Resiliency planning: Incorporating the climate change factors into the infrastructure projects

In the face of past, current and expected devastation and the resultant costs associated with climate change-related weather events, it is high time to think about building infrastructure projects that will help counter as well as withstand some of those effects when they happen. The discussion will mainly revolve around flood, wildfire, and violent storm-resiliency projects.

Transcription:

Alma Subasic (00:07):

All Right let's move on to our next panel. Our next panel is on resiliency planning, incorporating climate change factors into the infrastructure project. And our moderator is Katherine Camp Senior manager for city states, regions, and public authorities at CDP. Thank you, Katherine.

Katherine Camp (00:26):

Thanks, Alma. Thanks everyone. I'm Katherine Camp, as mentioned, senior manager for city state's, regions and public authorities at CDP North America. And I'm delighted to be here today to moderate this panel on resiliency planning. We have several different perspectives represented here city finance financial advising credit rating and the goal is to explore different approaches to incorporating climate change factors into infrastructure projects. And this is so important because the environmental and financial impacts of climate change are already being felt everywhere in the world as we know. And the number of billion dollar disasters is increasing every year. Voters in New York State just approved a 4.2 billion environmental bond act that includes at least a billion dollars for flood risk reduction and resilient infrastructure. And this makes sense when you know that every county in New York experienced a major flooding disaster in the last 10 years, and most of them in experienced at least five major floods which costs 37 billion in of taxpayer dollars to rebuild.

(01:49)

And that's just one state. And globally, about 5 trillion a year is needed for climate infrastructure but less than 10% of that is actually being spent. So this is one of the things that world leaders are talking about right now this week at COP 27 in Egypt. And it's affecting us right here. And the effort to build more transparency around climate risk and accelerating investment in the transition to a low carbon economy is central to our work at cdp. CDP runs the largest and most comprehensive global disclosure platform that allows cities, states, public authorities, and companies to voluntarily track environmental impacts and risks and advance their progress. And CDP disclosure is endorsed by more than 700 investor signatories representing 130 trillion of asset center management. So we work with 18,000 global companies, 1200 local and regional governments around the world. And our public authorities program is just launched this year by request from municipal investors and public authorities themselves. So, all of the questionnaires that we offer incorporate the recommendations of the task force on climate related financial disclosures. It provides an effective tool for investors to learn how issuers are actually preparing for climate change and understand their strategy and the actions they're taking. And just last week, the Biden administration announced in a proposed rule making that large federal contractors will be required to disclose emissions and climate related financial risks through CDP and set science based emissions targets which is really exciting. More than half of federal contractors are already doing this. This will reach the other half. And so for issuers, disclosing allows them to tell their story in their own words. And local governments are using CDP disclosure also as a means to report on their use of proceeds. And then we are also seeing aggregated demand, for example, like our partners at the Mississippi Rivers, cities and Towns initiative who have developed a Mississippi River Investment Fund. And we also see we're using the data and the disclosure from local governments and public authorities to profile infrastructure projects that are seeking funding. And our US infrastructure snapshot that was released this year was profiled by a Bond Buyer and highlighted 188 sustainable infrastructure projects in 108 cities building energy efficiency, renewable energy, transportation, water, for example. And we've just released a snapshot for Latin American cities and African cities. So we're seeing that there's an increasing need for resilient infrastructure, which makes this conversation so important. So I'm really happy to welcome our panelists. We have Kurt Forsgren who's a Managing Director at S&P Global Ratings, and a sector leader for transportation in US public finance. Kurt's part of S&P Global finance team, a sustainable finance team, and works as primary analyst chairs, credit committees, generates industry research and serves as spokeperson on transportation climate risks and ESG topics on Kurt is based in Boston. Welcome. And we have Sarah Fey, who is a Director at PFM, where she provides financial advisory services to clients primarily in Virginia working with local governments, water and sewer utilities, and financial planning and modeling, executing bond transactions, and developing strategies for resilience. Sarah teaches classes on Debt Management in Virginia and is also the founder and past president of Virginia Women in Public Finance. So welcome Sarah. And we have Kendel Taylor, the director of Finance for the city of Alexandria currently serving as interim deputy city manager. Kendel's on the board of the Alexandria Small Business Development Center and the city's pension fund and is also on the board of the Governor government Finance Officers Association. Welcome, Kendel. So I'm thrilled that you're all here. And just to start with you, Kendel as we've been talking about a city like Alexandria faces a really large number of risks related to climate change with varying likelihood and severity. 97% of cities face significant climate hazards and the majority of those face hazards that affect more than half their population but there are many other needs to be met as well. So how has your community prioritized resilience?

