Five-Year Strategic Framework Fiscal Year 2024 - 2028
Adopted: August 2023 | Revised: February 2024
WIFA was established to help meet Arizona’s existing and future water needs by facilitating water conservation, reuse, and augmentation projects. To accomplish this purpose, over the next five years WIFA will make the following strategic investments in Arizona water.
- Augmentation: conduct a competitive process to develop the best project(s) to reach user-defined targets with in-state and out-of-state projects
- Conservation: continue and expand the new Water Conservation Grant Fund Program to install long-term water saving projects throughout the state
- Reliability: focus on priority projects that address public health impacts in communities without capacity to address them
Mission
– To ensure the sustainability of Arizona's present and future water supply through financial investments in effective augmentation, conservation, reuse, and water quality actions
Legislative Direction
– WIFA is established for the benefit of current and future residents, the economy, and the environment of this state. WIFA shall accomplish its purposes of helping to meet existing and future water needs of this state by developing or facilitating water conservation, reuse, and augmentation projects.
100k - 500k acre-feet per year
New supplies secured
At least $1 billion
Invested or loaned
1. Secure between 100,000 and 500,000 acre-feet per year of augmented water supplies by investing or loaning at least $1 billion
- Spring 2024: Acquire the balance of the planned $1 billion appropriation
- Summer 2024: Craft and publish a detailed augmentation project solicitation(s) for in-state and imported water projects
- Fall 2024: Receive and begin due diligence process for at least three qualified augmentation proposals
- End of 2024: Select at least one augmentation proposal
Motivation – WIFA’s water augmentation mission was created in anticipation of significant demand for additional sustainable water resources in Arizona. Some, but not necessarily all, of that additional demand may be met by WIFA-funded projects. To invest our resources in a responsible and effective way, WIFA will craft and manage a competitive process to develop the best project(s) to augment water through in-state and out-of-state projects.
Background – Recognizing that it is unrealistic to assume that every supply-demand gap statewide for all sectors can or should be closed with water augmentation projects, WIFA first sought to determine the extent of potential demand for augmented water. In 2023, WIFA and its consultants reviewed existing supply and demand projections (a “top-down” approach) and held conversations with a wide array of water providers (a “bottom-up” approach) to determine an appropriate scale of an imported water project.
This assessment identified an interest for between 100,000 and 500,000 acre feet per year of augmented water over a 5-15 year timeframe. This does not represent Arizona’s overall water needs, but rather, the portion of those water needs that utilities and water users believe could be effectively met through relatively expensive imported water sources. Water users continue to pursue their own strategies including acquiring additional in-state groundwater supplies, pursuing advanced water recycling projects, and increasing mandatory water efficiency measures.
While this range reflects a high level of price elasticity, it also affirms that reliable new supplies will play an important role for a critical mass water users across all sectors. Water users are enthusiastic about WIFA serving as the catalyst for bringing new supplies online.
WIFA also completed a Request for Information (RFI) in 2023. The RFI asked a broad range of water stakeholders to provide WIFA with their thoughts, insights, ideas, and suggestions for structuring a competitive solicitation for water augmentation projects. WIFA’s enabling statutes provides wide latitude regarding how to use the money in the Long-Term Water Augmentation fund. WIFA has the ability to use money in the Long-Term Water Augmentation Fund both for loans to develop augmentation projects (in-state and outside the state), as well as for WIFA itself to procure or develop water augmentation projects. The RFI showed that there is significant appetite and capacity in the private sector for participating with WIFA in a significant water augmentation project. Together the demand assessment and RFI provide WIFA with necessary information to chart a path forward.
Path Forward – It is WIFA’s intent to identify the project(s) that best address the technical, financial, regulatory, legal, and political challenges associated with such projects by conducting a rigorous competitive process. With the assistance of our highly qualified technical advisors at HDR Engineering, WIFA intends to craft and publish a formal solicitation for water augmentation projects by mid-year, with project selection occurring by the end of 2024. This process will take place publicly, through the Long-Term Water Augmentation Committee and the WIFA Board of Directors.
Moreover, WIFA recognizes that augmentation projects previously considered have been expensive and complex. Although Arizona statutes focus WIFA’s efforts on importing water from out of state, they do provide for significant WIFA funds to be used on in-state projects as well. This flexibility allows WIFA to pursue a portfolio of projects in a range of locations if such a portfolio meets identified needs better than one single project.
2. Conserve at least five million acre-feet of water by awarding $400 million in grants
- July 2024: Award $200m of ARPA funds
- 2024-2027: Acquire additional conservation funds
- Ongoing:
- Assist communities adapting to reduced Colorado River supplies by awarding at least 1/3 of the funds to Colorado River related conservation
- Assist efforts to reduce reliance on unreplenished groundwater pumping by awarding at least 1/3 of funds to unreplenished groundwater conservation
At least 5,000,000 acre-feet
of long-term ongoing water conservation
$400,000,000
Awarded in Grants for conservation
Motivation – While some portion of Arizona’s future supply-demand gap will be addressed with new water supplies, other portions of the gap can be addressed by activities to conserve existing supplies. As a complement to augmentation efforts WIFA seeks to continue the Water Conservation Grant Fund program in a way that puts into place long-term water savings projects throughout the state.
Background – Arizona uses about as much water today as in 1957 despite tremendous population and economic growth. This is due in part to dedicated conservation measures. Conservation in municipal, industrial and agricultural sectors has been driven by factors such as regulatory pressure, cultural shifts toward water use, education, awareness, voluntary programs, and financial incentives.
