Water and Wastewater: Preparing for Growing Needs

Water challenges abound across the country. From droughts to flooding, to lead pipe removal and quality controls, issuers are finding ways to fund water infrastructure projects, including SRFs and other tools.

Transcription: 

Ted Chapman (00:08):
All righty. I always wish I needed to raise the microphone instead of lower it, but that didn't work out for me. So I was thinking back, 2026 will be my 30th year in public finance, and almost all of it has been dedicated to drinking water, clean water, storm water, so basically this sector. And you're thinking, okay, 30 years in, dude's old, isn't he? No. I mean, look, I can still remember my first day on the job and it's a little awkward being the only 8-year-old in the room. But you move up, you go from the junior person to the trainee mentee, then you become mentor trainer. And so this is an important sector where all of the infrastructure is vitally important. It's public health, public safety, water is life. There's some professional organizations that will tell you, no water, no coffee, or if it's after five o'clock, no water, no beer, but it's still out of sight, out of mind.

(01:06):
So when I was the trainer, my previous role especially, I insisted that everybody on my team have an understanding so that they could be equally conversant whether they're talking to a CFO or a chief engineer or an executive director, somebody on the buy side, or somebody on the sell side. You had to be able to be equally fluent in all of what they speak or else you're not going to do a good job and not going to have success in this world. And so I had one of those training sessions where I thought it went really well. I had a newer person come up to me afterwards, this newer credit analyst said, thank you. I really appreciate it. I have a better understanding of this stuff now. I'm not going to just be the bobblehead in the meeting that nods. And every time I think of you, every time I flush, I'm going to think of you.

(01:57):
So I got that going for me. But this is a very important sector not to be underrepresented. I mean Hilltop Securities, for example, we do a public finance leaders finger on the pulse type of survey. Just got the results a couple of weeks ago that for the second or third year, water and sewer is among the top concerns in this sector and we are very blessed to have—I'm really geeked. This is again, 30 years in. I've never had a panel with this star wattage whether I've been sitting in the audience, or whether I've been moderator or panelist. This is a really impressive panel. We've got, for example, three AAA rated issuers that I'd like to feature.

(02:40):
Complete coincidence that I was your bond analyst when you were upgraded to AAA. That has nothing to do with anything. Award-winning research and credit and analytics department, and then of course one of the top folks in the investment banking world. So without further ado, I'm going to turn it over to Jeanne. Oh, I'm sorry, Margot, you're first, excuse me. If you have any questions, obviously we'll try and keep this moving along. But we do have five panelists and I want to make sure, again, this is a high wattage star power panel, so credit where credit is due, I'm going to give them the floor.

Margot Kleinman (03:12):
Well, thank you for that introduction, Ted. Appreciate it. And hi everyone. Thank you to Lynn Funk and the Bond Buyer for having me here today and having the panel here to discuss this important topic in the muni market. Ted asked me to talk a little bit about our framework as investors to really talk about our framework for what we're looking at when we are evaluating water utility bonds, what our investment thesis is and what our considerations are. So I'm going to spend a few minutes going through that to kick us off here today, and then I'm going to turn it over to my colleagues here who actually work at the water systems and I think that you'll really enjoy hearing from them. So just really to take a step back in terms of the investment thesis for us at Nuveen, when we're looking at water bonds, water utility bonds are really obviously quintessential muni bonds, monopolistic essential service providers that are very resilient in terms of credit quality, whether you're in good economic times or bad—a very defensive sector.

(04:33):
And so if you think about it, you have to pay your water bill whether the economy is good or bad, whether you want to or not, you have to pay that bill when it comes and you really don't have much choice as to where you get your water from. And so because of that, that really is a lot of credit strength that just from the basic underpins water utility bonds. At Nuveen, I run our research team. We have 24 analysts on the team. We are one of the largest and longest tenured research analyst teams dedicated specifically to municipals. Just a little bit about our portfolio, we manage just under 200 billion of assets under management across the muni market and about 11 billion of that is invested in water and sewer bonds.

(05:26):
I was actually telling Phil before we started here that New York City water is our largest single water utility holding. So it's great to be on the panel with you, Phil. In terms of the framework for how we are looking at bonds when they come to market, how we're making investment decisions, and what kinds of credit considerations we're looking at: first, we're starting with the market position of the utility. Where is it located? What is the access to water? Is it located in a desert, or is it located near a fresh water source? What is the customer base like, looking at commercial versus residential and of course income levels of the population that is being served. And we're looking at that because we are concerned of course with ability to pay the water bills. So affordability is something that we look at closely. The EPA guidelines are that water bills should be not more than three and a half to 4% of a household's monthly expenses. We're really looking at that affordability of a water system's rates compared to other systems that are located around it.