Kendel Taylor (07:16):

So if you're familiar with Alexandria, we are a little city might but small, 15 and a half square miles, about seven miles south of here, and we're located on the Potomac. And so we do have flooding issues. We're often featured on the nightly news when there's a big storm, the cameras come to prepare for the flooding. Environmental issues in have been a priority for a long time. We actually established an environmental policy commission back in 1970, which focused on water quality and solid waste noise, pollution, pesticides. And so having this mature citizen group has enabled them to grow and respond and advocate for emerging issues related to things like greenhouse gas emissions, flood mitigation, and climate action. And the reason that is helpful is because the environment, if it doesn't have a voice during the budget process staff cannot advocate and sort of battle it out with the need for more classroom teachers, more police officers paving, potholes, all of those things.

(08:22)

So having a citizen group whose focus is these environmental issues helps that be able to compete and be able to be prioritized. The other thing going on in Alexandria is a lot of strategic planning and long range planning. Council has a strategic plan with six priorities, basically youth and families recovering from the pandemic. But all of those priorities are expected to be viewed through the lenses of equity and environmental justice, transparency, civility. And so everything we are doing is looked at from those perspectives of equity. So if you're putting in a budget submission in Alexandria, you're expected to talk about how does this relate to and impact the entire community from a race standpoint. The council in September just established an office of Climate Action that is expected to perform that same function to basically be looking at what we're doing to say, all right, we're gonna put that building in. How is it gonna impact the environment? How does it support these long range plans and strategic plans in terms of electrification and greenhouse gas emissions? And so having these very mature, very ingrained strategic plans as well as boards and commissions that are the community advocating for these behalfs, these opportunities helps council be able to prioritize in the face of all these competing demands.

Katherine Camp (09:58):

And what about you, Sarah, among your clients? What are some examples of adaptation measures that they're taking?

Sarah Frey (10:06):

Yeah, I think it's interesting. If I were to think about that question 10 years ago, I don't know that I'd have a long list of examples, but today I feel like we really do. It's a very long and varied list of concrete examples that I see of projects clients are undertaking to be more resilient and they vary in scale and in scope. I know someone from Oregon yesterday mentioned the floating building to withstand an earthquake. That sounds pretty cool. We don't have that in Virginia where I work. As Kendel said, we have primarily flooding risk from tial, flooding and hurricanes, but flooding in a lot of different ways. And so the solutions that we see are around storm water management and perme pavers, and we see water and sewer utilities thinking about backup power and backup to the backup power when a hurricane comes through we see much larger scale projects too.

(11:09)

I think about on the eastern part of Virginia, the Hampton Road sanitation districts, a large wastewater utility, and they're doing this interesting and very large scale project where they're treating wastewater to drinking water standards and then putting that water back into the Potomac Aquifer to help with the issues with groundwater supply and land some sides. And so a lot of projects now that are getting funding and priority, I've heard some clients say the most impactful thing that they can do on a climate adaptation side is building code and zoning ordinances. So it's not just what they're building but it's what all the businesses and residents in the community are building as well. Well the other interesting observation I'd have on the types of projects that localities are building is I'm a bit surprised as a finance person, I thought a lot of the solutions, what of they're building would be known that you could look at, okay, I have this type of geography and I'm protecting against this risk.

(12:19)

But I do see in a variety of projects that have been implemented or are going on now that there's still a lot of testing and piloting of the actual solutions. So, just last year when our clients financed a storm water administration building lead gold, all the things, and so of course they're put permeable pavers, but they didn't just put one, they put six different types. And so they're testing all those and the ideas for businesses and others and the community to look at how they perform. And you see that on a larger scale. I think about the city of Norfolk, they have a big project in the Ohio Creek watershed that they're just concluding 113 million federal grant to fund. And they didn't build one thing, they built a little of everything. And the idea is to pilot all the technologies to see what works in their community against their specific risks. So I think the projects are varied. It's not one size fits all, but I think there's a lot that's happening now.

Katherine Camp (13:20):

And are you seeing people think about the differences between acute risks like a major disaster and the more chronic kinds of risks that we see?

