% $239,545,000 2007B 1 $385,000 2.01% $239,930,000 2008A 5 $10,805,000 2.13% $250,735,000 6