(06:41):
In terms of the next area that we're looking at is financial health. So things like debt service coverage and days cash on hand. As you know, in general, the sector is very strong financially. Median debt service coverage is about two times, and days cash on hand is over 500 right now. Expenses are going up with inflation and with tariffs, but in general, water systems have been very, very strong financially and very resilient through the past several years. Then we're looking at capital plans. We heard this on the airport panel and some of the other panels through the conference. What are the capital plans? What's the deferred maintenance? Are there critical projects that that system has to take on and upgrade in the next three to five years? How much debt is going to be needed for that? Of course, that's a major consideration.

(07:37):
And then looking at bondholder security. So we look very closely at the rate covenant. We like to see 1.25 times at the ABT (additional bonds test) and we like to see a cash-funded debt service reserve fund. So those are just really broadly the framework of how we are approaching the sector and things that we're looking at. There are many more things that we are of course concerned about, like forever chemicals and what's the plan to address that. There's been a little bit of relief from the federal government in terms of timeline for water systems to address those chemicals, but it needs to be done at one point or another. So what's the plan around that? Cybersecurity considerations: if there are any lawyers in the audience, we would love more disclosure around cybersecurity and what water systems and frankly other muni credits are doing to shore themselves up to protect against cyber attacks. So so many other topics to discuss, but I'll leave it there for now just to give you a little bit of food for thought of the types of things that we look at when we're investing in these deals.

Ted Chapman (08:52):
Green button.

Jeanne Chipperfield (08:53):
Okay, good afternoon. I'm Jeanne Chipperfield. I'm the CFO for the North Texas Municipal Water District, and I put a few slides together today just to orient you to where we are located in case you are not familiar with the Texas area. So we are in North Texas, just north and east of Dallas, and we provide three different types of wholesale essential services: water, sewer, and we also have some solid waste services, but I want to focus on our water service this afternoon. We are experiencing extremely high rates of growth in our service area. So if you're looking at the map, the lower left hand corner there, that's Dallas, and then we are north and east. I have our 13 member cities listed, although we serve 13 member cities and then 34 other customers that are also primarily cities and some special districts. But our outer ring suburbs, that second layer beyond Plano and Richardson, if you're familiar with those cities, are experiencing extremely high rates of growth right now. The darker colors you can see there on the map really show growth rates up to 17% a year and population is just tremendous. Our population that we serve has grown from 2 million to 2.3 million in four years, and we talk about the growth that we're working with at the district. We have thousands of people moving to our service area every year and none of them are bringing water with them.

(10:41):
So we have to plan for their needs. Some of the reasons why we are experiencing extremely high growth would be there are a lot of job opportunities in Texas right now. We have multiple universities and research centers in the North Texas area and there's good access to transportation to move goods around as well. So some of the things we're doing to keep our water flowing are of course conservation and we have large wetlands for reuse. But I wanted to talk more about what we are planning for the future. As we look ahead, our planning horizon is quite lengthy. It takes a long time to bring new water supplies online. So currently we have reliable supplies. We can deliver 400 million gallons per day. Looking out to 2080, we project that we'll need to be able to double that to deliver 800 million gallons a day and we projected in over the shorter term horizon through 2040 and then as well as longer term through 2080. We also look at it in a low, medium, high or likely, and then a high level scenario just so that we know what that variance may be and what we may be facing going forward. We project our population to be 3 million by 2040 and another four and a half million of communities that we'll be serving their population by 2080.

(12:21):
So some of our near term water supply strategies that we think we could get implemented by 2040 would be to add groundwater supplies. Right now we have all surface water or reservoir supplies. We are looking at additional reuse and different reuse technologies. We also like to collaborate with our other regional providers in North Texas, City of Dallas, City of Fort Worth as well, Tarrant Regional Water District. Is there an opportunity for us to connect to existing reservoirs? Can we get those water rights in other reservoirs and connect them to our system? We also have water rights in Lake Texoma, which is on the Red River, which is the boundary between Oklahoma and Texas. And the water out of the Red River is very salty. So while we can use some of our water right, it is so salty that we have to blend it with other water that we have.

(13:27):
So for the time being, we are not able to access that full water right there until we can have additional supplies to blend with. So longer term, we are also looking at a methodology or a process called aquifer storage and recovery where you inject treated water back into the ground and you save it up until you need it for really dry periods. There are water providers in other parts of the state of Texas that do use this methodology. We are doing a small study right now to see if that's feasible with our geology. Again, using more of that water out of Lake Texoma. We also have excess water capacity in other parts of the state to the east at the Texas Louisiana border. There is a reservoir there that we could potentially purchase water from. However, it is a great distance from the district's operations, so it would be a very lengthy pipeline to get the water to our lakes.

(14:45):
We also would consider even constructing new lakes, but that is a 30-year permitting process and construction process. So we have to be out way ahead of the need in order to be prepared for the future needs of our customers. So I'll just wrap up by saying the price tag for these projects adds up into the billions of dollars and we want to be able to finance it at the lowest possible cost. So we definitely want to look for programs that are available through the state of Texas to finance those projects to the best that we can. Also, we have a lot of concerns from our members about making sure that our costs are spread equitably over the long life of the assets. They do not want to be paying for capacity that is unused today. And then also looking at as we select projects from this list is what is our ability to manage a portfolio of very large projects as well as the construction firms that are available within the state to deliver those projects for us. There's a lot of competition for large construction projects. So those are all some of our big meaty projects that we are working on at the North Texas Municipal Water District.

