Residents of the Four Seasons Mobile Home Cooperative in Tiverton long have gotten water from a well at the site connected to old plastic pipes. The system sometimes needs to be powered by a generator and had been breaking down regularly, requiring costly repairs.
The community of 24 homes is made up primarily of retirees on fixed incomes. Paying for an upgraded water system would have been a struggle but that’s what they were preparing to do, until a savior stepped in – the R.I. Infrastructure Bank.
“There are no words,” said Nancy Brayton, a 22-year resident of Four Seasons, of the significance of the quasi-public state entity’s willingness to finance a modern water supply system for the community. It also took the extra step of including road improvements. The project is expected to be completed in June.
And residents learned they wouldn’t have to pay for the work. Part of the federal money the bank gets is designated for such projects.
Brayton called the principal-forgiveness loan a true blessing. For bank CEO Jeffrey Diehl, it’s business as usual.
For the past 30 years, the bank has gone about the unglamorous job of financing more than $2.1 billion in various infrastructure projects, saving municipalities and other customers hundreds of millions of dollars in the process. Not bad for an entity that, despite its name, is not actually a bank.
“We are pretty unique,” Diehl allowed. “We’re not technically a bank.
“We operate a bit like a bank because we make loans. Our financing programs receive capital, but we are not a line item on the state government’s budget, nor is the bank’s debt guaranteed by the state.
“The governor appoints the board [of directors],” he continued. “More important, we borrow money in the bond market to significantly increase the amount that we are able to make in below-market loans to municipalities and quasi-public agencies for important infrastructure projects.”
It operates out of nondescript offices at The Foundry, a 26-acre complex of business offices and loft apartments abutting Interstate 95 near the Providence Place mall. Its work is equally low key, but the bank’s fingerprints are all over Rhode Island, from major public works projects to individual septic-tank replacements.
Despite its focus on public infrastructure, especially municipal water projects of all kinds, it gets about two-thirds of its money from the private sector. Most of the rest comes from the U.S. Environmental Protection Agency. And the state matches 20% of the EPA’s money.
As Diehl put it, the bank leverages additional private funding by bundling the loans it makes to municipalities and other customers and selling them into the private market, thus producing more revenue for its revolving loan funds.
“The business model is set up in such a way that we take all the loans we make, whether they’re small loans or big loans, and pool them together and use them partly as collateral to borrow from the market,” he said. “That reduces the transaction costs for the communities [financing projects through the bank] by pooling those loans together, so we get a bigger deal, and we spread the costs of coming to market across a broader number of transactions than if those communities did it on their own.
“We also provide a subsidy on the interest rate,” he added. “We’re lending in drinking-water [projects] at 25% below market and in clean water [projects] 33% below market. So that’s saving communities money and enabling them to do more, or it’s costing them less to do the infrastructure projects.”
The bank expects to lend about $160 million this year, which would be an annual record and about twice as much as last year.
Though the bank’s focus remains municipal projects, it’s also emphasizing what it can do for the private sector, including businesses and nonprofits, and homeowners, through an expanded menu of programs.
For instance, when the nonprofit Providence Public Library undertook its ongoing $25 million renovation – the most expensive library renovation in Rhode Island history – the bank was able to kick in about $1.6 million in financing through its energy program.
“This funding [from the bank and others] is a critical component of our $25 million project goal,” said library Executive Director Jack Martin.
The bank also provided financing for Helping Hands Community Partners, a Rhode Island nonprofit that helps people become homeowners.
“We have an energy program for commercial properties and nonprofits – that money all comes from private-sector capital – and it provides 100% financing for them to do clean energy projects. Our programs also enable them to renovate with new air conditioning and heating systems and air filters. We’ve saved small businesses through that program almost $9 million in energy costs,” Diehl said.
“We did it for a data center in Middletown; a manufacturer in Westerly; a dry cleaner in South Kingstown,” he added. “We’ve been working on helping small businesses save money and that goes straight to the bottom line and that makes them more competitive.”
The bank also has indirectly helped large numbers of people.
