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Home My Public Portal About2019B&C Rating Agency Credit PresentationProject Clear Presentation The Metropolitan St. Louis Sewer District Credit Presentation October 29, 2019 Participants MSD Participants Brian L. Hoelscher, P.E., Executive Director Tim R. Snoke, Secretary-Treasurer Marion M. Gee, Director of Finance Susan M. Myers, General Counsel Richard Unverferth, P.E., Director of Engineering John Strahlman, Assistant Secretary-Treasurer Finance Team Participants Bethany Pugh & Matthew Schnackenberg, PFM Financial Advisors LLC - Co-Municipal Advisor Tionna Pooler, Independent Public Advisors, LLC - Co-Municipal Advisor Robert Mellinger & Samantha Costanzo, Citigroup – Senior Underwriter Table of Contents Overview and Governance Review of Regulatory Compliance and Program Capital Improvement and Replacement Program (CIRP) Update and Funding Plan Financial Performance Update Summary of Credit Strengths I. Overview and governance Authority and Governance Established and chartered in 1954 pursuant to a special election to provide for wastewater and stormwater services in the City of St. Louis and most of St. Louis County Governance is vested in a six-member Board of Trustees The Mayor of St. Louis and the St. Louis County Executive each appoint three trustees A Rate Commission reviews proposed changes to rates and charges and makes recommendations to Trustees A Civil Service Commission serves in an advisory position regarding personnel, administrative, and civil service matters and hears appeals of disciplinary actions Revenue Bonds are issued pursuant to referendum approval of a majority of voters Charter changes also subject to majority approval of voters Organization Board of Trustees Civil Service Commission Rate Commission Secretary- Treasurer Internal Auditor Executive Director General Counsel Human Resources Information Systems Finance Engineering Operations Management Team Leadership Brian Hoelscher, P.E., Executive Director Assumed executive leadership position in March 2013 Twenty years prior experience at MSD, most recently as Director of Engineering Previous responsibilities included oversight of Capital Improvement and Replacement Program (CIRP) Part of four-member MSD staff leadership team that negotiated terms of the final EPA Consent Decree Tim R. Snoke, Secretary-Treasurer Assumed the Secretary-Treasurer position in May 2014 Twenty-one years prior experience at Ralcorp Holdings, Inc. Holds a BSc. Business Administration from Valparaiso University and a Masters of Business Administration from St. Louis University Marion Gee, Director of Finance Assumed the Director of Finance position in September 2015 Previously served as Assistant Finance Director for the City of San Antonio and before that as Finance Director at Louisville Metropolitan Sewer District for eleven years Certified Public Accountant with a BSc. in Business Administration and a Masters of Business Administration from University of Louisville Management Team Leadership Susan M. Myers, General Counsel Assumed the General Counsel role in April 2011 Started at the District as in-house counsel in 2001 Served as an environmental engineer for two years with EPA Region VII in RCRA Permitting and for nine years on a billion dollar Department of Energy Superfund Clean-up project Part of four member MSD staff leadership team that negotiated terms of the final EPA Consent Decree Richard Unverferth, P.E., Director of Engineering Assumed engineering leadership position in May 2013 Twenty-nine years prior experience at MSD in engineering, as well as leadership role in long-term planning group Extensive familiarity with District CIRP and operations Responsible for developing background data for MSD position in EPA Consent Decree negotiations John Strahlman, Assistant Secretary-Treasurer Assumed the Assistant Secretary-Treasurer position in January 2015 Prior experience includes treasury management positions at Metropolitan Pier and Exposition Authority in Chicago and at the Cook County Treasurer’s office Holds a BSc. Public Finance from Indiana University and a Masters of Business Administration from DePaul University Service Area Includes 520 square miles pursuant to 1977 referendum and subsequent annexation Includes the City of St. Louis and 90 other cities, including approximately 87% of St. Louis County Serves a population of 1.3 million Encompasses five watershed areas System Profile MSD currently treats an average daily flow of 396 MGD, operating seven treatment facilities The System serves approximately 427,000 wastewater accounts, 94% of which are single- and multi-family residential customers Approximately 80% of customer