Sarah Frey (13:34):

Sure. So I think, again, in Virginia, at least when I think about acute risk, I'm thinking about flooding and hurricanes and chronic sea level rise, but again, flooding. So, when we look at the types of projects that are being built and how they're making those decisions, I don't see a lot of distinction between the acute versus chronic. But I do think from an acute risk perspective and a financial perspective there's a lot there for localities to think about. And the unique risk presented there helped. One of my clients, a medium sized city here in Virginia a couple years ago after Hurricane Harvey and Texas actually saw the devastation there and said, okay, what lessons can we learn from that? How can we better prepare because we're also at risk for hurricane? And how do we prepare financially? And I think when we think about acute financial risk, we often think about liquidity. This city happens to be very highly rated, very strong liquidity. You look at their year end balance sheet and you wouldn't think it's a concern, but we did a bit of a tabletop disaster preparedness type exercise like they would do on the operational side, and found that there were a lot of lessons to be learned and adjustments and planning that can be done in that area. So in this instance, we found that peak hurricane season is when the cash flow is the lowest. And so there was unique concerns to think about there. We went through, okay, we have all these pots of reserve, we have comprehensive policies, and we have three different people look at those policies and talk about what we would hit in the event of a disaster while we're waiting for the FEMA money to come in. And we have three different answers. So there's things to think about there. We know that if a disaster comes, the rating agencies wanna hear about it, they wanna report, investors wanna hear what's going on, and how do you deal with that? How do you manage that when you have, you're literally doing the disaster. So thinking about preparedness from that perspective. And then another lesson we've learned in some of these events and immediate post-disaster and the financial perspective is that just getting the debt service payments out on time may not be as automatic as you think. So what are the backup systems you have in place for that risk as well?

Kurt Forsgren (16:05):

And we've seen this we've had a chance to do a lot of disaster, post-disaster analysis, and this sort of acute versus chronic climate events and natural disasters are kind of morphing. We're seeing the acute risks becoming chronic. And I think probably case in point are some of the western public utility districts and other water sewer districts that had acute maybe shortages associated with drought conditions. But as we all have read about those acute risks have become chronic. And that kind of switch in mindset from emergency response and liquidity to embedding into planning the kind of long-term measures you have to take to mitigate against, those are things that we're observing in our meetings with issuers.

Katherine Camp (16:58):

And so when you look at the macro level, what kinds of risks are you seeing and what are the impacts to issuers? And then you can also look at the credit specific level.

Kurt Forsgren (17:10):

Sure, yeah if you could pull up the graphic. You mentioned some interesting statistics at the start, and we took a privilege of putting together a nice little image that showed what's happened over the last several years in terms of natural disasters. You can pull it up, that'd be great. First of all, climate risk is just one of the things we look at when we do the credit rating analysis. Obviously it is a E or for E in the environmental part of ESG. And climate risks and physical risks are just one of that. I mean, also includes things like energy transition risk and sort of natural capital related to water, drought and other surges associated with our environment. And obviously waste and pollution is one aspect of the E as we looked at as well. So we consider all these as part of our analysis when we look at environmental risk.

(18:03)

But physical risk does get the headlines. It's usually what shows up after hurricane blows through. And it's one of those things that prompts us to do the analysis that we do shortly after events. And we'll talk a little bit about Hurricane E and I think a little bit later. But if you look at graphic, you'll see that essentially since probably about five or six years ago, if you look back over time, we've had more natural disasters in 2021 than in any recent year in recollection from, I think it was about 22 declared natural disasters each over a billion dollars in damage. So it just gives you a sense of what we're seeing, both in terms of the frequency and the severity of events, which I think we view as growing as well as the cost. Obviously every time with every year, especially this past year things cost more to replace. And we're seeing that kind of reflected in to the damage assessments that are falling through to local governments and their reimbursement claims. But yes, I think reviewing risks is rising and there's no surprise there. Well, the drought, fire, wildfire as well as flooding and localized and sea level rise much more gradually. And those are risks that are being built into our credit analysis. We look at in our criteria for sector specific as well as for general governments as a whole.

Katherine Camp (19:25):

And how are you measuring the exposure to risk over the long dated maturity of the bonds?

