10/9/2024

General Assembly Update –

Louisville MSD

September 27, 2024

Disclosures
This presentation has been prepared by Louisville MSD for purposes of updating local elected officials of various operational and financial
matters regarding Louisville MSD. The presentation is not prepared to help investors decide whether to purchase or sell financial
obligations of Louisville MSD. As such, the presentation contains unaudited financial information that may change after the date of the
presentation. In addition, the presentation contains forward-looking statements in the form of financial and operating budgets,
performance targets, and other information. These statements are not a guarantee of future performance and actual results may differ.
Investors should not consider this presentation as a recommendation to purchase or sell financial obligations of Louisville MSD. The
presentation does not present a complete summary of Louisville MSD’s financial or operational position to investors and should not be
used in that manner.

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Agenda

• Introductions
• MSD – Three Utilities in One
• MSD Financial Position, Rate Planning and Forecasts
• Regionalization
• MSD Capital Program, Consent Decree Commitments/Requirements
• Alternative Funding
• Next Steps

MSD: Three Utilities in One

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Organizational Challenges
• MSD is the Highest Performing Utility in
Kentucky with the Biggest Challenges
• To Meet the Needs of our Community we Need
the Best Leadership and Talent to Execute.
• Statement of Challenges in Brief:
– Completion of the Consent Decree in 2035
(LTCP Discussion)
– Rate Increases Compelled by Consent
Decree Compliance (Federal Law – Clean
Water Act)
– Waterway Protection Tunnel - $220 Million
– Paddy’s Run - $240 Million
– Thermal Hydrolysis - $250 Million
– Flood Protection System Upgrades - $200+
Million
– $ Millions in upgrades at Morris Forman

Consequences for Non-Compliance

• Bond Rating Jeopardy

• Economic Impacts of Aging
Infrastructure Failures
• Projects are Required by EPA to
reduce Overflows and to Ensure
Reliability of Service.
• Risk of EPA Takeover of Rate
Adjustments.

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Wastewater Stormwater/ Flood

Treatment Drainage Protection

155 million gallons

treated daily 376 square-mile
drainage area 26 miles of floodwall
and earthen levee

5 water quality
treatment centers 1,100+ miles
of pipe $34B inprotected
property

#3UtilitiesInOne
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MSD Supports the Local Economy

Over
$144M 19,000
Of daily business output
(GDP) occurs with MSD’s Business establishments
service boundaries. are supported by MSD’s
wastewater, stormwater
drainage, and flood
protection services

Within MSD’s MSD serves 800,000

Service Area people and protects
550K $24B of property
Employees work, earning value with its flood
$95M protection services
Of compensation each day

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MSD Regional Service Area

Consent Decree Language

"In the event of a Denied Rate Action, despite MSD using its best efforts to seek and
obtain such approval, the Cabinet and EPA may move the Court to exercise its inherent
authority under the CWA and other laws to ensure compliance with the Court’s order
and the protection of public health and the environment by ordering such actions as
may be necessary, including the imposition of rate increases that MSD determined are
necessary to enable MSD to comply with this Second Amended Consent Decree and
including ordering the Louisville/Jefferson County Metro Council to approve all
necessary rate increases. MSD shall not take any action that could reasonably be
construed to be in opposition to such a motion by the Cabinet and EPA. The Cabinet and
EPA hereby reserve all of their rights to take any other action under the law so as to
ensure compliance with the CWA, KRS Chapter 224 and this Second Amended Consent
Decree that are not inconsistent with this paragraph…

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Organization
Transparency

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Transparency and Accountability

• All Board Meetings, including Committees are Open to the Public.

