GUIDE: How An Infrastructure Bank Eliminates the Obstacles to Local Infrastructure Repair

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Local government officials are increasingly listing infrastructure repair and replacement as a top priority for their community, and a county infrastructure bank can help.

Deteriorating roads, bridges and pipes present a safety risk and hamper economic development, but local government budgets are being besieged by rising costs and federal mandates. An innovative solution for infrastructure funding is needed to stretch public dollars further.

County Infrastructure Banks make projects more affordable for local governments and provide them with expert guidance through complicated design and construction processes.

Download our guide to Infrastructure Banks

Most municipalities struggle to find the money they need to repair or replace their infrastructure. Many also have little or no experience managing major infrastructure projects, and they can easily be overwhelmed by the complexities of the regulations and permit requirements that govern this work. This can lead to mistakes that delay the schedule or increase costs unnecessarily.

Dauphin County has found a solution to both of these problems with their award-winning Dauphin County Infrastructure Bank program.

The county created its own financing program, using a small annual surplus of $325,000 per year in Liquid Fuels money.  This small amount of money would not have been enough to fund even one single-span bridge replacement in today’s construction market, but their innovative infrastructure bank program has multiplied the impact of this seed money into more than 10 projects in just three years!

DCIB turns 325K into 10 projects worth $11M

The county uses this money to subsidize loans from other sources, so that their local governments and private sector recipients can receive the funding at unbeatably low interest rates.  It also manages the construction process to take advantage of economies of scale and ensure work is completed efficiently.  (Loan recipients are offered optional engineering and design support, as well.) As applicants repay their loans, the bank funds are replenished, and the cycle can begin again with new applicants, creating a self-renewing, permanent funding source.

This program has been featured on the Governing magazine website and has been honored by both the National Association of County Officials and the Pennsylvania Department of Community and Economic Development. Learn how the program works:

Download our guide to Infrastructure Banks

With an infrastructure bank program like Dauphin County’s, county officials have a renewable funding source that can:

  • Multiply the return on a small investment: completing several projects for less than the cost of one.
  • Provide both funding and project delivery support to municipalities that otherwise wouldn’t have the resources or staff to complete complex infrastructure improvements.
  • Make infrastructure more affordable by offering loans with unbeatably low interest rates to local municipalities and private firms.
  • Promote economic growth.
  • Target money to long-term, strategic planning goals for the region.

Learn how an infrastructure bank can make infrastructure repair easier and more affordable.

Download our guide to Infrastructure Banks

 

Assessing the Condition of Large Sewers

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Figure1Determining the condition of large sewers can be challenging, but multiple tools are available to help. This article, which was published in the October 2015 issue of Keystone Water Quality Manager magazine, provides a brief review of large sewer condition assessment tools and gives some guidance in deciding which to use.

Knowing the condition of your sewer system now can save you major headaches (and money) down the line. The investment you make today in conducting regular inspections of your pipes and pump stations will help you avoid emergencies like burst pipes and sewer overflows tomorrow, but it will also help you make better decisions about where to allocate limited revenues in terms of maintenance, repairs, and replacements.

Even though the investment in a condition assessment is worthwhile, you want to make sure you spend those assessment dollars wisely and get the data you need in the best possible quality for the lowest possible cost. Many tools are available, and each one is suited to particular needs. Which tool is right for your system? Let’s take a look at the strengths and limitations of some of the most popular methods of sewer inspection available today.

 Knowing What Each Tool Can Do

1. Zoom Camera
A handheld or truck-mounted zoom camera is a great tool for quickly assessing the condition of large sewers. A zoom camera enables you to see for several hundred feet down the sewer line, but the view is limited by any obstruction to line of sight (such as grease, cobwebs, debris or a deflection in the sewer). In addition, the camera will only allow you to see above the water level.

2. Acoustic Assessment
Another quick assessment method is the use of acoustics. The ability for sound to pass through the sewer provides an indication of whether a blockage exists or not. However, it is not a complete assessment and will require some additional inspection work. Still, an acoustic assessment can cost about a quarter of the price of basic closed circuit television, so it can be used to save money by focusing more expensive data collection methods only on areas the acoustic assessment has identified to have potential blockages (as opposed to using a more expensive, but more thorough tool throughout the entire system).