John P. Sullivan (16:16):
Boston is better than New York. I just thought I'd throw that in and we'll watch the game tonight if we get out of here in time. So Boston, first of all, of everybody that came here, some of you must come from a long distance. I came six miles from my house, just letting you know. Boston's size is rather small. We're only 48 square miles. Think of San Francisco, think of Washington DC. Denver International Airport is 54 square miles so we could fit inside the airport. We have a thousand miles of water pipe in Boston and the oldest pipe operating right now comes from 1848 and it's in the Boston Common and it's the original pipe put in there and it's in excellent shape. And I throw that out because everyone talks about the aging infrastructure. No one's paying attention, it's all going to fail. Well, I'll show you a couple of slides.

(17:10):
It's not going to fail here in Boston. We've been working on it for quite a while. Our resident population is 675,000 people, we serve over a million people coming in every day, but we're part of a larger system. The Massachusetts Water Resources Authority serves two and a half million people in the eastern part of Massachusetts, and we purchase our water from them. So we are extremely fortunate. We simply have to pay cash for very well-treated water. And you probably notice that if you drank the water—if you fly to New York, you'll find out what second best tastes like. Throw that out there. We bill for water services, sewer services, and stormwater services. We just started billing stormwater last year. It's a low rate right now and people are confused, so it's good, they'll get used to it and eventually their kids will take over their houses and then we'll get the rates where they belong. We have 502 people working for Boston Water Sewer. Our current expense budget is 485 million a year, and our outstanding debt is $622 million. So we're not heavily in debt. The good news is we're a very sustainable setup. But at the end of this, I'll show you where we're a little bit nervous, what's going to happen to us.

(18:28):
The picture you see there is the water system, the Quabbin Reservoir is off to your left hand side. If you notice on the bottom there's a profile and one of the fortunate things we had back in the 1800s, we had extremely intelligent engineers that decided that gravity was on our side. The water flows by gravity down to the city. We're at elevation 20 here, and that's about elevation 500. So it goes through a series of reservoirs through tunnels. We don't have—we actually were sued by EPA for filtration purposes and we won the case. We do not filter our water. It comes down naturally because the watersheds are so big, so protected. Everyone's worried about PFAS in the nation. On several of the PFAS components, we have zero. And on others we have trace. In other words, there's a little bit in there. It bothers the instrument because we haven't got instruments getting better than parts per trillion. So we're in great shape on PFAS on water supply. Not so much on the biosolids, but that's another story.

(19:31):
And again, on the system there, we are looking to expand the distribution system of the MWRA. It's another billion dollar project. It's ongoing to be done over 20 years. But since we just built a new sewer treatment plant, which you may have flown over coming in here—those big eggs that are looking outside the window, that's the major sewer plant for the 3 million people in the eastern part of the state. This harbor is extremely clean now and all the development occurred because we cleaned the water. That's how simple it was. It used to be really scary being down the waterfront, but no longer. In terms of the age of the system and aging infrastructure, what I wanted to show you here is if you take a look at the two charts, that's in the sewer system. In the water system, our pipes are old, but old pipes aren't useless.

(20:21):
The old pipes used to be really thick and the big problem with water pipe is corrosion given time. All iron wants to return back to its ore. That's what it wants to do. And so what they did was in the old days, they didn't know how to calculate how strong a pipe should be, and we were very fortunate to have the city burn down in 1872. Then they said, let's build big pipes really thick because they work, and let's make the city out of brick. That's why you see so much brick because we burned down like Chicago, but we were first.

(20:55):
And what was important about that is that we are still using a lot of these old pipes. And if you notice in the age of that, we showed we do it by war. Don't ask me why, but that's how we measure things just so you can see how it works faster and slower. But at the end there on the right-hand side, you'll see a lot of new pipe going in. And that's because in 1977, the Water and Sewer Commission was formed because the city's water and sewer system was failing and they made us a political subdivision of the Commonwealth. And the beauty there is we have a state law that created us and nobody can bother us to set our rates. We have a three-member board and when they set the rates, that's it. No one can challenge them. We're not subject to anyone except for our three-member board who are appointed by the Mayor.