• The Open MSD page shows Agendas, Board Actions, Minutes, and Notes from
Upcoming and Previous Meetings.
• Notice of Rate Increases are sent in great detail to Metro Council Members
Every Year.
• An Accountability and Impact Report is Produced Annually.
• Bond Issuances must be Presented for Approval to Metro Council.
• Annual Budget Report, Audited Financials and Monthly Financials are on our
Website.
• MSD Possesses a Robust Audit Department with Oversight from the MSD
Board

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MSD Board

• By Statute, the MSD Board is Appointed by the Metro Mayor, with Approval
from the Metro Council.
• There are 8 Board Seats that are to be Distributed to Different State Senate
Districts (There can be Two from the Same District (Senate District 6 currently
has 2)).
• Potential Board Members Apply and are Processed Through the Mayor’s
Office, The Government and Oversight Committee of Metro Council, and
Finally the Full Metro Council.
• MSD is NOT Part of the Process for Selecting Board Members.

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MSD Financial Position

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Rate Increase Rationale

• 88% of our Capital Budget is Regulatory and Mandatory- increases are dictated by
the EPA or other Regulatory Bodies.
• Rates are projected to stay below 1.5% of MHI, which is considered "mid-range".
• Failure to Raise Rates, and Thus Revenues could result in a Rating Downgrade, which
would have Catastrophic Effects on MSD's Financial Position and the Cost to Borrow
Money.
• MSD Needs to be Competitive in the Job Market, and Must Recruit and Retain Top
Talent to Maintain Levels of Service in the Community. Salaries are NOT Driving Rate
Increases, Capital Needs ARE.
• KIA Restrictions Present a Challenge to Those Funding Sources.
• Third Party Reviews of Affordability and Development of Cost of Service Study – We
are working to ensure rates are adequate at the customer class level.

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FY25 Funds Available from Operations

45 cents - Operating Expenses 41 cents – Debt Service

14 cents –
Capital
Improvements

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MSD Wastewater Rates Compared to Regional Cities

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Rate Projections
Louisville MSD 10-Year Financial Projections
Dollars in 000's

2025 2026 2027 2028 2029 2030 2031 2032 2033 2034
Jefferson County Rate Increase 6.9% 6.9% 6.9% 6.9% 6.9% 3.0% 3.0% 3.0% 3.0% 3.0%

Total Revenue 451,239 479,220 507,617 537,412 569,628 584,663 600,255 616,318 632,812 649,773
Operating Expenses (202,610) (213,368) (221,773) (231,328) (240,710) (249,438) (258,635) (268,437) (278,672) (289,229)
Debt Service Expenses (185,363) (200,292) (226,617) (235,102) (233,162) (222,612) (253,578) (253,396) (271,522) (274,757)
Capital Improvement Program (298,831) (310,187) (226,312) (209,265) (209,704) (200,120) (216,021) (226,721) (232,213) (232,853)
Debt Proceeds 241,069 249,482 168,895 141,200 119,300 89,500 131,500 137,000 153,000 128,000
Change in Working Capital 5,504 4,855 1,809 2,917 5,352 1,994 3,521 4,764 3,404 (19,065)

Total Debt Service Coverage 168% 164% 154% 157% 170% 182% 163% 166% 158% 160%
Total 10-year Capital Improvement Plan 2,362,227
Total 10-year Debt 1,558,946

Source: Louisville MSD September 24, 2024

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Financial Wins

• Commercial Paper Program Begun in 2018.

– Generated $3.9M in savings over first 5 years.
– Provides short-term financing and financial flexibility.

• MSD refunds outstanding bonds at their call date when Debt Service Savings
can be achieved. In the last 2 years, MSD has refunded $367M in par value
bonds achieving $24.9 NPV savings through 2039.

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Regionalization

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Regionalization

Wastewater Systems have been historically

Underfunded and Neglected.
MSD has taken the Lead with County Leaders
and the State on Consolidation of Systems.
The Economic and Environmental Impacts of
these Partnerships have been a Gamechanger.
These Partnerships Show the Positive Impact
of Infrastructure Investment and High Level
Utility Management.