Take the Narragansett Bay Commission. Its mission is to care for the water quality of the bay, perhaps Rhode Island’s most valuable natural asset. Since 1992, the bank has provided the commission with 24 below-market-rate loans worth $663.7 million for clean water projects.
That has included financing much of the $1.4 billion Combined Sewer Overflow project, which has involved drilling a tunnel beneath Providence to handle storm overflows. The project is in response to calls by the EPA for Rhode Island to comply with the federal Clean Water Act, especially regarding water quality in the bay.
The bank’s two dozen below-market loans have generated more than $20 million in savings for the commission, which it passes on to the 85,000 homes and businesses from Providence to Cumberland that fund its wastewater-treatment system.
‘Ratepayers have benefited from our relationship with the infrastructure bank.’
KAREN GIEBINK, Narragansett Bay Commission chief financial officer
“Our ratepayers have benefited from our relationship with the infrastructure bank,” said commission Chief Financial Officer Karen Giebink.
The bank recently closed a $45 million loan for the final and largest phase of the commission’s tunnel project, which will take almost 20 years to complete.
“One of the things we focus on with stormwater management is how to address the pollution aspects before it gets into the sewer pipes,” Diehl said. “If we can manage more of the water before it gets into the drains, it significantly reduces the cost of having to manage it. We’re also working with Pawtucket with managing stormwater around the new transit hub that’s going up there.”
When Providence needed help financing its lead water supply pipe-replacement program, it turned to the bank. In May, the city announced it received $1.2 million, approved by state utilities officials in partnership with the bank, to replace potentially hazardous lead water pipes connecting to local homes.
The money is being used to provide residents with three-year, no-interest loans to replace their “private-side” water-service lines. The city also is replacing the public side of the service lines, which numbered 12,300 as of last spring.
Another time, the bank got creative and assisted Providence with a project involving road and bridge work.
“Providence was going to issue $45 million in infrastructure bonds to the market and we called them up and said, ‘What are you going to invest [the proceeds in]?’ About half of it was going for road and bridge,” Diehl recalled. “At the time, I only had $2 million in capital for the road and bridge program, but I was able to use other capital on our balance sheet to make a commitment. I couldn’t do the whole thing, but we made the commitment to lend them $10 million. So, they did two transactions. They sold $35 million [in bonds] to the market and they sold $10 million to us. Even though they had transactions costs on that other transaction, we saved them over $1.5 million.”
Providence Mayor Jorge O. Elorza is appreciative of the bank’s assistance.
“The R.I. Infrastructure Bank is a valued partner in this work to keep the capital city strong from the ground up,” the mayor said. “We’re thankful for their support for projects that improve quality of life, such as the 0% interest loan program for homeowners to replace private service lines and energy-efficiency upgrades to aging city facilities.”
Over 30 years, the bank has provided $181.6 million in financing for infrastructure projects in Providence. But the capital city is just one of numerous cities and towns that have done business with the bank. Its other big customers have been Warwick, $201.5 million in financing; Newport, $179 million; Pawtucket, $155.8 million; East Providence, $96.7 million; Woonsocket, $92.7 million; West Warwick, $67.4 million; Cranston, $64.7 million; and Bristol, $55.2 million.
The infrastructure bank operates as a nonprofit, which means the surplus it expects this year will be returned to its revolving-loan funds. It uses those funds to leverage private and public capital for a slew of infrastructure improvements, from drinking water and sewer systems to road and bridge repairs, solar panels and wind-energy turbines, and cleanups of contaminated former industrial sites.
Created by the General Assembly in 1989 as the Clean Water Finance Agency, the bank originally handled only water projects. In 2014, its mandate was expanded to include road and bridge work and, in 2015, it was expanded again to include energy projects and brownfield cleanups.
Diehl, a former international banker with British financial services giant HSBC, said tapping the private sector has been the key to success. The bank uses private money, on a dollar per capita basis, more than other state clean water finance agencies.
“We are able to do more by going out to the bond market and borrowing from private investors,” he said. “We do, head and shoulders, more [with private funding] on a relative basis than any other state.
“The alternative for our customers would be to just go to a private bank or the bond market and borrow,” he added. “They would have to issue [bonds] at their own credit rating and they’d have to pay a market rate.”