accounts are in St. Louis County, with the balance of 20% in the City of St. Louis Ten largest customers contribute approximately 4.6% of user charges as indicated to the right: MSD Wins Top National Awards In 2019, MSD received several NACWA Peak Performance Awards recognizing public wastewater treatment facilities for outstanding environmental compliance in the 2018 calendar year: The “Platinum Performance Award” honors member agencies for outstanding 100% compliance over a five-year or more consecutive period Fenton, Lower Meramec (perfect compliance for 11 consecutive years), and Missouri River Treatment plants The “Gold Performance Award” honors facilities with one year 100% compliance Grand Glaize and Lemay Treatment plants earned Gold honors The “Silver Performance Award” honors facilities with five or less violations per year Bissel and Coldwater Creek Treatment plants earned Silver honors MSD Wins Top National Awards In 2018, MSD received the Government Finance Officers Association (GFOA) Distinguished Budget Presentation award for the 31st consecutive year, the Excellence in Financial Reporting for the 30th consecutive year, and the Popular Annual Financial Report Outstanding Achievement Award for the sixth year in a row FY2021-FY2024 Rate Commission and Proposal Process The Rate Commission was established in 2000, by voter-approved amendments to the District’s Charter The 15-member Rate Commission is required to review the District’s rate proposal, seek public feedback, and submit recommendations to the District’s Board of Trustees The year-long process included the selection of Rate and other Consultants as well as the development of a comprehensive Rate Proposal submitted by the District to the Commission in March 2019 Other key milestones include: Rate Proposal presented – March 2019 Community briefings – March through April 2019 Technical Conferences (Testimony) – April through June 2019 Public Hearings- May through July 2019 Rate Recommendation Report submitted – August 2019 Recommendation Report accepted by the Board of Trustees - October 2019 Board of Trustees is expected to introduce and approve an ordinance setting rates consistent with such report in early 2020 FY2021-FY2024 Rate Commission and Proposal Process Per charter, rates must be consistent with laws and regulation; provide for adequate systems, facilities and services; be consistent with and not violate any covenant or provision related to indebtedness; impose a fair and reasonable burden on all ratepayers District’s metric targets consistent with highly rated credits Proposal substantively accepted by Rate Commission, including credit Recommended rates (2020 rates from 2015 Rate Commission) For more information and supporting documents: https://www.stlmsd.com/msd-rate-commissionhttps://www.stlmsd.com/msd-rate-commission II. Review of regulatory compliance and program Regulatory Compliance—Consent Decree Consent Decree entered April 27, 2012 Consent Decree drives the majority of the long term investment in the sewer system Estimated more than $5 billion of capital system improvements over an original 23 year period Five year time extension granted by EPA, lessening financial impacts Over $1.4 Billion in capital expenditures from 2013 through 2019 Substantial operational commitment is aimed at reducing overflows and building backups District’s long-term planning means Consent Decree obligations are well defined The Combined Sewer Overflow Long Term Control Plan was approved in 2011, and provides parameters for about a third of the capital program The Sanitary Sewer Overflow Master Plan was approved in 2014, and provides a schedule and milestones for elimination of overflow structures, accounting for about a third of the program The balance of Consent Decree obligations, wastewater system asset renewal, along with other regulatory requirements, accounts for the rest of the program Consent Decree Amendment June 22, 2018 Extended to 28 year program Allows delivery of regulatory-required, non-consent decree work without placing an additional financial burden on ratepayers Delays the start of some CSO tunnels while expediting the solids handling project Added $20M in Green Infrastructure Regulatory Compliance—Accomplishments Since entering the Consent Decree in 2012, MSD has successfully delivered the capital program, met milestones, and satisfied all reporting requirements Accomplishments include: Submitted and received approval on multiple program plans for sewer system operations and maintenance, and implemented the approved Capacity, Management, Operations, and Maintenance (CMOM) program Completed $1.6 million Supplemental Environmental Projects program obligation