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MSD Capital Program

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Investment is critical locally as MSD’s

system pre-dates the Civil War in some areas

The Second Street sewer - an example of Louisville's earliest underground

sewers - was a stone-lined ditch capped by slabs of stone

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When infrastructure fails, jobs and

economic development are at risk
Broadway &
Floyd 90-inch
brick sewer
repair,

Originally built
in 1867

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The community’s need is well beyond the Consent

Decree response

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Second Amended Consent Decree

Key Outcomes

Waterway
SSDP Critical Critical Asset
Protection
Schedule Needs Interceptors Management
Tunnel
Delay final Stagger final Expedite Morris $70 million in $25 million per
completion completion for the Forman Biosolids & Critical Interceptor year in asset
deadline due to 16 remaining SSDP Paddy’s Run – rehabilitation management
construction projects through capital needs commitments to spending through
challenges 2035 offering greater renew our most 2035 ($125 million
(December 2022) environmental vulnerable sewers per 5-year
benefits increments)

1 2 3 4 5

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Proposed FY25-29 CIP by County

FY25 FY26 FY27 FY28 FY29 5-Year Total
Jefferson County
CIP Projects $284,010,000 $293,392,000 $199,473,000 $193,867,000 $184,478,800 $1,155,220,800
Management Reserve $5,000,000 $0 $527,000 $6,133,000 $15,521,200 $27,181,200
Total $289,010,000 $293,392,000 $200,000,000 $200,000,000 $200,000,000 $1,182,402,000 94%
Bullitt County
CIP Projects $7,218,000 $12,035,000 $20,327,000 $2,564,000 $5,376,000 $47,520,000
Management Reserve $50,000 $50,000 $50,000 $50,000 $50,000 $250,000
Total $7,268,000 $12,085,000 $20,377,000 $2,614,000 $5,426,000 $47,770,000 4%
Oldham County
CIP Projects $2,503,000 $4,660,000 $5,885,000 $6,601,000 $4,228,000 $23,877,000
Management Reserve $50,000 $50,000 $50,000 $50,000 $50,000 $250,000
Total $2,553,000 $4,710,000 $5,935,000 $6,651,000 $4,278,000 $24,127,000 2%
CIP Total $298,831,000 $310,187,000 $226,312,000 $209,265,000 $209,704,000 $1,254,299,000

Decrease from FY26→FY27 creates a significant

challenge when considering cost escalation and major
improvements identified for WQTC and FPS

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Proposed FY25 CIP includes 208 Active Projects

Jefferson
Wastewater

Bullitt
Oldham
Stormwater

Jefferson
Bullitt
In Progress projects
Oldham represent >85% of the
FY25 CIP
Flood Protection

Jefferson
Bullitt ($254.9M of $298.8M)
Oldham
Support Systems

Jefferson
Bullitt
Oldham
Appropriations
Management
Reserve &

Jefferson
Bullitt
Oldham

0 10 20 30 40 50 60 70 80 90 100

In Progress Future

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5-Year CIP Overview

Service Type FY25 FY26 FY27 FY28 FY29 5-year Total
Wastewater $191,831,000 $213,540,000 $186,561,000 $157,164,000 $161,742,800 $910,838,800
Stormwater $7,787,000 $7,470,000 $9,198,000 $9,041,000 $5,892,000 $39,388,000
Flood Protection $77,798,000 $74,481,000 $17,661,000 $28,792,000 $17,349,000 $216,081,000
Support Systems $16,315,000 $14,595,000 $12,265,000 $8,035,000 $9,099,000 $60,309,000
Management Reserve $5,100,000 $101,000 $627,000 $6,233,000 $15,621,200 $27,682,200

Grand Total $298,831,000 $310,187,000 $226,312,000 $209,265,000 $209,704,000 $1,254,299,000

FY25 CIP by Service Type 5-year CIP by Service Type

Support Systems Support Systems Management Reserve
5% Management Reserve 5% 2%
2%

Flood Protection
Flood Protection 17%
26%

Paddy’s Run Stormwater

Paddy’s Run 3%
FPS = 14%
FPS = 25%
Wastewater
Stormwater 64%
3% Wastewater
73%

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Regulatory Compliance Remains Primary Driver