CCTV

3. Closed Circuit Television (CCTV)
CCTV has been used for many years to evaluate sewers, and it can be customized to the needs of your unique system because of the different types of cameras and vehicles that are available. A conventional pan and tilt camera may be sufficient for some pipes, but a fish-eye type camera lens can be used for a virtual pan and tilt that is somewhat more comprehensive.

CCTV provides a visual assessment of the sewer, but it can also be helpful in identifying buried manholes or revealing other unknowns in the connectivity of the sewer system.

In the past, it was a challenge to obtain sufficient lighting to get a clear picture of large sewers (see figure on the right), but new technology solves this problem by using a strobe light and stitching a series of images together, rather than recording continuous video.

4. Sonar
While some tools like the zoom camera cannot provide data on the condition of pipes below the water surface, sonar can. Therefore, it is useful for identifying debris and sensing connections below water level. However, some water must be in the sewer for the use of sonar to be possible.

Laser Profiling

5. Laser Profiling
Laser profiling can reveal buried manholes or other connections to the sewer that may not have been realized and can also be used to assess pipe wall loss (as long as the original sewer size information is available and can be entered into the software). However, like the zoom camera, laser profiling can only be used to see above the water level. Therefore, it’s wise to combine it with sonar and CCTV in order to get a complete assessment of the sewer condition, as seen in the figure on the right. (The red shows results from the laser, while the blue shows results from sonar.) For a recent project involving 70,000 feet of sewer, the cost to use these three tools together was approximately $5-6 per foot.

6. LIDAR (3D Laser)
LIDAR is an advanced technology alternative to standard visual and photographic inspection methods. It uses 3D optical scanners to collect simultaneous data and images, which can be used to produce a 3D model of the sewer. This model can then be used to measure, identify deficiencies, and make recommendations for rehabilitation or replacement. It can also be used in 3D infrastructure system modeling and management applications when combined with equally accurate pipe and structure positional data. One instance 3D data is especially useful is in manufacturing the lining for a bend in a sewer.

As an advanced technology, LIDAR provides more comprehensive data than a zoom camera or CCTV inspection could. As an added bonus, the optical scanners are typically inserted into the sewer from the surface, eliminating the need for a person to enter the confined space of the sewer and the associated dangers they could encounter.

7. H2S Gas Sensor
An H2S Gas Sensor is helpful in cases where there is concern about corrosion. The sensor can be mounted on a multi-sensor platform to provide additional insight into the state of the sewer.

8. Gyroscopic mapping
Gyroscopic mapping is used to obtain X-Y-Z coordinates of the sewer along its length, so it’s helpful for identifying the location of bends or changes in elevation. However, this tool requires known X-Y-Z coordinates at the starting and ending points of a sewer.

For large sewers, a small pipe needs to be pulled through the large pipe as a host for the probe, leading to some limitations in the information gained. However, this tool can be useful for facilities such as force mains where changes in direction are often not seen from the surface.

9. In-pipe Ground Penetrating Radar (GPR)
GPR inside the pipe gives insight beyond the sewer itself. It can reveal void spaces outside the sewer line, such as may be caused by infiltration. It can also shed light on the thickness of concrete covering rebar in the sewer.

Deciding Which Tool is Right for You

With a clearer picture of what each tool can and cannot do, you’re better prepared to decide which one will produce the best results for your system. In doing so, here are some things you should consider:

1. Understand your goals.
Consider what you want to gain from the assessment. For example:

If you know the sewer segment has concerns and has bends in it, then 3D LIDAR may be desirable as a means of mapping the sewer.

If blockages are your concern, acoustic rapid assessment may be a good starting point to help narrow the focus on runs where you want to perform further evaluation.

If you have seen evidence of corrosion in manholes and have a concrete pipe, an H2S sensor may be in order.
If you want information on the whole pipe and cannot bypass the flows, you will need to supplement a technology like CCTV with sonar in order to see below the water surface.

When defining your goals, be sure to solicit the input of all levels of staff and the ways they can benefit from the data.

2. Consider combining technologies to address different needs.
Each tool described here has strengths and limitations, so no technology is perfect for all conditions. Laser profiling and sonar can be combined to get thorough data above and below the water surface. An acoustic assessment can be used as a preliminary method in order to identify any blocked pipes that require more detailed assessments. An H2S gas sensor may be needed for pipes that may have corrosion, but you may have pipes of varying material throughout your system and may not need to pay for this technology everywhere. By working with a knowledgeable consultant, you can customize a plan using several different technologies only where they are needed in order to maximize the use of your budget resources.