Submitted and received approval of the Sanitary Sewer Overflow Master Plan Met first five year milestone for SSO removals; removed 92 Sanitary Sewer Overflow structures Completed two major Combined Sewer Overflow system milestones with the completion of the Lemay Redundant Force Main and Lemay Treatment Plant Secondary Expansion Rehabilitated, repaired, or replaced over 1,000 miles of the sewer system Received EPA approval for the 2015 $100 Million CSO Volume Reduction Green Infrastructure Program Plan, and implementation is over 20% complete. Regulatory Compliance— Program Notes and the Future Program Notes The 2019 capital program was under budget The 2017 to 2020 capital program is tracking to be under budget The capital program for 2020 includes more than 100 projects, split about evenly between design and construction efforts The District has demonstrated the ability to manage large annual capital programs within budget The District’s focus on budgetary controls and operational efficiencies have successfully contained total Operations and Maintenance costs The Future Program Continued compliance with the Consent Decree and other regulatory requirements Continued construction to enable removal of Sanitary Sewer Overflow structures Over the next four years, the District will complete a majority of planned neighborhood scale projects and transition to larger regional projects, such as tunnel and tank storage facilities Continued wastewater system asset renewal Fluidized bed incinerators at Bissell and Lemay treatment facilities III. Capital improvement and replacement program (cirp) update and funding plan CIRP Investment: 2017-2020 Wastewater CIRP appropriations for the years 2017 through 2020 are estimated to be over $1.1 billion with over $2 billion total CIRP funded through 2020 Allocation of 2017-2020 CIRP Projects: $561 Million for the elimination of Sanitary Sewer Overflows $311 Million for system renewal and capacity projects $230 Million for the reduction and control of Combined Sewer Overflows $65 Million for treatment plant improvements Fiscal Year Program Level 2021 Estimate $396,437,645 2022 Estimate $390,963,105 2023 Estimate $450,720,216 2024 Estimate $459,569,736 Total 4-Year Program $1,699,690,702 CIRP Investment Planned: 2021-2024 Allocation of 2021-2024 CIRP Projects: 22% of the Total 4-Year Program for the elimination of Sanitary Sewer Overflows 36% of the Total 4-Year Program for system renewal and capacity projects 13% of the Total 4-Year Program for the reduction and control of Combined Sewer Overflows 29% of the Total 4-Year Program for treatment plant improvements CIRP Funding—Debt and PAYGO Excess unrestricted cash may be available for PAYGO in later years Series 2019B and 2019C Series 2019B New Money Bonds will be issued to fund projects planned for FY2020 through FY2022 to: Construct collection system improvements to reduce combined sewer overflows, eliminate sanitary sewer overflows, and reduce building backups Design storage tunnels, storage tanks, and relief sewers to improve system capacity Continue construction of the Deer Creek Sanitary Tunnel ($151 million, four-year duration project) Series 2019B New Money Bonds are amortized over 30 years with a level debt structure Series 2019C Refunding Bonds will be issued to taxable advance refund certain maturities from Series 2011B, 2012A, 2012B, 2013B, and 2015B Series 2019C Bonds have a level savings structure Series 2019B and Series 2019C Bonds will be on parity with the other District Senior Lien Bonds but will not be secured by the Debt Service Reserve Fund Existing and Proposed Debt Service – New Money Notes (1) Net of BABs subsidy (2) Includes fees associated with the loans (3) Preliminary and subject to change Series 2019B and 2019C *Rates as of October 16, 2019 Outstanding and Planned BondsUnder Existing Voted Authority *Drawn down amount as of October 29, 2019 ** Preliminary, Subject to change IV. Financial performance update Adopted Rate Adjustmentsand Average Monthly Bill The Board has accepted the Rate Commissions Rate Proposal for FY2021 - FY2024 and rate adjustments are projected to increase wastewater revenues as follows: City Under Consent Decree Residential Monthly Bill ($)* Memphis, TN 13.57 San Antonio, TX 36.44 Los Angeles, CA 40.88 Washington, DC 49.93 Boston, MA 59.71 Indianapolis, IN 59.93 Cleveland, OH 62.72 St. Louis, MO 65.31 Baltimore, MD 76.59 Kansas City, MO 82.02 Atlanta, GA 108.08 Seattle, WA 115.84 Residential Monthly Bill: See Table 12 of the Feasibility Study *Based on 8 Ccf Historical Coverage Notes: 1. District covenants to set rates that ensure that Net Operating Revenues will equal at least 125% of Debt Service Requirement on all