Overall CIP by Regulatory Program FY25 FY26 FY27 FY28 FY29 5-year Total

Consent Decree $153,392,000 $160,601,000 $98,875,000 $116,977,000 $79,908,000 $609,753,000

Agreed Order $11,365,000 $14,609,000 $19,213,000 $1,258,000 $1,640,000 $48,085,000
CMOM $69,418,000 $64,849,000 $45,969,000 $46,280,000 $73,417,800 $299,933,800
NMC $26,844,000 $35,431,000 $32,923,000 $14,280,000 $3,002,000 $112,480,000
Stormwater Quality (MS4) $3,080,000 $2,541,000 $2,659,000 $2,432,000 $2,339,000 $13,051,000

Grand Total $264,099,000 $278,031,000 $199,639,000 $181,227,000 $160,306,800 $1,083,302,800

Percent of Overall CIP 88% 90% 88% 87% 76% 86%

• This includes $49.3M in Odor Control Improvement projects over the 5-year
CIP that are not yet mandated under an Agreed Order (currently
CMOM/NMC)

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Projects with Highest Forecasted Spending

FY25 5-Year
$74.19M Paddy’s Run FPS Capacity Upgrade $254.53M MFWQTC Biosolids (THP)

$68.40M MFWQTC Biosolids (THP) $180.24M Paddy’s Run FPS Capacity Upgrade

$9.04M CCWQTC Tertiary Filtration $134.34M Upper Middle Fork PS, FM, and Interceptor
MFWQTC Mixed Liquor Channel & HPO
$5.50M Vehicles & Equipment* $27.55M
Improvements
$5.01M MFWQTC Sedimentation Basins $27.50M Vehicles & Equipment*

$4.99M MFWQTC Digester Gas H2S Removal $24.15M Admiral Rd PS Storage Bain

$4.99M CCWQTC Admin Building Expansion $20.41M CCWQTC Solids Dewatering Facility

$4.60M CCWQTC Solids Dewatering Facility $17.39M MFWQTC DAFT Rehabilitation

$4.50M MFWQTC DAFT Rehabilitation $14.42M Pioneer Village WQTC Expansion to 1.0MGD

*All projects are currently In Progress except annual Vehicles & Equipment appropriations

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Second Amended Consent Decree

Key Objectives

Proactive
Shift schedule for
Renegotiation
remaining IOAP
Changed circumstances
and a history of strong projects
performance laid the To allow integrating
groundwork for critical health and
collaboration safety projects into
the capital program

Consideration of Expedite Critical

Local Needs Projects to Prevent
2019 Water Infrastructure Failures
Improvement Act High profile failures cost
prioritized local much more than proactive
affordability through renewal
integrated planning.

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Significant Deferred Projects

• Cedar Creek WQTC Expansion to 12.0 MGD
FY27→FY29
• Floyds Fork WQTC Expansion to 10.0 MGD
FY27→FY29
• Northern Ditch PS Replacement Construction to begin
FY29
– Design in progress, to conclude FY26
• Floyds Fork Interceptor Construction to begin FY30
– Design & Easement Acquisition in progress, to conclude
FY26
• Stormwater Implementation FY27→Therea er
• Ohio River Flood Protection SystemFY30→Therea er
• Derek R. Guthrie WQTC Effluent Diffuser
FY27→Therea er
• Russell Neighborhood Catch Basin Replacement,
Phase 2 FY28→Therea er
– Phase 1: FY26-28

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Louisville MSD
Alternate Funding Update

Jefferson County Delegation

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Leveraging Alternate Funding has Helped Ensure Priorities in CIP

• Capital Plan underway is able to

advance more projects because of
alternate funding successes
• Although it’s a small portion of overall
capital spending, funding awards for in-
progress projects have grown to more
than $231 million (including $49 million
in grants)
• For Paddy’s Run alone, we are on track
to receive more than:
– $18 million in grants/forgivable
– $55 million in low-interest loans
– Additionally, the project is earning $33
million in federal cost-share credit for
USACE Ohio River Flood Protection