3. Recognize that special equipment availability may affect your schedule.
Specialized equipment is not as readily available as basic equipment, so, if quick turnaround is necessary, you may want to plan your schedule around any specialty equipment needs.

4. Understand the sewer material being investigated.
If the sewer is concrete, corrosion is a real concern, so an H2S gas sensor or laser profiling may be needed. (This is not the case if the sewer is vitrified clay.)

5. Consider the ground surface.
Is there evidence of settlement on the surface near sewer lines? If so, perhaps in-pipe GPR should be considered to look for voids that have developed around the sewer.

6. Recognize your flows.
Some of the tools described here have specific water flow requirements. For example, CCTV and laser profiling require head space above the water to be effective, but sonar needs a certain depth of water over the bottom of the sewer (as well as any debris present) in order to be successful. Therefore, you will need to coordinate with appropriate staff to implement a means of controlling the flow of water through these lines.

Water flow also impacts the types of vehicles used to carry the various tools through the sewer. Depending on your flows, a crawler may work well, or a float platform may be more suitable. Wheels can be put on float platforms, so additional space is needed for clearance.

7. Plan for the unexpected.
As much as you try to consider every goal and every possible need, each job involves surprises. (If you knew exactly what you’d find in the pipes, you wouldn’t need an inspection, after all, would you?)

That’s why you should design a plan that is flexible for changing circumstances and build extra time into your schedule. Decide ahead of time what will be done if a buried manhole or substantial debris is found: Will you uncover the manhole now? Will you clean the debris out right away or just note it in the report?

The vehicles carrying the inspection tools can often travel thousands of feet if there are no drops or other concerns, so you may not need to access every single manhole during a condition assessment. However, you should still have a method in place for identifying each manhole in case needs change. (Also, individually identifying each manhole – even those not uncovered for access – is essential for logging the findings of your assessment in a report.)

Develop IDs for every manhole – even those you don’t plan to access — prior to inspection and have a plan for how to ID structures if one is found during the investigation. This can reduce confusion and make post-processing more efficient.
A thorough assessment of the condition of your sewers is crucial to optimizing system performance, determining maintenance and repair needs, and budgeting for the eventual replacement of aging infrastructure. It can also help you discover problems before they result in a system failure or reduced service to your customers. While inspections can cost thousands of dollars, they can save you thousands more if they prevent a sewer main backup or break (and the associated costs to repair the sewer and other infrastructure the break may have damaged). They also help you better target your cleaning and maintenance efforts to where the work is needed most.

In determining which technology to use for a condition assessment, you need to consider the materials of your pipes and the volume of flows through them, the goals you plan to accomplish, and your timeline for completing the work. Some tools like a zoom camera or acoustic assessment provide quick data but may need to be supplemented with other methods if blockages are found or more detail is needed. Other tools like laser profiling and CCTV will only provide data on the condition of pipes above the water line, so additional technologies like sonar will be needed to assess the pipes below water level. Some technologies like 3D LIDAR and gyroscopic mapping provide a high level of detail that may be necessary for certain specialized cases.

 

figure4     Figure5

The figures above illustrate some meaningful findings from a condition assessment. The “shape” of the pipe resulting from sonar and laser profiling is compared with the design shape of the pipe in the figure on the left, indicating helpful information such as debris and uncovered manholes (the red spots). The quantity and distribution of debris as shown in the figure on the right will help in developing bidding documents for a cleaning project and getting better prices.

 

In order to provide the best possible data at an optimized price, it is wise to seek the counsel of an experienced professional who can customize a plan that uses several different technologies based on the varying conditions throughout your system.

With the right tools, you can ensure you get the data needed to keep your system functioning at optimum levels for all your customers for several years to come.

Matthew CichyMatthew Cichy, P.E. is a water and wastewater senior project manager responsible for a variety of engineering tasks, including water and wastewater facilities planning, the design of water distribution systems, wastewater collection and conveyance systems, pumping stations, and water and wastewater treatment plants as well as construction administration, field inspections, financial consulting, and project management.

Bruce HulshizerBruce Hulshizer, P.E. is also a project manager in HRG’s water and wastewater service group. He has two decades of experience in civil engineering and is an active member of the Pennsylvania Water Environment Association, where he serves as their co-chair of the Collection System Committee for 2015.

 

Act 73 Compliance: Calculating Fair Annual Rental Value for Water Systems

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by: Russ McIntosh

Financial Reports

 

This article was published by Pennsylvania Municipal Authorities Association in the August 2015 issue of their magazine, The Authority.