Yet the infrastructure bank isn’t trying to compete with private banks and other lenders.
“We’re not here to compete with the market,” Diehl added. “We’re here to fill financing gaps.”
Others have taken notice.
“We’re starting to see other states interested in our business model and we’ve started conversations with those organizations,” Diehl said.
‘We’re not here to compete with the market. We’re here to fill financing gaps.’
JEFFREY DIEHL, R.I. Infrastructure Bank CEO
Neither the EPA nor the National Association of Clean Water Finance Agencies could compare the bank’s operations to its counterpart agencies in other states when asked by Providence Business News. But this year, the bank was recognized for its environmental work and invited into the Green Bank Network, a global alliance of so-called “green banks” committed to financing clean energy.
“Some are starting to call us a blue-green bank because of the clean water projects we do,” Diehl said.
By June 30, 2018, the end of fiscal 2018, the bank had assets totaling $1.67 billion, an increase of $15.4 million from the year before. Liabilities totaled $1.02 billion, a decline of $27.3 million from the year before.
Operating income for the bank in fiscal 2018 totaled $7.6 million, 119% more than in fiscal 2017. But nonoperating grant income of $37.3 million pushed the bank’s net position $41.4 million higher at the end of the year to $653.7 million.
In fiscal 2018, the bank reported making $81 million in loans, consisting of $31.1 million in clean water loans, $20 million in drinking-water loans, $17.4 million in municipal road and bridge loans, and $12.5 million in clean energy loans. In fiscal 2017, the bank made loans worth $89 million for the same group of projects. But in fiscal 2016, the bank reported making a total of $191.8 million in loans, a number inflated by the timing of bond issuances, which caused about $65 million in loans that would have closed in fiscal 2015 to shift to fiscal 2016.
Despite fears President Donald Trump’s administration would gut the EPA, the bank has been getting more federal money.
“Our allocation has increased,” Diehl said. “This year, it increased by almost 30%.”
The bank usually finances loans over 20 years, but it finances for up to 30 years or for as few as three years, depending on the customer and the project.
A key to the bank’s ability to offer below-market financing rates is its high credit ratings. Its water programs, for instance, are rated AAA – the highest rating, even higher than the state itself. The high ratings start with its virtually nonexistent default rate. Diehl was hard-pressed to recall when a customer was delinquent on a loan, let alone defaulted on one.
“In all the years we’ve been doing business, we’ve never had a default or delinquency,” he said. “If a community were to get into trouble [with repayments], we’d get involved with the state and take a look at how things can be mediated more quickly.”
Another unique part of the business model is the expanded mandate. When financing a water project, for instance, the bank often can provide below-market financing or other incentives for including energy efficiency equipment, road and sidewalk work, or anything else that falls under its menu of programs.
With the Narragansett Bay Commission, for example, the bank financed upgrades of the Fields Point Wastewater Treatment Facility in Providence to increase its capacity and improve its performance. As part of that, it also financed three wind turbines at Fields Point that can supply up to 45% of the plant’s electricity needs.
In that spirit, the infrastructure bank is looking to help communities finance parts of their multimillion-dollar school construction and renovation projects approved by voter referendums in recent years. Diehl and his staff have been in touch with officials in East Providence about planned school improvements there that could benefit from the bank’s lower finance rates, subsidies and other incentives that they otherwise may not get on the open market.
“If they borrow a certain way, they get access to that,” Diehl explained. “We’ve identified $45 million of that [East Providence] project that could potentially access our programs, such as energy efficiency, HVAC systems, lighting, green infrastructure to manage stormwater runoff, water conservation – all the things that could potentially unlock our below-market financing.” The superintendent of East Providence schools did not immediately respond to a request for comment.
The bank, which has a dozen staffers, also thinks about economic development when financing projects. An example is the work it’s doing in the Wickford area of North Kingstown, where there has been a void of sewer connections. The bank is changing that.