Kurt Forsgren (19:33):

Well, we do. We rate to the final maturity, so that's our primary focus. We look at obviously the ability and willingness to pay in time and full and that's very narrow focus, I'm sure, as for many people who look at environmental and social and governance factors for a variety of reasons. But we're focusing on credit ratings and the ability to repay fun time and full. So, as I mentioned it, we look at short term, how are entities reacting and responding to the changing world? How are they building that into their long term planning? It really comes down to management and risk management. Are they aligning the long term demands and ability and need to adapt and build resilient infrastructure to match their asset life of the asset we're rating or the general government? And for general governments that we rate we looked at over the year to date we've had, I think about only 8% of all the rating actions we've done that are somehow tied to environmental and governance related factors.

(20:36)

Only about 8% are associated with environmental risks associated with physical risk or climate change. So, it's still a pretty small percentage compared to rating actions that are linked to governance or management or social factors. So, it's still on the scale of things pretty small. But nonetheless, there are real risks as it relates to so for example, the pressed property values CapEx required to rebuild or to build resilient infrastructure does impose near term debt costs on governments. We're seeing obviously the inability to get insurance in some markets for certain properties and that is gonna reflect it in property values. So there are some real short term and longer term risks we see associated with climate risks.

Katherine Camp (21:28):

Thanks. So this one is for Kendel and Sarah. Recently, the CDP report from the most current data from cities is showing that when cities are placing vulnerable populations at the center of their climate planning, they're seeing co-benefits improved health, environmental outcomes like air quality and water quality, social outcomes, improved food security economic development, and job creation. So I'm curious if either of you are seeing have you been able to combine climate adaptation and social equity and recognizing that sometimes that adds a layer of complexity. What are the benefits that you've seen from doing that?

Sarah Frey (22:16):

Yeah, I think it is complex, but I think in some ways it's hard to untie or untangle the two. I think in a lot of cases they almost naturally will fit together. I think there's a lot of studies about, think about post-disaster. The people who are impacted the most have the hardest time recovering are your most vulnerable citizens, the least wealthy, the ones who may not have adequate insurance or may not have the resources they need to get what they need to fully recover. We also, again, just here in Virginia last year, Virginia put out a report about where the flooding risk is in the commonwealth and the demographics of the people who are at most risk. And not surprisingly the highest risk are the lowest wealth and a higher number of peoples of color. So I think if you are in some ways addressing one, it can help address. The other issue I thinkthe IJA that we've talked a lot about the past day and a half is a good opportunity to tie the two together. You think about just all the resilience priority and funding in the ij, but also the Justice 40 initiative. And so I think if you are looking at projects from those both of those lenses that a better chance to get the competitive funding that's available. So I think hopefully with the ACT that we'll see more tying and measurement of the two as we go forward.

Kendel Taylor (23:57):

So I, from Alexandria's perspective, the way to ensure that our most vulnerable populations are not being kind of left behind is to make sure that they are represented and also that everybody can understand what it is we're trying to do. You have environmental issues, but that might not be the focus or the priority of the healthier Alexandria commission. And so I talked about our environmental policy commission. So, we established an energy and climate action plan in 2011 where we said we're going to reduce the community's operational greenhouse gas emission. So that was kind of vague. And then in 2019, we have an environmental action plan 2040 that says, all right, we're going to target a reduction of greenhouse gas emissions by 50% by 2030 and 80 to a hundred percent by 2050. So now we've got a plan, we have a goal, and then everyone can see, all right, this is what we're gonna do.

(25:01)

And so we've, we love a board or a commission or an ad hoc task force in Alexandria. There's something like 2% of the population is on a board, but we need to make sure that the folks that we don't always hear from, they're not at the public hearing necessarily still have a voice in the room. And that's where we get with our Office of Climate Action and our race and social equity office. So we have a flood Action Alexandria, and they're there to represent and to try to make sure that our flooding mitigation initiatives are benefiting. The community on that group is an equity officer whose goal is to make sure that everybody is kind of represented at the table regardless of whether they're actually in the room. And I think that's really how we make sure that the more vulnerable populations aren't left behind in this conversation or in the initiatives we're taking. And I think where we can see that, we talked earlier about the building codes and land use planning. And so when we're putting in a multifamily housing property, we wanna make sure that that has a place to charge a car. So it's easy to take care of that if you have a single family home. But we wanna make sure that the parking garages we're building in our apartments actually take this into account also. And so really having any area of the organization recognize that this is a priority helps us make sure that the choices we're making actually are embedded throughout the community.