Does your authority lease facilities from its incorporating municipality? If so, your lease payments should be carefully documented and calculated to ensure you are in compliance with Act 73, or a potential legal challenge could result.

Background

Passed in 2012, Act 73 added Section 5612 (a.1) to the Municipal Authorities Act, restricting the use of authority funds for

“any purpose other than a service or project directly related to the mission or purpose of the authority as set forth in the articles of incorporation or in the resolution or ordinance establishing the authority…”

Some authorities are obligated to make lease payments to the municipality that owns the facilities they use to provide service. While payments for the use of facilities operated by the authority to provide its services would seem to satisfy the “mission or purpose” requirement, deciding on the amount of that payment could be problematic. If the fee is too high – beyond a fair market value – rate payers could argue that the excess funds are not being used for a purpose directly related to the authority’s mission. And under Act 73, they could make that argument in court:

“A ratepayer to an authority shall have a cause of action in the court of common pleas where the authority is located to seek the return of money expended in violation of paragraph  (1) from the recipient.”

Operating authorities that lease their facilities are not as common as straight operating or leaseback authorities. Although there have been no legal challenges to date, other recent changes in the act that allow for stormwater authorities may expand the applicability of the Act 73 amendments.

Act 68 of 2013 added Section 5607 (a) 18 to the act and extends the power of authorities to allow for:

“Storm water planning, management and implementation as defined in the articles of incorporation by the governing body. Authorities, existing as of the effective date of this paragraph, already operating storm water controls as part of a combined sewer system, sanitary sewer system or flood control project may continue to operate those projects.”

This may generate a need for more authorities to lease their facilities since the majority of storm water facilities are owned by the municipalities who remain responsible for compliance with their Municipal Separate Storm Sewer Systems (MS4s) permit. Authorities have the ability to impose fees and charges for storm water service, which may provide a convenient vehicle for funding these systems with user charges instead of general fund tax revenues without having to actually transfer ownership of the facilities. Authorities may also be useful in establishing drainage basinwide charges without having to seek regulatory approval.

Fair Annual Rental Value Calculation in Practice: Reading Area Water Authority

Recently HRG was selected by the Center for Excellence at Albright College to perform a study for the Reading Area Water Authority (RAWA). The work required HRG to calculate the fair annual rental value of the water facilities RAWA leases from the City of Reading. The calculation was needed in order to make sure that the payments required under RAWA’s lease with the city met the requirements of the Municipal Authorities Act as amended by Act 73 of 2012.

The mission of the Center for Excellence in Local Government at Albright College is “to maintain and enhance the quality of life in Berks County by assisting municipal leaders in meeting the changing needs of their communities.” RAWA is an operating authority that serves a population of approximately 150,000 in the city and portions of the surrounding municipalities. It delivers approximately 15 million gallons of water each day and has an annual budget of $27,000,000. It leases facilities from the city, and lease payments to the city represent about one-third of its annual budget.

Approach and Methodology

While a few systems have been leased to third parties such as the Allentown wastewater system to the Lehigh County Authority and the Borough of Middletown’s water and wastewater systems to United Water of PA, these leases have an entirely different objective and a structure that provides an up-front, lump-sum payment for a fixed term. There is no reliable public market that determines the “fair annual rental value” of a utility system and no single formula for determining this value. Instead, fair annual value calculations must consider:

  • The value of the assets employed in rendering the service
  • The existing financial structure of the utility
  • Market interest rates
  • Opportunity cost

A lease payment that represents the fair rental value of the system, the amount that a willing lessee would be willing to pay a willing lessor on an annual basis, needs to consider a variety of factors.

These factors include:

  • Asset base
  • Outstanding debt
  • Necessary reinvestments
  • Return on investment
  • Cash flow

In the case of Reading, the city owns the facilities and made significant investments in the water system over time in order to comply with regulatory mandates and protect the public health and safety of those who purchase water from RAWA. From the city’s point of view, the fair annual rental value should be based on the value of the assets and a reasonable rate of return consistent with their risk. It should also consider likely future events, such as the need to make additional investments to keep facilities updated and to accommodate the future growth. Such calculations are made independent of the actual revenue being generated by those assets.

