US Army Corps of Engineers

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USACE Infrastructure Financing Potential

Gary LoewAsst to Director, Civil WorksHQUSACE

13 October 2011

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Questions

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What does Recapitalization mean?

What is USACE doing?

Legislation?

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Life Cycle Asset Management(Senior Oversight Group (SOG))

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Create Asset (Capitalization)

Operate and Maintain

Recapitalize or Divest (Deauthorize)

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Life Cycle Asset Management Enablers

CAPITALIZATION► Planning—More deliberate selection of studies to meet program objectives.

More efficient studies, esp for navigation► Engineering—Improved Program and Project Management (See IWUB Report

for list of 18 improvements

OPERATIONS AND MAINTENANCE► Risk-Informed, Systems-based Asset Management to prioritize work

RECAPITALIZATION► More funds—long term► Stakeholder and Partner relations► Development of a Long Term Capital Budget Plan

• NOTE: Capital Plans exist now for Dams (Dam Safety Report), Inland Waterways (IWUB Report) and Hydropower (HMI Report)

► Review of projects, esp. reservoirs, for updated needs and uses

DIVESTITURE► Legislation to create a process to deauthorized operating projects no longer

required. It can mirror existing legislation used to deauthorize projects never constructed and not funded for 5 years

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RECAPITALIZATION OF USACE CW INFRASTRUCTURE

OBSERVATIONS (1/3)

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 • Funding potential is specific to Infrastructure type• Consider funding both for recapitalization and for O&M• Recapitalization costs include planning, design, construction• Alternative financing must consider change in traditional cost share• Funding solutions must consider both local/partner cost and federal costs

• Assisting local costs implies increase in federal cost-share• Alternative financing may include advanced contributions, contributions in

excess of existing cost share amount, donations, credits, loans, grants, infrastructure bank loans, bonding authority• Loan incentives include direct loans and loan guarantees• States have bonding authority now

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RECAPITALIZATION OF USACE CW INFRASTRUCTURE

OBSERVATIONS (2/3)

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• All PPP solutions require a long term, low risk source of funds to repay the capital loaned. Loan period may be 10-30+ years. Examples:• Highway tolls to repay cost of construction and/or maintenance• Tipping fees for disposal of dredged material, use of port facilities• Recreation, Water Supply, Electricity fees• Bonds that fund state/local cost of facility construction or O&M

• USACE will likely need to revisit boundary between Recap and Maintenance

• There are other incentives to enable Recap e.g. the Energy Savings Performance Contracts (ESPCs—enable PPP for energy saving projects and operations)• The savings generally cover 100% of costs• Federal revenue is still required to repay the PPP capital

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RECAPITALIZATION OF USACE CW INFRASTRUCTURE

OBSERVATIONS (3/3)

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• Solutions might range from cash to complete facility transfer • General solutions should enable local variations

• Give Districts authority to negotiate local solutions• As a incentive for Districts to generate project savings, allow them to

reallocate funds to high priority requirements at the District or MSC. • Recapitalized projects may be ‘repurposed’• Revenue possibilities should include current uses and

beneficiaries; not just currently ‘authorized’ purposes• Multiple purpose projects present a challenge

• Life cycle solutions include:• Careful selection of new projects (planning, design and construction)• Financing/Alternative Financing for

• Recapitalization• O&M

• Divestiture of projects that no longer serve authorized purposes or are no longer consistent with national priorities

  

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RECAPITALIZATION OF USACE CW INFRASTRUCTURE

INFRASTRUCTURE TYPES

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• NAVIGATION (Recapitalization & O&M)• COASTAL• INLAND

• FLOOD RISK MANAGEMENT• COASTAL• INLAND

• ACQUATIC ECOSYSTEM RESTORATION• Not Applicable—projects are self-sustaining

• HYDROPOWER• WATER SUPPLY• RECREATION Notes: 

• Most projects are multiple purpose• Users Pay Principle implies that funding solutions are specific to beneficiaries of

each infrastructure type—no silver bullet

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RECAPITALIZATION OF USACE CW INFRASTRUCTURE

CURRENT SOURCES OF FUNDS

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NAV

Coastal

CAP

O&M

(100%)

Inland

CAP

(50%)

O&M

FRM

Coastal

CAP

O&M

Inland

CAP

(50%)

O&M

Hydro

CAP

(100%)

O&M

(100%)

Water Supply

CAP

(100%)

O&M

(100%)

Recreation

CAP

(~30%)

O&M

(~30%)

8 of 14 Infrastructure Types are already funded to either repay capital costs or pay for O&M or both

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RECAPITALIZATION OF USACE CW INFRASTRUCTURE

STATUS OF SOLUTIONS

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INFRASTRUCTURE TYPE COMMENTS STATUSNAV-COASTAL (CAP) No solution at this time (O&M) Cost 100% funded;

Industry proposed HMTF solution

NAV-INLAND (CAP) Range of projects is 103 (max) – 26(min)Need to clarify Recap/O&M

Capital costs 50% fundedAdmin and Industry proposals active. Include user fees, increased fuel tax

(O&M) Admin proposal includes O&M?