(21:41):
So the word that we're not political doesn't quite work, but we are independent. We have never had a problem with rate increases. We can't even get people to come to the hearing. We have 27 staff members and we just pray that someone walking down the street thinks the free coffee will be worth it. So we do this every year. No one comes to our capital improvement hearings, no one comes to our rate hearings because we keep our rates manageable, keep them under 3%. We do have the issue of affordability. We have social services working on it, but that's what we've got there. I just show the wastewater system because again, the wastewater system is old. They're two different systems. The wastewater systems don't work like the water pressure pipes, and so all you see on TV is the pipes blowing up, people not having water, etc. We don't really have that same problem that everyone else has. I also bring up across the country this thing: the break rates in USA and Canada. It was a very comprehensive study. It's the largest one ever done. It checked out 400,000 miles of pipes and they wanted to see how often pipes break because obviously there's an average and a bunch of people are above the average. I think that may be New York, but I'm not sure.

(22:58):
So there's 286 breaks per thousand miles of pipe. That's the benchmark we work with. And that's just on the cast iron, I pointed it out there. I just bring to your attention you can get the Utah State University study; it's worthwhile looking at when you're talking about how a water system's doing. On this one, there's another picture we put together, the water main breaks that we've had from 1975 to 2025. Our average break right now is 35 breaks per thousand miles of pipe. You'll see if we have a water main break, it can be an eight-inch pipe dribbling down the street. We will have news teams everywhere because they get excited. They can't see Manhattan shut down, the subways are full of water. They can't see Atlanta struggling to get water. It's just a bunch of people in a particular area. We have an eight-inch water break and there's two hydrants out of service and 10 people are going to have to shower late the next day.

(23:53):
But it's a news story for us because we don't have them. So we have an incredibly strong water system. So that's just the good news I wanted to give you on our system. It's because we have a sustainable capital improvement program. Every year we do 11 to 17 miles of pipe. Every single water pipe in our system has been statistically analyzed for when it will probably break and how many years it's got left. We spend a ton of money. We take pipes out of the ground, we crush them, we see what strength is left. We use a lot of statistical analysis to predict what problems we may or may not have. So I just want to pull that out for all of you to see. We don't have water quality issues. We ozonate our water at the treatment plant—we do treat it.

(24:41):
We don't just give it to the customer; we treat it. We ozonate it and that gives it the fine taste, and that's done by many, many utilities and it works extremely well. The authority, like I said, we buy our water and sewer, and we encourage them to do just what we do: invest in the infrastructure. Don't wait until something breaks. If you've got pumps and they've got a 15-year life, at 14 years you better be ready to put the contract out to take it out of service. Maybe you can squeeze another couple of years out of it, but don't do that. We can't afford the disruption. People like getting up in the morning and being able to go to work. They like being able to get those kids out to school. They like all that and if you disrupt their lives, you get unhappy customers. They talk about the hidden value of water and sewer. Nobody knows we exist except we try to remind them we do once a month when we send them the water and sewer bill and they pay it, which is another great thing.

(25:39):
The final thing that I just wanted to bring up: so water and sewer we're feeling good on the sewers. I just want to say that we are collecting data like no other city is in the nation, and that is because of climate adaptation. Now, we believe in it—a lot of people don't—they say it's not changing. On our sewers, it rains harder now. It rains different now. We can't get any more pipes in the street. They're all full of pipes. And if they don't have a pipe in them, they've got a subway in them. If they don't have a subway in them, we have a highway tunnel in them, so there's no more place to put things. So we have 125 sensors in our sewers and they report to us 24/7 what the level of sewage is in the system. We do that because we have 10 rain gauges and we measure our rain in five-minute increments.

(26:24):
Everyone else in the world does it in 15, we do it in five, and we're collecting the data of what happens when the rain comes in from a Northeaster when the rain comes this way. How's the system working? A lot of people work off of computer models. We have those too, but we really trust the day-to-day what's happening with our monitoring systems and it works really well. Now we're lucky. We're going to take all this data and we're going to challenge the senior class of MIT as a competition among them to see if it makes any sense. We have more data and more zeros because it ain't raining and we have tons of level sensors and we're trying to put that together. Also using artificial intelligence. We used AI on all our sewer TV. We TV our entire system. We have the world's largest colonoscopy going on at once here in the City of Boston, and we're 70% through.

(27:18):
So if you think the four hours you get ready for something is bad, you should see that system. Throwing that out there. Our biggest problem though that I just want to bring up for the city—it's not like we're going to sail through this and life is going to be great. We are predicting our water and sewer system, we're very comfortable with it. It's this climate adaptation. It's the sea level rise. At the end of this wharf right here where the Marriott is, when the super high tides come in, that's under two feet of water today. When we have storms that's underwater. People go down there and kayak on the wharf to get into the restaurant, the Chart House restaurant. They give you plastic bags, you walk inside a plastic bag to get in and out of the restaurant. It's absolutely bizarre. It's happening here in the City of Boston.

(28:02):
So we're monitoring that and we have been doing all kinds of studies and tests on the water systems and the drainage systems. We drain by gravity. We have the fewest number of pump stations on a sewer system of any large system. We have a total of nine. Our biggest sanitary, we have four sanitary pump stations. I would suspect other cities are up in the 200s. It's because of the way the system was built, like I told you, the smart people built it and they gave it to us. But this is how it works. It works extremely well except we drain by gravity and when the sea level rise comes up, gravity stops. And that's the problem we're facing. We're extremely worried about it. We put together a thing called a resilience hub. We need to pay for this. We need to take money from someone or get grants, and we're trying to get our customers acclimated.