Katherine Camp (26:38):

And Kurt, what are the types of questions and information that you're seeking from management teams and the project sponsors that you're evaluating? What are you looking for?

Kurt Forsgren (26:49):

Sure. Yeah, it's safe to say our list of questions for management teams has evolved in the last few years. And as the attention and focus on these issues has grown and when it comes to environmental risks associated with climate change and extreme weather events and climate risk in general it's really building the kind of awareness that we've heard so far on this panel. And if that awareness has been developed at the staff level and at management levels and at the policy level making levels. So we're asking very basic questions, have you inventory your risks? Have you looked at what their costs are? Have you examined how those risks change over time with the change in potential climate conditions? How have you looked at different scenarios? And more importantly, how have you embedded your planning into the longer term as it relates to both operational and capital budgets, as we heard a little bit earlier today. So it really is of very fundamental basic questions. I think we've seen, and there's tons of data out there, ocean, I would say oceans worth of environmental data is out there. And it's helpful directionally to know what's happening but there's also false precision associated with climate models. And so you really have to build an awareness and buffer into your long term planning to account for an uncertain and unplannable sometimes future other than to know things are likely gonna get different than they are today, and maybe cases worse if you don't address them early on.

Katherine Camp (28:26):

And how would both of you also think about with the value of providing this information to the market, if there is uncertainty around it, there is a lot of data and there's still also some uncertainty. How do you see that?

Kendel Taylor (28:42):

So I'm sorry, can you repeat?

Katherine Camp (28:45):

Well, so there is a lot of data around climate risk, but there's also a lot of uncertainty. How do you think about what information are you gonna put out there and how do you manage that risk?

Kendel Taylor (29:01):

So our approach is definitely I spent some time working in our mental health department, and so the kind of admitting you have a problem is the first step. And so you might not have an answer but open with, hey, we recognize these risks are out there and we've talked in other places about anywhere in the country you might not be coastal, so flooding isn't your issue, but you might have wildfires or you might have drought conditions. So as we try to encourage fiscal officers to think about what could happen in your community, is your community aware of it and how would you address it? So that's the beginning of the conversation, just getting everyone on board that these things matter, that they can impact your credit, that you need to have a continuity of operations plan, that you need fund balance to be able to address whatever it is. And then at least in Alexandria, when we share with the rating agencies, we consider it kind of an ongoing conversation about here's going on, here's changed here, how here's addressing it. And so we're not afraid to not have the answer with our investors, but having the we know it's out there, we are planning for it, we're working on a fee to address it. So all of those, it's a conversation I think with everybody, but recognizing your risks and having that conversation, we have found to be very effective.

Sarah Frey (30:38):

I think I agree with that. I think that there is a lot of value in talking about your risk. And I feel fortunate that I feel like issuers can talk about these risks and these costs without having the full solution yet and not get penalized for that of a client. A few years ago, they had a big engineering study done of all the things they would need to do to protect their city from flooding and the costs associated with it. And it was 1.8 billion and they had zero in funding but they still talked about it and they talked about it a lot. We put it in our official statement and disclosure, everyone in the city staff was out talking to anyone and everyone, look, we need 1.8 billion, who's gonna help? And so they weren't shy about describing it, they took it to federal partners. So the commonwealth talked a lot about it and the community and me as a financial advisor and the finance director, we were pretty worried about that initially we need 1.8 and we have nothing, 1.8 billion. But the feedback was overwhelmingly positive. We got a lot of good feedback from rating agencies and investors saying, oh, you're being proactive and you're talking about your risks. We all know that they're out there. It's not now that you have a plan, you have something to work for. And we weren't penalized at all. And fast forward a few years later, we had this plan ready, and now with the federal funding that's materialized, suddenly they're ahead of the game. And so ARPA came out, they directed half of the ARPA money to that because they already had buy-in from the elected officials from the community for those plans. They were one of the first communities to get awarded significant funding under the plan for coastal projects. Though they've been awarded 400 million with a potential for more if we can have the capacity to get the projects done. So I think having the plan ready it was okay to say we need help funding it. And so I think that's a good takeaway, but now we're seeing that it's paid off and that because we had something ready that when the funding's available, they can see a concrete project to apply it toward.