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Alternate Funding Portfolio for Louisville Clean Water Infrastructure

Grant/Principal
Forgiveness

$200M

$150M
Loans

$100M

$50M

$0M
Jefferson Co

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Most Impactful Alternate Funding for MSD Projects

American Recovery Plan Clean Water State Water Infrastructure

Act (ARPA) Revolving Fund Finance & Innovation Act

KY Cleaner Water Grants: Paddy’s Run low-interest Morris Forman Biosolids

Paddy’s Run - $14.5 million loans WIFIA loan - $97 million at
Totaling $55 million at 0.5% 2.37% interest
interest

KIA KIA EPA

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Challenging Circumstances have Limited Funding to Louisville

• Three Utilities in One – Limited Clean Water funding is spread across three distinct
services
• KIA
– Draw Processing Time – Delays require costly interim financing as projects move
forward
– Principal Forgiveness for Disadvantaged Communities – Despite Paddy’s Run meeting
the state’s definition for eligibility, project was bypassed in its first year of funding
whereas comparable projects were awarded 49% principal forgiveness
– $20 million Borrower Cap – Arbitrary limit unfairly penalizes regional service providers
– Portfolio Ceiling – MSD is approaching 20% threshold of a single borrower for KIA’s
portfolio
• State Building Codes – KY communities’ competitiveness for national resilience
funding will continue to be limited until State Building Codes are updated (currently
at 2015 vs 2024 standards) – Sacrificing up to $50 million per project per year.

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Regulatory Responsibilities Consume the Majority of MSD’s Budget

Community has had to Shoulder the Majority of Required Amended Consent Decree Costs

• To date, MSD has spent nearly $1.4 Billion on named Consent Decree infrastructure.
• The projected Program
total is expected to exceed
$2.2 billion.
• SRF is a small but critical
component of MSD’s
$1.4
billion
funding plan (3%)
• Meaningful principal
forgiveness (currently only
~0.3%) would help ease
the burden on ratepayers.
$80 $2.2
million billion

Principal Forgiveness for Amended Consent Decree

Projects only covers 0.3% of program costs

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Congressionally Directed Spending in Recent Years has Diverted

Funding from Critical Clean Water Needs
• Save the SRFs! (savethesrfs.org)
campaign for Clean Water and
Drinking Water cap grant funding
– Call to restore funding to
congressionally authorized levels
of $3.25 billion each in FY25
– Over the last 3 years congress
has diverted $3.73 billion in
annual federal funding to pay for
earmarks
• KY’s infrastructure needs
significantly out-weigh SRF
funding. $922 million identified in
FY25 Intended Use Plan

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Bipartisan Infrastructure Law = $1.2 Trillion

$392.4 Million
Historic levels of funding do not close the gaps for clean water infrastructure
KY’s 5-year Drinking
Water allocation
$563.2 Million
over 5 years
State of Kentucky’s
$284 Billion allocation

for Surface $170.8 Million

KY’s 5-year Clean
Transportation Water allocation
$550 Billion Infrastructure
in new spending BIL Funding “Drop”
for national $80 Million in loans
received through FY25

infrastructure $50 Billion

for Water
with <$8 million
(<10%) in principal

investments Infrastructure forgiveness/grants

$266 Billion
for Non-
transportation
Infrastructure “Bucket”
Remainder of Infrastructure
Investments fall on ratepayers.
$1.3 Billion – MSD’s 5-year
Capital Budget

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Assistance Needed from the Delegation

• Develop legislation for clean water infrastructure grant funding

• Encourage equitable distribution of principal forgiveness and grants for urban
and rural disadvantaged communities
• Encourage KIA to modify $20 million SRF borrower cap so that it does not
penalize regional service providers
• Expedite State Building Codes updates
– Update to most recent International Building Code standard (2024)
– Put a proactive process in place for future recurring updates

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Questions

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