From RAWA’s point of view, the fair annual rental value needed to reflect the system’s cash flow or user rates would need to be increased. RAWA’s mission is to charge users reasonable and uniform rates consistent with the level of service provided. Rates and charges are RAWA’s only source of income and must generate sufficient funds each year to pay all the expenses of the system, including operation and maintenance expenses, debt service, the annual rental payment to the city, and necessary capital investments.

Balancing both points of view, our analysis considered the current net book values of the water system’s assets and also considered the current replacement value of those assets. Other assets such as water rights were considered in the calculation where appropriate. Assets were looked at in total and adjusted for investments in facilities financed by RAWA bonds. Appropriate rates of return were calculated and applied.

We also considered the projected cash flow from operations using current rates adjusted for cash needed for reinvestment in capital assets. Future rate increases, the impact of customer growth and regulatory, environmental, and safety compliance were important factors in determining future cash flows. We selected a five year period, 2015 through 2019, in order to measure the sensitivity of the annual fair rental value of these factors on water rates.

Using Multiple Calculation Methods to Determine Fair Annual Rental Values

HRG used multiple methodologies in order to blend the desire of the lessor (the city) to obtain the highest rent possible with that of the lessee (RAWA) to provide service at reasonable and uniform rates while meeting all financial obligations. In this way, we tried to approximate the amount that a willing lessee would be willing to pay a willing lessor.

  • Book Value Method: HRG evaluated the net asset values as the basis for calculating the fair annual rental, then applied rates of return commonly allowed in regulated utility cases for similar municipally owned water utilities. Typically, the PUC distinguishes between capital provided through debt financing and capital provided by investors when considering the overall return on investment that can be included in the rates. Various utility specific factors are considered, and expert testimony may be required when determining the rates of return allowed.
  • Replacement Value Method: Our analysis also considered replacement cost as a basis for calculating the fair rental value of the system. Replacement value, in this instance, is used to approximate the opportunity cost associated with holding an asset that has appreciated in value. It is important to note that in order to actually realize the benefit of the appreciated asset values, it would be necessary to convert those values into cash or other assets. Accordingly, our approach did not simply apply the rate of return on equity to the equity value created through use of replacement cost; rather, net equity was determined and a composite rate applied.
  • Cash Flow Method: Like our other approaches, this method has its limitations, since available cash flow measures the difference between revenues received and expenses paid, including necessary reinvestments in the system included in the current budget or future debt service. It is sensitive to changes in the rates charged for services, general price level changes and any imbedded operating inefficiency. In order to compensate for the limitations in the cash flow approach outlined above, we obtained water rate information from surrounding water systems and systems serving metropolitan areas similar to Reading in order to measure RAWA’s ability to increase rates to meet current and future lease rental costs.

Each method represents a valid approach for a particular purpose. Investors in investor-owned utilities are compensated for their investment in two ways: the rate of return allowed and collected through the utility’s rate structure (which is often paid out as a cash dividend) and the change in the value of their shares of stock. This is not true for municipally owned utilities where there is no capital stock or dividends. There is no ability to “sell” the equity created by an increase in the utility’s economic value without impacting the ratepayers.

Applying return on the current replacement cost method allows for the introduction of the increased economic value into the calculation. And, as can be seen in the table below, the values are higher even after calculating the return on the net realizable value. However, it is our belief that the cash flow method, while not perfect, provides the best overall measure of the current economic value on which to base the annual fair rental value of the water system.

Our use of multiple calculations provided a range of fair annual rental values. This was especially useful when looking at these calculations for a multi-year period.

Calculating Fair Annual Rental Value

Based on our analysis, we concluded that the annual fair rental value for the water system is $9,275,000 per year. This value represents the projected annual average cash flow value of the system yielding an average rate of return on the net book value of the city’s investment in net assets of 6.83% or 3.03% on net replacement book value. The return on net book value of 6.83% is within the rate of return range for investor-owned public water utilities. The lower rate of return calculated using replacement values is consistent with market rates for safe investments in today’s economic environment such as 20-year US Treasury Bonds.

Conclusion

While our study addressed the specific needs of RAWA and the city, each utility system is different. The passage of Act 68 authorizing stormwater authorities will likely involve transfer or lease of existing, municipality-owned stormwater facilities to an authority. Given the language of the Act 73 amendment, some due diligence would seem to be warranted when payments are being made by an authority to a municipality. Not all annual fair rental value calculations will require the use of multiple methods. However, in order to avoid a potential legal challenge, proactive authorities should examine their lease payments to ensure they are in compliance with the law.