(28:53):
We're not telling them it's climate change. We have the thing called resilience hub, which is a BWSC stormwater viewer. It's interactive. You can play with it. You can see if your house is going to get flooded. By the way, if you're going to buy something down Beacon Hill, I advise you to take a look at it. Don't get more than a 10-year mortgage, just throwing that out there. But this is an interactive thing that we continually, continually update and it's something we're worried about. Why are we worried? Because our study shows that we're going to need about two and a half to 4 billion in pump stations and holding tanks if we're going to survive 2070. Now, that gives us plenty of time and it also gives us plenty of time to correct it. Right next door, you've got the Christopher Columbus Park.

(29:38):
They're going to redo that in three years. We're going to take advantage of it. We're building a huge tank underneath it because no one cares what's underground. It's like we're hidden, but we're going to be investing money in something we're not going to use for another 20 years, but it's taking advantage of it. We're doing all these studies because we need to run interceptor pipes in some cases, 96-inch pipes to collect a bunch of outfalls to bring them to one location. But the one thing I did want to show you is one thing that we're playing with now. This is the Four Point Channel. It's a channel right across the way at the Federal Courthouse. If you were looking down the wharf, it'll be on your right. We take a look at all natural things we have.

(30:23):
We have these old channels that used to be industrial channels. The tide comes in, the tide goes out. When the tide goes out, it's a huge open area with built walls and nobody's doing anything with it. So we came up with the idea if we built a sea level barrier at the end, right at the Federal Courthouse, we could hold 160 million gallons of rain, even if it's a high tide, without any pumping. And if we built a pump station in it, we could take a 25-year storm event. But it's already built for us, something we can use. It's already sitting there. Everyone in the city loves the idea except for the 1 billion price tag of building a barrier. We're working with the Army Corps of Engineers because it is a navigable waterway, and we're trying to explain to them why they should help pay for it.

(31:14):
They suggested they'll make it a non-navigable waterway, then they won't have anything to do with it. But that's the politics side of it. But examples like this—we have this one, we have a slew of them across the city where we want to plan this now and make sure that people don't build things, don't build the bridge in our way, don't build this, and we're laying out all the things we need to do in the coming years. So by 2030, we were supposed to have some of these built. The sea level isn't coming up as quick as we thought. That's good. The rains aren't as bad as they could be. But when Sandy hit and took out New Jersey and New York, it hit here also. We had a high tide for two days because it hit us when it was low tide and we had nine feet of water trying to get in the city, but it was low tide, so it couldn't get over the borders.

(31:59):
It's just a matter of timing. So with that, we have that. We've got to figure out how we're going to pay for it. Here we're looking at the potential. If you look at the side on the right-hand side, the little blue area, that's the area that's tributary to this Four Point Channel. Should we have a special rate? Should we have a business improvement district? Should we come up with something innovative where people constantly pay for the upkeep of this because we're protecting you and you only? If you live in West Roxbury or out in the districts, it rains, you're up on a hill, you don't want to be paying for it. So we're trying to think what can we do? We're talking to the people in Fargo, North Dakota that worked with an innovative P3 system of how do you protect large areas?

(32:43):
How should we go about it? We're talking to the state. We're protecting all these state assets. We're protecting the MBTA. You get water on one of those portals, you lose the transit. You lose the transit, all the people that live out in the district can't come to work every morning to change those bedsheets in all those hospitals we have. So the economics of the city plummets. So we're trying to put all this together—a bunch of engineers in a water department trying to explain this to everyone else, why it's important for them to keep highways open, just for kicks, Logan Airport open. Be nice to be able to drive the trucks and all the fresh fish to them. And that's what we're going to be doing in the next five years. We've got the engineering done. Now we're going ahead and we're playing the politics of how to keep people interested in doing what we do for work without bothering them every day. I'm done.

David G. Moffett (33:36):
I think, Phil, you're going.

John P. Sullivan (33:37):
Oh, all right. It's New York.

Phil Wasserman (33:41)
Want to wager? Sounds like a nice little town you have; never heard of it. Hi, I'm Phil Wasserman. I'm with New York City Municipal Water Finance Authority. I'd like to thank the Bond Buyer for having me here. And I want to talk a little bit about the city's infrastructure challenges and how we've traditionally addressed them. Now, for those of you who don't know me, I really geek out on this stuff. I really enjoyed that. That was really great seeing some of these things. I love the water system. New York water system is the largest unfiltered water supply in the country. We serve about 9 million people.