FRM-COASTAL (CAP) No solution at this time (O&M) N/A N/AFRM INLAND (CAP) About 300+ projects?

Need to clarify Recap/O&MNeed to improve prioritization methodology

No solution at this time

(O&M) No solution at this time

HYDROPOWER (CAP) PMA concurrence req’dN/A to Bonneville System

Cost 100% reimbursed PMA’s verbal to fund morePvt Firm seeking ESPC legislation

(O&M) PMA concurrence req’dN/A to Bonneville System

Cost 100% funded now; not to USACE.PMA’s already funding some and verbal to fund more

WATER SUPPLY Emerging payee; esp in southwest/west Cost ~ 30% reimbursed now;

AQUATIC ECOSYSTEM RESTORAION N/A for CAP – Projects are self sustaining (Some O&M)

N/A

RECREATION User fees collected, but into Treasury; other Fed agencies retain 50% collections;

Legislation has been proposed

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RECAPITALIZATION OF USACE CW INFRASTRUCTURE ALTERNATIVE FUNDING SOLUTIONS AND THEIR

APPLICABILITY TO USACE INFRASTRUCTURE

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NAV* FRM* HYDRO WATERSUPPLY

AER

ADVANCED CONTRIBUTIONS

DONATIONS (Miami, Corpus) (PMAs)

BONDING AUTHORITY RECAP BANK LOAN GUARANTEE GRANTS USER FEES HMTF 100% for

Coastal Nav O&MIWTF 50% for CAP

100% reimbursed for CAP and O&M

- 100% reimbursed for CAP and O&M

SPECIAL TAXING DISTRICT

CREDITS ASSUMPTION OF PLNG/DESIGN/CONTRUCTION/O&M

PPP-(LOAN) ESPC could fully fund some projects

REVISE COST SHARE REPURPOSE PROJECT; REVISE COST SHARE

DIVESTITURE

* Need to identify potential revenue sources and determine how to apply to multiple purpose projects

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Examples of Financing Alternatives Working: HMTF, IWTF, Hydropower Contributions, Hydropower ESPCs,

Retention of Rec User Fees Hydropower: Take Hydropower off-line, e.g. Bonneville Power, TVA “Donations” (Miami Harbor, Corpus Christi) Credits for WIK or for Plng/Design/Construction in excess of cost-share Water Supply: Non-federal-funded studies Water Supply: Contributions towards Recap Projects that would extend

project life] Water Supply: Expand authority for USACE to execute projects for

sedimentation management and dredging Water Supply: Refine, clarify cost of storage methodology to enable

reallocation Multiple Purpose: Authorize USACE to provide credit to non-fed sponsors

for work related to O&M acivities

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RECAPITALIZATION OF USACE CW INFRASTRUCTURE

SUMMARY

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• Beneficiaries of each infrastructure type vary• Funding solution for each type is different• Some funding initiatives would work for several types (e.g. advanced

funding, contributed funds, donations, etc.)• DA should seek authorities that provide options whenever possible as

opposed to authorities that dictate solutions, e.g. option to contribute funds.• Multiple use FRM projects are the challenge—to define potential revenue

sources that could repay loans• Some USACE activities are already 100% funding (hydropower, water

supply, coastal navigation O&M). Users will not agree to these solutions in the future unless they retain control of the use of funds (e.g. PMAs)• The corollary is that users will want complete control or oversight of any voluntary

or legislated solution that involves their money. • USACE will need to identify what it must control and what it can let go.

• FRM/Multiple Purpose Projects are the challenge• Suite of solutions/funding authorities/funding sources will be required• Divestiture of infrastructure is an important part of the total program 

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The Way Ahead Continue to Engage Industry and Stakeholders

► CH2M Hill/Shaw Group/Industry Forums► NRC Colloquium

► Workshops with interagency partners► LBG Workshop and White Paper on PPP Alternatives

State of USACE Infrastructure Report Synchronize with CW Transformation/FY13 and FY14

Budgets Go to Next Level and Propose

► Legislation► Policy and Program Management Changes

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