Kurt Forsgren (32:57):

That's probably a case study and transparency in how it works to have that sort of foresight to, and I think most people are in the same position. These are longer term risks. They're not acute and maybe they're acute once in a while precipitated the initial desire to invest in this and long term investment. But that's sort of foresight to look ahead and to acknowledge what you don't know and be able to recognize it and pull it into your long term planning and identify it and identify project costs and funding. Ultimately, probably very good at case study and transparency and recognition of risks that we would recognize in our credit rating process.

Kendel Taylor (33:34):

And I think something that, and I can't believe I'm gonna bring E into this conversation, but that's exactly where we were. It was a new liability that had to be recognized. We all started at zero and we very slowly, methodically, and we had to make priority changes. But the same kind of thing, you start with a new need and prioritize the funding to bring it from zero to something. And so it really is, whether it's infrastructure or a new liability or a new requirement in your community, it's kind of the same approach. Identify what you need to do, develop a plan, and then go from there.

Kurt Forsgren (34:11):

And from our perspective, it's the same. It's a long term risk. This one happens to be related to physical infrastructure and kind of long term ability to generate enough revenues in your community to pay for services. I mean your debt service obligations. And one is a long term pension, responsibility, again risk management and good management tackles those.

Katherine Camp (34:33):

So we've talked about planning and what about after an infrastructure project is built, how does that change in the evaluation?

Kurt Forsgren (34:44):

In some ways it doesn't. Again, we're looking and rating to the file maturity. Cities don't plan for, we're only gonna build resilient infrastructure until 2054. But in many respects, what we're looking for and expectancy is you've got this asset, you have it built, is it gonna perform as intended? Is it flexible enough to accommodate for what maybe changes in the environment or in what you assumed or what is being realized in terms of environmental impacts and can it change to adopt to those? So, it's really the adaptability and the ability to look ahead to incorporate what couldn't happen could happen that maybe wasn't in your original plans for those assets through their maturity and beyond longer term, essentially.

Katherine Camp (35:36):

Coming back to you Kendel, the how do you in Alexandria think about balancing the climate change adaptation with mitigation, trying to reduce your greenhouse gases as a city?

Kendel Taylor (35:57):

So I think I've said it a couple times, it's really just the education of those people who are either making the decisions or who might be against the decision, the public hearing partners. And so having that conversation, education and then, I mean we're back to it's weighing budget decisions and priorities. You have X amount of funds and so you really do have to try to weigh it against what else your community needs to do. And all of that is benefited from whether it's kind of strategic planning. So everyone's aware, here's where we're trying to get to. So you can point to that, but also kind of long range financial planning of here's where you're trying to get to. So whether it's the mitigation, the response, it's one pot of money. And so having that open transparent conversation about what your community needs to address and then making sure everyone is, if not participating, at least in the room and in the conversation.

Katherine Camp (37:07):

So, we can take questions from the audience if there are any. While you think about those I'm curious what do you think needs to change or what would you like others in the community to think about differently? And what lessons have you learned along the way? We'll just group a bunch of questions together with that.

Kendel Taylor (37:41):

Oh, I'm thinking

Kurt Forsgren (37:44):

Well, I guess I'll start. I'm not in position of having to do anything, just evaluate other people's long term plans. But I just think in terms of the evolution of information and data, clearly that's one of our things as it is for CDP, is data. And in some cases there's not enough of it. In other cases, there may be too much of it. But I think what we expect to see and hope for over time is that that data becomes more useful. Their ability, and again, there are limitations to models. They lack precision. There's lack of standardization when it comes to data inputs. But essentially we hope that and expect that this data will become a little bit more useful, if not for precision long term planning, then to allow the decision makers and policy makers to be able to at least use it as an input to their decision making process to make planning a little bit easier. Again, not with any razor precision, but if directionally where things are going and degrees of the, you can have to vary from certain science specs or engineering protocols then you know what to do, cuz you'll have more information.

Sarah Frey (38:55):

I would say that particularly for those higher risk localities or issuers who have those larger dollar amounts on projects I've heard a lot of questions like where's the innovative funding and financing tools I'm gonna use to get these projects done? And I know years ago there was a lot of white papers in the market about resilience bonds and I don't know that any of those were ever used in catastrophe bonds and impact bonds. And these are the ways we're gonna solve this problem, create these new financing tools and funding tools. But in reality, funding or making your infrastructure more resilient doesn't result in a new revenue stream. So it's not like we have a lot of new tools or funding sources we can use for these projects. But I do think what was interesting in a lot of those sort of white papers here, we're gonna come up with this new tool to tackle this big challenge was a lot of discussion about the federal funding and how that typically works.