(34:27):
About half of New York State's population. Our water system is 1 billion gallons a day. Wastewater is 1.2. And you could see the water comes in from—most of our drinking water comes in from over a hundred miles away in upstate New York. Parts of our system are over a hundred years old, which highlights the planning and the design work that went into the system. Well, I told you I geeked out on this stuff. Here are a few pictures of the system. The top left is New York City Tunnel One, which is over a hundred years old. We have Ashokan Dam on the right and some of the water system distribution network from Brooklyn, also a hundred years old on the right. And one of the cool things about working for New York Water is every once in a while you hear they'll be doing work somewhere in the city, usually in Brooklyn, and they'll come up with a bunch of wooden pipes that are still in use.

(35:42):
For those of you who have got a chance to visit our facilities, I hope you enjoyed them. And if you haven't and you want to drop us a line, we do—every other year we do investor tours where we go see parts of the system. And it's really, really cool to give you a chance to enjoy all the work that we're doing there. Now, the long-term thoughtful approach that went into designing our system also went into designing how we finance it. We have a tri-party operating group, which is our Water Board, which sets the rates, the Department of Environmental Protection, which manages and operates the system, and the Authority, which finances the system for us.

(36:40):
And the people who set this up did a really great job. Among other things, not unlike Boston, we have an independent Water Board which sets rates, which is as free from politics as you can be. In reality, with the Authority being separate from the city, it allows us A: to be bankruptcy remote from the city, and B: it allows us to have a true gross pledge of our revenues. This is our flow of funds. Revenues come in from our customers and go immediately, basically, to paying debt service. And only after debt service is paid is O&M paid on the system and, if necessary, a rental payment to the city. And the way that works is the city operates the system and the city pays for the operations, and we pay the city back. And if the money's not there, then the city doesn't get paid back, but they continue to operate the system.

(37:57):
So it is, in all honesty, a true gross pledge. Now, this long-term planning that went into not only the system but the finances has positioned us well to take on several challenges that the water system is seeing today. So one of those challenges, it was mentioned before, the need for water in the future. We've addressed that. We are always looking at new sources of water, but we've addressed it in a different way in that we've looked at consumption and we've worked hard on conservation. And this graph here, what you can see is in the late 1970s with 7 million people in New York, we were using a billion and a half gallons a day of water. And now even though the population has increased by over a million people, we are under a billion gallons a day, just under a billion gallons a day of water. And the efforts of the Department of DEP to drive conservation have been quite successful. Now, another challenge we're facing is affordability. As you know, nothing in New York is terribly affordable, but water is.

(39:34):
There's been a study by the AMWA Consulting Group where they look at 30 large cities and the cost of water in those cities and New York has consistently been average to below average in cost for water, which is pretty amazing because again, there's really nothing else in New York that you can buy that you can say that about. Now, at the end of the day, even though our costs are low, we do have other challenges like Boston and actually the rest of the world. We have climate exposure. We have 520 miles of coastline, four of the five boroughs are islands. And in the past 20 years, we've been hit by two major storms, which caused significant damage.

(40:32):
And this is an issue that we've been working on. We've been hardening our plants and looking at creative approaches to address these problems. One of these creative approaches, one example is flood management. In Staten Island, we have what we call the Bluebelts. And these are low-lying areas along the coast which are set up to absorb water in storms, and they take a lot of the strain off our storm system. We also have green infrastructure. And the picture on the right shows some of the green infrastructure in Queens, which again helps deal with stormwater management.

(41:27):
And as far as finance goes, well at the Authority, we work hard to maintain affordability. We do that with aggressive debt management. We're always looking at various products. Whatever is out there, we consider everything. We have a very robust variable rate portfolio. We try to move shorter on the yield curve when possible. We utilize the state revolving fund, EFC, as much as we can. We are constantly looking at refundings and will refund debt when it makes sense. We have a cash deficiency in PAYGO program which we programmatically use. And there we try to most efficiently use our cash. And again, we're constantly meeting with our bankers and advisors on various different products and structures that will help us meet investor demand and minimize cost to the system. And that's it. Just thank you for your time.

David G. Moffett (42:43):
I thought last but not least—this was set up this way because you really didn't want to hear from a banker. You wanted to hear from the issuers. So I'll spend a few minutes just sort of commenting on some of the things that we're seeing in the water and sewer utility market. Affordability seems to be a topic that everybody's talking about, and there are lots of case studies out there, including my hometown of Atlanta, that have different programs for low-income folks in terms of getting plumbers out at reduced costs and so forth. So I think you're going to continue to see a lot of those programs popping up in the water and sewer programs.

(43:37):
Some of the other things that we're seeing, including Atlanta, but other folks have ventured not just relying on user fees, they've ventured into a SPLOST component or a sales tax component that's contributing to the O&M of the water and sewer system. I read about even a couple of water and sewer systems that have ventured into a property tax dedicated for certain projects that benefit the entire population, which I thought was interesting. There's also a lot of talk about management teams and lack of succession planning that we're hearing a lot about. I tend to think that that's in more of the small to medium-sized utilities where there's sort of a key person and not much planning around that person retiring.

