Most municipal construction projects, particularly water and wastewater projects are very capital-intensive business enterprises. Developing a plan for covering construction costs as well as operation and maintenance is a major part of a manager’s job and the owner's responsibility. The decisions made in the plan are basically a way of balancing the answers to the Step 1 questions posed: 

• Will the project be able to meet the regulatory or water quality requirements?
• What are the capital costs?
• What are the expected operation and maintenance costs?
• What level of operator skill will be needed?
• What is the ability of the community to support the facility?
   

Utility Projects 

There generally are three sources of funds for new utility projects: equity financing, loans, and grant opportunities. Where there is a long-term capital plan, utility rates can be set that will allow the utility to save funds for future projects. Although this is the most economical way of paying for new construction, it is often difficult to save the amount of money needed for a major capital project. In this case outside funding will be necessary. There are several sources of outside funds for utility construction in Tennessee including ARC (Appalachian Regional Commission) and CDBG (Community Development Block Grants) programs. Local development district offices and private grant administrators can assist communities with grant applications and administration. Grant/loan combinations are available from the Rural Development Administration and low interest loans are available for both water and wastewater projects through the State Revolving Loan Fund Program administered by TDEC. 

Other sources of funds include the Tennessee Municipal League Bond Fund, your local bank, and general obligation municipal bonds. Often large projects will use a combination of funding sources. Occasionally a county will allow a municipality to use the county’s grant entitlement that could not be used by the county. Other state and local grant and financing options may be available for specific projects and/or for specific periods of time. City or utility staff should carefully explore all available options for the funding of each project. 

In small cities and towns, the consulting engineer will handle much of the paperwork associated with the financing. His or her experience with various lenders can be a great help. Larger utilities will have more experienced financial personnel and will handle their own financial work. If you choose to let your engineer coordinate the finances, oversee that work. A review of the financial package by someone who understands the options and their short- and long-term effects on rates and operations may be helpful. In addition to the five previously stated questions, an additional one is “How does the financial package affect the total or life-cycle cost of the project, which includes the construction costs and the operation and maintenance costs?” 

Single Source or Proprietary Suppliers 

Utilities often desire specific types of equipment for operational & maintenance considerations or because of performance goals. The choices may be more expensive and not match the goal of choosing the lowest responsible purchase price. In some instances, long-term goals such as standardized maintenance and repair parts or meeting complex regulatory standards may be more important or economical for the users than low purchase prices. Single source purchases should be clearly justified. Often performance specifications are written very tightly to assure the purchase of the desired equipment or process. The Water Environment Federation's Water Leadership Institute provides some guidance for negotiating with these suppliers (Alfonso). The first recommendation is to know the market and the supplier. Understand the technology, the alternatives and what others are paying for the technology. Clearly discuss the alternatives including situation where the desired technology may simply be unaffordable or for some other reason out of reach. Clearly specify warranty details, training, service and when appropriate (software) updates and the supplier's ability to meet these long-term commitments. A word of caution regarding the "newest" technology. Carefully research new equipment and technology for successful performance in conditions substantially similar to those that exist in your city and always be cautious about purchasing equipment with a serial number of 001. The first unit can easily have many unforeseen problems.

Transportation and Stormwater Infrastructure

For transportation and stormwater projects, funding typically comes from three sources: local revenues, loans (debt financing), and grants.

Communities may use their own revenues - property taxes, local option sales taxes, state fuel taxes, stormwater utility fees, or special assessments - to build financial reserves for future projects. While this is the most economical way to pay for new infrastructure, it is often difficult to save enough for a large bridge replacement, major street reconstruction, or storm sewer system overhaul without outside help.

Several grant and loan opportunities exist for Tennessee communities:

• Tennessee Department of Transportation (TDOT): The Transportation Alternatives Program (TAP) provides transportation project funding through for sidewalks, ADA improvements, bike/pedestrian facilities. The Surface Transportation Block Grant (STBG) Program is for cities with populations of 5,000 or greater who receive annual allocations of federal STBG funds. These funds can be used for making improvements to federal aid eligible highways and roads and any activity that is also eligible for TAP funding.
• Community Development Block Grants (CDBG): Administered by the Tennessee Department of Economic and Community Development (ECD), often used for street and drainage improvements in smaller towns.
• Appalachian Regional Commission (ARC): Offers grants for infrastructure in Appalachian counties, including access roads and stormwater facilities.
• USDA Rural Development: Offers grant/loan combinations for essential community facilities, sometimes including streets and storm drainage in rural communities.
• FEMA Hazard Mitigation Assistance and Flood Mitigation Assistance: Can fund storm sewer and drainage projects that reduce flood risk.
• State Revolving Fund (SRF) loans: Administered by TDEC, traditionally for water and wastewater, but in some cases can be used for stormwater-related improvements.

Local development districts and private grant administrators can help identify and prepare applications for these funding sources.