“It’s difficult to operate a restaurant on a septic system,” Diehl said. “You can’t grill steaks; you can’t grill fish because you have to collect [the runoff] and it doesn’t work well on a septic system. It works better with a sewer system, where it can be treated. In the case of Wickford, you’re going to have commercial tie-ins to sewer and that will enable more restaurants to come in, which creates more foot traffic, which creates more opportunity for small businesses on that small main street they have.”
Like it did with the Narragansett Bay Commission, the bank also helped Newport comply with a 2011 consent decree from the EPA to improve its wastewater collection and treatment system.
Newport Director of Utilities Julia Forgue said the low-cost financing has produced savings that the city passes along to residents and businesses served by the system.
“We take advantage of the Clean Water State Revolving Fund [managed by the bank] for our ratepayer,” Forgue said.
The work on Newport’s wastewater-treatment system will “not only harden it against severe weather … but we put new solar panels on and new lighting to significantly reduce the cost of energy to run the facility,” Diehl said.
Perhaps the only thing that will slow the bank is a recession.
“[A recession] probably will reduce our lending,” Diehl said. “It’s more likely to reduce demand as municipalities look to postpone projects. It’s a double-edged sword, though. Underinvestment in infrastructure – deferred maintenance – is a problem in Rhode Island and … globally.”
RIIB LOAN PROGRAMS:
• Clean Water State Revolving Fund: This provides up to 30-year financing to municipalities, wastewater districts and private borrowers for projects reducing water pollution. Eligible projects include wastewater-collection systems and treatment facilities, stormwater-pollution prevention, treatment facilities, and best management practices, including green infrastructure, and other water-quality-protection activities. Loans totaling nearly $1.5 billion have been made to municipalities, the Narragansett Bay Commission and the R.I. Airport Corp.
• Drinking Water State Revolving Fund: This provides up to 25-year financing to municipalities and publicly and privately organized water suppliers for drinking-water-infrastructure projects. A project must be related to the planning, design, or construction of safe drinking-water supply, treatment and transmission infrastructure. Loans totaling $507 million have been made under the program.
• Municipal Road and Bridge Revolving Fund: This provides up to 20-year financing to cities and towns to access capital to complete road and bridge infrastructure projects. Loans totaling $64.4 million have been made since the program was created in 2013.
• Efficient Buildings Fund: This provides up to 15-year financing for municipalities and quasi-public agencies for energy efficiency and renewable energy upgrades. To be eligible, a project must be on the R.I. Office of Energy Resource’s priority list. Projects also may be eligible for other incentives from National Grid Rhode Island. Loans totaling $31 million have been made to municipalities, with estimated energy cost savings of $66 million.
• Community Septic System Loan Program: This provides low-cost, long-term financing to private property owners to repair or replace septic systems, or to replace a cesspool with a septic system. R.I. Housing and Mortgage Finance Corp. is responsible for underwriting and servicing the loans. The bank has committed nearly $18 million for residential septic-tank improvements and made loans to more than 780 households.
• Commercial Property Assessed Clean Energy: This provides commercial property owners with long-term financing for energy efficiency and renewable energy improvements, such as LED lighting, HVAC systems or insulation, and renewable energy systems, including solar and wind. Commercial, industrial, agricultural, nonprofit and multifamily properties with at least five units are eligible. All funds come from the private sector. Since its inception, the program has saved small and medium-sized businesses $9 million in energy costs.
• Sewer Tie-In Loan Fund: This provides low-cost, long-term financing to homeowners to connect to a local sewer system. Related costs to abandon a septic system also can be financed. Five loans totaling $750,000 have been made under the program.
• Facility Plan Loan Program: This provides municipalities with short-term financing of up to $150,000 with a 1% interest rate to complete or update facility plan documents – a prerequisite to borrow from the Clean Water State Revolving Fund.
• Brownfield Revolving Loan Fund: This provides financing for containment and cleanup of properties contaminated with hazardous substances. Public, private and nonprofit entities on the R.I. Department of Environmental Management’s priority list are eligible. Details such as interest rates, fees and loan term are set on a case-by-case basis.
Source: R.I. Infrastructure Bank
Scott Blake is a PBN staff writer. Contact him at Blake@PBN.com.