As water users become more efficient conserving additional water becomes more costly as the “low hanging fruit” gets “picked.” This leads to differences in the costs to conserve water between different regions and sectors. The benefits of conservation also vary by region and sector. Policy goals like adapting to declining Colorado River supplies or addressing groundwater supply challenges drive a focus on particular regions and water use types.
Past compensated conservation activities focused on addressing short term shortfalls on the Colorado River have tended to be commitments to forgo using water for a year in return for payments, rather than creating projects that will return savings over a long period. In contrast, most of the applications WIFA received for the Water Conservation Grant Fund have been for investments in programs that create ongoing water savings.
WIFA set an initial target of 5,000,000 acre-feet water saved over the lifespan of the projects. To fund conservation in support of particular focus areas, WIFA committed that at least 1/3 of its conservation resources will go to projects that address Colorado River supply challenges and at least 1/3 of its conservation resources will go to projects that address unreplenished groundwater supply challenges. Because assessing projects solely on the cost per acre-foot may not adequately focus funds toward these priority areas, WIFA has considered the location and water source along with the cost of the conservation activity. As water users and water providers refine strategies to adapt to Colorado River shortages, groundwater declines, and Assured Water Supply challenges, WIFA can adjust its conservation targets to support those strategies.
Path Forward – WIFA has and will continue to fund a suite of activities that will result in water savings for many years into the future. As of early 2024, WIFA has approved 100 conservation applications for $113 million which are estimated to save between 2.8 – 4.2 million acre-feet. Activities include turf removal, agricultural system upgrades, installing advanced smart meters, incentivizing efficient fixtures, recharge and reuse, and education.
Consistent with the statewide conservation patterns, WIFA has seen that initial applications submitted had a relatively low cost per acre foot for the conservation benefit achieved. This was especially true of agricultural efficiency projects, and the majority of these kinds of projects have already been funded in the current round of applications. As communities have their “low-hanging fruit” activities funded, WIFA anticipates seeing the cost per acre foot increase as projects shift to more complicated, nuanced, or smaller-scale projects. Accordingly, WIFA may require resources beyond the initial $200 million in the Water Conservation Grant Fund to achieve its 5,000,000 acre-foot goal, perhaps double the initial investment.
75 additional priority communities
With cleaner, more reliable water
$540 million
New loans and grants to AZ communities
3. Solve water reliability and quality issues for 75 additional Arizona communities in need by issuing $540 million in new subsidized loans and grants
- May 2024: Open applications for WSDF loans and grants
- FY 2024 - 2028: Award 75 new loans to priority communities*
- Ongoing:
- Award all available EPA capitalization grants within one year
- Achieve and maintain a 100% on-time payment within 30 days for all WIFA-issued loans
- Maintain AAA credit rating
*WIFA currently computes a financial assistance index or “index” percentage for applicants based on a variety of factors including the severity of the water quality problem being addressed, the public health issue being addressed, and the fiscal need of the borrower. The index is reported as the percentage of the market interest rate that the borrower will be charged – a 75% index means the borrower’s rate will be 75% of the market rate. A lower value is more generous to the borrower. A priority community will have a financial assistance index equal to or more generous than 80% for Clean Water SRF or 75% for Drinking Water SRF and WSDF
Motivation – WIFA’s current ability to fund more than $1 billion in additional projects to address water quality and quantity challenges is significant, but still much smaller than recent EPA estimates of $15 billion worth of needs in Arizona over a 20-year period. To have the most impact WIFA will focus its resources on priority projects that address public health impacts in communities without capacity to address them.
Background – WIFA has $200 million in funds available to issue loans and grants from the Water Supply Development Fund (WSDF). This amount can be increased by issuing revenue bonds against loans made from the fund. Similarly, WIFA has nearly $800 million in State Revolving Fund (SRF) equity that can be leveraged by bonding to allow the loan portfolio to grow beyond the currently approved loans.
WIFA evaluates every application for assistance against a number of factors including public health and environmental considerations and the ability of the community to fund the project. Projects that solve public health and environmental challenges but would be difficult to accomplish without WIFA’s financial assistance are viewed the most favorably as reflected in the lower interest rates applied to the WIFA loan. WIFA’s portfolio contains a number of these higher priority projects, as well as other lower priority projects that help to balance out the portfolio and take advantage of funds that are presently available. A balanced portfolio ensures WIFA can maintain a AAA credit rating and provide the lowest possible rates for WIFA customers.
Path Forward – WIFA developed a Financial Plan to better estimate the maximum size of the loan portfolio WIFA could responsibly maintain while incorporating the following goals:
- Meeting projected loan demand over the five years by issuing debt
- Providing loans to 75 priority communities
- Maintaining a “AAA” bond rating
The Financial Plan forecasts a $200 million bond sale in FY2025 to support a loan portfolio of $540 million through FY2028. Factors that could impact the loan portfolio size include the interest rate environment, WIFA’s ability to maintain debt service coverage, and WIFA’s loan portfolio composition. Multiple borrowing options will be contemplated prior to the issuance of any debt.
The Financial Plan allows WIFA’s decision making to take financial impacts into consideration when approving loans, balancing infrastructure needs with program sustainability. The closer WIFA operates to employing all available resources, the more challenging it is to provide assistance for future projects and the more likely it is that WIFA will have to begin to deny some applications from eligible borrowers.
Achieving the target of 75 new priority projects will require WIFA to take on more than just 75 projects. WIFA is setting a target for new projects in priority communities, as defined as those that meet the criteria for receiving higher financial assistance due to the above-stated factors. A balanced portfolio that grows in size while maintaining WIFA’s top creditworthiness will likely require continued issuance to lower priority borrowers including those with strong fiscal capability that help balance the portfolio.