(40:01)

How there's so much federal funding that gets put into communities and there's a lot of money put into the cleanup where there's a lot of studies that show if you just build the more resilient infrastructure in the first place, the cost of that cleanup would be significantly lower. And so it's a much better use of federal funds to do the pre-disaster versus post-disaster, but that's not the way most of the funding flows. And so I think we've seen a little bit of a shift in that recently in terms of more pre-disaster funding. But I think anything we can do to flip that piece of the equation would really help unlock maybe some more of that federal assistance.

Kendel Taylor (40:45):

And I guess mean Alexandria is by all accounts of we have a great economy, we have high personal income, we are not suffering, but it makes it really hard for us to get funding. We don't compete well for money. That is kind of competitive based then. And funds should go to from the country perspective, more kind of vulnerable populations, but without other resources to meet some of these EPA requirements. We have a combined sewer outflow, probably a number of you come from places with that. And so these all cost money and it is extremely hard for an infrastructure is not sexy as they say, you want a new school, you want a new above it's. So having access to more resources that can help these things, to your point on the front end versus just we're, I shouldn't say this, we could be better at maintaining versus the new and the new then need needs to be maintained. And so really helping to balance the importance of maintaining infrastructure and helping take care of what we've got and then having some federal funding partnership. And I need to say thank you for the ARPA funding. That was wonderful. We really did appreciate that. But that will end. And so additional sources to help with a lot of these resiliency programs that help across the entire community.

Katherine Camp (42:18):

We just have a couple minutes left if there are any questions. If there aren't, I will ask a question about whether cybersecurity is a component of resilience that has come up for you and how you've thought about that, less of a climate related, but other kinds of infrastructure vulnerabilities.

Kurt Forsgren (42:47):

Well, from our perspective, we do look at cybersecurity. It actually is not an E, it's a G in our parlance as part of governance and risk mitigation. And it comes to well managed local governments and enterprises that we rate and I could talk for an hour on cybersecurity and our experiences both positive looking at communities that have developed cybersecurity plans and how it's worked and maintained sort of sanitary as best it can be described cyber environment that they work in as well as cases where it has led to failures and credit rating changes. So we've seen the spectrum and it is definitely something that we are looking at and not part of E, but definitely part of ESG.

Katherine Camp (43:33):

Yeah, I see a question there.

Audience Member (43:35):

One question for Alexandria. We talked a lot about funding stories and things like that. So we've talked a lot about the funding sources but I know you all have done the Alex Renew project through the WIA program. How do you feel about those types of programs?

Kendel Taylor (43:55):

So Alex Renew is actually part of, it's the sanitation authority. It's not the city of Alexandria, the program, the project he's talking about. We have the combined sewer outflow. We typically would have 70 events per year where the sewer water didn't do what you wish it would. And so we have now there, we've started a tunnel boring project where basically a two mile trench is gonna get with four outflows. The city transferred those to Alex Renew and they are managing that project. And so it's about 615 million dollars to dig this two mile long essentially tank that's gonna hold the water until it can be processed responsibly environmentally sound way, environmentally sound way. Exactly. So that project, it's not a City of Alexandria project, it is Alex Renew, but it is a combination of the WIA funding user fees for the customers. And then they've got also some federal state grant. So that's not actually an Alexandria in Alexandria, but I can't speak to their WIFIA process.

Sarah Frey (45:16):

It was actually the financial advisor got Alex be. That's great. I'll jump in. So yeah, we thought the WIFIA loan was very helpful, that they actually are a place that's never sold publicly, don't have an outstanding rating. So they exhausted all the funding they could get through the state revolving fund as their cheapest source of funding. And because the project size 615 million, the state couldn't fund all of that. So they did 51% SF and 49% WIFIA. And so now they've locked in at a tremendous low, tremendously low rate. So for a place that is very small, they didn't have a lot of debt, I wanna say close to 40 million before they took on the 650 million project. That program was hugely helpful for them.

Katherine Camp (46:05):

Thank you all for sharing these insights and please give the panelists around the.