Financing Options


2012 Small Water System Infrastructure Funding Guide

Bond Sale

Revenue bonds and improvement bonds may be sold at private or public sale. Typically, because a water district must tell its story (or explain in detail its financials and history) to a potential purchaser, bonds are most often negotiated to a particular purchaser. Several sale options are available and certain purchases have programs sopecifically geared toward water and wastewater systems.

The following options are those most commonly utilized by water districts. With each of these programs, a water district may sell either a revenue bond or an improvement bond. The interest rate on a revenue bond compared to the interest rate on an improvement bond may or may not differ, depending on the particular sale option.

  1. Regional Underwriters. Several regional underwriters will purchase water district bonds and then resell the bonds to their investors. The specifics of the bond issue, such as debt service reserve, the additional bonds test and the rate covenant are all items that can be negotiated with the underwriter.
  2. Banks. Local banks are sometimes interested in purchasing bonds. Water districts may negotiate and sell bonds directly to a local bank. Bonds sold to banks must be "bank qualified", that is, the water district must not issue more than 10 million dollars in bonds in the year in which it sells bonds to a bank. Also, banks sometimes will not fix the interest rate for more than 5 years, while other sale options allow the district to fix the interest rates for much longer term.
  3. USDA - Rural Development. USDA administers a water and waste disposal loan and grant program. The program is to help develop water systems in rural areas and towns with population not in excess of 10,000. The loan funds are available to public entities including water districts. Grants may be made for up to 75 percent of eligible project costs in some cases. The same types of applicants that are eligible for loans are also eligible for grants. USDA require interim financing during construction if such financing is available at reasonable rates.
  4. North Dakota Public Finance Authority. The North Dakota Public Finance Authority together with the North Dakota Department of Health administer the clean water state revolving fund (SRF) loan program for wastewater projects and the drinking water state revolving fund loan program for water projects. Federal grants help keep the interest rates low. Currently, SRF loans have a fixed interest rate of 2.5% plus 1/2% annual administrative fee. While revenue bonds may be issued for up to 40 years and improvements bonds for up to 30 years, the SRF program has a maximum maturity of 20 years.
  5. Bank of North Dakota. The Bank of North Dakota administers a community water facility loan program. This program provides low interest (3.00%), long term loans in connection with federal funding.
  6. North Dakota Rural Water Finance Corporation. The North Dakota Rural Water Finance Corporation was created by the North Dakota Rural Water Systems Association in 1998 for the purpose of providing interim financing for construction projects. Interim financing is available for communities which have received a permanent loan commitment for USDA.