Five-Year Strategic Framework Fiscal Year 2024 - 2028
Adopted: August 2023 | Revised: August 2024
Aridification and drought conditions are currently and will remain a major challenge for the State of Arizona for the foreseeable future, and Arizona must have a long-term vision to alleviate the impacts of water scarcity, in urban and rural Arizona. WIFA was established to protect current and future Arizonans, the economy, and the environment of this state by investing resources in a holistic portfolio of water supply solutions in all parts of the State of Arizona. WIFA has made significant tangible progress toward this critical goal and over the next five years, WIFA will help meet Arizona’s existing and future water needs by accomplishing the following:
- Augmentation: conduct a competitive process to develop the best in-state and out-of-state projects to reach demand targets identified by potential off-takers.
- Conservation: continue the Water Conservation Grant Fund Program to fund 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 actionsLegislative 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.1. Secure AUGMENTATION project(s) for between 100,000 and 500,000 acre-feet per year of new water supplies through a competitive process
- - End of 2024: Craft and publish a detailed augmentation project solicitation for imported water projects
- - Spring 2025: Secure additional tangible (non-financial) demonstrations of support for water importation from elected officials
- - Mid-2025: Select multiple project teams to move forward for further analysis
- - Mid-2025: Open application process for in-state augmentation project financial assistance
- - Late 2025: Reach agreement with potential offtakers on offtake agreement structure for imported water
- - Ongoing: Protect funds on-hand from additional legislative sweeps
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 seven and a half million acre-feet of water by awarding water conservation grants
- - July 2025: Secure additional grant funds from state, Federal, or private sources
- - End of 2025: Award next round of additional grant funds
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 regarding 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.
Prior to 2024, compensated conservation activities focused primarily on addressing short term shortfalls on the Colorado River have tended to be commitments to forgo using water for a brief time 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 funded 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 considered the location and water source along with the cost of the conservation activity.
During 2023 and 2024, WIFA approved 186 grant applications totaling $200 million. It is estimated that the activities funded by these grants will conserve 3,200,000 – 5,500,000 acre-feet of water over the lifespan of the activities – meeting WIFA's initial 5,000,000 acre-feet goal as well as the Colorado River and groundwater focused goals. The 186 activities were spread over 15 counties and reflected a wide range of communities, sectors, and types of activities.
Path Forward – While WIFA was able to fund 186 water conservation activities, the demand for funding outstripped WIFA's available resources and eligible activities went unfunded. Based on this unmet demand and WIFA's surveys of previous awardees and potential new applicants, WIFA believes there is significant opportunity for additional water conservation activities.
Legislative efforts to secure additional water conservation funding in 2024 were unsuccessful. WIFA is allowed to use funds from a variety of sources including private donations and the federal government and intends to pursue additional funds from multiple sources including state appropriations.
Consistent with the statewide conservation patterns, WIFA saw that initial applications submitted had a relatively low cost per acre foot for the conservation benefit achieved. 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 anticipates that to meet a revised goal of 7.5 million acre-feet WIFA will need to secure between $100 million and $200 million from a range of sources.
3. Solve water RELIABILITY and quality issues for Arizona communities in need by issuing 100 grants and subsidized loans to Priority Communities
- - FY 2024 – 2028: Award financial assistance to 100 projects for priority communities*
- - End of 2026: Establish a WSDRF portfolio that is projected to sustain for at least 20 years
- - 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
- ○ Begin loan disbursements within 9 months of board approval
*WIFA currently computes a financial assistance 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. For purposes of this Strategic Framework, a priority community is defined as an applicant with a financial assistance index equal to or more generous than 80%. The index is reported as the percentage of the market interest rate that the borrower will be charged – an 80% index means the borrower's rate will be 80% of the market rate. A lower value is more generous to the borrower.
Motivation – WIFA currently can fund approximately $1 billion in additional projects to address water quality and quantity challenges. While this is significant, it is 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 roughly $150 million in funds available to issue loans and grants from the Water Supply Development Revolving Fund (WSDRF). 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 and has been leveraged by bonding to allow the loan portfolio to expand.
WIFA evaluates every application for assistance against several 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, which is reflected by 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 bond rating and provide the lowest possible rates for WIFA customers.
Since the beginning of FY24 WIFA has closed 13 SRF loans to priority communities and has approved 9 more which have yet to close. WIFA has also opened applications for the WSDRF and is currently conducting concerted outreach to eligible entities in at-risk basins and who have a median household income that is low enough to qualify them for a more generous WSDRF award.
Path Forward – WIFA's comprehensive Financial Plan provides an estimate of the size of the loan portfolio WIFA could responsibly maintain while incorporating the following goals:
1) Meeting projected loan demand over the five years by issuing debt
2) Providing financial assistance to 100 priority communities
3) Maintaining a "AAA" bond rating
The Financial Plan forecasts a $200 million future bond sale 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 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.
WIFA can also use the more flexible financial assistance available through the WSDRF to provide assistance to entities that may not have the creditworthiness to participate in the SRF program, but nonetheless have significant water supply infrastructure needs. The WSDRF offers more opportunity for flexibility in loan terms, as well as up to $2 million in grant funding per application. Together, these programs will allow WIFA to develop a portfolio of borrowers that accurately reflects the water infrastructure needs of this state. While WIFA will still make all efforts to manage the WSDRF in a way that maintains the fund's sustainability over at least the next two decades, WIFA also recognizes that the structure of the fund indicates a desire to use the WSDRF to meet needs in communities with significant resource constraints. While recent decreases to the WSDRF's fund balance will make it significantly more challenging for WIFA to balance the sustainability and effectiveness of the fund and invest in water security projects in the rural communities where funding is the most limited and water security is the most critical, WIFA still intends to utilize the remaining money in a way that maximizes the fund's effectiveness.
Given our unique offering of funding options for Arizona's water systems, WIFA is setting an ambitious target for funding new projects in priority communities, defined as communities that meet the criteria for receiving higher financial assistance due to the above-stated factors. Achieving the target of 100 new priority projects will require WIFA to take on more than just 100 projects. A balanced portfolio that grows 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.