(44:48):
Anyway, that's another topic that we've run into. And the other one that I would mention is the whole overlay of the federal policy on utilities. And that's just sort of stating the obvious. Certainly, if the SRF funding were to be eliminated or pushed out to the states, it would require some very fast creative thinking. But the good news in my mind is that there are no secrets in our business. So once those creative ideas are implemented in different places, I think a lot of water and sewer utilities will be able to leverage those ideas in whichever way they're needed. Anyway, Ted, that was sort of filling in some of the blanks that I wanted to fill in.

Ted Chapman (45:44):
Alrighty, we've got a few minutes left. I'm happy to take questions from the audience, although I think I can see if you raise your hand. Yes, sir.

Audience Member 1 (45:53):
Yeah, specifically for Jeanne. So looking at the concerns, obviously the explosive population growth justifies the CapEx needs, but nonetheless, for the fiscal 26, 7% increase in the bills—I am a resident, I feel the impact on an annual basis. So if you can share your insights as to how you manage the billing path and what are some of the—

Ted Chapman (46:31):
Ultimate, so if you didn't hear, I'll repeat the question. This was for Jeanne for North Texas Municipal Water District. The question was: how does the District's board manage the growth pressures and the attendant pressures on rate adjustments that come with that growth?

Jeanne Chipperfield (46:48):
That is a really good question. It's a pretty big challenge for us. We have a very large capital improvement program and all of these growth needs coming on. So we try to be as good a steward as possible of the ratepayers' money that we receive. We are proactive in our maintenance programs. We are very analytical in our approach and look at ways to mitigate our costs. We look at different ways to deliver projects. We are always looking to utilize different financing tools. We have very large needs—on the water side, we have a $700 million extendable commercial paper program that we use to interim finance our projects. But we do recognize that it is burdensome on our member and customer cities. So we do our best to manage the costs and try to be as frugal as possible, knowing that we have aging infrastructure to maintain and a quality of water that we want to continue to provide to our members and customers.

Ted Chapman (48:22):
I think one of the reasons, one of the many reasons that all three of these utility systems are AAA rated—it's one of those things kind of hard to measure, but it's important—is the management and governance. I don't know what knucklehead rating analyst would've put "best in class" in all of those rating reports, but I think you'll find it in there from all of those rating reports in the past. And one of the things that you commonly see, especially among AAA rated utilities, but really kind of across the board because this is a well-managed sector—it's not zero risk, but it's very low risk—you very commonly see a lot of planning, not just on the capital budget side, but what are the impacts to rates, and how does that impact the operating budget? I would characterize all of these management teams, regardless of the governance structure, as being very adept at that and very transparent. I will tell you that I think all of them have investor relations sites. New York Water is a great example; they'll put their consulting engineer study out there for the whole world to see: "this is what our asset condition is like, this is what our needs are like." And oh, by the way, we only average about 1.5, 1.6 billion of capital expenditures each year—a de minimis amount, right? To think that you can manage a budget that big, you've got to know what you're doing. But great question. Yes, sir.

Audience Member 2 (49:44):
So you're all obviously sort of very proactive, very large systems and very highly rated. If you put yourself in the shoes of a water and sewer system that's much smaller, maybe a much more impoverished community, they're not as able to be proactive. They're dealing with years or decades of deferred maintenance. What sort of approaches would you take in that?

Ted Chapman (50:14):
Does anybody need me to repeat that question? The question was for the smaller systems, the more rural, those with less resources, whether you're talking about financial, human, or technical or otherwise: how do you apply the same lessons learned? If you were putting yourself in their shoes, how do those systems also achieve similar levels of success? I'll open it up to anyone who wants to respond.

John P. Sullivan (50:38):
One of the things we did, because we were in that trouble in '77 and we had special legislation made: there is a law in Massachusetts, Chapter 40, which allows any city or town the ability to adopt it straight out, very similar to what we have, taking you out of the town budget and making you an enterprise fund. When you're part of the municipal government, you defer what's hidden. That's automatic. That's what we were doing. It's all underground, let it go, it's working. So in these small towns in Massachusetts, they can adopt that. They can become just like us; it doesn't mean that they don't have a little change in it and the town doesn't work, but it's an enterprise fund. So the money that gets collected for the water and sewer can be put to the water and sewer and they can have revenue bonds and do all that.

(51:25):
Some of the small towns though, are just so far down deep in debt. I think regionalization is the only way it's going to work. You've got to put them together with a bunch of other water and sewer systems, and that's the only way you're going to make this stuff go. You cannot have one little town so deep in debt with so many problems—PFAS problems, CSO problems and all those—you can't handle it by yourself without a lot of grants or something else, or a larger regionalization being put together so you take care of the worst problems first. So that's how I would approach it if I were in charge of everything today.