Senior Bonds and 115% of the Debt Service Requirement on all outstanding debt for the year of computation 2. The methodology used to calculate the net available revenues and the coverage ratio was adjusted during fiscal year 2013 and all previous years were restated for comparative purposes. The 2013 change in methodology consisted of removing agency fees, previously reflected as a deduction from net available revenues, and now combining them with interest in the debt service section. Additionally, in fiscal years 2010 and 2011, the change in methodology consisted of removing the Build America Bond Tax Credit from the pledged revenue section and reapplying the credit to interest expense in the debt service section. This was made to ensure consistency with fiscal years 2012 and 2013. In fiscal 2017 the methodology was changed to exclude GASB non-cash transactions from the debt service calculation. Fiscal years 2015 and after have been adjusted to also exclude the GASB 68 non-cash pension expense and fiscal year 2018 and after have been adjusted to exclude GASB 75 non-cash OPEB expense. Projected Coverage *Reflects GASB 68 and GASB 75 expense adjustment Trend Liquidity Liquidity (with long-term investments) is expected to remain well in excess of 365 days through 2020 planning period. CIRP appropriations for the years 2015 through 2019 were above $1 billion *Reflects GASB 68 pension expense adjustment Long-Term Investment Portfolio(as of June 30, 2019) Long-Term Investment Portfolio(as of June 30, 2019) Approximately 20% of Long-Term investment Portfolio allocated to Restricted Long-Term Investments Pension Fund Update MSD offers a defined benefit plan providing retirement, death and disability benefits to full-time employees commencing service prior to December 31, 2010 (plan is not accepting new entrants) As of December 31, 2018, MSD’s assumed rate of return is 6.90% with key statistics as follows: 545 active plan members $276.8 million Actuarial Value of Assets $58.2 million in unfunded liability, up from $55.3 million as of December 31, 2017 Actuarial Value of Assets/Actuarial Accrued Liability decreased slightly to 82.6% as of December 31, 2018, versus 83.1% as of December 31, 2017 Effective January 1, 2011, MSD offers a defined contribution plan for current employees with less than 10 years of service as of December 31, 2010, and all new employees commencing service on or after January 1, 2011 As of December 2018, the plan has 438 participants and $8.6 million in assets OPEB Considerations MSD’s total OPEB unfunded accrued liability as of December 31, 2018, the latest actuarial valuation, was $24.2 million, assuming a 4.10% return on investment (Report by Milliman, Inc. dated July 2019) The initial projected liability of $76 million (based on a 2006 study) has been significantly reduced to under $25 million by a change in benefits offered to existing and future retirees age 65 and over MSD is partially funding the OPEB liability through the payment of the monthly health claims on an ongoing basis for pre-age 65 retirees. There are 120 individuals in this group (as of 12/31/2018) MSD has continued to elect a Pay-Go approach to assure flexibility in future benefits. V. Summary of credit strengths MSD Credit Strengths Consistently Strong Financial Performance The District has maintained healthy liquidity levels Actual coverage levels have exceeded 2019 projections Proactive management of pension and OPEB obligations mitigate future liabilities Successful Rate Proposal and Rate Commission Process The District Board of Trustees accepted the Rate Commission’s recommendations for FY2021-FY2024 The District has strong historical success approving bond referendums On Time and On Budget Implementation of Consent Decree All related litigation settled Over $2 billion in projects to be funded through 2020 Strong relationship with Regulators Tentative Financing Schedule Date Activity October 29 Rating Agency Meetings Week of November 4 Release of Ratings Week of November 4 Electronic Distribution of POS November 18-19 Pricing of the Bonds Week of December 1 Close and Deliver Funds Contact Information Contact Phone/Email Tim R. Snoke, Secretary-Treasurer (314) 768 6222 tsnoke@stlmsd.com John Strahlman, Assistant Secretary-Treasurer (314) 768 6225 jstrahlman@stlmsd.com Bethany Pugh, Managing Director – PFM (440) 239 7070 pughb@pfm.com Matthew Schnackenberg, Director - PFM (612) 371 3771 schnackenbergm@pfm.com Tionna Pooler, President - IPA (515) 259 8193 tpooler@independentpublicadvisors.com Brian Brian Brian Brian Brian Brian Brian Brian Brian Brian RIch RIch Rich Rich Rich Rich Rich Tim Tim Tim Tim Tim Marion Marion Marion Marion Tim Tim Tim Tim Tim PFM PFM