PWSA’s Financial Health
In 2018, PWSA began to build a Capital Improvement Plan (“CIP”) that includes over $1 billion of capital improvements to be completed over the next five years. These capital improvements include upgrading the water treatment plant, drinking water, stormwater, and sewer systems, and building green infrastructure. This comprehensive approach to rebuilding our infrastructure means we will be able to provide the water and wastewater service to meet or exceed customer expectations for current and future generations.
Unlike investor-owned utilities, PWSA does not have shareholders to generate a profit for. Instead, PWSA’s primary focus is on delivering the best possible service, at the lowest possible cost, for our customers.
Therefore, PWSA’s goal to fund the planned CIP is to use a mix of public financing sources to minimize the cost to our customers.
PWSA primarily funds our projects through revenue bonds. Revenue bonds are sold in the open financial marketplace and are secured by PWSA future revenue. Revenue bonds are considered a traditional funding method among public water and sewer utilities, allowing the cost of improvements to be spread across a larger portion of their useful life.
We will also explore state and federal programs, including grants and low-interest loans, to help fund the CIP. PWSA has a proven track record of successfully competing for these state and federal funding programs, and is in a strong position to continue to do so moving forward.
The last funding method that PWSA will utilize is called Pay-As-You-Go, which uses current year revenues to pay for current capital investments. This approach lowers the financing costs by eliminating the need to borrow money to fund capital projects.
Strong Credit Rating
Historically, PWSA has been able to obtain low municipal interest rates on debt. The ability to issue municipal bonds is only available to public agencies, and the lower interest rates allow us to deliver capital improvements for ratepayers at a lower cost of capital than could be achieved through private financing. Thanks to our public ownership and strong financial position, for fiscal year 2019, we are estimating an annual interest rate of 3.93% on all our current combined outstanding debt. PWSA’s credit ratings as assigned by Moody’s Investor Service and S&P Global Ratings are considered upper-medium grade and low risk of default and strong capacity to meet our financial obligations.
In addition, S&P Global Ratings classifies PWSA as having a very strong enterprise risk portfolio and a strong financial profile. This can be attributed to the stable water and sewer revenue sources of PWSA from the areas it serves throughout Pittsburgh. Strong credit ratings will give PWSA the ability to obtain favorable financing to fund needed system improvements
Long-Term Financial Planning Initiatives
PWSA adopted long-term financial planning initiatives that include implementing financial policies, monitoring financial metrics, and modernizing the capital and operating budget processes. Together, these initiatives will stabilize and improve the financial position of PWSA for years to come.
PWSA has and will continue to adopt and follow best practices for financial policies and governing principles. This includes providing guidance on the capitalization of assets, issuance of debt, cash management, and financial management. All adopted policies will ensure that the public’s interests stay a top priority when we make any financial decision. In addition, PWSA will also use the following financial metrics to evaluate and track financial success:
● Maintaining a debt service coverage ratio of 1.35x on senior debt service obligations.
● Maintaining a debt service coverage ratio of 1.15x on total debt service obligations.
● Increasing the percentage of Pay-As-You-Go funding to at least five percent over the next five years.
● Achieving cash reserves, including operating reserves, rate stabilization fund and revenue fund at a level of 65 days cash on hand as measured at the end of fiscal year 2019, with the ultimate goal of increasing to over 100 days over the next five years.