Ted Chapman (52:02):
Anyone want to add to that? I will tell you from firsthand experience. I served on EPA's Environmental Financial Advisory Board from 2017 to 2023. One of the things that we heard like a broken record—yes, funding of course—but technical assistance, especially for the smaller systems. They just don't have the folks. It's not that they're less sophisticated or just don't get it, it's just they don't have the folks. Yes, grant funding and some of those other options and alternative delivery methods are a little bit more challenging now than they once were. But if you can help provide them even just some basics on engineering—how do we even apply for a grant, how do you find local matching—sometimes that is just as valuable as the funding sources themselves. But there are certainly, whether it's National Rural Water or USDA, programs where I think you can even go out 40 years. So there are options out there, but one of the biggest challenges is just that technical assistance and having the folks. Great question. Who else? Margot, I've got one for you. Both John and Phil spoke to some of the challenges related to climate adaptation, resilience, and mitigation measures. Is that something that is part of your overall strategy when you're looking to consider something that's coming to market?

Margot Kleinman (53:27):
Yes, definitely. I would say climate risk and climate mitigation/adaptation is part of our analysis. We look at climate scores provided by a third-party data provider for every bond that we invest in, including water and sewer systems. And so we're looking at risks across holistic climate risks, and then across three main perils: hurricanes, floods, and wildfires. For systems that have high climate risk, we're doing further work digging through the POS and looking at what kind of disclosure is available about not only the risks, but what is the system doing to mitigate the risks and to adapt their infrastructure to face future risks. I think there couldn't have been better examples than what the three of you were presenting today in terms of really giving investors confidence that you're thinking about these things and planning for these things for the future. And John, as you were saying, there's investments that you're making today that we might not even use some of those pump stations for 20 years necessarily.

(54:44):
But the fact that you're really thinking about it and investing in the infrastructure now gives investors a lot of confidence in the future of your credit and the future of that system. It's things like that. I think in our industry, some issuers do a great job with that type of disclosure, and some have none at all and everything in between. And so that's something that we're really looking at. If you are in an area, especially if it's a high-risk climate area, and if you're doing things to mitigate your exposure and you're not putting those in your offering documents, investors might think you're not doing anything in the absence of disclosure. So that's just a plug for additional disclosure too on that topic. Because I think systems like these, and I'm sure many others, are doing a lot of innovative, very proactive work, and it would be great for investors to know more about it.

Ted Chapman (55:41):
John, you had mentioned all of the data that BWSC collects on an ongoing basis. I know Kevin Morley from AWWA would be mad if I didn't ask about some of the cybersecurity measures, especially since there are some bad actors out there, whether they're nation-states or just rogue, bad people doing bad things. Infrastructure in the United States—even the FBI has said—that's a target. It's right in the bullseye. "Boy, if we could do that to the United States, that would be great." What are some of the things that you're seeing that your team does?

John P. Sullivan (56:14):
Well, we actually did get ransomware about two or three years ago. One day all the printers started printing out, "You now owe us $2 million." Fortunately, we had been working early on. I worked with the Water ISAC and cybersecurity has been on our mind all the time. We had already put in place—and it happened at two in the morning—all kinds of activities went on. We found out later that it was an engineer; they had gotten into a string of conversations back and forth and sent us a little bot, and the engineer clicked on it. Nothing happened. So we just said, "Ah, stupid engineer on the other end," and never told anybody in IT. And a month later, we get attacked. Fortunately, in the middle of the night, our software, our firmware, was watching it. There was too much activity. They know we don't work that fast.

(57:06):
All kinds of activity going on in the computer system at two in the morning, it shut itself down. So we protected our service. We never paid the ransom. It took us about four weeks. It was wonderful. There was no email, no phone calls, no nothing. Nobody could get us. That was awesome. But we now have a system that—it sounds good that we protect our billing system, etc., but it's very difficult to communicate. We can't communicate with the City of Boston because our system does not trust Google. And in any Google with the City of Boston, that's what they do. It's an adventure dealing with the people you need to deal with every day. But we have not been attacked since. We have plenty of attacks that stopped at the wall. We're very conscious about it because once you lose faith in a government entity, once the customer realizes you can't deal with something like that, you're doomed.

(57:59):
You've got to wait forever to rebuild the faith. You cannot lose the faith of people by letting them think you don't know what you're doing. So we have really strengthened our cybersecurity. We push that out everywhere to everyone. We go everywhere and give our discussions, etc., including Dr. Morley telling us we could do better, but he just wants a free trip to Boston. So that's how it works. Cybersecurity is probably one of the biggest problems. Not that they're going to take the treatment system and turn it down on us, or that they're going to do this; all they need to do is have you lose faith in government, shut down a tank so that there's no fire protection. Even if there's no big fire, people don't have water because someone outside did this, and you lose that faith. Once you lose that, it's very difficult going anywhere else. So that's what we do. But if you need to get any more information from us, email me—whether I get it or not is going to be a question.

Ted Chapman (58:53):
All right. I think we are about out of time. Give it up for this panel. I told you they were going to be awesome. They crushed it. Thank you so much. All.